Legal Aspects of Finance Slide Set 11 Ongoing Disclosure Duties Disclosure Duties, Insider Information and Business Secrets Matti Rudanko

Information influencing the value of the security SMA ch Information influencing the value of the security SMA ch. 6 (especially sect. 4): The issuer of a security subject to public trade shall, without undue delay, publish and file with the party in charge of the public trade in question all its decisions as well as all information on the issuer and its activities that are likely to have material influence on the value of the security. The provisions shall, however, not apply to the State, its central bank, a municipality, a joint municipal organization or an international public-law organization whose members include at least two Member States of the European Economic Area, except when they publish information outside the European Economic Area. Legal Aspects of Finance 11

Decisions and matters to be published (FSA Standard 5 Decisions and matters to be published (FSA Standard 5.2b, Rules of the Stock Exchange) decisions by the shareholders’ meeting and the board of directors concerning financial statements, share issues, the distribution of dividends, material changes in the company’s operations or organisation and major appointments decisions by authorities in Finland or abroad concerning the issuer, court decisions concerning the issuer and information from ongoing arbitration proceedings financial or operational difficulties of group companies, significant customers or suppliers Legal Aspects of Finance 11

Decisions and matters to be published, cont. Significant agreements made by shareholders on cooperation, pre-emption, options, repurchases and the exercise of voting rights which concern the issuer Merger, Demerger, Reorganization, Receivership and Bankruptcy Individual transactions, orders and other business agreements Acquisitions and other corporate restructurings Legal Aspects of Finance 11

Decisions and matters to be published, cont. Subscription Agreements and Redemption of Shares Pursuant to Articles of Association Issue of Public Bonds or Capital Notes Market Making Agreement in interim reports the likely future performance in the present financial period in the annual report the financial statements should present an estimate of expected future developments The most important assumptions that growth and profitability forecasts are based on Prospects: Legal Aspects of Finance 11

Profit warning and preliminary information If the issuer’s result or the development of its financial position deviates from what it has previously estimated publicly circumstances during the issuer’s reporting period (profit warning) and after the end of the reporting period (preliminary information of interim report or annual accounts). The profit warning and preliminary information relate to both circumstances in which the result or financial position is weaker than expected and circumstances in which it is better than expected Legal Aspects of Finance 11

FSA Standard 5.2b (16) Matters in preparation need not be published. However, if a preliminary contract or letter of intent is prepared, it shall be published. A preliminary contract or letter of intent does not have to be published, if the material parts and conditions of the final contract being prepared have not been determined specifically enough in the preliminary contract or letter of intent, or if the conclusion of the final contract is uncertain. Legal Aspects of Finance 11

FSA Standard 5.2b, cont. (18) A justified delay in the publication of information (e.g.): the authenticity of the information has to be verified The matter to be disclosed requires discussion by the board ongoing acquisition or other negotiations if the publication of information would likely have an effect on the outcome of the negotiations a ban by authorities on publishing or releasing information Legal Aspects of Finance 11

FSA Standard 5.2b, cont. (justified delay, cont.:) Negotiations relating to the economic viability of the issuer in circumstances where such viability is subject to a grave and direct threat and the publication of the information might severely endanger the interests of current and potential shareholders (22) However, the publication of information cannot be postponed on the basis of awaiting the actual development of the circumstances or events concerning the issuer and its activities. Legal Aspects of Finance 11

Disclosure / hiding information Insider information: prohibited / allowed disclosure: FSA Standard 5.2b 5.6 Ban on the disclosure of inside information Business secrets? FSA Standard 5.2b (12) The issuer may not avoid the publication of decisions or contracts in the scope of the disclosure obligation, such as M&A-related contracts or business contracts, by means of a non-disclosure agreement. Legal Aspects of Finance 11

Ban on Disclosure (MAR) Member States shall prohibit any person subject to the prohibition laid down in Article 2 from: (a) disclosing inside information to any other person unless such disclosure is made in the normal course of the exercise of his employment, profession or duties; (b) recommending or inducing another person, on the basis of inside information, to acquire or dispose of financial instruments to which that information relates. Legal Aspects of Finance 11

MAR: Duty of Disclosure (art. 6) Whenever an issuer, or a person acting on his behalf or for his account, discloses any inside information to any third party in the normal exercise of his employment, profession or duties, he must make complete and effective public disclosure of that information, simultaneously in the case of an intentional disclosure and promptly in the case of a non-intentional disclosure. These provisions shall not apply if the person receiving the information owes a duty of confidentiality, regardless of whether such duty is based on a law, on regulations, on articles of association or on a contract. Legal Aspects of Finance 11

FSA Standard 5.2b, cont. (25) The issuer shall be able to ensure that information is kept confidential, which means that the issuer must control the dissemination and use of unpublished information regarded as inside information. The control over inside information must be verified by the use of a company-specific insider register If inside information is released outside the issuer, an appropriate non-disclosure agreement should be made. Legal Aspects of Finance 11

FSA Standard 5.2b, cont. (29) The issuer must be capable of publishing information immediately if it cannot ensure the confidentiality of inside information. One indication of loss of confidentiality is a significant increase or decrease of the value of the issuer's security or an increase in its trading volume without a logical explanation. Legal Aspects of Finance 11

The disclosure of inside information is allowed (FSA Standard 5.2b) When the company gives a specific assignment (eg, corporate or capital restructuring) to an advisor or other agent, such an issue manager, attorney or other specialist disclosure of inside information in negotiation situations (eg, corporate restructuring) when the other party is entitled to receive the information, such as a competition authority, securities market supervisory authority or an organiser of public trade disclosure of inside information to lenders or potential credit rating agencies when this is necessary to receive credit or a credit rating or their conditions require so. in certain cases the disclosure of inside information to significant shareholders of the company may also be allowed Legal Aspects of Finance 11

Business Secrets: Unfair Business Practices Act, Section 4 No one may unjustifiably obtain or seek to obtain information regarding a business secret or use or reveal information obtained in such a manner. Whoever obtains information regarding a business secret while in the service of an entrepreneur may not unjustifiably use or reveal it while still in service in order to obtain personal benefit or benefit for another or in order to harm another. Whoever receives information regarding a business secret while performing a function on behalf of an entrepreneur, or who has been entrusted with a technical model or technical instructions so that he can carry out work or a function or otherwise for business purposes, may not unjustifiably use or reveal this. Whoever has been informed by another of a business secret, a technical model or technical instructions in the knowledge that the said person has unjustifiable obtained or revealed the information may not use or reveal this. Legal Aspects of Finance 11

Business Secrets: Code of Judicial Procedure, Chapter 17, Section 24 (571/1948) (1) a witness may - - refuse to give a statement which would reveal a business or professional secret unless very important reasons require that the witness be heard thereon MAD art. 6 para. 3, Rules of the Stock Exchange 3.1.9: Duty of disclosure not applied to those under obligation to keep the information confidential Legal Aspects of Finance 11

Disclosure Duties, Insider Provisions and Business Secrets The (legal or natural) person for the protection of whom the business secret provisions have been enacted, is entitled to waive the said protection and to reveal the secret For company management, it is a question of fiduciary duties and liabilities in relation to the company (principal – agent relation) Disclosure duties – insider provisions – business secrets By entering the markets (listing), have the companies waived the protection of business secrets in favor of market rules? Legal Aspects of Finance 11