5(&200(1'(' )25 )8//7(;7 38%/,&$7,21 ,QUH6DOOHHHWDO 1RV 3XUVXDQW WR 6L[WK &LUFXLW 5XOH (/(&7521,& &,7$7,21 )(' $SS 3 WK &LU SURSHUW\ DV LW ZDV IUDXGXOHQWO\ UHSUHVHQWHG DQG WKH DFWXDO )LOH 1DPH DS YDOXHRIWKHSURSHUW\'HPSVH\Y0DUVKDOO6:G .\ %XW,GRQRWMRLQLQWKHPDMRULW\jVFRQIXVLRQ DERXWZKDWWKHGDPDJHVWKXVFDOFXODWHGDUHWRUHFRPSHQVH 81,7('67$7(6&28572)$33($/6 7KHVHGDPDJHVDUHIRUIUDXGXOHQWLQGXFHPHQW%HFDXVHWKH )257+(6,;7+&,5&8,7 6DOOHHVHOHFWHGWRDIILUPWKHFRQWUDFWWKH\ZHUHIUDXGXOHQWO\ BBBBBBBBBBBBBBBBB LQGXFHGWRHQWHULQWRWKH\DUHOLPLWHGWRGDPDJHVPHDVXUHG E\WKHGLIIHUHQFHEHWZHHQWKHDFWXDODQGWKHPLVUHSUHVHQWHG YDOXH ,QUH :257+ $ 6$//((DQG ; )LQDOO\,DJUHHZLWKWKHPDMRULW\jVGHWHUPLQDWLRQWKDWWKH 6$1'5$ 0 6$//(( EDQNUXSWF\FRXUWHUUHGLQDZDUGLQJGDPDJHVIRUWKHORVVRI 'HEWRUV WKH(623 DOWKRXJKLQOLJKWRIWKHGLVFXVVLRQRIWKH6DOOHHVj 1RV RZQFXOSDELOLW\LQGHVWUR\LQJWKHWD[GHIHUUHGVWDWXVRIWKHLU BBBBBBBBBBBBBBBBBBBBBB (623 DQG WKH XOWLPDWH KROGLQJ WKDW WKH EDQNUXSWF\ FRXUW ! HUUHGLQDZDUGLQJGDPDJHVIRUORVVRIWKH/RZHjVVWRFN,DP :257+ $ 6$//((6$1'5$ SX]]OHG E\ WKH PDMRULW\ RSLQLRQjV VWDWHPHQW WKDW WKH 0 6$//((DQGs2+1 EDQNUXSWF\FRXUWjVILQGLQJWKDWWKH6DOOHHVXVHGRUGLQDU\FDUH :,/6217UXVWHH LQUHO\LQJRQWKH%DQNjVUHSUHVHQWDWLRQVUHJDUGLQJWKDWVWRFN LVVXSSRUWHGE\WKHUHFRUG ,DJUHHDVZHOOWKDWWKH6DOOHHV 3ODLQWLIIV$SSHOOHHV FRXOG KDYH HOHFWHG WR UHVFLQG WKDW WUDQVDFWLRQnZKLFK ZDV &URVV$SSHOODQWV SDUWRIWKHODUJHUODXQGURPDWWUDQVDFWLRQnEXWGLGQRW7KDW WKH\WKHUHE\OLPLWHGWKHPVHOYHVWRGDPDJHVPHDVXUHGE\WKH Y GLIIHUHQFHEHWZHHQWKHDFWXDOYDOXHRIWKHODXQGURPDWDQGLWV PLVUHSUHVHQWHGYDOXHKRZHYHULVQRWEHFDXVHWKH\DUHQRW )257 .12; 1$7,21$/ HQWLWOHGWRGDPDJHVIRUIUDXGXOHQWLQGXFHPHQW,WLVEHFDXVH LQWKLVDFWLRQIRUIUDXGXOHQWLQGXFHPHQWWKH\HOHFWHGWRDIILUP %$1. 1$ DQG ',&.,1621 ),1$1&,$/ &25325$7,21 WKHFRQWUDFW 'HIHQGDQWV$SSHOODQWV &URVV$SSHOOHHV 1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH:HVWHUQ'LVWULFWRI.HQWXFN\DW/RXLVYLOOH 1R nsHQQLIHU%&RIIPDQ'LVWULFWsXGJH $UJXHG 6HSWHPEHU 'HFLGHGDQG)LOHG $SULO ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO %HIRUH %$7&+(/'(5DQG&2/(&LUFXLWsXGJHV FODLPLQJ GDPDJHV RU UHVFLQGLQJ WKH FRQWUDFW 6DQIRUG *:,1'LVWULFWsXGJH &RQVWU&RY6 +&RQWUDFWRUV,QF6:G .\ BBBBBBBBBBBBBBBBB ,Q WKLV FDVH WKH 6DOOHHV FODLP WKDW WKH\ ZHUH LQGXFHG WR &2816(/ SXUFKDVH WKH ODXQGURPDW E\ )RUW .QR[ %DQNjV IUDXGXOHQW UHSUHVHQWDWLRQV 7KH 6DOOHHVj FODLP LV RQH IRU IUDXGXOHQW $5*8(' 3KLOLS:%OHGVRH6+8*+$577+20621 LQGXFHPHQW7KHHOHFWLRQWKDW.HQWXFN\ODZUHTXLUHVWKHPWR .,/52<.DQVDV&LW\0LVVRXULIRU$SSHOODQWV'RXJODV PDNHLVWKHHOHFWLRQRIUHPHGLHVnWKH\PD\HOHFWWRDIILUPWKH *6KDUS025*$1 3277,1*(5/RXLVYLOOH.HQWXFN\ FRQWUDFWDQGSXUVXHGDPDJHVRUWKH\PD\HOHFWWRUHVFLQGWKH IRU$SSHOOHHV21%5,() 3KLOLS:%OHGVRH5LFKDUG0 FRQWUDFW 7KH PDMRULW\ RSLQLRQ VD\V WKDW VLQFH WKH 6DOOHHV 3DXO,,,6+8*+$577+20621 .,/52<.DQVDV&LW\ mDIILUPHGWKHODXQGURPDWORDQWUDQVDFWLRQlWKH\PD\VXHRQO\ 0LVVRXUL &DWK\ 6 3LNH 5XVVHOO + 6DXQGHUV :(%(5 mIRU IUDXGXOHQW PLVUHSUHVHQWDWLRQ EXW QRW IRU IUDXGXOHQW 526( /RXLVYLOOH .HQWXFN\ IRU $SSHOODQWV 'RXJODV * LQGXFHPHQWl7KLVLVDQLQFRUUHFWVWDWHPHQWRI.HQWXFN\ODZ 6KDUS sRKQ 7 0F*DUYH\ 025*$1 3277,1*(5 7KHUHLVQRLVVXHKHUHRIIUDXGXOHQWPLVUHSUHVHQWDWLRQYHUVXV /RXLVYLOOH.HQWXFN\IRU$SSHOOHHV IUDXGXOHQWLQGXFHPHQW+HUHDIUDXGXOHQWPLVUHSUHVHQWDWLRQ E\ )RUW .QR[ %DQN LQGXFHG WKH 6DOOHHV WR SXUFKDVH WKH *:,1'sGHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK ODXQGURPDW &2/(sMRLQHG%$7&+(/'(5s SS GHOLYHUHG DVHSDUDWHRSLQLRQFRQFXUULQJLQSDUWDQGFRQFXUULQJLQWKH 7KH SURSHU GLVWLQFWLRQ EHWZHHQ IUDXGXOHQW MXGJPHQW PLVUHSUHVHQWDWLRQDQGLQGXFHPHQWGHULYHVIURPWKHFRQWH[WLQ ZKLFK WKH IUDXGXOHQW PLVUHSUHVHQWDWLRQ RFFXUUHG ,I WKH BBBBBBBBBBBBBBBBB PLVUHSUHVHQWDWLRQRFFXUUHGZLWKWKHmLQWHQWLRQRILQGXFLQJl D SDUW\ WR DFW WKH UHVXOW LV IUDXGXOHQW LQGXFHPHQW ,I WKH 23,1,21 PLVUHSUHVHQWDWLRQGLGQRWRFFXUZLWKLQWKHFRQWH[WRILQGXFLQJ BBBBBBBBBBBBBBBBB DQRWKHUWRDFWEXWLQVWHDGZDVDPLVUHSUHVHQWDWLRQIRURWKHU *:,1'LVWULFWsXGJH:LWKWKHVHDSSHDOVZHUHYLHZWKH SXUSRVHV WKH UHVXOW LV DQRWKHU IRUP RI IUDXG IRU H[DPSOH MXGJPHQW RI WKH 86 %DQNUXSWF\ &RXUW IRU WKH :HVWHUQ IUDXGLQWKHIDFWXPZKHUHWKHGRFXPHQWVLJQHGZDVLWVHOI 'LVWULFW RI .HQWXFN\ 7KDW FRXUW JDYH MXGJPHQW RI PLVUHSUHVHQWHG DJDLQVW$SSHOODQW)RUW.QR[1DWLRQDO%DQN ,DJUHHZLWKWKHUHVXOWUHDFKHGE\WKHPDMRULW\,QLWVRUGHU m)RUW.QR[%DQNl RQ3ODLQWLII:RUWKDQG6DQGUD6DOOHHjV JUDQWLQJ)RUW.QR[%DQNj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sDPHV 6 *ZLQ 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH 6DOOHHVPD\UHFRYHUWKHGLIIHUHQFHEHWZHHQWKHYDOXHRIWKH 1RUWKHUQ 'LVWULFW RI 2KLR VLWWLQJ E\ GHVLJQDWLRQ ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO BBBBBBBBBBBBBBBBBBBBBB XQKDSS\ FROOLVLRQ EHWZHHQ )RUW .QR[ %DQNjV EDG EDQNLQJ SUDFWLFHVDQGWKH6DOOHHVjEXVLQHVVQDLYHWHDQGLQFRPSHWHQFH &21&855(1&( BBBBBBBBBBBBBBBBBBBBBB ,QZDGLQJWKURXJKWKHPRUDVVFUHDWHGE\)RUW.QR[%DQN DQGWKH6DOOHHVZHILUVWGHVFULEHWKHIDFWXDOEDFNJURXQGXSRQ ZKLFKWKH6DOOHHVEDVHWKHLUFODLPRIDILGXFLDU\UHODWLRQVKLS $/,&(0%$7&+(/'(5&LUFXLWsXGJHFRQFXUULQJLQ ZLWK)RUW.QR[%DQN$IWHUFRQVLGHULQJWKLVEDFNJURXQGZH SDUWDQGFRQFXUULQJLQMXGJPHQW,FRQFXULQWKHMXGJPHQWRI ILQGWKDW)RUW.QR[%DQNjVUHODWLRQVKLSZLWKWKH6DOOHHVGLG WKHPDMRULW\RSLQLRQ,ZULWHVHSDUDWHO\ZLWKUHJDUGWRWKH QRWFUHDWHDGXW\LQ)RUW.QR[%DQNWRDFWSULPDULO\LQWKH PDMRULW\jVVWDWHPHQWRI.HQWXFN\ODZUHODWLQJWRWKHHOHFWLRQ 6DOOHHVj LQWHUHVW 7KH UHODWLRQVKLS EHWZHHQ D EDQN DQG D RIUHPHGLHVIRUIUDXGXOHQWLQGXFHPHQW ERUURZHUGRHVQRWRUGLQDULO\LPSRVHDILGXFLDU\GXW\XSRQWKH EDQN:KLOHWKH6DOOHHVPD\KDYHEHHQFKLOGOLNHLQWUXVWLQJ )RUW .QR[ %DQN DUJXHV RQ DSSHDOnHUURQHRXVO\ , )RUW .QR[ %DQNjV UHSUHVHQWDWLYHV ZH ILQG QR UHDVRQDEOH EHOLHYHnWKDWWKH6DOOHHVXQGHU.HQWXFN\ODZZHUHUHTXLUHG SHUVRQLQWKHLUSRVLWLRQZRXOGEHOLHYH)RUW.QR[%DQNDFWHG WR HOHFW ZKHWKHU WKH\ VRXJKW GDPDJHV IRU IUDXGXOHQW RQWKH6DOOHHVjEHKDOILQOHQGLQJPRQLHVWRWKH6DOOHHV PLVUHSUHVHQWDWLRQ RU IUDXGXOHQW LQGXFHPHQW 7KH PDMRULW\ RSLQLRQ DGRSWV WKH %DQNjV HUURQHRXV FKDUDFWHUL]DWLRQ RI $IWHUGLVFXVVLQJWKH6DOOHHVjFODLPWKDW)RUW.QR[%DQN .HQWXFN\ODZ RZHG WKHP D ILGXFLDU\ GXW\ ZH H[DPLQH WKH EDQNUXSWF\ FRXUWjVILQGLQJWKDWWKH6DOOHHVHVWDEOLVKHGWKHLUIUDXGFODLP )UDXG LQ WKH LQGXFHPHQW UHTXLUHV PLVUHSUHVHQWDWLRQ 5HJDUGLQJWKHIUDXGFODLP)RUW.QR[%DQNDUJXHVWKDWWKH %ODFNj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jVYDOXH %/$&.j6 /$: ',&7,21$5< WK HG ,Q .HQWXFN\ ZKHQDSDUW\LVLQGXFHGE\DIUDXGXOHQWPLVUHSUHVHQWDWLRQWR )LQGLQJVXIILFLHQWHYLGHQFHWRVXSSRUW WKH6DOOHHVjIUDXG HQWHU LQWR D FRQWUDFW WKDW SDUW\ PXVW HOHFW WR HLWKHU FODLPZHQH[WH[DPLQH)RUW.QR[%DQNjVDUJXPHQWWKDWWKH mDIILUPWKHFRQWUDFWDQGUHFRYHUGDPDJHVLQWRUWIRUWKH 6DOOHHVUHOHDVHGDOOFODLPVDJDLQVW)RUW.QR[%DQNE\VLJQLQJ IUDXG l RU mGLVDIILUP WKH FRQWUDFW DQG UHFRYHU WKH WZR([WHQVLRQ:DLYHU$JUHHPHQWV mH[WHQVLRQDJUHHPHQWl FRQVLGHUDWLRQZLWKZKLFKKHKDVSDUWHGl+&+DQVRQY$P LQ$XJXVWDQG'HFHPEHU 7KHEDQNUXSWF\FRXUWIRXQG 1DWjO%DQN 7UXVW&R6:G .\ WKH H[WHQVLRQ DJUHHPHQWjV UHOHDVH ODQJXDJH LQVXIILFLHQWO\ 7KH UHTXLUHG HOHFWLRQ LV QRW EHWZHHQ D FDXVH RI DFWLRQ IRU EURDGWRSUHYHQWWKH6DOOHHVjFODLPV8SRQDSSHDOWKHGLVWULFW IUDXGXOHQW PLVUHSUHVHQWDWLRQ DQG RQH IRU IUDXGXOHQW FRXUWIRXQGWKHUHOHDVHODQJXDJHEURDGHQRXJKWRSUHYHQWWKH LQGXFHPHQW 5DWKHU WKH HOHFWLRQ UHTXLUHG LV EHWZHHQ WKH 6DOOHHVj FODLPV 1RQHWKHOHVV WKH GLVWULFW FRXUW IRXQG )RUW DYDLODEOH UHPHGLHVnHLWKHU DIILUPLQJ WKH FRQWUDFW DQG ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO .QR[%DQNIUDXGXOHQWO\SURFXUHGWKH6DOOHHVjDVVHQWWRWKH GLVWULFW FRXUW FRUUHFWO\ DOORZHG SXQLWLYH GDPDJHV EXW ZH H[WHQVLRQDJUHHPHQW%HFDXVHZHKROGWKHHYLGHQFHVXSSRUWV UHPDQG WKH FDVH EDFN WR WKH EDQNUXSWF\ FRXUW IRU D QHZ WKHGLVWULFWFRXUWjVILQGLQJWKDW)RUW.QR[%DQNIUDXGXOHQWO\ GHWHUPLQDWLRQRIWKRVHGDPDJHV LQGXFHGWKH6DOOHHVjH[HFXWLRQRIWKHUHOHDVHZHGHQ\)RUW .QR[%DQNjVDUJXPHQWWKDWWKHUHOHDVHSUHYHQWVWKH6DOOHHVj 7KHMXGJPHQWRIWKH8QLWHG6WDWHV'LVWULFW&RXUWIRUWKH FODLPV :HVWHUQ'LVWULFWRI.HQWXFN\LQFDVHDQGLV $)),50(' LQ SDUW 5(9(56(' LQ SDUW DQG $IWHUILQGLQJWKDWWKH6DOOHHVKDYHHVWDEOLVKHGWKHLUIUDXG 5(0$1'('WRWKH8QLWHG6WDWHV%DQNUXSWF\&RXUWIRUWKH FODLP ZH WXUQ WR WKH EDQNUXSWF\ FRXUWj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j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m'LFNLQVRQ )LQDQFLDOl WKLV ULVN 'LFNLQVRQ )LQDQFLDO UHFHLYHG FRQVLGHUDWLRQ IURP 'LFNLQVRQ)LQDQFLDOZDVWKHFRUSRUDWHSDUHQWRI)RUW.QR[ *ROGHQ)LQDQFLDO'LFNLQVRQ)LQDQFLDOHLWKHUVROG)RUW.QR[ %DQN7KHEDQNUXSWF\FRXUWKDGMXULVGLFWLRQRYHUWKLVFDVH %DQN DW D KLJKHU SULFH RU FRPSOHWHG D VDOH LW ZRXOG QRW XQGHU86& E DQG E RWKHUZLVHKDYHPDGH:HVHHQRUHDVRQWRUHOLHYH'LFNLQVRQ )LQDQFLDORIWKHULVNLWYROXQWDULO\DVVXPHG $IWHUWKHEDQNUXSWF\FRXUWHQWHUHGMXGJPHQWDJDLQVW)RUW .QR[ %DQN WKH DSSHOODQWV DSSHDOHG WR WKH GLVWULFW FRXUW 'LFNLQVRQ )LQDQFLDO FRQWLQXHV WR ZRUN LQ WKH ILQDQFLDO ZKLFKUHYLHZHGWKHGHFLVLRQRIWKHEDQNUXSWF\FRXUWXQGHU ILHOG $Q DZDUG RI SXQLWLYH GDPDJHV ZLOO GLVFRXUDJH 86& D 7KHGLVWULFWFRXUWUHYHUVHGLQSDUW 'LFNLQVRQIURPDOORZLQJVLPLODUFRQGXFWDWRWKHUORFDWLRQV DQG DIILUPHG LQ SDUW WKH EDQNUXSWF\ FRXUWj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jVIDFWXDOILQGLQJV ,,,&RQFOXVLRQ $SSHOODQW)RUW.QR[%DQNZDVDVPDOOEDQNLQJLQVWLWXWLRQ 7KHGLVWULFWFRXUWHUUHGLQILQGLQJ)RUW.QR[%DQNKDGD RQ DQG QHDU WKH PLOLWDU\ SRVW DW )RUW .QR[ .HQWXFN\ ,W ILGXFLDU\ UHODWLRQVKLS ZLWK WKH 6DOOHHV 7KH GLVWULFW FRXUW RIIHUHGXQVRSKLVWLFDWHGEDQNLQJVHUYLFHVWRPLOLWDU\SHUVRQQHO FRUUHFWO\KHOGWKH6DOOHHVjVLJQLQJRIWKHH[WHQVLRQDJUHHPHQW DQG EXVLQHVVHV LQ WKH VXUURXQGLQJ FRPPXQLW\ $W WLPHV GLG QRW ZDLYH WKHLU FODLPV DJDLQVW )RUW .QR[ %DQN 7KH UHOHYDQWWRWKLVFDVH'LFNLQVRQ)LQDQFLDODKROGLQJFRPSDQ\ EDQNUXSWF\FRXUWFRUUHFWO\IRXQGIRUWKH6DOOHHVRQWKHLUIUDXG RZQHG)RUW.QR[%DQN FODLP :LWK UHVSHFW WR GDPDJHV WKH GLVWULFW FRXUW FRUUHFWO\ UHFDOFXODWHG WKH 6DOOHHVj FRPSHQVDWRU\ GDPDJHV RQ WKHLU 7KH DSSHOODQWV GR QRW GLUHFWO\ FKDOOHQJH WKH IDFWXDO ILQGLQJV RI WKH IUDXGXOHQWPLVUHSUHVHQWDWLRQFODLP7KHGLVWULFWFRXUWHUUHG EDQNUXSWF\ FRXUW ZKHQ LW DOORZHG GDPDJHV IRU IUDXGXOHQW LQGXFHPHQW 7KH 'LFNLQVRQ )LQDQFLDO VROG )RUW .QR[ %DQNj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jV VHUYLFHVZLWKRQO\DPRGHVWDPRXQWRIFRPPHUFLDOOHQGLQJ DVVHVVPHQW RI SXQLWLYH GDPDJHV VSHFLILFDOO\ UHMHFWHG WKH 7KLVSUDFWLFHFKDQJHGLQWKHPLGWRODWH V/LNHPDQ\ DUJXPHQW WKDW DVVHVVLQJ GDPDJHV KDV QR GHWHUUHQW HIIHFW RWKHUPLVJXLGHGOHQGLQJLQVWLWXWLRQVWKHQ)RUW.QR[%DQN EHFDXVH 'LFNLQVRQ )LQDQFLDO KDV VROG )RUW .QR[ %DQN GHFLGHGWRLQFUHDVHLWVFRPPHUFLDOOHQGLQJZKLFKXOWLPDWHO\ 1RWLQJWKDW'LFNLQVRQ)LQDQFLDOFRQWUROOHG)RUW.QR[%DQN JUHZWRDSSUR[LPDWHO\RI)RUW.QR[%DQNjVWRWDOORDQ WKHGLVWULFWFRXUWTXHVWLRQHGZKHWKHU'LFNLQVRQ)LQDQFLDOjV SRUWIROLR LQDGHTXDWHVXSHUYLVLRQRI)RUW.QR[%DQNjVOHQGLQJSUDFWLFHV KDGFRQWULEXWHGWRWKHGDPDJHV 2IJUHDWHULPSRUWDQFHWKH )RUW.QR[%DQNJDYHUHVSRQVLELOLW\IRUFRPPHUFLDOOHQGLQJ GLVWULFWFRXUWIRXQGDQDVVHVVPHQWRISXQLWLYHGDPDJHVZRXOG WR 6HQLRU /RDQ 2IILFHU .HQ /RJVGRQ m/RJVGRQl DQG mVHUYH WR GHWHU RWKHU EDQNV ERWK WKRVH VWLOO RZQHG E\ $VVLVWDQW/RDQ2IILFHU9LFWRULD&RRQH\ m&RRQH\l (DFK 'LFNLQVRQ )LQDQFLDO DQG LQGHSHQGHQW EDQNV IURP VLPLODU SRVVHVVHG D GDQJHURXV FRPELQDWLRQ RI LQH[SHULHQFH DQG FRQGXFW IXUWKHULQJ WKH SXUSRVH RI DQ DZDUG RI SXQLWLYH LQFRPSHWHQFH GDPDJHVl 'LVWULFW&RXUW0HPRUDQGXP2SLQLRQDQG2UGHU DW 'LVSOD\LQJWKHmJRJRlPHQWDOLW\WKDWLQIHFWHGEDQNLQJLQ WKHPLG V)RUW.QR[%DQNPDGHDVHULHVRIORDQVWR)UHG :H DJUHH WKDW SXQLWLYH GDPDJHV VKRXOG EH DZDUGHG : %UDPEOHWW m%UDPEOHWWl DQG KLV IDPLO\ WR ILQDQFH D 3XQLWLYH GDPDJHV KDYH D WZRIROG HIIHFW 7KH\ SXQLVK YDULHW\ RI UHDO HVWDWH SURMHFWV /RJVGRQ DQG &RRQH\ ZURQJGRHUVDQGGHWHURWKHUV DXWKRUL]HGDQGVXSHUYLVHGWKHVHORDQV :H ILQG XQSHUVXDVLYH WKH DSSHOODQWjV DUJXPHQW WKDW WKH 7KH%UDPEOHWWIDPLO\LQFOXGHG)UHG6UDQGKLVZLIH3HDUO EDQNUXSWF\ FRXUW VKRXOG QRW KDYH OHYLHG SXQLWLYH GDPDJHV DQG WKHLU WZR VRQV )UHG : DQG sDPHV %UDPEOHWW 7KH\ EHFDXVH )RUW .QR[ %DQN QR ORQJHU H[LVWV :KLOH WKH ZRUNHGLQWKHFRQVWUXFWLRQILHOGDQGEHJDQERUURZLQJODUJH DSSHOODQW FLWHV FDVHV ZKHUH SXQLWLYH GDPDJHV ZHUH QRW DPRXQWV IURP )RUW .QR[ %DQN LQ WKH PLG V 7KH DVVHVVHGEDVHGRQWKHLGHDWKDWRQO\DZURQJGRHUVKRXOGSD\ %UDPEOHWWVKHOSHGHDFKRWKHULQWKHLUHQGHDYRUVDQGURXWLQHO\ VXFK GDPDJHV WKH\ DUH IDFWXDOO\ GLVWLQJXLVKDEOH IURP WKLV WUDQVIHUUHGSURSHUW\DQGORDQVEHWZHHQWKHPVHOYHV FDVH6HH%DUQHVY6PLWK)G WK&LU QR SXQLWLYHGDPDJHVDJDLQVWHVWDWHRIDGHFHDVHGZURQJGRHU 5HIOHFWLQJ /RJVGRQ DQG &RRQH\jV LQFRPSHWHQFH )RUW )HKUHQEDFKHUY4XDFNHQEXVK )6XSS '.DQ .QR[%DQNSRRUO\GRFXPHQWHGWKHORDQVPDGHWR%UDPEOHWW VDPH .HQWXFN\ &HQWUDO ,QV &R Y 6FKQHLGHU LQWKHPLG jVORRVHO\FROODWHUDOL]HGWKHORDQVDQGPDGH 6:Go .\ DZDUGRISXQLWLYHGDPDJHV WKHORDQVZLWKOLWWOHILQDQFLDOLQIRUPDWLRQ0RUHRYHU)RUW RYHUWXUQHGEHFDXVHXQGHULQVXUHGPRWRULVWFRYHUDJHGHILQLWLRQ .QR[ %DQN FRQWLQXHG WKLV VHULHV RI ORDQV HYHQ WKRXJK RI mERGLO\ LQMXU\l GRHV QRW FRYHU SXQLWLYH GDPDJHV GLFWD %UDPEOHWWjVHQGHDYRUVFRQVLVWHQWO\ORVWPRQH\ IXUWKHUVD\VVXFKDQDZDUGLVOXGLFULRXVDVYLFWLPjVLQVXUDQFH ZRXOGKDYHWRSD\ %\WKHIDOO )RUW.QR[%DQN VHDV\OHQGLQJSROLF\DQG %UDPEOHWWjVLQFRPSHWHQFHUHVXOWHGLQ)RUW.QR[%DQNKDYLQJ VHYHUDOKXQGUHGWKRXVDQGGROODUVRIEDGORDQV5DWKHUWKDQ IDFHWKHFRQVHTXHQFHVRIKLVTXHVWLRQDEOHOHQGLQJSUDFWLFHV 6HQLRU/RDQ2IILFHU/RJVGRQDJUHHGWRDJHQHUDOL]HGZRUNRXW 7KH EDQNUXSWF\ FRXUW IRXQG WKDW mRWKHU WKDQ WKHLU IDLOXUH WR PRUH FDUHIXOO\ PRQLWRU )RUW .QR[ %DQN ZH FDQ ILQG OLWWOH IDXOW ZLWK WKH DFWLRQV VWUDWHJ\ZLWK%UDPEOHWW8QGHUWKLVZRUNRXWVWUDWHJ\)RUW RI 'LFNLQVRQ )LQDQFLDO DQG LWV RZQHUl %DQNUXSWF\ &RXUW s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jV SURSHUWLHV HVSHFLDOO\ LI WKH SXUFKDVH FRXOG EH DVLGH EHFDXVH )RUW .QR[ %DQN WKH ZURQJGRHU QR ORQJHU VHFXUHGZLWKEHWWHUFROODWHUDOWKDQWKHVHFXULW\RIIHUHGE\WKH H[LVWV$VDSURYLVLRQRIWKHFRQWUDFWVHOOLQJ)RUW.QR[%DQN %UDPEOHWWV 'LFNLQVRQ)LQDQFLDODJUHHGWRSD\DQ\GDPDJHVLQWKLVFDVH $SSHOODQWVDUJXHWKDWWKHEDQNUXSWF\FRXUWVKRXOGQRWDZDUG 7KURXJKRXW %UDPEOHWWORRNHGIRUSHUVRQVWRSXUFKDVH DQ\SXQLWLYHGDPDJHVDJDLQVW'LFNLQVRQ)LQDQFLDOJLYHQWKDW WKH%UDPEOHWWVjSURSHUWLHV:KHQIRXQG6HQLRU/RDQ2IILFHU WKHEDQNUXSWF\FRXUWDEVROYHG'LFNLQVRQ)LQDQFLDOIURPDOO /RJVGRQKHOSHGDUUDQJHILQDQFLQJIRUWKHSXUFKDVHV RI WKH OLDELOLW\LQWKHFDVH YDULRXVSURSHUWLHV 7KH EDQNUXSWF\ FRXUW DZDUGHG SXQLWLYH GDPDJHV XQGHU ,Q SXWWLQJ WRJHWKHU ORDQ SDFNDJHV IRU WKH SXUFKDVH RI .HQWXFN\ 5HYLVHG 6WDWXWHV $QQRWDWHG I %UDPEOHWWjV DVVHWV 6HQLRU /RDQ 2IILFHU /RJVGRQ DQG %DQNV%DOGZLQ %UDPEOHWWRIWHQXVHGDSSUDLVHU'DYLG%DQHW%DQHWjVSRRU ZRUNVWUXFNWKHEDQNUXSWF\FRXUWm>7@KLV&RXUWQRWHVWKDW $VXVHGLQWKLVVHFWLRQDQG.56XQOHVV H[FHSWIRURWKHUVLPLODUDSSUDLVDOV PDGH E\%DQHWIRU)RUW WKHFRQWH[WUHTXLUHVRWKHUZLVH .QR[%DQN>WKHDSSUDLVDOLQYROYHGLQWKLVFDVH@LVWKHZRUVW SUHSDUHGDSSUDLVDOLWKDVKDGWKHRSSRUWXQLW\WRUHYLHZLQLWV I m3XQLWLYH GDPDJHVl LQFOXGHV H[HPSODU\ SDVWWHQ\HDUVRQWKHEHQFKl %DQNUXSWF\&RXUWsXGJPHQWDW GDPDJHV DQG PHDQV GDPDJHV RWKHU WKDQ ,PSRUWDQWO\ %DQHWjV DSSUDLVDOV GLVLQJHQXRXVO\ IRXQG FRPSHQVDWRU\ DQG QRPLQDO GDPDJHV DZDUGHG UHDOHVWDWHKDGWKHH[DFWYDOXHQHHGHGWRVXSSRUWZKDWHYHU DJDLQVWDSHUVRQWRSXQLVKDQGWRGLVFRXUDJHKLPDQG ORDQDPRXQWWKDW/RJVGRQZDQWHG RWKHUVIURPVLPLODUFRQGXFWLQWKHIXWXUH ,QWR WKLV VRUU\ PL[ VWHSSHG :RUWK DQG 6DQGUD 6DOOHH $SODLQWLIIVKDOOUHFRYHUSXQLWLYHGDPDJHVRQO\ :RUWK 6DOOHH PRYHG WR (OL]DEHWKWRZQ .HQWXFN\ LQ XSRQSURYLQJE\FOHDUDQGFRQYLQFLQJHYLGHQFHWKDW DIWHUKLVHPSOR\HU/RZHjV,QF m/RZHjVl SURPRWHGKLP WKHGHIHQGDQWIURPZKRPVXFKGDPDJHVDUHVRXJKW ,Q /RZHjVSURPRWHG:RUWK6DOOHHWRVWRUHPDQDJHU DFWHGWRZDUGWKHSODLQWLIIZLWKRSSUHVVLRQIUDXGRU PDOLFH .\5HY6WDW$QQ I )UHG : %UDPEOHWW sDPHV %UDPEOHWW WKHLU SDUHQWV DQG UHODWHG HQWLWLHV DOO RZQHG VRPH RI WKH DVVHWV ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO :KLOH LQ WKLV SRVLWLRQ KH PHW WKH %UDPEOHWWV ZKR PDGH ZRXOGKDYHEHHQYDOLGLQWKLVFDVHLVJRYHUQHGE\86& SXUFKDVHVDW/RZHjV F :RUWK6DOOHHSDUWLFLSDWHGLQDQ(623DQGSURILWVKDULQJ 6HFWLRQ F DQGLWVDFFRPSDQ\LQJUHJXODWLRQ&)5 SODQZKLOHZRUNLQJDW/RZHjV'XULQJKLVWHQXUHZLWKWKH F $ G GLUHFWWKDWDQDPRXQWLVQRWHOLJLEOHIRU FRPSDQ\KHDFFXPXODWHGVHYHUDOWKRXVDQGVKDUHVRI/RZHjV UROORYHULQWRDQ,5$LIWKHDPRXQWLVDmGHHPHGGLVWULEXWLRQl VWRFNLQWKHVHSODQV XQGHU86& S 6HFWLRQ S SURYLGHVWKDWDSHUVRQ ZKR mDVVLJQV RU DJUHHV WR DVVLJQ DQ\ SRUWLRQ RI KLV ,Q :RUWK 6DOOHH EHJDQ ORRNLQJ IRU D EXVLQHVV WR LQWHUHVWl LQ DQ (623 LV GHHPHG WR KDYH GLVWULEXWHG WKDW SXUFKDVHRURSHUDWHDIWHU/RZHjVWUDQVIHUUHGKLPWRDQ,QGLDQD LQWHUHVW86& S +HUHWKH6DOOHHVWZLFHDVVLJQHG VWRUH'XULQJKLVVHDUFKIRUDEXVLQHVVWREX\:RUWK6DOOHH RUDJUHHGWRDVVLJQWKHLULQWHUHVWLQ:RUWKjV(623WR+DUGLQ DSSURDFKHGsLPP\%UDPEOHWWDERXWDFRQYHQLHQFHVWRUHDQG &RXQW\%DQN7KLVGHVWUR\HGSULRUWRDQ\UHSUHVHQWDWLRQV FDUZDVKsLPP\EXLOWDQGZDVRSHUDWLQJ$IWHUQHJRWLDWLQJ PDGHE\)RUW.QR[%DQNDQ\DELOLW\WKH6DOOHHVPD\KDYH IRU D PRQWK RU VR WKH 6DOOHHV DJUHHG WR SXUFKDVH sLPP\ KDGWRUROOWKH(623LQWRDQ,5$)RUW.QR[%DQNFDQQRWEH %UDPEOHWWjV FRQYHQLHQFH VWRUH IRU ,Q WKH KHOGOLDEOHIRUDQ\ORVVWKH6DOOHHVVXIIHUHGDVDUHVXOWRIWKH DJUHHPHQWIRUWKHVDOHRIWKHFRQYHQLHQFHVWRUHWKH6DOOHHV ORVVRIWD[GHIHUUHGVWDWXVFDXVHGE\WKH6DOOHHVWKHPVHOYHV GLGQRWSXUFKDVHWKHUHDOHVWDWH,QVWHDGsLPP\%UDPEOHWW OHDVHGWKHUHDOSURSHUW\WRWKH6DOOHHVIRUILYH\HDUVDW $VIRXQGE\WKHEDQNUXSWF\FRXUW SHUPRQWKDQGJUDQWHGWKH6DOOHHVDQRSWLRQWRSXUFKDVHWKH UHDOHVWDWHIRU ,Q2FWREHURI WKH6DOOHHVREWDLQHGDQHZORDQIURP WKH+DUGLQ&RXQW\%DQN 7UXVW&RLQWKHDPRXQWRI $IWHU WKH\ DJUHHG RQ WKH SXUFKDVH sLPP\ %UDPEOHWW 7KH6DOOHHVDOVRVDLGWKH\FRQVHQWHGWR VXJJHVWHG WR :RUWK 6DOOHH WKDW KH REWDLQ ILQDQFLQJ IRU WKH KDYH :RUWK V (623 DQG 3URILW 6KDULQJ SODQ VWRFN FRQYHQLHQFHVWRUHIURP)RUW.QR[%DQNsLPP\%UDPEOHWW mDVVLJQHGlWR+DUGLQ&RXQW\:KLOHWKLV&RXUWEHOLHYHV WKHQVHWXSDPHHWLQJZLWK6HQLRU/RDQ2IILFHU/RJVGRQWRWU\ :RUWK6DOOHH VWHVWLPRQ\WKDWKHGLGQRWLQWHQGWRSOHGJH WRVHFXUHIXQGLQJIRUWKHSXUFKDVH:RUWK6DOOHHKDGQHYHU KLV/RZHVVWRFNWR+DUGLQ&RXQW\KHGLGFRQVHQWWRDQ GRQH EXVLQHVV ZLWK /RJVGRQ EHIRUH 6HQLRU /RDQ 2IILFHU DVVLJQPHQWRIWKHVWRFNWR+DUGLQ&RXQW\ /RJVGRQ DJUHHG WR KDYH )RUW .QR[ %DQN OHQG WKH 6DOOHHV $OWKRXJK/RJVGRQDQG:RUWK6DOOHHGLVFXVVHG %DQNUXSWF\&RXUWsXGJPHQWDWo WKHDVVLJQPHQWRI:RUWK6DOOHHjVSHQVLRQIXQGWR)RUW.QR[ %DQNDVFROODWHUDOQRDVVLJQPHQWZDVPDGH (YHQLIWKHHIIRUWWRDVVLJQWKHVWRFNWR+DUGLQ&RXQW\%DQN GLGQRWGHIHDWWKHWD[GHIHUUHGEHQHILWWKHODWHUDVVLJQPHQW DQG VDOH RI VRPH RI WKH VWRFN ZRXOG HQG WKH WD[GHIHUUHG VWDWXV 7KH 6DOOHHV DXWKRUL]HG WKHLU EURNHU WR VHOO VKDUHVRI/RZHj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jV VWRFN ZDV HUURU &RPSDQ\ m+DUGLQ &RXQW\ %DQNl ,Q 2FWREHU WKH 7KHUHIRUHZHGRQRWUHDFKWKHLVVXHZKHWKHUWKH GDPDJHV +DUGLQ &RXQW\ %DQN OHQW WKH 6DOOHHV +DUGLQ IURPIUDXGXOHQWLQGXFHPHQWVKRXOGLQFOXGHGDPDJHVIURPWKH &RXQW\%DQNOHQWWKHPRQH\WKRXJKWKHFRQYHQLHQFHVWRUH 6DOOHHVjORVVRIDIDYRUHGWD[WUHDWPHQWIRUWKH/RZHjVVWRFN PDGH OLWWOH SURILW DQG WKH 6DOOHHV ZHUH KDYLQJ FDVK IORZ 1RQHWKHOHVVZHRIIHUDIHZFRPPHQWVXSRQWKHTXHVWLRQ SUREOHPV7KH6DOOHHVXVHGWKHORDQWRSD\RIIWKH6DOOHHV )RUW.QR[%DQNORDQ 7KHEDQNUXSWF\FRXUWFOHDUO\HUUHGZKHQLWJDYHDQ\RIWKH GDPDJHV IORZLQJ IURP IUDXGXOHQW LQGXFHPHQW 7KH 7KH6DOOHHVEHOLHYHGDVHFXULW\LQWHUHVWLQWKHFRQYHQLHQFH EDQNUXSWF\FRXUWDOVRHUUHGUHJDUGLQJWKHSURSHUPHDVXUHPHQW VWRUHjVDVVHWVDQGDVHFRQGPRUWJDJHRQWKH6DOOHHVjKRPH RIGDPDJHVWKDWZRXOGKDYHEHHQDYDLODEOHHYHQLIWKH6DOOHHV VHFXUHGWKH+DUGLQ&RXQW\%DQNORDQ%H\RQGWKLVVHFXULW\ KDG UHWDLQHG WKHLU ULJKW WR PDNH FODLPV IRU GDPDJHV IRU WKH6DOOHHVDJUHHGWRKDYH:RUWK6DOOHHjVSURILWVKDULQJSODQ IUDXGXOHQWLQGXFHPHQW VWRFN mDVVLJQHGl WR +DUGLQ &RXQW\ %DQN :RUWK 6DOOHHjV DWWHPSWWRDVVLJQKLVVWRFNWR+DUGLQ&RXQW\%DQNXOWLPDWHO\ 7KHEDQNUXSWF\FRXUWKHOGWKDWmDSURSHUO\HVWDEOLVKHG,5$ IDLOHG EHFDXVH KH QHYHU GHOLYHUHG WKH VWRFN FHUWLILFDWHV WR FUHDWHG WKURXJK D YDOLG UROORYHU RI WKH (623 VWRFN ZRXOG +DUGLQ&RXQW\%DQN KDYHH[LVWHGEXWIRUWKHIUDXGRI/RJVGRQ&RRQH\DQG>)RUW .QR[ %DQN@l %DQNUXSWF\ &RXUW sXGJPHQW DW 7KH 'XULQJ WKH IDOO WKH 6DOOHHV FRQWLQXHG KDYLQJ FDVK EDQNUXSWF\FRXUWZURQJO\DWWULEXWHGOLDELOLW\IRUWKHORVVRI IORZ SUREOHPV ZLWK WKH FRQYHQLHQFH VWRUH ,Q 'HFHPEHU WKH WD[GHIHUUHG VWDWXV RI WKH 6DOOHHVj (623 WR )RUW .QR[ WKH6DOOHHVREWDLQHGDQDGGLWLRQDOZRUNLQJFDSLWDOORDQ %DQN RIIURP+DUGLQ&RXQW\%DQN$VFROODWHUDOIRUWKH ORDQWKH6DOOHHVDJDLQDWWHPSWHGWRJUDQWDVHFXULW\LQWHUHVWLQ $VWRZKHWKHUWKH6DOOHHVFRXOGUHFRYHUWKHORVWYDOXHRI :RUWK VSURILWVKDULQJVWRFNDFFRXQWWR+DUGLQ&RXQW\%DQN VWRFNDSSUHFLDWLRQ)RUW.QR[%DQNDUJXHVWKDWWKH6DOOHHVj $SSDUHQWO\ FDXWLRXV DV WKH UHVXOW RI WKH 6DOOHHVj IDLOXUH WR FDQQRWUHFRYHUGDPDJHVUHVXOWLQJIURPWKHORVWDSSUHFLDWLRQ RSHUDWHWKHFRQYHQLHQFHVWRUHDWDSURILW+DUGLQ&RXQW\%DQN RI :RUWK 6DOOHHVj VWRFN KHOG LQ D WD[GHIHUUHG DFFRXQW DGYLVHG WKHP WKDW LW ZRXOG QRW JLYH IXUWKHU ORDQV +DUGLQ 6HHNLQJ WR FRXQWHUWKLVDUJXPHQW:RUWK6DOOHHPDNHVWKH &RXQW\%DQNUHFRPPHQGHGWKH6DOOHHVREWDLQILQDQFLQJIRU LPSUREDEOHDUJXPHQWWKDWZKHQKHH[HFXWHGDQDVVLJQPHQW JDVROLQHSXUFKDVHVIURPDQRWKHUEDQN DQGGLUHFWHG/RZHjVWRJLYHFXVWRG\RIKLVVWRFNWR)RUW.QR[ %DQNKHGLGQRWLQWHQGWR FUHDWHDVHFXULW\LQWHUHVWLQ)RUW +DYLQJWDSSHGRXWWKHLUERUURZLQJDELOLW\DW+DUGLQ&RXQW\ .QR[%DQN %DQN LQ sDQXDU\ WKH 6DOOHHV UHWXUQHG WR )RUW .QR[ %DQNIRUILQDQFLQJIRUJDVROLQHSXUFKDVHV$VVLVWDQW/RDQ )RUW.QR[%DQNGLGQRWFDXVHDQ\ORVVRIWKHWD[GHIHUUHG 2IILFHU&RRQH\VXSHUYLVHGWKHLUDSSOLFDWLRQ2QsDQXDU\ VWDWXVRI:RUWK6DOOHHj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jVMXGJPHQWWKH WKURXJKDSXUSRUWHGVHFXULW\LQWHUHVWLQKLV(623DQGSURILW 6DOOHHV VD\ WKH EDQNUXSWF\ FRXUW FRUUHFWO\ FDOFXODWHG WKHLU VKDULQJSODQVWRFN GDPDJHVE\VXEWUDFWLQJWKHODXQGURPDWjVSULFHDWD8QLWHG 6WDWHV 0DUVKDOOjV VDOH IURP WKH ODXQGURPDWjV YDOXH DV :KLOH WKH 6DOOHHV XQVXFFHVVIXOO\ UDQ WKHLU FRQYHQLHQFH UHSUHVHQWHGE\)RUW.QR[%DQN VWRUH WKH %UDPEOHWW IDPLO\ WULHG WR XQORDG RWKHU DVVHWV VHFXULQJWKHLUORDQVZLWK)RUW.QR[%DQN$VSDUWRIWKLV 7KH EDQNUXSWF\ FRXUW DZDUGHG WKH 6DOOHHV DV SODQ)UHG:%UDPEOHWWDSSURDFKHGWKH6DOOHHVDQGRIIHUHG GDPDJHVIRUWKHSXUFKDVHRIWKHODXQGURPDW7KHEDQNUXSWF\ WRVHOOWKHPWKHODXQGURPDWQH[WWRWKH6DOOHHVjFRQYHQLHQFH FRXUW GHWHUPLQHG WKLV DPRXQW E\ ILQGLQJ WKH GLIIHUHQFH VWRUH EHWZHHQWKHDSSUDLVDOWKDW)RUW.QR[%DQNJDYHWKHPDQGWKH YDOXHRIWKHODXQGURPDWZKHQVROGDWD8QLWHG6WDWHV0DUVKDOO sLPP\ %UDPEOHWW KDG RULJLQDOO\ RZQHG WKH ODXQGURPDW VDOHIRXU\HDUVODWHU7KHGLVWULFWFRXUWORZHUHGWKHGDPDJH +RZHYHU RQ)HEUXDU\ KLVSDUHQWVSXUFKDVHGWKH DZDUGE\VXEVWLWXWLQJWKHDFWXDOSULFHRIWKHODXQGURPDWDWWKH ODXQGURPDWVRKHZRXOGQRWGHIDXOWRQDORDQWR)RUW.QR[ WLPHRIWKHPLVUHSUHVHQWDWLRQDVGHWHUPLQHGE\DQDSSUDLVDO %DQN7KH%UDPEOHWWSDUHQWVSXUFKDVHGWKHODXQGURPDWIRU IRUWKHSULFHRIWKHODXQGURPDWDWWKH8QLWHG6WDWHV0DUVKDOOjV 7RPDNHWKHSXUFKDVH)RUW.QR[%DQNOHQWWKH VDOH %UDPEOHWWSDUHQWVWKHHQWLUH7RMXVWLI\VXFKDORDQ )RUW .QR[ %DQN XVHG %DQHWjV RQHSDJH DSSUDLVDO RI WKH 7KHGLVWULFWFRXUWFRUUHFWO\KHOGWKHEDQNUXSWF\FRXUWHUUHG ODXQGURPDWSURSHUW\WKDWVDLGLWVPDUNHWYDOXHZDV LQ LWV FDOFXODWLRQ m7KH %DQNUXSWF\ &RXUWjV DZDUG RI ZDVFOHDUO\HUURQHRXVDVLWQRWRQO\JDYHWKH6DOOHHV 7KH%UDPEOHWWVjSRRUEXVLQHVVSUDFWLFHVFRQWLQXHGDQGWKH WKH EHQHILWRIWKHLUEDUJDLQEXWDOVRFRPSHQVDWHGWKHPIRU %UDPEOHWWSDUHQWVUHWXUQHGWR)RUW.QR[%DQND\HDUODWHUIRU HFRQRPLF FKDQJHV DIIHFWLQJ WKH YDOXH RI WKH ODXQGURPDW DQRWKHUORDQRQWKHODXQGURPDW)RUW.QR[%DQNOHQWWKHPDQ LQGHSHQGHQW RI WKH IUDXGl 'LVWULFW &RXUW 0HPRUDQGXP DGGLWLRQDO $OWKRXJK WKH %UDPEOHWW SDUHQWV 2SLQLRQ DQG 2UGHU DW 7KH SURSHU GDPDJH DZDUG LV GHVFULEHG WKH ORDQ DV LQWHQGHG IRU ZRUNLQJ FDSLWDO WKH WKH GLIIHUHQFH EHWZHHQ WKH ODXQGURPDWjV ILQDO %UDPEOHWWSDUHQWVXVHGDOOEXW RIWKHORDQWRSD\)UHG DSSUDLVHGYDOXHDQGZKDWLWZDVDFWXDOO\ZRUWKRQWKHGD\WKH :%UDPEOHWWjVGHEWVHUYLFHDQGEDQNIHHVRQRWKHUORDQVZLWK 6DOOHHVSXUFKDVHGLW )RUW.QR[%DQN 'LVFXVVLRQRIZKHWKHUGDPDJHVUHFRYHUDEOHIRUORVW )RUW.QR[%DQNMXVWLILHGWKHDGGLWLRQDOORDQZLWKDQHZ VWRFNDSSUHFLDWLRQ DSSUDLVDOE\%DQHW2QWKHQHZDSSUDLVDO%DQHWYDOXHGWKH ODXQGURPDW SURSHUW\ DW )RUW .QR[ %DQN NQHZ $VGLVFXVVHGDERYHWKH6DOOHHVGHFOLQHGWKHVWDWHFRXUWjV %DQHWLQFUHDVHGWKHDSSUDLVHGYDOXHRIWKHODXQGURPDWLQ RSSRUWXQLW\WRUHVFLQGLWVWUDQVDFWLRQZLWK)RUW.QR[%DQN OLWWOHPRUHWKDQRQH\HDU%DQHWUDLVHGWKHDSSUDLVHGYDOXH DQG VXH IRU GDPDJHV DULVLQJ IURP WKH %DQNj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jV JDPH URRP DWWUDFWHG SHRSOH :RUWK 6DOOHH FRXQWHUFODLPIRUGDPDJHV2Qs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j UHGXFHG RYHUDOO OHYHO RI 6DOOHHVPD\UHFRYHUWKHGLIIHUHQFHEHWZHHQWKHYDOXHRIWKH ERUURZLQJ SURSHUW\DVLWZDVIUDXGXOHQWO\UHSUHVHQWHGDQGWKHYDOXHRI WKHSURSHUW\KDGLWEHHQSURSHUO\UHSUHVHQWHG6HH'HPSVH\ $IWHU:RUWK6DOOHHWROG)UHG:%UDPEOHWWWKDWKHPLJKWEH Y0DUVKDOO6:G .\ m,QVXFKFDVHV LQWHUHVWHG LQ SXUFKDVLQJ WKH ODXQGURPDW )RUW .QR[ %DQN WKHPHDVXUHLVJHQHUDOO\KHOGWREHWKHGLIIHUHQFHEHWZHHQWKH YLJRURXVO\SXVKHGWKHVDOH$VVLVWDQW/RDQ2IILFHU&RRQH\ DFWXDODQGUHSUHVHQWHGYDOXHRIWKHEXVLQHVVRUSURSHUW\l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jUH WDONLQJ WR WKH EDQN DQG ZKDW VXEMHFW PDWWHU RI WKH VDOH LQ WKH EHOLHI WKDW LW LV DSSURSULDWH IRU D XVH IRU WKH EDQN VDLG LI DQ\WKLQJ DERXW WKDW" ZKLFK LW LV KDUPIXOO\ LQDSSURSULDWH RU ZKHQ KH KDV LQFXUUHG H[SHQVHV LQ SUHSDUDWLRQ IRU D XVH RI WKH DUWLFOH IRU ZKLFK LW ZRXOG KDYH EHHQ $ 2K RND\ ,jP VRUU\ 9LFNLH >&RQORQ@ UHSUHVHQWHG WR PH ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO VDOH)RUW.QR[%DQNVKRZHGWKH6DOOHHVDSURIRUPDDQGVLWH DQ\DOOHJHGGDPDJHV RU DIILUPWKHWUDQVDFWLRQVDQG VXUYH\$VVLVWDQW/RDQ2IILFHU&RRQH\UHSUHVHQWHGWR:RUWK FRXQWHUFODLP IRU DQ\ GDPDJHV FDXVHG E\ WKH DOOHJHG 6DOOHH WKDW WKHVH GRFXPHQWV ZHUH WDNHQ IURP )RUW .QR[ IUDXG0DQLIHVWO\SURRIRIIUDXGXOHQWLQGXFHPHQWGRHV %DQNjVILOHVRQWKH%UDPEOHWWV QRWSHUPLWWKHPWRVLPSO\NHHSWKH%DQNjVPRQH\ &RRQH\DQG/RJVGRQJDYHWKHSURIRUPDDQGVLWHVXUYH\WR )RUW .QR[ 1DWjO %DQN Y 6DOOHH 1R &, DW WKH 6DOOHHV DV HYLGHQFH RI WKH ODXQGURPDWjV SRWHQWLDO +DUGLQ&RXQW\&W$XJ SURILWDELOLW\ 7KH SURIRUPD DQG VLWH VXUYH\ VXJJHVWHG WKH ODXQGURPDWZRXOGJURVVEHWZHHQDQGSHU 7KH6DOOHHVHOHFWHGWRNHHSWKHPRQH\%\HOHFWLQJWRNHHS \HDU:RUWK6DOOHHWHVWLILHGWKDW&RRQH\FDOOHGKLPRQ0D\ WKHEDQNjVPRQH\)RUW.QR[%DQNVD\VWKH6DOOHHVJDYHXS EHIRUH WKH FORVLQJ DQG VDLG DQ DSSUDLVHU KDG WKHLUULJKWWRVHHNGDPDJHVIRUIUDXGXOHQWLQGXFHPHQW DSSUDLVHGWKHODXQGURPDWIRU sRLQW$SSHQGL[DW $ SDUW\ FODLPLQJ IUDXGXOHQW LQGXFHPHQW PXVWQRUPDOO\ UHVFLQG WKH FRQWUDFW 2WKHUZLVH WKH SDUW\ LV OLPLWHG WR ,PSRUWDQWO\ &RRQH\ DQG /RJVGRQ QHYHU UHYHDOHG WR WKH UHFRYHULQJ WKH GLIIHUHQFH LQ WKH YDOXH RI WKH SURSHUW\ DV 6DOOHHV WKDW WKH ODXQGURPDWjV DSSUDLVHG YDOXH URVH IURP UHSUHVHQWHGDQGLWVDFWXDOYDOXH,Q0RRUH2ZHQ7KRPDV LQ)HEUXDU\ WRLQ0DUFK DQG &R ZH GHVFULEHG WKH .HQWXFN\ UXOH RQ IUDXGXOHQW WKHQ WR LQ 0D\ %DQHW GLG DOO WKUHH LQGXFHPHQWGDPDJHV DSSUDLVDOV 8QGHU .HQWXFN\ ODZ mRQH FODLPLQJ WR KDYH EHHQ 2Q0D\ WKH6DOOHHVSXUFKDVHGWKHODXQGURPDW GHIUDXGHGLQWRPDNLQJDFRQWUDFWKDVDQRSWLRQHLWKHUWR %DVHGRQ%DQHWjVILQDODSSUDLVDO)RUW .QR[%DQNOHQWWKH GLVDIILUPWKHFRQWUDFWDQGVHHNLWVUHVFLVVLRQRUWRDIILUP WKH FRQWUDFW DQG VHHN KLV UHPHG\ E\ DQ DFWLRQ IRU GDPDJHV KHPD\QRWIROORZLQFRQVLVWHQWUHPHGLHV+H KDVEXWRQHHOHFWLRQDQGLIKHDIILUPVWKHFRQWUDFWKLV HOHFWLRQLVLUUHYRFDEOHDQGKHFRQGRQHVWKHIUDXGl WKDW VKH ZDV LQ FRQWURO RI )UHGGLH >%UDPEOHWW@ )UHGGLH ZDV DSSDUHQWO\ LQ VRPH ILQDQFLDO GLIILFXOW\ $QG VKH WROG PH )GDW TXRWLQJ+DPSWRQY6XWHU6:G WKDW .\ FLWDWLRQVRPLWWHG VHHDOVR3DWHOY3DWHO 6:G .\&W$SS UHLWHUDWLQJWKHUXOHWKDW 4 +RZ GLG \RX WKLQN \RX ZHUH JRLQJ WR EX\ WKH ODXQGURPDW ZKHQ IUDXG KDV EHHQ FRPPLWWHG LQ REWDLQLQJ D FRQWUDFW D IURP KLP >sLPP\ %UDPEOHWW@ ZLWKRXW JHWWLQJ LQYROYHG" SDUW\FDQHLWKHUDIILUPWKHFRQWUDFWDQGUHFRYHUGDPDJHVGXH $ , ZDVQjW EX\LQJ DQ\WKLQJ IURP KLP 9LFNL FOHDUO\ WROG PH WRWKHIUDXGRUUHVFLQGWKHFRQWUDFW WKDW , ZRXOG EH GHDOLQJ ZLWK WKH EDQN $QG WKDW , ZRXOG EH EX\LQJ WKLV IURP WKH EDQN 8QGHU.HQWXFN\ODZWKH6DOOHHVmFRQGRQH>G@WKHIUDXGlE\ DIILUPLQJ WKH FRQWUDFW 6DQIRUG &RQVWU &R ,QF Y 6 + sRLQW $SSHQGL[ DW o &RQWUDFWRUV,QF6:G .\ FLWLQJ +DPSWRQ6:GDW $IWHU UHYLHZLQJ WKLV VHULHV RI DSSUDLVDOV WKH EDQNUXSWF\ FRXUW IRXQG mWKDW WKLV VHULHV RI DSSUDLVDOV DUH EOXQWO\ SXW IUDXGXOHQW ZLWK WKH YDOXHV ,QJUDQWLQJ)RUW.QR[%DQNjVPRWLRQWRDSSRLQWDUHFHLYHU EHLQJ GHWHUPLQHG E\ )RUW .QR[ %DQN ORDQ IRUPXOD UDWKHU WKDQ DQ\ HFRQRPLF IDFWRUVl %DQNUXSWF\ &RXUW sXGJPHQW DW WKHVWDWHFRXUWWROGWKH6DOOHHVWKH\QHHGHGWRUHVFLQGWKHORDQ ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO GHFLGH ZKHWKHU WKH EDQNUXSWF\ FRXUWjV FRPSXWDWLRQ RI 6DOOHHVWRSXUFKDVHWKHODXQGURPDW 7RVHFXUHWKLV GDPDJHVZDVSURSHU ORDQ WKH 6DOOHHV JDYH )RUW .QR[ %DQN D PRUWJDJH RQ WKH ODXQGURPDWDQG:RUWK6DOOHHDVVLJQHGKLV(623UHWLUHPHQW :KHWKHUGDPDJHVDUHDYDLODEOHIRUIUDXGXOHQW SODQVWRFNWR)RUW.QR[%DQN LQGXFHPHQW 7KH 6DOOHHVj QRWH ZDV D QLQHW\GD\ WHUP QRWH )RUW.QR[%DQNVD\VWKH6DOOHHVXQGHU.HQWXFN\ODZZHUH $OWKRXJK WKH QRWH KDG D QLQHW\GD\ WHUP /RJVGRQ DQG UHTXLUHGWRHOHFWZKHWKHUWKH\VRXJKWGDPDJHVIRUIUDXGXOHQW &RRQH\ WROG WKH 6DOOHHV WKDW )RUW .QR[ %DQN ZRXOG PDNH PLVUHSUHVHQWDWLRQRUIRUIUDXGXOHQWLQGXFHPHQW)RUW.QR[ WKHPDORQJWHUPmSDFNDJHlFRPPHUFLDOORDQVRWKH\FRXOG %DQNVD\VWKHVWDWHFRXUWRUGHUHGVXFK DQ HOHFWLRQDQGWKH FRQVROLGDWHDOORIWKHLURXWVWDQGLQJORDQV 6DOOHHV FKRVH WR VHHN GDPDJHV IRU IUDXGXOHQW PLVUHSUHVHQWDWLRQ QRW IUDXGXOHQW LQGXFHPHQW %HFDXVH RI ,Q $SULO ZKLOH WKH DERYH HYHQWV ZHUH XQIROGLQJ WKLVHOHFWLRQ)RUW.QR[%DQNVD\VWKHEDQNUXSWF\FRXUWHUUHG 'LFNLQVRQ)LQDQFLDOEHJDQUHYLHZLQJ)RUW.QR[%DQNjVORDQ ZKHQ LW DZDUGHG WKH 6DOOHHVj GDPDJHV IRU ERWK IUDXGXOHQW SRUWIROLR$VDUHVXOWRIWKLVKLJKO\FULWLFDOUHYLHZRI)RUW PLVUHSUHVHQWDWLRQDQGIUDXGXOHQWLQGXFHPHQW:HXQGHUVWDQG .QR[ %DQNjV FRPPHUFLDO OHQGLQJ SUDFWLFHV 'LFNLQVRQ )RUW .QRZ %DQN WR DUJXH WKDW XQGHU .HQWXFN\ ODZ WKH )LQDQFLDOVWRSSHGDOOFRPPHUFLDOOHQGLQJE\)RUW.QR[%DQN UHPHGLHV DYDLODEOH WR D SDUW\ FODLPLQJ WR KDYH EHHQ RQ'HFHPEHU IUDXGXOHQWO\ LQGXFHG WR HQWHU LQWR D FRQWUDFW DUH PXWXDOO\ H[FOXVLYH WKHGHIUDXGHGSDUW\PD\HOHFWHLWKHUWRUHVFLQGWKH 7KH6DOOHHVVRRQEHJDQORVLQJPRQH\RQWKHODXQGURPDW FRQWUDFW UHWXUQ WKH EHQHILWV UHFHLYHG DQG UHFRYHU WKH DQGFRXOGQRWVHUYLFHWKHLUH[FHVVLYHGHEW7KH6DOOHHVVRXJKW FRQVLGHUDWLRQ JLYHQ RU WR DIILUP WKH FRQWUDFW DQG UHFRYHU DQH[WHQVLRQRIWKHLUQRWHIURP)RUW.QR[%DQN,Q GDPDJHVIRUWKHIUDXG7KH6DOOHHVDUJXHLQWKHLUFURVVDSSHDO $XJXVW )RUW .QR[ %DQN H[WHQGHG WKH QRWH IRU DQ WKDWWKHEDQNUXSWF\FRXUWjVDZDUGRIGDPDJHVLVFRUUHFW DGGLWLRQDOQLQHW\GD\V2Q'HFHPEHU )RUW.QR[ %DQNDJUHHGWRDIRUW\HLJKWGD\H[WHQVLRQRIWKHUHSD\PHQW 2Q2FWREHU )RUW.QR[%DQNVXHGWKH6DOOHHVLQ GDWHV WKH &LUFXLW &RXUW RI +DUGLQ &RXQW\ .HQWXFN\ 7KH EDQN VXHG XSRQ WKH XQSDLG QRWH DQG VRXJKW IRUHFORVXUH RI WKH ,Q H[FKDQJH IRU HDFK H[WHQVLRQ WKH 6DOOHHV VLJQHG DQ SURSHUW\VHFXULQJWKHORDQ)RUW.QR[%DQNVRXJKW H[WHQVLRQDJUHHPHQW7KHVHH[WHQVLRQDJUHHPHQWVUHOHDVHG DUHFHLYHU,QRSSRVLQJWKHDSSRLQWPHQWRIDUHFHLYHUWKH )RUW.QR[%DQNIURPmDQ\DQGDOOULJKWVFODLPVRUFDXVHVRI 6DOOHHVDUJXHGWKH\KDGEHHQIUDXGXOHQWO\LQGXFHGWRDJUHHWR DFWLRQZLWKUHVSHFWWRWKH/RDQ'RFXPHQWVDQG&ROODWHUDOl WKHFRQWUDFWSURYLGLQJIRUDUHFHLYHU7KHVWDWHFRXUWRUGHUHG $GGLWLRQDOO\/RJVGRQDQG&RRQH\WROGWKH6DOOHHV)RUW.QR[ WKH6DOOHHVWRHOHFWZKHWKHULWVRXJKWGDPDJHVIRUIUDXGXOHQW %DQNZRXOGVWLOOSURYLGHWKHPZLWKDmSDFNDJHl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jRULJLQDOQRWHZDVIRU 6DOOHHKDGDOVRSOHGJHGKLV(623VWRFNWR)RUW.QR[%DQNDV QLQHW\GD\V,QGHVFULELQJWKHRULJLQDOUHODWLRQVKLSVHWXSE\ VHFXULW\ IRU WKH ODXQGURPDW ORDQ +DUGLQ &RXQW\ %DQN )RUW.QR[%DQNWKHEDQNjVFRPPLWPHQWOHWWHUVDLGWKHORDQ GHPDQGHGWKH6DOOHHVSD\EDFNWKHLUORDQRUSURYLGHDGGLWLRQDO ZRXOGLQYROYHDQLQHW\GD\FRQVWUXFWLRQQRWHDQGDm\HDU VHFXULW\ +DUGLQ &RXQW\ %DQN WKUHDWHQHG WKH 6DOOHHV ZLWK DPRUWL]DWLRQZ\HDUEDOORRQl sRLQW$SSHQGL[DW OHJDODFWLRQLILWVGHPDQGZDVQRWPHW/RJVGRQDUUDQJHGD *LYHQWKDWWKH6DOOHHVZHUHERUURZLQJWKHHQWLUHFRVWRIWKH VKRUWWHUPORDQWRSD\EDFN +DUGLQ&RXQW\%DQN ODXQGURPDWWKHSDUWLHVNQHZWKH6DOOHHVZRXOGEHXQDEOHWR )RUW.QR[%DQNPDGHWKHORDQDQG:RUWK6DOOHHFRQVHQWHG SD\WKHQLQHW\GD\QRWHDWLWVWHUP7KH6DOOHHVUHDVRQDEO\ WRKDYLQJVRPHRIKLV(623VWRFNVROGWRUHSD\WKH UHOLHGXSRQ6HQLRU/RDQ2IILFHU/RJVGRQjVUHSUHVHQWDWLRQWKDW ORDQ:RUWK6DOOHHWHVWLILHGWKDWKHFRQVHQWHGWRWKHVDOHRI )RUW.QR[%DQNZRXOGRIIHUDFRQVROLGDWLRQORDQ KLV(623VWRFNEHFDXVHKHEHOLHYHG)RUW.QR[%DQNZRXOG UHSOHQLVKKLV,5$ZKHQLWJDYHKLPWKHmSDFNDJHlORDQ)RUW +DYLQJIRXQGWKDW)RUW.QR[%DQNREWDLQHGWKHH[WHQVLRQ .QR[%DQNQHYHUUHSOHQLVKHG:RUWK6DOOHHjV,5$ DJUHHPHQW WKURXJK IUDXG ZH UHMHFW )RUW .QR[ %DQNjV DUJXPHQWWKDWWKHH[WHQVLRQDJUHHPHQWSUHYHQWVWKH6DOOHHVj :KHQWKH6DOOHHVVLJQHGWKH'HFHPEHU H[WHQVLRQ FODLPV DJUHHPHQW6HQLRU/RDQ2IILFHU/RJVGRQIDLOHGWRWHOOWKHP WKDW)RUW.QR[%DQNQRORQJHUSURYLGHGFRPPHUFLDOORDQV (&RPSHQVDWRU\'DPDJHV /RJVGRQ DSSDUHQWO\ KRSHG KH ZRXOG UHFRYHU WKH DELOLW\ WR PDNH FRPPHUFLDO ORDQV /RJVGRQjV KRSH HQGHG LQ HDUO\ ,QLWVGHFLVLRQWKHEDQNUXSWF\FRXUWDZDUGHGWKH6DOOHHV sDQXDU\ ZKHQ)RUW.QR[%DQNMXVWLILDEO\ILUHGKLPDQG WKUHH LWHPV RI GDPDJHV )LUVW LW DZDUGHG WKH 6DOOHHV &RRQH\ LQ GDPDJHV IRU WKH PLVUHSUHVHQWHG YDOXH RI WKH ODXQGURPDW,WFDOFXODWHGWKRVHGDPDJHVE\VXEWUDFWLQJWKH $IWHU sDQXDU\ 'LFNLQVRQ )LQDQFLDO EHJDQ WR ZRUN DFWXDO YDOXH RI WKH ODXQGURPDW DW WKH WLPH RI WKH 6DOOHHVj WKURXJK )RUW .QR[ %DQN V WURXEOHG FRPPHUFLDO ORDQV SXUFKDVHIURPWKHSULFHDVUHSUHVHQWHGE\)RUW.QR[%DQN 8QIRUWXQDWHO\IRUWKH6DOOHHVWKHLUPDVVLYHODXQGURPDWGHEW $VWRLWVYDOXHDWWKHWLPHRIVDOHWKHEDQNUXSWF\FRXUWXVHG PDGHUHVWUXFWXULQJWKHLUILQDQFHVLPSRVVLEOH WKH SULFH DW ZKLFK WKH ODXQGURPDW VROG DW D 8QLWHG 6WDWHV 0DUVKDOOjVVDOHIRXU\HDUVODWHU6HFRQGWKHEDQNUXSWF\FRXUW 2Q2FWREHU )RUW.QR[%DQNVXHGWKH6DOOHHVLQ JDYHWKH6DOOHHVGDPDJHVIRUWKHORVWYDOXHRIWKH6DOOHHVj WKH &LUFXLW &RXUW RI +DUGLQ &RXQW\ .HQWXFN\ VHHNLQJ WR (623VWRFNILQGLQJWKDWEXWIRUWKH%DQNjVIUDXGWKH6DOOHHV IRUHFORVHRQWKHSURSHUW\VHFXULQJWKHORDQ7KH ZRXOG KDYH KDG D SURSHUO\ HVWDEOLVKHG ,5$ 7KLUG WKH VWDWHFRXUWDSSRLQWHGDUHFHLYHUWRPDQDJHWKHODXQGURPDWDQG EDQNUXSWF\FRXUWDZDUGHGWKH6DOOHHVSXQLWLYHGDPDJHVIRU DSSO\ WKH SURILWV WR WKH PRUWJDJH LQGHEWHGQHVV 6KRUWO\ )RUW.QR[%DQNjVIUDXGXOHQWDFWLRQV WKHUHDIWHUWKH6DOOHHVILOHGDFRXQWHUFODLPDJDLQVW)RUW.QR[ %DQNDOOHJLQJDPRQJRWKHUWKLQJVIUDXGLQWKHLQGXFHPHQW 7KHGLVWULFWFRXUWIRXQGWKHEDQNUXSWF\FRXUWHUUHGZKHQLW UHODWLYHWRWKHSXUFKDVHRIWKHODXQGURPDWDQGEUHDFKRIWKH XVHGWKHYDOXHDWWKH0DUVKDOOjVVDOHWRVHWWKHYDOXHRIWKH FRQWUDFWIRUILQDQFLQJWKHODXQGURPDWSXUFKDVH7KH6DOOHHV ODXQGURPDWDWWKHWLPHWKH6DOOHHVj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jFODLPV7KH EDQNUXSWF\FRXUWGHQLHGWKHPRWLRQKROGLQJWKDWWKHSKUDVH 8QGHU .HQWXFN\ ODZ OLNH PRVW MXULVGLFWLRQV D UHOHDVH mDQ\DQGDOOULJKWVFODLPVRUFDXVHVRIDFWLRQZLWKUHVSHFWWR REWDLQHGE\PLVUHSUHVHQWDWLRQRUIUDXGLVXQHQIRUFHDEOH6HH WKHORDQGRFXPHQWVDQGFROODWHUDOlZDVQRWEURDGHQRXJKWR +RRNVY&RUQHWW/HZLV&RDO&R6:G .\ FRYHUDQ\RIWKH6DOOHHVjFODLPV VHHDOVR2YHUEXUJ)6XSSDW 7KH WULDO ODVWHG IRU WKLUW\HLJKW GD\V 2Q 6HSWHPEHU ,QVROLFLWLQJWKH6DOOHHVj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m>W@KLV DFWLRQ LQ HIIHFW HQGHG DQ\ WKH6DOOHHVE\PLVUHSUHVHQWLQJWKHYDOXHRIWKHODXQGURPDW FKDQFH /RJVGRQ KDG WR PDNH JRRG RQ KLV DQG )RUW .QR[ )LQDOO\ WKH EDQNUXSWF\ FRXUW IRXQG )RUW .QR[ %DQN %DQNjV SURPLVHRIWKHSDFNDJHORDQ/RJVGRQGLGQRWLQIRUP GHIUDXGHG :RUWK 6DOOHH E\ OHDGLQJ KLP WR EHOLHYH WKDW KLV 6DOOHH DERXW WKLV QHZ SROLF\l %DQNUXSWF\ &RXUW (623 VWRFN WDNHQ DV FROODWHUDO ZDV LQ DQ ,5$ 7KH FRXUW sXGJPHQWDW UHMHFWHG WKH 6DOOHHVj RWKHU FODLPV 7KH EDQNUXSWF\ FRXUW DEVROYHG'LFNLQVRQ)LQDQFLDORIDQ\OLDELOLW\ 6HQLRU /RDQ 2IILFHU /RJVGRQjV UHFRUGV VXSSRUW WKLV LQWHUSUHWDWLRQ 2Q 'HFHPEHU /RJVGRQ ZURWH D 7KHEDQNUXSWF\FRXUWDZDUGHGWKH6DOOHHVFRPSHQVDWRU\ PHPRVXJJHVWLQJ WKH6DOOHHVjEDODQFHZRXOGEHSODFHGRQ GDPDJHVRI ,QILQGLQJFRPSHQVDWRU\GDPDJHVRI PRQWKO\SD\PHQWV7KHEDQNUXSWF\FRXUWIRXQGWKDW/RJVGRQ WKH EDQNUXSWF\ FRXUW DZDUGHG GDPDJHV RI UHSUHVHQWHG WR WKH 6DOOHHV RQ 'HFHPEHU WKDW KH IRUWKHGLIIHUHQFHEHWZHHQWKHDFWXDOVDOHSULFHRI ZRXOG H[WHQG WKHLU GHEW XQWLO KH FRXOG SXW WRJHWKHU WKH WKHODXQGURPDWDQGWKHSULFHDWDODWHU860DUVKDOjVVDOH mSDFNDJHl ORDQ 7KH EDQNUXSWF\ FRXUW DOVR IRXQG WKDW WKH 7KHEDQNUXSWF\FRXUWDOVRDZDUGHGGDPDJHVRI 6DOOHHVVLJQHGWKHH[WHQVLRQDJUHHPHQWEHFDXVHRI/RJVGRQjV IRUWKHYDOXHDWWULDORI:RUWK6DOOHHjV(623VWRFN)RUW.QR[ UHSUHVHQWDWLRQFRQFHUQLQJWKHmSDFNDJHlORDQ %DQNXVHGDVFROODWHUDO $FFRUGLQJO\ ZKHQ WKH 6DOOHHV VLJQHG WKH H[WHQVLRQ )LQDOO\ WKH EDQNUXSWF\ FRXUW DZDUGHG SXQLWLYH GDPDJHV DJUHHPHQWRQ'HFHPEHU /RJVGRQNQHZKHGLGQRW DJDLQVW )RUW .QR[ %DQN RI ,Q DZDUGLQJ KDYHWKHSRZHUWRFRPSOHWHKLVSURPLVHRIDQDGGLWLRQDOORDQ SXQLWLYHGDPDJHVWKHEDQNUXSWF\FRXUWKHOGWKDWmSXQLWLYH WRWKH6DOOHHV$VGHVFULEHGDERYHZKHQ/RJVGRQPDGHD GDPDJHV LQ WKH DPRXQW RI RI WKH DERYH DZDUGHG UHSUHVHQWDWLRQ UHJDUGLQJ D IXWXUH FRQVROLGDWLRQ ORDQ KH FRPSHQVDWRU\ GDPDJHV DUH DSSURSULDWHl %DQNUXSWF\ FUHDWHG D GXW\ WR UHYHDO WKH ZKROH WUXWK 6HH 'HQQLV &RXUWsXGJPHQWDW ,QWRWDOWKHEDQNUXSWF\FRXUWJDYH 6:GDW MXGJPHQW DJDLQVW )RUW .QR[ %DQN LQ WKH DPRXQW RI /RJVGRQjVUHSUHVHQWDWLRQWKDW)RUW.QR[%DQNZRXOGJLYH DORQJWHUPORDQZDVFULWLFDOLQWKH6DOOHHVjGHFLVLRQWRVLJQ ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO )RUW.QR[%DQNDQG'LFNLQVRQ)LQDQFLDODSSHDOHGWRWKH 7KHEDQNUXSWF\FRXUWUHMHFWHG)RUW.QR[%DQNjVDUJXPHQW GLVWULFWFRXUW,QLWV0HPRUDQGXP2SLQLRQDQG2UGHUWKH WKDW WKH 6DOOHHV KDG UHOHDVHG WKHLU IUDXG FODLPV ZKHQ WKH\ GLVWULFW FRXUW UHYHUVHG WKH EDQNUXSWF\ FRXUWjV PHDVXUH RI H[HFXWHG WKH H[WHQVLRQ DJUHHPHQW 7KH EDQNUXSWF\ FRXUW GDPDJHV RUGHUHG D FRUUHVSRQGLQJ UHGXFWLRQ LQ SXQLWLYH IRXQG WKH H[WHQVLRQ DJUHHPHQW ZDV QRW EURDG HQRXJK WR GDPDJHVDQGDIILUPHGWKHUHPDLQGHURIWKHMXGJPHQW UHOHDVHRUGLVFKDUJHWKH6DOOHHVjFODLPVEHFDXVHWKHZDLYHU RQO\GHDOWZLWKFODLPVZLWKUHVSHFWWRWKHORDQGRFXPHQWVDQG ,,'LVFXVVLRQ FROODWHUDO 7KH EDQNUXSWF\ FRXUW WKHQ IRXQG &RRQH\ DQG /RJVGRQjVSURPLVHWKDW)RUW.QR[%DQNZRXOGSURYLGHWKHP :LWK WKHLU DSSHDOV )RUW .QR[ %DQN DQG 'LFNLQVRQ DmSDFNDJHlORDQZDVQRWIUDXGXOHQW )LQDQFLDO VD\ WKH EDQNUXSWF\ DQG GLVWULFW FRXUWV HUUHG LQ VHYHUDOUHJDUGV)LUVWWKH\DUJXHWKHFRXUWVHUUHGLQKROGLQJ 8SRQ UHYLHZ WKH GLVWULFW FRXUW IRXQG WKH H[WHQVLRQ WKDWWKHUHOHDVHLQWKHH[WHQVLRQDJUHHPHQWGLGQRWSUHFOXGH DJUHHPHQWXQHQIRUFHDEOHEHFDXVH)RUW.QR[%DQNREWDLQHG WKH6DOOHHVjFODLPV6HFRQGWKH\DUJXHWKHFRXUWVHUUHGLQ LWWKURXJKIUDXGXOHQWPLVUHSUHVHQWDWLRQ,QLWVMXGJPHQWWKH FRQFOXGLQJWKDW)RUW.QR[%DQNRZHGDILGXFLDU\GXW\WRWKH GLVWULFWFRXUWIRXQGWKDWWKHSURPLVHRIDmSDFNDJHl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jFODLPV3ULQFLSDOO\ DUJXPHQWV )RUW.QR[%DQNDUJXHVWKDWZHSUHVXPHUHOHDVHVWRLQFOXGH DOO FODLPV XQOHVV WKH SDUWLHV PDQLIHVW DQ LQWHQW WR H[FOXGH $6WDQGDUGRI5HYLHZ FHUWDLQFODLPV6HH2YHUEHUJY/XVE\)6XSS :LWKUHJDUGWR)RUW.QR[%DQNDQG'LFNLQVRQ)LQDQFLDOjV DSSHDOVm>Z@KHWKHUDQDSSHDOFRPHVWRRXUFRXUWE\ZD\RID sRLQW $SSHQGL[ DW GLVWULFWFRXUWRUWKH>EDQNUXSWF\DSSHOODWHSDQHO@RXUUHYLHZ LV RI WKH EDQNUXSWF\ FRXUWjV GHFLVLRQl .RHQLJ 6SRUWLQJ 7KH GLVWULFW FRXUW UHFRQFLOHG LWV KROGLQJ ZLWK WKDW RI WKH EDQNUXSWF\ *RRGVY0RUVH5G&R ,QUH.RHQLJ6SRUWLQJ*RRGV,QF FRXUW )G WK&LU TXRWLQJ&RU]LQY)RUGX ,QUH)RUGX )G Q WK&LU $V 2Q WKH LVVXH RI IUDXG WKH FRXUW GRHV QRW GLVFUHGLW WKH %DQNUXSWF\ EHIRUHWKHGLVWULFWFRXUWDEDQNUXSWF\FRXUWjVFRQFOXVLRQVRI &RXUWjV IDFWXDO ILQGLQJV RU FUHGLELOLW\ GHWHUPLQDWLRQ 7KH ODZDUHUHYLHZHGGHQRYR8QVHFXUHG&UHGLWRUVj&RPPRI %DQNUXSWF\ &RXUWjV GHWHUPLQDWLRQ WKDW &RRQH\ DQG /RJVGRQ GLG QRW GHIUDXG WKH 6DOOHHV WKURXJK WKHLU SURPLVHV RI IXWXUH +LJKODQG6XSHUVWRUHV,QFY6WUREHFN5HDO(VWDWH,QF ,QUH ILQDQFLQJ KRZHYHU LV GHWHUPLQDWLYH RI D VHSDUDWH OHJDO LVVXH +LJKODQG 6XSHUVWRUHV ,QF )G WK &LU ZKHWKHU WKH IDLOXUH WR SURYLGH WKH 3DFNDJH /RDQ ZDV LWVHOI 7KH &RXUW DFFRUGV GLVFUHWLRQ WR WKH RULJLQDO IUDXGXOHQW QRW WKH LVVXH KHUH ZKHWKHU WKH SURPLVH RI WKH EDQNUXSWF\FRXUWjVILQGLQJVEXWQRWWRWKRVHUHQGHUHGE\WKH 3DFNDJH /RDQ ZDV D PLVUHSUHVHQWDWLRQ PDGH LQ RUGHU WR GLVWULFWFRXUW;/'DWDFRPS,QFY:LOVRQ ,QUH2PHJDV IUDXGXOHQWO\ LQGXFH WKH 6DOOHHV WR VLJQ WKH UHOHDVH %HFDXVH WKH *URXS,QF )G WK&LU :HDUHMXVW %DQNUXSWF\ &RXUWjV DQDO\VLV RI WKH UHOHDVH GLIIHUHG IURP WKLV FRXUWjV WKH %DQNUXSWF\ sXGJH GLG QRW UHDFK WKH LQVWDQW LVVXH DVFDSDEOHRILQWHUSUHWLQJWKHUHFRUGDVWKHGLVWULFWFRXUW,G 'LVWULFW &RXUW 0HPRUDQGXP 2SLQLRQ DQG 2UGHU DW Q ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO 7KHUHFRUGVXSSRUWVWKHEDQNUXSWF\FRXUWjVILQGLQJ7KH %%UHDFKRI)LGXFLDU\5HODWLRQVKLS&ODLP EDQNUXSWF\ FRXUW IRXQG WKDW mERWK /RJVGRQ DQG &RRQH\ UHSHDWHGO\DVVXUHG:RUWK6DOOHHWKDWKLVUHWLUHPHQWZRXOGEH %HIRUHGHDOLQJZLWKWKH6DOOHHVjFODLPWKDW)RUW.QR[%DQN VDIH DQG WKDW KLV (623 VWRFN RU ODWHU WKH SURFHHGV RI LW EUHDFKHGDILGXFLDU\GXW\ZHGLVFXVVWKHQDWXUHRIDILGXFLDU\ ZRXOGEHSODFHGLQDQ,5$l %DQNUXSWF\&RXUWsXGJPHQWDW UHODWLRQVKLS DQG WKH VKRZLQJ UHTXLUHG WR HVWDEOLVK VXFK D $GGLWLRQDOO\:RUWK6DOOHHWHVWLILHGWKDW/RJVGRQDQG UHODWLRQVKLS &RRQH\ WROG KLP WKH SODFHPHQW RI (623 VWRFN ZLWK )RUW .QR[%DQNZDVVLPSO\DUHTXLUHPHQWWKDWKHFRQVROLGDWHDOO $ILGXFLDU\UHODWLRQVKLSFUHDWHVWKHKLJKHVWRUGHURIGXW\ KLVEDQNLQJEXVLQHVVZLWK)RUW.QR[%DQN)RUW.QR[%DQN LPSRVHG E\ ODZ ,I D ILGXFLDU\ UHODWLRQVKLS H[LVWV WKH VROGWKH(623VWRFNWRSDUWLDOO\SD\RQHWKH6DOOHHVjORDQV ILGXFLDU\ FDQQRW SURILW IURP WKH UHODWLRQVKLS ZLWKRXW WKH DQGQHYHUDWWHPSWHGWRUHSOHQLVKWKH,5$ NQRZOHGJHDQGSHUPLVVLRQRIWKHSULQFLSDO6HHHJ5R\ 5\GHQ$QGHUVRQ7KH:ROIDWWKH&DPSILUH 8QGHUVWDQGLQJ '([WHQVLRQ$JUHHPHQWjV:DLYHURIWKH6DOOHHVj)UDXG &RQILGHQWLDO5HODWLRQVKLSV608/5HY &ODLPV ,Q D ILGXFLDU\ UHODWLRQVKLS WKH ILGXFLDU\ PXVW PDNH HYHU\ HIIRUWWRDYRLGKDYLQJKLVRZQLQWHUHVWVFRQIOLFWZLWKWKRVHRI 2Q0D\ WKH6DOOHHVJDYHDQLQHW\GD\ WKH SULQFLSDO 6HH LG :KHQ FRQIOLFW LV XQDYRLGDEOH WKH QRWHWR)RUW.QR[%DQN7KHQRWHZDVJLYHQLQDQWLFLSDWLRQ ILGXFLDU\PXVWSODFHWKHLQWHUHVWVRIWKHSULQFLSDODERYHKLV WKDWWKH6DOOHHVDQG)RUW.QR[%DQNZRXOGDJUHHRQDORQJ RZQ6HHLG WHUPmSDFNDJHlORDQ1HDU$XJXVW )RUW.QR[%DQN H[WHQGHGWKHORDQIRUDQDGGLWLRQDOQLQHW\GD\SHULRG2Q $ ILGXFLDU\ GXW\ UHTXLUHV PRUH WKDQ WKH JHQHUDOL]HG 'HFHPEHU )RUW.QR[%DQNH[WHQGHGWKHORDQIRUD EXVLQHVVREOLJDWLRQRIJRRGIDLWKDQGIDLUGHDOLQJ7KH7H[DV IXUWKHU IRUW\HLJKW GD\ SHULRG ,Q FRQVLGHUDWLRQ RI LWV 6XSUHPH&RXUWGHVFULEHGWKLVGLVWLQFWLRQLQ&ULP7UXFN DJUHHPHQW WR H[WHQG WKH ORDQ )RUW .QR[ %DQN VD\V WKH 7UDFWRU&RY1DYLVWDU,QWjO7UDQVS&RUS6:G 6DOOHHV H[HFXWHG DQ H[WHQVLRQ DJUHHPHQW WKDW UHOHDVHG DOO 7H[ FODLPVDJDLQVWWKHEDQN 7KHGXW\RIJRRGIDLWKDQGIDLUGHDOLQJPHUHO\UHTXLUHV WKHSDUWLHVWRmGHDOIDLUO\l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o LQWHUQDOFLWDWLRQVRPLWWHG VXSHUVHGHG /RXLVYLOOH)6XSS :'.\ DIIjGLQ E\ 7H[ 5HY &LY 6WDW $QQ DUW H 9HUQRQ SDUWUHYjGLQSDUW)G WK&LU )UDXGXOHQW HVWDEOLVKLQJ D GXW\ RI JRRG IDLWK DQG IDLU GHDOLQJ FRQFHDOPHQW LPSOLHV NQRZOHGJH RI WKH PDWHULDO IDFW EHWZHHQSDUWLHVWRDFDUGHDOHUVKLSIUDQFKLVHDJUHHPHQW FRQFHDOHG)LHOGVY&RUQHWW6:G .\ $ PDWHULDO IDFW LV D IDFW WKDW DIIHFWV WKH FRQGXFW RI D 7RPDNHRXWDFODLPWKDWDILGXFLDU\UHODWLRQVKLSH[LVWHG UHDVRQDEOHSHUVRQDQGLVOLNHO\DQLQGXFHPHQWRIWKHFRQWUDFW WKHSDUW\FODLPLQJWKHILGXFLDU\UHODWLRQVKLSPXVWILUVWVKRZ )DXONQHU 6:GDW WKH UHODWLRQVKLS H[LVWHG EHIRUH WKH WUDQVDFWLRQ WKDW LV WKH VXEMHFWRIWKHDFWLRQ6HH$QGHUVRQVXSUDDW6HFRQG ,Q VHYHUDO PHHWLQJV RYHU D VKRUW SHULRG $VVLVWDQW /RDQ WKH SDUW\ FODLPLQJ D ILGXFLDU\ UHODWLRQVKLS PXVW VKRZ WKDW 2IILFHU&RRQH\JDYH:RUWK6DOOHHDSURIRUPDDVLWHVXUYH\ UHOLDQFHZDVQRWPHUHO\VXEMHFWLYH6HHLG7KLUGWKHSDUW\ DQG DQ DSSUDLVDO VKRZLQJ WKH YDOXH RI WKH ODXQGURPDW DW FODLPLQJDILGXFLDU\UHODWLRQVKLSPXVWVKRZWKDWWKHQDWXUHRI ,QLWVFRPPLWPHQWOHWWHU)RUW.QR[%DQNWROG WKHUHODWLRQVKLSLPSRVHGDGXW\XSRQWKHILGXFLDU\WRDFWLQ WKH6DOOHHVDPRUWJDJHZRXOGVXIILFLHQWO\VHFXUHWKHLUQRWH WKH SULQFLSDOjV LQWHUHVW HYHQ LI VXFK DFWLRQ ZHUH WR WKH JLYHQWKHODXQGURPDWjVDSSUDLVHGYDOXHRI s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jVIDLOXUHWR UHODWLRQVKLS IRXQGHG XSRQ FRQILGHQFH WKH 7H[DV 6XSUHPH PHQWLRQ WKH RWKHU DSSUDLVDOV WKH EDQNUXSWF\ FRXUW IRXQG &RXUWIRXQGWKDWQRILGXFLDU\REOLJDWLRQWRDFWRQWKHRWKHUjV IUDXGLQWKHLUUHSUHVHQWDWLRQVUHJDUGLQJWKHWUHDWPHQWRI:RUWK EHKDOIZDVSUHVHQW6HH&ULP7UXFN 7UDFWRU6:G 6DOOHHjV(623VWRFN7KHEDQNUXSWF\FRXUWIRXQGWKH6DOOHHV H[HUFLVHGRUGLQDU\FDUHLQUHO\LQJRQWKHVHUHSUHVHQWDWLRQV &RPPHQWDWRU 5R\ $QGHUVRQ GHVFULEHV WKH GLVWLQFWLRQ m>,@W LV RQH WKLQJ WR WUXVW VRPHRQH WR GHDO KRQHVWO\ DQG TXLWH DQRWKHU WR WUXVW VRPHRQH WR SXW RQHjV LQWHUHVWV DERYH KLV RZQ ([WUDRUGLQDU\ IDFWV DUH QHFHVVDU\ WR PDNH WKLV ODWWHU NLQG RI WUXVW SODXVLEOH DQG UHDVRQDEOHl $QGHUVRQ 7KH 7KH UHFRUG GRHV QRW LGHQWLI\ WKH DXWKRU RI WKH DSSUDLVDO :ROI DW WKH &DPSILUH 8QGHUVWDQGLQJ &RQILGHQWLDO 5HODWLRQVKLSV +RZHYHU :RUWK 6DOOHH FOHDUO\ EDVHG KLV GHFLVLRQ WR SXUFKDVH WKH 608 / 5HY ODXQGURPDW RQ WKH DSSUDLVDO sRLQW $SSHQGL[ DW o ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO QRWUHYHDOWKDWWKHFRPSDQ\ZDVQRWSURGXFLQJWKHPDWHULDOV DW o TXRWLQJ7KLJSHQY/RFNH6:G LWLPSOLHG 7H[ mµ>0@HUHVXEMHFWLYHWUXVWDORQHLVQRWHQRXJKWR WUDQVIRUP DUPVOHQJWK GHDOLQJ LQWR D ILGXFLDU\ ,Q&HQWUDO6WDWHV6WDPSLQJ&RY7HUPLQDO(TXLS&R UHODWLRQVKLSjl )G WK&LU WKLV&RXUWXVHGWKHUHDVRQLQJRIDQ (QJOLVK FRXUW LQ KROGLQJ D EDQN VRPHWLPHV KDG D GXW\ WR ,QGHFLGLQJZKHWKHU)RUW.QR[%DQNRZHGWKH6DOOHHVD VSHDN ILGXFLDU\GXW\ZHORRNWR.HQWXFN\ODZ:KLOH.HQWXFN\ KDVVSRNHQOHVVIUHTXHQWO\RQWKHFUHDWLRQRIDILGXFLDU\GXW\ ,Q DQ (QJOLVK FDVH ZKLFK ZDV VLPLODU WR RXUV +HGOH\ LWIROORZVWKHJXLGHOLQHVGHVFULEHGDERYH %\UQH &R/WGY+HOOHU 3DUWQHUV/WG> @$& /RUG 5HLG SRLQWHG RXW WKDW D EDQNHU ZKR 8QGHU.HQWXFN\ODZDILGXFLDU\UHODWLRQVKLSLVmIRXQGHG UHFHLYHV DQ LQTXLU\ DERXW WKH FUHGLWZRUWKLQHVV RI D RQWUXVWRUFRQILGHQFHUHSRVHGE\RQHSHUVRQLQWKHLQWHJULW\ FXVWRPHUKDVWKUHHFRXUVHVRSHQ7KHEDQNHUFDQGHFOLQH DQGILGHOLW\RIDQRWKHUDQGZKLFKDOVRQHFHVVDULO\LQYROYHVDQ WRJLYHWKHLQIRUPDWLRQ KHFDQJLYHDQDQVZHUZLWKD XQGHUWDNLQJLQZKLFKDGXW\LVFUHDWHGLQRQHSHUVRQWRDFW FOHDUTXDOLILFDWLRQWKDWLWLVJLYHQDQGDFFHSWHGZLWKRXW SULPDULO\IRUDQRWKHUjVEHQHILWLQPDWWHUVFRQQHFWHGZLWKVXFK DQ\ UHVSRQVLELOLW\ RU LV JLYHQ ZLWKRXW UHIOHFWLRQ RU XQGHUWDNLQJl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mZKHUHDVSHFLDOFRQILGHQFHLVUHSRVHGLQDQRWKHUZKR )GDW HPSKDVLVDGGHG LVERXQGWRDFWZLWKUHJDUGWRWKHLQWHUHVWVRIWKHRQH UHSRVLQJFRQILGHQFHl :KHUHRQHSDUW\WRDFRQWUDFWNQRZVWKHRWKHUUHOLHVRQKLP WR GLVFORVH DOO PDWHULDO IDFWV WKH GXW\ UHVWV RQ KLP QRW WR FRQFHDO DQ\WKLQJ PDWHULDO WR WKH EDUJDLQ RU DVVXPH UHVSRQVLELOLW\IRUGDPDJHFDXVHGE\WKHFRQFHDOPHQW6HH 7KH 7H[DV 6XSUHPH &RXUWjV UHDVRQLQJ LQ &ULP 7UXFN 7UDFWRU LV HYHQ PRUH SHUVXDVLYH LQ WKH OLJKW RI WKH 7H[DV /HJLVODWXUHjV GHFLVLRQ WR )DXONQHU'ULOOLQJ&RY*URVV 6:G .\&W FUHDWH D GXW\ RI JRRG IDLWK DQG IDLU GHDOLQJ EHWZHHQ SDUWLHV WR D FDU $SS FLWLQJ'DYLVY&RPPjUVRI6HZHUDJHRI&LW\RI GHDOHUVKLS IUDQFKLVH DJUHHPHQW $00 7H[ 5HY &LY 6W $QQ DUW H 9HUQRQ ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO ([FHSWLQVSHFLDOFLUFXPVWDQFHVDEDQNGRHVQRWKDYHD DUJXHWKDWWKHEDQNUXSWF\FRXUWjVILQGLQJRIIUDXGLVVXSSRUWHG ILGXFLDU\ UHODWLRQVKLS ZLWK LWV ERUURZHUV mµ>7@KH JUHDW HYHQZLWKRXWILQGLQJDILGXFLDU\UHODWLRQVKLS ZHLJKWRIDXWKRULW\LVWKDWZKLOHWKHUHODWLRQVKLSEHWZHHQD PRUWJDJRUDQGPRUWJDJHHLVRIWHQGHVFULEHGDVRQHRIWUXVW 8QGHU.HQWXFN\ODZDSDUW\PDNLQJDIUDXGFODLPPXVW WHFKQLFDOO\LWLVQRWRIDILGXFLDU\FKDUDFWHUjl)RUV\WKHY SURYHVL[HOHPHQWV %DQF%RVWRQ0RUWJDJH&RUS)G WK&LU DOWHUDWLRQLQRULJLQDO TXRWLQJ/RYHOOY:1DWjO/LIH 7KHJHQHUDOUXOHLVWKDWWRFRQVWLWXWHDFWLRQDEOHmIUDXGlLW ,QV &R 6:G 7H[ &W $SS PXVW DSSHDU 7KDW GHIHQGDQW PDGH D PDWHULDO LQWHUSUHWLQJ.HQWXFN\ODZWRUHTXLUHDQH[SUHVVFRQWUDFWXDO UHSUHVHQWDWLRQ WKDW LW ZDV IDOVH WKDW ZKHQ KH SURYLVLRQWRFUHDWHDILGXFLDU\GXW\EHWZHHQDPRUWJDJRUDQG PDGHLWKHNQHZWKDWLWZDVIDOVHRUPDGHLWUHFNOHVVO\ PRUWJDJHH FLWDWLRQVRPLWWHG VHHDOVR6WHHOYHVW6:G ZLWKRXW DQ\ NQRZOHGJH RI LWV WUXWK DQG DV D SRVLWLYH DW m&RXUWVWUDGLWLRQDOO\YLHZDUHODWLRQVKLSEHWZHHQD DVVHUWLRQ WKDWKHPDGHLWZLWKWKHLQWHQWLRQWKDWLW EDQNDQGDGHSRVLWRUWREHRQHRIGHEWRUFUHGLWRUDQGGRQRW VKRXOGEHDFWHGXSRQE\SODLQWLII WKDWSODLQWLIIDFWHG RUGLQDULO\ LPSRVH D ILGXFLDU\ GXW\ RI GLVFORVXUH XSRQ WKH LQ UHOLDQFH XSRQ LW DQG WKDW KH WKHUHE\ VXIIHUHG EDQNl LQMXU\ .HQWXFN\FRXUWVKDYHWZLFHLPSRVHGDILGXFLDU\GXW\LQWKH 0F*XIILQY6PLWK6: .\ VHHDOVR UHODWLRQVKLS EHWZHHQ D EDQN DQG D ERUURZHU 2Q ERWK 0RRUH2ZHQ7KRPDV &RY&RIIH\ )G RFFDVLRQVWKHEDQNSURILWHGDWWKHERUURZHUjVH[SHQVHIURP WK&LU FRQILGHQWLDO LQIRUPDWLRQ UHFHLYHG IURP WKH ERUURZHU ,Q 6WHHOYHVWWKHEDQNXVHGWKHFRQILGHQWLDOEXVLQHVVSODQVRIRQH 7KH SDUW\ DVVHUWLQJ D IUDXG RFFXUUHG KDV WKH EXUGHQ RI ERUURZHUWRKHOSRQHRIWKHERUURZHUjVFRPSHWLWRUVJHQHUDWH SURYLQJ HDFK HOHPHQW RI WKH 0F*XIILQ WHVW E\ FOHDU DQG QHZEXVLQHVVIRUWKHEDQN6HH6:GDWo FRQYLQFLQJHYLGHQFH6HH0LOOHUjV%RWWOHG*DV,QFY%RUJ :DUQHU&RUS )G WK&LU 6LPLODUO\LQ+HQNLQ,QFY%HUHD%DQN 7UXVW&R 6:G .\ &W $SS WKH EDQN XVXUSHG D 8QGHU .HQWXFN\ ODZ RQFH D SDUW\ FKRRVHV WR PDNH D FRUSRUDWH RSSRUWXQLW\ RI RQH RI LWV ERUURZHUV WKDW WKH UHSUHVHQWDWLRQ WKH SDUW\ FDQQRW NHHS VHFUHW LQIRUPDWLRQ ERUURZHUUHYHDOHGWRWKHEDQNLQFRQILGHQFH7KHEDQNXVHG QHHGHGWRPDNHWKHUHSUHVHQWDWLRQDFFXUDWH$OWKRXJKPHUH WKHRSSRUWXQLW\IRULWVEHQHILWDQGWRWKHERUURZHUjVGHWULPHQW VLOHQFHLVQRWIUDXGXOHQWDEVHQWDGXW\WRGLVFORVH+DOOY +HQNLQ6:GDW VHHDOVR%DOHY0DPPRWK&DYH &DUWHU6:G .\ DGXW\WRUHYHDOPD\ 3URG&UHGLW$VVjQ6:G .\ QRWLQJ DULVH IURP D SDUWLDO GLVFORVXUH RI LQIRUPDWLRQ RU IURP WKDW+HQNLQVWDQGVIRUWKHSURSRVLWLRQWKDWDEDQNjVILGXFLDU\ SDUWLFXODUFLUFXPVWDQFHVVXFKDVZKHUHRQHSDUW\WRDFRQWUDFW GXW\DULVHVIURPmFRQILGHQWLDOUHODWLRQVZLWKLWVFXVWRPHUVl KDV VXSHULRU NQRZOHGJH DQG LV UHOLHG XSRQ WR GLVFORVH WKDW LQIRUPDWLRQ 6PLWK Y *HQHUDO 0RWRUV &RUS 6:G $VGHVFULEHGDERYHEDQNVGRQRWJHQHUDOO\KDYHILGXFLDU\ .\&W$SS UHODWLRQVKLSVZLWKWKHLUGHEWRUV7KLVIORZVIURPWKHQDWXUH RIWKHFUHGLWRUGHEWRUUHODWLRQVKLS$VDPDWWHURIEXVLQHVV 0RUHVSHFLILFDOO\DQHDUO\.HQWXFN\FRXUWKHOGWKDWm>D@ EDQNVVHHNWRPD[LPL]HWKHLUHDUQLQJVE\FKDUJLQJLQWHUHVW GXW\WRVSHDNPD\DULVHIURPSDUWLDOGLVFORVXUH WKHVSHDNHU UDWHVRUIHHVDVKLJKDVWKHPDUNHWZLOODOORZ%DQNVVHHNDV EHLQJXQGHUWKHGXW\RIVD\LQJQRWKLQJRUWRWHOOWKHZKROH PXFKVHFXULW\IRUWKHLUORDQVDVWKH\FDQREWDLQ,QFRQWUDVW WUXWKl 'HQQLV Y 7KRPVRQ 6:G .\ KROGLQJIUDXGH[LVWHGEHFDXVHDFRPSDQ\jVSURVSHFWXVGLG ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO $ JHQHUDOL]HG WUXVW LQ RWKHU EXVLQHVVPHQ DQG GHEWRUVKRSHWRSD\WKHORZHVWSRVVLEOHLQWHUHVWUDWHDQGIHH EXVLQHVVZRPHQFDQQRWFUHDWHDILGXFLDU\UHODWLRQVKLS:RUWK FKDUJHVDQGJLYHDVOLWWOHVHFXULW\DVSRVVLEOH:LWKRXWDJUHDW 6DOOHHjVXQUHDVRQDEOHWUXVWLQ$VVLVWDQW/RDQ2IILFHU&RRQH\ GHDOPRUHDPHUHFRQILGHQFHWKDWDEDQNZLOODFWIDLUO\GRHV DQG6HQLRU/RDQ2IILFHU/RJVGRQGLGQRWFUHDWHDILGXFLDU\ QRWFUHDWHDILGXFLDU\UHODWLRQVKLSREOLJDWLQJWKHEDQNWRDFW UHODWLRQVKLSXQGHUZKLFK)RUW.QR[%DQNKDVWRVXEOLPDWHLWV LQWKHERUURZHUjVLQWHUHVWDKHDGRILWVRZQLQWHUHVW LQWHUHVWWRWKH6DOOHHV )LGXFLDU\UHODWLRQVKLSVDULVHZKHQFLUFXPVWDQFHVDQGWKH :HILQGWKHEDQNUXSWF\FRXUWFOHDUO\HUUHGZKHQLWIRXQGD UHODWLRQVKLSRIWKHSDUWLHVVKRZWKHSDUWLHVXQGHUVWRRGDQG ILGXFLDU\ UHODWLRQVKLS EHWZHHQ WKH 6DOOHHV DQG )RUW .QR[ DJUHH WKDW FRQILGHQFH LV UHSRVHG E\ RQH SDUW\ DQG WUXVW %DQN 3ULQFLSDOO\ WKH EDQNUXSWF\ FRXUW XVHG WKH ZURQJ DFFHSWHG E\ WKH RWKHU )LGXFLDU\ UHODWLRQVKLSV FDQ EH VWDQGDUG LQ ILQGLQJ D ILGXFLDU\ UHODWLRQVKLS KDG DULVHQ ,Q LQIRUPDOEXWWKH\PXVWHYLGHQFHFLUFXPVWDQFHVVKRZLQJERWK DGGLWLRQ WKH EDQNUXSWF\ FRXUWjV ILQGLQJ RI D ILGXFLDU\ SDUWLHVDJUHHGWKDWRQHSDUW\ZRXOGEHDFWLQJLQWKHLQWHUHVWRI UHODWLRQVKLSZDVFOHDUO\HUURQHRXVJLYHQWKHSRVLWLRQRIWKH WKHRWKHU SDUWLHVDQGWKHFLUFXPVWDQFHVRIWKHORDQ6LPSO\SXWWKH EDQNUXSWF\FRXUWZURQJO\EHOLHYHGWKH6DOOHHVjQDLYHWUXVWLQ :HDUHXQDZDUHRIDQ\.HQWXFN\FDVHGLVFXVVLQJZKHWKHU EDQNRIILFHUVVWDQGLQJDORQHFUHDWHGDILGXFLDU\UHODWLRQVKLS DEDQNYLRODWHVDILGXFLDU\UHODWLRQVKLSZKHQWKHEDQNUHIXVHV WR H[WHQG DGGLWLRQDO FUHGLW WR WKH FXVWRPHU :H ILQG &)UDXG&ODLPV KRZHYHUWKDWWKH2KLR6XSUHPH&RXUWjVGLVFXVVLRQRIWKLV LVVXH LQ (G 6FKRU\ 6RQV ,QF Y 6RFLHW\ 1DWjO %DQN %HVLGHVILQGLQJWKDW)RUW.QR[%DQNKDGEURNHQDILGXFLDU\ 2KLR 6W G 1(G GHVFULEHV WKH GXW\WRWKH6DOOHHVWKHEDQNUXSWF\FRXUWIRXQGWKDW)RUW.QR[ JHQHUDOUXOH %DQN DQG LWV HPSOR\HHV GHIUDXGHG WKH 6DOOHHV 7KH EDQNUXSWF\FRXUWIRXQG)RUW.QR[%DQNGHIUDXGHGWKH6DOOHHV ,Q6FKRU\DEXVLQHVVDOOHJHGWKDWDEDQNKDGEUHDFKHGD ZKHQ LW JDYH WKH 6DOOHHV WKH PLVOHDGLQJ SURIRUPD VLWH ILGXFLDU\UHODWLRQVKLSZKHQWKHEDQNIDLOHGWRRIIHUDGGLWLRQDO VXUYH\ DQG DSSUDLVDOV WKDW &RRQH\ DQG /RJVGRQ NQHZ RU ORDQVWRDORQJWLPHFXVWRPHU7KHEXVLQHVVFXVWRPHUDOOHJHG VKRXOG KDYH NQRZQ ZHUH LQIODWHG ,Q DGGLWLRQ WKH WKDWKHKDGUHOLHGXSRQWKHEDQNj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mILGXFLDU\ UHODWLRQVKLSl KDV EHHQ GHILQHG E\ WKLVFRXUWDVDUHODWLRQVKLSmLQZKLFKVSHFLDOFRQILGHQFH DQGWUXVWLVUHSRVHGLQWKHLQWHJULW\DQGILGHOLW\RIDQRWKHU $ &HUWDLQO\ DQG WKHUH LV D UHVXOWLQJ SRVLWLRQ RI VXSHULRULW\ RU sRLQW $SSHQGL[ DW LQIOXHQFHDFTXLUHGE\YLUWXHRIWKLVVSHFLDOWUXVWl ,QUH6DOOHHHWDO 1RV 1RV ,QUH6DOOHHHWDO REYLRXVO\DWRGGVZLWKWKH6DOOHHVjLQWHUHVW7KH6DOOHHVNQHZ m7KHUHODWLRQVKLSRIGHEWRUDQGFUHGLWRUZLWKRXWPRUHLV )RUW.QR[%DQNFRQWUROOHGWKHVDOHRIWKHODXQGURPDWEHFDXVH QRWDILGXFLDU\UHODWLRQVKLS$ILGXFLDU\UHODWLRQVKLSPD\ WKH%UDPEOHWWVKDGXQSDLGORDQVVHFXUHGE\WKHODXQGURPDW EH FUHDWHG RXW RI DQ LQIRUPDO UHODWLRQVKLS EXW WKLV LV 7KHEDQNUXSWF\FRXUWIRXQGWKDW&RRQH\WROG6DOOHHSD\LQJ GRQH RQO\ ZKHQ ERWK SDUWLHV XQGHUVWDQG WKDW D VSHFLDO RII)RUW.QR[%DQNjVGHEWZDV)UHG:%UDPEOHWW VSULPDU\ WUXVWRUFRQILGHQFHKDVEHHQUHSRVHGl FRQFHUQ7KH6DOOHHVNQHZWKHEDQNZDVVXEVWLWXWLQJWKH 6DOOHHVjREOLJDWLRQVHFXUHGE\FROODWHUDOIRUWKHEDGGHEWRI 2KLR6WGDW1(GDW TXRWLQJ8PEDXJK WKH%UDPEOHWWV,QVXFKFLUFXPVWDQFHVQRUHDVRQDEOHSHUVRQ 3ROH%OGJ&RY6FRWW2KLR6WG 1(G FRXOGEHOLHYH )RUW.QR[%DQNDOLJQHGLWVLQWHUHVWZLWKWKH LQWHUQDOFLWDWLRQVRPLWWHG 6DOOHHVWRWKHH[WHQWLWZRXOGSXWWKH6DOOHHVLQWHUHVWDKHDGRI LWVRZQ 7KH6FKRU\FRXUWFRQFOXGHGWKDWDGYLFHLQDFRPPHUFLDO FRQWH[WGRHVQRWFUHDWHDILGXFLDU\UHODWLRQVKLS $OVR WKH 6DOOHHV WKHPVHOYHV GHVFULEH KDYLQJ RQO\ D JHQHUDOL]HGWUXVWLQ)RUW.QR[%DQN:RUWK6DOOHHKDGWUXVW m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l 7KH EDQNUXSWF\ FRXUW IRXQG WKDW m>G@XULQJ WKHVH PHHWLQJV >$VVLVWDQW /RDQ 2IILFHU@ &RRQH\ LQIRUPHG 6DOOHH WKDW WKH EDQN ZDV HDJHU >$@GYLFHJLYHQE\DFUHGLWRUWRDGHEWRULQDFRPPHUFLDO WR JHW )UHG %UDPEOHWW RXW RI WKH /DXQGURPDW DQG WKDW 6DOOHH FRXOG FRQWH[WLQZKLFKWKHSDUWLHVGHDODWDUP VOHQJWKHDFK SXUFKDVH WKH /DXQGURPDW IURP )UHG %UDPEOHWW DW D JRRG SULFH DQG WKDW SURWHFWLQJKLVRUKHUUHVSHFWLYHLQWHUHVWVLVLQVXIILFLHQWWR )RUW .QR[ %DQN ZRXOG IXOO\ ILQDQFH WKH WUDQVDFWLRQl %DQNUXSWF\ &RXUW FUHDWHDILGXFLDU\UHODWLRQVKLS sXGJPHQW DW 2KLR6WGDW1(GDW TXRWLQJ8PEDXJK ,Q DGGLWLRQ :RUWK 6DOOHH WHVWLILHG WKDW m9LFNL >&RRQH\@ WROG PH VKH FRQWUROOHG )UHGGLH %UDPEOHWW +H ZDV JRLQJ WR GR ZKDWHYHU VKH WROG 2KLR6WGDW 1(GDW KLP WR GRl sRLQW $SSHQGL[ DW :H ILQG WKH 6DOOHHV IDLO WR VKRZ WKH\ KDG D ILGXFLDU\ :RUWK 6DOOHH WHVWLILHG m, WUXVW HYHU\ERG\ ZKHQ , ILUVW PHHW WKHPl UHODWLRQVKLSZLWK)RUW.QR[%DQN7KH\KDGQRORQJVWDQGLQJ sRLQW $SSHQGL[ DW DQG m, KDYH D ORW RI WUXVW DQG FRQILGHQFH LQ PRVW UHODWLRQVKLS ZLWK )RUW .QR[ %DQN 7KH 6DOOHHV RQO\ SHRSOH , PHHWl sRLQW $SSHQGL[ DW DSSURDFKHG )RUW .QR[ %DQN DW )UHG : %UDPEOHWWjV VXJJHVWLRQZKHQWKH\WULHGWRSXWWRJHWKHUILQDQFLQJIRUWKH :RUWK 6DOOHH WHVWLILHG SXUFKDVHRIWKHFRQYHQLHQFHVWRUH$IWHUREWDLQLQJWKHORDQ IRUWKHSXUFKDVHRIWKHFRQYHQLHQFHVWRUHWKH6DOOHHVTXLFNO\ 4 1RZ \RXjYH WROG XV VLU WKDW \RX WUXVWHG DQG UHOLHG RQ 0U ZHQWWR+DUGLQ&RXQW\%DQNWRREWDLQDGGLWLRQDOILQDQFLQJ /RJVGRQ DQG EHOLHYHG ZKDW KH WROG \RX LQ sXQH sXO\ DQG $XJXVW RI DOWKRXJK LW ZDV \RXU ILUVW EXVLQHVV FRQWDFW 0RUHLPSRUWDQWWKH6DOOHHVXQGHUVWRRG)RUW.QR[%DQNjV ZLWK 0U /RJVGRQ 'LG \RX KDYH WKDW VDPH WUXVW DQG UHOLDQFH RQ 0U %DWHPDQ >RI +DUGLQ &RXQW\ %DQN@ DW WKH LQWHUHVW ZDV DOLJQHG ZLWK WKDW RI WKH %UDPEOHWWVj DQG WLPH \RX GHDOW ZLWK KLP LQ 2FWREHU RI "