Tomáš Vakrman 30. 11. 2012, Praha

By July 2012, European Economic Area Member States were required to implement new rules

regarding prospectus regime. The changes were introduced in the Commission Delegated Regulation

(EU) No 486/2012 of 30.3.2012 amending Regulation (EC) No 809/2004. The document presented

rather evolutionary than revolutionary changes, however, some parts will have a significant impact in

practice.

The Amending Directive applies to majority of the issues with few exceptions:

securities offerings with total consideration below EUR 5m (increased from 2.5m)

offers where the securities are non-equity securities issued in continuous or repeated

manner by credit institutions where the total consideration is less than EUR 75m (increased

from EUR 50m)

Nevertheless, the main focus should be on the cases where the directive applies. There are several

fields where the Amending Directive is trying to tackle the shortfalls of the original document.

Namely we can categorize the changes into 3 categories. Firstly, it changes the rules of when it is

obligatory to publish a Prospectus. Secondly, it brings out new rules regarding form and content of a

Prospectus. Finally, there are other aspects of the regulation that does not fall into any of previously

mentioned categories.

Except of the previously mentioned examples for which the Prospectus Directive is not valid, there

are several exemptions from the Directive presented in the amendments. Arguably, the most

important exemption applies on the issues addressed solely to qualified investors, where the

definition of qualified investor was amended to match the MiFID definitions. Such harmonization is a

welcomed modification since it would allow the investment firms to use existing list of investors. The

exemption from writing the prospectus also applies on offerings to restricted number of

investors(less than 150 investors, other than qualified, per member state); the small offers where the

total consideration is at least 100 000 EUR per investor (increased from 50 000 EUR) or where the

denomination is at least 100 000 EUR (again increased from 50 000 EUR) – for the offers where the

consideration is less than 100 000 EUR the total consideration will now be calculated only as the

consideration in EEA without taking into account non-EEA consideration (applies for the offers made

under both non-EEA and EEA jurisdictions); and for the share offers to existing of former employees.

The second group of changes deals with the form of a Prospectus. The most important ones are:

Summary: The summaries are now required to meet common standards in content and format. They should be written in tabular form in a non-technical language and contain the newly specified “key information” (short description of risks associated with the issuer, guarantor and securities, general terms of the offer, details of admission to trading, the reasoning of the offer and specification of how the proceeds would be used). The table labels are required to have following format - Introduction and warnings, Issuer and Guarantor, Securities, Risks and Offer. The summary must not exceed 15 pages or 7% of length of the prospectus (whichever is longer), the are no cross references allowed and there is, in contrast to the original Prospectus Directive, a civil liability if” it does not provide, when read together with other parts of the prospectus, key information in order to aid investors”. The format-content harmonization will help the investors orientate in the summaries and will enhance the comparability of those. On the other hand, some issuers may find the binding rules difficult to meet.

Tomáš Vakrman 30. 11. 2012, Praha

Final terms: The final term should, as previously, contain information related to securities notes. The Amending Directive further states that: “The final terms should not amend or replace any information contained in the base prospectus as any new information which may affect the investor's assessment of the issuer and of the securities is to be included in a supplement or a new base prospectus, which is subject to prior approval by the competent authority. Accordingly, the final terms should not include any new description of any new payment conditions which was not included in the base prospectus.” The Annex XX to the Prospectus Directive Regulation also categorize all eligible information to final terms into 3 categories (A – information must be included in base prospectus only, B – all information where the general principle is known at the time base prospectus is written should be present in the base prospectus, but previously unknown details can be presented in FT, C – information can be included in FT).

Proportionate disclosure regime: Under the amending directive, the proportionate disclosure is eligible for

o SMEs and companies with reduced capitalization (> EUR 100m) o Pre-emptive offer of shares (whose shares of the same class are admitted to trading

in EEA or under MTF) The limited size of this analysis does not allow for detailed description of all changes brought by the Amending Directive. Thus, in this paragraph, I will just briefly refer about the most important changes that were not mentioned so far. The amendments clarify that there is no need of separate Prospectus in case of retail cascades, if certain conditions are met. There is a necessity of publicly available electronic copy of the prospectus, in addition to hard copies, when the prospectus is approved. The annual information update obligation is cancelled in the Amending Directive. Two day deadline for withdrawal is presented (issuer can also specify a longer period), where the withdrawal rights are triggered if there is a non-exempt offer to the public requiring the publication of a Prospectus. The Amending Directive also specifies that the rules related to final terms and summaries only apply to prospectuses which have been approved after 1 July 2012. All in all, I think the Amending Directive brings more pros than cons, where the clarification of existing rules and lack of evident shortfalls might be the greatest highlights. The new rules regarding summaries will ease the situation of investors, the small issuers will benefit from exemptions to full prospectus requirements and the regulators can profit from the standardization of the documents as those will be easier to control. Regarding the facts mentioned above, I welcome the adoption of the Amending Directive. Sources: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:150:0001:0065:EN:PDF http://www.gibsondunn.com/publications/pages/EUProspectusDirective-AmendmentUpdate.aspx http://www.ashurst.com/doc.aspx?id_Content=7932 http://www.mayerbrown.com/publications/detail.aspx?publication=7826 http://www.linklaters.com/pdfs/mkt/london/120501_EUPD_Amending_Directive_FAQs.pdf http://www.herbertsmithfreehills.com/-/media/Files/PDFs/2012/PD%20briefing%20July%202012%20%2026%20July.pdf