Appendix 1

Summary of the principal terms of the Avon Rubber p.l.c. Performance Share Plan 2010

(the ‘2010 Plan’)

 

1.                   Eligibility

All employees (including Directors who are employees) of the Company, and such of its subsidiaries as are designated participating companies by the Remuneration Committee will be eligible to participate in the 2010 Plan.  Participation is at the discretion of the Remuneration Committee (the "Committee").

2.                   Grants under the 2010 Plan

The grant may take the form of a nil-cost option ("Option"), a conditional award of free shares ("Conditional Award") or a joint ownership award ("Joint Ownership Award") or a combination of the same (a "Grant").  A Grant may be made initially in the 42 day period after adoption of the Plan and thereafter each year in the 42 day period following the announcement of the Company's interim or final results.  In circumstances deemed exceptional by the Committee, a Grant may be made outside this normal period.  A Grant will be personal to a participant and, except on the death of a participant, may not be transferred.

3.                   Structure of the Grants under the 2010 Plan

It is intended that Grants to US resident employees will, for regulatory reasons, take the form of Conditional Awards and that Grants to UK resident employees will take the form of a combination of a Joint Ownership Award and an Option.

Under a Joint Ownership Award each participant will acquire a shared beneficial interest in a specified number of shares with a co-owner, which in this case will be the trustee of one of the Company’s employee trusts (the “Jointly Owned Shares”). The beneficial interests of the participant and the co-owning trustee will be unequal but, together, will make up the entire beneficial ownership of each Jointly Owned Share. The participant’s interest in each Jointly Owned Share will be to any increase in value in that share from the Date of Grant over and above a small carry cost. All other value in the shares at vesting will be delivered to the participant through a fixed value nil-cost option.

To the extent the participant does not pay market value on acquiring his interest in the Jointly Owned Shares a charge to income tax will arise, payable by the participant. The Committee will have the discretion to put in place arrangements to assist participants in mitigating the upfront costs associated with a Joint Ownership Award. For the first operation of the 2010 Plan, participants will be required to pay market value for the interest in shares they acquire under a Joint Ownership Award. Payment above a nominal sum on the date of grant will, however, be on deferred terms. The Committee has determined that to assist with such payment a proportion of the shares comprised in the Grant (equivalent in value to the payment) will be excluded from the performance condition below (the “Excluded Award”). On vesting of the Excluded Award, the participant will be required to use its value to meet the deferred payment terms in full.

The effect of the above structure should be to deliver exactly the same potential value to participants on vesting as under the 2002 PSP but with a greater tax efficiency for UK resident participants and a reduced national insurance cost for the Company.

4.                   Performance conditions

When making a Grant, the Committee will specify a performance condition (the ‘Performance Condition’).  The Performance Condition will be measured by reference to a 3 year period beginning from the start of the financial year preceding the date of grant (the ’Performance Period’).  For the first operation of the 2010 Plan, the Performance Condition will, as with the 2002 Performance Share Plan, be based on the Company’s Total Shareholder Return (“TSR”) relative to the TSR of a comparator group comprising the FTSE small capitalised companies excluding investment trusts as follows:

If the Company’s TSR is below the median TSR of the comparator group, then no shares subject to a Grant will vest.

If the Company’s TSR is equal to the median TSR of the comparator group, then 40% of the shares subject to a Grant will vest.

100% of the number of shares subject to a Grant will vest if the Company’s TSR is equal to, or exceeds, the upper quartile TSR of the comparator group. For TSR performance between median and upper quartile, shares subject to a Grant will vest on a pro-rata basis between 40% and 100%.

Retesting of performance will not be allowed.  The Committee may vary the Performance Condition if events occurs which would make the amended Performance Condition a fairer measure of performance.

5.                   Individual limits

No Grant may be awarded to a participant in any year if the value of that Grant would exceed the participant's salary for that year.  In calculating this limit, no account will be taken of any Grant made solely for the purpose of ensuring that a participant is not disadvantaged by agreeing to bear his employer's liability to social security contributions or any other tax liability that may arise at the date of grant as a result of the employee's participation in the 2010 Plan.

6.                   Share capital limit

No Grant may be awarded over unissued shares if the number of shares to which it relates, when aggregated with the number of shares issued or remaining issuable under the 2010 Plan and any other employee share plan adopted by the Company, would exceed 10 per cent of the issued share capital at that time.

For the purposes of this limit, no account will be taken of rights to acquire shares or interests in shares which have been surrendered, lapse or have been released.  However, shares subscribed by the trustee of the Avon Rubber plc Employee Share Ownership Trust to satisfy rights under any employees' share plan do count and (whilst it continues to be good practice to do so) so do shares transferred from treasury.

7.                   Vesting of a Grant

Following vesting of a Conditional Award, the shares will be transferred to a participant on the Release Date (which will normally be 30 days from the date of vesting).

In relation to an Option, following vesting, a participant may exercise his Option over a fixed value for a nominal exercise price of £1. Once vested, Options will normally be exercisable until the tenth anniversary of their date of grant.

In relation to a Joint Ownership Award, following vesting, a participant may require the trustee joint owner to exchange their respective interests in shares for whole shares or, alternatively, sell the jointly owned shares with the participant in the market.

8.                   Termination of employment

Grants normally lapse on cessation of employment of a participant before the expiry of the Performance Period.  However, following cessation of employment for specified "good leaver" reasons, including ill-health or redundancy, the Grant will continue in accordance with the 2010 Plan except that the number of shares in respect of which the Grant would vest will be pro rated to reflect the period of time passed between date of grant and cessation of employment.  If the Committee determines that, at the date of termination, it is unlikely that the Performance Condition will be met in respect of a Grant, then the Grant will lapse.

If a participant dies before the end of a Performance Period a pro rated proportion of the Grant will vest on the date of death.  Exercise is also permitted at the discretion of the Committee if a participant ceases employment for any other reason.

9.                   Dividend equivalents

A Grant may include the right to receive an amount to take account of the net dividends paid between the date of grant and the date of vesting, on the number of shares which vest.

10.               Reconstruction or takeover

In the event of a reconstruction or takeover of the Company before the end of the Performance Period, a proportion of each outstanding Grant will vest on, or if the Committee so determines immediately prior to, the change of control of the Company.

11.               Shareholding guidelines

For the first operation of the 2010 Plan, the Committee will apply the shareholding guidelines adopted in 2004.  Under those guidelines, the Executive Directors must retain a minimum percentage of net shares until a relevant ownership level of 1.5 x basic salary is reached.

In respect of the 2010 Plan, net shares will mean the balance of shares remaining after shares have been sold to meet all income tax, national insurance and exercise costs.

12.               Variations in share capital

In the event of a rights issue, capitalisation issue or other event effecting the share capital of the Company, the Committee may make such adjustments to the number of shares or interest in shares (or the terms applying to such shares or interest in shares) comprised in the relevant Grant as it thinks appropriate.

13.               Amendments

The 2010 Plan may be amended at any time by the Committee, provided that, without the prior approval of the Company in general meeting, no amendments may be made to the material advantage of participants in respect of provisions relating to eligibility, share capital limits, maximum entitlements and the basis for determining and adjusting a participant's entitlement in the event of a variation of the Company's share capital.

The requirement to obtain the prior approval of the Company in general meeting will not apply in relation to any amendment which is of a minor administrative nature, is made to obtain or to comply with the provisions of any existing or proposed legislation, or to obtain or maintain favourable taxation, exchange control or regulatory treatment.

The Committee reserves the right up to the forthcoming annual general meeting to make such amendments and additions to the 2010 Plan as they consider appropriate, provided they do not conflict in any material respect with this summary of the 2010 Plan.

14.               Extension of the 2010 Plan

In addition, the 2010 Plan may be extended to overseas employees of the Company and its subsidiaries subject to such modifications as the Committee shall consider appropriate to take into account local tax, exchange control, securities laws or other regulatory requirements.

In all cases, shares issued (or re-issued) pursuant to such plans shall be treated as counting against the individual and overall limits of the Plan.

15.               Benefits

Benefits received under the 2010 Plan will not be pensionable.

16.               Employee share ownership trusts

The Company will, if required, establish a second employee share ownership trust in addition to the employee share ownership trust established on 6 February 2002. The second trust will be established on identical terms to the first trust (as previously approved by shareholders). The sole purpose of the second trust will be to act as joint owner with participants of joint ownership awards under the 2010 Plan.

Amendment to the Avon Rubber p.l.c Employee Share Ownership Trust (the “Trust”)

The Trust was established on 6 February 2002 and provides that the number of shares which may be subscribed by the Trustee on any day for the purposes of an executive discretionary share plan (such as the 2002 Performance Share Plan and 2010 Plan) must not, when added to the aggregate number of shares which have been subscribed for the same purposes in the previous 10 years, exceed 5% of the Company’s issued share capital at that time. It is proposed that this limit be amended to ensure consistency with the share capital dilution limit proposed for the 2010 Plan.

The Trust deed also provides that no more than 5% of the issued ordinary share capital of the Company may be held in the Trust at any time and it is proposed that such limit be amended so that it applies only to unallocated shares, allowing the trustee of the Trustee to subscribe for, or otherwise acquire, Shares in excess of the 5% limit provided such shares are specifically allocated to satisfy Grants or other awards under the Company’s employee share plans, such Grants or awards having been granted subject to the dilution limits set out in the relevant employee share plans.

Lastly, it is also proposed to clarify the investment powers of the Trust in order to allow its trustee to enter into arrangements necessary to facilitate the operation of the 2010 Plan.

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