Turkish Capital Markets Board (the “Board”) introduced the “Draft Communiqué on the Companies Whose Shares will be Traded on the Venture Capital Market” (the “Draft Communiqué”) and asked the public opinion regarding the draft. The Draft Communique allows the issuance and sale of shares of private companies to qualified investors without an initial public offering with the offered shares being traded on the newly established Venture Capital Market (the “VCM”) under the Equity Market by Borsa İstanbul. The Draft Communiqué regulates the general principles regarding the sale of shares of private companies to qualified investors through capital increase without public offering, the obligations of the companies after the issue, the rules on financial reporting, independent audits and material events disclosures, and exemptions. We summarized the details of the regulation as below:

What is the Purpose of the Draft Communiqué?

The Draft Communiqué introduces the procedures and principles regarding the issuance of shares of private companies to qualified investors, which will be traded on the newly established VCM, as well as liabilities and exemptions foreseen for such companies. In accordance with the Draft Communiqué, companies whose shares are traded on the VCM will be considered as public companies. Pursuant to the VCM, issuances can only be made through capital increases and share sales by existing shareholders will not be possible at the initial public offering.

General Principles Regarding the Sale of Shares of Companies through Capital Increase without Public Offering

As per the Draft Communiqué, private companies will be able to sell their shares to be issued through capital increase to qualified investors in the VCM without offering them to the public. Accordingly, in order for the shares to be sold and traded on the VCM, a prospectus whose principles are determined by the Board must be prepared by the relevant company and approved by the Board. Before the application for the approval of the prospectus:

• Companies must apply to the Board for the compliance of their articles of association with the Board’s regulations and the purposes and principles of the Capital Markets Law No. 6362 (“Law”) together with the draft amendment text to be prepared and the documents listed in the Draft Communiqué, and following the Board approval, they must hold a general assembly for amendment of their articles of association within a maximum of 6 months following the approval of the Board; and

• A resolution must be taken for capital increase and for partial or complete limitation of the right to purchase new shares.

Upon completion of the above procedures, companies will apply to the Board for approval of their prospectus, which will be prepared in accordance with the relevant regulations of the Board, together with the documents listed in the Draft Communiqué.

In addition, companies to be listed in the VCM must meet certain criteria in terms of total assets, net sales revenue and capital. Accordingly, as of the financial statements of the year before the year in which the shares will be sold (for the year 2022):

• Total assets of the companies must exceed at least 50,000,000 Turkish Liras,
• Net sales revenue of the companies must exceed at least 30.000.000 Turkish Liras, and
• Registered capital of the companies must be at least 5,000,000 Turkish Liras.

The financial statements to be included in the prospectus within the scope of the Draft Communiqué will be determined based on the following table:

Moreover, over-allotment share sale is not allowed for companies whose shares will be issued to be traded on the VCM.

Sale on the stock exchange is mandatory for the sale of shares to qualified investors which will be traded on the VCM.

On the other hand, current shares owned by existing shareholders of such companies will not be allowed to be converted into tradeable shares. Only the shares issued through capital increase during sale will be traded on the VCM.

Principles to be Followed After the Sale of Shares Without Public Offering

Shares of companies within the scope of the Draft Communiqué cannot be subject to a public offering for 2 years following the year they started to be traded on the stock exchange. In addition, companies must apply to the Board with a prospectus to be prepared for their shares to be traded on other markets of the stock exchange through capital increase without public offering, within a period not exceeding five years. Companies whose prospectus is not approved by the Board or which do not apply to the Board for the approval of the prospectus within the specified period will be deemed out of the scope of the Law and their shares will be removed from the VCM without the need for any further action. Companies that are excluded from the VCM will not be able to apply for public offering of its shares within the scope of the Communiqué on Shares numbered VII-128.1 for 2 years from the date of exclusion. On the other hand, except for the shares that are previously traded on the VCM, the shares of the companies, whose shares started to be traded on other markets of the stock exchange after the approval of the prospectus and the public offering of their shares, that are not subject to public offering shall not be converted into shares that are traded on the stock exchange within 2 years from the date their shares started to be traded on other markets of the stock exchange.

Issues on Financial Reporting, Independent Audits and Special Circumstances Disclosures

Joint stock companies within the scope of the Draft Communiqué will be accepted as companies whose capital market instruments are traded on a stock exchange and/or other organized markets in terms of the implementation of the Communiqué numbered II-14.1 on Principles Regarding Financial Reporting in the Capital Markets and the Communiqué on Independent Auditing Standards in the Capital Markets Serial: X, No: 22. That being said, companies whose shares will be traded on the VCM will be exempt from the obligation to issue first and third quarter interim financial reports.

Within the framework of the Draft Communiqué, it is mandatory to publish general information of the companies on the Public Disclosure Platform and to publish the necessary updates within five business days at the latest in case of any change. In cases where the capital shares or total voting rights in the company are reached or below 5%, 25%, 50%, or in case of a direct or indirect change of control, the relevant persons will make a public disclosure. It is mandatory to make a public disclosure in relation to the issues listed in the Draft Communiqué in detail including dividend distribution of the companies within the scope of the Draft Communiqué, issues related to the general assembly, capital increases/decreases, resolutions and transactions on merger/demerger/change of type of the company, changing the field of activity or production being suspended or becoming impossible or other similar situations, issues on the dissolution of the company, transfers or acquisitions of assets corresponding to 10% or more of the total assets.

Exemptions

In the event that the companies listed in the VCM pursuant to the Draft Communiqué become subject to the merger or demerger, these companies will be deemed out of the scope of the Law and their shares removed from the VCM without the need for any further transaction. Shares of these companies cannot be traded on the VCM before 2 years from the registration date in merger transactions and from the date of the general assembly in partial demerger transactions with the participation model.

On the other hand, companies within the scope of the Draft Communiqué will not be subject to the provisions of the Communiqué numbered II-17.1 on Corporate Governance. The relevant provisions of the Communiqué on Shares numbered VII-128.1 shall be applied, in proportion to their relevance, for the capital increases of these companies through rights issues and/or through internal resources or dividends.