A guide to joining AIM - the LSE s market for smaller and growing companies

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1 A guide to joining AIM - the LSE s market for smaller and growing companies

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3 Contents Introduction 2 AIM - Key questions 3 AIM - Key issues 4 Routes to Admission 6 Advisers - Who needs to be involved? 9 What goes in the Admission Document? 11 Continuing obligations after Admission 13 Corporate governance on AIM 16 FAQs 18 Glossary 20 Prospectus flow chart - When is a prospectus required on an AIM IPO? 24 1

4 Introduction This guide provides an overview for companies which may be considering a flotation on AIM. Companies seeking admission to AIM may do so in conjunction with a fundraising or by means of an introduction which does not involve the issue of any shares. This guide provides a general overview of the steps involved and should help you cut through the jargon surrounding admission to AIM. A glossary explaining some of the common terms which are likely to be encountered by a company seeking admission to AIM is set out at the end of this guide. If you would like any further information on AIM please speak to your usual contact at Burges Salmon or: Dominic Davis on +44 (0) dominic.davis@burges-salmon.com Chris Godfrey on +44 (0) chris.godfrey@burges-salmon.com Nick Graves on +44 (0) nick.graves@burges-salmon.com Rupert Weston on +44 (0) rupert.weston@burges-salmon.com AIM: Key facts More than 1,150 companies are admitted to AIM A market in its own right not just a stepping stone to the Main Market AIM is regulated by the London Stock Exchange Streamlined admission process Admission Document not reviewed by the LSE or the FSA (unless a Prospectus is required) No minimum market capitalisation No trading record requirement No minimum percentage of shares which must be in public hands AIM company must have a Nomad at all times AIM company must retain a broker at all times Easy access for overseas companies Shareholder approval not required for most corporate transactions Shares must be freely transferable and be eligible for electronic settlement Strong track record in secondary fundraisings by companies on AIM 2

5 AIM - Key questions Why join AIM? Companies typically join AIM: to raise capital; to raise the company s profile; to promote corporate strategy and facilitate acquisitions using quoted shares to pay for an acquisition instead of cash; and to provide liquidity for the company s shares. A company considering a flotation on AIM should consider carefully whether AIM will meet the objectives of its management and shareholders. It is possible that an outright sale of the company or an alternative form of fundraising may be more appropriate. While this guide concentrates on joining AIM, companies should be aware that admission to trading on AIM can only be cancelled if a general meeting of shareholders is called and 75% of the votes cast at that meeting are in favour of the cancellation. How long will it take? Typically between three and six months. However the actual timetable will depend on how much preparatory work has been carried out by the company and whether any significant issues are identified during the due diligence process. The Nomad will produce a detailed timetable at the start of the process. How much does it cost? As a general rule, the total costs of the flotation should not exceed 10% of the money raised by the company. The Nomad will be paid: a commission of up to 5% of any new money raised by the Nomad; a corporate finance fee; and an annual fee to act as the company s Nomad. This is usually between 50,000 and 70,000 (plus any applicable VAT). The engagement letter between the company and the Nomad will contain details of these arrangements which will then be carried over into the placing agreement and the Nomad agreement. The fees are then deducted from the proceeds of the placing before those are paid to the company shortly after Admission. What is the LSE trying to achieve with the AIM market? According to the LSE s chief executive, the core mission of AIM is likely to remain what it has been from the start, to provide a market for small and medium-sized companies which are ambitious to grow and need capital for expansion. 3

6 AIM - Key issues Admission to AIM - Key issues for directors Key issues for directors include: Placing Agreement this will contain warranties from the directors to the Nomad in relation to the accuracy of the information contained in the Admission Document. Liability under these warranties is typically limited in time and amount to ensure that the directors do not have unlimited exposure. This can be a contentious area and should be agreed before marketing starts. Responsibility Statement each director will be required to take responsibility for the information contained in the Admission Document. In contrast to the Placing Agreement, liability under a responsibility statement cannot be limited. Working Capital Statement this is a statement that in the directors opinion the working capital available to the company and its group will be sufficient for its present requirements. Strictly, this means a period of at least 12 months from Admission. In practice 18 months is the period used for the underlying working capital forecasts and for any related warranties in the placing agreement. Reducing personal exposure the publication of the Admission Document could give rise to personal liability for the directors (both civil and criminal liability). Therefore the directors should read the Admission Document carefully to make sure that it is complete and accurate. Verification helps to minimise the risk of liability arising out of publication of the Admission Document. Lock-in Agreement this is significant as it restricts the directors ability to sell shares after Admission. Although one of the reasons often given for Admission will be the provision of liquidity in the company s shares, the directors will not benefit from this until the lock-in agreements have expired and they are free to sell. Even when the lock-in agreements have expired, directors will still be subject to the restrictions on share dealing set out in the company s share dealing code and ongoing orderly market arrangements. Admission to AIM Key issues for companies Key issues for companies include: Preparing for Admission the company will need to review its business to identify whether there are any issues which could derail the flotation or cause significant concern to a potential Nomad. The group structure should also be reviewed to identify whether any non-core assets should be sold. A company should also consider its board structure and senior management team to make sure that they have the necessary skills and experience. Steps should also be taken to adopt some corporate governance recommendations in advance of the flotation. If the company has carried out this preparatory work it should be well positioned when the formal flotation process starts. 4

7 Systems and controls the company will need to ensure that it operates the necessary systems and controls to enable it to comply with the continuing obligations set out in the AIM Rules for Companies. If these are not in place the company will not be appropriate for AIM. Effect on contracts a company should review its existing contracts/loan agreements, etc to identify whether an IPO would act as a trigger for repayment/termination. Since the Admission Document must contain a summary of the company s material contracts a company should also consider whether the terms of its key contracts permit that level of disclosure. Selecting a Nomad this is a key appointment. Early discussions with a Nomad will help the company to assess whether an IPO on AIM is an attractive route for the company. A company should look for a Nomad with experience of its sector and with a track record of similar sized fundraisings. Details on the role and responsibilities of the Nomad are set out on page 9. Admission to AIM - Key issues for shareholders Key issues for shareholders include: Termination of shareholders agreement any shareholders agreement will be terminated on Admission. Institutional shareholders will therefore lose the benefit of the control rights contained in that agreement. After Admission, the only reserved matters will be those which are reserved to the board of directors of the company. Restrictions on ability to sell shares after Admission significant shareholders will often be required to enter into a lock-in agreement for 12 or 24 months after Admission. Access to information instead of the provision of detailed management accounts, institutional shareholders will receive annual and half-yearly reports from the company. Placing Agreement if shareholders are selling shares in the Placing then they will be expected to give warranties in the Placing Agreement. The scope of those warranties and the limitations on liability should be agreed upfront. Relationship Agreement controlling shareholders will typically be required to enter into a relationship agreement with the company. This agreement is designed to ensure that the company can carry on its business independently and that all transactions between the company and the controlling shareholders are on an arm s length basis and on normal commercial terms. 5

8 Routes to Admission There are two routes to Admission. A: Admission A company which is seeking admission to AIM will have to publish an Admission Document and follow the process set out below. A fast track route may be available (see Fast Track Admission). If the company is offering shares to the public then a prospectus will be required (see Prospectus flow chart on page 24 for further information). If a Prospectus is required it must be reviewed and approved by the FSA. However, almost all IPOs on AIM are structured as Placings and therefore a Prospectus is not usually required. Prepare Admission Document Ten business days before the expected date of admission to AIM the company must provide certain information to the LSE. Schedule One to the AIM Rules for Companies sets out the requirements. The LSE then makes this available to the market by making an RNS announcement. Three business days before the expected date of Admission the company must: pay the AIM fee to the LSE submit a completed application form to the LSE submit an electronic version of the Admission Document to the LSE These documents must be accompanied by the Nomad s declaration Admission becomes effective when the LSE issues a dealing notice Although an Admission Document is required it will not be reviewed by either the LSE or the FSA unless it also constitutes a Prospectus (See Prospectus Flow Chart). 6

9 B: Fast Track Admission - ADM A fast track route is available if a company already has securities admitted to trading on an AIM Designated Market (ADM). The current AIM Designated Markets are the top tier markets of: Australian Securities Exchange Deutsche Börse Group Johannesburg Stock Exchange NASDAQ NYSE NYSE Euronext NASDAQ OMX Stockholm Swiss Exchange TMX Group UKLA Official List A company seeking admission via this route must have been listed on the top tier/main board of those exchanges (for example, NASDAQ Global and NASDAQ Global Select not NASDAQ OMX First North). Details of the fast track route to AIM are set out below. Has the company had its securities traded on an AIM Designated Market for at least 18 months? Yes No Prepare Admission Document 20 business days before the expected date of admission to AIM, the company must provide certain information to the LSE. Schedule One to the AIM Rules for Companies sets out the requirements. The LSE then makes this available to the market by making an RNS announcement. Among other things the company must confirm that it has complied with any legal and regulatory requirements imposed by the relevant AIM Designated Market. Three days before the expected date of admission the company must: pay the AIM fee to the LSE submit an electronic copy of its latest report and accounts to the LSE submit a completed application form to the LSE These documents must be accompanied by the Nomad s declaration Admission becomes effective when the LSE issues a dealing notice 7

10 There is no need to produce an Admission Document if the company can take advantage of the fast track route to AIM. If the Company is carrying out a public offer as part of its move to AIM then it must consider whether a prospectus is required. Q: Can a company use the AIM Designated Markets route if there have been changes to its business in the past few years? A: The LSE dealt with this question in Inside AIM (Issue 2) and gave the following informal guidance: This depends on the extent of changes to the business during that time. We expect a company to have substantially traded in the same form for 18 months prior to seeking admission via ADM. This is so that there has been a sufficient period of disclosures to the home market about the company in the form in which it is seeking to admit to AIM, which is the principle behind the requirement to be listed on one of the AIM designated markets for 18 months. Where a business has changed substantially, for example carried out the equivalent of a Rule 14 reverse takeover, it is possible that the entity will not be able to take advantage of the ADM admission route. If the company has performed smaller transactions or taken other actions to substantially change its business e.g. ceasing a major business unit, we would need to discuss with the nomad whether the ADM route is available. (Inside AIM Issue 2) 8

11 Advisers - Who needs to be involved? The company will need to appoint the following advisers: Nomad this is the key role in the Admission process. Typically the Nomad also acts as the company s broker. The relevant firm will run the admission process and will raise funds for the company. The Nomad is responsible to the LSE for assessing whether a company is appropriate for AIM and for advising and guiding an AIM company on its responsibilities under the AIM Rules for Companies (see Nomad s declaration). The Nomad must comply with the AIM Rules for Nominated Advisers which set out the Nomad s Admission Responsibilities and ongoing responsibilities (see below). The LSE has explained that the nomad role is clearly different from other corporate finance advisory roles and requires nomads to exercise the delegated regulatory responsibility that has been given to them by the Exchange (Inside AIM Issue 3). Reporting accountants the reporting accountants are responsible for preparing the long form report, the short form report and a working capital report. As part of their work, they will review the financial reporting systems and controls of the company. Legal advisers will carry out a legal due diligence review and advise the company on the legal aspects of Admission including re-registration as a public company, the general duties of directors of a public company, new service agreements, general disclosure requirements, the terms of any placing agreement and the nomad agreement. They will also lead the verification process. Financial PR consultants who will be responsible for generating press coverage of the company s admission to AIM. The Nomad will also appoint its own legal advisers who will review the due diligence materials and prepare the placing agreement and the nomad agreement. Nomad s Admission Responsibilities Companies should be aware that Nomads must satisfy the following Admission Responsibilities on each AIM IPO: AR1 a nominated adviser should achieve a sound understanding of the applicant and its business. AR2 a nominated adviser should (i) investigate and consider the suitability of each director and proposed director of the applicant; and (ii) consider the efficacy of the board as a whole for the company s needs, in each case having in mind that the company will be admitted to trading on a UK public market. 9

12 AR3 the nominated adviser should oversee the due diligence process, satisfying itself that it is appropriate to the applicant and transaction and that any material issues arising from it are dealt with or otherwise do not affect the appropriateness of the applicant for AIM. AR4 the nominated adviser should oversee and be actively involved in the preparation of the admission document, satisfying itself (in order to be able to give the nominated adviser s declaration) that it has been prepared in compliance with the AIM Rules for Companies with due verification having been undertaken. AR5 the nominated adviser should satisfy itself that the applicant has in place sufficient systems, procedures and controls in order to comply with the AIM Rules for Companies and should satisfy itself that the applicant understands its obligations under the AIM Rules for Companies. These responsibilities are supported by a non-exhaustive list of tasks that the LSE would usually expect a Nomad to fulfil. These responsibilities, which are set out in the AIM Rules for Nominated Advisers, underpin the approach which a Nomad will take towards a company seeking admission to AIM. 10

13 What goes in the Admission Document? The Admission Document must contain the information required by the AIM Rules for Companies. In addition to the specific disclosure requirements, a company producing an Admission Document must make sure that the document contains any other information which it considers necessary to enable investors to form a full understanding of: the assets and liabilities, financial position, profits and losses and prospects of the company; the rights attaching to the shares; and any other matter contained in the Admission Document. The following table sets out the typical structure and contents of an Admission Document. Cover page etc Disclaimers and description of the Placing Key information Directors and advisers Timetable Placing statistics Front end History and background Business operations The market Strategy Customers Competition Summary financial information Current trading and prospects Reasons for Admission and use of proceeds Details of the Placing Lock-in Agreements Directors, Senior Management and Employees Share incentive scheme Admission, settlement and CREST Corporate Governance Significant shareholders Dividend policy 11

14 Risk factors The list of risk factors sets out the most significant risks for potential investors in the company. Expert s Report An example of an expert s report is the Competent Person s Report for mining, oil and gas companies. Financials Audited historical financial information for the last three financial periods (or such shorter period during which the issuer has been in operation) Interim accounts may also be required Accountant s report containing an opinion that the financial information gives, for the purposes of the Admission Document, a true and fair view. The back end - additional information Responsibility Statement Incorporation and activities Share capital Memorandum and articles of association Directors and other interests Directors service agreements Substantial shareholders Share option schemes Taxation Working Capital Statement Litigation Material Contracts 12

15 Continuing obligations after Admission After Admission a company will be subject to the continuing obligations set out in the AIM Rules for Companies. Disclosure of price sensitive information One of the key continuing obligations relates to the disclosure of price sensitive information (AIM Rules 10 and 11). In Inside AIM (Issue 3) the LSE emphasised this and stated that Compliance with the general disclosure Rules 10 and 11, which must be considered in conjunction with each other, is crucial to ensure the market is updated accurately and in a timely manner to avoid the risk of a disorderly or false market. The following table sets some of the specific matters which must be disclosed to the market. Specific information which must be publicly announced (AIM Rule 17) details of any substantial transaction, any related party transaction, any reverse take-over or any disposal resulting in a fundamental change of business any deals by directors in the company s shares any changes to any significant shareholders/dtr disclosures the resignation, dismissal or appointment of any director any change in its accounting reference date any change in its registered office address any change in its legal name any decision to pay any dividend the reason for the application for admission or cancellation of any of its shares the resignation, dismissal or appointment of its Nomad or broker A company admitted to AIM must take reasonable care to ensure that any information it releases to the market is not misleading, false or deceptive and does not omit anything likely to affect the significance of that information (AIM Rule 10). In addition to these disclosure requirements, a company must have a Nomad at all times (AIM Rule 1). If a company does not have a Nomad the LSE will suspend trading in its shares. If a replacement is not appointed within one month of that suspension the admission of its shares to AIM will be cancelled. A company must also make certain specified information available on a website in accordance with the requirements of AIM Rule 26 (Company Information Disclosure). The information must be kept up-to-date. 13

16 AIM Rule 31 the importance of proper procedures and frequent dialogue with your Nomad Another key continuing obligation is set out in AIM Rule 31. AIM Rule 31 (AIM company and directors responsibility for compliance) states that: An AIM company must: have in place sufficient procedures, resources and controls to enable it to comply with these rules; seek advice from its nominated adviser regarding its compliance with these rules whenever appropriate and take that advice into account; provide its nominated adviser with any information it reasonably requests or requires in order for that nominated adviser to carry out its responsibilities under these rules and the AIM Rules for Nominated Advisers, including any proposed changes to the board of directors and provision of draft notifications in advance; ensure that each of its directors accepts full responsibility, collectively and individually, for its compliance with these rules; and ensure that each director discloses to the AIM company without delay all information which the AIM company needs in order to comply with Rule 17 insofar as that information is known to the director or could with reasonable diligence be ascertained by the director. The importance of frequent contact with your Nomad was confirmed by the LSE when it stated that It is a fundamental tenet of the AIM Rules that AIM companies liaise appropriately with their nominated advisers. Nominated advisers are responsible for advising and guiding companies as to their responsibilities under the AIM Rules. Failure to seek and take into account advice is not only a breach of AIM Rule 31 but also increases the risk of the company acting in non-compliance with the AIM Rules. The Exchange regards a company s failure to liaise appropriately with its nominated adviser as a particularly serious matter. This rule is frequently referred to in the Investigations and Enforcement Update section of Inside AIM alongside AIM Rules 10 and 11. The LSE has explained that breaches have involved failure to liaise appropriately with the company s nomad (Inside AIM Issue 1) and included a significant failure to implement adequate formal procedures and oversight of a key individual responsible for managing the company s business (Inside AIM Issue 2). Financial reporting after Admission Annual accounts A company admitted to AIM must publish annual audited accounts within six months of the end of the financial year to which they relate. An AIM company incorporated in an EEA country must prepare and present these accounts in accordance with International Accounting Standards. Half-yearly reports A company admitted to AIM must prepare a half-yearly report. This must be published within three months after the end of the period to which it relates. 14

17 Dealing in shares after Admission Dealing in shares after Admission will be restricted by the terms of any lock-in agreements and by the company s code on share dealing. Lock-in agreements The AIM Rules for Companies require lock-ins for new businesses. Where the company s main activity is a business which has not been independent and earning revenue for at least two years, the company must ensure that all Related Parties and applicable employees agree not to dispose of any interest in its securities for one year from Admission. For the purposes of this rule, an applicable employee means any employee of the company, its subsidiary or parent undertaking who, together with that employee s family, has a holding or interest, directly or indirectly, in 0.5% or more of the company s shares. However Nomads typically require the directors and major shareholders to enter into lock-in agreements irrespective of the nature of the company s business. These undertakings typically last for 12 or 24 months after Admission and are subject to some fairly standard exceptions. Code on share dealing A company admitted to AIM must ensure that its directors and applicable employees do not deal in its shares during a close period. Compliance with this requirement is addressed by adopting a code on share dealing. The code sets out the details on what steps directors and applicable employees should take before they deal in the company s shares. For the purposes of the share-dealing code, an employee is an applicable employee if he or she is likely to be in possession of unpublished price-sensitive information in relation to the company because of his or her employment with the company. 15

18 Corporate governance on AIM What is the LSE s approach to corporate governance on AIM? In July 2010 the LSE set out its position on corporate governance for AIM companies in Inside AIM (Issue 2). The LSE made it clear that it believed that good corporate governance is just as relevant and important for AIM companies as it is for those on the Main Market. Does the UK Corporate Governance Code apply to AIM Companies? No. The UK Corporate Governance Code does not apply to companies admitted to trading on AIM. However the Nomad and potential investors will expect to see the company adopt some of the best practice principles and provisions set out in the UK Corporate Governance Code. This is often reflected in the Nomad agreement which will contain an undertaking relating to corporate governance matters. In addition, the LSE has confirmed that whilst full adherence to the CGC (UK Corporate Governance Code) should not necessarily be the expectation for all AIM companies, we believe it continues to serve as a standard that public companies should aspire to. Do the AIM Rules for Companies impose any specific corporate governance requirements on an AIM Company? No. In addressing the question of why the AIM Rules for Companies do not require adherence to a particular set of corporate governance rules the LSE stated that Given the nature and range of smaller, growing companies that predominantly make up AIM s constituent members, the Exchange has believed for some time that a blanket requirement to comply or explain against a particular code, in a one size fits all style, is not appropriate; such a step may simply be seen as more regulation rather than as a beneficial set of practices to improve the running of a company and the interaction between board and shareholders. The role and responsibilities of a Nomad underpin this approach and the LSE noted that More importantly, AIM also has the benefit of the nomad system. Nomads are in an excellent position to work with their AIM company clients, both up to admission and on an ongoing basis, to consider and set out the corporate governance standards with which the company is going to comply, by reference to size, stage of development, business sector, jurisdiction etc. So AIM Companies should expect to discuss their corporate governance arrangements with their Nomads. Clearly the LSE s view on corporate governance on AIM will continue to evolve. The LSE stated that We will keep the Exchange s position on corporate governance under review. We expect to see nomads continue, and extend, their involvement in this area by demonstrating an active involvement in the setting and satisfying of the corporate governance standards that their AIM company clients will follow. Has any corporate governance guidance been published for AIM Companies? Yes. The QCA has published Corporate Governance Guidelines for Smaller Quoted Companies. 16

19 What should we say in the Admission Document? Typically the Admission Document contains a statement along the following lines: The Board recognises the value of good governance and intends, following Admission, to comply with the provisions of the UK Corporate Governance Code so far as is practicable for a company of its size, stage of development and nature as a company whose securities are traded on AIM. In any event, the Board intends to comply with the provisions of the QCA Guidelines. This statement should only be made after a proper debate and review of board composition, structure, procedures and controls. It must not be made in isolation as part of a box-ticking compliance exercise. 17

20 FAQs Admission What are the alternatives to AIM? A company can apply to the FSA and to the LSE for its shares to be admitted to the premium listing segment of the Official List and to trading on the Main Market. In addition, companies considering a listing now have the choice between a premium listing and a standard listing. However there has been limited take up of the standard listing alternative since it was introduced in The key difference between the two regimes is that an issuer with a standard listing (based on the minimum EU directive standards) is not required to comply with UK super equivalent provisions, including: complying with certain eligibility requirements (e.g. an acceptable three year trading record); providing pre-emption rights (although this may be provided in the company s articles); complying or explaining against the UK Corporate Governance Code; appointing a sponsor; and complying with the Listing Rule provisions on significant and related party transactions. An issuer with a standard listing is therefore able to complete a significant M&A transaction without waiting for shareholder approval. In an auction situation this may level the playing field with other bidders such as private companies or PE houses. Whether a premium or standard listing is a suitable alternative will depend on the size of the company. For smaller companies, the PLUS Quoted Market operated by PLUS may be of interest. Who can act as a Nomad? The LSE maintains a register of approved Nomads (see Will the admission document be available to the public? Yes. The admission document must be available to the public, without charge, for at least one month from Admission. A company must keep a copy of its most recent admission document on its website. Access to that document and other Rule 26 documents must be free. Will we have to deal with the FSA? No. The FSA will generally only be involved if a Prospectus is required. Can the shares of an overseas company be settled through CREST? This will depend on where the company is incorporated. If the shares are not eligible for settlement through CREST then the shares will be deposited with a custodian who will issue depositary interests (CDIs) which will be eligible for settlement in CREST. 18

21 After Admission Will we need shareholder approval for acquisitions after Admission? No. Normally the company will simply be required to make an announcement to the market. The information must contain the information required by Schedule Four to the AIM Rules for Companies. However if the acquisition is a reverse takeover then shareholder approval will be required. If there is any doubt about the classification of a potential transaction the company should speak to its Nomad. The Nomad can then discuss the transaction with the LSE and obtain a waiver if that is appropriate. Will we need shareholder approval for disposals? No. However shareholder approval will be required for any disposal which is treated as a disposal resulting in a fundamental change of business. What is a reverse takeover? A reverse takeover is an acquisition which for an AIM company would exceed 100% in any of the class tests or result in a fundamental change in its business, board or voting control. If a company announces a reverse takeover, its shares will be suspended until it publishes an Admission Document in respect of the enlarged group. However, the shares will not be suspended if the target company is quoted on AIM or admitted to the Official List. Will the company be covered by the City Code? Yes if the company has its registered office in the United Kingdom, the Channel Islands or the Isle of Man and the Panel considers that its place of central management and control is in the United Kingdom. This means that the City Code does not apply to many overseas companies admitted to AIM. Will we need to produce a directors remuneration report as part of our annual report and accounts? No. There is no formal requirement for an AIM company to produce a directors remuneration report. This is because a company admitted to AIM is not a quoted company for the purposes of the UK Companies Act. However under Rule 19 of the AIM Rules for Companies the annual accounts must contain details of directors remuneration earned in respect of the relevant financial year. Directors remuneration for the purposes of the AIM Rules for Companies means for each director of the AIM company: emoluments and compensation, including any cash or non-cash benefits received; share options and other long term incentive plan details, including information on all outstanding options and/ or awards; and value of any contributions paid by the AIM company to a pension scheme. 19

22 Glossary Admission admission of the company s shares to trading on AIM. Admission becomes effective when the LSE issues a dealing notice. Admission Document the disclosure document which a company applying for admission to AIM must produce (unless it is joining AIM from an AIM Designated Market). The document must contain the information set out in schedule two to the AIM Rules for Companies. Although it looks like a Prospectus, the crucial difference is that it is not reviewed or approved by the FSA. AIM the LSE s global market for growing companies. AIM Rules for Companies the rules for companies admitted to trading on AIM or which are applying for admission to AIM published by the LSE. AIM Rules for Nominated Advisers the rules for nominated advisers published by the LSE. They set out the eligibility requirements, ongoing obligations and certain disciplinary matters in relation to nominated advisers. Broker every AIM company must retain a broker at all times. Typically the same investment bank or stockbroker acts as Nomad and broker to the company. CDI Crest Depositary Interest. These are typically used by overseas companies whose underlying securities are not eligible for holding and settlement in CREST. The CDIs represent an entitlement in relation to the underlying securities. City Code the rules, administered by the Panel, governing offers for public companies. Class tests the tests set out in the AIM Rules for Companies which are used to establish whether a proposed transaction involving a company is a substantial transaction, a related party transaction, a reverse takeover or a disposal resulting in a fundamental change of business. Close Period an AIM company must ensure that its directors and applicable employees do not deal in any of its AIM securities during a close period. A close period is the period of two months before the publication of a company s annual results and the period of two months immediately preceding the announcement of its interim results. A company will also be in a close period if it is in possession of unpublished price sensitive information. Continuing obligations the rules applicable to AIM companies on a continuing basis following Admission. These are contained in the AIM Rules for Companies and in the DTR. CPR a competent person s report. The requirement for a CPR is set out in the Guidance Note for Mining, Oil and Gas companies published by the LSE. The guidance sets out specific guidelines relating to resource companies. CREST the system for the paperless settlement of trades in securities and the holding of uncertificated securities operated by Euroclear UK & Ireland Limited (previously CRESTCo Limited). 20

23 Due diligence the process of obtaining all material information about a company to ensure that the company is appropriate to be admitted to AIM and that the Admission Document contains full and accurate disclosure about the company and its financial position. DTR the Disclosure and Transparency Rules published by the FSA. Chapter 5 (Vote Holder and Issuer Notification Rules), which deals with notifications of major shareholdings, applies to AIM Companies. FSA Financial Services Authority. The FSA is responsible for approving a Prospectus published by a company seeking admission to AIM or by a company which is on AIM. The FSA acting as the UK Listing Authority is also responsible for admission to the Official List. FSMA Financial Services and Markets Act Introduction a method of obtaining admission to AIM without an offering of shares. IPO initial public offer or flotation. Lock-in an agreement that a shareholder will not dispose of any shares in the company for a specified period after Admission. This is normally subject to certain exceptions such as the acceptance of a takeover offer. Long form report a financial due diligence report prepared by accountants on the company and its subsidiaries. In contrast to the short form report, this document is not disclosed to the public. LSE London Stock Exchange plc. The LSE operates AIM and the Main Market. Main Market the LSE s market for listed securities. Model Code the code imposes restrictions on dealing in the securities of a company. Its purpose is to ensure that directors and applicable employees do not abuse, and do not place themselves under suspicion of abusing, inside information that they may be thought to have especially in periods leading up to an announcement of a company s results. Nomad nominated adviser. Every company applying for admission to AIM must appoint a Nomad. Every company admitted to AIM must retain a Nomad at all times. The Nomad is responsible to the LSE for assessing the appropriateness of an applicant for AIM, or an existing AIM company when appointed as its Nomad, and for advising and guiding an AIM company on its responsibilities under the AIM Rules for Companies. The LSE maintains a register of firms which have been approved to act as Nomads. Nomad s declaration the declaration in the form contained in the AIM Rules for Nominated Advisers. The Nomad must confirm that: all applicable requirements of the AIM Rules for Companies and AIM Rules for Nominated Advisers have been complied with; the Nomad is satisfied that the company and its shares are appropriate to be admitted to AIM; the directors of the company have received advice and guidance as to the company s responsibilities and 21

24 obligations under the AIM Rules for Companies in order to facilitate compliance by the company on an ongoing basis; and the Nomad will comply with the AIM Rules for Companies and AIM Rules for Nominated Advisers as applicable to it in its role as nominated adviser to the company. Official List the list maintained by the FSA of those securities which have been admitted to listing. Panel the Panel on Takeovers and Mergers. The Panel is an independent body whose main functions are to issue and administer the City Code and to supervise and regulate takeovers and other matters to which the City Code applies in accordance with the rules set out in the City Code. Placing an issue of shares to institutional and other selected persons rather than to the general public. Placing agreement the agreement between the company, its directors and the Nomad which sets out how the Placing will be implemented. Prospectus a company applying to AIM must produce a prospectus if there is an offer of shares to the public. The FSA must review and approve the prospectus. Most AIM fundraisings are therefore structured as Placings to avoid this requirement. Recent changes to two of the exemptions from the requirement to produce a prospectus may lead to a change in market practice. The threshold for fundraisings which require a prospectus has been increased from 2.5 million to 5 million. Offers of shares made to less than 150 persons per member state will also not require a prospectus this has been increased from the previous limit of less than 100. So companies applying to AIM will be able to: offer shares to a wider group of investors; and tap retail demand where it exists, all without being required to produce a prospectus so long as this part of the fundraising is for less than 5 million. See Prospectus Flow Chart on page 24 for further information. Prospectus Directive Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/ EC. A directive amending the Prospectus Directive has been adopted by the European Parliament and Council (Directive 2010/73/EU). This Amending Directive, which introduces a new proportionate disclosure regime for smaller companies, must be implemented by member states by 1 July Prospectus Regulation Commission Regulation (EC) No 809/2004 implementing the Prospectus Directive as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements. The Prospectus Regulation contains the detailed contents requirements for a prospectus. Prospectus Rules the prospectus rules published by the FSA. These now form part of the FSA Handbook. QCA the Quoted Companies Alliance. The QCA represents the interests of smaller quoted companies on 22

25 the Main Market and AIM. The QCA has published Corporate Governance Guidelines for Smaller Quoted Companies which contain some helpful guidance on how smaller quoted companies should apply the UK Corporate Governance Code. Related Party means any director of the company or any other group company, any substantial shareholder who holds 10% or more of the company s shares or any associate of any director or any substantial shareholder. Reporting Accountants the accountants appointed by the company to, among other things, prepare the long form report and the short form report. Responsibility Statement a statement by the directors and the company in form set out below: The Company and the Directors, whose names appear on page - of this document accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. RNS the regulatory information service operated by the LSE. SEC U.S. Securities and Exchange Commission, the primary regulator of the U.S. securities markets. Short form report the accountants report on historical financial information which is reproduced in the Admission Document. UK Corporate Governance Code this sets out best practice in relation to issues such as board composition and development, remuneration, accountability and audit and relations with shareholders. Verification the process, based on written questions and answers, which is designed to ensure the accuracy of the information (other than financial information) contained in the Admission Document. Working capital statement a statement by the directors in the Admission Document that in their opinion the working capital available to the company and its group will be sufficient for its present requirements that is for at least 12 months from Admission. In Inside AIM (Issue 3) the LSE stated that We should like to make it clear that, similar to the statement required by Rule 13, amendments and caveats to this statement are not permitted. 23

26 Prospectus flow chart When is a prospectus required on an AIM IPO? Is there an offer of transferable securities to the public? Transferable securities will include shares, warrants, depositary receipts, bonds etc. However most options and awards issued under employee benefit schemes will not be transferable securities. No Yes Is the offer an exempt offer? The following are exempt offers: offers made to or directed at qualified investors only; offers made to or directed at fewer than 150 persons (other than qualified investors) per EEA State; offers which specify that the minimum consideration payable by an investor is at least 50,000; Yes offers of transferable securities which are denominated in amounts of at least 50,000; offers where the total consideration for the transferable securities being offered cannot exceed 100,000 (taking into account any offers made within the previous 12 months). No Is the offer an offer of exempt securities? The following are exempt securities: securities which are listed in Schedule 11A to FSMA; transferable securities included in an offer where the total consideration for the offer is less than 5,000,000 (taking into account any offers made within the previous 12 months); shares which are issued in substitution for shares of the same class already issued (if the issue does not involve any increase in the issued share capital); securities which are offered in connection with an exchange offer/merger and the offer/merger document contains information which the FSA regards as equivalent to a prospectus; Yes shares which are offered free of charge to existing shareholders (bonus issue) or where dividends are paid out in the form of shares (scrip dividend); securities which are offered to existing or former directors or employees and the employer already has transferable securities admitted to trading on a regulated market. No Prospectus must be produced and approved by the FSA. No need for a prospectus approved by the FSA. 24

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28 Further information We hope that this guide will help you to cut through the jargon surrounding a fundraising on AIM. If you would like any further information on AIM please speak to your usual contact at Burges Salmon or: Dominic Davis Partner +44 (0) dominic.davis@burges-salmon.com Chris Godfrey Partner +44 (0) chris.godfrey@burges-salmon.com Nick Graves Partner +44 (0) nick.graves@burges-salmon.com Rupert Weston Partner +44 (0) rupert.weston@burges-salmon.com One Glass Wharf, Bristol BS2 0ZX Tel: +44 (0) Fax: +44 (0) Chancery Exchange, 10 Furnival Street, London EC4A 1AB Tel: +44 (0) Fax: +44 (0) This document gives general information only and is not intended to be an exhaustive statement of the law. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content. Burges Salmon LLP is a Limited Liability Partnership registered in England and Wales (LLP number OC307212) and is regulated by the Solicitors Regulation Authority. A list of members, all of which are solicitors, may be inspected at our registered office: One Glass Wharf, Bristol BS2 0ZX.