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2006 is set to be a good year for the IEX Back  
Since its launch in early 2005, the Irish Enterprise Exchange (IEX), which aims to replicate the success of London's Alternative Investment Market (AIM), has attracted 14 companies. George Brady and Gerry Beausang write that the signs for the future for the IEX are broadly encouraging, and a number of companies are currently considering, or are in the process of applying, to the IEX. Here, they give an overview of what companies need to know before applying for a listing.
The Irish Enterprise Exchange (IEX) was launched in early 2005 by the Irish Stock Exchange, with an eye on London’s Alternative Investment Market (AIM). AIM has, by any measure, become one of the most successful stock markets in the world for early stage businesses, with over 2,000 companies which together have raised in excess of ?24 billion. Growth companies are attracted by the less onerous regulatory process involved in floating on AIM and the ability to reach an investor base which has a good understanding of such companies. Matheson Ormsby Prentice acted for four of the five companies that applied to IEX in 2005.
Currently, there are 14 companies whose securities are listed on IEX, with a combined market capitalisation of over €1 billion. Interestingly, although there are a limited number of companies on IEX (and some of these companies transferred automatically from existing ISE markets), a wide range of industry sectors are represented including mining and exploration, e-learning, agri-foods, pharmaceuticals, and property/facilities management.

We believe the signs for the future for the IEX are broadly encouraging. A number of companies are currently considering or are in the process of applying to the IEX.

One of the most appealing features of an IEX listing (particularly in comparison to the predecessor ISE markets) is the similarity of the admission process to that of AIM. The IEX rules were specifically designed by the ISE to be complementary to the AIM rules and therefore the incremental costs involved for the applicant to AIM in seeking a dual listing on IEX would be relatively insignificant.
Irish companies which are considering a listing on AIM should also consider a dual listing on IEX for a number of reasons, including principally:
• The advantage of having broker and analyst support based in Ireland (which may be stronger than might otherwise be the case)
• The increase in visibility to institutional and retail investors through, in certain instances, ISEQ? Index participation
• To improve the liquidity of their shares through the provision of a euro-denominated quote and trading facility

A company seeking admission to AIM and/or IEX must, at the outset, engage certain key advisers, being the nominated adviser (or NOMAD), solicitors, reporting accountants and broker. The admission process itself will be managed by these advisers in consultation with the company. The solicitors’ primary task at the early stages will be to carry out a due diligence exercise on the company and its business. The purpose of this is mainly to gather certain basic information which will need to be contained in the Admission Document, but it will also serve to identify any headline issues which would have an impact on the pricing of the company’s shares or require rectification prior to admission. By conducting a suitably rigorous due diligence exercise, the company’s advisers will be able to prepare a high quality Admission Document which can form the basis for the company’s marketing process, as well as ensuring compliance with the AIM/IEX Rules and minimising the directors’ liability in relation to the Document’s content. The company’s solicitors will also advise on the contents and drafting of the Admission Document, as well as preparing and finalising ancillary documents such as the service agreements between the company and the directors. If the company is raising funds simultaneously with seeking admission, its solicitors will negotiate the terms of the placing or underwriting agreement between the company, the NOMAD and the broker.

The role of NOMAD is key for prospective AIM and IEX companies, as it will be NOMAD’s responsibility to confirm to the London and Irish Stock Exchanges that the company is appropriate for AIM/IEX. Many of the supervisory duties under the AIM/IEX regulatory regime have effectively been delegated to the NOMAD under the rules of both markets. Accordingly, it will be for the NOMAD to ensure that the company discharges its responsibilities in terms of continuing obligations and as regards the application of the AIM/IEX rules generally, for example the making of announcements when necessary on (i) trading performance, (ii) changes in the shareholdings of directors or connected persons or (iii) substantial transactions which the company is proposing to undertake. For this reason, the NOMAD will be keen to impress upon the company the need for a good system of management control and financial reporting.

The applicant company will also appoint reporting accountants, whose function it will be to undertake the financial due diligence and assist the directors in their review of the company’s working capital. Finally, the company must engage a broker, who is responsible for managing dealings in the company’s shares and, if funds are being raised, pricing the issue. Often, the same firm will fulfil the roles of NOMAD and broker. A range of other advisers may be needed for assistance with valuation (e.g. surveyors and actuaries), in respect of insurance (both for the company and the directors) and as ancillary advisers, such as printers and (for admissions of a sufficient scale) public relations consultants.

The principal documents involved in an AIM or IEX admission include the following:

Admission Document – the purpose of the Admission Document is to provide potential investors with sufficient information concerning the business, management and shares of the company to allow them to consider the wisdom of making an investment. Unlike a listing on the official lists, neither the London Stock Exchange or the Irish Stock Exchange will examine the Admission Document prior to admission

Verification Notes – a detailed verification exercise will be carried out by the company’s solicitors in order confirm the accuracy of all statements of fact and opinion contained in the Admission Document.

Responsibility Statements – the Directors must also sign a responsibility statement acknowledging their responsibility for the Admission Document, and any other document, advertisement or announcement published in connection with the admission

Lock-In and Orderly Market Undertakings – where the business of the applicant company has not been independent and generating revenue for a period of at least two years, all directors and substantial shareholders must enter into written undertakings agreeing not to dispose of their shares in the company for a period of at least one year from the date of admission. The undertaking may also prescribe that the shareholder must, following expiry of the initial 12 month lock in period, agree to effect any sale within the succeeding 12 month period through the company’s AIM/IEX broker in order to guarantee an orderly market in the company’s shares

Placing Agreement – in most instances, a company seeking admission to AIM/IEX will wish to carry out a fundraising at the same as it is applying for admission. The placing agreement will lay down the terms on which the broker will conduct the placing on the company’s behalf.

As noted above, we believe that the signs for IEX are broadly encouraging and look forward to seeing how the market performs during the remainder of 2006.

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