AGM 2010 Explanatory Notes

Recommendation and explanatory notes relating to business to be conducted at the Annual General Meeting on 28 May 2010.
meeting

The board of G4S plc considers the resolutions set out in the Notice of Annual General Meeting are likely to promote the success of the company and are in the best interests of the company and its shareholders as a whole. The directors unanimously recommend that you vote in favour of the resolutions as they intend to do in respect of their own beneficial holdings.

Explanatory notes in relation to certain of the business to be conducted at the AGM are set out below.

1. Authority to allot shares (Resolution 9)

Resolution 9 seeks shareholder approval for the directors to be authorised to allot shares.

At the last AGM of the company held on 26 May 2009, the directors were given authority to allot ordinary shares in the capital of the company up to a maximum nominal amount of £234,700,000 representing approximately 66% of the company’s then issued ordinary share capital. This authority expires at the end of this year’s AGM. Of this amount 469,400,000 shares (representing approximately 33% of the company’s issued ordinary share capital) could only be allotted pursuant to a rights issue.

Resolution 9 will, if passed, renew this authority to allot on broadly the same terms as last year’s resolution but the resolution has been updated to reflect that authority is being given under section 551 of the Companies Act 2006 (the “2006 Act”) (rather than section 80 of the Companies Act 1985) and to reflect a change in the language used in the 2006 Act. This change does not affect the substance of these resolutions.

The board considers it appropriate that the directors be granted a similar authority to allot shares in the capital of the company up to a maximum nominal amount of £235,080,000 representing approximately 66% of the company’s issued ordinary share capital as at 23 March 2010 (the latest practicable date prior to publication of the Notice of Annual General Meeting). Of this amount, 470,160,000 shares (representing approximately 33% of the company’s issued ordinary share capital) can only be allotted pursuant to a rights issue. The power will last until the conclusion of the next AGM in 2011.

The intention of the directors is to allot shares upon the exercise of options granted over Securicor plc shares and rolled over into options over the company’s shares. The directors do not have any other present intention of exercising this authority.

As at the date of the Notice of Annual General Meeting the company does not hold any ordinary shares in the capital of the company in treasury. However, the 5,543,818 shares held within the G4S Employee Benefit Trust and referred to on page 104 (note 37 to the consolidated financial statements) are accounted for as treasury shares.

2. Disapplication of statutory pre-emption rights (Resolution 10)

Resolution 10 seeks shareholder approval to give the directors authority to allot shares in the capital of the company pursuant to the authority granted under Resolution 9 above for cash without complying with the pre-emption rights in the 2006 Act in certain circumstances. This authority will permit the directors to allot:

(a) shares up to a nominal amount of £235,080,000 (representing approximately 66% of the company’s issued share capital) on an offer to existing shareholders. However unless the shares are allotted pursuant to a rights issue (rather than an open offer), the directors may only allot shares up to a nominal amount of £117,540,000 (representing approximately 33% of the company’s issued share capital) (in each case subject to any adjustments, such as for fractional entitlements and overseas shareholders, as the directors see fit); and

(b) shares up to a maximum nominal value of £17,630,000, representing approximately 5% of the issued ordinary share capital of the company as at 25 March 2010 (the latest practicable date prior to publication of the Notice of Annual General Meeting) otherwise than in connection with an offer to existing shareholders.

As with Resolution 9, the terms of Resolution 10 are broadly the same as last year’s resolution but the resolution has been updated to reflect that it is being passed pursuant to section 570 of the 2006 Act rather than section 95 of the Companies Act 1985.

The directors confirm their intention to follow the provisions of the Pre-emption Group’s Statement of Principles regarding cumulative usage of authorities within a rolling three-year period. The Principles provide that companies should not issue shares for cash representing more than 7.5% of the company’s issued share capital in any rolling three-year period, other than to existing shareholders, without prior consultation with shareholders.

3. Purchase of own shares (Resolution 11)

Resolution 11 seeks to renew the company’s authority to buy back its own ordinary shares in the market as permitted by the 2006 Act. The authority limits the number of shares that could be purchased to a maximum of 141,000,000 (representing a little less than 10% of the company’s issued ordinary share capital as at 23 March 2010 (the latest practicable date prior to publication of the Notice of Annual General Meeting)) and sets minimum and maximum prices. This authority will expire at the conclusion of the company’s AGM in 2011.

The directors have no present intention of exercising the authority to purchase the company’s ordinary shares but will keep the matter under review, taking into account the financial resources of the company, the company’s share price and future funding opportunities. The authority will be exercised only if the directors believe that to do so would result in an increase in earnings per share and would be in the interests of shareholders generally. No shares were purchased pursuant to the equivalent authority granted to the directors at the company’s last AGM. 
As at 23 March 2010 (the latest practicable date prior to the publication of the Notice of Annual General Meeting), there were options over 100,000 ordinary shares in the capital of the company representing 0.0071% of the company’s issued ordinary share capital. If the authority to purchase the company’s ordinary shares was exercised in full, these options would represent 0.0078% of the company’s issued ordinary share capital.

4. Political donations (Resolution 12)

Resolution 12 is designed to deal with the rules on political donations contained in the 2006 Act. Under the rules, political donations to any political parties, independent election candidates or political organisations or the incurring of political expenditure are prohibited unless authorised by shareholders in advance. What constitutes a political donation, a political party, a political organisation, or political expenditure is not easy to decide, as the legislation is capable of wide interpretation. Sponsorship, subscriptions, payment of expenses, paid leave for employees fulfilling public duties, and support for bodies representing the business community in policy review or reform, may fall within this. 
Therefore, notwithstanding that the company has not made political donations requiring shareholder authority in the past, and has no intention either now or in the future of making any such political donation or incurring any such political expenditure in respect of any political party, political organisation or independent election candidate, the board has decided to put forward Resolution 12. This will allow the company to support the community and put forward its views to wider business and government interests without running the risk of being in breach of the law. As permitted under the 2006 Act, Resolution 12 also covers political donations made, or political expenditure incurred, by any subsidiaries of the company.

5. Adoption of new articles of association (Resolution 13)

The company proposes to adopt new articles of association (the “New Articles”) at the 2010 AGM. These incorporate amendments to the 
current articles of association to reflect the changes in company law brought about by the 2006 Act, which replaced the Companies Act 1985, was implemented in stages and was fully in force by 1 October 2009. In addition, the Companies (Shareholders’ Rights) Regulations 2009 (the “Shareholders’ Rights Regulations”) came into force on 3 August 2009 and amended certain provisions of the 2006 Act relating to certain rights of shareholders at meetings of the company.

The principal changes in the New Articles relate to electronic communications, shareholder meetings and resolutions, the company’s constitution and share capital. The New Articles also include some other modernising and clarificatory wording including, where appropriate, tracking the wording of the new model form articles for public companies contained in Schedule 3 to the Companies (Model Articles) Regulations 2008 (the “model form articles”) which replace the Table A articles under the Companies Act 1985 on which many of the company’s current articles are based.

Under the 2006 Act all provisions of the company’s memorandum, but most significantly the objects clause, were deemed to form part of the company’s articles from 1 October 2009 including, in particular, the statement of objects and the statement of authorised share capital. The 2006 Act does not require a company to set out its objects: it provides that, unless the articles state otherwise, a company’s objects will be unrestricted. The 2006 Act also removes the requirement for a company to place limits on its authorised share capital. 
By adopting the New Articles, which do not contain an objects clause or the authorised share capital statement, the company will remove from its articles these provisions, which would otherwise be deemed to form part of the company’s articles under section 28 of the 2006 Act. 
The principal changes to the articles of association can be summarised as follows: 

(a) The company’s objects

The 2006 Act significantly reduces the constitutional significance of a company’s memorandum. The provisions governing the operations of the company are currently set out in both its memorandum of association and its articles of association. Under the 2006 Act, the memorandum no longer contains an objects clause and simply records the names of the subscribers and the number of shares which each subscriber agreed to take in the company. Under section 28 of the 2006 Act, the objects clause and all other provisions in the memorandum are treated as part of the articles with effect from 1 October 2009 but the company can remove these provisions by special resolution. Unless the articles provide otherwise, the company’s objects will be unrestricted. The company is proposing to remove its objects clause together with all other provisions of its memorandum which, by virtue of the 2006 Act, are treated as forming part of the company’s articles of association as of 1 October 2009. Resolution 13 confirms the removal of these provisions and adopts the New Articles.

(b) Limited liability (Article 3)

Under the 2006 Act, the memorandum of association also no longer contains a clause stating that the liability of the members of a company is limited. For existing companies, this statement is automatically treated as having moved into the articles on 1 October 2009. As noted above, Resolution 13(i) confirms the removal, from the company’s articles of association, of the provisions of the company’s memorandum of association which are treated as forming part of the company’s articles of association by virtue of section 28 of the 2006 Act, which includes the statement of limited liability. An explicit statement of the members’ limited liability is therefore included in the New Articles. 

(c) Authorised share capital and unissued shares

The 2006 Act abolishes the concept of authorised share capital and, under the 2006 Act, the memorandum of association no longer contains a statement of the company’s authorised share capital. For existing companies, this statement is deemed to be a provision of the company’s articles of association setting out the maximum amount of shares that may be allotted by the company. The adoption of the New Articles by the company will have the effect of removing this provision relating to the maximum amount. Directors will still need to obtain the usual shareholders’ authorisation in order to allot shares, except in respect of employee share schemes. 
References to authorised share capital and to unissued shares have therefore been removed from the New Articles. 

(d) Redeemable shares (Article 7)

Under the 2006 Act, the articles of association need not include the terms on which redeemable shares may be redeemed. The directors may determine the terms, conditions and manner of redemption of redeemable shares provided they are authorised to do so by the articles. The New Articles contain such authorisation. The company currently has no plans to issue redeemable shares but if it did so the directors would need shareholders’ authority to issue new shares in the usual way. 

(e) Share certificates (Article 15)

The New Articles contain new provisions for the issue of consolidated share certificates, in line with the model form articles.

(f) Transfer of shares (Former Article 41)

The provision which gave the ability to suspend the registration of transfers of shares for periods not exceeding 30 days in any one year has been removed from the New Articles as there is no ability under the 2006 Act to close the register.

(g) Authority to purchase own shares, consolidate and sub-divide shares, and reduce share capital (Article 44 and Former Articles 52 and 53) 
Under the Companies Act 1985, a company required specific authorisations in its articles of association to purchase its own shares, to consolidate or sub-divide its shares and to reduce its share capital. Under the 2006 Act, public companies do not require specific authorisations in their articles of association to undertake these actions, but shareholder authority is still required. Amendments have been made to the New Articles to reflect these changes.

(h) Notice of general meetings (Articles 47 and 53)

The provisions in the New Articles dealing with the convening of general meetings and the length of notice required to convene general meetings are in line with the relevant provisions of the 2006 Act (as amended by the Shareholders’ Rights Regulations). The Shareholders’ Rights Regulations amended the 2006 Act to require the company to give 21 clear days’ notice of general meetings unless the company has passed a special resolution reducing the notice period to not less than 14 days and the company offers members an electronic voting facility.

The amendment to Article 53 deals with situations where, because of a postal strike or similar situation beyond the control of the company, a notice of meeting is not received by a shareholder. The amendment will ensure that such failure does not invalidate proceedings at the meeting in question.

(i) Adjournments (Article 55)

The Shareholders’ Rights Regulations add a provision to the 2006 Act which requires that, when a general meeting is adjourned due to lack of quorum, at least ten days’ notice must be given to reconvene the meeting. The New Articles include amendments to the provisions dealing with notice of adjourned meetings to make them consistent with this new requirement.

(j) Attending and speaking at meetings (Article 58)

Article 58 of the New Articles now provides that the chairman of the meeting may permit non-members or persons who are not entitled to exercise the rights of members to attend and, at the chairman’s discretion, speak at a general meeting.

(k) Participation in meetings at different places and by electronic means (Articles 59, 60 and 61) 
Amendments made to the 2006 Act by the Shareholders’ Rights Regulations specifically provide for the holding and conducting of electronic meetings. The New Articles include amendments to permit the directors to provide greater scope for members to participate in meetings of the company even if they are not present in person at the principal place where the meeting is being held. The amendments permit the directors to allow for members to participate not only by attendance at satellite meeting locations, but also by any other electronic means of participation.

(l) Removal of chairman’s casting vote (Former Article 82)

Pursuant to changes brought about by the Shareholders’ Rights Regulations, a listed company is no longer permitted to allow the chairman to have a casting vote in the event of an equality of votes. Accordingly, this provision has been removed in the New Articles.

(m) Voting rights (Article 74)

The Shareholders’ Rights Regulations clarify the various powers of proxies and representatives of corporate members in respect of resolutions taken on a show of hands. Where a proxy has been duly appointed by one member, he or she has one vote on a show of hands unless he or she has been appointed by more than one member in which case the proxy has one vote for and one vote against if the proxy has been appointed by one or more members to vote for the resolution and by one or more other members to vote against the resolution. Where a corporate member appoints representatives to attend meetings on its behalf, each representative duly appointed by a corporate member has one vote on a show of hands. If a proxy is instructed by one or more members to vote in one way and is given discretion as to how to vote by one or more other members (and wishes to use that discretion to vote in the other way) he also has one vote for and one vote against the resolution.

(n) Voting record date (Article 75)

In line with a requirement for listed companies introduced by the Shareholders’ Rights Regulations, the New Articles include a new provision, which was not previously in the company’s articles of association, dealing with the method for determining which persons are allowed to attend or vote at a general meeting of the company and how many votes each person may cast. Under this new provision, when convening a meeting the company may specify a time, not more than 48 hours before the time of the meeting (excluding any part of a day that is not a working day), by which a person must be entered on the register of members in order to have the right to attend or vote at the meeting.

(o) Validity of proxy votes (Article 79(2))

Following the implementation of the Shareholders’ Rights Regulations, proxies are expressly required to vote in accordance with instructions given to them by members. The New Articles contain a provision stating that the company is not required to enquire whether a proxy or corporate representative has voted in accordance with instructions given to him or her and that votes cast by a proxy or corporate representative will be valid even if he or she has not voted in accordance with his or her instructions.

(p) Receipt of appointments of proxy and termination of proxy authority (Article 83) 
The deadlines for receipt of termination of proxy authority have been brought into line with the deadlines for receipt of proxies. Article 83 also permits the directors to specify, in a notice of meeting, that in determining the time for delivery of proxies, no account shall be taken of non-working days.

(q) Alternate directors (Article 97)

Article 97(c) makes it clear that an alternate is subject to the same restrictions as the director who appointed him.

(r) Borrowing powers (Article 101)

A number of presentational and descriptive amendments have been made to the borrowing powers provision.

(s) Delegation to persons or committees (Article 102)

Under the company’s existing articles of association, the directors may only formally delegate their powers in certain limited ways. Article 102 follows a simplified approach to delegation to modernise the procedure for delegation, allowing the directors to delegate as they decide appropriate, in line with the approach adopted in the model form articles.

(t) Retirement of directors by rotation (Article 103)

The New Articles have been redrafted in order to make this provision clearer and to ensure (as far as possible) a regular number of retiring directors each year, with the number to retire being the number nearest to one-third of the board, excluding those directors who are retiring and seeking re-election for other reasons. Article 103 continues to comply with Combined Code provision A.7.1 which recommends that all directors should be subject to re-election at intervals of no more than three years.

(u) Directors’ appointments, interests and conflicts of interest (Article 114)

Under the company’s current articles of association, a director may, notwithstanding his or her office as a director of the company, be a director, officer or employee of any body corporate in which the company is interested – provided that he or she has disclosed to the other directors the nature and extent of any material interest he or she has.

In the New Articles, this provision has been amended to include provisions relating to confidential information, attendance at board meetings and availability of board papers to protect a director from being in breach of duty if a conflict of interest or potential conflict of interest arises. These provisions will only apply where the position giving rise to the potential conflict falls within the situations covered by Article 114.

Article 114 has also been further amended for practical reasons so that, where a director is also a director, officer or employee of a body corporate in which the company is interested, he shall be deemed to have disclosed the nature and extent of this interest to the directors 
as required under this provision.

(v) Procedures regarding board meetings and resolutions in writing (Articles 119 and 124)

The provisions of Article 119 have been amended to make it clear that notice of a board meeting may be given personally, by telephone, in hard copy or in electronic form. The requirements for giving notice to directors who are not in the United Kingdom have also been clarified. In order to clarify the procedure for written resolutions of directors, Article 124 has been amended so that, rather than referring to a resolution in writing by all directors, a resolution in writing will be valid and effectual as if it had been passed at a meeting if executed by all the directors entitled to receive notice of the meeting and who would have been entitled to vote (and whose vote would have been counted) on a resolution at a meeting.

(w) Permitted interests and voting (Article 125)

Article 125 has been amended to allow a director to vote on a resolution which relates to giving him an indemnity or funding for expenditure incurred in defending proceedings provided all the other directors have been given or are to be given arrangements on substantially the same terms. This exception has become a common exception for listed companies to include.

(x) Removal of age limit for directors (Former Article 124)

The provision requiring a director’s age to be disclosed, in a notice of meeting at which that director is to be appointed or reappointed, if that director has attained the age of 70 years or more, has been removed from the New Articles to reflect the repeal of the previous provisions regarding directors over 70 from the Companies Act 1985.

(y) Notices and other communications (Articles 82, 148-157)

The 2006 Act enables companies to communicate with their members by electronic communication to a greater extent than previously permitted. Article 149 will provide the company with a general power to send or supply any notice, document or information to any member by a variety of methods – in person, by post or in electronic form (such as by email), or by making it available on the company’s website. In addition to any notice, document or information which is specifically required to be sent or supplied under the 2006 Act, the company will also be able to send any other document or information to members using this variety of methods.

Article 82 allows the company to permit proxies to be sent or supplied in electronic form and, where the company gives an electronic address in a form of proxy, shareholders may send the appointment of proxy to that electronic address, subject to any conditions or limitations specified in the relevant notice of meeting.

The company may ask each member for his or her consent to receive communications from the company via its website. If the member does not respond to the request for consent within 28 days, the company may take that as consent by the member to receive communications in this way. If the company sends or supplies any notice, document or information to members by making it available on the company’s website, it must notify each member who has consented (or is deemed to have consented) to receive documents via the website, either by post or by email (if the member has specifically agreed to receive communications in electronic form), that the notice, document or information has been placed on the website. A member who has consented or is deemed to have consented to receive communications via the website can request a hard copy of any document at any time. Members can also revoke their consent to receive electronic communications at any time.

In relation to joint holders of shares, Article 149(3) provides that the agreement of the first-named holder on the register of members to 
accept notices, documents or information electronically or via a website shall be binding on the other joint holders. Article 149(4) permits 
the company not to send or supply any notice, document or information to a member whose registered address is not in the United Kingdom unless that member gives a non-electronic address in the United Kingdom.

Article 149(6) caters for situations where the provision of corporate information in electronic form or via a website may amount to a breach 
of securities laws of another jurisdiction. The company may send hard copies if it needs to restrict the circulation of information in certain circumstances, such as for US securities law reasons.

Article 152 is the article covering service of notice in the event of a postal strike; it has been amended to allow the company in such circumstances to serve notices only on those members who receive notices via electronic means, provided that, as before, the company also puts an advert in two national newspapers and sends a confirmatory hard copy notice if the postal service is available again within seven days of the meeting.

Article 156 deals with notices, documents or information sent by the company to a member which have been returned undelivered on 
three consecutive occasions. The member will only be entitled to be sent further communications upon provision of a new postal or electronic address to the company.

Article 157 is included to deal with the validation of documents in electronic form by members where required by the Articles. In the case 
of notices of meetings or proxies, any validation requirements must be specified in the notice.

(z) Making and retention of minutes (Article 130)

Article 130 contains a new provision to the effect that minutes must be retained for at least ten years, reflecting the relevant provision of the 2006 Act. (No minimum retention time was specified previously.)

(aa) The seal (Articles 132 and 133)

Article 132 provides an alternative option (in the absence of specific instructions from the directors) for documents (other than share certificates) to which the seal is affixed to be signed by one authorised person in the presence of a witness, in addition to either two directors or a director and the secretary.

6. Period of Notice for Calling General Meetings (Resolution 14)

Resolution 14 is a resolution to allow the company to hold general meetings (other than AGMs) on 14 days’ notice.

Before the introduction of the Shareholders’ Rights Regulations on 3 August 2009, the minimum notice period permitted by the 2006 Act for general meetings (other than AGMs) was 14 days. One of the amendments made to the 2006 Act by the Regulations was to increase the minimum notice period for general meetings of listed companies to 21 days, but with an ability for companies to reduce this period back to 14 days (other than for AGMs) provided that two conditions are met. The first condition is that the company offers a facility for shareholders to vote by electronic means. This condition is met if the company offers a facility, accessible to all shareholders, to appoint a proxy by means of a website. The second condition is that there is an annual resolution of shareholders approving the reduction of the minimum notice period from 21 days to 14 days.

The board is therefore proposing Resolution 14 as a special resolution to approve 14 days as the minimum period of notice for all general meetings of the company other than AGMs. The approval will be effective until the company’s next AGM, when it is intended that the approval be renewed. The board will consider on a case by case basis whether the use of the flexibility offered by the shorter notice period is merited, taking into account the circumstances, including whether the business of the meeting is time sensitive.

^