Exhibit 12.7
THE SCOTTISH POWER EXECUTIVE
SHARE OPTION PLAN 2001
Approval by the Company in General Meeting — 27 July 2001
Inland Revenue Approval to Appendix 1 – 13 August 2001
Inland Revenue Ref — X22039
THE SCOTTISH POWER
EXECUTIVE SHARE OPTION PLAN 2001
DEFINITIONS
1.1 In this Plan, unless the context otherwise requires, the following words and expressions shall have the following meanings, namely:
ADRs means American Depositary Receipts evidencing American Depositary Shares deposited by the Company with a depository pursuant to a depositary agreement;
Approval Datemeans the date of the approval of the Plan by the shareholders of Scottish Power in general meeting;
Associated Plan means any Share Option Plan (other than the Plan) established by the Company or any associated company of the Company within the meaning of section 416 of the Taxes Act;
Basic Salarymeans an Executive’s annual basic salary in respect of his employment with the Group;
the Board means the board of directors of the Company or where appropriate the remuneration committee of the board or other duly authorised committee thereof;
Capital Reorganisation means any variation in the capital or reserves of the Company (including, without limitation, by way of capitalisation issue, rights issue, sub-division, consolidation, or reduction);
the Company means Scottish Power plc;
Control has the meaning given to that word by section 840 of the Taxes Act;
Date of Grant means the date on which an Option is granted;
Dealing Daymeans any day on which the London Stock Exchange or New York Stock Exchange (as the context requires) is open for the transaction of business;
Executive means any employee of any member of the Group or Executive Director;
Executive Director means any executive director of any member of the Group whose terms of service require him to devote substantially the whole of his working time to the affairs of the Group;
Executive Planmeans any Share Option Plan (other than the Plan) under which individuals may be selected for participation at the discretion of the body administering that plan;
Exercise Price means the price per Share payable on the exercise of an Option as determined by the Board (subject to adjustment under rule 11) but which shall not be less than:
| (a) | | the closing middle market quotation of a Share on the Dealing Day immediately preceding the Date of Grant; and |
| (b) | | in the case of any Option under which Shares are to be issued the nominal value of a Share; |
Grant Period means the period of 42 days commencing on any of the following:
| (b) | | the day immediately following the day on which the Company makes an announcement of its results for the last preceding financial year, half year or other period; or |
| (c) | | any day on which the Board resolves that exceptional circumstances exist which justify the grant of Options; |
the Group means the Company and the Subsidiaries andmember of the Group shall be construed accordingly;
the London Stock Exchange means the London Stock Exchange plc;
Option means a right granted under the Plan to subscribe for or purchase Shares;
Option Holder means any individual who holds a subsisting Option (including, where the context permits, the legal personal representatives of a deceased Option Holder);
Option Period means, in relation to an Option, such period commencing and expiring on dates specified at the Date of Grant as the Board shall determine but not expiring later than the tenth anniversary of the Date of Grant;
the Planmeans this Plan as amended from time to time;
Share Option Planmeans any employee share option plan established by the Company;
Sharesmeans fully paid and irredeemable ordinary shares in the capital of the Company or shares representing those shares following any Capital Reorganisation;
Subsidiary means any subsidiary of the Company within the meaning of section 736 of the Companies Act 1985 over which the Company has Control;
UKLAmeans the UK Listing Authority;
Taxes Act means the Income and Corporation Taxes Act 1988;
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Vesting Schedulemeans a schedule that specifies the percentage of Shares in respect of which an Option shall become exercisable at different times during the Option Period.
1.2 Where the context permits the singular shall include the plural and vice versa and the masculine shall include the feminine. Headings shall be ignored in construing the Plan.
1.3 References to any act of Parliament shall include any statutory modification, amendment or re-enactment thereof.
GRANTOF OPTIONS
2.1 The Board may, during a Grant Period, grant Options at the Exercise Price, subject if they so resolve to a Vesting Schedule, to any Executives selected by the Board. Immediately prior to the granting of any Options the Board may, in its absolute discretion, enter into a deed poll recording its intention to grant Options and agreeing to be bound by the Option certificates issued pursuant to rule 2.4 below. No consideration will be payable by the Executive on the grant of an Option.
2.2 An Option may be granted subject to such conditions for payment of income tax, employees’ national insurance contributions and employer’s national insurance contributions liability as the Board may determine and if any condition is imposed relating to the assumption, payment or reimbursement by the Option Holder of employer’s national insurance contributions liability, such conditions shall comply with any applicable legislation or regulations and the Board shall be entitled to waive in whole or in part the Option Holder’s obligation in respect of such liability.
2.3 Unless otherwise stated in the Plan, objective conditions must be satisfied either prior to the grant or to the exercise, as the Board in its absolute discretion decides, of Options granted to all Executives other than to Executives who the Board at the Date of Grant specifically identifies. Where conditions are required to be satisfied prior to the exercise of Options, such conditions:
| (a) | | shall, for the time being, consist of the conditions set out in the Schedule to this Plan. In the event that the Board considers that the conditions set out in the Schedule are no longer appropriate it may at the time of granting Options impose different objective conditions; |
| (b) | | may be amended following the Date of Grant if: |
| | (i) | | those circumstances which prevailed at the Date of Grant and which were relevant to the conditions originally imposed regarding the exercise of the Option have subsequently changed; and |
| | (ii) | | the Board is satisfied that any such amended conditions would be a fairer measure of the performance of the Option Holder and the Board reasonably considers that such amended conditions are no more difficult to satisfy than the original conditions; |
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| (c) | | shall cease to apply in circumstances in which Option Holders become entitled to exercise Options in accordance with rules 6.2 (excluding rule 6.2(b)), 7, 9 and 10 hereof. |
2.4 As soon as practicable after the Date of Grant the Board shall procure the issue of an Option certificate to each Option Holder. If the Board has not entered into a deed poll pursuant to rule 2.1 above immediately prior to the granting of the Options, the Board shall procure that the Option certificates are issued under the common seal of the Company or otherwise to take effect as a deed.
2.5 Any Executive to whom an Option is granted may, by notice in writing to the Company given within 30 days after the Date of Grant, renounce in whole or in part his rights under the Option. In such a case, the Option shall, to the extent renounced, be treated as never having been granted and (if already issued) the Option certificate shall be returned to the Company for cancellation or (in the case of renunciation in part) for amendment. No consideration shall be payable by the Company for any such renunciation.
2.6 No Option shall be granted under the Plan more than ten years after the Approval Date.
2.7 Every Option granted hereunder shall be personal to the Option Holder and, except to the extent necessary to enable a personal representative to exercise the Option following the death of an Option Holder, neither the Option nor the benefit thereof may be transferred, assigned, charged or otherwise alienated. Any transfer of an Option otherwise than as permitted in this rule 2.7 shall cause the Option to lapse.
INDIVIDUAL LIMITS
3.1 No Executive shall be granted an Option which would, at the proposed Date of Grant, cause the aggregate of the Exercise Prices of the Shares which he may acquire by exercise of that Option and of the exercise prices of Shares which he may acquire by exercise of an option under any Associated Plan granted in the previous 12 months to exceed an amount equal to 2 times his Basic Salary as at the proposed Date of Grant or if the Board considers that circumstances exist which justify a higher amount, such higher amount as the Board may in its absolute discretion determine PROVIDED THAT if the Board determines to grant additional Options in recognition of an Option Holder’s election to assume the liability for, or agreement to reimburse his employer for, secondary national insurance contributions due in respect of Options granted to him, the amount of 2 times shall be increased by “F” per cent where F is defined by the following formula:
F = {(100/(100-A))-1} x 100
Where A is such percentage as the Board shall determine not exceeding the percentage rate at which secondary national insurance contributions are payable at the Date of Grant.
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3.2 If the grant of any Option would have the result of breaching the limit in rule 3.1 that Option shall be treated as taking effect over the maximum number of Shares over which it could have been granted without breaching such limit.
PLAN LIMITS
4.1 No Option to subscribe for Shares shall be granted to the extent that the result of that grant would be that:
| (a) | | the aggregate number of Shares that could be issued on the exercise of that Option and any other Options granted at the same time, when added to the number of Shares that: |
| | (i) | | could be issued on the exercise of any other subsisting share options granted during the preceding ten years under the Plan or any other Share Option Plan; and |
| | (ii) | | have been issued on the exercise of any share options granted during the preceding ten years under the Plan or any other Share Option Plan; and |
| | (iii) | | have been issued during the preceding ten years under any profit sharing or other employee share incentive plan (not being a Share Option Plan), |
would exceed 10 per cent. of the ordinary share capital of the company for the time being in issue; and
| (b) | | the aggregate number of Shares that could be issued on the exercise of that Option and any other Options granted at the same time, when added to the number of Shares that: |
| | (i) | | could be issued on the exercise of any other subsisting share options granted during the preceding ten years under the Plan or any other Executive Plan; and |
| | (ii) | | have been issued on the exercise of any share options granted during the preceding ten years under the Plan or any other Executive Plan, |
would exceed 5 per cent. of the ordinary share capital of the company for the time being in issue.
4.2 Reference in this rule 4 to theissue of Shares shall, for the avoidance of doubt, mean the issue and allotment (but not transfer) of Shares.
EXERCISEAND LAPSEOF OPTIONS—NORMAL CIRCUMSTANCES
5.1 Save as otherwise permitted in these rules an Option may only be exercised:
| (a) | | during the relevant Option Period; and |
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| (b) | | in accordance with the Vesting Schedule (if any) applying to that Option. |
5.2 Notwithstanding any other provision in these rules, an Option shall lapse automatically on the earlier of:
| (a) | | the expiry of the Option Period; and |
| (b) | | the Option Holder being declared bankrupt or entering into any general composition with or for the benefit of his creditors including a voluntary arrangement under the Insolvency Act 1986. |
EXERCISEAND LAPSEOF OPTIONS—CESSATIONOF EMPLOYMENT
6.1 Save as otherwise provided in these rules, an Option shall lapse automatically on the Option Holder ceasing to be an employee of a member of the Group.
6.2 Where an Option Holder ceases to be an employee of a member of the Group by reason of:
| (a) | | injury, disability or ill-health (as determined by the Board); |
| (b) | | retirement at or after the date on which he is bound to retire under his contract of employment provided that in respect of Options such date falls at least 24 months after the Date of Grant; |
| (c) | | his employing company ceasing to be a member of the Group; |
| (d) | | the business (or part of a business) in which he is employed being transferred to a transferee which is not a member of the Group; |
| (e) | | redundancy within the meaning of the Employment Rights Act 1996; or |
| (f) | | any other reason if the Board so decides in its absolute discretion |
he may exercise his Options (whether or not the Option Period has commenced, whether or not such exercise would be in conformity with any Vesting Schedules applying to the Options and, with the exception of 6.2(b), whether or not any conditions imposed on exercise under rule 2.3 have been satisfied) during the period ending on the later of (i) the day which falls 12 months after the date of cessation and (ii) the day which falls 42 months after the Date of Grant, failing which exercise the Options shall (subject to rule 6.4 and rule 7) lapse automatically. For the avoidance of doubt, an Option exercisable under this rule 6.2 may lapse at an earlier date by virtue of rule 9.
6.3 For the purposes of rules 6.1 and 6.2 a female Option Holder shall not be treated as ceasing to be an employee of a member of the Group if absent from work wholly or partly because of pregnancy or confinement until she ceases to be entitled to exercise any statutory or contractual right to return to work.
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6.4 In any case where the Board is aware that an Option Holder will cease to be an employee of a member of the Group and be entitled or permitted to exercise his Options immediately thereafter under rule 6.2(c) or (d) it may permit him to exercise his Options in the period of 14 days immediately preceding the date upon which it believes that such cessation will occur (whether or not the Option Period will have commenced and whether or not such exercise would be in conformity with any Vesting Schedules applying to the Options).
6.5 For the purposes of rules 6.1, 6.2 and 6.4, following an option rollover pursuant to rule 10.1, an Option Holder shall not be treated as ceasing to be employed by a member of the Group until he ceases to be employed by a company which is either (i) the acquiring company (as defined in rule 10.1) or (ii) a subsidiary of the acquiring company (within the meaning of section 736 of the Companies Act 1985).
DEATHOF OPTION HOLDER
7. If an Option Holder dies while in service or at any time after leaving service when he holds an Option his legal personal representatives may exercise his Option (whether or not the Option Period has commenced, whether or not such exercise would be in conformity with any Vesting Schedules applying to the Options and whether or not any conditions imposed on exercise under rule 2.3 have been satisfied) within twelve months of the date on which death occurred, failing which exercise the Option shall lapse automatically. For the avoidance of doubt, an Option exercisable under this rule 7 shall not lapse prior to the expiry of the specified twelve month period by virtue of rule 6.2 but may lapse at an earlier date by virtue of rule 9.
METHODAND EXTENTOF EXERCISE
8.1 An Option Holder may exercise his Option in whole or in part by giving notice in writing to the Company in the form prescribed by the Board specifying the number of Shares in respect of which the Option is being exercised and enclosing the original Option certificate together with payment in full of the aggregate Exercise Price of those Shares or arrangements to provide such payment in a form acceptable to the Board. Notice must be delivered to or sent by pre-paid post to the Company at its registered office or at such other place as the Board may prescribe. The date of exercise shall be the date of the receipt by the Company of such notice. If the Option is exercised in respect of some only of the Shares comprised in the Option, the Company shall procure the issue of an Option certificate to the Option Holder in respect of the balance or the re-issue of the original Option certificate after endorsement.
8.2 Any liability of an Option Holder to taxation or employees’ national insurance contributions in respect of an Option shall be for the account of the relevant Option Holder, but the Option Holder shall be deemed to have authorised any director of the Company to sell sufficient Shares to satisfy any legal obligation to deduct income tax or any employees’ national insurance contributions at source. The exercise of an Option shall be conditional on the Option Holder complying with any such
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arrangements specified by the Board for payment of such taxation or employees’ national insurance contributions liability.
8.3 Where the Board has imposed a requirement that an Option Holder shall pay all or part of any employer’s national insurance contributions payable in respect of the Option, the exercise of any Option shall be conditional on the Option Holder complying with any arrangements specified by the Board either formally to effect the transfer of such liability to the Option Holder or to reimburse his employer or any member of the Group with an amount equal to such liability and in either case for the payment of such liability and the arrangements may, to the extent necessary, require the Option Holder to authorise the sale of sufficient Shares to provide funds sufficient to finance any reimbursement that is demanded.
GENERAL OFFERFORTHE COMPANY ETC.
General Offer
9.1 If any person (either alone or together with any person acting in concert with him) makes a general offer to acquire the whole of the share capital of the Company (other than those shares which are already owned by him and/or any person acting in concert with him), the Company shall, as soon as reasonably practicable thereafter, give notice to each Option Holder of such general or other offer and the Board (acting objectively and taking account of the extent to which any conditions under rule 2.3 have been satisfied and any other criteria it may consider to be relevant) may, in its absolute discretion, allow Options to be exercised (whether or not the Option Period has commenced, whether or not such exercise would be in conformity with any Vesting Schedules applying to the Options and whether or not any conditions imposed on exercise under rule 2.3 have been satisfied) within the period of six months following the date on which the offer becomes or is declared unconditional in all respects. Failing such exercise the Options shall, without prejudice to the operation of rule 10, lapse automatically provided that, if an event as described in rule 9.2 occurs during the six month period, the period during which the Options may be exercised shall be the shorter of the periods specified under this rule 9.1 and rule 9.2.
Compulsory Acquisition
9.2 If any person becomes bound or entitled to give a notice under sections 428 to 430F of the Companies Act 1985 to acquire Shares, the Board (acting objectively and taking account of the extent to which any conditions under rule 2.3 have been satisfied and any other criteria it may consider to be relevant) may, in its absolute discretion, allow Options to be exercised (whether or not the Option Period has commenced, whether or not such exercise would be in conformity with any Vesting Schedules applying to the Options and whether or not any conditions imposed on exercise under rule 2.3 have been satisfied) at any time during the period of 30 days from the date on which such a notice is first issued, failing which exercise the Options shall, without prejudice to the operation of rule 10, lapse automatically.
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Scheme of Arrangement
9.3 If a court shall direct that a meeting of the holders of Shares be convened pursuant to section 425 of the Companies Act 1985 for the purposes of considering a scheme of arrangement involving the reconstruction of the Company or its amalgamation with any other company or companies:
| (a) | | the Board (acting objectively and taking account of the extent to which any conditions under rule 2.3 have been satisfied and any other criteria it may consider to be relevant) may, in its absolute discretion, allow Options to be exercised (whether or not the Option Period has commenced, whether or not such exercise would be in conformity with any Vesting Schedules applying to the Options and whether or not any conditions imposed on exercise under rule 2.3 have been satisfied) conditionally on either the scheme of arrangement being approved by the shareholders’ meeting or sanctioned by the court (as determined by the Board in its absolute discretion) (therelevant condition), between the date of the court’s direction and twelve noon on the day immediately preceding the date for which the shareholders’ meeting is convened. Any Option not exercised by the end of that period shall cease to be exercisable between that time and the first date on which it can be determined whether or not the relevant condition is satisfied. If the relevant condition is not satisfied, the Options shall continue. If the relevant condition is satisfied, the Options shall, without prejudice to the operation of rule 10, lapse automatically on the date on which the scheme of arrangement is sanctioned by the court; and |
| (b) | | the Board shall endeavour to procure that where an Option Holder has conditionally exercised his Options in accordance with (a) above prior to twelve noon on the day immediately preceding the date for which the shareholders’ meeting is initially convened the scheme of arrangement shall, so far as it relates to Shares, be extended to such Option Holder as if each Share in respect of which the Option was conditionally exercised had been allotted and issued, or transferred, to him by that time. |
Provided that without prejudice to the operation of rule 10.1(b), Options shall not be exercisable without the consent of the Board under the foregoing provisions if the purpose and effect of the scheme of arrangement is to create a new holding company for the Company, such company having substantially the same shareholders and proportionate shareholdings as those of the Company immediately prior to the scheme of arrangement.
Demerger
9.4 If the Board becomes aware that the Company is or is expected to be affected by any demerger, dividend in specie, super-dividend or other transaction which, in the opinion of the Board, would affect the current or future value of any Options, the Board (acting objectively and taking account of the extent to which any conditions under rule 2.3 have been satisfied and any other criteria it may consider to be relevant)
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may, in its absolute discretion, allow Options to be exercised (whether or not the Option Period has commenced, whether or not such exercise would be in conformity with any Vesting Schedules applying to the Options and whether or not any conditions imposed on exercise under rule 2.3 have been satisfied). The Board shall specify the period in which such Options shall be exercisable and whether such Options shall lapse at the end of the specified period. The Board shall notify any Option Holder who is affected by the Board exercising its discretion under this rule.
Voluntary Winding-up
9.5 If notice is duly given of a resolution for a voluntary winding-up of the Company, the Board (acting objectively and taking account of the extent to which any conditions under rule 2.3 have been satisfied and any other criteria it may consider to be relevant) may, in its absolute discretion, allow Options to be exercised (whether or not the Option Period has commenced, whether or not such exercise would be in conformity with any Vesting Schedules applying to the Options and whether or not any conditions imposed on exercise under rule 2.3 have been satisfied) within the period of two months from the date of the resolution, failing which exercise the Options shall lapse automatically.
OPTION ROLLOVER
10.1 If any company (theacquiring company):
| (a) | | obtains Control of the Company as a result of making: |
| | (i) | | a general offer to acquire the whole of the issued ordinary share capital of the Company which is made on a condition such that if it is satisfied the acquiring company will have Control of the Company; or |
| | (ii) | | a general offer to acquire all the Shares; or |
| (b) | | obtains Control of the Company in pursuance of a compromise or arrangement sanctioned by the Court under section 425 of the Companies Act 1985; or |
| (c) | | becomes bound or entitled to acquire Shares in the Company under sections 428 to 430F of that Act, |
each Option Holder may at any time within the appropriate period (which expression shall be construed in accordance with paragraph 15(2) of Schedule 9 of the Taxes Act) by agreement with the acquiring company release any Option which has not lapsed (theold option) in consideration of the grant to him of an option (thenew option) which (in accordance with rule 10.2 below) is equivalent to the old option but relates to shares in a different company (whether the acquiring company itself or another company falling within paragraph 10(b) or (c) of Schedule 9 of the Taxes Act) (thenew grantor).
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10.2 The new option shall not be regarded for the purposes of rule 10.1 as equivalent to the old option unless the conditions set out in paragraph 15(3) of Schedule 9 of the Taxes Act are satisfied.
10.3 In relation to the new option, the provisions of the Plan shall be construed as if:
| (a) | | the new option were an option granted under the Plan at the same time as the old option; |
| (b) | | references to theCompanyin rules 6 to 16 and in the definition ofGroupwere references to the new grantor; |
| (c) | | references to theBoardin rules 6, 8, 9, 11 and 16 were references to the board of directors of the new grantor; and |
| (d) | | references toShareswere references to shares in the new grantor. |
ADJUSTMENTOF OPTIONS
11. In the event of:
| (i) | | any Capital Reorganisation; or |
| (ii) | | the implementation by the Company of a demerger or the payment by the Company of a dividend in specie, super-dividend or other transaction which in the opinion of the Board would materially affect the value of an Option |
the Exercise Price, the definition ofSharesand the number of Shares comprised in an Option may be adjusted in such manner as the Board may determine provided that:
| (a) | | no adjustment shall take effect without the prior approval of, in respect of an Option under which Shares are to be transferred, the person holding the Shares to which the Option relates, (such approval not to be unreasonably withheld); |
| (b) | | no adjustment shall be made pursuant to this rule which would increase the aggregate Exercise Price of any Option; |
| (c) | | except as provided in this subparagraph (c) no adjustment may have the effect of reducing the Exercise Price to less than the nominal value of a Share. Where an Option subsists over both issued or unissued Shares any such adjustment may only be made if the reduction of the Exercise Price of Options over both issued and unissued Shares can be made to the same extent. Any adjustment to the Exercise Price of Options over unissued Shares shall only be made if and to the extent that the Board shall be authorised to capitalise from the reserves of the Company a sum equal to the amount by which the nominal value of the Shares in respect of which the Option is exercisable exceeds the adjusted Exercise Price. The Board may apply such sum in paying up such amount on such Shares and so that on exercise of any Option in respect of |
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| | which such reduction shall have been made the Board shall capitalise such sum (if any) and apply the same in paying up such amount as aforesaid; and |
| (d) | | no adjustment shall be made pursuant to this rule (other than on a capitalisation issue) unless and until the auditors for the time being of the Company (acting as experts not arbitrators) shall have confirmed in writing to the Board that such adjustment is in their opinion fair and reasonable. |
ALLOTMENTOR TRANSFEROF SHARESON EXERCISEOF OPTIONS
12. Subject to any necessary consents, to payment being made for the Shares and to compliance by the Option Holder with the terms of the Plan, not later than 28 days after receipt of the notice of exercise in accordance with rule 8 the Company shall either allot and issue, or procure the transfer of, Shares to the Option Holder (or to his nominee). The Company shall (unless the Shares are to be issued in uncertificated form) as soon as practicable deliver to the Option Holder (or his nominee) a definitive share certificate or other evidence of title in respect of such Shares. Where the Shares are issued or transferred to a nominee of the Option Holder, the Option Holder shall remain the beneficial owner of the Shares.
RIGHTS ATTACHINGTO SHARES ALLOTTEDOR TRANSFERRED PURSUANTTO OPTIONS
13.1 All Shares allotted or transferred upon the exercise of an Option shall rank pari passu in all respects with the Shares in issue at the date of exercise save as regards any rights attaching to such Shares by reference to a record date prior to the date of exercise.
13.2 Any Shares acquired on exercise of Options shall be subject to the articles of association of the Company from time to time.
AVAILABILITYOF SHARES
14.1 The Company shall at all times keep available for issue sufficient authorised and unissued Shares to permit the exercise of all unexercised Options under which Shares may be allotted or shall otherwise procure that Shares are available for transfer in satisfaction of the exercise of Options.
14.2 Where an Option Holder is based outside the United States of America, the Company will, at its expense, make application to the UKLA for admission of the Shares to the Official List on the exercise of any Option.
14.3 Where an Option Holder is based in the United States of America at the time of exercise, the Option Holder may only exercise his Option in respect of such number of Shares as is divisible by four and the Company shall cause to be issued to the Option Holder one ADR for every four Shares in respect of which the Option is validly exercised which ADR shall evidence American Depositary Shares deposited by the Company with a depositary pursuant to a deposit agreement. If at any time the
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number of Shares represented by American Depositary Shares shall change, that altered number shall be substituted for the references in this Rule 14.3 to “four”.
14.4 The Company will make application to the New York Stock Exchange to have its American Depositary Shares listed on the New York Stock Exchange.
ADMINISTRATIONAND AMENDMENT
15.1 The decision of the Board shall be final and binding in all matters relating to the Plan and it may at any time discontinue the grant of further Options or amend any of the provisions of the Plan in any way it thinks fit provided that:
| (a) | | the Board shall not make any amendment that would materially prejudice the interests of existing Option Holders except with the prior consent or sanction of Option Holders who, if they exercised their Options in full, would thereby become entitled to not less than three-quarters of all the Shares which would fall to be allotted or transferred upon exercise in full of all outstanding Options; |
| (b) | | no amendment to the advantage of Executives or Option Holders may be made to: |
| | (i) | | the definition ofExecutivein rule 1.1; |
| | (ii) | | the limitations on the number of Shares subject to the Plan; |
| | (iii) | | the basis for determining an Executive’s entitlement to Shares under the Plan; |
| | (iv) | | the terms of Shares to be provided under the Plan; |
| | (vi) | | the adjustment provisions of rule 11 of the Plan; |
without the prior approval of the shareholders in general meeting except in the case of minor amendments to benefit the administration of the Plan, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for Executives and Option Holders or any member of the Group; and
| (c) | | without prejudice to any provision of the Plan which provides for the lapse of an Option, the Board may not cancel an Option unless the Option Holder agrees in writing to such cancellation. |
15.2 Notwithstanding any other provision of the Plan, the Board may establish appendices to the Plan (in addition to Appendix 2) for the purpose of granting Options to Executives who are or may become primarily liable to tax outside the United Kingdom on their remuneration, subject to such modifications as may be necessary or desirable to take account of overseas tax, exchange control or securities laws provided that any Shares made available under such appendices shall count towards the limit set out in Rule 4 hereof.
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GENERAL
16.1 Any member of the Group may provide money to the trustees of any trust or any other person to enable them or him to acquire Shares to be held for the purposes of the Plan, or enter into any guarantee or indemnity for those purposes, to the extent not prohibited by section 151 of the Companies Act 1985.
16.2 The rights and obligations of an Option Holder under the terms and conditions of his office or employment shall not be affected by his participation in the Plan or any right he may have to participate in the Plan. An individual who participates in the Plan waives all and any rights to compensation or damages in consequence of the termination of his office or employment with any company for any reason whatsoever insofar as those rights arise, or may arise, from his ceasing to have rights under or be entitled to exercise any Option under the Plan as a result of such termination or from the loss or diminution in value of such rights or entitlements. If necessary, the Option Holder’s terms of employment shall be varied accordingly.
16.3 The existence of any Option shall not affect in any way the right or power of the Company or its shareholders to make or authorise any or all adjustments, recapitalisations, reorganisations or other changes in the Company’s capital structure, or any merger or consolidation of the Company, or any issue of shares, bonds, debentures, preferred or prior preference shares ahead of or convertible into, or otherwise affecting the Shares or the rights thereof, or the dissolution or liquidation of the Company or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
16.4 Any notice or other document required to be given under or in connection with the Plan may be delivered to an Option Holder or sent by post to him at his home address according to the records of his employing company or such other address as may appear to the Company to be appropriate. Notices sent by post shall be deemed to have been given on the day following the date of posting. Any notice or other document required to be given to the Company under or in connection with the Plan may be delivered or sent by post to it at its registered office (or such other place or places as the Board may from time to time determine and notify to Option Holders).
16.5 Benefits under the Plan shall not be pensionable.
16.6 The Company, or where the Board so directs any Subsidiary, shall pay the appropriate stamp duty on behalf of Option Holders in respect of any transfer of Shares on the exercise of Options.
16.7 These rules shall be governed by, and construed in accordance with, the laws of England.
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APPENDIX 1
Inland Revenue approved part of the Plan
In relation to any Executive whose remuneration is subject to taxation in the UK and to whom the Board wishes to grant Inland Revenue approved Options, the following provisions relating to Options shall apply:
| (A) | | Rules 1 to 16 of the Plan shall apply to the grant of Options under this Appendix 1 subject to the modifications contained in the following paragraphs. |
| (B) | | The definition ofExecutive shall be construed so that: |
(i) no Option may be granted under this Appendix 1 to a director of any member of the Group unless such director is required to devote not less than 25 hours per week to the affairs of the Group; and
(ii) no Option may be granted under this Appendix 1 to an Executive who is ineligible to participate in the Scheme by virtue of paragraph 8 of Schedule 9 to the Taxes Act.
| (C) | | In the definition ofGrant Perioda new paragraph (d) shall be inserted as follows: |
| | “(d) | | following the date of Inland Revenue approval to the Plan, any day on which any change to the legislation affecting Share Option Plans approved by the Inland Revenue under the Taxes Act is proposed or made” |
| (D) | | A definition ofMarket Value shall be added as follows: |
“Market Value means in relation to a Share on any day the closing middle market quotation of a Share on that day”
| (E) | | The definition ofOption Period shall not apply to the grant of Options under this Appendix 1. In its place a new definition shall be inserted as follows: |
“Option Period means the period commencing on the third anniversary of the Date of Grant and expiring on such date thereafter as the Board shall determine at the Date of Grant not being later than the tenth anniversary of the Date of Grant.”
| (F) | | The definition ofSharesshall be subject to the condition that they satisfy paragraphs 10 to 14 of Schedule 9 to the Taxes Act. |
| (G) | | Rule 2.2 shall not apply to the grant of Options under this Appendix 1. |
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| (H) | | The imposition of an objective performance target pursuant to rule 2.3, or any amendment to such performance target, must be approved in advance by the Inland Revenue; |
| (I) | | Rule 3.1 shall not apply to the grant of Options under this Appendix 1. In its place a new rule 3.1 shall be inserted as follows: |
| | “3.1 | | No Executive shall be granted an Option if immediately following such grant the aggregate Market Value of the Shares which he may acquire by exercise of the Option and any Shares which he may acquire by exercise of any other options granted under the Plan or any Associated Plan exceeds £30,000 or such other amount as may be permitted pursuant to paragraph 28 of Schedule 9 to the Taxes Act and for this purpose Market Value shall be determined on the date on which the relevant option is granted.” |
For the purposes of this paragraph (I)Associated Planmeans any Share Option Plan (other than the Plan) approved under Schedule 9 to the Taxes Act (but excluding any savings-related share option scheme) and established by the Company or an associated company of the Company within the meaning of section 416 of the Taxes Act.
| (J) | | Any Option granted under this Appendix 1 may only be exercised by an Option Holder who is not ineligible to participate in the Plan by virtue of paragraph 8 of Schedule 9 to the Taxes Act. |
| (K) | | Rule 3.2 shall not apply to the grant of Options under this Appendix 1. |
| (L) | | Rule 6.4 shall not apply to the grant of Option under this Appendix 1. |
| (M) | | Rules 8.2 and 8.3 shall not apply to the grant of Options under this Appendix 1. |
| (N) | | Rules 9.1, 9.2, 9.3, 9.4 and 9.5 shall take effect as if the words: |
“the Board (acting objectively and taking account of the extent to which any conditions under rule 2.3 have been satisfied and any other criteria it may consider to be relevant) may, in its absolute discretion, allow Options to be exercised”
were deleted and replaced with the words:
“each Option Holder may exercise his Options”.
| (O) | | Rule 11(ii) shall not apply to an Option granted under this Appendix 1. No Adjustment pursuant to rule 11(i) in relation to an Option granted under this Appendix 1 shall take effect without the prior approval of the Inland Revenue. |
| (P) | | In addition to its powers under rule 15.1(b), the Board may make such amendments to this Appendix 1 without the approval of Shareholders in |
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general meeting as are necessary or desirable to obtain or maintain Inland Revenue approval of this Appendix 1.
| (Q) | | At a time when this Appendix 1 is approved by the Inland Revenue, and if such approved status is to be maintained, no amendment to the rules of the Plan or this Appendix 1 may take effect as regards this Appendix 1 without the prior approval of the Inland Revenue (and if such approved status is not to be maintained, the Company shall notify the Inland Revenue of the relevant amendment). |
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APPENDIX 2
United States part of the Plan
In relation to any Executive whose remuneration is (or at the time of option exercise, is likely to be) subject to taxation in the United States of America and to whom the Board wishes to grant Options under this Plan, the following provisions shall apply:
| (A) | | Rules 1 to 16 of the Plan shall apply to the grant of Options subject to the modifications contained in the following paragraphs. |
| (B) | | An Option granted under this Appendix 2 to an Executive shall be either an Incentive Stock Option or a Non-Qualified Stock Option, as determined by the Board; provided that the number of Shares issued or transferred pursuant to the exercise of Incentive Stock Options shall not, in the aggregate, exceed 92 million Shares. The number of Shares available for issuance pursuant to the preceding sentence shall be subject to appropriate adjustment upon the occurrence of any event described in Rule 11. |
For the purposes of this Appendix 2:
| | (i) | | Incentive Stock Option means an Option which, at the Date of Grant, qualifies as an Incentive Stock Option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (theCode), and is designated by the Board as such; and |
| | (ii) | | Non-Qualified Stock Option means an Option which is not an Incentive Stock Option. |
| (C) | | In the case of any Incentive Stock Option granted to any person who owns more than 10% of the Shares for purposes of Section 422(b)(6) of the Code, the definition ofExercise Price as defined in Rule 1.1 shall be modified by inserting “110% of” immediately prior to the colon, and the definition ofOption Period shall be modified by replacing “tenth” with “fifth” and deleting the brackets. |
| (D) | | The Exercise Price of Options granted under this Appendix 2 shall be expressed in US dollars. The Exercise Price of Options granted under this Appendix 2 shall be the closing middle market quotation of an ADR on the New York Stock Exchange on the Dealing Day immediately preceding the Date of Grant divided by four. |
| (E) | | Rule 3.1 shall not apply to the grant of Incentive Stock Options under this Appendix 2 but shall continue to apply to the grant of Non-Qualified Stock Options. In relation to the grant of Incentive Stock Options a new rule 3.1A shall apply as follows: |
“3.1A The United States dollar equivalent of the aggregate fair market value (determined as of the date the Incentive Stock Option is granted) of
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Shares with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year (under the Plan or any other Executive Plan) may not exceed $100,000; provided, that if the grant of any Incentive Stock Option shall exceed such limit, the excess shall be treated as a Non-Qualified Stock Option. In determining whether, and to what extent, the grant of an Incentive Stock Option exceeds such limit, Incentive Stock Options shall be taken into account in the order in which they are granted. The Board shall determine the US dollar equivalent of the aggregate fair market value of the Shares on such good faith basis as they consider appropriate.”
| (F) | | Rule 6.2 shall be modified in the case of any Incentive Stock Option by replacing “six months” with “three months” (except where cessation of employment is by reason of disability within the meaning of Section 22(e)(3) of the Code). |
| (G) | | If Shares acquired by exercise of an Incentive Stock Option are sold or otherwise disposed of within two years after the date of grant of the Incentive Stock Option or within one year after the transfer of such Shares to the Option Holder, the holder of the Shares immediately prior to the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information regarding the disposition as the Company may reasonably require in order to secure any deduction then available against the Company’s or any other corporation’s taxable income. |
| (H) | | For the purposes of this Appendix 2, any provisions of the Plan which are superseded by or otherwise inconsistent with the provisions of this Appendix 2 as applied to an Executive who is employed or remunerated in the United States, or who is a citizen of the United States shall have no effect. |
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SCHEDULE
Real Growth in Earnings Per Share Performance Target
The conditions referred to in rule 2.3 are that, at the Accounts Date of the Company following the expiry of the Prescribed Period relating to an Option, the Company’s percentage growth in its Annualised Earnings per Share over that Prescribed Period (comparing the Basis Year with the Latest Year) is an average of at least 3 per cent. per annum greater than the percentage increase, if any, in the RPI Index, as adjusted (if appropriate) pursuant to paragraph 3 below, over that Prescribed Period.
If the condition is not satisfied at the end of the First Prescribed Period, it shall be retested over the Second Prescribed Period. If the condition is not satisfied at the end of the Second Prescribed Period, it shall be retested over the Third Prescribed Period. If the condition is not satisfied by the Third Prescribed Period the Option shall lapse.
The following provisions apply for the purposes of determining whether the conditions set out in this Schedule has been satisfied.
1. In this Schedule, unless the context otherwise requires, the following words and expressions shall have the following meanings, namely:
Accountsmeans the consolidated accounts of the Company for a Financial Year drawn up on the historical cost basis modified by the revaluation of certain fixed assets in accordance with generally accepted accounting principles applied consistently
Accounts Datemeans the date on which the Accounts have been published
Annualised EPSmeans Earnings per Share adjusted proportionately upwards or downwards in a case where the relevant Financial Year is greater than or less than one calendar year
Auditorsmeans the auditors for the time being of the Company (acting as experts not arbitrators)
Basis Yearmeans, in relation to the Company, the Financial Year ending immediately before the start of the Prescribed Period
Earnings per Sharemeans, for any Financial Year of the Company, the earnings per ordinary share of the Company calculated in accordance with Financial Reporting Standard No. 3 issued by the Accounting Standards Board Limited or any modification thereto provided that to ensure comparability of Financial Years of the Company within a Prescribed Period and for the Basis Year the Board may:
| (a) | | adjust the figure for earnings per share as calculated in accordance with the relevant accounting standard to arrive at a figure which reflects the underlying business performance of the Group (and may, without limitation, adjust by |
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excluding any or all extraordinary or exceptional items, including the amortisation of goodwill, from the earnings per share calculation);
| (b) | | adjust the figure for any tax charge to ensure that the deduction for taxation in respect of the Latest Year shall be at the average tax rate applicable to the Basis Year; and |
| (c) | | ensure that the relevant accounting standard are applied on a consistent basis in respect of years falling within any Prescribed Periods and for the Basis Year; |
Financial Yearmeans an accounting reference period as defined in accordance with section 224 of the Companies Act 1985;
First Prescribed Period means the period of three consecutive Financial Years, the first of which shall be the Financial Year starting immediately before the Date of Grant of the relevant Option;
Latest Yearmeans, in relation to the Company, the latest Financial Year in a Prescribed Period for which Accounts have been published in or prior to the relevant Accounts Date;
Prescribed Periodmeans either the First Prescribed Period, the Second Prescribed Period or the Third Prescribed Period;
RPI Indexmeans the Index of Retail Prices (All Items) published by H. M. Government;
Second Prescribed Periodmeans the period of four consecutive Financial Years, the first of which shall be the Financial Year starting immediately before the Date of Grant of the relevant Option;
Third Prescribed Period means the period of five consecutive Financial Years, the first of which shall be the Financial Year starting immediately before the Date of Grant of the relevant Option;
2. As at each Accounts Date of the Company following the expiry of a Prescribed Period, the Board shall calculate the percentage growth between the Annualised EPS for its Basis Year and for its Latest Year and shall determine whether that percentage growth is an average of at least 3 per cent. per annum above the percentage increase, if any, in the RPI Index, as adjusted (if appropriate) pursuant to paragraphs 3 and 4 below, over that Prescribed Period.
3. Where a Financial Year within a Prescribed Period or the Basis Year is greater than or less than one calendar year, the percentage increase in the RPI Index for that Financial Year shall be adjusted proportionately upwards or downwards as appropriate in order to secure that such percentage increase is annualised in a manner consistent with the Annualised EPS.
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4. For the purposes of paragraph 2 the Board shall make such adjustments as they may consider appropriate to take account of any intervening capital reorganisation of the Company including, without limitation, any capitalisation issue, rights issue, sub-division or consolidation of share capital, reduction of capital or demerger within the meaning of section 213 to 218 of the Taxes Act and any modifications to the relevant accounting standard.
5. If the composition of the RPI Index changes or the RPI Index is replaced by another similar index, the Board may make such adjustments to any calculations using the RPI Index (or any replacement index) as they consider to be fair and reasonable.
6. The Auditors shall confirm in writing to the Board:
| (a) | | that calculations made by the Board in accordance with this Schedule are correct; and |
| (b) | | where an adjustment has been made by the Board under paragraph 4, that such adjustment is in their opinion fair and reasonable. |
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