Requirements for continuing connected transactions
The following additional requirements apply to a continuing connected transaction.
Terms of an agreement (14A.51-14A.52)
A written agreement for a continuing connected transaction must contain the basis for calculating the payments to be made. Examples include sharing of costs incurred by the parties, unit prices for goods or services provided, annual rental for leasing a property, or management fees based on a percentage of the total construction cost.
The period for the agreement must be fixed and reflect normal commercial terms or better. It must not exceed three years except in special circumstances where the nature of the transaction requires a longer period. In this case, the listed issuer must appoint an independent financial adviser to explain why the agreement requires a longer period and to confirm that it is normal business practice for agreements of this type to be of such duration.
Annual cap (14A.53)
The listed issuer must set an annual cap (the "cap") for the continuing connected transaction. The cap must be:(1) expressed in monetary terms;(2) determined by reference to previous transactions and figures in the published information of the listed issuer's group. If there were no previous transactions, the cap must be set based on reasonable assumptions; and(3) approved by shareholders if the transaction requires shareholders' approval.
Changes to cap or terms of agreement (14A.54)
The listed issuer must re-comply with the announcement and shareholders' approval requirements before:(1) the cap is exceeded; or(2) it proposes to renew the agreement or to effect a material change to its terms.
Note: The revised or new cap(s) will be used to calculate the percentage ratios for classifying the continuing connected transaction.
Annual review by independent non-executive directors and auditors (14A.55-14A.59)
The listed issuer's independent non-executive directors must review the continuing connected transactions every year and confirm in the annual report whether the transactions have been entered into:(1) in the ordinary and usual course of business of the listed issuer's group;(2) on normal commercial terms or better; and(3) according to the agreement governing them on terms that are fair and reasonable and in the interests of the listed issuer's shareholders as a whole.
The listed issuer must engage its auditors to report on the continuing connected transaction every year. The auditors must provide a letter to the listed issuer's board of directors confirming whether anything has come to their attention that causes them to believe that the continuing connected transactions:(1) have not been approved by the listed issuer's board of directors;(2) were not, in all material respects, in accordance with the pricing policies of the listed issuer's group if the transactions involve the provision of goods or services by the listed issuer's group;(3) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and(4) have exceeded the cap.
The listed issuer must provide a copy of the auditors' letter to the Exchange at least 10 business days before the bulk printing of its annual report.
The listed issuer must allow, and ensure that the counterparties to the continuing connected transactions allow, the auditors sufficient access to their records for the purpose of reporting on the transactions.
The listed issuer must promptly notify the Exchange and publish an announcement if the independent non-executive directors and/or the auditors cannot confirm the matters as required. The Exchange may require the listed issuer to re-comply with the announcement and shareholders' approval requirements and may impose additional conditions.
When a continuing transaction subsequently becomes connected (14A.60)
If the listed issuer's group has entered into an agreement for a fixed period with fixed terms for:(1) a continuing transaction, and the transaction subsequently becomes a continuing connected transaction, or
Note: This includes a continuing transaction between the listed issuer's group and a connected person exempt under the "insignificant subsidiary exemption" (see rule 14A.09), and the connected person subsequently cannot meet the conditions for the exemption.(2) a continuing connected transaction exempt under the "passive investor exemption" (see rules 14A.99 and 14A.100), and the transaction subsequently cannot meet the conditions for the exemption,
the listed issuer must:(a) as soon as practicable after becoming aware of this fact, comply with the annual review and disclosure requirements including publishing an announcement and annual reporting if the listed issuer's group continues to conduct the transaction under the agreement; and(b) when the agreement is renewed or its terms are varied, comply with all connected transaction requirements.