The offering of stock options by foreign companies to their employees in Portugal has raised a series of questions under the new Portuguese Securities Market Code. The main question is whether the stock options are negotiable securities. If they are, they must be qualified either as a public or a private offer of securities and will have to comply with the public or private offering rules, which involve different procedures and requirements in Portugal.
The Portuguese Securities Market Comission (CMVM) has recently issued an understanding which has shed some light on this issue. The general features of the stock option offer plan analyzed by the Portuguese Securities Market Comission may be summarized as follows:
- options are granted on a date to be determined (not defined in the plan);
- the stock option (the right to purchase the company´s shares at a pre-determined date and price) is represented by an option certificate which is personal and non-transferable;
- an option may be exercised at any time within a set number of years from the date on which it was granted; and
- in order to exercise the option, the employee must inform the company in writing.
The Portuguese Securities Market Code does not recognize stock purchase option rights as negotiable securities, so their granting per se does not represent an offering of negotiable securities, but involves a potential future granting of shares.
As such, the Portuguese Securities Market Commission sustains that, considering that until the time the options are exercised there is no obligation on the part of the employee, there is no reason, from a legal point of view, to extend protection (verification by the CMVM of the lawfulness and conformity with the regulations, that is the registration of a public/private offer) to the employee in his capacity as beneficiary of the option, prematurely, as long as he remains the recipient of a (potential) future stock option. As such it doesn´t make sense to oblige the grantor company to comply with registration procedures with the Portuguese Securities Market Commission.
Accordingly, the CMVM considered that the granting of stock options with the above characteristics is not considered to be an offering of negotiable securities under the terms and for the purposes of the Portuguese Securities Market Code. The criteria for the admissibility of the offering, and on what terms, be it a public or private offering, should be verified not at the time when the option rights are granted, but at the time when they may be exercised. Until then there are no legal requirements to be met from the securities law point of view.
This understanding has begun to shed light on the abovementioned question. However, it cannot be considered as generally applicable to all stock option offer plans and as such it is advisable for all plans in similar circumstances to be submitted to the Portuguese Securities Market Commission.