20-F

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON March 25, 2011

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 20-F

(Mark One)
o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
or
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2010
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from               to
or
o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	Date of event requiring this shell company report

Commission file number 1-16055

PEARSON PLC

(Exact name of Registrant as specified in its charter)

England and Wales

(Jurisdiction of incorporation or organization)

80 Strand

London, England WC2R 0RL

(Address of principal executive offices)

Stephen Jones

Telephone: +44 20 7010 2000

Fax: +44 20 7010 6060

80 Strand

London, England WC2R 0RL

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Class	Name of Each Exchange on Which Registered
*Ordinary Shares, 25p par value American Depositary Shares, each Representing One Ordinary Share, 25p per Ordinary Share	New York Stock Exchange New York Stock Exchange

* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the SEC.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock at the close of the period covered by the annual report:

Ordinary Shares, 25p par value 812,677,377

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes o     No þ

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated file” and “large accelerated filer”, in Rule 12b-2 of the Exchange Act. (Check one):

þ Large accelerated filer o Accelerated filer o Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing

o US GAAP þ International financial Reporting Standards as Issued by the
International Accounting Standards Board o Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:

Item 17 o Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes o No þ

TABLE OF CONTENTS

		Page
	Introduction		4
	Forward-Looking Statements		4
PART I
Item 1.	Identity of Directors, Senior Management and Advisers		6
Item 2.	Offer Statistics and Expected Timetable		6
Item 3.	Key Information		6
	Selected Consolidated Financial Data		6
	Dividend Information		7
	Exchange Rate Information		7
	Risk Factors		8
Item 4.	Information on the Company		12
	Pearson plc		12
	Overview of Operating Divisions		12
	Our Strategy		12
	Operating Divisions		13
	Operating Cycles		16
	Competition		16
	Intellectual Property		17
	Raw Materials		17
	Government Regulation		17
	Licenses, Patents and Contracts		17
	Legal Proceedings		17
	Recent Developments		17
	Organizational Structure		18
	Property, Plant and Equipment		18
	Capital Expenditures		19
Item 4A.	Unresolved Staff Comments		19
Item 5.	Operating and Financial Review and Prospects		19
	General Overview		19
	Results of Operations		22
	Liquidity and Capital Resources		37
	Accounting Principles		40
Item 6.	Directors, Senior Management and Employees		40
	Directors and Senior Management		40
	Compensation of Senior Management		41
	Share Options of Senior Management		48
	Share Ownership of Senior Management		49
	Employee Share Ownership Plans		49
	Board Practices		50
	Employees		50
Item 7.	Major Shareholders and Related Party Transactions		51
Item 8.	Financial Information		52
Item 9.	The Offer and Listing		52

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		Page
Item 10.	Additional Information		53
	Articles of Association		53
	Material Contracts		57
	Exchange Controls		58
	Tax Considerations		58
	Documents on Display		60
Item 11.	Quantitative and Qualitative Disclosures about Market Risk		60
	Introduction		60
	Interest Rates		61
	Currency Exchange Rates		61
	Forward Foreign Exchange Contracts		62
	Derivatives		62
	Quantitative Information about Market Risk		63
Item 12.	Description of Securities Other Than Equity Securities		63
Item 12D.	American Depositary Shares		63
	Fees paid by ADR holders		63
	Fees incurred in past annual period and fees to be paid in the future		63
PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies		65
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		65
Item 15.	Controls and Procedures		65
	Disclosure Controls and Procedures		65
	Management’s Annual Report on Internal Control over Financial Reporting		65
	Change in Internal Control over Financial Reporting		65
Item 16A.	Audit Committee Financial Expert		65
Item 16B.	Code of Ethics		66
Item 16C.	Principal Accountant Fees and Services		66
Item 16D.	Exemptions from the Listing Standards for Audit Committees		66
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchases		67
Item 16F.	Changes in Registrant’s Certifying Auditor		67
Item 16G.	Corporate Governance		67
PART III
Item 17.	Financial Statements		67
Item 18.	Financial Statements		67
Item 19.	Exhibits		67
EX-1.1
EX-2.7
EX-8.1
EX-12.1
EX-12.2
EX-13.1
EX-13.2
EX-15

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INTRODUCTION

In this Annual Report on Form 20-F (the “Annual Report”) references to “Pearson”, the “Company” or the “Group” are references to Pearson plc, its predecessors and its consolidated subsidiaries, except as the context otherwise requires. “Ordinary Shares” refer to the ordinary share capital of Pearson of par value 25p each. “ADSs” refer to American Depositary Shares which are Ordinary Shares deposited pursuant to the Deposit Agreement dated March 21, 1995, amended and restated as of August 8, 2000 among Pearson, The Bank of New York as depositary (the “Depositary”) and owners and holders of ADSs (the “Deposit Agreement”). ADSs are represented by American Depositary Receipts (“ADRs”) delivered by the Depositary under the terms of the Deposit Agreement.

We have prepared the financial information contained in this Annual Report in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) which in respect of the accounting standards applicable to the Group do not differ from IFRS as adopted by the European Union (“EU”). Unless we indicate otherwise, any reference in this Annual Report to our consolidated financial statements is to the consolidated financial statements and the related notes, included elsewhere in this Annual Report.

We publish our consolidated financial statements in sterling. We have included, however, references to other currencies. In this Annual Report:

•  references to “sterling”, “pounds”, “pence” or “£” are to the lawful currency of the United Kingdom,

•  references to “euro” or “€” are to the euro, the lawful currency of the participating Member States in the Third Stage of the European Economic and Monetary Union of the Treaty Establishing the European Commission, and

•  references to “US dollars”, “dollars”, “cents” or “$” are to the lawful currency of the United States.

For convenience and except where we specify otherwise, we have translated some sterling figures into US dollars at the rate of £1.00 = $1.54, the noon buying rate in The City of New York for cable transfers and foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes on December 31, 2010, the last business day of 2010. We do not make any representation that the amounts of sterling have been, could have been or could be converted into dollars at the rates indicated. On February 28, 2011 the noon buying rate for sterling was £1.00 = $1.62.

The Group consists of three major worldwide businesses, Pearson Education, The FT Group (“FT”) and the Penguin Group (“Penguin”). See “Item 4. Information on the Company — Overview of operating divisions”.

FORWARD-LOOKING STATEMENTS

You should not rely unduly on forward-looking statements in this Annual Report. This Annual Report, including the sections entitled “Item 3. Key Information — Risk Factors”, “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects”, contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terms such as “may”, “will”, “should”, “expect”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or the negative of these terms or other comparable terminology. Examples of these forward-looking statements include, but are not limited to, statements regarding the following:

•  operations and prospects,

•  growth strategy,

•  funding needs and financing resources,

•  expected financial position,

•  market risk,

•  currency risk,

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•  US federal and state spending patterns,

•  debt levels, and

•  general market and economic conditions.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. In evaluating them, you should consider various factors, including the risks outlined under “Item 3. Key Information — Risk Factors”, which may cause actual events or our industry’s results to differ materially from those expressed or implied by any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

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PART I

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.   KEY INFORMATION

Selected consolidated financial data

Following the publication of SEC Release No 33-8879 “Acceptance From Foreign Private Issuers of Financial Statements Prepared in Accordance With International Financial Reporting Standards Without Reconciliation to U.S. GAAP”, the Group no longer provides a reconciliation between IFRS and U.S. GAAP.

The table below shows selected consolidated financial data under IFRS as issued by the IASB. The selected consolidated profit and loss account data for the years ended December 31, 2010, 2009 and 2008 and the selected consolidated balance sheet data as at December 31, 2010 and 2009 have been derived from our audited consolidated financial statements included in “Item 18. Financial Statements” in this Annual Report.

The results of the Interactive Data business (disposed in July 2010) have been included in discontinued operations for all the years to 2010. The results of the Data Management business (disposed in February 2008) have been included in discontinued operations for all years to 2008. The results of Government Solutions (disposed in February 2007) and Les Echos (disposed in December 2007) have been included in discontinued operations for all the years to 2007.

The selected consolidated financial information should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report. The information provided below is not necessarily indicative of the results that may be expected from future operations.

For convenience, we have translated the 2010 amounts into US dollars at the rate of £1.00 = $1.54, the noon buying rate in The City of New York for cable transfers and foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes on December 31, 2010.

	Year Ended December 31
	2010			2010			2009			2008			2007			2006
	$			£			£			£			£			£
	(In millions, except for per share amounts)
Consolidated Income Statement data
Total sales		8,721			5,663			5,140			4,405			3,818			3,658
Total operating profit		1,144			743			619			564			484			440
Profit after taxation from continuing operations		807			524			377			344			274			405
Profit for the financial year		2,002			1,300			462			323			310			469
Consolidated Earnings data per share
Basic earnings per equity share(1)	$	2.49			161.9p			53.2p			36.6p			35.6p			55.9p
Diluted earnings per equity share(2)	$	2.49			161.5p			53.1p			36.6p			35.6p			55.8p
Basic earnings from continuing operations per equity share(1)	$	1.02			66.0p			47.0p			42.9p			34.1p			50.6p
Diluted earnings from continuing operations per equity share(2)	$	1.01			65.9p			47.0p			42.9p			34.1p			50.5p
Dividends per ordinary share	$	0.60			38.7p			35.5p			33.8p			31.6p			29.3p
Consolidated Balance Sheet data at period end
Total assets (non-current assets plus current assets)		16,429			10,668			9,412			9,896			7,292			7,213
Net assets		8,632			5,605			4,636			5,024			3,874			3,644
Long-term obligations(3)		(4,344	)		(2,821	)		(3,051	)		(2,902	)		(1,681	)		(1,853	)
Capital stock		313			203			203			202			202			202
Number of equity shares outstanding (millions of ordinary shares)		813			813			810			809			808			806

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Notes:

(1)	Basic earnings per equity share is based on profit for the financial period and the weighted average number of ordinary shares in issue during the period.
(2)	Diluted earnings per equity share is based on diluted earnings for the financial period and the diluted weighted average number of ordinary shares in issue during the period. Diluted earnings comprise earnings adjusted for the tax benefit on the conversion of share options by employees and the weighted average number of ordinary shares adjusted for the dilutive effect of share options.
(3)	Long-term obligations comprise any liabilities with a maturity of more than one year, including medium and long-term borrowings, derivative financial instruments, pension obligations and deferred income tax liabilities.

Dividend information

We pay dividends to holders of ordinary shares on dates that are fixed in accordance with the guidelines of the London Stock Exchange. Our board of directors normally declares an interim dividend in July or August of each year to be paid in September or October. Our board of directors normally recommends a final dividend following the end of the fiscal year to which it relates, to be paid in the following May or June, subject to shareholders’ approval at our annual general meeting. At our annual general meeting on April 28, 2011 our shareholders will be asked to approve a final dividend of 25.7p per ordinary share for the year ended December 31, 2010.

The table below sets forth the amounts of interim, final and total dividends paid in respect of each fiscal year indicated, and is translated into cents per ordinary share at the noon buying rate in The City of New York on each of the respective payment dates for interim and final dividends. The final dividend for the 2010 fiscal year will be paid on May 6, 2011.

Fiscal year	Interim		Final		Total		Interim		Final			Total
	(Pence per ordinary share)						(Cents per ordinary share)
2010		13.0		25.7		38.7		20.3		39.6	*		59.9
2009		12.2		23.3		35.5		19.8		34.3			54.1
2008		11.8		22.0		33.8		21.6		33.2			54.8
2007		11.1		20.5		31.6		22.4		39.9			62.3
2006		10.5		18.8		29.3		20.0		31.4			51.4

* As the 2010 final dividend had not been paid by the filing date, the dividend has been translated into cents using the noon buying rate for sterling at December 31, 2010.

Future dividends will be dependent on our future earnings, financial condition and cash flow, as well as other factors affecting the Group.

Exchange rate information

The following table sets forth, for the periods indicated, information concerning the noon buying rate for sterling, expressed in dollars per pound sterling. The average rate is calculated by using the average of the noon buying rates in The City of New York on each day during a monthly period and on the last day of each month during an annual period. On December 31, 2010 the noon buying rate for cable transfers and foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes for sterling was £1.00 = $1.54. On February 28, 2011 the noon buying rate for sterling was £1.00 = $1.62.

Month	High		Low
February 2011	$	1.62	$	1.60
January 2011	$	1.60	$	1.55
December 2010	$	1.59	$	1.54
November 2010	$	1.63	$	1.56
October 2010	$	1.60	$	1.57
September 2010	$	1.59	$	1.53

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Year Ended December 31	Average rate
2010	$	1.54
2009	$	1.57
2008	$	1.84
2007	$	2.01
2006	$	1.84

Risk factors

You should carefully consider the risk factors described below, as well as the other information included in this Annual Report. Our business, financial condition or results from operations could be materially adversely affected by any or all of these risks, or by other risks that we presently cannot identify.

Our education, business information and book publishing businesses will be impacted by the rate of and state of technological change, including the digital evolution and other disruptive technologies.

A common trend facing all our businesses is the digitization of content and proliferation of distribution channels, either over the internet, or via other electronic means, replacing traditional print formats. The digital migration brings the need for change in product distribution, consumers’ perception of value and the publisher’s position between retailers and authors, which affects managing stock levels. The trend to e-books has created contraction in the consumer books retail market which increases the risk of bankruptcy of a major retail customer; this could disrupt short-term product supply to the market as well as could result in a large debt write off.

We face competitive threats both from large media players and from smaller businesses, online and mobile portals and news redistributors operating in the digital arena and providing alternative sources of news and information. New distribution channels, e.g. digital format, the internet, online retailers, growing delivery platforms (e.g. e-readers), combined with the concentration of retailer power pose both threats and opportunities to our traditional consumer publishing models, potentially impacting both sales volumes and pricing.

If we do not adapt rapidly to these changes we may lose business to ‘faster’ more ‘agile’ competitors, who increasingly are non-traditional competitors, i.e. technology companies, making their identification all the more difficult. We may be required to invest significant resources to further adapt to the changing competitive environment.

Investment returns outside our traditional core US and UK markets may be lower than anticipated.

To take advantage of international growth opportunities and to reduce our reliance on our core US and UK markets we are increasing our investments in a number of emerging markets, some of which are inherently more risky than our traditional markets. Political, regulatory, economic and legal systems in emerging markets may be less predictable than in countries with more developed institutional structures. Political, regulatory, economic, currency, reputational and corporate governance risks (including fraud) as well as unmanaged expansion are all factors which could limit our returns on investments made in these markets.

Our US educational solutions and assessment businesses may be adversely affected by changes in state and local educational funding resulting from either general economic conditions, changes in government educational funding, programs, policy decisions, legislation at both at the federal and state level and/or changes in the state procurement processes.

The results and growth of our US educational solutions and assessment businesses are dependent on the level of federal and state educational funding, which in turn is dependent on the robustness of state finances and the level of funding allocated to educational programs. State, local and municipal finances have been adversely affected by the US recession and the unknown timing of economic recovery. Funding pressures remain, with competition from low price and disruptive new business models and promotion of open source to keep costs down. The current challenging environment could impact our ability to collect on education-related debt.

Federal and/or state legislative changes can also affect the funding available for educational expenditure, which include the impact of education reform, such as the reauthorization of the Elementary and Secondary Education Act, the introduction of the Common Core and Race to the Top funding. Similarly changes in the state

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procurement process for textbooks, learning material and student tests, particularly in the adoptions market can also affect our markets. For example, changes in curricula, delays in the timing of the adoptions and changes in the student testing process can all affect these programs and therefore the size of our market in any given year.

There are multiple competing demands for educational funds and there is no guarantee that states will fund new textbooks or testing programs, or that we will win this business.

A control breakdown or service failure in our school assessment businesses could result in financial loss and reputational damage.

There are inherent risks associated with our school assessment businesses, both in the US and the UK. A service failure caused by a breakdown in our testing and assessment processes could lead to a mis-grading of student tests and/or late delivery of test results to students and their schools. In either event we may be subject to legal claims, penalty charges under our contracts, non-renewal of contracts and/or the suspension or withdrawal of our accreditation to conduct tests. It is also possible that such events would result in adverse publicity, which may affect our ability to retain existing contracts and/or obtain new customers.

Our reported earnings and cash flows may be adversely affected by changes in our pension costs and funding requirements.

We operate a number of pension plans throughout the world, the principal ones being in the UK and the US. The major plans are self-administered with the plans’ assets held independently of the Group. Regular valuations, conducted by independent qualified actuaries, are used to determine pension costs and funding requirements. As these assets are invested in the capital markets, which are often volatile, the plans may require additional funding from us, which could have an adverse impact on our results.

It is our policy to ensure that each pension plan is adequately funded, over time, to meet its ongoing and future liabilities. Our earnings and cash flows may be adversely affected by the need to provide additional funding to eliminate pension fund deficits in our defined benefit plans. Our greatest exposure relates to our UK defined benefit pension plan, which is valued once every three years. Pension fund deficits may arise because of inadequate investment returns, increased member life expectancy, changes in actuarial assumptions and changes in pension regulations, including accounting rules and minimum funding requirements.

Our intellectual property and proprietary rights may not be adequately protected under current laws in some jurisdictions and that may adversely affect our results and our ability to grow.

Our products and services largely comprise intellectual property delivered through a variety of media, including newspapers, books, the internet and other growing delivery platforms. We rely on trademark, copyright and other intellectual property laws to establish and protect our proprietary rights in these products and services.

We cannot be sure that our proprietary rights will not be challenged, invalidated or circumvented. Our intellectual property rights in countries such as the US and the UK, jurisdictions covering the largest proportion of our operations, are well established. However, we also conduct business in other countries where the extent of effective legal protection for intellectual property rights is uncertain, and this uncertainty could affect our future growth. Moreover, despite trademark and copyright protection, third parties may copy, infringe or otherwise profit from our proprietary rights without our authorization.

These unauthorized activities may be more easily facilitated by the internet. The lack of internet-specific legislation relating to trademark and copyright protection creates an additional challenge for us in protecting our proprietary rights relating to our online business processes and other digital technology rights. The loss or diminution in value of these proprietary rights or our intellectual property could have a material adverse effect on our business and financial performance.

In that regard, Google reached a tentative settlement in 2008 with the Author’s Guild and the Association of American Publishers over Google’s plans to copy the full text of all books ever published without permission of the copyright owners, including Pearson. The agreement was revised in 2009 to narrow the definition of books covered under the settlement agreement to those registered with the US Copyright Office by January 2009 or published in Australia, UK, Canada or US. Subject to final court approvals, the settlement would allow copyright owners of

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books covered by it to control the online display of those books by Google, with a sharing of revenues derived from that display. The amended settlement agreement has yet to be approved.

A major data privacy breach may cause reputational damage to our brands and financial loss.

Across our businesses we hold large volumes of personal data including that of employees, customers and, in our assessment businesses, students and citizens. Individuals may try to gain unauthorized access to our data in order to misappropriate such information for potentially fraudulent purposes. As the techniques used to gain unauthorized access change frequently, we may be unable to anticipate or protect against the threat of breaches. Failure to adequately protect personal data could lead to penalties, significant remediation costs, reputational damage, potential cancellation of some existing contracts and inability to compete for future business.

Operational disruption to our business caused by our third party providers, a major disaster and/or external threats could restrict our ability to supply products and services to our customers.

Across all our businesses, we manage complex operational and logistical arrangements including distribution centers, data centers and large office facilities as well as relationships with third party print sites. We have also outsourced some support functions, including information technology, to third party providers. The failure of third parties to whom we have outsourced business functions could adversely affect our reputation and financial condition. Failure to recover from a major disaster, (e.g. fire, flood etc) at a key facility or the disruption of supply from a key third party vendor or partner (e.g. due to bankruptcy) could restrict our ability to service our customers. Similarly external threats, such as a flu pandemic, terrorist attacks, strikes, weather etc, could all affect our business and employees, disrupting our daily business activities.

Changes in students’ buying and distribution behaviour put downward pressure on price.

Students are seeking cheaper sources of content, e.g. online discounters, file sharing, use of pirated copies, and rentals, along with open source. This change in behaviour, along with the move from professor-centric decision-making, puts downward pressure on textbook prices in our major markets.

Our professional services and school assessment businesses involve complex contractual relationships with both government agencies and commercial customers for the provision of various testing services. Our financial results, growth prospects and/or reputation may be adversely affected if these contracts and relationships are poorly managed.

These businesses are characterized by multi-million pound sterling contracts spread over several years. As in any contracting business, there are inherent risks associated with the bidding process, start-up, operational performance and contract compliance (including penalty clauses) which could adversely affect our financial performance and/or reputation. Failure to retain these contracts at the end of the contract term could adversely impact our future revenue growth. At Edexcel, our UK Examination board and testing business, any change in UK Government policy to examination marking (e.g. price capping) could have a significant impact on our present business model.

We operate in markets which are dependent on Information Technology (IT) systems and technological change.

All our businesses, to a greater or lesser extent, are dependent on information technology. We either provide software and/or internet services to our customers or we use complex IT systems and products to support our business activities, particularly in business information publishing, back-office processing and infrastructure. We face several technological risks associated with software product development and service delivery in our educational businesses, information technology security (including virus and hacker attacks), e-commerce, enterprise resource planning system implementations and upgrades. Although plans and procedures are in place to reduce such risks, our businesses could be adversely affected if our systems and infrastructure experience a significant failure or interruption.

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Failure to generate anticipated revenue growth, synergies and/or cost savings from acquisitions could lead to goodwill and intangible asset impairments.

We continually acquire and dispose of businesses to achieve our strategic objectives. In 2010 we acquired Melorio plc, Medley Global Advisors LLC, Sistema Educacional Brasileiro, Wall Street Institute Education Sarl, America’s Choice Inc and several other small acquisitions, and we sold our interest in Interactive Data. Acquired goodwill and intangible assets could be impaired if we are unable to generate the anticipated revenue growth, synergies and/or cost savings associated with these or other acquisitions.

Expected benefits from our finance transformation programme initiatives may not be realised.

We have entered into a substantial finance transformation programme based around shared and common processes and services, including the outsourcing of financial transaction processing, which is expected to result in significant cost savings in future years. The programme may take longer than planned, cost more than planned, and may cause disruption to our business. There is no assurance that the full extent of the anticipated benefits will be realised in the timeline envisaged.

Changes in our tax position can significantly affect our reported earnings and cash flows.

Changes in corporate tax rates and/or other relevant tax laws in the UK and/or the US could have a material impact on our future reported tax rate and/or our future tax payments.

We generate a substantial proportion of our revenue in foreign currencies particularly the US dollar, and foreign exchange rate fluctuations could adversely affect our earnings and the strength of our balance sheet.

As with any international business our earnings can be materially affected by exchange rate movements. We are particularly exposed to movements in the US dollar to sterling exchange rate as approximately 60% of our revenue is generated in US dollars. Sales for 2010, translated at 2009 average rates, would have been £128m or 2% lower.

This is primarily a currency translation risk that only arises on consolidation and is the result of translating entities into sterling for reporting purposes (i.e. non-cash flow item), and not a trading risk (i.e. cash flow item) as our foreign currency trading cash flows in individual operating companies are relatively limited. See “Item 5. Operating and Financial Review and Prospects — General Overview, Exchange rate fluctuations”.

Each 5¢ change in the average £:$ exchange rate for the full year (which in 2010 was £1:$1.54) has a translation impact of approximately 1.3p on reported earnings per share and affect shareholders’ funds by approximately £115m.

The inherent volatility of advertising could adversely affect the profitability of our newspaper business.

Advertising revenue is susceptible to fluctuations in economic cycles. Certain of our products, such as the Financial Times newspaper, are more advertising-driven than our other products. Consequently, these products are more affected by decreases in advertising revenue. As the internet continues to grow as a global medium for information, communication and commerce, advertisers are increasingly shifting advertising dollars from print to online media. Any downturn in corporate and financial advertising spend due to the economic slowdown will negatively impact the results.

A significant deterioration in Group profitability and/or cash flow caused by a severe economic depression could reduce our liquidity and/or impair our financial ratios, and trigger a need to raise additional funds from the capital markets and/or renegotiate our banking covenants.

A prolonged and severe economic depression could significantly reduce the Group’s revenues, profitability and cash flows as customers would be unable to purchase products and services in the expected quantities and/or pay for them within normal agreed terms. A liquidity shortfall may delay certain development initiatives or may expose the Group to a need to negotiate further funding. If there was a steep decline in operating profit the Group might breach its banking covenants, creating (or exacerbating) a need for further funding (or a renegotiation of the terms of the bank credit agreement) to maintain operations. The current fragile state of the credit markets could expose the Group to a risk that it could neither re-negotiate its existing banking facilities, nor raise enough new

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funding, at a cost level that was sustainable for the business. Were this to occur, the inability to raise funding would likely lead to a curtailment in investment and growth plans, potential asset disposals (if possible), reduction or elimination in the dividend and in an extreme case a need to restructure the Group’s debt, business model and terms of trade. In such event, the value of the Group’s equity could not be assured.

Social, environmental and ethical risk.

We consider social, environmental and ethical (SEE) risks no differently to the way we manage any other business risk. Our 2009 risk assessment did not identify any significant under-managed SEE risks, nor have any of our most important SEE risks, many concerned with reputational risks, changed year on year. These are: journalistic/author integrity, ethical business behaviour, intellectual copyright protection, compliance with UN Global Compact standards, environmental impact, people and data privacy.

ITEM 4.   INFORMATION ON THE COMPANY

Pearson plc

Pearson plc, (Pearson) is an international media and education company with its principal operations in the education, business information and consumer publishing markets. We create and manage intellectual property, which we promote and sell to our customers under well-known brand names, to inform, educate and entertain. We deliver our content in a variety of forms and through a variety of channels, including books, newspapers and online services. We increasingly offer services as well as content, from test creation, administration and processing to teacher development and school software. Though we operate in more than 70 countries around the world, today our largest markets are the US (59% of sales) and Europe (21% of sales) on a continuing basis.

Pearson was incorporated and registered in 1897 under the laws of England and Wales as a limited company and re-registered under the UK Companies Act as a public limited company in 1981. We conduct our operations primarily through our subsidiaries and other affiliates. Our principal executive offices are located at 80 Strand, London WC2R 0RL, United Kingdom (telephone: +44 (0) 20 7010 2000).

Overview of operating divisions

Pearson consists of three major worldwide businesses:

Pearson Education is a leading provider of educational materials and learning technologies. It provides test development, processing and scoring services to governments, educational institutions, corporations and professional bodies around the world. It publishes across the curriculum and provides a range of education services including teacher development, educational software and system-wide solutions. In 2010, Pearson Education operated through three worldwide segments, which we refer to as “North American Education”, “International Education” and “Professional”:

The FT Group provides business and financial news, data, comment and analysis, in print and online, to the international business community. The FT Group includes the Financial Times newspaper and FT.com website, a range of specialist financial magazines and online services, and Mergermarket, which provides proprietary forward-looking insights and intelligence to businesses and financial institutions. During the year Pearson sold its 61% interest in Interactive Data, previously part of the FT Group.

The FT Group also has a 50% ownership stake in both The Economist Group and FTSE International.

The Penguin Group is one of the world’s leading consumer publishing businesses and an iconic global brand. We publish the works of many authors in an extensive portfolio of fiction, non-fiction and reference titles under imprints including Penguin, Hamish Hamilton, Putnam, Berkley, and Dorling Kindersley.

Our strategy

Our goal is to be the world’s leading ‘learning’ company, and to help people make progress in their lives through learning, wherever and whenever they are learning — young or old; at home, school or at work; and through whatever medium and style of learning is most effective.

We aim to produce consistent growth on three key financial measures — earnings per share, cash flow and return on invested capital — which we believe are, together, good indicators that we are building long-term value of Pearson.

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To achieve this goal, our strategy has four parts, common to all our businesses:

•  Long-term organic investment in content: We invest steadily in content such as new education programmes, new and established authors for Penguin and the FT Group’s journalism. We believe that this constant investment is critical to the quality and effectiveness of our products and services.

•  Digital products and services businesses: Our strategy centers on adding services to our content, usually enabled by technology, to make the content more useful, personal and valuable. These digital and services businesses give us access to new sources of revenues to sustain growth. We now receive close to one-third of our annual sales from digital products and services which is more than double the total five years ago.

•  International expansion: Pearson has market leading positions in major developed economies, particularly the US, UK and Western Europe. We are already present in more than 70 countries and we are investing to become a much larger global company, with particular emphasis on emerging markets, such as China, India, Africa and Latin America. Over the past 5 years our ‘international’ (meaning ‘outside North America’) education business has grown sales at an average annual rate of 18% through strong organic growth and acquisitions.

•  Efficiency: The businesses of Pearson have a lot in common, in costs, assets, and activities. Pooling those makes the company stronger and more efficient. It also allows our businesses to learn from each other and to collaborate to save money. On that basis we have invested for efficiency through savings in our individual businesses and through a strong centralized operations structure. We are integrated in many areas where our businesses share the same needs — purchasing, warehousing, distribution, facilities and real estate, project management, people resources, finance and accounting, and transactions. Over the past five years, we have increased our adjusted operating profit margins from 12.7% to 15.1% and reduced average working capital as a percentage of sales from 26.3% to 20.1%. Adjusted operating profit is a key financial measure used by management to evaluate performance and allocate resources to our business segments. See “Item 5. Operating and Financial Review and Prospects”.

Operating divisions

Pearson Education

Pearson Education is one of the largest publishers of textbooks and online teaching materials, and provider of assessment services. It serves the growing demands of teachers, students, parents and professionals throughout the world for stimulating and effective education programs in print and online.

We report Pearson Education’s performance in the three segments: North American Education, International Education, and Professional. In 2010, Pearson Education had sales of £4,207m or 74% (74% in 2009) of Pearson’s total continuing sales. Pearson Education generated 78% of Pearson’s continuing operating profit.

North American Education

Our North American Education business serves educators and students in the USA and Canada from early education through elementary, middle and high schools and into higher education with a wide range of products and services: curriculum textbooks and other learning materials; student assessments and testing services; and education technologies. Pearson has a leading position in each of these areas and a distinctive strategy of connecting those parts to support institutions and personalize learning. We have now integrated our North American School and Higher Education companies, which we believe will bring significant opportunities to develop growth businesses, to share investments and technologies and to gain further efficiencies.

Our North American School business contains a unique mix of publishing, testing and technology products for the elementary and secondary school markets, which are increasingly integrated. The major customers of this business are state education boards and local school districts. The business publishes high quality curriculum programmes for school students, at both elementary and secondary level, under a number of imprints including Pearson Scott Foresman and Pearson Prentice Hall. We also provide digital instructional solutions under Pearson Digital Learning, such as enVisionMATH and Miller-Levine Biology. The business also provides student information, assessment, reporting and business solutions (Pearson School Systems), which enables elementary and secondary schools and school districts to record and manage information about student attendance and performance.

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Our school testing business is the leading provider of test development, processing and scoring services to US states and the federal government. Its capabilities have been further enhanced through the integration of the Harcourt Assessment business.

Our North American Higher Education business is the largest publisher of textbooks and related course materials for colleges and universities in the US. We publish across all of the main fields of study with imprints such as Pearson Prentice Hall, Pearson Addison Wesley, Pearson Allyn & Bacon, Pearson Benjamin Cummings and Pearson Longman. Typically, professors or other instructors select or ‘adopt’ the textbooks and online resources they recommend for their students, which students then purchase either in a bookstore or online. Today the majority of our textbooks are accompanied by online services which include homework and assessment tools, study guides and course management systems that enable professors to create online courses. We have also introduced new formats such as downloadable audio study guides and electronic textbooks which are sold on subscription. In addition, we have a fast-growing custom publishing business which works with professors to produce textbooks and online resources specifically adapted for their particular course.

See “Item 5 Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2010 compared to year ended December 31, 2009 — Sales and operating profit by division — North American Education” for a discussion of developments during 2010 with respect to this division.

International Education

Our International Education business covers all educational publishing and related services outside North America.

Our International schools business publishes educational materials in local languages in a number of countries. We are one of the world’s leading providers of English Language Teaching (ELT) materials for children and adults, published under the well-known Longman imprint. In 2009 we strengthened our position further in international markets through the acquisition of Wall Street English, a chain of premium English language schools in China, and investment in vocational training and online learning in India, and in 2010 through the acquisition of Wall Street Institute, providing premium spoken English training for adults in 25 territories across Asia, Europe, the Middle East and Latin America, and Sistema Educacional Brasileiro’s schools learning systems business.

Our International higher education business adapts our textbooks and technology services for individual markets, and we have a growing local publishing program, with our key markets including the UK, Benelux, Mexico, Germany, Hong Kong, Korea, Taiwan, Singapore, Japan and Malaysia.

We are also a leading provider of testing, assessment and qualification services in a number of key markets including, the UK under the brand name Edexcel, Australia, New Zealand, South Africa, Hong Kong and the Middle East.

See “Item 5. Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2010 compared to year ended December 31, 2009 — Sales and operating profit by division — International Education” for a discussion of developments during 2010 with respect to this division.

Professional

Our Professional education business is focused on publishing, training, testing and certification for professionals. Over the past five years we have significantly re-orientated our professional publishing business towards long-term growth markets and built professional testing into a profitable industry leader.

Our Professional education business publishes under the following imprints: Addison Wesley Professional, Prentice Hall and Cisco Press (for IT professionals); Peachpit Press and New Riders (for graphics and design professionals); Que and Sams (consumer and professional imprint); and Financial Times-Prentice Hall (for the business education market).

Our professional testing business, Pearson VUE, manages major long-term contracts to provide qualification and assessment services through its network of test centers around the world. Key customers include major technology companies, the Graduate Management Admissions Council, NCLEX, the Financial Industry Regulatory Authority and the UK’s Driving Standards Agency.

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Our professional training business has developed over the year with the acquisition of Melorio plc, a vocational training group.

See “Item 5. Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2010 compared to year ended December 31, 2009 — Sales and operating profit by division — Professional” for a discussion of developments during 2010 with respect to this division.

The FT Group

The FT Group provides a broad range of data, analysis and services to an audience of internationally-minded business people and financial institutions. In 2010, the FT Group had sales of £403m, or 7% of Pearson’s total continuing sales (7% in 2009), and contributed 8% of Pearson’s operating profit from continuing operations.

FT Group comprises the Financial Times, FT.com website, and a portfolio of financial magazines and online financial information companies. During the year Interactive Data, our 61%-owned financial information company was sold and has been reclassified as a discontinued operation.

The FT Group has significantly shifted its business towards digital, subscription and content revenues and has continued to invest in talent and in services in faster growing emerging markets.

The Financial Times is one of the world’s leading international daily business newspapers, with five editions in the UK, Europe, Middle East and Africa, the US and Asia.

Its main sources of revenue are from sales of the newspaper, advertising and conferences. The Financial Times is complemented by FT.com which sells content and advertising online, and which charges subscribers for detailed industry news, comment and analysis, while providing general news and market data to a wider audience.

FT Business publishes specialist information on the retail, personal and institutional finance industries through titles including Investors Chronicle, Money Management, Financial Adviser and The Banker.

Mergermarket, our online financial data and intelligence provider, provides early stage proprietary intelligence to financial institutions and corporates. Its key products include Mergermarket, Debtwire, dealReporter, Wealthmonitor and Pharmawire.

See “Item 5. Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2010 compared to year ended December 31, 2009 — Sales and operating profit by division — FT Group” for a discussion of developments during 2010 with respect to this division.

Joint Ventures and Associates

The FT Group also has a number of associates and joint ventures, including:

•  50% interest in The Economist Group, publisher of one of the world’s leading weekly business and current affairs magazines.

•  50% interest in FTSE International, a joint venture with the London Stock Exchange, which publishes a wide range of global indices, including the FTSE index.

•  50% interest in Business Day and Financial Mail, publishers of one of South Africa’s leading financial newspapers and magazines.

•  33% interest in Vedomosti, a leading Russian business newspaper.

On March 27, 2008, Financial Times International Publishing Ltd sold its 50% partnership interest in Financial Times Deutschland GmbH & Co KG to Gruner & Jahr AG & Co KG.

The Penguin Group

Penguin is one of the most famous brands in book publishing. It publishes over 4,000 fiction and non-fiction books each year, on paper, screens and in audio formats for readers of all ages, and has an extensive range of backlist and frontlist titles including top literary prize winners, classics, reference volumes and children’s titles.

Penguin operates around the world through a series of connected national publishing houses. It publishes under a number of well known imprints including Putnam, Viking, Allen Lane, Hamish Hamilton, Berkley, Dorling Kindersley, Puffin and Ladybird. Penguin combines a longstanding commitment to local publishing with a

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determination to benefit from its worldwide scale, a globally recognized brand and growing demand for books in emerging markets. Its largest businesses are in the US, the UK, Australia, Canada, Ireland, India, South Africa and New Zealand.

In 2010, Penguin had sales of £1,053m, representing 19% of Pearson’s total continuing sales (19% in 2009) and contributed 14% of Pearson’s operating profit from continuing operations. Its largest market is the US, which generated around 59% of Penguin’s sales in 2010. Penguin earns around 93% of its revenues from the sale of hard cover and paperback books. The balance comes from audio books and e-books.

Penguin sells directly to bookshops and through wholesalers. Retail bookshops normally maintain relationships with both publishers and wholesalers and use the channel that best serves the specific requirements of an order. It also sells through online retailers such as Amazon.com, as well as Penguin’s own website. Penguin also sells direct to the customer via digital sales agents.

See “Item 5. Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2010 compared to year ended December 31, 2009 — Sales and operating profit by division — The Penguin Group” for a discussion of developments during 2010 with respect to this division.

Operating cycles

Pearson determines a normal operating cycle separately for each entity/cash generating unit within the Group with distinct economic characteristics. The “normal operating cycle” for each of the Group’s education businesses is primarily based on the expected period over which the educational programs and titles will generate cash flows, and also takes account of the time it takes to produce the educational programs.

Particularly for the North American Education businesses, there are well established cycles operating in the market:

•  The School market is primarily driven by an adoption cycle in which major state education boards ‘adopt’ programs and provide funding to schools for the purchase of these programs. There is an established and published adoption cycle with new adoptions taking place on average every 5 years for a particular subject. Once adopted, a program will typically sell over the course of the subsequent 5 years. The Company renews its pre-publication assets to meet the market adoption cycles. Therefore the operating cycle naturally follows the market cycle.

•  The Higher Education market has a similar pattern, with colleges and professors typically refreshing their courses and selecting revised programs on a regular basis, often in line with the release of new editions or new technology offerings. The Company renews its pre-publication assets to meet the typical demand for new editions of, or revisions to, educational programs. Analysis of historical data shows that the average life cycle of Higher Education content is up to 5 years. Again the operating cycle mirrors the market cycle.

A development phase of typically 12 to 18 months for Higher Education and up to 24 months for School precedes the period during which the Company receives and delivers against orders for the products it has developed for the program.

The International Education markets operate in a similar way although often with less formal ‘adoption’ processes.

The operating cycles in respect of Professional and the Penguin segment are more specialized in nature as they relate to educational or heavy reference products released into smaller markets (e.g. the financial training, IT and travel sectors). Nevertheless, in these markets, there is still a regular cycle of product renewal, in line with demand which management monitor. Typically the life cycle is 5 years for Professional content and up to 4 years for Penguin content. Elsewhere in the Group operating cycles are typically less than one year.

Competition

All of Pearson’s businesses operate in highly competitive environments.

Pearson Education competes with other publishers and creators of educational materials and services. These companies include large international companies, such as McGraw-Hill and Houghton Mifflin Harcourt, alongside smaller niche players that specialize in a particular academic discipline or focus on a learning technology.

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Competition is based on the ability to deliver quality products and services that address the specified curriculum needs and appeal to the school boards, educators and government officials making purchasing decisions.

The FT Group competes with newspapers and other information sources, such as The Wall Street Journal, by offering timely and expert journalism and market intelligence. It competes for advertisers with other forms of media based on the ability to offer an effective means for advertisers to reach their target audience.

The Penguin Group competes with other publishers of fiction and non-fiction books. Principal competitors include Random House, HarperCollins, and Hachette Group. Publishers compete by developing a portfolio of books by established authors and by seeking out and promoting talented new writers.

Intellectual property

Our principal intellectual property assets consist of our trademarks and other rights in our brand names, particularly the Financial Times and the various imprints of Penguin and Pearson Education, as well as all copyrights for our content and our patents held in the testing business in the name of Pearson NCS. We believe we have taken all appropriate available legal steps to protect our intellectual property in all relevant jurisdictions.

Raw materials

Paper is the principal raw material used by each of Pearson Education, the FT Group and the Penguin Group. We purchase most of our paper through our Global Sourcing department located in the United States. We have not experienced and do not anticipate difficulty in obtaining adequate supplies of paper for our operations, with sourcing available from numerous suppliers. While local prices fluctuate depending upon local market conditions, we have not experienced extensive volatility in fulfilling paper requirements. In the event of a sharp increase in paper prices, we have a number of alternatives to minimize the impact on our operating margins, including modifying the grades of paper used in production.

Government regulation

The manufacture of certain of our products in various markets is subject to governmental regulation relating to the discharge of materials into the environment. Our operations are also subject to the risks and uncertainties attendant to doing business in numerous countries. Some of the countries in which we conduct these operations maintain controls on the repatriation of earnings and capital and restrict the means available to us for hedging potential currency fluctuation risks. The operations that are affected by these controls, however, are not material to us. Accordingly, these controls have not significantly affected our international operations. Regulatory authorities may have enforcement powers that could have an impact on us. We believe, however, that in light of the nature of our business the risk of these sanctions does not represent a material threat to us.

Licenses, patents and contracts

We are not dependent upon any particular licenses, patents or new manufacturing processes that are material to our business or profitability. Likewise, we are not materially dependent upon any contracts with suppliers or customers, including contracts of an industrial, commercial or financial nature.

Legal Proceedings

We and our subsidiaries are from time to time the subject of legal proceedings incidental to the nature of our and their operations. These may include private litigation or arbitrations, governmental proceedings and investigations by regulatory bodies. We do not currently expect that the outcome of pending proceedings or investigations, either individually or in aggregate, will have a significant effect on our financial position or profitability nor have any such proceedings had such effect in the recent past. To our knowledge, there are no material proceedings in which any member of senior management or any of our affiliates is a party adverse to us or any of our subsidiaries or in respect of which any of those persons has a material interest adverse to us or any of our subsidiaries.

Recent developments

On November 22, 2010, the Group announced the proposed acquisition of a 75% stake in CTI Education Group, a leading South African education company for £31m. As at the end of December 2010 this acquisition had not been completed but is expected to complete in the first half of 2011.

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On January 18, 2011, the Group announced that it had agreed to increase it shareholding in Tutorvista, the Bangalore based tutoring services company, to a controlling 76% stake for a consideration of $127m.

On March 7, 2011, the Group and Education Development International plc (EDI) announced that they had reached agreement on the terms of a recommended cash offer to be made by Pearson for the entire issued share capital of EDI. The offer values EDI at approximately £112.7m. EDI is a leading provider of education and training qualifications and assessment services, with a strong reputation for the use of information technology to administer learning programmes and deliver on-screen assessments.

Organizational structure

Pearson plc is a holding company which conducts its business primarily through subsidiaries and other affiliates throughout the world. Below is a list of our significant subsidiaries as at December 31, 2010, including name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held.

		Percentage
		interest/voting
Name	Country of incorporation/residence	power
Pearson Education
Pearson Education Inc.	United States (Delaware)		100	%
Pearson Education Ltd.	England and Wales		100	%
Edexcel Ltd.	England and Wales		100	%
NCS Pearson Inc.	United States (Minnesota)		100	%
FT Group
The Financial Times Limited	England and Wales		100	%
Mergermarket Ltd.	England and Wales		100	%
The Penguin Group
Penguin Group (USA) Inc.	United States (Delaware)		100	%
The Penguin Publishing Co Ltd.	England and Wales		100	%
Dorling Kindersley Holdings Ltd	England and Wales		100	%

Property, plant and equipment

Our headquarters are located at leasehold premises in London, England. We own or lease approximately 1,000 properties, including approximately 550 testing/teaching centers in more than 70 countries worldwide, the majority of which are located in the United Kingdom and the United States.

The properties owned and leased by us consist mainly of offices, distribution centers and computer testing/teaching centers.

The vast majority of our printing is carried out by third party suppliers. We operate a small digital print operation as part of our Pearson Assessment & Testing businesses which provides short-run and print-on-demand products, typically custom client applications.

We own the following principal properties at December 31, 2010:

General use of property	Location	Area in square feet
Warehouse/Office	Kirkwood, New York, USA		524,000
Warehouse/Office	Pittston, Pennsylvania, USA		406,000
Office	Iowa City, Iowa, USA		310,000
Warehouse/Office	Old Tappan, New Jersey, USA		210,112
Warehouse/Office	Cedar Rapids, Iowa, USA		205,000
Office	Southwark, London, UK		155,000
Office	Hadley, Massachusetts, USA		137,070
Printing	Owatonna, Minnesota, USA		128,000

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We lease the following principal properties at December 31, 2010:

General use of property	Location	Area in square feet
Warehouse/Office	Lebanon, Indiana, USA		1,091,435
Warehouse/Office	Cranbury, New Jersey, USA		886,747
Warehouse/Office	Indianapolis, Indiana, USA		737,850
Warehouse/Office	San Antonio, Texas, USA		559,258
Office	Upper Saddle River, New Jersey, USA		474,801
Warehouse/Office	Rugby, UK		446,077
Office	New York City, New York, USA		443,229
Office	London, UK		282,923
Warehouse/Office	Newmarket, Ontario, Canada		278,912
Warehouse/Office	Austin, Texas, USA		226,076
Office	Boston, Massachusetts, USA		225,299
Warehouse	Scoresby, Victoria, Australia		197,255
Office	Glenview, Illinois, USA		187,500
Warehouse/Office	Bedfordshire, UK		186,570
Office	Bloomington, Minnesota, USA		153,240
Office	Boston, Massachusetts, USA		138,112
Office	Harlow, UK		137,857
Office	Chandler, Arizona, USA		135,460
Warehouse/Office	Cedar Rapids, Iowa, USA		119,682
Office	New York City, New York, USA		117,478
Warehouse	San Antonio Zomeyucan, Mexico		113,638
Office	London, UK		112,000
Call Center	Lawrence, Kansas, USA		105,000

Capital Expenditures

See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources” for description of the Company’s capital expenditure.

ITEM 4A.   UNRESOLVED STAFF COMMENTS

The Company has not received, 180 days or more before the end of the 2010 fiscal year, any written comments from the Securities and Exchange Commission staff regarding its periodic reports under the Exchange Act which remain unresolved.

ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis is based on and should be read in conjunction with the consolidated financial statements, including the related notes, appearing elsewhere in this Annual Report. The financial statements have been prepared in accordance with IFRS as issued by the IASB.

Where this discussion refers to constant currency comparisons, these are estimated by re-calculating the current year results using the exchange rates prevailing for the prior period. The increase or reduction in the value calculated is the estimate of impact of exchange rates. We believe this presentation provides a more useful period to period comparison as changes due solely to changes in exchange rates are eliminated.

General overview

Introduction

Sales from continuing operations increased from £5,140m in 2009 to £5,663m in 2010, an increase of 10%. The year on year growth was impacted by exchange rates, in particular the US dollar. The average US dollar exchange rate in 2010 strengthened in comparison to sterling in 2009, which had the effect of increasing reported sales in 2010 by £128m when compared to the equivalent figure at constant 2009 rates. When measured at constant 2009 exchange rates, all our businesses contributed to the growth. The International Education business in particular, benefited from acquisitions made in 2009 and 2010.

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Reported operating profit increased by 20% from £619m in 2009 to £743m in 2010. The relative strength of the US dollar contributed to this increase and operating profit would have been approximately £37m lower if translated at constant 2009 exchange rates. Again, when measured at constant rates, we saw contributions to the growth in operating profit from all our businesses as we benefited from the improved sales performance and cost efficiencies.

Profit before taxation in 2010 of £670m compares to a profit before taxation of £523m in 2009. The increase of £147m reflects the improved operating performance and a reduction in net finance costs. Net finance costs reduced from £96m in 2009 to £73m in 2010. The Group’s net interest payable decreased by £13m in 2010 as we benefited from a fall in average interest rates on our floating-rate US dollar debt and a decrease in our overall level of average net debt following the receipt of proceeds from the sale of Interactive Data. Exchange losses of £7m in 2009 compare to a net exchange gain of £9m in 2010. The gain in 2010 mainly relates to exchange on new US borrowing raised in the year. In 2009, the charge mainly related to losses on cross currency swaps. The finance charge relating to post-retirement plans of £12m in 2010 was the same as that in 2009.

On 29 July 2010, Pearson’s 61% share in Interactive Data Corporation was sold to Silver Lake Technology Management LLC (Silver Lake) and Warburg Pincus LLC (Warburg Pincus) for $2bn. The results of Interactive Data have been included as discontinued operations for the period to 29 July 2010 and in prior periods. Included in discontinued operations in 2010 is the gain on sale of Interactive Data of £1,037m and the attributable tax charge of £306m. On February 22, 2008 the Group completed the sale of its Data Management business and this business has been included in discontinued operations for the period to February 22 in 2008, and in prior periods.

Net cash generated from operations increased to £1,169m in 2010 from £1,012m in 2009. The improved cash generation in 2010 was due to strong cash collections, particularly in our education businesses and was helped by our transition to a more digital and service based business. This transition is also helping to reduce our working capital and on an average basis, the ratio of working capital to sales improved from 25.1% to 20.1%, also reflecting tight working capital management and the favourable working capital profile of 2009 and 2010 acquisitions. Average working capital comprises the average of the monthly carrying values over the relevant 12 month period for inventory, pre-publication costs, debtors and creditors. Net interest paid at £68m in 2010 was £19m below the previous year, as a result of the fall in overall net interest and to the timing of interest payments on the bond portfolio. Tax paid excluding the amounts paid on the Interactive Data disposal in 2010 decreased to £85m compared to £103m in 2009 as Interactive Data itself had been a significant tax payer. Net capital expenditure on property, plant and equipment after proceeds from sales increased to £76m in 2010 from £61m in 2009. The net cash outflow in respect of businesses acquired increased from £208m in 2009 to £535m in 2010 whilst the Interactive Data sale in 2010 raised proceeds of £734m net of tax paid. There were no disposals in 2009. Dividends from joint ventures and associates were broadly flat year on year at £23m in 2010 against £22m in 2009. Dividends paid of £293m in 2009 (including £20m paid to non-controlling interests) compares to £298m in 2010 (including £6m paid to non-controlling interests). Overall net borrowings decreased by £662m from £1,092m at the end of 2009 to £430m at the end of 2010 largely due to the proceeds from the Interactive Data sale and the strong cash collections.

Outlook

Over the past five years Pearson has produced growth in earnings and cash flow. We sustained our growth even in the face of very tough economic and market conditions in recent years. We are planning for some of our markets to remain weak in 2011, particularly those that depend on government spending and traditional print publishing business models. In addition, we face tough comparatives (especially in the first half of the year) after our particularly strong competitive and financial performance in 2010.

Even so, we have built a series of competitive advantages which should help us deliver another good year in 2011. These advantages include our sustained investment, digital leadership, educational effectiveness, positions in fast-growing economies and operating efficiency.

Pearson Education

In education, we expect to achieve continued growth in 2011. In North America, we see growth in higher education (despite slower enrolment rates) and assessment more than offsetting a slower year for the school publishing industry (the result of the lower new adoption opportunity and pressure on state budgets). Our International Education business will benefit from its rapidly-growing position in services, technology and developing economies, enabling it to grow again despite the weak public spending environment in some markets.

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FT Group

At the FT Group, we are rapidly shifting our business model towards digital and subscription revenues. Advertising revenues remain unpredictable, but we see healthy demand for the FT’s premium content, especially in digital formats, and a recovery in business conditions for Mergermarket.

The Penguin Group

Penguin will face another year of fast-changing industry conditions, driven by the rapid growth of both digital sales channels and digital books, and by the resulting pressures on physical bookstores. After a particularly strong competitive performance and financial results in 2010, we expect Penguin to perform in line with the overall consumer publishing industry this year, while we continue to adapt the business to these industry changes.

Sales information by operating division

The following table shows sales information for each of the past three years by operating division:

	Year Ended December 31
	2010		2009		2008
	£m		£m		£m
Education:
North American		2,640		2,470		2,002
International		1,234		1,035		866
Professional		333		275		244
FT Group		403		358		390
Penguin		1,053		1,002		903
Total		5,663		5,140		4,405

Sales information by geographic market supplied

The following table shows sales information for each of the past three years by geographic region:

	Year Ended December 31
	2010		2009		2008
	£m		£m		£m
European countries		1,205		1,081		1,092
North America		3,589		3,344		2,761
Asia Pacific		577		497		403
Other countries		292		218		149
Total		5,663		5,140		4,405

Exchange rate fluctuations

We earn a significant proportion of our sales and profits in overseas currencies, principally the US dollar. Sales and profits are translated into sterling in the consolidated financial statements using average rates. The average rate used for the US dollar was £1:$1.54 in 2010, £1:$1.57 in 2009 and £1:$1.85 in 2008. Fluctuations in exchange rates can have a significant impact on our reported sales and profits. In 2010, Pearson generated 59% of its sales in the US (2009: 61%; 2008: 59%). In 2010 we estimate that a five cent change in the average exchange rate between the US dollar and sterling would have had an impact on our reported earnings per share of 1.3p and a five cent change in the closing exchange rate between the US dollar and sterling would have had an impact on shareholders’ funds of approximately £115m. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk” for more information. The year-end US dollar rate for 2010 was £1:$1.57 compared to £1:$1.61 for 2009. In terms of the year end rate, the weakening of sterling in comparison to the US dollar in 2010 was less significant than the strengthening of sterling compared to the US dollar in the previous year when the relatively weak value of the US dollar had the effect of reducing shareholders’ funds. The net effect of movement in all currencies in 2010 was an increase in our shareholders’ funds of £173m. The year-end rate for the US dollar in 2009 was £1:$1.61 compared to £1:$1.44 for

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2008. The comparative weakness of the US dollar, contributed to an overall reduction in shareholders’ funds due to exchange movements of £388m in 2009.

Critical accounting policies

Our consolidated financial statements, included in “Item 18. Financial Statements”, are prepared based on the accounting policies described in note 1 to the consolidated financial statements.

Certain of our accounting policies require the application of management judgment in selecting assumptions when making significant estimates about matters that are inherently uncertain. Management bases its estimates on historical experience and other assumptions that it believes are reasonable. These policies are described in note 1a(3) in “Item 18. Financial Statements”.

Results of operations

Year ended December 31, 2010 compared to year ended December 31, 2009

Consolidated results of operations

Sales

Our total sales from continuing operations increased by £523m, or 10%, to £5,663m in 2010, from £5,140m in 2009. The increase reflected growth, on a constant exchange rate basis, at all of our businesses together with additional contributions from acquisitions made in both 2009 and 2010. The year on year growth was impacted by movements in exchange rates, particularly in the US dollar. 2010 sales, translated at 2009 average exchange rates, would have been £5,535m.

Pearson Education increased sales by £427m or 11% from £3,780m to £4,207m. The North American, International and Professional businesses all contributed to the increase although the International Education business was helped by acquisitions made in 2009 and 2010 and the Professional business benefited from the acquisition of Melorio in 2010. A high proportion of the increase was also due to exchange. We estimate that after excluding acquisitions, Pearson Education saw sales growth of 5% at constant last year exchange rates. The North American business saw strong growth in Higher Education which again out-performed the market which grew at 7.3% in 2010, according to the Association of American Publishers after benefiting from healthy enrolment growth and good demand for instructional materials. The North American publishing business also gained share in the US school curriculum market as this market returned to growth, benefiting from the stronger new adoption opportunity and in spite of the fact that state budgets remained under pressure. The US school publishing market grew 3.2% according to the Association of American Publishers. Revenues at the US Assessment and Information division were broadly level against 2009. State funding issues produced tough market conditions for our state assessment and teacher licensure testing businesses. This was offset by good growth in clinical and diagnostic assessments. International Education sales also benefited from exchange and a contribution from the acquisitions of Sistema Educacional Brasileiro and Wall Street Institute in 2010 and a full year contribution from the 2009 acquisitions of Wall Street English and Fronter and the increased shareholdings in Longman Nigeria and Maskew Miller Longman. After excluding the effect of acquisitions we estimate that there was growth of 6% at constant last year exchange rates in the International Education business. Professional sales increased in 2010 by 21% although much of this increase was due to the contribution from Melorio, the UK vocational training business acquired in June 2010. In terms of constant last year exchange rates and after taking out the acquisition of Melorio there was still good growth in professional testing and modest growth in the professional publishing business.

FT Group sales were 13% ahead of last year driven by strong growth at the Financial Times with growth in digital readership and subscriptions, helped by good advertising growth in 2010. Mergermarket continued to benefit from an improvement in market conditions and its flexibility in adapting to new client investment strategies which supported a recovery in renewal rates and growth in new business revenues. An increase in global merger and acquisition activity benefited Mergermarket and dealReporter and continued volatility in debt markets helped sustain the strong performance of DebtWire.

Penguin’s sales were up 5% in 2010 and it gained share in its three largest markets, the US, UK and Australia. Growth was also due to the very strong growth in ebooks which now account for 6% of Penguin revenues worldwide.

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Pearson Education, our largest business sector, accounted for 74% of our continuing business sales in 2010 and 2009. North America continued to be the most significant source of our sales and as a proportion of total continuing sales contributed 63% in 2010 and 65% in 2009.

Cost of goods sold and operating expenses

The following table summarizes our cost of sales and net operating expenses:

	Year Ended December 31
	2010			2009
	£m			£m
Cost of goods sold		2,588			2,382
Distribution costs		298			275
Administration and other expenses		2,190			2,014
Other operating income		(115	)		(120	)
Total		2,373			2,169

Cost of goods sold.  Cost of sales consists of costs for raw materials, primarily paper, printing and binding costs, amortization of pre-publication costs, royalty charges and the cost of service provision in the assessment and testing business. Our cost of sales increased by £206m, or 9%, to £2,588m in 2010, from £2,382m in 2009. The increase corresponds to the increase in sales with cost of sales at 45.7% of sales in 2010 compared to 46.3% in 2009.

Distribution costs.  Distribution costs consist primarily of shipping costs, postage and packing and remain a fairly constant percentage of sales.

Administration and other expenses.  Our administration and other expenses increased by £176m, or 9%, to £2,190m in 2010, from £2,014m in 2009. As a percentage of sales they remained consistent at 39% in 2010 and 2009.

Other operating income.  Other operating income mainly consists of freight recharges, sub-rights and licensing income and distribution commissions together with income from the sale of assets. Other operating income decreased slightly to £115m in 2010 compared to £120m in 2009.

Share of results of joint ventures and associates

The contribution from our joint ventures and associates increased from £30m in 2009 to £41m in 2010. The 2010 result included a one off profit relating to a stepped acquisition at FTSE of £12m. The majority of the remainder of the profit comes from our 50% interest in the Economist.

Operating profit

The total operating profit increased by £124m, or 20%, to £743m in 2010 from £619m in 2009. 2010 operating profit, translated at 2009 average exchange rates, would have been £37m lower.

Operating profit attributable to Pearson Education increased by £71m, or 14%, to £576m in 2010, from £505m in 2009. The increase was attributable to a strong performance in the US Higher Education business and in the International businesses and due to the positive impact of exchange and a contribution from acquisitions. Operating profit attributable to the FT Group increased by £31m, or 100%, to £62m in 2010, from £31m in 2009. The increase reflects the improved profitability from digital businesses and the pick up in advertising together with the one off profit recorded by FTSE referred to above. Operating profit attributable to Penguin increased by £22m, or 27%, to £105m in 2010, from £83m in 2009. This increase was due to the improved sales performance and improved margins partly due to charges relating to the reorganisation of the business in the UK in 2009.

Net finance costs

Net finance costs decreased from £96m in 2009 to £73m in 2010. Net interest payable in 2010 was £73m, down from £86m in 2009. The Group’s net interest payable decreased by £13m in 2010, mainly due to a reduction in average interest rates on our floating US dollar debt and the effect of lower average levels of net debt following the receipt of proceeds from the sale of Interactive Data. Year on year, average three month LIBOR (weighted for the

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Group’s net borrowings in US dollars and sterling at each year end) fell by 0.3% to 0.4%. This reduction in floating market interest rates drove the Group’s lower interest charge. However the low rates on deposited funds coupled with the impact on the calculation of significantly lower net debt, created an increase in the Group’s average net interest payable of 5.3% to 7.9%. The Group’s average net debt fell by £681m, reflecting the impact of the Interactive Data disposal. Finance charges relating to post-retirement plans were £12m in both 2010 and 2009.

Other net finance costs relating to foreign exchange and short-term fluctuations in the market value of financial instruments included a net foreign exchange loss of £7m in 2009 compared to a gain of £9 in 2010. In 2009 the loss mainly relates to losses on cross currency swaps and in 2010 the gain relates to exchange on new US dollar borrowing raised in the year. For a more detailed discussion of our borrowings and interest expenses see “— Liquidity and Capital Resources — Capital Resources” and “— Borrowings” below and “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.

Taxation

The total tax charge in 2010 of £146m represents 22% of pre-tax profits compared to a charge of £146m or 28% of pre-tax profits in 2009. Our overseas profits, which arise mainly in the US, are largely subject to tax at higher rates than the UK corporation tax rate (which had an effective statutory rate of 28% in 2010 and in 2009). Higher tax rates were partly offset by the recognition of tax losses and credits in the year including pre-acquisition and capital losses that were utilised in connection with the Interactive Data sale. The tax charge relating to that sale in July 2010 is included in the profit on discontinued businesses.

Non-controlling interest

The non-controlling interest in the income statement comprises mainly the publicly-held share of Interactive Data for the period to disposal in July 2010. There are also non-controlling interests in the Group’s businesses in South Africa, Nigeria, China and India although none of these are material to the Group numbers. The non-controlling interest in the Group’s newly acquired Brazilian business, Sistema Educacional Brasileiro, is expected to be bought out in the first half of 2011.

Discontinued operations

On 29 July 2010, Pearson’s 61% share in Interactive Data Corporation was sold to Silver Lake and Warburg Pincus for $2bn. The results of Interactive Data have been included as discontinued operations up to the date of sale on 29 July 2010. Included in discontinued operations in 2010 is Interactive Data’s results for the seven months to the date of sale, the gain on sale of £1,037m and the attributable tax charge of £306m. The total profit from discontinued operations, after taking account of the above items, was £776m in 2010 compared to £85m in 2009.

Profit for the year

The profit for the financial year in 2010 was £1,300m compared to a profit in 2009 of £462m. The overall increase of £838m was mainly due to the gain on sale of Interactive Data but also due to the improved operating performance and decrease in net finance costs.

Earnings per ordinary share

The basic earnings per ordinary share, which is defined as the profit for the financial year divided by the weighted average number of shares in issue, was 161.9p in 2010 compared to 53.2p in 2009 based on a weighted average number of shares in issue of 801.2m in 2010 and 799.3m in 2009. The increase in earnings per share was due to the increase in profit for 2010 described above and was not significantly affected by the movement in the weighted average number of shares.

The diluted earnings per ordinary share of 161.5p in 2010 and 53.1p in 2009 was not significantly different from the basic earnings per share in those years as the effect of dilutive share options was again not significant.

Exchange rate fluctuations

The strengthening of the US dollar and other currencies against sterling on an average basis had a positive impact on reported sales and profits in 2010 compared to 2009. 2010 sales, translated at 2009 average exchange rates, would have been lower by £128m and operating profit, translated at 2009 average exchange rates, would have

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been lower by £37m. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk” for a discussion regarding our management of exchange rate risks.

Sales and operating profit by division

The following tables summarize our sales and operating profit for each of Pearson’s business segments. Adjusted operating profit is a non-GAAP financial measure and is included as it is a key financial measure used by management to evaluate performance and allocate resources to business segments. See also note 2 of “Item 18. Financial Statements”.

In our adjusted operating profit we have excluded amortization of acquired intangibles and acquisition costs. The amortization of acquired intangibles is the amortization of intangible assets acquired through business combinations and acquisition costs are the direct costs of acquiring those businesses. Neither of these charges are considered to be fully reflective of the underlying performance of the Group. Other net gains and losses that represent profits and losses on the sale of subsidiaries, joint ventures, associates and other financial assets are excluded from adjusted operating profit as they distort the performance of the Group.

Adjusted operating profit enables management to more easily track the underlying operational performance of the Group. A reconciliation of operating profit to adjusted operating profit for continuing operations is included in the tables below:

	Year Ended December 31, 2010
	North American		International				FT		Interactive
£m	Education		Education		Professional		Group		Data		Penguin		Total
Sales		2,640		1,234		333		403		—		1,053		5,663
		47%		22%		6%		7%		—		18%		100%
Total operating profit		415		119		42		62		—		105		743
		56%		16%		6%		8%		—		14%		100%
Add back:
Other net gains and losses		—		10		—		(12)		—		—		(2)
Acquisition costs		1		7		2		1		—		—		11
Amortization of acquired intangibles		53		35		7		9		—		1		105
Adjusted operating profit: continuing operations		469		171		51		60		—		106		857
Adjusted operating profit: discontinued operations		—		—		—		—		81		—		81
Total adjusted operating profit		469		171		51		60		81		106		938
		50%		18%		5%		6%		9%		12%		100%

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	Year Ended December 31, 2009
	North American		International				FT		Interactive
£m	Education		Education		Professional		Group		Data		Penguin		Total
Sales		2,470		1,035		275		358		—		1,002		5,140
		48%		20%		6%		7%		—		19%		100%
Total operating profit		354		109		42		31		—		83		619
		57%		18%		7%		5%		—		13%		100%
Add back:
Amortization of acquired intangibles		49		32		1		8		—		1		91
Adjusted operating profit: continuing operations		403		141		43		39		—		84		710
Adjusted operating profit: discontinued operations		—		—		—		—		148		—		148
Total adjusted operating profit		403		141		43		39		148		84		858
		47%		16%		5%		5%		17%		10%		100%

North American Education

North American Education sales increased by £170m, or 7%, to £2,640m in 2010, from £2,470m in 2009 and adjusted operating profit increased by £66m, or 16%, to £469m in 2010 from £403m in 2009. The results were affected by the relative strength of the US dollar, which we estimate increased sales by £53m and adjusted operating profit by £10m when compared to the equivalent figures at constant 2009 exchange rates. At constant exchange and after taking account of the contribution from acquisitions there was underlying growth in sales of 4% and profits of 12%. Growth was driven by the US Higher Education business.

The US School publishing market grew 3.2% in 2010, according to the Association of American Publishers. State budgets continue to be under pressure but the industry returned to growth, benefiting from the stronger new adoption opportunity this year (total opportunity of $800m in 2010 against $500m in 2009). The US School curriculum business gained share with a strong performance from enVisionMATH, our digital math curriculum. Successnet, our online learning platform for teachers and students which supports Pearson’s digital instruction, assessment and remediation programs, grew strongly, achieving almost 6 million registrations in 2010, up 33% on 2009, with the number of assessments taken through the system rising 53% to more than 8m. We continue to develop digital programs, platforms and mobile apps to boost achievement and to increase access and affordability. We successfully launched three major new school programs: digits (http://bit.ly/i9NcId), our digital middle school math program, which provides services for teachers including embedded assessment, differentiation of students and automation of administrative tasks; Writing Coach (http://www.phwritingcoach.com/) which is a blended print and online program that helps middle and high school students in writing and grammar with personalized assignments and grading; and Online Learning Exchange (www.onlinelearningexchange.com) which is an open education resource that allows teachers to create personalized digital learning programs using standards-based Pearson content as well as teacher-generated material. Poptropica (www.poptropica.com) is the largest virtual world for young children in the US with average monthly unique visitors growing by 40% to 8.1m from more than 100 countries and speaking more than 70 languages. Poptropica launched seven new islands and was the fifth most searched-for video game on Google.com in 2010. In September 2010 we acquired America’s Choice to boost Pearson’s services in school reform, a major focus of the US education department. America’s Choice brings together instruction, assessment, leadership development, professional development, coaching and ongoing consulting services.

Revenues at our US Assessment & Information division were broadly level against 2009. State funding pressures produced tough market conditions for our state assessment and teacher licensure testing businesses. This was offset by good growth in clinical and diagnostic assessments. We saw good profit growth at Assessment and Information as we benefited from a shift to premium products and further efficiencies generated from the integration of the Harcourt Assessment business. We renewed two important contracts, extending our long-standing relationships with the College Board to administer the SATs and with the Texas Education Agency to

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administer state-wide student assessments. We continue to achieve strong growth in secure online testing, delivering 13.3 million secure online tests in 2010, up 41% over 2009. Our market leading student information systems business in the US continued to achieve rapid organic growth further boosted by the acquisition of Administrative Assistants Limited in 2010. We now support almost 16 million US students, an increase of 49% over 2009. We achieved strong growth with AIMSWEB, our progress monitoring service which enables early intervention and remediation for struggling students. AIMSWEB now supports almost four million students, an increase of more than 20%.

The US Higher Education publishing market grew 7.3% in 2010, according to the Association of American Publishers with the industry benefiting from healthy enrolment growth and good demand for instructional materials. Pearson gained share from its lead in technology and customisation. Our US Higher Education business has now grown faster than its industry for 12 consecutive years. The pioneering ‘MyLab’ digital learning, homework and assessment programs again grew strongly with student registrations up 32% to more than 7.3m in North America. We launched LearningStudio which provides a broad suite of learning management technologies including eCollege and Fronter. LearningStudio increased fully online enrolments by 54% to 8.3m in North America. Renewal rates remained high at approximately 90% by value.

Overall adjusted operating margins in the North American Education business were higher at 17.8% in 2010 compared to 16.3% in 2009 with the majority of the increase attributable to cost efficiencies and the relative success of higher margin digital products.

International Education

International Education sales increased by £199m, or 19%, to £1,234m in 2010, from £1,035m in 2009 and adjusted operating profit increased by £30m, or 21%, to £171m in 2010 from £141m in 2009. The sales results benefit from exchange gains and a full year contribution from acquisitions made in 2009.

The International Education business is active in more than 70 countries. More than 670,000 students outside America used our MyLab digital learning, homework and assessment programs, an increase of more than 40%. They included 150,000 users of our online English-language products MyEnglishLabs and MyNorthStarLab, a 170% increase. Our eCollege learning management system won new contracts in Malaysia and Colombia. Our Fronter learning management system continued to grow strongly with unique registration rising more than 20% to 1.1 million students in more than 8,700 schools, colleges and universities around the world. Pearson Learning Solutions, which combines products and services from across Pearson to deliver a systematic approach to improving student performance, won new contracts in South Africa, Malta, Vietnam and the UK. During the year, the International Education business acquired Wall Street Institute (WSI), which provides premium spoken English training for adults, for $101m in cash. WSI has about 340 franchised learning centers in 25 territories in Asia, Europe, the Middle East and Africa. The acquisition reunites Wall Street Institute with Wall Street English, the Chinese arm of the company acquired by Pearson in 2009.

In the UK, BTEC, our flagship vocational qualification, attracted more than 1.4 million student registrations, up 28% on 2009. Registrations for our NVQ work-based learning qualification grew 45% to more than 165,000, and we introduced the BTEC Apprenticeship to serve the work-based learning market. We marked more than 5.4 million A/AS Level and GCSE and Diploma scripts in the 2009-2010 academic year, with 90% now marked onscreen. Pearson marked and delivered 3.4 million tests in six weeks for the National Curriculum Tests at Key Stage 2. We established a new school improvement business in the UK, which will work with schools to help them train teachers, improve strategic planning and structure teaching methods.

In Italy, adoption of our Linx digital secondary science program increased three-fold, helping Pearson to grow strongly and become joint market leader for combined lower and upper secondary education. Linx is built around content from our North American science programs customized for the Italian market. We began to develop a broader range and depth of digital products and services, including teacher training, to personalize learning and increase educational effectiveness. In the Netherlands, we launched iPockets, the first fully digital Early English course for 4-8 year-olds in Primary Education. The course is 100% digital and subscription based and customized for the Dutch market.

In South Africa’s Western Cape province, we won a three-year contract to prepare, administer and report all Grade 9 student assessments. The tests focus on both individual student results and the systemic performance of

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schools and districts. Pearson won new national contracts in Ethiopia, to supply 2.9 million Biology, Physics and English learning materials for Senior Secondary Grades 9 to 12. In Zimbabwe, we were awarded a contract by UNICEF to deliver 13.5 million textbooks to children in Grades 1 to 7 in Mathematics, Environmental Science, English, Shona and Ndebele.

We generated strong growth in the Gulf region in higher education with integrated technology products in Business & Economics and Science. Student enrolments at our Wall Street English schools in China increased by 27% and we announced plans to open 50 new English language centers in China over the next three to five years, adding to the 66 centers and schools already operating under the Wall Street English and Longman English brands

Pearson announced a strategic partnership with Sistema Educacional Brasileiro (SEB) in Brazil to provide services to its educational institutions and to acquire its school learning systems (“sistema”) business for $517m. A sistema is an integrated learning system incorporating curriculum design, teacher support and training, print and digital content, technology platforms, assessment and other services. SEB’s sistemas serve more than 450,000 students across both private and public schools. Our School Curriculum business grew strongly, particularly in Mexico, Colombia, Chile and Peru, as we continued to build our locally developed materials as well as Spanish language adaptations of US school programmes. There was strong growth of English Language Teaching materials across Latin America underpinned by performance in Brazil, Colombia, Argentina, Chile, Dominican Republic and Peru.

International Education adjusted operating margins improved slightly from 13.6% in 2009 to 13.9% in 2010.

Professional

Professional sales increased by £58m, or 21%, to £333m in 2010 from £275m in 2009. Adjusted operating profit increased by £8m or 19% to £51m in 2010, from £43m in 2009. Sales growth in the assessment and training businesses was strong and benefited from the acquisition of Melorio in June 2010.

In professional testing we continued to see good growth at Pearson VUE which administered more than 8 million tests in 2010, up 3% on 2009. Average revenues per test are increasing as we develop a broader range of services and enhance our systems and assessments to meet our customer’s needs. Pearson VUE renewed a number of major contracts including the Driving Standards Agency (DSA) of Great Britain and the Driver & Vehicle Agency (DVA) of Northern Ireland; Cisco; and Colorado Department of Regulatory Agencies. We also won a number of new contracts to deliver computer-based tests in the US, UK, UAE, Saudi Arabia, Egypt and Bahrain, covering the real estate, accountancy, legal, healthcare, skills and finance sectors.

In professional training, we acquired Melorio plc, one of the UK’s leading vocational training groups, for £98m, supporting our vocational education strategy by combining Melorio’s training delivery skills with our existing complementary strengths in educational publishing, technology and assessments. Melorio traded well in the second half of the year securing a number of large key contracts for training delivery, and successfully graduating and placing the largest IT graduate cohort in the history of the business. Our investment in systems, streamlining the course offering and training centres and back office integration are all on track.

Our Professional publishing business was level in 2010 with steady margins as strong growth in digital products and services offset continued challenging trading conditions in the retail market and a planned reduction in the number of print titles published. We launched online learning products with customisable content, assessment and personalised study paths and also delivered 450 hours of technical training through online subscriptions for the IT certification market. We developed applications for social networks and mobile devices to extend the reach and accessibility of our content and videos available within our Safari Books Online platform.

Overall adjusted operating margins in the Professional business were slightly lower at 15.3% in 2010 compared to 15.6% in 2009 as margins were impacted by the acquisition of Melorio.

FT Group

Sales at FT Group increased by £45m or 13%, from £358m in 2009 to £403m in 2010. Adjusted operating profit increased by £21m, from £39m in 2009 to £60m in 2010. The sales and profit increase is mainly from the Financial Times which saw increased demand for digital products and a pick up in advertising in the year. The Economist and other joint ventures and associates also contributed to the profit growth.

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The Financial Times saw strong and accelerating growth in digital readership with digital subscriptions up over 50% to 207,000, more than 1,000 direct corporate customers and registered users up 79% to more than 3 million. It generated over 900,000 downloads of FT apps on mobile phones and tablet devices and won a prestigious Apple Design Award for its iPad app. The FT’s combined paid print and digital circulation reached 597,000 in the fourth quarter of 2010. After weak advertising markets in 2009, we saw good advertising growth in 2010 although the visibility for advertising revenues is poor. We extended the breadth and depth of FT’s premium subscription services through the launch of FT Tilt, focused on emerging markets; the launch of MandateWire US, extending the reach of this successful European brand into new markets; and the acquisition of Medley Global Advisors, a premier provider of macro policy intelligence.

Mergermarket benefited from improving market conditions and its flexibility in adapting to new client investment strategies, which supported stronger renewal rates and new business revenues. An increase in global merger and acquisition activity benefited Mergermarket and dealReporter; while continued volatility in debt markets helped sustain the strong performance of DebtWire. We saw strong growth in developing markets supported by new product launches including our first local language version of Mergermarket in China. In March 2010 we acquired Xtract research, which provides bond covenant data to allow investors to understand how covenants might impact on valuation.

The Economist, in which Pearson owns a 50% stake, increased global weekly circulation by 3.7% to 1.47 million (for the July-December 2010 ABC period) and total annual online visits increased to 118 million, up 21% on 2009. FTSE, our 50% owned joint venture with the London Stock Exchange, increased revenues by 20% and acquired the remaining 50% of FXI, FTSE’s joint venture with Xinhua Finance in China. Business Day and Financial Mail (BDFM), our 50% owned joint-venture in South Africa with Avusa, returned to profitability with revenue increasing by 5%. The business benefited from a recovery in advertising and the closure of non-profitable operations.

Overall adjusted operating margins at FT Publishing increased from 10.9% in 2009 to 14.9% in 2010 as advertising revenue fell through to the bottom line.

The Penguin Group

Penguin sales increased by £51m or 5%, to £1,053m in 2010 from £1,002m in 2009 and adjusted operating profit was up 26% to £106m in 2010 from £84m in 2009. Both sales and adjusted operating profit were affected by the stronger US dollar which we estimate increased sales by £32m and adjusted operating profit by £13m when compared to the equivalent figures at constant 2009 exchange rates. In 2010, Penguin benefited from a series of organisational changes in the UK made in 2009. These were designed to strengthen its publishing, reduce costs and accelerate the transition to digital production, sales channels and formats and to lower cost markets for design and production. Penguin’s 2009 results include approximately £9m of charges relating to these organisational changes.

Penguin saw a strong and consistent publishing performance across imprints and territories producing market share gains in the US, UK and Australia, our three largest markets. Strong growth in developing markets was boosted by the launch of new imprints and the increasing breadth and depth of our local publishing programs in India, China and South Africa. There was continued investment in global publishing with the launch of Penguin’s Classics in Portuguese and Arabic, joining existing Mandarin and Korean editions, the launch in India of a new imprint in partnership with bestselling author Shobhaa De, and the continued international roll-out of our non-fiction imprint Allen Lane in Canada.

eBook sales were up 182% on the previous year and now account for 6% of Penguin revenues worldwide. We accelerated our investment in digital products and innovation with new app releases in the children’s market including Spot, Peppa Pig, The Little Engine That Could, Ladybird’s Babytouch and the Mad Libs app, which was named one of the best apps at the 2010 E-Book Summit. For adults, we launched the groundbreaking myFry app; published the amplified ebook of Ken Follett’s international bestselling novel The Pillars of the Earth, featuring video, art and music from the original TV series; and we introduced ten DK Eyewitness Top Ten Travel Guides apps with more to follow in 2011. Penguin continued to invest to transform its internal publishing processes onto Pearson-wide digital platforms enabling faster product development and more efficient creation and re-use of content.

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Penguin performed strongly in the US with a broad range of number one bestsellers from repeat authors such as Charlaine Harris, Nora Roberts, Tom Clancy, Ken Follett and Patricia Cornwell. Kathryn Stockett’s The Help stayed on the New York Times bestseller list for the whole of 2010 and has sold more than three million copies to date. Our outstanding performance in the UK, resulting in our market share rising two percentage points to 10%, was led by Jamie Oliver’s 30 Minute Meals. It sold 1.2 million copies to become the UK’s biggest selling non-fiction title of the last decade. Major bestsellers included Stephen Fry’s The Fry Chronicles, Kathryn Stockett’s The Help, and The History of the World in 100 Objects (published in partnership with the BBC and the British Museum), as well as the Percy Jackson and Diary of a Wimpy Kid series. DK produced a very good year thanks in part to its top-performing franchise LEGO (Lego Star Wars Visual Dictionary was on the New York Times bestseller list for the whole of 2010 with 18 weeks at number one). Other bestselling titles included The Masterchef Cookbook, Complete Human Body and Natural History. DK continues to benefit from the organisation changes made in 2009 as well as the ongoing development of its publishing centre in India. Penguin Children’s had an excellent year in both the US, with Penguin Young Readers Group achieving a record 39 New York Times bestsellers, and in the UK, where we reclaimed our position as the number one children’s publisher with significant market share gains.

Penguin adjusted operating margins improved in 2010 to 10.1% from 8.4% in 2009.

Year ended December 31, 2009 compared to year ended December 31, 2008

Consolidated results of operations

Sales

Our total sales from continuing operations increased by 735m, or 17%, to £5,140m in 2009, from £4,405m in 2008. The increase reflected growth, on a constant exchange rate basis, at our North American Education and International Education businesses together with additional contributions from acquisitions made in both 2008 and 2009. The year on year growth was impacted by movements in exchange rates, particularly in the US dollar. 2009 sales, translated at 2008 average exchange rates, would have been £4,558m.

Pearson Education increased sales by £668m or 21% from £3,112m to £3,780m. The North American business was the major contributor to the increase although a high proportion of that increase was due to exchange. We estimate that after excluding acquisitions, Pearson Education saw sales growth of 4% at constant last year exchange rates. The North American Education business grew ahead of the market in its US Curriculum and Higher Education businesses which together grew at 5% compared to the industry which remained flat according to the Association of American Publishers. There was also a strong performance in the US Assessment and Information division which benefited from the successful integration of the Harcourt Assessment business acquired at the start of 2008. In International Education sales also benefited from exchange and a contribution from the acquisitions of Wall Street English and Fronter (a European online learning company based in Oslo) and the increased shares of Longman Nigeria and Maskew Miller Longman (MML), our publishing businesses in West Africa and South Africa respectively, which were all acquired in 2009. After excluding the effect of acquisitions we estimate that there was growth of 4% at constant last year exchange rates in the International Education business. Professional sales increased in 2009 by 13% although all of this increase was due to exchange and in terms of constant last year exchange rates there was a small decline in sales of 1%. This decline was entirely due to weakness in the professional publishing market which has offset growth in the professional testing and certification businesses.

FT Group sales were 8% behind last year or 12% after excluding the effect of exchange rates with adverse variances at the Financial Times. FT Group’s sales decline mainly reflects tough market conditions for financial and corporate advertising. The impact of advertising revenue declines was partially mitigated by growth in content revenues, the resilience of our subscription businesses and an increase in paying online subscribers at FT.com.

Penguin’s sales were up 11% in 2009 but this represents a 2% decline at constant last year exchange rates and before the effect of portfolio changes. Much of the underlying decline was due to a fall in sales of illustrated reference books which offset good performances in other categories.

Pearson Education, our largest business sector, accounted for 74% of our continuing business sales in 2009 compared to 71% in 2008. North America continued to be the most significant source of our sales and as a proportion of total continuing sales contributed 65% in 2009 and 63% in 2008.

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Cost of goods sold and operating expenses

The following table summarizes our cost of sales and net operating expenses:

	Year Ended December 31
	2009			2008
	£m			£m
Cost of goods sold		2,382			2,046
Distribution costs		275			235
Administration and other expenses		2,014			1,687
Other operating income		(120	)		(102	)
Total		2,169			1,820

Cost of goods sold.  Cost of sales consists of costs for raw materials, primarily paper, printing and binding costs, amortization of pre-publication costs, royalty charges and the cost of service provision in our assessment and testing businesses. Our cost of sales increased by £336m, or 16%, to £2,382m in 2009, from £2,046m in 2008. The increase corresponds to the increase in sales with cost of sales at 46.3% of sales in 2009 compared to 46.4% in 2008.

Distribution costs.  Distribution costs consist primarily of shipping costs, postage and packing and remain a fairly constant percentage of sales.

Administration and other expenses.  Our administration and other expenses increased by £327m, or 19%, to £2,014m in 2009, from £1,687m in 2008. As a percentage of sales they remained consistent at 38% in 2008 and 39% in 2009.

Other operating income.  Other operating income mainly consists of freight recharges, sub-rights and licensing income and distribution commissions together with income from the sale of assets. Other operating income increased to £120m in 2009 compared to £102m in 2008 although much of this increase can be ascribed to exchange.

Share of results of joint ventures and associates

The contribution from our joint ventures and associates increased from £25m in 2008 to £30m in 2009. The majority of the profit comes from our 50% interest in the Economist.

Operating profit

The total operating profit increased by £55m, or 10%, to £619m in 2009 from £564m in 2008. 2009 operating profit, translated at 2008 average exchange rates, would have been £40m lower.

Operating profit attributable to Pearson Education increased by £99m, or 24%, to £505m in 2009, from £406m in 2008. The increase was attributable to strong performances in the US Higher Education business and both the US and International Assessments businesses and due to the positive impact of exchange. Operating profit attributable to the FT Group decreased by £36m to £31m in 2009, from £67m in 2008. The decrease reflects the decline in profitability at the Financial Times, as they faced tough conditions in the advertising market. Operating profit attributable to the Penguin Group decreased by £8m, or 9%, to £83m in 2009, from £91m in 2008. This decrease was principally due to charges relating to reorganisation of the business in the UK.

Net finance costs

Net finance costs increased from £95m in 2008 to £96m in 2009. Net interest payable in 2009 was £86m, down from £93m in 2008. The Group’s net interest payable decreased by £7m in 2009 as we benefited from a fall in average interest rates on our floating US dollar debt and a decrease in our overall level of average net debt. Year on year, average three month LIBOR (weighted for the Group’s net borrowings in US dollars and sterling at each year end) fell by 2.4% to 0.7%. This reduction in floating market interest rates was partially offset by higher fixed bond coupons prevailing at the time of our 2009 bond issue. The overall result was a decrease in the Group’s average net interest rate payable by 0.6% to 5.3%. In 2009 the net finance income relating to post-retirement plans was a charge of £12m compared to an income of £8m in the previous year reflecting lower returns on plan assets.

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Other net finance costs relating to foreign exchange and short-term fluctuations in the market value of financial instruments included a net foreign exchange loss of £7m in 2009 compared to a loss of £11m in 2008. The losses in 2008 mainly relate to the retranslation of foreign currency bank accounts together with other net losses on inter-company items. In 2009 the loss mainly relates to losses on cross currency swaps. For a more detailed discussion of our borrowings and interest expenses see “— Liquidity and Capital Resources — Capital Resources” and “— Borrowings” below and “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.

Taxation

The total tax charge in 2009 of £146m represents 28% of pre-tax profits compared to a charge of £125m or 27% of pre-tax profits in 2008. Our overseas profits, which arise mainly in the US are largely subject to tax at higher rates than the UK corporation tax rate (28% in 2009 compared to 28.5% in 2008). Higher tax rates were partly offset by releases from provisions reflecting continuing progress in agreeing our tax affairs with the authorities.

Non-controlling interest

This comprises mainly the non-controlling interest in Interactive Data. Our share of Interactive Data was 61% in 2009, compared to 62% in 2008.

Discontinued operations

On 29 July 2010, Pearson’s 61% share in Interactive Data Corporation was sold to Silver Lake and Warburg Pincus for $2bn. The results of Interactive Data have been included as discontinued operations in both 2009 and 2008. Discontinued operations in 2008 also relate to the disposal of the Data Management business (in February 2008). The results of the Data Management business were included in discontinued operations to the date of disposal in 2008. The loss before tax on disposal in 2008 was £53m, mainly relating to the cumulative translation adjustment. There was a tax charge of £37m on the sale.

Profit for the year

The profit for the financial year in 2009 was £462m compared to a profit in 2008 of £323m. The overall increase of £139m was mainly due to the absence of the loss on discontinued operations in 2009 but also benefited from the improved operating performance offset by a small increase in net finance costs.

Earnings per ordinary share

The basic earnings per ordinary share, which is defined as the profit for the financial year divided by the weighted average number of shares in issue, was 53.2p in 2009 compared to 36.6p in 2008 based on a weighted average number of shares in issue of 799.3m in 2009 and 797.0m in 2008. The increase in earnings per share was due to the increase in profit for 2009 described above and was not significantly affected by the movement in the weighted average number of shares.

The diluted earnings per ordinary share of 53.1p in 2009 and 36.6p in 2008 was not significantly different from the basic earnings per share in those years as the effect of dilutive share options was again not significant.

Exchange rate fluctuations

The strengthening of the US dollar and other currencies against sterling on an average basis had a positive impact on reported sales and profits in 2009 compared to 2008. 2009 sales, translated at 2008 average exchange rates, would have been lower by £582m and operating profit, translated at 2008 average exchange rates, would have been lower by £40m. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk” for a discussion regarding our management of exchange rate risks.

Sales and operating profit by division

The following tables summarize our sales and operating profit for each of Pearson’s divisions. Adjusted operating profit is a non-GAAP financial measure and is included as it is a key financial measure used by

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management to evaluate performance and allocate resources to business segments. See also note 2 of “Item 18. Financial Statements”.

In our adjusted operating profit we have excluded amortization of acquired intangibles. The amortization of acquired intangibles is the amortization of intangible assets acquired through business combinations. The charge is not considered to be fully reflective of the underlying performance of the Group.

Adjusted operating profit enables management to more easily track the underlying operational performance of the Group. A reconciliation of operating profit to adjusted operating profit for continuing operations is included in the tables below:

	Year Ended December 31, 2009
	North
	American		International				FT		Interactive
£m	Education		Education		Professional		Group		Data		Penguin		Total
Sales		2,470		1,035		275		358		—		1,002		5,140
		48%		20%		6%		7%		—		19%		100%
Total operating profit		354		109		42		31		—		83		619
		57%		18%		7%		5%		—		13%		100%
Add back:
Amortization of acquired intangibles		49		32		1		8		—		1		91
Adjusted operating profit: continuing operations		403		141		43		39		—		84		710
Adjusted operating profit: discontinued operations		—		—		—		—		148		—		148
Total adjusted operating profit		403		141		43		39		148		84		858
		47%		16%		5%		5%		17%		10%		100%

	Year Ended December 31, 2008
	North
	American		International				FT		Interactive
£m	Education		Education		Professional		Group		Data		Penguin		Total
Sales		2,002		866		244		390		—		903		4,405
		45%		20%		6%		9%		—		20%		100%
Total operating profit		258		113		35		67		—		91		564
		46%		20%		6%		12%		—		16%		100%
Add back:
Amortization of acquired intangibles		45		22		1		7		—		2		77
Adjusted operating profit: continuing operations		303		135		36		74		—		93		641
Adjusted operating profit: discontinued operations		—		—		—		—		121		—		121
Total adjusted operating profit		303		135		36		74		121		93		762
		40%		17%		5%		10%		16%		12%		100%

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North American Education

North American Education sales increased by £468m, or 23%, to £2,470m in 2009, from £2,002m in 2008 and adjusted operating profit increased by £100m, or 33%, to £403m in 2009 from £303m in 2008. The results were significantly affected by the relative strength of the US dollar, which we estimate increased sales by £365m and adjusted operating profit by £60m when compared to the equivalent figures at constant 2008 exchange rates. At constant exchange and after taking account of the contribution from acquisitions there was underlying growth in sales of 5% and profits of 13%. Although the contribution from the US school curriculum business declined due to State budget pressures and a fall in the adoption market there were strong contributions from the US Higher Education, US Assessment and Information and Canadian businesses.

In the US school market, the Association of American Publishers’ estimated that there was an overall decrease for the industry in 2009 of 13.8% as state budget pressures and a slower new adoption year caused particular weakness in the basal publishing market. Though Pearson’s US School publishing sales declined we attained an estimated 37% of new adoptions we competed for (our highest market share for a decade) and 32% of the total new adoption market. Pearson’s enVisionMATH (www.envisionmath.com), an integrated print-and-digital program, was the top-selling basal program in the United States in 2009. It helped the School Curriculum business to an estimated 46% share of all math adoptions and sold strongly across the open territories. Successnet, the online learning platform for teachers and students which supports all Pearson’s digital instruction, assessment and remedial programs, also grew strongly achieving more than 4 million registrations in 2009.

The US Assessment and Information business saw significant profit improvement in 2009, benefiting from the successful integration of the Harcourt Assessment business acquired in 2008. Our National Services assessment business renewed its contract with the College Board, worth $210m over 10 years, to process and score the SAT and contracts to support the College Board’s new Readi-Step and ACCUPLACER diagnostics programs. Our State Services business won a number of significant new contracts including new programs in Florida and Arizona. We continued to gain share, winning 60% of the contracts bid for by value, and to be a leader in online testing, delivering 9 million secure online assessments in 2009, up more than 100% on 2008. Our Evaluation Systems teacher certification business secured contract extensions in California, Illinois, Arizona and Washington; won re-bids in Michigan and New York, each for five years; and added new contracts in California and Minnesota. In Clinical Assessments, our AIMSWeb response-to-intervention data management and progress monitoring service for children who are having difficulty learning, continued to grow and had more than 3 million students on the system at the end of 2009. Our Edustructures business, which provides interoperable systems to support data collection and reporting between school districts and state governments, doubled the number of students served to 8 million. Our Student Information Systems (SIS) business grew strongly, benefiting from strong demand for its services that help teachers automate and manage student attendance records, gradebooks, timetables and the like. It supported more than 12 million students — 8 million of them through its flagship PowerSchool product which was available in more than 50 countries. In 2009 it won contracts for new school districts including Nova Scotia Department of Education (133,000 students), Newark, NJ (45,000 students), and the Hamilton County DOE, TN (40,000 students).

The US Higher Education publishing market grew 11.5% in 2009, according to the Association of American Publishers, benefiting from strong enrolment growth and federal government action to support student funding. Our US Higher Education business grew faster than the industry and outperformed the market for the eleventh straight year, continuing to see strong demand for instructional materials enhanced by technology and customization. Our sustained investment in content and technology continues to grow existing franchises and build new ones. In Engineering Mechanics, our market leading textbook, Hibbeler’s Statistics and Dynamics 12th Edition, gained an additional four percentage points of market share with the addition of our newly launched MasteringEngineering digital learning and assessment platform. Pearson became market leader in psychology supported by the recently launched textbook Psychology 2nd Edition by Cicarelli with MyPsychLab. The ‘MyLab’ digital learning, homework and assessment programs again grew strongly. Our MyLab products saw more than 6 million student registrations globally, 39% higher than in 2008. In North America, student registrations grew 37% to more than 5.6 million. Custom Solutions grew strongly across both bespoke books and customized services including content creation, technology, curriculum, assessments and courseware. We partnered with the Kentucky Virtual Learning Initiative, for example, to deliver personalized mathematics instruction mapped to state college entry standards and have begun to extend this program into transitional English and Reading. eCollege, our platform for fully-online

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distance learning in higher education, increased online enrolments by 36% to 3.5 million and benefited from continued strong renewal rates of 95% by value, new contract wins and strong growth in the usage of the platform, particularly by US for-profit colleges. Thirteen Pearson higher education and school products in ten categories were nominated as America’s best educational software products in the Software & Information Industry Association’s 25th Annual CODiE Awards. They include MyMathLab, Miller & Levine Biology, PowerSchool, Prentice Hall Literature, myWorld Geography, MyWritingLab, CourseConnect and eCollege.

Overall adjusted operating margins in the North American Education business were higher at 16.3% in 2009 compared to 15.1% in 2008 with the majority of the increase attributable to the Harcourt Assessment integration costs that were charged in 2008.

International Education

International Education sales increased by £169m, or 20%, to £1,035m in 2009, from £866m in 2008 and adjusted operating profit increased by £6m, or 4%, to £141m in 2009 from £135m in 2008. The sales results benefit from exchange gains and a full year contribution from acquisitions made in 2009. At the adjusted operating profit level the 2008 results benefited from transactional exchange gains that were not repeated in 2009.

In the UK, we received over 3.7 million registrations for vocational assessment and general qualifications. We marked 4.5 million ‘A’-level and GCSE scripts on-screen and successfully delivered the 2009 National Curriculum test series and were awarded the contract to administer the 2010 National Curriculum Tests at Key Stage 2. We made significant investments in supporting the new Diploma qualification for 14-19 year-olds; the IGCSE qualifications to meet the needs of International schools and colleges; and BTEC, our flagship vocational qualification. BTEC registrations totalled more than 1 million for the first time and were up almost 30% on 2008. Our UK Higher Education business grew strongly, helped by the success of new first editions, the rapid take up of MyLabs adapted to meet local requirements, and the growing popularity of custom publishing. Sales of UK primary resources fell, on the back of minimal curriculum change and some signs of schools managing their budgets more tightly.

In Continental Europe, the launch of our digi libre (Content Plus) products helped us to gain share in the lower and upper secondary markets in Italy and positioned us well for major curriculum reforms in 2010. In Spain, our sales were down sharply with pressures on central and regional government spending and a worsening retail environment. Our ELT sales continued to grow in Poland, and across central and Eastern Europe we saw good demand for our publishing and digital resources and our fledgling Language Learning Solutions activities. The Fronter learning management system continued to grow very strongly with more than 6 million students in more than 8,000 schools, colleges and Universities around the world at the end of 2009.

In the Middle East we successfully implemented the Abu Dhabi Education Council’s (ADEC) External Measurement of Student Achievement (EMSA) program covering English, Arabic, Math and Science in April 2009. In South Africa, we launched Platinum, the first blended print and online course developed for the South African National Curriculum. In addition 7,000 students registered for MyMathLab+ at the University of Witwatersrand in 2009.

In China, we acquired Wall Street English, the leading provider of premium English language training to adults, for £101m. The combination of Longman Schools and Wall Street English gives Pearson a leading position in the English language teaching market in China, serving students from elementary school to professional levels. We stepped up our presence in the Indian education market with two investments totalling $30m: a 50:50 joint-venture with Educomp, called IndiaCan, to offer vocational and skills training through 120 training centres across the country; and a 17.2% stake in TutorVista, which provides online tutoring for K-12 and college students.

New editions of the proven bestsellers, BackPack and Pockets, along with the successful launch of two new courses, CornerStone and KeyStone, helped to deliver strong growth in the sales of ELT materials across Latin America. In Brazil, which has one of Latin America’s largest and fastest-growing university populations, our virtual library supported 30 post-secondary institutions. And, in Panama, 75,000 high school students were learning Biology and Chemistry, using Prentice Hall Virtual Labs.

On a global basis our ‘MyLab’ digital learning, homework and assessment programmes were used by more than 470,000 students, up almost 60% on 2008, and are now sold in more than 200 countries. In 2009, we launched the Pearson Test of English, our new test of Academic English which will be delivered in up to 200 Pearson VUE testing centers in 37 countries. Approximately 1,000 academic programs worldwide now recognise, or are in the

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process of recognising, the Pearson Test of English. Our eCollege learning management system is growing rapidly in international markets, winning new contracts in Australia, Brazil, Mexico, Colombia, Puerto Rico and Saudi Arabia in 2009. Our new Pearson Learning Solutions business won its first contracts in the UK, the Gulf and Africa. It combines a broad range of products and services from across Pearson to deliver a systematic approach to improving student performance.

International Education adjusted operating margins declined from 15.6% in 2008 to 13.6% in 2009 as the benefit from transactional exchange gains at the profit level in 2008 weren’t repeated in 2009.

Professional

Professional sales increased by £31m, or 13%, to £275m in 2009 from £244m in 2008. Adjusted operating profit increased by £7m or 19% to £43m in 2009, from £36m in 2008. The sales growth was entirely due to exchange rates which increased sales by £33m when compared to the equivalent figures at constant 2008 exchange rates.

In Professional testing and certification in the UK, we extended our contract with the Driving Standards Agency to deliver the UK drivers theory test until 2014. More than seven million secure online tests were delivered in more than 4,000 test centers worldwide in 2009, an increase of 9% over 2008. Registration volumes for the Graduate Management Admissions Council test rose 8% worldwide in 2009, including a 16% increase outside the US. In the US, Pearson VUE won a number of new contracts with organizations including Oracle, Citrix, Novell, VMWare, and Adobe, the National Registry of Food Safety Professionals and the National Institute for Certification in Engineering Technologies. Pearson VUE extended its international reach, signing an agreement with the Dubai Road and Transport Authority to deliver a new, high-tech Driver Testing System and launching the Law School Admission Test in India.

Our Professional education business experienced tough trading conditions in the retail market but benefited from the increased breadth of its publishing and range of revenue streams, from online retail through digital subscriptions. A best-selling product in 2009 was CCNA Network Simulator, which are digital networking labs designed, developed and published by Pearson, to help candidates successfully pass the Cisco CCNA certification exam. Pearson launched new learning solutions for IT Professionals preparing for certification accreditation. Cert Flash Card applications were launched for students studying for Cisco CCNA, CompTIA and Microsoft certification exams and are accessible through web browsers and iPhone and iPod Touch devices. FT Press launched a new e-publishing imprint, FT Press Delivers, providing essential insights from some of its leading business authors including Jim Champy, Brian Solis, Mark Zandi, Jon M. Huntsman, John Kao, Michael Abrashoff, and Seth Goldman.

Overall adjusted operating margins in the Professional business continued to improve and were higher at 15.6% in 2009 compared to 14.8% in 2008 as margins improved again in both the testing and professional publishing businesses.

FT Group

Sales at FT Group decreased by £32m or 8%, from £390m in 2008 to £358m in 2009. Adjusted operating profit decreased by £35m, from £74m in 2008 to £39m in 2009. The sales and profit decrease is mainly from the FT Newspaper business which faced tough market conditions for financial and corporate advertising. The impact of advertising revenue declines was partially mitigated by growth in content revenues, the resilience of our subscription businesses and early actions to manage our cost base tightly.

We continued to see good demand in 2009 for high-quality analysis of global business, finance, politics and economics which resulted in a 15% increase in paying online subscribers to more than 126,000 with registered users on FT.com up 85% to 1.8 million and users up 12% to 1.4 million on FTChinese.com. Financial Times worldwide newspaper circulation was 7% lower at 402,799 (for the July-December 2009 ABC period) although subscription circulation grew modestly. We continued to invest in fast-growing digital formats. We launched a new luxury lifestyle website, to complement our existing How To Spend It magazine; a new iPhone application which has received more than 200,000 downloads; and, in association with Longman, Lexicon, an online glossary of economic, financial and business terms.

Mergermarket faced challenging conditions in some of its markets with reduced Mergers and Acquisition activity impacting the merger arbitrage sector serviced by dealReporter whilst Debtwire benefited from an

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increased focus on distressed debt. Mergermarket continued to launch new products and expand globally. MergerID was launched in September 2009, providing a secure online environment for principals and professionals to post and view merger and acquisition opportunities globally and by the end of 2009 had secured over 1,500 active users in more than 450 companies across the globe.

The Economist, in which Pearson owns a 50% stake, increased global weekly circulation by 2.2% to 1.42 million (for the July — December 2009 ABC period). FTSE, our 50% owned joint-venture with the London Stock Exchange, increased revenues 17% and made a strong improvement in profits.

Overall adjusted operating margins at FT Group decreased from 19.0% in 2008 to 10.9% in 2009 as lost advertising revenue fell through to the bottom line.

The Penguin Group

Penguin sales increased by £99m or 11%, to £1,002m in 2009 from £903m in 2008 but adjusted operating profit was down 10% to £84m in 2009 from £93m in 2008. Both sales and adjusted operating profit were affected by the stronger US dollar which we estimate increased sales by £109m and adjusted operating profit by £7m when compared to the equivalent figures at constant 2008 exchange rates. In 2009, Penguin implemented a series of organisational changes in the UK designed to strengthen its publishing, reduce costs and accelerate the transition to digital production, sales channels and formats and to lower cost markets for design and production. Penguin’s 2009 results include approximately £9m of charges relating to these organisational changes.

In the US, Penguin had 30 number 1 New York Times bestsellers, Penguin’s most ever, and placed 243 bestsellers on New York Times lists. Bestsellers included works from debut novels such as Kathryn Stockett’s The Help and Janice Y.K. Lee’s The Piano Teacher, along with books by established authors such as Charlaine Harris and Nora Roberts.

In the UK, top-selling titles included Marian Keyes’ This Charming Man, Malcolm Gladwell’s Outliers, Ant and Dec’s Ooh! What a Lovely Pair and Antony Beevor’s D-Day. Penguin Children’s list had a very strong year with standout performances from brands such as The Very Hungry Caterpillar (which celebrated its 40th anniversary) and Peppa Pig. Through an iPhone app, consumers were offered a try-before-you buy model of Paul Hoffman’s The Left Hand of God, providing free downloads of the first three chapters.

In Australia, Penguin was named Publisher of the Year for the second year running at the Australian Book Industry Awards. Number 1 bestselling authors included Bryce Courtenay, Tom Winton, Clive Cussler and Richelle Mead. In Canada, top-selling local authors included Joseph Boyden and Alice Munro, who was awarded the International Man Booker prize, and our international authors Greg Mortenson and Elizabeth Gilbert led the paperback non-fiction category. In India, Penguin is the largest English language trade publisher, with bestselling authors in 2009 including Narayana Murthy and Nandan Nilekani. In South Africa, top-selling Penguin authors included John van de Ruit and Justin Bonello.

eBook sales grew fourfold on the previous year. 14,000 eBook titles were available at the end of 2009, benefiting from the popularity of e-readers such as Amazon’s Kindle, the Sony Reader and Barnes and Noble’s nook as well as new devices such as Apple’s iPad.

Penguin’s adjusted operating margins deteriorated in 2009, dropping to 8.4% from 10.3% in 2008. The main reason for the decline was the charges in 2009 relating to the reorganisation of the UK business.

Liquidity and capital resources

Cash flows and financing

Net cash generated from operations increased by £157m (or 16%), to £1,169m in 2010 from £1,012m in 2009. This increase reflected strong cash contributions, particularly from our education businesses. The exchange rate for translation of dollar cash flows was $1.57 in 2010, $1.61 in 2009 and $1.44 in 2008. In 2010, the average working capital to sales ratio for our book publishing businesses improved to 20.1% from 25.1% in 2009, reflecting tight working capital management and the financial impact of the shift to more digital and service-orientated products and businesses. Average working capital is the average month end balance in the year of inventory (including pre-publication), receivables and payables. Net cash generated from operations increased by £118m (or 13%), to £1,012m in 2009 from £894m in 2008. This increase reflected strong cash contributions from all businesses,

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together with the significant strengthening of the US dollar against sterling. In 2009, the headline average working capital to sales ratio for our book publishing businesses improved to 25.1% from 26.1% in 2008, reflecting tight working capital management and the favourable working capital profile of 2009 acquisitions.

Net interest paid decreased to £68m in 2010 from £87m in 2009. The decrease reflects the repayment of a US Dollar bond in 2009 and lower variable interest rates. Net interest paid increased to £87m in 2009 from £76m in 2008. The increase is due to the timing of payments on bonds issued in 2008 and 2009.

Capital expenditure on property, plant and equipment was £76m in 2010, £62m in 2009 and £75m in 2008. The increase in 2010 reflects a return to a more normal level of expenditure given the improved economic environment and exchange rate movements. The reduction in spend in 2009 reflects a more cautious approach to capital investment, given the uncertain economic environment, particularly in the first half of the year.

The acquisition of subsidiaries, joint ventures and associates accounted for a cash outflow of £557m in 2010 against £222m in 2009 and £400m in 2008. The principal acquisitions in 2010 were of Sistema Educacional Brasileiro for £228m, Melorio for £98m, Wall Street Institute for £65m and America’s Choice for £65m. The principal acquisitions in 2009 were of Wall Street English for £101m and a controlling interest in Maskew Miller Longman for £54m, comprising £49m in cash and £5m in other consideration.

The sale of subsidiaries and associates produced a net cash inflow of £734m in 2010 against £nil in 2009 and £99m in 2008. The proceeds in 2010 relate to the sale of Interactive Data, with proceeds received being £984 and tax paid relating to this disposal of £250m. Proceeds of £99m in 2008 relate to the sale of the Data Management business.

The cash outflow from financing of £92m in 2010 reflects a further increase in the group dividend and the purchase of treasury shares, with some offset from a $350m US Dollar Note issued in the year. The cash outflow from financing of £366m in 2009 reflects the repayment of one $350m bond, the repayment of borrowings under the Group’s committed borrowing facility and an increase of the dividend in line with earnings. Offsetting this, the Group issued £300m of sterling bonds in the year. The cash outflow from financing of £137m in 2008 reflects the repayment at maturity of one £100m bond, the repayment of borrowings against a short-term bridge financing facility and a further increase in the dividend. Offsetting this, the Group issued $900m of US Dollar bonds.

Capital resources

Our borrowings fluctuate by season due to the effect of the school year on the working capital requirements in the educational materials business. Assuming no acquisitions or disposals, our maximum level of net debt normally occurs in July, and our minimum level of net debt normally occurs in December. Based on a review of historical trends in working capital requirements and of forecast monthly balance sheets for the next 12 months, we believe that we have sufficient funds available for the Group’s present requirements, with an appropriate level of headroom given our portfolio of businesses and current plans. Our ability to expand and grow our business in accordance with current plans and to meet long-term capital requirements beyond this 12-month period will depend on many factors, including the rate, if any, at which our cash flow increases and the availability of public and private debt and equity financing, including our ability to secure bank lines of credit. We cannot be certain that additional financing, if required, will be available on terms favorable to us, if at all.

At December 31, 2010, our net debt was £430m compared to net debt of £1,092m at December 31, 2009. Net debt is defined as all short-term, medium-term and long-term borrowing (including finance leases), less all cash, cash equivalents and liquid resources. Cash equivalents comprise short-term deposits with a maturity of up to 90 days, while liquid resources comprise short-term deposits with maturities of more than 90 days and other marketable instruments which are readily realizable and held on a short-term basis. Short-term, medium-term and long-term borrowing amounted to £2,312m at December 31, 2010, compared to £2,008m at December 31, 2009 reflecting the $350m US Dollar Note issued in the year and the strengthening of sterling relative to the US Dollar. At December 31, 2010, cash and liquid resources were £1,736m, compared to £750m at December 31, 2009. This increase in cash is due to receipt of the proceeds from the sale of Interactive Data, only partially re-invested in acquisitions, and strong cash generation in our education businesses.

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Contractual obligations

The following table summarizes the maturity of our borrowings, our obligations under non-cancelable leases, and pension funding obligations, exclusive of anticipated interest payments.

	At December 31, 2010
			Less than		One to		Two to		After five
	Total		one year		two years		five years		years
	£m		£m		£m		£m		£m
Gross borrowings:
Bank loans, overdrafts and commercial paper		73		73		—		—		—
Bonds		2,226		325		—		1,077		824
Finance lease obligations		13		6		4		3		—
Operating lease obligations		1,437		164		151		337		785
UK Pension funding obligations		410		41		41		123		205
Total		4,159		609		196		1,540		1,814

At December 31, 2010 the Group had capital commitments for fixed assets, including finance leases already under contract, of £13m (2009: £15m). There are contingent liabilities in respect of indemnities, warranties and guarantees in relation to former subsidiaries and in respect of guarantees in relation to subsidiaries and associates. In addition there are contingent liabilities in respect of legal and royalty claims. None of these claims or guarantees is expected to result in a material gain or loss.

In 2010, the Group negotiated a new $1,750m committed revolving credit facility which matures in November 2015. The Group is committed to an annual fee of 0.2625% payable quarterly, on the unused amount of this facility.

Off-Balance sheet arrangements

The Group does not have any off-balance sheet arrangements, as defined by the SEC Final Rule 67 (FR-67), “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations”, that have or are reasonably likely to have a material current or future effect on the Group’s financial position or results of operations.

Borrowings

The Group finances its operations by a mixture of cash flows from operations, short-term borrowings from banks and commercial paper markets, and longer term loans from banks and capital markets.

We have in place a committed revolving credit facility of $1.75bn, which matures in November 2015. At December 31, 2010, the full $1.75bn was available under this facility. This credit facility contains two key covenants measured for each 12 month period ending June 30 and December 31:

We must maintain the ratio of our profit before interest, tax and amortization to our net interest payable at no less than 3:1; and

We must maintain the ratio of our net debt to our EBITDA, which we explain below, at no more than 4:1.

“EBITDA” refers to earnings before interest, taxes, depreciation and amortization. We are currently in compliance with these covenants.

Treasury policy

Our treasury policy is described in note 19 of “Item 18. Financial Statements”. For a more detailed discussion of our borrowing and use of derivatives, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.

Related parties

There were no significant or unusual related party transactions in 2010, 2009 or 2008. Refer to note 34 in “Item 18. Financial Statements”.

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Accounting principles

For a description of our principal accounting policies used refer to note 1 in “Item 18. Financial Statements”.

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and senior management

We are managed by a board of directors and a chief executive who reports to the board and manages through a management committee. We refer to the board of directors and the chairman of the board of directors as our “senior management”.

The following table sets forth information concerning senior management, as of March 2011*.

Name	Age		Position
Glen Moreno		67	Chairman
Marjorie Scardino		64	Chief Executive
David Arculus		64	Non-executive Director
Patrick Cescau		62	Non-executive Director
Will Ethridge		59	Chief Executive, Pearson North American Education
Rona Fairhead		49	Chairman and Chief Executive, The Financial Times Group
Robin Freestone		52	Chief Financial Officer
Susan Fuhrman		66	Non-executive Director
Ken Hydon		66	Non-executive Director
Joshua Lewis		48	Non-executive Director
John Makinson		56	Chairman and Chief Executive, The Penguin Group

Glen Moreno was appointed chairman of Pearson on October 1, 2005 and is chairman of the nomination committee. He was appointed deputy chairman of The Financial Reporting Council Limited in November 2010. He is also the senior independent director of Lloyds Banking Group plc as well as a non-executive director of Fidelity International Limited. He was previously the senior independent director of Man Group plc and acting chairman of UK Financial Investments Limited, the company set up by HM Treasury to manage the government’s shareholdings in UK banks.

Marjorie Scardino joined the Pearson board in January 1997. She trained and practised as a lawyer, and was chief executive of The Economist Group from 1993 until joining Pearson. She is also vice chairman of Nokia Corporation and on the boards of several charitable organisations. In 2010 she was named a fellow of the American Academy of Arts and Sciences.

David Arculus is a non-executive director of Telefónica S.A. He is also chairman of Numis Corporation plc and in October 2010 was appointed chairman of Aldermore Bank plc. His previous roles include chairman of O2 plc, Severn Trent plc and IPC Group, chief operating officer of United Business Media plc and group managing director of EMAP plc. He became a non-executive director of Pearson in February 2006 and is chairman of the remuneration committee.

Patrick Cescau is the senior independent director of Tesco plc and a director of INSEAD, the Business School for the World. In September 2010, he joined the board of IAG, the International Consolidated Airlines Group, S.A. He was previously group chief executive of Unilever. He became a non-executive director of Pearson in April 2002 and senior independent director in April 2010.

Will Ethridge joined the Pearson board in May 2008, having held a number of senior positions within Pearson Education, including CEO of the International and Higher Education divisions. He is chairman of CourseSmart, a publishers’ digital retail consortium and chairman of the Association of American Publishers.

Rona Fairhead joined the Pearson board in June 2002 as chief financial officer. She was appointed chief executive of The Financial Times Group in June 2006 and became responsible for Pearson VUE in March 2008.

      * Terry Burns retired from the Pearson plc board on April 30, 2010. CK Prahalad passed away on April 16, 2010. Joshua Lewis was appointed to the Pearson plc board effective March 1, 2011.

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From 1996 until 2001, she served as executive vice president, group control and strategy at ICI. She is also a non-executive director of HSBC Holdings plc and chairs the HSBC audit and risk committees. In December 2010 she was appointed as a non-executive director of The Cabinet Office.

Robin Freestone joined Pearson in 2004 as deputy chief financial officer and became chief financial officer in June 2006, when he also joined the Pearson board. He was previously group financial controller of Amersham plc (now part of GE). He qualified as a chartered accountant with Touche Ross (now Deloitte). He is also a non-executive director and founder shareholder of eChem Limited.

Susan Fuhrman is president of Teachers College at Columbia University, America’s oldest and largest graduate school of education and president of the National Academy of Education. She was previously dean of the Graduate School of Education at the University of Pennsylvania and on the board of trustees of the Carnegie Foundation for the Advancement of Teaching. She became a non-executive director of Pearson in July 2004.

Ken Hydon is a non-executive director of Reckitt Benckiser Group plc, Royal Berkshire NHS Foundation Trust and Tesco plc. He was previously financial director of Vodafone Group plc and of subsidiaries of Racal Electronics. He became a non-executive director of Pearson in February 2006 and is chairman of the audit committee.

Joshua Lewis is managing principal of Salmon River Capital LLC, a private equity/venture capital investment firm, and is also an advisor to the Bill & Melinda Gates Foundation’s Next Generation Learning Challenges programme. He was previously a general partner of both Warburg Pincus and Forstmann Little, and served on the board of the Capella Education Company, a pioneering provider of web-based post-secondary education. He was also chair of New Leaders for New Schools, a social enterprise training the next generation of US urban principals, and remains involved with that organisation.

John Makinson joined the Pearson board in March 1996 and was finance director until June 2002. He was appointed chairman of The Penguin Group in May 2001. He is also chairman of The Royal National Theatre and trustee of the Institute for Public Policy Research.

Compensation of senior management

It is the role of the remuneration committee (the committee) to approve the remuneration and benefits packages of the executive directors, the chief executives of the principal operating companies and other members of the Pearson Management Committee. The committee also takes note of the remuneration for those executives with base pay over a certain level, representing approximately the top 50 executives of the company.

Remuneration policy

Our goal as a company is to make an impact on people’s lives and on society through education and information. Our strategy to achieve that goal is pursued by all Pearson’s businesses in some shape or form and has four parts: investment in quality content; adding services to this content; working in markets around the world, particularly in the developing world; and efficiency.

An important measure of our strategy is financial performance. Our goal is to achieve sustainable growth in three key financial measures — earnings, cash and return on invested capital — and reliable cash returns to our investors through healthy and growing dividends. Therefore those measures, or others that contribute to them such as operating margins and working capital, form the basis of our annual budgets and plans, and the basis for bonuses and long-term incentives.

Our starting point continues to be that total remuneration (base compensation plus annual and long-term incentives) should reward both short and long-term results, delivering competitive rewards for target performance, but outstanding rewards for exceptional company performance. The performance conditions that we select for the company’s various performance related annual or long-term incentive plans are linked to the company’s strategic objectives set out above and aligned with the interests of shareholders.

Total remuneration is made up of fixed and performance-linked elements, with each element supporting different objectives. Base salary reflects competitive market level, role and individual contribution. Annual incentives motivate the achievement of annual strategic goals. Bonus share matching encourages executive directors and other senior executives to acquire and hold Pearson shares and aligns executives’ and shareholders’

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interests. Long-term incentives drive long-term earnings and share price growth and value creation and align executives’ and shareholders’ interests.

Consistent with its policy, the committee places considerable emphasis on the performance-linked elements i.e. annual incentives, bonus share matching and long-term incentives. The committee will continue to review the mix of fixed and performance-linked remuneration on an annual basis, consistent with its overall philosophy.

We want our executive directors’ remuneration to be competitive with those of directors and executives in similar positions in comparable companies. For benchmarking purposes we review remuneration by reference to the UK and US market depending on the relevant market or markets for particular jobs. We look separately at three comparator groups:

First, we use a select peer group of FTSE 100 companies with very substantial overseas operations. These companies are of a range of sizes around Pearson, but the method our independent advisers use to make comparisons on remuneration takes this variation in size into account; secondly, for the US, we use a broad media industry group; and thirdly, we look at the FTSE 20-50, excluding financial services. We use these companies because they represent the wider executive talent pool from which we might expect to recruit externally and the pay market to which we might be vulnerable if our remuneration was not competitive.

Base salary

Our normal policy is to review salaries annually, consistent with the way we benchmark pay and taking into account the approach to pay across the company as a whole.

Allowances and benefits

It is the company’s policy that benefit programs should be competitive in the context of the local labour market, but as an international company we require executives to operate worldwide and recognize that recruitment also operates worldwide.

Annual incentives

The committee establishes the annual incentive plans for the executive directors and the chief executives of the company’s principal operating companies, including performance measures and targets. These plans then become the basis of the annual incentive plans below the level of the principal operating companies, particularly with regard to the performance measures used and the relationship between the relevant business unit operating plans and the incentive targets.

The committee will continue to review the annual incentive plans each year and to revise the performance measures, targets and individual incentive opportunities in light of current conditions.

Annual incentive payments do not form part of pensionable earnings.

Performance Measures

The financial performance measures relate to the company’s main drivers of business performance at both the corporate, operating company and business unit level. Performance is measured separately for each item. For each performance measure, the committee establishes thresholds, target and maximum levels of performance for different levels of payout.

A proportion (which for 2011 may be up to 30%) of the total annual incentive opportunity for the executive directors and other members of the Pearson Management Committee is based on performance against personal objectives as agreed with the chief executive (or in this case the chief executive or chairman). These comprise functional, operational, strategic and non-financial objectives relevant to the executives’ specific areas of responsibility and inter alia may include objectives relating to environmental, social and governance issues.

For 2011 the principle financial performance measures for Pearson plc are sales, operating profit (for the operating companies) and growth in underlying earnings per share for continuing operations at constant exchange rates (for Pearson plc), average working capital as a ratio to sales and operating cash flow. The selection and weighting of the performance measures takes into account the strategic objectives and the business priorities relevant to each operating company and to Pearson overall each year.

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The individual annual incentive opportunities for the executive directors other than the chief executive are expressed as % of base salary. The committee with the advice of the chief executive determines the aggregate level of annual incentives and individual incentive opportunities taking into account all relevant factors. These factors may include the profitability of the company, individual roles and responsibilities, market annual incentive levels, and the level of stretch in the performance targets.

For 2011, there are no changes to the target and maximum annual incentive opportunities for the chief executive which remain at 100% and 180% respectively, of base salary (as in 2010).

For the other members of the Pearson Management Committee, individual incentive opportunities take into account their membership of that committee and the contribution of their respective businesses or role to Pearson’s overall financial goals. In the case of the executive directors, the target individual incentive opportunity for 2011 is in a range from 80% to 87.5% of base salary (as in 2010). The maximum opportunity remains at twice target (as in 2010).

The annual incentive plans are discretionary and the committee reserves the right to make adjustments to payouts up or down if it believes exceptional factors warrant doing so. The committee may also award individual discretionary incentive payments.

Name	Pearson plc			Operating company			Personal objectives
Marjorie Scardino		90	%		—			10	%
Will Ethridge		30	%		60	%		10	%
Rona Fairhead		30	%		60	%		10	%
Robin Freestone		80	%		—			20	%
John Makinson		30	%		60	%		10	%

For Pearson plc, the performance measures were sales, earnings per share growth, average working capital to sales ratio and operating cash flow. Underlying growth in adjusted earnings per share at constant exchange rates, average working capital as a ratio to sales and operating cash flow were all above maximum. Sales were above target but below maximum.

For North American Education, the performance measures were sales, operating profit, and average working capital as a ratio to sales and operating cash flow. Average working capital as a ratio to sales and operating cash flow were above maximum. Sales and operating profit were above target but below maximum.

For FT Publishing, the performance measures were sales, operating profit and operating cash flow. All performance measures were above maximum.

For Pearson VUE, the performance measures were sales, operating profit, average working capital as a ratio to sales and operating cash flow. Sales were above target but below maximum. Performance across all other measures was above maximum.

For Penguin Group, the performance measures were sales, operating profit, operating margin, average working capital as a ratio to sales and operating cash flow. Operating profit, operating margin and average working capital as a ration to sales were all above maximum. Sales and operating cash flow were above target but below maximum.

Bonus share matching

In 2008, shareholders approved the renewal of the annual bonus share matching plan, which permits executive directors and senior executives around the company to invest up to 50% of any after-tax annual bonus in Pearson shares.

If the participant’s invested shares are held, they will be matched subject to earnings per share growth over the three-year performance period on a gross basis up to a maximum of one matching share for every one held i.e. the number of matching shares will be equal to the number of shares that could have been acquired with the amount of the pre-tax annual bonus taken in invested shares.

One matching share for every two invested shares held i.e. 50% of the maximum matching award, will be released if the company’s adjusted earnings per share increase in real terms by 3% per annum compound over the three-year performance period. One matching share for every one invested share held i.e. 100% of the maximum matching award, will be released if the company’s adjusted earnings per share increase in real terms by 5% per annum compound over the same period.

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For real growth in adjusted earnings per share of between 3% and 5% per annum compound, the rate at which the participant’s invested shares will be matched will be calculated according to a straight-line sliding scale.

Real growth is calculated by reference to the UK Government’s Index of Retail Prices (All Items). We choose to test our earnings per share growth against UK inflation over three years to measure the company’s financial progress over the period to which the entitlement to matching shares relates.

Where matching shares vest in accordance with the plan, a participant will also receive additional shares representing the gross value of dividends that would have been paid on the matching shares during the performance period and re-invested.

Long-term incentives

By separate resolution, shareholders are being asked to approve the renewal of the long-term incentive plan first introduced in 2001 and renewed again in 2006. The committee has reviewed the operation of this plan in light of the company’s strategic goals. The committee has concluded that the plan is achieving its objectives and, looking forward, will continue to enable the company to recruit and retain the most able managers worldwide and to ensure their long-term incentives encourage outstanding performance and are competitive in the markets in which we operate. We are therefore seeking approval of its renewal on broadly its existing terms.

Subject to shareholders’ approval, executive directors, senior executives and other managers can participate in this plan which can deliver restricted stock and/or stock options. Approximately 6% of the company’s employees currently hold awards under this plan. The aim is to give the committee a range of tools with which to link corporate performance to management’s long-term reward in a flexible way. It is not the committee’s intention to grant stock options in 2011.

Restricted stock granted to executive directors vests only if stretching corporate performance targets over a specified period have been met. Awards vest on a sliding scale based on performance over the period. There is no retesting. The committee determines the performance measures and targets governing an award of restricted stock prior to grant.

The performance measures that will apply for the executive directors for awards in 2011 and subsequent years will continue to be focused on delivering and improving returns to shareholders. These measures, which have applied since 2004, are relative total shareholder return (TSR), return on invested capital (ROIC) and earnings per share (EPS) growth.

Restricted stock may be granted without performance conditions to satisfy recruitment and retention objectives. Restricted stock awards that are not subject to performance conditions will not be granted to any of the current executive directors.

Pearson’s approach to the level of individual awards takes into account a number of factors. First, we take into account the face value of individual awards at the time of grant assuming that the performance targets are met in full. Secondly, we take into account the assessments by our independent advisers of market practice for comparable companies and of directors’ total remuneration relative to the market. And thirdly, we take into account individual roles and responsibilities, and company and individual performance.

Where shares vest, in accordance with the plan, participants receive additional shares representing the gross value of dividends that would have been paid on these shares during the performance period and reinvested.

Pearson wishes to encourage executives and managers to build up a long-term holding of shares so as to demonstrate their commitment to the company. To achieve this, for awards of restricted stock that are subject to performance conditions over a three-year period, a percentage of the award (normally 75%) vests at the end of the three-year period. The remainder of the award (normally 25%) only vests if the participant retains the after-tax number of shares that vest at year three for a further two years.

There are limits on the amount of new-issue equity we can use. In any rolling ten-year period, no more than 10% of Pearson equity will be issued, or be capable of being issued, under all Pearson’s share plans, and no more than 5% of Pearson equity will be issued, or be capable of being issued, under executive or discretionary plans. In addition, for existing shares no more than 5% of Pearson equity may be held in trust at any time.

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Shareholding policy

The committee expects executive directors to build up a substantial shareholding in the company in line with the policy of encouraging widespread employee ownership. To complement the operation of the company’s long-term incentive arrangements, we will in future, operate formal shareholding guidelines for executive directors. The target holding will be 200% of the salary for the chief executive and 125% of salary for the other executive directors consistent with median practice in FTSE 100 companies that operate such arrangements.

Service agreements

In accordance with long established policy, all continuing executive directors have rolling service agreements under which, other than by termination in accordance with the terms of these agreements, employment continues until retirement.

The committee reviewed the policy on executive service agreements in 2008 and again in 2010. Future executive director service agreements should provide that the company may terminate these agreements by giving no more than 12 months’ notice. As an alternative, the company may at its discretion pay in lieu of that notice. Payment in lieu of notice may be made in instalments and may be subject to mitigation. In the case of the longer serving directors with legacy employment agreements, the compensation payable in circumstances where the company terminates the agreements without notice or cause takes the form of liquidated damages.

There are no special provisions for notice, pay in lieu of notice or liquidated damages in the event of termination of employment in the event of a change of control of Pearson. On termination of employment, executive directors’ entitlements to any vested or unvested awards under Pearson’s discretionary share plans are treated in accordance with the terms of the relevant plan.

Retirement benefits

Executive directors participate in the pension arrangements set up for Pearson employees. Marjorie Scardino, Will Ethridge, John Makinson, Rona Fairhead and Robin Freestone will also have other retirement arrangements because of the cap on the amount of benefits that can be provided from the pension arrangements in the US and the UK.

The differences in the arrangements for the current executive directors reflect the different arrangements in the UK and the US and the changes in pension arrangements generally over the periods of their employment. Executive directors are entitled to life insurance cover while in employment, and to a pension in the event of ill-health or disability. A pension for their spouse and/or dependants is also available on death.

In the US, the defined benefit arrangement is the Pearson Inc. Pension Plan. This plan provides a lump sum convertible to an annuity on retirement. The lump sum accrued at 6% of capped compensation until December 31, 2001 when further benefit accruals ceased. Normal retirement age is 65 although early retirement is possible subject to a reduction for early payment. No increases are guaranteed for pensions in payment. There is a spouse’s pension on death in service and the option to provide a death in retirement pension by reducing the member’s pension.

The defined contribution arrangement in the US is a 401(k) plan. At retirement, the account balances will be used to provide benefits. In the event of death before retirement, the account balances will be used to provide benefits for dependants.

In the UK, the pension plan is the Pearson Group Pension Plan and executive directors participate in either the Final Pay or the Money Purchase 2003 section. Normal retirement age is 62, but, subject to company consent, retirement is currently possible from age 55. In the Final Pay section, the accrued pension is reduced on retirement prior to age 60. Pensions in payment are guaranteed to increase each year at 5% or the rise in inflation each year, if lower. Pensions for a member’s spouse, dependant children and/or nominated financial dependant are payable in the event of death. In the Money Purchase 2003 section the account balances are used to provide benefits at retirement. In the event of death before retirement pensions for a member’s spouse, dependant children and/or nominated financial dependant are payable.

Members of the Pearson Group Pension Plan who joined after May 1989 are subject to an upper limit of earnings that can be used for pension purposes, known as the earnings cap. This limit, £108,600 as at April 6, 2006, was abolished by the Finance Act 2004. However the Pearson Group Pension Plan has retained its own ‘cap’, which

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will increase annually in line with the UK Government’s Index of Retail Prices (All Items). The cap was £123,600 as at April 6, 2010.

As a result of the UK Government’s A-Day changes effective from April 2006, UK executive directors and other members of the Pearson Group Pension Plan who are, or become, affected by the lifetime allowance are provided with a cash supplement as an alternative to further accrual of pension benefits on a basis that is broadly cost neutral to the company.

Marjorie Scardino

Marjorie Scardino participates in the Pearson Inc. Pension Plan and the approved 401(k) plan.

Since 2010, additional pension benefits are provided through: a taxable and non-pensionable cash supplement in place of the unfunded plan; a funded defined contribution plan approved by HM Revenue and Customs (HMRC) as a corresponding plan; and amounts in the legacy unfunded plan. In aggregate, the cash supplement and contributions to the funded plan are based on a percentage of salary and a fixed cash amount index-linked to inflation. The notional cash balance of the legacy unfunded plan increases annually by a specified notional interest rate. The unfunded plan also provides the opportunity to convert a proportion of this notional cash account into a notional share account reflecting the value of a number of Pearson ordinary shares. The number of shares in the notional share account is determined by reference to the market value of Pearson shares at the date of conversion.

Will Ethridge

Will Ethridge is a member of the Pearson Inc. Pension Plan and the approved 401(k) plan. He also participates in an unfunded, non-qualified Supplemental Executive Retirement Plan (SERP) that provides an annual accrual of 2% of final average earnings, less benefits accrued in the Pearson Inc. Pension Plan and US Social Security. Additional defined contribution benefits are provided through a funded, non-qualified Excess Plan.

Rona Fairhead

Rona Fairhead is a member of the Pearson Group Pension Plan. Her pension accrual rate is 1/30th of pensionable salary per annum, restricted to the plan earnings cap. Until April 2006, the company also contributed to a Funded Unapproved Retirement Benefits Scheme (FURBS) on her behalf. Since April 2006, she has received a taxable and non-pensionable cash supplement in replacement of the FURBS.

Robin Freestone

Robin Freestone is a member of the Money Purchase 2003 section of the Pearson Group Pension Plan. Company contributions are 16% of pensionable salary per annum, restricted to the plan earnings cap. Until April 2006, the company also contributed to a Funded Unapproved Retirement Benefits Scheme (FURBS) on his behalf. Since April 2006, he has received a taxable and non-pensionable cash supplement in replacement of the FURBS.

John Makinson

John Makinson is a member of the Pearson Group Pension Plan under which his pensionable salary is restricted to the plan earnings cap. The company ceased contributions on December 31, 2001 to his FURBS arrangement. During 2002 it set up an Unfunded Unapproved Retirement Benefits Scheme (UURBS) for him. The UURBS tops up the pension payable from the Pearson Group Pension Plan and the closed FURBS to target a pension of two-thirds of a revalued base salary on retirement at age 62. The revalued base salary is defined as £450,000 effective at June 1, 2002, increased at January 1, each year by reference to the increase in the UK Government’s Index of Retail Prices (All Items). In the event of his death a pension from the Pearson Group Pension Plan, the FURBS and the UURBS will be paid to his spouse or nominated financial dependant. Early retirement is currently possible from age 55, with company consent.

The pension is reduced to reflect the shorter service, and before age 60, further reduced for early payment.

Executive directors’ non-executive directorships

Our policy is that executive directors may, by agreement with the board, serve as non-executives of other companies and retain any fees payable for their services.

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The following executive directors served as non-executive directors elsewhere and received fees or other benefits for the period covered by this report as follows: Marjorie Scardino (Nokia Corporation and MacArthur Foundation); Rona Fairhead (HSBC Holdings plc and Spencer Stuart Advisory Board).

Chairman’s remuneration

Our policy is that the chairman’s pay should be set at a level that is competitive with those of chairmen in similar positions in comparable companies. He is not entitled to any annual or long-term incentive, retirement or other benefits.

There were no changes in the chairman’s remuneration in 2010. With effect from 1 January 2007, his remuneration was £450,000 per year. We reviewed the chairman’s remuneration at the end of 2010 and agreed that this would be increased to £500,000 per year with effect from April 1, 2011. The next review will take place in three years’ time.

Non-executive directors

Fees for non-executive directors are determined by the full board having regard to market practice and within the restrictions contained in Pearson’s Articles of Association. Non-executive directors receive no other pay or benefits (other than reimbursement for expenses incurred in connection with their directorship of Pearson) and do not participate in Pearson’s equity-based incentive plans.

With effect from July 1, 2010, the structure and fees are as follows:

	Fees payable from
	July 1, 2010 (£)
Non-executive director fee		65,000
Chairmanship of audit committee		25,000
Chairmanship of remuneration committee		20,000
Membership of audit committee		10,000
Membership of remuneration committee		5,000
Senior independent director		20,000

A minimum of 25% of the basic fee is paid in Pearson shares that the non-executive directors have committed to retain for the period of their directorships.

Non-executive directors serve Pearson under letters of appointment and do not have service contracts. There is no entitlement to compensation on the termination of their directorships.

Remuneration of senior management

Excluding contributions to pension funds and related benefits, senior management remuneration for 2010 was as follows:

	Salaries/		Annual
	Fees		Incentive		Allowances(1)		Benefits(2+3)		Total
	£000		£000		£000		£000		£000
Non-executive Chairman
Glen Moreno		450		—		—		—		450
Executive directors
Marjorie Scardino		969		1,606		70		17		2,662
Will Ethridge		661		1,010		—		—		1,671
Rona Fairhead		516		826		12		19		1,373
Robin Freestone		460		685		7		6		1,158
John Makinson		536		801		232		6		1,575
Senior management as a group		3,592		4,928		321		48		8,889

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Notes:

(1)	Allowances for Marjorie Scardino include £45,005 in respect of housing costs and a US payroll supplement of £11,754. John Makinson is entitled to a location and market premium in relation to the management of the business of the Penguin Group in the US and received £218,653 for 2010.
(2)	Benefits include company car, car allowance and UK health care premiums. US health and welfare benefits for Marjorie Scardino and Will Ethridge are self-insured and the company cost, after employee contributions, is tax free to employees. For Marjorie Scardino, benefits include £15,450 for pension planning and financial advice. Marjorie Scardino, Rona Fairhead and John Makinson have the use of a chauffeur.
(3)	No amounts as compensation for loss of office and no expense allowances chargeable to UK income tax were paid during the year.

Share options of senior management

This table sets forth for each director the number of share options held as of December 31, 2010 as well as the exercise price, rounded to the nearest whole pence/cent, and the range of expiration dates of these options.

	Number of		Exercise	Earliest
Director	Options	(2)	Price	Exercise Date	Expiry Date
Marjorie Scardino	1,672	a	547.2p	08/01/12	02/01/13
	41,550	b*	1421.0p	05/09/02	05/09/11
	41,550	b*	1421.0p	05/09/03	05/09/11
	41,550	b*	1421.0p	05/09/04	05/09/11
	41,550	b*	1421.0p	05/09/05	05/09/11
Total	167,872
Will Ethridge	11,010	b*	$21.00	05/09/02	05/09/11
	11,010	b*	$21.00	05/09/03	05/09/11
	11,010	b*	$21.00	05/09/04	05/09/11
	11,010	b*	$21.00	05/09/05	05/09/11
Total	44,040
Rona Fairhead	2,371	a	690.4p	08/01/12	02/01/13
	20,000	b*	822.0p	11/01/02	11/01/11
	20,000	b*	822.0p	11/01/03	11/01/11
	20,000	b*	822.0p	11/01/04	11/01/11
Total	62,371
Robin Freestone	1,757	a	534.8p	08/01/11	02/01/12
Total	1,757
John Makinson	19,785	b*	1421.0p	05/09/02	05/09/11
	19,785	b*	1421.0p	05/09/03	05/09/11
	19,785	b*	1421.0p	05/09/04	05/09/11
	19,785	b*	1421.0p	05/09/05	05/09/11
Total	79,140

(1)	No variations to the terms and conditions of share options were made during the year.
(2)	Each plan is described below.

a     Worldwide save for shares — The acquisition of shares under the worldwide save for shares plan is not subject to the satisfaction of a performance target.

b	Long-term incentive — All options that remain outstanding are exercisable and lapse if they remain unexercised at the tenth anniversary of the date of grant.
*	Where options are exercisable.

(3)   Marjorie Scardino contributes US$1,000 per month (the maximum allowed) to the US employee stock purchase plan. The terms of this plan allow participants to make monthly contributions for 6 month periods

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and to acquire shares twice annually at the end of these periods at a price that is the lower of the market price at the beginning or the end of each period, both less 15%.

(4)   The market price on December 31, 2010 was 1,008.0p per share and the range during the year was 855.0p to 1,051.0p.

Share ownership of senior management

The table below sets forth the number of ordinary shares and restricted shares held by each of our directors as at February 28, 2011. Additional information with respect to share options held by, and bonus awards for, these persons is set out above in “Remuneration of Senior Management” and “Share Options of Senior Management”. The total number of ordinary shares held by senior management as of February 28, 2011 was 2,735,220 representing less than 1% of the issued share capital on February 28, 2011.

	Ordinary		Restricted
As at February 28, 2011	shares(1)		shares(2)
Glen Moreno		150,000		—
Marjorie Scardino		1,107,118		1,641,511
David Arculus		14,053		—
Terry Burns (stepped down on April 30, 2010 )		12,222		—
Patrick Cescau		6,282		—
Will Ethridge		333,395		665,820
Rona Fairhead		342,669		467,143
Robin Freestone		193,954		560,526
Susan Fuhrman		11,363		—
Ken Hydon		10,715		—
John Makinson		551,039		446,042
CK Prahalad (deceased April 16, 2010)		2,410		—

Notes:

(1)	Ordinary shares include both ordinary shares listed on the London Stock Exchange and American Depositary Receipts (ADRs) listed on the New York Stock Exchange. The figures include both shares and ADRs acquired by individuals investing part of their own after-tax annual bonus in Pearson shares under the annual bonus share matching plan.
(2)	From 2004, Marjorie Scardino is also deemed to be interested in a further number of shares under her unfunded pension arrangement described in this report, which provides the opportunity to convert a proportion of her notional cash account into a notional share account reflecting the value of a number of Pearson shares.
(3)	The register of directors’ interests (which is open to inspection during normal office hours) contains full details of directors’ shareholdings and options to subscribe for shares. The market price on December 31, 2010 was 1,008.0p per share and the range during the year was 855.0p to 1,051.0p.
(4)	At December 31, 2010, Patrick Cescau held 168,000 Pearson bonds.
(5)	Ordinary shares do not include any shares vested but held pending release under a restricted share plan.

Employee share ownership plans

Worldwide save for shares and US employee share purchase plans

In 1998, we introduced a worldwide save for shares plan. Under this plan, our employees around the world have the option to save a portion of their monthly salary over periods of three, five or seven years. At the end of this period, the employee has the option to purchase ordinary shares with the accumulated funds at a purchase price equal to 80% of the market price prevailing at the commencement of the employee’s participation in the plan.

In the United States, this plan operates as a stock purchase plan under Section 423 of the US Internal Revenue Code of 1986. This plan was introduced in 2000 following Pearson’s listing on the New York Stock Exchange. Under it, participants save a portion of their monthly salary over six month periods, at the end of which they have the

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option to purchase ADRs with their accumulated funds at a purchase price equal to 85% of the lower of the market price prevailing at the beginning or end of the period.

Board practices

Our board currently comprises the chairman, who is a part-time non-executive director, five executive directors and five non-executive directors. Our articles of association provide that at every annual general meeting, one-third of the board of directors, or the number nearest to one-third, shall retire from office. The directors to retire each year are the directors who have been longest in office since their last election or appointment. A retiring director is eligible for re-election. If at any annual general meeting, the place of a retiring director is not filled, the retiring director, if willing, is deemed to have been re-elected, unless at or prior to such meeting it is expressly resolved not to fill the vacated office, or unless a resolution for the re-election of that director has been put to the meeting and lost. Our articles of association also provide that every director be subject to re-appointment by shareholders at the next annual general meeting following their appointment.

However since 2008, in accordance with good corporate governance, the board has resolved that all directors should offer themselves for re-election on an annual basis at the company’s annual general meeting. Accordingly, all of the directors will offer themselves for re-election, (or re-appointment in the case of directors who were appointed since the last meeting), at the forthcoming annual general meeting on 28 April 2011.

Pearson is listed on the New York Stock Exchange (“NYSE”). As a listed non-US issuer, we are required to comply with some of the NYSE’s corporate governance rules, and otherwise must disclose on our website any significant ways in which our corporate governance practices differ from those followed by US companies under the NYSE listing standards. At this time, the Company believes that it is in compliance in all material respects with all the NYSE rules except that the Nomination Committee is not composed entirely of independent directors, and that it is the full board, not the Nomination Committee, that develops and recommends corporate governance principles.

The board of directors has established the following committees, all of which report to the board. Each committee has its own written terms of reference setting out their authority and duties. These can be found on our website (www.pearson.com/investors/shareholder-information/governance).

Audit committee

This committee provides the board with a vehicle to appraise our financial management and reporting and to assess the integrity of our accounting procedures and financial controls. Ken Hydon chairs this committee and its other members are David Arculus, Patrick Cescau, Susan Fuhrman and Joshua Lewis. Ken Hydon is also the designated audit committee financial expert within the meaning of the applicable rules and regulations of the US Securities and Exchange Commission. Our internal and external auditors have direct access to the committee to raise any matter of concern and to report the results of work directed by the committee.

Remuneration committee

This committee meets regularly to decide the remuneration and benefits of the executive directors and the chief executives of our three operating divisions. The committee also recommends the chairman’s remuneration to the board of directors for its decision and reviews management development and succession plans. David Arculus chairs this committee and its other members are Patrick Cescau, Glen Moreno and Ken Hydon.

Nomination committee

This committee meets from time to time as necessary to consider the appointment of new directors. The committee is chaired by Glen Moreno and comprises Marjorie Scardino and all of the non-executive directors.

Employees

The average number of persons employed by us in continuing operations during each of the three fiscal years ended 2010 were as follows:

•  36,317 in fiscal 2010,

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•  34,705 in fiscal 2009, and

•  31,171 in fiscal 2008.

We, through our subsidiaries, have entered into collective bargaining agreements with employees in various locations. Our management has no reason to believe that we would not be able to renegotiate any such agreements on satisfactory terms. We encourage employees to contribute actively to the business in the context of their particular job roles and believe that the relations with our employees are generally good.

The table set forth below shows for 2010, 2009 and 2008 the average number of persons employed in each of our operating divisions.

Average number employed	2010		2009		2008
North American Education		14,828		15,606		15,412
International Education		10,713		8,899		5,718
Professional		3,721		2,662		2,641
FT Group		2,557		2,328		2,379
Penguin		3,470		4,163		4,112
Other		1,028		1,047		909
Continuing operations		36,317		34,705		31,171

The average number employed in discontinued operations was 2,459 in 2009 and 2,509 in 2008.

ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

To our knowledge, as of February 28, 2011, the beneficial owners of 3% or more of our issued and outstanding ordinary share capital were as follows:

			% of outstanding
			ordinary shares
			represented by
	Number of ordinary		number of shares
Name of shareholder	shares held		held
Legal & General Group plc		32,300,784		3.98	%
Libyan Investment Authority		24,431,000		3.01	%

On February 28, 2011, record holders with registered addresses in the United States held 48,543,471 ADRs, which represented 5.97% of our outstanding ordinary shares. Some of these ADRs are held by nominees and so these numbers may not accurately represent the number of beneficial owners in the United States.

Loans and equity advanced to joint ventures and associates during the year and as at December 31, 2010 are shown in note 12 in “Item 18. Financial Statements.” Dividends receivable from joint ventures and associates are set out in note 12 in “Item 18. Financial Statements”. There were no other related party transactions in 2010.

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ITEM 8.   FINANCIAL INFORMATION

The financial statements filed as part of this Annual Report are included on pages F-1 through F-69 hereof.

Other than those events described in note 35 in “Item 18. Financial Statements” of this Form 20-F and seasonal fluctuations in borrowings, there has been no significant change to our financial condition or results of operations since December 31, 2010. Our borrowings fluctuate by season due to the effect of the school year on the working capital requirements of the educational book business. Assuming no acquisitions or disposals, our maximum level of net debt normally occurs in July, and our minimum level of net debt normally occurs in December.

Our policy with respect to dividend distributions is described in response to “Item 3. Key Information” above.

ITEM 9.   THE OFFER AND LISTING

The principal trading market for our ordinary shares is the London Stock Exchange. Our ordinary shares also trade in the United States in the form of ADSs evidenced by ADRs under a sponsored ADR facility with The Bank of New York Mellon, as depositary. We established this facility in March 1995 and amended it in August 2000 in connection with our New York Stock Exchange listing. Each ADS represents one ordinary share.

The ADSs trade on the New York Stock Exchange under the symbol “PSO”.

The following table sets forth the highest and lowest middle market quotations, which represent the average of closing bid and asked prices, for the ordinary shares, as derived from the Daily Official List of the London Stock Exchange and the average daily trading volume on the London Stock Exchange:

•  on an annual basis for our five most recent fiscal years,

•  on a quarterly basis for our most recent quarter and two most recent fiscal years, and

•  on a monthly basis for the six most recent months.

	Ordinary
	shares				Average daily
Reference period	High		Low		trading volume
	(In pence)				(Ordinary shares)
Five most recent fiscal years
2010		1051		855		2,424,600
2009		893		578		4,030,500
2008		733		519		4,758,300
2007		915		695		6,405,600
2006		811		671		5,004,500
Most recent quarter and two most recent fiscal years
2010 Fourth quarter		1034		926		2,126,500
Third quarter		1029		864		2,167,800
Second quarter		1051		888		2,967,400
First quarter		1037		855		2,466,700
2009 Fourth quarter		893		755		2,777,200
Third quarter		777		578		3,158,500
Second quarter		733		600		4,554,700
First quarter		714		584		5,695,700
Most recent six months
February 2011		1064		1013		1,524,200
January 2011		1066		983		2,075,800
December 2010		1034		961		1,673,100
November 2010		974		926		1,909,900
October 2010		1009		948		2,806,800
September 2010		1022		985		1,877,000

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ITEM 10.   ADDITIONAL INFORMATION

Articles of association

We summarize below the material provisions of our articles of association, as amended, which have been filed as an exhibit to our annual report on Form 20-F for the year ended December 31, 2010. The summary below is qualified entirely by reference to the Articles of Association. We have multiple business objectives and purposes and are authorized to do such things as the board may consider fit to further our interests or incidental or conducive to the attainment of our objectives and purposes.

Directors’ powers

Our business shall be managed by the board of directors and the board may exercise all such of our powers as are not required by law or by the Articles of Association or by any directions given by the Company by special resolution, to be exercised in a general meeting.

Interested directors

For the purposes of section 175 of the Companies Act 2006 the board may authorize any matter proposed to it which would, if not so authorized, involve a breach of duty by a Director under that section, including, without limitation, any matter which relates to a situation in which a Director has, or can have, an interest which conflicts, or possibly may conflict, with the interests of the Company. Any such authorization will be effective only if:

(a)  any requirement as to quorum at the meeting at which the matter is considered is met without counting the Director in question or any other interested Director; and

(b)  the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.

The board may (whether at the time of the giving of the authorization or subsequently) make any such authorization subject to any limits or conditions it expressly imposes, but such authorization is otherwise given to the fullest extent permitted. The board may vary or terminate any such authorization at any time.

Provided that he has disclosed to the board the nature and extent of his interest, a Director notwithstanding his office:

(a)  may be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise (directly or indirectly) interested;

(b)  may act by himself or his firm in a professional capacity for the Company (otherwise than as auditor) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director;

(c)  may be a director or other officer of, or employed by, or a party to a transaction or arrangement with, or otherwise interested in, any body corporate in which the Company is otherwise (directly or indirectly) interested.

A Director shall not, by reason of his office, be accountable to the Company for any remuneration or other benefit which he derives from any office or employment or from any transaction or arrangement or from any interest in any body corporate:

(a)  the acceptance, entry into or existence of which has been approved by the board (subject, in any such case, to any limits or conditions to which such approval was subject); or

(b)  which he is permitted to hold or enter into by virtue of paragraph (a), (b) or (c) above;

nor shall the receipt of any such remuneration or other benefit constitute a breach of his duty under section 176 of the Act.

A Director shall be under no duty to the Company with respect to any information which he obtains or has obtained otherwise than as a director of the Company and in respect of which he owes a duty of confidentiality to another person. However, to the extent that his relationship with that other person gives rise to a conflict of interest

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or possible conflict of interest, which has been approved by the board: the director shall not be in breach of the general duties he owes to the Company by virtue of sections 171 to 177 of the Act because he fails:

(a)  to disclose any such information to the board or to any Director or other officer or employee of the Company; and/or

(b)  to use or apply any such information in performing his duties as a Director of the Company.

Where the existence of a Director’s relationship with another person has been approved by the board and his relationship with that person gives rise to a conflict of interest or possible conflict of interest, the Director shall not be in breach of the general duties he owes to the Company by virtue of sections 171 to 177 of the Act because he:

(a)  absents himself from meetings of the board at which any matter relating to the conflict of interest or possible conflict of interest will or may be discussed or from the discussion of any such matter at a meeting or otherwise; and/or

(b)  makes arrangements not to receive documents and information relating to any matter which gives rise to the conflict of interest or possible conflict of interest sent or supplied by the Company and/or for such documents and information to be received and read by a professional adviser,

for so long as he reasonably believes such conflict of interest or possible conflict of interest subsists.

Except as stated below, a Director shall not vote in respect of any contract or arrangement or any other proposal whatsoever in which he has an interest which is, to his knowledge, a material interest, otherwise than by virtue of his interests in shares or debentures or other securities of or otherwise in or through the Company. A Director shall not be counted in the quorum at a meeting of the Board in relation to any resolution on which he is debarred from voting.

Notwithstanding the foregoing, a director will be entitled to vote, and be counted in the quorum, on any resolution concerning any of the following matters:

•  the giving of any guarantee, security or indemnity in respect of money lent or obligations incurred by him or by any other person at the request of or for the benefit of the Company or any of its subsidiaries;

•  the giving of any guarantee, security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which he himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security;

•  any proposal relating to the Company or any of its subsidiary undertakings where it is offering securities in which offer a Director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which a Director is to participate;

•  any proposal relating to another company in which he and any persons connected with him do not to his knowledge hold an interest in shares (as that term is used in sections 820 to 825 of the Act) representing one per cent or more of either any class of the equity share capital, or the voting rights, in such company;

•  any proposal relating to an arrangement for the benefit of the employees of the Company or any of its subsidiary undertakings which does not award him any privilege or benefit not generally awarded to the employees to whom such arrangement relates; and

•  any proposal concerning insurance that we propose to maintain or purchase for the benefit of directors or for the benefit of persons, including directors.

Where proposals are under consideration concerning the appointment of two or more directors to offices or employment with us or any company in which we are interested, these proposals may be divided and considered separately and each of these directors, if not prohibited from voting under the provisions of the eighth paragraph before this one, will be entitled to vote and be counted in the quorum with respect to each resolution except that concerning his or her own appointment.

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Borrowing powers

The board of directors may exercise all powers to borrow money and to mortgage or charge our undertaking, property and uncalled capital and to issue debentures and other securities, whether outright or as collateral security for any of our or any third party’s debts, liabilities or obligations. The board of directors must restrict the borrowings in order to secure that the aggregate amount of undischarged monies borrowed by us (and any of our subsidiaries), but excluding any intra-group debts, shall not at any time (without the previous sanction of the Company in the form of an ordinary resolution) exceed a sum equal to twice the aggregate of the adjusted capital and reserves.

Other provisions relating to directors

Under the articles of association, directors are paid out of our funds for their services as we may from time to time determine by ordinary resolution and, in the case of non-executive directors, up to an aggregate of £750,000 or such other amounts as resolved by the shareholders at a general meeting. Directors currently are not required to hold any share qualification.

Annual general meetings

In every year the Company must hold an annual general meeting (within a period of not more than 15 months after the date of the preceding annual general meeting) at a place and time determined by the board. The following matters are usually considered at an annual general meeting:

•  approving final dividends;

•  consideration of the accounts and balance sheet;

•  ordinary reports of the board of directors and auditors and any other documents required to be annexed to the balance sheet;

•  the re-appointment or re-election of directors;

•  appointment or reappointment of, and authorizing the directors to determine the remuneration of, the auditors; and

•  the renewal, limitation, extension, variation or grant of any authority to the board in relation to the allotment of securities.

The board may call a general meeting whenever it thinks fit. If at any time there are not within the United Kingdom sufficient directors capable of acting to form a quorum, any director or any two members may convene a general meeting in the same manner as nearly as possible as that in which meetings may be convened by the board.

No business shall be dealt with at any general meeting unless a quorum is present when the meeting proceeds to business. Three members present in person and entitled to vote shall be a quorum for all purposes. A corporation being a member shall be deemed to be personally present if represented by its duly authorized representative.

If a quorum for a meeting convened at the request of shareholders is not present within fifteen minutes of the appointed time, the meeting will be dissolved. In any other case, the general meeting will be adjourned to the same day in the next week, at the same time and place, or to a time and place that the chairman fixes. If at that rescheduled meeting a quorum is not present within fifteen minutes from the time appointed for holding the meeting, the shareholders present in person or by proxy will be a quorum. The chairman or, in his absence, the deputy chairman or any other director nominated by the board, will preside as chairman at every general meeting. If no director is present at the general meeting or no director consents to act as chairman, the shareholders present shall elect one of their number to be chairman of the meeting.

Share certificates

Every person whose name is entered as a member in the Company’s Register of Members shall be entitled to one certificate in respect of each class of shares held. (The law regarding this does not apply to stock exchange

55

nominees). Subject to the terms of issue of the shares, certificates are issued following allotment or receipt of the form of transfer bearing the appropriate stamp duty by our registrar, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom, telephone number +44 (0) 121 415 7062.

Share capital

Any share may be issued with such preferred, deferred or other special rights or other restrictions as we may determine by way of a shareholders’ vote in general meeting. Subject to the Act, any shares may be issued on terms that they are, or at our or the shareholders’ option are, liable to be redeemed on such terms and in such manner as we, before the issue of the shares, may determine by special resolution of the shareholders.

There are no provisions in the Articles of Association which discriminate against any existing or prospective shareholder as a result of such shareholder owning a substantial number of shares.

Subject to the terms of the shares which have been issued, the directors may from time to time make calls upon the shareholders in respect of any moneys unpaid on their shares, provided that (subject to the terms of the shares so issued) no call on any share shall be payable at less than fourteen clear days from the last call. The directors may, if they see fit, receive from any shareholder willing to advance the same, all and any part of the moneys uncalled and unpaid upon any shares held by him.

Voting rights

Every holder of ordinary shares present in person at a meeting of shareholders has one vote on a vote taken by a show of hands. On a poll, every holder of ordinary shares who is present in person or by proxy has one vote for every ordinary share of which he or she is the holder. Voting at any meeting of shareholders is by a show of hands unless a poll is properly demanded before the declaration of the results of a show of hands. A poll may be demanded by:

•  the chairman of the meeting;

•  at least three shareholders present in person or by proxy and entitled to vote;

•  any shareholder or shareholders present in person or by proxy representing not less than one-tenth of the total voting rights of all shareholders having the right to vote at the meeting; or

•  any shareholder or shareholders present in person or by proxy holding shares conferring a right to vote at the meeting being shares on which the aggregate sum paid up is equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

Dividends

Holders of ordinary shares are entitled to receive dividends out of our profits that are available by law for distribution, as we may declare by ordinary resolution, subject to the terms of issue thereof. However, no dividends may be declared in excess of an amount recommended by the board of directors. The board may pay interim dividends to the shareholders as it deems fit. We may invest or otherwise use all dividends left unclaimed for six months after having been declared for our benefit, until claimed. All dividends unclaimed for a period of twelve years after having been declared will be forfeited and revert to us.

The directors may, with the sanction of an ordinary resolution of the shareholders, offer any holders of ordinary shares the right to elect to receive ordinary shares credited as fully paid, in whole or in part, instead of cash in respect of such dividend.

The directors may deduct from any dividend payable to any shareholder all sums of money (if any) presently payable by that shareholder to us on account of calls or otherwise in relation to our shares.

Liquidation rights

In the event of our liquidation, after payment of all liabilities, our remaining assets would be used to repay the holders of ordinary shares the amount they paid for their ordinary shares. Any balance would be divided among the holders of ordinary shares in proportion to the nominal amount of the ordinary shares held by them.

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Other provisions of the articles of association

Whenever our capital is divided into different classes of shares, the special rights attached to any class may, unless otherwise provided by the terms of the issue of the shares of that class, be varied or abrogated, either with the written consent of the holders of three-fourths of the issued shares of the class or with the sanction of a special resolution passed at a separate meeting of these holders.

In the event that a shareholder or other person appearing to the board of directors to be interested in ordinary shares fails to comply with a notice requiring him or her to provide information with respect to their interest in voting shares pursuant to section 820 of the Act, we may serve that shareholder with a notice of default. After service of a default notice, that shareholder shall not be entitled to attend or vote at any general meeting or at a separate meeting of holders of a class of shares or on a poll until he or she has complied in full with our information request.

If the shares described in the default notice represent at least one-fourth of 1% in nominal value of the issued ordinary shares, then the default notice may additionally direct that in respect of those shares:

•  we will not pay dividends (or issue shares in lieu of dividends); and

•  we will not register transfers of shares unless the shareholder is not himself in default as regards supplying the information requested and the transfer, when presented for registration, is in such form as the board of directors may require to the effect that after due and careful inquiry, the shareholder is satisfied that no person in default is interested in any of the ordinary shares which are being transferred or the transfer is an approved transfer, as defined in our articles of association.

No provision of our articles of association expressly governs the ordinary share ownership threshold above which shareholder ownership must be disclosed. Under UK regulations, any person who acquires, either alone or, in specified circumstances, with others an interest in our voting share capital equal to or in excess of 3% (and each percentage point above it) comes under an obligation to disclose prescribed particulars to us in respect of those ordinary shares. A disclosure obligation also arises where a person’s notifiable interests fall below the notifiable percentage, or where, above that level, the percentage of our voting share capital in which a person has a notifiable interest increases or decreases.

Limitations affecting holders of ordinary shares or American Depositary Shares (ADSs)

Under English law and our articles of association, persons who are neither UK residents nor UK nationals may freely hold, vote and transfer ordinary shares in the same manner as UK residents or nationals.

With respect to the items discussed above, applicable UK law is not materially different from applicable US law.

Material contracts

Pearson has not entered into any contracts outside the ordinary course of business during the two year period immediately preceding the date of this annual report.

Executive employment contracts

We have entered into agreements with each of our executive directors pursuant to which such executive director is employed by us. These agreements describe the duties of such executive director and the compensation to be paid by us. See “Item 6. Directors, Senior Management and Employees — Compensation of Senior Management”. Each agreement may be terminated by us on 12 months’ notice or by the executive director on six months’ notice. In the event we terminate any executive director, excluding the current chief financial officer, without giving the full 12 months’ advance notice, the executive director is entitled to receive liquidated damages equal to 12 months’ base salary and benefits together with a proportion of potential bonus. The chief financial officer has no contractual provisions for compensation on termination by the company without notice or cause.

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Exchange controls

There are no UK government laws, decrees, regulations or other legislation which restrict or which may affect the import or export of capital, including the availability of cash and cash equivalents for use by us or the remittance of dividends, interest or other payments to nonresident holders of our securities, except as otherwise described under “Tax Considerations” below.

Tax considerations

The following is a discussion of the material US federal income tax considerations and UK tax considerations arising from the acquisition, ownership and disposition of ordinary shares and ADSs by a US holder. A US holder is a beneficial owner of ordinary shares or ADSs who is:

•  an individual citizen or resident of the US, or

•  a corporation created or organized in or under the laws of the US or any of its political subdivisions, or

•  an estate or trust the income of which is subject to US federal income taxation regardless of its source.

This discussion deals only with ordinary shares and ADSs that are held as capital assets by a US holder, and does not address tax considerations applicable to US holders that may be subject to special tax rules, such as:

•  dealers or traders in securities or currencies,

•  financial institutions or other US holders that treat income in respect of the ordinary shares or ADSs as financial services income,

•  insurance companies,

•  tax-exempt entities,

•  US holders that hold the ordinary shares or ADSs as a part of a straddle or conversion transaction or other arrangement involving more than one position,

•  US holders that own, or are deemed for US tax purposes to own, 10% or more of the total combined voting power of all classes of our voting stock,

•  US holders that have a principal place of business or “tax home” outside the United States, or

•  US holders whose “functional currency” is not the US dollar.

For US federal income tax purposes, holders of ADSs will be treated as the owners of the ordinary shares represented by those ADSs.

In addition, the following discussion assumes that The Bank of New York will perform its obligations as depositary in accordance with the terms of the depositary agreement and any related agreements.

Because US and UK tax consequences may differ from one holder to the next, the discussion set out below does not purport to describe all of the tax considerations that may be relevant to you and your particular situation. Accordingly, you are advised to consult your own tax advisor as to the US federal, state and local, UK and other, including foreign, tax consequences of investing in the ordinary shares or ADSs. The statements of US and UK tax law set out below are based on the laws and interpretations in force as of the date of this Annual Report, and are subject to any changes occurring after that date.

UK income taxation of distributions

The UK does not impose dividend withholding tax on dividends paid to US holders.

US income taxation of distributions

Distributions that we make with respect to the ordinary shares or ADSs, other than distributions in liquidation and distributions in redemption of stock that are treated as exchanges, will be taxed to US holders as ordinary

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dividend income to the extent that the distributions do not exceed our current and accumulated earnings and profits. The amount of any distribution will equal the amount of the cash distribution. Distributions, if any, in excess of our current and accumulated earnings and profits will constitute a non-taxable return of capital to a US holder and will be applied against and reduce the US holder’s tax basis in its ordinary shares or ADSs. To the extent that these distributions exceed the tax basis of the US holder in its ordinary shares or ADSs, the excess generally will be treated as capital gain.

Dividends that we pay will not be eligible for the dividends received deduction generally allowed to US corporations under Section 243 of the Code.

In the case of distributions in pounds, the amount of the distributions generally will equal the US dollar value of the pounds distributed, determined by reference to the spot currency exchange rate on the date of receipt of the distribution by the US holder in the case of shares or by The Bank of New York in the case of ADSs, regardless of whether the US holder reports income on a cash basis or an accrual basis. The US holder will realize separate foreign currency gain or loss only to the extent that this gain or loss arises on the actual disposition of pounds received. For US holders claiming tax credits on a cash basis, taxes withheld from the distribution are translated into US dollars at the spot rate on the date of the distribution; for US holders claiming tax credits on an accrual basis, taxes withheld from the distribution are translated into US dollars at the average rate for the taxable year.

A distribution by the Company to noncorporate shareholders before 2013 will be taxed as net capital gain at a maximum rate of 15%, provided certain holding periods are met, to the extent such distribution is treated as a dividend under US federal income tax principles.

UK income taxation of capital gains

Under the Income Tax Treaty, each country generally may tax capital gains in accordance with the provisions of its domestic law. Under present UK law, a US holder that is not a resident, and, in the case of an individual, not ordinarily resident, in the UK for UK tax purposes and who (in the case of an individual) does not carry on a trade, profession or vocation in the UK through a branch or agency, or (in the case of a company) does not carry on a trade in the UK through a UK permanent establishment, to which ordinary shares or ADSs are attributable will not be liable for UK taxation on capital gains or eligible for relief for allowable losses, realized on the sale or other disposal (including redemption) of these ordinary shares or ADSs.

A US holder who is an individual and who has ceased to be resident or ordinarily resident for tax purposes in the UK on or after 17 March 1988 or who falls to be regarded as resident outside the UK for the purposes of any double tax treaty (“Treaty Non-resident”) on or after 16 March 2005 and continues to not be resident or ordinarily resident in the UK, or continues to be Treaty Non-resident, for a period of less than five years of assessment and who disposes of his ordinary shares or ADSs during that period may also be liable on his return to the UK to UK tax on capital gains, subject to any available exemption or relief, even though he is not resident or ordinarily resident in the UK, or is Treaty Non-resident, at the time of the disposal.

US income taxation of capital gains

Upon a sale or exchange of ordinary shares or ADSs to a person other than Pearson, a US holder will recognize gain or loss in an amount equal to the difference between the amount realized on the sale or exchange and the US holder’s adjusted tax basis in the ordinary shares or ADSs. Any gain or loss recognized will be capital gain or loss and will be long-term capital gain or loss if the US holder has held the ordinary shares or ADSs for more than one year. Long-term capital gain of a noncorporate US holder is generally taxed at a maximum rate of 15%. This long-term capital gain rate is scheduled to expire in 2013.

Gain or loss realized by a US holder on the sale or exchange of ordinary shares or ADSs generally will be treated as US-source gain or loss for US foreign tax credit purposes.

Estate and gift tax

The current Estate and Gift Tax Convention, or the Convention, between the US and the UK generally relieves from UK Inheritance Tax (the equivalent of US Estate and Gift Tax) the transfer of ordinary shares or of ADSs

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where the transferor is domiciled in the US, for the purposes of the Convention. This relief will not apply if the ordinary shares or ADSs are part of the business property of an individual’s permanent establishment in the UK or pertain to the fixed base in the UK of a person providing independent personal services. If no relief is given under the Convention, inheritance tax may be charged on the amount by which the value of the transferor’s estate is reduced as a result of any transfer made by way of gift or other gratuitous transfer by an individual, in general within seven years of death, or on the death of an individual. In the unusual case where ordinary shares or ADSs are subject to both UK Inheritance Tax and US Estate or Gift Tax, the Convention generally provides for tax paid in the UK to be credited against tax payable in the US or for tax paid in the US to be credited against tax payable in the UK based on priority rules set forth in the Convention.

Stamp duty

The statements below reflect what is understood to be HMRC’s currency practice under existing law.

No stamp duty or stamp duty reserve tax (SDRT) will be payable in the UK on the purchase or transfer of an ADS, provided that the ADS, and any separate instrument or written agreement of transfer, remain at all times outside the UK and that the instrument or written agreement of transfer is not executed in the UK. Subject to the following paragraph, stamp duty or SDRT is, however, generally payable at the rate of 1.5% of the amount or value of the consideration or, in some circumstances, the value of the ordinary shares, where ordinary shares are issued or transferred to a person whose business is or includes issuing depositary receipts, or to a nominee or agent for such a person, or issued or transferred to a person whose business is or includes the provision of clearance services or a nominee or agent for such a person.

Following a decision of the European Court of Justice in 2009, HMRC has announced that it will not seek to apply the 1.5% SDRT charge when new shares are issued an EU clearance service or EU depositary receipt system. It seems that HMRC’s view is that the 1.5% SDRT charge will continue to apply to transfer of shares into a clearance service or depositary receipt system, and also in respect of issues of shares into non-EU clearance services and non-EU depositary receipt systems. Arguably the 1.5% SDRT charge in such situations is not consistent with the 2009 decision of the European Court of Justice, although HMRC is likely to impose such charges until further case law or legislation resolves the issue.

A transfer for value of the underlying ordinary shares will generally be subject to either stamp duty or SDRT, normally at the rate of 0.5% of the amount or value of the consideration. A transfer of ordinary shares from a nominee to its beneficial owner, including the transfer of underlying ordinary shares from the Depositary to an ADS holder, under which no beneficial interest will not be subject to stamp duty or SDRT.

Close company status

We believe that the close company provisions of the UK Corporation Tax Act 2010 do not apply to us.

Documents on display

A copy of Articles of Association is filed as an exhibit to this Annual Report and certain other documents referred to in this Annual Report are available for inspection at our registered office at 80 Strand, London WC2R 0RL (c/o the Company Secretary), or, in the US, at the registered office of Pearson Inc. at 1330 Avenue of the Americas, 7th Floor, New York, New York, during usual business hours upon reasonable prior request.

ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Introduction

Our principal market risks are changes in interest rates and currency exchange rates. Following an evaluation of these positions, we selectively enter into derivative financial instruments to manage our risk exposure. For this purpose, we primarily use interest rate swaps, interest rate caps and collars, forward rate agreements, currency swaps and forward foreign exchange contracts. Managing market risks is the responsibility of the chief financial officer, who acts pursuant to policies approved by the board of directors. The Audit Committee receives regular reports on our treasury activities.

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We have a policy of not undertaking any speculative transactions, and we do not hold our derivative and other financial instruments for trading purposes.

We have formulated policies for hedging exposures to interest rate and foreign exchange risk, and have used derivatives to ensure compliance with these policies. Although a proportion of our derivative contracts were transacted without regard to existing IFRS requirements on hedge accounting, during 2010 and 2009 we qualified for hedge accounting under IFRS on a number of our key derivative contracts.

The following discussion addresses market risk only and does not present other risks that we face in the normal course of business, including country risk, credit risk and legal risk.

Interest rates

The Group’s financial exposure to interest rates arises primarily from its borrowings. The Group manages its exposure by borrowing at fixed and variable rates of interest, and by entering into derivative transactions. Objectives approved by the board concerning the proportion of debt outstanding at fixed rates govern the use of these financial instruments.

The Group’s objectives are applied to core net debt, which is measured at the year-end and comprises borrowings net of cash and other liquid funds. Our objective is to maintain a proportion of forecast core net debt in fixed or capped form for the next four years, subject to a maximum of 65% and a minimum that starts at 40% and falls by 10% each year.

The principal method of hedging interest rate risk is to enter into an agreement with a bank counterparty to pay a fixed rate and receive a variable rate, known as a swap. Under interest rate swaps, the Group agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and variable-rate amounts calculated by reference to an agreed notional principal amount. The majority of the Group’s swap contracts are US dollar denominated, and some of them have deferred start dates, in order to maintain the desired risk profile as other contracts mature. The variable rates received are normally based on three-month or six-month LIBOR, and the dates on which these rates are set do not necessarily exactly match those of the hedged borrowings. Management believes that our portfolio of these types of swaps is an efficient hedge of our portfolio of variable rate borrowings.

In addition, from time to time, the Group issues bonds or other capital market instruments to refinance existing debt. To avoid the fixed rate on a single transaction unduly influencing our overall net interest expense, our typical practice has been to enter into a related derivative contract effectively converting the interest rate profile of the bond transaction to a variable interest rate. In some cases, the bond issue is denominated in a different currency to the Group’s desired borrowing risk profile and the Group enters into a related cross currency interest rate swap in order to maintain this risk profile, which is predominantly borrowings denominated in US dollars.

The Group’s accounting objective in its use of interest rate derivatives is to minimize the impact on the income statement of changes in the mark-to-market value of its derivative portfolio as a whole. It uses duration calculations to estimate the sensitivity of the derivatives to movements in market rates. The Group also identifies which derivatives are eligible for fair value hedge accounting (which reduces significantly the income statement impact of changes in the market value of a derivative). The Group then divides the total portfolio between hedge-accounted and pooled segments, so that the expected movement on the pooled segment is minimized.

Currency exchange rates

Although the Group is based in the UK, it has significant investments in overseas operations. The most significant currency in which the Group trades is the US dollar.

The Group’s policy is to align approximately the currency composition of its core net borrowings with its forecast operating profit before depreciation and amortization. This policy aims to soften the impact of changes in foreign exchange rates on consolidated interest cover and earnings. This policy applies only to currencies that account for more than 15% of group operating profit, which currently are the US dollar and sterling. However, the Group still borrows small amounts in other currencies, typically for seasonal working capital needs. In addition, the Group’s policy does not require existing currency debt to be terminated to match declines in that currency’s share of

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Group operating profit. Also, the chief financial officer may request the inclusion of currencies that account for less than 15% of Group operating profit before depreciation and amortization in the above hedging process. Only one hedging transaction, denominated in South African rand, has been undertaken under that authority.

At December 31, 2010 the Group’s net borrowings in our main currencies (taking into account the effect of cross currency rate swaps) were: US dollar £683m, sterling £179m, and South African rand £9m.

The Group uses both currency denominated debt and derivative instruments to implement the above policy. Its intention is that gains/losses on the derivatives and debt offset the losses/gains on the foreign currency assets and income. Each quarter the value of hedging instruments is monitored against the assets in the relevant currency and, where practical, a decision is made whether to treat the debt or derivative as a net investment hedge (permitting foreign exchange movements on it to be taken to reserves) for the purposes of reporting under IFRS.

Investments in overseas operations are consolidated for accounting purposes by translating values in one currency to another currency, in particular from US dollars to sterling. Fluctuations in currency exchange rates affect the currency values recorded in our accounts, although they do not give rise to any realized gain or loss, nor to any currency cash flows.

The Group is also exposed to currency exchange rates in its cash transactions and its investments in overseas operations. Cash transactions — typically for purchases, sales, interest or dividends — require cash conversions between currencies. Fluctuations in currency exchange rates affect the cash amounts that the Group pays or receives.

Forward foreign exchange contracts

The Group sometimes uses forward foreign exchange contracts where a specific major project or forecasted cash flow, including acquisitions and disposals, arises from a business decision that has used a specific foreign exchange rate. The Group’s policy is to effect routine transactional conversions between currencies, for example to collect receivables or settle payables, at the relevant spot exchange rate.

The Group seeks to offset purchases and sales in the same currency, even if they do not occur simultaneously. In addition, its debt and cash portfolios management gives rise to temporary currency shortfalls and surpluses. Both of these activities require using short-dated foreign exchange swaps between currencies.

Although the Group prepares its consolidated financial statements in sterling, significant sums have been invested in overseas assets, particularly in the US. Therefore, fluctuations in currency exchange rates, particularly between the US dollar and sterling, and to a lesser extent between the euro and sterling, are likely to affect shareholders’ funds and other accounting values.

Derivatives

Under IFRS, the Group is required to record all derivative instruments on the balance sheet at fair value. Derivatives not classified as hedges are adjusted to fair value through earnings. Changes in the fair value of derivatives that the Group has designated and that qualify as effective hedges are either recorded in reserves or are offset in earnings by the corresponding movement in the fair value of the underlying hedged item. Any ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings.

In 2010 and 2009 the Group met the prescribed designation requirements and hedge effectiveness tests under IFRS for some of its derivative contracts. As a result, the movements in the fair value of the effective portion of fair value hedges and net investment hedges have been offset in earnings and reserves respectively by the corresponding movement in the fair value of the underlying hedged item.

In line with the Group’s treasury policy, none of these instruments were considered trading instruments and each instrument was transacted solely to match an underlying financial exposure.

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Quantitative information about market risk

The sensitivity of the Group’s derivative portfolio to changes in interest rates is found in note 19 of “Item 18. Financial Statements”.

ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

ITEM 12D.   AMERICAN DEPOSITARY SHARES

Fees paid by ADR holders

Our ordinary shares trade in the United States under a sponsored ADR facility with The Bank of New York Mellon as depositary.

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal, or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

The following table summarizes various fees currently charged by The Bank of New York Mellon:

Person depositing or withdrawing shares
must pay to the depositary:	For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)	•   Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property •   Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
$.02 (or less) per ADS	•   Any cash distribution to ADS registered holders
A fee equivalent to the fee that would be payable if securities distributed had been shares and the shares had been deposited for issuance of ADSs	•   Distribution of securities by the depositary to ADS registered holders of deposited securities
$.02 (or less) per ADS per calendar year	•   Depositary services
Registration of transfer fees	•   Transfer and registration of shares on the share register to or from the name of the depositary or its agent when shares are deposited or withdrawn
Expenses of the depositary	•   Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) •   Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes	•   As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities	•   As necessary

Fees incurred in past annual period and fees to be paid in the future

From January 1, 2010 to February 28, 2011 the Company received payments from the depositary of $350,000 and $38,000 for continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing the annual and interim financial reports, printing and distributing dividend cheques, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile and telephone calls), any applicable performance indicators relating to the ADR facility, underwriting fees and legal fees.

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The depositary has agreed to reimburse the Company for expenses they incur that are related to establishment and maintenance expenses of the ADS programme. The depositary has agreed to reimburse the Company for its continuing annual stock exchange listing fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consists of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend cheques, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile and telephone calls. It has also agreed to reimburse the Company annually for certain investor relationship programmes or special investor relations promotional activities. In certain instances, the depositary has agreed to provide additional payments to the Company based on any applicable performance indicators relating to the ADR facility. There are limits on the amount of expenses for which the depositary will reimburse the Company, but the amount of reimbursement available to the Company is not necessarily tied to the amount of fees the depositary collects from investors.

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal, or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

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PART II

ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15.   CONTROLS AND PROCEDURES

Disclosure controls and procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2010 was carried out by us under the supervision and with the participation of our management, including the chief executive officer and chief financial officer. Based on that evaluation the chief executive officer and chief financial officer concluded that Pearson’s disclosure controls and procedures have been designed to provide, and are effective in providing, reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow such timely decision regarding required disclosures. A controls system, no matter how well designed and operated cannot provide absolute assurance to achieve its objectives.

Management’s annual report on internal control over financial reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Management has assessed the effectiveness of internal control over financial reporting, as at December 31, 2010, and has concluded that such internal control over financial reporting was effective.

PricewaterhouseCoopers LLP, which has audited the consolidated financial statements of the Company for the year ended December 31, 2010, has also audited the effectiveness of the Company’s internal control over financial reporting under Auditing Standard No. 5 of the Public Company Accounting Oversight Board (United States). Their audit report may be found on page F-2.

Change in internal control over financial reporting

During the period covered by this Annual Report on Form 20-F, Pearson has made no changes to its internal controls over financial reporting that have materially affected or are reasonably likely to materially affect Pearson’s internal control over financial reporting.

ITEM 16A.   AUDIT COMMITTEE FINANCIAL EXPERT

The members of the Board of Directors of Pearson plc have determined that Ken Hydon is an audit committee financial expert within the meaning of the applicable rules and regulations of the US Securities and Exchange Commission.

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ITEM 16B.   CODE OF ETHICS

Pearson has adopted a code of ethics (the Pearson code of business conduct) which applies to all employees including the chief executive officer and chief financial officer and other senior financial management. This code of ethics is available on our website (www.pearson.com/responsibility/sustainable-business-practice/ethics/). The information on our website is not incorporated by reference into this report.

ITEM 16C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

In line with best practice, our relationship with PricewaterhouseCoopers LLP (PwC) is governed by our external auditor policy, which is reviewed and approved annually by the audit committee. The policy establishes procedures to ensure the auditors’ independence is not compromised as well as defining those non-audit services that PwC may or may not provide to Pearson. These allowable services are in accordance with relevant UK and US legislation.

The audit committee approves all audit and non-audit services provided by PwC. Certain categories of allowable non-audit services have been pre-approved by the audit committee subject to the authorities below:

•  Pre-approved non-audit services can be authorized by the chief financial officer up to £100,000 per project, subject to a cumulative limit of £500,000 per annum;

•  Acquisition due diligence services up to £100,000 per transaction;

•  Tax compliance and related activities up to the greater of £1,000,000 per annum or 50% of the external audit fee; and

•  For forward-looking tax planning services we use the most appropriate advisor, usually after a tender process. Where we decide to use our independent auditor, authority, up to £100,000 per project subject to a cumulative limit of £500,000 per annum, has been delegated by the audit committee to management.

Services provided by PwC above these limits and all other allowable non-audit services, irrespective of value, must be approved by the audit committee. Where appropriate, services will be tendered prior to awarding this work to the auditor.

The following table sets forth remuneration paid to PwC for 2009 and 2010:

Auditors’ Remuneration	2010		2009
	£m		£m
Audit fees		6		6
Tax fees		2		2
All other fees		2		1

Audit fees include £35,000 (2009: £35,000) of audit fees relating to the audit of the parent company.

Fees for the audit of the effectiveness of the Group’s internal control over financial reporting are allocated to audit fees paid.

Tax services include services related to tax planning and various other tax advisory services.

Other services relates mainly to due diligence on acquisitions, notably our Brazilian acquisition, Sistema Educacional Brasileiro where we assessed that our auditors were best qualified and cost effective in taking on this role.

ITEM 16D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

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ITEM 16E.   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES

							Maximum
							number
					Total number of		of shares that
					units purchased		may yet be
					as part of publicly		purchased under
	Total number of		Average price		announced plans		the plans or
Period	shares purchased		paid per share		or programs		programs
June 1, 2009 - June 30, 2009		2,000,000		£6.14		N/A		N/A
May 1, 2010 - May 31, 2010		3,000,000		£9.94		N/A		N/A
June 1, 2010 - June 30, 2010		2,000,000		£9.17		N/A		N/A
October 1, 2010 - October 31, 2010		1,000,000		£9.83		N/A		N/A
November 1, 2010 - November 31, 2010		2,000,000		£9.46		N/A		N/A

Purchases of shares were made to satisfy obligations under Pearson employee share award programs. All purchases were made in open-market transactions. None of the foregoing share purchases was made as part of a publicly announced plan or program.

ITEM 16F.   CHANGE IN REGISTRANT’S CERTIFYING AUDITOR

Not applicable.

ITEM 16G.   CORPORATE GOVERNANCE

Pearson is listed on the New York Stock Exchange (“NYSE”). As a listed non-US issuer, we are required to comply with some of the NYSE’s corporate governance rules, and otherwise must disclose on our website any significant ways in which our corporate governance practices differ from those followed by US companies under the NYSE listing standards. At this time, the Company believes that it is in compliance in all material respects with all the NYSE rules except that the Nomination Committee is not composed entirely of independent directors, and that it is the full board, not the Nomination Committee, that develops and recommends corporate governance principles.

PART III

ITEM 17.   FINANCIAL STATEMENTS

Not applicable.

ITEM 18.   FINANCIAL STATEMENTS

The financial statements filed as part of this Annual Report are included on pages F-1 through F-70 hereof.

ITEM 19.   EXHIBITS

1.1	Articles of Association of Pearson plc.
2.1	Indenture dated June 23, 2003 between Pearson plc and The Bank of New York, as trustee *
2.2	Indenture dated May 25, 2004 among Pearson Dollar Finance plc, as Issuer, Pearson plc, Guarantor, and the Bank of New York, as trustee, Paying Agent and Calculation Agent. #
2.3	Indenture dated June 21, 2001 between Pearson plc and The Bank of New York, as trustee.†
2.4	Indenture dated March 26, 2009 among Pearson Funding One plc, as the Issuer, Pearson plc, Guarantor, and The Law Debenture Trust Corporation P.L.C., as trustee. ¥
2.5	Indenture dated May 6, 2008 among Pearson Dollar Finance Two plc, as the Issuer, Pearson plc, Guarantor, and The Bank of New York, as trustee, Paying Agent and Calculation Agent. ¥

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2.6	Indenture dated October 27, 1999 between Pearson plc, as the Issuer and The Law Debenture Trust Corporation P.L.C., as trustee. ¥
2.7	Indenture dated May 17, 2010 between Pearson Funding Two plc, as the Issuer, Pearson plc, Guarantor, and The Bank of New York Mellon, as trustee, Paying Agent and Calculation Agent.
8.1	List of Significant Subsidiaries.
12.1	Certification of Chief Executive Officer.
12.2	Certification of Chief Financial Officer.
13.1	Certification of Chief Executive Officer.
13.2	Certification of Chief Financial Officer.
15	Consent of PricewaterhouseCoopers LLP.

*	Incorporated by reference from the Form 20-F of Pearson plc for the year ended December 31, 2003 and filed May 7, 2004.
#	Incorporated by reference from the Form 20-F of Pearson plc for the year ended December 31, 2004 and filed June 27, 2005.
†	Incorporated by reference from the Form 20-F of Pearson plc for the year ended December 31, 2001 and filed June 10, 2002.
¥	Incorporated by reference from the Form 20-F of Pearson plc for the year ended December 31, 2009 and filed March 31, 2010.

68

FINANCIAL STATEMENTS: CONTENTS

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Income Statement for the year ended December 31, 2010, 2009 and 2008	F-3
Consolidated Statement of Comprehensive Income for the year ended December 31, 2010, 2009 and 2008	F-4
Consolidated Balance Sheet as at December 31, 2010 and 2009	F-5
Consolidated Statement of Changes in Equity for the year ended December 31, 2010, 2009 and 2008	F-7
Consolidated Cash Flow Statement for the year ended December 31, 2010, 2009 and 2008	F-9
Notes to the Consolidated Financial Statements	F-10

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Pearson plc

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, equity and cash flows present fairly, in all material respects, the financial position of Pearson plc and its subsidiaries (the “Group”) at December 31, 2010 and December 31, 2009 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

The Group’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in “Management’s Annual Report on Internal Control Over Financial Reporting” appearing under Item 15 of this Form 20-F. Our responsibility is to express opinions on these financial statements and on the Group’s internal control over financial reporting based on our integrated audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

London

United Kingdom

March 25, 2011

F-2

Consolidated Income Statement
Year ended 31 December 2010
All figures in £ millions

	Notes		2010			2009			2008
Sales		2		5,663			5,140			4,405
Cost of goods sold		4		(2,588	)		(2,382	)		(2,046	)
Gross profit				3,075			2,758			2,359
Operating expenses		4		(2,373	)		(2,169	)		(1,820	)
Share of results of joint ventures and associates		12		41			30			25
Operating profit		2		743			619			564
Finance costs		6		(109	)		(122	)		(136	)
Finance income		6		36			26			41
Profit before tax				670			523			469
Income tax		7		(146	)		(146	)		(125	)
Profit for the year from continuing operations				524			377			344
Profit/(loss) for the year from discontinued operations		3		776			85			(21	)
Profit for the year				1,300			462			323
Attributable to:
Equity holders of the company				1,297			425			292
Non-controlling interest				3			37			31
Earnings per share for profit from continuing and discontinued operations attributable to equity holders of the company during the year (expressed in pence per share)
— basic		8		161.9p			53.2p			36.6p
— diluted		8		161.5p			53.1p			36.6p
Earnings per share for profit from continuing operations attributable to equity holders of the company during the year (expressed in pence per share)
— basic		8		66.0p			47.0p			42.9p
— diluted		8		65.9p			47.0p			42.9P

F-3

Consolidated Statement of Comprehensive Income
Year ended 31 December 2010
All figures in £ millions

	Notes		2010			2009			2008
Profit for the year				1,300			462			323
Net exchange differences on translation of foreign operations				173			(388	)		1,125
Currency translation adjustment disposed — subsidiaries				13			—			49
Currency translation adjustment disposed — joint venture				—			—			1
Actuarial gains/(losses) on retirement benefit obligations — Group		25		70			(299	)		(71	)
Actuarial gains/(losses) on retirement benefit obligations — associate		12		1			(3	)		(3	)
Net increase in fair values of proportionate holding arising on stepped acquisition				—			18			—
Tax on items recognised in other comprehensive income		7		(41	)		91			9
Other comprehensive income/(expense) for the year				216			(581	)		1,110
Total comprehensive income/(expense) for the year				1,516			(119	)		1,433
Attributable to:
Equity holders of the company				1,502			(127	)		1,327
Non-controlling interest				14			8			106

F-4

Consolidated Balance Sheet
As at 31 December 2010
All figures in £ millions

	Notes		2010		2009
Assets
Non-current assets
Property, plant and equipment		10		366		388
Intangible assets		11		5,467		5,129
Investments in joint ventures and associates		12		71		30
Deferred income tax assets		13		276		387
Financial assets — Derivative financial instruments		16		134		112
Other financial assets		15		58		62
Trade and other receivables		22		129		112
				6,501		6,220
Current assets
Intangible assets — Pre-publication		20		647		650
Inventories		21		429		445
Trade and other receivables		22		1,337		1,284
Financial assets — Derivative financial instruments		16		6		—
Financial assets — Marketable securities		14		12		63
Cash and cash equivalents (excluding overdrafts)		17		1,736		750
				4,167		3,192
Total assets				10,668		9,412

F-5

Consolidated Balance Sheet (Continued)
As at 31 December 2010
All figures in £ millions

	Notes		2010			2009
Liabilities
Non-current liabilities
Financial liabilities — Borrowings		18		(1,908	)		(1,934	)
Financial liabilities — Derivative financial instruments		16		(6	)		(2	)
Deferred income tax liabilities		13		(471	)		(473	)
Retirement benefit obligations		25		(148	)		(339	)
Provisions for other liabilities and charges		23		(42	)		(50	)
Other liabilities		24		(246	)		(253	)
				(2,821	)		(3,051	)
Current liabilities
Trade and other liabilities		24		(1,605	)		(1,467	)
Financial liabilities — Borrowings		18		(404	)		(74	)
Financial liabilities — Derivative financial instruments		16		—			(7	)
Current income tax liabilities				(215	)		(159	)
Provisions for other liabilities and charges		23		(18	)		(18	)
				(2,242	)		(1,725	)
Total liabilities				(5,063	)		(4,776	)
Net assets				5,605			4,636
Equity
Share capital		27		203			203
Share premium		27		2,524			2,512
Treasury shares		28		(137	)		(226	)
Translation reserve				402			227
Retained earnings				2,546			1,629
Total equity attributable to equity holders of the company				5,538			4,345
Non-controlling interest				67			291
Total equity				5,605			4,636

These financial statements have been approved for issue by the board of directors on 7 March 2011 and signed on its behalf by

Robin Freestone Chief financial officer

F-6

Consolidated Statement of Changes in Equity
Year ended 31 December 2010
All figures in £ millions

	Equity attributable to equity holders of the company
																Non-
	Share		Share		Treasury			Translation		Retained						controlling			Total
	capital		premium		shares			reserve		earnings			Total			interest			equity
At 1 January 2010		203		2,512		(226	)		227		1,629			4,345			291			4,636
Profit for the year		—		—		—			—		1,297			1,297			3			1,300
Other comprehensive income		—		—		—			175		30			205			11			216
Equity-settled transactions		—		—		—			—		50			50			—			50
Tax on equity-settled transactions		—		—		—			—		4			4			—			4
Issue of ordinary shares under share option schemes		—		12		—			—		—			12			—			12
Purchase of treasury shares		—		—		(77	)		—		—			(77	)		—			(77	)
Release/cancellation of treasury shares		—		—		166			—		(166	)		—			—			—
Changes in non-controlling shareholding		—		—		—			—		(6	)		(6	)		(231	)		(237	)
Dividends		—		—		—			—		(292	)		(292	)		(7	)		(299	)
At 31 December 2010		203		2,524		(137	)		402		2,546			5,538			67			5,605

	Equity attributable to equity holders of the company
																	Non-
	Share		Share		Treasury			Translation			Retained						controlling			Total
	capital		premium		shares			reserve			earnings			Total			interest			equity
At 1 January 2009		202		2,505		(222	)		586			1,679			4,750			274			5,024
Profit for the year		—		—		—			—			425			425			37			462
Other comprehensive expense		—		—		—			(359	)		(193	)		(552	)		(29	)		(581	)
Equity-settled transactions		—		—		—			—			37			37			—			37
Tax on equity-settled transactions		—		—		—			—			6			6			—			6
Issue of ordinary shares under share option schemes		1		7		—			—			—			8			—			8
Purchase of treasury shares		—		—		(33	)		—			—			(33	)		—			(33	)
Release of treasury shares		—		—		29			—			(29	)		—			—			—
Put option over non-controlling interest		—		—		—			—			(23	)		(23	)		—			(23	)
Changes in non-controlling shareholding		—		—		—			—			—			—			24			24
Dividends		—		—		—			—			(273	)		(273	)		(15	)		(288	)
At 31 December 2009		203		2,512		(226	)		227			1,629			4,345			291			4,636

F-7

	Equity attributable to equity holders of the company
																	Non-
	Share		Share		Treasury			Translation			Retained						controlling			Total
	capital		premium		shares			reserve			earnings			Total			interest			equity
At 1 January 2008		202		2,499		(216	)		(514	)		1,724			3,695			179			3,874
Profit for the year		—		—		—			—			292			292			31			323
Other comprehensive income/(expense)		—		—		—			1,100			(65	)		1,035			75			1,110
Equity-settled transactions		—		—		—			—			33			33			—			33
Tax on equity-settled transactions		—		—		—			—			(7	)		(7	)		—			(7	)
Issue of ordinary shares under share option schemes		—		6		—			—			—			6			—			6
Purchase of treasury shares		—		—		(47	)		—			—			(47	)		—			(47	)
Release of treasury shares		—		—		41			—			(41	)		—			—			—
Changes in non-controlling shareholding		—		—		—			—			—			—			6			6
Dividends		—		—		—			—			(257	)		(257	)		(17	)		(274	)
At 31 December 2008		202		2,505		(222	)		586			1,679			4,750			274			5,024

The translation reserve includes exchange differences arising from the translation of the net investment in foreign operations and of borrowings and other currency instruments designated as hedges of such investments.

F-8

Consolidated Cash Flow Statement
Year ended 31 December 2010
All figures in £ millions

	Notes		2010			2009			2008
Cash flows from operating activities
Net cash generated from operations		31		1,169			1,012			894
Interest paid				(78	)		(90	)		(87	)
Tax paid				(85	)		(103	)		(89	)
Net cash generated from operating activities				1,006			819			718
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired		29		(535	)		(208	)		(395	)
Acquisition of joint ventures and associates				(22	)		(14	)		(5	)
Purchase of investments				(7	)		(10	)		(1	)
Purchase of property, plant and equipment				(76	)		(62	)		(75	)
Proceeds from the sale of investments				—			—			5
Proceeds from sale of property, plant and equipment		31		—			1			2
Purchase of intangible assets				(56	)		(58	)		(45	)
Disposal of subsidiaries, net of cash disposed		30		984			—			99
Tax paid on disposal of subsidiaries				(250	)		—			—
Interest received				10			3			11
Dividends received from joint ventures and associates				23			22			23
Net cash received from/(used in) investing activities				71			(326	)		(381	)
Cash flows from financing activities
Proceeds from issue of ordinary shares				12			8			6
Purchase of treasury shares				(77	)		(33	)		(47	)
Proceeds from borrowings				241			296			455
Liquid resources acquired				—			(13	)		—
Liquid resources sold				53			—			—
Repayment of borrowings				(13	)		(343	)		(275	)
Finance lease principal payments				(3	)		(2	)		(3	)
Dividends paid to company’s shareholders		9		(292	)		(273	)		(257	)
Dividends paid to non-controlling interest				(6	)		(20	)		(28	)
Transactions with non-controlling interest				(7	)		14			12
Net cash used in financing activities				(92	)		(366	)		(137	)
Effects of exchange rate changes on cash and cash equivalents				(1	)		(36	)		(103	)
Net increase in cash and cash equivalents				984			91			97
Cash and cash equivalents at beginning of year				680			589			492
Cash and cash equivalents at end of year		17		1,664			680			589

The consolidated cash flow statement includes discontinued operations (see note 3).

F-9

Notes to the Consolidated Financial Statements

General information

Pearson plc (the company) and its subsidiaries (together the Group) are international media businesses covering education, business information and consumer publishing.

The company is a public limited liability company incorporated and domiciled in England. The address of its registered office is 80 Strand, London WC2R ORL.

The company has its primary listing on the London Stock Exchange and is also listed on the New York Stock Exchange.

These consolidated financial statements were approved for issue by the board of directors on 7 March 2011.

1.   Accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.

a.   Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union (EU) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. These consolidated financial statements are also prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB). In respect of the accounting standards applicable to the Group there is no difference between EU-adopted and IASB-adopted IFRS. The Group transitioned from UK GAAP to IFRS on 1 January 2003.

These consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets and liabilities (including derivative financial instruments) to fair value.

1. Interpretations and amendments to published standards effective in 2010

•  IFRS 3 (Revised) ‘Business Combinations’ and amendments to IAS 27 ‘Consolidated and Separate Financial Statements’, effective for annual reporting periods beginning on or after 1 July 2009. The amendments affect the accounting for business combinations, including the requirement to re-measure the fair value of previously held interests in step acquisitions with any gain or loss arising being recognised in the income statement, the requirement to expense acquisition costs and the requirement to recognise adjustments to contingent consideration in the income statement.

•  Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’, effective for annual reporting periods beginning on or after 1 July 2009. The amendments clarify that inflation may only be hedged where changes in inflation are a specified portion of cash flows of a financial instrument, and also clarify hedging with options. Management have assessed that the amendments have no impact on the Group’s financial statements.

•  Amendments to IFRS 2 ‘Share-based Payment’: Group cash-settled share-based payment transactions, effective for annual reporting periods beginning on or after 1 January 2010. The amendments clarify the scope and accounting for group cash-settled share-based payment transactions. Management have assessed that the amendments have no impact on the Group’s financial statements.

•  IFRIC 17 ‘Distributions of Non-cash Assets to Owners’, effective for annual reporting periods beginning on or after 1 July 2009. IFRIC 17 provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends, including recognition upon authorisation and measurement at fair value of assets distributed, with any difference between fair value and carrying value of these assets being recognised in the income statement when an entity settles the dividend payable. This does not apply to distributions of non-cash assets under common control. Management have assessed that this interpretation has no impact on the Group’s financial statements as the Group does not currently distribute non-cash assets.

F-10

Notes to the Consolidated Financial Statements (Continued)

•  IFRIC 18 ‘Transfers of Assets from Customers’, effective for transfers of assets from customers received on or after 1 July 2009. IFRIC 18 states that when an item of property, plant and equipment is received from a customer and it meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value at the date of transfer and recognise the credit in accordance with IAS 18 ‘Revenue’. Management have assessed that this interpretation has no impact on the Group’s financial statements as the Group has not received such assets from customers.

•  ‘Improvements to IFRSs — 2009’, effective dates vary upon the amendment. This is the second set of amendments published under the IASB’s annual improvements process and incorporates minor amendments to 12 standards and interpretations. Management have assessed that these amendments have no impact on the Group’s financial statements.

2. Standards, interpretations and amendments to published standards that are not yet effective

The Group has not early adopted the following new pronouncements that are not yet effective:

•  Amendments to IAS 24 ‘Related Parties’, effective for annual reporting periods beginning on or after 1 January 2011. The amendments simplify disclosure for government related entities and clarify the definition of a related party.

•  Amendments to IAS 32 ‘Financial Instruments: Presentation’ - Classification of Rights, effective for annual reporting periods beginning on or after 1 February 2010. The amendments clarify that rights, options or warrants issued to acquire a fixed number of an entity’s own non-derivative equity instruments for a fixed amount in any currency are classified as equity instruments provided the offer is made pro-rata to all existing owners of the same class of the entity’s own non-derivative equity instruments.

•  IFRS 9 ‘Financial Instruments’, effective for annual reporting periods beginning on or after 1 January 2013. The new standard details the requirements for the classification and measurement of financial assets and liabilities.

•  IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’, effective for annual reporting periods beginning on or after 1 July 2010. IFRIC 19 clarifies accounting required by entities issuing equity instruments to extinguish all or part of a financial liability.

•  Amendments to IFRIC 14 ‘Prepayments of a Minimum Funding Requirement’, effective for annual reporting periods beginning on or after 1 January 2011. The amendments remedy a consequence of IFRIC 14 where, in certain circumstances, an entity was not permitted to recognise prepayments of a minimum funding requirement as an asset.

•  Amendments to IFRS 7 ‘Financial Instruments: Disclosures’ — Transfers of Financial Assets, effective for annual reporting periods beginning on or after 1 July 2011. The amendments require enhanced disclosure where an asset is transferred but not derecognised, and new disclosure for assets that are derecognised but to which the entity continues to have an exposure.

•  Amendments to IAS 12 ‘Deferred Tax’ — Recoverability of Underlying Assets, effective for annual reporting periods beginning on or after 1 January 2012. The amendments provide, for certain investment properties, an exception to the principle that the measurement of deferred tax assets and liabilities should reflect the tax consequences that would follow from the manner in which the entity expects to recover the carrying amount of an asset.

•  ‘Improvements to IFRSs — 2010’, effective dates vary upon the amendment. This is the third set of amendments published under IASB’s annual improvements process and incorporates minor amendments to seven standards and interpretations.

Management are currently assessing the impact of these new standards, interpretations and amendments on the Group’s financial statements.

F-11

Notes to the Consolidated Financial Statements (Continued)

3. Critical accounting assumptions and judgements

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting assumptions. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas requiring a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are discussed in the relevant accounting policies under the following headings:

•   Intangible assets:	Goodwill
•   Intangible assets:	Pre-publication assets
•   Royalty advances
•   Taxation
•   Employee benefits:	Pension obligations
•   Revenue recognition

b.   Consolidation

1. Business combinations — The acquisition method of accounting is used to account for business combinations of the Group with an acquisition date on or after 1 January 2010. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interest issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition related costs are expensed as incurred.

Identifiable assets and contingent assets acquired and identifiable liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For material acquisitions, the fair value of the acquired intangible assets is determined by an external, independent valuer. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. See note 1e(1) for the accounting policy on goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognised directly in the income statement.

On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

2. Subsidiaries — Subsidiaries are entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases.

3. Transactions with non-controlling interests — Transactions with non-controlling interests are treated as transactions with shareholders. Any surplus or deficit arising from disposals to a non-controlling interest is recorded in equity. For purchases from a non-controlling interest, the difference between consideration paid and the relevant share acquired of the carrying value of the subsidiary is recorded in equity.

4. Joint ventures and associates — Joint ventures are entities in which the Group holds an interest on a long-term basis and which are jointly controlled, with one or more other venturers, under a contractual arrangement. Associates are entities over which the Group has significant influence but not the power to control the financial and operating policies, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in joint ventures and associates are accounted for by the equity method and are initially recognised at cost.

The Group’s share of its joint ventures’ and associates’ post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The Group’s share of its joint ventures’ and associates’ results is recognised as a component of operating profit as these

F-12

Notes to the Consolidated Financial Statements (Continued)

operations form part of the core publishing business of the Group and are an integral part of existing wholly-owned businesses. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in a joint venture or associate equals or exceeds its interest in the joint venture or associate the Group does not recognise further losses unless the Group has incurred obligations or made payments on behalf of the joint venture or associate.

c.   Foreign currency translation

1. Functional and presentation currency — Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’). The consolidated financial statements are presented in sterling, which is the company’s functional and presentation currency.

2. Transactions and balances — Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying net investment hedges.

3. Group companies — The results and financial position of all Group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

i) assets and liabilities are translated at the closing rate at the date of the balance sheet;

ii) income and expenses are translated at average exchange rates;

iii) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. The Group treats specific inter-company loan balances, which are not intended to be repaid in the foreseeable future, as part of its net investment. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

At the date of transition to IFRS the cumulative translation differences in respect of foreign operations have been deemed to be zero.

Any gains and losses on disposals of foreign operations will exclude translation differences that arose prior to the transition date.

The principal overseas currency for the Group is the US dollar. The average rate for the year against sterling was $1.54 (2009: $1.57) and the year end rate was $1.57 (2009: $1.61).

d.   Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation. Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost less their residual values over their estimated useful lives as follows:

Buildings (freehold): 20-50 years

Buildings (leasehold): over the period of the lease

Plant and equipment: 3-10 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

F-13

Notes to the Consolidated Financial Statements (Continued)

The carrying value of an asset is written down to its recoverable amount if the carrying value of the asset is greater than its estimated recoverable amount.

e.   Intangible assets

1. Goodwill — For the acquisition of subsidiaries made on or after 1 January 2010 goodwill represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. For the acquisition of subsidiaries made from the date of transition to IFRS to 31 December 2009 goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets acquired. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates and joint ventures represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets acquired. Goodwill on acquisitions of associates and joint ventures is included in investments in associates and joint ventures.

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. An impairment loss is recognised to the extent that the carrying value of goodwill exceeds the recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. These calculations require the use of estimates and significant management judgement. A description of the key assumptions and sensitivities is included in note 11. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

IFRS 3 ‘Business Combinations’ has not been applied retrospectively to business combinations before the date of transition to IFRS. Subject to the transition adjustments to IFRS required by IFRS 1, the accounting for business combinations before the date of transition has been grandfathered.

2. Acquired software — Software separately acquired for internal use is capitalised at cost. Software acquired in material business combinations is capitalised at its fair value as determined by an independent valuer. Acquired software is amortised on a straight-line basis over its estimated useful life of between three and eight years.

3. Internally developed software — Internal and external costs incurred during the preliminary stage of developing computer software for internal use are expensed as incurred. Internal and external costs incurred to develop computer software for internal use during the application development stage are capitalised if the Group expects economic benefits from the development. Capitalisation in the application development stage begins once the Group can reliably measure the expenditure attributable to the software development and has demonstrated its intention to complete and use the software. Internally developed software is amortised on a straight-line basis over its estimated useful life of between three and eight years.

4. Acquired intangible assets — Acquired intangible assets include customer lists and relationships, trademarks and brands, publishing rights, content and technology. These assets are capitalised on acquisition at cost and included in intangible assets. Intangible assets acquired in material business combinations are capitalised at their fair value as determined by an independent valuer. Intangible assets are amortised over their estimated useful lives of between two and 20 years, using an amortisation method that reflects the pattern of their consumption.

5. Pre-publication assets — Pre-publication assets represent direct costs incurred in the development of educational programmes and titles prior to their publication. These costs are recognised as current intangible assets where the title will generate probable future economic benefits and costs can be measured reliably. Pre-publication assets are amortised upon publication of the title over estimated economic lives of five years or less, being an estimate of the expected operating life cycle of the title, with a higher proportion of the amortisation taken in the earlier years.

F-14

Notes to the Consolidated Financial Statements (Continued)

The investment in pre-publication assets has been disclosed as part of cash generated from operations in the cash flow statement (see note 31).

The assessment of the recoverability of pre-publication assets and the determination of the amortisation profile involve a significant degree of judgement based on historical trends and management estimation of future potential sales. An incorrect amortisation profile could result in excess amounts being carried forward as intangible assets that would otherwise have been written off to the income statement in an earlier period.

Reviews are performed regularly to estimate recoverability of pre-publication assets. The carrying amount of pre-publication assets is set out in note 20.

f.   Other financial assets

Other financial assets, designated as available for sale investments, are non-derivative financial assets measured at estimated fair value. Changes in the fair value are recorded in equity in the fair value reserve. On the subsequent disposal of the asset, the net fair value gains or losses are taken to the income statement.

g.   Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first in first out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. Provisions are made for slow moving and obsolete stock.

h.   Royalty advances

Advances of royalties to authors are included within trade and other receivables when the advance is paid less any provision required to adjust the advance to its net realisable value. The realisable value of royalty advances relies on a degree of management judgement in determining the profitability of individual author contracts. If the estimated realisable value of author contracts is overstated, this will have an adverse effect on operating profits as these excess amounts will be written off.

The recoverability of royalty advances is based upon an annual detailed management review of the age of the advance, the future sales projections for new authors and prior sales history of repeat authors. The royalty advance is expensed at the contracted or effective royalty rate as the related revenues are earned. Royalty advances which will be consumed within one year are held in current assets. Royalty advances which will be consumed after one year are held in non-current assets.

i.   Newspaper development costs

Investment in the development of newspaper titles consists of measures to increase the volume and geographical spread of circulation. The measures include additional and enhanced editorial content, extended distribution and remote printing. These costs are expensed as incurred as they do not meet the criteria under IAS 38 ‘Intangible Assets’ to be capitalised as intangible assets.

j.   Cash and cash equivalents

Cash and cash equivalents in the cash flow statement include cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included in borrowings in current liabilities in the balance sheet.

Short-term deposits and marketable securities with maturities of greater than three months do not qualify as cash and cash equivalents. Movements on these financial instruments are classified as cash flows from financing activities in the cash flow statement as these amounts are used to offset the borrowings of the Group.

F-15

Notes to the Consolidated Financial Statements (Continued)

k.   Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Where any Group company purchases the company’s equity share capital (treasury shares) the consideration paid, including any directly attributable incremental costs, net of income taxes, is deducted from equity attributable to the company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable transaction costs and the related income tax effects, is included in equity attributable to the company’s equity holders.

l.   Borrowings

Borrowings are recognised initially at fair value, which is proceeds received net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with any difference between the proceeds (net of transaction costs) and the redemption value being recognised in the income statement over the period of the borrowings using the effective interest method. Accrued interest is included as part of borrowings. Where a debt instrument is in a fair value hedging relationship, an adjustment is made to its carrying value in the income statement to reflect the hedged risk. Interest on borrowings is expensed in the income statement as incurred.

m.   Derivative financial instruments

Derivatives are recognised at fair value and re-measured at each balance sheet date. The fair value of derivatives is determined by using market data and the use of established estimation techniques such as discounted cash flow and option valuation models. The Group designates certain of the derivative instruments within its portfolio to be hedges of the fair value of its bonds (fair value hedges) or hedges of net investments in foreign operations (net investment hedges).

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

The effective portion of changes in the fair value of derivatives that are designated and qualify as net investment hedges are recognised in other comprehensive income. Gains and losses accumulated in equity are included in the income statement when the corresponding foreign operation is disposed of. Gains or losses relating to the ineffective portion are recognised immediately in finance income or finance costs in the income statement.

Certain derivatives do not qualify or are not designated as hedging instruments. Such derivatives are classified at fair value and any movement in their fair value is recognised immediately in finance income or finance costs in the income statement.

n.   Taxation

Current tax is recognised on the amounts expected to be paid or recovered under the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

Deferred income tax is provided, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

F-16

Notes to the Consolidated Financial Statements (Continued)

Deferred income tax is provided in respect of the undistributed earnings of subsidiaries other than where it is intended that those undistributed earnings will not be remitted in the foreseeable future.

Current and deferred tax are recognised in the income statement, except when the tax relates to items charged or credited directly to equity or other comprehensive income, in which case the tax is also recognised in equity or other comprehensive income.

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the estimates in relation to the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular, significant judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given to the timing and level of future taxable income together with any future tax planning strategies.

o.   Employee benefits

1. Pension obligations — The retirement benefit asset and obligation recognised in the balance sheet represents the net of the present value of the defined benefit obligation and the fair value of plan assets at the balance sheet date. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting estimated future cash flows using yields on high quality corporate bonds which have terms to maturity approximating the terms of the related liability.

The determination of the pension cost and defined benefit obligation of the Group’s defined benefit pension schemes depends on the selection of certain assumptions, which include the discount rate, inflation rate, salary growth, longevity and expected return on scheme assets.

Actuarial gains and losses arising from differences between actual and expected returns on plan assets, experience adjustments on liabilities and changes in actuarial assumptions are recognised immediately in other comprehensive income.

The service cost, representing benefits accruing over the year, is included in the income statement as an operating cost. The unwinding of the discount rate on the scheme liabilities and the expected return on scheme assets are presented as finance costs or finance income.

Obligations for contributions to defined contribution pension plans are recognised as an operating expense in the income statement as incurred.

2. Other post-retirement obligations — The expected costs of post-retirement healthcare and life assurance benefits are accrued over the period of employment, using a similar accounting methodology as for defined benefit pension obligations. The liabilities and costs relating to significant other post-retirement obligations are assessed annually by independent qualified actuaries.

3. Share-based payments — The fair value of options or shares granted under the Group’s share and option plans is recognised as an employee expense after taking into account the Group’s best estimate of the number of awards expected to vest. Fair value is measured at the date of grant and is spread over the vesting period of the option or share. The fair value of the options granted is measured using an option model that is most appropriate to the award. The fair value of shares awarded is measured using the share price at the date of grant unless another method is more appropriate. Any proceeds received are credited to share capital and share premium when the options are

F-17

Notes to the Consolidated Financial Statements (Continued)

exercised. The Group has applied IFRS 2 ‘Share-based Payment’ retrospectively to all options granted but not fully vested at the date of transition to IFRS.

p.   Provisions

Provisions are recognised if the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are discounted to present value where the effect is material.

The Group recognises a provision for deferred consideration when the payment of the deferred consideration is probable.

The Group recognises a provision for onerous lease contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract.

The provision is based on the present value of future payments for surplus leased properties under non-cancellable operating leases, net of estimated sub-leasing income.

q.   Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services net of sales taxes, rebates and discounts, and after eliminating sales within the Group.

Revenue from the sale of books is recognised when title passes. A provision for anticipated returns is made based primarily on historical return rates. If these estimates do not reflect actual returns in future periods then revenues could be understated or overstated for a particular period.

Circulation and advertising revenue is recognised when the newspaper or other publication is published. Subscription revenue is recognised on a straight-line basis over the life of the subscription.

Where a contractual arrangement consists of two or more separate elements that can be provided to customers either on a stand-alone basis or as an optional extra, such as the provision of supplementary materials with textbooks, revenue is recognised for each element as if it were an individual contractual arrangement.

Revenue from multi-year contractual arrangements, such as contracts to process qualifying tests for individual professions and government departments, is recognised as performance occurs. The assumptions, risks, and uncertainties inherent in long-term contract accounting can affect the amounts and timing of revenue and related expenses reported. Certain of these arrangements, either as a result of a single service spanning more than one reporting period or where the contract requires the provision of a number of services that together constitute a single project, are treated as long-term contracts with revenue recognised on a percentage of completion basis. Losses on contracts are recognised in the period in which the loss first becomes foreseeable. Contract losses are determined to be the amount by which estimated total costs of the contract exceed the estimated total revenues that will be generated by the contract.

On certain contracts, where the Group acts as agent, only commissions and fees receivable for services rendered are recognised as revenue. Any third-party costs incurred on behalf of the principal that are rechargeable under the contractual arrangement are not included in revenue.

Income from recharges of freight and other activities which are incidental to the normal revenue generating activities is included in other income.

r.   Leases

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the commencement of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease

F-18

Notes to the Consolidated Financial Statements (Continued)

payment is allocated between the liability and finance charges to achieve a constant rate on the finance balance outstanding.

The corresponding rental obligations, net of finance charges, are included in financial liabilities -borrowings. The interest element of the finance cost is charged to the income statement over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases by the lessee. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

s.   Dividends

Dividends are recorded in the Group’s financial statements in the period in which they are approved by the company’s shareholders. Interim dividends are recorded in the period in which they are approved and paid.

t.   Non-current assets and liabilities held for sale

Assets and liabilities are classified as held for sale and stated at the lower of carrying amount and fair value less costs to sell if it is intended to recover their carrying amount principally through a sale transaction rather than through continuing use. No depreciation is charged in respect of non-current assets classified as held for sale. Amounts relating to non-current assets and liabilities held for sale are classified as discontinued operations in the income statement where appropriate.

u.   Trade receivables

Trade receivables are stated at fair value after provision for bad and doubtful debts and anticipated future sales returns (see also note 1q).

2.   Segment information

The Group is organised into five business segments:

North American Education — Educational publishing, assessment and testing for the school and higher education market within the USA and Canada;

International Education — Educational publishing, assessment and testing for the school and higher education market outside of North America;

Professional — Business and technology publishing, training, testing and certification for professional bodies;

FT Group — Publisher of the Financial Times, business magazines and specialist information;

Penguin — Publisher with brand imprints such as Penguin, Putnam, Berkley, Viking and Dorling Kindersley.

F-19

Notes to the Consolidated Financial Statements (Continued)

For more detail on the services and products included in each business segment refer to the business review.

The results of the Interactive Data segment are shown as discontinued.

			2010
			North
			American			International						FT								Discontinued
	Notes		Education			Education			Professional			Group			Penguin			Corporate		operations		Group
	All figures in £ millions
Continuing operations
Sales (external)				2,640			1,234			333			403			1,053			—		—		5,663
Sales (inter-segment)				—			—			5			—			3			—		—		8
Adjusted operating profit				469			171			51			60			106			—		—		857
Amortisation of acquired intangibles				(53	)		(35	)		(7	)		(9	)		(1	)		—		—		(105	)
Acquisition costs				(1	)		(7	)		(2	)		(1	)		—			—		—		(11	)
Other net gains and losses				—			(10	)		—			12			—			—		—		2
Operating profit				415			119			42			62			105			—		—		743
Finance costs		6																					(109	)
Finance income		6																					36
Profit before tax																							670
Income tax		7																					(146	)
Profit for the year from continuing operations																							524
Segment assets				4,401			2,122			601			447			1,138			1,888		—		10,597
Joint ventures		12		15			—			1			1			1			—		—		18
Associates		12		24			6			—			23			—			—		—		53
Total assets				4,440			2,128			602			471			1,139			1,888		—		10,668
Other segment items
Share of results of joint ventures and associates		12		(3	)		1			1			42			—			—		—		41
Capital expenditure		10,11		45			27			16			17			18			—		21		144
Pre-publication investment		20		215			61			7			—			36			—		—		319
Depreciation		10		23			19			9			5			13			—		13		82
Amortisation		11,20		307			111			18			23			43			—		12		514

F-20

Notes to the Consolidated Financial Statements (Continued)

			2009
			North
			American			International														Discontinued
	Notes		Education			Education			Professional			FT Group			Penguin			Corporate		operations		Group
	All figures in £ millions
Continuing operations
Sales (external)				2,470			1,035			275			358			1,002			—		—		5,140
Sales (inter-segment)				—			—			7			—			24			—		—		31
Adjusted operating profit				403			141			43			39			84			—		—		710
Amortisation of acquired intangibles				(49	)		(32	)		(1	)		(8	)		(1	)		—		—		(91	)
Operating profit				354			109			42			31			83			—		—		619
Finance costs		6																					(122	)
Finance income		6																					26
Profit before tax																							523
Income tax		7																					(146	)
Profit for the year from continuing operations																							377
Segment assets				4,382			1,635			377			420			1,173			924		471		9,382
Joint ventures		12		13			—			1			1			3			—		—		18
Associates		12		—			5			—			7			—			—		—		12
Total assets				4,395			1,640			378			428			1,176			924		471		9,412
Other segment items
Share of results of joint ventures and associates		12		(2	)		6			1			25			—			—		—		30
Capital expenditure		10,11		38			22			12			15			10			—		29		126
Pre-publication investments		20		220			58			8			—			36			—		—		322
Depreciation		10		24			16			10			5			9			—		21		85
Amortisation		11,20		274			89			13			20			42			—		16		454

F-21

Notes to the Consolidated Financial Statements (Continued)

			2008
			North
			American			International														Discontinued
	Notes		Education			Education			Professional			FT Group			Penguin			Corporate		operations		Group
	All figures in £ millions
Continuing operations
Sales (external)				2,002			866			244			390			903			—		—		4,405
Sales (inter-segment)				—			—			4			—			22			—		—		26
Adjusted operating profit				303			135			36			74			93			—		—		641
Amortisation of acquired intangibles				(45	)		(22	)		(1	)		(7	)		(2	)		—		—		(77	)
Operating profit				258			113			35			67			91			—		—		564
Finance costs		6																					(136	)
Finance income		6																					41
Profit before tax																							469
Income tax		7																					(125	)
Profit for the year from continuing operations																							344
Segment assets				4,952			1,358			423			482			1,211			923		524		9,873
Joint ventures		12		—			8			—			2			3			—		—		13
Associates		12		—			4			—			6			—			—		—		10
Total assets				4,952			1,370			423			490			1,214			923		524		9,896
Other segment items
Share of results of joint		12		—			5			—			19			1			—		—		25
ventures and associates
Capital expenditure		10, 11		22			30			15			17			15			—		25		124
Pre-publication investments		20		202			52			7			—			36			—		—		297
Depreciation		10		25			12			8			13			9			—		13		80
Amortisation		11, 20		219			69			12			12			36			—		12		360

In 2010, sales from the provision of goods were £4,200m (2009: £3,838m; 2008: £3,374m) and sales from the provision of services were £1,463m (2009: £1,302m; 2008: £1,031m). Sales from the Group’s educational publishing, consumer publishing and newspaper business are classified as being from the provision of goods and sales from its assessment and testing and other service businesses are classified as being from the provision of services.

Corporate costs are allocated to business segments on an appropriate basis depending on the nature of the cost and therefore the segment result is equal to the Group operating profit. Inter-segment pricing is determined on an arm’s-length basis. Segment assets consist of property, plant and equipment, intangible assets, inventories, receivables, deferred taxation and other financial assets and exclude cash and cash equivalents and derivative assets. Corporate assets comprise cash and cash equivalents, marketable securities and derivative financial instruments. Capital expenditure comprises additions to property, plant and equipment and software (see notes 10 and 11).

Property, plant and equipment and intangible assets acquired through business combination were £311m (2009: £153m) (see note 29). Capital expenditure, depreciation and amortisation include amounts relating to discontinued operations.

F-22

Notes to the Consolidated Financial Statements (Continued)

The Group operates in the following main geographic areas:

	Sales						Non-current assets
	2010		2009		2008		2010		2009		2008
	All figures in £ millions
Continuing operations
UK		790		694		700		1,031		904		660
Other European countries		415		387		392		237		179		154
USA		3,361		3,146		2,596		3,790		3,607		4,396
Canada		228		198		165		235		204		209
Asia Pacific		577		497		403		364		319		155
Other countries		292		218		149		376		121		14
Total continuing		5,663		5,140		4,405		6,033		5,334		5,588
Discontinued operations
UK		31		54		55		—		37		41
Other European countries		48		86		71		—		63		70
USA		196		317		272		—		204		228
Canada		2		2		2		—		—		—
Asia Pacific		18		23		12		—		21		24
Other countries		1		2		2		—		—		—
Total discontinued		296		484		414		—		325		363
Total		5,959		5,624		4,819		6,033		5,659		5,951

Sales are allocated based on the country in which the customer is located. This does not differ materially from the location where the order is received. Non-current assets are based on the subsidiary’s country of domicile. This is not materially different to the location of the assets. Non-current assets comprise property, plant and equipment, intangible assets, investments in joint ventures and associates and trade and other receivables.

F-23

Notes to the Consolidated Financial Statements (Continued)

3.   Discontinued operations

Discontinued operations in 2009 and 2010 relate to the Group’s interest in Interactive Data (sold on 29 July 2010). Discontinued operations in 2008 relate to interactive Data and the Data Management business (sold on 22 February 2008).

An analysis of the results and cash flows of discontinued operations is as follows:

	2010			2009			2008			2008			2008
	Interactive			Interactive			Interactive			Data
	Data			Data			Data			Management			Total
	All figures in £ millions
Sales		296			484			406			8			414
Operating profit		73			136			112			—			112
Finance income		—			1			4			—			4
Profit before tax		73			137			116			—			116
Attributable tax expense		(28	)		(52	)		(47	)		—			(47	)
Profit after tax		45			85			69			—			69
Profit/(loss) on disposal of discontinued operations before tax		1,037			—			—			(53	)		(53	)
Attributable tax expense		(306	)		—			—			(37	)		(37	)
Profit/(loss) for the year from discontinued operations		776			85			69			(90	)		(21	)
Operating cash flows		85			132			127			—			127
Investing cash flows		(35	)		(23	)		(50	)		—			(50	)
Financing cash flows		49			(80	)		(29	)		—			(29	)
Total cash flows		99			29			48			—			48

4.   Operating expenses

	2010			2009			2008
	All figures in £ millions
By function:
Cost of goods sold		2,588			2,382			2,046
Operating expenses
Distribution costs		298			275			235
Administrative and other expenses		2,190			2,014			1,687
Other income		(115	)		(120	)		(102	)
Total operating expenses		2,373			2,169			1,820
Total		4,961			4,551			3,866

F-24

Notes to the Consolidated Financial Statements (Continued)

	Notes		2010			2009			2008
	All figures in £ millions
By nature:
Utilisation of inventory		21		836			843			832
Depreciation of property, plant and equipment		10		69			64			67
Amortisation of intangible assets — Pre-publication		20		350			307			244
Amortisation of intangible assets — Other		11		152			131			104
Employee benefit expense		5		1,849			1,725			1,392
Operating lease rentals				166			157			156
Other property costs				64			70			102
Royalties expensed				524			479			400
Advertising, promotion and marketing				250			219			238
Information technology costs				78			72			60
Other costs				738			604			373
Other income				(115	)		(120	)		(102	)
Total				4,961			4,551			3,866

During the year the Group obtained the following services from the Group’s auditors:

	2010		2009		2008
	All figures in £ millions
Fees payable to the company’s auditors for the audit of parent company and consolidated financial statements		4		4		3
The audit of the company’s subsidiaries pursuant to legislation		2		2		2
Tax services		2		2		2
Other services		2		1		1
Total		10		9		8

Reconciliation between audit and non-audit service fees is shown below:

	2010		2009		2008
	All figures in £ millions
Group audit fees including fees for attestation under section 404 of the Sarbanes-Oxley Act		6		6		5
Non-audit fees		4		3		3
Total		10		9		8

Fees for attestation under section 404 of the Sarbanes-Oxley Act are allocated between fees payable for the audits of consolidated and subsidiary accounts.

Tax services include services related to tax planning and various other tax advisory matters. Other services is mainly due diligence on acquisitions, notably our Brazilian acquisition, Sistema Educational Brasileiro (SEB), where we assessed that our auditors were best qualified and cost effective in taking on this role.

F-25

Notes to the Consolidated Financial Statements (Continued)

5.   Employee information

	Notes		2010		2009		2008
			All figures in £ millions
Employee benefit expense
Wages and salaries (including termination benefits and restructuring costs)				1,588		1,496		1,184
Social security costs				136		124		103
Share-based payment costs		26		35		27		25
Retirement benefits — defined contribution plans		25		66		60		39
Retirement benefits — defined benefit plans		25		22		16		35
Other post-retirement benefits		25		2		2		6
				1,849		1,725		1,392

The details of the emoluments of the directors of Pearson plc are shown in the report on directors’ remuneration.

	2010		2009		2008
	Average number employed
Employee numbers
North American Education		14,828		15,606		15,412
International Education		10,713		8,899		5,718
Professional		3,721		2,662		2,641
FT Group		2,557		2,328		2,379
Penguin		3,470		4,163		4,112
Other		1,028		1,047		909
Continuing operations		36,317		34,705		31,171

The average number employed in discontinued operations in 2009 was 2,459, and in 2008 was 2,509.

F-26

Notes to the Consolidated Financial Statements (Continued)

6.   Net finance costs

	Notes		2010			2009			2008
			All figures in £ millions
Interest payable				(82	)		(92	)		(106	)
Finance costs in respect of retirement benefits		25		(12	)		(12	)		—
Net foreign exchange losses				(9	)		(7	)		(11	)
Other losses on financial instruments in a hedging relationship:
— fair value hedges				—			(1	)		(7	)
Other losses on financial instruments not in a hedging relationship:
— derivatives				(6	)		(10	)		(12	)
Finance costs				(109	)		(122	)		(136	)
Interest receivable				9			6			13
Finance income in respect of retirement benefits		25		—			—			8
Net foreign exchange gains				18			—			—
Other gains on financial instruments in a hedging relationship:
— fair value hedges				—			4			2
— net investment hedges				—			—			1
Other gains on financial instruments not in a hedging relationship:
— amortisation of transitional adjustment on bonds				2			3			1
— derivatives				7			13			16
Finance income				36			26			41
Net finance costs				(73	)		(96	)		(95	)

The £nil net gain (2009: £3m net gain; 2008: £5m net loss) on fair value hedges comprises a £40m loss (2009: £96m gain; 2008: £156m loss) on the underlying bonds offset by a £40m gain (2009: £93m loss; 2008: £151m gain) on the related derivative financial instruments.

7.   Income tax

	Notes		2010			2009			2008
			All figures in £ millions
Current tax
Charge in respect of current year				(82	)		(106	)		(48	)
Other adjustments in respect of prior years				13			7			12
Total current tax charge				(69	)		(99	)		(36	)
Deferred tax
In respect of temporary differences				(77	)		(51	)		(93	)
Other adjustments in respect of prior years				—			4			4
Total deferred tax charge		13		(77	)		(47	)		(89	)
Total tax charge				(146	)		(146	)		(125	)

F-27

Notes to the Consolidated Financial Statements (Continued)

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the UK tax rate as follows:

	2010			2009			2008
	All figures in £ millions
Profit before tax		670			523			469
Tax calculated at UK rate (2010: 28%, 2009: 28%, 2008: 28.5%)		(188	)		(147	)		(134	)
Effect of overseas tax rates		(40	)		(27	)		(13	)
Joint venture and associate income reported net of tax		11			8			7
Net income/(expense) not subject to tax		8			8			(5	)
Utilisation of previously unrecognised tax losses and credits		56			2			4
Unutilised tax losses		(6	)		(1	)		—
Prior year adjustments		13			11			16
Total tax charge		(146	)		(146	)		(125	)
UK		(28	)		(41	)		(47	)
Overseas		(118	)		(105	)		(78	)
Total tax charge		(146	)		(146	)		(125	)
Tax rate reflected in earnings		21.8	%		27.9	%		26.7	%

A number of changes to the UK Corporation tax system were announced in the June 2010 Budget Statement. The Finance (No. 2) Act 2010 was enacted in July 2010 and reduces the main rate of corporation tax from 28% to 27% from 1 April 2011. A reduction in the rate of corporation tax from 28% to 27% resulted in a reduction in the net deferred tax asset provided at 31 December 2010 of £3m, of which £1m was charged to the income statement and £2m to other comprehensive income.

The tax (charge)/benefit recognised in other comprehensive income is as follows:

	2010			2009		2008
	All figures in £ millions
Pension contributions and actuarial gains and losses		(42	)		79		10
Net investment hedges and other foreign exchange gains and losses		1			12		(1	)
		(41	)		91		9

A tax benefit of £4m (2009: tax benefit £6m; 2008: tax charge £7m) relating to share-based payments has been recognised directly in equity.

8.   Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the company and held as treasury shares.

Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to take account of all dilutive potential ordinary shares and adjusting the profit attributable, if applicable, to account for any tax consequences that might arise from conversion of those shares.

F-28

Notes to the Consolidated Financial Statements (Continued)

	Notes		2010			2009			2008
			All figures in £ millions
Profit for the year from continuing operations				524			377			344
Non-controlling interest				5			(1	)		(2	)
Earnings from continuing operations				529			376			342
Profit/(loss) for the year from discontinued operations		3		776			85			(21	)
Non-controlling interest				(8	)		(36	)		(29	)
Earnings				1,297			425			292
Weighted average number of shares (millions)				801.2			799.3			797.0
Effect of dilutive share options (millions)				1.8			0.8			0.5
Weighted average number of shares (millions) for diluted earnings				803.0			800.1			797.5
Earnings per share from continuing and discontinued operations
Basic				161.9p			53.2p			36.6p
Diluted				161.5p			53.1p			36.6p
Earnings per share from continuing operations
Basic				66.0p			47.0p			42.9p
Diluted				65.9p			47.0p			42.9p
Earnings per share from discontinued operations
Basic				95.9p			6.2p			(6.3p	)

9.   Dividends

	2010		2009		2008
	All figures in £ millions
Final paid in respect of prior year 23.3p (2009: 22.0p; 2008: 20.5p)		187		176		163
Interim paid in respect of current year 13.0p (2009: 12.2p; 2008: 11.8p)		105		97		94
		292		273		257

The directors are proposing a final dividend in respect of the financial year ended 31 December 2010 of 25.7p per share which will absorb an estimated £206m of shareholders’ funds. It will be paid on 6 May 2011 to shareholders who are on the register of members on 8 April 2011. These financial statements do not reflect this dividend.

F-29

Notes to the Consolidated Financial Statements (Continued)

10.   Property, plant and equipment

							Assets in
	Land and			Plant and			course of
	buildings			equipment			construction			Total
	All figures in £ millions
Cost
At 1 January 2009		355			839			7			1,201
Exchange differences		(21	)		(55	)		(1	)		(77	)
Additions		14			46			7			67
Disposals		(2	)		(41	)		—			(43	)
Acquisition through business combination		1			17			—			18
Reclassifications		1			5			(6	)		—
At 31 December 2009		348			811			7			1,166
Exchange differences		8			28			—			36
Additions		21			55			12			88
Disposals		(4	)		(58	)		—			(62	)
Acquisition through business combination		8			25			—			33
Disposal through business disposal		(48	)		(201	)		—			(249	)
Reclassifications		3			5			(8	)		—
At 31 December 2010		336			665			11			1,012

							Assets in
	Land and			Plant and			course of
	buildings			equipment			construction		Total
	All figures in £ millions
Depreciation
At 1 January 2009		(170	)		(608	)		—		(778	)
Exchange differences		11			42			—		53
Charge for the year		(17	)		(68	)		—		(85	)
Disposals		2			39			—		41
Acquisition through business combination		—			(9	)		—		(9	)
At 31 December 2009		(174	)		(604	)		—		(778	)
Exchange differences		(4	)		(19	)		—		(23	)
Charge for the year		(16	)		(66	)		—		(82	)
Disposals		3			58			—		61
Acquisition through business combination		(3	)		(13	)		—		(16	)
Disposal through business disposal		28			164			—		192
At 31 December 2010		(166	)		(480	)		—		(646	)
Carrying amounts
At 1 January 2009		185			231			7		423
At 31 December 2009		174			207			7		388
At 31 December 2010		170			185			11		366

F-30

Notes to the Consolidated Financial Statements (Continued)

Depreciation expense of £10m (2009: £12m) has been included in the income statement in cost of goods sold, £7m (2009: £7m) in distribution expenses and £52m (2009: £45m) in administrative and other expenses. In 2010 £13m (2009: £21m) relates to discontinued operations.

The Group leases certain equipment under a number of finance lease agreements. The net carrying amount of leased plant and equipment included within property, plant and equipment was £12m (2009: £15m).

11.   Intangible assets

							Acquired
							customer			Acquired			Acquired			Other
							lists and			trademarks			publishing			intangibles
	Goodwill			Software			relationships			and brands			rights			acquired			Total
	All figures in £ millions
Cost
At 1 January 2009		4,570			310			341			128			165			258			5,772
Exchange differences		(420	)		(25	)		(32	)		(9	)		(5	)		(22	)		(513	)
Additions — internal development		—			35			—			—			—			—			35
Additions — purchased		—			24			—			—			—			—			24
Disposals		(9	)		(5	)		—			—			—			—			(14	)
Acquisition through business combination		205			—			38			24			55			25			347
At 31 December 2009		4,346			339			347			143			215			261			5,651
Exchange differences		140			9			10			4			9			10			182
Additions — internal development		—			41			—			—			—			—			41
Additions — purchased		—			15			—			—			—			—			15
Disposals		(11	)		(18	)		—			—			—			—			(29	)
Acquisition through business combination		288			9			159			40			6			76			578
Disposal through business disposal		(195	)		(43	)		(85	)		(1	)		—			(41	)		(365	)
At 31 December 2010		4,568			352			431			186			230			306			6,073

F-31

Notes to the Consolidated Financial Statements (Continued)

						Acquired
						customer			Acquired			Acquired			Other
						lists and			trademarks			publishing			intangibles
	Goodwill		Software			relationships			and brands			rights			acquired			Total
	All figures in £ millions
Amortisation
At 1 January 2009		—		(203	)		(67	)		(17	)		(69	)		(63	)		(419	)
Exchange differences		—		19			6			1			6			8			40
Charge for the year		—		(44	)		(35	)		(11	)		(22	)		(35	)		(147	)
Disposals		—		4			—			—			—			—			4
At 31 December 2009		—		(224	)		(96	)		(27	)		(85	)		(90	)		(522	)
Exchange differences		—		(5	)		(3	)		(2	)		(2	)		(1	)		(13	)
Charge for the year		—		(51	)		(39	)		(12	)		(24	)		(38	)		(164	)
Disposals		—		16			—			—			—			—			16
Acquisition through business combination		—		(5	)		—			—			—			—			(5	)
Disposal through business disposal		—		19			35			—			—			28			82
At 31 December 2010		—		(250	)		(103	)		(41	)		(111	)		(101	)		(606	)
Carrying amounts
At 1 January 2009		4,570		107			274			111			96			195			5,353
At 31 December 2009		4,346		115			251			116			130			171			5,129
At 31 December 2010		4,568		102			328			145			119			205			5,467

Goodwill

The goodwill carrying value of £4,568m relates to acquisitions completed after 1 January 1998. Prior to 1 January 1998 all goodwill was written off to reserves on the date of acquisition. £3,090m of the carrying value relates to acquisitions completed between 1 January 1998 and 31 December 2002 and £1,478m relates to acquisitions completed after 1 January 2003 (the date of transition to IFRS).

For acquisitions completed between 1 January 1998 and 31 December 2002 no value was ascribed to intangibles other than goodwill and the goodwill on each acquisition was amortised over a period of up to 20 years. On adoption of IFRS on 1 January 2003, the Group chose not to restate the goodwill balance and at that date the balance was frozen (i.e. amortisation ceased). If goodwill had been restated then a significant value would have been ascribed to other intangible assets, which would be subject to amortisation, and the carrying value of goodwill would be significantly lower. For acquisitions completed after 1 January 2003 value has been ascribed to other intangible assets which are amortised.

Other intangible assets

Other intangibles acquired include content, technology, contracts and software rights. Amortisation of £3m (2009: £5m) is included in the income statement in cost of goods sold and £149m (2009: £126m) in administrative and other expenses. In 2010 £12m (2009: £16m) of amortisation relates to discontinued operations.

Impairment tests for cash-generating units containing goodwill

Impairment tests have been carried out where appropriate as described below. The recoverable amount for each unit tested exceeds its carrying value.

F-32

Notes to the Consolidated Financial Statements (Continued)

Goodwill in respect of continuing operations is allocated to 12 cash-generating units (CGUs) within the business segments as follows:

	2010		2009
	All figures in
	£ millions
US Education Publishing		1,976		1,876
US School Assessment and Information		683		652
Canada		197		181
International Education Publishing		686		468
International Education Assessment and Testing		227		222
Professional Publishing		13		13
Professional Assessment and Training		287		226
Pearson Education total		4,069		3,638
Financial Times		48		43
Mergermarket		136		125
FT Group total		184		168
Penguin US		196		190
Penguin UK		103		103
Penguin Asia Pacific & International		16		63
Penguin total		315		356
Continuing operations		4,568		4,162
Interactive Data		—		184
Total goodwill		4,568		4,346

As highlighted in the 2008 business review, integration of the US School and Higher Education businesses began in 2008. This integration continued throughout 2009 and advanced to a point where, from 1 January 2010, these companies have been combined into one CGU for impairment review purposes.

The recoverable amount of each CGU is based on value in use calculations. Goodwill is tested for impairment annually. Other than goodwill there are no intangible assets with indefinite lives. The goodwill is generally denominated in the currency of the relevant cash flows and therefore the impairment review is not materially sensitive to exchange rate fluctuations.

Key assumptions

The value in use calculations use cash flow projections based on financial budgets approved by management covering a five-year period. The key assumptions used by management in the value in use calculations were:

Discount rate — The discount rate is based on the risk-free rate for government bonds, adjusted for a risk premium to reflect the increased risk in investing in equities. The risk premium adjustment is assessed for each specific CGU. The average pre-tax discount rates used are in the range of 11.2% to 12.1% for the Pearson Education businesses (2009: 10.9% to 11.8%), 12.9% to 20.0% for the FT Group businesses (2009: 12.7% to 18.1%) and 10.5% to 13.0% for the Penguin businesses (2009: 9.5% to 11.4%).

Perpetuity growth rates — A perpetuity growth rate of 2.0% was used for cash flows subsequent to the approved budget period for all CGUs in 2010 (2009: 2.0%). This perpetuity growth rate is a conservative rate and is considered to be lower than the long-term historic growth rates of the underlying territories in which the CGU operates and the long-term growth rate prospects of the sectors in which the CGU operates.

F-33

Notes to the Consolidated Financial Statements (Continued)

Cash flow growth rates — The cash flow growth rates are derived from management’s latest forecast of sales taking into consideration experience of operating margins achieved in the CGU. Historically, such forecasts have been reasonably accurate.

Sensitivities

The Group’s impairment review is sensitive to a change in assumptions used, most notably the discount rates, the perpetuity growth rates and expected future cash flows. Based on the Group’s sensitivity analysis, a reasonably possible change in any of these assumptions is unlikely to cause an impairment in any of the CGUs.

12.   Investments in joint ventures and associates

Joint ventures

	2010			2009
	All figures in £ millions
At beginning of year		18			13
Share of (loss)/profit after tax		(1	)		4
Dividends		(3	)		(3	)
Loan repayment		—			(3	)
Additions and further investment		4			13
Transfer to subsidiary		—			(6	)
At end of year		18			18

Investments in joint ventures are accounted for using the equity method of accounting and are initially recognised at cost. The total goodwill recorded on acquisition of joint ventures at 31 December 2010 was £12m (2009: £11m).

The aggregate of the Group’s share of its joint ventures’ assets (including goodwill) and liabilities, none of which are individually significant, are as follows:

	2010			2009
	All figures in £ millions
Assets
Non-current assets		15			15
Current assets		14			11
Liabilities
Current liabilities		(11	)		(8	)
Net assets		18			18
Income		17			12
Expenses		(18	)		(8	)
(Loss)/profit after tax		(1	)		4

F-34

Notes to the Consolidated Financial Statements (Continued)

Associates

	2010			2009
	All figures in £ millions
At beginning of year		12			10
Exchange differences		(1	)		4
Share of profit after tax		42			26
Dividends		(20	)		(19	)
Additions		17			1
Reversal of distribution from associate in excess of carrying value		(7	)		(7	)
Actuarial gains/(losses) on retirement benefit obligations		1			(3	)
Transfer from other financial assets		9			—
At end of year		53			12

Included in the share of profit after tax is a gain in fair values of £12m (2009: £nil) arising on a stepped acquisition by FTSE International Ltd.

In addition to the amounts disclosed above, FTSE paid royalties of £11m (2009: £10m) to the FT Group during the year.

Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The total goodwill recorded on acquisition of associates at 31 December 2010 was £21m (2009: £nil).

The Group’s interests in its principal associates, all of which are unlisted, are as follows:

			%
2010	Country of incorporation		interest held		Assets		Liabilities			Revenues		Profit
	All figures in £ millions
The Economist Newspaper Ltd		England		50		129		(129	)		169		25
FTSE International Ltd		England		50		62		(44	)		45		17
Other						41		(6	)		9		—
Total						232		(179	)		223		42

			%
2009	Country of incorporation		interest held		Assets		Liabilities			Revenues		Profit
	All figures in £ millions
The Economist Newspaper Ltd		England		50		116		(116	)		161		22
FTSE International Ltd		England		50		28		(24	)		38		4
Other						14		(6	)		12		—
Total						158		(146	)		211		26

The interests held in associates are equivalent to voting rights.

F-35

Notes to the Consolidated Financial Statements (Continued)

13.   Deferred income tax

	2010			2009
	All figures in
	£ millions
Deferred income tax assets
Deferred income tax assets to be recovered after more than 12 months		276			374
Deferred income tax assets to be recovered within 12 months		—			13
		276			387
Deferred income tax liabilities
Deferred income tax liabilities to be settled after more than 12 months		(471	)		(473	)
Deferred income tax liabilities to be settled within 12 months		—			—
		(471	)		(473	)
Net deferred income tax		(195	)		(86	)

Deferred income tax assets to be recovered within 12 months relate to the utilisation of losses in the US.

Deferred income tax assets and liabilities may be offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fiscal authority. The Group has unrecognised deferred income tax assets of £14m at 31 December 2010 in respect of UK losses, and approximately £16m in respect of losses in other territories. None of the unrecognised UK losses have expiry dates associated with them.

The recognition of the deferred income tax assets is supported by management’s forecasts of the future profitability of the relevant business units.

The movement on the net deferred income tax account is as follows:

	Notes		2010			2009
			All figures in
			£ millions
At beginning of year				(86	)		(75	)
Exchange differences				(4	)		10
Income statement charge		7		(72	)		(51	)
Acquisition through business combination		29		(37	)		(45	)
Disposal through business disposal		30		47			—
Tax (charge)/benefit to other comprehensive income or equity				(43	)		75
At end of year				(195	)		(86	)

Included in the income statement charge above is a £5m credit relating to discontinued operations (2009: £4m charge).

F-36

Notes to the Consolidated Financial Statements (Continued)

The movement in deferred income tax assets and liabilities during the year is as follows:

										Retirement
	Trading			Goodwill and			Returns			benefit
	losses			intangibles			provisions			obligations			Other			Total
	All figures in £ millions
Deferred income tax assets
At 1 January 2009		73			20			106			7			166			372
Exchange differences		(5	)		(2	)		(10	)		(1	)		(17	)		(35	)
Acquisition through business combination		—			—			—			—			—			—
Income statement (charge)/benefit		(46	)		(7	)		(4	)		(6	)		42			(21	)
Tax benefit to other comprehensive income or equity		—			—			—			68			3			71
At 31 December 2009		22			11			92			68			194			387
Exchange differences		1			—			3			—			5			9
Acquisition through business combination		—			—			—			—			4			4
Disposal through business disposal		—			—			—			—			(7	)		(7	)
Income statement (charge)/benefit		(18	)		(7	)		1			(9	)		(35	)		(68	)
Tax (charge)/benefit to other comprehensive income or equity		—			—			—			(53	)		4			(49	)
At 31 December 2010		5			4			96			6			165			276

Other deferred income tax assets include temporary differences on share-based payments, inventory and other provisions.

	Goodwill and
	intangibles			Other			Total
	All figures in £ millions
Deferred income tax liabilities
At 1 January 2009		(318	)		(129	)		(447	)
Exchange differences		30			15			45
Acquisition through business combination		(41	)		(4	)		(45	)
Income statement benefit/(charge)		10			(40	)		(30	)
Tax benefit to other comprehensive income or equity		—			4			4
At 31 December 2009		(319	)		(154	)		(473	)
Exchange differences		(9	)		(4	)		(13	)
Acquisition through business combination		(41	)		—			(41	)
Disposal through business disposal		25			29			54
Income statement benefit/(charge)		10			(14	)		(4	)
Tax benefit to other comprehensive income or equity		—			6			6
At 31 December 2010		(334	)		(137	)		(471	)

Other deferred income tax liabilities include temporary differences in respect of depreciation and royalty advances.

F-37

Notes to the Consolidated Financial Statements (Continued)

14.   Classification of financial instruments

The accounting classification of each class of the Group’s financial assets and financial liabilities, together with their fair values, is as follows:

			2010
			Fair value										Amortised cost
					Derivatives			Derivatives										Total			Total
			Available		deemed held			in hedging		Other			Loans and		Other			carrying			market
	Notes		for sale		for trading			relationships		liabilities			receivables		liabilities			value			value
	All figures in £ millions
Investments in unlisted securities		15		58		—			—		—			—		—			58			58
Cash and cash equivalents		17		—		—			—		—			1,736		—			1,736			1,736
Marketable securities				12		—			—		—			—		—			12			12
Derivative financial instruments		16		—		28			112		—			—		—			140			140
Trade receivables		22		—		—			—		—			1,031		—			1,031			1,031
Total financial assets				70		28			112		—			2,767		—			2,977			2,977
Derivative financial instruments		16		—		(6	)		—		—			—		—			(6	)		(6	)
Trade payables		24		—		—			—		—			—		(470	)		(470	)		(470	)
Other financial liabilities — put option over non-controlling interest		24		—		—			—		(25	)		—		—			(25	)		(25	)
Bank loans and overdrafts		18		—		—			—		—			—		(73	)		(73	)		(73	)
Borrowings due within one year		18		—		—			—		—			—		(331	)		(331	)		(333	)
Borrowings due after more than one year		18		—		—			—		—			—		(1,908	)		(1,908	)		(1,939	)
Total financial liabilities				—		(6	)		—		(25	)		—		(2,782	)		(2,813	)		(2,846	)

F-38

Notes to the Consolidated Financial Statements (Continued)

			2009
			Fair value										Amortised cost
					Derivatives			Derivatives										Total			Total
			Available		deemed held			in hedging		Other			Loans and		Other			carrying			market
	Notes		for sale		for trading			relationships		liabilities			receivables		liabilities			value			value
	All figures in £ millions
Investments in unlisted securities		15		62		—			—		—			—		—			62			62
Cash and cash equivalents		17		—		—			—		—			750		—			750			750
Marketable securities				63		—			—		—			—		—			63			63
Derivative financial instruments		16		—		42			70		—			—		—			112			112
Trade receivables		22		—		—			—		—			989		—			989			989
Total financial assets				125		42			70		—			1,739		—			1,976			1,976
Derivative financial instruments		16		—		(9	)		—		—			—		—			(9	)		(9	)
Trade payables		24		—		—			—		—			—		(461	)		(461	)		(461	)
Other financial liabilities — put option over non — controlling interest		24		—		—			—		(23	)		—		—			(23	)		(23	)
Bank loans and overdrafts		18		—		—			—		—			—		(70	)		(70	)		(70	)
Borrowings due within one year		18		—		—			—		—			—		(4	)		(4	)		(4	)
Borrowings due after more than one year		18		—		—			—		—			—		(1,934	)		(1,934	)		(1,969	)
Total financial liabilities				—		(9	)		—		(23	)		—		(2,469	)		(2,501	)		(2,536	)

Certain of the Group’s derivative financial instruments are classified as held for trading either as they do not meet the hedge accounting criteria specified in IAS 39 ‘Financial Instruments: Recognition and Measurement’ or the Group has chosen not to seek hedge accounting for these instruments. None of these derivatives are held for speculative trading purposes. Transactions in derivative financial instruments are only undertaken to manage risks arising from underlying business activity, in accordance with the Group’s treasury policy as described in note 19.

The Group designates certain qualifying derivative financial instruments as hedges of the fair value of its bonds (fair value hedges). Changes in the fair value of these derivative financial instruments are recorded in the income statement, together with any change in the fair value of the hedged liability attributable to the hedged risk.

The Group also designates certain of its borrowings and derivative financial instruments as hedges of its investments in foreign operations (net investment hedges). Movements in the fair value of these financial instruments (to the extent they are effective) are recognised in other comprehensive income.

None of the Group’s financial assets or liabilities are designated at fair value through the income statement upon initial recognition.

More detail on the Group’s accounting for financial instruments is included in the Group’s accounting policies. The Group’s approach to managing risks in relation to financial instruments is described in note 19.

F-39

Notes to the Consolidated Financial Statements (Continued)

15.   Other financial assets

	2010			2009
	All figures in £ millions
At beginning of year		62			63
Exchange differences		1			(6	)
Acquisition of investments		7			10
Transfers to associates		(9	)		—
Disposal of investments		(3	)		(5	)
At end of year		58			62

Other financial assets comprise non-current unlisted securities.

16.   Derivative financial instruments

The Group’s approach to the management of financial risks is set out in note 19. The Group’s outstanding derivative financial instruments are as follows:

	2010							2009
	Gross notional							Gross notional
	amounts		Assets		Liabilities			amounts		Assets		Liabilities
	All figures in £ millions
Interest rate derivatives — in a fair value hedge relationship		1,327		112		—			1,103		70		—
Interest rate derivatives — not in a hedge relationship		256		8		—			486		13		(7	)
Cross currency rate derivatives — in a net investment hedge relationship		220		20		(6	)		220		29		(2	)
Total		1,803		140		(6	)		1,809		112		(9	)
Analysed as expiring:
In less than one year		319		6		—			238		—		(7	)
Later than one year and not later than five years		749		74		(6	)		844		60		(2	)
Later than five years		735		60		—			727		52		—
Total		1,803		140		(6	)		1,809		112		(9	)

The carrying value of the above derivative financial instruments equals their fair value. Fair values are determined by using market data and the use of established estimation techniques such as discounted cash flow and option valuation models.

At the end of 2010, the currency split of the mark-to-market values of rate derivatives, including the exchange of principal on cross currency rate derivatives, was US dollar £(97)m, sterling £259m and South African rand £(28)m (2009: US dollar £(127)m, sterling £252m and South African rand £(22)m).

The fixed interest rates on outstanding rate derivative contracts at the end of 2010 range from 3.65% to 9.28% (2009: 3.65% to 9.28%) and the floating rates are based on LIBOR in US dollar and sterling.

The Group’s portfolio of rate derivatives is diversified by maturity, counterparty and type. Natural offsets between transactions within the portfolio and the designation of certain derivatives as hedges significantly reduce the risk of income statement volatility. The sensitivity of the portfolio to changes in market rates is set out in note 19.

F-40

Notes to the Consolidated Financial Statements (Continued)

Counterparty exposure from all derivatives is managed, together with that from deposits and bank account balances, within credit limits that reflect published credit ratings and by reference to other market measures (e.g. market prices for credit default swaps) to ensure that there is no significant risk to any one counterparty. No single derivative transaction had a market value (positive or negative) at the balance sheet date that exceeded 3% of the Group’s consolidated total equity.

In accordance with IAS 39 ‘Financial Instruments: Recognition and Measurement’ the Group has reviewed all of its material contracts for embedded derivatives that are required to be separately accounted for if they do not meet certain requirements, and has concluded that there are no material embedded derivatives.

17.   Cash and cash equivalents (excluding overdrafts)

	2010		2009
	All figures in
	£ millions
Cash at bank and in hand		763		580
Short-term bank deposits		973		170
		1,736		750

Short-term bank deposits are invested with banks and earn interest at the prevailing short-term deposit rates.

At the end of 2010 the currency split of cash and cash equivalents was US dollar 73% (2009: 35%), sterling 9% (2009: 22%), euro 6% (2009: 18%) and other 12% (2009: 25%).

Cash and cash equivalents have fair values that approximate to their carrying value due to their short-term nature.

Cash and cash equivalents include the following for the purpose of the cash flow statement:

	2010			2009
	All figures in
	£ millions
Cash and cash equivalents		1,736			750
Bank overdrafts		(72	)		(70	)
		1,664			680

F-41

Notes to the Consolidated Financial Statements (Continued)

18.   Financial liabilities — Borrowings

The Group’s current and non-current borrowings are as follows:

	2010		2009
	All figures in
	£ millions
Non-current
7.0% Global Dollar Bonds 2011 (nominal amount $500m)		—		322
5.5% Global Dollar Bonds 2013 (nominal amount $350m)		236		226
5.7% US Dollar Bonds 2014 (nominal amount $400m)		288		274
7.0% Sterling Bonds 2014 (nominal amount £250m)		256		254
6.0% Sterling Bonds 2015 (nominal amount £300m)		297		297
4.0% US Dollar Notes 2016 (nominal amount $350m)		227		—
6.25% Global Dollar Bonds 2018 (nominal amount $550m)		389		359
4.625% US Dollar Notes 2018 (nominal amount $300m)		208		191
Finance lease liabilities		7		11
		1,908		1,934
Current
Due within one year or on demand:
Bank loans and overdrafts		73		70
7.0% Global Dollar Bonds 2011 (nominal amount $500m)		325		—
Finance lease liabilities		6		4
		404		74
Total borrowings		2,312		2,008

Included in the non-current borrowings above is £12m of accrued interest (2009: £12m). Included in the current borrowings above is £1m of accrued interest (2009: £nil).

The maturity of the Group’s non-current borrowing is as follows:

	2010		2009
	All figures in
	£ millions
Between one and two years		4		327
Between two and five years		1,080		760
Over five years		824		847
		1,908		1,934

F-42

Notes to the Consolidated Financial Statements (Continued)

The carrying amounts and market values of borrowings are as follows:

	2010							2009
	Effective			Carrying				Carrying
	interest rate			value		Market value		value		Market value
	All figures in £ millions
Bank loans and overdrafts		n/a			73		73		70		70
7.0% Global Dollar Bonds 2011		7.16	%		325		327		322		331
5.5% Global Dollar Bonds 2013		5.76	%		236		241		226		232
5.7% US Dollar Bonds 2014		5.88	%		288		277		274		266
7.0% Sterling Bonds 2014		7.20	%		256		282		254		276
6.0% Sterling Bonds 2015		6.27	%		297		329		297		317
4.0% US Dollar Notes 2016		4.26	%		227		226		—		—
6.25% Global Dollar Bonds 2018		6.46	%		389		385		359		360
4.625% US Dollar Notes 2018		4.69	%		208		192		191		176
Finance lease liabilities		n/a			13		13		15		15
					2,312		2,345		2,008		2,043

The market values stated above are based on clean market prices at the year end or, where these are not available, on the quoted market prices of comparable debt issued by other companies. The effective interest rates above relate to the underlying debt instruments.

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

	2010		2009
	All figures in
	£ millions
US dollar		1,759		1,457
Sterling		553		551
Euro		—		—
		2,312		2,008

The Group has the following undrawn capacity on its committed borrowing facilities as at 31 December:

	2010		2009
	All figures in
	£ millions
Floating rate
— expiring within one year		—		—
— expiring beyond one year		1,118		1,084
		1,118		1,084

In addition to the above facilities, there are a number of short-term facilities that are utilised in the normal course of business.

All of the Group’s borrowings are unsecured. In respect of finance lease obligations, the rights to the leased asset revert to the lessor in the event of default.

F-43

Notes to the Consolidated Financial Statements (Continued)

The maturity of the Group’s finance lease obligations is as follows:

	2010		2009
	All figures in
	£ millions
Finance lease liabilities — minimum lease payments
Not later than one year		6		4
Later than one year and not later than two years		4		5
Later than two years and not later than three years		3		3
Later than three years and not later than four years		—		3
Later than four years and not later than five years		—		—
Later than five years		—		—
Future finance charges on finance leases		—		—
Present value of finance lease liabilities		13		15

The Present value of finance lease liabilities is as follows:

	2010		2009
	All figures in
	£ millions
Not later than one year		6		4
Later than one year and not later than five years		7		11
Later than five years		—		—
		13		15

The carrying amounts of the Group’s lease obligations approximate their fair value.

19.   Financial risk management

The Group’s approach to the management of financial risks together with sensitivity analyses is set out below.

Treasury policy

The Group holds financial instruments for two principal purposes: to finance its operations and to manage the interest rate and currency risks arising from its operations and its sources of finance. The Group finances its operations by a mixture of cash flows from operations, short-term borrowings from banks and commercial paper markets, and longer term loans from banks and capital markets. The Group borrows principally in US dollars and sterling, at both floating and fixed rates of interest, using derivative financial instruments (‘derivatives’), where appropriate, to generate the desired effective currency profile and interest rate basis. The derivatives used for this purpose are principally rate swaps, rate caps and collars, currency rate swaps and forward foreign exchange contracts. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity and refinancing risk, counterparty risk and foreign currency risk. These risks are managed by the chief financial officer under policies approved by the board, which are summarised below. All the treasury policies remained unchanged throughout 2010, except for a revision to the Group’s bank counterparty limits.

The audit committee receives reports on the Group’s treasury activities, policies and procedures. The treasury department is not a profit centre and its activities are subject to regular internal audit.

Interest rate risk management

The Group’s exposure to interest rate fluctuations on its borrowings is managed by borrowing on a fixed rate basis and by entering into rate swaps, rate caps and forward rate agreements. The Group’s policy objective has continued to be to set a target proportion of its forecast borrowings (taken at the year end, with cash netted against

F-44

Notes to the Consolidated Financial Statements (Continued)

floating rate debt and before certain adjustments for IAS 39 ‘Financial Instruments: Recognition and Measurement’) to be hedged (i.e. fixed or capped at the year end) over the next four years, subject to a maximum of 65% and a minimum that starts at 40% and falls by 10% at each year end. At the end of 2010 the fixed to floating hedging ratio, on the above basis, was approximately 136%. This above-policy level reflects the receipt of the proceeds from the divestment of Interactive Data in 2010, combined with strong cash collections, resulting in lower than typical net debt and hence a higher hedging ratio. Our policy does not require us to cancel derivative contracts and we expect to return to compliance with this policy during 2011. A simultaneous 1% change on 1 January 2011 in the Group’s variable interest rates in US dollar and sterling, taking into account forecast seasonal debt, would have a £2m effect on profit before tax.

Use of interest rate derivatives

The policy described in the section above creates a group of derivatives, under which the Group is a payer of fixed rates and a receiver of floating rates. The Group also aims to avoid undue exposure to a single interest rate setting. Reflecting this objective, the Group has predominantly swapped its fixed rate bond issues to floating rate at their launch. This creates a second group of derivatives, under which the Group is a receiver of fixed rates and a payer of floating rates. The Group’s accounting objective in its use of interest rate derivatives is to minimise the impact on the income statement of changes in the mark-to-market value of its derivative portfolio as a whole. It uses duration calculations to estimate the sensitivity of the derivatives to movements in market rates. The Group also identifies which derivatives are eligible for fair value hedge accounting (which reduces sharply the income statement impact of changes in the market value of a derivative). The Group then balances the total portfolio between hedge-accounted and pooled segments, so that the expected movement on the pooled segment is minimal.

Liquidity and refinancing risk management

The Group’s objective is to secure continuity of funding at a reasonable cost. To do this it seeks to arrange committed funding for a variety of maturities from a diversity of sources. The Group’s policy objective has been that the weighted average maturity of its core gross borrowings (treating short-term advances as having the final maturity of the facilities available to refinance them) should be between three and ten years. At the end of 2010 the average maturity of gross borrowings was 4.4 years (2009: 5.1 years) of which bonds represented 96% (2009: 96%) of these borrowings.

The Group believes that ready access to different funding markets also helps to reduce its liquidity risk, and that published credit ratings and published financial policies improve such access. All of the Group’s credit ratings remained unchanged during the year. The long-term ratings are Baal from Moody’s and BBB+ from Standard & Poor’s, and the short-term ratings are P2 and A2 respectively. The Group’s policy is to strive to maintain a rating of Baal/BBB+ over the long term. The Group will also continue to use internally a range of ratios to monitor and manage its finances. These include interest cover, net debt to operating profit and cash flow to debt measures. The Group also maintains undrawn committed borrowing facilities. At the end of 2010 the committed facilities amounted to £1,118m and their weighted average maturity was 4.9 years.

F-45

Notes to the Consolidated Financial Statements (Continued)

Analysis of Group debt, including the impact of derivatives

The following tables analyse the Group’s sources of funding and the impact of derivatives on the Group’s debt instruments.

The Group’s net debt position is set out below:

	2010			2009
	All figures in
	£ millions
Cash and cash equivalents		1,736			750
Marketable securities		12			63
Derivative financial instruments		134			103
Bank loans, overdrafts and loan notes		(73	)		(70	)
Bonds		(2,226	)		(1,923	)
Finance lease liabilities		(13	)		(15	)
Net debt		(430	)		(1,092	)

The split of net debt between fixed and floating rate, stated after the impact of rate derivatives, is as follows:

	2010			2009
	All figures in
	£ millions
Fixed rate		577			772
Floating rate		(147	)		320
Total		430			1,092

Gross borrowings, after the impact of cross-currency rate derivatives, analysed by currency are as follows:

	2010		2009
	All figures in
	£ millions
US dollar		1,954		1,656
Sterling		333		330
Other		25		22
Total		2,312		2,008

As at 31 December 2010 the exposure of the borrowings of the Group to interest rate changes when the borrowings re-price is as follows:

	Less than		One to			More than
	one year		five years			five years			Total
	All figures in £ millions
Re-pricing profile of borrowings		403		1,084			825			2,312
Effect of rate derivatives		1,264		(529	)		(735	)		—
Total		1,667		555			90			2,312

F-46

Notes to the Consolidated Financial Statements (Continued)

The maturity of contracted cash flows associated with the Group’s financial liabilities are as follows:

	2010
	USD			GBP			Other		Total
	All figures in £ millions
Not later than one year		571			117			160		848
Later than one year and not later than five years		767			399			32		1,198
Later than five years		792			—			—		792
Total		2,130			516			192		2,838
Analysed as:
Bonds		1,938			710			—		2,648
Rate derivatives — inflows		(364	)		(297	)		—		(661	)
Rate derivatives — outflows		340			7			34		381
Trade creditors		216			96			158		470
Total		2,130			516			192		2,838

	2009
	USD			GBP			Other		Total
	All figures in £ millions
Not later than one year		265			110			151		526
Later than one year and not later than five years		878			313			30		1,221
Later than five years		739			106			—		845
Total		1,882			529			181		2,592
Analysed as:
Bonds		1,692			745			—		2,437
Rate derivatives — inflows		(386	)		(313	)		—		(699	)
Rate derivatives — outflows		353			8			32		393
Trade creditors		223			89			149		461
Total		1,882			529			181		2,592

All cash flow projections shown above are on an undiscounted basis. Any cash flows based on a floating rate are calculated using interest rates as set at the date of the last rate reset. Where this is not possible, floating rates are based on interest rates prevailing at 31 December in the relevant year. All derivative amounts are shown gross, although the Group net settles these amounts wherever possible.

Any amounts drawn under revolving credit facilities and commercial paper are assumed to mature at the maturity date of the relevant facility, with interest calculated as payable in each calendar year up to and including the date of maturity of the facility.

Financial counterparty risk management

Counterparty credit limits, which take published credit rating and other factors into account, are set to cover our total aggregate exposure to a single financial institution. The limits applicable to published credit ratings bands are approved by the chief financial officer within guidelines approved by the board. Exposures and limits applicable to each financial institution are reviewed on a regular basis.

F-47

Notes to the Consolidated Financial Statements (Continued)

Foreign currency risk management

Although the Group is based in the UK, it has its most significant investment in overseas operations. The most significant currency for the Group is the US dollar. The Group’s policy on routine transactional conversions between currencies (for example, the collection of receivables, and the settlement of payables or interest) remains that these should be transacted at the relevant spot exchange rate. The majority of the Group’s operations are domestic within their country of operation. No unremitted profits are hedged with foreign exchange contracts, as the company judges it inappropriate to hedge non-cash flow translational exposure with cash flow instruments. However, the Group does seek to create a natural hedge of this exposure through its policy of aligning approximately the currency composition of its core net borrowings (after the impact of cross currency rate derivatives) with its forecast operating profit before depreciation and amortisation. This policy aims to soften the impact of changes in foreign exchange rates on consolidated interest cover and earnings. The policy above applies only to currencies that account for more than 15% of Group operating profit before depreciation and amortisation, which currently is only the US dollar. The Group still borrows small amounts in other currencies, typically for seasonal working capital needs. Our policy does not require existing currency debt to be terminated to match declines in that currency’s share of Group operating profit before depreciation and amortisation. In addition, currencies that account for less than 15% of Group operating profit before depreciation and amortisation can be included in the above hedging process at the request of the chief financial officer.

Included within year end net debt, the net borrowings/(cash) in the hedging currencies above (taking into account the effect of cross currency swaps) were: US dollar £683m, sterling £179m and South African rand £9m.

Use of currency debt and currency derivatives

The Group uses both currency denominated debt and derivative instruments to implement the above policy. Its intention is that gains/losses on the derivatives and debt offset the losses/gains on the foreign currency assets and income. Each quarter the value of hedging instruments is monitored against the assets in the relevant currency and, where practical, a decision is made whether to treat the debt or derivative as a net investment hedge (permitting foreign exchange movements on it to be taken to reserves) for the purposes of IAS 39.

Financial instruments — fair value measurement

The following table provides an analysis of those financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3, based on the degree to which the fair value is observable:

Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 fair value measurements are those derived from inputs, other than quoted prices included within level 1, that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

F-48

Notes to the Consolidated Financial Statements (Continued)

	2010											2009
	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
	All figures in £ millions
Financial assets at fair value
Derivative financial assets		—		140			—			140			—		112			—			112
Marketable securities		—		12			—			12			—		63			—			63
Available for sale financial assets
Investments in unlisted securities		—		—			58			58			—		—			62			62
Financial liabilities at fair value
Derivative financial liabilities		—		(6	)		—			(6	)		—		(9	)		—			(9	)
Other financial liabilities — put option over non-controlling interest		—		—			(25	)		(25	)		—		—			(23	)		(23	)
Total		—		146			33			179			—		166			39			205

The following table analyses the movements in level 3 fair value measurements:

	2010
	Investments in			Other financial
	unlisted securities			liabilities
	All figures in £ millions
At beginning of year		62			(23	)
Exchange differences		1			—
Additions		7			(2	)
Disposals		(12	)		—
At end of year		58			(25	)

The fair value of the investments in unlisted securities is determined by reference to the financial performance of the underlying asset and amounts realised on the sale of similar assets. The fair value of other financial liabilities represents the present value of the estimated future liability.

F-49

Notes to the Consolidated Financial Statements (Continued)

Financial instruments — sensitivity analysis

As at 31 December 2010 the sensitivity of the carrying value of the Group’s financial instruments to fluctuations in

interest rates and exchange rates is as follows:

				Impact of 1%			Impact of 1%			Impact of 10%			Impact of 10%
	Carrying			increase in			decrease in			strengthening in			weakening in
	value			interest rates			interest rates			sterling			sterling
				All figures in £ millions
Investments in unlisted securities		58			—			—			(2	)		3
Cash and cash equivalents		1,736			—			—			(140	)		171
Marketable securities		12			—			—			—			—
Derivative financial instruments		134			(62	)		67			11			(14	)
Bonds		(2,226	)		59			(64	)		142			(174	)
Other borrowings		(86	)		—			—			8			(9	)
Put option over non-controlling interest		(25	)		—			—			2			(3	)
Other net financial assets		556			—			—			(42	)		51
Total financial instruments		159			(3	)		3			(21	)		25

The table shows the sensitivities of the fair values of each class of financial instruments to an isolated change in either interest rates or foreign exchange rates. The class ‘Other net financial assets’ comprises trade assets less trade liabilities.

The sensitivities of derivative instruments are calculated using established estimation techniques such as discounted cash flow and option valuation models. Where modelling an interest rate decrease of 1% led to negative interest rates, these points on the yield curve were adjusted to 0%. A large proportion of the movements shown above would impact equity rather than the income statement, depending on the location and functional currency of the entity in which they arise and the availability of net investment hedge treatment. The changes in valuations are estimates of the impact of changes in market variables and are not a prediction of future events or anticipated gains or losses.

F-50

Notes to the Consolidated Financial Statements (Continued)

20.   Intangible assets — Pre-publication

	2010			2009
	All figures in £ millions
Cost
At beginning of year		1,727			1,800
Exchange differences		52			(160	)
Additions		319			322
Disposals		(248	)		(230	)
Acquisition through business combination		13			(1	)
Transfer to inventories		—			(4	)
At end of year		1,863			1,727
Amortisation
At beginning of year		(1,077	)		(1,105	)
Exchange differences		(33	)		102
Charge for the year		(350	)		(307	)
Disposals		248			230
Acquisition through business combination		(4	)		3
At end of year		(1,216	)		(1,077	)
Carrying amounts
At end of year		647			650

Included in the above are pre-publication assets amounting to £399m (2009: £398m) which will be realised in more than one year.

Amortisation is included in the income statement in cost of goods sold.

21.  Inventories

	2010		2009
	All figures in £ millions
Raw materials		34		32
Work in progress		19		23
Finished goods		376		390
		429		445

The cost of inventories relating to continuing operations recognised as an expense and included in the income statement in cost of goods sold amounted to £836m (2009: £843m). In 2010 £87m (2009: £75m) of inventory provisions was charged in the income statement. None of the inventory is pledged as security.

F-51

Notes to the Consolidated Financial Statements (Continued)

22.   Trade and other receivables

	2010		2009
	All figures in £ millions
Current
Trade receivables		1,028		989
Royalty advances		111		99
Prepayments and accrued income		77		75
Other receivables		121		121
		1,337		1,284
Non-current
Trade receivables		3		—
Royalty advances		89		86
Prepayments and accrued income		28		24
Other receivables		9		2
		129		112

Trade receivables are stated at fair value, net of provisions for bad and doubtful debts and anticipated future sales returns. The movements on the provision for bad and doubtful debts are as follows:

	2010			2009
	All figures in £ millions
At beginning of year		(76	)		(72	)
Exchange differences		(2	)		5
Income statement movements		(33	)		(26	)
Utilised		26			20
Acquisition through business combination		(3	)		(3	)
Disposal through business disposal		5			—
At end of year		(83	)		(76	)

Concentrations of credit risk with respect to trade receivables are limited due to the Group’s large number of customers, who are internationally dispersed.

F-52

Notes to the Consolidated Financial Statements (Continued)

The ageing of the Group’s trade receivables is as follows:

	2010			2009
	All figures in £ millions
Within due date		1,180			1,096
Up to three months past due date		234			228
Three to six months past due date		39			51
Six to nine months past due date		6			20
Nine to 12 months past due date		13			4
More than 12 months past due date		21			20
Total trade receivables		1,493			1,419
Less: provision for bad and doubtful debts		(83	)		(76	)
Less: provision for sales returns		(379	)		(354	)
Net trade receivables		1,031			989

The Group reviews its bad debt provision at least twice a year following a detailed review of receivable balances and historic payment profiles. Management believe all the remaining receivable balances are fully recoverable.

23.   Provisions for other liabilities and charges

	Deferred
	consideration			Leases		Other			Total
	All figures in £ millions
At 1 January 2010		38			9		21			68
Exchange differences		1			1		—			2
Charged to income statement		2			—		5			7
Deferred consideration on acquisition — current year		8			—		—			8
Deferred consideration on acquisition — prior year adjustments		(10	)		—		—			(10	)
Acquisition through business combination — current year		10			—		—			10
Utilised		(20	)		—		(5	)		(25	)
At 31 December 2010		29			10		21			60

	2010		2009
	All figures in £ millions
Analysis of provisions
Non-current		42		50
Current		18		18
		60		68

Deferred consideration primarily relates to the acquisition of Fronter in 2009.

F-53

Notes to the Consolidated Financial Statements (Continued)

24.   Trade and other liabilities

	2010		2009
	All figures in £ millions
Trade payables		470		461
Social security and other taxes		22		30
Accruals		559		504
Deferred income		559		487
Interest payable		12		10
Put option over non-controlling interest		25		23
Other liabilities		204		205
		1,851		1,720
Less: non-current portion
Accruals		26		23
Deferred income		120		116
Put option over non-controlling interest		25		23
Other liabilities		75		91
		246		253
Current portion		1,605		1,467

The carrying value of the Group’s trade and other liabilities approximates its fair value.

The deferred income balance comprises principally: multi-year obligations to deliver workbooks to adoption customers in school businesses; advance payments in assessment and testing businesses; subscription income in school and newspaper businesses; and obligations to deliver digital content in future periods.

The put option over non-controlling interest is the fair value of an option held by the non-controlling interest in the Group’s South African business. The option enables the non-controlling interest to sell their 15% share of Pearson South Africa to Pearson from 1 January 2012 at a price determined by the future performance of that business.

25.   Retirement benefit and other post-retirement obligations

Background

The Group operates a number of defined benefit and defined contribution retirement plans throughout the world. For the defined benefit plans, benefits are based on employees’ length of service and final pensionable pay. Defined contribution benefits are based on the amount of contributions paid in respect of an individual member, the investment returns earned and the amount of pension this money will buy when a member retires.

The largest plan is the Pearson Group Pension Plan (‘UK Group plan’) with both defined benefit and defined contribution sections. From 1 November 2006, all sections of the UK Group plan were closed to new members with the exception of a defined contribution section that was opened in 2003. This section is available to all new employees of participating companies. The other major defined benefit plans are based in the US.

Other defined contribution plans are operated principally overseas with the largest plan being in the US. The specific features of these plans vary in accordance with the regulations of the country in which employees are located.

Pearson also has several post-retirement medical benefit plans (PRMBs), principally in the US. PRMBs are unfunded but are accounted for and valued similarly to defined benefit pension plans.

F-54

Notes to the Consolidated Financial Statements (Continued)

Assumptions

The principal assumptions used for the UK Group plan and the US PRMB are shown below. Weighted average assumptions have been shown for the other plans, which primarily relate to US pension plans.

	2010						2009						2008
	UK Group		Other				UK Group		Other				UK Group		Other
	plan		plans		PRMB		plan		plans		PRMB		plan		plans		PRMB
%
Inflation		3.50		2.50		2.50		3.50		2.50		2.50		2.80		2.80		2.80
Rate used to discount plan liabilities		5.50		5.10		5.10		5.70		5.30		5.50		6.40		6.30		6.30
Expected return on assets		6.00		6.60		—		6.00		6.80		—		6.30		7.60		—
Expected rate of increase in salaries		4.70		4.00		—		5.00		4.00		—		4.30		4.50		—
Expected rate of increase for pensions in payment and deferred pensions		2.60 to 4.40		—		—		2.60 to 4.40		—		—		2.30 to 4.20		—		—
Initial rate of increase in healthcare rate		—		—		8.00		—		—		8.50		—		—		9.00
Ultimate rate of increase in healthcare rate		—		—		5.00		—		—		5.00		—		—		5.00

The UK discount rate is based on the annualised yield on the iBoxx over 15-year AA-rated corporate bond index, adjusted to reflect the duration of liabilities. The US discount rate is set by reference to a US bond portfolio matching model. The expected return on assets is based on market expectations of long-term asset returns for the defined portfolio at the end of the year.

The inflation rate of 3.5% reflects the RPI rate. In line with changes to legislation certain benefits have been calculated with reference to CPI as the inflationary measure and in these instances a rate of 2.8% has been used. The change from RPI to CPI for deferred revaluation and Post 88 GMP pension increases in payment has been included in these results, resulting in a gain of £23m, taken as an actuarial gain on the obligation.

The expected rates of return on categories of plan assets are determined by reference to relevant indices. The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated balance in the plan’s investment portfolio, plus a diversification premium.

The expected rate of increase in salaries has been set at 4.7% for 2010 with a short-term assumption of 3.3% for two years.

In 2008 the UK mortality assumptions were derived by adjusting standard mortality tables (PMFA 92 tables projected forward with medium cohort improvement factors). In 2009 the Group changed its mortality assumptions in the UK. The mortality base table assumptions have been derived from the SAPS ‘all pensioners’ tables for males and the SAPS ‘normal health pensioners’ tables for females, adjusted to reflect the observed experience of the plan,

F-55

Notes to the Consolidated Financial Statements (Continued)

with medium cohort improvement factors. In 2008 a 1% improvement floor on the medium cohort was applied. In 2009 this was changed to 1.5% for males and 1.25% for females, with tapering.

For the US plans, the assumptions used were based on standard US mortality tables. In 2008 a switch from GAM94 to RP2000 was made, to reflect the mortality assumption now more prevalent in the US, and in 2010 a 10 year projection was added.

Using the above tables, the remaining average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date for the UK and US Group plans is as follows:

	UK				US
	2010		2009		2010		2009
Male		22.8		22.7		18.4		17.6
Female		23.6		23.5		20.6		20.2

The remaining average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date, for the UK and US Group plans is as follows:

	UK				US
	2010		2009		2010		2009
Male		25.4		25.3		18.4		17.6
Female		25.7		25.6		20.6		20.2

Financial statement information

The amounts recognised in the income statement are as follows:

	2010
				Defined
	UK Group			benefit						Defined
	plan			other			Sub-total			contribution		PRMB		Total
	All figures in £ millions
Current service cost		21			2			23			68		2		93
Curtailments		(5	)		—			(5	)		—		—		(5	)
Total operating expense		16			2			18			68		2		88
Expected return on plan assets		(93	)		(7	)		(100	)		—		—		(100	)
Interest on plan liabilities		100			9			109			—		3		112
Net finance expense		7			2			9			—		3		12
Net income statement charge		23			4			27			68		5		100
Actual return on plan assets		177			13			190			—		—		190

F-56

Notes to the Consolidated Financial Statements (Continued)

	2009
				Defined
	UK Group			benefit						Defined
	plan			other			Sub-total			contribution		PRMB		Total
	All figures in £ millions
Current service cost		14			3			17			62		2		81
Past service cost		—			1			1			—		—		1
Total operating expense		14			4			18			62		2		82
Expected return on plan assets		(83	)		(5	)		(88	)		—		—		(88	)
Interest on plan liabilities		89			8			97			—		3		100
Net finance expense		6			3			9			—		3		12
Net income statement charge		20			7			27			62		5		94
Actual return on plan assets		136			8			144			—		—		144

	2008
				Defined
	UK Group			benefit						Defined
	plan			other			Sub-total			contribution		PRMB		Total
	All figures in £ millions
Current service cost		33			3			36			41		1		78
Past service cost		—			1			1			—		5		6
Total operating expense		33			4			37			41		6		84
Expected return on plan assets		(104	)		(7	)		(111	)		—		—		(111	)
Interest on plan liabilities		93			7			100			—		3		103
Net finance (income)/expense		(11	)		—			(11	)		—		3		(8	)
Net income statement charge		22			4			26			41		9		76
Actual loss on plan assets		(130	)		(27	)		(157	)		—		—		(157	)

Included within the 2010 results are discontinued operations of £5m relating to the curtailment credit, a £1m charge relating to defined benefit schemes and a £2m charge relating to defined contribution schemes (2009: £2m charge relating to defined benefit schemes and £2m charge relating to defined contribution schemes; 2008: £2m charge relating to defined benefit schemes and £2m charge relating to defined contribution schemes).

In 2008 the UK Group plan current service cost included £14m relating to defined contribution sections. In 2009 and 2010 the defined contribution section of the UK Group plan is recorded within the defined contribution expense.

F-57

Notes to the Consolidated Financial Statements (Continued)

The amounts recognised in the balance sheet are as follows:

	2010												2009
				Other			Other									Other			Other
	UK Group			funded			unfunded						UK Group			funded			unfunded
	plan			plans			plans			Total			plan			plans			plans			Total
	All figures in £ millions
Fair value of plan assets		1,847			135			—			1,982			1,609			118			—			1,727
Present value of defined benefit obligation		(1,852	)		(158	)		(20	)		(2,030	)		(1,798	)		(151	)		(18	)		(1,967	)
Net pension liability		(5	)		(23	)		(20	)		(48	)		(189	)		(33	)		(18	)		(240	)
Other post-retirement medical benefit obligation											(72	)											(65	)
Other pension accruals											(28	)											(34	)
Net retirement benefit obligations											(148	)											(339	)
Analysed as:
Retirement benefit assets											—												—
Retirement benefit obligations											(148	)											(339	)

The following gains/(losses) have been recognised in other comprehensive income:

	2010			2009			2008
	All figures in £ millions
Amounts recognised for defined benefit plans		75			(295	)		(74	)
Amounts recognised for post-retirement medical benefit plans		(5	)		(4	)		3
Total recognised in year		70			(299	)		(71	)
Cumulative amounts recognised		(176	)		(246	)		53

The fair value of plan assets comprises the following:

	2010						2009
			Other						Other
	UK Group		funded				UK Group		funded
	plan		plans		Total		plan		plans		Total
	%
Equities		27.0		3.3		30.3		27.4		2.4		29.8
Bonds		49.3		2.7		52.0		47.2		2.1		49.3
Properties		11.2		0.1		11.3		9.4		0.0		9.4
Other		5.6		0.8		6.4		10.4		1.1		11.5

The plan assets do not include any of the Group’s own financial instruments, or any property occupied by the Group.

F-58

Notes to the Consolidated Financial Statements (Continued)

Changes in the values of plan assets and liabilities of the retirement benefit plans are as follows:

	2010									2009
	UK Group			Other						UK Group			Other
	plan			plans			Total			plan			plans			Total
	All figures in £ millions
Fair value of plan assets
Opening fair value of plan assets		1,609			118			1,727			1,478			100			1,578
Exchange differences		—			4			4			—			(6	)		(6	)
Expected return on plan assets		93			7			100			83			5			88
Actuarial gains		84			6			90			53			3			56
Contributions by employer		132			13			145			64			26			90
Contributions by employee		3			—			3			3			—			3
Benefits paid		(74	)		(13	)		(87	)		(72	)		(10	)		(82	)
Closing fair value of plan assets		1,847			135			1,982			1,609			118			1,727
Present value of defined benefit obligation
Opening defined benefit obligation		(1,798	)		(169	)		(1,967	)		(1,429	)		(165	)		(1,594	)
Exchange differences		—			(5	)		(5	)		—			14			14
Current service cost		(21	)		(2	)		(23	)		(14	)		(3	)		(17	)
Past service cost		—			—			—			—			(1	)		(1	)
Curtailment		5			—			5			—			—			—
Interest cost		(100	)		(9	)		(109	)		(89	)		(8	)		(97	)
Actuarial losses		(9	)		(6	)		(15	)		(335	)		(16	)		(351	)
Contributions by employee		(3	)		—			(3	)		(3	)		—			(3	)
Benefits paid		74			13			87			72			10			82
Closing defined benefit obligation		(1,852	)		(178	)		(2,030	)		(1,798	)		(169	)		(1,967	)

Changes in the value of the US PRMB are as follows:

	2010			2009
	All figures in £ millions
Opening defined benefit obligation		(65	)		(68	)
Exchange differences		(2	)		8
Current service cost		(2	)		(2	)
Interest cost		(3	)		(3	)
Actuarial losses		(5	)		(4	)
Benefits paid		5			4
Closing defined benefit obligation		(72	)		(65	)

F-59

Notes to the Consolidated Financial Statements (Continued)

The history of the defined benefit plans is as follows:

	2010			2009			2008			2007			2006
	All figures in £ millions
Fair value of plan assets		1,982			1,727			1,578			1,853			1,633
Present value of defined benefit obligation		(2,030	)		(1,967	)		(1,594	)		(1,811	)		(1,810	)
Net pension (liability)/asset		(48	)		(240	)		(16	)		42			(177	)
Experience adjustments on plan assets		90			56			(268	)		29			74
Experience adjustments on plan liabilities		(15	)		(351	)		194			50			28

Funding

The UK Group plan is self-administered with the plan’s assets being held independently of the Group. The trustees of the plan are required to act in the best interest of the plan’s beneficiaries. The most recent triennial actuarial valuation for funding purposes was completed as at 1 January 2009 and this valuation revealed a funding shortfall. The Group has agreed that the funding shortfall will be eliminated by 31 December 2020. In 2010 the Group contributed £41m (2009: £42m) towards the funding shortfall and has agreed to contribute a similar amount per annum until 2020 in excess of regular contributions. Regular contributions to the plan are estimated to be £22m for 2011.

Under UK law (section 75 debt) a company that participates in a multi-employer defined benefit plan is liable, on withdrawal from that pension plan, for its share of the total deficit in the plan calculated on a ‘solvency’ or ‘buy out’ basis. The Interactive Data sale and the termination of Interactive Data Corporation (Europe) Ltd’s participation in the UK Group plan triggered this ‘section 75’ liability. £68m was contributed to the plan in respect of this liability.

The Group expects to contribute $94m in 2011 and $97m in 2012 to its US pension plans.

Sensitivities

The net retirement benefit obligations are calculated using a number of assumptions, the most significant being the discount rate used to calculate the defined benefit obligation. The effect of a one percentage point increase and decrease in the discount rate on the defined benefit obligation and the total pension expense is as follows:

	2010
	1% increase			1% decrease
	All figures in £ millions
Effect on:
(Decrease)/increase in defined benefit obligation — UK Group plan		(262.0	)		324.0
(Decrease)/increase of aggregate of service cost and interest cost — UK Group plan		(13.7	)		16.3
(Decrease)/increase in defined benefit obligation — US plan		(2.5	)		1.3

The effect of members living one year more or one year less on the defined benefit obligation is as follows:

	2010
	1 year increase		1 year decrease
	All figures in £ millions
Effect on:
lncrease/(decrease) in defined benefit obligation — UK Group plan		52.7		(50.5	)
lncrease/(decrease) in defined benefit obligation — US plan		1.6		(1.7	)

F-60

Notes to the Consolidated Financial Statements (Continued)

The effect of a one percentage point increase and decrease in the assumed medical cost trend rates is as follows:

	2010
	1% increase		1% decrease
	All figures in £ millions
Effect on:
lncrease/(decrease) in post-retirement medical benefit obligation		3.1		(2.8	)
lncrease/(decrease) of aggregate of service cost and interest cost		0.1		(0.1	)

26.   Share-based payments

The Group recognised the following charges in the income statement in respect of its equity-settled share-based payment plans:

	2010		2009		2008
	All figures in £ millions
Pearson plans		35		27		25

Share-based payments included in discontinued operations amounted to £4m (2009: £10m; 2008: £8m).

The Group operates the following equity-settled employee option and share plans:

Worldwide Save for Shares Plan — Since 1994, the Group has operated a Save-As-You-Earn plan for UK employees. In 1998, the Group introduced a Worldwide Save for Shares Plan. Under these plans, employees can save a portion of their monthly salary over periods of three, five or seven years. At the end of this period, the employee has the option to purchase ordinary shares with the accumulated funds at a purchase price equal to 80% of the market price prevailing at the time of the commencement of the employee’s participation in the plan. Options that are not exercised within six months of the end of the savings period lapse unconditionally.

Employee Stock Purchase Plan — In 2000, the Group established an Employee Stock Purchase Plan which allows all employees in the US to save a portion of their monthly salary over six month periods. At the end of the period, the employee has the option to purchase ADRs with their accumulated funds at a purchase price equal to 85% of the lower of the market price prevailing at the beginning or end of the period.

Long-Term Incentive Plan — This plan was introduced in 2001 and renewed in 2006 and consists of two parts: share options and/or restricted shares.

Options were last granted under this plan in 2001 based on a pre-grant earnings per share growth test and are not subject to further performance conditions on exercise. The options became exercisable in tranches and lapse if they remain unexercised at the tenth anniversary of the date of grant.

The vesting of restricted shares is normally dependent on continuing service over a three to five-year period, and in the case of senior management upon the satisfaction of corporate performance targets over a three-year period. These targets may be based on market and/or non-market performance criteria. Restricted shares awarded to senior management in March 2009 and March 2010 vest dependent on relative total shareholder return, return on invested capital and earnings per share growth. The award was split equally across all three measures. Other restricted shares awarded in 2009 and 2010 vest depending on continuing service over a three-year period.

Annual Bonus Share Matching Plan — This plan permits executive directors and senior executives around the Group to invest up to 50% of any after tax annual bonus in Pearson shares. If these shares are held and the Group meets an earnings per share growth target, the company will match them on a gross basis i.e. the maximum number of matching shares is equal to the number of shares that could have been acquired with the amount of the pre-tax annual bonus taken in invested shares.

F-61

Notes to the Consolidated Financial Statements (Continued)

In addition to the above, share options remain outstanding under Executive Share Option, Reward and Special Share Option Plans. These are legacy plans which were replaced with the introduction of the Long-Term Incentive Plan in 2001.

The number and weighted average exercise prices of share options granted under the Group’s plans are as follows:

	2010					2009
				Weighted					Weighted
	Number of			average		Number of			average
	share			exercise		share			exercise
	options			price		options			price
	000s			£		000s			£
Outstanding at beginning of year		12,487			12.78		14,379			13.14
Granted during the year		628			8.06		1,320			5.47
Exercised during the year		(1,154	)		7.12		(656	)		5.91
Forfeited during the year		(457	)		9.08		(2,488	)		13.02
Expired during the year		(2,626	)		23.47		(68	)		5.20
Outstanding at end of year		8,878			10.20		12,487			12.78
Options exercisable at end of year		5,825			12.40		9,264			15.28

Options were exercised regularly throughout the year. The weighted average share price during the year was £9.63 (2009: £7.15). Early exercises arising from redundancy, retirement or death are treated as an acceleration of vesting and the Group therefore recognises in the income statement the amount that otherwise would have been recognised for services received over the remainder of the original vesting period.

The options outstanding at the end of the year have weighted average remaining contractual lives and exercise prices as follows:

	2010				2009
			Weighted				Weighted
	Number		average		Number		average
	of share		contractual		of share		contractual
Range of exercise prices	options		life		options		life
£	000s		Years		000s		Years
0 — 5		38		0.65		172		1.07
5 — 10		4,757		1.86		5,523		2.37
10 — 15		4,083		0.36		4,225		1.36
15 — 20		—		—		270		0.75
20 — 25		—		—		344		0.19
>25		—		—		1,953		0.19
		8,878		1.17		12,487		1.57

In 2010 and 2009 options were granted under the Worldwide Save for Shares Plan. The weighted average estimated fair value for the options granted was calculated using a Black-Scholes option pricing model.

F-62

Notes to the Consolidated Financial Statements (Continued)

The weighted average estimated fair values and the inputs into the Black-Scholes model are as follows:

	2010			2009
	Weighted			Weighted
	average			average
Fair value		£2.14			£1.69
Weighted average share price		£9.48			£7.13
Weighted average exercise price		£8.06			£5.47
Expected volatility		28.28	%		27.32	%
Expected life		4.0 years			4.0 years
Risk free rate		2.24	%		2.45	%
Expected dividend yield		3.75	%		4.74	%
Forfeiture rate		3.5	%		3.5	%

The expected volatility is based on the historic volatility of the company’s share price over the previous three to seven years depending on the vesting term of the options.

The following shares were granted under restricted share arrangements:

	2010				2009
			Weighted				Weighted
	Number of		average		Number of		average
	shares		fair value		shares		fair value
	000s		£		000s		£
Long-Term Incentive Plan		4,742		9.45		4,519		5.77
Annual Bonus Share Matching Plan		266		10.25		271		6.70

The fair value of shares granted under the Long-Term Incentive Plan that vest unconditionally is determined using the share price at the date of grant. Participants of the Long-Term Incentive Plan are entitled to dividends during the vesting period. The number of shares to vest has been adjusted, based on historical experience, to account for any potential forfeitures. Restricted shares granted under the Annual Bonus Share Matching Plan are valued using the share price at the date of grant. Shares granted include the entitlement to dividends during the vesting period and therefore the share price is not discounted.

Restricted shares with a market performance condition were valued by an independent actuary using a Monte Carlo model. Restricted shares with a non-market performance condition were fair valued based on the share price at the date of grant. Non-market performance conditions were considered by adjusting the number of shares expected to vest based on the most likely outcome of the relevant performance criteria.

27.   Share capital and share premium

	Number		Ordinary		Share
	of shares		shares		premium
	000s		£m		£m
At 1 January 2009		809,276		202		2,505
Issue of ordinary shares — share option schemes		1,523		1		7
At 31 December 2009		810,799		203		2,512
Issue of ordinary shares — share option schemes		1,878		—		12
At 31 December 2010		812,677		203		2,524

The ordinary shares have a par value of 25p per share (2009: 25p per share). All issued shares are fully paid. All shares have the same rights.

F-63

Notes to the Consolidated Financial Statements (Continued)

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

The capital structure of the Group consists of debt (see note 18), cash and cash equivalents (see note 17) and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.

The Group reviews its capital structure on a regular basis and will balance its overall capital structure through payments of dividends, new share issues as well as the issue of new debt or the redemption of existing debt in line with the financial risk policies outlined in note 19.

28.   Treasury shares

	Pearson plc						Interactive Data						Total
	Number						Number
	of shares						of shares
	000s			£m			000s			£m			£m
At 1 January 2009		10,448			112			9,205			110			222
Purchase of treasury shares		2,200			13			1,280			20			33
Release of treasury shares		(2,983	)		(29	)		—			—			(29	)
At 31 December 2009		9,665			96			10,485			130			226
Purchase of treasury shares		8,000			77			—			—			77
Release/cancellation of treasury shares		(3,656	)		(36	)		(10,485	)		(130	)		(166	)
At 31 December 2010		14,009			137			—			—			137

The Group holds Pearson plc shares in trust to satisfy its obligations under its restricted share plans (see note 26). These shares, representing 1.7% (2009: 1.2%) of called-up share capital, are treated as treasury shares for accounting purposes and have a par value of 25p per share.

The nominal value of Pearson plc treasury shares amounts to £3.5m (2009: £2.4m).

At 31 December 2010 the market value of Pearson plc treasury shares was £141.2m (2009: £86.1m).

29.   Business combinations

On 17 June 2010 the Group acquired 100% of the shares of Melorio plc, a vocational training provider. On 19 August 2010 the Group acquired 100% of the shares of Wall Street Institute Education S.a.r.l (WSI), a group providing spoken English training for adults. On 1 September 2010 the Group acquired 69% of the voting equity of Sistema Educacional Brasileiro’s (SEB) school learning systems division. On 7 September 2010 the Group acquired 100% of the shares of America’s Choice Inc, a provider of school improvement services.

F-64

Notes to the Consolidated Financial Statements (Continued)

Provisional values for the assets and liabilities arising from these and other acquisitions completed in the year together with adjustments to prior year acquisitions are as follows:

			2010																		2009
												America’s
			Melorio			SEB			WSI			Choice			Other			Total			Total
	Notes		fair value			fair value			fair value			fair value			fair value			fair value			fair value
	All figures in £ millions
Property, plant and equipment		10		4			7			3			—			3			17			9
Intangible assets		11		89			103			32			24			37			285			142
Intangible assets — Pre-publication		20		—			3			—			—			6			9			2
Inventories				—			5			1			1			(5	)		2			14
Trade and other receivables				8			13			8			7			5			41			23
Cash and cash equivalents				3			5			2			12			4			26			29
Financial liabilities — Borrowings				(13	)		—			—			—			—			(13	)		—
Net deferred income tax liabilities		13		(24	)		—			(3	)		(4	)		(6	)		(37	)		(45	)
Retirement benefit obligations				—			—			—			—			(1	)		(1	)		(1	)
Provisions for other liabilities and charges		23		(10	)		—			—			—			—			(10	)		—
Trade and other liabilities				(9	)		(10	)		(14	)		(5	)		1			(37	)		(91	)
Current income tax liabilities				—			—			(3	)		—			—			(3	)		(4	)
Non-controlling interest				—			(39	)		—			—			—			(39	)		(16	)
Net assets acquired at fair value				48			87			26			35			44			240			62
Goodwill		11		50			141			39			30			28			288			205
Increase in fair values of proportionate holding arising on stepped acquisition				—			—			—			—			—			—			(23	)
Total				98			228			65			65			72			528			244
Satisfied by:
Cash				(98	)		(228	)		(65	)		(65	)		(74	)		(530	)		(201	)
Other consideration				—			—			—			—			—			—			(5	)
Deferred consideration				—			—			—			—			(8	)		(8	)		(27	)
Net prior year adjustments				—			—			—			—			10			10			(11	)
Total consideration				(98	)		(228	)		(65	)		(65	)		(72	)		(528	)		(244	)

The goodwill arising on these acquisitions results from substantial cost and revenue synergies and from benefits that cannot be separately recognised, such as the assembled workforce.

The fair value of trade and other receivables is £41m and includes trade receivables with a fair value of £34m. The gross contractual amount for trade receivables due is £37m of which £3m is expected to be uncollectable.

A provisional value of £12m of goodwill arising on 2010 acquisitions is expected to be deductible for tax purposes.

The non-controlling interest in SEB was measured using the non-controlling interest’s proportionate share of the acquiree’s net assets.

F-65

Notes to the Consolidated Financial Statements (Continued)

	2010			2009			2008
	All figures in
	£ millions
Cash flow on acquisitions
Cash — Current year acquisitions		(530	)		(201	)		(394	)
Cash — Acquisitions yet to complete		—			(4	)		(12	)
Deferred payments for prior year acquisitions and other items		(20	)		(32	)		(5	)
Cash and cash equivalents acquired		26			29			16
Acquisition costs paid		(11	)		—			—
Net cash outflow		(535	)		(208	)		(395	)

In 2010, acquisitions contributed £84m to sales and £6m to operating profit before acquisition costs and amortisation of acquired intangibles from the date of acquisition to the balance sheet date. Of these amounts, Melorio contributed £38m of sales and £5m of profit, SEB contributed £11m of sales and a loss of £2m, WSI contributed £13m of sales and £1m of profit and America’s Choice contributed £9m of sales and £nil of profit.

If the acquisitions had completed on 1 January 2010, the Group estimates that sales for the period would have been £5,799m and profit before tax would have been £676m.

30.   Disposals

	Notes		2010			2009		2008
			All figures in £ millions
Disposal of subsidiaries
Property, plant and equipment		10		(57	)		—		(7	)
Intangible assets		11		(88	)		—		(3	)
Inventories				—			—		(7	)
Other financial assets				(3	)		—		—
Trade and other receivables				(103	)		—		(8	)
Cash and cash equivalents				(165	)		—		—
Net deferred income tax liabilities		13		47			—		—
Retirement benefit obligations				8			—		—
Trade and other liabilities				132			—		9
Current income tax liabilities				12			—		—
Non-controlling interest				271			—		—
Attributable goodwill		11		(195	)		—		(99	)
Cumulative translation adjustment				(13	)		—		(49	)
Net assets disposed				(154	)		—		(164	)
Cash received				1,234			—		114
Deferred receipts				—			—		2
Costs				(43	)		—		(5	)
Profit/(Loss) on sale				1,037			—		(53	)

F-66

Notes to the Consolidated Financial Statements (Continued)

	2010			2009		2008
	All figures in £ millions
Cash flow from disposals
Cash — Current year disposals		1,234			—		114
Cash and cash equivalents disposed		(165	)		—		—
Costs paid		(32	)		—		(15	)
Pension contribution paid on disposal		(53	)		—		—
Net cash inflow		984			—		99

The disposal in 2010 relates to Interactive Data and the disposal in 2008 relates to the Data Management business. Further details are shown in note 3.

31.   Cash generated from operations

	Notes		2010			2009			2008
			All figures in £ millions
Profit				1,300			462			323
Adjustments for:
Income tax				480			198			209
Depreciation		10		82			85			80
Amortisation of acquired intangible assets		11		113			103			86
Amortisation of other intangible assets		11		51			44			30
Loss on sale of property, plant and equipment				3			2			1
Net finance costs		3,6		73			95			91
Share of results of joint ventures and associates		12		(41	)		(30	)		(25	)
(Profit)/loss on disposal of discontinued operations		3		(1,037	)		—			53
Loss on disposal				10			—			—
Acquisition costs				11			—			—
Net foreign exchange adjustment from transactions				(3	)		(14	)		105
Share-based payment costs		26		39			37			33
Pre-publication				29			(16	)		(58	)
Inventories				37			32			(12	)
Trade and other receivables				(82	)		(14	)		(81	)
Trade and other liabilities				165			103			82
Retirement benefit obligations				(64	)		(72	)		(14	)
Provisions for other liabilities and charges				3			(3	)		(9	)
Net cash generated from operations				1,169			1,012			894

Net cash generated from operations is translated at an exchange rate approximating to the rate at the date of cash flow. The difference between this rate and the average rate used to translate profit gives rise to a currency adjustment in the reconciliation between net profit and net cash generated from operations. This adjustment reflects the timing difference between recognition of profit and the related cash receipts or payments.

Operating cash flow, operating free cash flow and total free cash flow are non-GAAP measures and have been disclosed as they are part of Pearson’s corporate and operating measures.

F-67

Notes to the Consolidated Financial Statements (Continued)

In the cash flow statement, proceeds from sale of property, plant and equipment comprise:

	2010			2009			2008
	All figures in £ millions
Net book amount		3			3			3
Loss on sale of property, plant and equipment		(3	)		(2	)		(1	)
Proceeds from sale of property, plant and equipment		—			1			2

The principal other non-cash transactions are movements in finance lease obligations of £2m (2009: £8m; 2008: £2m).

32.   Contingencies

There are contingent Group liabilities that arise in the normal course of business in respect of indemnities, warranties and guarantees in relation to former subsidiaries and in respect of guarantees in relation to subsidiaries, joint ventures and associates. In addition there are contingent liabilities of the Group in respect of legal claims and rights and royalty agreements. None of these claims are expected to result in a material gain or loss to the Group.

33.   Commitments

There were no commitments for capital expenditure contracted for at the balance sheet date but not yet incurred.

The Group leases various offices and warehouses under non-cancellable operating lease agreements. The leases have varying terms and renewal rights. The Group also leases various plant and equipment under operating lease agreements, also with varying terms. The lease expenditure charged to the income statement during the year is disclosed in note 4.

The future aggregate minimum lease payments in respect of operating leases are as follows:

	2010		2009
	All figures in
	£ millions
Not later than one year		164		153
Later than one year and not later than two years		151		144
Later than two years and not later than three years		130		129
Later than three years and not later than four years		112		114
Later than four years and not later than five years		95		99
Later than five years		785		848
		1,437		1,487

34.   Related party transactions

Joint ventures and associates — Amounts advanced to joint ventures and associates during the year and at the balance sheet date are set out in note 12. There are no material amounts falling due from joint ventures and associates.

Key management personnel — Key management personnel are deemed to be the members of the board of directors of Pearson plc. It is this board which has responsibility for planning, directing and controlling the activities of the Group. Key management personnel compensation is disclosed in the directors’ remuneration report.

There were no other material related party transactions.

No guarantees have been provided to related parties.

F-68

Notes to the Consolidated Financial Statements (Continued)

35.   Events after the balance sheet date

On 22 November 2010, the Group announced the proposed acquisition of a 75% stake in CTI Education Group, a leading South African education company for £31m. As at the end of December 2010, this acquisition had not been completed but is expected to complete in the first half of 2011.

On 18 January 2011, the Group announced that it had agreed to increase its shareholding in TutorVista, the Bangalore based tutoring services company, to a controlling 76% stake for a consideration of $127m.

On 7 March 2011, the Group and Education Development International plc (EDI) announced that they had reached agreement on the terms of a recommended cash offer to be made by Pearson for the entire issued share capital of EDI. The offer values EDI at approximately £112.7m. EDI is a leading provider of education and training qualifications and assessment services, with a strong reputation for the use of information technology to administer learning programmes and deliver on-screen assessments.

SIGNATURES

The registrant hereby certifies that it meets the requirements for filing on Form 20-F and that it has caused and authorized the undersigned to sign this annual report on its behalf

Pearson plc

/s/  Robin Freestone

Robin Freestone
Chief Financial Officer

Date: March 25, 2011

F-69

EX-1.1

Exhibit 1.1

PEARSON plc

A PUBLIC COMPANY LIMITED BY SHARES

ARTICLES OF ASSOCIATION

Incorporating amendments made up to and including
30 April 2010

CONTENTS

	Page
Preliminary		1
Variation of Rights		4
Shares		4
Uncertificated Shares		7
Certificates		7
Calls on Shares		8
Lien		9
Forfeiture of Shares		9
Transfer of Shares		10
Transmission of Shares		11
Stock		13
Redeemable Shares		13
Meetings of Members		14
General and Class Meetings		14
Notice of General Meetings		14
Proceedings at General Meetings		16
Votes of Members		18
Proxies		19
Directors		22
Number and Appointment of Directors		22
Qualification of Directors		22
Powers of Directors		23
Borrowing		24

	Page
Proceedings of the Board		26
Minutes		28
Disqualification of Directors		28
Retirement and Removal of Directors		30
Managing Director and Executive Directors		31
President		31
Non-executive Directors		32
Directors’ Expenses		32
Alternate Directors		32
Directors’ interests		33
Secretary		35
The Seal		35
Registers		35
Accounts and Dividends		36
Audit		36
Dividends and Reserves		37
Capitalisation of Profits		41
Communications		42
Winding Up		44
Indemnity		45
Discovery		45
Destruction of Documents		45
Untraced Shareholders		46
Index To Articles of Association		47

PUBLIC COMPANY LIMITED BY SHARES

THE COMPANIES ACTS
1985 TO 2006

ARTICLES OF ASSOCIATION

OF

PEARSON PLC

Adopted by special resolution passed on 2 May 1986 and amended by special resolutions passed on 11 May 1990, 10 May 1991, 3 May 1996 and 25 April 2008, 1 May 2009 and 30 April 2010.

Preliminary

1. The regulations in Table A in the First Schedule to the Companies Act 1862 shall not apply to the Company.

2. In these Articles, if not inconsistent with the context, the words standing in the first column of the table next hereinafter contained shall bear the meanings set opposite to them respectively in the second column thereof.

Meanings

Address:	Includes a number or address used for the purposes of sending or receiving documents by electronic means.
certificated share:	A share in the capital of the Company that is not an uncertificated share and references in these Articles to a share being held in certificated form shall be construed accordingly.
Chairman:	The Chairman of the Board.
clear days:	In relation to the sending of a notice, means the period excluding the day on which a notice is given or deemed to be given and the day for which it is given or on which it is to take effect.
CREST:	The relevant system, as defined in the Regulations, in respect of which CRESTCo is the Operator.
Deputy Chairman:	The Deputy Chairman of the Board.
Dividend:	Includes bonus.
electronic copy, electronic form or electronic means	Have the meanings given to them by section 1168 of the Companies Act 2006.
hard copy or hard copy form	Have the meanings given to them by section 1168 of the Companies Act 2006.

Page 1

holder(s) or shareholder(s):	In relation to a share in the capital of the Company means the member whose name is entered in the Register as the holder of that share.
member:	Means a member of the Company.
month:	Calendar month.
Operator:	Has the meaning given by the Regulations.
Ordinary Share(s):	Means ordinary shares in the capital of the Company of 25 pence each.
paid up:	Includes credited as paid up.
participating security:	Has the meaning given by the Regulations.
Regulations:	The Uncertificated Securities Regulations 2001 including any modification or re-enactment of them for the time being in force.
resolution:	Means a resolution of the members of the Company at a general meeting, unless the context otherwise requires.
satellite meeting place:	Subject to the provisions of Article 54.2, any one or more places where a person may attend a general meeting of the Company, other than the place set out in the notice referred to in Article 53.
share(s):	Means the Ordinary Share(s), unless the context otherwise requires.
share warrant:	A warrant to bearer in respect of shares of the Company issued by the Company.
Securities Seal:	An official seal kept by the Company by virtue of section 50 of the Companies Act 2006.
The Act	The Companies Act 2006
The Auditors:	The auditors for the time being of the Company.
The Board:	The Directors or any of them acting as the Board of Directors of the Company.
The Directors:	The directors for the time being of the Company.
The Office:	The Registered Office of the Company.
The Register:	As appropriate, either or both the register of members of the Company and the Operator register of members of the Company.
The Seal:	The Common Seal of the Company.

Page 2

The Statutes:	The Companies Acts (as defined in Section 2 of the Companies Act 2006).
The United Kingdom:	Great Britain and Northern Ireland.
These Articles:	These Articles of Association, as originally adopted, as from time to time altered by special resolution.
Transfer Office:	The place where the register of members is situated for the time being.
treasury shares:	Has the meaning given by the Companies Act 2006.
uncertificated share:	Means (subject to Regulation 42(11)(a) of the Regulations) a share in the capital of the Company, title to which is recorded on the Operator register of members of the Company and which may, by virtue of the Regulations, be transferred by means of a relevant system and references in these Articles to a share being held in uncertificated form shall be construed accordingly.
Year:	Year from 1 January to 31 December inclusive.

The expressions “debenture” and “debenture holder” shall respectively include “debenture stock” and “debenture stockholder” and the words “shareholder” and “holder” shall, subject as provided in these Articles, and unless the context otherwise requires, include the bearer of any share warrant. The expression “Secretary” shall include a temporary, deputy or assistant Secretary and any person appointed by the Board to perform any of the duties of the Secretary as set out in Articles 121-123.

Where, in relation to a share, these Articles refer to a relevant system, the reference is to the relevant system in which that share is a participating security at the relevant time.

References to a document or information being sent, supplied or given to or by a person mean such document or information, or a copy of such document or information, being sent, supplied, given, delivered, issued or made available to or by, or served on or by, or deposited with or by that person by any method authorised by these Articles, and sending, supplying and giving shall be construed accordingly.

References to writing mean the representation or reproduction of words, symbols or other information in a visible form by any method or combination of methods, whether in electronic form or otherwise, and written shall be construed accordingly.

Words denoting the singular number only shall include the plural number and vice versa.

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

Words denoting persons only shall include corporations.

Save as aforesaid any words or expressions defined in the Statutes shall, if not inconsistent with the subject or context, bear the same meaning in these Articles.

3. The liability of the members is limited to the amount, if any, unpaid on the shares respectively held by them.

Page 3

Variation of Rights

4. Subject to the provisions of the Statutes, whenever the capital of the Company is divided into different classes of shares the special rights attached to any class may (unless otherwise provided by the terms of issue of the shares of that class), either:

(a)

with the written consent of the holders of three-fourths of the issued shares of the class (excluding any shares of that class held as treasury shares) which consent shall be in hard copy form or in electronic form sent to such address (if any) for the time being specified by or on behalf of the Company for that purpose, or in default of such specification to the Office, and may consist of several documents each executed or authenticated in such manner as the board may approve by or on behalf of one or more holders, or a combination of both; or

(b)

with the sanction of a special resolution passed at a separate meeting of such holders,

(but not otherwise) be varied or abrogated, and may be so varied or abrogated either whilst the Company is a going concern or during or in contemplation of a winding up.

5. The special rights conferred upon the holders of any shares or class of shares issued with preferred or other special rights shall not, unless otherwise expressly provided by these Articles or the conditions of issue of such shares, be deemed to be modified by:

(a)	the creation or issue of further shares ranking pari passu therewith; or
(b)	the Company permitting, in accordance with the Regulations, the holding of and transfer of title to shares of that or any other class in uncertificated form by means of a relevant system.

Shares

6. Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, any share may be issued with such preferred, deferred, or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as the Company may from time to time by ordinary resolution determine.

7.1 The Board has general and unconditional authority to exercise all the powers of the Company to allot shares in the Company up to an aggregate nominal amount equal to the section 551 amount, for each prescribed period.

7.2 The Board is empowered for each prescribed period to allot equity securities for cash pursuant to the authority conferred by Article 7.1 as if section 561 of the Companies Act 2006 did not apply to any such allotment, provided that its power shall be limited to:

(a)	the allotment of equity securities in connection with a pre-emptive issue; and
(b)	the allotment (otherwise than pursuant to Article 7.2(a)) of equity securities up to an aggregate nominal amount equal to the section 561 amount.

In this Article and Article 7.3, a reference to the allotment of equity securities also includes the sale of any relevant shares in the Company if, immediately before the sale, the shares were held by the Company as treasury shares. This Article applies in relation to a sale of shares which is an allotment of equity securities by virtue of this paragraph as if in this Article the words “pursuant to the authority conferred by Article 7.1” were omitted.

Page 4

7.3 Before the expiry of a prescribed period the Company may make an offer or agreement which would or might require shares in the Company to be allotted, or rights to subscribe for or convert any security into shares in the Company to be granted after such expiry. The Board may allot shares in the Company, or grant rights to subscribe for or convert any security into shares in the Company, in pursuance of that offer or agreement as if the prescribed period during which that offer or agreement was made had not expired.

7.4 In this Article and Articles 7.1, 7.2 and 7.3:

prescribed period means any period for which the authority conferred by Article 7.1 is given by ordinary or special resolution stating the section 551 amount and/or the power conferred by Article 7.2 is given by special resolution stating the section 561 amount;

pre-emptive issue means an offer of equity securities to holders of Ordinary Shares or an invitation to holders of Ordinary Shares to apply to subscribe for equity securities and, if in accordance with their rights the Board so determines, holders of other equity securities of any class (whether by way of rights issue, open offer or otherwise) where the equity securities respectively attributable to the interests of holders of Ordinary Shares or holders of other equity securities, if applicable are proportionate (as nearly as practicable) to the respective numbers of ordinary shares or other equity securities, as the case may be held by them, but subject to such exclusions or other arrangements as the Board may deem necessary or expedient in relation to fractional entitlements or any legal, regulatory or practical problems under the laws or regulations of any territory or the requirements of any regulatory body or stock exchange;

section 551 amount means, for any prescribed period, the amount stated in the relevant ordinary or special resolution; and

section 561 amount means, for any prescribed period, the amount stated in the relevant special resolution.

8. In addition to all other powers of paying commissions, the Company may exercise the powers of paying commissions conferred by the Statutes. Subject to the provisions of the Statutes, such commissions may be satisfied by the payment of cash or the allotment of fully or partly paid shares or partly in one way and partly in another. The Company may also on any issue of shares pay such brokerage as may be lawful.

9. Subject to and in accordance with the provisions of the Statutes and without prejudice to any relevant special rights attached to any class of shares, the Company may purchase any of its own shares of any class (including without limitation redeemable shares) in any way and at any price (whether at par or above or below par) and may hold such shares as treasury shares.

10. Except as required by law no person shall be recognised by the Company as holding any share upon any trust, and the Company shall not be bound by or be compelled in any way to recognise any equitable, contingent, future or partial interest in any share, or any interest in any fractional part of a share, or (except only as by these Articles or by law otherwise provided) any other right in respect of any share, except an absolute right to the entirety thereof in the registered holder.

11.1 If at any time the Board is satisfied that any member or other person appearing to be interested in any shares in the capital of the Company has failed within fourteen days to comply with a notice given to that person by the Company pursuant to section 793 of the Companies Act 2006 (or under any other statutory provisions for the time being in force enabling the Company by notice in writing to require any person to give any information

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regarding those shares) whether or not required to comply by law or has, in purported compliance with such a notice, made a statement which is false in a material particular, then the Board may serve notice in writing on any member holding shares in relation to which the Board has determined or become aware that such a default has occurred. Any such notice (hereinafter referred to as a “Default Notice”) shall specify the nature of the default, the number of shares concerned and the steps to be taken to remedy such default. For the purposes of this Article, a person shall be treated as appearing to be interested in any shares if the member holding such shares has given to the Company a notification under section 793 of the Companies Act 2006 which fails to the satisfaction of the Board to establish the identities of those interested in the shares and if (after taking account of the said notification under the said section 793 and any other relevant information in the possession of the Company) the Company knows or has reasonable cause to believe that the person in question is or may be interested in the shares.

11.2 After the service of a Default Notice or, if later, the time specified therein, until such time as the member or other person on whom the Default Notice was served has complied in full with the notice given pursuant to section 793 of the Companies Act 2006 or any other statutory provision as aforesaid (when the Board shall serve a further notice on the member or other person concerned stating that the default has been remedied), that member shall not be entitled to attend or vote at any general meeting, either personally or by proxy, or at a separate meeting of the holders of a class of shares or on a poll in respect of any share specified in the Default Notice.

11.2A Where the shares represented in the Default Notice represent at least ¹/4 of one per cent. in nominal value of the issued shares of their class, then the Default Notice may additionally direct that in respect of such shares: (i) no payment shall be made by way of dividend (including shares issued in lieu of dividend); and (ii) no transfer shall be registered unless: the member is not himself in default as regards supplying the information requested and the transfer when presented for registration is accompanied by a certificate by the member in such form as the Board may in its absolute discretion require to the effect that after due and careful enquiry the member is satisfied that no person in default as regards supplying such information is interested in any of the shares the subject of the transfer or the transfer is an approved transfer.

11.2B A transfer of shares is an approved transfer if:

(a)	it is a transfer of shares pursuant to acceptance of a takeover offer (within the meaning of section 974 of the Companies Act 2006);
(b)	the Board is satisfied that the transfer is made pursuant to a sale of the whole of the beneficial ownership of the shares the subject of the transfer to a party unconnected with the member and with any other person appearing to be interested in the shares; or
(c)	the transfer results from a sale made through a recognised investment exchange as defined in the Financial Services and Markets Act 2000 or any other stock exchange outside the United Kingdom on which the Company’s shares are normally traded.

11.3 The Board shall cause to be noted in the Register against the member upon whom a Default Notice has been served, details of the Default Notice and the number of shares specified therein and shall cause a further note to be entered in the Register recording that the default complained of has been remedied upon service of any further notice under Article 11.2.

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11.4 Any notice served by the Board pursuant to this Article shall be conclusive against the member concerned and its validity shall not be questioned by any person.

Uncertificated Shares

11.5 Subject to the provisions of the Regulations, the Board may permit the holding of shares in any class of shares in uncertificated form and the transfer of title to shares in that class by means of a relevant system and may determine that any class of shares shall cease to be a participating security.

11.6 Shares in the capital of the Company that fall within a certain class shall not form a separate class of shares from other shares in that class because any share in that class:

(a)	is held in uncertificated form; or
(b)	is permitted in accordance with the Regulations to become a participating security.

11.7 Where any class of shares is a participating security and the Company is entitled under any provision of the Statutes, the Regulations or these Articles to sell, transfer or otherwise dispose of, forfeit, re-allot, accept the surrender of or otherwise enforce a lien over a share held in uncertificated form, the Company shall be entitled, subject to the provisions of the Statutes, the Regulations, these Articles and the facilities and requirements of the relevant system:

(a)	to require the holder of that uncertificated share by notice to change that share into certificated form within the period specified in the notice and to hold that share in certificated form so long as required by the Company;
(b)	to require the holder of that uncertificated share by notice to give any instructions necessary to transfer title to that share by means of the relevant system within the period specified in the notice;
(c)	to require the holder of that uncertificated share by notice to appoint any person to take any step, including without limitation the giving of any instructions by means of the relevant system, necessary to transfer that share within the period specified in the notice;
(d)	to require the Operator to convert that uncertificated share into certificated form in accordance with Regulation 32(2)(c) of the Regulations; and
(e)	to take any action that the Board considers appropriate to achieve the sale, transfer, disposal, forfeiture, re-allotment or surrender of that share or otherwise to enforce a lien in respect of that share.

Certificates

12.1 Every person whose name is entered as a member in the Register (except a stock exchange nominee in respect of whom the Company is not by law required to complete and have ready for delivery a certificate) shall be entitled without payment to one certificate in respect of each class of shares held by him, or, with the consent of the Board and upon payment of such sum (if any) for every certificate after the first as the Board shall determine, to several certificates, each for one or more of his shares except that shares of different classes may not be included in the same certificate. Where a member has transferred a part of the shares comprised in his holding he shall be entitled to a certificate for the balance without charge.

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12.2 Every certificate shall be under the Seal or under the official seal kept by the Company by virtue of the Statutes and shall specify the shares to which it relates and the amount paid up thereon. In the case of a share held jointly by several persons, the Company shall not be bound to issue more than one certificate for each class of shares so held, and delivery of a certificate for a share to one of several joint holders shall be deemed sufficient delivery to all.

13. If a share certificate is worn out, defaced, lost or destroyed it may be renewed without charge on such terms (if any) as to evidence and indemnity as the Board thinks fit, and in the case of defacement or wearing-out, on delivery up to the Company of the old certificate. The person availing himself of the provisions of this Article shall pay to the Company all exceptional out of pocket expenses incident to the investigation of evidence and the preparation of the requisite form of indemnity as aforesaid.

Calls on Shares

14. The Board may from time to time (subject to any terms upon which any shares may have been issued) make calls upon the members in respect of any monies unpaid on their shares (whether on account of the nominal value of the shares or by way of premium), provided that (subject as otherwise fixed by the terms of issue) no call on any share shall be payable at less than fourteen clear days from the last call; and each member shall (subject to receiving at least fourteen clear days notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked in whole or in part and payment of a call may be postponed in whole or in part by the Board.

15. A call shall be deemed to have been made at the time when the resolution of the Board authorising the call was passed, and may be made payable by instalments.

16. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.

17. If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate as may be fixed by the terms of allotment of the share or, if no rate is so fixed, at the appropriate rate (as defined by the Statutes); but the Board shall be at liberty to waive payment of such interest wholly or in part.

18. Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium, shall for all the purposes of these Articles be deemed to be a call duly made and payable on the date on which, by the terms of issue, the same becomes payable, and in case of non-payment all the relevant provisions of these Articles as to payment of interest and expenses, forfeiture and otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.

19. The Board may differentiate between the holders as to the amount of calls to be paid and the times of payment.

20. The Board may, if it thinks fit, receive from any member willing to advance the same, all or any part of the monies uncalled and unpaid upon any shares held by him, and upon all or any of the monies so advanced may (until the same would but for such advance become presently payable) pay interest at such rate (if any) not exceeding (unless the Company in

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general meeting shall otherwise direct) the appropriate rate (as defined by the Statutes) as may be agreed upon between the Board and such member.

Lien

21. The Company shall have a first and paramount lien on every share (not being a fully paid share) for all monies whether presently payable or not, called or payable at a fixed time in respect of that share; but the Board may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The Company’s lien (if any) on a share shall extend to all dividends and other monies payable thereon.

22. The Company may sell, in such manner as the Board thinks fit, any shares on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable, nor until the expiration of fourteen clear days after a notice in writing, stating and demanding payment of the sum presently payable, and stating the intention to sell in default, shall have been given to the registered holder for the time being of the share, or the person entitled by reason of death or bankruptcy to the share.

23. For giving effect to any such sale, the Board may, if the share is a certificated share, authorise some person to transfer the shares sold to, or in accordance with the directions of, the purchaser thereof. If the share is an uncertificated share, the Board may exercise any of the Company’s powers under Article 11.7 to effect the sale of the share to, or in accordance with the directions of, the purchaser thereof. The transferee shall be registered as the holder of the shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

24. The net proceeds of sale, after payment of the costs thereof, shall be applied in or towards payment or satisfaction of the debt or liability in respect whereof the lien exists, so far as the same is presently payable, and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the shares prior to sale) be paid to the person entitled to the shares at the time of the sale.

Forfeiture of Shares

25. If a member fails to pay the whole or any part of any call or instalment of a call on the day fixed for payment thereof, the Board may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any accrued interest and any costs, charges and expenses incurred by the Company by reason of such non-payment.

26. The notice shall name a further day (not being less than fourteen clear days from the date of the notice) on or before which, and the place where, the payment required by the notice is to be made, and shall state that, in the event of non-payment at or before the time and at the place appointed, the shares on which the call was made will be liable to be forfeited.

27. If the requirements of any such notice are not complied with, any share in respect of which such notice has been given may, at any time thereafter, before payment of all calls, interest, costs, charges and expenses due in respect thereof has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited share and not actually paid before the forfeiture.

28. A forfeited share may be sold, re-allotted or otherwise disposed of either to the person who was before forfeiture the holder thereof or entitled thereto, or to any other person, upon such terms and in such manner as the Board thinks fit, and at any time before sale,

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re-allotment or disposal, the forfeiture may be cancelled on such terms as the Board thinks fit. The Board may authorise some person to transfer a forfeited share to any person as aforesaid. Where for the purposes of its disposal a forfeited share held in certificated form is to be transferred to any person, the Board may authorise any person to execute an instrument of transfer of the share to that person. Where for the purposes of its disposal a forfeited share held in uncertificated form is to be transferred to any person, the Board may exercise any of the Company’s powers under Article 11.7.

29. A member any of whose shares have been forfeited shall cease to be a member in respect of the forfeited shares and shall surrender to the Company for cancellation the certificate for the shares forfeited, but shall, notwithstanding the forfeiture, remain liable to pay to the Company all monies which at the date of forfeiture were presently payable by him to the Company in respect of the shares, with interest thereon at such rate as the Board shall think fit (or, if no rate is determined, at the appropriate rate as defined by the Statutes) from the date of forfeiture until payment, but the Board shall be at liberty to waive payment of such interest wholly or in part or enforce payment without any allowance for the value of the shares at the time of forfeiture or of any consideration received on their disposal and his liability shall cease if and when the Company shall have received payment in full of all monies in respect of the shares.

30. The Board may accept the surrender of any share which it is in a position to forfeit upon such terms and conditions as may be agreed and, subject to any such terms and conditions, any share so surrendered shall be treated as if it had been forfeited.

31. A statutory declaration in writing that the declarant is a Director or the Secretary, and that a share has been duly forfeited or surrendered on a date stated in the declaration shall be conclusive evidence of such facts as against all persons claiming to be entitled to the share, and such declaration and the receipt of the Company for the consideration (if any) given for the share on the sale, re-allotment or disposal thereof shall constitute a good title to the share, and the person to whom the share is sold, re-allotted or disposed of shall be registered as the holder thereof, and his title to the share shall not be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, surrender, sale, re-allotment or disposal of the share.

Transfer of Shares

32. Without prejudice to any power of the Company to register as a shareholder a person to whom the right to any share has been transmitted by operation of law, all transfers of certificated shares shall be effected by transfer in writing in the usual common form or in such other form as the Board may approve.

33. The instrument of transfer of a certificated share shall be executed by or on behalf of the transferor, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. Registration of any instrument of transfer or other document relating to or affecting the title to any certificated share in the Company does not require the payment of any fee, provided that in the case of a partly paid share the instrument of transfer shall also be executed by or on behalf of the transferee.

34. The Board may, in its absolute discretion, and without assigning any reason therefor, refuse to register any transfer of certificated shares which are not fully paid, provided the exercise of such discretion does not prevent dealings in the shares from taking place on an open and proper basis.

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35. The Board may also refuse to register any instrument of transfer of a certificated share, if:

(a)	the instrument of transfer is not lodged, duly stamped, at the Office or at such other place as the Board may appoint or is not accompanied by the certificate of the shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer; or
(b)	the instrument of transfer is in respect of more than one class of share; or
(c)	in the case of a transfer to joint holders, they exceed four in number.

36. If the Board refuses to register a transfer of a share in certificated form, it shall within two months after the date on which the transfer was lodged with the Company, send to the transferee notice of the refusal.

37. [Deliberately left blank].

Transmission of Shares

38. In the case of the death of a member, the survivor where the deceased was a joint holder, and the executors or administrators of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to a share held by him, but nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share held by him jointly.

39. Any person becoming entitled to a share in consequence of the death or bankruptcy of a member may, upon such evidence as to his title being produced as may from time to time be properly required by the Board, and subject as hereinafter provided, either be registered himself as the holder of the share or elect to have some person nominated by him registered as the transferee thereof.

40. A person becoming entitled by transmission to a share may, on production of any evidence as to his entitlement properly required by the Board, elect either to become the holder of the share or to have another person nominated by him registered as the transferee. If he elects to become the holder he shall send notice to the Company to that effect. If he elects to have another person registered and the share is a certificated share, he shall execute an instrument of transfer of the share to that person. If he elects to have himself or another person registered and the share is an uncertificated share, he shall take any action the Board may require (including without limitation the execution of any document and the giving of any instruction by means of a relevant system) to enable himself or that person to be registered as the holder of the share. All the provisions of these Articles relating to the transfer of shares apply to that notice or instrument of transfer as if it were an instrument of transfer executed by the member and the death or bankruptcy of the member or other event giving rise to the transmission had not occurred.

41. A person becoming entitled to a share in consequence of the death or bankruptcy of a member shall, subject to the requirements of Article 141, be entitled to receive and may give a discharge for all dividends and other monies payable in respect of the share, but he shall not be entitled to receive notices of or to attend or vote at meetings of the Company or to any of the rights or privileges of a member until he shall have become a member in respect of the share. The Board may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share and if the notice is not complied with within sixty days the Board may thereafter withhold payment of all dividends or other monies payable in respect of the share until the requirements of the notice have been complied with.

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41.(A) The following provisions shall apply to share warrants:

(a)	The Company with respect to fully-paid shares may issue share warrants stating that the bearer is entitled to the shares therein specified, and may provide by coupons or otherwise for the payment of future dividends or other monies on or in respect of the shares included in such share warrants.
(b)	A share warrant shall entitle the bearer thereof to the shares included in it, and the shares may be transferred by the delivery of the share warrant, and the provisions of these Articles with respect to transfer and transmission of shares shall not apply thereto. Each share warrant shall be issued under the Seal or under the Securities Seal or, in the case of shares on a branch register, an official seal for use in the relevant territory.
(c)	The Directors shall be at liberty to accept a certificate (in such form and from such person as the Directors may approve) to the effect that a specified person is shown in the records of the person issuing such certificate as being entitled to all or some of the shares comprised in a specified share warrant as sufficient evidence of the facts stated in such certificate, and may treat the deposit of such certificate at the Transfer Office (or at any other place specified from time to time by the Directors) as equivalent to the deposit there of the share warrant, and may inter alia allot to the person named in such certificate any shares to which the bearer of the share warrant referred to in such certificate may be entitled and the right of the allottee to the allotment shall not, after allotment, be questioned by any person.
(d)	The Directors may determine and from time to time vary the conditions upon which share warrants shall be issued, and in particular (but without limitation) upon which a new share warrant or coupon will be issued in the place of one worn out, defaced, lost or destroyed provided that no new share warrant may be issued to replace one that has been lost unless the Directors are satisfied beyond reasonable doubt that the original share warrant has been destroyed, upon which (subject as hereinafter provided) the bearer of a share warrant shall be entitled to attend and vote at general meetings, and upon which a share warrant may be surrendered and the name of the holder entered in the Register in respect of the shares therein specified. Subject to such conditions and to these Articles, the bearer of a share warrant shall be subject to the conditions for the time being in force relating to share warrants, whether made before or after the issue of such share warrant.
(e)	Subject to any conditions for the time being in force relating to share warrants and as otherwise expressly provided in these Articles, the bearer of a share warrant may at any time deposit the share warrant at the Transfer Office (or at such other place as the Directors may from time to time appoint) and so long as the share warrant remains so deposited, the depositor shall have the same right of signing a requisition for calling a meeting and of attending and voting, appointing a proxy and exercising the other privileges of a member at any meeting held after the expiration of forty-eight hours from the time of deposit and be entitled to be given any notices by the Company which are to be given, after the expiration of forty-eight hours from the time of such deposit, to holders of shares of that class, as if his name were inserted in the Register as the holder of the shares included in the deposited share warrant, provided that in the case of a share warrant deposited elsewhere than at the Transfer Office (or such other place as aforesaid), the depositor shall have obtained from the person with whom the same is deposited a certificate of such deposit in such form as the Directors may require specifying inter alia the share warrant and the number of shares included therein, and shall have lodged the same at the Transfer Office (or such other place as aforesaid) not less than forty-eight hours before the time of the meeting at which the

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depositor desires to attend or to be represented. Not more than one person shall be recognised as a depositor of any share warrant. Every share warrant which shall have been so deposited as aforesaid shall remain so deposited until after the closing of the meeting at which the depositor desires to attend or to be represented.

(f)

Subject as otherwise expressly provided in these Articles or by the terms of issue of any shares or in any conditions for the time being in force relating to share warrants, no person shall, as bearer of a share warrant, be entitled to sign a requisition for calling a meeting of the Company or give notice of intention to submit a resolution to a meeting or attend or vote or give a proxy or exercise any other privilege of a member at a meeting of the Company, or be entitled to receive any notices from the Company, but the bearer of a share warrant shall be entitled in all other respects to the same privileges and advantages as if he were named in the Register as the holder of the shares included in the share warrant, and he shall be deemed to be a member of the Company.

Stock

42. The Company may from time to time by ordinary resolution convert any paid up shares into stock, and reconvert any stock into paid up shares of any denomination.

43. The holders of stock may transfer the same, or any part thereof, in the same manner and subject to the same regulations as and subject to which the shares from which the stock arose might previously to conversion have been transferred, or as near thereto as circumstances admit. The Board may from time to time fix the minimum amount of stock transferable and restrict or forbid the transfer of fractions of such minimum but the minimum shall not exceed the nominal amount of the shares from which the stock arose.

44. The holders of stock shall, according to the total amount of the stock held by them, have the same rights, privileges and advantages as regards dividends, participation in assets on a winding up, voting at meetings and other matters, as if they held the shares from which the stock arose, but no such privilege or advantage (except participation in dividends and in assets on a winding up) shall be conferred by any such amount of stock as would not, if existing in shares, have conferred such privilege or advantage.

45. All the provisions of these Articles applicable to paid up shares shall apply to stock, and the words “share” and “member” shall be construed accordingly.

46. [Deliberately left blank].

47. [Deliberately left blank].

48.1 [Deliberately left blank].

48.2 [Deliberately left blank].

Redeemable Shares

49. Subject to the provisions of the Statutes, and without prejudice to any rights attached to any existing shares or class of shares, shares may be issued which are to be redeemed or are to be liable to be redeemed at the option of the Company or the holder. The board may determine the terms, conditions and manner of redemption of shares provided that it does so before the shares are allotted.

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Meetings of Members

General and Class Meetings

50. In every year the Company shall in addition to any other meetings in that year hold a general meeting as its annual general meeting, at such time (within a period of not more than fifteen months after the holding of the last preceding annual general meeting) and place as may be determined by the Board.

51.1 The Board may call a general meeting whenever it thinks fit, and, on the requisition of members in accordance with the Statutes, it shall forthwith convene a general meeting. If at any time there are not within the United Kingdom sufficient Directors capable of acting to form a quorum, any Director or any two members may convene a general meeting in the same manner as nearly as possible as that in which meetings may be convened by the Board.

51.2 All provisions of these Articles relating to general meetings of the Company or the proceedings thereat shall, mutatis mutandis, apply to every separate general meeting of the holders of any class of shares in the capital of the Company, except that:

(a)	the necessary quorum shall be two persons holding or representing by proxy at least one-third in nominal value of the issued shares of the class (excluding any shares of that class held as treasury shares) or, at any adjourned meeting of such holders, one holder present in person or by proxy, whatever the amount of his holding, who shall be deemed to constitute a meeting;
(b)	any holder of shares of the class present in person or by proxy may demand a poll; and
(c)	each holder of shares of the class shall, on a poll, have one vote in respect of every share of the class held by him.

For the purposes of this article, where a person is present by proxy or proxies, he is treated as holding only the shares in respect of which the proxy or proxies are authorised to exercise voting rights.

Notice of General Meetings

52. Fourteen clear days’ notice at the least, or, in the case of an annual general meeting, twenty-one clear days’ notice at the least shall be given in the manner hereinafter mentioned to such members as are, under the provisions herein contained, entitled to receive notices from the Company and also to each of the Directors and to the Auditors.

53. Every notice of meeting shall specify the place, the day and the hour of meeting, and, in the case of special business, the general nature of such business. Every notice convening an annual general meeting shall specify the meeting as such and every notice convening a meeting to pass a special resolution shall also specify the intention to propose the resolution as a special resolution, as the case may be. Every notice of meeting shall state with reasonable prominence that a member entitled to attend and vote is entitled to appoint a proxy and that such proxy need not be a member.

54.1 The accidental omission to give notice of any meeting or resolution, or to send any notification where required by the Statutes or these Articles in relation to the publication of a notice of meeting on a website, or to send a form of proxy with a notice where required by these Articles, to any person entitled to receive the same, or the non-receipt of a notice of

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meeting, resolution or form of proxy by such a person, whether or not the Company is aware of such omission or non-receipt, shall not invalidate the proceedings at the meeting.

54.2 The Board may resolve to enable persons entitled to attend a general meeting to do so by simultaneous attendance and participation at a satellite meeting place anywhere in the world. The members present in person or by proxy at a satellite meeting place shall be counted in the quorum for, and entitled to vote at, the general meeting in question, and that meeting shall be duly constituted and its proceedings valid if the chairman of the general meeting is satisfied that adequate facilities are available throughout the general meeting to ensure that members attending at all the meeting places are able to:

(a)	participate in the business for which the meeting has been convened;
(b)	hear and see all persons who speak (whether by the use of microphones, loudspeakers, audio-visual communications equipment or otherwise) in the principal meeting place and any satellite meeting place; and
(c)	be heard and seen by all other persons so present in the same way.

The chairman of the general meeting shall be present at, and the meeting shall be deemed to take place at, the principal meeting place.

54.3 If it appears to the chairman of the general meeting that the facilities at the principal meeting place or any satellite meeting place have become inadequate for the purposes referred to in Article 54.2, then the chairman of the general meeting may, without the consent of the meeting, interrupt or adjourn the general meeting. All business conducted at that general meeting up to the time of that adjournment shall be valid.

54.4 The Board may make arrangements for persons entitled to attend a general meeting or an adjourned general meeting to be able to view and hear the proceedings of the general meeting or adjourned general meeting and to speak at the meeting (whether by the use of microphones, loudspeakers, audio-visual communications equipment or otherwise) by attending at a venue anywhere in the world not being a satellite meeting place. Those attending at any such venue shall not be regarded as present at the general meeting or adjourned general meeting and shall not be entitled to vote at the meeting at or from that venue. The inability for any reason of any member present in person or by proxy at such a venue to view or hear all or any of the proceedings of the meeting or to speak at the meeting shall not in any way affect the validity of the proceedings of the meeting.

54.5 The Board may from time to time make any arrangements for controlling the level of attendance at any venue for which arrangements have been made pursuant to Article 54.4 (including without limitation the issue of tickets or the imposition of some other means of selection) if it considers it appropriate, and may from time to time change those arrangements. If a member, pursuant to those arrangements, is not entitled to attend in person or by proxy at a particular venue, he shall be entitled to attend in person or by proxy at any other venue for which arrangements have been made pursuant to Article 54.4. The entitlement of any member to be present at such venue in person or by proxy shall be subject to any such arrangement then in force and stated by the notice of meeting or adjourned meeting to apply to the meeting.

54.6 If, after the sending of notice of a general meeting but before the meeting is held, or after the adjournment of a general meeting but before the adjourned meeting is held (whether or not notice of the adjourned meeting is required), the Board decides that it is impracticable or unreasonable, for a reason beyond its control, to hold the meeting at the declared place (or any of the declared places, in the case of a meeting to which Article 54.2 applies); and/or

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time, it may as appropriate: (i) change the place (or any of the places, in the case of a meeting to which Article 54.2 applies); and/or (ii) postpone the time at which the meeting is to be held. If such a decision is made, the Board may then change the place (or any of the places, in the case of a meeting to which Article 54.2 applies) and/or postpone the time again if it decides that it is reasonable to do so. In either case:

(a)

no new notice of the meeting need be sent, but the Board shall, if practicable, advertise the date, time and place of the meeting in at least two newspapers having a national circulation and shall make arrangements for notices of the change of place and/or postponement to appear at the original place and/or at the original time; and

(b)

a proxy appointment in relation to the meeting may, if by means of a document in hard copy form, be delivered to the Office or to such other place within the United Kingdom as may be specified by or on behalf of the Company in accordance with Article 74(a) or, if in electronic form, be received at the address (if any) specified by or on behalf of the Company in accordance with Article 74(b) (or such address as the Company may be deemed by The Statutes to have agreed), at any time not less than forty-eight hours before any postponed time appointed for holding the meeting.

54.7 For the purposes of Articles 54.2-54.5, the right of a member to participate in the business of any general meeting shall include without limitation the right to speak, vote on a show of hands, vote on a poll, be represented by a proxy and have access to all documents which are required by the Statutes or these Articles to be made available at the meeting.

Proceedings at General Meetings

55. All business shall be deemed special that is dealt with at a general meeting, and also all business that is dealt with at an annual general meeting, with the exception of sanctioning or declaring dividends, the consideration of the accounts and balance sheet, the ordinary reports of the Board and Auditors and any other documents required to be annexed to the balance sheet, the appointment or election of Directors in the place of those retiring by rotation or otherwise and the appointment or re-appointment of and the fixing of the remuneration of the Auditors, and the renewal, limitation, extension, variation or grant of any authority of or to the Board, pursuant to the Statutes, to allot securities.

56. No business shall be dealt with at any general meeting unless a quorum is present when the meeting proceeds to business. Three members present in person and entitled to vote shall be a quorum for all purposes. A corporation being a member shall be deemed to be personally present if represented by its representative duly authorised in accordance with Article 67.

57.1 If within fifteen minutes from the time appointed for the meeting a quorum is not present, the meeting, if convened on the requisition of members, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week, at the same time and place, or to such time and place as the chairman of the meeting in accordance with the Companies Act 2006 and Article 57.2 may determine, and if at such adjourned meeting a quorum is not present within fifteen minutes from the time appointed for holding the meeting the members present in person or by proxy shall be a quorum.

57.2 Subject to the provisions of section 307A of the Companies Act 2006, where a meeting is adjourned for lack of a quorum, the adjourned meeting must be held at least ten days after the original meeting.

58. The Chairman (if any) of the Board or in his absence the Deputy Chairman of the Board or some other Director nominated by the Board shall preside as chairman at every

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general meeting of the Company. If there be no such Chairman or Deputy Chairman, or if at any meeting neither the Chairman, the Deputy Chairman nor such other Director (if any) be present within ten minutes after the time fixed for holding the meeting or be willing to act as chairman of the meeting, the Directors present shall choose one of their number to be chairman of the meeting, or if no Director is present, or if all the Directors present decline to take the chair, the members present shall choose one of their number to be chairman of the meeting.

59.1 The chairman of the meeting may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be dealt with at an adjourned meeting except business which might lawfully have been dealt with at the meeting from which the adjournment took place. When a meeting is adjourned for thirty days or more or for an indefinite period, notice of the adjourned meeting shall be given in like manner as in the case of the original meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be dealt with at an adjourned meeting.

59.2 If an amendment is proposed to any resolution under consideration but is in good faith ruled out of order by the chairman, the proceedings on the substantive resolution shall not be invalidated by any error in such ruling. With the consent of the chairman, an amendment may be withdrawn by its proposer before it is voted on. No amendment to a resolution duly proposed as a special resolution may be considered or voted on (other than a mere clerical amendment to correct a patent error). No amendment to a resolution duly proposed as an ordinary resolution may be considered or voted on (other than a mere clerical amendment to correct a patent error) unless either:

(a)

at least 48 hours before the time appointed for holding the meeting or adjourned meeting at which the ordinary resolution is to be considered, notice of the terms of the amendment and the intention to move it has been delivered in hard copy form to the office or to such other place as may be specified by or on behalf of the Company for that purpose, or received in electronic form at such address (if any) for the time being specified by or on behalf of the Company for that purpose, or

(b)

the chairman decides that the amendment may be considered and voted on.

60. At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded:

(a)	by the chairman of the meeting; or
(b)	(except on the election of the chairman of the meeting or on a question of adjournment) by at least three members present in person or by proxy and entitled to vote on the resolution; or
(c)	by any member or members present in person or by proxy and representing not less than 10% of the total voting rights of all the members having the right to vote on the resolution; or
(d)	by a member or members present in person or by proxy holding shares in the Company conferring a right to vote on the resolution being shares on which an aggregate sum has been paid up equal to not less than 10% of the total sum paid up on all the shares conferring that right;

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The appointment of a proxy to vote on a matter at a meeting authorises the proxy to demand, or join in demanding, a poll on that matter. In applying the provisions of this Article, a demand by a proxy counts (i) for the purposes of paragraph (b) of this Article, as a demand by the member, (ii) for the purposes of paragraph (c) of this Article, as a demand by a member representing the voting rights that the proxy is authorised to exercise, and (iii) for the purposes of paragraph (d) of this Article, as a demand by a member holding the shares to which those rights are attached.

61. Unless a poll is so demanded, a declaration by the chairman of the meeting that a resolution has been carried, or carried unanimously, or by a particular majority, or lost, or not carried by a particular majority, and an entry to that effect in the minute books, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of or against such resolution.

62. If a poll is duly demanded, it shall be taken in such manner as the chairman of the meeting may direct, and the result of a poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The chairman of the meeting may appoint scrutineers (who need not be members) and fix a time and place for declaring the result of a poll.

63. A poll demanded on the election of the chairman of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time and place as the chairman of the meeting directs, but in any case not more than twenty-eight days after the meeting at which the poll was demanded. No notice need be given of a poll not taken forthwith if the time and place at which it is to be taken are announced at the meeting at which it is demanded. In any other case at least seven clear days’ notice shall be given specifying the time and place at which the poll is to be taken.

64. The demand for a poll shall not prevent the continuance of a meeting for dealing with any business other than the question on which the poll has been demanded, and it may be withdrawn at any time before the conclusion of the meeting or the date fixed for the taking of the poll. If a demand is withdrawn before the conclusion of the meeting the chairman of the meeting or other members entitled, may himself or themselves demand a poll. A demand for a poll which is withdrawn shall not be taken to have invalidated the result of a show of hands declared before the demand was made.

Votes of Members

65.1 Subject to any terms upon which any shares may be issued or may from time to time be held, on a show of hands every member (whether an individual or a corporation) present in person shall have one vote, and every proxy present who has been duly appointed by a member entitled to vote shall have one vote, and on a poll, every member (whether an individual or a corporation) present in person or by proxy shall have one vote for every 25 pence of nominal share capital of which he is the holder.

65.2 Subject to any terms upon which any shares may be issued or may from time to time be held, on a show of hands, a proxy has one vote for and one vote against the resolution if the proxy has been duly appointed by more than one member entitled to vote on the resolution, and the proxy has been instructed by one or more of those members to vote for the resolution and by one or more other of those members to vote against it.

66. In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register.

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67. Any corporation which is a member of the Company may, by resolution of its directors or other governing body, authorise such person as it thinks fit to act as its representative at any general meeting, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual member of the Company. Any person so authorised may be required at any general meeting which such person attends to produce evidence of such authority in a form reasonably satisfactory to the Board. Where a corporation authorises more than one person:

(a)	on a vote on a resolution on a show of hands at a meeting of the Company, each authorised person has the same voting rights as the corporation would be entitled to; and
(b)	where paragraph (a) does not apply and more than one authorised person purport to exercise a power in respect of the same shares:

(i)	if they purport to exercise the power in the same way as each other, the power is treated as exercised in that way; and
(ii)	if they do not purport to exercise the power in the same way as each other, the power is treated as not exercised.

68. A member in respect of whom an order has been made by any court having jurisdiction (whether in the United Kingdom or elsewhere) in matters concerning mental disorder may vote, whether on a show of hands or on a poll, by his receiver, curator bonis or other person authorised in that behalf appointed by that court, and any such receiver, curator bonis or other person may, on a show of hands or on a poll, vote by proxy provided that such evidence as the Board may require of the authority of such person shall have been deposited at the Office, or at such other place as is specified in accordance with these Articles for the deposit of proxies, not less than forty-eight hours before the time appointed for holding the meeting or adjourned meeting or for the taking of the poll at which the right to vote is to be exercised and in default the right to vote shall not be exercisable.

69. No member shall be entitled to vote at any general meeting or at any separate meeting of the holders of any class of shares in the Company, either in person or by proxy, in respect of any share held by him unless all calls or other sums presently payable by him in respect of shares in the Company have been paid.

70. No objection shall be raised to the qualification of any vote except at the meeting or adjourned meeting or poll at which the vote objected to is given or tendered, and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the chairman of the meeting, whose decision shall be final and conclusive.

71. On a poll, a person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

Proxies

72.1 The appointment of a proxy shall be made in writing and shall be in any usual form or in any other form which the board may approve. Subject thereto, the appointment of a proxy may be (a) in hard copy form, or (b) in electronic form, if the Company agrees (or is deemed by the Statutes 2006 to have agreed).

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72.2 The appointment of a proxy, whether made in hard copy form or in electronic form, shall be executed in such manner as may be approved by or on behalf of the Company from time to time. Subject thereto, the appointment of a proxy shall be executed by the appointor or any person duly authorised by the appointor or, if the appointor is a corporation, executed by a duly authorised person or under its common seal or in any other manner authorised by its constitution.

73. The Board may, if it thinks fit, but subject to the provisions of the Statutes, at the Company’s expense send hard copy forms of proxy for use at a general meeting and issue invitations in electronic form to appoint a proxy in relation to the meeting in such form as may be approved by the Board. The appointment of a proxy shall not preclude a member from attending and voting in person at the meeting or poll concerned. A member may appoint more than one proxy to attend on the same occasion provided that each such proxy is appointed to exercise the rights attached to a different share or shares held by that member.

74. The appointment of a proxy shall:

(a) if in hard copy form, be delivered by hand or by post to the Office or such other place within the United Kingdom as may be specified by or on behalf of the Company for that purpose:

(i)	in the notice convening the general meeting; or
(ii)	in any form of proxy sent by or on behalf of the Company in relation to the meeting,

(aa) not less than forty-eight hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the appointment proposes to vote; or

(b) if in electronic form, be received at any address to which the appointment of a proxy may be sent by electronic means pursuant to a provision of The Statutes or to any other address specified by or on behalf of the Company for the purpose of receiving the appointment of a proxy in electronic form in:

(i)	any form of proxy sent by or on behalf of the Company in relation to the meeting; or
(ii)	any invitation to appoint a proxy issued by the Company in relation to the meeting,

(bb) not less than forty-eight hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the appointment proposes to vote; or

(c)	in either case, where a poll is taken more than forty-eight hours after it is demanded, be delivered or received as aforesaid after the poll has been demanded and not less than twenty-four hours before the time appointed for the taking of the poll; or
(d)	if in hard copy form, where a poll is not taken forthwith but is taken not more than forty-eight hours after it was demanded, be delivered at the meeting at which the poll was demanded to the chairman of the meeting or to the Secretary or to any Director.

75.1 Where the appointment of a proxy is expressed to have been or purports to have been made, sent or supplied by a person on behalf of the holder of a share:

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(a)	the Company may treat the appointment as sufficient evidence of the authority of that person to make, send or supply the appointment on behalf of that holder;
(b)	that holder shall, if requested by or on behalf of the Company at any time, send or procure the sending of any written authority under which the appointment has been made, sent or supplied, or a copy of such authority certified notarially or in some other way approved by the Board, to such address and by such time as may be specified in the request (or such address as the Company may be deemed by The Statutes to have agreed) and, if the request is not complied with in any respect, the appointment may be treated as invalid; and
(c)	whether or not a request under Article 75.1(b) has been made or complied with, the Company may determine that it has insufficient evidence of the authority of that person to make, send or supply the appointment on behalf of that holder and may treat the appointment as invalid.

75.2 A proxy appointment which is not delivered or received in accordance with Article 74 shall be invalid. When two or more valid proxy appointments are delivered or received in respect of the same share for use at the same general meeting, the one which was last delivered or received shall be treated as replacing and revoking the others as regards that share, provided that, if the Company determines that it has insufficient evidence to decide whether or not a proxy appointment is in respect of the same share, it shall be entitled to determine which proxy appointment shall be entitled to determine which proxy appointment (if any) is to be treated as valid. Subject to The Statutes, the Company may determine at its discretion when a proxy appointment shall be treated as delivered or received for the purposes of these Articles.

75.3 A proxy appointment shall be deemed to entitle the proxy to exercise all or any of the appointing member’s rights to attend and to speak and vote at a meeting of the Company. The proxy appointment shall, unless it provides to the contrary, be valid for any adjournment of the meeting as well as for the meeting to which it relates.

75.4 Any corporation which is a member of the Company may, by resolution of its directors or other governing body, authorise such person or persons as it thinks fit to act as its representative or representatives at any meeting of the Company or at any separate meeting of the holders of any class of shares. A director, the secretary or other person authorised for the purpose by the secretary may require all or any of such persons to produce a certified copy of the resolution of authorisation before permitting him to exercise his powers.

75.5 The termination of the authority of a person to act as a proxy or duly authorised representative of a corporation does not affect:

(a)	whether he counts in deciding whether there is a quorum at a meeting;
(b)	the validity of anything he does as chairman of a meeting;
(c)	the validity of a poll demanded by him at a meeting; or
(d)	the validity of a vote given by that person,

unless notice of the termination was either delivered or received as mentioned in the following sentence at least three hours before the start of the relevant meeting or adjourned meeting or (in the case of a poll taken otherwise than on the same day as the meeting or adjourned meeting) the time appointed for taking the poll. Such notice of termination shall be either by means of a document in hard copy form delivered to the office or to such other place

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within the United Kingdom as may be specified by or on behalf of the Company in accordance with Article 74(a) or in electronic form received at the address (if any) specified by or on behalf of the Company in accordance with Article 74(b) (or such address as the Company may be deemed by The Statutes to have agreed), regardless of whether any relevant proxy appointment was effected in hard copy form or in electronic form.

75.6 The Company shall not be required to check that a proxy or corporate representative votes in accordance with any instructions given by the member by whom he is appointed. Any failure to vote as instructed shall not invalidate the proceedings on the resolution.

Directors

Number and Appointment of Directors

76. Unless and until otherwise from time to time determined by an ordinary resolution of the Company, the Directors (other than alternate Directors) shall be not less than two in number.

77. The Board shall have power at any time, and from time to time, to appoint any other person who is willing to act to be a Director, either to fill a casual vacancy or as an addition to the existing Board, but so that the total number of Directors shall not at any time exceed the maximum number (if any) fixed by or in accordance with these Articles. Any Director so appointed shall hold office only until the next following annual general meeting, and shall then be eligible for re-appointment but shall not be taken into account in determining the Directors to retire by rotation at such meeting under the provisions contained in these Articles.

78. The continuing Directors, or a sole continuing Director, may act notwithstanding any vacancies in the Board, but, if and so long as the number of Directors is reduced below the minimum number fixed by or in accordance with these Articles, the continuing Directors or Director may act for the purpose of filling up vacancies in the Board or of summoning general meetings of the Company, but not for any other purpose. If there be no Directors or Director able or willing to act, then any two members may summon a general meeting for the purpose of appointing Directors.

79. Except as otherwise authorised by the Statutes, a motion for the appointment of two or more persons as Directors by a single resolution shall not be made unless a resolution that it should be so made has first been agreed to by the meeting without any vote being given against it.

80. No person other than a Director retiring at the meeting shall, unless recommended by the Board for election, be eligible for the office of a Director at any general meeting, unless not less than seven and not more than forty-two days before the day appointed for the meeting there shall have been given to the Secretary notice by a member duly qualified to be present and vote at the meeting for which such notice is given of his intention to propose such person for election, and also notice by the person to be proposed of his willingness to be appointed.

Qualification of Directors

81. Unless and until otherwise determined by the Company in a general meeting, the Directors shall not be required to hold any share qualification.

82. [Deliberately left blank].

8.3 [Deliberately left blank].

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Powers of Directors

84. The business of the Company shall be managed by the Board, and the Board may exercise all such powers of the Company as are not by the Statutes or by these Articles or by any directions given by the Company from time to time by special resolution required to be exercised by the Company in a general meeting. The general powers given by this Article shall not be limited or restricted by any special authority or power given to the Board by any other Article.

85. The Board may establish any local or special boards or agencies for managing any of the affairs of the Company either in the United Kingdom or elsewhere, and may appoint any persons to be members of such local or special boards or to be managers or agents, and may fix their remuneration, and may delegate to any local or special board, manager or agent any of the powers, authorities and discretions vested in the Board (other than the powers to borrow and make calls) with power to sub-delegate, and may authorise the members of any local or special board, or any of them, to fill any vacancies therein, and to act notwithstanding vacancies, and any such appointment or delegation may be made upon such terms and subject to such conditions as the Board may think fit, and the Board may remove any person so appointed, and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.

86.1 The Board may establish and maintain or procure the establishment and maintenance of any non-contributory or contributory pension, provident or superannuation funds for the benefit of and give or procure the giving of pensions, allowances, gratuities or bonuses to any persons who are or were at any time in the employment, or service of the Company, or of any company which is a subsidiary of the Company or is allied to or associated in business with the Company or with any such subsidiary company, or of any business acquired by the Company or who are or were at any time Directors or officers of the Company or of any such other company as aforesaid, and the spouses, civil partners, former spouses or former civil partners, families and dependants of any such persons. Any Director shall be entitled to participate in and retain for his own benefit any such pension, allowance, gratuity or bonus and may vote in favour of the exercise of any of the powers aforesaid notwithstanding that he is or may become interested therein.

86.2 Pursuant to section 247 of the Companies Act 2006, the Board is hereby authorised to make such provision as may seem appropriate for the benefit of persons employed or formerly employed by the Company or any of its subsidiaries in connection with the cessation or transfer of the whole or part of the undertaking of the Company or any subsidiary. Any such provision shall be made by a resolution of the Board in all respects in accordance with the said section.

87. The Board may from time to time by power of attorney under the Seal appoint any company, firm or person, or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board under these Articles) and for such period and subject to such conditions as it may think fit, and any such power of attorney may contain such provisions for the protection or convenience of persons dealing with any such attorney as the Board may think fit and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. The Board may, by power of attorney or otherwise, appoint any person to be the agent of the Company for such purposes and on such conditions as it determines, including authority for the agent to delegate all or any of his powers.

88. The Board may from time to time make and vary such regulations as it thinks fit respecting the keeping of dominion registers of members pursuant to the Statutes.

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89. All cheques, promissory notes, drafts, bills of exchange and other negotiable or transferable instruments, and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as the Board shall from time to time by resolution determine.

89.1 The Company’s name may be changed by resolution of the Board.

Borrowing

90.1 Subject as hereinafter provided, the Board may exercise all the powers of the Company to borrow money, and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures and other securities, whether outright or as collateral security, for any debt, liability or obligation of the Company or of any third party.

90.2 The Board shall restrict the borrowings of the Company and exercise all voting and other rights or powers of control exercisable by the Company in relation to its subsidiaries so as to secure (as regards subsidiaries so far as by such exercise they can secure) that the aggregate amount for the time being remaining undischarged of all monies borrowed by the Company and/or any of its relevant subsidiaries (exclusive of monies borrowed by the Company from and for the time being owing to any such relevant subsidiary, or by any such relevant subsidiary from and for the time being owing to the Company or another such relevant subsidiary) shall not at any time without the previous sanction of an ordinary resolution of the Company exceed a sum equal to twice the aggregate of the adjusted capital and reserves.

90.3 For the purposes of this Article the expression “the adjusted capital and reserves” means at any relevant time the amount of the issued and paid up share capital of the Company (and so that capital allotted and capital the issue of which has been underwritten shall be treated as issued and any capital already called up or payable at any fixed future date within six months shall be treated as already paid up) plus or minus the aggregate amount standing to the credit or debit of the consolidated reserves (including for the purposes of this definition profit and loss account and any share premium account), plus the amount of minority interests in any subsidiaries, all as included in the latest published audited consolidated balance sheet of the Company plus an amount equal to the goodwill (including intangible assets) which has arisen on acquisitions of interests in companies and businesses made since 1 January 1981 in which the Company or any of its relevant subsidiaries continues to have an interest as at the relevant date of calculation and which has, as at such date, been written off against the consolidated reserves referred to above in accordance with United Kingdom accounting practices, less an amount equal to the amortisation of such goodwill up to the relevant date of calculation, over twenty years on a straight line basis but:

(a)	adjusted so as to exclude an amount equal to the net tangible assets of any subsidiary which is not a relevant subsidiary as included in the consolidated balance sheet of the Company;
(b)	adjusted as may be appropriate to take account of:

(i)	any increase in or reduction of the issued and paid up share capital or share premium account of the Company since the date to which the consolidated balance sheet incorporated in such accounts shall have been made up;
(ii)	any distributions in cash or specie made (otherwise than to the Company or to a relevant subsidiary) from such reserves since such date and not provided for therein;

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(iii) any relevant subsidiary not consolidated in such accounts, any companies which since the date of such accounts have ceased to be or have become relevant subsidiaries, and any companies which will become or will cease to be relevant subsidiaries as a result of the transaction in relation to which the calculation falls to be made;

(c)	after excluding any sums provided for taxation (including deferred tax);
(d)	after deducting therefrom (insofar as not otherwise deducted) a sum equivalent to the book value of any goodwill and any other intangible assets in the said consolidated balance sheet;
(e)	after making such other adjustments (if any) as the Auditors may consider appropriate.

90.4	For the purpose of this Article “borrowings” shall include the following:
(a)	the principal amount for the time being outstanding of any debentures within the meaning of section 738 of the Companies Act 2006, issued (whether for cash or otherwise) by the Company or any relevant subsidiary;
(b)	the principal amount for the time being outstanding in respect of acceptances raised by the Company or any relevant subsidiary under any acceptance credit opened on its behalf (not being acceptances in relation to the purchase of goods in the normal course of trading which have been outstanding for one hundred and eighty days or less);
(c)	the nominal amount of any issued share capital and the principal amount of any borrowings the repayment whereof is guaranteed by or is the subject of an indemnity from the Company or any relevant subsidiary; and
(d)	the nominal amount of any issued share capital (not being equity share capital) of a relevant subsidiary, which is not beneficially owned by the Company or by another relevant subsidiary,

together with (in any case) any fixed or minimum premium payable on final redemption or final repayment, but shall not include:

(i)	amounts borrowed and otherwise falling to be taken into account pursuant to this Article and intended to be applied within six months of being so borrowed in the repayment of borrowings then outstanding which fall to be taken into account pursuant to this Article pending their application for such purpose or the expiration of such period whichever shall be the earlier;
(ii)	borrowings from bankers or others for the purpose of financing any contract in respect of which any part of the price receivable is guaranteed or insured by the Export Credits Guarantee Department of the Department of Trade, to an amount not exceeding that part of the price receivable thereunder which is so guaranteed or insured;
(iii)	unsecured borrowings from bankers to the extent that there are amounts standing to the credit of the account(s) of the relevant subsidiary making the borrowing and/or any other relevant subsidiary which, in accordance with the arrangements made between the bankers and the relevant subsidiary making the borrowing or any other

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relevant subsidiary, are available for set-off by the bankers against the amount of such borrowings; and

(iv)

borrowings by a company, which on becoming a subsidiary after 27 May 1983 is also a relevant subsidiary, which are outstanding at the date when it becomes a subsidiary for a period of twelve months from the date of such event to the extent that a sum equal to the amount of such borrowings exceeds any increase in the relevant limit arising out of the adjustments to be made to the adjusted capital and reserves on account of the transaction whereby such company becomes a relevant subsidiary,

and shall be reduced by the amounts owed, as at the relevant date of calculation, to the Company or any of its relevant subsidiaries provided that the basis of calculation of such amounts owed shall be the same basis as that used for the calculation of the amounts of cash and liquid funds of the Company and its relevant subsidiaries for the purposes of the most recent published audited consolidated accounts of the Company.

90.5 For the purpose of determining whether the limit imposed by this Article has been exceeded, the principal amount of any borrowings expressed in a currency other than sterling shall be translated into sterling on the basis adopted for the translation of borrowings in the latest published audited consolidated accounts of the Company and no account shall be taken of subsequent fluctuations in the rates between sterling and the currency or currencies of the borrowing.

90.6 Notwithstanding any provision contained in this Article no account shall be taken of any amount more than once in the determination of the amount of borrowings in relation to the limits set out in this Article. If, in the determination of any such amount, the provisions of this Article may be applied to produce more than one amount, that provision which produces the higher amount shall apply to the exclusion of the other or others.

90.7 For the purpose of this Article the expression “relevant subsidiary” means any subsidiary of the Company for the time being.

90.8 No person dealing with the Company or any of its subsidiaries shall by reason of the foregoing provisions of this Article be concerned to see or inquire whether this limit is observed, and no debt incurred or security given in excess of such limit shall be invalid or ineffectual unless the lender or the recipient of the security had at the time when the debt was incurred or security given express notice that the limit hereby imposed had been or would thereby be exceeded.

Proceedings of the Board

91.1 The Board may meet together for the despatch of business, adjourn and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting of the Board shall be determined by a majority of votes. In case of an equality of votes the Chairman shall not have a second or casting vote.

91.2 A Director may, and the Secretary on the requisition of a Director shall, at any time call a meeting of the Board by giving notice of the meeting to each Director. It shall not be necessary to give notice of a meeting of the Board to any Director for the time being absent from the United Kingdom.

91.3 Notice of the date, time and place of each meeting of the Board shall, so far as practicable, be given to each Director at least twenty-four hours prior to such meeting and may be given in hard copy form or in electronic form to such address (if any) for the time being notified by the Director or on his behalf to the Company for that purpose. The

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accidental omission to give notice of any meeting of the Board to any Director entitled to receive the same, or the non-receipt of a notice of any such meeting by such a Director, shall not invalidate the proceedings at the meeting.

92. The quorum necessary for dealing with the business of the Board shall be fixed by the Board, and unless so fixed at any other number, shall be two. For the purpose of determining whether the quorum for dealing with the business of the Board exists:

(a)	in the case of a resolution agreed by Directors in telephonic communications, all such Directors shall be counted in the quorum;
(b)	in the case of a meeting of Directors, in addition to the Directors present at the meeting, any Director in telephonic communication with such meeting shall be counted in the quorum.

93. The Board may elect a Chairman and, if it thinks fit, a Deputy Chairman of its meetings, determine the period for which they respectively are to hold office and may at any time remove the Chairman and/or the Deputy Chairman from their respective office. If no such Chairman or Deputy Chairman is elected, or if at any meeting of the Board neither is present within five minutes after the time appointed for holding the same, or if the Chairman or Deputy Chairman is unwilling to act, the Directors present may choose one of their number to be Chairman of the meeting.

94. A resolution in writing, agreed to by all the Directors entitled to receive notice of and vote at a meeting of the Board or of a committee of the Board shall, provided they constitute a quorum, be as effective as a resolution passed at a meeting of the Board or (as the case may be) a committee of the Board duly convened and held. For the purpose of this Article:

(a)	a Director signifies his agreement to a proposed written resolution when the Company receives from him a document indicating his agreement to the resolution authenticated in the manner permitted by the Companies Act 2006 for a document in the relevant form;
(b)	the Director may send the document in hard copy form or in electronic form to such address (if any) for the time being specified by the Company for that purpose, and in default of such specification to the Office;
(c)	if any alternate Director signifies his agreement to the proposed written resolution, his appointor need not also signify his agreement; and
(d)	if a Director signifies his agreement to the proposed written resolution an alternate director appointed by him need not also signify his agreement.

95. A meeting of the Board at which a quorum is present shall be competent to exercise all powers and discretions for the time being exercisable by the Board or by the Directors generally.

96. The Board may delegate any of its powers (other than the powers to make calls) to committees consisting of such member or members of its body as it thinks fit. Any committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may be imposed on it by the Board.

97. The meetings and proceedings of any such committee consisting of two or more members shall be governed by the provisions of these Articles regulating the meetings and

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proceedings of the Board, so far as the same are applicable and are not superseded by any regulations made by the Board under the last preceding Article.

98. All acts done by any meeting of the Board, or of a committee of the Board, or by any person acting as a Director or by an alternate Director, shall, notwithstanding it be afterwards discovered that there was some defect in the appointment or continuance in office of any such Director, alternate Director or person acting as aforesaid, or that they or any of them were disqualified, or had vacated office or were not entitled to vote, be as valid as if every such person had been duly appointed and was qualified and had continued to be a Director or, as the case may be, an alternate Director and had been entitled to vote.

98.A Without prejudice to the first sentence of Article 91.1, a person entitled to be present at a meeting of the board or of a committee of the board shall be deemed to be present for all purposes if he is able (directly or by electronic communication) to speak to and be heard by all those present or deemed to be present simultaneously. A director so deemed to be present shall be entitled to vote and be counted in a quorum accordingly. Such a meeting shall be deemed to take place where it is convened to be held or (if no Director is present in that place) where the largest group of those participating is assembled, or, if there is no such group, where the chairman of the meeting is. The word meeting in these Articles shall be construed accordingly.

Minutes

99. The Board shall cause minutes to be recorded for the purpose:

(a)	of all appointments of officers made by the Board;
(b)	of the names of the Directors present at each meeting of the Board and of any committee of the Board; and
(c)	of all resolutions and proceedings at all meetings of the Company and of the holders of any class of shares in the Company and of the Board and of committees of the Board.

Any such minutes, if purporting to be signed by the chairman of the meeting to which they relate or of next meeting, shall be received as prima facie evidence of the facts therein stated.

Disqualification of Directors

100. A person ceases to be a director as soon as:

(a)	that person ceases to be a Director by virtue of any provision of The Statutes or is prohibited from being a Director by law;
(b)	a bankruptcy order is made against that person;
(c)	a composition is made with that person’s creditors generally in satisfaction of that person’s debts;
(d)	a registered medical practitioner who is treating that person gives a written opinion to the company stating that that person has become physically or mentally incapable of acting as a director and may remain so for more than three months;

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(e)	by reason of that person’s mental health, a court makes an order which wholly or partly prevents that person from personally exercising any powers or rights which that person would otherwise have;
(f)	notification is received by the Company from the Director that the Director is resigning or retiring from office, and such resignation or retirement has taken effect in accordance with its terms; or
that person receives notice signed by not less than three quarters of the other directors stating that that person should cease to be a director. In calculating the number of directors who are required to give such notice to the Director, (i) an alternate director appointed by him acting in his capacity as such shall be excluded; and (ii) a Director and any alternate director appointed by him and acting in his capacity as such shall constitute a single director for this purpose, so that notice by either shall be sufficient.

101.1 No Director shall be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise, or from being interested whether directly or indirectly in any contract or arrangement entered into by or on behalf of the Company. No such contract or arrangement in which any Director shall be so interested shall be avoided, nor shall any Director so contracting, or being so interested, be liable to account to the Company for any profit realised by him from such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director so interested in any contract or arrangement shall declare the nature of his interest in accordance with the provisions of the Statutes. For the purpose of this Article 101.1 an interest of which a Director has no knowledge and of which it is unreasonable to expect him to have knowledge shall not be treated as an interest of his.

101.2 Save as herein provided, a Director shall not vote in respect of any contract or arrangement or any other proposal whatsoever in which he has an interest which is, to his knowledge, a material interest, otherwise than by virtue of his interests in shares or debentures or other securities of or otherwise in or through the Company. A Director shall not be counted in the quorum at a meeting of the Board in relation to any resolution on which he is debarred from voting.

101.3 A Director shall (in the absence of some other material interest than is indicated below) be entitled to vote (and be counted in the quorum) in respect of any resolution concerning any of the following matters, namely:

(a)	the giving of any guarantee, security or indemnity in respect of money lent or obligations incurred by him or by any other person at the request of or for the benefit of the Company or any of its subsidiaries;
(b)	the giving of any guarantee, security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which he himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security;
(c)	any proposal relating to the Company or any of its subsidiary undertakings where it is offering securities in which offer a Director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which a Director is to participate;
(d)	any proposal relating to another company in which he and any persons connected with him do not to his knowledge hold an interest in shares (as that term is used in

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	sections 820 to 825 of the Companies Act 2006) representing one per cent. or more of either any class of the equity share capital, or the voting rights, in such company;
(e)	any proposal relating to an arrangement for the benefit of the employees of the Company or any of its subsidiary undertakings which does not award him any privilege or benefit not generally awarded to the employees to whom such arrangement relates; or
(f)	any proposal concerning insurance which the Company proposes to maintain or purchase for the benefit of Directors or for the benefit of persons including Directors.

101.4 Where proposals are under consideration concerning the appointment (including fixing or varying the terms of appointment) of two or more Directors to offices or employments with the Company or any company in which the Company is interested, such proposals may be divided and considered in relation to each Director separately and in such cases each of the Directors concerned (if not debarred from voting under Article 101.2 above) shall be entitled to vote (and be counted in the quorum) in respect of each resolution except that concerning his own appointment.

101.5 If any question shall arise at any meeting of the Board as to the materiality of a Director’s interest or as to the entitlement of any Director to vote and such question is not resolved by his voluntarily agreeing to abstain from voting, such question shall be referred to the Chairman or, if the Chairman is also interested in the contract or arrangement in question, to a person appointed by the other Directors present at that meeting for such purpose who is not so interested, and the ruling of the Chairman or, if appropriate, such other person in relation to any other Director shall be final and conclusive except in a case where the nature or extent of the interests of the Director concerned have not been fairly disclosed.

102.1 [Deliberately left blank].

102.2 The Board may exercise the voting power conferred by the shares in any company held or owned by the Company in such manner in all respects as it thinks fit (including the exercise thereof in favour of any resolution appointing its members or any of them directors of such company, or voting or providing for the payment of remuneration to the directors of such company).

102.3 [Deliberately left blank].

Retirement and Removal of Directors

103. At every annual general meeting one-third of the Directors or, if their number is not a multiple of three, the number nearest to one-third of them shall retire from office but if any Director has at the start of the annual general meeting been in office for three years or more since his last appointment or re-appointment, he shall retire at that annual general meeting.

104. A Director retiring at a meeting shall retain office until the close or adjournment of the meeting.

105. The Directors to retire by rotation in every year shall be, first, those who wish to retire and not be re-appointed to office and, second, those who have been longest in office since their last election or appointment but, as between persons who became or were last re-elected Directors on the same day, those to retire shall (unless they otherwise agree among themselves) be determined by lot. A retiring Director shall be eligible for re-election.

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106. The Company at a general meeting at which a Director retires in manner aforesaid may (subject to Article 80) fill the vacated office by electing a person thereto, and in default, the retiring Director shall be deemed to have been re-elected, unless at or prior to such meeting he intimates that he does not wish to be re-elected or it is expressly resolved not to fill such vacated office or a resolution for the re-election of such Director shall have been put to the meeting and lost. In the event of the vacancy not being filled at such meeting it may be filled by the Board as a casual vacancy.

107. Without prejudice to the provisions of Article 114.1, the Company may, pursuant and subject to the provisions of section 168 of the Companies Act 2006, by ordinary resolution remove any Director before the expiration of his period of office and may by an ordinary resolution appoint another person in his stead. The person so appointed shall be subject to retirement at the same time as if he had become a Director on the day on which the Director in whose place he is appointed was last elected a Director.

Managing Director and Executive Directors

108. The Board may from time to time appoint one or more of its body to the office of Managing Director, or to any other office (except that of Auditor) or employment under the Company, for such period and on such terms as it thinks fit and may revoke such appointment (but so that such revocation shall be without prejudice to any rights or claims which the person whose appointment is revoked may have against the Company by reason of such revocation) and may also authorise the continuation by any person appointed to be a Director in any other office or employment held by him before he was so appointed. A Director (other than a Managing Director) holding any such other office or employment is herein referred to as “an Executive Director”.

109. A Director appointed to the office of Managing Director shall, while holding that office, (subject to the provisions of any contract between himself and the Company) be subject to the same provisions as to resignation and removal as the other Directors of the Company, and if he ceases from any cause to be a Director he shall ipso facto cease to be a Managing Director (but without prejudice to any rights or claims which he may have against the Company by reason of such cesser).

110. An Executive Director shall, while holding any office or employment under the Company, (subject to the provisions of any contract between him and the Company) be subject to the same provisions as to resignation and removal as the other Directors of the Company, and if he ceases from any cause to be a Director he shall ipso facto cease to be an Executive Director (but without prejudice to any rights or claims which he may have against the Company by reason of such cesser).

111. The emoluments of any Managing Director or Executive Director for his services as such shall be determined by the Board, and may be of any description.

112. The Board may entrust to and confer upon a Managing Director or Executive Director any of the powers exercisable by it upon such terms and conditions and with such restrictions as it thinks fit, and either collaterally with or to the exclusion of its own powers, and may from time to time revoke, withdraw, alter or vary all or any of such powers.

President

113.1 The Board may from time to time appoint any person to be President of the Company and may also from time to time remove him from office and may appoint another person in his place. The appointment to the office of President shall be honorary. The President of the

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Company shall not be a Director and shall not by reason of his holding the office of President be deemed to be a Director.

113.2 The President shall be entitled to be repaid all such reasonable travelling (including hotel and incidental) expenses as he may incur in or about the business of the Company.

Non-executive Directors

114.1 Subject to the provisions of the Statutes, the Board may enter into, vary and terminate an agreement or arrangement with any Director who is not an Executive Director for the provision of his services to the Company. Subject to Article 114.2 and 114.3, any such agreement or arrangement may be made on such terms as the Board determines.

114.2 The ordinary remuneration of the Directors who are not Executive Directors for their services (excluding amounts payable under any other provision of these Articles) shall not, subject to Article 114.3, exceed in aggregate £750,000 per annum^* or such higher amount as the Company may from time to time by ordinary resolution determine. Subject thereto, each such Director shall be paid a fee for his services (which shall be deemed to accrue from day to day) at such rate as may from time to time be determined by the Board.

114.3 Any Director who is not an Executive Director and who performs special services which in the opinion of the Board are outside the scope of the ordinary duties of a Director, may be paid such extra remuneration by way of additional fee, salary, commission or otherwise as the Board may determine.

Directors’ Expenses

114.4 The Directors may be paid all travelling, hotel, and other expenses properly incurred by them in connection with their attendance at meetings of the Board or committees of the Board, general meetings or separate meetings of the holders of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties.

Alternate Directors

115. Any Director (other than an alternate Director) may without the consent of the Board appoint any other Director and may at any time appoint any person approved by the Board (such approval not to be unreasonably withheld) to be an alternate Director of the Company, and may at any time remove any alternate Director so appointed by him from office. An alternate Director so appointed shall not be entitled to receive any remuneration from the Company, nor be required to hold any share qualification. An alternate Director may be repaid by the Company such expenses as might properly have been repaid to him if he had been a Director, and he shall be entitled to be indemnified by the Company to the same extent as if he were a Director. Every person acting as an alternate Director shall be an officer of the Company and he shall not be deemed to be the agent of the Director whom he represents.

116. An alternate Director shall (subject to his giving to the Company an address within the United Kingdom at which notices may be served upon him) be entitled to receive notices of all meetings of the Board and of any committee of the Board of which the Director appointing him is a member, and to attend and vote and be counted for the purposes of a

*	Increased to £250,000 by an ordinary resolution passed on 11 May 1990.
*	Increased to £300,000 by an ordinary resolution passed on 3 May 1996.
*	Increased to £500,000 by an ordinary resolution passed on 30 April 2004.
*	Increased to £750,000 by a special resolution passed on 25 April 2008.

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quorum as a Director at any such meeting at which the Director appointing him is not personally present, and generally perform all the functions of his appointor as a Director in his absence.

117. An alternate Director shall ipso facto cease to be an alternate Director if his appointor ceases for any reason to be a Director otherwise than by retiring and being re-elected at the same meeting or on the happening of any event which, if he were a Director, would cause him to vacate the office of Director.

118. An alternate Director may by notice to the Company resign such appointment.

119. All appointments and removals of alternate Directors shall be effected by notice of the Director making or revoking such appointment and shall take effect in accordance with the terms of the notice on receipt of such notice by the Company which shall, be in hard copy form or in electronic form sent to such address (if any) for the time being specified by or on behalf of the Company for that purpose, or in default of such specification, to the Office.

120. A Director or any other person may act as alternate Director to represent more than one Director, and an alternate Director shall be entitled at meetings of the Board and at any meeting of a committee of the Board to one vote for every Director whom he represents in addition to his own vote as Director.

Directors’ interests

120.A For the purposes of section 175 of the Companies Act 2006, the board may authorise any matter proposed to it in accordance with these articles which would, if not so authorised, involve a breach of duty by a Director under that section, including, without limitation, any matter which relates to a situation in which a Director has, or can have, an interest which conflicts, or possibly may conflict, with the interests of the Company. Any such authorisation will be effective only if:

(a)	any requirement as to quorum at the meeting at which the matter is considered is met without counting the Director in question or any other interested Director; and
(b)	the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.

The board may (whether at the time of the giving of the authorisation or subsequently) make any such authorisation subject to any limits or conditions it expressly imposes but such authorisation is otherwise given to the fullest extent permitted. The board may vary or terminate any such authorisation at any time.

For the purposes of Articles 120.A to 120.G, a conflict of interest includes a conflict of interest and duty and a conflict of duties, and interest includes both direct and indirect interests.

120.B Subject to section 177(5) and section 177(6) of the Companies Act 2006, provided that he has disclosed to the board the nature and extent of his interest, a Director notwithstanding his office:

(a) may be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise (directly or indirectly) interested;

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(b)	may act by himself or his firm in a professional capacity for the Company (otherwise than as auditor) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director;
(c)	may be a director or other officer of, or employed by, or a party to a transaction or arrangement with, or otherwise interested in, any body corporate in which the Company is otherwise (directly or indirectly) interested.

120.C A Director shall not, by reason of his office, be accountable to the Company for any remuneration or other benefit which he derives from any office or employment or from any transaction or arrangement or from any interest in any body corporate:

(a)	the acceptance, entry into or existence of which has been approved by the board pursuant to Article 120.A (subject, in any such case, to any limits or conditions to which such approval was subject); or
(b)	which he is permitted to hold or enter into by virtue of paragraph (a), (b) or (c) of Article 120.B;

nor shall the receipt of any such remuneration or other benefit constitute a breach of his duty under section 176 of the Act.

120.D Any disclosure required by Article 120.B may be made at a meeting of the board, by notice in writing or by general notice or otherwise in accordance with section 177 of the Act.

120.E A Director shall be under no duty to the Company with respect to any information which he obtains or has obtained otherwise than as a director of the Company and in respect of which he owes a duty of confidentiality to another person. However, to the extent that his relationship with that other person gives rise to a conflict of interest or possible conflict of interest, this article applies only if the existence of that relationship has been approved by the board pursuant to Article 120.B. In particular, the director shall not be in breach of the general duties he owes to the Company by virtue of sections 171 to 177 of the Act because he fails:

(a)	to disclose any such information to the board or to any Director or other officer or employee of the Company; and/or
(b)	to use or apply any such information in performing his duties as a Director of the Company.

120.F Where the existence of a Director’s relationship with another person has been approved by the board pursuant to Article 120.B and his relationship with that person gives rise to a conflict of interest or possible conflict of interest, the Director shall not be in breach of the general duties he owes to the Company by virtue of sections 171 to 177 of the Act because he:

(a)	absents himself from meetings of the board at which any matter relating to the conflict of interest or possible conflict of interest will or may be discussed or from the discussion of any such matter at a meeting or otherwise; and/or
(b)	makes arrangements not to receive documents and information relating to any matter which gives rise to the conflict of interest or possible conflict of interest sent or supplied by the Company and/or for such documents and information to be received and read by a professional adviser,

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for so long as he reasonably believes such conflict of interest or possible conflict of interest subsists.

120.G The provisions of articles 120.E and 120.F are without prejudice to any equitable principle or rule of law which may excuse the director from:

(a)	disclosing information, in circumstances where disclosure would otherwise be required under these articles; or
(b)	attending meetings or discussions or receiving documents and information as referred to in article 120.F, in circumstances where such attendance or receiving such documents and information would otherwise be required under these articles.

Secretary

121. The Secretary shall be appointed by the Board for such term, at such remuneration and upon such conditions as it may think fit; and any Secretary so appointed may be removed by the Board.

122. The Board may also appoint one or more persons as deputy secretary (“Deputy Secretary”) for such term, at such remuneration and upon such conditions as it may think fit; and any Deputy Secretary so appointed may be removed by the Board. Any Deputy Secretary may, in the absence of the Secretary, do anything which may be required or authorised to be done by or to the Secretary.

123. A provision of the Statutes or these Articles requiring or authorising a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as, or in place of, the Secretary or Deputy Secretary.

The Seal

124.1 The Board shall provide for the safe custody of the Seal, which shall only be used by the authority of the Board or of a committee of the Board authorised by the Board in that behalf and, subject to the provisions of this Article, every document to which the Seal shall be affixed shall be signed by a Director and shall be countersigned by the Secretary or by a second Director or by some other person appointed by the Board for the purpose.

124.2 All forms of certificates for shares, stock or debentures or representing any other form of security (other than letters of allotment or scrip certificates or other like documents) shall be issued under the Seal in manner above provided or under the official seal kept by the Company by virtue of the Statutes; but the Board may by resolution determine either generally or in any particular case that any signatures may be affixed to such certificates by some mechanical means, electronic means, or printed on it or that such certificates need not be signed by any person.

Registers

125.1 Subject to the provisions of the Statutes and the Regulations, the Company may keep an overseas or local or other register in any place, and the Board may make, amend and revoke any regulations it thinks fit about the keeping of that register.

125.2 Any Director or the Secretary or any other person appointed by the Board for the purpose shall have power to authenticate and certify as true copies of and extracts from:

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(a)	any document comprising or affecting the constitution of the Company, whether in hard copy form or electronic form;
(b)	any resolution passed by the Company, the holders of any class of shares in the capital of the Company, the Board or any committee of the Board, whether in hard copy form or electronic form; and
(c)	any book, record and document relating to the business of the Company, whether in hard copy form or electronic form (including without limitation the accounts).

If certified in this way, a document purporting to be a copy of a resolution, or the minutes or an extract from the minutes of a meeting of the Company, the holders of any class of shares in the capital of the Company, the Board or a committee of the Board, whether in hard copy form or electronic form, shall be conclusive evidence in favour of all persons dealing with the Company in reliance on it or them that the resolution was duly passed or that the minutes are, or the extract from the minutes is, a true and accurate record of proceedings at a duly constituted meeting.

Accounts and Dividends

126. The Board shall cause accounting records to be kept and such other books and registers as are necessary to comply with the provisions of the Statutes.

127. The accounting records shall be kept at the Office or (subject to the provisions of the Statutes) at such other place as the Board thinks fit, and shall at all times be open to inspection by the Directors. No member (other than a Director) shall have any right of inspecting any account or book or document of the Company, except as conferred by the Statutes or authorised by the Board or by the Company in general meeting.

128. The Board shall from time to time in accordance with the Statutes cause to be prepared and to be laid before the Company in general meeting such profit and loss accounts, balance sheets, group accounts (if any) and reports as are required by the Statutes.

129. A printed copy of every balance sheet (including every document required by law to be annexed thereto) which is to be laid before the Company in general meeting and of the Board’s and Auditor’s reports shall, at least twenty-one days before the meeting, be delivered or sent to every member and debenture holder of the Company of whose address the Company is aware, or, in the case of joint holders of any share or debenture, to one of the joint holders provided that the requirements of this Article 129 shall be deemed satisfied in relation to any member by sending to each such member, where permitted by the Statutes and instead of the said copies, a summary financial statement derived from the Company’s annual accounts and the report of the Directors and prepared in the form and containing the information prescribed by the Statutes and any regulations made thereunder.

Audit

130. Auditors of the Company shall be appointed and their duties regulated in accordance with the Statutes.

131. The Auditors’ report to the members made pursuant to the statutory provisions as to audit shall be read before the Company in general meeting and shall be open to inspection by any member who shall be entitled to be furnished with a copy of the balance sheet (including every document required by law to be annexed thereto) and Auditors’ report in accordance with the Statutes.

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Dividends and Reserves

132. The profits of the Company available for dividend and resolved to be distributed shall be applied in the payment of dividends to the members in accordance with their respective rights and priorities. Subject to the next following Article, the Company in general meeting may declare dividends but not in excess of the amount recommended by the Board.

133. No dividend shall be paid otherwise than out of profits available for distribution under the provisions of the Statutes.

134.1 All dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid, but no amount paid up on a share in advance of calls shall be treated for the purposes of this Article as paid on the share. All dividends shall be apportioned and paid pro rata according to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid; but if any share is issued on terms providing that it shall rank for dividend as from a particular date, or be entitled to dividends declared after a particular date such share shall rank for or be entitled to such dividend accordingly.

134.2 The Directors may at their discretion make provisions to enable such member and/or other person as they shall from time to time determine to receive dividends duly declared and all redemption monies in respect of redeemable shares in a currency or currencies other than sterling. For the purposes of the calculation of the amount receivable in respect of any dividend or payment of redemption monies, the rate of exchange to be used to determine the foreign currency equivalent of any sum payable as a dividend or payment of redemption monies shall be such market rate selected by the Directors as they shall consider appropriate ruling at any time between the close of business in London on the date which is the business day last preceding the date on which the Directors publicly announce their intention to recommend or pay (as the case may be) that specific dividend or (as the case may be) the redemption date in respect of such redeemable shares and the close of business on the date on which that specific dividend or redemption monies are paid.

135.1 Any general meeting declaring a dividend may upon the recommendation of the Board, direct payment or satisfaction of such dividend wholly or partly by the distribution of specific assets and in particular of fully paid up shares or debentures of any other company, and the Board shall give effect to such direction, and where any difficulty arises in regard to such distribution, the Board may settle it as it thinks expedient, and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payment shall be made to any members upon the footing of the value so fixed in order to adjust the rights of those entitled to participate in the dividend, and may vest any such specific assets in trustees upon trust for the members entitled to the dividend as may seem expedient to the Board.

135.2 The Directors may, with the sanction of an ordinary resolution of the Company, offer any holders of the Ordinary Shares the right to elect to receive Ordinary Shares credited as fully paid, in whole or in part, instead of cash in respect of such dividend or dividends (or some part to be determined by the Directors) as may be specified by the resolution. The following provisions shall apply:

(a) the said resolution may specify a particular dividend, or may specify all or any dividends declared or to be declared or paid in respect of a specified period or periods, or for payment not later than the beginning of the annual general meeting next following the passing of such resolution or such later annual general meeting as may be specified by the resolution;

Page 37

(b)	save where the Directors otherwise determine, the basis of allotment of Ordinary Shares shall be that the relevant value for each holder shall be as nearly as possible equal to (but not more than) the cash amount (exclusive of any imputed tax credit) that such holder would have received by way of the dividend forgone. For the purpose of this clause “relevant value” shall (save where the Directors otherwise determine) be calculated by reference to the average of the middle market quotations for the Company’s Ordinary Shares on The International Stock Exchange as derived from the Daily Official List for the day when the Ordinary Shares are first quoted “ex” the relevant dividend and the four immediately following business days;
(c)	the Board may notify the holders in writing of any right of election offered to them, and may send to holders at any time forms of election applicable to such right of election and/or to more than one such right of election, such forms specifying the procedure to be followed and the place at which, and the latest time or date by which, duly completed forms of election, or notices from holders amending or terminating existing elections, must be lodged in order to be effective;
(d)	subject to sub-paragraph (f) of this Article, the dividend (or that part of the dividend for which a right of election has been given) shall never become payable in cash on Ordinary Shares to the extent that the election has been duly effected (“elected shares”) and additional Ordinary Shares shall instead be allotted to the holders of the elected shares on the basis of allotment determined as aforesaid. For such purpose the Board shall appropriate, as it sees fit, out of such of the sums standing to the credit of any reserve or fund (including the profit and loss account), whether or not the same is available for distribution, as the Board may determine, a sum equal to the aggregate nominal amount of the additional Ordinary Shares to be allotted on such basis and apply the same in paying up in full the appropriate number of unissued Ordinary Shares for allotment and distribution to and amongst the holders of the elected shares on such basis;
(e)	the additional Ordinary Shares so allotted shall rank pari passu in all respects with the fully paid Ordinary Shares of the same class then in issue save only as regards participation in the dividend in place of which they were allotted;
(f)	no fraction of an Ordinary Share shall be allotted. The Board may make such provisions as it thinks fit for any fractional entitlements including provisions whereby, in whole or in part, the benefit thereof accrues to the Company and/or under which fractional entitlements are accrued and/or retained and in each case accumulated on behalf of any holder and such accruals or retentions are applied to the allotment by way of bonus to or cash subscription on behalf of such holder of fully paid Ordinary Shares and/or provisions whereby cash payments may be made to holders in respect of their fractional entitlements;
(g)	the Board may do all acts and things considered necessary or expedient to give effect to the allotment and issue of any Ordinary Shares in accordance with the provisions of this Article or otherwise in connection with any offer made pursuant to this Article and may authorise any person to enter, on behalf of all the holders concerned, into an agreement with the Company providing for such allotment and incidental matters and any agreement so made under such authority shall be binding on all such holders;
(h)	the Board may on any occasion decide that rights of election shall not be made available to any category of shareholders or to any shareholders in any territory where, in the absence of a registration statement or other special formalities or for any other reason, the circulation of an offer of rights of election to such shareholders or in such territory would or might be unlawful or where, in the opinion of the Board,

Page 38

	compliance with local laws and/or regulations would be unduly onerous and in such case the provisions of this Article shall be subject to such decision;
(i)	the Board may in its discretion amend, suspend or terminate any offer which is in operation;
(j)	the power conferred under this Article and by any authority given by the holders shall not be exercised unless the Board shall then have:

(i)	sufficient authority to allot Ordinary Shares in the capital of the Company;
(ii)	sufficient reserves or funds that may be capitalised after the basis of allotment is determined,

	in each case to give effect to the terms of any such scheme; and
(k)	every duly elected election shall be binding on every successor in title to the elected shares (or any of them) of the holder(s) who has/have effected the same.

136. Subject to the provisions of the Statutes and to Article 133, the Directors:

(a)	may declare and pay the fixed dividends on any class of shares carrying a fixed dividend expressed to be payable on fixed dates on the half-yearly or other dates prescribed for the payment thereof;
(b)	may provide, in such manner and on, such terms as they may think fit, for the payment of any dividends (whether fixed or calculated by reference to or in accordance with a specified procedure or mechanism) on any class of shares carrying such a dividend on such dates as may be prescribed for the payment thereof (whether such dates are fixed or are determined or to be determined in accordance with a specified procedure or mechanism); and
(c)	may also from time to time declare and pay interim dividends on the shares of any class of such amount and on such dates and in respect of such periods as they think fit.

Provided the Directors act in good faith they shall not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by the lawful payment of an interim dividend on any shares having deferred or non-preferred rights.

137. The Board may set aside out of profits of the Company available for dividend and carry to reserve or reserves such sums as it may think proper, which shall, at the discretion of the Board be applicable for meeting contingencies, or for the gradual liquidation of any debt or liability of the Company, or in providing for depreciation or contingencies or for writing down the value of the assets or for equalising dividends, or for any other purpose to which the profits of the Company may properly be applied, and pending such application may, at the like discretion, either be employed in the business of the Company, or be invested in such investments as the Board may from time to time think fit. The Board may also without placing the same to reserve carry forward any profits which it may think prudent not to distribute.

138. The Board shall transfer to share premium account as required by the Statutes sums equal to the amount or value of any premiums at which any shares of the Company shall be issued. Subject to the provisions of the Statutes the provisions of these Articles relating to

Page 39

sums carried or standing to reserve shall be applicable to sums carried and standing to share premium account.

139. The Board may deduct from any dividend payable to any member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise in relation to shares in the Company.

140. Subject to the rights attaching to, or the terms of issue of, any shares, any dividend on shares of any class or distribution, allotment or issue to the holders of any shares of any class (whether to be paid or made pursuant to a resolution of the Company in general meeting or a resolution of the Directors or otherwise) may be paid or made to the person registered as the holder of such shares or the persons otherwise entitled thereto at the close of business on a particular date notwithstanding that it may be a date prior to that on which the dividend, distribution, allotment or issue is to be paid or made or on which any resolution relating thereto is passed and any such dividend, distribution, allotment or issue shall be paid or made to them in accordance with their respective entitlements thereto but without prejudice to the rights inter se, in respect of such dividend, distribution, allotment or issue, of any holder or former holder of any such shares.

141. The Board may pay the dividends or interest payable on shares in respect of which any person is by transmission entitled to be registered as holder to such person upon production of such certificate and evidence as would be required if such person desired to be registered as a member in respect of such shares.

142. No dividend or other monies payable in respect of a share shall bear interest against the Company unless otherwise provided by the rights attached to or the terms of issue of the share.

143. All dividends unclaimed for six months after having been declared may be invested or otherwise made use of by the Board for the benefit of the Company until claimed and so that the Company shall not thereby be constituted as a trustee in respect thereof. All dividends unclaimed for a period of twelve years after having been declared shall be forfeited and shall revert to the Company.

144. Any dividend or other monies payable in respect of a share, may be paid: (i) in cash; or (ii) by cheque or warrant sent through the post to the registered address of the member or person entitled thereto (or, if two or more persons are registered as joint holders of the share or entitled thereto in consequence of the death or bankruptcy of the holder, to any one of such persons) or to such person and such address as such member or person or persons may by writing direct; or (iii) may be paid by inter-bank transfer to the account of the person entitled to such payment; or (iv) by such other means as the Directors may determine or think fit including without limitation in respect of an uncertificated share by means of the relevant system (subject to the facilities and requirements of the relevant system). Where such dividend or other monies are or are to be paid by cheque or warrant, every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to such person as the holder or joint holders or person or persons entitled to the shares in consequence of the death or bankruptcy of the holder may direct and payment of the cheque or warrant by the bank on which it is drawn; or, in respect of an uncertificated share, the making of payment in accordance with the facilities and requirements of the relevant system (which, if the relevant system is CREST, may include the sending by the Company or by any person on its behalf of an instruction to the Operator of the relevant system to credit the cash memorandum account of the holder or joint holders or, if permitted by the Company, of such person as the holder or joint holders may in writing direct) shall be good discharge to the Company. Every such cheque or warrant shall be sent at the risk of the person entitled to the monies represented thereby. Subject to the provisions of these Articles and to the rights attaching to, or the terms

Page 40

of issue of, any shares, any dividend or other monies payable on or in respect of a share may be paid in such currency as the Directors may think fit or otherwise determine. If any such cheque or warrant is returned undelivered or is left uncashed on two consecutive occasions or, following one such occasion, reasonable enquiries have failed to establish any new address of the registered holder, the Company may cease sending any further cheques or warrants in respect of any dividend to such member until such time, if ever, as such member shall notify the Company of an address to which any cheque or warrant may be sent in future.

145. If several persons are registered as joint holders of any share, any one of them may give effectual receipts for any dividend or other monies payable in respect of the share.

Capitalisation of Profits

146.1 The Company may, upon the recommendation of the Board, resolve that it is desirable to capitalise any of the profits of the Company to which this Article applies and accordingly that the Board be authorised and directed to appropriate the profits so resolved to be capitalised to the members on the record date specified in the relevant resolution who would have been entitled thereto if distributed by way of dividend and in the same proportions.

146.2 Subject to any direction given by the Company, the Board shall make all appropriations and applications of the profits resolved to be capitalised by any such resolution and such profits shall be applied by the Board on behalf of the members entitled thereto, either:

(a)	in or towards paying up the amounts (if any) for the time being unpaid on any shares held by such members respectively; or
(b)	in paying up in full unissued shares, debentures or obligations of the Company of a nominal amount equal to such profits, for allotment and distribution credited as fully paid up, to and amongst such members in the proportion aforesaid; or
(c)	partly in one way and partly in the other,

provided that the only purpose to which sums standing to capital redemption reserve or share premium account shall be applied pursuant to this Article shall be the payment up in full of unissued shares to be allotted and distributed as aforesaid.

146.3 The Board shall have power after the passing of any such resolution:

(a)	to make such provisions (by the issue of fractional certificates or by payment in cash or otherwise) as it thinks fit in the case of shares, debentures or obligations becoming distributable in fractions; and
(b)	to authorise any person to enter, on behalf of all the members entitled thereto, into an agreement with the Company providing (as the case may require) either:

(i)	for the payment up by the Company on behalf of such members (by the application thereto of their respective proportions of the profits resolved to be capitalised) of the amounts, or any part of the amounts, remaining unpaid on their existing shares; or
(ii)	for the allotment to such members respectively, credited as fully paid up, of any further shares, debentures or obligations to which they may be entitled upon such capitalisation,

Page 41

and any agreement made under such authority shall be effective and binding on all such members.

146.4 The profits of the Company to which this Article applies shall be any undivided profits of the Company not required for paying the fixed dividends on any preference shares or other shares issued on special conditions and shall include:

(a)	any profits arising from appreciation in capital assets (whether realised by sale or ascertained by valuation); and
(b)	any amounts for the time being standing to any reserve or reserves or to the capital redemption reserve or to share premium or other special account.

Communications

147. Any notice to be sent to or by any person pursuant to these Articles (other than a notice calling a meeting of the Board or any committee of the Board) shall be in writing.

148. Subject to Article 147 and unless otherwise provided by these Articles, the Company shall send or supply a document or information that is required or authorised to be sent or supplied to a member or any other persons by the Company by a provision of the Statutes or pursuant to these Articles or to any other rules or regulations to which the Company may be subject in such form and by such means as it may in its absolute discretion determine provided that the provisions of The Statutes which apply to sending or supplying a document or information required or authorised to be sent or supplied by the Statutes shall, the necessary changes having been made, also apply to sending or supplying any document or information required or authorised to be sent by these Articles or any other rules or regulations to which the Company may be subject.

149. Subject to Article 147 and unless otherwise provided by these Articles, a member or a person entitled by transmission to a share shall send a document or information pursuant to these Articles to the Company in such form and by such means as it may in its absolute discretion determine provided that:

(a)	the determined form and means are permitted by the Statutes for the purposes of sending and supplying a document or information of that type to a company pursuant to the provisions of the Statutes; and
(b)	unless the board otherwise permits, any applicable condition or limitation specified in the Statutes, including without limitation as to the address to which the document or information may be sent, is satisfied.

Unless otherwise provided by these Articles, or required by the board, such document or information shall be authenticated in the manner specified in the Statutes for authentication of a document or information sent in the relevant form.

150. [Deliberately left blank].

151. [Deliberately left blank].

152.1 In the case of joint holders of a share, any document or information shall be sent to the joint holder whose name stands first in the Register in respect of the joint holding and any document or information so sent shall be deemed for all purposes sent to all the joint holders.

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152.2 A member whose registered address is not within an EEA State and who sends to the Company an address within an EEA State at which a document or information may be sent to him shall be entitled to have the document or information sent to him at that address (provided that, in the case of a document or information sent by electronic means, including without limitation, any notification required by The Statutes that the document is available on a website, the Company so agrees, which agreement the Company shall be entitled to withhold in its absolute discretion including, without limitation, in circumstances in which the Company considers that the sending of the document or information to such address using electronic means would or might infringe the laws of any other jurisdiction) but otherwise:

(a)	no such member shall be entitled to receive any document or information from the Company; and
(b)	without prejudice to the generality of the foregoing, any notice of a general meeting of the Company which is in fact sent or purports to be sent to such member shall be ignored for the purpose of determining the validity of the proceedings at such general meeting.

152.3 A member present, either in person or by proxy, at any meeting of the Company or of the holders of any class of shares in the capital of the Company shall be deemed to have been sent notice of the meeting and, where requisite, of the purposes for which it was called.

152.4 The Board may from time to time issue, endorse or adopt terms and conditions relating to the use of electronic means for the sending of notices, other documents and proxy appointments by the Company to members or persons entitled by transmission and by members or persons entitled by transmission to the Company.

152.5 A document or information may be sent or supplied by the Company to the person or persons entitled by transmission to a share by sending it in any manner the Company may choose authorised by these Articles for the sending of a document or information to a member, addressed to them by name, or by the title of representative of the deceased, or trustee of the bankrupt or by any similar description at the address (if any) in the United Kingdom as may be supplied for that purpose by or on behalf of the person or persons claiming to be so entitled. Until such an address has been supplied, a document or information may be sent in any manner in which it might have been sent if the death or bankruptcy or other event giving rise to the transmission had not occurred.

152.6 Every person who becomes entitled to a share shall be bound by any notice in respect of that share which, before his name is entered in the Register, has been sent to a person from whom he derives his title, provided that no person who becomes entitled by transmission to a share shall be bound by any Default Notice sent under Article 11.1 to a person from whom he derives his title.

152.7 Proof that a document or information was properly addressed, prepaid and posted shall be conclusive evidence that the document or information was sent. Proof that a document or information sent or supplied by electronic means was properly addressed, shall be conclusive evidence that the document or information was sent. A document or information sent by the Company to a member by post shall be deemed to have been received:

(a) if sent by first class post or special delivery post from an address in the United Kingdom to another address in the United Kingdom, or by a postal service similar to first class post or special delivery post from an address in another country to another address in that other country, on the day following that on which the document or information was posted;

Page 43

(b)	if sent by airmail from an address in the United Kingdom to an address outside the United Kingdom, or from an address in another country to an address outside that country (including without limitation an address in the United Kingdom), on the third day following that on which the envelope containing the document or information was posted; and
(c)	in any other case, on the second day following that on which the document or information was posted.

152.8 A document or information sent or supplied by the Company to a member in electronic form shall be deemed to have been received by the member on the day following that on which the document or information was sent to the member. Such a document or information shall be deemed to have been received by the member on that day notwithstanding that the Company becomes aware that the member has failed to receive the relevant document or information for any reason and notwithstanding that the Company subsequently sends a hard copy of such document or information by post to the member.

152.9 A document or information sent or supplied by the Company to a member by means of a website shall be deemed to have been received by the member:

(a)

when the document or information was first made available on the website; or

(b)

if later, when the member is deemed by Article 152.7 or 152.8 to have received notice of the fact that the document or information was available on the website. Such a document or information shall be deemed received by the member on that day notwithstanding that the Company becomes aware that the member has failed to receive the relevant document or information for any reason and notwithstanding that the Company subsequently sends a hard copy of such document or information by post to the member.

152.10 Subject to the Statutes, if at any time the Company is unable effectively to convene a general meeting by notices sent through the post in the United Kingdom as a result of the suspension or curtailment of postal services, notice of general meeting may be sufficiently given by advertisement in the United Kingdom. Any notice given by advertisement for the purpose of this Article shall be advertised in at least one newspaper having a national circulation. If advertised in more than one newspaper, the advertisements shall appear on the same date. Such notice shall be deemed to have been sent to all persons who are entitled to have notice of meetings sent to them on the day when the advertisement appears. In any such case, the Company shall send confirmatory copies of the notice by post, if at least seven days before the meeting the posting of notices to addresses throughout the United Kingdom again becomes practicable.

Winding Up

153. If the Company shall be wound up, the liquidator may, with the sanction of a special resolution of the contributories, divide amongst the contributories in specie the whole or any part of the assets of the Company and may, for that purpose value any assets and determine how the division shall be carried out as between the contributories or different classes of contributories. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator with the like sanction shall think fit.

154. The power of sale of a liquidator shall include a power to sell wholly or partially for shares or stock or for the debentures, debenture stock or other obligations of another

Page 44

company, either then already constituted, or about to be constituted, for the purpose of carrying out the sale.

Indemnity

155.1 Subject to the provisions of the Statutes, but without prejudice to any indemnity to which the person concerned may otherwise be entitled, every director or other officer of the Company (other than any person (whether an officer or not) engaged by the Company as auditor) shall be indemnified out of the assets of the Company against any liability incurred by him for negligence, default, breach of duty or breach of trust in relation to the affairs of the Company, provided that this Article shall be deemed not to provide for, or entitle any such person to, indemnification to the extent that it would cause this Article, or any element of it, to be treated as void under the Act or otherwise under the Statutes.

155.2 Without prejudice to the provision of Article 155(1), the Directors shall have the power to purchase and maintain insurance for or for the benefit of any persons who are or were at any time Directors, officers or employees of the Company, or any company in which the Company has an interest whether direct or indirect or which is in any way allied to or associated with the Company, or of any subsidiary undertaking of the Company or any such other company, or who are or were at any time trustees of any retirement benefits scheme or employee benefits trust in which employees of the Company or any such other company or subsidiary undertaking are interested, including (without prejudice to the generality of the foregoing) insurance against any liability incurred by such persons in respect of any act or omission in the actual or purported execution or discharge of their duties or in the exercise or purported exercise of their powers or otherwise in relation to their duties, powers or offices in relation to the Company or any such other company, subsidiary undertaking or retirement benefits scheme or employee benefits trust.

Discovery

156. No member or meeting of members shall be entitled to discovery of or any information respecting any detail of the Company’s operations or trading or any matter which may be or is in the nature of a trade secret, or which may relate to the conduct of the business of the Company, which in the opinion of the Board it would not be expedient in the interests of the members to communicate.

Destruction of Documents

157. The Company shall be entitled to destroy all instruments of transfer of shares which have been registered at any time after the expiration of six years from the date of registration thereof and all dividend mandates and notifications of change of address at any time after the expiration of two years from the date of recording thereof and all share certificates which have been cancelled at any time after the expiration of one year from the date of the cancellation thereof and it shall conclusively be presumed in favour of the Company that every entry in the Register purporting to have been made on the basis of an instrument of transfer or other document so destroyed was duly and properly made and every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered and every share certificate so destroyed was a valid and effective certificate duly and properly cancelled and every other document herein before mentioned so destroyed was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company. Provided always that:

(a) the provisions aforesaid shall apply only to the destruction of a document in good faith and without notice of any claim (regardless of the parties thereto) to which the document might be relevant;

Page 45

(b)	nothing herein contained shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any other circumstances which would not attach to the Company in the absence of this Article;
(c)	references herein to the destruction of any document include references to the disposal thereof in any manner.

Untraced Shareholders

158.1 If in the period of twelve years prior to the date of publication of the advertisements referred to below (or, if published on different dates, the first thereof) at least three dividends have become payable in respect of any class of shares of the Company and all warrants and cheques in respect of the shares in question have remained uncashed during that period, the Company may sell for the best price reasonably obtainable the shares of that member or of a person entitled to such shares by virtue of transmission on death, bankruptcy, mental disorder, operation of law or any other event in such manner as the Board thinks fit provided that:

(a)	the Company shall, as soon as practicable after expiry of the said period of twelve years, have given notice by advertisement in a national daily newspaper and a newspaper circulating in the area of the address at which service of notices upon such member or person entitled to such shares may be effected in accordance with these Articles of its intention to sell such shares; and
(b)	the Company has not, during the further period of three months after the date of the advertisements (or, if published on different dates the later thereof) and prior to the exercise of the power of sale, received any communication from the member or a person entitled to such shares by virtue of transmission on death or bankruptcy or otherwise.

158.2 To give effect to any such sale the Board may:

(a)	where the shares are held in certificated form, authorise any person to execute as transferor an instrument of transfer of the shares to be sold to, or in accordance with the directions of, the purchaser and such instrument of transfer shall be as effective as if it had been executed by the registered holder of, or person entitled by transmission to, such shares; or
(b)	where the shares are held in uncertificated form, do all acts and things it considers necessary or expedient to effect the transfer of the shares to, or in accordance with the directions of, the buyer.

The transferee shall be entered in the Register as the holder of the shares comprised in any such transfer (notwithstanding that no certificate representing the shares shall be produced), and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

158.3 The net proceeds of sale, after payment of the costs thereof, shall belong to the Company which shall be obliged to account to the former member or other person previously entitled as aforesaid for an amount equal to such proceeds and shall enter the name of such former member or other person in the books of the Company as a creditor for such amount. No trust shall be created in respect of the debt, no interest shall be payable in respect of the same and the Company shall not be required to account for any money earned on the net proceeds, which may be employed in the business of the Company or invested in such investments as the Board may from time to time think fit.

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Index To Articles of Association

	Article		Page
Accounts, records of		126		37
records of, where kept		127		37
copies of, to be sent to members		129		37
inspection of		127		37
to be submitted in accordance with the Statutes		128		37
Administrators of deceased Members		38		11
Allotment of shares		7.1-7.4		4
Alternate Directors		98, 115-120, 155.1		28, 33-34, 45
Appointment of Directors		77-80		22-23
Auditors, appointment		130		37
Report		131		37
Bankruptcy, rights of person entitled to shares in		39		11
consequence of		39-41		11-12
Borrowing, Board’s powers		90.1-90.8		24-27
definitions related to		90.3-90.4		25-26
Brokerage on shares		8		5
Calls on shares, Board may make from time to time		14		8
date of call		15		8
differentiation on		19		9
forfeiture of shares, for non-payment of		25-27		9-10
in arrears		69		20
interest on unpaid calls		17		8
joint holders jointly and severally liable		16		8
made when resolution passed		15		8
monies may be paid up in advance and interest paid thereon		20		9
notice to be given		14		8
procedure to recover money due on calls		25		9
sums deemed to be		18		8
Capital of Company
conversion of shares into stock and vice versa		42		13
rights may be varied		4-5		4
Capitalisation of profits		146.1-146.4		42-43
Certificates		12-13		8
charges for		12.1		8
lost or destroyed, new may be issued		13		8
may be delivered to any one of joint holders		12.2		8
one to every member		12.1		8
to be sealed, but need not be signed		124.2		36
Chairman of a meeting		57-64		17-18
acting as		58		17
adjourn meetings, right to		59.1		17
adjourned meetings, determination of		57		17
Declaration of result of vote on a show of hands		60		18
poll, consequence of demand		64		18
poll, on election of chairman		63		18
poll, procedure and effect of		62		18
poll, right to demand		60		18
qualification of vote, decision as to		70		20

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	Article		Page
Commission on shares		8		5
Communications,
accidental omission of, not to invalidate resolution		54.1		15
deemed receipt of notice		152.3		44
during disruption of services		152.10		45
includes website notification		152.9		45
methods of Company sending notice		148		43
methods of member etc. sending notice		149		43
proof of sending/when notices etc. deemed sent by post		152.7		44
registered address outside EEA		152.2		43
terms and conditions for electronic communications		152.4		44
to joint holders		152.1		43
to persons entitled by transmission		152.5		44
transferees etc. bound by prior notice		152.6		44
website publication by Company		152.2		43
when notice required to be in writing; use of electronic communications		152.2		43
when notices etc. deemed sent by electronic communication		152.8		45
Conversion of shares into stock and vice versa		42		13
Debentures, etc may be issued		90.1		24
Default notices		11.1-11.4		6-7
Definitions		2		1
Directors
acts valid notwithstanding defect in appointment		98		28
Alternate		115-120		33-34
appointment of		77, 79		22, 23
appointment of, by separate resolution		79		23
Chairman and Deputy Chairman, appointment of		93		27
Chairman entitled to take chair at general meetings		58		17
Chairman to have no casting vote		91.1		27
Committees, powers may be delegated to		96		28
Company may fill vacancies at general meeting		78		23
continuing Directors may act in case of Vacancy		78		23
contracts, interest in to be disclosed		101.1		29
contracts, not disqualified from entering into with Company		101.1		29
contracts, power to vote on		101.2		30
defect in appointment of		98		28
delegation of powers		96		28
disqualification of		100		29
election by general meeting		106		31
Executive		108, 110-112		31, 32
Expenses		114.4		33
indemnified against losses, indemnity insurance etc		155.1-155.2		45-46
interests		120.A-120.G		34-35
Managing		108-109, 111-112		31-32
may appoint attorneys		87		24
may appoint local Boards and delegate powers		85		23
may provide for local management		85		23
meetings, a Director may at any time convene		91.2		27
meetings, Board may fix a quorum		92		27

Page 48

	Article		Page
meetings, competency to exercise powers		95		28
meetings, Directors may meet as they think fit		91.1		27
meetings, notice of		91.3		27
meetings, proceedings at		91-98A		27-29
meetings, quorum		92		27
no person other than retiring Director eligible for election without notice or Directors’ recommendation		80		23
non-executive		114.1-114.3		32-33
number of		76		22
office, when vacated		104		31
pensions and other benefits determined by the Board		86.1-86.2		23-24
power to determine manner of endorsement of cheques		89		24
power to make additional appointments		77		22
powers of		84-89.1		23-24
powers, general powers of Company vested in Directors		84		23
proceedings		91-98A		27-29
qualification of		81		23
removal of		107		31
remuneration of non-executive Directors		114.2		32
remuneration for special services by non-executive Directors		114.3		33
report to be submitted in accordance with the Statutes		128-129		37
Resolutions of		94		28
Retirement of		103-106		31
vacancy may be filled by Directors		77		22
voting by, with regard to interest in contracts		101.2		30
voting by		101.2-101.5		30-31
voting powers conferred by shares of a subsidiary		102.2		31
Discovery		156		46
Dividends, interim, Board may pay		136		40
in currency other than sterling		134.2		38
from profits		132		37
joint holders		145		41
may be paid in specie or satisfied by allotment or ordinary shares if authorised by general meeting		135.1-135.2		38
may cease to be sent		144		41
method of payment		144		41
no dividends shall bear interest against Company		142		41
no larger than Board recommends		132		37
on shares in proportion to amount paid up		134.1		37
paid to registered holder or entitled to be registered as a holder		140-141		40-41
Production of evidence of entitlement		141		41
Reserves		137		40
subject to Statutes		133		37
Unclaimed		143		41
when may be retained		21, 41, 139		9, 12, 40
Documents, discovery		156		46
power of Company to destroy		157		46
Executive and Managing Directors		108-112		31-32
Forfeiture, Board may accept surrender of shares liable to		30		10
day and place, etc, to be named in notice		26		10
forfeited shares		28		10

Page 49

	Article		Page
forfeiture may be cancelled		28		10
if notice not complied with shares may be forfeited		27		10
member liable to pay call notwithstanding		29		10
notice, form of		26		10
notice requiring payment of money due		25		9
statutory declaration conclusive evidence		31		10
General and class meetings		50-64		14-18
Accidental omission of notice of		54.1		15
adjournment of		57.1-57.2, 59.1		17
Annual		50		14
business of annual		55		16
chairman of		58		17
change of time/place of		54.6		16
may be convened by Board or by requisition		51.1		14
notice of		52-54.7		15-16
other than annual		50		14
period of notice		52		15
proceedings at		55-64		16-18
Provisions relating to class meetings		51.2		14
Quorum		56		17
satellite meeting place		54.2-54.3		15
time and place		53		15
venue not being a satellite meeting place		54.4-54.5		15-16
voting at		60-64		18
Indemnity		155.1-155.2		45-46
Instalments of a call, failure to pay		25		9
Interpretation of provisions relating to stock		45		14
Liability of members, limited		3		4
Lien, application of proceeds of sale		24		9
Board may exempt any share from these provisions		21		9
Company has first lien on shares not fully paid up, and on dividends		21		9
Company may sell shares to enforce lien		22		9
effect of sale		23		9
name of purchaser shall be entered in Register		23		9
Liquidation		153-154		45
Local management		85		23
Managing Director and Executive Directors		108-112		31-32
appointment of		108		31
power such as Board thinks fit		112		32
remuneration to be fixed by Board		111		32
resignation and removal of		109-110		32
Minutes of Board meetings		99		29
Pensions, establishment by Board		86.1		23
Poll, demand of not to prevent dealing with other business		64		18
how to be demanded		60		18
on adjournment or election of chairman		63		18
result of		62		18
to be taken as Chairman directs		62		18
Powers of attorney		74, 87		20, 24

Page 50

	Article			Page
Powers of Board		84-89.1			23-24
President		113.1, 113.2			32
Proceedings, at general meetings		55-64			16-18
of Board		91.1-98			27-29
Proxies		65.1-66, 68-69, 72.1-75.6			19, 20-22
Purchase of Company’s shares		9			5
Quorum, at Board meetings		92			27
at general meetings		56			17
at meetings of classes of shares		51.2			14
Redeemable shares		49			14
Registers		125.1-125.2			36
Retirement and removal of Directors		103-107			31
Reserves		137			40
Rights of Members, variation of		4-5			4
Seal, affixing of		124.1-124.2			36
Secretary		121, 123			35-36
Deputy		122			36
if a Director is		123			36
Securities Seal, shares warrants, issued under		41	(A)		12
Share certificates		12.1-13			8
Share premium account		138			40
Share warrant, provisions applying to		41	(A)		12
Shares, allotment by Board		7.1-7.4			4-5
commissions		8			5
Company may purchase its own		9			5
conversion into stock and vice versa		42			13
different classes of		4			4
new issues of, not a variation of rights attaching to existing shares		6			4
redeemable		49			14
transfer and transmission of		32-41			10-12
trusts not recognised		10			5
Uncertificated		11.5-11.7			7
Stock, conversion into		42			13
manner of transfer		43			13
provisions of these Articles applicable to,		45			14
Stockholders, same privileges as shareholders		44			13
‘Table A’ shall not apply		1			1
Transfer and Transmission		32-41			10-12
absolute discretion of Board to refuse to register		34			11
Board may refuse to register in certain other cases		35			11
form of transfer		32			10
instrument of transfer of shares to be executed by or on behalf of transferor and (in the case of partly paid shares) transferee		33			11
legal personal representatives of deceased, survivors of joint holders only persons recognised by Company		38			11
notice of refusal to register transfer		36			11
of shares of deceased or bankrupt Member		39			11
transferor holder until transferee on Register		33			11

Page 51

	Article			Page
Transfer Office, definition		2			3
share warrants, deposited at		41	(A)		12
Transmission of shares		38-41	(A)		11-13
Trusts not to be recognised		10			5
Untraced shareholders		158.1-158.3			47
Variation of rights		4-5			4
Votes of Members		65.1-75.6			19-22
by a corporation		67, 75.4, 75.6			19, 22
amendments proposed to resolutions		59.2			17
appointment of a proxy		72.1-75.3			20-22
chairman’s declaration as to result of votes is final		70			20
evidence of passing resolutions		61			18
members under incapacity		68			19
no member entitled to vote whilst call due, etc.		69			20
no right to vote in case of a Default Notice		11.2			6
objection to qualification		70			20
one vote for each share, at a poll		65.1			19
personally or by proxy		65.1			19
right to vote on show of hands and on a poll		65.1, 71			19, 20
vote by proxy		65.2, 75.3, 75.6			19, 21, 22
where joint holders		66			19
Winding up		153-154			45

Page 52

EX-2.7

Exhibit 2.7

EXECUTION COPY

PEARSON FUNDING TWO PLC
as Issuer

PEARSON PLC,
as Guarantor

and

THE BANK OF NEW YORK MELLON acting through its London Branch,
as Trustee, Paying Agent and Calculation Agent

$350,000,000 GUARANTEED NOTES DUE 2016

INDENTURE

Dated as of May 17, 2010

Table of Contents

	Page
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1 Definitions		1
Section 1.2 Rules of Construction		9
ARTICLE II THE NOTES
Section 2.1 Form and Dating		9
Section 2.2 Execution and Authentication		10
Section 2.3 Registrar and Paying Agent; Calculation Agent		12
Section 2.4 Paying Agent to Hold Money in Trust		13
Section 2.5 Holder Lists		13
Section 2.6 Global Note Provisions		13
Section 2.7 Legends		14
Section 2.8 Transfer and Exchange		14
Section 2.9 Mutilated, Destroyed, Lost or Stolen Notes		17
Section 2.10 Cancellation		17
Section 2.11 Add On Notes		17
Section 2.12 Defaulted Interest		19
Section 2.13 CUSIP Numbers		19
ARTICLE III COVENANTS
Section 3.1 Payment of Notes		19
Section 3.2 Maintenance of Office or Agency		20
Section 3.3 Corporate Existence		20
Section 3.4 Payment of Taxes and Other Claims		20
Section 3.5 Further Instruments and Acts		21
Section 3.6 Waiver of Stay, Extension or Usury Laws		21
Section 3.7 Payment of Additional Amounts		21
Section 3.8 Offer to Repurchase upon a Change of Control Triggering Event		22
Section 3.9 Limitation on Liens		23
Section 3.10 Reports to Holders		23
ARTICLE IV TRANSFEREE COMPANY
Section 4.1 Assumption of Obligations		23
Section 4.2 Transferee Company Substituted for Company		24
ARTICLE V SUCCESSOR COMPANY
Section 5.1 Consolidation, Merger and Sale of Assets of the Company		24
Section 5.2 Consolidation, Merger and Sale of Assets of the Guarantor		25
Section 5.3 Successor Company or Guarantor Substituted		26
i

	Page
ARTICLE VI OPTIONAL REDEMPTION OF NOTES
Section 6.1 Optional Tax Redemption		26
Section 6.2 Optional Redemption		27
Section 6.3 Election to Redeem		27
Section 6.4 Notice of Redemption		27
Section 6.5 Selection of Notes to be Redeemed in Part Pursuant to an Optional Redemption		28
Section 6.6 Deposit of Redemption Price		28
Section 6.7 Notes Payable on Redemption Date		29
Section 6.8 Unredeemed Portions of Partially Redeemed Note		29
ARTICLE VII DEFAULTS AND REMEDIES
Section 7.1 Events of Default		29
Section 7.2 Acceleration		31
Section 7.3 Other Remedies		31
Section 7.4 Waiver of Past Defaults		31
Section 7.5 Control by Majority		32
Section 7.6 Limitation on Suits		32
Section 7.7 Rights of Holders to Receive Payment		32
Section 7.8 Collection Suit by Trustee		33
Section 7.9 Trustee May File Proofs of Claim, etc.		33
Section 7.10 Priorities		33
Section 7.11 Undertaking for Costs		33
ARTICLE VIII TRUSTEE
Section 8.1 Duties of Trustee		34
Section 8.2 Rights of Trustee		35
Section 8.3 Individual Rights of Trustee		36
Section 8.4 Trustee’s Disclaimer		36
Section 8.5 Notice of Defaults		36
Section 8.6 Reports by Trustee to Holders		36
Section 8.7 Compensation and Indemnity		37
Section 8.8 Replacement of Trustee		37
Section 8.9 Successor Trustee by Merger		38
Section 8.10 Eligibility; Disqualification		38
Section 8.11 Preferential Collection of Claims Against Company		39
Section 8.12 Paying Agent and Calculation Agent		39
ARTICLE IX SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONIES
Section 9.1 Satisfaction and Discharge		39
Section 9.2 Application by Trustee of Funds Deposited for Payment of Notes		39
Section 9.3 Repayment of Monies Held by Paying Agent		40
Section 9.4 Return of Monies Held by Trustee and Paying Agent Unclaimed for Two Years		40
ii

	Page
ARTICLE X AMENDMENTS
Section 10.1 Without Consent of Holders		40
Section 10.2 With Consent of Holders		41
Section 10.3 Compliance with Trust Indenture Act		42
Section 10.4 Acts of Holders		42
Section 10.5 Notation on or Exchange of Notes		42
Section 10.6 Trustee to Sign Amendments		42
ARTICLE XI GUARANTEES
Section 11.1 The Guarantees		43
Section 11.2 Guarantees Unconditional		43
Section 11.3 Reinstatement		43
Section 11.4 Subrogation		43
ARTICLE XII MISCELLANEOUS
Section 12.1 Trust Indenture Act Controls		44
Section 12.2 Notices		44
Section 12.3 Communication by Holders with Other Holders		45
Section 12.4 Certificate and Opinion as to Conditions Precedent		45
Section 12.5 Statements Required in Certificate or Opinion		45
Section 12.6 Form of Documents Delivered to Trustee		46
Section 12.7 Rules by Trustee, Paying Agent and Registrar		46
Section 12.8 Payment on Business Days		46
Section 12.9 Governing Law, etc.		46
Section 12.10 Successors		48
Section 12.11 Duplicate and Counterpart Originals		48
Section 12.12 Severability		48
Section 12.13 Currency Indemnity		48
Section 12.14 Benefits of Indenture		48
Section 12.15 Table of Contents; Headings		49
Section 12.16 Waiver of Jury Trial		49
Section 12.17 Force Majeure		49
EXHIBITS
Exhibit A Form of the Notes		51
Exhibit B Form of Transfer Certificate for Transfer to QIB		62
Exhibit C Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S		63
Exhibit D Form of Rule 144 Certification		65

 iii 

     This INDENTURE, dated as of May 17, 2010, among Pearson Funding Two plc, a public company incorporated with limited liability under the laws of England (the “Company”), Pearson PLC, a public company incorporated with limited liability under the laws of England (the “Guarantor”) and The Bank of New York Mellon acting through its London Branch, a New York banking corporation (the “Trustee”), as Trustee, Paying Agent, and Calculation Agent in New York.

     Each party agrees as follows for the benefit of the other parties and for the benefit of the Holders of the Company’s $350,000,000 4.00% Guaranteed Notes due 2016 (the “Notes”).

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE

     Section 1.1 Definitions.

     “Actual Knowledge” means, with respect to the Trustee, written notice delivered to a Trust Officer at the address indicated in Section 12.2, except in the case of the Company’s failure to make payment pursuant to Section 3.1 hereof.

     “Additional Amounts” has the meaning assigned to it in Section 3.7.

     “Add On Note Board Resolutions” means resolutions duly adopted by the Board of Directors of the Company and delivered to the Trustee in an Officers’ Certificate providing for the issuance of Add On Notes.

     “Add On Note Supplemental Indenture” means a supplement to this Indenture duly executed and delivered by the Company, the Guarantor and the Trustee pursuant to Section 2.11 providing for the issuance of Add On Notes.

     “Add On Notes” means any Notes originally issued after the Issue Date pursuant to Section 2.11, including any replacement Notes as specified in the relevant Add On Note Board Resolutions or Add On Note Supplemental Indenture issued therefor in accordance with this Indenture.

     “Affiliate” shall have the meaning provided in Rule 405 of the Securities Act.

     “Agent Members” has the meaning assigned to it in Section 2.6(b).

     “Authenticating Agent” has the meaning assigned to it in Section 2.2(d).

     “Authorized Agent” has the meaning assigned to it in Section 12.9(d).

     “Bankruptcy Default” means any of the Events of Default specified in Section 7.1(a)(v) or (vi) (with respect to the dissolution, winding up or reorganization of the Company or the Guarantor).

     “Bankruptcy Law” means, with respect to any jurisdiction in which the Guarantor or any of its Principal Subsidiaries (including, without limitation, the Company) are incorporated, any laws or regulations and any judicial decisions pertaining to proceedings that are initiated either by an entity or by creditors thereof seeking a general moratorium in relation to such entity’s debts, to appoint a receiver for such entity, to have such insolvent entity’s assets or businesses sold or distributed among such entity’s creditors or to restructure and reorganize the entity’s debts for the benefit of such creditors.

     “Board of Directors” means, as to any Person, the board of directors, management committee or similar governing body of such Person or any duly authorized committee thereof.

1

     “Board Resolution” means, with respect to any Person, a copy of a resolution certified by an Officer or the General Counsel of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee.

     “Business Day” means any day other than a Saturday or Sunday or a day on which commercial banks and trust companies located in New York City, London or the Place of Payment with respect to the Notes are authorized or required by law, regulation or executive order to be closed.

     “Calculation Agent” means the calculation agent appointed by the Company, who shall initially be The Bank of New York Mellon acting through its London Branch.

     “Certificated Note” means any Note issued in fully registered certificated form (other than a Global Note) under the limited circumstances provided for in this Indenture, which shall be substantially in the form of Exhibit A, with appropriate legends as specified in Section 2.7 and Exhibit A.

     “Change of Control” means the occurrence of any of the following: (1) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any Person or “group” (as used in Section 13d-3 of the Exchange Act) (other than an Affiliate of the Guarantor) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the Voting Stock of the Guarantor or other Voting Stock into which the Voting Stock of the Guarantor is reclassified, consolidated, exchanged or changed, measured by voting power rather than number of shares; (2) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or more series of related transactions, of all or substantially all of the assets of the Guarantor and the subsidiaries of the Guarantor, taken as a whole, to one or more Persons (other than an Affiliate of the Guarantor); (3) the first day on which a majority of the members of the Board of Directors of the Guarantor are not Continuing Directors; or (4) the adoption of a plan relating to the liquidation or dissolution of the Guarantor. Notwithstanding the foregoing, a transaction will not be deemed to involve a Change of Control if (1) the Guarantor becomes a direct or indirect wholly-owned subsidiary of a holding company and (2)(A) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the holders of the Voting Stock of the Guarantor immediately prior to that transaction or (B) immediately following that transaction one Person (other than a holding company satisfying the requirements of this sentence) is not the beneficial owner, directly or indirectly, of more than 50% of the Voting Stock of such holding company.

     “Change of Control Offer” has the meaning assigned to it in Section 3.8.

     “Change of Control Payment” has the meaning assigned to it in Section 3.8.

     “Change of Control Payment Date” has the meaning assigned to it in Section 3.8.

     “Change of Control Triggering Event” means the occurrence of both a Change of Control and a Rating Event.

     “Clearstream, Luxembourg” means Clearstream Banking, société anonyme.

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

     “Company” means the party named as such in the introductory paragraph to this Indenture and its successors and assigns, including any Transferee Company that becomes such in accordance with Article IV and any Successor Company that becomes such in accordance with Article V.

2

     “Company Order” has the meaning assigned to it in Section 2.2(c).

     “Comparable Treasury Issue” means, with respect to any Redemption Date for any Notes being redeemed, the United States Treasury security selected by an Independent Investment Banker as having the maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes.

     “Comparable Treasury Price” means, with respect to any Redemption Date for any of the Notes being redeemed:

     (i) the average of three Reference Treasury Dealer Quotations for the Redemption Date obtained by the Calculation Agent, after excluding the highest and lowest of those Reference Treasury Dealer Quotations, or

     (ii) if the Calculation Agent obtains fewer than three Reference Treasury Dealer Quotations, the average of all Reference Treasury Dealer Quotations obtained.

     “Continuing Directors” means, as of any date of determination, any member of the Board of Directors of the Guarantor who (1) was a member of such Board of Directors on the date the Notes were issued or (2) was nominated for election, elected or appointed to such Board of Directors with the approval of a majority of the continuing directors who were members of such Board of Directors at the time of such nomination, election or appointment (either by a specific vote or by approval of the proxy statement of the Guarantor in which such member was named as a nominee for election as a director, without objection to such nomination).

     “Corporate Trust Office” means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the dated hereof is located at One Canada Square, 40th Floor, London E14 5AL, England, Attention: Corporate Trust Administration, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Company). “Default” means an event or condition the occurrence of which is, or with the lapse of time or giving of notice or both would be, an Event of Default.

     “Directive” has the meaning assigned to it in Section 3.7(d).

     “Distribution Compliance Period” means, in respect of any Regulation S Global Note, the 40 consecutive days beginning on and including the later of (a) the day on which any Notes represented thereby are offered to persons other than distributors (as defined in Regulation S under the Securities Act) pursuant to Regulation S and (b) the Issue Date for such Notes.

     “DTC” means The Depository Trust Company, its nominees and their respective successors and assigns, or such other depositary institution hereinafter appointed by the Company that is a clearing agency registered under the Exchange Act.

     “Event of Default” has the meaning assigned to it in Section 7.1.

     “Euroclear” means Euroclear Bank S.A./N.V., as operator of the Euroclear System.

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

     “Global Note” means any Note issued in fully-registered book-entry form to DTC (or its nominee), which shall be substantially in the form of Exhibit A, with appropriate legends as specified in Section 2.7 and Exhibit A.

3

     “Group” means, together, the Guarantor and its Subsidiaries, including the Company.

     “Guarantees” mean the unconditional and irrevocable guarantees of the payment of the principal of, any premium or interest on, and any Additional Amounts with respect to, each series of the Notes by the Guarantor, as more fully set forth in Article XI.

     “Guarantor” means the party named as such in the introductory paragraph to this Indenture and its successors and assigns, including any Successor Guarantor that becomes such in accordance with Article V.

     “Holder” means the Person in whose name a Note is registered in the Note Register.

     “IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board.

     “Indenture” means this Indenture as amended or supplemented from time to time.

     “Independent Investment Banker” means one of the Reference Treasury Dealers selected by the Trustee in consultation with the Company and the Guarantor.

     “Interest Payment Date” means May 17 and November 17 in each year, commencing on November 17, 2010 and ending on the relevant Maturity Date.

     “Investment Grade Rating” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s and BBB- (or the equivalent) by S&P, and the equivalent investment grade credit rating from any additional rating agency or rating agencies selected by the Company.

     “Issue Date” means May 17, 2010.

     “Issue Date Notes” means the Notes originally issued on the Issue Date, and any replacement Notes issued therefor in accordance with this Indenture.

     “Lien” has the meaning assigned to it in Section 3.9.

     “Material Company” means any Subsidiary of the Guarantor: (a) whose unconsolidated profits (before interest, taxation and non-operating items) are more than 5% of consolidated profits of the Guarantor and its Subsidiaries (before interest, taxation and non-operating items); or (b) whose external turnover is more than 3% of the consolidated turnover of the Group, all as shown (in the case of any Subsidiary) in the accounts used for preparing the Group consolidation in the most recent annual consolidated financial statements of the Group. If a Subsidiary (other than the Issuer) which is not a Material Company on the basis of the most recent such accounts receives a transfer of assets or the right to receive any trading profits or turnover which, taken together with the existing trading profits, assets or, as the case may be, turnover of that Subsidiary, would satisfy any test in (i) or (ii) above, then that Subsidiary shall also be a Material Company on and from the date it receives such transfer. If a Material Company disposes of any assets or the right to receive any trading profits or turnover such that it would on the basis of the most recent such accounts cease to be a Material Company, then it shall be excluded as a Material Company on and from the date of such disposal. The term “Material Company” shall also include the Company.

     “Maturity Date” means May 17, 2016.

     “Moody’s” means Moody’s Investor Service Inc.

     “Non-U.S. Person” means a person who is not a U.S. person, as defined in Regulation S under the Securities Act.

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     “Note Register” has the meaning assigned to it in Section 2.3(a).

     “Noteholder Meeting” means a meeting of Holders of Outstanding Notes.

     “Notes” has the meaning assigned to it in the preamble hereto.

     “Obligor” in respect of the Notes means the Company, the Guarantor and any other obligor in respect of the Notes.

     “Officer” means, when used in connection with any action to be taken by the Company or the Guarantor, as the case may be, the Chairman of the Board, the Chief Executive Officer, any executive Director of the Company or the Guarantor, as the case may be, or any person authorized by the Board of Directors of the Company or the Guarantor, as the case may be, (such authorization to be evidenced in writing and delivered to the Trustee) to act as representative of such persons.

     “Officers’ Certificate” means, when used in connection with any action to be taken by the Company or the Guarantor, as the case may be, a certificate signed by an Officer or Officers of the Company or the Guarantor, as the case may be, that complies with the requirements of Section 10.4 and is delivered to the Trustee.

     “Opinion of Counsel” means a written opinion of counsel for the Company or the Guarantor, as the case may be, who may be an employee of or counsel for the Company or the Guarantor, as the case may be.

     “Optional Redemption” has the meaning assigned to it in Section 6.2.

     “Optional Tax Redemption” has the meaning assigned to it in Section 6.1.

     “Outstanding” means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except:

     (i) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;

     (ii) Notes, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company or the Guarantor) in trust or set aside and segregated in trust by the Company or the Guarantor (if the Company shall act as, or shall authorize the Guarantor to act as, Paying Agent) for the Holders of Notes; provided that, if the Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and

     (iii) Notes which have been surrendered pursuant to Section 2.9 or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, other than any such Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Notes are held by a bona fide purchaser in whose hands such Notes are valid obligations of the Company;

provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Notes of a series have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company, the Guarantor or any other obligor upon the Notes or any Affiliate of the Company, the Guarantor or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which a Trust Officer of the Trustee actually knows to be so owned shall be so disregarded.

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Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Notes and that the pledgee is not the Company, the Guarantor or any other obligor upon the Notes or any Affiliate of the Company, the Guarantor or of such other obligor.

     “Paying Agent” has the meaning assigned to it in Section 2.3(a).

     “Person” means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof, or any other entity.

     “Place of Payment” means, with respect to a Note, the place or places where the principal of, any premium and interest on, and any Additional Amounts with respect to, the Notes are payable as specified in the Notes.

     “Private Placement Legend” has the meaning assigned to it in Section 2.7.

     “Purchase Agreement” means the purchase agreement, dated as of May 10, 2010, among the Company, the Guarantor and Banc of America Securities LLC, J.P. Morgan Securities Inc. and RBS Securities Inc. as initial purchasers.

     “QIB” means any “qualified institutional buyer” (as defined in Rule 144A under the Securities Act).

     “Qualified Majority” means the holders of a majority of the aggregate principal amount of the applicable series of Notes.

     “Rating Agencies” means (1) each of Moody’s and S&P; and (2) if either Moody’s or S&P ceases to rate the Notes or fails to make a rating of the Notes publicly available for reasons outside the control of the Company and the Guarantor, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act selected by the Company or the Guarantor (as certified by a resolution of the Board of Directors of the Company or the Guarantor) as a replacement agency for Moody’s or S&P, or both of them, as the case may be.

     “Rating Event” means the rating on the notes is lowered by each of the Rating Agencies and the Notes are rated below an Investment Grade Rating by each of the Rating Agencies on any day during the period commencing 60 days prior to the first public announcement by the Guarantor of any Change of Control (or pending Change of Control) and ending 60 days following the consummation of such Change of Control (which period will be extended following consummation of a Change of Control for so long as any of the Rating Agencies has publicly announced that it is considering a possible ratings change).

     “Record Date” means any of the dates indicated under the heading “Record Dates” on the face of any of the Global Notes.

     “Redemption Date” means, with respect to any redemption of the Notes of such series, the date of redemption with respect thereto.

     “Reference Treasury Dealer” means Banc of America Securities LLC, J.P. Morgan Securities Inc. and RBS Securities Inc. If any Reference Treasury Dealer ceases to be a primary U.S. government securities dealer, the Company will substitute another primary U.S. government securities dealer for that dealer and so advise the Trustee.

     “Reference Treasury Dealer Quotations” means, with respect to any Redemption Date, the average, as determined by the Calculation Agent, of the bid and asked prices for the Comparable

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Treasury Issue (expressed in each case as a percentage of its principal amount) quoted to the Calculation Agent by that Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding the Redemption Date.

     “Registrar” has the meaning assigned to it in Section 2.3(a).

     “Regulation S” means Regulation S under the Securities Act or any successor regulation.

     “Regulation S Global Note” has the meaning assigned to it in Section 2.1(e).

     “Relevant Date” means, in relation to any Note, the later of (a) the date on which the payment of an Additional Amount in question first becomes due, and (b) if the full amount of the monies payable has not been duly received in New York by the Paying Agent on or prior to such due date, Relevant Date means the date on which the full amount of such monies have been so received, provided notice to that effect is duly given to the Holders of the Notes in the manner set forth in Section 12.2.

     “Relevant Indebtedness” means any indebtedness for borrowed money which is in the form of, or represented or evidenced by, bonds, notes, debentures, loan stocks, depositary receipts or other securities issued otherwise than to constitute or represent advances made by banks and/or other lending institutions; and at its date of issue is, or is intended by the Company or the Guarantor to become, quoted or listed on or by, or dealt in or traded on, any stock exchange, over-the-counter market or other organized securities market (whether or not initially distributed by means of private placement).

     “Resale Restriction Termination Date” means, (i) for any Restricted Note (or beneficial interest therein) sold pursuant to Rule 144A, one year (or such other period specified in Rule 144 under the Securities Act) from the Issue Date or, if any Add On Notes that are Restricted Notes have been issued before the Resale Restriction Termination Date for any Restricted Notes, from the latest such original issue date of such Add On Notes and (ii) for any Restricted Note sold pursuant to Regulation S, 40 days after the later of the Issue Date with respect to the Restricted Note and the day on which such Restricted Notes are offered to persons other than distributors (as defined in Regulation S).

     “Restricted Note” means each Issue Date Note and each related Add On Note until the Resale Restriction Termination Date with respect thereto.

     “Rule 144” means Rule 144 under the Securities Act (or any successor rule).

     “Rule 144A” means Rule 144A under the Securities Act (or any successor rule).

     “Rule 144A Global Note” has the meaning assigned to it in Section 2.1(d).

     “S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc.

     “Savings Directive” has the meaning ascribed to it in Section 2.3(e).

     “SEC” means the United States Securities and Exchange Commission.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Special Record Date” has the meaning assigned to it in Section 2.12.

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     “Subsidiary” means one of the Guarantor’s subsidiaries within the meaning of Section 1159 of the United Kingdom Companies Act 2006, as modified or re-enacted from time to time, and any orders or regulations made under that Section.

     “Successor Company” has the meaning assigned to it in Section 5.1(a).

     “Successor Guarantor” has the meaning assigned to it in Section 5.2(a).

     “Tax-Free Exchange” means that, in connection with any proposed transfer and assumption of indebtedness under either series of Notes of the type envisaged by Article IV of this Indenture, (i) no gain or loss will be recognized by Holders of such Notes for United States federal income tax purposes and no capital gain will arise for United Kingdom tax purposes as a direct result of such transfer; (ii) no transfer or similar taxes will be imposed on Holders of such Notes under the laws of the United States or the United Kingdom as a direct result of such transfer; and (iii) such series of Notes will continue to be classified as debt and will not be classified as equity for United States federal income tax purposes.

     “Taxes” has the meaning assigned to it in Section 3.7.

     “TIA” or “Trust Indenture Act” means the Trust Indenture Act of 1939, as amended, as in effect on the date of this Indenture (except as otherwise provided in this Indenture).

     “Transferee Company” has the meaning assigned to it in Section 4.1.

     “Treasury Rate” means, with respect to any Redemption Date for Optional Redemption:

          (a) the yield for the maturity corresponding to the Comparable Treasury Issue under the heading that represents the average for the immediately preceding week, appearing in the most recently published statistical release designated “H.15(519)” or any successor publication that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” provided, that if no maturity is within three months before or after the relevant Maturity Date for the Notes being redeemed the yields for the two published maturities most closely corresponding to the Comparable Treasury Issue will be determined and the Treasury Rate shall be interpolated or extrapolated from those yields on a straight line basis, rounding to the nearest month; or

          (b) if the release referred to in (a) (or any successor release) is not published during the week preceding the calculation date or does not contain the yields referred to above, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for that Redemption Date, as calculated on the third Business Day preceding the Redemption Date.

     “Trustee” means the Person named as such in the introductory paragraph of this Indenture until a successor replaces it in accordance with the terms of this Indenture and, thereafter, means the successor.

     “Trust Officer” means, when used with respect to the Trustee, any vice president, assistant vice president, assistant treasurer, trust officer or any other officer of such Trustee customarily performing corporate trust functions on behalf of the Trustee and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such person’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.

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     “U.S. Government Securities” means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer’s option.

     “U.S. dollars” and “U.S.$” mean the lawful currency of the United States of America that as at the time of payment shall be legal tender for the payment of public and private debts.

     “Voting Stock” means, with respect to any specified Person as of any date, the capital stock of such person that is at the time entitled to vote generally in the election of the board of directors of such Person.

     All TIA terms used in this Indenture that are defined by the TIA, defined in the TIA by reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.

     Section 1.2 Rules of Construction. Unless the context otherwise requires:

          (a) a term has the meaning assigned to it in this Indenture;

          (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with IFRS;

          (c) “or” is not exclusive;

          (d) “including” means including without limitation;

          (e) words in the singular include the plural and words in the plural include the singular;

          (f) references to the payment of principal of any Notes shall include applicable premium, if any;

          (g) references to payments of interest on any Notes shall include Additional Amounts pursuant to Section 3.7, if any; and

          (h) references to England or to English law shall be deemed to be a reference to the jurisdiction of incorporation of the Company and the Guarantor or the law of the jurisdiction of incorporation of the Company or the Guarantor in the event the Company or the Guarantor, as the case may be, is no longer incorporated under the laws of England.

ARTICLE II

THE NOTES

     Section 2.1 Form and Dating.

          (a) The Notes shall be issued under this Indenture in accordance with the requirements of the Purchase Agreement. The Notes will be issued in fully-registered global form without coupons, and only in denominations of U.S.$100,000 and integral multiples of U.S.$1,000 in excess thereof. The Notes and the Trustee’s certificate of authentication shall be substantially in the form of Exhibit A.

          (b) The terms and provisions of the Notes shall constitute, and are hereby expressly made, a part of this Indenture and each of the Company and the Guarantor, by execution and delivery of this Indenture, expressly agrees to such terms and provisions and to be bound thereby.

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In the event of an inconsistency between the terms of the Notes set forth in Exhibit A and other terms of this Indenture, the terms set forth in any part of this Indenture other than in Exhibit A shall govern. Except as otherwise expressly permitted in this Indenture, all Notes shall be identical in all respects. Notwithstanding any differences among them, all Notes shall vote and consent together on all matters as one class.

          (c) The Notes may have notations, legends or endorsements as specified in Section 2.7 or as otherwise required by law, stock exchange rule, DTC rule or usage and as delivered by the Company in writing to the Trustee. The Company and the Trustee shall approve the forms of Notes and any notation, legend or endorsement on them. Each Note shall be dated the date of its authentication.

          (d) Notes originally offered and sold to QIBs in reliance on Rule 144A will be initially issued in the form of one or more permanent Global Notes (each, a “Rule 144A Global Note”).

          (e) Notes originally offered and sold outside the United States of America in accordance with Regulation S under the Securities Act will be initially issued in the form of one or more permanent Global Notes (each, a “Regulation S Global Note”).

     Section 2.2 Execution and Authentication.

          (a) Any Officer shall sign the Notes for the Company, which may be via facsimile. If an Officer whose signature is on a Note no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless.

          (b) A Note shall not be valid or enforceable unless and until an authorized signatory of the Trustee, upon Company Order, authenticates the Note substantially in the form of the Trustee’s certificate of authentication provided for in Section 2.2(d) hereof. The signature of the Trustee on a Note shall be conclusive evidence that such Note has been duly and validly authenticated and issued under this Indenture.

          (c) At any time and from time to time after the execution and delivery of this Indenture, the Trustee shall authenticate and make available for delivery Notes upon a written order of the Company signed by an Officer (the “Company Order”). A Company Order shall specify the amount of the Notes to be authenticated and the date on which the original issue of Notes is to be authenticated.

          (d) The Trustee may appoint an agent or agents with respect to the Notes which shall be authorized to act on behalf of the Trustee to authenticate Notes issued upon original issue and upon exchange, registration of transfer or partial conversion or partial redemption thereof or pursuant to Section 6.8 (an “Authenticating Agent”), and Notes so authenticated shall be entitled to the benefits of this Indenture and shall be valid and enforceable for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Notes by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and the Guarantor and shall at all times be either (i) a branch of the Trustee or (ii) a Person organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than U.S.$50,000,000 and subject to supervision or examination by any federal or state authority in the United States. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital

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and surplus as set forth in its most recent reports of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.

     Any Person into which an Authenticating Agent may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which such Authenticating Agent shall be a party, or any Person succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent, provided such Person shall be otherwise eligible under this Section.

     An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee; to the Company and the Guarantor. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent, the Company and the Guarantor. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and the Guarantor and shall give notice of such appointment in the manner provided in Section 12.2 to all Holders of Notes with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.

     Each of the Company and the Guarantor agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Indenture.

     If an appointment is made pursuant to this Section, the Notes of a series may have endorsed thereon, in addition to the Trustee’s certificate of authentication, an alternative certificate of authentication in the following form:

“This is one of the Notes referred to in the within-mentioned Indenture.

The Bank of New York Mellon acting through its London Branch, as Trustee
By:
	as Authenticating Agent
By:
	Authorized Signatory

     Date: ___________________”

     If any of the Notes may not be originally issued at one time, and if the Trustee does not have an office capable of authenticating Notes upon original issuance located in a Place of Payment where the Company wishes to have Notes authenticated upon original issuance, the Trustee, if so requested by the Company in writing (which writing need not be an Officers’ Certificate or be accompanied by an Opinion of Counsel), shall appoint in accordance with this Section an Authenticating Agent having an office in a Place of Payment designated by the Company with respect of such Notes.

          (e) In case the Company:

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     (i) shall be consolidated with or merged into any other Person,

     (ii) shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety, or

     (iii) shall transfer its obligations in respect of the Notes in accordance with Articles IV or V of this Indenture.

and the Successor Company or Transferee Company, as the case may be, resulting from such consolidation, or surviving such merger, or which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall assume the rights, responsibilities and obligations of the Company pursuant to Article IV or Article V, as the case may be, any of the Notes authenticated or delivered prior to such transaction may, from time to time, at the request of the Successor Company or Transferee Company, as the case may be, be exchanged for other Notes executed in the name of the Successor Company or Transferee Company, as the case may be, with such changes in phrasing and form as may be appropriate (but which shall not affect the rights or duties of the Trustee), but otherwise identical to the Notes surrendered for such exchange and of like principal amount; and the Trustee, upon Company Order of the Successor Company or Transferee Company, as the case may be, shall authenticate and deliver Notes as specified in such order for the purpose of such exchange. If Notes shall at any time be authenticated and delivered in any new name of a Successor Company or Transferee Company, as the case may be, pursuant to this Section 2.2 in exchange or substitution for or upon registration of transfer of any Notes, such Successor Company or Transferee Company, as the case may be, at the option of the Holders of Notes but without expense to them, shall provide for the exchange of all Notes at the time Outstanding for Notes authenticated and delivered in such new name.

     Section 2.3 Registrar and Paying Agent; Calculation Agent.

          (a) The Company shall (and the Guarantor shall cause the Company to) cause to be maintained an office or agency in the Borough of Manhattan, City of New York, where Global Notes and Certificated Notes, if applicable, may be presented for registration of transfer or for exchange (a “Registrar”), for the service of notices and demands to or upon the Company and the Guarantor in respect of the Notes and this Indenture, and where Notes may be presented for payment (a “Paying Agent”). The Registrar shall keep a register of the Global Notes and Certificated Notes, if applicable, and of their transfer and exchange (the “Note Register”) and shall maintain such Note Register outside the United Kingdom on behalf of the Company and the Guarantor. The Company may have one or more co-Registrars and one or more additional Paying Agents. The term “Paying Agent” includes any additional Paying Agent. The Company and the Guarantor shall inform the Trustee in writing of any appointment or payment with respect to the Notes or the Guarantees made to any Paying Agent or co-Registrar.

          (b) The Company and the Guarantor shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-Registrar not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company and the Guarantor shall notify the Trustee in writing of the name and address of each such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.7. The Company may act as, or may authorize the Guarantor to act as, Paying Agent, Registrar, co-Registrar or transfer agent.

          (c) The Company initially appoints the Trustee at its Corporate Trust Office as Registrar and Paying Agent, until such time as another Person is appointed as such.

          (d) The Company initially appoints the Trustee as Calculation Agent. For so long as any Notes are Outstanding, the Company shall maintain a Calculation Agent.

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          (e) The Company will ensure that it maintains a paying agent in a Member State of the European Union that will not be obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC (the “Savings Directive”).

     Section 2.4 Paying Agent to Hold Money in Trust. The Company and the Guarantor shall require each Paying Agent (other than the Trustee) to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by such Paying Agent for the payment of principal of or interest on the Notes and shall notify the Trustee in writing of any Default by the Company or the Guarantor in making any such payment. If the Company, the Guarantor or an Affiliate of the Company or the Guarantor acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust account. The Company and the Guarantor at any time may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon complying with this Section 2.4, the Paying Agent (if other than the Company or the Guarantor) shall have no further liability for the money delivered to the Trustee. Upon any proceeding under any Bankruptcy Law with respect to the Company, the Guarantor or any Affiliate of the Company or the Guarantor, if the Company, the Guarantor or such Affiliate is then acting as Paying Agent, the Trustee shall replace the Company, the Guarantor or such Affiliate as Paying Agent.

     Section 2.5 Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders of Notes. If the Trustee is not the Registrar, or to the extent otherwise required under the TIA, the Company shall furnish to the Trustee, in writing at least seven Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders of Notes.

     Every Holder of Notes, by receiving and holding the same, agrees with the Company, the Guarantor and the Trustee that none of the Company, the Guarantor, the Trustee or any agent of any of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act.

     Section 2.6 Global Note Provisions.

          (a) Each Global Note initially shall (i) be registered in the name of DTC or the nominee of DTC and (ii) bear the appropriate legend, as set forth in Section 2.7 and Exhibit A. The Notes may be represented by one or more Global Notes. The aggregate principal amount of each Global Note may from time to time be increased or decreased by adjustments made on the records of the Paying Agent, as provided in this Indenture.

          (b) Members of, or participants in, DTC (“Agent Members”) shall have no rights under this Indenture with respect to any Global Note held on their behalf by DTC and DTC may be treated by the Company, the Guarantor, the Trustee, the Paying Agent and the Registrar and any of their agents as the absolute owner and Holder of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Guarantor, the Trustee, the Paying Agent or the Registrar or any of their agents from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices of DTC governing the exercise of the rights of an owner of a beneficial interest in any Global Note. The Holder of a Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action that a Holder is entitled to take under this Indenture or the Notes.

          (c) Except as provided below, owners of beneficial interests in Global Notes will not be entitled to receive Certificated Notes. Certificated Notes shall be issued to all owners of beneficial interests in a Global Note in exchange for such interests if:

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     (i) DTC, as depositary for the Global Notes, has discontinued providing its services as a securities depositary and the Company fails to appoint a successor within 90 days of notice of the foregoing or if DTC or any successor depositary ceases to be a clearing agency registered under the Exchange Act, at a time when DTC or such successor depositary is required to be so registered in order to act as depositary and a successor securities clearing system with respect to such Global Note is not appointed by the Company within 90 days of such notice, or

     (ii) an Event of Default has occurred and is continuing with respect to the Notes of such series and the Registrar has received a written request from the Holder of the Global Note.

In connection with the exchange of an entire Global Note for Certificated Notes pursuant to this paragraph (c), such Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and upon Company Order the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary for such Global Note in exchange for its beneficial interest in such Global Note, an equal aggregate principal amount of Certificated Notes of the same series in authorized denominations.

          (d) In connection with the exchange of a portion of a Certificated Note for a beneficial interest in a Global Note, the Trustee shall cancel such Certificated Note, and the Company shall execute, and upon Company Order the Trustee shall authenticate and deliver to the exchanging Holder, a new Certificated Note representing the principal amount not so exchanged.

     Section 2.7 Legends.

     Each Global Note shall bear the applicable legend or legends specified therefor in Exhibit A on the face thereof (the “Private Placement Legend”).

     Section 2.8 Transfer and Exchange.

          (a) If (1) the owner of a beneficial interest in a Rule 144A Global Note wishes to transfer such interest (or portion thereof) to a Non-U.S. Person pursuant to Regulation S and (2) such Non-U.S. Person wishes to hold its interest in the Notes through a beneficial interest in a Regulation S Global Note, (x) upon receipt by the Registrar of:

               (A) written instructions from the Holder of the Rule 144A Global Note directing the Registrar to credit or cause to be credited a beneficial interest in the Regulation S Global Note equal to the principal amount of the beneficial interest in the Rule 144A Global Note to be transferred, and

               (B) a certificate in the form of Exhibit D from the transferor,

and (y) subject to the rules and procedures of DTC with respect to the Rule 144A and the Regulation S Global Note, the Registrar shall increase the applicable Regulation S Global Note and decrease the related Rule 144A Global Note by such amount in accordance with the foregoing.

          (b) If the owner of an interest in a Regulation S Global Note wishes to transfer such interest (or any portion thereof) to a QIB pursuant to Rule 144A prior to the expiration of the Distribution Compliance Period therefor, (x) upon receipt by the Registrar of:

               (A) written instructions from the Holder of the Regulation S Global Note directing the Registrar to credit or cause to be credited a beneficial interest in the Rule 144A Global Note equal to the principal amount of the beneficial interest in the Regulation S Global Note to be transferred, and

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               (B) a certificate in the form of Exhibit C duly executed by the transferor,

and (y) in accordance with the rules and procedures of DTC with respect to the Rule 144A and the Regulation S Global Note, the Registrar shall increase the applicable Rule 144A Global Note and decrease the related Regulation S Global Note by such amount in accordance with the foregoing.

          (c) Certificated Notes, if issued, may be exchanged or transferred in whole or in part in the principal amount of authorized denominations by surrendering such Certificated Notes at the Corporate Trust Office or the office of a Paying Agent with a written instrument of transfer as set forth in Exhibit A duly executed by the Holder thereof or its attorney duly authorized in writing. In exchange for any Certificated Note properly presented for exchange or transfer, the Trustee will promptly, upon Company Order, authenticate and deliver or cause to be authenticated and delivered at the Corporate Trust Office of the Trustee, to the Holder entitled to such Certificated Note, or send by mail (at the risk of such Holder) to such address as such Holder may request in writing, a Certificated Note or Notes. The costs and expenses of effecting any exchange or transfer pursuant to this paragraph will be borne by the Company and the Guarantor, except that the expense of delivery by other than regular mail (if any) and the payment of a sum sufficient to cover any tax or other government charges or insurance that may be imposed in relation thereto, will be borne solely by the Holder requesting such transfer or exchange. Any transfer or exchange by a Holder of a Certificated Note must occur in accordance with applicable law.

          (d) Any transfer of Restricted Notes not described above (other than a transfer of a beneficial interest in a Global Note that does not involve an exchange of such interest for a Certificated Note or a beneficial interest in another Global Note, which must be effected in accordance with applicable law and the rules and procedures of DTC with respect to a Restricted Note, but is not subject to any procedure required by this Indenture) shall be made only upon receipt by the Registrar of such Opinions of Counsel, certificates and/or other information reasonably required to ensure compliance with the Securities Act or in accordance with paragraph (e) of this Section 2.8.

          (e) Upon the transfer, exchange or replacement of Notes (or beneficial interests in a Global Note) not bearing a Private Placement Legend, the Registrar shall exchange such Notes (or beneficial interests) for beneficial interests in a Global Note of the same series (or Certificated Notes of the same series if they have been issued pursuant to Section 2.6(d)) that does not bear a Private Placement Legend. Upon the transfer, exchange or replacement of Notes (or beneficial interests in a Global Note) bearing a Private Placement Legend, the Registrar shall deliver only Notes of the same series (or beneficial interests in a Global Note of the same series) that bear a Private Placement Legend unless:

     (i) such Notes (or beneficial interests) are transferred pursuant to Rule 144 upon delivery to the Registrar of a certificate of the transferor in the form of Exhibit E and an Opinion of Counsel;

     (ii) such Notes (or beneficial interests) are transferred, replaced or exchanged after the Resale Restriction Termination Date therefor; or

     (iii) in connection with such transfer, exchange or replacement the Registrar shall have received an Opinion of Counsel and other evidence reasonably requested by it to the effect that neither such Private Placement Legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act.

The Private Placement Legend on any Note shall be removed at the written request of the Holder on or after the Resale Restriction Termination Date and the Trustee receiving written notice of the Resale Restriction Termination Date thereof. The Holder of a Global Note may exchange an interest therein for an equivalent interest in a Global Note of the same series not bearing a Private Placement Legend

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(other than a Regulation S Global Note) upon transfer of such interest pursuant to any of clauses (i) through (iii) of this paragraph (e).

     (f) The Registrar shall retain copies of all letters, notices and other written communications received pursuant to this Article II. The Company and the Guarantor shall have the right to inspect and make copies of all such letters, notices or other written communications during the Registrar’s normal business hours upon the giving of reasonable written notice to the Registrar.

     (g) (i) Subject to the other provisions of this Section 2.8, when Notes are presented to the Registrar or a co-Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of the same series in other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided that any Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument in the form of Exhibit B, C or D, as applicable, to the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfers and exchanges and subject to the other terms and conditions of this Article II, the Company will execute and upon Company Order the Trustee will authenticate Certificated Notes and Global Notes.

          (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charges payable upon exchange or transfer pursuant to Article V or Section 6.8 or Section 10.5).

          (iii) The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Note for a period beginning: (1) 15 days before the mailing of a notice of an offer to repurchase or redeem Notes and ending at the close of business on the day of such mailing or (2) 15 days before an Interest Payment Date and ending on such Interest Payment Date.

          (iv) Prior to the due presentation for registration of transfer of any Note, the Company, the Guarantor, the Trustee, the Paying Agent, the Registrar or any co-Registrar and any agent of any of them may deem and treat the Person in whose name a Note is registered as the absolute owner and Holder of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Company, the Guarantor, the Trustee, the Paying Agent, the Registrar or any co-Registrar and any agent of any of them shall be affected by notice to the contrary.

          (v) All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange.

          (h) The Trustee shall have no responsibility or obligation to and shall not incur any liability with respect to any beneficial owner of an interest in a Global Note, a member of, or a participant in, DTC or any other Person with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than DTC) of any notice (including any notice of redemption) or the payment of any amount or delivery of any Notes (or other security or property) under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders in respect of the Notes shall be given or made only to or upon the order of the registered Holders (which shall be DTC or its nominee in the case of a Global Note). The Trustee may rely and shall be fully authorized

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and protected in relying upon information furnished by DTC with respect to its members, participants and any beneficial owners.

          (i) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among DTC participants, members or beneficial owners in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

     Section 2.9 Mutilated, Destroyed, Lost or Stolen Notes.

          (a) If a mutilated Note is surrendered to the Paying Agent in New York City or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company shall execute and upon Company Order the Trustee shall authenticate a replacement Note of the same series if such Holder shall furnish an affidavit of loss and indemnity bond sufficient in the judgment of the Company, the Guarantor and the Trustee to protect the Company, the Guarantor, the Trustee, the Paying Agent, the Registrar and any co-Registrar from any loss that any of them may suffer if a Note is replaced, and, in the absence of notice to the Company, the Guarantor or the Trustee that such Note has been acquired by a bona fide purchaser, the Company and the Guarantor shall execute and upon Company Order the Trustee shall authenticate and make available for delivery, in exchange for any such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note of the same principal amount, bearing a number not contemporaneously Outstanding.

          (b) Upon the issuance of any new Note under this Section 2.9, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Trustee, its agents and counsel) in connection therewith.

          (c) Every new Note issued pursuant to this Section 2.9 in exchange for any mutilated Note, or in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, the Guarantor and any other obligor upon the Notes, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder.

     Section 2.10 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel and dispose of cancelled Notes in accordance with its policy of disposal. The Company may not issue new Notes to replace Notes it has paid or delivered to the Trustee for cancellation for any reason other than in connection with a transfer or exchange upon Company Order.

     Section 2.11 Add On Notes.

          (a) The Company may, from time to time, subject to compliance with any other applicable provisions of this Indenture, without the consent of the Holders, create and issue pursuant to this Indenture additional notes (“Add On Notes”) having terms and conditions identical to those of Outstanding Notes issued under this Indenture, except that Add On Notes:

     (i) may have a different issue date from such other Outstanding Notes;

     (ii) may have a different amount of interest payable on the first Interest Payment Date after issuance than is payable on such other Outstanding Notes; and

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     (iii) may have terms specified in the Add On Note Board Resolution or Add On Note Supplemental Indenture for such Add On Notes making appropriate adjustments to this Article II and Exhibit A (and related definitions), applicable to such Add On Notes in order to conform to and ensure compliance with the Securities Act (or other applicable securities laws) which are not adverse in any material respect to the Holder of any such Outstanding Notes (other than such Add On Notes) and which shall not affect the rights or duties of the Trustee.

          (b) In authenticating any Add On Notes, and accepting the additional responsibilities under this Indenture in relation to such Add On Notes, the Trustee shall be provided with, and shall be fully protected in relying upon:

     (i) Company Order;

     (ii) the Add On Note Board Resolutions or Add On Note Supplemental Indenture relating thereto;

     (iii) an Officers’ Certificate with respect to the Company complying with Section 12.4; and

     (iv) an Opinion of Counsel for the Company complying with Section 12.4 stating,

     (A) that the forms of such Notes have been established by or pursuant to Add On Note Board Resolutions or by an Add On Note Supplemental Indenture, as permitted by this Section 2.11 and in conformity with the provisions of this Indenture;

     (B) the terms of such Notes have been established by or pursuant to Add On Note Board Resolutions or by an Add On Note Supplemental Indenture, as permitted by this Section 2.11 and in conformity with the provisions of this Indenture;

     (C) that such Notes, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any customary conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company and the Guarantor entitled to the benefits provided in the Indenture, enforceable in accordance with their respective terms, except to the extent that the enforcement of such obligations may be subject to bankruptcy laws or insolvency laws or other similar laws, general principles of equity and such other qualifications as such counsel shall conclude are customary or do not materially affect the rights of the Holders of such Notes;

     (D) that all laws and requirements in respect of the execution and delivery of the Notes have been complied with; and

     (E) such other matters as the Trustee may reasonably request.

     (v) an Opinion of Counsel for the Guarantor complying with Section 12.4 stating that the Guarantee with respect to the Add On Notes, when such Add On Notes are issued, authenticated and delivered, will constitute a valid and legally binding obligation of the Guarantor, enforceable in accordance with its terms, except to the extent that the enforcement of such obligation may be subject to bankruptcy laws or insolvency laws or other similar laws, general principles of equity and such other qualifications as such counsel shall conclude are customary or do not materially affect the rights of the Holders of such Notes.

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          (c) If such forms or terms have been so established by or pursuant to Add On Note Board Resolutions or an Add On Note Supplemental Indenture, the Trustee shall have the right to decline to authenticate and deliver any Notes:

     (i) if the Trustee, being advised by counsel, determines that such action may not lawfully be taken;

     (ii) if the Trustee by its committee of Trust Officers in good faith determines that such action would expose the Trustee to personal liability to Holders of any Outstanding Notes of the same series; or

     (iii) if the issue of such Add On Notes pursuant to this Indenture will affect the Trustee’s own rights, duties and immunities under the related Notes and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee.

     Notwithstanding anything in this Section 2.11, the Company may not issue Add On Notes if an Event of Default shall have occurred and be continuing.

     Section 2.12 Defaulted Interest

     If the Company defaults in a payment of interest on the Notes, the Company or the Guarantor shall pay the defaulted amounts to the persons who are Holders thereof on a subsequent special record date (the “Special Record Date”). The Company or the Guarantor shall fix the Special Record Date and payment date in a manner satisfactory to the Trustee and provide the Trustee at least 20 days notice of the proposed date. At least 15 days before the Special Record Date, the Company or the Guarantor shall mail or cause to be mailed to Holder at its address as it appears on the Notes Register maintained by the Registrar a notice that states the Special Record Date, the payment date (which shall be not less than five nor more than ten days after the Special Record Date), and the amount to be paid. In lieu of the foregoing procedures, the Company or the Guarantor may pay defaulted interest in any other lawful manner satisfactory to the Trustee.

     Section 2.13 CUSIP Numbers

     The Company in issuing the Notes may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the “CUSIP” numbers.

ARTICLE III

COVENANTS

     Section 3.1 Payment of Notes.

          (a) The Company shall pay the principal of and interest on the Notes in U.S. dollars on the dates and in the manner provided in the Notes and in this Indenture. On or prior to 10:00 a.m. local time in the Place of Payment on each Interest Payment Date and the relevant Maturity Date, the Company shall deposit or have deposited with the Paying Agent in the Place of Payment with respect to such Notes immediately available U.S. dollar funds sufficient to make cash payments due on such Interest Payment Date or relevant Maturity Date, as the case may be. If the Company, the Guarantor or an Affiliate of the Company is acting as Paying Agent, the Company, the Guarantor or such Affiliate shall, prior to 10:00 a.m. local time in the Place of Payment with respect

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to the Notes on each Interest Payment Date and the relevant Maturity Date, segregate and hold in trust U.S. dollar funds sufficient to make cash payments due on such Interest Payment Date or relevant Maturity Date, as the case may be, with respect to the Notes. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent (other than the Company, the Guarantor or an Affiliate of the Company) holds in accordance with this Indenture U.S. dollar funds designated for and sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Holders of Notes on that date pursuant to the terms of this Indenture.

          (b) Each Paying Agent shall notify the Trustee promptly in writing when it has received from the Company payment of the principal and/or interest on the Notes with respect to each Interest Payment Date and/or relevant Maturity Date.

          (c) Notwithstanding anything to the contrary contained in this Indenture, the Company (but without prejudice to the obligations of the Company or the Guarantor to pay Additional Amounts in accordance with a requirement of the Indenture) may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder.

     Section 3.2 Maintenance of Office or Agency.

          (a) The Company shall (and the Guarantor shall cause the Company to) maintain each office or agency required under Section 2.3. The Company will (and the Guarantor shall cause the Company to) give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and each of the Company and the Guarantor hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.

          (b) The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York or London) where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company will (and the Guarantor shall cause the Company to) give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency.

     Section 3.3 Corporate Existence. Subject to Articles IV and V, each of the Company and the Guarantor will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence.

     Section 3.4 Payment of Taxes and Other Claims. Each of the Company and the Guarantor will, and the Guarantor will cause each Material Company to, pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon it or any Material Company or for which it or any of them are otherwise liable, or upon the income, profits or property of it or any Material Company and (ii) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a liability or security interest upon the property of it or any Material Company; provided, however, that it shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which appropriate reserves, if necessary (in the good faith judgment of management the Guarantor), are being maintained in accordance with IFRS or where the failure to effect such payment will not be disadvantageous to the Holders.

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     Section 3.5 Further Instruments and Acts. The Company and the Guarantor will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture.

     Section 3.6 Waiver of Stay, Extension or Usury Laws. Each of the Company and the Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive it from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture. Each of the Company and the Guarantor hereby expressly waives (to the extent that it may lawfully do so) all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

     Section 3.7 Payment of Additional Amounts. The Company shall make all payments of principal and interest in respect of the Notes without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by the United Kingdom or any political subdivision or any authority thereof or therein having power to tax (“Taxes”) with respect to payments of interest and principal on the Notes, unless such withholding or deduction is required by law; provided, however, that if the law of the United Kingdom should require that any payments in respect of the Notes of a series be subject to withholding or deduction with respect to any Taxes imposed or levied by, or on behalf of, such jurisdiction or any authority therein or thereof having power to tax, the Company shall, to the fullest extent then permitted by law, pay such additional amounts as may be necessary in order that the net amounts received by a Holder of Notes of such series after such withholding or deduction shall equal the respective amounts of principal and interest, if any, that would otherwise have been receivable in respect of the Notes of such series in the absence of such withholding or deduction (the “Additional Amounts”); except that no such Additional Amounts shall be payable with respect to any Note of such series presented for payment:

          (a) by or on behalf of a Holder of a Note (including a beneficial owner) who is liable for such Taxes in respect of such Note by reason of such Holder having some connection with the United Kingdom other than the mere holding of such Note;

          (b) where such withholding or deduction could have been avoided by the Holder making a declaration of non-residence or other similar claim for exemption to any authority of or in the United Kingdom;

          (c) where (in the case of a payment of principal or interest on final redemption) the relevant Note is surrendered for payment more than 30 days after the Relevant Date except to the extent that the relevant Holder would have been entitled to such Additional Amounts if such Holder had surrendered the relevant Note on the last day of such period of 30 days;

          (d) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to the Savings Directive or any law implementing or complying with, or introduced in order to conform to, such Directive;

          (e) where such taxes, duties, assessments or governmental charges in respect of such Note are estate, inheritance, gift, excise, sales, transfer, personal property or similar tax; or

          (f) where the relevant Note is surrendered for payment by or on behalf of a Holder who would have been able to avoid such withholding or deduction by presenting the relevant Note to another Paying Agent in a member state of the European Union.

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     If the Company, or its successor, becomes subject at any time to any taxing jurisdiction other than the United Kingdom, references in this Section to the United Kingdom with respect to Additional Amounts shall be construed as references to the United Kingdom and/or such other successor jurisdiction.

     Section 3.8 Offer to Repurchase upon a Change of Control Triggering Event.

     If a Change of Control Triggering Event occurs, unless the Company has exercised its option to redeem the Notes pursuant to Sections 6.1 or 6.2 below, the Company will be required to make an offer (the “Change of Control Offer”) to each Holder of the Notes to repurchase all or any part (equal to $100,000 or an integral multiple of $1,000 in excess thereof) of that Holder’s Notes on the terms set forth in the Notes. In the Change of Control Offer, the Company will be required to offer payment in cash equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest, if any, on the Notes repurchased to the date of repurchase (the “Change of Control Payment”). Within 30 days following any Change of Control Triggering Event or, at the option of the Company, prior to any Change of Control, but after public announcement of the transaction that constitutes or may constitute the Change of Control, the Company will give written notice to the Trustee, in accordance with the procedures set forth in Section 12.2, describing the transaction which constitutes or may constitute the Change of Control Triggering Event and offering to repurchase the Notes on the date specified in such notice, which date will be a date no earlier than 30 days and no later than 60 days from the date such notice is given (the “Change of Control Payment Date”).

     The notice will, if given prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on the Change of Control Triggering Event occurring on or prior to the Change of Control Payment Date.

     On the Change of Control Payment Date, the Company will, to the extent lawful:

          (a) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer;

          (b) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and

          (c) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions of Notes being repurchased.

     The Company will not be required to make a Change of Control offer upon the occurrence of a Change of Control Triggering Event if a third party makes such an offer in the manner, at the times and otherwise in compliance with the requirements for an offer made by the Company and the third party repurchases all Notes properly tendered and not withdrawn under its offer. In addition, the Company will not repurchase any Notes if there has occurred and is continuing on the Change of Control Payment Date an Event of Default under this Indenture, other than a Default in the payment of the Change of Control Payment upon a Change of Control Triggering Event.

     The Guarantor hereby irrevocably and unconditionally guarantees the obligations of the Company to offer to repurchase the Notes as described above. As more fully described in Article XI hereof, the Guarantor further irrevocably and unconditionally guarantees to make payment for any and all Notes properly tendered for payment as described above.

     The Company and Guarantor will comply with the requirements of Rule 14e-1 under the Exchange Act, and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of

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Control Triggering Event. To the extent that the provisions of any such securities laws and regulations conflict with the Change of Control Offer provisions of the Notes, the Company and Guarantor will comply with those securities laws and regulations and will not be deemed to have breached their obligations under the Change of Control Offer provisions of the Notes by virtue of any such conflict.

     Section 3.9 Limitation on Liens.

     So long as any Notes remain outstanding, the Guarantor will not, and will not permit any Material Company to, create, assume or permit to arise or to exist any mortgage, pledge, charge, lien, security interest or other encumbrance (other than a lien or other encumbrance arising by operation of law) (a “Lien”) upon the whole or any part of its present or future property, assets or revenues to secure (i) payment of any Relevant Indebtedness or (ii) payment under any guarantee or indemnity granted by the Guarantor or any Material Company in respect of any Relevant Indebtedness, without in any such case at the same time affording to the Notes the same security as the Lien created or subsisting to secure any such Relevant Indebtedness, guarantee or indemnity or such other security as the Guarantor, by an Officers’ Certificate, shall confirm to the Trustee is not materially less beneficial to the Holders of the Notes or as shall be approved by Holders of a majority in aggregate principal amount of the Outstanding Notes; provided, however, that a Lien existing to secure Relevant Indebtedness of, or in respect of the payment of which there is granted a guarantee or an indemnity by, a Material Company and which Lien existed prior to the time of such Material Company becoming a Subsidiary (other than a Lien created or assumed in contemplation of such company becoming a Subsidiary), shall be permitted and neither the Guarantor nor such Material Company shall be required to extend the security of such Lien to the Holders of the Notes.

     Section 3.10 Reports to Holders.

     At any time when the Company or the Guarantor is not subject to Section 13 or Section 15(d) of the Exchange Act (or is not current in its reporting obligations thereunder nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder), the Guarantor will make available, upon request and at the expense of the Company and the Guarantor, to any Holder and any prospective purchaser of Notes the information required pursuant to Rule 144A(d)(4) under the Securities Act.

ARTICLE IV

TRANSFEREE COMPANY

     Section 4.1 Assumption of Obligations. A limited liability company or corporation that is organized under the laws of the State of Delaware in the United States of America and is legally and beneficially wholly-owned by the Guarantor, directly or indirectly (the “Transferee Company”), may assume the obligations of the Company under a series of Notes and the Indenture without the consent of the Holders thereof, provided that:

          (a) the Transferee Company shall expressly assume by a supplemental indenture all of the obligations of the Company under the Notes of such series and this Indenture;

          (b) such supplemental indenture shall be in a form reasonably satisfactory to the Trustee, shall be duly authorized and executed by the Transferee Company, shall constitute a valid and legally binding agreement of such Transferee Company, and shall be delivered to the Trustee;

          (c) subject to exceptions (a) through (f) in Section 3.7 herein, where references to “United Kingdom” shall be construed as references to “United States,” such Transferee Company shall agree that all payments made by it in respect of principal of, or premium, if any, or interest on, the relevant Notes will be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied,

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collected, withheld or assessed by or on behalf of the United States or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law, and if withholding or deduction is so required, such Transferee Company will pay to each Holder of such Notes such Additional Amounts as may be necessary so that the net amounts paid to such Holder who is not resident for tax purposes in the United States after such deduction or withholding, shall be not less than the amounts specified in such series of Notes to which such Holder is entitled;

          (d) immediately after giving effect to such transfer, no Event of Default with respect to such series of Notes, and no event which, after notice or lapse of time of both, would become an Event of Default with respect to such series of Notes, shall have occurred and be continuing;

          (e) the Guarantor’s obligations under the Guarantees shall remain in full force and effect after the transfer;

          (f) any listing of the Notes on or by any stock exchange or other competent listing authority shall not be cancelled or suspended as a result of such transfer, unless alternative arrangements satisfactory to the affected Holders have been made and a notice with respect to such transfer and assumption of obligations will be given by the Company in accordance with the procedures set forth in Section 12.2 and, to the extent required by applicable law and/or regulations of any stock exchange or competent listing authority on or by which the Notes are then listed, the Company and the Guarantor will prepare and publish such prospectus supplement or other documents describing such transfers and assumptions as may be required;

          (g) the ratings assigned to the relevant Notes shall not be adversely affected as a result of any such transfer, and Moody’s and S&P shall have provided written confirmation to that effect to the Guarantor;

          (h) the Company shall give written notice of such transfer to Holders of the relevant Notes not less than 30 nor more than 60 days prior to the date such transfer shall occur, as set forth in Section 12.2;

          (i) either the Company or the Transferee Company shall have delivered to the Trustee an Opinion of Counsel stating that such transfer shall constitute a Tax-Free Exchange to the Holders affected thereby; and

          (j) the Company and the Guarantor shall each deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel stating that such transfer complies with this Section 4.1 and that all conditions precedent to such transfer have been satisfied.

     Section 4.2 Transferee Company Substituted for Company.

     Upon any assumption in accordance with Section 4.1, the Transferee Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Transferee Company had been named as the Company herein; and thereafter the predecessor shall be released from all obligations and covenants under the relevant series of Notes and this Indenture with respect to the relevant series of Notes.

ARTICLE V

SUCCESSOR COMPANY

     Section 5.1 Consolidation, Merger and Sale of Assets of the Company. The Company may consolidate or merge with or into any other entity and may convey, transfer or lease its property as an entirety or substantially as an entirety to any entity, provided that:

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          (a) the entity (if other than the Company) formed by or resulting from any such consolidation or merger or which shall have received such property (the “Successor Company”) shall expressly assume by a supplemental indenture all of the obligations of the Company under the Notes and this Indenture;

          (b) such supplemental indenture shall be in a form reasonably satisfactory to the Trustee, shall be duly authorized and executed by the Successor Company, shall constitute a valid and legally binding agreement of such Successor Company, and shall be delivered to the Trustee;

          (c) subject to exceptions (a) through (f) in Section 3.7 herein, where references to “United Kingdom” shall be construed as references to the jurisdiction in which the Successor Company is subject to tax, such Successor Company shall agree that all payments made by it in respect of principal of, or premium, if any, or interest on, any series of the Notes will be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the jurisdiction in which such Successor Company is incorporated, or any political subdivision thereof or authority or agency thereof or therein having power to tax, unless such withholding or deduction is required by law or by the official judicial or administrative interpretation thereof, and if withholding or deduction is so required, such Successor Company will pay to each Holder of Notes such Additional Amounts as may be necessary so that the net amounts paid to such Holder who is not resident for tax purposes in the jurisdiction in which such Successor Company is incorporated, after such deduction or withholding, shall be not less than the amounts specified in such Notes to which such Holder is entitled;

          (d) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing with respect to any series of Notes;

          (e) the Guarantor’s obligations under the Guarantees shall remain in full force and effect after the transaction; and

          (f) the Company and the Guarantor shall each deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel stating that (i) such consolidation, merger, conveyance, transfer or lease and supplemental agreement comply with this Article V, (ii) all conditions precedent to such consolidation, merger, conveyance, transfer or lease have been satisfied and (iii) such supplemental indenture constitutes the legal, valid and binding obligation of the Successor Company, subject to the customary exceptions.

     Section 5.2 Consolidation, Merger and Sale of Assets of the Guarantor. The Guarantor may consolidate or merge with or into any other entity and may convey, transfer or lease its property as an entirety or substantially as an entirety to any entity, provided that:

          (a) the entity (if other than the Guarantor) formed by or resulting from any such consolidation or merger or which shall have received such property (the “Successor Guarantor”) shall expressly assume by a supplemental indenture all of the obligations of the Guarantor under the Guarantees and this Indenture;

          (b) such supplemental indenture shall be in form reasonably satisfactory to the Trustee, shall be duly authorized and executed by the Successor Guarantor, shall constitute a valid and legally binding agreement of such Successor Guarantor, and shall be delivered to the Trustee;

          (c) subject to exceptions (a) through (f) in Section 3.7 herein, where references to “United Kingdom” shall be construed as references to the jurisdiction in which the Successor Company is subject to tax, such Successor Guarantor shall agree that all payments made by it under the Guarantees in respect of principal of, or premium, if any, or interest on, any Note will be made

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without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the jurisdiction in which such Successor Guarantor is incorporated, or any political subdivision thereof or authority or agency thereof or therein having power to levy the same, unless such withholding or deduction is required by law or by the official judicial or administrative interpretation thereof, and if withholding or deduction is so required, such Successor Guarantor will pay to each Holder of Notes such Additional Amounts as may be necessary so that the net amounts paid to such Holder who is not resident for tax purposes in the jurisdiction in which such Successor Guarantor is incorporated, after such deduction or withholding, shall be not less than the amounts specified in such Notes to which such Holder is entitled;

          (d) immediately after giving effect to such transaction, no Event of Default with respect to any series of Notes, and no event which, after notice or lapse of time or both, would become an Event of Default with respect to any series of Notes, shall have occurred and be continuing; and

          (e) the Guarantor shall deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel stating that (i) such consolidation, merger, conveyance, transfer or lease complies with this Article V, (ii) all conditions precedent to such consolidation, merger, conveyance, transfer or lease have been satisfied and (iii) such supplemental indenture constitutes the legal, valid and binding obligation of the Successor Guarantor, subject to the customary exceptions.

     In addition, upon any such consolidation, merger, conveyance, transfer or lease, a notice shall be given by the Company as set forth in Section 12.2 and, if the Notes are listed on or by any stock exchange or other competent listing authority and applicable law and/or regulations of such stock exchange or other competent listing authority so require, the Company and the Guarantor will prepare and publish such prospectus supplement or other documents with respect to such consolidation, merger, transfer or lease as may be required.

Section 5.3 Successor Company or Guarantor Substituted.

     Upon any consolidation, merger, conveyance, transfer or lease to any entity involving the Company, in the case of Section 5.1, or the Guarantor in the case of Section 5.2, the Successor Company or Successor Guarantor, as applicable, formed by such consolidation, merger, conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or the Guarantor, as applicable, and the Notes or the Guarantees, as applicable, under this Indenture and the Notes or the Guarantees, as applicable, with the same effect as if such Successor Company or Successor Guarantor, as applicable, had been named originally as such herein; and thereafter the predecessor shall be released from all obligations and covenants under this Indenture and the Notes or the Guarantees, as applicable.

ARTICLE VI

OPTIONAL REDEMPTION OF NOTES

     Section 6.1 Optional Tax Redemption. The Notes may be redeemed on not less than 30 nor more than 60 days’ prior written notice to the Trustee, and, in accordance with Section 6.4 and in the manner provided in Section 12.2, the Holders of such Notes, at the option of the Company or the Guarantor (an “Optional Tax Redemption”), in whole, but not in part, at any time, if:

          (a) on the occasion of the next succeeding Interest Payment Date for such series, each of the Company and the Guarantor has or will become obliged to pay Additional Amounts as a result of any change in, or amendment to, the laws or regulations of the Company’s domicile or any authority in or of the Company’s domicile having power to tax, or any change in the official judicial or

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administrative interpretation of these laws or regulations, which change or amendment becomes effective on or after the Issue Date; and

          (b) each of the Company and the Guarantor is unable to avoid this obligation by taking reasonable measures available to it;

provided that no notice of Optional Tax Redemption shall be given earlier than 90 days prior to the earliest date on which the Company or the Guarantor, as the case may be, would be obliged to pay, deduct or withhold amounts were a payment in respect of the Notes of such series then due.

     Notes redeemed pursuant to an Optional Tax Redemption will be redeemed at an amount equal to the principal amount of the Notes being redeemed together with Additional Amounts, if any, plus any accrued and unpaid interest to (but excluding) the Redemption Date.

     Section 6.2 Optional Redemption. The Company may redeem the Notes, as a whole at any time or in part from time to time, at the option of the Company (an “Optional Redemption”), at a redemption price equal to the greater of:

          (a) 100% of the principal amount of the Notes of such series being redeemed; or

          (b) as determined by the Calculation Agent, the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed, not including any portion of such payment of interest accrued on the Redemption Date, from the Redemption Date to the relevant Maturity Date, discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 30 basis points, plus any accrued and unpaid interest to (but excluding) the Redemption Date and Additional Amounts, if any.

Notice of any redemption will be mailed at least 30 days but no more than 60 days before the Redemption Date to the Trustee, the Guarantor and, in accordance with Section 6.4 and in the manner provided in Section 12.2, to each Holder of Notes to be redeemed.

     Section 6.3 Election to Redeem. The Guarantor or the Company, as applicable, shall evidence its election to redeem any Notes pursuant to Section 6.1 or Section 6.2 by a Board Resolution.

     Section 6.4 Notice of Redemption.

          (a) The Company or the Guarantor shall give or cause the Trustee to give written notice of redemption not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Notes to be redeemed at the address appearing in the Notes Register. If the Company or the Guarantor itself gives the notice, it shall also deliver a copy to the Trustee.

          (b) If either (i) the Company is not redeeming all Outstanding Notes, or (ii) the Company or the Guarantor elects to have the Trustee give notice of redemption, then the Company shall deliver to the Trustee, at least 45 days prior to the Redemption Date (unless the Trustee is satisfied with a shorter period), an Officers’ Certificate requesting that the Trustee select the Notes to be redeemed and/or give notice of redemption and setting forth the information required by paragraph (c) of this Section 6.4. If the Company or the Guarantor elects to have the Trustee give notice of redemption, the Trustee shall give the notice in the name of the Company and the Guarantor and at the expense of the Company and the Guarantor.

          (c) All notices of redemption shall state:

     (i) which series of Notes is the subject of redemption and whether such Notes are being redeemed pursuant to an Optional Tax Redemption or an Optional Redemption;

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     (ii) the Redemption Date,

     (iii) the redemption price and the amount of any accrued interest payable as provided in Section 6.7,

     (iv) in the case of an Optional Redemption, whether or not the Company is redeeming all Outstanding Notes,

     (v) in the case of an Optional Redemption, if the Company is not redeeming all Outstanding Notes, the aggregate principal amount of Notes that the Company is redeeming and the aggregate principal amount of Notes that will remain Outstanding after the partial redemption, as well as the identification of the particular Notes, or portions of the particular Notes, that the Company is redeeming,

     (vi) in the case of an Optional Redemption, if the Company is redeeming only a portion of the principal amount of a Note or Notes, the notice that relates to such Note or Notes shall state that on and after the Redemption Date, upon surrender of such Note or Notes, the Holders will receive, without charge, a new Note or Notes of authorized denominations for the principal amount of the Note or Notes remaining unredeemed,

     (vii) that on the Redemption Date the redemption price and any accrued interest payable to the Redemption Date as provided in Section 6.7 will become due and payable in respect of each Note to be redeemed, and, unless the Company and the Guarantor defaults in making the redemption payment, that interest on each Note to be redeemed will cease to accrue on and after the Redemption Date,

     (viii) the place or places where a Holder must surrender the Holder’s Notes for payment of the redemption price, and

     (ix) the CUSIP or ISIN number, if any, listed in the notice or printed on the Notes, and that no representation is made as to the accuracy or correctness of such CUSIP or ISIN number.

     Section 6.5 Selection of Notes to be Redeemed in Part Pursuant to an Optional Redemption.

          (a) The Trustee shall make the selection of Notes from the Outstanding Notes not previously called for redemption. The Trustee shall promptly notify each of the Company and the Guarantor in writing of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount of the Notes to be redeemed. In the event of a partial redemption by lot, the Trustee shall select the particular Notes to be redeemed not less than 30 nor more than 60 days prior to the relevant Redemption Date from the Outstanding Notes not previously called for redemption. The Company may redeem Notes in those denominations specified for such Notes only in whole. The Trustee may select for redemption portions (equal to the denomination(s) specified for such Notes or any integral multiple thereof) of the principal of Notes that have denominations larger than a denomination specified for such Notes, provided that after such partial redemption the remaining principal amount of any such Note shall be a denomination specified for such Notes or any integral multiple thereof.

          (b) For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Notes shall relate, in the case of any Note redeemed or to be redeemed only in part, to the portion of the principal amount of that Note which has been or is to be redeemed.

     Section 6.6 Deposit of Redemption Price. Prior to 10:00 a.m. local time in the city in which the office of the Trustee or the Paying Agent with respect to the Notes being redeemed is located on

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the relevant Redemption Date, the Company and the Guarantor (without duplication) shall deposit with the Trustee or with a Paying Agent (or, if the Company or the Guarantor is acting as Paying Agent, segregate and hold in trust as provided in Section 2.4) an amount of money in immediately available funds sufficient to pay the redemption price of, and accrued interest on, all the Notes that are being redeemed on that date.

     Section 6.7 Notes Payable on Redemption Date. If the Company or the Guarantor, or the Trustee on behalf of the Company or the Guarantor, gives notice of redemption in accordance with this Article VI, the Notes, or the portions of Notes (in the case of an Optional Redemption), called for redemption, shall, on the Redemption Date, become due and payable at the redemption price specified in the notice (together with accrued interest, if any, to (but excluding) the Redemption Date), and from and after the Redemption Date (unless the Company and the Guarantor shall default in the payment of the redemption price and accrued interest) the Notes or the portions of the Notes shall cease to bear interest. Upon surrender of any Note for redemption in accordance with the notice, the Company shall pay the Notes at the redemption price, together with accrued, but unpaid, interest, if any, to (but excluding) the Redemption Date and any Additional Amounts, if any, subject to the rights of Holders in the case of a Global Note on the relevant Record Date to receive interest due on the related Interest Payment Date. If the Company and the Guarantor shall fail to pay any Note called for redemption upon its surrender for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate borne by the Note.

     Section 6.8 Unredeemed Portions of Partially Redeemed Note. In the case of an Optional Redemption, upon surrender of a Note that is to be redeemed in part, the Company and the Guarantor shall execute, and upon Company Order the Trustee shall authenticate and make available for delivery to the Holder of the Note at the expense of the Company, a new Note or Notes in any authorized denomination as requested by the Holder, in an aggregate principal amount equal to, and in exchange for, the unredeemed portion of the principal of the Note surrendered, provided that each new Note will be in a principal amount of U.S.$100,000 and integral multiples of U.S.$1,000 in excess thereof.

ARTICLE VII

DEFAULTS AND REMEDIES

     Section 7.1 Events of Default.

          (a) An “Event of Default” occurs with respect to the Notes if one or more of the following events shall occur:

     (i) default in the payment of any interest on any of the Notes when due and payable, and such default continues for a period of 30 days;

     (ii) default in the payment of the principal of any of the Notes when due and payable, and such default continues for a period of two Business Days;

     (iii) default in the performance of, or breaches, any covenant or warranty of the Company or the Guarantor contained in this Indenture or the Notes, and such default or breach continues for a period of 30 days after written notice of such default or breach shall have been given to the Company or the Guarantor by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then Outstanding;

     (iv) if any event of default as defined in any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness of the Guarantor or indebtedness of any Material Company for money borrowed, whether such indebtedness now exists or shall hereafter be created, shall occur and shall result in such indebtedness in principal amount in excess of U.S.$50,000,000 (or the

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equivalent thereof in other currencies) becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and such acceleration shall not be rescinded or annulled, or such indebtedness shall not have been discharged, within a period of 30 days after written notice thereof shall have been given to the Guarantor and the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then Outstanding;

     (v) if proceedings are initiated against the Company, the Guarantor or any Material Company under any applicable liquidation, insolvency, re-organization or any other similar laws, or an application is made for the appointment of an administrative or other receiver, manager or administrator, or any such or other similar official is appointed, in relation to the Company, the Guarantor or any Material Company, as the case may be, in relation to the whole or a part of the undertakings or assets of the Company, the Guarantor or any Material Company, or an encumbrancer takes possession of the whole or a part of the applicable company’s undertakings or assets, or a distress, execution, attachment, sequestration or other process is levied, enforced upon, sued out or put in force against the whole or a part of its undertakings or assets; and in any case (other than the appointment of an administrator) are not discharged within 28 days; provided that this paragraph (v) shall not apply to any proceedings against the Company, the Guarantor or a Material Company brought by a third party other than an administrative or judicial authority where the Company, the Guarantor, or the Material Company can demonstrate that any such proceedings are being contested by the Company, the Guarantor or the Material Company in good faith, diligently and by appropriate proceedings in a competent court;

     (vi) commencement by the Company, the Guarantor or any Material Company of a voluntary case or proceeding under any applicable liquidation, insolvency, re-organization or any other similar laws, or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company, the Guarantor or any Material Company to the entry of a decree or order for relief in respect of the Company, the Guarantor or any Material Company in an involuntary case or proceeding under any applicable liquidation, insolvency, re-organization or any other similar laws, or to the commencement of any bankruptcy or insolvency case or proceeding against the Company, the Guarantor or any Material Company, or the filing by the Company, the Guarantor or any Material Company of a petition or answer or consent seeking re-organization or relief under any applicable law, or the consent by the Company, the Guarantor or any Material Company to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, conservator, liquidator, assignee, trustee, sequestrator or similar official of the Company, the Guarantor or any Material Company or of any substantial part of the property of the Company, the Guarantor or any Material Company or the making by the Company, the Guarantor or any Material Company of an assignment for the benefit of creditors, or the taking of corporate action by the Company, the Guarantor or any Material Company in furtherance of any such action; or

     (vii) the Guarantees shall cease to be in full force and effect or the Guarantor shall, in writing, deny or disaffirm its obligations under the Guarantees (or any of them) or this Indenture.

Any of the foregoing will constitute an Event of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.

          (b) The Company and the Guarantor shall deliver to the Trustee within five days after the occurrence of any Default or Event of Default written notice in the form of an Officers’ Certificate of any Default or Event of Default, their status and what action the Company and the Guarantor propose to take in respect thereof.

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     Section 7.2 Acceleration. If an Event of Default occurs and is continuing (other than one relating to the matters referred to in Section 7.1(v) or (vi), in which case, the principal of all Outstanding Notes shall become due and payable immediately), then the Trustee or Holders of at least 25% in aggregate principal amount of the Outstanding Notes may declare the principal amount of all of the Outstanding Notes to be due and payable immediately, together with accrued and unpaid interest, Additional Amounts, if any, accrued to the date of repayment by a notice in writing to the Company and the Guarantor (and to the Trustee if given by the Holders), and upon any such declaration, such principal amount and accrued and unpaid interest shall become immediately due and payable.

     At any time after such a declaration of acceleration with respect to the Notes subject to such declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee or the Holders as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Outstanding Notes, by written notice to the Company, the Guarantor and the Trustee, may rescind and annul such declaration of acceleration and its consequences if:

     (a) the Company or the Guarantor has irrevocably paid or deposited with the Trustee a sum sufficient to pay:

     (i) all overdue interest on all Notes subject to such declaration of acceleration,

     (ii) the principal of all Notes subject to such declaration of acceleration which become due otherwise than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Notes,

     (iii) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates therefor in the Notes subject to such declaration of acceleration, and

     (iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursement and advances of the Trustee, its agents and counsel, and any other amounts due to the Trustee under Section 8.7; and

          (b) all Events of Default with respect to Notes subject to such declaration of acceleration, other than the non-payment of the principal of Notes subject to such declaration of acceleration which has become due solely by such declaration of acceleration, have been cured or waived as provided in Section 7.4.

     Section 7.3 Other Remedies.

          (a) If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.

          (b) The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law.

     Section 7.4 Waiver of Past Defaults. The Holders of not less than a Qualified Majority in aggregate principal amount of the Outstanding Notes may on behalf of the Holders of all the Notes of such series waive any Event of Default hereunder with respect to such Notes and its consequences, except (i) a default in the payment of the principal of, or premium, if any, or interest on, such Notes,

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or (ii) a Default in respect of a covenant or agreement that cannot be modified or amended without the consent of the Holder of each such Note affected thereby. Upon any such waiver, such Default shall cease to exist and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon.

     Section 7.5 Control by Majority. The Holders of a majority in principal amount of the Outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. Subject to Sections 8.1 and 8.2, however, the Trustee may refuse to follow any direction that (i) conflicts with law or this Indenture, (ii) exposes the Trustee to personal liability for which the Trustee would not be satisfactorily indemnified pursuant to Section 8.7 hereof or (iii) is unduly prejudicial to such Holders not joined therein; provided, further, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction.

     Section 7.6 Limitation on Suits.

     No Holder of any Note will have any right to institute any proceeding with respect to this Indenture for any remedy hereunder, unless:

          (a) such Holder has previously given to the Trustee written notice of a continuing Event of Default;

          (b) Holders of at least 25% in principal amount of the then Outstanding Notes shall have made a written request to the Trustee to pursue the remedy in its own name as trustee hereunder;

          (c) such Holders of the Notes have provided to the Trustee reasonable indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;

          (d) the Trustee does not comply within 60 days after its receipt of such notice, request and offer of indemnity; and

          (e) during such 60 day period the Holders of a majority in principal amount of the Outstanding Notes have not given the Trustee a written direction which is inconsistent with the request.

     Otherwise, no Holder of any Note will have any right to institute any proceeding with respect to this Indenture or for any remedy hereunder, except:

          (f) a Holder of a Note may institute suit for enforcement of payment of the principal of and premium, if any, or interest on such Note on or after the respective due dates expressed in such Note, or

          (g) for the institution of any proceeding with respect to this Indenture or any remedy thereunder, including, without limitation, acceleration, by the Holders of a majority in principal amount of the Outstanding Notes; provided, that upon institution of any proceeding or exercise of any remedy, such Holder or Holders provide the Trustee with prompt written notice thereof.

     Section 7.7 Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture (including, without limitation, Section 7.6), the right of any Holder to receive payment of principal of or interest on the Notes held by such Holder, on or after the respective due dates or Redemption Dates expressed in this Indenture or the Notes, or to bring suit for the enforcement of any

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such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.

     Section 7.8 Collection Suit by Trustee. If an Event of Default occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company and the Guarantor for the whole amount then due and owing (together with applicable interest on any overdue principal and, to the extent lawful, interest on overdue interest) and the amounts provided for in Section 8.7.

     Section 7.9 Trustee May File Proofs of Claim, etc.

          (a) The Trustee may (irrespective of whether the principal of the Notes is then due):

     (i) file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Holders under this Indenture and the Notes allowed in any bankruptcy, insolvency, liquidation or other judicial proceedings relative to the Company, the Guarantor or any Subsidiary of the Guarantor or their respective creditors or properties; and

     (ii) collect and receive any monies or other property payable or deliverable in respect of any such claims and distribute them in accordance with this Indenture.

Any receiver, trustee, liquidator, sequestrator (or other similar official) in any such proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due to the Trustee pursuant to Section 8.7.

          (b) Nothing in this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

     Section 7.10 Priorities. If the Trustee collects any money or property pursuant to this Article VII, it shall pay out the money or property in the following order:

     FIRST: to the Trustee for amounts due under Section 8.7;

     SECOND: if the Holders proceed against the Company or the Guarantor directly without the Trustee in accordance with this Indenture, to the Holders for their collection costs;

     THIRD: to the Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal and interest, respectively; and

     FOURTH: to the Company, the Guarantor or such other party as a court of competent jurisdiction shall direct.

The Trustee may, upon notice to the Company and the Guarantor, fix a record date and payment date for any payment to Holders pursuant to this Section 7.10.

     Section 7.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay

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the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 7.11 does not apply to a suit by the Trustee, a suit by the Company, a suit by the Guarantor, a suit by a Holder pursuant to Section 7.7 or a suit by Holders of more than 10% in principal amount of the Outstanding Notes.

ARTICLE VIII

TRUSTEE

     Section 8.1 Duties of Trustee.

          (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

          (b) Except during the continuance of a Default or an Event of Default:

     (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

     (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether or not they reasonably conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

          (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:

     (i) this paragraph (c) does not limit the effect of paragraph (b) of this Section 8.1;

     (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and

     (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 7.2, 7.4 or 7.5.

          (d) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company and the Guarantor.

          (e) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

          (f) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that

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repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

          (g) Whether or not expressly provided herein, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article VIII and to the provisions of the TIA.

          (h) In no event shall the Trustee be responsible or liable for special, indirect, or punitive consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

          (i) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or the Guarantor shall be sufficient if signed by an Officer of the Company or the Guarantor, respectively.

          (j) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity satisfactory to it against the costs, expenses (including reasonable attorneys’ fees and expenses) and liabilities that might be incurred by it in compliance with such request or direction.

     Section 8.2 Rights of Trustee. Subject to Section 8.1:

          (a) The Trustee may conclusively rely and shall be fully protected in acting or refraining from acting on any document (whether in original or facsimile form) reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties.

          (b) Whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, it may require an Officers’ Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on an Officers’ Certificate or Opinion of Counsel.

          (c) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its attorneys and agents and shall not be responsible for the misconduct or negligence on the part of any agent or attorney appointed with due care.

          (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustee’s conduct does not constitute willful misconduct or negligence (as finally determined by a court of competent jurisdiction).

          (e) The Trustee may consult with agents, accountants, experts and/or counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture, the Notes and the Guarantees shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel.

          (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or

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investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.

          (g) The Trustee shall not be deemed to have knowledge of any Default or Event of Default unless a Trust Officer of the Trustee has Actual Knowledge thereof or unless written notice of any event which is in fact such a Default or Event of Default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture.

          (h) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder.

          (i) The Trustee may request that each of the Company and the Guarantor deliver an Officers’ Certificate setting forth the names of individuals and/or titles of Officers authorized at such time to take specified actions pursuant to this Indenture, which Officers’ Certificate may be signed by any Person authorized to sign an Officers’ Certificate, including any Person specified as so authorized in any such certificate previously delivered and not superseded.

          (j) Any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Order and any resolution of the Board of Directors of the Company shall be sufficiently evidenced by a Board Resolution.

          (k) The Trustee shall have no duty to inquire as to the performance of the covenants of the Company or the Guarantor. The Trustee shall be entitled to assume without inquiry that each of the Company and the Guarantor has performed its obligations hereunder, unless notified in writing to the contrary. The permissive rights of the Trustee to act in accordance with the terms of this Indenture shall not be construed as a duty and the Trustee shall not be answerable other than for its own negligence or willful misconduct.

     Section 8.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, the Guarantor or any of its Affiliates with the same rights it would have if it were not Trustee. Any Authenticating Agent, Paying Agent, Registrar or co-Registrar may do the same with like rights. However, the Trustee must comply with Sections 8.10 and 8.11 and the Authenticating Agent must comply with Section 2.2(d).

     Section 8.4 Trustee’s Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Guarantees or the Notes, it shall not be accountable for the Company’s use of the proceeds from the Notes, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Trustee’s certificate of authentication.

     Section 8.5 Notice of Defaults. If a Default or Event of Default occurs and is continuing with respect to a series of Notes and if a Trust Officer has Actual Knowledge thereof, the Trustee shall mail to each Holder of such series of Notes, notice of the Default or Event of Default within 30 days after the Trustee obtains Actual Knowledge thereof. Except in the case of a Default or Event of Default in payment of principal of or interest on any Note (including payments pursuant to the Optional Redemption, Optional Tax Redemption or required repurchase provisions of such Note, if any), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of the Holders of such Notes.

     Section 8.6 Reports by Trustee to Holders. The Trustee shall comply with TIA § 313. The Company agrees to notify promptly the Trustee whenever any Notes become listed, quoted and/or

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traded on or by any stock exchange, competent listing authority and/or quotation system and of any delisting thereof.

     Section 8.7 Compensation and Indemnity.

          (a) The Company and the Guarantor (jointly and severally but without duplication) shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services in any way relating hereunder as the Company, the Guarantor and the Trustee shall from time to time agree in writing. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantor (without duplication) shall reimburse the Trustee upon request for all out-of-pocket expenses, disbursements and advances incurred or made by it, including, without limitation, costs of collection, costs of preparing and reviewing reports, amendments, certificates and other documents, costs of consultation, preparation and mailing of notices to Holders. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee’s agents, counsel, accountants and experts.

          (b) The Company and the Guarantor (jointly and severally but without duplication) shall indemnify the Trustee and its officers, directors and agents against any and all loss, judgment, liability, claim, damage or expense (including reasonable attorneys’ fees and expenses) incurred by it without negligence, willful misconduct on its part arising out of or in connection with the acceptance and administration of this trust and the performance of its duties hereunder, including the costs and expenses of enforcing this Indenture (including this Section 8.7) and of defending itself against any claims or liabilities (whether asserted by any Holder, the Company or otherwise). The Trustee shall notify the Company and the Guarantor promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company and the Guarantor shall not relieve the Company or the Guarantor of its obligations hereunder. The Company and the Guarantor shall defend the claim and the Trustee may, upon written request to the Company and the Guarantor, have separate counsel and the Company and the Guarantor shall upon such event pay the fees and expenses of such counsel. Neither the Company nor the Guarantor need reimburse any expense or indemnify against any loss, liability or expense determined to have been caused by the Trustee through the Trustee’s own negligence, willful misconduct or bad faith.

          (c) To secure the Company’s and the Guarantor’s payment obligations in this Section 8.7, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Notes. The Trustee’s right to receive payment of any amounts due under this Section 8.7 shall not be subordinate to any other liability or indebtedness of the Company or the Guarantor.

          (d) The Company’s and the Guarantor’s payment obligations pursuant to this Section 8.7 shall survive the discharge of this Indenture and the resignation or removal of the Trustee and the termination of the Indenture under any bankruptcy law. When the Trustee incurs expenses after the occurrence of a Bankruptcy Default, the expenses are intended to constitute expenses of administration under any Bankruptcy Law; provided, however, that this shall not affect the Trustee’s rights as set forth in this Section 8.7 or Section 7.10.

     Section 8.8 Replacement of Trustee.

          (a) The Trustee may resign at any time for any reason by notifying the Company and the Guarantor. The Holders of a majority in principal amount of the Outstanding Notes may remove the Trustee at any time by so notifying the Trustee in writing and may appoint a successor Trustee reasonably acceptable to the Company and the Guarantor. The Company or the Guarantor shall remove the Trustee if:

          (i)    the Trustee fails to comply with Section 8.10;

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(ii)	the Trustee is adjudged bankrupt or insolvent;
(iii)	a receiver or other public officer takes charge of the Trustee or its property; or
(iv)	the Trustee otherwise becomes incapable of acting.

           (b) If the Trustee resigns or is removed by the Company, the Guarantor or the Holders of a majority in principal amount of the Outstanding Notes (and such Holders do not reasonably promptly appoint a successor Trustee), or if a vacancy exists in the office of the Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company or the Guarantor shall promptly appoint a successor Trustee.

           (c) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company and the Guarantor. The Company and/or the Guarantor shall pay all amounts due and payable to the retiring Trustee. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 8.7.

           (d) If a successor Trustee does not deliver a written acceptance of its appointment within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Outstanding Notes of the applicable series may petition, at the expense of the Company and the Guarantor, any court of competent jurisdiction for the appointment of a successor Trustee.

           (e) If the Trustee fails to comply with Section 8.10, any Holder of Notes of the applicable series may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

           (f) Notwithstanding the replacement of the Trustee pursuant to this Section 8.8, each of the Company’s and the Guarantor’s obligations under Section 8.7 shall continue for the benefit of the retiring Trustee.

           (g) In the event of the resignation, termination or removal of the Trustee, the Company or the Guarantor (at the expense of the Company and the Guarantor) shall within 30 days mail written notice thereof to the Holders of Notes.

      Section 8.9 Successor Trustee by Merger.

           (a) If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another Person, the resulting, surviving or transferee Person without any further act shall be the successor Trustee.

           (b) In case at the time such successor or successors to the Trustee shall succeed to the trusteeship created by this Indenture, any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have.

      Section 8.10 Eligibility; Disqualification. The Trustee and the Authenticating Agent shall at all times satisfy the requirements of TIA § 310(a). The Trustee shall have a combined capital and

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surplus of at least U.S.$50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA § 310(b); provided, however, that there shall be excluded from the operation of TIA § 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company or the Guarantor are outstanding if the requirements for such exclusion set forth in TIA § 310(b)(1) are met.

     Section 8.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA § 311(a), excluding any creditor relationship listed in TIA § 311(b). A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated.

     Section 8.12 Paying Agent and Calculation Agent. All rights, duties and immunities of the Trustee under this Indenture shall apply to any Paying Agent and Calculation Agent under this Indenture.

ARTICLE IX

SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONIES

     Section 9.1 Satisfaction and Discharge. The Indenture will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in the Indenture and except as to the Company’s and the Guarantor’s obligations under Section 8.7) as to all Outstanding Notes when:

     (a) either:

     (i) the Notes theretofore executed, authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company or the Guarantor and thereafter repaid to the Company or the Guarantor or discharged from such trust) have been delivered to the Trustee for cancellation, or

     (ii) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable, or by their terms are due and payable within one year (or scheduled for Optional Redemption or Optional Tax Redemption within one year) and the Company or the Guarantor has irrevocably deposited or caused to be deposited with the Trustee U.S. dollar funds sufficient to pay and discharge the entire indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of and interest on the Notes to the date of deposit (or until their redemption, as confirmed by the opinion of an internationally recognized firm of independent public accountants), together with irrevocable written instructions from the Company or the Guarantor directing the Trustee to apply such funds to the payment;

          (b) the Company or the Guarantor has paid all other sums payable under: (i) this Indenture, (ii) the Notes and (iii) the Guarantees; and

          (c) each of the Company and the Guarantor has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel stating that all conditions precedent under this Indenture relating to the satisfaction and discharge of this Indenture have been complied with.

     Section 9.2 Application by Trustee of Funds Deposited for Payment of Notes.

     Subject to Section 9.4, all monies deposited with the Trustee pursuant to Section 9.1 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company or the Guarantor acting as paying agent), to the Holders of the particular Notes for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due

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and to become due thereon for principal and interest; but such money need not be segregated from other funds except to the extent required by law.

     Section 9.3 Repayment of Monies Held by Paying Agent.

     In connection with the satisfaction and discharge of this Indenture with respect to the Notes, all monies then held by any paying agent under the provisions of this Indenture with respect to such Notes shall, upon written demand of the Company or the Guarantor, be repaid to the Company or the Guarantor, as the case may be, or paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such monies.

     Section 9.4 Return of Monies Held by Trustee and Paying Agent Unclaimed for Two Years.

     Any monies deposited with or paid to the Trustee or any paying agent for the payment of the principal of or interest (including Additional Amounts) on any Note and not applied but remaining unclaimed for two years after the date upon which such principal or interest (including Additional Amounts) shall have become due and payable, shall, upon the written request of the Company and unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company or the Guarantor by the Trustee or such paying agent, and the Holder of such Note shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Company or the Guarantor for any payment which such Holder may be entitled to collect, and all liability of the Trustee or any paying agent with respect to such monies shall thereupon cease.

ARTICLE X

AMENDMENTS

     Section 10.1 Without Consent of Holders.

          (a) The Company, the Guarantor and the Trustee may amend this Indenture without notice to or consent of any Holder:

     (i) to cure any ambiguity, omission, defect or inconsistency, provided that such action shall not adversely affect the interests of the Holders of the Notes in any material respect;

     (ii) to comply with Article IV or V in respect of the assumption by a Transferee Company or a Successor Company of the obligations of the Company under the Notes and this Indenture;

     (iii) to comply with Article V in respect of assumption by a Successor Guarantor of the obligations of the Guarantor under the Guarantees and this Indenture;

     (iv) to provide for uncertificated Notes in addition to or in place of Certificated Notes; provided, however, that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code;

     (v) to add additional guarantees with respect to the Notes or to secure the Notes;

     (vi) to add to the covenants of the Company or the Guarantor for the benefit of the Holders of Notes or to surrender any right or power herein conferred upon the Company or the Guarantor;

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     (vii) to add any additional Events of Default for the benefit of the Holders of the Notes;

     (viii) to make any change that does not adversely affect the rights of any Holder of the Notes in any material respect;

     (ix) to provide for the issuance of Add On Notes as permitted by Section 2.11, which will have terms substantially identical to the other Outstanding Notes except as specified in Section 2.11, and which will be treated, together with any other Outstanding Notes, as a single series of securities.

          (b) After an amendment under this Section 10.1 becomes effective, the Company or the Guarantor (at its own expense) shall mail to Holders a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 10.1.

     Section 10.2 With Consent of Holders.

          (a) The Company, the Guarantor and the Trustee may amend this Indenture without notice to any Holder but with the written consent of the Holders of at least a Qualified Majority in principal amount of the Outstanding Notes of the applicable series (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), which consent(s) shall be delivered to the Company, the Guarantor and the Trustee. However, without the consent of each Holder of Notes of such series affected, an amendment may not:

     (i) reduce the principal amount of Notes the Holders of which must consent to an amendment or waiver;

     (ii) reduce the rate of, or change, or have the effect of changing the time for payment of, interest, including Additional Amounts, if any, on any Notes or change in any adverse respect the obligation of the Company and the Guarantor to pay Additional Amounts;

     (iii) reduce the principal of, or change, or have the effect of changing the time for payment of principal or the fixed maturity of, any Notes or the amount due upon an Event of Default, or change the date on which any Notes may be subject to acceleration or redemption, or reduce the redemption price therefor;

     (iv) make any Notes payable in a currency or at a location other than that stated in the Notes or at a place other than stated in the Notes;

     (v) make any change in the provisions of this Indenture entitling each Holder of Notes to receive payment of principal of and interest on such Notes on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a Qualified Majority in principal amount of Outstanding Notes to waive compliance with specified provisions of this Indenture or Defaults or Events of Default;

     (vi) reduce the percentage of Holders of Notes whose consent is needed to modify or amend the provisions of this Indenture;

     (vii) make any changes to this Section 10.2; or

     (viii) change the terms of the Guarantees.

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          (b) It shall not be necessary for the consent of the Holders under this Section 10.2 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof.

          (c) After an amendment under this Section 10.2 becomes effective, the Company or the Guarantor shall mail to Holders of the Notes a notice briefly describing such amendment. The failure to give such notice to all such Holders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 10.2.

     Section 10.3 Compliance with Trust Indenture Act. Every amendment to this Indenture or the Notes shall comply with the TIA as then in effect.

     Section 10.4 Acts of Holders.

          (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing as herein otherwise expressly provided. Such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company or the Guarantor. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 8.1) conclusive in favor of the Trustee, the Company and the Guarantor, if made in the manner provided in this Section.

          (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any reasonable manner which the Trustee deems sufficient.

          (c) Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Note may do so with regard to all or any part of the principal amount of such Note or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount.

     Section 10.5 Notation on or Exchange of Notes. If an amendment changes the terms of a Note, the Trustee may require the Holder of the Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note regarding the changed terms and return it to the Holder. Alternatively, if the Company, the Guarantor or the Trustee so determines, the Company in exchange for the Note will execute and upon Company Order the Trustee will authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment.

     Section 10.6 Trustee to Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article X; provided that the Trustee may, but shall not be obligated to, sign any amendment that adversely affects its own rights, duties, liabilities or immunities. If it does, the Trustee may, but need not, sign it. In signing such amendment, the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and shall be provided with, and (subject to Sections 8.1 and 8.2) shall be fully authorized and protected in relying upon an Opinion of Counsel and an Officers’ Certificate, each stating that such amendment is authorized or permitted by this Indenture and constitutes the legal, valid and binding obligation of the Company and the Guarantor, subject to customary exceptions.

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ARTICLE XI

GUARANTEES

     Section 11.1 The Guarantees. The Guarantor hereby irrevocably and unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee the due and punctual payment of the principal of, any premium and interest on, and any Additional Amounts with respect to, such Note, when and as the same shall become due and payable, whether at the relevant Maturity Date, by acceleration, redemption, repayment or otherwise, in accordance with the terms of such Note and of this Indenture, including without limitation, the obligation of the Company to repurchase Notes properly tendered pursuant to Section 3.8 hereof and any and all amounts due and owing to the Trustee, Paying Agent and Calculation Agent under this Indenture. In case of the failure of the Company punctually to pay any such principal, premium, interest or Additional Amounts, the Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at the relevant Maturity Date, upon acceleration, redemption or otherwise, and as if such payment were made by the Company. The aforesaid Guarantees are ones of payment and not of collection.

     Section 11.2 Guarantees Unconditional, etc. The Guarantor hereby agrees that its obligations hereunder shall be as principal and not merely as surety, and shall be absolute, irrevocable and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any Note or this Indenture, any failure to enforce the provisions of any Note or this Indenture, or any waiver, modification, consent or indulgence granted with respect thereto by the Holder of such Note or the Trustee, the recovery of any judgment against the Company or any action to enforce the same, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger, insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to any such Note or the indebtedness evidenced thereby and all demands whatsoever, and covenants that these Guarantees will not be discharged except by payment in full of the principal of, any premium and interest on, and any Additional Amounts required with respect to, the Notes and the complete performance of all other obligations contained in the Notes. The Guarantor further agrees, to the fullest extent that it lawfully may do so, that as between the Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, the relevant Maturity Date of the obligations guaranteed hereby may be accelerated as provided in Section 7.2 hereof for the purposes of these Guarantees, notwithstanding any stay, injunction or prohibition extant under any bankruptcy, insolvency, reorganization or other similar law of any jurisdiction preventing such acceleration in respect of the obligations guaranteed hereby.

     Section 11.3 Reinstatement.

     These Guarantees shall continue to be effective or be reinstated, as the case may be, if at any time payment on any Note, in whole or in part, is rescinded or must otherwise be repaid or restored to the Company or the Guarantor upon the bankruptcy, liquidation or reorganization of the Company, the Guarantor or otherwise.

     Section 11.4 Subrogation

     The Guarantor shall be subrogated to all rights of the Holder of any Note against the Company in respect of any amounts paid to such Holder by the Guarantor pursuant to the provisions of these Guarantees; provided, however, that the Guarantor shall not, without the consent of the Holders of all the Notes of the applicable series then Outstanding, be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation until the principal of, any premium and interest on, and any Additional Amounts required with respect to, all Notes shall have been paid in full.

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ARTICLE XII

MISCELLANEOUS

     Section 12.1 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required or deemed to be included in this Indenture by the TIA, the required or deemed provision shall control.

     Section 12.2 Notices.

          (a) Any notice or communication provided or permitted by this Indenture to be given to the Company, the Guarantor, the Trustee or the Paying Agent may be given to the Company, the Guarantees, the Trustee or any Paying Agent, as the case may be, and shall be made in writing by hand-delivery, first-class mail, facsimile or air courier guaranteeing next-day delivery:

if to the Company:

Pearson Funding Two plc
80 Strand
London WC2R 0RL
United Kingdom

Attention: Directors

With a copy to:

Pearson PLC
80 Strand
London WC2R 0RL
United Kingdom

Attention: General Counsel

if to the Guarantor:

Pearson PLC
80 Strand
London WC2R ORL
United Kingdom

Attention: Group Treasurer

With a copy to:

Pearson PLC
80 Strand
London WC2R ORL
United Kingdom

Attention: General Counsel

if to the Trustee and Paying Agent:

The Bank of New York Mellon
One Canada Square

44

40^th Floor
London E14 5AL
United Kingdom
Attention: Corporate Trust Administration
Fax No.: +44 207 964 2536

     All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered against written receipt; one business day after being timely delivered to a next-day air courier; five business days after being deposited in the mail postage prepaid; and when receipt is acknowledged by the recipient’s facsimile machine, if sent by facsimile.

     The Company, the Guarantor, the Trustee or the Paying Agent by notice to the others may designate additional or different addresses for subsequent notices or communications. Such notices or communications may also be given by any Holder of Notes to the Trustee or any Paying Agent through DTC in such manner that such Trustee or Paying Agent, as the case may be, and DTC may approve for such purpose.

          (b) All notices regarding the Notes shall be published, at the expense of the Company or the Guarantor, (i) in a leading English language daily newspaper of general circulation in New York City (which is expected to be The Wall Street Journal) and (ii) if and for so long as the Notes are listed on or by any stock exchange or other competent listing authority in such other newspaper (if any) or in such other manner as may be required by the rules and regulations of such stock exchange or other competent listing authority. Any such notice will be deemed to have been given on the date of the first publication or, where required to be published more than once or on different dates, on the date of the first publication. For so long as the Notes are represented by a Global Note and the Global Note is held on behalf of any one or more of DTC, Euroclear, Clearstream, Luxembourg or any alternative clearing system, notices required to be given to Holders of the Notes may be given by their being delivered to the relevant clearing system for communication by it to entitled accountholders in substitution for notification as required by this Section.

     Section 12.3 Communication by Holders with Other Holders. Holders may communicate pursuant to TIA § 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Guarantor, the Trustee, the Registrar and anyone else shall have the protection of TIA § 312(c).

     Section 12.4 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company or the Guarantor to the Trustee to take or refrain from taking any action under this Indenture, the Company or the Guarantor, as the case may be, shall furnish to the Trustee:

          (a) an Officers’ Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signer or signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and

          (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent, if any, have been complied with.

     Section 12.5 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include:

          (a) a statement that the individual making such certificate or opinion has read such covenant or condition and the definitions relating thereto;

          (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

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          (c) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

          (d) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with.

     In giving such Opinion of Counsel, counsel may rely as to factual matters on an Officers’ Certificate or on certificates of public officials unless such counsel knows, or in the exercise of reasonable care, should know that the Officers’ Certificate or certificates of public officials or the representations with respect to such matters are erroneous.

     Section 12.6 Form of Documents Delivered to Trustee.

     In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters and any such Person may certify or give an opinion as to such matters in one or several documents.

     Any certificate or opinion of an Officer of the Company or the Guarantor may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Officer or Officers of the Company or the Guarantor stating that the information with respect to such factual matters is in the possession of the Company or the Guarantor, unless such counsel knows or in the exercise of reasonable care should know, that the opinion or representations with respect to such matters are erroneous.

     Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

     Section 12.7 Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by, or a meeting of, Holders. The Registrar and the Paying Agent may make reasonable rules for their functions.

     Section 12.8 Payment on Business Days. If any Interest Payment Date, a Redemption Date or the relevant Maturity Date falls on a day that is not a Business Day, the payment of interest and/or principal otherwise required to be paid on such day may be made on the next succeeding Business Day, and no interest on such payment shall accrue for the period from and after payment on such next succeeding Business Day.

     If a regular Record Date is not a Business Day, the Record Date shall not be affected.

     Section 12.9 Governing Law, etc.

          (a) THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT THAT THE AUTHORIZATION AND EXECUTION BY THE COMPANY AND THE GUARANTOR OF THE INDENTURE AND THE NOTES OR THE GUARANTEES, AS APPLICABLE, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE

46

LAWS OF ENGLAND, WITHOUT GIVING EFFECT TO ANY CONTRARY CONFLICT OF LAWS OR CHOICE OF LAW PROVISIONS OF THE LAWS OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION.

          (b) To the extent that the Company or the Guarantor any of their respective properties, assets or revenues, may have or may hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any such legal action, suit or proceeding, from setoff or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution of judgment, or from execution of judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Indenture, the Notes or the Guarantees, each of the Company and the Guarantor hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any such immunity and consents to such relief and enforcement.

          (c) Each of the Company and the Guarantor hereby irrevocably consents and agrees, for the benefit of the Holders and the Trustee, that any legal action, suit or proceeding against it with respect to its obligations, liabilities or any other matter arising out of or in connection with this Indenture, the Notes or the Guarantees may be brought in any United States federal court or New York state court, in each case located in the Borough of Manhattan, The City of New York, and hereby irrevocably consents and submits to the non-exclusive jurisdiction of each such court in personam, generally and unconditionally with respect to any action, suit or proceeding for itself and in respect of its properties, assets and revenues.

          (d) Each of the Company and the Guarantor hereby irrevocably designates, appoints, and empowers Pearson Inc., with an office at 1330 Avenue of the Americas, New York, New York 10019, as its designee, appointee and agent (the “Authorized Agent”) to receive, accept and acknowledge for and on its behalf, and its properties, assets and revenues, service of any and all legal process, summons, notices and documents which may be served in any such action, suit or proceeding brought in any United States federal court or New York state court which may be made on such Authorized Agent in accordance with legal procedures prescribed for such courts. If for any reason such Authorized Agent hereunder shall cease to be available to act as such, each of the Company and the Guarantor agrees to designate a new designee, appointee and agent in The City of New York on the terms and for the purposes of this clause satisfactory to the Trustee. Each of the Company and the Guarantor further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents out of any of the aforesaid courts in any such action, suit or proceeding by serving a copy thereof upon the relevant agent for service of process referred to in this clause (whether or not the appointment of such agent shall for any reason prove to be ineffective or such agent shall accept or acknowledge such service) or by mailing copies thereof by registered or certified air mail, first class, postage prepaid, to each of them at their respective addresses specified in or designated pursuant to this Indenture. Each of the Company and the Guarantor further agrees that the failure of any such Authorized Agent to give any notice of such service to it shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon. Nothing herein shall in any way be deemed to limit the ability of the Trustee or any Holder to serve any such legal process, summons, notices and documents in any other manner permitted by applicable law or to obtain jurisdiction over the Company or the Guarantor or bring actions, suits or proceedings against the Company or the Guarantor in any jurisdiction, and in any manner, as may be permitted by applicable law. Each of the Company and the Guarantor hereby irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions, suits or proceedings arising out of or in connection with this Indenture, the Notes or the Guarantees brought in any United States federal court or New York state court, in each case located in the Borough of Manhattan, The City of New York, and hereby further irrevocably and unconditionally

47

waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

          (e) Nothing in this Section 12.9 shall affect the right of the Trustee or any Holder of the Notes to serve process in any other manner permitted by law.

     Section 12.10 Successors. All agreements of each of the Company and the Guarantor in this Indenture, the Notes and the Guarantees shall bind each of its successors and assigns. All agreements of the Trustee in this Indenture shall bind its successors and assigns.

     Section 12.11 Duplicate and Counterpart Originals. This Indenture may be executed in any number of counterparts, each of which so executed shall be an original, but all of them together represent the same agreement.

     Section 12.12 Severability. In case any provision in this Indenture, the Notes or the Guarantees shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

     Section 12.13 Currency Indemnity.

          (a) The U.S. dollar is the sole currency of account and payment for all sums payable by the Company or the Guarantor under or in connection with the Notes, the Guarantees or this Indenture with respect to the Notes, including damages. Any amount received or recovered in currency other than U.S. dollars in respect of the Notes (whether as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up or dissolution of the Company, the Guarantor, any Subsidiary or otherwise) by any Holder of the Notes in respect of any sum expressed to be due to it from the Company or the Guarantor shall only constitute a discharge of them under the Notes, the Guarantor and this Indenture with respect to the Notes only to the extent of the U.S. dollar amount which the recipient is able to purchase with the amount so received or recovered in that other currency on the date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so). If that U.S. dollar amount is less than the U.S. dollar amount expressed to be due to the recipient under the Notes, the Guarantees or this Indenture with respect to the Notes, each of the Company and the Guarantor shall indemnify and hold harmless the recipient against any loss or cost sustained by it in making any such purchase. For the purposes of this Section 12.13, it will be sufficient for the Holder of a Note to certify that it would have suffered a loss had an actual purchase of U.S. dollars been made with the amount so received in that other currency on the date of receipt or recovery (or, if a purchase of U.S. dollars on such date had not been practicable, on the first date on which it would have been practicable).

          (b) The indemnities of each of the Company and the Guarantor contained in this Section 12.13, to the extent permitted by law: (i) constitute a separate and independent obligation from the other obligations of each of the Company and the Guarantor under the Notes, the Guarantor and this Indenture with respect to the Notes; (ii) shall give rise to a separate and independent cause of action against each of the Company and the Guarantor; (iii) shall apply irrespective of any waiver granted by any Holder of the Notes or the Trustee with respect to the Notes from time to time; and (iv) shall continue in full force and effect notwithstanding any other judgment, order, claim or proof of claim for a liquidated amount in respect of any sum due under the Notes, the Guarantees or this Indenture with respect to the Notes or any other judgment or order.

     Section 12.14 Benefits of Indenture. Nothing in this Indenture, the Notes or the Guarantees, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit of any legal or equitable right, remedy or claim under this Indenture.

48

     Section 12.15 Table of Contents; Headings. The table of contents and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof.

     Section 12.16 Waiver of Jury Trial.

     EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTION CONTEMPLATED HEREBY.

     Section 12.17 Force Majeure. In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

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     IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above.

PEARSON FUNDING TWO PLC
By:	Steven Ellis
	Name:	Steven Ellis
	Title:	Director
PEARSON PLC
By:	M G Day
	Name:	M G Day
	Title:	Group Treasurer
THE BANK OF NEW YORK MELLON acting through its London Branch, as Trustee, Paying Agent and Calculation Agent
By:	Michael Lee
	Name:	Michael Lee
	Title:	Senior Associate

[Signature Page to Indenture]

50

EXHIBIT A

FORM OF THE NOTES

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

[Include the following legend on all Notes that are Global Notes:

THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A NOTE REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]

[Include the following legend on all Notes that are Rule 144A Global Notes:

THIS NOTE HAS NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY OTHER APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR WITH ANY SECURITIES REGULATORY AUTHORITY IN ANY JURISDICTION, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, US PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT, WITHIN ONE YEAR AFTER THE LATER OF (x) THE ORIGINAL ISSUANCE OF THIS NOTE AND (y) THE LAST DATE ON WHICH PEARSON FUNDING TWO PLC (THE “COMPANY”), PEARSON PLC (THE “GUARANTOR”) OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS NOTE (OR ANY PREDECESSOR HEREOF) (THE “RESTRICTED PERIOD”), RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT PURSUANT TO AN APPLICABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE RESTRICTED PERIOD. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THIS NOTE.]

[Include the following legend on all Notes that are Regulation S Global Notes:

THIS NOTE HAS NOT BEEN, AND WILL NOT BE REGISTERED, UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER

51

APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR WITH ANY SECURITIES REGULATORY AUTHORITY IN ANY JURISDICTION, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, US PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A US PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, PRIOR TO THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD (DEFINED AS 40 DAYS AFTER THE LATER OF THE CLOSING DATE WITH RESPECT TO THE NOTES AND THE COMPLETION OF THE DISTRIBUTION OF THE NOTES), RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A)(1) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (2) TO A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT; AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “US PERSON” HAVE THE MEANINGS GIVEN TO THEM IN REGULATION S UNDER THE SECURITIES ACT.]

[Include the following legend on all Notes that are Certificated Notes:

IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR SUCH OPINIONS OF COUNSEL, CERTIFICATES AND/OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE IN FORM REASONABLY SATISFACTORY TO IT AS PROVIDED FOR IN THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIED WITH THE FOREGOING RESTRICTIONS AS PROVIDED FOR IN THE INDENTURE.]

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FORM OF FACE OF NOTE

[•]% Guaranteed Notes due [•]

No. [___] Principal Amount U.S.$[______________]

[If the Note is a Global Note include the following two lines,
as revised by the Schedule of Increases and
Decreases in Global Note attached hereto]

[CUSIP NO. ____________]

[ISIN NO. ____________]

[COMMON CODE. ____________]

     Pearson Funding Two plc, a public company incorporated with limited liability under the laws of England promises to pay to [___________], or its nominee, or its registered assigns, the principal sum of [SPELL OUT IN WORDS] U.S. dollars, [If the Note is a Global Note, add the following, as revised by the Schedule of Increases and Decreases in Global Note attached hereto], on [Maturity Date].

     Interest Payment Dates: [•] and [•] in each year

     Record Dates: [•] and [•] in each year

     Interest rate: [•]% per annum

     Additional provisions of this Note are set forth on the other side of this Note.

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     IN WITNESS WHEREOF, Pearson Funding Two plc has caused this Note to be signed by its duly authorized officer.

     Date: [•], 2010

PEARSON FUNDING TWO PLC
By:
	Name:
	Title:

TRUSTEE’S CERTIFICATE OF
AUTHENTICATION

     The Bank of New York Mellon acting through its London Branch, as Trustee, certifies that this is one of the Notes referred to in the Indenture.

     Date: [•], 2010

By:
	Authorized Signatory

GUARANTEE

     This Note is irrevocably and unconditionally guaranteed by the Guarantor in the manner and to the extent set forth in Article XI of the Indenture.

     Date: [•], 2010

PEARSON PLC
By:
	Name:
	Title:

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FORM OF REVERSE SIDE OF NOTE

[•]% Guaranteed Notes due [•]

1. Interest

     Pearson Funding Two plc (the “Company”), a public company incorporated with limited liability under the laws of England (and each of its successors and assigns under the Indenture), promises to pay interest on the principal amount of this Note at the rate per annum shown above.

     The Company will pay interest semi-annually in arrears on each Interest Payment Date of each year commencing [•], 2010. Interest on the Notes will accrue from the most recent date to which interest has been paid on the Notes or, if no interest has been paid, from [•], 2010. Interest on the Notes will be payable in U.S. dollars at the Company’s office or agency in the Borough of Manhattan, the City of New York, New York. If interest is required to be calculated for any period less than a year, other than with respect to regular semi-annual payments, it will be calculated based on a 360-day year consisting of twelve 30-day months.

     All payments in respect of the Notes will be made free and clear of and without deduction or withholding for or on account of any Taxes, unless such withholding or deduction is required by law. In that event, the Company or Pearson PLC (the “Guarantor”), as the case may be, will pay to each Holder of the Notes Additional Amounts as provided in the Indenture subject to the limitations set forth in the Indenture.

2. Method of Payment

     On the date on which any principal of or interest on any Note is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent in New York, New York [If a Certificated Note, and in [London]] U.S. dollar funds sufficient to pay such principal and/or interest. The Company will pay interest to the Persons who are registered Holders of Notes at the close of business on the Record Date preceding the Interest Payment Date even if Notes are cancelled, repurchased or redeemed after the Record Date and on or before the relevant Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in U.S. dollars.

     Payments (including principal and interest) will be made by the transfer of immediately available funds to the account specified by DTC with respect to the Global Note. [If this a Certificated Note, add the following: The Company will make all payments in respect of a Certificated Note (including principal and interest) by mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Notes may also be made, in the case of a Holder of at least U.S.$1,000,000 aggregate principal amount of Notes, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion).]

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3. Paying Agent and Registrar

     Initially, The Bank of New York Mellon acting through its London Branch (the “Trustee”), will act as Trustee, Paying Agent, Calculation Agent and Registrar. [If this Note is a Certificated Note, The Bank of New York Mellon acting through its London Branch will act as Paying Agent in [London].] The Company or the Guarantor may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Holder. The Company or the Guarantor may act as Paying Agent, Registrar or co-registrar.

4. Indenture

     The Company issued the Notes under an Indenture, dated as [•], 2010 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the “Indenture”), among the Company, the Guarantor and the Trustee. In the event of an inconsistency between the terms of the Notes set forth herein and other terms of the Indenture, the terms set forth in any part of the Indenture other than in Exhibit A thereto shall govern. The terms of the Notes include those stated in the Indenture [and those made part of the Indenture by reference to the TIA]. Capitalized terms used but not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of those terms. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as amended from time to time.

     The Notes are general senior unsecured obligations of the Company and have the benefit of an irrevocable and unconditional guarantee of the Guarantor. Subject to the conditions set forth in the Indenture and without the consent of the Holders, the Company may issue Add On Notes. All Notes of this series will be treated as a single class of securities under the Indenture.

     The Indenture contains certain covenants with respect to, among other things, (i) the requirement of the Company and the Guarantor to offer to repurchase the Notes upon a Change of Control Triggering Event, (ii) the ability of the Company, the Guarantor and its Principal Subsidiaries to create Liens to secure Relevant Indebtedness and (iii) limitations on the ability of the Company and the Guarantor to consolidate or merge or transfer, lease or convey all or substantially all of the Company’s or the Guarantor’s respective assets unless certain conditions are satisfied.

5. Redemption

     Optional Tax Redemption. The Notes may be redeemed on not less than 30 nor more than 60 days’ prior written notice to the Trustee, and, in accordance with the procedures described in the Indenture, to each Holder of the Notes, at the option of the Company or the Guarantor, in whole, but not in part, at any time, if:

     (a) on the occasion of the next payment of interest due under the Notes, each of the Company and the Guarantor has or will become obliged to pay Additional Amounts as a result of any change in, or amendment to, the laws or regulations of the Company’s domicile or any authority in or of the Company’s or the Guarantor’s domicile, having power to tax, or any change in the official judicial or administrative interpretation of those laws and regulations, which change or amendment becomes effective on or after the Issue Date; and

     (b) each of the Company and the Guarantor is unable to avoid this obligation by taking reasonable measures available to it, provided that no notice of Optional Tax Redemption shall be given earlier than 90 days prior to the earliest date on which the Company or the Guarantor, as the case may be, would be obliged to pay, deduct or withhold amounts were a payment in respect of the Notes then due.

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     Notes redeemed pursuant to an Optional Tax Redemption will be redeemed at an amount equal to the principal amount of the Notes being redeemed together with Additional Amounts, if any, plus any accrued and unpaid interest to (but excluding) the Redemption Date.

     Optional Redemption. The Notes may also be redeemed, as a whole at any time or in part from time to time, at the option of the Company, at a redemption price equal to the greater of:

     (a) 100% of the principal amount of the Notes being redeemed; or

     (b) as determined by the Calculation Agent, the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed, not including any portion of such payment of interest accrued on the Redemption Date, from the Redemption Date to the relevant Maturity Date, discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus [•] basis points.

plus any accrued and unpaid interest to (but excluding) the Redemption Date and Additional Amounts, if any.

     Notice of any redemption will be mailed at least 30 days but no more than 60 days before the Redemption Date to the Trustee, the Guarantor and, in accordance with the procedures described in the Indenture, to each Holder of Notes to be redeemed.

     Unless the Company or the Guarantor defaults in payment of the redemption price, on and after the Redemption Date, interest will cease to accrue on the Notes called for redemption.

6. Denominations; Transfer; Exchange

     The Notes are in fully registered form without coupons, and only in denominations of principal amount of U.S.$100,000 and any integral multiples of U.S.$1,000 in excess thereof. A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents. The Registrar need not register the transfer of or exchange (i) any Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) for a period beginning 15 days before the mailing of a notice of Notes to be redeemed and ending on the date of such mailing or (ii) any Notes for a period beginning 15 days before an Interest Payment Date and ending on such Interest Payment Date.

7. Persons Deemed Owners

     The Holder of this Note may be treated as the owner of it for all purposes.

8. Unclaimed Money

     If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company or the Guarantor at its written request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company or the Guarantor and not to the Trustee for payment.

9. Discharge Prior to Redemption or Maturity

     Subject to certain conditions set forth in the Indenture, the Company or the Guarantor at any time may terminate some or all of its obligations under the Notes and the Indenture if the Company or the Guarantor deposits with the Trustee U.S. dollar funds for the payment of principal of and interest on the Notes to redemption or maturity, as the case may be.

57

10. Defaults and Remedies

     If an Event of Default occurs and is continuing, and subject to the provisions set forth in the Indenture, the Trustee or any Holder of a Note may declare the Note to be due and payable immediately.

     Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives reasonable indemnity or security satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest.

11. Trustee Dealings with the Company

     Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by the Company, the Guarantor or its Affiliates and may otherwise deal with the Company, the Guarantor or its Affiliates with the same rights it would have if it were not Trustee.

12. Authentication

     This Note shall not be valid or enforceable unless and until an authorized signatory of the Trustee (or an Authenticating Agent acting on its behalf) manually signs the certificate of authentication on the other side of this Note.

13. Abbreviations

     Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (= joint tenants with rights of survivorship and not as tenants in common), CUST (= custodian) and U/G/M/A (= Uniform Gift to Minors Act).

14. Governing Law

     THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT THAT THE AUTHORIZATION AND EXECUTION BY THE COMPANY OF THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF ENGLAND WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS OR CHOICE OF LAWS PROVISIONS OF THE LAWS OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION.

15. Currency of Account; Conversion of Currency.

     The U.S. dollar is the sole currency of account and payment for all sums payable by the Company under or in connection with the Notes or the Indenture, including damages. The Company will indemnify the Holders as provided in respect of the conversion of currency relating to the Notes and the Indenture.

16. Agent for Service; Submission to Jurisdiction; Waiver of Immunities.

     Each of the Company and the Guarantor has agreed that any suit, action or proceeding against the Company or the Guarantor brought by any Holder or the Trustee arising out of or based upon the

58

Indenture or the Notes may be instituted in any state or federal court in the Borough of Manhattan, the City of New York, New York. Each of the Company and the Guarantor has irrevocably submitted to the non-exclusive jurisdiction of such courts for such purpose and waived, to the fullest extent permitted by law, trial by jury and any objection it may now or hereafter have to the laying of venue of any such proceeding, and any claim it may now or hereafter have that any proceeding in any such court is brought in an inconvenient forum. Each of the Company and the Guarantor has appointed Pearson Inc., with an office at 1330 Avenue of the Americas, New York, NY 10019 as its authorized agent upon whom all writs, process and summonses may be served in any suit, action or proceeding arising out of or based upon the Indenture or the Notes which may be instituted in any state or federal court in the Borough of Manhattan, the City of New York. To the extent that the Company or the Guarantor has or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, from jurisdiction of any court or from set-off or any legal process (whether service or notice, attachment in aid or otherwise) with respect to itself or any of its property, each of the Company and the Guarantor has irrevocably waived and agreed not to plead or claim such immunity in respect of its obligations under the Indenture or the Notes.

17. Defined Terms.

     Capitalized terms used but not defined herein shall have the respective meanings ascribed to them in the Indenture. The term “Note” or “Notes” as used herein shall refer to Notes of this series.

     The Company will furnish to any Holder upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Note. Requests may be made to: Pearson Funding Two plc, 80 Strand, London WC2R 0RL, United Kingdom.

59

ASSIGNMENT FORM

          To assign this Note, fill in the form below:

          I or we assign and transfer this Note to

(Print or type assignee’s name, address and zip code)

(Insert assignee’s Social Security or Tax I.D. Number)

and irrevocably appoint as agent to transfer this Note on the books of the Company. The agent may substitute another to act for him.

Date: Your Signature:

Signature Guarantee:
	(Signature must be guaranteed)

Sign exactly as your name appears on the other side of this Note.

The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended.

60

[To be attached to Global Notes only:

SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE

     The following increases or decreases in this Global Note have been made:

			Principal Amount of	Signature of
	Amount of decrease	Amount of increase in	this Global Note	authorized signatory
Date of	in Principal Amount	Principal Amount of	following such	of Trustee or Paying
Exchange	of this Global Note	this Global Note	decrease or increase	Agent

]

61

EXHIBIT B

FORM OF TRANSFER CERTIFICATE FOR TRANSFER TO QIB

[Date]

The Bank of New York Mellon
One Canada Square
40^th Floor
London E14 5AL
United Kingdom

[Attention: [•]]

Re:[•]% Guaranteed Notes due [•] (the “Notes”) of Pearson Funding Two plc (the “Company”) guaranteed by Pearson PLC (the “Guarantor”)

Ladies and Gentlemen:

     Reference is hereby made to the Indenture, dated as of [•], 2010 (as amended and supplemented from time to time, the “Indenture”), between the Company, the Guarantor and The Bank of New York Mellon acting through its London Branch, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture.

     This letter relates to U.S.$ [•] aggregate principal amount of Notes [in the case of a transfer of an interest in a Regulation S Global Note to a QIB during the Distribution Compliance Period] which represents an interest in a Regulation S Global Note beneficially owned by the undersigned (the “Transferor”) to effect the transfer of such Notes in exchange for an equivalent beneficial interest in the Rule 144A Global Note.

     In connection with such request, and with respect to such Notes, the Transferor does hereby certify that such Notes are being transferred in accordance with Rule 144A under the Securities Act of 1933, as amended (“Rule 144A”), to a transferee that the Transferor reasonably believes is purchasing the Notes for its own account or an account with respect to which the transferee exercises sole investment discretion, and the transferee, as well as any such account, is a “qualified institutional buyer” within the meaning of Rule 144A, in a transaction meeting the requirements of Rule 144A and in accordance with applicable securities laws of any state of the United States or any other jurisdiction.

     You and the Company and the Guarantor are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

     Very truly yours,

     [Name of Transferor]

By:

Authorized Signature

62

EXHIBIT C

FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S

[Date]

The Bank of New York Mellon
One Canada Square
40^th Floor
London E14 5AL
United Kingdom

[Attention: [•]]

Re: [•]% Guaranteed Notes due [•] (the “Notes”) of Pearson Funding Two plc (the “Company”) guaranteed by Pearson PLC (the “Guarantor”)

Ladies and Gentlemen:

     Reference is hereby made to the Indenture, dated as of [•], 2010 (as amended and supplemented from time to time, the “Indenture”), between the Company, the Guarantor and The Bank of New York Mellon acting through its London Branch, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture.

     In connection with our sale of U.S.$ [•] aggregate principal amount of the Notes [in the case of a transfer of an interest in a 144A Global Note to a Non-US Person in accordance with Regulation S], which represent an interest in a 144A Global Note beneficially owned by the undersigned (“Transferor”), we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, we represent that:

     (a) the offer of the Notes was not made to a person in the United States;

     (b) either (i) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (ii) the transaction was executed in, on or through the facilities of, a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States;

     (c) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable;

     (d) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and

     (e) we are the beneficial owner of the principal amount of Notes being transferred.

     In addition, if the sale is made during the Distribution Compliance Period and the provisions of Rule 904(b)(1) or Rule 904(b)(2) of Regulation S are applicable thereto, we confirm that such sale

63

has been made in accordance with the applicable provisions of Rule 904(b)(1) or Rule 904(b)(2), as the case may be.

     You and the Company and the Guarantor are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this letter have the meanings set forth in Regulation S.

     Very truly yours,

     [Name of Transferor]

By:

Authorized Signature

64

EXHIBIT D

FORM OF RULE 144 CERTIFICATION

[Date]

The Bank of New York Mellon
One Canada Square
40^th Floor
London E14 5AL
United Kingdom

[Attention: [•]]

Re: [•]% Guaranteed Notes due [•] (the “Notes”) of Pearson Funding Two plc (the “Company”) guaranteed by Pearson PLC (the “Guarantor”)

Ladies and Gentlemen:

     Reference is hereby made to the Indenture, dated as of [•], 2010 (as amended and supplemented from time to time, the “Indenture”), between the Company, the Guarantor and The Bank of New York Mellon acting through its London Branch, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture.

     In connection with our sale of U.S.$ [•] aggregate principal amount of the Notes [in the case of a transfer of an interest in a 144A Global Note] which represents an interest in a 144A Global Note beneficially owned by the undersigned (“Transferor”), we confirm that such sale has been effected pursuant to and in accordance with Rule 144 under the Securities Act.

     You and the Company and the Guarantor are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

     Very truly yours,

     [Name of Transferor]

By:

Authorized Signature

65

EX-8.1

Exhibit 8.1

List of Subsidiaries

	Country of
Company	Incorporation
Addison Wesley Longman Australia Pty Ltd	Australia
Adelphi Finance Limited	Jersey
African Business Channel (Pty) Ltd	South Africa
America’s Choice Inc	USA
AW Iberoamericana SA de CV	Mexico
Axis Finance Inc	USA
Bath Road Corporation	USA
Beijing Rongjin Advertising Company Ltd	China
Berkhout Nijmegen BV	Netherlands
Blue Wharf Ltd	England and Wales
BS ZAO	Russia
Burmedia Investments Ltd	England and Wales
Camshaw USA Inc	USA
Chatelain Properties Ltd	England and Wales
Children’s Character Books Ltd	England and Wales
Chronicle Australasia Pty Ltd	Australia
Cogmed International AB	Sweden
Cogmed Sverige AB	Sweden
Cogmed Systems AB	Sweden
Construction Learning World Ltd	England and Wales
Dominie Press Inc	USA
Dorling Kindersley Australia Pty Ltd	Australia
Dorling Kindersley Inc	USA
Dorling Kindersley India Private Limited	India
Dorling Kindersley Ltd	England and Wales
Dorling Kindersley Publishers (South Africa) Pty Ltd	South Africa
Dorling Kindersley Publishing Inc	USA
Dorling Kindersley Verlag GmbH	Germany
eCollege inc	USA
E-College Lanka (Private) Ltd	Sri Lanka
Edexcel China Ltd	Hong Kong
Edexcel Ltd	England and Wales
Edexcel South Africa Pty Ltd	South Africa
Editions Du Renouveau Pedagogique Inc	Canada
Education by Association (Pty) Ltd	South Africa
Educational Publishers LLP	USA
Embankment Finance Ltd	England and Wales
English Language Learning and Instruction System Inc	USA
Family Books at Home Inc	USA
FDI Intelligence Limited	England and Wales
Financial Times (Europe) GmbH	Germany
Financial Times Electronic Publishing (HK) Ltd	Hong Kong
Financial Times Group Ltd	England and Wales
Financial Times Information Ltd	England and Wales
Financial Times Investor Ltd	England and Wales
Franchise Support & Services SL	Spain
Frederick Warne & Co Ltd	England and Wales
Frederick Warne & Co Inc	USA
Fronter AB	Sweden

	Country of
Company	Incorporation
Fronter AS	Norway
Fronter GmbH	Germany
Fronter Oy	Finland
Fronter SA	Switzerland
Fronter spZoo	Poland
Fronter UK Limited	England and Wales
FT CareerPoint Ltd	England and Wales
FT Electronic Publishing (Philippines) Inc	Philippines
FT Group Inc	USA
FT Information Philippines Inc	Philippines
FT Knowledge (Holdings) Inc	USA
FT Personal Finance Ltd	England and Wales
FT Publications Inc	USA
FT Search Inc	USA
Gas Logic Ltd	England and Wales
Guangzhou Crescent Software Co Ltd	China
Green Wharf Limited	England and Wales
Harcourt Assessment BVBA	Belgian
HB Group Ltd	England and Wales
HB Training Ltd	England and Wales
HB Civil and Building Services Ltd	England and Wales
Headland Digital Media Inc	USA
Heinemann Education Botswana Publishers (Pty) Ltd	Botswana
Heinemann Publishers (Pty) Ltd	South Africa
Heinemann Publishers (Oxford) Ltd	England and Wales
Integral 7 Inc	USA
Infinata Inc	USA
Kirihara Logitec Co	Japan
Knowledge Analysis Technologies LLC	USA
Ladybird Books Ltd	England and Wales
Lakeside Trading Estate Ltd	England and Wales
Les Editions du Centre de Psychologie Appliquee SA	France
Lesson Lab Inc	USA
Logic Certification Ltd	England and Wales
Logic Training and Assessments Ltd	England and Wales
Longman Australasia Pty Ltd	Australia
Longman Botswana (Proprietary) Ltd	Botswana
Longman Communications Ltd	England and Wales
Longman Group (Overseas) Holdings Ltd	England and Wales
Longman Indochina Acquisition LLC	USA
Longman Kenya Ltd	Kenya
Longman Lesotho (Proprietary) Ltd	Lesotho
Longman Malawi Ltd	Malawi
Longman Mocambique Ltda	Mozambique
Longman Namibia (Pty) Ltd	Namibia
Longman Nigeria plc	Nigeria
Longman Publishing Company SA (Pty) Ltd	South Africa
Longman Swaziland (Proprietary) Ltd	Swaziland
Longman Tanzania Ltd	Tanzania
Longman Uganda Ltd	Uganda
Longman Zambia Ltd	Zambia
Longman Zimbabwe (Private) Ltd	Zimbabwe
Macro Educational Systems Inc	USA
Maskew Miller Longman (Pty) Ltd	South Africa

	Country of
Company	Incorporation
Maskew Miller Longman Holdings (Pty) Ltd	South Africa
Marblemirror Ltd	England and Wales
Medley Global Advisors LLC	USA
Melorio plc	England and Wales
MergerID Limited	England and Wales
Mergermarket (U.S.) Ltd	USA
Mergermarket Consulting (Australia) Pty Ltd	Australia
Mergermarket Consulting (Singapore) Pte Ltd	Singapore
Mergermarket Consulting Ltd	Hong Kong
Mergermarket Ltd	England and Wales
MetaMetrics Inc	USA
Money Media Inc	USA
National Computer Systems Japan Co Ltd	Japan
NCS Assessments Inc	USA
NCS Information Services Technology (Beijing) Co Ltd	China
NCS Pearson Puerto Rico Inc	Puerto Rico
NCS Pearson (India) private Ltd	India
NCS Pearson Inc	USA
NCS Pearson Pty Ltd	Australia
NCS Services (UK) Ltd	England and Wales
NCSP Holdings Inc	USA
New York Institute of Finance Inc	USA
NYIF Holdings Inc	USA
Ordinate Corporation	USA
Payne Gallway Publishers Limited	England and Wales
P. Ed. Aust Pty Ltd	Australia
Pearson America LLC	USA
Pearson Amsterdam BV	Netherlands
Pearson Amsterdam Finance Limited	England and Wales
Pearson Assessment & Information BV	Netherlands
Pearson Assessment & Information Sweden AB	Sweden
Pearson Assessment & Information GmbH	Germany
Pearson Australia Finance Unlimited	England and Wales
Pearson Australia Group Pty Ltd	Australia
Pearson Australia Holdings Pty Ltd	Australia
Pearson Australia Pty Ltd	Australia
Pearson Business Services Inc	USA
Pearson Canada Assessments Inc	Canada
Pearson Canada Finance Unlimited	England and Wales
Pearson Canada Holdings Inc	Canada
Pearson Canada Inc	Canada
Pearson Capital Company LLC	USA
Pearson Charitable Foundation	USA
Pearson DBC Holdings Inc	USA
Pearson Digital Learning Puerto Rico Inc	Puerto Rico
Pearson Dollar Finance plc	England and Wales
Pearson Dollar Finance Two plc	England and Wales
Pearson Driving Assessments Ltd	England and Wales
Pearson Educacion de Chile Ltda	Chile
Pearson Educacion de Colombia Ltda	Colombia
Pearson Educacion de Mexico SA de CV	Mexico
Pearson Educacion de Peru SA	Peru
Pearson Educacion Do Brasil Limitada	Brazil
Pearson Educacion S.A	Spain

	Country of
Company	Incorporation
Pearson Education (South Africa) Pty Ltd	South Africa
Pearson Education (Singapore) Pte Ltd	Singapore
Pearson Education Achievement Solutions (Pty) Ltd	South Africa
Pearson Education Asia Ltd	Hong Kong
Pearson Education Australia Superannuation Fund Pty Ltd	Australia
Pearson Education Benelux BV	Belgium
Pearson Education de Mexico SA de CV (1 Share)	Mexico
Pearson Education Deutschland GmbH	Germany
Pearson Education France SAS	France
Pearson Education Hellas SA	Greece
Pearson Education Holdings Inc	USA
Pearson Education Inc	USA
Pearson Education Indochina Ltd	Thailand
Pearson Education Korea Ltd	Korea
Pearson Education Ltd	England and Wales
Pearson Education Nordic AB	Sweden
Pearson Education Central Europe SpZoo	Poland
Pearson Education S.A	Uruguay
Pearson Education S.A.	Argentina
Pearson Education Schweiz AG	Switzerland
Pearson Education South Asia Pte Ltd	Singapore
Pearson Education Taiwan Ltd	Taiwan
Pearson Education Yayincilik Sirketi	Turkey
Pearson Educational Measurement Canada Inc	Canada
Pearson Educational Publishers LLC	USA
Pearson Funding One plc	England and Wales
Pearson Heinemann Ltd	England and Wales
Pearson Holdings Italia Srl	Italy
Pearson Holdings Inc	USA
Pearson Inc	USA
Pearson India PvT Ltd	India
Pearson International Finance Ltd	England and Wales
Pearson Investment Holdings Inc	USA
Pearson Investment Services Ltd	England and Wales
Pearson Kirihara KK	Japan
Pearson Language Assessments Limited	England and Wales
Pearson Learning (Hong Kong) Limited	Hong Kong
Pearson Loan Finance No.2 Unlimited	England and Wales
Pearson Loan Finance Unlimited	England and Wales
Pearson Longman Inc	USA
Pearson Luxembourg Holdings Ltd	England and Wales
Pearson Luxembourg Holdings No.2 Ltd	England and Wales
Pearson Luxembourg Holdings Sarl	Luxembourg
Pearson Luxembourg Holdings SeNC	Luxembourg
Pearson Luxembourg No. 1 Sarl	Luxembourg
Pearson Luxembourg No. 2 Sarl	Luxembourg
Pearson Malaysia Sdn Bhd	Malaysia
Pearson Management Services Ltd	England and Wales
Pearson NTC LLC	USA
Pearson Netherlands BV	Netherlands
Pearson Netherlands Holdings BV	Netherlands
Pearson New Zealand Ltd	New Zealand
Pearson Overseas Holdings Ltd	England and Wales
Pearson Overseas Investments Limited	England and Wales

	Country of
Company	Incorporation
Pearson Paravia Bruno Mondadori Editori Spa	Italy
Pearson PEM P.R. Inc	Puerto Rico
Pearson Professional Holdings Ltd	England and Wales
Pearson Real Estate Holdings Inc	USA
Pearson (Singapore) Pte Ltd	Singapore
Pearson Services Ltd	England and Wales
Pearson Shared Services Ltd	England and Wales
Pearson (Shanghai) Corporate Management Consulting Co Ltd	China
Penguin Books (SA) Pty	South Africa
Penguin Books Benelux BV	Netherlands
Penguin Books Deutschland GmbH	Germany
Penguin Books India Pte Ltd	India
Penguin Books Ltd	England and Wales
Penguin Books S A	Spain
Penguin Capital LLC	USA
Penguin Group (USA) Inc	USA
Penguin Italia SRL	Italy
PN Holdings Inc	USA
Prentice Hall (South Africa) Pty Ltd	South Africa
Prentice Hall Holdings BV	Netherlands
Promissor Inc	USA
Rebus Planning Associates Inc	USA
Rough Guides Inc	USA
Rycade Capital Corporation	USA
Salspot Ltd	England and Wales
Savoy Finance Unlimited	Jersey
Scott Foresman Leasing Co	USA
Servicios Administrationes Pearson Educacion SA de CV	Mexico
Shanghai AWL Education Software Ltd	Shanghai
Sistema Educacional Brasileiro	Brazil
Sound Holdings Inc	USA
Southwark Administracao e Participacoes Ltda	Brazil
Spear Insurance Ltd	Bermuda
St Clements Press Ltd	England and Wales
Testchange Ltd	England and Wales
The Administrative Assistants Limited	Canada
The Financial News Ltd	England and Wales
The Financial Times (Benelux) Ltd	England and Wales
The Financial Times (France) Ltd	England and Wales
The Financial Times (Hong Kong) Ltd	Hong Kong
The Financial Times (Japan) Ltd	England and Wales
The Financial Times (Spain) Ltd	England and Wales
The Financial Times International Publishing Ltd	England and Wales
The Financial Times Ltd (Newspaper)	England and Wales
The Learning Edge Europe Ltd	England and Wales
The Learning Edge International Pty Ltd	Australia
The Open College Limited	England and Wales
The Penguin Publishing Co Ltd	England and Wales
The Rough Guides Ltd	England and Wales
The SIOP Institute LLC	USA
Themescene Ltd	England and Wales
Tussauds Espana SA	Spain
Ventura Publishing Ltd	England and Wales
Virtual University Enterprises Inc	USA

	Country of
Company	Incorporation
VUE Testing Services Israel Ltd	Israel
Wall Street Institute BV	Netherlands
Wall Street Institute II BV	Netherlands
Wall Street Institute Kft	Hungary
West Thurrock Estate Ltd	England and Wales
WSI Education Holdings Sarl	Luxembourg
WSI Education Sarl	Luxembourg
WSI Education GmbH	Germany
WSI International Inc	USA
Zenos Limited	England and Wales
Zenos Support Services Ltd	England and Wales

EX-12.1

Exhibit 12.1

CERTIFICATIONS

I, Marjorie Scardino, certify that:

1.	I have reviewed this annual report on Form 20-F of Pearson plc;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of Pearson plc as of, and for, the periods presented in this annual report;
4.	Pearson plc’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Pearson plc and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Pearson plc, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of Pearson plc’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this annual report any change in Pearson plc’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, Pearson plc’s internal control over financial reporting; and

5. Pearson plc’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Pearson plc’s auditors and the audit committee of Pearson plc’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Pearson plc’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in Pearson plc’s internal control over financial reporting.

Date: March 25, 2011

/s/ Marjorie Scardino Marjorie Scardino

Chief Executive Officer

EX-12.2

Exhibit 12.2

CERTIFICATIONS

I, Robin Freestone, certify that:

1.	I have reviewed this annual report on Form 20-F of Pearson plc;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of Pearson plc as of, and for, the periods presented in this annual report;
4.	Pearson plc’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Pearson plc and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Pearson plc, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of Pearson plc’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this annual report any change in Pearson plc’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, Pearson plc’s internal control over financial reporting; and

5. Pearson plc’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Pearson plc’s auditors and the audit committee of Pearson plc’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Pearson plc’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in Pearson plc’s internal control over financial reporting.

Date: March 25, 2011

/s/ Robin Freestone Robin Freestone

Chief Financial Officer

EX-13.1

Exhibit 13.1

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report on Form 20-F of Pearson plc (the “Company”) for the fiscal year ending December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marjorie Scardino, Chief Executive Officer of the Company, certify to my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 25, 2011

/s/ Marjorie Scardino Marjorie Scardino

Chief Executive Officer

EX-13.2

Exhibit 13.2

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report on Form 20-F of Pearson plc (the “Company”) for the fiscal year ending December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robin Freestone, Chief Financial Officer of the Company, certify to my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

     Dated: March 25, 2011

/s/ Robin Freestone Robin Freestone

Chief Financial Officer

EX-15

Exhibit 15

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-66444, 333-45070 and 333-44590) of Pearson plc of our report dated March 25, 2011 relating to the financial statements and effectiveness of internal control over financial reporting, which appears in this Form 20-F.

PricewaterhouseCoopers LLP
London, England
March 25, 2011