Corporate Governance

1. Executive Committee Terms of Reference

DUTIES/POWERS
The duties and powers of the Committee shall be:

• to deal with all matters remitted to it by the Board on the terms, if any, set by the Board:
• between Board meetings to supervise the executive and operational management of the Group:
• in the case of emergency or when it is impracticable to convene a Board meeting or to obtain a written resolution of the Board in accordance with the Company's Articles of Association from time to time, and the interests of the Company would be prejudiced by delay, the Committee shall take steps to contact all directors and, having done so, and taken account of the views of those it has been possible to contact, shall have power to act as it then sees fit on behalf of the Board. The Committee shall report any such actions and the reasons for taking them, to the Board as soon as practicable;
• agree the terms of, and release, Stock Exchange announcements, such power to be delegated to the Group Finance Director subject to his agreeing any such announcement with all fellow Committee members available for discussion within the required timescale.

MEMBERSHIP
The members of the Committee shall be the executive directors and the Chairman.

ATTENDANCE
Members of the Committee may appoint suitable alternates to represent them either at a specific meeting or generally, but such alternates shall not be counted as part of the required quorum.

CHAIRMAN
The Chief Executive shall chair the Committee.

SECRETARY
The Company Secretary shall be secretary of the Committee.

QUORUM
The quorum shall be governed by the Company's Articles of Association from time to time.

MINUTES
The minutes of meetings of the Committee shall be circulated to all members of the Committee and made available on request to other members of the Board.

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2. Audit Committee Terms of Reference

DUTIES
The duties of the Committee shall be to:

• make recommendations to the board of the Company on the appointment of the external auditor, the audit fee, and any questions of resignation or dismissal of the external auditor;
• discuss and agree with the external auditor before the audit commences the nature and scope of the audit;
• review from time to time the cost effectiveness of the audit and the independence and objectivity of the external auditor;
• review from time to time the policy on the engagement of the external auditor to supply non audit services;
• review the interim and annual financial statements before submission to the board focusing particularly on:
  • (i) any changes in accounting policies and practice;
    (ii) major judgemental areas;
    (iii) significant adjustments resulting from the audit;
    (iv) the going concern assumption;
    (v) compliance with financial reporting and accounting standards;
    (vi) compliance with stock exchange and legal requirements;
• monitor the integrity of the financial statements and discuss problems and reservations arising from the interim and final audits, and any matters the auditor may wish to discuss (in the absence of management where necessary);
• review the external auditor's management letter and management's response;
• review, on behalf of the Board the Group's system of internal control (including financial, operational, compliance and risk management) and make recommendations to the Board;
• review the internal audit programme, ensure co-ordination between the internal and external auditors, monitor and review the effectiveness of the internal audit function and ensure that it is adequately resourced and has appropriate standing within the Group;
• consider the material findings of internal investigations and management's response;
• review the Group's operating and financial and accounting policies and practices;
• review arrangements by which employees of the Company may, in confidence, raise concerns about possible improprieties and for appropriate investigation of such matters;
• consider other topics as defined by the Board;
• report on all of the above matters to the Board.

AUTHORITY
The Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee.

MEMBERSHIP
The members of the Committee shall be at least three independent non executive directors. At least one member of the Committee shall have recent and relevant financial experience.

CHAIRMAN
The Chairman of the Committee shall be an independent non executive director appointed by the Board.

ATTENDANCE
The Group Finance Director, the Head of Audit and Business Services and a representative of the external auditors shall normally attend meetings by invitation. The Committee may also invite the Chairman of the Company, Chief Executive and any relevant employee to attend meetings. The invitees have no right of attendance. At least once a year the Committee shall meet with the external auditors without executive directors present.

SECRETARY
The Company Secretary shall be the secretary of the Committee.

FREQUENCY OF MEETINGS
Meetings shall be held not less than three times a year. The external auditors may request a meeting if they consider that one isnecessary.

ADVISERS
The Committee is authorised by the Board to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary.

QUORUM
The quorum of the Committee shall be governed by the Company's Articles of Association from time to time.

MINUTES
The minutes of meetings of the Committee shall be circulated to all members of the Committee and the Chairman of the Board, and made available on request to other members of the Board.

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3. Remuneration Committee Terms of Reference

DUTIES
The duties of the Committee shall be to:

• make recommendations to the Board on the Company's framework of executive remuneration and its cost;
• determine on behalf of the Board specific remuneration packages and conditions of employment (including pension rights) for the Chairman and executive directors and the next most senior category of executives (currently referred to as "Band 1");
• approve any contract of employment or related contract on behalf of the Company with executive directors;
• determine the terms of any compensation package in the event of early termination of contracts of any executive director;
• make recommendations to the Board regarding the content of the directors' remuneration report;
• operate the Company's long-term incentive plan (and any other incentive arrangements involving the issue or transfer of shares in the Company, other than all-employee schemes) ("share-based schemes");
• approve any payments in lieu of, or by way of compensation for loss of, any benefit which would or might otherwise have arisen under any share-based scheme;
• approve the provision of any pension benefit which is additional to, or in excess of, the benefits available under the Company's pension scheme

INFORMATION
The following matters shall be brought to the attention of the Committee:

• proposals for the Company's annual pay award to employees generally;
• any significant anomalies or inconsistencies in remuneration within the Group (either in respect of an individual or individuals or between Group companies);
• the principal elements of remuneration packages for senior executives below those mentioned under "duties" above (currently referred to as "Band 2");
• the terms of any compensation package for individuals in Band 1;
• any significant departure from the standard service contract (from time to time) in respect of individuals in Band 1.

MEMBERSHIP
The members of the Committee shall be at least three independent non executive directors.

ATTENDANCE
The Chief Executive shall be invited to attend meetings to discuss the performance of executive directors and make proposals as necessary.

The Chief Executive will also report to the Committee on significant group-wide changes in salary structure and terms and conditions affecting other officers at senior executive level.

CHAIRMAN
The chairman of the Committee shall be appointed by the Board.

ADVISERS
The Committee shall be entitled to seek appropriate professional advice inside and outside the Group.

SECRETARY
The Company Secretary shall be the secretary of the Committee.

QUORUM
The quorum of the Committee shall be governed by the Company's Articles of Association from time to time.

MINUTES
The minutes of meetings of the Committee shall be circulated to all members of the Committee and made available on request to other members of the Board.

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4. Nominations Committee Terms of Reference

DUTIES
The duties of the Committee shall be:

• To review regularly the structure, size and composition of the Board, the audit committee, remuneration committee and make recommendations to the board with regard to any adjustments that are deemed necessary.
• With regard to;
• (1) the appointment of the Chairman,
• to prepare a description of the role and capabilities required for the appointment and to be responsible for identifying and nominating for the approval of the Board candidates for appointment to the Board;
• (2) the appointment of the Chief Executive,
• to provide advice and recommendations to the Board in respect of candidates identified by and nominated by the Chairman for approval of the Board;
• (3) the appointment of an executive director,
• to provide advice and recommendations to the Board, at the request of the board, the Chairman or the Chief Executive, in respect of candidates identified by and nominated by the Chief Executive for approval of the Board;
• (4) the appointment of a non executive director,
• to provide advice and recommendations to the Board, at the request of the Board, the Chairman the Chief Executive, in respect of candidates identified by and nominated by the Chairman for approval of the Board;
• (5) the re-appointment of any non executive director (whether at the conclusion of his or her specified term of office or the re-election by shareholders of any director under the retirement by rotation provisions in the Company's Articles of Association).
• to consider the said re-appointment, at the request of the Board, the Chairman or the Chief Executive.

MEMBERSHIP
The members of the Committee shall be a chairman and at least two other members. A majority of the members of the Committee shall be independent non executive directors.

CHAIRMAN
The chairman of the Committee shall be the Chairman or a non-executive director appointed by the Board, provided that the Chairman shall not chair the Committee when it is dealing with the appointment of a successor to the Chairmanship of the Board.

ADVISERS
The Committee shall be entitled to seek appropriate professional advice inside and outside the group.

SECRETARY
The Company Secretary shall be secretary of the Committee.

QUORUM
The quorum of the Committee shall be governed by the Company's Articles of Association from time to time.

MINUTES
The minutes of meetings of the Committee shall be circulated to all members of the Committee and to the Chairman, and made available on request to other members of the Board.

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5. Corporate Social Responsibility Committee Terms of Reference

DUTIES
The duties of the Committee shall be to:

• determine the high level agenda for the work of the Environmental Panel and the Society Forum ;
• determine an agenda for the key issues to be addressed by the Group, through the involvement of the Environment Panel and Society Froum or Group personnel;
• select appropriate criteria against which the environmental and corporate social responsibility performance of the Group can be monitored and judged;
• recommend to the Board the environmental policy of the Group and any changes to such policy;
• recommend to the Board the corporate social responsibility policy of the Group and any changes to such policy;
• report on the above matters to the Board.

• delivery of the Group's annual CSR report;
• the creation of a culture of environmental and corporate social responsibility awareness within the Group.

The Committee shall receive regular reports from the Environmental Panel and Society Forum.

MEMBERSHIP
The members of the Committee shall be as determined from time to time by the Board.

ATTENDANCE
The Committee may invite members of the Environment Panel and Society Forum to attend its meetings from time to time.

CHAIRMAN
The chairman of the Committee shall be a non-executive director appointed by the Board.

ADVISERS
The Committee shall be entitled to seek appropriate professional advice inside and outside the Group.

SECRETARY
The Company Secretary shall be the secretary of the Committee.

QUORUM
The quorum of the Committee shall be governed by the Company's Articles of Association from time to time.

MINUTES
The minutes of meetings of the Committee shall be circulated to all members of the Committee and made available on request to other members of the Board.

Approved By: Kelda Group Plc Board

Approved On: 27/06/2006

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