An introduction to the UK market

Corporate Finance and Broking • Research • Sales • Market Making

Notices

Confidentiality

This Presentation is confidential and has been prepared by Arbuthnot Securities Limited (“Arbuthnot”). This Presentation has not been prepared with a view to
public disclosure and, except with the prior written consent of Arbuthnot, may not be used for any other purpose nor may it be disclosed, copied or distributed
to any third parties.

Disclaimer

The information used in preparing this Presentation has been taken from public sources or supplied by Management. In preparing this Presentation,
Arbuthnot has assumed and relied upon the accuracy and completeness of the information taken by it for the purpose of this Presentation and does not
assume any responsibility for independent verification of such information. In particular, but without limitation, this Presentation contains estimates and
forecasts and Arbuthnot has relied on the accuracy and completeness of these in preparing its analyses without independent verification thereof. No
representation or warranty, express or implied, is made by Arbuthnot as to the accuracy of any information contained in this Presentation and no responsibility
or liability is accepted for the accuracy or sufficiency thereof or for any errors, omissions or misstatements, negligent or otherwise, relating thereto. In
particular, but without limitation, no representation or warranty is given as to the misstatements or reasonableness of, and no reliance should be placed on,
any estimates or forecasts and nothing in this Presentation should be relied upon as a promise or representation as to the future. This Presentation has not
been approved by Arbuthnot’s Fairness Committee.

Except where otherwise indicated, this Presentation reflects prevailing market conditions as they existed and could be evaluated and Arbuthnot’s judgements
as at 19 May 2010. Arbuthnot does not accept any responsibility for updating this Presentation to a subsequent date or notifying any change in conditions or
judgements.

2
Section 1 – the IPO process

3
Planning the IPO

Initial investigations Planningand

Planning andexecution
execution Ongoing

Is an IPO right for the
Bring together a competent
News flow post admission
business? team to take you public

Clear strategy to deliver on

Investigate other options?
Ensure business processes targets

Plan the timing of your and infrastructure are

Attract long-term investors
appropriate

Admission
launch and encourage analysts

Establish corporate
governance
Pre-launch considerations

Manage investor relations
and communications

Corporate structure and
domicile

Management team

Capital requirements / use
of proceeds

Ownership structure

AIM or Full List

Planning and execution for an IPO is the most time consuming stage. It is important that when the
Company comes to market, it has the appropriate controls and process in place to enable it to function as
a public company
4
Are you ready to go public?

Suitability Disclosure Ongoing Requirements

Attractive business strategy
Prospectus / Admission document
Reporting

Management experience and track − Preliminary − Periodic financial reporting

record
− All material non-financial
− Final

Acceptable corporate governance information

− Board structure
Pre-IPO Research
Regulatory

− Contractual requirements − Listing Rules / AIM Rules

Proper internal controls/ procedures − Takeover Code (if applicable)

Sufficient working capital
Investor relations

Sufficient liquidity

− Market capitalisation

− Free float

Use of proceeds

5
AIM versus Full List (London)

Issue AIM Full List Notes

• Trading record No minimum Normally, 3-year trading record

• Free float No minimum proportion of shares to be Minimum 25% shares in public hands
in public hands
• Market Cap No minimum Minimum market cap required

• Admission Admission Documents not pre-vetted by Prospectus required. Pre-vetting by Additional costs
document Exchange or UKLA (providing it is not a the UKLA
Prospectus)
• Lock ups on 12 month lock up Not a regulatory requirement
Admission
• Advisors NOMAD and broker required at all times Sponsors needed for certain
transactions
• Reporting 6 monthly statements 6 monthly statements and interim Additional quarterly IMSs
management statements (1Q / 3Q) required
• Subsequent M&A / No prior shareholder approval except for Prior shareholder approval required Potential additional costs and
equity reverse takeovers for time required for large M&A /
fundraising substantial acquisitions, disposals fundraising
and fundraisings
• Corporate No requirement to observe Combined Requirement to “comply or explain” Compliance costs
Governance Code and ABI guidelines (Combined Code). ABI guidelines
also apply
• Additional share No fees, simple application process UKLA plus possibly LSE fees. More
issues complex application process

6
AIM IPO - Advisory team

Early engagement with the advisory team will assist
Indicative fees for principal advisers
smooth delivery of any IPO process

− Early identification of issues

Lawyers
Lawyers
− Early implementation of a disciplined process to
to
Nomad / broker
− Co-ordination of a disciplined process Nomad / broker
£40,000
£40,000

Lawyers to

Fees will be driven by the complexity of the Accountants Lawyers to
Accountants
transaction, timing and scale of the fund raising Company
£100,000 to Company
£100,000 to
£100,000 to
£150,000 £100,000 to
£150,000 £150,000
£150,000
The Company
The Company

Nomad and
Nomad and
Broker PR
Broker PR
£250,000 & 5.00% Advisers
£250,000 & 5.00% Advisers
commission £30,000
commission £30,000
on monies raised
on monies raised

7
AIM IPO - Advisers and their responsibilities

Company Nomad/ Broker Auditor/ Reporting Accountants

Primary Responsibility
Project management
Audit full year and interim financials and

Admission Document
Transaction structure preparation of Accountant’s Report

Due diligence information
Coordination of due diligence
Review monthly financials

Corporate actions
Coordination and review of Admission Document
Financial due diligence/ Long Form Report

Business plan/ financial projections
Coordination with AIM Team and LSE
Working Capital report and comfort letter

Review of analysts’ research
Investment Case
Contribute to and review financial disclosure

Communication strategy
Valuation
General advisory to parties on accounting and

Investor relations/ Rule 26 disclosure
Analyst presentation disclosure issues

Capital structure
Road show presentation
FRP review and comfort letters
Secondary Responsibility
Coordination/ preparation of road show/
Significant change and comfort letters

Investment case marketing/ PR
Tax clearances

Analyst presentation
Syndicate management

Road show presentation
Pricing/ trading/ settlement/ stabilisation

Placing Agreement and other relevant legal
agreements

Issuer’s Counsel Nomad/ Broker’s Counsel PR/ Printers/ Market Research

Corporate and regulatory actions
Review of and contribution to Admission PR

Review underwriting and other relevant legal Document
Manage the PR and media in connection with the
agreements
Due diligence placing and ongoing investor relations activities

Legal due diligence report
Legal opinions
Review of presentation materials and rehearsals

Admission Document drafting
Negotiations of accountant’s engagement letters
Draft press release

Publicity guidelines
Comfort letters

Verification of Admission Document, road show
Placing Agreement and other legal agreements Printers
and marketing materials
Research guidelines
Print:

Legal opinion
Review and input into publicity guidelines o Pathfinder

Employee share schemes o P-Proof
o Admission Document

Market Research

Market analysis, as required

8
Timetable - indicative
Timing Weeks Weeks Weeks Weeks Weeks Weeks Weeks Weeks
1-2 3-4 5-6 7-8 9-10 11-12 13-14 15-16
Action
Preparation
Appoint team
Phase
Collate information

Structure / management

Accounting
Long form report

/
Short form report
Legal
Working capital / cash flow report
/
Legal DD report
Technical
Reporting procedures
docs
Comfort letters

Prospectus
Drafting pathfinder

/
Verification
Admission
Publication of pathfinder
Doc
Finalisation

Publication of Admission document

Prepare analyst presentation

Analyst presentation
Research

Review pre-deal research

Publish research

“Blackout-Period”

Presentation drafting

Test marketing (to be considered)

Verification
Marketing

Set price range
/

Road show / book build
Road show

Set offer price

Allocation

Admission to AIM & receipt of proceeds

Source Key Key Broker 9

: event event
Selected AIM Continuing Obligations *

Once listed, an AIM Company is required to comply with the AIM Rules for Companies. Of particular note are the Continuing
Obligations summarised below:
Principles of disclosure (Rule 10)

Certain information is required to be notified via a Regulatory Information
Service no later than published elsewhere

Care must be taken that information presented in any announcement is not
misleading, false or deceptive and does not omit matters of import
Company & Directors' responsibility for compliance (Rule 31)

Directors collectively and individually responsible for compliance with the
AIM Rules, and must seek advice from their Nomad whenever appropriate

Must have in place sufficient procedures, resources and control to ensure
compliance with the AIM Rules
Trading / material change (Rule 31)

Any material change in the financial or trading position/forecasts of the
Company from that last made public, which if made public would likely lead
to a substantial movement in the Company's share price must be notified
without delay
Transactions (Rules 12, 13)

Substantial transactions: over 10% on any AIM Rules Class Test must be
announced without delay

Related party transactions: over 5% on any AIM Rules Class Test must be
announced without delay as soon as terms are agreed disclosing the key
terms and a statement that the transaction is "fair and reasonable"
Further issue of shares (Rules 27 to 29)

Application should be made to AIM to list any new shares 3/4 business days
in advance of issue
……….if in doubt, the Nominated Adviser should be promptly consulted
Directors & dealing (Rules 17, 21)

No dealing in a Close Period or when in possession of unpublished price
sensitive information

Company should have in place Director and employee dealing procedures

Director dealings must be notified immediately

Directorate changes must be notified immediately, the announcement to
include disclosures as per AIM Rules Schedule 2
Holdings in Company (Rule 17)

Announce via RIS. Notify without delay if the Company is notified or a
relevant change in a significant shareholding (3%+)

The Disclosure and Transparency Rules apply to certain AIM Companies
Publication of reports (Rules 18, 19)

Annual accounts to be dispatched to shareholders and published on
Company website within 6 months of the financial year end

Interim accounts to be announced by RIS within 3 months of the half-year
Filing of documents (Rule 20)

All circulars sent to shareholders (excl. Interim & Full year Accounts) to be
lodged electronically with AIM at the time of posting and publication
announced by RIS
Website - company information disclosure (Rule 26)

Company to maintain a website that is compliant with AIM Rule 26

Information published on website should be less than 6 months old
* refer to the AIM Rules for Companies for full Continuing Obligations
10
Section 2 – the UK Alternative Investment Market

11
An overview of AIM
Since its inception in 1995 AIM has established itself as one of the leading junior markets worldwide

Key statistics Market performance

At the end of 1997 there were 1,694 companies listed on AIM. This has
The performance of the AIM market has been well publicised throughout
now reduced to 1,253 the downturn; falling more sharply than the other major UK indices during

One of the largest causes of this decrease has been the delisting of very the winter of 2008/09
small companies from the market
Many fund managers were forced to sell holdings in a falling market in
Dec-07 Dec-08 Dec-09 Apr-10 response to investors withdrawing money from their funds
No. of companies 1,694 1,550 1,293 1,253
However, since reaching the bottom of the market in March 2009, AIM has
Total market cap (£m) 97,561 37,732 56,632 64,518 significantly outperformed the other major UK indices
Average market cap (£m) 58 24 44 51

AIM has put much effort into establishing itself as the market of choice for
Bottom of the market, March 2009
International developing companies, and currently boasts 490 International 120
Companies AIM: 91.1%
110
Capital raising FTSE 100: 64.1%
FTSE All Share: 65.9%
100

2007 was a record year for fundraising on AIM, with just over £16bn raised

During the downturn, investors favoured Secondary fundraisings, in 90
particular in the natural resources sector, and were reluctant to support

Rebased to 100
riskier Primary fundraisings 80

70 AIM: (64.6)%
18
FTSE 100: (43.5)%
16 60 FTSE All Share: (44.7)%
Funds raised (£bn)

14
12 50
10
8 40
6
4 30
2
0 20
1995
1996

1997
1998

1999
2000

2001
2002

2003
2004
2005
2006

2007
2008

2009
2010*

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10

FTSE AIM FTSE 100 FTSE All Share
Primary Secondary

Source: London Stock Exchange, Datastream 12

Investor attitudes to IPOs
Arbuthnot prepares a review of investor attitudes towards AIM each year

Key attractions Success post-IPO

40 70
35 60
30 50
25
40
(%)

20

(%)
30
15
20
10
5 10

0 0
Quality of Business Time to Valuation Forecasts Business Plan Newsflow Acquisitions
management idea/product profitability 2009 2008 2007
2009 2008 2007
Size of company
Valuation – discount at IPO 50

40
80
30

(%)
70
20
60
10
50
0
(%)

40 < £10m £11-25m £26-50m £50m+

30 2009 2008
20 Existing shareholders

Existing shareholders reducing their stakes at flotation is often viewed
10
negatively, but is not often a "deal-breaker"
0
Investors are keen, however, that existing shareholders are locked-in to the
None 5% 10% > 10% Company for a period of at least 12 months post Admission
2009 2008 2007

Source: Arbuthnot AIM Survey 2009 13

Disclaimer
Arbuthnot Securities
Arbuthnot House
20 Ropemaker Street
London
EC2Y 9AR
Tel: +44 (0) 20 7012 2000
www.arbuthnotsecurities.co.uk
This document is classified as being a "marketing communication" as defined by the FSA’s Handbook. This is
principally because analysts at Arbuthnot Securities Ltd (“the Firm”) are involved in investment banking
activities and pitches for new business and consequently this document has not been prepared in accordance
with legal requirements designed to promote the independence of investment research. Therefore this
document is not subject to any prohibition on dealing ahead of the dissemination of investment research. The
Firm's Conflict of Interest Management Policy prohibits dealing ahead of research except in the normal course
of market making and to satisfy unsolicited client orders
This document has been approved by the Firm for communication only to corporate and potential corporate
clients (collectively “corporate clients”.) Any recommendations that may be contained in this document are
intended solely for such persons. This document is not intended for use by persons who are retail clients (as
defined by the FSA Handbook) or potential retail clients (other than corporate clients who are also retail clients)
of the Firm. Retail clients (other than corporate clients) must not therefore rely on any of the information or
recommendations included within this document and should consult their investment adviser before following
any recommendations contained herein. In any event this document should not be regarded by the person to
whom it is communicated as a substitute by the recipient of the recipient’s own judgement and does not
constitute investment advice (as defined in the FSA Handbook). This document is based on information
obtained from sources which we believe to be reliable, however it is not guaranteed as to accuracy or
completeness by the Firm, and is not to be construed as a representation by the Firm. Expressions of opinion
herein are subject to change without notice. This document is not and should not be construed as an offer or
the solicitation of an offer to buy or sell any securities. The Firm and its associated companies and/or their
officers, directors and employees may from time to time purchase, subscribe for, or add to or dispose of any
shares or other securities (or interests) discussed herein.
This document is not for distribution into any jurisdiction where its distribution would be unlawful, and in
particular not for distribution in or into the United States or to any national, resident or citizen of the United
States where such distribution would be unlawful. The distribution of this document in other jurisdictions may be
restricted by law and therefore persons into whose possession this document comes should inform themselves
about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation
of the securities laws of any such jurisdiction.
This document and its contents are strictly confidential and it should not be distributed, published or reproduced
in whole or in part or disclosed by recipients to any other person.
14