EU Agrees on Final Version of Prospectus Regulation; All EU Issuers can Expect to Benefit from the Employee Share Plan Exemption Starting in 2019
In early December, the European Parliament, the EU Council and the EU Commission reached agreement on revisions to the EU Prospectus Regulation. The EU Prospectus Regulation will replace the national EU Prospectus Directive, which (as implemented by each EU Member State) governs the offer of securities in Europe.
On December 20, the Permanent Representatives Committee of the EU Council approved the revised EU Prospectus Regulation and it now awaits adoption by the EU Parliament (which should be a mere formality). Once adopted, the new EU Prospectus Regulation will become effective 24 months after its publication in the Official Journal, which we expect will occur in early 2017 and which would mean that the new EU Prospectus Regulation would become operative during the first half of 2019.
Under the new EU Prospectus Regulation any issuers who offer share-based incentive programs to their European-based employees will be exempt from the prospectus obligations and no longer will need to file a prospectus with the regulatory authority of the issuer's home Member State. This will be the case regardless of the type of plan offered, the number of employees per Member State to whom participation is offered or the value of the offering. Furthermore, the exemption will now apply even if the issuer is not incorporated or headquartered in the EU or listed on an EU exchange.
Instead, in case the offer is otherwise deemed a public offer (usually if an ESPP is offered to more than 150 employees in any Member State), issuers simply will need to make available a document containing basic information regarding the offering and the issuer, including the number and nature of the securities being offered, the reasons for the offering and certain details regarding the offering. The issuer will not need to have this "offering document" approved by the regulatory authority of any Member State, and from a practical perspective, the document will be substantially shorter (normally less than 10 pages) when compared to a typical EU prospectus (typically over 100 pages) and substantially easier (and less costly) to prepare.
The EU Prospectus Regulation should result in the following consequences for issuers who currently have to file an EU prospectus for share-based offerings to employees in Europe:
- Issuers operating on a calendar year basis should be prepared to continue filing EU prospectuses for 2017, 2018 and possibly 2019 (if the new EU Prospectus Regulation is published during the second quarter of 2017)
- Issuers operating on the basis of fiscal years ending in other months should be prepared to continue filing EU prospectuses for 2017 and 2018.
We will provide additional information about the new EU Prospectus Regulation and what it will mean for non-European companies offering equity compensation awards to employees in Europe as further details become available. However, the new EU Prospectus Regulation represents welcome relief for companies that have needed to prepare EU prospectuses for employee share-based offerings in Europe and a new opportunity for companies that have excluded European employees from share-based plans due to the onerous and costly nature of EU prospectuses.
We would like to thank Manuel Lorenz, Baker McKenzie Frankfurt, for his assistance with drafting this alert.