28 SEPTEMBER 2006

NEW ZEALAND GAZETTE, No. 112

3307

spreading method prescribed under sub-part EW of the Act to spread the consideration referable to the debt component of
the optional convertible note. In this context, the consideration referable to the debt component is the amount given by the
following formula:

For the issuer:

(consideration received – value of warrant) – consideration paid

with a negative amount being a deduction under the financial arrangements rules.

For the holder:

consideration received – (consideration paid – value of warrant)

with a positive amount being income under the financial arrangements rules.

13. In subclause (12):

(a) consideration received is the amount of consideration that is or will be received, and the amount of consideration that
has been received, by the person for and under the optional convertible note, including coupon interest receipts and
contingent fees, but ignoring non-contingent fees and treating any consideration received in repayment of the optional
convertible note as being equal to the cash redemption amount.

(b) consideration paid is the amount of consideration that is or will be payable, and the amount of consideration that has
been paid, by the person for and under the optional convertible note, including coupon interest payments and
contingent fees, but ignoring non-contingent fees and treating any consideration paid in repayment of the optional
convertible note as being equal to the cash redemption amount.

(c) value of warrant is the amount of consideration referable to the equity component as determined under subclause (3)
or (5) above

Secondary market

14. Where a holder sells or transfers an optional convertible note to another holder, the amount of the consideration provided or
    received that is solely attributable to the equity component of the optional convertible note is nil if:

(a) at the time of the sale or transfer the parties are members of the same wholly owned group of companies; or

(b) at the time of the sale or transfer the parties are beneficially owned or ultimately controlled by the same person; or

(c) under the arrangement, however structured, there would be no change to either of the voting interests or the market
value interests in the issuer if the share warrant were exercised both prior to and after the sale or transfer.

15. If subclause (14) does not apply, subclauses (5) to (12) will apply to determine the amount of consideration received by a
    holder and paid by the new holder that is referable to the debt component of the optional convertible note when the optional
    convertible note is sold or transferred.

Base price adjustment on maturity or exercise

16. For the purposes of the base price adjustment formula specified in section EW 31 of the Act, in determining the
    consideration that is paid by the issuer or paid to the holder:

(a) where the holder can exercise the share warrant only on the maturity date, any consideration paid in repayment of the
optional convertible note is treated as being equal to the cash redemption amount; or

(b) where the holder can exercise the share warrant at any time or at agreed times prior to the maturity date, and the share
warrant is exercised prior to the maturity date, any consideration paid in repayment of the optional convertible note is
treated as being equal to the present value of the optional convertible note’s debt component on the date the share
warrant is exercised.

17. In subclause (16) (b), the present value of the optional convertible note’s debt component is determined by applying the
    formula specified in subclause (7).

7. Examples

Example A: From the perspective of the issuer

On 1 April 2007, a publicly listed New Zealand company, ABC Ltd, raised $120 million from the market through the issue of
100 million $1 optional convertible notes with a five-year term. The optional convertible notes had an aggregate face value
(FV) of $100 million and paid a coupon rate of 5% per annum semi-annual.

At the time the optional convertible notes were issued, ABC Ltd had one billion shares on issue, which were trading at $1.00
each. The terms of the optional convertible notes provided that the holders could at any time over the term of the optional
convertible notes elect to redeem each optional convertible note for cash or for one share per note held. The exercise price on
the American-style warrant component of each optional convertible note was $1.00 per share. The total consideration paid by the
holders of the optional convertible notes was $120 million. ABC Ltd paid $1 million to a broker for the successful issue of
the optional convertible notes.

The five-year New Zealand government bond rate at the time of issue was 5.81%.

ABC Ltd has a 31 March balance date.

This determination requires that a bifurcation process be applied in order to calculate an amount that is solely attributable to
the warrant component of the optional convertible notes. The warrant is an excepted financial arrangement and is excluded
from calculation of financial arrangement income or expenditure under the financial arrangement rules.

To calculate the total amount of consideration attributed to the equity component of the optional convertible notes, subclause
6 (5) of this determination must be applied.

The consideration paid for the optional convertible notes is $120 million. Therefore y = $120 million.

The present value (PV) of the bond component applying subclause 6 (7) is $96,528,457.95. This amount may be calculated in
accordance with Determination G10B or through the use of the standard market bond pricing formula. The discount rate
applicable to this calculation is the specified rate in accordance with Determination G23. Therefore s = $96,528,457.95.

The aggregate amount attributable to the equity component of the optional convertible notes is therefore:

$120,000,000.00 – $96,528,457.95 = $23,471,542.05.