7/28/2019 Consideration Lecture 2

1/4

$VLI7XIDO

ZZZODZWHDFKHUFRXN

3$573$@%3/5

7/28/2019 Consideration Lecture 2

2/4

$VLI7XIDO

ZZZODZWHDFKHUFRXN

(;&(37,216727+(58/(

$SDUWIURP WKHH[FHSWLRQVWR WKHUXOHPHQWLRQHG LQ3LQQHOV&DVH LWVHOIWKHUHDUHWZRRWKHUVDWFRPPRQODZDQGRQHH[FHSWLRQLQHTXLW\

$ 3$573$@.% $IDWKHUSDLGDVPDOOHUVXPWRDPRQH\ OHQGHU WR SD\ KLV VRQV GHEWV ZKLFK WKH PRQH\ OHQGHU DFFHSWHG LQ IXOOVHWWOHPHQW/DWHUWKHPRQH\OHQGHUVXHGIRUWKHEDODQFH,WZDVKHOGWKDWWKHSDUWSD\PHQWZDVYDOLGFRQVLGHUDWLRQDQGWKDWWRDOORZWKHPRQH\OHQGHUVFODLPZRXOGEHDIUDXGRQWKHIDWKHU

% &20326,7,21$*5((0(176

7KHUXOHGRHVQRWDSSO\WRFRPSRVLWLRQDJUHHPHQWV7KLVLVDQDJUHHPHQWEHWZHHQDGHEWRUDQG DJURXS RIFUHGLWRUVXQGHU ZKLFK WKH FUHGLWRUV DJUHHWRDFFHSWD SHUFHQWDJHRIWKHLU

GHEWVHJSLQWKHSRXQGLQIXOOVHWWOHPHQW'HVSLWHWKHDEVHQFHRIFRQVLGHUDWLRQWKHFRXUWVZLOOQRWDOORZDQLQGLYLGXDOFUHGLWRUWRVXHWKHGHEWRUIRUWKHEDODQFH:RRGY5REDUWV7KHUHDVRQXVXDOO\DGYDQFHGIRUWKLVUXOHLVWKDWWRDOORZDQLQGLYLGXDOFUHGLWRUWRFODLPWKHEDODQFHZRXOGDPRXQWWRD IUDXGRQWKHRWKHUFUHGLWRUVZKRKDGDOODJUHHGWRWKHSHUFHQWDJH

& 3520,6625

7/28/2019 Consideration Lecture 2

3/4

$VLI7XIDO

ZZZODZWHDFKHUFRXN

VXHG WRUHFRYHU WKH DUUHDUVRI UHQW DVIL[HG E\WKHDJUHHPHQW IRU WKH ODVW WZRTXDUWHUVRI

'HQQLQJ-KHOGWKDWWKH\ZHUHHQWLWOHGWRUHFRYHUWKLVPRQH\DVWKHLUSURPLVHWR DFFHSW RQO\ KDOI ZDV LQWHQGHG WR DSSO\ GXULQJ ZDU FRQGLWLRQV 7KLV LV WKHUDWLRGHFLGHQGLRIWKHFDVH+HVWDWHGRELWHUWKDW LIWKH3VVXHGIRUWKHDUUHDUVIURPWKHDJUHHPHQWZRXOGKDYHGHIHDWHGWKHLUFODLP(YHQWKRXJKWKH'VGLGQRWSURYLGH FRQVLGHUDWLRQ IRU WKH 3V SURPLVH WR DFFHSW KDOI UHQW WKLV SURPLVH ZDV

LQWHQGHGWREHELQGLQJDQGZDVDFWHGRQE\WKH'V 7KHUHIRUHWKH3VZHUHHVWRSSHGIURPJRLQJEDFNRQWKHLUSURPLVHDQGFRXOGQRWFODLPWKHIXOOUHQWIRU

F 7RRO0HWDO&DVH VHHEHORZ

7KXVLWVHHPVWKDWLIDSHUVRQSURPLVHVWKDWKHZLOOQRWLQVLVWRQKLVVWULFWOHJDOULJKWVDQGWKHSURPLVHLVDFWHGXSRQWKHQWKHODZZLOOUHTXLUHWKHSURPLVHWREHKRQRXUHGHYHQWKRXJKLWLVQRWVXSSRUWHGE\FRQVLGHUDWLRQ

5(48,5(0(176

7KHH[DFWVFRSHRIWKHGRFWULQHRISURPLVVRU\HVWRSSHOLVDPDWWHURIGHEDWHEXWLWLVFOHDUWKDWFHUWDLQUHTXLUHPHQWVPXVWEHVDWLVILHGEHIRUHWKHGRFWULQHFDQFRPHLQWRSOD\

$ &2175$&78$//(*$/5(/$7,216+,3

$OOWKHFDVHVUHOLHGRQE\'HQQLQJ-LQ+LJK7UHHV+RXVH ZHUHFDVHVRIFRQWUDFW+RZHYHULQ'XUKDP)DQF\*RRGVY0LFKDHO-DFNVRQ)DQF\*RRGV >@4%'RQDOGVRQ-VDLGWKDWDQ H[LVWLQJFRQWUDFWXDO UHODWLRQVKLSZDVQRWQHFHVVDU\ SURYLGLQJWKHUHZDVD SUHH[LVWLQJ OHJDO UHODWLRQVKLS ZKLFK FRXOG LQ FHUWDLQ FLUFXPVWDQFHVJLYH ULVHWR OLDELOLWLHVDQGSHQDOWLHV

% 3520,6(

7KHUHPXVWEHDFOHDUDQGXQDPELJXRXVVWDWHPHQWE\WKHSURPLVRUWKDWKLVVWULFWOHJDOULJKWVZLOOQRWEHHQIRUFHGLHRQHSDUW\PXVWPDNHDSURPLVHZKLFKLVLQWHQGHGWREHELQGLQJ7KH6FDSWUDGH >@4%+RZHYHULWFDQEHLPSOLHGRUPDGHE\FRQGXFWDVLQWKH+XJKHV

&DVH

& 5(/,$1&(

7KHSURPLVHHPXVWKDYHDFWHGLQUHOLDQFHRQWKHSURPLVH7KHUHLVVRPHXQFHUWDLQW\DVW RZKHWKHUWKHSURPLVHHLVKRXOGKDYHUHOLHGRQWKHSURPLVHE\FKDQJLQJKLVSRVLWLRQWRWKHLUGHWULPHQWLHVRWKDWKHLVSXWLQDZRUVHSRVLWLRQLIWKHSURPLVHLVUHYRNHG$MD\LY%ULVFRH>@:/5 RULL ZKHWKHUWKH\VKRXOGKDYHPHUHO\DOWHUHGWKHLUSRVLWLRQLQVRPHZD\QRWQHFHVVDULO\IRUWKHZRUVH

,Q$ODQ&R/WG Y(O1DVU([SRUW ,PSRUW&R >@ 4% /RUG'HQQLQJGLVFODLPHGGHWULPHQWDVDQ HOHPHQWRISURPLVVRU\HVWRSSHOVD\LQJLW ZDVVXIILFLHQWLIWKHGHEWRUDFWHGRQ WKH SURPLVHE\ SD\LQJ WKH ORZHU VXP +H VDLGWKDW KH PXVW KDYH EHHQ OHG WR DFW

GLIIHUHQWO\IURPZKDWKHRWKHUZLVHZRXOGKDYHGRQH

' ,1(48,7$%/(725(9(57

,WPXVWEHLQHTXLWDEOHIRUWKHSURPLVRUWRJREDFNRQKLVSURPLVHDQGUHYHUWWRKLVVWULFWOHJDOULJKWV ,I WKH SURPLVRUV SURPLVH KDV EHHQ H[WUDFWHG E\ LPSURSHU SUHVVXUH LW ZLOO QRW EHLQHTXLWDEOHIRUWKHSURPLVRUWRJREDFNRQKLVSURPLVH6HH

'&%XLOGHUVY5HHV >@ 4% 7KH 3VD VPDOO EXLOGLQJ FRPSDQ\KDGFRPSOHWHGVRPHZRUNIRU0U5HHVIRUZKLFKKHRZHGWKHFRPSDQ\)RUPRQWKVWKH FRPSDQ\ ZKLFK ZDV LQ VHYHUH ILQDQFLDO GLIILFXOWLHV SUHVVHG IRU SD\PHQW(YHQWXDOO\0UV5HHVZKRKDGEHFRPHDZDUHRIWKHFRPSDQ\VSUREOHPVFRQWDFWHGWKH FRPSDQ\ DQG RIIHUHG LQ IXOO VHWWOHPHQW 6KH DGGHG WKDW LI WKH FRPSDQ\

UHIXVHGWKLVRIIHUWKH\ZRXOGJHWQRWKLQJ7KHFRPSDQ\UHOXFWDQWO\DFFHSWHGDFKHTXHIRULQFRPSOHWLRQRIWKHDFFRXQWDQGODWHUVXHGIRUWKHEDODQFH7KH&RXUWRI$SSHDOKHOGWKDW WKHFRPSDQ\ZDVHQWLWOHG WRVXFFHHG /RUG'HQQLQJZDVRIWKHYLHZ

7/28/2019 Consideration Lecture 2

4/4

$VLI7XIDO

ZZZODZWHDFKHUFRXN

WKDW LW ZDV QRW LQHTXLWDEOH IRU WKH FUHGLWRUV WRJR EDFN RQWKHLU ZRUG DQG FODLP WKHEDODQFHDVWKHGHEWRUKDGDFWHGLQHTXLWDEO\E\H[HUWLQJLPSURSHUSUHVVXUH

( $6+,(/'25$6:25'"

$WRQHSRLQWLWZDVVDLGLQ&RRPEHY&RRPEH >@.%WKDWWKHGRFWULQHPD\RQO\EH

UDLVHGDVD GHIHQFHDVDVKLHOGDQGQRWDVZRUG,WZDVKHOGWKDWWKHGRFWULQHFDQQRWEHUDLVHGDVDFDXVHRIDFWLRQ7KLVPHDQVWKDWWKHGRFWULQHRQO\RSHUDWHVDVDGHIHQFHWRDFODLPDQGFDQQRWEH XVHGDVWKHEDVLVIRUDFDVH+RZHYHUWKLVZDVGRXEWHGLQ5H:\YHQ'HYHORSPHQWV >@:/5E\7HPSOHPDQ-ZKRDSSHDUHGWRWKLQNWKDWWKLVZDVQRORQJHUWKHFDVHDQGWKDWLWFRXOGFUHDWHULJKWV/RUG'HQQLQJLQ(YHQGHQY*XLOGIRUG&LW\$)&>@4%DOVRDGRSWHGWKLVDSSURDFK

) (;7,1&7,9(256863(16,9(2)5,*+76"

$QRWKHUTXHVWLRQUDLVHGE\WKLVGRFWULQHLVZKHWKHULWH[WLQJXLVKHVULJKWVRUPHUHO\VXVSHQGVWKHP7KHSUHYDOHQWDXWKRULWLHVDUHLQIDYRXURILWPHUHO\VXVSHQGLQJULJKWVZKLFKFDQEHUHYLYHGE\JLYLQJUHDVRQDEOHQRWLFHRUE\FRQGLWLRQVFKDQJLQJ

D :KHUHWKHGHEWRUVFRQWUDFWXDOREOLJDWLRQLV WRPDNHSHULRGLFSD\PHQWVWKHFUHGLWRUVULJKWWRUHFHLYHSD\PHQWVGXULQJWKHSHULRGRIVXVSHQVLRQPD\EHSHUPDQHQWO\H[WLQJXLVKHGEXWWKH FUHGLWRU PD\ UHYHUW WRWKHLUVWULFW FRQWUDFWXDO ULJKWV HLWKHU XSRQ JLYLQJ UHDVRQDEOHQRWLFHRUZKHUHWKHFLUFXPVWDQFHVZKLFKJDYHULVHWRWKHSURPLVHKDYHFKDQJHGDVLQ+LJK7UHHV6HH

7RRO0HWDO&DVH 3DWHQW RZQHUV SURPLVHG WR VXVSHQGSHULRGLF SD\PHQWV RIFRPSHQVDWLRQGXHWRWKHPIURPPDQXIDFWXUHUVIURPWKHRXWEUHDNRIZDU,W ZDVKHOGE\WKH+RXVHRI/RUGVWKDWWKHSURPLVHZDVELQGLQJGXULQJWKHSHULRGRIVXVSHQVLRQEXW WKH RZQHUV FRXOG RQ JLYLQJUHDVRQDEOH QRWLFH WR WKH RWKHU SDUW\ UHYHUW WR WKHLUOHJDOHQWLWOHPHQWWRUHFHLYHWKHFRPSHQVDWLRQSD\PHQWV

E ,WLVQRWVHWWOHGODZWKDWWKHUHFDQEHQRVXFKUHVXPSWLRQRISD\PHQWVLQUHODWLRQWRDSURPLVHWRIRUJRDVLQJOHVXP,Q'&%XLOGHUVZKLFKFRQFHUQHGOLDELOLW\IRUDVLQJOH OXPSVXP/RUG'HQQLQJH[SUHVVHGRELWHU WKDWWKHFRXUWZRXOGQRWSHUPLWWKHSURPLVRUWRUHYHUWWR

KLVVWULFWOHJDOULJKWDQGWKDWWKHHVWRSSHOZRXOGEHILQDODQGSHUPDQHQWLIWKHSURPLVHZDVLQWHQGHGDQGXQGHUVWRRGWREHSHUPDQHQWLQHIIHFW

7KHSUHIHUUHGDSSURDFKLVWRORRNDWWKHQDWXUHRIWKHSURPLVHLIDVLQ+LJK7UHHV DQG7RRO0HWDOLWLVLQWHQGHGWREHWHPSRUDU\LQDSSOLFDWLRQDQGWRUHVHUYHWRWKHSURPLVRUWKHULJKWVXEVHTXHQWO\ WRUHDVVHUWKLVVWULFWOHJDOULJKWVWKH HIIHFWZLOO EHVXVSHQVLYH RQO\DQGLI RQWKHRWKHUKDQGLWLVLQWHQGHGWREHSHUPDQHQWDVHQYLVDJHGLQ'&%XLOGHUVWKHQWKHUHLVQRUHDVRQZK\LQSULQFLSOHRUDXWKRULW\WKHSURPLVHVKRXOGQRWEHJLYHQLWVIXOOHIIHFWVRDVWRH[WLQJXLVKWKHSURPLVRUVULJKW