1192 NEW ZEALAND GAZETTE No. 52

agreement, plan or understanding (whether enforceable or unenforceable) between TCNZ Finance and/or Telecom and any other person to provide a further return or further benefit to that Noteholder.

(g) Irrespective of any election by a Noteholder, TCNZ Finance may at its option and on a non-pro-rata basis purchase or redeem some or all of the Capital Notes for cash.

(h) If TCNZ Finance cannot redeem the Capital Notes for cash or Telecom Shares because it would, in the opinion of its directors, not be solvent if it did so, then the election date is reset for a period not exceeding 2 years. If TCNZ Finance is still unable to redeem the Capital Notes for the same reason, then the Trustee of the Capital Notes is entitled to apply to appoint a liquidator.

(i) If TCNZ Finance cannot redeem the Capital Notes for Telecom Shares (because Telecom cannot lawfully issue the shares, or the shares are no longer listed on the NZSE, or TCNZ Finance cannot lawfully subscribe for the shares) then the election date is reset for a period not exceeding 2 years. If TCNZ Finance is still unable to redeem the Capital Notes for Telecom Shares (for any of the stated reasons) then another election date is set, again for a period not exceeding 2 years.

(j) During the period between issue and the relevant election date, each Capital Note will bear interest at a prescribed fixed rate determined as at the time the issue is priced by reference to the relevant government stock yield rate and being at the time the issue is priced no more than 50 basis points above the rate at which TCNZ Finance could issue a similar volume of senior fixed rate bonds with a maturity equivalent to the term until the initial election date for redemption of that Capital Note and being no less than such senior fixed rate bond rate. Interest is payable 6-monthly. Unpaid interest bears interest itself and is compounded on each subsequent date for payment of interest.

(2) This determination does not deal with the spreading of accrual income or expenditure under the qualified accruals rules in relation to how those rules apply to the issuing and holding of the Capital Notes.

(3) For the avoidance of doubt, this determination also does not deal in any respect with the manner in which the number, or value, of Telecom Shares issued, in the event that any Capital Note is redeemed for Telecom Shares, is actually calculated. In this regard, reference should be made to Schedule 2 to the Capital Notes Trust Deed. (A copy of the Capital Notes Trust Deed is available for inspection on the public file at the Commercial Affairs Division, Ministry of Commerce, 47 Boulcott Street, Wellington, or at the registered office of TCNZ Finance, Telecom Networks House, 68 Jervois Quay, Wellington, or Registry Managers (New Zealand) Limited, Level 3, 277 Broadway, Newmarket, Auckland, or The Trustees Executors and Agency Company of New Zealand Limited, Trustees Executors House, 169 The Terrace, Wellington.)

4. Principle:

(1) The Capital Note is a hybrid financial arrangement which has a debt and an equity component. The equity component is the option available to TCNZ Finance to procure the issue of Telecom Shares to Noteholders in lieu of payment in cash of the Cash Redemption Amount.

(2) Any income, gain or loss, or expenditure that is solely attributable to an excepted financial arrangement is not included when calculating gross income or expenditure under the qualified accruals rules.

(3) The effect of this determination is that income and expenditure under the qualified accruals rules will be calculated, in respect of both the Noteholder of the Capital Note and TCNZ Finance, on the basis that only the difference between the value of the Telecom Shares received by the Noteholder and the Cash Redemption Amount is solely attributable to the excepted financial arrangement.

5. Interpretation:

In this determination (and the Explanation), unless the context otherwise requires—

Words and expressions used shall have the same meaning as in the Act, except that where there is a conflict between the meaning of an expression used in the qualified accruals rules as defined in section OZ 1 of the Act, and the meaning of the expression elsewhere in the Act, the expression shall have the meaning as in the said qualified accruals rules.

“the Act” means the Income Tax Act 1994.

“Capital Note” or “Capital Notes” means the capital note or capital notes issued by TCNZ Finance on the terms and conditions set out in Schedule 2 to the Capital Notes Trust Deed.

“Capital Notes Trust Deed” means the trust deed between TCNZ Finance and The Trustees Executors and Agency Company of New Zealand Limited dated 22 April 1997.

“Cash Redemption Amount”, in respect of Capital Notes to be redeemed by the issue of Telecom Shares, means the cash amount that, according to the terms of the Capital Notes, the Noteholder of those Capital Notes would receive upon the redemption for cash of the Capital Notes (such amount being the same as the aggregate of the “Redemption Amount” as defined in Schedule 2 to the Capital Notes Trust Deed for those Capital Notes).

“Coupon Interest Payment” or “Coupon Interest Payments” in respect of a Capital Note means any cash amount or amounts paid on the Capital Note by TCNZ Finance to or on behalf of the Noteholder, other than the Cash Redemption Amount.

“Noteholder or Noteholders” means a person or persons investing in a Capital Note or Capital Notes.

“TCNZ Finance” means TCNZ Finance Limited.

“Telecom” means Telecom Corporation of New Zealand Limited.

“Telecom Shares” means ordinary shares issued by Telecom.

6. Method:

(1) Where any Capital Notes are converted into, redeemed or paid by the issue or delivery of Telecom Shares, the income, gain or loss, or expenditure that is solely attributable to the excepted financial arrangement component of such Capital Notes equals any amount by which the aggregate market value of the number of Telecom Shares issued on redemption of those Capital Notes (the number of shares issued being determined in the manner described at paragraph 3 (1) (e) of this determination) is above, or below, (as the case may be) the Cash Redemption Amount for those Capital Notes.

(2) For the purposes of the base price adjustment the amount of the acquisition price of each Capital Note shall be determined in accordance with the acquisition price definition as provided in section OB 1 of the Act with no part of the core acquisition price being attributable to the excepted financial arrangement component of that Capital Note.

(3) No part of the Coupon Interest Payments are