France Moves Forward on EU Prospectus Directive
One of the main features of the EU’s Prospectus Directive1 is that it provides for a standard form of prospectus for the entire EU. The Directive, together with its implementing texts, establishes a series of “building blocks” that provide issuers of debt, equity and hybrid securities with substantial guidance as to the information that must be set out in a prospectus. The Directive and the implementing texts require disclosure of all “material” information, that is”all information which, according to the particular nature of the issuer and of the securities offered to the public or admitted to trading on a regulated market, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses, and prospects of the issuer and of any guarantor, and of the rights attaching to such securities.” In many respects, the required EU disclosure is similar to that required by US securities laws and the rules of the Securities and Exchange Commission (SEC) for companies publicly offering their securities in the United States.
The other key feature of the Directive is the notion of home member state. Once a prospectus in compliance with the Directive has been approved by the securities regulator in the issuer’s home member state, then the same prospectus may be used throughout the European Union, subject only to the host member state’s ability to require that a summary of the prospectus in several pages be translated into its official language.
While as a general rule the home member state for an issuer of equity securities based in an EU member state will be the member state where it has its registered office, the Directive provisions determining the home member state for an issuer not having its registered office in the European Union are not clear, and have not been subject to further clarification in the Directive’s implementing texts.
Article 2(1)(m)(iii) allows non-EU issuers to select as their home member state, the member state where the securities are intended to be offered to the public for the first time after the date of entry in force of the Directive (on 31 December 2003) or where the first application for admission to trading on a regulated market is made, at the choice of the issuer, the offeror or the person asking for admission, as the case may be. This Article further provides that if the selection was not determined by issuer’s choice, then the issuer would have a right to subsequently select its home member state. The latter provision covers a situation in which some other party (such as a broker, warrant issuer or shareholder) had the issuer’s securities or securities convertible into the issuer’s securities admitted to trading on a regulated market after the entry into force of the Directive.
In addition, Article 30 of the Directive contains a transitional provision, which states as follows: “Issuers which are incorporated in a third country and whose securities have already been admitted to trading on a regulated market shall choose their competent authority in accordance with Article 2(l)(m)(iii) and notify their decision to the competent authority of their chosen home member state by 31 December 2005.”
One could read the transition provision of Article 30 as allowing the EU-listed issuer a period of time up to 31 December 2005 to make the home member state selection regardless of listings or offerings that occur after entry into force of the Directive. Alternatively, it could be interpreted to say that if an offering of securities or a listing is made after the entry into force of the Directive, that offering or listing could dictate the result unless the issuer had previously designated as the home member state one of the countries in which it was listed.
Neither the bill currently pending before the French Parliament to implement the Directive2 nor the amendments proposed by France’s securities regulator, the Autorité des marchés financiers (AMF), to the public offering rules in its General Regulation actually uses the term home member state. Rather, the bill grants authority to the AMF to set out in its General Regulation the situations in which non-EU issuers must file a prospectus with the AMF for a public offering of equity securities.
These provisions do not address the situation of whether the AMF must approve the prospectus when the first offering or admission to trading on a regulated market a member state of the European Union or party to the European Economic Area Agreement after December 31, 2003, occurred in France as a result of a choice of the issuer itself and not a third party. Nor does the proposed text cover the situation when that choice was required by the French public offering rules and did not represent a formal intention for France to be the issuer’s home member state.
This is a critical question for non-EU issuers who have been required to file prospectuses in France to offer their shares to employees of their French subsidiaries, under what is commonly known as employee stock purchase plans (ESPP’s). The AMF (and its predecessor agency until November 2003, the Commission des operations de bourse) has always required a prospectus to be approved whenever an ESPP offering was made to at least 100 employees in France. In other jurisdictions, such as the United Kingdom, no prospectus was required, pursuant to local rules.
There are in fact important reasons why a non-EU issuer offering shares to the employees of its French subsidiaries may wish to consider designating France as its home member state under the Directive. In light of the existing requirement for an AMF-approved prospectus whenever the offer is made to at least 100 employees in France, the AMF has developed substantial experience in dealing with such offers.
Since April 2002, the AMF (and its predecessor, the COB) have allowed such prospectuses to be done in English, with a summary in French containing information about the plan, the issuer and a translation of its annual and quarterly financial statements and excerpts from the Management’s Discussion and Analysis (MD&A) accompanying the annual and quarterly reports and proxy statements filed with the SEC.
The proposed General Regulation maintains the existing framework, although it will only be applicable to ESPP issuers whose shares are not listed on an EU regulated market in light of the Directive’s exemption for EU-listed issuers mentioned above. In the place of the current provisions setting forth the content of the French summary, the issuer must prepare a summary in French containing the information set out in Annex IV of the Directive and its implementing texts. As is the case in the current regime, the translation of the financial information required by Annex IV must be certified by an auditing firm selected by the issuer.
Accordingly, the existing regime to which many ESPP issuers are already accustomed is maintained following the implementation of the Directive, and simplified as a result of the reference to Annex IV of the Directive, which states that the summary note shall be “in a few pages,” as opposed to the 40 to 50 pages in French typical in an ESPP prospectus.
Since the EU and SEC information requirements are substantially similar, the non-EU issuer should be able to use the information filed with the SEC in satisfaction of its disclosure requirements under the Directive. However, to the extent that the AMF may wish additional information, the AMF has consistently accepted the fact that it cannot require US issuers to disclose more information to it and the French public than what the issuers have disclosed to the US market in documents filed with or furnished to the SEC.
Both the pending bill and the proposed AMF General Regulation completely ignore the notion of home member state for purposes of determining the periodic reporting obligations of a foreign issuer listed on Eurolist by Euronext. Accordingly, notwithstanding the provisions of Article 10 of the Directive that sets forth the information that issuers must file with the regulator of their home member state and Article 3 of the EU Transparency Directive that limit the ability of host member States to require more stringent information, the AMF proposes to maintain its existing periodic information requirements for all foreign issuers, whether or not France is their home member state.
Although France has achieved its implementation of the Directive by the required deadline of 1 July substantial questions remain to be resolved as the new texts are implemented. The AMF has generally shown flexibility in working with non-EU issuers who have demonstrated a good faith effort to comply. Thus, while it is unlikely that the AMF will substantially modify its proposed texts in order to address the specific concerns of non-EU issuers, it is also the case that the AMF will not seek word-for-word compliance with such texts. Non-EU issuers should nevertheless select as soon as possible their home member state under the Directive, name their correspondent no later than 1 September 2005 vif they are listed on Eurolist by Euronext and put into place a programme to comply with at least the key provisions of the AMF General Regulation.
1 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC.
2 Bill on Confidence and Modernization of the Economy.