00a0364p.06

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21
3XUVXDQW WR 6L[WK &LUFXLW 5XOH
(/(&7521,& &,7$7,21 )(' $SS 3 WK &LU
)LOH 1DPH DS
81,7('67$7(6&28572)$33($/6
)257+(6,;7+&,5&8,7
BBBBBBBBBBBBBBBBB
)('(5$/ '(326,7 ,1685$1&(
&25325$7,21
3ODLQWLII$SSHOOHH
Y
),567 +(,*+76 %$1. )6%
38/7( ',9(56,),('
&203$1,(6 ,1& 38/7(
&25325$7,21
'HIHQGDQWV$SSHOODQWV
;!

1
1R
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW'HWURLW
1R²-RKQ&RUEHWW2¶0HDUD'LVWULFW-XGJH
$UJXHG$SULO
'HFLGHGDQG)LOHG2FWREHU
%HIRUH0$57,1&KLHI-XGJH0(55,77DQG6,/(5
&LUFXLW-XGJHV

-- 1 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
:KHQ HQWHULQJ LQWR FRQWUDFWV ZLWK WKH )',& 3XOWH 'LYHUVLILHG
&RPSDQLHV ,QF FUHDWHG )LUVW +HLJKWV %DQN WR VHUYH DV D VHSDUDWH
FRUSRUDWH HQWLW\ 7KH FRQWUDFWV EHWZHHQ WKH )',& DQG 3XOWH 'LYHUVLILHG
&RPSDQLHV ,QF ZHUH DOO QHJRWLDWHG E\ WKH 3XOWH &RUSRUDWLRQ 3XOWH
'LYHUVLILHG &RPSDQLHV ,QF¶V SDUHQW FRPSDQ\ %HFDXVH RQO\ RQH JURXS
RI SDUWLHV ZLOO EHQHILW RU EH KHOG DFFRXQWDEOH DQG EHFDXVH WKH\ XVH
YDULRXV VHSDUDWH FRUSRUDWH HQWLWLHV ZH ZLOO JHQHUDOO\ UHIHU WR WKHP DV WKH
3XOWH *URXS
BBBBBBBBBBBBBBBBB
&2816(/
$5*8('-RKQ*5REHUWV-U+2*$1 +$57621
:DVKLQJWRQ '& IRU $SSHOODQWV .LUN . 9DQ 7LQH
%$.(5 %2776 :DVKLQJWRQ '& IRU $SSHOOHH
21%5,()-RKQ*5REHUWV-U+2*$1 +$57621
:DVKLQJWRQ'&1RUPDQ&$QNHUV5REHUW0-DFNVRQ
5D\PRQG 0 .HWKOHGJH +21,*0$1 0,//(5
6&+:$57= &2+1 'HWURLW 0LFKLJDQ 6WHSKHQ )
:DVLQJHU:$6,1*(5.,&.+$0 .2+/65R\DO2DN
0LFKLJDQIRU$SSHOODQWV.LUN.9DQ7LQH'DYLG$6XSHU
.HOO\5'RQRYDQ%$.(5 %2776:DVKLQJWRQ'&
-DFO\Q & 7DQHU )('(5$/ '(326,7 ,1685$1&(
&25325$7,21:DVKLQJWRQ'&.DWKU\Q51RUFURVV
:DVKLQJWRQ'&IRU$SSHOOHH
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
%2<&( ) 0$57,1 -5 &KLHI -XGJH 7KH )HGHUDO
'HSRVLW,QVXUDQFH&RUSRUDWLRQ )',& LQLWLDWHGWKLVOLWLJDWLRQ
LQ DOOHJLQJ EUHDFK E\ WKH 3XOWH &RUSRUDWLRQ 3XOWH
'LYHUVLILHG&RPSDQLHV,QFDQG)LUVW+HLJKWV%DQN ZKRP
ZH ZLOO UHIHU WR FROOHFWLYHO\ DV WKH 3XOWH *URXS RI WKH
$VVLVWDQFH$JUHHPHQWDQGVXEVHTXHQWFRQWUDFWVJRYHUQLQJWKH
DFTXLVLWLRQRIIDLOHGWKULIWVGXULQJWKHVDYLQJVDQGORDQFULVLV
RIWKHV7KH)',&ILOHGPXOWLSOHVXPPDU\MXGJPHQW
PRWLRQVFODLPLQJWKDWWKH3XOWH*URXSYLRODWHG VHFWLRQ

-- 2 of 14 --

1R )',&Y)LUVW+HLJKWV%DQNHWDO
,Q 8QLWHG 6WDWHV Y :LQVWDU &RUSRUDWLRQ 86 WKH
6XSUHPH &RXUW SURYLGHV D PRUH H[WHQVLYH KLVWRU\ RI WKH VDYLQJV DQG ORDQ
FULVLV
,Q WKH )HGHUDO 6DYLQJV DQG /RDQ ,QVXUDQFH &RUSRUDWLRQ ZDV
DEROLVKHG E\ WKH HQDFWPHQW RI WKH )LQDQFLDO ,QVWLWXWLRQV 5HIRUP 5HFRYHU\
DQG (QIRUFHPHQW $FW 3XE / 1R 6WDW FRGLILHG DV
DPHQGHG LQ VFDWWHUHG VHFWLRQV RI 86& 8QGHU WKH $FW WKH )',&
EHFDPH UHVSRQVLEOH IRU WKH DVVHWV DQG OLDELOLWLHV RI WKH )HGHUDO 6DYLQJV
DQG /RDQ ,QVXUDQFH &RUSRUDWLRQ 7KH )',& UDWKHU WKDQ WKH )HGHUDO
6DYLQJV DQG /RDQ ,QVXUDQFH &RUSRUDWLRQ LV WKHUHIRUH D SDUW\ WR WKLV
DFWLRQ
RIWKH$VVLVWDQFH$JUHHPHQWUHTXLULQJWKH3XOWH*URXSWR
VKDUHZLWKWKH)',&WZHQW\ILYHSHUFHQWRIWKHWD[VDYLQJV
WKH\UHDOL]HIURPWKH)',&UHODWHGWUDQVDFWLRQV VHFWLRQ
E RIWKH$VVLVWDQFH$JUHHPHQWUHTXLULQJDSD\PHQWWR
WKH )',& HTXDO WR WZHQW\ILYH SHUFHQW RI DQ\ GLYLGHQGV
GLVWULEXWHG WR )LUVW +HLJKWV VKDUHKROGHUV DQG VHFWLRQ
H XQGHUZKLFKWKH)',&VHHNVGDPDJHVIRUGLPLQXWLRQLQ
WKH YDOXH RI LWV VWRFN ZDUUDQWV 7KH 3XOWH *URXS
FRXQWHUFODLPHG DOOHJLQJ WKDW WKH )',& QRW WKHP KDG
EUHDFKHG WKH DJUHHPHQWV 7KH GLVWULFW FRXUW JUDQWHG WKH
)',&¶V VXPPDU\ MXGJPHQW PRWLRQV 7KH 3XOWH *URXS
DSSHDOVWKHGLVWULFWFRXUW¶VGHFLVLRQWRJUDQWWKHPRWLRQVDQG
WKH GLVWULFW FRXUW¶V GDPDJHV DZDUG :H $)),50 LQ SDUW
5(9(56(LQSDUWDQG5(0$1'WRWKHGLVWULFWFRXUWIRUD
GHFLVLRQLQDFFRUGDQFHZLWKWKLVRSLQLRQ
,
%HWZHHQDQGDVDUHVXOWRIKLJKLQWHUHVWUDWHV
DQG LQIODWLRQ LQ WKH V PDQ\ VDYLQJV DQG ORDQV RU
³WKULIWV´ IDLOHG 7R SUHYHQW IXUWKHU ORVVHV WKH )HGHUDO
6DYLQJV DQG /RDQ ,QVXUDQFH &RUSRUDWLRQ WKH )',&¶V
SUHGHFHVVRU ZKRVH UHVSRQVLELOLW\ LW ZDV WR LQVXUH WKULIW
GHSRVLWVDQGWRUHJXODWHDOOIHGHUDOO\LQVXUHGWKULIWVORRNHGWR
KHDOWK\WKULIWVDQGRXWVLGHLQYHVWRUVWRWDNHRYHUDLOLQJWKULIWV
$VDQLQGXFHPHQWWRDFTXLUHWKHDLOLQJWKULIWVWKHDFTXLULQJ
HQWLWLHVZHUHJLYHQFHUWDLQWD[EHQHILWVWKDWZRXOGDOORZWKHP

-- 3 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
7KHVH EHQHILWV ZHUH GUDPDWLFDOO\ UHGXFHG E\ WKH )LQDQFLDO
,QVWLWXWLRQV 5HIRUP 5HFRYHU\ DQG (QIRUFHPHQW $FW RI ZKLFK
LPSRVHG VWULFWHU FDSLWDO UHTXLUHPHQWV RQ DOO VDYLQJV LQVWLWXWLRQV %\
GLVDOORZLQJ WKH LQFOXVLRQ RI FHUWDLQ DVVHWV ZKHQ GHWHUPLQLQJ FRUH FDSLWDO
PDQ\ LQVWLWXWLRQV IHOO RXW RI FRPSOLDQFH ZLWK IHGHUDO UHJXODWLRQV
WR PHHW WKHLU UHVHUYH FDSLWDO UHTXLUHPHQWV XQGHU IHGHUDO
UHJXODWLRQV
3XOWH 'LYHUVLILHG &RPSDQLHV ,QF D ZKROO\RZQHG
VXEVLGLDU\ RI 3XOWH &RUSRUDWLRQ HQWHUHG LQWR PXOWLSOH
DJUHHPHQWVZLWKWKH)',&WRDFTXLUHILYHVDYLQJVLQVWLWXWLRQV
7R FDUU\ RXW WKH WUDQVDFWLRQ 3XOWH 'LYHUVLILHG &RPSDQLHV
FUHDWHGDQHZVXEVLGLDU\)LUVW+HLJKWV%DQNWRDVVXPHWKH
OLDELOLWLHV RI WKH LQVROYHQW WKULIWV LQ H[FKDQJH IRU ILQDQFLDO
DVVLVWDQFHIURPWKH)',&2Q6HSWHPEHUXQGHUWKH
$VVLVWDQFH$JUHHPHQW)LUVW+HLJKWVDJUHHGWRSXUFKDVHWKH
DVVHWVDQGDVVXPHFHUWDLQOLDELOLWLHVRIIRXUIDLOHGWKULIWV7KH
$VVLVWDQFH $JUHHPHQW ZDV DPHQGHG RQ 6HSWHPEHU WR
LQFOXGHWKHSXUFKDVHRIDILIWKLQVWLWXWLRQ
7KH )',&¶V ILQDQFLDO DVVLVWDQFH WR )LUVW +HLJKWV
HQFRPSDVVHGUHLPEXUVHPHQWVIRUFHUWDLQORVVHV0RVWRIWKH
DVVHWVRIWKHWKULIWVZHUHFRQYH\HGWR)LUVW+HLJKWVDWERRN
YDOXHVWKDWH[FHHGHGWKHDVVHWV¶IDLUPDUNHWYDOXHV7KHVH
DVVHWVZHUHGHILQHGDVFRYHUHGDVVHWV%HFDXVH)LUVW+HLJKWV
ZRXOGEHUHTXLUHGWROLTXLGDWHFRYHUHGDVVHWVDWDORVVWKH
)',& DJUHHG WR UHLPEXUVH )LUVW +HLJKWV IRU WKHVH ORVVHV
8QGHUWKH,QWHUQDO5HYHQXH&RGHVXFKUHLPEXUVHPHQWVZHUH
QRWFRQVLGHUHGWD[DEOHLQFRPH
$VDQDGGLWLRQDOLQFHQWLYHWRSXUFKDVHWKULIWVWKH,QWHUQDO
5HYHQXH &RGH SURYLGHG RWKHU WD[ EHQHILWV WR WKH HQWLWLHV
DFTXLULQJWKHIDLOHGVDYLQJVDQGORDQV8QGHUWKH,QWHUQDO
5HYHQXH &RGH )LUVW +HLJKWV FRXOG XVH WKH FRYHUHG DVVHWV
ORVVHVWRUHGXFHLWVWD[DEOHLQFRPHE\GHGXFWLQJWKHORVVHV
IURP JURVV LQFRPH )LUVW +HLJKWV WKXV UHFHLYHG WZR WD[
EHQHILWVUHODWHGWRWKHFRYHUHGDVVHWORVVHVLWZDVDOORZHGWR
XVHWKHFRYHUHGDVVHWORVVHVWRUHGXFHWD[DEOHLQFRPHZLWKRXW
DOVRUHFRJQL]LQJDVLQFRPHWKH)',&¶VORVVUHLPEXUVHPHQWV
1R )',&Y)LUVW+HLJKWV%DQNHWDO
PRQH\KHOGE\WKH)',&DIWHUWKHGLVWULFWFRXUW¶VMXGJPHQWLV
HQWHUHG
9,,,
)RUWKHIRUHJRLQJUHDVRQVZHUHPDQGWRWKHGLVWULFWFRXUW
IRUDGHFLVLRQLQDFFRUGDQFHZLWKWKLVRSLQLRQ

-- 4 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
FDOFXODWHGXQGHUWKHVWDWXWRU\SURYLVLRQ8QGHUWKHIRUPHU
DUWLFOHWKLVLQWHUHVWDFFUXHVDWDUDWHRIVL[SHUFHQW
D\HDUVWDUWLQJWKLUW\GD\VDIWHUWKHDPRXQWEHFRPHVGXH
)RU WKH WD[ EHQHILW VKDULQJ SD\PHQWV DULVLQJ LQ
WKURXJKWKHSUHMXGJPHQWLQWHUHVWDFFUXHGWKLUW\GD\V
DIWHUWKHSD\PHQWVIRUHDFK\HDUZHUHGXH7KHYLRODWLRQVRI
E DQG H RFFXUUHGRQ'HFHPEHUWKHGDWHRI
WKHDPHQGPHQWWRWKH7D[$OORFDWLRQDQG6KDULQJ$JUHHPHQW
DQG WKH UHFLVVLRQ RI WKH :DUUDQW 2EOLJDWLRQ $VVLVWDQFH
$JUHHPHQWEHFDXVHWKHDPRXQWVGXHIRUWKHVHEUHDFKHVFDPH
GXHRQWKHGD\RIEUHDFKSUHMXGJPHQWLQWHUHVWVKRXOGDFFUXH
IURP-DQXDU\7KHSUHMXGJPHQWLQWHUHVWRQWKHVH
DPRXQWVVKRXOGEHFDOFXODWHGDWVL[SHUFHQWSHU\HDUWKURXJK
6HSWHPEHU $IWHU WKH DPHQGPHQW WR WKH 7H[DV
VWDWXWH SUHMXGJPHQW LQWHUHVW RQ WKLV FRQWUDFW EHFDPH QRQ
VWDWXWRU\ SUHMXGJPHQW LQWHUHVW DFFUXLQJ XQGHU -RKQVRQ
+LJJLQVDWWKHUDWHRISRVWMXGJPHQWLQWHUHVWRUWHQSHUFHQW
)RU WKH WD[ VKDULQJ SD\PHQWV WKDW EHFDPH GXH DIWHU
6HSWHPEHUSUHMXGJPHQWLQWHUHVWDFFUXHVDWWKHUDWHRI
8QGHU -RKQVRQ +LJJLQV WKH DFFUXDO GDWH LV
GHSHQGHQWRQWKHGDWHRIZULWWHQQRWLFHRIDFODLPRUWKHGDWH
VXLWLVILOHG,QWKHSUHVHQWFDVHWKLVZRXOGSURYLGHIRUD
DFFUXDOGDWHRQDPRXQWVQRWGXHXQWLO\HDUVODWHU7KH7H[DV
6XSUHPH&RXUWLQ&DYQDUY4XDOLW\&RQWURO3DUNLQJ,QF
6:G 7H[ H[SODLQHGWKHFRQFHSW
RI SUHMXGJPHQW LQWHUHVW WKXV ³,QWHUHVW DV GDPDJHV LQ
FRPSHQVDWLRQDOORZHGE\ODZDVDGGLWLRQDOGDPDJHVIRUORVW
XVHRIWKHPRQH\GXHDVGDPDJHVGXULQJWKHODSVHRIWLPH
EHWZHHQWKHDFFUXDORIWKHFODLPDQGGDWHRIMXGJPHQW´,Q
WKLVFDVHWKH)',&FDQQRWDVVHUWLWORVWWKHXVHRIWKHPRQH\
EHIRUH WKDW PRQH\ ZDV HYHQ GXH 7KHUHIRUH IRU DPRXQWV
EHFRPLQJ GXH LQ DQG WKH SUHMXGJPHQW
LQWHUHVW VKRXOG DFFUXH RQO\ IURP WKH GDWH RQ ZKLFK WKH
DPRXQWVEHFDPHGXH
)LQDOO\ZHGRQRWDGGUHVVWKHLVVXHRIWKH3XOWH*URXS¶V
ULJKWWRRIIVHWWKHMXGJPHQWE\WKHDPRXQWVRZHGWRLWE\WKH
)',&:HWUXVWWKDWWKHSDUWLHVZLOOSURSHUO\DFFRXQWIRUWKH
1R )',&Y)LUVW+HLJKWV%DQNHWDO
,QH[FKDQJHIRUWKH)',&¶VILQDQFLDODVVLVWDQFH)LUVW+HLJKWV
DJUHHGWRVKDUHZLWKWKH)',&FHUWDLQWD[EHQHILWVUHVXOWLQJ
IURPWKH$VVLVWDQFH$JUHHPHQW
$OVRRQ6HSWHPEHUWKH)',&HQWHUHGLQWRWKH:DUUDQW
$JUHHPHQW ZLWK )LUVW +HLJKWV 7KH :DUUDQW $JUHHPHQW
LVVXHG ZDUUDQWV WKDW DOORZHG WKH )',& WR SXUFKDVH WZHQW\
SHUFHQWRIWKHRXWVWDQGLQJVKDUHVRI)LUVW+HLJKWV¶VFRPPRQ
VWRFN DW RQH FHQW SHU VKDUH 7KH )',& KDG WKH RSWLRQ WR
H[HUFLVH WKLV ULJKW EHWZHHQ 6HSWHPEHU DQG
6HSWHPEHU8QGHUWKH:DUUDQW$JUHHPHQWWKH)',&
FRXOG UHTXHVW WKH PDUNHW YDOXH RI WZHQW\ SHUFHQW RI )LUVW
+HLJKWV¶VRXWVWDQGLQJFRPPRQVWRFNLQVWHDGRISXUFKDVLQJ
WKHVWRFN
,Q)LUVW+HLJKWVHQWHUHGLQWRD7D[$OORFDWLRQDQG
6KDULQJ$JUHHPHQWZLWKWKH3XOWH*URXSLQZKLFKWKH3XOWH
*URXS DJUHHG WR IXQG )LUVW +HLJKWV¶V WD[ EHQHILW VKDULQJ
REOLJDWLRQVWRWKH)',&,QH[FKDQJH)LUVW+HLJKWVDJUHHGWR
ILOHWD[UHWXUQVDVDPHPEHURIWKH3XOWH*URXSDOORZLQJWKH
3XOWH *URXS WR XWLOL]H )LUVW +HLJKWV¶V GHGXFWLRQV DQG
H[FOXVLRQV DQG WKHUHE\ UHGXFLQJ WKH 3XOWH *URXS¶V WD[
OLDELOLW\ $V D UHVXOW RI WKH 7D[ $OORFDWLRQ DQG 6KDULQJ
$JUHHPHQW )LUVW +HLJKWV UHFRUGHG RQ LWV ERRNV QR QHW
OLDELOLW\WRWKH)',&IRUWD[EHQHILWVKDULQJLQWKHWD[\HDUV
,QVWHDG WKH 3XOWH *URXS UHFRUGHG WKH WD[
EHQHILW VKDULQJ REOLJDWLRQV RQ LWV ERRNV DV D OLDELOLW\
$FFRUGLQJ WR WKH 3XOWH *URXS WKH DFFUXHG EXW XQSDLG WD[
EHQHILWVKDULQJOLDELOLW\WRWKH)',&WRWDOHGPLOOLRQDV
RIWKHHQGRI
)LUVW+HLJKWVDQGWKH3XOWH*URXSH[HFXWHGDQDPHQGPHQW
WR WKH 7D[ $OORFDWLRQ DQG 6KDULQJ $JUHHPHQW GDWHG
'HFHPEHU7KHDPHQGPHQWUHVFLQGHGUHWURDFWLYHO\
WKURXJKWD[\HDUWKH3XOWH*URXS¶VREOLJDWLRQWRIXQG
)LUVW+HLJKWV¶VWD[EHQHILWVKDULQJREOLJDWLRQVWRWKH)',&
7KH3XOWH*URXSPDLQWDLQHGWKHEHQHILWIURP)LUVW+HLJKWV¶V
WD[GHGXFWLRQVDQGH[FOXVLRQVGHOHWLQJPLOOLRQRIWD[
VKDULQJ OLDELOLW\ IURP LWV ERRNV DQG UHFRUGLQJ
UHFHLYDEOH IURP )LUVW +HLJKWV 7R DFFRXQW IRU WKH

-- 5 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
FDQFHOODWLRQ)LUVW+HLJKWVUHJLVWHUHGDOLDELOLW\RQLWVERRNV
WKHUHE\UHGXFLQJLWVUHWDLQHGHDUQLQJVE\PLOOLRQ
,QDVHFRQGWUDQVDFWLRQGDWHG'HFHPEHUWKH3XOWH
*URXS DQG )LUVW +HLJKWV UHVFLQGHG WKH 3XOWH *URXS¶V
REOLJDWLRQWRUHGHHPWKH)',&¶VZDUUDQWV7KH3XOWH*URXS
KDGDVVXPHG)LUVW+HLJKWV¶VZDUUDQWREOLJDWLRQRQ'HFHPEHU
XQGHUDVHSDUDWHDJUHHPHQW7RDFFRXQWIRUWKLV
)LUVW+HLJKWVUHPRYHGWKHZDUUDQWREOLJDWLRQOLDELOLW\IURPLWV
ERRNVDQGWKH3XOWH*URXSUHFRUGHGWKDWOLDELOLW\:KHQWKH
3XOWH*URXSDQG)LUVW+HLJKWVFDQFHOHGWKLVREOLJDWLRQWKH
HFRQRPLFEXUGHQRIWKHZDUUDQWREOLJDWLRQUHWXUQHGWR)LUVW
+HLJKWV)LUVW+HLJKWVUHFRUGHGDPLOOLRQGHFUHDVHLQ
UHWDLQHG HDUQLQJV WR UHIOHFW WKH FDQFHOODWLRQ RI WKH 3XOWH
*URXS¶VFRQWUDFWXDOREOLJDWLRQWRUHGHHPWKHZDUUDQWV7KH
3XOWH*URXSPDGHDFRUUHVSRQGLQJUHGXFWLRQWRLWVOLDELOLWLHV
,,
7KLV&RXUWUHYLHZVVXPPDU\MXGJPHQWGHQRYR6HH7HUU\
%DUU6DOHV$JHQF\,QFY$OO/RFN&R,QF)G
WK&LU ,IWKHUHLVQRJHQXLQHLVVXHRIPDWHULDO
IDFWDPRYDQWPD\EHHQWLWOHGWRMXGJPHQWDVDPDWWHURIODZ
6HHLG7KHSDUW\PRYLQJIRUVXPPDU\MXGJPHQWEHDUVWKH
³EXUGHQRIVKRZLQJWKHDEVHQFHRIDJHQXLQHLVVXHDVWRDQ\
PDWHULDOIDFWDQGIRUWKHVHSXUSRVHVWKH>HYLGHQFHRIIHUHG@
PXVWEHUHYLHZHGLQWKHOLJKWPRVWIDYRUDEOHWRWKHRSSRVLQJ
SDUW\´ $GLFNHV Y 6+ .UHVV &R 86

,,,
7KH )',& VHHNV WR HQIRUFH VHFWLRQ RI WKH $VVLVWDQFH
$JUHHPHQWZKLFKUHTXLUHV)LUVW+HLJKWVWRVKDUH ZLWKWKH
)',& WZHQW\ILYH SHUFHQW RI WKH WD[ VDYLQJV UHDOL]HG DV D
UHVXOWRIWKH$VVLVWDQFH$JUHHPHQW7KHPDLQLVVXHLQWKLV
FDVH LV WKH DPELJXLW\ RI WKH $VVLVWDQFH $JUHHPHQW 7KH
$VVLVWDQFH$JUHHPHQWLVJRYHUQHGXQGHU7H[DVODZZKLFK
VWDWHVWKDWLIDFRQWUDFWLVZULWWHQVRWKDW³LWFDQEHJLYHQD
FHUWDLQRUGHILQLWHOHJDOPHDQLQJRULQWHUSUHWDWLRQ´LWLVQRW
DPELJXRXVDQGPXVWEHFRQVWUXHGDFFRUGLQJWRWKDWPHDQLQJ
1R )',&Y)LUVW+HLJKWV%DQNHWDO
,IDFUHGLWRUKDVQRWDJUHHGZLWKDQREOLJRUWRFKDUJHWKH
REOLJRUDQ\LQWHUHVWWKHFUHGLWRUPD\FKDUJHDQGUHFHLYH
IURPWKHREOLJRUOHJDOLQWHUHVWDWWKHUDWHRIVL[SHUFHQWD
\HDURQWKHSULQFLSDODPRXQWRIWKHFUHGLWH[WHQGHGE\
WKHFUHGLWRUWRWKHREOLJRUEHJLQQLQJRQWKHWKLUWLHWKGD\
DIWHUWKHGD\RQZKLFKWKHDPRXQWLVGXH
7H[ )LQ &RGH $QQ † 9HUQRQ¶V 6XSS
IRUPDOO\FRGLILHGDW7H[5HY&LY6WDWDUW&
:HKDYHQRJXLGDQFHIURPWKH7H[DVFRXUWVDVWRWKHHIIHFWRI
WKLV DPHQGPHQW ,W DSSHDUV WR XV WKDW WKH FKDQJHV WR WKLV
SURYLVLRQ DQG RWKHU VHFWLRQV RI WKH &UHGLW 7LWOH UHPRYH
SUHMXGJPHQW LQWHUHVW IURP WKH LQWHUHVW DXWKRUL]HG E\ WKH
VWDWXWH,IQRORQJHUDXWKRUL]HGE\VWDWXWHDIWHU6HSWHPEHU
SUHMXGJPHQW LQWHUHVW RQ DVFHUWDLQDEOH VXP FRQWUDFWV
PXVWQRZEHJRYHUQHGE\QRQVWDWXWRU\LQWHUHVWUXOHV
-RKQVRQ +LJJLQVRI7H[DV,QFY.HQQHFR(QHUJ\,QF
6:G 7H[ WKXVFRQWUROVDVLWVSULQFLSOHV
H[WHQGWRLQWHUHVWLQEUHDFKRIFRQWUDFWMXGJPHQWVQRWFRYHUHG
E\DVWDWXWRU\LQWHUHVWSURYLVLRQ7KH7H[DV6XSUHPH&RXUW
VHHNLQJ WR HTXDWH FRPPRQ ODZ SUHMXGJPHQW LQWHUHVW UXOHV
ZLWKOHJLVODWLYHRQHVUXOHGLQ-RKQVRQ +LJJLQVWKDWQRQ
VWDWXWRU\ SUHMXGJPHQW LQWHUHVW DFFUXHV DW D UDWH HTXDO WR
SRVWMXGJPHQWLQWHUHVWIURPWKHHDUOLHUGDWHRIGD\VDIWHU
DGHIHQGDQWUHFHLYHVZULWWHQQRWLFHRIDFODLPRUWKHGDWHVXLW
LVILOHGDQGLVFRPSXWHGDVVLPSOHLQWHUHVW6HHLGDW
7KH$VVLVWDQFH$JUHHPHQWLVDFRQWUDFW³DVFHUWDLQLQJWKH
VXPSD\DEOH´DVFRYHUHGE\WKHIRUPHUVWDWXWRU\SUHMXGJPHQW
LQWHUHVW SURYLVLRQ ,Q *UHDW $PHULFDQ Y 1RUWK $XVWLQ
0XQLFLSDO8WLOLWLHV'LVWULFW1R6:G 7H[
WKH7H[DV6XSUHPH&RXUWH[SODLQHGWKDWWKHVWDWXWRU\
SUHMXGJPHQWLQWHUHVWSURYLVLRQDSSOLHVWRFRQWUDFWVWKDW³IL[>@
DPHDVXUHE\ZKLFKWKHVXPSD\DEOHFDQEHDVFHUWDLQHGZLWK
UHDVRQDEOHFHUWDLQW\LQOLJKWRIWKHDWWHQGLQJFLUFXPVWDQFHV´
6HFWLRQV E DQG H RIWKH$VVLVWDQFH$JUHHPHQW
HDFKSURYLGHDPHWKRGIRUFDOFXODWLQJWKHGDPDJHVGXHWRWKH
)',&7KHUHIRUHWKHSUHMXGJPHQWLQWHUHVWWKDWDFFUXHGSULRU
WRWKH6HSWHPEHUDPHQGPHQWRIWKHVWDWXWHVKRXOGEH

-- 6 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
DJUHHPHQWV7KLVDJUHHPHQWZDVVLJQHGE\ERWKSDUWLHVDQG
WKXVWKHLQWHQWEHKLQGWKHGRFXPHQWDORQJZLWKWKHJHQHUDO
UXOHLQGLFDWHVWKDWERWK3XOWH'LYHUVLILHG&RPSDQLHV,QFDQG
)LUVW+HLJKWVDUHOLDEOH
9,,
,Q GLYHUVLW\ FDVHV LQ WKLV &LUFXLW IHGHUDO ODZ FRQWUROV
SRVWMXGJPHQW LQWHUHVW EXW VWDWH ODZ JRYHUQV DZDUGV RI
SUHMXGJPHQWLQWHUHVW6HH&OLVVROGY6W/RXLV6DQ)UDQFLVFR
5Z\&R)GQ WK&LU 7H[DVODZ
FRPSOLFDWHV WKH DSSOLFDWLRQ RI WKLV VHHPLQJO\ VLPSOH UXOH
PDNLQJWKHUDWHRIVRPHSUHMXGJPHQWLQWHUHVWGHSHQGHQWXSRQ
WKH DSSOLFDEOH UDWH RI SRVWMXGJPHQW LQWHUHVW :H ILQG LW
QHFHVVDU\WRGHIHUWRWKHFRQFOXVLRQRIRXUVLVWHUFLUFXLWRQ
WKLVSHFXOLDULVVXHRI7H[DVODZ7KHUHIRUHZHZLOODGRSWWKH
)LIWK&LUFXLW¶VUXOHWKDWLQDGLYHUVLW\FDVHWKHDSSOLFDEOHVWDWH
SRVWMXGJPHQWUDWHVKRXOGEHXVHGLQDUULYLQJDWWKHUDWHRI
SUHMXGJPHQWLQWHUHVWXQGHU7H[DVODZ6HH+DUULVY0LFNHO
)G WK&LU +RZHYHUIHGHUDOODZ
ZLOOVWLOOJRYHUQDQ\SRVWMXGJPHQWLQWHUHVWLQWKHFDVHDWEDU
7KHODZRISUHMXGJPHQWLQWHUHVWLQ7H[DVLVFRQYROXWHG
7KHUHDUHPXOWLSOHVRXUFHVRISUHMXGJPHQWLQWHUHVWDQGUHFHQW
DPHQGPHQWVWRWKH7H[DVVWDWXWHVPXGGOHUDWKHUWKDQFODULI\
WKHUXOHIRUWKHSUHVHQWFDVH+LVWRULFDOO\VWDWXWHJRYHUQHG
SUHMXGJPHQW LQWHUHVW IRU FRQWUDFWV ³DVFHUWDLQLQJ WKH VXP
SD\DEOH´ 6HH *UHDW $PHULFDQ ,QV &R Y 1RUWK $XVWLQ
0XQLF8WLO'LVW1R6:G 7H[ 7KHVH
SURYLVLRQVSURYLGHGIRUWKHIROORZLQJLQWHUHVW
:KHQQRVSHFLILHGUDWHRILQWHUHVWLVDJUHHGXSRQE\WKH
SDUWLHVLQWHUHVWDWWKHUDWHRIVL[SHUFHQWSHUDQQXPVKDOO
EHDOORZHGRQDOODFFRXQWVDQGFRQWUDFWVDVFHUWDLQLQJWKH
VXP SD\DEOH FRPPHQFLQJ RQ WKH WKLUWLHWK WK GD\
IURPDQGDIWHUWKHWLPHZKHQWKHVXPLVGXHDQGSD\DEOH
7H[ 5HY &LY 6WDW $QQ DUW 9HUQRQ¶V
UHSHDOHG E\ $FWV WK /HJ &K † 7KH
OHJLVODWXUHKRZHYHUUHSHDOHGWKLVVWDWXWHRQ6HSWHPEHU
DQGUHSODFHGLWZLWKWKHIROORZLQJSURYLVLRQ
1R )',&Y)LUVW+HLJKWV%DQNHWDO
RU LQWHUSUHWDWLRQ DV D PDWWHU RI ODZ &RNHU Y &RNHU
6:G 7H[ ,IWKHFRQWUDFWLVXQDPELJXRXV
WKHPRYLQJSDUW\ZRXOGEHHQWLWOHGWRMXGJPHQWLIWKHUHLVQR
RWKHUGLVSXWHGPDWWHU6HHLGDW
7RGHWHUPLQHZKHWKHUDFRQWUDFWLVDPELJXRXVWKHFRXUW
PXVW ORRN DW WKH FRQWUDFW DV D ZKROH FRQVLGHULQJ WKH
FLUFXPVWDQFHVSUHVHQWZKHQWKHFRQWUDFWZDVFUHDWHG6HHLG
DW³>7@KHSULPDU\FRQFHUQRIWKHFRXUWLVWRDVFHUWDLQWKH
WUXHLQWHQWLRQVRIWKHSDUWLHVDVH[SUHVVHGLQWKHLQVWUXPHQW´
,GDW7RDFKLHYHWKLVWKHFRXUWPXVWJLYHHIIHFWWRDOO
SURYLVLRQV RI WKH FRQWUDFW VR WKDW QRQH ZLOO EH UHQGHUHG
PHDQLQJOHVV6HHLG³1RVLQJOHSURYLVLRQWDNHQDORQHZLOO
EHJLYHQFRQWUROOLQJHIIHFWUDWKHUDOOWKHSURYLVLRQVPXVWEH
FRQVLGHUHGZLWKUHIHUHQFHWRWKHZKROHLQVWUXPHQW´,G
7KH )',& DQG WKH 3XOWH *URXS DJUHHG WR VKDUH WKH WD[
EHQHILWVDULVLQJIURPWKH)',&¶VILQDQFLDODVVLVWDQFHWR)LUVW
+HLJKWV 6HFWLRQ RI WKH $VVLVWDQFH $JUHHPHQW JRYHUQV
ZKLFKWD[EHQHILWVWKH3XOWH*URXSPXVWVKDUHZLWKWKH)',&
6SHFLILFDOO\LWGHILQHVLWHPVWKDWJHQHUDWHWD[EHQHILWVWKHWD[
GHWULPHQWLWHPVWKDWPD\RIIVHWWD[EHQHILWVDQGWKHIRUPXODV
IRUFDOFXODWLQJWKHDOORFDWLRQRIQHWWD[EHQHILWVEHWZHHQWKH
)',&DQGWKH3XOWH*URXS
6HFWLRQ D H[SUHVVO\GHILQHVWKHWD[EHQHILWVWKDWDUHWREH
VKDUHGZLWKWKH)',&
† 7D[ %HQHILWV )RU HDFK WD[DEOH \HDU WKH
$&48,5,1*$662&,$7,216VKDOOFUHGLWWR6SHFLDO
5HVHUYH$FFRXQW,DQDPRXQWHTXDOWRWKHVXPRIWKH
,QGHPQLILFDWLRQ1HW7D[%HQHILWVWKH)HGHUDO1HW
7D[%HQHILWV DVGHILQHGDQGFDOFXODWHGLQDFFRUGDQFH
ZLWK† G DQGWKH6WDWH1HW7D[%HQHILWVLIDQ\
UHDOL]HGE\WKH$&48,5,1*$662&,$7,216LQDQ\
\HDU FROOHFWLYHO\³1HW7D[%HQHILWV´
D 7D[%HQHILW,WHPV)RUSXUSRVHVRIWKLV$JUHHPHQW
WKH1HW7D[%HQHILWVVKDOOEHWKHWD[EHQHILWVWKDWDUH
DWWULEXWDEOHWRWKHLWHPVGHVFULEHGLQ† D
DQG EHORZ ³7D[%HQHILW,WHPV´ DQGWKDWDUHDFWXDOO\

-- 7 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
XWLOL]HG E\ DQ $&48,5,1* $662&,$7,21 RU WKH
FRQVROLGDWHG JURXS WR UHGXFH LWV )HGHUDO RU VWDWH
LQFRPHWD[OLDELOLW\LQDJLYHQWD[\HDUE\YLUWXHRID7D[
%HQHILW,WHPEHLQJDWD[GHGXFWLRQRUEHLQJH[FOXGDEOH
IURPLQFRPHIRUVXFKWD[\HDUDVFDOFXODWHGLQ† F G
DQG H EHORZ
7KHDPRXQWRIDQ\QHWRSHUDWLQJORVVFDUU\RYHUV
DQ\FDSLWDOORVVFDUU\RYHUVDQGDQ\RWKHUORVVFDUU\RYHUV
RI DQ\ $&48,5(' $662&,$7,21 DW WKH (IIHFWLYH
'DWH UHVXOWLQJ LQ D WD[ GHGXFWLRQ IURP HLWKHU
$&48,5,1*$662&,$7,21¶VJURVVLQFRPH
$Q\FRVWH[SHQVHRUORVV L ZKLFKLVLQFXUUHG
E\DQ$&48,5,1*$662&,$7,21 LL IRUZKLFKWKH
&25325$7,21KDVPDGHDVVLVWDQFHSD\PHQWVWR
WKH$&48,5,1*$662&,$7,21SXUVXDQWWR† D RI
WKLV$JUHHPHQWDQG LLL ZKLFKLVGHGXFWLEOHRQDQ
$FTXLULQJ $VVRFLDWLRQ¶V )HGHUDO RU VWDWH LQFRPH WD[
UHWXUQ RU UHGXFHV WKH EDODQFH RI WKH $&48,5,1*
$662&,$7,21¶6EDGGHEWUHVHUYHEXWRQO\WRWKHH[WHQW
VXFK UHGXFWLRQ ZRXOG UHVXOW LQ D WD[ GHGXFWLRQ RQ WKH
H[SHULHQFHPHWKRG
6HFWLRQ G FDOFXODWHVWKHDPRXQWRIWKH)HGHUDO1HW7D[
%HQHILWV E\ GHWHUPLQLQJ WKH GLIIHUHQFH EHWZHHQ )LUVW
+HLJKWV¶VIHGHUDOWD[OLDELOLW\ZLWKWKHWD[EHQHILWLWHPVDQG
WKH K\SRWKHWLFDO WD[ OLDELOLW\ WKH WD[ OLDELOLW\ RI )LUVW
+HLJKWVZLWKRXWWKHWD[EHQHILWLWHPV6HFWLRQ G SURYLGHV
LQSHUWLQHQWSDUW
)HGHUDO1HW7D[%HQHILWVIRUDWD[DEOH\HDUVKDOOEHWKH
7D[DEOH3HUFHQWDJHPXOWLSOLHGE\DQDPRXQWHTXDOWRWKH
H[FHVVLIDQ\RI
WKH)HGHUDOLQFRPHWD[OLDELOLW\IRUVXFKWD[DEOH\HDU
ZKLFKZRXOGKDYHEHHQLQFXUUHGE\WKH$&48,5(5
DQG WKH $&48,5,1* $662&,$7,216 RU WKH
&RQVROLGDWHG *URXS L LI WKH 7D[ %HQHILW ,WHPV
GHVFULEHG LQ † D DQG KDG QRW EHHQ
1R )',&Y)LUVW+HLJKWV%DQNHWDO
WKHLUUHVSHFWLYHWUDQVIHUHHVVXFFHVVRUVDQGDVVLJQVEXW
H[FHSW DV RWKHUZLVH VSHFLILFDOO\ SURYLGHG LQ WKLV
$JUHHPHQWWKLV$JUHHPHQWPD\QRWEHDVVLJQHGWRDQ\
SDUW\ QRU PD\ DQ\ ULJKWV RU REOLJDWLRQV XQGHU LW EH
WUDQVIHUUHGRUGHOHJDWHGWRRUYHVWHGLQDQ\RWKHUSDUW\
WKURXJKPHUJHUFRQVROLGDWLRQRURWKHUZLVHZLWKRXWWKH
SULRUZULWWHQFRQVHQWRIWKH&25325$7,21
7KH GLVWULFW FRXUW KHOG WKDW WKLV VHFWLRQ LV D VWDQGDUG QRQ
DVVLJQPHQWFODXVHZLWKQREHDULQJRUOLPLWLQJHIIHFWRQWKH
OLDELOLW\RI3XOWH'LYHUVLILHG&RPSDQLHV,QF7RJHWKHUZLWK
VHFWLRQLWDSSHDUVWRLQGLFDWHQRWKLQJPRUHWKDQWKDW)LUVW
+HLJKWV%DQNDQG3XOWH'LYHUVLILHG&RPSDQLHV,QFDUHWR
³FRQWULEXWHVHSDUDWHO\WRWKHHQWLUHUHVXOW´ZKLFKDFFRUGLQJ
WR WKH SDVVDJH IURP WKH &RUELQ WUHDWLVH TXRWHG DERYH LV
LQVXIILFLHQWWRRYHUULGHWKHSUHVXPSWLRQRIMRLQWREOLJDWLRQ
7KHDUJXPHQWRIWKH3XOWH*URXSUHOLHVRQWKHXQSXEOLVKHG
GLVWULFWFRXUWRSLQLRQRIDQRWKHUMXULVGLFWLRQWRGHSDUWIURP
WKHJHQHUDOUXOHWKDWFRVLJQDWRULHVDUHMRLQWO\DQGVHYHUDOO\
OLDEOH6HH.UDPHUY0LOOHU:/ 6'1<
1RY 7KH\DUJXHWKDWWKHFDVHUDLVHVWKHSRVVLELOLW\
WKDWWKHODQJXDJHRIWKHDJUHHPHQWDVVLJQVUHVSRQVLELOLW\ZLWK
VXIILFLHQWVSHFLILFLW\EHWZHHQ3XOWH'LYHUVLILHG&RPSDQLHV
,QF DQG )LUVW +HLJKWV %DQN WR RYHUULGH WKH MRLQW OLDELOLW\
SUHVXPSWLRQDQGWKDWDVDUHVXOWLWLVUHDVRQDEOHWRLQIHUWKDW
MRLQWDQGVHYHUDOOLDELOLW\ZDVQRWLQWHQGHG7KXVWKH3XOWH
*URXSDUJXHVWKDWVXPPDU\MXGJPHQWVKRXOGQRWKDYHEHHQ
JUDQWHG:HKDYHQRWDGGUHVVHGWKLVLVVXHGLUHFWO\EHIRUHDQG
ZHVHHQRUHDVRQIRUGLYHUJLQJIURPWKHVWDQGDUGUXOHWKDW
FRVLJQDWRULHVDUHMRLQWO\DQGVHYHUDOO\OLDEOHLQWKLVFDVH
,Q FRQWUDVW WKH )',& FODLPV WKDW WKH HQWLUHW\ RI WKH
DJUHHPHQW FRQILUPV UDWKHU WKDQ OLPLWV 3XOWH 'LYHUVLILHG
&RPSDQLHV,QF¶VOLDELOLW\:HDJUHH7KH)',&DUJXHVWKDW
VHFWLRQ E % LQGLFDWHVWKDWWKHWUDQVDFWLRQLQYROYHGRWKHU
DJUHHPHQWVH[HFXWHGE\HLWKHU)LUVW+HLJKWV%DQNRU3XOWH
'LYHUVLILHG &RPSDQLHV ,QF 7KXV XQGHU WKDW VHFWLRQ WKH
DJUHHPHQWELQGV3XOWH'LYHUVLILHG&RPSDQLHV,QFRU)LUVW
+HLJKWVDVWKHFDVHPD\EHGHSHQGLQJRQZKRVLJQHGWKRVH

-- 8 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
LPPHGLDWHO\ EHIRUH WKH WZR WUDQVDFWLRQV RFFXUUHG DQG WKH
GLOXWLRQWKDWZDVFDXVHGE\WKHWUDQVDFWLRQV
9,
7KH3XOWH*URXSDOVRFODLPVWKDWWKHGLVWULFWFRXUWHUUHGLQ
ILQGLQJ WKDW 3XOWH 'LYHUVLILHG &RPSDQLHV ,QF DQG )LUVW
+HLJKWVZHUHMRLQWO\DQGVHYHUDOO\OLDEOHXQGHUWKHWHUPVRI
WKH$VVLVWDQFH$JUHHPHQW7KHGLVWULFWFRXUWFRQFOXGHGWKDW
3XOWH 'LYHUVLILHG &RPSDQLHV ,QF ZDV OLDEOH XQGHU WKH
DJUHHPHQW EHFDXVH 3XOWH 'LYHUVLILHG &RPSDQLHV ,QF
VLJQHG WKH DJUHHPHQW DQG QRWKLQJ LQ WKH DJUHHPHQW
OLPLWHG 3XOWH 'LYHUVLILHG &RPSDQLHV ,QF¶V OLDELOLW\ ,W LV
FOHDU WKDW 3XOWH 'LYHUVLILHG &RPSDQLHV ,QF VLJQHG WKH
DJUHHPHQWDQGXQGHU7H[DVODZFRVLJQLQJDQDJUHHPHQW
UDLVHVDSUHVXPSWLRQRIMRLQWDQGVHYHUDOOLDELOLW\6HH3LWPDQ
Y/LJKWIRRW6:G 7H[&W$SS ³,Q
WKHODZRIFRQWUDFWVMRLQWDQGVHYHUDOOLDELOLW\XVXDOO\DULVHV
ZKHQWZRRUPRUHSURPLVRUVLQWKHVDPHFRQWUDFWSURPLVHWKH
VDPHRUGLIIHUHQWSHUIRUPDQFHWRWKHVDPHSURPLVHH´ FLWLQJ
5HVWDWHPHQW 6HFRQG RI &RQWUDFWV ††
0DU\QLFN Y %RFNHOPDQQ 6:G 7H[ &W
$SS ³>*@HQHUDOO\ MRLQW DQG VHYHUDO OLDELOLW\ DULVHV
ZKHQWZRRUPRUHSHUVRQVFRVLJQDFRQWUDFW´ UHY¶GRQRWKHU
JURXQGV6:G 7H[ 7KLVSUHVXPSWLRQ
FDQ EH UHIXWHG E\ ODQJXDJH LQ WKH DJUHHPHQW VSHFLILFDOO\
OLPLWLQJ D SDUW\¶V OLDELOLW\ EXW ³μ>W@KH LQIHUHQFH RI D MRLQW
REOLJDWLRQLVQRWGHIHDWHGE\WKHIDFWWKDWLWDSSHDUVHLWKHULQ
WKH WHUPV RI WKH FRQWUDFW RU IURP WKH FLUFXPVWDQFHV RI WKH
WUDQVDFWLRQWKDWHDFKSURPLVRULVWRFRQWULEXWHVHSDUDWHO\WR
WKH HQWLUH UHVXOW IRU ZKLFK WKH\ EDUJDLQ¶´ &RUELQ RQ
&RQWUDFWV†DWQ TXRWLQJ$OSDXJKY:RRG$
1- :LOOLVWRQRQ&RQWUDFWV†DW
7KH3XOWH*URXSDOVRSRLQWVWRVHFWLRQDVHYLGHQFHWKDW
LWVKRXOGQRWEHERXQGE\WKRVHVHFWLRQVWKDWGRQRWFRQFHUQ
3XOWH 'LYHUVLILHG &RPSDQLHV ,QF GLUHFWO\ 6HFWLRQ
SURYLGHV
$OOWKHWHUPVDQGSURYLVLRQVRIWKLV$JUHHPHQWVKDOOEH
ELQGLQJXSRQDQGLQXUHWRWKHEHQHILWRIWKHSDUWLHVDQG
1R )',&Y)LUVW+HLJKWV%DQNHWDO
GHGXFWHGFUHGLWHGRUH[FOXGHGLQDQ\WD[DEOH\HDUEXW
ZLWKRXWDGMXVWPHQWWRWKHEDGGHEWUHVHUYH LL LIWKH7D[
'HWULPHQW,WHPVKDGQRWEHHQLQFOXGHGLQLQFRPHWD[
LQDQ\WD[DEOH\HDUDQG LLL LIDQ\&UHGLWVZKLFKZHUH
LQFOXGHGLQWD[DEOHLQFRPHIRUVXFKWD[DEOH\HDUZHUH
QRWVRLQFOXGHGRYHU
WKH)HGHUDOLQFRPHWD[OLDELOLW\IRUVXFKWD[DEOH\HDU
DFWXDOO\ LQFXUUHG E\ WKH $&48,5(5 DQG WKH
$&48,5,1* $662&,$7,216 RU WKH &RQVROLGDWHG
*URXS
$&RYHUHG$VVHW/RVVHV
7KH )',& DVVHUWV WKDW WKH 3XOWH *URXS IDLOHG WR FRPSO\
ZLWKWKH$VVLVWDQFH$JUHHPHQWEHFDXVHWKH\KDYHQRWVKDUHG
WD[EHQHILWVUHFHLYHGIURPFRYHUHGDVVHWORVVHVDVUHTXLUHG
XQGHU VHFWLRQ 7KH 3XOWH *URXS GRHV QRW GLVSXWH WKDW
FRYHUHG DVVHW ORVVHV DUH WD[ EHQHILW LWHPV XQGHU VHFWLRQ
D 5DWKHUWKH3XOWH*URXSFODLPVWKDWWKHPDMRULW\RI
WD[VDYLQJVDVVRFLDWHGZLWKFRYHUHGDVVHWORVVHVDUHQRWWREH
VKDUHG ZLWK WKH )',& 7KH 3XOWH *URXS HPSKDVL]HV RQH
FODXVHLQVHFWLRQ G ³EXWZLWKRXWDGMXVWPHQWWRWKHEDG
GHEWUHVHUYH´DUJXLQJWKDWLWH[FOXGHVIURPWKHWD[EHQHILW
VKDULQJLWHPVDQ\WD[EHQHILWVDVVRFLDWHGZLWKFRYHUHGDVVHW
ORVVHVEDVHGRQDQDGMXVWPHQWWRWKHEDGGHEWUHVHUYH7KH
GLVWULFW FRXUW KHOG DQG ZH DJUHH WKDW VHFWLRQ G UHDG
WRJHWKHU ZLWK VHFWLRQ D XQDPELJXRXVO\ UHTXLUHV WKH
3XOWH*URXSWRVKDUHWD[VDYLQJVIURPFRYHUHGDVVHWORVVHV
WKDWGHULYHIURP³DGMXVWPHQWWRWKHEDGGHEWUHVHUYH´
7D[EHQHILWVUHDOL]HGLQFRQQHFWLRQZLWKPRVWFRYHUHGDVVHW
ORVVHVLQYROYHDQDGMXVWPHQWWRWKHEDGGHEWUHVHUYH$EDG
GHEWUHVHUYHPDLQWDLQVDUHVHUYHWRDEVRUEDQWLFLSDWHGORVVHV
VXFKDVFRYHUHGDVVHWORVVHV:KHQDORVVRFFXUVEHFDXVHRI
D FRYHUHG DVVHW OLTXLGDWLRQ WKH EDG GHEW UHVHUYH PD\ EH
UHGXFHG WR UHFRXS WKH ORVV 7KH ,QWHUQDO 5HYHQXH &RGH
DOORZVDQLQFRPHWD[GHGXFWLRQZKHQDFUHGLWLVPDGHWRWKH
EDGGHEWUHVHUYHWRUHVWRUHLWWRWKHDOORZDEOHDPRXQW7KH
)',&FODLPVWKDWWKLVWD[EHQHILWRFFXUVDVDUHVXOWRID)',&
UHODWHGWUDQVDFWLRQDQGWKHUHIRUHPXVWEHVKDUHG

-- 9 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
7KHFUX[RIWKLVFDVHLVWKDWWKH3XOWH*URXSFODLPVWKDWLW
DJUHHGWRDVVXPHWKHEXONRIWKHOLDELOLWLHVDVVRFLDWHGZLWKWKH
IDLOHGVDYLQJVDQGORDQVDQGWRVKDUHZLWKWKH)',&VRPHRI
WKHWD[EHQHILWVIURPWKHDFTXLVLWLRQEXWQRWWRVKDUHEHQHILWV
GHULYLQJIURPDGMXVWPHQWVWRWKHEDGGHEWUHVHUYH$FFRUGLQJ
WRWKH3XOWH*URXSWKHSKUDVH³ZLWKRXWDGMXVWPHQWWREDG
GHEWUHVHUYH´UHTXLUHVWKHK\SRWKHWLFDOWD[WREHFDOFXODWHG
³ZLWKRXW´UHJDUGWRWD[EHQHILWVWKDWUHVXOWIURPDQDGMXVWPHQW
WR WKH EDG GHEW UHVHUYH 8QGHU VXFK D UHDGLQJ RI VHFWLRQ
G WD[EHQHILWVDVVRFLDWHGZLWKPRVWFRYHUHGDVVHWORVVHV
ZRXOGQRWEHVXEMHFWWRVKDULQJZLWKWKH)',&
7KH GLVWULFW FRXUW UHMHFWHG WKH 3XOWH *URXS¶V DUJXPHQW
ILQGLQJ WKDW VXFK DQ LQWHUSUHWDWLRQ ZRXOG UHQGHU VHFWLRQ
D VXSHUIOXRXV 8QGHU VHFWLRQ WKH 3XOWH *URXS LV
UHTXLUHGWRSD\WRWKH)',&WZHQW\ILYHSHUFHQWRIZKDWHYHU
WD[VDYLQJVWKH\UHDOL]HDVDUHVXOWRIFHUWDLQWD[GHGXFWLRQV
DQGH[FOXVLRQVWKDWDUHGHILQHGDV³WD[EHQHILWLWHPV´8QGHU
VHFWLRQ D WD[EHQHILWLWHPVLQFOXGH³DQ\FRVWH[SHQVH
RUORVV L ZKLFKLVLQFXUUHGE\>)LUVW+HLJKWV@ LL IRUZKLFK
>WKH)',&@KDVPDGHDVVLVWDQFHSD\PHQWVDQG LLL ZKLFK
LVGHGXFWLEOHRQ>)LUVW+HLJKWV¶@LQFRPHWD[UHWXUQRUUHGXFHV
WKHEDODQFHRI>)LUVW+HLJKWV¶@EDGGHEWUHVHUYHEXWRQO\WR
WKHH[WHQWVXFKUHGXFWLRQZRXOGUHVXOWLQDWD[GHGXFWLRQRQ
WKHH[SHULHQFHPHWKRG´ HPSKDVLVDGGHG 6HFWLRQ D
XQGLVSXWHGO\VWDWHVWKDWWD[EHQHILWVUHVXOWLQJIURPDUHGXFWLRQ
LQ WKH EDG GHEW UHVHUYH FRQVWLWXWH SDUW RI WKH WD[ VDYLQJV
HQWLWOHGWRWKH)',&
$V 7H[DV ODZ UHTXLUHV WKH FRQWUDFW PXVW EH UHDG LQ LWV
HQWLUHW\6HH&RNHU6:GDW:KHQVHFWLRQLV
UHDGLQLWVHQWLUHW\WKH3XOWH*URXS¶VLQWHUSUHWDWLRQRIVHFWLRQ
G GLUHFWO\FRQWUDYHQHVWKHXWLOLW\RIVHFWLRQ D 7KH
3XOWH*URXS¶VLQWHUSUHWDWLRQH[FOXGHVSDUWLFXODUW\SHVRIWD[
EHQHILWLWHPVWKDWVHFWLRQ D H[SOLFLWO\VWDWHVDUHWREH
VKDUHG6XFKDQLQWHUSUHWDWLRQLVQRWUHDVRQDEOH,QRUGHUIRU
WKHGRFXPHQWWRPDNHVHQVHDVDFRPSOHWHFRQWUDFWVHFWLRQ
G PXVWEHUHDGZLWKVHFWLRQ D 5HDGWRJHWKHULWLV
FOHDUWKDWVHFWLRQ D GHILQHVWKHWUDQVDFWLRQVWKDWIDOOZLWKLQ
WKHPHDQLQJRI³1HW7D[%HQHILWV´DQGVHFWLRQ G GHILQHV
1R )',&Y)LUVW+HLJKWV%DQNHWDO
)',&IURPULVNVDVVRFLDWHGZLWKJHQHUDOEXVLQHVVRSHUDWLRQV
7KHGLOXWLRQRIWKH)',&ZDUUDQWVKRZHYHUGLGQRWGHULYH
IURPJHQHUDOEXVLQHVVRSHUDWLRQV5DWKHUWKHGLOXWLRQGLUHFWO\
UHVXOWHG IURP DFWLRQV WDNHQ E\ WKH 3XOWH *URXS ZKHQ LW
FDQFHOHGLWVREOLJDWLRQVXQGHUWKH7D[$OORFDWLRQDQG6KDULQJ
$JUHHPHQWDQGWKH:DUUDQW$VVXPSWLRQ$JUHHPHQW
7KH GLVWULFW FRXUW DZDUGHG GDPDJHV WR WKH )',& IRU WKH
EUHDFKRIVHFWLRQ H RIWKH$VVLVWDQFH$JUHHPHQWDQGIRU
WKH EUHDFK RI VHFWLRQ E $V GLVFXVVHG DERYH ERWK
EUHDFKHVDURVHIURPWKHVDPHWUDQVDFWLRQV7KH3XOWH*URXS
DVVHUWVWKDWE\DZDUGLQJGDPDJHVXQGHU H DQG E WKH
GLVWULFWFRXUWDOORZHGDGRXEOHUHFRYHU\WKDWLVLPSHUPLVVLEOH
XQGHU7H[DVODZ$VWKH3XOWH*URXSSRLQWVRXW7H[DVODZ
JHQHUDOO\ SURKLELWV PRUH WKDQ RQH UHFRYHU\ IRU WKH VDPH
LQMXU\ 6HH :DLWH +LOO 6HUYV ,QF Y :RUOG &ODVV 0HWDO
:RUNV,QF6:G 7H[ 7KHUHIRUHD
SODLQWLII PD\ QRW UHFRYHU RQ ERWK DOWHUQDWH JURXQGV RI
UHFRYHU\ ZKHQ WKHUH LV RQO\ RQH LQMXU\ $ MXGJPHQW WKDW
DZDUGVGDPDJHVRQPXOWLSOHWKHRULHVRIOLDELOLW\KRZHYHU
GRHVQRWDPRXQWWRGRXEOHUHFRYHU\LIWKHWKHRULHVRIOLDELOLW\
DULVHIURP³WZRVHSDUDWHDQGGLVWLQFWLQMXULHVDQGWKHUHKDV
EHHQ D VHSDUDWH DQG GLVWLQFW ILQGLQJ RI GDPDJHV RQ ERWK
WKHRULHVRIOLDELOLW\´%RUGHQ,QFY*XHUUD6:G
7H[&W$SS
7KH 3XOWH *URXS EUHDFKHG VHFWLRQ E ZKHQ )LUVW
+HLJKWV LVVXHG D FRQVWUXFWLYH GLYLGHQG ZLWKRXW JLYLQJ WKH
)',&WKHUHTXLUHGWZHQW\ILYHSHUFHQWSD\PHQW,QDGGLWLRQ
LW EUHDFKHG VHFWLRQ H QRW E\ LVVXLQJ D GLYLGHQG WKDW
YLRODWHG E EXW E\ GLOXWLQJ WKH YDOXH RI WKH )',&
ZDUUDQWVWKURXJKWKHVDPHWUDQVDFWLRQV7KHVHWZRLQMXULHV
ZHUH GLVWLQFW WKH ILUVW EHLQJ DQ LPPHGLDWH LQMXU\ DQG WKH
VHFRQGEHLQJDQLQMXU\WRDORQJWHUPRZQHUVKLSLQWHUHVW
$ZDUGVXQGHUERWKVHFWLRQ E DQG H ZLOOQRWFDXVH
GRXEOHUHFRYHU\:HUHPDQGWKHVHFWLRQ H GDPDJHVWRWKH
GLVWULFWFRXUWWRUHFDOFXODWHWKHDZDUGE\GHWHUPLQLQJWKHERRN
YDOXH RI WKH ZDUUDQW REOLJDWLRQ RQ 'HFHPEHU

-- 10 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
$&48,5,1*$662&,$7,216¶SURSHUWLHVRUEXVLQHVV
LLL SD\DQ\FDVKRUVWRFNGLYLGHQGVRQDQ\FODVVRIVWRFN
RUPDNHDQ\RWKHUGLVWULEXWLRQRQVXFKVWRFNH[FHSWDV
SHUPLWWHGXQGHUWKLV$JUHHPHQWRUWDNHDQ\RWKHUDFWLRQ
ZKLFK ZRXOG KDYH WKH HIIHFW RI GLOXWLQJ WKH >)',&@
ZDUUDQWV HPSKDVLVDGGHG
7KH)',&FRQWHQGVWKDWZKHQWKH3XOWH*URXSFDQFHOHGLWV
REOLJDWLRQVWRSHUIRUPXQGHUWKH7D[$OORFDWLRQDQG6KDULQJ
$JUHHPHQW DQG WKH :DUUDQW 2EOLJDWLRQ $VVXPSWLRQ
$JUHHPHQW WKH\ FUHDWHG DQ HFRQRPLF GHWULPHQW WR )LUVW
+HLJKWV WKDW UHGXFHG WKH PDUNHW YDOXH RI )LUVW +HLJKWV¶V
FRPPRQVWRFNDQGWKXVUHVXOWHGLQDUHGXFWLRQLQWKHYDOXHRI
WKH )',& ZDUUDQWV 7KH GLVWULFW FRXUW DJUHHG 7KH 3XOWH
*URXSFODLPVWKDWWKHGLVWULFWFRXUWHUUHGE\UHDGLQJWKHWHUP
³YDOXH´LQWRWKHFRQWUDFWODQJXDJH7KH\DUJXHWKDWVHFWLRQ
H GRHV QRW SURKLELW D GLOXWLRQ LQ WKH ³YDOXH´ RI WKH
ZDUUDQWVRQO\LQWKHGLOXWLRQRIWKHRZQHUVKLSLQWHUHVWRIWKH
ZDUUDQWV
7KH :DUUDQW $JUHHPHQW VSHFLILFDOO\ JDYH WKH )',& WKH
ULJKWWRSXUFKDVHWZHQW\SHUFHQWRI)LUVW+HLJKWV¶VFRPPRQ
VWRFNDWRQHFHQWSHUVKDUHDQ\WLPHEHWZHHQ6HSWHPEHU
DQG6HSWHPEHU7KH:DUUDQW$JUHHPHQWDOVR
DOORZHG WKH )',& WR UHTXHVW WKH PDUNHW YDOXH RI WZHQW\
SHUFHQW RI WKH FRPPRQ VWRFN RI )LUVW +HLJKWV LQVWHDG RI
SXUFKDVLQJWKHVWRFN7KHWZHQW\SHUFHQWLQWHUHVWZDVWREH
PHDVXUHGIURPDOOFRPPRQVWRFNLVVXHGDQGRXWVWDQGLQJRQ
WKHGDWHWKDWWKH)',&HOHFWHGWRH[HUFLVHWKHZDUUDQWRSWLRQV
6HFWLRQ H GRHVQRWPHQWLRQDVSHFLILFDPRXQWRIVWRFN
EXWUDWKHUVWDWHVWKDWWKH)',&LVHQWLWOHGWRDSHUFHQWDJHRIDOO
FRPPRQVWRFNLVVXHGDQGRXWVWDQGLQJ 7KHSHUFHQWDJHRI
RZQHUVKLSLQWHUHVWLQ)LUVW+HLJKWVWKDWLVDYDLODEOHXQGHUWKH
:DUUDQW $JUHHPHQW FDQQRW EH FKDQJHG 7KXV WKH DQWL
GLOXWLRQ SURYLVLRQ LQ VHFWLRQ H PXVW EH LQWHUSUHWHG WR
SUHYHQWWKHGLOXWLRQRIWKH³YDOXH´RIWKH)',&¶VZDUUDQWVDQG
QRWWKHRZQHUVKLSLQWHUHVWSHUFHQWDJH
$VWKH3XOWH*URXSSRLQWVRXWWKHPDUNHWYDOXHRIVWRFN
LQYDULDEO\IOXFWXDWHVDQGVHFWLRQ H GRHVQRWSURWHFWWKH
1R )',&Y)LUVW+HLJKWV%DQNHWDO
WKH PHWKRG RI FDOFXODWLQJ WKH DPRXQW RI WKRVH EHQHILWV
9LHZHGLQWKLVPDQQHUVHFWLRQLVERWKXQDPELJXRXVDQG
FRKHUHQW
7KH3XOWH*URXSFODLPVWKDWWKHGLVWULFWFRXUWLPSURSHUO\
LJQRUHGWKHWHVWLPRQ\RIH[SHUWVZKHQUHDGLQJWKHFRQWUDFW
+RZHYHUXQGHU7H[DVODZ³>R@QO\ZKHUHDFRQWUDFWLVILUVW
GHWHUPLQHG WR EH DPELJXRXV PD\ WKH FRXUWV FRQVLGHU WKH
SDUWLHV¶ LQWHUSUHWDWLRQ DQG DGPLW H[WUDQHRXV HYLGHQFH WR
GHWHUPLQH WKH WUXH PHDQLQJ RI WKH LQVWUXPHQW´ 1DWLRQDO
8QLRQ)LUH,QVXUDQFH&RY&%,,QGXVWULHV,QF6:G
7H[ %HFDXVHWKHGLVWULFWFRXUWFRUUHFWO\
IRXQGWKH$VVLVWDQFH$JUHHPHQWWREHXQDPELJXRXVLWQHHG
QRW KDYH FRQVLGHUHG DQ\ HYLGHQFH RXWVLGH RI WKH SODLQ
PHDQLQJRIWKHFRQWUDFW
%$FFUXHG,QWHUHVW([SHQVHV
7KH)',&DOVRDUJXHVWKDWXQGHUVHFWLRQ D DFFUXHG
LQWHUHVW H[SHQVHV FRQVWLWXWH WD[ EHQHILW LWHPV RI ZKLFK WKH
)',&LVHQWLWOHGWRVKDUHLQWKHUHVXOWLQJWD[VDYLQJV7KH
3XOWH*URXSKRZHYHUFODLPVWKDWDFFUXHGLQWHUHVWH[SHQVHV
DUHQRWDWD[EHQHILWLWHPDQGWKHUHIRUHDQ\VDYLQJVVKRXOGQRW
EHVKDUHGZLWKWKH)',&
6HFWLRQ D RIWKH$VVLVWDQFH $JUHHPHQWGHILQHVWD[
EHQHILWLWHPVDV
7KHDPRXQWRIDQ\QHWRSHUDWLQJORVVFDUU\RYHUVDQ\
FDSLWDOORVVFDUU\RYHUVDQGDQ\RWKHUORVVFDUU\RYHUVRIDQ
$&48,5(' $662&,$7,21 DW WKH (IIHFWLYH 'DWH
UHVXOWLQJ LQ D WD[ GHGXFWLRQ IURP HLWKHU $&48,5,1*
$662&,$7,21¶VJURVVLQFRPH
$FFUXHGLQWHUHVWH[SHQVHVIRUWKHSXUSRVHVRIWKLVFDVHDUH
WKHLQWHUHVWH[SHQVHVIURPWKHLQWHUHVWSD\DEOHWRGHSRVLWRUV
WKDW KDG DFFUXHG EXW KDG QRW EHHQ SDLG DQG WKH LQWHUHVW
H[SHQVHVWKDWZHUHSDLGEXWKDGQRWEHHQGHGXFWHG7KHILYH
IDLOHG LQVWLWXWLRQV GLG QRW WDNH WD[ GHGXFWLRQV IRU WKHVH
DFFUXHG LQWHUHVW H[SHQVHV SULRU WR WKH DFTXLVLWLRQ E\ )LUVW

-- 11 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
+HLJKWV $IWHU WKH DFTXLVLWLRQ WKH H[SHQVH GHGXFWLRQV
EHFDPHDYDLODEOHWR)LUVW+HLJKWV
7KH)',&FODLPVDQGWKHGLVWULFWFRXUWFRQFOXGHGWKDWWKH
WHUP³DQ\RWKHUORVVFDUU\RYHUV´HQFRPSDVVHVDFFUXHGLQWHUHVW
H[SHQVHVDFTXLUHGE\)LUVW+HLJKWV:HGLVDJUHH7KHWHUP
³ORVV FDUU\RYHU´ LV QRW SUHFLVHO\ GHILQHG LQ WKH $VVLVWDQFH
$JUHHPHQW 7KH SULQFLSDO ZRUG LQ WKLV FDVH LV ³ORVV´ QRW
³FDUU\RYHU´ :H LQWHUSUHW DFFUXHG LQWHUHVW H[SHQVHV WR EH
LQWHUHVWH[SHQVHVLQFXUUHGEXWQRWSDLGRUGHGXFWHG,QWHUHVW
H[SHQVHVDUHFRVWVRIGRLQJEXVLQHVVUDWKHUWKDQORVVHVLQWKH
RUGLQDU\VHQVH%HFDXVHRIWKHRPLVVLRQRISUHFLVHODQJXDJH
GHILQLQJDFFUXHGLQWHUHVWH[SHQVHVDVD³ORVVFDUU\RYHU´ZH
FDQQRWUHDGLQWRWKHFRQWUDFWWKHGHILQLWLRQJLYHQE\WKH)',&
$FFXUHG LQWHUHVW H[SHQVHV DUH QRW WD[ EHQHILW LWHPV XQGHU
VHFWLRQ D 7KH)',&LVWKHUHIRUHQRWHQWLWOHGWRUHFHLYH
DQ\SD\PHQWVDVDUHVXOWRIDFFUXHGLQWHUHVWH[SHQVHV
&1RQ&RYHUHG$VVHW/RVVHV
7KHSDUWLHVQH[WGLVSXWHZKHWKHUQRQFRYHUHGDVVHWORVVHV
FRQVWLWXWH WD[ EHQHILW LWHPV WR EH VKDUHG XQGHU VHFWLRQ
1RQFRYHUHGDVVHWVDUHDOOWDQJLEOHDVVHWVVXFKDVPDUNHWDEOH
VHFXULWLHVDQGWKHPRUWJDJHSRUWIROLRWKDWWKH3XOWH*URXS
DFTXLUHG LQ WKH WUDQVDFWLRQ DQG ZHUH QRW LQFOXGHG LQ WKH
GHILQLWLRQRIFRYHUHGDVVHWV7KH3XOWH*URXSKDVEHQHILWWHG
IURPWD[GHGXFWLRQVIURPWKHVDOHVRUGLVSRVLWLRQVRIQRQ
FRYHUHGDVVHWVWKDWUHVXOWHGLQDORVV7KH)',&FODLPVDQG
ZHDJUHHWKDWWD[VDYLQJVDWWULEXWDEOHWRQRQFRYHUHGDVVHWV
TXDOLI\DVVKDUHGWD[EHQHILWLWHPVXQGHUVHFWLRQ D
'HILQLQJVKDUHGWD[EHQHILWLWHPVIRUSXUSRVHVRIWKLVFDVH
6HFWLRQ D VWDWHV
$Q\FRVWH[SHQVHRUORVV L ZKLFKLVLQFXUUHGE\DQ
$&48,5,1* $662&,$7,21 LL IRU ZKLFK WKH
&25325$7,21 KDV PDGH DVVLVWDQFH SD\PHQWV
SXUVXDQWWR† D RIWKLV$JUHHPHQWDQG LLL ZKLFK
LV GHGXFWLEOH RQ DQ $&48,5,1* $662&,$7,21¶V
)HGHUDORUVWDWHLQFRPHWD[UHWXUQ
1R )',&Y)LUVW+HLJKWV%DQNHWDO
FRQIHUUHG RQ WKH 3XOWH *URXS E\ WKH UHPRYDO RI WKH WD[
VKDULQJOLDELOLW\LQFXUUHGEHWZHHQDQGWKHHQGRI
DV FDOFXODWHG XQGHU RXU LQWHUSUHWDWLRQ RI VHFWLRQ 7KH
GLVWULFW FRXUW PXVW DOVR GHWHUPLQH WKH HFRQRPLF EHQHILW
FRQIHUUHGRQWKH3XOWH*URXSE\WKHUHPRYDORIWKHZDUUDQW
REOLJDWLRQOLDELOLW\RQ'HFHPEHU
7KH DPRXQW RI WKH FRQVWUXFWLYH GLYLGHQG JLYHQ E\ )LUVW
+HLJKWV PXVW EH FRQWUROOHG E\ WKH ZHOONQRZQ UXOH WKDW
GLYLGHQGV FDQQRW H[FHHG UHWDLQHG HDUQLQJV DQG SURILWV ,Q
+DJDPDQ )G DW ZH VWDWHG WKDW ³>E@HFDXVH
GLYLGHQGV FDQ RQO\ EH GLVWULEXWHG WR WKH H[WHQW RI D
FRUSRUDWLRQ¶VHDUQLQJVDQGSURILWVXQGHU,5&†DFRXUW
FDQRQO\ILQGDFRQVWUXFWLYHGLYLGHQGWREHWD[DEOHDVRUGLQDU\
LQFRPH WR WKH H[WHQW RI WKH FRUSRUDWLRQ¶V HDUQLQJV DQG
SURILWV´ $QRWKHU RSLQLRQ UHFRJQL]HV WKDW ³>R@WKHUZLVH D
GLVWULEXWLRQWRWKHVWRFNKROGHULVPHUHO\DUHFRYHU\IURPKLV
EDVLVLQKLVVKDUHVWRWKHH[WHQWWKDWKHKDVVXFKDEDVLVWRWKH
H[WHQW WKDW WKH SD\PHQWV H[FHHG WKH EDVLV WKH SD\PHQWV
DPRXQW WR D >WD[DEOH FDSLWDO@ JDLQ´ (VWDWH RI 'H1LUR Y
&RPPLVVLRQHU)G WK&LU $OWKRXJK
WKLVLV QRWDWD[FDVHWKHVDPHOLPLWDWLRQVRQFRQVWUXFWLYH
GLYLGHQGVVKRXOGDSSO\,IWKHGLVWULFWFRXUWGHWHUPLQHVWKDW
WKH HFRQRPLF EHQHILW WR WKH 3XOWH *URXS IURP WKH
WUDQVDFWLRQVH[FHHGVWKH)LUVW+HLJKWV¶VUHWDLQHGHDUQLQJVDQG
SURILWV LPPHGLDWHO\ SULRU WR WKH WZR WUDQVDFWLRQV WKHQ WKH
FRQVWUXFWLYH GLYLGHQG DQG SD\PHQWV XQGHU VHFWLRQ E
PXVWEHOLPLWHG
9
7KH)',&DUJXHVWKDWWKH3XOWH*URXSDOVRYLRODWHGVHFWLRQ
H RIWKHDJUHHPHQWZKLFKSURKLELWVWKH3XOWH*URXSIURP
WDNLQJDFWLRQVWKDWGLOXWHWKHZDUUDQWV6HFWLRQ H VWDWHV
([FHSW DV WKH &25325$7,21 VKDOO RWKHUZLVH
FRQVHQWLQZULWLQJDQGH[FHSWDVRWKHUZLVHVSHFLILFDOO\
DXWKRUL]HG LQ WKLV $JUHHPHQW RU LQ WKH :DUUDQW
$JUHHPHQW WKH $&48,5(5 DQG $&48,5,1*
$662&,$7,216VKDOOQRW LL DXWKRUL]HWKHVDOH
OHDVHRUFRQYH\DQFHRIDOORUVXEVWDQWLDOO\DOORIWKH

-- 12 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
H[SHFWDWLRQ RI UHLPEXUVHPHQW WKDW HFRQRPLF EHQHILW
EHFRPHV D FRQVWUXFWLYH GLYLGHQG WD[DEOH WR WKH
UHVSHFWLYHVKDUHKROGHU
TXRWLQJ/RIWLQ :RRGDUG,QFY8QLWHG6WDWHV)G
WK&LU
7KH WHVW LV WKHQ ZKHWKHU )LUVW +HLJKWV FRQIHUUHG DQ
HFRQRPLFEHQHILWIRUZKLFKLWGLGQRWH[SHFWUHLPEXUVHPHQW
6HHLG,IWKHWZRWUDQVDFWLRQVKDYHWKHHFRQRPLFHIIHFW
RIGLYLGHQGVHYHQLIQRWH[SOLFLWO\GHVLJQDWHGDVVXFKWKH\
PD\VWLOOEHFKDUDFWHUL]HGDVFRQVWUXFWLYHGLYLGHQGVDQGWKXV
EHVXEMHFWWRVKDULQJZLWKWKH)',&XQGHUVHFWLRQ E
)LUVW +HLJKWV DQG WKH 3XOWH *URXS FRPSOHWHG WKH
WUDQVDFWLRQVZLWKRXWJLYLQJDQ\QRWLFHWRWKH)',&WKDW)LUVW
+HLJKWVZDVDVVXPLQJWKHVHOLDELOLWLHV:KHQ)LUVW+HLJKWV
DQGWKH3XOWH*URXSFDQFHOHGWKH3XOWH*URXS¶VFRQWUDFWXDO
GXW\WRIXQG)LUVW+HLJKWV¶WD[EHQHILWVKDULQJREOLJDWLRQVWR
WKH)',&WKH3XOWH*URXSZDVDEOHWRUHPRYHDQDFFUXHGWD[
VKDULQJOLDELOLW\IURPLWVERRNV7KHUHPRYDORIWKLVOLDELOLW\
KDG D SRVLWLYH HFRQRPLF HIIHFW IRU WKH 3XOWH *URXS )LUVW
+HLJKWVGLGQRWH[SHFWDQ\UHLPEXUVHPHQWDVDUHVXOWRIWKH
FRQWUDFW¶V UHVFLVVLRQ $OWKRXJK WKH 3XOWH *URXS DQG )LUVW
+HLJKWV RSHUDWHG LQ D FRPELQHG DQG SHUKDSV LQIRUPDO
DFFRXQWLQJPDQQHUWKHIDFWUHPDLQVWKDWWKH3XOWH*URXSLQ
LWVFDSDFLW\DVWKHVROHVKDUHKROGHURI)LUVW+HLJKWVUHFHLYHG
DQHFRQRPLFEHQHILWZKHQLWUHPRYHGWKHWD[VKDULQJOLDELOLW\
IURPLWVFRUSRUDWHOHGJHUV/LNHZLVHZKHQ)LUVW+HLJKWVDQG
WKH3XOWH*URXSUHVFLQGHGWKH:DUUDQW2EOLJDWLRQWKH3XOWH
*URXS ZDV DEOH WR UHPRYH D OLDELOLW\ IURP LWV ERRNV DQG
WKHUHE\ UHFHLYH DQ HFRQRPLF EHQHILW :H DJUHH ZLWK WKH
GLVWULFWFRXUWWKDWDQ\HFRQRPLFEHQHILWVFRQIHUUHGE\)LUVW
+HLJKWV DV D UHVXOW RI WKHVH WUDQVDFWLRQV DUH FRQVWUXFWLYH
GLYLGHQGVFRYHUHGE\VHFWLRQ E
,QOLJKWRIWKHLQFRPSOHWHQHVVRIWKHUHFRUGFRQFHUQLQJWKH
DPRXQWRIHFRQRPLFEHQHILWFRQIHUUHGE\)LUVW+HLJKWVWRWKH
3XOWH*URXSZHILQGLWEHVWWRUHPDQGWKHGDPDJHVLVVXHIRU
WKH GLVWULFW FRXUW WR FDOFXODWH WKH SURSHU GDPDJHV DPRXQW
7KH GLVWULFW FRXUW PXVW GHWHUPLQH WKH HFRQRPLF EHQHILW
1R )',&Y)LUVW+HLJKWV%DQNHWDO
$FFRUGLQJO\ 6HFWLRQ D KDV WKUHH UHTXLUHPHQWV WKDW
WKHUHEHDORVVDWWULEXWDEOHWRQRQFRYHUHGDVVHWORVVHVWKDW
WKH3XOWH*URXSKDVWDNHQDWD[GHGXFWLRQIRUWKHQRQFRYHUHG
DVVHWORVVHVDQGWKDWWKH)',&PDGHDVVLVWDQFHSD\PHQWVWR
FRPSHQVDWH)LUVW+HLJKWVIRUORVVHVRQQRQFRYHUHGDVVHWV
7KH3XOWH*URXSGRHVQRWFKDOOHQJHWKDWVHFWLRQ D ¶VILUVW
WZRUHTXLUHPHQWVWKDWWKH\KDYHLQFXUUHGORVVHVDWWULEXWDEOH
WR QRQFRYHUHG DVVHW ORVVHV DQG WKDW WKH\ KDYH WDNHQ
GHGXFWLRQVIRUWKRVHORVVHVDUHPHW5DWKHUWKH\FKDOOHQJH
WKH )',&¶V FODLP WKDW SD\PHQWV SXUVXDQW WR VHFWLRQ D
VDWLVI\WKHWKLUGUHTXLUHPHQWRIVHFWLRQ D
7KH)',&SRLQWVWRVHFWLRQ D WRVKRZWKDWLWPDGH
WKHUHTXLUHGSD\PHQWV6HFWLRQ D SURYLGHGSD\PHQWV
IRU
7KHDOORFDEOHH[SHQVHIRUWKHDPRUWL]DWLRQRIWKHDPRXQW
RI JRRGZLOO WKDW LV DWWULEXWDEOH WR WKH DFTXLVLWLRQ
SXUVXDQWWRWKH$FTXLVLWLRQ$JUHHPHQWVRIORDQVWKDWGR
QRWFRQVWLWXWH&RYHUHG$VVHWVXQGHUWKLV$JUHHPHQWDQG
0DUNHWDEOH6HFXULWLHVWRWKHH[WHQWVXFKJRRGZLOODULVHV
IURPWKHIDFWWKDWVXFKORDQVRU0DUNHWDEOH6HFXULWLHV
EHDULQWHUHVWDWDUDWHEHORZPDUNHWUDWHVDWWKH(IIHFWLYH
'DWH
7KH3XOWH*URXSGRHVQRWGLVSXWHWKDWWKH)',&PDGHWKH
UHTXLVLWHSD\PHQWVWR)LUVW+HLJKWVXQGHUVHFWLRQ D DQG
WKDW WKRVH SD\PHQWV UHLPEXUVHG )LUVW +HLJKWV IRU WKH
GLIIHUHQFH EHWZHHQ WKH FRQWUDFWXDO UDWH RI LQWHUHVW RQ QRQ
FRYHUHGDVVHWVDQGWKHORZHUPDUNHWUDWHRILQWHUHVWDVRIWKH
GDWHRIDFTXLVLWLRQ7KH3XOWH*URXSFODLPVKRZHYHUWKDW
WKH SD\PHQWV UHFHLYHG XQGHU VHFWLRQ D ZHUH QRW
³DVVLVWDQFHSD\PHQWV´UHODWHGWRQRQFRYHUHGDVVHWVEHFDXVH
WKH)',&GLGQRWUHLPEXUVH)LUVW+HLJKWVIRUWKHDFWXDOORVVHV
LQFXUUHGDWWKHWLPH)LUVW+HLJKWVGLVSRVHGRIWKHP7KH3XOWH
*URXS FRQWHQGV WKDW WKH JRRGZLOO SD\PHQWV WKH\ UHFHLYHG
SXUVXDQWWRVHFWLRQ D DQGWKHORDQORVVHVWKH\LQFXUUHG
RQ WKH GLVSRVLWLRQ RI QRQFRYHUHG DVVHWV DUH VHSDUDWH DQG
GLVWLQFWFRQFHSWV

-- 13 of 14 --

)',&Y)LUVW+HLJKWV%DQNHWDO 1R
7KHGLVWULFWFRXUWIRXQGWKDWWKH$VVLVWDQFH$JUHHPHQWGLG
QRW UHTXLUH WKDW WKH )',& UHLPEXUVH )LUVW +HLJKWV IRU WKH
DFWXDO DPRXQW RI WKH ORVVHV DW WKH SUHFLVH WLPH WKH\ ZHUH
LQFXUUHG LQ RUGHU IRU WKH UHLPEXUVHPHQW WR FRQVWLWXWH DQ
DVVLVWDQFHSD\PHQW%HFDXVHWKH)',&GLGPDNHSD\PHQWV
XQGHUVHFWLRQ D WR)LUVW+HLJKWVWRFRPSHQVDWHIRUWKH
ORVVRQWKHQRQFRYHUHGDVVHWVWKH)',&GLGPDNHDVVLVWDQFH
SD\PHQWVSXUVXDQWWRWKH$VVLVWDQFH$JUHHPHQW5HWXUQLQJ
WR WKH RULJLQDO WKUHH UHTXLUHPHQWV RI VHFWLRQ D ZH
FRQFOXGHWKDWDOODUHPHWDQGWKH3XOWH*URXSPXVWWKHUHIRUH
VKDUHWKHWD[EHQHILWVREWDLQHGIURPWKHQRQFRYHUHGDVVHW
ORVVHV
' 'DPDJHV
7KHGLVWULFWFRXUWDZDUGHGLQGDPDJHVXQGHU
VHFWLRQIRUWKHWD[\HDUVEHWZHHQDQG7KH3XOWH
*URXSDVVHUWVWKDWDJHQXLQHLVVXHRIPDWHULDOIDFWH[LVWVDVWR
WKH DPRXQW RI GDPDJHV GXH WR WKH )',& $OWKRXJK WKH
GLVWULFWFRXUWRUGHUHGDGDPDJHVDZDUGZLWKRXWSURYLGLQJDQ\
H[SODQDWLRQ RI LWV FDOFXODWLRQV WKH UHFRUG EHORZ FRQWDLQV
VXIILFLHQWLQIRUPDWLRQWRFRQFOXGHWKDWWKHSDUWLHVGLVDJUHH
DERXW RQO\ RI WKH WD[ EHQHILWV DZDUG +DYLQJ
UHYLHZHG WKH UHFRUG ZH FRQFOXGH WKDW WKH GLVWULFW FRXUW
FRUUHFWO\JUDQWHGVXPPDU\MXGJPHQWRQWKHLVVXHRIGDPDJHV
1RJHQXLQHLVVXHRIPDWHULDOIDFWH[LVWVDVWRWKHDPRXQWRI
GDPDJHV ,Q OLJKW RI RXU ILQGLQJ WKDW DFTXLUHG LQWHUHVW
H[SHQVHVDUHQRWWD[EHQHILWVVXEMHFWWR)LUVW+HLJKWV¶VVKDULQJ
REOLJDWLRQZHUHPDQGWKHVHGDPDJHVIRUWKHGLVWULFWFRXUWWR
UHFDOFXODWHWKHVHFWLRQDZDUGIRUDFFRUGLQJO\
7KHGLVWULFWFRXUWDOVRDZDUGHG³DWOHDVW´WR
WKH)',&DVLWVVKDUHRIWKHWD[EHQHILWVIRUWKHWD[\HDUVDIWHU
$WWKLVSRLQW)LUVW+HLJKWVKDVILOHGLWVWD[UHWXUQVIRU
DQGDQGWKHWD[EHQHILWVKDULQJSD\PHQWVIRUWKRVH
\HDUV KDYH FRPH GXH $Q\ SD\PHQWV GXH IRU WD[ EHQHILWV
DULVLQJLQZLOOQRWEHFRPHGXHWRWKH)',&XQWLOODWHU
WKLV\HDU %HFDXVHWKHDQGWD[ILOLQJVDOORZ
IRU WKH DPRXQWV GXH WR WKH )',& WR EH GHWHUPLQHG ZLWK
FHUWDLQW\ WKH GLVWULFW FRXUW¶V VSHFXODWLYH FDOFXODWLRQ QRZ
1R )',&Y)LUVW+HLJKWV%DQNHWDO
VHHPVXQQHFHVVDU\:HKHUHE\YDFDWHWKHDZDUG
DQGUHPDQGIRUWKHGLVWULFWFRXUWWRHQWHUDQDZDUGIRUWKHIXOO
DPRXQWGXHXQGHUVHFWLRQIRUWKHDQGWD[\HDUV
,9
7KH)',&DQGWKH3XOWH*URXSQH[WGLVSXWHZKHWKHU)LUVW
+HLJKWVLVVXHGDFRQVWUXFWLYHGLYLGHQGWRWKH3XOWH*URXS
8QGHU 6HFWLRQ E RI WKH $VVLVWDQFH $JUHHPHQW )LUVW
+HLJKWV PXVW SD\ WKH )',& WKH HTXLYDOHQW RI WZHQW\ILYH
SHUFHQW RI WKH ³WRWDO DPRXQW RI DQ\ GLYLGHQGV GHFODUHG E\
>)LUVW+HLJKWV@RQLWVLVVXHGDQGRXWVWDQGLQJFRPPRQVWRFN
RZQHGE\DQ\VKDUHKROGHUGLUHFWRUDIILOLDWHRUFRQWUROOLQJ
SHUVRQRIDQ\SDUW\KHUHWR´7KHGLVWULFWFRXUWIRXQGWKDWWKH
DPHQGPHQWWRWKH7D[$OORFDWLRQDQG6KDULQJ$JUHHPHQWDQG
WKH UHVFLVVLRQ RI WKH :DUUDQW 2EOLJDWLRQ $VVXPSWLRQ
$JUHHPHQW FRQIHUUHG FRQVWUXFWLYH GLYLGHQGV RQ WKH 3XOWH
*URXSZLWKLQWKHPHDQLQJRIVHFWLRQ E :HDJUHHZLWK
WKHGLVWULFWFRXUW¶VILQGLQJWKDWWKHWZRWUDQVDFWLRQVSURGXFHG
FRQVWUXFWLYHGLYLGHQGVWKHGLVWULFWFRXUWKRZHYHUHUUHGLQ
FRPSXWLQJ WKH DPRXQW RI WKH HFRQRPLF EHQHILW WKDW )LUVW
+HLJKWVFRQIHUUHGRQWKH3XOWH*URXS
7KH $VVLVWDQFH $JUHHPHQW GRHV QRW GHILQH WKH WHUP
³GLYLGHQG´7KH3XOWH*URXSDUJXHVWKDWVHFWLRQ E LV
OLPLWHGWR³GHFODUHG´GLYLGHQGVDQGWKXVWKHWUDQVDFWLRQV
GR QRW FRQVWLWXWH GLYLGHQGV EHFDXVH )LUVW +HLJKWV QHYHU
IRUPDOO\GHFODUHGDQ\GLYLGHQG7KLVDUJXPHQWLJQRUHVWKH
UXOHWKDWGLYLGHQGVFDQRFFXULQWKHDEVHQFHRIDGHFODUDWLRQ
,Q5DPR,QFY(QJOLVK6:G 7H[
WKH 7H[DV 6XSUHPH &RXUW VWDWHG WKDW ³>D@ GLVWULEXWLRQ RI
PRQH\RUSURSHUW\E\DFRUSRUDWLRQWRLWVVKDUHKROGHUVPD\
FRQVWLWXWH D GLYLGHQG LQ ODZ HYHQ WKRXJK QRW IRUPDOO\
GHVLJQDWHG DV VXFK E\ WKH ERDUG RI GLUHFWRUV´ 2XU
MXULVSUXGHQFH KDV UHFRJQL]HG FRQVWUXFWLYH GLYLGHQGV RU
GLYLGHQGV LQ ODZ LQ FDVHV LQYROYLQJ WKH ,QWHUQDO 5HYHQXH
6HUYLFH,Q+DJDPDQY&RPPLVVLRQHURI,QWHUQDO5HYHQXH
)G WK&LU ZHDFNQRZOHGJHGWKDW
>Z@KHQDFRUSRUDWLRQFRQIHUVDQHFRQRPLFEHQHILWXSRQ
D VKDUHKROGHU LQ KLV FDSDFLW\ DV VXFK ZLWKRXW DQ

-- 14 of 14 --