ASX’s new Guidance Note 19 provides some useful guidance on the issue of performance shares by listed entities. The new guidance covers a range of issues including compliance with the Listing Rules, appropriate rights attaching to performance shares, appropriate and equitable performance milestones, acceptable capital structures and security holder approval. Listed entities should familiarise themselves with the new guidance prior to issuing any performance shares. 

ASX has issued Guidance Note 19 Performance Shares which is designed to assist listed entities in structuring the terms of performance shares (ie shares with limited rights until a nominated performance milestone is achieved, at which point they will convert into ordinary shares) to comply with the Listing Rules. 

Key issues discussed in the Guidance Note include: 

  • a listed entity may (and ASX recommend that it does) apply for in-principle advice that the performance shares will satisfy the Listing Rules before it issues them (or enters into any legally binding agreement to do so);
  • there are a number of Listing Rules that need to be complied with (including Listing Rules 6.1, 12.1 and 1.1 condition 1) to ensure the issue of the performance shares is appropriate and equitable;  
  • for performance shares to be appropriate and equitable, they should have very limited rights (specifically, they should not be transferable, carry any voting rights or rights to dividends or capital returns or any participation rights in surplus profits or assets on winding up in new issues such as bonus issues or entitlement issues); 
  • if the number of ordinary shares into which the performance shares will convert is greater than the number of ordinary shares on the date of issue of the performance shares, this will not be an acceptable capital structure for Listing Rule 12.1; 
  • performance milestones must be articulated by reference to objective criteria and an appropriate link between the milestone and the transaction or purpose of issue (not tied only to market price), as well as a fixed number or formula for calculating the number of ordinary shares on conversion and an expiry date (usually a maximum of 5 years from the date of issue);
  • ASX will generally consider it appropriate and equitable for security holder approval to be required, with a voting exclusion statement for anyone participating in the issue (even if approval under Listing Rule 7.1 is not required); and 
  •  listed entities with performance shares on issue must make announcements on the occurrence of certain events in relation to the performance shares.