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INSIDE AIM – AIM Company disclosures relating to equity financing products (1)

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AIM Regulation has published a new Inside AIM update to provide guidance on AIM company disclosures relating to equity financing products, in which an AIM company or its directors are interested.

On 24 September 2015, AIM Regulation published a new Inside AIM update to provide guidance on AIM company disclosures relating to equity financing products, in which an AIM company or its directors are interested.

A company may enter into various types of equity financing products, including equity lines of credit, swap facilities and certain crowd funding products. Similarly, directors may enter into arrangements such as share sale and repurchase agreements.

In the update, AIM Regulation makes the following general points:

Complexity and non-standard terms

Some equity financing products available to companies may be complex. AIM companies and nominated advisers (nomads) should carefully evaluate the terms of these products, especially when considering disclosure requirements, to ensure that the information provided is sufficient to give a proper understanding to the market. This may mean that more detail should be given on these products than more common forms of financing.

Disclosure of directors' share dealings

Equity financing products are also available to directors, such as share sale and repurchase agreements. These enable directors to use their own shareholding in the AIM company as a means of personal financing.

AIM companies should carefully evaluate the consequences of these products, particularly as regards the company's obligation to disclose directors' dealings. AIM Regulation makes the point that the definition of "deal" under the AIM Rules is extremely broad and that the nature of any director's dealing arrangements should be clearly disclosed normally at the time that a deal becomes legally binding (whether that deal occurs then or in the future).

After the initial disclosure of any equity financing arrangements, AIM companies should make appropriate updates, for example, in circumstances where a director's previously-disclosed intention changes or where a director's rights under any agreement changes, for example, if the director does not meet a margin call.

Systems and controls for disclosure

Given that an AIM company is not party to the equity financing products which a director enters into, it should ensure that its agreements with its directors (for example, service agreements or appointment letters) include undertakings that a director furnishes the company with all information it requires in order that the company can comply with its director dealing notifications pursuant to AIM Rule 17. This is an important element of AIM Rule 31 (responsibility for compliance).

Where directors have entered into equity financing arrangements, consideration should be given as to who is best placed at the AIM company to be involved in the preparation of any announcements. The Exchange expects that appropriate independence is exercised when preparing any such announcements.

AIM companies are advised to consult with their nomads at the earliest opportunity about these types of arrangements, who may, in turn, consult with AIM Regulation if they are in any doubt as to the relevant disclosure requirements.

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