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Al Baraka Banking

Group (ABG)

Share Incentive Scheme

Date of Issue: 10 November 2014

Date Approved: 10 November 2014

Approved By: Board of Directors

Version No.: 1.0

Revision Date: N/A

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Document Control

Change Record

Date Author Version Change Reference

10 Nov 2014 Human

Resources Dept

1_0 Board Approved

Reviewers

Name Position

Distribution List

Sr. No. Name Location

1 Members of the Board of Directors

2

Members of the Board Affairs &

Remuneration Committee

3 President & Chief Executive

4 Chief Financial Officer

5 Head of Operations & Administration

5 Head of Human Resources

Document Owner

Al Baraka Banking Group Human Resources Department

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Table of Contents

1 GLOSSARY................................................................................................................................ 4

2 INTRODUCTION ....................................................................................................................... 5

1.1. AN OVERVIEW OF THE BANK ....................................................................................................... 5

1.2. PURPOSE .................................................................................................................................. 5

1.3. APPROVALS ............................................................................................................................... 5

2. THE ABG SHARE INCENTIVE SCHEME ................................................................................... 6

2.1. BACKGROUND ............................................................................................................................ 6

2.2. PHANTOM SHARE PROGRAM ........................................................................................................ 6

2.3. SUMMARY OF KEY TERMS OF THE ABG SHARE PLAN ....................................................................... 6

2.4. PRICING OF AWARDS .................................................................................................................. 8

2.5. DIVIDENDS EQUIVALENTS ............................................................................................................ 9

2.6. REDEMPTION OF AWARDS ............................................................................................................ 9

2.7. TRUSTEE ................................................................................................................................... 9

2.8. SHARE INCENTIVE SCHEME COMMITTEE ........................................................................................ 9

2.9. SCHEME ADMINISTRATION ......................................................................................................... 10

2.10. COMMUNICATING THE TERMS OF THE SCHEME ........................................................................ 10

2.11. INFORMATION RIGHTS .......................................................................................................... 11

2.12. TAXATION, CLAIMS AND LEGAL ISSUES ................................................................................... 11

2.13. TAKEOVERS, LISTINGS AND LIQUIDATIONS .............................................................................. 11

2.14. SCHEME MODIFICATIONS ....................................................................................................... 11

2.15. MISCELLANEOUS PROVISIONS ................................................................................................ 11

2.16. PARTICIPANT ELIGIBILITY ......................................................................................................... 12

2.17. VESTING AND RETENTION ..................................................................................................... 12

3. THIRD PARTY ADMINISTRATION ......................................................................................... 14

4. EXHIBIT A – FORM OF AWARD CERTIFICATE ..................................................................... 16

5. EXHIBIT B - FORM OF UNDERTAKING ................................................................................. 19

6. SCHEME AMENDMENT FORM ............................................................................................... 22

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1 GLOSSARY

Term Meaning

Performance Year The period (usually 1 year) over which performance of the bank, business unit or individual is evaluated

Award The grant of Phantom Awards pursuant to this Scheme;

Board The board of directors of ABG or a duly constituted committee thereof

Award Price The value, which may in the discretion of the Board be specified in the Award certificate issued on the grant of Bonus Awards, determined by reference to the value of AIB net book value

Bonus Awards Phantom share awards granted under the Scheme

Date of Grant In relation to an Award, the date on which such Award is, was or is to be granted

Eligible Participant Any employee of ABG to whom share awards have been granted

Market Event Any event that relates to the change in control of ABG, listing of its shares or any other such event as the board may decide.

Measurement Date The date on which an Eligible Participant's entitlement is measured

BARC The Board Affairs & Remuneration Committee of the Board

Group Company ABG and its subsidiaries from time to time

Phantom Award An ordinary (phantom) share notionally allocated to a participant;

Rules The rules of this Scheme;

Scheme The ABG Share Scheme, as from time to time amended by BARC

ABG Al Baraka Banking Group B.S.C. (c). Also referred to as the Bank;

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2 INTRODUCTION

1.1. An Overview of the Bank Al Baraka Banking Group (B.S.C) is licensed as an Islamic wholesale bank by the Central

Bank of Bahrain, listed on Bahrain Bourse and Nasdaq Dubai stock exchanges. Al Baraka

offers retail, corporate, treasury and investment banking services, strictly in accordance

with the principles of the Islamic Shari'a.

1.2. Purpose

The Bank is setting up this Share Incentive Scheme (the “Scheme”) to comply with sound

remuneration principles and the main objectives of the Scheme are:

- To motivate and retain key senior employees and align employee interests with those of

the shareholders of the Bank.

- To foster employee commitment to work towards the common goal of enhancing shareholder value; and

- To enable employees to participate in the long term growth and financial success of the

Bank

1.3. Approvals

The Scheme entailing issue of phantom shares was approved by the shareholders in their

extra-ordinary meeting dated _______________.

The details of the Scheme and its mechanism was approved by the Board of Directors in

their meeting dated________________.

The Scheme was approved by the Central Bank of Bahrain vide their approval letter

dated _____________. .

The Scheme shall be considered to be effective from 31st December 2014.

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2. THE ABG SHARE INCENTIVE SCHEME

2.1. Background

Variable remuneration, as explained in the Variable Remuneration Policy of the Bank, is

used to incentivize, reward and retain strong performing employees and thereby

differentiate total compensation outcomes. The variable incentive is performance related

and consists primarily of the annual performance bonus award. Per the Variable

Remuneration Policy of the Bank, a portion of any variable incentive award to Covered

Staff will be in the form of Share Awards that vest over a minimum three year period (plus

six months retention), with appropriate ex-post risk assessment and forfeiture provisions.

2.2. Phantom Share Program

Phantom shares awards (“bonus awards” or “phantom awards”) are effectively simulated equity representing interest in the appreciation of a company’s stock on a memorandum basis. A phantom share program is a cash bonus plan under which the amount of the bonus is determined by reference to the increase in value of the underlying shares. No shares are actually issued or transferred to the award holder on vesting of the award and hence holders of awards do not carry any voting rights.

Each performance year, the Board Affairs & Remuneration Committee will at their discretion determine the amount of variable remuneration to be paid. The remuneration will be paid both in form of Short term incentives typically with a one year historic time horizon and Long term incentives which are for more than a one year future time horizon.

Key features of the phantom share program:

Participants receive an award of units in the form of hypothetical shares of ABG

stock.

The monetary amount of the bonus allocated for phantom awards is divided by the

value of ABG’s shares resulting in the number of awards granted.

Incremental value received is the increase in the value of shares from date the

awards were granted to the measurement date.

Participants have phantom share awards credited to their accounts.

The participant’s phantom stock account will also be credited with any future cash

or stock dividend equivalents and any stock splits attributable to the underlying ABG

shares.

The participant’s phantom stock account will also be credited any stock splits

attributable to the underlying ABG shares.

Participants are not entitled to full dividend equivalents until they vest in the

phantom share awards.

Participants are entitled to payment at a specified date in the future (which is the

earliest of allowed redemption, termination of employment, change of control, or a

public offering) with respect to ABG.

2.3. Summary of key terms of the ABG share plan

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Short term Incentive Plan (STIP) Long Term Incentive Plan (LTIP)

Summary Incentivise short-term

performance

Deferral of annual bonus in shares

Incentivise sustainable long-term

performance

Rewards execution of Bank’s

strategy and growth of

shareholder value over a multi-

year period

Share instrument Phantom (Shadow) shares Phantom (Shadow) shares

Coverage All staff to whom deferred

compensation applies

Senior management (can be

extended by Board Affairs &

Remuneration Committee)

Grant Frequency Annual Annual

Quantum Up to 60% of annual bonus

(BA&RC discretion)

Up to 50% of annual salary

(BA&RC discretion)

Vesting Period 3 years 3 years (Minimum)

Type of vesting Graded vesting – 1/3 each year Cliff vesting at end of 3 years

Retention 6 months 6 months

Future performance

condition None Yes (three years rolling

performance targets)

Future service

condition None Yes

Malus Yes Yes

Claw-back Yes Yes

Basis of valuation Weighted average share price of

ABG shares over one month after

announcement of financial results

Weighted average share price of

ABG shares over one month after

announcement of financial results

Valuation frequency Annual Annual

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Short term Incentive Plan (STIP) Long Term Incentive Plan (LTIP)

Redemption Earliest redemption is 6 months

after vesting date

Value at redemption to depend

on the fair value of the phantom

shares as determined above for

the year preceding the date of

redemption

Earliest redemption is 6 months

after vesting date

Value at redemption to depend

on the fair value of the phantom

shares as determined above for

the year preceding the date of

redemption

On death All deferred unvested awards vest

immediately

Board Affairs & Remuneration

Committee discretion

Leaver Provisions Awards earned and distributed

pro-rata. Unvested awards can be

forfeited for bad leavers

Lapse unless already vested. No

good/bad leaver provisions apply.

Change of Control

Provision Vesting based on time elapsed Vesting based on time elapsed

and performance targets to last

measurable point

Share plan

modification Subject to Board Affairs &

Remuneration Committee

approval

Subject to Board Affairs &

Remuneration Committee

approval

Governing Law Laws of Kingdom of Bahrain Laws of Kingdom of Bahrain

Administration Internally or Third party

Administrator (TPA) to administer

the scheme

Internally or Third party

Administrator (TPA) to administer

the scheme

2.4. Pricing of awards

The awards shall be issued to eligible participants at the value per share for each performance year.

The value per share will be taken by reference to the weighted average market share price per ABG share (by volume) as computed by the finance department over one month following the publication of the annual financial results of the bank.

The number of awards to be granted under the Scheme is based on the amount of bonus pool that is to be issued as phantom bonus awards divided by the value per share (i.e. number of awards is obtained by allocated bonus pool divided by value per share as determined above).

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2.5. Dividends equivalents

All awards shall be eligible for dividend equivalents. Any such dividends shall be released subject to the vesting conditions alongside the underlying shares.

2.6. Redemption of awards

Upon redemption of an award being effected, the former holder shall cease to be entitled to any rights in respect thereof (excepting always the right to receive a dividend equivalent which has been declared in respect thereof prior to the date on which the awards became subject to a compulsory redemption or are voluntary redeemed); and accordingly his name shall be removed from the register of participants with respect thereto.

Treatment of unvested awards will depend on the circumstances surrounding the

employee’s cessation of employment and whether they are considered a ‘Good Leaver’ or

a ‘Bad Leaver’. Typically, an award will lapse if the participant is classified as a ‘Bad

Leaver’, and will be paid out based on the original vesting schedule for a ‘Good Leaver’.

The Board Affairs & Remuneration Committee can decide and specifically approve the

award on a pro-rata basis to a Bad Leaver or likewise award the entire amount to a Good

Leaver. The decisions are subject to malus and clawback arrangements.

The awards are subject to voluntary or compulsory redemption upon vesting. After the 6 month retention period, awards will be eligible for redemption at the prevailing market value of ABG Shares.

2.7. Trustee

The Board Affairs & Remuneration Committee of the Board of ABG is appointed as Trustee of the Scheme.

The Trustees are responsible for the following:

To suggest changes to the plan design and amendments to the Board Affairs & Remuneration Committee

To oversee the administration of the Scheme

To adopt any additional rules that may be necessary to operate the scheme

To communicate the plan to participants

To oversee the employees involvement/motivation programs of the Bank and report progress to the Board Affairs & Remuneration Committee

2.8. Share Incentive Scheme Committee

The Share Incentive Scheme Committee (“SIS Committee”) is appointed by the trustees and delegated the responsibility to oversee the day-to-day operations of the Scheme.

The ABG Board Affairs & Remuneration Committee has currently appointed the Chief Executive Officer, the Head of Operations & Administration, the Chief Financial Officer and the Head of Human Resources as members of the SIS Committee. All Scheme related decisions shall require authorization of at least the President & Chief Executive plus two other committee members.

The SIS Committee is responsible for the following:

To oversee the operation of the Scheme (making sure that participants are paid, that allocations are properly made etc. );

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To communicate the Scheme to participants based on the requisite approval from the Trustees;

To suggest changes to the Scheme design and amendments;

To oversee the administration of the Scheme;

To adopt any additional rules that may be necessary to operate the Scheme;

To recommend the appointment of external auditors; and

To review and recommend the approval of the financial statements;

2.9. Scheme administration

The responsibility of administering the scheme will rest with the SIS committee under the direction of the trustees.

The Scheme may be administered by an independent third party (“herein after referred to as “Scheme Administrator”).

Subject to the provisions of the Scheme, the Scheme administrator shall:

Direct Scheme related calculations and analyses and direct the dispersion of awards;

Maintain related documents and records;

Communicate, as necessary with participants;

do all other things necessary, reasonable and prudent to assure the orderly and effective administration of the Scheme;

Keeping minutes of SIS committee meetings relating to the Scheme;

Making sure the Trustee gets everyone who is qualified into the Scheme and that once they are there, they get their proper allocations, statements, explanations and forfeitures.

Making sure that proper reports are filed with the regulatory authorities if required and provides required forms to Scheme participants.

Ensuring that proper procedures are followed in the case of employee complaints about the Scheme and that opportunity to inspect Scheme documents are provided.

Assuring that contributions to the Scheme are properly credited.

Overseeing Scheme distributions to assure they are done properly.

Providing the Board Affairs & Remuneration Committee with the information needed to monitor the Scheme and getting the information the Scheme needs to file statutory reports, if any.

2.10. Communicating the terms of the Scheme

The Scheme administrator is responsible for making sure that participants receive a summary Scheme description, an annual report on their account balances, reports on amendments to the Scheme, and access to certain documents on request.

The administrator is also responsible for other communications to Scheme participants, such as:

simplified brochures describing the Scheme,

helping in the design and the delivery of information about the company financials,

coordinating employee orientations to the Scheme,

arranging periodic meetings of Scheme participants, and

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working on other activities designed to help participants understand the scheme and the company.

2.11. Information Rights

The SIS committee must provide a Scheme to all participants explaining the details such as:

Names and addresses of the fiduciaries;

Basic rules of the Scheme;

Details of allocation such as volume and timing etc.;

Expected benefits; and

Obligations and duties of the participants.

Each year (or upon termination or upon request), employees must be given an annual account statement of their holdings and any other assets in their Scheme. When participants have the right to receive benefits, they must receive information about how they can receive them and the tax consequences, if any, of each option.

2.12. Taxation, claims and legal issues

The Scheme is governed by the laws of the Kingdom of Bahrain.

If a claim for benefits to a Scheme participant is denied, participants must receive a written notice explaining why. They must also have a chance to have a full and fair review of the denial and a written explanation of the results.

The Bank is not liable to pay any taxes, zakah or any levy of any kind that relate to any deemed benefits to Employees under this Scheme. Employees are liable for any such payments.

2.13. Takeovers, listings and liquidations

If any person other than the current majority shareholder of ABG obtains Control of ABG or on any other similar change of control, listing or other similar event in relation to ABG specified by the Board, then the Board Affairs & Remuneration Committee may choose to accelerate the vesting conditions for the unvested awards or modify the terms of the Scheme.

2.14. Scheme modifications

If an Initial Public Offering is done prior to the vesting of the awards, the Board Affairs & Remuneration Committee may choose to accelerate the vesting conditions for the unvested awards or modify the terms of the scheme.

Any other scheme modification shall require the approval of the Board Affairs & Remuneration Committee.

All approved scheme modifications shall be binding on all employees participating in the Scheme.

2.15. Miscellaneous provisions

Phantom share awards are granted by the discretion of the Board Affairs & Remuneration Committee, likewise subject to terms and conditions determined by the Board Affairs & Remuneration Committee in each particular case and set forth in the relevant Award

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certificate. A form of Award certificate is attached hereto as Exhibit A. No purchase price is payable by the recipient pursuant to an award.

Recipients of Bonus Awards will be required to make an undertaking, in the form attached hereto as Exhibit B, with respect to certain tax, liability and securities law matters.

SIS participants should be aware that the awards are subject to significant restrictions on transfer and that the awards have no particular value guaranteed by ABG, ABG Shareholders or otherwise.

It is the responsibility of the participants to consult their professional tax advisers regarding the income tax consequences applicable to them as a result of being granted, purchasing, holding, selling and/or receiving dividend equivalents from awards. ABG will not be held liable for any tax consequences arising on the participants out of their participation in the SIS program.

2.16. Participant Eligibility

An eligible participant is any employee of ABG whose annual performance bonus is subject to being awarded in phantom shares.

2.17. Vesting and retention

Vesting refers to the period of time an employee must hold the awards before he/ she becomes unconditionally entitled to the ownership of the underlying phantom shares.

As per the terms of the Scheme, the share awards for each performance year will vest immediately or proportionately over a 3 years period from the Date of Grant (i.e. 1/3rd each year) as per the terms of the Variable Remuneration Policy. Retention refers to a holding period, in addition to the vesting period, after which the employee is unconditionally allowed to sell phantom shares back to the bank.

A summary of the vesting schedule and related conditions for bonus awards is illustrated below:

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(i) Malus provisions – Any unvested phantom shares may be subject to malus provisions as defined in the ABG’s Variable Remuneration Policy. However, during the retention period malus provision do not apply.

(ii) Claw-back – Any phantom shares that have vested and have been paid out may be subject to claw-back provisions as defined in ABG’s Variable Remuneration Policy.

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3. THIRD PARTY ADMINISTRATION

The following section outlines the responsibilities of the Third Party Administrator (TPA) of the Share Incentive Scheme should the Bank decide to appoint one.

The Human Resources Department (HRD) shall have overall responsibility for administration of the Share Incentive Scheme through a Third Party Administrator (TPA) appointed by the Bank.

HRD will determine the number of share awards for eligible employees in accordance with the terms of the Scheme and communicate the same to the TPA.

HRD shall also communicate to eligible employees the approved number of shares allocated and the fact that these will vest on a graded basis over a minimum three year period and vested shares are subject to a subsequent six-month retention period.

At the start of each annual bonus award, HRD will coordinate with relevant departments to transfer the approved allocated shares for individual participating employees to the SPV.

On vesting, the HRD will coordinate with the TPA to transfer vested shares from the SPV to the employees at nil cost.

Any bonus shares declared will be added to the participant entitlement pro rata to their initial allocation, and will vest similarly.

The TPA will deal with any cash dividends and the final distribution of the earned profit in accordance with the terms of the Scheme.

On vesting, the TPA will advise the individual participating employees of the following:

- Number of vested shares

- Where to collect share certificates attached to the above shares after expiry of the retention period, which is six-months from vesting date

- The details of the amount of dividends accrued to the vested shares, interest earned on such dividends, period for which the interest was earned and the reference interest rate; and the fact that total amount of dividends and earned interest has been remitted to the participant’s bank account on record with the Bank.

The HRD will manage the process through the appointed TPA and will retain overall

responsibility for service delivery within the Bank.

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4. Exhibit A – Form of Award Certificate

AWARD CERTIFICATE FOR BONUS AWARDS

Pursuant To Al Baraka Banking Group Share Scheme

(Terms as defined in the Al Baraka Banking Group Share Incentive Scheme have the same meanings in this Award Certificate)

Certificate No:

Award holder Name:

Date of award:

Number of shares awarded:

Award price:

Start date for Relevant Holding Period:

Vesting schedule 1st Instalment – [date]

2nd Instalment - [date]

3rd Instalment - [date]

Issued by Al Baraka Banking Group BSC, a Bahraini Shareholding Company incorporated in the Kingdom of Bahrain. The Award is issued under the Scheme and is conditional upon the execution of this certificate and the related Undertaking by the Award holder.

The awards are subject to risk adjustments, malus or clawback as per the variable remuneration policy of the Bank and the requirements of the CBB Rule Book.

Executed as a deed by

Al Baraka Banking Group BSC

___________________________________

Authorised Signatory

I, the undersigned Award holder, hereby agree to the terms and conditions of the Rules of the ABG Share Incentive Scheme, whose terms I agree to be bound by, and that data concerning my participation in the Scheme may be transferred between Al Baraka Banking Group BSC and its respective agents. I confirm that I have read and understood the key terms of the ABG Share Incentive Scheme and that satisfactory information and explanation has been provided by the Bank in response to any questions raised.

Executed as a deed by the AWARDHOLDER

_________________________________________

in the presence of

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_________________________________

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5. Exhibit B – Illustrative Form of Undertaking

Al Baraka Banking Group BSC

Undertaking

The undersigned, in connection with being or becoming a participant in the Al Baraka Banking Group BSC Share Incentive Scheme (the “Scheme”) which is managed through the Al Baraka Banking Group B.S.C., a Bahraini Shareholding Company incorporated in the Kingdom of Bahrain (the “Bank”), intending to be legally bound, hereby represents and warrants to and agrees with, the Bank and their respective directors and officers as follows:

1. The share awards issued to the undersigned (via a share award certificate) represent a beneficial interest in the shares of Al Baraka Banking Group B.S.C., a company incorporated in Bahrain (“ABG”).

2. The undersigned is an employee of ABG and understands the business of ABG and the nature and risk of owning a beneficial interest in ABG shares through the undersigned’s ownership of awards in the Scheme.

3. The undersigned has read and understands the rules of the Scheme set forth below with respect to the Scheme and, either alone or in consultation with the undersigned’s own legal, tax or other advisors, has had the opportunity to ask questions of the Bank and is satisfied with the Bank’s response to such questions.

4. The undersigned hereby acknowledges that the undersigned shall be responsible for and agrees to pay any and all taxes due with respect to the undersigned’s participation in the Scheme. Notwithstanding the foregoing, the undersigned hereby authorizes the Bank or any appropriate Group Company to withhold from any payment to the undersigned, whether pursuant to the Scheme or otherwise, any and all amounts required by the applicable law to be withheld for taxes arising in connection with the undersigned’s participation in Scheme and any and all amounts otherwise payable by the Bank or any Group Company as taxes in connection with the undersigned’s participation in the Scheme; furthermore, to the extent amounts otherwise payable to the undersigned are insufficient to cover any amount of the aforementioned taxes, the undersigned agrees to promptly reimburse the Bank or the appropriate Group Company for the amount of the shortfall.

5. The undersigned hereby indemnifies the Bank and their respective directors and officers, from and against any and all losses, including attorney fees, arising from any and all claims made against the Bank, the Group Companies and/or their respective directors and officers in connection with the undersigned’s participation in Al Baraka Banking Group BSC Share Scheme; provided such indemnification shall not extend to any damages due to the undersigned or his heirs or legal representatives as the result of any fraud or wilful misconduct of the Bank, the Group Companies or their respective officers or directors under the Scheme.

6. The undersigned hereby acknowledges that the terms and conditions of, and all materials, data and information relating to, the Scheme (collectively, “Confidential Information”) is confidential and proprietary to the Bank. The undersigned hereby agrees that the undersigned will only use Confidential Information in connection with the undersigned’s participation in the Scheme and will not copy or disclose any Confidential Information to any person either during or after the undersigned’s participation in the Scheme (except as may be expressly authorized by the Bank in advance in writing or as may be required by law or at the lawful request of any authorized regulatory or other authority), and that upon termination of the undersigned’s participation in the Scheme, the undersigned shall immediately return to the Bank or the applicable Group Company any and all Confidential Information the undersigned may have.

7. [Introduce wordings for malus and clawback confirmation]

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8. The undersigned hereby agrees to pay any and all expenses, including attorney fees, incurred by the Bank or any Group Company in connection with enforcing the undersigned’s obligations pursuant to this undertaking.

9. If the undersigned is a resident or citizen of the United States, the undersigned is an “accredited investor” as defined in Regulation D under the United States Securities Act of 1933, as amended, and the undersigned understands that the Scheme may be treated as a “passive foreign investment company” under the United States Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated there under.

10. This undertaking is governed by the laws of the Kingdom of Bahrain and subject to the exclusive non-exclusive jurisdiction of the courts in the laws of the Kingdom of Bahrain, to which the undersigned irrevocably submits.

Introduce a clause to state that the Bank has the right to sell the shares and adjust the proceeds against any dues that the employee owes to the Bank, should the need arise.

IN WITNESS WHEREOF, the undersigned has duly executed this Undertaking on the date set forth below.

By:

Name:

Date:

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6. Scheme Amendment Form

Amendment initiated by

__________________ __________________ ___________ ____________

Approved / rejected by (*)

__________________ __________________ ____________ ____________

Approved / rejected by (*)

__________________ __________________ ____________ ____________

(Name) (Signature) (Department) (Date)

Section(s) and paragraph(s) proposed to be amended

Reasons for amendment

Text of the proposed amendment (attach separate sheets if required)

Reasons for rejection

Electronic form updated by

Amendments distributed by

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