Proposed Disclosure Regime for ESOPs

The EOG proposes a new two-step disclosure regime for ESOPs.

The recommended ESOP disclosure provisions would apply to offers made to employees to acquire shares, whether new or already issued, in their employer's company.

In cases where an ESOP is being used to acquire a majority of the ordinary shares in a company, then ordinary disclosure provisions would apply.

Proposed ESOP Disclosure Measures

  1. All companies implementing Division 83A share or option plans be exempt from providing a prospectus when they are making an offer to fewer than 100 employees in any 12-month period and when the value of shares offered in that same period does not exceed $2 million.
  2. All unlisted and private companies be permitted to issue a streamlined "evergreen" disclosure booklet, as set out below, where the offer does not exceed $5 million in a 12-month period.

ESOP Disclosure Booklet

The EOG envisages a disclosure booklet that provides the following information:

  1. Identify the company and the nature of the securities therein to be acquired by employees under the share plan;
  2. Explain how the plan works, including how the shares were valued and how they can be disposed of;
  3. Provide a copy of the plan rules upon request;
  4. Give details of all amounts payable in respect of securities to be acquired by employees (including any amounts by way of fee, commission or charge);
  5. Identify the tax implications for employees of participating in the share plan;
  6. Explain how the plan will be administered and managed;
  7. State that a copy of the disclosure document has been lodged with ASIC;
  8. State that the booklet is not a prospectus and has a lower level of disclosure than a prospectus;
  9. State that employees should obtain professional advice before accepting the offer of securities in the employer's company;
  10. Include a copy of a financial report for a 12-month period and have a balance date that occurs within the last 6 months before the securities were first offered to employees - or, where a company has not been registered for more than 12 months, a financial report for the period since registration.
    1. When the offer is being made by small proprietary companies (Section 45A CSL) the report is unaudited.
    2. Subject to i., when the offer is being made by unlisted or private companies, the report is audited.

Other regulatory issues

The EOG also has identified a group of further obstacles to implementing an employee share plan. These include a series of problems created by the recently introduced Financial Services regime, difficulties associated with self-acquisition and share buybacks, and insider trading issues.

The EOG is ready to advise Government on the nature of these problems and on possible solutions to them. To this end the EOG has prepared a technical paper entitled "Report of the Employee Ownership Group on Corporations and Securities Law: Issues for Employee Share Ownership Plans (February, 2006)".