FDIC v. First Heights Bank

• Court: Court of Appeals for the Sixth Circuit
• Decided: October 12, 2000
• Docket: 99-1355
• Status: Published

Opinion

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   1R  Y !   ),567 +(,*+76 %$1. )6%  38/7( ',9(56,),('  &203$1,(6 ,1& 38/7(  &25325$7,21   'HIHQGDQWV$SSHOODQWV  1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW'HWURLW 1RnsRKQ&RUEHWW2j0HDUD'LVWULFWsXGJH $UJXHG$SULO 'HFLGHGDQG)LOHG2FWREHU %HIRUH0$57,1&KLHIsXGJH0(55,77DQG6,/(5 &LUFXLWsXGJHV

  )',&Y)LUVW+HLJKWV%DQNHWDO 1R

BBBBBBBBBBBBBBBBB &2816(/ $5*8('sRKQ*5REHUWVsU+2*$1 +$57621 :DVKLQJWRQ '& IRU $SSHOODQWV  .LUN . 9DQ 7LQH %$.(5  %2776 :DVKLQJWRQ '& IRU $SSHOOHH 21%5,()sRKQ*5REHUWVsU+2*$1 +$57621 :DVKLQJWRQ'&1RUPDQ&$QNHUV5REHUW0sDFNVRQ 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'& sDFO\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 s5 &KLHI sXGJH  7KH )HGHUDO 'HSRVLW,QVXUDQFH&RUSRUDWLRQ)',&LQLWLDWHGWKLVOLWLJDWLRQ LQ  DOOHJLQJ EUHDFK E\ WKH 3XOWH &RUSRUDWLRQ 3XOWH 'LYHUVLILHG&RPSDQLHV,QFDQG)LUVW+HLJKWV%DQNZKRP ZH ZLOO UHIHU WR FROOHFWLYHO\ DV WKH 3XOWH *URXS RI WKH $VVLVWDQFH$JUHHPHQWDQGVXEVHTXHQWFRQWUDFWVJRYHUQLQJWKH DFTXLVLWLRQRIIDLOHGWKULIWVGXULQJWKHVDYLQJVDQGORDQFULVLV RIWKHV7KH)',&ILOHGPXOWLSOHVXPPDU\MXGJPHQW PRWLRQVFODLPLQJWKDWWKH3XOWH*URXSYLRODWHGVHFWLRQ

 :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 ,QFjV 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 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

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 )',&jV VXPPDU\ MXGJPHQW PRWLRQV  7KH 3XOWH *URXS DSSHDOVWKHGLVWULFWFRXUWjVGHFLVLRQWRJUDQWWKHPRWLRQVDQG WKH GLVWULFW FRXUWjV 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 mWKULIWVl IDLOHG   7R SUHYHQW IXUWKHU ORVVHV WKH )HGHUDO 6DYLQJV DQG /RDQ ,QVXUDQFH &RUSRUDWLRQ WKH )',&jV SUHGHFHVVRU ZKRVH UHVSRQVLELOLW\ LW ZDV WR LQVXUH WKULIW GHSRVLWVDQGWRUHJXODWHDOOIHGHUDOO\LQVXUHGWKULIWVORRNHGWR KHDOWK\WKULIWVDQGRXWVLGHLQYHVWRUVWRWDNHRYHUDLOLQJWKULIWV $VDQLQGXFHPHQWWRDFTXLUHWKHDLOLQJWKULIWVWKHDFTXLULQJ HQWLWLHVZHUHJLYHQFHUWDLQWD[EHQHILWVWKDWZRXOGDOORZWKHP

 ,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  )',&Y)LUVW+HLJKWV%DQNHWDO 1R 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

WR PHHW WKHLU UHVHUYH FDSLWDO UHTXLUHPHQWV XQGHU IHGHUDO PRQH\KHOGE\WKH)',&DIWHUWKHGLVWULFWFRXUWj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jV ILQDQFLDO DVVLVWDQFH WR )LUVW +HLJKWV HQFRPSDVVHGUHLPEXUVHPHQWVIRUFHUWDLQORVVHV0RVWRIWKH DVVHWVRIWKHWKULIWVZHUHFRQYH\HGWR)LUVW+HLJKWVDWERRN YDOXHVWKDWH[FHHGHGWKHDVVHWVj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jVORVVUHLPEXUVHPHQWV

 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  )',&Y)LUVW+HLJKWV%DQNHWDO 1R 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

FDOFXODWHGXQGHUWKHVWDWXWRU\SURYLVLRQ8QGHUWKHIRUPHU ,QH[FKDQJHIRUWKH)',&j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DQGHRFFXUUHGRQ'HFHPEHUWKHGDWHRI SHUFHQWRIWKHRXWVWDQGLQJVKDUHVRI)LUVW+HLJKWVjVFRPPRQ WKHDPHQGPHQWWRWKH7D[$OORFDWLRQDQG6KDULQJ$JUHHPHQW VWRFN DW RQH FHQW SHU VKDUH  7KH )',& KDG WKH RSWLRQ WR DQG WKH UHFLVVLRQ RI WKH :DUUDQW 2EOLJDWLRQ $VVLVWDQFH H[HUFLVH WKLV ULJKW EHWZHHQ 6HSWHPEHU   DQG $JUHHPHQWEHFDXVHWKHDPRXQWVGXHIRUWKHVHEUHDFKHVFDPH 6HSWHPEHU8QGHUWKH:DUUDQW$JUHHPHQWWKH)',& GXHRQWKHGD\RIEUHDFKSUHMXGJPHQWLQWHUHVWVKRXOGDFFUXH FRXOG UHTXHVW WKH PDUNHW YDOXH RI WZHQW\ SHUFHQW RI )LUVW IURPsDQXDU\7KHSUHMXGJPHQWLQWHUHVWRQWKHVH +HLJKWVjVRXWVWDQGLQJFRPPRQVWRFNLQVWHDGRISXUFKDVLQJ DPRXQWVVKRXOGEHFDOFXODWHGDWVL[SHUFHQWSHU\HDUWKURXJK WKHVWRFN 6HSWHPEHU    $IWHU WKH DPHQGPHQW WR WKH 7H[DV VWDWXWH SUHMXGJPHQW LQWHUHVW RQ WKLV FRQWUDFW EHFDPH QRQ ,Q)LUVW+HLJKWVHQWHUHGLQWRD7D[$OORFDWLRQDQG VWDWXWRU\ SUHMXGJPHQW LQWHUHVW DFFUXLQJ XQGHU sRKQVRQ 6KDULQJ$JUHHPHQWZLWKWKH3XOWH*URXSLQZKLFKWKH3XOWH +LJJLQVDWWKHUDWHRISRVWMXGJPHQWLQWHUHVWRUWHQSHUFHQW *URXS DJUHHG WR IXQG )LUVW +HLJKWVjV WD[ EHQHILW VKDULQJ REOLJDWLRQVWRWKH)',&,QH[FKDQJH)LUVW+HLJKWVDJUHHGWR )RU WKH WD[ VKDULQJ SD\PHQWV WKDW EHFDPH GXH DIWHU ILOHWD[UHWXUQVDVDPHPEHURIWKH3XOWH*URXSDOORZLQJWKH 6HSWHPEHUSUHMXGJPHQWLQWHUHVWDFFUXHVDWWKHUDWHRI 3XOWH *URXS WR XWLOL]H )LUVW +HLJKWVjV GHGXFWLRQV DQG   8QGHU sRKQVRQ  +LJJLQV WKH DFFUXDO GDWH LV H[FOXVLRQV DQG WKHUHE\ UHGXFLQJ WKH 3XOWH *URXSjV WD[ GHSHQGHQWRQWKHGDWHRIZULWWHQQRWLFHRIDFODLPRUWKHGDWH OLDELOLW\  $V D UHVXOW RI WKH 7D[ $OORFDWLRQ DQG 6KDULQJ VXLWLVILOHG,QWKHSUHVHQWFDVHWKLVZRXOGSURYLGHIRUD $JUHHPHQW )LUVW +HLJKWV UHFRUGHG RQ LWV ERRNV QR QHW DFFUXDOGDWHRQDPRXQWVQRWGXHXQWLO\HDUVODWHU7KH7H[DV OLDELOLW\WRWKH)',&IRUWD[EHQHILWVKDULQJLQWKHWD[\HDUV 6XSUHPH&RXUWLQ&DYQDUY4XDOLW\&RQWURO3DUNLQJ,QF     ,QVWHDG WKH 3XOWH *URXS UHFRUGHG WKH WD[ 6:G7H[H[SODLQHGWKHFRQFHSW EHQHILW VKDULQJ REOLJDWLRQV RQ LWV ERRNV DV D OLDELOLW\ RI SUHMXGJPHQW LQWHUHVW WKXV m,QWHUHVW DV GDPDJHV LQ $FFRUGLQJ WR WKH 3XOWH *URXS WKH DFFUXHG EXW XQSDLG WD[ FRPSHQVDWLRQDOORZHGE\ODZDVDGGLWLRQDOGDPDJHVIRUORVW EHQHILWVKDULQJOLDELOLW\WRWKH)',&WRWDOHGPLOOLRQDV XVHRIWKHPRQH\GXHDVGDPDJHVGXULQJWKHODSVHRIWLPH RIWKHHQGRI EHWZHHQWKHDFFUXDORIWKHFODLPDQGGDWHRIMXGJPHQWl,Q WKLVFDVHWKH)',&FDQQRWDVVHUWLWORVWWKHXVHRIWKHPRQH\ )LUVW+HLJKWVDQGWKH3XOWH*URXSH[HFXWHGDQDPHQGPHQW EHIRUH WKDW PRQH\ ZDV HYHQ GXH  7KHUHIRUH IRU DPRXQWV WR WKH 7D[ $OORFDWLRQ DQG 6KDULQJ $JUHHPHQW GDWHG EHFRPLQJ GXH LQ   DQG  WKH SUHMXGJPHQW 'HFHPEHU7KHDPHQGPHQWUHVFLQGHGUHWURDFWLYHO\ LQWHUHVW VKRXOG DFFUXH RQO\ IURP WKH GDWH RQ ZKLFK WKH WKURXJKWD[\HDUWKH3XOWH*URXSjVREOLJDWLRQWRIXQG DPRXQWVEHFDPHGXH )LUVW+HLJKWVjVWD[EHQHILWVKDULQJREOLJDWLRQVWRWKH)',& 7KH3XOWH*URXSPDLQWDLQHGWKHEHQHILWIURP)LUVW+HLJKWVjV )LQDOO\ZHGRQRWDGGUHVVWKHLVVXHRIWKH3XOWH*URXSjV WD[GHGXFWLRQVDQGH[FOXVLRQVGHOHWLQJPLOOLRQRIWD[ ULJKWWRRIIVHWWKHMXGJPHQWE\WKHDPRXQWVRZHGWRLWE\WKH VKDULQJ OLDELOLW\ IURP LWV ERRNV DQG UHFRUGLQJ  )',&:HWUXVWWKDWWKHSDUWLHVZLOOSURSHUO\DFFRXQWIRUWKH UHFHLYDEOH IURP )LUVW +HLJKWV  7R DFFRXQW IRU WKH  )',&Y)LUVW+HLJKWV%DQNHWDO 1R 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

FDQFHOODWLRQ)LUVW+HLJKWVUHJLVWHUHGDOLDELOLW\RQLWVERRNV ,IDFUHGLWRUKDVQRWDJUHHGZLWKDQREOLJRUWRFKDUJHWKH WKHUHE\UHGXFLQJLWVUHWDLQHGHDUQLQJVE\PLOOLRQ REOLJRUDQ\LQWHUHVWWKHFUHGLWRUPD\FKDUJHDQGUHFHLYH IURPWKHREOLJRUOHJDOLQWHUHVWDWWKHUDWHRIVL[SHUFHQWD ,QDVHFRQGWUDQVDFWLRQGDWHG'HFHPEHUWKH3XOWH \HDURQWKHSULQFLSDODPRXQWRIWKHFUHGLWH[WHQGHGE\ *URXS DQG )LUVW +HLJKWV UHVFLQGHG WKH 3XOWH *URXSjV WKHFUHGLWRUWRWKHREOLJRUEHJLQQLQJRQWKHWKLUWLHWKGD\ REOLJDWLRQWRUHGHHPWKH)',&jVZDUUDQWV7KH3XOWH*URXS DIWHUWKHGD\RQZKLFKWKHDPRXQWLVGXH KDGDVVXPHG)LUVW+HLJKWVjVZDUUDQWREOLJDWLRQRQ'HFHPEHU XQGHUDVHSDUDWHDJUHHPHQW7RDFFRXQWIRUWKLV 7H[ )LQ &RGH $QQ †  9HUQRQjV 6XSS  )LUVW+HLJKWVUHPRYHGWKHZDUUDQWREOLJDWLRQOLDELOLW\IURPLWV IRUPDOO\FRGLILHGDW7H[5HY&LY6WDWDUW&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jVFRQWUDFWXDOREOLJDWLRQWRUHGHHPWKHZDUUDQWV7KH  SUHMXGJPHQW LQWHUHVW RQ DVFHUWDLQDEOH VXP FRQWUDFWV 3XOWH*URXSPDGHDFRUUHVSRQGLQJUHGXFWLRQWRLWVOLDELOLWLHV PXVWQRZEHJRYHUQHGE\QRQVWDWXWRU\LQWHUHVWUXOHV ,, sRKQVRQ +LJJLQVRI7H[DV,QFY.HQQHFR(QHUJ\,QF 6:G7H[WKXVFRQWUROVDVLWVSULQFLSOHV 7KLV&RXUWUHYLHZVVXPPDU\MXGJPHQWGHQRYR6HH7HUU\ H[WHQGWRLQWHUHVWLQEUHDFKRIFRQWUDFWMXGJPHQWVQRWFRYHUHG %DUU6DOHV$JHQF\,QFY$OO/RFN&R,QF)G E\DVWDWXWRU\LQWHUHVWSURYLVLRQ7KH7H[DV6XSUHPH&RXUW WK&LU,IWKHUHLVQRJHQXLQHLVVXHRIPDWHULDO VHHNLQJ WR HTXDWH FRPPRQ ODZ SUHMXGJPHQW LQWHUHVW UXOHV IDFWDPRYDQWPD\EHHQWLWOHGWRMXGJPHQWDVDPDWWHURIODZ ZLWKOHJLVODWLYHRQHVUXOHGLQsRKQVRQ +LJJLQVWKDWQRQ 6HHLG7KHSDUW\PRYLQJIRUVXPPDU\MXGJPHQWEHDUVWKH VWDWXWRU\ SUHMXGJPHQW LQWHUHVW DFFUXHV DW D UDWH HTXDO WR mEXUGHQRIVKRZLQJWKHDEVHQFHRIDJHQXLQHLVVXHDVWRDQ\ SRVWMXGJPHQWLQWHUHVWIURPWKHHDUOLHUGDWHRIGD\VDIWHU PDWHULDOIDFWDQGIRUWKHVHSXUSRVHVWKH>HYLGHQFHRIIHUHG@ DGHIHQGDQWUHFHLYHVZULWWHQQRWLFHRIDFODLPRUWKHGDWHVXLW PXVWEHUHYLHZHGLQWKHOLJKWPRVWIDYRUDEOHWRWKHRSSRVLQJ LVILOHGDQGLVFRPSXWHGDVVLPSOHLQWHUHVW6HHLGDW SDUW\l $GLFNHV Y 6+ .UHVV  &R  86    7KH$VVLVWDQFH$JUHHPHQWLVDFRQWUDFWmDVFHUWDLQLQJWKH VXPSD\DEOHlDVFRYHUHGE\WKHIRUPHUVWDWXWRU\SUHMXGJPHQW ,,, LQWHUHVW SURYLVLRQ  ,Q *UHDW $PHULFDQ Y 1RUWK $XVWLQ 0XQLFLSDO8WLOLWLHV'LVWULFW1R6:G7H[ 7KH )',& VHHNV WR HQIRUFH VHFWLRQ  RI WKH $VVLVWDQFH WKH7H[DV6XSUHPH&RXUWH[SODLQHGWKDWWKHVWDWXWRU\ $JUHHPHQW ZKLFK UHTXLUHV )LUVW +HLJKWV WR VKDUH ZLWK WKH SUHMXGJPHQWLQWHUHVWSURYLVLRQDSSOLHVWRFRQWUDFWVWKDWmIL[>@ )',& WZHQW\ILYH SHUFHQW RI WKH WD[ VDYLQJV UHDOL]HG DV D DPHDVXUHE\ZKLFKWKHVXPSD\DEOHFDQEHDVFHUWDLQHGZLWK UHVXOWRIWKH$VVLVWDQFH$JUHHPHQW7KHPDLQLVVXHLQWKLV UHDVRQDEOHFHUWDLQW\LQOLJKWRIWKHDWWHQGLQJFLUFXPVWDQFHVl FDVH LV WKH DPELJXLW\ RI WKH $VVLVWDQFH $JUHHPHQW  7KH 6HFWLRQVE DQGHRIWKH$VVLVWDQFH$JUHHPHQW $VVLVWDQFH$JUHHPHQWLVJRYHUQHGXQGHU7H[DVODZZKLFK HDFKSURYLGHDPHWKRGIRUFDOFXODWLQJWKHGDPDJHVGXHWRWKH VWDWHVWKDWLIDFRQWUDFWLVZULWWHQVRWKDWmLWFDQEHJLYHQD )',&7KHUHIRUHWKHSUHMXGJPHQWLQWHUHVWWKDWDFFUXHGSULRU FHUWDLQRUGHILQLWHOHJDOPHDQLQJRULQWHUSUHWDWLRQlLWLVQRW WRWKH6HSWHPEHUDPHQGPHQWRIWKHVWDWXWHVKRXOGEH DPELJXRXVDQGPXVWEHFRQVWUXHGDFFRUGLQJWRWKDWPHDQLQJ  )',&Y)LUVW+HLJKWV%DQNHWDO 1R 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

DJUHHPHQWV7KLVDJUHHPHQWZDVVLJQHGE\ERWKSDUWLHVDQG RU LQWHUSUHWDWLRQ DV D PDWWHU RI ODZ  &RNHU Y &RNHU  WKXVWKHLQWHQWEHKLQGWKHGRFXPHQWDORQJZLWKWKHJHQHUDO 6:G7H[,IWKHFRQWUDFWLVXQDPELJXRXV UXOHLQGLFDWHVWKDWERWK3XOWH'LYHUVLILHG&RPSDQLHV,QFDQG WKHPRYLQJSDUW\ZRXOGEHHQWLWOHGWRMXGJPHQWLIWKHUHLVQR )LUVW+HLJKWVDUHOLDEOH RWKHUGLVSXWHGPDWWHU6HHLGDW 9,, 7RGHWHUPLQHZKHWKHUDFRQWUDFWLVDPELJXRXVWKHFRXUW PXVW ORRN DW WKH FRQWUDFW DV D ZKROH FRQVLGHULQJ WKH ,Q GLYHUVLW\ FDVHV LQ WKLV &LUFXLW IHGHUDO ODZ FRQWUROV FLUFXPVWDQFHVSUHVHQWZKHQWKHFRQWUDFWZDVFUHDWHG6HHLG SRVWMXGJPHQW LQWHUHVW EXW VWDWH ODZ JRYHUQV DZDUGV RI DWm>7@KHSULPDU\FRQFHUQRIWKHFRXUWLVWRDVFHUWDLQWKH SUHMXGJPHQWLQWHUHVW6HH&OLVVROGY6W/RXLV6DQ)UDQFLVFR WUXHLQWHQWLRQVRIWKHSDUWLHVDVH[SUHVVHGLQWKHLQVWUXPHQWl 5Z\&R)GQWK&LU7H[DVODZ ,GDW7RDFKLHYHWKLVWKHFRXUWPXVWJLYHHIIHFWWRDOO FRPSOLFDWHV WKH DSSOLFDWLRQ RI WKLV VHHPLQJO\ VLPSOH UXOH SURYLVLRQV RI WKH FRQWUDFW VR WKDW QRQH ZLOO EH UHQGHUHG PDNLQJWKHUDWHRIVRPHSUHMXGJPHQWLQWHUHVWGHSHQGHQWXSRQ PHDQLQJOHVV6HHLGm1RVLQJOHSURYLVLRQWDNHQDORQHZLOO WKH DSSOLFDEOH UDWH RI SRVWMXGJPHQW LQWHUHVW  :H ILQG LW EHJLYHQFRQWUROOLQJHIIHFWUDWKHUDOOWKHSURYLVLRQVPXVWEH QHFHVVDU\WRGHIHUWRWKHFRQFOXVLRQRIRXUVLVWHUFLUFXLWRQ FRQVLGHUHGZLWKUHIHUHQFHWRWKHZKROHLQVWUXPHQWl,G WKLVSHFXOLDULVVXHRI7H[DVODZ7KHUHIRUHZHZLOODGRSWWKH )LIWK&LUFXLWjVUXOHWKDWLQDGLYHUVLW\FDVHWKHDSSOLFDEOHVWDWH 7KH )',& DQG WKH 3XOWH *URXS DJUHHG WR VKDUH WKH WD[ SRVWMXGJPHQWUDWH VKRXOGEHXVHGLQDUULYLQJDWWKHUDWHRI EHQHILWVDULVLQJIURPWKH)',&jVILQDQFLDODVVLVWDQFHWR)LUVW SUHMXGJPHQWLQWHUHVWXQGHU7H[DVODZ6HH+DUULVY0LFNHO +HLJKWV  6HFWLRQ  RI WKH $VVLVWDQFH $JUHHPHQW JRYHUQV )GWK&LU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H[SUHVVO\GHILQHVWKHWD[EHQHILWVWKDWDUHWREH SUHMXGJPHQW LQWHUHVW IRU FRQWUDFWV mDVFHUWDLQLQJ WKH VXP VKDUHGZLWKWKH)',& SD\DEOHl  6HH *UHDW $PHULFDQ ,QV &R Y 1RUWK $XVWLQ 0XQLF8WLO'LVW1R6:G7H[7KHVH †  7D[ %HQHILWV  )RU HDFK WD[DEOH \HDU    WKH SURYLVLRQVSURYLGHGIRUWKHIROORZLQJLQWHUHVW $&48,5,1*$662&,$7,216VKDOOFUHGLWWR6SHFLDO 5HVHUYH$FFRXQW,DQDPRXQWHTXDOWRWKHVXPRIWKH :KHQQRVSHFLILHGUDWHRILQWHUHVWLVDJUHHGXSRQE\WKH ,QGHPQLILFDWLRQ1HW7D[%HQHILWVWKH)HGHUDO1HW SDUWLHVLQWHUHVWDWWKHUDWHRIVL[SHUFHQWSHUDQQXPVKDOO 7D[%HQHILWVDVGHILQHGDQGFDOFXODWHGLQDFFRUGDQFH EHDOORZHGRQDOODFFRXQWVDQGFRQWUDFWVDVFHUWDLQLQJWKH ZLWK†G DQGWKH6WDWH1HW7D[%HQHILWVLIDQ\ VXP SD\DEOH FRPPHQFLQJ RQ WKH WKLUWLHWK WK GD\ UHDOL]HGE\WKH$&48,5,1*$662&,$7,216LQDQ\ IURPDQGDIWHUWKHWLPHZKHQWKHVXPLVGXHDQGSD\DEOH \HDUFROOHFWLYHO\m1HW7D[%HQHILWVl 7H[ 5HY &LY 6WDW $QQ DUW  9HUQRQjV  D7D[%HQHILW,WHPV)RUSXUSRVHVRIWKLV$JUHHPHQW UHSHDOHG E\ $FWV  WK /HJ &K  †   7KH WKH 1HW 7D[ %HQHILWV VKDOO EH WKH WD[ EHQHILWV WKDW DUH OHJLVODWXUH KRZHYHU UHSHDOHG WKLV VWDWXWH RQ 6HSWHPEHU  DWWULEXWDEOHWRWKHLWHPVGHVFULEHGLQ†D  DQGUHSODFHGLWZLWKWKHIROORZLQJSURYLVLRQ DQGEHORZm7D[%HQHILW,WHPVlDQGWKDWDUHDFWXDOO\  )',&Y)LUVW+HLJKWV%DQNHWDO 1R 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

XWLOL]HG E\ DQ $&48,5,1* $662&,$7,21 RU WKH WKHLUUHVSHFWLYHWUDQVIHUHHVVXFFHVVRUVDQGDVVLJQVEXW FRQVROLGDWHG JURXS    WR UHGXFH LWV )HGHUDO RU VWDWH H[FHSW DV RWKHUZLVH VSHFLILFDOO\ SURYLGHG LQ WKLV LQFRPHWD[OLDELOLW\LQDJLYHQWD[\HDUE\YLUWXHRID7D[ $JUHHPHQWWKLV$JUHHPHQWPD\QRWEHDVVLJQHGWRDQ\ %HQHILW,WHPEHLQJDWD[GHGXFWLRQRUEHLQJH[FOXGDEOH SDUW\ QRU PD\ DQ\ ULJKWV RU REOLJDWLRQV XQGHU LW EH IURPLQFRPHIRUVXFKWD[\HDUDVFDOFXODWHGLQ†FG WUDQVIHUUHGRUGHOHJDWHGWRRUYHVWHGLQDQ\RWKHUSDUW\ DQGHEHORZ WKURXJKPHUJHUFRQVROLGDWLRQRURWKHUZLVHZLWKRXWWKH SULRUZULWWHQFRQVHQWRIWKH&25325$7,21 7KHDPRXQWRIDQ\QHWRSHUDWLQJORVVFDUU\RYHUV DQ\FDSLWDOORVVFDUU\RYHUVDQGDQ\RWKHUORVVFDUU\RYHUV 7KH GLVWULFW FRXUW KHOG WKDW WKLV VHFWLRQ LV D VWDQGDUG QRQ RI DQ\ $&48,5(' $662&,$7,21 DW WKH (IIHFWLYH DVVLJQPHQWFODXVHZLWKQREHDULQJRUOLPLWLQJHIIHFWRQWKH 'DWH UHVXOWLQJ LQ D WD[ GHGXFWLRQ IURP HLWKHU OLDELOLW\RI3XOWH'LYHUVLILHG&RPSDQLHV,QF7RJHWKHUZLWK $&48,5,1*$662&,$7,21jVJURVVLQFRPH VHFWLRQLWDSSHDUVWRLQGLFDWHQRWKLQJPRUHWKDQWKDW)LUVW  +HLJKWV%DQNDQG3XOWH'LYHUVLILHG&RPSDQLHV,QFDUHWR $Q\FRVWH[SHQVHRUORVVLZKLFKLVLQFXUUHG mFRQWULEXWHVHSDUDWHO\WRWKHHQWLUHUHVXOWlZKLFKDFFRUGLQJ E\DQ$&48,5,1*$662&,$7,21LLIRUZKLFKWKH WR WKH SDVVDJH IURP WKH &RUELQ WUHDWLVH TXRWHG DERYH LV &25325$7,21KDVPDGHDVVLVWDQFHSD\PHQWVWR LQVXIILFLHQWWRRYHUULGHWKHSUHVXPSWLRQRIMRLQWREOLJDWLRQ WKH$&48,5,1*$662&,$7,21SXUVXDQWWR†DRI WKLV$JUHHPHQWDQGLLLZKLFKLVGHGXFWLEOHRQDQ 7KHDUJXPHQWRIWKH3XOWH*URXSUHOLHVRQWKHXQSXEOLVKHG $FTXLULQJ $VVRFLDWLRQjV )HGHUDO RU VWDWH LQFRPH WD[ GLVWULFWFRXUWRSLQLRQRIDQRWKHUMXULVGLFWLRQWRGHSDUWIURP UHWXUQ RU UHGXFHV WKH EDODQFH RI WKH $&48,5,1* WKHJHQHUDOUXOHWKDWFRVLJQDWRULHVDUHMRLQWO\DQGVHYHUDOO\ $662&,$7,21j6EDGGHEWUHVHUYHEXWRQO\WRWKHH[WHQW OLDEOH6HH.UDPHUY0LOOHU:/6'1< VXFK UHGXFWLRQ ZRXOG UHVXOW LQ D WD[ GHGXFWLRQ RQ WKH 1RY7KH\DUJXHWKDWWKHFDVHUDLVHVWKHSRVVLELOLW\ H[SHULHQFHPHWKRG WKDWWKHODQJXDJHRIWKHDJUHHPHQWDVVLJQVUHVSRQVLELOLW\ZLWK VXIILFLHQWVSHFLILFLW\EHWZHHQ3XOWH'LYHUVLILHG&RPSDQLHV 6HFWLRQGFDOFXODWHVWKHDPRXQWRIWKH)HGHUDO1HW7D[ ,QF DQG )LUVW +HLJKWV %DQN WR RYHUULGH WKH MRLQW OLDELOLW\ %HQHILWV E\ GHWHUPLQLQJ WKH GLIIHUHQFH EHWZHHQ  )LUVW SUHVXPSWLRQDQGWKDWDVDUHVXOWLWLVUHDVRQDEOHWRLQIHUWKDW +HLJKWVjVIHGHUDOWD[OLDELOLW\ZLWKWKHWD[EHQHILWLWHPVDQG MRLQWDQGVHYHUDOOLDELOLW\ZDVQRWLQWHQGHG7KXVWKH3XOWH  WKH K\SRWKHWLFDO WD[ OLDELOLW\ WKH WD[ OLDELOLW\ RI )LUVW *URXSDUJXHVWKDWVXPPDU\MXGJPHQWVKRXOGQRWKDYHEHHQ +HLJKWVZLWKRXWWKHWD[EHQHILWLWHPV6HFWLRQGSURYLGHV JUDQWHG:HKDYHQRWDGGUHVVHGWKLVLVVXHGLUHFWO\EHIRUHDQG LQSHUWLQHQWSDUW ZHVHHQR UHDVRQIRUGLYHUJLQJIURPWKHVWDQGDUGUXOHWKDW FRVLJQDWRULHVDUHMRLQWO\DQGVHYHUDOO\OLDEOHLQWKLVFDVH )HGHUDO1HW7D[%HQHILWVIRUDWD[DEOH\HDUVKDOOEHWKH 7D[DEOH3HUFHQWDJHPXOWLSOLHGE\DQDPRXQWHTXDOWRWKH ,Q FRQWUDVW WKH )',& FODLPV WKDW WKH HQWLUHW\ RI WKH H[FHVVLIDQ\RI DJUHHPHQW FRQILUPV UDWKHU WKDQ OLPLWV 3XOWH 'LYHUVLILHG &RPSDQLHV,QFjVOLDELOLW\:HDJUHH7KH)',&DUJXHVWKDW WKH)HGHUDOLQFRPHWD[OLDELOLW\IRUVXFKWD[DEOH\HDU VHFWLRQE  %LQGLFDWHVWKDWWKHWUDQVDFWLRQLQYROYHGRWKHU ZKLFKZRXOGKDYHEHHQLQFXUUHGE\WKH$&48,5(5 DJUHHPHQWV H[HFXWHGE\HLWKHU)LUVW+HLJKWV%DQNRU3XOWH DQG WKH $&48,5,1* $662&,$7,216 RU WKH 'LYHUVLILHG &RPSDQLHV ,QF  7KXV XQGHU WKDW VHFWLRQ WKH &RQVROLGDWHG *URXS L LI WKH 7D[ %HQHILW ,WHPV DJUHHPHQWELQGV3XOWH'LYHUVLILHG&RPSDQLHV,QFRU)LUVW GHVFULEHG LQ † D   DQG  KDG QRW EHHQ +HLJKWVDVWKHFDVHPD\EHGHSHQGLQJRQZKRVLJQHGWKRVH  )',&Y)LUVW+HLJKWV%DQNHWDO 1R 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

LPPHGLDWHO\ EHIRUH WKH WZR WUDQVDFWLRQV RFFXUUHG DQG WKH GHGXFWHGFUHGLWHGRUH[FOXGHGLQDQ\WD[DEOH\HDUEXW GLOXWLRQWKDWZDVFDXVHGE\WKHWUDQVDFWLRQV ZLWKRXWDGMXVWPHQWWRWKHEDGGHEWUHVHUYHLLLIWKH7D[ 'HWULPHQW,WHPVKDGQRWEHHQLQFOXGHGLQLQFRPHWD[ 9, LQDQ\WD[DEOH\HDUDQGLLLLIDQ\&UHGLWVZKLFKZHUH LQFOXGHGLQWD[DEOHLQFRPHIRUVXFKWD[DEOH\HDUZHUH 7KH3XOWH*URXSDOVRFODLPVWKDWWKHGLVWULFWFRXUWHUUHGLQ QRWVRLQFOXGHGRYHU ILQGLQJ WKDW 3XOWH 'LYHUVLILHG &RPSDQLHV ,QF DQG )LUVW +HLJKWVZHUHMRLQWO\DQGVHYHUDOO\OLDEOHXQGHUWKHWHUPVRI WKH)HGHUDOLQFRPHWD[OLDELOLW\IRUVXFKWD[DEOH\HDU WKH$VVLVWDQFH$JUHHPHQW7KHGLVWULFWFRXUWFRQFOXGHGWKDW    DFWXDOO\ LQFXUUHG E\ WKH $&48,5(5 DQG WKH 3XOWH 'LYHUVLILHG &RPSDQLHV ,QF ZDV OLDEOH XQGHU WKH $&48,5,1* $662&,$7,216 RU WKH &RQVROLGDWHG DJUHHPHQW EHFDXVH  3XOWH 'LYHUVLILHG &RPSDQLHV ,QF *URXS VLJQHG WKH DJUHHPHQW DQG  QRWKLQJ LQ WKH DJUHHPHQW OLPLWHG 3XOWH 'LYHUVLILHG &RPSDQLHV ,QFjV OLDELOLW\  ,W LV $&RYHUHG$VVHW/RVVHV FOHDU WKDW 3XOWH 'LYHUVLILHG &RPSDQLHV ,QF VLJQHG WKH DJUHHPHQWDQGXQGHU7H[DVODZFRVLJQLQJDQDJUHHPHQW 7KH )',& DVVHUWV WKDW WKH 3XOWH *URXS IDLOHG WR FRPSO\ UDLVHVDSUHVXPSWLRQRIMRLQWDQGVHYHUDOOLDELOLW\6HH3LWPDQ ZLWKWKH$VVLVWDQFH$JUHHPHQWEHFDXVHWKH\KDYHQRWVKDUHG Y/LJKWIRRW6:G7H[&W$SSm,Q WD[EHQHILWVUHFHLYHGIURPFRYHUHGDVVHWORVVHVDVUHTXLUHG WKHODZRIFRQWUDFWVMRLQWDQGVHYHUDOOLDELOLW\XVXDOO\DULVHV XQGHU VHFWLRQ   7KH 3XOWH *URXS GRHV QRW GLVSXWH WKDW ZKHQWZRRUPRUHSURPLVRUVLQWKHVDPHFRQWUDFWSURPLVHWKH FRYHUHG DVVHW ORVVHV DUH WD[ EHQHILW LWHPV XQGHU VHFWLRQ VDPHRUGLIIHUHQWSHUIRUPDQFHWRWKHVDPHSURPLVHHlFLWLQJ D 5DWKHUWKH3XOWH*URXSFODLPVWKDWWKHPDMRULW\RI 5HVWDWHPHQW 6HFRQG RI &RQWUDFWV ††     WD[VDYLQJVDVVRFLDWHGZLWKFRYHUHGDVVHWORVVHVDUHQRWWREH 0DU\QLFN Y %RFNHOPDQQ  6:G   7H[ &W VKDUHG ZLWK WKH )',&  7KH 3XOWH *URXS HPSKDVL]HV RQH $SS  m>*@HQHUDOO\ MRLQW DQG VHYHUDO OLDELOLW\ DULVHV FODXVHLQVHFWLRQG mEXWZLWKRXWDGMXVWPHQWWRWKHEDG ZKHQWZRRUPRUHSHUVRQVFRVLJQDFRQWUDFWlUHYjGRQRWKHU GHEWUHVHUYHlDUJXLQJWKDWLWH[FOXGHVIURPWKHWD[EHQHILW JURXQGV6:G7H[ 7KLVSUHVXPSWLRQ VKDULQJLWHPVDQ\WD[EHQHILWVDVVRFLDWHGZLWKFRYHUHGDVVHW FDQ EH UHIXWHG E\ ODQJXDJH LQ WKH DJUHHPHQW VSHFLILFDOO\ ORVVHVEDVHGRQDQDGMXVWPHQWWRWKHEDGGHEWUHVHUYH7KH OLPLWLQJ D SDUW\jV OLDELOLW\ EXW mµ>W@KH LQIHUHQFH RI D MRLQW GLVWULFW FRXUW KHOG DQG ZH DJUHH WKDW VHFWLRQ G UHDG REOLJDWLRQLVQRWGHIHDWHGE\WKHIDFWWKDWLWDSSHDUVHLWKHULQ WRJHWKHU ZLWK VHFWLRQ D  XQDPELJXRXVO\ UHTXLUHV WKH WKH WHUPV RI WKH FRQWUDFW RU IURP WKH FLUFXPVWDQFHV RI WKH 3XOWH*URXSWRVKDUHWD[VDYLQJVIURPFRYHUHGDVVHWORVVHV WUDQVDFWLRQWKDWHDFKSURPLVRULVWRFRQWULEXWHVHSDUDWHO\WR WKDWGHULYHIURPmDGMXVWPHQWWRWKHEDGGHEWUHVHUYHl WKH HQWLUH UHVXOW IRU ZKLFK WKH\ EDUJDLQjl   &RUELQ RQ &RQWUDFWV†DWQTXRWLQJ$OSDXJKY:RRG$ 7D[EHQHILWVUHDOL]HGLQFRQQHFWLRQZLWKPRVWFRYHUHGDVVHW 1s :LOOLVWRQRQ&RQWUDFWV†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mZLWKRXW DGMXVWPHQW WR EDG $JUHHPHQWDQGWKH:DUUDQW$VVXPSWLRQ$JUHHPHQW GHEWUHVHUYHlUHTXLUHVWKHK\SRWKHWLFDOWD[WREHFDOFXODWHG mZLWKRXWlUHJDUGWRWD[EHQHILWVWKDWUHVXOWIURPDQDGMXVWPHQW 7KH GLVWULFW FRXUW DZDUGHG GDPDJHV WR WKH )',& IRU WKH WR WKH EDG GHEW UHVHUYH  8QGHU VXFK D UHDGLQJ RI VHFWLRQ EUHDFKRIVHFWLRQHRIWKH$VVLVWDQFH$JUHHPHQWDQGIRU G WD[EHQHILWVDVVRFLDWHGZLWKPRVWFRYHUHGDVVHWORVVHV WKH EUHDFK RI VHFWLRQ E   $V GLVFXVVHG DERYH ERWK ZRXOGQRWEHVXEMHFWWRVKDULQJZLWKWKH)',& EUHDFKHVDURVHIURPWKHVDPHWUDQVDFWLRQV7KH3XOWH*URXS DVVHUWVWKDWE\DZDUGLQJGDPDJHVXQGHUHDQGE WKH 7KH GLVWULFW FRXUW UHMHFWHG WKH 3XOWH *URXSjV DUJXPHQW GLVWULFWFRXUWDOORZHGDGRXEOHUHFRYHU\WKDWLVLPSHUPLVVLEOH ILQGLQJ WKDW VXFK DQ LQWHUSUHWDWLRQ ZRXOG UHQGHU VHFWLRQ XQGHU7H[DVODZ$VWKH3XOWH*URXSSRLQWVRXW7H[DVODZ D  VXSHUIOXRXV  8QGHU VHFWLRQ  WKH 3XOWH *URXS LV JHQHUDOO\ SURKLELWV PRUH WKDQ RQH UHFRYHU\ IRU WKH VDPH UHTXLUHGWRSD\WRWKH)',&WZHQW\ILYHSHUFHQWRIZKDWHYHU LQMXU\   6HH :DLWH +LOO 6HUYV ,QF Y :RUOG &ODVV 0HWDO WD[VDYLQJVWKH\UHDOL]HDVDUHVXOWRIFHUWDLQWD[GHGXFWLRQV :RUNV,QF6:G7H[7KHUHIRUHD DQGH[FOXVLRQVWKDWDUHGHILQHGDVmWD[EHQHILWLWHPVl8QGHU SODLQWLII PD\ QRW UHFRYHU RQ ERWK DOWHUQDWH JURXQGV RI VHFWLRQD WD[EHQHILWLWHPVLQFOXGHmDQ\FRVWH[SHQVH UHFRYHU\ ZKHQ WKHUH LV RQO\ RQH LQMXU\  $ MXGJPHQW WKDW RUORVVLZKLFKLVLQFXUUHGE\>)LUVW+HLJKWV@LLIRUZKLFK DZDUGVGDPDJHVRQPXOWLSOHWKHRULHVRIOLDELOLW\KRZHYHU >WKH)',&@KDVPDGHDVVLVWDQFHSD\PHQWVDQGLLLZKLFK GRHVQRWDPRXQWWRGRXEOHUHFRYHU\LIWKHWKHRULHVRIOLDELOLW\ LVGHGXFWLEOHRQ>)LUVW+HLJKWVj@LQFRPHWD[UHWXUQRUUHGXFHV DULVHIURPmWZRVHSDUDWHDQGGLVWLQFWLQMXULHVDQGWKHUHKDV WKHEDODQFHRI>)LUVW+HLJKWVj@EDGGHEWUHVHUYHEXWRQO\WR EHHQ D VHSDUDWH DQG GLVWLQFW ILQGLQJ RI GDPDJHV RQ ERWK WKHH[WHQWVXFKUHGXFWLRQZRXOGUHVXOWLQDWD[GHGXFWLRQRQ WKHRULHVRIOLDELOLW\l%RUGHQ,QFY*XHUUD6:G WKHH[SHULHQFHPHWKRGlHPSKDVLVDGGHG6HFWLRQD  7H[&W$SS XQGLVSXWHGO\VWDWHVWKDWWD[EHQHILWVUHVXOWLQJIURPDUHGXFWLRQ LQ WKH EDG GHEW UHVHUYH FRQVWLWXWH SDUW RI WKH WD[ VDYLQJV 7KH 3XOWH *URXS EUHDFKHG VHFWLRQ E  ZKHQ )LUVW HQWLWOHGWRWKH)',& +HLJKWV LVVXHG D FRQVWUXFWLYH GLYLGHQG ZLWKRXW JLYLQJ WKH )',&WKHUHTXLUHGWZHQW\ILYHSHUFHQWSD\PHQW,QDGGLWLRQ $V 7H[DV ODZ UHTXLUHV WKH FRQWUDFW PXVW EH UHDG LQ LWV LW EUHDFKHG VHFWLRQ H QRW E\ LVVXLQJ D GLYLGHQG WKDW HQWLUHW\6HH&RNHU6:GDW:KHQVHFWLRQLV YLRODWHG E  EXW E\ GLOXWLQJ WKH YDOXH RI WKH )',& UHDGLQLWVHQWLUHW\WKH3XOWH*URXSjVLQWHUSUHWDWLRQRIVHFWLRQ ZDUUDQWVWKURXJKWKHVDPHWUDQVDFWLRQV7KHVHWZRLQMXULHV G GLUHFWO\FRQWUDYHQHVWKHXWLOLW\RIVHFWLRQD 7KH ZHUH GLVWLQFW WKH ILUVW EHLQJ DQ LPPHGLDWH LQMXU\ DQG WKH 3XOWH*URXSjVLQWHUSUHWDWLRQH[FOXGHVSDUWLFXODUW\SHVRIWD[ VHFRQGEHLQJDQLQMXU\WRDORQJWHUPRZQHUVKLSLQWHUHVW EHQHILWLWHPVWKDWVHFWLRQD H[SOLFLWO\VWDWHVDUHWREH VKDUHG6XFKDQLQWHUSUHWDWLRQLVQRWUHDVRQDEOH,QRUGHUIRU $ZDUGVXQGHUERWKVHFWLRQE DQGHZLOOQRWFDXVH WKHGRFXPHQWWRPDNHVHQVHDVDFRPSOHWHFRQWUDFWVHFWLRQ GRXEOHUHFRYHU\:HUHPDQGWKHVHFWLRQHGDPDJHVWRWKH G PXVWEHUHDGZLWKVHFWLRQD 5HDGWRJHWKHULWLV GLVWULFWFRXUWWRUHFDOFXODWHWKHDZDUGE\GHWHUPLQLQJWKHERRN FOHDUWKDWVHFWLRQDGHILQHVWKHWUDQVDFWLRQVWKDWIDOOZLWKLQ YDOXH RI WKH ZDUUDQW REOLJDWLRQ RQ 'HFHPEHU   WKHPHDQLQJRIm1HW7D[%HQHILWVlDQGVHFWLRQGGHILQHV  )',&Y)LUVW+HLJKWV%DQNHWDO 1R 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

$&48,5,1*$662&,$7,216jSURSHUWLHVRUEXVLQHVV WKH PHWKRG RI FDOFXODWLQJ WKH DPRXQW RI WKRVH EHQHILWV LLLSD\DQ\FDVKRUVWRFNGLYLGHQGVRQDQ\FODVVRIVWRFN 9LHZHGLQWKLVPDQQHUVHFWLRQLVERWKXQDPELJXRXVDQG RUPDNHDQ\RWKHUGLVWULEXWLRQRQVXFKVWRFNH[FHSWDV FRKHUHQW SHUPLWWHGXQGHUWKLV$JUHHPHQWRUWDNHDQ\RWKHUDFWLRQ ZKLFK ZRXOG KDYH WKH HIIHFW RI GLOXWLQJ WKH >)',&@ 7KH3XOWH*URXSFODLPVWKDWWKHGLVWULFWFRXUWLPSURSHUO\ ZDUUDQWVHPSKDVLVDGGHG LJQRUHGWKHWHVWLPRQ\RIH[SHUWVZKHQUHDGLQJWKHFRQWUDFW +RZHYHUXQGHU7H[DVODZm>R@QO\ZKHUHDFRQWUDFWLVILUVW 7KH)',&FRQWHQGVWKDWZKHQWKH3XOWH*URXSFDQFHOHGLWV GHWHUPLQHG WR EH DPELJXRXV PD\ WKH FRXUWV FRQVLGHU WKH REOLJDWLRQVWRSHUIRUPXQGHUWKH7D[$OORFDWLRQDQG6KDULQJ SDUWLHVj LQWHUSUHWDWLRQ DQG DGPLW H[WUDQHRXV HYLGHQFH WR $JUHHPHQW DQG WKH :DUUDQW 2EOLJDWLRQ $VVXPSWLRQ GHWHUPLQH WKH WUXH PHDQLQJ RI WKH LQVWUXPHQWl  1DWLRQDO $JUHHPHQW WKH\ FUHDWHG DQ HFRQRPLF GHWULPHQW WR )LUVW 8QLRQ)LUH,QVXUDQFH&RY&%,,QGXVWULHV,QF6:G +HLJKWV WKDW UHGXFHG WKH PDUNHW YDOXH RI )LUVW +HLJKWVjV   7H[   %HFDXVH WKH GLVWULFW FRXUW FRUUHFWO\ FRPPRQVWRFNDQGWKXVUHVXOWHGLQDUHGXFWLRQLQWKHYDOXHRI IRXQGWKH$VVLVWDQFH$JUHHPHQWWREHXQDPELJXRXVLWQHHG WKH )',& ZDUUDQWV  7KH GLVWULFW FRXUW DJUHHG  7KH 3XOWH QRW KDYH FRQVLGHUHG DQ\ HYLGHQFH RXWVLGH RI WKH SODLQ *URXSFODLPVWKDWWKHGLVWULFWFRXUWHUUHGE\UHDGLQJWKHWHUP PHDQLQJRIWKHFRQWUDFW mYDOXHlLQWRWKHFRQWUDFWODQJXDJH7KH\DUJXHWKDWVHFWLRQ H GRHV QRW SURKLELW D GLOXWLRQ LQ WKH mYDOXHl RI WKH %$FFUXHG,QWHUHVW([SHQVHV ZDUUDQWVRQO\LQWKHGLOXWLRQRIWKHRZQHUVKLSLQWHUHVWRIWKH ZDUUDQWV 7KH)',&DOVRDUJXHVWKDWXQGHUVHFWLRQD DFFUXHG LQWHUHVW H[SHQVHV FRQVWLWXWH WD[ EHQHILW LWHPV RI ZKLFK WKH 7KH :DUUDQW $JUHHPHQW VSHFLILFDOO\ JDYH WKH )',& WKH )',&LVHQWLWOHGWRVKDUHLQWKHUHVXOWLQJWD[VDYLQJV7KH ULJKWWRSXUFKDVHWZHQW\SHUFHQWRI)LUVW+HLJKWVjVFRPPRQ 3XOWH*URXSKRZHYHUFODLPVWKDWDFFUXHGLQWHUHVWH[SHQVHV VWRFNDWRQHFHQWSHUVKDUHDQ\WLPHEHWZHHQ6HSWHPEHU DUHQRWDWD[EHQHILWLWHPDQGWKHUHIRUHDQ\VDYLQJVVKRXOGQRW DQG6HSWHPEHU7KH:DUUDQW$JUHHPHQWDOVR EHVKDUHGZLWKWKH)',& DOORZHG WKH )',& WR UHTXHVW WKH PDUNHW YDOXH RI WZHQW\ SHUFHQW RI WKH FRPPRQ VWRFN RI )LUVW +HLJKWV LQVWHDG RI 6HFWLRQ D  RI WKH $VVLVWDQFH $JUHHPHQW GHILQHV WD[ SXUFKDVLQJWKHVWRFN7KHWZHQW\SHUFHQWLQWHUHVWZDVWREH EHQHILWLWHPVDV PHDVXUHGIURPDOOFRPPRQVWRFNLVVXHGDQGRXWVWDQGLQJRQ WKHGDWHWKDWWKH)',&HOHFWHGWRH[HUFLVHWKHZDUUDQWRSWLRQV 7KHDPRXQWRIDQ\QHWRSHUDWLQJORVVFDUU\RYHUVDQ\ 6HFWLRQHGRHVQRWPHQWLRQDVSHFLILFDPRXQWRIVWRFN FDSLWDOORVVFDUU\RYHUVDQGDQ\RWKHUORVVFDUU\RYHUVRIDQ EXWUDWKHUVWDWHVWKDWWKH)',&LVHQWLWOHGWRDSHUFHQWDJHRIDOO $&48,5(' $662&,$7,21 DW WKH (IIHFWLYH 'DWH FRPPRQ VWRFN LVVXHG DQG RXWVWDQGLQJ  7KH SHUFHQWDJH RI UHVXOWLQJ LQ D WD[ GHGXFWLRQ IURP HLWKHU $&48,5,1* RZQHUVKLSLQWHUHVWLQ)LUVW+HLJKWVWKDWLVDYDLODEOHXQGHUWKH $662&,$7,21jVJURVVLQFRPH :DUUDQW $JUHHPHQW FDQQRW EH FKDQJHG  7KXV WKH DQWL GLOXWLRQ SURYLVLRQ LQ VHFWLRQ H PXVW EH LQWHUSUHWHG WR $FFUXHGLQWHUHVWH[SHQVHVIRUWKHSXUSRVHVRIWKLVFDVHDUH SUHYHQWWKHGLOXWLRQRIWKHmYDOXHlRIWKH)',&jVZDUUDQWVDQG WKHLQWHUHVWH[SHQVHVIURPWKHLQWHUHVWSD\DEOHWRGHSRVLWRUV QRWWKHRZQHUVKLSLQWHUHVWSHUFHQWDJH WKDW KDG DFFUXHG EXW KDG QRW EHHQ SDLG DQG WKH LQWHUHVW H[SHQVHVWKDWZHUHSDLGEXWKDGQRWEHHQGHGXFWHG7KHILYH $VWKH3XOWH*URXSSRLQWVRXWWKHPDUNHWYDOXHRIVWRFN IDLOHG LQVWLWXWLRQV GLG QRW WDNH WD[ GHGXFWLRQV IRU WKHVH LQYDULDEO\IOXFWXDWHVDQGVHFWLRQHGRHVQRWSURWHFWWKH DFFUXHG LQWHUHVW H[SHQVHV SULRU WR WKH DFTXLVLWLRQ E\ )LUVW  )',&Y)LUVW+HLJKWV%DQNHWDO 1R 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

+HLJKWV  $IWHU WKH DFTXLVLWLRQ WKH H[SHQVH GHGXFWLRQV FRQIHUUHG RQ WKH 3XOWH *URXS E\ WKH UHPRYDO RI WKH WD[ EHFDPHDYDLODEOHWR)LUVW+HLJKWV VKDULQJOLDELOLW\LQFXUUHGEHWZHHQDQGWKHHQGRI DV FDOFXODWHG XQGHU RXU LQWHUSUHWDWLRQ RI VHFWLRQ   7KH 7KH)',&FODLPVDQGWKHGLVWULFWFRXUWFRQFOXGHGWKDWWKH GLVWULFW FRXUW PXVW DOVR GHWHUPLQH WKH HFRQRPLF EHQHILW WHUPmDQ\RWKHUORVVFDUU\RYHUVlHQFRPSDVVHVDFFUXHGLQWHUHVW FRQIHUUHGRQWKH3XOWH*URXSE\WKHUHPRYDORIWKHZDUUDQW H[SHQVHVDFTXLUHGE\)LUVW+HLJKWV:HGLVDJUHH7KHWHUP REOLJDWLRQOLDELOLW\RQ'HFHPEHU mORVV FDUU\RYHUl LV QRW SUHFLVHO\ GHILQHG LQ WKH $VVLVWDQFH $JUHHPHQW  7KH SULQFLSDO ZRUG LQ WKLV FDVH LV mORVVl QRW 7KH DPRXQW RI WKH FRQVWUXFWLYH GLYLGHQG JLYHQ E\ )LUVW mFDUU\RYHUl  :H LQWHUSUHW DFFUXHG LQWHUHVW H[SHQVHV WR EH +HLJKWV PXVW EH FRQWUROOHG E\ WKH ZHOONQRZQ UXOH WKDW LQWHUHVWH[SHQVHVLQFXUUHGEXWQRWSDLGRUGHGXFWHG,QWHUHVW GLYLGHQGV FDQQRW H[FHHG UHWDLQHG HDUQLQJV DQG SURILWV  ,Q H[SHQVHVDUHFRVWVRIGRLQJEXVLQHVVUDWKHUWKDQORVVHVLQWKH +DJDPDQ  )G DW  ZH VWDWHG WKDW m>E@HFDXVH RUGLQDU\VHQVH%HFDXVHRIWKHRPLVVLRQRISUHFLVHODQJXDJH GLYLGHQGV FDQ RQO\ EH GLVWULEXWHG WR WKH H[WHQW RI D GHILQLQJDFFUXHGLQWHUHVWH[SHQVHVDVDmORVVFDUU\RYHUlZH FRUSRUDWLRQjVHDUQLQJVDQGSURILWVXQGHU,5&†DFRXUW FDQQRWUHDGLQWRWKHFRQWUDFWWKHGHILQLWLRQJLYHQE\WKH)',& FDQRQO\ILQGDFRQVWUXFWLYHGLYLGHQGWREHWD[DEOHDVRUGLQDU\ $FFXUHG LQWHUHVW H[SHQVHV DUH QRW WD[ EHQHILW LWHPV XQGHU LQFRPH WR WKH H[WHQW RI WKH FRUSRUDWLRQjV HDUQLQJV DQG VHFWLRQD 7KH)',&LVWKHUHIRUHQRWHQWLWOHGWRUHFHLYH SURILWVl  $QRWKHU RSLQLRQ UHFRJQL]HV WKDW m>R@WKHUZLVH D DQ\SD\PHQWVDVDUHVXOWRIDFFUXHGLQWHUHVWH[SHQVHV GLVWULEXWLRQWRWKHVWRFNKROGHULVPHUHO\DUHFRYHU\IURPKLV EDVLVLQKLVVKDUHVWRWKHH[WHQWWKDWKHKDVVXFKDEDVLVWRWKH &1RQ&RYHUHG$VVHW/RVVHV H[WHQW WKDW WKH SD\PHQWV H[FHHG WKH EDVLV WKH SD\PHQWV DPRXQW WR D >WD[DEOH FDSLWDO@ JDLQl  (VWDWH RI 'H1LUR Y 7KHSDUWLHVQH[WGLVSXWHZKHWKHUQRQFRYHUHGDVVHWORVVHV &RPPLVVLRQHU)GWK&LU$OWKRXJK FRQVWLWXWH WD[ EHQHILW LWHPV WR EH VKDUHG XQGHU VHFWLRQ  WKLV LV QRW D WD[ FDVH WKH VDPH OLPLWDWLRQV RQ FRQVWUXFWLYH 1RQFRYHUHGDVVHWVDUHDOOWDQJLEOHDVVHWVVXFKDVPDUNHWDEOH GLYLGHQGVVKRXOGDSSO\,IWKHGLVWULFWFRXUWGHWHUPLQHVWKDW VHFXULWLHVDQGWKHPRUWJDJHSRUWIROLRWKDWWKH3XOWH*URXS WKH HFRQRPLF EHQHILW WR WKH 3XOWH *URXS IURP WKH  DFTXLUHG LQ WKH WUDQVDFWLRQ DQG ZHUH QRW LQFOXGHG LQ WKH WUDQVDFWLRQVH[FHHGVWKH)LUVW+HLJKWVjVUHWDLQHGHDUQLQJVDQG GHILQLWLRQRIFRYHUHGDVVHWV7KH3XOWH*URXSKDVEHQHILWWHG SURILWV LPPHGLDWHO\ SULRU WR WKH WZR WUDQVDFWLRQV WKHQ WKH IURP WD[ GHGXFWLRQVIURPWKHVDOHVRUGLVSRVLWLRQVRIQRQ FRQVWUXFWLYH GLYLGHQG DQG SD\PHQWV XQGHU VHFWLRQ E  FRYHUHGDVVHWVWKDWUHVXOWHGLQDORVV7KH)',&FODLPVDQG PXVWEHOLPLWHG ZHDJUHHWKDWWD[VDYLQJVDWWULEXWDEOHWRQRQFRYHUHGDVVHWV TXDOLI\DVVKDUHGWD[EHQHILWLWHPVXQGHUVHFWLRQD  9 'HILQLQJVKDUHGWD[EHQHILWLWHPVIRUSXUSRVHVRIWKLVFDVH 7KH)',&DUJXHVWKDWWKH3XOWH*URXSDOVRYLRODWHGVHFWLRQ 6HFWLRQD VWDWHV HRIWKHDJUHHPHQWZKLFKSURKLELWVWKH3XOWH*URXSIURP WDNLQJDFWLRQVWKDWGLOXWHWKHZDUUDQWV6HFWLRQHVWDWHV $Q\FRVWH[SHQVHRUORVVLZKLFKLVLQFXUUHGE\DQ $&48,5,1* $662&,$7,21 LL IRU ZKLFK WKH ([FHSW DV WKH &25325$7,21 VKDOO RWKHUZLVH &25325$7,21 KDV PDGH DVVLVWDQFH SD\PHQWV    FRQVHQWLQZULWLQJDQGH[FHSWDVRWKHUZLVHVSHFLILFDOO\ SXUVXDQWWR†DRIWKLV$JUHHPHQWDQGLLLZKLFK DXWKRUL]HG LQ WKLV $JUHHPHQW RU LQ WKH :DUUDQW LV GHGXFWLEOH RQ DQ $&48,5,1* $662&,$7,21jV $JUHHPHQW WKH $&48,5(5 DQG $&48,5,1* )HGHUDORUVWDWHLQFRPHWD[UHWXUQ $662&,$7,216VKDOOQRWLLDXWKRUL]H WKH VDOH OHDVHRUFRQYH\DQFHRIDOORUVXEVWDQWLDOO\DOORIWKH  )',&Y)LUVW+HLJKWV%DQNHWDO 1R 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

H[SHFWDWLRQ RI UHLPEXUVHPHQW WKDW HFRQRPLF EHQHILW $FFRUGLQJO\ 6HFWLRQ D  KDV WKUHH UHTXLUHPHQWV  WKDW EHFRPHV D FRQVWUXFWLYH GLYLGHQG WD[DEOH WR WKH WKHUHEHDORVVDWWULEXWDEOHWRQRQFRYHUHGDVVHWORVVHVWKDW UHVSHFWLYHVKDUHKROGHU WKH3XOWH*URXSKDVWDNHQDWD[GHGXFWLRQIRUWKHQRQFRYHUHG DVVHWORVVHVDQGWKDWWKH)',&PDGHDVVLVWDQFHSD\PHQWVWR TXRWLQJ/RIWLQ :RRGDUG,QFY8QLWHG6WDWHV)G FRPSHQVDWH)LUVW+HLJKWVIRUORVVHVRQQRQFRYHUHGDVVHWV WK&LU  7KH3XOWH*URXSGRHVQRWFKDOOHQJHWKDWVHFWLRQD jVILUVW WZRUHTXLUHPHQWVWKDWWKH\KDYHLQFXUUHGORVVHVDWWULEXWDEOH 7KH WHVW LV WKHQ ZKHWKHU )LUVW +HLJKWV FRQIHUUHG DQ WR QRQFRYHUHG DVVHW ORVVHV DQG WKDW WKH\ KDYH WDNHQ HFRQRPLFEHQHILWIRUZKLFKLWGLGQRWH[SHFWUHLPEXUVHPHQW GHGXFWLRQVIRUWKRVHORVVHVDUHPHW5DWKHUWKH\FKDOOHQJH 6HHLG,IWKHWZRWUDQVDFWLRQVKDYHWKHHFRQRPLFHIIHFW WKH )',&jV FODLP WKDW SD\PHQWV SXUVXDQW WR VHFWLRQ D RIGLYLGHQGVHYHQLIQRWH[SOLFLWO\GHVLJQDWHGDVVXFKWKH\ VDWLVI\WKHWKLUGUHTXLUHPHQWRIVHFWLRQD  PD\VWLOOEHFKDUDFWHUL]HGDVFRQVWUXFWLYHGLYLGHQGVDQGWKXV EHVXEMHFWWRVKDULQJZLWKWKH)',&XQGHUVHFWLRQE  7KH)',&SRLQWVWRVHFWLRQD WRVKRZWKDWLWPDGH WKHUHTXLUHGSD\PHQWV6HFWLRQD SURYLGHGSD\PHQWV )LUVW +HLJKWV DQG WKH 3XOWH *URXS FRPSOHWHG WKH  IRU WUDQVDFWLRQVZLWKRXWJLYLQJDQ\QRWLFHWRWKH)',&WKDW)LUVW +HLJKWVZDVDVVXPLQJWKHVHOLDELOLWLHV:KHQ)LUVW+HLJKWV 7KHDOORFDEOHH[SHQVHIRUWKHDPRUWL]DWLRQRIWKHDPRXQW DQGWKH3XOWH*URXSFDQFHOHGWKH3XOWH*URXSjVFRQWUDFWXDO RI JRRGZLOO    WKDW LV DWWULEXWDEOH WR WKH DFTXLVLWLRQ GXW\WRIXQG)LUVW+HLJKWVj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jV UHVFLVVLRQ  $OWKRXJK WKH 3XOWH *URXS DQG )LUVW 'DWH +HLJKWV RSHUDWHG LQ D FRPELQHG DQG SHUKDSV LQIRUPDO DFFRXQWLQJPDQQHUWKHIDFWUHPDLQVWKDWWKH3XOWH*URXSLQ 7KH3XOWH*URXSGRHVQRWGLVSXWHWKDWWKH)',&PDGHWKH LWVFDSDFLW\DVWKHVROHVKDUHKROGHURI)LUVW+HLJKWVUHFHLYHG UHTXLVLWHSD\PHQWVWR)LUVW+HLJKWVXQGHUVHFWLRQD 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 ZHUH QRW GLVWULFWFRXUWWKDWDQ\HFRQRPLFEHQHILWVFRQIHUUHGE\)LUVW mDVVLVWDQFHSD\PHQWVlUHODWHGWRQRQFRYHUHGDVVHWVEHFDXVH +HLJKWV DV D UHVXOW RI WKHVH WUDQVDFWLRQV DUH FRQVWUXFWLYH WKH)',&GLGQRWUHLPEXUVH)LUVW+HLJKWVIRUWKHDFWXDOORVVHV GLYLGHQGVFRYHUHGE\VHFWLRQE  LQFXUUHGDWWKHWLPH)LUVW+HLJKWVGLVSRVHGRIWKHP7KH3XOWH *URXS FRQWHQGV WKDW WKH JRRGZLOO SD\PHQWV WKH\ UHFHLYHG ,QOLJKWRIWKHLQFRPSOHWHQHVVRIWKHUHFRUGFRQFHUQLQJWKH SXUVXDQWWRVHFWLRQD DQGWKHORDQORVVHVWKH\LQFXUUHG DPRXQWRIHFRQRPLFEHQHILWFRQIHUUHGE\)LUVW+HLJKWVWRWKH RQ WKH GLVSRVLWLRQ RI QRQFRYHUHG DVVHWV DUH VHSDUDWH DQG 3XOWH*URXSZHILQGLWEHVWWRUHPDQGWKHGDPDJHVLVVXHIRU GLVWLQFWFRQFHSWV WKH GLVWULFW FRXUW WR FDOFXODWH WKH SURSHU GDPDJHV DPRXQW 7KH GLVWULFW FRXUW PXVW GHWHUPLQH WKH HFRQRPLF EHQHILW  )',&Y)LUVW+HLJKWV%DQNHWDO 1R 1R )',&Y)LUVW+HLJKWV%DQNHWDO 

7KHGLVWULFWFRXUWIRXQGWKDWWKH$VVLVWDQFH$JUHHPHQWGLG VHHPVXQQHFHVVDU\:HKHUHE\YDFDWHWKHDZDUG QRW UHTXLUH WKDW WKH )',& UHLPEXUVH )LUVW +HLJKWV IRU WKH DQGUHPDQGIRUWKHGLVWULFWFRXUWWRHQWHUDQDZDUGIRUWKHIXOO DFWXDO DPRXQW RI WKH ORVVHV DW WKH SUHFLVH WLPH WKH\ ZHUH DPRXQWGXHXQGHUVHFWLRQIRUWKHDQGWD[\HDUV LQFXUUHG LQ RUGHU IRU WKH UHLPEXUVHPHQW WR FRQVWLWXWH DQ DVVLVWDQFHSD\PHQW%HFDXVHWKH)',&GLGPDNHSD\PHQWV ,9 XQGHUVHFWLRQD WR)LUVW+HLJKWVWRFRPSHQVDWHIRUWKH ORVVRQWKHQRQFRYHUHGDVVHWVWKH)',&GLGPDNHDVVLVWDQFH 7KH)',&DQGWKH3XOWH*URXSQH[WGLVSXWHZKHWKHU)LUVW SD\PHQWVSXUVXDQWWRWKH$VVLVWDQFH$JUHHPHQW5HWXUQLQJ +HLJKWVLVVXHGDFRQVWUXFWLYHGLYLGHQGWRWKH3XOWH*URXS WR WKH RULJLQDO WKUHH UHTXLUHPHQWV RI VHFWLRQ D  ZH 8QGHU 6HFWLRQ E  RI WKH $VVLVWDQFH $JUHHPHQW )LUVW FRQFOXGHWKDWDOODUHPHWDQGWKH3XOWH*URXSPXVWWKHUHIRUH +HLJKWV PXVW SD\ WKH )',& WKH HTXLYDOHQW RI WZHQW\ILYH VKDUHWKHWD[EHQHILWVREWDLQHGIURPWKH QRQFRYHUHGDVVHW SHUFHQW RI WKH mWRWDO DPRXQW RI DQ\ GLYLGHQGV GHFODUHG E\ ORVVHV >)LUVW+HLJKWV@RQLWVLVVXHGDQGRXWVWDQGLQJFRPPRQVWRFN RZQHGE\DQ\VKDUHKROGHUGLUHFWRUDIILOLDWHRUFRQWUROOLQJ ' 'DPDJHV SHUVRQRIDQ\SDUW\KHUHWRl7KHGLVWULFWFRXUWIRXQGWKDWWKH DPHQGPHQWWRWKH7D[$OORFDWLRQDQG6KDULQJ$JUHHPHQWDQG 7KHGLVWULFWFRXUWDZDUGHGLQGDPDJHVXQGHU WKH UHVFLVVLRQ RI WKH :DUUDQW 2EOLJDWLRQ $VVXPSWLRQ VHFWLRQIRUWKHWD[\HDUVEHWZHHQDQG7KH3XOWH $JUHHPHQW FRQIHUUHG FRQVWUXFWLYH GLYLGHQGV RQ WKH 3XOWH *URXSDVVHUWVWKDWDJHQXLQHLVVXHRIPDWHULDOIDFWH[LVWVDVWR *URXSZLWKLQWKHPHDQLQJRIVHFWLRQE :HDJUHHZLWK WKH DPRXQW RI GDPDJHV GXH WR WKH )',&  $OWKRXJK WKH WKHGLVWULFWFRXUWj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mGLYLGHQGl7KH3XOWH*URXSDUJXHVWKDWVHFWLRQE LV 1RJHQXLQHLVVXHRIPDWHULDOIDFWH[LVWVDVWRWKHDPRXQWRI OLPLWHGWRmGHFODUHGlGLYLGHQGVDQGWKXVWKHWUDQVDFWLRQV GDPDJHV  ,Q OLJKW RI RXU ILQGLQJ WKDW DFTXLUHG LQWHUHVW GR QRW FRQVWLWXWH GLYLGHQGV EHFDXVH )LUVW +HLJKWV QHYHU H[SHQVHVDUHQRWWD[EHQHILWVVXEMHFWWR)LUVW+HLJKWVjVVKDULQJ IRUPDOO\GHFODUHGDQ\GLYLGHQG7KLVDUJXPHQWLJQRUHVWKH REOLJDWLRQZHUHPDQGWKHVHGDPDJHVIRUWKHGLVWULFWFRXUWWR UXOHWKDWGLYLGHQGVFDQRFFXULQWKHDEVHQFHRIDGHFODUDWLRQ UHFDOFXODWHWKHVHFWLRQDZDUGIRUDFFRUGLQJO\ ,Q5DPR,QFY(QJOLVK6:G7H[ WKH 7H[DV 6XSUHPH &RXUW VWDWHG WKDW m>D@ GLVWULEXWLRQ RI 7KHGLVWULFWFRXUWDOVRDZDUGHGmDWOHDVWlWR PRQH\RUSURSHUW\E\DFRUSRUDWLRQWRLWVVKDUHKROGHUVPD\ WKH)',&DVLWVVKDUHRIWKHWD[EHQHILWVIRUWKHWD[\HDUVDIWHU FRQVWLWXWH D GLYLGHQG LQ ODZ HYHQ WKRXJK QRW IRUPDOO\ $WWKLVSRLQW)LUVW+HLJKWVKDVILOHGLWVWD[UHWXUQVIRU GHVLJQDWHG DV VXFK E\ WKH ERDUG RI GLUHFWRUVl  2XU DQGDQGWKHWD[EHQHILWVKDULQJSD\PHQWVIRUWKRVH MXULVSUXGHQFH KDV UHFRJQL]HG FRQVWUXFWLYH GLYLGHQGV RU \HDUV KDYH FRPH GXH  $Q\ SD\PHQWV GXH IRU WD[ EHQHILWV GLYLGHQGV LQ ODZ LQ FDVHV LQYROYLQJ WKH ,QWHUQDO 5HYHQXH DULVLQJLQZLOOQRWEHFRPHGXHWRWKH)',&XQWLOODWHU 6HUYLFH,Q+DJDPDQY&RPPLVVLRQHURI,QWHUQDO5HYHQXH WKLV\HDU%HFDXVHWKHDQGWD[ILOLQJVDOORZ )GWK&LUZHDFNQRZOHGJHGWKDW IRU WKH DPRXQWV GXH WR WKH )',& WR EH GHWHUPLQHG ZLWK FHUWDLQW\ WKH GLVWULFW FRXUWjV VSHFXODWLYH FDOFXODWLRQ QRZ >Z@KHQDFRUSRUDWLRQFRQIHUVDQHFRQRPLFEHQHILWXSRQ D VKDUHKROGHU LQ KLV FDSDFLW\ DV VXFK ZLWKRXW DQ