Remuneration Information • Mar 27, 2025
Remuneration Information
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This document sets out the rules of the BAE Systems Long-term Incentive Plan 2023 incorporating amendments proposed for shareholder approval at the 2025 Annual General Meeting on 7 May 2025. For clarity, one such amendment is to change the name of the plan to the BAE Systems Long-term Incentive Plan 2025. This introductory paragraph does not form part of the rules.
Ref: L-000301
| 1 | Definitions 1 |
|---|---|
| 2 | Granting Awards 3 |
| 3 | Before Vesting 6 |
| 4 | Malus and clawback 7 |
| 5 | Holding Period 9 |
| 6 | Vesting 10 |
| 7 | Leaving employment and death 12 |
| 8 | Corporate events 15 |
| 9 | Changing the Plan and termination 17 |
| 10 | General 18 |
| Schedule 1 UK Tax-Qualified Options 22 | |
| Schedule 2 Recruitment and Retention Plan 26 |
In these rules:
"Acquiring Company" means a person who has or obtains control (within the meaning of Section 995 of the Income Tax Act 2007) of the Company;
"Assign" means to transfer, assign, grant any security interest over, hold on trust or otherwise dispose of;
"Award" means a Performance Award, a Restricted Award or a Market Value Option;
"Award Date" means the date on which an Award is granted under rule 2.4 (Terms of Awards);
"Category 1 Performance Award" means any Performance Award which is subject to two or more applicable Normal Vesting Dates;
"Category 2 Performance Award" means any Performance Award which is subject to only one applicable Normal Vesting Date;
"Category 3 Award" means any Award (other than a Performance Award) which is subject to a Performance Condition;
"Change of Control" means:
"Clawback Period" means the period during which clawback will apply;
"Company" means BAE Systems plc;
"Conditional Award" means a conditional right to acquire Shares granted under the Plan;
"Dealing Restriction" means any restriction on dealing in securities imposed by regulation, statute, order, directive or any code adopted by the Company as varied from time to time;
"Directors" means, subject to rule 8.7 (Directors), the remuneration committee of the board of directors of the Company or a duly constituted committee of the board of directors, or a person or group of persons duly authorised by the board of directors of the Company or the remuneration committee of the board of directors of the company ;
"Dividend Equivalent" means an amount equal to the ordinary dividends payable on the number of Vested Shares between the Award Date and Vesting (or, in the case of Options, the date of exercise) pursuant to rule 6.5 (Dividend Equivalent);
"Employee" means an employee of a Member of the Group (including an executive director of the Company);
"Expiry Date" means 7 May 2035, the tenth anniversary of shareholder approval of amendments to the Plan;
"Final Regulations" means the final Treasury Regulations issued under Section 409A of the US Internal Revenue Code 1986, as amended, or any successor legislation;
"First Normal Vesting Date" means the first date on which part of a Category 1 Performance Award would normally vest as set by the Directors under rule 2.4 (Terms of Awards) or, if later, the date on which the Directors determine the extent to which a Performance Condition has been satisfied as set out in rule 6.1 (Determining performance);
"Grantor" means, in respect of an Award, the entity which grants that Award under the Plan;
"Holding Period" means the period specified in rule 5.3 (Duration of the Holding Period);
"Market Value Option" means an Option, which may be subject to a Performance Condition, and in respect of which the Option Price is set by reference to the market value of a Share on the Award Date;
"Member of the Group" means:
"Normal Vesting Date" means the date or dates set by the Directors under rule 2.4 (Terms of Awards) for the Vesting of an Award or a proportion of an Award;
"Option" means a conditional right to acquire Shares granted under the Plan which may be exercised by the Participant;
"Option Period" means the period starting on the Award Date and ending at the end of the day before the tenth anniversary of the Award Date, or such shorter period as may be specified under rule 2.4 (Terms of Awards) on the grant of an Option;
"Option Price" means zero or the amount payable for each Share on the exercise of an Option specified under rule 2.4 (Terms of Awards);
"Participant" means a person who holds or has held an Award or his personal representatives;
"Performance Award" means a Conditional Award or an Option (other than a Market Value Option) subject to a Performance Condition and designated as such under rule 2.4 (Terms of Awards), granted under the Plan but excludes a Restricted Award;
"Performance Condition" means any performance condition imposed under rule 2.6 (Performance Conditions);
"Performance Period" means the period in respect of which a Performance Condition is to be satisfied;
"Plan" means these rules known as "the BAE Systems Long-term Incentive Plan 2025", as changed from time to time;
"Restricted Award" means a Conditional Award or an Option (other than a Market Value Option), which may be subject to a Performance Condition, and is designated as such under rule 2.4 (Terms of Awards), granted under the Plan but excludes a Performance Award;
"Retained Shares" has the meaning given in rule 5.1 (Effect of Holding Period);
"Shares" means fully paid ordinary shares in the capital of the Company or any American Depositary Shares or American Depositary Receipts representing ordinary shares;
"Subsidiary" means a company which is a subsidiary of the Company within the meaning of Section 1159 of the Companies Act 2006;
"Tax-Qualified Option" means a Market Value Option to which Schedule 1 (UK Tax-Qualified Options) will apply;
"Termination Agreement" means an agreement entered into between a Participant and a Member of the Group which sets out any terms and conditions relating to the termination of the Participant's employment;
"US Taxpayer" means a Participant who is a citizen or tax resident of the United States of America or any other Participant to the extent that his Award(s) or any portion thereof is or becomes subject to income taxation under the laws of the United States of America;
"Vest" in relation to an Option, means an Option becoming exercisable; and in relation to a Conditional Award, means a Participant becoming entitled to have the Shares delivered to him subject to the Plan, and "Vesting" and "Vested" shall be construed accordingly; and
"Vesting Period" means the period from the Award Date to the date of Vesting.
The Grantor of an Award must be the Company, any other Member of the Group or a trustee of any trust set up for the benefit of Employees.
An Award granted under the Plan, and the terms of that Award, must be approved in advance by the Directors.
The Grantor may grant an Award to anyone who is an Employee (including an executive director) on the Award Date in accordance with any selection criteria that the Directors in their discretion may set.
However, unless the Directors consider that special circumstances exist, an Award may not be granted to an Employee who on the Award Date has given or received notice of termination of employment, whether or not such termination is lawful.
Awards may only be granted within 42 days starting on any of the following:
Awards may not be granted at any time after the Expiry Date.
Awards are subject to the rules of the Plan and any Performance Condition or other condition and must be granted by deed. The terms of the Award must be determined by the Directors. The terms must be set out in the deed or any other document (which may be in electronic form), including:
and, where relevant, whether the Performance Award or Restricted Award is granted in the form of a Conditional Award or an Option;
For Options granted to US Taxpayers, the Option Price will not be less than the fair market value of a Share on the Award Date and the maximum number of Shares that can be purchased pursuant to the Option shall be set no later than the Award Date. For the avoidance of doubt, the determination of fair market value shall be determined in a manner consistent with §1.409A-1(b)(5)(iv) of the Final Regulations.
When granting a Performance Award, the Grantor must and, in the case of a Market Value Option or a Restricted Award, may make its Vesting conditional on the satisfaction of one or more conditions linked to performance. A Performance Condition must be specified at the Award Date.
The Directors may waive or change a Performance Condition in accordance with its terms or if anything happens which causes the Directors reasonably to consider it appropriate to do so.
The Grantor may impose other conditions when granting an Award. Any condition must be specified at the Award Date and may provide that an Award will lapse if it is not satisfied. The Directors may waive or change a condition imposed under this rule 2.7.
Each Participant will receive a certificate setting out the terms of the Award as soon as practicable after the Award Date. The certificate may be the deed referred to in rule 2.4 (Terms of Awards) or any other document (which may be in electronic form). If any certificate is lost or damaged, the Grantor may replace it on such terms as it decides.
A Participant is not required to pay for the grant of any Award.
If the Grantor grants an Award which is inconsistent with rule 2.2 (Eligibility), it will lapse immediately.
If the Grantor tries to grant an Award which is inconsistent with rule 2.11 (Individual limit for Awards), 2.12 (Plan limits – 10 per cent) or 2.13 (Plan limits – 5 per cent), then the Award will be limited and will take effect from the Award Date on a basis consistent with those rules.
An Award must not be granted to an Employee if it would, on the proposed Award Date, cause the market value of Shares subject to all Awards of the same type granted in respect of that financial year under the Plan to exceed the following percentages of the Employee's annual basic salary from all Members of the Group:
For these purposes, "market value" will be determined by the Directors.
Subject to rule 6.8 (Consistency with directors' remuneration policy), each of the relevant limits may be exceeded if the Directors determine that exceptional circumstances make it desirable that Awards should be granted in excess of that limit.
"Basic salary" means gross base salary excluding benefits in kind expressed as an annual rate payable on the Award Date. Basic salary payable in a currency other than sterling will be converted into sterling by using any rate of exchange which the Directors may reasonably select.
A Grantor must not grant an Award if the number of Shares committed to be issued under that Award exceeds 10 per cent. of the ordinary share capital of the Company in issue immediately before that day, when added to the number of Shares which have been issued, or committed to be issued, to satisfy Awards under the Plan or options or awards under any other employee share plan operated by the Company granted in the previous 10 years.
A Grantor must not grant an Award if the number of Shares committed to be issued under that Award exceeds 5 per cent. of the ordinary share capital of the Company in issue immediately before that day, when added to the number of Shares which have been issued, or committed to be issued, to satisfy Awards under the Plan or options or awards under any other discretionary employee share plan adopted by the Company granted in the previous 10 years.
Where the right to acquire Shares is released or lapses, the Shares concerned are ignored when calculating the limits in rules 2.12 (Plan limits – 10 per cent) and 2.13 (Plan limits – 5 per cent).
As long as so required by the Association of British Insurers, Shares transferred from treasury are counted as part of the ordinary share capital of the Company and as Shares issued by the Company.
No Shares will be issued under the Plan if it would cause Listing Rule 6.1.19 (shares in public hands) to be breached.
A Participant is not entitled to vote, to receive dividends or to have any other rights of a shareholder in respect of Shares subject to an Award until the Shares are issued or transferred to the Participant.
A Participant may not Assign an Award or any rights in respect of it. If he does, whether voluntarily or involuntarily, then it will immediately lapse.
This rule 3.2 does not apply to the transmission of an Award on the death of a Participant to his personal representatives.
If there is:
the Directors may adjust the number or class of Shares or securities subject to the Award and, in the case of an Option, the Option Price.
However, the Option Price of an Option to subscribe for Shares may be adjusted to a price less than nominal value only if the Directors resolve to capitalise the reserves of the Company, subject to any necessary conditions. This capitalisation will be of an amount equal to the difference between the adjusted Option Price payable for the Shares to be issued on exercise, and the nominal value of such Shares on the date of allotment. If, at the time of exercise, the Directors do not capitalise the reserves of the Company for this purpose, the adjustment under this rule 3.3 will be deemed not to have taken place.
In relation to Options held by US Taxpayers, any adjustment under this rule 3.3 shall be determined in a manner consistent with §1.409A-1(b)(5)(v) of the Final Regulations.
The Directors may, at the Award Date, decide that all or part of an Award will be subject to malus and/or clawback. Where the Directors so decide, they may determine to apply malus and/or clawback as set out in rules 4.2 (Malus) to 4.5 (General) below, in their absolute discretion and notwithstanding any other rule of the Plan, if one or more of the following circumstances has arisen:
Where the Directors determine that malus will be applied in respect of an Award before Vesting (or, in the case of Options, exercise), they will determine whether the Award will lapse wholly or in part and/or whether Vesting or exercise is deferred on such terms as they consider appropriate.
However, the Directors may not apply malus in respect of an unexercised Option after the end of any applicable Holding Period or, where no Holding Period applies, the earliest of the following:
During the Clawback Period, irrespective of whether or not the Participant is still employed by any Member of the Group, the Directors may, in accordance with rule 4.1 (Application of malus and clawback), determine that clawback shall apply.
When clawback applies, the Participant agrees with the Company that, as specified by the Directors:
In addition, the Directors may decide that any Award, bonus or other benefit which might have been granted, Vested or paid to the Participant under this or any other arrangement will be reduced, not awarded or not Vest.
The Clawback Period will begin on the date on which an Award Vests and will end on the earliest of the following:
If an Award is subject to a Holding Period:
5.2.1 The Participant agrees with the Company that they shall not Assign their beneficial interest in the Retained Shares, instruct the Trustee to Assign the Retained Shares or call for the legal title to the Retained Shares during the Holding Period, except:
The Holding Period will begin on the date on which an Award Vests and will end on the earliest of the following:
At the end of the Holding Period, rule 5.2 (Terms applicable to Retained Shares) will cease to apply to the Retained Shares and the Participant agrees that he will direct the Trustee to transfer the Retained Shares to the Participant or an alternative recipient(s) specified by the Participant.
As soon as reasonably practicable after the end of the Performance Period, the Directors will determine how many Shares are due to Vest for each Award, as applicable, as further described in this rule 6.
Subject to rules 4 (Malus and clawback), 7.2 (Relevant leavers – continuation of Awards) and 7.3 (Relevant leavers – early Vesting), an Award (or a proportion of an Award) will Vest on the later of:
or, if on that day a Dealing Restriction prevents Vesting, the first date on which Vesting is not prevented.
Within 30 days of a Conditional Award Vesting, the Directors will arrange, subject to rules 4 (Malus and clawback), 5 (Holding Period), 6.6 (Cash and Share alternative), 6.7 (Withholding) and 10.8 (Consents), for the transfer (including a transfer out of treasury) or issue to, or to the order of, the Participant of the number of Shares in respect of which the Conditional Award has Vested.
An Award, except an Option granted to a US Taxpayer or a Tax-Qualified Option, may include the right to receive a Dividend Equivalent which may be paid in cash or Shares (as determined from time to time by the Directors). Dividend Equivalents will be paid to any relevant Participant as soon as practicable after Vesting or, in the case of Options, exercise. For the avoidance of doubt, the Dividend Equivalent does not include the tax credit.
The Directors may decide to satisfy an Award by paying an equivalent amount in cash, subject to rule 6.7 (Withholding). For Options, the cash amount must be equal to the amount by which the market value of the Shares in respect of which the Option is exercised exceeds the Option Price on the date of exercise (the "Option Gain"). The Directors may also decide to satisfy an Option by paying the Option Gain in Shares (rounded down to the nearest whole Share). An Award may be granted on the basis that it will be satisfied in this manner.
In respect of Awards which consist of a right to receive a cash amount, the Directors may decide instead to satisfy the Vesting of such Awards by the delivery of Shares, subject to rule 6.7 (Withholding). The number of Shares will be calculated by reference to the market value of the Shares on the date of Vesting for Conditional Awards and the date of exercise for Options.
The Company, the Grantor, any employing company or trustee of any employee benefit trust may withhold such amount and make such arrangements as it considers necessary to meet any liability to taxation or social security contributions in respect of Awards. These arrangements may include the sale or reduction in number of any Shares.
Notwithstanding any other provision in these rules or the terms of any Award, the Grantor or any other person will not issue or transfer any Shares or make any payment which would be inconsistent with the approved directors' remuneration policy of the Company and in breach of Chapter 4A of Part 10 of the Companies Act 2006. To the extent that the terms of any Award are so inconsistent, the Directors may, acting reasonably and in good faith, adjust (retrospectively or otherwise) the number or class of Shares or securities comprised in an Award and/or impose additional conditions on the Vesting of such Award as they consider appropriate.
Unless rule 7.2 (Relevant leavers – continuation of Awards), 7.3 (Relevant leavers – early Vesting) or 7.4 (Relevant leavers – Category 1 Performance Awards) applies, a Conditional Award (or proportion thereof) that has not yet Vested or an Option (or proportion thereof) that has not yet been exercised will lapse on the date the Participant leaves employment.
Unless rule 7.3 (Relevant leavers – early Vesting) or 7.4 (Relevant leavers – Category 1 Performance Awards) applies, an Award will not lapse and will continue and where relevant Vest on the Normal Vesting Date(s), subject to the rules of the Plan, if a Participant leaves employment due to:
The number of Shares in respect of which the Award Vests will, unless the Directors decide otherwise, be reduced pro rata as provided for in rule 7.6 (Pro rating Awards).
Notwithstanding the foregoing, rule 7.2.2 shall not apply to the following Awards held by US Taxpayers: (i) Restricted Awards; (ii) Conditional Awards that are not subject to any Performance Conditions; and (iii) Conditional Awards held by a US Taxpayer after the date on which any Performance Period applying to such Conditional Award ends.
Where a Participant leaves employment for one of the reasons set out in rule 7.2 (Relevant leavers – continuation of Awards), the Directors may decide, in their discretion, that the Award will Vest on the date the Participant leaves employment or such other date as they decide. Where they do so:
The number of Shares in respect of which the Award Vests will, unless the Directors decide otherwise, be reduced pro rata as provided for in rule 7.6 (Pro rating Awards).
Where a Participant leaves employment for one of the reasons set out in rule 7.2 (Relevant leavers – continuation of Awards), the following will apply in respect of his Category 1 Performance Awards:
With respect to Conditional Awards held by US Taxpayers, notwithstanding rules 7.2 (Relevant leavers – continuation of Awards), 7.3 (Relevant levers – early Vesting) and 7.4 (Relevant leavers – Category 1 Performance Awards), if a Participant leaves employment due to a reason set forth in rule 7.2 (Relevant leavers – continuation of Awards), the Award does not lapse but will Vest on the date of cessation or, if any Performance Condition applying to the Conditional Award cannot be (or has not been) measured on or before cessation, as soon as practicable after the first opportunity when such Performance Condition may be determined, but in no event shall Shares or cash underlying the Conditional Awards be transferred later than March 15 of the calendar year following the calendar year in which the Performance Period as to which the Performance Condition is measured ends.
The number of Shares in respect of which the Award Vests will, unless the Directors decide otherwise, be reduced pro rata as provided for in rule 7.6 (Pro rating Awards).
If a Participant dies his Award will Vest on the date of death to the extent that any Performance Condition or other condition has been or is likely to be satisfied (as determined by the Directors, at the date of death, in the manner specified in the Performance Condition or other condition or in such manner as they consider reasonable) and will lapse as to the balance.
The number of Shares in respect of which the Award Vests will, unless the Directors decide otherwise, be reduced pro rata as provided for in rule 7.6 (Pro rating Awards).
An Option which is exercisable after the Participant has left employment will be exercisable for six months from the date of leaving or, if later, the date on which it Vests. In the case of death, the Option will be exercisable for 12 months from the date of death.
7.9.1 A Participant will only be treated as "leaving employment" when he is no longer an Employee of any Member of the Group and, unless the Directors decide otherwise, a Participant will be treated as leaving employment on the date he is no longer an Employee of any Member of the Group.
7.9.2 The Directors must make the decision referred to in rule 7.2.6 (Relevant leavers – continuation of Awards) no later than 60 days after the Participant has left employment.
Where rule 7.2 (Relevant leavers – continuation of Awards) applies and the Participant has entered into a Termination Agreement in connection with his leaving employment, subject to rule 4 (Malus and clawback), Awards will not Vest unless the Participant has complied with, or is released from, his obligations under that Termination Agreement as the Directors determine.
If a Participant remains an Employee but is transferred to work in another country or changes tax residence status and, as a result, would:
then the Directors may decide that the Awards will Vest on a date they choose before or after the transfer takes effect. The Award will Vest to the extent they permit, remain exercisable for such period as they decide and may lapse as to the balance if the Directors so decide.
Notwithstanding the foregoing, if this rule 7.11 applies with respect to a Participant who is, or is expected to become, a US Taxpayer, the Directors may decide to accelerate Vesting and the transfer of the underlying Shares to a date earlier than the date originally set for Vesting, but shall not extend, suspend or otherwise change the period of Vesting in any other manner.
In the event of a:
an Award Vests subject to rules 8.2 (Extent of Vesting), 8.3 (Lapse of Options) and 8.4 (Exchange). The Award lapses as to the balance except to the extent exchanged under rule 8.4 (Exchange). The Directors may impose other conditions on Vesting.
Where an Award Vests under rule 8.1 (Vesting of Awards):
Following an event described in rule 8.1 (Vesting of Awards), an Option will be exercisable for three months after the relevant event (or such other period, not exceeding one year, as the Directors may determine at the time of the event) or, if earlier, for six weeks after the date on which a notice to acquire Shares under section 979 of the Companies Act 2006 is first served. The Option will lapse at the end of that period to the extent unexercised.
An Award will not Vest under rule 8.1 (Vesting of Awards) but will be exchanged pursuant to rule 8.6 (Exchange terms) to the extent that:
To the extent that an offer to exchange a Conditional Award is made under rule 8.4.1 to a US Taxpayer, the Conditional Award will not Vest under rule 8.1 (Vesting of Awards) and will lapse to the extent such offer is declined by such US Taxpayer.
Where an Award is to be exchanged under rule 8.4 (Exchange), the exchange is effective immediately following the relevant event.
Where a Participant is granted a new award in exchange for an existing Award, the new award:
In this rule 8, "Directors" means those people who were members of the remuneration committee of the Company immediately before the Change of Control.
Except as described in the rest of this rule 9, the Directors may at any time change the Plan (including the terms of any Awards) in any way, including changes to the disadvantage of Participants.
The Directors are not required to give Participants notice of any changes.
The Plan will terminate on the Expiry Date, but the Directors may terminate the Plan at any time before that date. The termination of the Plan will not affect existing Awards.
The decision of the Directors on the interpretation of the Plan or in any dispute relating to an Award or matter relating to the Plan will be final and conclusive.
Neither the Company, the Grantor nor any Director shall be liable for any action or determination with respect to an Award or Awards that results in such Awards (individually or entirely) becoming subject to taxation under Section 409A of the US Internal Revenue Code 1986.
Nothing in this Plan confers any benefit, right or expectation on a person who is not a Participant. No such third party has any rights under the Contracts (Rights of Third Parties) Act 1999 or any equivalent local legislation to enforce any term of this Plan. This does not affect any other right or remedy of a third party which may exist.
The Company is not required to send to Participants copies of any documents or notices normally sent to the holders of its Shares.
The Company will pay the costs of introducing and administering the Plan. The Company may ask a Participant's employer to bear the costs in respect of an Award to that Participant.
The Company may provide money to the trustee 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 permitted by Section 682 of the Companies Act 2006 or any applicable law.
Subject to rule 10.7.2, by participating in the Plan and accepting an Award, the Participant consents to the holding and processing of personal information the Participant provides to any Member of the Group, trustee or third-party service provider, for all purposes relating to the operation of the Plan. These include, but are not limited to:
(i) administering and maintaining Participant records;
The Participant is entitled, on payment of a fee, to a copy of the personal information held about them, and if anything is inaccurate the Participant has the right to have it corrected.
10.7.2 EU Data Protection
The basis for any processing of personal information about the Participant under the EU's General Data Protection Regulation (2016/679) ("GDPR") (or any successor laws, including its incorporation into UK law as the UK GDPR) is set out in the shareholders' section of the Company's Fair Processing Notice (available here: https://www.baesystems.com/en/privacy) and is not the consent given under rule 10.7.1.
The Participant is advised to review the shareholders' section of the Company's Fair Processing Notice which also contains details about how the Participant's personal information is processed and the Participant's rights in relation to that information.
All allotments, issues and transfers of Shares will be subject to:
Shares issued to satisfy Awards under the Plan will rank equally in all respects with the Shares in issue on the date of allotment. They will not rank for any rights attaching to Shares by reference to a record date preceding the date of allotment. Where Shares are transferred to a Participant, including a transfer out of treasury, the Participant will be entitled to all rights attaching to the Shares by reference to a record date on or after the transfer date. The Participant will not be entitled to rights before that date.
If and so long as the Shares are listed and traded on a public market, the Company will apply for listing of any Shares issued under the Plan as soon as practicable.
With respect to all Conditional Awards held by US Taxpayers, the terms of the Plan and all Conditional Awards granted under the Plan are intended to, and shall be interpreted and construed in a manner to, fit within the "short-term deferral" exception from Section 409A of the US Internal Revenue Code 1986. Under the "short-term deferral" exception, payments may be made by the later of the 15th day of the third month following the end of the calendar year in which the right to the payment is no longer subject to a substantial risk of forfeiture or the 15th day of the third month following the end of the employer's first taxable year in which the right to the payment is no longer subject to a substantial risk of forfeiture. Accordingly, notwithstanding anything in the Plan to the contrary, the Company shall transfer Shares or cash underlying a Conditional Award and any related Dividend Equivalents to US Taxpayers no later than the later of the 15th day of the third month following the end of the calendar year in which the Conditional Award is no longer subject to a substantial risk of forfeiture.
English law governs the Plan and all Awards and their construction. The English courts have exclusive jurisdiction in respect of disputes arising under or in connection with the Plan or any Award.
The purpose of this Schedule is to provide, in accordance with ITEPA, benefits for employees and directors in the form of Tax-Qualified Options. To this end, the Grantor may, when granting a Market Value Option designate it as a Tax-Qualified Option. If it does so, the provisions of the Plan will apply to it, as amended by this Schedule 1.
The following definitions apply to this Schedule 1 and add to or amend, as appropriate, the definitions which are set out in the Plan:
"Control" has the meaning given to it by Section 995 of the Income Tax Act 2007;
"HMRC" means HM Revenue and Customs;
"ITEPA" means Schedule 4 to the Income Tax (Earnings and Pensions) Act 2003;
"Market Value" on any particular day means where Shares of the same class are admitted to the Official List and traded on the London Stock Exchange or a foreign stock exchange1 :
in any case, ignoring any restrictions referred to in paragraph 36(3) of ITEPA. The middle market quotation is taken from the Daily Official List of the London Stock Exchange;
"Official List" means the list maintained by the Financial Conduct Authority for the purpose of Section 74(1) Financial Services and Markets Act 2000;
"Schedule 4 Plan" means a plan in relation to which the requirements of Parts 2 to 6 of ITEPA are (and are being) met; and
"Shares" means fully paid ordinary shares in the capital of the Company which satisfy paragraphs 16 to 20 of ITEPA.
Except where paragraph 10 below applies, if any Shares which are subject to a Tax-Qualified Option cease to satisfy Part 4 of ITEPA and the Plan ceases to be a Schedule 4 Plan, then the definition of "Shares" will be automatically changed to "fully paid ordinary shares in the capital of the Company".
1 If the foreign stock exchange is not a recognised stock exchange, the price will have to be agreed in advance with HMRC Shares and Assets Valuation.
The Grantor will ensure that the Participant is notified of the following as soon as practical after grant of a Tax-Qualified Option:
The notification may be given wholly or partly through the Award certificate.
The Grantor will set the Option Price and state it on the Award Date.
The Option Price will not be:
The Grantor must not grant a Tax-Qualified Option to an employee which would on the Award Date cause the aggregate Market Value of:
(iii) the shares which he may acquire on exercising his options under any other Schedule 4 Plan established by the Company or by any of its associated companies (as defined in paragraph 35 of ITEPA),
to exceed the amount permitted under paragraph 6(1) of ITEPA (£60,000 or such other limit as provided for from time to time). For the purposes of sub-paragraph (iii) above, "Market Value" is calculated as at the date of grant of the options as described in the relevant plan rules.
If the Grantor tries to grant a Tax-Qualified Option which is inconsistent with this paragraph 5, the Tax-Qualified Option will be limited and will take effect from the Award Date on a basis consistent with this paragraph 5.
Rule 3.3 (Adjustment of Awards) does not apply to Tax-Qualified Options.
Adjustments may be made to Tax-Qualified Options so far as necessary to take account of a variation of share capital only where there is a variation of the capital of which Shares form part and:
For the purpose of this paragraph, a "variation of share capital" includes a capitalisation or rights issue, consolidation, subdivision or reduction of share capital (or any other event the Directors consider to be similar in nature).
An annual return relating to the Plan submitted to HMRC following any such adjustment must include a declaration that the Plan continues to comply with ITEPA.
Rule 6.5 (Dividend Equivalent) does not apply in relation to Tax-Qualified Options.
Rule 6.6 (Cash and Share alternative) does not apply in relation to Tax-Qualified Options.
A Participant may not exercise a Tax-Qualified Option while he is excluded from participation in a Schedule 4 Plan under paragraph 9 of ITEPA (material interest provisions).
"Redundancy" in relation to Tax-Qualified Options is redundancy within the meaning of the Employment Rights Act 1996.
If a Tax-Qualified Option is to Vest under rule 8.1 (Vesting of Awards) and, as a result of the event giving rise to Vesting, Shares in the Company would no longer meet the requirements of Part 4 of ITEPA, it may be exercised under that rule only within a 20 day period:
and will lapse at the end of that period to the extent not so exercised.
This paragraph 12 will apply if a Tax-Qualified Option is to be exchanged under rule 8.4 (Exchange).
The Directors' powers under rule 9 (Changing the Plan and termination) are further restricted in relation to Tax-Qualified Options as described in this paragraph 13.
This Schedule 2 contains the rules of the BAE Systems Recruitment and Retention Plan (the "Recruitment and Retention Plan"). The rules of the Plan, as amended by this Schedule 2, apply to the Recruitment and Retention Plan.
This introduction does not form part of the rules.
The rules of the Plan apply to Awards granted under this Schedule 2, subject to the amendments set out below.
The rules of the Plan will be changed in respect of Awards granted under this Schedule 2 as follows:
The following definitions are added:
"Good Standing Condition" means that an Award will immediately lapse if the Directors in their absolute discretion determine at any time prior to Vesting that:
For the avoidance of doubt, if no such determination is made by the Directors prior to the Vesting of the Award, the Award will not lapse;
Rule 2.3 will not apply and the Recruitment and Retention Plan may be operated at any time, subject to any applicable Dealing Restrictions.
Rule 2.4.2 is deleted and replaced with the following:
and, where relevant, whether the Performance Award or Restricted Award is granted in the form of a Conditional Award or an Option;"
The following rule is added:
"2.4.12 where relevant in accordance with rule 2.11.2 (Individual limit for Awards), that the Award may not be satisfied by Shares being issued or transferred from treasury, and the provisions of the Plan which relate expressly to Shares being issued or transferred from treasury do not apply."
Rule 2.7 is deleted and replaced with the following:
"2.7 The Grantor may impose other conditions (such as the Good Standing Condition) when granting an Award. Any condition must be set out in the deed or other document referred to in rule 2.4 (Terms of Awards) and may provide that an Award will lapse if it is not satisfied. The Directors may waive or change a condition imposed under this rule 2.7."
Rule 2.11 is deleted and replaced with the following:
"Basic salary" means gross base salary excluding benefits in kind expressed as an annual rate payable on the Award Date. Basic salary payable in a currency other than sterling will be converted into sterling by using any rate of exchange which the Directors may reasonably select."
Rule 4.1 is deleted and replaced with the following:
has arisen, provided such circumstance was set out in the deed or other document referred to in rule 2.4 (Terms of Awards)."
The reference in rule 6.2 to rules 7.2 (Relevant leavers – Continuation of Awards) and 7.3 (Relevant Leavers – early Vesting) shall be read as a reference to rule 7.2 (Relevant Leavers – early Vesting).
Rules 7.1 to 7.6 (inclusive) are deleted and replaced with the following:
Unless rule 7.2 (Relevant leavers – early Vesting) applies, a Conditional Award (or proportion thereof) that has not yet Vested or an Option (or proportion thereof) that has not yet been exercised will lapse on the date the Participant leaves employment.
Where a Participant leaves employment due to:
the Award will not lapse and, where relevant, will Vest on the date the Participant leaves employment (or such other date as the Directors may decide) to the extent that any Performance Condition or other condition has been or is likely to be satisfied (as determined by the Directors, at the relevant time, in the manner specified in the Performance Condition or other condition or in such manner as they consider appropriate) and the Award will lapse to the extent it does not Vest.
The number of Shares in respect of which the Award Vests will, unless the Directors decide otherwise, be reduced pro rata as provided for in rule 7.3 (Pro rating Awards).
The reference in rule 7.7 to rule 7.6 (Pro rating Awards) shall be read as a reference to rule 7.3 (Pro rating Awards).
Rule 7.9.1 is deleted and replaced with the following:
"7.9.1 Unless the Directors decide otherwise, a Participant will be treated as leaving employment on the earlier of the date of giving or receiving notice of termination of employment or the date he is no longer an Employee of any Member of the Group, provided he does in fact "leave employment" which, for these purposes, shall mean that the Participant is no longer an Employee of any Member of the Group."
The reference in rule 7.9.2 to rule 7.2.6 (Relevant Leavers – Continuation of Awards) shall be read as a reference to rule 7.2.6 (Relevant Leavers – early Vesting).
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