14 DECEMBER NEW ZEALAND GAZETTE

Determination G3: Yield to Maturity Method, applied to the MCCN is:

(i) not less than the lesser of:

(A) 5% p.a.; or

(B) half the annual coupon which the company issuing the Note would have had to pay on similarly secured borrowings of similar amount as at the date of issue; and

(ii) not more than the greater of:

(A) 15% p.a.; or

(B) twice the annual coupon which the company issuing the Note would have had to pay on similarly secured borrowings of similar amount as at the date of issue; and

taking into account the amount or amounts payable by the holder consequent upon issue and assuming that—

(iii) Coupon Interest Payments will be paid to the holder in accordance with the terms of the Note provided that if the Coupon Interest Payments are set in relation to a market interest rate indicator, the value of that indicator as at the issue date shall be assumed to apply for the term of the Note; and

(iv) the only payment (other than a coupon payment) made to the holder on the conversion of the Note is a cash payment equal to the issue price of the Note; and

(e) the Note is not part of another financial arrangement.

4. Principle

(1) A MCCN has both debt and equity components. It can be regarded alternatively as:

(a) a loan to a company with repayment in shares (debt component); or

(b) a forward purchase of shares (in which case the holder of the Note is buying a share of a business and has equity in it).

The accruals rules are not intended to deal with equity, and therefore classify a share (equity in a business) as an excepted financial arrangement (see section OB 1).

(2) As a MCCN has this dual character, when calculating income/expenditure in relation to the Note it is first necessary to separate the debt and equity components of the Note.

(3) This determination specifies that, apart from the Coupon Interest Payments and amounts attributed to those payments by this determination, all amounts relate to the underlying shares (equity component), and will not be dealt with under the accruals rules when calculating assessable income.

(4) Income and expenditure in respect of the Note is calculated by pro-rata daily apportionment of the Coupon Interest Payment to income years.

(5) For the purposes of this determination it is assumed that any change in the market value of the shares between the issue date of the Note and the conversion into shares is due to the equity component. Therefore the difference in share price can be ignored when calculating income and expenditure for the purposes of the accruals rules.

(6) This approach may not be appropriate where the coupon interest rate is so much above or below market rates at the time of issue that it may represent an adjustment between the acquisition price of the MCCN and the expected value, as at the time of issue, of the underlying shares at the time of conversion. This determination has therefore been limited as set out in paragraph (d) of subclause 3 (2).

5. Interpretation

In this determination, unless the context otherwise requires:

(1) Expressions used, except expressions defined differently in this determination, have the same meaning as in section OB 1 of the Income Tax Act 1994, and where the Act gives a word or expression a particular meaning for the purposes of the qualified accruals rules, it shall have the same meaning as in the said qualified accruals rules.

(a) the “Act” means the Income Tax Act 1994 and the “Administration Act” means the Tax Administration Act 1994.

(b) “Coupon Interest Payment” means any amount payable on the Note by the Note issuer (borrower) to the Note holder (lender) other than payments relating to the redemption or conversion of the Note, and where any such amount that would have been payable to one person as holder, if the original terms on which the Note was issued had not been changed, is paid, as separate amounts, to more than one person, by reason that the terms of the Note have been changed and such persons were at different times holders in respect of the same Note, means the total of such separate amounts.

(c) “Income Year”

(i) when a taxpayer furnishes a return of income under section 38 of the Administration Act for an accounting year ending with a balance date other than the 31st day of March, “Income Year” means the period of twelve months ending on that balance date.

(ii) for any other person, “Income Year” means the year ending on the 31st day of March in which the income has been derived or expenditure has been incurred by that person.

(d) “Mandatory Conversion Convertible Note”, “MCCN”, and “Note”, mean any debenture, bond, certificate, promissory note, or other document issued by a company:

(i) which provides evidence that the company is indebted to the holder of the Note, whether for a loan to the company, money subscribed to the company or any other liability of the company (whether or not the amount for which the company has issued the Note is secured over the undertaking or any of the assets of the company); and

(ii) which provides for the debt to be discharged only by the issue of shares in the capital of any company. This may be pursuant to a trust deed.

(e) “Specified Mandatory Conversion Convertible Note”, and “Specified MCCN”, mean a Mandatory Conversion Convertible Note that is issued pursuant to the Trust Deed.

(f) “The Trust Deed” means the deed entitled “Trust Deed Constituting Up To N Number of Mandatory Convertible Capital Notes” entered into between One Ltd (as issuer) and Trustee Limited (as trustee) and dated the Xth day of Month, Year, as amended from time to time, and including the amendments made in 1995 in anticipation of the amalgamation of One Ltd, Three Ltd, and Two Ltd.

(g) “Underlying Shares” in relation to a Note means the shares into which the Note is convertible, or in which it must be redeemed or paid.

(2) For convenience, words and phrases defined in this determination are indicated by initial capital letters, but the absence of a capital letter shall not alone imply that the word or phrase is used with a meaning different from that given by its definition.

6. Method

(1) Amounts to be included when calculating income or expenditure with regard to a Specified MCCN:

(a) in respect of income, gain or loss, or expenditure, and also of any other consideration receivable by the holder or