Important INFORMATION

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2 Important INFORMATION (The information in this section is required under the Securities Act 1978) Investment decisions are very important. They often have long-term consequences. Read all documents carefully. Ask questions. Seek advice before committing yourself. Choosing an investment When deciding whether to invest, consider carefully the answers to the following questions that can be found on the pages noted below: What sort of investment is this? 34 Who is involved in providing it for me? 35 How much do I pay? 38 What are the charges? 39 What returns will I get? 39 What are my risks? 42 You are strongly encouraged to request that statement. An investment adviser commits an offence if he or she does not provide you with a written disclosure statement within 5 working days of your request. You must make the request at the time the advice is given or within 1 month of receiving the advice. In addition If an investment adviser has any conviction for dishonesty or has been adjudged bankrupt, he or she must tell you this in writing; and If an investment adviser receives any money or assets on your behalf, he or she must tell you in writing the methods employed for this purpose. Tell the adviser what the purpose of your investment is. This is important because different investments are suitable for different purposes. Can the investment be altered? 51 How do I cash in my investment? 52 Who do I contact with enquiries about my investment? 53 Is there anyone to whom I can complain if I have problems with the investment? 53 What other information can I obtain about this investment? 54 In addition to the information set out in this document, important information can be found in the current registered prospectus for the investment. You are entitled to a copy of that prospectus on request. Choosing an investment adviser You have the right to request from any investment adviser a written disclosure statement stating his or her experience and qualifi cations to give advice. That document will tell you IMPORTANT NOTICE This is an investment statement for the purposes of the Securities Act and the Securities Regulations. The purpose of this Investment Statement is to provide certain key information that is likely to assist a prudent but non-expert person to decide whether or not to subscribe for Guaranteed Bonds under this Offer. Investors should note that other important information about the Guaranteed Bonds and this Offer is available in the Prospectus, the Trust Documents and the Guarantee. Copies of the Prospectus may be obtained, free of charge, from the Joint Lead Managers, the Organising Participant or Powerco (refer to the Directory on the inside back cover of this Investment Statement for contact details) or selected Primary Market Participants. Whether the adviser gives advice only about particular types of investments; and Whether the advice is limited to the investments offered by 1 or more particular fi nancial organisations; and Whether the adviser will receive a commission or other benefi t from advising you.

3 Contents Important Information and Important Notice IFC Highlights of this Offer 4 Key Offer and Application Information 5 Chairman s Letter 10 Main Terms of this Offer 11 Powerco Business Description 18 Board and Executive Management 20 Description of Guarantor 26 Summary of Guarantee 29 Answers to Important Questions 34 Summary of Trust Documents 55 Summary of Security Trust Deed 66 Special Terms Used 69 Glossary 73 Application Instructions 79 Application Form 81 Directory IBC

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6 Highlights of this Offer Highlights OF THIS OFFER The Guaranteed Bonds offer institutional investors and members of the public who are resident in New Zealand the opportunity to invest in bonds with a high credit rating to be issued by Powerco where the interest and principal payments on the Guaranteed Bonds will be guaranteed by the Guarantor, XL Capital Assurance Inc. Issuer 4 The issuer of the Guaranteed Bonds is Powerco. Powerco is a leading New Zealand energy distribution company. Credit Enhancement Powerco s obligations to make scheduled payments of interest and principal on the Guaranteed Bonds will be guaranteed on an unsecured basis by the Guarantor (XL Capital Assurance Inc.), a specialist fi nancial guaranty company based in the United States which is rated Aaa by Moody s rating agency and AAA by the Standard & Poor s and Fitch rating agencies as at the date of this Investment Statement. High Credit Rating The Guaranteed Bonds have been assigned a proposed rating of AAA by Standard & Poor s, the highest credit rating available from that agency. The fi nal rating will be issued once the Guarantee has been executed and the interest rates applicable to the Guaranteed Bonds have been set. Choice of Maturities The Guaranteed Bonds offer investors the choice of two Tranches: Seven Year Guaranteed Bonds which have a Maturity Date of 28 September 2012; and Twelve Year Guaranteed Bonds which have a Maturity Date of 28 September Payment of Interest Interest accrues on the Guaranteed Bonds on a daily basis from the Issue Date but with the period between Interest Payment Dates deemed to be exactly one quarter of a year. Interest payments will be made quarterly in arrears on each Interest Payment Date up to (and including) the Maturity Date of each Tranche. The Interest Payment Dates are 28 March, 28 June, 28 September and 28 December in each year, unless such date is not a Business Day, in which case payment will be made on the next Business Day. The initial Interest Payment Date is 28 December Minimum Interest Rate The interest rate payable on each Tranche of the Guaranteed Bonds will be fi xed at the rate set on the Interest Rate Set Date, which will be: in respect of Seven Year Guaranteed Bonds, the higher of: (a) a minimum interest rate (to be set by Powerco on the Minimum Rate Set Date); and (b) the aggregate of the Seven Year Swap Rate (on the Interest Rate Set Date) and a margin (to be set by Powerco on the Minimum Rate Set Date) as determined by Powerco; and in respect of Twelve Year Guaranteed Bonds, the higher of: (a) a minimum interest rate (to be set by Powerco on the Minimum Rate Set Date); and (b) the aggregate of the Twelve Year Swap Rate (on the Interest Rate Set Date) and a margin (to be set by Powerco on the Minimum Rate Set Date) as determined by Powerco. The minimum interest rate and the margin applicable to each Tranche will be determined by Powerco on the Minimum Rate Set Date and those details will be advised by announcement to NZX on that date. The fi nal determination by Powerco of the interest rate applicable to each Tranche will be made on the Interest Rate Set Date and it will be advised by announcement to NZX on that date. NZDX Listing Application has been made to NZX for permission to list the Guaranteed Bonds on the NZDX, and all the requirements of NZX relating thereto that can be complied with on or before the date of this Investment Statement have been duly complied with. However, NZX accepts no responsibility for any statement in this Investment Statement or the Prospectus. No Subscription Fees You pay no entry, management, or brokerage fees upon subscribing for the Guaranteed Bonds. Definitions The capitalised terms used in this Investment Statement have defi ned meanings that appear in the section entitled Special Terms Used on pages 69 to 72 and in the Glossary on pages 73 to 78. References in this Investment Statement to the Group include all subsidiaries of Powerco from time to time. Investors should be aware that none of Powerco s subsidiaries guarantee the Guaranteed Bonds as at the date of this Investment Statement.

7 Key Offer and APPLICATION INFORMATION Key Offer and Application Information Important Dates Minimum Rate Set Date 8 September 2005 Opening Date of this Offer 12 September 2005 Interest Rate Set Date 26 September 2005 Closing Time of this Offer 5.00pm on 26 September 2005* Issue Date of each Tranche of the Guaranteed Bonds 28 September 2005* Expected date of initial quotation and trading of each Tranche of the Guaranteed Bonds on the NZDX 30 September 2005* First Interest Payment Date of each Tranche of the Guaranteed Bonds 28 December 2005 Subsequent Interest Payment Dates of each Tranche of the Guaranteed Bonds 28 March, 28 June, 28 September and 28 December in each year up to (and including) the Maturity Date of each Tranche Maturity Date in respect of Seven Year Guaranteed Bonds 28 September 2012 Maturity Date in respect of Twelve Year Guaranteed Bonds 28 September 2017 * These dates may be changed at any time by Powerco. This Investment Statement, which is prepared as at and dated, relates to an offer of Guaranteed Bonds by Powerco with an aggregate Principal Amount of up to $180 million. Offer Period This Offer will be open from the Opening Date (12 September 2005) until the Closing Time (5.00pm on 26 September 2005), or such earlier date on which applications are received and accepted for the maximum aggregate Principal Amount of the Guaranteed Bonds. Powerco reserves the right to vary the Closing Time and extend the period of this Offer. This right may be exercised at any time and on more than one occasion. The exercise of this right may have a consequential effect on other dates listed in the table above. Purpose of this Offer Powerco is offering Guaranteed Bonds with an aggregate Principal Amount of up to $180 million to institutional investors and members of the public who are resident in New Zealand. The Guaranteed Bonds are offered as Seven Year Guaranteed Bonds (with a Maturity Date of 28 September 2012) and Twelve Year Guaranteed Bonds (with a Maturity Date of 28 September 2017). It is proposed that the proceeds of this Offer will be used to repay the $180 million bank debt facility made available to Powerco to enable Powerco to fi nance the redemption in February 2005 of the 5 year and 7 year redeemable bonds issued by Powerco in September

8 Key Offer and Application Information Type of Security The Guaranteed Bonds are secured, unsubordinated, interest-bearing debt obligations of Powerco. The obligations of the Guarantor under the Guarantee are not secured. Guarantee Powerco s obligations to make scheduled payments of interest and principal on the Guaranteed Bonds will be guaranteed on an unsecured basis by the Guarantor on the terms of the Guarantee. A summary of the principal provisions of the Guarantee is set out in the section of this Investment Statement entitled Summary of Guarantee on pages 29 to 31. The Guarantee will be executed by the Guarantor on or prior to the Issue Date. The allotment of the Guaranteed Bonds is subject to the execution of the Guarantee by the Guarantor on or prior to the Issue Date. The Guarantor is a monoline fi nancial guaranty insurance company incorporated under the laws of the State of New York. The Guarantor is an indirect wholly owned subsidiary of XL Capital Ltd, a Cayman Islands corporation. Through its subsidiaries, XL Capital Ltd is a leading provider of insurance and reinsurance coverages and fi nancial products to industrial, commercial and professional service fi rms, insurance companies and other enterprises on a worldwide basis. The common stock of XL Capital Ltd is publicly traded in the United States and listed on the New York Stock Exchange. Neither XL Capital Ltd nor any subsidiary of XL Capital Ltd (other than the Guarantor) guarantees the Guaranteed Bonds or is obligated to pay the debts of, or claims against, the Guarantor under the Guarantee. The Guarantor s insurance fi nancial strength is rated Aaa by Moody s and AAA by Standard & Poor s and Fitch as at the date of this Investment Statement. In addition, the Guarantor has obtained a fi nancial enhancement rating of AAA from Standard & Poor s as at the date of this Investment Statement. These ratings refl ect each rating agency s current assessment of the Guarantor s creditworthiness and claims-paying ability and the reinsurance arrangements entered into between the Guarantor and XLFA (described on page 26). Investors should refer to the cautionary statements regarding the credit ratings referred to in this Investment Statement set out below under the heading Credit Ratings. Additional information in respect of the operations and fi nancial position of the Guarantor is set out in the section of this Investment Statement entitled Description of Guarantor on pages 26 to 28. Credit Ratings Standard & Poor s has assigned Powerco a long-term credit rating of BBB, with a stable outlook, as at the date of this Investment Statement. When issued, the Guaranteed Bonds will be rated by Standard & Poor s as a separate debt security. Standard & Poor s has advised Powerco that it has assigned a proposed rating for the Guaranteed Bonds of AAA. The fi nal rating will be issued by Standard & Poor s once the Guarantee has been executed by the Guarantor and the interest rate applicable to each Tranche of the Guaranteed Bonds has been set. The fi nal rating will be advised by announcement to NZX once it has been advised to Powerco. The ratings described above are based on an analysis of information provided to Standard & Poor s by Powerco and are accurate only as at the date of this Investment Statement. The rating in relation to the Guaranteed Bonds is based solely on the issue of the Guarantee by the Guarantor. Any rating may be changed, superseded or withdrawn at any time. Investors should check the current ratings before applying for any Guaranteed Bonds. The ratings referred to in this Investment Statement (relating to Powerco, the Guaranteed Bonds and the Guarantor) are not statements of fact, and they are not recommendations to buy, sell or hold the Guaranteed Bonds, and all or any of the ratings are subject to revision or withdrawal at any time. Any downward revision or withdrawal of any of the ratings may have an adverse effect on the market price of the Guaranteed Bonds. Neither Powerco nor the Guarantor guarantees that any of the ratings will not be revised or withdrawn at any time prior to the Maturity Date of each Tranche of the Guaranteed Bonds. Further information in relation to the ratings referred to in this Investment Statement can be viewed on the Standard & Poor s website ( the Moody s website ( and the Fitch website ( tchratings.com). Minimum Application An application to subscribe for Guaranteed Bonds must be for Seven Year Guaranteed Bonds or Twelve Year Guaranteed Bonds with a minimum aggregate Principal Amount of $5,000 each, and thereafter in multiples of $1,000 in relation to each Tranche of Guaranteed Bonds applied for by an investor. 6

9 Key Offer and Application Information How to Apply for Guaranteed Bonds Before applying for Guaranteed Bonds, investors should read the section of this Investment Statement entitled Answers to Important Questions on pages 34 to 54. To apply for Guaranteed Bonds, investors must complete and lodge the Application Form, included at the back of this Investment Statement, in the manner set out under the heading How much do I pay? on pages 38 and 39 or in the section of this Investment Statement entitled Application Instructions on pages 79 and 80 and on the Application Form. Interest on Cash Subscription Moneys If an application on an Application Form is accepted by Powerco and Guaranteed Bonds are allotted to an applicant on the Issue Date, the applicant will receive interest on their Cash Subscription Moneys. Such interest will be calculated at the Offi cial Cash Rate and will be payable in respect of the period from (and including) the date on which the Cash Subscription Moneys were paid into Powerco s bank account to (but not including) the Issue Date on the basis of a 365 day year. Such interest (less any withholding tax payable) will be paid to the Bondholder named in the completed Application Form within 10 Business Days of the Issue Date. The Guarantee will not extend to payment of any such amounts of interest on Cash Subscription Moneys. Investors should note that if their application is rejected in whole or in part, they will not be entitled to receive interest on the Cash Subscription Moneys relating to the application (or portion thereof) so rejected. None of the Joint Lead Managers or the Organising Participant, nor any of their respective directors, offi cers, employees or agents, guarantees the payment of interest or principal or any other amounts due under the Guaranteed Bonds or the amount of returns which investors may receive as Bondholders. Investors should also refer to the other statements about the Joint Lead Managers and the Organising Participant set out on page 17. Contact Information Investors with questions about this Offer should contact the Joint Lead Managers at either of the telephone numbers listed in the Directory on the inside back cover of this Investment Statement. Additional Information A more detailed description of the terms of this Offer is set out in the section of this Investment Statement entitled Main Terms of this Offer on pages 11 to 17. There are risks which investors should understand before deciding to invest. The principal risk factors associated with Powerco and the Guaranteed Bonds are described on pages 42 to 51 (under the heading What are my risks? ). Investors should also refer to the Prospectus for further information regarding this Offer. Joint Lead Managers and Organising Participant The Joint Lead Managers of this Offer are ANZ Investment Bank and Westpac Institutional Bank. The Organising Participant of this Offer is Westpac Institutional Bank. Neither this Investment Statement nor the Prospectus constitutes a recommendation by any of the Joint Lead Managers or the Organising Participant to subscribe for, or purchase, any Guaranteed Bonds. To the maximum extent possible by law, none of the Joint Lead Managers or the Organising Participant, or their respective directors, offi cers, employees or agents, accepts any liability whatsoever for any loss arising from this Investment Statement, the Prospectus or their respective contents or otherwise arising in connection with this Offer. 7

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11 Rolling out IN HOBART GAS With the backbone of Tasmania s new gas distribution network already complete, Powerco is rolling out the first phase of Stage Two of the project which will make natural gas available to approximately 38,500 homes and businesses across the State. 9

12 Chairman s Letter Chairman s Letter Dear Investor On behalf of the Board of ( Powerco ), I am pleased to invite New Zealand resident investors to participate in this issue of up to $180 million of Powerco guaranteed bonds ( Guaranteed Bonds ). The Guaranteed Bonds are offered as seven year guaranteed bonds and twelve year guaranteed bonds and interest on the Guaranteed Bonds will be paid quarterly in arrears. Powerco s obligations to make scheduled payments of interest and principal on the Guaranteed Bonds will be guaranteed by XL Capital Assurance Inc. (the Guarantor ). In 2004 Powerco was acquired by BBI Networks (New Zealand) Limited (formerly Prime Infrastructure Networks (New Zealand) Limited), a subsidiary of Babcock & Brown Infrastructure (formerly Prime Infrastructure), an Australian based infrastructure investor with dual listings on the ASX (ASX Code: BBI) and NZSX (NZSX Code: BBI). Babcock & Brown Infrastructure is a leading diversifi ed listed infrastructure fund, owning and managing a high quality portfolio of infrastructure assets in Australia, New Zealand, the United Kingdom and Europe. Following Babcock & Brown Infrastructure s acquisition of Powerco, Powerco redeemed the fi ve year and seven year redeemable bonds issued by Powerco in September Powerco is offering the Guaranteed Bonds in order to refi nance the interim funding put in place at the time those bonds were redeemed. The Guarantor is a monoline fi nancial guaranty insurance company. It is rated Aaa by Moody s and AAA by Standard & Poor s and Fitch. On the basis of the guarantee from the Guarantor, the Guaranteed Bonds have been assigned a proposed rating of AAA by Standard & Poor s. Powerco has chosen to refi nance the funding put in place for redemption of the redeemable bonds through this issue of Guaranteed Bonds given the success of its previous issue of guaranteed bonds in 2004 and to provide an opportunity for institutional investors and other investors looking for high credit quality. The directors and management of Powerco consider this to be a long-term investment of high quality which offers the opportunity to invest in securities issued by a successful New Zealand based company with a sound track record of growth and profi tability. On behalf of the directors of Powerco, I commend this offer to you and welcome your participation. Steven Boulton Chairman 10

13 Main Terms of this Offer Main Terms OF THIS OFFER This Offer is made on the terms, and subject to the conditions, set out in this Investment Statement, the Prospectus and the Trust Documents. The following is a summary of the main terms of this Offer. Investors should also refer to the more detailed information in the Prospectus and in the other sections of this Investment Statement, including the sections entitled Answers to Important Questions (pages 34 to 54), Summary of Guarantee (pages 29 to 31), Summary of Trust Documents (pages 55 to 63) and Summary of Security Trust Deed (pages 66 to 68). This Offer Powerco is offering for subscription Guaranteed Bonds with a maximum aggregate Principal Amount of up to $180 million. The Guaranteed Bonds are secured, unsubordinated, interest-bearing debt obligations of Powerco. The obligations of the Guarantor under the Guarantee are not secured. The Guaranteed Bonds are to be issued in two Tranches Seven Year Guaranteed Bonds (having a Maturity Date of 28 September 2012) and Twelve Year Guaranteed Bonds (having a Maturity Date of 28 September 2017). Investors may apply for Seven Year Guaranteed Bonds, Twelve Year Guaranteed Bonds or a combination of the two Tranches of Guaranteed Bonds. Powerco reserves the right to refuse to accept any application (in whole or in part) without giving any reason. Powerco may decide not to accept any applications whatsoever in respect of a particular Tranche. Details of the minimum application amount for each Tranche of Guaranteed Bonds are set out on page 15 under the heading Minimum Application. The obligations of Powerco to make scheduled payments of interest and principal on the Guaranteed Bonds will be guaranteed on an unsecured basis by the Guarantor on the terms of the Guarantee. Information regarding the Guarantor and a summary of the principal provisions of the Guarantee is set out on pages 26 to 31. The Guarantee will be executed by the Guarantor on or prior to the Issue Date. The allotment of the Guaranteed Bonds is subject to the execution of the Guarantee by the Guarantor on or prior to the Issue Date. Issuer The issuer of the Guaranteed Bonds is Powerco. Information regarding Powerco s businesses is set out in the section of this Investment Statement entitled Powerco Business Description on pages 18 and 19 and in the Prospectus. Credit Ratings Standard & Poor s has assigned Powerco a long-term credit rating of BBB as at the date of this Investment Statement. Powerco s credit rating outlook from Standard & Poor s is stable. The Guaranteed Bonds will be rated by Standard & Poor s as a separate debt security. Standard & Poor s has advised Powerco that it has assigned a proposed rating for the Guaranteed Bonds of AAA. The fi nal rating will be issued by Standard & Poor s once the Guarantee has been executed by the Guarantor and the interest rate applicable to each Tranche of the Guaranteed Bonds has been set. The fi nal rating will be advised by announcement to NZX once it has been advised to Powerco. The Guarantor s insurance fi nancial strength is rated Aaa by Moody s and AAA by Standard & Poor s and Fitch as at the date of this Investment Statement. In addition, the Guarantor has obtained a fi nancial enhancement rating of AAA from Standard & Poor s as at the date of this Investment Statement. These ratings refl ect each rating agency s current assessment of the Guarantor s creditworthiness and claims-paying ability as well as the reinsurance arrangements entered into between the Guarantor and XLFA (described on page 26). Investors should refer to the cautionary statements regarding the credit ratings referred to in this Investment Statement as set out on page 6 under the heading Credit Ratings. Offer Period This Offer will be open from the Opening Date (12 September 2005) until the Closing Time (5.00pm on 26 September 2005), or such earlier date on which applications are received and accepted for the maximum aggregate Principal Amount of the Guaranteed Bonds. Powerco reserves the right to vary the Closing Time and extend the period of this Offer. Applications for Guaranteed Bonds must be received by the Registrar by the Closing Time. Powerco reserves the right to refuse to accept applications received by the Registrar after the Closing Time. Trustee The New Zealand Guardian Trust Company Limited is the Trustee for Bondholders under the Trust Documents. The Trustee does not guarantee the payment of interest or principal on the Guaranteed Bonds. 11

14 Main Terms of this Offer Trust Documents The Guaranteed Bonds will be constituted by, and issued pursuant to, the Trust Documents. The Trust Documents comprise the Master Trust Deed and the Supplemental Trust Deed. The Supplemental Trust Deed and (except to the extent that it is modifi ed by the Supplemental Trust Deed) the Master Trust Deed contain the conditions of the Guaranteed Bonds. The Supplemental Trust Deed and the Master Trust Deed are to be read together but, to the extent of any inconsistency, the terms of the Supplemental Trust Deed prevail over the terms of the Master Trust Deed. A summary of the principal provisions of the Trust Documents is set out in the section of this Investment Statement entitled Summary of Trust Documents on pages 55 to 63. Guarantee The Guarantor will give the Guarantee in favour of the Trustee (on behalf of the Bondholders). The form of the Guarantee has been agreed between Powerco, the Guarantor and the Trustee and the Guarantee will be executed by the Guarantor on or prior to the Issue Date. The procedure for making a demand under the Guarantee is described in the section of this Investment Statement entitled Summary of Guarantee on pages 29 to 31. Payments received in cleared funds by the Trustee from the Guarantor will be paid to the relevant Bondholders on whose behalf the claim was made pro rata to the amounts owing to them respectively and which were the subject of the claim under the Guarantee. The Guarantor s obligations under the Guarantee will be limited to making payments of interest and principal on the scheduled due date on the Guaranteed Bonds if Powerco has defaulted in making such payments. The Guarantee will not extend to default interest, any penalty or other sum payable by Powerco by reason of any Event of Default, any additional interest or other sum payable due to any deterioration in Powerco s creditworthiness, or any taxes, withholding or other charge imposed by any governmental authority (except as expressly provided in the Guarantee). Nor will the Guarantee extend to making payments of interest and principal on an accelerated basis. A summary of the principal provisions of the Guarantee is set out in the section of this Investment Statement entitled Summary of the Guarantee on pages 29 to 31. Guarantor s Control of Covenants and Enforcement The Trustee, on behalf of the Bondholders, has the benefi t of certain covenants from Powerco under the Trust Documents and the Security Trust Deed. However, as a consequence of the Guarantor providing a guarantee of Powerco s obligations to make scheduled payments of interest and principal on the Guaranteed Bonds, the Guarantor has been given certain control rights (described in more detail on page 30 under the heading Guarantor s Control of Covenants and Enforcement ) in relation to decisions and other actions which can be taken by the Trustee and the Bondholders under the Trust Documents and the Security Trust Deed. These rights continue unless a Guarantor Event of Default has occurred and is continuing unremedied. Except in respect of the Excluded Rights specified in the Trust Documents (described on page 55) and the exclusive rights of the Bondholders by an Extraordinary Resolution to appoint any replacement Trustee or to direct the Trustee to waive a default in the payment of the Principal Amount of, or any interest on, or other amounts due under, the Guaranteed Bonds, then unless a Guarantor Event of Default has occurred and is continuing unremedied, the Guarantor controls and therefore may direct the exercise of the rights and powers of the Trustee and the Bondholders (including in relation to the covenants under the Trust Documents and the Security Trust Deed) and the enforcement of all remedies under the Trust Documents and the Security Trust Deed. Accordingly, as long as no Guarantor Event of Default has occurred and is continuing unremedied, the Guarantor has the sole right if an Event of Default occurs to determine whether or not to require the Trustee to demand early repayment of the Guaranteed Bonds and to enforce the Trustee s rights (and therefore the rights of the Bondholders) under the Trust Documents and the Security Trust Deed, irrespective of the nature of the default that occurs. In addition, other than in relation to the Excluded Rights, if no Guarantor Event of Default has occurred and is continuing unremedied, then: the Guarantor will have the sole right to direct the Trustee in respect of all rights, powers and discretions under the Trust Documents (other than as set out immediately below), and the enforcement of all remedies granted to the Trustee or the Bondholders upon an Event of Default under the Trust Documents or an event of default under the Security Trust Deed; the Guarantor may direct the Trustee to waive any Event of Default under the Trust Documents, or any event of default under the Security Trust Deed and their respective 12

15 Main Terms of this Offer consequences, except that, as noted above, only the Bondholders by an Extraordinary Resolution may direct the Trustee to waive a default in the payment of the Principal Amount of, or any interest on, or other amounts due under, the Guaranteed Bonds; except in relation to a waiver of a payment default as set out immediately above and the appointment of any replacement Trustee on the resignation or removal of the Trustee, the Bondholders are unable to effect matters or take action by way of an Extraordinary Resolution and the Guarantor has absolute control over the exercise of such rights; the Trustee must act solely on the instructions of the Guarantor in exercising any right or discretion granted to it, or taking any action, under the Trust Documents; the Trustee must act solely on the instructions of the Guarantor in giving any instruction or direction to the Security Trustee under the Security Trust Deed; the Trustee will act solely in accordance with any direction from the Guarantor to preserve or enforce the Guaranteed Bonds or the Guarantor s rights or interests under the Trust Documents or the Security Trust Deed, including, upon the occurrence and continuation of an Event of Default under the Trust Documents or an event of default under the Security Trust Deed, a request to take any one or more of the following actions: declare the Guaranteed Bonds immediately due and payable; institute proceedings for the collection of all amounts then payable on the Guaranteed Bonds, or under the Trust Documents, enforce any judgment obtained and collect from Powerco moneys adjudged due; and take any appropriate action to protect and enforce the rights and remedies of the Guarantor under the Trust Documents and the Security Trust Deed; and all rights of the Trustee or the Bondholders to agree or not to agree to any requested waiver or modifi cation to or under the Trust Documents or the Security Trust Deed are to be exercised solely by the Guarantor to the exclusion of the Bondholders. The Guarantor is not required to have regard to the interests of the Bondholders when directing the Trustee and the Guarantor will have no liability to the Bondholders as a consequence of any direction given by the Guarantor to the Trustee. A description of the Excluded Rights is set out on page 55. Guarantor Event of Default The events that constitute a Guarantor Event of Default are set out in the description of that term in the Glossary. In simple terms, a Guarantor Event of Default occurs if: the Guarantor fails to pay any amount owing by it under the Guarantee within two Business Days of the due date under the Guarantee; the Guarantor is declared bankrupt or an insolvency offi cial is appointed for the Guarantor or for all or a material portion of its property in accordance with the laws of its jurisdiction of incorporation (the State of New York); or the Guarantor disclaims, disaffi rms or repudiates the Guarantee or alleges that the Guarantee does not constitute legal, valid and binding obligations of the Guarantor. A Guarantor Event of Default does not constitute an Event of Default for the purposes of the Guaranteed Bonds. Guarantee and Reimbursement Agreement Powerco and the Guarantor have entered into the Guarantee and Reimbursement Agreement which, in summary, provides that in the event that the Trustee (on behalf of the Bondholders) makes a claim under the Guarantee and the Guarantor has paid such claim, Powerco will reimburse the Guarantor for any such amount in accordance with the terms of the Guarantee and Reimbursement Agreement. No failure by Powerco to make payment to the Guarantor of any amount due by Powerco to the Guarantor under the Guarantee and Reimbursement Agreement in any way affects the obligations of the Guarantor to make payments under the Guarantee. However, any such failure would constitute an Event of Default for the purposes of the Guaranteed Bonds. Security Trust Deed Under the Security Trust Deed, the Guaranteeing Group has granted security interests, guarantees and other undertakings in favour of the Security Trustee. The Security Trustee receives and holds the benefi t of the security interests, guarantees and other undertakings on behalf of all Secured Benefi ciaries in respect of each Senior Secured Debt Facility and each Junior Secured Debt Facility. The Trustee, acting on behalf of the Bondholders, has been extended the benefi t of the Security Trust Deed in respect of the Guaranteed Bonds. Accordingly, for the purposes of the Security Trust Deed, the Trustee is a Secured Benefi ciary and the Trust Documents and each Guaranteed Bond is a Senior Secured Debt Facility. 13

16 Main Terms of this Offer The obligations of Powerco under the Guaranteed Bonds are therefore secured over all of the assets of, and guaranteed by, the Guaranteeing Group. As at the date of this Investment Statement the only member of the Guaranteeing Group is Powerco. Powerco has covenanted in the Security Trust Deed that it will ensure that it maintains suffi cient members of the Guaranteeing Group so that at all times the Total Tangible Assets and EBITDA respectively of the Guaranteeing Group is not less than 90% of the Total Tangible Assets and EBITDA respectively of the Group. Powerco has not given any other specifi c covenants in relation to the composition of the Guaranteeing Group. If any subsidiary of Powerco is required to accede to the Guaranteeing Group in order to maintain compliance with this covenant, Powerco will procure that the subsidiary will execute a joining deed in the form required under the Security Trust Deed. The Guaranteed Bonds also have the benefi t of, and are subject to, certain other covenants in the Security Trust Deed. These include restrictions on the disposal of assets, on dealings with other parties, including members of the BBIL Group, and on the payment of distributions. Unless a Guarantor Event of Default has occurred and is continuing unremedied, the Guarantor will have the right to control and direct the exercise of the Trustee s rights and powers in relation to the Security Trust Deed. Accordingly, the Trustee (on behalf of the Bondholders) and the Bondholders themselves will have no right to give any instruction or direction to the Security Trustee under the Security Trust Deed in accordance with its terms unless and until a Guarantor Event of Default has occurred and continues unremedied. A summary of the principal provisions of the Security Trust Deed, including a description of the covenants, is set out in the section of this Investment Statement entitled Summary of Security Trust Deed on pages 66 to 68. Guaranteeing Subsidiaries If a Guaranteeing Subsidiary accedes to the Security Trust Deed it will: guarantee to the Security Trustee and the Secured Benefi ciaries, the due and punctual payment of all indebtedness and other obligations owed by each other member of the Guaranteeing Group under any Secured Debt Facility (the Secured Debt ); grant security over all of its assets to secure due payment of the Secured Debt. Accordingly, upon accession of a Guaranteeing Subsidiary, the obligations of Powerco under the Guaranteed Bonds will be guaranteed by, and will be secured by a security interest over the personal property, and a charge over all other property, of that Guaranteeing Subsidiary. A Guaranteeing Subsidiary may be released from its obligations in the circumstances set out in the Security Trust Deed (as described further on page 68). A summary of the principal provisions of the Security Trust Deed is set out in the section of this Investment Statement entitled Summary of Security Trust Deed on pages 66 to 68. Substituted Obligor The Trustee may agree, without the consent of the Bondholders, to any wholly owned subsidiary of Powerco taking the place of Powerco (as a Substituted Obligor) under the Trust Documents and the Guarantee and Reimbursement Agreement in substitution for Powerco or a previous Substituted Obligor. Such substitution may only occur if a number of requirements are met, as set out in the Trust Documents (and described on pages 61 and 62). These requirements include the Guarantor providing its consent to the Substituted Obligor, unless a Guarantor Event of Default has occurred and is continuing unremedied. Further Issues of Debt Instruments Powerco or any of its wholly owned subsidiaries may, without the consent of Bondholders, issue further series of bonds, notes or other debt instruments on such terms and conditions as Powerco thinks fi t. Interest Rate From the Issue Date, interest will be payable in arrears on each Tranche of the Guaranteed Bonds at the fi xed rate set on the Interest Rate Set Date (26 September 2005), which will be: in respect of Seven Year Guaranteed Bonds, the higher of: (a) a minimum interest rate (to be set by Powerco on the Minimum Rate Set Date); and (b) the aggregate of the Seven Year Swap Rate (on the Interest Rate Set Date) and a margin (to be set by Powerco on the Minimum Rate Set Date) as determined by Powerco; and 14

17 Main Terms of this Offer in respect of Twelve Year Guaranteed Bonds, the higher of: (a) a minimum interest rate (to be set by Powerco on the Minimum Rate Set Date); and (b) the aggregate of the Twelve Year Swap Rate (on the Interest Rate Set Date) and a margin (to be set by Powerco on the Minimum Rate Set Date) as determined by Powerco. The minimum interest rate and the margin applicable to each Tranche will be determined by Powerco on the Minimum Rate Set Date and these details will be advised by announcement to NZX on that date. The fi nal determination by Powerco of the interest rate applicable to each Tranche will be made on the Interest Rate Set Date and it will be advised by announcement to NZX on that date. Payment of Interest Interest accrues on the Guaranteed Bonds on a daily basis from the Issue Date but with the period between Interest Payment Dates deemed to be exactly one quarter of a year. Interest payments will be made quarterly in arrears on each Interest Payment Date up to (and including) the Maturity Date of each Tranche. The Interest Payment Dates are 28 March, 28 June, 28 September and 28 December in each year, unless such date is not a Business Day, in which case payment will be made on the next Business Day. The initial Interest Payment Date in respect of the Guaranteed Bonds is 28 December Interest payments will be paid to the persons registered as holders of the Guaranteed Bonds on the Record Date for determining the entitlements to each interest payment. As at the date of this Investment Statement, the Record Date is 5.00pm on the tenth day before the relevant Interest Payment Date (or, if that day is not a Business Day, the preceding Business Day). Default Interest If any amount payable in respect of a Guaranteed Bond is not paid on its due date, interest will accrue on the unpaid amount at the rate determined by the Registrar to be the aggregate of 2% and the interest rate payable on the relevant Tranche of the Guaranteed Bonds compounded monthly from the due date until the unpaid amount is paid. The Guarantee will not extend to payment of any such amounts of default interest. Firm Allocations Guaranteed Bonds with an aggregate Principal Amount of up to $180 million (being 100% of the Principal Amount of the Guaranteed Bonds being offered) may be reserved for subscription by clients of the Joint Lead Managers, the Organising Participant or other Primary Market Participants and invited fi nancial institutions. The aggregate Principal Amount of Guaranteed Bonds to be so reserved will be determined by the Joint Lead Managers and will be notifi ed to investors by way of announcement to NZX on or before the Closing Time of this Offer. If this right is exercised in full, there will be no public pool of Guaranteed Bonds available to investors. Minimum Application An application to subscribe for Guaranteed Bonds must be for Seven Year Guaranteed Bonds or Twelve Year Guaranteed Bonds with a minimum aggregate Principal Amount of $5,000 each, and thereafter in multiples of $1,000 in relation to each Tranche of Guaranteed Bonds applied for by an investor. How to Apply for Guaranteed Bonds Applications for Guaranteed Bonds must be made on the Application Form included at the back of this Investment Statement. To apply: complete the Application Form in accordance with the application instructions set out on pages 79 and 80 and in the Application Form; and send the completed Application Form, together with payment of the full Principal Amount of the Guaranteed Bonds applied for, in time to be received by the Registrar no later than the Closing Time (5.00pm on 26 September 2005) (unless settlement is to occur on the Issue Date through the Austraclear New Zealand system). Any Austraclear settlements must be made through the Registrar. Completed Application Forms and, if you are to make payment by cheque, your cheque for the Guaranteed Bonds applied for should be sent to: c/- Computershare Investor Services Limited Level Hurstmere Road Takapuna Private Bag Auckland 15

18 Main Terms of this Offer Alternatively, applications may be lodged with any Primary Market Participant, the Organising Participant or the Joint Lead Managers (the Joint Lead Managers being a channel approved by NZX) in time to enable such applications to be forwarded to the Registrar before the Closing Time. The addresses of the Joint Lead Managers and the Organising Participant are set out below. Joint Lead Manager Westpac Institutional Bank Level Lambton Quay Wellington Attention: Michael Warrington Freephone: Facsimile: (04) Organising Participant Westpac Institutional Bank Level Quay Street Auckland Attention: Syndicate Desk Telephone: (09) Facsimile: (09) Joint Lead Manager ANZ Investment Bank Level 8 NBNZ House 1-9 Victoria Street P O Box 540 Wellington Attention: Debt Capital Markets Telephone: (04) Facsimile: (04) By signing (or authorising an agent or attorney to sign) the Application Form, an applicant irrevocably offers to subscribe for the Guaranteed Bonds on the terms set out in this Investment Statement, the Prospectus, the Trust Documents, the Security Trust Deed and the Application Form, notwithstanding any changes to the Closing Time or any other dates which Powerco is entitled to change. Powerco may, at its discretion, treat any Application Form as valid notwithstanding that it does not comply with the requirements above or is otherwise irregular. Powerco may also in its discretion rectify any errors in, or omissions from, any Application Form to enable that form to constitute a valid acceptance of this Offer and to facilitate registration of an investor as a Bondholder, including inserting or correcting details and fi lling in any blanks. An Application Form may be treated by Powerco as a valid application whether or not it is received before the Closing Time for this Offer. Payment of Issue Price The aggregate Principal Amount of the Guaranteed Bonds for which an application is made must be paid in full on application in time to be received by the Registrar before the Closing Time (5.00pm on 26 September 2005). Investors who are members of Austraclear New Zealand may settle their applications for the Guaranteed Bonds on the Issue Date through the Austraclear New Zealand system. Any Austraclear settlements must be made through the Registrar. Investors who are not members of Austraclear New Zealand or Austraclear members who wish to settle their applications prior to the Issue Date must pay for the Guaranteed Bonds applied for by a cheque delivered with the Application Form prior to the Closing Time or by another payment method approved by the Joint Lead Managers, the Organising Participant or other selected fi nancial institutions to which the Application Form is being delivered. Cheques must be drawn on a New Zealand registered bank, made payable to Powerco Guaranteed Bonds Offer, crossed Not Transferable and must not be post-dated. If an applicant s cheque is dishonoured, Powerco may cancel that applicant s allotment of Guaranteed Bonds and pursue any other remedies available to it at law. Applicants should note that if their application is rejected in whole or in part, they will not be entitled to receive interest on the Cash Subscription Moneys relating to the application (or portion thereof) so rejected. Refunds If the Guarantee is not executed by the Guarantor on or prior to the Issue Date, all application moneys will be refunded (without interest) as soon as practicable and, in any event, within five Business Days of the Issue Date. If Powerco accepts an application in part, the balance of the application moneys will be refunded (without interest) as soon as practicable and, in any event, within fi ve Business Days of the Issue Date. Any application money received in respect of an application which is not accepted by Powerco, whether because of late receipt or otherwise, will be returned to the applicant as soon as practicable after Powerco decides not to accept the application and, in any event, within fi ve Business Days of the Issue Date. No interest will be paid on any refund or application not accepted by Powerco. 16

19 Main Terms of this Offer Allotment Guaranteed Bonds will be allotted on the Issue Date following execution of the Guarantee and receipt and acceptance by Powerco of valid applications, accompanied by payments for immediate value. Powerco will advise successful applicants of the allotment to them of Guaranteed Bonds by issuing FASTER statements within fi ve Business Days of the Closing Time. Interest on the Guaranteed Bonds will accrue on a daily basis from the Issue Date. Powerco reserves the right to refuse to accept any application (in whole or in part) without giving a reason. Powerco may also decide not to accept any applications whatsoever in respect of a particular Tranche. Brokerage NZX has authorised Primary Market Participants to act in this Offer. No brokerage is payable by any applicant for Guaranteed Bonds under this Offer. Brokerage is payable by Powerco to the Joint Lead Managers at the rate of 0.75% of the aggregate Principal Amount of Guaranteed Bonds allotted by Powerco pursuant to this Offer. The Joint Lead Managers will pay brokerage at the rate of 0.75% to Primary Market Participants in respect of Guaranteed Bonds allotted by Powerco under valid applications bearing the stamp of that fi rm. Quotation Application has been made to NZX for permission to list the Guaranteed Bonds on the NZDX, and all the requirements of NZX relating thereto that can be complied with on or before the date of this Investment Statement have been duly complied with. However, NZX accepts no responsibility for any statement in this Investment Statement or the Prospectus. Offer to New Zealand Resident Investors Only This Offer is made only to New Zealand residents. No offer or invitation is made under this Investment Statement or in the Prospectus in any jurisdiction outside New Zealand. No person may offer, sell, or deliver any Guaranteed Bonds or distribute any document in relation to the Guaranteed Bonds (including this Investment Statement or the Prospectus) to any person outside New Zealand. Unless otherwise agreed with Powerco, any person or entity applying for Guaranteed Bonds is deemed to represent that they are not in a jurisdiction that prohibits the making of an offer of this kind and are not acting for a person in such a jurisdiction. Offer not Underwritten This Offer of Guaranteed Bonds is not underwritten. Joint Lead Managers and Organising Participant The Joint Lead Managers of this Offer are ANZ Investment Bank and Westpac Institutional Bank. The Organising Participant of this Offer is Westpac Institutional Bank. Neither this Investment Statement nor the Prospectus constitutes a recommendation by the Joint Lead Managers or the Organising Participant to subscribe for, or purchase, any Guaranteed Bonds. To the maximum extent possible by law, none of the Joint Lead Managers or the Organising Participant, or their respective directors, offi cers, employees or agents accepts any liability whatsoever for any loss arising from this Investment Statement, the Prospectus or its contents or otherwise arising in connection with this Offer. None of the Joint Lead Managers or the Organising Participant, nor any of their respective directors, offi cers, employees or agents, guarantees the payment of interest or principal or any other amounts due under the Guaranteed Bonds or the amount of returns which investors may receive as Bondholders. Each of the Joint Lead Managers and the Organising Participant and/or their respective related companies may from time to time provide various services to Powerco (whether as banker, lender, mortgagee, adviser, investor, underwriter, fund manager or other service provider) and as a result: the relevant Joint Lead Manager or the Organising Participant and/or their respective related companies may rank ahead of investors in the Guaranteed Bonds and may be entitled to take action to its advantage and to the disadvantage of the Bondholders; and proceeds received by Powerco from this Offer may be paid to any Joint Lead Manager or the Organising Participant and/or their respective related companies as compensation for services provided and/or pursuant to fi nancing facilities. Taxation Withholding tax may be deducted from interest payments made on the Guaranteed Bonds in accordance with New Zealand law. Further information about taxation is set out on pages 41 and 42 under the headings New Zealand Taxation and United States Taxation. 17

20 Powerco BUSINESS DESCRIPTION Powerco is a leading New Zealand energy distribution company with extensive electricity and natural gas distribution networks, an energy services contracting business, and a growing gas distribution network and gas retailing presence in Australia. Powerco, as the only member of the Guaranteeing Group as at the date of this Investment Statement, had total assets of approximately $1.76 billion (and total liabilities of approximately $1.24 billion) 1 as at 30 June Until December 2004, Powerco was a top 25 New Zealand listed company by market capitalisation. Following the successful takeover offer made by BBI Networks (NZ) in late 2004, Powerco is now a wholly owned subsidiary of BBI Networks (NZ). Further information on BBI Networks (NZ) and the takeover is set out on page 19 under the heading Babcock & Brown Infrastructure Takeover. Important Notice The business description that follows relates to the Group (which includes Powerco and all of its subsidiaries for the time being), as certain parts of Powerco s business (for example its Australian operations) are conducted by Powerco s wholly owned subsidiaries. However, investors should be aware that Powerco is the only member of the Guaranteeing Group as at the date of this Investment Statement. New Zealand Operations Powerco is one of only two energy sector companies that owns distribution networks that transport electricity and natural gas, on behalf of retail, commercial and industrial customers, in New Zealand. It is the country s second largest natural gas distribution company and the second largest electricity distribution company measured by consumer connections. Revenue from electricity and gas line charges contributed around 83% of Powerco s revenue in its 2005 fi nancial year and represented around 89% of its assets. Powerco connects approximately 402,868 consumers to its networks, representing 16% and 44% respectively of New Zealand s total electricity and natural gas connections. Powerco also owns an energy services contracting business, which provides design, construction and maintenance services to Powerco, other electricity and gas asset owners and property developers. Australian Operations Through its wholly owned subsidiary Powerco Tasmania Pty Limited, Powerco is developing a natural gas distribution network in Tasmania that is connecting industrial, commercial and residential customers. Stage 1 of the distribution network was completed in March It includes 100 kilometres of pipelines, fi ve pressure reduction stations and ancillary equipment to connect to Alinta Energy s transmission pipeline, and will serve more than 20 of Tasmania s major energy users. Currently, all Stage 1 networks are commissioned. Nine industrial customers are already taking gas representing an annual throughput in excess of 400TJ. Powerco and the Tasmanian State Government have entered into an agreement for development of Stage 2 of the natural gas distribution network which will involve a roll-out of the network to pass the front of the premises of approximately 38,500 commercial and residential customers between 2005 and The construction phase of Stage 2 of the project commenced in March Option One Pty Limited (a wholly owned subsidiary within the Group) is a licensed gas retailer in Tasmania, established to support the roll-out of gas in the State and to ensure a competitive retail framework. At present, Option One Pty Limited competes with Aurora Energy Limited in supplying gas to Tasmanian business and residential customers. Option One Pty Limited currently supplies over 300TJ per annum to several industrial customers on a fully hedged commodity basis, with a small element of booked capacity in terms of transmission charges. Company History Powerco has grown from the amalgamation and acquisition of various electricity and natural gas distribution businesses over the past 10 years. Powerco was formed in September 2000 as the result of a merger between Former Powerco (and its subsidiary Taranaki Energy Limited) and CentralPower. Former Powerco consisted of the electricity distribution networks of the following electricity supply authorities: New Plymouth Energy; Taranaki Electric Power Board; Egmont Electric Power Board; Wanganui-Rangitikei Electric Power Board; and Wairarapa Electric Power Board, together with Hawera Gas Company Limited and NGC Limited s Taranaki gas distribution network. CentralPower consisted of the electricity distribution networks of the following electricity supply authorities: Manawatu-Oroua Electric Power Board; Tararua Electric Power Board; and Palmerston North Municipal Electric Department As shown in the audited statement of fi nancial position of as at 30 June 2005.

21 Soon after the merger, Powerco listed on the NZSX. In July 2001 Powerco acquired gas distribution networks covering Porirua and the Hutt Valley from The Australian Gas Light Company. Then in September 2002 it acquired UnitedNetworks central gas network (covering Wellington, Hawke s Bay, Horowhenua and Manawatu) and part of its eastern electricity network (covering Thames Valley and western Bay of Plenty, including Tauranga). Powerco was selected by the Tasmanian State Government in December 2002 as the preferred developer of a natural gas distribution network in that State. This project is described above under the heading Australian Operations. On completion of Stage 1 of this project, the asset value of this network represented approximately 2% of Powerco s total assets. Babcock & Brown Infrastructure Takeover At the end of April 2004, the New Plymouth District Council and Taranaki Electricity Trust Incorporated decided to sell their aggregate 49.95% shareholdings in Powerco. In June 2004, Powerco Wanganui Trust Incorporated also decided to sell its shares in Powerco, meaning an aggregate of 53.64% was being sold. On 6 August 2004, the New Plymouth District Council, Taranaki Electricity Trust Incorporated and Powerco Wanganui Trust Incorporated agreed (subject to certain conditions) to sell their shares in Powerco to BBI Networks (NZ) and on 9 August 2004, BBI Networks (NZ) announced that a full takeover offer would be made under the Takeovers Code for all of the shares in Powerco and all of the Capital Bonds. When the takeover offer closed on 2 November 2004, acceptances were received for 95.29% of the issued shares of Powerco and 26.16% of the Capital Bonds on issue. Accordingly, under the compulsory acquisition provisions in the Takeovers Code, BBI Networks (NZ) compulsorily acquired the remaining Powerco shares and Capital Bonds and on 16 December 2004, Powerco became a wholly owned subsidiary of BBI Networks (NZ). Powerco s shares and the Capital Bonds ceased to be listed on the NZSX and NZDX respectively on 17 December BBI Networks (NZ) is a wholly owned subsidiary of BBI Networks (Aus), which is itself a wholly owned subsidiary of BBIL. BBIL and BBI Trust (an Australian managed investment scheme of which BBIS is the trustee and licensed responsible entity) together comprise Babcock & Brown Infrastructure (formerly Prime Infrastructure), which is a leading diversifi ed ASX and NZSX listed infrastructure fund, owning and managing a high quality portfolio of infrastructure assets. Babcock & Brown Infrastructure s foundation asset is the Dalrymple Bay Coal Terminal in Queensland and it also has interests in power generation assets in New South Wales, Victoria, South Australia, Western Australia, Spain and Germany, as well as gas distribution assets in the United Kingdom, Channel Island, Isle of Man and Portugal. Babcock & Brown Infrastructure intends to be at the forefront of the expected growth in privately funded infrastructure investment, both domestically and internationally, to meet the needs of growing populations over coming years. Babcock & Brown Infrastructure also has access to Babcock & Brown s extensive global network to source new investment opportunities. Babcock & Brown is an international investment bank that has a proven capability in infrastructure investments and brings a high level of infrastructure and structuring-related experience to Babcock & Brown Infrastructure in sourcing, analysing and implementing investment opportunities. Babcock & Brown Infrastructure, through BBI Networks (NZ), brings this further experience and growth potential to the already successful Powerco model. Powerco s growth has in the past been, and will continue to be, successfully managed due to its rigorous acquisition evaluation methodologies and strict adherence to fi nancial policies, and to comprehensive planning and implementation of business integration programmes. None of BBI Networks (NZ), BBI Networks (Aus), BBIL, BBI Trust, Babcock & Brown or BBIS guarantees payment of any Principal Amount or interest on the Guaranteed Bonds. Core Business and Regular Cash Flow with Low Counterparty Risk Powerco s core business is owning, managing and operating electricity and natural gas networks, and its vision is to continue to be one of the leaders in the New Zealand electricity and natural gas distribution sectors. Powerco s monthly billing cycle for energy retailers delivers regular cash fl ow and counterparty risk is low. Powerco s largest customer is state-owned energy retailer Genesis Power, which contributes approximately 53% of Powerco s electricity and gas line revenues. Network Quality and Performance Energy distribution assets are generally low risk, capital intensive and long life. Powerco s distribution networks have all these qualities. The electricity and gas network assets have an average age of approximately 25 years and 20 years respectively and most assets are currently around half-way through their average design life. This situation is on par with other networks in New Zealand. Powerco has comprehensive asset management plans aimed at maintaining and extending asset life where possible. Capital and maintenance expenditure on the assets is stable at an average of $74 million per annum. Around 36% of capital expenditure is aimed at asset renewal activities and 64% relates to enhancements and extensions to the network. The key performance indicators for measuring the reliability of Powerco s electricity networks are the internationally recognised indicators of SAIDI, SAIFI and CAIDI, which measure respectively the total length of time the network was unavailable, how often the network was unavailable and how long each network interruption lasted on average during a particular period (with lower numeric outcomes being more desirable on these indicators). Excluding the one in 50+ year storm experienced in February 2004, Powerco s electricity network reliability is in the middle of the range of its New Zealand peers, but is considered good given its relatively low customer density. Historically, Powerco has achieved levels of network reliability that are superior to many of its comparable international peers. 19 Powerco Business Description

22 20 Board and EXECUTIVE MANAGEMENT

23 The Board The Board is responsible for setting the objectives of Powerco and the strategies for achieving these objectives. The Board also sets the policy framework of Powerco within which business is conducted, and monitors the ongoing performance of Powerco and its senior management. Steven Boulton (Chairman) Master Tech M nt, BBus, AFAIM, GAICD, CPAHRI Mr Boulton has been Chief Executive Offi cer of Babcock & Brown Infrastructure since 1 August Prior to that appointment, Mr Boulton had held the position of Chief Executive of Powerco since January 2000, having previously been Chief Executive of Allgas Energy Limited, a listed Australian natural gas and LPG utility company. Mr Boulton is a board member of the Electricity Networks Association and the Institute for the Study of Competition and Regulation. Mr Boulton has qualifi cations and a professional background in business management, human resources and technology management. He commenced his career as an electrical fi tter/mechanic, working through various management and executive levels in the energy sector in Australia. He has held executive positions in the electricity, gas and coal sectors, and has been employed in the energy industry since Nigel Barbour BCom/LLB, Barrister and Solicitor of the High Court of New Zealand Mr Barbour joined Powerco in October 2002 and is General Manager Commercial and Corporate. His portfolio of responsibilities includes: electricity and gas line pricing; revenue forecasting; customer relations management; gas and electricity marketing; corporate affairs; human resources; insurance; legal compliance; legal services; and property. In addition, Mr Barbour shares responsibility for electricity and gas industry regulation with Mr Broadhurst. Mr Barbour s professional training is in law and economics. Elanga Ekanayake FCA (SL), FCIS, CMA (AUS) Mr Ekanayake is Powerco s Chief Financial Offi cer and is a Fellow Chartered Accountant, a Fellow Chartered Secretary and a Certifi ed Management Accountant of Australia. He has been with Powerco or its predecessors since Before that Mr Ekanayake was a consultant accountant for several years with an Asian Development Bank project in Papua New Guinea. Jeff Kendrew MBA (Tech Mgmt), BEng, MIPENZ Mr Kendrew has been General Manager Assets and Development of Babcock & Brown Infrastructure since 1 August Prior to that appointment, Mr Kendrew held the position of Powerco s General Manager Corporate Development. Mr Kendrew was previously General Manager of Operations for Wairarapa Electricity and joined Powerco following the acquisition of Wairarapa Electricity in Mr Kendrew has a professional engineering background and has held management and engineering positions in various sectors of the energy industry over the past 16 years. Richard Krogh BEng (Hons), MIPENZ, Reg Eng Mr Krogh was appointed Chief Operating Offi cer of Powerco in August Prior to that appointment, he was Powerco s General Manager Network Assets. Mr Krogh is a professional engineer, having specialised in asset management and network planning in the electricity distribution industry. Mr Krogh has extensive experience in the economic operation of distribution systems, asset management and general management. Mr Krogh has held engineering, contract management and general management positions within the electricity industry since Jeff Pollock B.Acc, CA (Scotland) Mr Pollock is Chief Financial Offi cer of Babcock & Brown Infrastructure. Mr Pollock joined Babcock & Brown Infrastructure in January 2002, bringing extensive experience to the role. A qualifi ed accountant, he has previously worked in public practice for the international accounting fi rm, Ernst & Young, and in the fi nancial services industry. He has also worked as a senior manager at Price Waterhouse (now PricewaterhouseCoopers) in Brisbane and as a Director of the Queensland Government s Offi ce of Energy, where he primarily dealt with energy reform issues. 21

24 Board and EXECUTIVE MANAGEMENT Executive Management Richard Krogh Chief Operating Offi cer Mr Krogh is Chief Operating Offi cer of Powerco and is also an executive director on the Powerco Board. Please refer to page 21 for Mr Krogh s biography. Nigel Barbour General Manager Commercial and Corporate Mr Barbour is Powerco s General Manager Commercial and Corporate and is also an executive director on the Powerco Board. Please refer to page 21 for Mr Barbour s biography. Ted Broadhurst Corporate Risk Manager BSc (Hons), CEng, MIEE Mr Broadhurst has a professional engineering background. He has been with Powerco or its predecessors since 1974 in a number of senior management positions. Elanga Ekanayake Chief Financial Offi cer Mr Ekanayake is Chief Financial Offi cer of Powerco and is also an executive director on the Powerco Board. Please refer to page 21 for Mr Ekanayake s biography. Wayne Field General Manager Powerco Energy Services Diploma in Business Mr Field was appointed General Manager Powerco Energy Services in August Mr Field has the overall responsibility for the management of Powerco Energy Services Limited. Mr Field joined Powerco through the acquisition of Wairarapa Electricity in 1988, having been employed by the latter since 1976 and has 29 years experience in the electricity industry. During his tenure at Wairapapa Electricity, Mr Field rose to the position of Contract Manager, charged with overseeing internal and external contracts across New Zealand, quality control, health and safety and overseeing the management of staff. Following the acquisition of Wairarapa Electricity by Powerco, Mr Field was appointed Planning and Scheduling Manager for Energy Services. Mr Field was subsequently appointed Regional Manager of Powerco Energy Services Limited, responsible for the management of contracting operations in the lower and central North Island since Michael Whaley General Manager Network Assets BEng, MIPENZ Mr Whaley was appointed General Manager Network Assets in August Mr Whaley has responsibility for asset management and operation of Powerco s electricity and gas networks. Mr Whaley has extensive experience in the power industry. Prior to his appointment as General Manager Network Assets, Mr Whaley led Powerco s electricity planning team as Electricity Asset Strategy Manager overseeing preparation of concept designs for the company s capital works, schedules for asset maintenance, preparation of asset management plans, and technical standards. He previously worked at Maunsell, an engineering and management consultancy, carrying out a variety of power planning, asset valuation and capital expenditure assessment assignments both in New Zealand and internationally. Prior to that he led a team of engineers at GEC Alsthom in the United Kingdom, carrying out designs for High Voltage DC converter stations in India. 22

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28 Description of Guarantor Description OF GUARANTOR The Guarantor is XL Capital Assurance Inc. Introduction The following information has been provided by the Guarantor for inclusion in this Investment Statement and in the Prospectus. Investors should be aware that Powerco has not been able to independently verify the information in this section of this Investment Statement. However, the Guarantor has provided a representation to Powerco in the Guarantee and Reimbursement Agreement that the information in this section which has been provided by the Guarantor does not contain any material statement which is untrue or which would be deemed untrue (within the meaning of section 55 of the Securities Act). This representation is subject to certain limitations stated in the relevant provision of the Guarantee and Reimbursement Agreement. The Guarantor accepts no responsibility for the accuracy or completeness of this Investment Statement or the Prospectus or any other information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Guarantor and its affi liates set out in this section of this Investment Statement and the corresponding section of the Prospectus entitled Description of Guarantor. In addition, the Guarantor makes no representation regarding the Guaranteed Bonds or the advisability of investing in the Guaranteed Bonds. General The Guarantor is a monoline fi nancial guaranty insurance company incorporated under the laws of the State of New York. The Guarantor is currently licensed to do insurance business in, and is subject to the insurance regulation and supervision by, all 50 states in the United States, the District of Columbia, Puerto Rico, the US Virgin Islands and Singapore. The Guarantor is an indirect wholly owned subsidiary of XL Capital Ltd, a Cayman Islands corporation. Through its subsidiaries, XL Capital Ltd is a leading provider of insurance and reinsurance coverages and fi nancial products to industrial, commercial and professional service fi rms, insurance companies and other enterprises on a worldwide basis. The common stock of XL Capital Ltd is publicly traded in the United States and listed on the New York Stock Exchange (NYSE: XL). XL Capital Ltd does not guarantee the Guaranteed Bonds and it is not obligated to pay the debts of, or claims against, the Guarantor under the Guarantee. The Guarantor was formerly known as The London Assurance of America Inc. ( London ), which was incorporated on July 25, 1991 under the laws of the State of New York. On February 22, 2001, XL Reinsurance America Inc. ( XL Re ) acquired 100% of the stock of London. XL Re merged its former fi nancial guaranty subsidiary, known as XL Capital Assurance Inc. (formed September 13, 1999) with and into London, with London as the surviving entity. London immediately changed its name to XL Capital Assurance Inc. All previous business of London was 100% reinsured to Royal Indemnity Company, the previous owner at the time of acquisition. Reinsurance The Guarantor has entered into a facultative quota share reinsurance agreement with XL Financial Assurance Ltd ( XLFA ), an insurance company organised under the laws of Bermuda, and an affi liate of the Guarantor. Pursuant to this reinsurance agreement, the Guarantor expects to cede up to 90% of its business to XLFA. The Guarantor may also cede reinsurance to third parties on a transaction-specifi c basis, which cessions may be any or a combination of quota share, fi rst loss or excess of loss. Such reinsurance is used by the Guarantor as a risk management device and to comply with statutory and rating agency requirements and does not alter or limit the Guarantor s obligations in respect of the Guarantee. With respect to any transaction insured by the Guarantor, the percentage of risk ceded to XLFA may be less than 90% depending on certain factors including, without limitation, whether the Guarantor has obtained third party reinsurance covering the risk. As a result, there can be no assurance as to the percentage of the Guarantee reinsured by XLFA. 26

29 Description of Guarantor Based on the audited fi nancials of XLFA, as of December 31, 2004, XLFA had total assets, liabilities, redeemable preferred shares and shareholders equity of US$1,173,450,000, US$558,655,000, US$39,000,000 and US$575,795,000, respectively, determined in accordance with generally accepted accounting principles in the United States ( US GAAP ). XLFA s insurance fi nancial strength is rated Aaa by Moody s and AAA by Standard & Poor s and Fitch. In addition, XLFA has obtained a fi nancial enhancement rating of AAA from Standard & Poor s. The obligations of XLFA to the Guarantor under the reinsurance agreement described above are unconditionally guaranteed by XL Insurance (Bermuda) Ltd ( XLI ), a Bermuda company and one of the world s leading excess commercial insurers. XLI is an indirect wholly owned subsidiary of XL Capital Ltd. In addition to having an A+ (Negative Outlook) rating from A.M. Best, XLI s insurance fi nancial strength rating is Aa2 (Outlook Negative) by Moody s and AA- by Standard & Poor s and AA (Rating Watch Negative) by Fitch. The ratings of XLFA and XLI are not recommendations to buy, sell or hold securities, including the Guaranteed Bonds, and all or any of those ratings are subject to revision or withdrawal at any time. Notwithstanding the capital support provided to the Guarantor described in this section, the Trustee, on behalf of Bondholders, will have direct recourse against the Guarantor only, and neither XLFA nor XLI will be directly liable to the Trustee or Bondholders. Financial Strength and Financial Enhancement Ratings of the Guarantor The Guarantor s insurance fi nancial strength is rated Aaa by Moody s and AAA by Standard & Poor s and Fitch as at the date of this Investment Statement. In addition, the Guarantor has obtained a fi nancial enhancement rating of AAA from Standard & Poor s as at the date of this Investment Statement. These ratings refl ect each rating agency s current assessment of the Guarantor s creditworthiness and claims-paying ability as well as the reinsurance arrangements entered into between the Guarantor and XLFA as described above. The ratings referred to above are not recommendations to buy, sell or hold securities, including the Guaranteed Bonds, and all or any of the ratings are subject to revision or withdrawal at any time. Any downward revision or withdrawal of any of the ratings may have an adverse effect on the market price of the Guaranteed Bonds. The Guarantor does not guarantee the market price of the Guaranteed Bonds nor does it guarantee that the ratings of the Guaranteed Bonds, the Guarantor or any other person will not be revised or withdrawn at any time prior to the Maturity Date of each Tranche of the Guaranteed Bonds. Investors should refer to the cautionary statements regarding the credit ratings referred to in this Investment Statement as set out on page 6 under the heading Credit Ratings. Capitalisation of the Guarantor Based on the audited fi nancials of the Guarantor, as of December 31, 2004, the Guarantor had total assets, liabilities, and shareholder s equity of US$827,815,000, US$593,849,000, and US$233,966,000, respectively, determined in accordance with US GAAP. Based on the audited statutory fi nancial statements for the Guarantor as of December 31, 2004 fi led with the State of New York Insurance Department, the Guarantor has total admitted assets of US$341,937,000, total liabilities of US$143,494,000 and total capital and surplus of US$198,443,000 determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities ( SAP ). The amount of the net tangible assets of the Guarantor as extracted from the most recent audited fi nancial statements of the Guarantor (as at 31 December 2004) was US$222.4 million. Net tangible assets represents total assets, less any intangible assets including goodwill, less all liabilities. Investors should refer to the fi nancial statements, and the notes thereto, of the Guarantor and XLFA, included as exhibits to the periodic reports fi led with the United States Securities and Exchange Commission by XL Capital Ltd and may be reviewed at the EDGAR website maintained by the Securities and Exchange Commission ( shtml). Except for the fi nancial statements of the Guarantor and XLFA, no other information contained in XL Capital Ltd s reports fi led with the Securities and Exchange Commission is incorporated by reference. Copies of these fi nancial statements are also available upon request from Powerco at Level 2, Council Chambers, 84 Liardet Street, Private Bag 2061, New Plymouth. In addition, copies of the statutory quarterly and annual statements fi led by the Guarantor with the State of New York Insurance Department are available upon request to the State of New York Insurance Department. 27

30 Description of Guarantor Regulation of the Guarantor The Guarantor is regulated by the Superintendent of Insurance of the State of New York. In addition, the Guarantor is subject to regulation by the insurance laws and regulations of the other jurisdictions in which it is licensed. As a fi nancial guaranty insurance company licensed in the State of New York, the Guarantor is subject to Article 69 of the New York Insurance Law, which, among other things, limits the business of each insurer to fi nancial guaranty insurance and related lines, prescribes minimum standards of solvency, including minimum capital requirements, establishes contingency, loss and unearned premium reserve requirements, requires the maintenance of minimum surplus to policyholders and limits the aggregate amount of insurance which may be written and the maximum size of any single risk exposure which may be assumed. The Guarantor is also required to fi le detailed annual fi nancial statements with the State of New York Insurance Department and similar supervisory agencies in each of the other jurisdictions in which it is licensed. The extent of state insurance regulation and supervision varies by jurisdiction, but the State of New York and most other jurisdictions have laws and regulations prescribing permitted investments and governing the payment of dividends, transactions with affi liates, mergers, consolidations, acquisitions or sales of assets and incurrence of liabilities for borrowings. THE FINANCIAL GUARANTY INSURANCE POLICIES ISSUED BY THE GUARANTOR, INCLUDING THE GUARANTEE, ARE NOT COVERED BY THE PROPERTY/ CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. The principal executive offi ces of the Guarantor are located at 1221 Avenue of the Americas, New York, New York and its telephone number at this address is ( )

31 Summary of Guarantee Summary of GUARANTEE Introduction XL Capital Assurance Inc. (the Guarantor ) will, pursuant to the Guarantee, guarantee to the Trustee (as trustee for the Bondholders) Powerco s obligations to make scheduled payments of interest and principal on the Guaranteed Bonds. The form of the Guarantee has been agreed between Powerco, the Guarantor and the Trustee and the Guarantee will be executed by the Guarantor on or prior to the Issue Date. The allotment of Guaranteed Bonds is subject to the execution of the Guarantee by the Guarantor on or prior to the Issue Date. This section of this Investment Statement contains a summary of the principal provisions of the Guarantee. A copy of the agreed form of Guarantee is available for inspection at Powerco s registered offi ce at Level 2, Council Chambers, 84 Liardet Street, Private Bag 2061, New Plymouth. The Guarantor Information in relation to the Guarantor is set out in the section of this Investment Statement entitled Description of Guarantor on pages 26 to 28. Making Demand under the Guarantee Under the Trust Documents, if the Trustee has not received (for distribution to the Bondholders) a payment of interest or principal on the Guaranteed Bonds from Powerco by 12.00pm on the Business Day before the date on which the payment is required to be made to Bondholders, and no Guarantor Event of Default has occurred and is continuing unremedied, the Trustee must immediately make a demand under the Guarantee (on behalf of the Bondholders) by delivering a Payment Notice to the Guarantor in respect of the relevant amount. If a Guarantor Event of Default has occurred and is continuing unremedied, and the Trustee has not received (for distribution to the Bondholders) a payment of interest or principal on the Guaranteed Bonds from Powerco by 12.00pm on the date on which the payment is required to be made to Bondholders, the Trustee will still make a demand under the Guarantee (on behalf of the Bondholders) by delivering a Payment Notice to the Guarantor in respect of the relevant amount. A Payment Notice must be: in the form, and contain the information, set out in Exhibit A to the Guarantee; and accompanied by (if it is for principal) a security transfer form duly executed by the Trustee (on behalf of the Bondholders) in favour of the Guarantor in respect of the Guaranteed Bonds to which the Payment Notice relates. If any payment of interest or principal made by Powerco to a Bondholder is subsequently rescinded or avoided, as a result of the insolvency of Powerco, the Bondholder may be required to return that payment. Following the return of the payment by the Bondholder, the Trustee will deliver a Payment Notice (with specifi ed supporting documentation) to the Guarantor in the manner described above. Payment under the Guarantee Following receipt from the Trustee of an appropriately completed and duly executed Payment Notice and any required attachments: the Guarantor is required to make payment of the relevant guaranteed amount to the Trustee (for the Bondholders) by 2.00pm New York time on the later of: two Business Days following receipt by the Guarantor of the Payment Notice; and the Business Day on which the payment is due; and in the event of a payment of interest or principal made by Powerco to a Bondholder being avoided as a result of the insolvency of Powerco, the Guarantor is required to make payment of the avoided amount by 2.00pm New York time on the Business Day following receipt by the Guarantor of the Payment Notice and any required attachments. Upon the Guarantor depositing cleared funds to the account nominated by the Trustee in the relevant Payment Notice, the Trustee must immediately pay, or procure the payment of, the amount received to the relevant Bondholders on whose behalf the claim was made pro rata to the amounts owing to them respectively and which were the subject of the claim under the Guarantee. The obligations of the Guarantor with respect to the payment of the relevant guaranteed amount will be discharged upon deposit of that amount into the account nominated in the relevant Payment Notice. The Guarantor s obligations under the Guarantee will be limited to making payments of interest and principal on the scheduled due date on the Guaranteed Bonds if Powerco has defaulted in making such payments. The Guarantee will not extend to default interest, any penalty or other sum payable by Powerco by reason of any Event of Default, any additional interest or other sum payable due to any deterioration in Powerco s creditworthiness, or any taxes, withholding or other charge imposed by any governmental authority (except as expressly provided in the Guarantee). Nor will the Guarantee extend to making payments of interest and principal on an accelerated basis. 29

32 Summary of Guarantee A Payment Notice for non-payment of interest applies only to the amount due on the relevant Interest Payment Date and not to future amounts, for which further Payment Notices must be given if Powerco fails to make the relevant payment to the Trustee on the due date. Guarantee and Reimbursement Agreement Any payment of interest or principal on a Guaranteed Bond made with moneys received pursuant to the Guarantee will operate in satisfaction of the rights of the relevant Bondholder against Powerco. However, any such payment will not discharge Powerco in respect of its obligation to make the payment. Powerco and the Guarantor have entered into the Guarantee and Reimbursement Agreement which, in summary, provides that in the event that the Trustee (on behalf of the Bondholders) makes a claim under the Guarantee and the Guarantor has paid such claim, Powerco will reimburse the Guarantor for any such amount paid in accordance with the terms of the Guarantee and Reimbursement Agreement. Powerco has extended the benefi t of the Security Trust Deed to the Guarantor in respect of Powerco s obligations under the Guarantee and Reimbursement Agreement. Accordingly, for the purposes of the Security Trust Deed, the Guarantor is a Secured Benefi ciary and the Guarantee and Reimbursement Agreement is a Senior Secured Debt Facility. No failure by Powerco to make payment to the Guarantor of any amount due by Powerco to the Guarantor under the Guarantee and Reimbursement Agreement in any way affects the obligations of the Guarantor to make payments under the Guarantee. However, such failure would constitute an Event of Default under the Trust Documents and an event of default under the Security Trust Deed. Subrogation To the extent the Guarantor makes payment under the Guarantee on account of interest or principal on the Guaranteed Bonds held by a Bondholder, the Guarantor will be fully subrogated to the rights of that Bondholder to receive such interest or principal from Powerco. Guarantor s Control of Covenants and Enforcement Because the Guarantor is providing a guarantee of scheduled payments of interest and principal on the Guaranteed Bonds, it has been given certain control rights in relation to decisions and other actions which can be taken by the Trustee and the Bondholders under the Trust Documents and the Security Trust Deed. These rights continue unless a Guarantor Event of Default has occurred and is continuing unremedied. The events that constitute a Guarantor Event of Default are set out in the description of that term in the Glossary on page 76. In general terms, a Guarantor Event of Default occurs if the Guarantor fails to pay any amount under the Guarantee within two Business Days of the due date under the Guarantee, or if the Guarantor is declared bankrupt or an insolvency offi cial is appointed for the Guarantor in accordance with the laws of its jurisdiction of incorporation (the State of New York) or if the Guarantor disclaims, disaffi rms or repudiates the Guarantee or alleges that the Guarantee does not constitute legal, valid and binding obligations of the Guarantor. A Guarantor Event of Default does not constitute an Event of Default under the Trust Documents. While a Guarantor Event of Default is continuing unremedied, the Trustee s control rights will revert to the Trustee (on behalf of the Bondholders). If a Guarantor Event of Default subsequently ceases to continue or is remedied, the Guarantor will resume its control rights. The Trustee (on behalf of the Bondholders) has the benefi t of certain covenants from Powerco under the Trust Documents and the Security Trust Deed. However, with the exception of the Excluded Rights (set out on page 55) and the exclusive rights of Bondholders, by an Extraordinary Resolution, to appoint any replacement Trustee or to direct the Trustee to waive a default in the payment of the Principal Amount of, or any interest on, or other amounts due under, the Guaranteed Bonds, then unless a Guarantor Event of Default has occurred and is continuing unremedied, the Guarantor controls and therefore may direct the exercise of the rights and powers of the Trustee and the Bondholders (including in relation to such covenants under the Trust Documents and the Security Trust Deed) and the enforcement of all remedies under the Trust Documents and the Security Trust Deed. Accordingly, as long as no Guarantor Event of Default has occurred and is continuing unremedied, the Guarantor has the sole right if an Event of Default occurs to determine whether or not to require the Trustee to demand early repayment of the Guaranteed Bonds and to enforce the Trustee s rights (and therefore the rights of the Bondholders) under the Trust Documents and the Security Trust Deed, irrespective of the nature of the default that occurs. In addition, other than in relation to the Excluded Rights, if no Guarantor Event of Default has occurred and is continuing unremedied, then: the Guarantor will have the sole right to direct the Trustee in respect of all rights, powers and discretions 30

33 Summary of Guarantee under the Trust Documents (other than as set out in the bullet points below), and the enforcement of all remedies granted to the Trustee or the Bondholders upon an Event of Default under the Trust Documents or an event of default under the Security Trust Deed; the Guarantor may direct the Trustee to waive any Event of Default under the Trust Documents or any event of default under the Security Trust Deed and their respective consequences, except that, as noted above, only the Bondholders by an Extraordinary Resolution may direct the Trustee to waive a default in the payment of the Principal Amount of, or any interest on, or other amounts due under, the Guaranteed Bonds; except in relation to waiver of a payment default as set out immediately above, and the appointment of any replacement Trustee on the resignation or removal of the Trustee, the Bondholders are unable to effect matters or take action by way of an Extraordinary Resolution and the Guarantor has absolute control over the exercise of such rights; the Trustee must act solely on the instructions of the Guarantor in exercising any right or discretion granted to it, or taking any action, under the Trust Documents; the Trustee must act solely on the instructions of the Guarantor in giving any instruction or direction to the Security Trustee under the Security Trust Deed; the Trustee will act solely in accordance with any direction from the Guarantor to preserve or enforce the Guaranteed Bonds or the Guarantor's rights or interests under the Trust Documents or the Security Trust Deed, including, upon the occurrence and continuation of an Event of Default under the Trust Documents or an event of default under the Security Trust Deed, a request to take any one or more of the following actions: declare the Guaranteed Bonds immediately due and payable; institute proceedings for the collection of all amounts then payable on the Guaranteed Bonds, or under the Trust Documents, enforce any judgment obtained and collect from Powerco moneys adjudged due; and take any appropriate action to protect and enforce the rights and remedies of the Guarantor under the Trust Documents and the Security Trust Deed; and all rights of the Trustee and the Bondholders to agree or not to agree to any requested waiver or modifi cation to or under the Trust Documents or the Security Trust Deed are to be exercised solely by the Guarantor to the exclusion of Bondholders. The Guarantor is not required to have regard to the interests of the Bondholders when directing the Trustee and the Guarantor will have no liability to the Bondholders as a consequence of any direction given by the Guarantor to the Trustee. 31

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36 Answers to Important Questions Answers to IMPORTANT QUESTIONS The information in this section of this Investment Statement is provided in accordance with the requirements of Schedule 3D to the Securities Regulations. What sort of investment is this? Guaranteed Bonds Powerco is offering for subscription Guaranteed Bonds with an aggregate Principal Amount of up to $180 million. The Guaranteed Bonds are secured, unsubordinated, interest-bearing debt obligations of Powerco. The obligations of the Guarantor under the Guarantee are not secured. The Guaranteed Bonds will be issued in two Tranches: Seven Year Guaranteed Bonds which have a Maturity Date of 28 September 2012; and Twelve Year Guaranteed Bonds which have a Maturity Date of 28 September Investors will be able to nominate whether they wish to subscribe for Seven Year Guaranteed Bonds, Twelve Year Guaranteed Bonds or a combination of the two Tranches of Guaranteed Bonds at the time of application. Powerco reserves the right to refuse all, or any part, of any application without giving any reason. Powerco may also decide not to accept any applications whatsoever in respect of a particular Tranche. Details of the minimum application amount for each Tranche of Guaranteed Bonds are set out on page 15. The Principal Amount of a Guaranteed Bond is repayable on the Maturity Date of that Guaranteed Bond together with any interest that has accrued but is unpaid on that date. Guarantee The obligations of Powerco to make scheduled payments of interest and principal on the Guaranteed Bonds will be guaranteed on an unsecured basis by the Guarantor on the terms of the Guarantee. The Guarantee will be executed by the Guarantor on or prior to the Issue Date. The allotment of the Guaranteed Bonds is subject to the execution of the Guarantee by the Guarantor on or prior to the Issue Date. Trust Documents The Guaranteed Bonds will be constituted by, and issued pursuant to, the Master Trust Deed dated 16 February 2004 entered into between Powerco (as the issuer) and The New Zealand Guardian Trust Company Limited (as Trustee) and the Supplemental Trust Deed dated 2 September 2005 between those parties. A summary of the principal provisions of the Trust Documents is set out in the section of this Investment Statement entitled Summary of Trust Documents on pages 55 to 63. More detailed information in relation to the Trust Documents is set out in the Prospectus. Security Trust Deed For the purposes of the Security Trust Deed, the Trustee is a Secured Benefi ciary and the Trust Documents and each Guaranteed Bond is a Senior Secured Debt Facility. Accordingly, the obligations of Powerco under the Guaranteed Bonds are secured over all of the assets of, and guaranteed by, the Guaranteeing Group. As at the date of this Investment Statement, Powerco is the only member of the Guaranteeing Group. A summary of the principal provisions of the Security Trust Deed is set out in the section of this Investment Statement entitled Summary of Security Trust Deed on pages 66 to 68. Guarantor s Control of Covenants and Enforcement The Trustee (on behalf of the Bondholders) has the benefi t of certain covenants from Powerco under the Trust Documents and the Security Trust Deed. However, as a consequence of the Guarantor entering into the Guarantee, the Guarantor has been given certain control rights (described in more detail on page 30 under the heading Guarantor s Control of Covenants and Enforcement ) in relation to decisions and other actions which can be taken by the Trustee and the Bondholders under the Trust Documents and the Security Trust Deed. These rights continue unless a Guarantor Event of Default has occurred and is continuing unremedied. A more detailed description of these rights of the Guarantor is set out in the section of this Investment Statement entitled Summary of Trust Documents on pages 55 to 63. Interest Interest will be payable in arrears on each Tranche of the Guaranteed Bonds at the fi xed rate set on the Interest Rate Set Date (26 September 2005), which will be: in respect of Seven Year Guaranteed Bonds, the higher of: (a) a minimum interest rate (to be set by Powerco on the Minimum Rate Set Date); and (b) the aggregate of the Seven Year Swap Rate (on the Interest Rate Set Date) and a margin (to be set by Powerco on the Minimum Rate Set Date) as determined by Powerco; and in respect of Twelve Year Guaranteed Bonds, the higher of: (a) a minimum interest rate (to be set by Powerco on the Minimum Rate Set Date); and 34

37 Answers to Important Questions (b) the aggregate of the Twelve Year Swap Rate (on the Interest Rate Set Date) and a margin (to be set by Powerco on the Minimum Rate Set Date) as determined by Powerco. The fi nal determination by Powerco of the interest rates applicable to each Tranche of the Guaranteed Bonds will be advised to NZX on the Interest Rate Set Date. Interest accrues on the Guaranteed Bonds on a daily basis from the Issue Date but with the period between Interest Payment Dates deemed to be exactly one quarter of a year. Interest payments will be made quarterly in arrears on each Interest Payment Date up to (and including) the Maturity Date of each Tranche. The Interest Payment dates are 28 March, 28 June, 28 September and 28 December in each year, unless such date is not a Business Day, in which case payment will be made on the next Business Day. The initial Interest Payment Date in respect of the Guaranteed Bonds is 28 December Who is involved in providing it for me? Issuer ( Powerco ) is the issuer of the Guaranteed Bonds. Powerco can be contacted through its registered offi ce, which is located at Level 2, Council Chambers, 84 Liardet Street, Private Bag 2061, New Plymouth. Standard & Poor s has assigned Powerco a long-term credit rating of BBB, with a stable outlook, as at the date of this Investment Statement. The Trustee may agree, without the consent of the Bondholders, to any wholly owned subsidiary of Powerco taking the place of Powerco (as a Substituted Obligor) under the Trust Documents in substitution for Powerco or a previous Substituted Obligor. Such substitution may only occur if a number of requirements are met, as set out in the Trust Documents and summarised on page 61 and 62. Trustee The Trustee for the Guaranteed Bonds under the Trust Documents is The New Zealand Guardian Trust Company Limited. The New Zealand Guardian Trust Company Limited can be contacted at Level 7, Vero Centre, 48 Shortland Street, P O Box 1934, Auckland. The Trustee does not guarantee the Guaranteed Bonds. Guarantor Powerco s obligations to make scheduled payments of interest and principal on the Guaranteed Bonds will be guaranteed by XL Capital Assurance Inc. (the Guarantor ) on the terms of the Guarantee. The principal executive offi ces of the Guarantor are located at 1221 Avenue of the Americas, New York, New York 10020, United States. The Guarantor is a monoline fi nancial guaranty insurance company incorporated under the laws of the State of New York. The Guarantor is an indirect wholly owned subsidiary of XL Capital Ltd, a Cayman Islands corporation. Through its subsidiaries, XL Capital Ltd is a leading provider of insurance and reinsurance coverages and fi nancial products to industrial, commercial and professional service fi rms, insurance companies and other enterprises on a worldwide basis. The common stock of XL Capital Ltd is publicly traded in the United States and listed on the New York Stock Exchange. Neither XL Capital Ltd nor any subsidiary of XL Capital Ltd (other than the Guarantor) guarantees the Guaranteed Bonds or is obligated to pay the debts of, or claims against, the Guarantor under the Guarantee. The Guarantor s insurance fi nancial strength is rated Aaa by Moody s and AAA by Standard & Poor s and Fitch as at the date of this Investment Statement. In addition, the Guarantor has obtained a fi nancial enhancement rating of AAA from Standard & Poor s as at the date of this Investment Statement. These ratings refl ect each rating agency s current assessment of the Guarantor s creditworthiness and claims-paying ability as well as the reinsurance arrangements entered into between the Guarantor and XLFA (described on page 26). Investors should refer to the cautionary statements regarding the credit ratings referred to in this Investment Statement as set out on page 6 under the heading Credit Ratings. Additional information in respect of the operations and fi nancial position of the Guarantor is set out in the section of this Investment Statement entitled Description of Guarantor on pages 26 to 28. Security Trustee The Security Trustee under the Security Trust Deed is The New Zealand Guardian Trust Company Limited. The New Zealand Guardian Trust Company Limited can be contacted at Level 7, Vero Centre, 48 Shortland Street, P O Box 1934, Auckland. The Security Trustee does not guarantee the Guaranteed Bonds. Guaranteeing Subsidiaries As a Senior Secured Debt Facility under the Security Trust Deed, the Guaranteed Bonds have the benefi t of the security interests, guarantees and other undertakings granted by the Guaranteeing Group. As at the date of this Investment Statement, no subsidiaries of Powerco have acceded to the Guaranteeing Group, meaning there are no Guaranteeing Subsidiaries. Accordingly, as at the date of this Investment Statement the only member of the Guaranteeing Group is Powerco. 35

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39 Lighting up TAURANGA ELECTRICITY Tauranga is the fastest growing region in the North Island of New Zealand. Economic development in and around the city continues to impact positively on Powerco s electricity revenue. 37

40 Answers to Important Questions Powerco has covenanted in the Security Trust Deed that it will ensure that it maintains suffi cient members of the Guaranteeing Group so that at all times the Total Tangible Assets and EBITDA respectively of the Guaranteeing Group is not less than 90% of the Total Tangible Assets and EBITDA respectively of the Group. Powerco has not given any other specifi c covenants in relation to the composition of the Guaranteeing Group. If any subsidiary of Powerco is required to accede to the Guaranteeing Group in order to maintain compliance with this covenant, Powerco will procure that the subsidiary will execute a joining deed in the form required under the Security Trust Deed. Upon accession of a Guaranteeing Subsidiary, the obligations of Powerco and each other Guaranteeing Subsidiary (if any) under the Guaranteed Bonds will be guaranteed by, and will be secured over all of the assets of, that Guaranteeing Subsidiary. Business Activities of Powerco Powerco is a leading New Zealand energy distribution company. The principal activities of Powerco are the ownership and management of electricity and natural gas distribution networks in the North Island. Powerco also operates an energy services contracting business across its operational footprint as well as in Hawke s Bay, and Powerco is also developing a gas distribution network in Tasmania, Australia. Powerco has approximately 402,868 consumers connected to its networks. These consumers represent 16% of New Zealand s total electricity connections and 44% of the nation s total gas connections. Powerco (formerly Mergeco Limited) was incorporated on 23 March It has been carrying on its electricity and gas distribution activities since 1 September 2000 when the amalgamation of Powerco, Former Powerco (and its subsidiary Taranaki Energy Limited) and CentralPower became effective. A brief summary of Powerco s history and some background information on its predecessors and additional information in relation to Powerco s present business activities is contained in the section of this Investment Statement entitled Powerco Business Description on pages 18 and 19. How much do I pay? Issue Price Investors must pay the issue price of $1.00 for each Guaranteed Bond allotted to them. Applications An application to subscribe for Guaranteed Bonds must be for Seven Year Guaranteed Bonds or Twelve Year Guaranteed Bonds with a minimum aggregate Principal Amount of $5,000 each, and thereafter in multiples of $1,000 in relation to each Tranche of Guaranteed Bonds applied for by an investor. Consequently, if applicants wish to apply for a combination of Tranches of Guaranteed Bonds, they must apply for at least $5,000 of Guaranteed Bonds in each such Tranche and multiples of $1,000 in each Tranche thereafter. Applications for Guaranteed Bonds must be made on the Application Form included at the back of this Investment Statement and must be lodged with the Registrar (Computershare Investor Services Limited) at Level 2, 159 Hurstmere Road, Takapuna, Private Bag , Auckland before the Closing Time (5.00pm on 26 September 2005). Alternatively, applications may be lodged with any Primary Market Participant, the Organising Participant, or either of the Joint Lead Managers (the Joint Lead Managers being a channel approved by NZX) in time to enable such applications to be forwarded to the Registrar before the Closing Time. Powerco reserves the right to refuse to accept any application received by the Registrar after the Closing Time. Powerco also reserves the right to refuse any application or accept any application in part only without assigning a reason and Powerco may also decide not to accept any applications whatsoever in respect of a particular Tranche. Payment of Issue Price The aggregate Principal Amount of the Bonds for which an application is made must be paid in full on application in time to be received by the Registrar before the Closing Time (5.00pm on 26 September 2005). Investors who are members of Austraclear New Zealand may settle their applications for the Guaranteed Bonds on the Issue Date through the Austraclear New Zealand system. Any Austraclear settlements must be made through the Registrar. Investors who are not members of Austraclear New Zealand or Austraclear members who wish to settle their applications prior to the Issue Date must pay for the Guaranteed Bonds applied for by a cheque delivered with the Application Form prior to the Closing Time or by another payment method approved by the Joint Lead Managers, the Organising Participant or other selected fi nancial institutions to which the Application Form is being delivered. Cheques must be drawn on a New Zealand registered bank, made payable to Powerco Guaranteed Bonds Offer, crossed Not Transferable and must not be postdated. If an applicant s cheque is dishonoured, Powerco may cancel that applicant s allotment of Guaranteed Bonds and pursue any other remedies available to it at law. 38

41 Answers to Important Questions No interest will be paid on any refund or application not accepted by Powerco. Additional Information Further information on how to apply for Guaranteed Bonds is set out in the section of this Investment Statement entitled Application Instructions on pages 79 and 80 and on the Application Form. What are the charges? Investors are not required to pay any charges to Powerco, the Trustee, the Security Trustee, the Registrar, the Guarantor or any other person in relation to this Offer, other than the payment to Powerco of the aggregate Principal Amount of the Guaranteed Bonds allotted to them. Powerco will pay all costs and expenses associated with this Offer including brokerage, legal, accounting and other professional fees, the Trustee s charges, the fees of the Joint Lead Managers and the Organising Participant, the Guarantor s fee, NZX s fees in respect of the issue and quotation of the Guaranteed Bonds, the Registrar s charges, issue management fees, and printing, advertising and distribution costs. These costs and expenses are estimated to be approximately $5.1million, based on the issue of Guaranteed Bonds with an aggregate Principal Amount of $180 million. No brokerage is payable by any subscriber for Guaranteed Bonds under this Offer. Powerco has agreed to pay brokerage to the Joint Lead Managers on the allotment of Guaranteed Bonds under this Offer (described further on page 17). Bondholders may be required to pay brokerage if they sell their Guaranteed Bonds. What returns will I get? Bondholders will be entitled to receive interest on the Guaranteed Bonds in the manner described below. In addition, the Principal Amount of each Guaranteed Bond is repayable on the Maturity Date (28 September 2012 in respect of Seven Year Guaranteed Bonds and 28 September 2017 in respect of Twelve Year Guaranteed Bonds). Bondholders may also benefi t from any increase in the market price of Guaranteed Bonds if they sell their Guaranteed Bonds. Bondholders are entitled to sell their Guaranteed Bonds at any time subject to the terms of the Trust Documents and applicable securities laws and regulations. Additional information regarding a sale of Guaranteed Bonds is set out in the part of this section of this Investment Statement entitled How do I cash in my investment? on pages 52 and 53. It is not possible to quantify as at the date of this Investment Statement the exact amount of returns the Bondholders will receive, and therefore such amount cannot be promised by Powerco. Key factors determining returns The amount of any returns of the Guaranteed Bonds will depend upon a number of factors, including those referred to under the heading What are my risks? on pages 42 to 51 of this Investment Statement. The factors described in that section could reduce or eliminate the returns that may be derived from holding Guaranteed Bonds. The key factors that will determine the returns to Bondholders are: the fi nancial condition of Powerco (or any Substituted Obligor) and its ability to meet its obligations in respect of the Guaranteed Bonds; and the fi nancial condition of the Guarantor, and its ability to meet its obligations under the Guarantee. Investors will receive only some of the expected returns on the Guaranteed Bonds if Powerco fails to pay interest or principal on the Guaranteed Bonds and the Guarantor does not pay those amounts in accordance with the terms of the Guarantee. Investors will also receive only some of the expected returns on the Guaranteed Bonds if there is an Event of Default that results in the Guaranteed Bonds being repaid early. In addition, the amount of returns to Bondholders may be affected by: the rate of interest applicable to each Tranche of the Guaranteed Bonds; the limited extent to which the Trustee (on behalf of the Bondholders) can enforce the obligations of Powerco under the Trust Documents and the Security Trust Deed (noting that the Guarantor has been given certain control rights (described in more detail on page 30 under the heading Guarantor s Control of Covenants and Enforcement ) in relation to decisions and other actions which can be taken by the Trustee and the Bondholders under the Trust Documents and the Security Trust Deed, and those rights continue unless a Guarantor Event of Default has occurred and is continuing unremedied); Powerco and each Guaranteeing Subsidiary s performance of its obligations under the Security Trust Deed (if and when any subsidiary of Powerco accedes to the Security Trust Deed); the impact of market volatility or the level of market interest rates where Bondholders elect to transfer Guaranteed Bonds before maturity; 39

42 Answers to Important Questions any liability imposed on Bondholders under the Trust Documents pursuant to the indemnity granted by Bondholders to Powerco or the Registrar for any payment required to be made by Powerco or the Registrar in respect of tax payable by the relevant Bondholder in respect of any Guaranteed Bond; and each Bondholder s individual circumstances for tax purposes (refer to the information set out below under the headings New Zealand Taxation and United States Taxation ). Interest The interest rate payable on each Tranche of the Guaranteed Bonds will be fi xed at the rate set on the Interest Rate Set Date (26 September 2005). That interest rate will be: in respect of Seven Year Guaranteed Bonds, the higher of: (a) a minimum interest rate (to be set by Powerco on the Minimum Rate Set Date); and (b) the aggregate of the Seven Year Swap Rate (on the Interest Rate Set Date) and a margin (to be set by Powerco on the Minimum Rate Set Date) as determined by Powerco; and in respect of Twelve Year Guaranteed Bonds, the higher of: (a) a minimum interest rate (to be set by Powerco on the Minimum Rate Set Date); and (b) the aggregate of the Twelve Year Swap Rate (on the Interest Rate Set Date) and a margin (to be set by Powerco on the Minimum Rate Set Date) as determined by Powerco. The minimum interest rate and the margin applicable to each Tranche will be determined by Powerco on the Minimum Rate Set Date and those details will be advised by announcement to NZX on that date. The fi nal determination by Powerco of the interest rate applicable to each Tranche will be made on the Interest Rate Set Date and it will be advised by announcement to NZX on that date. Interest accrues on the Guaranteed Bonds on a daily basis from the Issue Date but with the period between Interest Payment Dates deemed to be exactly one quarter of a year. Interest payments will be made quarterly in arrears on each Interest Payment Date up to (and including) the Maturity Date of each Tranche. The Interest Payment Dates are 28 March, 28 June, 28 September and 28 December in each year, unless such date is not a Business Day, in which case payment will be made on the next Business Day. The initial Interest Payment Date in respect of the Guaranteed Bonds is 28 December Interest payments will be paid to the persons registered as holders of the Guaranteed Bonds on the Record Date for determining the entitlements to each interest payment. As at the date of this Investment Statement, the Record Date is 5.00pm on the tenth day before the relevant Interest Payment Date (or, if that day is not a Business Day, the preceding Business Day). If any amount payable in respect of a Guaranteed Bond is not paid on its due date, interest will accrue on the unpaid amount at the rate determined by the Registrar to be the aggregate of 2% and the interest rate payable on the relevant Tranche of the Guaranteed Bonds compounded monthly from the due date until the unpaid amount is paid. The Guarantee will not extend to payment of any such amounts of default interest. Interest on Cash Subscription Moneys If an application on an Application Form is accepted by Powerco and Guaranteed Bonds are allotted to an applicant on the Issue Date, the applicant will receive interest on their Cash Subscription Moneys. Such interest will be calculated at the Offi cial Cash Rate and will be payable in respect of the period from (and including) the date the Cash Subscription Moneys were paid into Powerco s bank account to (but not including) the Issue Date on the basis of a 365 day year. Such interest (less any withholding tax payable) will be paid to the Bondholder named in the completed Application Form within 10 Business Days of the Issue Date. The Guarantee will not extend to payment of any such amounts of interest on Cash Subscription Moneys. Guarantee Powerco s obligations to make scheduled payments of interest and principal on the Guaranteed Bonds will be guaranteed by the Guarantor (XL Capital Assurance Inc.) on the terms of the Guarantee. Additional information in respect of the Guarantor and the Guarantee is set out in the sections of this Investment Statement entitled Description of Guarantor and Summary of Guarantee on pages 26 to 28 and 29 to 31 respectively. The Guarantee (once executed) will be unconditional and it will not be secured by any mortgage or other charge. Guaranteeing Subsidiaries As a Senior Secured Debt Facility under the Security Trust Deed, the Guaranteed Bonds have the benefi t of the security interests, guarantees and other undertakings granted by the Guaranteeing Group. As at the date of this Investment Statement, no subsidiaries of Powerco have 40

43 Answers to Important Questions acceded to the Guaranteeing Group, meaning there are no Guaranteeing Subsidiaries. Accordingly, as at the date of this Investment Statement the only member of the Guaranteeing Group is Powerco. Powerco has covenanted in the Security Trust Deed that it will ensure that at all times it maintains suffi cient members of the Guaranteeing Group so that at all times the Total Tangible Assets and EBITDA respectively of the Guaranteeing Group is not less than 90% of the Total Tangible Assets and EBITDA respectively of the Group. Powerco has not given any other specifi c covenants in relation to the composition of the Guaranteeing Group. If any subsidiary of Powerco is required to accede to the Guaranteeing Group in order to maintain compliance with this covenant, Powerco will procure that the subsidiary will execute a joining deed in the form required under the Security Trust Deed. If a Guaranteeing Subsidiary accedes to the Security Trust Deed it will: guarantee to the Security Trustee and the Secured Benefi ciaries, the due and punctual payment of all indebtedness and other obligations owed by each other member of the Guaranteeing Group under any Secured Debt Facility (the Secured Debt ); grant security over all of its assets to secure due payment of the Secured Debt. Accordingly, upon accession of a Guaranteeing Subsidiary, the obligations of Powerco under the Guaranteed Bonds will be guaranteed by, and will be secured by a security interest over the personal property, and a charge of all other property, of that Guaranteeing Subsidiary. Unless a Guarantor Event of Default has occurred and is continuing unremedied, the Guarantor will have the right to control and direct the exercise of the Trustee s rights and powers in relation to the Security Trust Deed. Accordingly, the Trustee (on behalf of the Bondholders) and the Bondholders themselves will have no right to give any instruction or direction to the Security Trustee under the Security Trust Deed in accordance with its terms unless and until a Guarantor Event of Default has occurred and continues unremedied. A Guaranteeing Subsidiary may be released from its obligations in the circumstances set out in the Trust Documents (as described further on page 68). A summary of the principal provisions of the Security Trust Deed is set out in the section of this Investment Statement entitled Summary of Security Trust Deed on pages 66 to 68. Liability for Returns Powerco is the party legally liable to pay interest and principal on the Guaranteed Bonds. However, the obligations of Powerco to make scheduled payments of interest and principal on the Guaranteed Bonds will be guaranteed by the Guarantor pursuant to the Guarantee. Investors should also note that any wholly owned subsidiary of Powerco may, with the agreement of the Trustee but without any requirement to obtain the consent of the Bondholders, take the place of Powerco or a previous Substituted Obligor (as a Substituted Obligor) under the Trust Documents and the Guarantee and Reimbursement Agreement. If a Bondholder sells any of their Guaranteed Bonds, the purchaser of those Guaranteed Bonds will be the party legally liable to pay the Bondholder the sale price of those Guaranteed Bonds. None of Powerco s Directors, the Joint Lead Managers, the Organising Participant, the Trustee or the Security Trustee nor any of their respective directors, offi cers or employees, guarantees the payment of interest, principal or any other amounts due under the Guaranteed Bonds or the amount of any returns which investors may receive as Bondholders. New Zealand Taxation The Offer is made only to New Zealand residents. Therefore, the tax information provided below is limited in its application to New Zealand residents who are subject to New Zealand income tax. Should any Bondholder become a non-resident, or should a non-resident acquire any Guaranteed Bonds, the investor should immediately notify Powerco. The Guaranteed Bonds are fi nancial arrangements for the purposes of the Income Tax Act 2004 and are therefore subject to the fi nancial arangements rules. For Bondholders (other than natural persons who are taxed on a cash basis) the fi nancial arangements rules will require all income and expenditure from the Guaranteed Bonds to be accrued over their term. All interest will therefore be taxable on an accrual basis. Bondholders who are taxed on a cash basis are not required to accrue income and expenditure relating to the Guaranteed Bonds. Instead, they may account for any income, gain, expenditure or loss arising in respect of the Guaranteed Bonds in the income year it is realised. Whether or not a Bondholder is taxed on a cash basis will depend on, among other things, the value of all fi nancial arrangements held by that person. The repayment on maturity or sale of the Guaranteed Bonds will require the Bondholder to make a wrap up calculation (referred to as a base price adjustment) for the purposes of the fi nancial arangements rules. 41

44 Answers to Important Questions The calculation will include all consideration paid by the Bondholder and all consideration received by the Bondholder, including the amount paid on the issue of the Guaranteed Bonds, interest received, and the cash received on maturity or sale, as applicable. All amounts returned in prior years in relation to the Guaranteed Bonds (interest income) are adjusted in the base price adjustment. Resident withholding tax will be deducted by Powerco from interest paid to or credited to Bondholders unless a Bondholder provides a copy of a valid certifi cate of exemption to Powerco and Powerco is satisfi ed that no deduction is required. Resident withholding tax will be deducted at the following rates as applicable: where the Bondholder is not a company: 19.5% where the Bondholder provides an IRD number to Powerco and either elects that resident withholding tax be deducted at 19.5% or makes no election; 33% or 39% where the Bondholder provides an IRD number to Powerco and elects for resident withholding tax to be deducted at either 33% or 39%; and 39% where the Bondholder does not provide an IRD number to Powerco; and where the Bondholder is a company that does not hold the Guaranteed Bonds as trustee, resident withholding tax will be deducted at 33% or 39% where the company elects for resident withholding tax to be deducted at either 33% or 39%. Where no IRD number is provided, Powerco will deduct resident withholding tax at 39%. Non-resident withholding tax will be deducted by Powerco from interest paid to or applied for the benefi t of a Bondholder who is not a tax resident of New Zealand and who is not engaged in business in New Zealand through a fi xed establishment in New Zealand. Non-resident withholding tax on interest is currently levied at a rate of 15%, reducing to 10% under certain double tax agreements with New Zealand. No transactional taxes, such as stamp duties or goods and services tax, will be applicable to the issue, redemption or sale of the Guaranteed Bonds. United States Taxation In the event that Powerco has defaulted in any of its interest or principal payment obligations to Bondholders and Bondholders receive payment of interest or principal on the Guaranteed Bonds as a result of a payment made by the Guarantor under the Guarantee, the Guarantor may be required by the laws of the United States to make a deduction or withholding from any amount payable to Bondholders under the Guarantee. In that event, the Guarantor will grossup any payment made to Bondholders so that Bondholders receive the net amount which Bondholders would have received had no deduction or withholding been made. However, in certain circumstances, the Guarantor will not be required to gross-up any amount payable to Bondholders. Gross-up amounts will not be paid in respect of: any tax, assessment or other government charge to the extent it would not have been imposed but for the Trustee or the holder of any benefi cial interest in a Guaranteed Bond having some connection with the United States other than the mere holding of the Guaranteed Bonds or the benefi t of the Guarantee; any tax, assessment or other government charge to the extent it would not have been imposed but for the failure of the Trustee or the holder of any benefi cial interest in a Guaranteed Bond to provide the Guarantor with correct, complete and duly executed appropriate documentation required by the US Internal Revenue Service in order to avoid withholding, including as appropriate, US Internal Revenue Service Form W-8BEN, Form W- 8ECI, Form W-8EXP, Form W-8IMY or Form W-9 (or any other relevant documentation); any Guaranteed Bond presented for payment in the United States; or any Guaranteed Bond presented for payment more than 30 days after such guaranteed amount is due for payment, except to the extent that the relevant Bondholder would have been entitled to such additional amounts if it had presented or claimed payment on the last day of such period of 30 days. Important Disclaimer All references to New Zealand or United States taxation in this Investment Statement are of a general nature only under current legislation, and are not (and should not be construed as) legal or tax advice. Investors should consult their own taxation adviser regarding their tax residency and status or the effect of any relevant taxation legislation on an investment in the Guaranteed Bonds. What are my risks? Introduction There are a number of factors, both specifi c to Powerco and of a general nature, which may affect Powerco s future operating and fi nancial performance and the value of the Guaranteed Bonds. A number of these risk factors are listed below. Prospective 42

45 Answers to Important Questions investors should note that the list of risk factors may not be exhaustive, and should consider these risk factors in conjunction with other information disclosed in this Investment Statement and in the Prospectus. Each of the risks set out below could, if they eventuate, have a material adverse impact on Powerco s operating performance and profi ts and Powerco s ability to meet its obligations in connection with the Guaranteed Bonds. Prospective investors should specifi cally consider the factors in this section in order to appreciate fully the risks associated with an investment in the Guaranteed Bonds. Prospective investors should carefully consider these factors in light of their personal circumstances and seek professional advice from their stock broker, accountant, lawyer or other professional adviser before deciding whether to invest. Summary of Principal Risks The principal risks for Bondholders are that Powerco may not make timely payments of interest or principal on the Guaranteed Bonds and the Guarantor may, if required to do so, be unable to satisfy its obligations under the Guarantee. This may mean that: investors do not receive timely, or any, interest payments on the Guaranteed Bonds; and investors may be unable to recoup all or any of their original investment amount. This could happen for a number of reasons, including if: there is a material deterioration in Powerco s operating performance and, therefore, fi nancial performance; and there is a material deterioration in the fi nancial position of the Guarantor which means it is unable in whole or in part to meet its obligations under the Guarantee. In this situation, investors could receive none, or only some, of the expected returns or none or only some of the amount invested in the Guaranteed Bonds; or Powerco, any Guaranteeing Subsidiary (if and when any subsidiary of Powerco accedes to the Security Trust Deed) and the Guarantor are insolvent, are placed into receivership, administration or liquidation or are dissolved. In this situation, Bondholders could receive none, or only some, of the expected returns or none or only some of the amount invested in the Guaranteed Bonds. Bondholders may also be unable to recoup all of their original investment amount if: the price at which Bondholders are able to sell their Guaranteed Bonds is less than the amount they have paid for them due to interest rate movements or for other reasons; or Bondholders are unable to sell their Guaranteed Bonds due to lack of demand. The principal risk factors for investors to consider are described below in further detail. The risk factors are divided between risks specifi c to the Guarantee and the Guaranteed Bonds (set out on pages 43 and 44) and business risks in relation to Powerco (set out on pages 44 to 50). Risks specific to the Guarantee and the Guaranteed Bonds Payment Default The principal risk for Bondholders is that the Guarantor may, if required to do so, be unable to satisfy its obligations under the Guarantee. This risk is outlined briefl y further below. Powerco is obliged to make interest payments on the Guaranteed Bonds on the Interest Payment Dates and to repay the outstanding Principal Amount of each Tranche of the Guaranteed Bonds on the Maturity Date applicable to that Tranche. If Powerco defaults in making any payment due to Bondholders, the Guarantor has guaranteed to make scheduled payments of interest and principal on the Guaranteed Bonds. The principal risk associated with the Guarantee is that, following a default by Powerco, the Guarantor is insolvent or is otherwise fi nancially unable to meet its payment obligations under the Guarantee or, the Guarantee is not enforceable against the Guarantor. A legal opinion as to enforceability has been obtained from internal legal counsel of the Guarantor. Early Repayment of Bond Moneys and Enforcement The Trustee may not demand early repayment of the Guaranteed Bonds unless an Event of Default under the Trust Documents has occurred and it continues unremedied. Unless a Guarantor Event of Default has occurred and is continuing unremedied, the Trustee may only demand early repayment of the Guaranteed Bonds or enforce the security interests created under the Security Trust Deed upon the direction of the Guarantor. If, upon demand for early repayment being made, Powerco fails to repay all or some of the Bond Moneys and a claim is made under the Guarantee, the Guarantor has the sole right to determine whether to pay to Bondholders all Bond Moneys outstanding at that time or to make only scheduled payments of interest and principal on the Guaranteed Bonds. 43

46 Answers to Important Questions Limit on Guarantee The Guarantor s obligations under the Guarantee will be limited to making payments of interest and principal on the scheduled due date on the Guaranteed Bonds if Powerco has defaulted in making such payments (as described on page 29). The Guarantee will not extend to default interest, any penalty or other sum payable by Powerco by reason of any Event of Default, any additional interest or other sum payable due to any deterioration in Powerco s creditworthiness, or any taxes, withholding or other charge imposed by any governmental authority (except as expressly provided in the Guarantee). Nor will the Guarantee extend to making payments of interest and principal on an accelerated basis. Substituted Obligor Under the terms of the Trust Documents, Powerco may seek the Trustee s consent, without the consent of the Bondholders, to any wholly owned subsidiary of Powerco taking the place of Powerco (as a Substituted Obligor) under the Trust Documents and the Guarantee and Reimbursement Agreement, subject to certain requirements being met (the details of which are set out under the heading Substituted Obligor on page 61). The consent of the Guarantor to the Substituted Obligor will also be required unless a Guarantor Event of Default has occurred and is continuing unremedied. As a Substituted Obligor is not required to have a credit rating at least equivalent to Powerco s, there is a risk that the Substituted Obligor could be less creditworthy than Powerco. Merger/Acquisition Risk Under the terms of the Trust Documents, Powerco may amalgamate, merge or consolidate with another person if the resulting entity assumes the obligations of Powerco under the Guaranteed Bonds and Powerco has delivered to the Trustee a legal opinion to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms of the Trust Documents. As the resulting entity of any such amalgamation, merger or consolidation is not required to have a credit rating at least equivalent to Powerco s, there is a risk that it could be less creditworthy than Powerco. Further Issues of Debt Instruments Investors should also be aware that under the Trust Documents power is reserved by Powerco or any wholly owned subsidiary nominated by Powerco (without the consent of Bondholders) to create and issue additional Series of bonds, notes or other debt instruments from time to time which may rank ahead of, or equally with, the Guaranteed Bonds. Liquidity Risk Application has been made to NZX for permission to list the Guaranteed Bonds on the NZDX, and all the requirements of NZX relating thereto that can be complied with on or before the date of this Investment Statement have been duly complied with. However, NZX accepts no responsibility for any statement in this Investment Statement or in the Prospectus. The Directors of Powerco are of the opinion that a secondary trading market for the Guaranteed Bonds will develop over time. However, no assurance can be given that this will occur and a lack of frequent trading in the Guaranteed Bonds may make it diffi cult for Bondholders to sell their Guaranteed Bonds or increase the volatility of the market price of the Guaranteed Bonds. This may result in Bondholders receiving a market price for their Guaranteed Bonds that is less than the Principal Amount paid on subscription. Business Risks in relation to Powerco The ability of Powerco to meet its obligations in relation to the Guaranteed Bonds can be affected by factors that may affect the fi nancial performance or fi nancial position of Powerco. The principal factors that may affect the fi nancial performance and fi nancial position of Powerco are set out below. Regulatory Risk Electricity Distribution Business Revenue Requirement Regulation Powerco s electricity distribution business is subject to price path and quality thresholds. The price path threshold: for the period 8 August 2001 to 31 March 2004 applied in the form of no increase in average prices (above the lowest average prices) during this period; and for the period 1 April 2004 to 31 March 2009 applies in a CPI x form where Powerco s x is set at 2. Failure by an electricity lines company to adhere to either the price path or the service quality thresholds can lead to the Commerce Commission, after it has discharged various consultation obligations, imposing price controls on that company. Powerco breached both the price path threshold and the quality threshold for the regulatory period ending 31 March 2004 (19 other electricity distributors breached either or both of the thresholds). Neither of these breaches was planned or intended by Powerco and as a result they are more technical in nature, refl ective of the vagaries of uncontrollable circumstances in both rare and extreme weather (for instance 44

47 Answers to Important Questions the breach of the quality threshold was solely attributable to the rare and extreme storms of February 2004), demand/volume differences and the unpredictable costs across dissimilar periods. The Commerce Commission is currently investigating Powerco s and 13 other electricity distributors breaches for the regulatory period ending 31 March Powerco complied with both the price path threshold and the quality threshold for the regulatory period ending 31 March The imposition of price control in respect of Powerco s electricity distribution business could have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Access and Price Regulation The Government has established an Electricity Commission to regulate and govern the electricity industry, and to endeavour to provide assurance in relation to New Zealand s electricity supply in dry years. Under the Electricity Act 1992 and the Electricity and Gas Industries Bill, regulations may be made in relation to (amongst other things): the pricing methodology or methodologies that Powerco as an electricity distributor uses; the terms and conditions pursuant to which Powerco permits electricity retailers to use its electricity distribution networks; and the terms and conditions for connection of distributed generation to Powerco s electricity distribution networks and the price that Powerco can charge. It is not known as at the date of this Investment Statement what, if any, regulations made under the above legislation might affect Powerco, and what reforms may be implemented and what effect, if any, those reforms could have on Powerco. Depending on their application, any such changes could have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal repayment obligations in respect of the Guaranteed Bonds. Regulatory Risk Gas Distribution Business Early in the week starting 25 July 2005: (a) the Minister of Energy made a recommendation that Vector s and Powerco s gas pipeline services be subject to price control under Part V of the Commerce Act 1986; and (b) an Order in Council was made declaring those services to be controlled. The Order in Council was stipulated to come into force 28 days after the date of it being Gazetted (on 28 July 2005). The effect of the Order in Council coming into force is to prevent the controlled services being supplied from 25 August 2005 except on terms in accordance with: (a) an authorisation by the Commission (section 70(1)), including a provisional authorisation (section 71), or (b) an undertaking by the supplier accepted by the Commission (section 72). On 24 August 2005 the Commission issued a provisional authorisation (Commerce Commission Decision No. 555 dated 24 August 2005) setting out the terms on which Powerco and Vector are permitted to supply gas pipeline services from 25 August The provisional authorisation requires Powerco to ensure that its average price for controlled services as at 1 October 2005 be at least 9% lower than the average price charged at 30 June Powerco estimates that this equates to a reduction of Powerco s gas line revenue of approximately $3.0 million for the nine month period from 1 October 2005 to 30 June 2006 (based on gas line charges in force on 30 June 2005). The provisional authorisation remains in force until it is revoked by the Commission or is superseded by the making of a fi nal authorisation. Section 70C of the Commerce Act provides a means for the Commission (when making a fi nal authorisation) to require Powerco to make payments (including, refunds) to consumers, if for example, the fi nal authorisation requires that Powerco reduce its average price for controlled services by a percentage greater than 9%. Powerco and Vector fi led judicial review proceedings against the Commerce Commission in May 2005 and joined the Minister of Energy to these proceedings in August If successful these proceedings will result in the Order in Council (i.e. price control) being set aside. The fi nal authorisation in respect of Powerco s gas distribution business could have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Taxation Risk Powerco calculates tax depreciation using the market value (as at the date of amalgamation) of CentralPower and Former Powerco assets as at cost base. Powerco has received opinions and advice from specialist tax advisers and senior legal counsel specialising in commercial tax issues that support this treatment of the amalgamation. Powerco fi led an application with the Inland Revenue Department for a binding ruling on this issue. Powerco obtained a favourable binding ruling in relation to using the market value as the cost base of the CentralPower assets. 45

48 46

49 Keeping WELLINGTON WARM GAS Powerco s gas networks in Wellington, Porirua and Lower Hutt provide connections to some 58,000 homes and businesses. Residential developments in these areas continue to provide a steady stream of new connections. 47

50 Answers to Important Questions In relation to the depreciable cost base of assets acquired from Former Powerco, the Inland Revenue Department declined to rule in favour of Powerco s treatment of the market value of the assets of Former Powerco as the cost base of those assets for calculating tax depreciation. Powerco therefore withdrew the application for a binding ruling for the treatment of the assets of Former Powerco as a non-qualifying amalgamation. Powerco s specialist tax advisers and senior legal counsel disagree with the Inland Revenue Department s position and continue to support Powerco s treatment in relation to the Former Powerco assets. Powerco has fi led its 2001, 2002 and 2003 tax returns on the basis that Powerco s market value treatment is a legally valid treatment. If the Inland Revenue Department disallows this treatment, Powerco can challenge the disallowance. To the extent the use of the market value of the assets of Former Powerco as the depreciation cost base is unfavourably determined, further tax payments (potentially penalties and use of money interest) will be payable to the Inland Revenue Department in respect of the 2001 and 2002 tax year and Powerco will become a tax-paying entity sooner than originally expected. Following the acquisition of certain assets from UnitedNetworks in November 2002, Powerco s tax depreciation cost base has been increased signifi cantly. Given this increase and the favourable binding ruling for the non-qualifying amalgamation treatment of the CentralPower assets, the risk of a fi nal unfavourable determination in relation to the treatment of the assets of Former Powerco (and the consequent tax liability) is not expected to have any material adverse effect on Powerco s free cash fl ows. As at the date of this Investment Statement, Powerco is subject to a routine tax audit. Operating Risks The operation of gas and electricity networks may be adversely affected by many factors, such as the breakdown or failure of equipment or processes, labour disputes, industrial accidents and the need to comply with the directives of central and local government authorities. As with all energy network companies, Powerco s networks are exposed to the risks of natural disaster, including earthquakes and volcanic eruptions, and outcomes such as weather events and major man-made accidents. Although Powerco undertakes a variety of precautions to minimise the risk of any signifi cant operational problems affecting its networks, no assurance can be given that its networks will not be adversely affected by the occurrence of any of these factors. Insurance Risk Powerco covers the risk of damage to key items of plant, equipment and buildings with external insurance but, as is commonly the case for energy network companies, Powerco selfinsures the majority of its line and pipe assets. Therefore, a major natural disaster such as an earthquake could have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. In respect of some insured risks, Powerco may also carry large deductibles in the future. Energy Volume and Demand Risk Powerco s pricing structure contains both fi xed and variable components. Accordingly, revenue is dependent on the volume of electricity or gas transported and maximum demand. Further, Powerco offers to residential customers a low fi xed charge tariff option for residential electricity and gas customers. This pricing structure increases the risk of Powerco s revenues being adversely affected by variations in electricity and gas volumes and maximum demands, such as a result of electricity restrictions related to a hydro shortage in dry years. Volume demands and hence revenue can also vary based on temperature and other weather conditions. Energy Generation Powerco s electricity networks are reliant on suffi cient energy being available for supply and suffi cient transmission capacity being in place to deliver this energy to Powerco s networks. There is a risk of insuffi cient supply of electricity due to lack of investment in generation which could result in energy supply constraints into Powerco s electricity networks during peak demand periods (middle of winter and the height of summer). Such supply constraints could have a material adverse effect on Powerco s revenues. Transmission Powerco contracts with Transpower for transmission services and with the operators of electricity generation stations embedded in its distribution networks for avoided transmission services. Any material change to Transpower s pricing methodology which Powerco could not immediately pass through because of legislative, regulatory or contractual constraints could have a material adverse effect on Powerco s operations and its fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. However, even if Powerco cannot immediately pass through the cost resulting from the material change, it could pass through the cost as part of an annual notifi cation of charges (subject only to legislative constraints). 48

51 Answers to Important Questions Arrangements with Retailers/ Counterparty Risk Powerco supplies electricity and gas network access to retailers under use of system agreements. Powerco also directly contracts with, and invoices, a small number of industrial customers who are connected to its networks. Powerco carries some credit risk through these contracts. Any default could have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Gas Supply Risk There is a risk of reduced gas supply in New Zealand arising from the depletion of Maui and other gas fi elds prior to the availability of commercial supply from new sources. The performance of other parts of Powerco s business may offset some of the potential effects of such a shortage. However, any material shortage of supply is likely to have a material adverse effect on Powerco s gas distribution business, which may affect Powerco s ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Litigation Litigation risks potentially include existing litigation that is not currently completed or quantifi able, claims by customers of Powerco, tenure disputes, environmental claims and third party losses related to disruption of services provided by Powerco. Powerco has been named as a second defendant in a claim issued by Todd Energy Limited on 28 May The plaintiff alleges various breaches of the Commerce Act The allegations centre on an alleged refusal to deal in relation to connection to Transpower s substation at Hawera, where Powerco s network connects to the national grid. The claim is being defended by Transpower and Powerco, and Powerco contends that it has not breached any of its obligations. The plaintiff is seeking various declarations and injunctions from the Court, together with damages. The amount of damages sought has not been quantifi ed by Todd Energy Limited. In the event that Powerco has any liability arising from these proceedings, it is unlikely to have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Environmental Risks Powerco s operations are subject to environmental laws and regulations. Powerco could be held liable if its operations resulted in environmental damage to any property or failed to comply with applicable environmental laws or consents. The imposition of a substantial penalty or liability on Powerco for environmental damage or non-compliance could have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Permits, Licences and Consents Powerco requires certain permits, licences and consents in order to operate its business. The conditions and costs of these may be changed on any renewal, or in some cases, may not be renewed due to unforeseen circumstances or a subsequent change in regulations. In any such event, the renewal or non-renewal could have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Economic Risks Powerco is exposed generally to factors that may adversely affect the performance of the New Zealand economy and debt markets, including general economic and political events. The number of consumer connections and Powerco s fi nancial performance will be infl uenced by the level and cyclical nature of business activity in the regions in which Powerco operates, which are largely concentrated in the central and lower parts of the North Island. Adverse regional economic conditions may have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Interest Rate Risk Powerco s interest payment obligations in respect of its debt fi nancing are exposed to factors that cause changes in market interest rates. Powerco has adopted a treasury policy to manage its exposure to interest rate risk, but any signifi cant increase in interest rates may have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal obligations in respect of the Guaranteed Bonds. Deflation Risk Powerco s electricity distribution business is subject to a price path threshold. For the period 1 April 2004 to 31 March 2009, the price path threshold applies in a CPI x form, where Powerco s x is set at 2. If infl ation is less than 2%, Powerco s prices may have to decrease to comply with the price path threshold, otherwise it could breach the price path threshold, potentially resulting in the imposition of price control. If Powerco were to decrease its prices or price control was imposed on Powerco, this could have a material adverse effect 49

52 Answers to Important Questions 50 on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Foreign Exchange Risk Powerco has in place cross-currency swaps to fully hedge against the cost of its US dollar private placement interest costs. Changes to Generally Accepted Accounting Principles The consolidated fi nancial statements of the Group are currently prepared and presented in accordance with the requirements of the Companies Act, the Financial Reporting Act 1993 and NZ GAAP. As part of the harmonisation of New Zealand accounting standards with international practice, the Group s fi nancial statements will be required to be completed in accordance with IFRS. The IFRS transition requirements mean that Powerco must adopt IFRS by 31 March However, as a result of Powerco s ownership change and Powerco now being a 100% owned subsidiary of an Australian listed entity, Powerco is compelled to adopt IFRS at the earlier date of 30 June The main anticipated effects of adopting IFRS on Powerco s fi nancial statements are set out in Note 25 on page 82 of the Prospectus in notes to the fi nancial statements of Powerco for the fi fteen month period ended 30 June Rise in Delivered Price of Natural Gas Relative to Close Substitutes Natural gas often has other close substitutes in end use, such as coal, electricity and LPG. Consequently, any rise in the relative price of natural gas could result in natural gas users reducing their consumption of natural gas and increasing their consumption of close substitutes, resulting in a loss of revenue and a decrease in profi t for Powerco, particularly in the medium and long term. If the delivered price of natural gas rose relative to the price of its close substitutes and Powerco lost revenue as a result, this may have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Bypass and Embedded Networks Powerco does not have an exclusive franchise for Powerco s electricity and gas networks and operates an open access regime to its networks. As such, competing network operators may construct and own bypass and embedded networks. Powerco s gas networks already compete with bypass networks in several locations. If more bypass and/or embedded networks are constructed and Powerco lost revenue as a result, this may have a material adverse effect on Powerco s fi nancial performance, including its ability to meet its interest and principal payment obligations in respect of the Guaranteed Bonds. Consequences of Insolvency The Guaranteed Bonds as a Senior Secured Debt Facility are secured and unsubordinated debt obligations of Powerco. This means that, in a liquidation or receivership of Powerco or any similar proceeding for the benefi t of creditors or of any Guaranteeing Subsidiary (if any), any claim for Bond Moneys will rank equally with the claims of Powerco s other Senior Secured Benefi ciaries but after the claims of certain statutorily preferred creditors. Claims for Bond Moneys will rank in priority to the claims of the Junior Secured Benefi ciaries (if any) and the general body of Powerco s unsecured creditors and the claims of Powerco s subordinated creditors and shareholders. As at the date of this Investment Statement, there are no Junior Secured Benefi ciaries and the subordinated debt of Powerco is limited to the unsecured subordinated bonds issued by Powerco in April 2005 with an aggregate principal amount of $100 million. As at the date of this Investment Statement, all Secured Debt ranks equally with the Guaranteed Bonds and is secured by way of a mortgage or charge over the assets of the Guaranteeing Group under the Security Trust Deed. At the date of this Investment Statement, Powerco is the only member of the Guaranteeing Group. No Bondholder will be liable to pay any further amounts to Powerco or to any other person in respect of the Guaranteed Bonds if Powerco becomes insolvent. Upon a liquidation of Powerco, any claims for Bond Moneys must be made by the Trustee for the benefi t of Bondholders, unless the Trustee has failed to make a claim after having become bound to do so in accordance with the Trust Documents. Unless a Guarantor Event of Default has occurred and is continuing unremedied, the Trustee will be bound to make a claim only if directed to do so by the Guarantor. Immediately and automatically upon the occurrence of an event of default under the Guarantee and Reimbursement Agreement due to the commencement of any bankruptcy, liquidation or analogous proceedings of or against Powerco, Powerco must pay to the Guarantor an amount equal to the aggregate Principal Amount payable (but not paid) in respect of the Guaranteed Bonds together with all accrued and unpaid interest thereon as at that date. Any such amounts paid must be held by the Guarantor (or by a fi nancial institution designated by the Guarantor) in trust in a separate account for the benefi t of the Bondholders and the Guarantor to be applied solely towards:

53 Answers to Important Questions scheduled payments of principal and interest on the Guaranteed Bonds; and amounts that are due to the Guarantor pursuant to Powerco s reimbursement obligations under the Guarantee and Reimbursement Agreement. Contribution to costs of enforcement If Powerco fails to pay any amount of interest or principal on its due date and, after demanding payment from the Guarantor, the Trustee has cause to take legal proceedings against the Guarantor for non-payment, such proceedings and the process of making the demand itself may involve considerable legal and other costs. In recognition of this, Powerco has agreed that if its Standard & Poor s long-term credit rating falls below BBB- or has been withdrawn completely, it will deposit with the Trustee the sum of $200,000 to be used by the Trustee for meeting costs and expenses incurred by it in relation to, and its remuneration in respect of, any payment default by Powerco under the Guaranteed Bonds to the extent that Powerco is liable for such amount and Powerco has failed to pay it to the Trustee. If action is required to recover amounts due from the Guarantor, and the security deposit has not been made or is insuffi cient to meet those costs, the Trustee may request that the Bondholders contribute additional funds pro rata to their entitlements before it will pursue or continue any such action on behalf of the Bondholders. No Bondholders will be legally liable to make any contribution. If the Trustee fails to take or continue proceedings in these circumstances, the Bondholders may proceed directly, but will need to fund such action from their own resources. Can the investment be altered? Terms of this Offer The full terms of this Offer are set out in this Investment Statement and the Prospectus. Those terms may be altered by an amendment to the Prospectus, with the approval of the Trustee, by Powerco. Details of any such amendment must be registered at the Companies Offi ce. Early Repayment of Bond Moneys If the Guaranteed Bonds are repaid prior to their Maturity Date, the returns the Bondholders will receive will be different from the returns they would have received if the Guaranteed Bonds are repaid on their Maturity Date. It is important to note that the Trustee has a limited right of enforcement under the Trust Documents. The Trustee may not demand early repayment of the Guaranteed Bonds unless an Event of Default has occurred and continues unremedied. The Trustee must declare the Bond Moneys to be immediately due and payable upon being directed to do so by an Extraordinary Resolution of Bondholders. However, unless a Guarantor Event of Default has also occurred and is continuing unremedied, the Trustee may only act in accordance with the directions of the Guarantor. If, upon demand for early repayment being made, Powerco fails to repay all or some of the Bond Moneys and a claim is made under the Guarantee, the Guarantor has the sole right to determine whether to pay to Bondholders all Bond Moneys outstanding at that time or to make only scheduled payments of interest and principal on the Guaranteed Bonds. Unless a Guarantor Event of Default has occurred and is continuing unremedied, the Trustee may only give an instruction to the Security Trustee to enforce the security interests created under the Security Trust Deed upon the direction of the Guarantor. Trust Documents The manner in which the Trust Documents may be altered depends on whether at the relevant time the Guarantor is able to control the exercise of the rights and powers of the Trustee. While the Guarantor is able to control the exercise of the rights and powers of the Trustee, the Guarantor has the power to direct the Trustee to alter, or consent to the alteration of, certain provisions of the Trust Documents or to waive their application, subject to certain limitations described below. Guarantor s Powers Unless a Guarantor Event of Default has occurred and continues unremedied, the Trustee is to act solely in accordance with the instructions of the Guarantor in agreeing with Powerco to amend or modify the Trust Documents. However, the Guarantor is not entitled to: agree to any amendment that would alter the amount or the due date of any Bond Moneys, other than as a result of the declaration of any Bond Moneys to be immediately due and payable; or make any amendment to the defi nition of Excluded Rights and the defi nition of Guarantor Event of Default in the Trust Documents. Trustee s Powers Upon the occurrence of a Guarantor Event of Default and while it continues unremedied, the terms and conditions of the Trust Documents may be altered with the approval of Bondholders (or a class of Bondholders, if applicable) by an Extraordinary Resolution and, in limited circumstances, with the approval only of the Trustee and Powerco. A description of the requirements for an Extraordinary Resolution is set out on page

54 Answers to Important Questions 52 The following amendments do not require Bondholder approval: amendments of a minor, administrative, formal or technical nature; amendments that are to correct a manifest error; amendments that are to comply with the requirements or a modifi cation of the requirements of any applicable law or any rules of any stock exchange; amendments that are necessary for the purpose of obtaining or maintaining a quotation of the Guaranteed Bonds on any stock exchange; amendments that refl ect an exemption granted to Powerco, or an exemption that is applicable to Powerco, in relation to any obligation imposed upon Powerco by or pursuant to the Securities Act, the Companies Act or the Financial Reporting Act 1993 which is materially the same as or analogous to any obligation of Powerco under the Trust Documents or the Guaranteed Bonds; and amendments in respect of any of the provisions of the Trust Documents relating to reporting to the Trustee, the Trustee s fees, expenses and indemnities or the exercise of the Trustee s powers. The above circumstances are also subject to the general requirement that Powerco and the Trustee must each be of the opinion that the amendment will not be materially prejudicial to the interests of Bondholders generally. In addition, amendments that are necessary or convenient to refl ect any amendment made to, or any release of, the Security Trust Deed in accordance with its terms, do not require Bondholder approval. In addition, the Trustee may temporarily vary the provisions of the Trust Documents for such period and on such terms as: may be deemed appropriate provided that the Trustee is satisfi ed that the interests of the affected Bondholders generally will not be materially and adversely prejudiced; or may be agreed by the Trustee to refl ect an exemption of the nature referred to above as an amendment that can be made without Bondholder approval. Any amendment to the Trust Documents will be binding on all Bondholders and will only be effective if it is in writing and signed by Powerco and the Trustee. Guarantee The Guarantee may only be amended by an agreement in writing by the Guarantor and the Trustee. Security Trust Deed The Security Trust Deed may be amended with the consent of the Majority Benefi ciaries. While the Guarantor is able to control the exercise of the rights and powers of the Trustee, the Trustee in giving or withholding such consent must act on the instructions of the Guarantor. The following amendments do not require the consent of the Majority Benefi ciaries: an amendment made to correct a manifest error; or an amendment of a minor, administrative or technical nature; or an amendment made to comply with the requirements or a modifi cation of the requirements of any applicable law or any rules of any stock exchange in New Zealand or elsewhere, and in any such case the Security Trustee is of the opinion that such amendment will not be materially prejudicial to the interests of Secured Benefi ciaries generally or any Secured Benefi ciary individually. How do I cash in my investment? Repayment The Guaranteed Bonds are redeemable on their Maturity Date (28 September 2012 in respect of Seven Year Guaranteed Bonds and 28 September 2017 in respect of Twelve Year Guaranteed Bonds). The Principal Amount of a Guaranteed Bond is repayable on the Maturity Date of that Guaranteed Bond together with any interest that has accrued but is unpaid on that date. Early repayment of the Guaranteed Bonds may only occur if there has been an Event of Default under the Trust Documents that continues unremedied and, in circumstances where no Guarantor Event of Default has occurred and is continuing, the Trustee, at the direction of the Guarantor, declares the Guaranteed Bonds to be immediately due and payable under the Trust Documents. If, upon demand for early repayment being made, Powerco fails to repay all or some of the Bond Moneys and a claim is made under the Guarantee, the Guarantor has the sole right to determine whether to pay to Bondholders all Bond Moneys outstanding at that time or to make only scheduled payments of interest and principal on the Guaranteed Bonds. In circumstances where both an Event of Default and a Guarantor Event of Default has occurred and is continuing unremedied, early repayment may only occur if the Trustee declares the Guaranteed Bonds to be immediately due and payable. In those circumstances, the Trustee will only be bound to declare the Guaranteed Bonds immediately due and payable upon the direction of an Extraordinary Resolution of Bondholders. Transfer of Guaranteed Bonds Bondholders are entitled to sell or transfer their Guaranteed Bonds at any

55 Answers to Important Questions time subject to the terms of the Trust Documents and applicable securities laws and regulations. Guaranteed Bonds may be transferred using a transfer document in any commonly used form or by means of the FASTER system operated by NZX. Applicants should not attempt to sell Guaranteed Bonds until they know whether, and how many, Guaranteed Bonds have been allotted to them. None of Powerco, its subsidiaries, the Joint Lead Managers, the Organising Participant, the Trustee, the Security Trustee nor any of their respective directors or employees, nor any other person, accepts any liability or responsibility should any applicant for Guaranteed Bonds attempt to sell or otherwise deal with any Guaranteed Bonds before receiving a FASTER Statement recording the number of Guaranteed Bonds (if any) allotted to them. Transactions in respect of the Guaranteed Bonds on the NZDX can be made by contacting a Primary Market Participant and supplying the appropriate FASTER identifi cation number, along with the holder number for the Guaranteed Bonds in the case of a sale of Guaranteed Bonds. Each Guaranteed Bond will have a minimum Principal Amount of $5,000 and thereafter will be in integral multiples of $1,000. A Bondholder may transfer part of its interest in a Guaranteed Bond. However, no transfer of Guaranteed Bonds or any part of a Bondholder s interest in a Guaranteed Bond will be registered if the transfer would result in the transferor or the transferee holding or continuing to hold a Guaranteed Bond with a Principal Amount of less than $5,000 or integral multiples other than $1,000. As this Offer is for an initial issue of Guaranteed Bonds, there is currently no established market for the sale of the Guaranteed Bonds. However, the Directors are of the opinion that a secondary trading market for the Guaranteed Bonds will develop over time. Brokerage at applicable rates is likely to be payable by a Bondholder on any transfer of the Bondholder s Guaranteed Bonds effected through a Primary Market Participant. Powerco and the Registrar may also require a Bondholder to pay taxes and any other governmental charges payable as a result of any transfer of Guaranteed Bonds. Procedure for making demand under the Guarantee The procedure for making demand under the Guarantee is set out in the Guarantee. The procedure is described in the section of this Investment Statement entitled Summary of Guarantee on pages 29 to 31. It is important to note that the Trustee is the only person who can make a demand under the Guarantee on behalf of the Bondholders. Who do I contact with enquiries about my investment? Any enquiries in relation to the Guaranteed Bonds can be directed to: Computershare Investor Services Limited Level Hurstmere Road Takapuna Private Bag Auckland Telephone for investor enquiries: (09) Facsimile: (09) enquiry@computershare.co.nz or Chief Financial Offi cer Level 2 Council Chambers 84 Liardet Street Private Bag 2061 New Plymouth Freephone: Facsimile:(06) Is there anyone to whom I can complain if I have problems with the investment? Any complaints about the Guaranteed Bonds can be directed to: Computershare Investor Services Limited Level Hurstmere Road Takapuna Private Bag Auckland Telephone for investor enquiries: (09) Facsimile:(09) enquiry@computershare.co.nz or Chief Financial Offi cer Level 2 Council Chambers 84 Liardet Street Private Bag 2061 New Plymouth Freephone: Facsimile:(06) If you are not satisfi ed with the response you receive, you may direct your complaint to the Trustee at the following address: General Manager Corporate Trusts and Secretarial Services The New Zealand Guardian Trust Company Limited Level 7 Vero Centre 48 Shortland Street P O Box 1934 Auckland Telephone:(09) Facsimile:(09) There is no ombudsman to whom complaints about the Guaranteed Bonds can be made. 53

56 Answers to Important Questions What other information can I obtain about this investment? Financial Statements and Trust Documents Additional information about Powerco is contained or referred to in the Prospectus and in Powerco s fi nancial statements. In addition, other information about the Guaranteed Bonds is contained in the Trust Documents, the Guarantee, the Guarantee and Reimbursement Agreement and the Security Trust Deed. A copy of Powerco s most recent annual consolidated fi nancial statements (for the period of 15 months ended on 30 June 2005) and other documents of, or relating to, Powerco (including the Trust Documents and the Security Trust Deed) are fi led on a public register which you may view on the Companies Offi ce website ( govt.nz). Where relevant documents are not available on this website, a request for the documents can be made by contacting Searchlink at info@searchlink.co.nz. You may obtain a copy of the Prospectus, the Trust Documents, the Guarantee, the Guarantee and Reimbursement Agreement, the Security Trust Deed, Powerco s constitution and Powerco s most recent annual and half-yearly consolidated fi nancial statements, free of charge, during normal business hours at Powerco s registered offi ce at Level 2, Council Chambers, 84 Liardet Street, Private Bag 2061, New Plymouth. Additional Information about Powerco Bondholders can also obtain further information about Powerco and copies of its annual and half-yearly reports and announcements to NZX from Powerco s website ( co.nz). vadditional Information about the Guarantor Further information about the Guarantor can be obtained from the Guarantor s website ( The fi nancial statements of the Guarantor are included as exhibits to the periodic reports fi led with the United States Securities and Exchange Commission by XL Capital Ltd and may be reviewed at the EDGAR website maintained by the Securities and Exchange Commission ( gov/edgar.shtml). In addition, copies of the statutory quarterly and annual statements fi led by the Guarantor with the State of New York Insurance Department are available upon request to the State of New York Insurance Department. Ongoing Reports to Bondholders Bondholders will be sent a copy of Powerco s half-yearly reports (including unaudited consolidated fi nancial statements for the fi rst six months of each fi nancial year) and a copy of Powerco s annual reports (including Powerco s annual audited consolidated fi nancial statements). Applicants may elect not to receive copies of these reports by ticking the relevant box in the Application Form included at the back of this Investment Statement. Powerco is also required to make half-yearly and annual results announcements to NZX, and such other announcements as are required by the Listing Rules of NZX from time to time. On Request Information Bondholders are also entitled to request copies of: the most recent annual report of Powerco (together with the annual audited consolidated fi nancial statements) and all documents that are required to be incorporated in, attached to, or accompany those fi nancial statements when delivered to the Registrar of Companies in accordance with the Financial Reporting Act 1993; the Trust Documents, the Guarantee, the Security Trust Deed and, if any subsidiary of Powerco accedes to the Guaranteeing Group, the joining deed in the form required under the Security Trust Deed (incorporating any amendments thereto); the most recent annual or half-yearly fi nancial statements of the Guarantor, and, of the Guaranteeing Group, together with all documents that are required by any enactment or rule of law to be incorporated in, attached to, or accompany those fi nancial statements; and the most recent registered prospectus and investment statement in respect of the Guaranteed Bonds. This information will be made available to Bondholders free of charge upon a request in writing being made to Powerco at its registered offi ce at Level 2, Council Chambers, 84 Liardet Street, Private Bag 2061, New Plymouth. 54

57 Summary of the TRUST DOCUMENTS Summary of the Trust Documents The Guaranteed Bonds will be constituted by, and issued pursuant to, the Master Trust Deed and the Supplemental Trust Deed. The Supplemental Trust Deed and (except to the extent that it is modifi ed by the Supplemental Trust Deed) the Master Trust Deed contain the conditions of the Guaranteed Bonds. The Master Trust Deed and the Supplemental Trust Deed are referred to in this Investment Statement as the Trust Documents. Introduction This section contains a summary of the principal provisions of the Trust Documents which have not been summarised elsewhere in this Investment Statement. Investors requiring further information should refer to the Trust Documents, which are available for inspection at the offi ces of Powerco as specifi ed in the Directory. Bondholders are bound by, and are deemed to have notice of, the provisions of the Trust Documents. Unless otherwise defi ned in the section of this Investment Statement entitled Special Terms Used (on pages 69 to 72) or the Glossary, words and expressions defi ned in the Trust Documents have those meanings when they are used in this summary. The Trustee, the Bondholders and the Guarantor The Trustee is appointed under the Master Trust Deed to act as trustee for the Bondholders and the holders of any further Series of bonds, notes or other debt instruments issued under the Master Trust Deed and any relevant supplemental trust deed. However, as a consequence of the Guarantor providing the Guarantee, the Guarantor has been given certain rights to give directions to the Trustee in relation to decisions and other actions which can be taken by the Trustee and the Bondholders under the Trust Documents. The Guarantor may exercise those rights unless a Guarantor Event of Default has occurred and is continuing unremedied. The specifi c rights granted to the Guarantor under the Trust Documents are described further on page 30 under the heading Guarantor s Control of Covenants and Enforcement. The Guarantor is not required to have regard to the interests of the Bondholders when directing the Trustee, and the Guarantor will have no liability to the Bondholders as a consequence of any direction given by the Guarantor to the Trustee. The Trustee is not required to have regard to the interests of the Bondholders when exercising rights in relation to the Guaranteed Bonds in accordance with the directions of the Guarantor and the Trustee will have no liability to the Bondholders as a consequence of exercising those rights. Excluded Rights The Guarantor does not have any rights to direct the Trustee in respect of the Excluded Rights. The Excluded Rights are the rights of the Trustee: to make a determination as to the occurrence or otherwise of a Guarantor Event of Default; to make any claim under, enforce or agree to any amendment to, the Guarantee; to agree to any amendment to the Trust Documents that would alter the amount or the due date of any Bond Moneys, other than a declaration that any Bond Moneys are immediately due and payable; that are provided for the purpose of enabling the Trustee to protect its own interests; to make any amendment to the defi nitions of Excluded Rights and Guarantor Event of Default in the Trust Documents; to consent to the substitution of any Substituted Obligor pursuant to the Master Trust Deed; to determine the amounts due in relation to indemnities granted in favour of the Trustee under the Trust Documents; to receive any amounts (including expenses) due to the Trustee for its own account in accordance with the provisions of the Trust Documents; and to make a claim for expenses under the Trust Documents. Security For the purposes of the Security Trust Deed, the Trustee is a Secured Benefi ciary and the Trust Documents and each Guaranteed Bond is a Senior Secured Debt Facility. Accordingly, the Guaranteed Bonds have the benefi t of the security interests, guarantees and other undertakings granted by the Guaranteeing Group under the Security Trust Deed. Powerco is the only member of the Guaranteeing Group as at the date of this Investment Statement. A summary of the principal provisions of the Security Trust Deed is set out in the section of this Investment Statement entitled Summary of the Security Trust Deed on pages 66 to

58 56 Quote

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60 Summary of the Trust Documents 58 Further Series of Debt Instruments Under the terms of the Master Trust Deed, Powerco has the power, from time to time, to create and issue further Series of bonds, notes or other debt instruments without the consent of the Bondholders. Powerco can nominate any of its wholly-owned subsidiaries to be the issuer of any further Series of bonds, notes or other debt instruments. Any further Series (depending on its terms) may or may not be guaranteed and may rank equally with, or subordinate to, the Guaranteed Bonds. The terms of issue of any further Series of bonds, notes or other debt instruments may also provide for a fi xed or reducing principal amount or a principal amount that is to be calculated by reference to an index, and, where the bonds, notes or other debt instruments are interest-bearing, that interest will be calculated by reference to a specifi c interest rate (which may be fi xed or fl oating) or by reference to an index, or both. Supplemental Trust Deed for Further Series of Debt Instruments Each Series of bonds, notes or other debt instruments issued under the Master Trust Deed will be subject to the terms set out in a supplemental trust deed to be executed by the Issuer and the Trustee in respect of that Series. Financial Covenant The Supplemental Trust Deed contains a covenant by Powerco that it will not, at any time after the occurrence of a Guarantor Event of Default and while it continues unremedied, permit the Total Net Worth of the Group to be less than $400 million. General Covenants The Trust Documents contain a number of other covenants by Powerco, including that: it will, and, it will procure that each Guaranteeing Subsidiary (if any) will, at all times engage primarily in the business of ownership or management of electricity and gas utility network systems (both wholesale and retail), the management of utility networks or systems and the carrying out of any ancillary activities or the making of any supplies, products or property or the performance of any services in respect of the operation of networks or systems; and it will duly and punctually comply with all laws binding upon it, the non-compliance with which is likely to materially adversely affect the general interests of the Bondholders. Unless a Guarantor Event of Default has occurred and continues unremedied, the Guarantor will have the exclusive right to determine whether or not to enforce the covenants described above by directing the Trustee accordingly. Duties of the Trustee The principal duties of the Trustee under the Trust Documents in relation to the Bondholders are summarised as follows: upon the occurrence of any Event of Default specifi ed in the Trust Documents, the Trustee may, and must, if directed to do so by an Extraordinary Resolution of the Bondholders, declare the Bond Moneys to be immediately due and payable, exercise the powers of enforcement available to it and apply all moneys received by the Trustee in accordance with the provisions of the Trust Documents; to receive regular fi nancial and other reports provided to it by Powerco; to perform a number of functions relating to the ongoing administration of the Trust Documents, including those in relation to the meetings of the Bondholders, and the exercise of discretions or the giving or withholding of consents (as appropriate) relating to such administration and other matters out of the ordinary, such as making an application to the High Court of New Zealand under the Securities Act, the substitution of an obligor in place of Powerco in relation to the Guaranteed Bonds and agreeing to modifi cations of the Trust Documents, all upon the terms set out in the Trust Documents; and on being satisfi ed that all Bond Moneys in relation to each Series have been paid or provided for upon the terms of the Trust Documents, to execute a deed of release of the Trust Documents. However, it is important to note that the rights of the Trustee to declare the Bond Moneys immediately due and payable, exercise the powers of enforcement available to the Trustee and perform the Trustee s other functions referred to above can only be exercised by the Trustee acting in accordance with the directions of the Guarantor, unless a Guarantor Event of Default has occurred and is continuing unremedied. The Trustee also has statutory duties pursuant to the Securities Act and the Securities Regulations to exercise reasonable diligence to: ascertain whether or not there has been any breach of the terms of the Trust Documents or of the terms of this Offer of the Guaranteed Bonds and to do all it is empowered to do to cause any such breach of those terms to be remedied (except where the Trustee is satisfi ed that the breach will not materially prejudice the interests of the Bondholders); and ascertain whether or not the assets of Powerco that are or may be available, whether by way of security or otherwise, are suffi cient or likely to be suffi cient to discharge the amounts of the Guaranteed Bonds as they become due.

61 Summary of the Trust Documents Powers of the Trustee Unless a Guarantor Event of Default has occurred and is continuing unremedied, the Guarantor may direct the Trustee as to the exercise of the rights and powers of the Trustee under the Trust Documents, other than in respect of the Excluded Rights and the rights of the Bondholders by an Extraordinary Resolution to appoint a replacement Trustee or to direct the Trustee to waive a default in the payment of any Bond Moneys. Upon the occurrence of a Guarantor Event of Default and while it continues unremedied, the Trustee has absolute discretion as to the exercise of its powers in relation to the Guaranteed Bonds. Under the Trust Documents, the Trustee may, amongst other things, in relation the Guaranteed Bonds: refrain from exercising any power until directed by an Extraordinary Resolution of Bondholders or the affected class of Bondholders; decline to act or exercise any power, take any action or comply with any request or direction (including any direction by an Extraordinary Resolution of Bondholders) unless it has fi rst been indemnifi ed to its satisfaction against all expenses, losses and liabilities it may reasonably sustain or incur by so doing; represent and act on behalf of the Bondholders in any matter concerning them generally; invest any moneys held in its capacity as Trustee, in the name of the Trustee or its nominee, in any investment, with power to vary, deal with or dispose of such investment, and all income (less any commissions properly payable to the Trustee) arising from all such investments will belong to the person in respect of whom such moneys are held by the Trustee; in the performance of its duties, act on, or decline to act on, certifi cates signed by or on behalf of Powerco, and the advice or opinion of professional advisers; decline to act (including on the instructions, or at the direction, of the Guarantor) unless protected for its liabilities, costs and expenses; or require Powerco to report to Bondholders on certain matters, convene meetings of Bondholders or otherwise seek directions from the Bondholders or the Court. Indemnity The Trustee receives the benefi t of a general indemnity from Powerco for any expenses, losses or liabilities it reasonably sustains or incurs while acting as Trustee. However, the Trustee will not be entitled to be indemnifi ed by Powerco in respect of any claim which arises out of a wilful default, gross negligence or wilful breach of trust. Under section 62 of the Securities Act, the Trustee cannot lawfully be exempted from, or indemnifi ed against, liability for breach of trust where the Trustee has failed to show the degree of care and diligence required of the Trustee having regard to the provisions of the Trust Documents. Reporting Powerco undertakes to supply to the Trustee a range of regular reports, certifi cates, fi nancial statements and other information as to the fi nancial condition of Powerco and the Group and as to compliance with the Trust Documents. This includes a requirement that Powerco provide to the Trustee a report signed by two Directors of Powerco, following the end of each fi nancial year and each fi nancial half-year, as to various matters relating to Powerco and the Guaranteed Bonds, including details of any matter that has arisen relating to Powerco which would materially and adversely affect the ability of Powerco to perform its obligations under the Trust Documents and the Guaranteed Bonds or which adversely affects the interests of the Bondholders, as to compliance by Powerco with the provisions of the Trust Documents, as to details of all Guaranteed Bonds that have been repaid on maturity in the immediately preceding fi nancial year, as to due maintenance of the Register for the Guaranteed Bonds and as to the calculation of the Total Net Worth of the Group. Events of Default Trust Documents Upon the occurrence of any of the Events of Default set out in the Trust Documents, the Trustee may, and must, if directed to do so by an Extraordinary Resolution of the Bondholders, declare the Bond Moneys to be immediately due and payable. However, unless a Guarantor Event of Default has occurred and is continuing unremedied, the Trustee will only be entitled to demand early repayment of the Guaranteed Bonds, upon the direction of the Guarantor, irrespective of any Extraordinary Resolution of the Bondholders. None of the events listed in the defi nition of Event of Default in the Trust Documents will constitute an Event of Default, and the Bond Moneys will not become immediately due and payable, unless the Event of Default is continuing unremedied and the Trustee has given a notice to Powerco declaring such event to be an Event of Default and the Bond Moneys to be immediately due and payable. The Events of Default are listed in the Trust Documents. In summary, the Events of Default include the following events: a failure to make any payment of the Principal Amount in respect of a Guaranteed Bond on its due date; a failure to make any payment of interest on the Guaranteed Bonds within two Business Days of its due date; 59

62 Summary of the Trust Documents 60 any breach by Powerco (or, if applicable, a Guaranteeing Subsidiary) of any other material undertakings or obligations under the Trust Documents that, if capable of remedy, is not remedied within 30 days of Powerco (or, if applicable, a Guaranteeing Subsidiary) becoming aware of that breach; any representation or warranty made by or in respect of Powerco in the Trust Documents is or was untrue or incorrect in a material respect and that has a material adverse effect on Powerco; if Powerco (or, if applicable a Material Guaranteeing Subsidiary) becomes insolvent, is placed into liquidation, a receiver is appointed or any analogous procedure occurs in respect of it, or if any indebtedness in excess of $50 million is not paid when due by Powerco (or, if applicable, any Guaranteeing Subsidiary); if Powerco ceases, or threatens to cease, to carry on all or substantially all of its business or operations; if any material provision of the Trust Documents, the Guarantee or the Security Trust Deed ceases to have effect in whole or in part or becomes wholly or partly void, voidable, illegal, invalid or unenforceable, or Powerco makes any allegation or claim to that effect; an event of default occurs and continues unremedied under the Guarantee and Reimbursement Agreement (refer to the summary of these events of default set out below under the heading Guarantee and Reimbursement Agreement ), provided that at the relevant time no Guarantor Event of Default has occurred and is continuing unremedied; or Powerco (or, if applicable, any Guaranteeing Subsidiary) breaches the security, guarantee or other undertakings given under the Security Trust Deed. Investors should refer to the Trust Documents and the Security Trust Deed for a complete list and a more detailed description of the events or circumstances that constitute an Event of Default. A Material Guaranteeing Subsidiary is a Guaranteeing Subsidiary whose total tangible assets and earnings (before interest, tax and extraordinary items) respectively exceed 10% of the total tangible assets of the Group (measured as at the date of the most recent fi nancial statements) and the earnings (before interest, tax and extraordinary items) of the Group (measured in respect of the most recent fi nancial year). Guarantee and Reimbursement Agreement The occurrence of an event of default under the Guarantee and Reimbursement Agreement which continues unremedied will only constitute an Event of Default under the Trust Documents if, at the relevant time, no Guarantor Event of Default has occurred and is continuing unremedied. Many of the events which give rise to an Event of Default under the Trust Documents will also constitute an event of default under the Guarantee and Reimbursement Agreement. The following additional events constitute events of default under the Guarantee and Reimbursement Agreement: any breach or omission by Powerco (or, if applicable, any Guaranteeing Subsidiary) to observe any fi nancial or negative covenant (as described below) or any covenant in the Trust Documents that, if capable of remedy, is not remedied within 30 days; any material consent or authorisation required under the Guarantee and Reimbursement Agreement, the Trust Documents or the Security Trust Deed expires or is revoked, cancelled, withdrawn or modifi ed in a manner unacceptable to the Guarantor and is not replaced by a consent or authorisation acceptable to the Guarantor; any material provision of the Guarantee and Reimbursement Agreement or the Security Trust Deed ceases to have effect in whole or in part or becomes wholly or partly void, voidable, illegal, invalid or unenforceable or Powerco (or, if applicable, any Guaranteeing Subsidiary) makes any allegation or claim to that effect; any enforcement action is enforced or commenced against any of the assets of Powerco or, if applicable, any Guaranteeing Subsidiary, for a sum exceeding 3% of the total tangible assets of the Guaranteeing Group; and Powerco or, if applicable, any Guaranteeing Subsidiary commits any breach of, or omits to observe, any of its obligations or undertakings in relation to the release of security interests and of Guaranteeing Subsidiaries under the Security Trust Deed. Investors should refer to the Guarantee and Reimbursement Agreement for a complete list and a more detailed description of the events or circumstances that constitute an event of default under the terms of that agreement. The Guarantee and Reimbursement Agreement includes a number of negative covenants by Powerco, including that Powerco will not, and Powerco will procure that no Guaranteeing Subsidiary (if any) will, without the prior written consent of the Guarantor:

63 Summary of the Trust Documents subject to certain exceptions, dispose of the whole or any part of their respective assets which, when aggregated with all other disposals, exceeds 15% or more of the total tangible assets of the Guaranteeing Group taken as a whole, or the disposal of which would have a material adverse effect; enter into transactions with related persons other than on certain prescribed terms; amalgamate, merge or consolidate with any other person unless the person is a member of the Group or assumes or guarantees the obligations of Powerco under the Guaranteed Bonds; alter or allow to be altered any term attaching to any of Powerco s shares; make any distribution or pay any interest or principal on, or in respect of, subordinated debt unless such a distribution is required by law or no event of default or potential event of default under the Guarantee and Reimbursement Agreement has occurred or would be likely to occur as a result of that distribution or payment; or subject to certain exceptions including the creation of the security interests under the Security Trust Deed, create or permit to arise or subsist any security interest over the whole or part of their assets, unless an equivalent security interest is also granted to the Guarantor. The fi nancial covenants given by Powerco under the Guarantee and Reimbursement Agreement are summarised under the heading Borrowing Restrictions under the Guarantee and Reimbursement Agreement in the section of the Prospectus entitled Statutory Information. Default Interest If any amount payable in respect of a Guaranteed Bond is not paid on its due date, interest will accrue on the unpaid amount at the rate determined by the Registrar to be the aggregate of 2% and the interest rate payable on the relevant Tranche of the Guaranteed Bonds compounded monthly until the unpaid amount is paid. The Guarantee will not extend to payment of any such amounts of default interest. No Enforcement by Bondholders A Bondholder has no direct enforcement rights and they may not bring proceedings directly against Powerco, the Guarantor or, if any subsidiary of Powerco accedes to the Security Trust Deed, any Guaranteeing Subsidiary, for the enforcement of any of their rights or remedies under the Trust Documents, unless a Guarantor Event of Default has occurred and is continuing unremedied and the Trustee has failed to enforce such rights or remedies after having become bound to do so under the provisions of the Trust Documents. Early Repayment of Bond Moneys and Enforcement The Trustee may not demand early repayment of the Guaranteed Bonds unless an Event of Default has occurred and continues unremedied. Unless a Guarantor Event of Default has occurred and is continuing unremedied, the Trustee may only demand early repayment of the Guaranteed Bonds or enforce the security interests created under the Security Trust Deed upon the direction of the Guarantor. If, upon demand for early repayment being made, Powerco fails to repay all or some of the Bond Moneys and a claim is made under the Guarantee, the Guarantor has the sole right to determine whether to pay to Bondholders all Bond Moneys outstanding at that time or to make only scheduled payments of interest and principal on the Guaranteed Bonds. Subrogation If the Guarantor makes payment under the Guarantee on account of interest or principal on the Guaranteed Bonds held by a Bondholder, the Guarantor will be fully subrogated to the rights of that Bondholder to receive such interest and principal from Powerco. Payments by the Guarantor All moneys paid under the Guarantee will be applied solely to meet interest and principal payments of the Guaranteed Bonds in accordance with the provisions of the Trust Documents and may not be applied to pay any costs or expenses, liabilities or advances of the Trustee or any other person. The Guarantor will make any payments made under the Guarantee to the Trustee. Upon payment to the Trustee in accordance with the Guarantee, the obligations of the Guarantor are discharged. Accordingly, the Bondholders accept risk of non-payment or default by the Trustee after any payment is made by the Guarantor to the Trustee. Substituted Obligor The Trustee may, without the consent of the Bondholders, agree to any Substituted Obligor taking the place of Powerco under the Trust Documents and the Guarantee and Reimbursement Agreement in substitution for Powerco or a previous Substituted Obligor. Such substitution may only occur if a number of requirements are met, as set out in the Trust Documents. These requirements include that: the Substituted Obligor becomes bound by all the conditions of the Trust Documents, the Guarantee and the Guarantee and Reimbursement Agreement; 61

64 Summary of the Trust Documents 62 such amendments are made to the other documents in respect of this Offer as the Trustee may reasonably deem appropriate; two directors of the Substituted Obligor certify that the Substituted Obligor will be solvent immediately after such substitution; any public rating assigned to the Guaranteed Bonds by a rating agency is maintained or increased; Powerco and the Substituted Obligor comply with such reasonable requirements as the Trustee may direct; the Substituted Obligor provides certain warranties and representations to the Bondholders as to the obtaining of authorisations and the validity of the obligations assumed by it; legal opinions are obtained confi rming certain matters, such as that all required authorisations have been obtained and that the amounts payable to the Bondholders will not be reduced by taxes (other than taxes in respect of which the Substituted Obligor has agreed to make compensatory payments to the Bondholders). The consent of the Guarantor will also be required unless a Guarantor Event of Default has occurred and is continuing unremedied. Meetings The Trust Documents contain provisions for meetings of Bondholders and the holders of any other Series of bonds, notes or other debt instruments that may be issued under the Trust Documents, and the matters that may be determined by ordinary or Extraordinary Resolutions. Powerco must call a meeting of Bondholders, or a class of Bondholders, at the request in writing of the Bondholders of at least 10% of the aggregate Principal Amount of the Guaranteed Bonds, or that class of bonds (as the case may be). No Extraordinary Resolution of Bondholders will be effective unless a Guarantor Event of Default has occurred and continues unremedied, other than an Extraordinary Resolution to appoint a replacement Trustee or to direct the Trustee to waive a default in the payment of the Principal Amount of, or any interest on, or other amounts due under, the Guaranteed Bonds. After the occurrence of a Guarantor Event of Default and while it continues unremedied, Bondholders may, by Extraordinary Resolution: direct the Trustee to declare the Bond Moneys to be immediately due and payable; agree, approve, authorise, ratify and sanction various acts, matters or things in relation to, or in connection with, the Trust Documents, the Guaranteed Bonds and the exercise or performance by the Trustee of its powers, duties and discretions under the Trust Documents and the Security Trust Deed. For example, the Bondholders may after the occurrence of a Guarantor Event of Default and while it continues unremedied, by an Extraordinary Resolution: sanction the release of Powerco from payment of all or any part of the Bond Moneys; suspend or postpone the payment of interest on the Guaranteed Bonds or, with the agreement of Powerco, accelerate the Maturity Date of the Guaranteed Bonds; sanction any exchange of Guaranteed Bonds for, or the conversion of Guaranteed Bonds into, other obligations or securities of Powerco or any other company; sanction any alteration, release, modifi cation, waiver, variation or compromise or any other arrangement relating to the rights of the Bondholders against Powerco or its assets; assent to any amendment to the terms of the Trust Documents; sanction, assent to, release or waive any breach or default by Powerco or the Trustee under any of the provisions of the Trust Documents; sanction any scheme for the reconstruction of Powerco or for the amalgamation of Powerco with any other corporation where such sanction is necessary; subject to section 62 of the Securities Act, discharge, release or exonerate the Trustee from all liability in respect of any act or omission for which the Trustee has or may become responsible under the Trust Documents; and subject to the provisions of the Trust Documents, remove the Trustee and approve the appointment of, or appoint, a new Trustee. An Extraordinary Resolution is a resolution passed at a meeting of Bondholders (or of a class of Bondholders) at which at least 75% of the Bondholders (or that class of Bondholders) voting at the meeting, vote in favour of the resolution. A quorum for the purpose of passing an Extraordinary Resolution is two or more Bondholders (present in person or by representative) holding or representing a majority in Principal Amount of the Guaranteed Bonds or, in the case of a meeting of any class of Bondholders, of the Guaranteed Bonds of the relevant class. Anything that may be done by Bondholders (or a class of Bondholders) by an ordinary resolution or an Extraordinary Resolution passed at a meeting of Bondholders (or that class of Bondholders) may be done by a resolution in writing signed by not less than 75% of Bondholders (or that class of Bondholders) having the right to vote on that resolution and holding in aggregate the right to cast not less than 75% of the votes which could be cast on that resolution.

65 Summary of the Trust Documents An Extraordinary Resolution passed at a meeting of Bondholders or a class of Bondholders is binding on all Bondholders, or all Bondholders of that class (as the case may be), whether or not they were present at such meeting. However: a resolution which affects a particular Bondholder only, rather than the rights of all Bondholders generally, or of a particular class of Bondholders generally, will not be binding on such Bondholder unless such Bondholder agrees to be bound by the terms of such resolution; a resolution which affects one class only of Bondholders is deemed to have been duly passed if passed at a properly convened and held meeting of the Bondholders of that class; a resolution which affects more than one class of Bondholders, but does not give rise to a confl ict of interest between the Bondholders of any of the classes so affected, is deemed to have been duly passed if passed at a single properly convened and held meeting of the Bondholders of all classes so affected; and a resolution which affects more than one class of Bondholders and gives rise to a confl ict of interest between the Bondholders of any of the classes so affected is deemed to have been duly passed if passed at separate properly convened and held meetings of the Bondholders of each class so affected. The provisions of the Trust Documents described above in respect of the Guaranteed Bonds are also applicable to any other Series of bonds, notes or other debt instruments issued under the Master Trust Deed, except to the extent provided otherwise in any supplemental trust deed in respect of that Series. In certain circumstances, the Bondholders may form part of a class of holders which also includes holders of other Series of bonds, notes or other debt instruments. Amendment of the Trust Documents The manner in which the Trust Documents may be altered depends on whether at the relevant time the Guarantor is able to control the exercise of the rights and powers of the Trustee. While the Guarantor is able to control the exercise of the rights and powers of the Trustee, the Guarantor has the power to direct the Trustee to alter, or consent to the alteration of, certain provisions of the Trust Documents or to waive their application, subject to certain limitations described below. Unless a Guarantor Event of Default has occurred and continues unremedied, the Trustee is to act solely in accordance with the instructions of the Guarantor in agreeing with Powerco to amend or modify the Trust Documents. However, the Guarantor is not entitled to: agree to any amendment that would alter the amount or the due date of any Bond Moneys, other than as a result of the declaration of any Bond Moneys to be immediately due and payable; or make any amendment to the defi nition of Excluded Rights and the defi nition of Guarantor Event of Default in the Trust Documents. Upon the occurrence of a Guarantor Event of Default and while it continues unremedied, the terms and conditions of the Trust Documents may be altered with the approval of Bondholders (or a class of Bondholders, if applicable) by an Extraordinary Resolution and, in limited circumstances, with the approval only of the Trustee and Powerco. A description of the circumstances in which the Trust Documents may be amended without the approval of the Bondholders is set out on page 51 under the heading Can the investment be altered?. Bondholders may not approve an amendment to the Trust Documents by an Extraordinary Resolution unless a Guarantor Event of Default has occurred and continues unremedied. Any amendment to the Trust Documents will be binding on all Bondholders and will only be effective if it is in writing and signed by Powerco and the Trustee. Miscellaneous The Trust Documents also contain detailed provisions relating to procedures for holding meetings of Bondholders, the transfer and registration of Guaranteed Bonds and various other matters. Because the Guaranteed Bonds are to be registered (rather than bearer) bonds, the Trustee and Powerco are entitled to rely on the Register as the sole and conclusive record of the Guaranteed Bonds held by a Bondholder, notwithstanding any discrepancy between the Register and any certifi cate issued in respect of any Guaranteed Bonds. Any certifi cate will not constitute a document of title. Transfers must be effected using a registrable transfer form, by means of the FASTER system operated by NZX, or by any other method of transfer of marketable securities which is not contrary to any law. A transfer will not take effect until the transferee is registered as the holder of Guaranteed Bonds, and unless the transferor (if it continues to hold Guaranteed Bonds) or the transferee holds Guaranteed Bonds with a minimum Principal Amount of $5,000 and in integral multiples of $1,000. Neither the Trustee nor Powerco is liable to the other or to any Bondholder for relying on the Register or for accepting in good faith as valid the details recorded on the Register if they are subsequently found to be forged, irregular or not authentic. 63

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68 Summary of Security Trust Deed Summary of SECURITY TRUST DEED General The obligations of Powerco under the Trust Documents and the Guaranteed Bonds have the benefi t of a guarantee by the members of the Guaranteeing Group, a security interest over the assets and undertakings of the Guaranteeing Group and certain other undertakings under the Security Trust Deed. As at the date of this Investment Statement, Powerco is the only member of the Guaranteeing Group. The Security Trustee holds the benefi t of these security interests, guarantees and other undertakings for all Secured Benefi ciaries under the Security Trust Deed. This section contains a brief summary of the principal provisions of the Security Trust Deed. Investors requiring further information should refer to the Security Trust Deed, which is available for inspection at the places referred to under the heading What other information can I obtain about his investment? in the section of this Investment Statement entitled Answers to Important Questions on page 54. Security In addition to Powerco s primary obligation in respect of its obligations under the Trust Documents and the Guaranteed Bonds, the obligation by Powerco to pay all amounts due and payable from time to time in respect of the Guaranteed Bonds is secured under the Security Trust Deed. The Trustee is a Senior Secured Benefi ciary and holds the benefi t of its interest in the Security Trust Deed on trust for the benefi t of itself and the Bondholders. All Senior Secured Benefi ciaries will rank pari passu without preference amongst themselves and ahead of all Junior Secured Benefi ciaries. As at the date of this Investment Statement there are no Junior Secured Benefi ciaries. Composition of Guaranteeing Group Powerco has covenanted in the Security Trust Deed that it will ensure that at all times it maintains suffi cient members of the Guaranteeing Group so that at all times the Total Tangible Assets and EBITDA respectively of the Guaranteeing Group is not less than 90% of the Total Tangible Assets and EBITDA respectively of the Group. Powerco has not given any other specifi c covenants in relation to the composition of the Guaranteeing Group. If any subsidiary of Powerco is required to accede to the Guaranteeing Group in order to maintain compliance with this covenant, Powerco will procure that the subsidiary will execute a joining deed in the form required under the Security Trust Deed. Additional Covenants The Security Trust Deed contains a number of covenants in addition to the Guaranteeing Group covenant referred to above, including: the Guaranteeing Group will not dispose of assets in any fi nancial year the book value of which in aggregate exceeds 10% of the Total Tangible Assets of the Guaranteeing Group except with the prior consent of the Security Trustee or in certain limited circumstances set out in the Security Trust Deed; the Guaranteeing Group will not create or permit to exist any security interest over any of their assets except under the Security Trust Deed and in certain other limited circumstances set out in the Security Trust Deed; the Guaranteeing Group will not deal with any person except at arm s length (or on terms more favourable to it) in the ordinary course of business. This covenant does not restrict the Guaranteeing Group from borrowing any subordinated indebtedness on these terms; no member of the Group may advance money, or make available fi nancial accommodation to or for the benefi t of, or give any guarantee or security interest in connection with a liability of, any member of the BBIL Group, except from the payment of distributions permitted under the Security Trust Deed (as referred to in the paragraph below); no member of the Group may enter into any agreement under which a default by any member of the BBIL Group would constitute a default under that agreement; and the Guaranteeing Group is restricted from entering into transactions with other parties (other than another member of the Guaranteeing Group) except in the ordinary course of business on normal commercial terms or with the prior written consent of the Security Trustee. Investors should refer to the Security Trust Deed for a complete list and a more detailed description of the covenants and undertakings given by each member of the Guaranteeing Group under the Security Trust Deed. 66

69 Summary of Security Trust Deed Restrictions on the Payment of Distributions Powerco may only make a distribution if certain conditions are satisfi ed on the date on which the distribution is proposed to be made. These include: the Interest Cover Ratio and the Forecast Interest Cover Ratio on the immediately preceding Calculation Date must each be greater than or equal to 1.85 times; the Senior Leverage Ratio on the immediately preceding Calculation Date must be less than or equal to 70%; the Leverage Ratio on the immediately preceding Calculation Date must be less than or equal to 80%; the amount of the distribution must not exceed the sum of EBITDA of the Group for the three months ending on the date the distribution is proposed to be made less the interest and fi nancing costs of the Group for that period; suffi cient cash must be retained within the Group or otherwise is available to fund Powerco s forecast working capital, capital expenditure and debt service requirements for the next 12 months; and no event of default under the Security Trust Deed must be subsisting or would occur as a result of the distribution being made. Two directors of Powerco must certify to the Security Trustee that Powerco is in compliance with these conditions. Events of Default In summary, the events of default under the Security Trust Deed include a failure by a member of the Guaranteeing Group to pay within fi ve business days of its due date any principal amount outstanding under a Secured Debt Facility, any representation, warranty or statement given by a member of the Guaranteeing Group under any Secured Debt Facility being untrue in any material respect and such Secured Debt Facility is accelerated as a consequence; any member of the Guaranteeing Group breaches any undertaking or obligation under a Secured Debt Facility and that Secured Debt Facility is accelerated as a consequence; any indebtedness in excess of NZ$10 million is not paid when due by any member of the Guaranteeing Group or becomes capable of being rendered due and payable prior to its stated maturity as a consequence of any event of default; any receiver or similar offi cial is appointed in respect of any member of the Guaranteeing Group or the whole or any material part of its assets; or the Security Trustee is instructed by a Major Creditor to enforce the security interests under the Security Trust Deed as a consequence of an event of default under a Secured Debt Facility. Investors should refer to the Security Trust Deed for a complete list and a more detailed description of the events and circumstances that constitute an event of default under the Security Trust Deed. Enforcement of Security Trust Deed If an event of default occurs under the Security Trust Deed or a Secured Debt Facility, the Security Trustee is required on the direction of any Major Creditor or the Majority Benefi ciaries (in the case of an event of default under the Security Trust Deed) or of any Major Creditor under the Secured Debt Facility (in the case of an event of default under that Secured Debt Facility) to declare each security interest created under the Security Trust Deed to become immediately enforceable. A Major Creditor and Majority Benefi ciaries are as defi ned in the section of this Investment Statement entitled Special Terms Used. The Trustee will be a Major Creditor for the purposes of the Security Trust Deed while the total principal amount outstanding under the Guaranteed Bonds exceeds NZ$75 million. Accordingly, subject to the Guarantor s rights of control (as referred to in the next paragraph), upon the occurrence of an Event of Default under the Trust Documents or an event of default under the Security Trust Deed, the Trustee may, and immediately upon being directed to do so by an Extraordinary Resolution of Bondholders must, instruct the Security Trustee to enforce the security interests under the Security Trust Deed. Unless a Guarantor Event of Default has occurred and continues unremedied, Bondholders will have no right to direct the Trustee to instruct the Security Trustee to enforce the security interests under the Security Trust Deed and the Trustee may only act in accordance with the directions of the Guarantor. 67

70 Summary of Security Trust Deed Proceeds of Enforcement In the event of any proceedings being taken against Powerco or any other member of the Guaranteeing Group (if any), all amounts recovered under the Security Trust Deed will be distributed in the following order: First: in and towards satisfaction of the fees and all other amounts payable to the Security Trustee and any costs, charges, liabilities and expenses incurred by the Security Trustee under the Security Trust Deed; Second: in and towards satisfaction pro rata to the Senior Secured Benefi ciaries of the Senior Secured Debt (including the Trustee, acting on behalf of Bondholders in relation to the Guaranteed Bonds) on the basis of their respective amounts thereof; Third: in and towards satisfaction pro rata to the Junior Secured Benefi ciaries of the Junior Secured Debt (if any); and Fourth: if any surplus remains, to the Guaranteeing Group. Release of Security Trust Deed The Security Trust Deed may only be released in the following circumstances: if: each member of the Guaranteeing Group has paid all its Secured Debt; and neither a Secured Benefi ciary nor the Security Trustee is required to make available any further fi nancial accommodation in respect of any Secured Debt; and there is no reasonable possibility that any Secured Debt recovered by the Security Trustee or any Secured Benefi ciary will have to be repaid under any applicable law; or if a negative pledge deed in a form approved by the Majority Benefi ciaries is entered into in favour of the Secured Benefi ciaries; or if such release is otherwise approved by the Majority Benefi ciaries. If at the time of or immediately after the proposed release, Powerco s long-term credit rating from Moody s or Standard & Poor s, would be below Baa3 or BBB- respectively, then for the purposes of this provision the Majority Benefi ciaries must also include each Major Creditor. Release of Guaranteeing Subsidiary The Security Trustee must release a Guaranteeing Subsidiary from its obligations under the Security Trust Deed, if the Security Trustee receives a notice from Powerco requesting such release and that notice is accompanied by a certifi cate signed by two directors of Powerco stating that: no event of default under the Security Trust Deed has occurred and is continuing, or would occur as a result of the release of that Guaranteeing Subsidiary; there is no Secured Debt owing by that Guaranteeing Subsidiary; and Powerco is and, after giving effect to such release, would be in compliance with the requirements of the Guaranteeing Group covenant noted above. 68

71 Special Terms Used Special Terms Used This section contains the defi nitions of a number of special terms used in relation to the Guarantee, the Trust Documents and the Security Trust Deed. Borrowed Money Indebtedness Commitment Debt means the principal amount, including capitalised interest and fees forming part of that principal amount (or the economic equivalent of the principal amount) of indebtedness, and interest, fees, makewhole amounts or other premiums which have not been paid when due (or the economic equivalent of interest, fees, make-whole amounts or other premiums, however described) in respect of money borrowed, negotiable instruments, rental or lease payments under fi nance leases or any other fi nancial arrangement which would be considered as a fi nancial liability or debt for the purposes of New Zealand GAAP, but excluding for these purposes contingent liabilities (other than contingent liabilities in respect of any amount which comprises Borrowed Money Indebtedness), the deferred purchase price of assets or services purchased in the ordinary course of business on normal trade terms and in respect of which payment is deferred for not more than 60 days, liabilities under derivative and foreign exchange contracts and any non recourse debt. For the avoidance of doubt, no amounts will be double counted means, at any date, in relation to the Secured Debt of the Guaranteeing Group to a Secured Benefi ciary, the amount which is the greater of: (a) the NZ Dollar equivalent of the principal amount of the Secured Debt actually or contingently owing, or which is estimated to be actually or contingently owing, by the Guaranteeing Group to the relevant Secured Benefi ciary under the relevant Secured Debt Facility at that date; or (b) the NZ Dollar equivalent of the aggregate maximum principal amount of the committed accommodation facilities available to the Guaranteeing Group from the relevant Secured Benefi ciary at that date under the relevant Secured Debt Facility and intended to form part of the Secured Debt, in either case as certifi ed or estimated by the relevant Secured Benefi ciary in a written statement provided to Powerco at its request not later than two days before the relevant date or, in the absence of such a statement, as certifi ed or estimated by Powerco, any such statement or estimate to be conclusive for the purposes of the Security Trust Deed in the absence of manifest error and for the purposes of this defi nition the Commitment pertaining to: (a) a derivative contract, shall be as certifi ed by the relevant Secured Benefi ciary in accordance with its usual procedures and criteria for determining the maximum amount of the assessed exposure for credit purposes in relation to the net Secured Debt represented thereby or, in the absence of any such certifi cation, by Powerco on a mark to market basis; or (b) a note, bond or other debt security, shall be the outstanding principal amount of the note or debt security or, if stated in the terms and conditions applicable to such note, bond or debt security or otherwise expressly agreed by Powerco and the relevant Secured Benefi ciary, the agreed redemption value or present value thereof. For the purposes of paragraph (b), a committed accommodation facility does not include a Secured Debt Facility under which (in the relevant Secured Benefi ciary s reasonable opinion), the Secured Benefi ciary is not and will not at any time in the future, become legally obligated to provide fi nancial accommodation, whether because of an inability of the relevant Guaranteeing Group member or members to satisfy conditions precedent or otherwise means, at any date, the total Borrowed Money Indebtedness of the Group as at that date including, for the avoidance of doubt, Subordinated Debt, but excluding any Borrowed Money Indebtedness falling within paragraph (b) of the defi nition of Equity 69

72 Special Terms Used EBITDA Equity Forecast Interest Coverage Ratio Group Model Interest and Financing Costs Interest Coverage Ratio Junior Secured Beneficiary means, at any date, for the 12 month period ending on that date, earnings before Interest and Financing Costs, taxation, depreciation, amortisation and any other non-cash, non-recurring losses or charges of the Guaranteeing Group or, as the case may be, the Group on a consolidated basis during that period which would be disclosed by a consolidated fi nancial statement of the Group if one were prepared as at that date for that period. For the purposes of calculating earnings, any non-cash net income, gain, or loss during the relevant period from any change in accounting policies, any non-cash extraordinary items, any prior period adjustments, or non-cash gains (or losses) on asset dispositions and any non-cash unrealised gains and losses related to hedging activities and any non-cash unrealised gains and losses arising on the translation of foreign currency borrowings, will be excluded. For the purpose of calculating EBITDA for the Guaranteeing Group covenant, EBITDA of the Group shall also include, on a pro forma basis, the EBITDA of a person which became a subsidiary of a member of the Group during the period for which EBITDA is being calculated and EBITDA of the Guaranteeing Group shall also include, on a pro forma basis, the EBITDA of a person which became a Guaranteeing Subsidiary during the period for which EBITDA is being calculated, and EBITDA of the Group or, as the case may be, the Guaranteeing Group shall exclude, on a pro forma basis, the EBITDA, in the case of the Group, of a person that ceased being a subsidiary of a member of the Group during such period or, in the case of the Guaranteeing Group, of the person that ceased being a Guaranteeing Subsidiary during such period means, at any date, the sum of: (a) shareholders equity, preferred securities, minority interests, and Subordinated Debt; and (b) any indebtedness owing to Powerco s shareholder that is subordinated on terms set out in the Security Trust Deed or is otherwise approved in writing by the Security Trustee acting upon the instructions of the Majority Benefi ciaries, which would be disclosed by a consolidated fi nancial statement of the Group if one were prepared as at that date, but excluding any unrealised gains and losses relating to any derivative transactions and any unrealised gains and losses arising on the translation of foreign currency borrowings (to the extent the gain or loss is matched by a derivative hedge) which would be disclosed by a consolidated fi nancial statement of the Group if one were prepared as at that date means, at any date, the ratio of forecast EBITDA of the Group for the 12 months beginning on that date to forecast Interest and Financing Costs of the Group for the 12 months beginning on that date, each as forecast in the Group Model means, at any date in respect of any relevant period ending on a forward date, a fi nancial model prepared by Powerco and approved by the Board which forecasts the statement of fi nancial position and statement of fi nancial performance of the Group on a consolidated basis for that period which would be disclosed by a consolidated fi nancial statement of the Group if one were prepared as at that date for that period means, at any date, an amount equal to all interest and other fi nancing costs incurred by the Guaranteeing Group or, as the case may be, the Group, calculated on a consolidated basis in accordance with New Zealand GAAP, for the 12 months ending on that date, including (without limitation): (a) the amount of all discounts and similar allowances on the issue or disposal of debt instruments; (b) all fi nance charges under fi nance leases and hire purchase agreements of a fi nancing nature; and (c) all other expenses and amounts that are required by New Zealand GAAP to be treated as interest or fi nancing costs, after deducting interest income of the Guaranteeing Group or, as the case may be, the Group, received or accrued during that period but excluding interest on moneys borrowed or raised to acquire, develop or improve fi xed assets or other acquisitions, to the extent that they have been capitalised in the accounts of the Guaranteeing Group or, as the case may be, the Group and are not paid in cash means, on any date, the ratio of EBITDA of the Group to Interest and Financing Costs of the Group means each person who is from time to time party to any Junior Secured Debt Facility and to whom Powerco has expressly extended in writing the benefi t of the Security Trust Deed but does not include any person who is a related entity of Powerco 70

73 Special Terms Used Junior Secured Debt Junior Secured Debt Facility Leverage Ratio Major Creditor Majority Beneficiaries means: (a) in relation to a member of the Guaranteeing Group: (i) all indebtedness (including, without limitation, principal, interest, make-whole amounts or other premiums, fees, costs and expenses) owed by that member of the Guaranteeing Group under or in connection with the Junior Secured Debt Facilities (including, for the purposes of sections 71 and 72 of the PPSA, future advances); and (ii) all indebtedness of that member of the Guaranteeing Group under the Security Trust Deed; and (b) when used without reference to a particular member of the Guaranteeing Group, means all such indebtedness of each member of the Guaranteeing Group means each agreement or instrument designated as a Junior Secured Debt Facility in a deed of acknowledgement issued to a Junior Secured Benefi ciary or other document pursuant to which the benefi t of the Security Trust Deed is extended means, on any date, the ratio that Debt bears to the aggregate of Senior Debt and Equity on that date means, at any time: (a) any Senior Secured Benefi ciary whose total Commitments exceed NZ$75,000,000 (or its NZ Dollar equivalent) at the relevant time; or (b) any group of Senior Secured Benefi ciaries (either acting together or through an agent or trustee or other representative) who are party to, or have the benefi t of, the same Secured Debt Facility, whose total Commitments under that Secured Debt Facility exceed NZ$75,000,000 (or its NZ Dollar equivalent) at the relevant time, and, if at the relevant time there are no Senior Secured Benefi ciaries, means: (c) any Junior Secured Benefi ciary whose total Commitments exceed NZ$75,000,000 (or its NZ Dollar equivalent) at the relevant time; or (d) any group of Junior Secured Benefi ciaries (either acting together or through an agent or trustee or other representative) who are party to, or have the benefi t of, the same Secured Debt Facility and whose total Commitments under that Secured Debt Facility exceed NZ$75,000,000 (or its NZ Dollar equivalent) at the relevant time. For the purposes of this defi nition, the terms: (e) except in certain limited circumstances, Senior Secured Benefi ciaries excludes Senior Secured Benefi ciaries who are solely holders of promissory notes or other debt securities having a term of 364 days or less; (f) except in certain limited circumstances, Junior Secured Benefi ciaries excludes Junior Secured Benefi ciaries who are solely holders of promissory notes or other debt securities having a term of 364 days or less; and (g) if at the relevant time there is no Senior Secured Benefi ciary, or group of Senior Secured Benefi ciaries, who satisfy the requirements of paragraphs (a) and (b) above, Major Creditor means Senior Secured Benefi ciaries who hold at least % of the Total Commitments held at that time by all Senior Secured Benefi ciaries means, at any time, but subject to paragraphs (a) and (b) below, Senior Secured Benefi ciaries who hold at least % of the Total Commitments held at that time by all Senior Secured Benefi ciaries and, if at the relevant time there are no Senior Secured Benefi ciaries, means Junior Secured Benefi ciaries who hold at least % of the Total Commitments held at that time by all Junior Secured Benefi ciaries provided that: (a) for the purposes of any proposed variation or waiver, if the proposed variation or waiver: (i) would have an adverse effect on any Major Creditor when compared with the effect it has on the other Secured Benefi ciaries, then solely for the purposes of giving instructions to the Security Trustee in relation to the relevant variation or waiver, any approval of the Majority Benefi ciaries must also include the approval of each such Major Creditor; and (ii) relates to enforcement of the security interests created under the Security Trust Deed, the Majority Benefi ciaries must also include each Major Creditor; and (b) for the purposes of the redemption of the secured property pursuant to the terms of the Security Trust Deed, if: (i) at the time of, or immediately after, the redemption, Powerco s long term credit rating from Moody s is, or would be, below Baa3 or Powerco s long term credit rating from Standard & Poor s is, or would be, below BBB-; or (ii) at the time of the redemption Powerco is unrated by both of Moody s and Standard & Poor s, then Majority Benefi ciaries must also include each Major Creditor 71

74 Special Terms Used Secured Beneficiaries Secured Debt means: (a) the Security Trustee (on its own account and as security trustee under the Security Trust Deed); (b) each Senior Secured Benefi ciary; and (c) each Junior Secured Benefi ciary means Senior Secured Debt and Junior Secured Debt Secured Debt Facility means any Senior Secured Debt Facility or any Junior Secured Debt Facility Senior Debt Senior Leverage Ratio Senior Secured Beneficiary Senior Secured Debt Senior Secured Debt Facility Total Assets Total Commitments Total Tangible Assets means, at any date, Debt less the aggregate principal amount of Subordinated Debt means, on any date, the ratio that Senior Debt bears to the aggregate of Senior Debt and Equity on that date means each person who is from time to time party to any Senior Secured Debt Facility and to whom Powerco has expressly extended in writing the benefi t of the Security Trust Deed but does not include any person who is a related entity of Powerco means: (a) in relation to a member of the Guaranteeing Group: (i) all indebtedness (including, without limitation, principal, interest, make-whole amounts or other premiums, fees, costs and expenses) and other obligations owed by that member of the Guaranteeing Group under or in connection with the Senior Secured Debt Facilities (including, for the purposes of sections 71 and 72 of the PPSA, future advances); and (ii) all indebtedness and other obligations of that member of the Guaranteeing Group under the Security Trust Deed; and (b) when used without reference to a particular member of the Guaranteeing Group, means all such indebtedness and other obligations of each member of the Guaranteeing Group means each agreement or instrument designated as a Senior Secured Debt Facility in a deed of acknowledgement issued to a Senior Secured Benefi ciary or other document pursuant to which the benefi t of the Security Trust Deed is extended means, at any date in relation to the Group or the Guaranteeing Group, the total assets of the Group or the Guaranteeing Group, as the case may be, determined on a consolidated basis in accordance with New Zealand GAAP means, at any date, the aggregate of the Commitments at that date means, at any date in relation to the Group or the Guaranteeing Group, the aggregate amount on a consolidated basis of Total Assets of the Group or the Guaranteeing Group, as the case may be, that would be disclosed by the consolidated fi nancial statements (as defi ned in the Trust Documents) of the Group or the Guaranteeing Group, as the case may be, if they were prepared as at that date, after excluding all assets that according to New Zealand GAAP should be classifi ed as intangible assets in respect of the Group or the Guaranteeing Group, as the case may be 72

75 Glossary Glossary This section contains the meanings of a number of capitalised terms used in this Investment Statement. Other capitalised terms used in this Investment Statement which relate to the Guarantee, the Trust Documents or the Security Trust Deed have the meaning given to them in the section of this Investment Statement entitled Special Terms Used (pages 69 to 72). In this Investment Statement, unless the context otherwise requires: ANZ Investment Bank means ANZ Investment Bank, a part of ANZ National Bank Limited Application Form ASX Auditor means the application form included at the back of this Investment Statement means the Australian Stock Exchange Limited (ABN ) or any successor to it means Powerco s auditor for the time being, and being Deloitte as at the date of this Investment Statement Babcock & Brown means Babcock & Brown Australia Pty Limited (ACN ) BBIL BBIL Group means Babcock & Brown Infrastructure Limited (ABN ) (formerly Prime Infrastructure Management Limited) means: (a) BBIL and all of its subsidiaries from time to time, excluding any member of the Group; and (b) BBIS as trustee of the BBI Trust and all of its subsidiaries BBIS means Babcock & Brown Investor Services Limited (ABN ) BBI Networks (Aus) BBI Networks (NZ) BBI Trust Board Bond Moneys Bondholder Business Day Calculation Date Capital Bonds Cash Subscription Moneys CentralPower means BBI Networks (Australia) Pty Limited (ACN ) (formerly Prime Infrastructure Networks (Australia) Pty Limited) means BBI Networks (New Zealand) Limited (formerly Prime Infrastructure Networks (New Zealand) Limited) means the Babcock & Brown Infrastructure Trust (ARSN ) (formerly Prime Infrastructure Trust) an Australian managed investment scheme registered with the Australian Securities and Investments Commission means the board of Directors of Powerco means, at any time, the Principal Amount, interest and other moneys payable on the Guaranteed Bonds and all other moneys payable to, or at the direction of, the Trustee or to any Bondholder, at that time under or pursuant to the Trust Documents means, in relation to a Guaranteed Bond, the person for the time being entered in the Register as the holder of the Guaranteed Bond means a day (other than a Saturday or a Sunday) on which registered banks are generally open for business in Wellington, Auckland and New Plymouth and, in certain other limited circumstances relating to the Guarantor, New York means 31 March, 30 June, 30 September and 31 December in each year until the Maturity Date means the capital bonds issued by Powerco under the trust deed dated 26 April 2002 between Powerco and The New Zealand Guardian Trust Company Limited (as described in an investment statement and prospectus dated 26 April 2002) and which were cancelled by Powerco in April 2005 means the moneys paid by an initial Bondholder in respect of their application for Guaranteed Bonds means CentralPower Limited, which was amalgamated with Powerco (then called Mergeco Limited), Former Powerco and Taranaki Energy Limited on 1 September

76 74

77

78 Closing Time means 5.00pm on 26 September 2005 or such earlier date on which applications are received and accepted for the maximum aggregate Principal Amount of the Guaranteed Bonds, or such other date as Powerco determines Companies Act means the Companies Act 1993 Directors means the directors of Powerco Event of Default has the meaning given to that term in the Trust Documents, as summarised on page 59 Excluded Rights Extraordinary Resolution Financial Statements Fitch Former Powerco Group Guarantee Guarantee and Reimbursement Agreement Guaranteed Bonds Guaranteeing Group Guaranteeing Subsidiary means the rights and powers of the Trustee under the Trust Documents of which the Guarantor is not entitled to control the exercise, as listed on page 55 means: (a) a resolution passed at a meeting of Bondholders (or a class of Bondholders, if applicable) at which at least 75% of such Bondholders (or that class of Bondholders) voting at the meeting, vote in favour of the resolution; or (b) a resolution in writing signed by not less than 75% of Bondholders (or a class of Bondholders, if applicable) having the right to vote on that resolution, holding in aggregate Guaranteed Bonds conferring the right to cast not less than 75% of the votes which could be cast on that resolution means, with respect to a person or group of persons, fi nancial statements within the meaning of section 8 or 9 (as appropriate) of the Financial Reporting Act 1993 means Fitch, Inc. means the company formerly called which amalgamated with its subsidiary Taranaki Energy Limited, Powerco (then called Mergeco Limited) and CentralPower on 1 September 2000 means Powerco and all of its subsidiaries (as defi ned in the Master Trust Deed) from time to time means the fi nancial guaranty, the form of which has been agreed between Powerco, the Guarantor and the Trustee, to be executed by the Guarantor in favour of the Trustee (on behalf of the Bondholders) in relation to the obligations of Powerco to make scheduled payments of interest and principal on the Guaranteed Bonds, as summarised in the section of this Investment Statement entitled Summary of Guarantee on pages 29 to 31 means the guaranty and reimbursement agreement dated 2 September 2005 between Powerco and the Guarantor which provides for the reimbursement of and indemnity by Powerco to the Guarantor of all amounts paid or payable by the Guarantor under the Guarantee means the bonds offered for subscription under this Investment Statement and the Prospectus means Powerco and each Guaranteeing Subsidiary (Powerco will be the sole member of the Guaranteeing Group as at the date of this Investment Statement) means each subsidiary of Powerco that accedes to the Security Trust Deed from time to time by executing a joining deed (to the extent not subsequently released in accordance with the terms of the Security Trust Deed) Guarantor means XL Capital Assurance Inc. of 1221 Avenue of the Americas, New York, New York 10020, United States Guarantor Event of Default means the occurrence of any of the following events: (a) the Guarantor fails to pay any amount owing by it under the Guarantee within two Business Days of the date such sum is due (including any grace period) in accordance with the terms and conditions of the Guarantee; or (b) the Guarantor: fi les any petition or commences any case or proceeding under any provision or chapter of any Bankruptcy Law (as defi ned below); makes any assignment for the benefi t of its creditors; or is the subject of a fi nal and non-appealable order, judgment or decree appointing any receiver, trustee, assignee, custodian, sequestrator, liquidator, rehabilitator, administrator or similar offi cial under any Bankruptcy Law ( Custodian ) for the Guarantor or for all or any material portion of its property or authorising the taking of possession by a Custodian of the Guarantor; or (c) the Guarantor disclaims, disaffi rms, or repudiates the Guarantee and/or alleges that the Guarantee does not constitute its legal, valid and binding obligations. In this defi nition, Bankruptcy Law means the laws of the State of New York, the United States Bankruptcy Code or any similar present or future federal or state bankruptcy, insolvency, reorganisation, moratorium, rehabilitation, dissolution, conservation, fraudulent conveyance or similar law, statute or regulation enacted in the United States for the relief of debtors

79 Glossary IFRS Interest Payment Dates Interest Rate Set Date means International Financial Reporting Standards means 28 March, 28 June, 28 September and 28 December in each year (unless such date is not a Business Day, in which case it will be the next Business Day), up to (and including) the Maturity Date of each Tranche, with the fi rst Interest Payment Date being 28 December 2005 means 26 September 2005 Investment Statement means this investment statement dated Issue Date means 28 September 2005 Joint Lead Managers Listing Rules means ANZ Investment Bank and Westpac Institutional Bank means the NZSX and NZDX Listing Rules Master Trust Deed means the master trust deed entered into between Powerco and the Trustee dated 16 February 2004 under which Powerco (or any wholly owned subsidiary nominated by Powerco) may issue Series of bonds, notes or other debt instruments, including the Guaranteed Bonds Maturity Date Minimum Rate Set Date Moody s New Zealand GAAP Note Purchase Agreements NZDX NZSX NZX Offer Official Cash Rate Opening Date Organising Participant Payment Notice Powerco means 28 September 2012 in respect of a Seven Year Guaranteed Bond and 28 September 2017 in respect of a Twelve Year Guaranteed Bond means 8 September 2005 means Moody s Investor Services Pty Limited means generally accepted accounting practice in New Zealand (as defi ned in the Financial Reporting Act 1993) means each note purchase agreement dated 25 November 2003 (as amended by Amendment Agreement dated 10 March 2005) between Powerco, as the issuer of senior unsecured notes, and a purchaser of such notes means the debt security market operated by NZX means the equity security market operated by NZX means New Zealand Exchange Limited means the offer of Guaranteed Bonds set out in this Investment Statement and the Prospectus means, from time to time, the offi cial cash rate issued by the Reserve Bank of New Zealand at that time means 12 September 2005 or such other date as Powerco determines means Westpac Institutional Bank means a completed notice in the form of Exhibit A to the Guarantee, which the Trustee is obliged to deliver to the Guarantor, making a demand for payment upon any failure by Powerco to make a scheduled payment of interest or principal on the Guaranteed Bonds to the Trustee means PPSA means the Personal Property Securities Act 1999 Primary Market Participant Principal Amount Prospectus Record Date Register Registrar has the meaning given to that term in the NZX Participant Rules made by NZX from time to time means the issue price of $1.00 for each Guaranteed Bond and any multiple thereof means the prospectus relating to this Offer dated, which has been registered with the Registrar of Companies means, in relation to a payment due on a Guaranteed Bond, 5.00pm on the tenth day before the due date for that payment (or, if that day is not a Business Day, the preceding Business Day) means the register of Guaranteed Bonds maintained by the Registrar in accordance with the Trust Documents and the registrar and paying agency agreement dated 16 February 2004 between Powerco and the Registrar as amended on 2 September 2005 means Computershare Investor Services Limited Securities Act means the Securities Act

80 Glossary Securities Regulations Security Trust Deed Security Trustee Series Seven Year Guaranteed Bonds means the Securities Regulations 1983 means the security trust deed dated 10 March 2005 between Powerco and the Security Trustee means The New Zealand Guardian Trust Company Limited, or such other trustee appointed under the Security Trust Deed from time to time means the bonds, notes or other debt instruments issued under a particular trust deed supplemental to the Master Trust Deed (which may be issued in one or more Tranches) means Guaranteed Bonds designated by Powerco upon issue as Seven Year Guaranteed Bonds Seven Year Swap Rate means the average of the bid and offered swap rate displayed at or about 11.00am on the relevant date on Reuters page PYNZSWAP for an interest rate swap with a maturity date approximately equal to the Maturity Date of the Seven Year Guaranteed Bonds, adjusted for a quarterly interest payment, as determined by the Joint Lead Managers Standard & Poor s Subordinated Bonds Substituted Obligor Supplemental Trust Deed means Standard & Poor s (Australia) Pty Limited or any of its relevant affi liates means subordinated bonds issued by Powerco under the unsecured subordinated bonds trust deed dated 11 March 2005 and made between Powerco and The New Zealand Guardian Trust Company Limited, as trustee, as modifi ed or supplemented from time to time means any wholly owned subsidiary of Powerco which, subject to the approval of the Trustee and the Guarantor (unless a Guarantor Event of Default has occurred and is continuing unremedied), and a number of other requirements, takes the place of Powerco under the Trust Documents and the Guarantee and Reimbursement Agreement in substitution for Powerco or a previous Substituted Obligor means the supplemental trust deed (no. 2) executed by Powerco and the Trustee dated 2 September 2005 as a supplement to the Master Trust Deed in relation to the Guaranteed Bonds Takeovers Code means the Takeovers Code recorded in the Takeovers Code Approval Order 2000 (SR 2000/210) Total Net Worth Tranches Transpower Trust Documents Trustee Twelve Year Guaranteed Bonds Twelve Year Swap Rate Vector Westpac Institutional Bank XLFA means the sum of shareholders equity, preferred securities, minority interests and Subordinated Bonds, as set out in the consolidated annual fi nancial statements of the Group, but excluding any unrealised gains and losses relating to hedging activities and any unrealised gains and losses arising on the translation of foreign currency borrowings means bonds, notes or other debt instruments of the same Series in respect of which all terms are identical (except as to the issue date, the maturity date, interest rate, quantities, denominations, currency of payment, and/or frequency of payment of interest, repayments and prepayments), and each of the Seven Year Guaranteed Bonds and the Twelve Year Guaranteed Bonds constitute a Tranche means Transpower New Zealand Limited, the operator of New Zealand s electricity grid means the Master Trust Deed and the Supplemental Trust Deed read together (and on the basis that the Supplemental Trust Deed prevails to the extent it modifi es the Master Trust Deed or in the event of a confl ict between those documents) means The New Zealand Guardian Trust Company Limited or such other trustee of the Guaranteed Bonds as appointed from time to time means Guaranteed Bonds designated by Powerco upon issue as Twelve Year Guaranteed Bonds means the average of the bid and offered swap rate displayed at or about 11.00am on the relevant date on Reuters page PYNZSWAP for an interest rate swap with a maturity date approximately equal to the Maturity Date of the Twelve Year Guaranteed Bonds, adjusted for a quarterly interest payment, as determined by the Joint Lead Managers means Vector Limited means Westpac Institutional Bank, a division of Westpac Banking Corporation (ABN ) means XL Financial Assurance Ltd 78

81 Application instructions Application INSTRUCTIONS Applications to subscribe for Guaranteed Bonds must be made on the Application Form contained in this Investment Statement. Contact Details Insert your full name(s), address and telephone numbers. Applications must be in the name(s) of natural persons, companies or other legal entities, up to a maximum of three names per application. Use the table below to see how to write your name correctly. Type of Investor: Incorrect way to Write Name: Correct way to Write Name: Individual person J SMITH JOHN SMITH More than one person J & M SMITH JOHN SMITH MICHELLE SMITH Company ABC ABC LIMITED Trusts SMITH FAMILY TRUST JOHN SMITH (JOHN SMITH FAMILY A/C) Partnerships JOHN SMITH & SONS JOHN SMITH MICHAEL SMITH (JOHN SMITH AND SONS A/C) Clubs and unincorporated associations Superannuation funds SMITH INVESTMENT CLUB JOHN SMITH SUPERANNUATION FUND JANE SMITH (SMITH INVESTMENT CLUB A/C) JOHN SMITH LIMITED (SUPERANNUATION FUND A/C) Application Details Complete the Principal Amount of Guaranteed Bonds applied for. Note the minimum Principal Amount and minimum integral multiples for each Tranche of Guaranteed Bonds that are stated in the Application Form. If you have other investments registered at Computershare tick the relevant box and enter your Computershare number or Common Shareholder Number (CSN). Provide your IRD number. Elect the rate at which you wish resident withholding tax to be deducted by ticking the relevant box. Tick the relevant box if you hold a resident withholding tax exemption certifi cate. If you hold a valid exemption, please attach a photocopy of the exemption certifi cate and supply the expiry date. If Computershare has your tax and bank account details, you do not need to complete the sections headed Resident Withholding Tax Rate or Bank Account Details for Payment of Interest and Principal. Payments of Interest and Principal Payments of interest and principal in respect of the Guaranteed Bonds will be made only into a bank account. Payments of interest and principal will not be made by cheque. Complete the details of the bank account into which interest and principal in respect of the Guaranteed Bonds is to be paid. Interest calculated at the applicable interest rate and payable to successful applicants on Cash Subscription Moneys (as detailed on page 7 of this Investment Statement) will also be paid into the bank account indicated on the Application Form. Annual and Half-Yearly Reports Bondholders will automatically receive copies of the annual and half-yearly reports of Powerco each year. Tick the relevant box if you do not wish to receive copies of those reports. 79

82 Application instructions Signing and Dating Read the Application Form carefully and sign and date the form. The Application Form must be signed by the applicant(s) personally, or by two directors of a company (or one director if there is only one director, whose signature must be witnessed), or in either case by an attorney or duly authorised agent. If the Application Form is signed by an attorney, the power of attorney document is not required to be lodged, but the attorney must complete the certifi cate of nonrevocation of power of attorney on the reverse of the Application Form. If the Application Form is signed by an agent, the agent must complete the certifi cate of agent on the reverse of the Application Form. Joint applicants must each sign the Application Form. Payment Investors who are members of Austraclear New Zealand may settle their applications for the Guaranteed Bonds on the Issue Date through the Austraclear New Zealand system. Investors who are not members of Austraclear New Zealand or Austraclear members who wish to settle their applications prior to the Issue Date must pay for the Guaranteed Bonds applied for by a cheque delivered with the Application Form prior to the Closing Time or by another payment method approved by the Joint Lead Managers, the Organising Participant or other selected fi nancial institutions to which the Application Form is being delivered. The Guaranteed Bonds are issued at par value so the purchase price is an amount equal to the aggregate Principal Amount of the Guaranteed Bonds for which you apply. Payment must be made in New Zealand dollars. Cheques must be drawn on a New Zealand registered bank. Cheques must be made payable to Powerco Guaranteed Bonds Offer, crossed Not Transferable and must not be post-dated. If an applicant s cheque is dishonoured, Powerco may cancel that applicant s allotment of Guaranteed Bonds and pursue any other remedies available to it at law. Closing Time This Offer will close on 5.00pm on 26 September 2005 (the Closing Time ) or such earlier date on which applications are received and accepted for the maximum aggregate Principal Amount of the Guaranteed Bonds. Powerco reserves the right to vary the Closing Time and extend the period of this Offer. Powerco reserves the right to refuse to accept applications received by the Registrar after the Closing Time. Delivery Applications received cannot be revoked or withdrawn. Completed Application Forms and, if you are to make payment by cheque, your cheque for the Guaranteed Bonds applied for should be sent to: c/- Computershare Investor Services Limited Level Hurstmere Road Takapuna Private Bag Auckland Alternatively, applications may be lodged with any Primary Market Participant, the Organising Participant or either of the Joint Lead Managers in time to enable such applications to be forwarded to the Registrar before the Closing Time. The addresses of the Joint Lead Managers and the Organising Participant are set out below. Joint Lead Manager ANZ Investment Bank Level 8 NBNZ House 1-9 Victoria Street P O Box 540 Wellington Attention: Debt Capital Markets Telephone: (04) Facsimile: (04) Joint Lead Manager Westpac Institutional Bank Level 15 Mobil on the Park 157 Lambton Quay Wellington Attention: Michael Warrington, Head of Investor Sales Freephone: Facsimile: (04) Organising Participant Westpac Institutional Bank Level Quay Street Auckland Attention: Syndicate Desk Telephone: (09) Facsimile: (09) Personal information rights Personal information provided by you will be held by Powerco, the Registrar and the Trustee at their respective addresses shown in the Directory on the inside back cover of this Investment Statement or at such other place as is notifi ed upon request. This information will be used for the purpose of managing your investment. You have a right to access and correct any personal information about you under the Privacy Act

83 ATTACH CHEQUE HERE APPLICATION FORM for Seven Year Guaranteed Bonds and Twelve Year Guaranteed Bonds to be issued by BROKER S STAMP This Application Form constitutes an offer to acquire the Guaranteed Bonds described below and it forms part of the investment statement dated ( Investment Statement ). BROKER S CODE A completed Application Form, together with payment of the application money payable in respect of the aggregate Principal Amount of Guaranteed Bonds applied for, must be received by the Registrar before the Closing Time (5.00pm on 26 September 2005). If you are a member of Austraclear New Zealand, you may settle your application for Guaranteed Bonds on the Issue Date through the Austraclear New Zealand system. You may not complete this Application Form unless you have received a copy of the Investment Statement. This Application Form must not be issued, circulated or distributed unless accompanied by the Investment Statement. Please contact either of the Joint Lead Managers, the Organising Participant or any Primary Market Participant for confi rmation of the minimum interest rate of each Tranche of the Guaranteed Bonds as determined on the Minimum Rate Set Date. FOR INSTRUCTIONS ON HOW TO COMPLETE AND DELIVER THIS FORM SEE PAGES 79 AND 80 OF THE INVESTMENT STATEMENT AND THE INSTRUCTIONS ON THE REVERSE OF THIS FORM. INVESTOR DETAILS (PLEASE PRINT IN BLOCK LETTERS) Title: First name(s): Surname: Title: First name(s): Surname: Title: First name(s): Surname: Corporate or trust name: Postal address: Telephone number: Home: Business: APPLICATION AMOUNT Principal Amount of Seven Year Guaranteed Bonds applied for: (minimum of $5,000, and thereafter in multiples of $1,000) Principal Amount of Twelve Year Guaranteed Bonds applied for: (minimum of $5,000, and thereafter in multiples of $1,000) NZ$ NZ$ Cheques must be made payable to Powerco Guaranteed Bonds Offer and crossed Not Transferable. Payment must be made in New Zealand dollars and cheques must be drawn on a New Zealand registered bank. Cheques must not be post-dated. Tick this box if you have any other investments registered at Computershare and complete your investor number below. If Computershare has your tax and bank account details, you do not need to complete the sections below Resident Withholding Tax Rate or Bank Account Details for Payment of Interest and Principal. Please enter your Computershare number or CSN here: RESIDENT WITHHOLDING TAX RATE If you are a New Zealand resident please enter your IRD number: Resident withholding tax rate (tick one): 19.5% 33% 39% (Note: Companies (other than corporate trustees) are unable to elect a 19.5% rate) If you hold a current resident withholding tax exemption certifi cate, please tick this box and attach a copy of the certifi cate. BANK ACCOUNT DETAILS FOR PAYMENT OF INTEREST AND PRINCIPAL Payments of interest and principal in respect of the Guaranteed Bonds will be made only into a bank account. Payments of interest and principal will not be made by cheque. Provide details below of the bank account or cash management account into which interest and principal are to be paid. Please complete only one option. Option 1: My Bank Account Details Account name Bank Branch Account Number Suffi x Option 2: My Cash Management Account Details Name of Primary Market Participant where Cash Management Account held ANNUAL AND HALF-YEARLY REPORTS Cash Management Account Number Tick this box if you do not wish to have copies of the annual and half-yearly reports of Powerco automatically sent to you each year of the investment period. Note that even if you tick this box, you may request that the Registrar send you a copy of these reports from time to time. You can also obtain copies of the reports by visiting Powerco s website ( AGREEMENT OF TERMS I/We irrevocably apply for the Principal Amount of Guaranteed Bonds shown above (or such lesser number as Powerco may allocate and allot to me/us) on the terms and conditions set out in the Investment Statement, the Prospectus, the Trust Documents, the Security Trust Deed and this Application Form. I/We agree to be bound by the Trust Documents (as amended from time to time) and confi rm that the information that I/we have given on this Application Form is true and correct. Signature(s) of applicant(s) (refer to the terms and conditions of application on the reverse): Signature: Signature: Signature: Date: Date: Date:

84 TERMS AND CONDITIONS OF APPLICATION 1. By signing (or authorising an attorney or agent to sign) this Application Form: (a) the applicant irrevocably offers to subscribe for Guaranteed Bonds on the terms and conditions set out in the Investment Statement, the Prospectus, the Trust Documents, the Security Trust Deed, and this Application Form; (b) the applicant acknowledges that this form was distributed with the Investment Statement; and (c) the applicant acknowledges that he/she/it has read and understood the statements made in the Investment Statement relating to the Privacy Act 1993 in the section of the Investment Statement entitled Application Instructions. 2. Applicants who are members of Austraclear New Zealand may settle their applications for the Guaranteed Bonds applied for in this Application Form on the Issue Date through the Austraclear New Zealand system. Investors who are not members of Austraclear New Zealand or Austraclear members who wish to settle prior to the Issue Date must pay for the Guaranteed Bonds applied for by a cheque delivered with the Application Form prior to the Closing Time or by another payment method approved by the Joint Lead Managers, the Organising Participant or other selected fi nancial institutions to whom the Application Form is being delivered. 3. An application received by the Registrar cannot be withdrawn or revoked by the applicant. 4. Powerco reserves the right to decline any application, in whole or in part, without giving any reason. Powerco may decide not to accept any applications whatsoever in respect of a particular Tranche. 5. FASTER statements for the Guaranteed Bonds will be dispatched to successful applicants as soon as practicable after allotment, but in any event within fi ve Business Days of the Closing Time. 6. Applications must conform with the application instructions in the section of the Investment Statement entitled Application Instructions. 7. A joint application must be signed by all applicants. Only the address of the fi rst named of the joint applicants will be recorded on the Register and all interest payments, notices, and other correspondence will be sent to that address. 8. Applications lodged by individuals must be signed personally or by their attorney or agent. If this Application Form is signed by an attorney, the attorney must complete the certifi cate of non-revocation of power of attorney set out below. If this Application Form is signed by an agent, the agent must complete the certifi cate of agent set out below. 9. Terms defi ned in the Investment Statement or in the Prospectus have the same meaning in this Application Form. 10. This Application Form, the Offer and any contract arising out of its acceptance are governed by New Zealand law. CERTIFICATE OF NON-REVOCATION OF POWER OF ATTORNEY (Only complete this section if this Application Form is to be signed by an attorney of the applicant) I, (Name of attorney) of (Address and occupation of attorney) hereby certify that: 1. By a power of attorney dated, (Date) (Name and occupation of person for whom attorney is signing) of (Address of person for whom attorney is signing) (the Donor ) appointed me his/her/its attorney on the terms and conditions set out in that power of attorney. 2. I have executed this Application Form as attorney under that power of attorney and pursuant to the powers thereby conferred upon me. 3. At the date of this certifi cate, I have not received any notice or information of the revocation of my powers as agent or the authority granted to me by the Donor, whether by the death or dissolution of the Donor or otherwise. Signature of attorney: Signed at this day of 2005 CERTIFICATE OF AGENT (Only complete this section if this Application Form is to be signed by an agent of the applicant) I, (Name of agent) of (Address and occupation of agent) hereby certify that: 1. (Name and occupation of person for whom agent is signing) of (Address of person for whom agent is signing) (the Donor ) appointed me his/her/its agent for the purposes of signing this Application Form. 2. I have executed this Application Form as the Donor s agent in accordance with the authority granted to me by the Donor. 3. At the date of this certifi cate, I have not received any notice or information of the revocation of my powers as agent or the authority granted to me by the Donor, whether by the death or dissolution of the Donor or otherwise. Signature of agent: Signed at this day of 2005

85 ATTACH CHEQUE HERE APPLICATION FORM for Seven Year Guaranteed Bonds and Twelve Year Guaranteed Bonds to be issued by BROKER S STAMP This Application Form constitutes an offer to acquire the Guaranteed Bonds described below and it forms part of the investment statement dated ( Investment Statement ). BROKER S CODE A completed Application Form, together with payment of the application money payable in respect of the aggregate Principal Amount of Guaranteed Bonds applied for, must be received by the Registrar before the Closing Time (5.00pm on 26 September 2005). If you are a member of Austraclear New Zealand, you may settle your application for Guaranteed Bonds on the Issue Date through the Austraclear New Zealand system. You may not complete this Application Form unless you have received a copy of the Investment Statement. This Application Form must not be issued, circulated or distributed unless accompanied by the Investment Statement. Please contact either of the Joint Lead Managers, the Organising Participant or any Primary Market Participant for confi rmation of the minimum interest rate of each Tranche of the Guaranteed Bonds as determined on the Minimum Rate Set Date. FOR INSTRUCTIONS ON HOW TO COMPLETE AND DELIVER THIS FORM SEE PAGES 79 AND 80 OF THE INVESTMENT STATEMENT AND THE INSTRUCTIONS ON THE REVERSE OF THIS FORM. INVESTOR DETAILS (PLEASE PRINT IN BLOCK LETTERS) Title: First name(s): Surname: Title: First name(s): Surname: Title: First name(s): Surname: Corporate or trust name: Postal address: Telephone number: Home: Business: APPLICATION AMOUNT Principal Amount of Seven Year Guaranteed Bonds applied for: (minimum of $5,000, and thereafter in multiples of $1,000) Principal Amount of Twelve Year Guaranteed Bonds applied for: (minimum of $5,000, and thereafter in multiples of $1,000) NZ$ NZ$ Cheques must be made payable to Powerco Guaranteed Bonds Offer and crossed Not Transferable. Payment must be made in New Zealand dollars and cheques must be drawn on a New Zealand registered bank. Cheques must not be post-dated. Tick this box if you have any other investments registered at Computershare and complete your investor number below. If Computershare has your tax and bank account details, you do not need to complete the sections below Resident Withholding Tax Rate or Bank Account Details for Payment of Interest and Principal. Please enter your Computershare number or CSN here: RESIDENT WITHHOLDING TAX RATE If you are a New Zealand resident please enter your IRD number: Resident withholding tax rate (tick one): 19.5% 33% 39% (Note: Companies (other than corporate trustees) are unable to elect a 19.5% rate) If you hold a current resident withholding tax exemption certifi cate, please tick this box and attach a copy of the certifi cate. BANK ACCOUNT DETAILS FOR PAYMENT OF INTEREST AND PRINCIPAL Payments of interest and principal in respect of the Guaranteed Bonds will be made only into a bank account. Payments of interest and principal will not be made by cheque. Provide details below of the bank account or cash management account into which interest and principal are to be paid. Please complete only one option. Option 1: My Bank Account Details Account name Bank Branch Account Number Suffi x Option 2: My Cash Management Account Details Name of Primary Market Participant where Cash Management Account held ANNUAL AND HALF-YEARLY REPORTS Cash Management Account Number Tick this box if you do not wish to have copies of the annual and half-yearly reports of Powerco automatically sent to you each year of the investment period. Note that even if you tick this box, you may request that the Registrar send you a copy of these reports from time to time. You can also obtain copies of the reports by visiting Powerco s website ( AGREEMENT OF TERMS I/We irrevocably apply for the Principal Amount of Guaranteed Bonds shown above (or such lesser number as Powerco may allocate and allot to me/us) on the terms and conditions set out in the Investment Statement, the Prospectus, the Trust Documents, the Security Trust Deed and this Application Form. I/We agree to be bound by the Trust Documents (as amended from time to time) and confi rm that the information that I/we have given on this Application Form is true and correct. Signature(s) of applicant(s) (refer to the terms and conditions of application on the reverse): Signature: Signature: Signature: Date: Date: Date:

86 TERMS AND CONDITIONS OF APPLICATION 1. By signing (or authorising an attorney or agent to sign) this Application Form: (a) the applicant irrevocably offers to subscribe for Guaranteed Bonds on the terms and conditions set out in the Investment Statement, the Prospectus, the Trust Documents, the Security Trust Deed, and this Application Form; (b) the applicant acknowledges that this form was distributed with the Investment Statement; and (c) the applicant acknowledges that he/she/it has read and understood the statements made in the Investment Statement relating to the Privacy Act 1993 in the section of the Investment Statement entitled Application Instructions. 2. Applicants who are members of Austraclear New Zealand may settle their applications for the Guaranteed Bonds applied for in this Application Form on the Issue Date through the Austraclear New Zealand system. Investors who are not members of Austraclear New Zealand or Austraclear members who wish to settle prior to the Issue Date must pay for the Guaranteed Bonds applied for by a cheque delivered with the Application Form prior to the Closing Time or by another payment method approved by the Joint Lead Managers, the Organising Participant or other selected fi nancial institutions to whom the Application Form is being delivered. 3. An application received by the Registrar cannot be withdrawn or revoked by the applicant. 4. Powerco reserves the right to decline any application, in whole or in part, without giving any reason. Powerco may decide not to accept any applications whatsoever in respect of a particular Tranche. 5. FASTER statements for the Guaranteed Bonds will be dispatched to successful applicants as soon as practicable after allotment, but in any event within fi ve Business Days of the Closing Time. 6. Applications must conform with the application instructions in the section of the Investment Statement entitled Application Instructions. 7. A joint application must be signed by all applicants. Only the address of the fi rst named of the joint applicants will be recorded on the Register and all interest payments, notices, and other correspondence will be sent to that address. 8. Applications lodged by individuals must be signed personally or by their attorney or agent. If this Application Form is signed by an attorney, the attorney must complete the certifi cate of non-revocation of power of attorney set out below. If this Application Form is signed by an agent, the agent must complete the certifi cate of agent set out below. 9. Terms defi ned in the Investment Statement or in the Prospectus have the same meaning in this Application Form. 10. This Application Form, the Offer and any contract arising out of its acceptance are governed by New Zealand law. CERTIFICATE OF NON-REVOCATION OF POWER OF ATTORNEY (Only complete this section if this Application Form is to be signed by an attorney of the applicant) I, (Name of attorney) of (Address and occupation of attorney) hereby certify that: 1. By a power of attorney dated, (Date) (Name and occupation of person for whom attorney is signing) of (Address of person for whom attorney is signing) (the Donor ) appointed me his/her/its attorney on the terms and conditions set out in that power of attorney. 2. I have executed this Application Form as attorney under that power of attorney and pursuant to the powers thereby conferred upon me. 3. At the date of this certifi cate, I have not received any notice or information of the revocation of my powers as agent or the authority granted to me by the Donor, whether by the death or dissolution of the Donor or otherwise. Signature of attorney: Signed at this day of 2005 CERTIFICATE OF AGENT (Only complete this section if this Application Form is to be signed by an agent of the applicant) I, (Name of agent) of (Address and occupation of agent) hereby certify that: 1. (Name and occupation of person for whom agent is signing) of (Address of person for whom agent is signing) (the Donor ) appointed me his/her/its agent for the purposes of signing this Application Form. 2. I have executed this Application Form as the Donor s agent in accordance with the authority granted to me by the Donor. 3. At the date of this certifi cate, I have not received any notice or information of the revocation of my powers as agent or the authority granted to me by the Donor, whether by the death or dissolution of the Donor or otherwise. Signature of agent: Signed at this day of 2005

87 Directory Directors of Powerco Steven Ronald Boulton (Chairman) Nigel Dickson Barbour Sriyan Elanga Ekanayake Jeffrey Wayne Kendrew Euan Richard Krogh Jeffrey George Douglas Pollock Registered Office of Powerco Level 2 Council Chambers 84 Liardet Street Private Bag 2061 New Plymouth Facsimile: (06) Registrar to Powerco Computershare Investor Services Limited Level Hurstmere Road Takapuna Private Bag Auckland Telephone for investor enquiries: (09) Facsimile: (09) Trustee The New Zealand Guardian Trust Company Limited Level 7 Vero Centre 48 Shortland Street P O Box 1934 Auckland Security Trustee The New Zealand Guardian Trust Company Limited Level 7 Vero Centre 48 Shortland Street P O Box 1934 Auckland Auditor Deloitte Fonterra House 80 London Street P O Box 17 Hamilton Guarantor XL Capital Assurance Inc Avenue of the Americas New York New York United States of America Legal Adviser to Powerco Bell Gully Level 21 Vero Centre 48 Shortland Street P O Box 4199 Auckland Legal Adviser to the Trustee Chapman Tripp ANZ Centre Albert Street P O Box 226 Auckland Joint Lead Manager ANZ Investment Bank, a part of ANZ National Bank Limited Level 8 NBNZ House 1-9 Victoria Street P O Box 540 Wellington Attention: Debt Capital Markets Telephone: (04) Facsimile: (04) Joint Lead Manager Westpac Institutional Bank, a division of Westpac Banking Corporation (ABN ) Level Lambton Quay Wellington Freephone: Facsimile: (04) Organising Participant Westpac Institutional Bank Level Quay Street Auckland Telephone: (09) Facsimile: (09)

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