EU Prospectus Directive

The European Parliament published the Prospectus Directive in 2003; EU member states were required to implement it by July 1, 2005. The Prospectus Directive requires companies to publish a prospectus before making a public offer of non-transferable securities, unless the offer falls within an available exclusion or exemption. For example, offers of securities with an aggregate value that is less than €2,500,000 within a 12-month period may be excluded from coverage under the Prospectus Directive. Offers to fewer than 100 individuals in a member state, while still covered under the Prospectus Directive, may be exempt from the prospectus filing requirement. For a more details on potential exclusions and exemptions, see the European Union Guide posted to the NASPP Global Stock Plans Portal. There is also a partial exemption for offers made to employees by companies that are listed on a European Economic Area (EEA) market. For these offers, only a short statement containing the details of the offer must be provided to participants. The full Prospectus itself can be quite onerous and expensive to produce.

Short-Form Prospectus Regime

Earlier this year, the Committee of European Securities Regulators (CESR) introduced a short-form Prospectus that may be used for employee stock plan offers from companies whose shares are listed on a public market (not just those listed on an EEA market). The short-form Prospectus relieves some of the burden of reporting detailed financial information, but must still be approved (whereas the statement for EEA listed companies is not). You can find more details on the short-form Prospectus in this alert from Deloitte.

Consultation and Review of Prospectus Directive

The European Commission began a consultation process to review the Prospectus Directive this year (see this alert from Mayer Brown). This consultation was not only in response to feedback from stakeholders, but also part of a larger simplification program underway in the EU at this time. Of particular interest to U.S. companies in this consultation and review process is the possibility that companies with shares listed on a non-EEA market may qualify for the same partial exception to the Prospectus Directive as companies with shares listed in the EEA.

On September 24th, the European Commission submitted a proposal that confirms this position on companies with shares listed on non-EEA markets. This could be great news for listed U.S. companies that offer equity compensation to employees in the EU.

Some other changes that are in the proposal include uniformity for some definitions and applications of the Prospectus Directive, including clarification of the consideration of offers for the purposes of calculating the €2,5000,000 limit exclusion. Additionally, for companies that still find they have to file a Prospectus, some of the information required is expected to be simplified.

What to do Now?

Unfortunately, as exciting as this news is, the proposal by the European Commission is just the first stop for this regulatory change. Next, it heads to the European Parliament and the Council of Ministers for consideration. According to our latest alert on the subject from PricewaterhouseCoopers, it could be a couple of years before it is finalized. In the meantime, the short-form prospectus is still available.

-Rachel