The UK Government has recently implemented amendments to the EU Prospectus Directive in relation to offers of securities made in the UK. The Directive, which governs offers of securities to persons in EU States, can have an impact on awards or offers of shares to employees.
 
The amendments extend the existing exemptions applicable to the number of persons to whom the offer is made and the consideration payable for the securities.
 
The maximum number of persons, other than qualified investors, to whom an offer of transferable securities may be made without the need for a prospectus is increased from 100 to 150.
 
The maximum total consideration under an offer made in the EU without the need for a prospectus is increased from EUR 2.5 million to EUR 5 million.
 
The aim of the amendments is to reduce the administrative burden for issuers, as fewer offers of securities will trigger the need for a prospectus in the future.
 
As a general principle, the UK Government believes that implementing these particular changes at an early stage (well before the deadline of July 2012) will permit companies to gain access to capital on public markets more efficiently. The benefits are likely to be most significant in the case of further fundraisings by smaller public companies, by enabling unquoted companies and companies on exchange regulated markets, such as AIM and PLUS Quoted, to offer securities to a wider range of investors in a more cost-effective manner.
 
The changes will also be welcomed by unquoted companies and companies on exchange regulated markets (as well as non-EEA companies with no listing either on an EEA regulated market or on a regulated market outside the EEA which is recognised as “equivalent” for these purposes) who wish to offer shares, or extend share incentive plans, to UK employees.
 
Governments in other EU States have not, however, acted so quickly to implement these amendments, so that there is no consistency of treatment as yet throughout the EU.  Specific advice should therefore be sought as to the position in other EU States if an offer is to be extended within the EU beyond the UK.
 
Further changes in the pipeline
The changes described above derive from an amending directive to the EU Prospectus Directive, and further changes included in that amending directive will have to be implemented by EU member states before the July 2012 deadline. A key element in these further changes is an extension of the exemption covering offers of securities to employees (the employee exemption).
 
On general principles, a prospectus is not necessary where employees are offered non-transferable share options or free shares, but where shares are offered for sale in excess of the applicable thresholds (see above), companies will wish to know whether the employee exemption will be available.
 
Under the current employee exemption, shares can be offered for sale to employees without the need for a prospectus if an “information document” is made available to recipients of the offer. This facility is, however, only applicable at present to companies whose securities are traded on an EU regulated market.
 
When the changes in the amending directive have been implemented, the employee exemption will be extended to (a) all companies with a head office or registered office in the EU, and (b) to companies incorporated outside the EU with securities traded on a non-EU market as long as that market is recognised as equivalent to EU regulated markets. The requirement for a company’s securities to be traded on an EU regulated market will, therefore, disappear.
 
There is as yet no list of “equivalent” markets, but this is likely to include the Australian, Tokyo and New York Stock Exchanges.