The first evident violation concerns the following. On 14 October 2002, following the extraordinary general meeting of shareholders, Econosto published a press release announcing that its results had come under pressure and that the banks were monitoring the situation very closely. Several articles published by the press after the meeting claimed that in July 2002 the banks had already placed Econosto in a special credit category that required drastic measures on the part of the banks.
After trading closed on 28 November 2002, Econosto published a press release stating that as a result of problems affecting some of its operating companies it was announcing a one-off charge of approximately €25 million before tax, and that due to this one-off charge it expected to incur a loss of some €12 million for the whole of 2002. It also stated that the management board and the supervisory board considered it unlikely, in view of Econosto’s current financial position and poor cash position, that the convertible subordinated bond loan could be redeemed in June 2003 in accordance with the applicable terms and conditions, and that talks were being held with various financial parties to find a solution.
The above factors led Euronext to launch an investigation into Econosto’s compliance with article 28h of the Listing and Issuing Rules. This investigation focused on whether the conditions of the credit agreement between Econosto and the banks had been tightened to a material extent, and whether the measures required by the banks were so far-reaching that their impact on the capital, financial position and general state of affairs at Econosto could also have had a significant impact on the company’s share price.
The Advisory Committee shares Euronext’s view that this situation constitutes an evident violation of article 28h of the Listing and Issuing Rules. It is important to note that the Advisory Committee is of the opinion that letters sent by the banks to Econosto in July 2002 revealed a clear change of course in the banks’ attitude towards Econosto. Econosto and the banks subsequently held discussions, which the Advisory Committee believes presumably resulted in their reaching a consensus on a new framework credit agreement in October 2002. As a result, the banks produced a new framework credit agreement, which the Advisory Committee believes Econosto signed on 8 November 2002, thus indicating acceptance. The newly concluded agreement contained particularly stringent conditions and stipulated that Econosto would be required to provide an exceptionally high degree of security to the banks. The contents of the agreement essentially meant that Econosto’s further actions would be largely dependent on the co-operation of the banks.
In the situation outlined above, the Advisory Committee is of the opinion that Econosto was obliged under article 28h of the Listing and Issuing Rules to issue an announcement about the above-mentioned changes in the conditions of the framework credit agreement, including the fact that a number of additional forms of security had to be provided, by 8 November 2002 at the very latest. The fact that some of the additional security did not have to be provided until after 8 November 2002 is, in the opinion of the Advisory Committee, not relevant.
The second evident violation is as follows. As mentioned previously, Econosto published a press release after trading closed on 28 November 2002 announcing that it expected to incur a net loss of some €12 million for 2002 as a whole. After trading closed on 19 March 2003, Econosto published a press release announcing its final results for 2002, which consisted of a net loss of €30.5 million. In response to this, Euronext started an investigation to determine whether this constituted an evident violation of article 28h of the Listing and Issuing Rules.
The Advisory Committee again shares Euronext’s opinion that this case constitutes an evident violation of article 28h of the Listing and Issuing Rules. It is of the view that Econosto should have issued an announcement regarding its disappointing results on or shortly after 4 March 2003. On that date the management board and the supervisory board of Econosto received a letter from the company’s auditors regarding the audit report on the 2002 financial statements, which included the following passage.
"Management has decided that the losses for tax purposes resulting from these downward revaluations [involving shares of Malbranque S.A.] will no longer be accounted for in the financial statements for reporting purposes, and so the related amount of €7.3 million receivable from the tax authorities will be charged in full to the profit and loss account for 2002."
In addition, the letter also mentioned a charge of €6.9 million that was reported in the 2002 profit and loss account under "other company revenues". The draft 2002 profit and loss account dated 4 March 2003 that was enclosed with the auditor’s letter clearly showed that the net post-tax loss was expected to be €21.593 million, compared with a net post-tax profit of €8.604 million in 2001 and a net post-tax loss of €12 million announced on 28 November 2002. As Econosto has explained, the results were adjusted several times after 4 March 2003 before the final loss of €30 million was established.
The Advisory Committee is of the opinion that, given the information that was available to the management board at the time, Econosto should have issued an announcement, in accordance with article 28h of the Listing and Issuing Rules, on or shortly after 4 March 2003 to the effect that the loss announced on 28 November 2002 would be considerably higher.
The Advisory Committee is of the opinion that the cases described in the request submitted by Euronext on 29 July 2003 constitute two evident violations by Econosto of article 28h of the Listing and Issuing Rules. Given the circumstances surrounding this case, the Advisory Committee is of the opinion that disciplinary action should be taken.
In deciding what type of action should be taken, the Advisory Committee considered the fact that Econosto previously received a written warning from Euronext on 3 July 2000 in connection with its failure to issue a profit warning on time and for publishing an incomplete half-yearly report. The Advisory Committee also took account of remarks made by Econosto to the effect that even in such difficult circumstances the company made every effort to comply with the provisions of article 28h of the Listing and Issuing Rules, and Euronext’s statement that it believes this to be the case. The decision regarding the type of action to be taken also took account of the fact that at the time of the two violations the management board and supervisory board had been serving for a relatively short period of time. Consequently, the Advisory Committee has recommended that the measure as defined in article 65 of the Listing and Issuing Rules should be imposed, ie a written warning issued by Euronext to Koninklijke Econosto N.V.
DECISION OF THE MANAGEMENT OF EURONEXT
The management of Euronext has decided to accept the decision of the Listing and Issuing Rules Advisory Committee and has given Koninklijke Econosto N.V. a written warning in respect of the company’s violations of article 28h of the Listing and Issuing Rules.
The advice of the Advisory Committee was published on 10 February 2004 on Euronext’s website (www.euronext.com).
