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LR 10.1 Preliminary

Application

LR 10.1.1 R RP

1This chapter applies to a company that has a primary listing of equity securities.

Purpose
LR 10.1.2 G RP

The purpose of this chapter is to ensure that shareholders of companies with equity securitieslisted:

  1. (1)

    are notified of certain transactions entered into by the listed company; and

  2. (2)

    have the opportunity to vote on larger proposed transactions.

Meaning of "transaction"

LR 10.1.3 R RP

In this chapter (except where specifically provided to the contrary) a reference to a transaction by a listed company:

  1. (1)

    (subject to paragraphs (3),(4) and (5)) includes all agreements (including amendments to agreements) entered into by the listed company or its subsidiary undertakings;

  2. (2)

    includes the grant or acquisition of an option as if the option had been exercised except that, if exercise is solely at the listed company's or subsidiary undertaking's discretion, the transaction will be classified on exercise and only the consideration (if any) for the option will be classified on the grant or acquisition;

  3. (3)

    excludes a transaction of a revenue nature in the ordinary course of business;

  4. (4)

    excludes an issue of securities, or a transaction to raise finance, which does not involve the acquisition or disposal of any fixed asset of the listed company or of its subsidiary undertakings; and

  5. (5)

    excludes any transaction between the listed company and its wholly-owned subsidiary undertaking or between its wholly-owned subsidiary undertakings.

LR 10.1.4 G RP

This chapter is intended to cover transactions that are outside the ordinary course of the listed company's business and may change a security holder's economic interest in the company's assets or liabilities (whether or not the change in the assets or liabilities is recognised on the company's balance sheet).

LR 10.1.5 G RP

In assessing whether a transaction is in the ordinary course of a company's business under this chapter, the FSA will have regard to the size and incidence of similar transactions which the company has entered into. The FSA may determine that a transaction is not in the ordinary course of business because of its size or incidence.

LR 10.2 Classifying transactions

Classifying transactions

LR 10.2.1 G RP

A transaction is classified by assessing its size relative to that of the listed company proposing to make it. The comparison of size is made by using the percentage ratios resulting from applying the class test calculations to a transaction. The class tests are set out in LR 10 Annex 1 (and modified or added to for specialist companies under LR 10.7).

LR 10.2.2 R

Except as otherwise provided in this chapter, transactions are classified as follows:

  1. (1)

    Class 3 transaction: a transaction where all percentage ratios are less than 5%;

  2. (2)

    Class 2 transaction: a transaction where any percentage ratio is 5% or more but each is less than 25%;

  3. (3)

    Class 1 transaction: a transaction where any percentage ratio is 25% or more; and

  4. (4)

    Reverse takeover: a transaction consisting of an acquisition by a listed company of a business, an unlisted company or assets where any percentage ratio is 100% or more or which would result in a fundamental change in the business or in a change in board or voting control of the listed company.

Certain reverse takeovers to be treated as class 1 transactions

LR 10.2.3 R

A reverse takeover is to be treated as a class 1 transaction if all of the following conditions are satisfied in relation to the transaction:

  1. (1)

    none of the percentage ratios resulting from the calculations under each of the class tests in LR 10 Annex 1 (as modified or added to by LR 10.7 where applicable) exceed 125%;

  2. (2)

    the subject of the acquisition is in a similar line of business to that of the acquiring company;

  3. (3)

    the undertaking the subject of the acquisition complies with all relevant requirements of LR 6;

  4. (4)

    there will be no change of board control of the listed company; and

  5. (5)

    there will be no change of voting control of the listed company.

Indemnities and similar arrangements

LR 10.2.4 R RP
  1. (1)

    Any agreement or arrangement with a party (other than a wholly owned subsidiary undertaking of the listed company):

    1. (a)

      under which a listed company agrees to discharge any liabilities for costs, expenses, commissions or losses incurred by or on behalf of that party, whether or not on a contingent basis;

    2. (b)

      which is exceptional; and

    3. (c)

      under which the maximum liability is either unlimited, or is equal to or exceeds an amount equal to 25% of the average of the listed company's profits (as calculated for classification purposes) for the last three financial years (losses should be taken as nil profit and included in this average);

    is to be treated as a class 1 transaction.

  2. (2)

    Paragraph (1) does not apply to a break fee (see LR 10.2.7 R which deals with break fees).

LR 10.2.5 G RP

For the purposes of LR 10.2.4R (1), the FSA considers the following indemnities not to be exceptional:

  1. (1)

    those customarily given in connection with sale and purchase agreements;

  2. (2)

    those customarily given to underwriters or placing agents in an underwriting or placing agreement;

  3. (3)

    those given to advisers against liabilities to third parties arising out of providing advisory services; and

  4. (4)

    any other indemnity that is specifically permitted to be given to a director or auditor under the Companies Act 20061.

    1
LR 10.2.6 G RP

If the calculation under LR 10.2.4R (1) produces an anomalous result, the FSA may disregard the calculation and modify that rule to substitute other relevant indicators of the size of the indemnity or other arrangement given, for example 1% of market capitalisation.

LR 10.2.7 R RP
  1. (1)

    A break fee or break fees payable in respect of a transaction are to be treated as a class 1 transaction if the total value of the fee or the fees in aggregateexceeds:

    1. (a)

      if the listed company is being acquired, 1% of the value of the listed company calculated by reference to the offer price; and

    2. (b)

      in any other case, 1% of the market capitalisation of the listed company.

  2. (2)

    For the purposes of paragraph (1)(a):

    1. (a)

      the 1% limit is to be calculated on the basis of the fully diluted equity share capital of the listed company;

    2. (b)

      any VAT payable is to be taken into account in determining whether the 1% limit would be exceeded (except to the extent that the VAT is recoverable by the listed company); and

    3. (c)

      for a securities exchange offer, the value of the listed company is to be fixed by reference to the value of the offer at the time the transaction is announced (and is not to be taken as fluctuating as a result of subsequent movements in the price of the consideration securities after the announcement).

Issues by major subsidiary undertakings

LR 10.2.8 R RP

If:

  1. (1)

    a major subsidiary undertaking of a listed company issues equity shares for cash or in exchange for other securities or to reduce indebtedness;

  2. (2)

    the issue would dilute the listed company's percentage interest in the major subsidiary undertaking; and

  3. (3)

    the economic effect of the dilution is equivalent to a disposal of 25% or more of the aggregate of the gross assets or profits (after the deduction of all charges except taxation) of the group;

the issue is to be treated as a class 1 transaction.

LR 10.2.9 R RP

LR 10.2.8 R does not apply if the major subsidiary undertaking is itself a listed company.

Aggregating transactions

LR 10.2.10 R RP
  1. (1)

    Transactions completed during the 12 months before the date of the latest transaction must be aggregated with that transaction for the purposes of classification if:

    1. (a)

      they are entered into by the company with the same person or with persons connected with one another;

    2. (b)

      they involve the acquisition or disposal of securities or an interest in one particular company; or

    3. (c)

      together they lead to substantial involvement in a business activity which did not previously form a significant part of the company's principal activities.

  2. (2)

    Paragraph (1) does not apply in relation to break fees.

  3. (3)

    If under this rule aggregation of transactions results in a requirement for shareholder approval, then that approval is required only for the latest transaction.

LR 10.2.11 G RP

The FSA may modify these rules to require the aggregation of transactions in circumstances other than those specified in LR 10.2.10 R.

Note: If an issuer is proposing to enter into a transaction that could be a Class 1 transaction or reverse takeover it is required under LR 8 to obtain the guidance of a sponsor to assess the potential application of LR 10.

LR 10.3 Class 3 requirements

Notification of acquisitions involving the issue of securities

LR 10.3.1 R
  1. (1)

    If:

    1. (a)

      a listed company agrees the terms of a class 3 transaction that involves an acquisition; and

    2. (b)

      the consideration for the acquisition includes the issue of securities for which listing will be sought;

    the company must notify a RIS as soon as possible after the terms of the acquisition are agreed.

  2. (2)

    The notification must include:

    1. (a)

      the amount of the securities being issued;

    2. (b)

      details of the transaction, including the name of the other party to the transaction; and

    3. (c)

      either the value of the consideration, and how this is being satisfied, or the value of the gross assets acquired, whichever is the greater.

Notification of other class 3 transactions

LR 10.3.2 R
  1. (1)

    If:

    1. (a)

      a listed company agrees the terms of a class 3 transaction of a type other than that referred to in LR 10.3.1 R; and

    2. (b)

      it releases any details to the public;

    it must also notify those details to a RIS by no later than the release of details to the public referred to in paragraph (b).

  2. (2)

    The notification must include:

    1. (a)

      details of the transaction, including the name of the other party to the transaction; and

    2. (b)

      either the value of the consideration, and how this is being satisfied, or the value of the gross assets acquired or disposed of.

LR 10.4 Class 2 requirements

Notification of class 2 transactions

LR 10.4.1 R RP
  1. (1)

    A listed company must notify a RIS as soon as possible after the terms of a class 2 transaction are agreed.

  2. (2)

    The notification must include:

    1. (a)

      details of the transaction, including the name of the other party to the transaction;

    2. (b)

      a description of the business carried on by, or using, the net assets the subject of the transaction;

    3. (c)

      the consideration, and how it is being satisfied (including the terms of any arrangements for deferred consideration);

    4. (d)

      the value of the gross assets the subject of the transaction;

    5. (e)

      the profits attributable to the assets the subject of the transaction;

    6. (f)

      the effect of the transaction on the listed company including any benefits which are expected to accrue to the company as a result of the transaction;

    7. (g)

      details of any service contracts of proposed directors of the listed company;

    8. (h)

      for a disposal, the application of the sale proceeds;

    9. (i)

      for a disposal, if securities are to form part of the consideration received, a statement whether the securities are to be sold or retained; and

    10. (j)

      details of key individuals important to the business or company the subject of the transaction.

Supplementary notification

LR 10.4.2 R RP
  1. (1)

    A listed company must notify a RIS as soon as possible if, after the notification under LR 10.4.1 R, it becomes aware that:

    1. (a)

      there has been a significant change affecting any matter contained in that earlier notification; or

    2. (b)

      a significant new matter has arisen which would have been required to be mentioned in that earlier notification if it had arisen at the time of the preparation of that notification.

  2. (2)

    The supplementary notification must give details of the change or new matter and also contain a statement that, except as disclosed, there has been no significant change affecting any matter contained in the earlier notification and no other significant new matter has arisen which would have been required to be mentioned in that earlier notification if it had arisen at the time of the preparation of that notification.

  3. (3)

    In paragraphs (1) and (2), significant means significant for the purpose of making an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the listed company and the rights attaching to any securities forming part of the consideration. It includes a change in the terms of the transaction that affects the percentage ratios and requires the transaction to be reclassified into a higher category.

LR 10.5 Class 1 requirements

Notification and shareholder approval

LR 10.5.1 R RP

A listed company must, in relation to a class 1 transaction:

  1. (1)

    comply with the requirements of LR 10.4 (Class 2 requirements) for the transaction;

  2. (2)

    send an explanatory circular to its shareholders and obtain their prior approval in a general meeting for the transaction; and

  3. (3)

    ensure that any agreement effecting the transaction is conditional on that approval being obtained.

Note: LR 13 sets out requirements for the content and approval of class 1 circulars.

Material change to terms of transaction1

LR 10.5.2 R RP

1If, after the production of a circular and before the completion of a class 1 transaction or a reverse takeover, there is a material change to the terms of the transaction, the listed company must comply again separately with LR 10.5.1 R in relation to the transaction.

LR 10.5.3 G RP

1The FSA would (amongst other things) generally consider an increase of 10% or more in the consideration payable to be a material change to the terms of the transaction.

LR 10.6 Reverse takeover requirements

LR 10.6.1 R

A listed company must in relation to a reverse takeover comply with the requirements of LR 10.5 (Class 1 requirements) for that transaction.

Material change to terms of reverse takeover1

LR 10.6.1A G

1 LR 10.5.2 R and LR 10.5.3 G will apply if there is a material change to the terms of a reverse takeover.

Cancellation of listing

LR 10.6.2 G

When a listed company completes a reverse takeover, the FSA will generally cancel the listing of its securities (see LR 5.2.3 G) and the company will be required to re-apply for the listing of the securities and satisfy the relevant requirements for listing (except that LR 6.1.3 R (1)(b)) will not apply in relation to the listed company's accounts).

Suspended listing1

LR 10.6.3 G

1Before a listed company announces a reverse takeover which has been agreed or is in contemplation or where details of the reverse takeover have leaked, a listed company should consider whether a suspension of listing is appropriate. Generally, when a reverse takeover is announced or leaked, because of its significant size there will be insufficient information in the market about the proposed transaction and the company will be unable to assess accurately its financial position and inform the market accordingly. So, suspension will often be appropriate (see LR 5.1.2 G (3) and (4)). But, if the FSA is satisfied that there is sufficient information in the market about the proposed transaction it may agree with the company that a suspension is not required.

LR 10.7 Transactions by specialist companies

Classification of transactions by listed property companies

LR 10.7.1 R RP

LR 10 Annex 1 is modified as follows in relation to acquisitions or disposals of property by a listedproperty company:

  1. (1)

    for the purposes of paragraph 2R(1) (the gross assets test), the assets test is calculated by dividing the transaction consideration by the gross assets of the listedproperty company and paragraphs 2R(5) and 2R(6) do not apply;

  2. (2)

    for the purposes of paragraph 2R(1) (the gross assets test), if the transaction is an acquisition of land to be developed, the assets test is calculated by dividing the transaction consideration and any financial commitments relating to the development by the gross assets of the listedproperty company and paragraphs 2R(5) and 2R(6) do not apply;

  3. (3)

    for the purposes of paragraph 2R(2), the gross assets of a listedproperty company are, at the option of the company:

    1. (a)

      the aggregate of the company's share capital and reserves (excluding minority interests);

    2. (b)

      the book value of the company'sproperties (excluding those properties classified as current assets in the latest published annual report and accounts); or

    3. (c)

      the published valuation of the company'sproperties (excluding those properties classified as current assets in the latest published annual report and accounts);

  4. (4)

    for the purposes of paragraph 4R(1) (the profits test), profits means the net annual rent;

  5. (5)

    paragraph 5R (the consideration test) does not apply but instead the test in LR 10.7.2 R applies; and

  6. (6)

    paragraph 7R (the gross capital test) applies to disposals as well as acquisitions of property.

LR 10.7.2 R RP
  1. (1)

    In addition to the tests in LR 10 Annex 1, if the transaction is an acquisition of property by a listedproperty company and any of the consideration is in the ordinary shares of that company, the listed company must determine the percentage ratios that result from the calculations under the test in paragraph(2).

  2. (2)

    The share capital test is calculated by dividing the number of consideration shares to be issued by the number of ordinary shares in issue (excluding treasury shares).

LR 10.7.3 R RP

LR 10 does not apply to the acquisition or disposal by a listedproperty company of a property in the ordinary course of business which:

  1. (1)

    for an acquisition, will be classified as a current asset in the company's published accounts; or

  2. (2)

    for a disposal, was so classified in the company's published accounts.

LR 10.7.4 G RP

LR 10 may apply to subsequent transfers of property assets from current to fixed assets or from fixed to current assets in the accounts of a property company.

Classification of transactions by listed mineral companies

LR 10.7.5 R RP
  1. (1)

    In addition to the tests in LR 10 Annex 1, a listedmineral company undertaking a transaction involving significant mineral resources must determine the percentage ratios that result from the calculations under the test in paragraph (2).

  2. (2)

    The reserves test is calculated by dividing the volume or amount of the proven reserves and probable reserves to be acquired or disposed of by the volume or amount of the aggregate proven reserves and probable reserves of the mineral company making the acquisition or disposal.

LR 10.7.6 G RP

If the mineral resources are not directly comparable, the FSA may modify LR 10.7.5R (2) to permit valuations to be used instead of amounts or volumes.

LR 10.7.7 R RP

When calculating the size of a transaction under LR 10 Annex 1 and LR 10.7.5 R, account must be taken of any associated transactions or loans effected or intended to be effected, and any contingent liabilities or commitments.

Classification of transactions by listed scientific research based companies

LR 10.7.8 G RP

A listedscientific research based company undertaking a transaction should consult the FSA at an early stage to determine whether industry specific tests are required instead of or in addition to the class tests in LR 10 Annex 1.

LR 10.8 Miscellaneous

Class 1 disposals by companies in severe financial difficulty

LR 10.8.1 G RP
  1. (1)

    A listed company in severe financial difficulty may find itself with no alternative but to dispose of a substantial part of its business within a short time frame to meet its ongoing working capital requirements or to reduce its liabilities. Due to time constraints it may not be able to prepare a circular and convene an extraordinary general meeting to obtain prior shareholder approval.

  2. (2)

    The FSA may modify the requirements in LR 10.5 to prepare a circular and to obtain shareholder approval for such a disposal, if the company:

    1. (a)

      can demonstrate that it is in severe financial difficulty; and

    2. (b)

      satisfies the conditions in LR 10.8.2 G to LR 10.8.6 G.

  3. (3)

    An application to modify LR 10.5 should be brought to the FSA's attention at the earliest available opportunity and at least five clear business days before the terms of the disposal are agreed.

LR 10.8.2 G RP

The listed company should demonstrate to the FSA that it could not reasonably have entered into negotiations earlier to enable shareholder approval to be sought.

LR 10.8.3 G RP

The following documents should be provided in writing to the FSA:

  1. (1)

    confirmation from the listed company that:

    1. (a)

      negotiation does not allow time for shareholder approval;

    2. (b)

      all alternative methods of financing have been exhausted and the only option remaining is to dispose of a substantial part of their business;

    3. (c)

      by taking the decision to dispose of part of the business to raise cash, the directors are acting in the best interests of the company and shareholders as a whole and that unless the disposal is completed receivers, administrators or liquidators are likely to be appointed; and

    4. (d)

      if the disposal is to a related party, that the disposal by the company to the related party is the only available option in the current circumstances.

  2. (2)

    confirmation from the company'ssponsor that, in its opinion and on the basis of information available to it, the company is in severe financial difficulty and that it will not be in a position to meet its obligations as they fall due unless the disposal takes place according to the proposed timetable;

  3. (3)

    confirmation from the persons providing finance stating that further finance or facilities will not be made available and that unless the disposal is effected immediately, current facilities will be withdrawn; and

  4. (4)

    an announcement that complies with LR 10.8.4 G and LR 10.8.5 G.

LR 10.8.4 G RP

An announcement should be notified to a RIS no later than the date the terms of the disposal are agreed and should contain:

  1. (1)

    all relevant information required to be notified under LR 10.4.1 R;

  2. (2)

    the name of the acquirer and the expected date of completion of the disposal;

  3. (3)

    full disclosure about the continuing groups prospects for at least the current financial year;

  4. (4)

    a statement that the directors believe that the disposal is in the best interests of the company and shareholders as a whole. The directors should also state that if the disposal is not completed the company will be unable to meet its financial commitments as they fall due and consequently will be unable to continue to trade resulting in the appointment of receivers, liquidators or administrators;

  5. (5)

    a statement incorporating the details of all the confirmations provided to the FSA in LR 10.8.3 G;

  6. (6)

    details of any financing arrangements (either current or future) if they are contingent upon the disposal being effected;

  7. (7)

    if the disposal is to a related party, then a statement as set out in LR 13.6.1R(5) must be given;

  8. (8)

    a statement by the listed company that in its opinion the working capital available to the continuing group is sufficient for the groups present requirements, that is, for at least 12 months from the date of the announcement, or, if not, how it is proposed to provide the additional working capital thought by the company to be necessary.

LR 10.8.5 G RP

The announcement should contain any further information that the company and its sponsors consider necessary. This should incorporate historical price sensitive information, which has already been published in relation to the disposal along with any further information required to be disclosed under DTR 2 (disclosure of inside information).

LR 10.8.6 G RP
  1. (1)

    The FSA will wish to examine the documents referred to in LR 10.8.3 G (including the RIS announcement) before it grants the modification and before the announcement is released.

  2. (2)

    The documents should ordinarily be lodged with the FSA:

    1. (a)

      in draft form at least five clear business days before the terms of the transaction are agreed; and

    2. (b)

      in final form on the day on which approval is sought.

LR 10.8.7 G RP

In relation to the listed company's financial position, DTR 2 (disclosure of inside information) continues to apply while the company is seeking a modification.

LR 10.8.8 G RP

The directors should also consider whether the listed company's financial situation is such that they should request the suspension of its listing pending publication of an announcement and clarification of its financial position.

Joint ventures

LR 10.8.9 G RP
  1. (1)

    When a listed company enters into a joint venture it should consider how this chapter applies.

  2. (2)

    It is common, when entering into a joint venture, for the partners to include exit provisions in the terms of the agreement. These typically give each partner a combination of rights and obligations to either sell their own holding or to acquire their partner's holding should certain triggering events occur.

  3. (3)

    If the listed company does not retain sole discretion over the event which requires them to either purchase the joint venture partner's stake or to sell their own, LR 10.1.3R (2) requires this obligation to be classified at the time it is agreed as though it had been exercised at that time. Further, if the consideration to be paid is to be determined by reference to the future profitability of the joint venture or an independent valuation at the time of exercise, this consideration will be treated as being uncapped. If this is the case, the initial agreement will be classified in accordance with LR 10 Annex 1 5R (3) and (3A)2 at the time it is entered into.

    2
  4. (4)

    If the listed company does retain sole discretion over the triggering event, or if the listed company is making a choice to purchase or sell following an event which has been triggered by the joint venture partner, the purchase or sale must be classified when this discretion is exercised or when the choice to purchase or sell is made.

    1

LR 10 Annex 1

The Class Tests

LR 10 Annex 1.1 G

Class tests

1G

This Annex sets out the following class tests:

(1)

the gross assets test;

(2)

the profits test;

(3)

the consideration test; and

(4)

the gross capital test.

The Gross Assets test

2R

(1)

The assets test is calculated by dividing the gross assets the subject of the transaction by the gross assets of the listed company.

(2)

The gross assets of the listed company means the total non-current assets, plus the total current assets, of the listed company.

(3)

For:

(a)

an acquisition of an interest in an undertaking which will result in consolidation of the assets of that undertaking in the accounts of the listed company; or

(b)

a disposal of an interest in an undertaking which will result in the assets of that undertaking no longer being consolidated in the accounts of the listed company;

the gross assets the subject of the transaction means the value of 100% of that undertakings assets irrespective of what interest is acquired or disposed of.

(4)

For an acquisition or disposal of an interest in an undertaking which does not fall within paragraph (3), the gross assets the subject of the transaction means:

(a)

for an acquisition, the consideration together with liabilities assumed (if any); and

(b)

for a disposal, the assets attributed to that interest in the listed company's accounts.

(5)

If there is an acquisition of assets other than an interest in an undertaking, the assets the subject of the transaction means the consideration or, if greater, the book value of those assets as they will be included in the listed company's balance sheet.

(6)

If there is a disposal of assets other than an interest in an undertaking, the assets the subject of the transaction means the book value of the assets in the listedcompany's balance sheet.

3G

The FSA may modify paragraph 2R to require, when calculating the assets the subject of the transaction, the inclusion of further amounts if contingent assets or arrangements referred to in LR 10.2.4 R (indemnities and similar arrangements) are involved.

The Profits test

4R

(1)

The profits test is calculated by dividing the profits attributable to the assets the subject of the transaction by the profits of the listed company.

(2)

For the purposes of paragraph (1), profits means:

(a)

profits after deducting all charges except taxation; and

(b)

for an acquisition or disposal of an interest in an undertaking referred to in paragraph 2R (3)(a) or (b) of this Annex, 100% of the profits of the undertaking (irrespective of what interest is acquired or disposed of).

The Consideration test

5R

(1)

The consideration test is calculated by taking the consideration for the transaction as a percentage of the aggregate market value of all the ordinary shares (excluding treasury shares) of the listed company.

(2)

For the purposes of paragraph (1):

(a)

the consideration is the amount paid to the contracting party;

(b)

if all or part of the consideration is in the form of securities to be traded on a market, the consideration attributable to those securities is the aggregate market value of those securities; and

(c)

if deferred consideration is or may be payable or receivable by the listed company in the future, the consideration is the maximum total consideration payable or receivable under the agreement.

(3)

If the total consideration is not subject to any maximum (and the other class tests indicate the transaction to be a class 2 transaction) 1the transaction is to be treated as a class 1 transaction.

1

1(3A)

If the total consideration is not subject to any maximum (and the other class tests indicate the transaction to be a class 3 transaction) the transaction is to be treated as a class 2 transaction.

(4)

For the purposes of sub-paragraph (2)(b), the figures used to determine consideration consisting of:

(a)

securities of a class already listed, must be the aggregate market value of all those securities on the last business day before the announcement; and

(b)

a new class of securities for which an application for listing will be made, must be the expected aggregate market value of all those securities.

(5)

For the purposes of paragraph (1), the figure used to determine market capitalisation is the aggregate market value of all the ordinary shares (excluding treasury shares) of the listed company at the close of business on the last business day before the announcement.

6G

The FSA may modify paragraph 5R to require the inclusion of further amounts in the calculation of the consideration. For example, if the purchaser agrees to discharge any liabilities, including the repayment of inter-company or third party debt, whether actual or contingent, as part of the terms of the transaction.

The Gross Capital test

7R

(1)

The gross capital test is calculated by dividing the gross capital of the company or business being acquired by the gross capital of the listed company.

(2)

The test in paragraph (1) is only to be applied for an acquisition of a company or business.

(3)

For the purposes of paragraph (1), the gross capital of the company or business being acquired means the aggregate of:

(a)

the consideration (as calculated under paragraph 5R of this Annex);

(b)

if a company, any of its shares and debt securities which are not being acquired;

(c)

all other liabilities (other than current liabilities) including for this purpose minority interests and deferred taxation; and

(d)

any excess of current liabilities over current assets.

(4)

For the purposes of paragraph (1), the gross capital of the listed company means the aggregate of:

(a)

the market value of its shares (excluding treasury shares) and the issue amount of the debt security;

(b)

all other liabilities (other than current liabilities) including for this purpose minority interests and deferred taxation; and

(c)

any excess of current liabilities over current assets.

(5)

For the purposes of paragraph (1):

(a)

figures used must be, for shares and debt security aggregated for the purposes of the gross capital percentage ratio, the aggregate market value of all those shares (or if not available before the announcement, their nominal value) and the issue amount of the debt security; and

(b)

for shares and debt security aggregated for the purposes of paragraph (3)(b), any treasury shares held by the company are not to be taken into account.

Figures used to classify assets and profits

8R

(1)

For the purposes of calculating the tests in this Annex, except as otherwise stated in paragraphs (2) to (6), figures used to classify assets and profits, must be the figures shown in the latest published audited consolidated accounts or, if a listed company has, or will have, published a preliminary statement of later annual results at the time the terms of a transaction are agreed, the figures shown in that preliminary statement.

(2)

If a balance sheet has been published in a subsequently published interim statement then gross assets and gross capital 1should be taken from the balance sheet published in the interim statement.

(3)

(a)

The figures of the listed company must be adjusted to take account of subsequent transactions which have been notified to a RIS under LR 10.4 or LR 10.5.

(b)

The figures of the target company or business must be adjusted to take account of subsequent transactions which would have been a class 2 transaction or greater when classified against the target as a whole.

(4)

Figures on which the auditors are unable to report without modification must be disregarded.

(5)

When applying the percentage ratios to an acquisition by a company whose assets consist wholly or predominantly of cash or short-dated securities, the cash and short-dated securities must be excluded in calculating its assets and market capitalisation.

(6)

The principles in this paragraph also apply (to the extent relevant) to calculating the assets and profits of the target company or business.

9G

The FSA may modify paragraph 8R(4) in appropriate cases to permit figures to be taken into account.

Anomalous results

10G

If a calculation under any of the class tests produces an anomalous result or if a calculation is inappropriate to the activities of the listed company, the FSA may modify the relevant rule to substitute other relevant indicators of size, including industry specific tests.