13.3.3 Long Term Incentive Plan and Special Long Term Incentive Plan – HBOS Directors and former Halifax Directors
Details of the shares which have been conditionally awarded to Directors under the plans are set out below. The performance conditions relating to these conditional awards are set out in the notes below the table.

Table 6	Grant effective from	At 31.12.03/ 01.01.04	Granted (G) or Lapsed (L) in year	Added as a result of superior performance	Dividend re-investment shares	Vested in year	At 31.12.04
James Crosby	Jan 01	70,992		70,992	18,540	160,524	-
	Jan 02	75,000					75,000
	Jan 03	103,125					103,125
	Jan 04	-	108,089(G)				108,089
		249,117					286,214
Mike Ellis	Jan 01	53,435		53,435	13,954	120,824	-
	Jan 02	56,250					56,250
	Jan 03	76,562					76,562
	Jan 04	-	75,313(G)				75,313
		186,247					208,125
Andy Hornby	Jan 01	40,458		40,458	10,566	91,482	-
	Jan 02	45,625					45,625
	Jan 02	260,000					260,000
	Jan 03	70,312					70,312
	Jan 04	-	80,195(G)				80,195
		416,395					456,132
Phil Hodkinson	Jan 01	53,435		53,435	13,954	120,824	-
	Jan 02	87,500					87,500
	Jan 03	58,593					58,593
	Jan 04	-	55,788(G)				55,788
		199,528					201,881
Colin Matthew	Jan 02	45,625					45,625
	Jan 03	58,593					58,593
	Jan 04	-	54,393(G)				54,393
		104,218					158,611
George Mitchell	Jan 02	56,250					56,250
	Jan 03	76,562					76,562
	Jan 04	-	75,313(G)				75,313
		132,812					208,125
Dennis Stevenson	Jan 01	38,168		38,168	9,968	86,304	-
	Jan 02	56,250					56,250
	Jan 03	77,343					77,343
	Jan 04	-	73,221(G)				73,221
		171,761					206,814
Mark Tucker	Jan 04	-	156,206(G)				156,206
		Nil					156,206

Notes to Table 6
Note 1
Shares under these plans, other than in relation to the second grant effective from January 2002 for Andy Hornby, were granted using the average market price in the ten business days ending at the previous year, as follows:

Plan and performance period	Share grant price £
Jan 2001 - Dec 2003	6.55
Jan 2002 - Dec 2004/06	8.00
Jan 2003 - Dec 2005/07	6.40
Jan 2004 - Dec 2006	7.17

Note 2
The grants effective from January 2001 and January 2002 for Phil Hodkinson, over shares having a value equal to 100% and 200% of salary, respectively, were necessary to facilitate his recruitment in September 2001. Normal grant levels would have been 25% of salary (in respect of three months’ service in 2001) and 100% of salary, respectively. These higher grants have no value unless HBOS outperforms the relevant comparator company weighted average, as set out in Section 10.4.

The grant effective from January 2004 for Mark Tucker, over shares having a value equal to 200% of salary, was necessary to facilitate his recruitment in April 2004. The normal grant level would have been 67% of salary (in respect of eight months’ service in 2004). This higher grant has no value unless HBOS outperforms the relevant comparator company weighted average, as set out in Section 10.4.

Following his retirement on 31 December 2003, Gordon McQueen retains interests under the plan through grants of 45,625 and 61,718 shares effective from January 2002 and January 2003, respectively. These remain subject to the same plan rules as apply to existing Executive Directors.

Note 3
Awards are not pensionable.

Note 4
The performance period for the January 2001 grant ended on 31 December 2003. HBOS’s (and previously Halifax’s) TSR over the performance period exceeded the weighted average of the comparator group by 13.45% p.a. so a maximum 200% of share grants have been released to grant recipients. Without a maximum payout limit of 200%, the plan would have released 336% of share grants.

The shares granted in January 2001 vested on 1 March 2004. The closing market price of the Group’s ordinary shares on that date was £7.34. In addition, dividend reinvestment shares have been released to grant recipients as set out in the table and as provided for under the rules of the plans. The dividend reinvestment shares are the additional shares which would have accrued on the overall share grants actually released had dividends due during the performance period been reinvested in shares. The shares received by the Executive Directors and the Chairman from those grants are, after any sales to discharge their personal tax and National Insurance liabilities on such shares, retained by them or on their behalves for at least an additional two years and are included in Table 4.

Note 5
Subject to performance, the shares granted under the long term plan effective from January 2002 will be released to most individuals shortly after the three-year anniversary of the grant date.

As explained in last year’s Report, for the 2002 and 2003 grants, all participants can choose to take any shares released after three years based on the three-year performance outcome or can continue to participate in the plan for a further two years and take shares at that point based on the better of the three-year and the five-year performance outcomes. This design feature seeks to motivate participants continually to sustain strong performance or to improve lesser performance for their benefit and the benefit of shareholders. This feature does not apply for the 2004 grants and will not apply for any grants in subsequent years, to reflect the preference on “retesting” expressed by most major institutional investors.

Note 6
In the case of the Chairman, it is not possible to include him in the standard Long Term Incentive Plan. Nor is it possible to include him in such an arrangement where the grant is denominated in shares. He is therefore included as the sole participant in the Special Long Term Incentive Plan where the grants are awards of notional shares. He will become entitled to the cash value of any notional shares on vesting but has agreed that this value will, subject to any withholdings for income tax or National Insurance, be applied in acquiring shares on his behalf.

Note 7
The number of shares to be released to participants is dependent on the Group’s TSR over a three year period, compared to the annualised weighted average TSR of a basket of comparator companies over an equivalent period. For the grants effective from January 2002 and January 2003, a five year period can also apply. This basket of companies comprises:-

• for the January 2001 grants: Abbey National, Alliance & Leicester, Bank of Scotland*, Barclays, Britannic Assurance, Legal & General, Lloyds TSB, Northern Rock, Prudential, Royal & Sun Alliance and Royal Bank of Scotland; and
• for the January 2002, 2003 and 2004 grants: Abbey National, Aviva, Barclays, Legal & General, Lloyds TSB, Prudential, Royal & Sun Alliance and Royal Bank of Scotland, but with Abbey National replaced by Alliance & Leicester, Bradford & Bingley and Northern Rock with effect from 1 July 2004.

The Committee decided retrospectively to remove Abbey National from the comparator group, in respect of the January 2002, 2003 and 2004 grants, effective from the end of June 2004 (immediately before bid activity started); and replace it with Alliance & Leicester, Bradford & Bingley and Northern Rock effective from the start of July 2004. This revised group of companies will comprise the comparator group for the January 2005 grant.

*For the period for which it was an independent entity.

Shares have been or will be released as follows:

Group’s relative TSR performance	Amount released as a % of share grant
2001 grants
0% p.a. (or below)	0
+4% p.a.	100*
+8% p.a. (or above)	200
2002, 2003 and 2004 grants
0% p.a. (or below)	0
+3% p.a.	100*
+6% p.a. (or above)	200

Intermediate positions are determined by interpolation.
* As shown as granted in the table.