A Comparative Regulatory Guide to Listing in Hong Kong, London, New York and Toronto

Transcription

1 A Comparative Regulatory Guide to Listing in Hong Kong, London, New York and Toronto w w w. d o r s e y. c o m

2 This guide has been prepared by Dorsey & Whitney LLP and is aimed at providing a comparative regulatory overview for companies which are considering listing equity securities on one or more of the principal markets in Hong Kong, London, New York or Toronto in connection with an initial public offering. This guide is intended to be a summary for general information and discussion only. It is not intended to be nor should be relied on as a substitute for legal or other professional advice. If you would like to discuss the matters contained in this guide please call your usual contact at Dorsey. Copyright 2012 Dorsey & Whitney LLP

3 About Dorsey & Whitney Established in 1912, Dorsey has been serving clients for a century. The firm offers services in more than 60 different areas of legal practice. With over 550 lawyers in 19 offices in the U.S., Canada, Europe and the Asia-Pacific region, Dorsey is one of the 100 largest law firms in the United States. USA Anchorage Delaware Denver Des Moines Fargo Minneapolis Missoula New York Palo Alto Salt Lake City Seattle Southern California Washington, D.C. CANADA Toronto Vancouver EUROPE London ASIA-PACIFIC Hong Kong Shanghai Sydney Dorsey s Capital Markets Practice Dorsey works with clients to successfully complete capital markets transactions throughout the world. We have over 75 attorneys in our capital markets group, including attorneys in our offices in key financial centers such as London, New York, Hong Kong, and Toronto. Our capital markets group has represented clients in transactions completed in a wide variety of additional locations, including India, Scandinavia, Turkey, Australia and others. Companies turn to Dorsey for IPOs, follow-ons, PIPEs and other equity offerings. Seasoned issuers call on Dorsey for offerings of senior and high-yield debt, convertible securities and other complex capital transactions. Dorsey serves a wide range of clients on financings, including underwriting and advising teams of investment banks, venture capitalists, private equity sponsors, Fortune 500 seasoned issuers and emerging companies. Listing Guide This listing guide is also available on our website at

4 LISTING STANDARDS Euronext NASDAQ Global Select Market Global Market Capital Market HKSE LSE TMX Group Listing Standards: There are two listing standards for : the Alternative Listing Standards for foreign private issuers (non-u.s. companies) and the Domestic Standards for domestic companies. Non- U.S. companies can use either listing standard. Domestic Standards 1. Financial Requirements A company must meet one of the following tests: Earnings Test Pretax earnings of at least (a) $10 million in the aggregate for the last 3 fiscal years (or 2 fiscal years if the company has elected to avail itself of the JOBS Act provision allowing emerging growth companies ( EGCs ) to file only 2 years of audited financial statements) (and must have been positive in each such year) with a minimum of $2 million in each of the most recent 2 fiscal years; or (b) $12 million in the aggregate for the last 3 fiscal years (or 2 fiscal years if an EGC) with a minimum of $5 million in the most recent fiscal year and $2 million in the next most recent fiscal year. OR Valuation/Revenue Test either: (a) Valuation/ Revenue & Cash Flow - at least (i) $500 million in global market capitalization; (ii) $100 million in revenues during the most recent 12-month period; and (iii) $25 million aggregate cash flow for the last 3 fiscal years (or 2 fiscal years if an EGC) (and positive Listing Standards: There are four general listing standards for MKT as well as an exception for foreign issuers. Listing Standards: There are four alternative listing standards for the NASDAQ Global Select Market. Listing Standards: There are four alternative listing standards for the NASDAQ Global Market: Income Standard; Equity Listing Standards: There are three alternative listing standards for the NASDAQ Capital Market: Equity Standard; Market Standard 1 Standard 1 Standard; Market Value Value of Listed Securities Standard; and Total Assets/ Standard; and Net Income A company must have: A company must have: Total Revenue Standard. Standard. There are the Pretax income: at least Pre-tax earnings: Income Standard following 4 requirements $750,000 in pre-tax Aggregate income from common to all 3 listing income from continuing continuing operations A company must have: standards: operations in the latest before income taxes of annual income from at least 1,000,000 fiscal year, or in 2 of at least $11 million over continuing operations publicly held shares; the 3 most recent fiscal the prior 3 fiscal years, before income taxes of years positive income from at least $1 million in the at least 300 Market value of public continuing operations last complete fiscal year shareholders who own float: $3 million or more. before income taxes in (or 2 of the last 3 fiscal at least 100 shares each of the prior 3 fiscal years); each; Minimum share price: years, and at least $2.2 at least $3 per share. stockholders equity of at least 3 registered and million income from at least $15 million; active market makers; Shareholders equity: at continuing operations and least $4 million. before income taxes in at least 1.1 million each of the two most publicly held shares; in the case of ADRs, at Public shareholders/ least 400,000 issued. recent fiscal years. If public float 1 : There are publicly held shares with a company does not three ways in which market value of at least In addition to the above, the have 3 years of publicly an issuer can fulfill $8 million; issuer must satisfy one of reported financial data, the following standards: this requirement which per share bid price of it may qualify under applies to all four listing $4 or more; Equity Standard this standard if it has standards: reported aggregate at least 400 A company must have : (a) 800 shareholders income from continuing shareholders who own stockholders equity of and 500,000 shares operations before at least 100 shares at least $5 million; outstanding; income taxes of at least each; and listed securities with a (b) 400 shareholders and $11 million and positive at least 3 registered and market value of at least 1,000,0000 shares income from continuing active market makers $50 million; or at least outstanding; or operations before with respect to the 1 million publicly held income taxes in each of (c) 400 shareholders securities. shares with a market the reported fiscal years. and 500,000 shares Equity Standard value of at least $15 outstanding with a daily Bid price: at least $4 million; trading volume of 2,000 per share A company must have: an operating history of shares during the 6 Market makers: at stockholders equity of at least 2 years; months prior to listing. least three market at least $30 million; (a) a per share bid price Standard 2 makers if the company at least 1.1 million of $4 or more or (b) a also satisfies the publicly held shares; A company must have: minimum closing price requirements of Rule publicly held shares of $3 per share for at Market value of public 5405(b)(1) of the with market at least 3 least 5 consecutive float: $15 million or NASDAQ Listing Rules registered and active business days prior to more. (which is the Income market makers with approval, if the company Standard for listing for Minimum share price: respect to the securities; had net tangible assets the Global Market, see at least $3 per share. and (i.e., total assets less below) or Rule 5405(b) intangible assets and Operating history: at (2) of the NASDAQ at least a 2 year liabilities) in excess of least 2 years. Listing Rules (which is operating history. $2 million in its most Shareholders equity: at the Equity Standard for Market Value Standard recently filed audited least $4 million. listing for the Global Market, see below) or A company must have: financial statements, if Public shareholders/ the issuer has been in at least four market listed securities with public float: Same test continuous operation makers if it does not market value of at least as for Standard 1 above. for at least 3 years; or also satisfy either of $75 million; net tangible assets in those rules. excess of $5 million Listing Standards: There is only one listing standard for listing on the Main Board of the HKSE. 1. Financial Requirements A company must meet one of the following three tests: Profit Test Profits of HK$50 million in the last 3 years (HK$20m in the last complete year and an aggregate of HK$30 million in the 2 preceding years). OR Market Cap/ Revenue Test Market capitalization must be at least HK$4 billion at the time of listing, and the company must have had at least HK$500 million in revenue in the last audited fiscal year. OR Market Cap/ Revenue/ Cash Flow Test Market capitalization must be at least HK$2 billion at the time of listing; the company must have had at least HK$500 million in revenue in the last audited fiscal year; and the company must have had at least HK$100 million in aggregate positive cash flow from operations during the last 3 fiscal years. 2. Other Requirements At the time of the listing, a company must also have: substantially the same management as during the 3- year trading record period (See Operating History, below), and ownership continuity and control for at least the last audited fiscal year. market capitalization (calculated on the basis of all issued share Listing Standards: An issuer seeking admission to trading of its securities on the LSE s Main Market must also seek admission of its securities to listing on the Official List. There are two standards for admission to listing on the Official List: Premium Listing and Standard Listing, with a Premium Listing requiring stricter standards. In each case, this requires compliance with the LSE s Admission and Disclosure Standards, in addition to the Listing Rules, the Prospectus Rules and Part VI of the Financial Services and Markets Act 2000, among others. 1. Financial Requirements Companies seeking either standard of listing must have listed securities with a market value of at least 700,000 for shares and at least 200,000 for debt securities. 2. Other Requirements A company must also: have at least 25% of its issued share capital held by the public and warrants or options must not exceed 20% of the total issued share capital at the time they are issued; apply for listing of all securities of a class; ensure that its securities are freely transferable, eligible for electronic settlement and are admitted to trading on the LSE s Main Market; and ensure that its shares are fully paid, free from all liens and from any restriction on the right of transfer (subject to certain exceptions). In addition, for a Premium Listing only, a company Listing Standards: Listing Standards: An issuer seeking admission to trading of its securities on AIM must simply comply with the AIM Rules published by LSE. There is only one listing standard for AIM. There is no obligation to comply with the LSE s Admission and Disclosure Standards. 1. Financial Requirements No minimum market capitalization. A company must have sufficient working capital for its present requirements, that is for at least 12 months. An investing company (a company which has as a primary business the investing of its funds in securities, businesses or assets) must raise a minimum of 3 million in cash via an equity fund raising on, or immediately before, admission. 2. Other Requirements A Company must appoint and retain a nominated adviser (or NOMAD ) and a broker. A NOMAD has responsibility under the AIM Rules to confirm to the LSE prior to admission to trading that: the directors of the company have received advice and guidance as to the company s responsibilities and obligations under the AIM Rules; to the best of the NOMAD s knowledge and belief, having made due and careful enquiry, all relevant requirements of the AIM Rules have been complied with; in its opinion, the NOMAD is satisfied that the company and its securities are appropriate to be admitted to AIM; and There are two alternative listing standards for the Toronto Stock Exchange: Non-Exempt or Exempt. Non-Exempt Technology Issuers Companies must have funds to cover all planned development expenditures, capital expenditures, and G&A expenses for 1 year. The CFO must submit project of sources and uses of funds and actual financial results from the most recently completed fiscal quarter. Must have a minimum of C$10 million in the treasury, with majority raised by prospectus offering. Must have evidence that products or services at an advanced stage of development or commercialization and that management has the expertise and resources to develop the business. Must have 1,000,000 free trading public shares, C$10 million held by public shareholders, a minimum of $50 million market capitalization and 300 public shareholders each holding a board lot (a board lot being a trading unit which depends on the trading price of the security determined by the previous closing price. For example, where the trading price per unit is less than C$0.10, the board lot size is 1,000 units, where the trading price per unit is between C$0.10 and C$0.99, the board lot size is 500 units and where the trading price per unit is C$1.00 or more, the Listing Standards: There are two alternative listing standards for TSX Venture Exchange: Tier 1 and Tier 2. Tier 1 Technology or Industrial Companies Companies must have $5 million in net tangible assets or $5 million in revenue and significant interest in business or the primary assets used to carry on business. Must have a history of operations or validation of business. Must have adequate working capital and financial resources to carry out the company s stated work program or execute business plan for 18 months following listing and $200,000 in unallocated funds. Must have a public float of 1,000,000 shares, 250 Public Shareholders with a board lot and no resale restrictions on their shares and 20% of the company s issued and outstanding shares must be held by public shareholders. If no revenue, the company must have a 2 year management plan demonstrating reasonable likelihood of revenue within 24 months (Sponsor report if required) Tier 2 Technology or Industrial Companies Companies must have $750,000 in net tangible assets or $500,000 in revenue or $2 million arm s length financing. Must have significant interest in business or the primary asset used to carry on business and a history of operations or validation of business. Must have adequate 1 Public shareholders and public float do not include shareholders or shares held directly or indirectly by any officer, director, controlling shareholder or other holdings constituting 10% or more of the outstanding securities. 1

5 LISTING STANDARDS Euronext NASDAQ Global Select Market Global Market Capital Market HKSE LSE TMX Group cash flow in each such year); or (b) Pure Valuation/ Revenue - at least (i) $750 million in global market capitalization; and (ii) $75 million in revenues during the most recent fiscal year. OR Affiliated Company Test (for new entities with a parent or affiliated company listed on the ) (a) at least $500 million in global market capitalization; (b) at least a 12 month operating history; (c) a parent or affiliated company is a listed company in good standing; and (d) a parent or affiliated company retains control of the company or is under common control with the company. OR Assets and Equity Test (a) at least $150 million in global market capitalization; (b) at least $75 million in total assets together with at least $50 million in stockholders equity (Note: Acquisition companies (as defined in Section of Listed Company Manual) are not permitted to list under the Assets and Equity Test.). 2. Distribution & Size Requirements A company must meet each of the following 3 tests: 400 holders of 100 or more shares; 1.1 million publicly held shares; and market value of public shares in the amount of $40 million or more. Standard 3 A company must have: Market capitalization: The aggregate market value of publicly held securities must be $50 million or greater. Market value of public float: $15 million or more. Minimum share price: at least $2 per share. Shareholders equity: at least $4 million. Public shareholders/ public float: Same test as for Standard 1 above. Standard 4 A company must have: Market capitalization: The aggregate market value of publicly held securities must be $75 million or greater or the issuer must have at least $75 million in total assets and $75 million in revenues. Market value of public float: $20 million or more. Minimum share price: at least $3 per share. Public shareholders/ public float: Same test as for Standard 1 above. Public shareholders/ public float 1 : These requirements apply to all four listing standards: (a) 450 shareholders who own at least 100 shares each or 2,200 total shareholders; (b) 1.250,000 million publicly held shares; and (c) a market value of the publicly held shares of at least $45 million. Standard 2 A company must have: Cash flows: Aggregate cash flows of at least $27.5 million over the prior 3 fiscal years (or over the period of publicly reported financial data if that period is less than 3 years) and positive cash flows in each of the prior 3 fiscal years or each of the publicly reported fiscal years if less than 3 years; Market capitalization: Average market capitalization of at least $550 million over the prior 12 months; Revenue: Total revenue of at least $110 million in the previous fiscal year; Bid price: at least $4 per share; Market makers: The same as for Standard 1 above; and Public shareholders/ public float: The same test as for Standard 1 above. Standard 3 A company must have: Market capitalization: Average market capitalization of at least $850 million over the prior 12 months; at least 1.1 million publicly held shares; publicly held shares with market value of at least $20 million; per share bid price of $4 or more; at least 400 shareholders who own at least 100 shares each; and at least 4 registered and active market makers with respect to the securities. Total Assets/Total Revenue Standard A company must have: total assets and total revenue of at least $75 million each in the last complete fiscal year (or 2 of the last 3 fiscal years); at least 1.1 million publicly held shares; publicly held shares with market value of at least $20 million; per share bid price of $4 or more; at least 400 shareholders who own at least 100 shares each; and at least 4 registered and active market makers with respect to the securities active market makers with respect to the securities. in its most recently filed audited financial statements, if the issuer has been in continuous operation for less than 3 years; or average revenue of at least $6 million for the last 3 years. at least 3 registered and active market makers with respect to the securities. Market Value of Listed Securities Standard A company must have: stockholders equity of at least $4 million; at least 1 million publicly held shares with a market value of at least $15 million; listed securities with a market value of at least $50 million; (a) a per share bid price of $4 or more or (b) a minimum closing price of $2 per share for at least 5 consecutive business days prior to approval, if the company had net tangible assets (i.e., total assets less intangible assets and liabilities) in excess of $2 million in its most recently filed audited financial statements, if the issuer has been in continuous operation for at least 3 years; or net tangible assets in excess of $5 million in its most recently filed audited financial statements, if the issuer has been in continuous operation for less than 3 years; or average capital) of at least HK$200 million; in the case of options, warrants or similar rights for which listng is sought, market capitalization of at least HK$10 million; market capitalization of at least HK$50 million held by the public at the time of listing; minimum 25% of the company s total issued share capital held by the public at the time of listing (this can be lowered at HKSE s discretion to between 15% and 25% if market capitalization exceeds HK$10 billion); at least 300 shareholders at the time of listing; no more than 50% of publicly held securities beneficially owned by the 3 largest public shareholders; made full disclosure regarding any competing businesses of directors and controlling shareholders. This requirement is applicable on an ongoing basis following the listing and disclosure shall be made in the company s annual report; and sufficient management presence, i.e. at least 2 of its executive directors must be ordinarily resident in Hong Kong. Note: H-share issuer (PRC companies) will have additional requirements after listing must appoint a sponsor to advise on the application of the Listing Rules although (with the exception of implementing certain transactions or on other occasions prescribed by the Listing Rules) it does not need to retain a sponsor on a continuing basis after listing. In addition: A company may appoint more than one sponsor, but only one sponsor should lead on discussions with the FSA regarding the matter for which it has been appointed. A premium listed company must also have sufficient working capital for its present requirements, that is for at least 12 months from listing (however note that in resepect of a Standard Listing, if a prospectus is being issued then it must contain a working capital statement for the company, regardless of the standard of listing it is seeking). See also Operating History requirements below. it will comply with the AIM Rules in its role as nominated adviser to the company. board lot size is 100 units). Non-Exempt Research & Development Issuers Companies must have adequate funds to cover all planned R&D expenditures, capital expenditures and G&A expenses for 2 years. The CFO must submit project of sources and uses of funds and actual financial results from most recently completed fiscal quarter. Must also have a minimum of C$12 million in the treasury, with majority raised by prospectus offering, and a minimum of 2 year operating history that includes R&D activities. Evidence of technical expertise and resources to advance its research and development programs. Must have 1,000,000 free trading public shares, C$4 million held by public shareholders and 300 public shareholders each holding a board lot. Non-Exempt Forecasting Profitability Companies must have evidence of pre-tax earnings from ongoing operations for the current or next fiscal year of at least C$200,000, and evidence of pre-tax cash flow from on-going operations as provided by forecast statements accompanied by independent auditor s opinion for the current or next fiscal year of at least C$500,000. Must have C$7,500,000 in net tangible assets, and adequate working capital to carry on the business, and appropriate capital structure. Must have 1,000,000 free trading public shares, C$4 million held by public working capital and financial resources to carry out the company s stated work program or executive business plan for 12 months following listing and $100,000 in unallocated funds. Must have a public float of 500,000 shares, 200 public shareholders each holding a board lot and having no resale restrictions on their shares and 20% of the company s issued and outstanding shares must be held by public shareholders. If no revenue, the company must have a 2 year management plan demonstrating reasonable likelihood of revenue within 24 months (Sponsor report if required). All TSXV Companies Management, including board of directors, should have adequate experience and technical expertise relevant to the company s business and industry as well as adequate public company experience. Management must include, at a minimum: (a) a Chief Executive Officer (CEO); (b) a Chief Financial Officer (CFO). The CFO of every Issuer must be financially literate, as defined by NI ; and (c) a corporate secretary. A Person may act as a CEO and corporate secretary or CFO and corporate secretary of the same Issuer at the same time. However, no Person may act as CEO, CFO and corporate secretary of the same Issuer at the same time and, no person may act as a CEO and CFO of the 2

6 LISTING STANDARDS Euronext NASDAQ Global Select Market Global Market Capital Market 3. Stock Price Requirements All issuers must have a $4 stock price at the time of listing. Alternative Listing (Non-U.S. Companies) Standards 1. Financial Requirements A company must meet one of the following three tests: Earnings Test Pretax earnings of at least $100 million in the aggregate for the last 3 fiscal years (or 2 fiscal years if the company is an EGC), with a minimum of $25 million in each of the most recent 2 fiscal years. OR Valuation/Revenue Test either (a) Valuation/ Revenue & Cash Flow at least (i) $500 million in global market capitalization; (ii) $100 million in revenues during the most recent 12-month period; and (iii) $100 million aggregate cash flow for the last 3 fiscal years (or 2 fiscal years if the company is an EGC), with at least $25 million in each of the 2 most recent years; or (b) Pure Valuation/ Revenue - at least (i) $750 million in global market capitalization; and (ii) $75 million in revenues during the most recent fiscal year. OR Affiliated Company Test (a) at least $500 million in global market capitalization; (b) at least a 12 month operating history (although a company is not required to have been a separate corporate entity during such period); (c) a parent or affiliated company HKSE LSE TMX Group shareholders and 300 public shareholders each holding a board lot. At least 6 months operating history 3

7 LISTING STANDARDS Euronext NASDAQ Global Select Market Global Market Capital Market HKSE LSE TMX Group is a listed company in good standing; and (d) a parent or affiliated company retains control of the company or is under common control with the company. 2. Distribution and Size Requirements: A company must meet each of the following three tests: 5,000 worldwide holders of 100 or more shares; 2.5 million publicly held shares worldwide; and Market value of worldwide publicly-held shares of at least $100 million ($60 million for companies using the Affiliated Company Test). 3. Distribution and Size Requirements: A company must meet each of the following three tests: 5,000 worldwide holders of 100 or more shares; 2.5 million publicly held shares worldwide; and Market value of worldwide publicly-held shares of at least $100 million ($60 million for companies using the Affiliated Company Test). 4

8 OPERATING HISTORY Euronext NASDAQ Global Select Market Global Market Capital Market HKSE LSE TMX Group For details, see the Financial Requirements under the Domestic Standards and Alternative Listing Standards above. A company must have at least 2 years of operating history in order to qualify for listing under Standard 2. There are no minimum operating history requirements for the other Standards. There are no minimum operating history requirements in order to qualify to list on the Global Select Market. A company must have at least 2 years of operating history in order to be listed under the Equity Standard. A company must have at least a 2-year operating history in order to be listed under the Equity Standard. A company generally must have at least a 3-year trading record, subject to certain limited exceptions: HKSE may accept a shorter period under substantially the same management for a company qualifying under the market capitalization/ revenue test if (a) its directors and management have at least 3 years of sufficient and satisfactory experience in the line of business and industry of the company, and (b) it has operated under substantially the same management for the most recent audited financial year. HKSE may relax the 3-year requirement for mineral companies and newly formed project companies, including companies formed for major infrastructural work and may accept a 2-year trading record in exceptional circumstances if HKSE is satisfied that a listing is desirable in the interests of the company and investors and that the information is available to investors to arrive at an informed judgment concerning the company. A company seeking a Premium Listing must generally have: independent audited, unqualified, consolidated accounts which cover at least 3 years and which are not more than 6 months out of date (as at the date of the prospectus to be issued in connection with the listing) and which have been prepared in accordance with recognized national or international accounting standards; a historic revenue earning record which supports at least 75% of the company s business; control over the majority of its assets and have done so for at least the period covered by the required accounts; and an independent business as its main activity. Note: There are variations to these requirements for mineral and scientific research based companies and in respect of all companies at the discretion of the UK Financial Services Authority ( FSA ) in certain circumstances. There are also different requirements for investment entities seeking a Premium Listing. None of the above applies to a company seeking a Standard Listing (except with respect to the provision of historical financial information for up to 3 years where available in circumstances where a prospectus is required). An investment entity may seek a Premium Listing only. However, for such entities the LSE s Specialist Fund Market offers a listing option broadly equivalent to a Standard Listing. No trading record is required. However, where the company s business has not been independent and revenue earning for at least 2 years, subject to certain exceptions, (i) the directors of the company and anyone holding 10% or more of the voting rights of the company (or any of their associates) and (ii) any employee who (together with that employee s family) holds 0.5% or more of any class of the company s AIM-traded securities, or otherwise is likely to have access to unpublished price sensitive information, must agree not to dispose of any interest in securities of the company for a period of 1 year from the date of admission. Non-exempt research and development issuers must have a minimum of 2 years operating history which includes R & D activities. Non-exempt forecasting profitability issuers must have evidence of pre-tax earnings from on-going operations for the current or next fiscal year of at least C$200,000 and evidence of pre-tax cash flow from on-going operations as provided by forecast statements accompanied by independent auditor s opinion for the current or next fiscal year of at least C$500,000. Such issuers must have at least 6 months operating history. Tier 1 and Tier 2 companies must have a significant interest in a business or primary asset used to carry on a business and each must have a history of operations or validation of a business. 5

9 Euronext NASDAQ HKSE LSE TMX Group Independent Directors: Independent Directors: A majority of the board of directors of each listed company must be comprised of independent directors within 1 year of the listing date. No director qualifies as independent unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). The listed company must comply with the disclosure requirements set forth in Item 407(a) of Regulation S-K. In addition, a director is not independent if: The director is, or has been within the last 3 years, an employee of the listed company, or an immediate family member is, or has been within the last 3 years, an executive officer, of the listed company; provided, however, that employment as an interim Chairman or CEO or other executive officer shall not disqualify a director from being considered independent following that employment. The director has received, or has an immediate family member who has received, during any 12-month period within the last 3 years, more than $120,000 in direct compensation from the listed company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service). Compensation received by a director for former service as an interim Chairman or CEO or other executive officer need not be considered in determining independence under this test. Compensation A majority of the board of directors of each listed company must be comprised of independent directors within 1 year of the listing date. An Independent Director means a person other than an executive officer or employee of the company. No director qualifies as independent unless the issuer s board of directors affirmatively determines that the director does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The following is a non-exclusive list of persons who shall not be considered independent: a director who is, or during the past 3 years was, employed by the company, other than prior employment as an interim executive officer (provided the interim employment did not last longer than 1 year); a director who accepted or has an immediate family member who accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the 3 years preceding the determination of independence, other than the following: (i) compensation for board or board committee service, (ii) compensation paid to an immediate family member who is an employee (other than an executive officer) of the company, (iii) compensation received for former service as an interim executive officer (provided the interim employment did not last longer than 1 year), or (iv) benefits under a tax-qualified retirement plan, or non-discretionary compensation; Independent Directors: Independent Directors: A majority of the board of directors of each listed company must be comprised of independent directors. Independent Director means a person other than an executive officer or employee of the company or any other individual having a relationship which, in the opinion of the company s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The following persons shall not be considered independent: a director who is, or at any time during the past 3 years was, employed by the Company; a director who accepted or who has a Family Member who accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the 3 years preceding the determination of independence, other than the following: (i) compensation for board or board committee service; (ii) compensation paid to a Family Member who is an employee (other than an Executive Officer) of the Company; or (iii) benefits under a tax-qualified retirement plan, or nondiscretionary compensation. a director who is a Family Member of an individual who is, or at any time during the past 3 years was, employed by the company as an Executive Officer; a director who is, or has a Family Member who is, a partner in, or a controlling Shareholder or an Executive Officer of, any organization to which the Company made, or from which the Company received, payments for property or services in the current or any Each listed company must have three independent non-executive directors. At least one of the independent non-executive directors must have appropriate professional qualifications or accounting or related financial management expertise. Independent non-executive directors of a listed company must constitute one-third of the listed company s board. Independent Directors 2 : Independent Directors 3 : The UK Corporate Governance See comments for Main Market. The only difference is that Code recommends that, except for smaller companies, at least half the the UK Corporate Governance members of the board, excluding Code recommends that a smaller the chairman, should be independent non-executive directors. the FTSE350) should have at least company (being a company below One of the independent non-executive directors should be appointed two independent non-executive directors. senior independent director. Indicators that a non-executive director is not independent include if the director: has been an employee of the company within the last 5 years; has had a material business relationship with the company within the last 3 years; receives additional remuneration from the company other than a director s fee; has close family ties with company advisers, directors or senior employees; participates in the company s share option scheme or a performance based share option scheme, or is a member of the company s pension scheme; represents a significant shareholder; holds cross-directorships; and has served on the board for more than 9 years. The annual report and accounts of the company should identify the non-executive directors whom the board determines to be independent, with reasons where necessary (for example, where any of the criteria set out above are not, or appear not to be, met). Independent Directors: Independent Directors: Listed companies are required to have at least two independent directors, however, due to the audit committee requirements set out below, TSX essentially requires three independent directors. The chairman of the board (or the lead director ) must be independent. Generally, persons not considered independent directors include: (i) a person who currently is, or has within the past 3 years been, an officer, employee of or service provider to the company or any of it subsidiaries; or (ii) a person who is an officer, employee or controlling shareholder of a company that has a material business relationship with the issuer. Note that audit committees must have three independent directors. The independence standards for audit committee members are determined by National Instrument and are generally more restrictive than just being nonmanagement. Therefore, TSX essentially requires three independent directors to sit on the board. National Policy provides that that issuers should maintain a majority independent board. However, failure to maintain an independent board only results in a disclosure obligation under National Instrument of this fact plus a statement of the procedures that the board undertakes to maintain its independence. Listed companies are required to have at least two independent directors. The chairman of the board (or the lead director ) must be independent. Note, further that pursuant to National Policy that issuers should maintain a majority independent board. Failure to maintain an independent board only results in a disclosure obligation under National Instrument of this fact plus a statement of the procedures that the board undertakes to maintain its independence. 2 In the UK the principal recommendations for the corporate governance of companies whose securities are admitted to listing on the Official List as a Premium Listing are contained in the UK Corporate Governance Code. As a matter of law, a listed company is not required to comply with the UK Corporate Governance Code. However, the Listing Rules require that a listed company with a Premium Listing discloses in its annual report and accounts details of its compliance with the UK Corporate Governance Code or identifies and explains the reasons for non-compliance. This is known as the comply or explain approach. A company with a Standard Listing must make similar disclosures in its directors report as to its applicable corporate governance regime and compliance. In practice, all companies should aspire to comply with the UK Corporate Governance Code wherever practicable to do so. 3 There is no requirement for companies whose securities are admitted to trading on AIM to comply with the provisions of the UK Corporate Governance Code. However, it is generally accepted best practice to adhere to the UK Corporate Governance Code. The Quoted Companies Alliance ( QCA ) (which represents the interests of AIM traded companies and institutional shareholders) has devised a set of guidelines for the corporate governance of AIM companies. These guidelines, derived from a number of key elements or principles of the UK Corporate Governance Code, should be seen as the minimum standard of corporate governance for AIM traded companies. Larger AIM companies should aspire to comply with the UK Corporate Governance Code in full wherever practicable to do so. 6

10 Euronext NASDAQ HKSE LSE TMX Group received by an immediate family member for service as an employee of the listed company (other than an executive officer) need not be considered in determining independence under this test. (A) The director is a current partner or employee of a firm that is the listed company s internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and personally works on the listed company s audit; or (D) the director or an immediate family member was within the last 3 years a partner or employee of such a firm and personally worked on the listed company s audit within that time. The director or an immediate family member is, or has been with the last 3 years, employed as an executive officer of another company where any of the listed company s present executive officers at the same time serves or served on that company s compensation committee. The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the listed company for property or services in an amount which, in any of the last 3 fiscal years, exceeds the greater of $1 million, or 2% of such other company s consolidated gross revenues. Notes: An immediate family member includes a person s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person s home. When applying the look-back provisions, listed companies need not consider individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or become incapacitated. In addition, a director who is an immediate family member of an individual who is, or at any time during the past 3 years was, employed by the company as an executive officer; a director who is, or has an immediate family member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which the company made, or from which the company received, payments (other than those arising solely from investments in the company s securities or payments under non-discretionary charitable contribution matching programs) that exceed 5% of the organization s consolidated gross revenues for that year, or $200,000, whichever is more, in any of the most recent 3 fiscal years; a director who is, or has an immediate family member who is, employed as an executive officer of another entity where at any time during the most recent 3 fiscal years any of the issuer s executive officers served on the compensation committee of such other entity; or a director who is, or has an immediate family member who is, a current partner of the company s outside auditor, or was a partner or employee of the company s outside auditor who worked on the company s audit at any time during any of the past 3 years. Notes: Immediate family member includes a person s spouse, parents, children, siblings, motherin-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughterin-law, and anyone who resides in such person s home (other than domestic employees). Company includes any parent or subsidiary of the issuer listed on the. Parent or subsidiary includes entities that are consolidated with the issuer s financial statements as filed with the SEC (but not if the issuer reflects such entity solely as an investment in its financial statements). of the past 3 fiscal years that exceed 5% of the recipient s consolidated gross revenues for that year, or $200,000, whichever is more, other than the following: (i) payments arising solely from investments in the Company s securities; or (ii) payments under nondiscretionary charitable contribution matching programs. a director of the Company who is, or has a Family Member who is, employed as an Executive Officer of another entity where at any time during the past 3 years any of the Executive Officers of the Company served on the compensation committee of such other entity; or a director who is, or has a Family Member who is, a current partner of the Company s outside auditor, or was a partner or employee of the Company s outside auditor who worked on the Company s audit at any time during any of the past 3 years. Notes: Family Member means a person s spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person s home. Company includes any parent or subsidiary of the company. The term parent or subsidiary is intended to cover entities the company controls and consolidates with the company s financial statements as filed with the SEC (but not if the issuer reflects such entity solely as an investment in its financial statements). 7

11 Euronext NASDAQ HKSE LSE TMX Group references to the listed company or company include any parent or subsidiary in a consolidated group with the listed company or such other company as is relevant to any determination under the independent standards. Audit Committee: Audit Committee: Each listed company must have a qualified audit committee of at least three directors. Each member shall be financially literate. At least one member must have accounting or related financial management expertise. If listing in connection with an IPO, the audit committee must have at least one independent director from the date of listing, be composed of a majority of independent directors within 90 days of the date of listing and be composed of independent directors only within 1 year of the date of listing. A listed company must make its audit committee charter available on or through its website. Each listed company must have a qualified audit committee of at least three directors. Each member shall be financially literate. At least one member must have professional experience or a background in finance or accounting. In addition to being independent under the standards described under the heading Independent Directors above, members of the audit committee will not be considered to be independent if they have participated in the preparation of the financial statements of the issuer or any current subsidiary of the issuer at any time during the past 3 years. If listing in connection with an IPO, the audit committee must have at least one independent director from the date of listing, be composed of a majority of independent directors within 90 days of the date of listing and be composed of independent directors only within 1 year of the date of listing. A listed company must make its audit committee charter available on or through its website. Audit Committee: Audit Committee: Each listed company must have an audit committee of at least three members, each of whom must (except as noted in the paragraph below): (a) be independent as defined under the standards described under the heading Independent Directors above, (b) meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act (subject to the exemptions provided in Rule 10A-3(c) under the Exchange Act); (c) not have participated in the preparation of the financial statements of the company or any current subsidiary of the company at any time during the past 3 years; and (d) be able to read and understand fundamental financial statements. Additionally, at least one member of the audit committee must have had past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual s financial sophistication. If listing in connection with an IPO, the audit committee must have at least one independent director from the date of listing, be composed of a majority of independent directors within 90 days of the date of listing and be composed of independent directors only within 1 year of the date of listing. Each listed company must have an audit committee of at least three non-executive directors, a majority of whom must be independent, including the chair. At least one member must be an independent non-executive director with appropriate professional qualifications or accounting or related financial management expertise. Audit Committee: Audit Committee: The UK Corporate Governance Code states that the board should establish an audit committee consisting of at least 3 members (and in the case of smaller companies, at least 2) who should all be independent non-executive directors. The UK Corporate Governance Code states that at least one member of the audit committee should have recent and relevant financial experience. See comment for Main Market. For smaller companies, the committee may comprise two members and the company chairman may be a member of, but not chair, the committee. Audit Committee: Audit Committee: Each listed company must have an Each listed company must have audit committee that consists of at an audit committee that consists least three members, all of which of at least three members, where are independent directors of the the majority of which must not issuers, and are all financially literate. The audit committee must also officers of the issuer or any of its be employees, control persons or have a charter. Associates/Affiliates, and must disclose whether they are independent. The committee must also disclose whether the members are financially literate. The audit committee must also have a charter. 8