#3327 - Is A Prospectus Required Crib Sheet - Public Companies and Equity Finance

Is a Prospectus Required?

Questions on what advice to give a company concerning the distribution of its shares to the public that may result from its proposed offering of new shares

1. 85(1) FSMA An approved prospectus is required if there is an offer of transferable securities to the public in the UK (it is unlawful for transferable securities to be offered to the public in the UK without an approved prospectus)

   1. 103(1) offer of transferable securities to the public has the same meaning as in 102B FSMA

      1. 102B(1) there will be an offer if there is communication to any person which presents sufficient information on the securities to be offered and their terms, to enable an investor to decide to buy or subscribe for those securities

         1. 102B(3) the communication may be made in any forms and by any means

            1. A FLOATATION BY WAY OF AN OFFER FOR SUBSCRIPTION AND/OR SALE, PLACING OR INTERMEDIARIES WILL FULFIL THIS CRITERION

   2. 102A(3) refers to MiFID which at Art 4(1)(18)(b) details that transferable securities includes shares

      1. Schedule 11 FSMA lists exempt securities

         1. ORDINARY SHARES WILL NEVER BE EXEMPT

   3. 102B(2) an offer made to a person in the UK is made to the public in the UK

      1. LR Appendix 1.1 defines a placing as not constituting a public offer

   4. 85(7) a prospectus needs to be approved by a competent authority (72 FSMA)

      1. 1(1) FSMA Competent authority is defined as the FSA

2. EXEMPTIONS

   1. 86(1)(a) Offer to qualified investors

      1. Investors defined in 86(7) FSMA which refers to Art 2.1(e) PD and those entered on a register in accordance with 87R FSMA and PR 5.4

      2. APPLY TO FACTS – IS THE OFFER TO THE PUBLIC AT LARGE?

   2. 86(1)(b) Offers to fewer than 150 persons in each EEA State

      1. APPLY TO FACTS – IS THE OFFER TO THE PUBLIC AT LARGE?

   3. 86(1)(c) & (d) Offers involving significant investment by each investor

      1. Applies where each investor invests a minimum of 50,000 Euros

         1. Increased to 100,000 Euros by Directive 2010/73/EU by 1 July 2012

   4. 86(1)(e) Small offers

      1. Exempts offers where total consideration cannot exceed 100,000 Euros

      2. 85(5)(a) exempts offers where total consideration is less than 5 million Euros

   5. PR 1.2.2R(1) Share swaps

      1. No increase in share capital

   6. PR 1.2.2R(2) & (3) Offers in conjunction with takeovers or mergers

      1. Document equivalent to a prospectus is required

         1. Listing particulars

   7. PR 1.2.2R(4) Bonus issue and scrip dividends of class shares already listed

      1. Document available with basic information

   8. PR 1.2.2R(5) Offers by listed companies to employees and/or directors

3. Mini conclusion

   1. Is a prospectus needed on the facts?

4. 85(2) FSMA An approved prospectus is required if there is a request for admission of transferable securities to trading on a regulated market in the UK (it is unlawful to request admission of transferable securities to trading on a regulated market operating in the UK without an approved prospectus)

   1. 103(1) FSMA refers to a MiFID for a definition of regulated market

      1. Art 4.1(14) MiFID a mulitateral system operation and/or managed by a market operator which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments in the system and in accordance with its non-discretionary rules in a way that results in a contract

         1. Main Market of the LSE is a regulated market, AIM is not

5. EXEMPTIONS

   1. PR 1.2.3R(1) Admission of shares representing less than 10% of shares of the same class already admitted to trading on the same market

      1. Applied over a rolling 12 month period

         1. Ignore issues in previous 12 months which fall under another exemption but include issues that fall under this exemption

            1. SEE WORKSHOP 2, PREP TASK, QUESTION 6

   2. PR 1.2.3R(8) Shares already admitted to trading on another regulated market

   3. PR 1.2.3R(7) Shares of a class already listed resulting from the exercise of exchange or conversion rights

   4. PR 1.2.3R(2) Shares swaps

      1. No increase in share capital

   5. PR 1.2.3R(3) & (4) Offers in conjunctions with takeovers or mergers

      1. Document equivalent to prospectus required

         1. Listing particulars

   6. PR 1.2.3R(5) Bonus issue and scrip dividends of class of shares already listed

      1. Document with basic information made available

   7. PR 1.2.3R(6) Offers to employees and/or directors of a class already listed

6. Conclusion

   1. Is a prospectus needed on the facts

7. Private Companies

   1. 755 CA 2006 private companies cannot make offers to the public

      1. 756(4) carve out for connected persons

      2. 756(3)(b) carve of for private concerns

         1. Get counsel’s advice before relying on these exemptions

   2. If not relying on exemption then need to re-register company

      1. 85(1) FSMA then applies if making an offer to the public

      2. 85(2) does not apply if not applying to a regulated market
         

8. Shares in public hands

   1. LR 6.1.19R by the time of admission, at least 25% of the shares must be “distributed to the public” in one or more EEA states

      1. LR 6.1.19(4) no shares owned by directors or persons connected with them count towards the 25%

         1. 96B FSMA & LR Appendix 1.1 Connected persons includes

            1. Spouse

            2. Civil partners

            3. Minor children

      2. Shares which are part of a shareholder holding of 5% or more also do not count to 25% in public hands

   2. To satisfy the condition, shares need to be offered to the public (offer for subscription) and/or to placees each taking below 5% (placing) and/or for some shareholders to offer for sale some of their existing shares

9. Testing the market

   1. Pathfinder prospectus

      1. Draft of prospectus which is sent out to prospective investors to stimulate interest in IPO

      2. Does not need FSA approval

      3. As an advertisement it must comply with PR 3.3

         1. PR 3.2.3R an approved prospectus must be made available to investors at least 6 working days before the close of the offer

      4. Could breach 21 FSMA 2000

         1. Offence for a company to send out a pathfinder to induce investors to buy shares

            1. Avoid problem by only sending to persons exempt from section 21

   2. Preliminary prospectus

      1. Virtually identical to a full prospectus

      2. Must be approved by the FSA before it is sent out

      3. Price will not be specified in document as a fixed amount but instead will be a range

      4. PR 2.3.2R pricing statement will subsequently be issued setting out the final price before the offer closes

         1. Does not require prior approval by the FSA

      5. 87Q(1) & (2) FSMA investors have the right to withdraw their acceptances of the offer within 2 working days of the date the company provides the price of the offer to the FSA

         1. 87Q(3) if the prospectus details the method and conditions for determining the...