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,

Carefully read the retake instructions. You will get penalized for overlooking them.

Plagiarism will be severely punished. If you use external sources, reference them

appropriately.

2 Outputs:

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

appropriate arguments.

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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

your explanations.

Background:

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

financial transactions.

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.

Mission:

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 !

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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

“Company”).

OFFERING TERMS

Security

Being Sold:

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

€3,333,333.33.

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”.

Price Per

Share:

€1.11 (the “Original Purchase Price”)

Minimum

Investment:

The minimum investment in the Offering is €1,111, which minimum may be

increased, decreased, or waived by the Company.

Number of

shares of

Series A-4 in

the

Offering:

The Offering consists of a maximum of 3,003,003 shares which may sold in the

Private Placement.

Pre-Money

Valuation:

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

Financings:

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

capital funds.

1 This term sheet is freely adapted for the case purpose from the publicly available source

https://sec.report/Document/0001670254-18-000595/document_3.pdf

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Series A

Preferred

Definition:

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:

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.

Liquidation

Preference:

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

“Common Stock”).

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.

Voting

Rights:

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.

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Protective

Provisions:

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

otherwise:

(i) liquidate, dissolve or wind-up the affairs of the Company;

(ii) effect any merger or consolidation or any other Deemed Liquidation

Event;

(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

Stock or

(ii) increase the number of shares of preferred stock which are

designated as Series A Preferred.

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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.

Optional

Conversion:

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.”

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.

Mandatory

Conversion:

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.

Redemption

Rights:

The Series A Preferred shall not be redeemable.

Information

Rights:

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.