ETASSUM45220 - Schedule 4 Company Share Option Plan (CSOP): Exchange of share options: Exercise provisions of new options
To ensure that the new options will be subject to the same provisions as the old options (paragraph 27(4)(b)), care should be taken to prevent wholesale amendments to the existing scheme by substituting the acquiring company into the scheme whenever a reference is made to the scheme organiser company. The scheme organiser company (the company which established the scheme) never changes. Following a rollover the scheme remains that of the original scheme organiser company, which remains responsible for its operation. It is only the shares subject to the options which change (see ETASSUM45210).
Scheme provisions which centre on a particular company (i.e. the scheme organiser company), rather than the shares used in the scheme, should be drafted specifically to set out what is to happen in the event of a takeover, whether or not the options are rolled over. Such provisions will therefore be terms of the old options from the outset and will apply equivalently to the new options.
There is considerable flexibility available in drafting the exercise provisions of discretionary schemes. If care is taken at the outset, the terms of options (old and new) can cater for the effects of a takeover on matters such as exercise rights which are dependent on employment within a particular company or group of companies or on meeting performance conditions, see ETASSUM44290.
In a discretionary scheme, to avoid difficulties, the rules may link exercise to cessation of employment with “the Company and any company which is its subsidiary or holding company or subsidiary of its holding company”. Provided this was a term of the original option, it will also be a term of the new replacement option and will not trigger the exercise of the option if employees are transferred within the new group following a takeover.
In all schemes, provisions which centre on the shares themselves can be drafted so that they also centre on the shares in the new company following the rollover. This will include provisions relating to adjustments on a variation of share capital (paragraph 22) and provision for rollover on subsequent takeovers.
The rights to exercise, or the lapse of, the new options received by a rollover, should not be triggered by the takeover which provoked the rollover. The exchange document can make this clear by stating that the new options are issued subject to the rules of the existing scheme, which should be read so that references to the old company in the relevant provisions become references to the new company.