On 17 June 2010, the European Union ("EU") Parliament passed a resolution (the "Resolution")1 adopting the proposal by the EU Commission ("Commission") for amendments to the Prospectus Directive (2003/71/EC) ("PD"),2 with certain modifications.
The Commission had conducted a public consultation on a review of the PD in early 20093 further to which it published on 24 September 2009 a proposed directive amending the PD.4
The aim of the review and the amendments is to simplify and improve the application of the PD, lessening the disclosure requirements, providing clearer exemptions and ensuring that adequate information is provided to meet the needs of retail investors in particular.
The following is a summary of the key amendments adopted by the EU Parliament.
Exempt Offers of Securities, Which Are Outside the Scope of the PD
Total consideration trigger (Article 1(2)(h)): Currently where the total size (consideration) of an offer is less than €2.5 million over a 12-month period, such an offer is outside the scope of the PD. This threshold will be raised to €5 million.
Non-equity securities (Article 1(2)(j)): Currently non-equity securities that are issued in a continuous or repeated manner by credit institutions, where the total consideration of the offer is less than €50 million, are outside the scope of the PD. This was regarded as overly burdensome and so the threshold will be raised to €75 million.
In both Article 1(2)(h) and Article 1(2)(j), it will be clarified that "offer" refers to an offer in the European Union.
Exempt Public Offers, Where a PD-Compliant Prospectus Is not Required to Be Published
"Qualified investors" (Article 2(1)(e)): This definition will be conformed to that of "professional clients" under the Markets in Financial Instruments Directive ("Mifid").5 The current (lengthy and narrative) definition of "qualified investors" under the PD is different from that of "professional clients" under Mifid despite many similarities. As a result, investment firms have had to engage in the complicated and costly exercise of analysing whether their clients classified as "professional clients" under Mifid are also "qualified investors" under the PD. This amendment will allow them to rely on the clients' categorisation under Mifid when conducting private placements (i.e., an offering under Article 3.2(a) that is "solely addressed to qualified investors").
100 persons exemption (Article 3(2)(b)): The maximum number of investors will be raised to 150 (other than qualified investors) per member state from the current 100-person limit.
Minimum total consideration exemption (Article 3(2)(c)): The threshold will be raised to €100,000 from the current €50,000 per investor. It was considered that the lower threshold no longer reflected the distinction between retail and professional investors.
Minimum denomination exemption (Article 3(2)(d)): Likewise, this threshold will be raised to €100,000 from the current €50,000 per unit.
Employee share schemes (Article 4(1)(e)): The exemption for offers to employees will be extended to an issuer that does not already have securities admitted to trading on a regulated market, if either: (i) it has a head office or registered office in the EU; or (ii) the securities are admitted to trading on a third-country market as to which the Commission has adopted an equivalence decision. The existing provisions were found to be too restrictive to be of much use to companies operating employee share schemes.
Retail Cascades (Article 3(2)(ii)): Retail cascades (a chain of issuance and distribution/sub-distribution arrangements commencing with the issuer of securities and ending with the ultimate investors in the securities) are commonly used...