After years of trying to get an exemption from having to prepare and file an EU prospectus for non-EU companies offering their shares to employees in the EU, the extended employee share plan exemption is nearly here!
The EU Prospectus Regulation (“Regulation”) was finally published in the Official Journal of the European Union on 30 June 2017. You can find the full text here.
This marks a significant change in legislation and practice, as the Regulation will replace the current EU Prospectus Directive (“EUPD”) in full.
The Regulation contains a number of changes. Most importantly, all companies, wherever headquartered and wherever their securities are listed, will be able to rely on the extended employee share plan exemption, so that an EU prospectus is not required for securities offerings under an incentive scheme in the EU.
A prospectus is a legal document that companies issue to potential investors about themselves and the securities they are issuing. The EUPD is the existing legislation that calls for a prospectus when issuing securities across the EU. As an EU directive, it requires member states to incorporate its rules into local law via national legislation. As a result, not all countries have introduced the rules in the same way, so the existing regime has attracted an unintended level of complexity and inconsistency.
As part of the EU Commission’s commitment to simplify EU law and make it more effective and efficient, the EUPD is now being replaced by the Regulation. This will take direct effect in member states without the need for implementation at local level.
The Regulation will enter “into force” on 20 July 2017. A two-year transition period will then take place before the Regulation “applies in full” from 21 July 2019.
We have produced a timeline at the end of this alert to show when the different articles of the Regulation will apply. If you are operating your share plans in any of the EU member states (and that still includes the UK for the time being), specific legal advice is recommended during this transition period.
Extension of employee share plan exemption
Under the current EUPD, there is a specific exemption for employee share plans, but it only applies where the company:
- has its head office or registered office in an EU member state; or
- has its securities listed on an EU regulated market.
The exemption applies if securities are offered to existing or former directors or employees by their employer or an affiliated undertaking, provided that the securities are of the same class as the securities already admitted to trading on the same regulated market. The Regulation removes the requirement for a company to have its head or registered office in the EU, or to be listed on a particular stock exchange in order to rely on the exemption. The extended employee share plan exemption can be relied upon from the end of the two-year transition period – so from 21 July 2019.
Any companies relying on this exemption must still provide an information document detailing the reasons for and details of the offer and the number and nature of the securities available (this is a fairly straightforward document to produce).
Under the Regulation, the de minimis exemption (below which no prospectus is required) is set as an offer of securities in the EU with total consideration less than €1,000,000 calculated over a period of 12 months – this replaces the €5,000,000 exemption under the EUPD. Member states are then able to choose to set an amount, from the €1,000,000 minimum up to an €8,000,000 limit, under which an offer of securities will be exempt from the obligation to publish a prospectus. To do this, member states must notify the EU Commission and ESMA of the amount below which the exemption applies. The new total consideration exemptions can be relied upon from 21 July 2018 – one year into the transition period. If seeking to rely on these exemptions for an offering of securities in the EU, companies will need to check any local application of the exemption limit.
Under the Regulation there remains the exemption for offers to fewer than 150 people per EU member state. A proposal was included in an earlier draft of the Regulation to increase this number to 350 people, but this was not adopted.
The final Brexit date, assuming there is no extension to negotiations, is Friday 29 March 2019. In theory, Britain will have left the EU by or on this date.
As the Regulation does not fully apply until 21 July 2019, technically there will be a window of time where an EU prospectus may be needed for UK-headquartered or UK-listed companies if they cannot rely on another exemption.
ESMA list of prospectuses
Under the Regulation, ESMA should provide a centralised storage mechanism of prospectuses allowing access free of charge and appropriate search facilities for the public. There is now a single access point for all EU prospectuses as ESMA provides a free, searchable online tool on its website where you can locate all prospectuses approved in the EU. This can be accessed here.
The adoption and publication of the final Regulation has been long-awaited in our industry and brings a welcome consolidation of the EU prospectus rules.
The amendment to the employee share plan exemption will be very helpful to companies headquartered and listed outside of the EU, that operate employee incentive arrangements within the member states.
The extended employee share plan exemption still requires specific information about the offer to be given to employees, however the Regulation does not prescribe what this document should look like, and in practice this information is usually included in share plan explanatory brochures or other documents that participants receive. If you require any assistance in covering this requirement within your plan documentation or communications, we are always happy to help.
Until the Regulation fully applies on 21 July 2019, an EU Prospectus may still be required for companies headquartered or listed outside of the EU. With the anticipated Brexit date falling before the Regulation applies, there will be a small window of time in which UK-headquartered or UK-listed companies may technically also need to issue a prospectus for offering securities across the EU. We expect there to be some development on this point to prevent this burdensome requirement applying just for a few months, so watch this space.
If you are looking to introduce a share plan in the EU which might trigger the need for an EU prospectus, keep an eye on the relevant dates and either consider deferring the offering or make sure you can rely on another exemption in the meantime.
If you would like to discuss the new Regulation or how it affects you, please do not hesitate to get in touch – we would be delighted to help!
Sally and Tom