02a0341p.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
1$57521 &25325$7,21
3ODLQWLII$SSHOODQW
Y
670,&52(/(&7521,&6 ,1&
'HIHQGDQW$SSHOOHH
;!

1
1R
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW'HWURLW
1R²$QQD'LJJV7D\ORU'LVWULFW-XGJH
$UJXHG$XJXVW
'HFLGHGDQG)LOHG2FWREHU
%HIRUH.(,7+0225(DQG*,/0$1&LUFXLW-XGJHV
BBBBBBBBBBBBBBBBB
&2816(/
$5*8(' (UQLH / %URRNV %522.6 .86+0$1
6RXWKILHOG 0LFKLJDQ IRU $SSHOODQW 3KLOLS - .HVVOHU
%87=(/ /21* 'HWURLW 0LFKLJDQ IRU $SSHOOHH
21 %5,() 5REHUW 7XWWOH )UDQN $ $QJLOHUL 3HWH 1
.LRXVLV%522.6 .86+0$16RXWKILHOG0LFKLJDQIRU
$SSHOODQW3KLOLS-.HVVOHU/DXULH-0LFKHOVRQ%87=(/
/21* 'HWURLW 0LFKLJDQ -DPHV ( 6WHZDUW %87=(/
/21*$QQ$UERU0LFKLJDQ-DQH3ROLW]%UDQGW%UXFH6

-- 1 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
67 ZDV IRUPHG LQ DV D UHVXOW RI WKH FRPELQDWLRQ RI 7KRPDV
&RPSRQHQWV0RVWHN ZLWK 6*6 6HPLFRQGXFWRU ,Q 67 FKDQJHG LWV
QDPH IURP 6*67KRPSVRQ 0LFURHOHFWURQLFV ,QF WR 670LFURHOHFWURQLFV
,QF
6HPLFRQGXFWRUV DQG PLFURFKLSV DUH HQWLUH HOHFWULF FLUFXLWV RQ D
VLOLFRQ FKLS IUHTXHQWO\ QR ODUJHU WKDQ D GLPH ZKLFK FRQWURO WKH IORZ RI
HOHFWULFDO FXUUHQW
6RVWHN 7+203621 .1,*+7 'DOODV 7H[DV IRU
$SSHOOHH
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
'$021 - .(,7+ &LUFXLW -XGJH 3ODLQWLII$SSHOODQW
1DUWURQ&RUSRUDWLRQ ³1DUWURQ´RUWKH³SODLQWLII´ DSSHDOVWKH
GLVWULFW FRXUW¶VJUDQWRIVXPPDU\MXGJPHQWLQIDYRURIWKH
'HIHQGDQW$SSHOOHH670LFURHOHFWURQLFV,QF ³67´RUWKH
³GHIHQGDQW´ RQ 67¶V FODLP RI ODFKHV DQG JHQHULFQHVV LQ
1DUWURQ¶VDFWLRQIRUWUDGHPDUNLQIULQJHPHQW)RUWKHUHDVRQV
VHW IRUWK EHORZ ZH $)),50 WKH GLVWULFW FRXUW¶V RUGHU
JUDQWLQJ67¶VPRWLRQIRUVXPPDU\MXGJPHQWRQERWKFODLPV
DQGGLVPLVVLQJ1DUWURQ¶VFRPSODLQWDOOHJLQJIHGHUDODQGVWDWH
ODZFODLPVRIWUDGHPDUNLQIULQJHPHQWGLOXWLRQDQG XQIDLU
FRPSHWLWLRQ
,%$&.*5281'
1DUWURQLVD0LFKLJDQFRUSRUDWLRQZLWKLWVSULQFLSDOSODFH
RIEXVLQHVVLQ5HHG&LW\0LFKLJDQ1DUWURQGHYHORSVDQG
SURGXFHV DGYDQFHG HOHFWURQLF GHYLFHV LQFOXGLQJ VHQVRUV
DFRXVWLFGHYLFHVGLVSOD\VFRQWUROVKDUQHVVHVDQGFRQQHFWRUV
ODPSVIODVKHUVDQGVZLWFKHV
67LVD'HODZDUHFRUSRUDWLRQKDYLQJDSULQFLSDOSODFHRI
EXVLQHVV LQ &DUUROOWRQ 7H[DV 67 PDQXIDFWXUHV DQG
VXSSOLHVVHPLFRQGXFWRUVRU³PLFURFKLSV´DQGFRPSHWHVZLWK
QXPHURXVFRPSDQLHVVXFKDV0RWRUROD,QWHUQDWLRQDO5HFWLILHU
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
OLPLWDWLRQV SHULRG ± LV ³SUHVXPSWLYHO\ SUHMXGLFLDO DQG
XQUHDVRQDEOH´(YHQDEVHQWWKLVSUHVXPSWLRQZKLFK1DUWURQ
KDVIDLOHGWRUHEXWWKHUHFRUGHYLGHQFHVXIILFLHQWO\HVWDEOLVKHV
XQUHDVRQDEOHGHOD\DQGWKHUHVXOWLQJSUHMXGLFH
)LQDOO\ZHDUHQRWSHUVXDGHGE\1DUWURQ¶VDUJXPHQWWKDW
HYHQLILWV\HDUGHOD\LQEULQJLQJVXLWVFRQVWLWXWHVODFKHV
LW LV QRQHWKHOHVV HQWLWOHG WR SURVSHFWLYH LQMXQFWLYH UHOLHI
/DFKHVRQO\EDUVGDPDJHVWKDWRFFXUUHGEHIRUHWKHILOLQJGDWH
RIWKHODZVXLW.HOORJJ)GDW7:00IJ&R,QF
Y'XUD&RUS)G WK&LU ,WGRHV
QRWSUHYHQWSODLQWLIIIURPREWDLQLQJLQMXQFWLYHUHOLHIRUSRVW
ILOLQJGDPDJHV.HOORJJ)GDW7:0)G
DW³>7@RGHIHDWDVXLWIRULQMXQFWLYHUHOLHIDGHIHQGDQW
PXVWDOVRSURYHHOHPHQWVRIHVWRSSHOZKLFKUHTXLUHVPRUH
WKDQ D VKRZLQJ RI PHUH VLOHQFH RQ WKH SDUW RI D SODLQWLII
GHIHQGDQW PXVW VKRZ WKDW LW KDG EHHQ PLVOHG E\ SODLQWLII
WKURXJK DFWXDO PLVUHSUHVHQWDWLRQV DIILUPDWLYH DFWV RI
PLVFRQGXFW LQWHQWLRQDO PLVOHDGLQJ VLOHQFH RU FRQGXFW
DPRXQWLQJWRYLUWXDODEDQGRQPHQWRIWKHWUDGHPDUN´6&,
6\VWHPV,QFY6ROLGVWDWH&RQWUROV,QF)6XSS
('2KLR %HFDXVHZHFRQFOXGHWKDW³VPDUW
SRZHU´ DV XVHG LQ FRQQHFWLRQ ZLWK 67¶V SURGXFW LQ WKH
VHPLFRQGXFWRULQGXVWU\LVJHQHULFDQGWKXVQRWHQWLWOHGWR
WUDGHPDUNSURWHFWLRQZHILQGWKDW1DUWURQLVQRWHQWLWOHGWR
DQ\ SURVSHFWLYH LQMXQFWLYH UHOLHI 7KHUHIRUH ZH QHHG QRW
GHWHUPLQH ZKHWKHU EDVHG RQ WKH UHFRUG EHIRUH XV WKH
HOHPHQWVRIHVWRSSHOH[LVWZKLFKVXIILFHWRSUHFOXGH1DUWURQ¶V
FODLPVIRUSRVWILOLQJGDPDJHVRULQMXQFWLYHUHOLHI
,,,&21&/86,21
)RUWKHIRUHJRLQJUHDVRQVZH$)),50WKHGLVWULFWFRXUW¶V
RUGHUJUDQWLQJ67¶VPRWLRQIRUVXPPDU\MXGJPHQWRQERWK
FODLPVDQGGLVPLVVLQJ1DUWURQ¶VFRPSODLQWDOOHJLQJIHGHUDO
DQGVWDWHODZFODLPVRIWUDGHPDUNLQIULQJHPHQWGLOXWLRQDQG
XQIDLUFRPSHWLWLRQ

-- 2 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
6XSSDW8QDYDLODELOLW\RILPSRUWDQWZLWQHVVHVGXOOLQJ
RIPHPRULHVRIZLWQHVVHVDQGORVVRUGHVWUXFWLRQRIUHOHYDQW
HYLGHQFHDOOFRQVWLWXWHSUHMXGLFH
+HUHVRPHLPSRUWDQWZLWQHVVHVDUHQRORQJHUDYDLODEOH
DQGWKHPHPRULHVRIRWKHUZLWQHVVHVZHUHXQGHUVWDQGDEO\
QRWDVFOHDUDVWKH\ZRXOGKDYHEHHQLQWKHHDUO\V7DNH
1DUWURQ¶VSUHVLGHQWIRUH[DPSOH+HIUHTXHQWO\FODLPHGWKDW
KLVODFNRIPHPRU\SUHYHQWHGKLPIURPDQVZHULQJTXHVWLRQV
7KHVDPHZDVWUXHRI0U:DVKHOHVNLD1DUWURQHPSOR\HH
$GGLWLRQDOO\1DUWURQ¶VIRUPHUFRXQVHOZKRZDV LQYROYHG
ZLWK 1DUWURQ¶V WUDGHPDUN UHJLVWUDWLRQ DQG LWV DOOHJHG
WUDGHPDUNSROLFLQJHIIRUWVDQGWRZKRP1DUWURQ¶VSUHVLGHQW
UHSHDWHGO\ UHIHUUHG LV QR ORQJHU OLYLQJ 6HH
%ULGJHVWRQH)LUHVWRQH 5HVHDUFK Y $XWRPRELOH &OXE
)G )HG &LU RQH JHQHUDO FDWHJRU\ RI
SUHMXGLFHWKDWPD\IORZIURPXQUHDVRQDEOHGHOD\LV³SUHMXGLFH
DW WULDO GXH WR ORVV RI HYLGHQFH RU PHPRU\ RI ZLWQHVVHV´
/DVWO\ EHFDXVH RI WKH WLPH WKDW KDV HODSVHG WKH FRVW RI
GHIHQGLQJ1DUWURQ¶VFODLPKDVLQFUHDVHGJHRPHWULFDOO\GXHLQ
SDUW WR WKH DPRXQW RI PDWHULDO 67 KDV EHHQ UHTXLUHG WR
SURGXFHLQLWVGHIHQVH
$VKDVEHHQ1DUWURQ¶VSUDFWLFHLQWKLVFDVHLWFRPSOHWHO\
LJQRUHVWKHXQUHEXWWHGUHFRUGWKDWGHPRQVWUDWHVWKHH[LVWHQFH
RISUHMXGLFHDQGLQVWHDGFRQWHQGVWKDWLWVKRXOGEHJUDQWHG
VXPPDU\MXGJPHQWEHFDXVHRIWHVWLPRQ\E\0U5RVVRPPH
³5RVVRPPH´ 67¶V 5XOH E ZLWQHVV¶V WHVWLPRQ\
5RVVRPPHWHVWLILHGWKDW67ZDVXQDZDUHRI1DUWURQ¶VFODLPV
XQWLO UHFHQWO\ DQG WKDW ³67¶V SURGXFW GHYHORSPHQW DQG
H[SDQVLRQRISURGXFWVRIWKH6PDUWSRZHUJURXSZRXOGKDYH
SURFHHGHG μ1DUWURQ RU QR 1DUWURQ¶´ 1DUWURQ¶V XVH RI WKLV
WHVWLPRQ\PLVVHVWKHSRLQW5RVVRPPHVLPSO\FRQILUPVWKDW
67 ZRXOG KDYH FRQWLQXHG WR GHYHORS SURGXFWV WKDW XWLOL]H
LQWHJUDWHG FLUFXLWV WKDW FRPELQH ORJLF DQG SRZHU +DG
1DUWURQVXHG\HDUVDJR±ZKHQLWFRXOGKDYH±67ZRXOGKDYH
NQRZQ ZKHWKHU LW FRXOG SXEOLFO\ UHIHU WR WKHVH SURGXFWV
JHQHULFDOO\DVXWLOL]LQJ³VPDUWSRZHU´WHFKQRORJ\RUZKHWKHU
VRPH RWKHU GHVLJQDWLRQ ZRXOG KDYH WR EH XVHG 1DUWURQ¶V
UHPDUNDEO\ ORQJ GHOD\ ± DOPRVW \HDUV ORQJHU WKDQ WKH
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
8QGHU WKH /DQKDP $FW 86& † WKH ILOLQJ DQG DFFHSWDQFH
RI DQ DIILGDYLW RI FRQWLQXRXV XVH IRU ILYH FRQVHFXWLYH \HDUV IURP WKH GDWH
RI UHJLVWUDWLRQ PDNHV WKH ULJKW RI WKH UHJLVWUDQW WR XVH WKH UHJLVWHUHG PDUN
LQFRQWHVWDEOH H[FHSW IRU FHUWDLQ OLPLWHG GHIHQVHV
DQG6LOLFRQL[LQWKHVHPLFRQGXFWRULQGXVWU\2YHUWKH\HDUV
67KDVDOVRPDQXIDFWXUHGSURGXFWVWKDWFRPELQHSRZHUDQG
LQWHOOLJHQFHRQDVLQJOHLQWHJUDWHGFLUFXLWFKLS
,Q $SULO 1DUWURQ EHJDQ XVLQJ ³6PDUW SRZHU´ DV D
WUDGHPDUN DQG LQ LW REWDLQHG D IHGHUDOO\ UHJLVWHUHG
WUDGHPDUNIRU³6PDUWSRZHU´IRU³HOHFWULFDOUHOD\DVVHPEOLHV
LQ FRPELQDWLRQ ZLWK HOHFWULFDO ORJLF FRPSRQHQWV DQG SDUWV
WKHUHRI´,Q1DUWURQEURDGHQHGWKHLGHQWLILFDWLRQRILWV
JRRGV WR ³HOHFWULFDO SRZHU FLUFXLWV LQ FRPELQDWLRQ ZLWK
HOHFWULFDOORJLFFLUFXLWVDQGSDUWVWKHUHRI´,QSXUVXDQW
WR 86&† 1DUWURQ ILOHG DQ DIILGDYLW RI
LQFRQWHVWDELOLW\ZLWKWKH8QLWHG6WDWHV3DWHQWDQG7UDGHPDUN
2IILFH1DUWURQDOOHJHVWKDWRYHUWKH\HDUVLWKDVH[SHQGHG
VLJQLILFDQWWLPHHIIRUWDQGPRQH\DGYHUWLVLQJDQGSURPRWLQJ
LWV³6PDUWSRZHU´PDUN$VDUHVXOW1DUWURQDOOHJHVWKDWLW
KDV DFTXLUHG D UHSXWDWLRQ DV D SURYLGHU RI KLJKTXDOLW\
HOHFWULFDOFRPSRQHQWVLQFRQQHFWLRQZLWKWKH³6PDUWSRZHU´
PDUN7KLVDFFRUGLQJWR1DUWURQGLVWLQJXLVKHVLWVSURGXFWV
IURPWKRVHRILWVFRPSHWLWRUV
,QWKLVDFWLRQIRUWUDGHPDUNLQIULQJHPHQW1DUWURQDOOHJHV
WKDW67PDGHLQIULQJLQJXVHRILWV³6PDUWSRZHU´PDUNRQ
VHYHUDO RFFDVLRQV)LUVWEHWZHHQDQG1DUWURQ
DOOHJHVWKDW67PDGHLVRODWHGXVHRI1DUWURQ¶V³6PDUWSRZHU´
PDUN1DUWURQDVVHUWVWKDWLQ$XJXVWDQ67HPSOR\HH
SUHVHQWHG D SDSHU HQWLWOHG 6PDUW 3RZHU $SSOLFDWLRQ LQ
0XOWLSOH 6\VWHPV DW D 6RFLHW\ RI $XWRPRWLYH (QJLQHHUV
³6$(´ VKRZ1DUWURQIXUWKHUDVVHUWVWKDWLQ2FWREHU
67 SXEOLVKHG D PDQXDO HQWLWOHG 6PDUW 3RZHU $SSOLFDWLRQ
0DQXDO)LQDOO\LQ2FWREHU1DUWURQFODLPVWKDW67
XVHG 1DUWURQ¶V ³6PDUW SRZHU´ PDUN LQ DQ 67 SURGXFW
DQQRXQFHPHQWSXEOLVKHGLQWKH2FWREHULVVXHRI
(OHFWURQLF(QJLQHHULQJ7LPHVDQGLQDQDUWLFOHSXEOLVKHGLQ
WKH2FWREHUHGLWLRQRI(OHFWURQLF'HVLJQ6HFRQG

-- 3 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
1DUWURQDOOHJHVWKDWDIWHU67UDQWKUHHDGYHUWLVHPHQWV
ZKLFK 1DUWURQ FODLPV XVHG LWV ³6PDUW SRZHU´ PDUN LQ DQ
LQIULQJLQJPDQQHU1DUWURQDOOHJHVWKDWWKHVHDGVHPSKDVL]HG
WKH³6PDUWSRZHU´PDUNFDSLWDOL]LQJRURWKHUZLVHHQKDQFLQJ
WKH WZR ZRUGV +RZHYHU XQOLNH SUHYLRXV XVHV 1DUWURQ
DOOHJHVWKDWWKHVHXVHVZHUHQRWLVRODWHG
67 RQ WKH RWKHU KDQG DOOHJHV WKDW LW KDV DOZD\V PDGH
FRQWLQXRXVQRQLQIULQJLQJXVHRIWKH³6PDUWSRZHU´PDUN
)XUWKHUPRUH 67 FODLPV WKDW LW KDV FRQVLVWHQWO\ UHMHFWHG
1DUWURQ¶V FRQWHQWLRQV UHJDUGLQJ WKH YDOLGLW\ RI 1DUWURQ¶V
³6PDUWSRZHU´WUDGHPDUN$FFRUGLQJWR67OLNHWKHUHVWRI
WKHVHPLFRQGXFWRULQGXVWU\67KDVRQO\XVHGWKHWHUP³VPDUW
SRZHU´WRUHIHUJHQHUDOO\WRWHFKQRORJ\WKDWFRPELQHVSRZHU
WUDQVLVWRUVDQGFRQWUROFLUFXLWU\RQDVLQJOHLQWHJUDWHGFLUFXLW
67DOOHJHVWKDWVLQFHDWOHDVWLWKDVPDQXIDFWXUHGDQG
PDUNHWHG SURGXFWV WKDW FRQWDLQ LQWHJUDWHG FLUFXLWV ZKLFK
FRPELQHSRZHUFLUFXLWVDQGORJLFFLUFXLWV67FODLPVWKDWLWV
9,3RZHUŠSURGXFWVDUHLOOXVWUDWLYHRISURGXFWVWKDWXWLOL]HRU
HPERG\WKLV³VPDUWSRZHU´WHFKQRORJ\67IRUH[DPSOHKDV
GHVFULEHGFHUWDLQRILWV9,3RZHUŠSURGXFWVDVIROORZV³7KH
9,3RZHUŠ02SURFHVVLVDYHUWLFDOVPDUWSRZHUWHFKQRORJ\
WKDWDOORZVDUXJJHGSRZHUVWDJHWREHFRPELQHGZLWKRQFKLS
DQDORJ DQG GLJLWDO FLUFXLWU\´ 6HH -$ DW HPSKDVLV
DGGHG 67 VD\V WKDW LW XVHV WKH IHGHUDOO\ UHJLVWHUHG
WUDGHPDUN 9,3RZHUŠ ± DV ZHOO DV LWV FRPSDQ\ QDPH ± WR
FOHDUO\ LQIRUP WKH UHDGHU WKDW 67 LV WKH VRXUFH RI LWV
9,3RZHUŠSURGXFWV,QGHHGFODLPV67WKH67QDPHDQG
IHGHUDOO\UHJLVWHUHG67ORJRLVSURPLQHQWO\IHDWXUHGLQWKH
DGYHUWLVLQJPDUNHWLQJDQGVDOHVRI67SURGXFWVLQFOXGLQJ
WKRVHWKDWIDOOZLWKLQWKH³VPDUWSRZHU´FDWHJRU\
$IWHUHDFKRI67¶VXVHVZKLFK1DUWURQDOOHJHGLQIULQJHGLWV
WUDGHPDUN1DUWURQDOOHJHVWKDWLWWRRNPHDVXUHVWRVWRSWKH
LQIULQJLQJ DFWLYLW\ 1DUWURQ FODLPV FRQWUDU\ WR 67¶V
DVVHUWLRQV RI FRQWLQXRXV XVH WKDW DIWHU HDFK RI 1DUWURQ¶V
REMHFWLRQV67FHDVHGXVHRI1DUWURQ¶V³6PDUWSRZHU´PDUN
67 GLVDJUHHV DQG LQVWHDG FRQWHQGV WKDW LW FOHDUO\ DQG
XQHTXLYRFDOO\UHMHFWHG1DUWURQ¶VFRQWHQWLRQVUHJDUGLQJWKH
OHJDOLW\RI67¶VXVHRIWKHWHUP³VPDUWSRZHU´
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
WK&LU UHMHFWLQJSODLQWLII¶VFODLPRISURJUHVVLYH
HQFURDFKPHQW WR H[FXVH LWV GHOD\ LQ EULQJLQJ VXLW ZKHUH
GHIHQGDQW¶V DOOHJHG LQIULQJLQJ DFWLRQV LQ ZHUH QR
GLIIHUHQWWKDQLWVDFWLYLWLHVLQ 3UXGHQWLDO,QVXUDQFH&R
Y*LEUDOWDU)LQDQFLDO&RUS)G WK
&LU GHFOLQLQJ WR DSSO\ WKH GRFWULQH RI SURJUHVVLYH
HQFURDFKPHQWZKHUHWKH³PDUNVRIWKHWZRFRPSDQLHVORRNHG
DV VLPLODU WZHQW\HLJKW \HDUV DJR DV WKH\ ORRN WRGD\´ DQG
GHIHQGDQWGLGQRWPRYHLQWRGLUHFWFRPSHWLWLRQZLWKSODLQWLII
7KLUG1DUWURQDWWHPSWVWRUHEXWWKHSUHVXPSWLRQRIODFKHV
E\DUJXLQJWKDW67KDVVXIIHUHGQRSUHMXGLFHDVDUHVXOWRI
1DUWURQ¶V \HDU GHOD\ LQ EULQJLQJ VXLW 7KH WKUXVW RI
1DUWURQ¶VDUJXPHQWDVZHEHVWXQGHUVWDQGLWLVWKDWEHFDXVH
67FRQWLQXHGZLWKLWVXVHRIWKHWHUP³VPDUWSRZHU´LWPXVW
IROORZWKDW67KDVQRWEHHQSUHMXGLFHGE\1DUWURQ¶VGHOD\LQ
EULQJLQJVXLW1DUWURQKRZHYHUIDLOVWRDSSUHFLDWHWKDWDQ\
SUHMXGLFH LV VXIILFLHQW LQFOXGLQJ DQ LQFUHDVH LQ SRWHQWLDO
GDPDJHVRUDORVVRIHYLGHQFH6HHHJ+HUPDQ0LOOHU
)G DW ILQGLQJ SUHMXGLFH ZKHUH SRWHQWLDO OLDELOLW\ IRU
GDPDJHVLQFUHDVHG 0&*,QFY&HQWUL6SUD\&RUS)
6XSS ('0LFK ILQGLQJSUHMXGLFHZKHUH
HYLGHQFH WR VXSSRUW FODLP LV FRPSURPLVHG $ GHIHQGDQW
QHHGQRW³KDYHGHWULPHQWDOO\UHOLHGRQSODLQWLII¶VGHOD\IRU
ODFKHV WR EDU SODLQWLII¶V PRQHWDU\ FODLPV IRU SDVW
LQIULQJHPHQW´6HHHJ+HUPDQ0LOOHUY3DOD]]HWWL,PSRUWV
DQG([SRUWV,QF86'LVW/H[LVDW ('
0LFK DII¶GLQSDUWUHY¶GLQSDUW)G WK
&LU
7KHUHFRUGKHUHGHPRQVWUDWHVFRQVLGHUDEOHSUHMXGLFHWR67
)LUVWEHFDXVHSRWHQWLDOGDPDJHVLQFUHDVHGXULQJHDFK\HDU
WKDWWKHFODLPHGPDUNLVXVHGWKHQDWXUHRI1DUWURQ¶VFODLPV
WKHPVHOYHVVDWLVILHVWKHUHTXLUHPHQWWKDWWKHGHOD\UHVXOWVLQ
SUHMXGLFHWRWKHGHIHQGDQW6HFRQGLI1DUWURQKDGVXHGLQ
ZKHQ LW DGPLWWHGO\ KDG QRWLFH WKH VXLW FRXOG KDYH
SURPSWO\UHVROYHGZKHWKHUDQGKRZ67FRXOGXVHWKHWHUP
³VPDUWSRZHU´±ORQJEHIRUHWKHSULQWDGYHUWLVHPHQWVQRZ
FKDOOHQJHG ZHUH FUHDWHG 7KLUG WKH UHFRUG GHPRQVWUDWHV
VLJQLILFDQW HYLGHQWLDU\ SUHMXGLFH 6HH 0&* ,QF )

-- 4 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
.HOORJJ¶VGXW\WRGHIHQGLWVWUDGHPDUNZDVWULJJHUHGDQGLW
ZDVIURPWKLVSRLQWWKDWDQ\GHOD\PXVWEHPHDVXUHG,G
+HUHE\FRQWUDVWLWLVLQGLVSXWDEOHWKDW67¶VXVHRI³VPDUW
SRZHU´KDVQHYHUFKDQJHG67¶VXVHRIWKHPDUNLQZDV
LGHQWLFDOWRLWVXVHVGXULQJWKHSHULRGIURPWKURXJK
DQG FRQWLQXHV WR EH WKH VDPH WRGD\ 67 KDV DOZD\V XVHG
³VPDUWSRZHU´LQLWVJHQHULFVHQVHWRGHVFULEHDQLQWHJUDWHG
FLUFXLW WKDW FRPELQHV SRZHU DQG ORJLF RQ D VLQJOH FKLS
8QOLNH WKH GHIHQGDQW LQ .HOORJJ WKHUH ZDV QRWKLQJ DERXW
67¶VXVHRI³VPDUWSRZHU´LQDQGWKDWGLIIHUHG
IURP LWV HDUOLHU XVHV VXFK WKDW 1DUWURQ¶V ORQJ GHOD\ LQ
EULQJLQJVXLWZRXOGEHH[FXVDEOH,QGHHG1DUWURQ¶V
FHDVHDQGGHVLVWGHPDQGDULVLQJRXWRI67¶VXVHRI³VPDUW
SRZHU´LQWKHWLWOHRILWV6PDUW3RZHU$SSOLFDWLRQ0DQXDO
ZDV QR GLIIHUHQW WKDQ 1DUWURQ¶V DQG FRPSODLQW
DERXW67¶VXVHRI³VPDUWSRZHU´LQVRPHRI67¶VSURGXFW
DQQRXQFHPHQWV:HDJUHHZLWKWKHGLVWULFWFRXUW¶VFRQFOXVLRQ
WKDWWKHUHZDVQRSURJUHVVLYHHQFURDFKPHQW³>67¶V@DFWLYLW\
ZDVWKHVDPHH[DFWO\WKHVDPHDQG>67¶V@UHIXVDOWRFHDVH
ZDVH[DFWO\WKHVDPHIRUWKHHQWLUHSHULRG´6HH-$DW
1DUWURQ¶VDUJXPHQWLQVXSSRUWRILWVFRQWHQWLRQWKDW67¶V
XVHRIWKHPDUNFKDQJHGPDUNHGO\RYHUWKHSHULRGLQTXHVWLRQ
LVVLPSO\ZLWKRXWPHULW1DUWURQ¶VDVVHUWLRQWKDWWKHUHZDVD
FKDQJHLQPDQDJHPHQWDW67WKDWUHVXOWHGLQ67¶VPDUNHGO\
GLIIHUHQW XVH RI WKH WHUP ³VPDUW SRZHU´ LV EHOLHG E\ WKH
UHFRUG )XUWKHUPRUH 1DUWURQ¶V FRQWHQWLRQ WKDW 67 XVHG D
GLIIHUHQW W\SH VL]H GRHV QRW FRQVWLWXWH SURJUHVVLYH
HQFURDFKPHQW ± QRU LV LW DFFXUDWH %RWK 6PDUW 3RZHU
$SSOLFDWLRQV LQ 0XOWLSOH[ 6\VWHPV DQG 67¶V 6PDUW 3RZHU
$SSOLFDWLRQ 0DQXDO FDSLWDOL]HG WKH ³V´ DQG ³S´ ± DQG WKH
PDQXDORIWHQUHIHUUHGWR³VPDUWSRZHU´LQDOOFDSLWDOOHWWHUV
6HYHUDORIWKH$SSOLFDWLRQ1RWHVXVHG³VPDUWSRZHU´LQDOO
FDSLWDOOHWWHUV1RULVLWXQFRPPRQIRUWKHLQGXVWU\WRXVH
³VPDUWSRZHU´LQYDULRXVFDSLWDOL]HGOHWWHUVW\OHVLQLWVSXUHO\
GHVFULSWLYHVHQVHDQGQRWDVDGHVLJQDWLRQRIDVLQJOHVRXUFH
7KLV LV IDU IURP D FDVH LQ ZKLFK 67 KDV ³SURJUHVVLYHO\
HQFURDFKHG´ RQ 1DUWURQ¶V WUDGHPDUN 6HH HJ +HUPDQ
0LOOHUY3DOD]]HWWL,PSRUWVDQG([SRUWV,QF)G
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
$Q ³$SSOLFDWLRQ 1RWH´ GHVFULEHV WKH XVH DQG RSHUDWLRQDO
FKDUDFWHULVWLFV RI D SDUWLFXODU SURGXFW
)LUVW 67 QRWHV DQG 1DUWURQ GRHV QRW GLVSXWH WKDW ZLWK
UHVSHFWWRLWVXVHRI³VPDUWSRZHU´1DUWURQFRQWDFWHG
RQO\6$(QRW676HFRQGLQDOHWWHUGDWHG$SULO
LQUHVSRQVHWR1DUWURQ¶VUHTXHVWWKDW67FHDVHDQGGHVLVWIURP
LWVXVHRILWV³6PDUWSRZHU´PDUN67UHVSRQGHGWKDWGXHWR
VLJQLILFDQW WKLUG SDUW\ XVH ³VPDUW SRZHU´ KDG ORVW DQ\
WUDGHPDUNVLJQLILFDQFHLWPD\KDYHKDGDQGLQDQ\FDVHQR
FRQIXVLRQZDVOLNHO\&RQVLVWHQWZLWK67¶VUHVSRQVHLQWKLV
OHWWHU 67 FODLPV LW FRQWLQXHG WR XVH ³VPDUW SRZHU´ ,Q
VXSSRUWRILWVFODLPRIFRQWLQXRXVXVH67FLWHVWKHIDFWWKDW
LWV6PDUW3RZHU$SSOLFDWLRQ0DQXDOZDVFLUFXODWHGWKURXJK
DWOHDVW)XUWKHUPRUHLQ0D\RI67FLWHVWKHIDFW
WKDWLWDOVRSUHVHQWHGD9,3RZHUŠ$SSOLFDWLRQ1RWHDWDQ
,QWHUQDWLRQDO6\PSRVLXPRQ3RZHU6HPLFRQGXFWRUGHYLFHV
WKDW GLVFXVVHG ³VPDUW SRZHU WHFKQRORJLHV´ $V DQRWKHU
H[DPSOHRIFRQWLQXRXVXVH67FLWHVWKHIDFWWKDWLQ-DQXDU\
LQUHVSRQVHWRD'HFHPEHUOHWWHUIURP1DUWURQ¶V
SUHVLGHQWREMHFWLQJWR67¶VXVHRIWKHWHUP³VPDUWSRZHU´LQ
(OHFWURQLF'HVLJQ 2FWREHUHGLWLRQ 67LQIRUPHG
1DUWURQ WKDW LWV SRVLWLRQ KDG QRW FKDQJHG IURP WKH RQH
H[SUHVVHG LQ LWV $SULO OHWWHU )LQDOO\ IURP
WKURXJK 67 DVVHUWV WKDW LW SXEOLVKHG DGGLWLRQDO GDWD
VKHHWV DQG DSSOLFDWLRQ QRWHV UHIHUULQJ WR ³VPDUW SRZHU´ DV
ZHOODVD9,3RZHUŠGDWDERRNFRQWDLQLQJKXQGUHGVRIXVHVRI
³VPDUWSRZHU´DQGSXEOLVKHGDGVUHIHUULQJWR³VPDUWSRZHU´
,Q1DUWURQFRPPHQFHGDQDFWLRQDJDLQVW67DOOHJLQJ
LQIULQJHPHQWRILWVWUDGHPDUN³6PDUWSRZHU´1DUWURQILOHG
DFRPSODLQWLQGLVWULFWFRXUWDOOHJLQJWKDW67KDG L ZLOIXOO\
LQIULQJHG LWV IHGHUDOO\ UHJLVWHUHG WUDGHPDUN LQ WKH PDUN
³6PDUW SRZHU´ LQ YLRODWLRQ RI 86& ††
LL HQJDJHGLQXQIDLUFRPSHWLWLRQLQYLRODWLRQRI86&
† D LLL FDXVHG WKH GLOXWLRQ RI WKH GLVWLQFWLYH DQG
YDOXDEOHTXDOLW\RIWKH³6PDUWSRZHU´WUDGHPDUNLQYLRODWLRQ
RI 86& † F DQG LY HQJDJHG LQ XQIDLU
FRPSHWLWLRQ DQG WUDGHPDUN LQIULQJHPHQW LQ YLRODWLRQ RI

-- 5 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
1DUWURQ LQLWLDOO\ PRYHG IRU VXPPDU\ MXGJPHQW RQ LQWHU DOLD 67¶V
GHIHQVHV RI JHQHULFQHVV DQG ODFKHV 67 DOVR FURVVPRYHG RQ ERWK LVVXHV
$W WKH ILUVW KHDULQJ RQ WKH SDUWLHV¶ VXPPDU\ MXGJPHQW PRWLRQV WKH GLVWULFW
FRXUW UXOHG WKDW WKHUH ZHUH JHQXLQH LVVXHV RI PDWHULDO IDFW RQ ZKHWKHU WKH
PDUN ³6PDUW SRZHU´ LV JHQHULF EXW JUDQWHG VXPPDU\ MXGJPHQW LQ
1DUWURQ¶V IDYRU RQ WKH LVVXH RI ODFKHV
0LFKLJDQFRPPRQODZ7KHSDUWLHVZHUHDOORZHGWRFRQGXFW
OLPLWHG GLVFRYHU\ 7KHUHDIWHU WKH GHIHQGDQW PRYHG IRU
VXPPDU\MXGJPHQWRQDPRQJVWRWKHUWKLQJVWKHJURXQGWKDW
WKHWHUP³VPDUWSRZHU´LVJHQHULFDQGFRPPRQO\GHVFULSWLYH
ZLWKUHVSHFWWRLWVJRRGVVXFKWKDWWKHSODLQWLIILVQRWHQWLWOHG
WRSUHYHQWWKHGHIHQGDQW¶VXVHRIWKHWHUP7KHGHIHQGDQW
DOVR VRXJKW VXPPDU\ MXGJPHQW RQ WKH JURXQG WKDW WKH
SODLQWLII¶VWUDGHPDUNLQIULQJHPHQWFODLPWRWKHH[WHQWRQHGLG
H[LVW ZDV SUHFOXGHG E\ ODFKHV EHFDXVH RI WKH SODLQWLII¶V
XQUHDVRQDEOHGHOD\LQZDLWLQJHOHYHQ\HDUVDIWHUILUVWOHDUQLQJ
RIWKHGHIHQGDQW¶VXVHRIWKHWHUPEHIRUHEULQJLQJWKHSUHVHQW
DFWLRQ
2QLWVVHFRQGKHDULQJRIWKHSDUWLHV¶VXPPDU\MXGJPHQW
PRWLRQVDIWHUDOORZLQJIRUDGGLWLRQDOOLPLWHGGLVFRYHU\WKH
GLVWULFW FRXUW UHYHUVHG LWV HDUOLHU UXOLQJV RQ WKH PDWWHU DQG
JUDQWHGWKHGHIHQGDQW¶VPRWLRQRQERWKJURXQGV7KHGLVWULFW
FRXUWLVVXHGQRRSLQLRQ$WWKHKHDULQJRQWKHPRWLRQVZLWK
UHVSHFW WR WKH LVVXH RI JHQHULFQHVV WKH GLVWULFW FRXUW
FRQFOXGHGWKDWJHQHULFQHVVZDVXQGLVSXWHGLQOLJKWRIWKHIDFW
WKDW ³LJQRUDQFH >RI WKH WHUP¶V JHQHULFQHVV LQ WKH
VHPLFRQGXFWRU LQGXVWU\@ LV DOO WKH SODLQWLII RIIHU>HG@ WKH
FRXUW´6HH-$DW5HO\LQJRQDSDJHFKURQRORJ\
SURGXFHGE\WKHGHIHQGDQWGHWDLOLQJXVHRIWKH³VPDUWSRZHU´
WHUP E\ WKH VHPLFRQGXFWRU LQGXVWU\ LQ WUDGH SXEOLFDWLRQV
FRQIHUHQFHV V\PSRVLD DGYHUWLVHPHQWV WKLUG SDUW\ XVHV
SDWHQWV WUDGHPDUNV DQG FRS\ULJKWV WKH GLVWULFW FRXUW
FRQFOXGHGWKDW³>D@JRRGVKRZLQJKD>G@EHHQPDGHWKDW6PDUW
3RZHUEHFDPHDJHQHULFWHUPRYHUWKH\HDUVRIXVHLQWKH
>VHPLFRQGXFWRU@LQGXVWU\´6HHLG
7KH GLVWULFW FRXUW DOVR UHYHUVHG LWV HDUOLHU UXOLQJ RQ WKH
ODFKHV LVVXH :LWK UHVSHFW WR ODFKHV DW WKH KHDULQJ WKH
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
EHWZHHQWKHSHULRGDQGEXWWKDW67DOVRFOHDUO\
DQGXQHTXLYRFDOO\LQOHWWHUVWR1DUWURQLQIRUPHG1DUWURQWKDW
LWUHIXVHGWRUHIUDLQIURPXVLQJWKHPDUNDQGWKDW67ZRXOG
QRWFHDVHDQGGHVLVWIURPXVLQJWKHPDUN
6HFRQG1DUWURQSRVLWVWKDWHYHQDVVXPLQJWKDWWKHUHZDVD
GHOD\LQEULQJLQJVXLWLWLVDEOHWRRYHUFRPHWKHSUHVXPSWLRQ
E\HVWDEOLVKLQJDQH[FXVHIRUWKLVGHOD\1DUWURQDUJXHVWKDW
67¶VXVHRI³VPDUWSRZHU´FKDQJHGPDUNHGO\VXFKWKDWWKH
GRFWULQH RI ³SURJUHVVLYH HQFURDFKPHQW´ H[FXVHV 1DUWURQ¶V
IDLOXUH WR FRPPHQFH VXLW HDUOLHU 5HFHQWO\ LQ .HOORJJ
&RPSDQ\ Y ([[RQ &RUSRUDWLRQ )G WK &LU
ZHH[SODLQHGWKDWSURJUHVVLYHHQFURDFKPHQW³DOORZV
WKHSODLQWLIIWRGHPRQVWUDWHWKDWDOWKRXJKLWPLJKWKDYHEHHQ
MXVWLILHGLQEULQJLQJVXLWHDUOLHUEXWGLGQRWFHUWDLQIDFWRUV
QRZ H[LVW WKDW KDYH SURPSWHG LW WR GR VR´ ,G DW
3URJUHVVLYH HQFURDFKPHQW UHTXLUHV VRPHWKLQJ DERXW WKH
GHIHQGDQW¶VXVHRIWKHPDUNWRKDYHFKDQJHGVLJQLILFDQWO\,G
DW7KHFRXUWLQ .HOORJJDQDO\]HGFDVHV LQ ZKLFKWKH
GHIHQGDQWPDGHFHUWDLQFKDQJHVWRWKHDSSHDUDQFHRILWVPDUN
H[SDQGHGLWVPDUNHWLQJHIIRUWVRUHQWHUHGLQWRQHZDUHDVRI
EXVLQHVVWKDWGLUHFWO\FRPSHWHGZLWKWKHWUDGHPDUNRZQHU,G
DW
,Q.HOORJJWKHSODLQWLII.HOORJJRZQHGWKH³7RQ\7KH
7LJHU´WUDGHPDUNVIRUEUHDNIDVWFHUHDOVLQFH,GDW
,Q([[RQUHJLVWHUHGLWV³:KLPVLFDO7LJHU´WUDGHPDUN
ZLWKQRRSSRVLWLRQIURP.HOORJJIRUXVHLQWKHSURPRWLRQ
RI SHWUROHXP SURGXFWV D SURGXFW DQG PDUNHW ZLWK ZKLFK
.HOORJJKDGQRFRQQHFWLRQ,GDW.HOORJJGHOD\HGLQ
VXLQJIRU\HDUVXQWLO([[RQEHJDQXVLQJLWV³:KLPVLFDO
7LJHU´LQFRQQHFWLRQZLWKLWVFRQYHQLHQFHVWRUHV,GDW
:HKHOGWKDWWKHUHZDVDQLVVXHRIIDFWDVWRZKHWKHU.HOORJJ
ZDVMXVWLILHGLQZDLWLQJWRVXHXQWLO([[RQH[SDQGHGLWVXVH
RILWV:KLPVLFDO7LJHULQWRWKHIRRGEXVLQHVV,GDW,Q
UHDFKLQJWKLVFRQFOXVLRQZHH[SODLQHGWKDWIRUSXUSRVHVRI
GHWHUPLQLQJODFKHVRUDFTXLHVFHQFHWKHSRLQWDWZKLFK([[RQ
HVWDEOLVKHGLWVHOILQWKHQRQSHWUROHXPPDUNHWZDVWKHSRLQW
DWZKLFK.HOORJJNQHZRUVKRXOGKDYHNQRZQWKDWLWQRZKDG
DSURYDEOHFODLPIRULQIULQJHPHQWLWZDVDWWKLVSRLQWWKDW

-- 6 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
1DUWURQ FRPPHQFHG WKLV VXLW RQ 1RYHPEHU
1RYHPEHU LV WKH GDWH WKUHH \HDUV EHIRUH WKH VXLW ZDV
FRPPHQFHG
XQUHDVRQDEOH ,Q RUGHU WR RYHUFRPH WKH SUHVXPSWLRQ RI
ODFKHVSODLQWLIIPXVW UHEXWWKHSUHVXPSWLRQRISUHMXGLFH
HVWDEOLVKWKDWWKHUHZDVDJRRGH[FXVHIRULWVGHOD\RU
VKRZWKDWWKHGHIHQGDQWHQJDJHGLQSDUWLFXODUO\HJUHJLRXV
FRQGXFW ZKLFK ZRXOG FKDQJH WKH HTXLWLHV VLJQLILFDQWO\ LQ
SODLQWLII VIDYRU'DQD&RUS)6XSSDW TXRWLQJ
7:00IJ&R,QFY'XUD&RUS)G WK
&LU )LUVW1DUWURQDWWHPSWVWRUHEXWWKHSUHVXPSWLRQ
RIODFKHVE\DUJXLQJWKDWWKHUHZDVQRGHOD\LQEULQJLQJVXLW
6HFRQG1DUWURQDUJXHVWKDWHYHQLIWKHUHZDVDGHOD\WKH
GRFWULQHRI³SURJUHVVLYHHQFURDFKPHQW´H[FXVHVLWVGHOD\LQ
EULQJLQJVXLWEHFDXVH67¶VXVHRI³VPDUWSRZHU´FKDQJHG
PDUNHGO\IURPXQWLOWKHWLPH1DUWURQFRPPHQFHGLWV
ODZVXLWLQ7KLUG1DUWURQDUJXHVWKDW67VXIIHUHGQR
SUHMXGLFH DV D UHVXOW RI 1DUWURQ¶V XQUHDVRQDEOH GHOD\ LQ
EULQJLQJVXLW)LQDOO\1DUWURQFRQWHQGVWKDWHYHQLILWV
\HDUGHOD\LQEULQJLQJVXLWFRQVWLWXWHVODFKHVLWLVQRQHWKHOHVV
HQWLWOHGWRSURVSHFWLYHLQMXQFWLYHUHOLHI:HDUHQRWSHUVXDGHG
E\DQ\RI1DUWURQ¶VDUJXPHQWV
)LUVWLQDWWHPSWLQJWRRYHUFRPHWKHSUHVXPSWLRQ1DUWURQ
WDNHVLVVXHZLWKWKHFRQFOXVLRQWKDWWKHUHZDVDQXQUHDVRQDEOH
GHOD\ LQ FRPPHQFLQJ LWV WUDGHPDUN DFWLRQ $FFRUGLQJ WR
1DUWURQWKHUHLVDTXHVWLRQRIIDFWDVWRZKHWKHUWKHODFKHV
SHULRG VWDUWHG EHIRUH 1RYHPEHU DQG WKHUHIRUH
VHHNVWRFRQFOXGHWKDWWKHUHLVDJHQXLQHLVVXHRIPDWHULDOIDFW
DVWRWKHXQUHDVRQDEOHQHVVRIWKHGHOD\LQFRPPHQFLQJVXLW
1DUWURQDUJXHVWKDWLWKDGQRUHDVRQWRVXHHDUOLHUEHFDXVH67
GLGQRWEHJLQFRQWLQXRXVLQIULQJLQJXVHRIWKH³6PDUWSRZHU´
PDUNXQWLO,QVXSSRUWRIWKLVFRQWHQWLRQ1DUWURQFODLPV
WKDW67RQO\XVHG³VPDUWSRZHU´WKUHHWLPHVEHWZHHQ
DQG)XUWKHUPRUHDFFRUGLQJWR1DUWURQRQHDFKVXFK
RFFDVLRQLWZURWHWR67WRFRPSODLQDERXW67¶VXVHRI³VPDUW
SRZHU´,QUHWXUQFODLPV1DUWURQ67DFTXLHVFHGDQGVWRSSHG
XVLQJWKHPDUN7KHUHFRUGKRZHYHUDGHTXDWHO\HVWDEOLVKHV
WKDW 67 QRW RQO\ PDGH VLJQLILFDQWO\ PRUH WKDQ WKUHH XVHV
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
:H WRR ILQG LW XQQHFHVVDU\ WR H[SUHVV DQ\ RSLQLRQ DV WR WKH PHULWV
RI WKHVH RWKHU DGGLWLRQDO DIILUPDWLYH GHIHQVHV
GLVWULFWFRXUWVWDWHGWKDW³>WKHGHIHQGDQW¶V@HOHYHQ\HDUV RI
FRQVWDQWXVHRIWKHWHUP6PDUW3RZHU>D@WRWDOUHMHFWLRQRI
HYHU\UHTXHVWWRVWRS>D@QGWKH>@REYLRXVO\XQFKDQJHG
DWWLWXGHRIWKHGHIHQGDQWFRQFHUQLQJLWVULJKWWRXVHWKLVWHUP
ZKLFK LW FRQVLGHUHG JHQHULF DOO UHTXLUHG WKDW WKH &RXUW
LPSRVHWKHGRFWULQHRIODFKHVKHUH´6HH-$DW7KH
GLVWULFWFRXUWDOVRFRQFOXGHGWKDW³>V@XEVWDQWLDOSUHMXGLFHKDV
RFFXUUHGLQWKHHOHYHQ\HDUVLW¶V>VLF@WDNHQWR>VLF@IRUWKH
ODZVXLWWREHILOHG´6HHLG5HMHFWLQJ1DUWURQ¶VSURJUHVVLYH
HQFURDFKPHQWDUJXPHQWWRH[FXVHLWVXQUHDVRQDEOHGHOD\LQ
ILOLQJVXLWWKHGLVWULFWFRXUWFRQFOXGHGWKDWWKH³UHDVRQJLYHQ
IRUWKHILOLQJRIWKHODZVXLWGRHVQRWKROGZDWHU7KHUH
ZDV QR QHZ DQG PRUH LQWUDQVLJHQW PDQDJHPHQW
,QWUDQVLJHQF\ZDVWKHVDPHDVLWKDGEHHQIRUDOOHOHYHQ\HDUV
7KHPDQDJHPHQWZDVWKHVDPHEXWWKHLQLWLDOVRIWZRQDPHV
ZHUHFRPELQHG´6HHLG
7KH GLVWULFW FRXUW KRZHYHU GHFOLQHG WR UXOH RQ 67¶V
DGGLWLRQDODIILUPDWLYHGHIHQVHVRI³IDLUXVH´DQGOLNHOLKRRGRI
FRQIXVLRQ 7KH SODLQWLII QRZ DSSHDOV DUJXLQJ WKDW ZLWK
UHVSHFWWRWKHLVVXHVRIJHQHULFQHVVDQGODFKHVWKHGLVWULFW
FRXUW¶VJUDQWRIVXPPDU\MXGJPHQWLQWKHGHIHQGDQW¶VIDYRU
ZDV LQFRUUHFW EHFDXVH WKH GLVWULFW FRXUW LPSURSHUO\ GUHZ
LQIHUHQFHVLQ67¶VIDYRUDQGZHLJKHGHYLGHQFHLQDUULYLQJDW
LWVGHFLVLRQVRQWKHVHLVVXHV
,,$1$/<6,6
:HUHYLHZWKHGLVWULFWFRXUW¶VJUDQWRIVXPPDU\MXGJPHQW
GH QRYR DSSO\LQJ WKH VDPH VWDQGDUG DV WKH GLVWULFW FRXUW
'DGG\¶V-XQN\0XVLF6WRUHVY%LJ'DGG\¶V)DPLO\0XVLF
&HQWHU)G WK&LU .HOORJJ&RY
([[RQ&RUS)G WK&LU FHUWGHQLHG
6&W 6XPPDU\ MXGJPHQW LV DSSURSULDWH RQO\
ZKHQWKHUHLVQRJHQXLQHLVVXHDVWRDQ\PDWHULDOIDFWDQGWKH
PRYLQJSDUW\LVHQWLWOHGWRMXGJPHQWDVDPDWWHURIODZ&LW\
0DQDJHPHQW&RUSY86&KHPLFDO&R)G

-- 7 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
*HQHULF WHUPV DUH DOVR FDOOHG ³FRPPRQ GHVFULSWLYH´ WHUPV DV
GLVWLQJXLVKHG IURP ³PHUHO\ GHVFULSWLYH´ WHUPV 6HH HJ 3DUN μ1 )O\
,QF Y 'ROODU 3DUN )O\ ,QF 86 FRPSDUH
86& † H I D ³PHUHO\ GHVFULSWLYH´ WHUP PD\ EH UHJLVWHUHG LI LW
KDV ³EHFRPH GLVWLQFWLYH RI WKH DSSOLFDQW¶V JRRGV LQ FRPPHUFH´ ZLWK LG
† F UHJLVWUDWLRQ PD\ EH FDQFHOOHG LI WKH PDUN KDV EHFRPH ³WKH
FRPPRQ GHVFULSWLYH QDPH RI DQ DUWLFOH´ $ ³PHUHO\ GHVFULSWLYH´ PDUN
DV RSSRVHG WR D ³FRPPRQ GHVFULSWLYH´ RQH LV RIWHQ VDLG WR LGHQWLI\ D
FKDUDFWHULVWLF RI WKH WKLQJ ,W LV YHU\ VLPLODU WR DQ DGMHFWLYH -XGJH
)ULHQGO\ LOOXVWUDWHG WKH GLVWLQFWLRQ EHWZHHQ D JHQHULF DQG D PHUHO\
GHVFULSWLYH PDUN ZLWK WKH ³'HHS %RZO 6SRRQ´ H[DPSOH
WK&LU :HFRQVLGHUDOOIDFWVDQGLQIHUHQFHVGUDZQ
WKHUHIURPLQWKHOLJKWPRVWIDYRUDEOHWRWKHQRQPRYLQJSDUW\
,G7KHFHQWUDOLQTXLU\LVZKHWKHUWKHHYLGHQFHSUHVHQWVD
VXIILFLHQW GLVDJUHHPHQW WR UHTXLUH VXEPLVVLRQ WR D MXU\ RU
ZKHWKHULWLVVRRQHVLGHGWKDWRQHSDUW\PXVWSUHYDLODVD
PDWWHURIODZ$QGHUVRQY/LEHUW\/REE\,QF86
1HYHUWKHOHVVWKHPHUHVFLQWLOODRIHYLGHQFH
LQVXSSRUWRIWKHQRQPRYDQW¶VSRVLWLRQLVQRWVXIILFLHQWWR
FUHDWHDJHQXLQHLVVXHRIPDWHULDOIDFW,G7KHSURSHULQTXLU\
LVZKHWKHUWKHHYLGHQFHLVVXFKWKDWDUHDVRQDEOHMXU\FRXOG
UHWXUQDYHUGLFWIRUWKHQRQPRYDQW,G
D*HQHULFQHVV
7KHGLVWULFWFRXUWFRUUHFWO\JUDQWHGVXPPDU\MXGJPHQWLQ
IDYRURI67RQWKHLVVXHRIJHQHULFQHVVRIWKHWHUP³VPDUW
SRZHU´DVXVHGLQWKHVHPLFRQGXFWRULQGXVWU\LQFRQQHFWLRQ
ZLWK 67¶V SURGXFWV LQFOXGLQJ 67¶V 9,3RZHUŠ OLQH RI
SURGXFWV,QRSSRVLQJ67¶VVXPPDU\MXGJPHQWPRWLRQRQWKH
LVVXH RI JHQHULFQHVV 1DUWURQ IDLOHG WR SUHVHQW HYLGHQFH
GHPRQVWUDWLQJDQ\JHQXLQHLVVXHVRIPDWHULDOIDFW$JHQHULF
WHUPFDQQHYHUIXQFWLRQDVDWUDGHPDUN6HHHJ7HFKQLFDO
3XEOLVKLQJ &R Y /HEKDU)ULHGPDQ ,QF )G
WK&LU 0LOOHU%UHZLQJ&RY-RVHSK6FKOLW]
%UHZLQJ&R)G WK&LU FHUWGHQLHG
86 2Q WKH RWKHU KDQG D WHUP WKDW LV
³PHUHO\ GHVFULSWLYH´ PD\ EH XVHG DV D WUDGHPDUN LI LW KDV
DFTXLUHG D VHFRQGDU\ PHDQLQJ 7KXV LQ FRQVLGHULQJ
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
$SSOLFDWLRQV 0DQXDO VW (G 7KLV H[WHQVLYH PDQXDO
FRQWDLQHG$SSOLFDWLRQ1RWHVGHVFULELQJ67¶VSURGXFWVWKDW
XWLOL]HG³VPDUWSRZHU´WHFKQRORJ\7KHPDQXDOZKLFKZDV
LQFLUFXODWLRQIURPWKURXJKXVHVWKHWHUP³VPDUW
SRZHU´WKURXJKRXW1DUWURQGLGQRWZULWHWR67DERXWWKH
PDQXDOXQWLO
,Q LWV GHIHQVH 1DUWURQ DUJXHV WKDW 67¶V XVH RI ³VPDUW
SRZHU´EHWZHHQDQG2FWREHUZDVLVRODWHGDQGQR
XVH RFFXUUHG EHWZHHQ 2FWREHU DQG 1DUWURQ
IXUWKHUDUJXHVWKDWLWGHOD\HGILOLQJVXLWXQWLOEHFDXVHLW
EHOLHYHG67KDGVWRSSHGLWVSULRUXVHVDIWHUQRWLILFDWLRQIURP
1DUWURQWRFHDVHVXFKXVH:HGLVDJUHH
7KH UHFRUG GHPRQVWUDWHV WKDW 1DUWURQ KDG DFWXDO RU
FRQVWUXFWLYH QRWLFH RI 67¶V XVH DW OHDVW E\
)XUWKHUPRUH1DUWURQ¶VFRQWHQWLRQWKDW67PDGHQRXVHRI
³VPDUWSRZHU´LQDQGLV
XQVXSSRUWDEOHDQGFRQWUDU\WRWKHUHFRUG,WLVFOHDUIURPWKH
UHFRUG WKDW 67 FRQWLQXHG WR FLUFXODWH LWV 6PDUW 3RZHU
$SSOLFDWLRQ0DQXDOLQDQG,WLVDOVRFOHDUIURP
WKHUHFRUGWKDWEHWZHHQDQG67PDGHQXPHURXV
RWKHUXVHVRIWKHWHUPDVLGHIURPWKRVHLQFRQQHFWLRQZLWKWKH
6PDUW3RZHU$SSOLFDWLRQ0DQXDO
(TXDOO\ XQVXSSRUWDEOH DQG GLUHFWO\ FRQWUDGLFWHG E\ WKH
UHFRUGLV1DUWURQ¶VVXJJHVWLRQWKDW67DFTXLHVFHGLQ1DUWURQ¶V
UHTXHVWVWRFHDVHLWVXVHRIWKHWHUP³VPDUWSRZHU´1RWRQO\
GLG 67 FRQWLQXRXVO\ XVH ³VPDUW SRZHU´ LW UHSHDWHGO\
LQIRUPHG1DUWURQWKDWLWKDGQRLQWHQWLRQRIVWRSSLQJLWVXVH
$VVXFK1DUWURQFRXOGQRWUHDVRQDEO\KDYHEHOLHYHGWKDW67
DFTXLHVFHGLQLWVUHTXHVWWRFHDVHDQGGHVLVWIURPXVLQJWKH
PDUN RU WKDW 67 KDG LQ IDFW VWRSSHG XVLQJ WKH PDUN
$FFRUGLQJO\ 67 KDV VKRZQ WKDW 1DUWURQ ILOHG VXLW
VLJQLILFDQWO\PRUHWKDQWKUHH\HDUVDIWHULWNQHZRUVKRXOG
KDYH NQRZQ RI WKH DOOHJHG LQIULQJHPHQW 7KLV GHOD\ LV
SUHVXPSWLYHO\ SUHMXGLFLDO DQG XQUHDVRQDEOH FUHDWLQJ D
UHEXWWDEOHSUHVXPSWLRQRIODFKHV
1DUWURQ LV XQDEOH WR UHEXW WKH SUHVXPSWLRQ WKDW LWV
VLJQLILFDQWGHOD\LQEULQJLQJWKLVVXLWZDVERWKSUHMXGLFLDODQG

-- 8 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
DSSOLFDELOLW\RIWKHGRFWULQHRI³SURJUHVVLYHHQFURDFKPHQW´
DQG LY 67 IDLOHG WR GHPRQVWUDWH WKDW LW VXIIHUHG DQ\
SUHMXGLFH
:H WRR FRQFOXGH WKDW WKH GRFWULQH RI ODFKHV SUHFOXGHV
1DUWURQ¶VFODLPVIRUWUDGHPDUNLQIULQJHPHQW/DFKHVLVWKH
QHJOLJHQWDQGXQLQWHQWLRQDOIDLOXUHWRSURWHFWRQH VULJKWV
(OYLV3UHVOH\(QWHU,QFY(OYLVO\<RXUV,QF)G
WK &LU $ SDUW\ DVVHUWLQJ ODFKHV PXVW VKRZ
ODFNRIGLOLJHQFHE\WKHSDUW\DJDLQVWZKRPWKHGHIHQVHLV
DVVHUWHG DQG SUHMXGLFH WR WKH SDUW\ DVVHUWLQJ LW 6HH
,QGXFW20DWLF&RUSY,QGXFWRWKHUP&RUS)G
WK &LU ,Q WKLV &LUFXLW WKHUH LV D VWURQJ
SUHVXPSWLRQWKDWDSODLQWLII¶VGHOD\LQDVVHUWLQJLWVULJKWVLV
UHDVRQDEOHDVORQJDVDQDQDORJRXVVWDWHVWDWXWHRIOLPLWDWLRQV
KDVQRWHODSVHG(OYLVO\<RXUV)GDW,QHYDOXDWLQJ
ZKHWKHUDSDUW\KDVEHHQGLOLJHQWLQSURWHFWLQJLWVWUDGHPDUN
ZHORRNWRWKHVWDWHODZVWDWXWHRIOLPLWDWLRQVIRULQMXU\WR
SHUVRQDOSURSHUW\,G+HUHXQGHU0LFKLJDQODZWKDWSHULRG
LVWKUHH\HDUV6HH0&/$† (OYLVO\<RXUV
)GDW,QRWKHUZRUGVDGHOD\EH\RQGWKHWKUHH
\HDU VWDWXWRU\ SHULRG LV SUHVXPSWLYHO\ SUHMXGLFLDO DQG
XQUHDVRQDEOH 7KH SHULRG RI GHOD\ EHJLQV WR UXQ ZKHQ
SODLQWLIIKDGDFWXDORUFRQVWUXFWLYHNQRZOHGJHRIWKHDOOHJHG
LQIULQJLQJDFWLYLW\'DQD&RUSY,3&/WG3DUWQHUVKLS
)6XSS ('0LFK FLWLQJ*HQHUDO(OHF
&RY6FLDN\%URV,QF)G WK&LU
,QWKLVFDVH67DUJXHVWKDW1DUWURQZDVDZDUHRI67¶VXVH
RI³VPDUWSRZHU´DVHDUO\DVRUDWWKHODWHVW,Q
67 XVHG WKH PDUN LQ FRQQHFWLRQ ZLWK PDWHULDOV
SUHVHQWHG DW D 6RFLHW\ RI $XWRPRWLYH (QJLQHHUV ³6$(´
&RQIHUHQFHDQG([SRVLWLRQRQ)XWXUH7UDQVSRUWDWLRQ$WWKH
FRQIHUHQFHDQ67HPSOR\HHSUHVHQWHGDSDSHUWLWOHG6PDUW
3RZHU $SSOLFDWLRQV LQ 0XOWLSOH[ 6\VWHPV 7KH UHFRUG
GHPRQVWUDWHV WKDW 1DUWURQ ZDV DZDUH RI WKLV XVH EXW
1DUWURQ¶VRQO\UHVSRQVHZDVWRVHQGDOHWWHUWR6$(QRW67
1DUWURQ GRHV QRW GLVSXWH WKDW LW QHYHU FRQWDFWHG 67 ZLWK
UHVSHFWWR67¶VXVHRIWKHWHUPDWWKH6$(FRQIHUHQFH
6XEVHTXHQWO\LQ-XQH67SXEOLVKHGLWV6PDUW3RZHU
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
³'HHS %RZO´ LGHQWLILHV D VLJQLILFDQW FKDUDFWHULVWLF RI WKH DUWLFOH
,W LV ³PHUHO\ GHVFULSWLYH´ RI WKH JRRGV EHFDXVH LW LQIRUPV RQH
WKDW WKH\ DUH GHHS LQ WKH ERZO SRUWLRQ ,W LV QRW KRZHYHU
³WKH FRPPRQ GHVFULSWLYH QDPH´ RI WKH DUWLFOH VLQFH WKH
LPSOHPHQW LV QRW D GHHS ERZO LW LV D VSRRQ ³6SRRQ´ LV QRW
PHUHO\ GHVFULSWLYH RI WKH DUWLFOH LW LGHQWLILHV ± WKH DUWLFOH DQG
WKHUHIRUH WKH WHUP LV JHQHULF
6HH $EHUFURPELH )LWFK &R Y +XQWLQJ :RUOG ,QF )G Q
G &LU TXRWLQJ )OHWFKHU $FWXDO &RQIXVLRQ DV WR ,QFRQWHVWDELOLW\
RI 'HVFULSWLYH 0DUNV 7UDGHPDUN 5HS :KHUH D PDUN
UHJLVWHUHG RQ WKH IHGHUDO SULQFLSDO UHJLVWU\ LV ³PHUHO\ GHVFULSWLYH´ DQG KDV
EHFRPH LQFRQWHVWDEOH SXUVXDQW WR 86& † WKH PDUN LV SUHVXPHG
WR KDYH DFTXLUHG D VHFRQGDU\ PHDQLQJ 6HH /LTXLG &RQWUROV &RUS Y
/LTXLG &RQWURO &RUS )G WK &LU
1DUWURQ¶VFKDOOHQJHRI67¶VXVHRI³VPDUWSRZHU´DVXVHGLQ
FRQQHFWLRQZLWK67¶VSURGXFWVLQWKHVHPLFRQGXFWRULQGXVWU\
LQFOXGLQJ 67¶V 9,3RZHUŠ OLQH RI SURGXFWV WKH FUXFLDO
TXHVWLRQLVZKHWKHUWKHUHLVDJHQXLQHLVVXHRIPDWHULDOIDFWDV
WRZKHWKHUWKHWHUPLVDJHQHULF LHFRPPRQGHVFULSWLYH RU
³PHUHO\ GHVFULSWLYH´ WHUP 7KH GLVWULFW FRXUW KHOG WKDW DV
XVHGE\WKHGHIHQGDQWLQWKHVHPLFRQGXFWRULQGXVWU\WKHWHUP
³VPDUWSRZHU´LVDJHQHULFWHUPEHFDXVHLWGHILQHVDW\SHRI
WHFKQRORJ\ WKDW WKH GHIHQGDQWV DQG RWKHUV LQ WKH
VHPLFRQGXFWRULQGXVWU\GHYHORSDQGPDUNHW
:HDJUHHZLWKWKHGLVWULFWFRXUWWKDW³VPDUWSRZHU´DVXVHG
E\67LQFRQQHFWLRQZLWKLWV9,3RZHUŠOLQHRISURGXFWVKDV
EHFRPHDJHQHULFWHUPLQWKHVHPLFRQGXFWRULQGXVWU\³$
JHQHULFWHUPLVRQHWKDWLVFRPPRQO\XVHGDVWKHQDPHRID
NLQGRIJRRGV8QOLNHDWUDGHPDUNZKLFKLGHQWLILHVWKH
VRXUFHRIDSURGXFWDJHQHULFWHUPPHUHO\LGHQWLILHVWKHJHQXV
RIZKLFKDSDUWLFXODUSURGXFWLVDVSHFLHV´/LTXLG&RQWUROV
&RUSY/LTXLG&RQWURO&RUS)G WK&LU
FLWDWLRQVRPLWWHG VHHDOVR%DWK %RG\:RUNV,QF
Y/X]LHU3HUVRQDOL]HG&RVPHWLFV,QF)G WK
&LU ,IDPDUN¶VSULPDU\VLJQLILFDQFHLVWRGHVFULEHD
W\SHRISURGXFWUDWKHUWKDQWKHSURGXFHULWLVJHQHULFDQGLV
QRWDYDOLGWUDGHPDUN6HHHJ%DWK %RG\:RUNV)G
DW/LTXLG&RQWUROV&RUS)GDW7KXVWKH

-- 9 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
0DQ\ WHFKQRORJ\ UHODWHG WHUPV KDYH EHHQ IRXQG WR EH JHQHULF 6HH
HJ ,Q UH *RXOG 3DSHU &RUS )G )HG &LU
³VFUHHQZLSH´ IRU VFUHHQ FOHDQLQJ FORWK 5HHVH 3XEO¶J &R Y +DPSWRQ
,QW¶O &RPPXQLFDWLRQV ,QF )G G &LU ³YLGHR EX\HU¶V
JXLGH´ IRU YLGHR JXLGHV +RORJUDSKLF 'HVLJQV 6\V Y +RORJUDSKLF
'HVLJQ ,QF :/ 1' ,OO ³KRORJUDSKLF GHVLJQ´ IRU
GHVLJQ RI KRORJUDSKLF JRRGV /LTXLG &RQWUROV )G DW ³OLTXLG
FRQWUROV´ JHQHULF IRU PHWHUV IRU FRQWUROOLQJ WKH IORZ RI OLTXLG
6XUJLFHQWHUV RI $P ,QF Y 'HQWDO 6XUJHULHV &R )G
WK &LU ³VXUJLFHQWHU´ JHQHULF IRU VXUJLFDO FHQWHUV
DSSURSULDWH ³WHVW IRU JHQHULFQHVV LV ZKHWKHU WKH >UHOHYDQW@
SXEOLFSHUFHLYHVWKHWHUPSULPDULO\DVWKHGHVLJQDWLRQRIWKH
DUWLFOH´%OLQGHG9HWHUDQV$VVRFLDWLRQY%OLQGHG9HWHUDQV
)RXQGDWLRQ)G '&&LU 7RDOORZ
SURWHFWLRQIRUJHQHULFWHUPVZRXOGJUDQW³DPRQRSRO\VLQFH
DFRPSHWLWRUFRXOGQRWGHVFULEHKLVJRRGVDVZKDWWKH\DUH´
&(63XEO¶J&RUSY6W5HJLV3XEOLFDWLRQV,QF)G
G&LU VHHDOVR1HVWOH&RY&KHVWHU¶V0DUNHW
,QF)6XSS '&RQQ YDFDWHG
)G G&LU 7KXVWKHUHFDQEHQRLQIULQJHPHQW
LIWKHSULPDU\VLJQLILFDQFHRI³VPDUWSRZHU´DVXVHGE\67LV
WRGHVFULEHDW\SHRISURGXFWKHUHDW\SHRIWHFKQRORJ\DQG
QRWWRLGHQWLI\WKHVRXUFHRIVXFKSURGXFWV
+HUHRQLWVVXPPDU\MXGJPHQWPRWLRQIRUJHQHULFQHVV67
VXIILFLHQWO\FDUULHGLWVEXUGHQRIGHPRQVWUDWLQJWKHDEVHQFHRI
DQ\JHQXLQHLVVXHRIPDWHULDOIDFWRQLWVFODLPRIJHQHULFQHVV
67SURGXFHGRYHUZKHOPLQJHYLGHQFHZKLFK1DUWURQIDLOHGWR
UHEXWWKDWWKHWHUP³VPDUWSRZHU´DVXVHGE\67DQGRWKHU
SDUWLFLSDQWVLQWKHVHPLFRQGXFWRULQGXVWU\GHQRWHVDW\SHRI
WHFKQRORJ\QRWJRRGVDVVRFLDWHGZLWK1DUWURQ:HDUHQRW
FRQYLQFHG E\ 1DUWURQ¶V DUJXPHQW WKDW WKH GLVWULFW FRXUW
LPSURSHUO\DSSOLHGWKHVXPPDU\MXGJPHQWVWDQGDUG1RUDUH
ZH SHUVXDGHG E\ 1DUWURQ¶V VSHFLRXV DUJXPHQWV WKDW WKHUH
UHPDLQ JHQXLQH LVVXHV RI PDWHULDO IDFW ZKLFK VKRXOG KDYH
SUHFOXGHGWKHGLVWULFWFRXUW¶VJUDQWRI67¶VVXPPDU\MXGJPHQW
PRWLRQ
:HQRWHLQLWLDOO\WKDW1DUWURQPDNHVWRRPXFKRIWKHIDFW
WKDW LWV PDUN SXUVXDQW WR 86& † KDG EHFRPH
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
6HH VXSUD QRWH GLVFXVVLQJ WKH GLIIHUHQFH EHWZHHQ ³PHUHO\
GHVFULSWLYH´ DQG JHQHULF LH FRPPRQ GHVFULSWLYH WHUPV
RQJHQHULFQHVVDQGWKHGLVWULFWFRXUWFRXOGQRWSURSHUO\JLYH
JUHDWHUZHLJKWWR67¶VHYLGHQFHWKDQ1DUWURQ¶VHYLGHQFH
1DUWURQ IDLOV WR DSSUHFLDWH WKH GLVWLQFWLRQ EHWZHHQ
³FRPPRQGHVFULSWLYH´WHUPVDQGWHUPVFRQVLGHUHG³PHUHO\
GHVFULSWLYH´6RPHWHUPVRQ67¶VOLVWIRUH[DPSOH³VPDUW
SRZHUPDQDJHPHQW´VXJJHVWWKDW³VPDUWSRZHU´ZDVEHLQJ
XVHGGHVFULSWLYHO\7KHPDMRULW\RIWKHH[DPSOHVKRZHYHU
FOHDUO\ GHPRQVWUDWH WKDW DV XVHG LQ WKH VHPLFRQGXFWRU
LQGXVWU\³VPDUWSRZHU´ZDVXVHGDVWKHGHVLJQDWLRQRIWKH
DUWLFOHLWVHOI±KHUHDZLGHUDQJHRISURGXFWVDQGWHFKQRORJLHV
DOO RI ZKLFK LPSOHPHQW WKH IXQFWLRQ RI LQWHUIDFLQJ ORJLF
FLUFXLWVWRSRZHUORDGV
E/DFKHV
7KHGLVWULFWFRXUWFRUUHFWO\JUDQWHGVXPPDU\MXGJPHQWLQ
IDYRURI67RQWKHLVVXHRIODFKHV:HDUHQRWSHUVXDGHGE\
1DUWURQ¶VDUJXPHQWWKDWWKHGLVWULFWFRXUWLPSURSHUO\DSSOLHG
WKHVXPPDU\MXGJPHQWVWDQGDUGRQWKLVLVVXH,QDUULYLQJDW
WKLVGHFLVLRQWKHGLVWULFWFRXUWFRQFOXGHGWKDW1DUWURQIDLOHG
WRUHEXW67¶VHYLGHQFHGHPRQVWUDWLQJWKDWIRUHOHYHQ\HDUV
67 KDG FRQVWDQWO\ DQG FRQWLQXRXVO\ XVHG WKH WHUP ³VPDUW
SRZHU´DQGWRWDOO\UHMHFWHGHYHU\RQHRI1DUWURQ¶VUHTXHVWV
WR VWRS XVLQJ WKH WHUP ,Q DGGLWLRQ LQ OLJKW RI 1DUWURQ¶V
LQDELOLW\WRMXVWLI\LWVGHOD\LQEULQJLQJVXLWWKHGLVWULFWFRXUW
VXUPLVHGWKDWVXEVWDQWLDOSUHMXGLFHKDGRFFXUUHGLQWKHHOHYHQ
\HDUVWKDWLWWRRNIRU1DUWURQWREULQJVXLW2QDSSHDO1DUWURQ
DUJXHVWKDWWKHGLVWULFWFRXUWZHLJKHGHYLGHQFHDQGLPSURSHUO\
GUHZLQIHUHQFHVLQ67¶VIDYRU,QVXSSRUWRILWVDUJXPHQWV
1DUWURQDVVHUWVWKHIROORZLQJ L 67¶VXVHRI³VPDUWSRZHU´
EHWZHHQ DQG 2FWREHU ZDV LVRODWHG DQG QR XVH
RFFXUUHG EHWZHHQ 2FWREHU DQG LL 1DUWURQ
VXEPLWWHGHYLGHQFHWKDW1DUWURQGHOD\HGILOLQJVXLWEHFDXVH
1DUWURQEHOLHYHG67KDGVWRSSHGLWVSULRUXVHVDIWHU1DUWURQ
UHTXHVWHG WKDW 67 FHDVH XVLQJ WKH PDUN LLL 67¶V XVH RI
³VPDUW SRZHU´ JUHZ IURP WULYLDO WR VLJQLILFDQW KHQFH WKH

-- 10 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
2WKHU WKDQ WKH WHVWLPRQ\ RI LWV SUHVLGHQW 1DUWURQ GRHV QRW SURYLGH
DQ\ HYLGHQFH VXJJHVWLQJ WKDW WKH UHOHYDQW SXEOLF KHUH PDUNHW SDUWLFLSDQWV
LQ WKH VHPLFRQGXFWRU LQGXVWU\ SHUFHLYH ³VPDUW SRZHU´ DV EHLQJ DVVRFLDWHG
ZLWK 1DUWURQ¶V SURGXFWV
VXJJHVWLQJWKDWWKHUHLVDJHQXLQHLVVXHRIPDWHULDOIDFWZLWK
UHVSHFWWRWKHLVVXHRIJHQHULFQHVV
$OVR 1DUWURQ¶V UHOLDQFH RQ 67¶V IDLOXUH WR SURYLGH DQ\
GLFWLRQDU\ FRQWDLQLQJ D GHILQLWLRQ IRU ³VPDUW SRZHU´ LV
PLVSODFHG'LFWLRQDU\GHILQLWLRQVDUHPHUHO\RQHVRXUFHIURP
ZKLFKJHQHULFQHVVPD\EHSURYHQ7KHODZLVTXLWHFOHDUWKDW
WKHDEVHQFHRIDFRPSRVLWHWHUPIURPWKHGLFWLRQDU\GRHVQRW
HQGWKHDQDO\VLVEHFDXVHQXPHURXVWHUPVKDYHEHHQIRXQGWR
EHJHQHULFGHVSLWHWKHLUDEVHQFHIURPWKHGLFWLRQDU\6HHHJ
/LTXLG &RQWUROV )G DW KROGLQJ WKDW ³OLTXLG
FRQWUROV´LVJHQHULF 1DWLRQDO&RQIRI%DU([DPLQHUV
)G DW KROGLQJ WKDW ³PXOWLVWDWH EDU H[DPLQDWLRQ´
JHQHULF 7HFKQLFDO3XEOLVKLQJ&R)GDW ILQGLQJ
WKDW³VRIWZDUHQHZV´SUREDEO\JHQHULF 0LOOHU%UHZLQJ&R
Y * +HLOHPDQ %UHZLQJ &R )G WK &LU
KROGLQJWKDW³OLJKWEHHU´LVJHQHULF FHUWGHQLHG86
2QWKHRWKHUKDQG67DUJXHVWKDWWKHFRPSRVLWH
WHUP³VPDUWSRZHU´LVQRWKLQJPRUHWKDQWKHFRPSRVLWHRILWV
SDUWV±³VPDUW´DQG³SRZHU´±DQGWKXVOLNH³OLTXLGFRQWURO´
³ PXOWLVWDWH EDU H[DPLQDWLRQV´ DQG ³OLJKW EHHU´ ³VPDUW
SRZHU´WRRPXVWDOVREHGHHPHGJHQHULF:HQHHGQRWGHFLGH
WKHPHULWVRI67¶VDUJXPHQWEHFDXVHLWKDVLQWURGXFHGRWKHU
HYLGHQFH WHQGLQJ WR VKRZ WKDW ³VPDUW SRZHU´ LV D JHQHULF
WHUP
)LQDOO\ZHDUHQRWFRQYLQFHGE\1DUWURQ¶VDUJXPHQWWKDW
WKHGLVWULFWFRXUWHUUHGLQUHO\LQJRQ67¶VHYLGHQFHVKRZLQJ
WKH ZLGHVSUHDG XVH RI ³VPDUW SRZHU´ DV D JHQHULF WHUP
$FFRUGLQJ WR 1DUWURQ 67 SUHYDLOHG E\ RYHUZKHOPLQJ WKH
GLVWULFWFRXUWZLWKDJUHDWQXPEHURIDOOHJHGXVHVRIWKHWHUP
³VPDUWSRZHU´LQYDULRXVDUHDV7KLVSURRIFODLPV1DUWURQ
JRHV RQO\ WR GHVFULSWLYHQHVV QRW JHQHULFQHVV EHFDXVH WKH
XVHV LQ 67¶V OLVW DUH GHVFULSWLYH QRW JHQHULF $W PRVW
FRQFOXGHV1DUWURQ67¶VOLVWFUHDWHVDQLVVXHRIPDWHULDOIDFW
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
³LQFRQWHVWDEOH´$FFRUGLQJWR1DUWURQWKLVPHDQVLQWHUDOLD
WKH PDUN ³PXVW EH FRQVLGHUHG VWURQJ DQG ZRUWK\ RI IXOO
SURWHFWLRQ´ VHH :\QQ 2LO &R Y 7KRPDV )G
WK&LU DQGWKDWLWFDQQRWEHFKDOOHQJHGRQWKH
EDVLVRIEHLQJPHUHO\GHVFULSWLYH7KHPDUN¶VLQFRQWHVWDEOH
VWDWXVKRZHYHUGRHVQRWSURWHFWLWIURPDFKDOOHQJHDVKHUH
SUHPLVHG RQ D FODLP WKDW LW KDV EHFRPH JHQHULF 6HH
86&†1HYHUWKHOHVVEHFDXVHWKHPDUNDWLVVXHZDV
DIHGHUDOO\UHJLVWHUHGPDUNWKHUHLVDSUHVXPSWLRQWKDWWKH
WHUP LV QRQJHQHULF DQG WKH GHIHQGDQW EHDUV WKH EXUGHQ RI
RYHUFRPLQJWKLVSUHVXPSWLRQ%DWK %RG\:RUNV)G
DW FLWLQJ - 7KRPDV 0F&DUWK\ 0&&$57+< 21
75$'(0$5.6 $1' 81)$,5 &203(7,7,21†>@>E@ G
HG UHQXPEHUHG DV † WK HG ,Q
DGGLWLRQWRGHPRQVWUDWLQJWKHDEVHQFHRIDQ\JHQXLQHLVVXHRI
PDWHULDOIDFWRQLWVFODLPRIJHQHULFQHVV67DOVRSURGXFHG
HYLGHQFH VXIILFLHQW WR RYHUFRPH ZKDWHYHU SUHVXPSWLRQ RI
QRQJHQHULFQHVV 1DUWURQ ZDV HQWLWOHG WR RQ DFFRXQW RI LWV
RZQHUVKLSRIDQLQFRQWHVWDEOHIHGHUDOO\UHJLVWHUHGWUDGHPDUN
:H UHMHFW 1DUWURQ¶V DUJXPHQWV XUJLQJ WKDW ZH UHDFK D
FRQWUDU\FRQFOXVLRQ
1DUWURQDUJXHVWKDWWKHGLVWULFWFRXUW¶VJUDQWRIVXPPDU\
MXGJPHQWLQWKHGHIHQGDQW¶VIDYRUZDVLQFRUUHFWEHFDXVHWKH
GLVWULFWFRXUWLPSURSHUO\PDGHLQIHUHQFHVLQIDYRURI67DQG
LPSURSHUO\ZHLJKHGHYLGHQFHLQFRQFOXGLQJWKDWWKHWHUPZDV
JHQHULF,QVXSSRUWRILWVDUJXPHQW1DUWURQDVVHUWVWKDW67
L VXEPLWWHGQRHYLGHQFHVXUYH\RURWKHUZLVHHVWDEOLVKLQJ
WKDWWKHSXEOLFSHUFHLYHV1DUWURQ¶V³6PDUWSRZHU´PDUNDV
SULPDULO\WKHGHVLJQDWLRQRIDQDUWLFOHDQG LL SURYLGHGQR
GLFWLRQDU\HYLGHQFHWRFRXQWHU1DUWURQ¶VVXEPLVVLRQRIVL[
WHFKQLFDOGLFWLRQDULHVQRQHRIZKLFKFRQWDLQHGDGHILQLWLRQ
IRU³VPDUWSRZHU´RU³VPDUWSRZHU´1DUWURQ¶VDUJXPHQWVDUH
ZLWKRXWPHULW
7KHGLVWULFWFRXUWGLGQRWHUULQFRQFOXGLQJWKDWDVDPDWWHU
RI ODZ ³VPDUW SRZHU´ KDG EHFRPH JHQHULF LQ WKH
VHPLFRQGXFWRU LQGXVWU\ 1DUWURQ¶V DVVHUWLRQ WKDW ³67
VXEPLWWHGQRHYLGHQFHWKDWμWKHSXEOLFSHUFHLYHVWKH60$57
32:(5PDUNSULPDULO\DVWKHGHVLJQDWLRQRIWKHDUWLFOH¶DW

-- 11 of 12 --

1DUWURQ&RUSY670LFURHOHFWURQLFV 1R
LVVXH´LVVLPSO\QRWVXSSRUWHGE\WKHUHFRUG2UGLQDULO\LWLV
DWHUP¶VPHDQLQJWRFRQVXPHUVQRWSURIHVVLRQDOVLQWKHWUDGH
WKDWLVWKHWHVWRIJHQHULFQHVVDQGGHVFULSWLYHQHVVIRURUGLQDU\
FRQVXPHUJRRGV6HHHJ0DJLF:DQG,QFY5'%,QF
)G )HG&LU $QKHXVHU%XVFK,QFY
6WURK %UHZHU\ &R )G WK &LU
+RZHYHU WKH ³$QWL0RQRSRO\´ DPHQGPHQWV WR WKH
/DQKDP$FWUHTXLUHWKDW³>W@KHSULPDU\VLJQLILFDQFHRIWKH
UHJLVWHUHGPDUNWRWKHUHOHYDQWSXEOLFVKDOOEHWKHWHVWIRU
GHWHUPLQLQJ ZKHWKHU WKH UHJLVWHUHG PDUN KDV EHFRPH WKH
JHQHULFQDPHRIJRRGVRUVHUYLFHVRQRULQFRQQHFWLRQZLWK
ZKLFKLWKDVEHHQXVHG´6HH/DQKDP$FW† 86&
† HPSKDVLVDGGHG ³7KHUHOHYDQWSXEOLF´LVDEURDG
WHUPWKDWLPSOLHVWKDWLQDQDSSURSULDWHFDVHLWFRXOGLQFOXGH
SURIHVVLRQDOEX\HUV6HH0&&$57+< 21 75$'(0$5.6 $1'
81)$,5 &203(7,7,21† WKHG 3XEOLFLQWKLV
FRQWH[W GRHV QRW QHFHVVDULO\ DOZD\V PHDQ HYHU\RQH ,G
5DWKHU³UHOHYDQWSXEOLF´FRXOGEHFRPSRVHGRIDUHODWLYHO\
VPDOOJURXSRIKLJKO\WUDLQHGDQGNQRZOHGJHDEOHSURIHVVLRQDO
FXVWRPHUVIRUDSDUWLFXODUVSHFLDOL]HGSURGXFWRUVHUYLFH,G
+HUHWKHUHFRUGEHIRUHXVLVUHSOHWHZLWKHYLGHQFHVXEPLWWHG
E\67LQVXSSRUWRILWVFODLPWKDW³VPDUWSRZHU´DVXVHGLQ
FRQQHFWLRQZLWKLWV9,3RZHUŠOLQHRISURGXFWVLVSHUFHLYHG
DV D JHQHULF WHUP E\ SDUWLFLSDQWV LQ WKH VHPLFRQGXFWRU
LQGXVWU\ LQFOXGLQJ PDQXIDFWXUHUV FXVWRPHUV VXSSOLHUV
YHQGRUVDQGWKHWUDGHDQGWHFKQLFDOSUHVV
:HDJUHHZLWKWKHGLVWULFWFRXUWWKDW67SURGXFHGHQRXJK
HYLGHQFHWRRYHUFRPHWKHSUHVXPSWLRQRIQRQJHQHULFQHVV,Q
GHFLGLQJ JHQHULFQHVV HYLGHQFH RI WKH UHOHYDQW SXEOLF¶V
XQGHUVWDQGLQJ RI D WHUP ³PD\ EH REWDLQHG IURP DQ\
FRPSHWHQWVRXUFH´,QUH0HUULOO/\QFK3LHUFH)HQQHU
6PLWK,QF)G )HG&LU HPSKDVLV
DGGHG 7KXV67PD\SURSHUO\VKRZWKDW³6PDUWSRZHU´LV
JHQHULF ZLWK HYLGHQFH VXFK DV GLFWLRQDU\ GHILQLWLRQV
QHZVSDSHUV DQG RWKHU SXEOLFDWLRQV JHQHULF XVH E\
FRPSHWLWRUVJHQHULFXVHRIWKHWHUPE\WKHPDUN¶VRZQHUV
DQGXVHRIWKHWHUPE\WKLUGSDUWLHVLQWUDGHPDUNUHJLVWUDWLRQV
$EHUFURPELH )LWFK&RY+XQWLQJ:RUOG,QF)G
G&LU ,QUH1RUWKODQG$OXPLQXP3URG)G
1R 1DUWURQ&RUSY670LFURHOHFWURQLFV
)HG&LU 7HNWURQL[,QFY'DNWURQLFV
,QF)G &&3$ VHHDOVR)ULWR
/D\,QFY%DFKPDQ&R)6XSS 6'1<
67GLGMXVWWKDW
+HUH67SURYLGHGXQGLVSXWHGGHSRVLWLRQWHVWLPRQ\IURP
WKLUGSDUW\ SDUWLFLSDQWV LQ WKH VHPLFRQGXFWRU LQGXVWU\
LQFOXGLQJ PDQXIDFWXUHUV DQG GLVWULEXWRUV 7KH\ SURYLGHG
WHVWLPRQ\WKDWPDQXIDFWXUHUVFXVWRPHUVVXSSOLHUVYHQGRUV
DQGRWKHUVLQWKHVHPLFRQGXFWRULQGXVWU\LQFOXGLQJWKHWUDGH
DQGWHFKQLFDOSUHVVXVHWKHWHUP³VPDUWSRZHU´JHQHULFDOO\WR
PHDQSRZHUGHYLFHVWKDWKDYHFRQWUROFLUFXLWV,QDGGLWLRQWR
XQUHIXWHGDGPLVVLRQVE\SURIHVVLRQDOVLQWKHVHPLFRQGXFWRU
LQGXVWU\WKDW³VPDUWSRZHU´LVJHQHULF67DOVRSUHSDUHGD
SDJH FKURQRORJ\ IURP WKURXJK WKH SUHVHQW WKDW
GLJHVWHG WKH SHUYDVLYH XVHV RI ³VPDUW SRZHU´ WR LGHQWLI\
GHYLFHVWKDWXWLOL]HDFHUWDLQW\SHRIWHFKQRORJ\SDUWLFXODUO\
LQWHJUDWHGFLUFXLWVWKDWFRPELQHERWKSRZHUDQGORJLF7KLV
FKURQRORJ\ SURYLGHG HYLGHQFH IURP D YDULHW\ RI VRXUFHV
LQFOXGLQJWUDGHMRXUQDOVQHZVSDSHUVDQGRWKHUSXEOLFDWLRQV
DQGDGYHUWLVHPHQWV,QDGGLWLRQWKHFKURQRORJ\DOVRVHWIRUWK
HYLGHQFHIURPSDWHQWWUDGHPDUNDQGFRS\ULJKWUHJLVWUDWLRQV
LQGLFDWLQJWKDWHYHQWKH8QLWHG6WDWHV3DWHQWDQG7UDGHPDUN
2IILFHDQGWKH8QLWHG6WDWHV&RS\ULJKW2IILFHKDYHFRPHWR
UHFRJQL]HWKHWHUPDVVLJQLI\LQJDW\SHRIWHFKQRORJ\LQWKH
VHPLFRQGXFWRULQGXVWU\7KXVWKHRYHUZKHOPLQJHYLGHQFHLQ
WKLV FDVH REYLDWHV WKH QHHG IRU 67 WR KDYH FRQGXFWHG D
FRQVXPHUVXUYH\6HHHJ/LTXLG&RQWUROV)GDW
GLVWULFWFRXUW¶VJUDQWRIVXPPDU\MXGJPHQWRQLVVXHRI
JHQHULFQHVVZLWKRXWVXUYH\DIILUPHGE\DSSHOODWHFRXUW VHH
DOVR%DUULRVY$PHULFDQ7KHUPDO,QVWUXPHQWV,QF)
6XSS 6' 2KLR FRQVXPHU VXUYH\ QRW
QHFHVVDU\ DQG ³GLFWLRQDULHV QHZVSDSHUV DQG RWKHU
SXEOLFDWLRQVPD\EHXVHGWRHVWDEOLVKWKDWDWHUPLVJHQHULF´
6XKY<DQJ)6XSSQ 1'&DO
VXUYH\V ³GH ULJHXU´ EXW QRW UHTXLUHG VXPPDU\ MXGJPHQW
ZLWKRXWVXUYH\JUDQWHG ([SRQFRQVXO,QWHUQDWLRQDO,QFY
$(6\VWHPV,QF)6XSS 6'1<
VDPH 7KLVUHVXOWLVFRPSHOOHGZKHUH1DUWURQKDVIDLOHGWR
UHEXWWKHSURIIHUHGHYLGHQFHQRUSURYLGHGHYLGHQFHRILWVRZQ

-- 12 of 12 --