alliuris Junior Capital Markets Junior Capital Markets ALLIURIS ALLIANCE OF INTERNATIONAL BUSINESS LAW YERS

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1 Junior Capital Markets Junior Capital Markets ALLIURIS ALLIANCE OF INTERNATIONAL BUSINESS LAW YERS

2 Page 2 of 18 Imprint Published by ALLIURIS A.S.B.L. Avenue Ptolémée 12, bte 1, B-1180 Brussels Belgium Fon Fax info@.org Web Editors in Hanover: Ulrich Herfurth Chief editor (responsible): Co-editors: Photos: Fotolia Layout: Alliuris 2

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4 Page 4 of 18 Introduction The Alliuris Group Medium sized companies in Europe are faced with ever increasing competition. They therefore need to develop their skills and strengths and their connections in the European and worldwide markets. ALLIURIS members can greatly assist companies in their cross-frontier business. The ALLIURIS Group is composed of independent, medium sized law firms in Europe, who specialise in European and international business law. The experience of the firms covers all areas of civil and commercial law to enable them to fulfil all the requirements of the medium sized company. Member firms are conversant with the requirements of international clients; the partners are experienced in understanding the differing approach of foreign clients to legal matters and are able to respond to their needs and questions; lawyers often speak several languages and many have undergone their legal education in several countries. Clients with interests outside Europe receive similar support. ALLIURIS enjoys widespread professional connections within its global network. Today ALLIURIS counts for more than 30 offices and 450 lawyers in Europe and other major markets in the world. 4

5 Page 5 of 18 The Alliuris Advantage Alliuris One One point of contact for your cross border deals. Alliuris will give you a single point of contact who will be a partner in a member firm. That lawyer will manage your work and report to you ONE address, ONE telephone number and the full range of Alliuris members are at your service. Alliuris Local You need a lawyer with knowledge local to the place you are doing business in and who can deliver in a way you can understand by reference to the place you know. Representation in the jurisdiction you are doing business in from trusted lawyers delivered to you in your language by your lawyer. Alliuris Excellence One lawyer cannot be excellent everywhere. Alliuris provides a centre of excellence in every jurisdiction. Alliuris Information What is going on in your sector where you want to do business? Alliuris can source the market information you need. Alliuris Contacts How do you know who you need in the country you are operating in and how do you get to them? Alliuris can source the trusted local contacts you need. 5

6 Page 6 of 18 Junior Capital Markets in the UK A Guide for Growth Companies Contributed by Joan Yu, Kerman & Co., London, UK 1. Introduction 2 The UK Equity Markets 2.1. Overview 2.2. LSE 2.3. NEX 3. Which Market? 4. AIM 4.1. Overview 4.2. Reasons to seek admission to AIM 4.3. Regulatory environment 4.4. Admission criteria 4.5. Admission document 4.6. Prospectus 4.7. Nomads and brokers 4.8. Continuing obligations 4.9. Liability for published information 5. NEX Growth Market 5.1. Overview 5.2. Reasons to Join 5.3. Admission Process 5.4. Corporate Adviser 6. Main Market Standard Listing 6.1 Overview 6.2. Reasons to seek admission to the standard listing 6.3. Admission criteria 6.4. Continuing obligation 6

7 Page 7 of Introduction This guide is an introduction for owners and investors of growth companies (including overseas companies incorporated outside the United Kingdom (the UK )) who are considering accessing the UK s equity capital markets. It focuses on the AIM, the NEX Exchange Growth Markets and the Main Market Standard Listing as the three most suitable UK equity capital markets for small and medium sized growth companies. 2. The UK Equity Markets 2.1. Overview The UK has a number of equity capital markets. These include ones operated by The London Stock Exchange ( LSE ) and NEX Exchange ( NEX ) LSE LSE operates the Main Market and AIM. (a) The Main Market aimed at larger, more established companies. It is a regulated and listed market, and a European Economic Area ( EEA ) regulated market. There have been a number of changes in recent years to different types of listings available to companies on the Main Market. Since 2010, any company may apply for either a standard listing of its shares, where listed companies comply with EU minimum standards, or a premium listing of its shares, where super-equivalent requirements apply. (b) AIM aimed at smaller growing companies, it is not a regulated or listed market NEX NEX operates the NEX Main Board and the NEX Growth Market. (a) The NEX Main Board an EU Regulated Market serving the needs of companies and other issuers seeking admission to trading through the UKLA s Official List, or other European Competent Authority. (b) The NEX Growth Market an unregulated market serving the needs of small and mid-cap companies from all industry sectors. 7

8 Page 8 of Which Market? A company should consider a number of factors when deciding which equity capital market to join, such as: (a) Entry requirements: can the company meet the entry requirements of the particular market. (b) Type of investors: some markets are aimed at institutional investors only. If a company wants to reach a wide retail base of shareholders, it should typically consider listing its shares on the Main Market or AIM. (c) Raising the company's profile: if a company is carrying on business in a particular country, admission to AIM may be a way of raising the company's profile. (d) Companies listed on a particular exchange: the profile of other companies listed on the particular exchange may indicate whether it is suitable for the company. (e) Level of regulation/degree of disclosure: higher levels of regulation depending on the particular exchange normally mean that the company will incur a higher cost in complying with the requirements. However, this may also have a positive impact on investor confidence. 4. AIM 4.1. Overview AIM launched in June 1995, and has become well-established as the leading market to assist growing small and medium sized companies access capital from the public market. In March 2016, there were 1,020 companies admitted to trading on AIM with a total market capitalisation of around 71 billion. Of these companies, 192 were international companies. Market capitalisation of individual companies has ranged from less than 2 million to over 1 billion and over 96 billion had been raised on AIM, either at admission or through further issues of shares. There have been 3,654 admissions since the launch of the market to March AIM is a geographically and sector diverse market, with companies operating in over 100 countries, representing 40 different sectors which range from financial services firms to healthcare and technology companies. AIM has many potential advantages over the Main Market, and a number of companies have moved from the Main Market to AIM. Some AIM companies are smaller companies with a short trading record (therefore unable to meet the more stringent criteria for a Main Market listing), however some larger companies seek admission to AIM because of the "lighter touch" post admission regime. 8

9 Page 9 of Reasons to seek admission to AIM An AIM listed company will gain many of the benefits of a company listed on the Main Market, but with less onerous disclosure and regulatory requirements. The principal reasons for a company to admit its shares to trading on AIM are to: (a) Provide opportunities for raising equity finance both at the time of admission and in the future. (b) Enable existing shareholders to realise all or part of their investments (for example, it provides venture capital houses with an exit route). (c) Place a value on the company. (d) Raise the company's profile. (e) Increase the ability to make acquisitions by using quoted shares as currency. (f) Strengthen employee commitment through the participation of employee share ownership schemes. AIM is particularly attractive to young fast-growing businesses, management buyouts and buy-ins and family owned companies. AIM provides opportunities for raising capital from a broad range of private and institutional investors, particularly venture capital trusts which, because of tax advantages applicable to investments in AIM companies, provide a dedicated source of institutional investment. AIM companies tend to attract a greater level of interest among investors and analysts than similar companies on the Main Market Regulatory environment AIM is an EU "exchange regulated market" and maintains a flexible regulatory structure which better suits smaller, growing companies. This is particularly the case for companies seeking to achieve corporate growth through acquisitions or disposals as there are reduced disclosure requirements, and shareholder approval is only required for reverse takeovers and transactions that result in a fundamental change of business. AIM is regulated by the LSE which has published the AIM Rules for Companies (the AIM Rules ), setting out the rules and responsibilities for AIM companies. The rules relating to the eligibility, responsibilities and disciplining of nominated advisers ( nomads ) are set out in a separate rulebook also published by the LSE, AIM Rules for Nominated Advisers (the Nomad Rules ). It should be noted that the LSE s Admission and Disclosure Standards do not apply to AIM companies. The rules for trading AIM securities are set out in the Rules of the London Stock Exchange. 9

10 Page 10 of Admission criteria Most types and classes of securities can be admitted to AIM, although ordinary shares are the most common AIM securities. There is no requirement for a minimum level of capitalisation. However, if a company became an investing company (as defined by the AIM Rules) after 1 January 2016, it must raise or have raised at least 6 million via an equity fund-raising on, or immediately before, admission. There are no requirements on the company's trading history, the number of shares in public hands, or the pre-vetting of admission documents. The main requirement is that the company is "appropriate" for market, which is determined by the company's nomad. The company must appoint and retain at all times a nomad, as well as appointing a broker. Prior to and after admission to AIM, a company s shares must be freely transferable, eligible for electronic settlement, and all other issued shares of the same class must be admitted. Where the company's main activity is a business that has not been independent and revenue-earning for at least two years, all related parties (directors, substantial shareholders and those connected with them) and applicable employees (those who, together with their families, hold 0.5% or more of a class of the company's AIM securities) are restricted from disposing of any interest in their securities for one year from the date of admission. It should be noted that, if a company listed on AIM disposes of substantially all of its trading business, activities, or assets, it will be classed as an AIM Rule 15 cash shell. AIM Rule 15 cash shells have to complete a reverse takeover (as prescribed by AIM Rule 14) within a six month period if the company wants to become an investing company and remain listed. If a reverse takeover is not completed, the shares of the company will be suspended. The company should seek to cancel its listing if it has no intention to (i) become an investing company or (ii) complete a reverse takeover Admission document A prospective AIM company (including those companies classed as AIM Rule 15 cash shells see above) is required to publish an admission document, unless the company is already quoted on another qualifying stock exchange and the fast-track admission procedure is being used. An admission document must contain specified information in an easy and comprehensible form, and be subject to the contents requirements for a prospectus under the Prospectus Rules. An admission document must also contain all information reasonably considered necessary to enable investors to form a full understanding of: (a) The assets and liabilities, financial position, profit and losses, and prospects of the company and the securities for which it is seeking admission. 10

11 Page 11 of 18 (b) The rights attaching to the securities. (c) Any other relevant matter. The directors of the company (as well as the company itself) are responsible for, and confirm that the admission document contains accurate and full information, and that there are no material omissions Prospectus An application for admission of securities to trading on AIM will often involve an offer of securities to the public. The publication of a prospectus approved by the Financial Conduct Authority ( FCA ) may be required unless an exemption applies such as: (a) The total consideration of the offer is less than EUR 5 million (in member states other than the UK, this limit may be EUR 2.5 million). (b) The offer is addressed only to qualified investors or to less than 150 other persons per EEA state. Qualified investors include regulated entities such as credit institutions and insurance companies, national and regional governments, central banks, international institutions, large enterprises and any person entered on the register of qualified investors maintained by the FCA; and/or (c) The offer is of securities whose denomination per unit is at least EUR 100,000 or requires payment of a minimum consideration per investor of EUR 100,000. An FCA approved prospectus may be used to make offers to the public in other EEA member states, and can also serve as the AIM admission document, provided it complies with certain minor formalities and the contents requirements set out in the AIM Rules Nomads and brokers Nomads are approved by the LSE and must be independent of the issuing company. They are responsible to the LSE for deciding whether a company is suitable for AIM and then guiding and helping the company to comply with the AIM Rules and its continuing obligations, principally the disclosure of information to shareholders. The responsibilities of nomads are set out in the Nomad Rules. Nomads are also required to notify and consult with AIM as soon as possible, if the company becomes an AIM Rule 15 cash shell (as discussed at 4.4). Nomads come from a variety of backgrounds including stockbroking, accounting, and banking. Some have overseas origins, which may better serve the needs of overseas companies joining AIM. If a nomad resigns or is dismissed, trading of the 11

12 Page 12 of 18 company's shares will be immediately suspended, and the company will have one month to find a replacement, failing which its shares will be cancelled. A broker provides market support essential for trading, uses its best endeavours to find matching business if there is no market maker registered in the security, and provides key information to the market. A broker must be a member firm of the LSE. The company s nomad can be the broker, if they are approved by the LSE Continuing obligations AIM companies have a general duty of disclosure and must announce without delay any new developments which are not public knowledge concerning a change in the company's financial condition, its sphere of activity, performance of its business or its expectation of its performance which, if made public, would be likely to lead to a substantial movement in the price of its AIM securities. Such information must be notified to a Regulatory Information Service (a RIS ) retained by the company no later than it is published elsewhere. It must ensure that such information is not misleading, false or deceptive and does not omit anything likely to affect the import of such information. AIM companies are also under an obligation to announce information such as: (a) Deals by directors. (b) Details of substantial transactions. (c) Related party transactions. (d) Reverse takeovers. (e) Fundamental changes of business. (f) Changes in directors, holdings of significant shareholders, nomad and broker. (g) Any material change between actual trading or financial condition and any profit forecast, estimate or projection included in the admission document or otherwise made public. (h) Admission to trading (or cancellation from trading) of any securities of the company on any other exchange or trading platform, where the admission or cancellation is at the application or agreement of the company. The information must also be submitted separately to the LSE. An AIM company is required to prepare and submit six-monthly reports to its RIS, and send its annual report to its shareholders. All the reports must be published on the company s website. 12

13 Page 13 of 18 Directors and any employees are restricted from dealing in the company's securities during certain time periods prior to the publication of results, in case they have unpublished price sensitive information. AIM companies also have to disclose significant shareholder information, and significant shareholders are required to notify the company of relevant changes in their shareholdings Liability for published information An AIM company is liable for all information it publishes, whether by RIS or other means, and paying compensation to a person who acquires, continues to hold or disposes of securities in reliance on published information to which the regime applies and suffers loss in respect of the securities as a result of: (a) Any untrue or misleading statement in that published information, or (b) The omission from that published information of any matter required to be included in it. The basis of the liability is fraud, and for it to be proved, it must have been reasonable at the time and in the circumstances for the person suffering the loss to have relied on the information in question. Liability only arises if a person discharging managerial responsibilities within the company knew the statement was untrue or misleading or was reckless as to that fact. In respect of omissions of information, liability arises only if a person discharging managerial responsibilities knew the omission to be a dishonest concealment of a material fact. An AIM company may also be liable where there has been a dishonest delay in publishing information and a person who acquires, continues to hold or disposes of the securities suffers loss in respect of the securities as a result of the delay. 5. NEX Growth Market 5.1. Overview Until December 2016, the name ICAP Securities & Derivatives Exchange ( ISDX ) was used. On 30 December 2016, ISDX was renamed NEX Exchange, following which its markets were rebranded. The NEX Growth Market is a primary market with a regulatory environment designed to meet the needs of small and mid-cap companies wishing to obtain a quotation on a public market to access growth capital. NEX has adopted a regulatory framework for this market, based on a set of disclosure rules, known as the NEX Exchange Growth Market - Rules for Issuers (the NEX Rules ), which balance flexibility for small companies with appropriate investor safeguards. 13

14 Page 14 of Reasons to Join The NEX Growth Market comprises small and mid-cap companies from all industry sectors. It is a proven source of equity finance for companies coming to a public market for the first time, as well as being an established venue for existing issuers to raise further funds. It provides wide exposure for companies within a marketplace dedicated to growth companies. Admission to NEX Growth Market may help a company to access growth capital, increase its visibility, achieve a market valuation and enhance its corporate profile Admission Process To be admitted to the NEX Growth Market, a company must: (a) Be a public limited company or equivalent in its own jurisdiction. (b) Have published or filed at least 12 months audited accounts.. (c) Appoint and retain at all times a NEX Exchange Corporate Adviser (a Corporate Adviser ). (d) Demonstrate appropriate levels of corporate governance including having at least one independent non-executive director. (e) Have published audited financial reports no more than nine months prior to the date of admission to trading (or if the company s last audited financial statements are more than nine months prior to the date of admission, have published interim financial information covering at least the first six months of the following financial year). (f) Have at least 12 months working capital. (g) Have no restrictions on the transferability of shares. (h) Issue shares which are eligible for electronic settlement. An admission document containing specified information must be produced which is accurate, complete, relevant, and fairly presented. If the company is raising more than EUR 5 million, a prospectus approved by the FCA may also be required (as discussed at 4.6). An admission document does not have to be produced if the fast-track procedure is used. NEX recognises (i) AIM; and (ii) the Access Market of the Munich Stock Exchange (Bayerische Boerse) for the fast-track procedure. 14

15 Page 15 of 18 A company seeking listing on NEX needs to ensure (unless it is an Investment Vehicle or REIT as defined by the NEX Rules or Corporation Tax Act 2010), that a minimum of ten per cent. of its shares are in public hands on admission. If not, the company may be required as a condition on or immediately before admission, to ensure 250,000 of its shares are in the public hands. If the company is classed as an Investment Vehicle, it is required to raise a minimum of 500,000 via a subscription for securities in cash on or immediately before admission. If a company does not carry on a business activity, or intend to commence a business activity, it is classed as a cash shell under the NEX Rules. A cash shell is not eligible for admission to NEX. A company can list as an investment vehicle, however it will have two years following admission to substantially implement its investment strategy or complete a reverse takeover, failing which NEX will suspend trading of its shares. It should be noted that if a company disposes of its trading business and/or material assets whilst trading on NEX, it will be classed as a cash shell. If the company remains a cash shell six months from the disposal, NEX will suspend trading of its shares, however the cash shell could apply for re-admission to NEX as an Investment Vehicle, subject to the admission requirements Corporate Adviser A Corporate Adviser plays a key role in preparing, and assessing the suitability of, companies for admission to the NEX Growth Market and providing ongoing support in relation to their client companies regulatory responsibilities. The Corporate Adviser Handbook (the Handbook ) sets out the requirements which apply to a Corporate Adviser for this purpose. A Corporate Adviser is required to: (a) Ensure that a company and its shares comply with the NEX Rules and are suitable to be traded on the NEX Growth Market (on admission and on a continuing basis). (b) Advise a company at all times to ensure compliance with its responsibilities (under the Rules or otherwise). (c) Ensure that due and careful enquiries have been made to ensure that the information provided to NEX on behalf of the company for the purpose of an admission application is accurate and complete. (d) Liaise with NEX on behalf of a company in relation to any request for the suspension, restoration or withdrawal of its shares. (e) Liaise with a client issuer (and NEX where necessary) to ensure that the issuer is able to meet its financial reporting timetable. 15

16 Page 16 of 18 (f) Act with due care, skill and competence at all times in complying with the requirements of the Handbook. (g) In addition to compliance with the requirements of the Handbook, a Corporate Adviser must observe its wider responsibilities and is required to conduct its affairs to avoid impairing the reputation and integrity of the NEX Growth Market. 6. Main Market Standard Listing 6.1. Overview The standard listing regime imposes only the minimum requirements set out in EU directives in respect of a regulated market. A standard listing therefore offers a company the opportunity to list its shares on the Main Market, but on the basis of such minimum requirements rather than the additional, or super-equivalent, criteria for companies seeking a premium listing. Overall, the standard listing regime addresses a gap in the old listing regime - UK incorporated companies can now apply for listing on the same, less onerous, basis, as was previously available only to non-uk companies Reasons to seek admission to the standard listing The availability of standard listing may be of interest to the following companies. (a) Smaller and growing companies seeking to increase their profile and enhance valuations and liquidity. Such companies may find the standard listing a plausible alternative to an AIM listing because they gain access to a broader base of potential investors and higher profile. In addition, in terms of continuing obligations, notably the rules relating to transaction approval, the standard listing regime is less onerous than the AIM regime. (b) Companies looking for a flexible regulatory regime in which to carry out transactional activity. For such transaction-focused companies, a standard listing could be a transient forum and once the transactional phase of their development is completed, a premium listing may be sought. (c) Companies who do not derive sufficient benefit from their premium listing (in terms of increased profile, enhanced analysts coverage, inclusion in the UK series of the FTSE indices or a more liquid market in their shares) to justify the expense of maintaining it. d) Large companies that do not comply with the eligibility requirements of the premium listing regime Admission criteria To be admitted to the standard listing, a company must: 16

17 Page 17 of 18 (a) Have a minimum level of capitalisation of 700,000. (b) Ensure that a minimum of twenty five per cent. of its shares are in public hands on admission. (c) Publish a prospectus pre-approved by the UKLA. (d) Have no restriction on the transferability of shares. There is no requirement in respect of the company's trading history, control of assets and independent business status. No sponsor is required Continuing obligation The standard listing regime does not require shareholder approval for any transaction, including related party transactions, regardless of its impact on the business or financial position of the company, or impose any specific disclosure requirements. Note that when a reverse takeover is contemplated, the company is under an obligation to approach the FCA at the earliest possible stage and deal with the FCA in an open and co-operative manner. A standard listing company is required to publish its (a) annual financial report within four months of the end of the relevant financial period, (b) half-yearly financial report within two months of the end of the relevant period, and (c) interim management statements during the first and second six-month periods of the financial year

18 Page 18 of 18 Kerman & Co LLP Our Capital Markets team has a wealth of experience advising quoted clients on the main market and AIM. Our lawyers also have experience of advising sponsoring banks, underwriters, Nomads and brokers. We regularly assist clients with pre-ipo fundraising, admissions to the public markets and legal due diligence. We work closely with our clients and their other professional advisers to project manage all aspects of the IPO process to ensure it is achieved on time and on budget. We then continue to advise clients to meet their ongoing requirements, including secondary fundraisings, corporate governance, acquisitions and disposals, takeovers and schemes of arrangement. Our capital markets/listed clients include: The firm was winner in 2015 and 2016 of the category AIM Advisory Law Firm of the Year at the CorporateINTL Global Legal Awards. Our experienced team have successfully completed transactions for both domestic and international issuers in over 50 countries and territories across the globe. Joan Yu (Partner) Joan.yu@kermanco.com Peter Kohl (Head of Corporate) peter.kohl@kermanco.com Simon Holden (Partner) simon.holden@kermanco.com Kerman & Co LLP 200 Strand GB-London WC2R 1DJ Phone: / Fax: Mail info@kermanco.com Web 18