The European Commission has proposed amending the Prospectus Directive so that employee share scheme offers will no longer require a prospectus in any circumstances.
Most companies are currently able to offer shares to employees without issuing a prospectus, usually because they are offers to fewer than 100 participants per EU country, they are offering free shares or options or the total offer is less than €2.5 million. Where these exemptions do not apply, companies with securities listed on an EU regulated market can still rely on a partial exemption for employee share scheme offers (but this excludes AIM companies and obviously private companies).
The partial exemption for employee share scheme offers is not available to companies whose securities are traded only on AIM, non-EU regulated markets such as the NYSE or NASDAQ, or to private companies. If such companies cannot rely on a general exemption (e.g. because they wish to invite all their EU employees to buy shares under a Share Incentive Plan (SIP) or a US-style ESPP plan, and there are 100 or more employees in at least one member state) they must produce a prospectus. In practice, in order to avoid the cost and effort involved in producing a prospectus, many companies have instead restructured or restricted the scope of their employee share plans, or cancelled them entirely.
Earlier this year the European Commission launched a consultation about how the prospectus regime could be made more efficient and the administrative burdens reduced, including where shares are offered to employees. Among other things, the Commission proposed that the partial exemption in the Prospectus Directive for employee share offers should be made available to all companies, not just those with securities listed on an EU regulated market. The Commission has now confirmed that it intends to introduce this change, having concluded that requiring any company to produce a full prospectus for an employee offer is not an effective means of informing employees about the risks and benefits, and that it imposes excessive costs on employers that are not justified in terms of investor protection.
Once the changes become law, no company will therefore be required to produce a prospectus for their employee share schemes offers, either because:
(a) a prospectus is not required because one of the general exemptions applies, or
(b) the company can rely on an expanded employee share schemes exemption.
Most companies will still prefer to rely on a reason within (a) with (b) very much a second choice because there is still a requirement under (b) to produce the short form information document that companies which currently rely on the exemption are required to produce.
The proposed amendments to the Prospectus Directive will now pass to the European Parliament and Council of Ministers for consideration and the changes are unlikely to take effect until at least 2011.
As an interim measure until the changes become law, the EU securities regulator (CESR) announced on 10 February 2009 that, where a prospectus is required for an employee offer a much shorter form of prospectus would be permitted for companies which have securities traded on any market, although this concession does not apply to private or unquoted companies and in practice the content requirements were still onerous. There were some initial concerns that, once the change to the Prospectus Directive became law, companies relying on the expanded exemption would be required to produce the short form prospectus introduced by the EU securities regulator in February, but this will not now be the case.
For further information on the proposed changes to the employee share scheme exemption and the short-form prospectus introduced by EU securities regulators, please read our previous article "Employee Share Offers: proposed changes to the Prospectus Directive regime" which is available here
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
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The original publication date for this article was 02/10/2009.