Waiver from NZX Listing Rules and Ruling

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NZX Regulation Decision
Chorus Limited (“CNU”)
Application for a waiver from NZX Listing Rule 2.3.2, 4.1.1,
4.1.2, 4.2.1, 4.14, 6.6.1, 8.1.5, and ruling from NZX Listing
Rule 4.9.1.







3 April 2020

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Background
1. NZX has updated the NZX Listing Rules (
Rules
), effective from 1 January 2020. This waiver
decision re-documents a prior waiver and ruling decision granted by NZX Regulation (
NZXR
)
dated 30 August 2011.
2. The information on which these decisions are based is set out in Appendix One. These
waivers and rulings will not apply if that information is not or ceases to be full and accurate
in all material respects.
3. The Rules to which these decisions relate are set out in Appendix Two.
4. Capitalised terms which have not been defined in this decision have the meanings given to
them in the Rules.
Application One – Waiver from Rule 2.3.2(c) and
2.3.2(d)
Decision
5. Subject to the condition in paragraph 6 below, and on the basis that the information provided
to NZXR by Chorus Limited (“
CNU
”) is complete and accurate in all material respects, NZXR
grants CNU a waiver from Rule 2.3.2(c) and 2.3.2(d) to enable CNU’s constitution to include
a restriction on who can be a Director of CNU, namely prohibiting Associated Persons of
Telecommunications Services in New Zealand from being CNU Directors.
6. The waiver in paragraph 5 is granted on the condition that this waiver is summarised in each
annual report of CNU (or the annual report contains a reference to where this information can
be found on CNU’s website), and any announcement made by CNU under Rule 2.3.2(c) and
2.3.2(d).
Reasons
7. In coming to the decision to provide the waiver set out in paragraph 5 above, NZXR has
considered that:
a. the Crown required CNU to enter into the Deed Relating to Certain Operational and
Governance Undertakings (
Deed
) as a condition to Chorus’ participation in the UFB
initiative which provides for restrictions on who can be a CNU Director; and
b. the restrictions on CNU Director nominations will be appropriately highlighted to CNU
shareholders by virtue of the condition contained in paragraph 6 above.

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Application Two – Waiver from Rule 4.1.1, 4.1.2 and
4.2.1.
Decision
8. On the basis that the information provided to NZXR by CNU is complete and accurate in all
material respects, NZXR grants CNU a waiver from the requirement contained in Rules 4.1.1,
4.1.2 and 4.2.1 for CNU to obtain specific shareholder approval, by Ordinary Resolution, for
the issue of the CIP Equity Securities and CIP Warrants.
Reasons
9. In coming to the decision to provide the waiver set out in paragraph 8 above, NZXR has
considered that:
a. CNU submitted, and NZXR has no reason not to accept, that it would be impossible
for shareholders to vote separately on the issue of the CIP Equity Securities and CIP
Warrants as the issue of those Securities was effectively a condition of the Demerger
proposal;

b. the Demerger was undertaken to allow CNU to participate in the UFB initiative;

c. the CIP Equity Securities and CIP Warrants were an integral part of the successful bid
for CNU to participate in the UFB initiative;

d. the terms and conditions of the issue of the CIP Equity Securities and CIP Warrants
have been settled following extensive negotiations between TEL and CIP; and

e. all material details of the CIP Equity Securities and CIP Warrants, including all material
details of their terms of issue, and conversion and exercise, and the fact that in certain
circumstances CNU shares could be issued pursuant to the terms of the CIP Equity
Securities and/or the CIP Warrants in a manner that is dilutive to CNU shareholders
were disclosed in the Scheme Booklet.

Application Three – Ruling on Rule 4.9.1(b)
Decision

10. On the basis that the information provided to NZXR by CNU is complete and accurate in
all material respects, for the purpose of Rule 4.9.1(b) in relation to CNU, NZXR rules that
that:

a. any conversion of CIP Equity Securities into CNU ordinary shares;

b. any conversion of CIP Equity Securities into Preference Shares;

c. any conversion of Preference Shares into CNU ordinary shares; and

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d. any exercise of the CIP Warrants in relation to which CNU issues CNU ordinary
shares;

falls within the ambit of Rule 4.9.1(b).
Reasons

11. In coming to the decision to provide the ruling set out in paragraph 10 above, NZXR has
considered that:
a. CNU submitted that the CIP Equity Securities are convertible into CNU ordinary shares
and into voting preference shares (which carry the right to convert into ordinary CNU
shares on equivalent terms to the CIP Equity Securities);
b. CNU also submitted that the CIP Warrants provide the holder of a CIP Warrant with a
right to purchase CNU ordinary shares at a specified strike price;
c. the material terms of the conversion of each of the CIP Equity Securities and exercise
of the CIP Warrants were appropriately disclosed in the Scheme Booklet;
d. Rule 4.9.1(b) allows an Issuer to issue Equity Securities upon conversion of an Equity
Security, if the terms of those securities provide for conversion to the kind of security
issued;
e. as the issue of the CIP Equity Securities and CIP Warrants was an integral part of the
Demerger and TEL shareholders voted on the Demerger, it would not be appropriate
for the conversion of the CIP Equity Securities and CIP Warrants to be individually
voted on by CNU shareholders; and
f. NZXR has granted CNU the above waiver from Rules 4.1.1, 4.1.2, and 4.21.
Application Four – Waiver from Rule 4.14.1(e)
Decision
12. On the basis that the information provided to NZXR is full and accurate in all material
respects, NZXR grants CNU a waiver from Rule 4.14.1(e) to the extent necessary to allow
CNU to redeem the CIP Equity Securities in accordance with their terms of issue.
Reason
13. In coming to the decision to grant the waiver set out in paragraph 12 above, NZXR has
considered that:

a. the CIP Equity Securities provide CNU with a right of redemption in certain prescribed
circumstances, but given the waiver granted to CNU in respect of Rules 4.1.1, 4.1.2,
and 4.2.1 above, will not be issued in accordance with Rule 4.14.1(e);

b. the material terms of the CIP Equity Securities (including the material terms relating to
the ability for CNU to redeem the CIP Securities) were appropriately disclosed in the
Scheme Booklet; and

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c. NZXR accepts that the redemption of the CIP Equity Securities could have been
effected pursuant to Rule 4.14.1(e) but for the fact that approval of the terms of issue
were effectively given by TEL shareholders in the approval of the overall Demerger
resolution, rather than specific approval being provided under Rule 4.14.1(e).

Application Five – Waiver from Rule 6.6.1
Decision
14. Subject to the conditions in paragraph 15 below, and on the basis that the information
provided to NZXR by CNU is full and accurate in all material respects, NZXR grants CNU
a waiver from Rule 6.6.1 to allow CNU to include the power of forfeiture reflecting the
Ownership Thresholds in its Constitution.

15. The waiver in paragraph 14 is granted on the conditions that:

a. CNU bears a non-standard (NS) designation; and

b. this waiver and its effect are disclosed in CNU’s annual reports (or the annual
report contains a reference to where this information can be found on CNU’s
website).
Reason
16. In coming to the decision described in paragraph 14 above, NZXR considered the
following factors:

a. Although there is a tension between the forfeiture provisions in the CNU Constitution
and this Rule, the interests of investors are appropriately served by the appropriate
disclosure of the Ownership Thresholds in CNU’s annual reports, and by the
application of the non-standard designation to CNU;

b. the power of forfeiture in respect of the Ownership Thresholds was disclosed in the
Scheme Booklet;

c. the Deed is integral to CNU’s participation in the UFB initiative, and it is therefore
appropriate that the Ownership Thresholds are included in CNU’s Constitution;

d. the conditions contained in paragraph 15 will ensure that CNU shareholders are aware
of the Ownership Thresholds; and

e. there is precedent for granting this waiver in the decision provided to TEL in 1991.

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Application Six – Waiver from Rule 8.1.5
Decision
17. Subject to the conditions in paragraph 18 below, and on the basis that the information
provided to NZXR by CNU is full and accurate in all material respects, NZXR grants CNU
a waiver from Rule 8.1.5 to allow CNU to contain provisions in its Constitution to allow the
CNU Board to cancel the voting rights attached to the CNU shares where the Ownership
Thresholds are breached.

18. The waiver in paragraph 17 is granted on the condition that this waiver on the conditions
that:

a. CNU bear a non-standard (NS) designation;

b. the material details of the ability for the CNU Board to cancel the voting rights of the
CNU shares to which this decision relates and the existence of this waiver are
disclosed in every annual report of CNU.
Reason
19. In coming to the decision described in paragraph 17 above, NZXR considered the
following factors:

a. the CNU Constitution contains an ability for the CNU Board to prevent a shareholder
from voting in the event of a breach of the Ownership Thresholds. The CNU Board
may therefore cancel a shareholder’s right on a CNU holder executing a transfer in
breach of the Ownership Thresholds;

b. the conditions contained in paragraph 18 will ensure that current and future
shareholders in CNU are put on notice of the restrictions on transferability that are
contained in CNU’s Constitution;

c. the material details of the ability for the CNU Board to cancel the voting rights of the
CNU shares that are contained in CNU’s Constitution were disclosed in the Scheme
Booklet; and

d. NZXR believes that there are considerations which justify the inclusion of the
provisions which provide the CNU Board with the ability to cancel the voting rights of
the CNU shares as described in this decision to be included in CNU’s Constitution,
including that CNU’s entry into the Deed is integral to its participation in the UFB
initiative and the Ownership Thresholds are contained in the Deed.

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Appendix One


Chorus Limited (“CNU”) demerged from Telecom Corporation of New Zealand Limited (“TEL”)
(now Spark) in 2011 to become a publicly listed network services operator. This demerger (the
“Demerger”) was a condition of the agreements providing for CNU’s participation in the New
Zealand Government’s ultra-fast broadband (“UFB”) initiative.

The Demerger was implemented by way of a High Court Scheme of Arrangement under
Part XV of the Companies Act 1993 following approval by TEL shareholders at its 2011 Annual
Meeting (the “Demerger AGM”). TEL shareholders were provided with a Scheme Booklet (the
“Scheme Booklet”) which was approved by NZX Regulation (“NZXR”) prior to the Demerger
AGM.

Crown Infrastructure Partners (“CIP”) (formerly Crown Fibre Holdings Limited) is the entity that
was formed by the Government to, amongst other things, manage the UFB initiative. CIP will
invest, at CNU’s election, up to approximately $1.33 billion in CNU as the network is built via
subscription for securities to be funded and issued in different build phases. For the first phase
of the UFB network build (UFB1), the total committed funding available for Chorus over the period
of UFB1 network construction is expected to be $929 million in return for the following securities
(“CIP Securities”):

a. Non-voting redeemable preference shares, which entitle the holder to a right to a
repayment preference on liquidation and include the right to dividends in certain
circumstances depending on the uptake of end-user fibre, and which are convertible
into ordinary CNU shares in certain circumstances (“CIP Equity Securities”);

a. Non-interest bearing repayable debt securities (the “
CIP Debt Securities
”);

b. Warrants issued for nil consideration which allow the holder to subscribe for CNU shares
on certain exercise dates, where the strike price is based on a total shareholder return on
CNU shares of 16% per annum (“CIP Warrants”).

For the second phase of the UFB network build (UFB2 and UFB2+), different funding rates are
applied. Total CIP funding available to Chorus for the second phase is expected to be
approximately $408 million. In return for the CIP funding for UFB2 and UFB2+, CIP Equity
Securities and CIP Debt Securities will be issued on similar terms as UFB1 securities, but will
have different dividend entitlement dates (for CIP Equity Securities) and different redemption
dates (for CIP Debt Securities). There are no CIP Warrants in relation to UFB2 and UFB2+
funding.

The Crown required that CNU enter into a Deed Relating to Certain Operational and Governance
Undertakings (“Deed”) to protect the Crown’s interest in its investment into CNU in the context of
the UFB initiative.

Accordingly, CNU’s Constitution reflects certain provisions of the Deed as follows:

a. restrictions on candidates for director nominations – these are reflected in clause 17.3 of
CNU’s Constitution as follows:

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“No person who is an Associated Person of a person which provides Telecommunications
Services in New Zealand (other than the services to be provided by Chorus) shall be
appointed or hold office as a director.”

b. the issue of certain Equity Securities to CIP, including the CIP Equity Securities and CIP
Warrants; and

c. certain restrictions in respect of the ownership of CNU shares (“Ownership
Thresholds”), which are reflected in clause 2 of the First Schedule of CNU’s Constitution
as follows:

“No person shall have a relevant interest in 10 percent or more of the total voting shares
for the time being without, and except in accordance with, the prior written approval of the
Crown under the Deed (unless it has been terminated with the consent of the Crown).

No person who is not a New Zealand national shall have a relevant interest in more than
49.9 percent of the total voting shares for the time being without, and except in
accordance with the terms of, the prior written approval of the Crown given under the
Deed (unless it has been terminated with the consent of the Crown).”

Clause 3 of the First Schedule of CNU’s Constitution, which provides for a power of
forfeiture in the event of a CNU shareholder breaching the Ownership Thresholds by
allowing the CNU Board to sell all or some of the CNU holder’s shares.

Accordingly, to enable CNU to continue to participate in the UFB initiative, it is necessary for the
waivers and rulings in this decision to continue to apply.
Approval of Transfer Restrictions
In addition to the Ownership Thresholds, in the decision dated 30 August 2011, NZXR approved
CNU to incorporate provisions into its Constitution restricting the transfer of Equity Securities
where:
“the [CNU] Board [is]... permitted to do so by the Act or the Rules, in any of the following
circumstances:
(a) when it must do so under clause 4 of the First Schedule;
(b) where the registration of the transfer would or would be likely to breach clause 4 of the
First Schedule.
Clause 4 of the First Schedule of the CNU Constitution requires the CNU Board to decline to
register a transfer of voting shares if, in the reasonable opinion of the CNU Board after due
enquiry, any person would breach the Ownership Thresholds as a result of the transfer.
Class Waiver
In November 2018, NZX issued a Class Waiver and Ruling that deems NZX’s previous approval
for CNU to incorporate provisions in its constitution restricting the transferability of its Equity
Securities as an approval under updated Rule 8.1.6. This approval continues to apply without the
need to separately re-document the decision.

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Appendix Two

Rule 2.3.2
An Issuer must comply with the following Director nomination process:
(a) the closing date for nominations must be no more than two months before
the date of the relevant meeting at which the election is to take place,
(b) the closing date for nominations must be announced to the market at
least 10 Business Days prior to such closing date,
(c) there must be no restriction on who may be nominated as a Director,
unless:
(i) the Governing Document requires Directors to hold certain
Financial Products to qualify as a Director, or
(ii) applicable legislation restricts who may be a Director of the Issuer,
(d) subject to (c) above, there must be no precondition to the nomination of a
Director other than compliance with the time limits in this Rule, and
(e) details of all nominations received prior to the closing date (and not later
withdrawn) must be included in the notice of the relevant meeting.
Rule 4.1

Issue of New Equity Securities

Rule 4.1.1
Except as provided in Rule 4.1.2, an Issuer must only issue Equity Securities
with approval by Ordinary Resolution in accordance with Rule 4.2.1.
Rule 4.1.2
An Issuer may issue Equity Securities, without approval by Ordinary Resolution,
by way of:
(a) a pro-rata Rights offer, bonus issue or a Share Purchase Plan in
accordance with Rule 4.3 and, if applicable, Rule 4.4,
(b) an issue under an Issuer’s 15% placement capacity in accordance with
Rule 4.5.1,
(c) an issue to Employees, in accordance with Rule 4.6, or
(d) other issues for dividend reinvestment plans, director remuneration,
takeovers, amalgamation, conversions and Minimum Holdings in
accordance with Rules 4.7 to 4.9.
Rule 4.2.1 Shareholder approval for Issues by Ordinary Resolution
For the holders of Equity Securities to approve an issue of Equity Securities by
the Issuer, the precise terms and conditions of the issue must have been
approved by:

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(a) separate Ordinary Resolutions of each Class of Quoted Equity Securities
whose rights or entitlements could be affected, or
(b) if a Class of Quoted Equity Securities were issued on terms that the
holders would vote together with the holders of another Class or Classes
of Equity Securities on a resolution of the nature referred to in Rule
4.2.1(a), a single resolution of all such Classes of Equity Securities voting
together.
Rule 4.9

Issues relating to takeovers, conversions, minimum holdings and
amalgamations

Rule 4.9.1
An Issuer may issue Equity Securities if:
(a) the issue is in consideration of an offer made by the Issuer in accordance
with:
(i) the Takeovers Code or a scheme of arrangement under Part 15 of
the Companies Act 1993, or
(ii) the takeover regime of a jurisdiction other than New Zealand
which NZX considers provides a similar or greater level of
protection to the recipients of the offer as the Takeovers Code or
Appendix 3, and
the offer is made to all holders (other than the Issuer) of any Equity
Securities in any other entities Listed on the Main Board or on another
stock exchange, except if the other entity is an Associated Person of the
Issuer or of any Director of the Issuer,
(b) the issue of Equity Securities (
Security B
) is made on Conversion of any
Financial Product (
Security A
), and
(i) the terms of issue of Security A provided for the Conversion to
Security B and the issue of Security A was approved in the
manner set out in Rule 4.2.1 or Security A was issued in
accordance with any of Rules 4.3, 4.5.1, 4.6, 4.8 or 4.9.1(a)
(whether or not any of the Rules quoted applied to the issue of
Security A), or
(ii) the issue of Security B is approved in the manner set out in Rule
4.2.1, or Security B is issued in accordance with Rule 4.5.1 or
Rule 4.6,
(c) the issue is made to bring an existing holder’s holding up to a Minimum
Holding, or
(d) the issue is made under an arrangement, amalgamation or compromise
effected through Part 13 or Part 15 of the Companies Act 1993 or an
equivalent statutory regime in a jurisdiction other than New Zealand which
NZX considers is at least as useful to the recipients.

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Rule 4.14 Buy Backs and Redemption of Equity Securities
Rule 4.14.1 An Issuer may only acquire or redeem Equity Securities of that Issuer by:
(a) an acquisition effected through NZX’s order matching market or through
the order matching market of an Issuer’s Home Exchange,
(b) an acquisition effected in compliance with:
(i) section 60(1)(a) (read together with section 60(2)) of the
Companies Act 1993,
(ii) section 60(1)(b)(ii) (read together with section 61) of the
Companies Act 1993, and:
(A) not made from a Director, or an Associated Person of a
Director, of the Issuer, and
(B) not of a size which would cause the number of Equity
Securities of the same Class acquired under this Rule
4.14.1(b)(ii) either in the 12 months preceding the date of
the acquisition or since the issuer was listed, whichever is
earlier, to exceed 15% of the total number of Equity
Securities of the same Class on issue at the
commencement of that period,
(iii) section 61(7) of the Companies Act 1993, or
(iv) sections 110 or 118 of the Companies Act 1993, or other
applicable legislation, if required by a shareholder pursuant to
such sections or legislation,
(c) a redemption in compliance with section 69(1)(a) of the Companies Act
1993,
(d) an acquisition or redemption:
(i) approved in accordance with Rule 4.16.1,
(ii) of Equity Securities that were issued under Rule 4.6, or
(iii) from a holder who holds less than a Minimum Holding, or
(e) a redemption of Equity Securities issued in compliance with Rule 4.2.1 or
4.3, where the Issuer is bound or entitled to redeem those Equity
Securities pursuant to their terms of issue,
provided that for the purposes of Rule 4.14.1(b)(ii)(B):
(f) Financial Products which may convert to Quoted Equity Securities are
deemed to be of the same Class as the Quoted Equity Securities into
which they may convert, and
(g) the Financial Products referred to in paragraph (f) are deemed to be of
the same number as the Quoted Equity Securities to which they may
Convert, except that for the purpose of this calculation:

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(i) in relation to the conversion ratio or conversion price, any
reference to the market price (however described) of the
underlying Quoted Equity Securities will instead be to the Average
Market Price, and
(ii) any provisions for early Conversion at the option of a holder
exercisable in limited circumstances (such as due to an event of
default or change of control or similar) using a different formula or
method will be disregarded.
Rule 6.6 Lien and Forfeiture
Rule 6.6.1 An Issuer’s lien on Equity Securities and on dividends or other distributions from
time to time declared in respect of such Equity Securities will be restricted to one
in respect of:
(a) unpaid calls, instalments, premiums or other amounts, and any interest
payable on such amounts, relating to the specific Equity Securities, and
(b) any amount which the Issuer may be called upon to pay under any
legislation in respect of the specific Equity Securities, whether or not the
due date for payment has passed.
Rule 8.1.5 Except as expressly permitted by the Rules, no benefit or right attaching to a
Quoted Financial Product may be cancelled or varied by reason only of a transfer
of that Quoted Financial Product.