Document:

MEDIAG3 8-K

  Exhibit 10.1
  

ASSET PURCHASE AGREEMENT

by and between

MEDIAG3, INC.

and

ADML HOLDINGS, LTD.

  November 16, 2007

TABLE OF CONTENTS

 

Page

ARTICLE 1

PURCHASE OF ASSETS

1

1.1

Purchase of Assets

1

1.2

No Assumption of Liabilities

1

1.3

Purchase Price

1

1.4

Closing

1

1.5

Valuation and Allocation of Purchase Price

1

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF SELLER

2

2.1

Organization and Good Standing

2

2.2

Authorization and Binding Effect of Documents

2

2.3

Absence of Conflicts

2

2.4

Consents and Notices

2

2.5

No Subsidiaries

2

2.6

Capitalization and Ownership

2

2.7

Title to Purchased Assets

3

2.8

Condition Purchased Assets

3

2.9

Contracts

3

2.10

Intellectual Property

4

2.11

Real Property

6

2.12

Financial Statements

6

2.13

Absence of Certain Changes or Events

7

2.14

Tax Matters

7

2.15

Inventory

7

2.16

Insurance

7

2.17

Employee Matters

7

2.18

Employee Benefit Plans

7

2.19

Environmental Matters

7

2.20

Export Laws

8

2.21

Litigation

8

2.22

Certain Payments

8

2.23

Compliance with Law

8

2.24

Insolvency; Conveyance

8

2.25

Broker’s or Finder’s Fees

9

2.26

Investment Representations

9

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF BUYER

10

3.1

Organization and Good Standing

10

3.2

Authorization and Binding Effect of Documents

10

3.3

Absence of Conflicts

10

3.4

Consents and Notices

10

ARTICLE 4

ADDITIONAL COVENANTS

10

4.1

Conduct of Business

10

			
	                    

                        

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TABLE OF CONTENTS

(continued)

 

Page

4.2

No Other Negotiations

11

4.3

Access and Information

11

4.4

Bill of Sale

11

4.5

Publicity

11

4.6

Further Assurances

11

4.7

Power of Attorney

11

4.8

Payment of Taxes

11

4.9

Transaction Costs

12

4.10

Bulk Sale Laws

12

ARTICLE 5

CONDITIONS TO CLOSE

12

5.1

Conditions for Buyer to Close

12

5.2

Conditions for Seller to Close

12

ARTICLE 6

INDEMNIFICATION AND TERMINATION

13

6.1

Survival of Representations and Warranties

13

6.2

Indemnification Procedures

13

6.3

Termination of Agreement

14

6.4

Effect of Termination

14

ARTICLE 7

GENERAL PROVISIONS

14

7.1

Attorneys’ Fees

14

7.2

Entire Agreement

14

7.3

Amendments and Waivers

14

7.4

Notices

15

7.5

Binding Effect; Third Party Benefits

15

7.6

Assignment

15

7.7

Severability

15

7.8

References and Construction

15

7.9

Governing Law

16

7.10

Counterparts

16

			
	                    

                        

	-ii-

	 

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (the “Agreement”) is made effective as of November 16, 2007 by and between MediaG3, Inc., a Delaware corporation (“Buyer”), and ADML Holdings, Ltd., a Cayman Islands corporation (“Seller”).

RECITAL

Buyer wishes to acquire from Seller certain assets and Seller wishes to convey such assets to Buyer, under the terms and conditions of this Agreement.

Now, therefore, in consideration of the mutual representations, warranties, covenants and agreements contained herein, and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE 1

PURCHASE OF ASSETS

1.1

Purchase of Assets.  At the Closing (as defined below) Seller will sell, assign, convey and transfer to Buyer, and Buyer will acquire from Seller, all of Seller’s right, title and interest in and to all Seller Intellectual Property (as defined in Section 2.10) and the assets listed on Exhibit A attached hereto (collectively, the “Purchased Assets”). Except for the Purchased Assets, Seller will not sell, assign, convey or transfer any other assets of Seller.

1.2

No Assumption of Liabilities.  Buyer shall not assume or agree to pay, discharge, or otherwise be responsible for any debt, liability, commitment, tax, undertaking or any other obligation of Seller, whether known, unknown, absolute, contingent or otherwise, of any nature, kind or description whatsoever, and whether arising before or after the Closing (as defined below).

1.3

Purchase Price.  At the Closing and as consideration for the acquisition of the Purchased Assets, Buyer agrees to issue to Seller an aggregate of six million (6,000,000) shares of restricted common stock of Buyer (the “Shares”).

1.4

Closing.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place by mail or facsimile at the offices of Hopkins & Carley, A Law Corporation, 70 S. First Street, San Jose, California, 95113 on November 19, 2007, or at such other time and place as the parties may agree.

1.5

Valuation and Allocation of Purchase Price.  The value of the consideration will be allocated among the Purchased Assets as indicated on a schedule (the “Tax Allocation Schedule”) to be prepared jointly by Buyer and Seller and delivered at the Closing.  The Tax Allocation Schedule will be binding upon Buyer and Seller. The parties agree that each will not take any position inconsistent with this Section 1.5 in any return, report or other document submitted to any taxing authority.

  			
	                    

                            

    	– 1 –

    	 

 

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Buyer that the statements contained in this Article 2 are correct and complete as of the date hereof and will be correct and complete as of the Closing, except as specified to the contrary in the disclosure schedule prepared by Seller and attached hereto (the “Disclosure Schedule”). The Disclosure Schedule is arranged in Sections corresponding to the numbered and lettered Sections contained in this Article 2.

2.1

Organization and Good Standing.  Seller is a corporation duly organized, validly existing and in good standing under the laws of the Cayman Islands. Seller is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of its business makes such qualification necessary, except for such failures to be so duly qualified and in good standing that are not reasonably expected to result in a material adverse affect on the business or assets of Seller. Section 2.1 of the Disclosure Schedule sets forth each jurisdiction where Seller is qualified to do business.

2.2

Authorization and Binding Effect of Documents.  Seller has the full right, power and authority to enter into this Agreement and to perform its obligations hereunder. Seller has full corporate power and authority to own, use, license and lease its assets and properties and to carry on its business as now conducted and as will be conducted up to the Closing. This Agreement has been duly authorized, executed and delivered by Seller and, subject to the due authorization, execution and delivery by Buyer, constitutes a legal, valid and binding obligation of Seller, except to the extent that such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement or creditors rights generally and by general principles of equity (whether applied in a proceeding at law or in equity).

2.3

Absence of Conflicts.  The execution, delivery and performance of this Agreement by Seller does not conflict with or violate any law, regulation, judgment, order, or decree, or Seller’s organizational and charter documents.

2.4

Consents and Notices.  The execution, delivery and performance of this Agreement by Seller does not require the consent, waiver, approval, permit, license, clearance or authorization of, or any declaration or filing with, any court or public agency or other government authority, or the consent of or notice to any third party under any contract, arrangement or commitment to which Seller is bound.

2.5

No Subsidiaries.  Seller has no subsidiaries and does not otherwise directly or indirectly hold any equity, membership, partnership, joint venture or other ownership interest in any person or entity.

2.6

Capitalization and Ownership.  Section 2.6 of the Disclosure Schedule lists (i) the authorized capital stock and the issued and outstanding shares of capital stock of Seller, and (ii) all shareholders of Seller and the number of shares held by each such shareholder. All of the outstanding shares of Seller are duly authorized, validly issued, fully paid and non-assessable. All of the outstanding shares of Seller are free and clear of all liens, encumbrances, security agreements, options, claims, charges, and restrictions. There are no outstanding options, warrants, convertible securities, or other rights, agreements, arrangements, or commitments obligating Seller, its shareholders, or any other person or entity to issue or sell any securities or ownership interests in Seller.

  			
	                    

                            

    	– 2 –

    	 

 

2.7

Title to Purchased Assets.  Seller has good and marketable title to the Purchased Assets. The Purchased Assets are free and clear of restrictions on or conditions to transfer or sale, and free and clear of liens, pledges, charges, security interests, conditional sales agreements, encumbrances, equities, claims, or other adverse claims or interests of any nature whatsoever.

2.8

Condition Purchased Assets.  The Purchased Assets are in good condition and repair (except for normal wear and tear) and have been maintained in accordance with reasonably prudent maintenance practices. 

2.9

Contracts.  Section 2.9 of the Disclosure Schedule contains a true and complete list of each of the following contracts or other arrangements to which Seller is a party or by which any of the Purchased Assets are bound:

(a)

customer agreements;

(b)

supplier agreements;

(c)

distributor, sales representative and similar agreements that are not already included in (a) or (b) above;

(d)

agreements, promissory notes or other instruments relating to the borrowing of money, or the guaranty of any such obligation for the borrowing of money;

(e)

lease or rental agreements related to real property;

(f)

lease or rental agreements related to personal property;

(g)

employment, independent contractor or labor union agreements;

(h)

noncompetition agreements and any other agreements containing provisions prohibiting or limiting the ability of Seller to engage in any business activity;

(i)

advertising, marketing and promotional agreements;

(j)

agreements related to Seller Intellectual Property (as defined in Section 2.10); or

(k)

contracts, arrangements or commitments between Seller, on the one hand, and any current or former director, officer, shareholder, or affiliate of Seller, on the other hand;

(l)

any other material agreements affecting or related to Seller’s business or the Purchased Assets.

  			
	                    

                            

    	– 3 –

    	 

 

Each agreement listed in Section 2.9 of the Disclosure Schedule is in full force and effect and constitutes a legal, valid and binding agreement, enforceable in accordance with its terms. Seller and, to the knowledge of Seller, the other parties to such agreements have performed all of their respective obligations and conditions under such agreements. True and complete copies of such agreements, or summaries in the case of oral arrangements, have been delivered to Buyer.

2.10

Intellectual Property.

(a)

As used in this Agreement, “Intellectual Property Rights” means worldwide all intellectual property, proprietary, or similar rights, including any or all of the following and all rights in, arising out of, or associated therewith: (i) all utility and design patents and applications therefor and all reissued divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) all registered and unregistered copyrights, and copyright registrations and applications; (iii) all registered and unregistered common law trademarks, trade names, trademark applications and registrations, and other trade symbols; and (iv) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology and technical data, and all documentation relating to any of the foregoing.

(b)

As used in this Agreement, “Seller Intellectual Property” means any and all intellectual property listed on Section 2.10(c) of the Disclosure Schedule, together with all Intellectual Property Rights contained therein and all other Intellectual Property Rights of Seller.

(c)

Section 2.10(c) of the Disclosure Schedule (i) lists (A) all United States, international and foreign patents and applications therefor; (B) all registered and unregistered copyrights, and copyright registrations and applications; (C) all registered and unregistered common law trademarks, trade names, fictitious business names, trademark applications and registrations, and other trade symbols, that are owned or used by Seller; and (D) all domain names registered in Seller’s name and applications and registrations therefore; and (ii) lists any proceedings or actions before any court of tribunal (including the United States Patent and Trademark Office (the “PTO”) or equivalent authority anywhere in the world) to which Seller or any subsidiary is a party and in which claims are raised relating to the validity, enforceability, scope, ownership or infringement of any of the Seller Intellectual Property.

(d)

To the best knowledge of Seller, except as set forth in Section 2.10(d) of the Disclosure Schedule, each item of Seller Intellectual Property is valid and subsisting, other than any registered trademarks indicated on Section 2.10(d) of the Disclosure Schedule as no longer being used by Seller or any subsidiary.  All necessary registration, maintenance and renewal fees in connection with such Seller Intellectual Property that are or will be due for payment on or before the Closing have been or will be timely paid and all necessary documents and certificates in connection with such Seller Intellectual Property that are or will be due for filing on or before the Closing have been or will be timely filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Seller Intellectual Property.  Section 2.10(d) of the Disclosure Schedule lists all actions that must be taken by Seller within 60 days of the Closing, including the payment of any registration, maintenance or renewal fees or the filing of any documents, for the purposes of maintaining or renewing any Seller Intellectual Property.

  			
	                    

                            

    	– 4 –

    	 

 

(e)

There are no agreements to which Seller or any subsidiary is a party that would restrict the ability of Buyer to transfer or license Seller Intellectual Property without restriction and without payment of any kind to any third party immediately following the Closing.

(f)

Seller has all requisite right, title and interest in and to all of the Seller Intellectual Property. Each item of Seller Intellectual Property is owned exclusively by Seller and is free and clear of liens, pledges, charges, security interests, conditional sales agreements, encumbrances, licenses, equities, claims, or other adverse claims or interests of any nature whatsoever.

(g)

Except for trade secrets that lost their status as trade secrets upon the release of a new product or service, upon the issuance of a patent or publication of a patent application, or as a result of a good faith business decision to disclose such trade secret, and except for trademarks, service marks, slogans or similar designations that Seller or a subsidiary made a good faith business decision to stop using, neither Seller nor any subsidiary has (i) transferred ownership of, or granted any exclusive license with respect to, any Seller Intellectual Property that is, or as of the time of such transfer or exclusive license was, material to Seller or to any other person, or (ii) permitted Seller’s or any subsidiary’s rights in any Seller Intellectual Property that is or was at the time material to Seller to enter into the public domain.

(h)

Seller is the exclusive owner of all Seller Intellectual Property.  The Seller Intellectual Property includes all of the Intellectual Property Rights that are used in or necessary to the conduct of Seller’s business as currently conducted, and Seller possesses all technology that is used in or necessary to the conduct of Seller’s business as currently conducted.

(i)

Other than (i) licenses for the public or open source technology listed in Section 2.10(i) of the Disclosure Schedule and (ii) licenses for shrink-wrap code, Section 2.10(i) lists all of the agreements under which Seller or any subsidiary receives a license from any person of any Intellectual Property Rights of such person or a third party, other than agreements that are not substantially focused on the license of Intellectual Property Rights, such as service, lease, sales or nondisclosure agreements in which the license of Intellectual Property rights is incidental to the primary purposes of such agreement.

(j)

Section 2.10(j) of the Disclosure Schedule lists all contracts, licenses and agreements to which Seller or any subsidiary is a party under which Seller or any subsidiary has granted rights under any Seller Intellectual Property to third parties (other than rights granted to contractors or vendors to use Seller Intellectual Property for the sole benefit of Seller).  

(k)

No third party that has licensed Intellectual Property Rights to Seller or any subsidiary has retained sole ownership of or exclusive license rights under any Intellectual Property Rights in any material improvements or derivative works made solely or jointly by Seller or any subsidiary under such license.

(l)

The operation of the business of Seller as it is currently conducted does not infringe or misappropriate any Intellectual Property Rights of any person.  Neither Seller nor any subsidiary has received notice from any person claiming that Seller’s business or any of Seller Intellectual Property infringes or misappropriates any Intellectual Property Rights of any person (nor does Seller have knowledge of any facts that constitute a reasonable basis for any good faith claim of such infringement or misappropriation).

  			
	                    

                            

    	– 5 –

    	 

 

(m)

To the best knowledge of Seller, no person is infringing or misappropriating any Seller Intellectual Property.

(n)

Seller has taken reasonable steps to protect Seller’s rights in confidential information and trade secrets of Seller or provided by any other person to Seller.

(o)

No Seller Intellectual Property is subject to any outstanding decree, order, judgment, settlement agreement, or similar obligation binding on Seller that restricts in any manner the use, transfer or licensing thereof by Seller or that affects the validity, use or enforceability of such Seller Intellectual Property.

2.11

Real Property.  Section 2.11 of the Disclosure Schedule lists all real property owned by, leased to or leased by Seller. The zoning of each such property permits the presently existing improvements and the continuation of the business presently being conducted on such property. Seller has not commenced, nor has it received notice of the commencement of, any proceeding that would affect the present zoning classification of any such property.

2.12

Financial Statements.  Section 2.12 of the Disclosure Schedule contains an unaudited balance sheet and income statement at December 31, 2006 and for the year then ended  and are collectively referred to as the “Seller Financial Statements”.

(a)

Seller Financial Statements accurately reflect the books and records of Seller and fairly summarizes, in all respects, the results of operations of Seller business for the periods indicated (except as may be indicated in the notes thereto and, in the case of any interim period financial statements, subject to normal year-end adjustments, which adjustments will not be material in amount or significance). The Seller Financial Statements have been prepared in accordance with United States Generally Accepted Accounting Principles consistently applied throughout the period indicated.

(b)

Seller has no debt, liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, that is not reflected or reserved against in the Seller Financial Statements. Seller is not directly or indirectly liable to or obligated to provide funds in respect of or to guaranty or assume any obligation of any person except to the extent reflected and fully reserved against in the Seller Financial Statements.

(c)

Seller maintains accurate books and records and internal accounting controls which provide reasonable assurance that (i) all transactions to which Seller is a party or by which its properties are bound are executed with management’s authorization, (ii) the reported accountability of Seller’s assets is compared with existing assets at regular intervals, (iii) access to Seller’s assets is permitted only in accordance with management’s authorization, and (iv) all transactions to which Seller is a party, or by which its properties are bound, are recorded as necessary to permit preparation of the Financial Statements in accordance with United States Generally Accepted Accounting Principles consistently applied.

  			
	                    

                            

    	– 6 –

    	 

 

2.13

Absence of Certain Changes or Events.  Since December 31, 2006, there has not been any material adverse change in the Purchased Assets (contingent or otherwise) and Seller has not entered into or agreed to enter into any transaction, contract or commitment or taken or agreed to take any action which would result in a material adverse effect on the Purchased Assets.

2.14

Tax Matters.  Seller has filed all federal, state and local tax returns which are required to be filed unless extensions have been obtained, and has paid all taxes and all assessments to the extent that such taxes and assessments have become due. Seller has made adequate provision for all accrued and unpaid taxes, assessments, penalties and other governmental charges, whether or not disputed, and Seller has made and will continue to make adequate provision for such taxes on its books and records.

2.15

Inventory.  All inventory reflected in the Seller Financial Statements consisted, and all such inventory acquired since the Seller Financial Statements consists, of a quality and quantity usable and salable in the ordinary course of business as currently conducted or as reasonably contemplated to be conducted. 

2.16

Insurance.  Section 2.16 of the Disclosure Schedule lists all insurance policies held by Seller concerning its business and properties. Seller has maintained and now maintains (i) insurance on all of its assets and properties of a type customarily insured and (ii) adequate insurance protection against all liabilities, claims, and risks against which it is customary to insure. Seller is not in default on paying any premiums with regard to any such policies.

2.17

Employee Matters.  Seller does not have and has never had, any collective bargaining, union, or labor agreements, contracts, or other arrangements with any group of employees, labor union, or employee representative. There is no organization effort currently being made, or to the knowledge of Seller, threatened by or on behalf of any collective bargaining entity with respect to employees of Seller.

2.18

Employee Benefit Plans.  Section 2.18 of the Disclosure Schedule lists each employee benefit or compensation plan, agreement, policy, program or arrangement covering present or former employees, officers and directors of, and advisors and consultants to, Seller, including but not limited to “employee benefit plans” within the meaning of section 3(3) of ERISA, stock purchase, stock option or any other stock-based award, profit sharing, fringe benefit, post-retirement health, health, life, vision and/or dental insurance coverage (including any self-insured arrangement), disability benefit, supplemental unemployment benefit, vacation benefit, change in control, retention, severance, termination pay, bonus and deferred compensation plans, agreements or funding arrangements (collectively, the “Benefit Plans”), whether written or oral and whether sponsored, maintained or contributed by Seller. Seller is not in default or breach under any of the Benefit Plans and, to the knowledge of Seller, there are no facts or conditions that will result in a default or breach under any of the Benefit Plans.

2.19

Environmental Matters.  Seller possesses any and all environmental licenses or permits necessary to or required for the operation of its business as currently conducted and as reasonably contemplated to be conducted. There have been no private or governmental claims, citations, complaints, notices, of violation or letters made, issued to or threatened against Seller by any governmental entity or private or other party for the impairment or diminution of, or damage, injury or other adverse effects to, the environment or public health resulting, in whole or in part, from the operation of Seller’s business. Seller has duly complied with, and the operation of its business is in compliance with, all federal, state and local environmental, health and safety laws, codes, regulations and ordinances.

  			
	                    

                            

    	– 7 –

    	 

 

2.20

Export Laws.  Seller has complied in all material respects with U.S. export control and import laws and regulations. No product, technical data or service provided, made, sold or distributed by Seller now or during the last five (5) years that was exported, re-exported or transshipped (i) outside of the United States of America required a license or authorization for export, re-export or transshipment from the U.S. government, or (ii) from a country other than the United States of America required a license for export, re-export or transshipment from any governmental authority of such country. No product, technical data or service provided, made, sold, distributed or owned by Seller now or during the last five (5) years has been disclosed, disseminated or released to a foreign national in the United States in a manner that required Seller to obtain a license for deemed export from the United States of America without Seller obtaining such license for deemed export from the United States of America.

2.21

Litigation.  There are no claims, investigations, actions, suits, arbitrations or other proceedings pending or, to the knowledge of Seller, threatened against Seller which would, individually or in the aggregate if adversely determined, result in a material adverse effect on the Purchased Assets or Seller’s business, or which would give any third party the right to enjoin the transactions contemplated by this Agreement. To the knowledge of Seller, there is no basis for any such claim, investigation, action, suit, arbitration or other proceeding which would, individually or in the aggregate if adversely determined, result in a material adverse effect on the Purchased Assets or Seller’s business. There are no existing or, to the knowledge of Seller, pending orders, judgments or decrees of any court or governmental agency affecting the Purchased Assets or Seller’s business.

2.22

Certain Payments.  Neither Seller nor any of its directors, officers, employees or agents has directly or indirectly (i) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment in violation of any federal, state, local, foreign or other constitution, ordinance, regulation, statute, treaty, or other law to any person or entity, private or public, regardless of form, whether in money, property, or services (1) to obtain favorable treatment in securing business, (2) to pay for favorable treatment for business secured, or (3) to obtain special concessions or for special concessions already obtained, for or in respect of Seller or any affiliate of Seller; or (ii) established or maintained any fund or asset that has not been recorded in the books and records of Seller.

2.23

Compliance with Law.  The operation of Seller business complies in all material respects with the applicable rules and regulations of all federal, state, local or other laws, statutes, ordinances, regulations, and any applicable order, writ, injunction or decree of any court, commission, board, agency or other instrumentality.

2.24

Insolvency; Conveyance.  No insolvency proceedings of any character including without limitation, bankruptcy, receivership, reorganization, composition or arrangement with creditors, voluntary or involuntary, affecting Seller, or any of the Purchased Assets, are pending or threatened. Seller is not entering into this Agreement or the transactions contemplated hereby with the actual intent to hinder, delay or defraud any creditor. The transfer of the Purchased Assets to Buyer is being made for consideration that is reasonably equivalent to the value of the Purchased Assets.

  			
	                    

                            

    	– 8 –

    	 

 

2.25

Broker’s or Finder’s Fees.  No agent, broker, investment banker or other person or firm acting on behalf of or under the authority of Seller is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee, directly or indirectly, in connection with the transactions contemplated by this Agreement.

2.26

Investment Representations.  Seller represents and warrants to Buyer as follows:

(a)

Seller has been furnished all materials relating to Buyer which Seller has requested, and has been afforded the opportunity to ask questions and receive answers concerning Buyer and to request any additional information necessary to verify the accuracy of any other information received in connection with the transaction contemplated by this Agreement.

(b)

In evaluating the suitability of an investment in Buyer, Seller has not relied on any representations or other information (whether oral or written) from Seller or any of its agents, other than as set forth in this Agreement.

(c)

Seller understands that the offering and sale of the Shares is intended to be exempt from registration under the Securities Act of 1933, as amended (the “Act”), by virtue of Section 4(2) of the Act and the provisions of Regulation D promulgated thereunder.  The Shares have not been registered under the Act or under the securities laws of any other jurisdiction and Buyer will not be under any obligation to so register the Shares.  Seller represents that Seller is purchasing the Shares for Seller’s own account, for investment and not with a view to resale, distribution or other disposition, and Seller has no present plans to enter into any contract, undertaking, agreement or arrangement for any such resale, distribution or other disposition.  Seller will not sell or otherwise transfer the Shares without registration under the Act and applicable state securities laws, or pursuant to an applicable exemption from registration.

(d)

Seller understands that the transferability of the Shares will be restricted under the Act and applicable state securities laws, and that Seller shall not transfer any or all of the Shares except in accordance with the following legend, which legend shall appear on the certificates representing the Shares:

The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the  securities laws of any state or jurisdiction (the “Securities Laws”).  These securities (and any securities into which they may be converted) may not be offered, sold, transferred, pledged or hypothecated in the absence of registration under the applicable Securities Laws, or the availability of an exemption therefrom.  This certificate will not be transferred on the books of the Company or any transfer agent acting on behalf of the Company except upon the receipt of an opinion of counsel, satisfactory to the Company, that the proposed transfer is exempt from the registration requirements of all applicable Securities Laws, or the receipt of evidence, satisfactory to the Company, that the proposed transfer is the subject of an effective registration statement under all applicable Securities Laws.

  			
	                    

                            

    	– 9 –

    	 

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to Seller that the statements contained in this Article 3 are correct and complete as of the date hereof and will be correct and complete as of the Closing.

3.1

Organization and Good Standing.  Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of its business makes such qualification necessary, except for such failures to be so duly qualified and in good standing that are not reasonably expected to result in a material adverse affect on the business or assets of Buyer.

3.2

Authorization and Binding Effect of Documents.  Buyer has the full right, power and authority to enter into this Agreement and to perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by Buyer and, subject to the due authorization, execution and delivery by Seller, constitutes a legal, valid and binding obligation of Buyer, except to the extent that such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement or creditors rights generally and by general principles of equity (whether applied in a proceeding at law or in equity). 

3.3

Absence of Conflicts.  The execution, delivery and performance of this Agreement by Buyer does not conflict with or violate any law, regulation, judgment, order, decree, or Buyer’s organizational and charter documents.

3.4

Consents and Notices.  The execution, delivery and performance of this Agreement by Buyer does not require the consent, waiver, approval, permit, license, clearance or authorization of, or any declaration or filing with, any court or public agency or other authority, or the consent of or notice to any third party under any contract, arrangement or commitment to which Buyer is bound.

ARTICLE 4

ADDITIONAL COVENANTS

4.1

Conduct of Business.  Prior to the Closing, Seller will operate in the ordinary course of business and consistent with past practices and use its commercially reasonable efforts to preserve the goodwill and value of the Purchased Assets.

  			
	                    

                            

    	– 10 –

    	 

 

4.2

No Other Negotiations.  Neither Seller nor any of its directors, officers, employees, agents, representatives, or affiliates shall, directly or indirectly, solicit, initiate or encourage submission of inquires, proposals, or offers from any other third party relating to a merger, consolidation, asset purchase or any other acquisition of all or any substantial portion of the Purchased Assets. Seller agrees to not cooperate with or participate in any negotiations regarding any of the foregoing. If Seller or any of its directors, officers, employees, agents, representatives, or affiliates receives any such inquiry, order, or proposal, such Seller will promptly notify Buyer in writing of all relevant details relating to such inquiry, offer or proposal.

4.3

Access and Information.  Prior to the Closing, Seller will permit Buyer and its representatives to have reasonable access during normal business hours to Seller’s officers, employees, agents, customers, suppliers, facilities, properties, and books and records. During such period Buyer shall be given copies of documents and information concerning the transactions contemplated by this Agreement as it may reasonably request.

4.4

Bill of Sale.  At the Closing, the parties will execute a Bill of Sale and Assignment and Assumption Agreement in substantially the form attached hereto as Exhibit B.

4.5

Publicity.  No party to this Agreement shall issue any press release or publicly disclose any information or statement relating to this Agreement without first obtaining the prior written consent of other party; provided however, that Buyer may make any disclosure that is necessary or appropriate under federal or state securities laws.

4.6

Further Assurances.  The parties to this Agreement shall execute such other documents, instruments, certificates and agreements as may reasonably be required to give effect to the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Seller shall, upon the request of Buyer, reasonably cooperate with and assist Buyer filing and perfecting all patent, copyright, trademark and other registrations to which Buyer is entitled with respect to the Purchased Assets to the extent permitted or made necessary by statute, regulation or government agency, including, without limitation, executing and delivering all documents in connection therewith. All such registrations shall be applied for in the names of the actual inventors or authors as necessary and shall be assigned to Buyer, and Seller shall execute and deliver such forms of assignment, powers of attorney and other documents which are necessary to give effect to the provisions hereof.

4.7

Power of Attorney.  If Seller is unable or unwilling to fully perform its obligations under Section 4.6 above, Seller hereby irrevocably designates and appoints Buyer or its assigns and their duly authorized officers and agents as Seller’s agents and attorneys-in-fact to act for and in Seller’s behalf and instead of Seller, to execute and file any registration, application or other document and to do all other lawfully permitted acts in connection with the Purchase Assets.

4.8

Payment of Taxes.  Seller agrees to timely pay any and all sales and other taxes to the State of California and of any other applicable government entity that arises out of or is incurred in connection with the sale and transfer of the Purchased Assets to Buyer under this Agreement.

  			
	                    

                            

    	– 11 –

    	 

 

4.9

Transaction Costs.  Buyer will pay all of its respective fees and costs, including attorneys’, accountants’, finders’ and other fees, incurred by the Buyer in connection with the negotiation, execution and performance of this Agreement and the transactions contemplated hereby. Seller will pay all of its fees and costs, including attorneys’, accountants’, finders’ and other fees, incurred by Seller in connection with the negotiation, execution and performance of this Agreement and the transactions contemplated hereby.

4.10

Bulk Sale Laws.  Buyer and Seller hereby waive compliance with Division 6 of the California Uniform Commercial Code relating to a bulk sale of assets. Seller agrees to indemnify and hold harmless Buyer and its officers, directors, agents, employees and affiliates from any and all demands, claims, actions, suits, proceedings, assessments, judgments, costs, losses, damages, liabilities and expenses (including reasonable attorneys’ fees) relating to or arising out of any failure to comply with any such bulk sale laws.

ARTICLE 5

CONDITIONS TO CLOSE

5.1

Conditions for Buyer to Close.  The obligations of Buyer to be discharged under this Agreement on or prior to the Closing are subject to satisfaction of the following conditions at or prior to the Closing (unless expressly waived in writing at or prior to the Closing):

(a)

The representations and warranties of Seller in this Agreement shall be true and correct in all material respects at and as of the Closing, with the same force and effect as though such representations and warranties had been made at and as of the Closing.

(b)

Each of the covenants and obligations of Seller to be performed on or before the Closing pursuant to the terms of this Agreement shall have been duly performed in all material respects.

(c)

There shall be no pending or threatened litigation in any court or any proceeding before or by any governmental entity against any party to this Agreement to restrain or prohibit or obtain damages or other relief with respect to this Agreement or the consummation of the transactions contemplated by this Agreement.

(d)

All necessary contractual and governmental consents, approvals, orders, or authorizations shall have been obtained and be in full force and effect and all necessary contractual or governmental notices shall have been received and be in full force and effect.

5.2

Conditions for Seller to Close.  The obligations of Seller to be discharged under this Agreement on or prior to the Closing are subject to satisfaction of the following conditions at or prior to the Closing (unless expressly waived in writing at or prior to the Closing):

(a)

The representations and warranties of Buyer in this Agreement shall be true and correct in all material respects at and as of the Closing, with the same force and effect as though such representations and warranties had been made at and as of the Closing.

  			
	                    

                            

    	– 12 –

    	 

 

(b)

Each of the covenants and obligations of Buyer to be performed on or before the Closing pursuant to the terms of this Agreement shall have been duly performed in all material respects.

(c)

There shall be no pending or threatened litigation in any court or any proceeding before or by any governmental entity against any party to this Agreement to restrain or prohibit or obtain damages or other relief with respect to this Agreement or the consummation of the transactions contemplated by this Agreement.

(d)

All necessary contractual and governmental consents, approvals, orders, or authorizations shall have been obtained and be in full force and effect and all necessary contractual or governmental notices shall have been received and be in full force and effect.

ARTICLE 6

INDEMNIFICATION AND TERMINATION

6.1

Survival of Representations and Warranties.  All representations, warranties, covenants and agreements made in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Closing.

(a)

Indemnification by Seller.  Seller shall indemnify and hold harmless Buyer and its officers, directors, agents, employees and affiliates from any and all demands, claims, actions, suits, proceedings, assessments, judgments, costs, losses, damages, liabilities and expenses (including reasonable attorneys’ fees) relating to or arising out of (i) any breach or inaccuracy by Seller of any of its representations, warranties, covenants or agreements set forth in this Agreement or in any instrument delivered pursuant to this Agreement, or (ii) all liabilities and obligations of Seller.

(b)

Indemnification by Buyer.  Buyer shall indemnify and hold harmless Seller and its officers, directors, agents, employees and affiliates from any and all demands, claims, actions, suits, proceedings, assessments, judgments, costs, losses, damages, liabilities and expenses (including reasonable attorneys’ fees) relating to or arising out of any breach or inaccuracy by Buyer of any of its representations, warranties, covenants or agreements set forth in this Agreement or in any instrument delivered pursuant to this Agreement.

6.2

Indemnification Procedures.  Any party entitled to receive indemnification under this Article 6 (the “Indemnified Party”) shall promptly notify the other party or parties required to provide such indemnification (the “Indemnifying Party”). Such notice shall describe the matters involved in reasonable detail, and the Indemnifying Party shall be entitled to assume the defense thereof upon written notice to the Indemnified Party with counsel reasonably satisfactory to the Indemnified Party; provided, that once the defense thereof is assumed by the Indemnifying Party, the Indemnifying Party shall keep the Indemnified Party advised of all developments in the defense thereof and any related litigation, and the Indemnified Party shall be entitled at all times to participate in the defense thereof at its own expense. If the Indemnifying Party fails to notify the Indemnified Party of its election to defend or contest its obligation to indemnify under this Article 6, the Indemnified Party may pay, compromise, or defend such a claim without prejudice to any right it may have hereunder.

  			
	                    

                            

    	– 13 –

    	 

 

 

6.3

Termination of Agreement.  This Agreement and the transactions contemplated herein may be terminated:

(a)

prior to the Closing by mutual written consent of Buyer and Seller;

(b)

by Buyer upon the written notice to Seller if (i) at no fault of Buyer, any of the conditions set forth in Section 5.1 have not been satisfied or waived by December 31, 2007 or by such other date as the parties mutually agree in writing; and (ii) if such condition relates to Seller’s breach of a representation, warranty or covenant, such party shall not have cured the breach within fourteen (14) days following written notice of the breach by Buyer; or

(c)

by Seller upon the written notice to Buyer if (i) at no fault of Seller, any of the conditions set forth in Section 5.2 have not been satisfied or waived by December 31, 2007 or by such other date as the parties mutually agree in writing; and (ii) if such condition relates to Buyer’s breach of a representation, warranty or covenant, Buyer shall not have cured the breach within fourteen (14) days following written notice of the breach by Seller.

6.4

Effect of Termination.  If this Agreement is terminated as provided in Section 6.3, this Agreement shall become void and there shall be no liability or obligation on the part of Buyer or Seller, or their respective officers, directors, agents, employees or affiliates; provided, however, that each party shall remain liable for any breaches of this Agreement prior to its termination; provided further, that Article 7 and this Section 6.4 shall remain in full force and effect and shall survive any termination of this Agreement.

ARTICLE 7

GENERAL PROVISIONS

7.1

Attorneys’ Fees.  If any suit or action is instituted to enforce the rights of any party under this Agreement or to interpret this Agreement, the successful party shall be entitled to reasonable attorneys’ fees, court costs, and all other expenses incurred in connection with settling or resolving such suit or action. The “successful party” shall mean the party who receives substantially the relief desired whether by arbitration, settlement, dismissal or otherwise.

7.2

Entire Agreement.  The exhibits and schedules to this Agreement are incorporated into this Agreement by reference. This Agreement and the exhibits and schedules hereto constitute the entire agreement and understanding between the parties with respect to the subject matter hereof and supersede any prior negotiations, agreements, understandings or arrangements between the parties with respect to the subject matter hereof.

7.3

Amendments and Waivers.  Any term or provision of this Agreement may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against whom the enforcement of such amendment, waiver, discharge or termination is sought.

  			
	                    

                            

    	– 14 –

    	 

 

7.4

Notices.  Any notice, request, instruction or other document to be given hereunder shall be in writing and shall be deemed given and effective (i) when delivered personally, by fax with delivery confirmation, or prepaid overnight service, or (ii) three days after the postmark date if mailed by certified mail, postage prepaid, return receipt requested:

 

  		
	If to Buyer, to:

    	William Yuan

    Chief Executive Officer

    MediaG3, Inc.

    One Almaden Blvd., Suite 310

    San Jose, CA 95113

    Fax: (408) 557-8800 

    
	 	 
	 	With a copy to (which shall not constitute notice):

    

    Cathryn S. Gawne, Esq.

    Hopkins & Carley, A Law Corporation

    70 S. First Street

    San Jose, CA 95113

    Phone: (408) 286-9800

    Fax: (408) 998-4790

    
	 	 
	If to Seller, to:

    	ADML Holdings, Ltd.

    [_____]

    [_____]

    ATTN: President

    Fax:  [_____]

    
	 	 
	 	With a copy to (which shall not constitute notice):

    

    [_____], Esq.

    [_____]

    [_____]

    [_____]

    Fax:  [_____]

    

  

7.5

Binding Effect; Third Party Benefits.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors, heirs and assigns of the parties. Nothing in this Agreement, express or implied, shall confer on any person other than the parties and their respective successors or assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.

7.6

Assignment.  This Agreement and any rights hereunder shall not be assignable by any party without the written consent of the other parties hereto.

7.7

Severability.  If any one or more of the provisions of this Agreement shall be held invalid or unenforceable, it is the specific intent of the parties that such provision shall be modified to the minimum extent necessary to make it or its application valid and enforceable, and the validity and enforceability of all the other provisions of this Agreement and all other applications of such provisions shall not be affected thereby.

  			
	                    

                            

    	– 15 –

    	 

 

 

7.8

References and Construction.  All references in this Agreement to articles and sections are to articles and sections contained in this Agreement unless a different document is expressly specified. The captions in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if all parties have prepared it.

7.9

Governing Law.  This Agreement will be construed in accordance with the laws of the State of California without giving effect to principles of conflict of laws.

7.10

Counterparts.  This Agreement may be executed in counterparts, each of which when so executed will be deemed to be an original, and all such counterparts will together constitute but one and the same instrument.

  			
	                    

                            

    	– 16 –

    	 

 

The parties have executed this Agreement effective as of the date first written above.

BUYER:

MediaG3, Inc., a Delaware corporation

By:/s/ William Yuan

William Yuan

Chief Executive Officer

SELLER:

ADML Holdings, Ltd.

By:/s/ Joseph Anzalone 

   Joseph Anzalone

  Chief Executive Officer

(Signature page to Asset Purchase Agreement.)

  			
	                    

                            

    	– 17 –

    	 

 

EXHIBIT A

PURCHASED ASSETS

		
	ASSET CATEGORY

	DESCRIPTION

	 	 
	FIXED ASSETS1 

	Computer 

Software, Test Equipment

	 	 
	HARDWARE INV.2

	Partially built systems 

AIU,

RFU, CPE

and related equipment

	 	 
	Work in Progress3

	Components to be assembled or installed to complete

system.

	 	 
	INTANGIBLES

	IP

U.S. Patent No. 5,875,396. Title: Multichannel Radio Frequency Transmission System to Deliver Wideband Digital Data Into Independent Sectorized Service Areas. 

U.S. Patent No. 5,923,229 Title: Simultaneous Polarization and Frequency Filtering of Transmitter and Receiver Signals in Single Antenna Systems. 

U.S. Patent No. 5,914,620 Title: Frequency Doubling of a Quadrature- Amplitude Modulated Signal Using a Frequency Multiplier.

U.S. Patent No. 6,0141,219 Title: Integrated Orthogonal Mode Tranducer/Filter Design for Microwave Frequency- Design.

U.S. Patent No. 6,243,427 Title: Multichannel Radio Frequency Transmission System To Deliver Wideband Digital Data Into Independent Sectorized Service Areas. 

European Patent No. 0861559:

China counterpart patent ZL96198287X

3 Network Certificates in China market

1 This asset category includes printers, Ethernet switches, copy machine, office equipment (i.e. fax machine, projector, TV), PC’s, keyboards & mice, lap top PC’s, office furnishings.

2 Includes RFU (Radio Frequency Unit) inventories, mounting hardware, power supplies, BPU motherboards, AIU (Air Interface Unit) with assembled rack components, ATU inventory, NIU inventory.

3 Includes various components (plugs, sockets, connectors, etc).

  			
	                    

                            

    	A-1

    	 

EXHIBIT B

BILL OF SALE AND ASSIGNMENT AND ASSUMPTION AGREEMENT

 

This Bill of Sale and Assignment and Assumption Agreement (this “Agreement”) is effective as of November 26, 2007, by and among MediaG3, Inc., a California corporation (“’MediaG3”), and ADML Holdings, Ltd., a Cayman Islands corporation (“ADML”).

RECITAL

MediaG3 and ADML have entered into an Asset Purchase Agreement dated November 16, 2007 (the “Asset Purchase Agreement”), pursuant to which MediaG3 has agreed to acquire certain Purchased Assets of ADML (as defined in the Asset Purchase Agreement) subject to the terms and conditions provided herein and in the Asset Purchase Agreement:

Now, therefore, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.

Transfer of Assets.  ADML hereby sells, assigns, conveys and transfers to MediaG3, its successors and assigns, all of the right, title and interest of ADML in and to the Purchased Assets as described in Section 1.1 of the Asset Purchase Agreement, free and clear of liens, pledges, charges, security interests, conditional sales agreements, encumbrances, equities, claims, or other adverse claims or interests of any nature whatsoever.

2.

No Assumption of Liabilities.  MediaG3 shall not assume and does not agree to pay, discharge, or otherwise be responsible for any debt, liability, commitment, tax, undertaking or any other obligation of ADML, whether known, unknown, absolute, contingent or otherwise, of any nature, kind or description whatsoever.

3.

Further Assurances.  The parties to this Agreement shall execute such other documents, instruments, certificates and agreements as may reasonably be required to give effect to the transfer and assignment contemplated by this Agreement.

4.

Binding Effect; Third Party Benefits. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors, heirs and assigns of the parties. Nothing in this Agreement, express or implied, shall confer on any person other than the parties and their respective successors or assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.

5.

Headings; Capitalized Terms. The captions in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. Unless otherwise indicated herein, capitalized terms shall have the meanings set forth in the Asset Purchase Agreement.

6.

Governing Law. This Agreement will be construed in accordance with the laws of the State of California without giving effect to principles of conflict of laws.

B-1 

 

 

7.

Counterparts. This Agreement may be executed in counterparts, each of which when so executed will be deemed to be an original, and all such counterparts will together constitute but one and the same instrument.

The parties have executed this Agreement effective as of the date first written above.

ADML Holdings, Inc.

By:/s/ Joseph Anzalone

Name:Joseph Anzalone

Title: Chief Executive Officer 

MediaG3, Inc.

By:/s/ William Yuan

William Yuan

Chief Executive Officer

B-2Exhibit 4.3

 

 

IMPERIAL TOBACCO GROUP PLC

 

RULES OF THE IMPERIAL
TOBACCO GROUP

 

SHARE MATCHING SCHEME

 

Approved by the Company on 14 August 1996

 

Amended by the Remuneration Committee on 2 December 1996,
31 January 2000,

24 November 2000, 23 November 2001 and 22 November 2002.

 

Amended by an ordinary resolution of the
Company passed on 4 February 2003.

 

Amended by the Remuneration Committee on 14
November 2003.

 

Amended by an ordinary resolution of the
Company passed on 1 February 2005.

 

Amended by the Board on 30 January 2007.

 

 

CONTENTS

 

	
  Clause

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
  2.

  	
   

  	
  Invitations

  	
   

  	
  2

  
	
  3.

  	
   

  	
  Lodged
  Shares

  	
   

  	
  3

  
	
  4.

  	
   

  	
  Effect
  of Allocation

  	
   

  	
  4

  
	
  5.

  	
   

  	
  Vesting of Additional Shares

  	
   

  	
  4

  
	
  6.

  	
   

  	
  Capitalisation

  	
   

  	
  6

  
	
  7.

  	
   

  	
  Transfer
  of legal title

  	
   

  	
  7

  
	
  8.

  	
   

  	
  Stamp duty and other expenses

  	
   

  	
  7

  
	
  9.

  	
   

  	
  Taxation

  	
   

  	
  8

  
	
  10.

  	
   

  	
  General

  	
   

  	
  8

  
	
  11.

  	
   

  	
  Amendment

  	
   

  	
  9

  
	
  12.

  	
   

  	
  Termination

  	
   

  	
  9

  
	
  13.

  	
   

  	
  Governing
  law

  	
   

  	
  10

  
	
  SCHEDULE 1
  International rules

  	
   

  	
  11

  
	
  APPENDIX 1
  (Australia)

  	
   

  	
  12

  
	
  APPENDIX 2
  (Canada)

  	
   

  	
  14

  
	
  APPENDIX 3
  (United States of America)

  	
   

  	
  17

  
	
  SCHEDULE 2
  Additional Share Award Certificate

  	
   

  	
  18

  
	
  SCHEDULE 3
  Performance Conditions for allocations of Additional Shares

  	
   

  	
  19

  
							

 

1

 

RULES OF THE IMPERIAL
TOBACCO GROUP

SHARE MATCHING SCHEME

 

1.                                      Definitions

 

Except where inconsistent with the subject or context,
words defined in the Trust Deed made between Imperial Tobacco Group PLC (1) and
Abacus (C.I.) Limited (the “Trustees”) (2) dated 1 October 1996
establishing the Imperial Tobacco Employee and Executive Benefit Trust
(formerly known as the Imperial Tobacco Group PLC Employee Benefit Trust (the “Executive
Trust”) or the Trust Deed made between Imperial Tobacco Group PLC (1) and
the Trustees (2) dated 17 October 2001 establishing the Imperial
Tobacco Group PLC 2001 Employee Benefit Trust (the “2001 Trust”), as
applicable, shall have the same meanings when used in these Rules and
references in the Rules to “the Trust” shall constitute references either
to the Executive Trust or the 2001 Trust, as applicable. In addition the
following words and expressions shall have the following meanings:-

 

	
  “Additional Share”

  	
  a Share allocated pursuant to Rule 4;

  
	
   

  	
   

  
	
  “Board”

  	
  the duly constituted Remuneration Committee
  of the Board of Directors of the Company;

  
	
   

  	
   

  
	
  “Company”

  	
  Imperial Tobacco Group PLC;

  
	
   

  	
   

  
	
  “Control”

  	
  as defined in section 840 of the
  Income and Corporation Taxes Act 1988;

  
	
   

  	
   

  
	
  “CREST”

  	
  means the relevant system (as defined in
  the Uncertificated Securities Regulations 1995 (SI 1995/3272)) in respect of
  which CRESTCo Limited is the operator;

  
	
   

  	
   

  
	
  “CREST Account”

  	
  means a designated CREST account held by
  a Participant with any sponsor agreed by the Trustees;

  
	
   

  	
   

  
	
  “Early Vesting Date”

  	
  as defined at Rule 5.3;

  
	
   

  	
   

  
	
  “Earnings”

  	
  in respect of any Employee, the basic
  annual salary of that Employee;

  
	
   

  	
   

  
	
  “Employee”

  	
  any person for the time being in full,
  part-time or temporary employment of any Member of the Group;

  
	
   

  	
   

  
	
  “Expected Vesting Date”

  	
  as defined at Rule 5.1 and Rule 5.2;

  
	
   

  	
   

  
	
  “Group”

  	
  the Company and its Subsidiaries;

  
	
   

  	
   

  
	
  “Lodged Share”

  	
  a Share:

  
	
   

  	
   

  
	
   

  	
  (i)                                    acquired by the Trustees with monies provided by an Employee or
  transferred to the Trustees and in each

  

 

1

 

	
   

  	
  case held by the Trustees as bare nominee for that
  Employee; or

  
	
   

  	
   

  
	
   

  	
  (ii)                                in respect of which a share certificate(s) covering such Share has
  been deposited with the Trustees by an Employee which shall be held by the
  Trustees (or such person or persons as may from time to time be
  nominated by the Trustees) on behalf of the Employee; or

  
	
   

  	
   

  
	
   

  	
  (iii)                             held by the Participant in a CREST Account;

  
	
   

  	
   

  
	
  “Member of the Group”

  	
  the Company or any of its Subsidiaries;

  
	
   

  	
   

  
	
  “Model Code”

  	
  the Model Code on directors’ and relevant employees’ dealings in
  securities, as set out in the listing rules published by the UK Listing
  Authority;

  
	
   

  	
   

  
	
  “Participant”

  	
  an Employee on whose behalf Lodged Shares
  are held by the Trustees or by the Employee in a CREST Account, or an
  Employee who has deposited a share certificate(s) with the Trustees and in
  any case has not withdrawn those Lodged Shares under rule 7;

  
	
   

  	
   

  
	
  “Rules”

  	
  these Rules as from time to time
  amended in accordance with their provisions;

  
	
   

  	
   

  
	
  “Scheme”

  	
  the Imperial Tobacco Group Share Matching
  Scheme constituted by these Rules;

  
	
   

  	
   

  
	
  “Share”

  	
  an ordinary share in the capital of the
  Company;

  
	
   

  	
   

  
	
  “Subsidiary”

  	
  a subsidiary or subsidiary undertaking of
  the Company within the meaning of the Companies Act 1985;

  
	
   

  	
   

  
	
  “Vesting Date”

  	
  the earlier of the Expected Vesting Date
  and Early Vesting Date;

  
	
   

  	
   

  
	
  “Vesting Period”

  	
  with respect to an Additional Share the
  period between its allocation under Rule 2.4 and its Vesting Date; and

  
	
   

  	
   

  
	
  “Vested Share”

  	
  an Additional Share which has been
  allocated to a Participant and which becomes vested in the Participant (or
  the Participant’s personal representatives) in accordance with the Rules.

  

 

2.                                      Invitations

 

2.1                                Any Member of the Group may with the consent of the Board, from
time to time, invite any Employee to participate in the Scheme.

 

2

 

2.2                                Any such invitation shall invite such Employees as the Board may in
its discretion determine:-

 

(a)                                 to pay monies to the Trustees and to authorise and require the
Trustees to apply such monies in the acquisition of Lodged Shares; and/or

 

(b)                                to transfer Shares to the Trustees as Lodged Shares; and/or

 

(c)                                 to deliver a share certificate(s) in respect of the Lodged Shares to
the Trustees (or such other person or persons as may be nominated by the
Trustees provided the share certificate(s) are held to the Trustees’ order);

 

(d)                                  to open a CREST Account and either (i) apply monies towards the
purchase of Shares; or (ii) transfer Shares by way of a completed CREST
dematerialisation form to the CREST Account such shares being Lodged
Shares;

 

(e)                                   to leave any existing Lodged Shares for which the Vesting Date of
the related Additional Shares has occurred (or will occur by or within a short
time after (as determined by the Board) the allocation of Additional Shares
pursuant to the invitation) as Lodged Shares for the purposes of the invitation;
and/or

 

(f)                                   to leave any Additional Shares which have become Vested Shares as
Lodged Shares for the purpose of the invitation.

 

and shall advise such Employees of the proposed basis
of allocation of Additional Shares if they accept the invitation.

 

2.3                                An Employee invited to participate in the Scheme may accept the
invitation by submitting a duly completed application form and acquiring
Lodged Shares in one of the permitted manners within the time prescribed by the
invitation.

 

2.4                                As soon as practicable following confirmation of the number of
Lodged Shares acquired by or on behalf of a Participant following an invitation
under Rule 2.1, the Trustees shall allocate Additional Shares to
Participants in respect of their Lodged Shares on such basis (including as to
vesting) as the Board may in its discretion determine based on length of
service with the Group, the Earnings of a Participant, the financial performance
of the Group or otherwise howsoever PROVIDED THAT the maximum aggregate number
of Additional Shares which may be allocated to a Participant in respect of
that invitation shall not exceed the total number of Lodged Shares held for or
by the Participant under the Scheme in respect of that invitation.

 

2.5                                No invitation will be made to an Employee at a time when that
Employee is prohibited from dealing (as defined in paragraph 1 of the Model
Code) in Shares by the Model Code.

 

3

 

3.                                      Lodged Shares

 

3.1                                Lodged Shares shall be registered either:

 

(a)                                  in the name of the Trustees (or such other person or persons as may be
nominated by the Board for the purpose) who shall hold such Shares as bare
nominee for the relevant Participant; and/or

 

(b)                                  in the Participant’s name and the share certificate(s) covering such
Shares shall be held by the Trustees (or such other person or persons as may be
nominated by the Trustees provided the share certificate(s) is held to the Trustees’
order); or

 

(c)                                    in the Participant’s name and held in a designated CREST Account.

 

3.2                                The Trustees shall not exercise any rights attaching to Lodged
Shares otherwise than in accordance with any written wishes received from the
relevant Participant. It shall be the responsibility of each Participant to
ensure that any voting wishes are conveyed to the Trustees in sufficient time
and with sufficient clarity to allow the Trustees to carry out the same. The
Trustees shall not be liable to any person for the consequences of any failure
to exercise voting rights.

 

3.3                                A Participant will be entitled to the amount of any dividends paid
by the Company on the Participant’s Lodged Shares.

 

4.                                      Effect of Allocation

 

4.1                                Any Additional Shares allocated to a Participant will cease to be
capable of vesting if, before their Vesting Date, the Participant causes any of
the Lodged Shares in respect of which the Additional Shares were allocated to
be transferred or delivered in accordance with Rule 7.

 

4.2                                During their Vesting Period a Participant will have no right or
interest, whether legal or equitable, in any Additional Shares allocated to
that Participant (and for the avoidance of doubt will have no entitlement to
any dividends paid by the Company on the Additional Shares).

 

4.3                                Subject to Rule 7, no Lodged Share may be assigned,
charged or otherwise disposed of by a Participant during the Vesting Period of
the related Additional Shares.

 

5.                                      Vesting of Additional Shares

 

5.1                                Save as otherwise provided, and provided that any performance
condition(s) imposed by the Board pursuant to Rule 2.4 has or have been
satisfied or waived in accordance with its terms, “Expected Vesting Date” in
relation to any Additional Shares means the date after the allocation of the
Additional Shares determined by the Board before the allocation. If an event
occurs as a result of which the Board determines that in relation to all or any
Additional Shares previously allocated the Expected Vesting Date is no longer
appropriate, the Board may in its discretion substitute such other date as
it may determine as the Expected Vesting Date.

 

5.2                                “Expected Vesting Date” in relation to any Additional Shares
allocated pursuant to an invitation made by the Board in December 2001
shall be 29 January 2005.

 

4

 

5.3                                Provided that any performance condition(s) imposed by the Board
pursuant to Rule 2.4 has or have been satisfied or waived in accordance
with its terms, “Early Vesting Date” in relation to any Additional Share means
the date on which any of the following events shall first occur prior to the
Expected Vesting Date of such Additional Share:-

 

(a)                                  any person acquiring Control of the Company (including for the
avoidance of doubt pursuant to an amalgamation or reconstruction, however
effected, or a compromise or a scheme of arrangement sanctioned by the Court
under Section 425 of the Companies Act 1985);

 

(b)                                 notice being duly given of a resolution for the voluntary winding-up
of the Company;

 

(c)                                  death during service of the Participant;

 

(d)                                 cessation of the Participant’s employment by reason of:-

 

(i)                                    ill health, injury, disability or redundancy;

 

(ii)                                the company employing the Participant ceasing to be a Member of the
Group;

 

(iii)                             the business or part of the business to which the Participant’s
office or employment relates being transferred to a person who is not a Member
of the Group;

 

(iv)                              any other circumstances; or

 

(e)                                    notice being given that the Shares will cease to be listed on the
London Stock Exchange.

 

5.4                                Subject to the Participant electing to leave any of the Lodged
Shares as Lodged Shares for the purpose of an invitation under Rule 2.1:

 

(a)                                    any Lodged Shares held upon bare trust for a Participant shall be
transferred (in such manner (whether in uncertificated form or otherwise)
as the Trustees may determine) to the relevant Participant on the Vesting
Date of the related Additional Shares;

 

(b)                                   the Trustees shall return or procure the return of all share
certificates in respect of Lodged Shares deposited with the Trustees as soon as
practicable following the Vesting Date of the related Additional Shares.

 

5.5                                If the Vesting Date of any Additional Shares has arisen:

 

(a)                               otherwise than under Rule 5.3 (a), (b), (c) or (d), the
Trustees will transfer to the relevant Participant on or as soon as permissible
after the Vesting Date that number of Additional Shares  determined by the Trustees in accordance with
the basis of allocation determined under Rule 2; or

 

(b)                              under Rule 5.3 (a) or (b), the Trustees will transfer to
the relevant Participant on or as soon as permissible after the Vesting Date that
proportion of the Additional Shares as is equal to the proportion of the
Vesting Period of those Additional Shares

 

5

 

that had
expired before the occurrence of the event that gave rise to the Vesting Date
of the Additional Shares; or

 

(c)                               under Rule 5.3(c) or (d)(i), (ii) or (iii), the
Trustees will transfer to the relevant Participant (or to the Participant’s estate)
on or as soon as permissible after the Vesting Date that proportion of the
Additional Shares as is equal to the proportion of the Vesting Period of those
Additional Shares for which the Participant remained an Employee; or

 

(d)                                   under Rule 5.3(d)(iv), any award of Additional Shares to that
Participant shall lapse unless, within six months of that date, the Trustee
shall determine otherwise, in which case there shall be transferred to the
relevant Participant such number of Additional Shares as may be determined
by the Trustees in their discretion, but not exceeding the number of Additional
Shares which would have been transferred to the Participant had the Vesting
Date arisen otherwise than under Rule 5.3(d)(iv).

 

5.6                                The Additional Shares transferred to a Participant pursuant to Rule 5.5
above shall rank pari passu with all Shares then in issue except that they will
not rank for any dividend or other distribution paid or made by reference to a
record date falling prior to the date that they are transferred.

 

5.7                                For the purposes of this Rule 5, where a Participant’s
employment with any Member of the Group is terminated (a) without notice,
the Participant’s employment shall be deemed to cease on the date on which the
termination takes effect; or (b) with notice, the Participant’s employment
shall be deemed to cease on the date on which that notice is given, unless the
Board in its sole discretion extends the date on which the employment is deemed
to cease to the date when the notice expires.

 

5.8                                Notwithstanding the provisions of this Rule 5, the number of Shares
available for the Scheme will be limited so that on any date:

 

(a)                                    the total number of Shares acquired or that may be acquiring
during the period of ten years ending on that date under the Scheme and all
other employees’ share schemes established by the Company cannot exceed 10% of
the issued ordinary share capital of the Company on that date;

 

(b)                                   the total number of Shares acquired or that may be acquired
during the period of five years ending on that date under the Scheme and all
other employees’ share schemes established by the Company cannot exceed 5% of
the issued ordinary share capital of the Company on that date;

 

(c)                                    the total number of Shares acquired or that may be acquired
during the period of ten years ending on that date under the Scheme and all
other employees’ share schemes established by the Company cannot exceed 5% of
the issued ordinary share capital of the Company on that date, PROVIDED THAT
there shall be excluded for the purposes of this limit Shares acquired or that may be
acquired under any employees’ share scheme in circumstances where participation
is offered or extended to all or most employees of the participating companies
under that scheme.

 

6

 

5.9                                Benefits received by a Participant under the Scheme are not
pensionable.

 

6.                                      Capitalisation

 

6.1                                If and whenever new Shares are allotted to the Trustees by way of
capitalisation or other distribution of a capital nature, such new Shares shall
accrue and be added to and be held on the same terms as the Shares in respect
of which such new Shares shall have been allotted. The number and nominal value
of Additional Shares and the basis of further allocations of Additional Shares,
may be adjusted in such a manner as the Company’s Auditors, acting as
experts and not as arbitrators, may confirm in writing to be fair and
reasonable. Participants shall be notified of any such adjustment.

 

6.2                                If and whenever the Company shall issue by way of rights or
otherwise make any offer or invitation to shareholders generally and shall
issue to its members nil paid letters of allotment or other documents (“Nil
Paid Rights”) representing negotiable Nil Paid Rights or entitlements relating
to any ordinary shares or other security or securities (or any mixture of the
two) in or of the Company, the Trustees shall be entitled to receive but shall
be obliged to sell such proportion of such Nil Paid Rights as are attributable
to Additional Shares as shall enable the Trustees to subscribe for the new
shares or securities which are the subject of the balance of the Nil Paid
Rights and the Trustees shall so apply the proceeds of disposal in that way. The
shares or securities so purchased shall be added pro rata and be held on the
same terms as the Additional Shares held by the Trustees in respect of which
such Nil Paid Rights shall have been received by the Trustees. Any cash balance
shall be held likewise. If any such Nil Paid Rights shall be issued by
reference to a record date which falls after the time at which the relevant
Shares in respect of which such Nil Paid Rights shall have been issued shall
have become held absolutely for a Participant, such Nil Paid Rights shall be
held by the Trustees upon trust for such Participant absolutely.

 

6.3                                If under Rule 6.1 or 6.2 above any fraction of a Share arises
the allocation therein provided for shall be rounded up or down as the Trustees
may in their sole discretion think fit.

 

6.4                                In relation to any Lodged Share registered in the name of the
Trustees (or another person) pursuant to Rule 2.2 the Participant may instruct
the Trustees to take such action as the Participant may inform the
Trustees in writing. The Trustees shall be under no obligation to take any
action unless the Participant shall provide any necessary funds and shall not
be responsible for any failure to act in time or at all, irrespective of the
circumstances.

 

7.                                      Transfer of legal title

 

The
Trustees shall in respect of all (but not some only) of the Lodged Shares:

 

(a)                                    transfer the legal title into the name of the relevant Participant
or at the direction of the Participant, in such manner (whether in
uncertificated form or otherwise) as the Trustees may determine;
and/or

 

(b)                                   deliver or procure the delivery of all the share certificate(s) to
the relevant Participant,

 

as soon as reasonably practicable following
the receipt of any written instruction to this effect from such Participant.

 

7

 

8.                                      Stamp duty and other expenses

 

Any
stamp duty or other expenses incurred in any transfer of Additional Shares
and/or Lodged Shares by the Trustees shall be payable:-

 

(a)                                    in the case of either a transfer into the name or at the direction
of the Participant concerned or the acquisition by the Trust of Additional
Shares, by the Trustees; and

 

(b)                                   in any other case, by the Participant concerned (unless the Board
shall determine otherwise).

 

9.                                      Taxation

 

9.1                               The Company or the Trustees may make such provision for and
take such action as may be considered by either of them to be necessary or
expedient for the withholding or payment of any taxes or any other statutory
deductions for which either of them is properly accountable and wherever those
taxes are imposed, provided those taxes arise in respect of any transfer of
funds or assets or any payment pursuant to the Trust and/or these Rules including
(but not limited to) the withholding of funds or property (or any portion
thereof) from any payment under the Trust and/or under these Rules until a
Participant reimburses the Company or the Trustees for the amounts of any such
taxes for which either of them is respectively and properly accountable.

 

9.2                                For the purposes of this Rule 9 the Trustees may rely on
any information supplied to them by the Company or by any tax adviser selected
by the Company as to the amount of any such tax liability.

 

10.                                General

 

10.1                          Any notice or other document given to any Employee pursuant to the
Scheme shall be delivered to him, 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 Board to be appropriate or sent to him by e-mail to his usual e-mail
address according to the records of his employing company or to such other e-mail
address that the Employee may have advised may be used. Notices or
other documents sent by post shall be deemed to have been received 2 days
following the date of posting for documents posted to addresses in the United
Kingdom and 7 days for documents posted to an overseas address. All documents
sent to or by an Employee will be sent entirely at the Employee’s risk.

 

10.2                         The decision of the Board on any question of interpretation of the Rules or
any dispute relating to or connected with the Scheme shall be final and
conclusive.

 

10.3                          The costs of introducing, operating and administering the Scheme
shall be borne by a Group Company.

 

10.4                         The Board shall have power from time to time to make regulations for
the administration and operation of the Scheme provided that they are not
inconsistent with these Rules.

 

8

 

10.5                         Nothing in the Scheme shall form part of any Participant’s
contract of employment. The rights and obligations of a Participant under the
terms and conditions of his employment by any Member of the Group shall not be
affected by his participation in the Scheme. The Participant shall have no
right to compensation or damages or any other sum or benefit in respect of his
ceasing to participate in the Scheme or in respect of any loss or reduction of
any rights or expectations under the Scheme in any circumstances. An Employee
who is not invited to participate in the Scheme shall have no right to
compensation or damages or any other sum or benefit in respect of his
non-participation.

 

10.6                          An Employee agrees as a condition of participation in the Scheme to
the collection, processing, transfer (including to countries outside the
European Economic Area) and retention of the Employee’s personal data for use
in connection with the operation of the Scheme by any Member of the Group, the
Trustees and/or any third party retained by the Board to administer the Scheme.

 

11.                                Amendment

 

11.1                         The Scheme shall be administered under the direction of the Board which
may at any time and from time to time by resolution and without other
formality amend or augment the Rules or the Scheme in any respect provided
that:-

 

(a)                                    no amendment shall operate to affect adversely in any way any rights
already acquired by a Participant;

 

(b)                                   no amendment may be made which would, if carried out, involve
the Trustee in a new or additional obligation or liability without the prior
agreement of the Trustee; and

 

(c)                                    no amendment may be made to the Rules to the advantage of
Participants except with the prior approval of the shareholders of the Company
in General Meeting except for minor amendments to benefit the administration of
the Scheme, to take account of a change in legislation or to obtain or maintain
favourable tax, exchange control or regulatory treatment for Participants in
the Scheme or for any Member of the Group.

 

11.2                         Notwithstanding anything to the contrary contained herein, the Board
may at any time and from time to time by resolution and without further
formality amend the Scheme in such manner as the Board may consider
necessary or desirable:

 

(a)                                    in any way to the extent necessary to render the Scheme capable of
approval by the Inland Revenue or any other governmental or other regulatory
body pursuant to any present or future United Kingdom legislation;  or

 

(b)                                   in order to comply with, take advantage of, or otherwise in
connection with any taxation, legal, regulatory or other rule, law, guideline,
regulation or other provision of or prevailing in any jurisdiction in which this
Scheme is or is intended to be operated.

 

11.3                          The limits in Rule 5 may not be increased without the
approval of the shareholders of the Company in General Meeting.

 

9

 

11.4                         No amendment shall take effect that would cause the Scheme to cease
to be an “employees’ share scheme” as defined in section 743 of the
Companies Act 1985.

 

12.                               Termination

 

The Scheme may be
terminated at any time by a resolution of the Board, and shall in any event
terminate on 1 February 2015. Any termination shall not affect the
outstanding rights of Participants.

 

13.                               Governing
law

 

This Scheme
shall be governed by the laws of England.

 

10

 

SCHEDULE 1

 

INTERNATIONAL RULES

 

 

The Rules of the Scheme apply in the
jurisdictions specified below:

 

Belgium

Bosnia

Czech Republic

France

Germany

Greece

Hong Kong

Hungary

Ireland

Kyrgyzstan

The Netherlands

New Zealand

Poland

Russia

Singapore

Slovakia

Slovenia

Spain

Taiwan

Turkey

United Arab Emirates

 

The Rules of the Scheme apply with and
subject to the following amendments and provisions which have been adopted by
the Board pursuant to rule 11.2 for the purposes of the operation of the
Scheme in the jurisdictions specified below:

 

Australia (Appendix 1)

Canada (Appendix 2)

United States of America (Appendix 3)

 

11

 

APPENDIX 1

 

IMPERIAL
TOBACCO INTERNATIONAL

SHARE
MATCHING SCHEME

 

The
purpose of this Appendix is to specify terms and conditions under which the
Scheme is to be modified in its application to any Lodged Shares or allocation
of Additional Shares made or to be made to a person resident in Australia.

 

Words
and phrases defined in the Scheme shall bear the same meaning in this Appendix
1 except as otherwise provided:

 

1.                                           An Employee must, in order to participate in the Scheme, either

 

(a)                               deliver share certificates in respect of the Lodged Shares owned by
the Employee to the Trustees or,

 

(b)                              open a CREST Account and either,

 

(i)                               apply monies towards the purchase of Shares; or

(ii)                            transfer Shares by way of a CREST dematerialisation to the CREST
Account

 

and the definition of “Lodged Shares” and Rule 2.2
of the Scheme shall be read and construed accordingly.

 

2.                                           The following new Rules 2.5 and 2.6 shall be inserted after Rule 2.4:

 

‘2.5                            The allocation of Additional Shares to any Participant shall be
deemed to be, and shall have effect as, the grant of an option by the Company
in favour of the Participant to require the Company to procure the transfer to
the Participant of the Additional Shares to which the Participant is entitled
under these Rules on the Vesting Date and:

 

(a)                              any reference in these Rules to the loss, termination or
lapsing of any award of Additional Shares shall be deemed to be a reference to
such option lapsing; and

 

(b)                             any reference to Additional Shares shall be deemed to be a reference
to such option to call for a transfer of the relevant number of Additional
Shares.

 

2.6                                The option referred to in Rule 2.5 shall lapse and be of no
further effect unless the Participant shall, throughout the period commencing
on the date of the grant of that option and ending on the Vesting Date:

 

(c)                              be and have been employed continuously under a contract of
employment with any Member of the Group and is not then under notice of
termination of such contract given or received; and

 

(d)                             not have caused the certificate in respect of any of the Lodged
Shares in respect of which the option was granted to have been delivered in the
same manner as if Rule 7 applied to such transfer.’

 

12

 

3.                                           Rule 4.1 shall be deleted, and the following Rule 4.1
inserted in its place:

 

‘4.1                           Notwithstanding any provision of these Rules or of the Trust,
no Participant shall have any right or interest, whether legal or equitable,
in:

 

(a)                              any Additional Shares allocated to that Participant until the
Vesting Date;

 

(b)                             any Nil Paid Rights issued by the Company under Rule 6.2 or,
until the Vesting Date, in any shares or securities acquired from exercising
those Nil Paid Rights; or

 

(c)                               any option to acquire any right or interest in any such Share.’

 

4.                                           Rule 6.2 shall be deleted and the following Rule 6.2
inserted in its place:

 

‘If and whenever the Company shall issue by
way of rights or otherwise make any offer or invitation to shareholders
generally and shall issue to its members nil paid letters of allotment or other
documents (“Nil Paid Rights”) representing negotiable Nil Paid Rights or
entitlements relating to any ordinary shares or other security or securities
(or any mixture of the two) in or of the Company, the Trustees shall be
entitled to receive but shall be obliged to sell such proportion of such Nil
Paid Rights as are attributable to Additional Shares as shall enable the
Trustees to subscribe for the new shares or securities which are the subject of
the balance of the Nil Paid Rights and the Trustees shall so apply the proceeds
of disposal in that way. The shares or securities so purchased shall be added
pro rata and be held upon the same terms as
the Additional Shares held by the Trustees in respect of which such Nil Paid
Rights shall have been received by the Trustees. Any cash balance shall be held
likewise. If any such Nil Paid Rights shall be issued by reference to a record
date which falls after the time at which the relevant Shares in respect of
which such Nil Paid Rights shall have been issued shall have become held
absolutely for a Participant, such Nil Paid Rights shall be held by the
Trustees upon trust for such Participant absolutely. No
Participant shall have any right or interest, whether legal or equitable in any
Nil Paid Rights or, until the Vesting Date, in any shares or securities
acquired from exercising those Nil Paid Rights. ‘

 

13

 

APPENDIX 2

 

IMPERIAL
TOBACCO GROUP INTERNATIONAL

SHARE
MATCHING SCHEME

 

The
purpose of this Appendix is to specify terms and conditions under which the
Scheme is to be modified in its application to any Lodged Shares or allocation
of Additional Shares made or to be made to a person resident for tax purposes
in Canada.

 

Words
and phrases defined in the Scheme shall bear the same meaning in this Appendix
2 except as otherwise provided.

 

	
  Rule 1

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  “Additional Shares”

  	
   

  	
  notional additional shares allocated pursuant to Rule 4.

  
	
   

  	
   

  	
   

  
	
  “Exit Price”

  	
   

  	
  the middle market price of a Share as derived from the London Stock
  Exchange Daily Official List on the Vesting Date.

  
	
   

  	
   

  	
   

  
	
  “Notional Additional Gain”

  	
   

  	
  the Exit Price multiplied by the number of Additional Shares
  allocated to a Participant in accordance with the basis of allocation
  determined under Rule 2.

  
	
   

  	
   

  	
   

  
	
  “Vesting Date”

  	
   

  	
  the earlier of the Expected Vesting Date and Early Vesting Date
  provided that this date shall not be a date falling more than three years
  after the date of the allocation of the Additional Shares.

  
	
   

  	
   

  	
   

  
	
  Rule 4 shall be replaced with the following:

  	
   

  	
  “Any Additional Shares allocated to a Participant will be held for
  that Participant provided that the Participant, throughout the period
  commencing on the date of allocation of such Additional Shares and ending on
  their Vesting Date does not cause any of the Lodged Shares in respect of
  which the Additional Shares were allocated to be transferred or delivered in
  accordance with Rule 7”.

  
	
   

  	
   

  	
   

  
	
  Rule 5.5 shall be replaced with the following:

  	
   

  	
  If the Vesting Date of any Additional Shares has arisen:

   

  (a)                                  otherwise than under Rule 5.3 (a), (b), (c) or (d) a
  payment shall be made to the Participant on or as soon as permissible after
  the Vesting Date, but in no event later than December, 31 of the calendar
  year in which the vesting date falls, of an amount equal to the Notional
  Additional Gain; or

   

  (b)                                 under Rule 5.3(a) or (b) a payment shall be made to
  the Participant on or as soon as permissible after the Vesting Date, but in
  no event later than December, 31

  

 

14

 

	
   

  	
   

  	
  of the calendar year in which the vesting date
  falls, of an amount equal to that proportion of the Notional Additional Gain
  as is equal to the proportion of the Vesting Period of the Additional Shares
  that had expired on the occurrence of the event that gave rise to the Vesting
  Date of the Additional Shares; or

   

  (c)                                  under Rule 5.3(c) or d(i), (ii) or (iii), a payment
  shall be made to the Participant (or to the Participant’s estate) on or as
  soon as permissible after the Vesting Date, but in no event later than
  December, 31 of the calendar year in which the vesting date falls, of an
  amount equal to that proportion of the Notional Additional Gain as is equal
  to the proportion of the Vesting Period of the Additional Shares for which
  the Participant remained an Employee; or

   

  (d)                                 under Rule 5.3(d)(iv), any allocation of Additional Shares to
  that Participant shall lapse, unless within six months of that date, the
  Board shall determine otherwise, in which case a payment shall be made to the
  Participant of an amount determined by the Board in its discretion but not
  exceeding the Notional Additional Gain which the Participant would have
  entitled to had the Vesting Date arisen otherwise than under Rule 5.3(d)(iv).

  
	
  Rule 5.6 shall be deleted.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Rule 5.7 shall be replaced with the following:

  	
   

  	
  “For the purposes of the Scheme, a Participant’s employment with any
  Member of the Group shall be considered to have terminated effective on the
  last day of the Participant’s actual and active employment with a Member of
  the Group whether such day is selected by agreement with the individual,
  unilaterally by such a Member of the Group and whether with or without
  advance notice to the Participant unless the Board in its sole discretion
  shall agree to extend the date on which the employment is deemed to cease to
  the date when the notice expires. Except as may be authorised by the
  Board, for the avoidance of doubt, no period of notice that is given or that
  ought to have been given under applicable law in respect of such termination
  of employment will be utilised in determining entitlement under the Rules of
  the Scheme.”

  
	
   

  	
   

  	
   

  
	
  Rule 6.2 shall be deleted.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Rule 6.3

  	
   

  	
  delete the words “or 6.2” where it occurs
  on the first line of that provision;

  
	
   

  	
   

  	
   

  
	
  Rule 8 shall be replaced with the
  following:

  	
   

  	
  Any stamp duty or other expenses incurred in the transfer of Lodged
  Shares by the Trustees shall be payable:

   

  (a)                                  in the case of either a
  transfer into the name or at the discretion of the Participant concerned, by
  the Trustees; and

  

 

15

 

	
   

  	
   

  	
  (b)                                 in any other case, by the
  Participant concerned (unless the Board shall determine otherwise).

  

 

16

 

APPENDIX
3

 

IMPERIAL TOBACCO GROUP
INTERNATIONAL

SHARE MATCHING SCHEME

 

The purpose of this Appendix is to specify
terms and conditions under which the Scheme is to be modified in its application
to any Lodged Shares or allocation of Additional Shares made or to be made to a
person resident for tax purposes in the United States of America.

 

Words and phrases defined in the Scheme
shall bear the same meaning in this Appendix 3 except as otherwise provided.

 

	
  Rule 1

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  “ADS”

  	
   

  	
  American
  Depositary Shares, evidenced by American Depositary Receipts, which may be
  issued by Citibank, N.A., as depositary (“the Depositary”) pursuant to the
  Amended and Restated Deposit Agreement, dated as of November 2, 1998,
  among the Company, the Depositary and all holders and beneficial owners of
  American Depositary Shares thereunder;

  
	
   

  	
   

  	
   

  
	
  “Additional
  Share”

  	
   

  	
  a Share
  allocated pursuant to Rule 4;

  
	
   

  	
   

  	
   

  
	
  “Lodged
  Share”

  	
   

  	
  a Share:

   

  (i)                                    ,
  or ADS, if applicable, acquired by the Trustees with monies provided by an
  Employee or transferred to the Trustees by an Employee and in each case held
  by the Trustees as bare nominees for such Employee; or

   

  (ii)                                  held by an Employee in a CREST Account;

  
	
   

  	
   

  	
   

  
	
  “Share”

  	
   

  	
  an ordinary
  share in the capital of the Company or ADS, if applicable;

  
	
   

  	
   

  	
   

  
	
  Rule 2.2(d)

  	
   

  	
  insert the
  words “,to be approved by the Trustee,” after the words “CREST Account” on
  the first line of that provision;

  
	
   

  	
   

  	
   

  
	
  Rule 5.3
  (e)

  	
   

  	
  at the end
  of the sentence add the words “or, that the ADSs cease to be listed on the
  New York Stock Exchange, Inc.”

  
	
   

  	
   

  	
   

  
	
  Rule 5.8

  	
   

  	
  insert the words “(including Shares
  represented by ADSs)” after the word “Share” wherever it occurs.

  

 

17

 

SCHEDULE 2

 

[Imperial Tobacco Group PLC
notepaper]

 

ADDITIONAL SHARE AWARD CERTIFICATE

 

IMPERIAL TOBACCO GROUP SHARE MATCHING
SCHEME (the “Scheme”)

 

This is to certify that
[                         ]
has been granted [                      ]
Additional Shares in accordance with the Scheme.

 

The Additional Shares are subject to the rules of
the Scheme and shall be held by Abacus (C.I.) Limited as Trustees of the Scheme
and of the Imperial Tobacco Group Employee and Executive Benefit Trust [and the
Imperial Tobacco Group PLC 2001 Employee Benefit Trust] until the Vesting Date.

 

The Additional Shares shall be transferred
to you as soon as practicable after the Vesting Date provided that [insert details of  performance condition(s)
imposed on the award of Additional Shares including details of performance
condition(s) if early good leaver].

 

Until the Vesting Date:

 

•                  You cannot sell,
assign, transfer, pledge, encumber or otherwise dispose of your interest in the
Additional Shares;

•                  You will not receive
any dividends in respect of the Additional Shares; and

•                  You cannot exercise
voting rights attached to the Additional Shares.

 

For and on behalf of IMPERIAL
TOBACCO GROUP PLC

 

	
  Authorised
  signatory 

  	
   

  

 

18

 

SCHEDULE 3

 

PERFORMANCE CONDITION

For Additional Shares allocated to
executive directors of the Company

 

This Schedule 3 contains the
performance condition to which Additional Shares allocated to executive
directors of the Company after 1 February 2005 will be subject, unless and
until the Board decides otherwise.

 

The Additional Shares will only vest if the
average annual growth in the Company’s basic Earnings per Share over their
Vesting Period, as adjusted over that period on a basis confirmed as
appropriate by the auditors of the Company, for amortisation, exceptional and
extraordinary items and inflation, exceeds three (3) per cent.

 

Following testing of the performance
conditions the Board may vary, but not increase, the extent to which the
Additional Shares have vested to ensure that vesting will only occur, and at an
appropriate level, if there has been an improvement in the underlying financial
performance of the Company, including the maintenance of long-term return on
capital employed.

 

There will be no re-testing of the performance
condition if it is not achieved at the end of the Vesting Period.

 

19

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