Private company transactions—share incentive considerations
Private company transactions—share incentive considerations

The following Share Incentives practice note provides comprehensive and up to date legal information covering:

  • Private company transactions—share incentive considerations
  • Significance of the target company's share incentive arrangements in the event of a transaction
  • Due diligence
  • Trigger event, timing of exercise or vesting of awards
  • Cashless exercise
  • Valuation
  • Alternatives to the exercise of options or vesting of awards as part of the transaction
  • Lapse of options
  • Cash cancellation of the award
  • Rollover of options
  • More...

Significance of the target company's share incentive arrangements in the event of a transaction

A potential purchaser will typically wish to avoid having any minority shareholders or individuals with rights over shares once the takeover has occurred. Therefore, it will be focussed on ensuring either that:

  1. any pre-existing options and/or awards are realised in full (with the acquiring company purchasing the resulting shares pursuant to the terms of the transaction), or

  2. pre-existing options and/or awards lapse or are cancelled immediately prior to the takeover

Participants in the target's share plans will also be expecting to realise their rights so that they can then sell their shares alongside the target's other shareholders.

Due diligence

The acquiring company will generally carry out a due diligence exercise in order to establish the details of the employee share plans, and options and awards prior to the transaction. The due diligence exercise is generally carried out in order to establish: what incentives are in existence, the status of the options and/or awards, the effect of the transaction on the options and/or awards, and the tax implications of the transaction on the options and/or awards. The following points will be particularly relevant:

  1. whether the award or option will vest or become exercisable as a result of the takeover, and the timing for this

  2. if not exercised, whether the award or option will lapse as

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