Preview
FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018
NYSCEF DOC. NO. 693 RECEIVED NYSCEF: 05/06/2022
EXHIBIT 75
Excerpts of the Transcript of the April 21, 2022
Deposition of Gilbert Matthews
Index No. 652343/2018
FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018
NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022
April 21, 2022
· · · · · · SUPREME COURT OF THE STATE OF NEW YORK
· · · · · · · · · · · COUNTY OF NEW YORK
·
· · ·CRESCO LABS, NEW YORK, LLC, A
· · ·NEW YORK LIMITED LIABILITY
· · ·COMPANY, AND CRESCO LABS LLC,
· · ·AN ILLINOIS LIMITED LIABILITY
· · ·COMPANY,
· · · · · · · ·PLAINTIFFS,
· · · · · vs.· · · · · · · · · · · · ·No.· 652343/2018
· · ·FIORELLO PHARMACEUTICALS,
· · ·INC., A NEW YORK CORPORATION,
· · ·ERIC SIROTA, AN INDIVIDUAL,
· · ·SUSAN YOSS, AN INDIVIDUAL, AND
· · ·JOHN DOES 1-10,
· · · · · · · ·DEFENDANTS.
· · ·_____________________________
·
·
·
· · · · · · · · · ·VIDEOTAPED DEPOSITION OF
· · · · · · · · · · · ·GILBERT MATTHEWS
· · · · · · · · · ·Thursday, April 21, 2022
· · · · · · · · · REPORTED REMOTELY VIA ZOOM
·
·
·
· · ·Reported By:
· · ·KATHLEEN MALTBIE, STENOGRAPHIC REPORTER, CSR 10068
· · ·RPR-RMR-CRR-CCRR-CLR-CRC (Via Zoom Videoconference)
U.S. Legal Support | www.uslegalsupport.com ·
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FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018
NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022
April 21, 2022
·1· · · · A.· ·When you're working on an actual
·2· ·transaction, of course you do.
·3· · · · Q.· ·Why do you do that?
·4· · · · A.· ·They're your clients.· You have to --
·5· ·well, if you're working with a -- you can't do
·6· ·things in the abstract.· You -- every transaction
·7· ·involves Jenner & Block, and you have to work with
·8· ·Jenner & Block.
·9· · · · Q.· ·And do you get -- solicit information from
10· ·the Jenner & Block involved in the transaction?
11· · · · A.· ·Of course.
12· · · · Q.· ·What type of --
13· · · · A.· ·When you're doing a transaction --
14· ·testimony is a different type of thing.· You're
15· ·dealing after the fact and not -- you know, with --
16· ·with Jenner & Block in the same -- in the real time
17· ·frame of a transaction.
18· · · · Q.· ·I -- I take it you've advised on
19· ·transactions that have involved an exclusivity
20· ·clause; is that a fair assumption?
21· · · · A.· ·Yes.
22· · · · Q.· ·Many times?
23· · · · A.· ·Yes.· Some that did, some that didn't.
24· · · · Q.· ·Approximately how many of your
25· ·transactions do -- do involve an exclusivity clause?
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NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022
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·1· · · · · · ·MR. LEFTON:· Objection.· Vague.
·2· · · · · · ·THE WITNESS:· I certainly haven't focused
·3· ·on that.· I would say a -- a majority of them, but
·4· ·not -- a majority of the transactions, but not a
·5· ·substantial majority.
·6· ·BY MR. HIPP:
·7· · · · Q.· ·What about a mutual exclusivity clause;
·8· ·how many of the transactions involved a -- a mutual
·9· ·exclusivity clause?
10· · · · A.· ·A much more limited number.· Maybe, as a
11· ·wild -- as an estimation, more in -- probably in the
12· ·order of magnitude more of 10 percent than --
13· ·than -- closer to 10 than -- than zero or 20.
14· · · · Q.· ·And -- and what was -- what is the context
15· ·in which parties use a mutual exclusivity clause?
16· · · · · · ·MR. LEFTON:· Objection.
17· · · · · · ·THE WITNESS:· Again, it's a question of
18· ·facts and circumstances.· I mean, it would not
19· ·normally be the case if -- if you had a -- if the
20· ·buyer was a -- a dominant company in this industry
21· ·and it's making an -- an acquisition to merge in, or
22· ·if it's a conglomerate; and -- normally with a
23· ·conglomerate, you normally wouldn't have mutual --
24· ·mutual agreement, mutual exclusivity.
25· · · · · · ·But if the companies were -- were similar
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·1· · · · · · ·If the -- if parties fail to agree on a
·2· ·final transaction and -- sorry.· Withdrawn.
·3· · · · · · ·If the parties fail to consummate a final
·4· ·transaction because they do not agree on final
·5· ·terms, and one party refused to discuss the terms,
·6· ·would that affect your analysis about the likelihood
·7· ·of the -- of a transaction closing?
·8· · · · A.· ·Well, certainly, it would be highly
·9· ·unlikely the transaction would close.· It would be
10· ·virtually impossible for the transaction to close.
11· · · · Q.· ·And that would be a significant issue, in
12· ·fact, if one party refused to discuss certain
13· ·terms --
14· · · · · · ·MR. LEFTON:· Objection.
15· · · · · · ·THE WITNESS:· Well, if two -- if one party
16· ·doesn't discuss the transaction with the other, you
17· ·can't get an agreement.· That's for sure.· You're
18· ·defining something which is a truism.
19· ·BY MR. HIPP:
20· · · · Q.· ·In a stock purchase transaction, how would
21· ·you describe the importance of the tax structure?
22· · · · A.· ·Very important.· The tax structure of the
23· ·transaction is the reason the transactions don't
24· ·occur, because parties have, in many cases,
25· ·adverse -- different points of view and different
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·1· ·the -- of the LOI, whichever of the two dates that
·2· ·was.
·3· · · · Q.· ·If a shareholder learns of higher offers,
·4· ·is it likely to approve a transaction for a lower
·5· ·amount of consideration?
·6· · · · A.· ·Not if those offers were not on the table.
·7· ·A bird in the hand is worth two in the bush.· If
·8· ·another party came back and made a bid, that would
·9· ·be a factor.· But an expired bid, that's no longer
10· ·on the table, is -- isn't something that deserves a
11· ·lot of weight, especially one that had not gone
12· ·through a due diligence process where the buyer
13· ·might decide to walk away.
14· · · · Q.· ·And so your understanding is that Fiorello
15· ·had -- at the time Mr. Canarick formed his opinion
16· ·about approving the transaction, Fiorello had no
17· ·offers on the table?
18· · · · A.· ·I don't believe there were any offers on
19· ·the table at that point.
20· · · · Q.· ·Have you ever advised on a deal where some
21· ·shareholders were initially opposed to approving the
22· ·deal but were later persuaded to approve it?
23· · · · A.· ·Probably.· I can't recall a specific
24· ·instance.· I'd be surprised if it hadn't happened at
25· ·some point.
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·1· · · · Q.· ·It wouldn't be an unexpected thing?
·2· · · · A.· ·No.· Normally, shareholders don't know
·3· ·about the transaction until it's publicly announced.
·4· ·You're dealing here with the smaller company with a
·5· ·limited number of shareholders.· Clearly, it's quite
·6· ·common to have shareholders oppose publicly
·7· ·announced actions, and, in the end, to go along when
·8· ·a higher bid doesn't appear.· It certainly happens
·9· ·with public companies, that shareholders can object
10· ·to the transaction, eventually accept it.
11· · · · Q.· ·Do you have any reason to think it also
12· ·wouldn't -- it wouldn't happen for private
13· ·companies?
14· · · · A.· ·Is it possible?· Yes.· But from the way
15· ·Mr. Canarick sounded, it sounded like he was
16· ·unlikely to accept the bid at that level.
17· · · · Q.· ·You --
18· · · · A.· ·(Inaudible) -- definitely, that's a
19· ·question better asked of him than of me.
20· · · · Q.· ·Sorry, I didn't hear all of your last
21· ·sentence.
22· · · · A.· ·I said that's a question that's better
23· ·asked of him than of me.
24· · · · Q.· ·And which question are you referring to?
25· · · · A.· ·As to whether or not he might conceivably
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NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022
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·1· ·of intent"?
·2· · · · A.· ·Well, you might, for example, have an
·3· ·agreement to license, some kind of a license
·4· ·agreement that you say the letter of intent will --
·5· ·will -- is an obligation that survives the letter of
·6· ·intent, and whether or not you enter into the letter
·7· ·of intent, you have -- you have a -- an agreement to
·8· ·enter into a licensing agreement.· That's a
·9· ·hypothetical possibility, that it can happen in the
10· ·real world.
11· · · · Q.· ·So you have seen substantial liability
12· ·from letters of intent in certain circumstances?
13· · · · A.· ·Yes.· It can happen, but it's not -- it is
14· ·not replacement damages.
15· · · · Q.· ·What type of damages?
16· · · · A.· ·Basically, a lost profits argument.
17· · · · Q.· ·In your opinion, what is the appropriate
18· ·measure of damages for breach of an exclusivity
19· ·provision?
20· · · · A.· ·Breach of an exclusivity provision --
21· · · · · · ·MR. LEFTON:· In letter of intent --
22· · · · · · ·THE WITNESS:· -- in a letter of intent
23· ·context or in a final agreement?
24· ·BY MR. HIPP:
25· · · · Q.· ·Let's take -- let's start with the letter
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FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018
NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022
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·1· ·regulatory issues.· But it's a lot simpler than
·2· ·negotiating a transaction, let's say, between some
·3· ·high tech companies or some -- between financial
·4· ·institutions.· It can be a lot more complex than
·5· ·companies of this kind, but for the regulatory
·6· ·issues.· This should not be difficult to negotiate,
·7· ·but for industry reasons, things can always become
·8· ·difficult because of transactional structure
·9· ·reasons.
10· · · · · · ·THE REPORTER:· Because of transactional --
11· · · · · · ·THE WITNESS:· Structure reasons.
12· ·BY MR. HIPP:
13· · · · Q.· ·And when you say, "It becomes more complex
14· ·because of the regulatory issues," what do you mean?
15· · · · A.· ·Because you have to reach an agreement
16· ·which is going to be able to satisfy the regulators.
17· ·And a transaction, in the form this was originally
18· ·structured in, we know because of the stuff that was
19· ·in development, would not have satisfied the
20· ·regulators because of the -- of the contingent
21· ·consideration, and it would have been necessary to
22· ·renegotiate in any event.
23· · · · Q.· ·In opining that replacement damages are
24· ·contrary to industry practice and logic, did you
25· ·consider any of the case law in New York or Delaware
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FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018
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·1· ·stating that a seller could potentially collect more
·2· ·than out-of-pocket costs as damages for the breach
·3· ·of an exclusivity provision?
·4· · · · A.· ·I'm not aware of --
·5· · · · · · ·MR. LEFTON:· Objection.
·6· · · · · · ·THE WITNESS:· Are you -- what case law are
·7· ·you referring to?· I'm not aware of any that
·8· ·involves letters of intent.· Maybe one, but
·9· ·that's -- that was unique.
10· ·BY MR. HIPP:
11· · · · Q.· ·Which case are you referring to?
12· · · · A.· ·I'm thinking of a case involving a company
13· ·called SETA.
14· · · · Q.· ·What was that case about?
15· · · · A.· ·In that case, there was a letter of intent
16· ·that included the one I referred to earlier,
17· ·included a licensing agreement that was binding,
18· ·even though the letter of intent as a whole, as the
19· ·close in the transaction, was not binding.· And my
20· ·recollection is the promising in that transaction
21· ·collected basically lost -- lost profits from the
22· ·agreement -- from the agreement that they should
23· ·have been negotiating and wasn't.
24· · · · Q.· ·And there was significant damages awarded
25· ·to the plaintiff in that case, correct?
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·1· · · · A.· ·Yes.· For lost profits, yes.
·2· · · · Q.· ·I think it was something in excess
·3· ·of $100 million?· Does that sound --
·4· · · · A.· ·It speaks for itself, whatever the numbers
·5· ·were.· It was a large number.
·6· · · · Q.· ·Would that have any -- has that -- has
·7· ·that case had any impact on participants in the
·8· ·industry in terms of the potential liability parties
·9· ·may suffer from a letter of intent?
10· · · · A.· ·I think it may -- I can't say directly,
11· ·but I would assume that it would cause some caution
12· ·in the writing -- in the writing of a letter of
13· ·intent so as to avoid creating that kind of
14· ·liability.
15· · · · Q.· ·How -- on page -- let's go to page 21 of
16· ·your report.· And it's the paragraph that begins on
17· ·the prior page with Cresco alleges that it was
18· ·damaged by a breach of the LOI that occurred in
19· ·February of 2018.
20· · · · · · ·Do you see that?
21· · · · A.· ·Yes.
22· · · · Q.· ·I'm going read the last sentence, which
23· ·begins on the end of page 20 and continues on to the
24· ·top of page 21.· You wrote (as read):
25· · · · · · · · · Based on my experience in
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FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 RECEIVED NYSCEF: 05/06/2022 EXHIBIT 75 Excerpts of the Transcript of the April 21, 2022 Deposition of Gilbert Matthews Index No. 652343/2018 FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022 April 21, 2022 · · · · · · SUPREME COURT OF THE STATE OF NEW YORK · · · · · · · · · · · COUNTY OF NEW YORK · · · ·CRESCO LABS, NEW YORK, LLC, A · · ·NEW YORK LIMITED LIABILITY · · ·COMPANY, AND CRESCO LABS LLC, · · ·AN ILLINOIS LIMITED LIABILITY · · ·COMPANY, · · · · · · · ·PLAINTIFFS, · · · · · vs.· · · · · · · · · · · · ·No.· 652343/2018 · · ·FIORELLO PHARMACEUTICALS, · · ·INC., A NEW YORK CORPORATION, · · ·ERIC SIROTA, AN INDIVIDUAL, · · ·SUSAN YOSS, AN INDIVIDUAL, AND · · ·JOHN DOES 1-10, · · · · · · · ·DEFENDANTS. · · ·_____________________________ · · · · · · · · · · · · ·VIDEOTAPED DEPOSITION OF · · · · · · · · · · · ·GILBERT MATTHEWS · · · · · · · · · ·Thursday, April 21, 2022 · · · · · · · · · REPORTED REMOTELY VIA ZOOM · · · · · ·Reported By: · · ·KATHLEEN MALTBIE, STENOGRAPHIC REPORTER, CSR 10068 · · ·RPR-RMR-CRR-CCRR-CLR-CRC (Via Zoom Videoconference) U.S. Legal Support | www.uslegalsupport.com · YVer1f FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022 April 21, 2022 ·1· · · · A.· ·When you're working on an actual ·2· ·transaction, of course you do. ·3· · · · Q.· ·Why do you do that? ·4· · · · A.· ·They're your clients.· You have to -- ·5· ·well, if you're working with a -- you can't do ·6· ·things in the abstract.· You -- every transaction ·7· ·involves Jenner & Block, and you have to work with ·8· ·Jenner & Block. ·9· · · · Q.· ·And do you get -- solicit information from 10· ·the Jenner & Block involved in the transaction? 11· · · · A.· ·Of course. 12· · · · Q.· ·What type of -- 13· · · · A.· ·When you're doing a transaction -- 14· ·testimony is a different type of thing.· You're 15· ·dealing after the fact and not -- you know, with -- 16· ·with Jenner & Block in the same -- in the real time 17· ·frame of a transaction. 18· · · · Q.· ·I -- I take it you've advised on 19· ·transactions that have involved an exclusivity 20· ·clause; is that a fair assumption? 21· · · · A.· ·Yes. 22· · · · Q.· ·Many times? 23· · · · A.· ·Yes.· Some that did, some that didn't. 24· · · · Q.· ·Approximately how many of your 25· ·transactions do -- do involve an exclusivity clause? U.S. Legal Support | www.uslegalsupport.com 57 YVer1f FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022 April 21, 2022 ·1· · · · · · ·MR. LEFTON:· Objection.· Vague. ·2· · · · · · ·THE WITNESS:· I certainly haven't focused ·3· ·on that.· I would say a -- a majority of them, but ·4· ·not -- a majority of the transactions, but not a ·5· ·substantial majority. ·6· ·BY MR. HIPP: ·7· · · · Q.· ·What about a mutual exclusivity clause; ·8· ·how many of the transactions involved a -- a mutual ·9· ·exclusivity clause? 10· · · · A.· ·A much more limited number.· Maybe, as a 11· ·wild -- as an estimation, more in -- probably in the 12· ·order of magnitude more of 10 percent than -- 13· ·than -- closer to 10 than -- than zero or 20. 14· · · · Q.· ·And -- and what was -- what is the context 15· ·in which parties use a mutual exclusivity clause? 16· · · · · · ·MR. LEFTON:· Objection. 17· · · · · · ·THE WITNESS:· Again, it's a question of 18· ·facts and circumstances.· I mean, it would not 19· ·normally be the case if -- if you had a -- if the 20· ·buyer was a -- a dominant company in this industry 21· ·and it's making an -- an acquisition to merge in, or 22· ·if it's a conglomerate; and -- normally with a 23· ·conglomerate, you normally wouldn't have mutual -- 24· ·mutual agreement, mutual exclusivity. 25· · · · · · ·But if the companies were -- were similar U.S. Legal Support | www.uslegalsupport.com 58 YVer1f FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022 April 21, 2022 ·1· · · · · · ·If the -- if parties fail to agree on a ·2· ·final transaction and -- sorry.· Withdrawn. ·3· · · · · · ·If the parties fail to consummate a final ·4· ·transaction because they do not agree on final ·5· ·terms, and one party refused to discuss the terms, ·6· ·would that affect your analysis about the likelihood ·7· ·of the -- of a transaction closing? ·8· · · · A.· ·Well, certainly, it would be highly ·9· ·unlikely the transaction would close.· It would be 10· ·virtually impossible for the transaction to close. 11· · · · Q.· ·And that would be a significant issue, in 12· ·fact, if one party refused to discuss certain 13· ·terms -- 14· · · · · · ·MR. LEFTON:· Objection. 15· · · · · · ·THE WITNESS:· Well, if two -- if one party 16· ·doesn't discuss the transaction with the other, you 17· ·can't get an agreement.· That's for sure.· You're 18· ·defining something which is a truism. 19· ·BY MR. HIPP: 20· · · · Q.· ·In a stock purchase transaction, how would 21· ·you describe the importance of the tax structure? 22· · · · A.· ·Very important.· The tax structure of the 23· ·transaction is the reason the transactions don't 24· ·occur, because parties have, in many cases, 25· ·adverse -- different points of view and different U.S. Legal Support | www.uslegalsupport.com 189 YVer1f FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022 April 21, 2022 ·1· ·the -- of the LOI, whichever of the two dates that ·2· ·was. ·3· · · · Q.· ·If a shareholder learns of higher offers, ·4· ·is it likely to approve a transaction for a lower ·5· ·amount of consideration? ·6· · · · A.· ·Not if those offers were not on the table. ·7· ·A bird in the hand is worth two in the bush.· If ·8· ·another party came back and made a bid, that would ·9· ·be a factor.· But an expired bid, that's no longer 10· ·on the table, is -- isn't something that deserves a 11· ·lot of weight, especially one that had not gone 12· ·through a due diligence process where the buyer 13· ·might decide to walk away. 14· · · · Q.· ·And so your understanding is that Fiorello 15· ·had -- at the time Mr. Canarick formed his opinion 16· ·about approving the transaction, Fiorello had no 17· ·offers on the table? 18· · · · A.· ·I don't believe there were any offers on 19· ·the table at that point. 20· · · · Q.· ·Have you ever advised on a deal where some 21· ·shareholders were initially opposed to approving the 22· ·deal but were later persuaded to approve it? 23· · · · A.· ·Probably.· I can't recall a specific 24· ·instance.· I'd be surprised if it hadn't happened at 25· ·some point. U.S. Legal Support | www.uslegalsupport.com 209 YVer1f FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022 April 21, 2022 ·1· · · · Q.· ·It wouldn't be an unexpected thing? ·2· · · · A.· ·No.· Normally, shareholders don't know ·3· ·about the transaction until it's publicly announced. ·4· ·You're dealing here with the smaller company with a ·5· ·limited number of shareholders.· Clearly, it's quite ·6· ·common to have shareholders oppose publicly ·7· ·announced actions, and, in the end, to go along when ·8· ·a higher bid doesn't appear.· It certainly happens ·9· ·with public companies, that shareholders can object 10· ·to the transaction, eventually accept it. 11· · · · Q.· ·Do you have any reason to think it also 12· ·wouldn't -- it wouldn't happen for private 13· ·companies? 14· · · · A.· ·Is it possible?· Yes.· But from the way 15· ·Mr. Canarick sounded, it sounded like he was 16· ·unlikely to accept the bid at that level. 17· · · · Q.· ·You -- 18· · · · A.· ·(Inaudible) -- definitely, that's a 19· ·question better asked of him than of me. 20· · · · Q.· ·Sorry, I didn't hear all of your last 21· ·sentence. 22· · · · A.· ·I said that's a question that's better 23· ·asked of him than of me. 24· · · · Q.· ·And which question are you referring to? 25· · · · A.· ·As to whether or not he might conceivably U.S. Legal Support | www.uslegalsupport.com 210 YVer1f FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022 April 21, 2022 ·1· ·of intent"? ·2· · · · A.· ·Well, you might, for example, have an ·3· ·agreement to license, some kind of a license ·4· ·agreement that you say the letter of intent will -- ·5· ·will -- is an obligation that survives the letter of ·6· ·intent, and whether or not you enter into the letter ·7· ·of intent, you have -- you have a -- an agreement to ·8· ·enter into a licensing agreement.· That's a ·9· ·hypothetical possibility, that it can happen in the 10· ·real world. 11· · · · Q.· ·So you have seen substantial liability 12· ·from letters of intent in certain circumstances? 13· · · · A.· ·Yes.· It can happen, but it's not -- it is 14· ·not replacement damages. 15· · · · Q.· ·What type of damages? 16· · · · A.· ·Basically, a lost profits argument. 17· · · · Q.· ·In your opinion, what is the appropriate 18· ·measure of damages for breach of an exclusivity 19· ·provision? 20· · · · A.· ·Breach of an exclusivity provision -- 21· · · · · · ·MR. LEFTON:· In letter of intent -- 22· · · · · · ·THE WITNESS:· -- in a letter of intent 23· ·context or in a final agreement? 24· ·BY MR. HIPP: 25· · · · Q.· ·Let's take -- let's start with the letter U.S. Legal Support | www.uslegalsupport.com 250 YVer1f FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022 April 21, 2022 ·1· ·regulatory issues.· But it's a lot simpler than ·2· ·negotiating a transaction, let's say, between some ·3· ·high tech companies or some -- between financial ·4· ·institutions.· It can be a lot more complex than ·5· ·companies of this kind, but for the regulatory ·6· ·issues.· This should not be difficult to negotiate, ·7· ·but for industry reasons, things can always become ·8· ·difficult because of transactional structure ·9· ·reasons. 10· · · · · · ·THE REPORTER:· Because of transactional -- 11· · · · · · ·THE WITNESS:· Structure reasons. 12· ·BY MR. HIPP: 13· · · · Q.· ·And when you say, "It becomes more complex 14· ·because of the regulatory issues," what do you mean? 15· · · · A.· ·Because you have to reach an agreement 16· ·which is going to be able to satisfy the regulators. 17· ·And a transaction, in the form this was originally 18· ·structured in, we know because of the stuff that was 19· ·in development, would not have satisfied the 20· ·regulators because of the -- of the contingent 21· ·consideration, and it would have been necessary to 22· ·renegotiate in any event. 23· · · · Q.· ·In opining that replacement damages are 24· ·contrary to industry practice and logic, did you 25· ·consider any of the case law in New York or Delaware U.S. Legal Support | www.uslegalsupport.com 256 YVer1f FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022 April 21, 2022 ·1· ·stating that a seller could potentially collect more ·2· ·than out-of-pocket costs as damages for the breach ·3· ·of an exclusivity provision? ·4· · · · A.· ·I'm not aware of -- ·5· · · · · · ·MR. LEFTON:· Objection. ·6· · · · · · ·THE WITNESS:· Are you -- what case law are ·7· ·you referring to?· I'm not aware of any that ·8· ·involves letters of intent.· Maybe one, but ·9· ·that's -- that was unique. 10· ·BY MR. HIPP: 11· · · · Q.· ·Which case are you referring to? 12· · · · A.· ·I'm thinking of a case involving a company 13· ·called SETA. 14· · · · Q.· ·What was that case about? 15· · · · A.· ·In that case, there was a letter of intent 16· ·that included the one I referred to earlier, 17· ·included a licensing agreement that was binding, 18· ·even though the letter of intent as a whole, as the 19· ·close in the transaction, was not binding.· And my 20· ·recollection is the promising in that transaction 21· ·collected basically lost -- lost profits from the 22· ·agreement -- from the agreement that they should 23· ·have been negotiating and wasn't. 24· · · · Q.· ·And there was significant damages awarded 25· ·to the plaintiff in that case, correct? U.S. Legal Support | www.uslegalsupport.com 257 YVer1f FILED: NEW YORK COUNTY CLERK 05/06/2022 04:11 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 693 Gilbert Matthews RECEIVED NYSCEF: 05/06/2022 April 21, 2022 ·1· · · · A.· ·Yes.· For lost profits, yes. ·2· · · · Q.· ·I think it was something in excess ·3· ·of $100 million?· Does that sound -- ·4· · · · A.· ·It speaks for itself, whatever the numbers ·5· ·were.· It was a large number. ·6· · · · Q.· ·Would that have any -- has that -- has ·7· ·that case had any impact on participants in the ·8· ·industry in terms of the potential liability parties ·9· ·may suffer from a letter of intent? 10· · · · A.· ·I think it may -- I can't say directly, 11· ·but I would assume that it would cause some caution 12· ·in the writing -- in the writing of a letter of 13· ·intent so as to avoid creating that kind of 14· ·liability. 15· · · · Q.· ·How -- on page -- let's go to page 21 of 16· ·your report.· And it's the paragraph that begins on 17· ·the prior page with Cresco alleges that it was 18· ·damaged by a breach of the LOI that occurred in 19· ·February of 2018. 20· · · · · · ·Do you see that? 21· · · · A.· ·Yes. 22· · · · Q.· ·I'm going read the last sentence, which 23· ·begins on the end of page 20 and continues on to the 24· ·top of page 21.· You wrote (as read): 25· · · · · · · · · Based on my experience in U.S. Legal Support | www.uslegalsupport.com 258 YVer1f