1 / 19

Case Study LTIP design and EBT

Case Study LTIP design and EBT. Rashree Chhatrisha MM&K Limited 11 July 2008. Background. One of the world's leading online gaming companies

thalia
Download Presentation

Case Study LTIP design and EBT

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Case StudyLTIP design and EBT Rashree Chhatrisha MM&K Limited 11 July 2008

  2. Background • One of the world's leading online gaming companies • Founded in 1998, the company has been listed on the Alternative Investment Market of the London Stock Exchange since 2001   It operates under licenses from the UK, Australia, Alderney, Italy and Antigua • Operates across 30 different markets across Europe, Australia, Canada and South America   Offers a wide range of products, including an award winning sportsbook product and casino, poker and virtual games

  3. Business highlights • Forced disposal of US-facing sports and casino operations and closure of US-facing poker operations following the passing of the Unlawful Internet Gambling Enforcement Act • Significant Group restructuring and reorganisation post Unlawful Internet Gambling Enforcement Act • Reorganisation of European operations including transfer of all customer operations personnel to Dublin and all licensable operations to the Channel Islands

  4. Employees • Following this sale and subsequent reorganisations, the Group employed approximately 370 people at year end(2007) • Retention and Motivation • Shares v Cash? • Located in the UK and jurisdictions outside the UK

  5. Design of LTIP • “Restricted Share Plan” • UK based and overseas employees • Awards - “conditional” share awards, “nil-cost options” and “full” cost options • Performance to be measured in relation to “plan cycles” • Performance is measured annually – annual vesting of shares • A new cycle will start each year • Vesting of awards is conditional on performance • Performance measured at/after the end of each cycle and shares released depending on level of performance achieved

  6. More design issues… • LTIP includes “good”/“bad” leaver and change of control provisions • The performance condition for the first tranche of awards/options was based on EPS growth • An EBT was established in the Channel Islands for holding shares (for participants in those territories in which this is feasible)

  7. Project scope • Tax, Legal and feasibility study in various locations • Drafting LTIP plan rules and trust deed for EBT to be established off shore; • Appoint off shore trust company • Draft ancillary documents such as award letters, award certificates and acceptance forms • Appoint a law firm to carry out a tax and legal feasibility study

  8. Feasibility study • Request for guidance on the optimum plan structure in each territory • London Law firm appointed to undertake the study • Asked law firm to use their local offices or legal counsel in other jurisdictions • Phase 1 : Costa Rica - (San Jose); Southern Ireland (Dublin); UK (London); Canada (Vancouver); and Australia (Darwin, Sydney, Melbourne, Brisbane) • Phase 2: Spain, Italy, Turkey and Guernsey

  9. Feasibility questions • Tax and social security implications for employee and employer • Whether withholding needs to be operated • Securities, filings and exchange control issues for both employer and employee • Labour law/employment law implications for both employer and employee • Capital gains tax or income tax liabilities on sale of shares

  10. Feasibility questions cont… • Whether there are any qualifying arrangements or approval procedures in each country • Whether a statutory corporate tax deduction is available • Whether obligatory translations are required • The most efficient award mechanism in each country – e g conditional share award (with use of an EBT) or nil-cost option • Any other additional factors or recommendations

  11. EBT and source of shares • Where jurisdictions permit, the plan operates in conjunction with an Employee Share Trust Where those jurisdictions do NOT permit use of an EBT, new shares are issued to satisfy the exercise of a nil-cost option or the release of shares • Either market purchase, new issue or Treasury Shares • Funding of the EBT and loan agreement

  12. Preferred structure of awards

  13. Preferred structure of awards

  14. Main feasibility issues • Australia - Delivering shares through an EBT can jeopardise the availability of prospectus exemptions and should be avoided • Participants to give consent to transfer of personal data • Italy – exemptions from certain filings provided that the offer of securities is made for free i e no consideration is payable by the participants Accordingly, awards must be structured as conditional awards of free shares (as opposed to options) • No problem in using shares from an EBT in Italy

  15. Main feasibility issues • Canada - amendments were proposed to the Canadian Income Tax Act which were subsequently withdrawn • If reintroduced, there could be adverse tax consequences, with retrospective effect, in relation to any non-Canadian trusts with Canadian beneficiaries resulting in tax on EBT • If amendments reintroduced, if income tax liability not satisfied by EBT, any contributors and beneficiaries of the EBT become jointly and severally liable for the tax • Strongly recommended that options or allocations to employees in Canada are granted over new issue shares and not shares sourced by an EBT

  16. Main feasibility issues • Costa Rica - No restrictions or taxes on participants remitting funds out of Costa Rica to pay the exercise price of options • No problem in using an EBT • Guernsey - If EBT used, trustee is under a duty to make a return to the local income tax authority

  17. Main feasibility issues… • Republic of Ireland Awards must be over new issue shares unless EBT approved by the Irish Revenue; or director has no control over when rights accrue • Breach of the above requirement is a criminal offence • Options or awards over new issue shares

  18. Main feasibility issues… • Spain - tax treatment more beneficial if awards structured as options No EBT required • UK – no particular issues • The Acceptance Form in relation to data protection drafted so as to deal with each of the data protection issues arising in each country • EBT not be within the UK tax net

  19. Final steps • Plan adopted and implemented • EBT established in Guernsey • Off – shore Trustee Company appointed • LTIP communication material drafted and sent to participants • Administration of plan done in house by the Company • Close working relationship between company and trustees established for management of the plan

More Related