28 SEPTEMBER 2006

NEW ZEALAND GAZETTE, No. 112

3303

Product:
Xigris

Active Ingredient:
Drotrecogin alfa (activated) 5mg

Dosage Form:
Powder for infusion

New Zealand Sponsor:
Eli Lilly and Company (NZ) Limited

Manufacturer:
DSM Pharmaceuticals Inc, Greenville, North Carolina, United States of America

Note: This consent is valid for two years from 19 September 2006.

Dated this 22nd day of September 2006.

GRAEME GILLESPIE, Acting Deputy Director-General, Public Health (pursuant to delegation given by the Minister of Health on 6 July 2001).

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Inland Revenue

Tax Administration Act 1994

Determination G22A: Optional Convertible Notes Denominated in New Zealand Dollars

This determination may be cited as “Determination G22A: Optional convertible notes denominated in New Zealand dollars”.

1. Explanation (which does not form part of the determination)

This determination gives the methods under the financial arrangements rules for calculating income, expenditure and the base price adjustment in relation to optional convertible notes that are denominated in New Zealand dollars.

An optional convertible note is a type of convertible note. A convertible note is a financial arrangement in the form of an instrument issued by a company (the issuer) to a person (the subscriber or a holder) who provides money to the company. A third party (a holder) may acquire a previous holder’s interest in the optional convertible note. Under a convertible note, the company is required to repay in cash or new shares in the issuer at a future date. A convertible note usually, although not necessarily, requires the company to pay interest during the period of the loan.

Optional convertible notes may grant either the company or the holder the right to elect to have the underlying debt settled for either cash or shares. This determination applies only to optional convertible notes under which the holder has a right to choose whether the repayment is to be in cash or new issuer shares.

This determination applies to an optional convertible note which contains either an option that can be exercised only at maturity (a European-style warrant) or allows the holder to exercise the warrant component during the optional convertible note’s term (an American-style warrant).

This determination applies to persons who become a party to the relevant optional convertible note on or after the date of this determination. It also applies to relevant optional convertible notes entered into before the date of this determination if the four-year “grandparenting” period provided for in sections 90 (6B) and 90AE of the Tax Administration Act 1994 has expired.

Those applying this determination must also have the following information by their first balance date following the date on which they become a party to the convertible note:

(a) The value of the consideration that the person holding the note may choose to accept (the cash redemption amount) in repayment instead of shares;

(b) the maturity date;

(c) the amounts and dates of payments to be made under the note by the holder;

(d) the dates of payments to be made under the note by the company; and

(e) the amounts of the payments, other than in repayment, to be made under the note by the company or the fixed relationship between the amount of each such payment and a market or indicator interest rate.

As this information is necessary to calculate the net present value of the debt component of the optional convertible note, this determination does not apply if the preceding information is not available by the appropriate time.

This determination recognises that an optional convertible note has both a debt component and an equity component; the equity component is the option (or warrant) to receive repayment of the debt in the form of new shares. This determination prescribes methods of separating the consideration under the convertible note into debt and equity components. The value of the debt component is used to calculate, for the purposes of the financial arrangements rules, financial arrangement income or expenditure during the term of the optional convertible note and the base price adjustment at the end of the term.

Generally, if the issuer and the subscriber are members of the same wholly owned group of companies or if the exercise of the option would result in there being no change in the ownership of the company, no value will be attributed to the optional convertible note’s equity component. Accordingly, all consideration paid by or to or on behalf of any person under the optional convertible note is attributed to the debt component. However, this rule does not apply in circumstances where the subscriber subsequently sells the notes to third parties within 93 days of acquisition.

If the value of the optional convertible note’s equity component is not zero, the equity component’s value (for both company and holder) is the amount by which the consideration paid by the holder exceeds the debt component’s present value. The present value is calculated as required by another determination by reference to the debt component’s cashflows. Cashflows consist of the following payments payable over the term of the optional convertible notes: