Renumeration Committee Terms of Reference

1  Applicability

1.1  These Terms of Reference for the Xaar plc Remuneration Committee (the "Committee") are effective with effect from 16 August 2011 and supersede all previous Terms of Reference.

2  Membership and Chairman

2.1  Members of the Committee shall be appointed by the board of directors of the Company (the ”Board”) on the recommendation of the Nomination Committee and in consultation with the Chairman of this Committee. The Committee shall comprise at least 3 members, all of whom shall be independent non-executive directors.  The chairman of the Board may also serve on the Committee as an additional member if he or she was considered independent on appointment as chairman.

2.2  Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the chief executive, the head of human resources and external advisers, may be invited to attend for all or part of any meeting as and when appropriate and necessary.

2.3  Appointments to the Committee are made by the Board and shall be for a period of up to three years, which may be extended for further periods of up to three years, provided the director still meets the criteria for membership of the committee.

2.4  The Board shall appoint the Committee Chairman (the "Chairman") who shall be an independent non-executive director. In the absence of the Chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair any duly convened meeting. The chairman of the Board shall not be Chairman of the Committee.

3  Secretary

3.1  The Company Secretary or his nominee shall act as the Secretary of the Committee.

4  Quorum

4.1  The quorum necessary for the transaction of business shall be two members present in person.

4.2  A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee.

5  Meetings

5.1  The Committee shall meet at least twice a year at such times as the Chairman may decide. The Chairman shall call a meeting of the Committee if so requested by any Committee member or by the Board.

6  Notice of Meetings

6.1  Meetings of the Committee shall be summoned by the Secretary of the Committee or his nominee at the request of any of its members.

6.2  Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the Committee, any other person required to attend and all other non-executive directors, no later than 3 working days before the date of the meeting. Supporting papers shall be sent to Committee members, and to other attendees as appropriate, at the same time.

7  Minutes of Meetings

7.1  The Secretary or his nominee shall minute the proceedings and resolutions of all Committee meetings, including the names of those present and in attendance.

7.2  Draft minutes of Committee meetings shall be circulated promptly to all members of the Committee.  Once approved, minutes should be circulated o all other members of the Board, unless it would be inappropriate to do so (for example, if a conflict of interest exists).

8  Annual General Meeting

8.1  The Chairman shall attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee's activities.

9  Duties

9.1  The Committee should carry out the duties below for the Company, major subsidiary undertakings and the group as a whole, as appropriate.

9.2  The Committee shall:

9.2.1  determine and agree with the Board the framework or broad policy for the remuneration of the company's chairman, Chief Executive, the executive directors, and such other members of the executive management as it is designated to consider. The remuneration of non-executive directors shall be a matter for the chairman  and the executive members of the Board. No director or manager shall be involved in any decisions as to their own remuneration;

9.2.2  in determining such framework or policy, take into account all factors which it deems necessary including relevant legal and regulatory requirements, the provisions and recommendations of the UK Corporate Governance Code and associated guidance. The objective of such policy shall be to ensure that members of the executive management of the Company are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Company;

9.2.3  when setting remuneration policy for directors, review and have regard to the remuneration trends across the Company or group;

9.2.4  review the ongoing appropriateness and relevance of the remuneration policy;

9.2.5  approve the design of, and determine targets for, any performance related pay schemes operated by the Company and approve the total annual payments made under such schemes;

9.2.6  review the design of all share incentive plans requiring approval by the Board and shareholders. For any such plans, the Committee shall determine each year whether awards will be made and, if so, the overall amount of such awards, the individual awards to executive directors and other designated senior executives and the performance targets to be used;

9.2.7  determine the policy for, and scope of, pension arrangements for each executive director and other designated senior executives;

9.2.8  ensure that contractual terms on termination, and any payments made, are fair to the individual and the Company, that failure is not rewarded and that the duty to mitigate loss is recognised;

9.2.9  within the terms of the agreed policy, and in consultation with the chairman of the Board and/or Chief Executive as appropriate, determine the total individual remuneration package of the chairman of the Board, each executive director and other designated senior executives including bonuses, incentive payments and share options or other share awards;

9.2.10  in determining such remuneration packages and arrangements, give due regard to any relevant legal requirements, the provisions and recommendations in the UK Corporate Governance Code and the UK Listing Authority's Listing Rules and associated guidance;

9.2.11  review and note annually remuneration and other benefit structures across the Company or group;

9.2.12  oversee any major changes in employee benefits structures throughout the Company or group;

9.2.13  agree the policy for authorising claims for expenses from the directors;

9.2.14  ensure that all provisions regarding disclosure of remuneration (including pensions) in the Company’s Directors’ Remuneration Report, as set out in legislation (including but not limited to Regulation 8 and Schdule 8 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008) and the UK Corporate Governance Code are fulfilled; and

9.2.15  be exclusively responsible for:

(i)  establishing the selection criteria, for any remuneration consultants to advise the Committee;

(ii) selecting, appointing and setting the terms of reference for any such remuneration consultants;

(iii)  obtaining reliable, up-to-date information about remuneration in other companies.

9.3  The Committee shall have full authority to commission or purchase any reports, surveys or information that it deems necessary, within any budgetary restraints imposed by the Board, to help it fulfil its obligations.

10  Reporting Responsibilities

10.1  The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities.

10.2  The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.

10.3  The Committee shall produce an annual report of the Company's remuneration policy and practices [for approval by the Board]. The report will form part of the Company's Annual Report and be put to shareholders for approval at the AGM.

11  Other

11.1  The Committee shall:

11.1.1  be provided with appropriate and timely training, both in the form of an induction programme for new members and on an ongoing basis for all members;

11.1.2  give due consideration to laws and regulations, the provisions of the UK Corporate Governance Code and the requirements of the UK Listing Authority’s Listing, Prospectus and Disclosure and Transparency Rules and any other applicable rules, as appropriate; and

11.1.3  at least once a year, review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.

12  Authority

12.1  The Committee is authorised by the Board to:

12.1.1  investigate any activity within its terms of reference;

12.1.2  seek any information it requires from any employee of the company in order to perform its duties; and

12.1.3  obtain, within any budgetary restraints imposed by the Board, at the Company's expense, any outside legal or other professional advice on any matters within its terms of reference.