5(&200(1'(' )25 )8//7(;7 38%/,&$7,21 $3s$VVRFVY1RUWK$P3KLOLSVHWDO 1R 3XUVXDQW WR 6L[WK &LUFXLW 5XOH (/(&7521,& &,7$7,21 )(' $SS 3 WK &LU HQIRUFLQJWKDWDJUHHPHQWHYHQWKRXJKGRLQJVRGHQLHG$3 )LOH 1DPH DS IURPUHFHLYLQJFRPPLVVLRQVIURPWKHVXEVHTXHQWVDOHV 81,7('67$7(6&28572)$33($/6 /LNHZLVHZHOOVHWWOHGODZKROGVWKDWWKHUHODWHGFODLPRI XQMXVWHQULFKPHQWDOVRLVRQO\DSSURSULDWHLQWKHDEVHQFHRIDQ )257+(6,;7+&,5&8,7 H[SUHVVFRQWUDFW&ORYHUGDOH(TXLS&RY6LPRQ$HULDOV BBBBBBBBBBBBBBBBB ,QF)GWK&LU8QMXVWHQULFKPHQW OLNHSURPLVVRU\HVWRSSHOLVQRWDSSOLFDEOHZKHQWKHSDUWLHV $3s $662&,$7(6 ,1& ; DUH ERXQG E\ DQ H[SUHVV ZULWWHQ DJUHHPHQW ,G ,Q &ORYHUGDOHWKH6L[WK&LUFXLWKHOGWKDWSRVWWHUPLQDWLRQVDOHV 3ODLQWLII$SSHOODQW GLGQRWFRQVWLWXWHXQMXVWHQULFKPHQWZKHUHWKHSDUWLHVERWK 1R UHFHLYHGWKHEHQHILWRIWKHEDUJDLQWRZKLFKWKH\DJUHHG Y ! $V ZLWK $3jV RWKHU FODLPV LWV HTXLWDEOH WKHRULHV RI 1257+ $0(5,&$1 3+,/,36 UHFRYHU\DUHWKZDUWHGE\WKHIDFWWKDWWKHZULWWHQDJUHHPHQWV EHWZHHQ WKH SDUWLHV XQDPELJXRXVO\ SURYLGHG IRU WKH &253HWDO WHUPLQDWLRQ RI WKH DJUHHPHQWV DQG WKH SD\PHQW RI 'HIHQGDQWV$SSHOOHHV FRPPLVVLRQV 1 &21&/86,21 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW'HWURLW :KLOHLWDSSHDUVWKDW$3ZDVXQGHUVWDQGDEO\GLVDSSRLQWHG 1Rn$YHUQ&RKQ6HQLRU'LVWULFWsXGJH WKDWLWVEXVLQHVVUHODWLRQVKLSZLWK3KLOLSVGLGQRWSURGXFHWKH ORQJWHUPFRPPLVVLRQVWKDWLWH[SHFWHGLWPD\QRWUHFRYHU $UJXHG'HFHPEHU IRUKDYLQJHQWHUHGLQWRDQDJUHHPHQWZKLFKGLGQRWWXUQRXW DVLWKDGKRSHG$3jVVXEMHFWLYHH[SHFWDWLRQVZHUHWKZDUWHG 'HFLGHGDQG)LOHGsDQXDU\ E\DEDGEDUJDLQQRWE\IUDXGRUUHOLDQFHRQDQRUDOFRQWUDFW $3NQRZLQJO\HQWHUHGLQWRDJUHHPHQWVXQGHUWHUPVLWIRXQG %HIRUH&2/(DQG&/$<&LUFXLWsXGJHV REMHFWLRQDEOH7KHWZRSDUWLHVQHJRWLDWHGRYHUWKHWHUPVRI %(57(/60$1'LVWULFWsXGJH WKH DJUHHPHQWV DQG $3 VLJQHG WKHP HDFK \HDU IXOO\ XQGHUVWDQGLQJWKHPHDQLQJRIWKHDJUHHPHQWVDVWKH\ZHUH BBBBBBBBBBBBBBBBB ZULWWHQ7KHWHUPVRIWKHZULWWHQFRQWUDFWVDUHXQDPELJXRXV DQGFOHDUO\FRQWUROWKHLVVXHVRIWHUPLQDWLRQDQGSD\PHQWRI &2816(/ FRPPLVVLRQV$VDPDWWHURIODZH[WULQVLFHYLGHQFHPD\QRW RYHUULGHWKHSODLQPHDQLQJRIWKHDJUHHPHQWV $5*8('0LFKDHOs6XJDPHOL68*$0(/, 2/621 7UR\ 0LFKLJDQ IRU $SSHOODQW ( sHIIUH\ %DQFKHUR 7+( %DVHG RQ WKH IRUHJRLQJ ZH FRQFOXGH WKDW VXPPDU\ %$1&+(52/$:),50//36DQ)UDQFLVFR&DOLIRUQLD MXGJPHQWZDVSURSHUO\JUDQWHGE\WKHGLVWULFWFRXUWLQWKLV PDWWHU:HWKHUHIRUH$)),50 7KH +RQRUDEOH :LOOLDP 2 %HUWHOVPDQ 6HQLRU 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH (DVWHUQ 'LVWULFW RI .HQWXFN\ VLWWLQJ E\ GHVLJQDWLRQ $3s$VVRFVY1RUWK$P3KLOLSVHWDO 1R 1R $3s$VVRFVY1RUWK$P3KLOLSVHWDO IRU$SSHOOHHV21%5,()0LFKDHOs6XJDPHOL(GZDUG LQWURGXFHGWKHSDUWLHV,G'HVSLWH$3jVDUJXPHQWWKDWWKH 0 2OVRQ 68*$0(/, 2/621 7UR\ 0LFKLJDQ IRU OHWWHU IRUPHG WKH EDVLV IRU WKH VDOHV RI 3KLOLSV $SSHOODQW(sHIIUH\%DQFKHUR5REHUW0/LFKWPDQ7+( PLFURSURFHVVRUVWR*0QRDFWXDOVDOHRUSXUFKDVHRUGHUZDV %$1&+(52/$:),50//36DQ)UDQFLVFR&DOLIRUQLD SODFHGXQWLO 5LFKDUG$5RVVPDQ3(33(5+$0,/721 6&+((7= 'HWURLW0LFKLJDQIRU$SSHOOHHV 3URPLVVRU\(VWRSSHODQG8QMXVW(QULFKPHQW BBBBBBBBBBBBBBBBB $3 VHHNV WKH SD\PHQW RI FRPPLVVLRQV RQ WKH VDOHV RI PLFURSURFHVVRUV E\ 3KLOLSV WR *0 ZKLFK EHJDQ ZLWK WKH 23,1,21 SURGXFW\HDUDQGFRQWLQXHWRGD\$3jVHTXLWDEOHFODLP BBBBBBBBBBBBBBBBB PHULWV VRPH V\PSDWK\ ,Q VSLWH RI 3KLOLSVjV DWWHPSWV WR PLQLPL]HWKHLPSRUWDQFHRI$3jVUROHLWVHHPVFOHDUWKDWWKH %(57(/60$1 'LVWULFW sXGJH 7KLV LV DQ DSSHDO RI D UHODWLRQVKLS EHWZHHQ 3KLOLSV DQG *0 ZRXOG QHYHU KDYH JUDQW RI VXPPDU\ MXGJPHQW 3ODLQWLII$SSHOODQW $3s JRWWHQRIIWKHJURXQGEXWIRUWKHHIIRUWVRI$3+RZHYHUDQG $VVRFLDWHV m$3l D PDQXIDFWXUHUjV UHSUHVHQWDWLYH ILUP RQFHDJDLQEHFDXVHRIWKHH[SUHVVWHUPVRIWKHFRQWUDFW$3 VLJQHGDVHULHVRIDJUHHPHQWVZLWK'HIHQGDQW$SSHOOHH1RUWK GRHVQRWKDYHDOHJDOFODLPIRUSURPLVVRU\HVWRSSHORUXQMXVW $PHULFDQ 3KLOLSV &RUS m3KLOLSVl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jVUHSUHVHQWDWLYH VKRXOGKDYHUHDVRQDEO\H[SHFWHGWRLQGXFHDFWLRQZKLFK FRQWUDFWVZLWK3KLOLSVLQ3KLOLSVWKURXJKLWVVXEVLGLDU\ LQ IDFW SURGXFHV UHOLDQFH RU IRUEHDUDQFH XQGHU 6LJQHWLFV PDQXIDFWXUHG HOHFWURQLF FRPSRQHQWV IRU FLUFXPVWDQFHV VXFK WKDW WKH SURPLVH PXVW EH HQIRUFHG LI DXWRPRELOHFUXLVHFRQWUROV\VWHPVDQGZDQWHGWREHFRPHD LQMXVWLFH LV WR EH DYRLGHG ,G DW $ FODLP IRU VXSSOLHU IRU *HQHUDO 0RWRUV m*0l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jV UHSUHVHQWDWLYH ILUP ZLWK D XQGHUVWDQGLQJVLVQRWDSSURSULDWH7KHDJUHHPHQWEDUVSRVW UHSXWDWLRQIRUGHYHORSLQJEXVLQHVVUHODWLRQVKLSVZLWKVHYHUDO WHUPLQDWLRQFRPPLVVLRQVDQG3KLOLSVLVQRWHVWRSSHGIURP $3s$VVRFVY1RUWK$P3KLOLSVHWDO 1R 1R $3s$VVRFVY1RUWK$P3KLOLSVHWDO 1RWRQO\KDVWKH$FWEHHQKHOGH[SOLFLWO\QRWWRVXSHUVHGH FRPSDQLHVLQFOXGLQJ*0$Q$3HOHFWULFDOHQJLQHHUQDPHG DQ DJUHHPHQW RI WKH SDUWLHV UHJDUGLQJ SD\PHQW RI SRVW 5RQ 0LFKDODN EHJDQ ZRUNLQJ ZLWK *0jV PLFURSURFHVVRU WHUPLQDWLRQ FRPPLVVLRQV EXW WKH $FW LWVHOI VWDWHV WKDW WKH XQLW$&5RFKHVWHULQ,WZDVDOOHJHGO\EHFDXVHRIWKLV SDUWLHVj DJUHHPHQW ZLOO EH KHOG WR GHILQH WKH VFRSH RI WKH FRQWDFW DQG $3jV UHSXWDWLRQ IRU EHLQJ VXFFHVVIXO DW REOLJDWLRQWRSD\FRPPLVVLRQVm7KHWHUPVRIWKHFRQWUDFW LQWURGXFLQJ FRPSDQLHV WR *0 WKDW 3KLOLSV VRXJKW $3jV VKDOO GHWHUPLQH ZKHQ D FRPPLVVLRQ EHFRPHV GXHl VHUYLFHV 6LQFHWKH$FWDVFLWHGE\$3RQO\UHTXLUHV WKHSD\PHQWRIDOOFRPPLVVLRQVWKDWEHFRPHmGXHlLWRQO\ ,Q 'HFHPEHU $3 DQG 3KLOLSV QHJRWLDWHG D 6DOHV UHTXLUHVWKDW3KLOLSVKDYHSDLG$3DOOFRPPLVVLRQVWRZKLFK 5HSUHVHQWDWLYH $JUHHPHQW WKH m $JUHHPHQWl 7KLV LWZDVmGXHlDWWKHWLPHRIWHUPLQDWLRQ DJUHHPHQWLQFOXGHGDWKLUW\GD\WHUPLQDWLRQFODXVHm(LWKHU SDUW\PD\WHUPLQDWHWKHDJUHHPHQWIRULWVFRQYHQLHQFHXSRQ 7KH GLVWULFW FRXUW KHOG WKDW $3 ZDV LQGHHG SDLG DOO DWOHDVWWKLUW\GD\VSULRUZULWWHQQRWLFHRIWHUPLQDWLRQl FRPPLVVLRQVZKLFKZHUHGXHDWWKHWLPHWKHDJUHHPHQWZDV s$DW$GGHQGXPm&lWRWKH$JUHHPHQWVHWIRUWK WHUPLQDWHG HIIHFWLYH 1RYHPEHU 7KH DJUHHPHQW DVFKHGXOHIRUFRPPLVVLRQVZKLFKZRXOGEHEDVHGRQmVDOHV SURYLGHG WKDW FRPPLVVLRQV ZHUH WR EH SDLG RQ mDOO VDOHV VROLFLWHG DQG RUGHUV UHFHLYHG E\ FXVWRPHU ORFDWLRQ ZLWKLQ VROLFLWHG DQG RUGHUV UHFHLYHGl ZKLOH WKH DJUHHPHQW ZDV LQ 5(35(6(17$7,9(jV 7HUULWRU\ l s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s$ DW 7KH $JUHHPHQW DOVR FRQWDLQHG DQ VDOH ZDV XQGRXEWHGO\ GXH LQ VRPH SDUW WR $3jV SUHYLRXV LQWHJUDWLRQFODXVHZKLFKZDVDOVRLQFOXGHGLQWKHVXEVHTXHQW HIIRUWV$3GLGUHFHLYHDOOWKHFRPPLVVLRQVWRZKLFKLWZDV DJUHHPHQWVVWDWLQJWKDWWKHZULWWHQFRQWUDFWmFRQVWLWXWHVWKH HQWLWOHG XQGHU WKH FRQWUDFW 7KH IDLOXUH WR SD\ SRVW HQWLUH $JUHHPHQW EHWZHHQ WKH SDUWLHV UHODWLYH WR WKH VDOHV WHUPLQDWLRQFRPPLVVLRQVGLGQRWYLRODWHWKH0LFKLJDQ6DOHV UHSUHVHQWDWLRQDQGVXSHUFHGHV>VLF@DQGUHSODFHVDOOSULRU 5HSUHVHQWDWLYH$FW RU FRQWHPSRUDQHRXV DJUHHPHQWV ZULWWHQ DQG YHUEDO l s$DW7KHFRQWUDFWPDGHQRPHQWLRQRIDQ\VSHFLILF )XUWKHUPRUH $3jV UROH LQ WKH VDOHV WR *0 ZKLOH WDVNVVXFKDVLQWURGXFLQJ3KLOLSVWR*0 FHUWDLQO\ RI JUHDW LPSRUWDQFH LQ WKH UHODWLRQVKLS GRHV QRW TXDOLI\DVWKHmSURFXULQJFDXVHlRIWKHVXEVHTXHQWVDOHV$ 7KH$JUHHPHQWRQO\UDQWKLUW\RQHGD\VH[SLULQJRQ PDQXIDFWXUHUjVUHSUHVHQWDWLYHILUPPD\RQO\REWDLQDQDZDUG 'HFHPEHU,QsDQXDU\WKHSDUWLHVH[HFXWHGDQRWKHU DV WKH SURFXULQJ FDXVH RI SRVWWHUPLQDWLRQ VDOHV ZKHUH WKH DJUHHPHQWZLWKVLPLODUSURYLVLRQVIRUDRQH\HDUWHUPWKH ZULWWHQDJUHHPHQWLVVLOHQW5REHUWV$VVRFV,QFY%OD]HU m $JUHHPHQWl 7KH $JUHHPHQW SURYLGHG IRU ,QWjO&RUS)6XSS('0LFK:KHUH FRPPLVVLRQVWREHSDLGmEDVHGRQDOOVKLSPHQWVRI3URGXFW WKHDJHQWGRHVQRWSDUWLFLSDWHLQWKHQHJRWLDWLRQRIDJLYHQ PDGHWRDQGGHYHORSPHQWDOFKDUJHVSDLGE\FXVWRPHUVZLWKLQ FRQWUDFWRIVDOHWKHDJHQWLVQRWWKHmSURFXULQJFDXVHlRISRVW 5(35(6(17$7,9(j67HUULWRU\ls$DW7KH WHUPLQDWLRQ VDOHV HYHQ WKRXJK KH PD\ KDYH RULJLQDOO\ $3s$VVRFVY1RUWK$P3KLOLSVHWDO 1R 1R $3s$VVRFVY1RUWK$P3KLOLSVHWDO $JUHHPHQWFRQWDLQHGWKHVDPHWKLUW\GD\WHUPLQDWLRQ 3KLOLSVZKLFKVHUYHVDVWKHRQO\HYLGHQFHRIVXFKSURJUDPRU mIRUFRQYHQLHQFHlFODXVHs$DW SROLF\ E\ 3KLOLSV LV DPELJXRXV ,W GRHV QRW HVWDEOLVK WKDW 3KLOLSV KDG D FOHDU SROLF\ IRU WDNLQJ DOO ODUJH DFFRXQWV LQ %HIRUH VLJQLQJ WKH $JUHHPHQW $3 3UHVLGHQW sLP KRXVHLQRUGHUWRGHQ\LWVUHSUHVHQWDWLYHILUPVWKHIUXLWVRI $OH[DQGHU FRPSODLQHG WR 3KLOLSVjV VDOHV PDQDJHU 5LFK WKHLUODERUEXWRQO\WKDWLWPDGHGHFLVLRQVRQDFDVHE\FDVH /HVLQVNL DERXW WKH WHUPLQDWLRQ FODXVH /HVLQVNL DJUHHG WR EDVLVs$ mEULQJ LW XS ZLWK KLV VXSHULRUVl s$ DW +RZHYHU 3KLOLSV GLG QRW DOORZ DQ\ FKDQJH LQ WKH WHUPV RI WKH $V WKH GLVWULFW FRXUW REVHUYHG HYHQ LI WKH SURJUDP $JUHHPHQWDQG$OH[DQGHUVLJQHGLWDVZULWWHQ$OH[DQGHU IXQFWLRQHGDV$3DOOHJHVLWVWLOOGRHVQRWVKRZWKDW$3ZDV WHVWLILHGWKDWKHGLGVRGHVSLWHKLVREMHFWLRQWRWKHWHUPLQDWLRQ IUDXGXOHQWO\LQGXFHGLQWRHQWHULQJWKHDJUHHPHQWVEHFDXVH FODXVHEHFDXVHKHZDVWROGWKDWWKHFRQWUDFWmZDVFRUSRUDWH $3ZDVZHOODZDUHRI3KLOLSVjVRSWLRQVXQGHUWKHWKLUW\GD\ SROLF\DQG\RXKDGWRDFFHSWLWls$DW$FFRUGLQJWR WHUPLQDWLRQFODXVHDQGWKDWLWLVDFRPPRQULVNWDNHQE\D $3 mWKH UHSUHVHQWDWLYHV IURP 3KLOLSV LQIRUPHG $OH[DQGHU PDQXIDFWXUHUjVUHSUHVHQWDWLYHWKDWWKHPDQXIDFWXUHUPLJKWDW WKDWZKLOHWKHZULWWHQFRQWUDFWFDPHIURPWKHKRPHRIILFH DQ\WLPHGHFLGHWRWDNHWKHDFFRXQWLQKRXVHs$DW$3 DQGZDVQRWQHJRWLDEOH$3QHHGQjWZRUU\EHFDXVHWKHRUDO REMHFWHGWRWKHSURYLVLRQEXWHDFK\HDULWVLJQHGWKHFRQWUDFW DJUHHPHQWWKH\QHJRWLDWHGZDVWKHDFWXDODJUHHPHQWl $3 DOVR DOOHJHV WKDW $OH[DQGHU ZDV WROG WKDW mQR VDOHV 7KH0LFKLJDQ6DOHV5HSUHVHQWDWLYH$FW UHSUHVHQWDWLYHRI3KLOLSVZDVHYHUWHUPLQDWHGDVORQJDVVDOH WDUJHWVZHUHPHWlDQGWKDW3KLOLSVjVSROLF\ZDVWKDWmORQJ $3 DWWHPSWV WR DUJXH WKDW WKH 0LFKLJDQ 6DOHV WHUPVDOHVHTXDOORQJWHUPFRPPLVVLRQVl 5HSUHVHQWDWLYH $FW VXSHUVHGHV WKH DJUHHPHQWVj SURYLVLRQV WKDW $3 ZRXOG QRW EH HQWLWOHG WR SRVWWHUPLQDWLRQ ,Q sDQXDU\ WKH SDUWLHV VLJQHG DQRWKHU RQH\HDU FRPPLVVLRQV $3 FLWHV ODQJXDJH LQ WKH $FW WKDW m>D@ DJUHHPHQW 7KH $JUHHPHQW FRQWDLQHG D WKLUW\GD\ SURYLVLRQ LQ D FRQWUDFW EHWZHHQ D SULQFLSDO DQG D VDOHV WHUPLQDWLRQ FODXVH WR ZKLFK $OH[DQGHU REMHFWHG EXW UHSUHVHQWDWLYHSXUSRUWLQJWRZDLYHDQ\ULJKWXQGHUWKLVVHFWLRQ QRQHWKHOHVVVLJQHG,QsDQXDU\WKHSDUWLHVH[HFXWHG\HW LV YRLGl 0LFK &RPS /DZV $QQ 7KH DQRWKHU RQH\HDU DJUHHPHQW DJDLQ ZLWK D WKLUW\GD\ mULJKWlWKDW$3DOOHJHVZDVmZDLYHGlE\WKHDJUHHPHQWVZDV WHUPLQDWLRQFODXVH7KH$JUHHPHQWFKDQJHGWKHZD\ $3jVULJKWWRUHFHLYHmDOOFRPPLVVLRQVWKDWDUHGXHDWWKHWLPH FRPPLVVLRQVZRXOGEHSDLGLWVXEVWLWXWHGDIODWFRPPLVVLRQ RIWHUPLQDWLRQl,G UDWHIRUWKHSUHYLRXVV\VWHPRIDYDULDEOHFRPPLVVLRQUDWHDQG DEXGJHW$OH[DQGHUDJDLQREMHFWHGWRWKHWHUPLQDWLRQFODXVH ,Q&ODUN%URV6DOHV&RY'DQD&RUS)6XSSG EXW ZDV WROG LW ZDV QRW QHJRWLDEOH $OH[DQGHU GHFOLQHG WR (' 0LFK WKH SODLQWLII ZDV VXLQJ IRU SD\PHQW RI EULQJWKHPDWWHUXSZLWKVHQLRURIILFLDOVDW3KLOLSVWHVWLI\LQJ SRVWWHUPLQDWLRQ FRPPLVVLRQV XQGHU WKH 0LFKLJDQ VWDWXWH WKDWmLWZDVQRWDSROLWLFDOO\FRUUHFWWKLQJWRGRls$DW +RZHYHUWKHZULWWHQDJUHHPHQWEHWZHHQWKHSDUWLHVSURYLGHG WKDWQRSRVWWHUPLQDWLRQFRPPLVVLRQVZRXOGEHSDLG7KH $3jV:RUNDQG7HUPLQDWLRQ FRXUWKHOGWKDWWKHWHUPVRIWKHFRQWUDFWFRQWUROOHGDQGWKDW WKH6DOHV5HSUHVHQWDWLYH$FWGLGQRWRSHUDWHWRFUHDWHDGXW\ ,Q0DUFK$3DUUDQJHGDPHHWLQJZLWKUHSUHVHQWDWLYHV WR SD\ SRVWWHUPLQDWLRQ FRPPLVVLRQV ZKHQ WKH SDUWLHV KDG RI 3KLOLSV DQG *0 $FFRUGLQJ WR $3 5RQ 0LFKDODN DJUHHGRWKHUZLVH,GDWKROGLQJWKDWWKHVWDWXWHmGRHV GHGLFDWHGDERXWRQHDQGRQHKDOIGD\VSHUZHHNWRWKHSURMHFW QRWFUHDWHDQHZREOLJDWLRQRULPSRVHDQHZGXW\WRSD\VDOHV 7KURXJKRXW $3 FRQWLQXHG WR DUUDQJH PHHWLQJV DQG FRPPLVVLRQVlFLWDWLRQRPLWWHG JHQHUDOO\DFWHGDVWKHOLDLVRQEHWZHHQ3KLOLSVDQG*02Q $3s$VVRFVY1RUWK$P3KLOLSVHWDO 1R 1R $3s$VVRFVY1RUWK$P3KLOLSVHWDO )UDXGLQWKH,QGXFHPHQW )HEUXDU\*0VHQWDOHWWHUWR3KLOLSVFRQILUPLQJWKDW 3KLOLSVKDGEHHQFKRVHQWRGHYHORSDFUXLVHFRQWUROPRGXOH 7KHGLVWULFWFRXUWKHOGWKDW$3IDLOHGWRVKRZWKDW3KLOLSV IRUSURGXFWLRQ\HDUVEHJLQQLQJLQs$DW7KLV IUDXGXOHQWO\PLVOHG$3LQWRVLJQLQJWKHFRQWUDFWV$3DUJXHV ZDVmDPRPHQWRXVRFFDVLRQlIRU3KLOLSV7KURXJK$3 WKDWE\PDNLQJRUDOVWDWHPHQWVVXFKDVmORQJWHUPVDOHVHTXDO FRQWLQXHGWRDFWDVWKHIDFLOLWDWRUIRUFRPPXQLFDWLRQVEHWZHHQ ORQJWHUP FRPPLVVLRQVl DQG E\ QRW GLVFORVLQJ LWV DOOHJHG 3KLOLSVDQG*0 0DMRU$FFRXQWV3URJUDP3KLOLSVGHFHLYHG$3LQWRWKLQNLQJ LW FRXOG UHO\ RQ D PXWXDO H[SHFWDWLRQ RI D ORQJWHUP 2Q 6HSWHPEHU 3KLOLSV QRWLILHG $3 WKDW LW ZDV UHODWLRQVKLS$3FODLPVWKDWDVVXUDQFHVJLYHQLQUHVSRQVHWR WHUPLQDWLQJ WKH UHSUHVHQWDWLYH DJUHHPHQW HIIHFWLYH $OH[DQGHUjV FRQFHUQ RYHU WKH WHUPLQDWLRQ FODXVH ZHUH 1RYHPEHU $FFRUGLQJ WR $3 WKLV FDPH DV D mNQRZQE\DOORI3KLOLSVjVUHSUHVHQWDWLYHVWREHXQWUXHl mFRPSOHWH VKRFNl EHFDXVH WKH UHODWLRQVKLS VHHPHG WR EH SURJUHVVLQJZHOOsXVWWZRZHHNVHDUOLHURQ6HSWHPEHU 8QGHU0LFKLJDQODZIUDXGPXVWEHHVWDEOLVKHGE\FOHDUDQG *0 KDG DVNHG 3KLOLSV IRU D TXRWH RQ D SURSRVHG QHZ FRQYLQFLQJHYLGHQFH/DYHDQY&RZHOV)6XSS PLFURSURFHVVRU 7KH WHUPLQDWLRQ OHWWHU VWDWHG WKDW :' 0LFK 7KH DOOHJHG RUDO DVVXUDQFHV WKDW m>F@RPPLVVLRQVZLOOEHSDLGLQDFFRUGDQFHZLWK>WKH@ mORQJWHUP VDOHV HTXDO ORQJWHUP FRPPLVVLRQVl DQG WKDW $JUHHPHQWls$DW VXFFHVVIXOPDQXIDFWXUHUjVUHSUHVHQWDWLYHVZHUHQRWWHUPLQDWHG GR QRW HVWDEOLVK IUDXG )RU D FODLP RI IUDXG EDVHG RQ D 3KLOLSV GHFLGHG WR WHUPLQDWH $3 LQ RUGHU WR DVVXPH WKH SURPLVH WR SHUIRUP LQ WKH IXWXUH $3 PXVW HVWDEOLVK DV D PDQDJHPHQWRIWKH*0DFFRXQWLWVHOI$3DOOHJHVWKDWLWZDV PDWWHU RI ODZ WKDW 3KLOLSV KDG QR LQWHQWLRQ RI IXOILOOLQJ LWV 3KLOLSVjVSROLF\XQNQRZQDWWKHWLPHWR$3WRWDNHLQKRXVH SURPLVH DW WKH WLPH WKDW LW ZDV PDGH %HUU\ Y &KU\VOHU DOODFFRXQWVWKDWUHDFKHGDFHUWDLQVL]HXQGHUVRPHWKLQJFDOOHG &RUS)GWK&LU Dm0DMRU$FFRXQWV3URJUDPl$IRUPHU3KLOLSVHPSOR\HH WHVWLILHGWKDWZKLOH3KLOLSVGLGVRPHWLPHVGHFLGHWRWDNHRYHU +HUH HYHQ FRQVLGHULQJ WKH H[WULQVLF HYLGHQFH DQG WKH PDQDJHPHQW RI LWV DFFRXQWV IURP UHSUHVHQWDWLYH ILUPV DVVXPLQJ $3jV DOOHJDWLRQV DUH WUXH $3 IDLOV WR VKRZ WKDW WKHUHZDVQRVHWSROLF\RUDFFRXQWVL]HIRUWULJJHULQJVXFKD 3KLOLSVPDGHRUDODVVXUDQFHVZLWKWKHLQWHQWWRGHFHLYH)LUVW GHFLVLRQ5DWKHU3KLOLSVGHFLGHGZKLFKDFFRXQWVWRPDQDJH RI DOO VXFK GLVFXVVLRQV RI D ORQJWHUP IXWXUH GR QRW E\LWVHOIRQDFDVHE\FDVHEDVLVs$DW QHFHVVDULO\FRQIOLFWZLWKWKHZULWWHQDJUHHPHQWVjWHUPLQDWLRQ SURYLVLRQV(DFKRIWKHIRXUDJUHHPHQWVFRQWDLQHGDWKLUW\ ,Q)HEUXDU\3KLOLSVVHQW$3DFKHFNIRUDV GD\WHUPLQDWLRQIRUFRQYHQLHQFHFODXVH7KHDJUHHPHQWVZHUH D mILQDO UHFRQFLOLDWLRQl DQG D OHWWHU VWDWLQJ WKDW WKH UHQHZHG E\ WKH SDUWLHV WKUHH \HDUV LQ D URZ HVVHQWLDOO\ HQGRUVHPHQW RI WKH FKHFN mYHULILH>G@ WKH FRPSOHWLRQ DQG UDWLI\LQJ WKH RULJLQDO EDUJDLQ 7KH IDFW WKDW $OH[DQGHU DFNQRZOHGJPHQWlRIWKHUHODWLRQVKLSDQGUHOHDVHG3KLOLSVRI FRQWLQXHG WR SURWHVW WKH FODXVH LQGLFDWHV WKDW KH ZDV ZHOO DOOREOLJDWLRQVs$DW$3GHSRVLWHGWKHFKHFN$3 DZDUH WKDW WKH FRQWUDFWV DV H[HFXWHG DOORZHG 3KLOLSV WR GLGQRIXUWKHUZRUNIRU3KLOLSVDIWHUWKHWHUPLQDWLRQOHWWHU FDQFHOWKHGHDODWDQ\WLPH *0 VXEVHTXHQWO\ SXUFKDVHG WKH PLFURSURFHVVRUV IURP 3KLOLSVDQGWKH\KDYHEHHQLQVWDOOHGLQ*0FDUVVLQFH 7KHH[LVWHQFHRID0DMRU$FFRXQWV3URJUDPOLNHZLVHIDLOV WRHVWDEOLVKWKDW$3ZDVIUDXGXOHQWO\GHFHLYHGLQWRHQWHULQJ WKHDJUHHPHQWV$3DUJXHVWKDWWKLVSURJUDPLVHYLGHQFHWKDW 3KLOLSV QHYHU LQWHQGHG WR KRQRU LWV SURPLVH RI mORQJWHUP FRPPLVVLRQVl 7KH WHVWLPRQ\ RI D IRUPHU HPSOR\HH RI $3s$VVRFVY1RUWK$P3KLOLSVHWDO 1R 1R $3s$VVRFVY1RUWK$P3KLOLSVHWDO ',6&866,21 6HHHJ1RYDNY1DWLRQZLGH0XW,QV&R0LFK$SS 6WDQGDUGRI5HYLHZ ,Q+DUULV&RUSY*LHVWLQJ $VVRFV)GWK :H UHYLHZ D JUDQW RI VXPPDU\ MXGJPHQW GH QRYR &LUDWHUPLQDWHGPDQXIDFWXUHUjVUHSUHVHQWDWLYHILUP +DPPRQY'+/$LUZD\V,QF)GWK&LU DUJXHG WKDW D WHUPLQDWLRQIRUFRQYHQLHQFH FODXVH ZKLFK LW ,Q GRLQJ VR ZH PXVW YLHZ WKH HYLGHQFH DQG DOO KDG SURWHVWHG EXW VLJQHG QRQHWKHOHVV ZDV DPELJXRXV DQG LQIHUHQFHVWREHGUDZQWKHUHIURPLQDOLJKWPRVWIDYRUDEOHWR WKHUHIRUH VXEMHFW WR LQWHUSUHWDWLRQ LQ OLJKW RI H[WULQVLF WKHQRQPRYDQW.HHYHUY&LW\RI0LGGOHWRZQ)G HYLGHQFH 7KH (OHYHQWK &LUFXLW KHOG WKDW WKH PHDQLQJ RI WK&LUFHUWGHQLHG866XPPDU\ mWHUPLQDWLRQ IRU FRQYHQLHQFHl ZDV SODLQ RQ LWV IDFH DQG MXGJPHQWLVSURSHUZKHQmWKHSOHDGLQJVGHSRVLWLRQVDQVZHUV WKHUHIRUHH[FOXGHGDQ\FRQVLGHUDWLRQRISDUROHYLGHQFH,GDW WRLQWHUURJDWRULHVDQGDGPLVVLRQVRQILOHWRJHWKHUZLWKWKH (YHQWKRXJKWKHILUPPD\KDYHKDGmDQH[SHFWDWLRQ DIILGDYLWVLIDQ\VKRZWKDWWKHUHLVQRJHQXLQHLVVXHDVWRDQ\ WKDW>WKHPDQXIDFWXUHU@ZRXOGQRWWHUPLQDWHWKHFRQWUDFWIRU PDWHULDO IDFW DQG WKDW WKH PRYLQJ SDUW\ LV HQWLWOHG WR D FRQYHQLHQFHlWKHH[SUHVVWHUPVRIWKHFRQWUDFWDOORZHGWKHP MXGJPHQWDVDPDWWHURIODZl)HG5&LY3F WRGRVR,G/LNHZLVHWKHWHUPLQDWLRQFODXVHLQWKLVFDVHLV XQDPELJXRXVDVDPDWWHURIODZ 7KH:ULWWHQ$JUHHPHQWV 1RU GR WKH SURYLVLRQV IRU WKH SD\PHQW RI FRPPLVVLRQV $3FRQWHQGVWKDWHTXLWDEOHHVWRSSHOSURKLELWV3KLOLSVIURP LQWURGXFHDQ\DPELJXLW\LQWKHDJUHHPHQWXSRQZKLFK$3FDQ UHO\LQJ RQ WKH IRXU FRUQHUV RI WKH FRQWUDFWV WKDW H[WULQVLF EDVHLWVFODLPV7KHZULWWHQDJUHHPHQWVXQHTXLYRFDOO\EDUWKH HYLGHQFHLVQHFHVVDU\WRLQWHUSUHWWKHWHUPVRIWKHDJUHHPHQWV SD\PHQW RI DQ\ SRVWWHUPLQDWLRQ FRPPLVVLRQV $3jV EHWZHHQWKHSDUWLHVDQGWKDWWKHGLVWULFWFRXUWFRPPLWWHGHUURU DVVHUWLRQWKDWWKHRUDOVWDWHPHQWmORQJWHUPVDOHVHTXDOORQJ E\KROGLQJWKDWWKHZULWWHQGRFXPHQWVFRQVWLWXWHGWKHHQWLUH WHUP FRPPLVVLRQVl FRQVWLWXWHV mWKH HVVHQWLDO WHUPV RI WKH DJUHHPHQW FRQWUDFWl LV QRW HQRXJK WR HVWDEOLVK WKDW WKH ZULWWHQ DJUHHPHQWV PXVW EH LQWHUSUHWHG LQ OLJKW RI VXFK SDURO 8QGHU 0LFKLJDQ ODZ D FRXUW PD\ QRW FRQVLGHU H[WULQVLF HYLGHQFH6HHHJ0DUWLQY(DVW/DQVLQJ6FK'LVW HYLGHQFH ZKHUH WKH WHUPV RI WKH DJUHHPHQW DUH FOHDU DQG 0LFK$SS XQDPELJXRXV6DXOW6WH0DULH7ULEHRI&KLSSHZD,QGLDQVY (QJOHU)GWK&LU+HUHWKHWHUPVRI )XUWKHUPRUH HDFK DJUHHPHQW FRQWDLQHG DQ LQWHJUDWLRQ DOOIRXUDJUHHPHQWVDUHQHLWKHUXQFOHDUQRULQFRQVLVWHQW7KH FODXVH 8QGHU 0LFKLJDQ ODZ mDQ LQWHJUDWLRQ FODXVH LQ D PXFKGLVFXVVHGWKLUW\GD\WHUPLQDWLRQFODXVHLQFOXGHGRYHU ZULWWHQ FRQWUDFW FRQFOXVLYHO\ HVWDEOLVKHV WKDW WKH SDUWLHV $OH[DQGHUjV UHSHDWHG REMHFWLRQV DQG UDWLILHG LQ WKH WKUHH LQWHQGHGWKHZULWWHQFRQWUDFWWREHWKHFRPSOHWHH[SUHVVLRQRI VXEVHTXHQWDJUHHPHQWVGRHVQRWLQGLFDWHDQ\TXHVWLRQDVWR WKHLUDJUHHPHQWl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