WAV/RULE: NZXR: Determination under Appendix 2 and Waiver

14 Jun 2010 5:56 pm

NZXR 14/06/2010 WAV/RULE

REL: 1756 HRS NZX Regulation

WAV/RULE: NZXR: Determination under Appendix 2 and Waiver

NZX Regulation Decision Dorchester Pacific Limited Determination under Appendix 2 and waiver from NZSX/NZDX Listing Rule 7.1.11

Background

1. Dorchester Pacific Limited ("DPC") is an Issuer with ordinary shares listed on the NZSX market. A wholly owned subsidiary of DPC, Dorchester Finance Limited ("DFL"), is an issuer of debenture stock ("Stock") and secured notes ("Notes") held by the public and currently subject to a moratorium.

2. DPC is currently in the process of a plan to reconstruct its capital ("Capital Reconstruction Plan"). Under the Capital Reconstruction Plan both holders of Stock ("Stockholders") and holders of Notes ("Noteholders") will exchange their securities for a combination of securities in DPC and/or cash ("Securities Exchange").

3. On 30 June 2010 a special meeting of Stockholders and Noteholders will vote on whether to approve the Capital Reconstruction Plan, and a separate special meeting of DPC shareholders (together the holders of securities in the Dorchester group of companies are the "Dorchester Securityholders")) will vote on whether to approve the Capital Reconstruction Plan. 4. The Capital Reconstruction will involve Stockholders exchanging their Stock for:

(a) approximately $20 million interest bearing secured notes issued by DPC ("Secured Notes"), which are intended to be Quoted on the NZDX market;

(b) approximately $36.6 million new shares in DPC ("Shares") of the same class already Quoted on the NZDX market;

(c) units in a property trust which will hold approximately $33 million of hotel property assets that are currently held by a subsidiary of DFL; and

(d) approximately $56.6 million of options to subscribe for DPC shares at $0.125 per share on 15 June 2013 ("Options"), which are intended to be Quoted on the NZDX market.

5. The Capital Reconstruction involves Noteholders exchanging their Notes for cash, or Shares, or a combination of cash and Shares.

6. DFL currently has 7,619 Stockholders. The expected allocation under the Capital Reconstruction Plan of the Secured Notes to Stockholders is as follows:

(a) Between $1 and $1,000 of Secured Notes - 39% of Stockholders;

(b) Between $1,001 and $5,000 of Secured Notes - 51% of Stockholders; and

(c) Between $5,001 and $200,000 of Secured Notes - 10% of Stockholders.

7. The expected distribution of Shares to Stockholders is as follows:

(a) Between 1 and 1,000 Shares - 18% of Stockholders;

(b) Between 1,001 and 5,000 Shares - 59% of Stockholders;

(c) Between 5,0001 and 300,000 Shares - 23% of Stockholders.

8. The distribution of the Options is expected to follow a similar pattern as the distribution of the Shares, as outlined in paragraph 7, above.

9. Under the expected allocation of Secured Notes, as outlined in paragraph 6 above, 90% of Stockholders will receive less than $5,000 principal amount of Secured Notes.

10. NZSX/NZDX Listing Rule ("Rule") 7.1.11 requires that the minimum subscription for securities must be a Minimum Holding. Appendix 2 of the Rules provides that the Minimum Holding of Secured Notes is a $5,000 principal amount, and a that Minimum Holding of Shares and Options is 2,000 securities.

Application 1 - Determination under Appendix 2(c)

11. DPC has approached NZX Markets Supervision ("NZXMS") seeking a determination under Appendix 2(c) of the Rules that the Minimum Holding for the purposes of the Secured Notes be $1,000.

12. DPC makes the following submissions in support of its application:

(a) It is appropriate to reduce the Minimum Holding of Secured Notes in this instance because the Secured Notes, Shares, and Options are being issued as part consideration for an exchange of existing securities rather than a subscription to the public at large, and because it would be impractical to require close to 90% of the holders of the Secured Notes to dispose of them immediately after issuing them.

(b) The lower Minimum Holding for Secured Notes may also enhance liquidity of trading in Secured Notes, which will be of benefit to the holders of Secured Notes.

(c) There are numerous precedents for NZX agreeing to allow a lower Minimum Holding than $5,000 for Debt Securities.

(d) The provisions of Appendix 2 are primarily for the benefit of Issuers, to ensure that the number of holders on the register are kept to a minimum. DPC is willing to bear the additional cost of maintaining its securities register that will result from determining the Minimum Holding to be $1,000.

Appendix 2(c)

13. The relevant parts of Appendix 2 provide:

Minimum Holdings at any time shall, unless otherwise determined by NZX, be as follows:

...

(c) In relation to Debt Securities, a holding with $5,000 principal amount. NZX Regulation Decision - Dorchester Pacific Limited Application for a determination under Appendix 2(c) of the NZSX Listing Rules

Decision - Application 1

14. On the basis that the information provided to NZXMS is full and accurate in all material respects, NZXMS grants DPC a determination under Appendix 2(c) that the Minimum Holding for the purposes of the Secured Notes is $1,000.

Reasons - Application 1

15. In coming to the decision to grant DPC a determination under Appendix 2(c), NZXMS has considered that:

(a) The Minimum Holding provisions are in the Listing Rules for the benefit of the Issuer, i.e. an Issuer can rely on the provisions to reduce the cost of running the registry, by keeping the number of security holders down. DPC has indicated that it is happy to bear the additional costs of having an additional number of Security holders on the Register.

(b) The determination will not disadvantage security holders. Rule 7.1.11 provides that the minimum subscription shall be no less than the Minimum Holding. By determining a lower level for the Minimum Holding, a smaller number security holders will be in the position upon allotment that the Issuer is able to compulsorily sell their holdings in accordance with Rule 8.5.1. Similarly, Rule 11.1.4(b) may not be relied upon where the proposed transferee would hold less than the $1,000 Minimum Holding.

(c) There is precedent for a waiver to reduce the Minimum Holding in relation to Debt Securities.

Application 2 - Waiver from Rule 7.1.11

16. DPC has approached NZXMS seeking a waiver from Rule 7.1.11 to allow the issue of the Securities under the Securities Exchange to Stockholders, where this would result in the issue of less than a Minimum Holding of the Securities.

17. DPC makes the following submissions in support of its application:

(a) The Capital Reconstruction Plan will not be able to proceed if a large proportion of Stock, Share and Option holders become ineligible to receive their Securities under the Securities Exchange, as a result of the technical requirements of Rule 7.1.11.

(b) Following completion of the Capital Reconstruction Plan, in due course, DPC would have the opportunity to invoke Rule 8.5.1 to require holders of Secured Notes, Shares and Options who hold less than the Minimum Holding to increase their holdings, or dispose of them, in accordance with the Rules.

(c) Without a waiver from Rule 7.1.11 the Capital Reconstruction Plan, as it is to be voted on by Dorchester Securityholders, will not be able to proceed. Rule 7.1.11

18. Rule 7.1.11 provides:

7.1.11 In any issue of Securities (other than a Rights issue or issue under Rule 7.3.11(e)), the minimum subscription by any person shall not be less than a Minimum Holding.

Decision - Application 2

19. On the basis that the information provided to NZXMS is full and accurate in all material respects, NZXMS grants DPC a waiver from Rule 7.1.11 to allow issues of Securities under the Securities Exchange, where the this would result in DPC issuing less than a Minimum Holding.

Reasons - Application 2

20. In coming to the decision to grant DPC a waiver from Rule 7.1.11, NZXMS has considered that:

(a) The policy underlying Rule 7.1.11 is to prevent the issue of small and unmarketable parcels of securities which would be difficult for security holders to deal with, and which would be expensive for Issuers to administer.

(b) The specific facts of this application warrant the granting of a waiver. The issue of securities under the Securities Exchange is not an new issue to the public for subscriptions, but a mechanism to effect the capital restructure of the Dorchester Group. Dorchester Securityholders will have the chance to vote on whether the Capital Reconstruction Plan should proceed. In making this decision, Dorchester Securityholders will be provided with all information required to make a fully informed decision, including their respective entitlements to securities, in the notices of meeting to be sent prior to the meetings. Without a waiver from Rule 7.1.11, the Capital Reconstruction Plan, as voted on by Dorchester Securityholders, will not be able to proceed.

(c) Following the completion of the Capital Reconstruction Plan, DPC will have the opportunity to invoke Rule 8.5.1 to reduce the Minimum Holdings of the Securities, and to account to small DPC security holders for the proceeds.

(d) DPC has indicated that it is happy to bear the additional cost of administering the additional security holders on its securities register.

Confidentiality

21. DPC has submitted that this application and the information contained within it are private and commercially sensitive, and relate to an incomplete proposal. DPC has requested that this decision be kept confidential pending an announcement of the full details of the Capital Reconstruction Plan.

22. NZXMS grants DPC's request, as it accords with Rules 1.11.2 and 1.11.4 and the footnotes to those Rules.

ENDS. End CA:00196082 For:NZXR Type:WAV/RULE Time:2010-06-14:17:56:46

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