Admission to AIM

Since 1995, the Alternative Investment Market has been the London Stock Exchange’s market for smaller, growing companies. AIM not only offers the usual advantages of publicly traded securities, such as access to capital and enhanced profile, but also a flexible and low-cost regulatory environment designed for smaller companies.

AIM is enjoying a surge in popularity: over 640 companies were admitted to AIM in 2004 and 2005 compared to around 125 in 2002 and 2003. This includes 160 overseas companies compared to just 18 in 2002 and 2003. The 104 overseas companies joining AIM in 2005 came from USA, Canada, Australia, Israel, Norway, Ireland, New Zealand, British Virgin Islands, Cyprus and Bermuda, among others.

To encourage further growth and attract additional investment from the UK and overseas, the London Stock Exchange has announced that it will be introducing a new FTSE AIM index series, comprising the FTSE AIM UK 50 Index, the FTSE AIM UK 100 Index and the FTSE AIM All Share Index.

AIM fact file

• Since trading began in 1995, AIM companies have raised over £23.9 billion
• In 2005 alone AIM companies raised over £8.9 billion
• Stock trading volumes have risen from around 57 million in 2003 to over 108 million in 2005
• AIM is attracting larger companies: over a dozen AIM companies have a market capitalisation above £500 million
• The value of institutional holdings in AIM companies more than doubled to £19.3 billion by September 2005 compared to £9.75 billion in 2004

US securities regulations

With careful structuring, US companies admitted to AIM can avoid time-consuming and costly obligations:

• to file a registration statement with the SEC under the Securities Act 1933
• to comply with the periodic filing requirements of the Securities Exchange Act 1934 (unless they have 500+ stockholders and assets of US$10 million or more)
• to meet Sarbanes-Oxley corporate governance requirements
• to comply with State blue sky laws requiring registration of securities or satisfaction of relevant exemptions from registration before they can be sold in that State

It has been estimated that a company with a turnover of only US$50 million per year could face fees of US$3 million per year to comply with these obligations.

Flexibility

AIM’s entry criteria do not include a trading record or any minimum market capitalisation. Rather than specifying a list of prerequisites, every company must retain a Nomad (nominated adviser) selected from a list maintained by the London Stock Exchange who is responsible for assessing their suitability for admission to AIM and for ensuring that the directors of the company understand their obligations and responsibilities both during and after admission. This helps to make the admission process both quick and cost effective.

There is also fast-track admission allowing companies that have had their securities traded on an ‘AIM designated market’ for at least 18 months to use their existing annual report and accounts as a basis for admission to AIM instead of producing an admission document. They must retain a Nomad and make a detailed pre-admission announcement following a working capital review.

AIM designated markets are: Australian Stock Exchange; Euronext; Deutsche Börse; Johannesburg Stock Exchange; Nasdaq; NYSE; Stockholmbörsen; Swiss Exchange; Toronto Stock Exchange; and the Official List of the UK Listing Authority.

AIM has relinquished its EU regulated market status in order to avoid AIM quoted companies being subject to new rules requiring a prospectus to be produced and vetted by the UK Listing Authority in advance of admission of any securities to trading. This would have seriously damaged AIM’s appeal as a flexible and cost-efficient market.

However, prospectuses prepared in accordance with the Prospectus Regime and approved in advance by the UKLA will be required by AIM companies if they offer shares to the public in the United Kingdom (s. 85 Financial Services and Markets Act 2000). There are exemptions for offers of securities to ‘qualified investors’ or to fewer than 100 people (s. 85 Financial Services and Markets Act 2000).

AIM companies must publish interim and full year financial results but, to allow rapid and cost-effective expansion or diversification, the regulatory regime is otherwise more liberal than for companies listed on the London or New York stock exchanges or on Nasdaq. Stockholder approval is only needed for reverse takeovers and disposals resulting in a fundamental change of business.

Main differences between the London Stock Exchange’s main market and AIM

LSE

• Minimum 25% stock in public hands
• Normally 3 year trading record required
• Prior stockholder approval required for large acquisitions and disposals
• Pre-vetting of admission documents by the UK Listing Authority
• Sponsors needed for certain transactions
• £700,000 minimum market capitalisation

AIM

• No minimum stock to be in public hands
• No trading record requirement
• No prior stockholder approval for any transaction unless it is a reverse takeover or disposal resulting in a fundamental change of business
• Admission documents not pre-vetted by LSE or UKLA unless they are also prospectuses subject to the Prospectus Rules
• Nominated adviser required at all times
• No minimum market capitalisation

UK securities law and practice

An overseas company is not subject to the UK's Companies Acts or the Takeover Code on admission to AIM but may be advised by its Nomad to comply with some aspects anyway to satisfy the expectations of UK investors. These may include:

• offering stockholders pre-emption rights in proportion to their holding on any new issue of stock for cash. This is a requirement for all UK companies and can only be disapplied with 75% stockholder approval. This could be achieved by incorporating this right into the company’s statutes or by giving an undertaking in the admission document or placing agreement not to make any non-pre-emptive issues of stock without consent from the Nomad or certain majority stockholders.
• adopting the takeover protections given to UK public companies under the City Code on Takeovers and Mergers such as the requirement that any stockholder acquiring 30% or more of a company’s issued stock must make an offer for the entire stock. This rule could be added to the company’s statutes or endorsed on stock certificates or the certificate of incorporation.