CONTENTS

 

Rule			Page
Part A - HMRC Approved			1
1.	Definitions And Interpretation		1
2.	Eligibility		2
3.	Grant Of Options		3
4.	Limits		4
5.	Exercise Of Options		7
6.	Leavers And Deceased Participants		9
7.	Takeovers And Other Corporate Events		12
8.	Adjustment Of Options		15
9.	Alterations		16
10.	Miscellaneous		17
Part B - Unapproved			19
1.	Definitions And Interpretation		19
2.	Eligibility		21
3.	Grant Of Awards		21
4.	Limits		24
5.	Vesting Of Awards		27
6.	Consequences Of Vesting		28
7.	Exercise Of Options		30
8.	Cash Alternative		31
9.	Lapse Of Awards		33
10.	Leavers And Deceased Participants		33
11.	Takeovers And Other Corporate Events		35
12.	Adjustment Of Awards		37
13.	Alterations		38
14.	Miscellaneous		39
15.	Incentive Stock Options		41
Schedule 1 : Grant Of A Forfeitable Shares Award			44
Schedule 2 : Cash Conditional Awards			45
Schedule 3 : Share Appreciation Rights			46
Schedule 4 : United States Addendum			47
Schedule 5 : Canadian Addendum			49

 

 

PART A - HMRC APPROVED

 

1.              DEFINITIONS AND INTERPRETATION

 

1.1            In this Part A of the Plan, unless the context otherwise requires:

 

“ Board ” means the board of directors of the Company (or, on and after the occurrence of a corporate event described in Rule 11 ( Takeovers and other corporate events ), for the purposes of making determinations under Rule 11, the board of directors of the Company as constituted immediately before such event occurs) or a duly authorised committee of the board or a duly authorised person;

 

“ Company ” means Diageo plc (registered in England and Wales with registered number 23307);

 

“ Control ” means control within the meaning of section 719 of ITEPA;

 

“ Grant Date ” means the date on which an Option is granted;

 

“ Group Member ” means:

 

(a)              a Participating Company or a body corporate which is the Company’s holding company (within the meaning of section 1159 of the Companies Act 2006) or a Subsidiary of the Company’s holding company;

 

(b)             a body corporate which is a subsidiary undertaking (within the meaning of section 1162 of that Act) of a body corporate within paragraph (a) above and has been designated by the Board for this purpose; and

 

(c)              any other body corporate in relation to which a body corporate within paragraph (a) or (b) above is able (whether directly or indirectly) to exercise 15% or more of its equity voting rights and has been designated by the Board for this purpose;

 

“ HMRC ” means H.M. Revenue & Customs;

 

“ ITEPA ” means the Income Tax (Earnings and Pensions) Act 2003;

 

“ Listing Rules ” means the Listing Rules published by the UKLA;

 

“ London Stock Exchange ” means London Stock Exchange plc or any successor to that company;

 

“ Option ” means a right to acquire Shares granted under Part A of the Plan;

 

“ Participant ” means a person who holds an Option including his personal representatives;

 

“ Participating Company ” means the Company or any Subsidiary;

 

“ Plan ” means the Diageo 2009 Executive Long Term Incentive Plan as amended from time to time;

 

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“ Rule ” means a rule of the Plan;

 

“ Schedule 4 ” means Schedule 4 to ITEPA;

 

“ Shares ” means fully paid ordinary shares in the capital of the Company which satisfy the requirements of paragraphs 16 to 20 of Schedule 4 ( fully paid up, unrestricted ordinary share capital ) unless Rule 5.11 ( Shares ceasing to satisfy Schedule 4 requirements ) applies;

 

“ Subsidiary ” means a body corporate which is a subsidiary (within the meaning of section 1159 of the Companies Act 2006) of the Company and of which the Company has Control;

 

“ Tax Liability ” means any amount of tax or social security contributions for which a Participant would or may be liable and for which any Group Member or former Group Member would or may be obliged to (or would or may suffer a disadvantage if it were not to) account to any relevant authority;

 

“ UKLA ” means the United Kingdom Listing Authority;

 

and expressions not defined in Part A of the Plan have the same meanings as they have in Schedule 4.

 

1.2            Any reference in Part A of the Plan to any enactment includes a reference to that enactment as from time to time modified, extended or re-enacted.

 

1.3            Expressions in italics and headings are for guidance only and do not form part of the Plan.

 

2.              ELIGIBILITY

 

2.1            General rule on eligibility

 

Subject to Rule 2.3 ( Individuals not eligible ), an individual is eligible to be granted an Option only if he is a full-time director or qualifying employee as defined in Rule 2.2.

 

2.2            Individuals eligible

 

For the purposes of Rule 2.1:

 

(a)            a full-time director is an individual who is a director of a Participating Company (other than a director of the Company) and is obliged to devote not less than 25 hours a week (excluding meal breaks) to the performance of the duties of his office or employment with that and any other Participating Company; and

 

(b)            a qualifying employee is an employee of a Participating Company (except an employee who is a director of a Participating Company or a member of the executive committee).

 

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2.3            Individuals not eligible

 

An individual is not eligible to be granted an Option at any time when he is not eligible to participate in Part A of the Plan by virtue of paragraph 9 of Schedule 4 ( material interest in a close company ).

 

3.              GRANT OF OPTIONS

 

3.1            Terms of grant

 

Subject to Rule 3.5 ( Timing of grant ), Rule 3.7 ( Approvals and consents ) and Rule 4 ( Limits ), the Board may resolve to grant an Option on:

 

(a)            the terms set out in Part A of the Plan; and

 

(b)            such additional terms as the Board may specify

 

to any person who is eligible to be granted an Option under Rule 2 ( Eligibility ).

 

3.2            Method of grant

 

An Option shall be granted by deed executed by the Company.

 

3.3            Method of satisfying Options

 

Unless specified to the contrary by the Board on the Grant Date, an Option may be satisfied:

 

(a)            by the issue of new Shares; and/or

 

(b)            by the transfer of treasury Shares; and/or

 

(c)            by the transfer of Shares (other than the transfer of treasury Shares).

 

The Board may decide to change the way in which it is intended that an Option may be satisfied after it has been granted, having regard to the provisions of Rule 4 ( Limits ).

 

3.4            Option price

 

The Board shall decide before an Option is granted the price at which Shares may be acquired by the exercise of that Option, but the price shall not be less than:

 

(a)            if Shares are quoted in the London Stock Exchange Daily Official List, the average of the middle-market quotation of the Shares (as derived from that List) for the 3 dealing days before the Grant Date (or on such other dealing day(s) as may be agreed with HMRC) provided such dealing day(s) do not fall within any period when dealings in Shares are prohibited under the Company’s share dealing code (unless the proposed grant is permitted by such code);

 

(b)            if Rule 3.4(a) does not apply, the market value (within the meaning of Part VIII of the Taxation of Chargeable Gains Act 1992) of Shares, as agreed in

 

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advance for the purposes of the Plan with HMRC Shares and Assets Valuation, on the Grant Date (or such other day(s) as may be agreed with HMRC); and

 

(c)            in the case of an Option to acquire Shares only by subscription, the nominal value of those Shares.

 

3.5            Timing of grant

 

Subject to Rule 3.7 ( Approvals and consents ), an Option may only be granted:

 

(a)            within the period of 6 weeks beginning with:

 

(i)             the day on which the Plan is approved by shareholders of the Company; or

 

(ii)            the dealing day after the day on which the Company announces its results for any period; or

 

(b)            at any other time when the Board considers that circumstances are sufficiently exceptional to justify its grant

 

but an Option may not be granted:

 

(c)            under Part A of the Plan before the day on which Part A of the Plan is approved by HMRC under Schedule 4; or

 

(d)            after 13 October 2019 (that is, the expiry of the period of 10 years beginning with the date on which the Plan is approved by shareholders of the Company).

 

3.6            Non-transferability and bankruptcy

 

An Option granted to any person:

 

(a)            shall not be transferred, assigned, charged or otherwise disposed of (except on his death to his personal representatives) and shall lapse immediately on any attempt to do so; and

 

(b)            shall lapse immediately if he is declared bankrupt.

 

3.7            Approvals and consents

 

The grant of any Option shall be subject to obtaining any approval or consent required under the Listing Rules, any relevant share dealing code of the Company, the City Code on Takeovers and Mergers, or any other relevant UK or overseas regulation or enactment.

 

4.              LIMITS

 

4.1            5% in 10 years limit

 

An Option shall not be granted in any calendar year if, at the time of its proposed Grant Date, it would cause the number of Shares allocated (as defined in Rule 4.3) in the period of 10 calendar years ending with that calendar year under the Plan and

 

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under any other executive share plan adopted by the Company to exceed such number as represents 5% of the ordinary share capital of the Company in issue at that time.

 

4.2            10% in 10 years limit

 

An Option shall not be granted in any calendar year if, at the time of its proposed Grant Date, it would cause the number of Shares allocated (as defined in Rule 4.3) in the period of 10 calendar years ending with that calendar year under the Plan and under any other employee share plan adopted by the Company to exceed such number as represents 10% of the ordinary share capital of the Company in issue at that time.

 

4.3            Meaning of “allocated”

 

For the purposes of Rules 4.1 and 4.2:

 

(a)            Shares are allocated:

 

(i)             when an option, award or other contractual right to acquire unissued Shares or treasury shares is granted;

 

(ii)            where Shares are issued or treasury shares are transferred other than in respect of an option, award or other contractual right to acquire Shares, when those Shares are issued or treasury shares transferred;

 

(b)            any Shares which have been issued or which may be issued (or any Shares transferred out of treasury or which may be transferred out of treasury) to any trustees to satisfy the exercise of any option, award or other contractual right shall be treated as “allocated” unless they are already treated as allocated under this Rule; and

 

(c)            for the avoidance of doubt, existing Shares other than treasury shares that are transferred or over which options, awards or other contractual rights are granted shall not count as “allocated”.

 

4.4            Post-grant events affecting numbers of “allocated” Shares

 

For the purposes of Rule 4.3:

 

(a)            where:

 

(i)             any option, award or other contractual right to acquire unissued Shares or treasury shares is released or lapses (whether in whole or in part); or

 

(ii)            after the grant of an option, award or other contractual right the Board determines that:

 

(aa)          where an amount is normally payable on its exercise it shall be satisfied without such payment but instead by the payment of cash equal to the gain made on its exercise; or

 

(bb)          it shall be satisfied by the transfer of existing Shares (other than Shares transferred out of treasury)

 

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the unissued Shares or treasury shares which consequently cease to be subject to the option, award or other contractual right shall not count as allocated; and

 

(b)            the number of Shares allocated in respect of an option, award or other contractual right shall be such number as the Board shall reasonably determine from time to time.

 

4.5            Changes to investor guidelines

 

Treasury shares shall cease to count as “allocated” Shares for the purposes of Rule 4.3 if institutional investor guidelines cease to require such Shares to be so counted.

 

4.6            Individual limit

 

(a)            Subject to Rule 4.7 ( HMRC limit ), the maximum total market value of Shares (calculated as set out in this Rule) over which Options may be granted to any employee during any financial year of the Company is 375% of his salary (as defined in this Rule), unless Rule 4.6(b) applies.

 

(b)            If the Board decides that exceptional circumstances exist in relation to the recruitment or retention of an employee when the maximum total market value of Shares over which Options may be granted to that employee during a financial year of the Company is such higher percentage of his salary (as defined in this Rule) as the Board may determine.

 

For the purpose of this Rule 4.6:

 

(c)            an employee’s salary shall be taken to be his base salary (excluding benefits in kind), expressed as an annual rate payable by the Participating Companies to him on the Grant Date (or on such other date as the Board shall reasonably determine).  Where a payment of salary is made in a currency other than sterling, the payment shall be treated as equal to the equivalent amount of sterling determined by using any rate of exchange which the Board may reasonably select; and

 

(d)            the market value of the Shares over which an Option is granted shall be calculated:

 

(i)             for an Option, on the days by reference to which the price at which Shares may be acquired by the exercise of that Option was determined under Rule 3.4 ( Option price ); and

 

(ii)            for an option granted under any other share option plan approved by HMRC under Schedule 4, at the time when it was granted or, in a case where an agreement relating to the shares has been made under paragraph 22 of Schedule 4, such earlier time or times as may be provided in that agreement.

 

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4.7            HMRC limit

 

No person shall be granted an Option which would, at the time it is granted, cause the total market value of the Shares (calculated as set out in Rule 4.6(d)) which he may acquire as a result of options granted to him (and not exercised) under:

 

(a)            Part A of the Plan; and

 

(b)            any other share option plan approved under Schedule 4 and established by the Company or by any associated company of the Company

 

to exceed £30,000 (or such other limit as may from time to time be imposed by Schedule 4).

 

4.8            Effect of limits

 

Any Option shall be limited and take effect so that the limits in this Rule 4 are complied with.

 

5.              EXERCISE OF OPTIONS

 

5.1            General prohibition on exercise before third anniversary of the Grant Date

 

An Option may only be exercised on or after the third anniversary of the Grant Date except where Rule 6 ( Leavers and deceased Participants ), Rule 7.1 ( General offers ), Rule 7.2 ( Compulsory acquisition, schemes of arrangement and winding up ) or Rule 7.3 ( Demerger and similar events ) applies.

 

5.2            Exercise conditions

 

An Option may only be exercised as permitted by any term specified under Rule 3.1(b).

 

5.3            Restrictions on exercise:  regulatory and tax issues

 

An Option may not be exercised unless the following conditions are satisfied:

 

(a)            the exercise of the Option and the issue or transfer of Shares after such exercise would be lawful in all relevant jurisdictions and in compliance with the Listing Rules, any relevant share dealing code of the Company (which, for the purposes of the Plan shall be deemed to apply to any Participant who ceases to be a director or employee of a Group Member if such code applied to the Participant immediately before such cessation), the City Code on Takeovers and Mergers and any other relevant UK or overseas regulation or enactment;

 

(b)            if a Tax Liability would arise by virtue of the exercise of the Option, then, unless the Participant agrees with the Board to fund all or part of the Tax Liability in a different manner, the Participant authorises the Company to sell or procure the sale of sufficient Shares on his behalf to ensure that any relevant Group Member receives the amount required to discharge the Tax Liability;

 

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(c)            the Participant has entered into such arrangements as the Board requires by way of agreement or election under Paragraphs 3A and 3B (respectively) of Schedule 1 of the Social Security Contributions and Benefits Act 1992 to satisfy a Group Member’s liability to social security contributions in respect of the exercise of the Option; and

 

(d)            if the Participant will exercise the Option in circumstances which will give rise to a Tax Liability and the Board requires, the Participant has entered into, or agreed to enter into, a valid election under Part 7 of ITEPA ( Employment income:  elections to disapply tax charge on restricted securities ).

 

For the purposes of this Rule 5.3, references to Group Member include any former Group Member.

 

5.4            Restriction on exercise: material interest in a close company

 

A Participant shall not be eligible to exercise an Option at any time when he is not eligible to participate in Part A of the Plan by virtue of paragraph 9 of Schedule 4 ( material interest in close company ).

 

5.5            Long stop date for exercise

 

An Option may not in any circumstances (and regardless of any other Rule) be exercised after the expiry of 10 years beginning with the Grant Date (or such shorter period beginning with the Grant Date as the Board may have decided before the grant of that Option) and if not exercised shall lapse at the end of such period.

 

5.6            Exercise in whole or in part

 

An Option may be exercised to the maximum extent possible at the time of exercise or over such fewer number of Shares as the Participant decides.

 

5.7            Method of exercise

 

The exercise of any Option shall be effected in the form and manner prescribed by the Board and subject to the prior approval of HMRC.  Unless the Board, acting fairly and reasonably, determines otherwise, any notice of exercise shall, subject to Rules 5.3 and 5.4 ( Restrictions on exercise ), take effect only when the Company receives it, together with:

 

(a)            payment of the relevant price at which Shares can be acquired under the Option (or, if the Board so permits, an undertaking to pay that amount); and

 

(b)            if a Tax Liability arises and if a Participant decides to satisfy the Tax Liability other than by selling Shares pursuant to the authority in Rule 5.3(b), an agreement relating to the payment of the Tax Liability having been entered into.

 

5.8            Restriction on use of unissued Shares and treasury shares

 

No Shares may be issued or treasury shares transferred to satisfy the exercise of any Option to the extent that such issue or transfer would cause the number of Shares

 

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( Compulsory acquisition, schemes of arrangement and winding up ) or Rule 7.3 ( Demerger and similar events ) applies.

 

For the purposes of this Rule, the Board shall determine the number of Shares over which the Option becomes exercisable by:

 

(i)             applying any term specified by the Board on the Grant Date (unless the Board, in exceptional circumstances, decides otherwise); and

 

(ii)            reducing the number of Shares pro rata to reflect any unexpired part of the period of 3 years after the Grant Date as at the time that the Participant ceases to be a director or employee unless the Board, acting fairly and reasonably, decides that the pro rata reduction in the number of Shares is inappropriate in any particular case when it shall increase the number of Shares to such higher number as it decides (provided that the number does not exceed the number of Shares determined under paragraph (i) above).

 

6.2            Retirement, ill-health, injury, disability, redundancy and transfer out of the Group

 

If a Participant ceases to be a director or employee of a Group Member by reason of:

 

(a)            retirement with the agreement of his employer;

 

(b)            ill-health, injury or disability (evidenced to the satisfaction of his employer);

 

(c)            redundancy (within the meaning of the Employment Rights Act 1996) or any overseas equivalent; or

 

(d)            his office or employment being either with a company which ceases to be a Group Member or relating to a business or part of a business which is transferred to a person who is not a Group Member

 

the following provisions apply:

 

(e)            any Option granted to him that is already capable of exercise at the date of cessation shall, subject to Rules 5.3 and 5.4 ( Restrictions on exercise ) and Rule 6.1 ( Deceased Participants ), continue to be capable of exercise for a period of 6 months after the date of cessation and if not exercised shall lapse at the end of that period;

 

(f)             any other Option granted to him may, subject to Rules 5.3 and 5.4 ( Restrictions on exercise ), Rule 6.1 ( Deceased Participants ) and the remainder of this Rule, be exercised during the period of 6 months after the date of cessation (or such longer period as the Board may determine not being greater than 42 months after the Grant Date) and if not exercised shall lapse at the end of that period; and

 

(g)            in both cases (e) and (f) above, the period for exercise shall be shortened if Rule 5.5 ( Long stop date for exercise ), Rule 7.1 ( General offers ), Rule 7.2 ( Compulsory acquisition, schemes of arrangement and winding up ) or Rule 7.3 ( Demerger and similar events ) applies.

 

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For the purposes of this Rule, the Board shall determine the number of Shares over which the Option becomes exercisable by:

 

(i)             applying any term specified by the Board on the Grant Date (unless the Board, in exceptional circumstances, decides otherwise); and

 

(ii)            reducing the number of Shares pro rata to reflect any unexpired part of the period of 3 years after the Grant Date as at the time that the Participant ceases to be a director or employee unless the Board, acting fairly and reasonably, decides that the pro rata reduction in the number of Shares is inappropriate in any particular case when it shall increase the number of Shares to such higher number as it decides (provided that the number does not exceed the number of Shares determined under paragraph (i) above).

 

6.3            Specified Retirement Age

 

For the purposes of paragraph 35A of Schedule 4, the specified retirement age shall be 55.

 

6.4            Cessation of employment in other circumstances

 

If a Participant ceases to be a director or employee of a Group Member for any reason other than those specified in Rule 6.1 ( Deceased Participants ), and Rule 6.2 ( Retirement, ill-health, injury, disability, redundancy and transfer out of the Group ), the following provisions apply:

 

(a)            any Option granted to him may not be exercised at all and shall lapse on such cessation unless the Board, acting fairly and reasonably, decides it may be exercised under this Rule 6.4;

 

(b)            if the Board permits the Option to be exercised then it may, subject to Rule 5.3 and Rule 5.4 ( Restrictions on exercise ), Rule 6.1 ( Deceased Participants ) and the remainder of this Rule, be exercised during the period of 6 months after the date of cessation (or such longer period as the Board may determine not being greater than 42 months after the Grant Date) and if not exercised shall lapse at the end of that period; and

 

(c)            the period for exercise referred to in (b) above shall be shortened if Rule 5.5 ( Long stop date for exercise ), Rule 7.1 ( General offers ), Rule 7.2 ( Compulsory acquisition, schemes of arrangement and winding up ) or Rule 7.3 ( Demerger and similar events ) applies.

 

For the purposes of this Rule, the Board shall determine the number of Shares over which the Option becomes exercisable by:

 

(i)             applying any term specified by the Board on the Grant Date (unless the Board, in exceptional circumstances, decides otherwise); and

 

(ii)            reducing the number of Shares pro rata to reflect any unexpired part of the period of 3 years after the Grant Date as at the time that the Participant ceases to be a director or employee unless the Board, acting fairly and reasonably, decides that the pro rata reduction in the number of Shares is inappropriate in

 

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any particular case when it shall increase the number of Shares to such higher number as it decides (provided that the number does not exceed the number of Shares determined under paragraph (i) above).

 

6.5            Meaning of ceasing employment

 

A Participant shall not be treated for the purposes of this Rule 6 as ceasing to be a director or employee of a