EMI Case Study 2

For Long-Term Incentive Plan (“LTIP”) Requirements

  • Company quoted on the Alternative Investment Market with a value of £18 million.
  • High level reputation in the business of passenger and freight rail transport.
  • Already has Share Incentive Plan and a ShareSave Scheme on an all-employee basis.
  • Requires a tax-efficient LTIP for its director and executive team to meet retention needs.

The Solution

  • Establishes an EMI scheme with options granted as “nil cost” options, i.e. 100% discount on the market value at the date of grant.
  • Settles monies into an employee share trust to enable the trustees to purchase shares off the AIM market.
  • Agrees performance conditions linked to Total Shareholder Return that must be achieved for the exercise of options in 3 years time.
  • Options granted on an annual basis so that option lives overlap with up to three live options at any point in time, each with a different outstanding period remaining.

Interesting Scheme Features

  • The combination of the 100% discount EMI options and the employee share trust replicates the LTIP arrangement with an absolute guarantee of no tax or NICs at the inception of the scheme.

The staggered option arrangement based on overlapping options assists retention by ensuring that if a director or executive left the company then he/she would be walking away from value.