ESSUM41115 - General requirements for approval: Parallel options

The concept of paralleling approved scheme options with other share options (approved or unapproved) is acceptable, provided the parallel option only gives rights to acquire shares (for example, it must not give scope for a cash alternative). When examining schemes which contain provisions to parallel the approved scheme options with other options (approved or unapproved) scheme advisers should take care to ensure that there is no scope for the "other" option to provide a cash alternative.

Parallel options operate by granting two options in parallel so that only one of the options can be exercised. When one option is exercised, the other option lapses or is given up by the participant. If two approved options are granted, each with a total Market Value of £30,000, only one of which can be exercised, then the scheme limits are not exceeded. It is a requirement that the second option must not be capable of being exercised following the exercise of the first.

Paralleling one approved option with another approved option is acceptable. For example, it may be beneficial to have parallel options where one is subject to performance conditions and the other is not. For the purpose of the paragraph 6 limits on participation, only the maximum number of shares which may be acquired under either option need be counted.

It is not a requirement that both options are granted at the same time, but it must be clearly stated either in the scheme rules or within the terms of the second option that if either of the options is exercised the parallel option will cease to be capable of exercise.

In order for this arrangement to be acceptable, the grant of the second “parallel” option must not change the terms of the first option which must remain capable of exercise, until it lapses or is given up. If the first option is exercised then the terms of the second option must provide that the second option will cease to be capable of exercise in these circumstances. Similarly, if the second option is exercised a condition of the exercise must be that the first option is either released or cancelled without consideration. Making such a provision in the terms of the second option will not be regarded as changing the terms of the first option.