00a0404p.06

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21
3XUVXDQW WR 6L[WK &LUFXLW 5XOH
(/(&7521,& &,7$7,21 )(' $SS 3 WK &LU
)LOH 1DPH DS
81,7('67$7(6&28572)$33($/6
)257+(6,;7+&,5&8,7
BBBBBBBBBBBBBBBBB
81,7(' 67$7(6 2) $0(5,&$
3ODLQWLII$SSHOOHH
Y
=$)(5,12 48,17(/$ 0812=
'HIHQGDQW$SSHOODQW
;!

1
1R
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH(DVWHUQ'LVWULFWRI7HQQHVVHHDW&KDWWDQRRJD
1R²&XUWLV/&ROOLHU'LVWULFW-XGJH
$UJXHG6HSWHPEHU
'HFLGHGDQG)LOHG1RYHPEHU
%HIRUH0(55,77.(11('<DQG*,/0$1&LUFXLW
-XGJHV
BBBBBBBBBBBBBBBBB
&2816(/
$5*8(' 'DYLG ) 1HVV )('(5$/ '()(1'(5
6(59,&(6 2) ($67(51 7(11(66(( ,1&
&KDWWDQRRJD7HQQHVVHHIRU$SSHOODQW*UHJJ/6XOOLYDQ
$66,67$1781,7('67$7(6$77251(<&KDWWDQRRJD
7HQQHVVHH IRU $SSHOOHH 21 %5,() 'DYLG ) 1HVV
)('(5$/ '()(1'(5 6(59,&(6 2) ($67(51
7(11(66((,1&&KDWWDQRRJD7HQQHVVHHIRU$SSHOODQW

-- 1 of 8 --

8QLWHG6WDWHVY0XQR] 1R
3DXO : /D\PRQ -U $66,67$17 81,7(' 67$7(6
$77251(<&KDWWDQRRJD7HQQHVVHHIRU$SSHOOHH
.(11('<-GHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK
0(55,77-MRLQHG*,/0$1- SS GHOLYHUHGD
VHSDUDWHFRQFXUULQJRSLQLRQ
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
.(11('< &LUFXLW -XGJH 'HIHQGDQW =DIHULQR 0XQR]
ZDV DUUHVWHG DQG LQGLFWHG RQ RQH FRXQW RI FRQVSLUDF\ WR
GLVWULEXWH FRFDLQH DQG PHWKDPSKHWDPLQH 'HIHQGDQW SOHG
JXLOW\WRWKHLQGLFWPHQWZLWKWKHH[SOLFLWUHVHUYDWLRQWKDWKH
GLGQRWDGPLWWRFRQVSLULQJWRGHOLYHUPHWKDPSKHWDPLQHEXW
RQO\ DGPLWWHG WR WKH FRFDLQH DQG DPSKHWDPLQH WKDW ZDV
DFWXDOO\GHOLYHUHG7KHGLVWULFWMXGJHVHQWHQFHGGHIHQGDQWWR
PRQWKVLQSULVRQEDVHGLQSDUWRQKLVFRQFOXVLRQWKDW
GHIHQGDQWGLGFRQVSLUHWRGLVWULEXWHPHWKDPSKHWDPLQH7KLV
FRXUWUHYLHZVWKHYDOLGLW\RIGHIHQGDQW¶VJXLOW\SOHDDQGKLV
VHQWHQFH)RUWKHUHDVRQVVHWIRUWKEHORZZH$)),50WKH
GLVWULFWFRXUW¶VVHQWHQFHHQKDQFHPHQWEDVHGRQGHIHQGDQW¶V
UROH LQ WKH FRQVSLUDF\ EXW 5(9(56( WKH GLVWULFW FRXUW¶V
GHWHUPLQDWLRQ WKDW WKH VHQWHQFH VKRXOG EH EDVHG RQ
PHWKDPSKHWDPLQH:H5(0$1'WRWKHGLVWULFWFRXUWIRU
GHWHUPLQDWLRQRIDQHZVHQWHQFHFRQVLVWHQWZLWKWKLVRSLQLRQ
,
'HIHQGDQW¶VDUUHVWRQ$XJXVWUHVXOWHGIURPDQ
LQYHVWLJDWLRQ XQGHUWDNHQ E\ WKH 7HQQHVVHH %XUHDX RI
,QYHVWLJDWLRQ DQG WKH &OHYHODQG 7HQQHVVHH 3ROLFH
'HSDUWPHQW7KHLQYHVWLJDWLRQSURGXFHGWDSHGFRQYHUVDWLRQV
EHWZHHQGHIHQGDQWDQGDFRQILGHQWLDOLQIRUPDQWDQGEHWZHHQ
GHIHQGDQWKLVFRFRQVSLUDWRUVDQGWKHLQIRUPDQW'XULQJWKHVH
FRQWDFWVGHIHQGDQWWROGWKHLQIRUPDQWWKDWKHFRXOGGHOLYHU
WHQSRXQGVRI³FU\VWDO´DQGWKH\GLVFXVVHGWKHVDOHRIWZR
SRXQGVRI³FU\VWDO´DWDQDJUHHGSULFHRISHUSRXQG
'HIHQGDQWUHIHUUHGWRWKHQHHGWRFRQIHUZLWKKLV³ERVVHV´

-- 2 of 8 --

1R 8QLWHG6WDWHVY0XQR]
UHJDUGLQJWKHWHUPVRIWKHWUDQVDFWLRQ'HIHQGDQWHYHQWXDOO\
WROGWKHLQIRUPDQWWKDWDWKLUGSDUW\-RVH$QGUH)ORUHVZRXOG
GHOLYHUWKHGUXJV
)ORUHV GHOLYHUHG JUDPV RI DPSKHWDPLQH WR WKH
LQIRUPDQWZKRPDGHDGRZQSD\PHQWRQWKHGUXJVWR)ORUHV
'HIHQGDQW DQG WKH LQIRUPDQW KDG IXUWKHU FRQYHUVDWLRQV
UHJDUGLQJ WKH VDOH RI FRFDLQH DQG HYHQWXDOO\ FRFDLQH ZDV
GHOLYHUHG E\ )ORUHV DQG DQRWKHU LQGLYLGXDO NQRZQ DV 7LR
'HIHQGDQW FRQWLQXHG WR EH LQYROYHG LQ FRQYHUVDWLRQV
UHJDUGLQJ WKH SD\PHQW IRU WKH RULJLQDO GHOLYHU\ RI
DPSKHWDPLQH$FFRUGLQJWRDQXQGHUFRYHUDJHQWLQYROYHG
GHIHQGDQW UHSHDWHGO\ UHIHUUHG WR WKH RULJLQDO GHOLYHU\ DV
³FU\VWDO´ZKLFKLVVODQJIRUPHWKDPSKHWDPLQH,QDGGLWLRQ
SHUSRXQGZDVDQDSSURSULDWHSULFHIRUDSRXQGRI
PHWKDPSKHWDPLQH
2Q$XJXVWDJHQWVZLWKWKH)HGHUDO%XUHDXRI
,QYHVWLJDWLRQ WKH 7HQQHVVHH %XUHDX RI ,QYHVWLJDWLRQ DQG
RIILFHUV ZLWK WKH &OHYHODQG 7HQQHVVHH 3ROLFH 'HSDUWPHQW
DUUHVWHGGHIHQGDQWZKHQKHDUULYHGLQ7HQQHVVHHWRFROOHFWWKH
GUXJPRQH\'HIHQGDQWFRQIHVVHGWRKLVLQYROYHPHQWLQWKH
GUXJWUDIILFNLQJDQGWROGODZHQIRUFHPHQWWKDWKHZRUNHGIRU
)UDQFLVFR&LVQHURVLQWKHPLJUDQWIDUPLQJEXVLQHVVDQGWKDW
KH EHFDPH LQYROYHG LQ WKH GUXJ WUDGH RQO\ DIWHU &LVQHURV
DVNHG KLP WR DVVLVW LQ VHOOLQJ VRPH ³FU\VWDO´ +H ZDV QRW
LQYROYHG LQ WKH GUXJ WUDGH SULRU WR KLV HPSOR\PHQW ZLWK
&LVQHURV
2Q2FWREHUDQLQGLFWPHQWZDVILOHGLQWKH(DVWHUQ
'LVWULFW RI 7HQQHVVHH FKDUJLQJ WKDW IURP 2FWREHU
WKURXJK $XJXVW GHIHQGDQW DQG RWKHUV FRQVSLUHG WR
FRPPLW YLRODWLRQV RI 86& † D E\ XQODZIXOO\
GLVWULEXWLQJFRFDLQHDQGPHWKDPSKHWDPLQHLQYLRODWLRQRI
86&†2Q'HFHPEHUGHIHQGDQWSOHGJXLOW\
WRFRQVSLULQJWRGHOLYHUFRFDLQHDQGDFRQWUROOHGVXEVWDQFHEXW
LQIRUPHG WKH FRXUW WKDW KH GHQLHG GLVWULEXWLQJ
PHWKDPSKHWDPLQH ,W LV XQGLVSXWHG WKDW WKH GUXJ DFWXDOO\
GLVWULEXWHGZDVDPSKHWDPLQHQRWPHWKDPSKHWDPLQH7KH

-- 3 of 8 --

8QLWHG6WDWHVY0XQR] 1R
GHWHUPLQDWLRQRIWKHW\SHRIGUXJVWREHXVHGLQFDOFXODWLQJ
WKHSHQDOW\ZDVUHVHUYHGIRUVHQWHQFLQJ
$SUHVHQWHQFHUHSRUWZDVSUHSDUHGE\WKHSUREDWLRQRIILFHU
UHFRPPHQGLQJ WKDW GHIHQGDQW EH VHQWHQFHG EDVHG RQ WKH
PHWKDPSKHWDPLQH KH LQWHQGHG WR GHOLYHU UDWKHU WKDQ WKH
DPSKHWDPLQH WKDW ZDV DFWXDOO\ GHOLYHUHG 7KH SUREDWLRQ
RIILFHU IRXQG WKDW GHIHQGDQW VKRXOG UHFHLYH D WKUHHOHYHO
HQKDQFHPHQW XQGHU 866* † % E IRU SOD\LQJ D
PDQDJHULDOUROHLQWKHRIIHQVHDQGDQDGMXVWPHQWGRZQZDUG
IRUDFFHSWDQFHRIUHVSRQVLELOLW\'HIHQGDQW¶VDGMXVWHGRIIHQVH
OHYHOZDVOHYHO'HIHQGDQWKDGQRFULPLQDOKLVWRU\EXW
ZDV IRXQG LQHOLJLEOH GXH WR KLV PDQDJHULDO UROH LQ WKH
FRQVSLUDF\IRUDSSOLFDWLRQRIWKHVDIHW\YDOYHSURYLVLRQVRI
866*†&ZKLFKPLJKWKDYHUHGXFHGKLVVHQWHQFLQJ
OHYHOE\WZR+LVJXLGHOLQHVHQWHQFLQJUDQJHZDVWKXVWR
PRQWKV
,,
7KH RQH FRXQW LQGLFWPHQW DJDLQVW GHIHQGDQW FKDUJHG
VSHFLILFDOO\ WKDW GHIHQGDQW ³GLG FRPELQH FRQVSLUH
FRQIHGHUDWH DQG DJUHH WR FRPPLW YLRODWLRQV RI 7LWOH
8QLWHG6WDWHV&RGH6HFWLRQ D WKDWLVWRXQODZIXOO\
NQRZLQJO\ LQWHQWLRQDOO\ DQG ZLWKRXW DXWKRULW\ GLVWULEXWH
FRFDLQH DQG PHWKDPSKHWDPLQH 6FKHGXOH ,, FRQWUROOHG
VXEVWDQFHVDOOLQYLRODWLRQRI7LWOH8QLWHG6WDWHV&RGH
6HFWLRQ´'HIHQGDQWSOHGJXLOW\WRWKLVLQGLFWPHQWEXW
ZLWKWKHH[SOLFLWUHVHUYDWLRQPDGHE\KLVDWWRUQH\WKDW³0U
0XQR]VWDQGVZLOOLQJWRDGPLWWKDWKHGLVWULEXWHGFRFDLQH
DQGDPSKHWDPLQH+RZHYHUKHFDQQRWDQGZLOOQRWDGPLWWKDW
KH FRQVSLUHG WR GLVWULEXWH PHWKDPSKHWDPLQH´ 1RWLFH RI
,QWHQWWR3OHDG*XLOW\7ULDO5(QWU\1R $IWHUDWWRUQH\V
IRUERWKVLGHVVWDWHGDW5HDUUDLJQPHQWWKDWWKHW\SHRIGUXJ
LQYROYHGZDVDVHQWHQFLQJIDFWRUDQGVKRXOGQRWDIIHFWWKH
SOHD WKH MXGJH DFFHSWHG GHIHQGDQW¶V JXLOW\ SOHD ZLWK WKH
VWDWHGUHVHUYDWLRQ
$OWKRXJKWKHLQGLFWPHQWFKDUJHGFRQVSLUDF\WRGLVWULEXWH
WKHVHWZRGUXJVLQWKHFRQMXQFWLYHE\VWDWLQJ³FRFDLQHDQG
PHWKDPSKHWDPLQH´GHIHQGDQWRQO\DGPLWWHGKLVLQYROYHPHQW
1R 8QLWHG6WDWHVY0XQR]
WKDQ WKH W\SH RI GUXJ LQWHQGHG WR EH GHOLYHUHG ,Q RWKHU
ZRUGVQRPDWWHU KRZFOHDU0XQR]¶VLQWHQWZDVWRGHOLYHU
PHWKDPSKHWDPLQH WKH SULQFLSOH XSRQ ZKLFK $SSOLFDWLRQ
1RWH LV EDVHG GLFWDWHV WKDW WKH DPSKHWDPLQH DFWXDOO\
GHOLYHUHGVKRXOGFRQWUROKLVVHQWHQFLQJ
7KLV FRQFOXVLRQ LV VXSSRUWHG E\ WKH ODZ DV JHQHUDOO\
DSSOLHGWRVHQWHQFLQJIRU³DWWHPSWFULPHV´6HH$$0 -85
&5,0 /† GHG UHIHUULQJWRVWDWHVWDWXWHVWKDW
SURYLGH³WKDWRQHFRQYLFWHGRIDQDWWHPSWPD\EHVHQWHQFHG
WRDWHUPRILPSULVRQPHQWQRWH[FHHGLQJKDOIWKHOHQJWKRIWKH
ORQJHVWWHUPWRZKLFKKHFRXOGKDYHEHHQVHQWHQFHGKDGKH
VXFFHHGHG LQ KLV DWWHPSW´ 7KXV GHVSLWH WKH IDFW WKDW D
GHIHQGDQW¶V ³PRUDO WXUSLWXGH´ LV MXVW DV EDG ZKHWKHU KLV
LQWHQGHG FULPLQDO DFW VXFFHHGV RU QRW WKH ODZ GRHV QRW
JHQHUDOO\ SXQLVK KLP DV VHYHUHO\ LI KLV DWWHPSW IDLOV ,
WKHUHIRUHGLVDJUHHZLWKWKHUHDVRQLQJLQ8QLWHG6WDWHY/RSH]
)G WK&LU WKDWUHVXOWHGLQ/RSH]UHFHLYLQJ
DVWLIIHUVHQWHQFHRQWKHEDVLVWKDWLW³ZDVPHUHO\IRUWXLWRXV´
WKDWDPSKHWDPLQHUDWKHUWKDQPHWKDPSKHWDPLQHZDVDFWXDOO\
GHOLYHUHG,GDW7KHODZKDVORQJVLQFHPDGHDPDMRU
GLVWLQFWLRQ EHWZHHQ FRPSOHWHG FULPHV YHUVXV DWWHPSWHG
FULPHV EDVHG RQ ZKDW /RSH] GLVPLVVLYHO\ FKDUDFWHUL]HV DV
³PHUHO\IRUWXLWRXV´
)RUWKHDERYHUHDVRQVLQDGGLWLRQWRWKRVHVHWIRUWKE\WKH
FRXUW , DJUHH WKDW WKH GLVWULFW FRXUW HUUHG LQ XVLQJ
PHWKDPSKHWDPLQHWRFDOFXODWH0XQR]¶VVHQWHQFH,WKHUHIRUH
FRQFXULQWKHUHPDQGWRGHWHUPLQHDQHZVHQWHQFHEDVHGRQ
WKHDFWXDOGHOLYHU\RIDPSKHWDPLQH

-- 4 of 8 --

8QLWHG6WDWHVY0XQR] 1R
BBBBBBBBBBBBBBBBBBBBB
&21&855(1&(
BBBBBBBBBBBBBBBBBBBBB
521$/' /(( *,/0$1 &LUFXLW -XGJH FRQFXUULQJ ,
FRQFXULQWKHMXGJPHQWDQGWKHUHDVRQLQJRIWKHFRXUWEXW
ZULWHVHSDUDWHO\EHFDXVH,ZRXOGUHYHUVHWKHGLVWULFWFRXUW¶V
XVHRIPHWKDPSKHWDPLQHWRFDOFXODWH0XQR]¶VVHQWHQFHIRU
DQDGGLWLRQDOUHDVRQQRWH[SUHVVHGLQ3DUW,9$RIWKHFRXUW¶V
RSLQLRQ7KHFRXUWUHOLHVRQ$SSOLFDWLRQ1RWHWRKROGWKDW
PHWKDPSKHWDPLQH VKRXOG QRW KDYH EHHQ XVHG WR FDOFXODWH
0XQR]¶VVHQWHQFHEHFDXVH³WKHGHIHQGDQWZDVLQFDSDEOHRI
GHOLYHULQJ PHWKDPSKHWDPLQH´ , ZRXOG KROG WKDW
PHWKDPSKHWDPLQH VKRXOG QRW KDYH EHHQ XVHG WR FDOFXODWH
0XQR]¶VVHQWHQFHHYHQLIKHZDVFDSDEOHRIGHOLYHULQJWKDW
GUXJEHFDXVHLWLVXQGLVSXWHGWKDWWKHGUXJDFWXDOO\GHOLYHUHG
ZDVDPSKHWDPLQHQRWPHWKDPSKHWDPLQH
,EDVHP\UHDVRQLQJLQSDUWRQWKHSRUWLRQRI$SSOLFDWLRQ
1RWHWKDWUHDGVDVIROORZV
,QDQRIIHQVHLQYROYLQJDQDJUHHPHQWWRVHOODFRQWUROOHG
VXEVWDQFH WKH DJUHHGXSRQ TXDQWLW\ RI WKH FRQWUROOHG
VXEVWDQFHVKDOOEHXVHGWRGHWHUPLQHWKHRIIHQVHOHYHO
XQOHVVWKHVDOHLVFRPSOHWHGDQGWKHDPRXQWGHOLYHUHG
PRUH DFFXUDWHO\ UHIOHFWV WKH VFDOH RI WKH RIIHQVH )RU
H[DPSOHDGHIHQGDQWDJUHHVWRVHOOJUDPVRIFRFDLQH
WKH WUDQVDFWLRQ LV FRPSOHWHG E\ WKH GHOLYHU\ RI WKH
FRQWUROOHGVXEVWDQFHDFWXDOO\JUDPVRIFRFDLQHDQG
QRIXUWKHUGHOLYHU\LVVFKHGXOHG,QWKLVH[DPSOHWKH
DPRXQWGHOLYHUHGPRUHDFFXUDWHO\UHIOHFWVWKHVFDOHRIWKH
RIIHQVH
866*†'$SSOLFDWLRQ1RWH HPSKDVLVDGGHG
%HFDXVHWKHFRPPHQWDU\WRWKHJXLGHOLQHSURYLGHVWKDW³WKH
DPRXQW GHOLYHUHG PRUH DFFXUDWHO\ UHIOHFWV WKH VFDOH RI WKH
RIIHQVH´WKDQWKHDPRXQWLQWHQGHGWREHGHOLYHUHGSDUDOOHO
ORJLF ZRXOG VHHP WR UHTXLUH WKDW WKH W\SH RI GUXJ DFWXDOO\
GHOLYHUHG³PRUHDFFXUDWHO\UHIOHFWVWKHVFDOHRIWKHRIIHQVH´
1R 8QLWHG6WDWHVY0XQR]
LQDFRQVSLUDF\UHJDUGLQJWKHFRFDLQH7KHODFNRIDJXLOW\
SOHD RU MXU\ YHUGLFW DV WR WKH PHWKDPSKHWDPLQH GRHV QRW
LQYDOLGDWHWKHHQWLUHJXLOW\SOHDKRZHYHU,Q7XUQHUY8QLWHG
6WDWHV 86 WKH 6XSUHPH &RXUW KHOG WKDW
³>W@KHJHQHUDOUXOHLVWKDWZKHQDMXU\UHWXUQVDJXLOW\YHUGLFW
RQDQLQGLFWPHQWFKDUJLQJVHYHUDODFWVLQWKHFRQMXQFWLYH
WKHYHUGLFWVWDQGVLIWKHHYLGHQFHLVVXIILFLHQWZLWKUHVSHFWWR
DQ\RQHRIWKHDFWVFKDUJHG´,GDW7KXVGHIHQGDQW¶V
JXLOW\SOHDLVIDFLDOO\YDOLGDVWRWKHFRQVSLUDF\WRGLVWULEXWH
FRFDLQH
,,,
'HIHQGDQWUHFHLYHGDSULVRQVHQWHQFHRIPRQWKVEDVHG
LQ SDUW RQ WKH VHQWHQFLQJ MXGJH¶V GHWHUPLQDWLRQ E\ D
SUHSRQGHUDQFHRIWKHHYLGHQFHWKDWGHIHQGDQWFRQVSLUHGWR
GLVWULEXWH PHWKDPSKHWDPLQH LQ DGGLWLRQ WR FRFDLQH 7KH
VHQWHQFLQJMXGJHWUHDWHGWKHGHWHUPLQDWLRQRIWKHW\SHRIGUXJ
LQYROYHGDVDVHQWHQFLQJIDFWRUWREHGHFLGHGE\WKHMXGJH
7KH6XSUHPH&RXUWKDVUHFHQWO\OLPLWHGDMXGJH¶VDELOLW\WR
PDNHVXFKIDFWXDOILQGLQJVDIIHFWLQJDGHIHQGDQW¶VVHQWHQFH
,Q $SSUHQGL Y 1HZ -HUVH\ 6 &W WKH
6XSUHPH &RXUW KHOG WKDW ³>R@WKHU WKDQ WKH IDFW RI D SULRU
FRQYLFWLRQ DQ\ IDFW WKDW LQFUHDVHV WKH SHQDOW\ IRU D FULPH
EH\RQGWKHSUHVFULEHGVWDWXWRU\PD[LPXPPXVWEHVXEPLWWHG
WRDMXU\DQGSURYHGEH\RQGDUHDVRQDEOHGRXEW´,GDW
7KH6L[WK&LUFXLWUHFHQWO\DGGUHVVHGWKHDSSOLFDWLRQRI
$SSUHQGLLQ8QLWHG6WDWHVY&RUUDGR:/ WK
&LU$XJ ,QWKDWFDVHWKHMXU\UHWXUQHGDJXLOW\
YHUGLFW DV WR D 5,&2 FRQVSLUDF\ EXW GLG QRW LQGLFDWH
VSHFLILFDOO\ZKHWKHUWKHGHIHQGDQWVKDGFRQVSLUHGWRFRPPLW
PXUGHU7KHGLVWULFWFRXUWGHWHUPLQHGWKHGHIHQGDQW¶VEDVH
RIIHQVHOHYHODIWHUFRQFOXGLQJWKDWPXUGHUKDGEHHQRQHRIWKH
REMHFWLYHVRIWKHFRQVSLUDF\'LVWLQJXLVKLQJ$SSUHQGLWKH
6L[WK&LUFXLWXSKHOGWKHVHQWHQFLQJH[SODLQLQJWKDW
7KH6XSUHPH&RXUW¶VUHFHQWGHFLVLRQLQ$SSUHQGL
GRHV QRW PDQGDWH D GLIIHUHQW UHVXOW ,Q WKLV FDVH
>GHIHQGDQWV@IDFHGDPD[LPXPVHQWHQFHRIWZHQW\\HDUV
RQWKH5,&2FRQVSLUDF\FRXQWVGLVUHJDUGLQJWKHPXUGHU

-- 5 of 8 --

8QLWHG6WDWHVY0XQR] 1R
$ DPHQGPHQW WR 86& † ZRXOG PDNH WKH FXUUHQW
† E $ DSSOLFDEOH ZLWK D SHQDOW\ RI WHQ \HDUV WR OLIH LPSULVRQPHQW
EXW XQGHU WKH VWDWXWH DSSOLFDEOH LQ WKLV FDVH JUDPV RI
PHWKDPSKHWDPLQH IHOO ZLWKLQ † E %
FRQVSLUDF\ %HFDXVH WKH GLVWULFW FRXUW GLG QRW
VHQWHQFHHLWKHUGHIHQGDQWWRDWHUPRIPRUHWKDQWZHQW\
\HDUVRQWKH5,&2FRXQWV$SSUHQGLLVQRWWULJJHUHGDQG
WKHH[LVWHQFHRIDPXUGHUFRQVSLUDF\GLGQRWKDYHWREH
GHFLGHGE\DMXU\XQGHUWKHUHDVRQDEOHGRXEWVWDQGDUG
,GDW 6LPLODUO\LQWKHSUHVHQWFDVHGHIHQGDQW¶VVHQWHQFH
LVLQYDOLGXQGHU$SSUHQGLRQO\LIWKHGLVWULFWFRXUW¶VILQGLQJ
WKDW GHIHQGDQW FRQVSLUHG WR GLVWULEXWH PHWKDPSKHWDPLQH
UHVXOWHGLQGHIHQGDQWUHFHLYLQJDVHQWHQFHLQH[FHVVRIWKH
PD[LPXP VWDWXWRU\ SHQDOW\ IRU FRQVSLUDF\ WR GLVWULEXWH
FRFDLQHWKHFULPHWRZKLFKGHIHQGDQWSOHGJXLOW\
7KLVFDVHLQYROYHVJUDPVRIFRFDLQHDQGJUDPV
RIHLWKHUDPSKHWDPLQHRIPHWKDPSKHWDPLQH7LWOH86&
†SURYLGHVWKDWWKHSHQDOW\IRUFRQVSLUDF\WRGLVWULEXWH
DQ\ GUXJ ZLOO EH LGHQWLFDO WR WKH SHQDOWLHV IRU GLVWULEXWLRQ
8QGHU 86& † E & WKH VWDWXWRU\ SHQDOW\ IRU
GLVWULEXWLRQRIJUDPVRIFRFDLQHUDQJHVIURP]HURWR
WZHQW\ \HDUV LPSULVRQPHQW 7KH VWDWXWRU\ SHQDOW\ IRU
GLVWULEXWLRQRIJUDPVRIPHWKDPSKHWDPLQHXQGHU
86&† E % LVILYHWRIRUW\\HDUVLPSULVRQPHQW
7KH VWDWXWRU\ SHQDOW\ IRU GLVWULEXWLRQ RI JUDPV RI
DPSKHWDPLQHD6FKHGXOH,,,GUXJLV]HURWRWZHQW\\HDUV
XQGHU86&† E & 'HIHQGDQWSOHGJXLOW\ WR
FRQVSLUDF\WRGHOLYHUWKHVSHFLILHGDPRXQWRIFRFDLQH)RUWKH
FRFDLQHDORQHWKHVWDWXWHDXWKRUL]HVDPD[LPXPVHQWHQFHRI
WZHQW\\HDUV'HIHQGDQWZDVDFWXDOO\VHQWHQFHGWRVHUYH
PRQWKVDSSUR[LPDWHO\WHQ\HDUV'HIHQGDQW¶VVHQWHQFHGLG
QRW H[FHHG WKH VWDWXWRU\ PD[LPXP IRU WKH SRUWLRQ RI WKH
LQGLFWPHQWWRZKLFKKHYDOLGO\SOHGJXLOW\7KHVHQWHQFLQJ
MXGJH¶VGHWHUPLQDWLRQE\DSUHSRQGHUDQFHRIWKHHYLGHQFHWKDW
GHIHQGDQWFRQVSLUHGWRGLVWULEXWHPHWKDPSKHWDPLQHUDWKHU
WKDQDPSKHWDPLQHGLGQRWLQFUHDVHKLVSHQDOW\EH\RQGWKH
SUHVFULEHG VWDWXWRU\ PD[LPXP IRU FRQVSLUDF\ WR GLVWULEXWH
1R 8QLWHG6WDWHVY0XQR]
'HIHQGDQWDUJXHVWKDWWKHGLVWULFWFRXUWHUUHGLQILQGLQJKLP
WREHDPDQDJHURUVXSHUYLVRUEHFDXVHGHIHQGDQWZDVZRUNLQJ
IRU&LVQHURVZKRZDVWKH³NLQJSLQ´RIWKHFRQVSLUDF\DQG
EHFDXVH &LVQHURV GLUHFWHG GHIHQGDQW WR FRQWDFW WKH
FRQILGHQWLDO LQIRUPDQW DV D UHVXOW RI GHIHQGDQW¶V SULRU
DFTXDLQWDQFH ZLWK WKH LQIRUPDQW )XUWKHU WKH GHIHQVH
FRQWHQGVWKDWGHIHQGDQWDFWHGRQO\DVDPLGGOHPDQEHWZHHQ
&LVQHURVDQGWKHLQIRUPDQWDQGSRLQWVWRUHFRUGHGVWDWHPHQWV
PDGHE\GHIHQGDQWWKDWKHKDGWRFRQIHUZLWKKLV³ERVVHV´WR
FRQILUP WKH WHUPV RI WKH WUDQVDFWLRQ DV HYLGHQFH WKDW
GHIHQGDQWZDVQRWPDQDJLQJWKHGHDO
:KLOHWKHGHIHQVHPD\KDYHUDLVHGOHJLWLPDWHDUJXPHQWV
DJDLQVWDILQGLQJRIPDQDJHULDOVWDWXVWKHGLVWULFWFRXUWZDV
QRW FOHDUO\ HUURQHRXV LQ ILQGLQJ WKDW GHIHQGDQW VXSHUYLVHG
)ORUHV7KHSURVHFXWLRQHPSKDVL]HVWKDWGHIHQGDQWZRUNHG
RXWWKHGHDOZLWKWKHLQIRUPDQWPDGHDUUDQJHPHQWVIRUWKH
FRXULHU WR GHOLYHU WKH GUXJV DQG WKDW WKH FRXULHU )ORUHV
LQVWUXFWHG WKH LQIRUPDQW WR ZLUH D SRUWLRQ RI WKH PRQH\
GLUHFWO\WRGHIHQGDQW'HIHQGDQWZDVLQUHSHDWHGFRQWDFWZLWK
WKH LQIRUPDQW DQG SOD\HG D UROH LQ FRRUGLQDWLQJ ERWK WKH
GHOLYHU\ RI DQG SD\PHQW IRU WKH DPSKHWDPLQH 7KXV WKH
GLVWULFWFRXUW¶VILQGLQJWKDWGHIHQGDQW PDQDJHG)ORUHVLQD
FRQVSLUDF\LQYROYLQJDWOHDVWILYHSHRSOHDQGWKDWKHVDWLVILHV
WKHUHTXLUHPHQWVIRUVHQWHQFLQJHQKDQFHPHQWXQGHU866*
†%LVQRWFOHDUO\HUURQHRXV:H WKHUHIRUHDIILUPWKH
VHQWHQFLQJHQKDQFHPHQW
9
)RUWKHUHDVRQVVWDWHGDERYHZH$)),50WKHVHQWHQFLQJ
HQKDQFHPHQWEDVHGRQGHIHQGDQW¶VUROHLQWKHFRQVSLUDF\EXW
ZH5(9(56(WKHGLVWULFWFRXUW¶VXVHRIPHWKDPSKHWDPLQHWR
FDOFXODWHGHIHQGDQW¶VVHQWHQFH:H5(0$1'WRWKHGLVWULFW
FRXUWIRUWKHGHWHUPLQDWLRQRIDQHZVHQWHQFHFRQVLVWHQWZLWK
WKLVRSLQLRQ

-- 6 of 8 --

8QLWHG6WDWHVY0XQR] 1R
FDSDEOH RI GHOLYHULQJ PHWKDPSKHWDPLQH WR WKH XQGHUFRYHU
DJHQWEHFDXVHKHKDGQRQH´)GDW,QWKHSUHVHQW
FDVHEDVHGRQDOOWKHHYLGHQFHLQWKHUHFRUGGHIHQGDQWVLPSO\
WRRN WKH GUXJV SURYLGHG E\ KLV RQO\ VRXUFH :H FRQFOXGH
WKHUHIRUH WKDW GHIHQGDQW ZDV QRW FDSDEOH RI GHOLYHULQJ
PHWKDPSKHWDPLQH
$VGHVFULEHGDERYHGHIHQGDQW¶VVHQWHQFHFDQQRWH[FHHG
WKH WZHQW\ \HDU VWDWXWRU\ PD[LPXP IRU FRQVSLUDF\ WR
GLVWULEXWHJUDPVRIFRFDLQHEHFDXVHKLVJXLOW\SOHDLV
YDOLG RQO\ DV WR WKH FRFDLQH FKDUJH 8QGHU WKH DPHQGHG
GLVMXQFWLYHODQJXDJHRI866*†'DSSOLFDWLRQQRWH
WKHGLVWULFWFRXUWPXVWH[FOXGHPHWKDPSKHWDPLQHIURPWKH
VHQWHQFLQJFDOFXODWLRQEHFDXVHGHIHQGDQWZDVLQFDSDEOHRI
GHOLYHULQJ PHWKDPSKHWDPLQH $SSOLFDWLRQ QRWH WR
866*†'QRWHVKRZHYHUWKDW³W\SHVDQGTXDQWLWLHV
RI GUXJV QRW VSHFLILHG LQ WKH FRXQW RI FRQYLFWLRQ PD\ EH
FRQVLGHUHGLQGHWHUPLQLQJWKHRIIHQVHOHYHO´7KXVZLWKLQ
WKHSHUPLVVLEOHVWDWXWRU\UDQJHWKHFRXUWLVIUHHWRFRQVLGHUWKH
DPSKHWDPLQHDVUHOHYDQWFRQGXFWIRUVHQWHQFLQJ
%
7KH GLVWULFW FRXUW¶V ILQGLQJ WKDW GHIHQGDQW SOD\HG D
PDQDJHULDORUVXSHUYLVRU\UROHLQWKHFRQVSLUDF\WRGLVWULEXWH
LV D ILQGLQJ RI IDFW DQG WKXV VKRXOG EH XSKHOG RQ DSSHDO
XQOHVVFOHDUO\HUURQHRXV6HH8QLWHG6WDWHVY:LOOLDPV
)G WK&LU
)RUDQDJJUDYDWLQJUROHVHQWHQFLQJHQKDQFHPHQWWRDSSO\
WKH GHIHQGDQW PXVW KDYH VXSHUYLVHG DW OHDVW RQH RWKHU
SDUWLFLSDQWLQWKHFULPLQDODFWLYLW\6HH866*†% E
DSSOLFDWLRQQRWH,QRUGHUIRUWKHWKUHHOHYHOHQKDQFHPHQW
WRDSSO\WKHUHPXVWDWOHDVWILYHSDUWLFLSDQWVLQWKHFULPLQDO
DFWLYLW\6HH8QLWHG6WDWHVY:DUG)G WK&LU
$QLQFUHDVHXQGHU866*†%LVDSSURSULDWHIRU
WKRVH GHIHQGDQWV ZKRVH ³UHODWLYH UHVSRQVLELOLW\´ IRU WKH
RIIHQVHLVIRXQGWRKDYHEHHQJUHDWHUWKDQWKDWRILWVRWKHU
SDUWLFLSDQWV6HH8QLWHG6WDWHVY9DUJDV)G
WK&LU
1R 8QLWHG6WDWHVY0XQR]
JUDPV RI FRFDLQH 7KXV WKH $SSUHQGL UXOLQJ LV QRW
DSSOLFDEOHKHUHDQGGRHVQRWLPSDFWGHIHQGDQW¶VVHQWHQFH
,9
,Q DGGLWLRQ KRZHYHU GHIHQGDQW DOOHJHV WKDW WKH GLVWULFW
FRXUW HUUHG RQ WZR JURXQGV LQGHSHQGHQW RI WKH LVVXHV
DGGUHVVHG DERYH LQ FDOFXODWLQJ GHIHQGDQW¶V VHQWHQFH
'HIHQGDQWFODLPV $ WKDWXQGHUWKH6HQWHQFLQJ*XLGHOLQHV
KLV VHQWHQFH FDQ EH LQIOXHQFHG RQO\ E\ WKH DPSKHWDPLQH
DFWXDOO\ GHOLYHUHG DQG QRW WKH PHWKDPSKHWDPLQH WKDW
GHIHQGDQW WKRXJKW ZDV EHLQJ GHOLYHUHG DQG % WKDW WKH
GLVWULFW FRXUW HUUHG LQ ILQGLQJ DV D IDFWXDO PDWWHU WKDW
GHIHQGDQW SOD\HG D PDQDJHULDO UROH LQ WKH FRQVSLUDF\ WR
GLVWULEXWH
$
'HIHQGDQWDUJXHVWKDWKHVKRXOGEHSXQLVKHGRQO\IRUWKH
GUXJKHDFWXDOO\GHOLYHUHGDVRSSRVHGWRWKHGUXJWKDWKHPD\
KDYHLQWHQGHGDQGFRQVSLUHGWRGHOLYHU7KHUHVROXWLRQRIWKLV
LVVXH WXUQV RQ WKH DSSOLFDELOLW\ RI WKH ILQDO VHQWHQFH RI
866* † ' DSSOLFDWLRQ QRWH WR WKLV FDVH 86
6HQWHQFLQJ*XLGHOLQH†'HVWDEOLVKHVWKHEDVHRIIHQVH
OHYHO IRU GUXJ UHODWHG FULPHV LQFOXGLQJ DWWHPSW DQG
FRQVSLUDF\$SSOLFDWLRQQRWHZDVDPHQGHGLQDQG
QRZUHDGVLQUHOHYDQWSDUW
,QDQRIIHQVHLQYROYLQJDQDJUHHPHQWWRVHOODFRQWUROOHG
VXEVWDQFH WKH DJUHHGXSRQ TXDQWLW\ RI WKH FRQWUROOHG
VXEVWDQFHVKDOOEHXVHGWRGHWHUPLQHWKHRIIHQVHOHYHO
XQOHVVWKHVDOHLVFRPSOHWHGDQGWKHDPRXQWGHOLYHUHG
PRUHDFFXUDWHO\UHIOHFWVWKHVFDOHRIWKHRIIHQVH,I
KRZHYHUWKHGHIHQGDQWHVWDEOLVKHVWKDWKHRUVKHGLGQRW
LQWHQG WR SURYLGH RU ZDV QRW UHDVRQDEO\ FDSDEOH RI
SURYLGLQJ WKH DJUHHGXSRQ TXDQWLW\ RI WKH FRQWUROOHG
VXEVWDQFHWKHFRXUWVKDOOH[FOXGHIURPWKHRIIHQVHOHYHO
GHWHUPLQDWLRQWKHDPRXQWRIFRQWUROOHGVXEVWDQFHWKDWWKH
GHIHQGDQW HVWDEOLVKHV WKDW KH RU VKH GLG QRW LQWHQG WR
SURYLGHRUZDVQRWUHDVRQDEO\FDSDEOHRISURYLGLQJ

-- 7 of 8 --

8QLWHG6WDWHVY0XQR] 1R
7KH FRQFXUULQJ RSLQLRQ FLWHV D GLIIHUHQW SRUWLRQ RI DSSOLFDWLRQ QRWH
IRU WKH SURSRVLWLRQ WKDW WKH VHQWHQFH VKRXOG EH EDVHG RQ DPSKHWDPLQH
VROHO\ EHFDXVH DPSKHWDPLQH ZDV WKH GUXJ GHOLYHUHG $OWKRXJK WKH
FRQFXUUHQFH UHDGV DSSOLFDWLRQ QRWH WR VWDWH WKDW ³WKH DPRXQW GHOLYHUHG
PRUH DFFXUDWHO\ UHIOHFWV WKH VFDOH RI WKH RIIHQVH´ WKDW SRUWLRQ RI WKH QRWH
DFWXDOO\ VD\V ³XQOHVV WKH DPRXQW GHOLYHUHG PRUH DFFXUDWHO\ UHIOHFWV WKH
VFDOH RI WKH RIIHQVH´ %HFDXVH WKH GHOLYHU\ RI DPSKHWDPLQH UDWKHU WKDQ
WKH LQWHQGHG PHWKDPSKHWDPLQH LQ WKLV FDVH ZDV PHUHO\ IRUWXLWRXV DQG QRW
D UHVXOW RI PRGLILHG LQWHQWLRQV ZH KROG WKDW WKH ODWWHU SRUWLRQ RI
DSSOLFDWLRQ QRWH UHTXLUHV WKH DQDO\VLV FRQGXFWHG KHUH
,G HPSKDVLVDGGHG 3ULRUWRWKHDPHQGPHQWWKHODVW
VHQWHQFH RI DSSOLFDWLRQ QRWH LQVWHDG UHDG DV IROORZV
³+RZHYHUZKHUHWKHFRXUWILQGVWKDWWKHGHIHQGDQWGLGQRW
LQWHQG WR SURGXFH DQG ZDV QRW UHDVRQDEO\ FDSDEOH RI
SURGXFLQJWKHQHJRWLDWHGDPRXQWWKHFRXUWVKDOOH[FOXGHIURP
WKH JXLGHOLQH FDOFXODWLRQ WKH DPRXQW WKDW LW ILQGV WKH
GHIHQGDQWGLGQRWLQWHQGWRSURGXFHDQGZDVQRWUHDVRQDEO\
FDSDEOHRISURGXFLQJ´ HPSKDVLVDGGHG
,Q8QLWHG6WDWHVY&UX]0HQGR]D)G
WK&LU WKH1LQWK&LUFXLWDGGUHVVHGWKLVDPHQGPHQW
WR866*†'VWDWLQJWKDWGHVSLWHFDVHVSULRUWRWKH
DPHQGPHQW KROGLQJ WKDW ³DSSOLFDWLRQ QRWH ZDV
μFRQMXQFWLYHQRWGLVMXQFWLYH¶DQGWKHUHIRUHWKHGHIHQGDQW
KDGWRVKRZERWKODFNRILQWHQWDQGODFNRIFDSDELOLW\´WKH
DPHQGPHQW³VXEVWLWXWH>G@WKHZRUGμRU¶IRUWKHZRUGμDQG¶
>DQGWKXVFRQVWLWXWHG@DVXEVWDQWLYHFKDQJH´,G7KHFRXUW
FRQFOXGHGWKDWXQGHUWKHDPHQGHGDSSOLFDWLRQQRWHWKH
FRXUWZRXOGEH³IUHHWRFRQFOXGHWKDWWKHFRQVSLUDF\FKDUJHG
ZDVQRWUHDVRQDEO\FDSDEOHRISURYLGLQJ>WKHDJUHHGXSRQ
GUXJV@´DQGWKHEDVHRIIHQVHOHYHOZRXOGEHUHGXFHG,G7KH
1LQWK&LUFXLW¶VUHDVRQLQJLQ&UX]0HQGR]DLVORJLFDOJLYHQ
WKHFXUUHQWODQJXDJHRI866*†',IGHIHQGDQWFDQ
GHPRQVWUDWHWKDWKHZDVQRWUHDVRQDEO\FDSDEOHRISURGXFLQJ
WKHPHWKDPSKHWDPLQHKLVVHQWHQFHVKRXOGEHEDVHGRQWKH
DFWXDOGUXJVGHOLYHUHG
7KHSURVHFXWLRQUHOLHVRQ8QLWHG6WDWHVY6WHZDUG)G
WK&LU LQZKLFKWKH1LQWK&LUFXLWXSKHOGD
GHIHQGDQW¶VDWWHPSWFRQYLFWLRQIRUPHWKDPSKHWDPLQHHYHQ
1R 8QLWHG6WDWHVY0XQR]
WKRXJK WKH VXEVWDQFH WKH GHIHQGDQW DFWXDOO\ VROG ZDV OHVV
GDQJHURXVHSKHGULQH+RZHYHUWKDWRSLQLRQZDVRIIHUHGLQ
EHIRUH WKH DPHQGPHQW WR 866* † ' DQG WKH
6WHZDUG FRXUW H[SOLFLWO\ UHOLHG RQ WKH RULJLQDO FRQMXQFWLYH
ODQJXDJHRIDSSOLFDWLRQQRWHWKDWKDVQRZEHHQPRGLILHG
8QGHUWKHFXUUHQWYHUVLRQRI866*†'DSSOLFDWLRQ
QRWH WKH GHIHQGDQW LV RQO\ UHTXLUHG WR VKRZ D ODFN RI
LQWHQWRUDODFNRIFDSDELOLW\
$W WKH VHQWHQFLQJ KHDULQJ LQ WKLV FDVH WKH GLVWULFW FRXUW
VWDWHGWKDW³>W@KH&RXUWEHOLHYHVWKDWWKHFRUUHFW1LQWK&LUFXLW
ODZLVIRXQGLQ8QLWHG6WDWHVY6WHZDUGZKHUHWKH1LQWK
&LUFXLW VDLG WKDW D PLVWDNH RI IDFW DV WR WKH FRQWUROOHG
VXEVWDQFHFDUULHGZDVQRWDGHIHQVHWRNQRZLQJSRVVHVVLRQ´
7U6HQWHQFLQJ+U¶JS %XWEHFDXVHWKH6WHZDUGFRXUW
UHOLHGH[SOLFLWO\RQWKHSUHDPHQGPHQWFRQMXQFWLYHODQJXDJH
RIDSSOLFDWLRQQRWHDWOHDVWWKDWSRUWLRQRILWVUXOLQJLVQR
ORQJHUDSSOLFDEOH7KHGLVWULFWFRXUW¶VUHOLDQFHRQ6WHZDUG
ZDVWKXVLPSURSHUWRWKHH[WHQWWKDW6WHZDUGUHOLHGRQWKH
SUHDPHQGPHQWODQJXDJHRIDSSOLFDWLRQQRWH
7KH SURVHFXWLRQ SRLQWV RXW LQ LWV EULHI WKDW WKH (LJKWK
&LUFXLW LQ 8QLWHG 6WDWHV Y /RSH] )G WK &LU
KHOGWKDWWKHGHIHQGDQWVKRXOGEHVHQWHQFHGEDVHGRQ
PHWKDPSKHWDPLQHEHFDXVH³>W@KHIDFWWKDWWKHVXEVWDQFH
GHOLYHUHGZDVDPSKHWDPLQHDQGQRWPHWKDPSKHWDPLQHZDV
PHUHO\IRUWXLWRXV´,GDW$OWKRXJKWKH/RSH]KROGLQJ
ZRXOGVXSSRUWWKHSURVHFXWLRQWKHIRXQGDWLRQRIWKHRSLQLRQ
LVXQSHUVXDVLYHEHFDXVHWKH/RSH]FRXUWUHOLHGRQ6WHZDUG
ZLWKRXWDFNQRZOHGJLQJWKHSRVW6WHZDUGDPHQGHGODQJXDJH
LQ866*†'DSSOLFDWLRQQRWH
7KHEXUGHQRISURRILPSRVHGE\DSSOLFDWLRQQRWHLVRQ
WKH GHIHQGDQW 7KH 6L[WK &LUFXLW KDV KHOG WKDW ³RQFH WKH
JRYHUQPHQWVDWLVILHVLWVEXUGHQLQHVWDEOLVKLQJDQHJRWLDWHG
DPRXQWWKHGHIHQGDQWVKDYHWKHEXUGHQRISURYLQJWKH\ZHUH
QRW FDSDEOH RI SURGXFLQJ WKDW DPRXQW´ 8QLWHG 6WDWHV Y
&KULVWLDQ)G WK&LU FLWLQJ8QLWHG
6WDWHVY5RGULJXH])G WK&LU
7KH1LQWK&LUFXLWLQ6WHZDUGKHOGWKDWWKHGHIHQGDQW³ZDVQRW

-- 8 of 8 --