3 PROSPECTUSES - FURTHER COMMON POSITIONS OF CESR MEMBERS ON FREQUENTLY ASKED QUESTIONS

On 19 July 2006 CESR published a series of questions and answers intended to provide market participants with responses to common questions on the Prospectus Directive and accompanying Regulation. On 16 February 2007 CESR published an updated version of its Q&A. The positions set out in the July 2006 version have not been amended, however additional topics have been addressed. Additional issues covered in the updated version include:

3.1 When is a prospectus required
3.1.1 Whether an issuer may use a prospectus drawn up as a single document to make several offers, by publishing a supplement to update the prospectus.

It is CESR's view that a supplement may only be published in respect of an offer that is still open, not in respect of a second offer whose offer period has not yet commenced. Notwithstanding this CESR acknowledges that incorporation by reference of all the information in a previous prospectus (except the details on the offer) will ease the process of producing a new prospectus.

3.1.2 Whether a communication made by a custodian to its clients in respect of a rights issue in another EEA member state (where a prospectus has been approved) is in itself an offer of securities to the public.

CESR considers that a communication of a custodian bank informing its clients in one Member State about their pre-emption rights in relation to a public offer of new shares taking place in another Member State or in a third country does not mean that the custodian is making a public offer in the former Member State. Such a communication would constitute a public offer by the custodian only if:

3.2 Historical financial information where an issuer has been operating in its current sphere of economic activity for less than one year.

Under the Prospectus Regulation, if an issuer "has been operating in its current sphere of economic activity for less than one year, the audited historical financial information covering that period must be prepared in accordance with the standards applicable to annual financial statements under the Regulation (EC) No 1606/2002, or if not applicable to a Member State national accounting standards where the issuer is an issuer from the Community...." (item 20.1).

3.2.1 How "that period" should be interpreted.
CESR takes the view that where an issuer has already published the historical financial information required by national legislation, that should be all that is usually required to comply with the third paragraph of item 20.1.

However, CESR thinks that in exceptional circumstances (such as the absence of interim financial information in the prospectus combined with a lapse of a significant number of months since the end of the last audited financial statements), it would be more appropriate, to interpret "that period" to mean from the date of incorporation of the issuer (or the date it started its operations in its current sphere of economic activity, if different) until the most practicable date before the publication of the prospectus (to comply with Article 5.1 of the Directive).

3.2.2 If an issuer being incorporated in January 2006 produces a prospectus in June 2006 (no. 1) in connection with an application for admission to trading on a regulated market and a new prospectus in November 2006 (no. 2), whether audited historical financial information should be prepared both for the period from January to the most recent practicable date before publication of prospectus no. 1 and for an additional period in connection with prospectus no. 2. Given that the issuer would not yet have produced financial statements under national accounting legislation, prospectus no. 1 should include audited financial statements for the current period (from the date of incorporation to the most recent practicable date before publication of the prospectus) prepared for the purpose of the prospectus.

Regarding the second prospectus, CESR considers that the audited historical financial information produced for the first prospectus (together with the half yearly report that the issuer will have published by the end of August) would be sufficient under normal circumstances.

3.2.3 Whether this exemption applies to groups of companies where the issuing entity has been operating in its current sphere of economic activity for less than one year but where the issuer is a newly incorporated holding company inserted over an established business, or is the requirement applicable only if the business considered as a whole has less than one year of history? CESR acknowledges that in both cases, the information which has to be provided applies to the legal group of the issuer. If the entire business undertaking at the time of the prospectus is not accurately represented in the historical financial information required under item 20.1, CESR states that the issuer will have to assess whether pro-forma information or complex financial histories information (once the adopted amendment of the Regulation on this point is in effect) is needed.

3.3 Contents of the Prospectus
The inclusion of a summary on a voluntary basis.
The issuer can include voluntary information in the prospectus. The voluntary information must comply with the Prospectus Directive and Regulation and, in particular, it must be vetted in the same way as the rest of the prospectus.

Furthermore, if the issuer refers to the voluntary information as a "summary" (as referred to under the Prospectus Directive), it will have to comply with the specific provisions of the Prospectus Directive and Regulation that deal with the summary.

3.4 Publication of the Prospectus
3.4.1 Whether a host competent authority may intervene in the publication of a prospectus.
CESR considers that if the issuer complies with the publication requirements set out in article 14.2 of the Prospectus Directive, the host authority is not entitled to intervene in the publication of the prospectus. Notwithstanding this, the home competent authority:

3.4.2 The quality of translations of passported prospectuses.
CESR considers that the person responsible for the prospectus is also responsible for any translation of the approved prospectus and it is neither possible nor desirable for a host competent authority to scrutinise the quality of the translation of a prospectus. If a host competent authority finds that a translation is not accurate, it may refer its findings to the competent authority of the home member state as envisaged in article 23 of the Prospectus Directive (precautionary measures).

CESR recommends that issuers insert in any translation of a prospectus a statement clarifying that the document is a translation of the approved prospectus made under the sole responsibility of the person responsible for the approved prospectus.

3.5 Supplementary Prospectus
3.5.1 Whether the publication of a profit forecast before the final closing of an offer requires the publication of a supplement.
CESR's recommendation is that if an issuer releases profit forecasts or estimates outside a prospectus, the information would normally be considered to be material in the case of share issues (especially in the context of an IPO) but not necessarily in the case of non-equity issues. CESR therefore considers that a supplement should be prepared including the profit forecast and complying with item 13 of Annex I of the Regulation.

3.5.2 Whether an issuer may use a prospectus drawn up as a single document to make several offers, by publishing a supplement to update the prospectus.
In CESR's view, a supplement may only be published in respect of an offer that is still open, not in respect of a second offer whose offer period has not yet commenced. However, it notes that incorporation by reference of the information in a previous prospectus (except the details on the offer) will ease the process of producing a new prospectus.

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If you require further information on any matter covered in this note, please contact your principal contact at Charles Russell or Simon Gilbert, Clive Hopewell or Alexander Keepin (London), Francis Rundall, Richard Norton, or Adrian Mayer (Cheltenham), Catherine Drew or Geoff Sparks (Guildford) or Peter Elliott (Oxford) on 0207 203 5000.

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