In conjunction with the enactment of the Financial Markets Conduct Act 2013 ("FMCA"), New Zealand adopted a new employee share scheme exclusion ("ESS Exclusion") and a small offering exclusion ("Small Offering Exclusion") effective 1 April 2014 that should be helpful to companies granting equity compensation awards in New Zealand for purposes of avoiding the new financial product disclosure requirements under the FMCA.
Under the ESS Exclusion, companies granting/offering equity compensation awards to employees in New Zealand can avoid the disclosure requirements under the FMCA if:
- the offer is made as part of remuneration arrangements for eligible persons or is otherwise made in connection with the employment or engagement of eligible persons;
- the primary purpose of the issuer's offer is not fundraising; and
- the total number of specified financial products issued or transferred under all of the issuer’s employee share schemes to eligible persons in any 12-month period does not exceed 10 percent of the specified financial products of the issuer that are of the same class at the beginning of the 12-month period.
For purposes of the foregoing requirements, "eligible person" means directors and employees of the issuer or the issuer's subsidiaries, and also includes persons who provide personal services (e.g., consultants, independent contractors) principally to the issuer or the issuer's subsidiaries.
Further, the ESS Exclusion applies to the grant of stock options or stock purchase rights under an employee stock purchase plan (these awards are treated as "specified financial products"), but does not apply to the grant of restricted stock, restricted stock units and other forms of award that do not require payment for the underlying shares (these awards continue to be outside the scope of New Zealand securities laws).
If the foregoing requirements are satisfied, companies will not need to prepare a detailed and comprehensive product disclosure statement but instead must provide employees with certain information as part of the distributed grant materials (including a warning statement) and comply with their reporting obligations under the Financial Reporting Act (which also is being overhauled).
Small Offering Exclusion
Companies granting stock options or offering ESPP participation to employees in New Zealand also may be able to avoid the disclosure requirements under the FMCA via the Small Offering Exclusion, which is modeled off of the "20 in 12" exemption in Australia.
Under this new carve-out, companies that make personal offerings to no more than 20 eligible individuals during any 12-month period resulting in proceeds of less than NZD2 million will not need to prepare a financial product disclosure statement. Rather, employees will need to be provided with certain information as part of the award documentation (including a warning statement) and companies will need to submit certain post-offering information to the Financial Markets Authority within one month of the conclusion of the applicable accounting period.
Interestingly, personal offerings to individuals who have annual gross income of at least NZD200,000 for each of the two most recent income years are covered under the Small Offering Exclusion (in addition to employees of the issuer or the issuer's subsidiaries).
While the ESS Exclusion and Small Offering Exclusion provide promising relief for equity compensation awards, companies should note that during the period where the FMCA is phased in to supplant the Securities Act and related legislation, many of the exemptions existing under the Securities Act remain effective and continue to be a viable means for avoiding the otherwise burdensome securities requirements in New Zealand (including the "Overseas Issuer Exemption" and the "Previously-Allotted Securities Exemption"). As a result, companies making covered offerings in New Zealand should consult with their GES attorney to evaluate the best means for effectuating such grants.