Latham & Watkins Corporate Department

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1 Number 348 November 21, 2003 Client Alert Latham & Watkins Corporate Department However, one important provision will have immediate impact namely the provision that dictates how non-eu issuers can have their prospectuses approved in the EU in the future. EU Prospectus Directive: Immediate Impact for Non-EU Issuers Summary The EU Prospectus Directive (the Directive) will enter into force in all member states of the European Union when it is published in the Official Journal of the European Communities which is expected to take place some time near the end (or shortly after) November 2003 (the Relevant Date). Most provisions of the Directive will not take effect until the end of However, one important provision will have immediate impact namely the provision that dictates how non-eu issuers can have their prospectuses approved in the EU in the future. Following publication of the Directive, all issuers incorporated or organised outside the EU which issue equity, equity-linked securities (including convertible bonds) and low-denomination debt securities (i.e. denominations of less than 1,000, or the near equivalent in any other currency) (together the Relevant Securities) that are to be offered to the public or listed within the EU will be permanently restricted in where they may apply for approval of a prospectus for such Relevant Securities. They will only have one opportunity to choose the country (the EU Home Member State) where their prospectuses are approved, and where they file their ongoing disclosure, for all such Relevant Securities in the future. This will be a permanent choice, and there will be no flexibility after the initial choice is made. Accordingly, they should ensure that their first listing of any such Relevant Securities after the Relevant Date is in the EU country they wish to choose permanently. All issuers will continue to have free choice of EU jurisdiction for the approval of prospectuses relating to debt securities with denominations of 1,000 or more (or the near equivalent) but note that this exemption does not apply with respect to equity or equity-linked securities. Immediate Action For non-eu issuers which have outstanding Relevant Securities listed on an EU stock exchange, or intend to issue Relevant Securities in the future, immediate consideration should be given to the following: If the issuer already has securities listed on an EU stock exchange, it will need to consider whether that stock exchange is the one it prefers for future issues, and it will need to provide notice to the relevant authority confirming its election of that authority, or alternatively it will need to choose another authority in another EU country. Notification has to be given by December 31, 2005; An issuer contemplating a new issue of Relevant Securities after the Relevant Date should decide where it wants to list the new, and all future issues of, Relevant Securities; Issuers may want to give consideration to listing on non-eu stock exchanges located in non-eu financial centres. Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership. Copyright 2003 Latham & Watkins. All Rights Reserved.

2 Latham & Watkins Client Alert Choice of Regulator to Approve Prospectuses The most certain way for an issuer to give effect to its choice of regulator to approve prospectuses is to ensure that the first application for listing of any Relevant Securities on an EU stock exchange after the Relevant Date is made to the stock exchange in the EU member state where the regulator of its choice is situated. Each issuer may choose its own EU Home Member State for Relevant Securities. An issue by one group company will not determine the EU Home Member State for any other group company. The European Commission has advised that an issuer that has Relevant Securities listed on an EU stock exchange on the Relevant Date will have the EU member state in which such securities are listed as its EU Home Member State unless prior to December 31, 2005 an issuer elects a different EU Home Member State through listing, public offer or notification as referred to above. The European Commission s advice does not clarify the position where there are multiple existing listings on the Relevant Date, and so the issuer should make an election and notify the relevant EU Home Member State of its choice. The International Primary Markets Association (IPMA) has published a Notice to Non-EU Issuers of Securities giving guidance as to the action that such issuers now need to take. IPMA s press release as well as its Notice are attached (and can be viewed at The Notice also contains a useful list of answers to questions on this issue. Latham & Watkins will be preparing another client alert once this provision in the Directive has come into force, which will also contain an overview of the key provisions of the Directive. Office locations: Boston Brussels Chicago Frankfurt Hamburg Hong Kong London Los Angeles Milan Moscow New Jersey New York Northern Virginia Orange County Paris San Diego San Francisco Silicon Valley Singapore Tokyo Washington, D.C. Client Alert is published by Latham & Watkins as a news reporting service to clients and other friends. The information contained in this publication should not be construed as legal advice. Should further analysis or explanation of the subject matter be required, please contact the attorneys listed below or the attorney whom you normally consult. A complete list of our Client Alerts can be found on our Web site at If you have any questions about this Client Alert, please contact Christopher McFadzean or Dipti Thakar in our London office or any of the following attorneys. Boston David A. Gordon Brussels John P. Lynch +32 (0) Chicago Mark D. Gerstein Christopher D. Lueking Frankfurt John D. Watson Hamburg Joachim von Falkenhausen Hong Kong John A. Otoshi David T. Zhang London Bryant Edwards Christopher McFadzean Dipti Thakar Los Angeles Thomas W. Dobson Thomas C. Sadler Milan Michael S. Immordino Moscow Anya Goldin New Jersey James E. Tyrrell New York Kirk A. Davenport Marc D. Jaffe Orange County Patrick T. Seaver Paris Dominique Basdevant +33 (0) San Diego Scott N. Wolfe San Francisco Tracy K. Edmonson Silicon Valley Robert A. Koenig Singapore Michael W. Sturrock Tokyo Michael J. Yoshii Washington, D.C. Gary M. Epstein William P. O Neill Number 348 November 21, 2003

3 APPENDIX IPMA INTERNATIONAL PRIMARY MARKET ASSOCIATION Cornhill London EC3V 3NG Tel: Fax: PRESS RELEASE IMMEDIATE EU PROSPECTUS DIRECTIVE URGENT NOTICE FOR NON-EU ISSUERS OF SECURITIES IPMA, the International Primary Market Association, has today published an urgent Notice to market participants alerting them to the effect of a provision in the new EU Prospectus Directive. A copy of the Notice is attached. The Prospectus Directive is part of the EU Financial Services Action Plan and changes the way in which prospectuses for both debt and equity securities to be offered to the public or admitted to trading on a regulated market within the EU are to be prepared and approved in future. Issuers of such securities may currently choose the country where their prospectus is be approved, but, as from the date of publication of the Prospectus Directive in the Official Journal of the EU, which is expected to be in November 2003, detailed restrictions on this choice will be imposed. Non-EU issuers of equity, or debt with denominations of less than E 1,000 or near equivalent in other currencies, will have one single limited opportunity after the relevant date in November 2003 to choose the EU country where their prospectuses are approved, and where they have to file their ongoing disclosure, for all such securities in future. This choice will then be irreversible. It is important that non-eu issuers and potential issuers consciously choose the EU country where they prefer their prospectuses to be dealt with. They are advised to take independent advice before they next issue any securities to be listed or distributed anywhere in the EU or the accession countries, and in any case by 31 December Non-EU issuers make up more than half of the international debt market, formerly known as the eurobond market. More details of IPMA and its membership can be found on its website Contact details: Clifford R Dammers Helen Style Mary Hustings Tel: Tel: Tel: Fax: Fax: Fax: cdammers@ipma.org.uk hstyle@ipma.org.uk mhustings@ipma.org.uk

4 INTERNATIONAL PRIMARY MARKET ASSOCIATION URGENT NOTICE FOR NON-EU ISSUERS OF SECURITIES As from a date in November 2003, non-eu issuers of equity or low-denomination debt securities to be offered to the public or listed within the EU will be permanently restricted in where they may apply for approval of an EU prospectus for such securities in future. They will have one single limited opportunity to choose the country where their prospectuses are approved, and where they file their ongoing disclosure, for all such securities in future. They should ensure that, in practice, their first listing of such securities after the relevant date is in the EU country they wish to choose permanently. The new EU Prospectus Directive is in final form but is not yet law in the EU Member States. One of its provisions, however, will effectively have retroactive effect as from its date of entry into force, which will be determined by publication in the Official Journal and is expected to be a date in November The provision concerns the choice of mandatory home Member State for issuers from outside the European Union. Home Member State means the country where issuers must apply for approval of a prospectus and where they must file their ongoing disclosure. Member States may have different language requirements. The Directive does contain a provision that provides some transitional relief for issuers whose securities are currently listed on an EU stock exchange. Issuers currently have a free choice of where they list their securities within the EU, and, hence, where their prospectus is filed. The Directive restricts this choice as from the date of entry into force of the Directive. After this date, non-eu issuers will have a single opportunity to nominate as their home Member State for all future issues of equity securities (including convertible bonds) or debt with a denomination of less than 1,000 (or near equivalent amount in another international currency) the EU country either where an issue of such securities is first listed or where such an issue is first offered to the public. Both EU and non-eu issuers will still have a free choice of home Member State separately for each issue of straight debt securities with a denomination of 1,000 or more. IPMA therefore advises each potential non-eu issuer: To take independent advice before structuring the first securities it intends to be listed or distributed in the EU after the date of entry into force of the Directive, which is expected to be in November To ensure that its first listed issue of equity or low denomination debt securities after the date of entry into force of the Directive is listed only in the Member State which it wishes to choose as its permanent home Member State for such securities. To notify the authority in its chosen home Member State of the choice before 31 December That there is no certainty as to what amount in other currencies might be nearly equivalent to 1,000. Issuers should therefore be very cautious. Once the first issue is listed as above, issuers are free to list and offer elsewhere until the Directive is transposed into national law in the Member States in $ASQ Notice to Issuers Final Version 5 November 2003

5 QUESTIONS AND ANSWERS ON THE DETERMINATION OF THE HOME MEMBER STATE Question 1: To which issuers does the IPMA Notice apply? The IPMA Notice to the Market is addressed to all issuers incorporated or organised outside the EU (including non-eu corporate issuers, banks, supranationals, sovereign, sub-sovereign and quasi-sovereign issuers) who, at any time in the future, may wish to issue or already have issued in the EU any type of (i) equity securities including convertible bonds of any denomination or (ii) non-equity securities in a denomination of below 1,000 (or its near equivalent in any other currency) (Equity and Low Denomination Securities). It points out that such issuers need to exercise extreme caution when they first offer or list such securities in the EU as from November 2003 the new EU Prospectus Directive (the Directive) means that this action will fix for all time the EU Member State responsible for approving a prospectus in respect of such securities. Question 2: What is the function of the Home Member State under the EU Prospectus Directive? The home Member State under the Directive is the EU country where the competent authority (stock exchange or securities regulator) will be responsible for the approval of a prospectus. Once a prospectus is approved by the home Member State, it will then be valid for a public offer or admission to trading of securities in any other Member State (the host Member State), provided only that the competent authority of the host Member State is notified. The home Member State can require that the prospectus is drawn up in a language accepted by it which, depending on the Member State, may not include English. Question 3: What determines the Home Member State for non-eu issuers and when will this be determined? The relevant home Member State will be determined on a date after the Directive enters into force. The European Commission currently expects the Directive to enter into force in November 2003, but the date is not fixed. The first listing or public offer of Equity and Low Denomination Securities by any non-eu issuer after the date of entry into force of the directive will permanently fix the home Member State for the purposes of the Directive for such Equity and Low Denomination Securities. The home Member State will be that Member State where the securities are listed or offered to the public. Question 4: How does the choice of home Member State affect the position of the issuer under the Transparency Directive? For non-eu issuers of Equity or Low Denomination Securities, the home Member State under the Transparency Directive is the same one chosen under the Directive. Question 5: What is the treatment of Tier 1 bank capital? Tier 1 bank capital is not distinguished from other securities. Therefore, if it is in denominations of US$ 1,000, and this is found not to be nearly equivalent to 1,000, then the relevant home Member State will be the same as for other issues of Equity and Low Denomination Securities. Issues of Tier 1 capital with a denomination of 1,000 will benefit from the choice of home Member State. A number of different types of instrument qualify as Tier 1 capital, and Article 2.1 (b) of the Directive will determine whether a particular instrument will qualify as equity or nonequity for the purposes of the Directive and hence how the home Member State for the relevant issue is determined under Article 2.1 (m) (iii).

6 Question 6: All securities outstanding at the date of entry into force of the Directive will need a home Member State with which to file annual information under Article 10 of the Directive. If the issuer neither lists nor offers to the public any further securities, how does it choose its home Member State for this purpose? Although Article 30.1 of the Directive appears to intend to create a different regime in these circumstances but its effect is unclear. IPMA has consulted the European Commission, which has provided a non-binding interpretation. The Commission s advice is stated to be advisory only and subject to subsequent changes in the Commission s views and any interpretation by the European Court of Justice. The Commission has advised that an issuer with outstanding securities listed on an EU stock exchange on the date the Directive enters into force will have as its home Member State the country in which its securities are listed; provided, however, that if such an issuer lists Equity or Low Denomination Securities on an EU stock exchange after the Directive enters into force and it has not notified the competent authority of its choice under Article 30.1, the Member State where the new Equity or Low Denomination Securities are listed will be the home Member State. However, if the issuer has given notice pursuant to Article 30.1, the choice made by that notice cannot be overridden by a later issue. If the issuer has Equity or Low Denomination securities listed on more than one EU exchange in two or more Member States at the date of entry into force of the Directive, it is not clear which Member State will be its home Member State. Non-EU issuers wishing to benefit from certainty as to their home Member State may wish to list an issue of Equity and Low Denomination Securities in the Member State they would like to be their home Member State for all outstanding securities and for all future issues of Equity and Low Denomination Securities before 31 December, 2005 and not to rely on notification to a competent authority pursuant to Article The Commission s advice does not refer to new public offers. Question 7: What should non-eu issuers do to fix into a particular Member State? In practice, non-eu issuers which have made a decision as to which state is their chosen home Member State should consider listing any Equity and/or Low Denomination Securities first in their chosen Member State after the Directive enters into force. In making their choice, issuers should consider whether the Member State will be able to deal appropriately with applications for approval of a prospectus and the language requirements which may apply. It should be noted that the issuer has a choice under Article 2.1 (m)(iii) of the Directive between using its first application for admission to trading (which for these purposes includes an application for listing) after the Directive enters into force or its first offer to the public in a Member State to determine the home Member State. As it is always clear whether an application for listing has been made, and this is something which is in the control of issuers, we suggest that issuers should use a listing as the trigger for their choice of home Member State. IPMA suggests that issuers keep a record of their first listing in a Member State after the Directive comes into force as evidence of their chosen home Member State.

7 Question 8: What types of activities could accidentally lock an issuer into a particular home Member State? As examples, here are some types of issuance that could trigger a lock in to an unintended Member State. There are many other types of issuance that could trigger a lock in. Non-EU issuers with equity listed on EU exchanges may frequently and automatically list new equity pursuant to share option schemes and employee share ownership plans. Depending on where the application is first made after November 2003, the home Member State will be fixed for all time. MTN Programmes or one-off debt issuance. Given the 1,000 benchmark, if an issuer does an issuance in a denomination of US$1,000 which, given the exchange rates at the time, is not nearly equivalent to 1,000 and for marketing purposes decides to list this on, for example, the Athens Stock Exchange then notwithstanding that the issuer s usual listing is on London or Luxembourg it would have locked into Greece as its home Member State for all time for all Equity and Low Denomination Securities. There is no guidance now (and none is expected for some time) on what amount in currencies other than the euro would be nearly equivalent to 1,000. Question 9: Are there any circumstances where the home Member State can be changed? No. The home Member State for the purposes of Equity and Low Denomination Securities cannot be changed once it is determined. However, if a non-eu issuer issues non-equity securities in a denomination of 1,000 or above (Higher Denomination Securities) (or its near equivalent in any other currency), it will have the ability to choose a different home Member State for the purposes of each issuance of Higher Denomination Securities (that is, the choice can be made on an issue by issue basis in respect of Higher Denomination Securities and irrespective of its home member state for Equity and Low Denomination Securities). Question 10: Can different companies in a group have different Home Member States? Yes. The choice of home Member State for Equity and Low Denomination Securities is made on an issuer-by-issuer basis with the result that different non-eu subsidiary companies within a group may have different Member States to be their home Member State. Special purpose vehicles are treated as any other issuer. Question 11: What about the case where an issue is guaranteed? Where an issue is guaranteed the home Member State for the purposes of the issue will be determined by reference to the issuer. If the issuer is registered in an EU Member State, its home Member State for Equity and Low Denomination Securities will be the Member State in which it is registered, regardless of the home Member State of the guarantor. Question 12: What about EU issuers? Does this apply to them? No. EU issuers, including subsidiaries of non-eu issuers, are automatically locked into the Member State where their registered office is located for issues of Equity and Low Denomination Securities. However, where an EU issuer issues Higher Denomination Securities, it can choose its home Member State on an issue by issue basis for the purposes of each issuance of Higher Denomination Securities. Question 13: The Directive is not required to be implemented in Member States until mid What happens until then? Until the Directive is implemented in Member States in mid-2005, issuers will continue to be subject to the existing regime. The competent authority in the jurisdiction where the public offer is made or admission to trading is sought will continue to have jurisdiction to deal with approval of a prospectus.

8 Question 14: What about the new accession countries? Could one of these become the home Member State? A number of accession countries (see attached list) are expected to become members of the EU in May As these countries will become Member States after the Directive enters into force, if the first admission to trading or public offer of Equity or Low Denomination Securities in the EU is made after May 2004 in one of these Member States, such Member State will become the home Member State for the purposes of the Directive. An admission to trading or public offer of any securities in any of the accession countries before their admission as members of the EU in May 2004 will not impact upon the choice of home Member State. Question 15: The Directive refers to admission to trading on a regulated market. How does this relate to listing? The concepts of admission to trading and regulated market are taken from the proposed revision of the EU Investment Services Directive ( ISD 2 ). EU Member States will each provide a list of regulated markets within their jurisdiction, which will not necessarily be identical with the current list. Until the Prospectus Directive and the ISD 2 are fully implemented, an application for listing will constitute an application for admission to trading on a regulated market for the purposes of the Prospectus Directive. However, in future, an application for admission to trading will not necessarily constitute an application for listing. Question 16: What should non-eu issuers do now? Non-EU issuers should: Consider the above points in detail when they next issue securities to be listed or distributed by way of a public offer anywhere in the EU or the accession countries, and in any case by 31 December Take their own advice immediately on the implications of their choice of home Member State under the Directive. LIST OF CURRENT EU MEMBER STATES Austria France Italy Spain Belgium Germany Luxembourg Sweden Denmark Greece The Netherlands United Kingdom Finland Ireland Portugal LIST OF EU ACCESSION COUNTRIES IN MAY 2004 Czech Republic Latvia Malta Slovakia Cyprus Lithuania Poland Estonia Hungary Slovenia