1 CHANGES TO THE PROSPECTUS RULES AND LISTING RULES PURSUANT TO THE LISTING, PROSPECTUS AND DISCLOSURE RULES (MISCELLANEOUS AMENDMENTS) INSTRUMENT 2007 (FSA 2007/40)

On 6 October 2006, the Financial Services Authority ("FSA") published Consultation Paper 06/17 (Amendments to the Prospectus and Listing Rules) to address issues arising from the listing regime post 1 July 2005. The consultation period ended on 5 January 2007 and, on 29 June 2007, the FSA published Policy Statement 07/8 reporting on the issues arising from Consultation Paper and containing the final set of rules.

The amendments to the Prospectus and Listing Rules came into effect on 6 August 2007, except in relation to LR 8.2.1, and consequential amendments, which came into effect on 6 October 2007.

A summary of the key changes to the Prospectus and Listing Rules are set out below.

1.1 The Prospectus Rules ("PRs")

1.1.1 PR 2 - Drawing up the prospectus

PR 2.3.1 (minimum information to be included in a prospectus) has been updated to reflect the EU Commission's amendments to Regulation number 809/2004 of the European Commission (the PD Regulation) in relation to the treatment of companies with complex financial histories or significant financial commitment.

PR 2.4.1 (incorporation by reference) has been amended to allow issuers to incorporate by reference documents previously or simultaneously approved by, filed with or notified to, the competent authority of the issuer's Home State, an extension to those that have been approved by, filed with or notified to the FSA only. This additional flexibility should make the passporting process easier and more cost-effective for issuers. Since the definition of 'Home State' refers to the relevant EEA State, it will not however benefit North American and Canadian issuers, for example.

1.1.2 PR 3 - Approval and publication of prospectus

PR 3.1.1(8) (which requires that written confirmation of the number of securities to be allotted or issued be submitted to the FSA) has been deleted. New PR 3.1.5A only requires the issuer to keep a copy of the board resolution allotting or issuing the transferable securities for six years after the application for approval of the prospectus for such securities.

New PR 3.4.3 formalises market practice and requires a supplementary prospectus to be filed as soon as practicable after the new factor, mistake or inaccuracy arises or is noted.

1.1.3 PR 4 - Use of languages and third country issuers

New PR 4.1.5A (acceptable languages for a prospectus) provides guidance in respect of languages which are 'customary in the sphere of international finance' when considering the language provisions of the PRs. A language must be accepted for scrutiny and filing in at least three international capital markets in each of Europe, Asia and the Americas. The FSA has not undertaken systematic research to enable a definitive list of languages to be produced. Until it does so, issuers will need to demonstrate that they meet the criteria on a case-by-case basis initially.

1.1.4 PR 5 - Other provisions

PR 5.2.2 (annual information updates) has been amended to allow wholesale issuers of debt securities to file an annual information update on a voluntary basis. If an issuer elects to file an annual information update, new PR 5.2.2A requires the issuer to comply with the requirements in PR 5.2 on an ongoing basis until it withdraws the election by notice in writing to the FSA. The election may not be withdrawn within three years from the date of making the initial election.

PR 5.6.5 (property valuation reports) has been deleted and substituted in its entirety to provide that a valuation report for a property company issuer, irrespective of domicile, can be prepared in accordance with the standards of either the Royal Institution of Chartered Surveyors (RICS) or the International Valuation Standards Committee (IVSC). New PR 5.6.6 provides that the FSA would also expect a valuation report for a property collective investment undertaking to comply with the relevant standard set out in PR 5.6.5.

1.2 The Listing Rules ("LRs")

1.2.1 LR2 - Requirements for listing

New LR 2.1.5 clarifies that admission of securities to listing may not be conditional on any event.

1.2.2 LR3 - Listing applications

LR3 has been amended to streamline the listing application procedures, (for example, by simplifying the list of documents to be submitted 48 hours in advance of an application and accepting written confirmation of the number of securities to be allotted rather than requiring a copy of the board resolution) thereby making the process more efficient and cost-effective.

1.2.3 LR 4 - Listing particulars for professional securities market and certain other securities

New LR 4.4.3 provides similar provisions in relation to final terms as those in the PRs. Final terms of an offer must be provided to investors, filed with the FSA and made available to the public if they are not included in the listing particulars.

1.2.4 LR 5 - Suspending, cancelling and restoring listing

The references to preference shares, options, warrants and convertible securities in LR 5.2.5 have been removed so that the requirement to seek the prior approval from the holders of such securities prior to cancellation would not apply on the basis that these holders would not normally have such rights. An amendment to LR 5.2.8 clarifies that a RIS announcement need only be made where a company wishes to cancel the listing of these securities.

New LR 5.2.5A introduces anti-avoidance measures so that a listed company may not avoid the requirement for shareholder approval (by taking advantage of the potential loophole in LR 5.2.5) by moving its listing temporarily to a secondary listing.

New LR 5.2.12 extends the requirement in respect of the cancellation of listing in takeover situations to cover schemes of arrangement, and administration or liquidation situations, so that listed companies will not need to obtain prior approval of its shareholders in circumstances where certain conditions have been satisfied.

1.2.5 LR6 - Additional requirements for listing for equity securities

LR 6.1.20 has been amended so that the FSA may take into account shares held in non-EEA States when considering whether a listed company has sufficient shares in public hands for the purposes of LR 6.1.19 (which has itself been amended to include shares held, directly or indirectly, by persons acting in concert). A similar amendment has been made to LRs 14.2.2 and 14.2.3 to cover secondary listings of overseas companies.

1.2.6 LR 8 - Sponsors

LR 8.2.1 has been amended, with effect from 6 October 2007, to extend the requirement to appoint a sponsor for the listing of securities which requires the production of a prospectus to include 'equivalent documents', which will be the case, for example, on a takeover offer or merger.

LR 8.4.8 has been amended to clarify that the sponsor declaration submitted for further issues of securities would apply equally where the working capital statement was qualified.

LR 8.7.8 has been amended so that a sponsor must now also notify the FSA if there is a change of control of the sponsor or a change in the sponsor which results in a reorganisation of the personnel involved in providing sponsor services.

1.2.7 LR 9 - Continuing obligations

New LR 9.2.2A has been added to clarify that LR 6.1.4, which provides that a new applicant must, inter alia, demonstrate that it controls the majority of its assets, also applies to a listed company on an ongoing basis. In Policy Statement 07/8, the FSA has said that it will be open to submissions that a company could meet the underlying objectives without controlling its assets. In the case of property companies that (a) operate a co-investing business model using fund managers and (b) can demonstrate that they meet the underlying objectives, the FSA will normally treat LR 9.2.2A as having been satisfied.

LR 9.2.8 has been amended in conjunction with the Model Code which now only applies to persons discharging managerial responsibilities and not also to employee insiders (note that employee insiders will still need to be addressed on insider lists maintained under the Disclosure and Transparency Rules). In addition to these changes, the Model Code has also been amended to specify the procedure for pre-clearance for dealing in a listed company's securities where neither the Chairman nor the CEO is available.

Certain provisions of LR9 contained references to the Companies Act 1985 ("the 1985 Act") that have now been repealed. In view of a market desire to retain these, the relevant text of the 1985 Act has been replicated in the rules.

1.2.8 LR 10 - Significant transactions

New LRs 10.5.2 and 10.5.3 have been added to clarify that a material change to the terms of a transaction requires renewed shareholder approval and that, inter alia, an increase in 10 per cent. or more in the consideration of a transaction would generally be considered a material change. New LR 10.6.1A means that this also applies to a material change in the terms of a reverse takeover.

New LR 10.6.3 has been added to clarify the circumstances in which a listed company should consider whether a suspension is appropriate in a reverse takeover situation and, in particular, relates to whether there is sufficient information on the target company in the market.

LR Annex 1(5) has been amended so that where the consideration for any transaction (which includes but is not limited to exit arrangements of joint ventures) is uncapped, the transaction is to be treated (a) as a class 1 transaction if the other class tests indicate the transaction to be a class 2 transaction, and (b) as a class 2 transaction if the other class tests indicate the transaction to be a class 3 transaction. In Policy Statement 07/8, the FSA states that it will continue to accept companies providing it with a letter that in the event that a transaction turns out to be class 1, the company will seek shareholder approval.

The FSA has also indicated that the acquisition and disposal of a joint venture interest could still be in the ordinary course (which would therefore not be a classifiable transaction) but that its approach is to deal with each transaction on a case-by-case basis. It also clarifies that an issuer would have to establish that a joint venture was both of a revenue nature and in the ordinary course of business in order to rely on the exemption (in LR 10.1.3).

1.2.9 LR 11 - Related party transactions

The reference to 50:50 joint venture partners in LR 11.1.4 (which sets out the definition of 'related party') has been deleted, and consequential amendments have been made.

New LR 11 Annex 1(1A) has been included so that transactions that were agreed before a person became a related party are transactions to which the related party transaction rules do not apply. If there are changes to the terms of the transaction or the company is required to exercise discretion at a later date, for example to agree the price, this would fall outside the original terms of the transaction.

LR 11 Annex 1(2)(b) has been deleted so that a transaction that consists of an issue of new securities previously approved by the listed company's shareholders in general meeting is now subject to the related party transaction rules.

LR 11 Annex 1(5) has been amended to include loans to directors by a listed company, or any of its subsidiary undertakings, if the terms of the loan are in accordance with the those specifically permitted under Sections 204 and 205 of the Companies Act 2006 (formerly Sections 337 and 337A of the 1985 Act) on the basis that, although the expenses are expressed as loans, they could in reality be characterised as indemnities since directors would be reimbursed by the company. These additions have not been extended generally to non-UK companies because the FSA cannot be sure of the provisions of the company law regime in other jurisdictions.

In addition, the definition of substantial shareholder has been amended in the context of related party transactions to exclude situations where the substantial shareholder is only a related party of the listed company by virtue of managed funds held by the subsidiary of the substantial shareholder.

1.2.10 LR12 - Dealing in own securities and treasury shares

LR 12.6.2 has been deleted and substituted in its entirety to streamline the exemptions for employees' share schemes.

1.2.11 LR 13 - Contents of circulars

LR 13.3.3 has been amended to clarify that if a listed company includes pro-forma information in a class 1, related party or significant buyback circular, it must comply with the requirements for pro forma financial information set out in the PD regulation.

1.2.12 LR 14 - Secondary listing of overseas companies

LRs 14.2.2 and 14.2.3 have been amended to clarify the securities which would be taken into account when deciding whether a listed company has significant shares in public hands. (See also the amendments to LR6.)

1.2.13 LR 18 - Certificates representing certain securities

LR 18 has been modified, inter alia, in relation to securities considered to be held in public hands.

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) or Catherine Drew or Geoff Sparks (Guildford) or Peter Elliott (Oxford) on 0207 203 5000.

This information has been prepared by Charles Russell LLP as a general guide only and does not constitute advice on any specific matter. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not taken as a result of this information. Charles Russell LLP is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to clients because we are members of the Law Society. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide.