GUIDELINES FOR DRAWING UP THE TEMPLATE DOCUMENTATION FOR BOND ISSUERS Riga, 2015
TABLE OF CONTENTS 1. GENERAL PROVISIONS... 3 PART I...5 PART II...13 PART III... 20 2
1. GENERAL PROVISIONS The documentation template Prospectus/Offer Document for Public/Non-public Offering Bond Issue provides a platform for drafting a prospectus or an offer document for bond issues. The template documentation is not binding on upon any party and must be reviewed and edited before any use. A full version of the template is applicable for drafting a prospectus for: - Bond issues to be included in the regulated market organized by NASDAQ OMX Riga, AS with a denomination per unit of less than EUR 100 000; - Public offers if the bonds are not traded on the regulated market, where the total consideration of the offer in the European Union that is calculated for 12 months exceeds EUR 5 000 000 with a denomination per unit of less than EUR 100 000. The short version of the template is applicable for drafting an offer document for: - Public offers if the bonds are not traded on the regulated market, where the total consideration of the offer in the European Union that is calculated for 12 months is from EUR 100 000 to EUR 5 000 000, i.e. when the prospectus obligation does not apply. The template can also be modified upon the issuer s necessity to adjust it to public offers if the bonds are not traded on the regulated market, where the total consideration of the offer in the European Union that is calculated for 12 months is less than EUR 100 000 as well as for private placements. The template includes alternative model terms and conditions that can be used where applicable. The template includes essential choices that need to be made based on the characteristics of the planned issue of bonds. In addition to specific explanations included in the document, the following is to be noted: - For the purposes of the template, it is assumed that the bonds are entered into the book-entry system maintained by AS Latvian Central Depository, registration number 40003242879, legal address Valnu 1, Riga, LV-1050, Latvia; - The template necessitates choices to be made on key matters such as whether the issued bonds are listed on the regulated market operated by NASDAQ OMX Riga, AS, whether the loan is secured or guaranteed as well as whether services of issuing agent are used etc. The documentation template Terms and Conditions for Public/Non-public Bond Issue provides a platform for drafting issue terms for bond issues and it is applicable when: - the placement of bonds is private or; - the offer of bonds is addressed to qualified investors only or; - the offer of bonds is addressed to fewer than 150 investors or; - the nominal value of one bond is not less than 100 000 EUR or; - one investor can buy bonds with total nominal value not less than 100 000 EUR. 3
The template includes alternative model terms and conditions that can be used where applicable. The template includes essential choices that need to be made based on the characteristics of the planned issue of bonds. In addition to specific explanations included in the document, the following is to be noted: - For the purposes of the template, it is assumed that the bonds are entered into the book-entry system maintained by AS Latvian Central Depository, registration number 40003242879, legal address Valnu 1, Riga, LV-1050, Latvia; - The template necessitate choices to be made on key matters such as whether the loan is secured or guaranteed as well as whether services of issuing agent are used etc. The guidelines are structured into 3 parts: - PART I (applicable for drafting a prospectus for bond issues to be included in the regulated market organized by NASDAQ OMX Riga, AS and to public offers if the bonds are not traded on the regulated market, where the total consideration of the offer in the European Union that is calculated for 12 months exceeds EUR 5 000 000); - PART II (applicable for drafting an offer document for public offers if the bonds are not traded on the regulated market, where the total consideration of the offer in the European Union that is calculated for 12 months is from EUR 100 000 to 5 000 000); - PART III (applicable for drafting issue terms). 4
PART I 1.1. General provisions This part is applicable for drafting of a bond issue prospectus in accordance with the Law on the Financial Instruments Market of the Republic of Latvia as well as in accordance with the COMMISSION REGULATION (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements and in accordance with the COMMISSION DELEGATED REGULATION (EU) No 486/2012 of 30 March 2012 amending Regulation (EC) No 809/2004 as regards the format and the content of the prospectus, the base prospectus, the summary and the final terms and as regards the disclosure requirements (hereinafter both regulations together the Regulation). The information which shall be included in a bond issue prospectus about the issuer and the bonds is defined in the Annex IV Minimum Disclosure Requirements for the Debt and Derivative Securities Registration Document (schedule) (Debt and derivative securities with a denomination per unit of less than EUR 100 000) and in the Annex V of the Minimum Disclosure Requirements for the Securities Note related to Debt securities (schedule) (Debt securities with a denomination per unit of less than EUR 100 000) of the COMMISSION REGULATION (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements. The contents of the summary of a prospectus is defined by the Annex XXII Disclosure requirements in summaries of the COMMISSION DELEGATED REGULATION (EU) No 486/2012 of 30 March 2012 amending Regulation (EC) No 809/2004 as regards the format and the content of the prospectus, the base prospectus, the summary and the final terms and as regards the disclosure requirements. 1.2. Section: Used Definitions and Abbreviations Please fill in the Section and leave in it all the applicable terms and abbreviations except those which are not applicable and those which you choose not to include. Not applicable terms and abbreviations [Offer Document]. Optional terms and abbreviations [Collateral] - please use this term if the bond issue is secured by a financial or a commercial or other type of pledge. [Collateral Agent] please use this term if the bond issue is secured by a commercial pledge and/or financial pledge. [Commercial pledge]- please use this term if the bond issue is secured by a commercial pledge. 5
[Financial pledge] please use this term if the bond issue is secured by a financial pledge. [Guarantor]- please use this term if the bond issue is secured by a guaranty of the third party. [Guarantee]- please use this term if the bond issue is secured by a guaranty of the third party. [Issuing Agent] - please use this term if you plan to receive services from an issuing agent. [Paying Agent] - please use this term if you plan to receive services from a paying agent. [Relevant Market] please use this term if the bond issue will be included for trading on the regulated market organized by NASDAQ OMX Riga, AS. 1.3. Section: Persons responsible Please fill in the Section indicating the respective responsible persons. If the issue is secured by a guarantee, the responsible persons of the guarantor also shall be indicated in the Section. 1.4. Section: Summary Please fill in the Section observing the following principles: - Summary is constructed on a modular basis according to the Annexes from the Regulation on which the prospectus has been based. For example, the summary for a bond prospectus would disclosure the information required for the elements of Annexes IV and V; - Each summary will be made up of five tables as detailed in the template; - The order of the sections A-E is mandatory. Within each of the sections the elements shall be disclosed in the order they appear in the template; - Where an element is not applicable to a prospectus, it should appear in the summary with the mention not applicable ; - To the extent required by an element, descriptions should be brief; - Summary should not contain cross-references to specific parts of the prospectus. 1.5. Section: Risk Factors Please fill in the Section indicating the risks related to the issuer and the bonds. We have listed the general risks related with bond issues, however the Section shall be supplemented with the specific risks in accordance with the character of the issuer s business activities. 1.6. Section: Bonds Please fill in the Section all the applicable terms and except those which you choose not to include due to necessary choices made. 6
Optional terms [5.2.3. The estimated total expenses of the issue are EUR [ ].] please use this clause if you have made the respective estimate. [5.2.4. The estimated net amount of the proceeds of EUR [ ] generated from the Bonds will be used observing the following order of priority: (a) [purpose]; (b) [purpose]; (c)[..].] - please use this clause if you have set the respective priorities. [5.2.5. The Investor should be aware that the anticipated proceeds will not be sufficient to fund all the proposed uses, thus the additional amount of EUR [ ] will be financed by means of [description].] please use this clause if the bond issue is made for a definite purpose and an extra financing in addition to the proceeds generated from the bonds is necessary. [5.5.7.The Issuer shall not have the rights to redeem outstanding Bonds at any time prior to the Maturity Date (call option) and the Bond Holders shall not have rights to demand early redemption of the Bonds (put option), except occurrence of the Event of Insolvency.] please use this clause if it is provided that nor the issuer nor the investors shall have the rights to earlier redemption of the Bonds. [5.5.8. The Issuer may redeem all, but not only some, of the outstanding Bonds (call option) in full [at any time prior to the Maturity Date]/[on DD.MM.YYYY.] at an amount per Bond equal to [ ]per cent of the Nominal Value together with accrued but unpaid Interest, plus additional premium in amount of [value or method of calculation] per Bond.] - please use and modify this clause if it is provided that the issuer shall have the rights to redeem the bonds prior to the maturity date. [5.5.9. Redemption in accordance with clause 5.5.8. shall be made by the Issuer giving not less than fifteen (15) Business Days notice. Any such notice is irrevocable [but may, at the Issuer s discretion, contain one or more conditions precedent]. Upon expiry of such notice and the fulfilment of the conditions precedent (if any), the Issuer is bound to redeem the Bonds in full at the applicable amounts.] - please use and modify this clause if it is provided that the issuer shall have the rights to redeem the bonds prior to the maturity date. [5.5.10. The Bond Holders have the right to demand early redemption of the Nominal Value (put option) on [DD.MM.YYYY.] at the price of [ ] percent of the Nominal Value.] - please use and modify this clause if it is provided that the investors shall have the rights to demand redemption of the bonds prior to the maturity date. [5.5.11. In order to exercise the put option the Bond Holder have to submit an application to the Issuer or to its appointed agent not earlier than forty five (45) days prior but not later than thirty (30) days prior the put option date.] - please use and modify this clause if it is provided that the investors shall have the rights to demand redemption of the bonds prior to the maturity date. [5.6.5. Within the framework of the Bond issue described in this [Prospectus]/[this Offer Document] rights of the Bond Holders to establish and/or authorize an organization/person to represent interests of all or a part of the Bond Holders are not contemplated, but on the 7
other hand these are not restricted.] please use this clause if it is not provided that the investors compose a representing institution. [5.6.6. description of representation of the Bond Holders.] please use and modify this clause if it is provided that the investors compose a representing institution. [5.6.7. The Bonds rank pari passu with other unsecured obligations of the Issuer. In case of the insolvency of the Issuer, the Bond Holders will be entitled to recover their investment on the same terms as other creditors in the respective claims group according to the relevant legal acts. There are no contracts or other transaction documents that would subordinate the claims of the Bond Holders to other unsecured liabilities of the Issuer.] please use this clause if it is provided that the bonds are unsecured. [5.7. Collateral of Bonds- please use and modify this clause if it is provided that the bond issue will be secured by a financial or a commercial pledge. [5.7.1. The issued Bonds are secured by the commercial pledge of [the [total assets] and/or [shares]] of the Issuer [and other company, e.g. if the Issuer is a part of a group company], [as well as future components of [these assets] and [shares in case of the capital increase]] pursuant to the terms and conditions of the Commercial pledge agreement No [ ].] - please use and modify this clause if it is provided that the bond issue will be secured by a commercial pledge. [5.7.2. The issued Bonds are secured by the financial pledge of the [[cash assets] and [financial instruments (if existent)]] of the Issuer [group company] held at [respective institution in accordance to the Financial Collateral Law, e.g. a bank] pursuant to the Financial pledge agreement [ ].]- please use and modify this clause if it is provided that the bond issue will be secured by a financial pledge. [5.7.3. The Collateral Agent holds the pledge on behalf of the Bond Holders and is entitled to dispose the pledge for the benefit of the Bond Holders pursuant to the terms of the Collateral Agent Agreement No [ ] and its amendments thereof. If the Collateral Agent sells the pledge, it is entitled to a commission fee in the amount of [ %] of the proceeds, but not less than EUR [ ]] please use this clause if it is provided that services of a collateral agent will be used. [5.7.4. The Bond Holders are entitled to access the [Commercial pledge agreement/ Financial pledge agreement/ Collateral Agent Agreement] in accordance to Clause 9 of [the Prospectus]/[this Offer Document]. - please use and modify this clause if it is provided that the bond issue will be secured by a financial or a commercial pledge. [other requirements of Annexes VII and VIII shall apply in addition.] please use and modify this clause if other requirements of the respective annexes are applicable. [5.8. Guarantee of the Bonds- please use and modify this clause if it is provided that the bond issue will be secured by a guaranty of the third person. 5.8.1. The redemption of the issued Bonds and payment of the Interest thereon are guaranteed by the Guarantor [as the principal debtor (the Issuer)] pursuant to the terms and conditions of the Guarantee agreement No [ ]..- please use and modify this clause if it is provided that the bond issue will be secured by a guaranty of the third person. 8
5.8.2. The Bond Holders are entitled to access the Guarantee agreement in accordance to Clause 9 of [the Prospectus]/[this Offer Document].] please use this clause if it is provided that the bond issue will be secured by a guaranty of the third person. [other requirements of Annex VI shall apply in addition.] please use and modify this clause if other requirements of the respective annex are applicable. [5.10. Procedure for Applying for the Waiver- please use and modify this clause if it is provided that the issuer shall have the rights to apply for the waiver. 5.10.1. The Issuer may apply for the consent (waiver) of Bond Holders to alter the terms stated in [this Prospectus]/[this Offer Document]. 5.10.2. The changes in [the Prospectus]/[the Offer Document] can attribute to such specifications of the Bonds as the currency and the Interest Rate, the Interest calculation method, the procedure of Interest Payments and of the redemption, the admission of the Bonds for trading on other regulated markets, and other terms if only they do not interfere with Latvian legislation in force. 5.10.3. [description of the procedure for applying for the waiver.]] 1.7. Section: Terms of the Offer Please fill in the Section all the applicable terms and except those which you choose not to include due to necessary choices made. Optional terms 6.1.7. [(d) the Investor has understood and consents to the circumstance that the Bonds are secured solely by the Collateral established in the interest of Investors and in favour of Collateral Agent;] please use this clause if it is provided that services of a collateral agent will be used. [(e)the Investor has understood and consents to the circumstance that the Collateral Agent will not be liable for any loss sustained by the Investor or the Bond Holder, unless the Collateral Agent is culpable for the loss due to intentional fault or gross negligence.] please use this clause if it is provided that services of a collateral agent will be used. 9
[6.4. Cancelation of the placement please use this clause if you want to grant the issuer the rights to cancel the placement. 6.4.1. Within 10 (ten) Business Days from the finishing date of the Subscription Period, the Issuer will consider the results of the Bonds placement. [If the total amount of the Bonds subscribed produce more than EUR [ ], the Issue shall be completed in the actual subscribed amount.] / [If the total amount of the Bonds subscribed produce less than EUR [ ], the Issue shall be declared null and void and the initial offering shall be terminated.] / [If the total number of the Bonds subscribed is less than total number of Bonds of the Issue, the Issuer has the right to declare the Issue completed in the actual subscribed amount, reduce the amount of issued Bonds defined or declare the Issue null and void and terminate the initial offering.]] [6.5. Inclusion in the regulated market - please use and modify these clauses if you plan to include the bonds in the regulated market. 6.5.1. The Issuer intends to apply for inclusion of the issued Bonds in the Relevant Market within [ ] months after the prospectus is registered by the Financial and Capital Market Commission of Latvia. Please note that such application does not have to be necessarily approved. 6.5.2. The Issuer undertakes to cover all costs and expenses required for including the Bonds in the Relevant Market on the terms and according to the procedure stipulated in the applicable legislation. 6.5.3. The Bonds will be available for trading after the decision on inclusion them in the regulated market adopted by the Board of the Relevant Market. 6.5.4. In the Bond list of the Relevant Market will be included all the Bonds sold during the initial offer.] 1.8. Section: Issuer Please fill in the Section all the applicable terms and except those which you choose not to include due to necessary choices made. Optional terms [7.3.2. The sworn auditor [has refused to provide a report for financial information included in the annual report]/[provided a report for financial information included in the annual report containing reservations] due to [reason]. please use and modify this clause if the issuer s auditor has refused to provide a report for financial information included in the annual report or provided a report for financial information included in the annual report containing reservations. [7.3.3. The sworn auditor [has resigned] / [has been removed]/[ has not been re-appointed] during the period covered by the historical financial information due to [reason]. please use and modify this clause if the issuer s auditor has resigned or has been removed, or has not been re-appointed during the period covered by the historical financial information. [7.7. Recent significant developments please use and modify this clause if in your opinion it could help potential investors to make investment decisions. 10
Below are listed the most significant developments since [Year]: [Year] [Year] [Current Year] [Description of development/-s] [Description of development/-s] [Description of development/-s] [7.14.4. The composition of the Supervisory Board:] please use and modify this clause if the Articles of Association of the issuer provides the obligation to elect a Supervisory Board. Note: Clauses 7.2. Organizational structure of the Issuer, 7.13. Other securities issued by the Issuer, 7.15. Management practices 7.19. Selected financial information are obligatory for completion of the template in accordance with the terms of Part I. Note: If the bond issue will be secured by a guaranty of the third person the Sections Issuer, and Financial statements of the Issuer shall be completed for each of the guarantors as well. 1.9. Section: Additional information Please fill in the Section all the applicable terms and except those which you do not include due to characteristics of the bond issue. Note: Clauses 8.1.3. 8.1.7. are obligatory for completion of the template in accordance with the terms of Part I if the respective services of the mentioned third persons are used, information included in the prospectus has been sourced from a third party or any credit ratings are assigned to the issuer or its debt securities. 1.10. Section Documents on display Please fill in the Section all the documentation which you plan to discover to the investors. Optional documentation (d) [Commercial pledge agreement No. [ ]]/ [Financial pledge agreement No. [ ]]/ [Collateral Agent Agreement No. [ ]]/[Guarantee agreement No [ ]] please use and modify this clause if it is provided that the bond issue will be secured by a financial or a commercial pledge or by a guarantee. 1.11. Section References Please fill in the Section cross-references of provisions of the prospectus with provisions of Annexes IV and V of the the COMMISSION REGULATION (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements. Note: This Section is obligatory for completion of the template in accordance with the terms of Part I. 11
1.12. Financial statements of the Issuer Please add to the prospectus financial statements of the issuer and the guarantor corresponding to the following requirements: - Audited historical financial information covering the latest 2 financial years (or such shorter period that the issuer or the guarantor has been in operation), and the audit report in respect of each year. Such financial information must be prepared according to Regulation (EC) No 1606/2002; - The most recent year s historical financial information must be presented and prepared in a form consistent with that which will be adopted in the issuer s or the guarantor s next published annual financial statements having regard to accounting standards and policies and legislation applicable to such annual financial statements; - If the 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; - If the issuer or the guarantor prepares both own and consolidated financial statements, include at least the consolidated financial statements in the registration document; - The last year of audited financial information may not be older than 18 months from the date of the prospectus; - If the issuer or the guarantor has published quarterly or half yearly financial information since the date of its last audited financial statements, these must be included in the registration document. If the quarterly or half yearly financial information has been reviewed or audited the audit or review report must also be included. If the quarterly or half yearly financial information is un-audited or has not been reviewed state that fact; - If the prospectus is dated more than nine months after the end of the last audited financial year, it must contain interim financial information, covering at least the first six months of the financial year. If the interim financial information is un-audited state that fact. The interim financial information must include comparative statements for the same period in the prior financial year, except that the requirement for comparative balance sheet information may be satisfied by presenting the years end balance sheet. Note: If the bond issue will be secured by a guaranty of the third person the Sections Issuer, and Financial statements of the Issuer shall be completed for each of the guarantors as well. 12
PART II 2.1. General provisions This part is applicable for drafting of an offer document in accordance with the Law on the Financial Instruments Market of the Republic of Latvia as well as in accordance with the Regulations of the Financial and Capital Market Commission No. 86 On the information which should be included in documentation of a public offer (hereinafter the FCMC Regulations). The information which shall be included in an offer document about the issuer and the bonds is defined in the FCMC Regulations. 2.2. Section: Used Definition and abbreviations Please fill in the Section and leave in it all the applicable terms and abbreviations except those which are not applicable and those which you choose not to include due to necessitate choices made. Not applicable terms and abbreviations [Prospectus]. [Relevant Market]. Optional terms and abbreviations [Collateral] - please use this term if the bond issue is secured by a financial or a commercial or other type of pledge. [Collateral Agent] please use this term if the bond issue is secured by a commercial pledge and/or financial pledge. [Commercial pledge]- please use this term if the bond issue is secured by a commercial pledge. [Financial pledge] please use this term if the bond issue is secured by a financial pledge. [Guarantor]- please use this term if the bond issue is secured by a guaranty of the third party. [Guarantee]- please use this term if the bond issue is secured by a guaranty of the third party. [Issuing Agent] - please use this term if you plan to receive services from an issuing agent. [Paying Agent] - please use this term if you plan to receive services from a paying agent. 2.3. Section: Persons Responsible Please fill in the Section indicating the respective responsible persons. If the issue is secured by a guarantee, the responsible persons of the guarantor also shall be indicated in the Section. 13
2.4. Section: Summary In accordance with the applicable legislation you have no obligation to fill in the Section Summary. However if you choose to do it, please strictly observe the following principles: - Summary is constructed on a modular basis according to the Annexes from the Regulation on which the issue terms has been based. For example, the summary for a bond issue terms would disclosure the information required for the Elements for Annexes IV and V; - Each summary will be made up of five tables as detailed in the template; - The order of the sections A-E is mandatory. Within each of the sections the elements shall be disclosed in the order they appear in the template; - Where an element is not applicable to issue terms the element should appear in the summary with the mention not applicable ; - To the extent required by an element, descriptions should be brief; - Summary should not contain cross-references to specific parts of the offer document. 2.5. Section Risk Factors Please fill in the Section indicating the risks related to the issuer and the bonds. We have listed the general risks related with bond issues, however the Section shall be amended with the specific risks in accordance with the character of the issuer s business activities. 2.6. Section: Bonds Please fill in the Section all the applicable terms and except those which you choose not to include due to necessary choices made. Optional terms [5.2.3. The estimated total expenses of the issue are EUR [ ].] please use this clause if you have made the respective estimate. [5.2.4. The estimated net amount of the proceeds of EUR [ ] generated from the Bonds will be used observing the following order of priority: (a) [purpose]; (b) [purpose]; (c)[..].] - please use this clause if you have set the respective priorities. [5.2.5. The Investor should be aware that the anticipated proceeds will not be sufficient to fund all the proposed uses, thus the additional amount of EUR [ ] will be financed by means of [description].] please use this clause if the bond issue is made for a definite purpose and an extra financing in addition to the proceeds generated from the bonds is necessary. [5.5.7.The Issuer shall not have the rights to redeem outstanding Bonds at any time prior to the Maturity Date (call option) and the Bond Holders shall not have rights to demand early 14
redemption of the Bonds (put option), except occurrence of the Event of Insolvency.] please use this clause if it is provided that nor the issuer nor the investors shall have the rights to earlier redemption of the Bonds. [5.5.8. The Issuer may redeem all, but not only some, of the outstanding Bonds (call option) in full [at any time prior to the Maturity Date]/[on DD.MM.YYYY.] at an amount per Bond equal to [ ]per cent of the Nominal Value together with accrued but unpaid Interest, plus additional premium in amount of [value or method of calculation] per Bond.] - please use and modify this clause if it is provided that the issuer shall have the rights to redeem the bonds prior to the maturity date. [5.5.9. Redemption in accordance with clause 5.5.8. shall be made by the Issuer giving not less than fifteen (15) Business Days notice. Any such notice is irrevocable [but may, at the Issuer s discretion, contain one or more conditions precedent]. Upon expiry of such notice and the fulfilment of the conditions precedent (if any), the Issuer is bound to redeem the Bonds in full at the applicable amounts.] - please use and modify this clause if it is provided that the issuer shall have the rights to redeem the bonds prior to the maturity date. [5.5.10. The Bond Holders have the right to demand early redemption of the Nominal Value (put option) on [DD.MM.YYYY.] at the price of [ ] percent of the Nominal Value.] - please use and modify this clause if it is provided that the investors shall have the rights to demand redemption of the bonds prior to the maturity date. [5.5.11. In order to exercise the put option the Bond Holder have to submit an application to the Issuer or to its appointed agent not earlier than forty five (45) days prior but not later than thirty (30) days prior the put option date.] - please use and modify this clause if it is provided that the investors shall have the rights to demand redemption of the bonds prior to the maturity date. [5.6.5. Within the framework of the Bond issue described in this [Prospectus]/[this Offer Document] rights of the Bond Holders to establish and/or authorize an organization/person to represent interests of all or a part of the Bond Holders are not contemplated, but on the other hand these are not restricted.] please use this clause if it is not provided that the investors compose a representing institution. [5.6.6. description of representation of the Bond Holders.] please use and modify this clause if it is provided that the investors compose a representing institution. [5.6.7. The Bonds rank pari passu with other unsecured obligations of the Issuer. In case of the insolvency of the Issuer, the Bond Holders will be entitled to recover their investment on the same terms as other creditors in the respective claims group according to the relevant legal acts. There are no contracts or other transaction documents that would subordinate the claims of the Bond Holders to other unsecured liabilities of the Issuer.] please use this clause if it is provided that the bonds are unsecured. [5.7. Collateral of Bonds- please use and modify this clause if it is provided that the bond issue will be secured by a financial or a commercial pledge. [5.7.1. The issued Bonds are secured by the commercial pledge of [the [total assets] and/or [shares]] of the Issuer [and other company, e.g. if the Issuer is a part of a group company], [as well as future components of [these assets] and [shares in case of the capital increase]] pursuant to the terms and conditions of the Commercial pledge agreement No [ ].] - please 15
use and modify this clause if it is provided that the bond issue will be secured by a commercial pledge. [5.7.2. The issued Bonds are secured by the financial pledge of the [[cash assets] and [financial instruments (if existent)]] of the Issuer [group company] held at [respective institution in accordance to the Financial Collateral Law, e.g. a bank] pursuant to the Financial pledge agreement [ ].]- please use and modify this clause if it is provided that the bond issue will be secured by a financial pledge. [5.7.3. The Collateral Agent holds the pledge on behalf of the Bond Holders and is entitled to dispose the pledge for the benefit of the Bond Holders pursuant to the terms of the Collateral Agent Agreement No [ ] and its amendments thereof. If the Collateral Agent sells the pledge, it is entitled to a commission fee in the amount of [ %] of the proceeds, but not less than EUR [ ]] please use this clause if it is provided that services of a collateral agent will be used. 5.7.4. The Bond Holders are entitled to access the [Commercial pledge agreement/ Financial pledge agreement/ Collateral Agent Agreement] in accordance to Clause 9 of [the Prospectus]/[this Offer Document].] - please use and modify this clause if it is provided that the bond issue will be secured by a financial or a commercial pledge. [5.8. Guarantee of the Bonds- please use and modify this clause if it is provided that the bond issue will be secured by a guaranty of the third person. 5.8.1. The redemption of the issued Bonds and payment of the Interest thereon are guaranteed by the Guarantor [as the principal debtor (the Issuer)] pursuant to the terms and conditions of the Guarantee agreement No [ ] 5.8.2. The Bond Holders are entitled to access the Guarantee agreement in accordance to Clause 9 of [the Prospectus]/[this Offer Document].] [5.10. Procedure for Applying for the Waiver- please use and modify this clause if it is provided that the issuer shall have the rights to apply for the waiver. 5.10.1. The Issuer may apply for the consent (waiver) of Bond Holders to alter the terms stated in [this Prospectus]/[this Offer Document]. 5.10.2. The changes in [the Prospectus]/[the Offer Document] can attribute to such specifications of the Bonds as the currency and the Interest Rate, the Interest calculation method, the procedure of Interest Payments and of the redemption, the admission of the Bonds for trading on other regulated markets, and other terms if only they do not interfere with Latvian legislation in force. 5.10.3. [description of the procedure for applying for the waiver.]] 2.7. The Section Terms of the Offer Please fill in the Section all the applicable terms and except those which you choose not to include due to necessitate elections made. Not applicable terms 16
[6.5. Inclusion in the regulated market 6.5.1. The Issuer intends to apply for inclusion of the issued Bonds in the Relevant Market within [ ] months after the prospectus is registered by the Financial and Capital Market Commission of Latvia. Please note that such application does not have to be necessarily approved. 6.5.2. The Issuer undertakes to cover all costs and expenses required for including the Bonds in the Relevant Market on the terms and according to the procedure stipulated in the applicable legislation. 6.5.3. The Bonds will be available for trading after the decision on inclusion them in the regulated market adopted by the Board of the Relevant Market. 6.5.4. In the Bond list of the Relevant Market will be included all the Bonds sold during the initial offer.] Optional terms 6.1.7. [(d) the Investor has understood and consents to the circumstance that the Bonds are secured solely by the Collateral established in the interest of Investors and in favour of Collateral Agent;] please use this clause if it is provided that services of a collateral agent will be used. [(e)the Investor has understood and consents to the circumstance that the Collateral Agent will not be liable for any loss sustained by the Investor or the Bond Holder, unless the Collateral Agent is culpable for the loss due to intentional fault or gross negligence.] please use this clause if it is provided that services of a collateral agent will be used. [6.4. Cancelation of the placement please use this clause if you want to grant the issuer the rights to cancel the placement. 6.4.1. Within 10 (ten) Business Days from the finishing date of the Subscription Period, the Issuer will consider the results of the Bonds placement. [If the total amount of the Bonds subscribed produce more than EUR [ ], the Issue shall be completed in the actual subscribed amount.] / [If the total amount of the Bonds subscribed produce less than EUR [ ], the Issue shall be declared null and void and the initial offering shall be terminated.] / [If the total number of the Bonds subscribed is less than total number of Bonds of the Issue, the Issuer has the right to declare the Issue completed in the actual subscribed amount, reduce the amount of issued Bonds defined or declare the Issue null and void and terminate the initial offering.]] 2.8. Section: Issuer Please fill in the Section all the applicable terms and except those which you choose not to include due to necessary choices made. Not applicable terms 17
[7.2. Organizational structure of the Issuer] however you may choose in to fill in this Section. [7.13. Other securities issued by the Issuer] however you may choose in to fill in this Section. [7.15. Management practices] however you may choose in to fill in this Section. [7.18. Development plans however you may choose in to fill in this Section. [7.19. Selected financial information] however you may choose in to fill in this Section. Optional terms [7.3.2. The sworn auditor [has refused to provide a report for financial information included in the annual report]/[provided a report for financial information included in the annual report containing reservations] due to [reason]. please use and modify this clause if the issuer s auditor has refused to provide a report for financial information included in the annual report or provided a report for financial information included in the annual report containing reservations. [7.3.3. The sworn auditor [has resigned] / [has been removed]/[ has not been re-appointed] during the period covered by the historical financial information due to [reason]. please use and modify this clause if the issuer s auditor has resigned or has been removed, or has not been re-appointed during the period covered by the historical financial information. [7.7. Recent significant developments please use and modify this clause if in your opinion it could help potential investors to make investment decisions. Below are listed the most significant developments since [Year]: [Year] [Year] [Current Year] [Description of development/-s] [Description of development/-s] [Description of development/-s] [7.14.4. The composition of the Supervisory Board:] please use and modify this clause if the Articles of Association of the issuer provides the obligation to elect a Supervisory Board. 2.9. Section: Additional information Please fill in the Section all the applicable terms and except those which you do not include due to characteristics of the bond issue. 2.10. The Section Documents on display In accordance with the applicable legislation you have no obligation to fill in this Section. If you choose to fill in the Section, please indicate in it all the documentation which you plan to discover to the investors. Optional documentation (d) [Commercial pledge agreement No. [ ]]/ [Financial pledge agreement No. [ ]]/ [Collateral Agent Agreement No. [ ]]/[Guarantee agreement No [ ]] please use and 18
modify this clause if it is provided that the bond issue will be secured by a financial or a commercial pledge or by a guarantee. 2.11. Section References Note: This Section is not applicable for completion of the template in accordance with the terms of Part II. 2.12. Financial statements of the Issuer Please add to the issue terms financial statements of the issuer corresponding to the following requirements: - The annual report for the last reporting date. If the issuer corresponds to the criteria indicated in the Article 62 part 2 of the Annual Accounts Law of the Republic of Latvia the annual report shall be audited by a sworn auditor; - If the issuer has prepared intermediate financial reports since the end of the last reporting year, these must be included in the offer document; - If the duration of the issuer does not exceed 1 year, the financial statements shall be prepared for the period from the date of incorporation of the issuer till the date of preparation of the offer document; - If there have been substantial changes in the financial situation of the issuer which may affect decisions of the investors financial information shall be provided for the period from the last reporting date. Note: If the bond issue will be secured by a guaranty of the third person the Sections Issuer, and Financial statements of the Issuer shall be completed for each of the guarantors. 19
PART III 3.1. General Provisions The issue terms provide the terms and conditions for the bond issue A bond is a basis for a legal relationship between the bond holder and the issuer under which the issuer is obliged to render payments according to the terms and dates stipulated in the issue terms. Hence the provisions of the issue terms constitute the characteristics of the bonds. As a minimum, the issue terms should cover the following issues: - Rights and obligations related to the bond issue; - Terms and conditions of the primary distribution of bonds; - Terms and conditions of redemption of bonds; - Any other rights and obligations of the issuer, bond holders, investors when making transactions and operations related to the primary distribution and redemption of bonds. If a collateral is provided to secure the obligations arising from the bonds the provisions relating to the setup of the collateral should be provided in the issue terms. A separate collateral agreement may be concluded, if necessary. If a collateral agent is deployed there should also be a separate section regarding the rights and obligations of the collateral agent. In addition, a separate collateral agent agreement should be drafted and concluded. If a guarantee is provided to secure the rights arising from the bonds the provisions in relation to the guarantee and the guarantor should be provided in the issue terms. If a paying agent is deployed there should also be terms included in relation to the paying agent. In addition, a separate paying agent agreement, stipulating the obligations of the paying agent should be drafted and concluded. 3.2. Section Interpretation Please fill in the Section and keep in it all the applicable terms and abbreviations. Please note that the list of abbreviations does not have to be identical with the list provided in a prospectus or in an offer document. 3.3. Section Terms of Bonds The Section lays down the main terms of the respective bond issue At least one of the following terms should be included in the Section: - Nominal value of each bond and the total amount and nominal value of the bond issue; - Term of the bonds and the maturity date; - Declaration whether the bonds are convertible (so called C-Bonds) or nonconvertible to the equity of the issuer; 20
- Interest rate of the bonds. The description of calculation of the interest rate should be clear and precise. If possible, a formula should be provided for calculation of the interest; - Default interest rate of the bonds. The exact terms are dependent on each case and are not directly prescribed by the law. If there are specific and detailed terms that have been agreed upon regarding the bonds it is advisable to create a separate subparagraph for more detailed terms. 3.4. Section Registration of Bond Issue Issue terms should entail clear declaration whether the bond issue is to be regarded as a public offer or not see Section 1 of these guidelines for details. For the purposes of the template, it is assumed that the bonds are entered into the bookentry system maintained by AS Latvian Central Depository, registration number 40003242879, legal address Valnu 1, Riga, LV-1050, Latvia. It is also advisable to add a declaration of who will bear the costs of the issue. 3.5. Section Issue Documentation The Section sets down the list of documents that are regarded as the ones stipulating the terms and hence legal obligations and rights arising from the bonds. The bond issue documentation should be comprised of the issue terms document and also of all the purchase offers gathered from the interested investors as well as of the confirmations provided by the issuer. If any collateral is placed to secure the bonds and a collateral agent is deployed, both the collateral agreement(s) and the collateral agent agreement should also be considered to be a part of the issue terms. The mentioned documents are separate documents but through the mechanism created by a clause of the issue terms 5.1 are viewed as an entity constituting the terms of the bonds. Together with the samples of a purchase offer and confirmation documents the drafts of the respective documents should be added to the issue terms when distributed prior to the primary distribution to avoid any misconceptions. 3.6. Section Primary Distribution The section lays down the rules for organisation of the primary distribution of the bonds. The section should provide description of the process of the subscription to the issue as detailed as possible: starting from submission of the purchase offers to ensuring settlements for the bonds. 3.7. Section Representations and Warranties of the Issuer The exact content of the section on representations and warranties is dependent on the exact issuer and the bonds issued. 21
3.8. Section Collateral of Bonds If a collateral is used to secure the fulfilment of the obligations from the issued bonds the issue terms should cover the most relevant characteristics of the collateral/-s provided by the issuer. A separate collateral agreement/-s can be used for placing the collaterals. If a collateral agent is deployed then the issue terms should entail the basic description of the main obligations of the collateral agent. The detailed obligations, fees and liability of the collateral agent should be agreed upon separately with the collateral agent in a collateral agent agreement. 3.9. Section Event of Insolvency The section should define what is to be deemed as an event of insolvency e.g. what are the grounds on the basis of which an immediate redemption can be demanded as well as the exact procedure of the redemption. 3.10. Section Ordinary Redemption The section lays down the main terms of the redemption of the bond issue. It would be advisable to have the same level of detail as in clause 5.5. of the documentation template Prospectus/Offer Document for Public/Non-public Offering Bond Issue also in the issue terms for bonds not offered publicly as the clause regarding the grounds and also the process of an ordinary redemption may be one of the most important in the eyes of a potential investor. 3.11. Section Final Provisions The section defines the general provisions of the issue e.g. the applicable legislation, dispute resolution, the official language of the documentation etc. Please modify the section according to the characteristics of the definite issue. 22