Document:

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                                                                    Exhibit 4.5

                                  Rules of the
                                   Pearson plc
                          1992 United States Executive
                               Share Option Scheme

                             Adopted on 15 May 1992

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THE PEARSON PLC
1992 UNITED STATES EXECUTIVE SHARE OPTION SCHEME

1.       DEFINITIONS

(1) In this Scheme unless the context otherwise requires the following words and
expressions shall have the following meanings, namely:

the Adoption Date        the date of the adoption of the Scheme by the Company
                         in general meeting

Associated Scheme        any share option scheme other than the Scheme (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
                         Income and Corporation Taxes Act 1988

the Auditors             the Auditors for the time being of the Company (acting
                         as experts and not as arbitrators)

the Board                the Board of Directors of the Company or a duly
                         appointed committee thereof

Certified Provision      provision for Option Holders which the Auditors shall
                         have reported to the Board to be in their opinion fair
                         and reasonable, having regard (inter alia) to the tax
                         position of Option Holders

the Code                 the United States Internal Revenue Code of 1986, as
                         amended

the Company              Pearson plc

Control                  the meaning given to that word by section 840 of the
                         Income and Corporation Taxes Act 1988

the Date of Grant        in relation to an Option, the day on which the Board
                         resolves to grant the Option

Executive Scheme         any share option or share incentive scheme approved by
                         the Company under which Shares may be or have been
                         issued (other than a savings-related share option
                         scheme approved under Schedule 9)

Exercise Price           the price per Share payable on the exercise of an
                         Option

the Group                the Company and the Subsidiaries

Incentive Stock Option   any option qualifying as an incentive stock option
                         within the meaning of section 422 of the Code

Normal Retirement Date   in relation to a US Executive, the date on which he
                         would normally retire under the terms of the pension
                         scheme of which he is a member (or would have been a
                         member but for the individual's non-participation in
                         such scheme for any reason)

Option                   a right to subscribe for Shares granted under the
                         Scheme

Option Holder            any US Executive who holds a subsisting Option (or,
                         where the context permits, the legal personal
                         representatives of a deceased Option Holder)

Option Period            the period commencing on the Date of Grant of an Option
                         and expiring ten years thereafter

Reorganisation           a "reorganisation" for the purposes of sections 127 to
                         130 of the Taxation of Chargeable Gains Tax Act 1992

Replacement Option       an Option granted to an Executive:

                         (i)  who could not be granted an Option (not being a
                              Replacement Option) by reason of the limit
                              contained in rule 3(3); and

                         (ii) who has before the proposed Date of Grant thereof
                              exercised an option under arty Executive Scheme

Schedule 9               Schedule 9 to the Income and Corporation Taxes Act 1988

the Scheme               this Scheme as amended from time to time

Shares                   fully paid and irredeemable Ordinary Shares of 25p each
                         in the Company

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Subsidiary               any subsidiary of the Company within the meaning of
                         section 736 of the Companies Act 1985 over which the
                         Company has Control (and any company being a company in
                         which the Company directly or indirectly beneficially
                         owns not less than 50 per cent of the equity share
                         capital), provided that in the case of an Incentive
                         Stock Option, "subsidiary" shall not include any
                         company which does not meet the definition of
                         subsidiary corporation in section 424(f) of the Code
                         (50 per cent or more of total combined voting power) on
                         the Date of Grant

US Executive             any executive who is (a) a full-time employee
                         (including an executive director) of any company within
                         the Group, and (b) normally resident in the US

(2)   Where the context permits:--

(a)   the singular shall include the plural and vice versa and the masculine
      shall include the feminine; and

(b)   references to approval by the Company are references to approval by the
      Company in general meeting.

(3) References to any Act or Code shall include any statutory, modification,
amendment or re-enactment thereof, and references to the Companies Act 1985 and
the Income and Corporation Taxes Act 1988 are references to the Companies Act
1985 of Great Britain and the Income and Corporation Taxes Act 1988 of the
United Kingdom, respectively.

2.       GRANT OF OPTIONS

(1) The Board may, in its absolute discretion, grant Options to US Executives
selected by the Board, provided that no US Executive shall be granted an Option
less than 24 months before Normal Retirement Date. Such grants shall be
evidenced by option certificates under the seal of the Company or otherwise
executed as a deed. All grants shall be subject to the rules of the Scheme, and
each Executive shall, by accepting the grant of an Option, be deemed to be bound
thereby.

(2) In granting Options the Board may, at its discretion, impose such conditions
regarding the exercise of Options as the Board thinks fit.

(3) Grants shall be made, if at all, within the period of six weeks from the
date of publication of the Company's interim report or preliminary results for
any period.

(4) Any Executive to whom an Option is granted may, by notice in writing to the
Company given within thirty days after the Date of Grant, renounce in whole or
in part his rights under the Option. In such a case, the Option shall pro tanto
be treated, for all the purposes of the Scheme, as never having been granted. No
consideration shall be payable by the Company for any such renunciation.

3.       LIMITS

(1) Subject to adjustment pursuant to rule 6, the number of Shares that may be
issued on the exercise of Options granted under the Scheme shall be limited in
aggregate to the lesser of (a) 40 million Shares (representing 7.4 per cent of
the ordinary share capital of the Company at the Adoption Date as adjusted for a
one for one capitalisation issue on 12 June 1992), and (b) 5 per cent of the
ordinary share capital of the Company from time to time in issue.

(2)   No Option shall be granted if the result of that grant would be that:--

(a)   the aggregate number of Shares that could be issued on the exercise of
      that Option and any other Options granted at the same time 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
               Executive Scheme, or

         (ii)  have been issued on the exercise of any share option granted
               during the preceding ten years under any Executive Scheme,

      would exceed five per cent of the ordinary share capital of the Company
      for the time being in issue:

(b)   the aggregate number of Shares that could be issued on the exercise of
      that Option and any other Options granted at the same time, when added to
      the number of Shares that:--

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         (i)   could be issued on the exercise of any other subsisting share
               options granted during the preceding ten years under any share
               option scheme, or

         (ii)  have been issued on the exercise of any share option granted
               during the preceding ten years under any share option scheme, or

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

      would exceed 10 per cent of the ordinary share capital of the Company for
      the time being in issue; or

(c)   the aggregate number of Shares that could be issued on the exercise of
      that Option and any other Options granted at the same time when added to
      the number of Shares that:--

         (i)   could be issued on the exercise of any other subsisting share
               options granted after the Adoption Date during the preceding four
               years under any Executive Scheme, or

         (ii)  have been issued on the exercise of any share option granted
               after the Adoption Date during the preceding four years under any
               Executive Scheme,

      would exceed 2 1/2 per cent of the ordinary share capital of the Company
      for the time being in issue.

(3) No Option (but excluding for these purposes any Replacement Option) shall be
granted to any US Executive if the result of that grant would be that the
aggregate exercise price paid or payable under all options (other than
Replacement Options) which were granted to him during the preceding ten years
under the Scheme or any other share option scheme established by the Company or
a Subsidiary, would exceed four times his total annual emoluments in the current
or preceding calendar year (whichever gives the greater amount).

(4) No Replacement Option shall be granted to any US Executive if the result of
that grant would be that the aggregate exercise price under all options (other
than options granted to him under a savings-related share option scheme) which
are subsisting under the Scheme or an Associated Scheme, would exceed four times
his total annual emoluments in the current or preceding calendar year (whichever
gives the greater amount).

(5) No Incentive Stock Option shall be granted to a US Executive if the
aggregate fair market value (determined at the time of such grant) of the Shares
with respect to which Incentive Stock Options are exercisable for the first time
by a US Executive during any calendar year under this Scheme and any other
Incentive Stock Option Scheme of the Group shall exceed US$100,000.

(6) No Incentive Stock Option shall be granted to a US Executive who at the Date
of Grant owns more than 10 per cent. of the issued share capital carrying a
right to vote of the Company or any Subsidiary unless the Exercise Price payable
by such US Executive shall be 110 per cent. of the fair market value determined
at the time of such grant of the Shares and the Option shall not be exercisable
after five years from the date such Option is granted.

4.    TERMS OF OPTIONS

(1)   OPTIONS CLEARLY DISTINGUISHED

            Options which qualify as Incentive Stock Options under the Scheme
      will be clearly labelled as such and Options which do not so qualify
      will be clearly labelled as not so qualifying.

(2)   EXERCISE PRICE

            Subject to rule 3(5), the Exercise Price shall be determined by
      the Board, but shall be not less than the middle market quotation for a
      Share on The London Stock Exchange, as derived from the Daily Official
      List, for the last business day before the Date of Grant, provided
      that, in relation to an Option under which Shares may be issued on
      exercise, the Exercise Price shall not be less than the nominal value
      of a Share.

(3)   EXERCISE OF OPTION

(a)   Save as provided in rules 4(4) and 5, an Option shall be exercisable in
      whole or in part only after the third anniversary of the Date of Grant
      and not later than the expiry of the Option Period.

(b)   If an Option Holder ceases to be employed within the Group for any
      reason whatsoever, any Option granted to him shall, save as provided in
      rule 4(4), lapse and not be exercisable.

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(c)   An Option may be exercised only by the Option Holder (or the legal
      personal representative of a deceased Option Holder) giving notice to
      the Company in the form for the time being prescribed by the Board,
      specifying the number of Shares in respect of which the Option is being
      exercised and accompanied by payment in full of the aggregate Exercise
      Price of those Shares. Notice must be delivered to or sent by pre-paid
      post to the Company at its registered office or at such other place as
      the Company shall from time to time prescribe.

(4)   OPTION HOLDERS LEAVING EMPLOYMENT

(a)   If an Option Holder dies whilst in service and before the expiry of the
      Option Period, his legal personal representatives shall
      (notwithstanding rule 4(3)(a)) be entitled to exercise his Options
      during the period ending twelve months after the date of death.

(b)   If an Option Holder ceases to be employed within the Group before the
      expiry of the Option Period owing to:--

      (i)   injury or disability; or

      (ii)  retirement at or after Normal Retirement Date, he shall be entitled
            to exercise his Options (notwithstanding rule 4(3) (a)) during the
            period ending on the later of (i) twelve months from the date of
            cessation and (ii) 42 months from the Date of Grant or, if later,
            the date on which he last exercised an option under an Executive
            Scheme during his employment, provided that he shall not in any
            event be entitled to exercise his Options after the end of the
            Option Period and further provided that, in the case of an Incentive
            Stock Option, other than an Option Holder who ceases to be employed
            within the Group before expiry of the Option Period owing to a
            "permanent and total disability" as defined in section 22(e)(3) of
            the Code, he shall not have the right to exercise his Option after
            three months from the date of cessation of employment.

(c)   The Board may, at its discretion, allow an Option Holder who has ceased
      to be employed within the Group for any reason other than those
      referred to in paragraphs (a) and (b) above to exercise his Options
      during the period ending on the later of (i) twelve months from the
      date of cessation and (ii) 42 months from the Date of Grant or, if
      later, the date on which he last exercised an option under an Executive
      Scheme during his employment, provided that he shall not in any event
      be entitled to exercise his Options after the end of the Option Period,
      and further provided that, in the case of an Incentive Stock Option,
      such Option Holder shall not have the right to exercise his Option
      after three months from the date of cessation of employment.

(d)   For the purposes of rule 4(3)(b) and rule 4(4)(b) and (c) an Option
      Holder shall not be treated as ceasing to be employed within the Group
      until (i) he ceases to hold an office or employment in the Company or
      any company over which the Company has Control or any associated
      company of the Company within the meaning of section 416 of the Income
      and Corporation Taxes Act 1988 or (ii) being a female employee who is
      absent from work wholly or partly because of pregnancy or confinement,
      she ceases to be entitled to exercise her right to return to work.

(5)   INALIENABILITY OF OPTIONS

      Every Option granted hereunder shall be personal to the Option Holder
      and, except to the extent necessary (a) to enable a personal
      representative to exercise the Option following the death of an Option
      Holder, or (b) to effect the grant of a New Right under rule 5, neither
      the Option nor the benefit thereof may be transferred, assigned,
      charged or otherwise alienated.

(6)   OVERRIDING LAPSE OF OPTIONS

(a)   No Option shall be capable of being exercised after the expiry of the
      Option Period.

(b)   If an Option Holder is adjudged bankrupt, all Options held by him shall
      lapse forthwith.

5.    TAKEOVER OFFERS AND LIQUIDATION

(1)   If any other company ("the Acquirer"):--

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

         (i)   a general offer to acquire the whole of the issued share capital
               of the Company which is made on a condition such that if it is
               satisfied the person making the offer will have control of the
               Company, or

         (ii)  a general offer to acquire all the shares in the Company which
               are of the same class as 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 the Companies Act 1985

<PAGE>

      any Option Holder may, at any time within the appropriate period defined
      in paragraph 15(2) of Schedule 9 ('the Appropriate Period'), by agreement
      with the Acquirer, release his Option in consideration of the grant to him
      of a right which is equivalent to the Option but relates to shares in the
      Acquirer or some other company falling within sub-paragraph (b) or (c) of
      paragraph 10 of Schedule 9 ("the New Right").

(2)   The New Right shall not be regarded for the purposes of this rule 5 as
      equivalent to the Option unless:--

(a)   the shares to which it relates ('the Replacement Shares') satisfy the
      conditions specified, in relation to scheme shares, in paragraphs 10 to
      14 of Schedule 9; and

(b)   the New Right will be exercisable in the same manner as the Option and
      subject (MUTATIS MUTANDIS) to the provisions of the Scheme as it had
      effect immediately before the exchange; and

(c)   the total market value, as defined for the purposes of Schedule 9,
      immediately before the exchange, of the Shares which were subject to
      the Option is, as nearly as may be, equal to, but is not less than, the
      total market value (defined as aforesaid), immediately after the
      exchange, of the Replacement Shares; and

(d)   the total amount payable by the Option Holder for the acquisition of the
      Replacement Shares is, as nearly as may be, equal to, but is not less
      than, the total Exercise Price of the Shares which were subject to the
      Option immediately before the exchange.

(3)   For the purposes of Schedule 9 and rule 5(2)(b) any New Right granted
      shall be deemed to have been granted on the date on which the
      equivalent Option was granted.

(4)   In the application of the Scheme to the New Right:--

      (i)      references to the Shares (other than in rules 1, 2, 3, 4(2), 12,
               13 and 14) shall be read as if they were references to the
               Replacement Shares;

      (ii)     references to the Company (other than its rules 1, 2, 3, 4(2),
               12, 13 and 14) shall be read as if they were references to the
               company to whose shares the New Right relates;

      (iii)    rules 5(1), 5(2), 5(3), 5(4), 5(5) and 5(6) shall apply in
               respect of any change of circumstance within the terms of rule
               5(1) above affecting the company to whose shares the New Right
               relates as if references to the Option were references to the
               New Right as it related to the shares in that company and as
               if references to the Shares were references to the Replacement
               Shares in respect of which that New Right was granted.

(5)   Subject to rule 5(6), if for any reason whatsoever any Option Holder
      does not release an Option within the Appropriate Period in accordance
      with and pursuant to rule 5(1), following the occurrence of any of the
      events specified in rule 5(1)(a), (b) and (c), an Option Holder may
      exercise such Option within either (i) six months after the expiry of
      the Appropriate Period or (ii) within the Appropriate Period with the
      consent in writing of the Acquirer (and, if the Option is not released
      or exercised by the expiry of the last applicable time limit, it shall
      thereupon lapse).

(6)   Notwithstanding the foregoing provisions of this rule 5, the Acquirer
      may, subject to receiving the prior written consent of the Board given
      prior to the Acquirer obtaining Control of the Company, elect to permit
      the Scheme to continue following his general offer. If he does so,
      having received the Board's written consent as aforesaid, the Board
      shall forthwith inform Option Holders; outstanding Options which are
      not otherwise exercisable shall not become exercisable merely by virtue
      of the general offer being made or of Control of the Company having
      been obtained or by virtue of the Offeror becoming bound or entitled to
      acquire shares in the Company under section 428 of the Companies Act
      1985; nor shall they lapse at the expiry of the periods referred to in
      rule 5(1) and (5). Instead, they will be exercisable subject to the
      other rules imposed by the Scheme. If the Acquirer so agrees, any
      Option Holder may release his Option in consideration for a New Right
      in accordance with and pursuant to rule 5(1), notwithstanding this
      rule 5(6).

(7)   If notice is duly given of a resolution for the voluntary winding up of
      the Company then, unless the winding up is for the purposes of a
      reorganisation or reconstruction which makes Certified Provision
      outside the terms of the Scheme for the compensation of the Option
      Holders or the grant of new Options to them, the Option Holder (or
      where permitted his personal representatives) may forthwith and until
      the commencement of the winding up (or if earlier the day before the
      tenth anniversary of the Date of Grant of the relevant Option) exercise
      an Option, but any Option exercised pursuant to the provisions of this
      rule 5(7) shall be of no effect unless the said resolution is duly
      passed. Upon commencement of the winding up all

<PAGE>

      Options shall lapse and cease to be exercisable except insofar as is
      necessary to give effect to the provisions of this rule 5(7).

(8)   Save as mentioned in rule 5(7), all Options shall automatically lapse
      and cease to be exercisable in the event of an effective resolution
      being passed or order being made for the winding up of the Company and,
      subject to rule 5(6), to the extent Options are not released under rule
      5(1) within the Appropriate Period nor duly exercised under rule 5(5)
      within any of the periods provided for under rule 5(5), Options shall
      automatically lapse and cease to be exercisable on the expiry of such
      period.

6.    ADJUSTMENT OF OPTION

In the event of any Reorganisation of the share capital of the Company, the
total number of Shares which may be issued under the Scheme, the Exercise Price,
the definition of "Shares" and the number of Shares comprised in an Option may
be adjusted in such manner as the Board may determine and such decision of the
Board shall be final and binding on the Option Holder and the Company, provided
always that:--

(a)      in relation to an Option under which Shares may be issued on its
         exercise, no adjustment to the Exercise Price shall be made pursuant to
         the provisions of this rule which would result in the Shares subject to
         any Option being issued at a price lower than their nominal value and
         if in the case of any Shares such an adjustment would, but for this
         proviso, have so resulted, the Exercise Price of such Shares shall be
         the nominal amount thereof;

(b)      no adjustment shall be made pursuant to this rule unless and until the
         Auditors shall have reported in writing to the Board that such
         adjustment is in their opinion fair and reasonable;

(c)      with respect to Incentive Stock Options, the adjustment does not give
         the Option Holder additional benefits (within the meaning of section
         424(h)(3) of the Code) under the terms of the Option; and

(d)      no adjustment shall be made pursuant to this rule which would increase
         the aggregate Exercise Price.

7.       ISSUE OR TRANSFER OF SHARES ON EXERCISE OF OPTION

(1)      Subject to any necessary consents, to payment being made for the Shares
         and to compliance by the Option Holder with the terms of the Scheme,
         the Company shall as soon as practicable and in any event not later
         than 28 days after receipt of any notice of exercise in accordance with
         rule 4(3)(c) issue or procure the transfer to the Option Holder the
         number of Shares specified in the notice at the Exercise Price and
         shall deliver to the Option Holder a definitive share certificate in
         respect of those Shares together with, in the case of a partial
         exercise of an Option, an option certificate in respect of (or the
         original option certificate endorsed so as to show) the unexercised
         part of the Option.

(2)      No Shares shall be issued or transferred under the Scheme by the
         Company unless the Option Holder first enters into an agreement with
         the Company providing for compliance by such Option Holder with all
         applicable United States securities laws relating to the Scheme. No
         Shares shall be issued or transferred hereunder unless the Company,
         after taking such legal advice as it considers necessary, shall be
         satisfied that such issue or transfer will be in compliance with
         applicable United States federal, state and local securities laws.

(3)      It shall be a condition to the obligation of the Company to issue or
         procure the transfer of Shares upon exercise of an Option, that the
         Option Holder (or any legal personal representative of a deceased
         Option Holder) pay to the Company, upon its demand, such amount as may
         be requested by the Company for the purpose of satisfying any liability
         to withhold United States federal, state or local income or other
         taxes. If the amount requested is not paid, the Company may refuse to
         issue or procure the transfer of such Shares.

8.       RIGHTS ATTACHING TO SHARES ALLOTTED OR TRANSFERRED PURSUANT TO OPTION

All Shares allotted or transferred pursuant to the exercise of any Option shall,
as to voting, dividend, transfer and other rights, including those arising on a
liquidation of the Company, rank PARI PASSU in all respects and as one class
with the Shares in issue at the date of such exercise save as regards any rights
attaching to such Shares by reference to a record date prior to the date of such
exercise.

<PAGE>

9.   AVAILABILITY OF SHARES

The Company shall (a) in relation to Shares which may be issued hereunder, at
all times keep available sufficient authorised but unissued Shares to permit the
exercise of all unexercised Options, and (b) procure that sufficient Shares are
available for transfer to satisfy all Options under which Shares may be acquired
by way of transfer.

10.   LISTING

The Company shall, at its expense, make application for, and use its best
endeavours to obtain listing for, and permission to deal on The London Stock
Exchange in, Shares allotted pursuant to the exercise of any Option.

11.   LOSS OF OFFICE

If any Option Holder ceases to be a US Executive for any reason he shall not be
entitled by way of compensation for loss of office or otherwise howsoever to any
sum or other benefit to compensate him for the loss of any rights under the
Scheme and by accepting an Option he shall be deemed irrevocably to have waived
any right or entitlement to any such sum or other benefit.

12.   POWERS OF THE BOARD

The decision of the Board shall be final and binding in all matters relating to
the Scheme and it may at any time discontinue the grant of further Options or
amend any of the provisions of the Scheme in any way it thinks fit: Provided
that:--

(a)   no amendment may be made for the benefit of Option Holders to rules 1, 2,
      3, 4, 5, 6, 8, 12 or 13 without the prior approval of the Company in
      general meeting except in the case of an amendment which is necessary or
      desirable in order to take advantage of new legislative provisions
      relating to option schemes;

(b)   the Board may not cancel an Option except where the Option Holder shall
      have agreed in writing to such cancellation;

(c)   except as herein provided, the Board shall not make any amendment (not
      being an amendment that it may make by virtue of (a) above) that would
      materially prejudice the interests of existing Option Holders except with
      such prior consent or sanction of Option Holders as would be required
      under the provisions for the alteration of class rights contained in the
      Articles of Association of the Company for the time being if the Shares to
      be allotted on the exercise of the outstanding Options constituted a
      separate but single class of shares (or two or more classes of shares
      according to their respective Dates of Grant, as the Board may consider
      appropriate) and such shares were entitled to such rights.

13.   DURATION OF THE SCHEME

Notwithstanding any other provision in the Scheme no Option may be granted under
the Scheme later than ten years after the Adoption Date.

14.   GOVERNING LAW

These rules shall be governed by and construed in accordance with English law.<PAGE>

                                                                    Exhibit 4.6

                                THE PEARSON 1998
                          EXECUTIVE SHARE OPTION PLAN

                       Shareholder Approval - 1 May 1998

             Inland Revenue Approval to Appendix - 14 September 1998
                           Inland Revenue Ref -X19627

                                   FRESHFIELDS

<PAGE>

                  THE PEARSON 1998 EXECUTIVE SHARE OPTION PLAN

                                    CONTENTS

CLAUSE                                                                      PAGE

1.    DEFINITIONS..............................................................1

2.    GRANT OF OPTIONS.........................................................2

3.    INDIVIDUAL LIMITS........................................................4

4.    PLAN LIMITS..............................................................4

5.    EXERCISE AND LAPSE OF OPTIONS - NORMAL CIRCUMSTANCES.....................6

6.    EXERCISE AND LAPSE OF OPTIONS - CESSATION OF EMPLOYMENT..................6

7.    DEATH OF OPTION HOLDER...................................................8

8.    METHOD AND EXTENT OF EXERCISE............................................8

9.    GENERAL OFFER FOR THE COMPANY ETC,.......................................8

      Compulsory Acquisition...................................................8
      Scheme of Arrangement....................................................9
      Demerger.................................................................9

10.   OPTION ROLLOVER.........................................................10

11.   ADJUSTMENT OF OPTIONS...................................................11

12.   ALLOTMENT OR TRANSFER OF SHARES ON EXERCISE OF OPTIONS..................12

13.   RIGHTS ATTACHING TO SHARES ALLOTTED OR TRANSFERRED
      PURSUANT TO OPTIONS.....................................................12

14.   AVAILABILITY OF SHARES..................................................13

15.   ADMINISTRATION AND AMENDMENT............................................13

16.   GENERAL.................................................................14

SCHEDULE......................................................................16

      Real Growth in Earnings Per Share Performance Target ...................16

APPENDIX 1....................................................................19

      UK Inland Revenue approved part of the Plan.............................19

APPENDIX 2....................................................................21

      United States part of the Plan..........................................21

                                                                          Page I
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                                THE PEARSON 1998
                           EXECUTIVE SHARE OPTION PLAN

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

THE BOARD means the board of directors of the Company or where appropriate the
personnel committee of the board 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 Option is granted

EMOLUMENTS means (i) an Executive's current annual basic salary at the Date of
Grant plus (ii) total bonus (if any), whether in cash or Shares, attributable to
the Company's financial year ending immediately prior to the Date of Grant

EXECUTIVE means any employee or executive director of any member of the Group
whose terms of service require him to devote substantially the whole of his
working time to the affairs of the Group

EXECUTIVE PLAN means any Share Option Plan (other than the Plan) under which
individuals may be selected for participation at the discretion of the body
administering that plan

EXERCISE PRICE means the price per Share payable on the exercise of an Option as
determined by the Board (subject to adjustment under rule 11) but which shall
not be less than:

(a)   the middle market quotation for a Share as derived from the Daily Official
      List of The London Stock Exchange on the Date of Grant; and

(b)   in the case of any Option under which Shares are to be issued, the nominal
      value of a Share

GRANT PERIOD means the period of 42 days commencing on any of the following:

(a)   the Adoption Date;

                                                                          Page 1
<PAGE>

(b)   the day immediately following the day on which the Company makes an
      announcement of its results for the last preceding financial year, half
      year or other period; or

(c)   any day on which the Board resolves that exceptional circumstances exist
      which justify the grant of Options;

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

OPTION means a right granted under the Plan to subscribe for or purchase Shares

OPTION HOLDER means any individual who holds a subsisting Option (including,
where the context permits, the legal personal representatives of a deceased
Option Holder)

OPTION PERIOD means, in relation to an Option, the period commencing on the
third anniversary of the Date of Grant of the Option and expiring on the tenth
(or, if the Board so specifies at the Date of Grant, the seventh or other) such
anniversary

THE PLAN means this Plan as amended from time to time

SHARE OPTION PLAN means any employee share option plan established by the
Company

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

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

1.2 Where the context permits the singular shall include the plural and vice
versa and the masculine shall include the feminine. 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 OPTIONS

2.1 The Board may, during a Grant Period, grant Options at the Exercise Price to
Executives selected by the Board.

2.2 Objective conditions must, unless otherwise stated in the Plan, be satisfied
prior to the exercise of Options. Such conditions:

                                                                          Page 2
<PAGE>

(a)   shall, for the time being, consist of the conditions set out in the
      Schedule to this Plan. In the event that the Board considers that the
      conditions set out in the Schedule are no longer appropriate it may at the
      time of granting Options impose different, but equally demanding,
      objective conditions;

(b)   may be amended following the Date of Grant if:

      (i)   those circumstances which prevailed at the Date of Grant and which
            were relevant to the conditions that were originally imposed
            regarding the exercise of the Option have subsequently changed; and

      (ii)  the Board is satisfied that any such amended conditions would be a
            fairer measure of the performance of the Option Holder and the Board
            reasonably considers that such amended conditions are no more
            difficult to satisfy than the original conditions;

(c)   shall cease to apply in circumstances in which Option Holders become
      entitled to exercise Options in accordance with rules 6.2 (excluding rule
      6.2(b)), 7 and 9 or to rollover Options under rule 10 hereof.

2.3 The grant of an Option and/or 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 any national insurance
contributions (including without limitation the right to sell on his behalf
sufficient Shares to satisfy any taxation or national insurance contributions
liability on his part for which any member of the Group may be liable) in
respect of an Option.

2.4 As soon as practicable after the Date of Grant the Board shall procure the
issue of an Option certificate to each Option Holder under the seal of the
Company or otherwise to take effect as a deed or such other document evidencing
the option grant as the Board shall determine.

2.5 Any Executive to whom an Option 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 rights under the Option. In such a case, the Option shall, to the
extent renounced, be treated as never having been granted and (if already
issued) the Option certificate shall be returned to the Company for cancellation
or (in the case of renunciation in part) for amendment. No consideration shall
be payable by the Company for any such renunciation.

2.6 No Option shall be granted under the Plan more than ten years after the
Adoption Date.

2.7 Every Option granted hereunder shall be personal to the Option Holder and,
except to the extent necessary to enable a personal representative to

                                                                          Page 3
<PAGE>

exercise the Option following the death of an Option Holder, neither the Option
nor the benefit thereof may be transferred, assigned, charged or otherwise
alienated. Any transfer of an Option otherwise than as permitted under this rule
2.7 shall cause the Option to lapse.

INDIVIDUAL LIMITS

3.1 No Executive shall be granted an Option which would, at the proposed Date of
Grant, cause the aggregate of the Exercise Prices of options to acquire Shares
under the Plan (including for the avoidance of doubt Options granted under any
Appendix to the Plan) or any other Executive Plan (excluding any other option to
the extent that it has been exercised) granted to him in the ten years up to
that Date of Grant, to exceed four times such Executive's Emoluments from the
Group.

3.2 If the grant of any Option would have the result of breaching the limit in
rule 3.1 that Option shall be treated as taking effect over the maximum number
of Shares over which it could have been granted without breaching such limit.

PLAN LIMITS

4.1 No Option to subscribe for Shares shall be granted to the extent that the
result of that grant would be that:

(a)   the aggregate number of Shares that could be issued on the exercise of
      that Option any other Options granted at the same time, 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 the Plan or any
            other Share Option Plan; and

      (ii)  have been issued on the exercise of any share options granted during
            the preceding ten years under the Plan or any other Share Option
            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; or

(b)   the aggregate number of Shares that could be issued on the exercise of
      that Option and any other Options granted at the same time, when added to
      the number of Shares that:

                                                                          Page 4
<PAGE>

      (i)   could be issued on the exercise of any other subsisting share
            options granted during the preceding ten years under the Plan or any
            other Executive Plan; and

      (ii)  have been issued on the exercise of any share options granted during
            the preceding ten years under the Plan or any other Executive Plan,

      would exceed 5 per cent. of the ordinary share capital of the Company for
      the time being in issue; or

(c)   the aggregate number of Shares that could be issued on the exercise of
      that Option and any other Options granted at the same time, when added to
      the number of Shares that:

      (i)   could be issued on the exercise of any other subsisting share
            options granted after the Adoption Date under the Plan or any other
            Executive Plan; and

      (ii)  have been issued on the exercise of any share options granted after
            the Adoption Date under the Plan or any other Executive Plan,

      would exceed 2 1/2 per cent. of the ordinary share capital of the Company
      for the time being in issue: Provided that this limit shall apply only in
      respect of grants of Options made before the fourth anniversary of the
      Adoption Date; or

(d)   the aggregate number of Shares that could be issued on the exercise of
      that Option and any other Options granted at the same time, 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 five years under the Plan or
            any other Share Option Plan; and

      (ii)  have been issued on the exercise of any share options granted during
            the preceding five years under the Plan or any other Share Option
            Plan; and

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

      would exceed 5 per cent. of the ordinary share capital of the Company for
      the time being in issue; or

                                                                          Page 5
<PAGE>

(e)   the aggregate number of Shares that could be issued on the exercise of
      that Option and any other Options granted at the same time, 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 three years under the Plan or
            any other Executive Plan; and

      (ii)  have been issued on the exercise of any share options granted during
            the preceding three years under the Plan or any other Executive
            Plan,

      would exceed 3 per cent. of the ordinary share capital of the Company for
      the time being in issue.

4.2 Reference in this rule 4 to the issue of Shares shall, for the avoidance of
doubt, mean the issue and allotment (but not transfer) of Shares.

EXERCISE AND LAPSE OF OPTIONS - NORMAL CIRCUMSTANCES

5.1 Save as otherwise permitted in these rules, an Option may only be exercised:

(a)   during the relevant Option Period; and

(b)   if any conditions imposed under the rule 2.2 have been fulfilled or waived
      in accordance with these rules

5.2 Notwithstanding any other provision in these rules, an Option shall lapse
automatically on the earlier of:

(a)   the expiry of the Option Period; and

(b)   the Option Holder being declared bankrupt or entering into any general
      composition with or for the benefit of his creditors including a voluntary
      arrangement under the Insolvency Act 1986

EXERCISE AND LAPSE OF OPTIONS - CESSATION OF EMPLOYMENT

6.1 Save as otherwise provided in these rules, an Option shall lapse
automatically on the Option Holder ceasing to be an employee of a member of the
Group.

6.2 Where an Option Holder ceases to be an employee of a member of the Group by
reason of:

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

                                                                          Page 6
<PAGE>

(b)   retirement at or after the date on which he is bound to retire under his
      contract of employment provided such date falls at least 24 months after
      the Date of Grant;

(c)   his employing company ceasing to be a member of the Group;

(d)   the business (or part of a business) in which he is employed being
      transferred to a transferee which is not a member of the Group;

(e)   redundancy (within the meaning of the Employment Rights Act 1996);

(f)   any other reason if the Board so decides in its absolute discretion

he may exercise his Options (whether or not the Option Period has commenced and,
with the exception of rule 6.2(b), whether or not any conditions imposed under
rule 2.2 have been satisfied) within six months of the date on which employment
ceased, failing which exercise the Options shall (subject to rule 6.4 and rule
7) lapse automatically.

6.3 For the purposes of rules 6.1 and 6.2 a female Option Holder 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.

6.4 In any case falling within rule 6.2 the Board may extend the period during
which the Option Holder may exercise his Options to such period as the Board
shall determine in its absolute discretion, not ending later than three years
and six months after the Date of Grant of an Option.

6.5 In any case where the Board is aware that an Option Holder will cease to be
an employee of a member of the Group and be entitled or permitted to exercise
his Options immediately thereafter under rule 6.2(c) or (d) it may permit him to
exercise his Options in the period of 14 days immediately preceding the date
upon which it believes that such cessation will occur (whether or not the Option
Period will have commenced and whether or not any conditions imposed under rule
2.2 has been satisfied).

6.6 For the purposes of rules 6.1, 6.2 and 6.5, following an option rollover
pursuant to rule 10.1, an Option Holder shall not be treated as ceasing to be an
employee of a member of the Group until he ceases to be employed by a company
which is either (i) the acquiring company (as defined in rule 10.1) or (ii) a
subsidiary of the acquiring company (within the meaning of section 736 of the
Companies Act 1985).

                                                                          Page 7
<PAGE>

DEATH OF OPTION HOLDER

7. If an Option Holder dies while in service or at any time after leaving
service when he holds an Option his legal personal representatives may exercise
his Option (whether or not the Option Period has commenced and whether or not
any conditions imposed under rule 2.2 have been satisfied) within twelve months
of the date on which death occurred, failing which exercise the Option shall
lapse automatically. For the avoidance of doubt, an Option exercisable under
this rule shall not lapse prior to the expiry of the specified twelve month
period by virtue of rule 6.2 but may lapse at an earlier date by virtue of rule
9.

METHOD AND EXTENT OF EXERCISE

8. An Option Holder may exercise his Option in whole or in part by giving notice
in writing to the Company in the form prescribed by the Board specifying the
number of Shares in respect of which the Option is being exercised and enclosing
or arranging to provide payment in full of the aggregate Exercise Price of those
Shares. If the Option is exercised in respect of some only of the Shares
comprised in the Option, the Company shall procure the issue of an Option
certificate to the Option Holder in respect of the balance or call in the
original Option certificate for endorsement.

GENERAL OFFER FOR THE COMPANY ETC.

GENERAL OFFER

9.1 If any person (either alone or together with any person acting in concert
with him) makes a general offer to acquire the whole of the share capital of the
Company (other than those shares which are already owned by him and/or any
person acting in concert with him), the Company shall, as soon as reasonably
practicable thereafter, give notice to each Option Holder of such general or
other offer. Each Option Holder may exercise his Options (whether or not the
Option Period has commenced and whether or not any conditions imposed under rule
2.2 have been satisfied) within the period of six months following the date on
which the offer becomes unconditional in all respects. Failing such exercise the
Options shall, without prejudice to the operation of rule 10, lapse
automatically: PROVIDED THAT, if an event as described in rule 9.2 occurs during
the six month period, the period during which the Options may be exercised shall
be the shorter of the periods specified under this rule 9.1 and rule 9.2.

COMPULSORY ACQUISITION

9.2 If any person becomes bound or entitled to acquire Shares under sections 428
to 430F of the Companies Act 1985, each Option Holder may exercise his Options,
whether or not the Option Period has commenced and whether or not any conditions
imposed under rule 2.2 have been satisfied, at any time during

                                                                          Page 8
<PAGE>

the period of 30 days from the date on which such person becomes so bound or
entitled, failing which exercise the Options shall, without prejudice to the
operation of rule 10, lapse automatically.

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:

(a)   each Option Holder may exercise his Options, whether or not the Option
      Period has commenced and whether or not any conditions imposed under rule
      2.2 have been satisfied, conditionally on either the scheme of arrangement
      being approved by the shareholders' meeting or sanctioned by the court (as
      determined by the Board 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
      is convened. Any Option not exercised by the end of that period 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, the Options shall continue. If
      the relevant condition is satisfied the Options shall, without prejudice
      to the operation of rule 10, lapse automatically on the date on which the
      scheme of arrangement is sanctioned by the court; and

(b)   the Board shall endeavour to procure that where an Option Holder has
      conditionally exercised his Options in accordance with (a) above prior to
      twelve noon on the day immediately preceding the date for which the
      shareholders' meeting is initially convened the scheme of arrangement
      shall, so far as it relates to Shares, be extended to such Option Holder
      as if each Share in respect of which the Option was conditionally
      exercised had been allotted and issued, or transferred, to him by that
      time.

PROVIDED THAT (without prejudice to the operation of rule 10.1(b)) Options shall
not without the consent of the Board be exercisable under the foregoing
provisions 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.

DEMERGER

9.4 If the Board becomes aware that the Company is or is expected to be affected
by any demerger, dividend in specie, super-dividend or other transaction which,
in the opinion of the Board, would affect the current or

                                                                          Page 9
<PAGE>

future value of any Options, the Board (acting fairly, reasonably and
objectively) may, in its absolute discretion, allow Options to be exercised,
whether or not the Option Period has commenced and whether or not any conditions
imposed under rule 2.2 have been satisfied. The Board shall specify the period
in which such Options shall be exercisable and whether such Options shall lapse
at the end of the specified period. The Board shall notify any Option Holder who
is affected by the Board exercising its discretion under this rule.

VOLUNTARY WINDING-UP

9.5 If notice is duly given of a resolution for a voluntary winding-up of the
Company then an Option Holder may exercise his Options (whether or not the
Option Period has commenced and whether or not any conditions imposed under rule
2.2 have been satisfied) within the period of two months from the date of the
resolution, failing which exercise the Options shall lapse automatically.

OPTION ROLLOVER

10.1  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 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

(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 Option Holder may at any time within the appropriate period (which
expression shall be construed in accordance with paragraph 15(2) of Schedule 9
of the Taxes Act), by agreement with the acquiring company, release any 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 10.2 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 of the Taxes Act) (the NEW GRANTOR).

10.2 The new option shall not be regarded for the purposes of rule 10.1 as
equivalent to the old option unless the conditions set out in paragraph 15(3) of

                                                                         Page 10
<PAGE>

Schedule 9 of the Taxes Act are satisfied and, in relation to the new option,
the provisions of the Plan shall be construed as if

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

(b)   the Option Period relating to the new option expired on the seventh
      anniversary of the Date of Grant of the old option;

(c)   references to the COMPANY in rules 6 to 16 and in the definition of Group
      were references to the new grantor provided that for the purposes of rule
      6 only references to the Company within the definition of Group shall
      continue to be construed as if references to the Company were references
      to Pearson plc;

(d)   references to the BOARD in rules 6, 8, 9, 11 and 16 were references to the
      board of directors of the new grantor;

(e)   references to SHARES were references to shares in the new grantor; and

(f)   any conditions imposed under rule 2.2 have been satisfied.

ADJUSTMENT OF OPTIONS

11.   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 Option.

the Exercise Price and the number of Shares comprised in an Option may be
adjusted in such manner as the Board may determine: Provided that:

(a)   no adjustment shall take effect without the prior approval of, in respect
      of an Option under which Shares are to be transferred, the person holding
      the Shares to which the Option relates (such approval not to be
      unreasonably withheld);

(b)   no adjustment shall be made pursuant to this rule which would increase the
      aggregate Exercise Price of any Option;

(c)   no adjustment shall be made to the extent that it would result in a Share
      being subscribed for at less than its nominal value; and

                                                                         Page 11
<PAGE>

(d)   no adjustment shall be made pursuant to this rule (other than on a
      capitalisation issue) unless and until the auditors for the time being of
      the Company (acting as experts not arbitrators) shall have confirmed in
      writing to the Board that such adjustment is in their opinion fair and
      reasonable.

ALLOTMENT OR TRANSFER OF SHARES ON EXERCISE OF OPTIONS

12.1 Subject to any necessary consents, to payment being made for the Shares and
to compliance by the Option Holder with the terms of the Plan, not later than 30
days after receipt of any notice of exercise in accordance with rule 8, the
Company shall either allot and issue, or procure the transfer of, Shares to the
Option Holder (or to his nominee). The Company shall (unless the Shares are to
be issued in uncertificated form) as soon as practicable deliver to the Option
Holder (or his nominee) a definitive share certificate or other evidence of
title in respect of such Shares. Where the Shares are issued or transferred to a
nominee of the Option Holder, the Option Holder shall remain the beneficial
owner of the Shares.

12.2 The Company shall not be obligated to issue or deliver Shares in connection
with any Option 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 Option Holder 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 OPTIONS

13.1 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.

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

                                                                         Page 12
<PAGE>

AVAILABILITY OF SHARES

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

14.2 If and so long as the Shares are listed on the Official List of The London
Stock Exchange, 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 Option.

ADMINISTRATION AND AMENDMENT

15.1 The decision of the Board shall be final and binding in all matters
relating to the Plan and it may at any time discontinue the grant of further
Options or amend any of the provisions of the Plan in any way it thinks fit:
Provided that:

(a)   the Board shall not make any amendment that would materially prejudice the
      interests of existing Option Holders except with the prior consent or
      sanction of Option Holders who, if they exercised their Options 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 Options; and

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

      (i)   the definition of EXECUTIVE in rule 1.1;

      (ii)  the limits on the numbers of Shares available for issue under the
            Plan;

      (iii) the maximum entitlement of an Executive under the Plan;

      (iv)  the basis for determining an Executive's entitlement to Shares under
            the Plan;

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

      (vi)  the adjustment provisions of rule 11 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 Option Holders or any
      member of the Group; and

                                                                         Page 13
<PAGE>

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

15.2 Notwithstanding any other provision of the Plan, the Board may establish
appendices to the Plan (in addition to Appendix 1 which sets out that part of
the Plan which is approved by the UK Inland Revenue) for the purpose of granting
Options 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 limits set out in Rules 3 and 4 hereof.

GENERAL

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

16.2 The rights and obligations of an Option Holder under the terms and
conditions of his office or employment shall not be affected by his
participation in the Plan or any right he 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 office or
employment with any company for any reason whatsoever insofar as those rights
arise, or may arise, from his ceasing to have rights under or be entitled to
exercise any Option 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
Option Holder's terms of employment shall be varied accordingly.

16.3 The existence of any Option 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.

16.4 Any notice or other document required to be given under or in connection
with the Plan may be delivered to an Option Holder or sent by post to him at his
home address according to the records of his employing company or such other
address as may appear to the Company to be appropriate. Notices

                                                                         Page 14
<PAGE>

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 Board may from time to
time determine and notify to Option Holders).

16.5 Benefits under the Plan shall not be pensionable.

16.6 The Company, or where the Board so directs any Subsidiary, shall pay the
appropriate stamp duty on behalf of Option Holders in respect of any transfer of
Shares on the exercise of Options.

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

                                                                         Page 15
<PAGE>

                                    SCHEDULE

                   REAL GROWTH IN EARNINGS PER SHARE PERFORMANCE TARGET

The conditions referred to in rule 2.2 are that, at the Accounts Date of the
Company following the expiry of a Prescribed Period relating to an Option, the
Company's percentage growth in its Annualised EPS over that Prescribed Period
(comparing the Basis Year with the Latest Year) 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 determining whether the
conditions set out in this Schedule has been satisfied.

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
drawn up on the historical cost basis modified by the revaluation of certain
fixed assets in accordance with generally accepted accounting principles applied
consistently

ACCOUNTS DATE means the date on which the Accounts have been 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)

BASIS 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 Basis Year the Board 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);

                                                                         Page 16
<PAGE>

(b)   adjust the figure for any tax charge to ensure that the deduction for
      taxation in respect of the Latest Year shall be at the average tax rate
      applicable to the Basis Year; and

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

FINANCIAL YEAR means an accounting reference period as defined in accordance
with section 224 of the Companies Act 1985

LATEST YEAR means, in relation to the Company, the latest Financial Year in a
Prescribed Period for which Accounts have been published in or prior to the
relevant Accounts Date

PRESCRIBED PERIOD means any period of three consecutive Financial Years, the
first of which shall not in any event be earlier than the Financial Year
starting immediately before the Date of Grant of the relevant Option

RPI INDEX means the Index of Retail Prices (All Items) published by H. M.
Government.

2. As at each Accounts Date of the Company following the expiry of a Prescribed
Period, the Board shall calculate the percentage growth between the Annualised
EPS for its Basis Year and for its Latest Year 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 Basis 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 Board 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 Board may make such adjustments to any calculations
using the RPI Index (or any replacement index) as they consider to be fair and
reasonable.

                                                                         Page 17
<PAGE>

6. The Auditors shall confirm in writing to the Board:

(a)   that calculations made by the Board in accordance with this Schedule are
      correct; and

(b)   where an adjustment has been made by the Board under paragraph 4, that
      such adjustment is in their opinion fair and reasonable.

                                                                         Page 18
<PAGE>

                                   APPENDIX 1

                   UK INLAND REVENUE APPROVED PART OF THE PLAN

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

(A)   Rules 1 to 16 of the Plan shall apply to the grant of Options subject to
      the modifications contained in the following paragraphs.

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

      (i)   no 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

      (iii) no 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)   In the definition of GRANT PERIOD a new paragraph (d) shall be inserted as
      follows:

      "(d)  any day on which any change to the legislation affecting Share
            Option Plans approved by the Inland Revenue under the Taxes Act is
            proposed or made"

(D)   The definition of SHARES shall be subject to the condition that they
      satisfy paragraphs 10 to 14 of Schedule 9 to the Taxes Act.

(E)   The imposition of any objective conditions referred to in rule 2.2, or any
      amendment to such conditions, must be approved in advance by the Inland
      Revenue.

(F)   Rule 2.3 shall not apply to the grant of Options under this Appendix.

(G)   Rule 3.1 shall not apply to the grant of Options under this Appendix. In
      its place a new rule 3.1 shall be inserted as follows:

      "3.1  No Executive shall be granted an 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 Taxation of
            Chargeable Gains Act 1992)) of subsisting Options held by him
            pursuant to a grant under this Appendix and subsisting options held
            by him under any Associated Plan, to exceed (pound)30,000 (or such
            other amount as shall be specified under

                                                                         Page 19
<PAGE>

            paragraph 28(1) of Schedule 9 of the Taxes Act from time to time).

      For the purposes of this paragraph (G) 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.

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

(I)   Rule 10.2(b) shall not apply to a new option granted under this Appendix
      following an event specified in rule 10.1.

(J)   Rule 11(ii) shall not apply to an Option granted under this Appendix. No
      Adjustment pursuant to rule 11(i) in relation to an Option granted under
      this Appendix shall take effect without the prior approval of the Inland
      Revenue.

(K)   In addition to its powers under rule 15.1(b), the Board may make such
      amendments to this Appendix as are necessary or desirable to obtain or
      maintain Inland Revenue approval of this Appendix.

(L)   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).

                                                                         Page 20
<PAGE>

                                   APPENDIX 2

                         UNITED STATES PART OF THE PLAN

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

(A)   Rules 1 to 16 of the Plan shall apply to the grant of Options subject to
      the modifications contained in the following paragraphs.

(B)   An 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 Board; 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
      11.

      For the purposes of this Appendix:

      (i)   INCENTIVE STOCK OPTION means an 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 Board as such; and

      (ii)  NON-QUALIFIED STOCK OPTION means an Option which is not an Incentive
            Stock Option.

(C)   The Board may, in its absolute discretion, also award Stock Appreciation
      Rights (SARS) in the place of Incentive Stock Options and Non-Qualified
      Stock Options. Alternatively, the Board may, in its absolute discretion,
      provide a combination of Incentive Stock Options, Non-Qualified Stock
      Options and SARs.

      For the purposes of this Appendix an SAR means an award of fictitious
      Shares of the Company which, subject to the terms and conditions of the
      SAP, award, carries the rights set out in this Appendix.

(D)   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 EXERCISE PRICE as defined in Rule 1.1 shall be modified
      by inserting "110% of" immediately prior to the colon, and the definition
      of OPTION PERIOD shall be modified by replacing "tenth" with "fifth" and
      deleting the brackets.

                                                                         Page 21
<PAGE>

(E)   Rule 3.1 shall not apply to the grant of Incentive Stock Options under
      this Appendix but shall continue to apply to grant of Non-Qualified Stock
      Options and to the award of SARs. In relation to the grant of Incentive
      Stock Options a new rule 3.1A shall apply as follows:

      "3.1A 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 Board 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."

(F)   Rule 6.2 shall be modified by deleting subrule (b) therefrom, and, in the
      case of any Incentive Stock Option, replacing "six months" with "three
      months" (except where cessation of employment is by reason of disability
      within the meaning of Section 22(e)(3) of the Code).

(G)   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 Option Holder, 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.

(H)   Rule 8 shall not apply to the exercise/surrender of an SAR under this
      Appendix. In its place a new rule 8A shall apply as follows:

      "8A An Executive may surrender a SAR in whole or in part, to the extent
      then exercisable, by delivery of notice in writing to the Company (and if
      the Company determines to the Company to which the SAR relates),
      specifying that the SAR is being surrendered and the portion of the SAR,
      that is being surrendered. No payment will be required from an Executive
      upon surrender of a SAR, except that any amount necessary to satisfy
      applicable tax withholding shall be withheld or paid promptly upon
      notification of the amount due and prior to or concurrently with delivery
      of cash or a certificate representing Shares. The Board shall determine,
      in their sole discretion, whether and to what extent the Company shall
      deliver cash, Shares or a combination of cash

                                                                         Page 22
<PAGE>

      and Shares in satisfaction of the surrender of a SAR. The delivery of
      cash, Shares or a combination of cash and Shares shall be calculated on
      the following basis:

      (a)   DELIVERY OF CASH - a payment in cash shall be equal to the excess
            (if any) of the aggregate notional market value of the fictitious
            Shares at exercise (calculated by multiplying the number of
            fictitious Shares surrendered by the middle market quotation of the
            fictitious Shares at the close of business on the date of exercise
            as ascertained from the daily official list of the London Stock
            Exchange) over the aggregate Exercise Price for such Shares on the
            date of the SAR, award as set out in the Stock Appreciation Rights
            Agreement; or

      (b)   DELIVERY OF SHARES - the number of Shares issued or transferred to
            the Executive shall be such number as have a market value (by
            reference to the middle market quotation as in (a) above) equal to
            any such excess (calculated as in (a) above);

      (c)   DELIVERY OF CASH AND SHARES - a combination of cash and Shares shall
            have a combined value equal to any such excess, calculated as in (a)
            and (b) above.

      In the event that, for any reason, it shall be impossible to determine the
      market value at the date of exercise in the manner set out above the Board
      shall in their discretion determine the same."

(I)   No SAR granted under this Appendix shall be deemed to constitute any
      stock or other interest of the Company, and an Executive shall not, as a
      consequence of receiving an award of an SAR, have any rights in or with
      respect to Shares, including without limitation any voting rights or
      rights to distributions with respect to such Shares. Nothing contained in
      the Plan and no action taken pursuant to the provisions of the Plan shall
      create, or be construed to create, a trust of any kind, a fiduciary
      relationship between the Company and an Executive or any other person, nor
      shall any money, property or Shares be segregated for the benefit of an
      Executive. To the extent that an Executive acquires a right to receive
      payments with respect to an award of a SAR, hereunder, such right shall be
      no greater than the right of any general unsecured creditor of the
      Company.

(J)   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.

                                                                         Page 23

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