In our previous article, we looked into the distribution of shares (with or without consideration) to members of the SA’s Board of Directors, its executives and employees. Also to those who provide their services to the SA. We were also concerned with the share distribution program in the form of an option to acquire them (: art . 113 of law 4548/2018). Specifically, with the beneficiaries and the competent bodies for its issuance. But what can/should be the content of such a decision to distribute shares?
Mandatory and Potential Content
The content of the decision (of the General Assembly or of the Board of Directors) for the allocation of shares in the framework of a program is regulated by law ( art . 113 §2). Such a decision has, at a minimum, a mandatory content.
Mandatory (Minimum) & Possible Content of the Decision
According to the law ( art . 113 §2, sections b and c), the minimum content of the decision on the distribution of shares is:
(a) The origin (and class) of the shares to be disposed
The determination of the origin of the shares to be allocated is deemed necessary (also) to clarify the legal framework that will be put into (supplementary) application in each case.
In particular, if the program concerns the disposal of own shares (which the SA already owns or is about to acquire), the special provisions of the law on own shares shall be applied – additionally – (: art . 113 §2, section b ) in combination with Articles 49 and 50 of Law 4548/2018 on own shares). In this case, it is a derivative acquisition of shares by the beneficiaries.
If, however, the program concerns shares, which are to be issued after an increase in the SA’s share capital, then the corresponding provisions of the law will be applied -supplementarily- ( art . 23 et seq.). Indicatively, the decision will include (among other things) the nominal value of the shares and the deadline for payment of the capital. In this case, however, this will be an original acquisition by the beneficiaries.
In the above context of the supplementary application of provisions of the law, it is pointed out that the determination of the category of shares to be allocated is also important. And this, despite the fact that the law does not impose, as necessary, the relevant determination. The relevant omission is rightly argued to constitute an inadvertent detour.
In exactly the same context, if it is decided to issue preferred shares, the relevant approval must have been obtained beforehand from the shareholders of any existing special category.
(b) The maximum number of shares to be sold
The competent corporate body (GA or BoD) is also required to determine the maximum number of shares to be sold. Regardless of their origin, the total nominal value of the shares to be allocated may not exceed, in total, one 1/10 of the paid-up (at the time of the decision) share capital (art. 113 §2 a’).
(c) The sale price
The sale price of the shares in question is a necessary element of the decision of the respective competent corporate body – and it is in fact left to the latter’s discretion. The body in question will decide, alternatively, either the disposal price or the method of determining it. As it follows, however, from the letter of the law, it is not necessary to provide a specific price. It is possible to specify a range of prices (minimum and maximum). In this case, either the decision of the General Assembly will provide for the sale price, determination method or price range, or the Board of Directors will be authorized to determine them.
However, the determination of the aforementioned prices should not exceed the limits of the law. If, for example, it is a sale of newly issued shares after a share capital increase, the minimum price of the shares cannot be less than their nominal price (art. 113 §2, with an express reference to art. 35 §2 ).
Additional limitations are also imposed by the nature of the option. In particular, given that upon its exercise (or more precisely, the transfer of the beneficiary’s relevant declaration to the SA) the intended contract of taking (or selling, on the own) shares is automatically drawn up, their price should be fixed or, at least, definable. Clearly, it is sufficient – as we have already established – that the relevant provision mentions the method of the determination of the sale price (eg, for listed shares, as an average (or percentage thereof) of the market price in a specific reference period). The provision, however, of wide margins of variation may ultimately negate, as is rightly argued, the definition of the content of the right.
Given, however, the purpose of the specific institution examined, it is desirable that the formulation of the sale price of the shares makes their acquisition attractive for potential beneficiaries. The closer this price approaches the intrinsic, market (or, as the case may be, stock exchange) value of the stock, the less attractive the distribution program will become.
(d) Beneficiaries (or categories of beneficiaries)
The competent body must, furthermore, determine the beneficiaries of participation in the share allocation program (either individually or their categories).
Since the program (also) aims to provide incentives to persons associated with an employment relationship with the SA, the corporate body that makes the relevant decision is obliged to take into account during the said determination (and the conditions of participation in the program) the principles that pervade in Labor Law. In this case: the principle of equal treatment (which also covers benefits in kind, such as shares, in exchange for the provision of work). Also, the prohibition of discrimination.
(e) The duration of the program
Although the duration of the program must be included in the relevant decision of the competent body, the law does not, in principle, provide for a minimum or maximum duration. Usually the duration varies, on a practical level, between three and five years. However, in the event that the shares under disposal are the SA’s own shares, the more specific provisions and time limits of the law apply (art . 49).
The entry into force of the decision of the corporate body to establish the program and the conclusion of the option agreements with their beneficiaries also mark its start.
The duration of the program consists, as a rule, of two individual periods.
The first concerns the “vesting period” after which the beneficiaries have the right to exercise their rights. This period often functions as a way of control and evaluation by the SA of the efficiency of the beneficiaries. In fact, the successful outcome of said monitoring cannot be ruled out as having been set as a condition for the exercise of the option.
The second concerns the “exercise period”. It is during this period that the respective beneficiary will have the possibility to exercise (or not) their right.
(f) The terms of sale of the shares and other (related) terms of sale
For reasons of corporate interest, it is not excluded that additional conditions may be imposed by the competent body within the decision to allocate shares. Their payment, in fact, is a possibility (and, in our opinion, mandatory) to constitute a condition for the acquisition of the shares.
In addition to the efficiency, to which we have already referred, it is possible that the program stipulates as a condition the preservation of the status of the beneficiary (e.g. member of the Board of Directors, manager, employee, etc.) until the exercise of the option. Or even the obligation to hold the shares for a minimum period of time after their acquisition.
It is also possible that the acquirer will be given a specific deadline for the payment to the SA of the consideration for the acquisition of the shares.
Potential Decision Content
In addition to what is mentioned above as mandatory (but also potential) elements of the content of the disposal decision, its potential content may include (art. 113 §2, section d):
(a) The assignment to the Board of Directors of the determination of the beneficiaries or their categories. In practice, the Board simply specifies the categories already established by the General Assembly, having taken into account eligibility criteria (such as the successful and efficient provision of their services, etc.).
(b) The manner of exercise of the option. E.g., the content and type of the beneficiary’s declaration to the SA for the exercise of their right.
(c) Any other term of the share allocation plan. E.g., the provision in the terms of disposal of the company’s reserved shares regarding the extraordinary and voluntary nature of the relevant program. The relevant term acquires meaning in the context of Labor Law. In particular, when beneficiaries become employees, this condition prevents the establishment of a commitment by the SA to re-establish the program in the future, in which case also in case of failure to carry out a unilateral harmful change in the working conditions of the beneficiary employee.
We are sufficiently guided by the law regarding the mandatory content of the decision of the competent body of the SA on the terms of the share distribution program. We should certainly focus our attention on this (: the mandatory content) – in order, of course, to avoid invalidities and problems. However, the additional (potential) conditions – apart from, i.e., those required by law, are no less important for the SA. Through them, in particular, we will ensure its success, the achievement of the objectives and the satisfaction of the business needs and aspirations of the SA. However, from the side of the beneficiaries, they have the possibility to exercise (or not) the relevant right (: right of option) for the acquisition of the SA shares against consideration, in the context of the disposal program – unless it is a free disposal. About them, however, see our next article.
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 20th, 2023).
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.