ACE Limited
Rules of the
Approved UK Stock Option Programme
Approved by the Inland Revenue on 24 November 1997
(Reference No: X19095/RC)
Lovell White Durrant
65 Holborn Viaduct
London EC1A 2DY
Ref: A4/JCMcM/LLW
CONTENTS
Clause
Page No.
1. Establishment and purpose of the Programme 1
2. Definitions 1
3. Grant of Options 5
4. Limitations on Grant of Options 5
5. Exercise of Options 6
6. Time for Exercise of Options 6
7. Replacement of Options on a takeover or other change in Control of
the Company 7
8. Variations in the Share Capital of the Company 8
9. Administration of the Programme 8
10. Amendment of the Programme 8
11. Additional Provisions 8
12. Termination 9
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ACE Limited
Approved UK Stock Incentive Programme
(An approved Company share option plan
pursuant to the provisions of Schedule 9
to the Income and Corporation Taxes Act 1988)
1. Establishment and Purpose of the Programme
1.1 On 12 November 1997 the Committee adopted, subject to the approval
of the Inland Revenue, the Programme as an addendum to the ACE
Limited 1995 Long-Term Incentive Plan (the "Plan") to enable
Eligible Employees of the Company and its Subsidiaries to
participate in the Plan and obtain the benefit of approval by the
Board of Inland Revenue pursuant to Schedule 9 to the Income and
Corporation Taxes Act 1988 ("Schedule 9").
1.2 On 24 November 1997 the Inland Revenue gave formal approval to the
Programme. The rules of the Programme (the "Programme Rules")
comply with the requirements of Schedule 9.
1.3 The rules of the Plan (the "Plan Rules") shall apply to the
Programme unless the Programme Rules expressly or by implication
provide to the contrary, but so that nothing in either the Plan or
the Programme Rules shall operate to prejudice the approval by the
Board of Inland Revenue of the Programme PROVIDED ALWAYS THAT in
the event of a conflict between the Plan Rules and the Programme
Rules whereby the status of the Plan is or will be prejudiced the
Plan Rules shall prevail.
1.4 For the avoidance of doubt rule 2.5 of the Plan shall not apply to
the Programme and the Company may only grant options pursuant the
Programme. Stock Appreciation Rights, Limited Stock Appreciation
Rights, Restricted Stock or a Stock Purchase Program may not be
granted pursuant the Programme Rules.
1.5 The Committee may designate whether or not an Option is to be
considered an incentive stock option as defined in Section 422(b)
of the US Internal Code 1986, as amended ("Incentive Stock
Option").
1.6 The Programme shall be governed and construed in accordance with the
laws of England.
2. Definitions
2.1 In the Programme the following words and expressions have the meanings
set opposite them:
"ACE Group" the Company and all of the
Subsidiaries and, in relation to
a New Option granted pursuant to
clause 7 the Acquiring Company
and the Controlling Company and
their Subsidiaries as defined in
Section 736 of the Companies Act
1985, and "member of the ACE
Group" shall be construed
accordingly;
"Act" the Securities Exchange Act 1934,
as amended;
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"Acquiring a company which for the purposes of
Company" clause 7 comes within the
definition of "the acquiring
company" in paragraph 15(1) of
Schedule 9;
"Affiliate" a person or entity that directly or
indirectly controls, is controlled
by or is under common control with
another person or entity;
"Any Other any scheme other than the Programme
Approved Scheme" established by the Company
or by any Associated Company and
approved in accordance with
Schedule 9 but excluding for the
purposes of this definition any
savings-related share option
scheme or profit sharing scheme
so established;
"Approval Date" the date on which the
Company receives written
notification from the Board of
Inland Revenue that the Programme
has received Revenue Approval;
"Associated any company which is an associated
Company" company of the Company
within the meaning of section
416(1) of the Taxes Act;
"Board" the board of directors for the
time being of the Company;
"Change in Control" shall for the purposes of clause
6.7 mean the occurrence of one of
the following events:
(i) the acquisition by any
Person of beneficial
ownership (within the
meaning of Rule 13d-3
promulgated under the
Act) of fifty percent
(50%) or more of the
Voting Stock;
(ii) the majority of the
Board consists of
individuals other than
Incumbent Directors;
(iii) the Company adopts any
plan of liquidation
providing for the
distribution of all or
substantially all of
its assets;
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(iv) all or substantially
all the assets or
business of the
Company is disposed of
pursuant to a merger,
consolidation or other
transaction (unless
the shareholders of
the Company
immediately prior to
such merger,
consolidation or other
transaction
beneficially own,
directly or
indirectly, in
substantially the same
proportion as they
owned Voting Stock of
the Company, all of
the Voting Stock or
other ownership
interests of the
entity or entities, if
any, that succeed to
the business of the
Company);
(v) the Company combines
with another company
and is the surviving
corporation but,
immediately after the
combination, the
shareholders of the
Company immediately
prior to the
combination hold,
directly or
indirectly, 50% or
less of the Voting
Stock of the combined
company (there being
excluded from the
number of shares held
by such shareholders,
but not from the
Voting Stock of the
combined company, any
shares received by
Affiliates of such
other company in
exchange for stock of
such other company);
"Committee" the Compensation Committee of the
Board or such other committee
as the Board shall designate to
administer the Plan;
"Company" ACE Limited, a Corporation
incorporated in the Cayman Islands;
"Control" for the purposes of clause 7, the
control of a company within the
meaning given to that expression by
section 840 of the Taxes Act;
"Controlling a company, other than the Company
Company" and an Acquiring Company,
which falls within sub-paragraphs
10(b) or 10(c) of Schedule 9;
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"Disability" a Participant shall be considered
to have a "Disability" during the
period in which he is unable by
reason of a medically
determinable physical or mental
impairment to engage in any
substantial gainful activity,
which condition, in the opinion
of a physician selected by the
Committee, is expected to have a
duration of not less than 120
days;
"Eligible Employee" any person whose terms
of employment require him to
devote substantially the whole of
his time to working for any
member or members of the ACE
Group, except for;
(i) any director of a
member or members of
the ACE Group who is
contracted to work for
less than 25 hours a
week (excluding meal
breaks) in that
capacity; and
(ii) any person who is
prohibited from partici-
pating in the Programme
by the provisions of
paragraph 8 of Schedule 9;
"Exercise Price" the price per Share
payable on the exercise of an
Option as determined by the
Committee but in no event less
than the greater of:
(i) the nominal value of a
Share (if the Shares are
to be subscribed); and
(ii) the Fair Market Value of a
Share on the day on which
the Option is granted;
"Fair Market Value" the value of a Share on any day being:
(i) if and for so long as
the Company's Shares
are admitted to the
official list of the
New York Stock
Exchange, the closing
market composite price
for Shares as reported
on the New York Stock
Exchange - Composite
Transactions on that
date or if the New
York Stock Exchange is
closed on that date,
the last preceding
date on which the New
York Stock Exchange
was open for trading
and on which the
Shares were traded
PROVIDED THAT such
date shall not be a
date which is more
than 30 days before
the date of grant of
an Option; or
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(ii) in all other cases, the
market value determined
in accordance with Part
VIII of the taxation of
Chargeable Gains Act
1992 and if and for so
long as the Programme
has Revenue Approval
agreed in advance with
the Shares Valuation
Division of the Inland
Revenue;
"Incumbent Directors" the individuals
constituting the Board as of the
date the Plan was adopted and any
subsequent directors whose
election or nomination for
election by the Company's
stockholders was approved by a
vote of three quarters (3/4) of
the individuals who are then
Incumbent Directors;
"Normal Retirement the voluntary termination of
Age" employment at a time when the
Participant has attained normal
retirement age under the ACE
Limited Employee Retirement Plan
or any other retirement benefits
scheme maintained by a company in
the ACE Group or such other age
as shall be determined by the
Committee in its sole discretion;
"Option" subject to clause 7, a right to
acquire Shares pursuant to the
provisions of the Programme;
"Option Period" subject to clause 6, the period
ending no later than ten years
from the date of an Option
during which an Option shall be
exercisable in accordance with
the provisions of the Programme
as determined by the Committee
at the date of grant of the
Option provided that the Option
may not be exercisable before
the Participant has completed
one year's service with the
Group;
"Participant" an Eligible Employee who has been
granted an Option or where
applicable, the personal represent-
ative(s) of any such person;
"Person" person for the purposes of the
definition of "Change in Control"
has the same meaning as set forth
in Sections 3(a)(9) and 13(d) of
the Act;
"Plan" the ACE Limited 1995 Long-Term
Incentive Plan approved by the
stockholders of the Company in
general meeting on 9 February
1996 and as subsequently amended;
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"Programme" the Programme adopted on 12 November
1997 as from time to
time amended in accordance with the
provisions hereof;
"Related Company" any company which is a subsidiary
corporation as defined in
Section 424(f) of the Internal
Revenue Code of 1986;
"Revenue Approval" approval of the Programme by the
Board of Inland Revenue under
Schedule 9;
"Schedule 9" Schedule 9 to the Taxes Act;
"Shares" subject to clause 7.3(a), Stock
which satisfies the requirements of
paragraphs 10 to 14 inclusive of
Schedule 9;
"Stock" shares of the common stock of the
Company;
Subsidiaries" those companies over which for
the time being the Company has
Control and which are
subsidiaries of the Company
within the meaning of Section 736
of the Companies Act 1985;
"Taxes Act" the Income and Corporation Taxes Act
1988;
"Voting Stock" capital stock if any class
or classes having general voting
power under ordinary
circumstances in the absence of
contingencies to elect the
directors of a company.
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2.2 Any reference herein to a statutory provision shall include a
reference to that provision as amended or re-enacted from time to
time. Where the context permits the singular shall include the
plural and vice versa and the masculine gender shall include the
feminine.
3. Grant of Options
3.1 Subject to the limits contained in clause 4, at any time after the
Approval Date, the Committee may, in its absolute discretion grant
an Option to an Eligible Employee in accordance with the
Programme. The Committee shall give notice in writing to the
Eligible Employee to specify:
(a) the number of Shares in respect of which the Option is
granted,
(b) the date on which it is granted,
(c) the Exercise Price,
(d) the objective performance target(s), if any, imposed by
the Committee, the terms of which must, at any time when
the Programme has Revenue Approval, be approved by the
Board of Inland Revenue; and
(e) the Option Period.
3.2 The grant of an Option shall be made on the basis that
participation in the Programme shall be deemed to constitute an
agreement to be bound by the Programme Rules and shall be
evidenced by an instrument in such form as the Committee may from
time to time prescribe. The instrument shall be issued as soon as
practicable after the date of grant.
3.3 An Option shall be personal to the Participant and may not be
transferred except as designated by the Participant by will or by
the laws of descent, or, subject to the provisions of clause 6.2,
exercised by any other person. In no event shall an Incentive
Stock Option be transferable to the extent that such
transferability would violate the requirements of the Inland
Revenue Code 1986 Section 422. Any attempt to so transfer or sell
an Option shall cause the Option to lapse forthwith.
4. Limitations on Grant of Options
4.1 No Option shall be granted pursuant to clause 3 if such grant
would exceed the limits imposed on the grant of rights under the
Plan pursuant to section 6 of the Plan with respect to the number
of Shares which may be made the subject of Options and other
rights under the Plan.
4.2 No Option shall be granted to an Eligible Employee pursuant to the
Programme if as a result the total Option Price of the Shares
issuable on the exercise of such Option when aggregated with the
total market price at the relevant date of grant of shares still
capable of being issued on the exercise of options previously
granted to him under the Programme and Any Other Approved Scheme
would exceed (pound)30,000 (or its equivalent in any other
currency, taking as the rate of exchange the spot rate for the
currency in question on the date of grant of the Option as quoted
by any of the Company's bankers from time to time).
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5. Exercise of Options
5.1 Subject to clause 6, an Option shall only be exercised by a
Participant within the Option Period by his giving to the
Secretary of the Company at its corporate headquarters, written
notice, which shall be in such form as may be prescribed by the
Committee and shall be signed by the Participant. An Option may be
exercised in whole or in part. Such notice shall specify the
number of Shares in respect of which the Option is being exercised
and shall be accompanied by payment in full of the total Exercise
Price for the said Shares and the instrument evidencing the grant
of the relevant Option for cancellation or amendment.
5.2 Payment for the Option exercised shall be in cash, or cheque, bank
draft or money order to the order of the Company, for an amount in
United States dollars equal to the total Exercise Price for the
number of Shares in respect of which an Option is exercised.
5.3 The Committee shall transfer the appropriate number of Shares to
the Participant at their Exercise Price as soon as possible but in
any event not later than one month after the date of exercise of
the Option and shall deliver where appropriate to the Participant
a definitive share certificate in respect thereof. Any Shares
issued pursuant to this clause 5.3 shall rank pari passu in all
respects and form a uniform class with Shares already in issue.
While an Option is unexercised, a Participant shall have no voting
rights or any other rights of stockholders with respect to the
Shares which are subject to his Option. Furthermore, no cash
dividends shall accrue or be payable with respect to any such
Shares. Shares subject to unexercised Options shall have no
subscription rights.
6. Time for Exercise of Options
6.1 Subject to clauses 6.2 to 6.4 inclusive, an Option may only be
exercised during its Option Period. An Option which is not so
exercised shall lapse PROVIDED THAT, at the time of exercise of
his Option a Participant is not prohibited from doing so by the
provisions of paragraph 8 of Schedule 9.
6.2 If a Participant dies his Option may be exercised in full by his
personal representative(s) at any time before the expiry of its
Option Period and within but not later than 12 months of his
death.
Any such Option which is not so exercised shall lapse.
6.3 If a Participant ceases to be employed by the Company or a Related
Company by reason of Disability, he may exercise his Option in
full at any time before the expiry of its Option Period and within
12 months after the date of cessation of his employment. Any such
Option which is not so exercised shall lapse.
6.4 If a Participant ceases to be employed by the Company or a Related
Company by reason of retirement on or after Normal Retirement Age
or earlier retirement with consent of his employer, he may
exercise his option to the extent exercisable by him at the time
of such cessation at any time before the expiry of its Option
Period or his death if earlier.
6.5 If a Participant ceases to be employed by the Company or a Related
Company otherwise than by reason of the events specified in
clauses 6.2 to 6.4, he may exercise his option to the extent
exercisable by him at the time of such cessation at any time
before the expiry of its Option Period and within three months
after the date of cessation of his employment. Any such Option
which is not so exercised shall lapse.
6.6 For the purposes of this paragraph where a Participant's
employment is terminated without notice or on terms in lieu of
notice it shall be deemed to cease on the date on which the
termination takes effect and where the said employment is
terminated with notice it shall cease on the date when the notice
period expires.
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6.7 If a Change in Control of the Company shall occur a Participant
may exercise his Option in full at any time before the expiry of
its Option Period PROVIDED THAT this clause 6.7 shall not apply
where a Participant by agreement with an Acquiring Company,
releases his Option in consideration of the grant to him of a New
Option pursuant to clause 7 before the expiry of the appropriate
period referred to in clause 7.4.
7. Replacement of Options on a takeover or other change in Control of
the Company
7.1 Clause 7.2 below shall apply where an Acquiring Company obtains
Control of the Company as a result of making:
(a) a general offer to acquire the whole of the issued share
capital of the Company (other than that which is already
owned by it and/or by any of its subsidiaries) made on a
condition such that if it is satisfied the Acquiring
Company will have Control of the Company; or
(b) a general offer to acquire all the Shares (or such Shares
as are not already owned by the Acquiring Company and/or
by any of its subsidiaries).
7.2 A Participant may at any time within the appropriate period as
defined in clause 7.4, by agreement with the Acquiring Company,
release any of his Options (the "Old Option" for the purposes of
this clause) in consideration of the grant to him of a new option
(the "New Option" for the purposes of this clause) PROVIDED THAT
any New Option satisfies the conditions set out in clause 7.3.
7.3 The New Option must:
(a) be over shares in the Acquiring Company or a Controlling
Company which shares satisfy the conditions specified in
paragraphs 10 to 14 inclusive of Schedule 9 (references
to the term "Shares" in this Programme shall thereafter
be construed accordingly);
(b) be a right to acquire such number of shares which on
acquisition of the New Option have an aggregate market
value (determined in accordance with Part VIII of the
Taxation of Chargeable Gains Act 1992) equal to the
aggregate market value of the Shares the subject of the
Old Option immediately before its release;
(c) have an exercise price per share such that the aggregate
price payable on complete exercise of the New Option
equals the aggregate price which would have been payable
on complete exercise of the Old Option at the time of its
release.
7.4 The appropriate period referred to in clause 7.2 is the period of
six months commencing on the date when the Acquiring Company
making the offer has obtained Control of the Company and any
condition subject to which the offer is made is satisfied.
7.5 The New Option shall be exercisable in the same manner as the Old
Option and in accordance with the provisions of the Programme as
it had effect in relation to the Old Option immediately before its
release (references to the term "Option" in the Programme
thereafter being construed accordingly), and the New Option shall,
for all purposes of the Programme other than clause 7.6, be
treated as having been granted on the date when the corresponding
Old Option was granted.
7.6 With effect from the grant of a New Option hereunder clause 5,
this clause 7, and clauses 8, 9 and 11 shall, in relation to the
New Option, be construed as if references to the Company were
references to the Acquiring Company, or as the case may be, the
Controlling Company.
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8. Variations in the Share Capital of the Company
8.1 If at any time after the date of grant of an Option and before it
ceases to be exercisable, there is a variation or reorganisation
of Stock or other capital of the Company, including, without
limitation, any subdivision or consolidation of shares or stock or
other capital readjustment, stock split, payment of stock
dividend, combination of shares or recapitalisation or other
increase or reduction of the number of shares or stock
outstanding, without receiving compensation therefor in money,
services or property or otherwise with respect to its common
stock, the number of Shares available under the Programme shall be
adjusted and the number then subject to Options and the Exercise
Price therefor shall be proportionately and appropriately adjusted
all as the Committee shall deem appropriate PROVIDED THAT:
(a) the aggregate Exercise Price payable on the exercise of an
Option previously granted hereunder shall not be increased;
(b) the Option Price shall not be reduced below the nominal value
of a Share thereby;
(c) all such adjustments shall be subject to prior approval by
the Board of Inland Revenue.
8.2 All Participants shall be notified in writing of any such
adjustments as soon as practicable thereafter and the Committee
shall be entitled to call in the instruments evidencing the grant
of the Options affected by such adjustments for endorsement or
replacement, as may appear appropriate.
9. Administration of the Programme
9.1 The Programme shall be administered by the Committee.
9.2 Subject as herein otherwise expressly provided the Committee's
decision on any matter concerning the Programme shall be final and
binding.
10. Amendment of the Programme
10.1 Subject to clause 10.2, the Board or the Committee shall at any
time be entitled to amend by resolution all or any of the
provisions of the Programme provided that no amendment may
adversely affect the rights of any participant already acquire by
him under the Programme.
10.2 No amendment to the Programme shall be effective unless and until
approved by the Board of Inland Revenue and subject to clause 1.3
nothing shall be done to the Programme which would prejudice the
obtaining of Revenue Approval or cause it to be withdrawn.
11. Additional Provisions
11.1 Every Option shall be subject to the condition that no Shares
shall be issued to a Participant following the exercise of an
Option if such issuance would be contrary to any enactment or
regulation for the time being in force of the United States or of
any other country having jurisdiction in relation thereto. The
Company shall not be bound to take any action to obtain the
consent of any governmental authority to such issue or to take any
action to ensure that any such issuance shall be in accordance
with any such enactment or regulation if such action could in the
opinion of the Committee be unduly onerous.
11.2 Every Option shall be subject to the requirement that if at any
time the Board shall determine, in its discretion, that the
listing, registration or qualification of the Shares subject to an
Option upon any securities exchange or under any state or federal
law, or that the consent or approval
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of any governmental authority, is necessary or desirable as a
condition of, or in connection with, the issuance or purchase of
shares under an Option such Option may not be exercised in whole
or in part, unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board. Any Option may be
exercised only in accordance with the provisions of all applicable
law.
11.3 The rights and obligations of a Participant under his terms of
employment with any member of the ACE Group shall not be affected
by his participation in the Programme and the Programme shall not
afford to a Participant any right to continued employment or any
additional right to compensation in consequence of the termination
of his employment for any reason whatsoever.
12. Termination
the Committee may at any time resolve to cease making further
grants of Options under the Programme but in such event the
subsisting rights of Participants shall not thereby be affected.