Public Companies Update January 2005

2 UKLA Guidance on the circulation of draft listing particulars, announcements under Chapter 9 of the listing rules and amending a transaction post-shareholder approval

At the end of last year, the UK Listing Authority ("UKLA") published the 8th edition of its newsletter "List!". Set out below is a summary of its key content:

2.1 Assessing whether to announce information

Rules 9.1 and 9.2 of the Listing Rules require an issuer to announce any information that would bring about a substantial movement in the price of its securities. Although Rules 9.1 and 9.2 do not set a threshold for assessing what constitutes a substantial movement, many practitioners operate on the basis that if the information would alter the share price or another key figure (such as operating profit) by more than 10% then an announcement should be made.

The UKLA has warned against employing this artificial threshold in determining whether to make an announcement, pointing out that the level of movement considered to be 'substantial' will vary from issuer to issuer. By way of illustration, the UKLA has stated that it would expect the threshold of a FTSE 100 company to be lower than that of an illiquid company with a small market capitalisation and relatively high price volatility.

2.2 Circulation of draft listing particulars

In contrast to listing particulars and any supplements issued thereto, draft listing particulars (or pathfinders) may, in certain circumstances, be circulated to a limited number of people without the UKLA's prior approval (paragraph 8.3 of the Listing Rules "LR 8.3"). The UKLA has become aware, however, that in some instances thousands of copies of pathfinders have been published and circulated, clearly going against the spirit of LR 8.3. The UKLA has repeated that pathfinders may only be distributed to a small select group and has explained that one of the main intentions of LR 8.3 is to enable companies and advisers to circulate pathfinders to facilitate a proposed fundraising.

The UKLA has acknowledged that, in practice, advisers usually insist that all material comments are cleared with the UKLA before the pathfinder is circulated and that the only omission that prevents it from being formally approved is details of the price. The Prospectus Directive and the new draft Prospectus Rules expressly permit the approval of prospectuses where the final offer price or the amount of the securities to be offered or admitted remains to be determined. This means that when the new rules come into force (expected to be 1 July 2005), the UKLA will be able formally to approve documents currently treated as pathfinders provided that they comply with requirements regarding disclosure of the criteria or conditions for determining the number of securities or the maximum price (PR 2.3.2R).

As an interim measure, the UKLA will formally approve prospectuses which omit the final price or amount of securities provided that they comply with PR 2.3.2R and continue to meet the general disclosure requirements set out in s.80 of the Financial Services and Markets Act 2000.

Following clarification of LR 8.3, the UKLA expects the circulation of pathfinders to be strictly limited to a small number of investors.

The UKLA considers that pre-marketing of specialist securities will not breach LR 8.3 and that the distribution of underwriting proofs to prospective underwriters after the announcement of a rights issue will benefit from LR 8.3.

The UKLA has also considered the impact of this approach regarding pathfinders on working capital statements for issuers:

• New applicants - unless a new applicant already has sufficient working capital for at least the next 12 months, it will be expected to make a working capital statement based on an assumption relating to the minimum net proceeds to be raised. The applicant must clearly state that the listing will not proceed if this amount is not raised, unless the applicant is able to publish a revised unqualified working capital statement. Prior to admission, the final price and number of shares must be published in a pricing statement.
• Existing listed issuers - working capital statements will only be able to take into account expected proceeds to the extent underwritten and loan facilities to the extent committed. However, there is no requirement that the working capital statement is unqualified.

2.3 Amending transaction terms post-shareholder approval

The UKLA has confirmed the importance of allowing an issuer discretion to make non-material changes to the terms of a transaction following shareholder approval. It has stressed, however, that these changes must be non-material and that a material change would probably require further shareholder approval. For this reason, the UKLA rather than the issuer will decide whether a change is material.

The above position is relaxed, however, in respect of takeovers, as the UKLA recognises that the waiving of a bid condition could be deemed to be a material amendment to the terms of the offer. The UKLA will, however, seek confirmation from the issuer that any material change to the offer price will not be made without prior shareholder approval.

A copy of the newsletter is available at www.fsa.gov.uk/pubs/ukla/list_dec04.pdf

If you require further information on any matter covered in this note, please contact your principal contact at Charles Russell or Simon Gilbert, Katy Knight, Clive Hopewell or Alexander Keepin (London), Francis Rundall or Richard Norton (Cheltenham) or Catherine Drew or Geoff Sparks (Guildford) on 0207 203 5000.

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Please note that the summaries above are a general indicative guide only. They are not exhaustive. This information has been prepared by the firm as a service to our clients. As it is a general guide, we recommend that you seek professional advice before taking action. No liability can be accepted by the firm for any action taken or not taken as a result of this information. The firm is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to clients because we are members of the Law Society. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide.