Carefully read the retake instructions. You will get penalized for overlooking them.
Plagiarism will be severely punished. If you use external sources, reference them
1. one single Word document, properly structured and formatted and with the relevant
references. Use double-spaced police font Times New Roman, font size 12.
This retake consists of 3 independent parts and one wrap-up.
Part I – Presentation of financial instruments
Read the enclosed case “Altares” and write a one-pager recommendation as to how to
present the financial instrument in the client financial statements, using explicit references to
the relevant accounting standard.
Part II – Loan ECL
Collect the last 10 quarterly reports for HSBC Holdings PlC from its website, collect the loan
loss provision amounts and make a chart of it in Excel over time. Comment.
Then, based on the latest annual report for the same bank, write a 2-pager summary,
analysing the loan impairment details disclosed in the bank footnotes, and contrasting them
with external economic forecasts (see e.g., on the ECB website).
Part III – Hedging
You manage the foreign exposure of a euro-denominated stock portfolio. It includes a euroequivalent
100 million portfolio consisting of five equi-weighted stocks: Procter and Gamble,
Pfizer, Coca Cola, Pepsico, Eli Lilly.
You decide today (July 15) to hedge this allocation against market and currency risk using the
relevant futures contract with shortest expiration date.
Question: Detail the hedge trades to apply, contract name and details, trade details (size, long
or short). Will it consist of a cash flow or fair value hedge? Justify all your answers with the
Part IV – Wrap-up
Record a video explaining your main results for parts I-III above. Maximum 5 minutes in total.
File format shall be .mp4. Use the video recording tool of your choice. For instance, Panopto
is available as a recording tool on Ieseg Online. I must be able to see you speaking in the
video. You may use a few slides to accompany your comments and record both the slides and
Justine Rapaport recently joined the Advisory Team of Altares, an independent audit &
advisory firm based in Zurich, Switzerland. Altares is specialized in providing advisory
services as regards to accounting standards interpretation and implementation. The strong
reputation and rich network of its co-founders make it easy for Altares to advise a wide range
of Swiss and international clients on the proper accounting treatment of specific and complex
Rapaport was missioned to provide an opinion on the presentation of a financial instrument
that First Eagle, one of Altares foreign clients, had just issued. She received from the legal dept
the issuance term sheet in a separate email (see Exhibit I). Incidentally, the client Chief
Financial Officer (CFO) told Rapaport’s Manager that this new issuance would likely be
reported as equity in First Eagle financial statements.
Rapaport’s mission is to guide the client CFO as regards to the presentation of this transaction
in its financial statements. The task is not an easy one as she knew that she would deep dive
into legal and financial complexities. On top of that, her opinion may ultimately have
tremendous repercussions on the perception of issuer risk profile. Her boss suddenly jumped
over Justine’s desk: “Please treat this file in priority today. Don’t feel pressured too much…but
do your job diligently though !” What reassuring words !
Exhibit I. Transaction term sheet
SERIES A-4 PREFERRED STOCK FINANCING OF FIRST EAGLE GmbH1
DECEMBER 13, 2021
This Wertpapier-Informationsblatt (Term Sheet) summarizes the principal terms of the Series
A-4 Preferred Stock Financing of FIRST EAGLE GmbH., a German benefit corporation (the
Series A-4 Preferred Stock (the “Series A-4”)
Offering Size: The offering (the “Offering”) of the Series A-4 consists of a private placement
under Section 3 (2) sentence 1 no. 6, section 3a and section 3c of the WpPG to
qualified investors (the “Private Placement”), for a potential total offering of
Closing: There will be closings of the Private Placement on such dates selected by the
Company prior to a planned end date of April 30, 2022, which may be extended
by the Company. Each such closing is referred to as a “Closing”.
€1.11 (the “Original Purchase Price”)
The minimum investment in the Offering is €1,111, which minimum may be
increased, decreased, or waived by the Company.
Series A-4 in
The Offering consists of a maximum of 3,003,003 shares which may sold in the
The fully diluted pre-money valuation is approximately €22.45M. This is based
on 20,226,581 outstanding common equivalents, excluding 2,254,010
outstanding common shares that will never vest. The latter are among the shares
issued to the founders and they remain outstanding as their allocation among the
founders depends on future performance.
Prior Series A
3,700,000 shares of Series A-3 Preferred Stock were sold at €0.90 per share
raising €3,330,000 in early October. Prior convertible securities of an
aggregate of approximately €2,670,000 were converted into 4,10,000 shares of
Series A-1& A-2 Preferred Stock. These shares are held primarily by venture
1 This term sheet is freely adapted for the case purpose from the publicly available source
The “Series A Preferred” consists of the Series A-4 plus the Series A-1, A-2,
A-3 Preferred Stock.
ARTICLES OF INCORPORATION
Dividends will be paid on the Series A Preferred in an amount equal to 6.5% of
the Original Purchase Price per share when, if, and as declared by the Board.
These Series A Preferred dividends are cumulative. No dividends payable on
Common Stock or any other Class of Preferred without payment of similar and
all accrued dividends to the Series A Preferred Stock.
In the event of any liquidation, dissolution or winding up of the Company, the
proceeds shall be paid as follows:
First pay one times the Original Purchase Price plus declared and unpaid
dividends on each share of Series A Preferred. The balance of any proceeds shall
be distributed pro rata to holders of Common Stock of the Company (the
A merger or consolidation (other than one in which stockholders of the
Company own a majority by voting power of the outstanding shares of the
surviving or acquiring corporation) and a sale, lease, transfer, exclusive license
(other than in a specified field of use) or other disposition of all or substantially
all of the assets of the Company will be treated as a liquidation event (a
“Deemed Liquidation Event”), thereby triggering payment of the liquidation
preferences described above. Earn-out will not be factored into amount of initial
liquidation preference payout but indemnification escrow will be, provided that
earn-out payments will be allocated to the liquidation preference rights of the
Series A Preferred to the extent that any indemnification escrow proceeds are not
paid to the holders thereof.
The Series A Preferred shall vote together with the Common Stock on an asconverted
into Common Stock basis, and not as a separate class except as
provided under “Protective Provisions below.
The Board shall consist of four members, two of whom will be elected by the
holders of a majority of the Common Stock, voting as a separate class (the
“Common Directors”), one of whom will be elected by the holders of a
majority of the Series A Preferred, voting separately as a class (the “Series A
Director”), and one of whom will be elected by the holders of a majority of the
Common Stock and Preferred Stock voting together (the “Joint Director”). The
Series A Director, currently Bilal Atami, is chosen by Curatio Holdings Ltd.
(“Curatio”) so long as Curatio owns at least 50% of the Series A Preferred it
acquired originally. The Common Directors include the CEO, currently Beert
Passbruege, plus one other person, currently Belinda Ferrier. The Joint Director,
currently James Howard, is an independent director chosen by the unanimous
consent of the Common Directors and the Series A Director. The voting
Directors also will have standard inspection and visitation rights.
So long as more than 1,500,000 shares of Preferred Stock, excluding shares of
Series A-4, are outstanding, in addition to any other vote or approval required
under the Company’s articles of incorporation or by-laws, the Company will not,
without the written consent of the holders of at least sixty percent (60%) of the
Company’s then outstanding Preferred Stock excluding then outstanding shares of
the Series A-4, either directly or by amendment, merger, consolidation, or
(i) liquidate, dissolve or wind-up the affairs of the Company;
(ii) effect any merger or consolidation or any other Deemed Liquidation
(iii) amend, alter, or repeal any provision of (A) the articles of incorporation
of the Company, or (B) the bylaws of the Company, if such articles of
incorporation or bylaw amendment adversely affects the Preferred Stock vis a
vis the Common Stock;
(iv) create or issue a series of preferred shares having a preference over, or
being on a parity with, any series of the Preferred Stock with respect to
dividends or liquidation or, if redeemable, as to redemption, or create or issue
debt convertible into such a series;
(v) alter or change the rights, preferences or privileges granted to or the
restrictions imposed upon the Preferred Stock in such a way that adversely
affects the Preferred Stock (subject to a series vote of each series of Preferred
Stock which is adversely affected in a manner different than other series);
(vi) approve the purchase, redemption or other acquisition of any securities of
the Company, other than pursuant to agreements with an employee, director or
consultant approved by the Board giving the Company the right to repurchase
shares of Common Stock upon the termination of such person’s services;
(vii) increase or decrease the authorized number of directors on the Board;
(viii) authorize the payment of a dividend to any holders of any class or
series of capital stock;
(ix) incur indebtedness for borrowed money in excess of €250,000 other than
indebtedness to fund working capital requirements of the Company such as
bank credit lines or to fund purchases or capital leases of equipment; or
(x) create or sell any subsidiary or joint venture in a transaction which
either is not approved by the Board or which involves substantially all of the
Company’s IP assets.
So long as more than 1,500,000 shares of Series A Preferred are outstanding, in
addition to any other vote or approval required under the Company’s articles of
incorporation or by-laws, the Company will not, without the written consent of the
holders of at least sixty percent (60%) of the Company’s then outstanding Series
A Preferred, either directly or by amendment, merger, consolidation, or otherwise:
(i) adversely alter, waive, or change the rights, preferences, or privileges
granted to or the restrictions imposed upon the Series A Preferred so
as to affect them in a manner different than other series of Preferred
(ii) increase the number of shares of preferred stock which are
designated as Series A Preferred.
In addition, absent the vote or written consent by the holders of at least a majority
of the outstanding shares of a particular series of Series A Preferred Stock, the
Company shall not (a) increase the number of shares of such series or (b) alter or
change the rights, preferences or privileges granted to or the restrictions imposed
upon such series in such a way that adversely affects such series in a manner
different than the other series of Series A Preferred Stock.
The Series A Preferred initially converts 1:1 to Common Stock at any time at
option of holder, subject to adjustments for stock dividends, splits, combinations
and similar events and as described below under “Anti-dilution Provisions.”
In the event that the Company issues additional securities at a purchase price less
than the current Series A Preferred conversion price, such conversion price shall
be adjusted in accordance with a broad-based weighted average formula. The
following issuances shall not trigger anti-dilution adjustment:
i. securities issuable upon conversion of any of the Series A Preferred, or
as a dividend or distribution on the Series A Preferred;
ii. securities issued upon the conversion of any debenture, warrant, option,
or other convertible security;
iii. Common Stock issuable upon a stock split, stock dividend, or any
subdivision of shares of Common Stock;
iv. securities issued or issuable in connection with bona fide acquisitions,
mergers, strategic partnership or commercial transactions, licenses, real
estate or equipment leases, loans or similar transactions, the terms of
which are approved by the Board; and
v. shares of Common Stock (or options to purchase such shares of
Common Stock) issued or issuable to employees or directors of the
Company pursuant to any plan, agreement, or arrangement approved by
the Company’s Board of Directors.
Each share of Series A Preferred will automatically be converted into Common
Stock at the then applicable conversion rate in the event of the closing of a firm
commitment underwritten public offering at a price per share in excess of €10 (as
adjusted for intervening stock splits, reverse stock splits, and like events) in which
the aggregate gross cash proceeds to the Company equals or exceeds €30,000,000
(a “Qualified IPO”), or (ii) upon the written consent of the holders of a majority
of the Preferred Stock.
The Series A Preferred shall not be redeemable.
The Company will deliver to shareholders:
i. Audited IFRS financial statements or Reviewed (as determined by
investors) for each fiscal year within 90 days after the end of the fiscal
year and management-prepared quarterly financial statements for the first
three quarters of the year within 30 days after the end of each quarter.
ii. Annual budgets at least 30 days prior to the beginning of each fiscal year.
iii. Quarterly updates on progress and accomplishments and anticipated
progress against target in next period.
iv. Notification of any material defaults or litigation; and any other
information reasonably requested.
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