This Report has been prepared in accordance with the requirements of paragraph 11 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (“the Regulations”) concerning disclosure of Directors’ remuneration and the provisions in Chapter 6 of Part 15 of the Companies Act 2006 as if the Group were a company quoted on the official list.

The Board has chosen to comply with the Regulations in order to demonstrate its commitment to best practice in corporate governance. Unless otherwise disclosed, the Report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the Principles of Good Governance relating to Directors’ remuneration. As required by the Regulations for companies quoted on the official list, a resolution to approve the Report will be proposed at the Annual General Meeting of the Group.

The Regulations require the auditors to report to the Group’s members on part of the Directors’ Remuneration Report and to state whether in their opinion that part of the report has been properly prepared in accordance with the Companies Act 2006 and the Regulations. This report has therefore been divided into separate sections for audited and unaudited information.

Unaudited information

The following information has been prepared by the Group but has not been subject to an audit by the independent auditors.

The Remuneration Committee (‘The Committee’) (Unaudited)

The members of the Committee are M. Knight (the Chairman, Chairman of the Committee) and M. Rowan (Non-Executive Director, a member of the Committee). During the year D. Allen (Non-Executive Director) was appointed as a member of the Committee. The main responsibilities of the Committee are set out in the Corporate Governance Report.

The Board is responsible for the remuneration of the Non-Executive Directors and the Chairman and in those matters respectively the Non-Executive Directors and the Chairman play no part. The Chief Executive Officer and the Chief Financial and Operations Officer may be invited to attend the Committee’s meetings but are not present when their own remuneration is discussed. During the year, the Committee commissioned and received the advice of legal and accountancy advisers with regard to the Group’s long-term incentive arrangements.

Remuneration policy (Unaudited)

In forming the Group’s policy on remuneration the Board gives full consideration to Schedule A of the Combined Code that sets out the guidelines for dealing with the design of performance-related remuneration. The Directors believe that the success of the Group depends, in part, on the performance of the senior management. The Directors also recognise the importance of ensuring that employees are incentivised and identify closely with the value of the Group.

The Group’s policy is to provide remuneration packages to members of the senior management that are a fair reward for their contribution to the business, having regard to the complexity of the Group's operations and the need to attract, retain and motivate high quality senior management. Remuneration comprises basic salary, performance bonuses, performance-based share options, benefits in kind and pensions.

The Board this year made awards to Executive Directors under its long term incentive arrangement, the Carried Interest Plan, to ensure retention in the long-term. Further details of those awards under the Carried Interest Plan are set out in this Report. The remuneration packages as a whole are designed to be broadly comparable with those offered by other similar businesses.

The components of the remuneration of the Executive Directors are as set out in the following sections of the Directors’ remuneration report.

No Executive Director who serves as a Non-Executive director of another company, receives from that appointment remuneration that is not vested in the Group.

Base salary (Unaudited)

Individual base salaries of Executive Directors and senior employees are reviewed annually by the Committee, taking into account a number of factors, including individual performance, responsibility changes, and the Group’s performance. Base salary may also be determined with reference to the advice of external consultants and an appropriate comparator group of companies which may be reviewed annually. Given current economic conditions, the base salaries of directors have not been increased at the Committee’s recent annual review.

Annual bonus (Unaudited)

The Group operates a discretionary annual bonus scheme for its staff whereby staff are eligible for an annual bonus based on their own and the Group’s performance for the year. For the Executive Directors, the performance target is set annually by the Remuneration Committee. Alternative arrangements for certain employees are set out below under the heading EBT Arrangements.

The Chairman and the Non-Executive Directors are not eligible for a bonus.

Benefits (Unaudited)

In addition to their pension provisions described below, the Chief Executive Officer, the Chief Financial and Operations Officer and the Chief Investment Officer are each entitled to Death-in-Service benefit at four times annual salary and private medical insurance (family cover).

Pension arrangements (Unaudited)

The Chief Executive Officer, the Chief Financial and Operations Officer and the Chief Investment Officer are members of the Imperial Innovations Pension Scheme to which the Group contributes. Pensionable earnings do not include elements of remuneration other than salary. This scheme is described more fully in note 26 of the Financial Statements.

Long-term Incentive arrangements (Unaudited)

The Group operates the following long-term incentive arrangements:

Options over Ordinary Shares under the Long-Term Incentive Plan and the Unapproved Share Option Scheme (the ‘Incentive Plans’)

The Incentive Plans were adopted by the Board on 24 May 2006 and were approved by shareholders of the Group at an Extraordinary General Meeting on 20 July 2006. Eligible employees (including certain Directors) may be awarded options over Ordinary Shares of the Group. Only the Remuneration Committee has the discretion to grant awards under the Incentive Plans.

All options that have been awarded under the Incentive Plans up to the date of this Report vest subject to the performance criteria that are specified in the awards.

During the year under review, options to employees and Directors over 1,777 Ordinary Shares in aggregate have been awarded under the Incentive Plans. Of this total, none were granted to the Directors.

The Directors intend that all awards under share incentive arrangements which it adopts will be made over time, will not exceed the limits on newly issued shares contained in such arrangements and will contain appropriate performance conditions.

Carried Interest Plan (Unaudited)

At the time of the Group’s IPO in 2006 and at the subsequent fund-raising during the previous year, the Group announced plans to implement a long term incentive arrangement. After taking advice from the independent remuneration consultants, MM&K, a carried interest plan was implemented during the previous financial year. It is the intention of the Group to use the Carried Interest Plan as the Group’s long term incentive arrangement. A carried interest plan is a form of long-term incentive arrangement used by the Venture Capital industry. The Group’s Carried Interest Plan allows Executive Directors and other permanent employees of the Group to obtain an equity participation in the growth of the underlying investments of the Group. The Carried Interest Plan and its terms and conditions were designed by MM&K and are intended to follow best practice in the Venture Capital industry. The Carried Interest Plan is divided into several separate carried interest plans. Investments in a given financial year are contributed to a carried interest plan for that financial year. The exception is the first plan, the Class 2007 carried interest plan, which is based on investments that were made at any time prior to 31 July 2007 over a period of several financial years. The second plan, the Class 2008 carried interest plan, ended on 31 July 2008, the third, the Class 2009 carried interest plan ended on 31 July 2009 and the fourth, the Class 2010 carried interest plan ends on 31 July 2010.

The Group’s policy is that participation in each of the carried interest plans is offered to permanent employees of the Group, including the Executive Directors. The Chairman and the Non-Executive Directors are not eligible to participate in the Plan.

Before any payment to a participant becomes due under any of the carried interest plans, the Group must have first received back the amount of the Group’s original investment in the Group’s underlying investments that are subject to the plan, together with interest on that original investment at a rate of 8% per annum compounded each year. This return to the Group is known as the ‘hurdle’. The amount of the proceeds from the sale of investments in excess of the hurdle (the Excess Return) may be shared with the participants in the ratio 15% to the participants/85% to the Group. The amount which participants receive as a result of that sharing of the Excess Return is known as the carried interest.

The Executive Directors currently have interests in the following carried interest plans. The maximum permissible percentage interest of all participants in the Excess Return (as defined above) of each carried interest plan is 15%. The individual percentage interest of each Executive Director in the Excess Return of each carried interest plan is shown below, comprising any interests awarded to them during and since the reported year as well as any existing interests.

Directors’ Interests in the Carried Interest Plans


As at
31 July 2008 		Awarded in year As at
31 July 2009 		Awarded since 31 July 2009 As at the date of this report Amounts receivable in respect of scheme interests Accrued value of scheme interest as at 31 July 2009
S. Searle
Class 2007 carried interest plan 2.55% Nil 2.55% Nil 2.55% Nil Nil
Class 2008 carried interest plan 1.91% 0.31% 2.22% Nil 2.22% Nil Nil
Class 2009 carried interest plan Nil 0.56% 0.56% 0.56% 1.12% Nil Nil
Class 2010 carried interest plan Nil Nil Nil 0.56% 0.56% Nil Nil
               
J. Smith              
Class 2007 carried interest plan 1.95% Nil 1.95% Nil 1.95% Nil Nil
Class 2008 carried interest plan 1.46% 0.24% 1.70% Nil 1.70% Nil Nil
Class 2009 carried interest plan Nil 0.42% 0.42% 0.42% 0.84% Nil Nil
Class 2010 carried interest plan Nil Nil Nil 0.42% 0.42% Nil Nil
               
R. Cummings              
Class 2007 carried interest plan 2.40% Nil 2.40% Nil 2.40% Nil Nil
Class 2008 carried interest plan 1.80% 0.29% 2.09% Nil 2.09% Nil Nil
Class 2009 carried interest plan Nil 0.53% 0.53% 0.53% 1.06% Nil Nil
Class 2010 carried interest plan Nil Nil Nil 0.53% 0.53% Nil Nil

Life assurance arrangements (Unaudited)

The Group has a Group Death-in-Service benefit insured with Legal & General covering all employees. The inception date for this arrangement was 1 August 2005. The benefit pays a lump sum of four times the employee’s basic annual salary.

Directors’ shareholdings (unaudited)

Details of the Directors’ shareholdings are set out in the Directors’ Report.

Executive directors’ service contracts (Unaudited)

Executive Directors each have a service contract of indefinite duration until normal retirement age. It is the Group’s policy that Directors’ service contracts should incorporate no more than six months’ notice of termination from the Group, in line with current best practice. None of the Directors’ service contracts have a provision for compensation for loss of office or wrongful termination upon change of control beyond payment in lieu of contractual notice.

The Committee’s policy for provision for compensation for loss of office is to provide compensation which reflects the Group’s contractual obligations.

The acceptance by an Executive Director of Non-Executive Director appointments with other companies is subject to Board approval.

S. Searle is employed as Chief Executive Officer of the Group under a service agreement dated 17 February 2005. The appointment is continuing and is terminable by either party on not less than six months’ written notice. S. Searle is entitled to 25 days’ paid holiday per annum, in addition to normal public holidays. On termination of S. Searle’s employment, the Group may at its discretion require her not to carry out any duties during her notice period or pay her salary in lieu of notice. S. Searle is not entitled to any other benefits on the termination of her employment.

J. Smith is employed as Chief Financial and Operations Officer of the Group under a service agreement dated 4 October 2005 (although J. Smith commenced his employment on 3 January 2006). The appointment is continuing and is terminable on not less than three months’ written notice by either party. J. Smith is entitled to 25 days’ paid holiday, in addition to normal public holidays. On termination of J. Smith’s employment, the Group may at its discretion require him not to carry out any duties during his notice period or pay him his salary in lieu of his notice. J. Smith is not entitled to any other benefits on the termination of his employment.

R. Cummings is employed as Chief Investment Officer of the Group under a service agreement dated on 18 September 2006. The appointment is continuing and is terminable on not less than six months’ written notice by either party. R. Cummings is entitled to 25 days’ paid holiday, in addition to normal public holidays. On termination of R. Cumming’s employment, the Group may at its discretion require him not to carry out any duties during his notice period or pay him salary in lieu of notice. R. Cummings is not entitled to any other benefits on the termination of his employment.

Non-Executive Directors (Unaudited)

The remuneration of Non-Executive Directors is determined by the Board, in which matter the Non-Executive Directors play no part. P. Atherton, M. Rowan and D. Allen do not participate in the Group pension plan.

Each of P Atherton and M Rowan was appointed as a Non-Executive Director of Imperial Innovations Group plc by a letter of appointment each dated 15 April 2005 as amended by an agreement dated 30 October 2006, for three years. With effect on 30 October 2009, each of the letters of appointment in respect of P Atherton and M Rowan has been extended to the date upon which shareholders are next due to vote for their respective re-appointment as a director. With effect on 1 August 2008, D. Allen was appointed as a Non-Executive Director of Imperial Innovations Group plc by a letter dated 10 July 2008 for three years. The appointment of all Non-Executive Directors is terminable at any time on either party giving three months’ written notice. As from 1 August 2009, the annual fee for each is £32,000 per annum. Each individual is not entitled to any benefits upon the termination of his service to the Group

As at 31 July 2009, D. Allen, M. Rowan and P. Atherton each held shares in the Ordinary Share capital of the Group as described in the Directors’ Report. As at 31 July 2009, M. Rowan and P. Atherton each held options as described below in the section headed Audited Information.

The Chairman (Unaudited)

The remuneration of the Chairman is determined by the Board, in which matter the Chairman plays no part. M. Knight does not participate in the Group pension plan.

M. Knight was appointed as Chairman to the Group through a consultancy agreement with Merrycroft Limited dated 25 July 2005 as amended by an agreement dated 30 October 2006. With effect on 30 October 2009, the consultancy agreement with Merrycroft Limited has been extended to the date upon which shareholders are next due to vote for M Knight’s re-appointment as a director. The appointment is terminable at any time on either party giving three months’ written notice. M. Knight is not entitled to any benefits upon the termination of his service to the Group. As from 1 August 2009, the annual fee for the Chairman is £60,000 per annum.

As at 31 July 2009, M. Knight held shares in the Ordinary Share capital of the Group as described in the Directors’ Report and options as described below in the section headed Audited Information.

Total Shareholder Return

A graph of the Total Shareholder Return (TSR), showing the Group’s TSR for the last financial period ended 31 July and comparisons to indices has been set out below. The Group’s shares were listed on 31 July 2006 and therefore no information is available prior to this date.

Performance Graph (Unaudited)

The chart below shows the share price performance for the period from 31 July 2006, when the Group listed on the Alternative Investment Market of the London Stock Exchange (“AIM”), to 31 July 2009 alongside the performance of the FTSE AIM All-Share and FTSE All-Share indices. For ease of comparison these figures have been rebased such that the Group’s share price on 31 July 2006 is equal to the FTSE AIM All-Share and FTSE All-Share indices. The Directors have selected the FTSE AIM All-Share and FTSE All-Share indices as, in their opinion, these indices comprise the most relevant equity indices of which the Group is a member against which total shareholder return of the Group should be measured.

graph image

EBT Arrangements (Unaudited)

The Group established an employee benefit trust (EBT) in 2005 for the purpose of benefitting current and former staff (other than the Non-Executive Directors) and certain of their family members. The trustee of the EBT is RBC cees Trustee Limited, part of the Royal Bank of Canada, (the “Trustee”) which is an independent and professional trustee. The EBT is entirely discretionary and the Group may only make recommendations regarding benefits provided to any beneficiary: the Group has no control over any aspect of such benefits, should the Trustee see fit to provide them.

Since the year end the Group has decided to ask the Trustee to consider providing certain benefits to certain individuals (other than the Non-Executive Directors), as described below.

Directors (Unaudited)

The Group has decided to ask the Trustee to consider allocating 50,000 Ordinary Shares in the Group to a sub-trust of the EBT, such sub-trust to be for the benefit of R. Cummings, an Executive Director, and certain of his family members, providing that R. Cummings remains employed by the Group on 23 September 2011 and upon the same conditions as for all options awarded under the Incentive Plans (principally that the share price of the Group has exceeded 401.5 pence for the 30 days preceding the date of testing). Should the Trustee decide to allocate Ordinary Shares as described, the Trustee would have complete discretion as to the nature of the benefits (if any) provided to R. Cummings and his family.

Underwater Option Purchase (Unaudited)

The Group has decided to ask the Trustee to purchase options over Ordinary Shares in the Group held by certain option holders (including M. Knight, S. Searle, J. Smith and R. Cummings) granted under the Incentive Plans. The options in question are significantly underwater and it is anticipated that option holders will be asked to sell them for negligible consideration. It is possible that the options will become ‘in the money’ in the future, in which case exercising them could be commercially viable.

If the Trustee exercises the options and acquires Ordinary Shares in the Group, the Trustee may consider making allocations to sub-trusts of the EBT set up to benefit particular beneficiaries and certain of their family members potentially including those beneficiaries who have sold their options over Ordinary Shares. Details will be disclosed at the relevant time. Should the Trustee decide to allocate Ordinary Shares or other assets to such sub-trusts the Trustee would have complete discretion as to the nature of the benefits (if any) provided to the relevant beneficiaries.

The Board has taken legal advice that entering into the arrangements above represents minor alterations to the rules of the Incentive Plans and, as provided for in those rules, does not require the consent of the Group’s shareholders at a general meeting.

Deferred Bonuses (Unaudited)

Rather than the Group paying an annual bonus for certain employees of the Group for the year ended 31 July 2009, it intends to make a cash contribution to the EBT. The Trustee will be asked to consider allocating this cash to sub-trusts of the EBT for the benefit of certain employees of the Group (and certain of their family members). The Group will recommend suitable allocations to the Trustee. The Trustee may decide, after consulting beneficiaries, to deal with cash in sub-trusts in a number of ways – to distribute it to one or more beneficiaries immediately, or to invest it in any assets permitted by the deed establishing the EBT, or to use it to provide other benefits to the beneficiaries now or in the future. The Group intends to ask the Trustee to ensure that all cash amounts in sub-trusts arising as a result of its cash contribution to the EBT are distributed in a form that is subject to income tax as soon as reasonably possible.

The Group intends to ask the Trustee to consider offering a share alternative to employees whose sub-trusts are to receive a cash payment. The Trustee will be asked to consider allocating up to 12,575 Ordinary Shares in the Group to sub-trusts of the EBT if the employee who is a beneficiary of a sub-trust expresses a preference for such a “mixed award”. It is anticipated that employees will be invited to express a preference for none, or 20 to 50%, of the value of the allocation to the sub-trust which benefits them, to be delivered in the form of Ordinary Shares. The Trustee already holds sufficient Ordinary Shares from its general pool of unallocated Ordinary Shares should it decide to make any allocations.

The Group will ask the Trustee to consider, where it has made an allocation of Ordinary Shares to a sub-trust, making a further allocation of the same number of Ordinary Shares if the relevant employee remains employed by the Group on 23 September 2011. All Ordinary Shares will be subject to a lock-in whereby the Trustee would not be permitted to sell them before 23 September 2011.

Should the Trustee decide to allocate Ordinary Shares as described, the Trustee would have complete discretion as to the nature of the benefits (if any) provided to the beneficiaries of the relevant sub-trusts.

Audited Information

Full details of the Directors’ remuneration together with options granted over Ordinary Shares of the Group are set out below:

Remuneration Details


Salary/ Fees £ Benefits in Kind £ Bonus Payments5 £ 2009
Total £ 		2008
Total £ 		2009
Pension £ 		2008
Pension £
M. Knight1 60,000 - - 60,000 60,000 - -
S. Searle2 155,952 5,132 50,000 211,084 159,370 16,375 15,898
J. Smith2 127,300 1,543 40,000 168,843 134,848 10,820 10,506
R. Cummings2 127,300 944 40,000 168,244 136,728 10,820 10,489
P. Atherton3 32,000 - - 32,000 32,000 - -
D. Allen3 32,000 - - 32,000 - - -
M. Rowan3 32,000 - - 32,000 32,000 - -
T. Maini3,4 - - - - 18,667 - -
Total 566,552 7,619 130,000 704,171 573,613 38,015 36,893

  1. Chairman. Fees were paid to Merrycroft Limited for the services of M. Knight.
  2. Executive Director.
  3. Non–Executive Director.
  4. T. Maini resigned on 19 February 2008.
  5. The amounts shown in the column headed “Bonus Payments” are the amounts which the Remuneration Committee has determined that the Group should recommend the Trustee to allocate to sub-trusts of the EBT for the benefit of the relevant individuals and their families (whether in cash or in a mixture of cash and Ordinary Shares) but, for the avoidance of doubt, excluding from such sub-trusts the value of any further allocation of Ordinary Shares, as described under the heading EBT Arrangements above, which the Trustee may decide to make if the relevant employee remains employed by the Group on 23 September 2011. Because the EBT is a discretionary trust, the amounts allocated to such sub-trusts and any payments made to, or benefits provided for, the beneficiaries of such sub-trusts remain entirely within the discretion of the Trustee and may therefore be of a greater or of a lesser value than the Group recommends to the Trustee.

The interests of the Directors in options over Ordinary Shares of the Group were as follows:

  Number of options
Part 1 at 31 July 2008 at 31 July 2009 at date of Report Date of Grant Exercise Price Exercise dates from Exercise dates to
M. Knight 78,760 78,760 78,760 20 Jul 06 £1001 31 Jul 2006 19 July 2016
S. Searle 78,760 78,760 78,760 20 Jul 06 £1001 31 Jul 2006 19 July 2016

  Number of options
Part 2 at 31 July 2008 at 31 July 2009 at date of Report Date of Grant Exercise Price Exercise dates from Exercise dates to
P. Atherton 123,651 123,651 123,651 20 Jul 06 £2.42 28 Apr 2008 19 July 2016
148,500 148,500 148,500 20 Jul 06 £3.65 28 Apr 2008 19 July 2016
M. Rowan 103,026 103,026 103,026 20 Jul 06 £2.42 28 Apr 2008 19 July 2016
148,500 148,500 148,500 20 Jul 06 £3.65 28 Apr 2008 19 July 2016

  Number of options
Part 3 at 31 July 2008 at 31 July 2009 at date of Report Date of Grant Exercise Price Exercise dates from Exercise dates to
M. Knight 482,787 482,787 482,787 3 Aug 06 3 1/33 pence 28 Apr 2008 2 Aug 2016
S. Searle 482,787 482,787 482,787 3 Aug 06 3 1/33 pence 28 Apr 2008 2 Aug 2016
J. Smith 193,115 193,115 193,115 3 Aug 06 3 1/33 pence 28 Apr 2008 2 Aug 2016
R. Cummings 68,500 68,500 68,500 22 Sep 06 3 1/33 pence 28 Apr 2008 21 Sep 2016

  1. In aggregate

The options described in part 1 of the table above were granted prior to the admission of the Group’s ordinary shares to trading on AIM on 31 July 2006 (Admission) upon the conversion of former options over shares in a subsidiary of the Group that were granted to those individuals. The options may be exercised subject to their terms, unless at the date of any purported exercise the options have lapsed.

The options described in part 2 of the table which have an exercise price of £3.65 were granted in July 2006, prior to Admission, in the context of a fund-raising on Admission. The options described in part 2 of the table which have an exercise price of £2.42 were granted in July 2006, prior to Admission, upon the conversion of former options over shares in a subsidiary of the Group that were granted in the context of a fund-raising by a private placing of shares.

The options described in part 3 of the table above may be exercised subject to their terms if the performance condition described below has been met, unless at the date of any purported exercise the options have lapsed. The options may lapse for any one of several reasons including the option holder ceasing to be an employee of the Group.

The performance condition is that as at the date of exercise both the middle-market closing price of the Group’s shares for the previous dealing day and the average of that price for the 30 preceding dealing days is at least 401.5 pence, being the listing price at the time of the Company’s Admission, 365 pence plus 10%

No changes since grant have been made to the performance criteria relating to any of the options described above. No options were exercised during the period (2008: nil).

Further details of Directors’ remuneration are shown in note 25.

The market price of the Company’s shares at the end of the financial year was £3.15 (2008: £2.65). The range of prices during the year was between £2.08 and £3.53.

By Order of the Board

Dr Martin Knight,
Chairman, Remuneration Committee

6 October 2009