Schedule 3 SAYE option schemes: Requirements relating to share options: Exercise rights: Cash takeovers (i) general offer (ii) compromise or arrangement (iii) non UK company reorganisation (iv) takeover offer
Cash takeovers pursuant to paragraphs 37(2), 37(4), 37(4A) or 37(6) (a general offer, a compromise or arrangement, a non-UK company reorganisation arrangement or a takeover offer) can trigger tax-relieved early exercise of an option before the third anniversary of the grant date provided that the takeover meets the specific conditions of 519(3A)-(3J).
There is no statutory definition of a ‘general offer’, so the phrase must be given its normal meaning - there must be an ‘offer’ and it must be ‘general’. These features will not be satisfied if the acquiring company obtains control by acquiring holdings of shares privately from selected shareholders, possibly at different times and at different prices. The essential features are that the acquiring company makes an offer, on broadly the same terms, to all the shareholders of the relevant class or classes. A general offer can take place where shares in the company are already held by the person making the offer (so that the shares are not included within the general offer to acquire the remaining shares) or if the offer is made to some shareholders in a different manner, as may be the case in a management buyout where participating managers may accept the offer through a separate agreement and may receive shares rather than the equivalent in cash.
Several conditions apply if the exercise is to qualify for exemption from tax under section 519(3A) – (3J):
- the option must be exercised before the third anniversary of the date of grant at a time when the scheme is a Schedule 3 SAYE Option Scheme (options exercised on or after the third anniversary will in any event qualify under section 519(2)),
- the option holder must receive cash (and no other asset) in exchange for the shares acquired on exercise as a result of the general offer, compromise or arrangement or takeover offer as appropriate,
- the option must have been granted before the offer, compromise etc. or takeover offer was under consideration or made,
- there must not have been an opportunity for the option holder to exchange their options in accordance with paragraph 38; and
- the avoidance of tax must not have been one of the main purposes for the grant or exercise of the option (paragraph 519(3A)(g)).