Prepared by MERRILL CORPORATION




QuickLinks
 -- Click here to rapidly navigate through this document

Exhibit 4.4  


 
 

THE PEARSON LONG-TERM INCENTIVE PLAN    
  


PREAMBLE


    The
Long-Term Incentive Plan has two elements: 



	•
	the
Stock Option element. This involves the grant of options to acquire Shares, normally having regard to corporate performance over the three years prior
to grant, but without normally needing to satisfy a corporate performance target after grant; and



	•
	the
Restricted Stock element. This involves the grant of rights to acquire Shares. The vesting of such grants may, but need not, be subject to a corporate
performance target. 




DEFINITIONS


    1.1 In
this Plan, unless the context otherwise requires, the following words and expressions shall have the following meanings, namely: 



    Adoption Date means the date of the adoption of the Plan by the Company in general meeting; 


    ADSs means American Depositary Shares representing Shares; 


    Award means a right to acquire Shares under the rules of this Plan, comprising either Stock Option and/or
Restricted Stock elements; 



    the Committee means the personnel committee of the board of directors of the Company, or other duly authorised
committee thereof; 


    the Company means Pearson plc; 


    Control has the meaning given to that word by section 840 of the Taxes Act; 



    Date of Grant means the date on which an Award is granted; 


    Dealing Day means any day on which the London Stock Exchange is open for business; 


    Executive means any employee or executive director of any member of the Group; 


    Grant Period means any day (other than a day on which dealings in Shares are prohibited under the Model Code
for Dealing in Securities) on which the Committee considers it appropriate to grant Awards; 


    the Group means the Company and the Subsidiaries and member of the
Group shall be construed accordingly; 


    Option Exercise Price means the price per Share (expressed in sterling or US dollars) payable on the exercise
of a Stock Option as determined by the Committee (subject to adjustment under rule 10) being not less than the Share Price on the Date of Grant (PROVIDED
THAT, in the case of any Stock Option under which Shares are to be issued, the Option Exercise Price shall also not be less than the nominal value of a Share); 



    Option Period means, in relation to an Option or Option Tranche, the period commencing on the Option Vesting
Date and expiring on the tenth anniversary of the Date of Grant; 


    Option Tranche means each tranche of Shares comprised in a Stock Option, becoming exercisable in the manner
described in rule 5.3 and 5.4; 






    Option Vesting Date means the date on which a Stock Option, or each tranche thereof where granted as Option
Tranches, normally become exercisable; 


    Participant means any individual who holds a subsisting Award (including, where the context permits, the legal
personal representatives of a deceased Participant); 



    Restricted Stock means a right granted under the Plan to call for Shares without payment; 


    Restricted Stock Vesting Date means: 



	(a)
	where
the Restricted Stock is subject to a performance condition (unless the Committee specifies otherwise at its Date of Grant), the third anniversary of the Date of Grant of the
Restricted Stock (or, if later, the date of publication of the final set of accounts of the Company which are relevant to the determination of the applicable performance condition); and



	(b)
	where
the Restricted Stock is not subject to a performance condition, the date on which the Restricted Stock is expressed to vest (as specified by the Committee). 




    the Plan means this Plan as amended from time to time; 


    Stock Option means a right granted under the Plan to subscribe for or purchase Shares at the Option Exercise
Price; 


    Share Option Plan means any employee share option plan established by the Company; 


    Share Price means: 



	(a)
	in
relation to a Share on any Dealing Day, the middle market quotation for a Share as derived from the Daily Official List of The London Stock Exchange; and



	(b)
	in
relation to an ADS on any Dealing Day, the closing price for an ADS on the New York Stock Exchange. 




    Shares means fully paid and irredeemable ordinary shares of 25p each in the capital of the Company or shares
representing those shares following any reorganisation of the share capital of the Company (and, where the context requires, shall include the equivalent thereof in ADSs); 


    Subsidiary means any subsidiary of the Company within the meaning of section 736 of the Companies Act
1985 over which the Company has Control; 


    Taxes Act means the Income and Corporation Taxes Act 1988; and 



    Trustee means the trustee from time to time of the Pearson plc Employee Share Ownership Trust or such other
trust as the Company shall specify from time to time. 


    1.2 Where
the context permits the singular shall include the plural and vice versa. Headings shall be ignored in construing the Plan. 


    1.3 References
to any act shall include any statutory modification, amendment or re-enactment thereof. 



GRANT OF AWARDS


    2.1 The
Committee may, during a Grant Period, grant Awards to Executives selected by the Committee in its absolute discretion. For the avoidance of doubt, no Executive
shall have the right or expectation to participate in the Plan in any year. 


    2.2 Each
Award shall comprise such proportions of Stock Options and Restricted Stock as the Committee thinks fit in its absolute discretion. 








    2.3 The grant of an Award and/or the delivery of Shares upon exercise thereof shall be conditional on the Executive agreeing to comply with any arrangements specified
by the Company for the payment of taxation and social security contributions (including without limitation the right to sell on his or her behalf sufficient Shares to satisfy any taxation or social
security contributions liability on his or her part for which any member of the Group may be liable) in respect of an Award. 


    2.4 As
soon as practicable after the Date of Grant the Committee shall procure the issue to such Executive of certificates in respect of an Award. Such certificates
shall be issued under the seal of the Company or otherwise to take effect as a deed, or may refer to another document evidencing the legal enforceability of the Award. 


    2.5 Any
Executive to whom an Award is granted may, by notice in writing to the Company given within 30 days after the Date of Grant, renounce in whole or in part
his or her rights under the Award. In such a case, the Award shall, to the extent renounced, be treated as never having been granted and (if already issued) the relevant certificate(s) shall be
returned to the Company for cancellation or amendment. No consideration shall be payable by the Company for any such renunciation. 


    2.6 No
Award shall be granted under the Plan later than the fifth anniversary of the Adoption Date. 


    2.7 Every
Award granted hereunder shall be personal to the Participant and, except to the extent necessary to enable a personal representative to exercise the Award
following the death of a Participant, neither the Award nor the benefit thereof may be transferred, assigned, charged or otherwise alienated. Any transfer of an Award otherwise than as permitted under
this rule 2.7 shall cause the Award to lapse. 


PLAN LIMITS


    3.1 Restricted
Stock may only be satisfied using existing issued Shares, and the Company shall provide (and shall procure, where appropriate, that any member of the
Group which employs Participants shall provide) sufficient monies to enable the Trustee to acquire sufficient Shares to satisfy all Restricted Stock. Such monies shall be provided to the Trustee no
later than the date on which the Restricted Stock vests. 


    3.2 Stock
Options may be satisfied using existing issued Shares (in which case the provisions of rule 3.1 shall apply mutatis mutandis) or with new Shares issued
to the Participant at the time of exercise or to the Trustee (in which case rule 3.3 shall apply). 


    3.3 No
Stock Option to subscribe for Shares (whether by the Participant or the Trustee) shall be granted to the extent that the result of that grant would be that the
aggregate number of Shares that could be issued on the exercise of that Stock Option and any other Stock Options granted at the same time: 



	(a)
	when
added to the number of Shares that:



	(i)
	could
be issued on the exercise of any other subsisting share options granted during the preceding ten years under any Share Option Plan (including
Stock Options under the Plan);



	(ii)
	have
been issued on the exercise of any share options granted during the preceding ten years under any Share Option Plan (including Stock Options
under the Plan); and



	(iii)
	have
been issued during the preceding ten years under any profit sharing or other employee share incentive scheme (not being a Share Option Plan), 








would
exceed 10 per cent of the ordinary share capital of the Company for the time being in issue PROVIDED THAT no date earlier than 1
January 1997 shall be taken into account in applying the ten year period referred to in (i), (ii) and (iii) above; or 










	(b)
	when
added to the number of Shares that could be issued on the exercise of Stock Options granted during the same calendar year, would exceed 1.5 per cent of the ordinary share
capital of the Company for the time being in issue. 




    3.4 Reference
in this rule 3 to the issue of Shares shall, for the avoidance of doubt, mean the issue and
allotment (but not transfer) of Shares. 


INDIVIDUAL LIMITS


    4.1 Prior
to granting Awards, the Committee shall, taking such independent expert advice as it thinks fit, determine the implied value of the Awards (expressed on a per
Share basis) at the Date of Grant. Stock Options shall be valued by reference to the Black Scholes method of valuation, taking account of the Option Exercise Prices, certain variables specified in the
Black Scholes model relating to Shares (including the dividend growth rate and Share price volatility), and the period during which Stock Options may be exercised. Restricted Stock shall be valued on
such basis as the Committee thinks fit, having regard to the probability of any applicable performance target being met. 


    4.2 The
number of Shares comprised in Awards granted to any Executive shall be based on the valuation mechanism described in rule 4.1. The Committee shall, in
respect of each Executive, set an expected value for his or her Awards on that occasion, and the aggregate value of the elements of the Awards shall not exceed that expected value. The maximum
expected value of Awards for executive directors will have regard to market practice, and will generally equate to the value of long-term incentive opportunity required to bring expected
total compensation to the upper quartile of market practice for a selected group of comparable companies in the US and UK. 


SPECIFIC PROVISIONS RELATING TO STOCK OPTIONS


    5.1 The
Committee will not grant Stock Options unless it considers that a grant is supported by the underlying performance of the Company's business. For these purposes
the Committee intends to measure corporate performance by reference to the Company's real earnings per share (EPS) growth over the three financial years
prior to the grant, determined in accordance with Schedule One. No Stock Options will be granted unless the Company's average real EPS growth over this period exceeds 3% per annum. Grants will be
calibrated on a sliding scale to corporate performance once this level of EPS growth is achieved, and will be made at the maximum level only if real EPS growth exceeds 3% per annum by a substantial
margin. 


    5.2 All
Stock Options will be subject to a demanding performance condition which the Committee will normally apply before grant (to determine the number of Shares
granted under the Stock Option), but may apply after grant (to determine the number of Shares over which the Stock Option is exercisable). 



    5.3 Where
the Committee determines to grant Stock Options in Option Tranches, such Stock Options will, unless otherwise permitted in these rules, only become
exercisable on the following dates: 



	(a)
	as
to the First Option Tranche, on the first anniversary of the Date of Grant;



	(b)
	as
to the Second Option Tranche, on the second anniversary of the Date of Grant;



	(c)
	as
to the Third Option Tranche, on the third anniversary of the Date of Grant; and



	(d)
	as
to the Final Option Tranche, on the fourth anniversary of the Date of Grant PROVIDED THAT the Final Option Tranche shall lapse in
the event that the First, Second or Third Option Tranches have been exercised under this rule prior to the fourth anniversary of the Date of Grant. 




    5.4 Notwithstanding
rule 5.3, the Committee may, if it thinks fit, grant Stock Options in Option Tranches that become exercisable on different anniversaries to
those stated in rule 5.3. In that event: 



	(a)
	the
earliest date on which an Option Tranche shall become exercisable shall be the first anniversary of the Date of Grant; 









	(b)
	the
Stock Option shall not become exercisable in full before the third anniversary of the Date of Grant; and



	(c)
	such
part of the Stock Option as the Committee shall specify shall lapse if any Option Tranche is exercised before the third anniversary of the Date of Grant (or such later
anniversary as the Committee shall specify). Such part of the Stock Option which lapses shall be treated as the Final Option Tranche for the purposes of
these rules. 




    5.5 Where
the Committee grants a Stock Option, but not in Option Tranches under rule 5.3 or 5.4, the Stock Option will not become exercisable until the third
anniversary of the Date of Grant, unless otherwise permitted in these rules. 


    5.6 A
Participant may exercise a Stock Option in whole or in part by giving notice in writing to the Company in the form prescribed by the Company specifying the Stock
Option being exercised on that occasion, the number of Shares in respect of which the Option (or Option Tranche thereof) is being exercised and enclosing or arranging to provide cash payment in full
of the aggregate Option Exercise Price in respect of those Shares. If the Stock Option is exercised in respect of some only of the Shares comprised in a Stock Option, the Company shall procure the
issue of a certificate to the Participant in respect of the balance or call in the original certificate for endorsement. 


    5.7 Notwithstanding
any other provision in these rules, a Stock Option shall lapse automatically on the earliest of: 



	(a)
	the
expiry of the Option Period;



	(b)
	the
Participant ceasing to be an employee of a member of the Group (save as provided in rule 7);



	(c)
	any
of the dates specified in rule 9; and



	(d)
	the
Participant being declared bankrupt or entering into any general composition with or for the benefit of his or her creditors. 




SPECIFIC PROVISIONS RELATING TO RESTRICTED STOCK


    6.1 Restricted
Stock consists of a right to call for a number of Shares at any time within the time periods referred to in these rules. All Restricted Stock which has
not been called for will lapse at the end of such period or at any earlier date specified in the rules. 


    6.2 Where
a Restricted Stock Award is subject to a performance condition: 



	(a)
	the
number of Shares that vest (the Vesting Shares) shall be determined by the extent to which an objective performance measure is
satisfied by the Restricted Stock Vesting Date. The performance measure initially attaching to such Restricted Stock shall consist of the Free Cash Flow Performance Target set out in Schedule Two to
this Plan. If the Committee wishes to do so, it may at the time of granting Restricted Stock, at its absolute discretion, add a further performance measure (in relation to a particular business or
participant) or impose a performance measure other than that set out in Schedule Two;



	(b)
	75%
of the Vesting Shares (the Main Tranche) may be called for at any time within the period of 6 months following the
Restricted Stock Vesting Date;



	(c)
	25%
of the Vesting Shares (the Deferred Tranche) may be called for at any time within the period of 6 months following the
second anniversary of the Restricted Stock Vesting Date PROVIDED THAT the Participant has not disposed of any Shares comprised in the Main Tranche
(other than Shares sold to satisfy tax liabilities associated with the vesting or calling for the Shares comprised in the Main Tranche) and in the event that the Participant has so disposed of Shares
the Deferred Tranche shall lapse in full. 











    6.3 The
Committee may grant Restricted Stock which is not subject to a performance condition, in order to achieve retention or recruitment objectives. The Restricted
Stock Vesting Date, and such other conditions as the Committee thinks fit, shall be specified by the Committee at the Date of Grant. 


    6.4 A
Participant may call for Restricted Stock (in full only, to the extent then exercisable) by giving written notice to the Company, requesting the Shares to which
he or she is entitled. 



CESSATION OF EMPLOYMENT—STOCK OPTIONS AND RESTRICTED STOCK


    7.1 Save
as otherwise provided in these rules, an Award shall lapse automatically on the Participant ceasing to be an employee of a member of the Group. 


    7.2 Where
a Participant ceases to be an employee of a member of the Group by reason of: 



	(a)
	injury,
disability, ill-health or redundancy (as determined by the Committee);



	(b)
	retirement
at or after the date on which he or she is bound to retire under his or her contract of employment;



	(c)
	his
or her employing company or business ceasing to be part of the Group; or



	(d)
	any
other reason if the Committee so decides in its absolute discretion 




then
the following provisions shall apply: 


	(i)
	any
Stock Option (whether or not it is already exercisable at the date the Participant ceases employment) may be exercised in full at any time
within the period of six months following cessation of employment, and will then lapse PROVIDED THAT the Committee may specify a later date (not being
later than the expiry of the Option Period) on which the Stock Option shall lapse;



	(ii)
	any
Restricted Stock which has not already vested or lapsed shall remain in force, and a Participant may call for the Shares under the Restricted
Stock (if and to the extent that the relevant performance conditions are met) at any time up to 6 months after the relevant Restricted Stock Vesting Date and the Restricted Stock will then
lapse PROVIDED THAT:



	(aa)
	the
number of Shares which vest in accordance with Schedule Two shall be reduced by the fraction A/B where A  is the number of complete months
from the Participant's leaving date to the relevant Restricted Stock Vesting Date, and B is the
number of complete months from the Date of Grant to the relevant Restricted Stock Vesting Date. However, the Committee may in its absolute discretion determine (no later than the relevant Restricted
Stock Vesting Date) that the Participant's entitlement should not be scaled down or should be scaled down in part only (the extent of scaling down being determined by the Committee in its absolute
discretion); and



	(bb)
	the
Shares comprised in the Deferred Tranche may be called for without regard to the condition in rule 6.2(c). 







    7.3 For
the purposes of rules 7.1 and 7.2 a female Participant shall not be treated as ceasing to be an employee of a member of the Group if absent from work
wholly or partly because of pregnancy until she ceases to be entitled to exercise a right to return to work. 


DEATH OF PARTICIPANT—STOCK OPTIONS AND RESTRICTED STOCK


    8.  If
a Participant dies while in service (or at any time after leaving service when he or she holds an Award at the time of his or her death) the Committee shall
determine in its absolute discretion what proportion (if any) of an Award may be exercised and the time at which or within which it may be exercised by his or her legal personal representatives. For
the avoidance of doubt, an Award exercisable under this rule may lapse at an earlier date by virtue of rule 9. 






GENERAL OFFER FOR THE COMPANY, ETC—STOCK OPTIONS AND RESTRICTED STOCK


General Offer  


    9.1 If
any person (either alone or together with any person acting in concert with him or her) obtains Control of the Company as a result of a general offer to acquire
the whole of the share capital of the Company (other than those Shares which are already owned by him or her and/or any person acting in concert with him or her), then the following provisions shall
apply: 



	(i)
	any
Stock Option (whether or not it is already exercisable at the date on which the offer becomes unconditional in all respects) may be exercised at
any time within the period referred to in rule 9.2 (and will then lapse); and



	(ii)
	any
Restricted Stock which has not already vested or lapsed at the date on which the offer becomes unconditional in all respects may be exercised
within the period referred to in rule 9.2 if and to the extent that the relevant performance conditions (that is, initially those set out in Schedule Two by
reference to the Company's most recent published annual accounts or half-yearly accounts if the Committee thinks fit) are met over the foreshortened period ending on the date of change of
Control (and will then lapse). For these purposes, the Shares comprised in the Deferred Tranche may be called for without regard to the condition in rule 6.2(c). In the event of a change of
Control prior to the first anniversary of the Date of Grant of Restricted Stock, the Committee may release such number of Shares as it thinks fit. 




    9.2 Following
a change of Control pursuant to rule 9.1 any Award which has not been exercised (including non-exercise by reason of performance
conditions not being met) shall (unless validly exchanged under rule 9.6) lapse on the earlier of the following dates: 



	(a)
	two
months from the date on which the offer becomes unconditional in all respects; and



	(b)
	one
month after the date on which any person becomes bound or entitled to acquire Shares under sections 428 to 430F of the Companies Act 1985. 




Scheme of Arrangement  


    9.3 If
a court shall direct that a meeting of the holders of Shares be convened pursuant to section 425 of the Companies Act 1985 for the purposes of considering
a scheme of arrangement involving the reconstruction of the Company or its amalgamation with any other company or companies then (unless rule 8.4 applies) a Participant may take the following
action conditionally on either the scheme of arrangement being approved by the shareholders' meeting or sanctioned by the court (as determined by the Committee in its absolute discretion) (the  Relevant
Condition), between the date of the court's direction and twelve noon on the day immediately preceding the date for which the shareholders'
meeting (the Relevant Date) is convened: 



	(i)
	any
Stock Option (whether or not it is already exercisable at the Relevant Date) may be conditionally exercised; and



	(ii)
	any
Restricted Stock which has not already vested or lapsed at the Relevant Date may be conditionally exercised if and to the extent that the
relevant performance conditions (that is, initially those set out in the Schedule by reference to the Company's most recent published annual accounts or half-yearly accounts if the
Committee thinks fit) are met over the foreshortened period ending on the Relevant Date. For these purposes, the Shares comprised in the Deferred Tranche may be called for without regard to the
condition in rule 6.2(c). If the Relevant Date occurs prior to the first anniversary
of the Date of Grant of Restricted Stock, the Committee may release such number of Shares as it thinks fit. 




    Any
Award not exercised by twelve noon on the Relevant Date shall cease to be exercisable between that time and the first date on which it can be determined whether or not the
relevant condition is satisfied. If the Relevant Condition is not satisfied, Awards shall continue. If the Relevant 







Condition is satisfied Awards shall, unless validly exchanged under rule 9.6, lapse automatically on the date on which the scheme of arrangement is sanctioned by the court. 



    Where
new Shares would be issued on exercise of a Stock Option, the Committee shall endeavour to procure that, provided a Participant has conditionally exercised his or her Stock
Option as described above prior to twelve noon on the Relevant Date, the scheme of arrangement shall be extended to such Participant as if each Share in respect of which the Stock Option was
conditionally exercised had been allotted and issued to him or her by that time. 


    9.4 Awards
shall not without the consent of the Committee be exercisable under rule 9.3 if the purpose and effect of the scheme of arrangement is to create a new
holding company for the Company, such company having substantially the same shareholders and proportionate shareholdings as those of the Company immediately prior to the scheme of arrangement. In that
event, the Committee shall endeavour to procure that an exchange of Awards is effected under rule 9.6. 


Voluntary Winding-up  


    9.5 If
notice is duly given of a resolution for a voluntary winding-up of the Company then a Participant may takes the following action within the period of
two months from the date of the resolution, failing which exercise the Awards shall lapse automatically: 



	(i)
	any
Stock Option (whether or not it is already exercisable) may be exercised; and



	(ii)
	any
Restricted Stock which has not already vested or lapsed may be exercised if and to the extent that the relevant performance conditions (that
is, initially those set out in Schedule Two by reference to
the Company's most recent published annual accounts or half-yearly accounts if the Committee thinks fit) are met over the foreshortened period ending on the winding-up. For
these purposes, the Shares comprised in the Deferred Tranche may be called for without regard to the condition in rule 6.2(c). In the event of a winding-up prior to the first
anniversary of the Date of Grant of Restricted Stock, the Committee may release such number of Shares as it thinks fit. 




Exchange of Awards  


    9.6 If
any company (the Acquiring Company) obtains Control of the Company as a result of an event referred to in
rules 9.1 or 9.3, each Participant may, at any time within one month of the change of Control, with the agreement of the Acquiring Company, release any Stock Option or Restricted Stock which
has not lapsed (the Old Right) in consideration of the grant to him or her of a new award, which in the opinion of the Committee and the Acquiring
Company is equivalent to the Old Right but relates to shares in a different company (whether the Acquiring Company itself or another company its group). 


ADJUSTMENT OF AWARDS


    10. In
the event of: 



	(i)
	any
variation in the share capital or reserves of the Company (including, without limitation, by way of capitalisation or rights issue or any
consolidation, sub-division or reduction); or



	(ii)
	the
implementation by the Company of a demerger or the payment by the Company of a super-dividend which would otherwise materially affect the value
of an Award, 




then



	(a)
	in
relation to Stock Options, the Option Exercise Price and the number of Shares comprised in a Stock Option shall be adjusted in such manner as the Committee shall determine in its
absolute discretion; 









	(b)
	in
relation to Restricted Stock, the number of Shares subject to the Restricted Stock and any performance conditions to which the Restricted Stock is subject shall be adjusted in
such manner as the Committee shall determine in its absolute discretion. 




PROVIDED THAT:


	(aa)
	in
relation to both Stock Options and Restricted Stock, no adjustment shall be made pursuant to this rule unless and until the auditors for the time being of the Company (acting as
experts not arbitrators) shall confirm in writing to the Committee that such adjustment is in their opinion fair and reasonable; and



	(bb)
	in
the case of Stock Options, no adjustment shall be made pursuant to this rule which would increase the aggregate amount payable on exercise of the Stock Options. 




ALLOTMENT OR TRANSFER OF SHARES ON EXERCISE OF AWARDS


    11.1 Subject
to any necessary consents, to payment being made for the Shares and to compliance by the Participant with the terms of the Plan, not later than
30 days after receipt of any valid notice of exercise, the Company shall either allot and issue, or procure the transfer of, Shares to the Participant (or to his or her nominee). The Company
shall (unless the Shares are to be issued in uncertificated form) as soon as practicable deliver to the Participant (or his or her nominee) a definitive share certificate or other evidence of title in
respect of such Shares. 


    11.2 The
Company shall not be obligated to issue or deliver Shares in connection with any Award or take any other action under the Plan in a transaction subject to the
requirements of any applicable securities law, any requirement under any listing agreement between the Company and any securities exchange or automated quotation system or any other law, regulation or
contractual obligation of the company until the Company is satisfied that such laws, regulations, and other obligations of the Company have been complied with in full. The Company may require any
Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Shares under the Plan. Certificates representing
Shares will be subject to such stop-transfer orders and other restrictions as may be applicable under such laws, regulations and other obligations of the Company, and a legend or legends
may be placed thereon to reflect such restrictions. 


RIGHTS ATTACHING TO SHARES ALLOTTED OR TRANSFERRED PURSUANT TO AWARDS


    12.1 All
Shares allotted or transferred upon the exercise of an Option shall rank pari passu in all respects with the Shares in issue at the date of exercise save as
regards any rights attaching to such Shares by reference to a record date prior to the date of exercise. 


    12.2 Any
Shares acquired on exercise of Awards shall be subject to the articles of association of the Company from time to time. 



AVAILABILITY OF NEW SHARES


    13.1 The
Company shall at all times keep available for issue sufficient authorised but unissued Shares to permit the exercise of all unexercised Stock Options under
which Shares may be allotted or shall otherwise procure that Shares are available for transfer in satisfaction of the exercise of Stock Options. 


    13.2 The
Company will, at its expense, make application to The London Stock Exchange for admission to the Official List of Shares allotted on the exercise of any Stock
Options, and will take equivalent steps with the New York Stock Exchange in relation to ADSs. 






ADMINISTRATION AND AMENDMENT


    14.1 The
decision of the Committee shall be final and binding in all matters relating to the Plan and it may at any time discontinue the grant of further Awards or
amend any of the provisions of the Plan in any way it thinks fit PROVIDED THAT: 



	(a)
	the
Committee shall not make any amendment that would materially prejudice the interests of existing Participants except with the prior consent or sanction of Participants who, if
they exercised their Awards in full, would thereby become entitled to not less than three-quarters of all the Shares which would fall to be allotted or transferred upon exercise in full of all
outstanding Awards; and



	(b)
	no
amendment to the advantage of Executives or Participants may be made to:



	(i)
	the
definition of Executive in rule 1.1;



	(ii)
	the
limit on the number of Shares available for issue under the Plan;



	(iii)
	the
basis for determining the number of Shares comprised in either Stock Options or Restricted Stock;



	(iv)
	the
terms of Shares to be provided under the Plan; and



	(v)
	the
adjustment provisions of rule 10 of the Plan 








without
the prior approval of the Company in general meeting except in the case of minor amendments to benefit the administration of the Plan, to take account of a change in legislation or
developments in the law affecting the Plan or to obtain or maintain favourable tax, exchange control or regulatory treatment for Executives and Participants or any member of the Group; and 



	(c)
	without
prejudice to any provision of the Plan which provides for the lapse of an Award, the Committee may not cancel an Award unless the Participant agrees in writing to such
cancellation. 




    14.2 Notwithstanding
any other provision of the Plan, the Committee may establish appendices to the Plan for the purpose of granting Awards to Executives who are or may
become primarily liable to tax outside the United Kingdom on their remuneration, subject to such modifications as may be necessary or desirable to take account of overseas tax, exchange control or
securities laws provided that any Shares made available under such appendices shall count towards the limit set out in rule 3 hereof. 


GENERAL


    15.1 Any
member of the Group may provide money to the trustees of any trust or any other person to enable them or him or her to acquire Shares to be held for the
purposes of the Plan, or enter into any guarantee or indemnity for those purposes, to the extent not prohibited by section 151 of the Companies Act 1985. 


    15.2 The
rights and obligations of a Participant under the terms and conditions of his or her office or employment shall not be affected by his or her participation in
the Plan or any expectation or right which (notwithstanding rule 2.1) he or she believes he or she may have to participate in the Plan. An individual who participates in the Plan waives all and
any rights to compensation or damages in consequence of the termination of his or her office or employment with any company for any reason whatsoever insofar as those rights arise, or may arise, from
his or her ceasing to have rights under or be entitled to exercise any Award under the Plan as a result of such termination or from the loss or diminution in value of such rights or entitlements. If
necessary, the Participant's terms of employment shall be deemed to be varied accordingly. 


    15.3 The
existence of any Award shall not affect in any way the right or power of the Company or its shareholders to make or authorise any or all adjustments,
recapitalisations, reorganisations or other changes in the Company's capital structure, or any merger or consolidation of the Company, or any 







issue of shares, bonds, debentures, preferred or prior preference stocks ahead of or convertible into, or otherwise affecting the Shares or the rights thereof, or the dissolution or liquidation of the
Company or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 



    15.4 Any
notice or other document required to be given under or in connection with the Plan may be delivered to a Participant or sent by post to him or her at his or
her home address according to the records of his or her employing company or such other address as may appear to the Company to be appropriate. Notices sent by post shall be deemed to have been given
on the day following the date of posting. Any notice or other document required to be given to the Company under or in connection with the Plan may be delivered or sent by post to it at its registered
office (or such other place or places as the Committee may from time to time determine and notify to Participants). 



    15.5 Benefits
under the Plan shall not be pensionable. 


    15.6 The
Company, or where the Committee so directs any Subsidiary, shall pay the appropriate stamp duty on behalf of Participants in respect of any transfer of Shares
on the exercise of Awards, and the stamp duty reserve tax costs of creating ADSs. 


    15.7 These
rules shall be governed by, and construed in accordance with, the laws of England. 







 
 

SCHEDULE ONE
  
    Stock Options—Real Growth in EPS Pre-Grant Performance Condition    
  



    This Schedule shall be used to determine real EPS growth for the purpose of rule 5.1. In particular, no Stock Option shall be granted unless the
percentage growth in the Company's Annualised EPS over the Prescribed Period prior to the Grant of a Stock Option (comparing the Base Year with the final year in the Prescribed Period) is an average
of at least 3 per cent. per annum greater than the percentage increase, if any, in the RPI Index, as adjusted (if appropriate) pursuant to paragraphs 3 and 4 below, over that Prescribed Period. 


    The
following provisions apply for the purposes of this Schedule. 


    1.  In
this Schedule, unless the context otherwise requires, the following words and expressions shall have the following meanings, namely: 


    Accounts means the consolidated accounts of the Company for a Financial Year; 


    Accounts Date means the date on which the Accounts are published; 


    Annualised EPS means Earnings per Share (adjusted proportionately upwards or downwards in a case where the
relevant Financial Year is greater than or less than one calendar year); 


    Auditors means the auditors for the time being of the Company (acting as experts not arbitrators); 


    Base Year means, in relation to the Company, the Financial Year ending immediately before the start of the
Prescribed Period; 


    Earnings per Share means, for any Financial Year of the Company, the earnings per ordinary share of the Company
calculated in accordance with Financial Reporting Standard No. 3 issued by the Accounting Standards Board Limited or any modification thereto provided that to ensure comparability
of Financial Years of the Company within a Prescribed Period and for the Base Year the Committee may: 



	(a)
	adjust
the figure for earnings per share as calculated in accordance with the relevant accounting standard to arrive at a figure which reflects the underlying business performance
of the Group (and may, without limitation, adjust by excluding any or all extraordinary or exceptional items from the earnings per share calculation);



	(b)
	adjust
the figure for any tax charge to ensure that the deduction for taxation in respect of the final year of the Prescribed Period shall be at the average tax rate applicable to
the Base Year; and



	(c)
	ensure
that the relevant accounting standards are applied on a consistent basis in respect of years falling within the Prescribed Period and for the Base Year; 




    Financial Year means an accounting reference period as defined in accordance with section 224 of the
Companies Act 1985; 


    Prescribed Period means the period of three consecutive Financial Years ending with the latest Financial Year
for which Accounts have been published; and 


    RPI Index means the Index of Retail Prices (All Items) published the UK Government. 


    2.  Prior
to the grant of Stock Options, the Committee shall calculate the percentage growth in Annualised EPS over the Prescribed Period and shall determine whether
that percentage growth is an average of at least 3 per cent. per annum above the percentage increase, if any, in the RPI Index, as adjusted (if appropriate) pursuant to paragraphs 3 and 4 below, over
that Prescribed Period. 


    3.  Where
a Financial Year within a Prescribed Period or the Base Year is greater than or less than one calendar year, the percentage increase in the RPI Index for that
Financial Year shall be 







adjusted proportionately upwards or downwards as appropriate in order to secure that such percentage increase is annualised in a manner consistent with the Annualised EPS. 


    4.  For
the purposes of paragraph 2 the Committee shall make such adjustments as they may consider appropriate to take account of any intervening capital
reorganisation of the Company including, without limitation, any capitalisation issue, rights issue, sub-division or consolidation of share capital, reduction of capital or demerger within
the meaning of section 213 to 218 of the Taxes Act and any modifications to the relevant accounting standard. 


    5.  If
the composition of the RPI Index changes or the RPI Index is replaced by another similar index, the Committee may make such adjustments to any calculations using
the RPI Index (or any replacement index) as they consider to be fair and reasonable. 





 
 

SCHEDULE TWO
  
    Restricted Stock—Cumulative Free Cash Flow Performance Target    
  


    1.  In
this Schedule, unless the context otherwise requires, the following words and expressions shall have the following meanings, namely: 



    Cumulative FCF means the aggregate cumulative amount of Free Cash Flow over the Test Period, expressed in pence
per Share; 


    Free Cash Flow means the operating cash flow of the Company (expressed on a per Share basis), as stated in the
Company's accounts for each relevant Financial Year, less tax liabilities on operating activities and interest paid (subject to adjustment under paragraph 6 below); 


    Financial Year means an accounting reference period as defined in accordance with section 224 of the
Companies Act 1985; and 


    Test Period means, in relation to any Restricted Stock, the period of three consecutive Financial Years
commencing with the Financial Year starting immediately before the Date of Grant of the relevant Restricted Stock. 


    2.  When
granting any Restricted Stock which is subject to the performance target contained in this Schedule, the Committee shall specify (and notify to the
Participant) the Threshold and Target levels of Cumulative FCF for the Test Period that shall apply to the Restricted Stock. 


    3.  At
the end of the Test Period, or as soon as is reasonably practicable thereafter, the Committee shall calculate Cumulative FCF for the Test Period. 



    4.  Where
a Financial Year within the Test Period is greater than or less than one calendar year, Cumulative FCF shall be adjusted proportionately upwards or downwards
as appropriate in order to secure that this performance target is calculated in a consistent manner. 


    5.  An
Award of Restricted Stock shall vest to the extent of the percentage in the right-hand column below according to Cumulative FCF achieved for the
relevant Test Period, as indicated in the left-hand column below (but, for the avoidance of doubt, the remainder of the Award shall not vest and shall lapse in respect of the Shares
comprised in the unvested portion): 



	Cumulative FCF
 
	 	Percentage of Restricted Stock which vests

	At or above Target Cumulative FCF	 	100% of Shares comprised in Restricted Stock
	At Threshold Cumulative FCF	 	50% of Shares comprised in Restricted Stock
	Below Threshold Cumulative FCF	 	0% of Shares comprised in Restricted Stock






    6.  An
Award of Restricted Stock may be exercised on a straight-line basis where Cumulative FCF is between the Threshold and Target levels. 


    7.  In
the event of a major revision to the Company's long-term capital expenditure plans or material acquisitions or disposals of businesses by the
Company, the Committee may adjust Free Cash Flow in order to achieve year-on-year comparability. 


    8.  The
performance target set out in this Schedule may be calculated at an earlier date than that set out in paragraph 3 above if any event set out in
rule 9 of the Plan applies. In such circumstances the performance target shall be calculated in accordance with the relevant sub-rule within rule 9 which is applicable. 


    9.  As
soon as practicable following determination of the performance target, the Committee shall notify the Participant of the extent to which (if at all) the Award of
Restricted Stock is exercisable. 







 
 

APPENDIX 1
  
    UK Inland Revenue approved part of the Plan    
  


    For any Executive to whom the Committee wishes to grant Stock Options under an Inland Revenue approved Plan, the following provisions shall apply: 



	(A)
	All
the provisions of the Plan shall apply to the grant of Stock Options under this Appendix subject to the modifications contained in the following paragraphs.



	(B)
	The
definition of Executive shall be construed so that:



	(i)
	no
Stock Option may be granted under this Appendix to a director of any member of the Group unless such director is required to devote not less than 25 hours per week to the
affairs of the Group; and



	(ii)
	no
Stock Option may be granted under this Appendix to an Executive who is ineligible to participate in the Plan by virtue of paragraph 8 of Schedule 9 to the Taxes
Act. 









	(C)
	The
definition of Shares shall be subject to the conditions that:



	(i)
	they
comprise ordinary shares in the capital of the Company (and not ADSs); and



	(ii)
	they
satisfy paragraphs 10 to 14 of Schedule 9 to the Taxes Act. 









	(D)
	Rule 2.3
shall not apply to a Stock Option granted under this Appendix.



	(E)
	A
new rule 4.3 shall be inserted as follows:



	"4.3
	Notwithstanding
any other provision of these rules, no Executive shall be granted a Stock Option which would, at the proposed Date of Grant, cause the aggregate of the market
values (determined at their date of grant (in accordance with Part VIII of the Taxation of Chargeable Gains Act 1992)) of subsisting Stock Options held by him pursuant to a grant under this
Appendix and subsisting options held by him under any Associated Plan, to exceed £30,000 (or such other amount as shall be specified under paragraph 28(1) of Schedule 9 of
the Taxes Act from time to time)." 








For
the purposes of this paragraph (E) Associated Plan means any Share Option Plan (other than the Plan) approved under Schedule 9 to the
Taxes Act (but excluding any savings-related share option scheme) and established by the Company or an associated company of the Company within the meaning of section 416 of the Taxes Act. 



	(F)
	Any
performance condition imposed under rule 5.2, which applies after the grant of the Stock Option, must be objective and must be approved in advance of the date of grant by
the Inland Revenue.



	(G)
	Where
Stock Options are granted in Option Tranches under rules 5.3 or 5.4, the Committee may grant such Option Tranches as it thinks fit (if any) under this Appendix.



	(H)
	For
the purposes of rule 5.6, exercise of a Stock Option granted under this Appendix shall not be effective unless and until the Company has received payment for the Shares.



	(I)
	Any
Stock Option granted under this Appendix may only be exercised by a Participant who is not ineligible to participate in the Plan by virtue of paragraph 8 of
Schedule 9 to the Taxes Act.



	(J)
	Rule 8
shall be construed so that all Stock Options granted under this Appendix shall be exercisable in full for a period of one year following the date of death (and shall
then lapse).



	(K)
	Rule 9.6
shall not apply to a new Stock Option granted under this Appendix following an event specified in rule 9.1 or 9.3. Instead a new rule 9.6 shall be
inserted as follows: 







	 	"9.6A	If any company (the acquiring company):










	(a)
	obtains
Control of the Company as a result of making:



	(i)
	a
general offer to acquire the whole of the issued ordinary share capital of the Company which is made on a condition such that if it is satisfied
the acquiring company will have Control of the Company; or



	(ii)
	a
general offer to acquire all the Shares; or 













	(b)
	obtains
Control of the Company in pursuance of a compromise or arrangement sanctioned by the Court under section 425 of the Companies Act 1985; or



	(c)
	becomes
bound or entitled to acquire shares in the Company under sections 428 to 430F of that Act, 








each
Participant may at any time within the appropriate period (which expression shall be construed in accordance with paragraph 15(2) of Schedule 9), by agreement with the acquiring
company, release any Stock Option which has not lapsed (the old option) in consideration of the grant to him of an option (the  new option)
which (in accordance with rule 9.6B below) is equivalent to the old option but relates to shares in a different company (whether the
acquiring company itself or another company falling within paragraph 10(b) or (c) of Schedule 9) (the new grantor). 





	 	9.6B	The new option shall not be regarded for the purposes of rule 9.6A as equivalent to the old option unless the conditions set out in paragraph 15(3) of Schedule 9 are satisfied and, in relation to the new
option, the provisions of the Scheme shall be construed as if:







	(a)
	the
new option were an option granted under the Scheme at the same time as the old option;



	(b)
	references
to the Company in rules 7 to 13 and 15 and in the definition of Group  were references to the new grantor;



	(c)
	references
to the Committee in rules 7 to 13 and 15 were references to the remuneration committee of the new grantor;



	(d)
	references
to Shares were references to shares in the new grantor; and



	(e)
	any
performance condition imposed under rule 5.2, which applies after the grant of the Stock Option, has been satisfied." 








	(L)
	Rule 10(ii) shall
not apply to a Stock Option granted under this Appendix. In construing rule 10(i) for the purposes of this Appendix the words "or
reserves" shall be deleted therefrom, and no adjustment pursuant to rule 10(i) in relation to a Stock Option granted under this Appendix shall take effect without the prior approval of
the Inland Revenue.



	(M)
	In
addition to its powers under rule 14.1(b), the Committee may make such amendments to this Appendix as are necessary or desirable to obtain or maintain Inland Revenue
approval of this Appendix.



	(N)
	At
a time when this Appendix is approved by the Inland Revenue, and if such approved status is to be maintained, no amendment to the rules of the Plan or this Appendix may take
effect as regards this Appendix without the prior approval of the Inland Revenue (and if such approved status is not to be maintained, the Company shall notify the Inland Revenue of the relevant
amendment). 










 
 

APPENDIX 2
  
    United States part of the Plan    
  


    For any Executive whose remuneration is (or, at the time of Stock Option exercise, is likely to be) subject to taxation in the United States of America and to
whom the Committee wishes to grant Stock Options under this Plan, the following provisions shall apply: 



	(A)
	All
the provisions of the Plan shall apply to the grant of Stock Options subject to the modifications contained in the following paragraphs.



	(B)
	A
Stock Option granted under this Appendix to an Executive shall be either an Incentive Stock Option or a Non-Qualified Stock Option, as determined by the Committee;
provided that the number of Shares issued or transferred pursuant to the exercise of Incentive Stock Options shall not, in the aggregate, exceed 40 million Shares. The number of Shares
available for issuance pursuant to the preceding sentence shall be subject to appropriate adjustment upon the occurrence of any event described in rule 10. 



For
the purposes of this Appendix: 


	(i)
	Incentive Stock Option means a Stock Option which, at the Date of Grant, qualifies as an Incentive Stock Option within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the Code), and is designated by the Committee as such; and



	(ii)
	Non-Qualified Stock Option means a Stock Option which is not an Incentive Stock Option. 







	(C)
	In
the case of any Incentive Stock Option granted to any person who owns more than 10% of the Shares for purposes of Section 422(b)(6) of the Code, the definition of  Option Exercise Price in
Rule 1.1 shall be modified by inserting "110% of" immediately prior to the words "Share Price on the Date of Grant", and
the definition of Option Period shall be modified by replacing "tenth" with "fifth".



	(D)
	In
relation to the grant of Incentive Stock Options a new rule 4.2A shall apply as follows: 







	 	"4.2A	The United States dollar equivalent of the aggregate fair market value (determined as of the date the Incentive Stock Option is granted) of Shares with respect to which Incentive Stock Options are exercisable for the
first time by an individual during any calendar year (under the Plan or any other Executive Plan) may not exceed $100,000; provided, that if the grant of any Incentive Stock Option shall exceed such limit, the excess shall be treated as a
Non-Qualified Stock Option. In determining whether, and to what extent, the grant of an Incentive Stock Option exceeds such limit, Incentive Stock Options shall be taken into account in the order in which they are granted. The Committee shall
determine the United States dollar equivalent of the aggregate fair market value of the Shares on such good faith basis as they consider appropriate."





	(E)
	Rule 7.2
shall be modified by deleting subrule (b) therefrom (in the case of both Stock Options and Restricted Stock), and, in the case of any Incentive Stock Option,
replacing "six months" with "three months" in subrule (i) (except where cessation of employment is by reason of disability within the meaning of Section 22(e)(3) of the Code). A Stock
Option which loses its status as an Incentive Stock
Option at the end of the three month period referred to in the preceding sentence shall nevertheless continue to be exercisable as a Non-Qualified Stock Option for any longer period
specified in these rules.



	(F)
	If
Shares acquired by exercise of an Incentive Stock Option are sold or otherwise disposed of within two years after the date of grant of the Incentive Stock Option or within one
year after the transfer of such Shares to the Participant, the holder of the Shares immediately prior to the disposition shall promptly notify the Company in writing of the date and terms of the
disposition and shall provide such other information regarding the disposition as the Company may reasonably require in order to secure any deduction then available against the Company's or any other
corporation's taxable income. 









	(G)
	For
the purposes of this Appendix, any provisions of the Plan which are superseded by or otherwise inconsistent with the provisions of this Appendix as applied to an Executive who
is employed or remunerated in the United States shall have no effect. 














QuickLinks


THE PEARSON LONG-TERM INCENTIVE PLAN


SCHEDULE ONE Stock Options—Real Growth in EPS Pre-Grant Performance Condition

SCHEDULE TWO Restricted Stock—Cumulative Free Cash Flow Performance Target


APPENDIX 1 UK Inland Revenue approved part of the Plan

APPENDIX 2 United States part of the Plan