EMI options exercised by merger
- Helen Curtis
- Updated: Thu, 8th Dec 2016
Our client, the English Company, merged with a US Company based in Georgia. Both companies created a new Delaware Limited Liability Company, LLC. The English Company owned 15% of the Delaware LLC.
A Contribution and Exchange Agreement governed the merger. This agreement included earn-out provisions e.g. if the English Company
- Met targets, then its share of the Delaware LLC increased.
- Failed to meet targets, its share of the Delaware LLC decreased.
An Operating Agreement governed the English Company and US Company’s relationship. This agreement is similar to a Shareholders’ Agreement. The Operating Agreement contained leaver provisions: for the first two years, English employees could only own Delaware LLC’s shares, whilst employed by the Delaware LLC.
The merger entitled some employees to exercise their EMI options on the English company’s shares. On exercise, these employees received Delaware LLC shares.
The EMI documentation defined the option exercise procedure. When the English company issued the options, they did not agree the form of National Insurance Contribution, NIC, with HMRC. We agreed the NIC election with HMRC before the deal closed. Thus the employers faced no income tax or national insurance liabilities when they exercised their options.
The Contribution and Exchange Agreement’s earn-out provisions affected these employees’ shareholding. Their shareholding depended on whether the English Company met targets.
Even minority owners could impact the Delaware LLC’s operations and sale-ability. Hence the shareholders required these employees to sign documents agreeing to abide by the Operating Agreements’ terms.
Helen Curtis is a member of the employee share plan team. There are many surveys and statistics which show that companies with employee share plans in place out perform those without. We implement a wide range of solutions for a wide range of business needs.