The eesse entialguidetoAIM A c cashshells s s

Agui ideforc compan niescon nsideringjoinin ngAIMv viaarev verse trans sactionintoanAIMca ashshell.

TheessentialguidetoAIMcashshells
Contents
1 2 3 5 8 9 10 14 16 Forward AIMcashshellsintroduction TheAIMstockmarket WhatareAIMcashshells? ThebenefitsofusinganAIMcashshell ThedrawbacksofusinganAIMcashshell UndertakinganAIMreversetransaction AIMongoingobligations Glossaryofstockmarketterms

Forward
Launchedin1995byTheLondonStockExchange,TheAlternativeInvestmentMarket,orAIM asitismorecommonlyknown,hasattractedover3,100companiesfromacrosstheglobe. ManybusinesscommentatorsnowregardAIMasthemostsuccessfulgrowthstockmarketin theworld. AIMistheonlymajorgrowthmarketintheworldthathaslivedthroughtwocomplete economiccyclesandcontinuedtoprovidefundingforabroadrangeofsizeandsectorsof growingcompanies. This guide provides an overview for companies that may be considering a reverse transaction into an AIM cash shell. The guide is designed to demystify the process of undertaking reverse transactionsandremovesomeoftheunnecessarycityjargonoftenusedinthesetransactions. Wehaveprovidedausefulglossaryofstockmarkettermsattheendoftheguide. WehopethatyoufindthispublicationausefulfirststepinresearchingAIMcashshells,our consultantsarehappytoanswerfurtherquestionsthatyoumayhave. JohnHolland ManagingDirector HollandBendelow FlotationConsultants +44(0)8451223415 www.hbcg.co.uk

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AIMcashshells
Introduction
Cashshellsarebusinesseswithmoneyontheirbalancesheet,butnotradingoperationslisted onTheLondonStockExchangesAIMStockMarketandMainMarket,orICAPsISDXstock market. Thevalueofcashshells,orspecialpurposeacquisitioncompanies(SPACS),floatedontheUK stockmarketsgrewfromaround1.2bnin2010to2.5bnin2011,and2.7bnin2012, demonstratingthatcashshellshaveanimportantroletoplayinhelpingtofundgrowing companiesseekingcashandastockmarketlistingonAIM. Forsomeprivatelyownedcompanies,usinganexistingAIMcashshellcanprovidealessrisky routetojoiningthemarketthanthemoreconventionalmethodofadmissionandfundraising. ThekeybenefitsofreversingintoanAIMCashshellare; Thereisatransparentamountofcashalreadyintheshellreadytoinvestintheright company BycomparisonwiththeconventionalAIMflotation,thefactthatcashisalreadyinthe shellmeansthat,insomerespects,areverseintoanAIMcashshellmayberegardedas alowerrisk.Certainlythetransactiondoesnotrelyonattractingnewinvestorsto supportafundraisingatthetimeofadmissiontoAIM AreversetransactionintoanexistingAIMcashshellmaybequickerandthereforea lesscostlymethodofachievinganadmissiontoAIM,andatthesametime,accessing cashtogrowabusiness

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TheAIMStockMarket
Sinceitslaunchin1995,morethan3,100companieshavejoinedAIM,raisingover67billionto fundtheirgrowth.Around20%oftheseareincorporatedoutsidetheUK.Anumberoffactors havecontributedtothissuccess,includingabalancedapproachtoregulationwhichenables companiestoquicklyadapttobecomingapubliccompany.Thisensurescompaniescanfocus ongrowingtheirbusinessonceadmittedtoAIMratherthanbeingboggeddownwithredtape andregulation.AIMisaninternationalgrowthmarketthatattractshighqualityinternational investors.

WhyjoinAIM?
JoiningAIMisawaytogrowandenhanceyourbusiness.AIMskeybenefitsinclude: Accesstocapitaltogrowacompany,bothatthetimeofadmissionandthroughfurther capitalraisings Amechanismtoplaceanobjectivemarketvalueonacompanysbusiness Adestinationtocreateamarketforacompanysshares,helpingtobroadenthe shareholderbase Aplatformtocreateaheightenedpublicprofileforacompanythroughincreasedpress andmediacoverage Anopportunitytoencourageemployeescommitmentandincentivisetheirlongterm motivationandperformance,byintroducingshareschemes Providingfundingtoundertakeacquisitions,usingAIMsharesascurrency Creatingaheightenedprofileandcredibilitytoenhanceacompanysstatuswith customers

AIMIndices
TradinginAIMcompanysharesissupportedthroughanumberofindicesthathavebeen developedtoimproveinvestorsabilitytobenchmarkandtradeAIMsecuritiesinavarietyof ways.ThereisnowasuiteofFTSEAIMindices,including; FTSEAIMUK50Index FTSEAIM100Index FTSEAIMAllShareIndex FTSEAIMAllShareSuperSectorIndices.

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In2005theLondonStockExchangechangedtherulesgoverningnewlylistedAIMcashshells sothatinvestingcompaniesmustraiseaminimumof3million.Thiswasintroducedwiththe objectiveofincreasingthesizeoftherequiredfundraisingbythecashshell.Thenewrules weredesignedtobringingreaterscrutinyofcashshellinvestmentstrategiesandthe experienceofthedirectorsofcashshells. TheLondonStockExchangealsointroducedadditionalrulesforcashshellcompanies,which meantthatanyfundraisingundertakenbythecashshellmustbefromindependentinvestors, ratherthanfromacompanysownersand/ormanagers. TherationalefortheserulechangeswastosafeguardAIMsreputation,particularlyinlightof concernsfromsomequartersaboutlessthanclearinvestingstrategiesfromsomeAIMlisted cashshells.Priortothis,AIMcashshellshadaremittopursueabroadrangeofinvestment opportunities. Sincethechanges,theregulationsrequiretheinvestingpoliciesofcashshellstobemore detailedsothatpotentialinvestmentopportunitiesarecleartoinvestors,andcanbeusedasa guidebystockmarketinvestorstobasetheirinvestmentdecisionsupon. Somewouldarguethattheconsequenceofthetighteningupoftherulesgoverningcashshells onAIMhasmeantthatthecashshellshavelostadegreeofflexibilitytotakeadvantageof investmentopportunities,astherulesrequireAIMcashshellstohavetheirmajortransactions approvedbytheirshareholders.

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WhatareAIMcashshells?
HistoricallyintheUK,AIMcashshellsweresmallAIMcompaniesthattargetedearlystageor growingcompanies.TheybecamepopularascompaniesconsideringjoiningAIMdiscovered that,insomecases,itmaybeeasiertogainaccesstostockmarketfundingthroughanexisting AIMcashshellratherthantojoinAIMandtrytoraisethemoneyviathetraditionalmethod. AIMcashshellsusuallyariseinoneoftwoways; Firstly,theymaybeanexistinglistedcompanyontheAIMMarket,whichhas disposedoftheirentiretradingbusinessandtheonlyremainingassetisthecash thatitreceivedfromtheproceeds. Alternatively,anAIMcashshellmayariseoutofanewlyincorporatedcompany withoutanyotherassetsthatjoinsthemarketwithnewfundsreadytoinvestina suitablecompany.TheseAIMcashshellsareoftenreferredtoascleanshell companies. AIMcashshellsareunlikelytohaveanyassetsotherthanamanagementteamwithparticular sectorbackgroundknowledgeandexpertiseandcashthathasbeenraisedfromthecash shellsfinancialbackers.Insomecasesthiswillincludethecashshellsownsenior management. Whilststockexchangesgenerallyhavenoissueswithcompaniesdisposingoftheirtrading businesstomakeaprofitandbecomingcashshells,overrecentyearsanumberofstock exchanges,includingAIM,havetightenedtheirrulesgoverningthelistingofcleancashshells. Whereanexistinglistedstockmarketcompanyhasbecomeacashshell,mostStock Exchangesrequirethattheshellreinvestitscashintoabusinesswithinacertainperiodof timeorfacethethreatofdelisting. Overrecentyearscompanieshaveproventhat,ifproperlyresearchedandadvised,reverse transactionsintoAIMcashshellscanbeundertakensuccessfullywiththecashintheshellput togooduse. Atatimewhenglobaleconomicconditionsremainfragileandwithanincreasingnumberof growingcompaniesunabletoaccesssourcesoffundingfrombanksandotherdebtproviders, anincreasingnumberofprivatelyownedcompaniesarelookingtowardsotherfunding solutions,suchasAIMcashshells.

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ValuationofAIMcashshells
HistoricallytheaveragesizeofcashshellsontheUKstockmarketshasbeenaround5million. ThestockmarketwiththemostcashshellswithcashreserveshasbeenAIMandtheaverage amountofcashinthebankforAIMcashshellsisaround6m.

ExamplesofAIMcashshelltransactions
Twenty,anAIMquotedmarketingservicesprovider,floatedwitha10.5millionreverse takeoverofcustomerrelationsmanagementspecialistDataforceHoldings. TanzaniaGold,aminingcompanyinEastAfrica,floatedonAIMbyreversingintoe commerceproviderVossNet. ThereversetakeoverofNorthcoteEnergybyEverestEnergyLimitedfor$10m.On completionEverestEnergyLimited(renamedNorthcoteEnergyLimited)wasadmittedto AIMandcompletedaPlacingtoraise1m.NorthcoteisaUSfocusedonshoreoil explorationandproductioncompany.

CleanAIMcashshells
CleanAIMcashshellcompaniesareformedfromcashreserveswiththesolepurposeof findingasuitablebusiness,whichisprivatelyowned,thatwouldaddvaluetothecleanshell companyandcouldundertakeareversetransactionintoit. UsuallyacleanAIMcashshellisanewcompanywithoutaprevioustradinghistoryorother legacyissuesthatcouldposearisktothereversingcompany.

DirtyAIMcashshells
ListedAIMshellcompaniescanvaryconsiderablyintheirhistorywithsomeshellshavingbeen listedonthemarketformanyyears.

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Becauseashellisconsidereddirtyitdoesnotnecessarilyfollowthatitisnotasuitableshell foracompanytoconsiderreversinginto.However,beforecommittingtoareverse transactioninvolvingadirtyAIMshellcompanyitisessentialtounderstandthehistoryofthat company,howithasbecomeashellandwhat,ifany,liabilitiesyourcompanywillinheritifa reversetransactionisundertaken. Itthereforebecomesimportanttoengagetheservicesofaspecialisttoinvestigatetheshell companyandalsotoundertakesatisfactorylevelsofduediligencetoestablishwhatliabilities yourcompanymaybetakingon,someofwhichmayinclude: Thedebtstopreviouscustomers Ongoingcontractswithexistingcustomers Contractualobligationswithsuppliers Agreementswithbanksandotherlenders Employeecontracts Potentialtaxliabilities

InmanycasesdirtyAIMcashshellcompanieshaveanexistingbroadshareholderbasethathas beenbuiltoveranumberofyearsandwhichcanbeutilisedbythereversingcompany,acting asasolidbaseforthecompanytobuildfrom. However,onemustbearinmindthatinheritingalonglistofexistingshareholdersintheshell companydoesnotnecessarilymeanthattheywillallwanttoremaininvestorsinthenew companyfollowingthereversetransaction.

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ThebenefitsofAIMcashshells
Guaranteedcash
ThekeybenefitforcompaniesconsideringareversetransactionintoanAIMcashshellisthe guaranteethatthereiscashtheretobeused.Bycontrast,companiesusingthemore traditionalrouteofjoiningAIMandundertakingafundraising,havetoundertaketheprocess oflistingonthemarketwhistundertakingafundraisingexerciseatthesametime. ManyoftheotherbenefitsthatcompaniesenjoyhavingjoinedAIMviathetraditionalroute willapplytothosethathavechosentoreverseintoanAIMcashshellandtheseinclude: AIMpubliccompanystatus Anincreaseinthevalueofthecompanytheopportunitytogrowthevalueofthe companythroughincreasesinitssharepriceoveraperiodoftime
FurtherfundraisingshavingbeenadmittedtoAIMviaareversetransactionintoacashshell, goingforwardthecompanymayhavetheopportunitytoundertakefurtherfundraisings throughtheissueofmoresharesoncethecompanybecomesestablishedonAIM

ExitroutsentrytoAIMviaacashshelltransactionmayprovidearouteforthe companysexistingshareholderstoexit,orpartexitthecompanyoverthemediumor longerterm Existingexpertiseinmostcasestheexistingcashshellwillhaveanexistingboardof directorsinplace.Dependinguponthebackgroundsoftheindividualsinvolved,these maybeusefuladditionstoareversingcompanysboard,astheymayhavevaluable sectorknowledgeandtheexperienceofrunningacompanyonapublicmarket

Inaddition,therearebenefitstotheshareholdersoftheshellcompany.Successful transactionsinvolvingAIMshellcompaniesmayenabletheshareholdersintheshellcompany toretainsomestakeinanewlytransformedentity,whichmaybecomeamoresuccessful enterprise.Thebenefittotheshareholdersoftheshellcompanycanbesignificantovertime astheyseethevalueoftheirshareholdingincrease.

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ThedrawbacksofAIMcashshells
Coststhecostofbecomingapubliccompany,eitherviathetraditionalroute,orviaareverse transactionintoanexistingcashshell,areconsiderable. Thereasonforthisisthatinsomecases,theadvisorcostsinvolvedinthecashshelltransaction canbesignificantbecauseoftheneedfortwosetsoflawyersandaccountants;onesetto representtheshellcompanyandtheothersettorepresentthereversingcompany. ForsomecompaniesexpectingacheapandcheerfulroutetoAIM,thecostsassociatedwith thetransactionremainthemainbarrier. Hiddenliabilitiesinadirtyshellalthoughthecashalreadyintheshellcompanymaybeof considerablebenefittothereversingcompany,itisofparamountimportancethatthe companyensurestherisksassociatedwiththelegacyliabilitiesofthereversetransaction, particularlyintoadirtyshell,areminimised.

NewShareholdersformanycompanies,oneofthemoredifficultdecisionsaboutjoininga publicmarketiscomingtoterms,perhapsforthefirsttime,withtheconceptofhaving shareholdersfromoutsidethecompany.However,manywouldarguethathavinganumberof smallershareholdersratherthanonelargeshareholder(suchasaventurecapitalist)owninga partofthecompanyisconsiderablylessonerous. Nevertheless,alistingonapublicmarket,whetherviaareverseintoanAIMcashshell,orviaa traditionallisting,providestheseniormanagementteamofacompanywiththeflexibilityto pursuetheirgrowthstrategy,inthevastmajorityofcases,withoutinterferencefromone dominantshareholder.

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UndertakinganAIMreversetransaction
Wehavemappedoutwhatweconsidertobebestpracticeforprivatelyowncompanies consideringreversingintoanAIMcashshell.

Internalreview
Lookatyourownbusinessfirst.Doyouhavearobustbusinessstrategyandastronggrowth storytotellthatwillpotentiallyinterestthemanagersofanAIMshellcompany? Themanagersoftheshellcompanyareunlikelytoengageinseriousdiscussionwitheither you,oryourcashshelladvisors,ifyouarenotabletoprovideastrongcaseastowhythey shouldconsideratransactionwithyourcompany. Itisthereforeessentialthatyourcompanyhasaprepreparedbusinessplan,includingfinancial projections.Thisneedstoclearlydemonstratehowthecashinthecashshellcompanywould beusedandthebenefitsofatransaction,bothforyourbusinessandtheshareholdersofthe cashshellcompany. Itisadvisabletohavethesedocumentspreparedbyexpertsandyourcashshelladvisorwill workwithyoutoensurethattheyreflecttherightbalanceofriskandrewardforthe managementandshareholdersofthecashshell.

Searchthemarket
Therearevariousannualresearchpapersavailablethatreviewcashshells;howeverthese quicklybecomeoutofdate.Newcleanshellcompaniesareformedorcometothemarket frequentlyandgoodqualityAIMcashshellsdontusuallystayaroundforlong. Askacashshellexperttoundertakeasearchandtoestablishthemostsuitablecashshells availablethatmatchyourcompanysrequirements.Youradvisorwilldrawupashortlistof potentialcashshellcandidatesandhelpyoutoweighupthebenefitsanddrawbacksofeach, beforeanapproachismade.

Chooseanappropriatecashshell
Yourcashshelladvisorwillworkwithyoutonarrowdownthesearchtoaparticulartargetcash shell.

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Approachtheownersofthecashshell
Itsoftenusefulforathirdpartytomakeaninitialenquiryintothefeasibilityofareverse transactionofyourcompanyintotheshellcompany.Youradvisorwillbeabletoundertake thisonbehalfofyourcompany. Youradvisorwillarrangeameetingwithrepresentativesfromthecashshellanddiscussionwill commenceregardingthepossibilityandsuitabilityofareversetransactionofyourcompany intothecashshell. Bepreparedfordiscussionsregardingthevalueofyourcompanyandtheshellcompany,and thetermsofsuchatransaction.Inevitablycompromiseswillbemadeonbothsides. Apartfromthemoreobviouspotentialpitfallsofreversingintoashellcompany,onearea oftenoverlookedisthehumanelement,whichisperhapsthemostchallengingareaofallin undertakingareverseintoanAIMcashshell. Itisimportanttopayparticularlyattentionto,andberespectfulof,theindividualsonthe boardoftheshellcompany.Inthecaseofadirtyshellinparticular,someofitsboard membersmayhaveahugeemotionalattachmenttotheircompany,havingpreviously investedaconsiderableamountoftime,energyandoftentheirownmoney,intothecompany. Aboveallbepatientandrespectfulthroughouttheprocess.Youwillneedtoworkwiththe boardoftheshellcompanyandnotagainstthem.Thesetransactionscanbeawinwin scenarioforbothsidesifatransactionissuccessful.

Understandtheneedsoftheshareholdersofthecashshell
Yourcompanyshouldbeawareofwhotheexistingshareholdersinthecashshellare,theirsize ofshareholdingandtheirinvestmentstrategy.Yourcashshelladvisorwillprovidethe necessaryinformationandseektheirapprovalforanytransaction.Thisisparticularly importantiftheshellhaslargershareholderswithmorethan10%stakeinthecashshell. BeforeyourcompanyundertakesareversetransactionintothechosenAIMcashshell,you mayalsorequirespecialisttaxadvice,forexample,toadviseonadvancetaxclearanceto ensurethat,asfarasthevendorsshareholdersareconcerned,theyqualifyforrolloverrelief,if applicable.

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Furtherconsiderations
Therearefurthertax,VATandPAYEconsiderationsforcompaniesconsideringareverseinto anAIMcashshellcompany.Forexample,ifyouhavelossesinyourowncompanyandyouare reversingintoacashshell,itmaybethatyouendupwithachangeofownershipandthereare antiavoidancetaxprovisionsthatcanthenpotentiallyputyourlossesatrisk.

WhataretheownersofAIMcashshellslookingforinareversingcompany?
ThemanagementofthemajorityofAIMcashshellsarelookingforsuitorsthatofferthe potentialforsomedecentcapitalgrowth. Prerecession,theownersofAIMcashshellswereoftenwillingtoconsidertransactionswith higherriskblueskycompanies,howeverinmorerecenttimes,andpostrecession,AIMcash shellshave,understandably,becomemoreriskaverse. Soitfollowsthat,ifyouareanestablishedbusinesswithatrackrecordofgrowth,youmaybe inastrongerpositiontotempttheownersofanAIMcashshellwiththepromiseofgrowth underpinnedwithadegreeofsecurity. AIMcashshellscompetewithprivateequityfunders,simplybecausetheyhavecashinhand readytoinvestingrowingorsuccessfulbusinesses.Cleancashshellsaregenerallysetupasan investmentvehicle;thedirectorsandshareholdersofacashshellarelookingforabusiness, ideallyfromthesameorsimilarbusinesssectorasthebackgroundandexperienceofthe directorsofthecashshell. Theymaytakemoreinterestinyourcompanyifyouhave; Ascalablebusinessmodel Abusinessoperatinginanichesectorwithhighbarrierstonewentrants Acompanythathasalreadydemonstratedyearonyeargrowth,orifyourbusiness hasthepotentialtodoso

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Timing
TypicallyanAIMcashshelltransactionwilltakebetweenthreeandfivemonths.However,the timetablemaydependonthelengthoftheduediligenceworkthathastobecarriedoutand whetheranysignificantissuesareidentifiedduringthisprocess.

Advisers
Flotation/cashshellconsultantstheirroleistopreparethecompanysbusinessplan, undertakeaninitialfeasibilitystudy,researchexistingcashshellsonAIMandassesspotential targets.Theywillalsosupportthecompanyinmakinginitialapproaches,buildingastrong boardandconsideringthegrowthstrategypostthereversetransaction. Nomad/BrokertypicallytheNomadwillalsoactsasthecompanysbroker.Theywillrunthe processandareresponsibletotheLondonStockExchangeforagreeingthesuitabilityofthe company. Reportingaccountantsthereportingaccountantsareresponsibleforpreparingreports, includinganyrequiredworkingcapitalreports.Theywillalsoreviewthefinancialreporting systemsandcontrols. Lawyerswillcarryoutalegalduediligencereviewandadvisethecompanyonthelegal aspectsofthetransaction. FinancialPRwillberesponsibleforgeneratingpositiveongoingmediacoverageofthe companysactivities.

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TheongoingobligationsofAIM
Followingthetransactionthecompanywillbesubjecttothesamesetofcontinuing obligationssetoutintheAIMRulesasanyothercompanyonthemarket.Thekeyrulesareas follows;

Disclosureofpricesensitiveinformation
One of the key continuing obligations relates to the disclosure of price sensitive information. Thisincludesspecificinformationthatmustbepubliclyannounced(AIMRule17)

details of any substantial transactions, any related party transaction, reverse takeovers or adisposalresultinginafundamentalchangeofbusiness dealsbydirectorsinthecompanysshares changestoanysignificantshareholders theresignation,dismissalorappointmentofanydirectorofthecompany anychangeinthecompanysaccountingdate achangeinacompanysregisteredofficeaddress changesinthecompanysname anydecisiontopayanydividend thereasonforthecancellationofanyofitsshares theresignation,dismissalorappointmentofitsNomadorbroker ageneralobligationtotakereasonablecaretoensurethatanyinformationreleasedtothe marketisnotmisleading,falseordeceptive

Financialreportingafterthetransaction
Annualaccounts A company admitted to AIM via a reverse transaction into a cash shell must publish annually audited accounts within six months of the end of the financial year to which they relate. For UK and EEU companies these must be prepared in accordance with International Accounting Standards. Halfyearlyreports OnceonAIM,companiesarerequiredtoproduceahalfyearlyreport.Thismustbepublished withinthreemonthsaftertheendoftheperiodtowhichitrelates.

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Codeonsharedealing AcompanyonAIMmustensurethatitsdirectorsandapplicableemployeesdonotdealinits sharesduringacloseperiod.Compliancewiththisrequirementisaddressedbyadoptinga codeonsharedealing.Thecodesetsoutthedetailsonwhatstepsdirectorsandapplicable employeesshouldtakebeforetheydealinthecompanysshares.Forthepurposesofthe sharedealingcode,anemployeeisanapplicableemployeeiftheyarelikelytobein possessionofunpublished,pricesensitiveinformationinrelationtothecompany.

CorporategovernanceonAIM
TheUKCorporateGovernanceCodedoesnotapplytocompaniesadmittedtotradingonAIM. However, investors and potential investors will expect to see the company adopt some of the bestpracticeprinciplesandprovisionssetoutintheUKCorporateGovernanceCode. As a guide, the London Stock Exchange state that Given the nature and range of smaller, growing companies that predominantly make up AIMs constituent members, the Exchange hasbelievedforsometimethatablanketrequirementtocomplyorexplainagainstaparticular code, in a one size fitsall style, is not appropriate. The Quoted CompanyAlliance, or QCA, haspublishedCorporateGovernanceGuidelinesforSmallerQuotedCompanies,includingAIM companies.

Undertakingacquisitionsanddisposals
In most cases the company will not require shareholder approval prior to undertaking an acquisition. A company will just be required to make an announcement to the market. The information must contain the information required by Schedule 4 of the AIM Rules for Companies. The exception to this is if the acquisition is a reverse takeover, then shareholder approval will berequired.Similarly,shareholderapprovalisnotrequiredforanydisposalthatistreatedasa disposalresultinginafundamentalchangeofbusiness.

Directorsremunerationreport
There is no formal requirement for an AIM company to produce a directors remuneration report.ThisisbecauseacompanyadmittedtoAIMisnotconsideredtobeaquotedcompany forthepurposesoftheUKCompaniesAct. However,underRule19oftheAIMrules,theannualaccountsmustcontaindetailsofdirectors remunerationearnedinthatfinancialyear.

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GLOSSARYOFSTOCKMARKETTERMS
Admissiontheadmissionofsecuritiestotradingonastockmarket. AdmissionandDisclosureStandardstheLondonStockExchangesAdmissionand DisclosureStandardsforsecuritiesadmittedorseekingtobeadmittedtotrading,assetoutin thisdocument,asamendedfromtimetotime. Admission Document the disclosure document that a company applying for admission to AIM must produce. The document contains information set out in schedule two to the AIM Rules for Companies. Unlike a Prospectus, an Admission Document does not need the approvaloftheFSA. AIMoriginallycalledtheAlternativeInvestmentMarket.TheLondonStockExchanges marketforsmallergrowingcompanies.Regardedasthemostsuccessfulgrowthstockmarket intheworld. AIMCashshellacashshellisacompanythatdoesnotquitemeetthedefinitionofashell company,butwhosemainvaluenonethelessliesinitslistingratherthanitsassetsorits business. AIM Rules for Companies the rules for companies admitted to trading on AIM or which are applyingforadmissiontoAIMpublishedbytheLondonStockExchange. Approvedprospectusthedocumentproducedbythecompanyanditsadvisorstobe approvedbytheCompetentAuthorityofthecompanyshomecountryandpublishedin relationtotheadmissionofsecuritiestoaregulatedstockmarket,oranofferofsecuritiesto thepublic. Bondsabondisafinancialsecuritythatpaysinterest.Mostbondshaveafixedlifeandthe principalisreturnedonmaturity. Capitalstructurethecapitalstructureofacompanyistheparticularcombinationofdebt, equityandothersourcesoffinancethatareusedtofundlongtermfinancing. Chinesewallasystemdesignedtopreventconfidentialinformationleakingfromone departmentofafinancialinstitutiontoanother. Coveredwarrantalistedsecurityissuedbyapartyotherthantheissuerororiginatorofthe underlyingassetthatgivestheholdertheright,butnottheobligation,tobuyorsellan underlyingassetataspecifiedpriceduring,orattheendof,aspecifiedtimeperiod. CityCoderulesadministeredbythePanelgoverningoffersforpubliccompanies.
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ClassteststestssetoutintheLondonStockExchangesAIMRulesforCompaniesthatare usedtoestablishwhattypeoftransactioninvolvingacompanyistakingplace.Thesecouldbe asubstantialtransaction,arelatedpartytransaction,areversetakeoveroradisposalresulting inafundamentalchangeofbusiness. CombinedCodethebenchmarkforbestpracticecorporategovernance. CorporateGovernanceusedtodescribethesystemsusedtocontrolcorporations.Thereare corporategovernancecodesandrecommendationsthatarenotcompulsory. Close Period a period of time in which an AIM company must ensure that its directors and applicable employees do not deal in any of its own shares. This is a period of two months before the publication of a companys annual results and the period of two months immediately preceding the announcement of its interim results. In addition, a company will alsobeinacloseperiodifitisinpossessionofunpublishedpricesensitiveinformation. Continuing obligations the rules applicable to AIM companies on a continuing basis followingAdmissiontotheAIMStockMarket. CPR a competent persons report, the rules and requirements of which are contained in the Guidance Note for Mining, Oil and Gas companies published by the London Stock Exchange. Thesearespecificguidelinesthatrelateonlytoresourcecompanies. CRESTthesystemforthepaperlesssettlementoftradesinsecuritiesandtheholdingof certificatedsecuritiesoperatedbyEuroclearUK&IrelandLimited(previouslyCRESTCo Limited). Depositaryreceipt(DR)atransferablecertificatethatrepresentssharesinacompanyand conferscertainrightsinrespectofthoseshares,issuedbyadepositorybankforthepurposes ofadmissiontotrading. DividendThepartofacompanysprofitsaftertaxthatisdistributedtoshareholders,usually expressedinpencepershare. DTRtheDisclosureandTransparencyRulespublishedbytheFSA. Duallistingaduallistingofacompanyisawayforacompanytohavetwoequallistings (neitherbeingasecondarylisting)indifferentmarkets. Duediligencetheprocessofobtainingallinformationaboutacompanytoensurethatthe companyisappropriatetobeadmittedtotheAIMstockmarket. EPS'earningspershare'(EPS)istheprofitattributabletoshareholders(afterinterest,tax, minorityinterestsandeverythingelse)dividedbythenumberofsharesinissue.
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Equityisthestakeitsownershaveinthecompany.Thisistherisksharingpartofa companyscapital,usuallymadeupofordinaryshares. ExchangeTradedFunds(ETFs)listedfundsthattracktheperformanceofanunderlying indexorbasketandcanbetradedinthesamewayasanordinaryshare. Flotationwhenacompanyssharesareadmittedtotradingonastockexchange. Freefloattheamountofsharesinacompanythatareinpublichandsi.e.notownedbya directorofthecompanyoritssubsidiaries,orindividualsconnectedwiththecompanyandany personholdingfivepercentormoreoftheshares. FSAtheFinancialServicesAuthority,whoactasthecompetentauthorityintheUK. FSMATheFinancialServicesandMarketsAct2000. FTSEIndicesmaintainedbyFTSEInternational,whichdemonstratetheperformanceof varioussectorsoftheUKandEuropeanmarkets.TheseincludeindicesfortheMainMarket, suchastheFTSE100,thelargest100companiesbymarketcapitalisationonthemarket.Also indicesforAIM,suchastheAIM50. Gearingoftenknownasleverage,measurestheextenttowhichacompanyisfundedindebt. Acommondefinitionisdebtdividedbyshareholdersfunds. Insiderdealingthepurchaseorsaleofsecuritiesbysomeonewhopossessesinside informationaffectingsecurities,whichhasnotyetbeenmadeavailabletothemarketand which,ifmadeavailable,wouldsignificantlyaffecttheshareprice.IntheUK,thisisregarded asacriminaloffence. IntroductionamethodofobtainingadmissiontoAIMwithoutanofferingofshares. IPOanInitialPublicOfferisthesaleofsharestothepublicasaprecursortotheshares tradingonanexchangeforthefirsttime. Issueranentitywithaclassofsecuritiesadmittedtotradingonastockmarket. Listedcompanyacompanyissaidtobelistedorquotedorhavingalistingofitsshares.It isthecompanysshares,notthecompanythatislisted. Listed/Listingtheadmissionofsecuritiestoalistingbyacompetentauthorityunderthelaw orregulationofamemberstateimplementingEUdirective2001/34/EC. ListingParticularsadocumentinsuchformcontainingsuchinformationasmaybe prescribedbytheListingrulesoftheFSA.
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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. ListingRulesTheListingRulesoftheUnitedKingdomListingAuthority. LiquidityTheeasewithwhichasecuritycanbetradedwithoutinfluencingtheprice. Lockin an agreement that means that a shareholder will not dispose of any shares in the companyforaspecifiedperiodafteradmissiontoAIM.Thiscanbesubjecttoexceptions. LSELondonStockExchangeplc.TheLSEoperatesAIMandtheMainMarket. MainMarketThelargeststockmarketoperatedbyTheLondonStockExchange. Marketcapitalisation(MarketCap)thetotalvalueofthesharesofacompany,sectoror market. MarketMakerasecuritiesfirmthatisobligedtooffertobuyandsellsecuritiesinwhichitis registeredtothemarketforthefirsttime,orissuesofextrashares. MIFIDtheEuropeanParliamentandCouncilDirectiveonmarketsinfinancialinstruments Newissueanissueofshareswhenthecompanycomestothemarketforthefirsttimeor issuesextrashares. NominatedAdvisorafirmapprovedbytheLondonStockExchangetosupportflotationson AIMandtoberetainedbythecompanyforthedurationofitstimeonthemarket. 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.TheProspectusRegulationcontainsthedetailedcontentsrequirementsfora prospectus. ProspectusRulestheprospectusrulespublishedbytheFSA.Thesenowformpartofthe FSAHandbook. Offerpricethesellingpriceforsecuritiesinthemarket. Offerforsubscriptionamethodofbringingacompanytomarket.Thepubliccanapplyfor sharesinthecompanydirectlyatafixedprice. Official List the list maintained by the FSA of those securities that have been admitted to listing.
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OrderbookafacilityoperatedbytheLondonStockExchangefortheelectronicsubmission andautomaticexecutionofordersinanyorder. OrdinarySharesthemostcommonformofshare.Holdersmayreceivedividendsinlinewith thecompanysprofitabilityandontherecommendationofitsdirectors. 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 CityCode. Placing an issue of shares to institutional and other selected persons rather than to the generalpublic. PreferenceShares(prefs)thesearelegallyshares,buttheyaredifferentfromordinary shares.Theeconomiceffectofprefsismorelikethatofbonds.Likeconvertibles,theyare regardedashybridsofdebtandequity. Dividendsonpreferenceshareshavetobepaidbeforedividendsinordinaryshares PreferenceShareholdershaveahigherpriorityifacompanyisliquidatedthanordinary shareholders,althoughalowerprioritythandebtholders Dividendsonordinarysharesmaynotbepaidunlessthefixeddividendsonpreference sharesarepaidfirst Inthecaseofcumulativeprefs,ifthedividendisnotpaidinfull,theunpaidamountis addedtothenextdividenddue. Preferencedividendsarefixed,sotheydonotparticipateinincreasesinprofitsas ordinaryshareholdersdo

Price/earningsratio(P/Eratio)theP/Eratioisameasureofthelevelofconfidenceinvestors haveinacompany.Generally,thehigherthefigurethehighertheconfidence.Itiscalculated bydividingthecurrentsharepricebythelastpublishedearningspersharewhereearnings pershareisnetprofitdividedbythenumberofordinaryshares. Primarymarketthefunctionofastockexchangeinbringingsecuritiestothemarketforthe firsttime.Moneyisraisedeitherforthecompanyatadmissionorthroughfurtherissuesto fundfuturegrowth. Privatecompanyacompanythatisnotapubliccompanyandwhichisnotallowedtooffer itssharestothegeneralpublic. ProfessionalSecuritiesMarket(PSM)TheLondonExchangesmarketfordebtsecuritiesor depositaryreceiptsofanydenomination,aimedataprofessionalinvestoraudience.

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Prospectuswhenacompanyappliesforalistingofitssecurities,whicharetobeofferedto thepublicintheUK,aprospectusisrequiredinaccordancewiththeUKLAsrules,detailing informationonthecompany,itsaccounts,directorsanditssecuritieslisted.MostAIM fundraisingsarestructuredasPlacingstoavoidthisrequirement. Thethresholdforfundraisingsthatrequireaprospectusis5million.Offersofsharesmadeto lessthan150personspermemberstatealsodonotrequireaprospectus. PublicLimitedCompany(plc.)acompanywhosesharesmaybepurchasedbythepublicand whosesharecapitalisnotlessthanastatutoryminimum.Notallplcsarelistedcompanies. RecognisedInvestmentExchange(RIE)anorganisationthatisrecognisedbyFSAas complyingwiththerecognitionrequirementslaiddownintheFinancialServicesandMarkets Act2000(RecognitionRequirementsforInvestmentExchangesandClearingHouses) Regulations2001. Registraranorganisationresponsibleformaintainingacompanysshareregister. Related Party any director of the company, or any other group company, any substantial shareholder who holds 10% or more of the companys shares, or any associate of any director oranysubstantialshareholder. Reporting Accountants theaccountantsappointed by the company to, among other things, preparethelongformreportandtheshortformreport. Reversetakeoverareversetakeoverisoneinwhichcontrolgoestotheshareholdersofthe companythatislegallytheonethatisbought.Thetermisusedtodescribethepurchaseofa listedcompanybyanunlistedcompany. Rightsissuearightsissueisawayinwhichacompanycansellnewsharesinordertoraise capital.Sharesareofferedtoexistingshareholdersinproportiontotheircurrentshareholding. Rightsissuesarecommonbecauseshareholdershavetherightoffirstrefusal(preemption rights)onthenewissueofshares. RNS(RegulatoryNewsService)ownedandoperatedbyTheLondonStockExchange,this enablesnewsaboutMainMarketandAIMcompaniestobedisseminatedtoallRNS subscribers,suchasinformationvendorsatthesametimeforonwardtransmissiontothe market.Companiesonthestockmarketspayafeetomaketheirannouncementsthrough RNS,orothermarketinformationserviceproviders. Scripdividendthedistributionofcashtoshareholderswithoptiontoelecttoreceiveshares inthecompanyinsteadofthecashpayment.
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Secondarylistingasecuritymaybelistedinmorethanonemarket.Itiscommonforsuch listingstobeaprimarylistingwithotherssecondarylistings. Settlementtheprocessoftransformingstockfrombuyertosellertobuyerandarrangingthe correspondingmovementofmoneybetweenthetwoparties. ShareCapitalsharecapitalisanaccountingnumberthatispartofthebreakdownof shareholdersequityonthebalancesheet. ShareholdersFundsshareholdersfundsisthebalancesheetvalueoftheshareholders interestinacompany. ShellCompanyashellcompanyisacompanythatexistsbutdoesnotactuallydoany businessorhaveanyassets.Giventhatittakestimeandmoneytoobtainalistingonany stockmarket,alistedshellhassignificantvalue,evenifdoesnothaveanyassets.Listedshells arethereforeoftentargetsforreversetakeovers. Short form report the accountants report on historical financial information, which is reproducedintheAdmissionDocument. SpecialistFundMarkettheSpecialistFundMarketistheLondonStockExchangesmarket forhighlyspecialisedinvestmententitiesthatwishtotargetinstitutional,professionaland highlyknowledgeableinvestors. Stockwhenreferredtoasasecurity,stockisthesecuritynotdividedintounits,assharesand corporatebondsusuallyare. TechMARKTheLondonStockExchangesbrandingforinnovativetechnologycompanies listedonitsMainMarket. TechMARKmedisciencethespecialistsegmentoftheMainMarket,whichfocuseson innovativehealthcarecompanies. TradElectasystemoperatedbytheLondonStockExchange,whichsupportsthetrading services,facilitatesquoteandorderentry,automaticexecutionoforders,receiptsand publicationoftradereportsandwhichisareportingsystem. UKCorporateGovernanceCodethissetsoutbestpracticeinrelationtoissuessuchasboard composition and development, remuneration, accountability and audit and relations with shareholders. UKLATheFinancialServicesAuthorityactinginitscapacityastheUnitedKingdomsListing Authority.
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Underwritinganarrangementbywhichacompanyisguaranteedthattheissueofshareswill raiseagivenamountofcash.Underwritersundertaketosubscribeforanyoftheissuenot takenupbythepublic.Theychargeacommissionforthisservice. 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 AdmissionDocument. Warrantssecuritiesgivingtheholderarighttosubscribeforashareorabondatagivenprice andfromacertaindate. WorkingcapitalstatementastatementbythedirectorsofanAIMcompanyinthe AdmissionDocumentthat,intheiropinion,theworkingcapitalavailabletothecompanyis sufficientforatleast12monthsfromAdmissiontoAIM. Yieldthereturnearnedonaninvestment,takingintoaccounttheannualincomeandits presentcapitalvalue.Thereareanumberofdifferenttypesofyieldandinsomecases differentmethodsofcalculatingeachtype.

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HollandBendelowaretheUKsleadingflotationandcashshellconsultancy,withasuccessful trackrecordofadvisingUKandInternationalcompaniesaboutstockmarketflotation. Wespecialiseinadvisingthedirectorsandownersofprivatelyownedprefloatcompanies consideringfloatingtheircompaniesonanyoftheUKstockmarkets,including,AIM,ICAP ISDX,TheLondonStockExchangesMainMarketandAssetMatch ForfurtherinformationaboutAIMcashshellsorjoiningAIM,pleasecontactHolland Bendelow:+44(0)8451223415orvisitwww.hbcg.co.uk

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 HollandBendelow
www.hbcg.co.uk
New Broad Street House, New Broad Street, London Princess Exchange, Princess Square, Leeds TEL: +44 (0)845 1223415

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