Practical Implicat ions for AIM of the implementation of the Prospectus Directive

1. Practical Implications for AIM of the implementation of the Prospectus Directive February 2005

2. Seminar outline • Practical Points • Presentation by the Exchange 45 mins • Presentation by the UKLA on process 30 mins • Q&A 30 mins

3. Overview • Why AIM became “exchange regulated” • Impact of Prospectus Directive on AIM • Replacing POS within AIM rules • The revised AIM rules for 1 July 2005

4. Overview • Why AIM became “exchange regulated” • Impact of Prospectus Directive on AIM • Replacing POS within AIM rules • The revised AIM rules for 1 July 2005

5. Why AIM became an “exchange regulated market” Financial Services Action Plan (FSAP) Markets in Financial Instruments Directive Transparency Directive Corporate Governance Action Plan Market Abuse Directive

6. Prospectus Directive (“PD”) Impacts all securities admitted to an EU regulated market or where securities are offered to the public Prospectus Directive (2003/71/EC) (“PD”) Implemented 1 July 2005 Applies to all companies, all markets, across Europe

7. Overview • Why AIM became “exchange regulated” • Impact of Prospectus Directive on AIM • Replacing POS within AIM rules • The revised AIM rules for 1 July 2005

8. Impact of PD on AIM PD will require the publication of a prospectus in the following circumstances: • Where securities are admitted to an EUregulated market • Where an offer is made to more than 100 persons and the aggregate value of the securities being offered is greater than €2.5m • If you are doing an offer less than €2.5million you will need to ensure the total of the offers in a 12 month period does not exceed the limit • The moment an offer breaches €2.5million a full prospectus will be required In these situations, the prospectus will need to be approved by UK Listing Authority

9. Impact of PD on AIM The obligation to publish a prospectus does not apply to: • An offer of securities addressed solely to qualified investors; and/or • An offer of securities addressed to fewer than 100 natural or legal persons per Member State, other than qualified investors; and/or • An offer of securities addressed to investors who acquire securities for a total consideration of at least €50,000 per investor, for each separate offer; and/or • An offer of securities whose denomination per unit amounts to at least €50,000

10. Impact of PD on AIM The obligation to publish a full PD-compliant prospectus to be approved by UKLA will apply to the following (where the limits are exceeded): • Open offers • Rights issues • Takeovers where AIM paper is used as consideration Another consequence of becoming exchange regulated is the loss of the fast-track route for those companies wishing to move from AIM to the main market.

11. Why AIM became “exchange regulated” • Impact of Prospectus Directive on AIM • Replacing POS within the AIM rules • The revised AIM rules for 1 July 2005

12. Replacing POS within AIM rules • POS has been the standard to which all AIM admission documents have been produced to date • This has allowed the AIM rules to remain concise and straightforward • However, on 30 June 2005, POS will be repealed and will cease to have legal effect from that time • Requirement for the Exchange to find a replacement for POS within the AIM rules

13. Replacing POS within AIM rules The Exchange has identified three options to replace POS as the standard for AIM admission documents. These options have been evaluated against the Exchange’s objective of wishing to maintain high regulatory standards whilst ensuring flexibility both for advisers and AIM companies: • Option 1 - Adopt PD with carve-outs “AIM-PD” (preferred option) • Option 2 - Copy POS into AIM rules • Option 3 - Wait for possible “POS 2” regime

14. AIM-PD Following initial consultation with advisers and internal discussions over the last few months, we believe that AIM-PD (covered in detail later) is the best option for AIM for the following reasons: • Keeps the AIM rules up to date and simple by continuing to make reference to the core standard across Europe • Recognises that full PD is not appropriate for AIM companies • One standard for advisers (AIM or main market) • Consistency for investors • Simplifies transfer of AIM companies to EU regulated markets

15. Other options available to us At this stage we have rejected the other 2 options available to us on the following basis: • Copy POS into AIM rules? • AIM rules seen as outdated • Rule book would become more difficult to manage and update • Confusing for advisers • Wait for possible “POS 2” regime? • Uncertainty about content? • Lack of control?

16. Why AIM became “exchange regulated” • Impact of Prospectus Directive on AIM • Replacing POS within the AIM rules • The revised AIM rules for 1 July 2005

17. The revised AIM Rules for 1 July 2005 • Background to AIM-PD • What constitutes a Prospectus under PD? • Overview of AIM-PD • How the proposed carve-outs were determined • Changes to the AIM Rules • Summary

18. Background to AIM-PD The option the Exchange is proposing with AIM-PDis a standard which is: • Broadly equivalent to the current POS Regulations • Embodies current market practice in certain areas • Recognises that one size does not fit all – ability to top up the information in an admission document where appropriate(ie at the NOMADs discretion). This route not intended to: • Materially increase the cost of joining AIM by requiring significant additional due diligence (legal or financial) • Raise the standard of information to that required by main market companies.

19. What constitutes a Prospectus under PD? Once implemented into UK law the competent authority under the Prospectus Directive will be the UKLA. The FSA will set out the requirements for producing a prospectus in a new publication called theProspectus Rules. The Prospectus Rulesprescribe the form and content of a prospectus in the Annexes.The Annexes cover the information required for a prospectus for all types of issuer and all types of securities. For AIM companies the relevant Annexes will be: • Annex I - Minimum Disclosure Requirements for the Share Registration Document. • Annex II - Pro forma financial information building block. • Annex III- Minimum Disclosure Requirements for the Share Securities Note.

20. What constitutes a Prospectus under the PD? • Annex I - Share Registration Document • This is designed to be a shelf registration document that an issuer can produce annually, making any subsequent issue of securities easier (as all the due diligence about the issuer has been prepared). • The share registration document will provide key information relating to the issuer, including: • Overview of issuer (business overview, key financials, organisational structure); • Financial information re issuer’s assets and liabilities and financial position. • This document will have a lifespan of 12 months. • THE AIM RULES WILL NOT REQUIRE AN AIM COMPANY TO FILE A SHARE REGISTRATION DOCUMENT

21. What constitutes a Prospectus under the PD? • Annex II – Pro Forma financial information • Where an issuer is reporting on the Historical Financial information under Annex I and there is “a gross significant change” there is a requirement to present pro forma financial information as set out in Annex II. • THIS WILL NOT BE MANDATORY UNDER AIM RULES • Annex III – Share Securities Note • This will be required where an issuer decides to issue securities. The information required will set out the: • details of the securities to be offered / admitted to trading; • terms and condition of the offer • admission to trading and dealing arrangements • MUCH OF THIS INFORMATION WILL NOT BE REQUIRED UNDER AIM RULES

22. Overview of AIM-PD UnderAIM-PDan AIM admission document would need to comply with: • Certain partsof the information required by Annexes I-III of the Prospectus Rules. • The additional disclosures required by Schedule Two This will be the minimum standardof information required. However, a NOMAD will have the authority under the AIM Rules to require an applicant to top-up the disclosures in an admission document where appropriate. As such the carve outs referred to previously are at the nomad’s discretion. The only instance where a company will be required to produce a full PD compliant admission document is where legally they are required to produce a prospectus.

23. Overview of AIM-PD • An AIM admission document will be a composite of ANNEXES I – III. • An AIM admission document will only be required to include the information highlighted in blue. • Information highlighted in redneed only be included at the NOMAD’s discretion. • Information required by ANNEX IIneed only be included at the NOMAD’s discretion.

24. ANNEX I – SHARE REGISTRATION DOCUMENT • Persons Responsible • Statutory Auditors • Selected Financial Information • Risk Factors • Information about the issuer • Business Overview (apart from sub-sections 6.2 and 6.3 until 1 Jan 2007) • Organizational structure • Property, plants and equipment (apart from sub-section 8.1) • Operating and Financial Review • Capital resources • Research and Development, Patents and Licences • Trend Information • Profits Forecasts or Estimates • Administrative, management and supervisory bodies and senior management • Remuneration and benefits • Board Practices (apart from sub-section 16.3) • Employees (sub-section 17.2 applies to directors only) • Major shareholders • Related party transactions • Financial information concerning the issuer’s assets and liabilities, financial position etc • Additional information • Material contracts • Third party information and statements by experts • Documents on display • Information on holdings Key: Blue – mandatory information Red – carved out / nomads discretion

25. ANNEX III – SHARE REGISTRATION DOCUMENT ANNEX II – PRO FORMA FINANCIAL INFORMATION All the information required under Annex II will be at the nomad’s discretion. Key: Blue – mandatory information Red – carved out / nomads discretion • Persons Responsible (already covered under Annex I) • Risk Factors (already covered under Annex I) • Key Information (apart from sub-sections 3.1 to 3.3) • Information concerning the securities to be offered / admitted to trading • Terms and conditions of the Offer • Admission to trading and dealing arrangements • Selling securities holders • Expense of issue / offer • Dilution • Additional information

26. How the proposed carve-outs were determined When assessing the viability of AIM–PD as an option the Exchange compared the requirements of PD against the existing POS Regulations. Four main conclusions were drawn: • A majority of the PD requirements were broadly equivalent to the POS Regulations • 2. Some PD requirements were of a higher standardand not appropriate for small growth companies • 3. Some PD requirements were of a higher standard but appropriate for small growth companies • 4. Some PD requirements were of a lower standard to the requirements of Schedule Two.

27. (1) Broadly equivalent to POS Regulations and mandatory The following sections of Annex I-III have been deemed as EQUIVALENTto the POS Regulations and are therefore mandatory under AIM-PD. ANNEX I Persons Responsible (Section 1) Statutory Auditors (Section 2) Information about the issuer (Section 5) Business Overview (Section 6) (apart from sub-sections 6.2 and 6.3 until 1 January 2007) Organizational structure (Section 7) Property, plants and equipment (Section 8) (apart from sub-section 8.1) Trend Information (Section 12) Board Practices (Section 16) (apart from sub-section 16.3) Major shareholders (Section 18) Financial information concerning the issuer’s assets and liabilities, financial position etc (Section 20 – apart from subsection 20.2 Pro Forma financial information) ANNEX III Key Information (Section 3) (apart from sub-sections 3.1 to 3.3) Information concerning the securities to be offered / admitted to trading (Section 4) Expense of issue / offer (Section 8) Dilution (Section 9) Additional information

28. Historical Financial Information (PD Annex I – Section 20) • AIM - PD proposals • Makes clear that the historical financial information can be presented in the form of an accountant’s report. • Continues to allow UK GAAP for domestic companies until 1 January 2007 • National accounting standards for third country issuers remain until 1 January 2007 • Pro-forma financial information requirement carved-out.

29. Historical Financial Information (PD Annex I – Section 20) • Age of financial information: • If the document is dated more than nine months after the end of the last audited financial year, • it must contain interim financial information, which may be unaudited, covering at least the first • 6 months of the financial year. • The last year of audited financial information may not be older than: • 18 months from the date of the registration document if the issuer includes audited interim • financial information in the document; or • 15 months from the date of the registration document if the issuer includes unaudited • interim financial information in the document. Equivalent to POS Regulations

30. (2) Higher standard than POS Regulations and carved out The following sections of Annex I-III have been deemed as a HIGHER STANDARDthan the POS Regulations and therefore carved outof themandatory requirementsof AIM-PD. ANNEX I Selected Financial Information(Section 3) Operating and Financial Review (Section 9) Capital Resources (Section 10) Research & Development, Patents and Licences (Section 11) Remuneration and Benefits (Section 15) Pro Forma Financial Information (Section 20.2) Documents on Display (Section 24) ANNEX III (in its entirety) ANNEX III Key Information(Section 3) - Capitalisation and Indebtedness -Interest of natural and legal persons involved in the issue/offer Terms and Conditions of the Offer (Section 5) Admission to Trading & Dealing Arrangements (Section 6)

31. (3) Higher standard than POS Regulations but mandatory • Most of the information will be available as part of the standard financial and legal due diligence, incurring no or little extra cost. • Even though these represent a higher standard they are often industry best practice or desirable for investor protection and therefore mandatoryunder AIM-PD.

32. (4) Lower standard than AIM Schedule Two • In the circumstances that the PD overlaps with additional disclosure required under Schedule Two, it is proposed to maintain the existing standards • Schedule Two requires a higher standard than PD in relation to: • (a) profits forecasts or estimates • (b) directors disclosures and • (c) working capital statements. • Where the AIM admission document is also a prospectus the issuer must ensure that is also to complies with the higher standard of Schedule Two.

33. (a) Profits forecasts or estimates (PD Annex I - Section 18)

34. (a) Profits forecasts or estimates (AIM Rules Schedule Two) Maintain EXISTING AIM Rule requirements

35. (b) Directors disclosures (PD Annex I - Section 14 ) AIM Rules Schedule Two (g): Equivalent five year requirement re names of all companies / partnerships. However, disclosures of (i) convictions, (ii) bankruptcies, receiverships, liquidations and (iii) public incriminations goes back beyond five years. Maintain EXISTING AIM Rule requirements

36. (b) ‘Directors’ definition (PD Annex I – Section 14) AIM Rules definition of director: A person who acts as a director whether or not officially appointed to such position. Maintain EXISTING AIM Rule requirements

37. (c) Working capital requirement (PD Annex III - Section 3 ) AIM Rules Schedule Two (g) requirement A statement by its directors that intheir opinion having made due and careful enquiry, the working capital available to it and its group will be sufficient for its present requirements, that is for at least twelve months from the date of admission of its securities; Maintain EXISTING AIM Rule requirements

38. Changes to the AIM Rule book UnderAIM-PDthe following changes are necessary to the AIM Rules: • Rule 4:Sets out when the Exchange can allow an applicant to omit information (where information of minor importance or where seriously detrimental to applicant and not likely to mislead investors). Maintain rule for non-PD only. • Rule 25:Allows an exemption under POS Regulations from producing an admission document required under Rule 24 where less than 10% of a class of securities are being admitted. This rule will be removed. • Rule 26:Provides the same right to omit information for further admission documents as under Rule 4. Maintain rule for non-PD only.

39. Changes to the AIM Rule book UnderAIM-PDthe following changes are necessary to the AIM Rules: • Schedule Two: • (a) states that information equivalent to Annexes I–III isrequired for an admission document whether or not it is a PD prospectus. • (b) states that where not a PD prospectus, certain types of information need only be included at the nominated adviser’s discretion. • Lists the proposed carve outs from Annexes I-III • (d)(iv) amends slightly the requirements for a profits forecast where made. • (i) Deletes this paragraph, replacing the requirement with the major shareholders provision under Annex I Section 18.

40. Summary • The consultation deadline date is Friday 4th March. • Two key questions: • Is AIM-PD the right approach given the other options available? • If AIM-PD is the right approach are the carve-outs as proposed set at the right level?