A Guide to Joining AIM

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

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

Contents

Introduction 2

AIM - Key questions 3

AIM - Key issues 4

Routes to Admission 6

Advisers - Who needs to be involved? 9

What goes in the Admission Document? 11

Continuing obligations after Admission 13

Corporate governance on AIM 16

FAQs 18

Glossary 20

Prospectus flow chart - When is a prospectus required on an AIM IPO? 24

A guide to joining AIM - the LSE’s market for smaller and growing companies2

AIM: Key facts

n More than 1,150 companies are admitted to AIM

n A market in its own right – not just a stepping stone to the Main Market

n AIM is regulated by the London Stock Exchange

n Streamlined admission process – Admission Document not reviewed by the LSE or the FSA (unless

a Prospectus is required)

n No minimum market capitalisation

n No trading record requirement

n No minimum percentage of shares which must be in public hands

n AIM company must have a Nomad at all times

n AIM company must retain a broker at all times

n Easy access for overseas companies

n Shareholder approval not required for most corporate transactions

n Shares must be freely transferable and be eligible for electronic settlement

n Strong track record in secondary fundraisings by companies on AIM

Introduction

This guide provides an overview for companies which may be considering a flotation on AIM. Companies

seeking admission to AIM may do so in conjunction with a fundraising or by means of an introduction which does

not involve the issue of any shares. This guide provides a general overview of the steps involved and should help

you cut through the jargon surrounding admission to AIM.

A glossary explaining some of the common terms which are likely to be encountered by a company seeking

admission to AIM is set out at the end of this guide.

If you would like any further information on AIM please speak to your usual contact at Burges Salmon or:

Dominic Davis on +44 (0) 117 902 7196 email: [email protected]

Chris Godfrey on +44 (0) 117 939 2219 email: [email protected]

Nick Graves on +44 (0) 117 939 2200 email: [email protected]

Rupert Weston on +44 (0) 117 939 2228 email: [email protected]


AIM - Key questions

Why join AIM?

Companies typically join AIM:

n to raise capital;

n to raise the company’s profile;

n to promote corporate strategy and facilitate acquisitions using quoted shares to pay for an acquisition

instead of cash; and

n to provide liquidity for the company’s shares.

A company considering a flotation on AIM should consider carefully whether AIM will meet the objectives of

its management and shareholders. It is possible that an outright sale of the company or an alternative form of

fundraising may be more appropriate. While this guide concentrates on joining AIM, companies should be aware

that admission to trading on AIM can only be cancelled if a general meeting of shareholders is called and 75% of

the votes cast at that meeting are in favour of the cancellation.

How long will it take?

Typically between three and six months. However the actual timetable will depend on how much preparatory

work has been carried out by the company and whether any significant issues are identified during the due

diligence process. The Nomad will produce a detailed timetable at the start of the process.

How much does it cost?

As a general rule, the total costs of the flotation should not exceed 10% of the money raised by the company.

The Nomad will be paid:

n a commission of up to 5% of any new money raised by the Nomad;

n a corporate finance fee; and

n an annual fee to act as the company’s Nomad. This is usually between £50,000 and £70,000 (plus any

applicable VAT).

The engagement letter between the company and the Nomad will contain details of these arrangements which

will then be carried over into the placing agreement and the Nomad agreement. The fees are then deducted from

the proceeds of the placing before those are paid to the company shortly after Admission.

What is the LSE trying to achieve with the AIM market?

According to the LSE’s chief executive, the core mission of AIM is likely to remain what it has been from the start,

to provide a market for small and medium-sized companies which are ambitious to grow and need capital for

expansion.


AIM - Key issues

Admission to AIM - Key issues for directors

Key issues for directors include:

n Placing Agreement – this will contain warranties from the directors to the Nomad in relation to the

accuracy of the information contained in the Admission Document. Liability under these warranties

is typically limited in time and amount to ensure that the directors do not have unlimited exposure.

This can be a contentious area and should be agreed before marketing starts.

n Responsibility Statement – each director will be required to take responsibility for the information

contained in the Admission Document. In contrast to the Placing Agreement, liability under a

responsibility statement cannot be limited.

n Working Capital Statement – this is a statement that in the directors’ opinion the working capital

available to the company and its group will be sufficient for its present requirements. Strictly, this

means a period of at least 12 months from Admission. In practice 18 months is the period used for

the underlying working capital forecasts and for any related warranties in the placing agreement.

n Reducing personal exposure – the publication of the Admission Document could give rise to

personal liability for the directors (both civil and criminal liability). Therefore the directors should read

the Admission Document carefully to make sure that it is complete and accurate. Verification helps

to minimise the risk of liability arising out of publication of the Admission Document.

n Lock-in Agreement – this is significant as it restricts the directors’ ability to sell shares after

Admission. Although one of the reasons often given for Admission will be the provision of liquidity

in the company’s shares, the directors will not benefit from this until the lock-in agreements have

expired and they are free to sell. Even when the lock-in agreements have expired, directors will

still be subject to the restrictions on share dealing set out in the company’s share dealing code and

ongoing orderly market arrangements.

Admission to AIM – Key issues for companies

Key issues for companies include:

n Preparing for Admission – the company will need to review its business to identify whether there

are any issues which could derail the flotation or cause significant concern to a potential Nomad.

The group structure should also be reviewed to identify whether any non-core assets should be

sold. A company should also consider its board structure and senior management team to make

sure that they have the necessary skills and experience. Steps should also be taken to adopt some

corporate governance recommendations in advance of the flotation. If the company has carried out

this preparatory work it should be well positioned when the formal flotation process starts.


n Systems and controls – the company will need to ensure that it operates the necessary systems

and controls to enable it to comply with the continuing obligations set out in the AIM Rules for

Companies. If these are not in place the company will not be appropriate for AIM.

n Effect on contracts – a company should review its existing contracts/loan agreements, etc to

identify whether an IPO would act as a trigger for repayment/termination. Since the Admission

Document must contain a summary of the company’s material contracts a company should also

consider whether the terms of its key contracts permit that level of disclosure.

n Selecting a Nomad – this is a key appointment. Early discussions with a Nomad will help the

company to assess whether an IPO on AIM is an attractive route for the company. A company should

look for a Nomad with experience of its sector and with a track record of similar sized fundraisings.

Details on the role and responsibilities of the Nomad are set out on page 9.

Admission to AIM - Key issues for shareholders

Key issues for shareholders include:

n Termination of shareholders’ agreement – any shareholders’ agreement will be terminated on

Admission. Institutional shareholders will therefore lose the benefit of the control rights contained in

that agreement. After Admission, the only reserved matters will be those which are reserved to the

board of directors of the company.

n Restrictions on ability to sell shares after Admission – significant shareholders will often be

required to enter into a lock-in agreement for 12 or 24 months after Admission.

n Access to information – instead of the provision of detailed management accounts, institutional

shareholders will receive annual and half-yearly reports from the company.

n Placing Agreement – if shareholders are selling shares in the Placing then they will be expected

to give warranties in the Placing Agreement. The scope of those warranties and the limitations on

liability should be agreed upfront.

n Relationship Agreement – controlling shareholders will typically be required to enter into a

relationship agreement with the company. This agreement is designed to ensure that the company

can carry on its business independently and that all transactions between the company and the

controlling shareholders are on an arm’s length basis and on normal commercial terms.


Routes to Admission

There are two routes to Admission.

A: Admission

A company which is seeking admission to AIM will have to publish an Admission Document and follow the

process set out below. A fast track route may be available (see Fast Track Admission).

If the company is offering shares to the public then a prospectus will be required (see Prospectus flow chart

on page 24 for further information). If a Prospectus is required it must be reviewed and approved by the FSA.

However, almost all IPOs on AIM are structured as Placings and therefore a Prospectus is not usually required.

Prepare Admission Document

Ten business days before the expected date of admission to AIM the company must provide certain information to the LSE. Schedule One to the AIM Rules for Companies sets out the requirements. The LSE then makes this available to the market by making an RNS announcement.

Three business days before the expected date of Admission the company must:

n pay the AIM fee to the LSE

n submit a completed application form to the LSE

n submit an electronic version of the Admission Document to the LSE

These documents must be accompanied by the Nomad’s declaration

Admission becomes effective when the LSE issues a dealing notice

Although an Admission Document is required it will not be reviewed by either the LSE or the FSA unless it also

constitutes a Prospectus (See Prospectus Flow Chart).


B: Fast Track Admission - ADM

A fast track route is available if a company already has securities admitted to trading on an AIM Designated

Market (ADM). The current AIM Designated Markets are the top tier markets of:

n Australian Securities Exchange

n Deutsche Börse Group

n Johannesburg Stock Exchange

n NASDAQ

n NYSE

n NYSE Euronext

n NASDAQ OMX Stockholm

n Swiss Exchange

n TMX Group

n UKLA Official List

A company seeking admission via this route must have been listed on the top tier/main board of those exchanges

(for example, NASDAQ Global and NASDAQ Global Select not NASDAQ OMX First North).

Details of the fast track route to AIM are set out below.

Has the company had its securities traded on an AIM Designated Market for at least 18 months?

20 business days before the expected date of admission to AIM, the company must provide certain information to the LSE. Schedule One to the AIM Rules for Companies sets out the requirements. The LSE then makes this available to the market by making an RNS announcement. Among other things the company must confirm that it has complied with any legal and regulatory requirements imposed by the relevant AIM Designated Market.

Three days before the expected date of admission the company must:

n pay the AIM fee to the LSE

n submit an electronic copy of its latest report and accounts to the LSE

n submit a completed application form to the LSE

These documents must be accompanied by the Nomad’s declaration

Admission becomes effective when the LSE issues a dealing notice

Yes

Prepare Admission Document

No


There is no need to produce an Admission Document if the company can take advantage of the fast track route to AIM. If the Company is carrying out a public offer as part of its move to AIM then it must consider whether a prospectus is required.

Q: Can a company use the AIM Designated Markets route if there have been changes to its

business in the past few years?

A: The LSE dealt with this question in Inside AIM (Issue 2) and gave the following informal guidance:

“This depends on the extent of changes to the business during that time. We expect a company to

have substantially traded in the same form for 18 months prior to seeking admission via ADM. This is

so that there has been a sufficient period of disclosures to the home market about the company in the

form in which it is seeking to admit to AIM, which is the principle behind the requirement to be listed on

one of the AIM designated markets for 18 months.

Where a business has changed substantially, for example carried out the equivalent of a Rule 14 reverse

takeover, it is possible that the entity will not be able to take advantage of the ADM admission route.

If the company has performed smaller transactions or taken other actions to substantially change its

business e.g. ceasing a major business unit, we would need to discuss with the nomad whether the

ADM route is available.”

(Inside AIM Issue 2)


Advisers - Who needs to be involved?

The company will need to appoint the following advisers:

Nomad – this is the key role in the Admission process. Typically the Nomad also acts as the company’s broker.

The relevant firm will run the admission process and will raise funds for the company. The Nomad is responsible

to the LSE for assessing whether a company is appropriate for AIM and for advising and guiding an AIM company

on its responsibilities under the AIM Rules for Companies (see Nomad’s declaration). The Nomad must comply

with the AIM Rules for Nominated Advisers which set out the Nomad’s Admission Responsibilities and ongoing

responsibilities (see below).

The LSE has explained that “the nomad role is clearly different from other corporate finance advisory roles

and requires nomads to exercise the delegated regulatory responsibility that has been given to them by the

Exchange” (Inside AIM Issue 3).

Reporting accountants – the reporting accountants are responsible for preparing the long form report, the

short form report and a working capital report. As part of their work, they will review the financial reporting

systems and controls of the company.

Legal advisers – will carry out a legal due diligence review and advise the company on the legal aspects of

Admission including re-registration as a public company, the general duties of directors of a public company,

new service agreements, general disclosure requirements, the terms of any placing agreement and the nomad

agreement. They will also lead the verification process.

Financial PR consultants – who will be responsible for generating press coverage of the company’s admission

to AIM.

The Nomad will also appoint its own legal advisers who will review the due diligence materials and prepare the

placing agreement and the nomad agreement.

Nomad’s Admission Responsibilities

Companies should be aware that Nomads must satisfy the following Admission Responsibilities on each

AIM IPO:

n AR1 – a nominated adviser should achieve a sound understanding of the applicant and its business.

n AR2 – a nominated adviser should (i) investigate and consider the suitability of each director and

proposed director of the applicant; and (ii) consider the efficacy of the board as a whole for the

company’s needs, in each case having in mind that the company will be admitted to trading on a UK

public market.


n AR3 – the nominated adviser should oversee the due diligence process, satisfying itself that it is

appropriate to the applicant and transaction and that any material issues arising from it are dealt with

or otherwise do not affect the appropriateness of the applicant for AIM.

n AR4 – the nominated adviser should oversee and be actively involved in the preparation of the

admission document, satisfying itself (in order to be able to give the nominated adviser’s declaration)

that it has been prepared in compliance with the AIM Rules for Companies with due verification

having been undertaken.

n AR5 – the nominated adviser should satisfy itself that the applicant has in place sufficient systems,

procedures and controls in order to comply with the AIM Rules for Companies and should satisfy

itself that the applicant understands its obligations under the AIM Rules for Companies.

These responsibilities are supported by a non-exhaustive list of tasks that the LSE would usually expect

a Nomad to fulfil. These responsibilities, which are set out in the AIM Rules for Nominated Advisers,

underpin the approach which a Nomad will take towards a company seeking admission to AIM.


What goes in the Admission Document?

The Admission Document must contain the information required by the AIM Rules for Companies. In addition

to the specific disclosure requirements, a company producing an Admission Document must make sure that

the document contains any other information which it considers necessary to enable investors to form a full

understanding of:

n the assets and liabilities, financial position, profits and losses and prospects of the company;

n the rights attaching to the shares; and

n any other matter contained in the Admission Document.

The following table sets out the typical structure and contents of an Admission Document.

Cover page etc n Disclaimers and description of the Placing

n Key information

n Directors and advisers

n Timetable

n Placing statistics

Front end n History and background

n Business operations

n The market

n Strategy

n Customers

n Competition

n Summary financial information

n Current trading and prospects

n Reasons for Admission and use of proceeds

n Details of the Placing

n Lock-in Agreements

n Directors, Senior Management and Employees

n Share incentive scheme

n Admission, settlement and CREST

n Corporate Governance

n Significant shareholders

n Dividend policy


Risk factors The list of risk factors sets out the most significant risks for potential investors in the company.

Expert’s Report An example of an expert’s report is the Competent Person’s Report for mining, oil and gas companies.

Financials n Audited historical financial information for the last three financial periods (or such shorter period during which the issuer has been in operation)

n Interim accounts may also be required

n Accountant’s report containing an opinion that the financial information gives, for the purposes of the Admission Document, a true and fair view.

The back end - additional information

n Responsibility Statement

n Incorporation and activities

n Share capital

n Memorandum and articles of association

n Directors’ and other interests

n Directors’ service agreements

n Substantial shareholders

n Share option schemes

n Taxation

n Working Capital Statement

n Litigation

n Material Contracts


Continuing obligations after Admission

After Admission a company will be subject to the continuing obligations set out in the AIM Rules for Companies.

Disclosure of price sensitive information

One of the key continuing obligations relates to the disclosure of price sensitive information (AIM Rules 10 and

11). In Inside AIM (Issue 3) the LSE emphasised this and stated that “Compliance with the general disclosure

Rules 10 and 11, which must be considered in conjunction with each other, is crucial to ensure the market is

updated accurately and in a timely manner to avoid the risk of a disorderly or false market”.

The following table sets some of the specific matters which must be disclosed to the market.

Specific information which must be publicly announced (AIM Rule 17)

n details of any substantial transaction, any related party transaction, any reverse take-over or any

disposal resulting in a fundamental change of business

n any deals by directors in the company’s shares

n any changes to any significant shareholders/DTR disclosures

n the resignation, dismissal or appointment of any director

n any change in its accounting reference date

n any change in its registered office address

n any change in its legal name

n any decision to pay any dividend

n the reason for the application for admission or cancellation of any of its shares

n the resignation, dismissal or appointment of its Nomad or broker

A company admitted to AIM must take reasonable care to ensure that any information it releases to the

market is not misleading, false or deceptive and does not omit anything likely to affect the significance of

that information (AIM Rule 10).

In addition to these disclosure requirements, a company must have a Nomad at all times (AIM Rule 1). If a

company does not have a Nomad the LSE will suspend trading in its shares. If a replacement is not appointed

within one month of that suspension the admission of its shares to AIM will be cancelled.

A company must also make certain specified information available on a website in accordance with the

requirements of AIM Rule 26 (Company Information Disclosure). The information must be kept up-to-date.


AIM Rule 31 – the importance of proper procedures and frequent dialogue with your Nomad

Another key continuing obligation is set out in AIM Rule 31. AIM Rule 31 (AIM company and directors’ responsibility

for compliance) states that: “An AIM company must:

n have in place sufficient procedures, resources and controls to enable it to comply with these rules;

n seek advice from its nominated adviser regarding its compliance with these rules whenever appropriate and

take that advice into account;

n provide its nominated adviser with any information it reasonably requests or requires in order for that nominated

adviser to carry out its responsibilities under these rules and the AIM Rules for Nominated Advisers, including

any proposed changes to the board of directors and provision of draft notifications in advance;

n ensure that each of its directors accepts full responsibility, collectively and individually, for its compliance with

these rules; and

n ensure that each director discloses to the AIM company without delay all information which the AIM company

needs in order to comply with Rule 17 insofar as that information is known to the director or could with

reasonable diligence be ascertained by the director.”

The importance of frequent contact with your Nomad was confirmed by the LSE when it stated that “It is

a fundamental tenet of the AIM Rules that AIM companies liaise appropriately with their nominated advisers.

Nominated advisers are responsible for advising and guiding companies as to their responsibilities under the AIM

Rules. Failure to seek and take into account advice is not only a breach of AIM Rule 31 but also increases the

risk of the company acting in non-compliance with the AIM Rules. The Exchange regards a company’s failure to

liaise appropriately with its nominated adviser as a particularly serious matter.”

This rule is frequently referred to in the Investigations and Enforcement Update section of Inside AIM alongside

AIM Rules 10 and 11. The LSE has explained that breaches have involved “failure to liaise appropriately with

the company’s nomad” (Inside AIM Issue 1) and included “a significant failure to implement adequate formal

procedures and oversight of a key individual responsible for managing the company’s business” (Inside AIM

Issue 2).

Financial reporting after Admission

Annual accounts

A company admitted to AIM must publish annual audited accounts within six months of the end of the financial

year to which they relate. An AIM company incorporated in an EEA country must prepare and present these

accounts in accordance with International Accounting Standards.

Half-yearly reports

A company admitted to AIM must prepare a half-yearly report. This must be published within three months after

the end of the period to which it relates.


Dealing in shares after Admission

Dealing in shares after Admission will be restricted by the terms of any lock-in agreements and by the company’s

code on share dealing.

Lock-in agreements

The AIM Rules for Companies require lock-ins for new businesses. Where the company’s main activity is a

business which has not been independent and earning revenue for at least two years, the company must ensure

that all Related Parties and applicable employees agree not to dispose of any interest in its securities for one year

from Admission.

For the purposes of this rule, an applicable employee means any employee of the company, its subsidiary or

parent undertaking who, together with that employee’s family, has a holding or interest, directly or indirectly, in

0.5% or more of the company’s shares.

However Nomads typically require the directors and major shareholders to enter into lock-in agreements

irrespective of the nature of the company’s business. These undertakings typically last for 12 or 24 months after

Admission and are subject to some fairly standard exceptions.

Code on share dealing

A company admitted to AIM must ensure that its directors and applicable employees do not deal in its shares

during a close period. Compliance with this requirement is addressed by adopting a code on share dealing. The

code sets out the details on what steps directors and applicable employees should take before they deal in the

company’s shares.

For the purposes of the share-dealing code, an employee is an applicable employee if he or she is likely to

be in possession of unpublished price-sensitive information in relation to the company because of his or her

employment with the company.


Corporate governance on AIM

What is the LSE’s approach to corporate governance on AIM?

In July 2010 the LSE set out its position on corporate governance for AIM companies in Inside AIM (Issue 2).

The LSE made it clear that it believed “that good corporate governance is just as relevant and important for AIM

companies as it is for those on the Main Market”.

Does the UK Corporate Governance Code apply to AIM Companies?

No. The UK Corporate Governance Code does not apply to companies admitted to trading on AIM. However

the Nomad and potential investors will expect to see the company adopt some of the best practice principles

and provisions set out in the UK Corporate Governance Code. This is often reflected in the Nomad agreement

which will contain an undertaking relating to corporate governance matters. In addition, the LSE has

confirmed that “whilst full adherence to the CGC (UK Corporate Governance Code) should not necessarily be

the expectation for all AIM companies, we believe it continues to serve as a standard that public companies

should aspire to”.

Do the AIM Rules for Companies impose any specific corporate governance requirements on an

AIM Company?

No. In addressing the question of why the AIM Rules for Companies do not require adherence to a particular set

of corporate governance rules the LSE stated that “Given the nature and range of smaller, growing companies

that predominantly make up AIM’s constituent members, the Exchange has believed for some time that a blanket

requirement to comply or explain against a particular code, in a ‘one size fits all’ style, is not appropriate; such a

step may simply be seen as ‘more regulation’ rather than as a beneficial set of practices to improve the running

of a company and the interaction between board and shareholders”.

The role and responsibilities of a Nomad underpin this approach and the LSE noted that “More importantly, AIM

also has the benefit of the nomad system. Nomads are in an excellent position to work with their AIM company

clients, both up to admission and on an ongoing basis, to consider and set out the corporate governance

standards with which the company is going to comply, by reference to size, stage of development, business

sector, jurisdiction etc”. So AIM Companies should expect to discuss their corporate governance arrangements

with their Nomads.

Clearly the LSE’s view on corporate governance on AIM will continue to evolve. The LSE stated that “We will

keep the Exchange’s position on corporate governance under review. We expect to see nomads continue, and

extend, their involvement in this area by demonstrating an active involvement in the setting and satisfying of the

corporate governance standards that their AIM company clients will follow”.

Has any corporate governance guidance been published for AIM Companies?

Yes. The QCA has published Corporate Governance Guidelines for Smaller Quoted Companies.


What should we say in the Admission Document?

Typically the Admission Document contains a statement along the following lines: “The Board recognises the

value of good governance and intends, following Admission, to comply with the provisions of the UK Corporate

Governance Code so far as is practicable for a company of its size, stage of development and nature as a

company whose securities are traded on AIM. In any event, the Board intends to comply with the provisions of

the QCA Guidelines.”

This statement should only be made after a proper debate and review of board composition, structure, procedures

and controls. It must not be made in isolation as part of a “box-ticking” compliance exercise.


FAQs

Admission

What are the alternatives to AIM?

A company can apply to the FSA and to the LSE for its shares to be admitted to the premium listing segment

of the Official List and to trading on the Main Market. In addition, companies considering a listing now have the

choice between a premium listing and a standard listing. However there has been limited take up of the standard

listing alternative since it was introduced in 2010.

The key difference between the two regimes is that an issuer with a standard listing (based on the minimum EU

directive standards) is not required to comply with UK ‘super equivalent’ provisions, including:

n complying with certain eligibility requirements (e.g. an acceptable three year trading record);

n providing pre-emption rights (although this may be provided in the company’s articles);

n complying or explaining against the UK Corporate Governance Code;

n appointing a sponsor; and

n complying with the Listing Rule provisions on significant and related party transactions.

An issuer with a standard listing is therefore able to complete a significant M&A transaction without waiting for

shareholder approval. In an auction situation this may level the playing field with other bidders such as private

companies or PE houses.

Whether a premium or standard listing is a suitable alternative will depend on the size of the company. For

smaller companies, the PLUS Quoted Market operated by PLUS may be of interest.

Who can act as a Nomad?

The LSE maintains a register of approved Nomads (see www.londonstockexchange.com/aim).

Will the admission document be available to the public?

Yes. The admission document must be available to the public, without charge, for at least one month from

Admission. A company must keep a copy of its most recent admission document on its website. Access to that

document and other Rule 26 documents must be free.

Will we have to deal with the FSA?

No. The FSA will generally only be involved if a Prospectus is required.

Can the shares of an overseas company be settled through CREST?

This will depend on where the company is incorporated. If the shares are not eligible for settlement through

CREST then the shares will be deposited with a custodian who will issue depositary interests (CDIs) which will be

eligible for settlement in CREST.


After Admission

Will we need shareholder approval for acquisitions after Admission?

No. Normally the company will simply be required to make an announcement to the market. The information must

contain the information required by Schedule Four to the AIM Rules for Companies. However if the acquisition

is a reverse takeover then shareholder approval will be required. If there is any doubt about the classification of

a potential transaction the company should speak to its Nomad. The Nomad can then discuss the transaction

with the LSE and obtain a waiver if that is appropriate.

Will we need shareholder approval for disposals?

No. However shareholder approval will be required for any disposal which is treated as a disposal resulting in a

fundamental change of business.

What is a reverse takeover?

A reverse takeover is an acquisition which for an AIM company would exceed 100% in any of the class tests

or result in a fundamental change in its business, board or voting control. If a company announces a reverse

takeover, its shares will be suspended until it publishes an Admission Document in respect of the enlarged group.

However, the shares will not be suspended if the target company is quoted on AIM or admitted to the Official List.

Will the company be covered by the City Code?

Yes if the company has its registered office in the United Kingdom, the Channel Islands or the Isle of Man and the

Panel considers that its place of central management and control is in the United Kingdom. This means that the

City Code does not apply to many overseas companies admitted to AIM.

Will we need to produce a directors’ remuneration report as part of our annual report and accounts?

No. There is no formal requirement for an AIM company to produce a directors’ remuneration report. This is

because a company admitted to AIM is not a “quoted company” for the purposes of the UK Companies Act.

However under Rule 19 of the AIM Rules for Companies the annual accounts must contain details of directors’

remuneration earned in respect of the relevant financial year. Directors’ remuneration for the purposes of the AIM

Rules for Companies means for each director of the AIM company:

n emoluments and compensation, including any cash or non-cash benefits received;

n share options and other long term incentive plan details, including information on all outstanding options and/

or awards; and

n value of any contributions paid by the AIM company to a pension scheme.


Glossary

Admission – admission of the company’s shares to trading on AIM. Admission becomes effective when the

LSE issues a dealing notice.

Admission Document – the disclosure document which a company applying for admission to AIM must

produce (unless it is joining AIM from an AIM Designated Market). The document must contain the information

set out in schedule two to the AIM Rules for Companies. Although it looks like a Prospectus, the crucial difference

is that it is not reviewed or approved by the FSA.

AIM – the LSE’s global market for growing companies.

AIM Rules for Companies – the rules for companies admitted to trading on AIM or which are applying for

admission to AIM published by the LSE.

AIM Rules for Nominated Advisers – the rules for nominated advisers published by the LSE. They set out

the eligibility requirements, ongoing obligations and certain disciplinary matters in relation to nominated advisers.

Broker – every AIM company must retain a broker at all times. Typically the same investment bank or stockbroker

acts as Nomad and broker to the company.

CDI – Crest Depositary Interest. These are typically used by overseas companies whose underlying securities are

not eligible for holding and settlement in CREST. The CDIs represent an entitlement in relation to the underlying

securities.

City Code – the rules, administered by the Panel, governing offers for public companies.

Class tests – the tests set out in the AIM Rules for Companies which are used to establish whether a proposed

transaction involving a company is a substantial transaction, a related party transaction, a reverse takeover or a

disposal resulting in a fundamental change of business.

Close Period – an AIM company must ensure that its directors and applicable employees do not deal in any of

its AIM securities during a close period. A close period is the period of two months before the publication of a

company’s annual results and the period of two months immediately preceding the announcement of its interim

results. A company will also be in a close period if it is in possession of unpublished price sensitive information.

Continuing obligations – the rules applicable to AIM companies on a continuing basis following Admission.

These are contained in the AIM Rules for Companies and in the DTR.

CPR – a competent person’s report. The requirement for a CPR is set out in the Guidance Note for Mining,

Oil and Gas companies published by the LSE. The guidance sets out specific guidelines relating to resource

companies.

CREST – the system for the paperless settlement of trades in securities and the holding of uncertificated

securities operated by Euroclear UK & Ireland Limited (previously CRESTCo Limited).


Due diligence – the process of obtaining all material information about a company to ensure that the company

is appropriate to be admitted to AIM and that the Admission Document contains full and accurate disclosure

about the company and its financial position.

DTR – the Disclosure and Transparency Rules published by the FSA. Chapter 5 (Vote Holder and Issuer

Notification Rules), which deals with notifications of major shareholdings, applies to AIM Companies.

FSA – Financial Services Authority. The FSA is responsible for approving a Prospectus published by a company

seeking admission to AIM or by a company which is on AIM. The FSA acting as the UK Listing Authority is also

responsible for admission to the Official List.

FSMA – Financial Services and Markets Act 2000.

Introduction – a method of obtaining admission to AIM without an offering of shares.

IPO – initial public offer or flotation.

Lock-in – an agreement that a shareholder will not dispose of any shares in the company for a specified period

after Admission. This is normally subject to certain exceptions such as the acceptance of a takeover offer.

Long form report – a financial due diligence report prepared by accountants on the company and its

subsidiaries. In contrast to the short form report, this document is not disclosed to the public.

LSE – London Stock Exchange plc. The LSE operates AIM and the Main Market.

Main Market – the LSE’s market for listed securities.

Model Code – the code imposes restrictions on dealing in the securities of a company. Its purpose is to ensure

that directors and applicable employees do not abuse, and do not place themselves under suspicion of abusing,

inside information that they may be thought to have especially in periods leading up to an announcement of a

company’s results.

Nomad – nominated adviser. Every company applying for admission to AIM must appoint a Nomad. Every

company admitted to AIM must retain a Nomad at all times. The Nomad is responsible to the LSE for assessing

the appropriateness of an applicant for AIM, or an existing AIM company when appointed as its Nomad, and

for advising and guiding an AIM company on its responsibilities under the AIM Rules for Companies. The LSE

maintains a register of firms which have been approved to act as Nomads.

Nomad’s declaration – the declaration in the form contained in the AIM Rules for Nominated Advisers. The

Nomad must confirm that:

n all applicable requirements of the AIM Rules for Companies and AIM Rules for Nominated Advisers have

been complied with;

n the Nomad is satisfied that the company and its shares are appropriate to be admitted to AIM;

n the directors of the company have received advice and guidance as to the company’s responsibilities and


obligations under the AIM Rules for Companies in order to facilitate compliance by the company on an

ongoing basis; and

n the Nomad will comply with the AIM Rules for Companies and AIM Rules for Nominated Advisers as

applicable to it in its role as nominated adviser to the company.

Official List – the list maintained by the FSA of those securities which have been admitted to listing.

Panel – the Panel on Takeovers and Mergers. The Panel is an independent body whose main functions are to

issue and administer the City Code and to supervise and regulate takeovers and other matters to which the City

Code applies in accordance with the rules set out in the City Code.

Placing – an issue of shares to institutional and other selected persons rather than to the general public.

Placing agreement – the agreement between the company, its directors and the Nomad which sets out how

the Placing will be implemented.

Prospectus – a company applying to AIM must produce a prospectus if there is an offer of shares to the public.

The FSA must review and approve the prospectus. Most AIM fundraisings are therefore structured as Placings to

avoid this requirement. Recent changes to two of the exemptions from the requirement to produce a prospectus

may lead to a change in market practice. The threshold for fundraisings which require a prospectus has been

increased from €2.5 million to €5 million. Offers of shares made to less than 150 persons per member state will

also not require a prospectus – this has been increased from the previous limit of less than 100. So companies

applying to AIM will be able to:

n offer shares to a wider group of investors; and

n tap retail demand where it exists,

all without being required to produce a prospectus so long as this part of the fundraising is for less than €5 million.

See Prospectus Flow Chart on page 24 for further information.

Prospectus Directive – Directive 2003/71/EC of the European Parliament and of the Council on the prospectus

to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/

EC. A directive amending the Prospectus Directive has been adopted by the European Parliament and Council

(Directive 2010/73/EU). This Amending Directive, which introduces a new “proportionate disclosure regime” for

smaller companies, must be implemented by member states by 1 July 2012.

Prospectus Regulation – Commission Regulation (EC) No 809/2004 implementing the Prospectus Directive as

regards information contained in prospectuses as well as the format, incorporation by reference and publication

of such prospectuses and dissemination of advertisements. The Prospectus Regulation contains the detailed

contents requirements for a prospectus.

Prospectus Rules – the prospectus rules published by the FSA. These now form part of the FSA Handbook.

QCA – the Quoted Companies Alliance. The QCA represents the interests of smaller quoted companies on


the Main Market and AIM. The QCA has published Corporate Governance Guidelines for Smaller Quoted

Companies which contain some helpful guidance on how smaller quoted companies should apply the UK

Corporate Governance Code.

Related Party – means any director of the company or any other group company, any substantial

shareholder who holds 10% or more of the company’s shares or any associate of any director or any

substantial shareholder.

Reporting Accountants – the accountants appointed by the company to, among other things, prepare the

long form report and the short form report.

Responsibility Statement – a statement by the directors and the company in form set out below:

“The Company and the Directors, whose names appear on page - of this document accept responsibility for

the information contained in this document. To the best of the knowledge and belief of the Company and the

Directors (who have taken all reasonable care to ensure that such is the case), the information contained in

this document is in accordance with the facts and does not omit anything likely to affect the import of such

information.”

RNS – the regulatory information service operated by the LSE.

SEC – U.S. Securities and Exchange Commission, the primary regulator of the U.S. securities markets.

Short form report – the accountants’ report on historical financial information which is reproduced in the

Admission Document.

UK Corporate Governance Code – this sets out best practice in relation to issues such as board composition

and development, remuneration, accountability and audit and relations with shareholders.

Verification – the process, based on written questions and answers, which is designed to ensure the accuracy

of the information (other than financial information) contained in the Admission Document.

Working capital statement – a statement by the directors in the Admission Document that in their opinion

the working capital available to the company and its group will be sufficient for its present requirements that

is for at least 12 months from Admission. In Inside AIM (Issue 3) the LSE stated that “We should like to

make it clear that, similar to the statement required by Rule 13, amendments and caveats to this statement

are not permitted”.


When is a prospectus required on an AIM IPO?

Prospectus flow chart

Is there an offer of transferable securities to the public?

Transferable securities will include shares, warrants, depositary receipts, bonds etc.

However most options and awards issued under employee benefit schemes will not be

transferable securities.

Is the offer an exempt offer?

The following are exempt offers:

n offers made to or directed at qualified investors only;

n offers made to or directed at fewer than 150 persons (other than qualified investors)

per EEA State;

n offers which specify that the minimum consideration payable by an investor is at least

€50,000;

n offers of transferable securities which are denominated in amounts of at least €50,000;

n offers where the total consideration for the transferable securities being offered cannot

exceed €100,000 (taking into account any offers made within the previous 12 months).

Is the offer an offer of exempt securities?

The following are exempt securities:

n securities which are listed in Schedule 11A to FSMA;

n transferable securities included in an offer where the total consideration for the offer

is less than €5,000,000 (taking into account any offers made within the previous 12

months);

n shares which are issued in substitution for shares of the same class already issued (if

the issue does not involve any increase in the issued share capital);

n securities which are offered in connection with an exchange offer/merger and the

offer/merger document contains information which the FSA regards as equivalent to a

prospectus;

n shares which are offered free of charge to existing shareholders (bonus issue) or where

dividends are paid out in the form of shares (scrip dividend);

n securities which are offered to existing or former directors or employees and the

employer already has transferable securities admitted to trading on a regulated market.

Prospectus must be produced and approved by the FSA.

No need for a

prospectus approved

by the FSA.

Yes

Yes

Yes

No

No

No

www.burges-salmon.com

One Glass Wharf, Bristol BS2 0ZX Tel: +44 (0) 117 939 2000 Fax: +44 (0) 117 902 4400

Chancery Exchange, 10 Furnival Street, London EC4A 1AB Tel: +44 (0) 20 7685 1200 Fax: +44 (0) 20 7685 1266

This document gives general information only and is not intended to be an exhaustive statement of the law. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content.

Burges Salmon LLP is a Limited Liability Partnership registered in England and Wales (LLP number OC307212) and is regulated by the Solicitors Regulation Authority.

A list of members, all of which are solicitors, may be inspected at our registered office: One Glass Wharf, Bristol BS2 0ZX.

Further information

Dominic DavisPartner

+44 (0) 117 902 [email protected]

Chris GodfreyPartner


Nick GravesPartner


Rupert WestonPartner


We hope that this guide will help you to cut through the jargon surrounding a fundraising on AIM. If you would like any further information on AIM please speak to your usual contact at Burges Salmon or:

Documents

A Guide to Joining AIM