An Introduction to the EU Prospectus Directive Thursday 27 April 2006 10:15-11:15 Judith Greaves Partner Pinsent Masons judith.greaves@pinsentmasons.com Paul Egan Partner Mason Hayes + Curran pegan@mhc.ie
Background The European Union (EU) is an association of independent democratic European countries committed to working together for peace and prosperity. It is not a State intended to replace existing States, nor is it just an organization for international cooperation. Austria Belgium Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Poland Portugal Slovakia Slovenia Sweden The Netherlands United Kingdom Spain The EU is unique. Its member states have set up common institutions to which they each delegate some of their sovereignty, so that decisions on specific matters of joint interest can be made democratically at European level.
Who s who in the EU? European Parliament (which represents the EU s citizens and is directly elected by them) Council of the European Union (which represents the individual member states) European Commission (which seeks to uphold the interests of the Union as a whole) and is the sole initiator of EU legislation Court of Justice (which upholds the rule of European law) Court of Auditors (which checks the financing of the Union s activities) CESR (Committee of European Securities Regulators)
EU Directives What are they? What effect do they have? Distinguish from directly applicable EU Regulations
EU Prospectus Directive 2 objectives: Free up the European capital markets Protect investors (such as employee shareholders) Date adopted: 15 July 2003 Date in force: 31 December 2003 Latest transposition date: 1 July 2005 But not all EU Member States have transposed it
Up to 30 June 2005
From 1 July 2005
Implications for Employee Share Plans Exemption under former 1989 Directive is gone Potentially, a prospectus may be needed Thought process: Are you within the scope of the Directive? If Yes can you come within the scope of one or more exemptions? If No you need to have filed a prospectus (where and how and how much will it cost?) Note disproportionately large number of US owned companies with employees in United Kingdom and Ireland
What is within the scope? Offers of securities to the public securities shares in companies and other securities equivalent to shares in companies, bonds and other forms of securitized debt which are negotiable on the capital market and any other securities normally dealt in giving the right to acquire any such transferable securities by subscription or exchange or giving rise to a cash settlement excluding instruments of payment [and excluding certain money market instruments] to the public offer of securities to the public means a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to these securities. This definition shall also be applicable to the placing of securities through financial intermediaries
Does everyone agree what transferable securities are? Listed shares yes Options becoming clear Restricted stock, RSUs, SARs etc less clear
Example: Current Position in the UK FSA view on options Would not expect the grant of an employee share option to involve a security Consider it unlikely the exercise of an employee share option would amount to a public offer Not binding on EU Commission
How to avoid the prospectus requirement? Offer to fewer than 100 persons in each EEA state: No need to count registered sophisticated investors Different interpretations High denomination ( 50,000 minimum consideration) Total consideration below 100,000, rolling 12 month period Total consideration below 2.5 million, rolling 12 month period
Employee share schemes exemption available Securities admitted to trading on an EU regulated market Any securities? Transferable securities offered to employees by their employer Information document made available Information on: Number and nature of securities Reasons for and details of the offer
Information Document: CESR Content Recommendations identification of the issuer and an indication of where additional information on the issuer can be found; explanation of the reasons of the offer or admission to trading together with an indication of the specific provision of the Directive under which the exemption applies; details of the offer (key terms and conditions of the offer or admission to trading, which is likely to include information on the addressees of the offer, time frame of the offer, minimum and maximum amount of orders, information on where details of the price can be found, if not yet determined), including the nature of the offer (offer to issue or to sale securities), conditions upon which the securities will be issued or admitted to trading, price of the securities, if any. the number and nature of the securities involved in the offer or admission to trading include a summarised description of the rights attaching to the securities. this document is not a prospectus therefore information may be abbreviated and does not need to be approved or filed with the competent authority. document to be made available to its addressees but not necessarily published.
Example 1 - Options
Example 2 Restricted Stock
Example 3 Restricted Stock Units
Example 4 Stock Appreciation Rights
Example 5 Free Shares
Example 6 Employee Stock Purchase Plans
I think we need to file a Prospectus File it with the competent authority of your Home Member State If you are listed, you ll know which State If you re not, it s harder than you think
Home Member State of a Non-EU Issuer Fixed permanently as: State of first public offer in EU on after 31 December 2003; or State in which first application for trading on a regulated market is made after 1 July 2005 for equity and < 1,000 unit debt securities But what if you offered everywhere simultaneously? NB Not relevant for this purpose that your offer was covered by an exemption
Identifying first public offer Informal EU Commission guidance September 2005 Determine under local law Many countries (including UK and Ireland ) had local law which prevented most employee offerings from being public offers So may be left with Belgium or France. How can they tell? Risks of getting it wrong
Filing your Prospectus Who takes responsibility for the prospectus? (expect reluctance) File with competent authority of Home Member State Procedure Audited numbers GAAP or IFRS? Auditor responsibility Information which isn t in 10K/10Q What do you do with it when it s approved?
Prospectus Examples Compuware Others
What about other countries? Passporting procedure Passporting requirements Are local regulators bound? Procedure
Communications with employees once Prospectus is filed Advertisement relating to an offer to the public may include any written or oral communication to employees; FSA says no advertisement unless it: states prospectus published and where to obtain it is accurate and not misleading Is consistent with prospectus contains a health warning i.e. rely on prospectus only; Ireland has no specified advertising rules with respect to prospectuses.
Continuing Obligations Supplementary prospectus? Renew at least every 12 months Build authority to approve prospectus updates into your normal reporting and filing procedures
Useful Websites FSA www.fsa.gov.uk/pages/library/index.shtml EU http://europa.eu.int/comm/internal_market/securities/index_en.htm CESR www.cesr-eu.org/ London Stock Exchange www.londonstockexchange.com/en-gb/products/membershiptrading Irish Stock Exchange www.ise.ie/index.asp?locid=6&docid=-1
Questions?
An Introduction to the EU Prospectus Directive Judith Greaves Partner Paul Egan Partner judith.greaves@pinsentmasons.com pegan@mhc.ie