Overview of key issues The key concepts discussed in this Practice Note are: • why share incentives are a key issue on a takeover by scheme of arrangement • the different impact that a scheme of arrangement can have, depending upon the types of awards that have been granted under the target group’s share plans • the circumstances in which it may be appropriate to amend the target group’s share plan rules and/or the target company’s articles of association in order to deal with share incentives over the target company’s shares as part of the transaction • the issues that may arise when the relevant provision of the target group’s share plan rules refers to a scheme for the purposes of the reconstruction or amalgamation of that company • the information that should be contained in documents specific to a scheme of arrangement, such as the scheme document and the witness statement, and • which party would usually draft the proposal letters to participants

What are the offeror's obligations in relation to the target company's share plan participants? If an offer is made for the shares of a listed company, the offeror is required to make an appropriate offer or proposal to any individuals who hold rights to subscribe for or options over shares of the same class. In the case of employee options, the Panel on Takeovers and Mergers considers that an offer or proposal will normally need to be for no less than ‘see through value’ (being the offer price less the exercise price) (Practice Statement 24, para 2(a)). This requirement will include any employees and former employees of the target group who hold outstanding options and awards granted under the target's employee share plans. All relevant documents and announcements or other information in relation to the offer must, where practicable, be sent to these share award holders at the same time as it is sent to the target's existing shareholders. When making offers or proposals to share plan participants, the

FORTHCOMING CHANGE: On 28 October 2026, as part of Budget 2026, a number of changes were announced to CSOP and EMI schemes. (1) CSOP is to be known as “EMI2” with effect from 28 October 2026; (2) with effect from 6 April 2027, the CSOP/EMI2 individual option limit will be increased from £60,000 to £120,000; (3) from 6 April 2027, the maximum period for exercising CSOP/EMI2 options while retaining tax advantages will be extended from 10 years to 15 years, and it will be possible to amend CSOP options granted before that date to benefit from this without losing tax advantages, provided that this is done in line with the legislation; (4) the interaction between the EMI and CSOP/EMI2 individual option limits will be removed, allowing eligible employees to use the full £250,000 EMI limit and £120,000 CSOP/EMI2 limit independently and increasing the maximum value of tax-advantaged options that an eligible employee can hold across the two schemes from £250,000 to £370,000; (5) with effect from 6 April 2027, the grace period within which EMI options

This Checklist of key tax considerations relevant to share issues is in the form of a table. It covers: • issuer tax considerations, including: ◦ the implications of a share issue from a chargeable gains perspective ◦ the fact that a gain or a loss on a derivative contract is ignored if the contract hedges against the exchange rate risk in the context of a rights issue or an open offer where the issuer's functional currency differs from the currency in which its shares are denominated and therefore the proceeds are received ◦ the issuer's inability to deduct the costs and expenses of the share issue for corporation tax purposes, and ◦ the fact that a share issue is not a supply for VAT purposes, including an outline of the implication for the issuer's VAT recovery position • shareholder tax considerations, including: ◦ the cost of acquisition forming part of the shareholder's base cost for chargeable gains purposes ◦ the share pooling and identification rules for chargeable gains purposes ◦ reorganisation treatment for chargeable gains purposes

A share option is an agreement between the holder of shares and a third party. An option gives one party the right (but not an obligation) to purchase shares at a specified price at a specified point of time (or on the occurrence of a specified event).

The exercise price is the price which the option holder must pay to acquire the shares pursuant to the option agreement.

Readily convertible assets and PAYE Where an employee is granted a right to acquire shares (an option) under an option plan that is not tax favoured, there will be a potential tax charge under sections 471–484 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) when the option is exercised, assigned or released. If shares are not readily convertible assets (RCAs) then any income tax due from the employee is collected under the UK self-assessment system. Pay as you earn (PAYE) is the mechanism by which income tax must be withheld and accounted for to HMRC by employers (and other payers) in relation to certain payments of: • employment income • pension income, and • social security income Non-cash payments are generally excluded from the operation of PAYE. A key exception to this is payments in the form of (or deemed to be in the form of) RCAs, which are subject to PAYE. In other words, RCAs are treated in the same way as salary paid in cash under the UK tax

Definitions Option • the respective rights to acquire Shares granted to each Option Holder; Option Holder • [insert list of Option Holders whose Options are becoming exercisable or refer to relevant schedule of Option Holders]. Completion deliverables 1 a duly executed agreed form notice of exercise for each Option Holder[ pursuant to which each Option Holder agrees to the terms of their Option(s) being amended and] pursuant to which each Option Holder elects to exercise their

A share option is an enforceable right for an employee to acquire shares at a given price, subject to meeting pre-determined conditions. The share option contract between the grantor and the employee will often also stipulate who is to source those shares and satisfy the share option at the point that it is exercised. The shares will typically come from either the company or from a third party with authorisation to grant an option, such as an individual shareholder, corporate shareholder or a trustee of an employee benefit trust (EBT). It is also possible for a third party shareholder to agree to satisfy options which the company itself grants by transferring shares they hold on exercise of the options. This Practice Note considers the situation where a UK tax resident individual is the one who satisfies the share option and specifically examines: • why an individual might want to offer their shares • process and documentation • non-tax considerations around the individual shareholder’s shares • taxation implications • accounting

The following steps are key to the implementation of a new share incentive arrangement: • creation of a project plan (including design) • obtaining key stakeholders’ views • modelling and valuation • approvals, and • operation Some of these steps are likely to be undertaken in parallel. Creation of a project plan (including design) It is critical that the objective and purpose of the plan is encapsulated in a document as it will drive the remaining steps and be a core document to consult when the finer detail of the plan is being determined and then implemented. The document may take the form of: • a board paper, and/or • typically in a UK listed company, a remuneration committee paper For a questionnaire which helps the company elicit the most suitable share scheme for its objectives and needs, see Precedent: Questionnaire to select the right share scheme. See also Practice Note: Selecting the right share scheme. The board or remuneration committee (as applicable) will be central to all decisions in relation to the relevant share incentive

FORTHCOMING CHANGE: On 28 October 2026, as part of Budget 2026, it was announced that with effect from 6 April 2027, ITEPA 2003 ss 554E and 554L will be amended to extend periods for tax-advantaged and non-tax advantaged shares and share options relevant to ‘earmarking’ exclusions from disguised remuneration rules from 10 years to 15 years. This document is being updated to reflect these changes. See: Budget para 6.258 and OOTLAR para 1.6. Typically when a company adopts a new share plan, it will initially plan to satisfy awards either: • using newly issued shares, or • using existing shares purchased in the market usually through the establishment and use of an employee benefit trust (EBT) which will acquire shares in the market or from individual shareholders in order to satisfy awards granted under the company’s share plans This Practice Note considers the practice of share hedging for the purposes of an employee share plan and the main issues that must be addressed in order to manage the potential costs and the financial risks

In order to be eligible for the grant of share options under either of the following tax-advantaged employee share arrangements: • a company share option plan (CSOP), or • an enterprise management incentives (EMI) scheme, employees must not have a ‘material interest’. A material interest test also used to apply to the other two tax-advantaged share arrangements, the share incentive plan (SIP) and the save as you earn (SAYE) scheme (otherwise known as a Sharesave), but, in both cases, the requirement for this test was repealed by the Finance Act 2013 with effect for any awards made under these plans on or after 17 July 2013. This Practice Note sets out the type of scenarios in which a material interest might arise and the various components of the test. Some elements of the test are different for CSOPs and EMI options, some are similar and some the same. These will be indicated in each relevant section. Rationale behind the material interest test The material interest tests are contained in the EMI and CSOP legislation