CESR updates FAQ on prospectuses
20 January 2010
CESR introduces clarification on free offers: where securities are generally allotted free of charge, no prospectus should be required. CESR is seeking the Commission’s views on the correct legal basis for this conclusion.
CESR introduces clarification on free offers: where securities are generally allotted free of charge, no prospectus should be required. CESR is seeking the Commission’s views Services on the correct legal basis for this conclusion.
Q) Can free offers be considered outside the definition of public offer (for example options granted to employees for no consideration)? If they fall under the definition, could it be considered that they have a total consideration of zero and, therefore, fall outside the scope of the Prospectus Directive? (see Article 1.2 h: offers where the total consideration is less than 2.500.000 EUR).
A) CESR considers that where securities are generally allotted free of charge no prospectus should be required and has sought the views of the Commission Services on the correct legal basis for this conclusion. The views of the Commission Services are as follows
In the case of allocations of securities (almost invariably free of charge), where there is no element of choice on the part of the recipient, including no right to repudiate the allocation, there is no "offer of securities to the public" within the meaning of Article 2.1 d) PD. This is because the definition refers to a communication containing sufficient information "to enable an investor to decide to" purchase or subscribe for the securities. Where no decision is made by the recipient of the securities, there is no offer for the purposes of the Directive. Such allocations will therefore fall outside the scope of PD.
Offers of free shares, where the recipient decides whether to accept the offer, are properly regarded as an offer for zero consideration. As such, they would fall within the excluded offers under Article 1.2 h, but are also subject to the exemption for offers of less than 100.000 EUR so no prospectus can be required.
This analysis does not prevent competent authorities from assessing whether an offer presented as an offer of free shares in fact disguises a "hidden" consideration. However, the Commission Services take the view that in most cases where free shares are offered in the context of an employee share scheme, where shares are not offered in lieu of remuneration that the employee would otherwise receive, it would be incorrect to find "hidden" consideration in the employment relationship, for example by claiming that the employees would have a higher salary if an equity participation scheme were not available to them. Such reasoning would be speculative, and the "hidden" consideration difficult to prove, let alone quantify. However, if the shares are expressly offered in the place of quantifiable financial benefits in another form, then it might be appropriate to identify consideration to the value of the benefits that the employee would otherwise have been entitled to receive.
CESR considers that the “document‟ in articles 4.1.d and 4.1.e of the PD should be made available only in cases where:
i. the offers fall within the definition of an offer as set out in article 2.1.d and
ii. the offers do not fall within the excluded offers under article 1.2.h or the exemption under article 3.2.e.
For example in free offers, where no decision is made by the recipient of the securities, there is no such obligation.
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