March 10, 2009 European Commission Directorate General Internal Market and Services Unit G3 Securities Markets

Transcription

1 Baker & McKenzie LLP 1114 Avenue of the Americas New York, New York Baker & McKenzie LLP Two Embarcadero Center 11th Floor San Francisco, CA Asia Pacific Bangkok Beijing Hanoi Ho Chi Minh City Hong Kong Jakarta Kuala Lumpur Manila Melbourne Shanghai Singapore Sydney Taipei Tokyo Europe & Middle East Almaty Amsterdam Antwerp Bahrain Baku Barcelona Berlin Bologna Brussels Budapest Cairo Düsseldorf Frankfurt / Main Geneva Kyiv London Madrid Milan Moscow Munich Paris Prague Riyadh Rome St. Petersburg Stockholm Vienna Warsaw Zurich North & South America Bogotá Brasilia Buenos Aires Caracas Chicago Chihuahua Dallas Guadalajara Houston Juarez Mexico City Miami Monterrey New York Palo Alto Porto Alegre Rio de Janeiro San Diego San Francisco Santiago Sao Paulo Tijuana Toronto Valencia Washington, DC March 10, 2009 European Commission Directorate General Internal Market and Services Unit G3 Securities Markets Re: Baker & McKenzie LLP is a member of Baker & McKenzie International, a Swiss Verein. Baker & McKenzie LLP 100 New Bridge Street London EC4V 6JA Response to Consultation on a Draft Proposal for a Directive of the European Parliament and of the Council Amending Directives 2003/71/EC on the To Be Published When Securities Are Offered to the Public or Admitted to Trading and 2004/109/EC on the Harmonisation of Transparency Requirements in Relation to Information about Issuers Whose Securities Are Admitted to Trading on a Regulated Market I. Introduction Via markt-g3@ec.europa.eu Baker & McKenzie LLP sincerely appreciates the opportunity to provide the Commission services for consultation and the European Commission with comments in response to the European Commission s draft proposal for a Directive of the European Parliament and of the Council amending Directives 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to Trading (the Directive ) and 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (the Draft Proposal ). Our comments below will primarily address the proposed changes in relation to employee share scheme ( ESS ) prospectuses ( ESS es ). However, we comment below on all of the proposed changes to the Directive, also those that do not directly concern ESS es. Baker & McKenzie advises more than 500 non-eea companies in connection with their ESSs through attorneys in our Global Equity Services Group. The Baker & McKenzie Global Equity Services Group is the leading adviser in extending ESSs globally, and we have prepared and filed ESS es with various competent authorities in the European Economic Area (the EEA ) on behalf of non-eea headquartered companies (mainly U.S. companies) whose equity securities are not admitted to trading on a regulated market in the EEA. The advice to issuers is coordinated through our San Francisco, New York and Chicago offices, with the assistance of Baker & McKenzie s network of European and other international lawyers forming part of the Global Equity Services Group. On behalf of such companies, Baker & McKenzie s Global Equity Services Group has to date obtained approval under the Directive of 12 ESS es in Belgium,

2 62 in, six in and two in the. Most of these companies have their common stock listed on the New York Stock Exchange or the NASDAQ Global or Global Select Markets. We believe these filings represent a substantial majority of all of the ESS es for non-eu issuers since the Directive entered into effect. We are currently preparing additional prospectuses for filing in each of these Member States. We have previously submitted comments to the Committee of European Securities Regulators ( CESR ) in relation to the European prospectus regime and attach to this letter our letters to CESR of February 2, 2007 and January 30, 2008, Exhibits 1 and 2 (the CESR Letters ), setting out our views on the current prospectus regime in relation to the different types of ESSs typically offered by U.S. issuers on a global basis. Capitalized terms used herein shall, unless otherwise specifically stated, have the same meaning as those used in the Background Document to the Draft Proposal prepared by the Commission services for consultation (the Background Document ). 2. Comments on Proposed Changes 2.1 Article 2(1)(e) Definition of Qualified Investors We agree with the conclusion reached by ESME and the European Commission that the definition of qualified investor in the Directive should encompass those persons that are regarded as professional clients and eligible counterparties under MiFID. Accordingly, we support the proposed change to Article 2(1)(e) of the Directive. 2.2 Article 3 Exempt Offers We agree with the proposed change to Article 3(2) based on the reasons set out in the Background Document. 2.3 Article 4 Exemptions for Shares Schemes In general, we agree with the proposed change to Article 4(1)(e) and the analysis in the Background Document supporting the proposed change. However, the comments in the last paragraph of Section 3.3 in the Background Document give rise to concerns. In such paragraph it is proposed that the information document to be provided to the employees in lieu of a prospectus should correspond to the short-form prospectus for ESSs recently approved by CESR. The short-form prospectus for ESSs that CESR has now approved is a step in the right direction to decrease the time and cost burden of non-eea issuers to comply with the current prospectus regime in the EEA in relation to ESSs. Baker & McKenzie has already had the opportunity to prepare a few such short-form prospectuses for U.S. issuers. Based on the NYCDMS/ Page 2

3 drafting of such prospectuses we have determined that as a result of the new rules the shortform prospectuses (excluding exhibits and cross-reference lists) will actually be about 60% longer than the ESS es that we have filed in on behalf of our clients under the previous prospectus regime, largely because of the need to include extensive information about the issuer s risk factors, officers and directors and employee equity compensation plans that is copied directly from the issuer s filings with the U.S. Securities and Exchange Commission ( SEC ). Thus, the benefit of the short-form rules for U.S. issuers is not that they make the actual ESS es less extensive (with a few exceptions, such as in, where the volume of the ESS es has decreased by approximately 50% under the new rules), but that they limit the need for appending annual and quarterly reports, proxy statements and other filings with the SEC to the prospectus, and that the crossreference lists, indicating where the information required by Annexes I and III of the Regulation can be found, are much more limited. Accordingly, and notwithstanding the benefits of the short-form rules approved by CESR, if the proposal in the last paragraph of Section 3.3 in the Background Document should be adopted into law, this would mean that all issuers, both EEA and non-eea companies, that offer ESSs to employees in Europe (provided that no other exemption is available under the EEA prospectus regime, as amended) would have to prepare and make available to their employees an information document that would be about pages long. This should be compared with the information document of two to three pages that is required under the current prospectus rules, as set out in paragraphs of the CESR Recommendations of February 2005, providing guidance as to the contents of the information document to be provided by issuers entitled to the exemption under Article 4(1)(e) of the Directive (the CESR Recommendations ). Further, as the information document would not be a prospectus, it would not be possible for the issuers to passport the information document into any host Member States. Instead, the issuers would have to prepare one information document for each jurisdiction in which such issuers have 100 employees or more. That is, contrary to the explicit intention of the new prospectus rules in respect of ESSs, such new rules would increase the administrative and cost burden of not only non- EEA issuers, but all issuers offering ESSs to employees in the EEA. As expressed in the last paragraph of page 11 of the Background Document, when it comes to disclosure documents, less is often more. In our experience, it is more likely that an employee will actually read an information document containing a limited number of pages than a prospectus or information document of 50 or more pages. In view of this and the above comments, our strong recommendation would be to exempt ESSs from the prospectus requirements under the EEA prospectus regime, in accordance with the Draft Proposal, and to keep the current form of the information document to be provided to the relevant employees in lieu of such prospectus. That is, our view is that the information document should continue to be in the format set out in paragraphs of the CESR Recommendations. This short information document provides employees with the basic terms of the plan and indicates where further information about the company can be obtained, for example by referring to the issuer s SEC filings. This approach is also consistent with the assumption that employees will already be familiar with the operations, NYCDMS/ Page 3

4 financial situation and prospects of their employers, and thus that recourse to a detailed prospectus or other disclosure document is not necessary or useful. In the alternative, should the European Commission not agree with our analysis above, the information documents replacing the ESS es should in no case be more extensive than the summary of the ESS es (containing the information set out in Part I of Annex I of the Directive) that we have prepared for non-eea issuers under the current prospectus regime. For your reference, we attach as Exhibit 3 the summary of the latest ESS prepared and filed by us in under the previous rules. As regards the proposed change to Article 4(1)(e) as such, we would further like to take this opportunity to provide the European Commission with empiric data showing the adverse effects the current prospectus regime may have on issuers without equity securities listed on a regulated market in the EEA. We have conducted an anonymous survey among those of our clients offering equity plans to EEA employees regarding their ESSs and the effect of the Directive on their offerings to employees in the EEA. We attach to this letter a copy of the survey, Exhibit 4, together with a chart summarizing the results of such survey, Exhibit 5. To summarize, the survey shows that some of our clients continuously file ESS es at a cost of over USD 100,000 in legal fees per year. Other companies have either discontinued various ESSs in the EEA or have reduced the benefits of such ESSs. For example, many clients restrict the total purchase limit to less than EUR 2.5 million in a 12- month period so that the companies can rely on the exemption in Article 1(2)(h). We hope that the results of the survey will prove helpful to the European Commission in supporting the proposed change to Article 4(1)(e). Finally, we would like to draw to the attention of the European Commission that in connection with the contemplated change to Article 4(1)(e), a corresponding change should be made to Article 4(2)(f). For further details and information supporting our position in respect of prospectus requirements in relation to ESSs, please see the CESR Letters. 2.4 Article 10 Information We agree with the proposed deletion of Article 10 based on the reasons set out in the Background Document. 2.5 Article 16 Supplement to the We agree with the analysis in the Background Document that there might be reasons to harmonize the time limit for withdrawal set forth in Article 16(2). However, we do not see that the proposed new wording of Article 16(2) achieves this objective. The reason for this is that the Member States may choose a withdrawal period that must not be shorter than two NYCDMS/ Page 4

5 working days under both the current wording of Article 16(2) and the wording proposed in the Draft Proposal. 2.6 Article 2(1)(m)(ii) Modification of Thresholds We agree with the proposed change to Article 2(1)(m)(ii) based on the reasons set out in the Background Document. 3. Other Comments Article 1(2)(h) and Article 3(1)(e) Maximum Offering Amounts The Directive is not clear as to whether the maximum amounts set out in the exemptions available under Article 1(2)(h) and Article 3(1)(e) should be computed on an EEA-wide basis or on a country-by-country basis. This legislative ambiguity has lead to varying interpretations of the relevant exemptions in the different Member States. Accordingly, we would recommend that this legislative ambiguity be clarified in connection with the now contemplated changes to the Directive. Article 2(1)(d) Definition of Offer to the Public In, a rights offering to existing shareholders is not considered a public offer if the rights cannot be publicly traded, because the shareholders are in such case considered to be sufficiently familiar with the issuer s affairs. For a description of the German position on rights offerings, please see Question No. 63 of the CESR Q&A 1. However, it seems that most other regulators disagree with this approach and would treat a rights offering as a public offering. In our view, rights offerings should not trigger a prospectus requirement. This is particularly so in the present economic environment, where a company might be in urgent need of additional liquidity to survive. If a rights offering is only possible following the preparation of a prospectus, the delay this causes may bring the issuer beyond saving. In addition, the prospectus requirement results in an additional economic burden on an issuer that is already in a state of acute financial crisis. We recommend that the European Commission should address the aforementioned and other ambiguities with respect to the definition of offer to the public in Article 2(1)(d) in connection with the now contemplated reforms. Article 2(1)(e)(iv) Qualified Investors Under the current prospectus regime, individuals who wish to be treated as qualified investors must, provided that the relevant Member State so allows, register in a publicly 1 Frequently asked questions regarding prospectuses: Common positions agreed by CESR Members, 8th Updated Version February 2009 (CESR/09-103). NYCDMS/ Page 5

6 available register kept by the securities regulator of the Member State where the individual is domiciled. We understand that this possibility of individuals opting to be regarded as qualified investors has been used only to a very limited extent. We would therefore propose to have this registration requirement repealed. Our recommendation would be to replace the registration requirement with the approach that is used in the United State for so-called Rule 144A investors. That is, in lieu of the current public registration procedure, the individual would represent to the issuer that he or she meets the criteria for a qualified investor. Further, it could also be considered to abolish the "2 out of 3 criteria" approach to qualify as a qualified investor and replace this with a simple "high net worth individual" exemption. The reason for this is that the current three criteria (net worth, experience and sophistication), and particularly the sophistication requirement, are so restrictive that this exemption will very rarely apply. Article 2(1)(m)(iii) Home Member State In relation to the proposed amendment to Article 2(1)(m)(ii), we would like to draw to the attention of the European Commission that also Article 2(1)(m)(iii) is in need of amendment. Article 2(1)(m)(iii) allows non-eea issuers to select as their home Member State the Member State where their securities are intended to be offered to the public for the first time after the date of entry into force of the Directive or where the first application for admission to trading on a regulated market is made. Only if the home Member State was not determined by the non-eea issuer s choice may the EEA issuer subsequently select a new home Member State. Accordingly, the home Member State may only be changed in a situation where the home Member State was determined by someone other than the issuer (such as a broker, warrant issuer or shareholder) offering the issuer s securities to the public or having such securities admitted to trading on a regulated market after the entry into force of the Directive and prior to the issuer itself offering securities to the public or applying for trading on a regulated market. Consequently, if the home Member State of an issuer has been determined by such issuer offering securities to the public or applying for trading on a regulated market, there is no possibility for such issuer to subsequently change its home Member State. The current wording of Article 2(1)(m)(iii) can give rise to unfortunate results. If a non-eea issuer has listed its securities on a regulated market in one Member State, such Member State will remain the home Member State of the issuer even if the issuer chooses to delist its securities from the regulated market on which they were originally listed and instead list them on a regulated market in a different Member State. In such situation, the preferable solution would be to replace the original home Member State of the issuer with the Member State in which the securities of the issuer are in fact listed. However, as mentioned above, the current wording of Article 2(1)(m)(iii) does not permit such change of home Member State. NYCDMS/ Page 6

7 Inconsistent Application of the Directive As we have pointed out in the CESR Letters, the lack of uniform application of the current prospectus regime by the securities regulators in the different Member States is a cause of great concern. However, as it is explicitly stated that the Draft Proposal is not intended to address problems resulting from incorrect transposition or diverging interpretations of the current prospectus rules, but that this should be addressed by work at Level 3 of the Lamfalussy approach, we do generally not provide comments in this regard in this letter. Should the European Commission be interested in our views in this respect, however, we kindly refer the European Commission to the CESR Letters. However, we would kindly ask the European Commission to take this legislative opportunity to resolve one issue that has proven impossible to resolve by CESR at Level 3. This issue concerns stock options and is of great concern to our clients. In spite of the views of the European Commission and CESR, the German and Polish regulators continue to take the view that a prospectus is required in connection with offerings of non-transferable stock options. The German regulator takes the view that while the non-transferable options themselves are not securities, it is a hidden offering of the underlying shares as and when the options vest. This position creates very unfortunate consequences. For example, if an issuer has stopped granting stock options to its employees, if it has at least 100 option holders in, it will still have to file a prospectus every year until the previously issued options stop vesting. Further, this inconsistent treatment of stock options by different regulators also creates regulatory problems. In one critical case, our client was caught in the tangle between the differing views of the Belgian and the German regulators. In such case, the Belgian regulator refused to accept a prospectus, which was prepared in connection with an offering of stock options, whereas the German regulator insisted on the need to prepare a prospectus. To avoid situations as the one described above and to relieve issuers of the time and costs involved with filing prospectuses in and Poland in connection with offerings of stock options to employees, we would strongly recommend that the Directive be amended to clarify that no prospectus is required in connection with an offering of stock options. 4. Conclusion We would like to thank the Commission services for consultation and the European Commission for the opportunity to present our views on the issues discussed above. As stated above, we generally agree with the changes proposed by the Draft Proposal and welcome in particular the proposed amendment to Article 4(1)(e) of the Directive, exempting ESS offerings from the requirement to prepare a prospectus. However, in this relation, we strongly believe that it would cause both EEA and non-eea issuers unjustified costs and administrative burden if it should be a requirement that the information NYCDMS/ Page 7

8 documentation to be prepared in lieu of a prospectus be in the form of the new short-form prospectus recently approved by CESR. Instead, our recommendation would be to keep the current form of the information document to be provided in lieu of a prospectus, or, in the alternative, to require the information document to be in the form and contain the information required for a prospectus summary under the current prospectus regime. Respectfully submitted, David Freedman david.freedman@bakernet.com phone: Jeremy Edwards jeremy.edwards@bakernet.com phone: Valerie H. Diamond vdiamond@bakernet.com phone: Barbara Klementz barbara.klementz@bakernet.com phone: Manuel Lorenz manuel.lorenz@bakernet.com phone: NYCDMS/ Page 8

9 Enclosures: Exhibit 1: Exhibit 2: Exhibit 3: Exhibit 4: Exhibit 5: Letter of February 2, 2007 to CESR Letter of January 30, 2008 to CESR Summary of the prospectus of National Semiconductor Corporation approved by the French Autorité des marchés financiers on February 20, 2009, visa number ESS survey Result of ESS survey NYCDMS/ Page 9

10 Baker & McKenzie LLP Two Embarcadero Center 11th Floor San Francisco, CA Exhibit 1 Baker & McKenzie LLP 1114 Avenue of the Americas New York, New York 10036, USA Asia Pacific Bangkok Beijing Hanoi Ho Chi Minh City Hong Kong Jakarta Kuala Lumpur Manila Melbourne Shanghai Singapore Sydney Taipei Tokyo Europe & Middle East Almaty Amsterdam Antwerp Bahrain Baku Barcelona Berlin Bologna Brussels Budapest Cairo Düsseldorf Frankfurt / Main Geneva Kyiv London Madrid Milan Moscow Munich Paris Prague Riyadh Rome St. Petersburg Stockholm Vienna Warsaw Zurich North & South America Bogotá Brasilia Buenos Aires Caracas Chicago Chihuahua Dallas Guadalajara Houston Juarez Mexico City Miami Monterrey New York Palo Alto Porto Alegre Rio de Janeiro San Diego San Francisco Santiago Sao Paulo Tijuana Toronto Valencia Washington, DC February 2, 2007 Committee of European Securities Regulators Avenue de Friedland Paris, Re: Comments in Response to CESR s Call for Evidence on the European Regime ( Directive and Regulation). I. Introduction Baker & McKenzie LLP sincerely appreciates the opportunity to provide the Committee of European Securities Regulators ( CESR ) with comments concerning the European regime. Our comments address the status of convergence of the Member States in connection with employee share plans maintained by non-eu headquartered companies whose equity securities are not admitted to trading on a regulated market in the European Economic Area (the EEA ). Baker & McKenzie advises over 475 such companies in connection with their employee share plans through attorneys in its Global Equity Services practice, principally headquartered in its San Francisco, New York and Chicago offices. Most of these companies have their common stock traded on the New York Stock Exchange ( NYSE ) or one of the markets of the National Association of Securities Dealers Automated Quotations ( NASDAQ ) (e.g., NASDAQ Global Select Market, NASDAQ Global Market and NASDAQ Capital Market). On behalf of such companies, we have obtained approval of 6 prospectuses in Belgium and 23 in under the EU Directive 2003/71/EC of the European Parliament and of the Council (the PD ). We are currently preparing additional prospectuses for filing in and other Member States. We have organized this Paper around the agenda for the Hearing held on 16 January Our comments address the prospectus and passporting issues, along with exemptions under Article 4 of the PD. Our focus is on the issues of concern to U.S. issuers offering nontransferable stock options, stock purchase rights, restricted stock and restricted stock units to employees of the company and its EEA-situated subsidiaries. Because divergent views exist with respect to key provisions of exclusions and exemptions in Articles 3 and 4 of the PD, this Paper also addresses non-convergence under these Articles in Paragraph V, below. II. Background on U.S. Issuer Plans and Securities Laws In the summary below, we describe the different types of employee share plans typically offered by U.S. issuers on a global basis. This summary explains the limited scope of the Baker & McKenzie LLP is a member of Baker & McKenzie International, a Swiss Verein. Via

11 share offerings made by most of the U.S. issuers and is relevant to the concerns these issuers have with regard to the PD as explained more fully below. A. Stock Option Plans Under a typical employee stock option plan (hereinafter referred to as SOP ) of a U.S. issuer, the company grants to certain named employees of the company and its subsidiaries options to purchase a number of shares of the company s common stock at a fixed price. The employee typically pays no cash consideration to receive the option grant. The option granted to the employee is typically not transferable except upon death under the law of descent and distribution. The options generally expire no later than ten years after the date of grant. Due to U.S. accounting and tax rules, the price the employee must pay to purchase the shares of company stock, i.e., the option exercise price or strike price, generally is no less than the fair market value of the U.S. issuer s common stock on the date of grant. For purposes of this price, the fair market value is generally the closing price or the average of the high and low price of the U.S. issuer s common stock on a public (i.e., the NYSE or one of the NASDAQ markets) stock exchange on the grant date. The options vest over a period of time after the date of grant. Vesting means that the option becomes exercisable, and that the option right will not be forfeited should the holder cease to be an employee. If the employee leaves employment of the U.S. issuer or its subsidiaries for any reason before the end of the vesting period, the employee generally will forfeit his or her unvested options. In other words, the vesting is based on the employee remaining in the employ of the U.S. issuer or its subsidiaries over the vesting period. Vested options will not be forfeited if the employee leaves the company. Once vested, the employee can exercise his or her options (and thereby purchase shares) at any time before the option s expiration. If an employee who has remained with the U.S. issuer or its subsidiary for the vesting period exercises his or her options, the employee buys the common stock at the option exercise price, and is then free to keep the stock or sell it. Depending on the conditions of the individual program, participants in the SOP may pay for the shares of the U.S. issuer s stock with cash, through a same-day sale (or cashless exercise ), by delivery of shares of the company already owned by the employee or a combination of these methods. Under a cashless exercise program (hereinafter referred to as Cashless Exercise ), an employee instructs a stock broker to sell the shares issued upon option exercise, to use the proceeds to pay the option exercise price and service fees and commissions, and to remit the balance to the employee in cash. Alternatively, the employee may instruct the broker to sell enough shares to cover the option exercise price plus service fees and commissions. The remainder of the shares is transferred to the employee. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 2

12 B. Stock Purchase Plans An employee stock purchase plan of a U.S. issuer is referred to as an ESPP or as a Section 423 plan in reference to the U.S. Internal Revenue Code Section under which the tax-favored program is found. Under a typical ESPP, only employees who work for the U.S. issuer or for one of its subsidiaries, which has been designated as eligible to participate in the plan, are offered a right to participate in the ESPP. If the employee agrees to participate, then the U.S. issuer grants to him/her an option or purchase right to purchase the U.S. issuer s common stock at a discount. The employee pays no cash consideration to receive the option grant. The ESPP permits eligible employees who agree to participate to fund stock purchases through voluntary after-tax payroll deductions from salary. Typically, the U.S. issuer will limit the amount that an employee may contribute to 1% to 10% of their salary with an overall cap of U.S. $25,000 worth of stock (based on the market value of the shares at grant) in a given calendar year for favorable U.S. tax treatment. The employee is able to withdraw from the ESPP and obtain a refund of any funds that have accumulated. If the employee does not withdraw as of the date of exercise or purchase date, the funds are used to purchase shares. The option to purchase shares through the ESPP belongs to the employee participant only; it is not transferable except on death under the laws of descent and distribution. The purchase price of the shares will be at a discount from the fair market value of the shares of the U.S. issuer s common stock on the purchase date. Typically, the purchase price is the lower of 85% of the fair market value of the U.S. issuer s common stock on the day the option is granted or 85% of the fair market value of the common stock on the day the option is exercised and the shares purchased. The fair market value is generally the closing price or the average of the high and low price of the U.S. issuer s common stock on a public stock exchange on the relevant date. Options granted under an ESPP typically are six months in length (from the day the option is granted to the day the purchase of the shares is made). The six-month period is known as a purchase period. The purchase period can be longer than six months or shorter than six months (typically, not less than one month) in length. It is common for U.S. issuers to offer consecutive option grants (i.e., at the end of a purchase period when shares are purchased, an employee is automatically re-enrolled in the ESPP and a new option is immediately granted starting a new purchase period). C. Restricted Stock and Restricted Stock Unit Plans Under a typical employee restricted stock and restricted stock unit plan of a U.S. issuer, the company may grant to certain named employees either stock subject to certain restrictions (hereinafter referred to as restricted stock ) or an unfunded promise or right to receive, either in cash or shares of common stock of the U.S. issuer, the value of the U.S. issuer s Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 3

13 common stock (hereinafter referred to as RS/U s ). The restricted stock and RS/U s granted to the employee are not transferable, except upon death under the laws of descent and distribution. Restricted stock and RS/U s are subject to certain restrictions. The restrictions on the restricted stock or RS/U s make such awards subject to a substantial risk of forfeiture upon the occurrence of certain conditions. The restrictions that may be imposed include, but are not limited to, a vesting schedule based on the employee s continued employment with the U.S. issuer or its subsidiary or tying receipt of the shares and/or cash to certain U.S. issuer or other performance goals. If the conditions are not met, the employee forfeits the award. The employees typically do not pay any cash consideration to the U.S. issuer to receive restricted stock, RS/U s, or any shares or cash received as a result of such grants. If a U.S. issuer is incorporated in certain U.S. states, the employees must pay a nominal par value (typically U.S. $0.01 per share) to receive restricted stock. s who have been granted restricted stock (as opposed to RS/U s) typically have all of the rights of a shareholder (e.g., voting rights, dividend rights). s who have been granted restricted stock units have a right to shares only upon fulfilling the conditions precedent and have none of the rights of an actual shareholder until the shares are issued to the employees. III. Obstacles to the Fluid Functioning of the Passport and/or Divergent Practices in Member States that Pose a Risk for the Proper Functioning of the Single Market A. Is cooperation between competent authorities, especially in the context of the passporting of prospectus, fluid? In our experience, there has been ongoing cooperation between competent authorities in the passporting of the prospectus. Initially, there were some instances where a delay in the passporting process occurred because the prospectus summary was transmitted from one authority to the next via and the document was caught in a SPAM or securityscreening filter for the competent authority s . The delays experienced were never more than one to two days, and the issues were immediately addressed by the authorities. However, given these delays, when we request that a prospectus be passported for an issuer, we have taken the additional step of checking with each of the competent authorities where the prospectus has been passported to confirm that the prospectus was received. In this regard, we commend the practice of some competent authorities in making the approval and passporting of prospectuses immediately available on a public website (e.g., We have found these websites an excellent resource to confirm that the filing and passport process has occurred without delay. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 4

14 B. Difficulties with the Functioning of the Base and Final Terms System 1. The Nature of and the The key difficulties we have experienced with regard to the prospectus have been with regard to determining the disclosure necessary for an employee share offering of a U.S. issuer in light of the fact that the PD and Commission Regulation (EC) No. 809/2004 of 29 April 2004 (the Regulation ) were drafted with a broader public securities offering in mind. We have found the competent authorities in Belgium and to be especially good at working out the details of what is necessary to include in the prospectus because such authorities were familiar with U.S. issuers employee share plans, since under the securities regime in place in those countries prior to the implementation of the PD, a prospectus was required for such offerings. Other Member States have had more difficulty in determining the requirements for the prospectus (as well as any annex requirements) to the employee share offerings of U.S. issuers. The result is that what may be required for a filing of a prospectus for an employee share offering in or Belgium may be different than what would be necessary if a filing for the same program were made in Poland or. The differences may be a simple matter of differences in the formatting and organization of the information contained in the prospectus. For example, we have been asked by the competent authority of one Member State to include three full years of an issuer s annual reports (10-K) in the prospectus, although this results in substantial duplication of the accounting information contained in the prospectus, whereas in our filings in we have had to include at most two annual reports, in order to provide three full years of balance sheet information as required by Item 20.1 of Annex I of the Regulation. Although such issues do not result in differences in the substance of what is disclosed, they could lead to confusion among employees who are offered rights to shares. An employee may have received one form of disclosure when the individual was employed at a company that filed a prospectus in, but a different form of disclosure when the individual changes employment and the company s prospectus is filed in a different Member State. Clearly, a more uniform form of disclosure for employee share plans, along the lines of what has been accepted by the competent authorities in Belgium and would be useful to employees. The differences also may be a matter of what documents may be incorporated by reference and how those documents are incorporated. We have had some competent authorities take issue with the summary to the prospectus because it referenced financial information concerning the issuer which was included elsewhere in the prospectus, in the exhibits or in other documents (in particular, parts of the U.S. issuer s 10-K or 10-Q). Other competent authorities have not raised an issue with the inclusion of such references, provided that the employees had access to the material that was cross-referenced in the summary. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 5

15 2. Certification Requirements We also have seen differences in what representations must be made in connection with a prospectus filing and who must make such representations. For example, in Belgium, the prospectus includes a responsibility statement which provides that to the best of the issuer s or its administrative body s knowledge, the information contained in the prospectus is in accordance with the facts and there are no omissions likely to affect its import. The Belgian Banking, Finance and Insurance Commission (the BFIC ) does not, however, require any certification statement from a member of the issuer s board of directors or corporate officer. In, on the other hand, the Autorité des marchés financiers (the AMF ) has required the consent of the U.S. issuer s independent registered public accounting firm to the reference in the prospectus filing to excerpts of the issuer s 10-K and 10-Qs reviewed by such accounting firm and a certification statement signed by the U.S. issuer s chief financial officer or chief executive officer. The certification statement provides that the information contained in this prospectus fairly reflects the current situation of the issuer and that no material omission has been made. Both the accounting firm s consent letter and the officer certification statement must be filed in their original form with the AMF. The need to include the additional signed letter/statement for the French filing has been difficult for issuers. Before such documents can be executed, the U.S. accounting firm and the U.S. issuer must ensure that appropriate authorizations and procedures are in place under U.S. corporate and securities laws and accounting practices to permit the individuals to sign the documents. Often additional engagement letters must be signed between the accounting firm and the issuer to ensure that appropriate authority is obtained for the accounting firm to take such acts on behalf of the issuer. It would be a more streamlined process if the competent authorities could agree on one form of responsibility statement under Article 6.1 of the PD, preferably without specially executed authorizations by the accounting firms and officers of the issuer. 3. Fees Each competent authority has determined a fee schedule for the filing of a prospectus. Because of the nature of the employee share offerings (e.g., ESPP offerings are often ongoing, options are subject to vesting schedules), there has been some confusion as to how to calculate the fees and when the fees should be due. In addition, some Member State competent authorities (for example, the BFIC) have required a special fee guarantee letter be signed by the Belgian affiliate of the U.S. issuer before a prospectus will be approved. This practice can delay the prospectus approval process because the issuer has to work with a related-company to obtain the necessary guarantee. To the extent that such guarantee letters are necessary, it seems that the letter should be issued by the issuer filing the prospectus, rather than any affiliated company. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 6

16 C. Passporting of es 1. Publication and Dissemination of Advertisements In connection with the passporting of a prospectus, some Member States have required that the issuer abide by the rules of the host country with regard to the publication and dissemination of advertisements and these requirements have differed from the requirements of the home Member State where the prospectus was filed. We have included a discussion of these issues under this Section, rather than under Section III.D (Publication of the ) below, because these additional requirements affect the ability of the issuer to smoothly passport into a Member State and to offer the share program in all jurisdictions at the same time. Accordingly, there is not a fluid ability to passport a prospectus from one jurisdiction to another as intended under the PD. For example, in Austria, the competent authorities require that the issuer follow the same procedures with regard to the publication of the prospectus, regardless of whether the prospectus is filed in Austria or it is filed elsewhere and passported into Austria. Under Austrian rules, the issuer offering an employee share plan must chose from the publication methods listed in Article 14.2 (e.g., in electronic form on the issuer's website or in printed form to be made available free of charge to the public). In addition, the issuer must (according to Section 10, paragraph 4 of the Austrian Capital Market Act) publish an advertisement in the Official Gazette (Amtsblatt zur Wiener Zeitung) or alternatively in a newspaper with a sufficiently wide circulation. The advertisement indicates where the public may find a copy of the prospectus. Similarly, in, the Bundesanstalt für Finanzdienstleistungaufsicht (the BaFin ) requires that an issuer publish the prospectus, (which is typically done by publication of an advertisement in a German newspaper announcing availability of the prospectus). The BaFin takes the view that this requirement applies even to a prospectus that has been approved in another member state and notified to the BaFin under the EU passport regime, based on the argument that an approval by another Member State replaces only the BaFin approval, but nor any other formalities. Contrary to the view of the regulators in and Belgium, the BaFin does not dispense with the publication requirement (as opposed to purely internal communication to eligible employees), although the offering is limited to employees. The requirement to publish an advertisement in delays the issuer s offering of an employee share plan in by an additional day because the advertisement in the German publication may not occur until the prospectus is filed and the summary is passported into. The offer may not take place until the advertisement has been published. For U.S. issuers offering share plans, it is particularly important to make offerings of rights to participate in an employee share plan to all employees on the same day. As a result, if the issuer must publish an advertisement in an Austrian or German publication and if that Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 7

17 publication delays the issuer s ability to offer the plan to employees in Austria or by a day or two, the result is not just a delay for those two countries, but a delay of the offering to all employees worldwide. 2. Fewer than 100 Persons Exemption (Article 3.2(b)) We have included a more detailed discussion of the issues surrounding offers to fewer than 100 persons below. Generally speaking, if an issuer s offer is addressed to fewer than 100 natural or legal persons per Member State, the obligation to file a prospectus doe not apply, and for most Member States, if an issuer has filed a prospectus, it is not required to passport the prospectus into a Member State where the offer will be made to fewer than 100 persons. However, we include a discussion of the exemption in this Section because there are a few Member States that take a different view, and the interpretation of the exemption by these Member States has led to complications in the passporting process. For example, although a company has fewer than 100 employees in Austria, the Austrian competent authority takes the position that it is necessary to passport a prospectus into Austria if an issuer offers equity awards to 100 or more employees in any Member State. As a result, any time a U.S. issuer prepares a prospectus in connection with an employee share offering, it must passport the prospectus into Austria, although it may have only one employee who is offered the right to participate in the share plan in Austria. The Czech Republic and Hungary took a similar view to that of Austria. However, they have since changed this view and no longer require passporting if there are fewer than 100 employees in the Czech Republic or Hungary offered shares, even if there are 100 or more employees offered the right to participate in the plans in other Member States. 3. Special Fees In addition to fee issues where a prospectus is filed, there are some fee-related issues in Member States where a prospectus is passported, and these fees have affected the fluid functioning of the passporting process. In Poland, for example, there is a requirement that an issuer who files a prospectus in Poland or passports a prospectus into Poland pay a registration fee of 0.06%. The 0.06% fee is based on the value of shares actually purchased by employees in Poland during the period at issue. Given the nature of an employee share program, it has been difficult to determine the amount of the fees and when they are due, and this can disrupt the issuer s ability to passport the prospectus into Poland. 4. Licensed Brokers and Financial Intermediaries Some Member States impose requirements beyond those established by the PD, such as the requirement to use a broker or financial intermediary licensed under local law in connection Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 8

18 with any share offering, including a limited offering of shares to employees, e.g.,, Hungary and Poland. These requirements apply to issuers who are filing prospectuses in the country and to those who have filed elsewhere and are passporting into the country with the licensed broker requirements. For example, in Poland, the issuer must designate a stock plan broker/dealer licensed in Poland for offers to more than 100 individuals. This need to designate a stock plan broker/dealer for offers in Poland applies whether issuer files a prospectus, passports in or relies on employee share plan exemption to the PD. The manner of publication of prospectus or notice impacts broker/dealer s duties under Polish law. Similarly in, on May 10, 2004, the Commissione Nazionale per la Società e la Borsa (the CONSOB ) issued Ruling DIS/ addressing the activities of securities sales in the context of employee plan offerings. In this Ruling, the CONSOB took the view that an (Italian or foreign) issuer cannot directly sell its shares to the Italian employees of its controlled companies, but it must avail itself of a financial intermediary authorized/licensed to operate in. This requirement to involve a licensed financial intermediary applies where the issuer files a prospectus in, passports into or relies on the employee share plan exemption to the PD. Since this Ruling, the CONSOB has recognized certain exceptions to the financial intermediary requirements for issuers making employee plan offerings. First, the CONSOB has said that if options are restricted to a Cashless Exercise Alternative 1, as previously described, the CONSOB will not consider the offering to be a placement of shares by the issuer in. Accordingly, no licensed financial intermediary needs to be involved with the exercise or sale of the shares. Second, if the issuer offers restricted stock units to Italian employees and the units require no cash consideration payment from the employees, such units will likewise not be subject to the financial intermediary rules in. However, issuers who offer ESPPs generally must involve a licensed Italian financial intermediary to place shares with employees of their subsidiaries in. In Hungary, a licensed Hungarian dealer needs to be designated when a prospectus is filed or when an issuer passports a prospectus into Hungary. The dealer must serve as a process agent or intermediary between the Hungarian residents and the issuer. As a process agent, the dealer is in charge of collecting any forms or agreements from the employees wishing to participate in the offer and passing them along to the issuer. Where they apply, such additional requirements undermine the fluid, single market concept that the PD is intended to promote. These Member States should be encouraged to eliminate these extra-pd requirements for offers subject to the PD. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 9

19 5. Reporting Some Member States had laws in place prior to the imposition of the PD that required issuers to prepare and file annual reports with the competent authority. For the most part, these reporting requirements were eliminated after the PD was implemented in the country. However, there are a few countries that continue to have annual reporting requirements that apply to issuers who have filed a prospectus in the country and those who have filed elsewhere and passported into the country. These annual reporting requirements disrupt the single prospectus filing approach. Further, these reporting obligations are particularly challenging to U.S. issuers offering employee share programs because the limited nature of the offerings and ongoing nature of the employee share programs. For example, in, an annual report must be filed at the end of each calendar year as long as an offering remains outstanding pursuant to CONSOB Ruling DIS/ of 30 November The report must include the number of purchasers and the number shares purchased during the calendar year. A final report must be filed within 30 days of the end of any offer. For U.S. issuers offering employee share plans, the annual Italian report is complicated by the fact that not all employee share offerings are subject to the PD. As mentioned above and explained more fully below, if options are restricted to a Cashless Exercise Alternative 1, they do not need to be reported in the annual report because they do not qualify as a solicitation of public savings under Italian securities regulations. Accordingly, the issuer must track and report shares purchased through options not restricted to cashless exercise, as well as any shares purchased under an ESPP or similar program. Likewise, we understand that there are ongoing reporting obligations in Hungary. With regard to prospectus filings by U.S. issuers that are passported into Hungary, we understand that the company s 10-K, 10-Qs and 8-Ks may need to be filed on a regular basis with the competent authority in Hungary. The issuer is also required to make an immediate extraordinary information disclosure to the Hungarian authorities if there is a significant corporate event which affects the structure and management of the company. Finally, we understand that, after passporting a prospectus into Poland, the issuer is required to submit a sales report to the Polish securities regulators (KNF) within 14 days of the end of each subscription period for the securities subject to the offering. The report has to provide information on the issuer, the Polish subsidiary(ies), the shares offered by the issuer, the shares purchased by employees in Poland during the applicable period and the purchase price of the shares. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 10

20 D. Publication of the The publication requirements have differed among the competent authorities. In Belgium and, the competent authorities have been mindful of the nature of the employee share plan offering and have focused on the publication of the offering to eligible employee. The BFIC has requested that both a French and Dutch translation be made available to employees at the issuer s Belgium subsidiary, along with the translations of the tax consequences for the employees in Belgium. Additionally, the prospectus and the translations of the summaries and of the Belgian tax consequences must be posted on the issuer's intranet site where the employees can easily access copies. In, the AMF has required that a notice, in a form approved by the AMF, be provided to all employees offered the right to participate in the employee share plan, including employees in and any other country where the prospectus is passported. The notice informs employees of the approval of the prospectus and of its availability. The notice generally is provided in French (for French employees) and in English (for all other employees). The notice also must state that prospectus will be made available at the office of U.S. issuer, as well as at the offices of the issuer s EU subsidiaries in the passport countries. The notice can be sent to the employees by . E. Language of the : Problems with Related Translations We have not experienced issues with regard to the translation of the prospectus or the summary of the prospectus that is passported. Generally speaking, because information from a U.S. issuer s financial disclosure mandated by the rules of the U.S. Securities and Exchange Commission (the SEC ) is included in the prospectus and summary, the U.S. issuer s independent registered public accounting firm has wanted to review the translations to ensure their accuracy. In addition, the AMF requires a certification from the French affiliate of the issuer s independent registered public accounting firm whenever the ESPP offering is considered to be a public offering in under the AMF s rules, resulting in additional expense for the issuer. F. Exemptions from the Obligation to Publish a (Article 4 of the PD): Securities listed on an EU exchange for purposes of employee share plan exemption under Article 4.1(e) and requirements applicable to issuers relying on the exemption Article 4.1(e) of the PD provides an exemption for employee share plans of issuers whose securities are admitted to trading on an EEA regulated market, provided that the issuer makes available certain information about the plan and the offer. The term securities as defined in Article 2.1 includes transferable securities within the meaning of Article 1.4 of Directive 93/22/EEC (with the exception of certain money-market instruments), including bonds and other forms of securitized debt that are negotiable on the Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 11

21 capital market. Therefore, companies with debt securities listed on an EU-regulated market should be able to claim an exemption from the PD, even though their shares are not so listed. Unfortunately, however, there is a lack of convergence on whether debt listings are sufficient to claim exemption from the PD under Article 4.1(e), with countries such as Austria, Finland,, Poland, Portugal, and the United Kingdom taking the view that debt listing is sufficient, while other countries, such as the,, and having the opposite view. Issuers that do not satisfy any other exclusion from the PD or exemption from filing prospectus under the PD risk being considered to have violated the PD by Member States that do not consider debt listings as securities for purposes of Article 4.1(e). In addition, it is not clear what is meant by a listing of securities. For example, is selflisting required, or is listing by third party sufficient? This lack of clarity invites differing interpretations among the Member States. Article 4.1(e) requires issuers to make available information about the offer. This requirement has been interpreted differently among Member States, with some requiring a disclosure filing and others requiring various methods of publishing information about the offer. For example, the Czech Republic requires issuers to file a disclosure document with or provide a copy to regulators; Belgium requires issuers to file a tax disclosure document, and Austria and require issuers to publish an ad in newspaper. IV. Usefulness of CESR s Q&A on prospectuses and suggestions for improvement. CESR s July 2006 Q&A (Ref. CESR/06-296d) was very helpful to advisors and issuers as it provided guidance on CESR s interpretation of key provisions of the PD and its views on the proper interpretation of key PD provisions. Please see our comments in this regard under Section V below. Additional Q&A s addressing CESR s views on issues where divergent opinions continue would be helpful. V. Other -- Key Terms and Provisions Impacting Availability of Exclusions and Exemptions under Articles 3 and 4 of the PD Divergent interpretations of the meaning of key provisions of certain exclusions and exemptions Articles 3 and 4 of the PD undermine the ability of issuers to rely with confidence on these exclusions and exemptions across the EU. In many instances, an exclusion or exemption is available to an issuer in the view of some Member States, but conflicting views of other Member States precludes consistent reliance on the exclusion or exemption throughout the EU. As a result, some issuers have suspended operation or deferred implementation of employee share plans in the EU or taken other measures to limit offerings under employee share plan in the EU, rather than risk violating the PD in one or more Member States. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 12

22 We have provided examples below of Member States that we understand to have adopted divergent positions. The views of Member States on key provisions of the PD are fluid, and thus some of the views cited may have changed. A. Divergent Views as to which Forms of Equity Securities are Subject to the PD Stock Option Awards. Article 2.1(a) of the PD defines securities governed by the PD as transferable securities. Unfortunately, there is a lack of convergence among a number of Member States as to which forms of securities fall within this category. For example, many countries have taken the position that nontransferable stock options are not subject to the PD. However, where the options are granted over shares in a publicly traded company, some Member States view the offer of stock options and subsequent exercise of the underlying shares (which are tradable) as a single transaction. We understand that, Ireland,,, Poland and Hungary are among the countries that take this position. At least one Member State has carved out an exception to its single transaction theory where the method of exercise is limited to a cashless exercise, e.g.,. Free Shares: Restricted Stock and RS/U s. A number of Member States are of the view that restricted stock and RS/U s are by their nature non-transferable and thus outside the scope of the PD, while others take the position that these forms of award are transferable securities but fall outside the scope of the PD if offered for no consideration. As previously mentioned, U.S. issuers generally do not require the employee to put up any of his or her own money for restricted stock or RS/U s. However, some Member States have taken the position that consideration includes services performed by the employee, e.g., the. We note that in the July 2006 Q&A, CESR provided helpful guidance with respect to this issue in discussing the views of the Commission Services as to the correct legal basis for the conclusion that no prospectus should be required in connection with free offers. The view of the Commission Services is that there is no offer to the public where there is no element of choice on the part of the grant recipient to accept or reject the offer. Where there is such a choice, the offers of free shares are excluded from the PD under the Euro 2.5 million threshold in Article 3.2(e) and subject to the exemption for offers of less than Euro 100,000. The Commission Services left open the possibility of a different conclusion where there is hidden consideration underlying the offer of free shares, but indicated that hidden consideration does not exist unless the shares are expressly offered in place of another quantifiable financial benefit. Following issuance of the Q&As, the BaFin abandoned its view that consideration can include services and stated that it would follow the view that offers of free shares are not a public offer of securities for purposes of a prospectus filing under the PD as long as they are offered for no cash consideration. We hope that other Member States with divergent views on this issue will be persuaded to bring their views into line with those expressed by CESR. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 13

23 One area of concern relates to restricted stock and RS/U offerings where payment of an amount equal to the par value of the shares is required in exchange for the shares. Because par value in relation to common shares of a U.S. issuer is a nominal amount that bears no relation to the market price of the shares, payment of par value should not trigger a prospectus filing. Nevertheless, payment of par value must be disclosed to and checked with different regulators and could invite different views among Member States as to whether the offer is a public offer. ESPPs: To date, the majority of Member States have taken the position that ESPPs, which typically afford participants an option to purchase shares at a favorable price, are transferable securities subject to the PD, rather than nontransferable options. Because these plans are often the preferred vehicle used by companies to offer share ownership at favorable terms to all or most employees in an organization, companies offering these plans typically cannot take advantage of exclusions and exemptions under Articles 3 and 4 of the PD. This has resulted in the discontinuance in the EU of existing ESPPs and deferring implementation of new plans. At least two Member States have begun to look more closely at the nature of these plans to see whether they might, in fact, fall outside of the PD. The United Kingdom has indicated that ESPP type plans meeting certain requirements may be regarded as nontransferable securities for purposes of the PD. The competent authority of has advised that an ESPP should be not be subject to a prospectus filing requirement in per se, because the purchase rights are not freely transferable B. Divergent Views as to the Application of Exclusion for Offers where the Total Consideration is less than Euro 2.5 Million (the Euro 2.5 million exclusion ) under Article 1.2(h) Another area of non-convergence is the application of the Euro 2.5 million exclusion under article 1.2(h). Some Member States differ as to the geographical scope over which awards are valued for purposes of determining whether the Euro 2.5 million limit is exceeded. In addition, some Member States have adopted divergent views that restrict availability of the exclusion. Definition of Consideration. As discussed above in Paragraph A, further convergence is needed on this point. Geographical Scope. While the prevailing view among Member States and the position taken by CESR is that the Euro 2.5 million exclusion should be applied on an EU-wide basis, some jurisdictions apply the exclusion on a per Member State basis, e.g.,, the and. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 14

24 Although applying the exclusion on a per Member State basis may, at first glance, seem helpful to companies because it easier to qualify for the exclusion on this basis, inconsistent views as to the correct geographical scope creates uncertainty and confusion among companies that offer share plans in Member States with conflicting views. For example, assume an issuer ( Company A ) offers transferable securities in several Member States in the amount of Euro 3.0 million, with Euro 2.4 million being offered in the. The other Member States apply the exclusion on a pan-eu basis. Based on the extent and nature of Company A s business ties to the, Company A prefers to designate the as its home Member State. If, however, Company A designates the as its home Member State, the Dutch competent authority may not accept a prospectus filing. Short of approaching the competent authority in each of the other Member States in which the company offers the plan for a determination as to what filings, if any, must be made to comply with the notice and disclosure requirements of the PD as adopted by each, the company risks being considered to be in violation of PD in one or more of these Member States. If, on the other hand, if Company A convinces the Dutch competent authority to accept a prospectus filing, Company A cannot be assured that other Member States would honor the prospectus filing with the Dutch competent authority because the prospectus filing was not required under the PD as adopted by the. In summation, companies are left to predict when and whether these jurisdictions will decide to apply the limit on an EU-wide basis and the retroactive implications of such a change. Divergent views on applicability of the Euro 2.5 million exclusion. Many companies that have not exceeded the Euro 2.5 million exclusion cannot rely on this exclusion in or due to their interpretations of Article 1.2(h), which are not supported by the language of the PD. For example, is of the view that the exclusion is available only to certain types of financial institutions. In addition, imposes an exclusion limit of Euro 1.0 million rather than 2.5 million. Issuers who offer share plans in these countries and who otherwise would be able to rely on this exclusion across the EU, are left having to decide whether to undertake a costly and time-consuming prospectus filing that ultimately will be determined to have been unnecessary. C. Divergent Views on Application of Exemption for Offers to Fewer than 100 Persons (the Small Offering Exemption ) As previously mentioned, Article 3.2(b) exempts from publication of a prospectus offers to fewer than 100 natural or legal persons per Member State, other than qualified investors. CESR s view and that of most Member States is that this exemption applies to offers within a given Member State based on the number of offerees in that Member State. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 15

25 In the case of ESPPs, it is not clear how the number of offerees should be counted for purposes of this exemption. Should the number of employees eligible to participate be counted, or should issuers look only at employees who have enrolled in the plan? Share purchase plans have varying enrollment and/or purchase periods, typically ranging from annual periods to monthly enrollment. It is not clear how frequently an issuer is required to count the number of offerees where there are multiple enrollment and/or purchase periods within a given 12-month period. D. Issues Concerning the Merger Exemption The PD may have an effect on business combination transactions exclusively involving U.S. issuers, where one or both of the parties have previously made securities offerings in Europe pursuant, and where neither of the issuers has securities admitted to trading on a regulated market in the EEA. Typically, in a business combination transaction, the acquirer may offer its securities as merger consideration to the shareholders of the target company. It may be the case that the target company s employee options or other equity rights will be converted into rights over the acquirer s shares. Such business combination transactions are generally documented in the United States in a prospectus on Form S-4 filed with the SEC, which is the form of prospectus used for the registration of securities issued in business combination transactions and exchange offers. European shareholders of the target company, just like their U.S. counterparts, will generally be offered securities of the acquirer in connection with the business combination and accordingly they must, by virtue of U.S. law, receive a copy of the prospectus on Form S-4. Article 4.1(c) of the PD grants an exemption from the requirement to file a prospectus where the issuer has provided a document containing information equivalent to that which must contained in the prospectus. However, it is not always clear what information must be provided. For example, AMF Instruction n of December 13, 2005, which covers the other exemptions in Article 4 of PD, does not specify the nature and content of the information required where the securities are being issued pursuant to a merger but not admitted for trading; only the latter case is covered in Article 12 of the Instruction, pursuant to Article 4.2(d) of the PD. We believe that a U.S. issuer offering securities where the consideration is in excess of Euro 2.5 million to European employee shareholders of the target company by means of a merger may use the S-4 prospectus filed with the SEC and sent to the European shareholders to provide the information required by the PD. Such an interpretation would be consistent with the approach taken by the SEC under Rule 802 under the U.S. Securities Act of 1933, as amended, where a foreign private issuer with fewer than 10% of its shares being held in the United States is entitled to use the local informational documents. Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 16

26 VI. Conclusion We would like to thank CESR for the opportunity to present our views on the issues discussed above. The PD offers the opportunity for U.S. issuers to offer their securities to employees in the 30 EEA jurisdictions using a single document and subject to review of only the home Member State competent authority. But the promise offered by the PD is often illusory, because of the additional burdens imposed by the host Member States notwithstanding the clear statement in Article 17.1 that authorities of host Member States shall not undertake any approval or administrative procedures relating to prospectuses. We believe that standardization of the passporting practice as well as additional harmonization on the other areas of non-convergence noted above would greatly facilitate and encourage offerings by U.S. issuers to their European employees. Finally, we note that in a time of increasing convergence between the U.S. and EU regulators as evidenced by the roadmap on mutual recognition of accounting standards and the Memorandum of Understanding that has just been entered into between the SEC and the College of Euronext Regulators in light of the impending merger of the NYSE and Euronext, efforts to facilitate employee equity plan offerings should be on the agenda of the trans- Atlantic dialogue between CESR and the SEC. Respectfully submitted, Edward D. Burmeister (by J.A.B.) eburmeister@bakernet.com phone: (001) Valerie H. Diamond (by J.A.B.) vdiamond@bakernet.com phone: (001) June Anne Burke june.anne.burke@bakernet.com phone: (001) David F. Freedman david.freedman@bakernet.com phone: (001) Cc: Paul M. Dudek, Esq. Chief, Office of International Corporate Finance U.S. Securities and Exchange Commission Committee of European Securities Regulators February 2, 2007 NYCDMS/ Page 17

27 Baker & McKenzie LLP 1114 Avenue of the Americas New York, New York Exhibit 2 Baker & McKenzie LLP Two Embarcadero Center 11th Floor San Francisco, CA Asia Pacific Bangkok Beijing Hanoi Ho Chi Minh City Hong Kong Jakarta Kuala Lumpur Manila Melbourne Shanghai Singapore Sydney Taipei Tokyo January 30, 2008 Committee of European Securities Regulators Avenue de Friedland Paris, Re: Via prospectus@cesr.eu Response to CESR s Public Statement of 13 December 2007 on Share Scheme es Europe & Middle East Almaty Amsterdam Antwerp Bahrain Baku Barcelona Berlin Bologna Brussels Budapest Cairo Düsseldorf Frankfurt / Main Geneva Kyiv London Madrid Milan Moscow Munich Paris Prague Riyadh Rome St. Petersburg Stockholm Vienna Warsaw Zurich North & South America Bogotá Brasilia Buenos Aires Caracas Chicago Chihuahua Dallas Guadalajara Houston Juarez Mexico City Miami Monterrey New York Palo Alto Porto Alegre Rio de Janeiro San Diego San Francisco Santiago Sao Paulo Tijuana Toronto Valencia Washington, DC I. Introduction Baker & McKenzie LLP sincerely appreciates the opportunity to provide the Committee of European Securities Regulators ( CESR ) with comments in response to CESR s Public Statement of 13 December 2007 on Share Scheme es. Our comments address the current situation involving employee share scheme prospectuses filed with various EU competent authorities on behalf of non-eu headquartered companies (mainly U.S. companies) whose equity securities are not admitted to trading on a regulated market in the European Economic Area (the EEA ), as well as our views on how employee share offerings by non-eu companies should be viewed in the future in light of the strong trend for regulatory convergence in the securities field between the EU and the United States. Baker & McKenzie advises more than 500 such companies in connection with their employee share plans through attorneys in its Global Equity Services Group. The Baker & McKenzie Global Equity Services Group is the leading adviser in extending share plans globally. The advice to issuers is coordinated through its San Francisco, New York and Chicago offices, with the assistance of Baker & McKenzie s network of European and other international lawyers forming part of the Global Equity Services Group. On behalf of such companies, Baker & McKenzie s Global Equity Services Group has obtained approval under the Directive 2003/71/EC of the European Parliament and of the Council (the PD ) of nine employee share scheme prospectuses in Belgium, 43 in, one in and one in the. Most of these companies have their common stock listed on the New York Stock Exchange ( NYSE ) or the NASDAQ Global or Global Select Markets ( NASDAQ ). We believe these filings represent a majority of all of the employee share scheme prospectuses for non-eu issuers since the PD entered into effect. We are currently preparing additional prospectuses for filing in each of these Member States. We refer you to our letter of February 2, 2007 setting out our comments in response to CESR s Call for Evidence on the European Regime, a copy of which is attached Baker & McKenzie LLP is a member of Baker & McKenzie International, a Swiss Verein.

28 hereto, for a description of the different types of employee share plans typically offered by U.S. issuers on a global basis. II. Changes Needed to Regime A. Adoption of CESR s Recommendations for all Non-EU Issuers The current prospectus regime for employee share plans (as it applies to non-eu issuers) achieves very little benefit to employees, but imposes a cost and time burden on issuers; a burden that, for the reasons set out in Part III below, dissuades them from offering these plans to their employees based in the EEA. Unlike capital raising transactions, equity compensation plans are permanent offers. The offer of the securities does not close at a specific date but rather the employees participating in share purchase plans generally are offered the securities on a continuing basis, with enrollment open for long periods or even at any time during the year. With most U.S. employee share purchase plans ( ESPPs ), employees are offered an option to purchase shares on multiple purchase dates and can withdraw from the plan at any time before the respective purchase. In the case of a continuous employee offering over a period of years, the requirement to provide current financial and other information regarding the issuer in a prospectus at the beginning of an offering period (even if it is updated on an annual basis) does often not help the employees in making an informed investment decision, because the employees typically do not make an investment decision at the time the ESPP is first offered to them, but only when and if they purchase shares in the future at a time that can often not be predicted. Further, employees may assess the situation of the issuer at any given time by consulting the documents that the issuer has filed, for example, with the U.S. Securities and Exchange Commission (the SEC ), rather than examining the approved prospectus. We are advised by our clients that although they inform the employees of the availability of the approved prospectus in accordance with Article 14 of the PD, it is very rare that the employees ask for it. We accordingly believe that the appropriate framework for disclosure obligations for an employee equity compensation offering is set out in Paragraphs of CESR s Recommendations of February 2005, providing guidance as to the contents of the information document to be provided by issuers entitled to the exemption under Article 4(1)(e) of the PD. This short document generally two to three pages long, as opposed to the several hundred pages that approved prospectuses contain provides employees with the basic terms of the plan and where further information about the company can be obtained, for example by referring to the issuer s SEC filings. This approach is consistent with the assumption that employees will already be familiar with the operations, financial situation and prospects of their employers, and thus recourse to a detailed prospectus is not necessary or useful. Committee of European Securities Regulators January 30, 2008 NYCDMS/ Page 2

29 Although the only non-eu issuers who can take advantage of the Article 4(1)(e) exemption are those whose securities are listed on an EU regulated market, this limitation makes no practical sense for employee share plan offerings. In the absence of an EU-wide mechanism under the Transparency Directive for issuers to post their regulated information, in particular the filings of quarterly, half-year and annual reports under Articles 4, 5 and 6 of the Transparency Directive, the employee disclosure document prepared in accordance with CESR s Recommendations refers employees to the websites of the issuer and the SEC where the information can be obtained. If, as is expected by virtue of Commission Directive 2007/14/EC of 8 March 2007, non-eu issuers listed on the NYSE or NASDAQ will be able to satisfy their Transparency Directive reporting obligations via their SEC filings, the distinction between non-eu issuers subject to SEC filing requirements with EU regulated market listings and those without has little justification with regard to employee share plans. The substantial equivalency of the EU and SEC disclosure regimes was recently recognized by the College of Euronext Regulators. In October 2007, further to a request made by NYSE Euronext, the AMF, the Belgian CBFA and the Dutch AFM agreed to consider that, where an issuer that was currently listed or about to be listed on the NYSE or NASDAQ would be seeking to be admitted to trading on Euronext without making a public offering, the documents filed with the SEC over the last twelve months may constitute a valid filing for the purpose of the individual approval of the prospectus to be published in the EU. This approval would be facilitated in case of pre-existing review of these documents by the SEC. This decision is based on the conclusion reached by the AMF and the other competent authorities that the U.S. standards and the controlling environment applying to an issuer seeking a listing on a U.S. exchange are equivalent to the European requirements, taking into consideration: the compliance of the content of the documents filed with the SEC with IOSCO standards on International disclosure standards for cross-border offerings and initial listings by foreign issuers adopted in 1998, the decision of the Commission to accept the use of U.S. GAAP for the purpose of preparing a prospectus pending the final convergence between U.S. and EU accounting standards, the role and responsibilities of the SEC with respect to such documents, and the U.S. regulatory framework requesting the annual financial statements of a listed issuer to be audited by an audit firm subject to the oversight of the U.S. Public Company Accounting Oversight Board. 1 1 In light of the dialogue between the SEC and the Commission on mutual recognition of their disclosure regimes, we would like to point out that, pursuant to Rule 701 under the Securities Act of 1933, as amended (the Securities Act ), and Rule Committee of European Securities Regulators January 30, 2008 NYCDMS/ Page 3

30 B. Modifications to Regulation Disclosure We recognize that it may not possible at this time given the legal framework of the PD and the Commission Regulation (EC) No. 809/2004 of 29 April 2004 (the Regulation ) and CESR s role under Level 3 of the Lamfalussy Process for CESR to accord all non-eu issuers subject to SEC reporting obligations the benefit of the Article 4(1)(e) exemption, and this change will need to be made through a formal amendment to the PD. In the interim, in light of CESR s aim to permit the omission of certain information requirements contained in the different Annexes, on the basis that they may not be pertinent to the specific case of an offer to employees, we believe that it is appropriate to omit all information from the Annexes that is not specifically required by the prospectus summary as set out in Part I of Annex I of the PD. In other words, the prospectus would contain basic information about the offered plans and the operations, management, financial situation and risk factors of the issuer, but without the current level of detail required by Annexes I and III. A possible list of items under Annexes I and III that could be set out in the body of the prospectus or the cross-reference tables (where required) is enclosed with this letter. The remaining items would be in the issuers SEC filings, which would continue to be attached as exhibits, in case an employee requesting the prospectus would wish to have further information, but would not be specifically referred to in the cross-reference tables or set out in the body of the prospectus. As a result, the time and expense required to prepare the prospectus would be substantially reduced, but without a corresponding reduction in the information provided to the employees. In fact, this approach has already been adopted by the CBFA in certain cases. These prospectuses provide disclosure on each of the summary items and then attach the issuer s SEC filings for further information. This approach has proven to be quite flexible. III. The Current Regime A. Content and Format of es The key difficulties we have experienced with regard to the prospectus have been with regard to determining the contents and format of the disclosure necessary for an employee share offering of a U.S. issuer in light of the fact that the PD and Regulation were drafted with a broader public securities offering in mind. 12h-1 under the Securities Exchange Act of 1934, as amended (the Exchange Act ), the SEC exempts from the registration requirements of the Securities Act and of the Exchange Act offers and sales of securities pursuant to certain compensatory benefit plans. As a result, European issuers not listed in the U.S. and not otherwise required to file reports with the SEC generally are not required to register shares subject to an employee share plan under the Securities Act or the Exchange Act and are not required to prepare a prospectus disclosure for such plans. Committee of European Securities Regulators January 30, 2008 NYCDMS/ Page 4

31 In Belgium, and the, much of the required disclosure under Annexes I and III of the Regulation is provided via the issuer s filings with the SEC, which are attached as exhibits to the prospectus. Detailed cross-reference tables showing where each item of the information required by Annexes I and III of the Regulation can be found in the body of the prospectus and the attached SEC filings must be part of the prospectus in and supplementally filed in the. In, in addition to attaching the issuer s SEC filings as exhibits, it is necessary to essentially duplicate that disclosure in the body of the prospectus. B. Difficulties with Current Filing Regime 1. Requirement to Include Stock Option Plans in Notwithstanding the ability to satisfy the disclosure requirements by attaching the issuer s SEC filings in each of the Member States referred to above, the current regime nevertheless requires a substantial cost and time investment by issuers, with little countervailing benefit to the employees. First, notwithstanding the clear position taken by CESR in Question 5 of its Q&A of September 2007 and Commissioner McCreevy s letter attached to the CESR Public Statement that an offering of non-transferable options is outside of the scope of the PD, the competent authorities in certain Member States (e.g., and Poland) do not share this view. Accordingly, the prospectuses filed in these countries or passported in by virtue of Article 17 of the PD must describe the stock option plans and attach them as exhibits. In many cases, this disclosure requires the inclusion of discontinued plans or plans from acquired companies where no further grants are being made but outstanding options remain. Nevertheless, since the view of the German BaFin in particular is that an offering of nontransferable stock options comes within the scope of the PD and that the employees are confronted with an investment decision when the options vest (which may be several years after they were granted), it is necessary to include these discontinued plans as part of a valid prospectus. Because the plan descriptions will be in the prospectus summary, which then must be translated in the Member States where this is required, and cross-referenced in the relevant items of Annex III when the prospectus is filed in a Member State requiring inclusion of the cross-reference table in the prospectus or by supplemental filing, there is a substantial cost burden to issuers to provide this additional disclosure and no corresponding benefit to employees. This lack of a harmonized position among the CESR members notwithstanding CESR s Level 3 mandate is contrary to the stated objective of the PD to create a harmonized offering regime throughout the EEA. 2. Accounting Difficulties We welcome the adoption of Commission Regulation (EC) No 1569/2007 of 21 December 2007 establishing a mechanism for the determination of equivalence of accounting standards Committee of European Securities Regulators January 30, 2008 NYCDMS/ Page 5

32 applied by third country issuers of securities. We further appreciate the statement made by Commissioner McCreevy in his press release of January 8, 2008 that the Regulation is part of a strategy to eliminate existing costly and burdensome reconciliation requirements between the EU and its key trading partners. We hope that the Commission will soon conclude that U.S. GAAP is equivalent to IFRS for purposes of the PD and the Transparency Directive and thus the current exemption in Article 35(5)(A) of the Regulation permitting the use of U.S. GAAP in prospectuses for non-eu issuers is made permanent or at least extended beyond December 31, 2008, as the EU and SEC, together with the IASB and FASB, continue their convergence discussions. Nevertheless, the presentation of financial information required in certain Member States differs in certain respects from the SEC rules. In particular, Item 3.1 of Annex III of the Regulation requires that issuers provide a working capital statement. Pursuant to this text, the prospectus must contain a statement by the issuer, that, in its opinion, the working capital is sufficient for the issuer s present requirements or, if not, how it proposes to provide the additional working capital needed. In addition, Item 3.2 of Annex III requires that issuers provide a statement of capitalization and indebtedness (distinguishing between guaranteed and unguaranteed debt, secured and unsecured indebtedness) as of a date no earlier than 90 days prior to the date of the document [prospectus]. Indebtedness also includes indirect and contingent indebtedness. We believe the information required by Item 3.1 and Item 3.2 is provided in substantially equivalent form on a continuous periodic reporting basis in the Annual Report on Form 10- K and the Quarterly Report on Form 10-Q filed with the SEC. The reports filed with the SEC are not required to have a separate capitalization table outlined in Item 3.2, but we believe that this same financial information relating to indebtedness is readily apparent from the regular financial statements and footnotes that must be included in the reports. The reports filed with the SEC also are not required to have a working capital statement with the specific language set forth in Item 3.1; however, SEC Regulation S-K Item 303 requires, among other things, what we believe to be an equivalent discussion of the ability of an enterprise to generate adequate amounts of cash to meet the enterprise's needs for cash... and those balance sheet conditions or income or cash flow items which the registrant believes may be indicators of its liquidity condition... on both a long-term and short-term basis. However, Items 3.1 and 3.2 pose timing issues for U.S. issuers in those Member States that interpret them strictly. The Form 10-K must be filed with the SEC 60 days or more after fiscal year end, depending on the size of the issuer s market capitalization. The Form 10-Q must be filed 40 or 45 days after fiscal quarter end, depending on the size of the issuer s market capitalization. Because the statement of capitalization and indebtedness is derived from the issuer s most recent quarterly or annual financial information filed with the SEC, there is only a short period of 30 to 50 days between the time of the SEC filing and the time the prospectus must be approved. If the prospectus is not approved prior to the expiration of Committee of European Securities Regulators January 30, 2008 NYCDMS/ Page 6

33 the 90-day period, the issuer must postpone the offering and wait until the next SEC filing is made. Also, under the SEC rules, when an issuer changes its reporting segments or discontinues certain activities, it must retroactively restate its financial statements to reflect the new situation. The previously filed financial statements are superseded by the new ones and may not be used. Nevertheless, because of the strict rules of Item 20 of Annex I of the Regulation requiring three years of balance sheets in a prospectus (whereas the SEC only requires only two years of balance sheets in the audited financial statements in the Form 10- K), our clients have had to include in their EU prospectuses filed in certain Member States financial statements that did not reflect the current activity of the company and were not in compliance with U.S. GAAP. This has been a particular concern in because of the AMF s requirements that the issuer s auditors provide an end-of-mission letter consenting to the inclusion of their audit reports in the prospectus. Although in each case the difficulty has been resolved and the prospectus approved, the issuers have had to bear substantial additional accounting and legal fees and devote large amounts of time in order to achieve that resolution. 3. Level of Detail Required in Although substantively the information required by Annexes I and III of the Regulation can be found in the SEC filings of a non-eu issuer, the level of detail is often different. For example, the SEC does not require the same level of detail on future investments (Items and of Annex I) or a breakdown of persons employed by main category of activity and geographic location (Item 17.1 of Annex I). In those Member States where a simple attachment of SEC filings is not sufficient, issuers and their counsel must review the SEC filings in detail in order to ferret out the required information to be included in the cross-reference tables and the body of the prospectus where required. IV. Conclusion We would like to thank CESR for the opportunity to present our views on the issues discussed above. While we look forward to an amendment to the PD that recognizes that the SEC disclosure regime is substantially similar to that under the PD and Transparency Directives and thus extends the exemption under Article 4(1)(e) of the PD to non-eu issuers whose shares are traded on the NYSE or NASDAQ, we hope for further guidance in the near term from CESR on a simplified prospectus format that will reduce the time and expense needed to prepare a prospectus, encourage non-eu issuers to offer equity compensation plans to their employees in the EEA and provide such employees with a prospectus tailored to their informational needs. Committee of European Securities Regulators January 30, 2008 NYCDMS/ Page 7

34 Respectfully submitted, David F. Freedman phone: (001) Barbara Klementz phone: (001) Valerie H. Diamond phone: (001) Matthew R. Gemello phone: (001) Edward D. Burmeister phone: (001) June Anne Burke phone: (001) Enclosures: Letter of February 2, 2007 to CESR Draft tables setting out items from Annexes I and III to be included in employee share scheme prospectuses cc: Ethiopis Tafara, Esq. Director, Office of International Affairs U.S. Securities and Exchange Commission Committee of European Securities Regulators January 30, 2008 NYCDMS/ Page 8

35 Exhibit 3 CHAPTER A: DESCRIPTION OF THE NATIONAL SEMICONDUCTOR CORPORATION AMENDED AND RESTATED 2003 EMPLOYEES STOCK PURCHASE PLAN ( THE ESPP ) AND THE NATIONAL SEMICONDUCTOR CORPORATION 2007 EMPLOYEES EQUITY PLAN, AS AMENDED ( THE PLAN ) National Semiconductor Corporation ( NSC, the Corporation or the Company ), a Delaware corporation that has its principal executive offices at 2900 Semiconductor Drive, Santa Clara, CA , U.S.A., offers eligible employees of NSC and its participating subsidiaries the right to purchase or acquire shares of its common stock ( Common Stock ) under the National Semiconductor Corporation Amended and Restated 2003 s Stock Purchase Plan and the National Semiconductor Corporation 2007 s Equity Plan, as amended. The offering of the ESPP and/or the Plan may be considered a public offering of securities pursuant to Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 (the Directive ) in and the United Kingdom. The offering of the ESPP and/or the Plan may also be made in the following EEA countries: Belgium, Denmark, Estonia, Finland,,,, and. However, such offering is not considered a public offering of securities and/or the obligation to publish a prospectus does not apply to the offering under the legislation implementing the Directive in such countries. The total amount of the offering of the ESPP and/or the Plan in the EEA is more than 2.5 million over a 12-month period. This prospectus will be made available to employees of the subsidiaries of NSC based in the above countries at the respective head offices of their employers. In addition, this prospectus along with summary translations (as applicable) will be posted on NSC s intranet and free copies will be available to employees upon request to their employers human resources departments. I. THE ESPP The ESPP has been established by NSC to encourage ownership of Common Stock by eligible employees of NSC and its subsidiaries and to provide incentives for eligible employees. The ESPP is administered by each local subsidiary (each a Participating Company ) in accordance with such terms, conditions and provisions as may be adopted by the Compensation Committee of the Corporation (the Committee ). The ESPP is offered in a series of Purchase Periods within an annual Offering Period. The Offering Period runs for twelve months and includes two six-month Purchase Periods. The Purchase Periods run from October to March and from April to September. Eligible employees who wish to participate in the ESPP must complete an enrollment application and submit it to the Participating Company before the date specified by the Participating Company. In order to participate in the Purchase Periods covered by this prospectus, which begin April 1, 2009 and October 1, 2009, eligible employees must enroll at the latest on March 15, 2009 or September 15, 2009, respectively. Once enrolled, eligible employees (the Participants ) authorize their employer to make deductions from their pay-checks in an amount up to 10% of their base compensation to purchase Common Stock under the ESPP. Participants contributions to the ESPP are used to purchase Common Stock at a discount on behalf of Participants on the last U.S. trading day of each Purchase Period (the Purchase Date ). The Purchase Price per share is 85% of the lesser of (1) the Fair Market Value of a share on the Purchase Date; and (2) the Fair Market Value of a share on the first business day of the Offering Period, or for Participants who commenced participation in the second Purchase Period of the Offering Period, the first business day of the second Purchase Period. The Fair Market Value will be the opening price of the NYCDMS/

36 Exhibit 3 Common Stock on the New York Stock Exchange ( NYSE ) on the given date (or if not a trading day, then the trading day immediately preceding such date). As of December 3, 2008 there were approximately 7,894,393 shares available for issuance under the ESPP on a worldwide basis (out of the 16,000,000 shares initially available). Based on the assumptions set out in Section 6.1 of Chapter E of this prospectus, during the next twelve months, a maximum of 1,279,432 shares will be offered to 536 eligible employees in and the United Kingdom pursuant to this prospectus. Such shares can be either authorized but unissued shares or reacquired shares, including shares of Common Stock purchased by NSC on the open market. The ESPP is a separate employee equity plan from and is offered independently of the Plan. II. THE PLAN The purpose of the Plan is to align the interests of eligible employees of NSC and its subsidiaries with the interests of NSC s stockholders and to provide incentives for such employees to exert maximum efforts for the success of NSC. NSC may offer the following stock-based awards under the Plan: (i) stock options; (ii) restricted stock; and (iii) restricted stock units (collectively, Awards ). Awards may be offered to employees of NSC or a subsidiary who are not executive officers of NSC. The Plan administrator, the Committee, will decide, in its sole discretion, who shall receive Awards and the type, number, vesting requirements and other features and conditions of the Awards, subject to the restrictions set forth in the Plan. Recipients of Awards are Participants. The terms of each Award shall be set forth in an agreement that will be distributed to each Participant. Generally, subject to the terms of the relevant agreement, provided a Participant remains continuously employed by NSC or one of its subsidiaries, Awards will vest and Participants may be issued Common Stock over a specified period. Upon termination of the Participant s employment, the Participant may forfeit unvested and/or unexercised Awards and may have a certain period of time after termination of employment to exercise vested Awards, determined in accordance with the provisions of the Plan and pursuant to the specific conditions provided for in each applicable agreement. Unless otherwise provided in the agreement, Participants will not be able to sell, assign or transfer their Awards other than by will or by the laws of descent and distribution. (i) A stock option gives the Participant the right to buy a specified number of shares for a fixed price the exercise price during a fixed period. (ii) Restricted stock is Common Stock that is issued in the name of the Participant, with or without cash consideration, subject to restrictions on sale or transfer and may be subject to forfeiture until the Participant has satisfied certain vesting conditions which may include service conditions and/or performance conditions. (iii) A restricted stock unit is a bookkeeping entry that represents the equivalent of one share of Common Stock and may be awarded to the Participant, with or without cash consideration, at a later time, provided certain conditions are met. As of December 3, 2008, there were approximately 7,547,165 shares available for future grant under the Plan (out of the 14,000,000 shares initially available), which may be authorized but unissued shares, or shares of Common Stock acquired by NSC, either on the market or otherwise. THE ABOVE SUMMARY OF THE ESPP AND THE PLAN DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO THE PLAN DOCUMENTS ATTACHED AS EXHIBITS I AND II TO THIS PROSPECTUS. THE READER IS ENCOURAGED TO REVIEW SUCH PLAN DOCUMENTS. NYCDMS/

37 Exhibit 3 CHAPTER B: ORGANIZATION AND ACTIVITIES CONCERNING NATIONAL SEMICONDUCTOR CORPORATION I. GENERAL DESCRIPTION OF NSC NSC is a leading semiconductor company focused on analog and mixed-signal integrated circuits. Founded in 1959, NSC designs, develops, manufactures and markets high-value, high-performance analog- intensive solutions that provide more energy efficiency, greater portability, better audio, sharper images and higher performance in electronic systems. The Company has a diversified product portfolio which includes power management circuits, audio and operational amplifiers, display drivers, communication interface products, and data conversion solutions. NSC s portfolio of over 13,000 products is sold to a diversified group of end-customers. Energy efficiency is an overarching theme and the Company s Powerwise products enable systems that consume less power, extend battery life and generate less heat. NSC targets a broad range of markets and applications such as wireless handsets, wireless basestations, networks, industrial markets, and automotive and medical applications. The following table presents the breakdown of NSC s total net sales from a business segment perspective for the fiscal years 2008, 2007 and 2006*: (in millions) Analog segment $ 1,839.7 $ 1,825.0 $ 1,929.7 Percentage of net revenue 97.5% 94.6% 89.4% All others Percentage of net revenue 2.5% 5.4% 10.6% Total $ 1,885.9 $ 1,929.9 $ 2,158.1 *Amounts for fiscal 2007 and 2006 have been revised to conform to the fiscal 2008 presentation. II. GENERAL INFORMATION CONCERNING NSC S SHARE CAPITAL As of November 23, 2008, NSC was authorized to issue 1,000,000 shares of Preferred Stock, par value $0.50 per share, and 850,000,000 shares of Common Stock, par value $0.50 per share. As of November 23, 2008, there were no shares of Preferred Stock and 229,368,602 shares of Common Stock outstanding. The following table shows beneficial owners known to NSC as of February 17, 2009, holding more than five percent (5%) of its Common Stock (unless otherwise specifically stated, share ownership as of December 31, 2008, percentages based on 229,368,602 shares of Common Stock outstanding as of November 23, 2008). NYCDMS/

38 Exhibit 3 Stockholder Name Shares Owned Percent of Outstanding Shares FMR LLC 23,311, % Ralph V. Whitworth David H. Batchelder Relational Investors, LLC Harris Associates, L.P. Harris Associates Inc. 22,594,257* 9.85%* 12,016, % Massachusetts Financial Services Company 12,662, % *Share ownership as of January 16, 2009, based on a Schedule 13D/A filed with the SEC on January 20, III. RISK FACTORS Set forth below are summaries of certain of the risks, uncertainties and other factors that may affect NSC s future results. The full descriptions of these and other risks are included on pages 36 through 42 of the Form 10-Q, attached as Exhibit IV to this prospectus. The risk factors set forth below should be read in conjunction with the other risk factors in the Form 10-Q. Significant deterioration in the global business environment has effected NSC s business. A large portion of NSC s revenue is dependent on the wireless handset market. NSC operates in the global marketplace and faces risks associated with worldwide operations. Reduced consumer or corporate spending due to uncertainties in the macroeconomic environment have adversely affected NSC s revenues and gross margins. NSC may experience delays in introducing new products or market acceptance of new products may be below NSC s expectations. NSC s performance depends on the availability and cost of raw materials, utilities, critical manufacturing equipment and third-party manufacturing services. NSC s products are dependent on the use of intellectual property that it needs to protect. NSC has significant manufacturing operations in China and Malaysia and, as a result, will be increasingly subject to risks inherent in doing business in China and Malaysia. The leverage carried by NSC may harm NSC s financial condition and results of operations. IV. RECENT DEVELOPMENTS For the second quarter of fiscal year 2009 ended November 23, 2008, NSC reported sales of $421.6 million, net income of $36.3 million and earnings of $0.16 per diluted share of Common Stock. NSC s second quarter fiscal 2009 sales decreased approximately nine percent sequentially from the first quarter of fiscal 2009, when the Company reported $465.6 million in sales and earnings of $0.33 per diluted share of Common Stock. For further information, see Exhibits IV and VIII. NYCDMS/

39 Exhibit 3 NSC anticipates that sales in the third quarter of fiscal 2009 will be down sequentially by approximately 30 percent depending on turns orders received in the quarter. The sales outlook is being impacted by significantly lower-than-usual demand levels in the post-holiday season, especially for personal mobile devices. In addition, the Company expects gross margins to decline as NSC plans to significantly lower its manufacturing activity in the third quarter of fiscal For further information on the Company s anticipated gross margin percentage decrease, see page 32 of the Form 10-Q. V. DOCUMENTS ON DISPLAY On its "Investors" website, located at NSC posts the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: its annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All of the filings on NSC's website are available free of charge. NSC expects to issue after market close on March 11, 2009, its earnings release for the quarter ended February 22, The quarterly report on Form 10-Q for such quarter will be filed with the SEC no later than April 3, These documents will be available on the website of NSC indicated above. NYCDMS/

40 Exhibit 3 CHAPTER C: FINANCIAL INFORMATION CONCERNING NATIONAL SEMICONDUCTOR CORPORATION FOR THE FISCAL YEARS ENDED MAY 25, 2008, MAY 27, 2007 AND MAY 28, 2006 AND THE QUARTERLY PERIOD ENDED NOVEMBER 23, 2008 The consolidated financial statements of NSC set out in this prospectus have been prepared in accordance with the Generally Accepted Accounting Principles in the United States of America ( US GAAP ). The following selected historical financial information of NSC has been derived from the historical consolidated financial statements and should be read in conjunction with the consolidated financial statements and the notes included therein, which are attached as Exhibits III and IV to this prospectus. For the consolidated balance sheets of NSC and subsidiaries as of May 25, 2008 and May 27, 2007, and the related consolidated statements of income, comprehensive income, shareholders equity and cash flows for each of the years in the three-year period ended May 25, 2008 and the related financial statement schedule, the reader's attention is called to the Form 10-K, which is attached as Exhibit III to this prospectus. This prospectus incorporates by reference the consolidated balance sheet and the related notes of National Semiconductor Corporation and subsidiaries as of May 28, 2006, and the report of the independent registered public accounting firm dated July 23, 2007, insofar as it relates to the consolidated balance sheet and the related notes of National Semiconductor Corporation and subsidiaries as of May 28, 2006, which were included in Exhibit III of the prospectus of National Semiconductor Corporation that received AMF visa no dated February 22, The report on the consolidated financial statements dated July 23, 2007 refers to National Semiconductor Corporation s adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, applying the modified prospective method at the beginning of fiscal year This document is available on the website of the AMF at and it may be obtained free of charge upon request by an employee. SELECTED FINANCIAL DATA (derived from the consolidated financial statements of NSC prepared in accordance with US GAAP) (in millions, except per share amounts, derived Fiscal Years Ended from audited financial statements) Consolidated Statements of Income Data Net sales $ 1,885.9 $ 1,929.9 $ 2,158.1 Cost of sales Gross margin 1, , ,272.7 Net income $ $ $ Net income per share: Basic $ 1.31 $ 1.17 $ 1.32 Diluted $ 1.26 $ 1.12 $ 1.26 NYCDMS/

41 Exhibit 3 (in millions, except per share amounts, derived Fiscal Years Ended from audited financial statements) Consolidated Balance Sheet Data Total assets* $ 2,149.1 $ 2,246.8 $ 2,552.6 Long-term debt 1, Total liabilities* 1, Total shareholders equity* , ,967.6 * Amounts for fiscal 2007 and 2006 have been revised. For further information on the revision of prior period financial statements and the effect of the adjustments, see pages of the Form 10-K. (in millions, except per share amounts, unaudited) Three months ended Six months ended Consolidated Statements of Income Data November 23, 2008 November 25, 2007 November 23, 2008 November 25, 2007 Net sales $ $ $ $ Cost of sales $ Gross margin $ Net income $ $ $ Net income per share: Basic $ 0.16 $ 0.35 $ 0.51 $ 0.67 Diluted $ 0.16 $ 0.33 $ 0.49 $ 0.63 Consolidated Balance Sheet Data November 23, 2008 Total assets $ 2,148.5 Total liabilities $ 1,935.4 Total shareholders equity $ The decrease in total shareholders equity from $1,768.5 million as of May 25, 2007 to $196.9 million as of May 25, 2008 is principally the result of the repurchase and cancellation in fiscal 2008 of a total of 85.9 million shares of NSC common stock for $2,123.5 million, of which $1.5 billion is under the accelerated stock repurchase program approved in June 2007 and the remaining $623.5 million is out of the total balance of two $500 million stock repurchase programs, one announced in March 2007 and the other in June This was partially offset by net income of $332.3 million and issuance of new shares of Common Stock for $103.7 million. For further information on the decrease in total shareholders equity and the share repurchases, see the Consolidated Statements of Shareholders Equity and Note 12. Shareholders Equity on pages 47 and of the Form 10-K, respectively. For further information on the effects of the adoption of Statement of Financial Accounting Standards No. 123(R) and of Financial Accounting Standards Board Interpretation No. 48, see pages 54 and 69 of the Form 10-K, respectively. NYCDMS/

42 EU Directive Survey 1 Is your company Public or Private? Public Private 1a If Public, what exchange(s) are you listed on? 2 Prior to, did you offer employee share plans in the European Economic Area ( EEA )? Yes No 2a 2b If yes, what type of plans did you offer? Stock Purchase Plans Options Restricted Stock Restricted Stock Units Stock Appreciation Rights Other If you selected other, please explain: This may qualify as Attorney Advertising requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. 2c What type of plans did you offer after? Stock Purchase Plans Options Restricted Stock

43 2d Restricted Stock Units Stock Appreciation Rights Other If you selected other, please explain: 3 Have you continued to offer those plans since, or have you stopped offering any of these plans in some or all of the EEA countries? Yes (continued) No (stopped) Other 3a 3b 3c 3d Have you considered discontinuing or scaling back any plans in the EEA because of the EU Directive ( Directive )? Yes No Other If you have discontinued offering any of the share plans in place prior to, was this because of the Directive? Yes No Other Regarding plans that you continue to offer, have you reduced or limited the amount of shares available or the number of employees eligible under any of these plans in order not to be obliged to file a prospectus under the Directive? Yes No Other If you either eliminated your plans or limited them so as to benefit from an exemption from filing a prospectus under the Directive, would you offer the plan throughout the EEA to eligible employees if the filing obligation were reduced or eliminated? Yes No Other

44 Baker & McKenzie LLP Two Embarcadero Center 11th Floor San Francisco, California Tel: Are you relying on any exemption or exclusion found in the Directive when currently offering your employee share plans to employees in the EEA? Yes No (I file a prospectus) N/A (stopped plan) 4a If yes, which exemption/exclusion(s) are you relying on? 2.5 million Euro exclusion (Article 1(2)(h)) Award(s) offered not securities subject to the Directive (for example, certain non-transferable restricted stock units or free shares) offering where securities admitted to trading on an EU regulated market (Article 4(1)(e)) Fewer than 100 persons per Member State (Article 3(2)(b)) Other 4b If you have more than 100 employees in any EEA country, please list those countries. 4c What is the total number of employees in the EEA eligible to participate in your plans? 5 If you file an EU prospectus, what are your typical annual fees and costs for the filing? (Approximate number is fine. Should include attorneys, auditors and filing fees) 5a What is your home Member State for the filing? Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional services organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm. 6 Please let us know if you have any other comments about the effect of the Directive on the company s employee share plans in the European Economic Area which you would like us to share with the EU Commission Baker & McKenzie All rights reserved.

45 Baker & McKenzie LLP EU PROSPECTUS DIRECTIVE SURVEY 1 May 2008 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 1. NASDAQ Denmark Ireland Norway ESPP for International s; 2002 Incentive Plan; 2003 Incentive Plan 2007 Incentive Plan Yes No prospectus filed. Implemented a sub-plan to its ESPP for International s that limits participation to 2.5 million in a 12- month period ( 2.5 million Exclusion). N/A Prior to amendment of its ESPP, the offering value of its ESPP did, in practice, not exceed 2.5 million in a 12-month period. For awards granted under the 2007 Incentive Plan, a prospectus filing is triggered only in, but the 100- person exemption applies. 1 The survey was sent to Baker & McKenzie s Global Equity Services group s U.S.-based clients offering equity plans to EU/EEA employees. The survey results presented in this chart are based on the responses provided by or the information available for approximately 75 companies. For reasons of client confidentiality, the responses to the survey were provided on an anonymous basis. Consequently, Baker & McKenzie cannot guarantee the accuracy of the information provided in this chart. GESDMS/ Baker &McKenzie 1

46 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit 5 2. NASDAQ Austria Belgium Czech Republic Denmark Finland Ireland Norway Romania ESPP, ESPP, options, Yes EU filed 2006, 2007 and soon in 2008 /approx $125,000 (legal, not including auditors) 3. NYSE Austria Belgium Denmark Finland Ireland ESPP SARs, Restricted Stock,, Cash awards, other stock awards ESPP SARs, Restricted Stock,, Cash awards, other stock awards ESPP SARs, Restricted Stock,, Cash awards, other stock awards filed GESDMS/ Baker &McKenzie 2

47 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 4. NASDAQ Belgium Finland Ireland >100 ESPP, Options ESPP, Same Relies upon Euro 2.5 exclusion N/A 5. NYSE Belgium Finland >50 <50 >50 <50 >50 >50 >50 >50 <50 Yes Yes ESPP, Incentive Plan (options and ) Yes ESPP, Incentive Plan (options and ) ; fees unknown GESDMS/ Baker &McKenzie 3

48 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit 5 6. NASDAQ Austria Belgium Czech Republic Denmark Finland Great Britain Hungary Ireland Latvia Lithuania Norway Poland Portugal Slovakia Slovenia Yes Not subject to EU PD except in (also where over 99 employees) N/A takes the unusual view that options are subject to EU PD; if this is correct, we exceed 99 person threshold. 7. NYSE Belgium Ireland , SARs, SARs, SARs` <100 N/A GESDMS/ Baker &McKenzie 4

49 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit 5 8. NASDAQ >100 in some EEA countries ESPP options ESPP options ESPP options, Added a purchase limit of 2.5 million for EU employees into ESPP due to EU PD. 9. NYSE Austria Belgium Bulgaria Czech Republic Denmark Estonia Finland Greece Hungary Ireland Latvia Lithuania Luxembourg Norway Poland Portugal Romania Slovakia Yes Not subject to the EU PD except in (also where over 99 optionees) N/A takes the unusual view that options are subject to EU PD; if this is correct, we exceed 99 person threshold. GESDMS/ Baker &McKenzie 5

50 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NYSE Bulgaria Czech Republic Estonia Finland Greece Hungary Ireland Poland Romania Slovenia Unknown Yes Unknown Under 100 Article 3(2)(b) exemption N/A Dry plan, no formal plan document offering still pending GESDMS/ Baker &McKenzie 6

51 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 11. NYSE Belgium Ireland Malta ESPP Broadly-based Equity Incentive Option Plan Amended and Restated Equity Incentive Plan ESPP SARs, stock awards (including ), cash awards; and other stockbased awards Stock Purchase Plan SARs, stock awards (including ), cash awards; and other stockbased awards Belgium GESDMS/ Baker &McKenzie 7

52 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NASDAQ Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland Greece Hungary Ireland Latvia Lithuania Luxembourg Poland Portugal Slovakia Slovenia ESPP and options ESPP, options and Yes prospectus filed in 2005, 2006 and 2007 /approx. $100,000 (legal, not inclusing auditors fees) 13. NYSE 5 Options and Options and YES <100 offerees N/A GESDMS/ Baker &McKenzie 8

53 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NASDAQ Ireland Unknown Options No issue because only options N/A 15. NASDAQ Belgium Luxembourg 2,400 Unknown ,400 Belgian Stock Savings Plan, Stock Plan, SIP plus options and (also French PEE) Same Yes, all plans filed in Belgium in 2006, 2007 and 2008 Belgium - approx. $60,000 - $75, NYSE Australia Canada China Hong Kong Japan Korea Taiwan Yes ESPP, Incentive Plan (options and ) Yes ESPP, Incentive Plan (options and ) Yes ESPP, Incentive Plan (options and ) 2.5 mil. EU exclusion N/A N/A GESDMS/ Baker &McKenzie 9

54 Private/ Public (What Exchange?) Countries Where Have s 17. NASDAQ Austria Belgium Czech Republic Estonia Ireland Luxembourg Poland Head counts in EEA EEA prior to ESPP options EEA after ESPP options, Plans Were Continued After July 1, 2005? ESPP options, Do you file an EU or Do you Rely Upon a Particular Exemption? filed. Home/Fees approximately $ 110,000 (legal) $50,000 (acctg) Notes Exhibit 5 GESDMS/ Baker &McKenzie 10

55 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 18. NASDAQ Austria Belgium Czech Republic Denmark Finland Greece Hungary Norway Poland Portugal Romania ESPP options ESPP options ESPP options, Other (Performanc e-based ) Filed. approximately $130,000 (legal) 50,000 (accts) GESDMS/ Baker &McKenzie 11

56 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NYSE & London Stock Exchange Austria Belgium Bulgaria Czech Republic Denmark Estonia Finland Greece Hungary Ireland Lithuania Malta Norway Poland Portugal Romania Slovakia Slovenia Options Options, Other (Performanc e-based ) share exemption (b/c listed on EU-regulated exchange) and securities not considered as public offering in most member states N/A GESDMS/ Baker &McKenzie 12

57 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NASDAQ Denmark Ireland Norway <100 <100 4 < Unknown, ESPP Euro 2.5 million exclusion because only 247 ESPP eligible employees in all of EU. 21. All other EU Countries 22. NYSE Belgium Czech Republic Denmark Greece Hungary Norway Poland Portugal >100 <100 Not available? ESPP and Options ESPP ESPP and Options Not the ESPP Implemented EU subplan to limit ESPP purchases to less than 2.5 million due to EU PD. <100 employees N/A Discontinued ESPP in EEA. GESDMS/ Baker &McKenzie 13

58 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NASDAQ Austria Belgium Finland??? , RSAs Same All <100 employees N/A 24. Private Belgium Czech Republic Denmark Finland Hungary Ireland Norway Poland Portugal , Irish APSS, Irish APSS All EUR 2.5 million exclusion for Irish APSS Options/ not considered securities in other countries. Approx. $7,000 - $10,000 to prepare documents for reliance on EUR 2.5 million exclusion GESDMS/ Baker &McKenzie 14

59 Private/ Public (What Exchange?) Countries Where Have s 25. NASDAQ Australia Austria Belgium Denmark Finland Greece Ireland - Cork Portugal Head counts in EEA 34 8??? EEA prior to ESPP EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Same Same / Approximately $170K for legal / accounting fees for 2007 Notes Exhibit 5 GESDMS/ Baker &McKenzie 15

60 Private/ Public (What Exchange?) Countries Where Have s 26. NASDAQ Austria Belgium Czech Republic Denmark Finland Hungary Ireland Norway Poland Portugal 27. NYSE Greece Hungary Luxembourg Norway Poland Portugal Head counts in EEA , EEA prior to Options? Unknown EEA after Options ESPP SARs Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Yes /Approximately $125K Yes? No prospectus Notes Exhibit 5 GESDMS/ Baker &McKenzie 16

61 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 28. NYSE Austria Belgium Czech Rep Denmark Finland Greece Hungary Ireland Norway Poland Portugal Slovak Rep ESPP restricted stock,, performance based ESPP restricted stock,, performance based ESPP restricted stock,, performance based Luxembourg (Headcounts may not be accurate, as client handled 2008 EU prospectus) GESDMS/ Baker &McKenzie 17

62 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NYSE Belgium Czech Republic Denmark Norway Poland Portugal Yes ESPP, Incentive Plan (options and ) Yes ESPP, Incentive Plan (options and ) Yes ESPP, Incentive Plan (options and ) Under 100 Article 3(2)(b) N/A Adopted non-423 component in part to avoid a prospectus 30. NYSE Belgium China Finland Ireland Norway Poland Options Uncertain understand that option grants were terminated as of 1/1/2006 (due to accounting rules) Uncertain understand that option grants were terminated as of 1/1/2006 (due to accounting rules) N/A N/A GESDMS/ Baker &McKenzie 18

63 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit Private Belgium Denmark Ireland Stock Option and Incentive Plan ESPP Same We ve advised the client that they should be filing a prospectus. However, they have not yet gotten on board with this idea. 32. NYSE Portugal ,885 N/A After spin off from former parent company, options and N/A Securities not subject to the EU PD & less than 100 employees in N/A Will soon implement an ESPP and will have a less than 2.5million purchase limit for employees in the EEA due to the EU PD 33. NYSE Austria Belgium Denmark Ireland Norway Less than 100 awardees in each country Yes Securities not subject to the EU PD & less than 100 employees in N/A GESDMS/ Baker &McKenzie 19

64 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NASDAQ Austria Belgium Ireland GESDMS/ Baker &McKenzie 20

65 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NYSE Austria Belgium Bulgaria Czech Republic Denmark Finland Greece Hungary Ireland Lithuania Norway Poland Portugal Romania Slovak Rep Same EU debt listing on Irish exchange. N/A 36. NASDAQ Belgium All (to the best of our knowledge) Under 100 N/A GESDMS/ Baker &McKenzie 21

66 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NASDAQ Austria Belgium Czech Republic Denmark Estonia Finland Hungary Ireland Norway Poland Portugal ESPP options ESPP options ESPP options <100 person exemption (as far as we know) N/A GESDMS/ Baker &McKenzie 22

67 Private/ Public (What Exchange?) Countries Where Have s 38. NYSE Austria Belgium Denmark Finland Ireland Poland Portugal 39. NYSE Portugal Head counts in EEA EEA prior to ESPP, EEA after ESPP, 2007 Omnibus Incentive Plan Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Yes Implemented a 2.5 million exclusion for and Irish APSS ( 2.5 million purchase limit due to EU PD) Same <100 person exemption for the remaining EEA countries ESPP not offered in EU; small offering Home/Fees Notes Exhibit 5 Do not offer an ESPP in the EEA and generally have small populations of people receiving options and. GESDMS/ Baker &McKenzie 23

68 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 40. NYSE Austria Belgium Bulgaria Croatia Czech Republic Denmark Finland Greece Hungary Ireland Lithuania Norway Poland Romania Slovak Rep Slovenia Yes Listed on EU exchange so distributes the Company Information Statement N/A 41. Ireland ? ESPP Options Yes Implemented EU subplan (implementing 2.5 million purchase limit) to ensure compliance with 2.5 million exemption GESDMS/ Baker &McKenzie 24

69 Private/ Public (What Exchange?) Countries Where Have s 42. NASDAQ Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland Greece Hungary Ireland Latvia Lithuania Luxembourg Malta Poland Portugal - Romania Slovakia Slovenia Norway Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? ESPP, ESPP, Yes Filed an EU in 2005, 2006, 2007 and soon in 2008 Home/Fees, approx $250,000 (legal, not including auditors) Notes Exhibit 5 Discontinued ESPP in Hungary due to extensive ongoing securities requirements despite the implementation of the EU PD. Similar action taken in Portugal; however, because Portugal now is more in tune with the EU PD and implements it consistent with other EEA countries, the ESPP soon will be reimplemented in Portugal. GESDMS/ Baker &McKenzie 25

70 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 43. NYSE Czech Republic Incentive Plan (options and )/ESPP Incentive Plan (options and ) Incentive Plan (options and ) ESPP Implemented EU subplan to restrict ESPP purchase to less than 2.5 million due to EU PD. N/A N/A 44. NASDAQ Belgium Czech Republic ESPP ESPP (perhaps),, Performance Units All Were under 100 in all EEA countries N/A 45. NASDAQ Finland ESPP, options and ESPP, options and Yes ESPP, Incentive Plan (options and ) prospectus In middle of 1 st filing 46. NYSE Belgium Hungary Poland Unknown Options Yes N/A GESDMS/ Baker &McKenzie 26

71 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NASDAQ Belgium Estonia 2-3? ??? 20 Not known and ESPP? Not analyzed, however, company has a small population so likely would meet small offering exemption 48. NASDAQ Austria Belgium Finland Greece Hungary Ireland Poland Portugal Slovakia ESPP no ESPP in EU Only Options in EU No ESPP offered in EU due to EU PD N/A GESDMS/ Baker &McKenzie 27

72 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 49. NYSE Austria Belgium Bulgaria Czech Republic Denmark Estonia Finland Greece Hungary Ireland Latvia Lithuania Luxembourg Norway Poland Portugal Romania Slovak Repub Slovenia Options Options Yes Rely on exemption for EU-listed companies (i.e., employee share scheme exemption) Listed on London Stock Exchange GESDMS/ Baker &McKenzie 28

73 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 50. NASDAQ Belgium Denmark Poland ESPP ESPP All Under 100 plus confirmation from HMRC that ESPP is not a public offer N/A 51. NYSE Belgium Switzerland Hungary Less than 100 except in and (possibly) ESPP, ESPP, Yes Restrict offering of ESPP and grant of options such that value does not exceed EURO 2.5 million in any 12-month period due to EU PD N/A 52. NASDAQ Austria Belgium Unknown Unknown, ESPP Unknown, likely, ESPP Belgium prospectus in 2008 Belgium likely approx. $60,000 - $75,000 GESDMS/ Baker &McKenzie 29

74 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NASDAQ Ireland ~150? Options SIP E Options and German prospectus for options Euro 2.5 million exclusion for SIP Approximately $160,000 with another update required later this year expected annual fees of approximately $250, SGX (Singapore X) 3 2 ESPP options ESPP options ESPP options, Likely >100 person exemption N/A GESDMS/ Baker &McKenzie 30

75 Private/ Public (What Exchange?) Countries Where Have s 55. NASDAQ Austria Belgium Czech Republic Denmark Finland Greece Hungary Ireland Luxembourg Norway Poland Portugal Russia Scotland Slovakia Turkey Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? ESPP options ESPP options ESPP options, (including performance -based ) Do you file an EU or Do you Rely Upon a Particular Exemption? filed. Home/Fees $115,000 (legal) $50,000 (acctg) Notes Exhibit 5 GESDMS/ Baker &McKenzie 31

76 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees 56. NASDAQ Belgium 2 ESPP Yes filed in $105,000 (legal and auditor) Denmark 8 Finland 33 Options Great Britain 78 Hungary 8 Ireland NYSE Company recently decided not to offer the ESPP in Europe because of the EU PD. 58. NYSE Australia Belgium Denmark Finland Ireland , ESPP Only Options and in EU Options and in EU (discontinue d ESPP in EEA due to EU PD) No ESPP offered in EEA due to EU PD; taking risk for options granted in N/A Notes Exhibit 5 GESDMS/ Baker &McKenzie 32

77 Private/ Public (What Exchange?) Countries Where Have s 59. NYSE Austria Belgium Bulgaria Czech Republic Poland 60. NYSE Austria Belgium Norway Head counts in EEA unknown (below 100 in entire EU) EEA prior to ESPP Options ESPP Options and EEA after ESPP Options Options and Plans Were Continued After July 1, 2005? ESPP (in countries where employee headcount is > 100) Options Options and Do you file an EU or Do you Rely Upon a Particular Exemption? ESPP: <100 person exemption (where applicable) Exempt (under 100 offerees) Home/Fees N/A Notes Exhibit 5 Discontinued ESPP in countries where employee headcount was >100 and continued it in other EU countries where <100 employees in 2005 due to EU PD. [ESPP was terminated 4/1/05 due to accounting issues.] 61. NYSE Slovakia Less than 100 Unknown, RSAs and PSAs Unknown Under 100 GESDMS/ Baker &McKenzie 33

78 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 62. NASDAQ N/A ESPP restricted stock,, SARs ESPP restricted stock,, SARs 63. NASDAQ Austria Belgium Poland Unknown N/A N/A <100 person exemption and securities likely not considered as public offering in most countries N/A 64. NYSE Austria Belgium Croatia Ireland Poland Romania None Options and No prospectus file. Company has not implemented an ESPP. All offerings are to fewer than 100 persons. N/A GESDMS/ Baker &McKenzie 34

79 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NASDAQ Austria Belgium Unknown, ESPP Under 100 in each EU member state N/A 66. NASDAQ Australia Denmark Ireland Norway ? ESPP, Options ESPP, Options Yes filed. ($125,000) GESDMS/ Baker &McKenzie 35

80 Exhibit 5 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes 67. NYSE Belgium Czech Republic Ireland Portugal ? ESPP, Options ESPP, Options Yes Filed a prospectus in 2005, 2006 and 2007, approx $100, NYSE Austria Belgium Czech Republic Denmark Finland Greece Ireland Portugal Romania ESPP Options ESPP Options SARs Yes share scheme exemption Listed on London stock exchange; Filed in Belgium in 2006 prior to London listing. GESDMS/ Baker &McKenzie 36

81 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA EEA prior to EEA after Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Notes Exhibit NYSE Options Options Yes <100 per member state N/A Have reduced or limited the amount of shares available or number of employees eligible under the plan due to EU PD. 70. NASDAQ ESPP, options, ESPP, options, Yes Awards offered in EEA not securities subject to EU PD N/A Have reduced or limited the amount of shares available or number of employees eligible under the plan due to EU PD; and would reoffer them in EEA if prospectus obligation were reduced or eliminated. 71. NASDAQ Currently 300 employees in EEA eligible to participate in plans ESPP, options ESPP, options Continued some; stopped others due to EU PD Everything that makes it harder to grant equity awards to employees in the EEA or which makes the grants more costly for the employer makes it less likely that EEA employees will be granted such awards. If employees are not being granted awards, less wealth will be transferred to the employees. Is this really in the interest of the EEA? <100 per member state N/A Have considered discontinuing or scaling back plans in EEA due to EU PD and would re-offer them if prospectus obligation were reduced or eliminated GESDMS/ Baker &McKenzie 37

82 Private/ Public (What Exchange?) Countries Where Have s Head counts in EEA 72. NYSE >100 in (2000 in EEA eligible to participate) 73. NYSE >100 in most EEA countries (approx 20,000 total) 74. NYSE and >100 (approx >100 total in EEA) 75. NASDAQ <100 in EEA EEA prior to ESPP, options, ESPP, options ESPP, options, No plans EEA after ESPP, options, ESPP, options, ESPP, options, ESPP, options, Plans Were Continued After July 1, 2005? Do you file an EU or Do you Rely Upon a Particular Exemption? Home/Fees Yes 2.5 million exclusion ; approximately $400,000 Yes Yes <100 per member state Notes Exhibit 5 Have reduced or limited the amount of shares available or number of employees eligible under the plan due to EU PD; and would reoffer them in EEA if prospectus obligation were reduced or eliminated. GESDMS/ Baker &McKenzie 38