THE FLOAT GUIDE. How to float a Company on Spanish Stock Exchange. Spain Roger Freixes Spain

Transcription

1 THE FLOAT GUIDE How to float a Company on Spanish Stock Exchange Contact: Pere Kirchner Spain p.kirchner@cuatrecasas.com Roger Freixes Spain roger.freixes@cuatrecasas.com

2 Index 1. Executive summary IPO Team The Listing process Key milestone in the IPO process Corporate Governance requirements and continuing obligations for listed companies...20

3 Introduction This guide is an overview of the main issues a company should consider when contemplating a listing and initial public offering in Spain, including both a Spanish offering (targeted to retail and institutional investors) and an international offering (the IPO). For the purpose of this guide, we assume that the shares of the international tranche will not be registered under the US Securities Act, and will be offered or sold within the US only to qualified institutional buyers in reliance on Rule 144A of the US Securities Act, and outside the US in reliance on Regulation S of the US Securities Act. It is a practical guide which explains the listing requirements and listing application for a company seeking admission to the Spanish official stock exchanges and the importance of assembling a trustworthy IPO team. It also contains a brief explanation of the most important corporate governance requirements and continuing obligations a company has to face after listing. The guide is limited to matters under Spanish law and does not describe the legal implications an international offering may have under the laws of other jurisdictions, especially under US securities regulations Page. 1

4 1. Executive summary 1.1 Brief overview of the Spanish securities market Bolsas y Mercados Españoles, S.A. ( BME ) is a listed company that operates all stock exchanges and financial systems in Spain. The Spanish official securities market for equity securities consists of four stock exchanges located in Barcelona, Bilbao, Madrid and Valencia (the Spanish Stock Exchanges ) and the Automated Quotation System (Mercado Continuo). Each of the stock exchanges is supervised and managed by a stock market authority. The Automated Quotation System links the Spanish Stock Exchanges through a computerised matching of buy and sell orders at the time of their entry. This electronic trading system is managed and operated by the Stock Exchange Company (Sociedad de Bolsas), of which each of the four Spanish Stock Exchanges own 25 per cent. Transactions carried out on the Automated Quotation System are cleared and settled through the Spanish clearing and settlement company commercially known as Iberclear, which is also managed by the BME. Although it is not the subject matter of this guide, it is important to mention the existence of the alternative stock exchange (MAB), which is run by the BME for companies that require special treatment including open-ended investment funds (SICAVs) and SME. The MAB s SME segment is a market designed to facilitate access of small cap companies to the stock market so that they can benefit from financing and liquidity, with a special set of regulations, costs and processes tailored to their particular characteristics. The Spanish Securities and Exchange Commission ( CNMV ) is the regulatory agency in charge of ensuring the transparency and proper functioning of the Spanish securities market Page. 2

5 1.2 Why do companies launch a public offering prior to listing? Companies usually launch a public offering before listing on the Spanish Stock Exchanges to ensure that their share capital is adequately distributed by the time of listing. As we will explain in this guide, distribution is deemed to be adequate for listing if at least 25 per cent of the issuer s outstanding equity securities of the given class are held by the public (free float). 1.3 What is considered a public offering? The definition of what is considered a public offer in Spain is very broad. It embraces any communication (independently of its form and the means by which it is disclosed) which provides sufficient information on the terms of the offer (ie, price or criteria to determine price) and the securities to be offered to enable an investor to decide to purchase or subscribe for those securities. Given the characteristics of potential investors and/or the structure of the offering, certain types of offers are deemed not to be public offers, and are exempt from the requirement to obtain approval from the CNMV and to file and publish a prospectus. The following offers are considered private placements: offers addressed solely to (i) qualified investors, (ii) less than 150 investors per EU Member State, or (iii) investors who are to acquire securities for a minimum amount of 100,000 per investor in each separate offer; and offers where the unit par value of the securities amounts to of at least 100,000 or where the total amount is under 5,000,000 (this limit to be calculated over a period of 12 months). Other offers are not subject to registration based on the special characteristics of the securities offered. Exempted offerings include, for example, offers of shares allotted to employees by the employer or by a group company; offers of shares issued as a result of a split or as consideration in connection with a takeover or a merger; or offers of shares delivered as a dividend in kind Page. 3

6 1.4 Types of public offering Public offerings can be of two types: offers for sale and offers for subscription. In an offer for sale, one or several shareholders offer their shares for sale or the company offers its treasury shares. The company s share capital does not change, only its ownership changes hands. In an offer for subscription, the company offers newly issued shares deriving from a capital increase. The aim of offers for subscription is generally to raise funds for business projects. These two types of public offerings may be combined. Thus, a company can undertake a capital increase while its existing shareholder(s) proceed to sell all or part of their shares to the public. The IPO may include an offering to: (i) sophisticated investors (institutional offering); (ii) members of the public (retail offering); and/or (iii) company s employees and/or employees of other companies in the issuer s group (employees offering). Extending an offer to employees provides a way of rewarding employees by allowing them to participate in the offering and encourages employees to contribute to the company s on-going performance. An employee offering may also have the benefit of increasing demand for shares Page. 4

7 1.5 The listing process There is a two-stage procedure for the listing of securities on the Spanish Stock Exchanges following an IPO: First, the public offering needs to be approved by the CNMV. Among others issues the CNMV has to register the main IPO document, the issue/offering prospectus (the prospectus ), a selling document that must include all the information required by the legal regulations. The company and its adviser will also prepare a selling document targeted to prospective investors of the international offering: the international offering memorandum (IOM). This document does not have to be registered but it is important to highlight that there must be no material difference between its content and the content of the prospectus 1. Second, there is an admission to trading process with the CNMV and the stock market authorities. The usual timeframe of this listing process tends to be three to four months from kick off to actual listing, but this may vary depending on the circumstances. At the end of this guide, we include an approximate timetable for a stock market listing including an IPO Page. 5

8 2. IPO Team Any company embarking on an IPO should appoint its team of advisers at an early stage. It is important to define the role of each team member at the time of signing the engagement letters with the different advisers. 2.1 Accountants The main function of accountants is to prepare and verify the company s financial statements that need to be filed in an IPO and to review the financial information included in the prospectus and the IOM. In particular, accountants have to confirm the statement made by the company in the Prospectus that its working capital is sufficient for its present requirements. On many occasions, the CNMV requires that the prospectus includes pro forma financial statements or the investment banks decide to include such pro forma statements in the IOM for marketing purposes. In this case, accountants have to prepare such financial statements on the basis of an assumed event or transaction to enable investors to determine the impact that it would have had on the company s historical financial statements. In addition, and as part of the due diligence carried out by the investment banks, the accountants will be required to provide various comfort letters to the lead manager(s) and/or the underwriters. 2.2 Lawyers The role of lawyers is to advise the company on the legal aspects of preparing its listing, including: carrying out the legal aspects of a due diligence mainly aimed at gathering all the information that needs to be included in the prospectus, identifying changes that need to be made to get the company ready for listing and preparing the information that has to be reviewed by other team members; advising on the re-organisation of the company to make it a suitable vehicle for listing; drafting the IPO documents and agreements; and Page. 6

9 acting as liaison between the company and the CNMV, Iberclear and the stock market authorities. 2.3 Investment banks Depending on the terms of their engagement, investment banks involved in the IPO will assume the following roles: Syndicate members Syndicate members will market the IPO to investors and, if they agree to subscribe for or purchase any shares not taken up by investors, they will act as underwriters. Roles 2 within the syndicate include: Global-coordinator(s) the overall lead manager(s) and book-runner(s) who control allocations in each and every tranche and is/are responsible (together with the lawyers) for due diligence, road-show organisation and other relevant tasks. Lead manager(s) the investment bank(s) that head(s) each of the IPO tranches The Agent bank The agent bank is the bank in charge of settlement of the IPO in coordination with Iberclear. It also usually pays the commissions to syndicate members in the name of the company Stablishing agent The stabilising agent is the investment bank that, in accordance with accepted market practice, supports the price of the company s shares for a limited period after the float to prevent or slow down a decline in the price of these securities (market stabilisation) Page. 7

10 2.4 Other team members Other team members include public relations consultants (that help generate interest in the IPO and monitor the content of permitted public releases) and research analysts (that, as part of the pre-marketing of the IPO, publish research reports on the company) Page. 8

11 3. The Listing process In this section we only provide a general overview of the listing process. Steps a company needs to follow when preparing a public offering and listing and the main IPO and listing documents are explained in detail in section V ( Key milestones in the IPO process ). 3.1 IPO Registration The process starts with the reorganisation of the company to make it suitable for listing and preparation of the main IPO document: the prospectus (see section 4.3). In connection with the international offering, together with the prospectus, the company and its advisers will start preparing a preliminary IOM targeted to potential investors of the international offering. The company has to submit draft forms of the prospectus to the CNMV, which verifies that all the necessary information for investors is included in the document. Also, the company and its accountants have to prepare the financial statements that need to be filed together with the prospectus. Financial statements are key information for investors. Pre-marketing of the IPO will take place during the first stage of the process to familiarise investors with the equity story, generate investor interest and identify concerns to be addressed by management on the road show. The preliminary demand assessment from the pre-marketing exercise (in industry jargon, pilot fishing ) may be used to determine the IPO size and investors' views on valuation will be taken into account to determine the initial price range. Before the CNMV registers the prospectus, the company, the selling shareholders (if any) and the syndicate members enter into a placing and underwriting protocol, under which syndicate members undertake to market the shares and to subscribe or acquire those shares not taken by investors. These protocols include the terms and conditions under which the shares will be placed and, if necessary, underwritten once the underwriting price is determined. It is important to highlight that syndicate members that sign these protocols do not commit to enter into a placing and underwriting agreement and therefore have a right to decide whether they will finally act as underwriters or withdraw once the underwriting price is determined Page. 9

12 Market practice imposes a blackout period ahead of registration of the prospectus (approximately between ten and 15 days before registration is expected to take place). During this period, which ends 40 days after listing, research reports should not be published and previously published reports should no longer be distributed. The purpose of this blackout period is to impose a chronological gap between publication of research and publication of the prospectus and the preliminary IOM to make it easier to deny a link between the research and any investment decision. 3.2 Public offering period Filing the prospectus with the CNMV initiates the second stage of the IPO, where the shares are marketed and admitted to trading. The company and its team will continue marketing the IPO through presentations given by the company s senior management to selected audiences of institutional investors (road show) or in one-on-one meetings with key investors. These meetings are a useful marketing tool and are a way to gauge investor interest in the IPO. Initially investors are only provided with an indicative price range within which the IPO price will be set. On the basis of this information: Retail investors will start submitting their initial orders. Until the retail price is not fixed (ie, the withdrawal period), these orders are not binding. Investors will have the right to indicate that they no longer wish to participate in the IPO. Once the maximum retail price is determined, retail investors will be entitled to place binding orders and confirm or revoke non-binding orders placed during the withdrawal period. Institutional investors will indicate their level of demand at a given price, leading to the creation of a book of orders graded by price and quality. At the end of this book-building period, the IPO price will be determined by reference to demand and the terms and conditions provided in the placing and underwriting protocols. After the maximum retail price is determined, the company, the selling shareholders (if any) and the syndicate members that finally decide to act as underwriters will enter into a placing and underwriting agreement, under which Page. 10

13 they agree to market the shares and to subscribe or acquire the shares not taken by investors at the underwriting price. At the end of the public offering period, the company, the selling shareholders (if any) and the lead manager determine the IPO price and allocate the shares among investors. 3.3 Admission to trading Once IPO shares have been acquired or subscribed, the company has to initiate the listing application process with the CNMV and the stock market authorities. Admission to listing on the Spanish Stock Exchanges requires that the CNMV verifies, within the term for approval of the prospectus, that the company and the securities comply with the relevant suitability rules under Spanish Law and that the required information is fully disclosed. The CNMV will verify that the company is duly incorporated, operates in conformity with its deed of incorporation and by-laws and offers equal treatment to all stockholders and holders of debt which are under the same conditions. In connection with the shares concerned in the application for admission to listing, the CNMV will confirm that they: comply with the legal regime applicable to them, are freely transferable and represented by book entries; have been fully subscribed during the IPO; represent a minimum total aggregate amount of 6m (calculated at the expected market value, taking into consideration the price satisfied by investors in the prior public offering); are sufficiently distributed (ie, at least 25 per cent of the shares concerned in the application for admission to listing are in the hands of the public, except if the market can orderly operate with a lower percentage taking into consideration the large amount of shares and its distribution among the public); and Page. 11

14 include all of the shares of the same class or all of the securities of the same issue in the case of debt securities. The company has to file the following information with the CNMV: (i) documents substantiating that both the shares and the company comply with the legal regime applicable to them; (ii) individual and consolidated annual accounts for, at least, the past three financial years 3 ; and (iii) the prospectus. The CNMV usually requires that the prospectus includes quarterly financial statements (if the IPO takes place after the first or third quarter of the year) or half-yearly financial statements (if it takes place after the first half of the year). Since the company provides most of this information during the registration process of the IPO (see section 3.1), in practice, at this stage it confirms that the information provided and the statements made in the past continue to be applicable. The stock market authorities approve the listing in accordance with the rules set out in the Stock Market Regulations and admission and disclosure standards. 3.4 Stabilisation period Once the shares are admitted to trading there is normally a stabilisation period that starts on the first trading day and ends up to 30 calendar days later. During this period the stabilising agent, following accepted market practices, supports the price of the company s shares to prevent or slow down a strong decline in the price of these securities. It is important to highlight that the Regulation (EU) no 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse, provides a price stabilisation safe harbour in relation to market abuse practices Page. 12

15 4. Key milestone in the IPO process In this section we describe the steps a company has to follow when preparing a public offering and listing as well as the most relevant documents that need to be prepared by the company and its advisers. Please note that at the end of this guide we include an approximate timetable for a stock market listing including an IPO. 4.1 Preparing an IPO After appointing the IPO team, the company will carry out an internal due diligence to identify the changes that will be required to be made to the company s corporate structure to make it a suitable vehicle for listing. The process starts with a kick off meeting between senior management and external advisers to discuss what the key milestones for the IPO are, and the detailed timetable and to inform the company s senior managers of their role throughout the listing process. The company and its advisers will start deciding on the IPO size and structure, and will meet with the CNMV to provide an overview of the company and the IPO. This first institutional meeting will be followed by technical meetings in which the company and its advisers will discuss different drafts of the prospectus with the CNMV. The company s lawyers will draft a set of guidelines to advise on how information on the company must be treated during the IPO process in accordance with US and Spanish securities law (the so-called publicity guidelines ). It is common practice for the company s senior management of the company to meet with analysts employed by syndicate members and other analysts before the IPO and for such analysts to publish pre-deal research on the company. Lawyers of the syndicate will draft a set of guidelines that analysts should follow when drafting and disclosing their research reports. These guidelines will insist on the importance of the blackout period during which research reports should not be published and previously published reports should no longer be distributed Page. 13

16 The IPO team will start preparing the prospectus, the IOM and other ancillary documents such as the financial statements and the comfort letters. In addition, the company will start working on the web page all listed companies must put in place. 4.2 Getting the company ready The company should implement the necessary changes to be ready for being a public company. It must ensure that it fulfils all listing requirements (see section 3.3) and the obligations and recommendations for listed companies relating to corporate governance, transparency and market abuse (see section 5). The company s general shareholders meeting or its board of directors, as the case may be, have to pass the necessary corporate resolutions to: convert the shares into book entries and generally approve a stock split; approve an offer for sale and/or for subscription of shares; eliminate any restrictions on transferability of shares; approve a share capital increase 5 (in case of an offer for subscription); implement corporate governance requirements or recommendations (see section 5); approve its internal code of conduct in the securities markets; require admission to trading; and grant a securities loan and a greenshoe option for the purpose of stabilisation (see section 3.4) Page. 14

17 4.3 The prospectus The prospectus is the main IPO (and listing) document 6. It is a selling document (the contents of which are prescribed by law that must be approved by the CNMV before publication. It contains the following documents, which may be presented separately or together as a single document: the registration document which provides information on the issuer; the securities note, which contains the information concerning the securities listed offered to the public; and the summary note, which briefly and in non-technical language conveys the essential characteristics of and risks associated with the company, possible guarantors and the securities. If there happens to be any fact or inaccuracy in the prospectus that could significantly influence the price of the securities or is capable of affecting the assessment of the securities, the company will have to submit a supplement to that prospectus. The company and its advisers will also prepare an IOM to enable prospective institutional investors to consider purchasing the shares of the international tranche. It is market practice to publish a preliminary IOM to be used for the bookbuilding exercise and a final IOM once the IPO is finally priced. It is important to highlight that there must be no material difference between the information contained in the prospectus and the IOM. 4.4 Other IPO documents Other IPO documents include: financial statements the company s individual and consolidated annual accounts for, at least, the past three financial years and, when applicable, the quarterly or half-yearly financial statements have to be attached to the prospectus. As we already mentioned, on many occasions pro forma financial statements are included in the prospectus following a CNMV requirement or for marketing purposes; Page. 15

18 comfort letters the company s accountants will deliver these letters to the lead manager(s) and/or the underwriters as part of the due diligence process to confirm, among other things, that the financial information contained in the prospectus and the IOM is in accordance with the company s financial statements. Comfort letters are typically updated in the form of a bring-down letter at the time the IPO funds are transferred to the company; placing and underwriting protocols and agreements before the CNMV registers the prospectus, the company, the selling shareholders (if any) and the syndicate members enter into a placing and underwriting protocol under which they disclose their intention of marketing the shares and subscribing or acquiring those shares not taken by investors. Once the maximum retail price is fixed, the company, the selling shareholders (if any) and the syndicate members that finally decide to act as underwriters will enter into a placing and underwriting agreement under which they agree to market and underwrite the issue; international purchase agreement in an international offering, underwriting is usually structured through a purchase agreement, under which the banks purchase the shares and then sell them to institutional investors; intersyndicate agreement syndicate members enter into an agreement to govern, among other issues, allocation of fees and expenses, delegation of authority to the lead manager and settlement obligations; agency agreement the agreement entered into between the company and the agent bank which sets out the bank s responsibilities and fees; securities loan agreement and greenshoe option the company or the selling shareholders (if any) grant a securities loan to the stabilisation agent for the limited purpose of stabilising the market in the immediate post-offer period (see section 3.4). The company or the selling shareholders (as the case may be) also grant the stabilising agent a call option (the greenshoe option) to protect him from the financial consequences of over-allocation if the shares market price rises above the IPO price; and lock-up agreements In case of an offer for sale, investors in the newly listed company will expect to see existing shareholders holding on to their shares for a reasonable time after the listing. For this reason, the core Page. 16

19 shareholders and the banks enter into an agreement whereby the former agree not to transfer their shares for a period of normally 180 days. 4.5 Approval of the IPO Before the CNMV registers the prospectus, the company, the selling shareholders (if any) and the syndicate members will sign the placing and underwriting protocols and the agency agreement. Once the CNMV verifies that all the necessary information for investors has been included in the document, it will register the prospectus. The company will then publish and distribute the preliminary IOM and its accountants will deliver the comfort letters referred to in the prospectus and the preliminary IOM to the banks. 4.6 Actions after registration with the CNMV Filing of the prospectus with the CNMV initiates the second stage of the IPO, where the shares are marketed and admitted to trading. The company and its advisers will start the IPO road show and will meet with institutional investors on one-onone meetings. Retail investors will start placing non-binding offers, whereas institutional investors will start indicating the number of shares they are willing to buy at a certain price range. On the basis of the information received from investors, the company and its advisers will determine the maximum retail price and enter into the placing and underwriting agreements. Upon determination of the maximum retail price, retail investors will be entitled to place new binding orders and withdraw their initial orders. Once the retail IPO price is determined and notwithstanding the possibility of reallocating shares between the different IPO tranches, if the size of the demand exceeds the supply available for the retail tranche, the agent bank will apply a prorated allotment procedure. It will allot the shares among retail investors giving preference, for example, to those who have placed non-binding orders during the withdrawal period Page. 17

20 When the book-building period ends, the company and its financial advisers will determine the price for the institutional tranche and the international tranche and select the orders placed by investors. The company and the corresponding syndicate members will enter into the international purchase agreement and the final IOM will be published. Shares will be allocated among investors on the closing date (fecha de operación bursátil), admitted to trading on the following date and settled two days after the closing date. The company has to provide the CNMV with statistical information on the distribution of the IPO to prove that requirements for listing have been met after the offering. Significant shareholders will have to disclose their significant stakes in the company and directors will also have to disclose their stakes (regardless it is deemed to be a significant stake or not). In the immediate post-offer period, the stabilisation agent will support the price of the company s shares to prevent or slow down a strong decline in the price of these securities. Once the stabilisation period ends, the company has to inform the CNMV of the stabilisation activities and, if applicable, of the exercise of the greenshoe option. 4.7 Employee share schemes Many listed companies offer share incentive plans to retain and motivate their employees and executive directors and to align their interest with those of shareholders. Incentive plans consist on remuneration packages linked to the increase of the company s value and include: extraordinary bonus schemes a one-time extraordinary cash bonus linked to the success of the IPO usually granted to directors or intermediate commands whose implication in the process is needed; delivery of shares employees receive shares of the company, for free or with an important discount. This remuneration is used as a retention compromise since employees usually have the obligation to remain in the Page. 18

21 company for a pre-fixed period in order not to lose the shares neither the tax advantages linked to their granting; stock option plans the company grants its employees an option to acquire a package of its shares at a predetermined price; and phantom or appreciation-based plans structure whereby the employees will receive a cash bonus calculated by reference to a notional share option or to the increase in value of the share. The bonus paid will equal the gain that could have realised at the time the bonus is paid on the exercise of an option to acquire a certain number of shares at a certain exercise price (usually defined by the market value of the shares at the time the phantom option was granted) Page. 19

22 5. Corporate Governance requirements and continuing obligations for listed companies In this section we deal briefly with the most important obligations and recommendations for listed companies relating to corporate governance, transparency and market abuse, to provide an overview of the actions the company must take before going public to comply with regulations applicable to listed companies. 5.1 Corporate governance There are two types of provisions for corporate governance: regulations and mere recommendations for good governance (ie, soft law). In Spain, recommendations for good governance are set out in the Good Governance Code for Listed Companies, approved on February 2015 (the Good Governance Code ). The Good Governance Code is based on the principle of voluntary compliance, subject to the rule of comply or explain, where a listed company can choose whether to apply a given recommendation, but is obliged to inform the market and explain the reasons for its decision General meeting Mandatory provisions Regulations governing general meetings. The company must approve a specific set of regulations to deal with matters affecting the general meeting (eg, how to call a meeting, attendance, representation and voting), in keeping with the provisions of law and the company s by-laws. The company must report these regulations to the CNMV and file them on the Commercial Registry. These regulations must be posted on the company s web page. Shareholders agreements. The execution, extension or amendment of any agreement that affects the exercise of voting rights at general meetings, or restricts or conditions the transfer of shares or convertible or exchangeable bonds issued by the company, must be immediately notified to the company and to the CNMV by any party to the agreement. This notice must be accompanied by a copy Page. 20

23 of the relevant clauses of the agreement on the aforesaid subjects. Signatories must submit a copy of the agreement to the Commercial Registry and it must also be disclosed as a relevant fact. Clauses in the agreement that affect the exercise of voting rights or restrict or condition the transfer of shares will not be effective until the agreement is notified, submitted and disclosed in the terms described above. Limitative clauses referring to the right to vote. By-laws provisions that, directly or indirectly, determine the maximum number of votes that can be cast by a shareholder, by companies of the same group or those acting in concert with the former, will have no effect when after a takeover bid, the offeror reaches at least a 70% of the voting rights, except if such offeror is not be subject to similar neutralization measures or have not approved them. Strengthening the role of shareholders. To strengthen the role of shareholders, a significant number of recommendations from the 2006 Unified Code have since been written into legislation, so they do not constitute mere recommendations but mandatory provisions: the general meeting approves the so-called acts of extraordinary administration 7 ; proposals of resolutions are published in detail prior to the meeting to facilitate the shareholders decision; independent business issues are voted separately to allow shareholders to exercise their voting preferences; and division of vote is allowed to enable financial intermediaries to cast the votes according to their principals instructions. Recommendations for good governance Anti-takeover measures. The Good Governance Code sets out as a principle that, in general, listed companies should avoid bylaw clauses whose underlying purpose is to hinder possible takeover bids. It also recommends that the bylaws Page. 21

24 of listed companies should not place an upper limit on the votes that can be cast by a single shareholder, or impose other obstacles to the takeover of the company by means of share purchases on the market Board of directors Mandatory provisions Rules and Regulations of the board of directors the company s board of directors must approve a set of rules and regulations governing its internal organisation and operation, along with measures to be taken to ensure good administration of the company, observing the law and the company s by-laws. The company must report these regulations to the CNMV (submitting a copy) and have them filed with the Commercial Registry. The Rules and Regulations of the board of directors and the rules and regulations governing its committees must be posted on the company s web page. Audit committee the company must have an audit committee comprised entirely of non-executive directors, appointed by the Board. At least the majority of its members must be independent directors and one must be appointed on the basis of his/her accounting and/or auditing (or both) knowledge and experience. The members of the Audit committee, as a whole, must have the technical knowledge of the relevant business sector of the listed company. The president must be elected from among the independent directors 8. The audit committee will have at least the following duties: (i) report to the General Meeting on the issues raised by shareholders in the context of the general meeting in areas that are the audit committee s competence; (ii) supervise the efficiency of the company s internal control, internal audit and risk management systems; (iii) monitor the process of drafting and submitting the financial information; (iv) escalate proposals to select, appoint, re-elect and replace the company s auditors to the board of directors to be submitted to the general meeting; (v) establish appropriate relationships with the external auditor to receive information on issues that may threaten the independence; (vi) submit a yearly report, before the audit report is delivered, giving an opinion on the independence of the auditors; and (vii) inform the Board, with prior notice, about Page. 22

25 all matters foreseen in the law, the bylaws and the Board regulations, and in particular those regarding the financial information of the company, the creation or acquisition of shares of special purpose entities or those registered in tax havens and transaction with related parties. Appointments and remunerations committee - the company must have an appointments and remunerations committee comprised exclusively of nonexecutive directors, appointed by the Board. At least two members must be independent directors and the president must be appointed from among the independent directors of the committee. The audit committee will have at least the following duties: (i) evaluate the competencies, knowledge and experience necessary for the Board (to this end, define the duties and capabilities necessary in candidates); (ii) establish an objective regarding the representation of the least represented gender in the Board, (iii) submit to the Board proposals for the appointment of independent directors and inform of any proposal for appointment of all other directors; (iii) inform of any proposal for appointment of dismissal of senior management and the basic conditions of their contracts; (iv) research and coordinate the succession of the president and the first executive of the company; and (v) propose the directors and managing directors remuneration policy. Yearly report on directors remuneration the company s board of directors must draft and publish (using the standard form approved by the CNMV) a yearly report on directors remuneration that includes: (i) information on the directors remuneration policy applicable to policy was applied during the year; (ii) overall summary on the application of the remuneration policy during the previous closed financial year; and (iii) a breakdown of the individual remuneration received by each director for all concepts. This report must be distributed as a relevant fact and must be presented and submitted to a vote at the ordinary general shareholders meeting by way of consultation and as a separate item on the agenda. Directors remuneration policy - it shall be determined in accordance with the system established in the bylaws and shall be approved by the general meeting at least every three years as a separate item on the agenda. The Board s proposal for the remuneration policy must be motivated and must be accompanied by a Page. 23

26 specific report of the appointments and remuneration committee. Both documents must be placed at the disposal of the shareholders prior to the general meeting through the company s website. In the event that a report on directors remuneration is rejected by the general meeting, the remuneration policy applicable to the following year must be submitted for approval of the general meeting prior to application, even if the aforementioned three year period has not elapsed. Executive president may it be the case that the president of the Board is also the company s CEO, one of the independent directors must be appointed as coordinating director with special powers to request that a board meeting be held, to include new items in the agenda of a Board meeting already called, to coordinate and convene non-executive directors and to manage the periodic evaluation of the president s performance. Evaluation - The Board must complete an annual performance evaluation on itself and its committees and, based on the results of the same, propose a plan of action to correct any issued detected. Recommendations for good governance This section is a brief overview of the recommendations set out in the Good Governance Code that we consider most relevant for the company to include in the Rules and Regulations of the board of directors: Composition of the board Number of directors between five and 15. Proprietary and independent directors should constitute an ample majority on the board of directors, while the number of executive directors should be the minimum practical bearing in mind the complexity of the corporate group and the ownership interests they control. Independent directors should be at least half of all Board members. However, when the company does not have a large market capitalisation, or when a Page. 24

27 large cap company has shareholders individually or concertedly controlling over 30 percent of capital, independent directors should occupy, at least, a third of board seats. Functioning of the board The Board should meet with the necessary frequency to properly perform its functions, eight times a year at least, in accordance with a calendar and agendas set at the start of the year, to which each director may propose the addition of initially unscheduled items. Absence of director should be limited to situations where it is unavoidable and should be stated in the annual corporate governance report. In the event of absence, directors should give a proxy with the appropriate instructions. Board committees Listed companies should have a unit in charge of the internal audit function, under the supervision of the audit committee, to monitor the effectiveness of reporting and control systems. This unit should report functionally to the board s non-executive chairman or the chairman of the audit committee. Large cap companies should operate separately constituted nomination and remuneration committees Adoption and disclosure of governance regulations Annual corporate governance report in keeping with the principle of comply or explain, the company will have to publish an annual corporate governance report (using the standard form approved by the CNMV) to inform the market of its degree of compliance. The company must submit this report to the CNMV and publish it as a relevant fact. Web page the company must have a web page to address the shareholders right to information and to disclose relevant information. This web page must include an electronic shareholders forum Page. 25

28 5.2 Transparency Periodic financial information The company must publish the following financial reports: annual financial report (within four months from the end of each financial year 9 and, in any event, before the call for the general meeting). This report includes the annual accounts and management report (individual and consolidated), the audit report, and the directors declarations of liability for their content; half-yearly financial reports (within two months from the closing date of the first half of the year and, the second report 10, within two months from the closing date of the financial year). These reports include the condensed annual accounts and the interim management report (individual and consolidated) and, if necessary 11, a special auditor s report, and the directors declarations of liability for their content; and interim statement or quarterly financial report (within 45 days from the closing date of the first and third quarters of the year). The interim statement must contain, at least (i) an account of the significant events and transactions that occurred during that period and their impact on the financial situation of the company and its group and (ii) an overall description of the financial situation and results of the company and its group during that period Reporting significant stakes The acquisition or loss of a significant stake, or its existence in the case of an initial listing, must be reported 12 when it meets, exceeds or falls below the following thresholds: three, five, 10, 15, 20, 25, 30, 35, 40, 45, 50, 60, 70, 75, 80 and 90 per cent 13 of voting rights in the company 14. The following, among others, are obliged to report significant stakes: (i) shareholders 15 ; (ii) representatives of shareholders with discretionary exercise of voting rights; (iii) anyone who, without being a shareholder, is entitled to exercise shares voting rights (eg, under a shareholders agreement, due to deposit of shares as a guarantee, or institution of an usufruct); (iv) anyone who holds voting Page. 26

29 rights acquired or transferred through an intermediary 16 ; and (v) anyone who holds, acquires or transfers financial instruments that confer an unconditional right to acquisition of shares with voting rights. In addition to disclosure required by market abuse regulations (see section 5.3), the company s directors must report 17 their number of voting rights 18 (whether directly or indirectly and regardless of the percentage of the stake) in the following circumstances: (i) on acquisition or transfer of shares, voting rights or financial instruments that confer the right to acquire shares with voting rights; (ii) on their appointment or removal; and (iii) when the company s shares are initially admitted to trading Notice of transactions with treasury stock The company will need to report to the CNMV, and disclose and publish the direct or indirect acquisition of its own shares (in one or more transactions) representing one per cent 19 or more of the company s voting rights. It must give this notice within four trading days from the date of the acquisition, using the standard form published by the CNMV Reporting relevant facts The company must publish and disclose to the market any relevant fact 20 immediately 21. As an exception, the company may (under its own responsibility and with prior notice to the CNMV) delay publishing a relevant fact if it considers that such information would damage its interests, providing such omission is not likely to confuse the public and the company can guarantee the confidentiality of that information. The company must report the relevant fact to the CNMV at the same time it discloses the information to the market, unless this disclosure might interfere with the normal conclusion of transactions involving the company s securities or threaten the protection of investors because it is foreseeable that it will have an extraordinary impact on the securities price. In that case, before publishing the information, the company must report it to the CNMV, which will be responsible for disclosing it to the market Page. 27

30 Transactions between related parties The company must report its transactions between related parties through publicly disclosed documents. The concept of a transaction between related parties is not consistent and will vary depending on the publicly disclosed document concerned. In particular, the company has to provide information on related party transactions in: (i) the annual financial report and half-yearly report, (ii) the annual corporate governance report and (iii) the notes to the annual accounts Market abuse Reporting transactions concluded by directors or executives The company s directors and executives 22 and their closely related persons 23 must report all their transactions involving the company s shares, derivatives or other financial instruments linked to those shares to the CNMV. They must report those transactions within five business days from the date they are concluded, using the standard forms approved by the CNMV Internal code of conduct in the securities markets The company must prepare an internal code of conduct that establishes, among other matters, the rules governing the management and control of non-public information, the transparent disclosure of significant information, the conduct of treasury-stock transactions, and the detection and treatment of conflicts of interest. This code must be submitted to the CNMV together with a written commitment confirming that the company will keep the code of conduct up to date and that its content will be known to and understood by everyone in the organisation to whom it applies Page. 28

31 NOTES Page. 29

32 NOTES Page. 30

33 APPROXIMATE TIMETABLE FOR STOCK MARKET LISTING WITH IPO Page. 31

34 Cuatrecasas Avda. Diagonal Barcelona, Spain TELEPHONE WEBSITE This document is a compilation of legal information prepared by CUATRECASAS strictly for the purposes of its dissemination. Consequently, it does not constitute any sort of legal advice whatsoever. 1 Please note that pursuant to current market practice, generally initial public offerings in Spain are only addressed to institutional investors and, thus, the IOM is the only issue/offering document. However, in this document, we analyze the process as being targeted to both retail and institutional investors. 2 Please note that names given to these roles sometimes differ and thus, for example, participants in a syndicate are indistinctly called managers or underwriters 3 The CNMV may accept shorter terms, among others, when it considers it appropriate on the grounds that investors have sufficient information to make an informed judgment on the investment. 4 In broad terms, pursuant to the Commission Delegated Regulation (EU) 2016/1052 of 8 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the conditions applicable to buy-back programmes and stabilisation measures, this safe harbour (i) provides that stabilisation can only be carried out for a limited time period (30 days), (ii) requires adequate public disclosure of certain specific information before and after the stabilising activity, (iii) requires reporting of all stabilising trades within one week after after the stabilization period, (iv) imposes restrictions on price (stabilisation of the securities shall not in any circumstances be carried out above the offering price), and (v) regulates ancillary stabilisation (such as over-allotments and greenshoe options. 5 In practice, the shareholders meeting vests the board of directors with the power to increase the share capital up to a certain amount in accordance with section b) of the Spanish Companies Act. 6 See footnote Page. 32