Document:

EXHIBIT
4.1

 

XYRATEX
LTD

2005
EMPLOYMENT INCENTIVE PLAN

 

ADOPTED BY THE BOARD OF DIRECTORS ON MAY 11, 2005

 

EFFECTIVE AS OF MAY 11, 2005

 

ARTICLE 1

PURPOSE

 

1.1                               GENERAL.

 

(a)                                  ELIGIBLE STOCK
AWARD RECIPIENTS.  Only Eligible Participants may receive Awards
under the Plan.

 

(b)                                 GENERAL
PURPOSE.  The purpose of the Plan is to promote the
success and enhance the value of Xyratex Ltd (the “Company”) by linking
the personal interests of Eligible Participants to those of Company
stockholders and by providing such individuals with an incentive for
outstanding performance to generate superior returns to Company
stockholders.  The Plan is further
intended to provide flexibility to the Company in its ability to motivate,
attract, and retain the services of Eligible Participants upon whose judgment,
interest, and special effort the successful conduct of the Company’s operation
will be largely dependent.

 

ARTICLE 2

DEFINITIONS AND CONSTRUCTION

 

2.1                               DEFINITIONS. 
The following words and phrases shall have the following meanings:

 

(a)                                  “Award” means an Option, a
Restricted Stock award or Restricted Stock Units granted to an Eligible
Participant pursuant to the Plan.

 

(b)                                 “Award Agreement” means any
written agreement, contract, or other instrument or document evidencing an Award.

 

(c)                                  “Board” means the Board of
Directors of the Company.

 

(d)                                 “Change of Control” means and
includes each of the following:

 

(1)  the
acquisition, directly or indirectly, by any “person” or “group” (as those terms
are defined in Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act and the
rules thereunder) of “beneficial ownership” (as determined pursuant to
Rule 13d-3 under the Exchange Act) of securities entitled to vote
generally in the election of directors (“voting securities”) of the Company
that represent 50% or more of the combined voting power of the Company’s then
outstanding voting securities, other than

 

(A)  an
acquisition by a trustee or other fiduciary holding securities under any
employee benefit plan (or related trust) sponsored or maintained by the Company
or

 

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any person controlled by the Company or by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any person controlled by the Company, or

 

(B)  an
acquisition of voting securities by the Company or a corporation owned,
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of the stock of the Company, or

 

(C)  an
acquisition of voting securities pursuant to a transaction described in
clause (3) below that would not be a Change of Control under
clause (3);

 

Notwithstanding the foregoing, the following event
shall not constitute an “acquisition” by any person or group for purposes of
this subsection (d): an acquisition of the Company’s securities by the Company
which causes the Company’s voting securities beneficially owned by a person or
group to represent 50% or more of the combined voting power of the Company’s
then outstanding voting securities; provided,
however, that if a person or group shall become the beneficial owner
of 50% or more of the combined voting power of the Company’s then outstanding
voting securities by reason of share acquisitions by the Company as described
above and shall, after such share acquisitions by the Company, become the
beneficial owner of any additional voting securities of the Company, then such
acquisition shall constitute a Change of Control; or

 

(2)  during any
period of two consecutive years, individuals who, at the beginning of such
period, constitute the Board together with any new director(s) (other than a
director designated by a person who shall have entered into an agreement with
the Company to effect a transaction described in clauses (1) or (3) of
this subsection (d)) whose election by the Board or nomination for election by
the Company’s stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
the two year period or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority thereof; or

 

(3)  the
consummation by the Company (whether directly involving the Company or
indirectly involving the Company through one or more intermediaries) of
(x) a merger, consolidation, reorganization, or business combination or
(y) a sale or other disposition of all or substantially all of the Company’s
assets or (z) the acquisition of assets or stock of another entity, in
each case other than a transaction

 

(A)  which
results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by
being converted into voting securities of the Company or the person that, as a
result of the transaction, controls, directly or indirectly, the Company or
owns, directly or indirectly, all or substantially all of the Company’s assets
or otherwise succeeds to the business of the Company (the Company or such
person, the “Successor Entity”)) directly or indirectly, at least a
majority of the combined voting power of the Successor Entity’s outstanding
voting securities immediately after the transaction, and

 

(B)  after which
no person or group beneficially owns voting securities representing 50% or more
of the combined voting power of the Successor Entity;

 

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provided, however,
that no person or group shall be treated for purposes of this clause (B)
as beneficially owning 50% or more of combined voting power of the Successor
Entity solely as a result of the voting power held in the Company prior to the
consummation of the transaction; or

 

(4)  the Company’s
stockholders approve a liquidation or dissolution of the Company.

 

The Committee shall have full and final authority,
which shall be exercised in its discretion, to determine conclusively whether a
Change of Control of the Company has occurred pursuant to the above definition,
and the date of the occurrence of such Change of Control and any incidental
matters relating thereto.

 

(e)                                  “Code” means the Internal Revenue
Code of 1986, as amended.

 

(f)                                    “Committee” means the Board or the
Compensation Committee of the Board as further described in Article 10.

 

(g)                                 “Director” means a member of the
Board.

 

(h)                                 “Disability” means,
for purposes of this Plan, that the Participant qualifies to receive long-term
disability payments under the Company’s long-term disability insurance program,
as it may be amended from time to time.

 

(i)                                     “Eligible Participant” means any
Employee who has not previously been an Employee or Director of the Company or
a Subsidiary, or where the Employee has previously been an Employee or Director
of a Subsidiary, is commencing employment with the Company or a Subsidiary following
a bona fide period of non-employment by a Subsidiary, if he or she is granted
an Award in connection with his or her commencement of employment with the
Company or a Subsidiary and such grant is considered by the Board to be an essential
and material inducement to his or her entering into employment with the Company
or a Subsidiary.  The Board may in its
discretion adopt procedures from time to time to ensure that an Employee is
eligible to participate in the Plan prior to the granting of any Awards to such
Employee under the Plan (including, without limitation, a requirement, that
each such Employee certify to the Company prior to the receipt of an Award
under the Plan that he or she has not been previously employed by the Company
or a Subsidiary, or if previously employed by a Subsidiary, has had a bona fide
period of non-employment, and that the grant of Awards under the Plan is an
inducement material to his or her agreement to enter into employment with the
Company or a Subsidiary).

 

(j)                                     “Employee” means any officer or
other employee (as defined in accordance with Section 3401(c) of the Code) of
the Company or any Subsidiary.

 

(k)                                  “Exchange Act” means the
Securities Exchange Act of 1934, as amended.

 

(l)                                     “Fair Market Value” shall mean, as
of any date, the value of Stock determined as follows:

 

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(1)                                  If the Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the date of determination, as
reported in The Wall Street Journal or such other
source as the Committee deems reliable;

 

(2)                                  If the Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Stock on the date prior to the date of determination as reported in The Wall Street Journal or such other source as the
Committee deems reliable; or

 

(3)                                  In the absence of an established market
for the Stock, the Fair Market Value thereof shall be determined in good faith
by the Committee.

 

(m)                               “Incentive Stock Option” means an
Option that is intended to meet the requirements of Section 422 of the Code or
any successor provision thereto. 
Incentive Stock Options may not be granted under the Plan.

 

(n)                                 “Independent Director” means a
Director who is not an Employee of the Company and who qualifies as “independent”
within the meaning of NASD Rule 4200(a)(14), if the Company’s securities are
traded on the Nasdaq National Market, or the requirements of any other
established stock exchange on which the Company’s securities are traded, as
such rules or requirements may be amended from time to time..

 

(o)                                 “NASD” means the National
Association of Securities Dealers, Inc.

 

(p)                                 “Non-Qualified Stock Option” means
an Option that is not intended to be an Incentive Stock Option.

 

(q)                                 “Option” means a right granted to
a Participant pursuant to Article 5 of the Plan to purchase a specified number
of shares of Stock at a specified price during specified time periods.  An Option must be a Non-Qualified Stock
Option.

 

(r)                                    “Participant” means an Eligible
Participant who has been granted an Award pursuant to the Plan.

 

(s)                                  “Plan” means this Xyratex Ltd 2005
Employment Incentive Plan, as it may be amended from time to time.

 

(t)                                    “Restricted Stock” means Stock
awarded to a Participant pursuant to Article 6 that is subject to certain
restrictions and to risk of forfeiture.

 

(u)                                 “Restricted Stock Unit” means an
Award granted pursuant to Article 7.

 

(v)                                 “Stock” means the common shares of
the Company and such other securities of the Company that may be substituted
for Stock pursuant to Article 9.

 

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(w)                               “Subsidiary” means any corporation
or other entity of which a majority of the outstanding voting stock or voting
power is beneficially owned directly or indirectly by the Company.

 

ARTICLE 3

SHARES SUBJECT TO THE PLAN

 

3.1                               NUMBER OF SHARES.

 

(a)                                  Subject to Article 9, the aggregate
number of shares of Stock which may be issued or transferred pursuant to Awards
under the Plan shall be 1,000,000 shares.

 

(b)                                 To the extent that an Award terminates,
expires, or lapses for any reason, any shares of Stock subject to the Award
shall again be available for the grant of an Award pursuant to the Plan.  Additionally, any shares of Stock tendered or
withheld to satisfy the grant or exercise price or tax withholding obligation
pursuant to any Award shall again be available for the grant of an Award
pursuant to the Plan.  To the extent
permitted by applicable law or any exchange rule, shares of Stock issued in
assumption of, or in substitution for, any outstanding awards of any entity
acquired in any form of combination by the Company or any Subsidiary shall not
be counted against shares of Stock available for grant pursuant to this Plan.

 

3.2                               STOCK DISTRIBUTED. 
Any Stock distributed pursuant to an Award may consist, in whole or in
part, of authorized and unissued Stock or Stock purchased on the open market.

 

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

 

4.1                               ELIGIBILITY.

 

(a)                                  GENERAL. 
Awards may be granted only to Eligible Participants.  All Options granted under the Plan shall be
Non-Qualified Stock Options.

 

(b)                                 FOREIGN PARTICIPANTS.  In order to assure the viability of Awards
granted to Participants employed in foreign countries, the Committee may
provide for such special terms as it may consider necessary or appropriate to
accommodate differences in local law, tax policy, or custom.  Moreover, the Committee may approve such
supplements to, or amendments, restatements, or alternative versions of, the
Plan as it may consider necessary or appropriate for such purposes without
thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such
supplements, amendments, restatements, or alternative versions shall increase
the share limitations contained in Section 3.1 of the Plan.

 

4.2                               ACTUAL PARTICIPATION. 
Subject to the provisions of the Plan, the Committee may, from time to
time, select from among all eligible individuals, those to whom Awards shall be
granted and shall determine the nature and amount of each Award.  No individual shall have any right to be
granted an Award pursuant to this Plan.

 

5

 

ARTICLE 5

STOCK
OPTIONS

 

5.1                               GENERAL. 
The Committee is authorized to grant Options to Participants on the
following terms and conditions:

 

(a)                                  EXERCISE PRICE. 
The exercise price per share of Stock subject to an Option shall be
determined by the Committee and set forth in the Award Agreement, provided that the exercise price for any
Option shall not be less than the higher of 100% of the Fair Market Value or
par value of a share of Stock on the date of grant.

 

(b)                                 TIME AND
CONDITIONS OF EXERCISE.  The Committee shall determine the time or
times at which an Option may be exercised in whole or in part; provided that the term of any Option
granted under the Plan shall not exceed ten years, and provided further, that such Option shall
be exercisable for not less than one year after the date of the Participant’s
death.  The Committee shall also determine the performance or
other conditions, if any, that must be satisfied before all or part of an
Option may be exercised.

 

(c)                                  PAYMENT. 
The Committee shall determine the methods by which the exercise price of
an Option may be paid, the form of payment, including, without limitation: (i)
cash, (ii) promissory note bearing interest at no less than such rate as shall
then preclude the imputation of interest under the Code, (iii) shares of Stock
held for longer than six months having a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Option or exercised
portion thereof, or (iv) other property acceptable to the Committee (including
through the delivery of a notice that the Participant has placed a market sell
order with a broker with respect to shares of Stock then issuable upon exercise
of the Option, and that the broker has been directed to pay a sufficient
portion of the net proceeds of the sale to the Company in satisfaction of the
Option exercise price; provided
that payment of such proceeds is then made to the Company upon settlement of
such sale), and the methods by which shares of Stock shall be delivered or
deemed to be delivered to Participants. 
Notwithstanding any other provision of the Plan to the contrary, no
Participant who is a member of the Board or an “executive officer” of the
Company within the meaning of Section 13(k) of the Exchange Act shall be
permitted to pay the exercise price of an Option in any method which would
violate Section 13(k) of the Exchange Act.

 

(d)                                 EVIDENCE OF
GRANT.  All Options shall be evidenced by a written
Award Agreement between the Company and the Participant.  The Award Agreement shall include such
additional provisions as may be specified by the Committee.

 

ARTICLE 6

RESTRICTED STOCK AWARDS

 

6.1                               GRANT OF RESTRICTED STOCK. 
Restricted Stock may be awarded to any Eligible Participant in such
amounts and subject to such terms and conditions as determined by the
Committee.  All Awards of Restricted
Stock shall be evidenced by a written Restricted Stock Award Agreement.

 

6

 

6.2                               ISSUANCE AND RESTRICTIONS. 
Restricted Stock shall be subject to such restrictions on
transferability and other restrictions as the Committee may impose (including,
without limitation, limitations on the right to vote Restricted Stock or the
right to receive dividends on the Restricted Stock).  These restrictions may lapse separately or in
combination at such times, pursuant to such circumstances, in such
installments, or otherwise, as the Committee determines at the time of the
grant of the Award or thereafter.

 

6.3                               FORFEITURE.  Except as
otherwise determined by the Committee at the time of the grant of the Award or
thereafter, upon termination of employment or service during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and, subject to the requirements of the
Companies Act 1981 of Bermuda, repurchased by the Company for an aggregate
price of US$1.00; provided, however,
that the Committee may provide in any Restricted Stock Award Agreement that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from
specified causes, and the Committee may in other cases waive in whole or in
part restrictions or forfeiture conditions relating to Restricted Stock.

 

6.4                               CERTIFICATES FOR
RESTRICTED STOCK.  Restricted Stock granted pursuant to the Plan
may be evidenced in such manner as the Committee shall determine.  If certificates representing shares of
Restricted Stock are registered in the name of the Participant, certificates must
bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock, and the Company may, at its discretion,
retain physical possession of the certificate until such time as all applicable
restrictions lapse.

 

ARTICLE 7

OTHER TYPES OF AWARDS

 

7.1                               RESTRICTED
STOCK UNITS.  The Committee is authorized to make Awards of
Restricted Stock Units to any Participant selected by the Committee in such
amounts and subject to such terms and conditions as determined by the
Committee.  At the time of grant, the
Committee shall specify the date or dates on which the Restricted Stock Units
shall become fully vested and nonforfeitable, and may specify such conditions
to vesting as it deems appropriate.  At
the time of grant, the Committee shall specify the maturity date applicable to
each grant of Restricted Stock Units which shall be no earlier than the vesting
date or dates of the Award and may be determined at the election of the
grantee.  On the maturity date, the
Company shall, subject to Section 8.5, issue to the Participant one
unrestricted, fully transferable share of Stock for each Restricted Stock Unit
scheduled to be paid out on such date and not previously forfeited.  The Committee shall specify the purchase
price to be paid by the grantee to the Company for such shares of Stock, which
shall not be less than par value.

 

7.2                               TERM. 
Except as otherwise provided herein, the term of any Award of Restricted
Stock Units shall be set by the Committee in its discretion.

 

7.3                               EXERCISE
OR PURCHASE PRICE.  The Committee may establish the purchase
price, if any, of any Award of Restricted Stock Units; provided, however, that such price shall
not be less than the par value of a share of Stock on the date of grant, unless
otherwise permitted by applicable state law.

 

7

 

7.4                               EXERCISE UPON TERMINATION OF EMPLOYMENT OR SERVICE. 
An Award of Restricted Stock Units shall only be made while the
Participant is an Employee; provided,
however, that the Committee in its sole and absolute discretion may
provide that an Award of Restricted Stock Units may be made subsequent to a
termination of employment, or following a Change in Control of the Company, or
because of the Participant’s retirement, death or disability, or otherwise.

 

7.5                               FORM
OF PAYMENT.  Payments with
respect to any Awards granted under this Article 7 shall be made in cash, in
Stock or a combination of both, as determined by the Committee.

 

ARTICLE 8

PROVISIONS APPLICABLE TO AWARDS

 

8.1                               STAND-ALONE AND TANDEM
AWARDS.  Awards granted pursuant to the Plan may, in
the discretion of the Committee, be granted either alone, in addition to, or in
tandem with, any other Award granted pursuant to the Plan.  Awards granted in addition to or in tandem
with other Awards may be granted either at the same time as or at a different
time from the grant of such other Awards.

 

8.2                               AWARD AGREEMENT. 
Awards under the Plan shall be evidenced by Award Agreements that set
forth the terms, conditions and limitations for each Award which may include
the term of an Award, the provisions applicable in the event the Participant’s
employment or service terminates, and the Company’s authority to unilaterally
or bilaterally amend, modify, suspend, cancel or rescind an Award.

 

8.3                               LIMITS ON TRANSFER. 
No right or interest of a Participant in any Award may be pledged,
encumbered, or hypothecated to or in favor of any party other than the Company
or a Subsidiary, or shall be subject to any lien, obligation, or liability of
such Participant to any other party other than the Company or a
Subsidiary.  No Award shall be assigned,
transferred, or otherwise disposed of by a Participant other than by will or
the laws of descent and distribution.

 

8.4                               BENEFICIARIES. 
Notwithstanding Section 8.3, a Participant may, in the manner determined
by the Committee, designate a beneficiary to exercise the rights of the
Participant and to receive any distribution with respect to any Award upon the
Participant’s death.  A beneficiary,
legal guardian, legal representative, or other person claiming any rights
pursuant to the Plan is subject to all terms and conditions of the Plan and any
Award Agreement applicable to the Participant, except to the extent the Plan
and Award Agreement otherwise provide, and to any additional restrictions
deemed necessary or appropriate by the Committee.  If the Participant is married and resides in
a community property state, a designation of a person other than the Participant’s
spouse as his beneficiary with respect to more than 50% of the Participant’s
interest in the Award shall not be effective without the prior written consent
of the Participant’s spouse.  If no
beneficiary has been designated or survives the Participant, payment shall be
made to the person entitled thereto pursuant to the Participant’s will or the
laws of descent and distribution. 
Subject to the foregoing, a beneficiary designation may be changed or
revoked by a Participant at any time provided the change or revocation is filed
with the Committee.

 

8

 

8.5                               STOCK CERTIFICATES. 
Notwithstanding anything herein to the contrary, the Company shall not
be required to issue or deliver any certificates evidencing shares of Stock
pursuant to the exercise of any Award, unless and until the Board has
determined, with advice of counsel, that the issuance and delivery of such
certificates is in compliance with all applicable laws, regulations of
governmental authorities and, if applicable, the requirements of any exchange
on which the shares of Stock are listed or traded.  All Stock certificates delivered pursuant to
the Plan are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal, state, or
foreign jurisdiction, securities or other laws, rules and regulations and the
rules of any national securities exchange or automated quotation system on
which the Stock is listed, quoted, or traded. 
The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock.  In
addition to the terms and conditions provided herein, the Board may require
that a Participant make such reasonable covenants, agreements, and representations
as the Board, in its discretion, deems advisable in order to comply with any
such laws, regulations, or requirements. The Committee shall have the right to
require any Participant to comply with
any timing or other restrictions with respect to the settlement or exercise of
any Award, including a window-period limitation, as may be imposed in the
discretion of the Committee.

 

ARTICLE 9

CHANGES IN CAPITAL STRUCTURE

 

9.1                               ADJUSTMENTS. 
In the event of any stock dividend, stock split, combination or exchange
of shares, merger, consolidation, spin-off, recapitalization or other
distribution (other than normal cash dividends) of Company assets to
stockholders, or any other change affecting the shares of Stock or the share
price of the Stock, the Committee shall make such proportionate adjustments, if
any, as the Committee in its discretion may deem appropriate to reflect such
change with respect to (i) the aggregate number and type of shares that may be
issued under the Plan (including, but not limited to, adjustments of the
limitations in Section 3.1); (ii) the terms and conditions of any outstanding
Awards (including, without limitation, any applicable performance targets or
criteria with respect thereto); and (iii) the grant or exercise price per share
for any outstanding Awards under the Plan.

 

9.2                               ACCELERATION UPON A CHANGE
OF CONTROL.  If a Change of Control occurs and a
Participant’s Awards are not converted, assumed, or replaced by a successor,
such Awards shall become fully exercisable and all forfeiture restrictions on
such Awards shall lapse.  Upon, or in
anticipation of, a Change of Control, the Committee may cause any and all
Awards outstanding hereunder to terminate at a specific time in the future and
shall give each Participant the right to exercise such Awards during a period
of time as the Committee, in its sole and absolute discretion, shall
determine.  In the event that the terms
of any agreement between the Company or any Subsidiary or affiliate and a
Participant contains provisions that conflict with and are more restrictive
than the provisions of this Section 9.2, this Section 9.2 shall prevail and
control and the more restrictive terms of such agreement (and only such terms)
shall be of no force or effect.

 

9

 

9.3                               OUTSTANDING AWARDS – CERTAIN
AMALGAMATIONS.  Subject to any required action by the
stockholders of the Company, in the event that the Company shall be the
surviving corporation in any amalgamation or other such re-organisation (except
an amalgamation or other such re-organisation as a result of which the holders
of shares of Stock receive securities of another corporation), each Award
outstanding on the date of such amalgamation or other such re-organisation
shall pertain to and apply to the securities that a holder of the number of
shares of Stock subject to such Award would have received in such amalgamation
or other such re-organisation.

 

9.4                               OUTSTANDING AWARDS – OTHER
CHANGES.  In the event of any other change in the
capitalization of the Company or corporate change other than those specifically
referred to in this Article 9, the Committee may, in its absolute discretion,
make such adjustments in the number and class of shares subject to Awards
outstanding on the date on which such change occurs and in the per share grant
or exercise price of each Award as the Committee may consider appropriate to
prevent dilution or enlargement of rights.

 

9.5                               NO OTHER RIGHTS. 
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of any class,
the payment of any dividend, any increase or decrease in the number of shares
of any class or any dissolution, liquidation, merger, or consolidation of the
Company or any other corporation.  Except
as expressly provided in the Plan or pursuant to action of the Committee under
the Plan, no issuance by the Company of shares of any class, or securities
convertible into shares of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of Stock subject to
an Award or the grant or exercise price of any Award.

 

ARTICLE
10

ADMINISTRATION

 

10.1                        COMMITTEE. 
Unless and until the Board delegates administration to the Compensation
Committee (the “Committee”) as set forth below, the Plan shall be administered
by the Board, which shall, in such event, constitute the “Committee” for the
purposes of this Plan.  Any action taken
by the Board in connection with the administration of the Plan shall not be
deemed approved by the Board unless such actions are approved by a majority of
the Independent Directors.  The Board may
delegate administration of the Plan to the Committee, and the term “Committee”
shall apply to any person or persons to whom such authority has been delegated;
provided, however, that such Committee
be comprised of a majority of or solely two or more Independent Directors.  If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board shall
thereafter be to the Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board.

 

The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.  Any action taken by the Board
in connection with the administration of the Plan shall continue to not be
deemed approved by the Board unless such actions are approved by a majority of
the Independent Directors.  Appointment
of Committee members shall be effective upon acceptance of appointment.  Committee members may resign at any time by

 

10

 

delivering written notice
to the Board.  Vacancies in the Committee
may only be filled by the Board.

 

10.2                        DECISIONS BINDING. 
The Committee’s interpretation of the Plan, any Awards granted pursuant
to the Plan, any Award Agreement and all decisions and determinations by the
Committee with respect to the Plan are final, binding, and conclusive on all
parties.

 

ARTICLE
11

EFFECTIVE AND EXPIRATION DATE

 

11.1                        EFFECTIVE DATE. 
The Plan is effective as of the date of its adoption by the Board (the “Effective
Date”).

 

11.2                        EXPIRATION DATE. 
The Plan will expire on, and no Award may be granted pursuant to the
Plan after May 10, 2025 (the “Expiration Date”).  Any Awards that are outstanding on the
Expiration Date shall remain in force according to the terms of the Plan and
the applicable Award Agreement.  Each
Award Agreement shall provide that it will expire on the tenth anniversary of
the date of grant of the Award to which it relates.

 

ARTICLE
12

AMENDMENT, MODIFICATION, AND TERMINATION

 

12.1                        AMENDMENT, MODIFICATION,
AND TERMINATION.  With the approval of the Board, at any time
and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that to the extent
necessary and desirable to comply with any applicable law, regulation, or stock
exchange rule, the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.

 

12.2                        AWARDS PREVIOUSLY GRANTED. 
No termination, amendment, or modification of the Plan shall adversely
affect in any material way any Award previously granted pursuant to the Plan
without the prior written consent of the Participant.

 

ARTICLE
13

GENERAL PROVISIONS

 

13.1                        NO RIGHTS TO AWARDS. 
No Participant, employee, or other person shall have any claim to be
granted any Award pursuant to the Plan, and neither the Company nor the
Committee is obligated to treat Participants, employees, and other persons
uniformly.

 

13.2                        NO STOCKHOLDERS RIGHTS. 
No Award gives the Participant any of the rights of a stockholder of the
Company unless and until shares of Stock are in fact issued to such person in
connection with such Award.

 

13.3                        WITHHOLDING. 
The Company or any Subsidiary shall have the authority and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, local and foreign taxes (including the
Participant’s FICA obligation) required by law to be withheld with respect to
any taxable event concerning a Participant arising as a result of this
Plan.  The Committee may in its
discretion and in

 

11

 

satisfaction of the
foregoing requirement allow a Participant to elect to have the Company withhold
shares of Stock otherwise issuable under an Award (or allow the return of
shares of Stock) having a Fair Market Value equal to the sums required to be
withheld.  Notwithstanding any other
provision of the Plan, the number of shares of Stock which may be withheld with
respect to the issuance, vesting, exercise or payment of any Award (or which
may be repurchased from the Participant of such Award within six months after
such shares of Stock were acquired by the Participant from the Company) in
order to satisfy the Participant’s federal, state, local and foreign income and
payroll tax liabilities with respect to the issuance, vesting, exercise or
payment of the Award shall be limited to the number of shares which have a Fair
Market Value on the date of withholding or repurchase equal to the aggregate
amount of such liabilities based on the minimum statutory withholding rates for
federal, state, local and foreign income tax and payroll tax purposes that are
applicable to such supplemental taxable income.

 

13.4                        NO RIGHT TO EMPLOYMENT OR
SERVICES.  Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant’s employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.

 

13.5                        UNFUNDED STATUS OF AWARDS. 
The Plan is intended to be an “unfunded” plan for incentive
compensation.  With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award Agreement shall give the Participant any rights that
are greater than those of a general creditor of the Company or any Subsidiary.

 

13.6                        INDEMNIFICATION. 
To the extent allowable pursuant to applicable law, each member of the
Committee or of the Board shall be indemnified and held harmless by the Company
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by such member in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action or failure to act
pursuant to the Plan and against and from any and all amounts paid by him or her
in satisfaction of judgment in such action, suit, or proceeding against him or
her, provided he or she gives the
Company an opportunity, at its own expense, to handle and defend the same
before he or she undertakes to handle and defend it on his or her own
behalf.  The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled pursuant to the Company’s Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.

 

13.7                        RELATIONSHIP TO OTHER
BENEFITS.  No payment pursuant to the Plan shall be
taken into account in determining any benefits pursuant to any pension,
retirement, savings, profit sharing, group insurance, welfare or other benefit
plan of the Company or any Subsidiary except to the extent otherwise expressly
provided in writing in such other plan or an agreement thereunder.

 

13.8                        EXPENSES. 
The expenses of administering the Plan shall be borne by the Company and
its Subsidiaries.

 

12

 

13.9                        TITLES AND HEADINGS. 
The titles and headings of the Sections in the Plan are for convenience
of reference only and, in the event of any conflict, the text of the Plan,
rather than such titles or headings, shall control.

 

13.10                 FRACTIONAL SHARES. 
No fractional shares of Stock shall be issued and the Committee shall
determine, in its discretion, whether cash shall be given in lieu of fractional
shares or whether such fractional shares shall be eliminated by rounding up or
down as appropriate.

 

13.11                 LIMITATIONS APPLICABLE
TO SECTION 16 PERSONS.  Notwithstanding any other
provision of the Plan, the Plan, and any Award granted or awarded to any
Participant who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive
rule under Section 16 of the Exchange Act (including any amendment to Rule
16b-3 of the Exchange Act) that are requirements for the application of such
exemptive rule.  To the extent permitted
by applicable law, the Plan and Awards granted or awarded hereunder shall be
deemed amended to the extent necessary to conform to such applicable exemptive
rule.

 

13.12                 GOVERNMENT AND OTHER
REGULATIONS.  The obligation of the Company to make payment
of awards in Stock or otherwise shall be subject to all applicable laws, rules,
and regulations, and to such approvals by government agencies as may be
required.  The Company shall be under no
obligation to register pursuant to the Securities Act of 1933, as amended, any
of the shares of Stock paid pursuant to the Plan.  If the shares paid pursuant to the Plan may
in certain circumstances be exempt from registration pursuant to the Securities
Act of 1933, as amended, the Company may restrict the transfer of such shares
in such manner as it deems advisable to ensure the availability of any such
exemption.

 

13.13                 GOVERNING LAW. 
The Plan and all Award Agreements shall be construed in accordance with
and governed by the laws of the State of California.

 

ARTICLE
14

GENERAL PROVISIONS

 

14.1                        STOCKHOLDER APPROVAL NOT
REQUIRED.  It is expressly intended
that approval of the Company’s stockholders not be required as a condition of
the effectiveness of the Plan, and the Plan’s provisions shall be interpreted
in a manner consistent with such intent for all purposes.  Specifically, Rule 4350(i) promulgated by the
NASD generally requires stockholder approval for stock option plans or other equity
compensation arrangements adopted by companies whose securities are listed on
the Nasdaq National Market pursuant to which stock awards or stock may be
acquired by officers, directors, employees, or consultants of such companies.  NASD Rule 4350(i)(1)(A)(iv) provides an
exception to this requirement for issuances of securities to a person not
previously an employee or director of the issuer, or following a bona fide
period of non-employment, as an inducement material to the individual’s
entering into employment with the issuer, provided such issuances are approved
by either the issuer’s compensation committee comprised of a majority of
independent directors or a majority

 

13

 

of
the issuer’s independent directors. 
Awards under this Plan may only be made to Eligible Participants.  Awards under the Plan will be approved by (i)
the Company’s Compensation Committee comprised of a majority of the Company’s
Independent Directors or (ii) a majority of the Company’s Independent
Directors.  Accordingly, pursuant to NASD
Rule 4350(i)(1)(A)(iv), the issuance of Awards and the shares of Stock issuable
upon exercise or vesting of such Awards pursuant to this Plan are not subject
to the approval of the Company’s stockholders.

 

14EXHIBIT 4.1

 

XYRATEX LTD

 

 

SHARESAVE PLAN

 

 

Adopted by a board resolution on 4 January 2005

 

Approved by the Inland Revenue on 21 January 2005 under reference SRS
2932

 

 

CONTENTS

 

	
  1.

  	
   

  	
  DEFINITIONS AND
  INTERPRETATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  LIMITS OF
  PLAN

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  INVITATIONS TO APPLY
  FOR OPTIONS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  GRANT OF
  OPTIONS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  EXERCISE
  OF OPTIONS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  CESSATION OF
  EMPLOYMENT/EMPLOYER LEAVING THE GROUP

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  TAKEOVER
  OF COMPANY

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  WINDING UP OF THE COMPANY

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  VARIATION
  OF CAPITAL

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  ALTERATIONS
  TO PLAN

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  MISCELLANEOUS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  GOVERNING LAW

  	
   

  	
   

  

 

 

XYRATEX LTD

 

 

SHARESAVE PLAN

 

 

RULES

 

 

1.             DEFINITIONS AND INTERPRETATION

 

1.1           In this Plan (unless
the context otherwise requires) the following words and expressions shall have
the following meanings

 

“Admission” the date upon which trading of the
Company’s shares commences on the NASDAQ National Market;

 

“Adoption
Date”
the date on which the Plan is approved by resolution of the Board;

 

“Any
Other Plan” any plan (other than the Plan) of the Company, which provides for the
acquisition of or subscription for Shares by or on behalf of employees or
directors of the Company or any member of the Group;

 

“Associated
Company”
has the meaning that the expression bears in paragraph 47 of Schedule 3 to
ITEPA;

 

“Bank” an institution authorised by
the Banking Act 1987;

 

the
“Board”
the board of directors for the time being of the Company or a committee thereof
duly authorised for the purposes of the Plan;

 

“Bonus” in relation to any Savings
Contract, such bonus as is payable thereunder on the earliest date on which a
bonus may be paid;

 

“Bonus
Date”
the earliest date at which a bonus is payable under the Savings Contract;

 

“Building
Society”
any Building Society within the meaning of the Building Societies Act 1986;

 

1

 

“Company” means Xyratex Ltd registered
in Bermuda with number 31989, whose registered office is at Clarendon House, 2
Church Street, Hamilton, Bermuda;

 

“Control” has the meaning given to it
by Section 840 ICTA and “Controlled”
shall be construed accordingly;

 

“Date
of Exercise” shall have the meaning given in Rule 5.1;

 

“Date
of Grant”
the date on which an Option was or is to be granted under Rule 4;

 

“Fiscal
Year” the Company’s fiscal year is a period of twelve
months commencing on 1 December and ending on 30 November of the following
year;

 

the
“Group”
the Company and any other company which is for the time being Controlled by the
Company and “Member of the Group”
shall be construed accordingly;

 

“ICTA” the Income and Corporation
Taxes Act 1988;

 

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

 

“Market
Value”
as applied to a Share on any day, the market value in US dollars of a Share
determined in accordance with Part VIII of the Taxation of Chargeable Gains Act
1992 and which shall be the price agreed in advance, for the purposes of the
relevant grant, by the Board and Inland Revenue Shares Valuation as being the
market value of a Share on the date on which invitations are made under Rule 3;

 

“NASDAQ
National Market” the National Association of
Securities Dealers Automated Quotation System National Market;

 

“Option” a right (for the time being subsisting)
to acquire Shares in accordance with the Plan;

 

“Option
Holder”
a person who holds an Option or (where the context admits) his personal
representatives;

 

“Option
Period”
in relation to any Option, the Period commencing on the Bonus Date and ending
six calendar months thereafter;

 

2

 

“Option
Price”
the price denominated in US dollars at which each Share subject to an Option
may be acquired on the exercise of that Option being, subject to Rule 9, not less
than the greater of:

 

(i)            the nominal value of a Share; and

 

(ii)           80% (or such other percentage as shall be specified in
paragraph 28 of Schedule 3 to ITEPA) of the Market Value of a Share on the day
the invitation to apply for an Option was made under Rule 3;

 

“Participant” a director or employee of a
Member of the Group to whom an invitation has been made in accordance with Rule
3.1;

 

the“Plan” this Plan, which shall be
known as Xyratex Sharesave Plan;

 

“Qualifying
Employee”
any director who devotes substantially the whole of his time to the business of
a Member or Members of the Group (being at least 25 hours per week excluding
meal breaks) or any employee of a Member or Members of the Group and who in
either case is chargeable to tax in respect of his office or employment as a UK
resident taxpayer, but excluding any director or employee who is ineligible by
virtue of paragraph 11 of Schedule 3 to ITEPA to participate in the Plan;

 

“Qualifying
Period”
a period of one day or such other period (not exceeding four years and three
hundred and twenty-three days) as the Board may from time to time stipulate as
the Qualifying Period;

 

“Redundancy” redundancy within the meaning
of the Employment Rights Act 1996 but excluding any redundancy which may be
deemed to have occurred when the business employing the Qualifying Employee is
sold;

 

“Rules” these Rules as from time to
time altered;

 

“Savings
Contract”
a savings contract under a certified contractual savings plan within the
meaning of Section 326 ICTA and approved by the Inland Revenue for the purposes
of Schedule 3;

 

“Schedule
3”
Schedule 3 to ITEPA;

 

3

 

“Share” a fully paid common share of
the Company complying with the conditions of paragraphs 18-22 of Part 4 of
Schedule 3 to ITEPA;

 

“Specified Age” shall be 60.

 

1.2           Words denoting the
singular shall include the plural and vice versa.

 

1.3           Words denoting the
masculine gender shall include the feminine gender.

 

1.4           References in these
Rules to a rule, clause, sub-clause, paragraph or sub-paragraph are, unless
otherwise stated, references to a rule, clause, sub-clause, paragraph or
sub-paragraph of these Rules.

 

1.5           Rule headings are
inserted for convenience only and are to be ignored in construing these Rules.

 

1.6           References in these
Rules to any enactment shall be deemed to include references to such enactment
as extended, re-enacted or otherwise amended and to any subordinate legislation
created thereunder.

 

1.7           References in these
Rules to “month” shall be deemed to be references to a calendar month unless
stated otherwise.

 

2.             LIMITS OF PLAN

 

2.1           No Option shall be
granted on any date if, as a result, the number of Shares issued or issuable
under the Plan when added to the number of Shares issued or issuable on the
exercise of options or other rights granted by the Company following Admission
both under the Plan and under Any Other Plan (but excluding any such options
that either have lapsed or been surrendered) would exceed 20 per cent of the
issued share capital of the Company at Admission.

 

2.2           No Option shall be
granted at a date more than ten years after the Adoption Date without further
authorisation by the Company in general meeting.

 

2.3           For the purposes of
calculating the number of Shares that may be subject to grants under the Plan,
the Board shall make an estimate based on the prevailing dollar / sterling
exchange rate.

 

4

 

3.             INVITATIONS TO APPLY FOR OPTIONS

 

3.1           Subject to the
limitations and conditions contained in the Plan and unless prohibited by law,
the Board may from time to time make invitations to apply for the grant of
Options to:

 

3.1.1        every person who is at the date on
which the invitation is made a Qualifying Employee and who has been such for a
minimum of the Qualifying Period; and

 

3.1.2        such further persons, who are at the
date on which the invitation is made directors or employees of any Member of
the Group as the Board may decide but so that the Board shall not be obliged to
make any invitations to any or all of such further directors or employees.

 

3.2           Invitations to
apply for the grant of Options shall be on such terms, being similar terms so
as not to discriminate between employees and directors (consistent with the
Rules and with sections 7 and 8 of ITEPA) and in such form as the Board may
from time to time determine.

 

3.3           The application
method shall take such form as is determined by the Board and approved by the
Inland Revenue.  An invitation shall
specify:

 

3.3.1        the date by which an application must
be made, being the period of not less than 14 days after the issue of the
invitation; and

 

3.3.2        the Option Price to be denominated in
US dollars at which Shares may be acquired on the exercise of the Option ; and

 

3.3.3        the maximum monthly contribution
which may be made under the Savings Contract but so that any maximum so
specified shall not be such as to cause any infringement of the limits
applicable under Rule 3.5 below or the foregoing requirement for invitations to
be on similar terms; and

 

3.3.4        the type or types of Savings Contract
determined by the Board as being eligible under those invitations and (if
appropriate) the Bank or Building Society nominated by the Board with whom
Participants will be required to enter into a Savings Contract; and

 

5

 

3.3.5        may specify a
maximum number of Shares over which Options may be granted in response to all
acceptances of invitations made on that occasion.

 

3.4           An invitation to
apply for an Option shall be open for acceptance (by the return of the
application form specified in Rule 3.3 above) for a period of not less than 14
days after the date of the letter of invitation, and any application shall only
be valid if:

 

3.4.1        it specifies the monthly
contributions (being a multiple of £1 but a minimum of £10 and within the
limits prescribed by the Plan and, if appropriate, the invitation) which the
Participant wishes to make under the Savings Contract; and

 

3.4.2        it is accompanied by a duly completed
proposal form for a Savings Contract of the type (or one of the types if the
Participant may choose which one or more types he wishes to save under)
specified by the Board in the invitation.

 

3.4.3        in a case where the Participant has a
choice as to the type of Savings Contract he wishes to take out, it specifies
which type of Savings Contract the Participant wishes to take out.

 

Such acceptance
shall constitute the Participant’s authority to the Board to complete or amend
the Savings Contract proposal form so as to show such monthly savings’
contribution as shall equal the amount specified on the application form, or
such lower amount as shall be determined under Rule 4.3 below and shall
constitute the Participant’s acceptance of and agreement to be bound by the
Rules (as altered from time to time).

 

3.5           The minimum and
maximum monthly contributions which may be made by a Participant at any one
time under a Savings Contract(s) entered into in connection with the Plan or
any other savings-related share option plan are £10 (or such other minimum as
may from time to time be specified in the Savings Contract) and £250 (or such
other sum as shall equal the maximum for the time being specified in paragraph
25 of Schedule 3 to ITEPA).

 

3.6           Any invitations to
participate shall be personal to the Participant and shall lapse if before the
relevant Date of Grant he ceases to be a director or employee of a Member of
the Group.  Each invitation shall be
deemed to be made on the date the same is issued regardless of the date of
receipt by the Participant.

 

6

 

3.7           Notwithstanding
anything else in these Rules, no Option shall be granted to any person who is
not, on the Date of Grant, a Qualifying Employee.

 

4.             GRANT OF OPTIONS

 

4.1           Subject to the
remaining provisions of this Rule 4, not later than 27 days following the issue
of invitations to apply for Options, the Board shall grant Options to
Participants from whom valid acceptances have been received and who are at the
Date of Grant still Qualifying Employees.

 

4.2           The number of
Shares over which an Option shall (subject to the Rules) be granted to an
accepting Participant on a particular occasion shall be the largest whole
number of Shares which can be subscribed at the Option Price out of sums
payable under the Savings Contract on the Bonus Date (having regard to any
specification by the Board as mentioned in Rule 3.3 above).

 

4.3           If valid
applications for Options are received over an aggregate number of Shares such
that if Options over those Shares were granted, the limit specified in Rule 2
or any limitation imposed pursuant to Rule 3.3 would be exceeded, then the
following steps shall be taken successively to the extent necessary to
eliminate the excess:

 

4.3.1        in respect of those applicants
applying for monthly contributions in excess of £50 the excess over £50 of the
monthly contributions shall be reduced pro rata to the extent necessary;

 

4.3.2        the excess over £10 of the proposed
monthly contributions of the applicants shall be reduced pro rata to the extent
necessary;

 

4.3.3        if all the applications have been
scaled down as far as is permitted and there are still insufficient Shares
available, then a ballot shall be held by the Board to determine which
Participants will be granted Options, such ballot to be supervised by the
auditors of the Company at that time.

 

4.4           The Board shall
return the relevant proposal form to any Participant whose acceptance is
excluded under any such ballot.

 

7

 

4.5           In the event of
applications being scaled down in the manner set out above, the 27 day period
referred to in Rule 4.1 and during which Options may be granted may be extended
to a maximum of 42 days from the date on which the invitations relative thereto
were issued.

 

4.6           Within 14 days of
the Date of Grant, the Company shall notify the Participant by sending him a
letter of notification substantially in a form set out in Appendix 2 to these
Rules accompanied by an option certificate in a form approved by the Inland
Revenue.  The option certificate shall
state the Option Price and the monthly contribution to the Plan.

 

4.7           Except as otherwise
specifically provided in these Rules, each Option shall be exercisable only by
the Participant to whom it is granted and may not be transferred, assigned or
charged.  Any purported transfer,
assignment or charge shall cause the Option to lapse forthwith.

 

5.             EXERCISE OF OPTIONS

 

5.1           Exercise
of options

 

Options shall be
exercised by lodging with the Company Secretary or such other person as the
Board may specify:

 

5.1.1        the relevant option certificate;

 

5.1.2        the passbook or statement for the
related Savings Contract; and

 

5.1.3        a duly completed notice of exercise
in such form as the Board may from time to time prescribe in respect of such
number of Shares as the Option Holder shall specify on the notice of exercise
and accompanied by payment for the Shares

 

and the date upon
which the Board has received, such items to its satisfaction, shall be the “Date of Exercise”.  Shares acquired on the exercise of an Option
may be paid for only with monies comprising repayments (including any bonus or
interest) under the related Savings Contract and if on the exercise of any
Option such repayments shall be insufficient for the relevant subscription,
then the number of Shares to which the Option relates shall be reduced to the
largest whole number of Shares which can be subscribed at the relevant price
per Share out of such repayments. The number of Shares acquired on 

 

8

 

the exercise of an
Option shall be determined on the Date of Exercise by (i) converting the monies
comprised in the repayments (including any bonus or interest) under the related
Savings Contract into US dollars using the closing rate quoted in the Financial
Times for that date and then by (ii) dividing the converted monies by the
Option Price.

 

5.2           General
restrictions on exercise of options

 

An Option may not
be exercised:

 

5.2.1        save as provided in Rules 6, 7 and 8
except within the period of six months after the Bonus Date;

 

5.2.2        except where the Option Holder has
died (in which event the provisions of Rule 6.1 shall apply) after the expiry
of the Option Period;

 

5.2.3        by an Option Holder at any time if at
that time he is not eligible to participate in the Plan by virtue of paragraph
11 of Schedule 3 to ITEPA; or

 

5.2.4        by an Option Holder at any time if at
that time he is not, save as provided in Rule 6, a Qualifying Employee.

 

5.3           Lapse
of options

 

An Option or part
thereof shall lapse if it has not been exercised by the earliest to occur of
the following dates:

 

5.3.1        the expiry of the Option Period
(except where Rule 6.1 applies);

 

5.3.2        the expiry of any of the periods set
out in Rules 6 and 7;

 

5.3.3        the commencement of a winding up
pursuant to Rule 8; and

 

5.3.4        the date on which the Option Holder
is adjudicated bankrupt.

 

5.4           Result
of exercise of options

 

5.4.1        Subject to the obtaining of any
necessary consent and to the terms of any such consent and subject to receipt
by the Company of the appropriate payment by way of subscription in full in
cleared funds, within 30 days of the Date of 

 

9

 

Exercise
the Board on behalf of the Company shall allot to the Option Holder or procure
the transfer to him of the number of Shares in respect of which the Option has
been exercised.

 

5.4.2        All Shares allotted on exercise of
Options shall on issue rank equally in all respects with the Company’s existing
Shares save that the Shares issued will not rank for any dividends or other
distributions declared or recommended, the record date for which falls on or
prior to the Date of Exercise.

 

5.4.3        The Company shall make applications
for listing for the Shares so issued on the NASDAQ National Market or any stock
exchanges (if any) on which its other issued ordinary share capital is then
listed with effect from the earliest possible date after the date of issue.

 

5.4.4        The Company shall at all times keep
available sufficient unissued Shares or shall procure the transfer of Shares to
satisfy the exercise of all Options granted under the Plan, taking account of
any other obligations of the Company to issue unissued Shares.

 

6.             CESSATION OF EMPLOYMENT/EMPLOYER
LEAVING THE GROUP

 

Subject
to Rule 5.2 (other than Rule 5.2.1):

 

6.1           If an Option Holder
dies at a time when he is either a Qualifying Employee or entitled to exercise
that Option by virtue of Rule 6.2 below, the Option may (and must, if at all)
be exercised by his personal representatives:

 

6.1.1        if the death occurred before the
Bonus Date, within 12 months after the date of death; or

 

6.1.2        if the death occurred within six
months after the Bonus Date, within 12 months after the Bonus Date

 

and any Option not
so exercised shall lapse on the first period to expire.

 

6.2           If an Option Holder
ceases to be a Qualifying Employee:

 

10

 

6.2.1        by reason of injury, disability,
Redundancy, retirement on reaching the Specified Age or any other age at which
he is bound to retire in accordance with the terms of his contract of
employment or by reason only that:

 

6.2.1.1           his office of
employment is in a company of which the Company ceases to have Control; or

 

6.2.1.2           his office of
employment relates to a business or part thereof which is transferred to a
person who is neither an Associated Company of the Company, nor a company of
which the Company has Control.

 

then any Option
may (and subject to Rule 6.1 above must if at all) be exercised by the earlier
of the expiry of six months after his so ceasing and the expiry of the Option
Period and any Option not so exercised shall lapse on the expiry of that
period;

 

6.2.2        by reason of retirement with the
agreement of the employer before reaching the Specified Age or any other age at
which he is bound to retire in accordance with his contract of employment where
such retirement occurs more than three years after the grant of an Option then
that Option may be exercised (and subject to Rule 6.1 must be exercised if at
all) within six months of his so ceasing;

 

6.2.3        for any reason other than a reason
mentioned in Rules 6.1 or 6.2.1 to 6.2.2 (and except where Rules 7 or 8 apply)
any Option shall automatically lapse.

 

6.3           An Option Holder
shall not be treated for the purposes of these Rules as ceasing to be an
employee or director until such time as he is no longer a director or employee
of the Company or any Associated Company (which for this purpose has the same
meaning as that expression bears in paragraph 35 of Schedule 3 to ITEPA) and an
Option Holder (being a woman) who ceases to be such a director or employee by
reason of pregnancy or confinement and who exercises her right to return to
work under the Employment Rights Act 1996 before exercising an Option under the
Plan shall be treated for the purposes of these Rules as not having ceased to
be such a director or employee.

 

6.4           For the purposes of
these Rules, where an Option Holder’s contract of employment with the Group is
terminated by a Member of the Group without notice the Option Holder’s
employment shall be deemed to cease on the date on which the termination takes
effect, 

 

11

 

and
where the said contract is terminated by notice given by a Member of the Group,
the Option Holder’s employment shall be deemed to cease on the date on which
that notice expires.

 

6.5           Subject to Rule 5.2
if at the Bonus Date an Option Holder holds an office or employment in a
company which is not a participating company within the Plan but which is an
Associated Company of the company granting the Option or is a company of which
the company granting the Option has Control, his Options may be exercised
within six months of the Bonus Date.

 

6.6           Subject to Rule 5.2
(other than Rule 5.2.1) if an Option Holder continues to be an employee or
director of any Member of the Group after the date on which he reaches the
Specified Age any Option held by him may be exercised within six months
following such date but before the expiry of the Option Period.

 

7.             TAKEOVER OF COMPANY

 

7.1           If:

 

7.1.1        any person or group of persons acting
in concert obtains Control of the Company as a result of making:

 

7.1.1.1           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 person or group of persons
will have Control of the Company; or

 

7.1.1.2           a general offer to
acquire all the issued Shares (or such of them as are not already owned by it
and/or by any of its subsidiaries); or

 

7.1.2        any person becomes entitled or bound
to acquire Shares under Sections 428 to 430 of the Companies Act 1985 (or the
equivalent of such sections in any relevant jurisdiction or which the Inland
Revenue accepts is its equivalent); or

 

7.1.3        under Section 425 of the Companies
Act 1985 or its equivalent in any relevant jurisdiction or which the Inland
Revenue accepts is its equivalent the court sanctions a compromise or
arrangement proposed for the purposes of or in 

 

12

 

connection
with a scheme for the reconstruction of the Company or its amalgamation with
any other company or companies,

 

then the Board
shall serve notice upon each Option Holder (or his personal representatives)
notifying him of such fact and an Option Holder (or his personal
representatives) may subject to Rule 5.2 (other than Rule 5.2.1) exercise any
subsisting Option by the earlier of the expiry of the Appropriate Period
defined in Rule 7.3 below and the expiry of the Option Period.  Any Option which is not so exercised shall
lapse on the expiry of the Appropriate Period unless Rule 7.2 below applies.

 

7.2

 

7.2.1        If a company (in this Rule called the
“Acquiring Company”) has acquired
Control of the Company as a result of any of the events described in Rules 7.1.1
or 7.1.3, or become entitled or bound as mentioned in Rule 7.1.2, (such
acquiring of Control or becoming entitled or bound being referred to below as a
“Relevant Event”), the Option
Holder may by agreement with the Acquiring Company at any time within the
Appropriate Period release his rights under the Plan (in this Rule referred to
as the “Old Rights”) in
consideration of the grant to him of rights (in this Rule referred to as the “New Rights”) which comply with Rule 7.2.2
below and relate to shares in the Acquiring Company (or some other company
which in relation to the Acquiring Company falls within paragraph (b) or
paragraph (c) of paragraph 18 of Schedule 3 to ITEPA).

 

7.2.2        The New Rights shall comply with each
of the following requirements:

 

7.2.2.1           the shares to which
they relate shall satisfy the conditions specified in relation to plan shares
in paragraphs 18 - 22 of part 4 of Schedule 3 to ITEPA;

 

7.2.2.2           the New Rights
shall be exercisable in the same manner as the Old Rights and subject to the
provisions of the Plan as it had effect immediately before the release of the
Old Rights;

 

13

 

7.2.2.3           the total Market
Value, immediately before the release, of the Shares which were subject to the
Option Holder’s Old Rights shall be equal to the total Market Value immediately
after the grant of the shares in respect of which the New Rights are granted to
the Option Holder; and

 

7.2.2.4           the total amount
payable by the Option Holder for the acquisition of shares in pursuance of the
New Rights shall be equal to the total amount that would have been payable for
the acquisition of Shares in pursuance of the Old Rights.

 

7.3           In this Rule the “Appropriate
Period” means:

 

7.3.1        in a case falling within Rule 7.1.1
and where Rule 7.1.2 does not apply the period of six months beginning with the
time when the person making the offer has obtained Control of the Company and
any condition subject to which the offer is made is satisfied;

 

7.3.2        in a case falling within Rule 7.1.2
the period during which the Acquiring Company remains bound or entitled as
mentioned in that paragraph; and

 

7.3.3        in a case falling within Rule 7.1.3
the period of six months beginning with the time when the court order
sanctioning the compromise or arrangement is filed with the Registrar of
Companies and takes effect in accordance with Section 425(3) of the Companies
Act 1985 or its equivalent in any relevant jurisdiction or which the Inland
Revenue accepts is its equivalent.

 

7.4           Any reference in
Rules 5, 7, 8, 9, 10.1, 10.3 to 10.5 and 11 to “Option”, “Shares”, “Company” or
“Board” shall in its application to any New Rights be deemed a reference to the
New Rights, the shares to which the New Rights relate, the company in whose
capital such shares are comprised or the Board as defined in Rule 1 but in
relation to the Acquiring Company.

 

7.5           Paragraph 7.2.1
above is included in the Plan by virtue of paragraph 38 of Schedule 3 to ITEPA.

 

14

 

7.6           If New Rights shall
be granted to an Option Holder by reference to any Relevant Event, paragraphs 7.1.1,
7.1.2 and 7.1.3 above shall cease to apply by reference to that Relevant Event
(but without prejudice to their application by reference to any other Relevant
Event).  Any Option which is not
exercised or released pursuant to this Rule within the Appropriate Period
following a Relevant Event (but not any New Rights granted by reference to that
Relevant Event) shall lapse on the expiry of the Appropriate Period.

 

8.             WINDING UP OF THE COMPANY

 

Subject always to
Rule 5 (other than Rule 5.2.1) if at any time while any part of an Option
remains unexercised notice is duly given of a general meeting of the Company at
which a resolution will be proposed for the voluntary liquidation of the
Company, every Option shall be exercisable in whole or in part (provided that
such Option has not by the time of such resolution lapsed and that exercise is
not prohibited by Rule 5.2) until the commencement of such winding up within
the meaning of Section 86 of the Insolvency Act 1986 (but not after the expiry
of the Option Period) or its equivalent in any relevant jurisdiction or which
the Inland Revenue accepts is its equivalent. 
The Company shall give to each Option Holder holding any unexercised
Option notice of any meeting called for the purpose of considering a resolution
for the voluntary liquidation of the Company and shall at the same time give
him notice of his rights under this Rule. 
Subject to the foregoing, all Options shall lapse on the commencement of
any liquidation of the Company.

 

9.             VARIATION OF CAPITAL

 

9.1           Subject to Rule 9.3
below, in the event of any variation of the share capital of the Company
(whenever effected) by way of capitalisation, rights issue, sub-division,
consolidation or reduction, the Board may make such adjustments as it considers
appropriate under Rule 9.2 below.

 

9.2           An adjustment made
under this sub-clause shall be to one or more of the following:

 

9.2.1        the number of Shares in respect of
which any Option granted under the Plan may be exercised;

 

9.2.2        the Option Price; and

 

15

 

9.2.3        where any such Option has been
exercised but no Shares have been allotted or transferred pursuant to such
exercise, the number of shares which may be so allotted or transferred and the
Option Price;

 

9.3           No adjustment under
Rule 9.2 above shall be made:

 

9.3.1        at a time when the Plan is approved
by the Inland Revenue under Schedule 3 without the prior approval of the Inland
Revenue;

 

9.3.2        as a result of which the aggregate
amount payable on the exercise of an Option would be materially changed or
increased beyond the expected repayment under the Savings Contract at the
appropriate Bonus Date; nor

 

9.3.3        which would cause the Shares to cease
to satisfy the conditions specified in Part 4 of Schedule 3 to ITEPA.

 

9.3.4        An adjustment under sub-clause 9.2
above may have the effect of reducing the Option Price to less than the nominal
value of the Share, but only if and to the extent that the Board shall be
authorised to capitalise from the reserves of the Company a sum equal to the
amount by which the nominal value of the Shares in respect of which the Option
is exercised, and which are to be allotted pursuant to such exercise, exceeds
the price at which the same may be subscribed for, and to apply such sum in
paying up such amount on such Shares; and so that on exercise of any Option in
respect of which such a reduction shall have been made, the Board shall
capitalise such sum (if any) and apply the same in paying up such amount as
aforesaid.

 

9.4           As soon as
reasonably practicable after making any adjustment under Rule 9.2 above, the
Board shall give notice in writing thereof to each Option Holder.

 

10.          ALTERATIONS TO PLAN

 

10.1         Subject to this Rule 10, the Board
may by resolution at any time and from time to time make any alteration to the
Plan which it thinks fit.  Any such
alteration which is necessary to comply with or to take account of any
applicable legislation or statutory regulations or any change therein or any
requirements of the Inland Revenue for the approval of the Plan under any such
legislation or regulations or to obtain or maintain 

 

16

 

favourable
taxation treatment for the Company or the Option Holders may be made
notwithstanding the following provisions of this rule (except Rule 10.2).

 

10.2         Subject to Rule 10.1, no alteration
to a “key feature” of the Plan (as such term is defined at paragraph 42 of
Schedule 3) shall take effect until approved by the Board of Inland Revenue.

 

10.3         Subject to Rule 10.1, no alteration
shall be made which would materially increase the liability of any Option
Holder or which would materially decrease the value of his subsisting rights
attached to any Option without in each case that Option Holder’s prior written
consent.

 

10.4         No alteration that is to the material
advantage of Option Holders shall take effect without the prior approval of the
Company in general meeting.

 

10.5         As soon as reasonably practicable
after making any alteration under Rule 10.1 above, the Board shall give notice
in writing thereof to each Option Holder.

 

11.          MISCELLANEOUS

 

11.1         This Plan shall not form part of the
contract of employment of any individual who participates therein.  The rights and obligations of any individual
under the terms of his office or employment with any Company participating in
the Plan shall not be affected by his participation in the Plan or any right
which he may have to participate therein, and an individual who participates
therein shall waive any and all rights to compensation or damages in
consequence of the termination of his office or employment 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.  No such
participation, rights, or benefits shall be taken into account for the purposes
of calculating the amount of benefits payable to any pension fund.  Invitations made under the Plan and Options
granted pursuant thereto shall not constitute any representation or warranty
that any benefit will accrue to the Participant invited to participate.

 

11.2         The Plan shall in all respects be
administered by the Board who may from time to time make and vary such rules
and regulations for its conduct not inconsistent with these Rules and may from
time to time establish such procedures for administration and implementation of
the Plan as they think fit, and in the event of any dispute or 

 

17

 

disagreement
as to the interpretation of the Plan, or of any rule, regulation or procedure,
or as to any question or right arising from or related to the Plan, the
decision of the Board shall be final and binding upon all persons (subject to
the written concurrence of the Auditors having been obtained when so required
by the Rules).

 

11.3         The Company (or any of its
subsidiaries) 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 these purposes, to the
extent permitted by section 153 of the Companies Act 1985 or its equivalent in
any relevant jurisdiction .

 

11.4         Any notice or other communication
under or in connection with the Plan may be given by personal delivery or by
sending the same by post, in the case of a company to its registered office,
and in the case of an individual to his last known address, or, where he is a
director or employee of a company participating in the Plan, either to his last
known address or to the address of the place of business at which he performs
the whole or substantially the whole of the duties of his office or employment,
and where a notice or other communication is given by UK first-class post, it
shall be deemed to have been received 48 hours after it was put into the post
properly addressed and stamped.

 

11.5         The costs of introducing and
administering the Plan shall be borne by the Company.

 

11.6         The Company shall maintain all
necessary books of account and records relating to the Plan.

 

12.          GOVERNING LAW

 

The
Rules and the Plan shall in all respects be governed by the laws of England.

 

18

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