Dow Schofield Watts llp

Prospectus directive

These notes are not intended to represent legal advice.

The Prospectus Regulations 2005 came in force from 1 July 2005 implementing the EU Prospectus Directive

The Prospectus Directive (PD) sets out the initial disclosure obligations for issuers of securities that are offered to the public or admitted to trading on a regulated market in the EU.  It provides a passport for issuers that enables them to raise capital across the EU on the basis of a single prospectus.

The POS Regulations replace the existing regime for the issue and content of prospectuses for listed companies. They have been introduced to:

1. enhance investor protection

2. improve "EU" progress

The POS Regulations include the form and content of a prospectus, the period of validity of a prospectus and the ways in which a prospectus may be published. The general rule is that a person may not make an offer of securities to the public in the UK, or seek admission to trading on a regulated market in the UK, unless a prospectus approved by the FSA has been published.

1. An approved prospectus has to be produced for new securities admitted to trading on a regulated market.

2. An approved prospectus has to be produced for the issue of new securities to the public for companies trading on existing markets

Offers to the public will require an approved prospectus

For a "public fund-raising" which is not exempt, the POS Regulations require:

1. the prospectus to be approved by a competent authority, the FSA

2. a very detailed prospectus

For admissions by "Introduction" there are no POS implications as there is no fund-raising.

AIM has opted for "exchange regulated market" status avoiding the need to have admission documents approved. Moving to the Official List will require the production of an approved prospectus.

AIM and OFEX offerings involving placings to discretionary private client brokers, who have the ability to decide to buy on behalf of clients without reference to the client are not treated as offers to the public.

The Prospectus can be a single document or in a new format:

1. Summary - a summary of company detail essentials, including risk factors of not more than 2,500 words

2. Registration Document - details of the issuer

3. Securities Note - information on the specific securities issued

The Registration Document is valid for 12 months thereby giving greater funding flexibility.

Annex III of the Prospectus Regulation includes a requirement for a sufficiency of working capital statement by the issuer. The sponsor is also required to confirm to the FSA that an issuer has confirmed the sufficiency of working capital after due and careful enquiry.

There are various exemptions from the requirement to produce a prospectus in relation to public offers or an admission to trading on a regulated market:

1. 10% exemption, for issuers issuing less than 10% of an same class as already traded

2. shares issued under employee share schemes

3. takeover documents; where securities are offered in connection with a takeover

POS Regulations do not apply to the following offers:

1. offers to Qualified Investors only

2. offers to less than 100 persons (not including qualified investors) per EU state

3. offers of less than 2.5 million Euro's

The exemptions take account of all fundraisings undertaken over a twelve month period.

Qualified investors can self-certify with the FSA or be certified by solicitors or accountants.