ETASSUM42380 - Schedule 4 Company Share Option Plan (CSOP): Eligibility of individuals to participate: The "no material interest" requirement: Share options

Shares subject to an option count towards an individual’s material interest for employee share scheme purposes (paragraph 11). Paragraph 11 also covers the treatment of the shares that can be acquired on option exercise (which might be existing shares or new issue shares), in determining the extent of the share capital of which the individual’s share is a percentage.

Paragraph 11 states:

  • that share options already held by an employee or director or by a person associated with him, are to be counted when calculating whether he has a material interest,
  • what is to be included in the company’s overall ordinary share capital (the denominator of the fraction), of which the individual’s share is a percentage.

An employee who does not have a material interest:

  • may be granted an option which, when added to his existing interests, would give him a material interest, but
  • cannot exercise that, or any other option under the a Schedule 4 CSOP scheme, until 12 months after he ceases to have a material interest.

A material interest may cease because:

  • the individual concerned (or his associates) sells some shares, or
  • the company’s issued share capital is increased by the issue of more new shares.

In computing the total shares against which an individual’s interests (shares and options) are to be tested on a given date for material interest purposes, it is necessary to add to the company’s issued ordinary share capital on that date, the number of shares under options held by the individual concerned which, when exercised, must contractually be satisfied by the issue of new shares.

It is not necessary to include in the computation share options held by other option-holders (unless they are associates of the individual concerned). Nor is it necessary to include any share options which may be satisfied by the transfer of existing shares, rather than the issue of new shares. An example of such a calculation is provided for guidance Word 29KB.