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Cameron Dickerson
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1 JUNE 2004 SHEARMAN & STERLING LLP REVIEW OF U.S. SECURITIES COMPLIANCE REGIME FOR SHARE SCHEMES OF FOREIGN PRIVATE ISSUERS As you may already be aware, under the U.S. Securities Act of 1933, as amended (the "Securities Act"), it is unlawful to sell securities in the United States other than pursuant to an effective registration statement or pursuant to an exemption from registration. Employee offerings made pursuant to share schemes to U.S. residents are subject to these rules. Part I of this memorandum summarizes the exemption from registration under the U.S. federal securities laws provided by Rule 701 under the Securities Act ("Rule 701") to companies that are not reporting companies in the United States. Part II of this memorandum summarizes the requirements of the short form registration statement, Form S-8, which issuers that are "reporting companies" for purposes of the U.S. securities laws may use to register offerings of securities made pursuant to employee plans. I. EXEMPTION FROM FEDERAL REGISTRATION UNDER RULE 701 FOR NON-U.S. ISSUERS Rule 701 sets forth the terms and conditions under which an employee offering may be made in the United States without formal registration of the offering with the U.S. Securities and Exchange Commission (the "SEC"). Rule 701 provides a specific, but limited, exemption from the registration requirements for an offering directed exclusively to employees and certain other service providers by an issuer that is not subject to the periodic reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the 2004 Shearman & Sterling LLP. This newsletter does not necessarily deal with every important topic, nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. As used herein, Shearman & Sterling refers to Shearman & Sterling LLP, a limited liability partnership organised under the laws of the State of Delaware. 1

2 "Exchange Act"). Issuers that are reporting companies may not avail themselves of this exemption. Any non- U.S. issuer whose equity securities are listed on the New York Stock Exchange or quoted on the Nasdaq National Market System will be a reporting company and consequently will not be eligible rely on Rule 701. Offer Limited to Current Employees Written Plan Document To qualify for the Rule 701 exemption, the offering must be made pursuant to a written plan document, a copy of which must be provided to all employees who are eligible to invest through the plan. The plan document will describe and formalize the terms of the employee offer; it is not a prospectus. Rule 701 is available only for offers and sales to employees, officers, directors and certain consultants and advisers of the issuer, its parent, and majorityowned subsidiaries of the issuer and its parent. The offer must be restricted to current service providers; offers to former or retired employees are not permitted. However, sales to former employees are permitted if the initial offer occurred while such persons were employed (this may be the case, for example, with stock options that may be exercised for a specified period following termination of employment). Generally, Rule 701 is available only for employee offerings by the issuer itself, and not for secondary offerings by a shareholder. Limitation on Aggregate Sales Price of Securities Rule 701 allows an issuer to sell, during any 12-month period under all plans for which the issuer is relying on this exemption, securities for which the aggregate sales price does not exceed the greatest of: a) U.S. $1 million; b) 15% of the total assets of the issuer; and Use of written plan documents is customary practice in the United States for a wide variety of employee arrangements, including share schemes. Non-U.S. issuers in countries where local practice does not routinely include the preparation of formal plan documents may need to adapt their practice in the context of a share offering to U.S. employees in order to benefit from the Rule 701 exemption. Disclosure Requirements For offerings that do not exceed U.S. $5 million within a 12-month period, there are no specific disclosure requirements. Issuers must nevertheless provide the disclosure needed to satisfy the more general "antifraud" provisions of the U.S. federal securities laws, and it is the issuer's responsibility to provide each plan participant with sufficient information so that he can make an informed decision on whether to invest in his employer's securities. Rule 701 imposes specific disclosure requirements if sales in the U.S. during any 12-month period exceed U.S. $5 million. The required disclosure for offerings exceeding the U.S. $5 million threshold consists of: c) 15% of the outstanding amount of the class of securities being offered and sold. Both 15% tests are measured as of the issuer's most recent balance sheet date (if no older than its last fiscal year end). The text of Rule 701 suggests that the limitation is tested on the basis of a rolling 12-month period, but the SEC has informally advised that issuers may alternatively apply the test on a fiscal or calendar year basis. a) A copy of the plan document; b) A summary of the plan's material terms (this requirement is normally satisfied by distribution of a plan description or similar document to be prepared in connection with the offering); c) Risk factors associated with an investment in the issuer's securities; and 2

3 d) The issuer's financial statements, which must either be prepared in accordance with U.S. GAAP or be reconciled to U.S. GAAP and must include: i. a balance sheet as of the end of the most recent fiscal year (for offerings made more than 90 days after the end of the most recent fiscal year; otherwise the balance sheet should be as of a date within 90 days of the offering); Status as "Restricted Securities" Shares sold in reliance on Rule 701 are considered "restricted securities" for Securities Act purposes and can be resold in the United States only pursuant to an effective registration statement or an exemption from registration. No Integration with Other Exemptions ii. statements of income, cash flows and stockholders' equity for each of the two fiscal years preceding the date of the balance sheet; and iii. pro forma information if the issuer has completed a significant business combination accounted for as a purchase during the most recent period for which a balance sheet is required, or if after the date of the most recent balance sheet consummation of a significant business combination has occurred or is probable. Sales made in reliance on Rule 701 are not required to be "integrated" with sales, including sales to employees, made in reliance on other exemptions to the registration requirement. It may be possible to qualify sales to certain employees pursuant to share schemes under other exemptions (for example, the exemption for private placements). This strategy can be particularly useful for an issuer that is concerned about exceeding the U.S. $5 million threshold that triggers the requirement to prepare a U.S. GAAP reconciliation for the issuer's financial statements. Financial statements furnished under clause (d) above need not be audited. However, if an issuer has audited financial statements that it prepares for other purposes, it should provide such audited financial statements instead. The requirement to provide financial statements reconciled to U.S. GAAP means that many non-u.s. issuers must operate under Rule 701 with a practical limit of U.S. $5 million per 12-month period, even though the theoretical limitation on the aggregate sales price of securities that may be offered in reliance on the Rule might be much larger. No Public Federal Filings Rule 701 does not require any filing with the SEC or other U.S. federal authority, either to perfect the exemption or to report on sales. However, filings may be required in certain states in which plan participants reside. In addition, some states, notably California, impose substantive restrictions on the terms of offerings to employees. II. REGISTRATION ON FORM S-8 Issuers that are obligated under Section 13 or 15(d) of the Exchange Act to file periodic reports with the SEC, also known as "reporting companies", may use Form S-8 to register offerings made pursuant to employee plans. An issuer will be eligible to use Form S-8 (and will be ineligible to rely on Rule 701 for new awards) on the date the issuer's Registration Statement on Form F-1 becomes effective, because it will become a reporting company at such time. A Form S-8 is a registration statement of the issuer whose shares are the subject of the relevant share scheme. Even where the scheme is reserved for employees of a U.S. subsidiary, or a U.S. subsidiary is the "sponsor" of the scheme, the Registration Statement will be filed by the parent company whose shares are to be sold, not by the U.S. subsidiary. A Form S-8 consists of two basic parts: (i) the "Registration Statement", which is filed with the SEC (the requirements of which are summarized below in 3

4 Section A) and (ii) the "Prospectus", which is provided to participants to assist them in making their investment decisions, but is not filed with the SEC (the requirements of which are summarized below in Section B). prices of the issuer's shares as of a specified date within five business days prior to the filing of the Form S-8. Incorporation of Documents by Reference A. The Registration Statement Shares Registered The Form S-8 should specify a number of shares and related ADSs sufficient to cover (i) the shares underlying the currently outstanding awards under the plan granted to individuals resident in the United States and (ii) the shares and related ADSs reserved for future issuance under the plans for future award to individuals resident in the United States. The issuer should consider registering a sufficient number of shares to cover current and likely future awards for employees who are currently not resident in the United States but who may transfer into United States in the future. Multiple Plans A Form S-8 may register shares to be issued under more than one plan. If so, the cover page will identify the several plans and the number of shares being registered under each. A Form S-8, however, may only register shares available under plans that the issuer has already adopted. It is not possible to file an "omnibus" Form S-8 registering shares that might be subject to plans to be adopted in the future. Registration Fee The registration fee is generally calculated as the aggregate offering price, which is the product of the number of shares offered under each plan multiplied by the "offering price" multiplied by a factor (currently ), which factor changes from time to time at the discretion of the SEC. The "offering price" is, in the case of outstanding awards, equal to the weighted average per share exercise price of such awards and, in the case of shares available for future issuance under each plan, equal to the average of the high and low market The following documents are incorporated into the Registration Statement by reference: the issuer's latest annual report to U.S. shareholders (i.e., Form 20-F); all other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by the annual report (i.e., its Forms 6-K); a description of the securities being offered as set forth in a document filed with the SEC; and all filings with the SEC subsequent to the filing of the Form S-8. As an offering pursuant to a plan can be a continuous offer, the issuer's other SEC filings under the Exchange Act (i.e., its Forms 20-F) are automatically incorporated by reference to the Registration Statement when filed with or furnished to the SEC. Signatures The Registration Statement must be executed by the following individuals: an authorized agent of the issuer; the issuer's principal executive officer(s) (i.e., the chief executive officer); the issuer's principal financial officer (i.e., the chief financial officer); the issuer's controller or principal accounting officer; at least a majority of the issuer's board of directors; and 4

5 the issuer's authorized U.S. representative. In certain instances, the Registration Statement must also be signed by a representative of the plan, such as the plan trustee or administrator. specified statutory undertakings required by Item 512 of Regulation S-K under the Securities Act, such as the obligation to de-register any shares that remain unsold following the expiration of the plans and related awards. Exhibits B. The Prospectus Exhibits to the Registration Statement must include the following: the plan terms and conditions; any other instrument defining the rights of the security holders, including, without limitation, the issuer's articles of association and by-laws, deposit agreements and indentures; a consent from the issuer's accountants to the incorporation by reference of their financial statements; an opinion and consent of counsel as to the legality of the shares being registered, if such shares are newly issued; and a power of attorney generally designating individuals to take any necessary action with respect to the filing of or amendments to the Registration Statement. Additional Information The Registration Statement also includes descriptions of: the rights of directors and officers to indemnification by the issuer under applicable law and the issuer's corporate organizational documents; The requirements for a Form S-8 Prospectus are set forth in Rule 428 under the Securities Act. As noted above, a separate Prospectus for each plan must be prepared and distributed to participants. Prospectuses must be delivered to participants in a timely manner together with the issuer's annual report and must be subsequently updated (and annual reports distributed) to reflect any material changes during the period that the awards are made. The Form S-8 Prospectus consists of three key parts: 1. Description of Material Terms of the Plan A general description of the material terms of the relevant plan must be provided and should contain specific information required under the Form S-8 General Instructions, including, without limitation, the following information: the requirements for eligibility; the period of time during which securities will be offered under the plan; the method of payment for such securities; any restrictions on resale and assignment of interests; a description of the U.S. federal income tax consequences for participating in the plan; any interests that counsel or any named expert has in connection with the offering of securities under the plans or as the issuer's employee, board member or service provider; and any events of forfeiture and related penalties; and the terms and conditions relating to terminating a participant's interest or participation in the plan. 5

6 2. Financial Information Documents providing business and financial information about the issuer, i.e., the Registration Statement on Form F-1 or the Form 20-F, are incorporated by reference in the Prospectus and, as discussed below, must be delivered to each participant. 3. Additional Information The Prospectus must be dated and bear the appropriate SEC required legends. In addition, the prospectus must include a statement of availability of certain information about the issuer (i.e., that certain documents filed with the SEC by the issuer will be made available upon request, such as the Form F-6 and any Forms 6-K incorporated by reference into the Form S-8). Delivery Requirements Each participant should receive all of the documents comprising the Prospectus, including the financial information from the Form 20-F. In the event an employee is a participant in more than one plan, such employee may receive one copy of the financial information in order to satisfy this component of the prospectus delivery requirements. Participants should also receive free of charge copies of any of the filings incorporated by reference to Part II of the Registration Statement, if they request copies. All materials, such as annual reports, that are distributed to all shareholders generally must also be distributed to participants, to the extent they do not already receive such materials as a consequence of being shareholders. Such documents must be delivered no later than the time that they are delivered to shareholders. Electronic Delivery Guidelines The SEC allows issuers to fulfill the delivery requirements electronically (e.g., on the issuer's internet site or intranet site) if the electronic documents comply with federal securities laws and if the following guidelines are followed: employees use issuer in the ordinary course of performing their duties as employees; employees are expected to log-on to their routinely; the issuer sends an to each employee that either includes the required documents or announces the availability of the documents on the issuer's intranet or internet site and provides directions on how to access the documents; the internet or intranet site allows employees to retain the documents by printing copies; and the states that paper copies of the documents are available upon request and provides contact information to obtain the paper copies. For example, the above requirements may be satisfied by an to which the Prospectus for each relevant plan is an attachment and that includes a link to the issuer's Form F-1 on the issuer's internet or intranet site. The electronic system should record the participants' receipt of the documents or the announcing their availability so that, if required, the issuer can provide evidence of delivery. Alternatively, the issuer may elect to deliver paper copies of the documents to participants who do not have regular access to issuer . The issuer must deliver paper copies of the required documents to participants who do not have access to a computer. Solely informing these participants that they may request a paper copy of the documents from the issuer will not satisfy the delivery requirements of the Securities Act. 6

7 Application of NYSE and Nasdaq Shareholder Approval Requirements for Equity Compensation Plans - to Non-US-Issuers These rules generally require shareholder approval of equity compensation plans-including stock option plans-as well as repricings and material plan changes, with certain limited exceptions. The Nasdaq final rules (the Nasdaq Rules ) are consistent in concept with, although not entirely identical to, the NYSE final rules (the "NYSE Rules"). The shareholder approval requirements of the NYSE Rules do not apply to the equity-compensation plans of listed non-u.s. issuers, as long as such entities certify that they are in compliance with their home country practices regarding corporate governance, and disclose in their U.S. public filings how their home country practices differ from the NYSE Rules. This memorandum is intended only as a general discussion of these issues. It should not be regarded as legal advice. We would be pleased to provide additional details or advice about specific situations if desired. For more information on the topics covered in this issue, please contact: LONDON Doreen E. Lilienfeld Paula Holland +44 (0)20) NEW YORK Henry C. Blackiston, III John J. Cannon, III Jeffrey P. Crandall Kenneth J. Laverriere Linda E. Rappaport George Spera +1 (212) PARIS Sami L. Toutounji +33 (0)1)

Final NYSE Rules Regarding Shareholder Approval of Equity Compensation Plans

Client Publication June 25, 2003 Final NYSE Rules Regarding Shareholder Approval of Equity Compensation Plans Over the course of the last several months, the New York Stock Exchange (the NYSE ) and the