Initial Public Offerings

Fifth Edition

Contributing Editors: Ilir Mujalovic & Richard Alsop Global Legal Insights Initial Public Offerings

2021, Fifth Edition Contributing Editors: Ilir Mujalovic & Richard Alsop Published by Global Legal Group GLOBAL LEGAL INSIGHTS – INITIAL PUBLIC OFFERINGS 2021, FIFTH EDITION

Contributing Editors Ilir Mujalovic & Richard Alsop, Shearman & Sterling LLP

Head of Production Suzie Levy

Senior Editor Sam Friend

Publisher Jon Martin

Chief Media Officer Fraser Allan

CEO Jason Byles

We are extremely grateful for all contributions to this edition. Special thanks are reserved for Ilir Mujalovic & Richard Alsop of Shearman & Sterling LLP for all of their assistance.

Published by Global Legal Group Ltd. 59 Tanner Street, London SE1 3PL, United Kingdom Tel: +44 207 367 0720 / URL: www.glgroup.co.uk

Copyright © 2021 Global Legal Group Ltd. All rights reserved No photocopying

ISBN 978-1-83918-121-4 ISSN 2399-9594

This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations. The information contained herein is accurate as of the date of publication.

Printed and bound by TJ Books Limited Trecerus Industrial Estate, Padstow, Cornwall, PL28 8RW June 2021 CONTENTS

Preface Ilir Mujalovic & Richard Alsop, Shearman & Sterling LLP

Foreword Aseel M. Rabie, Securities Industry and Financial Markets Association (SIFMA) 1

Expert analysis chapter

Going public in the USA, Ilir Mujalovic, Richard Alsop & Ana Aur, Shearman & Sterling LLP 7

Jurisdiction chapters

Australia Daniel Scotti & Nicole Sloggett, MinterEllison 26

Brazil Daniela Anversa, Veirano Advogados 39

Cyprus Demetris Roti, Yiota Georgiou & Rafaella Michail, Elias Neocleous & Co LLC 50

France Hervé Letréguilly & Séverine de La Courtie, Shearman & Sterling LLP 59

Germany Katy Ritzmann, Philipp Mössner & Timo Bernau, GSK Stockmann 73

Greece Panagiotis G. Sardelas & Evi Matthaiou, Sardelas Petsa Law Firm 85

Hong Kong Angel Wong & David Zhang, ONC Lawyers 98

Hungary Márton Kovács, Áron Kanti & Bálint Juhász, HBK Partners Attorneys at Law 109

Korea Joo Hyoung Jang, Eun Young Kwon & Jaeyong Shin, Barun Law LLC 118

Luxembourg Joram Moyal & Patrick Houbert, Moyal & Simon 131

Portugal Eduardo Paulino, Margarida Torres Gama & Inês Magalhães Correia, Morais Leitão, Galvão Teles, Soares da Silva & Associados 138

Russia Nadezhda Minina, Alexander Nektorov & Dr. Ilia Rachkov, Nektorov, Saveliev & Partners 151

Singapore Wee Woon Hong, Opal Lawyers LLC 166

Switzerland Dr. Urs Kägi, Lukas Roesler & Rebecca Schori, Bär & Karrer Ltd. 177

United Arab Andrew Tarbuck, Alex Ghazi & Carla Saliba, Al Tamimi & Company 188 Emirates

United Kingdom Pawel J. Szaja & Michael Scargill, Shearman & Sterling (London) LLP 196 PREFACE

e are pleased to present the fifth edition of Global Legal Insights – WInitial Public Offerings. An initial is a key way for companies to raise capital in the global capital markets and list their shares for public trading. Although IPOs are conceptually similar whether made to investors in New York, London or Hong Kong, or in other long-established or newer markets around the world, the regulatory frameworks, market practices, investor communities and subsequent public-company obligations are far from homogenous across jurisdictions. The Initial Public Offerings book provides general counsels, investment bankers, lawyers, business professionals, the investing community and other advisers and interested parties with an overview of the key steps, legal issues and market practices involved in the process by examining practices in 16 jurisdictions around the world, with one expert analysis chapter focusing on the United States and a foreword from SIFMA. Leading practitioners from each jurisdiction provide their expertise and guidance on navigating their local market practices and regulatory framework. Each chapter follows a similar structure: an introduction of the IPO market in the relevant jurisdiction; a description of the IPO process and key parties; discussion of the relevant regulators and key regulations; public company responsibilities; and potential risks, liabilities and pitfalls. We hope you find the book will equip you with an understanding of the legal and market fundamentals necessary for a successful IPO.

Ilir Mujalovic & Richard Alsop Shearman & Sterling LLP Foreword

Aseel M. Rabie Securities Industry and Financial Markets Association (SIFMA)

Introduction Equity markets are the public face of finance and are often seen as a barometer of the overall health of the economy. In that sense, a thriving market for new issues of publicly offered equity securities, or the initial public offering (IPO) market, is perhaps the most direct and tangible evidence of an economy where new businesses have confidence in their future prospects. Businesses most often seek to access a larger pool of public capital to allow for the next stage of growth and, ideally, job creation follows. After a decline in annual deal volume and value between 2014 and 2016,1 the U.S. IPO market returned to pre-2015 levels in 20172 and continued to build momentum throughout 2018,3 20194 and the first quarter of 2020,5 until the IPO market was virtually shut down mid-March as a result of market volatility and uncertainty associated with the COVID-19 pandemic, an oil slump triggered by production increases by Saudi Arabia and , and the resulting prospect of a recession. Despite the abrupt halt and ongoing pandemic, however, the 2020 IPO market went on to be the most active since the dot-com bubble in 2000,6 driven in large part by public offerings by special purpose acquisition vehicles (SPACs), as well as an increased number of offerings by operating companies. Although IPO activity has fluctuated significantly over the years, history has shown that equity markets have played a central role during periods of significant economic expansion in the United States. The benefits of seeking public capital date back in history at least as far as 1602, when the Dutch East India Company was founded as a shareholder company. This diversified investor structure allowed the risks of trade voyages between Europe and Asia to be distributed across multiple mercantile organizations.7 Historians do not agree on when the first securities market began in the United States; however, according to at least one historian, securities transactions took place as early as 1725 in New York.8 At the time, a small number of securities transactions were intermediated by auctioneers who primarily conducted auctions for commodities that flowed through the ports of New York. While this form of intermediation was far less structured in the early days, a more formalized process began to emerge with the Buttonwood Tree Agreement in 1792, where 24 stockbrokers agreed on dealing terms. This organization is understood to have been the foundation of what would become the New York and Exchange Board, or the New York Stock Exchange as it is known today.9 These arrangements provided an orderly mechanism to support the economic expansion that took hold in the United States during the 1800s. Tremendous investment in infrastructure and transportation led the way, while the New York Stock Exchange permitted the formation and growth of dozens of companies that became integral to the economy.

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Emerging regulatory framework Despite the growing significance of the New York Stock Exchange and open criticism in the early 1900s of its failure to adopt more stringent self-regulation, oversight did not come until the 1930s. Even the 1907 financial crisis focused attention on the banking system rather than the capital markets, and culminated in the Federal Reserve Act of 1912 and creation of the central banking system in the United States.10 The securities markets continued to innovate with minimal government oversight, and in 1924 the Massachusetts Investors Trust, which is believed to be the first modern-day mutual fund with an open-end capitalization structure, was created.11 Like the Dutch East India Company before it, the structure spread financial risks among a diversified pool of investors and for the first time provided smaller investors access to the securities markets. It was the 1929 crash and the beginning of the Great Depression that would eventually spur an investigation and substantive review of the securities markets and the role of the New York Stock Exchange. The subsequent passage of the Securities Act of 1933 and the Securities Exchange Act of 1934 created the foundation of the regulatory structure that we know today. Importantly, as the United States later experienced a post- war boom with the growth and development of new industries, this more fortified exchange structure saw greater public participation in the markets, reinforced the advantages of going public, and provided companies with access to a growing investor base.

Capital formation focus History has clearly associated a strong market for IPOs with a robust economic climate. Given relatively low economic growth following the 2007–2011 financial crisis, combined with the decline in IPOs and diversion of global capital away from the U.S. markets, it is not surprising that many questioned whether our regulatory structure properly supported capital formation by providing efficient access to capital while upholding investor protections. An intense focus on capital formation thus began in March 2011, when the U.S. Department of the Treasury convened the Access to Capital Conference to bring together policymakers, academics, and market participants to discuss ways to restore access to capital – especially for small and emerging growth companies. Following the conference, an IPO Task Force, comprising a diverse group of professionals, was organized to provide specific recommendations for restoring effective access to the public markets. In its publication titled Rebuilding the IPO On-Ramp: Putting Emerging Companies and the Job Market Back on the Road to Growth, the IPO Task Force concluded that our regulatory structure was inordinately focused on the risks presented by the largest companies and suggested that regulatory obligations be tiered based on company size.12 The IPO Task Force also recognized that regulation should support efficient access to capital at each stage of a company’s growth cycle, from start-up to IPO, as well as across both private and public markets.

JOBS Act and beyond The Jumpstart Our Business Startups Act (or JOBS Act) was signed into law by President Barack Obama on April 5, 2012 and sought to implement many of the IPO Task Force’s recommendations. The JOBS Act provided reduced regulatory burdens for so-called “emerging growth companies,” created an enhanced Regulation A for small public offerings, and developed a regulatory structure for .13 While the true impact of the JOBS Act has been debated, calls continue for a further evaluation of how well our regulatory structure balances the goals of ensuring reasonable investor protections and promoting capital formation for companies of all sizes. More recent capital formation discussions seek

GLI – Initial Public Offerings 2021, Fifth Edition 2 www.globallegalinsights.com Securities Industry and Financial Markets Association (SIFMA) Foreword to build on the JOBS Act and include several bills enacted as part of the larger negotiations for a transportation funding package known as the Fixing America’s Surface Transportation Act (FAST Act) in December 2015,14 as well as the proposed JOBS and Investor Confidence Act of 2018 (JOBS Act 3.0).15 The last sweeping effort to modernize primary market regulation came with Securities Offering Reform in 2005,16 which significantly reduced the burdens of the registration, communications, and offering processes for companies. However, continued attention to capital formation issues, together with a desire to establish an incremental set of priorities and recommendations, have resulted in continued regulatory change, including disclosure updates and simplification pursuant to the FAST Act17 and amendments to the regulatory framework for public offerings to better allow issuers to gauge market interest in possible IPOs.18 At the same time, many companies continue to stay private longer and increasingly rely on raising substantial late-stage funding. Market participants and policymakers continue to look for ways to unlock hidden potential, permit capital to more readily flow to the best ideas, innovations and ventures, and offer expanded investment opportunities to retail investors while maintaining investor protections. The SEC’s Advisory Committee on Small and Emerging Companies regularly devotes attention to these issues and in November 2020 the U.S. Securities and Exchange Commission amended its rules for securities offerings exempt from the registration requirements to facilitate an expansion in retail investment opportunities. The amendments, among other things, increase offering limits for certain exempt offerings and harmonize certain disclosure and eligibility requirements.19 In addition, while capital formation discussions tend to focus on the primary markets and the requirements placed on issuers, there continues to be significant debate on ways to improve the secondary market structure to address changes in technology, investor behavior, and a host of other factors. Liquid secondary markets support robust primary markets and remain vitally important in fostering a market structure that underpins a competitive and healthy economy. The U.S. equity market is the largest by market capitalization and arguably envied for its dominance, but a rapidly changing environment necessitates thoughtful consideration and more proactive policies.

Looking forward It would be reasonable to conclude that securities markets will continue to be challenged to modernize given rapidly advancing technology, the changing roles of intermediaries, and increasing globalization generally. In that regard, a number of market trends and their potential impacts also bear consideration. The rise of passive investing and lower-cost options for investing continues unabated. At the same time, activist investing is again on the rise and dual class share structures have emerged to allow founders to retain voting rights. Environmental, social and governance (ESG) issues are becoming a regular part of investment decisions, while greater attention to governance and the power and role of the proxy vote is increasingly impacting decisions by boards of directors and management and the social and environmental direction of companies. Supporting future economic growth necessitates an evaluation of securities regulation for both primary and secondary markets to create a market structure that can better facilitate capital formation both now and in the years ahead. In that regard, regulators and policymakers should continue to consider how to best direct their resources to anticipate the needs of a changing economy through proactive modernization.

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Endnotes 1. Dealogic as of April 5, 2017. Includes SEC Registered IPOs > $25 million. Excludes BDCs, SPACs, MLPs, CLEFs, REITs. Excludes Alibaba IPO ($25 billion). 2. Renaissance Capital, 2017 IPO Market: Good, But Not Great (January 2, 2017) (https:// www.renaissancecapital.com/review/2017USReview.pdf). 3. Renaissance Capital, 2018 IPO Market Hits a 4-Year High Despite Bad 4Q (January 2, 2018) (https://www.renaissancecapital.com/Review/2018_US_Review_Press.pdf). 4. The Wall Street Journal, The 2019 IPO Frenzy Is Different From 1999. Really. (March 30, 2019) (https://www.wsj.com/articles/the-2019-ipo-frenzy-is-different-from-1999- really-11553918401); FactSet, U.S. IPOs Raised More Money in 2019, Despite a Decline in IPO Volume (January 9, 2020) (https://insight.factset.com/u.s.-ipos-raised- more-money-in-2019-despite-a-decline-in-ipo-volume). 5. Ernst & Young LLP, COVID-19 pandemic cuts global IPO momentum short in Q1 2020 (March 25, 2020) (https://www.ey.com/en_gl/news/2020/03/covid-19-pandemic- cuts-global-ipo-momentum-short-in-q1-2020). 6. Statista, Number of IPOs in the United States from 1999 to 2020 (January 2021) (https://www.statista.com/statistics/270290/number-of-ipos-in-the-us-since-1999/). 7. Gelderblom, de Jong, and Jonker, The Formative Years of the Modern Corporation: The Dutch East India Company VOC, 1602–1623 (http://dspace.library.uu.nl/ bitstream/1874/347909/1/Gelderblom_De_Jong_and_Jonker_Formative_Years.pdf). 8. George L. Leffler, The Stock Market (New York: The Ronald Press Co., 1951), Print; U.S. Department of the Interior, National Park Service, National Register of Historic Places Inventory – Nomination Form, New York Stock Exchange (March 1977) (https:// catalog.archives.gov/id/75315908). 9. National Register of Historic Places Inventory – Nomination Form, New York Stock Exchange, supra. 10. Federal Reserve History, Federal Reserve Act Signed into Law (November 22, 2013) (https://www.federalreservehistory.org/essays/federal_reserve_act_signed). 11. The Investment Funds Institute of Canada, The History of Mutual Funds (https://www. ific.ca/en/articles/who-we-are-history-of-mutual-funds/). 12. IPO Task Force, Rebuilding the IPO On-Ramp: Putting Emerging Companies and the Job Market Back on the Road to Growth (October 20, 2011) (https://www.sec.gov/info/ smallbus/acsec/rebuilding_the_ipo_on-ramp.pdf). 13. Jumpstart our Business Startups Act, Pub. L. No. 112-106 (2012) (https://www. congress.gov/112/plaws/publ106/PLAW-112publ106.pdf). 14. Fixing America’s Surface Transportation Act, Pub. L. No. 114-94 (2015) (https://www. govinfo.gov/content/pkg/PLAW-114publ94/pdf/PLAW-114publ94.pdf). 15. JOBS and Investor Confidence Act of 2018, S. 488,th 115 Cong. (2018) (https:// www.congress.gov/bill/115th-congress/senate-bill/488) (passed by the U.S. House of Representatives and the U.S. Senate in non-identical forms; differences never resolved). 16. U.S. Securities and Exchange Commission, Securities Offering Reform (July 19, 2005) (https://www.federalregister.gov/documents/2005/08/03/05-14560/securities-offering- reform). 17. U.S. Securities and Exchange Commission, Disclosure Update and Simplification (August 17, 2018) (https://www.federalregister.gov/documents/2018/10/04/2018-18142/ disclosure-update-and-simplification). 18. U.S. Securities and Exchange Commission, Solicitations of Interest Prior to a Registered Public Offering (September 25, 2019) (https://www.federalregister.gov/

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documents/2019/10/04/2019-21304/solicitations-of-interest-prior-to-a-registered- public-offering). 19. U.S. Securities and Exchange Commission, Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets (November 2, 2020) (https://www.federalregister.gov/documents/2021/01/14/2020-24749/ facilitating-capital-formation-and-expanding-investment-opportunities-by-improving- access-to-capital).

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Aseel M. Rabie Tel: +1 202 962 7300 / Email: [email protected] Aseel M. Rabie is a Managing Director and Associate General Counsel at SIFMA, where she is responsible for regulatory advocacy and other activities in the primary markets and research areas, as well as in the anti-money laundering and financial crime compliance areas. Prior to joining SIFMA, Aseel served as a senior counsel in the Securities and Exchange Commission’s Office of the General Counsel. There, she advised on legal and policy matters relating to SEC rulemaking activities, including rulemakings pursuant to the JOBS Act and the Dodd-Frank Act, as well as SEC enforcement actions. Previously in her career, Aseel served as the lead in-house counsel on and securities law matters at a satellite communications company and worked on securities regulatory and enforcement, anti-corruption, and other matters in private practice. Aseel has an undergraduate degree in economics from Harvard College and a law degree from Harvard Law School.

Securities Industry and Financial Markets Association (SIFMA) 1099 New York Ave., NW, 6th Floor, Washington, D.C. 20001, USA Tel: +1 202 962 7300 / URL: www.sifma.org

GLI – Initial Public Offerings 2021, Fifth Edition 6 www.globallegalinsights.com Going public in the USA: An overview of the regulatory framework and capital markets process for IPOs

Ilir Mujalovic, Richard Alsop & Ana Aur Shearman & Sterling LLP

Introduction U.S. and foreign companies from a wide variety of industries choose to list on a U.S. exchange and sell shares to the public in the United States, seeking to capitalize on the large and varied investor base and liquidity of its capital markets. Companies seek to go public in the United States for a number of reasons, including: improved access to capital; broader investor base; ability to issue publicly tradable shares as acquisition currency; potential for higher company with the elimination of illiquidity discounts; robust corporate governance standards; greater flexibility to offer employee equity incentives; broad research analyst coverage; and enhanced company prestige. The first initial public offering (IPO) in the United States took place in 1783; the New York Stock Exchange (NYSE) has existed for more than 225 years; and the NYSE and the NASDAQ Stock Market (NASDAQ) are the largest and second-largest exchanges in the world by market capitalization. Since 1960, more than 15,000 IPOs have been conducted in the United States. This chapter provides a broad overview of going public in the United States, including key trends and the performance of the IPO market in 2020, the current regulatory framework and public company responsibilities. It also covers certain prevailing practices and identifies potential liabilities and common risks. Many nuances, exceptions and technicalities have been omitted in favor of a concise presentation within the framework of this publication.

IPO regulatory trends: Streamlining and modernizing The U.S. IPO process is regulated by federal legislation, the U.S. Securities and Exchange Commission (SEC) and the U.S. stock exchanges. In recent years, legislators, regulators and the SEC have been taking steps to encourage capital formation in the United States by streamlining and modernizing the registration and offering process. Regulatory initiatives aimed at reducing the burdens of disclosure and the IPO process on issuers include the adoption of securities offering reform in 2005, the creation of the “smaller reporting company” category of issuers in 2008 (which was expanded to include more issuers in 2018), the passage of the Jumpstart Our Business Startups Act (JOBS Act) in 2012 and the Fixing America’s Surface Transportation Act (FAST Act) in 2015. The proposed JOBS and Investor Confidence Act 2018 (JOBS Act 3.0), which passed the U.S. House of Representatives (the House) with significant bipartisan support in 2018 and is currently in the U.S. Senate, signals a continuing desire to further streamline the going public process. In 2019 and 2020, the SEC continued to carry out the legislative mandate of the FAST Act

GLI – Initial Public Offerings 2021, Fifth Edition 7 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA by adopting a series of amendments to “modernize and simplify” disclosure requirements. Among the amendments most relevant to IPO issuers is the ability to redact confidential information from filed material contracts without first filing and receiving SEC approval of a formal confidential treatment request, representing a significant simplification of the process. Issuers that fall within the “emerging growth company” (EGC) category, created pursuant to the JOBS Act for companies with total annual gross revenues of less than $1.07 billion (periodically adjusted for inflation) during their most recently completed fiscal year, have particularly benefited from this trend. The JOBS Act allowed EGCs to submit registration statements to the SEC confidentially for review before public filing, and to undertake “testing-the-water” (TTW) communications with institutional investors prior to the confidential submission or public filing of a registration statement, to gauge interest in an offering. The Encouraging Public Offerings Act (part of the JOBS Act 3.0), if enacted in its current form as passed by the House, would expand the range of benefits to EGCs, by, for example, extending the period of exemption from auditor attestation to the effectiveness of internal control over financial reporting from five to 10 years for certain EGCs, and extend some EGC benefits to non-EGC issuers, as well. Most significantly for non-EGC issuers, this Act would codify the SEC staff’s 2017 position which has permitted non-EGCs to also make confidential submissions of registration statements. The Act would also allow non- EGCs to engage in TTW communications, though this is now separately permitted by the SEC’s Rule 163B, adopted in September 2019. Some issuers fall into the smaller reporting company category, which, following the 2018 amendment, encompasses companies that (i) have a public float of less than $250 million, or (ii) have less than $100 million in annual revenues and either have no public float or a public float of less than $700 million. These companies also enjoy certain benefits, including scaled narrative disclosures and the ability to provide audited financial statements for two, rather than three, fiscal years. In practice, however, because the definition of “smaller reporting company” encompasses far fewer issuers than the definition of EGC, the creation of the smaller reporting company category has been less significant to the IPO market than the creation of the EGC. Since the passage of the JOBS Act, IPO issuers have predominantly been EGCs.

IPO market: Recent performance The U.S. IPO market is cyclical in nature and activity is influenced by many factors, including economic conditions, investor sentiment, market volatility and the geopolitical and regulatory climate. Following the passage of the JOBS Act, the IPO market experienced strong activity in 2013 and 2014 and faced a significant slowdown in 2015 and 2016, before returning to pre-2015 levels in 2017 and building further momentum in 2018 and 2019, heating up through the first quarter of 2020 until the emergence of the COVID-19 pandemic and the prospect of a related recession brought the market to a virtual halt. Despite the initial uncertainty, however, with 494 IPOs, 2020 went on to become the most active IPO year on record since the height of the dot-com bubble in 1999. Activity was clustered in the second half of the year, with a record-breaking 208 IPOs in the third quarter and 168 in the fourth. In aggregate, IPOs raised $174 billion in 2020, a 150% increase over 2019. Special purpose acquisition companies (SPACs), which are blank check companies with no operations, formed for the purpose of eventually effecting a combination with another business, have been increasingly active in the IPO market in recent years, and were primarily responsible for the 2020 IPO surge. SPAC IPOs accounted for about half of the IPOs in 2020, and drove the surge in the second half of the year, representing 56% and 52%

GLI – Initial Public Offerings 2021, Fifth Edition 8 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA of IPOs in the third and fourth quarters of 2020, respectively. SPAC intensified in the first quarter of 2021, with 298 SPACs raising nearly $88 billion. Record-breaking SPAC activity levels appear to have drawn the attention of the SEC, which, since December 2020, published several statements and guidance related to SPAC IPOs, focusing on, among other things, the need to provide comprehensive disclosure of conflicts of interests that may exist among SPAC sponsors, underwriters and other stakeholders and public shareholders, as well as accounting considerations for certain types of warrants often issued by SPACs. Some predict that the IPO market will cool for the remainder of 2021. In addition to record-breaking deal volumes, 2020 saw IPOs increase in size, from an average of $288 million in 2019 to $353 million in 2020, with 18% of IPOs raising over $500 million, a record-breaking 28 IPOs raising over $1 billion, and four IPOs bringing in over $3 billion each. The largest IPO of 2020, by Pershing Square, raised $4 billion. The finance sector, fueled by SPACs, led the 2020 IPO market by volume and proceeds, with 268 IPOs raising $92.5 billion. The health technology sector was a distant second by volume, with 103 IPOs raising $19.6 billion. The technology services sector was third by volume with 57 offerings, but second by proceeds, with $34.3 billion raised, boosted by Snowflake, Airbnb and DoorDash raising $3.9 billion, $3.5 billion and $3.4 billion, respectively. and firms, commonly known as financial sponsors, have backed only 116, or 23.5%, of 2020 IPOs and only 24.4% of IPOs by total gross proceeds – the lowest level in more than a decade. Financial sponsors have been behind only seven of the 28 mega IPOs of the year. Within the financial sponsor-backed segment, venture capital (VC) activity increased, representing 100 offerings in 2020 (25% up from 2019), with VCs participating in larger offerings (including six mega-IPOs), with gross proceeds totaling $36.8 billion. The participation of private equity firms has, on the other hand, declined for a third consecutive year, to its lowest level since 2008, as measured by deal volume, proceeds and average deal size. Direct listings were again not a significant part of the 2020 IPO landscape: the expectation that the 2018 direct listing of Spotify and the 2019 direct listing of Slack would usher in a direct listing trend has not materialized. In 2020, four companies, including two technology companies, Palantir Technologies and Asana, went public by direct listing, performing well since their debuts. Airbnb, however, originally rumoured to be pursuing a direct listing, opted for a traditional IPO. Although direct listings have not been common to date, they have been subject to increased interest, especially in Silicon Valley, where a movement is developing to persuade company founders that direct listings are simpler than, and preferable to, traditional IPOs, often citing lower fees and more effective processes. In addition, historically, a company that pursued a direct listing would not have been able raise proceeds from investors. It could only list shares which have already been issued and are currently held by existing investors and insiders for trading on an exchange, without involvement of underwriters or a roadshow. However, in December 2020, the SEC approved NYSE’s proposal to allow companies to offer newly issued shares to investors in a direct listing. NASDAQ has filed a similar proposal with the SEC in September 2020, amending it in February 2021 to conform to the NYSE proposal as approved by the SEC. The SEC is considering NASDAQ’s proposal. The impact of this new mechanism may make direct listings a more robust alternative to the traditional IPO process.

IPO market: 2021 outlook IPO markets have thus far proved more resilient than was expected in March 2020, at the beginning of the COVID-19 pandemic. IPO working groups have quickly adjusted to virtual

GLI – Initial Public Offerings 2021, Fifth Edition 9 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA processes, traditional investor roadshows have been conducted not on the road but online and were significantly shortened in duration, and a strong pipeline of IPO opportunities has been met by ready investors. Against this momentum, and with COVID-19 vaccines becoming increasingly widely distributed across the United States, signalling possibility of a return to pre-pandemic levels of economic activity, the first quarter of 2021 has reached IPO levels not seen in two decades. In the first three months of the year, 407 IPOs raised over $134.6 billion – an increase of over $124 billion as compared to the first quarter of 2020. While SPACs led the charge as they did in 2020, traditional IPOs have surpassed records, as well. Fourteen IPOs that raised over $1 billion contributed to record proceeds, including almost $9 billion raised for selling shareholders in a direct listing by Roblox, a video game developer, $4.6 billion raised by Coupang, a South Korean e-commerce company, and $2.2 billion raised by dating app Bumble. Some have voiced concerns about the IPO market overheating, while others say it is hard to predict whether the IPO market is in a bubble because in a low interest rate environment, investors gravitate to higher return, riskier opportunities like IPOs, which will keep accessing the market until interest rates increase. For now, the IPO market appears to be strong as the quality of offerings, evidenced by positive aftermarket performances, has been consistent. With a record-breaking start in the first quarter, 2021 could become another strong year for IPOs, even if SPAC activity falters due to increased regulatory scrutiny or other factors.

The IPO process: Steps, timeline, parties and market practice All offers and sales of securities in U.S. interstate commerce must be registered with the SEC, unless an exemption from registration is available. The registration is effected through the filing of a registration statement on Form S-1 (Form F-1 for foreign private issuers (FPIs)) with the SEC. An IPO can consist of a primary offering, whereby the company registers and sells its own shares, and/or a secondary offering, whereby a company’s current shareholders register and sell their existing shares in the company. The U.S. IPO process, including drafting of the registration statement and readying the company for life as a public company, involves several parties and requires careful planning and preparation. Although the timeframe for going public varies from company to company, it typically takes three to four months following the organizational meeting, the formal start of the process, to complete the IPO. Moreover, depending on the company’s level of public company readiness, the IPO planning process could take an additional 12 to 18 months prior to the IPO kick-off meeting. During this planning stage, companies may prepare SEC- compliant financial statements, review and optimize their corporate governance and , consider defenses, implement communications guidelines, consider whether they may need to change their auditor, address whether the IPO will require any waivers by, or confer any rights on, third parties under existing agreements, obtain liability for the company’s directors and officers, make preliminary decisions about executive compensation matters and engage one or more investment banks to assist the company in the IPO process. Key parties Every company pursuing an IPO must assemble a working group consisting of internal employees, including members of management and accounting staff, the board of directors and outside professionals, typically including underwriters (investment banks that act as

GLI – Initial Public Offerings 2021, Fifth Edition 10 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA a bridge between the company and/or selling shareholders and the investing public by purchasing the IPO shares from the company and/or the selling shareholders and reselling them to the public), company counsel, underwriters’ counsel, independent auditors, a transfer agent, a financial printer and sometimes others, such as IPO advisory firms. The outside advisors will preferably have well-established IPO and industry experience. IPOs in the United States are typically underwritten by investment banks and the selection of underwriters is a key decision point in the offering process. The company selects underwriters (referred to as the lead ), in consultation with its counsel and any IPO advisory firms, to manage the process and marketing efforts for the IPO. In addition, there is a larger syndicate of additional underwriters. The lead underwriters help draft the registration statement and the prospectus, assist with and accompany the company on the roadshow, generally manage the IPO process, market the IPO to potential investors, support trading in the company’s shares after the IPO, and may continue to work with the company on subsequent transactions. Although independent from the teams that are working on the IPO, some of the underwriters’ research teams will also typically initiate ongoing research coverage of the company following a “blackout” period immediately after the IPO, when such activities are restricted. Underwriters are compensated through a spread. To create this spread, the company or selling shareholders sell the IPO shares to the underwriters at a discount to the public IPO price at which the underwriters will resell the shares. This is memorialized in an underwriting agreement as described later in this chapter. As noted above, an alternative to the typical underwritten IPO is the direct listing of shares on a stock exchange. In a direct listing, there are no underwriters that would engage in a book-building process even though, pursuant to the SEC’s December 2020 approval of a NYSE proposal to this effect, companies are now permitted to offer newly issued shares to investors in a direct listing. Investment banks may be involved in the process, but they would typically act as financial advisors to the company and not as underwriters distributing IPO shares. This approach can be attractive to companies because it does not involve underwriting fees, a roadshow, underwriter-imposed lock-up periods (the absence of which offer existing shareholders greater immediate liquidity), listing prices (which, in a traditional IPO, according to some research, are often discounted below their intrinsic value), and do not necessarily involve the issuance of new shares (which results in dilution to founders and other pre-IPO shareholders). On the other hand, without a marketing or roadshow process and price stabilization activities by investment banks, shares that are directly listed could be subject to more volatility than those sold in an underwritten IPO, as there will have been no pre-trading price discovery through a book-building process. The selection of experienced company and underwriters’ counsel is also very important as those attorneys will be primarily responsible for drafting the registration statement and the prospectus and shepherding it through the complex SEC review process on the company’s behalf. The time and expense associated with preparing, auditing or reviewing, as applicable, the financial statements required to be included in the registration statement can be substantial, although less so if the company has an established relationship with the selected independent auditors prior to the IPO. The company may decide to change auditors prior to the IPO in the event its current auditor lacks the relevant IPO experience or name recognition with the underwriters or IPO investors. Key tasks from filing to closing Drafting the registration statement is a joint effort by the working group. The working group will produce several drafts of the registration statement before its initial filing or

GLI – Initial Public Offerings 2021, Fifth Edition 11 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA submission with the SEC. In 2017, the SEC staff issued guidance that expanded the non- public review process for draft registration statements for IPOs to all issuers, including non-EGCs. This guidance will be codified in a statute if the Encouraging Public Offerings Act is enacted as part of the JOBS Act 3.0. Companies that have confidentially submitted registration statements are required to file the registration statement publicly at least 15 days prior to the commencement of the roadshow, at which time previously confidentially submitted registration statements will become public. An FPI may also submit a registration statement for confidential review without the 15-day pre-roadshow waiting period if the FPI is already listed (or is concurrently listing its securities) on a non-U.S. securities exchange or if the FPI can demonstrate that the public filing of an initial registration statement would conflict with the law of an applicable foreign jurisdiction. Registration statements that are not submitted on a confidential basis become publicly available on the SEC’s website immediately after filing. See “Regulatory architecture: Overview of the regulators and key regulations” below for more information. The SEC’s purpose in reviewing registration statements is to ensure adequate disclosure, not to determine whether the IPO shares are a worthwhile investment. To this end, approximately 30 days after the initial filing or confidential submission, the SEC will provide the company with a comment letter on the registration statement, which can cover a wide variety of disclosure topics, including comments on the description of the business, risk factors, financial statements and other topics. The working group will prepare and file an amendment to the registration statement to address the SEC comments, and the SEC will in turn provide additional comments upon further review. This process repeats itself until the SEC has no further comments, which typically requires several amendments over approximately two months, but can take significantly longer if the SEC has extensive or complicated comments to resolve. Comments regarding accounting issues or otherwise relating to financial information usually take the longest time to address. During the SEC comment process, the company will also typically apply to list the IPO shares on either the NYSE or NASDAQ. As described below in “The registration process and publicity – Pre-filing period,” EGCs are permitted to engage in TTW communications with qualified institutional buyers and institutional accredited investors prior to or after confidentially submitting or publicly filing a registration statement. The permission to engage in such TTW communications was expanded to non-EGCs when the SEC passed Rule 163B in 2019, and may be further codified if and when legislators pass the Encouraging Public Offerings Act (as partof the JOBS Act 3.0). During TTW meetings, an issuer and its underwriters may seek non- binding indications of interest from potential investors to assist in the determination of the appropriate price, volume and market demand for the offering. However, an issuer and its underwriters are not permitted to take or solicit any orders for, or promise allocation of, any securities. The TTW meetings should be informational in nature and limited only to information that is contained in, or can be derived from, disclosure in the registration statement. TTW meetings are typically conducted after the confidential submission of a registration statement, although they could be conducted earlier as well. Once all SEC comments are cleared, the preliminary prospectus, which includes a price range for the IPO shares based on the company’s valuation and the desired deal size, taking into account anticipated investor demand and stock performance following the IPO, is printed and used by the underwriters and the company to commence the roadshow and market the IPO to potential investors. During the roadshow, the underwriters will note indications of interest from investors in a process referred to as “book-building.” Before

GLI – Initial Public Offerings 2021, Fifth Edition 12 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA the COVID-19 pandemic, roadshows typically lasted seven business days, but during the pandemic the typical length for an IPO of an operating company has been shortened to four business days, while in a SPAC IPO, roadshows typically take place over one day. The book-building process gauges how much demand exists for the offering, and at the conclusion of the roadshow, the underwriters, the company and any selling shareholders agree on the price at which the underwriters will sell the IPO shares to the public. The company and lead underwriters then request the SEC to declare the registration statement effective, and after the registration statement has been declared effective, the IPO is priced, the underwriting agreement is executed and a pricing press release is issued to the market. The IPO shares begin trading on the selected exchange the day after pricing on a when- issued basis. At this point, the working group prepares and files a final prospectus with the final offering price and distributes it to investors. Upon closing of the IPO, the company and any selling shareholders transfer the shares to the underwriters and the underwriters deliver the net proceeds to the company and any selling shareholders. SEC rules prescribe a standard settlement cycle of two trading days following the first day of trading for most broker-dealer securities transactions, unless otherwise expressly agreed to by the parties at the time of the transaction. Firm commitment underwritten IPOs are not required to settle on this two-day cycle, but all underwriters in the United States have adopted the two-day settlement cycle, including for IPOs.

Regulatory architecture: Overview of the regulators and key regulations Key regulations overview The key statutes that govern the IPO process and U.S. securities markets generally are the Securities Act of 1933, as amended (Securities Act), and the Securities Exchange Act of 1934, as amended (Exchange Act). The Securities Act regulates the securities offering process, including IPOs, and requires the registration of offers and sales of securities with the SEC, unless an exemption from registration is available. The Exchange Act regulates the secondary trading market and requires companies with securities listed on a U.S. exchange to comply with ongoing SEC reporting obligations. Public companies are also subject to the requirements of the Sarbanes-Oxley Act of 2002 (SOX), including, among other things, a prohibition on from the company to executives and directors, requiring that companies have independent audit committees, heightened independence standards for external auditors, and rules on internal control over financial reporting. The JOBS Act eased restrictions and disclosure requirements imposed by the statutes discussed above for companies that qualify as EGCs by, among other things, introducing scaled disclosure requirements, allowing for non-public SEC review of draft registration statements (which has since been expanded to non-EGCs by SEC guidance that will be codified by the JOBS Act 3.0, if enacted), and permitting TTW communications, as described in more detail below. A company loses EGC status on the earlier of: (i) the last day of the fiscal year during which it had total annual gross revenues of more than $1.07 billion; (ii) the last day of the fiscal year following the fifth anniversary of its IPO; (iii) the date on which it issued more than $1 billion in non-convertible debt in the previous three-year period; or (iv) the date on which it is deemed to be a “large accelerated filer” (essentially an issuer that has been public for a year and has a public float of its common equity of $700 million). In addition, the FAST Act and SEC staff guidance permit a company to omit from draft registration statements annual and interim financial statements and related information, including management’s discussion and analysis, that the company reasonably believes will

GLI – Initial Public Offerings 2021, Fifth Edition 13 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA not be required to be included at the time of the contemplated offering (in the case of EGCs) or at the time of the first public filing of the registration statement (for non-EGCs). This accommodation is granted for financial statements because they will have been superseded by more recent information. Key regulators and listing authorities in the IPO process The chief regulator involved in the IPO process in the United States is the SEC, which is charged with safeguarding market integrity, protecting investors and promoting capital formation. The Securities Act requires that before any shares are sold to investors, there must be an effective SEC registration statement. The SEC staff reviews and comments on the disclosures included in the IPO registration statement filed by the company before declaring it effective. FINRA is a not-for-profit self-regulatory organization that regulates member broker-dealers, including the underwriters in an IPO. FINRA’s Corporate Financing Rules require member firms that participate in public offerings of securities to file the offering documents, including the registration statement and underwriting agreement and certain other agreements between the underwriters and the company, with FINRA for review. This filing must take place no later than three business days after filing or confidential submission of each registration statement with the SEC. In the case of an IPO, the company will be required to pay a non-refundable filing fee to FINRA that is based on the offering size of the IPO listed in the registration statement (including any overallotment), or for confidential submissions, an estimate of the same. FINRA will review the underwriting arrangements and documentation to ensure that they are not unreasonable and that the underwriting compensation paid to the banks is not unfair or unreasonable. In addition, if one of the underwriters of the IPO has a conflict of interest, FINRA requires specific, prominent disclosure to be included in the registration statement regarding the nature of the conflict of interest and other information. In the absence of an applicable exemption, FINRA then also requires that a bank that does not have a conflict participate in the offering as a qualified independent underwriter. The underwriters must have received a FINRA “no objections” letter before the SEC will declare the registration statement effective and the IPO can be priced. In addition to SEC and FINRA review, companies must also complete a separate application process in order to list their securities on a U.S. exchange. The two major exchanges in the United States for common stock listings are the NYSE and the NASDAQ, which have similar, though not identical, listing standards. Companies in certain industries more frequently opt to list on one over the other. The listing standards include both quantitative requirements, such as minimum thresholds for the number of publicly traded shares, stock price, number of shareholders, net income and other financial metrics, and qualitative requirements, such as compliance with the exchange’s continued corporate governance standards. Typically, the listing process takes between four to six weeks and the company must pay an application fee. Key documentation Registration statement and prospectus The most important document in the IPO process is the registration statement, of which the prospectus – the primary disclosure and marketing document investors will see in connection with the IPO – constitutes the main part. The prospectus describes, among other things, the company’s business, financial statements and condition, risk factors, management, capital stock and the offering. SEC rules require the prospectus to be written in “plain” English to facilitate investors’ ability to make an informed investment decision. The prospectus begins with a summary of the business, including its competitive strengths and strategies (commonly referred to as “the equity story”), the offering and summary

GLI – Initial Public Offerings 2021, Fifth Edition 14 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA financial information, which may include measures that are not required, but may be helpful in marketing, such as non-GAAP numbers or operating statistics. Risk factors are another key section of the prospectus. This section describes the major risks of investing in the company, the offering and the company’s shares. These risks may include having a limited operating history, operating in a highly competitive or regulated industry or being dependent on a few key employees or a limited number of suppliers or customers. Ultimately, however, the risks will be company-specific and will depend on the company’s industry, size, profile and other factors. This section serves as the best means to avoid potential liability by ensuring that investors are aware of potential material risks. The prospectus must also present audited financial statements (covering three years of income statements and two years of balance sheets) and unaudited financial statements for any interim periods, or a shorter period depending on the company’s operating history. EGCs enjoy reduced disclosure requirements, including being required to include only two years of audited financial statements instead of three. A related section presents management’s discussion and analysis of the company’s financial condition and result of operations, focusing on business trends and year-to-year and interim comparisons of operating results, liquidity and capital resources, cash flows and contractual and debt obligations, among other items. The prospectus must also disclose comprehensive information about the compensation of the company’s chief executive officer, chief financial officer and the company’s next three most highly paid executive officers, the pay ratio between the chief executive officer and the median compensation of all employees other than the chief executive officer, grants of stock options and stock appreciation rights, long-term incentive plan awards and pension plans, and employment contracts and related arrangements. EGCs are subject to less onerous disclosure requirements for executive compensation, including no requirement for a compensation discussion and analysis section. The prospectus must also disclose: the company’s capital structure; intended use of the proceeds from the IPO (for a primary offering or the primary portion of a combined primary and secondary offering); anticipated dividend policy; certain transactions with related parties; current and post-offering shareholdings of directors, officers and significant shareholders; a description of the rights and restrictions of the shares being offered, for example, voting rights and transfer restrictions; and a description of the underwriting arrangements and lock-up agreements. Finally, the company must file certain documents as exhibits to the registration statement, including its certificate of incorporation and bylaws, the underwriting agreement and certain material contracts. The company may redact any portions of such contracts which contain information that is not material to investors and which the company treats as private or confidential – a process which has become significantly less burdensome after amendments in May 2019, which now permit such redaction without first filing, and receiving SEC approval for, a confidential treatment request. As noted above, issuers may submit their IPO registration statements to the SEC for confidential review prior to the first public filing. Submitting the registration statement with the SEC confidentially may be beneficial to the company and the underwriters for many reasons. For example, the company may want to delay disclosing the description of its business, detailed financial statements or other commercially sensitive information or the fact that it is preparing to go public to competitors and the public for as long as possible. The ability to delay public knowledge that the company is preparing an IPO generally allows for greater flexibility to complete the offering when the company is ready and market conditions are optimal. There is also less risk of potentially detrimental scrutiny by

GLI – Initial Public Offerings 2021, Fifth Edition 15 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA investors or media should the offering be postponed or the registration statement withdrawn while under confidential review. The first public filing must occur no later than 15 days prior to the commencement of the roadshow (except for certain FPIs, as discussed above). All previously submitted confidential drafts will be made public at that time. Form 8-A The company must also file a Form 8-A which registers the IPO shares under the Exchange Act and enables the company to list the securities on a U.S. exchange. This is a very short form that generally incorporates information from the IPO registration statement. Underwriting agreement and lock-up agreements The underwriting agreement memorializes the underwriters’ commitment to purchase the IPO shares, the price the underwriters will pay the company and/or the selling shareholders for the shares and the price at which they will resell them to the public. The underwriting agreement also customarily includes extensive representations and warranties by the company and the selling shareholders, if any. The representations are similar to those that would be included in a merger agreement or stock purchase agreement for the sale of the company, subject to the appropriate materiality exceptions. The agreement also includes covenants (including a company lock-up), indemnification provisions and closing conditions. The company (through the underwriting agreement) and individual directors, officers and shareholders (through individual lock-up agreements) agree with the underwriters that they will not issue or sell any shares during a period commencing at execution of the underwriting agreement or lock-up, as applicable, and extending for, typically, 180 days following the pricing of the offering. The lock-up agreements include customary exceptions, and sometimes additional exceptions are negotiated by the parties. The underwriters will generally require the lock-up agreements to be executed prior to the filing or the confidential submission of the registration statement with the SEC, and in any event no later than the launch of the roadshow, so that while marketing the offering they can address the investor concern that a large supply of shares could be sold on the market shortly after the IPO, potentially depressing the trading price. Auditor comfort letter and legal opinions and negative assurance letters The underwriters will also request the company’s external auditors to provide a “comfort letter” containing certain assurances about the accuracy of the financial information in the registration statement. In addition, company counsel and underwriters’ counsel issue opinion letters to the underwriters expressing legal conclusions about the company, the IPO and the securities, as well as negative assurance letters, confirming that counsel have undertaken certain due diligence procedures and that, following such procedures, they have no reason to believe that the offering document contains any misstatements or omissions of material facts. Opinions from in-house counsel, regulatory counsel, intellectual property or other specialized or local counsel may also be needed depending on the particular circumstances of the transaction. The registration process and publicity The requirement that the offer and sale of securities should be made only pursuant to a statutorily compliant prospectus that is filed with the SEC as part of the registration statement, often referred to as a “Section 10(a) prospectus,” is a core tenet of U.S. securities law and the registration process. Soliciting orders from investors before a compliant prospectus is filed is commonly referred to as “gun jumping.” There are different rules and limitations on publicity and communications to prevent gun jumping at various stages of the registration

GLI – Initial Public Offerings 2021, Fifth Edition 16 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA process. Section 5 of the Securities Act provides the framework for publicity restrictions during the following three periods of the registration process: • pre-filing or “quiet” period: from the time the decision is made to proceed with the IPO and until the public filing of the registration statement with the SEC; • post-filing or “waiting” period: after the public filing of the registration statement but before the registration statement has been declared effective by the SEC; and • post-effective period: immediately following the SEC’s declaration of effectiveness of the registration statement and ending 25 days thereafter. Pre-filing period The Securities Act prohibits companies from “conditioning the market” by creating investor interest in a prior to the filing of the related registration statement with the SEC. Specifically, Section 5(c) of the Securities Act makes it unlawful for any person “to offer to sell” a security unless a registration statement has been filed. A confidential submission is not considered a filing of a registration statement for purposes of Section 5(c). The concept of “offer to sell” is interpreted very broadly by the SEC and includes any type of communication that may condition the market for the securities, even if the specific security is not mentioned in the communication. Both oral and written communications (including through print, radio, television and the internet) fall into the definition of “offer” and include, among other items, press releases, media interviews and public speeches, employee newsletters and media campaigns. For this reason, it is imperative that the company’s publicity restrictions and guidelines are designed to help ensure that communications do not contain statements viewed as conditioning the market, and that senior management, directors and employees of the company who are expected to be in contact with the press or otherwise communicate on behalf of the company must be educated on such publicity restrictions and guidelines. During the pre-filing period, each communication should also be analyzed by company and underwriters’ counsel to determine whether it would be seen as an attempt to condition the market or whether an exception to the publicity restrictions would apply. There are three primary exceptions to the publicity prohibitions in the pre-filing period: (i) a 30-day bright line safe harbor under Rule 163A of the Securities Act for communications that do not reference the offering and are made more than 30 days prior to the public filing of the registration statement; (ii) a safe harbor under Rule 169 of the Securities Act for the regular release of factual business information (but not forward-looking information) that is of a type the company has released or disseminated previously and is materially consistent in timing, manner and form with such past releases or disseminations and is intended for use by customers or suppliers, or other individuals, but not in their capacities as investors or potential investors; and (iii) a safe harbor for a pre-filing announcement of a planned offering by the company that contains limited information as set forth in Rule 135 of the Securities Act (e.g., name of the company, title, amount and basic terms of the securities, anticipated timing, etc., but not including the names of the underwriters). There are also additional exceptions for any preliminary negotiations with the underwriters and responding to unsolicited factual inquiries from the news media and other third parties. The JOBS Act introduced a “testing the waters” exception to the gun jumping communication restrictions of Section 5 of the Securities Act. This exception allows EGCs to “test the waters” by communicating with qualified institutional buyers and institutional accredited investors about the IPO prior to or after confidentially submitting or publicly filing a registration statement. The permission to engage in TTW communications was expanded to non-EGCs when the SEC passed Rule 163B in 2019, and may be further codified if and when legislators pass JOBS Act 3.0. The SEC often reviews TTW materials,

GLI – Initial Public Offerings 2021, Fifth Edition 17 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA and the information included in such materials is subject to anti-fraud liability. Accordingly, company and underwriters’ counsel should review such materials to ensure consistency with the registration statement. Post-filing period After the company publicly files the registration statement, the post-filing, or “waiting,” period commences and continues until the registration statement is declared effective by the SEC. During this time, oral communications are permitted but no written communications other than a statutorily compliant prospectus in the form included in the registration statement may be used to offer the IPO securities. In limited circumstances, other written materials may also be used if they are filed with the SEC, but this rarely happens in practice. The prohibition of written communication extends to broadcast communications, including radio or television, as well as to advertisements, notices and letters. It also covers communications via modern technology, such as social media posts, text messages and email. While oral communications are permitted during the post-filing period, they should be consistent with the information included in the statutory prospectus, given that such communications are subject to the anti-fraud provisions of the U.S. securities laws. In addition to oral communications, after the public filing of the registration statement, Rule 134 of the Securities Act provides a safe harbor for notices that contain limited information on the company and the offering, such as the name of the company and managing underwriters, a schedule of the offering and use of proceeds, and a mandatory legend set forth in the rule. Rule 134 notices typically take the form of a press release announcing the filing of the registration statement and should be reviewed by both company and underwriters’ counsel prior to release to ensure compliance. Post-effectiveness period After the registration statement is declared effective by the SEC, the distribution of written materials is generally permitted as long as the final prospectus accompanies or precedes delivery of such materials. In addition, dealers are required to deliver a prospectus in any securities transactions that take place within 25 days of the effective date of the registration statement. As a result, companies typically limit communications during this period to avoid any inconsistencies with the prospectus. Risks and sanctions The SEC takes the Section 5 publicity restrictions very seriously, and violations can have significant consequences, including having to delay the offering, providing investors with potential rescission rights under Section 12 of the Securities Act (described in more detail below under “Potential risks, liabilities and pitfalls”) and being subjected to civil and criminal sanctions. The SEC may require a “cooling off” period if it believes that an impermissible communication, such as a media interview, has conditioned the market for the securities. There have also been cases where the SEC has required a company to amend its registration statement to include (and thus assume registration statement liability for) additional information from public communications that went beyond the information in the registration statement. Companies should exercise caution, especially with respect to forward-looking information, forecasts and overly optimistic predictions in their public statements.

Public company responsibilities This section outlines certain significant obligations imposed on listed U.S. domestic companies, and their officers, directors and certain of their shareholders, which do not apply

GLI – Initial Public Offerings 2021, Fifth Edition 18 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA to private companies. FPIs are also subject to Exchange Act reporting obligations and the rules of the U.S. exchange on which they are listed, but such requirements are less extensive compared to those for domestic companies, and with respect to certain requirements, FPIs are instead permitted to comply with their home country rules. Periodic and current reporting obligations Once a U.S. company becomes subject to the Exchange Act reporting requirements, it must file annual and quarterly reports with the SEC within certain prescribed periods after the end of the respective fiscal period. The information required to be disclosed in these periodic reports is substantially similar to that required to be disclosed when the company’s shares are registered in an IPO. Independent auditors must audit the annual financial statements and review the quarterly financial statements. The SEC periodically reviews the company’s filed reports and may also compare their disclosure to statements made in earnings releases and other publicly available information issued by the company, including information posted on its website. In addition to periodic reports, a public U.S. company must file current reports within a few days of the occurrence of certain material events, including when it enters into or terminates a material agreement, enters into a new direct financial obligation, issues an earnings release, changes directors or officers, acquires or disposes of businesses or assets, amends its certificate of incorporation or bylaws or changes external auditors. Public companies must also file copies of their material contracts. Public companies must be constantly aware of the potential for insider trading based on material information that has not been made available to the general public. A company also must not disclose material non-public information (MNPI) to, for example, selected investors or financial analysts unless it simultaneously discloses that information to the public or the recipients of the information have expressly agreed to keep it confidential. In instances where confidentiality agreements have not been obtained prior to selective disclosure, companies customarily satisfy this disclosure obligation by issuing a press release and filing a current report to make the information public. FPIs are required to file an annual report on Form 20-F (or Form 40-F in the case of Canadian FPIs eligible to do so under the U.S.-Canadian Multijurisdictional Disclosure System) and reports on Form 6-K regarding material information otherwise released in the home jurisdiction. They are not, however, required to file quarterly reports, although they may, and often do, voluntarily provide similar types of information as U.S. domestic companies. NYSE and NASDAQ listing rules also require that FPIs file a Form 6-K containing semi- annual unaudited financial information no later than six months following the end of the company’s second fiscal quarter. Certifications of chief executive officer and chief financial officer Since SOX was passed in 2002, the annual and quarterly reports of domestic public companies, and annual reports of FPIs filed with the SEC, must include certifications by the principal executive officer and principal financial officer certifying that: (i) the information contained in the periodic report fairly presents, in all material respects, the company’s financial condition and results of operations; and (ii) the company’s internal control over financial reporting (ICFR) is effective based on management’s assessment thereof. Any officer who provides a false certification is, depending on the type of certification, subject to SEC and private actions, a monetary fine of up to $1 million and a prison term of up to 10 years (up to $5 million and 20 years for wilful violations). The company’s independent auditors must also audit and attest to the effectiveness of the company’s ICFR. The amount

GLI – Initial Public Offerings 2021, Fifth Edition 19 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA of time and effort necessary to support the ICFR certification and auditor attestation regime entails substantial compliance costs for public companies. Newly public companies may, however, wait until their second annual report after the IPO to file ICFR certifications and auditor attestations and EGCs in particular are exempted from the auditor attestation requirement for up to five years from going public as long as they continue to qualify as EGCs. If enacted, the JOBS Act 3.0 would extend the exemption from auditor attestation for up to 10 years for certain EGCs. Proxy solicitation obligations Public U.S. companies must also comply with rules regulating how proxies are solicited from shareholders in lieu of their physical attendance at shareholders’ meetings. Proxy statements must be filed with the SEC and delivered to shareholders within specified time periods before the meetings are held, provide detailed information about the meetings and matters to be voted upon and disclose certain information related to corporate governance, executive compensation and share ownership by directors, officers and significant shareholders. Public U.S. companies must also provide their shareholders the opportunity to vote, on a non-binding advisory basis, on the company’s executive officers’ compensation and whether such “say-on-pay” voting will take place every one, two or three years. Shareholder approval rates in say-on-pay votes have historically been very high since the requirement was implemented. A public company must also include a shareholder proposal in its proxy statement if it satisfies certain conditions. FPIs are not subject to the proxy rules and not required to hold say-on-pay votes. Share ownership reporting obligations Under Section 16(a) of the Securities Act, a public company’s directors, officers and shareholders beneficially owning more than 10% of any class of registered equity securities of the company (collectively referred to as “insiders”), must file publicly available reports with the SEC disclosing their holdings of, and transactions and changes in, the company’s shares. Although the forms are the responsibility of each individual filer, many are in practice filed on their behalf by the company or its counsel. In addition, under Section 16(b), every insider must pay to the company any profit deemed realized from a purchase and sale (whether the sale precedes the purchase or vice versa) of the company’s stock within any period of less than six months, with certain exemptions for such transactions made pursuant to employee benefit plans. FPIs are not subject to Section 16 reporting requirements. Corporate governance requirements Public companies are subject to various corporate governance requirements imposed under state and federal law, as well as the U.S. exchange on which the company’s shares are listed. NYSE and NASDAQ each require that a majority of the directors on a public company’s board of directors be “independent.” Under the NYSE rules, an independent director is one who does not have a material relationship with the company, either directly or as an officer, partner or shareholder of a company that has such a relationship with the company. The company must also have an audit committee comprised entirely of independent directors that are financially literate and one of whom is a financial expert, and a compensation committee and a nominating and corporate governance committee that are each comprised entirely of independent directors. Further, public companies are required to adopt a code of business conduct and ethics and, depending on which U.S. exchange they are listed on, a set of corporate governance guidelines that further delineates corporate governance responsibilities. The exchanges also require listed companies to obtain shareholder approval

GLI – Initial Public Offerings 2021, Fifth Edition 20 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA for certain transactions, including prior to issuing 20% or more of their outstanding common stock or voting power at a price discounted from market value, unless such issuance is made in a widely distributed public offering registered with the SEC. In April 2020, in response to the impact of the COVID-19 pandemic, the SEC approved a request from the NYSE to partially waive certain of the NYSE shareholder approval requirements until June 30, 2020, in order to grant companies more flexibility in raising equity capital in private transactions. The waiver was extended twice through March 31, 2021. In April 2021, the SEC approved NYSE’s proposal to permanently change its shareholder approval rules to be consistent with the waiver. The proposal more closely aligns NYSE’s shareholder approval rules with those of NASDAQ. NYSE and NASDAQ rules do permit a company to gradually phase in the number of independent directors on the board of directors and its committees during the first year after its IPO. Moreover, controlled companies, defined as those in which more than 50% of the voting power for the election of directors is held by a single person, entity or group, are permitted to opt out of compliance with some of the above-mentioned governance standards. FPIs are generally permitted to comply with their home country practices in lieu of the NYSE or NASDAQ corporate governance requirements, except for requirements related to audit committee composition. While the above-described rules are a mandatory baseline, some recent developments in the IPO space indicate that mere compliance with corporate governance rules may be insufficient. Board diversity, in particular, while not mandated, has been important in the IPO market in recent years. Lack of board diversity was one complaint faced by WeWork before it pulled its troubled IPO in 2019. Early in 2020, Goldman Sachs, the top underwriter of U.S. IPOs in 2019 (and a lead underwriter for WeWork’s withdrawn offering), announced that it would no longer underwrite U.S. or European IPOs of companies without at least one diverse director, with a focus on women. Relatedly, in 2018, California passed a law requiring that, depending on their size, publicly traded companies in the state have between one and three women on their boards by the end of 2021. Once public, companies may also have to contend with the advice of proxy advisory firms, Institutional Shareholder Services and Glass Lewis and Co. chief among them. These firms publish annual proxy voting guidelines and benchmark policy recommendations and provide shareholders with tailored recommendations on how to vote their shares, potentially wielding significant influence on shareholder decision-making. Significantly departing from proxy advisory firms’ views on corporate governance best practices can lead to shareholders voting against management, including in say-on-pay advisory votes regarding executive compensation.

Potential risks, liabilities and pitfalls Diligence process and procedures One of the most important and time-consuming elements in an IPO is the due diligence process, in which the underwriters and counsel undertake a comprehensive review of the company’s legal, business, financial and accounting affairs for the past several years, as well as evaluate the company’s future prospects and identify any significant risks to the company or the offering. The overarching purpose of due diligence from the company’s and the underwriters’ perspective is to reasonably assure themselves that the registration statement, the prospectus and related marketing materials appropriately describe the company’s business, financial condition and ariousv risks relating to the company and the offering as required by the SEC rules and do not contain any material misstatements or omissions. For the underwriters, this forms the basis of the “due diligence” defense described below.

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The due diligence process generally kicks off with a detailed management presentation about the business and financial condition and continues over several months until the closing of the IPO. Counsel will conduct documentary review of diligence materials, organize several question-and-answer style diligence calls with company management and the external auditors and ask the company to provide support for factual assertions made in the registration statement. In addition, the company’s external auditors will provide the underwriters a “comfort letter” containing certain assurances about the accuracy of the financial information in the registration statement. The scope and areas of focus of the diligence must be tailored to suit the particular circumstances of the company. Depending on the industry of the company, specialists, such as intellectual property, environmental or regulatory lawyers, may be required to conduct a thorough diligence investigation. Major investment banks in the United States require extensive IPO diligence with respect to the company’s compliance with anti-corruption, anti- bribery, anti-money laundering and sanctions-related matters. It is also customary for the underwriters to order background checks on the company’s directors and senior executives for legal and reputational purposes and to conduct due diligence calls with material suppliers, vendors, key opinion leaders or business partners. Potential legal liabilities and penalties There is significant potential liability for violations of U.S. securities laws and material misstatements and omissions in the registration statement under Sections 11, 12(a) and 17 of the Securities Act and Sections 10(b) and 18 of the Exchange Act. There is no statutory definition of “materiality,” and whether a particular statement or omission is material will depend on the total mix of information available to investors and the facts and circumstances surrounding the event or transaction. Both quantitative and qualitative factors must be considered in making a materiality determination. Generally, information is deemed to be material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision regarding the company’s securities. Information about the following (among other examples) is potentially material: financial results, prospects or trends; mergers, acquisitions or other strategic transactions; risks related to the company; developments relating to the company’s major customers or suppliers; legal proceedings, government investigations or regulatory matters; changes in controlling shareholders, directors or management; and changes in the company’s indebtedness or financial position. Registration statements: Section 11 of the Securities Act Section 11 of the Securities Act establishes liability for material misstatements or omissions in a registration statement. A person who has acquired securities pursuant to a registration statement (or whose securities are traceable to the distribution that occurred pursuant to a registration statement), has a claim under Section 11 if the registration statement contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading. That person may sue, among others: (i) the company; (ii) directors of the company (even if they have not signed the registration statement); (iii) persons named in the registration statement as director nominees of the company; (iv) each person who has signed the registration statement, including the principal executive officer, principal financial officer and principal accounting officer; (v) eth company’s auditors with respect to the audited financial statements; and (vi) any underwriter.

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The company is strictly liable for any material misstatement in, or material omission from, a registration statement and no proof of fraud, intent or negligence on the part of the company is required to be shown, nor is a due diligence defense available to the company. However, persons other than the company, such as directors, officers and underwriters, can assert a “due diligence” defense. This defense is available if the defendants can show that, after reasonable investigation, they had reasonable ground to believe, and did in fact believe, that the statements in the registration statement were true and that there was no omission of material fact. The remedy under Section 11 is damages equal to the difference between the purchase price of the securities and (i) their actual value at the time the lawsuit was commenced, (ii) the price at which the plaintiff sold the securities if the sale occurred prior to commencement of the lawsuit, or (iii) the price at which the securities were sold after the lawsuit was commenced but before judgment is rendered. The total amount of damages cannot exceed the price at which the security was offered to the public, and each underwriter’s liability is capped at the total value of the securities that that particular underwriter had underwritten in the offering. If the defendant can prove that a portion of the loss incurred by the plaintiff was due to something other than the material misstatement or omission, any damages will be reduced accordingly. Gun-jumping violations: Section 12(a)(1) of the Securities Act Section 12(a)(1) of the Securities Act creates a private right of action for violations of the registration requirements and publicity restrictions of Section 5 of the Securities Act. A person that purchases securities sold in violation of those restrictions has a rescission remedy against the seller. The plaintiff returns the security to the defendant in exchange for the purchase price (with interest calculated at an equitable rate determined by the court). In the event that the particular securities have been sold by the plaintiff, the remedy is damages. All offering communications: Section 12(a)(2) of the Securities Act Section 12(a)(2) of the Securities Act establishes liability for material misstatements or omissions in a prospectus or oral communication. Liability is subject to a due diligence defense if the defendant can show that he or she did not know, and could not in the exercise of reasonable care have known, of the misstatement or omission. Unlike Section 11, this includes liability for statements made in slide presentations or orally during the roadshow. The plaintiff under a Section 12(a)(2) claim has the same rescission remedy as under a Section 12(a)(1) claim discussed above. Section 10(b) and Rule 10b-5 under the Exchange Act Section 10(b) and Rule 10b-5 of the Exchange Act provide a broad, fraud-based remedy for material misstatements and omissions in connection with the purchase or sale of securities, whereby the defendant must be shown to have had “scienter” – acted intentionally or at least recklessly – in making the misstatement or omission. This is a private right of action claim that is commonly used in securities litigation matters and requires plaintiffs to show that the defendant made a false statement or omission of a material fact with scienter, in connection with the purchase or sale of a security, upon which the plaintiff justifiably relied and which proximately caused the plaintiff’s economic loss. Remedies include injunctive relief, estoppel, disgorgement of profits and rescission. Control person liability Under Section 15 of the Securities Act, a plaintiff can bring an action against a control person for a primary violation of Section 11 or Section 12 of the Securities Act, and such control person is jointly and severally liable with the controlled person subject to certain affirmative

GLI – Initial Public Offerings 2021, Fifth Edition 23 www.globallegalinsights.com Shearman & Sterling LLP Going public in the USA defenses, including lack of knowledge. Control persons typically include directors, officers and principal or controlling shareholders that have the power to direct management and the entity’s policies. Section 20 of the Exchange Act provides for control person liability for primary violations of Section 10(b) or Rule 10b-5 under the Exchange Act, and such control person is jointly and severally liable with the controlled person but can assert the defense that the “controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.” Enforcement by the SEC and Department of Justice In addition to private plaintiffs, the SEC, and in criminal cases, the Department of Justice, have broad enforcement powers for violations of the Securities Act and the Exchange Act.

Conclusion Going public in the United States is complex and requires skilled advisors and counsel to help navigate the potential pitfalls, liability risks and nuances of the process. This chapter is an attempt to provide a broad overview of going public in the United States, the current regulatory framework and public company responsibilities, as well as potential pitfalls, liabilities and common risks. As the U.S. IPO process evolves, the SEC will continue to adopt rules to encourage capital formation, modernize disclosure regulations and improve overall disclosure effectiveness. Technology will no doubt have a strong influence and impact, as well.

Acknowledgment The authors would like to acknowledge the contribution of their colleague Ekaterina Bogdanov in the drafting of this chapter. Ekaterina is an associate in Shearman & Sterling’s Capital Markets practice, where she represents investment banks and corporate issuers in a broad range of public and private capital markets transactions, as well as providing ongoing corporate advice. Tel: +1 212 848 7463 / Email: [email protected].

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Ilir Mujalovic Tel: +1 212 848 5313 / Email: [email protected] Ilir Mujalovic is a partner in Shearman & Sterling’s Capital Markets and the Americas Capital Markets Team Leader as well as a Lead Industry Coordinator for Healthcare. He has extensive experience in capital markets transactions and advises investment banks and corporations on a wide variety of matters, including IPOs, follow-on offerings, convertible bonds, high-yield and other debt offerings. From August 2010 through February 2014, Ilir was a Director and Assistant General Counsel at Bank of America Merrill Lynch, where he advised on a broad range of equity and high-yield capital markets transactions. Prior to that, he was an associate in Shearman & Sterling’s Capital Markets Group. Ilir received his J.D. (summa cum laude) from New York Law School. He is qualified to practice in New York.

Richard Alsop Tel: +1 212 848 7333 / Email: [email protected] Richard Alsop is a partner in Shearman & Sterling’s Capital Markets practice. He focuses on capital markets transactions, corporate governance, corporate finance transactions, financial institutions and underwriting practices, advising corporations and investment banks on a broad variety of capital markets work, including initial public offerings, convertible bonds and investment grade and high-yield transactions. He is a contributor and editor for Shearman & Sterling’s annual Corporate Governance Survey. From 2003 through 2008, Richard was Senior Vice President and General Counsel, Corporate Law at Merrill Lynch & Co., Inc., where he advised executive management and the board of directors on major corporate transactions, corporate finance, corporate governance, executive compensation and other matters. From 1994 through 2003, he held other senior roles in the legal department of Merrill Lynch, including Equity Capital Markets Counsel, General Counsel and Debt Markets General Counsel. He rejoined Shearman & Sterling in 2010.

Ana Aur Tel: +1 212 848 4845 / Email: [email protected] Ana Aur is an associate in Shearman & Sterling’s Capital Markets practice, where she represents issuers and investment banks in a broad range of public and private capital markets transactions. Ana’s practice includes initial public offerings, high-yield and investment grade debt issuances, acquisition financings, cross-border securities offerings and liability management transactions in a wide range of industries, including healthcare, media and telecommunications, metals and mining, general industrials, real estate, power and energy, forest products and consumer retail. Ana received her J.D. from the University of Toronto Faculty of Law. She is qualified to practice in New York.

Shearman & Sterling LLP 599 Lexington Avenue, New York, NY 10022-6069, USA Tel: +1 212 848 4000 / Fax: +1 646 848 5313 / URL: www.shearman.com

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Daniel Scotti & Nicole Sloggett MinterEllison

Introduction While there are a number of securities exchanges operating within Australia (including the National Stock Exchange of Australia, the Sydney Stock Exchange and Chi-X Australia), the Australian Securities Exchange (ASX) is typically the securities exchange of choice for entities undertaking an initial public offering IPO( ) in Australia, as it is the highest-profile securities exchange in Australia and has the largest volume of capital. ASX is a fully integrated securities exchange across multiple asset classes (e.g. equities, fixed income, derivatives and managed funds) and is a globally renowned equity market with an international reputation for conducting markets of integrity; providing investors with the confidence that is required for active securities trading. With Australia having Asia’s largest pool of investable funds and ASX consistently being ranked in the top exchanges globally for raising capital, a listing on ASX offers access to capital in one of the world’s fastest-growing regions, within a robust regulatory environment. The number of new listings on the ASX in 2020 increased 23% year-on-year, and three quarters of these listings were in the second half of 2020. There were IPOs in a broad range of sectors, the top three sectors in order being materials – metals and mining, technology and healthcare. It is expected that more overseas businesses will consider undertaking IPOs in Australia, especially given the stable economic climate in Australia and the way Australia has dealt with COVID-19.

The IPO process: Steps, timing and parties and market practice This section contains a high-level overview of the key steps involved in taking an IPO, the typical timing required to complete an IPO, and the parties involved in the IPO process. Key steps involved in undertaking an IPO The process of undertaking an IPO will typically involve the company taking the following key steps: • Establishment of a due diligence committee: To ensure the prospectus being prepared in connection with the IPO complies with the content requirements imposed under the Australian Corporations Act 2001 (Cth) (Corporations Act) or, if the prospectus is defective, those with potential liability have the ability to make use of the legal defences contained in the Corporations Act, it is usual for companies to undertake a formal due diligence process. The process also helps to: • ensure that the prospectus is not misleading or deceptive; • identify legal impediments to the IPO which can be dealt with prior to completion of the IPO; and

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• enhance market comfort by establishing the reputation of the company and showing quality corporate governance. In accordance with market practice, a due diligence committee (DDC) is typically established to manage and coordinate the due diligence process for the IPO, with a view to ensuring that the above objectives are met. The DDC will usually comprise representatives from the board and management of the company, any major selling securityholder, the company’s lawyers and tax advisers, the investment bank/ stockbroker or underwriter of the IPO and the investigating accountant. • Undertaking due diligence enquiries: The company and its advisers will need to carry out commercial, legal, accounting, financial and tax due diligence enquiries on the company, its business and assets to determine material issues and identify any legal impediments to the IPO or associated transactions requiring resolution (e.g. a consent that is required to be obtained under a material contract to permit, for example, the IPO to proceed). • Application for in-principle advice: Prior to undertaking material work in respect of the IPO, it is highly recommended that the company will make an application to ASX for in-principle advice to confirm whether the company is a suitable candidate for admission to the official list of ASX. • Pre-IPO restructure; corporate and capital structures: If recommended by legal, tax, accounting and/or commercial advice, the company may need to effect a pre-IPO restructure to implement optimal settings for its corporate and capital structure, having regard to potential liabilities, operational and marketing matters. The company will also need to review (and revise as necessary) its governance arrangements having regard to the principles of good corporate governance and recommendations set by the ASX Corporate Governance Council. • Offer structure: The company, together with its advisers, will need to determine the structure for the proposed IPO, including to whom offers will be made (institution/ broker/retail split), where offers will be made (i.e. in what jurisdictions), how offers will be made (i.e. privately marketed through a front-end bookbuild or publicly marketed with a back-end bookbuild) and by whom offers will be made (i.e. sell-down/fresh raise or a combination of the two). Decisions will also need to be made in relation to the form of underwriting (if any) for the IPO (and an agreement negotiated), the composition of lead manager and broker syndicates, and the terms of escrow (whether voluntary or ASX-imposed) which may apply to existing and continuing shareholders. • Prospectus: The company will need to prepare a prospectus which complies with the content requirements of the Corporations Act. The outputs of the due diligence process undertaken in connection with the IPO will inform the content of the prospectus. As the Australian Securities and Investments Commission (ASIC) does not review a prospectus prior to lodgement and launch of the IPO (except in very limited circumstances), the onus is on the directors of the company, underwriters and others involved with the issue of the prospectus to ensure that it complies with the requirements of the Corporations Act. Substantial penalties can apply in the event that the prospectus contains misleading information or omits material information. • Verification of the prospectus: Prior to lodgement of the prospectus with ASIC, a detailed verification process will be undertaken with respect to the prospectus. The verification process is usually coordinated by the company’s lawyers and involves each material statement, in a substantially final form of the prospectus, being referenced back to a verifying source document to ensure its accuracy. Where there are statements

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of opinion, forecasts or expectations on, for example, future performance, growth or development of the company’s business, the verification process will need to investigate the reasonableness of the assumptions on which these views are based. • ASX admission: To obtain admission to the official list of ASX, the company will need to apply for admission to ASX by satisfying the admission criteria in Chapters 1 and 2 of the ASX listing rules (Listing Rules) (further detail of which is set out below). If any ASX or ASIC waivers or confirmations are necessary in connection with the IPO, applications will need to be made at an earlier stage (typically six weeks before completion of the IPO). • Allocation and completion: The final stage in the IPO process is to allocate securities upon pricing of the IPO. The IPO will be completed by the company issuing securities and gaining admission to, and quotation of its securities on, ASX (after satisfying customary listing conditions).

Continued overleaf

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WEEKS Key Due diligence milestones Regulatory Prospectus Board process processes & enquiries members T-2 Identify Undertake regulatory Board diligence process documents settled Initial due diligence enquiries undertaken and meeting Kick-off Appoint Board Members analysis diligence committee (e.g. Timetable, establishment Approve due waivers, etc.) engagement Initial ASX Commence prospectus T due diligence committee Establish drafting waiver applications Prepare required T+1 Management presentation engagement (if required) ASIC Commence high level roadshow Non-deal waiver / relief Submit ASX applications verification & ASIC T+3 deal roadshow Approve non- Due diligence materially briefing Analyst complete (including T+5 pathfinder to pathfinder to provision of financials) Sign-off on financials / Materially complete analysts analysts commences roadshow published Research / analyst Finalise pathfinder T+6 provides informal sign-off Verification finalised and due diligence committee Pathfinder issued / draft ASX listing pathfinder lodged ASX / mgment Draft ASX listing application and on prospectus commences lodged with application roadshow pathfinder Verification Approve with ASX finalised T+7 Conduct roadshow and finalise prospectus Bookbuild documents required for the IPO application and other material Approve prospectus / listing opinions and sign-offs from prospectus and all reports, provides formal sign-off on Due diligence committee T+8 advisers are delivered prospectus lodged with exposure period ASIC and listing prospectus with application with Final ASX listing commences application and ASX / ASIC ASX and ASIC T+9 Lodge prospectus remains compliant with law / offer period prospectus remains compliant with law period ends Ongoing due diligence to ensure exposure prospectus remains compliant with law Ongoing due diligence to ensure opens ASIC T+11 Ongoing due diligence to ensure Offer period T+12 closes Settlement Approve issue of diligence meeting Bring down due securities T+12.7 Lodge pre-quotation listed on ASX items with ASX Company T+13

Fig. 1: Indicative timetable for IPOs in Australia

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Timing for completion of an IPO Assuming a company is well prepared to undertake an IPO, an IPO can generally be completed in three to four months under the indicative timetable shown above. Parties involved in the IPO process A company should engage advisers who are familiar with IPOs and the ASX-listing process. The following advisers will usually make up the IPO team: Investment bank/lead manager: The investment bank or lead manager will be the adviser who is primarily responsible for coordinating the IPO process and the company’s other advisers. Its role may include advising on the structuring of the IPO including the size of the issue, timing and pricing of the IPO, and advising on, and conducting, marketing of the IPO including coordinating and running roadshows with the company’s management. The investment bank or lead manager will also be responsible for managing the IPO to ensure that the IPO will be successful (including achieving the required security holder spread and free float for the purposes of the Listing Rules) and, if underwritten, to guarantee that the underwriter will acquire, or place, any securities not taken up by the public in the IPO. In most circumstances, the underwriter will be appointed at the commencement of the IPO process by a mandate letter which contains the material terms of appointment. The underwriting agreement will then be negotiated in the period prior to lodgement of the prospectus with ASIC, and is typically signed immediately prior to lodgement of the prospectus with ASIC. Lawyers: The role of the lawyers is to advise companies on all legal aspects of preparing for the IPO and the listing including matters such as converting to a public company, implementing any required pre-IPO reorganisation, appointing and removing directors, changing the company’s constitution and directors’ and managements’ service contracts, tax-related issues and preparing corporate governance policies. The lawyers will also coordinate the due diligence process and conduct the legal aspects of due diligence, assist with the preparation and verification of the prospectus and advise on underwriting or offer management arrangements. Investigating accountant: The role of the investigating accountant is to prepare the materiality guidelines used to decide whether due diligence findings are material, to conduct financial and accounting due diligence, to assist with the preparation ofthe financial information disclosure in the prospectus and to provide a ‘review’ level assurance report (for inclusion in the prospectus) on the company’s historical and forecast financial information (if any) for inclusion in the prospectus. Public relations consultant: The role of the public relations consultant will be to liaise with media to ensure that media coverage relating to the company and the IPO is appropriately managed, subject to the strict Corporations Act requirements relating to pre-prospectus publicity (described below in further detail). A public relations consultant may also assist in managing shareholder communications in connection with the IPO. Other advisers: The company will also need to appoint tax advisers (with this role often fulfilled by the company’s lawyers or an investigating accountant) and may require experts to report on specific matters (e.g. an independent geologist for resources companies, a patent attorney for biotech companies, etc.). In addition, it is increasingly common for companies undertaking an IPO to engage an independent corporate adviser.

Regulatory architecture: Overview of the regulators and key regulations An IPO undertaken in Australia will principally be governed by the requirements set out in the Corporations Act (which governs the disclosures that are required to be included

GLI – Initial Public Offerings 2021, Fifth Edition 30 www.globallegalinsights.com MinterEllison Australia in the prospectus and is regulated by ASIC) and the Listing Rules (which prescribe the requirements that must be satisfied to obtain a listing on ASX and is regulated by ASX). Content requirements prescribed by the Corporations Act If a company intends to offer securities to the public in connection with its IPO, it will be required to prepare a prospectus which complies with the content requirements of the Corporations Act. However, in certain circumstances where a company is not looking to raise capital at the time of seeking admission to the official list of ASX, ASX will permit a company to prepare an information memorandum, which can have marginally lower disclosure requirements and does not attract the statutory prospectus liability regime. While the Corporations Act does not prescribe all matters that should be included in a prospectus, it does require that a prospectus contain all information that investors and their professional advisers would reasonably require to make an informed assessment of the rights and liabilities attaching to the securities offered and the assets and liabilities, financial position and performance, profit and losses and prospects of the company. The prospectus must include this information if it is known to the company, its directors and proposed directors, the underwriter and advisers, or if it could be reasonably found out by those people. The fact that certain information is confidential is a relevant consideration in what is reasonable for investors and their advisers to expect to see in the prospectus. However, the overriding rule is that if information is material to investors it cannot be omitted from the prospectus on the basis that it is confidential. There is also certain prescribed information which must be included in a prospectus, such as the terms and conditions of the offer, disclosure of certain payments made to directors and advisers in connection with the IPO, information about the ASX listing, lodgement of the prospectus with ASX and ASIC and the expiry date for the prospectus. In addition to containing the prescribed content, the Corporations Act also requires that the prospectus be worded and presented in a ‘clear, concise and effective’ manner so that investors (in particular, retail investors) can understand the potential opportunities and risks associated with an investment in the company’s securities. In seeking to satisfy the disclosure requirements of the Corporations Act, regard should be had for regulatory guidance set out by ASIC, including ASIC Regulatory Guide 228 (in relation to specific disclosure issues), ASIC Regulatory Guide 170 (in relation to the disclosure of prospective financial information) and ASIC Regulatory Guide 230 (in relation to the disclosure of pro forma and non-IFRS financial information). A sample contents page for a prospectus is set out below:

Approx. Contents no. of pages Important information and Chairman’s letter Provision of statutory information, disclaimer, key dates for the IPO, IPO statistics and Chairman’s letter. 1. Investment overview – Overview of the company, its business, financial 12 information, purpose and use of funds raised, capital structure, dividend policy, risks associated with an investment in the company and the IPO. 2. Industry overview – Overview of the industry in which the company 9 operates. 3. The company’s business – Description of the company’s business and 20 business model.

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Approx. Contents no. of pages 4. Financial information – The past financial performance, forecast (if any) and 20 pro forma financial information of the company (and, in certain circumstances, entities which have been acquired by it) as prepared by the directors of the company. 5. Risk factors – The main risk factors which apply to the company’s business 10 and an investment in the company’s securities. 6. Board, management and corporate governance – Overview of 11 the directors and senior management of the company, directors’ and managements’ interests and benefits and the company’s approach to corporate governance. 7. Details of the offer – Structure of the IPO and how to apply for securities 9 under the IPO. 8. Independent Accountant’s Report – Independent Accountant’s Report on 9 the historical and forecast (if any) financial information of the company. 9. Additional information – Summary of material contracts and additional 10 information about the company, its securities and the interests of various parties such as professional advisers. 10. Glossary – Definitions of words, terms and abbreviations used in the 3 prospectus. Corporate directory – Key contact details of those involved in the preparation of the 1 prospectus.

It is important to note that forecasts should only be included in a prospectus where there are reasonable grounds for doing so. Having reasonable grounds for a statement means that there must be a sufficiently objective foundation for the statement. In the absence of contrary evidence, a forecast which extends beyond a two-year period may not have a reasonable basis. As a result, forecasts in prospectuses are typically for periods of between six and 18 months. Requirement to lodge prospectus with ASIC The company must lodge a copy of its prospectus with ASIC, as well as lodge its application for admission to the official list of ASX, with ASX, within seven days of lodging its prospectus with ASIC. The maximum life of a prospectus is 13 months. Following lodgement with ASIC, the prospectus will be subject to an exposure period to allow any concerns about the prospectus to be raised by the market. During the exposure period, the company may receive (but must not process) applications, and the prospectus must be made generally available. The initial exposure period is seven clear days; however, ASIC may extend this period for a further seven days if it is concerned that there is a defect in the prospectus that is not resolved in the first seven days. Supplementary and replacement prospectuses If there is a significant change affecting any matter contained in the prospectus, ora significant new matter arises after lodgement of the prospectus with ASIC which renders the information provided in the prospectus misleading or deceptive, or a new circumstance arises which would have been required to be disclosed in the prospectus if it had been in existence at the date of the lodgement of the prospectus, this will need to be disclosed by way of a supplementary or replacement prospectus if the new information is materially adverse from the point of view of an investor.

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If the prospectus deficiency is materially adverse to an investor, the company must either repay application moneys or give investors a one-month period during which they can choose to be repaid their application moneys. ASX admission requirements In addition to the requirements set out above, there are a number of ASX requirements that will need to be satisfied for a company to be admitted to the official list of ASX. Set out below are the main admission requirements:

Admission criteria General requirements Number of Minimum 300 non-affiliated shareholders holding at least A$2,000 worth of shareholders the main class of securities that are not subject to escrow arrangements. Constitution Must have a constitution which is compliant with the ASX Listing Rules. Must: • be a going concern; • have had the same business activity for last three full financial years; • have at least A$1 million aggregated profit from Profit test continuing operations for the last three full financial years; and • have more than A$500,000 consolidated profit from Company size continuing operations for the last 12 months to a (the company must date no more than two months before applying for satisfy either the admission to the official list of ASX. ‘profit’ or ‘assets’ test) Must (unless the entity is an investment entity, to which different ASX Listing Rules apply): • at the time of admission have A$4 million NTA after deducting IPO costs or A$15 million market cap; Assets test • have working capital of at least A$1.5 million; and • include a statement in the prospectus that the company has enough working capital to carry out its stated objectives, as well as the objectives being sought from the listing. A company must have a 20% minimum ‘free float’ (being the percentage Minimum free float of the company’s quoted securities which are not subject to escrow (either requirement voluntary or ASX-imposed) and which are held by non-affiliated security holders) at the time of admission to the official list of ASX. • Audited accounts for the last three full financial years except where the company applies for admission to ASX less than 90 days after the end of its last financial year (unless the company has audited accounts for its latest full financial years), in which case the accounts may be for the three years to the end of the previous financial year but must also include audited or reviewed accounts for Financial reporting Profit test its most recent half-year. • Audited or reviewed accounts for the last half-year (or longer period if available) if the last full financial year ended more than six months and 75 days before making the application for admission to ASX. • Pro forma reviewed by an auditor or independent accountant (unless ASX agrees otherwise).

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Admission criteria General requirements • Audited accounts for the last two full financial years for the company seeking admission, as well as any entity or business that it acquired in the 12 months prior to applying for admission or that it proposes to acquire in connection with its listing. Where the company applies for admission to ASX less than 90 days after the end of its last financial year (unless the company has audited accounts for its latest full financial year) the accounts may be for the two years to the end of the previous financial year but must also include audited or reviewed accounts for its most recent half-year. • Audited or reviewed accounts for the last half-year (or longer period if available) if the last full financial year ended more than six months and 75 days before making the application for admission to ASX. This also applies to any entity or business Financial reporting Assets test that the company acquired in the 12 months prior to applying for admission or that it proposes to acquire in connection with its listing. • Pro forma balance sheet reviewed by an auditor or independent accountant (unless ASX agrees otherwise). In each case above, the audit report or review must not contain a modified opinion, emphasis of matter or other matter paragraph that ASX considers unacceptable. Under the assets test, less than half of the company’s total tangible assets (including any IPO proceeds) must be cash or readily convertible to cash. If the company is not able to meet this test, it will be treated as a ‘cash box’, and must have commitments consistent with its stated business objectives to spend at least half of its cash and assets in a form readily convertible to cash. These objectives, together with an expenditure programme, must be set out in the prospectus. The directors, CEO, CFO and any proposed directors, CEOs or CFOs of the company must obtain a national criminal history check and bankruptcy Good fame and check for each country in which they have resided for the last 10 years, as character of directors well as provide a statutory declaration affirming that, among other matters, they have not been the subject of disciplinary or enforcement actions by an exchange or regulator. Registration as a A foreign entity seeking admission to the official list of ASX must be foreign company registered as a foreign company under the Corporations Act. The company will be required to either: • prepare a prospectus which complies with the requirements of the Corporations Act; or • with ASX’s consent and provided that no capital has been raised in Disclosure document the past three months and the company does not expect it will need to raise capital in the next three months, and has the required spread of security holders, prepare an information memorandum that has prospectus-type disclosure. The company must disclose the extent to which it will follow the Recommendations. If the company will be included in the S&P/ASX 300, Corporate governance it must have audit and remuneration committees, with the audit committee complying with the Recommendations and the remuneration committee comprising solely of non-executive directors.

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Publicity restrictions The following provides a high-level overview of the regulatory regime which applies in respect of the marketing of an IPO in Australia: Pre-prospectus publicity: The Corporations Act imposes strict restrictions on advertising an IPO before a prospectus is lodged with ASIC. Subject to certain limited exceptions, a company will be prohibited from advertising an IPO (including ‘image advertising’ which may induce applicants for securities) before a prospectus is lodged with ASIC. This prohibition is intended to stop the public applying for securities without first reading the prospectus. Ordinary course advertising: The image advertising restrictions in the Corporations Act will not prohibit the company from continuing its normal business advertising, provided that such advertising relates only to the company’s business (and not the IPO). Roadshows: An IPO is generally marketed privately for a period of between one and two weeks before the prospectus is lodged with ASIC to ensure there is sufficient demand for the IPO. This process is called the roadshow. The underwriter/lead manager will need a near-final prospectus prior to undertaking a roadshow and will usually sign the underwriting agreement/offer management agreement and agree to lodgement of the prospectus with ASIC following a successful roadshow. A roadshow to Australian financial services licence holders is an exemption to the prospectus publicity restriction. Post-prospectus publicity: There is more flexibility in terms of advertising an IPO once a prospectus has been lodged with ASIC. However, the advertising must not be false, misleading or deceptive (including by omission) and should be consistent with the disclosures made in the prospectus. The advertisement must also include a statement that the securities are offered under the prospectus and that applicants must read the prospectus before applying for securities and must complete the application form in, or accompanying, the prospectus in order to apply for securities in the company.

Public company responsibilities Once trading of the company’s securities commences on ASX, and in the absence of any specific waivers being received from ASX, the company will need to comply withthe detailed continuing obligations in the ASX Listing Rules. The key obligations are described below:

The company must notify ASX immediately of any information concerning it that a reasonable person would expect to have a material effect on the price or value of its securities. Exceptions to this rule include information relating to confidential negotiations on an incomplete proposal, and information produced for internal management purposes (such as financial projections). In addition, there are specific disclosure requirements for matters such Continuous as changes to directors’ interests, security issues, notifications of annual disclosure general meeting dates, changes of officers and auditors, dividends, release of securities from escrow, lodgement of a disclosure document with ASIC, the exercise by an underwriter of a right to terminate an underwriting agreement or avoid or change the underwriter’s obligations under such agreement, prepared addresses delivered at a general meeting and results of voting at meetings, etc. ASX requires listed companies to publish prescribed financial reports on an annual, half-yearly and, in some cases, quarterly basis, generally within Financial reporting 60 days of the relevant reporting period (this is a much shorter period than applies under the Corporations Act).

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Re-election of Each director of a listed company (other than a managing director) must directors stand for re-election every three years. Listed companies are generally limited to issuing new securities equal to no more than 15% of their issued capital (or 25% for SMEs, who are able to Limitations on issue an additional 10% of their issued capital for cash consideration only) securities issues over a rolling 12-month period, unless shareholder approval is obtained or one of a number of specified exceptions applies. The ASX Listing Rules prescribe shareholder approval requirements for Transactions with certain transactions between a company and its directors and other related related parties parties. The ASX Listing Rules prescribe shareholder approval requirements for Transactions with certain transactions between a company and 10+% and 30+% substantial substantial holders holders and their associates. Significant Shareholder approval requirements are prescribed for certain major transactions acquisitions and disposals. ASX publishes best practice recommendations for the corporate governance of listed companies. There are only a small number of binding Corporate corporate governance requirements, while the majority of these guidelines governance are not mandatory. Instead, ASX applies an ‘if not, why not’ approach, requiring companies to explain in their annual report why they have not complied with any of the best practice recommendations. The insider trading provisions of the Corporations Act prohibit a person from dealing in the company’s securities if they are in possession of materially price-sensitive information which has not been made generally available to the market. Accordingly, the company will need to put in place procedures Insider trading to limit the distribution of such information, as well as set out the times during which staff, management and directors can trade in the company’s securities. The allowed trading windows are usually after the release of half-year and full-year results, and after the annual general meeting.

Generally, unless a foreign company has a foreign exempt listing, overseas companies are required to comply with the same continuing obligations as Australian companies. However, in certain circumstances, ASX will impose additional disclosure requirements, or may waive certain ASX Listing Rules, for foreign companies. For example: • As the Australian takeover and substantial shareholder provisions do not apply to companies incorporated outside Australia, ASX requires a statement of that fact to be included in each annual report, and requires an undertaking from the company to immediately inform the market on becoming aware of any person becoming or ceasing to be a ‘substantial shareholder’ (as defined in the Corporations Act), or a movement of at least 1% in the number of securities in which a ‘substantial shareholder’ has an interest. • ASX may permit foreign companies to report in the currency of their home jurisdiction and under the recognised accounting policies of that jurisdiction and will, in certain circumstances, waive its financial reporting requirements where it considers that the equivalent requirements of the company’s primary exchange are sufficiently stringent to keep the market informed.

Potential risks, liabilities and pitfalls The following provides an overview of when a prospectus is likely to be considered to be ‘defective’ (and therefore give rise to potential civil and criminal liability), who is exposed to liability for the defect, and to what extent defences to liability are available.

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Liability for a prospectus A person may be subject to civil and criminal liability under the Corporations Act in relation to an IPO if: • the prospectus contains a false, misleading or deceptive statement or omits information which is required to be included under the Corporations Act; or • after the prospectus was lodged, a new circumstance has arisen which would have been required to be disclosed in the prospectus if it had arisen before the prospectus was lodged with ASIC, and an amended supplementary or replacement prospectus has not been issued. The company, its directors or a person responsible for statements in a prospectus may also be liable at common law for a fraudulent or negligent misrepresentation in a prospectus. In addition to the specific liability set out above, liability may also arise for other actions taken or statements made in connection with an IPO. For example, a person could potentially contravene the Corporations Act by making a false, misleading or deceptive statement during marketing activities undertaken as part of the IPO or by breaching the pre-prospectus advertising restrictions. Accordingly, directors and management should be very careful about any statements they make about the company or the IPO during the IPO process. Who may be liable? A number of parties involved in the preparation of the prospectus may be subject to criminal and civil liability including (amongst others) the offeror of securities (being the company and/ or any selling shareholder), directors and proposed directors of the company, underwriters and persons who are involved in the contravention of the Corporations Act. The extent of the potential liability will differ depending on the person involved. In particular, in the event that the prospectus is defective, the company, any selling shareholder, their respective directors and any underwriter will bear responsibility for the entire prospectus and will potentially be liable for any loss or damage suffered. Defences to liability Save as set out below, there are a number of defences available to potential civil and criminal liability, some of which include that an appropriate due diligence process was undertaken (which requires reasonable enquiries and a reasonable belief that the relevant statement was not misleading or defective), reasonable reliance on others’ defence (which requires reasonable reliance on a third party such as an adviser), withdrawal of consent (which requires the public withdrawal of consent to be named in the prospectus), and unawareness of a new matter (which applies where the new matter has arisen since the prospectus was lodged). However, the above defences do not apply to potential civil liability which may arise where the prospectus omits material which is required to be included in it under the Corporations Act or contains a misleading or deceptive statement which is materially adverse from the point of view of an investor.

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Daniel Scotti Tel: +61 2 9921 4360 / Email: [email protected] Daniel specialises in capital markets and . Daniel has advised on many IPOs (including dual track process and dual listings), placements, rights issues and entitlement offers, other secondary offers, secondary sales and convertible and corporate bond offers. His clients include the full spectrum of company and managed investment scheme issuers, private equity sponsors, institutional investors and lead managers and underwriters. Daniel’s merger and acquisition experience covers private treaty trade sales, sales and acquisitions by private equity sponsors, as well as public transactions, such as schemes of arrangement and regulated takeover bids. He also advises clients on Corporations Act and ASX Listing Rule compliance, reporting and disclosure obligations.

Nicole Sloggett Tel: +61 2 9921 4855 / Email: [email protected] Nicole has experience in advising international and Australian clients on a broad range of corporate matters, including initial public offerings and capital raisings, internal reorganisations and restructures, schemes of arrangement as well as providing advice to companies on their obligations under the Corporations Act 2001 (Cth) and the ASX Listing Rules.

MinterEllison Level 40, Governor Macquarie Tower, 1 Farrer Place, Sydney, NSW 2000, Australia Tel: +61 2 9921 8888 / Fax: +61 2 9921 8123 / URL: www.minterellison.com

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Daniela Anversa Veirano Advogados

The IPO process The first formal procedure for a company to go public in Brazil is its application, asa publicly traded company, with the Comissão de Valores Mobiliários (“CVM”), or the Brazilian Securities and Exchange Commission. The CVM is a federal autarchy responsible for regulating and supervising the Brazilian . Among other functions, the CVM: (a) protects securities holders against fraudulent issues and illegal actions carried out by publicly traded company management members, controlling shareholders and fund managers; (b) supervises fraud or market manipulation which may give rise to artificial pricing formation in the securities market; (c) regulates disclosure requirements by market participants; and (d) ensures that all market participants adopt fair trading practices. The legal framework rule that regulates the registration of an entity as a publicly traded company is CVM Ruling 480 dated December 7, 2009 (“ICVM 480”). The main documents required to be presented when dealing with an application are: • a request letter signed by the Investor Relations Officer; • minutes of the meeting of the Board of Directors or the minutes of the General Shareholders’ Meeting in which the Investor Relations Officer was elected; • an updated copy of the bylaws; • financial statements and explanatory notes for the three most recent fiscal years, prepared as set forth in article 176 of Law 6.404 (Brazilian Corporation Law) dated December 15, 1976, indicating the newspapers and dates of their publication; • financial statements for the last fiscal year prepared as per ICVM 480 (which should necessarily include explanatory notes, a management report, the independent auditor’s opinion, declarations and confirmations of the directors attesting that they have reviewed the financial statements and a report from the audit committee, in case the company has set up a committee of such kind); • minutes of all shareholders’ meetings which occurred in the last 12-month period preceding the date of application of registration with the CVM; • standardised financial statements Demonstrações( Financeiras Padronizadas – “DFP”) for the last fiscal year; • quarterly information report (Informações Trimestrais – “ITR”) containing information on the three-month period of the current fiscal year, provided that not more than 45 days have elapsed since the closure of each quarter. Such information should be accompanied by a special revision report issued by an independent auditor registered with the CVM; • copies of shareholders’ agreements to which the company is subject; • the securities trading policy;

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• the disclosure policy; • information on the company’s securities held by its management members; • a disclosure report, or reference form (Formulário de Referência), prepared as per Annex 24 of ICVM 480; and • a registration form (Fomulário Cadastral), as per the terms of ICVM 480. The Formulário de Referência, mentioned above, is a detailed document that aims to provide information on the company. It is similar to a shelf document and requires a vast number of disclosure requirements. It is the investors’ main source of information on the company and has a standardised format and favours the rendering of information on a continuous basis. It is a dynamic document updated annually, whenever there is a public offering of securities or within 7 (seven) days as of the occurrence of specific events. The Chief Executive Officer and the Investor Relations Officer must declare that they have read and revised the Formulário de Referência and that the information contained in it is in compliance with ICVM 480 and portrays the company in a true, precise and complete manner. Once filed, the CVM has 20 business days to analyse the request and issue a comment letter. The company has up to 40 business days to comply with the CVM’s comments. Once the documentation has been re-filed, the CVM has an additional 10 business days to issue a second comment letter, and finally, three business days can be used by the CVM to issue the registration once comments from the second comment letter have been filed. Application for registration as a publicly traded company is carried out in electronic format and the company must register itself with the CVM and the B3 – Brasil, Bolsa, Balcão (“B3”)’s electronic systems in order to file the documents listed above. The whole process takes approximately three to four months to be carried out, assuming the CVM does not issue substantial comments. Once the entity has been registered as a publicly traded company, it can proceed with the application for registration of the offering of its shares (the IPOper se) and its listing at the B3. However, it is very common that companies proceed with the registration of the entity as a publicly traded company and the offering simultaneously. Therefore, two applications must be carried out at the CVM: the procedure mentioned above (application as a publicly traded company); and the procedure to register the offering. Different departments of the CVM will analyse the documentation and the procedures will run in parallel. The offering registration application requires the filing of the main following documents: (a) a public offering prospectus (in which the information in the Formulário de Referência is incorporated by reference); (b) an underwriting agreement; (c) announcements of the initiation and closure of the offering; (d) a sale of shares or subscription agreement; and (e) confirmation statements of the lead underwriter and the company attesting thatthe information disclosed to the market is correct, precise and complete. These documents are presented in draft form and will be reviewed by the CVM. Like the procedure for registration of the company as publicly traded, the CVM has 20 business days to issue its comment letter. The company and the lead underwriter have up to 40 business days to comply with the CVM’s comments. Once the documentation has been re-filed, the CVM has an additional 10 business days to issue a second comment letter. Another 10 business days can be used by the CVM to issue a third, and final comment letter. Roadshow material and any other supporting documents to be presented to investors must be filed at the CVM and must not contain information that has not been included in the company’s Formulário de Referência and offering prospectus. More recently, in February 2019, through CVM Deliberation 809, the CVM, on an experimental basis, gave companies the chance to

GLI – Initial Public Offerings 2021, Fifth Edition 40 www.globallegalinsights.com Veirano Advogados Brazil request confidential treatment when applying for an offering registration request. With this confidential request, a company does not need to disclose to the market the fact that it has filed for an IPO until the launch of the offering. In an IPO, it is not only the CVM that must be involved in terms of regulators. The company must also register itself, its shares and the offering per se at the B3, the most important Brazilian stock exchange. The Brazilian Financial and Capital Markets Association (“ANBIMA”) as a self-regulatory entity will also need to be involved and will register the offering after its completion, in case the lead underwriter of the transaction is an investment bank and an affiliate of ANBIMA. ANBIMA is an entity that acts as a representative of players operating in the Brazilian financial and capital markets. Simultaneously with the application for registration as a publicly traded company with the CVM, a filing of the companyper se, its shares and the offering at the B3 must occur. In the listing procedure for trading shares at the B3, the company must define which of the special segments of corporate governance it will adhere to Bovespa Mais, Bovespa Mais Nível 2, Novo Mercado, Nível 2 or Nível 1. The differences between these segments relate to corporate governance and the rules governing each segment go beyond the obligations that companies have according to the Brazilian Corporation Law and are intended to improve the assessment of companies who decide to join one of these segments voluntarily. The rules also attract investors since they ensure shareholders’ rights and guarantees, as well as establishing the dissemination of more complete information for market players, aiming to mitigate risks related to informational asymmetries. The B3 also has the Basic Segment which does not contain corporate governance rules. Below is a comparative chart of the listing requirements of the above-mentioned segments:

Continued overleaf

GLI – Initial Public Offerings 2021, Fifth Edition 41 www.globallegalinsights.com Veirano Advogados Brazil Basic regulation regulation regulation regulation orations Law) Common and per legislation) to Brazilian Corp- Minimum of three members (pursuant There is no specific There is no specific There is no specific There is no specific preferred shares (as 25% Share efforts Nível 1 There is preferred (pursuant regulation Law), with dispersion no specific accession) legislation) to Brazilian Minimum of Chairman of the Board of Corporations Officer by the Directors and Common and unified term of shares (as per Officer or Main three members up to two years grace period of Chief Executive same person (a three years from 25% efforts rights) Nível 2 clauses” accession) to two years Chairman of the Board of members, of 20% must be Officer by the which at least Directors and Common and Officer or Main (with additional grace period of Minimum of five and “immutable Chief Executive same person (a Voting limitation Voting three years from preferred shares qualified quorum independent with Share dispersion unified term of up the voting capital, of less than 5% of 5% than less of 1

clauses” Novo Mercado Only common shares (from January 2, 2018) unified term of up to two years to the regularisation are obligatory pursuant to CVM’s Instruction 476 pursuant to CVM’s Volume (“ADTV”) is above R$ 25 million Volume capital, qualified quorum and “immutable person. In case of vacancy that results in Comparative listing of segments 25% or 15%, if the Average Daily Trading Trading Daily Average 25% or 15%, if the Share dispersion efforts, except for offerings Chairman of the Board Directors and Chief Voting limitation of less than 5% the voting Voting Executive Officer or Main by the same Corporation Law), of which at least two or 20% information and the compliance with a deadline (whichever is greater) must be independent with cumulation of positions, the disclosure certain Minimum of three members (pursuant to Brazilianto (pursuant members three of Minimum years shares of listing regulation regulation There is no specific There is no specific “immutable clauses” Qualified quorum and (according to law), with Common and preferred unified term of up to two Bovespa Mais Nível 2 25% until the seventh year Minimum of three members Mais listing shares There is There is clauses” Qualified regulation regulation Bovespa (according no specific no specific “immutable Minimum of to law), with quorum and 25% until the Only common unified term of three members up to two years seventh year of float) positions Minimum of shares provisions Prohibition to statutory of Directors outstanding shares (free of the Board Composition Share capital Prohibition of cumulation of percentage of Public offering

GLI – Initial Public Offerings 2021, Fifth Edition 42 www.globallegalinsights.com Veirano Advogados Brazil force Basic Optional Optional regulation regulation There is no specific There is no specific As per legislation in force As per person) Nível 1 There is There is regulation regulation no specific no specific Mandatory legislation in Mandatory (in English person) Nível 2 There is financial regulation no specific for the besides the item above) acquisition of Statement on Mandatory (in requirements) shares issued (with minimum Translated into Translated by the company statements (see any public tender 1

Mandatory Novo Mercado As per legislation in force (from January 2, 2018) about the information disclosed the available on market) the market) and resulting press releases Statement on any public tender offer for the Comparative listing of segments Material information or benefit distribution A public meeting (in person or by any other A minimum requirements, including alternatives to information (notice to shareholders or notice means that allow remote participation) must be held within five business days of the disclosure acquisition of shares issued by the company (with of the quarterly and annual financial statements Optional regulation regulation Mandatory There is no specific There is no specific Bovespa Mais Nível 2 As per legislation in force force Mais As per There is There is Optional regulation regulation Bovespa no specific no specific Mandatory legislation in duties simult- events meeting Board of Financial Directors’ Directors’ corporate in English Disclosure statements Calendar of Annual public aneously with the disclosure in Portuguese

GLI – Initial Public Offerings 2021, Fifth Edition 43 www.globallegalinsights.com Veirano Advogados Brazil Basic regulation legislation) There is no Not applicable shares (as per 80% for common Nível 1 80% for common Securities of conduct legislation) negotiation Not applicable shares (as per policy and code Nível 2 100% for Securities of conduct negotiation Compulsory offer in case cancelling or segment exit public tender common and of registration policy and code preferred shares 1

Policy. there is one). Novo Mercado (from January 2, 2018) 100% for common shares of the free float shareholders The following policies with minimum (or higher, as established in the bylaws) (or higher, requirements (except the Compensation Policy of the Board Directors, advisory Comparative listing of segments ⅓ report by the non-statutory audit committee Transaction Policy; and (v) Securities Trading Trading Policy; and (v) Securities Transaction in the Regulation; and (ii) quarterly minutes of Disclosure of: (i) annual report of the statutory fair price, with minimum acceptance quorum advisory committees and the Fiscal Council (if audit committee covering the points contained of the Board of Directors’ meetings, informing the the Board of Directors’ (iii) Risk Management Policy; (iv) Related Party Code of Conduct (with minimum requirements). Policy): (i) Compensation Policy; (ii) Nomination Internal regulations of the Board Directors, its Compulsory public tender offer, at least for the Compulsory public tender offer, committees and Executive Management Board; Novo Nível 2 or preferred shares Mercado offer, at least for the offer, 100% for common and Bovespa Mais Nível 2 Securities trading policy economic value, in case of registration cancelling or segment exit, except if Compulsory public tender there is migration to Mais shares offer, at offer, common 100% for Bovespa economic Securities least for the Compulsory cancelling or public tender trading policy segment exit, of registration value, in case is migration to except if there Novo Mercado offer rights Tag-along Tag-along Disclosure information of additional public tender the segment/ Delisting from

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permitted Mandatory Regulation Novo Mercado (from January 2, 2018) department. The accumulation of department. department in compliance with the Mandatory setting up of an auditing internal controls and corporate risks with the requirements set forth in Mandatory setting up of a compliance, Comparative listing of segments requirements set forth in the Regulation or statutory audit committee in compliance Mandatory setting up of an audit committee compliance and operational functions are not Optional Optional Optional Mandatory Bovespa Mais Nível 2 Mais Optional Optional Optional Bovespa Mandatory Audit Internal auditing Chamber Arbitration committee the Market member of Compliance Becoming a

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Once the company reaches a preliminary understanding with the underwriting syndicate, the IPO process starts in full force, and the marketing of the offering begins. This is the period during which the company is subject to CVM guidelines regarding the publication of information not contained in the offering prospectus. The so-called “quiet period” required by articles 48 and 49 of CVM Ruling 400 dated December 29, 2003 (“ICVM 400”) kicks in. Under ICVM 400, the issuer and the intermediary institutions involved in the public offering (the latter since the contracting thereof, of which may have been decided or projected) and the persons working, or in any other way, advising such parties, shall until the public offering is disclosed to the market, limit: (a) the disclosure of information related to the offering and the company strictly as necessary for the purposes of the offering, thereby warning the addressees of the privileged nature of any delivered information; and (b) the use of the confidential information exclusively for the purposes of preparing the offering. Such parties shall also: (a) refrain from trading any securities issued by the issuer, or referenced thereby until the disclosure of the notice of termination of the offering, except in certain events listed in ICVM 400; (b) deliver to the CVM public research and reports on the company and the transaction that have eventually been prepared; (c) refrain from making public statements to the media regarding the offering or the company up to the disclosure of the notice of termination of offering; and (d) comply with the principles of quality, transparency and equal access to information when disclosing information related to the issuer or the offering once the offering becomes public. The intermediary institutions are also required to clarify to the market the relations they have with the company or its interest in the offering. The registration of a public offering takes approximately 3 (three) months, on average, from the application of the request until the granting of the registration statement. This period could be shorter or longer, depending on the complexity of the transaction, the number of investors and the number of transactions currently being analysed. The time required tends to be shorter as a result of agreements between the CVM and self-regulators, such as ANBIMA. In general, the launch of the IPO and the roadshow begins after compliance with the first round of comments from the CVM. After this and until the bookbuilding date, the underwriters will contact and present the offering to the public investors, as described in the prospectus. Once the registration is issued by the CVM, the publication of the notice of initiation of the offering takes place and the bookbuilding process is terminated. The final offering prospectus is prepared, placed on the website of the company, the underwriters, the CVM and the B3, and disclosed to investors. Settlement of the shares occurs and the closure notice of the offering is published. As mentioned above, filing of the offering at ANBIMA is also carried out.

After going public Brazilian Corporation Law and securities regulations of the CVM require that publicly held companies file the following periodic information with the CVM and the B3: • financial statements prepared in accordance with Brazilian GAAP and related management and auditors’ reports, within three months of the end of the fiscal year or on the date on which they are published or made available to shareholders, whichever occurs first, together with the Demonstrações Financeiras Padronizadas; • notices, filed on the same date as their publication, of the company’s annual shareholders’ meeting;

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• a summary of the decisions made at the annual shareholders’ meeting, filed on the day following the meeting; • a copy of the minutes of the annual shareholders’ meeting, filed within 10 days of the date the meeting is held; • quarterly reports on a standard form containing relevant quarterly corporate, business and financial information, together with a special review report issued by the independent auditor, filed within 45 days of the end of each quarter; • the Formulário de Referência, filed within five months of the end of each corporate year and in case of the occurrence of certain events listed in ICVM 480; • the Formulário Cadastral, which must be updated within seven business days if any of the information contained therein is modified; • the management report within one month before a shareholders’ meeting is scheduled to occur, giving notice that certain management documents, as required by Brazilian Corporation Law, are available to shareholders; • a corporate governance report (Informe sobre o Código Brasileiro de Governança Corporativa) containing information on the company’s corporate governance practice in a “comply or explain” format, within seven months of the end of the fiscal year; and • any documents deemed necessary for shareholders to exercise their voting rights. In addition to the foregoing, a publicly traded company must also file the following information with the CVM and the B3: • notices, filed on the same date of their publication, of extraordinary or special shareholders’ meetings; • a summary of the decisions made at extraordinary or special shareholders’ meetings, filed on the day following the meeting; • minutes of extraordinary or special shareholders’ meetings, filed within 10 days of the date they are held; • a copy of any shareholders’ agreement, filed on the date on which it is registered at the company’s headquarters; • any press release giving notice of material facts, filed on the date the release is published to the market; • information on any filing for corporate reorganisation, the reason for such filing, special financial statements prepared for obtaining a legal benefit, and, if applicable, any plan for payment of holders of debentures, as well as copies of any judicial decision granting such request; • information on any bankruptcy filing, on the same day the company becomes aware of it, or the filing of a judicial claim, as applicable; • a copy of any judicial decision granting a bankruptcy request and appointing a bankruptcy trustee, filed on the date the company takes notice of it; and • any other information as requested by the CVM. Publicly traded companies must also disclose to the public any material facts or acts. Material facts or acts are defined by the CVM as a fact or act of a political, administrative, technical, business or financial nature related to the relevant company that may significantly affect: (a) the trading price of the securities issued by the company or related thereto; (b) the decision of investors to purchase, sell or hold these securities; or (c) the decision of investors to exercise any rights related to the ownership of securities issued by the company or related thereto. The Investor Relations Officer has the duty to immediately disclose any material fact to the CVM and the market. If the controlling shareholder(s), members of management or any administrative committee with technical or advisory functions have

GLI – Initial Public Offerings 2021, Fifth Edition 47 www.globallegalinsights.com Veirano Advogados Brazil personal knowledge of notice or material fact and omit to the Investor Relations Officer such information, impeding him/her to carry out his/her duty of disclosure, such shareholder(s), officers, directors and professionals will only be exempt from liability towards the CVM and the market if they immediately communicate such fact/information to the CVM. The CVM may determine the disclosure of the information as well as require its correction or amendment. Also, disclosure of trading of securities by controlling shareholders, management members or members of the Fiscal Council must be sent to the CVM and the B3 and disclosed to the market on the first business day after their appointment or within five days of the trading. Additionally, the company, acting through its Investor Relations Officer, must send the above- mentioned information to the CVM and, as appropriate, to the B3 or organised OTC market entities where the company’s shares are traded, within 10 days of the end of the month when changes in the positions held occurred or the month when the above-mentioned people were elected (name and position) of those acquiring the shares. Disclosure on the purpose for the acquisition and purchase amount including, if necessary, a statement from the person acquiring the shares that the purpose of the acquisition is not to alter the administrative structure or the control structure. The number of shares, subscription bonuses, and rights to subscribe shares and share purchase options must necessarily be disclosed to the market. Such communication is also compulsory for the person or group of people representing the same interest, holding 5% of shares or more of the publicly traded company or whenever such ownership increases or decreases by 5%.

* * *

Endnote 1. Extracted from B3’s website.

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Daniela Anversa Tel: +55 11 2313 5805 / Email: [email protected] Daniela Anversa is a partner focusing on capital markets and finance at Veirano Advogados. Her expertise encompasses both and public offering of shares, debt and equity securities in Brazil and abroad. With extensive experience advising organisations obtaining status as publicly listed companies, she has participated in the initial public offerings and follow- ons of companies such as JBS, Localiza Rent a Car, Minerva, Gol Linhas Aéreas Inteligentes, Marfrig Global Foods, TOTVS, TAM (LATAM Airlines), Diagnósticos da América, Ecorodovias Concessões e Serviços and Multiplus. Legal directory Chambers Latin America recognised Daniela as one of Brazil’s leading capital market lawyers, highlighting her as a “super lawyer – extremely helpful and always practical” who has “a great command of US and Brazilian law”.

Veirano Advogados

Av. Brigadeiro Faria Lima, 3477, 16th floor – Itaim Bibi, 04538-133, São Paulo, SP, Brazil Av. Presidente Wilson, 231, 25th floor – Centro, 20030-021, Rio de Janeiro, RJ, Brazil Tel: +55 11 2313 5700 / +55 21 3824 4747 / URL: www.veirano.com

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Demetris Roti, Yiota Georgiou & Rafaella Michail Elias Neocleous & Co LLC

Introduction In 1993 and 1995, the House of Representatives in Cyprus enacted the Cyprus Securities and Stock Exchange Laws and Regulations, respectively, under which the Cyprus Stock Exchange (“CSE”) was established. The authority regulating the CSE is the Cyprus Securities and Exchange Commission (“CySEC”), which was established by virtue of the Cyprus Securities and Exchange Commission (Establishment and Responsibilities) Law of 64(I) 2001. The general mission of CySEC is to exercise effective supervision in order to ensure investor protection and healthy development of the securities market. The first trading session on the CSE was held on 29 March 1996. On 1 October 2009, the emerging companies market of the CSE (the “Emerging Companies Market”), which is a market in the form of a multilateral trading facility, began its operations. The CSE currently operates a non-regulated market (the Emerging Companies Market) and a regulated market (the “Regulated Market”). There are seven Regulated Markets on the CSE: 1. the Main Market; 2. the Alternative Market; 3. the Surveillance Market; 4. the Treasury Bills; 5. the Government Bonds; 6. the Corporate Bonds; and 7. the Warrants. The decision of a local or a foreign company to go public by obtaining a listing on the CSE and conducting an initial public offering (“IPO”) is typically based on several factors. Listing on the CSE may lead to business development and growth by raising capital through more conventional ways while, for smaller investors, such listing may offer alternative possibilities and options for more productive and effective investments. One of the major features of Cyprus’ economy is the large number of small to medium- sized enterprises which, although trustworthy and credible, face the peril of being exposed to strong competition as a result of Cyprus’ membership in the European Union (“EU”). Listing on the CSE offers growth potential to such enterprises by giving them access to funds which enables them to raise the necessary capital and finance their development and growth activities. The Stock Exchange also offers alternative options and possibilities for investments. It is therefore used as a channel through which savings can be directed to the most productive and effective investments. Following the liberalisation of the interest rates and the elimination of the capital flow restrictions, local companies that are listed on the

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CSE are able to utilise their funds by investing abroad while foreign companies are given the opportunity to invest in local markets with the ability to liquidate their investments at all times. Listing on the CSE also offers publicity to such companies (i.e. through the annotations associated with this fact) which helps them to enhance their corporate image. More importantly, being a shareholder in a listed company offers numerous tax incentives. For example, the 17% special defence contribution tax on dividends is not imposed on the non-resident shareholders of listed companies (i.e. legal or physical persons). In addition, the 20% capital gains tax that is imposed on gains resulting from the disposal of shares in companies which hold immovable properties situated in Cyprus is not applicable for listed companies either. Further, foreign investors may particularly benefit in cases of a double taxation treaty between Cyprus and the foreign investor’s country of origin. Moreover, any profits arising from the sale of securities by Cyprus tax residents are exempted from income tax and are therefore not subject to the special defence contribution. After the economic crisis and the banking crisis in 2013, the Council of the CSE (in close collaboration with other stakeholders and authorities), reorganised the CSE. This reorganisation aimed, inter alia, to: (a) minimise any bureaucracy via the use of advanced technology; (b) create new products within and outside the traditional framework of exchange (i.e. funds); and (c) modernise the applicable laws (i.e. amend Cyprus laws, transpose EU regulations and directives into national law, strengthen the Corporate Governance Code (the “Code”)). In addition, the CSE has entered into various memoranda of understanding with other stock exchanges over the last few years for the purpose of facilitating cooperation with strategic partners. To that end, one could argue that the latest formulations of the regulatory scheme and market practices have prepared the ground for a potential increase in the number of listed entities in Cyprus, since the CSE has undertaken significant reforms, aimed at making it even more competitive. The effect of the above reforms is also reflected in numbers. More specifically, more than 60 companies have been listed on the CSE since 2013. From 2019 to date, 17 companies have been listed on the Emerging Companies Market, offering common to the public, whereas one company has been listed on the Regulated Market. The numbers show that only five companies have been listed on the Regulated Market of the CSE since2013, which means that the overwhelming majority of companies are now listed on the Emerging Companies Market. Furthermore, it should be noted that, after the outbreak of COVID-19 pandemic, the number of companies that have been listed on the CSE has significantly decreased. In particular, in 2020–2021, only six companies have been listed on the Emerging Companies Market whereas only one company has been listed on the Regulated Market. This trend of having the companies listed in the Emerging Companies Market may be explained if we consider that the Emerging Companies Market does not come under the Regulated Markets’ mandatory provisions that impose strict listing requirements. It therefore offers more flexibility to the companies listed therein which are governed by a more simplified regulatory regime, designed for the needs of: (a) unlisted companies that are seeking to finance their activities or the liquidity of their shares through secondary markets (i.e. small, medium-sized enterprises); (b) investors who are seeking new types of investment with higher risk; (c) companies that are already listed on the Regulated Market but cannot afford the high costs associated with their listing or the excessive reporting obligations; or

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(d) companies that are seeking to float their securities to a recognised secondary market of an EU Member State. More specifically, the Emerging Companies Market: (a) allows for newly established companies to trade on the CSE, provided that investors are equipped with sufficient information that enables them to access properly the value of the titles; (b) allows listing with lower costs compared to the Regulated Market; (c) provides an exit option to the investors; (d) does not set any market capitalisation requirements or any thresholds as to the minimum shareholders’ equity capital. The only set requirement is for the issuer to be a public company with a sufficient number of investors; (e) does not oblige companies to be governed by the Code (i.e. optional); (f) does not set any minimum percentage of shares to be held by the public (i.e. free float); (g) does not follow an excessive listing process (i.e. issuers are required to prepare and submit to the CSE the company’s history of business and its business plan – no financial forecast is required, information as to the company’s directors, shareholders, risk factors, audited financial statements prepared at least two years prior to the listing, etc.); and (h) provides for fewer reporting obligations. Today, the members of the CSE are mainly banks, investment and insurance companies, brokerage offices, hotels and travel agents.

The IPO process: Steps, timing and parties and market practice In order for any company to be listed on the CSE, it must first be a public company. Companies that are not already designated as public must follow a conversion procedure before they proceed to apply for a listing. The first phase of conversion consists of two steps: (a) the prior application step; and (b) the post-application step. In terms of the prior application step, the shareholders of the company shall convene a general meeting of members or pass a unanimous written resolution and resolve, among others: (a) to re-register the company from private to public and to alter its name, as required by the law; (b) to alter the company’s memorandum so that it states that the company is to be converted into a public limited company; (c) to alter its articles of association so that any restrictions that apply to private companies are deleted (i.e. restrictions on the transfer of shares, limited number of members (up to 50), prohibitions on sending invitations to the public to subscribe for company’s shares and debentures, etc.); (d) to make any alterations to the members/officers of the company as appropriate; (e) to empower by ordinary resolution the directors of the company to proceed with the conversion; and (f) to pass a resolution resolving the increase of the company’s share capital. According to section 4A of the Companies Law, Cap 113 (the “Companies Law”), the minimum authorised, issued and paid-up share capital of a public company shall be at least CYP 15,000 (€25,629).

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The company will then convene a meeting of the board of directors, approving the above resolutions and instructing the secretary to proceed with all necessary filings with the Registrar of Companies in Cyprus (the “RoC”). The secretary, upon the instructions of the directors, files the application for the conversion from private to public company to the RoC along with, inter alia, the following documents: (a) an extract of the resolution of the shareholders of the company (as described above); (b) the relevant RoC forms; (c) the register of shareholders certified by the secretary or the director of the company; (d) a copy of a bank statement indicating that the company has complied with the minimum capital requirements as set out above; (e) an affidavit confirming the true and accurate translation of the above documents (where necessary); and (f) the company’s prospectus or the statement in lieu of the prospectus. The RoC will then review the application and, provided that all of the requirements have been met, a certificate of change of name will be issued. The whole procedure for the conversion of a private company to public usually takes around four weeks. Said timeframe varies from case to case, depending on the workload of the RoC and the ability of the parties to act in a prompt and timely manner. Generally speaking, the time frame for convening the meeting of the shareholders is 21 days, unless the shareholders consent to the holding of the meeting in fewer days than the statutory period. The drafting of the necessary corporate documents and the amendments to the articles of association usually takes one week, while the holding of the meeting of the board of directors is convened immediately after the articles of association are amended. The issuance of certificates by the RoC takes one to three weeks, depending on whether the officers or the shareholders of the company are to be changed (which usually delays the issuance of certificates). The second phase of the conversion is the process of having the company listed. The listing of a company on the CSE may take either the form of a public offer or a private placement (or a combination of these two methods). In order to list a company on the CSE, both general and specific listing conditions must be met. Depending on the market on which a company wishes to be listed, different listing requirements apply. More specifically, the following general listing requirements apply to companies that are about to be listed on the Regulated Market: • the company needs to be legally incorporated, having the power to issue securities to the public; • the Company has the power to issue specific securities for which the application is submitted; • the listing concerns securities of the same category, and such securities are fully paid- up and their transfer is free; • the Company has sufficient working capital; • the Company ensures equal treatment of the beneficiaries of same category securities and provides the necessary guarantees for the protection of the investors; • the Company ensures that any future issues are offered proportionally, initially to the existing shareholders; • the Company is ready for handing over its Registry to the Central Depository and Registry, where applicable;

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• most part of the Company’s revenues or assets shall not derive from shipping companies’ activities unless the issuer is a Shipping Company; and • the Company has at least four Directors. In terms of companies which want to have their shares listed on the Emerging Companies Market, the following listing requirements apply: • the Company needs to be legally incorporated, having the power to issue securities to the public; • the Company has the power to issue specific securities for which the application is submitted; • the listing concerns securities of the same category, and such securities are fully paid- up and their transfer is free; • the Company ensures equal treatment of the beneficiaries of same category securities; • the Company also ensures that any future issues are offered proportionally, initially to the existing shareholders; • the Company’s securities shall be held by a satisfactory number of investors; • the Company should be ready for handing over its Registry to the Central Depository and Registry, where applicable; • the Company should have prepared audited accounts, operated regularly and had relevant activities for at least two financial years prior to its listing; • in the case of a newly established company whose issue price with which it will begin to trade is different from its nominated value, a valuation of the value of its securities must be prepared by an investment firm or by an Auditing House; and • it is a necessary prerequisite to appoint a nominated advisor. The nominated advisor presents the issuer to the CSE and represents it through the listing process, ensuring that the listing requirements are fulfilled at all times, and advises it on compliance issues (i.e. compliance with the continuous listing obligations). Further, it should be noted that, in cases where an issuer has its securities listed on a foreign stock exchange, it shall firstly comply with the terms and conditions of the CSE before proceeding with the listing in Cyprus. Finally, every company that wishes to list its securities on the CSE is given the opportunity to choose between the Regulated Market and the Emerging Companies Market. Since each market has its own particularities regarding the publishing of the prospectus, someone may distinguish two listing procedures, as follows: • Regarding the Regulated Market, a company must publish a prospectus which later on must to be submitted to CySEC by the prospective issuer for approval before its publication. • The Emerging Companies Market, since it is operated based on the Regulative Decisions adopted by the CSE, does not come under the mandatory provisions set for regulated markets. As such, if the issue of a prospectus is regarded as necessary for those issuers who wish to obtain a listing in this Market, then the approval of CySEC should be provided.

Regulatory architecture: Overview of the regulators and key regulations IPOs in Cyprus are governed by numerous and complex laws and regulations enacted in accordance with the European legal and regulatory framework on such matters. The main legislation which governs IPOs is Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017, as amended, on the prospectus to be published when

GLI – Initial Public Offerings 2021, Fifth Edition 54 www.globallegalinsights.com Elias Neocleous & Co LLC Cyprus securities are offered to the public or admitted to trading on a regulated market (the “Regulation”), and Public Offer and Prospectus Law (L.144(I)/2005), as amended (the “Prospectus Law”). The Prospectus Law was enacted in Cyprus for harmonisation with Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading (the “Directive”). The Directive has been repealed by the Regulation, which is directly applicable in Cyprus and inevitably amends the Prospectus Law. As a result, the provisions of the Regulation (including its supplementing regulations and guidelines) have been applicable in Cyprus since 21 July 2019. In view of the Regulation’s full applicability, CySEC has announced that the drafting of a new law regulating matters that need to be determined as per the Regulation will repeal the Prospectus Law. Other principles that govern IPOs are also provided in the Companies Law and the Code, as described herein. In addition, on 4 March 2021, ESMA issued Guidelines on disclosure requirements under the Prospectus Regulation, which should be used by CySEC and each person who is responsible for the information given in a prospectus. It must be noted that the Prospectus Law provided some specific authorities to CySEC for the governing of an IPO in Cyprus. Following the new Regulation, on 5 July 2019, CySEC was appointed as the competent authority responsible for the duties set forth in the Regulation and for compliance with it, as per Article 31 of said Regulation. CySEC will also be approving the prospectuses, which will be drawn up and distributed as per the Regulation. As per the applicable laws and regulations, the final form of the prospectus is signed by the offeror or the person asking for the admission of securities to trading on a regulated market. It is also signed by any person whom the prospectus lists as responsible for providing the information stated therein. Where the offeror or the person asking for the admission of securities to trading is a legal person, the prospectus shall be signed by at least three executive members of the board of directors (and at all times by the president of the board and the managing director or managing directors, where there is more than one). These people are responsible for the accuracy, completeness and clarity of the prospectus, while ensuring that the information contained therein is up to date. Further, every public offer involves an underwriter who is at least responsible for the collection of the purchase value of the securities offered. Such underwriter shall oversee the safe keeping of the money paid by the participants to the public offer and shall ensure that the money is made available to the offeror, while arranging for the allocation of the offered securities to investors who have participated in the public offer. The underwriter, who is responsible for the drawing-up of the prospectus, also signs the prospectus. In order to help issuers to recover from the economic shock resulting from the COVID-19 pandemic, the European Parliament and the Council have amended the Regulation by creating a new short-form prospectus (the “EU Recovery Prospectus”), which is easier to produce and understand as well as easy to be scrutinised by the competent authorities. The EU Recovery Prospectus will apply until 31 December 2022. Furthermore, due to the COVID-19 pandemic, the threshold for exemption of obligation to publish a prospectus in the case of an offer or admission to trading on a regulated market of certain non-equity securities issued in a continuous or repeated manner is increased to the amount of €150,000,000 (total aggregated consideration in the European Union for the securities offered) per credit institution calculated over a period of 12 months, provided that those securities:

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• are not subordinated, convertible or exchangeable; and • do not give a right to subscribe for, or acquire other types of, securities and are not linked to a derivative instrument. This applies from 18 March 2021 to 31 December 2022.

Public company responsibilities In terms of public companies’ responsibilities, public companies, and especially publicly listed companies, are under stricter control than private companies. In comparison to private companies, public companies shall fulfil,inter alia, the following obligations: (a) have at least seven members (there is no maximum); (b) have at least two directors; and (c) have a minimum authorised and paid-up share capital of CYP 15,000 (€25,629). Publicly listed companies are subject to a stricter regulatory regime than non-listed companies. In particular: (a) when a company is listed on a regulated market, it is obliged to publish on its website a number of documents when convening its general meeting, including the notice of the meeting, stating the total number of shares and voting rights at the date of the notice, copies of the draft resolutions or comments from the directors for each item on the proposed agenda of the general meeting, and copies of the forms to be used by a proxy to vote; (b) notification obligations on any increases or updates of the shareholdings or voting rights (i.e. dispersion report on a quarterly basis, information on transactions of directors and major shareholders for companies listed on the Regulated Market); (c) notification obligations, to CySEC and the market on which such securities are traded, on any amendments of the memorandum and articles of association of the company or any change to the rights attaching to any class of shares; (d) depending on the market on which companies are listed, further obligations are imposed as to market capitalisation threshold, minimum equity capital, preparation of the qualified auditors’ report, reporting obligations on the company’s financial results (obligation to publish annual and biannual financial statements), obligation to announce the holding of a board of directors meeting in advance; and (e) compliance obligations with the provisions of the Market Abuse Regulation 596/2014 of the EU (the “MAR”) and the Market Abuse Law (L.102(I)/2016) regarding inside information and insider dealings for securities and disclosure obligations to persons discharging corporate management responsibilities. Regarding corporate governance standards in Cyprus, no particular legislation is currently in place for private or public companies, other than the Companies Law, which provides principles for the operation and management of a company. On the other hand, companies that are listed on the CSE may follow the recommendations of best business practices in Cyprus as well as international practices, as provided by the Code. The aims of the Code are, inter alia: (a) to strengthen the monitoring role of the board of directors in listed companies; (b) to protect minority shareholders; (c) to adopt greater transparency; and (d) to provide timely information, as well as sufficient safeguarding, on the independence of the board of directors in its decision-making.

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The Code further provides principles for enhancing the relationship between the managing body and the company’s shareholders.

Potential risks, liabilities and pitfalls The process of becoming listed on the CSE, and conducting an IPO, entails important risks, which require a high level of diligence from the lawyers, auditors, financial consultants and the company itself. Taking professional advice is of utmost importance to avoid any such risks. As explained above, the persons signing the prospectus are accountable to the investors for the information provided therein. Unless the case concerns malicious intention by the persons signing the prospectus, such claim has a statutory bar of two years after the allocation of the securities or their admission to trading on a regulated market. Further, the underwriter responsible for the drawing-up of the prospectus, as mentioned above, shall be liable to the investors who acquired securities based on erroneous, deficient or insufficient information contained in the prospectus and for any loss suffered by those investors as a result of the drop of the price of the securities after the deficiencies in the prospectus were revealed. Such claim against the underwriter is time-barred a year after the allocation of the securities or their admission to trading on a regulated market. Any person issuing statements for the drawing-up of the prospectus, with its professional capacity, is liable from the investors’ perspective for any loss suffered in the event the prospectus contains inaccuracies or material omissions due to deficiencies in those statements. Publicly listed companies are at all times obliged to comply with the particular listing requirements of the CSE. In particular, investing in the Emerging Companies Market entails a higher risk, since it is governed by a simpler regulatory framework designed to meet the needs of small and emerging companies; as such, enhanced examination of all the circumstances surrounding such companies is recommended before an investment is made.

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Demetris Roti Tel: +357 25 110161 / Email: [email protected] Demetris Roti is a Partner in the Corporate and Commercial department of Elias Neocleous & Co LLC. He graduated in law from the University of Manchester, UK in 2004. He completed the Legal Practice Course in BPP in Manchester in 2005 and was admitted to the Cypriot Bar in 2010. He gained experience in a large City firm in London before joining the firm in 2009. Demetris’ areas of practice are corporate, commercial law and banking and finance. He speaks Greek, English and Czech.

Yiota Georgiou Tel: +357 25 110177 / Email: [email protected] Yiota Georgiou is an Associate in the Corporate and Commercial department of Elias Neocleous & Co LLC. She has experience in commercial and corporate law matters, as well as in shipping law and litigation. She obtained her LL.B. in Law from the University of Essex in 2015 and her LL.M. in Commercial and Corporate Law from Queen Mary University of London in 2016. Yiota was admitted to the Cyprus Bar Association in 2017.

Rafaella Michail Tel: +357 25 110211 / Email: [email protected] Rafaella Michail is an Associate in the Banking and Finance and Financial Services department of Elias Neocleous & Co LLC. Rafaella was admitted to the Cyprus Bar Association in 2018. She has experience in financial services, banking and corporate law matters. She obtained her LL.B. in Law from the University of Cyprus in 2016 and her LL.M. in Corporate and Financial Law from the University of Glasgow in 2017.

Elias Neocleous & Co LLC Neocleous House, 195 Makarios III Avenue 1–5th floor, Limassol, CY-3030, Cyprus Tel: +357 25 110110 / Fax: +357 25 110015 / URL: www.neo.law

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Hervé Letréguilly & Séverine de La Courtie Shearman & Sterling LLP

Introduction The French capital market traditionally stands out as a reliable venue for companies looking to efficiently secure equity funding for their activities and to access the European market. 2020 was another exceptionally low year in terms of IPOs, with only 26 IPOs (five on Euronext and 21 on Euronext Growth), mainly due to uncertainty resulting from market volatility, the financial crisis and the COVID-19 pandemic. A number of IPOs have thus been postponed. The year was, however, marked by the successful IPO of 2MX Organics in the form of a SPAC (Special Purpose Acquisition Company) which raised €300m, and another one above €100m (Nacon). The other IPOs took place on Euronext Growth or Euronext Access, the markets dedicated to small and medium companies and start-ups. The Euronext Group, based in Amsterdam, manages six regulated markets in Amsterdam, Brussels, Dublin, Lisbon, Oslo and Paris. Euronext Paris, the French branch of the Euronext Group also operates two other markets: Euronext Growth and Euronext Access, two multilateral trading facilities (“MTFs”). While Euronext’s regulated market is mainly dedicated to large cap and mid-cap companies, Euronext Growth provides fewer obligations and is intended primarily to small and mid-cap growth companies. Euronext Growth has been registered as an “SME Growth Market” under MiFID II to facilitate access to capital markets for European SMEs by allowing the use of simplified and lighter prospectuses and a lighter insider list disclosure regime. Euronext Access is an MTF offering companies at an early stage easy access to capital markets and a framework adapted to their specific needs. Euronext Access also has a dedicated segment (Euronext Access+) targeting newly developed start-ups wishing to meet certain additional (disclosure) requirements and facilitating transfer to Euronext Growth. However, we will solely focus on the IPO procedure for listing on Euronext Paris, unless we specifically refer to these markets for comparative purposes. Companies seeking to list their shares on Euronext Paris are subject to a number of legal and regulatory constraints, but foreign companies may benefit from several exemptions therefrom. The purpose of this overview will be to give French and foreign companies, and investors alike, an informed idea of what an IPO entails on the Paris market.

The IPO process: Steps, timing and parties and market practice A French IPO process typically takes a minimum of two months from the filing of the company’s registration document with the AMF, e.g. five to six months in the aggregate. The key steps of the IPO process are presented in the following diagram:

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Initial Public Offering on Euronext Paris – Timetable

Structure The parties must determine the listing venue (Euronext Paris for France), and can choose multiple listings. They will determine the scope of the international private placement, e.g. within the EU, outside of the US (“Reg S” offering) or with a private placement in the US (e.g. under rule 144A). Once approved by the AMF, the prospectus can be used to conduct a secondary listing or a public offering in any other EU Member State (“European passport”). The offering can comprise new shares, existing shares or a combination of both. The parties will determine the initial size of the offering, which can be increased in two ways. If the offer is successful, the offering size may be increased by up to 15% at the time of pricing (up to 25% if only secondary shares are offered) provided this option was disclosed in the prospectus (“extension clause”). IPOs will also generally include an over-allotment option (“ option”): after pricing, when allocating shares to investors, the banks will over-allot shares (e.g. allocating up to 115% of the offering to investors). To cover their short position, the underwriters will be granted the option to purchase up to 15% of additional shares issued by the company (but only if new shares are offered in the IPO) or sold by existing shareholders, at the IPO price. This option is valid for 30 days after pricing. If, at closing, the underwriters have not exercised the option, they will borrow shares for delivery to the investors; to repay the , they will either purchase shares on the market (thus stabilising) or, if the price is up, exercise the option. In addition, pursuant to the AMF General Regulation and recommendations, issuers must make their best efforts to satisfy demands from retail investors to a meaningful extent. This objective is deemed to have been met when at least 10% of the overall offering amount is put on the market and made accessible to retail investors. However, if such reserved shares are not purchased by retail investors, they can be reallocated towards institutional investors. In case of oversubscriptions, the AMF may rule to avoid an obvious imbalance in the allocation of securities to the detriment of retail investors.

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Retail investors are permitted to withdraw their purchase orders placed online during the entire book-building period. Parties involved The company contemplating an IPO must establish a “working group” which typically includes the company’s lawyers, the banks placing and underwriting the offering and their lawyers, the company’s auditors, a communication and public relations agency and, as the case may be, brokers underwriting liquidity contracts and financial/listing sponsors.1 Other parties involved may include potential pre-IPO investors, selling shareholders and their respective advisors (see below, “Anchor/cornerstone investors”). The company, its main shareholders and, as the case may be, executive officers, will be asked to grant lock-ups in order to avoid additional shares flowing in the market (for a limited duration from 90 or 180 to 365 days); the lock-up can later be waived by the underwriters (“soft lock-up”). In accordance with international market practice, a placement and underwriting agreement will be signed with the bank syndicate upon pricing, at the end of the book-building period, pursuant to which the underwriters will agree to procure purchasers for, and failing which will purchase, the offered securities, subject only to closing and market-out conditions e.g.( the absence of certain events such as war, crisis or customary market disruptions). Anchor/cornerstone investors The company may want to give potential investors early access to the information contained in the draft prospectus and evaluate/assess their interest based on their reactions (“early look”), thus allowing the company to refine its “equity story”. To improve the chances of success, in particular due to the volatility of markets, companies may try to find investors willing to acquire shares before the IPO (“anchor investors”) or to agree in advance to place an order in the book (“cornerstone investors”). This trend can be seen in large transactions (investors’ pre-IPO commitments amounted to approximately 45% of the offering in the Neoen IPO and 35% of the offering in the Verallia IPO) or in smaller transactions (see, for example, Bpifrance’s commitments in various tech/ biotech IPOs). This requires being able to provide reliable information to these investors early enough in the process, which involves advanced preparation of the accounts and the prospectus. It also raises issues on the scope of the due diligence such investors are allowed to perform, in particular on the business plan; disclosing it to them may require the inclusion of corresponding forward-looking statements in the prospectus. Research reports Once approved by the AMF, the registration document (which is the document describing the company – see below, “Legal documentation”) must be made available to the public without undue delay (the AMF Guide2 recommends no later than five trading days prior to the date the AMF grants its approval of the prospectus, which is typically the day preceding the launch of the offering). In that case, the company may not disclose material information contained in the registration document to any person not bound by confidentiality, which until recently obliged the company to publish the registration document before holding the analysts’ presentation. However, the AMF relaxed its doctrine in 2015 and now allows presentations to the analysts of the bank syndicate to be made prior to the publication of the registration document, in line with international practice; analysts may therefore prepare their reports earlier, which reduces the overall duration of the process and improves the chance of taking advantage of favourable market windows.

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Publication of research reports will be subject to restricted/blackout periods in line with international practice (there are no specific French rules on this issue). Determination of the share price The offering can start once the AMF has granted its approval of the securities note which, with the registration document previously registered and the summary, forms the prospectus. The prospectus must at least indicate the maximum price of the offered shares; a price range (which cannot exceed +/-15% of the mid-range price) must be communicated to the market at least three days before the end of the offering period (it is often included in the prospectus for French IPOs). In the event that the final price is above the price range, it must be published. The offering period must be extended by at least two trading days following publication and prior orders may be cancelled. If the price is set lower than the price range, the price must be published. The offering can proceed (if such possibility was disclosed in the prospectus) unless the other characteristics of the offering are significantly modified. In case of any such significant modification, an additional securities note must be submitted to the AMF for approval. Listing of the shares Upon initially listing a company’s shares on Euronext Paris, Euronext will include it in one of the three capitalisation compartments: Compartment A (more than €1bn); Compartment B (between €150m and €1bn); or Compartment C (below €150m). Once a year, the composition of the capitalisation compartments is modified by taking into consideration the average market capitalisation of public companies calculated during the last 60 days of trading of the previous year. Listing of the shares will generally occur immediately following pricing (i.e. the next day), on a “when issued” basis until the closing (two days after pricing).

Regulatory architecture: Overview of the regulators and key regulations AMF and Euronext Paris In its capacity as the French financial markets supervisor, the AMF safeguards investments, ensures orderly markets and makes sure that markets receive material information; as such, it exerts significant control over an IPO process, in particular with regard to the information contained in the prospectus: it will thoroughly review it and exchange comments with the working group throughout the process, including on legal and accounting matters, until final approval. Euronext Paris, as the French market operator, approves the admission of the company’s shares on the market it operates. It will review the legal and financial documentation prepared for the IPO, the company business plan, and may require additional conditions (e.g. market capitalisation, shareholders’ equity and/or lock-ups). Legal documentation The requirement for a prospectus and its content are set forth in the Prospectus Regulation ((EU) 2017/1129), the “PR Delegated Regulation” ((EU) 2019/980) which, among other things, sets out in annexes the detailed prescribed content of prospectuses and the “Prospectus RTS Regulation” ((EU) 2019/979) which, among other things, sets out regulatory standards on the key financial information to be included in a prospectus summary. In 2019, the AMF issued an instruction on filing and publication of prospectuses, and has issued in 2020 a more comprehensive Guide on how to elaborate prospectuses and information to be furnished upon public offering or listing of securities.2

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The prospectus (which, as is generally the case in France, can be split into three documents: a registration document containing information on the company; the securities note describing the shares offered to the public; and a summary) must be filed with the AMF for approval. The AMF has 20 trading days following the receipt of a complete dossier to review the prospectus; however, in practice, the delay can be longer. The prospectus must be made available to the public at least six working days before the end of the offer (Prospectus Regulation, Article 21.1). However, when the prospectus is split into three documents, the registration document must be published earlier, shortly after its approval (see above, “The IPO process: Steps, timing and parties and market practice” paragraph “Research report”). The format of the prospectus is set forth by European regulations.3 This prospectus may be drafted in English;4 however, the prospectus summary must be drafted in French (except for listing on the Professional Segment of Euronext Paris). The Prospectus Regulation requires a prospectus to be written in a concise and comprehensible form that is easy to analyse and must contain the necessary information which is material to an investor in making an informed assessment of the financial position, etc. of the issuer, the rights attaching to the securities being offered and the reasons for the issue and impact on the issuer. Moreover, the prospectus summary must be short (four sections, seven pages maximum, or 10 under specific circumstances) and must include no more than 15 risk factors. The AMF General Regulation requires the bank(s) or listing sponsor to issue an attestation (addressed to the AMF) certifying that they have conducted customary due diligence in accordance with the professional code established by the FBF and the AFEI,5 and that the prospectus does not contain any inaccuracies or omissions which could mislead investors. It also requires the company’s statutory auditors to (i) issue a report on pro forma information, and (ii) review other information in the prospectus and issue a completion letter (“lettre de fin de travaux”, addressed to the AMF) regarding the financial and accounting disclosures, with their observations, if any. The company CEO must sign a statement that the information contained in the prospectus is true and accurate, and that also includes any observations made by the auditors in their completion letter. These requirements only apply to the prospectus for the public offering and listing of the offered shares, as approved by the AMF. Previously, the company’s statutory auditors were also required to issue a report on the issuer’s profit forecasting and estimating. The Prospectus Regulation removed sucha requirement. Despite this removal, auditors in recent French IPOs have ended up delivering such a report on a contractual basis for due diligence purposes (as in the IPOs of Verallia and FDJ in 2019 or Nacon in 2020). With respect to the international offering memorandum used for the international private placement of shares (which is not subject to AMF review or approval), the auditors will be asked to issue a comfort letter, and the law firms advising the company and the underwriters will be asked to issue legal opinions and disclosure “10b-5 like” opinions, for the benefit of the underwriters, in accordance with international market practice. ESMA guidance Other ESMA documents that are relevant to understanding the requirements of the prospectus regime include ESMA’s Prospectus Directive Q&A (to the extent it remains applicable to the new regime), ESMA’s Q&A on the Prospectus Regulation, ESMA’s Guidelines on Risk Factors under the Prospectus Regulation and, when finalised, ESMA’s Guidelines on disclosure requirements under the Prospectus Regulation. ESMA’s previously issued guidelines with respect to alternative performance measures may also be relevant.

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Risk factors Concerning the chapter dedicated to risk factors, Article 16 of the Prospectus Regulation mentions the following three characteristics: • Specific: Only risks that are specific to the issuer and/or the securities and which are important for taking an investment decision should be included in the prospectus. • Corroborated: Risk factors should be corroborated by the content of the registration document and the prospectus. • Important: • The importance of each risk factor is assessed according to the probability that it will materialise and the estimated extent of its negative impact. • The description of each risk factor should be appropriate, explaining in what way the risk factor affects the issuer or the securities. • The description of all the risk factors is covered by a limited number of categories depending on their nature. In each category (and sub-category), the most important risk factors are mentioned first. • Moreover, ESMA’s objective is that the maximum number of categories and sub- categories in the prospectus should be 10 and the total number of risk factors in the abstract cannot be more than 15 (Article 7 of the Prospectus Regulation). The issuer must therefore be attentive to the links between this requirement of 15 risk factors at most in the abstract and the requirement of 10 categories and sub-categories of risk factors at most in the body of the prospectus. On 1 October 2019, ESMA published on its website guidelines for national authorities on the inclusion of risk factors in issuers’ prospectuses. With the pandemic, companies are obliged to review and reassess their risk factors related to the health crisis and thus alert potential investors to the impact of COVID-19 on the company’s business. General overview The legal framework of European markets and other trading platforms, permanent and periodic disclosure obligations and rules and sanctions applicable to market abuses, are regulated at EU level. The Prospectus Regulation further standardises the rules applicable to the prospectus content and format. The main statutory French law provisions are divided into two different codes: the French Commercial Code (“FCC”), governing essentially the corporate aspects of French public companies; and the French Monetary and Financial Code (“FMFC”), which sets forth the principles of securities and exchange law. Other aspects, pertaining notably to the offering process and reporting obligations, are set forth by the General Regulation of the AMF. The Euronext Harmonised Rules (applicable across all regulated markets managed by the Euronext Group) and the specific Euronext Rules for Euronext Paris contain the listing requirements and rules. Furthermore, French listed companies are legally required to adopt their own corporate governance code6 and, as a matter of practice, adopt the AFEP-MEDEF code of best practice standards aimed at improving the quality of a company’s board leadership, effectiveness, accountability, remuneration process and investor relations. French listed companies must set out in their annual report/Universal Registration Document, or in the report on corporate governance annexed to it, any of the corporate governance code’s recommendations that they have not applied and their reasons for not doing so (“comply or explain” principle). The AFEP-MEDEF code includes the need to have independent directors, an audit committee (mandatory) and, as a matter of best practice, a remuneration and a nomination committee.

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Overview of listing requirements The company intending to publicly list its shares must be either a joint-stock company (société anonyme or “SA”), a limited joint-stock partnership (société en commandite par actions or “SCA”),7 or a European joint-stock company (société européenne or “SE”).8 An SCA is managed by one or several partners who are indefinitely liable for the company’s debts and can only be replaced with their approval (they can be natural persons or legal entities); other shareholders have rights similar to those of an SA. SEs can operate throughout the EU without having to set up a subsidiary in a specific Member State, and can easily move their registered office within the EU; they otherwise follow most rules applicable to SAs. Furthermore, the company’s articles of association must be modified to comply with all the requirements applicable to listed companies (e.g. removing all provisions restricting transfer of shares). The Euronext Harmonised Rules require that, at the time of admission to trading, a sufficient number of securities must be distributed to the publici.e. ( at least 25% or such lower percentage determined by Euronext (in any event, not lower than 5%, representing a value of at least €5m)). In order to be listed on the Euronext regulated market, companies must provide three years of IFRS audited financial statements as well as the most recent reviewed half-yearly accounts if admission is sought more than nine months after close, in accordance with the Prospectus Regulation. From a marketing standpoint, financial information on the most recent quarter will also be required. Restrictions on communication Communication pre-IPO is restricted: material information on the company may only be disclosed to persons bound by confidentiality obligations prior to the publication of the registration document, and information on the transaction itself (and in particular, the price and the name of the banks) should not be made public prior to the approval of the AMF on the prospectus, as it could be viewed as a public offering of securities prior to prospectus approval. Furthermore, any other information on the company should be carefully reviewed prior to any publication or disclosure, since the AMF may request its inclusion in the prospectus and the company will incur prospectus liability on any such information. Promotional documentation relating to the offering, irrespective of form and distribution method (e.g. press inserts, leaflets, mailshots, internet banners), must be provided to the AMF before being distributed. Any such documentation must mention the existence of an AMF-approved prospectus and their content must be consistent with the information in the prospectus. Considerations for foreign issuers • Fast Path procedure for US FPIs In specific circumstances, Foreign Private Issuers (“FPIs”) that are publicly traded on the New York Stock Exchange (“NYSE”) or NASDAQ can benefit from a simplified listing procedure, called the “Fast Path” procedure, which is currently reserved only for secondary listings or private placements.9 This procedure was originally designed to allow FPIs to enter the European market by publicly trading their shares on Euronext Paris and thereby build a shareholders’ base in Europe. The listing process is straightforward, fast and cost-efficient. The prospectus filed with the AMF is primarily composed of the documentation already filed with the Securities and Exchange Commission (“SEC”), accompanied by a prospectus summary.

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The filing procedure may be carried out entirely in English and the overall process can take between five and six weeks. The Fast Path procedure is dedicated not only to US incorporated companies, but to all companies whose shares (either their common stock or American Depositary Receipts (“ADRs”)) are listed on the NYSE or NASDAQ (for example, Aptorum Group Limited in 2020). • Professional Segment In 2007, Euronext Paris created a professional compartment intended for direct listings or private placements to qualified investors e.g.( without public offering) for French and foreign companies. Listing formalities and disclosure obligations are simplified. The professional compartment has been used by FPIs for double listings on Euronext Paris via the Fast Path procedure. It has also been used to list special purpose acquisition vehicles (“SPACs”) created for leveraged buy-outs and various acquisitions (e.g. Mediawan or 2MX Organic in 2020). Access is, however, limited to qualified investors and other investors to the extent they have been duly informed of the characteristics of this market by their financial intermediaries.

Public company responsibilities Obligations for the company and its managers Inside information disclosure Issuers are required by European regulations10 to immediately publish any inside information and may only postpone publication if: (i) immediate communication is likely to prejudice the legitimate interests of the issuer; (ii) the delay of publication is not likely to mislead the public; and (iii) the issuer is able to ensure the confidentiality of that information. In case of delay, issuers must maintain and update a list of all persons having access to such inside information (“insiders’ list”). In France, the AMF supervises this process. Periodic disclosure obligations Within four months following the end of the fiscal year, issuers are required to make available to the public the annual accounts, the management report, the audit report and the statements of responsibility from the persons responsible with the issuer. The Prospectus Regulation introduced the Universal Registration Document (“URD”), which is largely based on the French “Document de référence”. The URD replaces the Document de référence. The AMF published a Guide regarding URDs in January 2021.11 Frequent issuers whose securities are admitted to trading on regulated markets or MTFs have the option to draw up and publish a URD every financial year. The URD provides legal, business, financial and accounting information to investors, including the annual description of the company, shareholding information, some extra financial information and risk factors. The URD allows regular issuers to benefit from a five-day fast-track procedure (instead of 10) if they integrate it into the prospectus, meaning that the issuer has only to prepare the securities note and the summary of the prospectus. Within three months of the end of the first half of the fiscal year, issuers are required to publish their audited accounts for the first half of the fiscal year, a half-year activity report, the audit report for this period, and the statements of responsibility from the persons responsible with the issuer. As the case may be, the company must inform the AMF if it decides to apply or cease to apply certain provisions of its articles of association applicable during a public offer period

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(e.g. restrictions to the transfer of shares) or to implement a share buyback programme (publication of the description of this programme and seven-day/monthly reporting to the AMF on the transactions relating to such programme). Companies are also required to publish, on a monthly basis, the total number of voting rights and shares making up their share capital (to the extent these numbers have changed since the last publication). Furthermore, according to the latest AMF guide to periodic information for listed companies dated 17 June 2020, it is recommended that companies communicate through the written press at the frequency and in the manner they consider appropriate to the type of securities issued and their shareholding. Manager’s transactions Pursuant to Market Abuse Regulation (“MAR”), persons discharging managerial responsibilities12 (“PDMR”) and persons related to them must report to the AMF any transaction they have carried out on such company’s securities, no later than three business days following the execution of said transaction. This declaration is not necessary when the aggregate value of said transaction does not exceed €20,000 in the course of an ongoing fiscal year. Closed periods Pursuant to MAR, PDMR may not directly or indirectly engage, on his/her own behalf or on behalf of third parties, in any securities transactions during a closed period of 30 calendar days prior to the publication of the annual or half-year financial statements. Based on AMF recommendations, public companies can (and most do) extend these closed periods to: (i) persons having routine or occasional access to inside information; and (ii) a 15-calendar-day period preceding the publication of quarterly financial information. Parity within boards of directors and supervisory boards Boards of directors or supervisory boards of French listed companies must be composed of at least 40% of each gender. Not complying with this rule may result in monetary sanctions, the temporary suspension of the fees allocated to directors and the nullity of appointments made by such boards. Say-on-pay Remuneration of senior executives of French listed companies (and, in particular, the CEO if he/she is also chairman of the board) is subject to increasingly strict rules and recommendations. The AFEP-MEDEF code contains a number of recommendations on the criteria to be used. Each annual shareholders’ meeting must approve ex ante the principles and criteria of its remuneration, and also ex post the amounts paid with respect to the previous fiscal year. French law n° 2019-486 dated 22 May 2019, known as loi Pacte (“Pacte Law”) has authorised the government to transpose EU Directive 2017/828 of 17 May 2017, amending Directive 2007/36. This Directive has been transposed by ordonnance 2019-1234 dated 27 November 2019 relating to the remuneration of the executive officers of listed companies. This ordonnance describes all of the new requirements regarding say- on-pay resolutions. Obligations for shareholders Capital and crossing voting rights thresholds Shareholders, acting individually or by way of concerted action, crossing upwards or downwards 5%, 10%, 15%, 20%, 25%, 30%, one-third, 50%, two-thirds, 90% or 95% of a French listed company’s capital or voting rights, must inform the company of such crossing, as well as the AMF, which will disclose the information to the public.

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Non-compliance with these statutory requirements may result in: the shares exceeding the relevant threshold being deprived of voting rights; administrative sanctions by the AMF of up to €100m; and criminal fines of €18,000 for the defaulting individuals (as well as the CEOs and directors of a defaulting company) and €90,000 for the company. The companies’ articles of association may provide for even lower declarative thresholds, which can go down to 0.5% of the issuers’ capital or voting rights. Upon crossing the 10%, 15%, 20% or 25% thresholds, the shareholders are legally required to publicly declare their objectives to the issuer and to the AMF for the six-month period following the crossing. For the computation of such thresholds, all financial instruments or agreements giving access to existing share capital or voting rights (even those which are cash-settled) must be aggregated to shares and voting rights already held. Mandatory takeover bid Any shareholder of a French listed company that crosses, individually or by way of concerted action, 30% of the issuers’ capital or voting rights, is legally required to declare a tender offer on 100% of the shares of the company. The same obligation applies to shareholders holding individually or jointly between 30% and 50% of the issuers’ capital or voting rights and who acquire at least 1% during the 12 months preceding the threshold crossing. Withdrawal offers and squeeze-out procedure Where a shareholder or group of shareholders acting in concert holds at least 90% of the capital or the voting rights of a French listed company, it may make a withdrawal offer for the remaining shares (“offre publique de retrait”) and a minority shareholder may request such withdrawal offer to be carried out. In addition, when a bidder owns 90% of the shares and voting rights of a French public company after completing any public tender offer, it may secure the compulsory and automatic transfer of minority shareholdings through a squeeze-out mechanism (“retrait obligatoire”). In addition, the AMF may request a controlling shareholder who transforms the company into an SCA, decides to make certain significant changes to the company’s articles, merges it with a company that controls it or is under common control, transfers all or substantially all its assets, changes its activity or suppresses dividends for several fiscal years, to launch a withdrawal tender offer. Delisting without squeeze-out procedure As an alternative to the squeeze-out procedure, the AMF recently approved an additional delisting procedure available to bidders holding more than 90% of the voting rights of the company, following a simplified public tender offer, subject in particular to the low liquidity of the company’s shares. However, the bidder remains subject to certain requirements following the delisting and this new mechanism does not replace the squeeze-out procedure, as it does not allow the controlling shareholder to force the minority shareholders out of the company. In practice, delisting decisions are rare outside the context of a squeeze-out. Statement of intent following rumours of a takeover bid (“put up or shut up”) The AMF may require, from any person whom it reasonably believes to be preparing a takeover bid (for instance, where the AMF observes significant and unusual variations in the price or trading volume of a company’s shares), to publicly disclose their intentions within a given timeframe set by the AMF. If the individual discloses that they intend to file a tender offer, the AMF will set a date by which the tender offer must be filed or publish a

GLI – Initial Public Offerings 2021, Fifth Edition 68 www.globallegalinsights.com Shearman & Sterling LLP France press release outlining the terms of the proposed tender offer. If the individual states that they do not intend to file an offer, they are prevented from filing an offer on the issuer during a six-month period from the time of the statement, unless evidence is provided affirming that major changes in the environment, situation or shareholding structure of the entity concerned, including the issuer itself, have occurred. Disclosure of shareholders’ agreements Shareholders are required to disclose to the AMF, which will publish such disclosure, any clause of an agreement providing for preferred terms for buying or selling shares admitted to trading on Euronext Paris and covering at least 0.5% of the floating capital or voting rights of the company.13 Disclosure of the preparation of a financial transaction Any person preparing, for their own account, a financial transaction likely to have a significant impact on the price of the company’s securities, or on the financial position and rights of holders of such securities, must disclose the characteristics of the transaction to the public as soon as possible. However, if confidentiality is temporarily necessary to implement the transaction and if the person is able to ensure confidentiality, they may do so and assume responsibility for deferring disclosure of those characteristics. Rules applicable to foreign issuers The above requirements generally apply to non-French issuers, including periodic and ongoing disclosure obligations, except for French law provisions which only apply to French companies, such as disclosure of ownership thresholds, mandatory takeover bids, squeeze- out, or provisions which only apply to EU companies such as the obligation to inform the AMF of specific amendments to the company’s articles of association. Non-French companies, listed or seeking to be listed on Euronext Paris, can prepare their IFRS financial statements in a currency other than the euro e.g.( US$). Insider trading Pursuant to MAR, any person who uses inside information to trade listed securities, or unlawfully communicates inside information to third parties, incurs sanctions from the AMF (a penalty of up to €100m or 10 times the profits realised) or criminal penalties from criminal courts (a fine and/or imprisonment).

Potential risks, liabilities and pitfalls AMF approval does not constitute an endorsement of the merits of the offering or the authenticity of the accounting and financial documents presented. The prospectus is prepared by the issuer and its signatories, which incur liability in respect thereof. Sanctions by the AMF The AMF may sanction the company’s authorised representatives, the statutory auditors or the listing banks, for any violation of its General Regulation or European Regulations which fall under its competence, to a monetary penalty of up to €100m or up to 15% of the annual turnover of the company. In particular, their liability will be sought on the basis of misleading or inaccurate information contained in the prospectus, and more generally in any communication. Civil liability The CEO and directors are responsible, individually and separately, as the case may be, for any breach of applicable laws or regulations or the company’s articles of association, or any fault in managing the company. Third parties may sue the company, in particular when a

GLI – Initial Public Offerings 2021, Fifth Edition 69 www.globallegalinsights.com Shearman & Sterling LLP France director or the CEO have committed a fault which causes a prejudice to the company; the company may in turn exercise recourse against the defaulting director(s) or CEO, such recourse being made by the company itself or at the request of its shareholders. Third parties may directly sue the director(s) or the CEO if: (i) the fault of the director(s) or CEO which causes a prejudice to the company is intentional, serious and falls outside the scope of the normal duties of the directors or CEO; or (ii) the fault causes a prejudice directly to the third party, which is distinct from a prejudice to the company.

Outlook and conclusion In the last few years, there has been a steady trend towards rendering the French market increasingly attractive for domestic and international companies; market operators show optimism with regard to the IPOs announced for 2021 once the health crisis is over, and a number of candidates which postponed their IPO are expected to exit on the markets in 2021. A new appetite of retail investors, as well as the necessary recovery of the economy after the COVID-19 pandemic, should be seen as positive factors. The massive SPAC trend observed in the US and elsewhere may also arrive in France. Important legislative reforms have been adopted with a view to encouraging more companies to go public and also facilitate listings, in particular for SMEs. In particular, the possibility to use an “EU Recovery prospectus” which is a simplified prospectus has been implemented at the EU level as part of a package of measures to help issuers to recover from the economic shock resulting from the COVID-19 pandemic, enabling issuers and financial intermediaries to reduce costs and free up resources.14 Other previous measures adopted in France included the reduction of the delisting and squeeze-out threshold from 95% to 90% of the floating share capital and voting rights, or the possibility for French companies to directly list their shares on certain markets outside the EU, such as the NYSE, NASDAQ or HKSE (the first company to have used this option is Constellium SE, whose shares are directly listed on the NYSE without ADRs).

* * *

Endnotes 1. For companies going public on Euronext Growth, Access or Access+, it is mandatory to appoint a listing sponsor accredited by Euronext in order to increase the investor’s confidence during the listing process. 2. Position-recommandation AMF DOC-2020-06. 3. List of Annexes to the Commission Delegated Regulation supplementing the Prospectus Regulation. 4. For example, in 2018 this possibility was used by GEFCO, Consolis, NAVYA and Autodis. 5. The Code professionnel FBF-AFEI details the customary due diligence (Diligences à opérer par les prestataires de services d’investissement participant à une opération financière). 6. It should be noted that non-French companies listing in France (as well as French companies listing outside of France) are not subject to this requirement. 7. Very few public companies are SCAs; for example, Hermes International or Michelin. 8. For example, LVMH, Wendel, Schneider Electric, Constellium or Dassault Systèmes. 9. Companies that have used this procedure include Coca-Cola Enterprises, Eli Lilly and Company, Infosys and Weatherford International.

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10. Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (Market Abuse Regulation or “MAR”). 11. Position-recommandation AMF DOC-2021-02. 12. As defined in MAR. 13. Within five trading days from the signature of the agreement or the inclusion of the clause. 14. Regulation (EU) 2021/337 of the European Parliament and of the Council of 16 February 2021.

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Hervé Letréguilly Tel: +33 1 53 89 71 30 / Email: [email protected] Hervé Letréguilly is a partner in the Paris Corporate practice. Hervé has extensive experience in IPO, public tender offers, public and private M&A, global securities offerings (equity, equity-linked, debt including high yield) and privatisations with a focus on financial products. He also advises on corporate governance and financial regulatory matters. He is ranked as a leading lawyer in all leading directories, including Who’s Who Legal, The Legal 500 EMEA and Chambers & Partners. He has been named Best Lawyers’ “Lawyer of the Year” for 2020 (Capital Markets), 2018 (Securities Law) and 2012 (Capital Markets). Hervé lectures at Université Panthéon-Assas Paris 2 on capital markets. He is the author of numerous publications on corporate and securities laws (including Règlement général de l’AMF, textes et commentaires, Dalloz).

Séverine de La Courtie Tel: +33 1 53 89 81 89 / Email: [email protected] Séverine de La Courtie is counsel in the Paris Corporate practice. Séverine advises on French and international capital markets transactions, on equity and equity-linked securities and debt securities. Her practice and specific experience cover offerings by French and European issuers, including initial public offerings, secondary offerings, institutional and private placements, stock exchange listings, M&A transactions and general corporate matters. She has represented issuers and underwriters in a wide variety of offerings. Séverine was named ‘Best lawyer’ in Securities Law for France in 2020, ranked ‘Next Generation Lawyer’ by The Legal 500 in 2019 and shortlisted for ‘Europe Women in Business Law Awards’ 2019 by IFLR in the category “Rising Star: Finance”.

Shearman & Sterling LLP 7 rue Jacques Bingen, 75017 Paris, France Tel: +33 1 53 89 70 00 / URL: www.shearman.com

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Katy Ritzmann, Philipp Mössner & Timo Bernau GSK Stockmann

Introduction History and background of the ups and downs of public trading in Germany Initial public offerings (“IPOs”) have once again become more relevant throughout Germany in the last five years. Germany was one of the countries trading on stock exchanges as early as the 16th century. It has thus always been on the forefront of public market activities. The Frankfurt Stock Exchange (Frankfurter Wertpapierbörse, “FSE”) gained relevance particularly at the start of the so-called “Neuer Markt”, a market segment of the FSE introduced in the mid-1990s. This market segment focused on the public trading of “new economy” companies. The business model of these companies focused on the ever-increasing importance of the internet and the change of service providing in all markets based on the new technologies that the internet brought with it. The severe crash of the market at the end of 2002 brought the stock market trading of these companies to a temporary halt. What did not stop though, was the further development of the internet, technology and digitalisation markets, which in the meanwhile found financing through Private Equity and Venture Capital. Relevant IPOs in the US and the success of public companies such as Apple and have ignited a new appetite for this form of capital raise that is now popular around the world. Even the financial crisis in 2008/2009 caused only a short-term halt to the growth of the technology market. Market developments Each company of the so-called “old economy” has realised over the last few years the need for digital transformation. Tech companies are some of the highest-valued companies worldwide when it comes to their market capitalisation. The COVID-19 pandemic pushed up the value of these companies even further. With the whole world being forced to rethink work environments within a few weeks or even days, whole markets were forced to implement and strengthen remote work solutions, including videoconferencing, digital meetings, secured VPN connections to their networks from all over the world, and cloud-based infrastructures to enable access to the offering of their goods, services and solutions. After a very short and intense decline of the stock market at the start of the pandemic, publicly traded companies from the technology and digital fields have since realised value growth in the hundreds and in some cases thousands of per cent over a short period of time. Since the financial crisis, young tech companies have been developing and strengthening their business models. To a large extent this was done with the help of Venture Capital financing. This method of financing is meant to be exit-oriented due to the time-limited investment horizons of the funds that focus on fast company growth with high marketing spend, global market reach and M&A activities consolidating diversified branches. During

GLI – Initial Public Offerings 2021, Fifth Edition 73 www.globallegalinsights.com GSK Stockmann Germany this time, Germany has also become an interesting market for foreign investors. The investor base in an IPO is international. A significant part of the investors are from the US introducing the American approach to company growth by thinking bigger and faster. The exit-orientation of these investors and the favourable market environment are only some of the reasons why the public market is now buoyant again. Most of Germany’s more commonly known IPOs from the tech-scene, such as Delivery Hero in 2016, TeamViewer in 2019 and Auto1 Group in 2021 have chosen the FSE as the stock exchange for their IPO. While exit-related provisions in corporate documents of such companies always foresee stock exchanges such as NYSE, NASDAQ and LSE as potential places for the going public, the vast majority of German companies have so far chosen their home jurisdiction and, therefore, the FSE for this significant step. However, a recent development may change this. Existing and expected trends The rise in the number of SPAC (Special Purpose Acquisition Company) transactions in the US has found its way to Germany. In a SPAC transaction, the SPAC which has raised money from investors is listed on the stock exchange. The vehicle itself is not conducting any business. The initiators of the SPAC, the sponsors, have two to three years from the listing to find a target company and merge it into the SPAC so that this target company as of the time of the merger, or de-SPAC, is publicly listed. In the course of this merger, the existing shareholders of the target company exchange their shares in the target company for shares in the SPAC. While such transactions are not IPOs, they may have similar effects. The target company raises the money that was initially invested by the investors in the SPAC. If, on top of that, the SPAC raises additional PIPEs (private investment in public equity), the financing needs of target companies can be met, even if the sums originally collected by the SPAC would not be sufficient to activate the business plans of the target companies in full. While SPAC transactions were performed during the era of the Neuer Markt in a low number of cases, we are now seeing (re-)entry of SPACs to the German market. A certain number of Venture Capital Fund managers have decided to raise SPACs and list them at several European stock exchanges, including the FSE. The vast majority of SPACs are listed at Euronext in Amsterdam. The reason for the preference for the Netherlands is related to the more favourable tax environment for companies whose business models rely on licence fees (which is the case for a lot of tech companies). The second implication of SPACs on the German market is German companies going public on international stock exchanges. The largest number of SPACs are listed on NASDAQ. With such transactions, German companies enter the desired international stock exchange parquets more efficiently, without having to go through the unknown, time- andcost- intensive processes of getting to know regulatory environments of foreign jurisdictions, but rather with some help and support of the SPAC to overcome any challenges. For German companies choosing this way of going public, the process is more comparable to a merger transaction. It remains to be seen whether this trend will have comparable significance to IPOs in Germany. Companies that can show a strong business case would prefer to choose their investor base from a broader range, going through the regular IPO process as opposed to a pre-existing range of financiers invested in the SPAC. Another trend currently seen is the change of domiciliation of German companies to Luxembourg before going public. The legal provisions in corporate law in Luxembourg provide more flexibility for a robust corporate governance structure and require significantly less formalities compared to Germany. The German legal environment has proven to slow down companies in their ambitious goals to grow including through capital raises. Notarisation requirements in Germany for most of the capital raise and governance measures

GLI – Initial Public Offerings 2021, Fifth Edition 74 www.globallegalinsights.com GSK Stockmann Germany of companies incorporated here are only one of the reasons for the way out of Germany, particularly for companies with a large number of shareholders. Another reason is the little flexibility that German law provides for effective and profit-oriented employee participation, both from a corporate and a tax perspective. While the German legislator had the chance to introduce better terms in this respect, it failed to do so according to the current suggestions of the Fondsstandortgesetz. The trend of companies moving to more flexible, but still recognised, jurisdictions might therefore be continued. Irrespective of such trend, most of these companies, when going public, still chose the FSE. Lastly, the further promotion of blockchain technology is opening German law for electronic securities. The Gesetzes zur Einführung elektronischer Wertpapiere provides for the regulation of electronic securities on a technology-neutral basis, which will allow for their issuance and trading on the blockchain. German financial services providers and the stock exchanges have seen this development and participate significantly in the setup of distributed ledger technologies (“DLTs”). These developments are still in the early stages and it remains to be seen what impact they will have on public market trading and market participants.

The IPO process: Steps, timing and parties and market practice Preparation phase A regular IPO process requires a significant amount of preparation. For a large number of companies, it may start as early as two years prior to the intended start of trading. This is often due to the fact that a lot of companies still have to change their legal form to become IPO-ready. Most German companies are incorporated as German limited liability companies (“GmbH”). As such, their shares are not capable of being publicly traded. A change to a German stock corporation (“AG”), a European company (“SE”) or even a stock corporation from a different jurisdiction is necessary. This requires several legal steps starting with a proper corporate and tax analysis to find the preferred target structure, as well as transparent alignment with the shareholders ensuring the protection of the interests of all parties involved. The choice of legal form, as well as a potential change of the jurisdiction where the company is registered, is mostly driven by the business model, the resulting tax structure of the company and sometimes by the potential investors that the company and the underwriters intend to convince with respect to their investment in the IPO. The challenges in this part of the process stem mainly from finding the right balance between preparation for IPO readiness and safeguarding for the unintended case where an IPO might not happen. Due to eventualities of such outcome that may often be to do with the market environment rather than with the company itself, companies should always have alternative financing strategies as a back-up option. Once the proper legal form is put in place and the company is stabilised in its new legal form, shareholders kick off the IPO process officially with their respective resolution that allows the management to engage its IPO advisors. Often, potential investment banks have a long-lasting relationship with companies. Particularly in the tech environment, investment banks often invest at an earlier stage in such companies to get an early insight into those companies, build a relationship and thus increase the likelihood of being engaged for the IPO itself. The next relevant decision to be made by the company is the potential place of listing, including the listing segment. Both will be decisive for the regulatory requirements to be met by the company.

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Choosing advisors and first steps Irrespective of the place of listing, an IPO process has become a more international process over recent years. This is mainly due to the fact that more international investors participate in German IPOs either immediately prior to an IPO, or because the underwriters introduce German companies to their more international investor base or because companies already have a more international shareholder base that attracts investors from other countries that look to diversify their portfolios. A company that is seeking global reach may therefore, when selecting its advisors, focus on their global access to investors and the quality and reputation of the aforementioned. The main decision to be made is surrounding the global coordinators. They are the lead underwriting banks. Whereas most companies engage a large consortium of bookrunners following a “beauty contest”, it is the global coordinators that develop the further equity story of the company, prepare the PR plan, structure the offering by deciding together with the company if only a primary offering is sought after, in which the company sells newly issued shares and thus raises capital, or if and to what extent secondary offerings are also part of the IPO in which existing shareholders may also be able to liquidate a part of their positions. It is at this point that global coordinators will also determine whether to implement greenshoe options in an initial phase shortly after the first day of trading. In preparation for such decisions, the pricing process is discussed and set up, the potential IPO investor market is analysed and the trading market is prepared for the time after the IPO. The global coordinators prepare the IPO roadshow together with the company. In preparation for the prospectus and for the marketing of the company to the potential IPO investors, the global coordinators conduct the due diligence of the company. The independent auditors of the company review and verify the financial information, which forms the basis of the information to be provided in the prospectus. Together with the legal advisors to the company that are advising on the regulatory framework and preparing the prospectus, the auditors assist with the drafting of certain prospectus sections. The counsels to the company undertaking the IPO provide legal advice on the whole transaction. It is common for the company to engage several legal advisors. There needs to be a focus on the corporate legal work to be done in preparation for the IPO, including structuring to prepare the company for IPO readiness, coordinating with the management, the members of the supervisory board and the shareholders, preparing the respective resolutions that are relevant for the share issuance of the primary offering, as well as potential amendments to the corporate documents, namely the articles of association and the shareholders’ agreement to provide for its proper termination at the time shortly before the IPO, but while maintaining a solid basis for the improbable case that the IPO does not happen. Additionally, the company engages specialist advisors for the regulatory framework. Together with the corporate legal advisors they prepare the legal due diligence, draft the prospectus and guide the company through the approval process with the regulator, which in Germany is the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”). Throughout the IPO preparation process, they negotiate the underwriting agreement with legal advisors of the bookrunners and ensure that all regulatory requirements are fulfilled. They provide disclosure letters regarding the company to the underwriters and coordinate both with the company and with the legal advisors of the shareholders the provision of legal opinions to the extent necessary. Most companies start early to prepare for the IPO. When money is raised in the private market at a time when an IPO might be the preferred and even a realistic exit scenario for such

GLI – Initial Public Offerings 2021, Fifth Edition 76 www.globallegalinsights.com GSK Stockmann Germany companies, the investors focus on supporting the company to become compliant for the IPO and the time thereafter. In Germany, companies shall comply with the recommendations of the German Corporate Governance Code (Deutscher Corporate Governance Kodex). Therefore, they often start implementing respective measures sufficiently ahead of time. When the company prepares the last steps for the IPO, several amendments to the articles of association may become necessary. The company often changes its existing form of shares from registered shares to (dematerialised) bearer shares. Where a private company has different share classes of common and preferred, all of its shares are converted into common shares, usually on a 1:1 basis, unless otherwise agreed between the shareholders beforehand. If not already done so, the shareholders set up custody accounts to be able to receive bearer shares shortly before the listing. The existing shareholders of the company also resolve on capital increases to provide for a sufficient number of shares to be issued in the IPO, as well as the creation of authorised or contingent capital within the limits set by law to enable the company to raise further capital and implement additional incentive plans for its management and employees at the time after the IPO. Preparing such steps ahead of the IPO has the advantage that the company can implement these steps later on without the need to gain the approval of the general meeting of shareholders. The underwriters engage legal advisors as well. They conduct the legal due diligence from the perspective of the investment banks and advise on, review and provide comments on the prospectus. The underwriting agreement is prepared and negotiated by them. Similar to the legal advisors to the company, they also review public announcements and press releases, and provide legal opinions as well as disclosure letters to the extent necessary. Together with the legal advisors of the company and the legal advisors of the shareholders, the lock- up agreements are prepared and negotiated. Regularly, all shareholders of a company are restricted in selling their shares for a time period of usually 180 days after the first day of trading. Such lock-ups help to stabilise the share price immediately after the IPO and ensure the company’s control over its shareholder base in the immediate aftermath of going public. In order to support the pre-marketing of the IPO, companies often engage special public relations advisors. They focus on communicating the equity story and set up the communication in line with the expectations of the company with respect to the goals of the IPO. In that context, it needs to be ensured that the public information about the company in press releases as well as media coverage is aligned with the information provided in the prospectus. Financial conditions Companies often have a pre-set equity story before the IPO. Based on their business model, companies know the market conditions and their competitors, have plans for actionable measures to grow and an understanding of the trends in their markets. They will also have assessed potential M&A targets that would enable growth both before and after the IPO and prepared steps for the entry to the market in other countries as well as for the entry in supporting business lines. A convincing strategy that has proven to enable topline growth in the few years before the IPO, the market size from a global perspective, the strength of the management team as well as the belief of investors in the success story are all key factors for the company to reach its valuation and pricing goals in the IPO. Companies therefore need to be prepared to be challenged on their financing models and their bottom-line results. This is even more relevant in those cases where the companies that intend to go public are not profitable at the time of their IPO. Key performance indicators (“KPIs”) that have been

GLI – Initial Public Offerings 2021, Fifth Edition 77 www.globallegalinsights.com GSK Stockmann Germany determined by the management together with its main shareholders and board members have to be reviewed and adjusted to the size and plans of the company at the time of the IPO. If the company was able to attract investors with a strong appetite of public listings as an exit scenario, the financial reporting, annual, interim and management accounts, but also public announcements will often already be adjusted to reflect and report the achievement of KPIs that will be of interest to the investors that are approached in the IPO process. Often German companies have to adjust their accounting principles from German GAAP to the International Financial Reporting Standards (“IFRS”) and International Accounting Standards (“IAS”). Particularly, if the company intends to attract non-EU investors in the IPO, it may consider making such changes at a time well in advance of an IPO. The prospectus must include the audited financial information for the last three financial years prior to the IPO. Often, the change of the accounting principles leads to significant differences in the yearly results of companies, particularly for those whose revenues rely to a large extent on self-developed intellectual property, which is treated differently under IFRS standards compared to GAAP principles. Also, from a financial perspective, IPO candidates must implement accounting and controlling functions and set up specific audit, risk and compliance committees, particularly when their business models evolve around such of the regulated markets, which is most often the case for FinTech and InsurTech companies. Irrespective of the fact that such companies provide solutions to their customers that are innovative, they themselves have to implement IT structures to prepare for the financial reporting requirements as well as the investor relations processes for the time after the IPO. In this context, companies often raise capital in the private market ahead of the start of the IPO process in order to be able to meet all the requirements and still have a long enough runway in case market conditions change and the IPO needs to be postponed. Due diligence and prospectus The due diligence process is one of the most important steps in the preparation of an IPO. The global coordinators, their advisors as well as the company’s legal and financial advisors review all aspects of the company, assess risks given in the setup and conditions of the company and determine their factual and reputational impact on the company for the IPO. The more detailed the due diligence, the better the risk assessment can be made in the prospectus. The due diligence also helps to decide if a company still needs to work on certain matters before actually starting the process of going public. Where the findings of the due diligence show a robust company with manageable risks, a transparent description of the situation in the prospectus mitigates the risk for prospectus liability lawsuits and reputational damages for all parties involved. The securities prospectus is a key element of the IPO transaction. It provides at length and in detail the key information about the issuing company, the securities offered as well as the offering itself. In this context, the prospectus explains the risk factors related to the relevant markets, the respective business activities of the company, its financial situation, the regulatory, legal and tax situation as well as to the capitalisation of the company. It describes in detail the structuring of the offering, whether and to what extent secondary offerings and greenshoe options are intended, which stabilisation measures are intended after the IPO, to what extent the transferability and disposal of shares from existing shareholders are restricted and potential interest of parties participating in the offering as well as information on eventual cornerstone investors for the IPO. The intended use of proceeds from the IPO and the future plans of the company in respect of its dividend policy are described. The

GLI – Initial Public Offerings 2021, Fifth Edition 78 www.globallegalinsights.com GSK Stockmann Germany prospectus provides detailed information on the capitalisation, indebtedness, liabilities and working capital of the company. In the management’s discussion and analysis of net assets, the financial condition and the results of operations, the prospectus provides insights into key financial information of the company. It describes the profit estimates and explains the market environment in which the company is already active, as well as the competitive field. The results and findings of the commercial and legal due diligence are described in the explanation of the business of the company, focusing on market solutions, the strategy and operations of the company, its compliance management as well as its employee base. Information on insurance coverage, litigation and agreements material for the business of the company is also given. The regulatory and legal environment of the company is described in detail with a particular tailormade view on the key products, services or intellectual property of the company. The prospectus also provides information on the existing shareholders of the company, a broader description of the general information that can also be found in the articles of association of the company regarding, among others things, the corporate purpose, auditors, governing law and registration of the company including historical information about it. The share capital and the governance of the company are described and information on share and employee incentive programmes are given and described in the legal context that is relevant to the company. Apart from more detailed information on the framework for taxation in Germany, which is relevant for German as well as non-German investors when deciding whether they want to invest in the company, the prospectus also provides specific information on the underwriting agreement and the structuring, restrictions and options, as well as the costs of the IPO. While the prospectus can support the marketing, its main goal is to fulfil statutory disclosure requirements to provide investors with the information basis for their investment decision. If prospectuses contain insufficient or even wrong information, prospectus liability claims may arise. The draft of the prospectus is prepared by the issuer’s counsel on the basis of information provided by the company, gathered in the due diligence process and provided by the company’s auditors. The draft is then reviewed by the underwriter’s counsel and the global coordinators and they provide comments. The prospectus is filed with the regulator several times. It can take six to eight weeks from the first filing until the final approval by BaFin. The regulator reviews in general up to three drafts and provides its comments before the final prospectus is filed shortly before the IPO for approval. The approval itself is normally a time-efficient process given that the regulator is already familiar with the prospectus. Legal documentation The global coordinators enter into an engagement letter with the company that determines, inter alia, the services to be provided, costs, break-up fees, liability and confidentiality. It does not create an obligation for the underwriters to underwrite and place the shares of the company in the IPO. Since the engagement letter sets out the legal framework of the services to be performed by the investment banks, it will have an impact on the provisions of the underwriting agreement. The underwriting agreement provides for the contractual framework between the underwriters, the company and, if the IPO contains a secondary offering, the selling shareholders. It typically contains terms for a maximum number of shares to be placed by the underwriters, although this is usually not agreed on as a guaranteed performance-based obligation, but rather on a best-efforts basis by the underwriters. The parties of the underwriting agreement determine the liability of the issuer and the underwriters as well as the underwriters’ fees, commissions and costs. While the

GLI – Initial Public Offerings 2021, Fifth Edition 79 www.globallegalinsights.com GSK Stockmann Germany underwriting agreement may be prepared well in advance, it is usually executed only shortly prior to the publication of the prospectus and the beginning of the offer period. Apart from the corporate measures that include shareholder and supervisory board resolutions, the other customary IPO documentation is in line with international market standards. It includes publicity and research guidelines, the pricing agreement, agreements governing the underwriters’ internal relationship, lock-up agreements, a cost-sharing and indemnification agreement between the company and the selling shareholders, a listing agreement and the certificates issued by the company’s management as well as the global share certificates. The company usually keeps its shareholders duly informed about the developments and the response it gets from the market. This allows the shareholders to understand whether the valuation of the company in the IPO is as expected and to make their mind up as to whether to finally approve the IPO. Marketing and offering With the help of the investment bankers, companies often contact selected investors early in the IPO process. This can go as far as detecting cornerstone investors that may even invest in a private capital raise immediately prior to the IPO and ensuring a significant stake in the IPO itself. Such information is material and has to be included in the prospectus (see Art. 22 para. 4 Prospectus Regulation). Around two months prior to the envisaged day of trading, the management of the company conducts an analyst presentation for the analysts of the underwriters. This helps the analysts to prepare research reports which are made available to institutional investors. Around four weeks prior to the envisaged first day of trading, the company publishes the “intention to float” (“ITF”). The ITF notifies the public about the IPO plans of the company. The research reports are provided to potential institutional investors and give price indications for pre-marketing purposes. In this process it has to be ensured, by means such as Chinese walls, that the recommendations given in the research reports are not disclosed to the company. Shortly prior to the IPO, the underwriting agreement is executed and legal opinions, disclosure letters and comfort letters are issued on behalf of the company as well as the selling shareholders, if any. The final prospectus is filed with BaFin for approval. On the approval date, the prospectus is published, a press conference is held, and the offer period begins. The prospectus usually contains a price range for the issue price of the shares in the IPO. The offer price is then determined in a bookbuilding process that the investment banks conduct. During the bookbuilding period, the company’s management is on an intensive roadshow for around two weeks to inform investors about their company and increase their appetite to participate in the IPO. While ,in the past, roadshows involved a lot of travelling of the company’s management, the particularities of the COVID-19 pandemic in 2020 made this process more efficient and less time-consuming as the roadshows are now being conducted in online meetings and through video conferences. At the end of the offer period the company, the underwriters and the selling shareholders enter into a separate pricing agreement where the offer price is finally determined. The shares to be issued in the primary offering are then allocated to investors. The allocation is discussed mainly between the company and the underwriters, with involvement of the larger existing shareholders of the company. Where a prospectus does not contain a price range, the offer period is much shorter. Listing, settlement and stabilisation In order for the shares of a company to be admitted to trading on the Regulated Market, a listing application has to be filed by the company with the FSE. In order to ensure the

GLI – Initial Public Offerings 2021, Fifth Edition 80 www.globallegalinsights.com GSK Stockmann Germany maintenance of the statutory period for the granting of the admission to trading of one business day, companies going public and their advisors often reach out to the FSE at an earlier point in time to discuss and agree on the details of the listing application. Such a procedure enables the company to control better the process with many parties involved. In order to enable the listing of the shares of the company, their corporate legal advisors have to take care of an amendment of the articles of association of the company to exclude the right of the shareholders of the company to receive individual share certificates. Global share certificates are executed and, where the company going public is a German company, delivered to Clearstream Banking AG, Frankfurt am Main. In this context, each shareholder gets its number of shares booked into its custody account. While the admission to trade and its publication are the basis of the listing of the shares on the Regulated Market of the FSE, the first day of trading is usually the first business day thereafter. Immediately after the listing, the settlement occurs by way of book-entry delivery of the company’s shares and payment of the purchase price within two or three business days. The group of underwriters usually determines one of them to act as a stabilisation manager. The stabilisation manager is allowed to make overallotments and take stabilisation measures in order to avoid high volatility in the price development of the company’s shares once trading has started. The stabilisation manager acts in accordance with the EU Market Abuse Regulation No. 596/2014 (“MAR”) and the regulatory technical standards issued. Such measures support the stability of the market price of the company’s shares and provide control over any selling pressure. The stabilisation period ends 30 days after the first day of trading at the latest.

Regulatory architecture: Overview of the regulators and key regulations Authorities BaFin is the competent supervising regulator in Germany. As described, it reviews and approves prospectuses of German companies. The competent regulator for companies from other EU/EEA Member States that intend to go public in Germany is the respective financial supervisory authority of such Member State. These financial supervisory authorities align with BaFin and where they approve a prospectus, BaFin must approve it as well. Where a prospectus is “passported” into Germany it may be used for a public offering or stock exchange listing in Germany. For these purposes, the foreign regulator, at the issuer’s request, notifies both BaFin and the European Securities and Markets Authority (“ESMA”) within one working day following approval and submits an electronic prospectus copy. In these cases, BaFin only reviews the completeness, consistency and clarity of the prospectus. BaFin does not verify the accuracy of the information included in the prospectus. Where BaFin considers specific information necessary for the protection of investors, it can require the company to include such information in the prospectus in addition. The FSE is the competent authority for granting admission to trading on the Regulated Market, but it may neither challenge nor reject a prospectus that was approved by BaFin or another EU/EEA regulator. Legal framework for prospectuses The EU-wide harmonised legal framework for prospectuses is laid out in the Prospectus Regulation as well as the Commission Delegated Regulation (EU) 2019/979 and the Commission Delegated Regulation (EU) 2019/980 (the “Delegated Regulations”). The Delegated Regulations are directly applicable in each EU Member State. When preparing a prospectus, ESMA’s “Guidelines on risk factors under the Prospectus Regulation” and

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“Questions and Answers on the Prospectus Regulation” should also be considered, together with ESMA’s previous guidance relating to the EU Prospectus Directive 2003/71/EC (to the extent it is compatible with the Prospectus Regulation). The German Securities Prospectus Act (Wertpapierprospektgesetz, “WpPG”) determines the legal framework of the provisions regarding prospectus liability and sanctions in case of violations. In general, prospectuses must contain the necessary information that is material to an investor for making an informed assessment of (i) the issuer’s assets and liabilities, profits and losses, financial position and prospects of the issuer, (ii) the rights attaching to the securities, and (iii) the reasons for the issuance and its impact on the issuer. The WpPG requires that information in the prospectus shall be presented in an easy to analyse, concise and comprehensible form. Prospectuses may be drawn up in English but must include a German translation of the prospectus summary. Listing The German Stock Exchange Act (Börsengesetz, “BörsG”), the German Stock Exchange Listing Regulation (Börsenzulassungsverordnung) and the FSE’s Exchange Rules (Börsenordnung) lay out the requirements for a listing on the Regulated Market of the FSE. A company intending to list its shares must file the application for the admission to trading together with a credit or financial institution or another enterprise operating within the meaning of Sections 53 para. 1 sentence 1 or 53b para. 1 sentence 1 German Banking Act (Kreditwesengesetz) that fulfils the requirements set forth in Section 32 para. 2 BörsG. The approved prospectus as well as certain other documents must be handed in together with the application. The minimum requirements for an admission to the Regulated Market of the FSE are as follows: (i) the expected market value of the shares to be admitted must amount to at least EUR 1.25 million; (ii) the issuer must have been in legal existence for a minimum of three years (exceptions may be granted); (iii) the shares must be freely tradable; and (iv) a minimum free float of 25% following admission must be secured (subject to certain exceptions; however, there must be at least 100 individual shareholders).

Public company responsibilities After the IPO, listed companies are subject to specific post-admission obligations: MAR Regulation of inside information and ad hoc notifications (i.e., the disclosure of material non-public information that is expected to have a significant effect on the share price), insider trading and managers’ transactions as well as market manipulation is found in the MAR. Each company that has requested the admission to trading on the Regulated Market has to ensure compliance with the MAR. Therefore, its provisions already apply prior to the admission to trading. The legal framework is supplemented by the German Securities Trading Act (Wertpapierhandelsgesetz, “WpHG”) and the German Securities Trading Reporting and Insider List Regulation (Wertpapierhandelsanzeige- und Insiderverzeichnisverordnung). WpHG Sections 33 et seq. WpHG contain information obligations of shareholders to be provided immediately and within four trading days at the latest both to the company and BaFin, if shareholder voting rights (directly or indirectly) reach, exceed or fall below the statutory thresholds of 3, 5, 10, 15, 20, 25, 30, 50 or 75%. These requirements already have to be maintained in the time period shortly before the IPO. While several provisions of shareholders’ agreements may have to remain in place until the very moment of admission

GLI – Initial Public Offerings 2021, Fifth Edition 82 www.globallegalinsights.com GSK Stockmann Germany to trading, certain provisions may be seen as voting agreements, leading to the assumption of an acting in concert, which in turn may result in information obligations. To prevent these, the respective provisions have to be terminated for a point in time before the legal framework of the WpHG becomes applicable. In addition, German companies are required to publish annual and semi-annual financial reports (see Sections 141 et seq. WpHG). Prime Standard Issuers whose shares are listed in the Prime Standard must, inter alia, (i) submit quarterly financial statements within two months of the end of the reporting period; (ii) hold at least one analyst conference per year; (iii) continuously update and publish a financial calendar; and (iv) fulfil all post-admission obligations in both German and English. Other laws Section 161 AktG requires domestic issuers to publish a declaration of compliance with the corporate governance recommendations set forth by the German Corporate Governance Code (Deutscher Corporate Governance Kodex). The AktG and the German Commercial Code (Handelsgesetzbuch) set forth several provisions that apply for listed companies and the requirements for the financial reporting of listed companies. Such provisions include, inter alia, the obligation to increase the share of female members in a company’s management and supervisory boards and currently undergo several public initiatives to further enable gender equality in governing bodies of public companies.

Potential risks, liabilities and pitfalls Prospectus liability There are risks involved in the preparation of the prospectus. The information contained therein must be correct and complete. If any material information is incorrect or incomplete, the purchaser of shares may have claims for reimbursement of the purchase price in exchange for any shares acquired. The parties that have assumed responsibility for the prospectus or who have initiated the preparation of the prospectus (see Section 9 para. 1 sentence 1 no. 1 and 2 WpPG) bear the responsibility. Those parties are mentioned in the responsibility statement in the prospectus. Normally, this relates to the company and the underwriters. Selling shareholders should carefully consider their involvement in the prospectus drafting process if they do not want to expose themselves to such liability. Cost-sharing and indemnification agreements, IPO If a company includes primary and secondary offerings in an IPO, the liability risks and costs involved in such IPO have to be shared between the company and the selling shareholders. The German Federal Court (“BGH”) ruled in its “Telekom III” decision of 31 May 2011 that the assumption by the company of the prospectus liability risk vis-à-vis the underwriters in connection with a secondary offering of existing shares held by shareholders constitutes an illegal distribution of share capital to such shareholders (see Section 57 para. 1 sentence 1 AktG), unless they indemnify the company from any prospectus liability. For the same reason, the selling shareholders have to participate in the costs of such offering. Therefore, it is customary that the issuer and the selling shareholder(s) enter into cost-sharing and indemnification agreements. In case of a combined (i.e., primary and secondary) offering, the IPO costs must be shared pro rata between the company and the selling shareholders, and the latter must assume the prospectus liability risk accordingly. Often, the prospectus liability risk can be insured through the purchase of a “Public Offering of Securities Insurance”.

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Katy Ritzmann Tel: +49 30 203907-422 / Email: [email protected] Katy is a Partner at GSK Stockmann. Her main focus is advising companies from the technology and digital sector in legal aspects enabling a robust basis for hyper-growth. In parallel she works with venture capital investors, supporting them in their investments in German companies from entry through to exit. In this context, Katy has vast experience in legal structuring and advises on complex financing rounds and exit transactions, particularly with cross-border elements, and supports shareholders in their preparations for an IPO. She advises in transactions with a global reach with a special focus on the United States and Israel, where she is also admitted to the Bar as a Foreign Lawyer. Katy has advised several selling shareholders in the recent IPO of Auto1 Group, as well as a larger number of investors in SPAC transactions.

Philipp Mössner Tel: +352 271802-40 / Email: [email protected] Philipp is a Partner at GSK Stockmann in Luxembourg. He focuses on Capital Markets (listed companies), Banking & Finance, Corporate and Real Estate Transactions. He is admitted to the Bar in Germany (2006) and Luxembourg (2007), and holds an LL.M. from McGill University (Montreal) and a Ph.D. from the University of Tübingen. Philipp speaks English, French and German, and is a member of the International Bar Association (IBA), the American Bar Association (ABA) and the Canadian Bar Association (CBA).

Timo Bernau Tel: +49 89 288174-662 / Email: [email protected] Timo is a Partner at GSK Stockmann. He studied at the University of Gießen and at the London School of Economics. Timo advises banks in Germany and abroad, financial service providers, insurers, as well as fund and asset management companies in all regulatory matters including the structuring and distribution of their products and business services. He regularly gives lectures in the area of banking and insurance regulatory law and has published numerous articles on these subjects.

GSK Stockmann Karl-Scharnagl-Ring 8, 80539 Munich, Germany Tel: +49 89 288174-0 / URL: www.gsk.de

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Panagiotis G. Sardelas & Evi Matthaiou Sardelas Petsa Law Firm

Introduction Greece entered 2020 looking forward to a phase of economic recovery after a prolonged period of crisis, but was almost immediately faced with a challenging socio-economic environment due to the global COVID-19 pandemic. The pandemic hit the world economy hard, including the EU Member States, which inevitably had a significant impact on the Greek economy and Greek capital markets; indeed, such impact was amplified, to some extent, by the unexplored new reality of a post-Brexit Europe. As a result, the domestic capital markets in 2020 were characterised, inter alia, by a decrease in the transactional activity of the Greek securities and derivatives markets, as well as a decrease in equity issuances by Greek corporates. Although the number of equity issue transactions (IPOs and capital increases) remained more or less at the same levels as in 2018 and 2019, there was a sharp decrease in the capital raised therefrom compared to those years. On the other hand, domestic corporate bond issuances saw a dramatic increase in raised capital (EUR 1.02 billion vs EUR 525 million in 2019 and EUR 235 million in 2018). Although this development can be easily explained by the fact that, in the ensuing economic environment, financing needs increased significantly and Greek enterprises sought an alternative to the banking sector, it demonstrates that the domestic debt capital markets are steadily evolving, albeit still being a playground mostly for the largest Greek corporates. In any case, there is undeniably a lot of potential for further developing the bond market and attracting new issuers and investors. For the Greek capital markets, 2020 was also a fruitful period with respect to the further development of an effective, efficient and secure regulatory environment. Indicatively, the introduction of Greek Law 4706/2020 “on Corporate Governance and Modernisation of Capital Markets” forms part of the government’s general plan to attract investors and to boost the Greek economy, adopting provisions, inter alia, for (a) the corporate governance of listed companies, incorporating the most recent developments on best practices at EU and international level, (b) the transposition into Greek law of EU legislation that ensures full compliance of the Greek regulatory regime, and (c) various amendments on the Greek capital markets law enhancing transparency and investor protection. This important reform, together with the implementation of the European Central Securities Depositories Regulation (EU) 909/2014 (hereinafter “CSDR”) and the licensing of the Hellenic Central Securities Depository (hereinafter “ATHEXCSD”) thereunder at the beginning of 2021, will allow for more participants to invest in securities in Greece facilitating the cross-border offerings and holdings of securities in omnibus accounts in ICSDs.

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This chapter will focus on the Greek legal framework for IPOs, which is aligned with the respective legal framework of the European Union.

The IPO process: Steps, timing and parties and market practice Listing requirements The requirements for listing securities on the regulated market of the Athens Stock Exchange (hereinafter “ATHEX”) are set out in Greek Law 3371/2005, by which Directive 2001/34/EC was transposed into Greek law, and in the ATHEX Regulation. Listing requirements refer to both the securities to be listed, as well as their issuer, and do not differ greatly from those set by the aforementioned Directive. Special reference will be made to the listing requirements set out in the ATHEX Regulation, which specify the general listing requirements set out in Greek Law 3371/2005 and which apply to the Greek jurisdiction. Listing requirements for shares and bonds are essentially the same and will be examined in a united way. Special references to shares or bonds will be made if the procedure of the IPO differentiates. With respect to the issuer, the following requirements must be met: (a) If the issuer is a Greek company, it must operate in the form of a société anonyme, i.e. a company limited by shares, and must be in accordance with the provisions that regulate the incorporation and operation of société anonyme companies (Greek Law 4548/2018). If the issuer is a foreign company, it must comply with all relevant law governing its incorporation and operation. (b) The shareholders’ equity of the issuer is set at EUR 3 million on a consolidated basis (if no other companies are consolidated on an individual basis) and the profitability thresholds require either an EBITDA of at least EUR 3 million over three years and a positive EBITDA for the last two fiscal years before the listing application, or pre-tax profit of at least EUR 2 million over three years and pre-tax profit for the last two fiscal years. (c) The issuer must have published annual financial statements, audited by a certified auditor, for at least three financial years preceding the application for admission. The publication must be in accordance with IAS/IFRS or, in case of third-country issuers, with other equivalent accounting standards (for instance, US GAAP). (d) The issuer must have been audited for all tax items for all fiscal years for which annual financial statements have been published at the time of filing of the application. In case of tax unaudited fiscal years, the underwriter must certify the adequacy of the provisions recognised in the last published financial statements. (e) The issuer must also comply with the applicable corporate governance requirements. In cases where the issuer is incorporated as a société anonyme, it must especially comply with: Greek Law 4706/2020 on “corporate governance of sociétés anonymes, provisions for capital market modernisation, transposition of EU Parliament and Council Directive 2017/828 into Greek law, implementing measures for EU Regulation 2017/1131, and other provisions”; Greek Law 4449/2017 on “Statutory Audits of Annual Accounts and Consolidated Financial Accounts”; and the rules pertaining to the adoption by the issuer of a Corporate Governance Code on a “comply or explain” basis according to the Hellenic Capital Market Commission (hereinafter “HCMC”)’s board of directors (hereinafter “BoD”) resolution 2/905/03.03.2021 on the “implementation of the provisions of article 17 of Law 4706/2020”. (f) The general free float requirement of the initial listing refers to a minimum of 25% free float allocated to at least 300 persons, each holding equalto or less than 5% of the total securities to be listed, or 15% where the smooth operation of the market is ensured.

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There are certain exemptions applying to the minimum free float requirements that are granted by the ATHEX provided that, in all cases, the smooth operation of the market is ensured. There is also a shareholders’ lock-up in case of companies with an estimated capitalisation of less than EUR 100 million, referring to a maximum 25% permissible transfer of shares for the first year following the listing. Finally, the ATHEX Regulation provides for more specific requirements, terms and documentation in case the issuer is an insurance or construction company. In case of bonds to be listed, their issuance is governed by articles 59–74 of the new Greek Law 4548/2018 on the “Reform of the Law of Sociétés Anonymes”. Finally, in case the issuer is a foreign company, the latter must meet all the requirements set out in Greek Law 3371/2005 and in the ATHEX Regulation. If the foreign issuer does not operate through a branch or any other establishment in the Greek territory, he must notify the HCMC and ATHEX with the contact details of his agent in Greece. Notably, the listing requirements are fewer and the procedure simpler for IPOs in the Alternative Market (hereinafter “E.NA”). More specifically, there is a minimum shareholders’ equity requirement of EUR 1 million at the time of approval for trading; the company must have published financial statements for at least two fiscal years, been audited by a certified auditor and had its last financial statement prepared in conformity with the IFRS. Shareholders that, at the time of approval of admission to trading, had a holding of 5% or more of the company’s share capital, may transfer up to a maximum of 25% of the shares they held on the date of admission. If the two fiscal years preceding admission to trading were loss-making for the company, shareholders that, at the time of approval of admission to trading, had a holding of 5% or more of the company’s share capital, may not transfer their shares for one year after the commencement of trading. The minimum free float shall be at least 15% distributed to at least 50 persons, none of whom has a holding equal to or greater than 5% of the total number of shares to be traded. The company’s shares must be freely negotiable and fully paid-up; compliance with corporate governance legislation is not mandatory but recommended as best practice. The E.NA may also be selected as a step for the regulated market of ATHEX – a “first contact” with the market and its requirements – by companies wishing to be flagged as “listed”, without having to comply with the full set of obligations of a regulated market. Listing procedure The principal steps in applying for a primary listing are: (a) Evaluation of the listing application by ATHEX The issuer, together with the underwriter, files an application for the listing of its securities, accompanied by a supplementary questionnaire and the necessary supporting documents, specified by ATHEX decision 28/2008, as amended. ATHEX checks and evaluates in accordance with article 3.1.8 of ATHEX Regulation, the documents and the listing requirements and decides whether the issuer and its securities are eligible for listing. (b) Approval of admission The issuer’s prospectus is drafted and submitted to the HCMC for approval. The prospectus is approved by the HCMC and ATHEX is informed accordingly. The issuer submits to ATHEX the approved prospectus in paper and electronic form in order for it to be published on the ATHEX website. The issuer submits the decision of the HCMC regarding the approval of the prospectus as well as all the documentation specified by ATHEX decision 28/2008, and ATHEX approves the listing application.

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(c) Commencement of trading ATHEX accepts the commencement of trading, which must begin within 15 calendar days after the aforementioned ATHEX approval. The listing application is rejected by ATHEX in case the issuer and/or the securities do not fulfil the listing requirements or of any ad hoc requirements that may have been set by ATHEX, or in case the prospectus is not approved by the HCMC. The prospectus According to Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and Regulations (EU) 2019/979 and (EU) 2019/980 supplementing Regulation (EU) 2017/1129 (hereinafter “Prospectus Regulation”) and Greek Law 4706/2020 on “corporate governance of sociétés anonymes, provisions for capital market modernisation, transposition of EU Parliament and Council Directive 2017/828 into Greek law, implementing measures for EU Regulation 2017/1131, and other provisions”, for the listing of the securities on a regulated market, a prospectus must be published following approval by the HCMC, unless an exemption applies. The aforementioned law introduced to the Greek legal system the implementing measures of the Prospectus Regulation. The stipulations of the Regulation and the respective Greek law provide uniform rules for the drawing-up, approval and distribution of the prospectus with a view to a public offering or admittance to trading. With these adjustments, the prospectus becomes the uniform passport for the offering of securities or the admission to trade in capital markets of other Member States or even third countries (host countries). The prospectus must contain the necessary disclosure prescribed in the Prospectus Regulation and in HCMC Decision 2/892/13.10.2020 on “Procedure and documentation required for approval of the Prospectus”, i.e. all information that is necessary for investors to make an assessment for the assets and liabilities, financial position, profits and losses and prospects of the issuer, and the securities to be offered to the public and admitted to trading. The issuer must file the prospectus to the HCMC for approval. Before such filing, the issuer must have obtained a listing pre-approval by ATHEX. The HCMC must notify the issuer of its decision regarding the approval of the prospectus within 10 working days of the submission of the draft prospectus. The above time limit can be extended to 20 working days. The prospectus is valid for 12 months from the date of its approval. Once approved, the prospectus shall be made available to the public by the issuer, the offeror or the person asking for admission to trading on a regulated market at a reasonable time in advance of, and at the latest at the beginning of, the offer to the public or the admission to trading of the securities involved. In the case of an initial offer to the public of a class of shares that is admitted to trading on a regulated market for the first time, the prospectus shall be made available to the public at least six working days before the end of the offer. The prospectus shall also be published on: the websites of the issuer, the offeror or the person asking for admission to trading on a regulated market; the website of the financial intermediaries placing or selling the securities, including paying agents; and the website of the regulated market where the admission to trading is sought. The HCMC shall also post the approved prospectus on its website and such prospectus shall remain publicly available in electronic form for at least 10 years after its publication on the aforementioned websites. Every new piece of information or mistake included in the prospectus that may affect the evaluation of the securities and which arises after the approval of the prospectus must be included in a supplementary document, which must also be approved and published accordingly.

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Indicative timetable

Indicative Timetable Up to 10–12 weeks Preparation of the issuer (e.g. financial and legal due diligence, (approximate, depending compliance with listing/corporate governance obligations, etc.) on the issuer) Submission of the application for listing/admission to trading on ATHEX, Week 13 evaluation of relevant documentation and the issuer’s suitability Submission of prospectus to the HCMC Weeks 13–14 ATHEX approval for listing on the main (regulated) market/admission to Weeks 14–15 trading on the E.NA (subject to submission of a qualified application) Review of prospectus and approval by the HCMC Weeks 14–16 Publication of prospectus or information memorandum/document

(where required) Promotional actions Weeks 17–18 Public offering Week 19 Submission of documentation for admission to trading Week 20 Commencement of trading Week 20

Parties The key parties involved in the IPO process are the following: (a) The issuer of the securities. (b) The auditors/reporting account of the issuer. The issuer’s auditors are responsible for assisting the company in preparing the company’s financial statements and any pro forma financial information that may be required. The “reporting accountants” are responsible for conducting financial due diligence, the scope of which is determined by the underwriters and the issuer. (c) A credit institution or an investment firm acting as the underwriter (i.e. firms that offer the investment service of underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis or without a firm commitment basis). The underwriters play an essential role before and following the IPO. The (lead) underwriters are also responsible for conducting due diligence, drafting the prospectus and other marketing materials to address queries that investors may have, developing the “equity story” with the issuer’s management and positioning the issuer in the market, coordinating and organising road show meetings, advising on the optimum allocation of the securities and recommending the offer price. (d) The legal advisors to the issuer and to the underwriters. The legal advisors assist their respective clients in the preparation of the prospectus, managing relationships with regulators and the Security Market, drafting and negotiating the underwriting agreement and ensuring the smooth completion of the IPO. (e) ATHEX, which operates the Regulated Market and approves the listing application. (f) The HCMC, which approves the listing prospectus. Market practice Finally, issuers and underwriters seem to have abandoned traditional bookbuilding and have started to use the Electronic (hereinafter “EBB”) Service, which is offered by ATHEX, according to Resolution ATHEX No 34 “Electronic Book Building (EBB) Service”, as in force. Participants in the EBB may be investment firms who have

GLI – Initial Public Offerings 2021, Fifth Edition 89 www.globallegalinsights.com Sardelas Petsa Law Firm Greece applied for their participation in a certain IPO (i.e. such application is repeated each time an investment firm wishes to participate in an IPO conducted by the EBB), the underwriters or the issuer, as coordinator of the EBB. Through the EBB, the offers are concentrated, allocated and the allocation of the securities is finalised and executed. Members of the EBB enter into the EBB the bids, on behalf of their clients or on their own account. The bids are prioritised in descending or chronological order if the disposal rate is fixed by the issuer. After the allocation of the securities, ATHEX provides the ATHEXCSD with the data to be executed. Based on these data, the ATHEXCSD notifies the operations of their respective financial obligations and their respective rights of receipt of the securities offered. At the settlement date (T + 2), the ATHEXCSD informs ATHEX and the issuer of the amount raised and provides the issuer the allocation data in order for him to approve it. After such approval, the ATHEXCSD credits the account designated by the coordinator with the amount raised by the IPO and registers the securities to the investors. The following business day, the trading of the securities commences. Traditional bookbuilding investors who wish to participate in an IPO file an application to the underwriter/s and the whole procedure is run by them and the issuer, in cooperation with ATHEX and the ATHEXCSD.

Regulatory architecture: Overview of the regulators and key regulations Regulators (a) The Hellenic Capital Market Commission The HCMC was established as a legal entity by Greek Law 1969/1991 and organised by Greek Law 2324/1995, aiming to ensure the protection and the orderly and efficient operation of the capital market, which is crucial for the growth of the national economy. The HCMC’s management and staff are equipped with functional and personal independence guarantees for the accomplishment of their mission. The HCMC is a Member of the European Securities and Markets Authority (hereinafter “ESMA”) and operates within its framework and under its auspices. The HCMC is also a Member of the International Organization of Securities Commissions (hereinafter “IOSCO”). The HCMC concludes bilateral and multilateral agreements with other competent authorities for the exchange of confidential information and cooperation in respect of issues relating to its competence. The HCMC is responsible for the surveillance of the proper application of capital market legislation. It participates decisively in the formation of the capital market regulatory framework, on a national, European and international level, and contributes actively to the operations of the Council of the European Union, of ESMA and of IOSCO. The HCMC supervises, among others, Greek and foreign firms offering investment services, undertakings of collective investments, their managers, new investment undertakings, as well as the listed companies in respect of their transparency obligations, takeover bids, corporate events, prospectuses in case of rights issues, financial statements, the shareholders and their obligations on major holdings-change notification. The HCMC also monitors and supervises transactions as regards market abuse issues and actions of persons holding inside information, as well as the compliance of supervised persons with money laundering legislation. The HCMC supervises the regulated markets, the CCP, the ATHEXCSD and investors’ compensation schemes, such as the Guarantee Fund. It also monitors domestic and international developments, conducts research, when necessary, and certifies the professional suitability of market participants. It receives and investigates investors’ complaints.

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The HCMC has the authority to impose administrative sanctions and measures, such as reprimands, fines, trading and licence suspension, on natural and legal persons that violate the capital market legislation, and has the authority to initiate criminal proceedings in cases where there are indications of serious criminal offences in relation to the capital market framework. (b) The Hellenic Exchanges The Athens Exchange Group (ATHEX Group) provides support to the Greek capital markets. It operates the regulated markets for securities and derivatives, and the alternative market (which is a multilateral trading facility), and its subsidiaries perform clearing and settlement of trades. It offers financing tools and solutions to companies, and expands investor choice by providing a safe, stable and easy environment in full alignment with international practices and the European regulatory framework. The two subsidiaries of ATHEX are: (i) The Athens Exchange Clearing House (ATHEXClear) The purpose of this subsidiary is the management of clearing systems and/or as a central counterparty, as well as providing comparable mechanisms with similar characteristics and/or a combination of these systems in order to carry out, in Greece and/or abroad, the activities of finalising, reconciling or settling the finalisation of transactions in financial instruments and generally operating as a system administrator in accordance with the provisions of article 72 of Greek Law 3606/2007 (Government Gazette A/195/17.8.2007), as it applies Regulation 648/2012 (EMIR). (ii) The Hellenic Central Securities Depository (ATHEXCSD) The purpose of this subsidiary, which has been recently licensed by the HCMC according to the CSDR, is to carry out activities relating to the provision of central securities depository services in accordance with applicable EU and national legislation, namely: the provision of services for the initial recording of securities in book-entry form; the provision of services for the central maintenance of securities accounts in book- entry form; and the provision of settlement services by means of book-entry securities systems. In addition to the above core services, the company engages in other activities relating to the provision of ancillary or supplementary services. The HCMC is the competent authority for market operators and regulated markets in Greece, and thus it has licensed and supervises the Hellenic Exchanges (both ATHEX, as market operator, and the regulated markets). An indicative example of how this works is that, when an amendment to an ATHEX regulation is to be introduced, such amendment shall first be reviewed and approved, regarding its legality, by the BoD of the HCMC, and shall come into force by a respective resolution of the latter. Key regulations and legal documents (a) European Union: Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and Regulations (EU) 2019/979 and (EU) 2019/980 supplementing Regulation (EU) 2017/1129 (as previously defined, the Prospectus Regulation), and Directive 2001/34/ EC (listing requirements). (b) Greece: Greek Law 4706/2020 (inserted implementing measures of the Prospectus Regulation), Greek Law 3371/2005 (transposing Directive 2001/34/EC into Greek law), the ATHEX Rulebook (by virtue of article 43 of Greek Law 3606/2007, which transposed Directive 2004/39/EC – MiFID – into Greek law). In general, the Greek laws are merely a translation of the EU Regulations and Directives. Furthermore,

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Greek Law 4548/2018 on société anonyme companies applies, which also includes provisions on share and bond issuances. (i) Greek Law 4706/2020 – key delegated decisions: (a) HCMC 1/892/13.10.2021 “on the accepted languages in which a prospectus shall be drawn up” (article 27 of Regulation (EU) 2017/1129); (b) HCMC 2/892/13.10.2020 “on the procedure and documentation required for approval of the prospectus”; and (c) HCMC 1/893/16.10.2020 “on the information published in the case securities of article 58 par. 2 of Law 4706/2020” which is the prospectus exemption when the total value of the securities offered is more than EUR 500,000 and less than EUR 5,000,000, within a period of 12 months. In such cases an “information memorandum” (“pliroforiako deltio” in Greek) is published, which generally is a lighter version of the prospectus. (ii) Other key delegated decisions: (a) ATHEX decision 25/2008 “additional information submitted by the companies listed in the ATHEX”; (b) ATHEX decision 28/2008 “documents required for the primary listing of transferable securities in the ATHEX”; and (c) ATHEX decision 34/2017 “Electronic Book Building (EBB) Service”. (iii) ATHEX Rulebook – key provisions: (a) Section 2.5: “Services to the securities to be listed and already listed”; (b) Section 3: “Rules of admission to ATHEX markets” and especially section 3.1 “Securities market”; (c) Section 4: “Reporting obligations of issuers of listed transferable securities” and especially sections 4.1 “Reporting obligations of issuers of stocks listed on ATHEX” and 4.2 “Reporting obligations of issuers with debt securities listed on ATHEX”; and (d) Section 5.3: “Procedures for admission and commencement of trading”. (c) Notable differences between the EU and Greek legislation: Greek law text: article 58 par. 1 of Greek Law 4706/2020: “an offer of securities to the public with a total consideration in the Union of less than EUR 5.000.000, which limit is calculated over a period of 12 months is exempt from the obligation to publish a prospectus.” EU Regulation text: article 3 par. 2, of Regulation (EU) 2017/1129: “Without prejudice to Article 4, a Member State may decide to exempt offers of securities to the public from the obligation to publish a prospectus set out in paragraph 1 provided that: (a) such offers are not subject to notification in accordance with Article 25; and (b) the total consideration of each such offer in the Union is less than a monetary amount calculated over a period of 12 months which shall not exceed EUR 8 000 000.” The Greek law inserted a lower monetary limit for which an exemption from the obligation to publish a prospectus applies for securities offered to the public compared to the one referred to in the Regulation. (d) The key legal documents are: the prospectus; the engagement letter with the lead underwriters/the advisor; the underwriting agreement; the controlling shareholders’ agreement (regarding their relationship and powers vis-à-vis the minority); any lock-up agreements (regarding the ability of the issuer to issue new securities or the ability of the large shareholders to sell a large stake of their shares); and due diligence/comfort

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letters (legal, financial audit opinion). The underwriting agreement includes, in addition to the underwriters’ fees, specifications on liability matters. It is noted that any liability limitation or exclusion, regarding persons responsible for the information included in the prospectus, is only valid inter partes and is invalid concerning the investors. (e) The type and extent of disclosure is prescribed by the appropriate annex of the Prospectus Regulation. Any differences regarding requirements or restrictions depend on the type of the issuer and the industry it comes from, and are largely dealt with in the annexes of the Prospectus Regulation. Influence of foreign or supranational regulatory regimes or bodies Greece follows the EU regulatory regime on IPOs unswervingly. Therefore, the Greek market operates within the standard EU practices and the Greek regulators do not abstain from the said way of conduct. Significant market practices that impact IPOs in Greece but are not reflected in the regulatory framework The capital market is a highly regulated area, and the IPOs section is no exception. Therefore, there are no significant market practices that impact IPOs in Greece that are not reflected in the rules and regulations described above.

Public company responsibilities Public companies in Greece have certain responsibilities that do not apply to private companies. Such responsibilities generally stem from EU-level provisions and, again, do not deviate from the EU standards. Periodic reporting and disclosure requirements Reporting and disclosure obligations for listed companies derive from the EU transparency and market abuse regime (i.e., the Transparency Directive and MAD and MAR). Such requirements are mainly provided in Greek Law 3556/2007, which transposed Directive 2004/109/EC (transparency requirements) into Greek law and consists of the following: (a) Publication of the issuer’s annual financial report, pursuant to the same provisions as in Directive 2004/109/EC. (b) Publication of the issuer’s half-yearly financial report covering the first six months of the financial year, pursuant to the same provisions as in Directive 2004/109/EC. (c) The credit institutions whose securities have been admitted to trading in a regulated market shall make public their quarterly financial report for the first and the third quarter of each financial year, at the latest three months after the end of each respective quarter. Such quarterly financial report consists of the consolidated financial statements, when the issuer is obliged to issue consolidated financial statements, or at least the quarterly financial report, the quarterly income statement and relevant explanatory notes, when there is no consolidation obligation. (d) An annual report on payments made to governments of issuers in the extractive or logging of primary forest industries, pursuant to the same provisions as in Directive 2004/109/EC. (e) Announcements of the notifications received by shareholders regarding holdings disclosures, pursuant to the same provisions as in Directive 2004/109/EC, noting that Greece applies the thresholds of 1/3 and 2/3 instead of 30% and 75%, respectively. (f) Other notable reporting obligations: (i) general meeting convocation; (ii) payment of dividends and other cash distributions;

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(iii) corporate actions and other matters that could be considered as inside information pursuant to the Market Abuse Law as well as transactions performed by persons who discharge managerial duties in the issuer, as well as persons/entities closely related to them; (iv) any important change to use of proceeds raised by the issuer; (v) material changes regarding the information included in the most recent prospectus; (vi) replies to questions addressed by ATHEX or the HCMC; (vii) information to analysts; (viii) reporting in relation to the results of a tax audit conducted on the issuer; (ix) publication of information memoranda in case of certain corporate actions; and (x) reporting of indirect listing. Corporate governance obligations The new Greek Law 4706/2020 brought some significant changes to the corporate governance framework of listed companies, replacing the existing provisions of Greek Law 3016/2002, mainly on matters regarding the composition and the powers of the BoD as well as the organisational structure of the companies. The new provisions strengthen and set out the powers, obligations and responsibilities of the various categories of the BoD’s members (executive, non-executive and independent non-executive members the last of which shall be at least 1/3 of the total number of the BoD members). Indicatively, the executive members are responsible for the implementation of the strategy by the BoD and in case of risks or crisis situations that may significantly affect the company’s operation and financial position, they shall promptly submit a report to the BoD with their assessments and proposals. The non-executive members are empowered to supervise the executive members’ performance. The abovementioned Law also introduces an internal fit and proper policy setting the criteria for the appointment of such BoD members together with the adoption of the rule for at least 25% female representation in the BoD. With regard to the organisational structure of a listed company, each company is obliged to establish remuneration and nomination committees, in addition to the existing audit committee of Greek Law 4449/2017, which shall be independent from the company and must submit an annual report to the shareholders’ ordinary general meeting. Furthermore, the duties of the internal control unit that establishes an internal operation regulation, after its approval by the BoD, are increased by monitoring and assessing, inter alia, the implementation of the internal regulation, the corporate governance mechanisms and by submitting on a quarterly basis to the audit committee the internal audit reports and reports that include important issues concerning the internal audit duties. The scope of companies’ internal regulations is broadened and include procedures and policies regarding the prevention of conflicts of interests, compliance with the applicable regulatory framework, the training of the company’s personnel, the periodic assessment of the internal control system and the management of inside information while a Corporate Governance Code is formally adopted. In addition, the new Greek Law 4706/2020 provides for severe sanctions imposed by the HCMC, in case the companies deviate from their obligations according to the new corporate governance framework. Market abuse obligations The provisions of Regulation EU 596/2014 on market abuse, as amended and in force, directly apply in Greece. In addition, the issuer of listed bonds must inform on: (a) any changes in the terms of the bond loan; (b) the appointment or replacement of bondholders’ agent;

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(c) any resolution by the assembly of bondholders; (d) the payment of interest, three days before the end of the interest-bearing period at the latest; and (e) the new interest rate for the following interest-bearing period, one business day at the latest prior to its commencement (only floating-rate listed bonds).

Potential risks, liabilities and pitfalls Notably, potential risks, liabilities and pitfalls in an IPO in Greece are as common as in the EU market, since Greece has adopted the relevant EU legal framework. Potential risks during the due diligence process In alignment with the international standard practice, the due diligence process covers the issuer’s business, legal and financial affairs. Potential risks during the due diligence may arise mostly from the selection of the advisors, which should be independent and reputable, and from the potential dispersion of privileged information acquired from the due diligence. Potential legal liabilities associated with an IPO As already mentioned, the potential legal liabilities are as common as in the EU market, indicatively concerning: (a) the structure of the pre-marketing and marketing campaign (investors’ approach, level of information disclosed prior to launch, etc.), especially regarding advertisement activities; (b) the prospectus; and (c) possible reselling of securities. Common missteps and pitfalls during the IPO that may increase liability risk The common missteps and pitfalls during the IPO that may increase liability risk (and sometimes have been confronted) are: (a) the absence of a tied project management and a dedicated team with specific roles that is on top of the issue, especially concerning the issuer; (b) possible difficulties and delays in the flow of information; for example, in terms of the data room or even the absence of a virtual data room; and (c) the relationship with financial intermediaries/sub-underwriters, regarding rights, duties and liabilities. Such intermediaries participating in the IPO on behalf of their clients cannot be supervised by the lead/main underwriters, in terms of compliance with capital market regulations and obligations. The way to mitigate such risk is to include indemnity provisions to the agreement between the lead/main underwriters and such intermediaries. Common missteps and pitfalls after becoming a public company that may increase liability risk While going public can offer many advantages, the common missteps and pitfalls that come with being a public company include: (a) the much higher level of compliance requires, for example, the disclosure of major events concerning the company. The adjustment to such an environment requires sufficient and experienced staff, as well as a deeper organisation of the company; (b) the management of the image of a public company; for example, there must be an organised investor relations department. Any mistakes may have an effect on the price of the security in the market; and (c) recently, the institutional legal framework has been further shielded to address situations of securities fraud (including cases of inaccurate and false data in its financial

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statements) and better protect the investors. To that end, apart from the adoption of a new corporate governance framework, the HCMC is currently entitled, according to a relevant legal provision, to request from the Court of First Instance the appointment of an interim management in a listed company that has been found to act unlawfully in a way that could harm the investors’ interests.

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Panagiotis G. Sardelas Tel: +30 210 72 96 550 / Email: [email protected] Notis is a partner at Sardelas Petsa Law Firm and an expert in the field of banking & finance and capital markets, including the financing of real estate and energy projects. His 20-year practice includes advising clients, mainly financial institutions, on financings, restructurings and of ECM and DCM transactions, as well as acting for companies and investors on M&A transactions, mainly involving listed companies. He has played an instrumental role in the recent development of the Greek corporate bond market, advising on the structuring of the first listed corporate bond offering based on the new electronic bookbuilding platform, which paved the way for all the subsequent issues to date. Also, he has considerable expertise and experience in privatisations and state assets development, having acted, since 2001, for foreign investors and the Greek state in a significant number of landmark transactions. During his two-year tenure as legal adviser to the Ministry of Finance and HRADF, he was involved in the state privatisation programme and the establishment of the financial stability framework. Notis holds law degrees from the LSE and the Athens Law School, and an LL.M. in Banking & Finance from the University of London (Queen Mary & Westfield).

Evi Matthaiou Tel: +30 210 72 96 550 / Email: [email protected] Evi is a partner at Sardelas Petsa Law Firm and a highly experienced lawyer in capital markets, banking, regulatory and compliance. She has been actively involved in bonds listings and advises investment firms in their day- to-day activity, focusing on regulatory compliance matters. Before joining Sardelas Petsa Law Firm, Evi served as a lawyer at the Legal Department of the Hellenic Capital Market Commission for more than 20 years. She has acted as the Chairperson of the drafting committee for the implementation of Directive 2014/65/EC on Markets in Financial Instruments Directive (MiFID II) and she has participated in numerous committees in ESMA and in working groups organised by the European Commission and the European Council as a national expert. She is currently a member of the Legal Experts Committee for CMU matters at the Hellenic Capital Market Commission. She has authored academic publications in law journals and collective volumes and has given lectures at several conferences on her areas of expertise.

Sardelas Petsa Law Firm 8 Papadiamantopoulou Street, 115 28 Athens, Greece Tel: +30 210 72 96 550 / Fax: +30 210 72 96 549 / URL: www.sardelaslaw.gr

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Angel Wong & David Zhang ONC Lawyers

Introduction Brief history of IPOs in Hong Kong • The Stock Exchange of Hong Kong Limited (the “SEHK”) was incorporated in 1980, unifying the then four exchanges in Hong Kong.1 • In July 1993, the first PRC incorporated enterprise was listed in Hong Kong.2 • In November 1999, the Growth Enterprise Market was established to provide a platform for fundraising for companies with growth potential. • The SEHK, Hong Kong Futures Exchange Limited and Hong Kong Securities Clearing Company Limited merged and formed a single holding company, Hong Kong Exchanges and Clearing Limited (the “HKEx”), the shares of which were listed on the Main Board of the SEHK (the “Main Board”) on 27 June 2000. • In 2012, the HKEx, Shanghai Stock Exchange and Shenzhen Stock Exchange established a joint venture, China Exchanges Services Company Limited, for developing financial products and related services. Shanghai-Hong Kong Stock Connect was launched in November 2014 while Shenzhen-Hong Kong Stock Connect was launched in December 2016, creating access for Mainland investors to securities traded on the SEHK through their domestic brokers. • In December 2017, the Growth Enterprise Market was renamed GEM.3 • The efforts of the HKEx and the other relevant market participants have made Hong Kong one of the leading listing venues in the world. From January 2020 to December 2020, the IPO equity funds raised at the HKEx amounted to approximately US$51,279 million, ranking second in the global listing market.4 Reasons for companies to choose to list in Hong Kong The Hong Kong Government and HKEx endeavour to maintain Hong Kong as an attractive spot to local and foreign companies for fundraising and listing activities. The following features of the Hong Kong securities market are some of the major reasons for companies to choose to list in Hong Kong: Objective listing qualifications: The SEHK adopts a rather objective set of listing qualifications, with very limited policy considerations, giving certainty to the listing process. The following table sets out certain listing qualifications for companies to be listed on the Main Board and GEM:

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Main Board (satisfying one of the following tests) GEM Market Market capitalisation / Profit test capitalisation / Cash flow test revenue / cash revenue test flow test • Latest year’s • Three-year aggregate revenue ≥ profit ≥ HK$50m, of HK$500m which: • Latest year’s • Market • Year one + year two ≥ revenue ≥ capitalisation • Positive two-year HK$30m HK$500m ≥ HK$2,000m aggregate OCF ≥ • Year three ≥ HK$20m • Market at the time of HK$30m (the “Current Profit capitalisation ≥ listing • Market capitalisation ≥ Requirement”) HK$4,000m at • Positive three- HK$150m • Market capitalisation ≥ the time of listing year aggregate HK$500m at the time of operating cash listing flow (“OCF”) ≥ HK$100m • Minimum 25% public float (can be reduced to 15% if market • Minimum 25% public float (can be reduced to 15% if market capitalisation at capitalisation at the time of listing > HK$10,000m) the time of listing > • Three-year management continuity HK$10,000m) • One-year ownership continuity • Two-year management continuity • One-year ownership continuity Minimum 100 Minimum 300 shareholders shareholders

The minimum profit requirement under the profit test for Main Board listing applicants has not been changed since its introduction in 1994. On 27 November 2020, HKEx issued a consultation paper on the proposed changes to the listing qualifications of Main Board listing applicants. Two options for the increase in the profit requirement were proposed: (1) Option 1: Increase the Current Profit Requirement by 150% so that the minimum amount of profit attributable to shareholders would be HK$50 million in the most recent financial year and HK$75 million in aggregate in the two preceding financial years and the implied historical P/E ratios of applicants meeting only the minimum thresholds under the Current Profit Requirement and the market capitalisation requirement (“Small Cap Issuers”) to 10 times; or (2) Option 2: Increase the Current Profit Requirement by 200% so that the minimum amount of profit attributable to shareholders would be HK$60 million in the most recent financial year; and HK$90 million in aggregate in the two preceding financial years, thus reducing the implied historical P/E ratios of Small Cap Issuers to 8 times.5 The consultation period ended on 1 February 2021. There are widespread objections in the market and HKEx is expected to publish the consultation conclusion in due course. If any of the proposed options is adopted, the Main Board is expected to be repositioned as a prime market for more sizable issuers, while issuers with smaller market capitalisation may be driven to list on GEM instead. Leading position in the global market: Hong Kong has successfully established itself as

GLI – Initial Public Offerings 2021, Fifth Edition 99 www.globallegalinsights.com ONC Lawyers Hong Kong an international financial centre and as a global leading listing venue. As at 31 December 2020, the market capitalisation of the Main Board and GEM amounted to approximately HK$47,523.0 billion.6 Well-established legal system: The well-established common law system with the rule of law upheld by an independent judiciary, together with a robust regulatory regime protecting investor interest, give confidence to local and foreign issuers as well as investors. Strong bonds with China: Hong Kong is a common listing and fundraising venue for PRC companies and international enterprises, and serves as a key link for China to connect with the global capital markets. It is also a trusted channel for foreign enterprises to access funds of PRC investors. Diversity of investors and issuers: Hong Kong enjoys a balanced mix of institutional and retail investors. This helps to attract issuers from a wide range of industries, including real estate, telecommunications, upstream and downstream manufacturing, retail business, e-commerce, financial services, construction, internet business, education, energy, etc. Doors opened for emerging and innovative sectors and weighted voting right structure: In April 2018, the HKEx published the Consultation Conclusions to expand the existing listing regime to facilitate the listing of companies from emerging and innovative sectors, subject to appropriate safeguards.7 The HKEx introduced three chapters to the Main Board Listing Rules to: (i) permit listing of biotech companies that do not meet any of the financial eligibility tests; (ii) permit listing of innovative and high growth companies with a weighted voting rights structure; and (iii) establish a concessionary secondary listing route for emerging and innovative Greater China and international companies (known as Qualified Issuers) that are primarily listed on a specified qualified exchange.

The IPO process: Steps, timing and parties and market practice Steps and timing of IPOs in Hong Kong The SEHK adopts a streamlined vetting process for listing application. The listing application submitted to the SEHK must be substantially complete. Depending on the complexity and the scale of the IPO, below is a general timeline for illustrative purposes:

Typical Steps Particulars timeline • Assessing the applicant’s business, financial conditions and management to determine if the One year or applicant will meet the qualifications for listing. more before the • Identifying any issues in the business model, legal Pre-IPO diagnosis target date of and regulatory compliance, land-related matters, listing (“Listing accounting, internal control and tax including Date”) transfer pricing. • Pre-IPO diagnosis is particularly important for applicants with cross-border operations. • Restructuring the listing group for listing purposes. • Transferring all material contractual rights, licences One year or Pre-IPO and assets to the listing group. more before the reorganisation • Delineating the excluded business from the listing Listing Date group. • Incorporating the listing vehicle.

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Typical Steps Particulars timeline • Securing financial resources from private equity investors or strategic investors. • Determining the terms of pre-IPO investment. Guidance Letter HKEx-GL43-12 provides that: (i) the SEHK will generally delay the first day of One year or trading of the applicant’s securities until 120 clear Pre-IPO investment more before the days after the completion or of the last Listing Date pre-IPO investments, if the applicant has a pre-IPO investment completed within 28 clear days before the date of the first submission of the first listing application form; and (ii) certain special rights attached to pre-IPO investments are not permitted to survive after listing.8 • Engaging professional parties to form an IPO team. A listing application must not be submitted by or on behalf of a new applicant less than two months from the date of the sponsor’s formal appointment. • Circulating a memorandum on publicity restrictions Not less than six on all parties in the IPO team. Kick-off months before • Fixing a listing timetable. the Listing Date • Identifying the candidates of independent, non- executive directors. There must be at least three and at least one of them must have appropriate professional qualifications or accounting or related financial management expertise. • Conducting reasonable enquiries and investigation regarding the listing group, the controlling shareholders as well as the directors and senior management, the listing group’s business operations, major customers, suppliers and subcontractors, principal bankers, etc. Sponsor’s due • Drafting the contents of the prospectus. diligence, prospectus Ongoing until • Preparation of an accountants’ report by the preparation and the Listing Date reporting accountants. The latest financial period verification reported on by the reporting accountants must not have ended more than six months before the date of the listing document. • Verification of the contents of the prospectus by obtaining documentary evidence. This is typically an extremely time-consuming but important exercise. • Submission of the listing application to the SEHK. 80 days before The application shall include a substantially A1/5A sub-mission the Listing Date completed draft of the prospectus9 and other required forms. • The SEHK gives comments on the listing application. The ability to address the SEHK’s comments in a timely and satisfactory manner is crucial to the listing timetable. 70 days before • In practice, the first round of comments is usually Vetting process the Listing Date issued within four weeks from the listing application. • There is no pre-set timeframe for the vetting process. The length of such process depends largely on the quality of the listing application submitted and the complexity of the issues involved.

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Typical Steps Particulars timeline Generally around • Attending the hearing in which the remaining issues Listing hearing 20 days before and concerns regarding the listing application will the Listing Date be raised by the Listing Committee of the SEHK. • Addressing and replying to any further queries from the Listing Committee. • Convening a long board meeting to approve the 14 days before listing and the relevant documents. Post-hearing the Listing Date • Publishing a post-hearing information pack on the SEHK’s website. • Issuing pre-deal research and distributing a red herring prospectus during the roadshow. • Entering into a Hong Kong or public offer At least one day underwriting agreement. Prospectus before the date • Registering the prospectus and other listing registration of prospectus documents (e.g. application forms) with the Companies Registry of Hong Kong.10 • Printing the prospectus and posting it on the SEHK’s website. Seven days Before dealings • Entering into an international or placing before the commence underwriting agreement. Listing Date • Fixing the final offer price. • Continuing to conduct due diligence by the sponsor. Listing Date The dealings in shares on the SEHK commence. Within 30 days after the Post-listing Exercising an overallotment option (if any). publication of the prospectus

Parties involved in the IPO process in Hong Kong The following table sets out the main parties involved in the IPO process and the roles they play:

Parties Roles and duties The major roles and duties of these key personnel include: • providing assistance to the professional parties to accelerate their understanding of the business and commercial strategies of the listing applicant and providing the basis for the drafting of the prospectus; The listing applicant • providing the professional parties with information and documents about the company for due diligence, prospectus drafting and verification; and • making presentations to the financial and investor community during roadshows. Under the Listing Rules, every applicant must appoint a sponsor for the listing application.11 The key roles and duties of the sponsor include: • conducting due diligence on the listing applicant, its controlling shareholders and management in accordance with Practice Note 21 to the Listing Rules to ensure the suitability for listing of the listing applicant and that the prospectus contains sufficient information; The sponsor • coordinating all professional parties involved in the listing application to conduct due diligence, draft the prospectus and the listing application documents; • addressing matters raised by the SEHK and the Securities and Futures Commission (the “SFC”); and • attending any meetings with the SEHK.

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Parties Roles and duties The legal advisers to the listing applicant shall advise on legal and regulatory issues to the listing applicant. Their major responsibilities include: • advising on the corporate structures and executing the group reorganisation; Legal advisers to • drafting and preparing the prospectus sections and application the listing applicant documents which are customarily prepared by the legal advisers to the listing applicant; • providing training to the directors and senior management of the listing applicant; • reviewing and commenting on the underwriting agreements; and • attending to prospectus registration.

The legal advisers to the sponsor and the underwriters provide assistance and advice to the sponsor and underwriters. Their major responsibilities include: • assisting the sponsor in conducting due diligence in accordance with Legal advisers to Practice Note 21 to the Listing Rules; the sponsor and • drafting and preparing the prospectus sections and application underwriters documents which are customarily prepared by the legal advisers to the sponsor and the underwriters; • conducting prospectus verification; and • drafting and reviewing underwriting agreements.

The major duties of the reporting accountants include: • preparing an accountants’ report and the unaudited pro forma financial information to be disclosed in the prospectus; Reporting • providing assistance on financial-related matters; accountants • issuing comfort letters to the sponsor and underwriters regarding the financial information provided in the prospectus; and • issuing a statement of indebtedness, sufficiency of working capital and reviewing cash flow and profit forecast.

The financial printer is primarily responsible for typesetting, translating and Financial printer printing the prospectus and application forms. It also provides a venue for all professional parties for meeting and work finalisation.

The independent property valuer is responsible for the valuation of property interests held by the applicant. Property valuer The property valuation report must be included in the prospectus if the carrying amount of property interest is 15% or more of the applicant’s total assets.12

The internal control consultant is responsible for: • reviewing the internal control system and procedures of the listing applicant; Internal control • providing recommendations to enhance the internal control system and consultant procedures; and • assisting the sponsor in assessing the applicant’s ability to meet the internal control requirements under the Listing Rules.

The Hong Kong share registrar is responsible for maintaining the applicant’s Hong Kong share register of members in Hong Kong and recording any transfers in the issuer’s registrar shares.

The industry consultant is usually engaged for the purpose of conducting Industry consultant market research and analysis and preparing an industry report, which will be disclosed in the prospectus.

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Parties Roles and duties The compliance adviser is engaged for the period from the date of listing until the publication of the issuer’s financial results for the first or second full Compliance adviser financial year following its listing. The issuer shall consult the compliance adviser regarding certain compliance matters. The key roles of the underwriters include administering the “book building” The underwriters process and distributing the securities of the issuer during the offering period.

Bilingual prospectus requirement – unique feature of IPOs in Hong Kong One of the unique features of the SEHK is the requirement of a bilingual prospectus (in both English and Chinese).13 Market players in Hong Kong are accustomed to preparing dual-language documentation and conducting bilingual communication with the regulatory authorities. This enables the listing applicant to be closely involved and fully informed throughout the listing process.

Regulatory architecture: Overview of the regulators and key regulations Organisations responsible for regulating IPOs in Hong Kong The responsibility of overseeing the regulatory regime of the Hong Kong IPO market primarily rests with the SEHK and the SFC. In general, the SEHK assumes the role in regulating the market operation. In particular, it is the duty of the SEHK to ensure that the Hong Kong listing market is operated in a fair, orderly and informed manner.14 The aforementioned regulatory functions of the SEHK are shared between the Listing Division and the Listing Committee. The SFC, being an independent statutory body, is entrusted with the responsibility of maintaining and promoting fairness and transparency of the securities and futures industry, of protecting public investors and of reducing systemic risks in the securities and futures industry.15 The SFC carries out its functions through the exercise of its statutory powers of investigation and enforcement. Since 2017, the SFC has adopted a front-loaded approach and early stage intervention becomes common when the SFC suspects serious cases of corporate misconduct. Key rules and regulations applicable to the IPO process in Hong Kong The major laws and regulations governing the listing process in Hong Kong include the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), the Securities and Futures Ordinance (Cap. 571), and the Listing Rules. Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) A prospectus complying with certain content requirements is required for the offer of shares in a company to the public.16 The prospectus must also be registered with the Registrar of Companies before publication.17 Section 40 and Section 342E provide that the following persons shall be liable to compensate investors for the loss they have sustained by reason of any untrue statement or material omission in the prospectus: • the directors of the company at the time of issue of the prospectus; • persons who are named in the prospectus as directors or as having agreed to become directors and who have authorised themselves to be so named; • a promoter of the company; and • any person who has authorised the issue of the prospectus.

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Section 40A and Section 342F provide that any person who has authorised the issue of a prospectus (e.g. directors) containing any untrue statement or material omission may be liable to imprisonment and a fine, unless they can prove either that the statement was immaterial or that they had reasonable grounds to believe, and did up to the time of the issue of the prospectus believe, that the statement was true. Securities and Futures Ordinance (Cap. 571) (SFO) The SFO imposes civil and criminal liabilities for misstatements that induce investment. Section 108(1) provides that a person who makes any fraudulent, reckless or negligent misrepresentation which induces others to deal in securities may be liable for compensation. Section 107 imposes criminal liability for making fraudulent or reckless misrepresentation inducing others to deal in securities, which is punishable by a maximum fine of HK$1 million and up to seven years’ imprisonment. By virtue of Section 277, it is market misconduct to disclose false or misleading information, or omit a material fact from the disclosure, which induces securities transactions. Pursuant to Section 257(1), the Market Misconduct Tribunal may impose different sanctions for market misconduct, including a disqualification order, cold shoulder order, cease and desist order, disgorgement order, costs order, disciplinary referral order, etc. Section 298 and Section 303 impose criminal liability in similar circumstances as Section 277, punishable by a fine of up to HK$10 million and imprisonment for up to 10 years. Any person committing market misconduct may be liable for compensation under Section 305. Section 384 imposes criminal liability on any person who intentionally or recklessly provides any information which is false or misleading in a material respect in filing with the SEHK or the SFC a prospectus, other listing document or any public disclosure materials disseminated under the Listing Rules. Copies of applications to list on the SEHK and all ongoing disclosure materials are filed with the SFC through the SEHK under the “dual filing” regime. An offence under Section 384 is punishable by up to two years’ imprisonment and a maximum fine of HK$1 million. Listing Rules The Listing Rules set out conditions which the listing applicants are expected to meet before securities may be listed in Hong Kong. In addition, the SEHK also issues guidance letters and listing decisions to provide additional guidance on application of the Listing Rules.

Public company responsibilities Obligations exclusively imposed on public companies in Hong Kong The Listing Rules require companies listed on the SEHK to comply with a list of continuing obligations. Listed below are some examples of such obligations:

Obligations Particulars An issuer is required to publish an announcement for different matters, e.g. inside information,18 any change of directors, Announcement supervisor or chief executive,19 specific types of advances to an entity,20 notifiable transactions,21 connected transactions,22 etc. A circular shall be issued when an issuer needs to seek the shareholders’ approval for certain matters, e.g. connected Circular transactions, certain types of notifiable transactions, proposed alteration of the memorandum and articles of association and proposed issue of shares.

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Obligations Particulars A Main Board issuer should issue an annual report no later than four months,23 and a half-year interim report no later than three months,24 after the end of the relevant period. A GEM issuer should issue an annual report no later than three months after the financial year-end.25 A half-year interim report and a quarterly report for the first three- or nine-month period of each Annual report, interim financial year shall be issued no later than 45 days after the date report and quarterly report on which the relevant financial period ends.26 The following information shall be included in the annual report: chairman’s statement; directors’ report; financial statements; management discussion; and an analysis and corporate governance report, etc. If an environmental, social and governance report (“ESG Report”) is not included in the annual report, the issuer should publish an ESG Report separately.27 There is a general obligation on the part of the issuer to answer the enquiries raised by the SEHK in relation to the unusual movements in the price or trading volume of securities of the issuer.28 Response to the SEHK’s The issuer is expected to respond to such inquiries promptly inquiries and, where appropriate or requested by the SEHK, issue an announcement containing a statement in the prescribed form to the effect that it is not aware of any matter or development relevant to the unusual price movement or trading volume.29 A listed issuer must maintain a business with a sufficient level of Maintain sufficient business operations and assets of sufficient value to support its operations in and asset order to its continued listing.30

Potential risks, liabilities and pitfalls As discussed above, the listing market in Hong Kong is subject to joint regulation by the SEHK and the SFC. Under the current regulatory regime, civil and criminal liabilities may arise during and after the IPO process.

* * *

Endnotes 1. “The history of the development of the Hong Kong Stock Exchange and its market”, https://www.hkexgroup.com/About-HKEX/About-HKEX/History-of-HKEX-and-its- Market?sc_lang=zh-HK. 2. HKEx Fact Book 1999, https://www.hkex.com.hk/-/media/HKEX-Market/Market-Data/ Statistics/Consolidated-Reports/HKEX-Fact-Book/HKEx-Fact-Book-1999/FB_1999.pdf. 3. Consultation Conclusions, The Review of the Growth Enterprise Market (GEM) and Changes to the GEM and Main Board Listing Rules (December 2017), https://www. hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/June- 2017-Consultation-Paper-on-Review-of-the-Growth-Enterprise-Market/Conclusions- (December-2017)/cp2017062cc.pdf. 4. HKEx Market Statistics 2020, https://www.hkex.com.hk/-/media/HKEX-Market/ Market-Data/Statistics/Consolidated-Reports/Annual-Market-Statistics/2020-Market- Statistics.pdf. 5. Consultation Paper, The Main Board Profit Requirement, https://www.hkex.com.hk/-/ media/HKEX-Market/News/Market-Consultations/2016-Present/November-2020- MB-Profit-Requirement/Consultation-Paper/cp202011.pdf.

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6. HKEx Market Statistics 2020, as above. 7. Consultation Conclusions, A Listing Regime for Companies from Emerging and Innovative Sectors (April 2018), https://www.hkex.com.hk/-/media/HKEX-Market/ News/Market-Consultations/2016-Present/February-2018-Emerging-and-Innovative- Sectors/Conclusions-(April-2018)/cp201802cc.pdf. 8. Guidance Letter GL43-12. 9. Rule 9.03(3) of the Main Board Listing Rules and Rule 12.09 of the GEM Listing Rules. 10. Sections 38D and 342C of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32). 11. Rule 3A.02 of the Main Board Listing Rules and Rule 6A.02 of the GEM Listing Rules. 12. Rule 5.01B(2)(a) of the Main Board Listing Rules and Rule 8.01B(2)(a) of the GEM Listing Rules. 13. Section 38(1) of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32). 14. “How We Regulate”, https://www.hkex.com.hk/Listing/How-We-Regulate/Overview%20 ?sc_lang=en. 15. “Introduction to Regulatory Framework”, https://www.hkex.com.hk/Services/Rules- and-Forms-and-Fees/Regulatory-Framework/Introduction?sc_lang=en. 16. Sections 38 and 342 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). 17. Section 38D(1) and 342C(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). 18. Rule 13.09 of the Main Board Listing Rules and 17.10(2) of the GEM Listing Rules. 19. Rule 13.51(2) of the Main Board Listing Rules and Rule 17.50(2) of the GEM Listing Rules. 20. Rules 13.13 and 13.14 of the Main Board Listing Rules and Rules 17.15 and 17.16 of the GEM Listing Rules. 21. Chapter 14 of the Main Board Listing Rules and Chapter 19 of the GEM Listing Rules. 22. Chapter 14A of the Main Board Listing Rules and Chapter 20 of the GEM Listing Rules. 23. Rule 13.46 of the Main Board Listing Rules. 24. Rule 13.48(1) of the Main Board Listing Rules. 25. Rule 18.03 of the GEM Listing Rules. 26. Rules 18.53 and 18.66 of the GEM Listing Rules. 27. Rule 13.91(5) of the Main Board Listing Rules and Rule 17.103(5) of the GEM Listing Rules. 28. Rule 13.10 of the Main Board Listing Rules and Rule 17.11 of the GEM Listing Rules. 29. Rule 13.10(2) of the Main Board Listing Rules and Rule 17.11(2) of the GEM Listing Rules. 30. Rule 13.24 of the Main Board Listing Rules and Rule 17.26 of the GEM Listing Rules.

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Angel Wong Tel: +852 2107 0311 / Email: [email protected] Angel is one of the members who built up our corporate finance practice. She specialises in initial public offerings (IPOs) and she has advised many listing applicants and sponsors in listings on the Main Board and GEM of the Hong Kong Stock Exchange. In the last few years, Angel has successfully completed more than 25 IPO projects, including the listing of H-share enterprises, red-chip companies, Hong Kong local companies and overseas enterprises, etc.

David Zhang Tel: +852 3906 9642 / Email: [email protected] David specialises in corporate finance transactions including IPOs and pre- IPO financings and he has advised many listing applicants and sponsors in IPOs on the Main Board of the Hong Kong Stock Exchange. David has experience in a wide range of general corporate and commercial matters, including licensing and registration under the Securities and Futures Ordinance, mergers and acquisitions, corporate reorganisations and joint ventures. David also advises listed companies on corporate governance and general compliance of the Hong Kong Listing Rules.

ONC Lawyers 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong Tel: +852 2810 1212 / URL: www.onc.hk

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Márton Kovács, Áron Kanti & Bálint Juhász HBK Partners Attorneys at Law

Introduction The Hungarian capital market is centralised on the Budapest Stock Exchange (BSE). The BSE, founded in 1864 and re-established after the fall of socialism in 1990, has a well-known history and excellent reputation across the CEE region. Since 2015, the BSE has been owned and controlled by the Central Bank of Hungary which, as a shareholder, is clearly committed to boosting capital market activity in Hungary through various financial and technical measures. Despite a clear upward trend in the number of capital market transactions taking place on the BSE in the past couple of years, Initial Public Offerings IPOs( ) are still a relatively rare occurrence on the Hungarian capital market. A more typical transaction on the BSE is when already-listed companies release additional shares to attract investors and raise additional capital. A “classic” IPO process is almost a “once in a year” type of transaction in Hungary. In 2020, four issuers (small and medium-sized companies) have gone public via listing their shares either on the regulated market or on multilateral trading facility, however, no public offering has occurred in either case. As one of the recent initiatives of the BSE, in 2017, the Xtend platform was launched, aimed at supporting the growth plans of small and medium-sized companies. Together with introducing the Xtend platform, the National Stock Exchange Development Fund (NSEDF) was also launched. This provides investments in Xtend issuer candidates with the typical ticket size of EUR 3,000,000 in exchange for a minority stake in the company. Nonetheless, going public on Xtend does not necessary involve an IPO. Despite the above, pre-COVID-19, there was an increased level of expectation that the number of IPOs would rise in the upcoming economic period. A year ago, no one dared to speculate as to what effects the pandemic would have on the regional and Hungarian capital market trends and activity. Now, however, pursuant to the recent (2020) strategic report published by the BSE, in view of the cautious investor sentiment caused by the pandemic, it seems like issuers are opting to bide their time on entering the regulated market. Finally, it is worth mentioning that Hungarian market participants are generally open- minded when it comes to transactions involving distributed ledger or blockchain-based technology, but security token offerings are not yet regulated transactions on the Hungarian capital market.

The IPO process: Steps, timings and parties and market practice To achieve a successful IPO, the issuer, together with bookrunners and financial and legal consultants, should prepare a comprehensive, detailed step-by-step plan and timeline in advance. The whole process requires frequent collaboration and strong teamwork amongst

GLI – Initial Public Offerings 2021, Fifth Edition 109 www.globallegalinsights.com HBK Partners Attorneys at Law Hungary all participants. The issuer should preferably set up a separate team or a practice group within its organisation to properly control and implement the procedure in-house. Steps and timing STEP I: Preparing The following tasks are typically completed in the phase of preparing: • Kick-off: Following the indicative decision on starting the process, the selected (s) and other experts start to familiarise themselves with the issuer, its organisational structure and history. Then, typically, the transaction advisor organises a kick-off meeting, where the representative persons of the issuer explain the purpose of the IPO. By this point, non-disclosure agreements in general and especially with respect to potential insider information must already be signed; therefore, it is important to set up a contact list and agree on the framework and channels of communication among members of the project team. Depending on the size of the issuer, these preparatory tasks can take a couple of weeks or more. • Due diligence: Preparing a legal and financial due diligence DD( ) with respect to the issuer is an elementary component of a successful IPO process. A diligently conducted DD can detect potential or existing pitfalls, which can, at this point, still be addressed and resolved successfully. During the process, the issuer provides a virtual data room to the DD teams, where it uploads all the requested information and documents. The aim of the legal DD is to pinpoint any statutory restriction or any contractual provision or structural hiatus which may be an obstacle to the IPO, while financial DD helps the lead coordinator’s and/or bookrunner’s work by way of mapping and the issuer’s actual financial status and future financial plans. In general, a DD process takes around one to two months; however, depending on the complexity of the corporate structure of the issuer, it can easily take longer. • Corporate governance: The Hungarian Civil Code generally regulates the fundamental corporate governance and operational rules regarding private companies. Notwithstanding the foregoing, more strict regulations are imposed on public companies, thus the corporate structure of companies seeking to participate in an IPO issue must be synchronised therewith. The scope of the legal DD is usually to identify the gaps between the pre- and post-IPO corporate structure of the company. • Adopting resolutions: A decisive part of the process is to get all necessary approvals of the general meeting and other responsible authorised bodies of the IPO candidate. From a legal perspective, the actual IPO process starts after the adoption of these resolutions. STEP II: Countdown period While the preparatory steps aim to lay down the foundations of the IPO process, the countdown period dynamically starts to build on it until it reaches the peak point: the listing of issued shares on the relevant trading platform. These blocks are as follows: • Prospectus or other relevant offering memorandum, approval of the competent authority: In accordance with Regulation (EU) 2017/1129 of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (Prospectus Regulation), the IPO candidate shall draw up a Prospectus if making a public offer of securities and/or listing them on the regulated market. Although IPOs can take place on the regulated market, it is also feasible to organise an IPO on BSE’s MTF platform, Xtend, as described above. The advantages are evident; in case of an Xtend IPO – if the issuer and the offering meet some basic criteria – no approval by the Central Bank of Hungary is required

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for publishing the information memorandum, as the information is only examined and approved by the BSE, which results in a faster IPO procedure. Contrarily, the publication of a Prospectus is subject to the Central Bank of Hungary’s approval. Preparing and publishing a Prospectus is one of the most complex and strictly regulated capital market institutions, therefore it requires a great deal of care and attention. In our experience, the Central Bank of Hungary is open to and encourages preliminary discussions and consultation with the issuer before the Prospectus is filed. This is a good opportunity to discuss the key structure of the planned IPO and to address and resolve any regulatory questions. • Arrangements, organising the launch of the IPO: Besides the approval procedure, the issuer establishes arrangements with paying and listing agents, and settles the sales and marketing strategy of the offered shares. It is strongly recommended to hold a meeting with the highly competent and cooperative representatives of the BSE prior to the launch of the IPO. • Launch: The approved Prospectus, together with press releases, are published by the issuer. Investors can be informed on the IPO via the Prospectus, which contains all relevant information including the size of the IPO, minimum subscription, etc. On the BSE Standard Market, an issued share can only be listed if its market capitalisation reaches approx. EUR 700,000 and a minimum 10% or EUR 285,000 free float. • Roadshows, public marketing events: It is important to promote the IPO dynamically in the press and in public marketing events, including roadshows. Most of the subscribers are institutional investors, therefore management meetings should also be held to ensure trust in the company’s future and the value of the issued shares. STEP III: Closure, listing shares After the countdown of the subscribing period, the following steps should be taken: • Setting the price, allocation of shares: When the book-building procedure closes, the lead coordinator and bookrunners, together with the underwriters, fix the final price of the shares and determine the level thereof. Afterwards, the shares are allocated to investors following the marketing of the dematerialised shares with assistance from the Central Clearing House and Depository in Hungary (KELER). Basically, payments are executed in a delivery versus payment method. The issuer company is obliged to disclose publicly the mechanism and information described herein. • Listing the issued shares: Trading with the shares of the issuer begins following the listing. However, upon request of the issuer, it is possible for this to be held on the same day. At the beginning, trading can be volatile due to hype around the newly-issued shares, but underwriters may be able to stabilise the price range of the shares and lower volatility. It should be noted that these activities may be under the regulation of market abuse regulation in the EU. • Disclosure obligations: The issuer should familiarise themselves with disclosure obligations regarding EU and Hungarian regulations. The most important task is to comply with inside information and trading regulations, and to prevent the trading of shares from malicious traders.

Parties The typical project team of an IPO includes the following persons: Management board and relevant in-house team members The members of the management board shall represent the issuer throughout the IPO process and before competent authorities and other participants, such as the BSE and

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KELER. Moreover, the members of the management board are expected to be available for public relations and marketing purposes. For operational and special expertise, issuers involve in-house consultants and/or associates. Auditor The issuer should involve in the process the company’s auditor, whose main task is to provide an audited financial report for the last year in order to list the shares to the Standard Market of the BSE. An auditor may be necessary for providing financial information to underwriters during the IPO process. Supervisory board, audit committee The supervisory board generally has supervision control over management and its activities, also relating to the IPO process. The Hungarian Civil Code prescribes that public companies must maintain an audit committee in order to ensure that the supervisory board’s work connected to financial audits is carried out correctly. However, in some special cases, neither a supervisory board nor an audit committee is obligatory; instead, the issuer may set up a governing board which merges the competences of a management and supervisory board. An audit committee may be replaced by any other corporate body which is able to fulfil the tasks and activities of the same. Underwriters, investment service providers The lead coordinators during an IPO process are the underwriters and investment service providers. In IPOs where a Prospectus is to be published, the contribution of investment service providers is obligatory pursuant to the Act CXX of 2001 on the Capital Market (Capital Market Act). Mostly, these investment service providers are also underwriters and they coordinate the whole process. Legal experts The IPO process is one of the most complicated capital market transactions, which requires well-prepared legal experts. The legal experts maintain the legal and technical part of the transaction, including the DD process, preparing the vast majority of the Prospectus, corporate documentation, policies, public disclosure guidelines, arrangements, agreements, etc. For these reasons, selecting a team which has a high-intensity work attitude with significant experience in the field of Hungarian capital markets is essential. Media and public relations There is no IPO without a well-constructed promotion and media campaign; therefore, cooperation with public relations and media experts is necessary. Said experts must have industrial knowledge, because IPO press releases and marketing publications must be drafted carefully.

Regulatory architecture: Overview of the regulators and key regulations General regulatory background The main Hungarian entities responsible for regulating and overseeing IPOs are as follows: • Central Bank of Hungary (CBH): CBH acts within its function as supervisory authority of the financial intermediary system. During an IPO process, the publication of a Prospectus is subject to prior approval of CBH. Furthermore, CBH controls issuers’ public statements and examines whether the issuer’s reports comply with relevant domestic and EU legislation, as well as international accounting standards. • Budapest Stock Exchange: BSE, as an independent legal entity in which CBH holds a controlling interest, is responsible for the organisation and operation of the stock

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exchange market in Hungary. As a market operator, BSE lays down the detailed rules relating to listing and trading. BSE also makes the final decision on the listing of a company’s shares. • KELER: KELER is the Central Clearing House and Depository in Hungary and is responsible for, inter alia, the execution of the relevant demat events regarding the securities to be listed on a regulated market. KELER is owned by CBH and BSE. The key elements of the legal regime applicable to the IPO process and the public companies under the Hungarian jurisdiction are the following: • Act V of 2013 on the Civil Code (Civil Code). • Act CXX of 2001 on the Capital Market. • Regulation (EU) 2017/1129 of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC. • Commission Delegated Regulation (EU) 2019/979 on supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal, and repealing Commission Delegated Regulation (EU) No 382/2014 and Commission Delegated Regulation (EU) 2016/301 (RTS). • Act V of 2006 on Public Company Information, Company Registration and Winding- up Proceedings (Companies’ Act). • Decree No. 24/2008. (VIII.15.) of the Minister of Finance on the Detailed Rules of Disclosure Obligations related to Publicly Traded Securities (Disclosure Decree). • Regulation (EU) 596/2014 of the European Parliament and of the Council on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (MAR). • The General Terms of Service of the Budapest Stock Exchange Ltd. (BSE GTS). • The General Business Rules of KELER Central Depository Ltd. Different requirements in IPOs The above regulations governing the capital market transactions are applicable to all IPOs in Hungary; however, different regulations may apply to the various listing possibilities. For example, BSE GTS defines to some extent the different requirements for listing securities in the Equities Prime Market or in the Standard Market. Furthermore, in Hungary, it is also possible for a company to go public via an IPO by listing its shares on the Xtend market which has its own terms independent from the regulated market. Restrictions on communications In terms of communication throughout the IPO process, issuers should note that according to Article 16 of the RTS, any information disclosed in oral or written form concerning an offer of securities to the public or an admission to trading on a regulated market, whether as an advertisement or for other purposes, shall not: (i) contradict any information disclosed in the Prospectus; (ii) refer to information that contradicts any information disclosed in the Prospectus; (iii) present the information in the Prospectus in a substantially unbalanced way, including by way of presentation of negative aspects of such information with less prominence than the positive aspects, or by omission or selective presentation of certain information; or (iv) contain alternative performance measures unless they are contained in the Prospectus.

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Information to be disclosed to investors The Prospectus Regulation of the EU indicates the type and extent of information to be shared with the prospective investors by the issuer in the Prospectus. Some of the required content of the Prospectus concerning the issuer is the following: (i) financial data; (ii) capitalisation and indebtedness; (iii) potential risk factors; (iv) business overview; (v) organisational structure; and (vi) major shareholders, etc. In addition to the requirements of the Prospectus Regulation, due account is to be taken by issuers of the provisions of the RTS regarding the content of key financial information. Recent changes to the regulatory architecture The recent significant amendment to the Capital Market Act has been effective since 18 January 2020. The changes mainly aim to serve the purpose of strengthening further compliance with the relevant legislation of the European Union including, in particular, the Prospectus Regulation. After more than a year, the exact consequences of some of the new provisions of the amended Capital Market Act are still unclear, therefore, we anticipate that the amended Capital Market Act will undergo some further fine-tuning according to market demands.

Public company responsibilities There are plenty of benefits of and opportunities to be gained from going public via an IPO; however, public limited companies are subject to several special obligations that are not applicable to private limited companies. The most significant obligations related to public operation are as follows. Disclosure obligations According to the relevant Hungarian rules, the issuers shall provide certain information relating to its securities admitted to trading on a regulated market, either on a regular or on an extraordinary basis. Furthermore, issuers must meet the disclosure requirements stipulated in MAR. Public companies must have enough capacity and an appropriate reporting mechanism, including the necessary information and communication system to enable them to properly fulfil their disclosure obligations herein. • Regular disclosure Within the framework of regular disclosure, issuers shall disclose essential details to the public of their financial position and the general course of their business in the form of half-yearly and annual reports. These reports comprise (i) accounts of the closed financial period, (ii) reports of the management, (iii) reports of statutory auditors, and (iv) responsibility statements. Furthermore, issuers shall make public, on the last day of each calendar month, the number of voting rights attached to their shares for each series respectively, indicating the portfolios of their own shares, as well as the amount of their capital. • Extraordinary disclosure All information shall be disclosed by the issuer which directly or indirectly affects the value or yield of the security or the assessment of the issuer. The detailed scope of the information to be disclosed is set forth in the Disclosure Decree as a non-exhaustive list. Through market supervision, CBH examines the proper fulfilment of extraordinary disclosure, paying special attention to certain matters of public companies, as follows: (i) changes in the statutory auditor; (ii) public or private placement of securities; (iii) capital increase against contribution in kind; (iv) changes in the senior executives; (v) corporate transactions; and (vi) sudden and significant changes in the company’s financial state.

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• Inside information According to MAR, which is directly applicable in Hungary, the issuer shall inform the public as soon as possible of inside information which directly concerns that issuer, where “inside information” shall have the particular meaning given to that in MAR. The issuer shall post and maintain on its website all inside information it is required to disclose publicly for a period of at least five years. In addition to the disclosure requirements, the issuers shall draw up, promptly update and provide CBH with a list of all persons who have access to inside information. • Managers’ transactions Persons with management responsibilities, as well as persons closely associated with them, shall simultaneously notify the issuer and the MNB of every transaction conducted on their own account relating to the shares or debt instruments of that issuer or to derivatives or other financial instruments linked thereto. Such notifications must be made no later than three business days from the date of the transaction. It should be noted that although MAR governs, among others, the financial instruments admitted or requested to be admitted to trading on a regulated market, MAR’s provisions on managers’ transactions shall apply to issuers requesting or approving admission of their financial instruments to trading on a regulated market. Corporate governance standards Besides the fundamental rules of corporate governance stipulated in the Civil Code applicable to public companies, there are internationally recognised and applied standards and recommendations of responsible and transparent corporate governance practices to be taken into consideration by public companies. In Hungary, those principles and standards are published and regularly reviewed by the BSE in the periodically reviewed and updated “Corporate Governance Recommendations” (CGR). The current version of the CGR has been effective since 1 August 2018. The CGR contains recommendations and proposals related to shareholders’ rights, the rules of the general meeting, the board of directors and the supervisory board, the conflict of interest of the management, and the internal control system and risk management. The proposals are non-binding suggestions, while the recommendations are binding for all issuers, meaning that issuers derogating from those are required to provide an explanation to the BSE. The management board of public companies must also prepare and present to the annual general meeting the corporate governance report for approval. The corporate governance report contains a questionnaire provided by the BSE which measures the issuer’s level of compliance with the CGR. The questionnaire to be completed by the issuers consists of questions on whether the company follows the relevant recommendation or proposal; if not, the company is expected to justify the derogation with a brief explanation. This “comply or explain” type of questionnaire has been prepared in accordance with Commission Recommendation 2014/208/EU on the quality of corporate governance reporting. The Corporate Governance Committee of the BSE analyses the data provided by the issuers in their corporate governance reports and prepares an annual monitoring report which focuses on the statistical data representing the level of compliance reflected in the corporate governance reports, emphasising the reasons of typical or significant derogations.

Potential risks, liabilities and pitfalls Invalid subscription A significant risk may arise during an inadequately prepared IPO process if the issuer fails to meet the requirements of the subscription of securities. For example, according to the

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Capital Market Act, a subscription shall be null and void if the securities were offered in the absence of a Prospectus or without the involvement of an investment service provider, where such requirements apply. The legal consequences are the same where the securities are offered to the public or presented for admission to trading on a regulated market in the absence of a corporate decision to change the issuer’s form of operation to a public one. Content of the Prospectus Since the Prospectus contains all the necessary information that is crucial to an investor for making a well-founded decision on investing in the shares offered, the information provided therein must be true, correct and complete. To ensure the fulfilment of this requirement, the issuer and its management body (or other players according to the Capital Market Act assisting in the IPO, where applicable) shall be held responsible for the information presented in the Prospectus and in that context shall be liable for any and all damage caused to an investor, for five years after the date of publication of the Prospectus. According to Hungarian law, this liability cannot be validly excluded or limited. The persons held liable shall sign a statement of liability attached to the Prospectus. Further to the above, it should be noted that the content of the Prospectus must reflect the actual overall situation of the company. If the CBH becomes aware of any material fact or circumstance that would require the rejection of the approval for the publication of the Prospectus or would significantly jeopardise the investors’ interests, the CBH shall withdraw its approval issued for the publication of the Prospectus and compel the issuer to terminate the marketing procedure. Infringement of disclosure rules As previously mentioned, the proper fulfilment of disclosure obligations imposed on public companies is primarily supervised by the CBH; therefore, in cases where an issuer fails to comply with the relevant reporting rules, it usually triggers the intervention of the CBH. In such cases the CBH is entitled to take measures or apply sanctions against the issuer on a wide scale, from an official warning to the suspension of the offering or the subscription of securities for a fixed period. Violation of MAR As detailed herein above, the issuers are obliged to follow the relevant rules of MAR throughout the IPO procedure and during their whole operation as a public company, the violation of which may result in a serious outcome. In addition, insider dealing, market manipulation or unlawful disclosure of inside information by third persons may adversely affect the exchange rate of the related shares. Breaching the rules of the BSE Further to the issuance of the relevant listing and trading rules, the BSE is also responsible for ensuring that the issuers duly meet the requirements set out in the BSE GTS. For this purpose, in the event of non-compliance with or delay in the fulfilment of the obligations stipulated therein, the BSE may apply sanctions against the issuers. These sanctions include a warning, a pecuniary fine, or the delisting of the issuer’s securities.

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Dr Márton Kovács Tel: +36 1 610 4440 / Email: [email protected] From 2003–2006 Márton Kovács worked in the real estate and litigation practice group of the Budapest office of Baker & McKenzie. In 2006, he founded his own firm and from January 2017, he became one ofthe founding partners of HBK Partners. Although his professional experience covers mainly real estate and M&A, he is also proficient in capital markets transactions, having led HBK Partners’ capital markets team in all three public at the Budapest Stock Exchange in 2017 and the listing of Hungary’s fourth largest in 2019. Further, he has gained unique experience in hotel law, representing various investors vis-à-vis global and local hotel operator companies. Márton is also a lecturer in M&A courses of the Budapest Institute of Banking (BIB) and holds workshops for various VC funds and start-up companies.

Dr Áron Kanti Tel: +36 20 572 7748 / Email: [email protected] Áron Kanti is an associate in the Corporate M&A and Capital Market practice at HBK Partners. He mainly focuses on M&A and capital investment transactions alongside providing legal advice in regulatory matters of financial institutions and investment funds. He also gained experience in the legal matters of securities, including placement and listing securities on the regulated market and on multilateral trading facilities. He participated in representing and advising one of the five largest commercial banks in Hungary on legal aspects of listing its shares on the Budapest Stock Exchange.

Dr Bálint Juhász Tel: +36 30 375 5032 / Email: [email protected] Bálint Juhász is an associate in the Banking & Finance and Capital Market groups at HBK Partners, Budapest. Bálint represents both investment service providers and issuers in private and public security offerings, and also advises clients on equity and loan financing transactions. Bálint provides legal advice for clients across different industry sectors including financial services, fintech, and the building and construction industry. Bálint participated in representing and advising one of the largest Hungarian commercial banks on listing its shares on the Budapest Stock Exchange, which instantly became the sixth most valuable company listed on the Hungarian regulated market.

HBK Partners Attorneys at Law Kálvin Square Offices, Kálvin tér 12, Budapest 1085, Hungary Tel: +36 1 610 4440 / URL: www.hbk-partners.com

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Joo Hyoung Jang, Eun Young Kwon & Jaeyong Shin Barun Law LLC

Introduction An initial public offering (“IPO”) of a company’s shares allows the company to raise capital in the markets. IPO refers to the registration and sale of stocks of a private firm or company to the investing public in accordance with the regulations and the listing standards. An IPO grants a company access to capital and, at the same time, increases awareness of the company among financial institutions and retail investors through the issuance of articles in various news outlets. As companies may enhance corporate expertise and management transparency in the process of fulfilling public offering requirements and listing criteria, many qualified Korean companies choose to go public. The Korea Exchange (the “KRX”) was created in 2005 through the integration of the Korea Stock Exchange, the Korea Securities Dealers Automated Quotations Market (the “KOSDAQ Market”), and the Korea Future Exchange. There are three markets in the KRX: (i) the Main Board (known as the “KOSPI Market”); (ii) the KOSDAQ Market; and (iii) the Korea New Exchange (the “KONEX Market”). The KOSPI Market is the KRX’s main board listing medium to large capital blue chip stocks, and many well-known giants such as Samsung Electronics, LG Electronics, Hyundai Motor, POSCO and KIA Motors have their shares listed on the KOSPI Market. As a regulatory body, the KRX exercises the regulatory supervision on the overall IPO process including the listing application process. The KOSDAQ Market was established in 1996 to raise capital for IT companies, entertainment businesses, high value-added businesses and venture companies. Small and medium-sized venture companies are listed on the KOSDAQ Market and the listing requirements are less rigorous than those of the KOSPI Market. Any business, public offering or listing requirement in connection with the KOSDAQ Market is governed by the rules and regulations of the KOSDAQ Market. Meanwhile, the KONEX Market is a specialised market established in 2013 to support the venture companies or the small and medium-sized enterprises including the start-ups that are unable to satisfy the requirements of the KOSDAQ Market to raise capital. The KONEX Market also has its own rules and regulations. Since 2007, the KRX has been actively promoting the foreign companies’ inbound IPOs to grow as an international stock exchange, and in order to further enhance its credibility and trustworthiness on the international platform, the KRX has signed the Memorandum of Understanding with other global stock exchanges for international cooperation. Moreover, companies incorporated overseas, including those already listed on a foreign market, are eligible to be listed on the Korean stock market. A public listing in Korea will allow foreign companies to form partnerships with Korean multinationals, while Korea’s strategic location will provide them with easy access to Chinese and Japanese markets.

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Korea established systems conducive to the listing of companies by relaxing the conditions for listing on the KOSPI Market and putting into effect diverse special provisions for the listing on the KOSDAQ Market such as “Special Listing based on market valuation and growth potential” and “Listing of Technology Growth Company”. Because it is now comparatively easier to enter into the KOSPI Market and the KOSDAQ Market than before due to these special systems for IPO, listing on the KONEX Market, which was often used for the purpose of transferring to KOSDAQ, is continuously declining. In 2020, a total of 70 companies went public in Korea by listing on either the KOSPI Market or the KOSDAQ Market. While the total number of IPOs decreased year-on-year in Korea, the volume of IPOs in 2020 increased from KRW 3.2 trillion to KRW 4.5 trillion. Although the IPO market was not very active for the first half of 2020 due to COVID 19, the total amount of public offerings for the year has seen a significant increase due to thelarge number of IPOs for large companies in the second half of the year. Major trends of the IPOs in 2020 include: (i) a rise in average participation and/or competition in book building by the institutional investors; (ii) an increase in the institutional investors’ commitment to obligatory retention for certain periods of time; (iii) overheating of the competition between ordinary investors to subscribe for shares; and (ⅳ) a continuous increase in listing through the special listing systems. Since the method of designation of publicly-offered shares for the ordinary investor subscribers has been improved and the designated portion has increased, the investors need to review the changed method of designation. The investors also need to understand the system for special listing as there is an increasing number of companies being listed under such system. After the IPO, the investors need to pay attention to the fluctuation of the share price and whether institutional investors made a commitment to obligatory retention.

The IPO process: Steps, timing and parties and market practice Steps and timing of IPOs in Korea In order to be listed on the KRX, a listing applicant is required to pass multiple qualification procedures. Key listing procedures and a general timeframe for each step of the IPO processes are outlined as follows:

Continued overleaf

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Steps Period Procedures • Convene a board meeting or shareholders’ meeting for a resolution to list the company stock on the KRX. One to two Pre-IPO • Organise a task force to conduct work for listing (auditor, years underwriter, legal counsel). • Prepare the timetable for the IPO. • Appoint lead underwriter for the IPO. • Execute the underwriting agreement two months prior to the preliminary review on listing eligibility. • Prepare the Articles of Incorporation and internal control system through the lead underwriter. • Execute the transfer agent agreement. • Audit and review the legal documents. Offering Six months • Complete due diligence prior to the preliminary review on listing process to one year eligibility (e.g., amendment to the Articles of Incorporation, restructuring of the internal control system, checking the corporate governance, etc.). • Conduct prior consultation with the KRX (foreign applicant should submit the Articles of Incorporation, legal opinion of a legal counsel, auditor’s report, draft application for the preliminary listing eligibility review, comprehensive opinion of the lead underwriter, and due diligence checklist, etc.). • File the application for the preliminary review on listing eligibility to Preliminary Within 45 the KRX. review business • The KRX Listing Committee will review and notify the result of on listing days the preliminary review on listing eligibility within 45 business days eligibility (typically 65 days for a foreign applicant). • Prepare and file the securities registration statement. Filing of • Securities registration statement will be reviewed and become securities Two to three effective within 15 days of filing. registration months • Foreign companies should submit the external auditor’s comfort statement letter with the securities registration statement.

• Conduct book building. Public • Finalise the prospectus. offering • Conduct investor relations activities for institutional investors. • Determine the final public offering price.

Subscription • Subscribe and allot shares; make payment for shares. and allotment • Report on results of issuing securities. of shares Within five • File the application for initial listing to the KRX. Listing business • The KRX will approve the listing. days • Commence trading on the KRX.

Parties involved in the IPO process in Korea The key parties that are commonly involved in the IPO process in Korea are as follows: Listing applicant: Listing applicant refers to a company that has applied for listing. The application for preliminary review on listing eligibility, the securities registration statement and the application for initial listing should be filed under the name of a listing applicant. KRX: The KRX is responsible for (i) reviewing the application for the preliminary review on listing eligibility in accordance with the listing requirements, and (ii) checking fulfilment of the share distribution requirements, execution of the transfer agency agreement and payment for the shares.

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Financial Services Commission (“FSC”): FSC is a regulatory body that evaluates and accepts the securities registration statement. Lead underwriter: A listing applicant should appoint a lead underwriter. Unlike the cases in foreign countries (e.g., United States) where lead underwriters are allowed to host IPOs with firm commitments, IPOs in Korea generally do not require firm commitments by the lead underwriters. The key roles of a lead underwriter are summarised as follows: • Review documents and data on the applicant’s business performance, operation and financial soundness. • Consult and check the applicant’s financials, accounting, and tax requirements. • Check and verify the accuracy of the descriptions in the securities registration statement. • Regularly check the process of listing work and prepare listing documents. • Conduct the applicant’s stock analysis and book building; negotiate the issue price of a new share. • Manage the public offering process and subscription activities. Other advisers: Foreign companies should appoint a domestic or foreign auditing firm satisfying certain criteria and should submit an attorney’s opinion letter when filing the application for listing eligibility review and securities registration statement. The applicant is required to appoint a listing agent based in Korea to take care of tasks such as the issuing of securities, listing of securities, and corporate disclosure requirements. The listing agent manages the relationship between the applicant and the KRX and attends to all matters required by the KRX. Unique feature of IPOs in Korea In Korea, venture companies and small and medium-sized enterprises with innovative business ideas and technologies can apply for the special listing system (e.g., so-called “Special Listing based on market valuation and growth potential” and “Listing of Technology Growth Company”) of the KOSDAQ Market. Such special listing systems are granted depending on the company’s possession of special technology or potential of business scalability instead of near-term profitability. If a company is listed through the special listing system, such company may be exempted from the requirements of which a listed company would normally be required to comply with in order to stay listed.

Regulatory architecture: Overview of the regulators and key regulations The governmental bodies and organisations responsible for regulating IPOs in Korea The KRX and the FSC of the Republic of Korea are the major regulatory bodies involved in the listing application process. The KRX is a regulatory body responsible for the review and approval of listing applicants and regulates all matters regarding listing. The FSC is a regulatory body responsible for all matters related to equity markets including public offerings. Key legal documents applicable to the IPO process in Korea The KRX provides listing regulation for securities market (i.e., KOSPI Market listing regulation), the KOSDAQ Market listing regulation and the KONEX Market listing regulations, and corresponding detailed rules of enforcements for each, for the KOSPI Market, the KOSDAQ Market and the KONEX Market, respectively. In order to be listed, companies must meet a number of qualitative requirements, including requirements relating to management transparency, growth potential, investor protection and stability, etc. Companies must also satisfy quantitative requirements including, but not limited to, requirements relating to operating history, capital size, share distribution, business performance, financial affairs, audit opinion and corporate governance, etc.

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Key criteria for quantitative review for the KOSPI Market The KOSPI Market’s listing requirements are the most stringent amongst KOSPI, KOSDAQ and KONEX, and the details are as set forth in the table below:

Criteria Requirements At least three years from the date of application for preliminary review on listing eligibility. Operating (For applicants with less than three years of operating history due to a merger and history divesture, the actual business term of the merged or divested portion may be considered.) As of the date of application for preliminary review on listing eligibility (the date of application for listing in case of a public offering sale after filing of the application for Capital size preliminary review on listing eligibility): • Equity capital (or market capitalisation): KRW 30 billion or more. • Number of shares to be listed: 1 million shares or more. With respect to the common shares as of the date of application for preliminary review on listing eligibility (the date of application for listing in case of public offering sale after filing of the application for preliminary review on listing eligibility): • Number of general shareholders: At least 500 general shareholders. • Satisfy any of the following conditions. Condition 1: At least 25% of shares or 5 million shares held by general shareholders. Condition 2: At least 25% of shares or 5 million shares to be publicly offered. Condition 3: While at least 10% of shares should be offered publicly, shares should be issued on the basis of equity capital (as of the date of application for preliminary review on listing eligibility) or market capitalisation (as of the date of application for listing) as set forth below:

Equity capital Number of shares Share distribution KRW 50–100 billion At least 1 million requirement KRW 100–250 billion At least 2 million KRW 250 billion At least 5 million

Market capitalisation Number of shares

KRW 100–200 billion At least 1 million KRW 200–500 billion At least 2 million KRW 500 billion At least 5 million

Condition 4: In case of a simultaneous public offering in Korea and abroad, at least 10% of shares as well as at least 1 million shares should be offered publicly in Korea. Condition 1: The applicant must satisfy all of the following “Sales and Profit” requirements: i. Sales: Sales of KRW 100 billion for the latest fiscal year and average sales of KRW 70 billion for the last three years. ii. Profit: Either Continuing Income before Tax or Return on equity (“ROE”) satisfies one of the following: a. Continuing Income before Tax: KRW 3 billion for the latest fiscal year and KRW 6 billion in total for the last three years. Financial b. ROE: at least 5% for the latest fiscal year and at least 10% for the three most recent requirements years combined. (satisfy any of c. Any company with equity capital (as of the date of application for preliminary review the following on listing eligibility) of KRW 100 billion or more: conditions) • 3% ROE or KRW 5 billion or more in Continuing Income before Tax. • Positive operating cash flow. Condition 2: The applicant must satisfy the following “Sales and Market Capitalisation” requirements: i. Sales: Higher than KRW 100 billion for the latest fiscal year. ii. Market capitalisation (as of the date of application for listing): Higher than KRW 200 billion. Continued overleaf

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Criteria Requirements Condition 3: The applicant must satisfy the following “Continuing Income before Tax and Market Capitalisation” requirements: i. Continuing Income before Tax: Higher than KRW 5 billion of the latest fiscal year. Financial ii. Market capitalisation (as of the date of application for listing): Higher than KRW requirements 200 billion. (satisfy any of Condition 4: As of the date of application for listing, the applicant must satisfy the the following following “Equity Capital and Market Capitalisation” requirements: conditions) i. Equity capital: Higher than KRW 150 billion. ii. Market capitalisation: Higher than KRW 500 billion. Condition 5: As of the date of application for listing, market capitalisation shall be at least KRW 1 trillion. Unqualified opinion for the latest fiscal year and unqualified or qualified opinion Audit opinion (excluding the qualified opinion due to the limitation placed on audit scope) for the two years preceding the latest fiscal year. • The number of outside directors: In case of a holding company, at least ¼ of the total number of directors (where a company has assets of KRW 2 trillion or more, the company is required to have at least three outside directors, which should Corporate constitute half of the total number of directors). governance • In case of a holding company, companies with total assets of KRW 2 trillion or more are required to establish an audit committee and at least ⅔ of the committee members must be outside directors.

Key criteria for quantitative review for the KOSDAQ Market The KOSDAQ Market’s listing requirements are less stringent compared to the KOSPI Markets and the details are as set forth below:

Continued overleaf

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Criteria Requirements Operating No requirements. history Capital size No requirements. Condition 1: As of the date of application for preliminary review on listing eligibility, if minority shareholders hold at least 25% of shares and at least 25% of common shares, at least 5% of shares and at least 5% of common shares shall be publicly offered after the date of application for preliminary review on listing eligibility and the number of minority shareholders should be at least 500 as the date of application for listing. If minority shareholders hold less than 25% of shares, at least 10% of shares shall be publicly offered. Condition 2: As of the date of application for listing, if the number of minority shareholders is at least 500 and at least 10% of shares and at least 10% of common shares are offered publicly after the application for preliminary review on listing eligibility, shares should be issued on the basis of equity capital (as of the date of application for preliminary review on listing eligibility) or market capitalisation (as of the date of application for listing) as set forth below:

Equity capital Number of shares KRW 50–100 billion At least 1 million

Share KRW 100–250 billion At least 2 million distribution KRW 250 billion At least 5 million requirement (satisfy any of the following Market Capitalisation Number of shares conditions) KRW 100–200 billion At least 1 million KRW 200–500 billion At least 2 million KRW 500 billion At least 5 million

Condition 3: As of the date of application for preliminary review on listing eligibility, the number of minority shareholders is at least 500 and the amount of shares owned by the minority shareholders through the subscription is (i) at least 25% of shares and at least 25% of common shares, or (ii) at least 10% of shares and at least 10% of common shares and the number of shares to be issued based on the equity capital or market capitalisation are in conformity with the requirements set forth in Condition 2 above. Condition 4: The amount of shares offered or sold as of the date of application for listing is at least 25% and the number of minority shareholder is at least 500. Condition 5: In case of a simultaneous public offering in Korea and abroad, at least 20% of shares and at least 20% of the common shares, as well as at least 300,000 shares are offered publicly in Korea as of the date of application for listing. The number of minority shareholders is at least 500.

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Criteria Requirements Company with technological General company (Venture company) growth Condition 1: Sales and profit (satisfy any one of the following conditions): 1. i) Continuing Income before Tax: KRW 2 billion (venture company: KRW 1 billion), and ii) market capitalisation: KRW 9 billion. 2. i) Continuing Income before Tax: KRW 2 billion (venture company: KRW 1 billion), and ii) equity capital as of the date of application for preliminary review on listing Financial eligibility: KRW 3 billion (venture company: performance KRW 1.5 billion). Condition 1: requirements 3. i) Positive Continuing Income before Tax, Equity capital of KRW 1 billion as of (satisfy ii) market capitalisation: KRW 20 billion the date of application for preliminary either “Sales and iii) sales of KRW 10 billion (venture review on listing eligibility. and profit” company: KRW 5 billion). Condition 2: Market capitalisation of condition or 4. Continuing Income before Tax: KRW 5 KRW 9 billion. “Potential billion. The KRX may request i) an expert’s growth” Condition 2: Potential growth (satisfy any recommendation and assessment condition) one of the following conditions): report of technological capability, or 1. i) Market capitalisation: KRW 50 billion, ii) ii) listing sponsor’s recommendations sales revenue: KRW 3 billion, and iii) average and appraisal. growth rate: 20% in the last two years. 2. i) Market capitalisation: KRW 30 billion, and ii) sales revenue: KRW 10 billion (venture company: KRW 5 billion). 3. i) Market capitalisation: KRW 50 billion, and ii) PBR of 200% after offering. 4. Market capitalisation: KRW 100 billion. 5. Equity capital: KRW 25 billion as of the date of application for preliminary review on listing eligibility. Unqualified opinion for the latest fiscal year. (In practice, it is advised to have an Audit opinion unqualified opinion of the last two years for a successful listing.) • The number of outside directors: At least ¼ of the total number of directors. (Where a company has assets of KRW 2 trillion or more, the company is required Corporate to have an audit committee and at least three outside directors, which should governance constitute half of the total number of directors.) • Companies with assets of KRW 100 billion or more must have a full-time internal auditor.

Key criteria for quantitative review for the KONEX Market The KONEX Market’s listing requirements are the most flexible amongst KOSPI, KOSDAQ and KONEX, and the details are as set forth below:

Criteria Requirements Small and medium-sized A listing applicant should be a small or medium-sized enterprise pursuant enterprises to the Framework Act of Korea on Small and Medium Enterprises. Public interest and A listing should be recognised as not having been involved in any matters investor protection deemed inappropriate for public interest or investor protection. Restriction on transfer of No restriction placed on the transfer of shares. shares

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Criteria Requirements

Audit opinion Unqualified opinion for the latest fiscal year.

Shall be one of KRW 100, KRW 200, KRW 500, KRW 1,000, KRW 2,500, Par value KRW 5,000.

Designated consultant Shall retain a designated consultant firm.

Key listing rules applicable to foreign applicants Companies incorporated overseas, including those already listed on an overseas market, are eligible to be listed on the Korean stock market. The typical timeframe for gaining admission for a company which is already listed elsewhere is normally about two months. A foreign applicant is required to name a custodian institution and a bank for dividend payment prior to the application date for the preliminary review on listing eligibility. A foreign applicant intending to list Korea Depository Receipts (“KDRs”) is required to enter into the stock depository agreement with the Korea Securities Depositary (the “KSD”). Further, a foreign applicant for listing is required to submit a securities issuance schedule to the Ministry of Strategy and Finance prior to listing. When a foreign company submits an application for preliminary review on listing eligibility, it is required to provide an internal accounting management system operation report, legal review opinion, etc., in addition to the documents required for the domestic companies. Type and extent of disclosure that must be presented to prospective investors In order for a company to offer new stocks for public subscription in the IPO process, the company must disclose the securities registration statement and the prospectus. The securities registration statement includes matters concerning the IPO price, sales method, details of rights, risk factors and book building, etc., and the prospectus should state the matters concerning (i) the public offering or sale of securities (including details of the rights granted to a holder of the shares offered or sold, investment risk factors, etc.), and (ii) information regarding the issuer (a description of business, details of financial matters, an auditor’s opinion, information on affiliated companies, shareholder information, details of officers and employees, details of any transactions with stakeholders and matters necessary for investor protection). Moreover, it is important to note that if an applicant for listing has violated disclosure requirements in the past (e.g., failure to submit the securities registration statement), such action could negatively impact the applicant throughout the listing process. In particular, in order to ensure proper disclosure during the process of listing and subsequent processes thereafter, the KRX recommends that the public disclosure system be overhauled by the applicants at the preparation stage of listing. The disclosure regulations of the KOSPI, the KOSDAQ and KONEX stipulate that listed companies should designate a public disclosure director, a person in charge of disclosure, and such persons are required to complete public disclosure-related training. Rules and regulations that are not applied uniformly KOSDAQ: In the KOSDAQ Market, there is a special listing system that allows certain companies to be subject to different listing requirements compared to those applicable to general companies. There are cases listed through a special listing system for venture companies or companies with technological growth. Companies eligible for such special

GLI – Initial Public Offerings 2021, Fifth Edition 126 www.globallegalinsights.com Barun Law LLC Korea listing are subject to preliminary screening requirements that are different from general companies, wherein the difference includes the exemption of requirements concerning operating history, sales, and equity capital. In addition, with the introduction of Special Listing based on market valuation and growth potential (so-called “Tesla listing conditions”), less stringent financial requirements are applied to specific companies that have business results even if those companies do not have a profit pursuant to the listing regulations. KONEX: For venture companies, listing requirements on sales, equity capital and net profit are all loosened. KOSPI: The rules have been recently changed so that a company can be listed without satisfying the capital requirement in case the market capitalisation is at least 1 trillion KRW as of the date of application for listing. Restrictions on communication or publicity that are applicable to the IPO process When gathering the potential shareholders, if a business operator labels or advertises that the company will be publicly listed without first having confirmation that it will be publicly listed (e.g., the company still needs to satisfy the conditions for going public such as the company’s business performance requirement), the business operator may receive a corrective order, be liable for compensation of damages or receive a criminal punishment pursuant to the Act on Fair Labeling and Advertising. Impending or proposed changes to the regulatory architecture KRX recently has been seeking to relax the listing requirements for both the KOSPI Market and KOSDAQ Market such that more companies with high growth potential can be publicly listed on them. For example, the rules have been relaxed so that a company can be listed on the KOSPI Market without satisfying the capital requirement in case the market capitalisation is at least 1 trillion KRW as of the date of application for listing and special listing systems called “Special Listing based on market valuation and growth potential” and “Listing of Technology Growth Company” have been introduced for the KOSDAQ Market. Furthermore, KRX is planning to further relax the conditions for listing in order to vitalize the KOSDAQ Market, and relax the technology evaluation requirement for the preliminary review on listing eligibility in case a company with a market capitalisation that is greater than a certain value seeks to go public relying on the special listing based on technologies. On the other hand, the relaxation of requirements for listing on KOSPI and KOSDAQ gives rise to the need to reinforce regulation against companies with potential issues; therefore, measures such as expansion of screening requirements for listing eligibility are being taken. Accordingly, screening targets for early removal of companies engaged in malfeasance have expanded and precautionary measures, such as stock lock-up, have been strengthened. The screening system for delisting insolvent companies and/or malfeasant companies may also be expanded. In addition, the KRX emphasises the internal control issues of individual companies during the listing eligibility review process (transparency of major shareholders or management, corporate governance, accounting systems, transactions with subsidiaries and affiliates, etc.); thus, there was a case where a listing applicant withdrew the listing eligibility review process because there was an inappropriate (i) transaction of goods between the company and its subsidiaries, or (ii) monetary transaction between the company and the largest shareholders or other executives. The influence of foreign or supranational regulatory regimes or bodies KRX appears to be providing listing exception systems to relax the requirements for public

GLI – Initial Public Offerings 2021, Fifth Edition 127 www.globallegalinsights.com Barun Law LLC Korea listing within Korea and to attract the companies, because the Korean unicorn companies are becoming increasingly likely to procure capital overseas by, for example, listing on the National Association of Securities Dealers Automated Quotations (NASDAQ) based on the conclusion that the listing requirements in Korea are stricter than those for overseas markets. Significant market practices that are not reflected in the rules and regulations It appears that there is no significant market practice that is not reflected in the rules and regulations for public listing.

Public company responsibilities Public companies shall comply with the rules and regulations of the Financial Investment Services and Capital Markets Act of Korea (the “Capital Markets Act”) and the corporate disclosure requirements of the KOSPI, KOSDAQ and KONEX Markets. Under such rules and regulations, public companies are required to make timely and accurate disclosure of material corporate information that may have an effect on the stock price or trading volume in order to protect the investors. Types of disclosure are periodic disclosure, timely disclosure, inquired disclosure, fair disclosure, special disclosure and voluntary disclosure. All public companies listed on the KRX, foreign and domestic, should satisfy the following disclosure requirements:

Types Disclosure Public companies must release their annual business report within 90 days following the closing date (120 days for foreign companies) and semi-annual/ quarterly reports within 45 days (60 days for foreign companies) following the Periodic disclosure closing date. (In case of a foreign company primarily listed on an overseas exchange, such company should publish the annual business report and semi-annual/quarterly reports within 10 days from the date of reporting to the overseas exchange.) Public companies must disclose the material events relating to their financial status, change of management, operational and production activities, Timely disclosure receivables and liabilities, investment activities, profit and loss analysis, financial settlements and legal actions, and further disclose material events of their holding and subsidiary companies. Public companies must answer to the relevant disclosure inquiries from the KRX when there are rumours or media coverage on their material corporate Inquired disclosure matters or sudden or abnormal changes in their stock price and/or trading volumes. Public companies must disclose their future business/management plans and Fair disclosure profit forecast before providing such information to other institutional investors. Public companies must disclose the information regarding material corporate Special disclosure events including a merger, stock exchange, business or major assets transfer, and repurchase and disposal of treasury stock, etc. Public companies may disclose at their discretion the information or future Voluntary plans that might have an impact on their business or the investors’ investment disclosure decision.

Other than the above, a public company is subject to special provisions under the Commercial Code of Korea. For example, a public company (i) is subject to less strict requirements for exercise of minority shareholder rights and for request of cumulative voting compared to a

GLI – Initial Public Offerings 2021, Fifth Edition 128 www.globallegalinsights.com Barun Law LLC Korea private company, (ii) shall have a number of outside auditors and outside directors depending on the size of its asset, and (iii) shall have a full-time auditor or an audit committee.

Potential risks, liabilities and pitfalls Due diligence process and procedures An IPO shall be preceded by extensive commercial, financial and legal due diligence processes to prepare necessary arrangements for a successful listing, analyse risk factors for investor protection, and detect any potential legal issues. Legal due diligence shall cover investigation into the record of previous violation of laws in various areas, including assets, contracts, license, insurance, labour, and disputes. Such process shall prioritise protection of investors on a continuous basis by analysing whether there have been any illegal transactions with affiliated persons and whether there are any risks of contingent liabilities arising from large-scale lawsuits, among other potential legal issues. While multiple authorities in Korea have published official guidelines for due diligence in IPOs, such as ‘Due Diligence Code of Practice’ (Financial Supervisory Service, December 2011) and ‘Standard of Best Practice for Lead Underwriters’ (Financial Investment Association, 2017), such publications are only referred to as recommended guidelines without any legal enforceability; hence, there does not exist any legally binding regulation on due diligence for the IPO process. Countries with active IPO activities, such as the United States and Hong Kong, often mandatorily require compliance with the official due diligence code; however, such code or standards in Korea are referred to as guidelines without legal enforceability and therefore, conducting due diligence in Korea has fewer requirements with which to comply. Potential legal liabilities and penalties The Capital Markets Act stipulates that, in case an investor suffers damages due to any false statements or omission of material information in the securities registration statement or prospectus during the stage of reviewing the preliminary listing eligibility and filing the securities registration statement, the listing applicant, the directors of the applicant, or the lead underwriter shall compensate the investors for such damages. Moreover, an accountant or a lawyer involved in such cases may be subject to (i) civil liability if he/she has consented to or signed for any materially false information, and/or (ii) criminal liability if any materially false information has been wilfully made. It should be noted that if a listed foreign company is found to have provided false or fabricated financial data, such company may be delisted and the fine will be imposed to the lead underwriter as well. For example, a Chinese textile company listed on the KOSPI Market in 2011 was delisted in 2013 as it was found to have fabricated disclosures and committed accounting fraud. The underwriter appointed by the Chinese textile company was fined KRW 2 billion for their failure to carry out proper due diligence on the company. Common missteps and pitfalls during the IPO process/after becoming a public company that may increase liability risk Due to the increase in the number of newly-listed companies, slow down of the economy and the repeated unfaithful disclosure by some of the companies suffering from financial difficulties, an increasing number of companies are being designated as “a company with unfaithful disclosure”. Such a company faces a risk of receiving a penalty, its designation as a company with unfaithful disclosure being publicly announced, share sales transaction being suspended, being designated as a company under management of KRX, and/or receiving a substantive examination with respect to whether listing of the company is appropriate.

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Joo Hyoung Jang Tel: +82 2 3479 7519 / Email: [email protected] Mr. Jang is a Partner at Barun Law LLC. Since joining the firm in 2005, his practice has focused on cross-border transactions, M&As and general corporate matters and he has accumulated a broad range of experience and expertise in these fields. He has served as a Member of the Digital Media City of Seoul since 2003, and Vice-Commissioner of the International Committee of the Korean Bar Association and Member of the In-House Lawyers’ Special Committee of the Korean Bar Association since 2011. Mr. Jang received his B.A. in law from Seoul National University and his LL.M. from Columbia Law School. He is a member of the Bar of the Republic of Korea and the State of New York.

Eun Young Kwon Tel: +82 10 9599 7209 / Email: [email protected] Ms. Kwon is a Korean Attorney at Barun Law LLC. As a junior member of the Corporate Advisory Group, she assists Korean and international clients on a broad range of corporate and financial issues. Ms. Kwon received his B.A. from Korea University majoring in Business Administration and received her J.D. from Korea University Law School.

Jaeyong Shin Tel: +82 2 3479 2423 / Email: [email protected] Mr. Shin is a Foreign Attorney at Barun Law LLC. As a member of the Corporate Advisory Group, he assists Korean and international clients on a broad range of corporate issues. He is also involved in the international arbitration practice at the firm. Mr. Shin received his B.A. from Northwestern University and received his J.D. from Northwestern Pritzker School of Law.

Barun Law LLC Barun Law Building, 92 gil 7, Teheran-ro, Gangnam-gu, Seoul 06181, Korea Tel: +82 2 3476 5599 / URL: www.barunlaw.com

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Joram Moyal & Patrick Houbert Moyal & Simon

Luxembourg is a multilingual leading investment and financial centre located in Western Europe. As a founder member of the European Union, Luxembourg is one of the most stable political and economic countries in Europe. The Luxembourg Stock Exchange (LuxSE) is the world’s leading exchange for the listing of international debt securities. As at 31st December 2020, it had more than 37,000 listed securities, including 33,000 debt instruments, from 2,000 issuers (including 118 sovereign issuers) representing more than 100 countries and more than 42% of total international bonds listed on EU markets. It also lists nearly 6,000 shares and units of investment funds in around 20 currencies, offering a wide range of investment opportunities, as well as 150+ depositary receipts of issuers based in emerging markets. In 2020, 104 new issuers joined LuxSE and issued securities totalling EUR 54.6 billion. LuxSE is also well known to have been the first stock exchange globally to introduce a platform for green financial instruments – the Luxembourg Green Exchange (LGX) – established in 2016 as a contribution to the Paris Climate Agreement and the UN SDGs. LGX is the world’s leading platform dedicated exclusively to sustainable securities. Its mission is to facilitate sustainable investment and help redirect capital flows towards sustainable development projects. LGX displays 898 sustainable securities, with a total value of EUR 389 billion, from 148 issuers in 34 countries. LGX has a leading market share of listed green, social and sustainability bonds worldwide. In 2020, LGX was awarded the prestigious UN Global Climate Action Award 2020 in the category of Financing for Climate Friendly Investment for its contribution to curbing climate change. LuxSE can also be considered as a valid and sustainable Gateway to China, which boasts one of the world’s largest bond markets, valued at USD 11 trillion. As this market may appear off-limits to the international investor community due to the difficulties of accessing the right level of information on the traded bonds, LuxSE – by displaying information about Chinese domestic bonds either listed and traded on Chinese exchanges (Shanghai Stock Exchange – SSE and Shenzhen Stock Exchange – SZSE) or traded on the Chinese Interbank Bond Market (CIBM) – is bridging the information gap between Chinese issuers and international investors. Bonds listed on Chinese exchanges can be traded via existing channels. The cooperation with LuxSE focuses on providing relevant information in English to international investors. With more than 139 listed Global Depositary Receipts (GDRs), the LuxSE is the second exchange in Europe in GDRs, providing companies facing restrictions on foreign ownership of their assets easy access to investors from multiple jurisdictions. As at 31st December 2020, new and existing issuers listed 10,797 new securities worth EUR 1.4 trillion. LuxSE issuers come from around 100 different countries and securities are denominated in 66 currencies.

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The IPO process: Steps, timing and parties and market practice The Luxembourg Stock Exchange (LuxSE) operates two markets: the regulated market (named Bourse de Luxembourg), within the meaning of the EU Markets in Financial Instruments Directive (MiFID II – Directive 2014/65/ EU); and the Euro Multilateral Trading Facility (MTF) market. Prior to listing, the Luxembourg Stock Exchange checks that all the prerequisites are fulfilled. Listed securities are registered with an ICSD and have access to a top state of the art trading platform: the UTP platform of Euronext’s European markets. Therefore, listed securities are not simply listed but are also tradable. One of the advantages of listing on the regulated market is that the issuer benefits from a regulatory European directive, which allows it to apply for admission of the securities to the regulated markets of any other Member States of the EU, or conduct a public offer there, without substantive additional disclosure requirements in the host Member State (European passport). The latter allows issuers, on the basis of an already approved Prospectus Regulation-compliant prospectus, to apply for the admission to listing and trading of their securities on the regulated market of another EU Member State. The current tendency is to list on the regulated market (Bourse de Luxembourg). This presupposes that the application for listing is made in the context of an IPO. Nevertheless, some issuers tend to apply for listings on the Euro MTF market (secondary market). The listing on this market offers more straightforward options with fewer regulatory restraints. This is, especially for issuers from outside the EU, a very attractive listing option. As the Luxembourg domestic market is rather small, the majority of IPOs are listed abroad. Some issuers, however, request an additional or dual listing on the LuxSE. Typically, an issuer contemplating an IPO is advised by a financial institution as well as by a legal adviser and/or a listing agent. Listing in Luxembourg is both relatively straightforward and flexible. The steps are as follows: 1. Choose Market Before listing a choice needs to be made between listing on the EU-regulated Bourse de Luxembourg Market or the exchange-regulated Euro MTF Market. As opposed to the Regulated Market, issuers applying for a listing on the Euro MTF cannot benefit from the European passport. However, as the Euro MTF lies outside the scope of the Prospectus Regulation and the Transparency Directive, issuers having securities admitted to trading on the Euro MTF are bound by less costly and stringent requirements. Additionally, securities admitted to trading on the Euro MTF are eligible for Eurosystem collateral operations. Both markets provide issuers greater visibility and all securities listed on one of LuxSE’s markets are admitted to trading on the exchange. Both the Regulated Market and the Euro MTF fall within the scope of Regulation 596/2014 on market abuse, as amended. 2. Draft Prospectus In the prospectus, issuers will need to provide, among other things, detailed financial statements, terms and conditions relating to the security and information on recent developments. In order to accomplish the requirements and to protect persons who intend to invest in a listed company, the information set out in the prospectus must be trustworthy.

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According to that, the prospectus must contain all information involving the particular nature of the issuer and of the securities offered to the public or admitted to trading in order to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the issuer and of the rights attaching to the securities. The information shall be presented clearly and in an easily analysable form. Moreover, it must be ensured that pre-IPO marketing activities do not qualify as an offer of securities to the public, as long as no Prospectus Directive-compliant prospectus is approved. Furthermore, the marketing material must comply with the principles set out in the Prospectus Law, advertisements for example must be clearly recognisable as such. It is worth noting that in anticipation of the application of the Prospectus Regulation since 21 July 2019, the LuxSE has established two professional segments for its Regulated Market and the Euro MTF for which Issuers may opt. Such segments are specifically designed for issuers targeting professional clients within the meaning of MiFID II. Securities admitted thereto are therefore not accessible to retail investors (trading on these segments is only allowed between professional investors). Issuers using the Professional Segment will enjoy an alleviated prospectus regime under the Prospectus Regulation, simplified MiFID II product governance requirements as well as alleviated disclosure obligations under the Regulation (EU) No 1286/2014 of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPS). The listing application forms provided by the LuxSE give issuers the possibility to specifically apply for an admission to trading on one of its Professional Segments. Application files should clearly indicate the segment chosen by the issuer. 3. Get prospectus approval Depending on the market choice, any listing and admission to trading requires that a prospectus be prepared and approved by either the LuxSE (for admission on the secondary market) or the financial sector regulator, the Commission de Surveillance du Sector Financier (CSSF) for admission on the regulated market. The Luxembourg Stock Exchange and the CSSF have dedicated teams of experts reviewing listing prospectuses and striving to complete the approval process as quickly as possible. When applying on the Regulated Market the prospectus must be drawn up in accordance with the Prospectus Regulation and the Prospectus Delegated Regulation (EU) 2019/980 of 14 March 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the Prospectus Delegated Regulation), whereas an application for an admission to trading on the Euro MTF will require the prior approval by the LuxSE of a prospectus drawn up in accordance with the Rules and Regulations. 4. Listing and admission The listing application (by way of an application form) shall be accompanied by the approved prospectus (where required, the certificate of approval) as well as a signed undertaking letter for purposes of confirming compliance with the Rules and Regulations. Moreover, the up-to-date articles of associations of the issuer and its annual financial reports relating to the last three years (or such shorter period the issuer is in existence) must be added. For newly incorporated issuers, a waiver from producing latest financial statements may be accepted at the sole discretion of the Luxembourg Stock Exchange.

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No restriction on the negotiability of the listed instruments is accepted by the Luxembourg Stock Exchange (e.g. no possibility to restrict the ownership transfer of the listed instruments to professional investors). An application for the admission to trading of securities on one of the markets operated by the LuxSE is also deemed to be an application for the admission to the Official List held by the LuxSE. However, the LuxSE also offers a new alternative enabling issuers to list their securities on the Securities Official List (SOL) without requiring such securities to be admitted to trading on one of its markets. The SOL is governed by a dedicated Rulebook of the LuxSE (https://www.bourse.lu/luxse-sol) (the SOL Rulebook) and the Grand-Ducal Regulation of 13 July 2007, as amended, implementing Directive 2001/34/EC on the admission of securities to official stock exchange listing and on information to be published on those securities. The SOL therefore offers an alternative for issuers looking for enhanced visibility resulting from the listing of their securities on a recognised official list whilst being spared the extensive regulatory framework applicable to admissions to trading of securities. In order to be admitted on one of the LuxSE markets, the minimum issue amount is EUR 200,000 and there is no minimum operating history required. As far as convertible bonds, exchangeable bonds and bonds with warrants attached are concerned, the underlying shares must have been admitted or be admitted at the same time to listing on the LuxSE or whenever applicable on the SOL, or on another market that operates in a legitimate, recognised and open manner. Clearing and settlement are possible, via systems recognised by the LuxSE, i.e. Euroclear, Clearstream, LuxCSD and BNY Mellon CSD. Timing for admission depends on the (1) market, (2) type of security, and (3) prospectus. In general, up to four months may be necessary to complete a listing process on the LuxSE, which would include the time for the listing of securities, including the drafting of the prospectus). 5. Post-listing reporting and obligations After being listed and admitted to trading, issuers must regularly disclose regulated information relating to their business and listed security. First, issuers having securities admitted to trading on the Regulated Market or the Euro MTF are required to obtain a Legal Entity Identifier (LEI) code, which is a 20-digit unique and universal identifier designed to ensure absolute certainty in the identification of entities participating in financial transactions and exchanging information with local regulators and trading venues, which has become a standard requirement under a number of EU regulations and directives, including capital markets legislation. Once the listing and/or admission to trading is effective, issuers will be subject to various ongoing and periodic disclosure and reporting obligations. The scope of these obligations varies depending on which market the securities are listed and/or admitted to trading. They will generally be more stringent and costly in the case of securities admitted to trading on the Regulated Market. Those obligations derive, inter alia, from the Transparency Law, the Market Abuse Regulation and the Rules and Regulations (the Rules). For securities listed and admitted to trading on the Euro MTF, the obligations derive from the Rules and the Market Abuse Regulation. Issuers of securities listed on the SOL only benefit from an extremely alleviated reporting regime set out exclusively in the SOL Rulebook, as they are not subject to regulations relating to the admission to trading (notably the Transparency Law and the Market Abuse Regulation).

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Regulatory architecture: Overview of the regulators and key regulations Issuers must comply with: • the law of 16 July 2019 on prospectuses for securities, (Prospectus Law) which applies to the drawing up, approval and distribution of the prospectus to be published when securities are given to the public or admitted to trading on a securities market; • the Prospectus Regulation (EU) 2017/1129 of 14 June 2017 Prospectus Regulation (EU) on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the Prospectus Regulation), implemented in Luxembourg by the Prospectus Law and the Prospectus Delegated Regulation (EU) 2019/980 of 14 March 2019 as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market; • the law of 9 May 2006 on market abuse implementing EC Directive 6/2003, EC Directive 124/2003, EC Directive 125/2003 and 72/2004 (Market Abuse Law); • the law of 11 January 2008 on transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, as amended, implementing the EC Transparency Directive 109/2004 (the Transparency Law); and • the Rules and Regulations of the LuxSE. Based on the type of offer and the securities offered, different regimes under the Prospectus Law apply. The admission of financial instruments to an official listing is governed by the law of 13 July 2007 on markets in financial instruments (MiFID II) the Grand-Ducal Regulation of 13 July 2007 relating to the keeping of the official listing for financial instruments and implementing article 37 of the MiFID Law, as well as the rules and regulations of the Luxembourg stock exchange. The regulatory entities are the Luxembourg Stock Exchange (LuxSE) and the Commission de surveillance du sector financier (CSSF).

Public company responsibilities Listed companies are subject to the corporate governance guidelines for Listed Companies, published by the Luxembourg Stock Exchange and known as the “Ten Principles of Corporate Governance”. These rules are recommendations which apply on a “comply or explain” basis, allowing companies to deviate therefrom when circumstances so justify. Based on the Ten Principles, LuxSE listed companies have to publish a corporate charter setting out their governance principles and report on an annual basis their corporate governance in a specific chapter contained in their annual report. The Rules and Regulations also contain a certain number of disclosure rules which are primarily derived from the Transparency Directive and apply to both the LuxSE listed companies and the Euro MTF traded companies. As further set out above, listed companies are further subject to a number of laws and regulations implementing EU legislation relating to prospectus requirements, transparency requirements and market abuse such as the Prospectus Law; the Market Abuse Law and the Transparency Law. Additional rules and regulations applicable to LuxSE listed companies result from various circulars and other publications of the CSSF.

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Potential risks, liabilities and pitfalls Compared with those targeting the Euro MTF, issuers willing to access the regulated market of the LuxSE (assuming the admission to trading and listing is not associated with any public offer) will face higher regulatory hurdles. Furthermore, IPOs involving an admission to trading on the regulated market are therefore more time-intensive and complex. Among the initial challenges, the prospectus approval process is one of the biggest. Moreover, issuers, offerors (including financial intermediaries commissioned to carry out the offer to the public) or persons asking for admission to trading on a regulated market face criminal charges in the event they made an offer of securities to the public or obtained an admission of securities to trading on a regulated market in breach of the Prospectus Law provisions. In addition to the criminal charges that would apply, criminal and administrative sanctions will be added on, if relevant facts were to qualify as market abuse. Furthermore, the CSSF may prohibit or suspend advertisements for a maximum of 10 consecutive working days and it may also suspend or prohibit an offer to the public if legal provisions have been infringed. The CSSF also has extensive rights to obtain information (including the right to make on- site inspections) as well as to publish the fact that the issuers, offerors, including financial intermediaries commissioned to carry out the offer to the public, or persons asking for admission to trading have not complied with their legal obligations. Additionally, the CSSF may in certain cases exchange confidential information with competent authorities of other Member States or transmit confidential information to the European Securities and Markets Authority (ESMA) or to the European Systemic Risk Board.

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Joram Moyal Tel: +352 28 80 18 / Email: [email protected] Joram has been working in Luxembourg since 2000 and has gained extensive experience in corporate and commercial law ever since. Joram initially studied in Germany but had his first job in a Luxembourg law firm. After passing the Luxembourg Bar exam, Joram was admitted as an Avocat à la Cour in 2003. As Joram also passed both German law exams, he admitted himself as a Rechtsanwalt in Germany in 2006 and later also passed the UK qualified lawyers transfer test, becoming registered as a solicitor qualified in England & Wales in 2010. After working for several law firms Joram partnered up with Philipp Simon in 2010, creating what eventually became the M&S Law firm in Luxembourg. Joram specialises in corporate law, restructurings, M&A and banking. In addition, he defends cases in civil and administrative law in court and covers labour law, corporate immigration law and debt collection matters. Joram enjoys what he does, not only solving problems but also the exchange with people from all over the world. He has inherited a gift for languages and speak English, French, German, Dutch, Portuguese, Russian, Luxembourgish and some Hebrew and Italian. Joram is proud of a recommendation in the EMEA edition of The Legal 500 directory as follows: Team head Joram Moyal has a ‘high level of industry knowledge’. He advises corporates and private equity firms on M&A, and also handles general corporate governance and strategic matters.

Patrick Houbert Tel: +352 28 80 18 / Email: [email protected] Patrick is an Avocat à la Cour and specialises in corporate law, M&A, funds law and banking. He also advises start-ups in new technologies and has a strong knowledge of computer and IP law. Before joining M&S in 2015 (then MMS) he was associated with a well- established French business law firm and worked as legal counsel and managing director of a Luxembourg trust company. Patrick has represented companies and private clients with respect to M&A and funding (including with start-ups). He also advised international businesses on, inter alia, corporate and international restructuring, partnerships, internal financing, share deals and acquired significant experience in commercial litigation cases. Patrick is a member of the Mauritian Association in Luxembourg and of the Indian Business Chamber of Luxembourg and has dedicated his Ph.D. in private law to Foreign Direct Investments in the Indian Ocean region by writing his thesis on “The Normative Instruments of Off-shore Investment in Mauritius”. Patrick speaks English, French and Italian.

Moyal & Simon 205, route d’Arlon, L-1150, Luxembourg Tel: +352 28 80 18 / URL: www.moyal-simon.com

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Eduardo Paulino, Margarida Torres Gama & Inês Magalhães Correia Morais Leitão, Galvão Teles, Soares da Silva & Associados

Introduction The evolution of capital markets in Portugal in recent decades has been greatly influenced by the political scene. The revolution of 1974, which reinstated a democratic regime in Portugal after a 48-year-long dictatorship, was a stepping-stone in the development of capital markets, with a clear impact on the upsurge of Initial Public Offerings (“IPOs”). In fact, in the first few years after the re-opening of the stock market, after a shut-down between 1974 and 1977 following the revolution, capitalisation was very low, as most of the larger companies listed before 1974 had been nationalised. However, the stock market grew strongly in the early and mid-1980s, supported by greater incentives for companies to list. Indeed, there were 88 IPOs, followed by listing, in 1986 and 1987, a period of unparalleled issuing activity in Portugal. A significant number of the earlier IPOs in Portugal derive from a privatisation programme started in the late 1980s and early 1990s. There has been great disparity between the IPOs of state-owned and privately owned companies, with offerings in the former cluster averaging a size nearly 10 times greater than a typical privately-owned company IPO.1 This is due to the fact that the largest Portuguese companies were nationalised in 1975, including banks and insurance companies as well as companies operating in strategic sectors such as telecommunications, electricity, and oil and gas. These nationalised companies have been progressively privatised since the 1980s, mostly through IPOs. Conversely, the bulk of privately-owned companies in Portugal is composed of small and medium-sized enterprises (“SMEs”), resulting from several decades of detachment from international competition, and from being mostly oriented to a small and emerging domestic market. In recent years, the number of IPOs has been decreasing, especially since the financial crisis of 2008. However, despite the decreasing volume of IPOs in recent times, a shifting trend can be noticed: as the majority of previously state-owned companies have been already privatised, most of the more recent IPOs have been executed by privately held firms and SMEs, and not by state-owned companies. Additionally, private companies seem to be starting to consider alternative listing venues, in particular multi-trading facilities such as Euronext Access and Euronext Growth (both of which are managed by the Euronext group).2

The IPO process: Steps, timing and parties and market practice Under Portuguese law, IPOs are very often implemented through public distribution offers (“ofertas públicas de distribuição”) of shares, most commonly through an offer for subscription (“oferta pública de subscrição”), where the issuing company offers its shares

GLI – Initial Public Offerings 2021, Fifth Edition 138 www.globallegalinsights.com Morais Leitão, Galvão Teles, Soares da Silva & Associados Portugal for subscription to undetermined investors. In association with a distribution offer, the IPO process will often entail the admission of the company’s shares to trading on a regulated market. This analysis puts the focus on the procedure and listing requirements in the regulated market operated by Euronext Lisbon, which is currently the only regulated market for the trading of shares in Portugal, although sponsors and companies may elect to have their securities admitted to trading in other venues. Due diligence Most often, once a company decides to go public, its IPO process will begin with a due diligence procedure with the purpose of analysing several aspects and the status of the company (e.g., financial, commercial, legal, accounting, tax, and others). This due diligence procedure may be conducted by the company seeking to go public with the assistance of legal counsel and financial intermediaries (e.g., investment banks) which may intervene in the IPO process as underwriters or, more generally, in the placement and distribution of the company’s securities in the market. The results of the due diligence exercise will also assist in the structuring and potential strengthening of the company’s corporate governance practices and mechanisms. Preparation of a prospectus The carrying out of any public offer relating to securities should be preceded by the approval and disclosure of a prospectus containing complete, true, updated, clear, objective and lawful information necessary to enable the addressees to make an informed assessment of: (i) the offer, the securities concerned thereby and the rights attached thereto, its specific characteristics and its assets and liabilities; (ii) the economic and financial position of the issuer and the guarantor, if any; and (iii) the prospects for the business and earnings of the issuer and the guarantor, if any. Considering that admission to trading of securities generally requires the publication of a prospectus, the offer prospectus is usually prepared as an offering and listing prospectus. The disclosure of information in the prospectus shall comply with the national legal provisions in the Portuguese Securities Code3 and Regulation (EU) 2017/1129 of the European Parliament, and of the Council of 14 June 2017,4 as amended, on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the “Prospectus Regulation”) and its delegated acts.5 Without prejudice to the format adopted, the prospectus is required to include a summary that provides key information to investors, concisely and in non-technical language. Among other aspects, the prospectus will include information on: (i) the persons who, according to the Portuguese Securities Code, are responsible for its contents;6 (ii) the purposes of the offer; (iii) the issuer and its activity; (iv) the main risks to which the issuer, its activities and the investment in the offered securities are subject; (v) the issuer’s corporate governance structure and the identity of the members of corporate bodies of the issuer; and (vi) the financial intermediaries that are members of the placing consortium, where applicable. If the offer is made in Portugal, the prospectus shall be drafted in Portuguese or a language accepted by the Portuguese Securities Market Commission (“Comissão do Mercado de

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Valores Mobiliários” or “CMVM”), unless the offer is made in Portugal and other European Member States and the CMVM is not the competent authority, in which case the prospectus may also be drafted in a language commonly used in international financial markets, at the discretion of the issuer or the offeror. The CMVM has recently decided to accept English as the language of a prospectus approved by it in the context of an IPO. Testing the waters: bookbuilding A possible step in the IPO process which may occur prior to the announcement of the offer is the collection of investment intentions (“intenções de investimento”) with the public, in order to help determine the price of the offer or assess its potential success. Under Portuguese securities law, companies seeking to complete an offer for subscription of shares may “test the waters” through a pre-offering bookbuilding procedure. Here, the company should issue a preliminary prospectus (which must be approved by the CMVM), describing the conditions and price of the offer while the bookrunner, acting through managers, evaluates the level of public interest in the company’s shares. At the end of the bookbuilding period, the price is determined in accordance with the level of demand. Although foreseen in Portuguese law, preliminary prospectuses are fairly unusual. Approval and publication of the prospectus In order to obtain approval from the CMVM of the prospectus for the public offer and admission to trading, the issuer shall present an approval request to the CMVM, together with a set of documentation which includes the company’s corporate documentation (for instance, among others, a copy of the relevant resolutions and the necessary management decisions, a copy of the issuer’s by-laws, up-to-date certificate of the issuer’s company registration, financial statements, etc.), as well as other documentation pertaining specifically to the offer (such as copies of contracts entered into with the financial intermediary assisting in the operation, placing contracts, if applicable, and stabilisation contracts, if applicable). The issuer must be notified of the approval of the prospectus within a maximum period of 20 days from the receipt of any complementary information required. The absence of notification from the CMVM within the abovementioned period must be considered as non- approval of the prospectus. Once approved by the CMVM, the prospectus must then be disclosed under the terms and conditions of articles 140 and 236 of the Portuguese Securities Code through one of the following means: (i) publication in one or more newspapers of national diffusion or wide circulation; (ii) in printed form to be available free of charge at the facilities of the regulated market or at the issuer’s registered office and the branches of the financial intermediary in charge of the placing of the securities; (iii) in electronic form on the issuer’s website and, if applicable, on the website of the financial intermediaries in charge of the placing of the securities; (iv) in electronic form on the website of Euronext Lisbon; or (v) in electronic form on the CMVM’s website. Listing application A request for the listing of shares must be submitted to Euronext Lisbon in order for the company’s shares to be admitted to trading on a regulated market in Portugal. With the listing application, a set of documents and information must be provided to Euronext Lisbon pursuant to the Portuguese Securities Code, Euronext’s Harmonised Rules (Rule Book I, Notice n.º 1-01), as amended,7 and other applicable legislation (such

GLI – Initial Public Offerings 2021, Fifth Edition 140 www.globallegalinsights.com Morais Leitão, Galvão Teles, Soares da Silva & Associados Portugal as Euronext Lisbon Rule Book II and applicable Notices). The above includes some of the same documentation required by the CMVM for its approval of the prospectus and also, among others, the documents specified in the Euronext application form including, but not limited to, documentation evidencing that: (a) the legal position and organisation of the issuer are in accordance with applicable laws and regulations; (b) the communication of corporate events is ensured; (c) adequate procedures are available for the clearing and settlement of transactions in respect of the relevant securities; (d) the Legal Entity Identifier (“LEI”) code pertaining to the issuer has been provided; (e) all press releases have been published in the context of the admission to trading; (f) a paying agent and a representative for relations with the market have been identified; and (g) a social security certificate and a tax office certificate, indicating if there are any amounts owed respectively to the social security system and to the national treasury. All documentation required for submission must be in English, or in a language accepted by Euronext Lisbon, and translated by a certified translator if necessary. With the submission of the listing application, the applicant and Euronext Lisbon should agree on a schedule for completion of the process of admitting the company’s shares to trading. The issuer shall then appoint a Listing Agent (“Agente de Admissão”) who will assist and guide the issuer during the entire process of admission to listing. Euronext Lisbon will decide on the application for admission to listing within a 30-day period, unless otherwise agreed with the issuer (and in no case later than 90 days after the application). This period only begins when Euronext Lisbon is in possession of all relevant documentation and required information. In case of a favourable decision to list, such decision shall remain valid for a maximum period of 90 days. Simultaneously, the issuer should deal with the proceedings regarding the registration of the shares with the Portuguese Centralised System of Registration of Securities (“Central de Valores Mobiliários”) managed by Interbolsa – Sociedade Gestora de Sistemas de Liquidação de Sistemas Centralizados de Valores Mobiliários, S.A.

Regulatory architecture: Overview of the regulators and key regulations As mentioned above, under Portuguese securities law, the IPO process entails a public offer for distribution of shares (“oferta pública de distribuição”), as well as the admission of the company’s shares to trading on a regulated market. This procedure poses a set of material and procedural requirements. The role of the Portuguese securities regulating authority The process of offering and admission to trading in an IPO is overseen by the CMVM, which supervises the licensing process, as well as trading operations and, more generally, the activity of securities markets in Portugal. In the context of IPOs, the CMVM must, within its supervisory role, approve a prospectus for the admission of securities to trading. Under article 145 of the Portuguese Securities Code, the CMVM is the competent authority to approve the prospectus for issuers with a registered office in Portugal, in relation to, among other cases, issues of shares. The CMVM is also competent to approve prospectuses concerning securities issued by non-EU issuers, when exclusively or firstly trading in a regulated market in Portugal. The inclusion of any changes to the information and data disclosed in the prospectus must be subsequently approved by the CMVM by means of an approved supplement.

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In addition, as mentioned previously, if a company intends to have its shares listed on a regulated market in Portugal, it must submit a formal request to Euronext Lisbon. In the process of admitting securities to trading, Euronext Lisbon may impose additional listing requirements, when reasonable, and demand any additional documentation from the applicant. Euronext Lisbon may also conduct inquiries and investigations in connection with the listing application. Key rules and regulations Offer and listing requirements are set out in three main legislative frameworks: (i) the Portuguese Securities Code; (ii) the regulations and instructions approved by the CMVM; and (iii) the “Euronext Rule Book” and Notices, including Book I (the harmonised market rules, in force for all Euronext entities) and Book II8 (the non-harmonised market rules, specifically applicable to the Securities Markets, the Non-Regulated Markets, and the Derivatives Markets operated by Euronext Lisbon), as well as in EU legislation concerning capital markets, including the legislation mentioned in the previous sections and market abuse regulations. In this respect, it should be noted that most of the rules contained in the Portuguese general framework with regard to securities regulation result from the implementation of, or are greatly influenced by, EU legislation, notably the MiFID framework,9 the Prospectus Regulation and its delegated acts, the Market Abuse Regulation10 and the Transparency Directive.11 As such, the Portuguese legal regime is very similar to the regimes of other EU Member States. Key listing requirements In order to have its shares admitted to trading on a regulated market, the issuer must meet the following set of general eligibility criteria, as set out in articles 227 and 228 of the Portuguese Securities Code: (i) the issuer must be incorporated in, and act in accordance with, the respective applicable law; (ii) the company must be able to prove that its economic and financial situation is compatible with the nature of the securities, as well as with the market requirements on which listing is required; (iii) the company must have carried out its business activity for at least three years; and (iv) the company must have disclosed its annual accounting and financial reports for the three years preceding that of the requested listing (the so-called “track record” requirement). In any case, the latter requirement may be waived by the CMVM when the interests of the issuer and of the investors advise in such a way, and provided that sufficient information is disclosed in order to allow the investors to form an informed judgment on the issuer and the securities. This flexible solution may be particularly relevant in the case of recent or start-up companies. Pursuant to article 227(4) of the Portuguese Securities Code, the application for admission to trading shall outline the means by which the company will disclose information to the public and identify a settlement system, accepted by the managing entity of the regulated market, through which equity payments and payments of other amounts associated with the securities can be assured.

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Conversely, in order to decide on listing applications filed by issuers seeking to go public, Euronext Lisbon should also verify if the requirements established in the Euronext Rule Book are fulfilled. These requirements are set forth: (i) in section 6.2 of Rule Book I, which establishes general requirements, applicable to all kinds of securities’ listings; and (ii) in section 6302 of Rule Book I, establishing specific requirements regarding share listings only. The general requirements concern mostly corporate matters, for example: whether the issuer has the necessary legal form and structure in accordance with Portuguese law; whether it is in compliance with all requirements imposed by the CMVM; whether the necessary procedures for clearing and settlement of transactions are in order; whether the issuer has taken all necessary measures to have an ISIN code for the securities as well as an active LEI; and whether all members of the issuer’s board of directors have satisfactory expertise in respect of the Euronext Rule Book and applicable laws and regulations. Regarding the securities to be issued, it must be ensured that the shares of the same class have identical rights (as a principle, the issuer shall apply for admission to trade of all its shares of the same class issued at the time of the application or proposed to be issued) and that such shares are capable of being traded in a fair, orderly and efficient manner, transferable and freely negotiable in accordance with Portuguese law. It must also be ensured that the shares are compliant with the applicable laws and regulations, the issuer’s articles of association and other constitutional documents. The specific requirements generally match those on the listing of shares specified in article 229 of the Portuguese Securities Code which include, in particular, requirements on the company’s minimum market capitalisation and public float. According to the Portuguese Securities Code, the market capitalisation of the company’s shares must be at least €1m. In case it is not possible to determine the market capitalisation of the shares, the company’s own funds, including the results of the preceding financial year, must be at least €1m. Euronext Lisbon may set stronger capitalisation requirements in case there are other regulated markets with higher capitalisation thresholds. However, as of today, Euronext Lisbon is the only regulated market for the admission and trading of shares in Portugal and, for that reason, the applicable thresholds for minimum capitalisation are those set in the Portuguese Securities Code as described above. On the other hand, the Portuguese Securities Code requires adequate dispersal of shares to the public. There is a legal presumption that the level of dispersal is adequate if the shares to be admitted to trading are dispersed to the public in a proportion of at least 25% of the share capital of the company represented by that class of shares. However, if the market is expected to trade in a regular manner below that threshold, a lower proportion may be acceptable. There are no additional requirements regarding shareholdings, and the law sets no general restrictions on substantial or qualified shareholdings (except in the case of regulated companies, such as financial institutions). Conversely, there are generally no post-IPO share lock-up obligations established in the law (although they are not uncommon in practice).

Public company responsibilities Under Portuguese law, when a company undergoes an IPO process, it will, as a requirement, be deemed a “publicly held corporation” or “public company” (“Sociedade Aberta”), meaning that its share capital is open to public investment. This status of “Sociedade Aberta” brings an additional legal regime which includes various duties and encumbrances, mostly related to greater transparency, reporting, and corporate governance requirements.

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These additional obligations are intended to provide the market with greater information and to provide protection to undetermined and dispersed shareholders. Periodic reporting and disclosure requirements With regard to the disclosure of information, listed companies are required to publicly disclose inside information, i.e., any circumstances which exist or may reasonably be expected to come into existence, or any event which has occurred or may reasonably be expected to do so, regardless of its degree of materialisation, which a reasonable investor would be likely to use entirely or partially as a basis for their investment decisions, since it would be likely to have a significant effect on the prices of securities or financial instruments. Issuers which have securities admitted to trading on a regulated market, or which have requested their admission to such a market, must promptly disclose privileged information as established in Regulation (EU) 596/2014, of the European Parliament and the Council, of 16 April 2014, as amended, and respective regulations and delegated acts. However, under these provisions, issuers may delay the public disclosure of this information in certain circumstances. The Portuguese Securities Code further requires companies listed in Portugal to disclose additional information, including, among other items: (i) notices convening general meetings of the holders of listed securities; (ii) the issue of shares, with an indication of beneficial privileges and guarantees, including information on any procedures for their allotment, subscription, cancellation, conversion, exchange or repayment; (iii) amendments to the details that have been required for the admission to trading of securities; and (iv) the acquisition or disposal of own shares when, as a result thereof, the proportion of the same exceeds or falls below the thresholds of 5% and 10%. Regarding a company's own shares, CMVM Regulation no. 5/2008, as amended, including by CMVM Regulation no. 7/2018, further provides that issuers of shares or other securities that confer subscription, acquisition or disposal rights, which are subject to Portuguese law as their personal law and exclusively admitted to trading in a regulated market located or operating in Portugal or exclusively traded in a multilateral trading system or organised trading system, or issuers with head offices located outside the EU who have elected Portugal as the competent EU Member State among those in whose territory they are admitted to trading on a regulated market or operate, should notify the CMVM of any acquisitions and disposals of such securities. Issuers should also disclose the final result of any transactions that reach, exceed or fall below 1% of the share capital or successive multiples, as well as all the acquisitions and disposals, regardless of their net balance, carried out in the same session of the regulated market reaching or exceeding 5% of the volume traded in said session. It should be noted that under Article 5(1) of the Market Abuse Regulation, if certain conditions are met, the prohibitions of insider dealing and of market manipulation established in Articles 14 and 15 of the same Regulation do not apply to trading in own shares in buy-back programmes. One of the conditions is that the full details of the programme are disclosed prior to the start of trading, notably in accordance with Article 2 of Commission Delegated Regulation (EU) 2016/1052.12 Transactions in connection with such buy-back programmes must also be notified to the competent authority of the trading venue and subsequently disclosed to the public, in accordance with Article 5(3) of the Market Abuse Regulation and adequate limits with regard to price and volume must be complied with. Furthermore, only the purposes set out in Article 5(2) of the Market Abuse Regulation qualify for this “safe harbour”. It should also be noted that, according to articles 16 and 17 of the Portuguese Securities Code, public companies should disclose qualified shareholdings, as defined therein, as

GLI – Initial Public Offerings 2021, Fifth Edition 144 www.globallegalinsights.com Morais Leitão, Galvão Teles, Soares da Silva & Associados Portugal well as certain cases where a shareholder reaches or exceeds certain thresholds of the voting rights corresponding to the capital, or reduces its holding to an amount lower than any of such thresholds. Additionally, according to CMVM Regulation no. 5/2008, as amended, public companies are further required to disclose the following additional information: (i) the exercise of subscription, incorporation and acquisition rights to securities, namely as a result of mergers or ; (ii) the exercise of any existing rights to convert any securities into shares; (iii) any changes in the attribution of voting rights in qualifying holdings; (iv) any filing for insolvency, judgment initiating insolvency proceedings or dismissing the filing for insolvency, and also the approval and official confirmation ofthe insolvency plan; (v) the increase or decrease of share capital; (vi) information regarding applications for admission to regulated markets and respective decisions; and (vii) the convening of a general meeting to determine the loss of public company status and the respective resolution. Furthermore, issuers are required periodically to disclose financial information and reports. Indeed, issuers must disclose the following information within four months of the end of the financial year and make publicly available for a period of 10 years: (i) the management report, the annual accounts, the audit report and other accounting documents required by law or regulation, even if such documents have not yet been submitted for the approval of the general meeting of the company; (ii) the auditor’s report; and (iii) statements from each of the responsible persons of the issuer, whose names and functions shall be clearly indicated, stating that, to the best of their knowledge, the financial information was drawn up in accordance with the applicable accounting standards, reflecting a true and fair view of the assets and liabilities, financial position and results of the issuer and the companies included in the consolidation as a whole, when applicable, and that the management report faithfully states the trend of the business, the performance and position of the issuer and companies included in the consolidation as a whole, and contains a description of the principal risks and uncertainties faced. Issuers required to draw up consolidated accounts shall disclose individual accounts, drawn up in accordance with national legislation, and consolidated accounts, drawn up in accordance with Regulation (EC) 1606/2002, as amended.13 Conversely, issuers that are not required to draw up consolidated accounts shall disclose the financial information individually, drawn up in accordance with national law. In the event that the annual report does not provide an exact picture of the net assets, financial situation and results of the company, the CMVM may order the publication of supplementary information. The documents that comprise the annual report and accounts shall be submitted to the CMVM as soon as the same are available to the shareholders. Additionally, within three months of the end of the first half of the financial year, issuers shall disclose the following information with regard to the activity for said period, and keep available to the public for 10 years: (i) the condensed set of financial statements;

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(ii) an interim management report, which shall include, at least, an indication of important events that have occurred during said period, and the impact on the respective financial statements, together with a description of the principal risks and uncertainties for the remaining six months; and (iii) statements by the persons responsible within the issuer, whose names and functions shall be clearly indicated, wherein it is stated that, to the best of their knowledge, the condensed set of financial statements has been prepared in accordance with the accounting standards applicable, gives a true and fair view of the assets and liabilities, financial position and results of the issuer and the companies included in the consolidation as a whole, when applicable, and that the interim management report includes a fair review of the required information. Finally, issuers which are credit institutions or financial companies14 are obliged to publish quarterly financial information, within three months of the end of said period. The remaining issuers who decide nonetheless to disclose quarterly financial information shall comply with the CMVM’s regulations in this respect and maintain such disclosure for at least two years. The CMVM may waive some of the abovementioned disclosure duties whenever such disclosure would be contrary to public interest or seriously detrimental to the issuer, provided that the omission would not be likely to mislead the public with regard to the facts and circumstances essential for assessing the securities. Corporate governance standards Public companies must also comply with additional corporate governance disclosure requirements. Current corporate governance standards derive from different legal sources, including the Portuguese Companies Code,15 the Portuguese Securities Code, CMVM Regulation no. 4/2013 and the recommendations contained in the Corporate Governance Code of the Portuguese Institute of Corporate Governance (Instituto Português de Corporate Governance, “IPCG”).16 According to article 245-A of the Portuguese Securities Code, issuers of shares admitted to trading on a regulated market situated or functioning in Portugal shall disclose, in their annual management report, a detailed report on the corporate governance structure and practices of the company. This report shall contain at least the following information: (i) the capital structure, including information on shares which are not admitted to trading, with an indication of the different classes of shares and, for each class of shares, the rights and obligations attached to it and the percentage of share capital it represents; (ii) any restrictions on the transfer of shares, such as clauses on consent for disposal, or restrictions on the ownership of shares; (iii) qualified holdings in the company’s share capital; (iv) identification of any shareholders that hold special rights, and a description of such rights; (v) the system of control of any employee share scheme where the voting rights are not exercised directly by the employees; (vi) any restrictions on voting rights, such as limitations on the voting rights of holders of a given percentage or number of votes, deadlines for exercising voting rights, or systems whereby the financial rights attached to securities are separated from the holding of securities; (vii) shareholders’ agreements which are known to the company and may result in restrictions on the transfer of securities or voting rights;

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(viii) the rules governing the appointment and replacement of board members and amendment of the articles of association; (ix) the powers of the board, notably in respect of resolutions to increase equity; (x) any significant agreements to which the company is party and which take effect, alter or terminate upon a change of control of the company following a takeover bid, as well as the effects thereof, except where their nature is such that their disclosure would be seriously damaging to the company; this exception shall not apply where the company is specifically obliged to disclose such information on the basis of other legal requirements; (xi) any agreements between the company and members of the management body or employees providing for compensation if they resign or are made redundant without valid reason, or if their employment ceases because of a takeover bid; (xii) core information on the internal control and risk management systems implemented in the company regarding disclosure of financial information; (xiii) compliance with the corporate governance statement to which the issuer is subject by virtue of legal or regulatory provisions. The issuer shall also specify those parts of said code that deviate and the reasons therefor; (xiv) compliance with the corporate governance statement by which the issuer voluntarily abides and shall specify those parts of said code that deviate and the reasons therefor; (xv) the location where the public may find the Corporate Governance Code to which the issuer is subject in accordance with the previous subparagraphs; (xvi) content and description of the way the issuer’s corporate bodies function, as well as the committees created thereby; and (xvii) a description of the diversity policy applied by the company in relation to its management and supervisory bodies, namely, in terms of age, sex, qualifications, and professional background, the objectives of such diversity policy, the way it was applied, and results in the period of reference. In case a company does not apply a diversity policy, it must explain in its report why it does not apply such policy. However, this requirement does not apply to SMEs. Issuers of shares admitted to trading on a regulated market subject to Portuguese law as their personal law shall disclose information on their corporate governance structure and practices in the terms laid down in a regulation of the CMVM, which shall include the abovementioned information. Conversely, disclosure requirements for the annual governance report are further regulated by CMVM Regulation no. 4/2013, which includes a model corporate governance report. Finally, the Corporate Governance Code includes a set of recommendations concerning the organisational structure and corporate bodies of public companies, as well as more specific issues such as remunerations, auditing, risk management, conflicts of interest and related party transactions.

Potential risks, liabilities and pitfalls The process of going public through an IPO may present relevant risks and potential liabilities to the offeree company and other parties involved. On the one hand, the IPO process and the admission to trading on a regulated market imply additional costs associated with the listing application and annual listing fees. Issuers with listed securities are required to pay any fee charged by Euronext Lisbon pursuant to the conditions set forth by Euronext. These fees are determined on the same terms as in other

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Euronext Markets abroad and may vary in accordance with the type of securities admitted to listing, the nature of the issuer or the amount of market capitalisation. On the other hand, IPOs entail further liabilities related to the offering of shares to the public, beginning with those that necessarily arise with the publication of a prospectus. Under Portuguese securities law, the issuer and the members of its management bodies are liable for damages caused by non-compliance with the contents of the prospectus, except in the case that they prove to have acted without fault. In certain cases, the issuer may even face a strict liability rule. Equally liable are: members of the auditing body, accounting firms, chartered accountants and any other individuals who have certified or, in any other way, verified the accounting documents on which the prospectus is based; financial intermediaries in charge of assisting with the offer; and promoters of the offer and any other entities that accept being appointed in the prospectus as responsible for any information, forecast or study included therein. Other than the liabilities directly connected with the offer and the publication of the prospectus, companies which undergo IPOs are also faced with the general costs and potential liabilities associated with their public and listed company status, which include the ongoing costs of complying with the strict corporate governance, periodic reporting and aggravated disclosure requirements described above, as well as the potential liabilities arising out of the application of, for instance, the framework on market abuse. Furthermore, both public companies and their shareholders must take into consideration the specificities of the legislation governing this type of company, including the provisions regarding mandatory takeovers, according to which anyone whose holding in a public company exceeds one third or one half of the voting rights attributable to the share capital has the obligation to launch a takeover for the totality of shares and other securities issued by the company that grant the subscription or acquisition of shares. Shareholders of the relevant company shall thus take due consideration of these rules and structure the transaction in a manner that minimises risks in this respect.

* * *

Endnotes 1. For an empirical analysis of the evolution of IPOs in Portugal, see Maria Rosa Borges, Underpricing of Initial Public Offerings: The Case of Portugal, Int Adv Econ Res (2007) 13:65–80 and João Duque, Miguel Almeida, Ownership Structure and Initial Public Offerings in Small Economies: The Case of Portugal, Paper for the ABN- AMBRO International Conference on Initial Public Offerings (2000). 2. According to Euronext Lisbon, in 2020 the shares of three entities were listed in a trading venue in Portugal, all such companies being real estate investment vehicles: Olimpo Real Estate Portugal, SIGI, S.A., and RSR Singular Assets Europe SOCIMI, S.A.U. were admitted to trading in Euronext Access, while Merlin Properties SOCIMI, S.A. (a company whose shares were already listed in Spain) was admitted to trading in the Euronext Lisbon regulated market (a dual listing). So far, at the time of writing this chapter, only the investment units of Fundo Especial Fechado de Investimento Imobiliário em Reabilitação Urbana Coimbra Viva I, a closed-end real estate investment firm, were admitted to trading in 2021, in Euronext Access (according to information available at http://live.euronext.com/en/markets/ lisbon), although one other company has indicated the intention to consider the IPO of one of its subsidiaries.

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3. Approved by Decree-Law no. 489/99, of 13 November, as amended. 4. Official Journal L. 168, 30/06/2017, p. 12. 5. Commission Delegated Regulation (EU) 2019/979 of 14 March 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal, and repealing Commission Delegated Regulation (EU) 382/2014 and Commission Delegated Regulation (EU) 2016/301, as amended and Commission Delegated Regulation (EU) 2019/980 of 14 March 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Commission Regulation (EC) 809/2004, as amended. 6. Portuguese law provides for a list of entities which may be held civilly responsible for prospectuses – please refer to section 5 in this respect. 7. Available at https://www.euronext.com/en/regulation/harmonised-rules. 8. Available at https://www.euronext.com/en/regulation/lisbon. 9. The MiFID framework currently comprises MiFID II (Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU, as amended), MiFIR (Regulation (EU) No. 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No. 648/2012, as amended) and their respective implementing legislation. 10. Regulation (EU) 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse. 11. Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC, as amended. 12. Commission Delegated Regulation (EU) 2016/1052 of 8 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the conditions applicable to buy-back programmes and stabilisation measures. 13. Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards. 14. As defined by Decree-Law no. 298/92, of 31 December – Regime Geral das Instituições de Crédito e Sociedade Financeiras, as amended. 15. Approved by Decree-Law no. 262/86, of 2 September, as amended. 16. Available at: https://cam.cgov.pt/images/ficheiros/2020/revisao_codigo_pt_2018_ ebook.pdf. This Corporate Governance Code resulted from a protocol between the CMVM and the IPCG and includes the contribution of the AEM – Associação de Empresas Emitentes de Valores Cotados.

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Eduardo Paulino Tel: +351 213 826 603 / Email: [email protected] Eduardo Paulino joined the firm in 2002 and became a partner in 2015. He is the head of a corporate team. Eduardo’s main areas of practice include capital markets, company and corporate law and banking and finance. He specialises in M&A, public offerings, and privatisations and is also experienced in banking and finance law matters and compliance. He has recently been involved in complex high-profile M&A transactions in the banking sector and is in the process of recapitalisation of the Portuguese banking sector. Eduardo regularly acts in equity and debt public and private offerings, public takeover processes in the banking, telecommunications, construction, paper and media sectors, as well as in privatisations of Portuguese and foreign companies and complex financing transactions. Eduardo also participates in various interdisciplinary teams working in domestic and cross-border M&A transactions, acting both for Portuguese and foreign clients.

Margarida Torres Gama Tel: +351 213 826 603 / Email: [email protected] Margarida Torres Gama joined the firm in 2007. She is a member of the corporate and M&A and capital markets team and of the insurance, reinsurance and team. Margarida specialises in mergers, acquisitions and joint ventures, acting both for Portuguese and foreign clients, as well as on the provision of general legal advice to companies mainly in the areas of commercial, corporate, securities, and insurance law. Margarida has also been involved in several transactions regarding the issue and offering of equity and debt securities.

Inês Magalhães Correia Tel: +351 213 826 613 / Email: [email protected] Inês Magalhães Correia joined the firm in March 2015. She is a member of the corporate and M&A and capital markets team. She was also part of the litigation and arbitration team. Inês provides regular legal advice to national and international clients mainly in the areas of commercial and corporate law, corporate governance and securities law and specialises in M&A transactions, often cross-border, such as share deals, asset deals, partnerships, restructurings, and sales of non- performing loans and distressed assets. In the field of securities law and capital markets, Inês regularly assists in transactions regarding the issue and offering of equity and debt securities, including medium term notes and covered bonds.

Morais Leitão, Galvão Teles, Soares da Silva & Associados Rua Castilho, 165 – 1070-050 Lisboa, Portugal Tel: +351 21 381 74 00 / Fax: +351 21 381 74 99 / URL: www.mlgts.pt

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Nadezhda Minina, Alexander Nektorov & Dr. Ilia Rachkov Nektorov, Saveliev & Partners

Introduction Acquisition by a Russian joint-stock company of the status of a public company means starting a new life: a public company gains better access to capital markets, the investor base is expanded, the valuation of the market value of the company becomes easier and more precise, the brand awareness increases, and additional ways to motivate the staff emerge. The modern Russian stock market is quite young: the first initial public offering in Russia only took place in 2002 (with the amount of attracted funds being just USD 13 million). Since 2002,1 more than 80 IPOs have been held in Russia. In 2007 there was a boom of IPOs: 22 offerings took place. From 2004 to 2006, major Russian companies combined the IPOs related to their shares in Russia with IPOs of derivatives (global depositary receipts or American depositary receipts) on their shares in London or the US respectively. For example, this approach was chosen by PAO2 Novatek: the shares of Novatek were placed on the Russian stock exchanges, i.e., on the Interbank Currency Exchange (MICEX) and on the Russian Trading System (RTS) (in 2011, as a result of a merger of MICEX and RTS, the Moscow Exchange was established), whereas GDRs on Novatek’s shares were placed on the London Stock Exchange. Another option was to hold the IPOs of the shares belonging to the Russian subsidiaries in Russia and to hold the IPOs outside the territory of Russia for the shares of the foreign companies controlling such Russian subsidiaries. This approach was chosen by Evraz S.A. (Luxembourg): its shares were placed on foreign stock exchanges and the shares of its Russian subsidiary steel-making plants were listed on the Russian stock exchanges. Medium-sized companies controlling assets in Russia did not hold IPOs in Russia at all, but posted their IPOs directly on a stock exchange abroad (for example, AIM in London) or on other foreign exchanges (Toronto, Stockholm, Frankfurt, etc.). This approach was chosen, for example, by Urals Energy plc. (Cyprus), which placed its shares on AIM. However, such development hampered the development of the stock market in Russia and contributed to cross-border flows of capital outside Russia. Therefore, in 2002, Russia established the requirement that any Russian company which intends to hold an IPO abroad is obliged to obtain prior approval of the Russian Federal Commission for Financial Markets (currently – the Central Bank of Russia) and to hold its IPO in Russia. In 2014, there were no IPOs in Russia. From 2015, the situation started to improve slightly: between 2015 and 2020, 12 initial public offerings took place. In 2021, several Russian companies have announced their plans to place shares on the Moscow Exchange. In 2020 and 2021, a new trend emerged: foreign holding companies of Russian companies started holding their IPOs outside of Russia – on shares of such foreign companies that

GLI – Initial Public Offerings 2021, Fifth Edition 151 www.globallegalinsights.com Nektorov, Saveliev & Partners Russia control these Russian subsidiaries. This is how the shares of Ozon were placed on NASDAQ, and the shares of Fix Price were placed on the London Stock Exchange. Concurrently, global depositary receipts on shares of such (foreign) issuers were subsequently admitted to trading on the Moscow Exchange.

The IPO process: Steps, timing and parties and market practice An IPO is a complex process consisting of a number of stages. A company can choose to place, at an IPO, its primary shares (placed by the issuer through their sale during the IPO), or the controlling shareholder of such Russian company can place its shares in such company. When placing primary shares, the proceeds from their sale during the IPO are received by the issuer; when selling secondary shares, the selling shareholder receives such proceeds. Thus, when structuring an IPO, the following options are available to the issuer: • to place only primary shares; • to offer only secondary (i.e. already-placed) shares; and • mixed offering: placement of primary shares and offering of secondary shares by selling shareholders. Regardless of the structure chosen, any IPO requires careful planning and different specialists are involved in its implementation: investment advisors; auditors; lawyers; PR agencies, etc. (for further information, please refer to the section titled “Formation of the team to hold an IPO” below). The time to get an IPO through varies depending on the issuing company and the deal structure and can take from five to 12 months. As a rule, preparation for an IPO begins more than a year before the date of share placing/offering. For the sake of simplicity, the entire process can be divided into a preparatory and a public stage. Main stages of an IPO Preparatory stage 1. Company restructuring Only a joint-stock company is eligible to become a public company. If the issuer operates as a limited liability company, then preparation for an IPO will require its corporate transformation into a joint-stock company. Such transformation usually takes at least four months. Besides, as a rule, in the course of preparation of any company for an IPO, external lawyers and tax advisors carry out a comprehensive due diligence of such company, its subsidiaries and the persons controlling the company itself de jure or de facto. Based on the results of the due diligence, these advisors make recommendations as to what kind of legal entities should be established, reorganised (in one way or another), divested from the family tree or functions changed (for example, by executing, amending or terminating certain contracts). 2. Financial statements Companies planning to enter their shares in the quotation list of levels I or II of the Moscow Exchange shall, in advance, start preparing their financial statements in compliance with the international financial reporting standards (IFRS) (if there are no consolidated financial statements, then individual financial statements must be prepared). The statements shall be audited. The requirements concerning financial statements also apply to the entities that have been reorganised by way of transformation and which have undergone a merger or spin-off.

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3. Corporate governance The company shall build up its corporate governance so that it meets the requirements of the Corporate Governance Code (approved by Letter No. 06-52/2463 of the Bank of Russia dated 10 April 2014). Independent directors. The issuer shall set up a Board of Directors (also called a “supervisory board”). The Board of Directors shall be composed of independent directors. These are people who have sufficient autonomy to build their own positions and are able to make objective judgments independent of the influence of the issuer’s executive bodies, certain groups of shareholders or any other interested parties. They must also possess a sufficient degree of professionalism and experience. To qualify as an independent director, the member of the Board of Directors shall not be related to the issuer, any substantial shareholder of the issuer, any substantial counterparty of the issuer or any competitor of the issuer, nor to the state (the Russian Federation or one of its constituent entities – currently numbering over 80) or a municipality. Committees of the Board of Directors. The Board of Directors shall set up the following committees: for audit; for remuneration; and for personnel and nomination. Such committees shall consist primarily of independent directors. The main functions of the audit committee include: • control over ensuring completeness, accuracy and reliability of the issuer’s financial statements; • control over reliability and effectiveness of the risk management and internal control system; and • ensuring independence and objectivity in carrying out internal and external audit functions. The main functions of the remuneration committee include: • development and periodic review of the issuer’s policy on remuneration to be paid to the members of the Board of Directors, the members of the issuer’s management board and the CEO, as well as supervision over the introduction and implementation of such policy; • initial assessment of work of the issuer’s management board and CEO based on the results of the year according to the issuer’s remuneration policy; • elaboration of conditions for early termination of labour contracts with the members of the issuer’s management board and the CEO; and • development of recommendations to the Board of Directors on determining the amount of remuneration and the guidelines for awarding the corporate secretary. The main functions of the nomination committee include: • annually carrying out a detailed formal procedure for self-assessment or external KPIs of the Board of Directors and its members, as well as the committees of the Board of Directors, identification of priority areas for strengthening the composition of the Board of Directors; • interaction with shareholders in order to make recommendations to shareholders in respect of voting on the election of candidates to the issuer’s Board of Directors; and • planning of personnel appointments, including consideration of continuity of activities, for the members of the management board and CEO, making recommendations to the Board of Directors regarding the candidates for the position of corporate secretary, the members of the company’s executive bodies and other key executive employees. The functions of the nomination committee may be delegated to the remuneration committee.

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Company secretary. The issuer shall appoint a corporate secretary (or establish a special structural unit). The corporate secretary’s task is to ensure: • seamless functioning of the company’s management bodies; • interaction of the issuer with regulatory authorities, the stock exchange, the registrar of shares and other professional participants in the securities market; and • that the Board of Directors is immediately informed of any and all detected violations of the law and provisions of the company’s internal documents, if control over compliance with such provisions falls within the competence of the corporate secretary. Internal audit. The issuer shall establish a structural unit carrying out internal audit or instruct an external independent entity to perform the internal audit. 4. Formation of the team to hold an IPO The issuer planning to issue an IPO typically forms a working group. It consists both of the issuer’s internal members (management, members of the Board of Directors, employees of the finance and legal departments) and external advisors (underwriting banks, legal advisors, industry consultants, auditors, PR agencies). Underwriting banks develop a project plan and the scheme for the IPO, coordinate the working group, make a comprehensive evaluation, assess the issuer’s financial position, examine the business plan, build the company financial model based on a comprehensive evaluation and assessment of the market conditions, compile an order book, monitor pricing, carry out underwriting, arrange for road shows and prepare presentations for investors, interact with investors, and perform the functions of the market-makers. The issuer’s legal advisors provide comprehensive legal support for the project, develop a project plan and a scheme for the IPO (together with the underwriting banks), carry out due diligence, prepare corporate documents for the coming IPO, draft appropriate documents, including the prospectus of securities and information memorandum, prepare legal opinions and interact with the stock exchange on the issues of listing. The issuer’s tax advisors provide the issuer with tax advice in the context of due diligence. Legal advisors of the underwriting banks are responsible for preparing the underwriting agreement; they examine all documents related to the share offering and all relevant contracts. The auditors audit the company’s financial statements according to Russian accounting standards and the IFRS and provide comfort letters (confirmation of accuracy of the financial information published in the prospectus). The PR agency carries out overall PR support for the IPO and interacts with the Russian and foreign mass media. Public stage 1. Acquisition of public status by the company A non-public company acquires public status by introducing changes to the company’s articles of association indicating that the company is public. The introduction of such changes is possible only if the company’s prospectus of securities is registered and the company has made a provisional agreement with the stock exchange on its share listing. Conclusion of a provisional agreement on rendering listing services with the Stock Exchange.3 To make a provisional agreement on rendering listing services, the issuer shall provide a presentation to the stock exchange. It shall contain the following information:

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• general information about the company: name; brief description of its activities; participation in a group of companies; membership in associations; rating; information on its auditor; consultants; revenue; value of assets; and number of employees; • a company history; • objectives/plans of the company for three to five years; • key investment highlights; • analysis of the economic sector in which the company conducts its business and advantages of the company as compared to its peers; • information on the current ownership structure and preliminary offer structure; • the financial situation of the company, including revenue, cost, operating cash flow, EBITDA and assets for the last three years; and • a road map both before and after listing. The issuer is also obliged to provide the stock exchange with a set of documents confirming such information. Upon receipt of the documents, the stock exchange verifies them, within 14 business days, as to the possibility of making a listing agreement. In the course of the examination, the stock exchange may request additional documents and information. In case of a positive decision on making a listing agreement, such listing agreement is concluded with a non- public company for a period up to six months with an option to extend its term in the future. Preparation and registration of the prospectus of securities, as well as the additional issue of shares (if primary shares are offered). The prospectus of securities shall be registered with the Bank of Russia (the “mega regulator” which is also responsible for all financial markets in Russia, including the securities market). The prospectus isan indispensable element for obtaining a listing on the stock exchange. In order to register the prospectus, it is necessary to present to the Bank of Russia the provisional listing agreement. Any additional issue of the shares to be placed by public offering shall also be registered with the Bank of Russia. As a rule, the prospectus of securities is prepared by legal advisors together with the relevant employees of the company. The preparation of the prospectus takes about one month, and the period of its state registration is 20–40 business days. There is an option for the issuer to use the procedure for preliminary consideration of documents by the Bank of Russia, which lasts up to 20 business days; in this case, the period for state registration after such preliminary consideration is reduced to 10 business days. Introduction of changes to a company’s articles of association to confirm that the company is public. Such changes shall be introduced into the articles of association after registration of the prospectus of securities. As a rule, at the same stage the changes which harmonise the articles of association with the requirements established for public companies have to be introduced into the articles of association. The company acquires public status starting from the date of state registration of the changes to its articles of association. 2. Carrying out due diligence Comprehensive due diligence is carried out and the following needs to be verified: clean title of incorporation and activities of the issuer, its financial position and the operational stability of its business. 3. Marketing and preparation of the information memorandum The information memorandum is the main source of information on the issuer for the external world. The information memorandum is intended for a wide range of international

GLI – Initial Public Offerings 2021, Fifth Edition 155 www.globallegalinsights.com Nektorov, Saveliev & Partners Russia investors. Preparation of the information memorandum requires the involvement of legal advisors, underwriting banks and the issuer’s management. For marketing purposes, many public events and presentations are held. The main purpose of these events/presentations is to find out whether potential investors have appetite for the company’s shares if they were offered for public sale. 4. Listing Listing means enrolment of securities by a trade organiser (i.e. a stock exchange) in the list of securities that are admitted to on-exchange trading for the conclusion of sale and purchase contracts. This list consists of three independent levels (levels I and II constitute the quotation list). The level of the list is of significance (i) for the range of investors who are eligible to acquire the shares, and (ii) for the requirements for enrolment of the securities into the list and maintaining the level. Placement of securities and stock trading may be carried out on the stock exchange and over the counter (OTC trade). Obtaining a listing on the stock exchange is an important stage of the IPO; it precedes the placement of securities and confirms that the issuer meets the corporate governance requirements. The issuer shall submit to the stock exchange an application for enrolment of its securities in the list; the application shall be accompanied by supporting documents. For the purposes of the listing, legal or financial advisors usually directly interact with the stock exchange. The stock exchange examines the securities from the point of view of their compliance with the listing rules. To be included in the list the issuer must meet the following criteria: • the securities must comply with the requirements of the Russian federal law, including the regulations of the Bank of Russia; • the company must register its prospectus of securities; • the company must disclose information in accordance with the requirements of the Russian securities law; and • the securities shall be transferred for servicing to the clearing depositary (when secondary shares are offered). Enrolment into levels I or II of the list imposes on the issuer the following additional requirements: • the issuer must have existed for at least three years for level I or at least one year for level II; • the issuer should have complied with, and disclosed its statements according to, the IFRS (or any other internationally recognised standards) for three complete years preceding the date of listing of the shares into level I or for one year for the shares to be included into list of level II; • the issuer must maintain a sufficient number of free-float shares and their total market value at certain level; and • the issuer must meet the corporate governance requirements. Since 15 July 2009, the Innovation and Investment Market has been operating on the Moscow Exchange. This segment was created for those issuers who are high-tech companies. The main task of the Innovation and Investment Market is to attract investments into small and medium-sized enterprises in the innovative sector of the Russian economy. 5. Securities offering The commencement and ending dates for placement of securities are determined by the prospectus of securities. As a rule, in case of a public offering of securities, the period for placement is several business days (on average up to five business days) from the placement

GLI – Initial Public Offerings 2021, Fifth Edition 156 www.globallegalinsights.com Nektorov, Saveliev & Partners Russia commencement date. As a general rule, placement shall be carried out within one year from the date of the state registration of the prospectus of securities. Stock trading (i.e. subsequent sale of shares after their acquisition by the first purchaser from the issuer) is allowed from the date when the purchasers paid for securities during the IPO. Upon completion of the offering, the issuer shall send a notification on the results of the issue to the Bank of Russia indicating, inter alia, the price and the actual number of securities placed in the course of the IPO. The number of placed shares may be less than the total number of securities issued. Upon placement of securities, all potential purchasers shall be offered equal conditions for acquisition of securities. If newly issues shares are being offered, existing shareholders are entitled to buy them with a certain discount. As a rule, placement is carried out by combining on-exchange and OTC trades. 6. Public company life disclosures Starting from the date when the company acquired public status (i.e. from the date of state registration of the appropriate changes to the company’s articles of association), the company shall disclose information in accordance with Russian securities legislation. When determining the scope of information subject to disclosure, the company shall be guided not only by the legal requirements but also by how detailed the information should be for its adequate perception by the market participants. As a rule, for this purpose, public companies establish investor relations departments.

Regulatory architecture: Overview of the regulators and key regulations Key regulations overview The key regulations governing the IPO process are the following Federal Laws: No. 39-FZ On the Securities Market, dated 22 April 1996; and No. 208-FZ On Joint-Stock Companies, dated 26 December 1995. Other important regulatory sources are the Securities Issue Standards (Regulation No. 706-P of the Bank of Russia dated 19 December 2019) and the Regulation On Admission of Securities to On-exchange Trading (Regulation No. 534-P of the Bank of Russia dated 24 February 2016). The law on the securities market regulates the relations arising in the course of the issuing of securities and stock trading (including shares). The securities issue standards establish the detailed procedure for issue of securities at all stages, as well as the procedure for registration of the prospectus of securities and mandatory requirements to its content. The procedure for acquisition of the public status by a company is regulated by Federal Law No. 208-FZ On Joint-Stock Companies. The listing procedure is prescribed by the stock exchange. For example, the Moscow Exchange and the Saint-Petersburg Exchange approved their listing procedure in their Listing Rules. Such procedure shall comply with the requirements of the regulations of the Bank of Russia and be registered by the Bank of Russia. Information disclosure at the stages of issue and after acquisition of the public status by the company is governed: • until 1 October 2021 – by the Regulation On Disclosing Information by Securities Issuers (approved by Regulation No. 454-P of the Bank of Russia, dated 30 December 2014) (“Old Disclosure Regulation”); and • after 1 October 2021 – by the Regulation On Disclosing Information by Securities Issuers (approved by Regulation No. 714-P of the Bank of Russia, dated 27 March 2020) (“New Disclosure Regulation”).

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Key regulators and listing authorities in the IPO process The key state authority influencing the IPO process is the Bank of Russia. Not only state registration of the prospectus of securities and additional shares, but also approval of the securities issue standards, as well as other legal rules concerning registration and placement of securities and stock trading, fall within the competence of the Bank of Russia. Apart from state registration of additional securities and prospectus of securities (if such additional securities are issued), the company shall undergo the procedure for listing securities on the stock exchange. The largest Russian stock exchange is the Moscow Exchange. Key documentation Issue documents Offering decision. Making a decision on offering is the basis for placement of securities. Offering is the transfer of shares by an issuer to the primary acquirer. The offering decision is made by the general meeting of shareholders or the board of directors, depending on the amount of issue and the requirements of the issuer’s articles of association. Russian prospectus of securities. The prospectus of securities is necessary in the case of a public offering and in order to obtain a listing on the Moscow Exchange. Public status can only be acquired after registering a prospectus of securities. The prospectus of securities must contain information reflecting the circumstances which may affect the decision to acquire shares. The prospectus of securities must be approved by the issuer’s board of directors and signed by its CEO or another authorised person. In addition, the prospectus of securities may also be signed by a financial advisor on the securities market; however, this option is not widely used, as such financial advisor requires extra payment for this service, explaining that he/she will be liable for the correctness of the securities prospectus content. The persons who signed or approved the prospectus of securities (e.g. the members of the board of directors who voted for approval of the prospectus) and the audit firm that prepared its audit report relating to the issuer’s accounting (financial) records disclosed in the prospectus are jointly and severally or secondarily (depending on the case) liable for losses caused by the issuer to the investors due to inaccurate, incomplete and/or misleading information in the prospectus. The prospectus of securities must contain, among other things, information about financial and economic operations of the issuer, the issuer’s market capitalisation, liabilities, risks relating to acquisition of shares, governing bodies and controlled entities. As IPO is usually accompanied by preparation of an international prospectus, the content of both prospectuses should be brought into line with each other. In 2017, the Moscow Exchange developed recommendations on the scope of the information to be disclosed by issuers in prospectuses of securities in order to inform the issuers on the international best practices of information disclosure and to encourage a uniform approach to information disclosure in prospectuses of securities. Adherence to the recommendations is not mandatory, but it facilitates submitting harmonised data in Russian and international prospectuses. The recommendations involve the disclosure of a broader list of information as compared to Russian statutory requirements; however, the benefit of such disclosure is that the issuer meets international market standards relating to the scope and quality of the information disclosed. The new form of prospectus of securities, provided for by Regulation No. 714-P On Disclosing Information by Securities Issuers, approved by the Bank of Russia on 27 March

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2020 and coming into force on 1 October 2021, also brings the content of the prospectus of the securities closer to international market standards. Notification on the results of the issue/Placement report. Within 30 days of the expiration date of the securities offering, notification on the results of the issue or placement report (depending on the provisions of the prospectus of securities) must be submitted to the Bank of Russia. The notification shall be submitted by the registrar who maintains the register of shareholders of the issuer’s securities. The placement report shall be signed by the CEO or another authorised person. Although the current Russian legislation allows for the registration of placement reports following the results of an IPO, issuers prefer the registrar to file the notification on the results of the issue. Listing agreement Obtaining a listing on the stock exchange is an important stage of an IPO. In order to register the prospectus of securities and to obtain public status, the company typically enters into a “temporary” listing agreement for a period of six months. After registering the prospectus of securities and registering amendments to the issuer’s articles of association concerning reference to the public status of the company, the issuer’s securities are included in the list, and a fully-fledged listing agreement is made between the stock exchange and the issuer. Obtaining a listing precedes the securities offering and confirms that the issuer meets the corporate governance requirements. Transaction documents Engagement letter with underwriting banks. The engagement letter shall be concluded between the issuer and the underwriting banks. The engagement letter is subject to foreign law (English as a rule) if the underwriting bank is a foreign entity. (Sometimes a foreign entity is artificially introduced as one of the underwriting banks for this agreement to be subject to foreign law.) In accordance with the engagement letter, the underwriting banks are engaged by the issuer to provide IPO services, and securities can be offered to both Russian and foreign investors. The engagement letter determines general parameters of IPO transactions, a list of banking services provided before the date of the underwriting agreement, banks’ fees, confidentiality terms, etc. Underwriting agreement. The underwriting agreement is made between the issuer and underwriting banks and is usually governed by a foreign law (English as a rule). Underwriting banks undertake to ensure the sale of a certain number of shares at a certain price, and the issuer and/or the selling shareholder undertakes to sell such shares under such conditions. (The underwriting agreement is not necessary if the shares are offered to Russian investors only.) The issuer and the selling shareholder make representations regarding accuracy of the information in the prospectus of securities, the lawfulness of the shares and rights to them, the issuer’s financial standing and the stability of the issuer’s business. If only secondary shares are offered in the course of the IPO, the underwriting agreement is made without participation of the issuer. In this case, an indemnity agreement or an underwriting support agreement can be made between the underwriting banks and the issuer. These agreements are aimed at protecting the interests of the underwriting banks from any risks associated with the IPO. As a rule, underwriting banks acquire shares under preferential terms (with a discount) and are given options to buy/sell shares. Brokerage agreement. The brokerage agreement is made under Russian law between the issuer and a licensed Russian broker to perform an exchange tranche and to offer shares in Russia to the public.

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Market-maker contract. This contract is made in order to stabilise the price for the company’s shares. International prospectus/information memorandum On the one hand, the international prospectus of securities is a marketing document which describes the achievements and strengths of the issuer and its group. On the other hand, the international prospectus discloses accurate information about the risks relating to the acquisition of shares. The risk section of the international prospectus traditionally describes the industry, the home country of the issuer, its reputation risks and risks relating to the issuer’s operations, as well as the issuer’s policy for reducing the likelihood of the occurrence of such risks. The prospectus also describes the issuer’s investment history and development strategy, the main types of products manufactured or services provided by the issuer, its relations with its counterparties, the sources of raw materials the issuer uses in its production activity, the issuer’s position among its competitors, information about the issuer’s employees, material transactions and property, and any litigation involving the issuer. The international prospectus is prepared by external legal advisors with the participation of the issuer and underwriting banks. Legal opinions The purpose of legal opinions is to create an additional legal protection for the underwriting banks. The protection is based on the fact that the banks (inter alia, by engaging legal advisors and obtaining the relevant opinions from them) carried out due diligence and acted with necessary and sufficient prudence when examining the state of the issuer’s business. Legal opinions are prepared by legal advisors to the issuer and its underwriting banks. Legal advisors usually confirm compliance with the statutory procedure for issuing and offering shares, the existence of the title to the selling shareholders’ shares, and the existence of corporate and regulatory approvals. Legal advisors also confirm the existence of corporate approvals of transaction documents, their due execution by authorised persons and compliance of their contents with applicable laws. Comfort letters Comfort letters are submitted by an independent auditor and confirm the accuracy of the issuer’s information contained in the prospectus of securities (in addition to financial records relating to which an auditor’s opinion was issued) and with regard to events which occurred after the date of the auditor’s opinion. Marketing documents Issuers usually issue announcements on the intention to float, on the price range, and press releases on the completed transaction. Marketing materials must comply with requirements of Russian advertising laws; in particular, shares are not allowed to be advertised prior to the state registration of their prospectus. In addition, securities advertising is not allowed to contain promises to pay dividends on shares (this is, in particular, due to the fact that dividends are paid out of the net profit, but the net profit cannot be guaranteed: it depends on the company’s performance) and forecasts of the growth of the securities’ market value.

Public company responsibilities Disclosures Public companies must disclose information about their operations. The information disclosure procedure is established in: Federal Laws No. 39-FZ of 22 April 1996 “On the Securities Market”; No. 208-FZ of 26 December 1995 “On Joint-Stock Companies”; and

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No. 208-FZ of 27 July 2010 “On Consolidated Financial Statements”; the Old Disclosure Regulations (valid until 1 October 2021); and the New Disclosure Regulations (which will come into force on 1 October 2021). Annual report. The annual report is one of the main forms of disclosure of information about the joint-stock company’s operations. The annual report shall give the shareholders and investors a complete overview of operations and development of the company for the last reporting year, providing aggregate information intended first of all for long-term investors. The annual report is one of the most important tools of information exchange with shareholders and other interested parties. Therefore, it must contain information that allows the company’s performance over the year to be evaluated. Not only public companies but also non-public companies with more than 50 shareholders must disclose annual reports; however, public companies must disclose more information according to the Corporate Governance Code. Until 1 October 2021, the content of the annual report is governed by the Old Disclosure Regulations. The annual report has to contain information on the company’s position in the industry, its business priorities, a report by the board of directors on the results of the company’s development of its business priorities, information on the amount of energy resources used, the company’s prospects of further development, dividend payout report, description of the main risk factors relating to the company’s operations, information on major transactions and related party transactions, members of the board of directors, CEO information, information on compliance with principles and recommendations of the Corporate Governance Code. The New Disclosure Regulations do not govern the content of the annual report, except the provision that the annual report of the public company must include a report regarding the compliance with principles and recommendations of the Corporate Governance Code. In accordance with the Corporate Governance Code, public companies are recommended to include the following information in their annual report: • general information (including a brief issuer’s history and organisational structure of the issuer); • a statement (aimed at the shareholders) of the chairman of the board of directors and the CEO containing an evaluation of the company’s performance over the year; • information on the company’s securities (including on offering additional shares by the company) and capital flow over the year, on number of shares held by the company and other companies under its control; • key operating indicators, key accounting (financial) reporting indictors, results achieved over the year compared to the planned ones; • information on profit distribution and on its compliance (or non-compliance) with the dividend policy adopted in the company; • investment projects and strategic tasks of the company; • the company’s development prospects (turnover, production capacity, market share under control, profits increase, profitability, debt-to-equity ratio); • a summary of the most essential transactions; • corporate governance system description; • risk management and internal control system description; • description of personnel and social policy; and • social development, personnel health protection, professional training of employees, compliance with safety of work requirements, information on environment protection policy and ecological policy.

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The following corporate governance information is also recommended to be included in the annual report: • a BoD report; • results of the evaluation by the audit committee of the efficiency of the external and internal audit process; • a description of procedures used when electing external auditors; • information on the main results of evaluation (self-evaluation) of the board of directors’ work; • information on direct or indirect shareholding by the board members and executive bodies; • information on conflicts of interest that board members or executive bodies may have; • information on remuneration of governing bodies, description of principles and approaches applied to the motivation of key executives; and • information on loans granted by the company. If foreign investors have a significant ownership interest in the capital of the company, it is recommended that such information be disclosed in English, along with disclosure in Russian, to ensure free access to such information. Issuers reports. Public companies must disclose the issuer’s reports, the content of which largely coincide with the content of the Russian prospectus of securities. Until 1 October 2021, the issuers must disclose the issuer’s reports quarterly. From 1 October 2021, the issuers must disclose the issuer’s reports drawn up for reporting periods consisting of 6 months (the issuer’s report for six months) and 12 months (the issuer’s report for 12 months). Issuers reports serve as a consolidated source of information for investors on the main aspects of a public company during the accounting period. Until 1 October 2021, the quarterly issuer’s report is signed by the issuer’s CEO and chief accountant and must be disclosed within 45 days of the end date of the quarter. From 1 October 2021, the issuer’s report must be signed by the issuer’s CEO and may be approved by an authorised body of the issuer (e.g. by the board of directors) in case it is required in accordance with the issuer’s charter. The issuer’s 12-month report shall be disclosed by the issuer within 30 days of the date of disclosure of the annual consolidated financial statements, but not later than 150 days of the date of the reporting year end. The issuer’s report for six months shall be disclosed by the issuer within 30 days of the date of disclosure of the interim consolidated financial statements for six months of the reporting year, but not later than 90 days from the date of the end of such reporting period. Material events. Public companies must disclose the information which, as a result of disclosure, can significantly affect the value or quotation of the issuer’s securities and/or the decision on the acquisition or disposal of the issuer’s securities by any interested person acting reasonably and in good faith. Material event notices shall be signed by the CEO or another person acting under a power of attorney issued by the CEO. The Old Disclosure Regulations provide a requirement to disclose more than 60 events; for example: • calling a general meeting of shareholders/board of directors; • decision-making by the general meeting of shareholders/board of directors; • new controlling or controlled parties of the issuer; • going through the stages of the securities issue procedure; • making material transactions by the issuer or entities under the issuer’s control; and • failing to perform the issuer’s obligations to holders of securities, etc.

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The New Disclosure Regulations have reduced the number of material events requiring disclosure but the list of material events is open; the issuer can disclose any information in the form of material event notices which, in the issuer’s opinion, significantly affect the value of the issuer’s equity securities. Disclosure of material event notices requires the issuer to be prompt: such notices must be published within one business day of the date of the material event. Each material event requires a separate notice. Consolidated financial statements. Public companies must disclose annual and interim (for six months of the accounting year) consolidated financial statements. Until 1 October 2021, only annual consolidated financial statements with the auditor’s opinion attached must be disclosed. From 1 October 2021, interim consolidated financial statements must be disclosed with the auditor’s opinion or another document drawn up based on the results of their verification in accordance with the standards of auditing. Annual statements shall be disclosed within 120 days of the end date of the accounting year, and interim statements within 60 days of the end date of the second quarter. Other matters. Public companies must disclose information on concluding a shareholders’ agreement by the shareholders of a public joint-stock company. Public companies must also disclose information on the fact that a person acquired, under the shareholders’ agreement, the right to determine the voting procedure at the general meeting of shareholders of such company. Public companies must also publish a notice of intention to file a claim: • for contesting the resolution of the general meeting of shareholders of a public joint- stock company; • for damages caused to a public joint-stock company; • for invalidation of the transaction of a public joint-stock company; or • as the result of the invalidity of a transaction of a public joint-stock company. From 1 October 2021, public companies must also disclose information on major transactions and related party transactions, as well as on the registrar maintaining the register of issuer’s shareholders. Corporate management In addition to the above disclosure obligations, the issuer must observe the corporate management standards established in the Corporate Governance Code. Detailed corporate governance requirements for the companies the securities of which are listed on a Russian stock exchange are described above in section “The IPO process: steps, timing and parties and Market Practice / Preparatory stage / Corporate governance”.

Potential risks, liabilities and pitfalls Due diligence When getting ready for the IPO, the external legal advisors to the issuer and to the underwriting banks check whether at the date of the IPO launch the prospectus contains (i) any materially inaccurate or misleading information, and (ii) all necessary material information. The company’s financial and economic activity, the lawfulness of the company’s formation and its management are examined at this stage. The due diligence review may include the analysis of financial statements, material contracts, tax returns, managerial decisions, production site visits, interviews with the employees and the members of the company’s corporate governance bodies. The issuer is usually invited to fill out questionnaires; afterwards, external advisors check the content of the answers and can ask persons who answered the questions additional questions requesting comments on the information contained in the draft issue and transaction documents.

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Responsibility Violation of Russian laws in the process of an IPO results in civil, administrative, and even criminal liability. Civil liability occurs in case of guilty (intentional or negligent) infliction of damage by the issuer to investors. An investor has to prove a causal link between illegal behaviour (undue action or undue omission to act) of the issuer and losses caused thereby, the fact of losses itself and the extent of such losses, whereas the issuer’s fault is presumed (but this is a rebuttable presumption, i.e., the issuer may prove that actually there is no fault on his side). Any damages can be recovered from the issuer: both direct loss and lost profit. Violation by the issuer of the established procedure for issue of securities constitutes an administrative offence. It results in imposing an administrative (monetary) fine upon the issuer and its officers (article 15.17 of the Code of Administrative Offences). Inclusion of intentionally untrue information in the prospectus of securities, approval or confirmation of the prospectus or notice of the results of securities issue with intentionally inaccurate information, offering equity securities issue of which has not been registered with the state authorities are crimes if any of the said actions has caused damage over RUB 1.5 million to individuals, organisations or the state (article 185 of the Criminal Code). The issuer’s failure to disclose or violation of the disclosure procedure or time limits, and failure to disclose information to the full extent or disclosure of inaccurate or misleading information also results in administrative liability (article 15.19 of the Code of Administrative Offences). If wilful evasion of disclosure or providing information, or providing intentionally incomplete or false information has caused damage of over RUB 1.5 million to individuals, organisations or the state, sanctions are provided for by criminal law (article 185.1 of the Criminal Code). Failure to comply with a legitimate prescriptive order of the Bank of Russian within the established time limits results in imposition of administrative liability (article 19.5 of the Code of Administrative Offences). Market manipulation entails imposition of criminal and administrative liability (article 15.30 of the Code of Administrative Offences and article 185.3 of the Criminal Code).

Conclusion Going public is a complex procedure that requires in-depth and comprehensive preparation and skilled company management and advisors. It is advisable to start preparing for the IPO well in advance in order to properly examine all matters the company encounters at the preparatory stage of an IPO and to facilitate the period after acquiring the status of a public company. * * *

Endnotes 1. Only IPOs of Russian companies on the Russian exchanges are taken into account. 2. PAO is a Russian acronym that stands for “public joint stock company”. 3. The procedure is described in compliance with the requirements of the Moscow Exchange.

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Nadezhda Minina Tel: +7 495 646 81 76 / Email: [email protected] Nadezhda specialises in capital markets, investment transactions and M&A. She has been involved in issues of shares and bonds, IPOs, SPOs, restructuring of bond issues and bondholder representative services for more than seven years. Nadezhda is listed among the best Russian lawyers in the field of Capital Markets in accordance with The Best Lawyers international rating. She graduated from the Moscow State University, Faculty of Law, where she also did her postgraduate studies. Nadezhda also studied at Humboldt University in Berlin, Germany and in Regensburg, Germany. She is fluent in Russian, German and English.

Alexander Nektorov Tel: +7 495 646 81 76 / Email: [email protected] Alexander specialises in supporting technology projects. He is an expert in corporate law, M&A and capital market transactions (IPO/SPO/ICO/bonds). He has extensive experience in financial law and securitisation and carries out strategic management of complex litigation projects. Chambers Europe and IFLR1000 list Alexander among their recommended lawyers every year. He has also twice been ranked among Russia’s Top 250 General Managers by General Manager magazine (2012, 2014). Alexander is a member of the expert board for the legislative development of financial technologies under the Russian State Duma Committee for the Financial Market. Alexander is also a Member of the Committee under the Growth Sector Council of the Moscow Exchange. Alexander is fluent in Russian and English.

Dr. Ilia Rachkov, LL.M., MCIArb Tel: +7 495 646 81 76 / Email: [email protected] Ilia Rachkov’s areas of specialisation are international dispute resolution and international trade law (including international investment law and WTO law). Since his graduation from the law faculty of the Moscow State University named after M.V. Lomonossov (1996), Ilia Rachkov has collected substantial experience in advising foreign and Russian companies, including banks, and state authorities in dispute resolution matters (both before state courts in and outside Russia and ad hoc and institutional domestic and international arbitration tribunals), international trade matters, as well as in matters related to capital markets and M&A. Mr. Rachkov is included in the list of recommended arbitrators of the Russian Arbitration Center, the Arbitration Center at the Russian Union of Industrialists and Entrepreneurs and the International Arbitration Centre (Nur- Sultan, Kazakhstan). Dr. Rachkov is a member of the Legal Committee of the Russian-German Chamber of Commerce and a Member of the Scientific Advisory Council on International Law of the Ministry of Justice of the Russian Federation.

Nektorov, Saveliev & Partners Smolensky Passage, 14th Floor, 3, Smolenskaya Square, Moscow, 121099, Russia Tel: +7 495 646 81 76 / URL: www.nsplaw.com

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Wee Woon Hong Opal Lawyers LLC

Introduction Going public signifies corporate success and marks a major milestone achieved for any private company. In Singapore, it is celebrated with the striking of the gong at the countdown to nine o’clock on the morning of the first trading day of shares of the listed company at the Singapore Exchange Securities Trading Limited (“SGX”), followed by a euphoric dinner in the evening. Most private companies will reach a stage in their corporate development when their growth is constrained by their available capital. Other than obtaining loan financing, opting to seek listing of their shares on a stock exchange is an alternative option to enable the company access to public funds as well as to increase its public profile, thus promoting its corporate branding and image, which can in turn augment its business. An initial public offering (“IPO”) of the shares of a private company involves the listing and quotation of its shares on either the Mainboard of the SGX or its Catalist board, the sponsor-supervised listing platform of the SGX. During the IPO exercise, a company will offer new shares and/or existing shares held by its shareholders to the general public for subscription. All new shares issued at IPO and existing shares (subject to a moratorium period over certain existing shares of the founders and promoters) are tradable on the SGX, either on the Mainboard or the Catalist board, from the first trading day. Why do companies choose to list on SGX? Singapore as a destination with political and economic stability. Given the vast changes which have swept across the political landscapes of many developed, and developing, countries in recent years, Singapore’s political stability is well appreciated and favoured among listed firms and investors. Singapore’s stable economic and financial markets are also important considerations, both for companies seeking listing on the SGX and international investors in their decision to invest in a Singapore publicly listed company. The emerging Asia. The emerging market in Asia is a wave that has gained traction and is expected to continue to rise in the next few decades. However, some of these markets tend to be affected by currency volatility and unpredictable social issues and changes to political landscapes from time to time. Notwithstanding, each of these emerging markets has immense potential to become an economic powerhouse, due to its large domestic market that is fuelled by the fast pace of growth in its domestic consumption and economic development. Successful companies in these emerging markets seeking to list on an internationally recognised stock exchange will consider the SGX, as it is able to access international investors through its stock markets. SGX is the Asian gateway. In Asia, the SGX offers an edge over its regional rivals with its stock market in Singapore, being reputed to be a well-regulated international financial

GLI – Initial Public Offerings 2021, Fifth Edition 166 www.globallegalinsights.com Opal Lawyers LLC Singapore centre, which prides itself on promoting high standards of corporate governance practices for its listed companies. This gives confidence to funds and international investors to invest in public companies that are listed on the SGX. In addition, an IPO exercise in Singapore requires the listing applicant to meet the international standard of disclosure requirements, with a high emphasis on transparency and integrity of the management team. This enables the investing public to assess the risk involved in making its investments. Access to institutional investors. A high proportion of companies listed on the SGX have foreign-based operations and the SGX continues to attract foreign companies to seek listing in Singapore. Due to the quick and efficient secondary fundraising process in Singapore, the listed company can continue to tap and raise funds from the public after its initial fundraising exercise at IPO. With a stable Singapore currency, no exchange control, low tax rate regime and a strong reputation as an international financial centre, institutional investors and international funds are attracted to invest in stocks listed on the SGX.

The IPO process: Steps, timing and parties and market practice Parties involved in an IPO exercise The parties involved in the IPO exercise are mainly: Company’s management team. This includes the key management personnel such as Executive Directors, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and other key members of the management team. Issue manager (for Mainboard listing). Must be either a member company of the SGX-ST, a bank, a or any other financial institution approved by SGX to manage the IPO process and liaise with SGX on all matters arising from the application for listing. Sponsor (for Catalist listing). A qualified professional firm engaged in corporate finance and compliance advisory work who will assess the suitability of the company seeking listing on the Catalist board of the SGX, and to assume a continuous supervisory role to ensure the listed company’s compliance with their continuing obligations post-listing. They will also manage the IPO process and liaise with SGX on all matters arising from the application for listing. Underwriter and/or placement agent. An underwriter and/or placement agent is a licensed broker firm who will promote and sell all of the shares that are being offered in the IPO. In return, the company will pay the underwriter and/or placement agent a commission fee based on a certain percentage of the IPO proceeds raised during the IPO. IPO lawyers. A qualified team of lawyers, who will advise on all of the legal aspects of the listing application such as material contracts, litigation, intellectual property and information systems rights, and other regulatory issues. They assist in the legal due diligence process and the drafting of the non-financial sections of the prospectus. They will also advise the company regarding the disclosure requirements in a listing exercise. Reporting accountants/independent auditors. A qualified professional audit firm who will perform an independent audit on the latest three years of financial statements of the company, which will be attached as part of the prospectus or offer document to provide information to the potential investors regarding the financial performance of the company. They can also provide the company with an initial evaluation of its readiness to go public and assist in advising the company of the necessary requirements relating to its financial controls and other accounting aspects and matters that are important to a listed company.

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IPO process Planning and kick off. When a company decides to go public, the initial stage for the IPO process is the planning and preparation stage where the IPO professional team is selected, followed by a kick-off meeting involving the IPO professional team and management team. During the kick-off meeting, the issue manager or sponsor will present the IPO indicative timetable and draw up the action plans and deliverables required by the relevant timelines, discuss the due diligence requirements, identify the critical issues that will affect the IPO process and map out the proposed solutions. Each of the other professional team (including the lawyers and auditors) will present their work requirements during the kick-off meeting. Due diligence process and preparation of the documentation. The execution stage begins with a due diligence exercise where the due diligence process is conducted on the listing entities to ensure the prospectus or offer document complies with the legal or accounting requirements, and the disclosure of the material information is prepared. The company will also need to undertake a corporate restructuring exercise to form the holding company (being the listing entity) which will hold the group of companies. The lawyers will work with the company to draft the prospectus or offer document based on the specific requirements of the Fifth Schedule of the Securities and Futures Regulation. Drafting and verification meetings. The management team and IPO professional team will meet regularly for drafting meetings, which involve the drafting and review of the respective sections required for the prospectus or offer document and the collation of the source documents to support the contents. Due diligence verification meetings will be held to check and verify the contents of the final draft prospectus or offer document prior to the submission to the SGX, lodgement or registration process. This is to ensure that the material statements of fact or opinion contained in the prospectus or offer document are complete and accurate. Submission to the SGX. The issue manager or sponsor will submit the draft prospectus or offer document to the SGX to seek its approval for the listing of the company. The SGX will review the application and raise queries to the issue manager or sponsor, who will work with the company and other IPO professional team to address these queries in order to obtain the listing approval from the SGX. Once the listing approval is obtained, the company will then complete the restructuring exercise and convert the status of the company from a private to a public company to prepare for the next stage. Lodgement and registration of the prospectus or offer document. After the listing approval has been obtained from the SGX, the prospectus will be lodged on the website of MAS OPERA (for Mainboard listing) or SGX Catalodge (for Catalist listing). In the next two weeks after lodgement (being the “exposure period”), the prospectus or offer document will be available for public comment. This will provide an avenue for the public to air any serious concerns they may have, which serves as an additional avenue to safeguard the public interest for the listing of the company. After clearing the exposure period, the company can proceed to register its prospectus or offer document and launch its offer for shares to the public. Listing. After the close of the offer for shares, the company will be listed on either the Mainboard or the Catalist (as the case may be) and commence trading of its shares thereafter, which will generally take place around one week after the launch of the offer for its shares. Timeline and preparation The timeline for an IPO process varies for different companies. Generally, the pre-submission process will take about four to nine months after the kick-off meeting (depending on the readiness of the listing applicant) and the listing approval stage can take between two to three months (depending on the complexity of the listing group and issues arising). Quite often, an IPO process can take in excess of 12 months from the kick-off meeting to complete, and

GLI – Initial Public Offerings 2021, Fifth Edition 168 www.globallegalinsights.com Opal Lawyers LLC Singapore it is not uncommon for delays and postponements to the submission of the listing application to the SGX, as the pre-submission work for the IPO has not been completed. The key factors affecting the timelines of an IPO process are the readiness of the listing applicant for the IPO exercise and the commitment of the management team. Most of the time, the management team does not realise the extent of the time and resources commitment required for an IPO exercise. One of the common issues for companies facing delays in an IPO exercise is that the audit work for the last three financial years cannot be completed in time as the operational and accounting systems of the group seeking listing are not sufficiently robust to pass the rigorous audit process ofthe independent auditors. The IPO process will become very costly to the listing applicant when time delays occur during the IPO exercise. Other than facing cost overruns due to the additional work to be performed by the IPO professional team arising from the time delay, the management team will also not be able to use the additional time and resources that have been committed to the IPO process to otherwise generate productive business and revenues for the group. Hence, the key to success for an efficient IPO exercise lies in the management team’s deep understanding of the work requirements, coupled with its commitment and stamina to complete the IPO process.

Regulatory architecture: Overview of the regulators and key regulations Regulatory framework The organisations involved in the regulatory framework for the listing process in Singapore and their respective roles are as follows:

Monetary Authority of Singapore (MAS)

Oversees

Singapore Exchange Ltd.

Acts as market regulator to: - craft and administer rules for the marketplace - provide surveillance on the activities of participants - enforce compliance by members & issuers

Singapore Exchange Securities CDP Trading Ltd.

Issuers Members Wholesale investors Retail Institutional & intermediaries investors investors

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The Monetary Authority of Singapore (“MAS”) is Singapore’s de facto central bank, which is established under the Monetary Authority of Singapore Act. The MAS is the licensing authority for holders of a capital markets services licence, who are permitted to carry on a business in the regulated activities of dealing in securities, trading in futures contracts, leveraged foreign exchange trading, fund management, advising on corporate finance, securities financing, real estate investment trust management, and providing custodial services for securities. SGX is under the supervision of the MAS in relation to the listing of companies and other securities matters in Singapore. SGX is the primary regulator, whose approval must be obtained before a company can be listed in Singapore. It continues to regulate listed companies after their listing to ensure that they comply with the continuing listing obligations. Where a company is listed on the Catalist board, the sponsors will assist the SGX in monitoring these Catalist issuers in regard to their compliance with the listing rules. These sponsors are in turn supervised by the SGX. Listed companies are required to comply with listing rules, which are designed to promote the high standard of disclosure and corporate governance expected of listed companies. Listing and admission criteria A company seeking a listing of its shares on the SGX Mainboard or SGX Catalist will need to meet the conditions set out in Rule 210 of the Mainboard Rules of the SGX, or Rule 406 of the Catalist Rules of the SGX, respectively. The listing and admission criteria for a company seeking Mainboard listing is as follows:

ADMISSION CRITERIA

QUANTITATIVE CRITERIA QUALITATIVE CRITERIA

A company may seek listing on the In reviewing a listing application, the SGX will mainboard of the SGX if it satisfies ANY generally require the company to meet a num- ONE of the following three quantitative ber of qualitative criteria including the following: criteria: 1. The company must be a going concern, and 1. “Criteria 1” – pre-tax profit of at least accounts must be audited. S$30m for the latest financial year 2. The company must have a healthy financial and has operating track records of position with positive cash flow. at least three years. 3. All debts owing to the company by its direc- 2. “Criteria 2” – be profitable in the tors, substantial shareholders and related latest financial year, has operating companies must be fully repaid. track records of at least three years and market capitalisation of at least 4. The company must have a strong team with S$150m at the time of the IPO. continuity of management. 3. “Criteria 3” – has generated operat- 5. The company must have at least two non- ing revenue in the latest financial executive, independents directors, and 1/3 year and market capitalisation of at of the board should be independent direc- least S$300m at the time of the IPO. tors. 6. All conflicts of interest must be resolved prior to the IPO. 7. Adequate disclosure in the prospectus.

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The listing and admission criteria for a company seeking a Catalist listing is as follows:

ADMISSION CRITERIA

QUALITATIVE CRITERIA

Under the Catalist Rules, in determining the eligibility of the company to list on the Catalist, the sponsor has to take into account several qualitative factors, including the following:

NO QUANTITATIVE 1. Whether directors and executive officers of the company have appropriate experience CRITERIA and expertise to manage the company. 2. The character and integrity of the manag- ing board of the company. 3. The company must have at least two non- executive, independent directors, and 1/3 of the board should be independent direc- tors. A foreign listing applicant should have at least one director resident in Singapore.

Disclosure requirements for a prospectus or offer document Under the Singapore Securities and Futures Act, a prospectus or offer document serves as an important document which is required to contain true and full disclosure of the company seeking a listing. Some of the important disclosures that are required to be made in the prospectus or offer document include: • the identity of the company’s directors, key executives, professional advisors and agents; • the offer statistics and timetable; • key information, such as selected financial data, use of proceeds, risk factors and capitalisation and indebtedness; • information on the company, including the company’s history, business overview, group structure and fixed assets; • the company’s financial information, operating and financial review and prospects, such as the company’s operating results, liquidity and capital resources, trend information, profit forecasts or estimates; • research and development; • information on the company’s substantial shareholders, directors, key executives and employees including their interest in shares, background information and management reporting structure; • interested person transactions (“IPTs”) and conflicts of interest; • litigation matters; • information on the offer and listing, including the plan of distribution, dilution effect and expenses of the offer; and • other additional information of the company, such as the company’s share capital, relevant provisions of the company’s constitutional documents and material contracts.

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Public company responsibilities The SGX is the primary regulator having oversight of the securities market and compliance of the continuing listing obligations by issuers in Singapore. Companies listed in Singapore are required to ensure full, accurate and timely disclosures of material information in order to maintain a fair, orderly and efficient market for the trading of their shares. In addition, listed companies are required to comply with the continuing listing obligations set out in the SGX listing rules, which include the changes in share capital, IPTs, acquisitions and realisations by the issuer, takeovers and the issue of circulars and annual reports to shareholders. Continuing listing obligations Following the listing on the SGX, a publicly listed company is obliged to comply with the provisions of the SGX listing rules: Mainboard listed companies must comply with Mainboard Rules; and Catalist listed companies must comply with Catalist Rules. Some of the continuing listing obligations of a listed company in Singapore under SGX listing rules are outlined below: Matters requiring immediate public announcements. A listed company is required to keep its shareholders well informed of any material information relating to the company’s business activities in order to avoid the establishment of a false market in its securities. The following is a non-exclusive list of matters which require immediate public announcement: (a) a joint venture, merger or acquisition; (b) the declaration or omission of dividends or the determination of earnings; (c) firm evidence of significant improvement or deterioration in near-term earnings prospects; (d) a sub-division of shares or stock dividends; (e) the acquisition or loss of a significant contract; (f) the purchase or sale of a significant asset; (g) a significant new product or discovery; (h) the public or private sale of a significant amount of additional securities; (i) a change in effective control or a significant change in management; (j) a call of securities for redemption; (k) the borrowing of a significant amount of funds; (l) events of default under financing or sale agreements; (m) a significant litigation; (n) a significant change in capital investment plans; (o) a significant dispute or disputes with sub-contractors, customers or suppliers, or with any parties; (p) a tender offer for another company’s securities; or (q) a valuation of real assets that has a significant impact on financial position and/or performance. Disclosure of other price-sensitive relevant information. All information which is necessary to avoid the establishment of a false market or is likely to materially affect the price of securities must be disclosed immediately. Timely disclosure of price-sensitive information is the foundation of SGX’s regulatory policy. To ensure that such information is released to the market on a timely basis, listed companies are obliged to comply with the rules relating to corporate disclosure in the SGX listing rules. Disclosure of substantial shareholders’ shareholding. A listed company must maintain a register of substantial shareholders, which contains the names of the company’s substantial shareholders together with details of their interest in the shares of the company. A substantial

GLI – Initial Public Offerings 2021, Fifth Edition 172 www.globallegalinsights.com Opal Lawyers LLC Singapore shareholder is a person who has an interest in 5% or more of the voting shares of a company. “Interest” in shares or securities is not restricted to those registered in the name of the shareholder only (i.e. direct interest). It includes beneficial ownership through nominees or a trust, as well as control over voting or disposition of a share (i.e. indirect interest). Disclosure of directors’ shareholdings. Directors of a listed company are required to notify the company of their direct and indirect interests in its shares and securities and subsequent changes thereafter. The listed company must also maintain a register of directors’ shareholdings. Interested Person Transaction. The objective of disclosure in relation to an IPT is to guard against the risk that such interested persons can influence the listed company to enter into transactions with other interested persons (including directors, senior management, controlling shareholders and their associates) which may adversely affect the listed company. Hence, any transaction entered between the listed company with interested persons will be required to be announced if the transaction value is equal to or more than 3% of the listed company’s latest net tangible assets, and to obtain shareholders’ approval for that transaction value which exceeds 5% or more. Periodic reporting. Listed companies are required to announce their financial statements for the relevant financial period within 45 days of the end of that financial period. Their financial statements for the full financial year are required to be announced within 60 days after the end of the financial year end. Listed companies must hold their annual general meeting within four months of the end of the financial year, during which their annual reports will be tabled for approval by their shareholders. Sustainability reporting. In June 2016, SGX introduced sustainability reporting on a “comply or explain” basis where listed companies must publish a sustainability report at least once a year covering: the material environmental, social and governance (“ESG”) factors that affect their business strategies; their policies, practices and performance; their targets; their sustainability reporting framework; and a board statement on the organisation’s sustainability actions. The new requirements took effect from the financial year ending 31 December 2017. Code of Corporate Governance Listed companies are required to observe the Code of Corporate Governance and disclose in their annual reports the corporate governance practices adopted by them. Although the Code of Corporate Governance, which comes under the purview of the MAS and SGX, has no force of law, listed companies are required to explain any deviations from any principles and guidelines.

Potential risks, liabilities and pitfalls In connection with an IPO, lapses which attract liability under the Securities and Futures Act include making false or misleading statements in the prospectus or offer document, omission of material information required to be included in the prospectus or offer document, as well as new circumstances which have arisen since the lodgement of the prospectus or offer document. Lapses may also be discovered during the period between the registration of the prospectus or offer document and close of the offer. For instance, if it is confirmed that thereare misstatements in the prospectus or offer document which were discovered after the launch of the IPO but prior to the close of the offer, the listing applicant can withdraw the offer and refund application monies to investors.

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Due diligence review and disclosure requirements Due diligence plays an important role in the IPO process from the kick-off meeting through to the submission of the listing application to the SGX, as well as the lodgement and registration of the prospectus or offer document. An effective due diligence process supported by the relevant source documents is essential, especially if the issue manager or any other relevant party wishes to rely on the due diligence defence under the Securities and Futures Act when the need arises. An effective due diligence process also helps issue managers and sponsors to identify issues and concerns that must be addressed, and provides adequate disclosures in the prospectus or offer document. The IPO process requires that the professional advisers exercise great care and diligence to ensure that the disclosures in the prospectus or offer document in relation to the IPO and the listing group are true, accurate and complete. As such, it is important to put in place an efficient process through which material and relevant information relating to the listing group is made available by the management team to the IPO professionals for disclosure in the prospectus or offer document. This process is a continuing process from the kick-off meeting until the first trading day of the shares of the listed company. The statutory prescribed information to be disclosed in the prospectus or offer document is found in the Fifth Schedule of the Securities and Futures Regulation. The Association of Banks in Singapore also issued its latest set of Listings Due Diligence Guidelines in 2016 to provide guidance to issue managers and sponsors in their conduct of the due diligence work in the listing process. Persons liable for matters arising in the listing exercise Under the Securities and Futures Act, persons who could be liable for any false or misleading statement in the prospectus include: (a) the issuer and its directors; (b) the selling shareholders (if any) and the directors of the selling shareholders (if the selling shareholder is a corporate entity); (c) the issue manager; (d) the underwriter or placement agent; (e) persons considered to be experts for the purposes of the prospectus; and (f) any other person who intentionally or recklessly makes a false or misleading statement, or omits any information or circumstance. Directors of the listed company are subject to collective and individual legal responsibility for the contents of the prospectus or offer document, and they must ensure that all material information of the listing group is fully disclosed and statements therein are true, complete and accurate in all material respects. Directors of the listed company must also ensure that the listing group has adequate internal controls and risk management systems to safeguard the assets and finances of the listed group, as they are responsible for the proper corporate governance and accountability of the listed group. In addition, the issue manager or sponsor is primarily responsible for ensuring that the listing applicant satisfies all of the listing criteria and conditions under the SGX listing rules. The issue manager in a Mainboard listing is in charge of the overall coordination of the IPO process. This role is undertaken by the sponsor in a listing on the Catalist board. They are involved in the selection of other suitable professional advisers and experts, and a commercial investigator to assist in the IPO exercise.

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Liability for issuing a misleading prospectus If there is any false or misleading statement or non-disclosure of a material fact in a prospectus or offer document, the responsible persons listed above will be subject to criminal liability. In addition, these responsible persons are subject to civil liability to pay compensation to all persons who subscribe to or purchase shares in the listed company arising from any loss or damage sustained by reason of the false or misleading statement or non-disclosure. Under the Securities and Futures Act, the MAS is empowered to stop an offer if,inter alia, the prospectus or offer document: (i) contains any false or misleading statement; (ii) has omitted any material information that should be included in a prospectus or offer document; or (iii) does not comply with the Securities and Futures Act in any other way. Although the disclosure-based regime under the Securities and Futures Act places responsibility on issuers and their professional advisers to ensure that prospectuses or offer documents contain adequate and accurate information for investors, the MAS has the power to issue a stop order if the same is discovered to be deficient after registration.

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Wee Woon Hong Tel: +65 6932 2760 / Email: [email protected] Wee Woon Hong is the Principal Partner of Opal Lawyers LLC and her legal practice has focused on the area of corporate finance work. She has more than 16 years of legal experience handling IPO listing work and listing compliance work for Singapore public listed companies. Over the years, she has handled the legal work acting either in the role of Solicitors to the Invitation or Solicitors to the Issue Manager, Underwriter and Placement Agent for the IPO listing of more than 30 companies that were listed on the SGX-ST. In addition, she also handles both private and public M&A, equity capital market transactions and corporate actions of public listed companies.

Opal Lawyers LLC 20 Collyer Quay #01-02, Singapore 049319 Tel: +65 6932 2760 / Fax: +65 6536 0688 / URL: www.opal.sg

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Dr. Urs Kägi, Lukas Roesler & Rebecca Schori Bär & Karrer Ltd.

Introduction Going public may serve several goals: It may help a company to get access to a broader investor base, to raise the capital it needs in order to activate its growth potential and strengthen its market position, and to turn a company’s shares into a more liquid and fungible “currency” that may facilitate acquisitions. It may also enable effective employee incentivization and, last but not least, allow a flexible exit by existing shareholders over time. Switzerland as a trading venue offers very attractive conditions through a combination of its strong financial centre and the stable and issuer-friendly Swiss legal and regulatory regime. On Switzerland’s main and leading stock exchange, SIX Swiss Exchange, around 250 shares across all industries are traded, including some of the largest companies in Switzerland and Europe. It offers a liquid market with state-of-the-art trading conditions. Given its importance, and unless indicated otherwise, references in this contribution to listing requirements and reporting obligations refer to the rules set by SIX Swiss Exchange. Switzerland’s second stock exchange, the BX Swiss, is more focused on small and mid-size domestic issuers. With its listing on a stock exchange, a public company becomes subject to additional and more comprehensive regulatory requirements, stricter supervision by regulatory authorities and increased scrutiny by the public. An IPO candidate, its shareholders and its executive management are thus well-advised to prepare the envisaged flotation carefully and familiarise themselves with the additional regulatory provisions and requirements, as early and holistic preparation is key in this process. Switzerland has seen strong IPO activity over the past few years, with 2018 being the most active year in a decade. In 2020 and 2019, the following companies listed on SIX Swiss Exchange with an initial market capitalisation of more than CHF 100 million: • Ina Invest Holding Ltd (CHF 196.8 million). • V-ZUG Holding AG (CHF 502.4 million). • Medacta Group SA (CHF 1.9 billion). • Alcon Inc. (CHF 28.4 billion). • Stadler Rail AG (CHF 4.3 billion). • Aluflexpack AG (CHF 389 million). • SoftwareONE Holding AG (CHF 2.9 billion). • Achiko Limited (USD 129 million). • Novavest Real Estate AG (CHF 276 million). 2020 was a difficult year for IPOs in Switzerland due to the Coronavirus crisis. The listings of Ina Invest Holding Ltd and V-ZUG Holding AG both were the result of a spin-off of business units that became independent exchange-listed companies. Given Switzerland’s

GLI – Initial Public Offerings 2021, Fifth Edition 177 www.globallegalinsights.com Bär & Karrer Ltd. Switzerland smaller size in comparison to countries such as the United States or China, the number of IPOs in Switzerland may fluctuate substantially from year to year. Furthermore, some companies might generally be ready for an IPO, but are temporarily still putting off doing so due to the Coronavirus pandemic. Additionally, companies in certain industries, such as Biotechnology and Tech, have sought a listing abroad due to the currently very attractive market conditions in the United States in particular. On 1 January 2020, the Swiss Financial Services Act (“FinSA”) and its implementing ordinance (the Swiss Financial Services Ordinance (“FinSO”)) entered into force. This new regulatory regime resulted in a substantial change of the regulatory environment for IPOs in Switzerland because it provides for detailed requirements regarding the content of a prospectus and its review by the new Swiss Financial Market Supervisory Authority (“FINMA”)-licensed review bodies. Prior to the FinSA/FinSO taking effect, the regulatory framework in Switzerland was primarily based on self-regulation of the Swiss stock exchanges and limited, partly outdated statutory provisions. In contrast, the new regulatory regime converges to the model of the European Prospectus Regulation. The transitional periods have now expired and the new framework has been fully applicable since 1 December 2020. Since under the former Swiss regime, IPO candidates already adhered to international disclosure standards, however, it is not expected that the new law will fundamentally change the content of prospective Swiss IPO prospectuses or the timeline of the IPO preparation. At the moment, issuers are also often looking into the possibility of transactions with special purpose acquisition companies (“SPACs”) as an alternative to IPOs. To date, compared to other European countries or the United States, no SPAC was listed on a Swiss stock exchange, although efforts and preparations were made in this respect and despite great interest of investors. Upon request of FINMA; the regulatory bodies of SIX Swiss Exchange are now in the process of revising the current listing framework around SPACs in order to address FINMA’s concerns around market transparency, investor protection and market integrity in connection with SPACs, and we believe it likely that the first Swiss SPACs are listed within the next 12 months.

The IPO process: Steps, timing and parties and market practice The IPO process is largely driven by the characteristics of the IPO candidate itself and by the envisaged IPO structure (primary vs. secondary offering, particularities such as a so- called “complex financial history”). In general, four key phases can be distinguished: • Phase I: Preparation (approximately four to six months prior to the first day of trading) The shareholders and the issuer, together with their advisors, set up the structure, take strategic decisions for the offering, and implement the IPO-readiness of the issuer: • Selection of advisors: The issuer chooses its advisers, including in particular the underwriting banks, the legal advisors to both the issuer and the underwriters, the auditors, and often a pre-IPO advisor. In larger IPOs offered internationally, the issuer and the underwriters are each advised by two law firms: a Swiss law firm; and an international counsel, whose task is to ensure compliance with international and U.S. securities laws (which may be necessary to allow re-sales into the U.S. market, such as under a Rule 144A offering). Depending on the IPO structure, a selling shareholder might also engage separate counsel. Most often, the issuer appoints further advisors, such as a specialised PR firm. • Structuring: The underwriting banks and legal advisors advise the issuer and its current shareholders on the structuring and, in particular, whether it should

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be structured as a primary offering (sale of newly-created shares) or secondary offering (sale of existing shares only), or a combination of both. They also advise on the listing venue and the review body to be chosen. In case of a foreign issuer, the structuring involves the decision as to whether the issuer should list its shares on SIX Swiss Exchange or whether it should migrate to Switzerland for the IPO. This decision is typically driven by marketing and/or tax considerations. Structuring may also include the reorganisation of a group, e.g., the establishment of a holding company. • Development of equity story: Together with the issuer, the underwriters develop an equity story to market the shares. A key element is the confidential meetings between the issuer and potential investors to test the water (so-called “pilot fishing” or “early-look meetings”). In case the issuer has publicly traded debt outstanding (in particular, high-yield bonds), these meetings must comply with the relevant requirements regarding disclosure of price-relevant information; in particular, under the European Market Abuse Regulation (“MAR”), if the bonds are traded at a EU venue. The development of the equity story leads to the issuer presenting itself to the underwriters’ analysts, following which the analysts prepare and publish research reports for the investors to attract their attention. These reports are key elements of the marketing strategy. • Corporate governance: One of the main tasks of the issuer’s Swiss legal counsel is advising the issuer on its corporate governance set-up and preparing the necessary corporate documentation. If the issuer has issued several classes of shares, any preferred share classes will typically be converted into common shares prior to listing, as different share classes may adversely impact the liquidity of the listed shares and be viewed negatively under good corporate governance standards. Other corporate governance measures include the adoption of mandatory Swiss ‘say on pay’-rules (see below) and amending the constitutional documents to ensure compliance with applicable Swiss law, as well as best practice for public companies. Existing shareholders often appoint new members to the board of directors as of the first day of trading. It is advisable to give due consideration to the recent guidelines published by the prominent proxy advisors and the Swiss standards for corporate governance, which recommend a sufficient number of independent board members. Under certain circumstances, issuers may also consider increasing the threshold for mandatory takeover bids from 33⅓% to 49% (opting up), or completely opting out of the mandatory takeover regime, which, however, is typically perceived negatively by investors. • Financial statements: The issuer works closely with the auditors for the preparation and audit of its financial statements. Generally, a listing at SIX Swiss Exchange requires a three-year track record evidenced by audited financial statements drawn up in accordance with one of the eligible accounting standards (see below). In certain situations, the preparation of pro forma financial statements becomes necessary and, in this case, the preparation of the financial statements should be initiated as early in the process as possible. The stock exchange may grant exemptions from the three-year track records. • Due diligence and prospectus: The underwriters, the legal advisors and the auditors conduct a detailed due diligence (business, legal and audit, respectively) about the issuer. Based on the outcome of this due diligence and the equity story, the issuer’s legal counsel drafts the prospectus. The disclosure must comply with the FinSA/FinSO requirements which are very similar to the former SIX Swiss Exchange requirements and in line with EU standards. A Swiss prospectus should mainly include a summary, an overview of risk factors, information on the use of proceeds, information about dividends/dividend policy, information about

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the issuer (such as members of the board of directors and executive management, the issuer’s business and share capital, as well as capitalisation and indebtedness) and the issuer’s major shareholders, as well as information about the offering and the financial statements. Even though neither SIX Swiss Exchange nor the FinSA/FinSO require an MD&A section, it is standard to include such section in an equity prospectus. • Underwriting agreement: The Swiss underwriters’ counsel drafts the underwriting agreement. The agreement contains the main duties and rights of the underwriters and the issuer. It is market practice that the underwriters commit to a ‘soft underwriting’, i.e. they only commit to purchasing the shares upon pricing. The Swiss underwriters’ counsel prepares ancillary agreements and documents, such as a share lending agreement for the over-allotment option (see below), the agreement among managers, and the lock-up undertakings. Major shareholders, as well as directors and managers of the issuer, typically sign lock-up undertakings confirming they will not sell their shares in the first months following the IPO. • Review of prospectus: The IPO prospectus must be filed with and reviewed by a review body for completeness, consistency and comprehensibility. Pursuant to the FinSA, the filing must be made at least 20 calendar days prior to publication. However, the IPO timetable should allow for sufficient time to reflect on comments received from the review body and to refile the prospectus. • Listing formalities: The issuer is obliged to appoint a listing agent which in general must be a bank in line with the meaning set out in the Swiss Banking Act, a securities firm in line with the meaning set out in the Swiss Financial Institutions Act, or have a corresponding authorisation in accordance with the law of the jurisdiction of its registered office. The listing agent is responsible for submitting the listing application, which must be filed with the SIX Exchange Regulation 10 trading days prior to the start of the bookbuilding. • Phase II: ITF and marketing (approximately four weeks) • Intention to float: This phase is initiated by the issuer publishing an intention to float (“ITF”). The issuer’s executive team and the underwriters market the issuer. The ITF does not yet contain detailed information about the IPO but is meant to draw the attention of the market to, and create momentum for, the upcoming IPO. Research reports prepared by analysts are distributed shortly after publication of the ITF. • Roadshow and bookbuilding: If the IPO gains sufficient momentum, the issuer ultimately signs the underwriting agreement with the banking syndicate and publishes the prospectus. This marks the formal ‘launch’ of the IPO and is followed by a bookbuilding phase, during which the issuer’s executive management markets the company on a roadshow with the support of the underwriters. This leads to investors placing orders for the shares within the price range indicated in the prospectus. At the end of the roadshow, i.e., the end of the bookbuilding period, the underwriters evaluate at what price the shares may be placed with the investors. • Phase III: Execution • Allocation: After the roadshow/bookbuilding, the underwriters calculate at what price all offered shares may be sold and, together with the issuer, allocate them to investors in accordance with their bids. The issuer and the underwriters execute a supplement to the underwriting agreement, which sets out the final offer price of the shares and obliges the underwriters to purchase these shares and sell them to the investors. In addition, the issuer publishes a supplement to the prospectus, setting the final price for the offered shares.

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• Capital increase: In case of a primary offering, the issuer conducts a capital increase (typically immediately prior to the first day of trading). • First day of trading: The start of the trading is the test for the issuer and the underwriters, as they see for the first time how the issuer’s shares are traded. • Settlement: The closing of the IPO occurs a few trading days after the first day of trading. • Phase IV: Stabilisation (the first 30 days after the listing) After the first day of trading, one of the underwriters acts as a stabilisation agent. When placing shares in the bookbuilding, the underwriters typically sell more shares to investors than they purchase from the issuer and/or the selling shareholder (typically 15% of the base size) so that these shares can be used to stabilise the market price during the first days of trading. The additional shares are, initially, not purchased from the issuer or a selling shareholder, but are lent under a share lending arrangement. Whether or not the over-allotment option (also known as ‘greenshoe’) is exercised, then depends on the development of the share price: • If the share price is not doing well, the stabilisation agent purchases shares in the market to stabilise the price. These shares are then returned to the lending shareholder(s). • If, on the other hand, the stock is trading well, the stabilisation agent does not interfere in the market activity and ultimately either purchases the shares from the lending shareholder(s) or from the issuer (which are created in (another) capital increase) and returns these to the respective share lenders.

Regulatory architecture: Overview of the regulators and key regulations It is noteworthy that several elements of the Swiss regulatory architecture are based on self- regulation by stock exchanges, which still holds true under the new FinSA. In particular, the listing authority is still a body of the relevant stock exchanges, which are privately organised and held entities that enact the listing rules and have considerable discretion and flexibility to address particularities of individual cases. Moreover, FINMA has admitted two review bodies, one of SIX Swiss Exchange and one of BX Swiss, which can be freely chosen to approve a prospectus regardless of the listing venue. This creates a certain amount of regulatory competition. Main regulators • Swiss Financial Market Supervisory Authority (“FINMA”): FINMA is the independent regulatory body in charge of the overall supervision of the securities exchanges and the financial market as a whole. • Stock exchanges: Swiss stock exchanges adapt their own regulations based on the principle of self-regulation. FINMA supervises the stock exchanges and approves their rules. Within SIX Swiss Exchange, the Regulatory Board is the rule-making body and SIX Exchange Regulation enforces the SIX rules. The SIX Disclosure Office is primarily responsible for the supervision of the disclosure of major shareholdings. • Review bodies: The so-called “review bodies” have the responsibility to review prospectuses for completeness, consistency and comprehensibility. As of 1 June 2020, both SIX Swiss Exchange and the BX Swiss have been licensed by FINMA as review bodies under the FinSA. • The Swiss Takeover Board (“TOB”): The TOB enacts rules on public takeovers and share buybacks and supervises compliance with such rules.

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Key regulations • The FinSA and the FinSO are the key regulations for IPOs in Switzerland containing, inter alia, rules regarding the requirement to publish a prospectus when securities are offered to the public or admitted to trading at a trading venue in Switzerland, as well as its content and a review of the prospectus. The FinSA further contains rules on prospectus liability (see below) and on the recognition of foreign prospectuses. • The listing rules of SIX Swiss Exchange (the “SIX-Listing Rules”) lay down the main requirements for companies to list their shares on the SIX Swiss Exchange and to maintain the listing. • The Financial Market Infrastructure Act (“FMIA”) governs the organisation and conduct of the Swiss financial market. Among other things, it prohibits insider trading and market manipulation and requires shareholders with a shareholding of 3% or more to disclose their shareholding (see below). It also contains the main provisions for public takeovers. • The Swiss Code of Obligations (“CO”) sets out the legal framework for stock corporations (Aktiengesellschaften) and includes rules for listed companies with regard to the publication of their annual reports. • The Ordinance against Excessive Compensation (“OaEC”) addresses Swiss listed companies and was adopted on an interim basis after the vote of the Swiss people on ‘say on pay’-rules (see below). In connection with the ongoing Swiss corporate law reform, which is currently anticipated to enter into force in 2023, the OaEC will be incorporated directly into the CO.

Public company responsibilities Public companies in Switzerland are subject to several additional obligations. These include the Swiss “say on pay”-rules, reporting obligations relating to price-relevant information, management transactions and financial statements. Shareholders of a Swiss public company are obliged to report shareholdings of 3% or more to the stock exchange and the issuer, which subsequently arrange for the publication of these shareholdings on the stock exchange’s website. The disclosures must be made by (and must identify) the beneficial owner of the shares, i.e. the person controlling the voting rights and bearing the associated economic risk. This identification can be particularly complicated in complex private equity structures. Additionally, shareholders of Swiss public companies are obliged to launch a mandatory bid for all shares in case they acquire (alone or acting in concert) more than 33⅓% of the issuer’s voting rights – unless the articles of the issuer include an increased threshold (opt-up) or have waived this obligation (opt-out). Say on pay Switzerland has “say on-pay” rules and related executive compensation regulations for listed companies that were introduced following a public vote on a popular ‘say on pay’- initiative in 2013. These rules are currently still based on an executive ordinance, the OaEC, but they are being incorporated in the CO as part of the Swiss corporate law reform, which is currently anticipated to enter into force in 2023, as mentioned above, subject to very few adjustments. The OaEC is applicable to Swiss stock corporations if their shares are listed on a stock exchange in Switzerland or abroad. The OaEC primarily contains rules on the remuneration of directors and executive management, as well as the election of directors and an independent proxy.

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The key element of the OaEC is mandatory shareholder approval of the total compensation of both members of the board of directors and the executive management. The general meeting of shareholders must approve the total compensation for these corporate bodies by separate vote on an annual basis. Details of the vote are to be included in the articles of association, and most companies approve compensation prospectively as a “budget” for the next year, but retrospective approval is also permitted. Pursuant to the OaEC, the main principles for performance-based compensation, including any incentive plans, must be set out in the company’s articles of association. Hence, changes to these principles also require shareholder approval, but it is permissible to phrase such principles flexibly. The OaEC also imposes limitations on severance payments, pre-paid compensation and takeover bonuses. The corporate law reform will also specifically regulate post-employment non-compete payments and “golden handshakes” by largely codifying the current practice. These substantive requirements are supplemented by the obligation to publish an annual remuneration report that provides disclosure on quantitative elements of the remuneration paid. This information is also typically included in the annual report. In addition, the OaEC sets out requirements for the election and maximum term of certain corporate bodies. All board members, the chairman, all members of the mandatory remuneration committee and an independent proxy must be elected by the shareholders on an annual basis. In addition, the OaEC limits notice periods (or, if applicable, a fixed term) of employment agreements with the members of the executive management to a maximum of one year. Ad hoc publicity The rules on ad hoc publicity are not statutory obligations in Switzerland, but are regulated in the listing rules of the stock exchanges and are largely comparable to the EU regime set out in the MAR. The SIX Swiss Exchange requires an issuer to inform the market of any facts which are capable of triggering a significant change in market prices and which have arisen in its sphere of activity. Typical examples include, inter alia, financial figures, personnel changes on the board of directors or management, mergers, takeovers, spin-offs, restructuring operations, changes of capital, takeover offers, significant changes in profits, profit collapses, profit warnings and financial restructurings. In principle, the issuer must inform the market immediately, but such publication can be postponed if the price-sensitive fact is based on a plan or if the decision of the issuer and its dissemination could prejudice its legitimate interests. The issuer in this case must ensure that the respective fact remains confidential. Immediate notification is required in case of a leak. If the issuer postpones the publication of a price-relevant fact, it is important to constantly monitor if the prerequisites for the postponement are still met, and to implement a contingency plan in case of a leak. Disclosure of management transactions The rules on the disclosure of management transactions (directors’ dealings) are also set out in the listing rules of the stock exchanges. The rules require issuers to ensure that both the members of the board of directors and the executive management report the issuer transactions in the issuer’s equity securities, or in related financial instruments, which have a direct or indirect effect on such person’s assets. Related financial instruments comprise, in particular, derivatives or rights which provide for or permit the actual delivery of shares or cash settlement (e.g., as subscription rights). The reporting obligation includes transactions

GLI – Initial Public Offerings 2021, Fifth Edition 183 www.globallegalinsights.com Bär & Karrer Ltd. Switzerland carried out by related parties if such transactions are carried out under the significant influence of the director or manager. The issuer itself must then report the management transactions to the respective stock exchange, which publishes the notification on its website on an anonymous basis, i.e. without disclosing the name of the respective director or manager. Financial reporting Swiss stock exchanges require issuers to publish and file annual and semi-annual financial reports, which must be drawn up in accordance with one of the eligible accounting standards (currently: IFRS, U.S. GAAP and Swiss GAAP FER). Quarterly reporting is not mandatory, but many public companies voluntarily publish quarterly results or figures, in line with international standards. Corporate governance and sustainability reporting The Swiss Code of Best Practice for Corporate Governance issued by economiesuisse, the largest umbrella organisation representing Swiss businesses, contains the main guidelines regarding matters of Corporate Governance. It is non-binding and follows a comply-or- explain approach, allowing companies to deviate from the code’s provisions if they provide a suitable explanation. Although compliance with the code is not mandatory, its provisions are widely observed by companies. SIX-listed companies are also subject to the Directive on Information relating to Corporate Governance requiring disclosure on, e.g. group structure, major shareholders, changes of control, defence measures and compensation, in a separate section of the annual report on a comply-or-explain basis. It also permits issuers to voluntarily inform the SIX that they have prepared a sustainability report in accordance with an internationally recognised standard (opting-in), which then obliges the issuer to publish a sustainability report in accordance with the chosen standard. In recent years, the recommendations of the prominent proxy advisors (e.g., ISS and Glass Lewis) have also acquired an increased importance for an issuer’s corporate governance set-up and are taken into account by a growing number of companies.

Potential risks, liabilities and pitfalls Prospectus liability Prospectus liability of the new FinSA (Article 69 FinSA) is in principle based on the previously applicable Swiss corporate law rules and jurisprudence. As such, not having acted with due care remains a condition to such liability. Liability without fault, concepts like “fraud on the market” and the possibility of class actions were discussed but not introduced into the new law. According to FinSA, anyone making statements in a prospectus (including key information or a similar document) which are either incorrect, misleading or non-compliant with the law, is liable to the acquirers of the securities for any damage caused thereby. Similar documents may include mini-prospectuses (e.g. shareholders’ information), official notices and marketing presentations such as roadshow and early-look presentations, invitations to shareholders’ meetings and advertisements. Therefore, every communication made in connection with or to promote an offering should be carefully tested against state of the art “publicity guidelines” created specifically for the relevant offer. Advertisements made in connection with an IPO must be clearly identifiable as advertisements, must include a reference to the prospectus, and must be in line with the prospectus.

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The new prospectus liability does not apply to persons solely “distributing” the prospectus (this was intentionally deleted from the previous wording). In general, the legislator’s intent was that only persons who also had a certain influence on the actual content of a specific prospectus should bear liability. A liability claim may be brought not only by the original buyers in the relevant offering but also by the later buyers in the secondary market to the extent that they can show that the prospectus or any other relevant document adequately caused the decision of such buyer to buy (at the relevant price). Inspired by the EU prospectus regulations, liability for the summary of the prospectus arises only if the summary is misleading, incorrect or contradictory when read together with other parts of the prospectus. Further, inspired by U.S. securities laws, forward- looking statements shall only result in liability if they are made against better knowledge or without a disclaimer pointing the investor towards the uncertainty of future developments. Furthermore, FinSA introduced criminal liability for the intentional violation of the Swiss prospectus rules and regulations. Customary due diligence (such as due diligence calls, comfort letters) serves to defend against liability claims by providing evidence to the persons involved in making the prospectus and similar documents that they have acted diligently when preparing these documents. In the absence of Swiss law statutory guidelines regarding the level of due diligence to be made, recognised market practice must be followed. In the case of U.S. Regulation S offerings, the legal due diligence will usually be led by a Swiss law firm which will also issue the disclosure letter. In the case of offerings including elements of U.S. Rule 144A, the lead will typically be taken a U.S. law firm. Insider trading The Swiss rules regarding prohibition of insider dealing are set out in the FMIA, which provides for both a criminal and an administrative insider trading offence. The main difference between the criminal and the administrative offence is that the criminal offence requires the realisation of a pecuniary advantage and wilful intent, whilethe administrative offence only requires that the offender ‘knows’ or ‘should have known’ that the fact is insider information, and does not require that a pecuniary advantage is realised. The criminal provision provides a maximum sentence of up to five years’ imprisonment or a monetary penalty. The administrative provision provides for a declaratory ruling or the publication of the supervisory ruling. Both provisions also allow the confiscation of profit. The Financial Market Infrastructure Ordinance (“FMIO”) contains safe harbours from the prohibition to communicate insider information. In particular, it is permissible to communicate insider information to a person if the communication is required with regard to the conclusion of a contract, and if the information holder: (i) makes it clear to the information recipient that the insider information may not be exploited; and (ii) documents the disclosure of the insider information and such clarification. Issuers should generally adopt an insider dealing policy outlining the sanctions resulting from insider dealing, and stipulate instances in which certain individuals are banned from trading in shares of the issuer (so-called “blocking periods”). Market manipulation The FMIA distinguishes between criminal and administrative market abuse offence. Both provisions aim to penalise the manipulation of the share price, either by (i) spreading false or misleading information, or (ii) executing fictitious transactions. The main difference between these provisions is that the criminal offence requires wilful behaviour by the

GLI – Initial Public Offerings 2021, Fifth Edition 185 www.globallegalinsights.com Bär & Karrer Ltd. Switzerland offender and the intention of gaining a pecuniary advantage for themselves or for another, while the administrative offence merely requires that the offender ‘knows’ or ‘should have known’ that its acts gave false or misleading signals regarding the supply, demand or price of the securities. The criminal provision provides a maximum sentence of five years’ imprisonment. The penalties for the administrative offence are, as a general rule, the same as for the insider dealing provisions. Confiscation of profit is permitted under both provisions. The FMIO also contains certain safe harbours from the prohibition of market manipulation, e.g. for public buyback programmes as well as for price stabilisation following a public placement of securities. Under these rules it is permissible, in particular, to use shares placed as part of an over-allotment option (‘greenshoe’) to stabilise the price following an IPO if certain prerequisites are met. These include that the price stabilisation must be carried out within 30 days and may not be executed at a price that is higher than the issue price. Sanctions by the stock exchanges In addition to statutory obligations, the stock exchanges may impose sanctions on issuers in case of violation of their respective obligations under the listing rules (e.g. of ad hoc disclosure obligations or of rules regarding disclosure of management transactions). These can include fines and the suspension of trading, as well as, ultimately, a delisting.

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Dr. Urs Kägi Tel: +41 58 261 56 13 / Email: [email protected] Dr. Urs Kägi is co-head of the Capital Markets as well as of the Corporate & Commercial practice groups of Bär & Karrer. He graduated from the University of St. Gallen in 2003 (lic. iur.) and was admitted to the Bar in 2005. He received his Master of Laws (LL.M.) degree from the University of California at Berkeley (UC Berkeley) in 2011. Urs Kägi advises listed and non-listed companies, investors and financial institutions on a broad range of corporate, capital markets, M&A, corporate governance and regulatory matters. An important focus of his work is on capital markets, in particular equity capital markets, and he advises issuers, investors and financial institutions on capital increases, initial public offerings, new listings, dual listings and cross-border issues related to foreign listings, international issuance programmes, ongoing disclosure, and other securities laws issues.

Lukas Roesler Tel: +41 58 261 56 20 / Email: [email protected] Lukas Roesler is co-head of the Capital Markets as well as of the Banking & Finance practice group with nearly two decades of professional experience in these fields and in-depth industry experience from his previous positions in corporate and investment banking at a major Swiss bank. He graduated from the University of Zurich in 1998 (lic. iur.) and was admitted to the Bar in 2002. He received his Master of Laws (LL.M.) degree from New York University School of Law in 2006. Lukas Roesler advises issuers, borrowers, arrangers, investors and lenders on all aspects of capital markets, corporate finance and acquisition finance transactions. Further, he advises in restructuring and insolvency matters.

Rebecca Schori Tel: +41 58 261 56 74 / Email: [email protected] Rebecca Schori is a member of the Capital Markets, M&A as well as General Corporate & Commercial practice groups at Bär & Karrer. She graduated from the University of Basel in 2014 (Master of Laws) and was admitted to the Bar in 2018. She received her Master of Laws (LL.M.) degree from Boston University School of Law in 2013. Rebecca Schori's practice focuses on capital markets law, M&A transactions as well as general contract, corporate and commercial law. She specialises and is regularly involved in equity capital markets transactions, as well as in intra-group restructurings and a broad range of corporate governance and regulatory matters.

Bär & Karrer Ltd. Brandschenkestrasse 90, CH-8002 Zürich, Switzerland Tel: +41 58 261 50 00 / URL: www.baerkarrer.ch

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Andrew Tarbuck, Alex Ghazi & Carla Saliba Al Tamimi & Company

Introduction An initial public offering (“IPO”) is a process by which a company offers its shares, for the first time, to the public by virtue of drafting and publishing a prospectus on the company and carrying out a public subscription of its shares, after submitting required documentation to the relevant governmental authorities and obtaining their approvals in relation thereto. Under the laws and regulations of the United Arab Emirates (“UAE”), in order for a company to offer its shares to the public, it must be or take up the legal form of a public joint stock company. Accordingly, a company wishing to execute an IPO will be either a newly incorporated public joint stock company, or a company assuming the legal form of a private joint stock company or a limited liability company that undergoes a conversion process to become a public joint stock company. A recent amendment to the Resolution No. (11/R.M) OF 2016 on the Regulations for Issuing and Offering Shares of Public Joint Stock Companies issued by the United Arab Emirates Securities & Commodities Authority (“Offering Rules”) allows free zone companies established as public companies in a relevant free zone to offer shares by way of IPO “onshore” in the UAE and list on the UAE’s securities exchanges, subject to the terms and conditions set out in the Offering Rules. With regard to a brief history of IPOs in the UAE, there has only been one IPO announced this year, which subsequently aborted, after a stagnant period due to the COVID-19 pandemic worldwide. There were two IPOs executed in 2017 after the issuance of the new UAE Federal Law No. 2 of 2015 concerning Commercial Companies (“Companies Law”). We envisage that the market appetite will uphold the trend of one to two IPOs a year as it has in the past. It is worth noting that the companies that have undergone IPOs in the past operated in fundamental, yet diversified industries, such as the real estate, financial services, investment, leisure and entertainment, and oil and gas sectors. Banks and insurance companies established in the UAE are under a regulatory requirement to be publicly listed. Generally speaking, companies that choose to go public in the UAE and offer their shares in an IPO usually seek to raise their capital in global markets. This is supported and facilitated by the local regulators and the regulatory schemes set by the governmental authorities. It should be noted that, for the purposes of this chapter, any reference to the UAE (which includes the Emirates of Abu Dhabi, Dubai and the five other emirates making up the UAE) excludes the geographical areas of the Dubai International Financial Centre (“DIFC”) and the Abu Dhabi Global Market (“ADGM”). The civil and commercial laws of the UAE (including the UAE’s securities laws and regulations discussed in this chapter) are not applicable to the DIFC or ADGM and vice versa. The DIFC and the ADGM each have their

GLI – Initial Public Offerings 2021, Fifth Edition 188 www.globallegalinsights.com Al Tamimi & Company United Arab Emirates own financial services regulator and securities laws and the DIFC has its own securities exchange (Nasdaq Dubai). In the UAE, there are three securities markets, two of which are “onshore”, being the Abu Dhabi Securities Exchange (“ADX”) and the Dubai Financial Market (“DFM”), while the third securities market is located within the jurisdiction of the DIFC, being Nasdaq Dubai. ADX and DFM are subject to the supervisory authority of the UAE Securities and Commodities Authority (“SCA”), while the Dubai Financial Services Authority regulates Nasdaq Dubai in its capacity as the financial services supervisory authority within the DIFC. As at the time of writing, there is no financial market located in the ADGM. This chapter excludes any regulations applicable to Nasdaq Dubai and any of the below regulations are applicable only to ADX and DFM where the text allows for the same. ADX and DFM are governed and regulated by the SCA, which has the authority to impose laws, regulations and standards with which both ADX and DFM must comply. ADX and DFM work proactively with the SCA to protect investors and provide optimum trading platforms for securities trading. Both ADX and DFM operate as a securities exchange for trading securities including shares issued by public joint stock companies.

The IPO process: Steps, timing and parties and market practice Despite the fact that an IPO is a process carried out in a very similar manner across the globe, the mechanics of such procedure differ from one country to another in terms of the applicable laws and regulations, required documentation, governmental approvals, and the timeline for these procedures. The IPO process in the UAE varies slightly according to the business and structure of the company undergoing the IPO process. For example, whether the company is a newly established public joint stock company (a greenfield IPO) or a company undergoing a conversion process to become a public joint stock company, or differences depending on the Emirate in which the proposed issuer has its place of business and on which market the company will be listed. Accordingly, we have set out below two different procedures and the series of steps for each company structure. Newly established public joint stock company First stage: Initial approvals Generally, greenfield (i.e. newly established) public joint stock companies require additional approvals/conditions from the SCA to conduct an IPO. These requirements principally include: (i) a special approval from the board of directors of the SCA for incorporating the greenfield company; (ii) that there is sufficient working capital for the twelve (12) months post the incorporation; and (iii) that the offered shares are limited to qualified institutional investors and high-net-worth individuals for amounts that are no less than AED 5 million. The founders committee of the new company (to be established) must refer to the Department of Economic Development (“DED”) to obtain initial approval to establish the company as a public joint stock company in accordance with the provisions of Article (113) of the Companies Law. After obtaining the approval of the DED, the founders committee must apply for the preliminary approval of the SCA for the establishment of the public joint stock company, accompanied by all of the necessary documents; namely, the memorandum of association (“MoA”), articles of association (“AoA”), an economic feasibility study for the venture

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(detailed business plan), the SCA application form requesting incorporation of a public joint stock company, a draft prospectus, a subscription application form, and evidence of payment in respect of subscription. If the company has shares issued in-kind, the value of the in-kind shares must be assessed/ evaluated by one or more financial advisers approved/accredited by the SCA. The SCA then considers the application for incorporation and notifies the founders committee of its observations within ten (10) working days from the date of submission of the application in full. The founders committee completes any deficiencies or makes the amendments deemed necessary by the SCA to complete the application for incorporation within fifteen (15) working days of the date of notification from the SCA. Otherwise, the SCA may consider this a waiver of the application for incorporation. The SCA sends a copy of the documents to the DED after they have been completed. A meeting is then held between the SCA and the DED to study the application for incorporation and the applicable documents. The meeting must be held within ten (10) working days of the date of the submission of documents by the SCA to the DED. In the event that there are any comments made by the DED, the SCA must inform the founders committee. The amendments should be made within ten (10) working days of the date of informing the founders committee. The SCA ensures that the application and all documents and observations are completed and that the amended versions are sent to the DED. No particulars may be amended in the application after submitting it to the DED during any stage of incorporation, either in respect of the capital of the company or its objectives or the names of its founders or any other data in the application for incorporation. On approval of the incorporation application, the DED then issues a decision to license the incorporation of the company, which is announced in the official gazette at the expense of the founders. Second stage: Pre-subscription period The founders committee must next attest the MoA and AoA before a notary public in the UAE. Third stage: Public subscription/public offering The founders committee must then commence the subscription process for the shares within fifteen (15) days of the date of issuance of the above-mentioned decision. The founders must subscribe for not less than thirty per cent (30%) and not more than seventy per cent (70%) of the issued share capital of the company, prior to the invitation to public subscription being an offering for the remaining percentage of the share capital. The founders may not subscribe to the shares offered for public subscription. N.B.: Prior to such step, the founders committee must provide the SCA and the DED with a bank certificate evidencing payment of the value of their shares in accordance with the above prescribed percentages. Additionally, they must submit an undertaking, in accordance with the template provided by the SCA, to deposit the proceeds generated from the subscription of the total shares to the account of the company under incorporation, as well as refunding the surplus funds to subscribers within fifteen (15) days of the date of the subscription closure, if any. Once the SCA’s approval of the prospectus is obtained, the prospectus is then published in two local Arabic language daily newspapers at least five (5) days prior to commencement of the subscription. This is the invitation to the public offering.

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The subscription must be kept open for no less than ten (10) business days and no more than thirty (30) business days, with a maximum extension period of ten (10) business days, subject to approval from each of the SCA and the DED. A company issuing its shares in accordance with the share book-building mechanism shall enter into a contract with a financial advisor in order to carry out the IPO and they will run the book-building and subscription process. Such financial advisor shall have a number of roles, including presenting the company’s business to investors and ultimately setting the offer price per share in the final prospectus after analysing the data from the book-building. Companies issuing shares in an IPO process, and wishing to use the book-building process, must comply with the following: • An application will be submitted to the SCA using the form prepared for such purpose in order to obtain approval for the book-building. • The company shall neither announce nor disclose, by any means whatsoever, its intention to issue or sell shares through the book-building process before obtaining the SCA’s approval. • Not less than twenty per cent (20%) of the subscription shares shall be offered to retail investors, and not less than sixty per cent (60%) shall be offered to qualified investors, excluding newly established companies, in which case the subscription is restricted to qualified investors only. • Allocate to qualified investors, based upon the subscription applications submitted by them, any shares not subscribed by retail investors. The price set for retail investors may be discounted compared to the one set for qualified investors in accordance with disclosures made in the final prospectus. Retail investors shall pay the full value of their subscribed shares upon subscription. Qualified investors may pay the value of their subscribed shares after allocation. The allotment of shares and refund of any surplus funds must be made within five (5) working days of the date of the subscription. In the event that the subscription applications exceed the number of shares offered, the shares shall be distributed to subscribers proportionally to their subscribed amounts or as determined in the prospectus and approved by the SCA, and the distribution shall be made to the nearest whole share. After the allocation has been made, the company must send the shareholders’ register to the applicable UAE securities market (i.e. ADX or DFM) on which the shares will be listed. The receiving banks for the subscription hold the payments made by subscribers; in this regard, any returns gained in relation thereto are for the account of the company under incorporation. The receiving banks will not deliver such amounts to the board of directors of the company until the incorporation certificate has been issued and the company is registered before the commercial registrar at the DED. Fourth stage: Incorporation announcement The company must announce an invitation to the subscribers to attend the constitutive general assembly meeting (after obtaining approval of the SCA) to be held within twenty- one (21) days of the date of the subscription closure. The agenda of the first constitutive general assembly must include certain matters prescribed by the SCA. If a quorum has not been met at the first meeting, the meeting must be held within five (5) to fifteen (15) days of the date of the first meeting, and the second meeting will be deemed to satisfy the legal quorum regardless of the number of the attendees.

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Within ten (10) days of the date of the constitutive general assembly, the founders will submit an application to the SCA for issue of the incorporation certificate, and will enclose the documents stipulated under Article (133) of the Companies Law. Afterwards, the SCA issues the incorporation certificate within five (5) working days. Fifth stage: Registration before the competent authorities and the SCA • The board of directors of the newly incorporated company must complete the registration procedures before DED in anticipation of its listing on the applicable securities market within ten (10) days of the date of issuance of the incorporation certificate. • The DED must then register the company before the commercial registrar and issue the company’s trade licence within five (5) working days. • Subsequently, the chairman of the board of directors of the newly incorporated company must, within five (5) working days of the date of issuance of the company’s trade licence, provide the AoA, MoA and the company licence to the company registrar to register the company in the companies register. Sixth stage: Listing on the applicable UAE securities market The board of directors of the newly incorporated company must, within fifteen (15) working days of the date of the company’s registration before the commercial registrar, list its shares on either of the UAE’s securities markets (i.e., ADX or DFM) and revert to such securities market with a listing request in accordance with the listing regulations adopted by the SCA and the securities market on which the shares will be listed. Newly converted public joint stock company Existing companies wishing to convert into public joint stock companies follow the same rules and steps applicable to newly established public joint stock companies, except in relation to the following: • Companies wishing to convert into a public joint stock company are required to fulfil, amongst other things, the following requirements: • the value of the issued shares of the company wishing to convert has been paid in full; • the completion of at least two fiscal years prior to the application; • the company has realised, within the two financial years preceding the approval on the conversion application, net operational profits that are distributable to shareholders of no less than ten per cent (10%) of the company’s capital as an average; and • a special resolution (depending on the legal form of the company and its constitutional documents, this should be passed by no less than three quarters of either: (i) the share capital of the company; or (ii) the shares being represented in a general assembly meeting) issued by the shareholders of the company approving its conversion into a public joint stock company. • The founders must subscribe to a minimum of thirty per cent (30%) and a maximum of seventy per cent (70%) of the share capital post valuation meaning there must be a minimum thirty per cent (30%) free float. • The founders committee (to be established by way of a shareholders’ resolution) of the existing company that wishes to convert to a public joint stock company must draft a letter to the SCA requesting a listing window reservation and confirming eligibility. • Afterwards, the founders committee applies to the SCA for a public joint stock conversion accompanied by its shareholders’ resolution approving such conversion. • Simultaneously, the said company appoints, approves and forms the said founders committee.

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• Subsequently, the founders committee files with the SCA the first draft of the local prospectus as well as the shareholders’ resolution of the existing company approving the conversion, a final draft of the IPO MoA and AoA, a business plan review, and a final real estate valuation report. • The SCA will examine the conversion application and filed documents and produce a decision on the request within a period of ten (10) working days. • In the event of approval of the conversion by the SCA, the founders committee must announce the conversion and notify its shareholders and creditors (if any) of such conversion by way of written notice within a period of five (5) working days from the date of the SCA’s approval. • Shareholders and/or creditors of the company are given a period of fifteen (15) working days to object to the conversion. • Afterwards, the company files with the SCA a copy of the resolution and confirmation that the objection period has expired. The SCA forms a committee to evaluate the company’s assets. The period for this evaluation is thirty (30) working days. • A meeting between the SCA and the DED is then held to examine the conversion application and its documents. The time for such procedure is five (5) working days. • In the event of final approval of the conversion application, the SCA issues a licence to the company and such licensing decision is then published in the official gazette at the expense of the company’s founders. • The company then proceeds with the IPO and listing in the same manner as a newly established public joint stock company.

Regulatory architecture: Overview of the regulators and key regulations The key regulators in the UAE in respect of the IPO process are the SCA and the DED. Additionally, and depending on the nature of the company’s business, the company may be required to obtain the approval of other relevant governmental authorities or regulators such as the UAE Central Bank or the Insurance Authority in the UAE (the Insurance Authority is now a department within the UAE Central Bank). Other than the key regulators mentioned above and as part of the IPO process, the company is required to liaise with ADX or DFM for the listing of its shares and their offering to the public. In addition to the Companies Law, one of the important regulations in respect of an IPO is the Offering Rules and the listing rules of the applicable securities market.

Public company responsibilities Public joint stock companies are subject to a more onerous governance structure in comparison to other legal forms of companies in the UAE. The main differences manifest in the “corporate governance” and the “disclosure and transparency” regulations applicable to public joint stock companies. Disclosure and transparency regulations After the IPO and listing, the company and its shareholders have additional disclosure and transparency obligations, which include restrictions on dealing with the securities of the company, notification obligations in relation to material developments affecting the company, restrictions on publishing certain data relating to the company and to provide the SCA with copies of certain documents including quarterly financial reports, and details of general assemblies and resolutions.

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Corporate governance regulations Public joint stock companies are obliged to follow separate regulations for corporate governance in addition to those specified in the Companies Law. The corporate governance regulations applicable to UAE public joint stock companies are set out in the SCA’s Resolution No. (03/R.M) of 2020 concerning adopting the Corporate Governance Guide for Public Joint-Stock Companies (“CGR”). These include, amongst other obligations (i) how the board of directors is formed and the obligations of the board and its members, (ii) representation of women on the board of directors (there must be at least one female board member), (iii) procedures for dealing with conflicts of interests, (iv) in case of related parties transactions, that the company is obliged to obtain approval from its shareholders and maintain records of transactions that take place with related parties, (v) all shares issued in the company must be in the same class with equal rights attached to them, (vi) the AoA and internal by-laws of the company should include controls to protect shareholders’ rights, and (vii) the company must have internal control systems to ensure compliance with corporate governance rules. The company is also obliged to issue an “Integrated Report” which includes a “Corporate Governance Report” and a “Sustainability Report”. The board of directors oversees the publication of the Integrated Report which consolidates all elements of the reports required to be issued by the company (financial, commentary, administrative, corporate governance, remuneration and sustainability reports) in one comprehensive report, showing the company’s ability to create and retain value. The Integrated Report must be published annually.

Potential risks, liabilities and pitfalls Given that the IPO is a simple and straightforward process, there should be minimal potential legal risks, liabilities or pitfalls with regard to undertaking the IPO process should the above-mentioned procedures be thoroughly followed and all governmental and regulatory approvals obtained. This is notwithstanding any risks, liabilities and pitfalls related to the business of the company itself or any market risks occurring during the IPO process. However, any negligence on the part of the company, the founders committee or the board of directors may expose the company and its founders to risk. Article 118 of the Companies Law provides that the founders committee and the board of directors, if applicable, shall be fully responsible for the accuracy, adequacy and completion of the statements and information provided during an IPO. The advisors to the IPO should provide due care during their assistance in the IPO process. The IPO is a lengthy and detailed process that needs to be dealt with by advisors who are experienced in the field of IPOs in order for them to handle the requirements and ensure compliance with all regulations in an efficient manner and minimise any risk to the company and its founders.

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Andrew Tarbuck Tel: +971 4 331 7161 / Email: [email protected] Andrew is a Partner and Head of Capital Markets at Al Tamimi and, with over 14 years of experience in the region, he is widely recognised as a leading lawyer for capital markets in the Middle East. Andrew has particular expertise in all aspects of capital markets transactions, particularly IPOs, other equity fund raisings, debt securities and Sukuk. He is skilled in all aspects of capital markets, M&A, public company work and corporate law. Andrew has been ranked in Band 1 in Chambers Global for several years and is a “Leading Individual” in The Legal 500 for UAE and Middle East Capital Markets. Commentators described him as “very knowledgeable, practical and energetic, and gets things done”, “a big player who brings a lot of expertise to his team” and as “a leading figure in the capital markets space” with “a solid track record in multibillion-dollar IPOs”.

Alex Ghazi Tel: +971 2 813 0444 / Email: [email protected] Alex is Partner and Head of Al Tamimi & Company’s Abu Dhabi Office and a specialist corporate lawyer. Prior to joining Al Tamimi & Company in 2017, Alex was the Group General Counsel and Company Secretary for Arabtec Holding PJSC, based in Abu Dhabi. Alex obtained his LL.M. (Master’s Degree) in International Business Law in 1993 (from France) and after training and working with Clifford Chance (Paris and Dubai), he moved to Marriott International in Dubai and then in London, heading the legal department for Europe and the Middle East. He later became the Chief Legal Officer for Abdul Latif Jameel in Jeddah before joining Arabtec in July 2013. Alex has spent most of his working career as a corporate and commercial lawyer, involved in various international transactions. Over the years, he has led various legal teams and departments in different industrial sectors, starting from real estate development, to automotive, to construction.

Carla Saliba Tel: +971 4 364 1642 / Email: [email protected] Carla Saliba is a Senior Associate in the Corporate Commercial practice in Dubai. Carla Saliba holds an LL.M. (Master’s Degree) in the United States legal studies from Case Western Reserve University/School of Law. She graduated from Saint Joseph University, Beirut, Lebanon and she is a member of the Beirut Bar Association. Prior to joining Al Tamimi & Co, Carla has worked with Abouhamad, Merheb, Nohra, Chamaoun, Chedid Law Firm one of the leading law firm in Lebanon. She joined Al Tamimi & Co in March 2006. Carla has been extensively involved in major M&A, corporate restructuring of family businesses, IPO and other capital market transactions in the UAE.

Al Tamimi & Company Central Park Towers, 7th Floor, P O Box 9275, Dubai, United Arab Emirates Tel: +971 4 364 1641 / URL: www.tamimi.com

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Pawel J. Szaja & Michael Scargill Shearman & Sterling (London) LLP

Introduction The decision for a private company to ‘go public’ may be based on a number of factors. An initial public offering (“IPO”) (including, in the case of the London Stock Exchange’s AIM, an admission to trading by way of placing) is likely to provide a private company with enhanced access to capital and liquidity and increase its public profile. It will also create an acquisition currency for the company to use in future transactions, which is an increasingly important consideration for companies as they look to accelerate growth through M&A. From a shareholder perspective, an IPO provides major shareholders with the opportunity to realise their investment by selling part (or potentially all) of their stake through the IPO. Once a company has decided to conduct an IPO, it will be faced with the decision of where to list. London has long been considered one of the preeminent locations for a company considering listing its shares on a public market. Despite the difficult market conditions and challenges of Brexit and the COVID-19 pandemic, in 2020 London retained its leading position, in terms of amounts raised (but not in terms of the number of IPOs), among all other European listing venues. Its deep and knowledgeable pool of institutional investors and stable and developed legal environment have laid the foundations for London’s IPO market to flourish. This has been supported by a group of internationally recognised advisers and other service providers. London’s equity markets are relatively sector-agnostic and attract companies from a broad range of industries. In 2020, there was a slight increase in the number of IPOs in London and the amounts raised by them when compared to 2019. According to PwC’s IPO Watch Europe 2020, there were 30 IPOs on the London Stock Exchange (“LSE”) which raised £6bn. In 2020 there was a bigger increase in the number of IPOs on the LSE’s AIM (16 compared to 10 in 2019) but new money raised fell significantly to £278m from £417m in 2019). Sectors covered by these IPOs included financials, industrials, software, travel and leisure, energy, metals and mining, healthcare and telecoms.

Recent developments Brexit By far the most important development affecting IPOs in the UK has, of course, been the decision of the UK to leave the European Union (“EU”), a decision that finally took effect on 31 January 2020 and which was followed by the end of the Brexit transitional or implementation period on 31 December 2020. The UK Government has made a large number of changes to UK law (as it currently implements and includes EU law), including in relation to the prospectus, listing, transparency

GLI – Initial Public Offerings 2021, Fifth Edition 196 www.globallegalinsights.com Shearman & Sterling (London) LLP United Kingdom and market abuse regimes, which took effect from the end of 2020. These were designed to ensure that, in the absence of some new legal and regulatory relationship with the EU taking their place, those regimes will continue to operate effectively and broadly in line with the way in which they operated before the UK left the EU. On-shoring of the EU prospectus regime into the UK The on-shoring of EU prospectus law and regulation has been effected by various statutory and regulatory instruments made under the European Union (Withdrawal) Act 2018, in particular by the Prospectus (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/1234) (as amended) which on-shored the EU Prospectus Regulation (mentioned below) (the “UK Prospectus Regulation”) and the Commission Delegated Regulation 2019/980 (prospectus format, content, scrutiny and approval) (the “UK Delegated Prospectus Regulation”) and the Technical Standards (Prospectus Regulation) (EU Exit) Instrument (FCA 2020/50) which was made by the Financial Conduct Authority (the “FCA”) and which on-shored the Commission Delegated Regulation 2019/979 (key financial information in prospectus summaries, prospectus publication, advertisements and supplements, etc.). The key point to note about this on-shoring is that the changes made to the UK prospectus regime largely preserve the prospectus regime as it existed prior to Brexit under the above EU regulations, though they obviously also reflect the consequence of the UK no longer being a member of the EU. Thus, for example, the use of a ‘passported’ prospectus (approved by the regulator of an EU Member State (or another state belonging to the European Economic Area (“EEA”)) for offerings or admissions to trading on regulated markets in the UK is no longer possible. Equally, prospectuses approved by the FCA can no longer be passported into the EEA. Prospectuses that were passported into the UK before 31 December 2020 continue to be valid for use (during their normal 12-month period of validity) in the UK (subject to any updating by an FCA-approved supplementary prospectus that might be required to cover new developments relevant to the prospectus). However, the European Securities and Markets Authority (“ESMA”) has stated that UK- approved prospectuses that were passported into the EEA before that date are no longer valid for use. In relation to historical financial information presented in a prospectus, UK issuers must use UK-adopted international accounting standards or UK accounting standards (as applicable). Non-UK issuers must use: (i) UK-adopted international standards; (ii) EU-adopted international standards; (iii) IAS 1-compliant international standards; (iv) Japanese, US, Chinese, Canadian or Korean GAAP; or (v) national accounting standards of other countries that the UK’s Treasury has determined are equivalent to UK-adopted international standards. In addition, the powers of the Commission and ESMA under the EU prospectus regime have been transferred to the UK’s Treasury (generally as regards ‘equivalence’ decisions) and to the FCA (generally as regards the issue of binding technical standards). The UK Treasury has issued an equivalence decision to the effect that prospectuses drawn up in accordance with an EEA state’s rules may be treated as equivalent to prospectuses drawn up under UK law and so approved by the FCA, and that EU-adopted international accounting standards will be considered to be equivalent to UK-adopted international accounting standards for the purposes of UK prospectus and transparency requirements. The FCA states in its Prospectus Regulation Rules contained in the FCA’s Handbook (which set out the requirements of the UK prospectus regime) that in addition to the UK on-shored prospectus regulations mentioned above, previous ESMA prospectus guidance

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(i.e. its Prospectus Recommendations, Prospectus Directive Q&A, Prospectus Regulation Q&A and Prospectus Opinions) will, to the extent applicable, remain relevant to the UK prospectus regime. Brexit and other financial services issues In the broader area of financial services, the EU has not yet made any ‘equivalence assessments’ for the purposes of allowing the UK, as a ‘third country’, access to certain cross-border financial services, except for CCPs and central securities depositories. One particular issue concerns companies with dual listings in London and an EU Member State. Absent an equivalence decision for UK trading venues, EU investment firms are, under the Markets in Financial Instruments Regulation ((EU) 600/2014) (“MiFIR”) Art. 23 ‘trading obligation’, (the “EU STO”) forced to restrict their trading of shares to approved markets in the EU and cannot trade such shares in London (e.g. on the LSE’s Main Market or AIM). ESMA has issued three public statements on this issue, confirming that the shares of EEA issuers (i.e. whose shares have an EEA state-prefixed International Securities Identification Number or “ISIN”) will be subject to the EU STO (and so EU investment firms may only trade in those shares on EU markets) and that shares of UK issuers (i.e. whose shares have a GB-prefixed ISIN) will be treated as falling outside the EU trading obligation and so may be traded by EU investment firms in London. ESMA has also clarified that a share with an EEA ISIN on a UK trading venue that is traded in pound sterling would not be within the EU STO. Under the version of MiFIR as ‘on-shored’ into the UK following Brexit (see in particular the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 (SI 2018/1403) (as amended) (“UK MiFR”)), UK investment firms are required to trade EEA shares on any London market on which they are traded, rather than on an EU market (the “UK STO”). The FCA has used its Temporary Transitional Power to allow temporarily UK investment firms to continue to trade shares on EU trading venues provided the venue is: (i) a UK recognised overseas investment exchange; (ii) within the UK temporary permissions regime; or (iii) within scope of the Overseas Persons Exclusion. Where London is the more important and liquid listing for an EEA issuer, this may encourage the cancellation of the relevant EU listing or EU investment firms to concentrate their trading operations in London. As part of the onshoring process, the UK adopted the EU’s existing STO equivalence decisions for Australia, Hong Kong and the US. In addition, the UK has granted equivalence to Swiss trading venues. Thus, UK investment firms will also comply with the UK STO when trading shares on trading venues in these countries. Other recent developments Two other developments that are worth noting in the context of UK IPOs are, first, the review of the UK's listing regime that the UK Government asked Lord Hill to carry out towards the end of 2020. Secondly, the surge in popularity during 2020 of the alternative route to accessing public capital markets provided by the listing of SPACs (special purpose acquisition companies which are essentially cash shells that list in order to acquire a private business which takes on the SPAC’s public listing rather than coming to the market through a more traditional IPO). The Hill Listing Review (the “Listing Review”) reported in March 2021 and its key recommendations have been largely accepted by the Government and the FCA, subject to consultation exercises that will take place later in the year. Specifically in relation to the UK prospectus regime and IPOs, the Listing Review has recommended: • differentiating between the need for a full prospectus for public offers and possibly different listing documentation for an admission of shares to trading on a regulated market;

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• prioritising within the Government’s Future Regulatory Framework Review a further review by HM Treasury and the FCA of the UK Prospectus Regulation and also other listed company regulations (such as MAR and the Transparency Directive) to ensure that the regulatory framework fits better with the UK’s capital markets and the issuers making use of them; • developing a broad “prospectus equivalence” regime to encourage secondary or dual listings in London on the basis of foreign approved prospectuses; and • reforming the liability regime for “forward-looking” statements made in a prospectus so that they no longer attract the same level of liability as do the other more backward- looking disclosures in the prospectus, although (to escape liability) directors would still need to demonstrate that they had exercised due care, skill and diligence and that they honestly believed the statement to be true when made. The Listing Review also made some important recommendations with regard to eligibility for a premium listing (see “Listing segments” below), including allowing the listing of dual class share structures, and reducing the current free float requirement for listings from 25% to 15%. The UK’s Kalifa Fintech Review, which reported in February 2021 and whose key recommendations have also been largely endorsed by the Government, also recommended relaxations to the UK listing regime with respect to dual class share structures and the free float requirement. The Listing Review also made important recommendations designed to remove from the UK’s listing regime current “suspension” rules that have been discouraging the listing of SPACs in the UK. Currently, SPAC listings in the UK are insignificant when compared to the US where, the Listing Review noted, in 2020 248 SPACs were listed raising £63.5 bn (US$83 bn) compared to just four in the UK raising £0.03 bn. So far, the SPAC craze in the US and elsewhere has impacted the UK markets more by removing potential candidates from pursuing a UK IPO (when a “de-SPAC” transaction takes place and a target is acquired) than by providing an alternative means for businesses to access the UK capital markets. On 30 April 2021, the FCA published the first of its consultations following the Listing Review, focused on proposed new Listing Rules guidance as to the circumstances in which a de-SPAC suspension may not be required. FCA Prospectus Regulation Rules Following the full implementation of the EU Prospectus Regulation ((EU) 2017/1129) from 21 July 2019, the FCA replaced much of the content of the Prospectus Regulation Rules (the “PRRs”) in its Handbook with appropriate extracts from the relevant, directly applicable EU regulations. Following Brexit, these extracts now relate to the on-shored UK versions of the relevant EU regulations and because of the minimal changes made by the on-shoring of these EU regulations the extracts remain largely the same. The Handbook also contains the FCA’s Listing Rules, Transparency Rules and disclosure requirements with respect to the Market Abuse Regulation ((EU) 596/2014) (“MAR”, now also on-shored into the UK following Brexit) (together, the “Listing, Transparency and Disclosure Rules” or “LTDRs”)).

The IPO process: Steps, timing and parties and market practice Markets The first step for a company considering listing in London will be to determine which market is right for it. By far the most commonly used markets are those of the LSE, although a very small number of companies have in recent years listed on the Acquis Stock Exchange

GLI – Initial Public Offerings 2021, Fifth Edition 199 www.globallegalinsights.com Shearman & Sterling (London) LLP United Kingdom or on Euronext London (in particular, companies who are conducting a dual IPO on one of Euronext’s other European exchanges). Given the prevalence of the LSE, however, the procedures and regulations described below assume a listing on one of the LSE’s markets. The LSE operates two principal markets: the Main Market; and AIM, which are relevant to IPOs. The Main Market is the LSE’s flagship market, and a ‘UK regulated market’ for the purposes of UK MiFIR. Under the UK’s Listing Rules, all equity shares that are listed must be admitted to trading on UK regulated markets. This means that companies who are undertaking an IPO must follow a dual track process of applying for both admission to the FCA’s Official List of securities as well as admission to trading on the Main Market. Being admitted to the Official List as a listed security will be a critical consideration for those companies that want to be open to investment by institutional investors, since those investors will have investment policies restricting them to investing in listed securities, and in some cases to securities with a ‘premium’ listing (either for governance reasons or because shares in such companies will be eligible for inclusion in the FTSE UK indices). AIM is the preferred London market for smaller and/or growth companies whose securities are not ‘officially’ listed.1 It operates a less prescriptive regulatory and governance regime than the regime that applies to companies admitted to trading on the Main Market, which is considered to be more appropriate for the stage of development of these types of companies. It will also be more attractive for companies that will have a small free float as there is no formal minimum free float requirement on AIM, whereas companies seeking admission to the Main Market will ordinarily need at least a 25% free float. Under UK MiFIR it operates as a multilateral trading facility, rather than a regulated market, and qualifies as a UK SME Growth Market (which confers on companies traded on such markets certain relaxations in the relevant prospectus and market abuse regimes). Listing segments A company seeking admission to the Official List will need to decide early in the process whether to seek admission to the ‘premium’ listing segment of the Official List or to the ‘standard’ listing segment. Both segments are available to UK and non-UK incorporated companies; however, a ‘premium’ listing will require the company to adhere to the UK’s highest standards of regulation and governance, both in terms of eligibility criteria and continuing obligations, as described below. A premium listing is, however, one criterion for inclusion in the FTSE UK indices, which is likely to be an important consideration for the company in deciding whether to seek a premium listing. For inclusion in the FTSE UK indices, the company would need to be allocated UK nationality by FTSE. The latter nationality test will be significantly easier to satisfy if the company is UK incorporated. Non-UK incorporated companies would need to have their greatest liquidity in the UK and be incorporated in a jurisdiction that FTSE classifies as either ‘developed’ (and not pass liquidity tests in their country of incorporation) or as an ‘approved internationally recognised low tax country’. In addition, non-UK incorporated FTSE companies will have to acknowledge publicly their adherence to the principles of the UK Corporate Governance Code, pre-emption rights and the UK Takeover Code as far as practicable and have at least a 50% free float. If the UK nationality requirement prevents FTSE inclusion, then a premium listing may have little additional value for the company over a standard listing. From 1 July 2018, a new category of premium listing has been made available to ‘sovereign controlled commercial companies’ (“SCCs”), meaning issuers in respect of whom a ‘State’2 exercises or controls 30% or more of voting rights. The new rules were designed to allow SCCs to benefit from a premium listing without having to comply fully with the ‘controlling

GLI – Initial Public Offerings 2021, Fifth Edition 200 www.globallegalinsights.com Shearman & Sterling (London) LLP United Kingdom shareholder’ and related party transaction requirements of the premium Listing Rules. Specifically, SCCs are not required to have a ‘relationship agreement’ (discussed further below) with the controlling State, nor are they required to obtain shareholder approval for a related party transaction (also discussed further below) between themselves and the controlling State. In addition, as a special concession to SCCs, a premium listing is available for depositary receipts (also known as ‘global depositary receipts’ or “GDRs”) issued by them as well as for their equity shares (but these would not currently be eligible for FTSE inclusion). However, the FCA stepped back from including in the new SCC premium Listing Rules two other exemptions from the existing premium listing requirements that it originally proposed should be available to SCCs: (i) the announcement obligations that apply to issuers in respect of related party transactions; and (ii) independent voting on the election of independent directors. SCCs applying for admission to the new SCC premium listing category have to comply with the above two premium listing requirements as well as all other premium listing requirements applicable to corporate issuers that have not been disapplied for SCC issuers. Currently, there are no premium listed SCCs in the UK. A standard listing may be an attractive option for certain overseas companies looking to access the London markets as it is possible to list GDRs on the standard listing segment, whereas the premium listing segment is, subject to the new exemption for SCCs mentioned above, reserved only for equity shares issued by trading companies or closed- or open-ended investment funds. Depositary receipts are tradable securities representing the underlying shares of the issuer. The benefit for companies incorporated in certain emerging market jurisdictions is that, whereas it may be challenging to market shares of a company in their jurisdiction to international investors, due to the additional cost and complexity that may be involved with owning such shares and the associated exchange rate risks, the same issues do not apply for depositary receipts. Under a GDR structure, the shares of the company will be held by a depositary bank, who will then issue GDRs representing those shares to investors and exercise its voting rights in accordance with instructions provided by the respective GDR holders. The Listing Rules contain a separate section for GDRs in Chapter 18, which modify some of the requirements that apply to a standard listing of equity shares; however, the main eligibility requirements and continuing obligations are substantively the same. Advisers and parties When deciding on which market to pursue its IPO, a company will need to engage with its legal and financial advisers at an early stage to determine whether it will satisfy the eligibility criteria of its chosen market. The advisory team will consist of at least the following: • Sponsor/Nominated Adviser/financial adviser: For companies seeking a premium listing on the Main Market, they will need to appoint an investment bank or other institution authorised by the FCA to act as the company’s sponsor (the “sponsor”) in accordance with the Listing Rules published by the FCA. The sponsor’s role is to advise the company on the application of the Listing Rules and the PRRs, and to make a declaration to the FCA shortly before admission confirming that: (i) the sponsor has acted with due care and skill; and (ii) the sponsor’s reasonable belief with respect to a number of matters relating to the company’s suitability for listing. The company will also be required to appoint a sponsor after it has been admitted to trading in relation to certain transactions and other matters where the application of the Listing Rules needs to be taken into consideration. In February 2019, the FCA issued important new and updated guidance with respect to sponsors and their responsibilities under the Listing Rules. The Nominated Adviser (“Nomad”) is broadly the equivalent of a sponsor on AIM;

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however, the key difference is that a Nomad’s appointment is full time, acting as an interface between the LSE and the AIM company and providing regulatory advice to the company on an ongoing, rather than ad hoc, basis. Companies seeking a standard listing on the Main Market will not be required to appoint a sponsor or Nomad, but will ordinarily appoint a financial adviser to assist them with matters such as structuring, valuation, marketing and transaction management. • Underwriters: The company will appoint at least one bank, who may also be the sponsor, to lead the offering of shares to investors (known as the ‘global coordinator’). A wider syndicate of banks may then be appointed by the company and the global coordinator to implement the offering. • Reporting accountants: The accountants will assist with ensuring that the company has sufficient and up-to-date financial information to meet the requirements of the PRRs and Listing Rules, in the case of a Main Market IPO, or the AIM Rules for Companies, in the case of an AIM IPO. Other key work streams for the reporting accounts will be preparing a detailed due diligence report on the financial position of the company’s group (known as the ‘long form report’), confirming that there has been no significant change in the financial position of the company since the date of its most recently audited accounts, preparing reports on the adequacy of the company’s working capital and, in the case of a premium listing, the directors’ ability to make proper judgments on an ongoing basis as to the financial position and prospects of the company’s group, and their capitalisation and indebtedness. • Legal advisers: The company’s legal advisers will assist with the structuring of the group, detailed legal due diligence and the preparation of relevant disclosure, advising on the corporate governance for the group, advising on the implications of the Listing Rules, PRRs and other relevant laws and regulations to the IPO, and preparing the principal transaction documentation, including the prospectus. Preliminary steps Once the advisory team has been appointed, the company and its advisers will focus initially on structuring, preliminary documentation and due diligence. This phase will normally last between six and 12 weeks. Other factors for the company to consider at an early stage will be the composition of the board and, for companies seeking a premium listing, how it will be able to comply with the UK Corporate Governance Code (discussed further below). The company will also spend considerable time with the underwriters reviewing the equity story of the company, which will be a key factor in determining the success of the transaction. The initial documentation that the company and its advisers will need to progress includes guidelines on the publication of analysts’ research (if relevant) and information concerning the company and/or the IPO more generally. The research guidelines will be adopted by the company and all members of the underwriting syndicate, set out the key requirements for the contents of any research reports from connected and unconnected analysts, and establish restrictions on the dissemination of such reports in line with relevant regulatory provisions (both in the UK and the US). Similarly, the publicity guidelines will seek to address the regulatory risk resulting from: (i) the prohibition on communications, in the course of business, which invite or induce the engagement of investment activity (a ‘financial promotion’) by anyone other than a person authorised by the FCA, unless the financial promotion is either approved by such authorised person or is covered by an appropriate exemption;

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(ii) the requirements of PRR 3.3 in relation to announcements or documents that could be considered an ‘advertisement’ under those rules; and (iii) statements being made which differ from those made in the prospectus, which could potentially call into question the adequacy of disclosure made in the prospectus and increase potential for claims being made by disgruntled investors, and will set out the process that must be followed before information can be released by or on behalf of the issuer (including the vetting of certain communications by the company’s legal and financial advisers). Work will also commence on the key transaction documents; namely the prospectus (or admission document for an AIM IPO) and the underwriting agreement. The prospectus will contain comprehensive information on the issuer, its business and its management and the risks of investing, each as required by the PRRs. The prospectus is the primary marketing document for the IPO, and should form the basis for an investor’s decision whether to participate in the offering or not. It will therefore also need to contain details of the offer and its timetable. The FCA will review advanced drafts of the prospectus prior to granting its approval. It will provide comments to the advisory team during this vetting process to ensure that the document meets the requirements of the PRRs and the Listing Rules. The FCA has issued a very useful Technical Note (Primary Market/PN/903.4, available in the FCA’s Knowledge Base section of its website) which sets out in detail the process that will be followed when submitting drafts of prospectuses for its review and approval). Further detail on the key disclosure requirements of the prospectus is included below. Underwriting The underwriting agreement will, as on any IPO, set out the agreement between the issuer, the directors (in the case of a premium listing, but not ordinarily on a standard listing), the selling shareholder(s) (if any) and the underwriters as to the terms on which the offering of shares in the IPO will be conducted, the mechanics for placing and settling shares with investors and the process for admission. It will contain, among other things, extensive termination rights for the underwriters (e.g. if there is a material adverse change in circumstances or a force majeure) and representations and warranties from the company and its directors which are designed to support the due diligence exercise by eliciting information that may need to be disclosed in the prospectus. The underwriting agreement may also include lock-ups on the company, its directors and any selling shareholders, although separate lock-up agreements may be entered into, including with any other significant shareholders. On an AIM IPO, lock-ups are required under Rule 7 of the AIM Rules for Companies, for a 12-month period from admission, from any 10% shareholder or any director, and their respective associates, if an applicant for listing has not been independent and earning revenues for at least two years. Ordinarily, a UK IPO will be underwritten on a ‘reasonable endeavours’ basis, whereby the banks agree to use reasonable endeavours to procure placees for the shares being offered. If, however, the banks are unable to procure placees, they will have no obligation to take up the shares themselves. As most UK IPOs are also conducted on a book-built basis, where investor appetite for the offering is gauged before pricing is confirmed, the banks will ‘build the book’ prior to signing the underwriting agreement, giving the banks and company clarity on how many shares will be taken up. As mentioned above, the legal advisers and reporting accountants will conduct a thorough due diligence review of the legal and financial affairs of the company and its group. This should identify early in the process if there are any issues which could potentially prevent the IPO from proceeding. It will also assist the sponsor in confirming the company’s

GLI – Initial Public Offerings 2021, Fifth Edition 203 www.globallegalinsights.com Shearman & Sterling (London) LLP United Kingdom suitability for listing, and the legal advisers in identifying what disclosures need to be made, and what risk factors need to be identified, in the prospectus or admission document. In making such assessment, the legal advisers will consider whether a potential investor would expect to be provided with such information and whether their investment decision could be influenced by such information. Due diligence The due diligence review will also help to determine whether any pre-IPO restructuring will be necessary; for example, the transferring of assets between group companies to ensure that the listed group holds all necessary assets to carry on its business, as identified in the prospectus. In the case of certain companies operating in specialised industries, additional specialist reports may be required. For example, real estate companies may need to obtain updated property valuation reports, and mining or oil and gas companies will need to obtain reports from technical experts on their assets (as discussed further below). Once initial structuring, due diligence and documentation matters have been completed, the company will begin investor education and the marketing of the IPO. Analyst research These processes have been impacted by two significant amendments to the FCA’s Conduct of Business Sourcebook that took effect on 1 July 2018 and were aimed at encouraging more independent analyst research and requiring earlier publication of a largely complete prospectus. Prior to these changes, the key information opportunities for potential investors in UK IPOs had been the publication of: • analyst research on the issuer – this had virtually always been produced by ‘connected analysts’ (i.e. analysts from the banking syndicate engaged to market the IPO); • the issuer’s detailed ‘Intention to Float’ announcement, which then starts a ‘blackout’ period of (typically) two weeks during which no further information (including a draft prospectus) about the IPO is published; and • a pathfinder prospectus (i.e. an advanced draft of the prospectus which does not contain details of the offer price or size and has not been approved by the FCA) or price-range prospectus (i.e. a finalised prospectus that has been approved by the FCA and includes a specified range within which the shares are expected to be priced) following expiry of the ‘blackout’ period. This long-established process had led to concerns that: (i) there is a marked lack of independent analyst research, when compared to ‘connected analyst’ research, during the initial investor education phase; and (ii) there is information asymmetry that favours the issuer and sell-side firms, at the expense of investors who do not get access to detailed information about the issuer and the IPO proposition as early in the IPO process. Therefore, from 1 July 2018, it has been a requirement that: • unconnected analysts are granted virtually equal access to the issuer’s management, either alongside connected analysts or under a separate track. It was hoped that this would facilitate the publication of more unconnected research and allow it to be published at the same time as connected research; and • connected research cannot be released until at least seven days following the publication of either the approved prospectus or an approved ‘registration document’ component of the prospectus (i.e. setting out the disclosure information on the company but not the details of the offering),3 unless unconnected analysts have been offered access to the issuer’s management alongside connected analysts, in which case connected research may be released from one day after publication of the prospectus or registration document.

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Since these new requirements have taken effect, market practice has tended to follow using a separate track for unconnected analysts, therefore building into the timetable the additional seven-day gap between publication of the prospectus/registration document and connected research. It has also led to more companies issuing an initial registration document instead of a prospectus, given that the prospectus (including offering details) would be required at a relatively early stage. The FCA noted in their commentary to the consultation that they issued in advance of these rule changes that they expected that the next document to be published by an issuer following their registration document would either be an FCA- approved price-range prospectus or an FCA-approved securities note and summary, as opposed to an unapproved pathfinder document. However, it is still possible under the new rules to use a pathfinder for the roadshow of an offering to institutional investors only. Unfortunately, these rule changes have not had the desired effect of encouraging the production of more independent or unconnected analyst research but rather have led to a lengthening of the “public” phase of the pre-IPO process by at least seven days. For these reasons, the Listing Review has recommended that the FCA reassess the utility and benefit of these rule changes. Relationship agreements While investor education is progressing, all further IPO documentation will need to be completed. For a company seeking a premium listing on the Main Market (other than an SCC, as discussed above), this will include a relationship agreement with any ‘controlling shareholders’, meaning any person who exercises or controls, on their own or together with any person with whom they are acting in concert, 30% or more of the votes able to be cast on all or substantially all matters at general meetings of the company. The relationship agreement will govern dealings between the company and its controlling shareholder(s) and is aimed to ensure that the company is able to operate its business independently and that all transactions with the controlling shareholder are on arm’s-length terms. The agreement will, at a minimum, need to contain undertakings that: (i) transactions and arrangements with the controlling shareholder (or any of its associates) will be conducted at arm’s length and on normal commercial terms; (ii) neither the controlling shareholder nor any of its associates will take any action that would have the effect of preventing the company from complying with its obligations under the Listing Rules; and (iii) neither the controlling shareholder nor any of its associates will propose or procure the proposal of a shareholder resolution which is intended or appears to be intended to circumvent the proper application of the Listing Rules. It is also accepted market practice, but not a requirement, that a relationship agreement will be put in place by an AIM company with a 30% (or larger) shareholder. Connected to the requirement to have a relationship agreement, the Listing Rules also require that the articles of association of a company seeking a premium listing on the Main Market must permit a two-step election/re-election process for independent directors whereby such appointments need to be approved by both the shareholders of the company and independent shareholders excluding the controlling shareholder(s), or, if approval from both groups is not obtained, by the shareholders of the company in a second resolution passed between 90 and 120 days from the date of the original vote. Other documentation Other important documentation that will need to be prepared includes the sponsor agreement (for a premium Main Market listing) or nominated adviser agreement (for an AIM admission), setting out the terms of the sponsor or Nomad’s engagement with the company and placing certain obligations on the company which aim to ensure that the sponsor or Nomad are able

GLI – Initial Public Offerings 2021, Fifth Edition 205 www.globallegalinsights.com Shearman & Sterling (London) LLP United Kingdom to comply with their regulatory obligations. The suite of comfort letters mentioned below will also be a focus for the sponsor or Nomad, as will director and officer questionnaires used to confirm certain key information on the company’s management, the presentation to be used on the marketing roadshow and the company’s intention to float announcement. Application process At the final stage of the IPO process, the company will follow the formal admission requirements set out in the LSE’s Admission and Disclosure Standards (“ADSs”) and either Chapter 3 of the Listing Rules, in the case of a Main Market IPO, or Rules 2 to 6 of the AIM Rules for Companies, in the case of an AIM IPO. The ADSs require that an issuer contacts the LSE no later than 10 business days before the application for admission is to be considered, using a prescribed form titled ‘Form 1’ and accompanied by a draft copy of the prospectus. The application will, however, be considered provisional at this stage and will only be deemed to be a formal application once the prospectus has been approved by the FCA. The formal application and the final prospectus must be submitted to the LSE by no later than midday at least two business days prior to the consideration of the application for admission. Written confirmation of the number of securities to be allotted must also be provided by no later than 16:00 on the day before admission is expected to become effective, unless the LSE has agreed in advance to extend this to no later than 07:00 on the day of admission. The requirements of Chapter 3 of the Listing Rules include submitting certain documents by midday two days before the FCA is to consider the application for admission (the ‘48 hour documents’). These include a prescribed form of application for admission and a copy of the prospectus that has been approved by the FCA and written confirmation of the number of shares to be allotted. In addition, a prescribed Shareholder Statement, confirming the number of shares to be admitted and the number of those shares which are in public hands, and a prescribed Pricing Statement, confirming the pricing of the new shares being issued, will need to be signed by the sponsor and submitted to the FCA on the day of admission. For a Main Market IPO, in accordance with Listing Rule 8.4.3R the company’s sponsor will also need to make a declaration to the FCA in the prescribed form (the “Sponsor Declaration”), either on the day the FCA is to consider the application for approving the company’s prospectus (prior to its approval), or at another time agreed with the FCA in certain circumstances. The Sponsor Declaration will (as mentioned above), among other things, confirm that: (i) the sponsor has taken reasonable steps to satisfy itself that the directors of the company understand their responsibilities and obligations under the LTDRs; (ii) the company has satisfied all requirements of the Listing Rules relevant to an application for listing; (iii) the applicant has satisfied all applicable requirements set out in the PRRs; (iv) the directors have established procedures which will enable the company to comply with the LTDRs on an ongoing basis; (v) the directors have established procedures which will provide a reasonable basis for them to make proper judgments on an ongoing basis as to the financial position and prospects of the company and its group; and (vi) the directors of the company have a reasonable basis on which to make the required working capital statement. In order to support this declaration, the sponsor will require the reporting accountants and the legal advisers to provide it with various comfort letters (which will also be addressed to the company) on the matters covered by the Sponsor Declaration. Rules 2 to 6 of the AIM Rules for Companies require that the company provides the LSE with certain information at least 10 business days before the expected date of admission. This covers similar information to that required by Form 1 for a Main Market IPO but also includes

GLI – Initial Public Offerings 2021, Fifth Edition 206 www.globallegalinsights.com Shearman & Sterling (London) LLP United Kingdom additional information such as a brief description of the business, the names and functions of directors and proposed directors and details, insofar as they are known, of any significant shareholders (i.e. holding 3% or more of any class of shares in the company). At least three business days prior to admission, the company must submit a completed application for admission, in the LSE’s prescribed form, and an electronic copy of its admission document. These final documents must be accompanied by a declaration from the company’s Nomad (“Nomad Declaration”), similar to a Sponsor Declaration, confirming matters such as the company’s appropriateness for admission on AIM and that the AIM Rules for Companies and the AIM Rules for Nominated Advisers have been complied with, in particular that the admission document complies with the content requirements set out in Schedule Two of the AIM Rules for Companies. As with the Sponsor Declaration, the Nomad will obtain comfort letters from the reporting accountants and the legal advisers to support its declaration. In the case of either a Main Market IPO or an AIM IPO, admission to trading will only become effective once the LSE has announced this on a regulatory information service.

Regulatory architecture: Overview of the regulators and key regulations Admission to listing and admission to trading As noted above, the regulatory requirements for a London IPO will depend on the market that is chosen. For Official List (i.e. Main Market) IPOs, the legislative and regulatory framework is principally contained in the Financial Services and Markets Act 2000 (“FSMA”), the LTDRs, the PRRs and the ADSs. The Listing Rules set out the eligibility criteria for applicants and the continuing obligations that they will need to comply with on an ongoing basis, once listed. The key differences in the eligibility criteria for a premium listing and a standard listing are that: • the date of the latest audited financials for a premium listing is not more than six months before the prospectus (or nine months before admission), whereas for a standard listing it is 18 months before the prospectus if audited interims are included, or 15 months if unaudited interims are included; • a premium listing ordinarily requires a three-year revenue-earning track record to be demonstrated, with the financial information for such period representing at least 75% of the applicant’s business. The Listing Review has recommended certain relaxations to this requirement so that it might apply to a wider range of high growth and innovative companies; • an applicant for a premium listing must be able to demonstrate that it will be carrying on an independent business as its main activity; • the constitutional documents of a non-UK applicant for a premium listing must provide shareholders with pre-emption rights if the laws of its country of incorporation do not provide such rights; • an applicant for premium listing (other than an SCC as mentioned above) must have a relationship agreement in place with any controlling shareholders; and • an applicant for a premium listing must appoint a sponsor for the listing. The FCA regulates the admission of securities to the Official List. In doing so, it is also responsible for making, reviewing and amending the Listing Rules, enforcing compliance with the Listing Rules (and other LTDRs), dealing with listing applications and generally reviewing and enforcing LTDRs matters. It is also the regulator responsible in the UK for reviewing and approving prospectuses. The LSE regulates the admission of securities to

GLI – Initial Public Offerings 2021, Fifth Edition 207 www.globallegalinsights.com Shearman & Sterling (London) LLP United Kingdom trading on the Main Market, and in doing so it is responsible for publishing the ADSs. These set out the LSE’s rules and requirements in relation to a company’s admission to trading and ongoing disclosure obligations on the LSE’s regulated markets (and so not AIM). In the case of an AIM IPO, the Listing Rules and the ADSs will not be applicable. Instead, applicants will be required to comply with the AIM Rules for Companies published by the LSE and their Nomads with the LSE’s AIM Rules for Nominated Advisers. The PRRs will generally not be relevant to an AIM IPO, since it will usually be structured so as to avoid being an ‘offer to the public’ under FSMA (i.e. it will be an offer which, under the UK Prospectus Regulation, is exempt from the obligation for a prospectus to be published because it is only made to ‘qualified investors’ (e.g. institutional investors)).4 The eligibility criteria for an AIM admission are similar to those for a standard listing on the Main Market; however, as mentioned above, there is no formal minimum free float for an AIM admission. Prospectus disclosure The disclosure obligations for a company seeking to list in London are set out in the PRRs, in the case of a company seeking admission to the Main Market and in which case the key disclosure document is a prospectus, or the AIM Rules for Companies, in the case of a company seeking admission to AIM (assuming, as mentioned above, that they do not conduct an ‘offer to the public’) and in which case the key disclosure document is an ‘admission document’. The UK Prospectus Regulation requires a prospectus to be written in an easily analysable, concise and comprehensible form and to contain the necessary information which is material to an investor for making an informed assessment of the financial position, etc. of the issuer, the rights attaching to the securities being offered and the reasons for the issue and impact on the issuer. It may be published in a single document (which is the typical UK practice) or in three separate documents comprising a registration document (containing information relating to the issuer), a securities note (containing information concerning the securities being offered) and a prospectus summary. Key information that the PRRs require to be included in a prospectus (the details of which are set out in the Annexes to the UK Delegated Prospectus Regulation) includes: • risk factors informing potential investors of the material risks to the issuer, its industry and the securities being offered. These should be specific to the issuer or shares being offered, be grouped into a limited number of categories with the most material factor listed first and, where possible, there should be a quantitative assessment of each risk; • the last three years’ audited financial information prepared in accordance with the accounting standards mentioned above (see “On-shoring of the EU Prospectus regime into the UK”). This minimum three-year period can be relaxed by the FCA for certain mineral or scientific research-based companies seeking a premium listing and which have been operating for a shorter period of time, subject to certain conditions, and does not apply to companies seeking a standard listing; • details of any significant changes in the financial or trading position of the company since the date of the latest published audited or interim financial information included in the prospectus; • a working capital statement covering the 12-month period from the date of the prospectus, although in practice the company and its sponsor will normally ask the reporting accountants to cover a period of 18 to 24 months in its working capital exercise as a precaution;

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• an operating and financial review (“OFR”) describing the company’s financial condition, changes in financial condition and results of operations for the periods covered by the historical financial information included in the prospectus. This is similar to, but not quite as broad as, the management discussion and analysis required in a US IPO; • summaries of material contracts entered into outside of the ordinary course of business by the company’s group in the past two years (or longer if material obligations or entitlements remain outstanding); • details of any significant shareholders of the issuer, whose interest is notifiable under the issuer’s national laws; • details of any related party transactions that the company has entered into during the period covered by the historical financial information and up to the date of the prospectus; • details of any legal proceedings that the company has been party to in the last year; • prescribed information on the company’s directors and senior management, including remuneration, benefits and interests in the shares of the company (including share options) and also with respect to the company’s corporate governance; and • responsibility statements from the company, the directors and any proposed directors, confirming that they accept responsibility for the information contained inthe prospectus and that, to the best of their knowledge (having taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and contains no omission likely to affect its import. A supplementary prospectus will need to be published if any significant new factor, material mistake or inaccuracy relating to the information included in the original prospectus arises during the period after publication of the original prospectus but before the later of the securities being admitted to trading and the closing of the offer to the public. Significantly, the issuance of a supplementary prospectus triggers withdrawal rights for any investor who had previously agreed to purchase shares in the offering. Such rights are exercisable before the end of the second working day after the day on which the supplementary prospectus was published. Mineral and other specialist companies Additional disclosure obligations apply to mineral companies5 and scientific research- based companies, and also property companies and shipping companies,6 as ‘Specialist Issuers’ under ESMA’s update of the Committee of European Securities Regulators recommendations on the consistent implementation of Commission Regulation (EC) No. 809/2004 implementing the Prospectus Directive (ESMA/2013/319) (the “Prospectus Recommendations”).7 The aim of the Prospectus Recommendations is to provide advice on the interpretation of the Prospectus Directive and to ensure there is a common set of standards for the preparation of prospectuses across the EU. The Prospectus Recommendations are applied by ESMA members on a voluntary basis. To the extent that the Prospectus Recommendations remain compatible with the prospectus regime operating under the UK Prospectus Regulation, they remain relevant to IPOs and in PRR 1.1.5G, the FCA states that, together with certain other ESMA guidance already mentioned and referred to below, they are relevant to the prospectus regime in the UK. Thus, for example, a mineral company will ordinarily be required to include a ‘competent person’s report’ (“CPR”), dated not more than six months from the date of the prospectus and prepared by a qualified person, reporting on the mineral projects of the company. This will need to include, at a minimum, the information set out in Appendix II (for mining companies) or Appendix III (for oil and gas companies) of the Prospectus Recommendations, such as a legal and geological overview of the company, data on its resources and/or reserves, a valuation of

GLI – Initial Public Offerings 2021, Fifth Edition 209 www.globallegalinsights.com Shearman & Sterling (London) LLP United Kingdom reserves (if applicable), an assessment of environmental liabilities, a selection of historic production statistics and operating expenditure, a discussion of the projects’ infrastructure, maps of the projects and any other relevant special factors. In addition, the CPR must be drawn up in accordance with one or more of the reporting standards set out in Appendix I of the Prospectus Recommendations. The Listing Rules also contain a small number of variations for mineral companies and scientific research-based companies from the normal eligibility requirements of a premium listing. As already mentioned, such companies will not be required to produce three years of historical financial information if they have been operating for a shorter period,8 in which case the three-year track record requirement referred to above will be reduced to the period for which the company has published financial information. A mineral company which does not hold controlling interests in a majority (by value) of the assets will also be required to demonstrate that it has a reasonable spread of direct interests in mineral resources and has rights to participate actively in their extraction, whether by voting or by other rights which give it influence in its decisions over the timing and method of extraction of the resources. Although there are no formal requirements on the due diligence to be carried out on a mineral company under the Listing Rules, it is common practice on the London IPO of a mineral company that a legal opinion will be obtained from a law firm qualified in the jurisdiction in which the company’s mineral assets are located, confirming the title to such assets and other matters relating to the legal regime governing mineral rights in that jurisdiction. This additional step is taken as the value of a mineral company will be based almost entirely on the validity of its right to explore and exploit minerals and such value could be wiped out if such rights are lost. ESMA guidance Other ESMA documents that remain relevant to understanding the requirements of the UK prospectus regime have been mentioned above (see “On-shored UK Prospectus Regulation”). Also of relevance are likely to be ESMA’s Guidelines on Risk Factors under the Prospectus Regulation (see ESMA31-62-1217 | 29 March 2019) and ESMA’s Guidelines on Disclosure Requirements under the Prospectus Regulation (see ESMA31-62-1426 | 15 July 2020) and ESMA’s Guidelines with respect to Alternative Performance Measures (see ESMA/2015/1415 5 October 2015). AIM admission document For companies seeking admission to AIM, the content requirements for their admission document are set out in Schedule Two of the AIM Rules for Companies, which are based on the content requirements for a prospectus but with certain variations. For example, an OFR will not be required, but a prescribed disclaimer on the nature of AIM being a market for emerging or smaller companies will. Schedule Two also contains a general disclosure requirement that the company includes any other information which it reasonably considers necessary to enable investors to form a full understanding of the assets and liabilities, financial position, profits and losses, and prospects of the applicant and its securities for which admission is being sought, the rights attaching to those securities and any other matter contained in the admission document.

Public company responsibilities Ongoing listing obligations A company considering an IPO will need to be mindful of the continuing obligations that will apply to it as a publicly listed company. For a company with a premium listing on

GLI – Initial Public Offerings 2021, Fifth Edition 210 www.globallegalinsights.com Shearman & Sterling (London) LLP United Kingdom the Main Market, this will include either complying with the UK Corporate Governance Code (the “UKCGC”) (which is expected by the investor community) or, alternatively, explaining in its annual report why it does not comply. The UK CGC covers matters such as the composition and responsibilities of the board and its committees and executive remuneration. The UKCGC also requires the annual report to contain certain risk and internal control disclosures, including “going concern” and “viability” statements. The Government has proposed in its March 2021 White Paper: “Restoring trust in audit and corporate governance” significant extensions to these sorts of corporate reporting disclosures that would apply to premium listed companies. The disclosures would include the publication of an annual “resilience statement” and an enhanced “internal controls statement”, based to some extent on the US Sarbanes-Oxley model. The Listing Rules also contain further detailed disclosure requirements with respect to annual reports that apply to premium listed issuers, including in relation to climate-related financial disclosures. The UK CGC does not apply to companies with a standard listing or companies admitted to trading on AIM; however, they are still required to make disclosures about the corporate governance regime they follow. These companies may choose to follow a specified corporate governance code voluntarily, as investors will often expect them to do so. For example, AIM companies often follow the Corporate Governance Guidelines for Small and Mid-size Quoted Companies published by the Quoted Companies Alliance. Companies with premium listings in London will also need to obtain shareholder approval for (as well as making prescribed announcements in respect of) certain transactions. This includes reverse takeovers and, for companies with a premium listing, this will also apply to certain related party transactions as well as significant transactions that are classified as ‘Class 1’ transactions. Broadly, these are significant transactions that, when applying a gross asset, profit, consideration or gross capital test, have a transactional value (in relation to the company) of 25% or more.9 Companies admitted to trading on the Main Market will also need to issue a prospectus if they conduct a public offering or if they issue shares in any 12-month period representing 20% or more of their share capital at the start of such period. The requirement to issue a prospectus will only apply to companies admitted to trading on AIM if they make a public offering. Since June 2019, the announcement and approval of ‘related party transactions’ which were previously only a concern for premium listed companies (leaving aside any MAR disclosure issues mentioned below) have also become relevant to standard listed companies. Following the Shareholder Rights Directive II ((EU) 2017/828), the FCA has amended its LTDRs to require that UK companies (as well as non-EU incorporated companies) with voting shares (or, in the case of SCCs, with a premium listing of GDRs) admitted to trading on a regulated market, announce details of certain material related party transactions. In addition, UK companies (and certain other companies) must obtain board approval (rather than shareholder approval which, with the exception of SCCs, is required for premium listed companies) to the transaction before it is entered into. Any director who is the related party (or an associate or director of the related party) cannot take part in the board’s consideration of the transaction or vote on it. As a general rule, compliance by a premium listed company with its premium listing, shareholder-approved, related party transaction requirements will satisfy these new requirements but, since there are differences between the two sets of related party transaction requirements, aspects of the new requirements could still be relevant and apply to a premium listed company.

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UK MAR obligations However, the most significant change for a listed company (or an AIM-traded company) is likely to be its increased disclosure obligations and the control of ‘inside information’. These obligations are primarily governed by MAR (in the form of the UK on-shored version of MAR largely contained in the Market Abuse (Amendment) (EU Exit) Regulations 2019 (SI 2019/310) and in the FCA’s Technical Standards (Market Abuse Regulation) (EU Exit) Instrument 2019 (FCA 2019/45) (“UK MAR”)). Among other things, UK MAR: • prohibits dealings in securities while in possession of inside information concerning those securities; • requires disclosure ‘as soon as possible’ by an issuer of inside information which directly concerns that issuer, subject to certain limited exceptions under which disclosure may be delayed, in which case records must be kept which include how the MAR conditions for delaying public disclosure of inside information are being satisfied and who was responsible for deciding to delay disclosure; • prohibits the selective disclosure of inside information (e.g. the disclosure of inside information to certain potential investors or counterparties to transactions), except in very limited circumstances. These limited exceptions include disclosures to persons made ‘in the normal exercise of an employment, profession or duties’ and a ‘safe harbour’ in respect of ‘market sounding’ activities subject to following detailed record- keeping and other requirements with respect to the ‘safe harbour’; • requires records, known as ‘insider lists’, to be kept of persons to whom inside information has been provided; and • contains detailed disclosure obligations in relation to any dealings in securities of the company by persons discharging managerial responsibilities and their closely associated persons, and restricts such persons from dealing during a ‘closed period’ of 30 days prior to annual and interim financial reports/results announcements. AIM-traded companies are subject to an additional ‘price-sensitive information’ disclosure obligation that overlaps with their UK MAR disclosure obligation. Other ongoing obligations Listed (or AIM-traded) companies will also need to produce additional financial information as they are required to publish half yearly accounts as well as their annual accounts. Furthermore, any non-UK company which is intending to incorporate a UK company as its IPO vehicle should be mindful that all UK incorporated companies, other than certain small companies who are exempt, are required to include a standalone strategic report in their annual report which sets out a fair review of the company’s business and a description of the principal risks and uncertainties facing the company, illustrated with the use of KPI analysis if necessary. UK companies who are admitted to the Official List must also produce an annual directors’ remuneration report, containing detailed disclosure of each directors’ remuneration and benefits, which will be subject to a non-binding advisory vote by shareholders, and this must include a forward-looking policy on directors’ remuneration which, at least once every three years (and sooner if any change is proposed to be made to it), will be subject to a binding vote by shareholders.

Potential risks, liabilities and pitfalls The decision to conduct an IPO is a significant step for any company, and requires careful planning and diligent execution in order to minimise the potential risks and liabilities that could arise from the IPO process and subsequently from the company’s new status as a listed company.

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Firstly, the company and all of its directors, including those being appointed as part of the IPO and identified in the prospectus or admission document, are responsible for the contents of the prospectus or admission document and could therefore have liability if it fails to meet the applicable contents standards. The general obligation is that the document contains information necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the company and the rights attaching to the shares being listed. If this standard is not met, the company and its directors may be liable to compensate investors who relied on the prospectus or admission document and suffered loss as a result. Those persons responsible could also face criminal sanctions if the document is false or misleading as a result of their dishonesty or recklessness. In order to protect against any such civil or criminal liability, a thorough legal and financial due diligence exercise will be conducted, as referred to above. In addition, in the UK it is usual practice to carry out a verification process on the prospectus or admission document. This involves checking that each statement contained therein is corroborated by reference to underlying independent documentation. The exercise is typically managed by the company’s legal advisers, who will liaise with the company’s directors and other nominated officers. It has become increasingly common for this exercise to be limited to key/material disclosures, as the historic ‘line-by-line’ verification process is considered to involve disproportionate time and cost. The results of the verification process will be documented in formal notes that are signed by the directors of the company. This differs from US practice where no such formal verification process is recorded. Once listed, the company must comply with its obligations under the Listing Rules (and other LTDRs) or the AIM Rules (including MAR), as applicable. The Listing Rules (and the AIM Rules) require companies to have in place adequate procedures, systems and controls to enable them to comply with their obligations under those Rules. A failure to comply with those obligations can result in the FCA or the LSE, respectively, invoking their powers to censure publicly and/or fine the company or to suspend, or in exceptional cases cancel, the listing or trading of its securities. Furthermore, for companies on the Main Market, the FCA has power to publicly censure and/or fine a director of the company who was knowingly concerned in the breach. In addition, the listed company will need to ensure it meets its ongoing obligations under MAR, as a breach of MAR by an individual or legal person is a civil offence punishable by a fine and administrative sanction. Furthermore, certain conduct that amounts to a breach of MAR may also potentially be a criminal offence under the Part V of the Criminal Justice Act 1993 (the “CJA”) or under Part 7 of the Financial Services Act 2012 (“FSA”). The CJA prohibits individuals from dealing in price-affected securities when in possession of inside information, encouraging another to deal in price-affected securities and disclosing inside information otherwise than in the proper performance of their employment, office or profession. The FSA imposes criminal liability in respect of certain misleading statements or impressions impacting dealing in securities or the markets. Accordingly, it is imperative that a company pursuing a listing obtains appropriate advice to mitigate these risks both during and following the listing process, and adopts suitable internal procedures and governance checklists to ensure that the benefits of conducting its IPO are not tarnished by avoidable pitfalls once it is listed.

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Endnotes 1. The LSE also launched the High Growth Segment in 2013, which is a segment of the Main Market for EEA incorporated, mid-sized high growth companies that require access to capital and a public platform to continue their growth but whose shares will not be officially listed. However, only one or two companies have ever joined it. 2. ‘State’ is defined as being: (i) the sovereign or other head of a State in their public capacity; (ii) the government of a State; (iii) a department of a State; or (iv) an agency or special purpose vehicle of a State, including an agency or SPV of (i), (ii) or (iii). A sovereign-controlling shareholder must be a ‘State’ that is recognised by the UK Government and may even be the UK itself (if it were to be a controlling shareholder – as technically it currently is, for example, in the bank RBS – in a company that wished to apply for an SCC premium listing). 3. If an issuer chooses to publish a registration document rather than a full prospectus, it will need to publish either: (i) an approved ‘securities note’ and prospectus summary; or (ii) an approved full prospectus, later in the process. 4. Broadly speaking, a prospectus will be required in the UK (subject to certain limited exceptions) if a company is: (i) seeking admission of its securities to trading on a regulated market in the UK; or (ii) making an offer ‘to the public’ (defined broadly) in the UK. 5. Under the Listing Rules, a mineral company is a company or group whose principal activity is, or is planned to be, the extraction of mineral resources (which may or may not include exploration for mineral resources). Mineral resources include metallic and non-metallic ores, mineral concentrates, industrial minerals, construction aggregates, mineral oils, natural gases, hydrocarbons and solid fuels including coal. 6. Under the Listing Rules, a scientific research-based company is a company primarily involved in the laboratory research and development of chemical or biological products or processes or any other similar innovative science-based company. 7. The ESMA recommendations also cover ‘start-ups’, meaning any companies whose businesses have been in operation for less than three years. 8. Additional requirements apply, however, to a scientific research-based company in such circumstances concerning the funding, research history and reasons for the listing of such company. 9. A premium listed issuer is allowed to: (i) disregard an anomalous profit test result of 25% or more when all other applicable class test results are below 5%, and the transaction is not a related party transaction; and (ii) in certain circumstances make specified adjustments to the figures used in calculating the profit test, if the transaction’s classification would otherwise be anomalous or above 25%.

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Pawel J. Szaja Tel: +44 20 7655 5013 / Email: [email protected] Pawel Szaja is a partner in the Capital Markets Group of the London office, having gained his experience working in the New York, Frankfurt and London offices of premier firms. A triple qualified (New York, England, Ireland) lawyer, he advises issuers and underwriters on equity and debt capital markets and liability management transactions as well as securities law and corporate governance matters. He has extensive experience advising on a wide range of cross-border securities offerings, including IPOs, privatisations, follow-on offerings, rights issues and other equity and debt capital markets transactions by issuers from Europe, Africa and the Middle East.

Michael Scargill Tel: +44 20 7655 5161 / Email: [email protected] Michael Scargill is counsel and head of UK Knowledge Management in the London M&A Group of Shearman & Sterling. Before that, he was a partner at a Magic Circle firm in London. With over 30 years of corporate law experience, advising both UK and global clients, Michael has extensive experience of a wide range of both public and private M&A, privatisation, joint venture, corporate governance and capital markets transactions, as well as large-scale outsourcing and restructuring matters.

Shearman & Sterling (London) LLP 9 Appold Street, London, EC2A 2AP, United Kingdom Tel: +44 20 7655 5000 / URL: www.shearman.com

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