3310 NEW ZEALAND GAZETTE, No. 112 28 SEPTEMBER 2006

For the avoidance of doubt, if the subscriber does not sell the optional convertible notes to the institutional investors (or any
other relevant third party) within 93 days from the date of issue, subclause 6 (3) will apply.

Example D: From the perspective of the issuer

In Example A of this determination, on 1 April 2007 ABC Ltd raised $120 million from the market through the issue of 100
million $1 optional convertible notes with a term of five years. The optional convertible notes had an aggregate face value
(FV) of $100 million and paid a coupon rate of 5% per annum semi-annual and could be exercised for 100 million shares at
any time on or before 1 April 2012.

For the purposes of this example, the optional convertible notes described in Example A were widely held. On 1 April 2009, for
commercial reasons, all of the investors holding the optional convertible notes elected to exercise the warrant component of the
optional convertible notes and redeem the optional convertible notes for 100 million shares priced at $1.00 each.

It should be noted that the investors made their election to convert immediately following receipt of the coupon payment
(totalling $2.5 million) from ABC Ltd on 1 April 2009.

In accordance with section EW 29 of the Act, ABC Ltd is required to perform a base price adjustment.

The specified rate on 1 April 2009 for the three-year government bond was 5.81% per annum semi-annual (there had been no
change to the specified rate which applied when the optional convertible notes were originally issued on 1 April 2007.) The
PV of the aggregate bond component of the optional convertible notes on 1 April 2009 calculated in accordance with
Determination G10B or through the use of the standard market bond pricing formula is $97,799,112.60 and would be the
amount that ABC Ltd would be required to repay all of the holders of the optional convertible notes if the debt were
extinguished at that point.

The formula for a BPA is:

Consideration – income + expenditure + amount remitted

In accordance with subclause 6 (16), the amount of consideration referable to the financial arrangement (debt component of the
optional convertible notes) is:

(120,000,000 – 23,471,542.05) – (10,000,000 + 1,000,000 + 97,799,112.60) = (12,270,654.65)

Income is zero.

Expenditure is $11,630,581.16 and is the amount of financial arrangement expenditure calculated and deducted up to and
including 31 March 2009.

An extract from the table constructed in Example A has been replicated below to assist with the explanation of how the
financial arrangements expenditure amount has been calculated for the purpose of this BPA example.

There is no remission.
The BPA amount is therefore:

(12,270,654.65) – 0.00 + 11,630,581.16 + 0.00 = (640,073.49)

As this amount is a negative amount, it is financial arrangement expenditure for ABC Ltd.

A similar calculation must be undertaken to calculate each holder’s position if that person is subject to the financial
arrangements rules.

Signed on the 26th day of September 2006.

JIM GORDON, Policy Manager, Inland Revenue Department.

New Zealand Gazette, 22 November 1990, No. 204, page 4421
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Notice of Product Ruling

1. This is a notice of a product ruling made under section 91F of the Tax Administration Act 1994.

2. Product ruling No. 06/03 was issued on 7 July 2006. It relates to the provision of childcare services and various sections of the Income Tax Act 2004. It will appear in Inland Revenue’s Tax Information Bulletin, Vol. 18, No. 9, of October 2006.

3. A copy of the ruling may be obtained from 2 October 2006 by writing to the Manager, Field Liaison & Communication (Office of the Chief Tax Council), National Office, Inland Revenue, P.O. Box 2198, Wellington.

RANGI KRISHNAN, Manager, Field Liaison & Communication (Office of the Chief Tax Council).
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