NZX Regulation Decision SKYCITY Entertainment Group Limited

Transcription

1 3 October 2008 NZX Regulation Decision SKYCITY Entertainment Group Limited Application for Approval under NZSX Listing Rule and Waivers from NZSX Listing Rule and Background 1. SKYCITY Entertainment Group Limited ( SKC ) is listed on the NZSX market. SKC proposes to introduce the SKYCITY Entertainment Group Limited Executive Long Term Incentive Plan 2008 ( Plan ) for the issue of share rights to its executives (other than the Managing Director Mr Morrison). 2. Under the terms of the Plan selected executive employees of SKC will be granted share rights (i.e. options) which, when exercised, will convert on a one for one basis into fully paid ordinary shares in SKC. The share rights and the shares issued on the exercise of those share rights will be issued for a nil issue price. 3. Whether or not share rights issued under the Plan become exerciseable, and the number of rights that become exerciseable, depend on SKC meeting certain specified performance hurdles. Briefly, the performance hurdles for the share rights proposed to be issued in 2008 relate to the total shareholder return ( TSR ) achieved by SKC relative to certain specified comparable companies and specified companies listed on the NZSX market. 4. The TSRs of SKC and the companies against which SKC s performance is to be measured will be calculated as at certain testing dates. In respect of the share rights issued in 2008, performance will be tested for the period running from the issue date of the share rights to the third anniversary of the issue date ( the initial Testing Date ); (if applicable) six months after the Initial Testing Date; and (if applicable) twelve months after the Initial Testing Date. 5. Share rights will be issued for no consideration. No consideration will be payable on exercise of the share rights. One share will be issued for every share right exercised (subject to adjustment to take into account the effect of capital changes). Share rights may be exercised during the 12 month period commencing on the date that they become exerciseable. Application 6. SKC has approached NZX Regulation ( NZXR ) seeking NZX approval under NZSX Listing Rule ( Rule ) for the issue of Equity Securities at a nil issue price under the Plan. SKC has also applied for waivers from: The requirement in Rule which determines how an option s exercise price or number of underlying securities may be adjusted to take account of rights issues; and Page 1 of 5

2 The requirement in Listing Rule which determines how an option may be changed to take account of bonus issues. 7. SKC makes the following submissions in support of its application for approval under Rule 8.1.4: The purpose of the issue of the share rights under the Plan is to reward executives for their performance through an issue of shares to them for free. SKC proposes to issue approximately one million of share rights this year. Issues of share rights in future years are likely to be of a similar number. SKC currently has 471,399,291 shares on issue. Accordingly, the share rights to be issued each year correspond to approximately 0.2% of SKC s issued share capital. Share rights can only be exercised and shares issued if certain specified performance hurdles are met. Therefore, any dilution of voting rights from the issue should be negligible. 8. SKC makes the following submissions in support of its application for waiver of Rule 8.1.7: Rule does not easily apply to the Plan as no exercise price is payable should participants be in a position to exercise their share rights. The terms of the Plan permit the board of SKC to make an appropriate (discretionary) adjustment or variation to the terms of the Plan (e.g. an adjustment to the number of shares issued on the exercise of share rights issued under the Plan) so as to ensure, to the extent reasonably possible, that holders of share rights receive the same benefit as shareholders received under the rights issue (and vice versa). This adjustment or variation must be reviewed and approved by a recognised independent party (e.g. an investment bank, chartered accountant firm or other appropriate body) and may not be made if it would not be permitted by, or would otherwise be in breach of, the Rules. 9. SKC makes the following submissions in support of its application for waiver of Rule 8.1.8: Rule permits the number of shares to be issued on the exercise of an option to be increased if there has been a bonus issue, by the number of shares which the holder of the option would have received if the option had been exercised before the record date for the bonus issue. Under the Plan, bonus issues that do not involve the capitalisation of reserves or distributable profit will result in an adjustment being made to the number of shares issued on the exercise of share rights in accordance with Rule However, where a bonus issue involves the capitalisation of reserves or distributable profit, it is proposed that the Board of SKC be permitted to make an appropriate (discretionary) adjustment or variation of the terms of the Plan (e.g. an adjustment to the number of shares issued on the exercise of share rights issued under the Plan) so as to ensure, to the extent reasonably possible, that holders of share rights receive the same benefit as shareholders received under the bonus issue (and vice versa). Page 2 of 5

3 (d) This adjustment or variation must be reviewed and approved by a recognised independent party (e.g. an investment bank, chartered accountant firm or other appropriate body) and may not be made if it would not be permitted by, or would otherwise be in breach of, the Rules. Rules 8.1.3, and Rule provides: Issue of Equity Securities carrying Voting Rights Pricing: If: an Issuer proposes to issue Equity Securities carrying Votes, or Securities which are Convertible into Equity Securities carrying Votes, under Rules 7.3.4(ba), or (the Affected Securities ); and the proportion that the issue price of the Affected Securities (together, in the case of Convertible Securities, with the amount of any consideration payable on Conversion), forms of the Average Market Price of that Issuer s existing Quoted Equity Securities is not at least 90% of the proportion that number of Votes carried by Affected Securities (or, in the case of Convertible Securities, the Securities into which the Affected Securities Convert), forms of the number of Votes carried by that Issuer s existing Quoted Equity Securities. the Issuer shall not issue the Affected Securities without the approval of NZX pursuant to Rule 8.1.4: 11. Rule provides: Approval by NZX: Any provision of the nature referred to in Rule or 8.1.2, or issue of the nature referred to in Rule 8.1.3, shall be subject to the approval of NZX. NZX may grant approval on such conditions as it thinks fit (including a condition for approval of resolutions of holders of any Class or group of Securities of the Issuer). 12. Rule provides: Change of Option s Exercise Price or Number of Underlying Securities: An Option must not confer the right to a change in the exercise price or number of underlying Securities, except if that Option: was issued with the approval of holders of Quoted Equity Securities, then the exercise price or number of underlying Securities may change in accordance with the formula or provision contained in the terms of the Option if there is a Rights issue to the holders of the underlying Securities; or was not issued with the approval of holders of Quoted Securities and there is a Rights issue to the holders of the underlying Securities, then the exercise price of that Option may be reduced according to the formula set out as follows:... Page 3 of 5

4 Provided that nothing in this Rule shall apply to any Option which was issued prior to the coming into force of this Rule or Listing of an Issuer. 13. Rule provides: Change of Option on a Bonus Issue: If there is a bonus issue to the holders of the underlying Securities the number of Securities over which an Option is exercisable may be increased (or additional Securities may be reserved for issue on exercise of an Option) by the number of Securities which the holder of the Option would have received if that Option had been exercised before the Record Date for the issue. Decision on Rule On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR approves under Rule the issue of share rights under the Plan and the issue of shares on conversion of share rights under the Plan for nil consideration. 15. The approval is given on the following conditions: If it is necessary to make an adjustment to the terms of the share rights to take into account a corporate action by SKC, then SKC will provide NZXR with at least 10 Business Days notice prior to the adjustment that sets out: i. A description of the corporate action to be undertaken; ii. iii. iv. The proposed adjustment to the share rights; A copy of the advice from the independent party that the adjustment is fair; Confirmation from the Directors of SKC that they are satisfied with the advice from the independent party and the adjustment to the terms of the share rights; and There are no material changes to the terms of the Plan and its implementation as disclosed to NZXR; and Under the Plan, the latest date a share right may be exercised is six years after the date of issue of that share right. Decision on Rules and On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR grants SKC waivers from the requirements in Rules and to allow the terms of the Plan to confer on the board of SKC the power to adjust the number of shares to which a participant is entitled under the Plan to take into account rights issues and bonus issues involving the capitalisation of reserves or distributable profits. These waivers are granted on the conditions set out in paragraph 15. Page 4 of 5

5 Reasons 1. In coming to the decision to give approval under Rule and grant SKC the waivers in respect of Rules and 8.1.8, NZXR has considered that: (d) (e) The objective of Rule is to safeguard against the dilutionary effect of equity securities being issued at a discount which subsequently will affect security holders rights. In this case, the dilution of voting rights will be negligible. SKC has advised that the number of share rights issued under the Plan in each of the next few years will correspond approximately to 0.2% of the issued shares in SKC. The offer of options to employees at a discount to market price is a common and generally accepted means of remunerating employees and providing an incentive which is perceived to align the interest of employees and shareholders. Unless the issue significantly affects the distribution of voting rights, NZXR will generally not second guess the appropriateness of the directors actions. The objective of Rule is to ensure that the terms of options are adjusted so that on the occurrence of rights issues the relative rights and benefits of shareholders and option holders are maintained. Because of the terms of the Plan, Rule is not suited to share rights issued under the Plan. However, the Plan provides for the exercise of a discretion designed to have a similar effect to the requirements of Rule and is subject to board review with the assistance of independent advice, which will provide SKC shareholders with a level of protection similar to that provided by Rule The objective of Rule is to ensure that the terms of options are adjusted so that on the occurrence of bonus issues the relative rights and benefits of shareholders and option holders are maintained. It is likely that any adjustment to the terms of the share rights as a result of a bonus issue involving the capitalisation of reserves or distributable profit would involve an increase in the number of shares issued on exercise of the share right or the reservation of additional shares for allotment on exercise of the share right in compliance with Rule However, the SKC board wishes to reserve to itself the discretion to adjust the terms in another way if that would provide a more equitable outcome for shareholders and holders of share rights. As any adjustment the board wishes to make would be subject to review and approval by an independent expert, the SKC shareholders are given a level of protection similar to that provided by Rule The waivers are subject to conditions that require information to be provided to NZXR prior to any adjustment being made. ENDS. Page 5 of 5