The Scaffolding of Sovereignty: Global and Aesthetic Perspectives on the History of a Concept (Columbia Studies in Political Thought / Political History) 0231171862, 9780231171861

Citation preview

7  KH6FDϸROGLQJRI6RYHUHLJQW\

& 2/80%,$6 7 8 ' , ( 6  , 1 3 2/ , 7 , &$ /  7 + 28 * + 7    32 / , 7 , &$ /  +, 6 7 2 5 @

(',7256·,1752'8&7,21

3  XWGLϸHUHQWO\WKH:HVWSKDOLDQRUVWDWLVWPRGHOIRUVRYHUHLJQW\VLPSO\ GRHVQRWϮ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³WUXWKEHWROG³PRVWO\ TXDVLVRYHUHLJQV $V %HQWRQ KDV DUJXHG HYHQ ZLWKLQ WKH PDMRU (XURSHDQ HPSLUHVSDUWLDORUGLYLGHGVRYHUHLJQW\ZDVIDUPRUHRIWHQWKHFDVHWKDQWKH WKHRU\KDVOHWRQDQGWKLVSRLQWFRXOGEHIXUWKHUH[WHQGHGWRDQH[DPLQD WLRQRIWKHVWUXFWXUHVRIFRPSRVLWHPRQDUFKLHVVXFKDVWKH3ROLVK/LWKXD QLDQ&RPPRQZHDOWKWKH(QJOLVKFURZQVLQFH-DPHV,RUWKH+DEVEXUJGXDO PRQDUFK\)XUWKHULQHTXDOLWLHVDQGFRPSOLFDWLRQVHPHUJHZLWKWKHZD\ VWDWHRϲ FLDOVLQHDFKFDVHLPDJLQHGRWKHUSHRSOHVWKHSODFHRIFRXUWVRFLHW\ LQFXOWXUDODVZHOODVGLSORPDWLFFRQIURQWDWLRQVDQGWKHLQWHUVWDWHPLUURU LQJRIVRYHUHLJQϮJXUHVJRYHUQPHQWFLYLOL]LQJPLVVLRQVRUVHFXULW\QRWWR PHQWLRQWKHZDUGLQJRϸRIERWKGHVSRWLVPDQGWKHLQGH[RIEDFNZDUGQHVV 3UDFWLFHVUDQJLQJIURPQHJRWLDWLRQGLSORPDF\DQGLQWHOOLJHQFHJDWKHULQJ WRH[FKDQJHJLIWJLYLQJDQGODZDQGVWLOOIXUWKHUWRIRUPVWKDWSHUPHDWH WKHQHFHVVDU\ERXQGDULHVIURPWUDGHWRWKH,QWHUQHWH[SRVHWKHDPELJXL WLHV DQG KLHUDUFKLHV LQYROYHG LQ VWDWH EXLOGLQJ DQG TXDVLVRYHUHLJQW\ 0RUHUHFHQWO\WKHJOREDOL]DWLRQRIϮQDQFHDQGWKHWUDQVIRUPDWLRQRIWKH HFRQRPLF RUGHU KDYH IXUWKHU HPEDUUDVVHG DQ\ FODLP WKDW WUHDWLQJ VRYHU HLJQW\DWWKHVWDWHOHYHODORQHLVSRVVLEOHDQGWKHSUREOHPVDVVRFLDWHGZLWK WKHHFRQRP\WKDWKDYHHPHUJHGUHPDLQLQWKLVUHJDUGXQGHUVWXGLHG 7  KHQHHGIRUWKLFNHUGHVFULSWLRQVRILQWHUVWDWHV\VWHPVLVRQO\SDUWRIWKH SUREOHP GRPHVWLFDOO\ VRYHUHLJQW\ LV MXVW DV PXFK GLVWHQGHG XQHTXDOO\ DSSRUWLRQHGQHJRWLDWHGIRXJKWRYHUFODLPHGDQGSXUVXHGEHWZHHQGLϸHUHQW SROLWLFDOIRUPV7RTXRWH-DPHV6KHHKDQ´7KHSUREOHPRIVRYHUHLJQW\LV WKHHQGXULQJWHQVLRQEHWZHHQWKHRUGHUDQGXQLW\SURPLVHGE\VRYHUHLJQ WKHRU\DQGWKHFRPSURPLVHVDQGQHJRWLDWLRQVLPSRVHGE\SROLWLFDOSUDF WLFHµ೓   +HUHWRRVRYHUHLJQW\DVDEVROXWH VRYHUHLJQW\LVDQLPDJHQHYHUDQ XQFRQWHVWHG QRQQHJRWLDEOH UHDOLW\ EH\RQG UHSUHVHQWDWLRQ 7R SXVK WKH >@

(',7256·,1752'8&7,21

SRLQWIXUWKHUXQGHUWKHLOOXVRU\XPEUHOODRIFRQWLQXLW\DQGVWDVLVVRYHU HLJQW\VOLGHVEDFNDQGIRUWKEHWZHHQVWDWHVDQGOHDGHUV³DSUREOHPH[WHQG LQJIURPWUDGLWLRQDO&KLQDDQGDQFLHQW*UHHFHWKURXJKWKHRSHQLQJFKDSWHU RI0DFKLDYHOOL·V3ULQFHDQG/RXLV;,9·V´/·eWDWF·HVWPRLµWR+LWOHUDQG4DG GDϮ DQGRQHHQJDJHGE\6WDQFD6FKRO]&LRQFD·VDQG@

(',7256·,1752'8&7,21

*OHQQ0RVWLQKLVFRQVLGHUDWLRQRIWUDJHG\·VWLHVWRNLQJVKLSRU=YL%HQ'RU %HQLWHLQKLVVWXG\RIWKHZD\VWKDW0XVOLPVUHSUHVHQWHG0DQFKXUXOHUVKLS RYHU,VODPE\FUHDWLYHO\UHUHDGLQJHSLVRGHVIURPWKHELRJUDSK\RIWKH3URSKHW 0XKDPPDGDQGZULWLQJWKHPLQWRWKHLUSUHVHQWWLPH2XUDLPWKURXJK RXWLVWRKLJKOLJKWWKHYDOXHRIORFDOZRUNFDUULHGRXWZLWKDPRUHJOREDO FRQFHSWXDOFRPSDUDWLYHDQGWKHRUHWLFDOKRUL]RQE\RϸHULQJWKLFNHUDQ WKURSRORJLFDO GHVFULSWLRQV DQG FORVH OLWHUDU\ DQG SKLORVRSKLFDO UHDGLQJV DQGE\ORRNLQJIRUWKHLULQWHUGLVFLSOLQDU\XWLOLW\LQWKHHVWDEOLVKPHQWRI SROLWLFDOWKHPHVWKDWDUHRQO\LQDZHDNPDQQHUGLYLGHGE\EDUULHUVRIQDWLRQ UHJLRQODQJXDJHDQGVRRQ

$HVWKHWLFV6WDJHDQG6FDϸROG 7  KHOLQNEHWZHHQVRYHUHLJQW\DQGDHVWKHWLFVKDVORQJEHHQDFNQRZOHGJHG SHUKDSVQRZKHUHVRQDNHGO\DVLQWKHVHFRQGHGLWLRQRIWKH%DVLOLNRQ'RURQ ZKHUH.LQJ-DPHV,RI(QJODQGLQIRUPVKLVVRQRIWKHWKHDWHURISRZHU´$ .LQJLVDVRQHVHWRQDVWDJHZKRVHVPDOOHVWDFWLRQVDQGJHVWXUHVDOOWKH SHRSOHJD]LQJO\GRHEHKROGµ$NLQJLVDQDFWRURQHZKRSOD\VDUROHWKH NLQJLVZDWFKHGREVHUYHGE\DQDXGLHQFHRIVXEMHFWVZKRZLOOMXGJHDQGDF NQRZOHGJHKLVSHUIRUPDQFH(YHQPRUHVKUHZGO\LQWKHϮUVWHGLWLRQRIWKH WUHDWLVHWKLVOLQHUHDGVWKHVDPHEXWIRURQHZRUG´$.LQJLVDVRQHVHWRQD VNDϸROGµ6WDJHDQGVFDϸROGDUHERWKWHUPVRIWKHDWHUVFDϸROGFRQWDLQV WKH DGGLWLRQDO LPSOLFDWLRQV RI EHLQJ D VWUXFWXUH HUHFWHG WR IDFLOLWDWH WKH PDLQWHQDQFHDQGUHSDLURIDEXLOGLQJDVZHOODVRIEHLQJDVLWHRIGHSRVLWLRQ DQGH[HFXWLRQ,QWKLVZD\WKHUROHRIVRYHUHLJQLVERWKDSHUIRUPDWLYHDQGD SUHFDULRXVRQHDQGWKHVWDJLQJDQGVFDϸROGLQJRIVRYHUHLJQW\DQRQJRLQJ SURMHFWRIDWWHQGLQJWRDQHGLϮFH:KDWLVWKLVVWDJH"+RZLVLWFDOLEUDWHG ´IURPDERYHµEXWDOVR´IURPEHORZµE\DOOWKRVHSHRSOHWKDW´JD]LQJO\GRH EHKROGµ"7RZKDWH[SHFWHGHϸHFWVLVLWDGMXVWHG"+RZGRGLϸHUHQWUHJLPHV UHO\RQPDWHULDODQGV\PEROLFUHJDOLDOHJDODQGFXOWXUDOPHFKDQLVPVDQG FLWDWLRQVRIP\WKWKHRORJ\DQGWKHLUUHVSHFWLYH´FODVVLFVµ"$QGKRZGRHV VXFKUHOLDQFHDϸHFWWKHXVHRISRZHU" 2  XU VHFRQG EURDG FODLP LQ WKLV ERRN LV WKDW VRYHUHLJQW\³RU LI RQH PDLQWDLQVWKHVHSDUDWLRQLWVVFDϸROG³VKRXOGEHVWXGLHGLQDHVWKHWLFWHUPV 3DUWLFXODUO\EHFDXVHLWLVDJOREDODQGPXWDEOHFRQFHSWZLWKFRPSDUDWLYH

>@

(',7256·,1752'8&7,21

YDOXH´VRYHUHLJQW\µLVWKHQDPHQRWRQO\IRURSHUDWLRQVRIXQLODWHUDORUKH JHPRQLFSRZHUEXWDOVRIRUWKHDHVWKHWLFFRQGLWLRQLQJRIWKHVHRSHUDWLRQV ,WQHHGVWREHWKHRUL]HGDQGUHVHDUFKHGDFURVVPRGHVRIWKHDWULFDOLW\DQG ULWXDOWKHOLYHGH[SHULHQFHRIODZDQGQRUPVDUWDQGDHVWKHWLFUHSUHVHQ WDWLRQVHFRQRPLFIRXQGDWLRQVDQGVFKRODUVKLS7RUHSHDWE\´DHVWKHWLFµZH GRQRWRQO\PHDQDPDWWHURIEHDXW\³VRYHUHLJQSRZHULVDOVR EHDXWLIXORU XJO\GHSHQGLQJRQZKHUHRQHVWDQGV:HPHDQDEURDGHUDQWKURSRORJLFDO GRPDLQWKDWUDQJHVIURPVHQVDWLRQDQGWKHH[SHULHQFHRISRZHUWRWKHOH JLWLPDF\RϸHUHGWRSROLWLFDODQGLQWHUQDWLRQDOV\VWHPVE\ULWXDOV\PEROLVP FXVWRPUHOLJLRXVQHJRWLDWLRQDQGFRQYLFWLRQDQGH[FKDQJH³DOORIZKLFK FRQWULEXWHWRWKHVFDϸROGLQJ³WRWKHZD\VWKDWWKHH[HUFLVHRIVRYHUHLJQW\ UHOLHVRQDWKHDWULFDOUHSUHVHQWDWLRQDODQGDUWLVWLFGLPHQVLRQDQGSOD\VD QRUPDWLYHUROHLQWKHVRFLDODQGFXOWXUDOHVWDEOLVKPHQWRIWKHEHDXWLIXO ,Q:HVWHUQWKRXJKWIURP3ODWRWR5DQFLqUHWKLVPXFKKDVEHHQFODLPHG DVIUHTXHQWO\DVLWKDVEHHQGLVDYRZHG´SROLWLFVLVDTXHVWLRQRIDHVWKHWLFV DPDWWHURIDSSHDUDQFHVµ :KHWKHURQHVSHDNVRIWKHϮFWLRQRIVRYHUHLJQW\ WKHPDNHEHOLHYHWKDWVRPHRQHRUVRPHIRUFHLVLQGHHGDOOSRZHUIXORI ELRSROLWLFVIRUZKLFKVRYHUHLJQSRZHULPSRVHVLWVHOIRQOLIHLWVHOIRUHYHQRI SROLWLFDOUHSUHVHQWDWLRQTXHVWLRQVRIDHVWKHWLFVV\PEROLVPDQGODQJXDJH DULVH 7KXV WR XQGHUVWDQG WKH RSHUDWLRQV DQG FRQVHTXHQFHV RI VRYHU HLJQW\LWLVLPSHUDWLYHWRVWXG\LWVVKDSHWKHWKHDWHUDQGJDUEWKDWJUDQWLW OHJLWLPDF\DSSHDOEHOLHYDELOLW\DQGQRUPDWLYLW\ ,WLVDOVRQHFHVVDU\WR VSHDNRIWKRVHZKRHQGRUVHDFFHSWWROHUDWHRUVXϸHUSDUWLFXODUORJLFV RUHϸHFWVRISRZHUWKDQNVWRWKLVLPDJHDQGLWVOHJLWLPDF\³HYHQLWVYDU\LQJ FKDUDFWHUV DV FRQVXPLQJ SDUWLFLSDWLYH RU LQYLQFLEOH³DQG WR WKLQN DERXW WKHORFDOZD\VVXFKDVWDJHGLPDJLVWLFTXDOLW\PHHWVRUIROGVLQWRWKHH[SHUL HQFHRILW7KHVHPLRWLFPDWHULDOFHUHPRQLDODQGVSHFWDFXODUGLPHQVLRQV VWUXFWXULQJVRYHUHLJQW\P\WKVIURPFRLQVWRWHPSOHVRIZRUVKLS DUHSDUW DQGSDUFHORIWKLVDHVWKHWLFVFDϸROGLQJ

& RXUW7KHDWHU0\WK6SHFWDFOH  KDWWKHDWULFDOLW\LVLQWULFDWHO\LQYROYHGZLWKNLQJVKLSKDVORQJEHHQDFODLP 7 RIGHPRFUDWLFDQGUHYROXWLRQDU\SROLWLFDOWKLQNHUVZKRGHQRXQFHGLQDEVR OXWLVPLQUpJLPHVWKH\GHHPHGDQFLHQVDSRPSDQGFLUFXPVWDQFHUHVSRQVLEOH

>@

(',7256·,1752'8&7,21

IRUWKHSHUYHUVLRQDQGLQVXODUL]DWLRQRISRZHUWKDWZDVXVHGWRMXVWLI\RS SUHVVLRQ6LQFH0D[:HEHUPRUHRYHUWKHDGPLQLVWUDWLRQRIDWHUULWRU\RU SRSXODWLRQKDVEHHQUHJDUGHGDVODUJHO\GLVWLQFWIURPWKHULWXDOVRISRZHU ZKLFKIRU:HEHUVHUYHGPHUHO\DQRUQDPHQWDOSXUSRVHRIOHJLWLPDWLRQRIJRYHUQLQJZKLFK@FDVWWKHQHZHPSHURUDV DP\WKLFDOKHURLQDKLVWRULFDOO\VHQVLWLYHQDUUDWLYHWKDWFODLPHGWRSUHVHUYH WKHWLPHOHVVYHULWLHVXQGHUO\LQJWKHP\WKµ೓ )UDQFHV@

(',7256·,1752'8&7,21

ZHUHWXUQWRWKHSUREOHPRIWHUULWRULDOLW\DQGXQLYHUVDOLW\DVZHOODVWRWKH DHVWKHWLF DQG UHSUHVHQWDWLRQDO OLQNV WKDW KROG WRJHWKHU WKH WKHRORJLFR SROLWLFDOFKDLQVLQDPHDQLQJIXOH[SHULHQFHRIWKHHYHU\GD\DVWKLVHQIROGV GZHOOVZLWKLQVXWXUHVZLWKRUXQOHDVKHVWKHGLYLQH4XDVLVHFXODUDHVWKHWLF P\WKRORJL]DWLRQ³LQFOXGLQJWKHTXRWLGLDQUHSUHVHQWDWLRQRIVHFXODUUHOL JLRXVKLVWRULFDODQGIXWXUHRULHQWHGSROLWLFDOIRUP³FDQEHVDLGWRH[WHQG IXUWKHUHYHQWRTXHVWLRQVRIWKHHFRQRP\2QHZD\WRSXUVXHWKLVFRQFHUQ LVWRIROORZ+HQWGH9ULHVZKHQKHDUJXHVWKDWQRWRQO\KDYH´SLOODUVRIVRY HUHLJQSRZHUµEHHQ´WKHRORJLFRSROLWLFDOLIQRWP\WKLFRUHOLJLRXVµEXWWKDW ZLWKLQWKDWIUDPH´PRQHWDU\ϰRZVµZKLFKKDYHDϲ QLWLHVZLWK´PHQWDO GLVSRVLWLRQVµDUHQROHVVKLVWRULFDOO\DQGSHUKDSVVWUXFWXUDOO\WKHRORJLFR SROLWLFDO $FFRXQWVOLNHWKLVDOORZXVWREHJLQWRH[WHQGWKHDHVWKHWLFDQG H[SHULHQWLDODVVHPEODJHLQYROYHGLQDFFRXQWVRIUHOLJLRQDQGSRZHUWRFDSLWDO LWVHOI &  ODXGH/HIRUWDQG-DFTXHV'HUULGDKDYHRϸHUHGVLPLODUFODLPVRQWKHDHV WKHWLFHYHQWKHDWULFDOEDVLVRISROLWLFDOWKHRORJ\,Q/HIRUW·VDFFRXQW´7KH 3HUPDQHQFHRIWKH7KHRORJLFR3ROLWLFDO"µWKHREGXUDWHSHUKDSVLQHUDGL FDEOHSHUVLVWHQFHRIVRYHUHLJQW\LQPRGHUQGHPRFUDWLFVRFLHW\FDUULHVDPDUN RIWKHWUDJLFFRQGLWLRQRIPRGHUQGHPRFUDF\DQGWKHDHVWKHWLFHVWDEOLVK PHQWWKURXJKWKHRORJ\DQGSROLWLFVRIDQDXWKRULW\WKDWVWLOOUHOLHVRQWKH VKDGRZFDVWRYHUWKH´HPSW\SODFHRISRZHUµE\UHOLJLRXVDQGNLQJO\SRZHU HYHQDIWHUWKHLUIDOO)RUKLVSDUW-DFTXHV'HUULGDLQKLVODWHERRN5RJXHV XVHGWKHRORJLFRSROLWLFDOPRWLIVLQRUGHUWRLGHQWLI\DVRSHUDWLQJDVLQJOH YLROHQWPRYHPHQWWKHJHVWXUHVWKDWFUHDWHWKHVHOIDQGWKHVRYHUHLJQ)RU 'HUULGDZKRZDVLQWHUHVWHGLQSURSRVLQJDSSURDFKHVWRGHPRFUDWLFDXWKRU LW\WKHVHOIQRWRQO\LQFOXGHVDSURSHQVLW\WRZDUGPDVWHU\EXWDOVRFUHDWHV P\WKVWKDWHVWDEOLVKRQWKHVFDϸROGRIWKHH[HFXWLRQHUWKLVVDPHVHOIDVERWK WKHIRXQGDWLRQDQGWKHWDUJHWRIDWKHRORJLFRSROLWLFDOO\GHULYHGVRYHUHLJQ SRZHU %  HVLGHVϮQGLQJLQ/HIRUWDQG'HUULGDUHDVRQIRUVWXG\LQJRVWHQVLEO\KDUG SROLWLFDOFLUFXPVWDQFHVLQWHUPVRIWKHDWHUDQGP\WKWKHUHLVUHDVRQWRDVN DERXWKRZSROLWLFDOWKHRORJ\LVQRWUHVWULFWHGWRPDWWHUVRIUHJLPHFRQVWUXF WLRQDQGPDLQWHQDQFHEXWLQYROYHVRFFDVLRQVRIWKHRORJLFDOFRQϰLFWRUQH JRWLDWLRQDVPXFKDVVRFLDOSROLF\$V-XVWLQ6WHDUQVDVNVKHUHLQDGGUHVVLQJ ,VODPLFUHVSRQVHVWRWKHSODJXH´:KDWWKHRORJLFDOVSLULWXDOOHJDODQGPHG LFDOFRQFHUQVLQϰXHQFHGUXOHUVLQUHVSRQGLQJWRDFKDOOHQJHWRWKHSROLWLFDO

>@

(',7256·,1752'8&7,21

DQGHFRQRPLFZHOOEHLQJRIWKHLUUHDOPV"µ5D].UDNRW]NLQDQG%HQ'RU %HQLWHSRVHVLPLODUTXHVWLRQVUHODWLQJWRWKHWKHRORJLFRSROLWLFDOGHSLFWLRQV DQGSHUIRUPDQFHVRIWHUULWRU\DQGUHOLJLRXVFDWHJRULHV

/ LQJXLVWLFV/DZDQG6FKRODUVKLS , WLVDOOEXWFRPPRQSODFHWRQRWHWKDWFODLPVWRVRYHUHLJQW\DFWVRIVRYHU HLJQW\DQGDVVHUWLRQVPDGHE\GLϸHUHQWDJHQWVDUHDHVWKHWLFSURGXFWVRI OLQJXLVWLFRSHUDWLRQVWKDWWKH\DUHURXWLQHO\IRXQGHGRQOLWHUDU\IRUPVUH OLJLRXV DV ZHOO DV VHFXODU WUDGLWLRQV RI VW\OL]DWLRQ ODQJXDJH JDPHV DQG H[SUHVVLRQVDLPHGWRFRQYLQFHUXOHUVDQGUXOHGRIDSDUWLFXODUUHJLPH·VRU FODLPDQW·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ϰXHQFH RI &RQIXFLDQLVP LQ &KLQHVH VWDWH LQVWLWXWLRQV DQG SUDFWLFHV WKH WUDGLWLRQRIVSHFXODSULQFLSXPLQ(XURSH³LQFOXGLQJ0DFKLDYHOOLDQG-DPHV, RI(QJODQG³FRQWULEXWHGWRWKHVHQVHRIDUHJXODWHGIRUPRIUXOLQJODQJXDJH HQFRPSDVVLQJERWKDHVWKHWLFVDQGPRUDOLW\'LVFRXUVHDQGOLWHUDU\WUDGLWLRQ UHPDLQHGLQWKLVUHJDUGFRQVWLWXWLYHRIKRZDSULQFHPXVWDSSHDUWRDFW SDUWO\ WKURXJK VSHHFK ZKLOH FRQYHUVHO\ D SULQFH·V DFWLRQV DϸHFWHG WKH ODQJXDJHVRIUXOH7KHVDPHFRXOGEHVDLGLQWKHPRGHUQDUJXPHQWVUHJDUG LQJQDWLRQDOXQLϮFDWLRQDQGODQJXDJH$V'DYLG%HOOKDVDUJXHGFHQWUDOWRWKH QDWLRQDOLVW HϸRUWV RI WKH )UHQFK 5HYROXWLRQ ZDV WKH VWDQGDUGL]DWLRQ RI )UHQFKDVDQDWLRQDOODQJXDJHDWWKHH[SHQVHRIYHUQDFXODUVDQGGLDOHFWVWKDW KDG VXGGHQO\ EHFRPH SROLWLFL]HG DQG GHHPHG LQDHVWKHWLF LQVXϲ FLHQWO\  )UHQFK 6KHOGRQ3ROORFNSXUVXHVDVWLOOEURDGHUDUJXPHQWLQKLVFKURQLFOH

>@

(',7256·,1752'8&7,21

RI6DQVNULWIRUKLPODQJXDJHLQ,QGLDZDVGHHSO\LPSOLFDWHGLQWKHHVWDE OLVKPHQWRISRZHULQVRIDUDVIRUPVRISRZHUZHUHUHQGHUHGDFFHSWDEOHE\ WKHLQϰHFWLRQVRIDQDUURZJURXSRIODQJXDJHVDQGUKHWRULFDOVW\OHVDWWDFKHG WRVSHFLϮFFODVVHV6RYHUHLJQW\ZRXOGWKXVEHDWWLPHVGHϮQHGE\OLQJXLVWLF RSSRUWXQLWLHVDQGOLPLWVDWWLPHVE\WKHLUYLROHQWWUDQVIRUPDWLRQ '  HHSO\LPSOLFDWHGZLWKTXHVWLRQVRIODQJXDJHLVWKHFXOWXUDODQGV\PEROLF GLPHQVLRQRIODZLQPRGHUQVRFLHWLHV$SURSHUVWXG\RIODZODQJXDJHDQG VRYHUHLJQW\H[FHHGVRXUVSDFHKHUHSDUWLFXODUO\JLYHQWKHJURZWKRIWKH ϮHOGRIFULWLFDOOHJDOVWXGLHV6Xϲ FHLWWRUHFDOO3DXO:.DKQ·VDFFRXQWRIWKH YDOXHIRUOHJDOVFKRODUVKLSRI´FXOWXUDOVWXG\WKHSUDFWLFHVDQGEHOLHIVFRQ VWLWXWLYHRIODZ·VUXOH µDQG´WKHVXEVWDQWLYHIRUPRIWKHLQTXLU\JHQHDORJ\ DQGDUFKLWHFWXUH µ+LVLVDSUREOHPDWL]DWLRQWKDWSRLQWVWRZDUGDQDQWKUR SRORJLFDOO\ULFKHUGLVFXVVLRQRIODZ·VOLQJXLVWLFDOO\EDVHGRUGHULQJDQGKDU PRQL]LQJRISROLWLFDODQGDHVWKHWLFUHSUHVHQWDWLRQDQGWKURXJKWKHPRI HYHU\GD\OLIHLQSDUWLFXODUUHJLPHV 7KURXJKRXWWKHWZHQWLHWKFHQWXU\ OHJDOWKLQNHUVLQ(XURSHWRRHVSHFLDOO\FRQVHUYDWLYHRQHV³IURP6FKPLWW WKURXJK(UQVW:ROIJDQJ%|FNHQI|UGHDQGKLVIDPRXV´GLFWXPµRQWKHOLPL WDWLRQV RI WKH :HVW *HUPDQ OLEHUDO VWDWH DQG RQ WR 3LHUUH /HJHQGUH LQ )UDQFH³KDYH DUWLFXODWHG WKH UHODWLRQVKLS RI ODZ WR VWDWHKRRG DQG VRYHU HLJQW\/HJHQGUHLQVLVWLQJRQODZ·VOLQHDJHWH[WXDOTXDOLW\SV\FKLFUHDFKDQG FRQWLQXLQJGRJPDWLFIRUFHHYHUVLQFHPHGLHYDOFDQRQODZKDVDSRVWURSKL]HG WKH´DQWKURSRORJLFDOIXQFWLRQRIWKHODZµE\HPSKDVL]LQJLWVH[WUDMXULGLFDO RULJLQDQGWKHZD\LWFRGLϮHVDQGUHZRUNVWKDWRULJLQ ) XQGDPHQWDOMXULGLFDOFDWHJRULHV¬¬¬GRQRWFRQFHDOZLWKLQWKHPVHOYHVWKHLU RZQMXVWLϮFDWLRQWKH\DUHMXULGLFDOFDWHJRULHVRQO\EHFDXVHWKH\DUHIRXQGHG LQWKDWLVWRVD\WKH\UHIHUWRWKHSULQFLSOHRIGLYLVLRQIURPZKLFKWKH\ VSULQJ¬¬¬,QHYHU\VRFLHW\WKHEDVLFIRXQGLQJGLVFRXUVHLVDFHOHEUDWLRQD ULWXDOL]DWLRQEHFDXVHLWLVDPDWWHURIEULQJLQJDOLYHRQDVRFLDOVFDOHWKHUHS UHVHQWDWLRQRIWKHIRXQGDWLRQVWKHUHSUHVHQWDWLRQRIZKDWUHQGHUVWKHIXQF WLRQLQJRIWKHFDWHJRULHVFRQFHLYDEOH

/ DZDVDQRSSUHVVLYHDQGFRORQLDOIRUPKDVDOVRUHFHLYHGFRQVLGHUDEOHDW WHQWLRQDQGUHVSRQVHVWRWKLVDSSURDFKQRZIRUPXODWHDEURDGFRQVHTXHQ WLDOVWXG\RILQWHUQDWLRQDODQGQDWLRQDOSUDFWLFHVRIOHJDODXWKRULW\QRWOHDVW LQDV\PEROLFIUDPHZRUN2QWKLVVXEMHFWWRRVRYHUHLJQW\UHVLGHVQRWRQO\ LQWKHSRVVHVVLRQDQGDVVLJQDWLRQRISRZHUEXWDOVRLQWKHGUDZLQJRIMXULV >@

(',7256·,1752'8&7,21

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ϰLFWRIODZZLWKRWKHUUHDOPV%HU QDGHWWH0H\OHUH[DPLQHVWKHH[FHSWLRQWKDWLVLQYROYHGLQDVRYHUHLJQ·VDFW RISDUGRQLQJIURP.DQWDQG6FKPLWWEDFNWRHDUO\PRGHUQWKHDWHUDQGXS WRWKHSUHVHQW-XVWLQ6WHDUQVDGGUHVVHVFRQϰLFWVRIUHOLJLRXVODZDQGSXEOLF SROLF\DQG0LUDQGD6SLHOHUSXUVXHV)UHQFKODZDQGWKHDEVROXWLVWSUDFWLFH RI SULVRQ EDQLVKPHQW WKURXJK OHWWUHVGHFDFKHW LQ DQ DW RQFH FRORQLDO DQG XUEDQFRQWH[WWRXFKLQJRQVODYHU\UHJLRQDOLVPDQGOHJDOLGHQWLW\ 2  QHPRUHSRLQWFRQFHUQLQJWKHOLQJXLVWLFHOHPHQWRIWKHVFDϸROGVKRXOG EHHPSKDVL]HG³QDPHO\VFKRODUVKLS:HKDYHDOUHDG\FLWHG@

(',7256·,1752'8&7,21

RQWZRRIWKHPRUHLQϰXHQWLDOUHFHQWDSSURDFKHV6FKRODUVKLSDVFULWLTXHKDV PDGHVLPLODUFODLPV$JDPEHQ·VELRSROLWLFVIURP+RPR6DFHU XQWLODWOHDVW 6WDWHRI([FHSWLRQRYHUODSVWZRJHQHDORJLFDOHϸRUWVRQHFRQFHUQVWKHREMHFW RILWVVWXG\³DVWUDLJKWOLQHIURPWKHKRPRVDFHULQ5RPDQODZWRWKHH[WHU PLQDWLRQFDPSV³WKHRWKHUHVWDEOLVKHVDWUDGLWLRQRISUHFXUVRUV IRUWKH SROLWLFDOFODLPVRIELRSROLWLFV6FKPLWW%HQMDPLQ)RXFDXOW$UHQGW (DFKWUD GLWLRQLVLQVFULEHGZLWKLQWKHRWKHULQRUGHUWRJHQHUDWHDVHQVHWKDWWKH RYHUDOOSURMHFWFRQGXFWVDQDQWLHVWDEOLVKPHQWUHVLVWDQFHRQEHKDOIRIKRPR VDFHU,IWKLVDOORZVIRUSROLWLFDOFODLPVRQEHKDOIRIWKHOHDVWRIKXPDQEHLQJV LWDOVRDQVZHUVWKHTXHVWLRQRIVRYHUHLJQW\EHIRUHLWKDVEHHQSURSHUO\SRVHG EHFDXVHLWGHWHUPLQHVVRYHUHLJQSRZHUDVPXFKWKURXJKDQLGHQWLϮFDWLRQ ZLWKWKRVHDWWKHOLPLWRIKXPDQLW\DVWKURXJKDFRQYHQLHQWJHQHDORJ\RI UHVLVWDQFH7KHFRPSOH[LW\RIPRGHUQOHJDODQGSROLWLFDOQRUPVLVQRZWUHDWHG DV FRHϲ FLHQW FRQWLQJHQW ZKHQ FRPSDUHG WR ORJLFV RI ´ELRVµ JOREDO DQG DHVWKHWLFSUREOHPVDOVREHFRPHODFXQDHFODPRULQJIRUUHHQJDJHPHQW,WLV ZRUWKHPSKDVL]LQJKLVVFKHPD·VJUHDWGLϸHUHQFHIURP.DOPRDQG6NLQQHU·V HPSKDVLVRQ:HVWSKDOLD+REEHVDQGOLEHUDOLVP7KHODQJXDJHDQGJHQHDO RJ\JHQHUDWHGLQWKHVHVFKRODUO\FODLPVUHPDLQVVWUXFWXUDOO\VLJQLϮFDQWIRU WKHLULQWHUSUHWDWLRQVRIOLQJXLVWLFDQGV\PEROLFIRUPVDQGHϸHFWV$VVFKRO DUVKLSLVLWVHOIRQHRIWKHVFXOSWRUVRIWKHDHVWKHWLFVRIVRYHUHLJQW\WKHSROL WLFVDQGDHVWKHWLFVRIVFKRODUVKLSRQVRYHUHLJQW\LQVWLJDWHRQHRIWKHFHQWUDO SUREOHPVIRUVHYHUDOHVVD\VKHUHLQFOXGLQJ-DVRQ)UDQN·VFULWLTXHRISROLWLFDO WKHRU\DQG&DWK\*HUH·VOLQNEHWZHHQGHSLFWLRQVRIVRYHUHLJQW\DQGQHXUR ORJLFDOFRQFHSWLRQVRIWKHERG\GXULQJWKH(QJOLVKDQG)UHQFK5HYROXWLRQV

6RYHUHLJQW\DQGWKH$UWV  HSUHVHQWDWLRQV³ZKHWKHUDFHUHPRQLDODSSHDUDQFHDOLNHQHVVUHSURGXFHG 5 RQFRLQVV\PEROLFUHIHUHQFHLQDUFKLWHFWXUHDQGPRQXPHQWVRUFKDUDFWHU L]DWLRQLQSRHWU\DQGQDUUDWLYH³ZRUNWRWHOODVWRU\RIWKHVRYHUHLJQDQG PDLQWDLQWKHLGHDRUϮFWLRQRIKLVSRZHU&UDIWLQJWKHVHVWRULHVDQGLPDJHV DUHDUWLVWVZRUNLQJDFURVVWKHYLVXDOOLWHUDU\DQGPXVLFDODUWVDQGWKHVH DUWVHVSHFLDOO\LQWKHFRQWH[WVRIKXPDQLVWLF&RQIXFLDQDQG,VODPLFWUDGL WLRQVRIOHDUQLQJWKHPVHOYHVFDPHWRSURIRXQGO\VKDSHWKHHVWDEOLVKPHQW QHJRWLDWLRQDQGFRQWHVWDWLRQRIVRYHUHLJQW\

>@

(',7256·,1752'8&7,21

7  DNHIRUH[DPSOHDYDULHW\RISRUWUDLWVFRPPLVVLRQHGE\WKH4LDQORQJ HPSHURUGHSLFWLQJKLPDVD0DQFKXZDUULRUD&RQIXFLDQD0DQGDULQDQG D'DRLVWLQDQHϸRUWWRLGHQWLI\KLPDVUXOHURIHDFKFXOWXUHDQGDOORIWKHP WRJHWKHU7KHSDLQWLQJVWHVWLI\WRIDUPRUHWKDQPHUHSURSDJDQGDQRWOHDVW EHFDXVH WKH DUWLVW UHVSRQVLEOH IRU WKHP ZDV WKH ,WDOLDQ -HVXLW *LXVHSSH &DVWLJOLRQHZKRVHORQJWHQXUHLQWKH&KLQHVHLPSHULDOFRXUWPDUNVDVLJQLϮ FDQWDUWKLVWRULFDOPRPHQWRIFRPELQHG(DVWHUQDQG:HVWHUQWHFKQLTXHV DQGFRQYHQWLRQVDQGGHPRQVWUDWHVRQHVLJQLϮFDQWZD\LQZKLFKWKHUHODWLRQ VKLSEHWZHHQVRYHUHLJQW\DQGWKHDUWVKDVKHOGH[WHQVLYHLQϰXHQFH 7KH JOREDOLW\SXUVXHGE\WKH4LDQORQJHPSHURUFRPHVWREHHQWZLQHGZLWKD GLϸHUHQW&DWKROLFJOREHDQGGLϸHUHQWLPSOLFDWLRQVRIUHSUHVHQWDWLRQ $QRWKHULQVFULSWLRQRIVRYHUHLJQW\LQWRDUWHPHUJHVWKURXJKWKHFODVVLF VWXG\7KH$JHRIWKH&DWKHGUDOVLQZKLFK*HRUJHV'XE\QRWHVWKDWWKHELUWKRI WKHYHU\FRQFHSWRID¶ZRUNRIDUW·´GHSHQGHGSDUWLFXODUO\FORVHO\RQUR\DOW\ LWVIXQFWLRQVDQGUHVRXUFHVµ,QWHUZRYHQDVLWZDVZLWKUHOLJLRXVDXWKRU LW\UR\DODXWKRULW\LQPHGLHYDO(XURSHDVHOVHZKHUHUHVXOWHGLQNLQJVDQG HPSHURUV´FRPSRUWLQJWKHPVHOYHVDVJRGO\KHURHVµZKLFKSULRULWL]HGPDNLQJ GHGLFDWRU\JLIWV´7KHVRYHUHLJQZDVKHZKRJLYHV³ZKRJLYHVWR*RGDQGZKR JLYHV WR PHQ³DQG LW ZDV ϮWWLQJ WKDW EHDXWLIXO ZRUNV VKRXOG ϰRZ IURP KLV RSHQKDQGVµ 7KHODWHPHGLHYDOSLQQDFOHRIVXFKZRUNVZDVWKHFRQVWUXF WLRQDQGPDLQWHQDQFHRIFDWKHGUDOVZKLFKZHUHDVPXFKDERXWVRYHUHLJQW\DV DERXW*RG´7KHFKXUFKHVZHUHLQIDFWUR\DOEXLOGLQJVSDUH[FHOOHQFHIRU*RG UHYHDOHGKLPVHOIWRPDQNLQGDVVRYHUHLJQRIWKHZRUOGFURZQHGDQGVHDWHGRQ DWKURQHWKHUHWRMXGJHWKHOLYLQJDQGWKHGHDG0RUHRYHUHYHU\SODFHRI ZRUVKLSZDVVXSSRVHGWRHQMR\WKHSURWHFWLRQRIWKHNLQJKLPVHOI&KULVW·V OLHXWHQDQWRQHDUWKDQGWKHNLQJ·VRϸHULQJVKDGKHOSHGWREXLOGLWµ $  HVWKHWLFUHSUHVHQWDWLRQWKXVJHQHUDWHGDWUDGLWLRQLQZKLFKNLQJVKLSDQG LWVWKHRORJLFDODQGDHVWKHWLFGXWLHVIURPSDWURQDJHWRFRPPXQLW\EXLOGLQJ WRHVWDEOLVKLQJFXOWXUHVRIDUWLVWLFSRZHU EHFDPHSDUWRIWKHVHWWLQJRI UHOLJLRXVDQGDHVWKHWLFH[SHULHQFHWKH\LQVFULEHGVRYHUHLJQW\LQWRDUFKLWHF WXUHDVHOVHZKHUHRQWRFRXUWFXOWXUHDQGRWKHUDUWV,Q/RXLV0DULQ·VDUJX PHQWDHVWKHWLFUHSUHVHQWDWLRQZHQWDVWHSIXUWKHULWLQYROYHGWKHGLUHFW LQVFULSWLRQRIVRYHUHLJQW\LQWRDHVWKHWLFVLWVHOILQWRWKHXQIROGLQJRIDYLVXDO VHPLRWLFVWKDWEHJLQVDQGHQGVZLWKSRZHU$V(YD*LORLKDVDUJXHGWKHULVH RIERXUJHRLVPDWHULDOFXOWXUHLQQLQHWHHQWKFHQWXU\*HUPDQ\KDGDVLPL ODUHϸHFWLQWKDWLWHQWDLOHGLQWHOOHFWXDOFODVKHVDQGDUHFDOLEUDWLRQRIORJLFV

>@

(',7256·,1752'8&7,21

RI VXSSRUW IRU WKH +RKHQ]ROOHUQ PRQDUFK\ ,Q WKLV YROXPH 6WDQFD 6FKRO]&LRQFDUHYLHZVWKHSUHHPLQHQWYDOXHRIWKHWKHDWHULQWKHFRXUWRI WKH VL[WHHQWKFHQWXU\ -DSDQHVH ZDUORUG 7R\RWRPL +LGH\RVKL ZKHUH 1{ GUDPDZDVVXSSRUWHGRQWKHOHYHORILQVWLWXWLRQSUDFWLFHGRQWKHOHYHO RI¬SHUVRQDOREVHVVLRQDQGSDWURQL]HGRQWKHOHYHORIDKLJKO\VRSKLVWLFDWHG VRYHUHLJQVFDϸROGLQJWHOOLQJHYHQRIIXWXUHVRYHUHLJQDFWV=YL%HQ'RU %HQLWHVLPLODUO\H[DPLQHVWKH0DQFKX4LQJHVWDEOLVKPHQWRIDPRVTXHLQ %HLMLQJZLWKLWVXQH[SHFWHGFRQVHTXHQFHVZKLFKOHGWRDQHYRFDWLRQRI GLϸHUHQW,VODPLFODZVDQGDPHGLWDWLRQRQ0XVOLPSHUFHSWLRQVRI&KLQHVH VRYHUHLJQW\ $  WVWDNHLVQRWRQO\WKHLVVXHRIVRYHUHLJQVLQVFULELQJWKHLUVRYHUHLJQW\ LQWR DUW 3DWURQDJH DVLGH VRYHUHLJQV KDYH IHDWXUHG DV ϮJXUHV KRYHULQJ EHWZHHQGLYLQLW\DQGKXPDQLW\QRWOHDVWLQPDQ\RIWKHIRXQGDWLRQDOHS LFVRIZRUOGOLWHUDWXUH7KH(SLFRI*LOJDPHVKWKH,OLDG DQGWKH2G\VVH\WKH 5DPD\DQDDQGWKH0ZLQGRHSLF³HDFKIROORZVWKHVWRULHVRIKHURNLQJVDVWKH\ QDYLJDWHWKHVHSDUDPHWHUV³VRPHWLPHVSHUPLWWHGWRHQWHUGLYLQHUHDOPV EXWWKHQIRUFHGWRFRQIURQWWKHLULQWUDFWDEOHPRUWDOLW\:KDWLVPRUHWKHVH QDUUDWLYHVSURYLGHNH\VLWHVZKHUHWKHSULRULWLHVDQGWHQVLRQVRIVRYHUHLJQW\ KDYHEHHQZRUNHGRXW*LOJDPHVKIRUH[DPSOHVWRSVEHLQJDQRYHUEHDULQJ UXOHUZKHQDIWHUDORQJϮJKWZLWK(QNLGXKLVSK\VLFDOHTXDODIULHQGVKLS HQVXHVWKDWFKDQJHVKLVJRDOVDQGYDOXHV6LPLODUO\WKHWHVWVWKDW5DPD HQGXUHVZKHQKHLVVHQWLQWRDIRXUWHHQ\HDUH[LOHRQWKHHYHRIKLVFRURQD WLRQXOWLPDWHO\VKRZKLPWREHDZRUWK\NLQJZKRNQRZVWRDFWLQDFFRU GDQFHZLWKKLVGKDUPDDVZHOODVWKDWRIRWKHUV , WLVQRWRXUSXUSRVHWRH[DPLQHKHUHWKHLPPHQVHOLWHUDWXUHRQVRYHU HLJQW\LQWKHDUWVWKHVHUHPDUNVDUHLQWHQGHGLQVWHDGWRLQGLFDWHWKHRIWHQ RVPRWLFVROYHQF\RIEORRGDQGSDLQW³VRYHUHLJQW\DVDSKHQRPHQRQRISRZHU DQGVRYHUHLJQW\LQWKHUHDOPRIDHVWKHWLFV2QHPLJKWGRZHOOWRFRQVLGHUDUW WKHDWHU OLWHUDWXUH DQG DUFKLWHFWXUH DV VFLHQFHV RI VRYHUHLJQW\ ,W LV QRW MXVWIRUH[DPSOHWKDW6FKLOOHU·V:DOOHQVWHLQ VWDJHVDQ[LHWLHVRISRZHUDQG WUDJHG\GXULQJWKH1DSROHRQLFUHRUJDQL]DWLRQRI(XURSH,QJXDUGLQJRIWHQ MHDORXVO\LWVRZQUXOHVDQGPDQQHURIWKLQNLQJOLWHUDWXUHOLNHWKHRWKHU DUWV  VHHNV WR FRQWURO WKH ODWWLFHZRUN WKDW MRLQV WKH UHDOPV RI WKH NQRZQ DQGRIWUDGLWLRQZLWKWKRVHRIWKHSRVVLEOHDQGWKHVXEOLPH7KHVFDϸROGRI VRYHUHLJQW\³ZKHWKHUWKRXJKWLQWHUPVRIFRQVWUXFWLRQRURIH[HFXWLRQ³LV FRQVROLGDWHGRXWRIH[DFWO\WKLVODWWLFHZRUN

>@

(',7256·,1752'8&7,21

,QFORVLQJLWVKRXOGFRPHDVQRVXUSULVHWKDWWKHVSHFLϮFDUWRIGUDPD KDVPDLQWDLQHGDYHVWHGLQWHUHVWLQWKHVXEMHFWRIVRYHUHLJQW\ 6LQFHDQ WLTXLW\WKHULVHDQGIDOORINLQJVKDVSURYLGHGGUDPDZLWKLWVSULQFLSDOWUDJLF IRUP$QLPSOLFLWDVVRFLDWLRQRIVRYHUHLJQVZLWKWUDJHG\GDWHVWRWKH3RHWLFV ZKHUH$ULVWRWOHVSHFLϮHVWKDWDϮQHWUDJHG\LVDERXW´RQHEHORQJLQJWRWKH FODVVRIWKRVHZKRHQMR\JUHDWUHQRZQDQGSURVSHULW\VXFKDV2HGLSXV7K\ HVWHVDQGHPLQHQWPHQIURPVXFKOLQHDJHVµ*OHQQ:0RVW·VHVVD\´6DG 6WRULHVRIWKH'HDWKVRI.LQJVµFRQVLGHUVWKHKLVWRU\RIWKHUHODWLRQVKLS EHWZHHQVRYHUHLJQϮJXUHVDQGWKHJHQUHRIWUDJHG\VXVSHQGHGEHWZHHQ SROLWLFDOYDOXHVRIPRQDUFK\DQGWKRVHRIGHPRFUDF\(DUO\PRGHUQGUDPD XQTXHVWLRQDEO\VWUHQJWKHQHGWKHUHODWLRQVKLSEHWZHHQVRYHUHLJQW\DQG WKHDWHUDVDUHVXOWRIWKHWKHPHVDQGVWUXFWXUHVLWDGRSWHG,WLVIRUQRVPDOO UHDVRQWKDW6KDNHVSHDUH·VSOD\VIHDWXUHUHJXODUO\LQSROLWLFDOWKHRUHWLFDOGLV FXVVLRQVRIVRYHUHLJQW\DVGHPRQVWUDWHGE\WKHZRUNRIVWDQGDUGEHDUHUV VXFKDV.DQWRURZLF]6FKPLWWDQG%HQMDPLQ%XW6KDNHVSHDUHLVQRWDORQH LQKLVGUDPDWLFUHOHYDQFH7KHDJHRIDEVROXWLVPSURGXFHGDYDVWERG\RI GUDPDZLWKVRYHUHLJQW\DWWKHFHQWHURILWVFRQFHUQVPDQLIHVWO\REYLRXVLQ DQ\VXUYH\RIWKHPDMRUZRUNVRI6SDQLVK*ROGHQ$JHGUDPD-DSDQHVH1{ )UHQFKQHRFODVVLFLVPDQGWKH*HUPDQEDURTXH1RULVWKLVDQROGUHJLPH FRQFHUQDV/HIRUW·VUHDGLQJRI-XOHV0LFKHOHWLQGLFDWHV³ZKHUH/HIRUWLQSXU VXLQJKLVLQWHUHVWRQWKHHPSW\SODFHRISRZHULQTXLUHVRQWKHVXUYLYDODQG DIWHUOLIHRIUR\DOW\³-DPHV,·VFRQFHUQZLWKWKHVFDϸROGVWDJHRIVRYHUHLJQW\ VXUYLYHVWKHGHVWUXFWLRQRIDEVROXWLVP)RU/HIRUW·V0LFKHOHWWKHDWULFDOLW\ SOD\VDFULWLFDOSDUWLQERWKVXSSRUWLQJDQGGLVPDQWOLQJWKHVRYHUHLJQ5H FHQWFULWLFDODQGSKLORVRSKLFDOH[SORUDWLRQVRIVRYHUHLJQW\DVLWLVUHODWHGWR WKHVHGUDPDWLFWUDGLWLRQVDERXQG\HWWKH\DUHQRWJLYHQWKHVHULRXVQHVV WKH\GHVHUYHLQSROLWLFDOWKHRULHVRIVRYHUHLJQW\DVLIOLWHUDU\DQGDHVWKHWLF HQJDJHPHQWVLPSO\RFFXSLHGDGLVFUHWHUHDOP6HYHUDOHVVD\VLQWKLVYROXPH H[SORUH WKH XQLTXH UHODWLRQVKLS EHWZHHQ VRYHUHLJQW\ DQG WKH WKHDWHU ,QGHHGVRVWURQJLVWKHDVVRFLDWLRQEHWZHHQVRYHUHLJQϮJXUHVDQGWUDJHG\ WKDWWKHYHU\SRVVLELOLW\RIPRGHUQWUDJHG\KDVEHHQFDOOHGLQWRTXHVWLRQDV DUHVXOWRILWVVKLIWWRZDUGXVLQJFRPPRQLQGLYLGXDOVDVSURWDJRQLVWVLQKHU HVVD\1LFROH-HUUFRQVLGHUVSUHFLVHO\WKLVTXHVWLRQ³RIWKHVWUDQJHSHUVLV WHQFHRIWKHUHODWLRQVKLSEHWZHHQVRYHUHLJQW\DQGGUDPDHYHQDIWHUSROLWL FDODQGDHVWKHWLFUHYROXWLRQVKDYHRVWHQVLEO\UHQGHUHG´NLQJVRQVWDJHµDQ REVROHWHWURSH%HUQDGHWWH0H\OHUIROORZVWKUHDGVZLWKLQWKHZULWLQJVRI

>@

(',7256·,1752'8&7,21

.DQWDQG6FKPLWWRQWKHVRYHUHLJQSDUGRQWKDWOHDGVQRWRQO\WRWKHDWULFDO PHWDSKRUEXWDOVRWRWKHFRQVLGHUDWLRQRIWKHDWULFDOWH[WDVDYLDEOHVRXUFH RISROLWLFDOWKHRU\ / LNHWKLVLQWURGXFWLRQWKHFXUUHQWYROXPHDVDZKROHDWWHPSWVWRJLYH D¬ VHQVH RI WKH PXOWLSOH VLWHV IRU WKH H[DPLQDWLRQ RI VRYHUHLJQW\ DQG LWV VFDϸROG ,W GRHV QRW SXUVXH D ZLGHUDQJLQJ FRPSDULVRQ RI FRQFHSWV RI VRYHUHLJQW\QRUGRHVLWVFXOSWDVLQJOHPRGHOLQGHIHUHQFHWRDIDOVHLGRORI FRKHUHQFH7KHVKLIWZHDGYRFDWHLQWKHVWXG\RIVRYHUHLJQW\E\QRPHDQV VXJJHVWVDGLVFLSOLQDU\SULRULW\QRUGRHVLWGHPDQGWKDWDOOHOHPHQWVGLV FXVVHGKHUHEHDGGUHVVHGLQHDFKHQJDJHPHQWZLWKWKHVXEMHFW,QSXWWLQJ IRUZDUGWKHVFDϸROGLQJRIVRYHUHLJQW\ZHDUHDERYHDOOFDOOLQJIRUVWUDWH JLHV WKDW GR QRW GHFLGH LQ DGYDQFH ZKDW VRYHUHLJQW\ LV EXW SXUVXH ZLWK YDU\LQJGHJUHHVRILQWHUGLVFLSOLQDU\ODWLWXGHWKHLQWHUFRQQHFWLRQVRISR OLWLFDO WKHRU\ KLVWRU\ DQWKURSRORJ\ DQG OLWHUDWXUH ,Q XVLQJ FRQFHSWXDO DQGDQWKURSRORJLFDOO\DWWXQHGKLVWRU\WRRSHQWKHVSDFHZKHUHJOREDOLQ WHOOHFWXDOKLVWRU\FDQKDQGOHDWRQFHFRPSDUDWLYHDQGDHVWKHWLFFRQFHUQV LQYROYHGLQVRYHUHLJQW\·VVFDϸROGLQJWKHHVVD\VZHKDYHEURXJKWWRJHWKHU VHHNWRJLYHEDFNWRVRYHUHLJQW\ERWKVRPHRILWVHOXVLYHQHVVDQGVRPHRILWV IRUFH2XUHPSKDVLVRQWKHϮJXUHRIWKHVFDϸROGZLWKLWVLQKHUHQWSRO\VHP\ FRYHULQJERWKVFDϸROGLQJDQGVLWHRIH[HFXWLRQDQGRXUIRFXVRQWKHDHV WKHWLFGLPHQVLRQVRIWKLVVFDϸROGGRQRWDLPWRFURVVHYHU\PHULGLDQWKDW WUDYHUVHVWKHSUREOHPEXWWKH\GRPHDQWRSURYLGHDFDSDFLRXVDQGDPHQG DEOHWKHRUHWLFDOIUDPHZRUNIRUIXUWKHUZRUN  :  HZRXOGOLNHWRWKDQNWKH1HZWKHPDJLFLDQ@FODLPVDVRYHUHLJQW\RYHU QDWXUHLWLVDFRQVWLWXWLRQDOVRYHUHLJQW\ULJRURXVO\OLPLWHGLQLWVVFRSHDQGH[ HUFLVHG LQ H[DFW FRQIRUPLW\ ZLWK DQFLHQW XVDJHµ 7KDW WKLV XVDJH LV FOHDUO\ PHWDSKRULFDOVKRXOGQRWEOLQGXVWRWKHIDFWWKDWLWZDVDOVRPHDQWWRLGHQWLI\ WKHIRUFHRIVFLHQWLϮFDQGRIPDJLFDOZRUNDQGWKHGHVLJQDWLRQRIODZVRIQD WXUHDQGREHGLHQFHWRWKHP DV)UD]HUJRHVRQWRDUJXH7KHUHFHQWDGYHQWRI HQYLURQPHQWDOKLVWRU\KDVUDLVHGWKHVWDNHVRQWKHUHODWLRQRIWKHSURGXFWLRQ RINQRZOHGJHRYHUQDWXUH  .DOPRDQG6NLQQHU´&RQFHSWLQ)UDJPHQWVµϸ  ,ELG²  %RWK7KRPDV(UWPDQ·V%LUWKRIWKH/HYLDWKDQ&DPEULGJH&DPEULGJH8QLYHUVLW\ 3UHVV DQG(OGHQ·VFRQFHSWXDOKLVWRU\RIWHUULWRU\7KH%LUWKRI7HUULWRU\IDOO ZLWKLQWKLVFDWHJRU\HYHQDVWKH\GDWHWKHELUWKVPHQWLRQHGLQWKHLUWLWOHVWR GLϸHUHQWSHULRGV  $QWMH)OFKWHUDQG6XVDQ5LFKWHUHGV6WUXFWXUHVRQWKH0RYH7HFKQRORJLHVRI*RY HUQDQFH LQ 7UDQVFXOWXUDO (QFRXQWHU +HLGHOEHUJ 6SULQJHU   'RXJODV +RZ ODQGDQG/XLVH6:KLWHHGV7KH6WDWHRI6RYHUHLJQW\7HUULWRULHV/DZV3RSXODWLRQV %ORRPLQJWRQ,QGLDQD8QLYHUVLW\3UHVV )OFKWHUDQG5LFKWHU·VYROXPH FRPSDUHVDQGGLVFXVVHVHQFRXQWHUVEHWZHHQ *HUPDQ\DQG&KLQDZLWKXVH IXOFKDSWHUVDOVRRQ0XJKDODQGFRORQLDO,QGLD+RZODQGDQG:KLWH·VYROXPH ORRNVWRZDUGQRQ:HVWHUQWUDGLWLRQVZLWKHVVD\VWKDWH[DPLQH´H[WUDWHUULWR ULDOLW\LQ(DVW$VLDµDQG´FRORQLDOVRYHUHLJQW\LQ0DQFKXNXRµEXWWKHVWDWLVW SULRULW\LVLQIDFWH[SDQGHGLQVRIDUDVWKHV\VWHPRIFRORQLDOSRZHUDQGWKH HPHUJHQFHRILQWHUQDWLRQDOODZDVGLVFXVVHGLQWKHERRNUHPDLQZLWKLQWKH GRPDLQRIVWDWHVDQGLQWHUQDWLRQDOSROLWLFDOHϸHFWVDORQH  6DPXHO0R\QDQG$QGUHZ6DUWRULHGV*OREDO,QWHOOHFWXDO+LVWRU\ 1HZ@

6$'6725,(62)7+('($7+2).,1*6

LQRUGHUWRH[SODLQWRWKHOLYLQJZK\H[DFWO\KLVVRQZDVUXLQHG6RWRRLQ 6RSKRFOHV·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Ϯ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

7  KHUHDUHQXPHURXVVFHQHVLQZKLFKDFKRUXVHQJDJHVLQDQLPDWHGGLVFXV VLRQZLWKDNLQJZKHQKHLVMXVWDERXWWRPDNHVRPHGUHDGIXOPLVWDNHWKH\ >@

67$*(6

XUJHKLPWRDGRSWWKHLURZQW\SLFDOYLUWXHV³DOPRVWDOZD\VLQYDLQDVKHLV GHDIWRWKHLUZLVGRPDQGEOLQGWRWKHLUYDOXHV .  LQJVKLSDQGGHPRFUDF\DUHRIFRXUVHSROLWLFDOLQVWLWXWLRQVEXWLWZRXOG EHVXSHUϮFLDOWRWU\WRH[SODLQWKHXELTXLW\RIWKHNLQJDQGWKHFKRUXVLQ *UHHNWUDJHG\LQSXUHO\SROLWLFDOWHUPV$IWHUDOOWKHUHKDGQRWEHHQDQ\KH UHGLWDU\NLQJVLQ$WKHQVVLQFHWKHOHJHQGDU\WLPHVHYHQEHIRUHDQGVKRUWO\ DIWHUWKH7URMDQ:DUDQGWKHODVWW\UDQWZKRKDGUXOHGWKHFLW\+LSSLDVKDG EHHQRYHUWKURZQLQ%&(.LQJVZHUHWREHVXUHDIDPLOLDUIHDWXUHRIWKH FRQWHPSRUDU\ZRUOGEXWWKH\ZHUHNQRZQWRWKH$WKHQLDQVDVDSROLWLFDO UHDOLW\RQO\IURPVXFKDOLHQH[DPSOHVDVHQHP\6SDUWDDQGEDUEDULDQ3HU VLD$QGWREHVXUHLQGLYLGXDOVLQϮIWKFHQWXU\$WKHQVZKRZHUHWKRXJKW WREHDVSLULQJWRWRRPXFKSRZHULQWKHFLW\FRXOGVRPHWLPHVEHDFFXVHGE\ WKHLUULYDOVRIZDQWLQJWREHFRPHW\UDQWVEXWWKHRQO\WLPHVWKDWW\UDQQL FDOSRZHUVZHUHDFWXDOO\LQWURGXFHGLQ$WKHQVLQWKHFRXUVHRIWKHϮIWK FHQWXU\%&(WKH\ZHUHDVVLJQHGSUHFLVHO\QRWWRVLQJOHLQGLYLGXDOVEXWWR UHODWLYHO\ODUJHJURXSVRISHRSOHWRIRXUKXQGUHGPHQLQDQGWRWKLUW\ LQ6RWKHNLQJVRI*UHHNWUDJHG\PRVWOLNHO\GRQRWUHSUHVHQWDSXUHO\ SROLWLFDORSWLRQLQWHUPVRIFRQWHPSRUDU\ORFDOUHDOLWLHVRQHWKDW$WKHQLDQ DXGLHQFHVPLJKWKRSHRUIHDUWRVHHRQFHDJDLQIXOϮOOHGDVVXFKLQWKHUHDO SROLWLFDOLQVWLWXWLRQVRIWKHLURZQFLW\ , QVWHDGLWVXUHO\PDNHVPRUHVHQVHWRVHHWKHVHFKDUDFWHUVDVEHLQJPRUDO RUDQWKURSRORJLFDOLQHVVHQFHUDWKHUWKDQPHUHO\SROLWLFDO7KDWLVWKHNLQJ ϮJXUHVQRWRQO\DFWXDORUSRVVLEOHNLQJVEXWDOOKXPDQEHLQJVDQFLHQWDQG PRGHUQYLHZHGLQWKHOLJKWRIWKHLUDVSLUDWLRQIRUVRYHUHLJQW\LQWKLVZD\ KHKHOSV*UHHNWUDJHG\VSHDNERWKWRWKHDXGLHQFHVRIϮIWKFHQWXU\$WKHQV DQGWRSHRSOHLQPDQ\SODFHVDQGDWPDQ\WLPHV7KHWUDJLFNLQJLVDQDPHG LQGLYLGXDOZKRWKLQNVKHLVIUHHWRSXUVXHKLVGHVLUHVZKDWHYHUWKH\DUHZLWK RXWKDYLQJWRVXEPLWWRDQ\FRQVWUDLQWRUOLPLW³XQOLNHRUGLQDU\SHRSOH ZKRPXVWOLYHWRJHWKHUZLWKRWKHUVDQGZKRPXVWDGDSWWRDQGQHJRWLDWH ZLWKWKHPLIWKH\ ZLVK WR ϰRXULVK RU HYHQ WR VXUYLYH )RU WKH NLQJ KLV IUHHGRPWRSXUVXHZLWKRXWOHWRUKLQGUDQFHWRWKHYHU\HQGH[DFWO\ZKDW KHWKLQNVWREHJRRGIRUKLPLVQRWRQO\LPSRUWDQWLWLVKLVHVVHQWLDOIHD WXUHLWLVZKDWPDNHVKLPZKDWKHLVDQGWRKLPLWVHHPVDWOHDVWXQWLO VRPHWLPHVDOPRVWDWWKHSOD\·VHQG WREHIDUPRUHLPSRUWDQWWKDQPHUH VXUYLYDO8QOLNHWKHNLQJZKRKDVQRRQHDERYHKLPEXWWKHJRGVZKRFDQ WHOOKLPZKDWKHKDVWRGRDQGZKRVHDSSURYDOKHQHHGVWRVHFXUHWKHFKR UXVPHPEHUVDUHERXQGXSLQDOONLQGVRIHPSLULFDOFLUFXPVWDQFHVWKDWOLPLW >@

6$'6725,(62)7+('($7+2).,1*6

ZKDWWKH\FDQZLVKIRUDQGZKDWWKH\FDQGR)URPWKHYDQWDJHSRLQWRIWKHLU RZQVDIHW\LQGHHGIURPWKDWRIWKHLUFRQVWLWXWLYHLPPXQLW\ WKH\ZDWFK HYHU\WKLQJWKDWWKHNLQJGRHVDQGVXϸ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³DQG KHQFH WKH\ ZHUHERWKZURQJIRUHYHU\DXGLHQFHLGHQWLϮ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ϰ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ϮHGE\WKHVWURQJWHQGHQF\RI*UHHNWUDJ HGLHVDV$ULVWRWOHQRWHGWRFRPSUHVVWKHLUZKROHDFWLRQLQWRWKHQDUURZOLP >@

67$*(6

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ϮFHQWIRUFHIURPWKHGLVWDQWSDVW³DQRUDFOHD FXUVHDFULPH³LVUHDFKLQJLQHVFDSDEO\LQWRWKDWSUHVHQWWRGHWHUPLQHKLV FKRLFHVDQGWKHLURXWFRPHVLQDZD\WKDWPDNHVDPRFNHU\RIKLVKXPDQ IUHHGRP,Q$HVFK\OXV·V6HYHQ$JDLQVW7KHEHVIRUH[DPSOH.LQJ(WHRFOHV VWUDWHJLFDOO\DQGUDWLRQDOO\DVVLJQVWRWKHϮUVWVL[JDWHVRIKLVFLW\RQHE\ RQHWKHVL[FKDPSLRQVZKRZLOOVXFFHVVIXOO\FRQIURQWWKHϮUVWVL[HQHP\ ZDUULRUVRIWKHDWWDFNLQJDUP\%XWZKHQWKHPHVVHQJHUJRHVRQWRUHSRUW WKDWDWWKHVHYHQWKJDWHWKHUHVWDQGVKLVRZQEURWKHU3RO\QLFHV(WHRFOHV GHVSLWHWKHFKRUXV·VUHDVRQDEOHSURWHVWVFDQHQYLVLRQQRSRVVLEOHFRXUVHRI DFWLRQRWKHUWKDQIDFLQJKLVEURWKHUKLPVHOILQDPRUWDODQGPRUDOO\SRO OXWHGGXHOWRWKHGHDWKDQGKHUHFRJQL]HVLQWKLVQHFHVVLW\WKHZRUNLQJ WKURXJKRIWKHLUIDWKHU·VFXUVHIURPZKLFKWKHUHLVQRSRVVLEOHHVFDSHIRU HLWKHUEURWKHU,Q6RSKRFOHV·V2HGLSXVWKH.LQJ2HGLSXVLVDSDUDGLJPRI UDWLRQDOLW\DQGGHFLVLYHQHVVLQKLVXQUHOHQWLQJLQYHVWLJDWLRQRIWKHFDXVH IRUWKHSODJXHWKDWLVGHYDVWDWLQJKLVFLW\³RQO\WRGLVFRYHUWKDWKHKLPVHOI LVLWVRULJLQWKDQNVWRDQDQFLHQWFXUVHRQKLVIDPLO\DQGWKHFULPHWKDWKH KLPVHOIFRPPLWWHG\HDUVEHIRUHWKHDFWLRQRIWKHSOD\EHJDQ+XPDQGHFL VLRQZHPLJKWVD\LVUHYHDOHGLQWUDJHG\WRQHYHUEHHQWLUHO\DXWRQRPRXV HYHQIRUWKHNLQJOHWDORQHIRUWKHUHVWRIXV WKHUHDUHDOZD\VSDVWHYHQWV WKDWFRQGLWLRQWKHSUHVHQWDQGWKDWOLPLWDQ\DJHQW·VDELOLW\WRGHFLGHDQGWR DFWDFFRUGLQJWRZKDWKHSHUFHLYHVWREHKLVRZQGHVLUHVDQGJRDOV,WLVRQO\ EHFDXVHWKHWUDJLFDJHQWLVVRRIWHQDNLQJZKRVHVRYHUHLJQW\RYHUKLVGHFL VLRQVLVDVVXPHGWREHVRDEVROXWHWKDWWKHSDVWFLUFXPVWDQFHWKDWUHYHDOV WKHIDOVLW\RIDQ\VXFKSUHWHQWLRQPXVWWDNHRQDVGHPRQLFDQGRYHUSRZHULQJ DIRUPDVLWGRHVLQWKHVHWUDJHGLHV $WWKHHQGRIWKHSOD\WKHNLQJLVRIWHQGHDGEXWWKHFKRUXVLVDOZD\VVWLOO DOLYHWRGUDZWKHPRUDORIKLVVWRU\HYHU\WUDJHG\HQGVQRWZLWKVSHHFK XWWHUHGE\DFKDUDFWHUEXWZLWKOLQHVUHFLWHGE\WKHFKRUXVDQGHYHQLIWKHVH >@

6$'6725,(62)7+('($7+2).,1*6

OLQHVDUHRIWHQTXLWHEDQDODQGLQGHHGLQVRPHFDVHVDUHLGHQWLFDOIURPRQH SOD\WRDQRWKHUWKH\SURYLGHWKHϮ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ϰHVKDQGEORRG :  LWKVROHPQUHYHUHQFHWKURZDZD\UHVSHFW 7UDGLWLRQIRUPDQGFHUHPRQLRXVGXW\ ) RU\RXKDYHEXWPLVWRRNPHDOOWKLVZKLOH , OLYHZLWKEUHDGOLNH\RXIHHOZDQW 7  DVWHJULHIQHHGIULHQGVVXEMHFWHGWKXV +RZFDQ\RXVD\WRPH,DPDNLQJ"

6 KDNHVSHDUHSRHWDQGORYHUFRXOGQRWSUHYHQWKLPVHOIIURPEHVWRZLQJRQ WKHKLVWULRQLFFKLOGRIKLVLPDJLQDWLRQWKHDELOLW\WRIRUPXODWHWKLVLQVLJKW KLPVHOIDQGWRH[SUHVVLWLQODQJXDJHRIVXFKPRYLQJEHFDXVHVRXQFKDUDF WHULVWLFVLPSOLFLW\%\FRQWUDVWLWLVXVXDOO\QRWWKHNLQJVRI*UHHNWUDJHG\ ZKRH[SUHVVWKLVZLVGRPWKHPVHOYHVDOOWRRRIWHQWKH\GLHEHIRUHWKH\JHW DFKDQFHWRGRVR EXWLQVWHDGWKHFKRUXV6RIRUH[DPSOHLQ6RSKRFOHV·V 2HGLSXVWKH.LQJ 2  JHQHUDWLRQVRIPHQKRZ, F RXQW\RXDVHTXDOZLWKWKRVHZKROLYH Q  RWDWDOO :  KDWPDQZKDWPDQRQHDUWKZLQVPRUH R  IKDSSLQHVVWKDQDVHHPLQJ D QGDIWHUWKDWIDOOLQJDZD\" 2  HGLSXV\RXDUHP\SDWWHUQRIWKLV 2  HGLSXV\RXDQG\RXUIDWH >@

67$*(6



/ XFNOHVV2HGLSXVDV,ORRNDW\RX , FRXQWQRWKLQJLQKXPDQDϸDLUVKDSS\ , QDVPXFKDV\RXVKRW\RXUEROW E  H\RQGWKHRWKHUVDQGZRQWKHSUL]H R  IKDSSLQHVVFRPSOHWH³ 2  =HXV³DQGNLOOHGDQGUHGXFHGWRQDXJKW W KHKRRNHGWDORQHGPDLGRIWKHULGGOLQJVSHHFK V WDQGLQJDWRZHUDJDLQVWGHDWKIRUP\ODQG K  HQFH\RXDUHFDOOHGP\NLQJDQGKHQFH K  DYHEHHQKRQRUHGWKHKLJKHVWRIDOO K  RQRUVDQGKHQFH\RXUXOHG L QWKHJUHDWFLW\RI7KHEHV %  XWQRZZKRVHWDOHLVPRUHPLVHUDEOH" :KRLVWKHUHOLYHVZLWKDVDYDJHUIDWH" :  KRVHWURXEOHVVRUHYHUVHKLVOLIHDVKLV" 2  2HGLSXVWKHIDPRXVSULQFH I RUZKRPWKHVDPHJUHDWKDUERU W KHVDPHERWKIRUIDWKHUDQGVRQ V Xϲ FHGIRUEULGDOEHG K  RZ2KRZKDYHWKHIXUURZVSORXJKHG E  \\RXUIDWKHUHQGXUHGWREHDU\RXSRRUZUHWFK D QGUHPDLQVLOHQWVRORQJ" 7  LPHZKRVHHVDOOKDVIRXQG\RXRXW D JDLQVW\RXUZLOOMXGJHV\RXUPDUULDJHDFFXUVHG E  HJHWWHUDQGEHJRWWHQDWRQHLQLW 2  FKLOGRI/DLXV Z  RXOG,KDGQHYHUVHHQ\RX , ZHHSIRU\RXDQGFU\ D GLUJHRIODPHQWDWLRQ

7  KHRGGLW\RIWKHODVWOLQHVRIWKLVSDVVDJHKDVVRPHWLPHVEHHQRYHUORRNHG 7KH FKRUXV H[SUHVVHV WKH ZLVK WKDW WKH\ KDG QHYHU PDGH 2HGLSXV·V DF TXDLQWDQFHDQGEHFRPHVSHFWDWRUVRIKLVWULXPSKDQGKLVVXϸHULQJV\HWDOO WKHVDPHWKH\PRXUQKLPDQGEHZDLOKLVIDOO,VWKHUHQRWVRPHGHJUHHRI >@

6$'6725,(62)7+('($7+2).,1*6

WHQVLRQEHWZHHQWKHVHWZRUHDFWLRQV"'RHVQRWWKHIRUPHUVXJJHVWUHSXGLD WLRQWKHODWWHUFRPSDVVLRQ"&HUWDLQO\ZHFDQXQGHUVWDQGWKDWWKHFKRUXVLV VRPHKRZEODPLQJ2HGLSXVIRUWKHVXϸHULQJKLVRZQVXϸ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ϮJXUHGLQKLVFDVHDQG DSSOLFDEOHWRWKHLURZQDQGDOORWKHUV6PDOOZRQGHUWKDWWKH\ZLVKWKH\KDG QHYHUZLWQHVVHGLW³DQGVPDOOZRQGHUWKDW*UHHNWUDJHG\REOLJHGWKHPWRGR VRRYHUDQGRYHUDJDLQIRULWLVDOHVVRQWKDWFDQQRWEHUHSHDWHGRIWHQHQRXJK

$SSHQGL[.LQJVLQ*UHHN7UDJHG\ 7  KLVDSSHQGL[OLVWVDOOWKHDQFLHQW*UHHNWUDJHGLHVWKDWKDYHVXUYLYHGZKROH LQDSSUR[LPDWHFKURQRORJLFDORUGHUDQGLQGLFDWHVIRUHDFKRQHZKLFKVSHDN LQJFKDUDFWHUVLQLWDUHUXOLQJPRQDUFKVHLWKHUNLQJVRUTXHHQV3DUHQWKHVHV LQGLFDWHDNLQJZKRLVQRWSK\VLFDOO\SUHVHQWRQVWDJHEXWZKRVHRϸVWDJH DFWLRQLVHVVHQWLDOWRWKHSOD\·VPHDQLQJ7UDJHGLHVZKRVHWLWOHLVSURYLGHG E\WKHQDPHRIDNLQJZKRLVDFKDUDFWHULQWKHPDUHLQGLFDWHGLQEROGIDFH WKRVHZKRVHWLWOHVGHULYHIURPWKHLUFKRUXVKDYHDQDVWHULVN3URPHWKHXV LV WUDQVPLWWHG DPRQJ WKH ZRUNV RI $HVFK\OXV DQG 5KHVXV DPRQJ WKRVH RI (XULSLGHVEXWPDQ\PRGHUQVFKRODUVGRXEWWKRVHDWWULEXWLRQV7KH&\FORSV LVDVDW\USOD\:KLOHLWFDQQRWEHH[FOXGHGWKDWH[WHQGLQJWKLVFDWDORJXHWR WKRVHWUDJHGLHVH[WDQWRQO\LQIUDJPHQWVDQGRUWHVWLPRQLDPLJKWFKDQJH WKHUHVXOWVREWDLQHGLWLVXQOLNHO\WKDWWKHGLϸHUHQFHZRXOGEHVLJQLϮFDQW $ (6&+&@RPRHGLDDWUDJRHGLDGLϸHUWTXRGLQWUDJRH GLDLQWURGXFXQWXUKHURHVGXFHVUHJHVLQFRPRHGLDKXPLOHVDWTXHSULYDWDH SHUVRQDHLQLOODOXFWXVH[LOLDFDHGHVLQKDFDPRUHVYLUJLQXPUDSWXVGHLQGH TXRGLQLOODIUHTXHQWHUHWSDHQHVHPSHUODHWLVUHEXVH[LWXVWULVWHVHWOLEHURUXP IRUWXQDUXPTXHLQSHLXVDGJQLWLR4XDUHYDULDGHϮQLWLRQHGLVFUHWDHVXQWµ,Q +HLQULFK.HLOHG*UDPPDWLFL/DWLQL/HLS]LJ7HXEQHU   ´,PLWDWLRSHUDFWLRQHVLOOXVWULVIRUWXQDHH[LWXLQIHOLFLRUDWLRQHJUDXLPHWULFD¬¬¬ ,Q7UDJRHGLD5HJHV3ULQFLSHVH[XUELEXVDUFLEXVFDVWULV3ULQFLSLDVHGDWLRUD H[LWXVKRUULELOHV2UDWLRJUDXLVFXOWDYXOJLGLFWLRQHDXHUVDWRWDIDFLHVDQ[LD PHWXVPLQDHH[LOLDPRUWHV¬¬¬5HV7UDJLFDHJUDQGHVDWURFHVLXVVD5HJXP FDHGHVGHVSHUDWLRQHVVXVSHQGLDH[LOLDRUELWDWHVSDUULFLGLDLQFHVWXVLQFHQGLD SXJQDHRFFDHFDWLRQHVϰHWXVXOXODWXVFRQTXHVWLRQHVIXQHUDHSLWDSKLDHSLFH GLDµ,Q/XF'HLW]HG-XOLXV&DHVDU6FDOLJHU3RHWLFHV/LEUL6HSWHP6LHEHQ%FKHUEHU GLH'LFKWNXQVW 6WXWWJDUW²%DG&DQVWDWW)URPPDQQ+RO]ERRJ ENFKDS ²²  %HUQDUG:HLQEHUJ´6FDOLJHU9HUVXV$ULVWRWOHRQ3RHWLFVµ0RGHUQ3KLORORJ\   ²LVKHOSIXOEXWOLPLWHGWRWKHFRPSDULVRQRI6FDOLJHUZLWK$ULVWR WOHDQGKHQHJOHFWV6FDOLJHU·VUHODWLRQVZLWKKLVRWKHUVRXUFHV  ,QWKH3UREOHPV WUDQVPLWWHGLQWKH$ULVWRWHOLDQFRUSXVEXWPRVWOLNHO\ QRWJRLQJEDFNWRKLPLQLWVHQWLUHW\ WKHUHLVDVLQJOHUHIHUHQFHWRWKHGLϸHU HQFHEHWZHHQWKHKHURLFFKDUDFWHUVDQGWKHSRSXODUFKRUXV´IRUWKHODWWHU >LHWKHFKDUDFWHUVRQWKHVWDJH@LPLWDWHKHURHVDQGDPRQJWKHDQFLHQWVWKH

>@

67$*(6

>VFFKRUXV@OHDGHUVDORQHZHUHKHURHVDQGWKHSHRSOHRIZKRPWKHFKRUXV FRQVLVWVZHUHPHUHPHQµ,Q-¬$6PLWKDQG:¬'5RVVHGV7KH:RUNVRI$ULVWRWOH 7UDQVODWHGLQWR(QJOLVKYRO3UREOHPDWDHG(¬6)RUVWHU2[IRUG&ODUHQGRQ3UHVV    ,QFKDSWHURIKLV3RHWLFV$ULVWRWOHVD\VWKDWWKHGLVWLQFWLRQEHWZHHQUHSUH VHQWLQJFKDUDFWHUVEHWWHUWKDQRXUVHOYHVZRUVHWKDQRXUVHOYHVRURIWKHVDPH VRUWDVRXUVHOYHV´VHSDUDWHVWUDJHG\IURPFRPHG\WKHODWWHUWHQGVWRUHSUHVHQW PHQZRUVHWKDQSUHVHQWKXPDQLW\WKHIRUPHUEHWWHUµLQFKDSWHUKHDUJXHV WKDWSLW\DQGIHDUZLOORQO\EHSURGXFHGLQWKHVSHFWDWRUVLIWKH\ZLWQHVVZKDW KDSSHQVWRDPDQ´ZKRLVQRWSUHHPLQHQWLQYLUWXHDQGMXVWLFHDQGRQHZKR IDOOVLQWRDϵ LFWLRQQRWEHFDXVHRIHYLODQGZLFNHGQHVVEXWEHFDXVHRIDFHU WDLQIDOOLELOLW\µ7UDQV6WHSKHQ+DOOLZHOOLQ$ULVWRWOH·V3RHWLFV /RQGRQ'XFN ZRUWK   ,QENFKDSRIKLV3ROLWLFV$ULVWRWOHGLVWLQJXLVKHVEHWZHHQϮYHIRUPVRI NLQJVKLSWKH´IRXUWKVSHFLHVRINLQJO\PRQDUFK\³WKDWRIWKHKHURLFWLPHV¬¬¬ ZDVKHUHGLWDU\DQGOHJDODQGZDVH[HUFLVHGRYHUZLOOLQJVXEMHFWVµ,Q6WHSKHQ (YHUVRQHG$ULVWRWOH7KH3ROLWLFVDQGWKH&RQVWLWXWLRQRI$WKHQV&DPEULGJH&DP EULGJH8QLYHUVLW\3UHVV   6HHHVS3¬((DVWHUOLQJ´$QDFKURQLVPLQ*UHHN7UDJHG\µ-RXUQDORI+HOOHQLF6WXG LHV ²  ´'LHVH 8HEHUOLHIHUXQJ VDJW XQV PLW YROOHU (QWVFKLHGHQKHLW GDVVGLH7UDJ|GLH DXVGHPWUDJLVFKHQ&KRUHHQWVWDQGHQLVW XQGXUVSUQJOLFKQXU&KRUXQGQLFKWV DOV&KRUZDUZRKHUZLUGLH9HUSϰLFKWXQJQHKPHQGLHVHPWUDJLVFKHQ&KRUH DOVGHPHLJHQWOLFKHQ8UGUDPDLQ·V+HU]]XVHKHQRKQHXQVDQGHQJHOlXϮJHQ .XQVWUHGHQVDUWHQ³GDVVHUGHULGHDOLVFKH=XVFKDXHUVHLRGHUGDV9RONJHJHQEHU GHUIUVWOLFKHQ5HJLRQGHU6FHQH]XYHUWUHWHQKDEH³LUJHQGZLHJHQJHQ]X ODVVHQ -HQHU ]XOHW]W HUZlKQWH IU PDQFKHQ 3ROLWLNHU HUKDEHQ NOLQJHQGH (UOlXWHUXQJVJHGDQNH³DOV RE GDV XQZDQGHOEDUH 6LWWHQJHVHW] YRQ GHQ GH PRNUDWLVFKHQ$WKHQHUQLQGHP9RONVFKRUHGDUJHVWHOOWVHLGHUEHUGLHOHLGHQ VFKDIWOLFKHQ$XVVFKUHLWXQJHQXQG$XVVFKZHLIXQJHQGHU.|QLJHKLQDXVLPPHU 5HFKWEHKDOWH³PDJQRFKVRVHKUGXUFKHLQ:RUWGHV$ULVWRWHOHVQDKHJHOHJW VHLQDXIGLHXUVSUQJOLFKH)RUPDWLRQGHU7UDJ|GLHLVWHURKQH(LQϰXVVGDYRQ MHQHQ UHLQ UHOLJL|VHQ 8UVSUQJHQ GHU JDQ]H *HJHQVDW] YRQ 9RON XQG )UVW EHUKDXSWMHJOLFKHSROLWLVFKVRFLDOH6SKlUHDXVJHVFKORVVHQLVWµ)URP*LRU JLR&ROOLDQG0D]]LQR0RQWLQDULHGV1LHW]VFKH:HUNH.ULWLVFKH*HVDPWDXVJDEH YRO  'LH *HEXUW GHU 7UDJ|GLH 8Q]HLWJHPl‰H %HWUDFKXQJHQ ,²,,, ²  %HUOLQ:DOWHUGH*UX\WHU WKH$ULVWRWOHUHIHUHQFHLVWRWKHSDVVDJH FLWHGDWQ  6HH%DUEDUDYRQ5HLEQLW](LQ.RPPHQWDU]X)ULHGULFK1LHW]VFKH´'LH*HEXUWGHU 7UDJ|GLHDXVGHP*HLVWHGHU0XVLNµ.DSLWHO² 6WXWWJDUW:HLPDU-¬%0HW]OHU  ²   )RUWKHFRQWUDVWEHWZHHQFRPSHWLWLYHDQGFRRSHUDWLYHYDOXHVWKDW,SUHVXSSRVH KHUHVHHHJ$UWKXU:¬+$GNLQV0HULWDQG5HVSRQVLELOLW\$6WXG\LQ*UHHN 9DOXHV2[IRUG&ODUHQGRQ3UHVV    ,TXRWHWKHWUDQVODWLRQE\'DYLG*UHQHLQ'DYLG*UHQHDQG5LFKPRQG/DWWLPRUH WKDQG*OHQQ:0RVW HG7KH&RPSOHWH*UHHN7UDJHGLHVUGHGHG0DUN*ULϲ >@

6$'6725,(62)7+('($7+2).,1*6

 HVFK\OXV,7KH3HUVLDQV7KH6HYHQ$JDLQVW7KHEHV7KH6XSSOLDQW0DLGHQV3URPHWKHXV $ %RXQG&KLFDJR8QLYHUVLW\RI&KLFDJR3UHVV ²   2QHH[DPSOHDPRQJPDQ\LVWKHLQWHUFKDQJHEHWZHHQ(WHRFOHVDQGWKHFKRUXV LQ$HVFK\OXV·V6HYHQ$JDLQVW7KHEHVLELG²   5LFKDUG,,²8UHHG   , TXRWH WKH WUDQVODWLRQ E\ 'DYLG *UHQH LQ *UHQH DQG /DWWLPRUH &RPSOHWH*UHHN 7UDJHGLHVUGHG6RSKRFOHV,$QWLJRQH2HGLSXVWKH.LQJ2HGLSXVDW&RORQXV&KLFDJR 8QLYHUVLW\RI&KLFDJR3UHVV ²

>@

7  :2

&RQWHVWHG6RYHUHLJQW\ +  HDYHQWKH0RQDUFKWKH3HRSOHDQG WKH,QWHOOHFWXDOVLQ7UDGLWLRQDO&KLQD <  8 5 ,  3 , 1 ( 6

 )7+(0$1,)2/'$63(&762)´629(5(,*17@

67$*(6

RIWKHDJHRIWKH´+XQGUHG6FKRROVRI7KRXJKWµ,GHDVYDOXHVDQGSHUFHS WLRQVGHYHORSHGGXULQJWKLVSHULRGFRQWULEXWHGGHFLVLYHO\WRWKHIRUPDWLRQ RIWKHSROLWLFDOVRFLDODQGHWKLFDORULHQWDWLRQVWKDWZHLGHQWLI\WRGD\ZLWK WUDGLWLRQDO&KLQHVHFXOWXUHFUHDWLQJDQLGHRORJLFDOIUDPHZRUNZLWKLQZKLFK WKH&KLQHVHHPSLUHIXQFWLRQHGIURPLWVLQFHSWLRQLQ%&(XQWLOLWVODVW GHFDGHV0RUHVSHFLϮFDOO\FRQFHSWVRIUXOHUVKLSIRUPHGGXULQJWKLVWLPH FRQWLQXHG WR H[HUFLVH LPPHQVH LQϰXHQFH RQ WKH IXQFWLRQLQJ RI &KLQHVH HPSHURUVIRUPLOOHQQLDWRFRPH 7  KH:DUULQJ6WDWHVSHULRGZDVPDUNHGE\UHPDUNDEOHLQWHOOHFWXDOSOXUDO LVP,GHDVGHYHORSHGDPLGYLEUDQWGHEDWHXQLQKLELWHGE\SROLWLFDORULGHR ORJLFDO RUWKRGR[LHV³D GHEDWH LQ ZKLFK WKLQNHUV RI GLϸHUHQW LQWHOOHFWXDO Dϲ OLDWLRQVSURPRWHGKLJKO\GLVWLQFWLYHDSSURDFKHV@

&217(67('629(5(,*17
WKH SHRSOH@DUHZHDNWKH\FDQQRWRYHUFRPHWKLQJVKHQFHWKH\FDQQRWREWDLQSDO DFHVDQGKRXVHVWRGZHOOLQ¬¬¬+HZKRLVDEOHWRHPSOR\KLVVXEMHFWVLVFDOOHG WKHUXOHU7KHUXOHULVWKHRQHZKRLVJRRGDW>PDNLQJSHRSOH@ϰRFNWRJHWKHU LQWRDFROOHFWLYH

) RUPLQJDVRFLDOFROOHFWLYHLVWKHHVVHQWLDOQHHGRIKXPDQEHLQJV7KHFRO OHFWLYHKRZHYHUFDQQRWEHHVWDEOLVKHGZLWKRXWPDLQWDLQLQJSURSHUVRFLDO GLVWLQFWLRQVEHFDXVHRWKHUZLVHDV;XQ]LH[SODLQVHOVHZKHUHJUHHGLQHVVRI KXPDQEHLQJVDQGWKHLUGHVLUHWRDSSURSULDWHOLPLWHGUHVRXUFHVZLOOOHDGWR FRQWHQWLRQ DQG WXUPRLO 0DLQWDLQLQJ GLVWLQFWLRQV LQ WXUQ UHTXLUHV WKH XQLI\LQJSUHVHQFHRIWKHUXOHU;XQ]LHPSKDVL]HVOLQJXLVWLFSUR[LPLW\EH WZHHQWKHWHUPV´UXOHUµ⏃MXQ DQG´FROOHFWLYHµ佌TXQ WKHODQJXDJHLWVHOI UHϰHFWVLQWHUFRQQHFWHGQHVVEHWZHHQWKHWZR7KHVHLGHDVDUHIXUWKHUGHYHO RSHGLQ´5HO\LQJRQWKH5XOHUµDFKDSWHUIURPDPDMRUSUHLPSHULDOFRPSHQ GLXPWKH/VKLFKXQTLX7KHFKDSWHUSRVVLEO\SHQQHGE\;XQ]L·VIROORZHUV H[SOLFDWHVZK\DUXOHUOHVVVRFLHW\LVGRRPHG , Q KLJK DQWLTXLW\ LW KDSSHQHG WKDW WKHUH ZDV QR UXOHU 7KH SHRSOH OLYHG WRJHWKHUGZHOOLQJOLNHDKHUG7KH\NQHZWKHLUPRWKHUVEXWQRIDWKHUVKDGQR GLVWLQFWLRQVEHWZHHQUHODWLYHVHOGHUDQG\RXQJHUEURWKHUVKXVEDQGDQGZLIH PDOHDQGIHPDOHKDGQRZD\RIVXSHULRUVDQGLQIHULRUVRIROGDQG\RXQJKDG QRULWHVRIHQWUDQFHGHSDUWXUHDQGPXWXDOJUHHWLQJVKDGQRDGYDQWDJHVRI >@

67$*(6

FORWKHVFDSVERRWVGZHOOLQJVDQGSDODFHVKDGQRIDFLOLWLHVVXFKDVXWHQVLOV LQVWUXPHQWVERDWVFKDULRWVRXWHUDQGLQQHUZDOOVDQGGHIHQVLYHIRUWLϮFD WLRQV7KLVLVWKHWURXEOHRIODFNLQJDUXOHU

$  VLQ(XURSHDQPRGHUQLW\PDQ\WKLQNHUVRIWKH:DUULQJ6WDWHVSHULRG ORRNHGDWDSULPHYDOVWDWHOHVVVRFLHW\WRϮQGLQLWVLPDJLQHGSDVWMXVWLϮ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

7  KHVRFLDOQHFHVVLW\RIHVWDEOLVKLQJWKHUXOHULVFODULϮHGE\ERWKKLVWRUL FDODQGDQWKURSRORJLFDOH[DPSOHVDVRFLHW\ZLWKRXWDUXOHULVDVRFLHW\ZLWK RXW UXOHV LW LV GRRPHG WR EH HQPHVKHG LQ QLJKWPDULVK WXUPRLO LQ ZKLFK HYHU\ERG\ORVHV$UXOHUWKHUHIRUHLVQRWDPHUHSROLWLFDOIXQFWLRQEXWUDWKHU DIXQGDPHQWDOVRFLDOGHVLGHUDWXP@

&217(67('629(5(,*17
WKH UHDOP@2QHQHVVEULQJVRUGHUO\UXOHGRXEOHQHVVEULQJVFKDRV

7  KLVVKRUWSDVVDJHH[HPSOLϮHVWKHIXQGDPHQWDOFRQFHUQRIWKH:DUULQJ 6WDWHVWKLQNHUVDQ\GLVSHUVDORIWKHUXOHU·VDXWKRULW\DQ\PXOWLSOLFLW\RIORFL RISRZHUZLOOLQHYLWDEO\UHVXOWLQSROLWLFDOFULVLV7KHPLOLWDU\VLPLOHLVUH YHDOLQJLQWKHDUP\SUHVHUYDWLRQRIWKHFKDLQRIFRPPDQGDQGRIWKHVLQ JXODUDXWKRULW\RIHYHU\FRPPDQGHURYHUKLVXQLWLVHVVHQWLDOIRUWKHSURSHU IXQFWLRQLQJRIWKHXQLWVRWKHDXWKRUVLPSO\LWLVLQWKHSROLWLFDOVSKHUH 7KLVVLPLOHZDVSHUKDSVDOOWRRXQGHUVWDQGDEOHIRUWKHGZHOOHUVRIWKH:DU ULQJ6WDWHVZRUOGZKROLYHGLQDVWDWHWKDWUHVHPEOHGDPLOLWDU\PDFKLQH 7KHVD\LQJ´2QHQHVVEULQJVRUGHUO\UXOHGRXEOHQHVVEULQJVFKDRVµUHFXUVLQ DJUHDWYDULHW\RIFRQWHPSRUDQHRXVWH[WVDQGPD\EHFRQVLGHUHGDSRLQWRI FRQVHQVXVIRUFRPSHWLQJWKLQNHUV 7KLVFRQVHQVXVSUHYHQWHGFUHDWLRQRI LQVWLWXWLRQDOPHDQVWRFKHFNWKHUXOHU·VSRZHUDQ\FRPSHWLQJORFXVRIDX WKRULW\ZDVFRQVLGHUHGGHWULPHQWDOWRWKHSROLW\·VIXQFWLRQLQJ :  KDWGRHV´RQHQHVVµPHDQLQSUDFWLFDOWHUPV")LUVWWKHH[FOXVLYLW\RI WKH UXOHU·V SRVLWLRQ DV WKH ϮQDO GHFLVLRQ PDNHU ´KH ZKR LV DEOH WR PDNH GHFLVLRQVH[FOXVLYHO\ZLOOWKHUHIRUHEHWKHVRYHUHLJQRI$OO8QGHU+HDYHQµ 6HFRQGWKHUXOHU·VDXWKRULW\VKRXOGEHQRWMXVWH[FOXVLYHEXWDEVROXWH7KLQN HUVRIWKH:DUULQJ6WDWHVUHSHDWHGO\LQYRNHGWKHOLQHIURPWKHFDQRQLFDO%RRN RI3RHPV´(YHU\ZKHUHXQGHU+HDYHQLVWKH.LQJ·VODQGHDFKRIWKRVHZKR OLYHRQWKHODQGLVWKH.LQJ·VVHUYDQWµ 7KLVOLQHZDVLQWHUSUHWHGDVUHIHU ULQJWRWKHFRPSUHKHQVLYHSRZHURIWKHPRQDUFKRYHUSURSHUW\DQGVRFLDO SRVLWLRQRIKLVVXEMHFWVRULQWKHZRUGVRIDODWHUWH[W´7KHUHDUHVL[WKLQJV WKDWWKHHQOLJKWHQHGNLQJPDLQWDLQVWRJLYHOLIHWRNLOOWRHQULFKWRLPSRY HULVKWRHQQREOHWRGHEDVHµ/LIHSURSHUW\VRFLDOSRVLWLRQDOOKDGWREH GHWHUPLQHGE\WKHVRYHUHLJQ,QGHHGLQVRPHRIWKH:DUULQJ6WDWHVPRVW QRWDEO\WKHZRXOGEHXQLϮHURI&KLQHVHZRUOGWKHVWDWHRI4LQSUDFWLFDO VWHSVZHUHWDNHQWRLPSRVHWKHUXOHU·VFRQWURORYHUKLVVXEMHFWV·VRFLRHFR QRPLFVWDWXVE\XQLI\LQJSROLWLFDOHFRQRPLFDQGVRFLDOKLHUDUFK\ 2  QHFDQHDVLO\LGHQWLI\DGHVSRWLFSRWHQWLDOLQWKHVWDWHPHQWVFLWHGDERYH EXWZHVKRXOGQRWMXPSWRFRQFOXVLRQV$V,GHPRQVWUDWHEHORZWKLQNHUVRI WKH:DUULQJ6WDWHVSHULRGUHPDLQHGSDLQVWDNLQJO\DZDUHERWKRIWKHGDQ JHUVRIGHVSRWLVPDQGRIWKHSUREOHPRIXQϮWQHVVRILQGLYLGXDOPRQDUFKV DQGWKH\VRXJKWPXOWLSOHZD\VRIPLWLJDWLQJWKHUXOHU·VH[FHVVHV$GYRFDF\RI WKHUXOHU·VH[FOXVLYHGHFLVLRQPDNLQJVKRXOGQRWEHFRQIXVHGZLWKQXOOLI\LQJ >@

67$*(6

KLV DLGHV 2Q WKH FRQWUDU\ HYHQ WKH WH[WV DVVRFLDWHG ZLWK DXWKRULWDULDQ PLQGHGWKLQNHUVUHSHDWHGO\HPSKDVL]HWKHFROOHFWLYHQDWXUHRIJRYHUQDQFH )RULQVWDQFHWKH%RRNRI/RUG6KDQJDWWULEXWHGWRDVWDXQFKDXWKRULWDULDQ 6KDQJWKLQJV@WKHϮUVWLVVWDQGDUGVWKHVHFRQGLV WUXVWZRUWKLQHVVWKHWKLUGLVDXWKRULW\6WDQGDUGVDUHZKDWWKHUXOHUDQGPLQ LVWHUVMRLQWO\XSKROGWUXVWZRUWKLQHVVLVZKDWWKHUXOHUDQGPLQLVWHUVMRLQWO\ HVWDEOLVKDXWKRULW\LVZKDWWKHUXOHUH[FOXVLYHO\UHJXODWHV:KHQWKHVRYHU HLJQORVHVZKDWKHVKRXOGSUHVHUYHKHLVHQGDQJHUHGZKHQWKHUXOHUDQGWKH PLQLVWHUVFDVWDZD\VWDQGDUGVDQGUHO\RQWKHLUSULYDWH>YLHZV@WXUPRLOZLOO VXUHO\HQVXH+HQFHZKHQVWDQGDUGVDUHHVWDEOLVKHGGLYLVLRQVDUHFODULϮHG DQGVWDQGDUGVDUHQRWYLRODWHGIRUSULYDWHUHDVRQVWKHQWKHUHLVRUGHUO\UXOH ZKHQDXWKRULW\DQGUHJXODWLRQVDUHGHWHUPLQHGH[FOXVLYHO\E\WKHUXOHU>KH LQVSLUHV@DZHZKHQWKHSHRSOHWUXVWKLVUHZDUGVVXFFHVVHVDUHDFFRPSOLVKHG DQGZKHQWKH\WUXVWKLVSXQLVKPHQWVZLFNHGQHVVKDVQRVWDUWLQJSRLQW

7  KHHPSKDVLVRQWKHVLQJXODULW\RIWKHUXOHU·VSRVLWLRQDWWKHWRSRIWKH JRYHUQPHQWDSSDUDWXVLVVRIWHQHGKHUHE\WKUHHFODXVHV)LUVWWKHUXOHULV UHPLQGHGWKDWODZVVKRXOGEHPDLQWDLQHGMRLQWO\E\WKHUXOHUDQGKLVPLQ LVWHUVQRWE\WKHUXOHUDORQH6HFRQGWKHUXOHULVXUJHGWRSUHVHUYHFROODE RUDWLYHVSLULW´WUXVWZRUWKLQHVVµ LQUHODWLRQVZLWKKLVDLGHV7KLUGDQGPRVW LPSRUWDQWO\MXVWOLNHWKHPLQLVWHUVWKHUXOHULVVWURQJO\GLVFRXUDJHGWRFDVW DZD\WKHODZ´IRUSULYDWHUHDVRQVµ7KHODWWHUSRLQWLVSDUWLFXODUO\LPSRUWDQW (YHQWKRVHWH[WVWKDWDGRSWUDGLFDOSURUXOHUDQGDQWLPLQLVWHULDOYLHZVVXFK DVWKH%RRNRI/RUG6KDQJUHPDLQDGDPDQWLQWKHLULQVLVWHQFHWKDWWKHUXOHU UHOLQTXLVKHVKLV´SULYDWHµVL LQWHUHVWVDQGZKLPV,QVWLWXWLRQDOO\RPQLSR WHQWWKHUXOHULVUHFRJQL]HGVWLOODVDKXPDQEHLQJDQGSRWHQWLDOO\DQHUULQJ KXPDQ EHLQJ +RZ WR SUHYHQW WKH PRQDUFK·V SHUVRQDO ZHDNQHVVHV IURP GDPDJLQJKLVLQVWLWXWLRQDOUROHZLWKRXWXQGHUPLQLQJKLVDEVROXWHDXWKRULW\ EHFDPHRQHRIWKHWULFNLHVWSUREOHPVLQWUDGLWLRQDO&KLQHVHSROLWLFDOWKRXJKW

+HDYHQWKH5XOHUDQGWKH3HRSOH , QGHIHQGLQJKLVFRPPLWPHQWWRWKHPRQDUFK·VDEVROXWHSRZHU+DQ)HL G%&( DUJXDEO\WKHVWDXQFKHVWGHIHQGHURIWKHUXOHU·VXQOLPLWHGDXWKRU >@

&217(67('629(5(,*17
@

&28576

ZDVIXUWKHUGHYHORSHGDQGV\VWHPDWL]HGLQWKHZRUNVRIVFKRODUVVXFKDVWKH SK\VLFLDQ0XєDPPDGE=DNDUL\\čDO5č]ҸG LQZKRVHDO҇čZҸIҸOࠃLEE DZKROHVHULHVRIFRQWDJLRXVGLVHDVHVLQFOXGLQJSODJXHDQGOHSURV\ZHUH GHVFULEHG 7  KXV ZKHQ SODJXH VZHSW WKURXJK WKH 0XVOLP 0HGLWHUUDQHDQ LQ WKH IRXUWHHQWKFHQWXU\0XVOLPVFKRODUVKDGDVHWRIZHOOGHϮQHGGLVFRXUVHV WRGUDZRQZKHQWKH\VHWDERXWGHVFULELQJWKHGLVHDVHWKHDSSURSULDWH UHVSRQVHWRLWDQGWKHSRVVLEOHUHPHGLHVIRULW$VGHVFULEHGDERYHZLWKUH JDUGWR,VODPLFODZKRZHYHUQRRQHRIWKHVFKRODUVZULWLQJRSLQLRQVRQWKH SODJXHZDVDEOHWRHVWDEOLVKWKHPVHOYHVDVVRYHUHLJQRQWKHLVVXH,QVWHDG WKHRYHUDOODXWKRULW\RIWKH¶XODPD ZLWKLQ0XVOLPVRFLHWLHVZDVUHDϲ UPHG HYHQDVWKH\GLϸHUHGRQWKHVXEMHFWDWWLPHVELWWHUO\7KLVDXWKRULW\ZDV GHϮQHGE\WKHLUEHLQJWKHUHFRJQL]HGLQWHUSUHWHUVRI*RG·VVRYHUHLJQUHYHOD WLRQLQDOOLWVOHJDOWKHRORJLFDODQGHWKLFDOFRPSOH[LW\ 8  QWLO UHFHQWO\ WKH VWDWH RI VFKRODUVKLS RQ WKH FRQWHQW RI WKHVH SODJXH WUHDWLVHVZDVODUJHO\IUDPHGE\WKHVHPLQDOZRUNRI0LFKDHO'ROVLQ7KH%ODFN 'HDWKLQWKH0LGGOH(DVW'ROVODUJHO\WRRNWKHORQJSODJXHWUHDWLVHRI,EQ҇DMDU DO$VTDOčQҸG DSURPLQHQW(J\SWLDQ6KčϮ·ҸMXULVWDVUHSUHVHQWDWLYH RIWKH6XQQL0XVOLPUHVSRQVHWRSODJXHDOWKRXJKKHDFNQRZOHGJHGVHYHUDO IRXUWHHQWKFHQWXU\$QGDOXVLWUHDWLVHVWKDWFODLPHGWKDWWKHSODJXHFRXOG EHWUDQVPLWWHG,EQ҇DMDU·VWDNHRQWKHSODJXHFDQEHEULHϰ\VXPPDUL]HGDV IROORZV 5HYHODWLRQDQGHPSLULFDOHYLGHQFHSURYHWKDWWKHSODJXHLVQRW FRQWDJLRXV 7KHSODJXHLVDPDUW\UGRPIRUEHOLHYHUVZKRWUXVWLQ*RG  7KHLPPHGLDWHDJHQWWKDWFDXVHVWKHSODJXHLVMLQQ :KLOHWKHUHLVQR GHQ\LQJWKDW,EQ҇DMDU·VZRUNZDVLQϰXHQWLDO,KDYHDUJXHGWKDWWDNHQDVD ZKROHWKHSODJXHWUHDWLVHVZULWWHQGXULQJDQGDIWHUWKH%ODFN'HDWKVKRZD EURDGVSHFWUXPRIRSLQLRQVUHJDUGLQJERWKFRQWDJLRQDQGZKHWKHULWZDV SHUPLVVLEOHWRϰHHWKHSODJXH%\IRFXVLQJRQ,EQ҇DMDUDQGE\WUDQVODWLQJ WKHWUHDWLVHVRI,EQDO:DUGҸG DQGDO0DQELMҸG ZKRDOVRODUJHO\ GHQLHGFRQWDJLRQ'ROVRϸHUHGDJHQHUDWLRQRIKLVWRULDQVHVSHFLDOO\(XUR SHDQPHGLHYDOLVWVZKRKDGOLWWOHHOVHLQWKHVHFRQGDU\OLWHUDWXUHWRUHO\RQ WKHLPSUHVVLRQWKDW0XVOLPVXQLIRUPO\UHIXVHGWRϰHHWKHSODJXHDQGKHOG LWWREHDPDUW\UGRP,WLVKHUHWKDWDO%LGOҸVҸ·VWUHDWLVHKHOSVSURYLGHVXFK DYDOXDEOHFRUUHFWLYHWR'ROVIRULWVKRZVWKDWDVFKRODUOLYLQJLQWKH0DVKULT RQO\WZRJHQHUDWLRQVDIWHU,EQ҇DMDUZDVDEOHWRFRQϮGHQWO\DVVHUWWKHFRP SOHWHO\RSSRVLWHYLHZRQSODJXH³QRWMXVWRQWKHLVVXHRIFRQWDJLRQEXWDOVR RQWKHLVVXHRIPDUW\UGRPDQGWKHUROHRIWKHMLQQ6HHQIURPRQHSHUVSHF >@

38%/,&+($/7+7+(67$7($1'5(/,*,2866&+2/$56+,3

WLYHWKHQKLVWUHDWLVHSURYLGHVDQ(DVWHUQSDUDOOHOWRWKH0DJKULELWUHDWLVHV RI,EQDO.KDࠃҸEG ,EQ.KčWLPDKG DQGWRDOHVVHUH[WDQW DO0DZZčTG @

&28576

VLOVLOčWDO·LODOZDODVEčE DQGFRQGLWLRQV7KHVHFUHDWHGVXEVWDQFHVSRVVHVV DWWULEXWHVQHFHVVDU\WRH[LVWHQFHWKDWFDQFKDQJHODZč]LP¶čUL˂DODKčIҸ OZXMࡃGTčELODOLOWDJKD\\XU RUEHUHSODFHGDQGWKHVHDWWULEXWHVLQFOXGHOLIH GHDWKVLFNQHVVDQGZHOOEHLQJ 6HHLQJWKDWWKLVDFRPSOLFDWHGPDWWHU DO%LGOҸVҸRϸHUVDQH[WHQGHGPHWDSKRUDVDQH[SODQDWLRQZKLFKLVZHOOZRUWK VXPPDUL]LQJ KHUH DV LW H[SORUHV ZKDW PLJKW EH FDOOHG WKH QDWXUH RI *RG·V VRYHUHLJQW\RYHU+LVFUHDWLRQ &  RQVLGHUWKHFDVHRIDSRZHUIXONQRZOHGJDEO\DQGZLOOLQJUXOHUZKRPDNHV DMXGJPHQWDQGVHQGVRXWDGHFUHHWRKLVYL]LHUWKDWWKHODWWHUVKRXOGXQGHU WDNHZLWKUHJDUGWRWKHPDWWHURIWZHQW\SULVRQHUV7KHYL]LHUVKRXOGNLOOWHQ DQGVSDUHWHQIRUWKHJRRGRIWKHUHDOPOLPDߙODєDWߙDOࠃDQD 7KHYL]LHUIROORZV WKHRUGHUDQGDIWHUQRWLQJWKHIDFHVWKDWGHVHUYHGWRGLHDQGWKRVHWKDWGH VHUYHGWROLYHGLYLGHVWKHPLQWRWZRJURXSVRIWHQ:KHQKHSUHVHQWHGWRWKH UXOHUZKDWKHKDGFKRVHQWRGRWKHUXOHUZDVFRQWHQWZLWKWKHYL]LHUDQGZLWK KLVGHFLVLRQDQGKHVLJQHGLW,QWKLVIDVKLRQWKHUXOHU·VϮQDOMXGJPHQWZDV WKHUHVXOWRIDFRUUHVSRQGHQFHEHWZHHQKLVZLOODQGKLVSRZHUZKLOHDOVR EHLQJLQDFFRUGDQFHZLWKKLVGHFUHHEHVWXQGHUVWRRGDVKLVDOOHQFRPSDVVLQJ NQRZOHGJH

$  O%LGOҸVҸH[SODLQVWKDWZKHQZHGRQRWORRNDWWKHVSHFLϮFVRIZKDWWKH YL]LHUKDGGRQHZHVHHWKDWWKHSDUWLFXODUVLHFKRRVLQJWHQPHQWRGLH FRQ IRUPZLWKWKHZKROHWKHUXOHU·VMXGJPHQWWKDWWHQPHQZRXOGGLHDQGKLV NQRZOHGJHRIWKLV $VIRUWKHFRUUHVSRQGHQFHEHWZHHQWKHUXOHUVLJQLQJWKH YL]LHU·VGHFLVLRQDQGKLVLQLWLDORUGHUDO%LGOҸVҸGUDZVDWWHQWLRQWRWZRSRLQWV  6SDULQJWHQSULVRQHUVDQGNLOOLQJWHQRWKHUVDFFRUGLQJWRWKHYL]LHU·VHYDO XDWLRQRIWKHPLVQRWRSHQWRFKDQJHIRUWKHUXOHUKDGRUGHUHGLWDQGWKH YL]LHUKDGWRFDUU\LWRXW :KDWLVYDULDEOHLVWKHLQFOXVLRQRIVSHFLϮFLQGL YLGXDOVDPRQJWKHWHQIRUUHDVRQVDQGFRQGLWLRQVGHWHUPLQHGE\WKHYL]LHU ,IWKHYL]LHUFKDQJHGDVSHFLϮFVHOHFWLRQWKDWZRXOGQRWFRQϰLFWZLWKWKH UXOHU·VRYHUDOOJHQHUDOFRPPDQG,QFORVLQJDO%LGOҸVҸH[SODLQVWKDWPHWD SKRULFDOO\VSHDNLQJWKHYL]LHULVWKHMXGJPHQWTDGDU KHKDGSUHYLRXVO\GH ϮQHGDV*RG·VHWHUQDONQRZOHGJH 7KLVLVDVWULNLQJPHWDSKRUDQGLQLWVHTXDWLRQRI*RGZLWKDNLQJZKR KDVVHUYDQWVZKRFDUU\RXWKLVZLOOKDVSDUDOOHOVZLWKPHWDSKRUVXVHGE\ ERWKDO*KD]čOҸDQGDO6DQࡃVҸG 7KHUHFRXUVHWRUR\DOVRYHUHLJQW\ WRH[SODLQGLYLQHVRYHUHLJQW\VSHDNVSHUKDSVϮUVWWRWKHGHJUHHWRZKLFK >@

38%/,&+($/7+7+(67$7($1'5(/,*,2866&+2/$56+,3

LQDZRUOGRIFRPSHWLQJFDOLSKDWHVHPLUDWHVDQGVXOWDQDWHVWKHVHDXWKRUV ZHUHLQϰXHQFHGE\DGYLFHOLWHUDWXUHDQGWKHJHQUHRI´PLUURUVIRUSULQFHVµ ZKLFKZDVHVSHFLDOO\SRSXODULQ,UDQDQGZKLFKGUHZRQWKHSUH,VODPLF LGHQWLϮFDWLRQ RI WKH .LQJ LQ WKH WHPSRUDO ZRUOG ZLWK *RG /LNH WKH WZR HDUOLHUVFKRODUVZKRZHUHDOVRGHHSO\LQϰXHQFHGE\$VK·DULVPDO%LGOҸVҸLV DWWHPSWLQJ WR H[SODLQ UHDOLW\·V DSSDUHQW RSHUDWLRQ DFFRUGLQJ WR VHFRQGDU\ FDXVDOLW\ XQOLNH WKHP KH LV ϮUVW DQG IRUHPRVW LQWHUHVWHG LQ FXWWLQJ WKH *RUGLDQ NQRW RI SUHGHVWLQDWLRQ DQG IUHHGRP RI ZLOO ([SDQGLQJ RQ WKH VHFRQGSULQFLSOH³WKHPHDQLQJRIFRPSXOVLRQDQGFKRLFH³ZKLFKLVFORVHO\ DVVRFLDWHGZLWKWKHϮUVWDO%LGOҸVҸJRHVRQWRH[SODLQKLVXQGHUVWDQGLQJRI NDVEDFFRUGLQJWRZKLFK*RGFUHDWHVDSRZHULQWKHZRUVKLSSHUWRFKRRVH EHWZHHQ VHTXHQFHVRIFDXVHVWKDW*RGKDVFUHDWHG 7KHXSVKRWDO%LGOҸVҸ DUJXHVLVWKDWZKHWKHU\RXDSSURDFKRUϰHHDQHSLGHPLF\RXDUHGRLQJWKLV DFFRUGLQJWRWKHGHFUHHDQGMXGJPHQWRI*RG 7  KHWKLUGSULQFLSOHWKDWDO%LGOҸVҸH[DPLQHVGHDOVZLWKWKHEDU]DNKWKH ZRUOGRILPDJHVWKDWH[LVWVEHWZHHQRXUSK\VLFDOZRUOGDQGWKHVSLULWXDO ZRUOGDQGWRZKLFKRQO\WKHVSLULWXDOO\HQOLJKWHQHGLQFOXGLQJWKHSURSKHWV WKHVDLQWVDQGWKHPRVWDGYDQFHGRIWKHVFKRODUVKDYHDFFHVV7KLVZRUOG PLUURUVZKDWKDSSHQVLQRXUSK\VLFDOZRUOGDQGWKRVHZKRKDYHLQVLJKW LQWRLWWUXO\XQGHUVWDQGKRZDQGZK\WKLQJVKDSSHQLQRXUZRUOGLQFOXGLQJ IDOOLQJLOODQGEHFRPLQJKHDOWK\7KLVVHFWLRQLVLPSRUWDQWIRUDO%LGOҸVҸIRU OLNH,EQ҇DMDUKHEHOLHYHVWKDWWKHXQGHUO\LQJFDXVHVRIVLFNQHVVDUHVSLU LWXDOLQQDWXUHDOWKRXJKXQOLNHWKH(J\SWLDQDXWKRUKHLVDEOHWRUHFRQFLOH KXPRUDOPHGLFLQHVHDPOHVVO\ZLWKWKHDFWLRQVRIDQJHOVMLQQDQGVSLULWVLQ WKHEDU]DNK  2  QWKHRQHKDQGDO%LGOҸVҸVHHVWKHRULJLQRIHSLGHPLFGLVHDVHWREHPDWH ULDOURRWHGLQWKHFRUUXSWLRQRIWKHKXPRUDOEDODQFHRIKXPDQVE\SROOXWHG RUSRLVRQHGDLU2QWKHRWKHUKDQGWKHVHVXEOXQDUSKHQRPHQDDUHFDXVHG GLUHFWO\E\WKHVWDWHVRIWKHVSKHUHVDQGERWKRIWKHVHDUHPLUURUHGLQWKH LPDJLQDOZRUOGRIWKHEDU]DNK   $VVKRXOGEHFOHDUIURPKLVH[SORUDWLRQRI KXPDQFKRLFHDO%LGOҸVҸEHOLHYHVQRWRQO\WKDWLWLVSHUPLVVLEOHWRϰHHIURP WKHSODJXHRUGLVHDVHLQJHQHUDOEXWWKDWSURWHFWLQJRQHVHOILVPDQGDWRU\ ERWKDFFRUGLQJWRUHYHODWLRQDQGUHDVRQDQGKHEDFNVXSWKLVDUJXPHQWZLWK WKHFLWDWLRQRIQXPHURXV3URSKHWLFWUDGLWLRQVDQGHSLVRGHVIURPHDUO\,V ODPLFKLVWRU\ 7  KHUHDUHUHOLJLRXVDUJXPHQWVWKDWFKDOOHQJHGDO%LGOҸVҸ·VSRVLWLRQDQG ZLWKDIHZQRWLFHDEOHH[FHSWLRQVKHDGGUHVVHGWKHPDOO7KHPDLQRQHWKDW >@

&28576

LVUHOHYDQWKHUHDQGUHODWHGWRSXEOLFKHDOWKLVWKDWRSSRQHQWVRIϰLJKWZKR DOVRWHQGHGWRGHQ\WKHWUDQVPLVVLELOLW\RISODJXHRIWHQDUJXHGWKDW0XV OLPVVKRXOGUHPDLQZLWKWKHSODJXHVLFNWRWHQGWRWKHPDQGWREXU\WKH GHDG$O%LGOҸVҸUHWRUWVWKDWWKHGDPDJHGRQHWRWKHXPPDE\WKHGHDWKRI 0XVOLPVLVVRJUHDWWKDW0XVOLPVKDYHDGXW\WRSURWHFWWKHLURZQOLYHVDERYH DOOHOVHVHHLQJWKDWWKHSUHVHUYDWLRQRIOLIHLVLWVHOIDIRXQGDWLRQDOUHOLJLRXV SULQFLSOH ,WLVKHUHWKDWDO%LGOҸVҸVWDWHVKLVRQHSLHFHRIGLUHFWDGYLFHWR 0XVOLPUXOHUVWKH\VKRXOGPDNHUXOLQJVLQDFFRUGDQFHZLWKWKHJRRGRIWKHLU IROORZHUVDQGUHJDUGLQJWKHPWKHVFKRODUVKDYHVDLGWKDWLWLVϮQHLIWKH\ XVHVRPHYLROHQFHWRSUHVHUYHWKHJUHDWHUJRRG(YHQLIRQHGRHVFRQVLGHULW OHJDOO\SHUPLVVLEOHWRVWD\LQDFRXQWU\ZKHUHWKHSODJXHKDVEURNHQRXW DUXOHULVLQDFFRUGDQFHZLWKZKDWLVGHVLUHGE\*RGLIKHHQFRXUDJHVKLV SHRSOHWRϰHHIRUWRGRDQ\WKLQJHOVHZRXOGOHDGWRWKHVXϸHULQJRIKLVVXE MHFWVDQGWKHZHDNHQLQJRIKLVJRYHUQPHQW+HVKRXOGLQVWHDGGRZKDWKHOSV WRVWUHQJWKHQ,VODP7KLVZRXOGEHIROORZLQJ3URSKHWLFSUHFHGHQW,WLVWKXV WKHVFKRODU·VLQWHUSUHWDWLRQRI*RG·VUHYHODWLRQWKDWGHϮQHVWKHSURSHUVRYHU HLJQDFWLRQRIWKHUXOHUDQGWKHVFKRODU·VRZQDXWKRULW\ , QDUJXLQJWKDWϰHHLQJWKHSODJXHLVSHUPLVVLEOHQRWRQO\LVDO%LGOҸVҸMXV WLI\LQJKLVRZQEHKDYLRUWRKLVFULWLFVLQ'DPDVFXVDQG$OHSSREXWKHLV JRLQJVWLOOIXUWKHUDQGPDNLQJDEROGDVVHUWLRQWKDW0XVOLPSROLWLFDODXWKRU LWLHVVKRXOGMRLQKLPLQVHHLQJWKHSODJXHDQGHSLGHPLFGLVHDVHDVDGDQJHU WRWKH0XVOLPFRPPXQLW\$O%LGOҸVҸQRWDEO\GRHVQRWHQJDJHZLWKWKH3UR SKHWLF WUDGLWLRQ DURXQG ZKLFK ,EQ ҇DMDU KDG EDVHG KLV HQWLUH WUHDWLVH³ QDPHO\WKDWWKHSODJXHLVDPHUF\IRUWKH3URSKHW·VFRPPXQLW\DQGDPDU W\UGRPIRUWKHIDLWKIXO,QVWHDGKHPDUVKDOVDVHULHVRIWKHRORJLFDOOHJDODQG P\VWLFDODUJXPHQWVIRUZK\HSLGHPLFGLVHDVHLVDGDQJHUWKDW0XVOLPVDUH REOLJDWHGWRDYRLG

9  ,,, +  RZFDQWKHFRQFHSWRIVRYHUHLJQW\KHOSXVXQGHUVWDQGWKHFRPSOH[LWLHVRI DO%LGOҸVҸ·VDUJXPHQWIRUWKHULJKWWRϰHHWKHSODJXH"&RQYHUVHO\KRZGRDO %LGOҸVҸ·VDUJXPHQWVDQGKLVXVHRIMXULVSUXGHQFHWKHRORJ\P\VWLFLVPDQG PHGLFLQHWRDUWLFXODWHDQDSSURSULDWHUHVSRQVHWRHSLGHPLFGLVHDVHFRPSOL FDWHRXUXQGHUVWDQGLQJRIWKHUHODWLRQVKLSEHWZHHQ0XVOLPSROLWLFDOOHDG HUVDQGUHOLJLRXVVFKRODUV":KHUHGLGVRYHUHLJQW\OLHLQPDWWHUVRISXEOLF >@

38%/,&+($/7+7+(67$7($1'5(/,*,2866&+2/$56+,3

KHDOWKDQGWKHSXEOLFJRRG"7KLVFKDSWHUZLWKLWVUDWKHUEURDGRYHUYLHZLV RQO\DEOHWREHJLQWRDQVZHUWKHVHTXHVWLRQV$O%LGOҸVҸZKRKDGDWXPXOWX RXVSROLWLFDOFDUHHURIKLVRZQDQGZLWQHVVHGLQKLVOLIHWLPHWKHFROODSVHRI ERWKWKH$NNR\XQOXDQGWKH0DPOXNVWDWHVZDVQRWSULPDULO\LQWHUHVWHG LQDWWDLQLQJSROLWLFDOSRZHUKLPVHOIDOWKRXJKKHZDVLQWHQVHO\SUHRFFXSLHG ZLWKEHLQJUHFRJQL]HGE\2WWRPDQUXOHUVDQGUHFHLYLQJVWDWHVSRQVRUVKLS ,QKLVWUHDWLVHRQWKHSODJXHKHZDVSULQFLSDOO\FRQFHUQHGZLWKVFRULQJ SRLQWVDJDLQVWRWKHUVFKRODUVDQGGHPRQVWUDWLQJKLVDXWKRULW\DVDQLQWHO OHFWXDOϮJXUH,QRQHVHQVHWKHQWKHVRYHUHLJQW\LQZKLFKKHZDVLQWHUHVWHG ZDVPRUHLQWHOOHFWXDOWKDQSROLWLFDOWKHSRZHUKHZLVKHGWRDVVHUWZDV OLQNHGWRKLVSHUVRQDOVFKRODUO\VWDWXUHDQGQRWWRKLVRZQVHUYLFHWRWKH 2WWRPDQVXOWDQ+LVIHZOLQHVRIDGYLFHWR0XVOLPUXOHUVRQKRZWRPDQDJH HSLGHPLFGLVHDVHVHHPPRUHDUKHWRULFDOGHYLFHWRVXSSRUWKLVRZQSRVLWLRQ WKDQDQKRQHVWDWWHPSWWRGLFWDWHSXEOLFSROLF\:HNQRZOLWWOHRIZKDW 6XOWDQ6HOLPGLGLIDQ\WKLQJLQUHVSRQVHWRDO%LGOҸVҸ·VWUHDWLVHDOWKRXJKDV 1NKHW9DUOLNKDVVKRZQLWZDVLQWKHVL[WHHQWKFHQWXU\WKDWWKH2WWRPDQ VWDWHϮUVWGHYHORSHGDQHODERUDWHEXUHDXFUDF\WRFRXQWDQGUHJXODWHWKH ERGLHV RI LWV VXEMHFWV DQG WR WDNH VWHSV WRZDUG LPSURYLQJ SXEOLF XUEDQ KHDOWK:HFDQEULHϰ\FRQVLGHURWKHUDWWHPSWVWRLQϰXHQFH0XVOLPUXOHUV LQWKH0HGLWHUUDQHDQWRWDNHDFWLRQDJDLQVWHSLGHPLFGLVHDVH 7KHUHDUHIHZH[DPSOHVWKDW,DPDZDUHRIIURPWKHPHGLHYDOSHULRG7KH SRHWLFDGYLFHDϮIWHHQWKFHQWXU\MXULVWLQ*UDQDGDQDPHG¶8PDUJDYHWRWKDW FLW\·VUXOHUWKDWKHVKRXOGϰHHWKHFLW\WRSURWHFWKLPVHOIIROORZLQJWKHRXW EUHDNRIWKHSODJXHRIKDGQRUHFRUGHGHϸHFWLIWKHUXOHUHYHQUHDGLW &RQWUDVWWKLVVXJJHVWLRQZLWKWKHOHJDOGHEDWHVIURPSULRUFHQWXULHVDPRQJ 0XVOLPMXULVWVUHJDUGLQJOHSHUVKRZVDIHLWZDVWRHDWZLWKWKHPEX\JRRGV IURPWKHPRUKDYHVH[ZLWKWKHP7KHVHGHEDWHVZHUHQRWVROHO\WKHRUHWL FDOIRUZHϮQGIRUH[DPSOHLQWKHWZHOIWKFHQWXU\PDQXDORIWKHPXKWDVLE RI6HYLOOH,EQ¶$EGࡃQWKDWWKHJHQHUDOSRSXODWLRQVKRXOGQRWLQWHUDFWZLWK OHSHUV:KLOHWKLVLVQRWDGLUHFWDSSHDOWRWKHUXOHURIWKHWLPHVLQFHWKH PXKWDVLEZDVDSSRLQWHGE\WKHUXOHULWUHϰHFWVKLVDWOHDVWWDFLWDSSURYDORI VXFKDFDXWLRQDU\SROLF\:HKDYHQRVXFKUHIHUHQFHVLQDєLVED PDQXDOWR KRZSODJXHYLFWLPVVKRXOGEHGHDOWZLWK :  LWKLQWKH2WWRPDQ(PSLUHDVQRWHGDERYHZLWKUHIHUHQFHWR1NKHW9DU OLN·VZRUNWKH2WWRPDQVWDWHPDGHLWVϮUVWHϸRUWVWRUHJXODWHXUEDQVDQLWD WLRQLQWKHVL[WHHQWKFHQWXU\DQGQRWDEOHVϰHGXUEDQDUHDVLQWLPHVRI SODJXH:KHQZHUHDFKWKHQLQHWHHQWKFHQWXU\ZHDUHEHWWHULQIRUPHGRI >@

&28576

ODWHUGLVSXWHVUHJDUGLQJWKHLPSOHPHQWDWLRQRIWKHTXDUDQWLQH 7KHFRQ WH[WRIWKHGHEDWHKDGFKDQJHGDQGWKH(XURSHDQHFRQRPLFDQGFRORQLDO SUHVHQFHSRVHGDVHULRXVFKDOOHQJHWRWKHDWWHPSWVRI0XVOLPVFKRODUVDQG UXOHUVWRDUWLFXODWHWKHLUVRYHUHLJQW\RYHUPDWWHUVRISXEOLFKHDOWK:LWKUH JDUGWR7XQLVLDLQWKHHLJKWHHQWKFHQWXU\1DQF\*DOODJKHUKDVVKRZQKRZ ZKLOHWKHGHEDWHRYHUFRQWDJLRQFRQWLQXHGWRGLYLGH0XVOLPVFKRODUVWKH GHVLUHRI(XURSHDQPHUFKDQWVWRSUHVHUYHRSHQSRUWVDQGDOVRPDUNHWVZDV PRUHLQϰ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ϮQGDOVRWKH LQWULJXLQJH[DPSOHRIDϮJXUHOLNH҇DPGčQ.KRMDGF DQ$OJHULDQ UHOLJLRXVVFKRODUDQGQDWLRQDOLVWZKRSURWHVWHGDJDLQVWWKH)UHQFKLQYDVLRQ RI$OJHULDZKLOHDOVRDGYRFDWLQJWKHXVHRIWKHTXDUDQWLQHGHVSLWHLWV(XUR SHDQSURYHQDQFH,QKLVSODJXHWUHDWLVHKHZDVDEOHWRFDUHIXOO\H[SODLQKRZ 0XVOLPVRYHUHLJQW\VFKRODUO\DQGSROLWLFDOLVQRWLQIULQJHGXSRQWKURXJK WKHDGRSWLRQRIWKH(XURSHDQSROLF\RIWKHTXDUDQWLQH7KHUHZHUHDIWHUDOO KHDUJXHGSUHFHGHQWVLQ,VODPLFVFKRODUVKLSIRUDUJXLQJIRUWKHUHJXODWLRQ RIPRYHPHQWLQWLPHVRIHSLGHPLFGLVHDVHDQGRQHRIWKHVHZDVWKHWUHDWLVH RIDO%LGOҸVҸ$O%LGOҸVҸ·VWUHDWLVHZDVDQDZNZDUGRQHWRFLWHLQVXSSRUWRI TXDUDQWLQH³WKHWHPSRUDU\HQIRUFHGKROGLQJRIDSSDUHQWO\KHDOWK\SRSX ODWLRQV WR PDNH VXUH WKDW WKH\ DUH QRW FDUU\LQJ GLVHDVH EHIRUH DOORZLQJ WKHPWRUHLQWHJUDWHLQWRKHDOWK\SRSXODWLRQV³ZKHQKHZDVDGYRFDWLQJWKH ULJKWLIQRWWKHQHFHVVLW\WRϰHHWKHSODJXHEXW҇DPGčQ.KRMDZDVPRUH LQWHUHVWHGLQDO%LGOҸVҸ·VFODLPWKDWWKHUXOHUVKRXOGLQWHUYHQHWRSURWHFWKLV VXEMHFWVWKDQWKHIRUPWKLVLQWHUYHQWLRQVKRXOGWDNH 7KHH[DPSOHRI҇DPGčQ.KRMDDQGWKHIDFWWKDWWKH2WWRPDQ(PSLUHGLG WDNHVWHSVWRDGGUHVVWKHGDQJHURIWKHSODJXH·VFRQWDJLRQDQGDWWLPHVMXV WLϮHGWKHVHVWHSVE\FLWLQJVXSSRUWLYHUHOLJLRXVVFKRODUVKLSPDNHVXVHYHQ PRUHDZDUHRIKRZOLWWOHZHNQRZRIWKHUHVSRQVHLIDQ\WRWKHWUHDWLVHRI DO%LGOҸVҸDQGWKHUHODWHGXQDQVZHUHGTXHVWLRQVUHJDUGLQJVRYHUHLJQW\DQG SXEOLFKHDOWK,WLVWHPSWLQJKHUHWRVXJJHVWWKDWDVWKHSRZHURIWKHVWDWH >@

38%/,&+($/7+7+(67$7($1'5(/,*,2866&+2/$56+,3

WRFHQWUDOL]HLWVRSHUDWLRQVDQGLPSRVHLWVZLOORQLWVVXEMHFWSRSXODWLRQV JUHZIURPWKHODWH0LGGOH$JHVLQWRWKHHDUO\PRGHUQSHULRGWKDWLVVXHVRI VRYHUHLJQW\VXUURXQGLQJWKHUHJXODWLRQRIGLVHDVHEHFDPHLQFUHDVLQJO\ZHOO GHϮQHG$V1NKHW9DUOLNKDVGHPRQVWUDWHGWKLVJURZLQJSRZHURIWKH2W WRPDQVWDWHZHQWKDQGLQKDQGZLWKWKHIDFLOLWDWLRQRIWKHVSUHDGRIHSLGHPLF GLVHDVHWKDWUHVXOWHGIURPDQLQFUHDVLQJO\FHQWUDOL]HGSROLWLFDOERG\ $O %LGOҸVҸKRZHYHUZDVOLYLQJLQDQHDUOLHUSHULRGZKHQWKHUHODWLRQVKLSRIVRY HUHLJQW\ WR SXEOLF KHDOWK ZDV QRW DV FOHDU WR 0XVOLP VFKRODUV DQG UXOHUV SUHFLVHO\EHFDXVHWKHUHZDVOLWWOHVFKRODUO\FRQVHQVXVLQ,VODPGRPRQZKDW LIDQ\WKLQJFRXOGEHGRQHWRUHPHG\WKHVSUHDGRISODJXH7KLVODFNRIFODU LW\KRZHYHUPDGHWKHGHEDWHVRYHUWKHSURSHUUHVSRQVHWRHSLGHPLFGLVHDVH DOOWKHPRUHϮHUFH5HDGLQJDO%LGOҸVҸ·VFRQWULEXWLRQWRWKHVHGHEDWHVWKURXJK WKHOHQVRIVRYHUHLJQW\VKRZVXVQRWRQO\KRZ0XVOLPVFKRODUVVRXJKWWRGH ϮQHWKHSURSHUUHVSRQVHRISROLWLFDODXWKRULWLHVEXWDOVRKRZWKLVDWWHPSW ZDVURRWHGLQWKHLUHVWDEOLVKLQJWKHSURSHUXQGHUVWDQGLQJRI*RG·VVRYHU HLJQW\RYHUERWKPDQDQGQDWXUH

1RWHV , DPJUDWHIXOWR1DWKDOLH3HXW]IRUKHUFDUHIXOUHDGLQJRIDQLQLWLDOGUDIWRIWKLVFKDSWHU WR1NKHW9DUOLNIRUDQHQJDJLQJGLVFXVVLRQRQSODJXHLQWKH2WWRPDQ(PSLUHDQG WR0RQLFD*UHHQIRUKHULQVLJKWIXOFRPPHQWVRQDODWHUGUDIWRIWKLVSDSHU   )RUDEULHIRYHUYLHZRISXEOLFKHDOWKLQWKHSUHPRGHUQ0XVOLP0LGGOH(DVWVHH 3HWHU(3RUPDQQDQG(PLOLH6DYDJH6PLWK0HGLHYDO,VODPLF0HGLFLQH:DVKLQJ WRQ'&*HRUJHWRZQ8QLYHUVLW\3UHVV ²   $PRQJ WKH UHFHQW H[FHOOHQW VWXGLHV IRU WKH FRORQLDO SHULRG VHH HJ (OOHQ $PVWHU0HGLFLQHDQGWKH6DLQWV6FLHQFH,VODPDQGWKH&RORQLDO(QFRXQWHULQ0RURFFR ²$XVWLQ8QLYHUVLW\RI7H[DV3UHVV    6HH HVS *X\ *HOWQHU ´3XEOLF +HDOWK DQG WKH 3UH0RGHUQ &LW\ $ 5HVHDUFK $JHQGDµ+LVWRU\&RPSDVV  ²´+HDOWKVFDSLQJD0HGLHYDO&LW\ /XFFD·V&XULDYLDUXP DQGWKH)XWXUHRI3XEOLF+HDOWK+LVWRU\µ8UEDQ+LVWRU\    ² DQG ZLWK - &RRPDQV ´2Q WKH 6WUHHW DQG LQ WKH %DWK KRXVH0HGLHYDO*DOHQLVPLQ$FWLRQ"µ$QXDULRGHHVWXGLRVPHGLHYDOHV  ²   @

&28576

0\RZQZRUNRZHVDSDUWLFXODUGHEWWR0LFKDHO'ROV·VVHPLQDO7KH%ODFN'HDWK LQWKH0LGGOH(DVW3ULQFHWRQ3ULQFHWRQ8QLYHUVLW\3UHVV    )RUDQRYHUYLHZRIZKDWKLVWRULFDOFKURQLFOHVWHOOXVDERXWWKHVRFLDOUHVSRQVH WR SODJXH VHH 'ROV %ODFN'HDWKLQWKH0LGGOH(DVW ² , KDYH WDNHQ LVVXH ZLWK'ROV·VFRPSDULVRQRI&KULVWLDQDQG0XVOLPUHVSRQVHVWRSODJXHLQ,QIHF WLRXV,GHDV²DQGZLWKDVOLJKWO\GLϸHUHQWIUDPLQJLQ´1HZ'LUHFWLRQVLQ WKH6WXG\RI5HOLJLRXV5HVSRQVHVWRWKH%ODFN'HDWKµ+LVWRU\&RPSDVV   ²   ,ϮUVWHQFRXQWHUHGDO%LGOҸVҸ·VWUHDWLVHZKHQUHDGLQJWKHZRUNRIDQLQHWHHQWK FHQWXU\$OJHULDQMXULVWZKRVXSSRUWHGWKHLQWURGXFWLRQRIWKHTXDUDQWLQH6HH 6WHDUQV,QIHFWLRXV,GHDV   6WHDUQV,QIHFWLRXV,GHDVFKDS   0\UHPDUNVDSSO\RQO\WRWKH6XQQLWUDGLWLRQRI,VODPLFUHOLJLRXVWKRXJKWDQG HYHQWKHQWKH\DUHJHQHUDOLQWKHH[WUHPHDQGGRLQMXVWLFHWRZKDWLVULFKWUD GLWLRQRISROLWLFDOWKLQNLQJ   6HH8UL5XELQ´7KH¶&RQVWLWXWLRQRI0HGLQD·6RPH1RWHVµ6WXGLD,VODPLFD   ²DQGWKHOLWHUDWXUHFLWHGWKHUH   3DWULFLD&URQH*RG·V5XOH*RYHUQPHQWDQG,VODP6L[&HQWXULHVRI0HGLHYDO,VODPLF 3ROLWLFDO7KRXJKW&DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV ²   3DWULFLD &URQH DQG 0DUWLQ +LQGV *RG·V &DOLSK 5HOLJLRXV $XWKRULW\ LQ WKH )LUVW &HQWXULHVRI,VODP&DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV    2YDPLU$QMXP3ROLWLFV/DZDQG&RPPXQLW\LQ,VODPLF7KRXJKW7KH7D\PL\\DQ 0RPHQW &DPEULGJH &DPEULGJH 8QLYHUVLW\ 3UHVV   ² $QMXP GUDZV H[WHQVLYHO\RQWKHZRUNRIRWKHUVFKRODUVPRVWSURPLQHQWO\8UL5XELQ   7KH HDUOLHU LQWHUSUHWDWLRQ ZDV UHSUHVHQWHG E\ 3DWULFLD &URQH DQG 0DUWLQ +LQGVDPRQJRWKHUV6HH$QMXP3ROLWLFV/DZDQG&RPPXQLW\²$QMXPLV GUDZLQJKHUHRQ0XKDPPDG4DVLP=DPDQ·VZULWLQJVLQSDUWLFXODU 5HOLJLRQ DQG3ROLWLFV8QGHUWKH(DUO\¶$EEčVLGV7KH(PHUJHQFHRIWKH3URWR6XQQL(OLWH/HLGHQ %ULOO HVS²²²&RPSDUHDOVRZLWK$KPHG(O6KDPV\ 7KH&DQRQL]DWLRQRI,VODPLF/DZ&DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV  ZKHUHKHDUJXHVWKDWWKHVKLIWWKDWWRRNSODFHZLWKDO6KčϮ·ҸG LQWKH HDUO\¶$EEDVLGSHULRGZDVRQHIURPDFRPPXQDOOHJDOV\VWHPDGPLQLVWHUHG E\HVWDEOLVKHGDXWKRULW\ϮJXUHVWRRQHWKDWSULYLOHJHGWKHQRPLQDOO\GLVLQ WHUHVWHGUHDGLQJRI3URSKHWLFWUDGLWLRQE\MXULVWVWUDLQHGLQWH[WXDOKHUPH QHXWLFV   2QWKH¶$EEDVLGFDOLSKV·VXSSRUWIRUZKDWKHFDOOV´SURWR6XQQLVPµ4DVLP =DPDQZULWHVSHUFHSWLYHO\´5DWKHUWKDQGLVPLVVVXFKUHOLJLRXVUKHWRULFIRUZKDW LWZDV³DSURSRI¶$EEčVLGOHJLWLPLVP³LWVKRXOGEHVHHQDVDFRQWULEXWLRQLQ VRPHFDVHVSHUKDSVDQLQDGYHUWHQWRQHWRUHOLJLRXVGLVFRXUVHLIWKHFDOLSK FRXOGQRWRUGLGQRWZLVKWRLPSRVHDSURWR6XQQҸLGHRORJ\KHFRXOGDWOHDVW V\PEROLFDOO\SURFODLPWKHFRPPLWPHQWRIKLVVWDWHWRWKHVXQQD DQGWRWKRVH ZKROLNHKLPVHOIZHUHHQJDJHGLQUHYLYLQJLW7KHVWDWHZDVQRWRQO\UHSUH VHQWLQJLWVHOIDV¶RUWKRGR[·LWZDVWKHUHE\DOVRKHOSLQJJLYHDFRQFUHWHH[SUHV VLRQWRWKHQRWLRQRIDQ¶RUWKRGR[\·&HUWDLQEHOLHIVZHUHEHLQJPDGHYLVLEOHWR DGDSWDSKUDVHRI&OLϸRUG*HHUW]DQGVRZDVWKHFDOLSK·VVXSSRUWIRUWKHPµ 4DVLP=DPDQ5HOLJLRQDQG3ROLWLFV  >@

38%/,&+($/7+7+(67$7($1'5(/,*,2866&+2/$56+,3

  )RUDJHQHUDORYHUYLHZRIWKLVFRPSOH[UHODWLRQVKLSVHH.QXW69LNRU%HWZHHQ *RGDQGWKH6XOWDQ$+LVWRU\RI,VODPLF/DZ2[IRUG2[IRUG8QLYHUVLW\3UHVV  ²   ,ELG   2Q WKH DGPLVVLRQ RI PDQ·V OLPLWHG DELOLW\ WR DFFHVV WKH PHDQLQJ RI GLYLQH UHYHODWLRQDQGWKHFRQVHTXHQFHVRIGRLQJVRVHHLELG²DQGHVS$URQ =\VRZ7KH(FRQRP\RI&HUWDLQW\$Q,QWURGXFWLRQWRWKH7\SRORJ\RI,VODPLF/HJDO 7KHRU\$WODQWD/RFNZRRG3UHVV ²   0LFKDHO&RRN&RPPDQGLQJ5LJKWDQG)RUELGGLQJ:URQJLQ,VODPLF7KRXJKW &DP EULGJH&DPEULGJH8QLYHUVLW\3UHVV    ,ELG²   ,ELG²   )RUDQRYHUYLHZRIWKHLVVXHRIWKHGHEDWHVRQZKHUHWRDOORFDWHVRYHUHLJQW\ IROORZLQJWKHPXOWLSOLFDWLRQRIWKHFDOLSKDWHVHHWKHWKLUGVHFWLRQRI&URQH *RG·V5XOH´&RSLQJZLWKD)UDJPHQWHG:RUOGµ   )RU$QMXP·VSDUWLFXODUWDNHRQWKLVSKHQRPHQRQVHH3ROLWLFV/DZDQG&RPPX QLW\0XFKRI$QMXP·VERRNLVWDNHQXSZLWKH[SORULQJZKDWKHVHHVDV,EQ 7D\PL\\D·VG DWWHPSWWRUHDVVHUWWKHSULPDF\RIWKHFRPPXQLW\³PDLQO\ WKH¶XODPD³LQ,VODPLFSROLWLFDOWKRXJKW   (EUX6|QPH],GULV,%LGOLVL2WWRPDQ.XUGLVWDQDQG,VODPLF/HJLWLPDF\,VWDQEXO/L EUD.LWDS    ,ELG²6HHDOVR9¬/0pQDJHVY´%LGOҸVҸµLQ(QF\FORSDHGLDRI,VODPQGHG %ULOO2QOLQH KWWSUHIHUHQFHZRUNVEULOORQOLQHFRPHQWULHVHQF\FORSDH GLDRILVODPELGOLVL6,0BDFFHVVHG$SULO    ,ELG6HHDOVR1XNKHW9DUOLN3ODJXHDQG(PSLUHLQWKH(DUO\0RGHUQ0HGLWHU UDQHDQ:RUOG7KH2WWRPDQ([SHULHQFH &DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV     6|QPH],GULV,%LGOLVL²   ,GUҸV%҇XVčPDO'ҸQDO%LGOҸVҸ5LVčODDO·LEč·¶DQPDZčTL·DOZDEč·6XOHPDQL\H (VDG(IHQGL²E   ,ELGD,DPQRWDZDUHRIWKHZULWLQJVRIDO%LGOҸVҸ·VFULWLFVEHLQJH[WDQW   ,ELG   ,ELGE   6|QPH],GULV,%LGOLVL²   6WHDUQV,QIHFWLRXV,GHDV   7KHXVHIXOQHVVRIGLYLGLQJWKHDFWLYLW\RIEXERQLFSODJXHLQWRWKUHHSDQGHP LFVKDVEHHQLQFUHDVLQJO\GLVSXWHGE\KLVWRULDQVZKRKDYHQRWHGWKDWWKHGDWHV RIWHQJLYHQIRUWKHVHGLVSDUDWHRXWEUHDNV³URXJKO\WKHVWRVWR WRSUHVHQW³DUHϰXLG2QWKHSODJXHWUHDWLVHDVDOLWHUDU\JHQUHLQ $UDELFVHH/DZUHQFH,&RQUDG´$UDELF3ODJXH&KURQRORJLHVDQG7UHDWLVHV6RFLDO DQG+LVWRULFDO)DFWRUVLQWKH)RUPDWLRQRID/LWHUDU\*HQUHµ6WXGLD,VODPLFD  ²   7KHGLVFXVVLRQLQWKLVSDUDJUDSKLVEDVHGRQ6WHDUQV,QIHFWLRXV,GHDVFKDS   ,ELG²/DZUHQFH&RQUDG´$1LQWK&HQWXU\0XVOLP6FKRODU·V'LVFXVVLRQ RI&RQWDJLRQµLQ&RQWDJLRQ3HUVSHFWLYHVIURP3UHPRGHUQ6RFLHWLHVHG/DZUHQFH &RQUDGDQG'RPLQLN:XMDVW\N%XUOLQJWRQ97$VKJDWH  >@

&28576

  7KHOLWHUDWXUHRQWKHVXEMHFWLVYDVW)RUDGLVFXVVLRQLQUHODWLRQWRSODJXHDQG LWVWUDQVPLVVLRQVHH6WHDUQV,QIHFWLRXV,GHDVFKDS   $FFHSWLQJ WKDW WKHUH LV D SXUSRVH GRHV QDWXUDOO\ QRW HQWDLO DJUHHLQJ RQ WKH QDWXUHRIWKDWSXUSRVHRURQKRZWRUHVSRQGWRWKHSODJXHLWVHOI7KXV,EQ ҇DMDUFRXOGIRFXVRQWKHSODJXHEHLQJDPDUW\UGRPIRU0XVOLPVDQGDO*KD]čOҸ FRXOGSRQGHUWKHZD\VLQZKLFKGLVHDVHFDXVHVEHOLHYHUVWRWXUQWR*RGZKLOH ZLWKRXW GLVSXWLQJ HLWKHU DUJXPHQW DO%LGOҸVҸ ZRXOG DGYRFDWH ϰHHLQJ WKH SODJXH   6HH6WHDUQV,QIHFWLRXV,GHDV²$O*KD]čOҸKLPVHOIKDGSUHYDULFDWHGZKHQ LWFDPHWRWKHSUHFLVHLVVXHRIZKHQDQGKRZWRϰHHWKHSODJXHVWUHVVLQJWKH 0XVOLP·VGXW\WRKLV0XVOLPFRPPXQLW\LQDIDVKLRQWKDWDO%LGOҸVҸUHMHFWHG 6HH$O*KD]DOL)DLWKLQ'LYLQH8QLW\DQG7UXVWLQ'LYLQH3URYLGHQFHWUDQV'DYLG %XUUHOO/RXLVYLOOH.@

7+('$1&,1*'(6327

DPEDVVDGRUV³LPSOLHGOHDUQLQJWKHSDUWIURPVFUDWFKXQGHUFRQWLQXRXV SUHVVXUHRIH[SRVXUHDQGVKDPH'XULQJKLVUHLJQZKLFKH[WHQGHGOHVV WKDQ RQH DQG D KDOI GHFDGHV ²  WKH XSVWDUW KHJHPRQ FKDQJHG QDPHV UROHVDQGIXQFWLRQVUHIDVKLRQLQJERWKKLVLGHQWLW\DQGDSSHDU DQFHOLNHDQDFWRULQDFRQWLQXRXVSOD\RIUHYHDOLQJDQGFRQFHDOLQJSUHWHQVH DQGDFKLHYHPHQW +  LVIDWKHU·VQDPHUHPDLQVXQNQRZQKLVHϸRUWWRFRQFHDOKLVRULJLQVLV REYLRXV EXWKHFKHULVKHGDQGYHQHUDWHGKLVPRWKHUDGRUQLQJKHUZLWK LPSHULDOWLWOHVDVKHGLGIRUKLVKDOIEURWKHUZKRVHVRQKHWHPSRUDULO\GHVLJ QDWHGDVKLVKHLU7KHFLUFXPVWDQFHVDQGGDWHRI+LGH\RVKL·VELUWKDUHKD]\ YHLOHGE\P\WKPDNLQJ+HKLPVHOIHQFRXUDJHGWZRYHUVLRQV7KHϮUVWVXJ JHVWHGDPLUDFOHZKLFKLPSOLHGDKHDYHQO\PDQGDWHDVKHFDQGLGO\UHSRUWHG LQDGLSORPDWLFOHWWHU´:KHQ,ZDVDERXWWRHQWHUP\GHDUPRWKHU·VZRPE VKHKDGDQDXVSLFLRXVGUHDP7KDWQLJKWWKHVXQOLJKWϮOOHGKHUURRPVRWKDW LWZDVOLNHQRRQWLPHLQVLGHLW$OOZHUHRYHUZKHOPHGZLWKDVWRQLVKPHQW7KH DWWHQGDQWVJDWKHUHGDQGWKHGLYLQHUSURFODLPHG¶7KLVLVDZRQGURXVVLJQ WKDWZKHQWKHFKLOGUHDFKHVKLVSULPHKLVYLUWXHZLOOVKLQHRYHUWKH)RXU 6HDV DQG KH ZLOO UDGLDWH KLV JORU\ WR WKH WHQ WKRXVDQG GLUHFWLRQV·೒µ 7KH VHFRQGYHUVLRQSURSDJDWHGLQDQRϲ FLDOFKURQLFOHZULWWHQE\WKHKHJHPRQ·V V\FRSKDQWÑPXUD@

&28576

VSHFWDFOHRIKRUURUZDVKLVQHSKHZ·VRUGHUHGVXLFLGHIROORZHGE\WKHSXEOLF H[HFXWLRQRI+LGHWVXJL·VZKROHKRXVHKROG³LQFOXGLQJWKHODGLHVLQZDLWLQJ DQGHYHQWKHLU\RXQJFKLOGUHQ

5HVWRULQJ&KRUHRJUDSKLHVRI,PSHULDO5LWXDO , Q+LGH\RVKL·VSROLWLFDOVW\OHWUDGLWLRQZDVZULWODUJHDQGGHFRUXPRIYLWDO LPSRUWDQFH+LVRϲ FLDOFKURQLFOHUÑPXUD@

7+('$1&,1*'(6327

SHUVRQDWKHUHKHFRXOGSRVHDV´WKHJRRGSDWURQDQGOR\DOPLQLVWHURIWKH FRXUWWKHKHDOHUDQGULWXDOLVWXQTXHVWLRQDEO\WKHPDQRISRZHUDQGJUDFHµ +LGH\RVKLGHSOR\HGDUHPDUNDEOHJLIWIRUWKHPLVHHQVFqQHRIKXJHFHUH PRQLHVDQGHQWHUWDLQPHQWVZKLFKV\PEROL]HGVRFLDOFRKHVLRQDQGRUGHULQ DSHDFHIXOSURVSHURXVUHLJQ7KHVHLQFOXGHGWKHSRPSRXVIXQHUDOFHUHPRQLHV IRUKLVSUHGHFHVVRULQDIDPRXVIDOFRQU\KXQWLQJSDUW\LQZKLFK UHVXVFLWDWHGPHPRULHVRI+HLDQVSOHQGRUKLVKXJHϰRZHUYLHZLQJSDUWLHV DQGJUDQGSRHWU\FRQWHVWVVWDWHSURFHVVLRQVDQGJRUJHRXVWHDFHUHPRQLHV DQGODVWEXWQRWOHDVWDXGLHQFHVIRUIRUHLJQDPEDVVDGRUVDFFRPSDQLHGE\ H[WUDYDJDQWH[FKDQJHVRIJLIWV $ PRQJKLVVWDWHSDJHDQWVWKHLPSHULDOSURFHVVLRQRI³DQRϲ FLDO YLVLWRI(PSHURU*R@

&28576

WKHHPSHURURϸHULQJDIDFDGHRIOHJLWLPDF\DQGWKDWRIWKHUHDO´NLQJµDQG FHQWHU RI SROLWLFDO SRZHU WKH ´%RXQWLIXO 0LQLVWHUµ +LGH\RVKL 7KH ODWWHU·V GHPRQVWUDWLRQRIOR\DOW\WRWKHHPSHURUDSSHDUVWREHQRPRUHWKDQDUKH WRULFDOGHYLFHWRFODGKLVRZQFODLPWRUR\DOW\DFODLPFDQGLGO\FRQIHVVHG HOVHZKHUH´'XULQJWKHUHLJQVWKDWKDYHSDVVHGWKHUHKDVQHYHU\HW EHHQDNLQJZKRKDVUXOHGDQGJRYHUQHGWKHZKROHRI-DSDQ³DQG,KDYH VXEGXHGDOORILWµ $VSHFLDOUHFRUGGHWDLOLQJWKHHYHQWGLVWULEXWHGWRDOOWKHGLJQLWDULHVSUHV HQW ZDV PHDQW WR SUHVHUYH WKH PHPRU\ RI WKH UR\DO SDJHDQW IRU FRPLQJ JHQHUDWLRQVEXWDOVRXQGRXEWHGO\WRUHLQIRUFHWKHRDWKVRIVXEPLVVLRQWKDW VWRRGDWWKHFRUHRIWKHSHUIRUPDQFHWRVWUHQJWKHQWKHERQGVRIYDVVDODJH WKDWVXVWDLQHGKLVUHLJQ,QDQDJHRIXQVWDEOHOR\DOWLHVDQGIUHTXHQWDFWV RIWUHDVRQWKDW´VWDJHVFULSWµZRXOGUHPLQGHYHU\SRWHQWLDOUHQHJDGHRI KLVRZQSURϸHUHGFRPPLWPHQWWR+LGH\RVKL7KHGHVSRW·VXUJHWRHQVXUH VWDEOHOR\DOWLHVGLVFORVHVDQ[LHWLHVFRQFHUQLQJKLVSRVLWLRQZKLFKZHUHWR SXVKKLPWRUDVKDFWVGXULQJKLVODVW\HDUV

6XEYHUWLQJWKH3URWRFRO7KH5R\DO%RG\8QFKDLQHG $  OWKRXJK FHUHPRQLDO ZDV ZULW ODUJH LQ KLV V\PEROLF UHSUHVHQWDWLRQ RI SRZHU+LGH\RVKLDOVRJUDVSHGE\LQWXLWLRQWKHUKHWRULFRIHFFHQWULFEH KDYLRUZKLFKFRXOGLPSUHVVDQGDZHKLVDXGLHQFH,QFRQWUDVWWRPRVWRI KLVSUHGHFHVVRUVDQGWKRVHIROORZLQJDIWHUKLPKHVKRZHGDKLVWULRQLF SURSHQVLW\WRGLVUXSWWKHSURWRFROE\LPSXOVLYHJHVWXUHVDQGSOD\IXOLP SURYLVDWLRQ , QWKHORQJSUDFWLFHRI-DSDQHVHFRXUWFHUHPRQLDOWKHVRYHUHLJQ·VERG\ LIYLVLEOHDWDOOZDVFKDUDFWHUL]HGE\VLOHQFHLPPRELOLW\DQGUHVWUDLQW,W LQVSLUHG DZH DQG VWUHVVHG WKH XQEULGJHDEOH GLVWDQFH EHWZHHQ PDMHVW\ DQGRUGLQDU\VXEMHFWV³DFWXDOO\SHUFHLYHGDVDQRQWRORJLFDOJDS:HVWHUQ YLVLWRUVDGPLWWHGWRWKHFRXUWQRWHWKHVWLϸLPPRELOLW\RIWKHVRYHUHLJQV 7KXV/XLV)URLVUHPDUNHGDIWHUD1HZ@

&28576

WKDWJRYHUQVWKHLQYRFDWLRQRIH[FHSWLRQDOSRZHUVFRUUHVSRQGVWRWKHOLE HUDOFRQVWLWXWLRQDOWHQGHQF\QRWWKHFRQWHQWRIDUWLFOH$UWLFOHJUDQWV XQOLPLWHGSRZHU

 KHVDPHPLJKWEHVDLGRIDUWLFOHWRWKHH[WHQWWKDWWKHSUHVLGHQWLVLQ 7 WKHϮUVWLQVWDQFHHQWLWOHGWRH[HUFLVHWKHSDUGRQRQEHKDOIRIWKHVWDWHWKH UHVWULFWLRQRIKLVSRZHULQWKHFDVHRIDPQHVW\DSSHDUVRQO\EHODWHGO\DQG LWVHOIVXEMHFWWRFLUFXPVFULSWLRQ7KHGLVFUHWLRQDU\GHFLVLRQRQWKHSDUGRQ OLNHWKDWRQWKHHPHUJHQF\GHWHUPLQHVZKDWFRQVWLWXWHVDSDUGRQDVZHOO DVZKHQLWVKRXOGEHHPSOR\HG 7  KHFRQQHFWLRQVEHWZHHQWKHSDUGRQDQGWKHH[FHSWLRQH[WHQGIXUWKHU WKDQWKHSUR[LPLW\RIDUWLFOHVDQGRIWKH:HLPDU&RQVWLWXWLRQ7KH GHFLVLRQRQWKHH[FHSWLRQDQGWKHGHWHUPLQDWLRQWRSDUGRQUHVLVWFLUFXP VFULSWLRQE\UXOH6LPLODUO\WKHVSHFLϮFDWLRQRISURFHGXUHVIRUWKHGHFODUD WLRQRIHPHUJHQF\DQGWKHPDLQWHQDQFHRIUHVWULFWLRQVRQLWVVFRSHKDYH EHHQQRWRULRXVO\LQVXϲ FLHQWLQGHOLQHDWLQJWKHERXQGDULHVRIVWDWHVRIH[ FHSWLRQ7KLVLVWKHFDVHLQSDUWEHFDXVHZKDWLVSHUFHLYHGWREHDWVWDNHLV WKHYHU\H[LVWHQFHRIWKHVWDWHLWVHOIDV6FKPLWWHODERUDWHV´7KHVWDWHVXV SHQGVWKHODZLQWKHH[FHSWLRQRQWKHEDVLVRILWVULJKWRIVHOISUHVHUYDWLRQµ 6XFKD+REEHVLDQDFFRXQWRIWKHH[FHSWLRQϮQGVDQDQDORJ\LQWKHSDUGRQ SRZHUDVZHOO6HHNLQJSHDFHZDVIRU+REEHVWKHSULPDU\GLFWDWHRIQDWX UDOODZDQGSDUGRQLQJIXUQLVKHGWKHSULQFLSDOZD\RIDFKLHYLQJSHDFHZLWKLQ DQ DOUHDG\ FRQVWLWXWHG³DOWKRXJK SHUKDSV UHYROXWLRQDULO\ RYHUWXUQHG³ SROLW\)LQDOO\ERWKWKHH[FHSWLRQDQGWKHSDUGRQ³OLNHWKHRWKHUDWWULEXWHV RIVRYHUHLJQW\³VKDUHWKHRORJLFDOURRWV$FFRUGLQJWR6FKPLWW´7KHH[FHS WLRQLQMXULVSUXGHQFHLVDQDORJRXVWRWKHPLUDFOHLQWKHRORJ\µ 7KHSDUGRQ LWVHOIDVDQDFWRIIUHHJLIWRUJUDFHLVOLNHZLVHDVVRFLDWHGZLWKWKHVRYHUHLJQW\ RID&KULVWLDQJRGZKRVHPHUF\GLVSOD\VDSRZHUHYHQJUHDWHUWKDQWKDWRI MXGJPHQW ( YHQ6FKPLWWDSSHDUVWRDFNQRZOHGJHWKLVFRQQHFWLRQLQDSDVVDJHIXU QLVKLQJKLVPRVWVXJJHVWLYHUHPDUNVDERXWSDUGRQLQJ5HVLVWLQJWKHQRWLRQ WKDWWKHOLEHUDOVWDWHKDGPDQDJHGWRHϸDFHLWVRZQDJHQF\WKURXJKODZ 6FKPLWWFODLPHG :  KRHYHUWDNHVWKHWURXEOHRIH[DPLQLQJWKHSXEOLFODZOLWHUDWXUHRISRVLWLYH MXULVSUXGHQFHIRULWVEDVLFFRQFHSWVDQGDUJXPHQWVZLOOVHHWKDWWKHVWDWH LQWHUYHQHVHYHU\ZKHUH$WWLPHVLWGRHVVRDVDGHXVH[PDFKLQDWRGHFLGHDF >@

/,%(5$/&2167,787,21$/,60$1'7+(629(5(,*13$5'21

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´RPQLSRWHQFHµRIWKHPRGHUQODZJLYHURIZKLFKRQHUHDGVLQ HYHU\WH[WERRNRQSXEOLFODZLVQRWRQO\OLQJXLVWLFDOO\GHULYHGIURPWKHRORJ\

+  HUH WKH VWDWH RSHUDWHV LQ GUDPDWLF WHUPV HLWKHU VHUYLQJ DV D GHXV H[ PDFKLQDRUSOD\LQJLQD´FORDNDQGGDJJHUGUDPDµLWVPDQ\SHUVRQDHVXE VWLWXWLQJIRUDVLQJOHVXUUHSWLWLRXVSRZHU7KHGHXVH[PDFKLQDIRUPRIWKH GHFLVLRQDVVXPHVDSODFHDQDORJRXVWRWKDWRIWKHSDUGRQ'HVSLWHWKHVHHP LQJO\DXWRPDWHGTXDOLW\RIWKHSRVLWLYLVWVWDWHLWUHDFKHVRXWLQYDULRXVFKDU DFWHUVWRDϸHFWZKDWZRXOGRWKHUZLVHVHHPDXQLIRUPUXOHRIODZ / DWHLQKLVFDUHHUDIWHUWKHGLUHFRQVHTXHQFHVRIKLVWKHRULHVKDGEHFRPH DOOWRRHYLGHQWXQGHUWKH7KLUG5HLFK6FKPLWWZRXOGWXUQWRDQDFWXDOSOD\³ 6KDNHVSHDUH·V +  DPOHW³WR LOOXPLQDWH WKH UHODWLRQVKLS EHWZHHQ DHVWKHWLFV DQGKLVWRU\DVZHOODVEHWZHHQGUDPDDQGVRYHUHLJQW\$ϮQDOLQWHUYHQWLRQ LQWKHH[FKDQJHEHWZHHQ6FKPLWWDQG:DOWHU%HQMDPLQDQGDUHVSRQVHWR %HQMDPLQ·V XVH RI 6FKPLWW·V WKHVLV RQ VRYHUHLJQW\ LQ KLV 2ULJLQ RI *HUPDQ 7UDJLF'UDPD  6FKPLWW·V+DPOHWRU+HFXED7KH,QWUXVLRQRI7LPH,QWRWKH 3OD\VHHVLQWKHFKDUDFWHU+DPOHWWKHIRUPDWLRQRIDP\WKRQHWKDW-HQQLIHU 5XVWDQG-XOLD/XSWRQKDYHDSWO\JORVVHGDVLQSDUW´WKHP\WKRIVRYHUHLJQW\ D V SUHVHQFHµ 7KHLGHQWLϮFDWLRQRI+DPOHWZLWKD6FKPLWWLDQVRYHUHLJQ PLJKWRQϮUVWEOXVKDSSHDUVWUDQJHDV6FKPLWWKLPVHOIGHVFULEHV+DPOHW KHLVD´SURFUDVWLQDWRUDQGGUHDPHU¬¬¬ZKRFDQQRWWDNHWKHGHFLVLRQWRDFWµ DQLQFDSDFLW\WKDWZRXOGVHHPWRDFFRUGSRRUO\ZLWKWKHGHFLVLRQLVPRI3R OLWLFDO7KHRORJ\ ,WLVQRWH[DFWO\+DPOHW·VVWDQFHZLWKUHVSHFWWRWKHGHFL VLRQKRZHYHUWKDWUHQGHUVKLPP\WKLFEXWUDWKHUZKDWWKDWSRVWSRQHPHQW RIWKHGHFLVLRQVLJQDOVDERXWKLVFRQQHFWLRQZLWKWKHKLVWRULFDOϮJXUHRI.LQJ -DPHV, 7  KH IDLOXUH RI GHFLVLRQ ZLWKLQ +DPOHW RU ´WKH WUDQVIRUPDWLRQ RI WKH ϮJXUHRIWKHDYHQJHULQWRDUHϰHFWLYHVHOIFRQVFLRXVPHODQFKROLFµLWVHOI LQGLFDWHVWKH´LQWUXVLRQµ(LQEUXFK RIKLVWRU\$V6FKPLWWZULWHV >@

&28576

7  KHSKLORVRSKL]LQJDQGWKHRORJL]LQJ.LQJ-DPHVHPERGLHGQDPHO\WKHHQWLUH FRQϰLFWRIKLVDJHDFHQWXU\RIGLYLGHGEHOLHIDQGUHOLJLRXVFLYLOZDU7KHGLV WRUWLRQWKDWGLϸHUHQWLDWHVWKH+DPOHWRIWKLVGUDPDIURPDOORWKHUDYHQJHU ϮJXUHVDQGWKDWLVRWKHUZLVHLQH[SOLFDEOH¬¬¬³LQVKRUWWKH+DPOHWL]DWLRQRI WKHDYHQJHU³ϮQGVDVXLWDEOHH[SODQDWLRQRQO\KHUHLQ-DPHV,WLVKHUHWKDW WKHFRQQHFWLRQEHWZHHQSUHVHQWKLVWRU\DQGWUDJHG\HPHUJHV

- XVWDV-DPHVKHUHPDQLIHVWVKLPVHOILQ+DPOHWWKH´FRQϰLFWRIKLVDJHµLP SRVHVRQ-DPHV+DPOHWPD\UHSUHVHQWERWK-DPHVDQGWKLVFRQϰLFWEXWWKH IRUPRIUHSUHVHQWDWLRQLV´SHUVRQDOL]HGµUDWKHUWKDQ´LPSHUVRQDWHGµ7KH LPPHGLDF\RIWKHFRQQHFWLRQEHWZHHQ+DPOHWDQG-DPHVDQGEHWZHHQ-DPHV DQGWKH´FRQϰLFWRIKLVDJHµWUDQVFHQGV´SOD\µDQGUHQGHUV+DPOHW WUDJHG\ UDWKHUWKDQ7UDXHUVSLHO5HIHUULQJWRWKH´XQSOD\DELOLW\>8QYHUVSLHOEDUNHLW@RI WKHWUDJLFµ6FKPLWWWKHUHIRUHH[SODLQVWKDW´LQGLVWLQJXLVKLQJ7UDXHUVSLHO DQGWUDJHG\ZHFDQUHFRJQL]HWKDWLQFRQWURYHUWLEOHFRUHRIDVLQJXODUKLV WRULFDOUHDOLW\WKDWWUDQVFHQGVHYHU\VXEMHFWLYHLQYHQWLRQDQGFDQWKHQXQ GHUVWDQGLWVHOHYDWLRQWRP\WKµ,WLVQRWMXVWVRYHUHLJQLQGHFLVLRQEXWUDWKHU WKHKLVWRULFDOSUREOHPWRZKLFKWKDWVRYHUHLJQLQGHFLVLRQSRLQWVWKDWUHQ GHUV+DPOHWDP\WKLFϮJXUHIRUWKHIXWXUH 7  KHQDWXUHRIWKLVKLVWRULFDOSUREOHPKRZHYHUUHPDLQVOHVVWKDQSHUVSLF XRXV2QRQHOHYHO6FKPLWWLQVLVWVRQDUDWKHUEOXQWFRPSDULVRQEHWZHHQ 4XHHQ0DU\6WXDUW·VVXSSRVHGFXOSDELOLW\IRUWKHGHDWKRIKHUKXVEDQG³WKH IXWXUH.LQJ-DPHV·VIDWKHU³DQG*HUWUXGH·VSRWHQWLDOJXLOWLQWKHGHPLVHRI +DPOHW·VIDWKHUERWKRIZKLFKVXEMHFWVDUH´WDERRµ/LNHZLVHKHDVVRFLDWHV WKHWUHDWPHQWRIWKHJKRVWLQ+DPOHW ZLWK&DWKROLFDQG3URWHVWDQWGHEDWHV DERXWWKHGHPRQLFTXDOLW\RIVXFKDSSDULWLRQVDQGLQSDUWLFXODUWKHDGR OHVFHQW-DPHV·VLQWHUYHQWLRQLQWKHVHGHEDWHVZLWKKLV'DHPRQRORJLH  0RUHEURDGO\KRZHYHUWKHSUREOHPFRQFHUQVQRWRQO\WKHGLYLVLRQEHWZHHQ &DWKROLFVDQG3URWHVWDQWV³DQGDPRQJYDULRXVW\SHVRI3URWHVWDQWV³WKDW SODJXHGVHYHQWHHQWKFHQWXU\(QJODQGEXWDOVRWKHK\SRWKHVLVRIWKH´GLYLQH ULJKWRINLQJVµZKLFKLQ6FKPLWW·VYLHZIXUQLVKHG.LQJ-DPHV·V´WUXHOLIH·V WDVNKLVH[LVWHQWLDOSUREOHPµ :KHQ-DPHVZDVZULWLQJDQGUXOLQJWKHSUHOXGHWRWKH(QJOLVK5HYROX WLRQKDGLQ6FKPLWW·VYLHZDOUHDG\FRPPHQFHG%HFDXVH-DPHV·VFRQFHUQV ZRXOGOHDGQHLWKHUWRWKH´VWDWHµFKDUDFWHULVWLFRIWKHFRQWLQHQWDO(XURSHDQ FRXQWULHVRIWKHHLJKWHHQWKFHQWXU\QRUWRWKHPDULWLPHHFRQRPLFHPSLUH RI(QJODQGZKLFK6FKPLWWDQDO\]HGLQ7KH1RPRVRIWKH(DUWKKHZDVGHV >@

/,%(5$/&2167,787,21$/,60$1'7+(629(5(,*13$5'21

WLQHG´WRGLVDSSHDUIURPWKHVWDJHRIZRUOGKLVWRU\µDQGWRUHPDLQLQWKH PRGHUQFRQVFLRXVQHVVRQO\WRWKHH[WHQWWKDWWKHP\WKRI+DPOHWFRQWDLQV KLVUHOLF,IWKHP\WKRI+DPOHWIXUQLVKHVWKLVUHPDLQGHUDQGUHPLQGHURI -DPHVDQRWKHUVHYHQWHHQWKFHQWXU\P\WK³WKDWRIWKH/HYLDWKDQ³FDUULHG IRUZDUGJUHDWHUFRQVHTXHQFHVIRU(XURSHDQSROLWLFDOGHYHORSPHQWVRPH ZKDWWR6FKPLWW·VFKDJULQ , QDQDO\]LQJ+REEHV·VLPDJHIRUWKHFRPPRQZHDOWKLQDQHDUOLHUERRN IURP6FKPLWWFODLPHGWKDWWKHϮJXUHRIWKH/HYLDWKDQJHVWXUHGLQWZR GLUHFWLRQVWRZDUGDSHUVRQDOLVWYLVLRQXQLI\LQJDOORIWKHFRPSRQHQWVRIWKH VWDWHLQWRDVLQJOHϮJXUHDQGWRZDUGDPHFKDQLVWLFDQGPDFKLQLFRQH :KHUHDVWKHϮUVWLQWHUSUHWDWLRQFRQQHFWHGEDFNWR-DPHVKLPVHOIDQGWKH 6WXDUWV PRUH JHQHUDOO\ WKH VHFRQG SRLQWHG IRUZDUG WR WKH FRQWLQHQWDO (XURSHDQWKHRULHVRIWKHVWDWH$V9LFWRULD.DKQKDVSHUVXDVLYHO\DUJXHG 6FKPLWW·V GLVLOOXVLRQ ZLWK WKH +REEHVLDQ LPDJH RI WKH /HYLDWKDQ WKH GRXEOHQHVVRIZKLFKSUHYHQWHG+REEHV·VSKLORVRSK\IURPEHLQJUHFHLYHGDV GHFLVLRQLVWDQGLQVWHDGSDYHGWKHSDWKIRUWKHIXWXUHOLEHUDOVWDWHVHQW6FKPLWW EDFNWRVHDUFKWKHVHYHQWHHQWKFHQWXU\IRUDQRWKHUKHURRIGHFLVLRQLVP ZKLFKKHXOWLPDWHO\ORFDWHGLQ+DPOHW7KHSDVVDJHIURP3ROLWLFDO7KHRORJ\ TXRWHGDERYHKRZHYHUH[SODLQLQJWKHGHXVH[PDFKLQDPRGHRIWKHVWDWH·V LQWHUYHQWLRQLQGLFDWHVWKHSRWHQWLDOUHWXUQRIWKHSHUVRQ³RUDWOHDVWWKH JRG³LQHYHQWKHPDFKLQHRIWKHOLEHUDOVWDWH7KHGUDPDWKHUHIRUHFRQWLQ XHVDVWKHJRGLVSXWEDFNLQWRWKHPDFKLQH7KHSDUGRQDQGWKHGHXVH[ PDFKLQDVXEVLVWRQO\DVWKHUHVLGXHRIWKHSHUVRQDOLVWVRYHUHLJQLQ6FKPLWW·V DFFRXQWWKRXJKUDWKHUWKDQEHLQJLGHQWLϮHGZLWKWKHGLYLQHULJKWPRQDUFK WKH\DUHSHUVRQDHDGRSWHGE\WKHRWKHUZLVHPHFKDQLVWLFVWDWH$WWKHVDPH WLPHKRZHYHUWKHLUH[LVWHQFHPD\KLQGHUWKHFORVXUHRIWKHOLEHUDOVWDWH 6 FKPLWW·VIDVFLQDWLRQZLWK+DPOHWDQGWKH/HYLDWKDQLPDJHVHPDQDWLQJ IURPVHYHQWHHQWKFHQWXU\(QJODQGPLJKWVXJJHVWDIXUWKHUHQJDJHPHQW ZLWKWKHSROLWLFDOGHYHORSPHQWVRIWKDWFHQWXU\DQGWKHUHODWLRQVKLSRIGUD PDWLFVSHFWDFOHWRZKDWWUDQVSLUHG2GGO\WKRXJKE\SRVLWLQJWKHKLVWRUL FDODQRPDORXVQHVVRI-DPHV·VWKHRULHVDQGWKHLUODFNRILQKHULWRUVDVZHOODV FODLPLQJWKDW+REEHVLQϰXHQFHGFRQWLQHQWDO(XURSHPRUHWKDQ(QJODQGLW VHOI6FKPLWWPDQDJHGWRJORVVRYHUWKHVSDFHEHWZHHQ+DPOHW DQG+REEHV DQGWRLJQRUHWKHFRQWHVWRYHUVRYHUHLJQW\FRQWDLQHGWKHUH , QDGGLWLRQE\FRQFHQWUDWLQJRQWKHUHVSHFWLYHUROHVRIPRQDUFKDQGOHJ LVODWXUHRULQWKHLU(QJOLVKLQFDUQDWLRQVNLQJDQG3DUOLDPHQW6FKPLWWQH JOHFWHGWKHFUXFLDOIXQFWLRQRIWKHMXGLFLDU\LQWKHVWUXJJOHDPRQJSRZHUV >@

&28576

ZLWKLQVHYHQWHHQWKFHQWXU\(QJODQG,QWKHHDUO\VHYHQWHHQWKFHQWXU\WKH NLQJ·VFDSDFLW\WRSDUGRQZDVFKDOOHQJHGE\DQGLWVHOIFKDOOHQJHGWKHUHJX ODULW\RIFRPPRQODZGHFLVLRQPDNLQJ7KHSDUGRQWKHUHE\EHFDPHDVLWH IRUVWDJLQJFRQϰLFWVDPRQJQRWVLPSO\WZREXWWKUHHIRUPVRIDXWKRULW\ LQWKHVWDWH ,QGHHGWKHFRPPRQODZFRPSRQHQWRIWKHFRQWHVWDPRQJ SRZHUVPD\PRUHWKDQWKHSDUOLDPHQWDU\HOHPHQWKDYHVHWWKHVWDJHIRU WKHFRQVWLWXWLRQDOHOHPHQWVRIWKHWUDGLWLRQRIOLEHUDOFRQVWLWXWLRQDOLVP HOHPHQWVWKDWFRPHWRWKHIRUHLQWKHZULWLQJVRI,PPDQXHO.DQW $  OWKRXJK.DQW·VZRUNLVDVVRFLDWHGZLWKWKHLQDXJXUDWLRQRIHQOLJKWHQ PHQWUHDVRQDQGSROLWLFVDQGLWSURPXOJDWHVDYLVLRQRIVRYHUHLJQW\WKDWLV ODUJHO\OHJLVODWLYHUDWKHUWKDQMXGLFLDODFHUWDLQVLQJXODULW\RIVRYHUHLJQW\ UHPDLQVLQWKH0HWDSK\VLFVRI0RUDOVRQHDVVRFLDWHGZLWKWKHNLQJ·VDFWRISDU GRQLQJ:KLOHVHHPLQJWRSULRULWL]HODZJLYLQJ³ERWKLQWKHFRQWH[WRILQGL YLGXDOHWKLFVDQGWKHSROLW\LQJHQHUDO³.DQWDOORZVVSDFHIRUWKHSDUGRQD SDUGRQWKDWSUHVHQWVWKHWUDJLFRPLFUHVROXWLRQRIWKHUHYROXWLRQDU\VLWXD WLRQ7KXVDWWKHRULJLQVRIPRGHUQOLEHUDOLVPOLHVDQH[FHSWLRQWRWKHJHQ HUDOUXOHRIODZ 7  KHSDUGRQLQWHUYHQHVLQ.DQW·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³:LWKUHJDUGWRFULPHVRIVXEMHFWV DJDLQVWRQHDQRWKHULWLVDEVROXWHO\QRWIRUKLPWRH[HUFLVHLWIRUKHUHIDLOXUH WRSXQLVKLPSXQLWDVFULPLQLV LVWKHJUHDWHVWZURQJDJDLQVWKLVVXEMHFWV+HFDQ PDNHXVHRILWWKHUHIRUHRQO\LQFDVHRIDZURQJGRQHWRKLPVHOIFULPHQODHVDH PDLHVWDWLV %XWKHFDQQRWPDNHXVHRILWHYHQWKHQLIKLVIDLOXUHWRSXQLVKFRXOG HQGDQJHUWKHSHRSOH·VVHFXULW\>GHP9RONHVHOEVWLQ$QVHKXQJVHLQHU6LFKHUKHLW *HIDKUHUZDFKVHQN|QQWH@³7KLVULJKWLVWKHRQO\RQHWKDWGHVHUYHVWREHFDOOHG WKHULJKWRIPDMHVW\

7  KURXJKSDUGRQLQJWKHVRYHUHLJQFRPPLWVDQ´LQMXVWLFHLQWKHKLJKHVWGH JUHHµWKDWSURYHVLQYLVLEOHWRWKHSHRSOHDQGLQVWHDGHQKDQFHV´WKHVSOHQ >@

/,%(5$/&2167,787,21$/,60$1'7+(629(5(,*13$5'21

GRURIKLVPDMHVW\µ.DQWWKHDWULFDOL]HVWKLV´LQMXVWLFHLQWKHKLJKHVWGHJUHHµ ZKLFKGHULYHVIURPDGLVSOD\VWDJHGIRUWKHEHQHϮWRISXEOLFRSLQLRQ³WKH $QVHKXQJRIWKHSHRSOH7KHVRYHUHLJQWKXV´VKLQHVµJOlQ]HQ LQWKHH\HVRI KLVVXEMHFWVWKURXJKWKHJUDFLRXVQHVVRIKLVSDUGRQ3DUGRQHPHUJHVKHUH KRZHYHUDVDUHVSRQVLELOLW\WKDWWKHVRYHUHLJQVKRXOGDVVXPHRQO\LQUHOD WLRQWRKLPVHOIDQDFWRIIRUJLYLQJVRPHRQHZKRZRXOGLQMXUHKLPDVD VLQJXODUHQWLW\³EXWDOZD\VTXD VRYHUHLJQ.DQWDVVLJQVIRUSDUGRQLQJWKH QDUURZ VSDFH EHWZHHQ FLUFXPVWDQFHV LQ ZKLFK SROLWLFDO VXEMHFWV ZRXOG EHLQMXUHGE\WKHDEVHQFHRISXQLVKPHQW³SDUGRQGHϮQHGKHUHDVDQRPLV VLRQ UDWKHU WKDQ D SRVLWLYH DFW³DQG WKRVH WKDW VLQFH LQYROYLQJ RQO\ WKH VRYHUHLJQSHUPLWKLPWKHULJKWWRSDUGRQ 7KLVVOLYHUFRQVWULFWVIXUWKHUZKHQFRQVLGHUHGLQWKHFRQWH[WRI.DQW·V VWDWHPHQWVHOVHZKHUHGHϮQLQJVRYHUHLJQW\DQGGLVFXVVLQJWKHQDWXUHRIUHY ROXWLRQ7KHVHUHPDUNVUHYHDOWKHQHDULPSRVVLELOLW\RILQMXULQJWKHVRYHU HLJQZLWKRXWVLPXOWDQHRXVO\FKDOOHQJLQJWKHSHRSOHWKH\DOVRGHPRQVWUDWH WKDWWKHXOWLPDWHRϸHQVHDJDLQVWWKHVRYHUHLJQZRXOGFRQVWLWXWHWKHPRVW XQSDUGRQDEOHGHHG,QGHHGWKHULJKWWRSDUGRQLVDFFXUDWHO\GHVFULEHGDV ´WKHVOLSSHULHVWµQRWEHFDXVHLWFDQHYHUEHH[HUFLVHGULJKWO\EXWEHFDXVHLW DOZD\VHQJHQGHUVLQMXVWLFHDQGFRQVWLWXWHVWKHHOHPHQWRIVRYHUHLJQW\O\LQJ RXWVLGHWKHODZ ,QDIRRWQRWHWRDSDVVDJHLQ´3DUW7ZR3XEOLF5LJKWµ.DQWGLVFXVVHVWKH XOWLPDWHYLROHQFHDJDLQVWDVRYHUHLJQWKDWRI´IRUPDOH[HFXWLRQµGHUI|UP OLFKHQ+LQULFKWXQJ ZKLFKKHYHKHPHQWO\GLVWLQJXLVKHVIURP´PXUGHUµGHU 0RUG DQGHPSOR\VDVRQHH[DPSOHWKHWULDODQGGHFDSLWDWLRQRI&KDUOHV, GXULQJWKH(QJOLVK5HYROXWLRQ7KHGLϸHUHQFHEHWZHHQ´IRUPDOH[HFXWLRQµ DQG´PXUGHUµWKDW.DQWVWUHVVHVKRZHYHULVXQGHUPLQHGZKHQKHFRQFOXGHV WKDW&KDUOHVDQG/RXLV;,9FRXOGQRWDFWXDOO\KDYHEHHQVXEMHFWHGWRWKHϮUVW FULPHEXWLQVWHDGZHUHYLFWLPVRIWKHVHFRQGDQGOHVVHJUHJLRXVRQH7KLV FRQIXVLRQLVPDGHSRVVLEOHE\WKHIDFWWKDWWKHNLQJIXQFWLRQVDVERWKDSK\V LFDOLQGLYLGXDODQGDV\PEROLFSODFHKROGHUVRDQ\DWWDFNDJDLQVWKLVOLWHUDO ERG\FRXOGVLJQDOHLWKHUIRUPDOH[HFXWLRQRUPXUGHU,QRUGHUWRHQVXUHWKDW KHZDVWDUJHWHGDVVRYHUHLJQUDWKHUWKDQVLPSO\DVLQGLYLGXDORQHZRXOG QHHGWRGLVFRYHUDUHYROXWLRQDU\SURFHGXUHWKDWRSHUDWHGRQDV\PEROLF UDWKHU WKDQ PDWHULDO OHYHO $VVHUWLQJ LQ WKH PDLQ WH[W WKH SULQFLSOH WKDW ´D SHRSOHFDQQRWRϸHUDQ\UHVLVWDQFHWRWKHOHJLVODWLYHKHDGRIDVWDWHZKLFK ZRXOGEHFRQVLVWHQWZLWKULJKWVLQFHDULJKWIXOFRQGLWLRQLVSRVVLEOHRQO\E\ VXEPLVVLRQWRLWVJHQHUDO>DOOJHPHLQ@OHJLVODWLYHZLOOµ೓  .DQWIXUWKHUDUWLFXODWHV >@

&28576

WKH SDUDGR[ RI UHEHOOLRQ DJDLQVW WKH VRYHUHLJQ E\ H[SODLQLQJ WKDW WKH SHRSOH·VZLOOZRXOGWKHQEHVXSUHPHWKHUHE\QHJDWLQJWKHDQDO\WLFVXSUHP DF\RIWKHVRYHUHLJQ+HFRQFOXGHVZLWKWKHIROORZLQJVXPPDWLRQ´7KLVLV VHOIFRQWUDGLFWRU\DQGWKHFRQWUDGLFWLRQLVHYLGHQWDVVRRQDVRQHDVNVZKR LVWREHWKHMXGJHLQWKLVGLVSXWHEHWZHHQSHRSOHDQGVRYHUHLJQIRUFRQVLG HUHGLQWHUPVRIULJKWVWKHVHDUHDOZD\VWZRGLVWLQFWPRUDOSHUVRQV )RU LWLVWKHQDSSDUHQWWKDWWKHSHRSOHZDQWVWREHWKHMXGJHLQLWVRZQVXLWµ೓  &UXFLDOO\KHUH.DQWGHWHUPLQHVWKDWEHFDXVHQR´REMHFWLYHµVWDQGSRLQWFDQ EHDWWDLQHGUHVROYLQJWKHLVVXHSURYHVLPSRVVLEOH7KHRSSRVLWLRQEHWZHHQ SHRSOHDQGVRYHUHLJQFDQQRWEHUHFRQFLOHG 6 LQFH.DQWFODLPVWKDWMXGJPHQWKDVUHDFKHGDQLQVROXEOHTXDQGDU\ZKHQ WKHSHRSOHDUHSLWWHGDJDLQVWWKHLUVRYHUHLJQLWVKRXOGQRWEHVXUSULVLQJWKDW KHUHIHUVLQKLVIRRWQRWHWRWKHFDVHRIWKH%ULWLVKPRQDUFK&KDUOHV,+DYLQJ FUHDWHGWKH+LJK&RXUWRI-XVWLFHLQWKH+RXVHRI&RPPRQVSURFHHGHG WRH[HFXWH&KDUOHVIRUFRPPLWWLQJWUHDVRQGXULQJWKH&LYLO:DU:KHQLQ WURGXFLQJWKHVSHFWDFOHRI&KDUOHV·VGHDWK.DQWDGGVLPDJLQDU\RQORRNHUV DOOHJLQJ , WLVWKHIRUPDOH[HFXWLRQRIDPRQDUFKWKDWVWULNHVKRUURU>6FKDXGHUQ@LQDVRXO ϮOOHGZLWKWKHLGHDRIKXPDQEHLQJV·ULJKWVDKRUURUWKDWRQHIHHOVUHSHDW HGO\DVVRRQDVDQGDVRIWHQDVRQHWKLQNVRIVXFKVFHQHV>$XIWULWW@DVWKHIDWH RI&KDUOHV,RU/RXLV;9,%XWKRZDUHZHWRH[SODLQWKLVIHHOLQJ>*HIKO@ZKLFK LVQRWDHVWKHWLFIHHOLQJV\PSDWK\DQHϸHFWRIWKHLPDJLQDWLRQE\ZKLFKZH SXWRXUVHOYHVLQWKHSODFHRIWKHVXϸHUHU EXWPRUDOIHHOLQJUHVXOWLQJIURPWKH FRPSOHWHRYHUWXUQLQJRIDOOFRQFHSWVRIULJKWV",WLVUHJDUGHGDVDFULPHWKDW UHPDLQV IRUHYHU DQG FDQ QHYHU EH H[SLDWHG F ULPHQ LPPRUWDOH LQH[SLDELOH  DQGLWVHHPVWREHOLNHZKDWWKHRORJLDQVFDOOWKHVLQWKDWFDQQRWEHIRUJLYHQ >YHUJHEHQ@HLWKHULQWKLVZRUOGRUWKHQH[W

 V.DQWH[SODLQVWKLVIHHOLQJRFFXUVEHFDXVHWKHFULPLQDOKHUHLGHQWLϮHG $ ZLWKWKHSHRSOHUDWKHUWKDQVLPSO\PDNLQJKLPVHOIDQH[FHSWLRQWRKLV RZQ³LQSULQFLSOHXQLYHUVDOL]DEOH³PD[LPLQVWHDGVHWVKLVPD[LPDJDLQVW WKHGLFWDWHVRIUHDVRQWKXVWKHIDFWWKDWLWWDNHVSODFH´EH\RQGKXPDQ UHDVRQµ³RULQRWKHUZRUGVYLRODWHVWKHKXPDQLW\RIPDQ³RFFDVLRQVWKH KRUULϮFTXDOLW\RIWKLVFULPHDQGSHUKDSVDOVRWKHUHIHUHQFHWRDWKHRORJLFDO DQDORJ\LQWKHDWWHPSWWRH[SODLQLW$OWKRXJKWKHSDVVDJHGHQLHVDHVWKHWLF V\PSDWK\WKHDXGLHQFH·VUHDFWLRQWRDWUDJHG\LWUHWDLQVDGUDPDWLFVWUXF >@

/,%(5$/&2167,787,21$/,60$1'7+(629(5(,*13$5'21

WXUH VR WKDW WKH VSHFWDWRUV VLPSO\ H[SHULHQFH D GLϸHUHQW JHQHULF GUDPD RQHFRQQHFWHGZLWKWKHVXEOLPH :  H FDQ QRZ UHWXUQ WR WKH LVVXH RI WKH VSDFH OHIW RYHU IRU SDUGRQLQJ EHWZHHQWKHVRYHUHLJQ·VULJKWDQGWKHHQGDQJHUPHQWRIWKHSHRSOHH[DPLQ LQJWKHSDUDGR[LFDOQDWXUHRI.DQW·VGRXEOHGHPDQGWKURXJKDϮQDOSDVVDJH ,QWKLVVHFWLRQ.DQWDVVHUWVWKDWWKHVRYHUHLJQVKRXOGUHPLWFDSLWDOSXQLVK PHQWLIWKHJUHDWHUSDUWRIKLVFLWL]HQU\ZRXOGEHHOLPLQDWHGE\WKHOH[WDOLRQLV V\VWHP RI MXVWLFH WKDW .DQW XVXDOO\ DGYRFDWHV $OWKRXJK .DQW FODLPV WKDW SDUGRQLQJFRQVWLWXWHVWKHVRYHUHLJQ·VRQO\´ULJKWRIPDMHVW\µKH\HWUHIHUV WRWKLVPLWLJDWLQJIXQFWLRQDOVRDV´DQDFWRIWKHULJKWRIPDMHVW\ZKLFKDV FOHPHQF\>%HJQDGLJXQJ@FDQDOZD\VEHH[HUFLVHGRQO\LQLQGLYLGXDOFDVHVµ೓ VHWWLQJWKHWZRDOPRVWLQGLVFHUQLEO\FORVHWRJHWKHU$JDLQLQWKLVSDVVDJH .DQWHPSOR\VGUDPDWLFWHUPLQRORJ\WRGHVFULEHWKHVLWXDWLRQPDLQWDLQLQJ , I¬¬¬WKHQXPEHURIDFFRPSOLFHVFRUUHL WRVXFKDGHHGLVVRJUHDWWKDWWKH VWDWHLQRUGHUWRKDYHQRVXFKFULPLQDOVLQLWFRXOGVRRQϮQGLWVHOIZLWKRXW VXEMHFWVDQGLIWKHVWDWHVWLOOGRHVQRWZDQWWRGLVVROYHWKDWLVWRSDVVRYHU LQWRWKHVWDWHRIQDWXUHZKLFKLVIDUZRUVHEHFDXVHWKHUHLVQRH[WHUQDOMXV WLFHDWDOOLQLWDQGLIHVSHFLDOO\LWGRHVQRWZDQWWRGXOOWKHSHRSOH·VIHHOLQJ >GDV*HIKO@E\WKHVSHFWDFOH>GDV6SHNWDNHO@RIDVODXJKWHUKRXVH WKHQWKHVRY HUHLJQPXVWDOVRKDYHLWLQKLVSRZHULQWKLVFDVHRIQHFHVVLW\FDVXVQHFHVVLWD WLV WRDVVXPHWKHUROHRIMXGJHWRUHSUHVHQWKLP>YRU]XVWHOOHQ@ DQGSURQRXQFH D MXGJPHQW WKDW GHFUHHV IRU WKH FULPLQDOV D VHQWHQFH RWKHU WKDQ FDSLWDO SXQLVKPHQW¬¬¬ZKLFKVWLOOSUHVHUYHVWKHSRSXODWLRQ

, IWKHFLYLORUGHUZHUHWRGHYROYHDJDLQLQWRWKHVWDWHRIQDWXUHWKHUH PDLQLQJLQGLYLGXDOVZRXOGEHDGYHUVHO\Dϸ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

&28576

UHYROXWLRQIDLOHGLQLWVXOWLPDWHJRDOWKDWRIGHSRVLQJWKHPRQDUFKZHUH FHLYHQRDGYLFHKHUHRQKRZWRUHVSRQGZKHQWKHVRYHUHLJQQRORQJHUH[ LVWVDQGWKXVODFNVWKHFDSDFLW\WRSDUGRQ :  LWKLQ.DQW·VQDUUDWLYHWKHNLQJVWDJHVKLVSDUGRQERWKWRDFFHQWXDWH KLVPDMHVW\LQWKHH\HVRIKLVVXEMHFWVDQGWRWUDQVIRUPZKDWPLJKWIRUWKH ZRUOGDXGLHQFHKDYHEHHQWKHVXEOLPHVSHFWDFOHRIWKHUHYROXWLRQDU\RYHU WXUQLQJRIODZLQWRDWUDJLFRPHG\UHVWRULQJWKHFRQVWLWXWLRQDOVWDWH,QERWK UHVSHFWVWKHSDUGRQVKLIWVWKHVLJQLϮFDWLRQRIWKHSHUIRUPDQFHIRUWKRVH ZDWFKLQJ\HWLWIDLOVWRDOORZWKH´JURXQGOLQJVµRIWKHSROLW\RULQWHUQDWLRQDO FRPPXQLW\DPHDQVRISDUWLFLSDWLQJPRUHDFWLYHO\LQWKHSHUIRUPDQFH$ VXEOLPHIRUPRIWUDJHG\ϮQGVLWVHOIFRQWUDYHQHGE\WKHSDUGRQDQGRQO\WKH NLQJ·VPDMHVW\UHPDLQVRQGLVSOD\,QVFDWWHUHGFRPPHQWV+DQQDK$UHQGW LQGLFDWHVWKHSRWHQWLDOIRUUHVFXLQJWKHVSHFWDWRUIURPKLVSDVVLYLW\E\UH SODFLQJWKHVRYHUHLJQ·VSDUGRQRISURWRUHYROXWLRQDU\YLROHQFHZLWKWKHLQ GLYLGXDO·VIRUJLYHQHVVRIWKHUHYROXWLRQDU\DFW5DWKHUWKDQIXUQLVKLQJDVRY HUHLJQPDQLIHVWDWLRQRISROLWLFDOZLOOWKLVIRUJLYHQHVVZRXOGDUULYHDVDQ HWKLFDOJHVWXUHWKDW\HWFDUULHGLPSOLFDWLRQVIRUWKHUHFRQVWLWXWLRQRIWKH VWDWH / RQJEHIRUH$UHQGW·VWKHRUHWLFDOLQWHUYHQWLRQKRZHYHUWKHDWHUIXUQLVKHG H[DPSOHVRISRVVLELOLWLHVVLPLODUWRWKRVHWRZDUGZKLFK$UHQGWZRXOGJHV WXUH:ULWWHQQRWLQWKHWZHQWLHWKFHQWXU\EXWLQVWHDGLQWKHHDUO\V³ GXULQJWKHYHU\SHULRG6FKPLWWRPLWVIURPFRQVLGHUDWLRQLQPRYLQJLPPH GLDWHO\IURP+DPOHWWR+REEHV³7KH/DZVRI&DQG\OLNHRWKHUWUDJLFRPHGLHV RILWVSHULRGVWDJHVDQDOWHUQDWLYHWRWKHVRYHUHLJQSDUGRQ , Q7KH/DZVRI&DQG\³DDSOD\QRZXVXDOO\DWWULEXWHGWR-RKQ)RUG³D6HQDWH JRYHUQV&DQG\&UHWH LQVWHDGRIDPRQDUFK2QHUR\DOϮJXUHWKHSULQFHVV ´(URWDµGRHVDSSHDUEXWKHUDXWKRULW\VHHPVPRUHURPDQWLFWKDQSROLWLFDO $WWKHVDPHWLPHKRZHYHUWKHUHLVQRVXJJHVWLRQWKDWWKHODZVDWLVVXHLQ WKHSORWZHUHHVWDEOLVKHGGHPRFUDWLFDOO\LQVWHDGWKH\DSSHDUWRGDWHEDFNWR WLPHLPPHPRULDORUDWOHDVWWRWKHPRPHQWRIWKH´HOGHU&UHWDQVµ/&  :LWKLQWKHFRQϮQHVRIWKHSOD\KRZHYHUWKH6HQDWHLVUHVSRQVLEOHIRULVVXLQJ MXGJPHQWUDWKHUWKDQKDYLQJWKHVWDWHLWVHOILQLWLDWHSURVHFXWLRQVLQGLYLGX DOVDUHJLYHQWKHSRZHUWRKDLOHDFKRWKHULQWRWKH6HQDWHIRUFRQGHPQDWLRQ , QWKHϮUVWDFWZHDUHLQIRUPHGRIWZRODZVIRUZKLFK&UHWHLVUHQRZQHG WKDWRIJUDWLWXGHDQGWKDWRIUHZDUGIRUWKHLQGLYLGXDOZKRE\SRSXODUDF FODLPLVUHFRJQL]HGDVWKHIRUHPRVWZDUULRURQWKHEDWWOHϮHOG/&²  7KHVHWZRODZVRI&DQG\FRPHLQWRFRQϰLFWRIFRXUVHGXULQJWKHSOD\ >@

/,%(5$/&2167,787,21$/,60$1'7+(629(5(,*13$5'21

$  WWKHEHJLQQLQJEDWWOHKDVMXVWHQGHGEHWZHHQ&UHWHDQG9HQLFHZLWK &UHWHFODLPLQJWKHYLFWRU\$QROGHUJHQHUDO&DVVLODQHVDQGKLVVRQ$QWL QRXVERWKFODLPWKHUHZDUGRIKRQRUDQGEHFDXVHHDFKSRVVHVVHVVXSSRUWHUV ZLWKLQWKHDUP\WKH\UHTXLUHWKH6HQDWHWRDUELWUDWHWKHGLVDJUHHPHQW)RU YDULRXV UHDVRQV WKH 6HQDWH SUHIHUV $QWLQRXV WR &DVVLODQHV 7KH XOWLPDWH UHVXOWLVWKDW&DVVLODQHVGLVRZQV$QWLQRXVFODLPLQJWKDWKHKDVDϸ URQWHG KLVKRQRU'HYDVWDWHG$QWLQRXVH[SODLQVKLVSODQWRGRKLVXWPRVWWRUH VWRUHKLPVHOILQKLVIDWKHU·VH\HVDQGLIWKDWIDLOVWRH[LOHKLPVHOIWR0DOWD /&  $  VHFRQGVWUDQGRIWKHSORWFLUFXODWHVDURXQGWKHSULQFHVV(URWDZKRLV UHSUHVHQWHGDVHQIRUFLQJDW\UDQQLFDOORYHWKHRQO\UHOLHIIURPZKLFKZRXOG EHKHUH[HUFLVHRIKHUVHHPLQJO\VRYHUHLJQPHUF\WKHSULPDU\ϮJXUHRIGH YRWLRQ3KLODQGHUWKH3ULQFHRI&\SUXVLPSORUHV(URWD´,I,RϸHQGZLWKWRR PXFKORYLQJ\RX,WLVDIDXOWWKDW,PXVWVWLOOFRPPLW7RPDNH\RXUPHUF\ VKLQHWKHPRUHRQPHµ/& *RQ]DORWKHVLQLVWHUDQG´SROLWLFNµLQGLYLG XDOIURP9HQLFHUDSLGO\HQWHUVLQWRFRPSHWLWLRQIRU(URWD·VKDQGXUJLQJKLV ELUWKDQGPRUHLPSRUWDQWO\KLVZHDOWKDVUHDVRQVZK\(URWDKHUVHOIVKRXOG ZLVKWKHDOOLDQFH(URWD·VGHVLUHLVKRZHYHULQVWHDGVSDUNHGE\WKHGHMHFWHG $QWLQRXV $  WWKHFHQWHURIWKHSOD\DFWEHJLQVZLWKDUHYHODWLRQ*RQ]DORVHHP LQJO\WKHIULHQGRI&UHWHDQG&DVVLODQHV·VFUHGLWRUIRUXQWROGVXPVUHYHDOV WR)HUQDQGRKLVFDSWXUHGFRXQWU\PDQWKDWKHKDVLQIDFWEHHQSORWWLQJ DJDLQVW&UHWHWKHHQWLUHWLPH,QGHHGKHKDGDUUDQJHGWREDQNUXSW&DVVL ODQHV:HIXUWKHUGLVFHUQWKDW*RQ]DOR·VXOWLPDWHJRDOLQYROYHVPDUU\LQJ (URWDLQRUGHUWREHFRPH.LQJRI&UHWHDVZHOODV'XNHRI9HQLFH7KHVXJ JHVWLRQLVQRWKRZHYHUWKDW(URWDKHUVHOIZLOOLQGHSHQGHQWO\EHFRPHVRY HUHLJQEXWUDWKHUWKDWLQFRQMXQFWLRQWKH\FDQXVXUSWKHJRYHUQPHQWDQG WUDQVIRUPLWLQWRDPRQDUFK\7KURXJKWKHLQVWUXPHQWVRIFLYLOZDUDQG ϮQDQFLDOUXLQ*RQ]DORWKXVKRSHVWRXVXUSWKHVWDWHDQGWRWUDQVIRUPLWV PRGHRIJRYHUQDQFH *  RQ]DOR·VSORWLVIRUWXQDWHO\PDGHNQRZQWR(URWDDQGWKH6HQDWHE\WKH SULVRQHU)HUQDQGRZKRP&DVVLODQHVKDGDJUHHGWRNHHSIRUWKH6HQDWHDW KLVRZQKRPH)UHHLQJ&UHWHRI*RQ]DOR·VLQϰXHQFHLVQRWTXLWHDVVLPSOHDV UHYHDOLQJKLVSORWKRZHYHU&DVVLODQHVLVLQGHEWHGWR*RQ]DORDSHUVRQDO GHEWWKDWSDUDOOHOVWKHϮQDQFLDOREOLJDWLRQ&UHWHLWVHOIVXSSRVHGO\EHDUVWR 9HQLFH,QH[FKDQJHIRUDJUHHLQJWRVXEMHFWKLPVHOIWRKHUURPDQWLFZLVKHV $QWLQRXVH[WUDFWVDSURPLVHIURP(URWDWRSD\Rϸ&DVVLODQHV·VGHEWWR*RQ]DOR >@

&28576

ZLWKRXW UHYHDOLQJ WKDW $QWLQRXV KLPVHOI LV EHKLQG WKH VFKHPH (YHQ WKLV ZHOOLQWHQWLRQHGSORWPLVFDUULHVKRZHYHUZKHQ(URWDYLRODWHVKHUYRZDQG DVNV&DVVLODQHVWRSDUGRQKLVVRQRXWRIJUDWLWXGHWRKHUDV(URWDH[SODLQV KHUDFWLRQ´IRUUHTXLWDOO>RIP\LQYHVWPHQW@>,@RQO\PDGHP\VXLWH7KDW KHZRXOGSOHDVHWRQHZUHFHLYHKLVVRQ,QWRKLVIDYRXUIRUZKRVHORYH, WROGKLP,KDGEHHQVWLOOVRIULHQGO\µ/&  :  KDWUHVXOWVLVQHDUO\WKHGHPLVHRIWKHVWDWHLQDFWDVHULHVRILQGL YLGXDOVDFFXVHRQHDQRWKHUEHIRUHWKH6HQDWHRILQJUDWLWXGHDQGVHHNWKH SHQDOW\ RI GHDWK HDFK QHZ SHUVRQ DFFXVLQJ WKH SULRU DFFXVHU XQWLO WKH 6HQDWHLWVHOIϮQGVLWVHOIDFFXVHGE\$QQRSKHO&DVVLODQHV·VGDXJKWHU7KH FKDLQFRPPHQFHVZLWK&DVVLODQHVKLPVHOIZKRXUJHVDQDFWLRQRILQJUDW LWXGH DJDLQVW KLV VRQ (URWD WKHQ IROORZV VXLW DVNLQJ WKDW &DVVLODQHV EH FRQGHPQHG$QWLQRXVUHWXUQVWKHIDYRUDFFXVLQJ(URWDϮQDOO\$QQRSKHO EULQJVDFKDUJHDJDLQVWWKH6HQDWHFODLPLQJWKDWLWKDVEHHQ´XQWKDQNIXOOµ WRKHUIDWKHUDQG´FUDY>LQJ@7KHULJRURIWKH/DZDJDLQVW\RXDOOµ/&  7KHVFHQHDSSHDUVWREHRQHRIUHYHQJHZKHUHHDFKVXFFHVVLYHLQGLYLGXDO ´VWULNHVKRPHµDJDLQVWDQRWKHUEXWE\PHDQVRIDQDFFXVDWLRQUDWKHUWKDQ DVZRUG 7KH6HQDWHWKHQEHFRPHVDMXGJHLQLWVRZQFDVHDSRVLWLRQWKDWKDGEHHQ DQDWKHPDVLQFHDWOHDVW6LU(GZDUG&RNH·VUHSRUWLQ%RQKDP·V&DVH DQG LQGRLQJVRLWFRQGHPQVLWVHOI$FFRUGLQJWRWKHVHQDWRUV ኹ ኂዘዘᅵቨቨᅵ7KRXJKRXULJQRUDQFH 2  I&DVVLODQHVHQJDJHPHQWVPLJKWDVVZDJH 6HYHULW\RIMXVWLFH\HWWRVKHZ +RZQRH[FXVHVKRXOGVPRRWKDEUHDFKRI/DZ , \LHOGPHWRWKHWULDORILW ኹ ኂወኹᇖጺᅐᇹኂ6RPXVW,  / &  

$  OWKRXJKWKLVVHOIFRQGHPQDWLRQPLJKWVHHPDGHSDUWXUHIURPWKHSULRU SURFHHGLQJVLWLVLQIDFWLQNHHSLQJZLWKWKHHDUOLHUDFFXVDWLRQVDQGFRQ YLFWLRQVZKLFKJHQHUDOO\RFFXUE\FRQIHVVLRQVRUJXLOW\SOHDVWKDWWKH6HQ DWHLVERXQGWRDFFHSW7KXVDIWHU$QWLQRXVLQVLVWVRQSURQRXQFLQJKLVRZQ JXLOWWKHVHQDWRU3RVVHQQHVWDWHV´@

/,%(5$/&2167,787,21$/,60$1'7+(629(5(,*13$5'21

DQG LV UHVWULFWHG ODUJHO\ WR FRQϮUPLQJ MXGJPHQWV PDGH EHWZHHQ WKH SDUWLHV 2  QHPLJKWWKLQNDWWKLVSRLQWWKDWWKHWUDJLFHQGKDGDUULYHGWKHVWDWH RQWKHYHUJHRIGLVVROXWLRQDQG*RQ]DORVWLOODWODUJH,QVWHDGKRZHYHUDQ DOWHUQDWLYHPDQLIHVWVLWVHOILQWKHLGHDWKDW3KLODQGHUWKH3ULQFHRI&\SUXV ZKRKDGKDSOHVVO\ORYHG(URWDPXVWDWWKHEHKHVWRIWKH6HQDWHVHUYHDV WKH´0RGHUDWRULQWKLVGLϸHUHQFHµ/& (ODERUDWLQJRQWKH´6FHQHRI PLVHULHµ WKDW &DVVLODQHV KDV JHQHUDWHG 3KLODQGHU UHSURDFKHV KLP DQG UHKHDUVHVWKHFXUVHVWKDWSRVWHULW\ZLOOKHDSXSRQKLVPHPRU\/&  &DVVLODQHVXOWLPDWHO\UHOHQWVQRWRQO\IRUJLYLQJ$QWLQRXV³ZKLFKKDVWKH HϸHFWXQGHUWKHODZRIIUHHLQJKLP´೒¶7LVWKH/DZ7KDWLIWKHSDUW\ZKR FRPSODLQHV UHPLW  7KH RϸHQGHU KH LV IUHHGµ ³EXW DOVR DVNLQJ KLV RZQ IRUJLYHQHVVLQWXUQ/& 7KHFKDLQRIYHQJHDQFHLVWKHQUHSHDWHGLQD FKDLQRIIRUJLYHQHVVXQWLO3KLODQGHUSURFODLPV´7KHQZLWKFRQVHQW%H UHFRQFLO·GRQDOOVLGHVµ/&² :LWKWKLVHQGLQJ3KLODQGHU·VQDPHWDNHV RQDQHZVLJQLϮFDQFHSUHYLRXVO\VLPSO\GHVLJQDWLQJKLPDVDEHVRWWHGORYHU LWQRZLQGLFDWHVKLVVWDWXVDVDORYHURIPDQNLQGLQLWVHQWLUHW\7KHVWDWH WKHQLVQHZEHJRWWHQMXVWDV$QWLQRXVWHOOVKLVIDWKHUWKDWKH´QHZEHJHW>V@µ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·VLQWHUYHQWLRQEXWLQVWHDGWKURXJKWKHDFWLYLW\RID IRUHLJQHU DQ RXWVLGHU WR WKH SRZHU VWUXFWXUH RI WKH VWDWH 5DWKHU WKDQ D VRYHUHLJQSDUGRQSURYLGHGIURPDERYHWKHIRUJLYHQHVVHVLQWKHSOD\DUHH[ FKDQJHGEHWZHHQLQGLYLGXDOVWKURXJKDPXWXDOFRQVHQWWKDWPD\UHSUHVHQW DQDVFHQWIRUPRIVRFLDOFRQWUDFW%\WKHHQGWKHODQJXDJHRIW\UDQQ\ZKLFK LVGHSOR\HGWRFKDUDFWHUL]HERWK(URWDDQG&DVVLODQHVWKURXJKRXWWKHSOD\ KDVEHHQUHSODFHGZLWKDQHPSKDVLVRQHTXDOLW\DQGRQODWHUDOUHODWLRQV >@

&28576

DPRQJWKHFKDUDFWHUV)DFHGZLWKWKHJHQHUDOL]DWLRQRIUHYHQJHLQWRWKH WKUHDWRIFLYLOZDURUUHYROXWLRQDU\YLROHQFHWKHSOD\SUHVHQWVDVLWVVROX WLRQDQRQVRYHUHLJQYHUVLRQRIIRUJLYHQHVV  .  DQWDVVRFLDWHGSDUGRQLQJZLWKDSDUWLFXODUNLQGRIVWDJLQJRIWKHVSOHQGRU RIWKHNLQJ·VPDMHVW\RQHWUXPSHGRQO\E\WKHKRUURURIWKHVSHFWDFOHRIUHY ROXWLRQDU\ DQG FRXQWHUUHYROXWLRQDU\ YLROHQFH 7KLV WKHDWULFDO YHUVLRQ RI WKHSDUGRQVFHQHDVDϲ UPLQJWKHKHLJKWRIWKHVRYHUHLJQDERYHWKHSHRSOH PDQLIHVWVLWVHOILQWKHVSHFWDFXODUϮQDOHVRIHDUO\VHYHQWHHQWKFHQWXU\SOD\V OLNH6KDNHVSHDUH·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ϮWPRUHQDWXUDOO\ LQWRWKHDQWLOLEHUDO6FKPLWWLDQDFFRXQWRISROLWLFVWKDQLQWRWKHFRQWHPSR UDU\86FRQVWLWXWLRQDORUGHU6XFKDUHVXOWZDVQRWKRZHYHULQHYLWDEOHDQ DOWHUQDWLYHQRQVRYHUHLJQFRQFHSWLRQRISDUGRQLQJWKDWDSSHDUHGLQHDUO\ PRGHUQGUDPDSUHVHQWHGDQRWKHUSRVVLEOHEDVLVIRUWKHDFWRQHWKDWZDV QHYHULPSOHPHQWHGZLWKLQSROLWLFV

1RWHV   1DWDOLH=HPRQ'DYLVFRQϮUPVWKHLQWLPDWHDVVRFLDWLRQEHWZHHQSDUGRQLQJDQG VRYHUHLJQW\HYHQLQWKLVHDUO\SHULRG$V'DYLVGHVFULEHVWKHSRZHURIWKHQDU UDWLYHVWROGRQEHKDOIRIWKHFRQGHPQHGLQWKHOHWWHUVRIUHPLVVLRQVKHDQDO\]HV WKH\DOORZHGIRU´DFRPSOLFLW\EHWZHHQVRYHUHLJQDQGVXEMHFWµEHFDXVHWKH\ SHUPLWWHGWKHNLQJWRVWUHQJWKHQVRYHUHLJQW\E\´SXVKLQJ>KLVZLOO@EH\RQGWKH ODZµZKLOHVLPXOWDQHRXVO\KHOSLQJWKHRQHJLYHQJUDFH1DWDOLH=HPRQ'DYLV )LFWLRQLQWKH$UFKLYHV3DUGRQ7DOHVDQG7KHLU7HOOHUVLQ6L[WHHQWK&HQWXU\)UDQFH6WDQ IRUG6WDQIRUG8QLYHUVLW\3UHVV    ,DPLQWHQWLRQDOO\LQYRNLQJDZLGHUDQJHRIVRXUFHVLQWKLVHVVD\LQRUGHUWR PDNHVRPHWKHRUHWLFDOUHPDUNVDERXWWKHUROHRIWKHSDUGRQLQWKHPRGHUQOLE HUDOWUDGLWLRQDQGWKRVHDUUD\HGDJDLQVWWKDWWUDGLWLRQWKHZRUNRI,PPDQXHO >@

/,%(5$/&2167,787,21$/,60$1'7+(629(5(,*13$5'21

.DQWLQSDUWLFXODUUHPDLQVRQHRIWKHSDUDGLJPDWLFSKLORVRSKLFDOEDVHVIRU OLEHUDOLVPDJDLQVWZKLFKϮJXUHVOLNH&DUO6FKPLWWDLPWKHLUFULWLTXHV7KHHV VD\WXUQVDWWKHHQGWRDQDOWHUQDWLYHWKHDWULFDOFRQFHSWLRQRIWKHSDUGRQRI IHUHGEHIRUHWKHVROLGLϮFDWLRQRIOLEHUDOLVPDQDOWHUQDWLYHWKDW,DUJXHDYRLGV WKHSULQFLSDOSUREOHPRIERWKOLEHUDODQGDQWLOLEHUDOYLVLRQV,IDVWKHLQWUR GXFWLRQWRWKLVYROXPHFRQWHQGV´$HVWKHWLFVOLWHUDWXUHDQGHVSHFLDOO\WKHWKH DWHUDUHQROHVVVFLHQFHVRIVRYHUHLJQW\WKDQODZHFRQRPLFVDQGWKHOLIHDQG PLQGVFLHQFHVµWKHDWHUPD\KHOSWRIXUQLVKXVZLWKDOWHUQDWLYHVWRVRYHUHLJQW\ DVZHOO   $OH[DQGHU+DPLOWRQ´)HGHUDOLVWµLQ+DPLOWRQ-DPHV0DGLVRQDQG-RKQ-D\ )HGHUDOLVW3DSHUVHG&OLQWRQ5RVVLWHU1HZ@

( ,*+7

7KH9DQLVKLQJ6ODYHVRI3DULV 7  KH/HWWUHGH&DFKHWDQGWKH(PHUJHQFHRI DQ,PSHULDO/HJDO2UGHULQ(LJKWHHQWK&HQWXU\)UDQFH 0 , 5 $ 1 '$  6 3 , ( / ( 5

2  857$6.DVFRQWULEXWRUVWRWKLVYROXPHLVWRVHWDVLGHUHFHLYHGLGHDVDQG QDUUDWLYHFRQYHQWLRQVUHOHYDQWWRWKHPHDQLQJDQGVWUXFWXUHRISRZHUDQG VWDWHDXWKRULW\,QYLHZRIWKDWDVVLJQPHQWWKLVKLVWRULDQPXVWSXWKHUFDUGV RQWKHWDEOHWKLVLVDQHVVD\DERXWWKHVWDWHLWVWRSLFLVODZDQGLWVWHUUDLQ LV)UDQFH³WKHFRXQWU\WKDWJDYHXVZRUGVOLNHDEVROXWLVPVRYHUHLJQW\ EXUHDXFUDF\DQGSROLFH 0  RVWRIWKHSHRSOHZKRP,GLVFXVVLQWKLVHVVD\³HQVODYHGGRPHVWLFVLQ HLJKWHHQWKFHQWXU\ 3DULV³OLYHG QHDU D PRQXPHQW LQ WKH 3ODFH GHV 9LF WRLUHVFRPSRVHGRIEURQ]HERGLHVOLQNHGE\JROGFKDLQVLQDFLUFOHDURXQG DVWDWXHRIWKHNLQJ7KHVODYHV³HPERGLPHQWVRI/RXLV;,9·VFRQTXHVWVLQ (XURSH³ZHUHXQVKDFNOHGDQGKDXOHGRϸGXULQJWKH)UHQFK5HYROXWLRQRQ EHFRPLQJ´DVSHFWDFOHWKDWIUHHPHQFDQQRWDELGHµLQWKHZRUGVRIWKH OHJLVODWRU $OH[DQGUH7KHRGRUH9LFWRU &RPWH GH OD /DPHWK 7KH VODYHV YDQLVKHGODWHUWRUHVXUIDFHLQWKH/RXYUH DV3DULVSUHSDUHGLQVSULQJ IRUDKXJHIHVWLYDO³WKH)HVWLYDORI)HGHUDWLRQ³RQWKHWKHPHRIFRQWUDFWXDO JRYHUQPHQW 7  KHUHPRYDORIVODYHVIURPWKH3ODFHGHV9LFWRLUHVIROORZHGFKDQJHVWR )UHQFKODZWKDWH[SXQJHGZKDWUHYROXWLRQDU\OHJLVODWRUVDQGPHPEHUVRI WKHSXEOLFWRRNIRUDEXVHVRIVRYHUHLJQSRZHUHVSHFLDOO\OHWWUHVGHFDFKHW,Q SULQFLSOHDOHWWUHGHFDFKHW³DOVRFDOOHGDQRUGUHGXURLRUGHURIWKHNLQJ ³ ZDVDQRWHVLJQHGDQGVHDOHGE\WKHPRQDUFKHQDEOLQJDSHUVRQ·VH[LOHRU KLVGHWHQWLRQDWVSHFLDOVLWHVFDOOHGSULVRQVG·pWDWSULVRQVRIVWDWH ZKLFKOD\ >@

7+(9$1,6+,1*6/$9(62)3$5,6

EH\RQGUHDFKRIWKHQRUPDOOHJDOV\VWHP 'XULQJWKHHLJKWHHQWKFHQWXU\ OHWWUHVGHFDFKHWPXOWLSOLHGEHFDPHEDQDODQGLQ3DULV PDGHSRVVLEOHWKH URXQGXSRISURVWLWXWHVYXOJDUQHLJKERUVDQGDERYHDOOIDPLO\PHPEHUV³ GpFODVVpFKLOGUHQGUXQNVYLROHQWRUPDGVSRXVHV³DWWKHGLVFUHWLRQRIWKH FLW\·VOLHXWHQDQWJHQHUDORISROLFH,WZDVDVLJQRIWKHWLPHVWKDW$QWRLQH 5HQpGH9R\HUGH3DXOP\0DUTXLVG·$UJHQVRQ² LQKLVSRVWKXPRXV &RQVLGpUDWLRQVVXUO·DQFLHQHWSUpVHQWJRXYHUQHPHQWGHOD)UDQFHVKRXOGSURSRVH E\ZD\RIUDGLFDOUHIRUPWKDWWKHNLQJDFWXDOO\FRQVHQWWRHDFKXVHRI KLVVLJQDWXUHDQGVHDORQWKHVHGRFXPHQWV 7KHOHWWUHGHFDFKHW ZDVLQ SULQFLSOHWKHVXSUHPHH[SUHVVLRQRIGLVFUHWLRQDU\UR\DOSRZHU,QSUDFWLFH WKHPDQXIDFWXUHDQGXVHRIWKHVHGRFXPHQWVLQWKHHLJKWHHQWKFHQWXU\KDG OLWWOHWRGRZLWKWKHNLQJIRUUHDVRQVGLVWLQFWIURPWKRXJKQRWXQUHODWHGWR  WKHXVHRIKDQGZULWLQJGXPPLHVIRUWKHSURGXFWLRQRIDOOWKRVH/RXLV , Q/HGpVRUGUHGHVIDPLOOHV $UOHWWH)DUJHDQG0LFKHO)RXFDXOWGHVFULEH WKHZLGHVSUHDGXVHRIOHWWUHVGHFDFKHWE\IDPLO\PHPEHUVDVWKH´OHJDOL]D WLRQRISULYDWHUHSUHVVLRQUR\DOSRZHUDFFRUGHGOHJDODXWKRULW\WRORFNSHR SOHXSµ7KHXVHRIVWDWHSULVRQVWRVHWWOHGRPHVWLFFULVHVLQHLJKWHHQWKFHQ WXU\3DULVLVSHUWLQHQWWRWKHVWXG\RIVRYHUHLJQW\LQVHYHUDOUHVSHFWV7KLV SUDFWLFHVXJJHVWVDQHHGWRUHWKLQNKRZVRYHUHLJQW\LVSURGXFHGLQGDLO\OLIH WRUHϰHFWRQZKHUHVRYHUHLJQW\FRPHVIURPLQDVSDWLDOVHQVHWKHKRPH" WKHFRXUW" DQGHYHQWRUHFRQVLGHUWKHQDWXUHRIGHVSRWLVP 3HWLWLRQVIRUOHWWUHVGHFDFKHWGUDZDWWHQWLRQWRWKHDPELJXRXVPHDQLQJ RI´SULYDWHOLIHµDQG´IDPLO\GLVRUGHUµ,QDULVWRFUDWLFKRPHVODOpJDOLVDWLRQ GHODUpSUHVVLRQSULYpHLQWKHSKUDVHRI)DUJHDQG)RXFDXOW PLJKWPHDQXV LQJUR\DOSRZHUWRDUUHVWDQLQVROHQWODFNH\)RUPDVWHUFUDIWVPHQDKRXVH KROGGLVSXWHZDVLQYDULDEO\DODERUGLVSXWH$VZHVKDOOVHHWKHTXHVWLRQRI ZKDWFRXQWHGDVSULYDWHDQGIDPLO\UHODWHGEHFDPHHYHUPRUHFRPSOH[LQWKH HLJKWHHQWKFHQWXU\ZKHQ3DULVEHFDPHDQLPSHULDOFDSLWDOIXOORILPSHULDO KRXVHKROGV7KHSULYDWHVSKHUH³WKHSUHFLQFWFDOOHGKRPH³LVDQLPSUHFLVHO\ GUDZQVRFLDOLGHDWKDWODFNVFOHDUOHJDOPHDQLQJ:KHQ)DUJHDQG)RXFDXOW WUDFHWKHULVHRIOHWWUHVGHFDFKHWLQHLJKWHHQWKFHQWXU\)UDQFHWRUHYHDO´WKH OHJDOL]DWLRQRISULYDWHUHSUHVVLRQµWKH\LPSO\WKDWSULYDWHUHSUHVVLRQODFNHG DOHJDODUVHQDOXQWLOWKHSRSXODUL]DWLRQRIWKLVDODUPLQJSUDFWLFH@

&28576

:  KHQXVHGDJDLQVWVODYHVOHWWUHVGHFDFKHWDOORZHGFURZQRϲ FLDOVWRVDIH JXDUGWKHFRORQLDOSURSHUW\RIPDVWHUVVRMRXUQLQJLQWKHFDSLWDO7KLVSRLQW EHFRPHVHVSHFLDOO\FOHDUZKHQWKHSROLFHUHVSRQGHGWRFRPSODLQWVDERXW QHZO\VROGSHRSOH7RHQDEOHWKHDUUHVWE\OHWWUHGHFDFKHWRIWKHVODYH -RVHSK$]DWKHPDQ·VQHZPDVWHUD1HDSROLWDQJUDQGHHSUHVHQWHGWKH SROLFHZLWKDQRWDUL]HGVDOHGRFXPHQW,QVSHFWRU0XURQUHSRUWHG´,GLVFRY HUHG>$]D@WREHOLYLQJDWWKHKRPHRI*LOOHVZLJPDNHULQWKH5XHGHV0RX OLQVRQWKH%XWWH6DLQW5RFKH,KDGWKHKRQRURILQIRUPLQJWKH3ULQFH>RI &RORQQD@RIWKHVXFFHVVRIP\UHVHDUFKµDWZKLFKWKHSULQFHH[KLELWHGKLV ´DFWRISXUFKDVHRIWKLVQHJUR²IRUPHUO\EHORQJLQJWR6LHXU%HUQDUGZKRDF TXLUHGKLPIURPWKH&RXQWG·$UWLJXHJUDQGFKDPEHUODLQWRWKHLUDSRVWROLF PDMHVWLHV³EHIRUH6DXYDJHDQG6DXYLJQ\QRWDULHVDW&KDWHOHWRQWKHWK RIODVW0D\µ 7  KH$]DDϸDLUHZDVPRUHWKDQDSROLFHPDWWHU7KHVDOHRI$]DEHIRUH3DULV QRWDULHV VSHDNV WR WKH QHZ SURPLQHQFH RI VODYHV LQ HLJKWHHQWKFHQWXU\ OHJDOGRFXPHQWVOLQNHGWRWKH)UHQFKFDSLWDO:KHUHYHUWKH\KDSSHQHGWR UHVLGH³LQ$IULFDWKHFRORQLHVRUWKHPHWURSROH³VODYHVFRXOGQRWDYRLGEHLQJ SUHVHQWDVϮJXUHVLQ3DULVLDQOHJDOGRFXPHQWVGXULQJWKHULVHRIWKH)UHQFK VODYHWUDGHDQGRIWKH6DLQW'RPLQJXHSODQWDWLRQFRPSOH[3DULVLDQFRXUWV QRWRQO\KHDUGFDVHVGLYLGLQJFRORQLDOSURSHUW\EXWDOVRGHϮQHGWKHYHU\ PHDQLQJRIFRORQLDOSURSHUW\,WZDVWKH3DULVLDQFLYLOFRXUWDW&KDWHOHWQRW DFRORQLDOFRXUWWKDWGHϮQHGVODYHVDVPRYDEOHVUDWKHUWKDQUHDOHVWDWHLQ  ,WZDVD3DULVLDQQRWDU\ZKRUHFRUGHGWKHFRQWUDFWEHWZHHQ ´WKHUR\DOFRPSDQLHVRI6HQHJDODQG6DLQW'RPLQJXHIRUWKHIXUQLVKLQJRI QHJURHVD\HDUµ%\WKHHQGRIWKHHLJKWHHQWKFHQWXU\ZKHQWKHQXPEHU RI$IULFDQVFDSWLYHVGLVHPEDUNLQJLQ6DLQW'RPLQJXHUHDFKHGIRUW\WKRX VDQGSHU\HDUWKHDVVHWVRI3DULVLDQVFDPHLQFUHDVLQJO\WRLQFOXGHSURS HUW\LQERWK)UDQFHDQGWKH:HVW,QGLHV 7KHURXQGXSRI3DULVLDQVODYHVE\UR\DOZULWUDLVHVWKHTXHVWLRQRIZKDW FRXQWHGDVWKHODZRIWKHODQGLQWKDWFLW\DQGLQSUHUHYROXWLRQDU\)UDQFH PRUHJHQHUDOO\0RVWREYLRXVO\WKHDEGXFWLRQRIVODYHVE\OHWWUHVGHFDFKHW GHϮHGWKHVRFDOOHGIUHHVRLOSULQFLSOH$FFRUGLQJWRWKHKLVWRULDQ6XH3HD ERG\WKHGRFWULQHWKDW´WKHUHDUHQRVODYHVLQ)UDQFHµEHJDQDVDPHGLHYDO RUUHQDLVVDQFHOHJDOPD[LPIRUELGGLQJVHUIGRPDQGVODYHU\LQWKHUHDOP ,QKHUFODVVLFZRUNRQWKHVXEMHFW3HDERG\GHVFULEHVWKHVXFFHVVIXOHϸRUWV E\VODYHVLQ3DULVWRVXHIRUWKHLUIUHHGRPEHIRUHWZRFRXUWVLQWKHFDSLWDO WKH$GPLUDOW\&RXUWRI3DULVWKHKLJKHVWFRXUWRILWVW\SHLQWKHODQGDQG >@

7+(9$1,6+,1*6/$9(62)3$5,6

WKH3DULV3DUOHPHQWDQDSSHOODWHFRXUWIRUFLYLODQGFULPLQDOPDWWHUVZLWK DYDVWWHUULWRULDOMXULVGLFWLRQ,Q3HDERG\·VUHDGLQJWKHIUHHVRLOGRFWULQH DVVXPHGWKHVWDWXVRIDIRXQGLQJFRQVWLWXWLRQDOSULQFLSOHLQHLJKWHHQWK FHQWXU\)UDQFHDQGWKHQGHFOLQHGLQOHJDOSXUSRUWDIWHUGXHWRWKHFRQ WDPLQDWLQJLQϰXHQFHRIUDFLDOWKRXJKWIURPWKHFRORQLHV+LVWRULDQV'ZDLQ &3UXLWWDQG(ULFN1RsOKDYHUHYLVHG3HDERG\·VDFFRXQWE\VXJJHVWLQJJHR JUDSKLFDOGLVSDULWLHVLQWKHDSSOLFDWLRQRIWKHIUHHVRLOGRFWULQH$QHQVODYHG IRRWPDQZKRGLWFKHGKLVOLYHU\LQ1DQWHVFRXOGH[SHFWDGLϸHUHQWUHFHSWLRQ E\FRXUWVWKHUHWKDQLQ3DULV,Q3UXLWW·VUHDGLQJZKLFKUHOLHVRQWKHUHFRUGV RIDGPLUDOW\FRXUWVDQGSDUOHPHQWVRXWVLGH3DULV)UHQFKFRXUWVZHUHEH KROGHQWRVODYHRZQHUVWRGLϸHUHQWGHJUHHVGHSHQGLQJRQSODFH +  RZHYHUFRPPRQVHQVLFDOWKLVUHJLRQDOO\VHQVLWLYHUHDGLQJPLJKWVHHP WKHUHLVVRPHWKLQJXQVDWLVI\LQJDERXWWKHLGHDRIODZWKDWVXVWDLQVLW/DZ ZDVWKHLGHRORJLFDOH[SUHVVLRQRIWKHUXOLQJFODVVH[FHSWLI\RXKDSSHQHGWR EHLQ3DULV":K\GLGMXGLFLDOLQVWLWXWLRQVLQWKHFDSLWDOUHPDLQDORRIWRPD WHULDOFRQFHUQVWKDWSURYHGVRLQϰXHQWLDOHOVHZKHUH"6XH3HDERG\VXJJHVWV WKDWUHOLJLRXVFRQYLFWLRQOLQNHGWRDNHHQQHVVIRUOLEHUW\OD\EHKLQGWKHUH IXVDORIMXGJHVLQWKH3DULV3DUOHPHQWWRUHJLVWHUDHGLFWFRQFHUQLQJ VODYHVLQ)UDQFHDQGDUHODWHGGHFODUDWLRQFRQFHUQLQJWKHLUDGPLQLV WUDWLRQ,WLVZRUWKQRWLQJHQSDVVDQWWKDWLQWKH3DULV3DUOHPHQWGLG QRWPLQGUHJLVWHULQJWKH'pFODUDWLRQGX5R\FRQFHUQDQW/D*XLQpHZKLFKFRQ FHUQHGWKHIHHVSDLGWR)UHQFKPHUFKDQWVZKRKDGUHFHLYHGUR\DOSDVVSRUWV IURP WKH ODWH VRYHUHLJQ /RXLV ;,9 WR WUDGH LQ $IULFDQ VODYHV LQFOXGLQJ FKLOGUHQ 3  DUOHPHQW·VUHIXVDOWRUHJLVWHUWKHHGLFWGLGQRWNHHS3DULVLDQPHQ RIWKHODZIURPSUHVVLQJWKHFURZQWRKHOSZLWKWKHIDPLO\·VRZQVODYHV/DZ \HUVDQGMXGJHVLQ3DULVLQFOXGHGVODYHRZQHUVEDFNIURPWKHFRORQLHVDQG WKHLUFOLHQWVLQODZVDQGEORRGUHODWLRQV7KHVOHQGHUSROLFHϮOHFRQ FHUQLQJ´$1HJUR6ODYHµLQFOXGHVDQRWHH[SODLQLQJWKDW´0RQVLHXU&RXVWDUG KRQRUDU\FRXQFLORULQWKH*UDQG&KDPEHU>RIWKH3DUOHPHQW@GHPDQGVDQ RUGHURIWKHNLQJWRDUUHVWDQHJURVODYHEHORQJLQJWR6LHXU&RXVWDUGSODQWHU IURP6DLQW'RPLQJXHµ,WLVH[SUHVVLYHRIWKHGHYHORSLQJFKDUDFWHURI3DULV·V OHJDO HVWDEOLVKPHQW WKDW D \RXQJ 0DUWLQLTXDQ FKDUODWDQ KXVWOHG VKRS NHHSHUVWKHUHLQ³WRHQDEOHDVKRSSLQJVSUHHIRUKLVORYHUDQRSHUD JLUO ³E\SRVLQJDVDQHZFRXQFLORULQWKH3DULV3DUOHPHQW 0RUHRYHUDOO 3DULVLDQSROLFHFRPPLVVLRQHUV³LQFOXGLQJWKRVHZKRDUUHVWHGVODYHVE\UR\DO ZULW³ZHUHDOVRODZ\HUVOLFHQVHGWRSUDFWLFHDWWKH3DULV3DUOHPHQW,WZDV >@

&28576

´,3LHUUH&KHQRQDGYRFDWHDW3DUOHPHQWUR\DOFRXQFLORUFRPPLVVLRQHU DW&KkWHOHWµZKRUHFRUGHGWKHDUUHVWE\Rϲ FHU%XKRWRIWKHPXODWUHVV 0DULH7KpUqVHDQHQVODYHGGUHVVPDNHULQDIRXUWKϰRRUURRPRQWKH5XHGH 0DLO ,WZDV´+XEHUW0XWHODGYRFDWHDW3DUOHPHQWUR\DOFRXQFLORUDQG FRPPLVVLRQHUDW&KkWHOHWµZKRUHFRUGHGWKHDUUHVWRIWKHVODYH3DSLOORQDW WKHKRPHRI0DULHIHPPHGHGpEDXFKHQHDUWKH4XLQ]H9LQJW0DUNHW '  LGWKH3DUOHPHQW·VUHIXVDOWRUHJLVWHUWKHHGLFWDQGWKHGHFOD UDWLRQPDWWHU"7KHWH[WZHQWLQWRLPPHGLDWHHϸHFWLQ3DULVLQDIRUP WKDWZRXOGKDYHEHHQSODLQ³DIDFWRIGDLO\OLIH³IRUMXGJHVDQGODZ\HUVRI WKDWFRXUWZKRZRUNHGLQWKH3DODFHRI-XVWLFH:KHUHWKHDFWPHUHO\ UHTXLUHGPDVWHUVWRVHFXUHSHUPLVVLRQIURPFRORQLDOJRYHUQRUVDQGUHJLV WHUWKHLUVODYHVZLWKWKHDGPLUDOW\XSRQHQWHULQJWKHUHDOPWKHWH[W IXUWKHUVSHFLϮHGWKDW´WKHVDLGSHUPLVVLRQVZLOODOVREHUHJLVWHUHGZLWKWKH FOHUNRIWKH0DUEOH7DEOHDWWKH3DODFH>RI-XVWLFH@LQ3DULVIRUVODYHVWDNHQ LQWRRXUWRZQµ7KH0DUEOH7DEOH ZDVDQDPHIRUWKH$GPLUDOW\&RXUWRI 3DULVZKLFKFRQYHQHGLQWKH3DODFHRI-XVWLFHDVGLGWKH3DULV3DUOHPHQW $VVWLSXODWHGE\WKHUR\DODFWWKHDGPLUDOW\FRXUWRSHQHGQHZVODYH UHJLVWHUVEHJLQQLQJLQZKLFKLQGLFDWHGQRWRQO\WKHQDPHVRIVODYHV DQGPDVWHUVDUULYLQJLQ3DULVEXWDOVRWKHQDPHRIWKHSHUVRQZKRDSSHDUHG EHIRUHWKH3DULVDGPLUDOW\FOHUNWRDQQRXQFHWKHLUDUULYDO)RULQVWDQFHRQ 1RYHPEHU-RVHSKGH6DLQW/DXUHQWDGYRFDWHLQWKH3DULV3DUOHPHQW OLYLQJ LQ 3DULV DW 5XH 1HXYH LQ WKH 6DLQW (XVWDFKH SDULVK ´UHQHZHG WKH HDUOLHUGHFODUDWLRQRI'DPH3HWLWFRQFHUQLQJWZRVODYHV3LHUURWDJH DQG &KDUORWDJH µ7KLVLWHPLQFRPPRQZLWKHYHU\VODYHUHJLVWUDWLRQEHIRUH WKHDGPLUDOW\FOHUNHQGVZLWKWKHSKUDVH´DVVWLSXODWHGE\WKHGHFODUDWLRQV RIWKHNLQJJLYHQLQ3DULVLQWKHPRQWKRI2FWREHUDQGLQ'HFHPEHU µ,WZDVQRWXQFRPPRQIRUODZ\HUVLQSDUOHPHQWWRKDQGOHDGPLUDOW\ PDWWHUV,WZRXOGKDYHEHHQDTXLFNHUUDQGIRUPHQZKRKDGEXVLQHVVLQWKH VDPHEXLOGLQJ 3  DUOHPHQW·VQRQUHJLVWUDWLRQRIWKHDQGUR\DODFWVGLGQRWGLPLQ LVKWKHLPSRUWDQFHRIWKHVHWH[WVWRVODYHVDQGODZ\HUV,QWKLVUHVSHFWSR OLFHGRFXPHQWVUHODWLQJWRWKHZHOONQRZQFDVHRI-HDQ%RXFDX[Y9HUGHOLQ  VXJJHVWWKDWWKHHGLFWPDGHLWSRVVLEOHIRU%RXFDX[WRDWWDLQIUHH GRP'XULQJWKLVDϸDLUWKHMXULVW5HQp+pUDXOWWKHQDFWLQJDV3DULV·VOLHX WHQDQWJHQHUDORISROLFHGHFOLQHGWRLVVXHDOHWWUHGHFDFKHWIRU%RXFDX[·V DUUHVW LQ VSLWH RI DSSHDOV E\ WKH VODYH·V SXUSRUWHG RZQHU³WKH QRWRULRXV %HUQDUGGH9HUGHOLQ6HLJQHXUGH&DEDQDFZKRP-HDQ-DFTXHV5RXVVHDX >@

7+(9$1,6+,1*6/$9(62)3$5,6

GHVFULEHG\HDUVODWHU DV´ROGXJO\GHDIEUXWDOMHDORXVVFDUUHG¬¬¬VFUHDP LQJUHSURDFKLQJUDQWLQJDQGFDXVLQJKLVZLIH>0DULH0DGHOLQHG·$UV@WR FU\µ+pUDXOWDIRUPHUUR\DODGYRFDWHDW&KkWHOHWZKRVDWLQWKH5R\DO&RXQ FLOGLGQRWUHFRJQL]H9HUGHOLQDV%RXFDX[·VULJKWIXORZQHURQOHJDOJURXQGV DQGSHUKDSVDOVRRQSHUVRQDORQHV %RXFDX[·VQRQUHJLVWUDWLRQZLWKWKHDG PLUDOW\LQ)UDQFHFRQWUDYHQLQJWKHHGLFW DQGUHFHQWPDUULDJHWRD 3DULVLDQJLUOZKREHFDPHSUHJQDQWGXULQJWKHDϸDLUH OHG+pUDXOWWRVLGH ZLWKWKHVODYHDJDLQVWWKHPDVWHU$FFRUGLQJWRWKHHGLFWWKHPDUULDJH RIDVODYHLQ)UDQFHZLWKWKHSUHVXPHGFRQVHQWRIKLVPDVWHUVHUYHGDVDX WRPDWLFJURXQGVIRUPDQXPLVVLRQ,WLVHYHQOLNHO\WKDW%RXFDX[·VDOOLHV DPRQJWKHFOHUJ\RSWHGWRVSHHGKLVQXSWLDOVE\ZDLYLQJWKHPDUULDJHEDQQV WRSUHYHQW9HUGHOLQIURPEORFNLQJWKHXQLRQDOWRJHWKHU 7KHVDPH\HDUWKDW%RXFDX[ZRQKLVIUHHGRPWKHFURZQUHPRYHGWKH YHU\SURYLVLRQVLQWKHODZWKDWFXWWKLVVODYHDSDWKWROLEHUW\7KH GHFODUDWLRQLPSRVHGDQDEVROXWHEDQRQVODYHPDUULDJHLQ)UDQFH,WDOVRGH QLHGIUHHGRPWRXQUHJLVWHUHGVODYHVLQ)UDQFHZKRZHUHWKHUHDIWHUWREH FRQϮVFDWHGE\WKHNLQJ :  KDWWKHQZDVWKHODZRIWKHODQGZKHQLWFDPHWRVODYHVLQHLJKWHHQWK FHQWXU\)UDQFHDQGLQ3DULVLQSDUWLFXODU":KDWUROHGLGWKHOHWWUHGHFDFKHW SOD\LQGHϮQLQJLW"7RDQVZHUWKHVHTXHVWLRQVUHTXLUHVWKDWZHUHYLVLWWKH XQUHJLVWHUHGHGLFWDQGWKHXQUHJLVWHUHGGHFODUDWLRQFRQFHUQLQJ VODYHV VRMRXUQLQJ LQ )UDQFH 3DVW KLVWRULDQV ZKR KDYH DQDO\]HG WKHVH WH[WVKDYHDOORYHUORRNHGNH\SDVVDJHVLQWKHVHWH[WVWKDWGRQRWUHODWHLQD VWUDLJKWIRUZDUGZD\WRVODYHOLIHLQWKHPHWURSROH 7  KHHGLFWDQGWKHGHFODUDWLRQGLGQRWPHUHO\IDVKLRQDQHZODZ RIVODYHU\IRUGRPHVWLF)UDQFH7KHVHWH[WVDOVRFRQFHUQHGWKH YDOLGLW\RI FRORQLDOODZRQPHWURSROLWDQVRLO$FFRUGLQJWRWKHϮUVWDUWLFOHRIWKH WH[W´7KHHGLFWRIWKHPRQWKRI0DUFKDQGGHFUHHVSHUWDLQLQJWRLWV H[HFXWLRQDQGLQWHUSUHWDWLRQZLOOEHH[HFXWHGLQWKHFRORQLHVµ(YHU\RWKHU DUWLFOHRIWKLVHGLFWFRQFHUQHGVODYHVVRMRXUQLQJLQ)UDQFH7KHHGLFW·V HQDFWPHQWGHSHQGHGRQLWVUHJLVWUDWLRQE\FRXUWVLQ)UDQFHH[FOXVLYHO\QRW RQRYHUVHDVFRXUWV 0RUHRYHUWKHϮUVWDUWLFOHRIWKLVWH[WZRXOGVHHPRGGO\ VXSHUϰXRXV7KH&RGH1RLUWRRNHϸHFWLQWKHRYHUVHDVHPSLUHGHFDGHVHDU OLHUZLWKRXWQHHGLQJWREHUHJLVWHUHGE\DVLQJOHPHWURSROLWDQFRXUW,QVSLWH RIWKHPHWURSROLWDQVXEMHFWPDWWHURIWKLVHGLFWDQGLQVSLWHRIWKHORFDWLRQ RIWKHFRXUWVWKDWZHUHVXSSRVHGWRUHJLVWHUDQGDSSO\LWWKHϮUVWDUWLFOHRI WKLVWH[WFODLPHGWRHQDFWDVODYHFRGHLQWKHFRORQLHVWKLUW\\HDUVDIWHULW >@

&28576

WRRNHϸHFWWKHUH,QYLHZRIWKHVHFXULRVLWLHVLWVHHPVUHDVRQDEOHWRDVVXPH WKDWWKHJRDORIWKHDFWZDVQRWWRHQDFWWKH&RGH1RLULQWKHFRORQLHV ,QVWHDGWKHHGLFWZDVGUDIWHGVO\O\WRREOLJHPHWURSROLWDQFRXUWVWRUHF RJQL]HWKHFRORQLDOVODYHFRGHDVSDUWRIWKHJHQHUDOODZRI)UDQFH,WZDV ZULWWHQVRWKDWFRXUWVLQVWHDOWKZRXOGHQDFWWKH&RGH1RLURQPHWURSROL WDQVRLOVXEMHFWWRH[FHSWLRQVDQGDPHQGPHQWVVHWIRUWKLQODWHUSDUDJUDSKV )RULQVWDQFHZKHUHWKH&RGH1RLUUHTXLUHGWKHSULRUDVVHQWRIPDVWHUVWR WKHPDUULDJHRIVODYHVWKHHGLFWVSHFLϮHGWKDWVODYHVZKRPDUULHGLQ )UDQFHZLWKWKHLUPDVWHUV·DSSURYDO´VKDOOEHFRPHIUHHE\YLUWXHRIWKHLU FRQVHQWµ:KDWHYHUDPELJXLW\UHPDLQHGDERXWWKHVWDWXVRIWKH&RGH1RLU LQ)UDQFHVRRQYDQLVKHGWKDQNVWRIDUPRUHH[SOLFLWODQJXDJHLQWKH 'HFODUDWLRQGXURLFRQFHUQDQWOHVHVFODYHVQqJUHVGHVFRORQLHVTXLLQWHUSUqWHO·(GLWGX PRLVG·2FWREUH7KLVODWHUWH[WH[SODLQHGWKHQHZVWDWXVRIFRORQLDOVODYH ODZLQFRQVHTXHQFHRIWKHHDUOLHUDFW$FFRUGLQJWRWKHSUHDPEOHRIWKH GHFODUDWLRQ´WKHDFFRXQWRIWKHFRORQLHVZHUHFHLYHGRQDVFHQGLQJWKHWKURQH KDYLQJOHGXVWRUHFRJQL]HWKHZLVGRPDQGQHFHVVLW\RIGLVSRVLWLRQVLQWKH OHWWHUVSDWHQWLQWKHIRUPRIWKH(GLFWRI0DUFKZHRUGHUHGLWVH[HFX WLRQE\WKHϮUVWDUWLFOHRIRXU(GLFWRI2FWREHUµ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·VOHJDOLW\KHUHPDUNHGZDVVWUDLJKW IRUZDUGLQVLGHWKHMXULVGLFWLRQRIFRXUWVWKDWUHJLVWHUHGWKHDQG DFWV´6ODYHU\LVOHJLWLPDWHDQGUHFRJQL]HGE\WKHODZV7KLVZDVWKHVXEMHFW RIWKHHGLFWDQGRIWKHGHFODUDWLRQµ ,QWKHMXULVGLFWLRQRIFRXUWV WKDWGHFOLQHGWRUHJLVWHUWKHVHDFWVKHZURWH´RQHKDVUHFRXUVHWROHWWUHVGH FDFKHWµ)RUWKLVMXULVWWKHXVHRIOHWWUHVGHFDFKHWLQDQGDURXQG3DULVKDG WKHHϸHFWRIJLYLQJIRUFHWRODZVWKDWOD\GRUPDQWDVDFRQVHTXHQFHRIQRQ UHJLVWUDWLRQ,QDVHQVHWKHVHOHWWUHVGHFDFKHWHQDFWHGVODYHODZDWPRPHQWV >@

7+(9$1,6+,1*6/$9(62)3$5,6

RIFULVLVZKHQVODYHVFRQWHVWHGWKHLUVWDWXVE\ϰHHLQJRUE\HQWHULQJIUHH GRPVXLWVEHIRUHWKH$GPLUDOW\&RXUWRI3DULV 3  ULVRQHUϮOHVIURPWKH$UFKLYHVGHOD%DVWLOOHUHYHDOWKDW3DULVLDQSROLFH DJHQWVFDSWXUHGVODYHVDWWKHUHTXHVWRIPDVWHUVZKRVRXJKWHLWKHUWRNHHS WKHLUVODYHVIURPSXUVXLQJIUHHGRPVXLWVEHIRUHWKHDGPLUDOW\FRXUWRUWR UHFRYHUVODYHVZKRKDGDOUHDG\EHHQGHFODUHGIUHHE\WKDWFRXUW 2UGHUV IURPWKHPLQLVWU\RIWKHQDY\W\SLFDOO\OD\EHKLQGWKLVSDWWHUQRIREVWUXF WLRQZKLFKRIWHQPHDQWDUUHVWLQJVODYHVLQWKHGHDGRIQLJKWDQGVSLULWLQJ WKHPDZD\WRSULVRQVLQWKHSRUWVXQWLOWKHLUPDVWHUVFRXOGDUUDQJHIRUWKHLU WUDQVSRUWRYHUVHDV2IWKHIRUW\VL[SHRSOHRIFRORUIRUZKRP,KDYHSROLFH ϮOHVWZHQW\ZHUHVODYHVZKRHQWHUHGIUHHGRPVXLWVEHIRUHWKH$GPLUDOW\ &RXUWRI3DULV2IWKHVHWKUHHHQWHUHGSULVRQZLWKFROOXVLRQE\WKHSURVHFX WRURIWKHDGPLUDOW\FRXUW,WEHFRPHVSRVVLEOHWRLGHQWLI\WKHDUUHVWDQG UHPRYDORIDQRWKHUVHYHQVODYHVZKRVRXJKWIUHHGRPIURPWKHDGPLUDOW\ FRXUWE\FURVVUHIHUHQFLQJGLJLWL]HGFRORQLDOUHFRUGVWKH,5(/GDWDEDVH DU FKLYHVRIWKH3DULVSUHIHFWXUHRISROLFHSXEOLVKHGMXGLFLDOFKURQLFOHVDQG (ULF1RsO·VLQYDOXDEOH'LFWLRQQDLUHGHVJHQVGHFRXOHXUGDQVOD)UDQFHPRGHUQH   7DNHIRULQVWDQFHWKHFDVHRI-XOLHWWHIURP%HQJDOZKRPGRFXPHQWV RIWKHSHULRGYDULRXVO\GHVFULEHDVDMHXQHLQGLHQQHDQpJUHVVHDQGDQpJUHVVH LQGLHQQH6ROGWKULFHDWDJHVHYHQEHIRUHUHDFKLQJ)UDQFHE\ZD\RI0DXUL WLXVVKHDSSHDUHGEHIRUHWKHDGPLUDOW\FOHUNRQ6HSWHPEHUDWDJH IRXUWHHQWRGHPDQGKHUIUHHGRP6RRQKHURZQHU-HDQ&RUELQ'XSOHVVLVD IRUPHUVROGLHUZLWKDPLQRUSRVWDWFRXUWRQHRIVHYHUDOVWHZDUGVRIWKHUR\DO IUXLWHU\ REWDLQHGDOHWWUHGHFDFKHWLQVWUXFWLQJ,QVSHFWRU0XURQ´WRDUUHVW WKHQHJUHVV-XOLHWWHDQGFRQGXFWKHUWRWKHSULVRQVRI/H+DYUHµ7KHVDPH ZULWLQVWUXFWVWKHMDLOHUDW/H+DYUHWRUHWDLQKHU´XQWLOWKH PRPHQWRI KHUHPEDUNDWLRQµ+HUWUDFHUHDSSHDUVLQWKHDUFKLYHVRI1RUPDQG\6HLQH 0DULWLPH ZKHQFHZHOHDUQWKDW-XOLHWWHZDVWREHVROGDJDLQLQDQRWKHU FRXQWU\2Q1RYHPEHU´-XOLHWWHQHJUHVVIURP%HQJDODJHIRXUWHHQ ZDVHPEDUNHGDW/H+DYUHE\WKHFDSWDLQ/RXLV1LFRODV3DUTXHWRQWKH'XFK HVVHG·$QYLOOH¬¬¬KHDGHGWR&DS)UDQoDLVµ6KHZDVRϸWR6DLQW'RPLQJXH7KH PLVIRUWXQHVRI-XOLHWWHXQIROGLQVFUDSVWDNHQIURPWKUHHGLϸHUHQWDUFKLYDO GHSRVLWRULHVWKH1DWLRQDO$UFKLYHVLQ3DULVWKH3UHIHFWXUHRI3ROLFHLQ3DULV DQGWKH$UFKLYHVRI6HLQH0DULWLPH +RZHYHUVKHKDVQRSROLFHϮOHLQWKH %DVWLOOH DUFKLYDO VHULHV +HU H[DPSOH DQG D IHZ HTXDOO\ VFDWWHUHG FDVHV IURPWKHVDPH\HDUVPDNHLWFOHDUWKDWGRFXPHQWGHVWUXFWLRQDOVRQRWHG >@

&28576

E\)RXFDXOWDQG)DUJH QRWDQHQGWRWKHYDQLVKLQJV\VWHPDFFRXQWVIRU WKHODFNRIVODYHSROLFHϮ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·pWDW  WKHIXWXUHUHYROXWLRQDU\ +RQRUp*DEULHO5LTXHWL&RXQWRI0LUDEHDX² GHQRXQFHGWKHXVH RIDGPLQLVWUDWLYHSRZHUWRFLUFXPYHQWWKHFRXUWV´1RQHFDQEHFRQGHPQHG OHJLWLPDWHO\H[FHSWE\ODZVDQGE\ODZVWKDWDUHFRYHUHGLQHTXLW\DQGDX WKHQWLFLW\ZKLFKDORQHPDNHVWKHPREOLJDWRU\µ%\SHUPLWWLQJPDVWHUVWR VHL]HIUHHGRPVHHNLQJVODYHVDQGLPSULVRQWKHPSHQGLQJWUDQVIHUWRWKHFRO RQLHVOHWWUHVGHFDFKHWVXEYHUWHGWKHDXWKRULW\RIWKHDGPLUDOW\FRXUW,Q WKLVUHVSHFWUR\DOZULWVDJDLQVWVODYHVLQQRZD\GLϸHUHGIURPRWKHUVRUWV RIOHWWUHVGHFDFKHWLQHQDEOLQJ´WKHDGPLQLVWUDWLRQ>WRH[WHQG@LWVDXWKRU LW\RYHUWKLQJVWKDWWKHODZGRHVQRWVDQFWLRQµ1RQHWKHOHVVUR\DORUGHUV IRUWKHURXQGXSRIIUHHGRPVHHNLQJVODYHVLQ)UDQFHZHUHGLVWLQFWIURPRWKHU IRUPVRIWKHVHGRFXPHQWV:KHQDFFRUGHGWRVODYHPDVWHUVWKHVHZULWVGLG PRUHWKDQFLUFXPYHQWWKHODZ7KH\DOVRJDYHIRUFHWRDODZRIXQFHUWDLQ OHJLWLPDF\³WKH&RGH1RLUDVPRGLϮHGIRUGRPHVWLF)UDQFHE\WKHHGLFW DQGLWVFRPSDQLRQSLHFH:KHQWXUQHGDJDLQVWVODYHVOHWWUHVGHFDFKHWIXQF WLRQHGVLPXOWDQHRXVO\DVGHYLFHVE\ZKLFKWRFLUFXPYHQWWKHODZLQIUHH GRPVXLWVEHIRUHWKHDGPLUDOW\FRXUW DQGDVGHYLFHVE\ZKLFKWRDSSO\WKH ODZVODYHODZ  :  KLOHH[FHSWLRQDOLQVHYHUDOUHVSHFWVWKH%DVWLOOHϮOHRQ3DXOLQH²  ZKLFKEHJLQVDWWKHKRPHRIDODZ\HUDWWKH3DULV3DUOHPHQWLVRIVSH FLDOLQWHUHVWIRUZKDWLWUHYHDOVDERXWWKHDSSOLFDELOLW\RIWKH&RGH1RLUWR WKHFDSLWDO3DXOLQH·VFDVHUHDGDJDLQVWRWKHUGRFXPHQWVRIWKHSHULRGIXU WKHUPDNHVLWSRVVLEOHWRUHFRJQL]HDQHPHUJLQJFXVWRPRIWKHFRXQWU\ZLWK UHVSHFWWRVODYHVLQLPSHULDO3DULV 3  DXOLQHEHFDPHWKHSURSHUW\RI-HDQ%DSWLVWH&KDUOHV%RXYHWGH/R]LHU ² D6RXWK6HDH[SORUHUWKHGLVFRYHUHURI%RXYHW,VODQGDYHUDJH WHPSHUDWXUHƒ& DQGWZRWLPHJRYHUQRURIWKH)UHQFK0DVFDUHQH,VODQGV >@

7+(9$1,6+,1*6/$9(62)3$5,6

DYHUDJHWHPSHUDWXUHƒ& ZKLFKWKHQLQFOXGHG0DXULWLXVDQG5pXQLRQ %RXYHW UHWXUQHG WR )UDQFH LQ ODWH  DW WKH HQG RI WKH 6HYHQ @

&28576

KRSH WKDW ´D ULJRURXV FRUUHFWLRQ PLJKW UHFDOO KLP WR KLV GXW\µ 7UXGDLQH LPPHGLDWHO\UHFHLYHGDOHWWUHGHFDFKHWIRUKLVVODYHWRJHWKHUZLWKDSHU VRQDOQRWHDQGDQRUGHUIRUWKHVODYH·VOLEHUDWLRQZLWKWKHGDWHOHIWEODQNVR WKDW KH PLJKW H[WUDFW WKH ER\ ZKHQHYHU KH ZLVKHG 7KH LQVWUXFWLRQV UH JDUGLQJ7pOpPDTXHDOVRLQGLFDWHWKDW0RQWLJQ\·VIDWKHU'DQLHO&KDUOHV7UX GDLQH ³IRXQGHURIWKHeFROHGHV3RQWVHW&KDXVVpHV³KDGVRXJKW KHOSIURPWKHSROLFHLQGLVFLSOLQLQJDQRWKHUVODYHDIHZ\HDUVEHIRUH´6HY HUDO\HDUVDJR0RQVLHXUGH0DUYLOOH>OLHXWHQDQWJHQHUDORISROLFH²@ DFFRUGHGWKHVDPHIDYRUWR0RQVLHXU7UXGDLQHIRUDFKLOGRIWKHVDPHDJHLQ ZKRPKHWRRNDQLQWHUHVWµ$WWKH)RUO·eYrTXHSULVRQLQWKHWHHQDJH $ODGLQZKREHORQJHGWRWKH'XFGH&KDUWUHVWROGSROLFHWKDW´KHGLGQRW NQRZRIDQ\IDXOWH[FHSWWKDWRIPLVVLQJWKHODUJH)rWH'LHXSURFHVVLRQDQG RIDWWHQGLQJWKHVPDOO)rWH'LHXSURFHVVLRQZLWKRXWEHLQJDWWLUHGLQKLVGUHVV XQLIRUPµ:LWKUHVSHFWWR$ODGLQDQG7pOpPDTXHUR\DOZULWVERWKHQIRUFHG WKH&RGH1RLUDQGDQQRXQFHGWKDWGRFXPHQW·VLQYDOLGLW\LQWKHFDSLWDO%\ DUUHVWLQJWKHVHVODYHVRQWKHUHTXHVWRIVODYHRZQHUVDQGWKHLUDJHQWVSR OLFHUHFRJQL]HGWKHOHJLWLPDF\RIPDVWHUV·SURSHUW\FODLPV1RQHWKHOHVVWKH DUUHVWRIWKHVHGRPHVWLFVDQGWKHLUGHWHQWLRQLQSULVRQVRIVWDWHDURVHSUH FLVHO\EHFDXVHFRORQLDOVWDWXWHVUHOHYDQWWRVODYHSXQLVKPHQWGLGQRWDSSO\ LQ3DULV1HLWKHUIXJLWLYHVODYHVQRULQVROHQWRQHVFRXOGEHSXQLVKHGWKHUH E\WKHPHWKRGVRIWKHLVODQGV , QIDFW%RXYHWKRSHGWRXVHWKHOHWWUHGHFDFKHWTXLWHGLϸHUHQWO\WKDQ WKH7UXGDLQHVRUWKH'XFGH&KDUWUHV7KHVHPHQHQYLVDJHGWKHSULVRQRI VWDWHDVDZD\RIGLVFLSOLQLQJDQGWHUURUL]LQJ WKHLUHQVODYHGDGROHVFHQWUH WDLQHUV%\FRQWUDVWH[JRYHUQRU%RXYHWLQWHQGHGWRXQOHDVKWKHIXOOQHVV RIZKDWWKH&RGH1RLUSHUPLWWHG³HYHQWRVXUSDVVLW³WRDYHQJH3DXOLQH·VDW WHPSWDWDFFHGLQJWRIUHHGRP)RU%RXYHWWKHRQO\SHUWLQHQWODZDVIDUDV 3DXOLQHZDVFRQFHUQHGZDVWKHODZRIWKH0DVFDUHQHV$VKLVODZ\HUH[ SODLQHG WR WKH DGPLUDOW\ FRXUW LQ  %RXYHW ´KDV DOZD\V LQWHQGHG DQG VWLOOLQWHQGVWRHPEDUNKHUDWKLVH[SHQVHDQGVHQGKHUWKH,VOHRI%RXUERQ WREHHPSOR\HGWKHUHLQWKHVHUYLFHRIWKHFRORQ\QRWZLWKVWDQGLQJZKDWHYHU SXQLVKPHQWKHVKRXOGVHHNDJDLQVWKHUIROORZLQJWKH'HFODUDWLRQRIWKH .LQJ>&RGH1RLU@µ7KHϮQDQFLDOYDOXHRI3DXOLQHGLGQRWPDWWHUWR%RXYHW +HLQWHQGHGWRPDNHKHUDSXEOLFVODYH³WRGHOLYHUKHULQWRSHUSHWXDOSHQDO VHUYLWXGH³E\GRQDWLQJKHUWRWKHFRORQ\KHKDGORQJVHUYHGDVJRYHUQRU +HUHWKHOHWWUHGHFDFKHWRϸHUHG%RXYHWDPHDQVRUDSRWHQWLDOPHDQVRI UHPRYLQJ3DXOLQHIURP3DULVWRHQDEOHWKHULJRURXVHQIRUFHPHQWRIFRORQLDO >@

7+(9$1,6+,1*6/$9(62)3$5,6

VWDWXWHV,QHYHU\FDVHEXWWKLVRQHPDVWHUVLQ3DULVZKRVRXJKWWRUHPRYH WKHLUVODYHVWRWKHLVODQGVXVHGWKHOHWWUHGHFDFKHWWRVHFXUHWKHLUSURSHUW\ ZKHQFRQIURQWHGZLWKIUHHGRPVHHNLQJGRPHVWLFV,QWKLVFDVH%RXYHWKDG QRLQWHUHVWLQUHWDLQLQJRZQHUVKLSRI3DXOLQH6KHZDVDSROLWLFDOSUREOHP WKDWKHLQWHQGHGWRVHWWOHE\VWDJLQJKHUVSHFWDFXODUKXPLOLDWLRQ 3  DXOLQHLVH[FHSWLRQDOLQRWKHUUHVSHFWV,QFRQWUDVWWRDOOEXWRQHRWKHU VODYHZLWKDVXUYLYLQJSROLFHϮOHVKHWULXPSKHGRYHUWKHZULWRIWKHNLQJ DQGWKHZLVKHVRIKHUSXWDWLYHRZQHU([LWLQJWKHZRPHQ·VSULVRQFDOOHG 6DOSrWULqUHLQ-DQXDU\VKHKROHGXSLQVLGHWKH+{WHOGH7RXORXVHQRZ WKH%DQTXHGH)UDQFH DQH[TXLVLWHUHVLGHQFHWKHVL]HRIDFLW\EORFNWKDW EHORQJHGWR/RXLV-HDQ0DULHGH%RXUERQ'XFGH3HQWKLqYUH $G PLUDORI)UDQFH+HUFDVHGHPRQVWUDWHVDODVWKDWWKHRQO\VXUHZD\IRUD SHUVRQRIFRORURIXQFHUWDLQVWDWXVWRDYRLGDEGXFWLRQIURPHLJKWHHQWK FHQWXU\3DULVZDVWRPRYHLQZLWKWKHWLWXODUKHDGRIHYHU\DGPLUDOW\FRXUW LQWKHNLQJGRP %  RXYHWLQWHQGHGWRDSSO\WKHOHWWHURIFRORQLDOODZWR3DXOLQH+HDQGKLV DPDQXHQVLV,QVSHFWRU0XURQHQYLVDJHGWKHOHWWUHGHFDFKHWDVDWRROIRU HQIRUFLQJVODYHODZ8OWLPDWHO\KRZHYHU3DXOLQHREWDLQHGIUHHGRPLQDPDQ QHUWKDWGHϮHGERWKWKH&RGH1RLUDQGWKHVRFDOOHGIUHHVRLOSULQFLSOH6KH ERXJKWKHUOLEHUW\:KLOHKLGLQJLQWKH+{WHOGH7RXORXVH3DXOLQHSURSRVHG WREX\KHUVHOIRXWRIVODYHU\LQ3DULVZLWKWKHIXQGVWKDW%RXYHWKHOGRQKHU EHKDOI%RXYHWUHIXVHGRQWKHJURXQGVWKDW)UHQFKFRORQLDOVODYHODZIRUEDGH VHOISXUFKDVH2QO\WKHLQWHUFHVVLRQRI&KDUOHV9LFWRU)UDQoRLVGH6DODEHUU\ MXGJHDWWKH&KDPEHURI$XGLWRUVOHG%RXYHWWRFRQFHGHWKHSRLQWDQGVHOO 3DXOLQHWRKHUVHOI ZKLOHFRQϮVFDWLQJKHUVDYLQJVDVSD\PHQW 7  UDYHOLQJRQWKHEDFNVRIVODYHVZKRVRMRXUQHGWKHUHFRORQLDOVODYHODZ EHFDPHWKHODZLQ3DULVLQVRIDUDVWKLVFRQFHUQHGWKHVWDWXVRIFRORQLDOSURS HUW\5HDGWKLVZD\WKHFRGDWRWKHXQUHJLVWHUHGDQGODZVDQG VXEVHTXHQWUR\DOZULWVDJDLQVWVODYHVLQ3DULVFRQVLVWVRIWKHFUHDWLRQFLUFD  RIDQHZLPSHULDOOHJDODUFKLYH 7KHQHZGHSRVLWRU\DW9HUVDLOOHV ZRXOGFROOHFWGXSOLFDWHVRIDOOLPSHULDOFLYLOUHFRUGVFHUWLϮFDWHVRIELUWK PDUULDJHDQGGHDWK DOOQRWDULDOGRFXPHQWVDQGDOO´MXGLFLDODQGH[WUDMX GLFLDODFWVFRQFHUQLQJSHUVRQVDQGSURSHUW\µIURPWKHRYHUVHDVHPSLUH7KH GRFXPHQWVZRXOG´IXUQLVKLQIRUPDWLRQDERXWWKRVHRIRXUVXEMHFWVZKRSDVV LQWRWKHFRORQLHVWKDWQRZFDQRQO\EHREWDLQHGZLWKGLϲ FXOW\µDQGDVVXUH ´WKHUHSRVHDQGVHFXULW\µRIIDPLOLHVRYHUVHDVDQGDWKRPH%\GHVLJQOHJDO DFWVWKDWGHDOWZLWKWKHVDOHRUJLIWRIVODYHVKHOGDFHQWUDOSODFHLQWKHQHZ >@

&28576

DUFKLYH6ODYHVZHUHGRZU\6ODYHVZHUHLQKHULWDQFH3ODQWHUVWUDQVDFWHGLQ VODYHV E\ ZD\ RI FRQWUDFWV GUDZQ XS E\ QRWDULHV 7KH QHZ GHSRVLWRU\ DW 9HUVDLOOHVDLPHGWRFUHDWHDXQLϮHGZRUOGRIOHJDOPHDQLQJ,QPDNLQJSRV VLEOHWKHWUDQVRFHDQLFRQHQHVVRI)UHQFKOHJDOFXOWXUHWKHQHZDUFKLYHDV VXUHGWKDWRYHUVHDVGHϮQLWLRQVRISURSHUW\DVZHOODVSHUVRQV ZRXOGUHPDLQ FRQVWDQWDWKRPH,QWKLVUHVSHFWWKHQHZDUFKLYHPDGHXWWHUQRQVHQVHRI WKHIUHHVRLOGRFWULQHZKLFKFRXOGRQO\H[LVWLQDIUDFWXUHGYHUVLRQRILP SHULDO)UDQFHWKDWHQFORVHGPXOWLSOHDQGFRQWUDGLFWRU\OHJDORUGHUV$IWHU FRORQLDOGHϮQLWLRQVRISHUVRQVDQGWKLQJVWRRNXSUHVLGHQFHLQWKH PHWURSROH7KHUHDIWHUHQVODYHGGRPHVWLFVLQ)UDQFHLQFRPPRQZLWKVODYHV HOVHZKHUHϮJXUHGDVELHQVPHXEOHV PRYDEOHJRRGV LQWKH&URZQ·VRZQOH JDOGHSRVLWRU\ 7  KHϮ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ϮQHGFROR QLDOSURSHUW\0XFKOLNHWKHSRVWLPSHULDODUFKLYHOHWWUHVGHFDFKHW DJDLQVWVODYHVDVVXUHGWKH´UHSRVHDQGVHFXULW\µRILPSHULDOIDPLOLHVE\LP SRVLQJDQHZWUDQVRFHDQLFOHJDORUGHU

1RWHV   $UFKLYHVSDUOpPHQWDLUHVGHj5HFXHLOGHVGpEDWVOpJLVODWLIVHWSROLWLTXHVGHV FKDPEUHVIUDQoDLVHV 3DULV3'XSRQW² VWVHULHV-XQH  7KH3DULVLDQFKURQLFOHU/RXLV6pEDVWLHQ0HUFLHU² DOOXGHVWRWKHUH PRYDORIWKHEURQ]HVODYHVDWWKHIRRWRIWKHNLQJLQKLVIXWXULVWLFQRYHODERXW WKHSROLWLFDOUHPDNLQJRI3DULV6HH/·DQGHX[PLOOHTXDWUHFHQWTXDUDQWH5rYHV·LO QHIXWMDPDLV/RQGUHV>VLF@ FKDS´/HQRXYHDX3DULVµ   ´'pFUHWGHO·$VVHPEOpHQDWLRQDOHFRQFHUQDQWO·HQOqYHPHQWGHVTXDWUHVϮJXUHV HQFKDLQpVDXSLHGGHOD6WDWXHGH/RXLV;,9µ-XQH    )RUJHQHUDOZRUNVVHH3DXO)DEUH/HVOHWWUHVGHFDFKHW%p]LHUV-%3HUGUDXW  DQG&ODXGH4XpWHO/HVOHWWUHVGHFDFKHW8QHOpJHQGHQRLU3DULV3HUULQ  >@

7+(9$1,6+,1*6/$9(62)3$5,6

2QSULVRQVRIVWDWHVHH-HDQ&ODXGH9LPRQW/DSULVRQSROLWLTXHHQ)UDQFH*pQqVH G·XQPRGHG·LQFDUFpUDWLRQVSpFLϮTXH3DULV$QWKURSRV(FRQRPLFD 2QXVHV RIOHWWUHVGHFDFKHWLQHLJKWHHQWKFHQWXU\3DULVVHH$UOHWWH)DUJHDQG0LFKHO )RXFDXOW /H GpVRUGUH GHV IDPLOOHV /HWWUHV GH FDFKHW GHV DUFKLYHV GH OD %DVWLOOH DX ;9,,,HVLqFOH 3DULV*DOOLPDUG )RUHLJKWHHQWKFHQWXU\GHQXQFLDWLRQVRI WKHVHUR\DOZULWVVHH>+RQRUp*DEULHO5LTXHWL&RPWHGH0LUDEHDX@'HVOHWWUHV GHFDFKHWHWGHVSULVRQVG·pWDWRXYUDJHSRVWKXPHFRPSRVpHQ+DPEXUJ  IRUDQRYHUYLHZRIWKLVOLWHUDWXUHVHH+DQV-UJHQ/XVHEULQNHWDO7KH%DVWLOOH $ +LVWRU\ RI D 6\PERO RI 'HVSRWLVP DQG )UHHGRP 'XUKDP 1& 'XNH 8QLYHUVLW\ 3UHVV    $QWRLQH5HQpGH9R\HUG·$UJHQVRQ&RQVLGpUDWLRQVVXUOHJRXYHUQHPHQWDQFLHQHW SUpVHQWGHOD)UDQFHFRPSDUpDYHFFHOXLGHVDXWUHVpWDWVVXLYLHVG·XQQRXYHDXSODQ G·DGPLQLVWUDWLRQQGHG$PVWHUGDP    )DUJHDQG)RXFDXOW/HGpVRUGUHGHVIDPLOOHV   -HDQ)UDQoRLV 1LRUW ´+RPR VHUXLOLV (VVDL VXU O·DQWKURSRORJLH HW OH VWDWXW MXULGLTXHGHO·HVFODYHGDQVOH&RGH1RLUGHµ'URLWVQR ² DQG/H&RGH1RLU,GpHVUHoXHVVXUXQWH[WHV\PEROLTXH3DULVeGLWLRQV&DYDOLHU%OHX  2QWKHRULJLQVRIWKHFRGHVHH9HUQRQ9DOHQWLQH3DOPHU´7KH2ULJLQV DQG$XWKRUVRIWKH&RGH1RLUµ/RXLVLDQD/DZ5HYLHZQR:LQWHU ² DQG%HUQDUG9RQJOLV´/DGRXEOHRULJLQHGX&RGHQRLUµLQ/HV$EROLWLRQVGDQV OHV$PpULTXHVHG/LOLDQH&KDXOHDX)RUWGH)UDQFH6RFLpWpGHVDPLVGHVDUFKLYHV HWGHODUHFKHUFKHVXUOHSDWULPRLQHFXOWXUHOGHV$QWLOOHV ²)RUDQ DSSOLHGHLJKWHHQWKFHQWXU\KLVWRU\RIWKH&RGH1RLUIRFXVHGRQ6DLQW'RPLQJXH VHH0DOLFN*KDFKHP7KH2OG5HJLPHDQGWKH+DLWLDQ5HYROXWLRQ1HZ@

5(728&+,1*7+(629(5(,*1

) ,*85(೏9  ODGLPLU/HQLQ·VHPEDOPHGERG\LQWKH0DXVROHXP 0RVFRZ3XEOLFGRPDLQ

:  KHQ/HQLQ·VHPEDOPHGERG\ZDVSXEOLFO\GLVSOD\HGLQWKH0DXVROHXP LQODWHVXPPHU0RVFRZZDVDJDLQDZDVKZLWKUXPRUV7KH\GLGQRW GLVDSSHDUHYHQLQWKHVZKHQUHSHDWLQJWKHPFRXOGJHWRQHDUUHVWHG ,QWKHDWPRVSKHUHRIZLGHVSUHDGGHQXQFLDWLRQVD\RXQJZRPDQUHSRUWHG WRWKHVHFUHWSROLFHWKDWKHUDFTXDLQWDQFHVWKHVLVWHUDQGGDXJKWHURIWKH RQFH SRZHUIXO )HOL[ ']HU]KLQVN\ FODLPHG LQ D SULYDWH FRQYHUVDWLRQ WKDW ´WKHERG\O\LQJLQWKH0DXVROHXPLV¬¬¬DZD[GXPP\µ೓  7KHVHVSHFXODWLRQV ZHUHUHJXODUO\UHSHDWHGLQ:HVWHUQQHZVSDSHUV7RGLVSHOWKHPLQWKHV WKH&RPPXQLVW3DUW\LQYLWHGDJURXSRI:HVWHUQQHZVPHQWRYLVLWWKH0DXVR OHXP$Q$PHULFDQMRXUQDOLVWUHPHPEHUHGWKDW%RULV=EDUVN\RQHRI/HQLQ·V WZR RULJLQDO HPEDOPHUV ´RSHQHG WKH KHUPHWLFDOO\ VHDOHG JODVV FDVH¬ ¬ ¬ ¬  WZHDNHG/HQLQ·VQRVHDQGWXUQHGKLVKHDGWRWKHULJKWDQGOHIWµGHPRQVWUDWLQJ WKDW´LWZDVQRWZD[,WZDV/HQLQµ 2  QHUHDVRQIRUWKHSHUVLVWHQFHRIWKHVHUXPRUVLVWKDWWKH\VHHPEHOLHY DEOH)RUVRPHWKHVPRRWKVDOORZVNLQRI/HQLQ·VERG\JORZLQJLQWKHOLJKW RIPLQLDWXUHODPSVEULQJVWRPLQGWKHZD[FHOHEULWLHVWKDWSRSXODWH0DGDPH 7XVVDXG·VDQGLWVPDQ\LPLWDWLRQV)RURWKHUVVXFKUXPRUVDUHFUHGLEOHEH FDXVHWKH\VHHPF\QLFDOO\UDWLRQDOZK\ERWKHUZLWKWKHFRPSOH[VFLHQFHRI PDLQWDLQLQJ/HQLQ·VERG\LIFUHDWLQJLWVSHUIHFWZD[UHSOLFDZRXOGGRWKH WULFN",QIDFWGUDZLQJDOLQHEHWZHHQUHDOERGLHVDQGDUWLϮFLDOPRGHOVLVQRW >@

&28576

DOZD\VHDV\0DQ\SUHVHUYHGERGLHVWKDWDUHZLGHO\DVVXPHGWREHUHDOFRQ WDLQDUWLϮFLDOSDUWV,QWHUQDOOLTXLGVLQWKHFHOOVRI(YD3HUyQ·VERG\KDYH EHHQVXEVWLWXWHGZLWKZD[SURPSWLQJWKHHPEDOPHUVWRQLFNQDPHKHU´D FDQGOHµ 'HVSLWH D SRSXODU DVVXPSWLRQ WKH ERG\ RI -HUHP\ %HQWKDP DW 8QLYHUVLW\&ROOHJH/RQGRQLVPRUHDUWLϮFLDOWKDQUHDO%HQWKDP·VVNHOHWRQ ZDVSDGGHGRXWZLWKVWUDZGUHVVHGLQKLVFORWKHVDQGVHDWHGRQDFKDLU$Q DWWHPSWWRSUHVHUYH%HQWKDP·VKHDGE\VXVSHQGLQJLWRYHUVXOIXULFDFLGDQG GUDZLQJRϸWKHϰXLGVZLWKDSXPSZHQWKRUULEO\ZURQJZKHQKLVIDFHVKULY HOHG EH\RQG UHFRJQLWLRQ ,QVWHDG D ZD[ UHSOLFD RI %HQWKDP·V KHDG ZDV DWWDFKHGWRKLVVNHOHWRQZKLOHWKHGLVϮJXUHGUHDOKHDGZDVSUHVHUYHGLQD VHSDUDWHER[ , QDIHZGD\VDIWHU0DR·VGHDWKDJURXSRI&KLQHVHPHGLFVZHUHXQ H[SHFWHGO\FKDUJHGZLWKWKHWDVNRISUHVHUYLQJWKHFKDLUPDQ·VERG\+DY LQJQRH[SHULHQFHLQWKHPDWWHUDQGXQDEOHWRWXUQIRUDGYLFHWRWKHPRUH H[SHULHQFHG6RYLHWVFLHQWLVWV6LQR6RYLHWUHODWLRQVZHUHDWWKHLUZRUVW WKH &KLQHVHKDGWRH[SHULPHQW,WZDVVRXQFHUWDLQZKDWWKHUHVXOWVZRXOGEH UHPHPEHUV0DR·VSHUVRQDOSK\VLFLDQ/L=KLVXLWKDWDZD[FRS\RI0DR·VERG\ ZDVDOVRFUHDWHGDVDEDFNXS%HLMLQJ,QVWLWXWHRI$UWVDQG&UDIWVGLVSDWFKHG WZRVSHFLDOLVWVWR0DGDPH7XVVDXG·VLQ/RQGRQWROHDUQWKHQHZHVWPHWK RGVRIZD[PRGHOLQJ:LWKVXUSULVHDQGVDWLVIDFWLRQWKH\WHOHJUDSKHGEDFN ´WKDWLQWKLVWHFKQLTXHDWOHDVW&KLQDZDVDOUHDG\IDUPRUHDGYDQFHGWKDQ (QJODQGµ0DR·VZD[HQϮJXUHZDVFUHDWHGLQVHFUHF\DQGORRNHGUHPDUN DEO\OLIHOLNH2QO\DKDQGIXORIPHGLFVDUWLVWVDQGSDUW\OHDGHUVZHUHDZDUH RILWVH[LVWHQFH,QERWK0DRVHPEDOPHGDQGZD[HQZHUHWUDQVIHUUHG WRKLVPDXVROHXPRQ7LDQDQPHQ6TXDUH:KLFKRQHLVRQGLVSOD\DWDJLYHQ PRPHQWGHSHQGVRQZKHWKHU0DR·VERG\KDVWRXQGHUJRUHHPEDOPLQJ , QWKHVDIWHUWKH6RYLHWFROODSVHUXPRUVDERXW/HQLQ·VERG\EHLQJD IDNHLQWHQVLϮHG,O\D=EDUVN\VRQRIWKHRULJLQDOHPEDOPHUDQGKLPVHOID ORQJWLPHPHPEHURIWKHHPEDOPLQJWHDPIHOWLWQHFHVVDU\WRZULWHLQKLV PHPRLU´,ZRUNHGLQWKH0DXVROHXPIRUHLJKWHHQ\HDUVDQG,NQRZIRUDIDFW WKDW/HQLQ·VERG\LVLQDYHU\JRRGFRQGLWLRQ¬¬¬$OOVRUWVRIUXPRUVDQGIDE ULFDWLRQVDFFRUGLQJWRZKLFKWKLVLVQRW/HQLQ·VERG\EXWDQHϲ J\¬¬¬RUWKDW QRWKLQJ EXW /HQLQ·V IDFH DQG KDQGV KDYH EHHQ VXFFHVVIXOO\ SUHVHUYHG KDYHQRIRXQGDWLRQLQUHDOLW\µ +RZHYHUWKHPHGLDZDVPRUHUHDG\WR HPEUDFHVWRULHVDERXWIDNH/HQLQDQG=EDUVN\·VVWDWHPHQWZDVIRUJRWWHQ$W WKHVDPHWLPHZKDWKHVDLGLQDODWHULQWHUYLHZZDVPLVLQWHUSUHWHG=EDU VN\UHIHUUHGWRWKHERGLHVRI´/HQLQ·VGRXEOHVµGYRLQLNL DVODQJWHUPWKH >@

5(728&+,1*7+(629(5(,*1

ODE·VVFLHQWLVWVXVHGIRUERGLHVWKDWKDYHEHHQHPEDOPHGLQWKHODEXVLQJ WKHVDPHWHFKQLTXHDV/HQLQ·VERG\7KHVH´GRXEOHVµGRQRWORRNOLNH/HQLQ DQGDUHQRWSUHVHUYHGWREHGLVSOD\HG/DEVFLHQWLVWVXVHWKHPIRUH[SHUL PHQWDOZRUNRQLPSURYLQJSUHVHUYDWLRQWHFKQLTXHV+RZHYHUWKHDOOXVLRQ WR´GRXEOHVµPRUSKHGLQWRDPHGLDVWRU\DERXW´PXOWLSOH/HQLQVµZLWKWKH LPSOLFDWLRQWKDWZKRHYHULVGLVSOD\HGLQWKH0DXVROHXPLWLVQRWWKHUHDO WKLQJ,QLQDQDWWHPSWWRVWRSWKHUXPRU3URIHVVRUQRWOHWWLQJ@¬¬¬DQ\RQHFRPHFORVHWRKLPRUHYHQLQWRWKHEXLOG LQJZKHUHKHLVVWD\LQJµ , QWKHQH[W\HDUDQGDKDOI/HQLQ·VFRQGLWLRQZRUVHQHGWKHQLPSURYHG WKHQZRUVHQHGDJDLQ+LVLPSRVHGLVRODWLRQEHFDPHVWULFWHU+HZDVQRW DOORZHGWRUHDGQHZVSDSHUVZULWHHVVD\VRULQWHUDFWZLWKLPSRUWDQWSR OLWLFDOϮJXUHV/HQLQH[SHULHQFHGKLVVLWXDWLRQDVLPSULVRQPHQWVD\LQJWR DIULHQG´,KDYHQ·WGLHG\HWEXWXQGHU6WDOLQ·VVXSHUYLVLRQWKH\DUHDOUHDG\ WU\LQJWREXU\PHµ,QVSULQJKHKDGDWKLUGVWURNHDQGDOPRVWFRP SOHWHO\ORVWWKHDELOLW\WRFRPPXQLFDWHPHDQZKLOHWKHSROLWLFDOULYDOU\LQ WKHOHDGHUVKLSLQWHQVLϮHG /HQLQKDGQRWGLVDSSHDUHGIURPWKHSXEOLFYLHZKRZHYHUKLVSUHVHQFH LQIDFWLQWHQVLϮHGEXWLQDQHZIRUP:KLOHWKHOLYLQJDQGDLOLQJ/HQLQZDV LVRODWHGLQWKH*RUNLHVWDWHDQHZO\FRQVWUXFWHGFDQRQL]HGLPDJHRI/HQLQ >@

5(728&+,1*7+(629(5(,*1

VWDUWHGWRGRPLQDWHWKHSROLWLFDOGLVFRXUVH0RVWRIWKHIDPLOLDUP\WKROR JL]HGLPDJHVDQGLQVWLWXWLRQVDURXQG/HQLQ·VFXOWWKDWEHFDPHZHOONQRZQ WKURXJKRXWWKH6RYLHWKLVWRU\ZHUHFUHDWHGLQWKRVHϮQDOPRQWKVRIKLVOLIH DQGLQVSLWHRIKLVDFWLYHSURWHVWDWLRQV,QHDUO\WKHWHUP´/HQLQLVPµ ZDVLQWURGXFHGLQWRSXEOLFFLUFXODWLRQDQGHYHU\SDUW\PHPEHUKDGWR SOHGJHDOOHJLDQFHWRLW 2Q0DUFKWKH/HQLQ,QVWLWXWHZDVHVWDE OLVKHGLQ0RVFRZDQGWKHQHZVSDSHU3UDYGDDSSHDOHGWRLWVUHDGHUVWRVHQG ´HYHU\VFUDSRISDSHUEHDULQJDQLQVFULSWLRQRUPDUNPDGHE\/HQLQµWRWKH LQVWLWXWH $  WWKHVDPHWLPHPXFKRIZKDW/HQLQZDVVD\LQJDQGZULWLQJDIWHUWKH DXWXPQRIZDVDFWLYHO\EDQLVKHGIURPWKLVFDQRQL]HGLPDJH /HQLQ ZDVQRWDOORZHGWRFKDQJHKLVHDUOLHUSRVLWLRQVRUSURWHVWDJDLQVWPLVLQWHU SUHWDWLRQVRIKLVHDUOLHUVWDWHPHQWV,WZDVQRZWKH3ROLWEXURWKDWFRQWUROOHG ZKDW/HQLQZDV´UHDOO\µVD\LQJQRW/HQLQKLPVHOI/HQLQWKHSROLWLFDOϮJXUH ZDVGRXEOHG³LQWRRQH/HQLQZKRZDVEDQLVKHGIURPWKHSROLWLFDOZRUOGDQG DQRWKHU /HQLQ ZKR ZDV FDQRQL]HG ZLWKLQ LW ,Q WKHVH WZR VLPXOWDQHRXV SURFHVVHVLQWKHHDUO\VWKHϮJXUHRI´/HQLQLVPµZDVSURGXFHGZKLFK XQWLOWKHHQGRI6RYLHWKLVWRU\VHUYHGDVWKHFHQWUDOIRXQGDWLRQDODQGXQ TXHVWLRQDEOHWUXWKRIWKH6RYLHWSROLW\,QSUDFWLFH/HQLQLVPZDVQRWDVWDWLF GRFWULQHWKDWZDVIRUPXODWHGRQFHDQGIRUDOODQGODWHUVLPSO\UHSHDWHGLW ZDVFRQWLQXDOO\FKDQJHGUHLQWHUSUHWHGDQGUHLQYHQWHG ( YHU\6RYLHWOHDGHUIURP6WDOLQWR*RUEDFKHYSURGXFHGKLVRZQYHUVLRQ RI/HQLQLVPVXSSUHVVLQJUHLQWHUSUHWLQJRUUHLQWURGXFLQJGLϸHUHQWDVSHFWV RI´/HQLQ·VOHJDF\µ,QOHVVWKDQWZR\HDUVEHIRUHWKH6RYLHWVWDWHFRO ODSVHGWKH&RPPXQLVW3DUW\ϮQDOO\DGPLWWHGWKDWHYHU\VLQJOHYHUVLRQRI /HQLQLVPLQYROYHGGLVWRUWLRQVRI/HQLQ·VZRUNV,QKLVVSHHFKRQWKHRFFD VLRQRI/HQLQ·VWKDQQLYHUVDU\LQ$SULO*RUEDFKHYVDLGVRPHWKLQJ XQSUHFHGHQWHG6WDUWLQJZLWKWKHXVXDO´/HQLQVWLOOUHPDLQVZLWKXVDVWKH JUHDWHVWWKLQNHURIWKHWZHQWLHWKFHQWXU\µ*RUEDFKHYTXLFNO\DGGHG´:H PXVWUHWKLQN/HQLQDQGKLVWKHRUHWLFDODQGSROLWLFDOZRUNDQGZHPXVWULG RXUVHOYHVRIWKHGLVWRUWLRQVDQGFDQRQL]DWLRQVRIKLVFRQFOXVLRQV¬¬¬,WLV WLPHWRHQGWKHWKRXJKWOHVVDQGDEVXUGPDQLSXODWLRQRI/HQLQ·VQDPHDQG LPDJHWKDWWXUQVKLPLQWRDQ¶LFRQ·೒µ0RUHRYHUVDLG*RUEDFKHYWLPHKDV FRPHWRDEDQGRQWKHFRQFHSWRI´/HQLQLVPµDOWRJHWKHUEHFDXVHLWUHGXFHV /HQLQ·VFRPSOH[WKRXJKWWRDFROOHFWLRQRIFDQRQLFDOVWDWHPHQWV :  ULWLQJLQDFHQWUDOGDLO\DSKLORVRSK\SURIHVVRUODPHQWHG´2XUWUDJHG\ LVWKDWZHGRQRWNQRZ/HQLQ:HQHYHUUHDGKLVRULJLQDOWH[WVLQWKHSDVW >@

&28576

DQG ZH VWLOO GR QRW GR WKLV WRGD\ )RU GHFDGHV ZH KDYH SHUFHLYHG /HQLQ WKURXJKPHGLDWRUVLQWHUSUHWHUVSRSXODUL]HUVDQGRWKHUGLVWRUWHUVµ$KLV WRULDQZURWHLQDZLGHO\FLUFXODWLQJGDLO\WKDW.KUXVKFKHYDQG%UH]KQHY ´ZHUHREYLRXVO\QRW/HQLQLVWVµIRUWKHP/HQLQZDVRQO\´DQLFRQµEHKLQG ZKLFKWKH\FRXOGKLGH$QRWKHUKLVWRULDQFRPSODLQHGWKDWHYHQWKH,QVWL WXWHRI0DU[LVP/HQLQLVPWKHFRXQWU\·VOHDGLQJDXWKRULW\RQ/HQLQ·VWKHR UHWLFDOOHJDF\´IRUVHYHQW\\HDUVVLQFHLWVIRXQGDWLRQKDVEHHQIXOϮOOLQJDQ DEVXUGIXQFWLRQ¬¬¬OHJLWLPDWLQJIRUSXEOLFDWLRQ>/HQLQ·V@WH[WVWKDWPDWFKHG WKHFDQRQRIWKHGD\KRZHYHUGLϸHUHQWIURPUHDO/HQLQ·VZRUGVWKH\ZHUH DQGDOWHULQJRUPRGLI\LQJ>/HQLQ·V@WH[WVWKDWGLGQRWϮWWKDWFDQRQµ $ IRUPHUVSHHFKZULWHUWRWKHSDUW\OHDGHUVKLSPDGHDQDVWRQLVKLQJUHYHODWLRQ 0LNKDLO6XVORYWKHSRZHUIXOFKLHIRILGHRORJ\LQWKH3ROLWEXURIRU\HDUVKDG EHHQVNLOOIXOO\PDQLSXODWLQJ/HQLQ·VLGHDVE\GUDZLQJRQDYDVWFROOHFWLRQ RILVRODWHGTXRWHVSOXFNHGRXWRI/HQLQ·VYROXPLQRXVZULWLQJV8VLQJWKHVH TXRWHVRXWRIFRQWH[W6XVORYDVVLJQHGWKHPZLWKUDQGRPPHDQLQJVQHFHV VDU\WROHJLWLPDWHGLϸHUHQWSROLWLFDOFDPSDLJQVRUVSHHFKHVRIWKH6RYLHWJRY HUQPHQWLQFOXGLQJGLDPHWULFDOO\RSSRVLQJRQHV

)RUPDQG&RQWHQW :  KHQ/HQLQGLHGRQ-DQXDU\QRSODQVWRSUHVHUYHKLVERG\H[LVWHG 3URIHVVRU$EULNRVRYFRQGXFWHGDQDXWRSV\DQGSHUIRUPHGVKRUWWHUPHP EDOPLQJWKDWZRXOGDOORZ/HQLQ·VERG\WREHGLVSOD\HGLQDQRSHQFRϲ QIRU WKHϮYHGD\VRIWKHSXEOLFIDUHZHOO7KHLQFLVLRQVWKDW$EULNRVRYPDGHLQWKH ERG\FXWDFURVVLWVPDMRUDUWHULHVDQGEORRGYHVVHOV/DWHUKHUHPDUNHGWKDW KDGWKHSODQVWRSUHVHUYH/HQLQ·VERG\IRUSRVWHULW\H[LVWHGDWWKHWLPHRI WKHDXWRSV\KHZRXOGQRWKDYHFXWWKHVHDUWHULHVDQGEORRGYHVVHOVEHFDXVH LQORQJWHUPSUHVHUYDWLRQWKH\DUHXVHGWRGHOLYHUHPEDOPLQJOLTXLGVWRDOO FRUQHUVRIWKHERG\ ) URP-DQXDU\/HQLQ·VERG\OD\LQVWDWHLQWKH+RXVHRIWKH7UDGH8QLRQV LQ0RVFRZZLWKKXJHFURZGVRISHRSOHIURPDOORYHUWKHFRXQWU\ZDLWLQJLQDQ HQRUPRXVOLQHLQH[WUHPHO\FROGWHPSHUDWXUHVWRELGIDUHZHOOWRWKHOHDGHU ,WZDVDQQRXQFHGWKDW/HQLQZRXOGEHEXULHGRQ-DQXDU\LQDQHZO\EXLOW PDXVROHXPRQWKH5HG6TXDUHQHDUWKHH[LVWLQJWRPEVRIIDOOHQUHYROXWLRQ DULHV+RZHYHUWKHFURZGVFRPLQJWRVHHWKHERG\KDGQRWJURZQDQ\VPDOOHU $WWKHVDPHWLPHWKHERG\VKRZHGQRVLJQVRIGHWHULRUDWLRQGXHWRWKHH[ >@

5(728&+,1*7+(629(5(,*1

WUHPHO\FROGWHPSHUDWXUHVWKDWZLQWHUDQGSUREOHPVZLWKKHDWLQJLQDZDU GHYDVWDWHGFRXQWU\HYHQLQVLGHWKH+RXVHRIWKH8QLRQVWHPSHUDWXUHQHYHU URVHPXFKDERYHWKHIUHH]LQJSRLQW )RUWKHVHGLϸHUHQWUHDVRQVWKHRϲ FLDO EXULDORIWKHERG\LQDWHPSRUDU\ZRRGHQPDXVROHXPLQIDFWDPRXQWHGWR SODFLQJLWLQDQRSHQVDUFRSKDJXVLQRUGHUWRH[WHQGWKHSXEOLFIDUHZHOO7KH IXQHUDOWKDWVWDUWHGRQ-DQXDU\ZDVQRW\HWFRPSOHWHGWKHLQWHUUHJQXP ZDVH[WHQGHGLQWRWKHLQGHϮQLWHIXWXUH7KHERG\ZDVGLVSOD\HGIRUDQRWKHU WZRPRQWKVXQWLOODWH0DUFKZKHQZDUPHUVSULQJZHDWKHUϮQDOO\DUULYHG DQGWKHϮUVWWKUHDWHQLQJVLJQVRIGHFRPSRVLWLRQZHUHGLVFRYHUHG 7  KHH[WHQGHGSHULRGGXULQJZKLFKWKHERG\UHPDLQHGLQDQRSHQVDU FRSKDJXVDOORZHGWKHSDUW\OHDGHUVKLSDQGVFLHQWLVWVWRGLVFXVVLWDWHQG OHVVPHHWLQJVDJDLQDQGDJDLQ,WZDVWKHQWKDWWKHLGHDWKDWWKHERG\VKRXOG EHSUHVHUYHGDQGGLVSOD\HGIRUSRVWHULW\JUDGXDOO\ZRQ$WϮUVWPDQ\SDUW\ OHDGHUVFRQVLGHUHGWKLVLGHDFRXQWHUUHYROXWLRQDU\7URWVN\%XNKDULQDQG 9RURVKLORYDUJXHGWKDWSUHVHUYLQJ/HQLQ·VERG\ZRXOGEHDNLQWRFUHDWLQJD UHOLJLRXVUHOLF³DQDFWWKDWYLRODWHG0DU[LVW/HQLQLVWSULQFLSOHV %RQFK %UXHYLFKVWUHVVHGWKDWZKLOHLWZDVLPSRUWDQWWRFUHDWHDSXEOLFPHPRULDO IRU/HQLQKLVERG\VKRXOGEHEXULHGLQDFORVHGWRPE%XWIRUPDQ\RWKHUV LWVHHPHGLPSRUWDQWWRFRQWLQXHGLVSOD\LQJ/HQLQ·VERG\IRUVRPHWLPHSR WHQWLDOO\IRUDQLQGHϮQLWHIXWXUHDOORZLQJPRUHSHRSOHIURPDOORYHUWKH ZRUOGWRSD\WKHLUUHVSHFWVWRWKHOHDGHU &  RQFOXGLQJDQLPSRUWDQWPHHWLQJRIWKHOHDGHUVKLSRQ0DUFK$YHO (QXNLG]HDPHPEHURIWKH&HQWUDO([HFXWLYH&RPPLWWHHVDLGWKDWWKHERG\ VKRXOGEHSUHVHUYHGDQGGLVSOD\HGEXW´ZLWKRXWSURPLVLQJWRDQ\RQHWKDW WKLVLVGRQHIRUSRVWHULW\µ,ILWGLGQRWKROGXSDIWHUDSHULRGRIWLPH´ZH ZLOOKDYHWRHQFORVHLWµ೓,QODWH0DUFKLWZDVGHFLGHGWRWU\DQH[SHULPHQWDO HPEDOPLQJSURFHGXUHSURSRVHGE\SURIHVVRURIPHGLFLQH9ODGLPLU9RURE·HY DQGELRFKHPLVW%RULV=EDUVN\1HLWKHUZDVFHUWDLQLIWKHH[SHULPHQWZRXOG VXFFHHG 9RURE·HYDQG=EDUVN\ZRUNHGIRUIRXUPRQWKVDQGLQODWH-XO\ UHSRUWHGWRWKHOHDGHUVKLSWKDWLI/HQLQ·VERG\ZDVUHJXODUO\WUHDWHGDQG UHHPEDOPHGDFFRUGLQJWRWKHPHWKRGWKH\GHYHORSHGLWFRXOGEHSUHVHUYHG IRUTXLWHDORQJWLPH7KH\GLGQRWVSHFLI\IRUKRZORQJ )ROORZLQJWKHLU VXFFHVVRQ-XO\WKH´&RPPLVVLRQIRUWKH,PPRUWDOL]DWLRQRI/HQLQ·V 0HPRU\µLVVXHGDSXEOLFVWDWHPHQW  HGLGQRWZDQWWRWXUQWKHERG\RI9ODGLPLU,O·LFKLQWRVRPHNLQGRI´UHOLFµ : E\PHDQVRIZKLFKZHFRXOGSRSXODUL]HDQGSUHVHUYHKLVPHPRU\+HKDG >@

&28576

DOUHDG\LPPRUWDOL]HGKLPVHOIHQRXJKZLWKKLVEULOOLDQWWHDFKLQJDQGUHYR OXWLRQDU\DFWLYLWLHV¬¬¬:HZDQWHGWRSUHVHUYHWKHERG\RI9ODGLPLU,O·LFK¬¬¬ >EHFDXVH@LWLVRIJUHDWLPSRUWDQFHWRSUHVHUYHWKHϮ]LFKHVNLLREOLN >SK\VLFDO ORRNVKDSHIRUP@RIWKLVUHPDUNDEOHOHDGHUIRUWKHQH[WJHQHUDWLRQDQGDOO WKHIXWXUHJHQHUDWLRQV

7  KHORQJGHEDWHVDERXW/HQLQ·VERG\DPRQJWKHSDUW\OHDGHUVKLSLQVSULQJ DVZHOODVWKHUHWURVSHFWLYHVWDWHPHQWDERXWLWVSUHVHUYDWLRQLQ-XO\ VXJJHVWWKDWWKHSDUW\OHDGHUVKLSLQFUHDVLQJO\VDZWKLVERG\LQWZRGLVWLQFW ZD\V7KLVGXDOLW\LVUHPLQLVFHQWRIKRZWKH\KDGWUHDWHG/HQLQLQWKHϮQDO PRQWKV RI KLV OLIH ZKHQ WKH ϰHVKDQGEORRG /HQLQ ZDV EDQLVKHG IURP SROLWLFDOOLIHZKLOHWKHQHZO\FRQVWUXFWHG´/HQLQLVPµZDVFDQRQL]HGZLWKLQLW 1RZ/HQLQ·VERG\ZDVWUHDWHGLQWKLVGXDOZD\³LWZDVRϲ FLDOO\´EXULHGµEXW FRQWLQXHGWREHRQGLVSOD\LWZDVSUHVHUYHGIRUDQLQGHϮQLWHIXWXUHEXW QRWWKHSDUW\FODLPHGWRLPPRUWDOL]HDQ\FRQFUHWHLQGLYLGXDOLWZDVWKH ELRORJLFDO FRUSVH RI D SHUVRQ EXW DOVR D SK\VLFDO IRUP WKDW WUDQVFHQGHG LQGLYLGXDOELRORJ\7KHERG\LQRWKHUZRUGVZDVERWKWKHFRUSVHRI´/HQLQµ DQGWKHHPERGLPHQWRIVRPHWKLQJWKDWZDVGLϸHUHQWIURP/HQLQDQGELJJHU WKDQKLP 7  KLVZD\RIWKLQNLQJDERXW/HQLQ·VERG\LQLVVWULNLQJO\VLPLODUWR KRZWKHVFLHQWLVWVDWWKH0DXVROHXPODEKDYHYLHZHGWKHJRDOVRIWKHLUZRUN VLQFH$FDGHPLFLDQ9DOHULL%\NRYWKHGLUHFWRURI9,/$5,QVWLWXWHXQGHU ZKRVHDXVSLFHVWKHODERSHUDWHVWRGD\GHVFULEHVWKLVWDVNDVWKHSUHVHUYD WLRQRI/HQLQ·V´DQDWRPLFDOLPDJHµDQDWRPLFKHVNLLREUD] 7KLVVXJJHVWVWKDW PDLQWDLQLQJWKHERG\·VIRUPLVRIJUHDWHUVLJQLϮFDQFHWKDQSUHVHUYLQJLWV RULJLQDOELRPDWWHU$FDGHPLFLDQ@

5(728&+,1*7+(629(5(,*1

HYHUGRHVQRWIXOO\VDWLVI\/RSXNKLQHLWKHUVLQFHLWWHQGVWRVXJJHVWDVWLϸ DQGKDUGERG\ZKLOH/HQLQ·VERG\LVPDLQWDLQHGWREHϰH[LEOHDQGVXSSOH

$UWDQG%LRORJ\ 7  R NHHS WKLV ERG\·V PDWHULDO IRUP DQG G\QDPLF SURSHUWLHV H[SODLQV /RSXNKLQ´RQHPXVWQRWRQO\NQRZWKHEDVLFVRIDQDWRP\SK\VLFDOFKHP LVWU\DQGKRZWRPDLQWDLQWKHZDWHUEDODQFH¬¬¬2QHPXVWDOVRSRVVHVVDQ DUWLVWLFVHQVH¬¬¬7KLVLVZK\QRWHYHU\RQHLVFDSDEOHRIGRLQJWKLVZRUNµ 3URIHVVRU9ODGLVODY.R]HO·WVHYDQRWKHUYHWHUDQVFLHQWLVWRIWKHODEPDNHVD VLPLODUSRLQWGXULQJPDMRUUHHPEDOPLQJDQGUHFRQVWUXFWLQJSURFHGXUHV ´HYHU\QHZZULQNOHFDYLW\RUSURWUXVLRQ>LQ/HQLQ·VERG\@PXVWEHϮ[HG:H DUHWDONLQJDERXWWLQ\GLPHQVLRQV6RPHDPRXQWRIDUWLϮFLDOVXEVWLWXWHVKDV WREHLQWURGXFHGZKLFKLVTXLWHGLϲ FXOW2QHQHHGVH[SHULHQFHDQGDUWLVWLF  VHQVHWRSHUIRUPWKLVZRUNµ  '  XULQJWKH6RYLHWSHULRGSDUW\FRPPLVVLRQVUHJXODUO\H[DPLQHGWKHERG\ DQGLVVXHGGHWDLOHGUHSRUWVRQLWVFRQGLWLRQ2Q-DQXDU\D´&RP PLVVLRQRIWKH3HRSOH·V&RPPLVVDULDWRI+HDOWKIRUWKH([DPLQDWLRQRI/HQ LQ·V %RG\µ UHSRUWHG WKDW /HQLQ·V QRVH ZKLFK ORVW LWV RULJLQDO IRUP ZKHQ /HQLQ·VFRUSVHZDVH[SRVHGWRH[WUHPHFROGDIWHUGHDWKϮQDOO\KDGEHHQ UHEXLOWDQGZDV´LQDYHU\JRRGFRQGLWLRQµ7KHUHSRUWDOVRZURWHDSSURY LQJO\WKDWWKH´HODVWLFLW\RIWKHH\HOLGVµKDGEHHQSUHVHUYHGDQGWKHIDFH ´PDNHVDFRPSOHWHLPSUHVVLRQRIDVOHHSLQJSHUVRQUDWKHUWKDQDFRUSVHµ $FHQWUDOFULWHULRQIRUPDLQWDLQLQJ/HQLQ·VERG\WKDWLVXQGHUVFRUHGLQWKHVH UHSRUWVZDVWRDYRLGDQDSSHDUDQFHRIDVWLϸFRUSVHZKLFKLQYRNHVDJDLQ /RSXNKLQ·VSKUDVH´OLYHVFXOSWXUHµ%XWWKHUHZHUHDOVRVRPHSUREOHPVWKDW QHHGHGDWWHQWLRQ3URIHVVRU1LNRODL%XUGHQNRIRXQGQHZVSRWV´RQWKHRXWHU VLGHRIWKHOHIWIRUHDUPµDQG´LQWKHORZHUSDUWRIWKHERG\HVSHFLDOO\LQWKH SHOYLFDUHDµ$OH[HL%XVDORYGLUHFWRURIWKHPHGLFDODGPLQLVWUDWLRQRIWKH .UHPOLQUHPDUNHGWKDW´RQWKHVROHVDQGWRHVWKHUHDUHVRPHVLJQVRIPXP PLϮFDWLRQ,QWKHSHOYLFDUHDWKHUHDUHKLQWVRIZULQNOLQJDQGWKLQQLQJ>RI WKHVNLQ@µ7KHODEVFLHQWLVWVKDGWRVROYHWKHVHSUREOHPV 2  QHUHDVRQIRUWKHGHYHORSPHQWRIQHZZULQNOHVFDYLWLHVDQGVSRWVRQ WKHERG\LVK\GURO\VLV³WKHSURFHVVLQZKLFKLQWHUQDOVROLGIDWVLQVNLQDQG RWKHUWLVVXHVOLTXHI\DQGPRYHDZD\IURPWKHLUDUHDV$QH[DPLQDWLRQFRP PLVVLRQWKUHH\HDUVODWHUIRXQGWKDWWKHZULQNOHVVSRWVDQGGHSUHVVLRQV >@

&28576

GHVFULEHGHDUOLHUKDGEHHQHOLPLQDWHGVXFFHVVIXOO\$QLPSRUWDQWEUHDN WKURXJK ZDV WKH GHYHORSPHQW RI DQ DUWLϮFLDO PDWHULDO WKDW VROYHG WKH SUREOHPRIK\GURO\VLV7KHPDWHULDOKDGVLPLODUSK\VLFDOFKDUDFWHULVWLFV WRVXEFXWDQHRXVIDWVWKHVDPHFRQVLVWHQF\VRIWQHVVDQGϮUPQHVV EXW XQOLNHWKHPLWZDVFKHPLFDOO\QHXWUDODQGFRXOGQRWOLTXHI\LQQRUPDOWHP SHUDWXUHV,Q1RYHPEHU=EDUVN\H[SODLQHGWRWKHSDUW\OHDGHUVKLS $  IWHUPDQ\H[SHULPHQWVZHGHYHORSHGDPL[RISDUDϲ QJO\FHULQDQGFDUR WHQHZLWKWKHPHOWLQJSRLQWRIGHJUHHV&HOVLXV7KLVPL[LQOLTXHϮHGIRUP FDQEHLQMHFWHGXQGHUWKHVNLQZKHUHLWTXLFNO\KDUGHQVLQWRDVROLGPDVVWKDW FDQEHHDVLO\VKDSHG$IWHUH[SHULPHQWVLQWKHODELWEHFDPHSRVVLEOHWRVXE VWLWXWHK\GURO\]HGIDWVZLWKWKLVQHZPDVV)URPWKHFKHPLFDOSRLQWRIYLHZ WKLVPDVVLVLQHUWDQGFDQEHSUHVHUYHGZLWKRXWFKDQJH¬¬¬7ZR\HDUVRIH[ SHULPHQWVLQWKLVDUHDSURGXFHGVXFKJRRGUHVXOWVWKDWWKH\FRXOGEHDSSOLHG WRϮ[LQJGHIHFWVLQ/HQLQ·VERG\

7  KHPDWHULDOZDVDSSOLHGE\PLFURLQMHFWLRQVWRYDULRXVSDUWVRIWKHERG\ ZKHUH´GHSUHVVLRQRUFKDQJHRIYROXPHµZDVIRXQGVXEVWLWXWLQJ´IRUWKH IDWW\PDWHULDOVWKDWXQGHUZHQWK\GURO\VLVµ*HRUJLL0LWHUHY3HRSOH·VFRP PLVVDURIKHDOWKDVNHG=EDUVN\´6R\RXLQVHUWDUWLϮFLDOPDVV¬¬¬'RHVWKLV PHDQWKDWDIWHUDSHULRGRIWLPHDOOIDWV>LQWKHERG\@ZLOOEHUHSODFHGZLWK WKLVQHZDUWLϮFLDOPDVV"µ=EDUVN\UHSOLHGSRVLWLYHO\DQG0LWHUHYDQGRWKHU GLJQLWDULHVVHHPHGVDWLVϮHG7KHFRPPLVVLRQDOVRVWUHVVHGWKDWWKHHODVWLF LW\DQGSUHVVXUHVRIWKHVNLQDQGDOOWLVVXHVDQGWKHϰH[LELOLW\RIDOOVPDOO DQG ODUJH MRLQWV KDG EHHQ SHUIHFWO\ PDLQWDLQHG DQG LQ VRPH FDVHV LP SURYHG )URPWKHFRPPLVVLRQ·VSRLQWRIYLHZVXEVWLWXWLQJRULJLQDOELR PDWWHUZLWKDUWLϮFLDOPDWHULDOVZDVQRWDSUREOHPDVORQJDVLWKHOSHGWR PDLQWDLQWKHG\QDPLFIRUPRIWKHERG\³WKHVKDSHYROXPHDQGHODVWLFLW\ RILWVWLVVXHVWKHVPRRWKQHVVDQGϮUPQHVVRILWVVNLQDQGWKHϰH[LELOLW\RI LWVMRLQWV

0RUWDODQG,PPRUWDO :  K\ZDVPDLQWDLQLQJWKHDXWKHQWLFLW\RIWKLVϰH[LEOHIRUPPRUHLPSRUWDQW WKDQSUHVHUYLQJWKHELRPDWWHU":K\GLGWKHVFLHQWLVWVODERUWRPDLQWDLQ WKHSUHFLVHVKDSHϰH[LELOLW\DQGVXSSOHQHVVLQWKRVHSDUWVRIWKHERG\WKDW >@

5(728&+,1*7+(629(5(,*1

XQOLNHWKHKHDGDQGKDQGVZHUHQHYHUPHDQWIRUSXEOLFGLVSOD\":KDWZDV WKHSROLWLFDOUROHRIVXFKDSURMHFW"6RPHDVSHFWVRIWKLVUROHPD\EHFRPH FOHDUHULIZHFRPSDUHWKLVERG\ZLWKWKHERGLHVRIVRYHUHLJQUXOHUVLQGLI IHUHQWFXOWXUDODQGKLVWRULFDOFRQWH[WV:HVWHUQ(XURSHDQNLQJVIDPRXVO\ DQDO\]HGE\(UQVW.DQWRURZLF]DUHDXVHIXOSRLQWRIGHSDUWXUH.DQWRUR ZLF]IRFXVHGRQODWHPHGLHYDODQGHDUO\PRGHUQOHJDOWKHRULHVWKDWOLQNHG PRQDUFKLFVRYHUHLJQW\DQGWKHNLQJ·VERG\$Q\VRYHUHLJQSRZHULVDEVROXWH QRWRQO\VSDWLDOO\ZLWKLQVRYHUHLJQERUGHUVEXWDOVRWHPSRUDOO\LWLVSRWHQ WLDOO\DEOHWRUHSURGXFHLWVHOISHUSHWXDOO\VXUYLYLQJWKHGHPLVHRIDFRQFUHWH DJHQWRIVRYHUHLJQW\%XWLQZKDWPDWHULDOIRUPLVWKHWHPSRUDOSHUSHWXLW\ RIVRYHUHLJQW\PDQLIHVWHGFRQVLGHULQJWKDWERGLHVDUHPRUWDO":KHQWKLV TXHVWLRQ EHFDPH LPSRUWDQW IRU SROLWLFDO DQG WKHRORJLFDO UHDVRQV LQ ODWH PHGLHYDO(QJODQGDQG)UDQFHLWOHGWRWKHGHYHORSPHQWRIDOHJDOGRFWULQH RI´WKHNLQJ·VWZRERGLHVµ:LWKWKHVKLIWWRZDUGDQHZVHFXODUL]HGPRGHO RIPRQDUFK\WKHNLQJ·VOHJLWLPDF\FRXOGQRORQJHUEHEDVHGVROHO\RQWKH DSSURYDODQGFRQVHFUDWLRQE\WKHFKXUFKDQGLQVWHDGEHFDPHSXUHO\´G\ QDVWLFµFRPLQJQRWIURPJUDFHEXWIURPQDWXUH´5R\DOTXDOLWLHVDQGSRWHQ FLHVµZHUHQRZVHHQDVQDWXUDOWUDLWVWKDWGZHOOHGGLUHFWO\LQWKHNLQJ·VEORRG FUHDWLQJ´DUR\DOVSHFLHVRIPDQµ೓$FFRUGLQJWRWKLVYLHZWKHSK\VLFDOERG\ RI WKH NLQJ XQOLNH WKDW RI UHJXODU PRUWDOV ZDV GRXEOHG FRQVLVWLQJ RI WZR ERGLHVWKDWFRH[LVWHGZLWKLQRQHϰHVK³WKHPRUWDOERG\ERG\RIQDWXUH DQG WKHLPPRUWDOERG\ERG\RIJUDFH 7KHNLQJ·VGHDWKZDVWKHGHPLVHRIKLV PRUWDOERG\ZKLOHWKHLPPRUWDOERG\VXUYLYHGDQGDIWHUWKHSHULRGRILQ WHUUHJQXPUHLQKDELWHGWKHϰHVKRIWKHQH[WNLQJ '  XULQJWKHLQWHUUHJQXPWKHGRXEOLQJRIWKHPRQDUFK·VERG\DFTXLUHG DQ H[SOLFLWO\ PDWHULDO PDQLIHVWDWLRQ ZKLFK FDPH WR EH UHϰHFWHG LQ WKH FRQVWUXFWLRQRIWKHPRQDUFK·VHϲ J\7KHHϲ J\ORRNHGXQFDQQLO\VLPLODUWR WKHGHFHDVHGPRQDUFKEXWZDVGLϸHUHQWIURPKLVRUKHUH[WHUQDOUHSUH VHQWDWLRQ:KLOHVFXOSWXUHVDQGLPDJHVRIWKHGHDGDUHFRPPRQLQPDQ\ IXQHUDOFHUHPRQLHVDURXQGWKHZRUOGWKH\XVXDOO\IXQFWLRQDVDUHSUHVHQWD WLRQRIWKHGHDGSHUVRQ³WKDWLVDVDVXEVWLWXWHIRUWKHPLVVLQJFRUSVH%XWWKH UROHSOD\HGE\WKHHϲ J\ZDVGLϸHUHQWLWDSSHDUHGRQO\GXULQJDVKRUWSHULRG RIWLPHEHIRUHDQGGXULQJWKHIXQHUDODOZD\VFRH[LVWLQJZLWKWKHGLVSOD\HG FRUSVHRIWKHPRQDUFKLQVWHDGRIVXEVWLWXWLQJIRULW 7  KH SDLU RI WKH FRUSVH DQG WKH Hϲ J\ PDQLIHVWHG WKH DFWXDO PDWHULDO GRXEOLQJRIWKHPRQDUFK·VERG\7ROHDYHQRGRXEWWKDWWKLVZDVWKHVDPH ERG\ RQO\ GRXEOHG Hϲ JLHV ZHUH PDGH WR ORRN OLNH DQ H[DFW KHDOWK\ >@

&28576

VXUYLYLQJ  YHUVLRQ RI WKH PRQDUFK³VR H[DFW WKDW VRPHWLPHV HYHQ WKH FRXUWLHUV PLVWRRN WKH Hϲ J\ IRU WKH OLYLQJ NLQJ (ϲ JLHV ZHUH SURGXFHG LQ VHFUHWZLWKJUHDWDUWLVWLFHϸRUWVVXPPRQHGIRUWKLVWDVN7KH\ZHUHPDGHRI ZD[OHDWKHUDQGZRRG7KHLUIDFHVZHUHPHWLFXORXVO\PRGHOHGRQWKHGHDWK PDVNRIWKHPRQDUFKDQGFDUHIXOO\SDLQWHGWRORRNDVDOLYHDVSRVVLEOH5HDO KDLU ZDV XVHG DUWLϮFLDO H\HODVKHV ZHUH LQVHUWHG OLPEV ZHUH FUHDWHG ZLWK PRYLQJ MRLQWV ,Q VL[WHHQWKFHQWXU\ )UDQFH DQG (QJODQG GXULQJ SUHSDUD WLRQVIRUWKHPRQDUFK·VIXQHUDOWKHHϲ J\ZDVGLVSOD\HGDVSURPLQHQWO\DV WKHFRUSVH%XWEHFDXVHLWIXQFWLRQHGDVWKHVXUYLYLQJ ERG\RIWKHVRYHUHLJQ RIWHQPRUHDWWHQWLRQZDVSDLGWRLWWKDQWRWKHFRUSVH7KHHϲ J\ZDVGUHVVHG LQWKHPRQDUFK·VFORWKHVDQGVHDWHGRQWKHWKURQHPHGLFVSUHWHQGHGWRWDNH LWVSXOVHDQGOLVWHQWRLWVEUHDWKLWZDVVHUYHGIRRGDQGZLQHDQGDIWHUPHDOV LWVPRXWKDQGKDQGVZHUHZLSHG'XULQJWKHIXQHUDOSURFHVVLRQWKHPRQ DUFK·VFRUSVHDQGHϲ J\ERWKZHUHFDUULHGWKURXJKWKHFLW\&RXUWLHUVRIWHQ MRVWOHGZLWKHDFKRWKHUIRUWKHSRVLWLRQQHDUHVWWRWKHHϲ J\LJQRULQJWKH FRUSVHSD\LQJPRUHDWWHQWLRQWRWKHVXUYLYLQJSHUSHWXDOKDOIRIWKHVRYHU HLJQ :LWKWKHFRURQDWLRQRIWKHQH[WPRQDUFKWKHPRUWDODQGLPPRUWDO ERGLHVEHFDPHRQFHDJDLQUHXQLWHGZLWKLQRQHSHUVRQ·VϰHVK7KHFRUSVHRI WKHSUHYLRXVPRQDUFKZDVEXULHGDQGKLVHϲ J\FRXOGQRORQJHUEHSXEOLFO\ VHHQDQGZDVKLGGHQRUGHVWUR\HG , QKLVERRN.DQWRURZLF]GLVFXVVHVWKHWKHRU\RIWKHNLQJ·VWZRERGLHVDV DQDUWLIDFWRIODWHPHGLHYDO²HDUO\PRGHUQ&KULVWLDQ:HVWHUQ(XURSH+RZ HYHUDVDQWKURSRORJLVWVDQGKLVWRULDQVKDYHVKRZQPDQ\FRPSDUDEOHULWX DOVRIWKHSHUSHWXDOUHJHQHUDWLRQRIVRYHUHLJQSRZHUKDYHH[LVWHGLQGLYHUVH VRFLRFXOWXUDODQGKLVWRULFDOFRQWH[WV7KHWKLUGHGLWLRQRI6LU-DPHV)UD]HU·V 7KH*ROGHQ%RXJK$6WXG\LQ&RPSDUDWLYH5HOLJLRQSXEOLVKHGLQGHVFULEHV WKHULWXDOVRIUR\DOVXFFHVVLRQLQWKH6KLOOXNNLQJGRPRIVRXWKHUQ6XGDQ ZKLFKHFKRWKRVHGHVFULEHGE\.DQWRURZLF]LQVRPHGHWDLOLQFOXGLQJWKH ULWXDOVRIGRXEOLQJWKHUR\DOERG\DQGXVLQJDZRRGHQHϲ J\&RPSDUDEOH FRVPRORJLHVDQGULWXDOVGHYHORSHGLQRWKHUSDUWVRIWKHZRUOGDQGSHULRGV³ IURP(DVW,QGLDWRSUHPRGHUQ-DSDQIURPDQFLHQWLPSHULDO5RPHWRWKH PRGHUQ9DWLFDQ ,WDSSHDUVWKDWDWHPSRUDOGLVFRQWLQXLW\EHWZHHQWKH LPSHUPDQHQFHRIWKHVRYHUHLJQ·VKXPDQERG\DQGWKHSHUPDQHQFHRIWKHVRYHU HLJQRϲ FHFRXSOHGZLWKDQDWWHPSWWRDYRLGDFULVLVRISRZHUDVDUHVXOWRI WKLV GLVFRQWLQXLW\ OHG WR WKH HPHUJHQFH RI FRPSDUDEOH FRVPRORJLHV DQG ULWXDOVRIERGLO\GRXEOLQJLQPDQ\GLϸHUHQWFRQWH[WV

>@

5(728&+,1*7+(629(5(,*1

7  KHFDVHH[SORUHGE\.DQWRURZLF]WKHUHIRUHDSSHDUVWREHDVLJQLϮFDQW EXW FXOWXUDOO\ VSHFLϮF YDULHW\ RI D EURDGHU SKHQRPHQRQ ,Q WKH /HQLQLVW V\VWHPDGLVWLQFWSROLWLFDOFRVPRORJ\WKDWOLQNHGDGRXEOLQJRIWKHIRXQGD WLRQDOERG\ZLWKWKHVRYHUHLJQW\RIWKHSROLWLFDOUHJLPHKDGDOVRHPHUJHG 7KHOLQNRIWKLVSROLWLFDOFRVPRORJ\ZLWKWKHERG\WKDWLVSUHVHUYHGIRUSRV WHULW\ZDVQRWIRUPXODWHGDWRQFHEXWGHYHORSHGJUDGXDOO\:LWKWLPHWKLV SROLWLFDOFRVPRORJ\VKDSHGWKHSHFXOLDUUHTXLUHPHQWVDQGFRQVWUDLQWVRIWKH VFLHQWLϮFSUDFWLFHWKDWZDVGHVLJQHGWRDFKLHYHSUHVHUYDWLRQ7KLVLVQRWDQ DUJXPHQWDERXWGLUHFWFDXVDOLW\7KHVWUXFWXUHRI/HQLQLVWVRYHUHLJQW\GLG QRWGHYHORSDVDGLUHFWWUDQVIRUPDWLRQRIVRYHUHLJQSULQFLSOHVWKDWH[LVWHG LQWKH5XVVLDQPRQDUFK\RULQWKHLQVWLWXWLRQVDQGEHOLHIVRIWKH2UWKRGR[ FKXUFK$V0LFKDHO&KHUQLDYVN\DVWXGHQWRI.DQWRURZLF]KDVDUJXHGDGRF WULQH FRPSDUDEOH WR WKDW RI WKH NLQJ·V WZR ERGLHV LQ )UDQFH DQG (QJODQG QHYHUGHYHORSHGLQWKH5XVVLDQF]DULVWVWDWH+RZHYHULQWKH/HQLQLVWSRO LW\WKHSHUSHWXDOGLPHQVLRQRIVRYHUHLJQW\DWVRPHSRLQWDOVREHFDPHPDQ LIHVWHGPDWHULDOO\LQWKHIRUPRIDGRXEOHGVRYHUHLJQERG\7KHLPSRUWDQFH RIWKLVGRXEOHGERG\LQWKHSROLWLFDOUHJLPHRIWKH%ROVKHYLNVWDWHZDVHQ DEOHGQRWE\WKHSUHYLRXVLQVWLWXWLRQDOVWUXFWXUHVRIWKHSUHUHYROXWLRQDU\ 5XVVLDQVWDWH,WGHYHORSHGUDWKHUWKURXJKDFRPELQDWLRQRIFLUFXPVWDQFHV³ WKHUHODWLYHO\ORQJSUHVHQFHRIWKHXQEXULHGERG\LQWKHPRQWKVDIWHU/HQ LQ·VGHDWKWKHSROLWLFDOGLVVRFLDWLRQRI/HQLQIURPWKHDUWLϮFLDOO\FRQVWUXFWHG ´/HQLQLVPµDQGWKHSHFXOLDUFRPELQDWLRQRIWKHPRGHUQUHYROXWLRQDU\HWKRV DQGWUDGLWLRQDOIRUPRISRZHUWKDWGHϮQHGWKH%ROVKHYLNVWDWH7RFODULI\WKHVH SRLQWVZHPXVWFRPSDUHWKH%ROVKHYLNIRUPRISRZHUZLWKWKDWLQPRGHUQ GHPRFUDFLHVDQGDEVROXWLVWPRQDUFKLHV

7KH.LQJWKH3HRSOHDQGWKH3DUW\ &  ODXGH/HIRUWDUJXHVWKDWWKHSROLWLFDOLQVWLWXWLRQRIVRYHUHLJQSHUSHWXLW\ LQPRGHUQOLEHUDOGHPRFUDF\EHFDPHQHJDWLYHO\UHODWHGWRWKDWLQVWLWXWLRQ LQWKHDEVROXWLVWPRQDUFKLHVWKDWLWUHSODFHG,QWKH(XURSHDQDEVROXWLVW PRQDUFKLHVWKHVRYHUHLJQ·VOHJLWLPDF\ZDVJXDUDQWHHGE\WKHPRQDUFK·VOLQN WR´DQRWKHUSODFHµ³DSODFHWKDWZDVH[WHUQDO WRWKHSROLWLFDOZRUOGRIWKH PRQDUFK\ZKHUHWKHHWHUQLW\RIWKDWVRYHUHLJQSRZHUZDVDQFKRUHG,W ZDVLQWKDWH[WHUQDORWKHUSODFHWKDWWKHSK\VLFDOERG\RIHDFKPRQDUFKZDV

>@

&28576

´ORFDWHGµXQWLOWKDWPRQDUFKGLHG,QDFRQVWLWXWLYHSDUDGR[RIDEVROXWLVW VRYHUHLJQW\HDFKPRQDUFKRFFXSLHGWKHSRVLWLRQRILPPRUWDOLW\EXWRQO\ WHPSRUDULO\,QFRQWHPSRUDU\OLEHUDOGHPRFUDFLHVDUJXHV/HIRUWWKHFHQ WHURIVRYHUHLJQSRZHULVDOVRDQFKRUHGLQWKHLPPRUWDO´RWKHUSODFHµEXW QRZWKDWSODFHLVHPSW\'HPRFUDWLFUXOHUVFDQQRWRFFXS\LWDVWKHDEVROXW LVWPRQDUFKGLGEXWWKH\PXVWDFWLQWKHQDPHRIWKDWSODFHDQGUHIHUWRLWIRU OHJLWLPDF\,WLVLQWKDWSODFHWKDWWKHIRXQGDWLRQDO7UXWKRIOLEHUDOGHPRF UDF\LWVVRXUFHRIOHJLWLPDF\ LVDQFKRUHG ( ULF6DQWQHUKDVDOVRDUJXHGWKDWLQOLEHUDOGHPRFUDF\ZLWKWKHGLVDS SHDUDQFHRIWKHNLQJ·VERG\WKHORFXVRIVRYHUHLJQW\PLJUDWHGLQWRDQHZ ORFDWLRQ%XWXQOLNH/HIRUWKHGHϮQHVWKDWORFDWLRQDVWKHH[WUDSHUVRQDO ERG\RIWKH3HRSOHSRSXODWLRQQDWLRQ  , QIDFWGHVSLWHWKHLUVHHPLQJLQFRQVLVWHQF\/HIRUW·VDQG6DQWQHU·VDUJX PHQWVWDNHQWRJHWKHUGHVFULEHKRZWKHGRXEOLQJRIWKHVRYHUHLJQ·VERG\ PDQLIHVWVLWVHOILQPRGHUQOLEHUDOGHPRFUDF\7KLVERG\LVVSOLWEHWZHHQ 6DQWQHU·VH[WUDSHUVRQDOERG\RIWKHSRSXODWLRQDQG/HIRUW·VH[WHUQDO´HPSW\ VSDFHµ7KHIRUPHULVWKHFROOHFWLRQRIKXPDQERGLHVWKDWFRQWLQXRXVO\VXF FHHGWKHSUHYLRXVRQHVLQWKHSHUSHWXDOOLIHRIWKHQDWLRQWKLVLVWKHPRG HUQHTXLYDOHQWRIWKHVXFFHVVLRQRIWKHPRUWDOERGLHVRINLQJVLQDQDEVROXWLVW G\QDVW\7KHODWWHULVWKHH[WHUQDOSODFHZKHUHWKHIRXQGDWLRQDO7UXWKRIWKH SROLWLFDOV\VWHPLVORFDWHGWKLVLVWKHPRGHUQHTXLYDOHQWRIWKHNLQJ·VLP PRUWDOERG\7KHIRXQGDWLRQDO7UXWKLVH[WHUQDODQGSULRUWRWKHV\VWHPLW FDQQRWEHTXHVWLRQHGLQWKHSROLWLFDOWHUPVRIWKHV\VWHPDQGSURYLGHVWKH V\VWHPZLWKOHJLWLPDF\,QGLϸHUHQWPRGHUQV\VWHPVWKLVSULRU7UXWKLVDU WLFXODWHGLQGLϸHUHQWWHUPV³LQWKHZRUGVRIWKH)RXQGLQJ)DWKHUV8QLWHG 6WDWHV LQWKHPD[LPVRI0DU[LVP/HQLQLVP6RYLHW8QLRQ DQGVRIRUWK &  RPSDULQJWKHVWUXFWXUHRIVRYHUHLJQW\LQWKHSUHPRGHUQDEVROXWLVWPRQ DUFK\ DQG LQ PRGHUQ OLEHUDO GHPRFUDF\ LV KHOSIXO IRU XQGHUVWDQGLQJ WKH VWUXFWXUHRIVRYHUHLJQW\LQWKH/HQLQLVWSROLW\ZKHUHLWORRNHGOLNHDSHFX OLDUFRPELQDWLRQRIWKHWZR 1RDFWLQJ6RYLHWOHDGHUDIWHU/HQLQ·VGHDWK FRXOGRFFXS\WKHFHQWHURIVRYHUHLJQSRZHUOLNHWKHDEVROXWLVWPRQDUFK GLGEHFDXVHWKHUHODWLRQRIHYHU\OHDGHUWRWKDWSRZHUZDVPHGLDWHGE\WKH ϮJXUHRI´/HQLQLVPµ(YHU\6RYLHWOHDGHUHYHQ6WDOLQDWWKHKHLJKWRIKLV SRZHUVKDGWRUHIHUWR/HQLQLVPIRUOHJLWLPDF\DQGFRXOGQRWTXHVWLRQLW $Q\SROLWLFDOϮJXUHLQ6RYLHWKLVWRU\ZDVJUDQWHGOHJLWLPDF\LILWFRXOGEH GHPRQVWUDWHGWKDWKHRUVKHZDVIDLWKIXOWR/HQLQLVPDQGZDVGHOHJLWL PL]HGLQDQLQVWDQWLILWZDVVKRZQWKDWKHRUVKHYLRODWHG/HQLQLVP7KH >@

5(728&+,1*7+(629(5(,*1

HPHUJHQFHRI6WDOLQ·VSHUVRQDOLW\FXOWDQGWKHFROODSVHRIWKDWFXOWDIWHUKLV GHDWKZKLFKGLGQRWOHDGWRWKHFROODSVHRIWKHSDUW\DQGWKH6RYLHWV\VWHP LOOXVWUDWH WKLV SRLQW $W ϮUVW 6WDOLQ ZDV FHOHEUDWHG DV WKH PRVW IDLWKIXO /HQLQLVWVRPHRQHZKRKDGXQLTXHDFFHVVWR7UXWK%XWDIWHUKLVGHDWKLQ 6WDOLQZDVDFFXVHGRISUHFLVHO\WKHRSSRVLWH³RIKDYLQJGLVWRUWHGWKH 7UXWKRI/HQLQLVP/LNHRWKHU6RYLHWOHDGHUV6WDOLQGLGQRWDQGFRXOGQRW RFFXS\WKHFHQWHURIVRYHUHLJQSRZHU%XWZKHUHZDVWKDWFHQWHUORFDWHG" $QGZKDWZDVWKHSRVLWLRQRI/HQLQ·VERG\LQUHODWLRQWRLW" .  HQ-RZLWWDUJXHVWKDWSRZHULQWKH/HQLQLVWV\VWHPZDVFHQWHUHGQHLWKHU LQWKHWUDGLWLRQDOFKDULVPDWLFOHDGHUDVLQWKHDEVROXWLVWPRQDUFK\RUWKH 1D]LVWDWH QRULQGHSHUVRQDOL]HGPRGHUQEXUHDXFUDF\DVLQOLEHUDOGHPRF UDF\ EXWLQVWHDGLQDQLQVWLWXWLRQWKDWZDVRUJDQL]HGDVDFRPELQDWLRQRI WKHWZR³WKH/HQLQLVWSDUW\-RZLWWGHϮQHVWKDWLQVWLWXWLRQDVQHRWUDGLWLRQDO EHFDXVHLWHPHUJHGZKHQWZRVHHPLQJO\LQFRPSDWLEOHSULQFLSOHVZHUHDE VRUEHGLQWRRQHRUJDQL]DWLRQDOVWUXFWXUHWKHWUDGLWLRQDOSULQFLSOHRI´LQGL YLGXDOKHURLVPµDQGWKHPRGHUQSULQFLSOHRI´RUJDQL]DWLRQDOLPSHUVRQDOLVPµ &RPSDULQJWZRNLQGVRI´WRWDOLWDULDQLVPµ/HQLQLVPDQG1D]LVP-RZLWWSRLQWV RXWWKDWWKH\ERWKHPSKDVL]HGD´KHURLFHWKLFµKRZHYHUZKDWDJHQW HDFK V\VWHPGHVLJQDWHGDVKHURLFZDVGLϸHUHQW,QWKH1D]LVWDWHWKDWDJHQWZDV WKH LQGLYLGXDO FKDULVPDWLF /HDGHU WKH )KUHU 1D]LVP ZDV EDVHG RQ WKH )KUHUSULQ]LS³RQWKHSHUVRQDOFKDULVPDRIWKH/HDGHUZKR´FODLPVDXWKRULW\ EHFDXVHKHLQFRUSRUDWHVWKHLGHDLQKLVSHUVRQµ,QWKH/HQLQLVWV\VWHPWKDW DJHQWZDVQRWDQLQGLYLGXDOEXWWKHSDUW\ZKRVH´KHURLVP>ZDV@GHϮQHGLQ RUJDQL]DWLRQDOQRWLQGLYLGXDOWHUPVµDQGWKHUHIRUHLWVSULQFLSOHRIRUJDQL]D WLRQZDV´FKDULVPDWLFLPSHUVRQDOLVPµ 7  KH/HQLQLVWSDUW\ZDVIRXQGHGRQDQGKHOGWRJHWKHUE\WKH´FRUUHFWOLQHµ DYHUVLRQRIWKHIRXQGDWLRQDO7UXWK(YHU\OHDGHULQWKH/HQLQLVWV\VWHP FODLPHGDXWKRULW\RQWKHEDVLVRIKLVNQRZOHGJHRIWKH´FRUUHFWOLQHµDQG QROHDGHUFRXOGTXHVWLRQLW$WWKHHQGRI/HQLQ·VOLIHDQGDIWHUKLVGHDWKWKH FRUUHFW OLQH EHFDPH DUWLFXODWHG DV WKH QHZO\ FRQVWUXFWHG GRFWULQH RI ´/HQLQLVPµ +RZHYHU VLQFH WKDW GRFWULQH ZDV LPSHUVRQDO QR RQH FRXOG SHUVRQDOO\DXWKRURURSHQO\TXHVWLRQLWDQGHYHU\RQHKDGWRUHIHUWRLWIRUOH JLWLPDF\ LWSRWHQWLDOO\DOORZHGIRUGLϸHUHQWLQWHUSUHWDWLRQV7KLVZDVZK\ DUJXHV -RZLWW WKH /HQLQLVW 3DUW\ DOZD\V JHQHUDWHG PDQ\ PRUH LQWHUQDO IDFWLRQVWKDQWKH1D]L3DUW\ $QGWKLVZDVDOVRZK\WKH/HQLQLVW3DUW\DO ZD\VKDGWKHOHJLWLPDWHSRWHQWLDOWRFULWLFL]HDQ\OHDGHULQFOXGLQJWKHJHQHUDO VHFUHWDU\LIDJURXSLQWKHSDUW\OHDGHUVKLSPDGHDVXFFHVVIXOFODLPWKDW >@

&28576

WKDW OHDGHU KDG YLRODWHG /HQLQLVP 7KLV ZDV ZKDW .KUXVKFKHY FODLPHG ZKHQKHDWWDFNHG6WDOLQ·VFXOWRISHUVRQDOLW\DWWKH7ZHQWLHWK3DUW\&RQJUHVV LQ $QGLWZDVDOVRZKDWKDSSHQHGWR.KUXVKFKHYZKHQKHZDVGH SRVHGE\WKH3ROLWEXURLQ - RZLWW·VDUJXPHQWFRPELQHGZLWK/HIRUW·VDQG6DQWQHU·VDGGVFODULW\WR KRZVRYHUHLJQSRZHULQWKH/HQLQLVWV\VWHPZDVRUJDQL]HG7KHFHQWHURI VRYHUHLJQW\KHUHZDVORFDWHGQHLWKHULQWKHWZLQQHGERG\RIWKHFKDULVPDWLF /HDGHUWKHDEVROXWLVWPRQDUFK QRULQWKHGXDOLW\RI´HPSW\SODFHµDQGFRO OHFWLYHERG\RIWKHSRSXODWLRQOLEHUDOGHPRFUDF\ EXWUDWKHULQDPL[WXUH RIWKHWZR³WKH/HQLQLVWSDUW\7KHSDUW\DVDKHURLFDJHQWZDVLPSHUVRQDO FROOHFWLYHDQGGRXEOHG LQWRPRUWDODQGLPPRUWDOERGLHV,WVPRUWDOERG\ZDV WKHFROOHFWLRQRIDOOSDUW\PHPEHUVZKRVHRQJRLQJVXFFHVVLRQOLNHWKHSRS XODWLRQ LQOLEHUDOGHPRFUDF\ PDGHWKHFRQWLQXRXVH[LVWHQFHRIWKHSDUW\ WKURXJKRXW 6RYLHW KLVWRU\ SRVVLEOH ,WV LPPRUWDO ERG\ ZDV WKH GRFWULQH RI /HQLQLVP³WKHIRXQGDWLRQDOXQTXHVWLRQDEOH7UXWKORFDWHGRXWVLGHWKHV\VWHP :  KDWZDVWKHUROHRI/HQLQ·VERG\LQWKLVVWUXFWXUHRISRZHU"7KDWERG\ VHUYHGWKHUROHRIWKHPDWHULDOPDQLIHVWDWLRQ RIWKHGRXEOHGERG\RIWKHSDUW\ DNLQWRWKHUROHSOD\HGWRJHWKHUE\WKHFRUSVHDQGWKHHϲ J\LQWKHDEVROXWLVW PRQDUFK\ &RQWLQXRXVO\UHSURGXFLQJ´/HQLQLVPµDVWKHIRXQGDWLRQDOWUXWK RI WKH 6RYLHW V\VWHP LQYROYHG QRW RQO\ PDQLSXODWLQJ DQG UHLQWHUSUHWLQJ /HQLQ·VWH[WVDQGIDFWVRIKLVOLIHEXWDOVRUHVFXOSWLQJDQGUHFRQVWUXFWLQJKLV SK\VLFDOERG\LQWKH0DXVROHXP6LPLODUO\WKHRQJRLQJUHIRUPVSXUJHVDQG UHFRQVWUXFWLRQVRIWKHSDUW\ZHUHFRPSDUDEOHWRWKHFRQWLQXRXVUHJHQHUDWLRQ RIWKHSRSXODWLRQLQOLEHUDOGHPRFUDF\³WKDWLVWRWKHSUDFWLFHVRIELRSROLWLFV 5HSURGXFLQJ/HQLQ·VERG\DWWKHOHYHORISK\VLFDOIRUP ZKLOHDOWHULQJDQG VXEVWLWXWLQJLWVELRORJLFDOPDWWHUDPRXQWHGWRGRXEOLQJWKLVERG\LQWRDERG\ FRUSVHPRUWDOELRORJLFDOUHPDLQV DQGERG\Hϲ J\LPPRUWDOSK\VLFDOIRUP  7  RWKHFRPPRQYLVLWRUWRWKH0DXVROHXP/HQLQ·VERG\KDVDOZD\VDS SHDUHGDVWKHERG\FRUSVH³LQWDFWSUHVHUYHGRQFHDQGIRUDOOϮ[HGLQWKH PRPHQWRIGHDWK%XWWRWKHJD]HRIWKHSROLWLFDOUHJLPHWKHSDUW\OHDGHUVKLS DQGWKHODE·VVFLHQWLVWV /HQLQ·VERG\DSSHDUHGDVWKHERG\Hϲ J\³G\QDPLF UHJXODUO\UHVFXOSWHGORFDWHGLQWKHSRLQWRIVRYHUHLJQLPPRUWDOLW\ , QDZD\/HQLQ·VLPPRUWDOERG\Hϲ J\ZDVUHPLQLVFHQWRIWKHHϲ JLHVRI PHGLHYDONLQJV+RZHYHUWKHUHZDVDQLPSRUWDQWGLϸHUHQFH7KHNLQJ·VHI ϮJ\H[LVWHGRQO\WHPSRUDULO\GXULQJDVKRUWLQWHUUHJQXPZKHQWKHWZLQQHG ERG\RIWKHPRQDUFKZDVPDWHULDOO\GRXEOHGLQWRFRUSVHDQGHϲ J\&RQ YHUVHO\/HQLQ·VERG\ZDVGRXEOHGLQWRFRUSVHDQGHϲ J\ZLWKLQRQHDQGWKH >@

5(728&+,1*7+(629(5(,*1

VDPHERG\DQGDVDSHUSHWXDOO\UHQHZHGFRQGLWLRQ7KHUHJXODU´ELJSURFHGXUHVµ RIUHHPEDOPLQJDQGUHFRQVWUXFWLQJ/HQLQ·VERG\WKDWWKHODEKDVSHUIRUPHG HYHU\RQHDQGDKDOI\HDUVKDYHSOD\HGDUROHWKDWFDQEHSDUDOOHOHGWRWKDW RIWKHLQWHUUHJQXPDQGUHQHZDORINLQJVLQWKHPRQDUFK\7REHPRUHSUH FLVHERWKIXQFWLRQHGDVPHFKDQLVPVRIVRYHUHLJQSHUSHWXLW\

'HDG/HDGHUDQG/LYLQJ3DWLHQWV 7  KH´ELJSURFHGXUHVµODVWDERXWWZRPRQWKV'XULQJWKDWWLPHDOOHPEDOP LQJOLTXLGVDUHGUDLQHGIURP/HQLQ·VERG\DQGVXEMHFWHGWRDYDULHW\RIELR FKHPLFDODQDWRPLFDODQGSK\VLFDOWHVWVWRLGHQWLI\XQZDQWHGELRORJLFDODQG FKHPLFDOSURFHVVHV6DPSOHVRIGLϸHUHQWWLVVXHVLQWKHERG\DUHFROOHFWHG DQGWHVWHG+XQGUHGVRISKRWRJUDSKVRIWKHERG\·VVXUIDFHVDUHWDNHQZLWK SUHFLVLRQFDPHUDVDQGFRPSDUHGZLWKWKHSKRWRJUDSKVWDNHQSUHYLRXVO\WR LGHQWLI\FKDQJHV0LFURLQMHFWLRQVRIDUWLϮFLDOVXEVWDQFHVLQIXVLRQVRIHP EDOPLQJDQGRWKHUOLTXLGVDQGDSSOLFDWLRQVRISODVWLFVDQGRWKHUPDWHULDOV DUHXVHGWRUHFRQVWLWXWHWKHRULJLQDOYROXPHRIERG\SDUWVODQGVFDSHRI LWVVXUIDFHVVNLQSUHVVXUHMRLQWϰH[LELOLW\FRORUDQGZHLJKW$OOWKLVFRQFHUQV QRWRQO\WKHVPDOOSDUWVRIWKHERG\YLVLEOHWRWKHSXEOLFKHDGDQGKDQGV EXW WKHSDUWVWKHSXEOLFFDQQHYHUVHH7KHQWKHERG\LVVXEPHUJHGIRUVXEVWDQWLDO SHULRGVRIWLPHGD\VRUZHHNV LQEDWKVZLWKGLϸ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

&28576

ZKLFKKDYHHQWHUHGUHJXODUPHGLFLQHDQGHYHQIRXQGWKHLUZD\LQWR:HVW HUQPHGLFDOSUDFWLFH&RQVLGHUWZRH[DPSOHV , QWKHVYROXPHDQGG\QDPLFFKDUDFWHULVWLFVRIWLVVXHV@LVSUHVHUYHGDEVR OXWHO\LQWDFW,WLVLPSRUWDQWWRPDLQWDLQSUHFLVHYROXPH7RSXWLWVLPSO\ QRWLVVXHVKRXOGVZHOORUVKULQNZKHQOLTXLGVDUHDGGHGRUGUDLQHG:KHQ /RSXNKLQZRUNHGRQWKLVFKDOOHQJLQJWDVNKHDUULYHGDWDYHU\LQWHUHVWLQJ LGHDZKLFKKHODWHUDSSOLHGWRKLVZRUNRQNLGQH\WUDQVSODQWDWLRQ$NLGQH\ LV DQ DSSURSULDWH RUJDQ IRU WKLV DSSURDFK EHFDXVH LW·V UHODWLYHO\ LVRODWHG LQVLGHWKHERG\OLNHDVHSDUDWHYHVVHOZLWKDQLQSXWDQGDQRXWSXWRIOLT XLGV8VLQJDFRPSOH[VHWRILQVWUXPHQWVWKDWHQDEOHGSHUIXVLRQRIGLϸHU HQWWLVVXHVZKHQVROXWLRQVϰRZWKURXJKWKHP/RSXNKLQODWHUDSSOLHGWKLVWR PDLQWDLQLQJWKHOLIHDQGYROXPHRIDNLGQH\RXWVLGHRIWKHERG\7RSUHSDUH NLGQH\VIRUWUDQVSODQWDWLRQ7KHϮUVWLQVWUXPHQWDOVHW>SULERUQRHRIRUPOHQLH@ KHGHVLJQHGKHUHLQWKH>0DXVROHXP@ODE

/ RSXNKLQGHVFULEHGWKHLQVWUXPHQWDOVHWKHLQYHQWHGDVDFROOHFWLRQRI´V\ ULQJHVIXQQHOVDQGFDQQXODV³WKLQWKLFNORQJVKRUWVWUDLJKWFURRNHG RIGLϸHUHQWVL]HVFDSDEOHRIGHOLYHULQJOLTXLGVWRYDULRXVKLGGHQSODFHVLQ WKHERG\ZKHUHVLJQVRIVRIWHQLQJRUGHFRPSRVLWLRQRIWLVVXHVKDVEHHQ GHWHFWHGµ7KH\DUHXQLTXHDQGWKHLUPRGLϮFDWLRQVDUHVWLOOXVHGWRGD\´,I \RXVDZZKDWLQVWUXPHQWVWKH0DXVROHXPJURXSVWLOOKDVDWLWVGLVSRVDO\RX >@

5(728&+,1*7+(629(5(,*1

ZRXOGEHDPD]HGµ/RSXNKLQDGGHGZLWKSULGH,QIRUKLVZRUNRQGH YHORSLQJDPHWKRGRINLGQH\WUDQVSODQWDWLRQ/RSXNKLQZRQWKH6WDWH3UL]H RIWKH8665 2  QHUHTXLUHPHQWRIWKHZRUNRQ/HQLQ·VERG\KDVEHHQWKDWWLVVXHVVKRXOG EH GDPDJHG DV OLWWOH DV SRVVLEOH QHZ SXQFWXUHV VKRXOG EH DYRLGHG )RU H[DPSOHLWZDVLPSRUWDQWWRGHYHORSQRQLQYDVLYHPHWKRGVRIWHVWLQJWKH LQWHUQDOFRPSRVLWLRQRIWKHHSLGHUPLVWKHRXWPRVWOD\HUVRIVNLQZLWKRXW FXWWLQJWKHVNLQ$WHVWPHWKRG/RSXNKLQGHYHORSHGLQWKLVZRUNODWHULQIRUPHG UHVHDUFKRQQRQLQYDVLYHWHFKQLTXHVIRUPHDVXULQJFKROHVWHUROOHYHOV LQ WKH VNLQRIOLYLQJSDWLHQWVZKLFKKHGHVLJQHGZLWKDJURXSRIFROOHDJXHVDWWKH 5HVHDUFK,QVWLWXWHRI3K\VLFR&KHPLFDO0HGLFLQH 7KHPHWKRGNQRZQDV WKH´WKUHHGURSWHVWµLQYROYHVSXWWLQJRQWKHVXUIDFHRIWKHSDOPDGURSRI DUHDJHQWZKLFKHQWHUVLQWRDUHDFWLRQZLWKVNLQFKROHVWHURODSSO\LQJDVHF RQGGURSRIDQRWKHUUHDJHQWWRWKHϮUVWVROXWLRQWRWLHLWDQGWKHQDSSO\LQJ DWKLUGGURSRIDGLϸHUHQWUHDJHQWWRWKDWVSRWWRFKDQJHWKHFRORURIWKHUH VXOWDQWPL[ZKLFKFDQEHDFFXUDWHO\PHDVXUHGZLWKDVSHFWURSKRWRPHWHU 7KDWFRORUFRUUHODWHVZLWKWKHOHYHORIFKROHVWHUROLQWKHVNLQDQGWKHPHWKRG FDQTXLWHDFFXUDWHO\SUHGLFWWKHRYHUDOOOHYHORIFKROHVWHUROLQWKHERG\VLQFH DSSUR[LPDWHO\SHUFHQWRIWKHKXPDQERG\·VFKROHVWHUROLVFRQWDLQHGLQ WKHVNLQ :KLOHRQHUHVHDUFKIRFXVHGRQDGHDGERG\DQGWKHRWKHUUHVHDUFK IRFXVHGRQOLYLQJSDWLHQWVERWKGHDOWZLWKDSUREOHPWKDWUHTXLUHGQRQLQ YDVLYHGLDJQRVWLFVZKLFKDOORZHG/HQLQ·VGHDGERG\WRDϸHFWWKHZRUNRQ OLYLQJSDWLHQWV,Q/RSXNKLQGHVFULEHGWKHWKUHHGURSWHVWLQDQ(QJ OLVKODQJXDJH SXEOLFDWLRQ DQG LQ  LW UHFHLYHG D 86 SDWHQW ,W ZDV GHYHORSHG LQWR DQ )'$DSSURYHG SRLQWRIFDUH GLDJQRVWLF WHVW FDOOHG WKH ´3UH9XWHVWµE\WKH&DQDGLDQFRPSDQ\0LUDFXOLQV7RGD\WKHFRPSDQ\VXF FHVVIXOO\PDUNHWVLWLQ&DQDGD(XURSHDQGWKH8QLWHG6WDWHVDV´WKHZRUOG·V ϮUVWDQGRQO\QRQLQYDVLYHVNLQFKROHVWHUROWHVWµ7KHSURPRWLRQDOPDWH ULDOVPDNHQRPHQWLRQRILWVOLQNWR/HQLQ·VERG\  , QKHUVWXG\RIWKH/HQLQFXOWKLVWRULDQ1LQD7XPDUNLQVXJJHVWHGWKDWWKH %ROVKHYLNOHDGHUVKLSFRXOGKDYHSUHVHUYHG/HQLQ·VERG\WRFUHDWHD´VDFUHG UHOLFµWKDWZRXOG´FRQWLQXHWROHJLWLPDWH6RYLHWSRZHUDQGPRELOL]HWKHSRS XODWLRQµZKLFKZDVGHHSO\2UWKRGR[ODUJHO\LOOLWHUDWHDQGIDPLOLDUZLWK VDLQWV +RZHYHUZKLOHWKHGLVSOD\RIWKLVERG\PD\VHHPUHPLQLVFHQWRI UHOLJLRXVUHOLFVWKHSUREOHPZLWK7XPDUNLQ·VDUJXPHQWLVWKDWWKHSDUW\ >@

&28576

OHDGHUVIURPWKHEHJLQQLQJRIWKLVSURMHFWH[SOLFLWO\WULHGWRGLVWDQFHLWIURP DQ\DVVRFLDWLRQZLWKUHOLFVDQGPLUDFOHVDQGWKH\DOZD\VHPSKDVL]HGWKDWWKH SUHVHUYDWLRQRI/HQLQ·VERG\ZDVDJUHDWDFKLHYHPHQWRIWKH6RYLHWVFLHQFH,W KDVEHHQDOVRVXJJHVWHGWKDWWKHGHFLVLRQWRSUHVHUYH/HQLQFRXOGKDYHEHHQ LQϰXHQFHGE\1LNRODL)HGRURY·VSKLORVRSK\RI´FRPPRQFDXVHµZKLFK´VRXJKW KXPDQVDOYDWLRQLQWKHSK\VLFDOUHVXUUHFWLRQRIWKHϰHVKµ7KLVDUJXPHQW KRZHYHULVDOVRSUREOHPDWLFVLQFHWKHPHWKRGRISUHVHUYLQJ/HQLQ·VERG\DV, KDYHDUJXHGLQFOXGHVFRQWLQXRXVVXEVWLWXWLRQRILWVϰHVKZLWKQHZLQRUJDQLF VXEVWDQFHVSURGXFLQJDNLQGRITXDVLDUWLϮFLDOϰHVKWKDWLVTXLWHLQFRPSDW LEOHZLWKWKH´UHPDLQVµWKDW)HGRURYVRXJKWWRUHVXUUHFW 7  RXQGHUVWDQGZKDWWKHSROLWLFDOPHDQLQJRI/HQLQ·VERG\ZDVLQ6RYLHW WLPHVDQGZKDWUROHLWFRQWLQXHVWRSOD\WRGD\LWLVLQVXϲ FLHQWWRDQDO\]HLW RQO\DWWKHOHYHORIV\PEROLVPDVDWRRORIWKLVRUWKDWLGHRORJ\,WLVHTXDOO\ LPSRUWDQWWRLQYHVWLJDWHWKHPDWHULDOLW\RIWKLVERG\³WKHFRQGLWLRQRILWVWLV VXHVFHOOVDQGMRLQWVWKHSURFHGXUHVDQGWHVWVWRZKLFKLWKDVEHHQVXEMHFWHG DQGWKHVFLHQWLϮFNQRZOHGJHWKDWKDVGHYHORSHGDURXQGLW/HQLQ·VERG\KDV SOD\HGDFULWLFDOUROHLQWKHV\VWHPRI/HQLQLVWVRYHUHLJQW\7KDWVRYHUHLJQW\ ZDVYHVWHGQHLWKHULQWKHϮJXUHRIWKHUXOHU¬DVLQWKH´SUHPRGHUQµDEVROXWLVW PRQDUFK\ QRULQWKHDEVWUDFW¬SRSXODWLRQDVLQWKH´PRGHUQµOLEHUDOGHPRF UDF\ EXWLQWKHFROOHFWLYHDJHQWWKDWFRPELQHGSURSHUWLHVRIWKHWZRWKH /HQLQLVWSDUW\7KLVDJHQWWUDQVFHQGHGHYHU\RQHRILWVPHPEHUV³HDFKSDUW\ PHPEHULQFOXGLQJWKHSDUW\OHDGHUFRXOGEHIRXQGWREHZURQJDQGLOOHJLWL PDWH EXW WKH FROOHFWLYH SDUW\ ZDV DOZD\VDOUHDG\ OHJLWLPDWH DQG ULJKW 7KHOHJLWLPDF\RIWKLVDJHQWZDVJXDUDQWHHGE\WKHIRXQGDWLRQDO7UXWKRI /HQLQLVPWRZKLFKWKHSDUW\KDGXQLTXHDFFHVV7KHLPSHUVRQDOFROOHFWLYH WZLQQHGERG\RIWKHSDUW\ZDVPDQLIHVWHGLQRQHFRQFUHWHPDWHULDOIRUP³ /HQLQ·V ERG\ 5HSURGXFLQJ DQG UHDGMXVWLQJ ´/HQLQLVPµ DV WKH IRXQGDWLRQDO WUXWKRIWKH6RYLHWV\VWHPLQYROYHGFRQVWDQWPDQLSXODWLRQDQGUHLQWHUSUH WLRQRI/HQLQ·VWH[WVDQGIDFWVRIKLVOLIHDQGFRQVWDQWUHVFXOSWLQJDQGUHFRQ VWUXFWLRQRIKLVSK\VLFDOERG\DVDFRPELQDWLRQRIDERG\FRUSVHYLVLEOHWR WKHSXEOLF DQGERG\Hϲ J\YLVLEOHRQO\WRWKH3DUW\OHDGHUVKLS  ,QWKHHQGSHUVLVWHQWUXPRUVDERXW/HQLQ·VERG\EHLQJDZD[SXSSHWKDYH EHHQQHLWKHUTXLWHDFFXUDWHQRUDOWRJHWKHUZURQJ7KLVERG\LVUHDODQG\HW FRQVWUXFWHGLWVELRPDWHULDOFRPSRVLWLRQLVFKDQJLQJEXWLWVG\QDPLFIRUP UHPDLQVWKHVDPH,QGHHGIRFXVLQJRQSUHVHUYLQJLWVRULJLQDOELRORJLFDO PDWWHUZRXOGEHDSUREOHPIRUWKHSROLWLFDOUHJLPH,WZRXOGUHGXFHWKLV ERG\WRWKDWRIDFRQFUHWHELRORJLFDOLQGLYLGXDOXQGHUPLQLQJLWVUROHDVWKH >@

5(728&+,1*7+(629(5(,*1

LPPRUWDOVRYHUHLJQERG\WKDWWUDQVFHQGVLQGLYLGXDOPRUWDOFRQFUHWHQHVV 7KLVERG\PXVWLQKDELW/HQLQLVPEXWEHGLϸHUHQWIURP/HQLQ,WPXVWIHHO OLNH/HQLQEXWH[FHHGFRQFUHWHSHUVRQKRRG7KLVLVZKDW/RSXNKLQ·VWHUP ´OLYHVFXOSWXUHµLQWXLWLYHO\VWULYHVWRFRQYH\ 7  KLVSURMHFWHPHUJHGDQGHYROYHGDVSDUWRIDFRPSOH[SROLWLFDOFRVPRO RJ\WKDWPRVWSDUWLFLSDQWV³SROLWLFLDQVDQGVFLHQWLVWV³GLGQRWQHFHVVDULO\ VHHIRULWVXQGHUO\LQJFXOWXUDODQGSROLWLFDOORJLF7KHFXOWLYDWLRQRI/HQLQ·V ERG\LQWKH6RYLHWSHULRGZDVDOZD\VSHUIRUPHGLQVWULFWVHFUHF\EHKLQG FORVHGGRRUVYLVLEOHRQO\WRWKHJD]HRIWKHSROLWLFDOOHDGHUVKLS7KHUHDVRQ IRUWKLVVHFUHF\ZDVWKHVDPHDVWKHUHDVRQIRUPDNLQJLQYLVLEOHFRQVWDQW PDQLSXODWLRQVRI/HQLQ·VZRUGVWKRXJKWVDQGIDFWVRIKLVOLIH7KLVDS SURDFKDOORZHGIRU´/HQLQLVPµWRDSSHDUDVWKHIRXQGDWLRQDODKLVWRULFDO XQFKDQJLQJ7UXWK³DNLQGRIWUXWKWKDWZDVDQFKRUHGRXWVLGHRIWKH6RYLHW SROLWLFDOSURFHVVDQGIXQFWLRQHGDVWKHOHJLWLPDWHVRXUFH RIWKHSDUW\·VDF WLRQVLQVWHDGRIEHLQJDSURGXFWRILWVDUELWUDU\PDQLSXODWLRQV :  LWKWKHGHPLVHRIWKHSDUW\WKH&RPPXQLVWSURMHFWDQGWKH6RYLHWSRO LW\LQ/HQLQ·VERG\EHFDPHVHYHUHGIURPWKLVFRPSOH[SROLWLFDOV\VWHP DQGORVWLWVUROHLQWKHV\VWHPRIVRYHUHLJQW\7KHQHZ5XVVLDQVWDWHQHLWKHU FORVHGWKH0DXVROHXPQRUSDLGPXFKDWWHQWLRQWRLW,QWKHSDVWWZHQW\ϮYH \HDUVLWKDVGHIHUUHGDQ\GHFLVLRQRQWKHIDWHRI/HQLQ·VERG\$QGDOWKRXJK WRGD\/HQLQ·VERG\UHPDLQVRQSXEOLFGLVSOD\DQGWKHODEFRQWLQXHVLWVZRUN WKHERG\FRQWLQXHVWRH[LVWPRVWO\E\LQHUWLD³WKHLQHUWLDRIVWDWHLQVWLWX WLRQV KLVWRULFDO LPDJLQDWLRQ DQG VFLHQWLϮF SUDFWLFH ,Q WKLV FRQWH[W RQH WKLQJKDVEHFRPHFOHDUIRUPDQ\VFLHQWLVWVRIWKHODEWKLVSURMHFWKDVORQJ FRQVWLWXWHGϮUVWDQGIRUHPRVWDXQLTXHVFLHQWLϮFH[SHULPHQW7KHLUVFLHQFH KDVFUHDWHGDERG\WKDWKDVQHYHUEHHQVWDWLFDQGSUHVHUYHGLQDϮ[HGVWDWH EXWKDVEHHQG\QDPLFFKDQJLQJDQGHPHUJLQJ7KHFROODSVHRIWKH6RYLHW SROLW\GLGQRWDXWRPDWLFDOO\VSHOOWKHHQGRIWKLVHPERGLHGPRPHQWXPGLG QRWWXUQWKLVERG\LQWRDFRUSVHDQGGLGQRWUHGXFHLWWRDQHϲ J\

1RWHV   2OJD9HOLNDQRYD7KH3XEOLF3HUFHSWLRQRIWKH&XOWRI/HQLQ%DVHGRQ$UFKLYDO0DWHUL DOV/HZLVWRQ1@

&28576

  9HUD,QEHU´3LDW·QRFKHLLGQHLµLQ/HQLQ6ERUQLNGOLDUDERFKLNK9ODGLPLU9ODG LPLUVNRHNQLJRL]GDWHO·VWYR QSWUDQVODWLRQPLQH    2PU\5RQHQ´/HNVLFKHVNLHLULWPRVLQWDNWLFKHVNLHSRYWRUHQLLDL¶QHNRQWUR OLUXHP\LSRGWHNVW·೒µ,]YHVWLLD5$1VHULLDOLWHUDWXU\LLD]\NDQR ²   ']HU]KLQVN\GLUHFWHGWKH&K.DQGWKHQ*38SUHGHFHVVRUVRIWKH.*%    ´'HQXQFLDWLRQZULWWHQE\(3DYORYDµTXRWHGLQ$OH[DQGU.KLQVKWHLQ7DLQ\/X ELDQNL0RVFRZ2/0$0HGLD*UXSS    /RXLV)LVFKHU7KH/LIHRI/HQLQ1HZG@WKHSK\VLFDOFRQWRUWLRQVRIWKHNLQJ·VIDWDOVWURNHµ-XOLDQ /LWWHQ´7KH)XQHUDO(ϲ J\,WV)XQFWLRQDQG3XUSRVHµLQ7KH)XQHUDO(ϲ JLHVRI :HVWPLQVWHU$EEH\HG$QWKRQ\+DUYH\DQG5LFKDUG0RUWLPHU:RRGEULGJH %R\GHOO ²:KHQ4XHHQ(OL]DEHWKGLHGLQWKHIDFHRIWKHHI ϮJ\WKDWZDVPRGHOHGRQKHUGHDWKPDVNFRQWDLQHGPHWLFXORXVO\UHSURGXFHG ´ZULQNOHVDQGRWKHUIHDWXUHVRIDJHLQJµ-HQQLIHU:RRGZDUG7KH7KHDWUHRI'HDWK :RRGEULGJH%R\GHOO    .DQWRURZLF].LQJ·V7ZR%RGLHV*LHVH\5R\DO)XQHUDO&HUHPRQ\5DOSK( *LHVH\´)XQHUDO(ϲ JLHVDV(PEOHPVRI6RYHUHLJQW\(XURSHWR&HQWXULHVµ OHFWXUHGHOLYHUHGWRWKH&ROOqJHGH)UDQFH-XQH ZZZUHJLHVH\FRP /HFWXUHV)XQHUDOB(ϲ JLHVBDVB(PEOHPVBRIB6RYHUHLJQW\B/HFWXUHB>(QJOLVK@ B&ROOHJHBGHB)UDQFHSGI   *LHVH\5R\DO)XQHUDO&HUHPRQ\   5LFKDUG0RUWLPHU´7KH+LVWRU\RIWKH&ROOHFWLRQµLQ+DUYH\DQG0RUWLPHU )XQHUDO(ϲ JLHVRI:HVWPLQVWHU$EEH\²   6HHWKHGLVFXVVLRQRIWKLVSDUDOOHOLVPLQ'DYLG*UDHEHU´7KH'LYLQH.LQJVKLS RIWKH6KLOOXN2Q9LROHQFH8WRSLDDQGWKH+XPDQ&RQGLWLRQRU(OHPHQWVIRU DQ$UFKDHRORJ\RI6RYHUHLJQW\µ+$8-RXUQDORI(WKQRJUDSKLF7KHRU\QR  ²DQG%XUKDUG6FKQHSHO7ZLQQHG%HLQJV.LQJVDQG(ϲ JLHVLQ6RXWKHUQ6XGDQ (DVW,QGLDDQG5HQDLVVDQFH)UDQFH*|WHERUJ,$66$    6FKQHSHO7ZLQQHG%HLQJV   7KHERG\RIWKHHPSHURULQPRGHUQ-DSDQZDVYLHZHGDV´D¶UHFHSWDFOH·LUH PRQR IRUWKHLPPXWDEOH¶LPSHULDOVSLULW·WHQQRUHL WKDWDWWDFKHGLWVHOIWRHDFK QHZHPSHURUDQGZDVWKHVRXUFHRIWKHHPSHURU·VH[WUDRUGLQDU\DXWKRULW\µ 7DNDVKL)XMLWDQL6SOHQGLG0RQDUFK\3RZHUDQG3DJHDQWU\LQ0RGHUQ-DSDQ%HUNHOH\ 8QLYHUVLW\RI&DOLIRUQLD3UHVV    $ZD[Hϲ J\RIWKH5RPDQHPSHURU$QWRQLXVVHFRQGFHQWXU\&( GXULQJWKH IXQHUDU\SHULRGORRNHGOLNHWKHHPSHURUZRUHKLVFORWKHVDQGOD\LQKLVEHG %LFNHUPDQQTXRWHGLQ$JDPEHQ+RPR6DFHU 6HHDOVR$OHߖ&KDOXSD´+RZ >@

&28576

'LG5RPDQ(PSHURUV%HFRPH*RGV"µ$QRGRV6WXGLHVRIWKH$QFLHQW:RUOG ² ² ²DQG-Dߓ(OVQHU,PSHULDO5RPHDQG&KULVWLDQ7ULXPSK 2[IRUG 2[IRUG8QLYHUVLW\3UHVV ²   7KHSULQFLSOHRISDSDOVRYHUHLJQW\XQOLNHWKDWRIPRQDUFK\LVQRWG\QDVWLF ZKLFKLVZK\WKHWKHRU\RIWKHSRSH·VWZRERGLHVQHYHUGHYHORSHG:KDWVXU YLYHVWKHGHPLVHRIHDFKSRSHLVWKH´DEVHQWSUHVHQFHµRIWKHHWHUQDOSDSDF\ LQYHVWHGQRWLQDSRSH·VHϲ J\EXWLQSHUSHWXDOREMHFWVDQGULWXDOVSHUIRUPHG GXULQJWKHQRYHQDLQWHUUHJQXP $JRVWLQR3DUDYLFLQL%DJOLDQL7KH3RSH·V%RG\ &KLFDJR8QLYHUVLW\RI&KLFDJR3UHVV *LOEHUW21DWLRQV3DSDO6RYHUHLJQW\ &LQFLQQDWL6WDQGDUG3XEOLVKLQJ    7KHUHDVRQIRUWKLVZDVWKDWWKH5XVVLDQPRQDUFKLFVWDWHKDGQRWXQGHUJRQH WKHVDPHVHFXODUL]DWLRQWKDWKDSSHQHGLQ(QJODQGDQG)UDQFH0LFKDHO&KHU QLDYVN\7VDUDQG3HRSOH6WXGLHVLQ5XVVLDQ0\WKV 1HZ+DYHQ%HUNH OH\8QLYHUVLW\RI&DOLIRUQLD3UHVV@² KLVDVVHVVPHQWRIWKHOHDGHU·VSR VLWLRQLQWKH6RYLHW8QLRQLVLQDFFXUDWH   6WDOLQZDVFODLPHGWREH´WKH*UHDWLQKHULWRU>SURGRO]KDWHO·@RI/HQLQ·VFDXVHµ UDWKHUWKDQWKHRULJLQDWRURIDGLϸHUHQWFDXVH6WDOLQGHSHQGHGRQ´/HQLQµDV WKHVRXUFHRIKLVRZQOHJLWLPDF\DQGFRXOGQRWVXSHUVHGH´/HQLQµDVWKHORFXV RI7UXWKFRQWUDU\WRDZLGHVSUHDGDUJXPHQW³VHHHJ-DQ3ODPSHU7KH6WDOLQ &XOW$6WXG\LQWKH$OFKHP\RI3RZHU1HZ+DYHQ@

&28576

  )RU0LUDFXOLQV·VYLVXDOLOOXVWUDWLRQRIWKH3UH9XWHVWVHHZZZSUHYXFRP86$ SUHYXKWPO   7XPDUNLQ/HQLQ/LYHV)RUDVLPLODUDUJXPHQWVHH*UDHPH*LOO´7KH6R YLHW/HDGHU&XOW5HϰHFWLRQVRQWKH6WUXFWXUHRI/HDGHUVKLSLQWKH6RYLHW8QLRQµ %ULWLVK-RXUQDORI3ROLWLFDO6FLHQFH ²   6HHDOVR(QQNHU)RUPLURYDQLHNXO·WD/HQLQD2QDQRWKHUPDMRUGLϸHUHQFH EHWZHHQUHOLFVDQG/HQLQ·VERG\VHH$OH[HL@

$&76

´SDUWVµLQRXUFDVHDUHWKHHPSHURUDQGWKH3URSKHW7KHDERYHPHQWLRQHG LGHDRIWKHHPSHURU·VEHLQJHTXDOWREXWQRWVLPSO\UHSODFLQJWKH3URSKHW UHVRQDWHVKHUH+RZHYHUXQOLNHLQWKHFDVHRI4LQJSDUWLFLSDWLRQLQ7LEHWDQ %XGGKLVWULWXDOVLQWKLVFDVHDOOZHKDYHLVDSRHPDQGWKHG\VIXQFWLRQDOLW\ RIWKHPRVTXHVWLOOUHPLQGVXVWKDWWKH4LQJ·VVXSSRVHGO\DOOHQFRPSDVVLQJ LGHRORJ\LQIDFWKDGOLPLWV,QWKLVFDVHLWZDVOLPLWHGE\,VODPLFODZ7KH HPSHURUEXLOWDPRVTXHEXWLWGLGQRWPHHWWKHPRVWEDVLFUHTXLUHPHQWRI SURSHUPRVTXHGHVLJQ³WKHTLEODKWR0HFFD,URQLFDOO\WKHVWUXFWXUH·VVSD WLDORULHQWDWLRQRQWKHJOREH³IDFLQJQRUWKZDUGWRZDUGWKHWKURQHDQGQRW ZHVWZDUGWRZDUG0HFFD³H[SRVHGWKHOLPLWVRIWKH0DQFKXVRYHUHLJQ·VXQL YHUVDODVSLUDWLRQV , VODPDQG0XVOLPVVHHPWREHLQVKDUSFRQWUDVWZLWKRWKHUHWKQLFRUUH OLJLRXVJURXSVZLWKLQWKH0DQFKXHPSLUH7KLVSUHVHQWDWLRQRIWKLQJVD UHDVRQDEOH SHUVSHFWLYH FRQFHUQLQJ ,VODP DQG WKH 0DQFKX HPSLUH WKDW LV EDVHGRQFDVHVVXFKDVWKHVWRU\RIWKHPRVTXHSODFHV0XVOLPVRXWVLGHWKH SDOHHYHQXQGHUDYHU\DWWHQWLYHDQG´LQFOXVLYHµHPSHURU8QOLNHZLWK&RQIX FLDQV%XGGKLVWVDQG'DRLVWVIRULQVWDQFHWKHHPSHURUFRXOGQRWVLPSO\ VLWXDWHKLPVHOIDWWKHFHQWHURIWKH0XVOLPV·PRUDOZRUOG3DPHOD&URVVOH\ KDVDUWLFXODWHGEHVWWKH,VODPLFOLPLWDWLRQWR4LQJXQLYHUVDOLVPDVRSSRVHG WRRWKHUJURXSVZLWKLQWKHHPSLUH´,VODPSUHVHQWHGDQDEVROXWHREVWDFOHWR WKHQHFHVVLW\RIWKH>4LQJ@HPSHURUVWRRFFXS\WKHVLQJOHSRLQWRIWUDQVFHQ GHQFHDWZKLFKDOOPRUDOV\VWHPVFRQYHUJH$SRUWLRQRI0RQJROVPLJKWDF FHGHWRWKH4LQJUHSUHVHQWDWLRQRIWKHPVHOYHVDV&KLQJJLV>.KDQ@$SRUWLRQ RI&KLQHVHPLJKWDFFHGHWR4LQJUHSUHVHQWDWLRQVRIWKHPVHOYHVDVDYDWDUVRI &RQIXFLDQEHQHYROHQFHDQGFLYLOL]DWLRQ1RSRUWLRQRI0XVOLPVDFFHGHDV WKH\PLJKWWRWKHUHDOLW\RI4LQJSRZHUFRXOGDFFHGHWR4LQJPRUDOFHQWUDO LW\µ 7KDWLVWKH4LQJ0XVOLPUHODWLRQVKLSZDVIXQGDPHQWDOO\UHVWULFWHG DQGWKLVOLPLWDWLRQKDGWZRGLPHQVLRQV2QWKHRQHKDQG4LQJUXOHUVZHUH ZHOODZDUHRIWKHLULQDELOLW\WRRFFXS\WKHPRUDOFHQWHURIWKHLU0XVOLPVXE MHFWV·XQLYHUVH2QWKHRWKHUKDQGQR0XVOLPFRXOGDFFHSW4LQJFODLPVWR PRUDOFHQWUDOLW\&URVVOH\GHPRQVWUDWHVWKHVHOLPLWDWLRQVWKHFDVHRIWKH 4LQJ8LJKXUUHODWLRQVKLSLQ;LQMLDQJ , QWKLVUHJDUGWKHFDVHRIWKH0XVOLPVRI&KLQDDQGWKDWRIWKH4LQJ 0XVOLPUHODWLRQVKLSZHUHUDGLFDOO\GLϸHUHQWIURPWKHFDVHVRIRWKHUHWKQLFRU UHOLJLRXVJURXSVLQWKHHPSLUH:HFDQLPDJLQHWKH4LQJFRXUWHQWHUWDLQLQJ PHPEHUVRUUHSUHVHQWDWLYHVRIYDULRXVUHOLJLRXVDQGHWKQLFJURXSVDQGHQ JDJLQJWKHPWKURXJKULWXDODQGGLUHFWFRPPXQLFDWLRQ%XWZKLOHWKHVH >@

+,-5$$1'(;,/(

FRPSOLFDWHGH[FKDQJHVZHUHWDNLQJSODFHLQVLGHWKHFRXUWRXWVLGHVWRRGWKH G\VIXQFWLRQDOPRVTXHDVDUHPLQGHURIWKHVHULRXVOLPLWDWLRQVDQGFKDOOHQJH WKDW,VODPSUHVHQWHGWRWKHGLDORJXH7KH4LDQORQJHPSHURUFRXOGEH´DOO WKLQJVWRDOOKLVPDQ\SHRSOHVµ+HFRXOGDSSHDUDVD´ZDUULRU%XGGKLVWGH LW\7DRLVWPRQNZULWHUIDWKHUVRQUHFOXVHKXQWHUEDQTXHWKRVWEHDUGOHVV \RXWKIXWXUHDQFHVWRUµ %XWKHFRXOGQRW´SHUIRUPµD0XVOLPKRZHYHU ´0XVOLPµPLJKWEHGHϮQHG7KDWLVWKHHPSHURURI&KLQDFRXOGQHYHU´EHµ WKH3URSKHWWKHFDOLSKWKH0DKGLD6XϮVDLQWRUWKHKLJKHVWOHJDODXWKRU LW\LQDQ,VODPLFVWDWHWKHODWWHUUROHZDVKDUGHYHQIRUSRZHUIXO0XVOLP UXOHUVWRSOD\ 8OWLPDWHO\,VODP³RUEHWWHU\HW,VODPLFODZDQGSUDFWLFH³ FRXOGQRWVHUYHDVWKHEDVLVIRU&KLQD·V0XVOLPVWREHFRPHDFRKHUHQWDQG ZHOOGHϮQHGFRQVWLWXHQF\XQGHU4LQJVRYHUHLJQW\ %  XWWKHSHUVSHFWLYHVNHWFKHGDERYHOHDGVXVWRDFHUWDLQKLVWRULFDOGHDG HQGZKLFKSUHYHQWVXVIURPZULWLQJWKLVKLVWRU\LQDIXOOHUZD\7RZULWHD GLϸHUHQWKLVWRU\ZHVKRXOGWXUQLQDGLϸHUHQWGLUHFWLRQ,QVWHDGRIORRNLQJ DWWKLQJVHLWKHUIURPWKHWKURQHGRZQRUIURPWKHYDQWDJHSRLQWRIVWULFW ,VODPLFODZOHWXVWXUQRXUJD]HIURPODZWRFXOWXUHDQGUHSODFHWRSGRZQ SHUVSHFWLYHVZLWKDPRUHϰH[LEOHDSSURDFK,QRWKHUZRUGVLQVWHDGRIVHW WLQJ,VODPLFODZDQG4LQJLGHRORJ\DJDLQVWHDFKRWKHUWKHKLVWRULDQ·VWDVN KHUHLVWRORRNDWFRQFUHWH0XVOLPHQJDJHPHQWVZLWKWKHTXHVWLRQRIVRYHU HLJQW\LQWKLVFRQWH[W7KHUHIRUHWKHUHPDLQGHURIWKLVHVVD\LVDQLQTXLU\ LQWRWKHZD\VWKDW6LQRSKRQH+XLKXLHGXFDWHGHOLWHVHQJDJHGWKHTXHVWLRQ RI´HPSHURURU3URSKHWµDV0XVOLPV7KLVGRHVQRWPHDQWKDWWKH4LQJUXOHUV GLVDSSHDU DOWRJHWKHU IURP QRZ RQ 7KH\ TXLWH DFWLYHO\ EXW LQGLUHFWO\ SOD\HGDVLJQLϮFDQWUROHLQWKHZD\V&KLQHVH0XVOLPHOLWHVSRUWUD\HGDQG XQGHUVWRRGWKLVTXHVWLRQ7KHVHHOLWHVXQGHUVWRRGWKHPVHOYHVDVGLDVSRULF 0XVOLPVIRU&KLQDZDVWKHLUKRPH,QRWKHUZRUGVWKHLUPDLQFRQFHUQZDV KRZWRUHVROYHWKHFRQϰLFWDULVLQJIURPWKHIDFWWKDWWKH\ZHUHQRWVWUDQJ HUVEXWDFWXDOO\0XVOLPVDWKRPHLQDQRQ0XVOLPVWDWH 7KH\ZRUNHGWR LQWHUSUHW4LQJ&KLQHVHVRYHUHLJQW\LQVXFKDZD\DVWRSURGXFHDVROXWLRQ WRWKHLUNH\SUREOHPKRZWROLYHDV0XVOLPVLQDQRQ,VODPLFVWDWHDQGKRZ WREHORQJLQLW:HKDYHVHHQDERYHRQHLPSHULDODWWHPSWWRHQJDJH,VODP FDUULHGRXWLQZULWLQJE\WKHHPSHURUKLPVHOIXQGHUKLVJXLGDQFH%HORZ ZHVKDOOVHHKRZ4LQJHPSHURUVFDPHWRRFFXS\DFHQWUDOSODFHLQWKHPRUDO XQLYHUVH³DWHUP,ERUURZIURP&URVVOH\³RIWKHLU0XVOLPVXEMHFWVWKURXJK WKRVHVXEMHFWV·WH[WXDOSURGXFWLRQ7KDWLVZHVKDOODQDO\]HKRZ&KLQHVH VRYHUHLJQV ZHUH ZULWWHQ LQWR &KLQHVH ,VODPLF OLWHUDU\ ZRUNV 6LPSO\ SXW >@

$&76

DOWKRXJKWKHHPSHURUFRXOGQRWSHUIRUPD0XVOLPKHFRXOGVWLOOSOD\DVLJ QLϮFDQWUROHLQWKHPRUDOXQLYHUVHRIKLV0XVOLPVXEMHFWV³RQHWKDWWKH\ FUHDWHG)XUWKHUPRUHLWLVWUXHWKDW&KLQHVH0XVOLPVFRXOGQRWHQJDJHWKH HPSHURUWKURXJKRUZLWK,VODPLFODZDQGULWXDO%XWWKH\FRXOGVWLOOSRUWUD\ KLPDVSOD\LQJDQLPSRUWDQWFXOWXUDOUROHLQWKHOLIHRIWKHLUFRPPXQLW\ XVLQJRWKHUWHFKQLTXHVWKDWZHUHHTXDOO\LPSRUWDQWLQWKH&KLQHVHFRQWH[W 7  KHDUJXPHQWLVVLPSOHWKHIDFWWKDW4LQJHPSHURUVFRXOGQRWSRVLWLRQ WKHPVHOYHVDWWKHFHQWHURIWKHLU0XVOLPVXEMHFWV·PRUDOXQLYHUVHGRHVQRW PHDQWKDWWKH0XVOLPVFRXOGQRWSRVLWLRQWKHLUHPSHURUVLQWKDWSODFHRQ WKHLURZQWHUPVDQGIRUWKHLURZQVDNHDQGQHHGV7KLVLVSDUWLFXODUO\ WUXHFRQFHUQLQJWKHFRPPXQLW\RI&KLQHVH0XVOLPVLQ&KLQDSURSHU³WKH +XLKXL³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·VWHUP´PRUDOXQLYHUVHµ LVFUXFLDO0\XVHRILWKHUHLVϰH[LEOHDQGDOORZVXVWRORRNEH\RQGWKHFRQ ϮQHVRIODZUHOLJLRQDQGRUWKRSUD[\$VJRRGOLWHUDWH&KLQHVHHOLWHVWKH SHRSOHGLVFXVVHGKHUHGLGMXVWWKLVE\ZULWLQJWKHHPSHURULQWRDYHU\VSHFLϮF ORFDWLRQLQWKHLUV\PEROLFZRUOG6SHDNLQJRIDV\PEROLFZRUOGDQGDPRUDO XQLYHUVHUDWKHUWKDQUHOLJLRQLVQRWMXVWXVHIXOKHUHLWLVLPSHUDWLYH2QH PXVWQRWDSSURDFKWKH0XVOLPVRI&KLQDDVDFRPPXQLW\GHϮQHGRQO\E\ LWVUHOLJLRQ5DWKHU,DUJXHWKDWZHPXVWVHHWKH&KLQHVH0XVOLPFRPPX QLW\DVDFROOHFWLYLW\GHϮQHGDOVRE\LWVVSHFLϮFVHOIXQGHUVWDQGLQJDQG SHFXOLDUKLVWRU\DVDGLDVSRULFFRPPXQLW\OLYLQJLQ&KLQD$V0XVOLPVWKH &KLQHVH0XVOLPVZHUHGHϮQHGE\,VODPKRZHYHURQHGHϮQHVWKDW %XWDV +XLKXL³WKHWHUPWKDWEHFDPHWKHPDLQVLJQLϮHUIRU&KLQHVH0XVOLPVGXULQJ WKH0LQJDQG4LQJSHULRGV³WKH\ZHUHGHϮQHGE\WKHLUKLVWRU\DQGPHPRU\ DVIRUHLJQHUVZKRKDGPDGH&KLQDWKHLUKRPH 7KLVGLVWLQFWLRQEHWZHHQ WKHQDUURZHU,VODPLFEDVHGSHUFHSWLRQDQGWKHEURDGHU+XLKXLRQHLVFUX FLDOIRUWKHODWWHUGRHVPDNHVSDFHIRUZULWLQJLQWKHHPSHURURI&KLQD,Q >@

+,-5$$1'(;,/(

RWKHUZRUGVZKHUHDV&KLQHVHHPSHURUVFRXOGQRWRFFXS\DFHQWUDOSODFHLQ WKHUHOLJLRXVZRUOGRIWKHLU0XVOLPVXEMHFWVWKH\FRXOGRFFXS\DFHQWUDO SODFHLQWKHV\PEROLFRUPRUDOXQLYHUVHRIWKHLU+XLKXLVXEMHFWV , QWKHIROORZLQJVHFWLRQ,H[DPLQHWKHPDLQGLPHQVLRQVRI4LQJVRYHU HLJQW\WKDWDUHUHOHYDQWIRUWKLVFDVHDQGSUHVHQWWKHZD\VLQZKLFK&KLQHVH 0XVOLPVHQJDJHGWKDWVRYHUHLJQW\RQWKHLURZQWHUPVDQGIRUWKHLURZQ SXUSRVHV

7KH´%RG\,VODPLTXHµRI&KLQHVH5XOHUV / HWXVEHJLQZLWKWKH0LQJG\QDVW\² ZKLFKSUHFHGHGWKH4LQJ (OVHZKHUH,KDYHVKRZQDQGHODERUDWHGRQKRZOHDUQHG0XVOLPHOLWHVLQ &KLQDH[HUFLVHGDJUHDWGHDORIDXWRQRP\DQGFUHDWLYLW\LQZULWLQJWKHERG\ ,VODPLTXHRI0LQJ7DL]X=KX@

$&76

GRPLQLRQLVZLWKLQKLVWRU\$ERYHDOOWKHQRWLRQRIGXDOVRYHUHLJQW\DOORZV WKH0XVOLPVRI&KLQDWRUHODWHWRWKHHPSHURURI&KLQDDVWKHLUVRYHUHLJQ LQDVPXFKDVKHDFWVDVSURWHFWRURI,VODP,QVLPSOHWHUPVWKHWZR³3URSKHW DQG HPSHURU³DUH SDUWQHUV RI VRUWV 7R EH VXUH WKLV LV QRW D SDUWQHUVKLS EHWZHHQLGHQWLFDOVLPLODURUHTXDOSDUWQHUV7KH3URSKHWLVQRWDQGZLOO QHYHUEHHTXDOWRWKHHPSHURUDVWKHUXOHURI&KLQD7KHHPSHURULVQRWDQG ZLOOQHYHUEHHTXDOWRWKH3URSKHWDVWKHPHVVHQJHURI*RGDQGXOWLPDWH VRXUFHRI,VODPLFDXWKRULW\RQHDUWK%XWWKHWZRDUHSDUWQHUVZKHQLWFRPHV WRSURWHFWLQJ,VODPDQGWKH0XVOLPVRI&KLQD ) URPDVWULFWO\,VODPLFOHJDOSRLQWRIYLHZWKHDUUDQJHPHQWEHWZHHQ 0XKDPPDGDQGWKH&KLQHVHHPSHURUVHHPVXQDFFHSWDEOHDWϮUVWEOXVK0X KDPPDG·VRZQFDUHHUDVUXOHUVXJJHVWVWKHVDPH$VLVZHOONQRZQLQKLV RZQSROLW\DW0HGLQDWKH3URSKHWZDVDWRQFHWKHVSLULWXDOSROLWLFDODQG PLOLWDU\OHDGHURIWKHXPPD QDWLRQRUFRPPXQLW\ RI,VODPDQGKHQHYHU VKDUHGKLVVRYHUHLJQW\ZLWKDQ\RQH1RQHWKHOHVVWKHUHLVLQ,VODPLFWUDGL WLRQDVLQJOHYHU\LPSRUWDQWLQVWDQFHVLPLODUWRWKHVLWXDWLRQVNHWFKHGDERYH LQWKH&KLQHVH0XVOLPWDOH:HGRQRWϮQGLWLQ,VODPLFODZEXWLQHDUO\,V ODPLFKLVWRU\DQGLQWKHELRJUDSK\VLUDK RIWKH3URSKHWDWH[WWKDWHQMR\V DQDOPRVWVFULSWXUDOVWDWXV7KH6LUDWDO1DELWHOOVXVWKDWLQRQO\WKUHH \HDUVDIWHUWKH0XKDPPDGEHJDQKLVFDUHHUDV3URSKHWDWLPHZKHQWKH VPDOOFRPPXQLW\RI0XVOLPVZDVVWLOOEHLQJKDUDVVHGE\WKH4XUD\VKLQ 0HFFDKHGLUHFWHGVRPHRIKLVIROORZHUVWRPLJUDWHWRWKH$[XPHPSLUH (WKLRSLDWKHQNQRZQDV$E\VVLQLD 7ZRVPDOOJURXSVRIHDUO\0XVOLPVOHIW 0HFFDLQDQG7KHPLJUDWLRQKLMUD WR$E\VVLQLDLVRQHRIWKHVLJQLϮ FDQWHYHQWVLQHDUO\,VODPLFKLVWRU\.QRZQDVWKHϮUVWKLMUDLWLVYLHZHGDV DSUHFXUVRUWRWKHPRVWLPSRUWDQWHYHQWRIDOOWKHKLMUDWR0HGLQDLQ $VLQWKH&KLQHVHFDVHLWLVDWDOHDERXW,VODPDQGDIULHQGO\FRXQWU\ :  KHQWKHDSRVWOHVDZWKHDϵ LFWLRQRIKLVFRPSDQLRQVDQGWKDWKHFRXOGQRW SURWHFWWKHPKHVDLGWRWKHP´OI\RXZHUHWRJRWR$E\VVLQLDLWZRXOGEH EHWWHUIRU\RXIRUWKHNLQJZLOOQRWWROHUDWHLQMXVWLFHDQGLWLVDIULHQGO\FRXQ WU\XQWLOVXFKWLPHDV$OODKVKDOOUHOLHYH\RXIURP\RXUGLVWUHVVµ7KHUHXSRQ KLVFRPSDQLRQVZHQWWR$E\VVLQLD¬¬¬7KLVZDVWKHϮUVW+LMUDRI,VODP

7  KH(WKLRSLDQQHJXVUHFHLYHVWKH0XVOLPVZDUPO\DQGRϸHUVWKHPKRV SLWDOLW\:KHQDGHOHJDWLRQRIWKH4XUD\VKDUULYHVZLWKEULEHVLQWKHIRUP RIJLIWVDQGGHPDQGVWKDWWKH0XVOLPVEHH[WUDGLWHGEDFNWR0HFFDWKH >@

+,-5$$1'(;,/(

QHJXVWHVWVWKH0XVOLPVDERXWWKHLUIDLWKDQGDIWHUUHDOL]LQJWKDW,VODPLV FRPSDWLEOHZLWK&KULVWLDQLW\UHIXVHVWRVXUUHQGHUWKHP+HVSHDNVGLUHFWO\ WRWKH0XVOLPVGHFODULQJWKDW´\RXDUHVDIHLQP\FRXQWU\,VKDOOQHYHUJLYH \RXXSWR\RXUHQHPLHVµ$VRQHRIWKHVH0XVOLPVUHFDOOHGODWHU´ZHKDYH OLYHGLQWKHKDSSLHVWFRQGLWLRQVXQWLOZH>UHWXUQHG@WRWKH$SRVWOHRI*RGLQ 0HFFDµ7KHVWRU\FRQFOXGHVWKLVZD\DIWHUWKHQHJXV·VGHDWK0XKDPPDG ´SUD\HGRYHUKLPDQGEHJJHGWKDWKLVVLQVPLJKWEHIRUJLYHQµVRKHFRXOG HQWHUKHDYHQ  7KLVHSLVRGHHDUQV(WKLRSLDDQRQ,VODPLFODQGDXQLTXH VWDWXVLQ,VODP,WQHLWKHUEHORQJVWRWKH+RXVHRI,VODPQRULVGHVLJQDWHGD +RXVHRI:DU´/HDYHWKH$E\VVLQLDQVLQSHDFHVRORQJDVWKH\GRQRWWDNH WKHRϸHQVLYHµ0XKDPPDGLVVDLGWRKDYHGHFODUHGLQDKDGLWKUHFRUGHGLQ WKHHLJKWKFHQWXU\ 7  KH$E\VVLQLDQHSLVRGHDWϮUVWVHHPVTXLWHGLϸ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·UHWXUQ :KHQRQHRIWKH0XVOLPV8ED\G$OODKLEQ-DKVKFRQYHUWVWR&KULVWLDQLW\WKH QHJXVVHQGVWKHPDQ·V0XVOLPZLIH5DPODKELQW$EL6XI\DQFLUFD²  OLNHDIDWKHUZKRVHQGVKLVGDXJKWHUWREHPDUULHGWRWKH3URSKHW0HDQ ZKLOH WKH 3URSKHW UHVSHFWV WKH QHJXV WKURXJKRXW DQG ZKHQ WKH QHJXV GLHVSUD\VIRUKLPDFUXFLDOUHPLQGHUWRXVRIZKRKDVWKHVSLULWXDOKLJKHU JURXQG ,QVKRUWWKHQHJXVSURWHFWVWKH0XVOLPVDQGLQWKLVUHJDUGVKDUHV VRYHUHLJQW\RYHUWKHPZLWKWKH3URSKHW)RUWKHLUSDUWWKH0XVOLPVOLYHLQ DQRQ0XVOLPODQG´LQWKHKDSSLHVWFRQGLWLRQVµ$JDLQDOOWKLVGRHVQRW VXJJHVWWKDW0XKDPPDGDQGWKHQHJXVDUHHTXDO%XWLQWHUPVRIWKHLUUH ODWLRQVKLSDVVRYHUHLJQVRIWKH0XVOLPVLQ(WKLRSLDWKHUHLVDFDUHIXODQG VXEWOHVKDULQJRIGRPLQLRQ0XKDPPDGLVWKHGLVWDQWVRYHUHLJQLQWKHVHQVH WKDWKHLVRULJLQDWRURI,VODPDQGWKHPHVVHQJHURI$OODKWKHQHJXVLVDVRY HUHLJQDVWKHSURWHFWRURI,VODPDQG0XVOLPVLQKLVGRPDLQ7KLVLVWKHPRVW >@

$&76

EDVLFOLQNEHWZHHQWKLVHSLVRGHDQGWKH&KLQHVHWDOHDERYH,QWKH&KLQHVH FRQWH[WWKLVLVWUDQVODWHGLQWRDGHSLFWLRQRI0XKDPPDGDVWKHGLVWDQWLQ WHUPVRIWLPHDQGVSDFH VRYHUHLJQZKRLVWKHRULJLQDWRURI,VODP7KHHP SHURU DJDLQ LV WKH UXOHU RI &KLQD³WKH FRXQWU\ WKDW KRVWV WKH 0XVOLPV³ DQGWKHSURWHFWRURILWV,VODPDQGLWV0XVOLPV ) XUWKHUPRUHWKHUHLVURRPWRWKLQNWKDWWKH&KLQHVHWDOHLVPRGHOHG DIWHU WKH VWRU\ RI WKH (WKLRSLDQ HSLVRGH ZKLFK ZDV XQGRXEWHGO\ NQRZQ DPRQJ&KLQHVH0XVOLPV7REHJLQZLWKLQWKHELRJUDSKLHVRIWKH3URSKHW WKHQHJXVLVPHQWLRQHGDVWKHϮUVWUXOHURXWVLGH$UDELDZKRKHDUVDERXWWKH JUHDWQHVVRI0XKDPPDG,QWKH&KLQHVH0XVOLPWDOHWKHHPSHURURI&KLQD LVFUHGLWHGZLWKWKHVDPHPHULWDQGODWHU&KLQHVH0XVOLPWH[WVDOVRLQVLVW RQWKDWSRLQW$QRWKHUOLQNEHWZHHQWKHWZRWDOHVLV6D·GLEQ$EL:DTTDV LQWKH&KLQHVHFDVHZHPHHWKLPDVWKHOHDGHURIWKHGHOHJDWLRQWR&KLQD DQGLQWKHELRJUDSK\RIWKH3URSKHWKHLVRQHRIWKHOHDGHUVRIWKH0XVOLPV ZKRKDGJRQHWR(WKLRSLD )XUWKHUPRUHLQERWKVWRULHVWKHUHLVDGLVFXV VLRQDERXWWKHUHODWLRQVKLSEHWZHHQ,VODPDQGKRVWUHOLJLRQV,QWKH&KLQHVH WDOHWKHHPSHURUDOVRWHVWVWKH0XVOLPVDERXW,VODPDQGDVFHUWDLQVWKDW ,VODPLVFRPSDWLEOHZLWK&RQIXFLDQLVP,QWKH(WKLRSLDQHSLVRGHWKHQHJXV GLVFXVVHVWKHVWDWXVRI0DU\DQG-HVXVLQ,VODPZLWKRQHRIWKH0XVOLPV·OHDG HUV-D·IDU ,QWKH&KLQHVHWDOHWKHHPSHURUDQG6D·GGLVFXVVWKHQDWXUHVRI VDJHDQGVDJHKRRG,QWKHZDNHRIWKLVGLVFXVVLRQWKHHPSHURUSURFODLPV WKDW,VODPDQG&RQIXFLDQLVPERWKXVHWKHVDPHPHDQLQJRIVDJHKRRGDQG SROLWLFDOYLUWXH)LQDOO\WKHUHDUHWZRLQWHUHVWLQJUHYHUVHSDUDOOHOLVPVEH WZHHQWKH(WKLRSLDQDQGWKH&KLQHVHVWRULHV)LUVWLQWKH(WKLRSLDQFDVHWKH 0XVOLPVHVFDSH0HFFDWRVDYHWKHPVHOYHVLQ(WKLRSLDZKLOHLQWKH&KLQHVH FDVHWKH\OHDYH0HFFDWRVDYH&KLQD6HFRQGWKH(WKLRSLDQVWRU\HQGVZLWK WKHUHWXUQRIWKH0XVOLPVRI0HFFDZKRVD\WKDW´ZHKDYHOLYHGLQWKHKDS SLHVWFRQGLWLRQVXQWLOZH>UHWXUQHG@WRWKH$SRVWOHRI*RGLQ0HFFDµ7KH&KL QHVHWDOHHQGVZLWKDSRHPLQYRNLQJWKHSRVVLELOLW\RIUHWXUQEXWVWDWHVWKDW WKH0XVOLPVDUHQRWLQIDFWUHWXUQLQJ´:KRZRXOGNQRZWKDW0XVOLPVZHUH WRGZHOOLQ&KLQDIRUHYHU"¬¬¬(YHQWRGD\>WKHHLJKWHHQWKFHQWXU\@ZHSURWHFW WKHVWDWHQRWPRYLQJDJDLQµ೓ 7  KHDERYHOLQNDJHVFRUUHODWLRQVDQGFRUUHVSRQGHQFHVEHWZHHQWKH&KL QHVHWDOHDQGWKHKLMUDWR(WKLRSLDDUHQRWLQFLGHQWDO,ZRXOGDUJXH$WWKHLU EDVHLVDQHYHQVWURQJHUSROLWLFDO³RUSROLWLFDOWKHRORJLFDOLI\RXZLOO³ Dϲ QLW\7KH(WKLRSLDQHSLVRGHLVWKHϮUVWLQVWDQFHLQ,VODPLFKLVWRU\LQZKLFK DFRPPXQLW\RI0XVOLPVLVIRUPHGRXWVLGHWKHFRPPXQLW\RIEHOLHYHUVLQ >@

+,-5$$1'(;,/(

ZKDWZHPLJKWFDOOH[LOLFFRQGLWLRQV,WLVFUHDWHGGXULQJWKHOLIHWLPHRI WKH 3URSKHW DQG DW KLV LQLWLDWLYH 7KHUHIRUH LW KDV D GLϸHUHQW VWDWXV WKDQ RWKHUODWHUDQGPRUH´WKLVZRUOGO\µLQVWDQFHV,WDOVRLVDPRPHQWLQZKLFK 0XKDPPDGVKDUHVKLVUHVSRQVLELOLW\IRUKLVIROORZHUVZLWKDQRWKHUUXOHU(YL GHQWO\LWZDVQRVPDOOHYHQWDWWKHWLPH7KHDXWKRUVRIWKH6LUDK QRWRQO\ LQFOXGHGWKLVHSLVRGHLQWKHELRJUDSK\RIWKH3URSKHWEXWDOVRFODVVLϮHGLW DVDKLMUD´WKLVZDVWKHϮUVW+LMUDRI,VODPµ 7KLVLVLPSRUWDQW,WVKRXOGEH UHFDOOHGWKDWWKHKLMUDWR0HGLQDZKHQ0XKDPPDGKLPVHOIPLJUDWHGRXWRI 0HFFDLVWKHPRVWVLJQLϮFDQWGDWHLQ,VODPLFKLVWRU\,WRϲ FLDOO\FUHDWHGWKH XPPDDQGLWZDVWKHPRPHQWZKHQWKH3URSKHWWXUQHGLQWRDVRYHUHLJQLQ WKHIXOOHVWPHDQLQJRIWKHWHUPDSROLWLFDODQGUHOLJLRXVOHDGHUPLOLWDU\ FRPPDQGHUDQGMXGJH$KLMUDLVWKHUHIRUHQRWMXVWDPRYHPHQWLQVSDFH,WLV DOVRDSROLWLFDOO\DQGWKHRORJLFDOO\FKDUJHGHYHQW7KHϮUVWKLMUDWR(WKLRSLD DFFRUGLQJO\VKRXOGEHVHHQDVDQRWKHUW\SHRIKLMUD³DVWKHWLPHZKHQDQ RWKHUIRUPRI,VODPLFFRPPXQDOH[LVWHQFHLVFUHDWHG7KLVIRUPLVDQH[LOLF FRPPXQLW\ZKHUHWKH3URSKHWLVQRWIXOO\SUHVHQWDQGVRPHRIKLVIXQFWLRQV DUHFDUULHGRXWE\DQRWKHUVRYHUHLJQ7KLV,VXJJHVWLVKRZWKH&KLQHVH 0XVOLPVXQGHUVWRRGWKHLURZQH[LVWHQFHLQ&KLQD$QGLWLVXOWLPDWHO\ZK\ WKH\DWWDFKHGWKHLUVWRU\WRWKHWDOHRIWKH(WKLRSLDQHSLVRGH 7  KHPRVWFRPSHOOLQJHYLGHQFHVXSSRUWLQJWKHLGHDWKDWWKHWZRFDVHVDUH DWWDFKHG LV IRXQG LQ WKH 7LDQIDQJ]KLVKHQJVKLOX 7KH YHULWDEOH UHFRUGV RI ,VODP·VPRVWVDJHO\ ³WKH&KLQHVHYHUVLRQRIWKHELRJUDSK\RIWKH3URSKHWSUR GXFHGLQWKHVE\/LX=KLF² ZKRZDVFORVHO\UHODWHGWRWKH DXWKRUVRIWKH+XLKXL\XDQODL   7KLVWH[WLVDWUDQVODWLRQRIDIRXUWHHQWK FHQWXU\YHUVLRQRIWKH6LUDK,KDYHGLVFXVVHGWKHVLJQLϮFDQFHRIWKLVWH[WLQ JUHDWGHWDLOHOVHZKHUHDQGVKRZHGZK\LWVKRXOGQRWEHPHUHO\YLHZHGDVD WUDQVODWLRQ/LX=KLWLQNHUHGZLWKWKHRULJLQDOWH[WLQVHYHUDONH\DUHDV2QH RIZKLFKLVFUXFLDOIRURXUSXUSRVHKHUH,QWKHVHFWLRQSHUWDLQLQJWRWKH´VHF RQG\HDURIWKH&DOOµ ZHUHDGWKDWWKH´HPSHURURI&KLQDKDYLQJVHHQ DQRPHQLQWKHVN\VHQWDQHQYR\WR$UDELDµ,QUHVSRQVH´WKH3URSKHWVHQW DGHOHJDWLRQKHDGHGE\6D·GLEQ$EL:DTTDVWR&KLQD2QO\6D·GUHWXUQHGEDFN WR$UDELDµ7KHWH[WLPSOLHVWKDWWKHUHVWRIWKHGHOHJDWLRQRVWHQVLEO\WKH IXWXUHIRUHIDWKHUVRIWKH+XLKXLWKRXJKWKHWH[WGRHVQRWVD\WKDWMXVW\HW  UHPDLQVLQ&KLQD ,QWHUHVWLQJO\HQRXJKWKH&KLQHVHWUDQVODWLRQRIWKH ELRJUDSK\RI0XKDPPDGDOVRIDLOVWRPHQWLRQWKDWWKHPLJUDQWVWR$E\VVLQLD UHWXUQHGWR0HFFD7KLVLVVWUDQJHDQGFOHDUO\DGHOLEHUDWHRPLVVLRQ%XWOHW XVUHDGRQ7ZHQW\\HDUVODWHUZHOHDUQWKH&KLQHVHHPSHURUVHQGVDQRWKHU >@

$&76

HQYR\WR$UDELDDQGLQUHVSRQVHWKH3URSKHWVHQGV6D·GLEQ$EL:DTTDVWR &KLQDDJDLQ7KLVWLPHKHKDVWKHIROORZLQJLQVWUXFWLRQV´6HYHUDORϲ FHUV ZKRZHQWEHIRUHKDYHVWD\HGLQWKHHDVWDQGKDYHQRWUHWXUQHG7KH\PXVW EHLQFUHDVLQJLQQXPEHUVDQG>WKXV@LWLVϮWWLQJWKDW\RX>JRWKHUHWR@WHDFK WKH6FULSWXUHDQGLQVWUXFWWKHPLQWKHULWHVDQGFHUHPRQLHVµ 7KHVHVHF WLRQVGRQRWH[LVWLQDQ\YHUVLRQRIWKH6LUDKH[FHSWWKH&KLQHVH1HHGOHVVWR VD\WKH\DUHQRWSDUWRIWKHELRJUDSK\RIWKH3URSKHWDVLWLVNQRZQLQWKH ,VODPLFZRUOG7KH&KLQHVHWUDQVODWRUPXVWKDYHLQVHUWHGWKHPWKHUHDQG KHFOHDUO\GLGVRZLWKWKH+XLKXL\XDQODLLQPLQG7KHGDWHVWKDW/LX=KLSLFNHG DUHVLJQLϮFDQWDQG,VXVSHFWKHFUDIWHGWKHPFDUHIXOO\7KH´VHFRQG\HDURI WKH&DOOµLVRQH\HDUEHIRUHWKHPLJUDWLRQWR(WKLRSLDZKLFKPDNHVWKHMRXU QH\WR&KLQDQRWWKHRQHWR(WKLRSLDWKHϮUVWKLMUD7KHVHFRQGGDWHWZHQW\ \HDUVODWHUµLVMXVWEHIRUH3URSKHW·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ϮQGWKHϮQDOSURRIWKDWWKH3URSKHWDQGWKHHPSHURURI&KLQD GLGFRPPXQLFDWHDQGWKDWWKH3URSKHWVHQW0XVOLPVWR&KLQDMXVWKHGLG WR(WKLRSLD7KHVWRU\LVQRZFRPSOHWH0RUHLPSRUWDQWZHKDYHDVVXUDQFH WKDWWKHDUUDQJHPHQWEHWZHHQWKH3URSKHWDQGWKHHPSHURUZDVDJUHHGWR E\ERWKVLGHV7KH&KLQHVH0XVOLPUHDGHURIWKHWZRWH[WVLVDEOHWKHUHIRUH WR LPDJLQH WKH HPSHURU DQG WKH 3URSKHW VWDQGLQJ VKRXOGHU WR VKRXOGHU IDFLQJKLPDVKLVGXDOVRYHUHLJQV

%DFNWRWKH4LQJ:ULWLQJWKH(PSHURU / HWXVQRZWXUQEDFNWRWKH4LQJFRQFHSWVRIUXOHUVKLSZLWKZKLFKZHEH JDQ,WVKRXOGEHUHFDOOHGWKDWHYHQWKRXJKWKH&KLQHVH0XVOLPWH[WVGLV FXVVHGDERYHSURMHFWWKHPVHOYHVEDFNLQWRGLVWDQWWLPHVWKH7DQJG\QDVW\ >@

+,-5$$1'(;,/(

DQGWKHϮUVW,VODPLFFHQWXU\ WKH\ZHUHLQIDFWZULWWHQDWWKHWLPHZKHQ 4LQJ UXOHUV· GLDORJXHV ZLWK YDULRXV FRQVWLWXHQFLHV LQ WKHLU HPSLUH ZHUH LQ PRWLRQ7KLVZDVDWLPHZKHQ´4LQJSROLFLHVVWLPXODWHGVRFLDOFXOWXUDODQG HFRQRPLFFKDQJHVLQWKHSHULSKHULHVWKDWHQFRXUDJHGWKHJURZWKRIHWK QLFLGHQWLWLHVµDPRQJSHULSKHUDOJURXSV ([WHQGLQJWKLVDUJXPHQWWRD PDUJLQDOJURXSVXFKDVWKH&KLQHVH0XVOLPVWKHUHIRUHVHHPVORJLFDO/HWXV DOVRUHFDOODJDLQWKDWWKHVHGLDORJXHVZHUHLQWHQGHGWRH[SUHVV4LQJLGHDV DERXWVLPXOWDQHRXVUXOHUVKLSDERXWH[SUHVVLQJGLϸHUHQWFRQVWLWXHQFLHVLQ UXOHUVKLSDQGDERXWSODFLQJWKHHPSHURUDWWKHFHQWHURIKLVVXEMHFWV·PRUDO XQLYHUVH7KHVWRU\DERXWWKHPRVTXHLVEXWRQHUHODWLYHO\ODWHLQVWDQFH RIVXFKDGLDORJXHDQGLWRFFXUVZKHQDQHZJURXSWKH8LJKXUVLVEHLQJ EURXJKW LQWR WKH IROG (YLGHQWO\ WKH &KLQHVH 0XVOLP WH[WV SUHVHQWHG DQG GLVFXVVHGDERYHZHUHZULWWHQZLWKLQDQGLQUHVSRQVHWRWKLVSDUWLFXODUSR OLWLFDOFXOWXUH$JDLQWKHLQWHUHVWLQJDVSHFWRIWKLVLVWKH&KLQHVH0XVOLPV· DXWRQRP\DQGDJLOLW\LQXVLQJ4LQJLGHRORJ\IRUWKHLURZQSXUSRVHV 2  QHϮQDODQGSRZHUIXOFOXHFRQQHFWLQJWKH&KLQHVH0XVOLPWH[WVWR4LQJ LGHRORJ\LVIRXQGLQDQDIWHUZRUGZULWWHQIRUWKH+XLKXL\XDQODLWKDWSXUSRUWV WRH[SODLQKRZDQGZK\WKHWH[WLWVHOIDUULYHGLQ&KLQD7KLVPDNHVVRPH VHQVHLIZHUHFDOOWKDWWKH&KLQHVH0XVOLPIRXQGDWLRQP\WKSUHWHQGVWRKDYH EHHQZULWWHQRXWVLGHKLVWRU\ZLWKQRLGHQWLϮHGDXWKRURUWLPHRIFRPSRVL WLRQ$QDIWHUZRUGH[SODLQLQJZKDWLWLVWKHUHIRUHVHHPVQHFHVVDU\8QOLNH WKHJHQHULF&KLQHVHHPSHURUZKRDSSHDUVLQWKH+XLKXL\XDQODLWKHDIWHU ZRUGLQYROYHVDUHDO4LQJUXOHUWKH.DQJ[LHPSHURUU² ,QIDFWD VRPHZKDWFU\SWLFWLWOHWRWKHDIWHUZRUGODEHOVKLPDVWKH´VRXUFHµRUSUR YLGHURIWKHVWRU\ 7  KH4LQJ.DQJ[LHPSHURURQKLVUHWXUQIURPDMRXUQH\EH\RQGWKH*UHDW:DOO VWRSSHGDWWKH\DPHQRI*HQHUDO0DWRUHVWRYHUQLJKW2QHQLJKWWKHHPSHURU DQGWKHJHQHUDOGLVFXVVHGWKH3ULQFLSOHDQGWKH'DR7KHHPSHURUDVNHG´4LQJ]KHQD&KLQHVHQDPHIRU ,VODP@"µ7KHJHQHUDODQVZHUHG´,GRQRWNQRZ>WKLVHLWKHU@µ7KHHPSHURU DVNHGDJDLQ´'R\RXNQRZZK\\RXFDPHIURPWKHZHVWWR&KLQD"$WZKDW WLPHDQGIRUZKDWUHDVRQ"µ7KHDQVZHUZDV´,VWLOOGRQ·WNQRZµ7KHHPSHURU VDLG ´, KDYH D ERRN KHUH IRU \RX WR UHDG WKDW ZLOO LQIRUP \RX RI WKHVH PDWWHUVµ >@

$&76

$  WWKLVSRLQWWKHHPSHURUKDQGVWKHERRNZKLFKLVRIFRXUVHWKH+XLKXL\X DQODLWR*HQHUDO0DZKRUHSOLHV´,FDQQRWUHDGEXW,DPJODGWRUHFHLYHWKH ERRNDQG,EHJSHUPLVVLRQWRVHHNKHOSIURPVRPHHGXFDWHGSHUVRQVXFKWKDW ,PLJKWXQGHUVWDQGLWµ7KHJHQHUDOKDGWKHERRNWUDQVFULEHGDQGGLVWULE XWHGLWDPRQJRWKHU0XVOLPV 7  KHVWRU\LVDSRFU\SKDOEXWLWUHVRQDWHVZLWKDJUHDWGHDORIUHDOKLVWRU\ /HWXVEHJLQZLWKWKHVLPSOHFDVHRILGHQWLW\RI*HQHUDO0D-LQOLDQJGF  7KHUHDO0D-LQOLDQJZDVD&KLQHVH0XVOLPIURP;LQLQJWKHQ*DQVX DQG DKLJKUDQNLQJRϲ FHULQ.DQJ[L·VDUPLHV+HSOD\HGDNH\UROHLQWKH² FDPSDLJQVDJDLQVWWKH=XQJKDU0RQJROV$WVRPHSRLQWGXULQJWKHVH FDPSDLJQVWKH.DQJ[LHPSHURUVSHFLϮFDOO\PHQWLRQHGKLPDVRQHWKHIRXU JHQHUDOV´KDQGSLFNHGµE\KLP7KXVDVWKHKLJKHVWUDQNLQJ&KLQHVH0XV OLPJHQHUDOZKRPDUFKHGZLWK.DQJ[L0D-LQOLDQJLVWKHEHVWFKDUDFWHUWR EH KDQGSLFNHG WR SOD\ WKH HPSHURU·V 0XVOLP FRXQWHUSDUW LQ WKH ϮFWLRQDO GLDORJXH0D·VSUHVHQFHLQWKHGLDORJXHDOVRKHOSVXVORFDWHWKHVFHQHDQG KHOSVH[SODLQZKDWWKHSKUDVH´MRXUQH\EH\RQGWKH*UHDW:DOOµPHDQV:H FDQEHTXLWHVXUHWKDWWKHVHWWLQJRIWKHGLDORJXHLVLQWKHZDNHRIRQHRI H[SHGLWLRQVDJDLQVWWKH=XQJKDUVDOORIZKLFKLQYROYHGFURVVLQJWKH*UHDW :DOO7KHPLOLWDU\VHWWLQJLVFOHDUO\YLWDOIRUWKHDXWKHQWLFLW\RIWKHVWRU\ ,WDOVRUHPLQGVXVWKDWWKH+XLKXL\XDQODLOLNHWKH&KLQHVH0XVOLPVWKHP VHOYHV RULJLQDWHV LQ D SODFH WKDW LV QRW &KLQD EXW LV ´EH\RQG WKH *UHDW :DOOµ,IZHUHPHPEHUKRZHYHUWKDWWKHDXWKRULVDPHPEHURIWKH&KLQHVH 0XVOLPVFKRODUO\HOLWHZHFDQXQGHUVWDQGZK\KHHQGVZLWKWKH JHQHUDO FRQIHVVLQJWKDWKH´FDQQRWUHDGµDQGWUDQVPLWWLQJWKHERRNWR´VRPHHGX FDWHGSHUVRQµ  0  RUHRYHU*HQHUDO0D·VLQDELOLW\WRUHDGWKHERRNVXJJHVWVWKDWWKHRULJ LQDO+XLKXL\XDQODLWKHRQHWKDWWKHHPSHURUKROGVLQKLVKDQGVLVZULWWHQ QRWLQ&KLQHVHEXWLQD0XVOLPODQJXDJH7KLVDOVRUHVRQDWHVZLWKKLVWRULFDO UHDOLW\0DQFKXHPSHURUVSODFHGDJUHDWGHDORILPSRUWDQFHRQWKHFRQ QHFWLRQEHWZHHQODQJXDJHDQGLGHQWLW\7KHHPSHURU·VH[SUHVVHGFRQFHUQ DERXWKLVJHQHUDO·V&KLQHVH0XVOLPLGHQWLW\DQGKLVLUULWDWLRQZKHQKHUH DOL]HVWKDW0DGRHVQRWNQRZPXFKDERXWLWDOVRUHϰHFWFRQFUHWHKLVWRU\ 6RPHGHFDGHVDIWHUWKH0DQFKXFRQTXHVWRI&KLQDIURPWKHVRQWKH FRXUWEHFDPHPRUHDQGPRUHFRQFHUQHGZLWKWKHZHDNHQLQJERXQGDULHV EHWZHHQ0DQFKXDQG+DQ&KLQHVHLGHQWLWLHV.QRZOHGJHRIWKH0DQFKX ODQJXDJH ZDV WKHUHIRUH NH\ 7KH .DQJ[L HPSHURU XVLQJ KLPVHOI DV DQ H[DPSOHZDVSHUVRQDOO\LQYROYHGLQPDNLQJVXUHWKDW0DQFKXVUHFHLYHGD >@

+,-5$$1'(;,/(

SURSHU0DQFKXHGXFDWLRQ7KHFRXUWDOVRWULHGWRHGXFDWH0DQFKXVDERXW WKHLURULJLQVDSURMHFWWKDWZRXOGSHDNXQGHUWKH4LDQORQJHPSHURU7KH 4LDQORQJHPSHURU.DQJ[L·VJUDQGVRQRQFHHYHQERDVWHGWKDWKHNQHZDOO WKHODQJXDJHVRIKLVGLϸHUHQWVXEMHFWVDQGGLGQRWUHO\RQDQLQWHUSUHWHU ZKHQKHPHWZLWKWKHP´WRH[SUHVVWKHLGHDRIFRQTXHULQJE\NLQGQHVVµ 7KH.DQJ[LHPSHURUKDGH[SUHVVHGWKHZLVKWR´NQRZµKLVYDULRXVVXEMHFWV· KHULWDJHVDQGZD\VRIOLIHDQGHYHQ´UHSUHVHQWµWKHP7KXV*HQHUDO0D·V ´,FDQQRWUHDGµLVDSKUDVHWKDWWKH.DQJ[LHPSHURUSUREDEO\KHDUGPDQ\ WLPHVIURPKLV0DQFKXJHQHUDOVDQGLWLVVDIHWRDVVXPHWKDWKHH[SHFWHG KLVGLϸ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ϮFWLRQEXWDFDUHIXOO\FUDIWHGOLWHUDU\ LPDJHRIGXDOVRYHUHLJQW\VKDUHGE\WKH3URSKHWDQGWKHHPSHURU7KH&KL QHVH0XVOLPVSURGXFHGWKLVXVLQJ,VODPLFWUDGLWLRQWKDWWKH\UHLQWHUSUHWHG IRUWKHLURZQQHHGVDQGDWWKHVDPHWLPHWKH\PDGHVXUHWKDWZKDWWKH\ ZURWHFRQIRUPHGWRDQGFRUUHVSRQGHGZLWKWKHFXOWXUDOSROLFLHVRI&KLQD·V UXOHUV,QWKLVZD\WKH.DQJ[LHPSHURU³DQGE\H[WHQVLRQWKHHPSHURURI &KLQD³FRPHVWRVLWLQWKHFHQWHURIKLV&KLQHVH0XVOLPVXEMHFWV·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

$&76







, KDYHDUJXHGWKDW&KLQHVH0XVOLPHOLWHVFUHDWHGWKLVLPDJHRIGXDOVRYHU HLJQW\EHFDXVHWKH\QHHGHGLW7KLVLVDPRGHODPRGHRIVRYHUHLJQW\LPDJ LQHG E\ WKH 0XVOLP VXEMHFWV OLYLQJ XQGHU D QRQ0XVOLP UXOHU LQ RUGHU WR DYRLGWKHFRQϰLFWVVXFKDFRQGLWLRQPLJKWSURGXFH%XWGLGDOORIWKLVUHDOO\ ZRUNIRUWKHP"3HUKDSVWKHEHVWLQGLFDWLRQWKDWLWGLGFDQEHJOHDQHGE\UH WXUQLQJWRWKHPRPHQWZKHQLWGLGQRW³WKHEXLOGLQJRIWKHG\VIXQFWLRQDO PRVTXHWKDWIDFHGQRUWK,QKLVGLVFXVVLRQRIGXDOVRYHUHLJQW\EHWZHHQDYLO ODJHKHDGPDQDQGDSULHVWLQDYLOODJHLQ,QGLD)UDQN+HLGHPDQQLQVLVWVWKDW WKLVW\SHRIVRYHUHLJQW\ZRUNVEHFDXVHERWKVLGHVDOZD\VZRUNWRJHWKHUQH[W WRHDFKRWKHU7KHKHDGPDQDQGWKHSULHVWFDUHIXOO\DYRLGIDFLQJHDFKRWKHU GLUHFWO\EHFDXVHVXFKDVLWXDWLRQZRXOGLPPHGLDWHO\H[SRVHWKHGLϸHUHQW KLHUDUFKLHVEHWZHHQVHFXODUDQGVFDUHGSROLWLFDODQGUHOLJLRXV$YRLGDQFH DOORZVWKHPWRZRUNWRJHWKHU´VKRXOGHUWRVKRXOGHUµYLVjYLVWKHYLOODJH SHRSOH,QDZD\WKLVFDQH[SODLQZKDWZDVZURQJZLWKWKHPRVTXHWKDW WKH4LDQORQJHPSHURUEXLOW,QVWHDGRIIDFLQJ0HFFDWKHPRVTXHZDVIDFLQJ KLVWKURQH:KHQKHPDGHWKHPRVTXHWKHGRPDLQRIWKH3URSKHWIDFHKLP GLUHFWO\KHGLVUXSWHGWKHGHOLFDWHVHWRIVKLIWLQJKLHUDUFKLHVDQGH[SRVHG WKHPLQDZD\WKDWQR0XVOLPFRXOGZRUNZLWK$QGQRRQHDWWHQGHGWKH PRVTXH

1RWHV   7KHFRPPXQLW\RIWKH7XUNLF0XVOLPFDPSLVIDUOHVVNQRZQWKDQWKHIUDJUDQW FRQFXELQH2QLWVKLVWRU\VHH7DNDKLUR2QXPD´VLF@PRVTXHZULWWHQE\(PSHURU4LDQORQJ ;L\X\DQMLX ²   ,XVHKHUHWKHWUDQVODWLRQIRXQGLQ0DUVKDOO%URRPKDOO,VODPLQ&KLQD$1HJOHFWHG 3UREOHP/RQGRQ0RUJDQ 6FRWW    7KH&KLQHVHSKUDVHKHUH³´;L[LDQJEHL[LDQJWRQJJXL\L]XQµ³LVXQLTXH1RWH DOVRWKDW[LDQJKHUHFRPLQJDIWHU´ZHVWµDQG´QRUWKµLVQRWWUDQVLWLYHEXWQRP LQDWLYH ,WLVORDGHGZLWKPHDQLQJVWRQJJXL PHDQVWR´KHDGWRZDUGWKHVDPH JRDOµDQG\L]XQZKLFK,WUDQVODWHDV´VKRZLQJRQHUHVSHFWµFRXOGPHDQ´RQH VWDWXHRIWKH%XGGKDµLQFHUWDLQVLWXDWLRQVRIFRXUVH    6XFKDVFHQHLVEHDXWLIXOO\GHSLFWHGLQ%HUQDUGR%HUWROXFFL·V7KH/DVW(PSHURU   LQ ZKLFK WKRXVDQGV RI Rϲ FLDOV LQ WKH )RUELGGHQ &LW\ ERZ EHIRUH WKH WRGGOHU&KLQHVHHPSHURU   %URRPKDOO,VODPLQ&KLQD   2Q4LQJLPSHULDOVLPXOWDQHLW\VHH3DPHOD&URVVOH\$7UDQVOXFHQW0LUURU+LVWRU\ DQG,GHQWLW\LQ4LQJ,PSHULDO,GHRORJ\ %HUNHOH\8QLYHUVLW\RI&DOLIRUQLD3UHVV  ²²²   (YHO\Q 5DZVNL 7KH/DVW(PSHURUV$6RFLDO+LVWRU\RI4LQJ,PSHULDO,QVWLWXWLRQV %HUNHOH\8QLYHUVLW\RI&DOLIRUQLD3UHVV ²   3DPHOD.\OH&URVVOH\´3OXUDOLWpLPSpULDOHHWLGHQWLWpVVXEMHFWLYHVGDQVOD&KLQH GHV4LQJµ+LVWRLUH6FLHQFHV6RFLDOHVQR ²   $QJHOD=LWR2I%RG\DQG%UXVK*UDQG6DFULϮFHDV7H[W3HUIRUPDQFHLQ(LJKWHHQWK &HQWXU\&KLQD &KLFDJR8QLYHUVLW\RI&KLFDJR3UHVV =LWRHODERUDWHV RQHQFRPSDVVPHQWLQ4LQJLGHRORJ\LQKHULQWURGXFWLRQWRWKHERRN   +LVWRULFDOO\RQO\RQHPRVTXHGLGQRWIXOO\FRPSO\ZLWKWKLVUHTXLUHPHQWWKH 0DVMLGDO4LEODWD\Q0RVTXHRIWKH7ZR4LEODKV ZKLFKWKH3URSKHWEXLOWLQ 0HGLQDIDFHG-HUXVDOHPORFDWLRQRIWKHRULJLQDOTLEODK LQ,VODP DQG0HFFD 5HFHQWO\LWZDVUHQRYDWHGDQGWKHTLEODKWR-HUXVDOHPZDVUHPRYHG   &URVVOH\´3OXUDOLWpLPSpULDOHµ   6HH5DZVNL/DVW(PSHURUV²2Q4LQJLGHRORJ\VHHDOVR&URVVOH\7UDQVOX FHQW0LUURU   2QHH[FHSWLRQDJDLQWRP\PLQGDFFHQWXDWHV0XVOLPDEVHQFHIURPWKHFRXUW 5DZVNLGRHVPHQWLRQVRPH0XVOLPVSDUWLFLSDWLQJLQULWXDOVSHUIRUPHGWREULQJ UDLQLQ%XWKHUODQJXDJHLVWHOOLQJ´HYHQ0XVOLPULWXDOVVHHPWRKDYHEHHQ SHUIRUPHGIRUUDLQµ/DVW(PSHURUV :HFDQϮQGPRUHVXSSRUWIRU&URVV OH\·VDVVHUWLRQDERYHLQ5DZVNL·VZRUGVDERXW,VODP´7KHUXOHUVDOVRVXSSRUWHG ,VODPWKHUHOLJLRQRIWKH7XUNLFVSHDNLQJ0XVOLPVRI&HQWUDO$VLDEXWZHUH PXFKOHVVVXFFHVVIXOLQZLQQLQJRYHUWKLVJURXSµLELG    =LWR2I%RG\DQG%UXVK   =YL%HQ'RU%HQLWH7KH'DRRI0XKDPPDG$&XOWXUDO+LVWRU\RI0XVOLPVLQ/DWH,P SHULDO&KLQD&DPEULGJH0$+DUYDUG8QLYHUVLW\$VLD&HQWHU    7KHUHLVDOVRWKHUHODWHGTXHVWLRQRI0XVOLPVLQ4LQJODZDQGOHJDOFRGHVEXW WKDWLVEH\RQGWKHVFRSHRIWKLVHVVD\2QWKLVTXHVWLRQVHH-RQDWKDQ/LSPDQ >@

$&76

´$)LHUFHDQG%UXWDO3HRSOH2Q,VODPDQG0XVOLPVLQ4LQJ/DZµLQ(PSLUHDW WKH0DUJLQV&XOWXUH(WKQLFLW\DQG)URQWLHULQ(DUO\0RGHUQ&KLQDHG3DPHOD&URVV OH\ +HOHQ 6LX DQG 'RQDOG 6XWWRQ %HUNHOH\ 8QLYHUVLW\ RI &DOLIRUQLD 3UHVV  ²   2QHDUO\PRGHUQ&KLQHVHOLWHUDWLFXOWXUHLQJHQHUDOVHH%HQMDPLQ(OPDQDQG $OH[DQGHU:RRGVLGHHGV(GXFDWLRQDQG6RFLHW\LQ/DWH,PSHULDO&KLQD² %HUNHOH\8QLYHUVLW\RI&DOLIRUQLD3UHVV DQG%HQMDPLQ(OPDQ$&XOWXUDO +LVWRU\RI&LYLO([DPLQDWLRQVLQ/DWH,PSHULDO&KLQD %HUNHOH\8QLYHUVLW\RI&DOL IRUQLD3UHVV DQG&LYLO([DPLQDWLRQVDQG0HULWRFUDF\LQ/DWH,PSHULDO&KLQD &DPEULGJH0$+DUYDUG8QLYHUVLW\3UHVV 2Q&KLQHVH0XVOLPOLWHUDWL VHH%HQ'RU%HQLWH'DRRI0XKDPPDG²   ,GHYHORSDQGHODERUDWHRQWKLVWKHPHLQ'DRRI0XKDPPDG²   (GZDUG)DUPHU=KX@

$&76

OR\DOW\WRNLQJDQGFKXUFKZDVLQYLWHGWRMRLQ´7LOODERXWWKH\HDUH  ·WZDV¬¬¬KHOGDVLQQHWRPDNHDVFUXWLQLHLQWRWKHZDLHVRIQDWXUHµ-RKQ$X EUH\UHPDUNHGLQWKHSUHIDFHWRKLV1DWXUDO+LVWRU\RI:LOWVKLUHH[SODLQLQJ WKLVVXJJHVWLYHO\UHJLFLGDOFKURQRORJ\ZLWKDIRRWQRWH´ ([SHULPHQWDOO3KL ORVRSK\ZDVWKHQϮUVWFXOWLYDWHGE\DFOXEDW2[RQµ :  LOOLVKDGQRQHRIWKHSROLVKRIDJHQWOHPDQO\SK\VLFLDQVKRUWDQGVWDP PHULQJKHZDVGHVFULEHGE\$XEUH\DVKDYLQJKDLU´OLNHDUHGSLJµDQGE\ DQRWKHUFKURQLFOHURIVHYHQWHHQWKFHQWXU\2[IRUGDV´DSODLQPDQDPDQ RIQRFDUULDJHOLWWOHGLVFRXUVHFRPSODLVDQFHRUVRFLHW\µ+HZDVSRVVHVVHG KRZHYHURIDQDFFXUDWHPHPRU\NLQGO\PDQQHUDQGSDLQVWDNLQJREVHUYD WLRQDODFXLW\DOORIZKLFKEHJDQWRZLQKLPSDWLHQWVDPRQJWKHLPSRYHULVKHG 5R\DOLVWVLQWKHDUHDDURXQG2[IRUG7KHVXUYLYLQJFDVHERRNVRIKLVSUDF WLFHLQWKH\HDUVWRVKRZKLPEHJLQQLQJWRUHSODFHWUDGLWLRQDO KXPRUDOFRQFHSWVZLWKDQHZLDWURFKHPLVWU\RIIHUPHQWDWLRQVGLVWLOODWLRQV H[SORVLRQV DQG VXEOLPDWLRQV +H ZDV QRW \HW IRFXVLQJ RQ WKH QHUYRXV V\VWHP EXW KLV REVHUYDWLRQV RI SDWLHQWV Dϵ LFWHG ZLWK ´DEHUUDWLRQV RI WKH PLQGµSODFHGWKHFDXVHϮUPO\DWWKHGRRURISK\VLFDOGHELOLW\,QKLV7UHDWLVH RQ)HUPHQWDWLRQVDQG)HDYHUVϮUVWSXEOLVKHGLQ:LOOLVUHϰHFWHGRQWKH LDWURFKHPLFDOFDXVHVRIWKH´FUXHO+HDG$FKHVµDVZHOODV´'HOLULXP3KUHQ VLH&RQYXOVLRQHWFµDULVLQJIURPWKHDJLWDWLRQVRIWKHEORRG´VWLUULQJXS LQRUGLQDWHPRWLRQVLQWKH%UDLQµ %  \WKH5HVWRUDWLRQ:LOOLVZDVWKLUW\QLQH\HDUVROGDQGLQSRVVHVVLRQRI DQHQYLDEOHUHSXWDWLRQIRUPHGLFDODFXPHQDOOLHGWRSURYHQOR\DOW\WRWKH NLQJDQGFKXUFK+LVIULHQGVZHUHQRZWKHPRVWSRZHUIXOPHQLQWKHODQG DQGLQ$XJXVWWKHELVKRSRI/RQGRQUHZDUGHGKLPZLWKDQ2[IRUGSUR IHVVRUVKLSRIQDWXUDOSKLORVRSK\5HVROYLQJWRGHGLFDWHKLPVHOI´ZKROO\WR WKHVWXG\RI$QDWRP\µKHWUDQVIRUPHGKLVORGJLQJVLQ2[IRUGZKLFKKDG DOVRVHUYHGDVDFODQGHVWLQH$QJOLFDQFKDSHOGXULQJWKH\HDUVRIWKH5HSXEOLF LQWRDQ´$QDWRPLFDO&RXUWµ7KLVPHWDPRUSKRVLVIURPFKDSHOWRODERUD WRU\ H[HPSOLϮHV WKH H[FHSWLRQDOO\ KDUPRQLRXV UHODWLRQVKLS EHWZHHQ WKH UHVWRUHGFKXUFKDQGWKHQHZQDWXUDOSKLORVRSK\,QDQHSLVWOHGHGLFDWRU\WR WKHDUFKELVKRSRI&DQWHUEXU\:LOOLVFRQIHVVHGWKDWKHKDG´VODLQVRPDQ\ 9LFWLPVZKROH+HWDFRPEVDOPRVWRIDOO$QLPDOVLQWKH$QDWRPLFDO&RXUW ,FRXOGQRWKDYHWKRXJKWWKHPULJKWO\RϸHUHGXQOHVVWKH\KDGEHHQEURXJKW WRWKHPRVWKRO\$OWDURI\RXU*UDFHµ ,Q&URPZHOOLDQ2[IRUGWKH([SHUL PHQWDO3KLORVRSK\&OXEFRXOGFODLPWKHPDQWOHRIQRYHOW\DQGUHYROXWLRQQRZ

>@

7+(1(852/2*@

7+(1(852/2*@

$&76

WKHVOLJKWHVWPRYHPHQWRIWKHH\HVRUDQ\RWKHUVLJQZDVREVHUYHGLQDQ\ KHDGWRZKLFKWKHFDOOHGRXWZRUGVZHUHH[SUHVVHG

7  KH0HGLFDO6RFLHW\RI0DLQ]WRRNWKHTXHVWLRQRIWKHSHUVLVWHQFHRIFRQ VFLRXVQHVVVHULRXVO\HQRXJKWRVXEMHFWLWWRH[SHULPHQWDOLQYHVWLJDWLRQEXW UHVRXQGLQJO\FRQFOXGHGWKDWWKHUHZDVQRVSLULWXDOVLJQLϮFDQFHWRWKHPRYH PHQWVRIWKHIDFLDOPXVFOHV,QRQHVLQJOHVHWRILQYHVWLJDWLRQVWKHJURXS VLPXOWDQHRXVO\UHFRQVWUXFWHGWKHODZVJRYHUQLQJWKHVFLHQWLϮ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ϸDEOHVSLULWXDOSULQFLSOHJXLGLQJWKH SK\VLRORJLFDORUJDQL]DWLRQRIWKHERG\ , VWKHPRL WKHVLPSOHSURGXFWRIWKHVXFFHVVLYHDFWLRQRIWKHRUJDQVDQGWKH LPSUHVVLRQVWKDWDUHWUDQVPLWWHGWRWKHVHQVRULXPFRPPXQH"2UFRXOGLWEH WKDWWKHV\VWHPDWLFFRPELQDWLRQRIWKHRUJDQVWKHLUSURJUHVVLYHGHYHORSPHQW DQGWKHLUIDFXOWLHVDQGIXQFWLRQVDUHGHWHUPLQHGE\DQDFWLYHSULQFLSOHZKRVH QDWXUHLVXQNQRZQEXWZKRVHH[LVWHQFHLVQHFHVVDU\IRUDUHDVRQDEOHH[SOD QDWLRQRIWKHIDFWV"

&  DEDQLV·VDGPLVVLRQRIWKHH[LVWHQFHRIDQ´DFWLYHSULQFLSOHµDQWHULRUWR WKHSK\VLFDOEHLQJDQGSHUKDSVRXWODVWLQJLWZDVDVWUDZLQDFRXQWHUUHYR OXWLRQDU\ZLQGWKDWEOHZHYHUVWURQJHUDIWHU1DSROHRQ·VGHIHDW$VWKHKLV WRULDQRI)UHQFKSV\FKRORJ\-DQ*ROGVWHLQKDVVKRZQWKH´SRVWUHYROXWLRQDU\ VHOIµZDVWKH´LQGLYLVLEOHPRLµRIWKHVDFUHGLQGLYLGXDO7KLVFRQFHSWLRQRI LQGLYLGXDOVRYHUHLJQW\IRXQGH[SHULPHQWDOFRQϮUPDWLRQLQWKHZRUNRI3LHUUH )ORXUHQVWKHSK\VLRORJLVWHQWUXVWHGE\WKH)UHQFK$FDGHP\RI6FLHQFHV LQ  WR DVFHUWDLQ WKH WUXWK RU IDOVLW\ RI WKH GRFWULQH RI SKUHQRORJ\ )ORXUHQVFXWDZD\DWWKHEUDLQVRISLJHRQVDQGIRXQGWKDWWKHPRUHRIWKH KHPLVSKHUHVKHUHPRYHGWKHPRUHVWXSLGWKHFUHDWXUHVEHFDPHRYHUDOO ZLWKRXWDSSHDULQJWRVXϸHUWKHORVVRIDQ\VLQJOHVSHFLϮFIXQFWLRQ)URP >@

7+(1(852/2*@

$&76

$GGUHVVHGWRWKH5R\DO&ROOHJHRI6XUJHRQVZKHUHWKHH[SHULPHQWWRRNSODFH KLVUHSRUWRIKLV/RQGRQDGYHQWXUHVWUHVVHGFRPPHUFLDOXWLOLW\WKHUDSHXWLF EHQHϮWDQGERGLO\LQWDFWQHVV $  OGLQLKDGSHUIRUPHGHOHFWULFDOH[SHULPHQWVRQGHFDSLWDWHGERGLHVLQ 1DSROHRQLF,WDO\EXWLQ/RQGRQKHZDVRϸHUHGDTXLWHGLϸHUHQWRSSRUWX QLW\WRWHVWWKHHϸHFWVRIDQLPDOHOHFWULFLW\+LVVXEMHFW*HRUJH)RUVWHUZDV WZHQW\VL[DWWKHWLPHRIKLVGHDWKDQGRIDVRXQGDQGYLJRURXVFRQVWLWX WLRQ$QDXWRSV\UHYHDOHGWKDWKHKDGVXϸRFDWHGTXLFNO\DVDUHVXOWRI KLVKDQJLQJJLYLQJ$OGLQLWKHFKDQFHWR´DVFHUWDLQZKDWRSLQLRQVKRXOGEH IRUPHG RI *DOYDQLVP DV D PHDQV RI H[FLWHPHQW LQ FDVHV RI DVSK\[LD DQG VXVSHQGHGDQLPDWLRQµ೓ ( [SHULPHQWLQJRQDQLQWDFWFRUSVH$OGLQLIHOWWKDWKHKDGFRPHFORVHU WKDQHYHUEHIRUHWRDPHGLFDOO\VLJQLϮFDQWUHVXOW9DULRXVFKHPLFDOVWLP XODQWV ZHUH LQ XVH DW WKH WLPH IRU WKH SXUSRVHV RI UHYLYLQJ XQFRQVFLRXV SDWLHQWVDQGKHWHVWHGVRPHRIWKHPLQFRQMXQFWLRQZLWKHOHFWULFDOVWLPX ODWLRQWRVHHLIWKHLUDFWLRQPLJKWEHPXWXDOO\HQKDQFHG2QDGPLQLVWHULQJ *DOYDQLFVWLPXOXVDQGYRODWLOHDONDOLWRJHWKHUWKHFRQYXOVLRQV´H[WHQGHG IURPWKHPXVFOHVRIWKHKHDGIDFHDQGQHFNDVIDUDVWKHGHOWRLG7KHHϸHFWV LQWKLVFDVHVXUSDVVHGRXUPRVWVDQJXLQHH[SHFWDWLRQVDQGYLWDOLW\PLJKW SHUKDSV KDYH EHHQ UHVWRUHG LI PDQ\ FLUFXPVWDQFHV KDG QRW UHQGHUHG LW LPSRVVLEOHµ೓  8QOLNHWKHVHYHUHGKHDGVWKDWUROOHGRϸWKHUHYROXWLRQDU\VFDI IROGWKHERGLHVSURGXFHGE\WKH%ULWLVKMXGLFLDOUHJLPHPLJKWDFWXDOO\EHUH VWRUHGWROLIHDVZLWQHVVHGE\WKHHϸHFWVRIWKHHOHFWULFDOFXUUHQWVSUHDGLQJ IURPWKHIDFHDQGQHFNGRZQWRWKHWRUVR $  OGLQL ZDV VXLWDEO\ PRGHVW DERXW WKH LPSOLFDWLRQV RI KLV UHVXUUHFWLYH SRZHUVEXWKHGLGKLQWWKDW%ULWDLQRIDOOSODFHVFRXOGPDNHJRRGXVHRI VXFKDWHFKQRORJ\ 7  RHQODUJHRQWKHXWLOLW\RIVXFKUHVHDUFKHVRUWRSRLQWRXWWKHDGYDQWDJHV ZKLFKPD\UHVXOWIURPWKHPLVQRWP\REMHFWDWSUHVHQW,VKDOOKHUHRQO\RE VHUYHWKDWDVWKHERGLHVRIYDOXDEOHPHPEHUVRIVRFLHW\DUHRIWHQIRXQGLQ VLPLODUFLUFXPVWDQFHVDQGZLWKWKHVDPHV\PSWRPVDVWKRVHREVHUYHGRQ H[HFXWHG FULPLQDOV E\ VXEMHFWLQJ WKH ODWWHU WR SURSHU H[SHULPHQWV VRPH VSHHGLHUDQGPRUHHϲ FDFLRXVPHDQVWKDQDQ\KLWKHUWRNQRZQRIJLYLQJUH OLHILQVXFKFDVHVPD\SHUKDSVEHGLVFRYHUHG,QDFRPPHUFLDODQGPDULWLPH FRXQWU\OLNH%ULWDLQZKHUHVRPDQ\SHUVRQVLQFRQVHTXHQFHRIWKHLURFFX

>@

7+(1(852/2*@

$&76

1RWHV   :DOWHU6FRWWHG$&ROOHFWLRQRI6FDUFHDQG9DOXDEOH7UDFWV/RQGRQ7&DGHOO  :'DYLV    &KDUOHV6WXDUW.LQJ&KDUOV+LV7U\DODWWKH+LJK&RXUWRI-XVWLFH/RQGRQ3HWHU&ROH )UDQFLV7\WRQ -RKQ3OD\IRUG    ,ELG   ,ELG²   7KRPDV+REEHV/HYLDWKDQ+DUPRQGVZRUWK3HQJXLQ ²   (GPRQG*HRUJH3HWW\)LW]PDXULFH)LW]PDXULFH7KH/LIHRI6LU:LOOLDP3HWW\² ¬¬&KLHϰ\'HULYHGIURP3ULYDWH'RFXPHQWV+LWKHUWR8QSXEOLVKHG/RQGRQ-0XU UD\ ²   +REEHV/HYLDWKDQ   4XHQWLQ6NLQQHU9LVLRQVRI3ROLWLFV+REEHVDQG&LYLO6FLHQFH&DPEULGJH&DPEULGJH 8QLYHUVLW\3UHVV    &DUO=LPPHU7KH6RXO0DGH)OHVK7KH'LVFRYHU\RIWKH%UDLQDQG+RZ,W&KDQJHGWKH :RUOG/RQGRQ:LOOLDP+HLQHPDQQ    7KRPDV6SUDW7KH+LVWRU\RIWKH5R\DO6RFLHW\RI/RQGRQIRUWKH,PSURYLQJRI1DWX UDO.QRZOHGJH/RQGRQ3ULQWHGE\7¬5IRU-0DUW\Q -$OOHVWU\    -RKQ$XEUH\DQG-RKQ%ULWWRQ7KH1DWXUDO+LVWRU\RI:LOWVKLUH/RQGRQ-¬%1LFK ROV 6RQ    5REHUW*)UDQN´7KRPDV:LOOLVDQG+LV&LUFOH%UDLQDQG0LQGLQ6HYHQWHHQWK &HQWXU\0HGLFLQHµLQ*¬65RXVVHDX7KH/DQJXDJHVRI3V\FKH0LQGDQG%RG\LQ (QOLJKWHQPHQW7KRXJKW&ODUN/LEUDU\/HFWXUHV² %HUNHOH\8QLYHUVLW\RI &DOLIRUQLD3UHVV    7KRPDV:LOOLVDQG.HQQHWK'HZKXUVW:LOOLV·V2[IRUG&DVHERRN² 2[IRUG 6DQGIRUG    ,ELG   7KRPDV:LOOLV$0HGLFDO3KLORVRSKLFDO'LVFRXUVHRI)HUPHQWDWLRQRU2IWKH,QWHVWLQH 0RWLRQRI3DUWLFOHVLQ(YHU\%RG\/RQGRQ3ULQWHGIRU7'ULQJ&+DUSHU-/HLJK 60DUWLQ    7KRPDV:LOOLV$QDWRP\RIWKH%UDLQDQG1HUYHVHG:LOOLDP)HLQGHO0RQWUHDO 0F*LOO8QLYHUVLW\3UHVV ²   ,ELG   ,ELG   ,ELG   ,ELG   ,ELG6HH0LFKDHO+DZNLQV´$*UHDWDQG'Lϲ FXOW7KLQJ8QGHUVWDQG LQJDQG([SODLQLQJWKH+XPDQ0DFKLQHLQ5HVWRUDWLRQ(QJODQGµLQ%RGLHV 0DFKLQHVHG,ZDQ5K\V2[IRUG%HUJ    :LOOLV$QDWRP\RIWKH%UDLQDQG1HUYHV   (PPDQXHO 6LH\pV 4X·HVWFH TXH OH 7LHUV (WDW" 3DULV $X VLqJH GH OD VRFLpWp     0LFKDHO:DO]HU5HJLFLGHDQG5HYROXWLRQ6SHHFKHVDWWKH7ULDORI/RXLV;9,/RQGRQ &DPEULGJH8QLYHUVLW\3UHVV  >@

7+(1(852/2*@

7  :(/9(

7KH´0LOOHQQLXPµRI 7  KH/DVW3HUIRUPDQFHRIWKH*UHDW0XJKDO $  $=)$502,1

:  +(1 )5$1d2,6 %(51,(5 D )UHQFK SK\VLFLDQ ZKR VSHQW WKH V ZRUNLQJDQGWUDYHOLQJDFURVV0XJKDO,QGLDZHQWWRVHHWKH7DM0DKDOIRU WKHODVWWLPHLWZDVLQWKHFRPSDQ\RIDUHFHQWO\DUULYHGFRXQWU\PDQ%HU QLHUDGPLWWHGWKDWERWKRIWKHPZHUHPHVPHUL]HGE\WKHPRQXPHQWEXWDOVR FRQIHVVHGWKDWKHKHVLWDWHGWRH[SUHVVKLVDGPLUDWLRQ´IHDULQJWKDWP\WDVWH PLJKWKDYHEHFRPHFRUUXSWHGE\P\ORQJUHVLGHQFHLQWKH,QGLHVµ:HFDQ LPDJLQHKLVUHOLHIZKHQKLVFRPSDWULRWVWLOOYHU\)UHQFKLQKLVWDVWHVH[ FODLPHGWKDW´KHKDGVHHQQRWKLQJLQ(XURSHVREROGDQGPDMHVWLFµ7KHPDM HVW\RIWKH7DM0DKDOLVHPEOHPDWLFRIWKHHQHUJ\WKH0XJKDOVSRXUHGLQWR WKHDUWRILPSHULDOSHUIRUPDQFH3HUKDSVPRUHWKDQDQ\RWKHULQWKHHDUO\ PRGHUQ HUD WKHLU HPSLUH GHSHQGHG RQ DQ RYHUZKHOPLQJ HQDFWPHQW RI VRYHUHLJQW\ 7  KHDVSHFWRI´VRYHUHLJQW\µH[DPLQHGLQWKLVHVVD\ZKLFKGZHOOVQRWRQ WKHOLYLQJLQVWLWXWLRQVRIWKH0XJKDOHPSLUHEXWRQWKHHQGXULQJPHPRU\ RI0XJKDONLQJVKLSVWHPVIURPWKH´DHVWKHWLFFRQGLWLRQLQJµRIWKHRS HUDWLRQVRISROLWLFDOSRZHULWVUHYHUEHUDWLRQVWKURXJKWLPHLQV\PEROVDQG ULWXDOVDQGWKHH[SHULHQFHDQGLPDJLQDULHVOHIWLQLWVZDNH3XWLQWKH VLPSOHVWWHUPVPRQDUFKVPDLQWDLQHGWKHLUVRYHUHLJQW\E\SHUIRUPLQJLW 3DUDGHVSURJUHVVIHVWLYDOVIHDVWVKXQWVJDPHVFXOWVPRQXPHQWV³WKH JHQHULFOLVWRIUR\DOULWHVDQGV\PEROVLVORQJ%XWLWLVYDULDEOH6RPHNLQJV GHSHQGHGRQFHUHPRQLDOGLVSOD\PRUHWKDQRWKHUV&OLϸRUG*HHUW]PD\KDYH JLYHQXVWKHH[WUHPHFDVHZKHUHVRYHUHLJQVH[LVWHGWRSHUIRUPWKHPVHOYHV >@

7+(´0,//(11,80µ2)

WRWKHLUVXEMHFWV³ULWXDOZDVSROLWLFV%XWPRQDUFKLFDOGHSHQGHQFHRQSHU IRUPDQFHZDVQRWDOZD\VSROLWLFVE\RWKHUPHDQV³DZD\WRFRPSHQVDWHIRU WKHODFNRISROLWLFDOFRQWURODQGVRFLDOUHDFK,QWKH0XJKDOLQVWDQFHZHKDYH KLJKULWXDODQGWULXPSKDQWV\PEROLVPFRXSOHGZLWKXQSUHFHGHQWHGOHYHOV RIPLOLWDU\SRZHUEXUHDXFUDWLFVRSKLVWLFDWLRQDQGV\VWHPDWLFH[WUDFWLRQRI ZHDOWK7RDSSUHFLDWHWKHSDUWLFXODULW\RIWKH0XJKDOFRQWH[WLWZRXOGKHOS WRFRPSDUHWKHLUHPSLUHWRWKRVHRIWKHLUFRQWHPSRUDULHV 7  KH0XJKDOHPSHURUVZHUHFRPPRQO\FDOOHG´0RQJROµE\GLQWRIWKHLU RULJLQDOHWKQLFLW\7KH\WUDFHGWKHLUVRYHUHLJQW\IURPWZR,QQHU$VLDQZRUOG FRQTXHURUVSDWHUQDOO\IURP7DPHUODQHRU7LPXUG DQGPDWHUQDOO\ IURP&KLQJJLV.KDQRU*HQJKLV.KDQG  $OWKRXJKWKH\ZHUH0XV OLPDQGDUHXVXDOO\PHQWLRQHGLQWKHVDPHEUHDWKDVRWKHUHDUO\PRGHUQ 0XVOLPHPSLUHV³WKHQHLJKERULQJ6DIDYLGVRI,UDQDQGWKH2WWRPDQVIDUWKHU ZHVW³LQWKHLU´VWHSSHµKHULWDJHWKHLUYDVWWHUULWRU\WKHLUJUHDWZHDOWKDQG WKHQXPEHUDQGGLYHUVLW\RIWKHLUVXEMHFWVWKH0XJKDOVPHULWDFRPSDULVRQ ZLWKWKHLU4LQJFRQWHPSRUDULHVLQ&KLQDDV9LFWRU/LHEHUPDQKDVVKRZQVR DVVLGXRXVO\LQKLVODQGPDUNZRUNRQ(XUDVLDQKLVWRU\ /LNHWKH0XJKDOVWKH4LQJG\QDVW\ZDVDQRWKHUUXOLQJJURXSRI,QQHU $VLDQ³LQWKLVFDVH0DQFKX³RULJLQVWKDWUXOHGRYHUDUHDOPRILPPHQVH JHRJUDSKLFDQGHWKQLFYDULHW\,QGHHGLIRQHUHDGV-RQDWKDQ'6SHQFH·VLPDJ LQDWLYHVHOISRUWUDLWRIWKHJUHDW.DQJ[LU² WKH4LQJHPSHURUDV KHFLUFXODWHGZLWKKLVPRELOHFRXUWDQGDUP\DFURVV&KLQD³ZDUULQJIHDVW LQJDQGVWUXJJOLQJWREULQJRUGHUWRDQHPSLUHRIEHZLOGHULQJFRPSOH[LW\³ RQHFRXOGHDVLO\PLVWDNHWKHZRUGVWREHWKRVHRIKLV0XJKDOFRQWHPSRUDU\ $XUDQJ]HEWKH´:RUOG6HL]HUµU²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

$&76

VFULSWVE\XVLQJ3HUVLDQDVDXQLIRUPODQJXDJHRIDGPLQLVWUDWLRQ,QPLOL WDU\WHUPVKRZHYHUWKHLQLWLDOVWUHQJWKRIWKH0XJKDOFDYDOU\ZDVPLQLV FXOH³WHQWKRXVDQGRUVR³FRPSDUHGWRWKDWRIWKH0DQFKXV7KLVLVZK\WKH 0XJKDOVKDGWRUHFUXLWDWOHQJWKIURPDQDUUD\RI7XUNLF3HUVLDQDQG,QGLF ZDUULRUJURXSVZLWKZKRPWKH\ERQGHGYLDPDUULDJHDQGRWKHULQYHQWLYH LQVWLWXWLRQVRIUHOLJLRQDQGNLQVKLS$VDFRQVHTXHQFHWKRXJKWKH\HQGHG XSGLVVROYLQJWKHLU,QQHU$VLDQHWKQLFLW\DQGPLOLWDU\FRUHDQGLQFUHDVHG WKHLUGHSHQGHQF\RQORFDOFROODERUDWRUV7KH4LQJPDGHQRVXFKVDFULϮ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³RQHWKDWQRSUHYLRXVHPSLUHLQ6RXWK$VLDQKLVWRU\KDGRYHUFRPH 7KHVH XQIDYRUDEOH RGGV DUH ZK\ 9LFWRU /LHEHUPDQ GHFODUHV WKH 0XJKDO UHDOPDVVWUXFWXUDOO\XQVWDEOHLQFRPSDULVRQWR4LQJ&KLQD:KLOHWKLVPD\ EHVRZHFDQGHULYHDQRWKHULQVLJKWIURP/LHEHUPDQ·VDVWXWHDQDO\VLV:H FDQDUJXHWKDWWKHFUHDWLYH³DQGKHQFHSHUIRUPDWLYH³EXUGHQRIVRYHUHLJQW\ RQWKH0XJKDOVZDVIDUJUHDWHUWKDQRQWKH4LQJ,QRWKHUZRUGVWRPDNH WKHLUFXOWXUDOV\VWHPIXQFWLRQ³WRJLYHWKHLUQHZO\PLQWHGLPSHULDOLGHQWL WLHVDQGLQVWLWXWLRQVWKHVHPEODQFHRIEHLQJHWHUQDO³WKH0XJKDOVKDGWRSXW LQWRFLUFXODWLRQDJUHDWHUTXDQWLW\RIVRFLDOHQHUJ\ ,QGHHGWKHGHOLEHUDWHO\FRQVWUXFWHGDQGQHZIDQJOHGVW\OHRI0XJKDOVRY HUHLJQW\LVZKDWPDNHVLWDSSHDUVRVWUDQJHWRPRGHUQH\HV%XWLWIHOWXQ VHWWOLQJHYHQWKHQWRFRQWHPSRUDU\YLVLWRUVIURP(XURSH:HVWHUQ&KULVWLDQV ZHUHXVHGWRVHHLQJWKHLU´DEVROXWHµPRQDUFK·VDXWKRULW\FLUFXPVFULEHGE\ WKHVWDWXVDQGSRZHURIWKHFKXUFK:KHQWKH\DUULYHGLQ,QGLDWKH\ZHUH DVWRQLVKHGWRϮQG0XVOLPNLQJVEHLQJWUHDWHGDVVDLQWOLNHEHLQJVDERYHWKH GLVWLQFWLRQVRIUHOLJLRQ7KLVZDVWKHVWXQQHGUHDFWLRQRIWKH-HVXLWVZKR VSHQWVHYHUDOGHFDGHVDWWKH0XJKDOFRXUWLQFORVHGLDORJXHZLWK0XVOLP VDYDQWV$VWKH-HVXLWUHSRUWVZHUHSULQWHGWUDQVODWHGDQGZLGHO\FLUFX ODWHGWKHLU(XURSHDQDXGLHQFHFRXOGVFDUFHO\EHOLHYHZKDWWKH\UHDGDERXW WKHVXEOLPHVHOIIDVKLRQLQJRIWKHVRQVRI´7DPEXUODLQHµ೓ >@

7+(´0,//(11,80µ2)

7  KH-HVXLWVKDGEHHQLQYLWHGWRWKH0XJKDOFRXUWLQE\WKHHPSHURU $NEDUU² ZKRZDVDWWKHKHLJKWRIKLVSRZHU7KHZHDOWKLHVWDQG PRVWSURGXFWLYHUHJLRQVRIWKHVXEFRQWLQHQWZHUHϮUPO\XQGHUKLVDXWKRU LW\$QHZWD[UHJLPHKDGEHJXQWRKDUYHVWWKHYDVWDJULFXOWXUDOZHDOWKRI QRUWKHUQ,QGLDDQGH[FKDQJHLWIRU1HZ:RUOGVLOYHU0LQRUNLQJVDQGIURQ WLHUZDUORUGVFRXOGQRZDFTXLUHPRUHZHDOWKDQGVWDWXVE\ϮJKWLQJIRUWKH HPSHURUDVVDODULHGVHUYDQWVWKDQLQDWWDFNVDQGUDLGVRQRQHDQRWKHU)XU WKHUPRUHWKHVHPDMRUVKLIWVLQVRFLHW\DQGSROLWLFVZHUHWDNLQJSODFHDWD PRPHQWRIFRVPLFVLJQLϮ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·VUHLJQDQGFRQWLQXHGE\KLVVRQDQGVXFFHVVRU-DKDQJLU 7KDWWKLVZDVPHDQWWREHDQLQFOXVLYHLQVWLWXWLRQDFFHVVLEOHWRDPELWLRXV PHQRIDOOHWKQLFLWLHVDQGUHOLJLRQVIURPDFURVVWKHZRUOGFDQEHVHHQLQWKH LQLWLDWLRQRI6LU7KRPDV5RHWKH(QJOLVKDPEDVVDGRUWRWKH0XJKDOFRXUW GXULQJ-DKDQJLU·VUHLJQ,QKLVRϲ FLDODFFRXQWVHQWWR(QJODQG5RHGLGQRW UHYHDOWKDWKHKDGEHHQLQGXFWHGDVDQLPSHULDOGLVFLSOHEXWVLPSO\ZURWH WKDWKHKDGEHHQKRQRUHGE\WKHHPSHURUDQGJLYHQDFRLQVL]HGSRUWUDLWRI WKHVRYHUHLJQ+HGLGERDVWKRZHYHUWKDWWKH0XJKDOHPSHURULQKLVIRQG QHVVIRUWKH(QJOLVKPDQKDGDEVROYHGKLPIURPWKHUHTXLUHPHQWWRSURV WUDWHEHIRUHWKHVRYHUHLJQ:KDW5RHKDGUHFHLYHGZDVDWDOLVPDQLFLPDJH LQZKLFKWKHVRYHUHLJQZDVVKRZQIUDPHGLQDZLQGRZ MKDURND WREHYHQ HUDWHGGDUVKDQ ULWXDOO\OLNHD+LQGXGLYLQLW\ $JHQHUDWLRQDIWHU-DKDQJLUWKHLQVWLWXWLRQRIGLVFLSOHVKLSZLGHQHGDQG WUDQVIRUPHGLQWRRQHRIULWXDONLQVKLS2ϲ FHUV³+LQGXDQG0XVOLP³EHJDQ WREHLQFRUSRUDWHGDV´VRQVRIWKHLPSHULDOKRXVHKROGµ$WWKHVDPHWLPHWKH YHQHUDWLRQRIWKHHPSHURUZDVHQVKULQHGLQWKHQXPHURXVLPSHULDOSDODFHV >@

$&76

DQGWKHLUQHZKDOOVRISXEOLFDXGLHQFHVZKLFKDOVRFRQWDLQHGDULWXDOZLQ GRZ MKDURND IRUWKHHPSHURU·VWKURQH 7  KHEXUGHQRI0XJKDODUWDQGDUFKLWHFWXUHSURGXFHGRQDQLPPHQVH VFDOHLQWKHϮUVWFHQWXU\RIWKHHPSLUHZDVWRXSKROGWKHVHQHZULWXDOVRI LPSHULDOVRYHUHLJQW\LQZKLFKWKHHPSHURUZDVSXWRQGLVSOD\DVWKHPRVW VDFUHGEHLQJRIWKHUHDOP0XJKDODUWLVWVWRRN&DWKROLFLFRQVEURXJKWE\WKH -HVXLWVDVDPRGHOIRUHQFDSVXODWLQJWKHLUVRYHUHLJQ·VVDFUHGQDWXUH0XJKDO DUFKLWHFWXUHLQFRUSRUDWHGZKLWHPDUEOHWUDGLWLRQDOO\UHVHUYHGIRUVDFUHG EXLOGLQJVDQGVDLQWVKULQHV7KHXOWLPDWHUHVXOWZDVWKHPDJQLϮFHQWZKLWH HGLϮFHWKDWZHQRZFDOOWKH7DM0DKDOEXWWKHQGLGQRWKDYHDQDPH3HU KDSVWKLVJUDQGHVWRIDOOEXLOGLQJVGLGQRWQHHGDGHVLJQDWLRQEHFDXVHDVWKH ϮQDOZRUGRQDOOVDFUHGPRQXPHQWVLPSHULDORUVDLQWO\LWZDVPHDQWWRGHI\ FDWHJRULHV$VRQHDUWKLVWRULDQDUJXHV6KDK-DKDQKDGEXLOWIRUKLPVHOIWKH SDUDGLVLDFDO7KURQHRI*RG 7  RGD\LQ6RXWK$VLDWKHVWURQJO\HQXQFLDWHGDQGSXEOLFO\DUWLFXODWHGGL YLQLW\RIWKH0XJKDOHPSHURUVMDUVQDWLRQDODQGUHOLJLRXVVHQVLELOLWLHVRIDOO W\SHV6HFXODUQDWLRQDOLVWVϮ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³FLUFXPVWDQFHVWKDW VHWWKH SROLWLFDOFXOWXUHRI0XJKDO,QGLDRQDPDUNHGO\GLϸHUHQWWUDMHFWRU\WKDQ WKDWRI&KULVWLDQ(XURSHRU&RQIXFLDQ&KLQD³LWEHFRPHVFOHDUKRZVXFFHVV IXOO\WKH0XJKDOVODXQFKHGD´VRFLDOGUDPDµ RIVRYHUHLJQW\WKDWVKDSHG WKHQDWXUHRISROLWLFVORQJDIWHUWKHLUHPSLUHKDGFUXPEOHGXQGHULWVRZQ ZHLJKW 7KHUHJLRQDOSROLWLHVWKDWUHSODFHGWKH0XJKDOUHDOPZHUHEXLOWRQ0X JKDOFXVWRPVDQGDPDMRULW\RIWKHPIXQFWLRQHGIRUQHDUO\DFHQWXU\DVLI WKH´UHDOµVRYHUHLJQZDVVWLOOWKHHPSHURU7KLVZDVDJDLQDQXQSUHFHGHQWHG VLWXDWLRQLQ6RXWK$VLDQKLVWRU\:KHQSUHYLRXVHPSLUHVKDGGLVLQWHJUDWHG WKHLUUXOHUVGLVDSSHDUHGZLWKWKHP,QWKH0XJKDOFDVHKRZHYHUWKHPRQ DUFK\VXUYLYHGLPSHULDOGLVVROXWLRQDQGFRQWLQXHGWRSOD\DNH\UROHLQWKH WKHDWHURIVRYHUHLJQW\:K\" >@

7+(´0,//(11,80µ2)

+  HUHLWLVZRUWKWXUQLQJWRDWKHRUHWLFDOGLVWLQFWLRQEHWZHHQ´FHUHPRQ\µ DQG´ULWXDOµPDGHE\WKHDQWKURSRORJLVW9LFWRU7XUQHULQKLVZRUNRQVR FLDOGUDPD &HUHPRQ\IRU7XUQHUFRQVLVWVRIFROOHFWLYHDFWVWKDWIROORZD FRKHUHQWVFULSW&HUHPRQ\LVLQGLFDWLYH³LW´VD\VµZKDWLV³DQGKHQFHLWLV SUHGLFWDEOH5LWXDOE\FRQWUDVWLVDPELJXRXVO\VFULSWHG,WLVVXEMXQFWLYH³LW DOVR ´VD\Vµ ZKDW PLJKW EH³DQG KHQFH KROGV WKH VHHGV RI VRFLDO FKDQJH (VSHFLDOO\LQFRPSOH[DQGKLHUDUFKLFDOVRFLHWLHVVRFLDOGUDPD³WKHSXEOLF HYRFDWLRQDQGFROOHFWLYHHQDFWPHQWRIDULWXDOVFKHPH³VKRXOGQRWEHGLV PLVVHGDVFHUHPRQLDOGLVSOD\5DWKHULWPXVWEHH[DPLQHGIRULWVWUDQVIRU PDWLYHSRWHQWLDO,IHQDFWHGHQHUJHWLFDOO\HQRXJK7XUQHUDUJXHVVRFLDO GUDPDKDVWKHDELOLW\WRULWXDOO\GLVPHPEHUDQGUHPHPEHUVRFLHW\³LWFDQ FUHDWHDQHZVRFLDORUGHUDQGWKHPHPRU\WRVXVWDLQLW7KLVZDVSUHFLVHO\ WKHHϸHFWRIWKHSRZHUIXOQHZULWHVV\PEROVDQGPRQXPHQWVZLWKZKLFK WKH0XJKDOVVHWWKHLUHPSLUHLQPRWLRQLQWKHVL[WHHQWKDQGVHYHQWHHQWK FHQWXULHV7KHLUVZDVQRWDPRQRWRQRXVXQFKDQJLQJFHUHPRQLDORUGHUEXW DGLDORJLFHYROYLQJULWXDOSURFHVVRQHWKDWDGDSWHGZLWKHYHU\LQVWDQWLD WLRQHYHQDVLWIRUFHGLWVSDUWLFLSDQWVWRDGDSW %  \WKHWLPH%HUQLHUDUULYHGLQ,QGLDWKH0XJKDOULWXDOSURFHVVKDGGH OLYHUHGVWURQJUHVXOWV7KHHPSLUHKDGGHYHORSHGDVHOIVXVWDLQLQJFXOWXUDO ORJLFWKDWFDUULHGDORQJZLWKLWERWKVRYHUHLJQDQGVXEMHFW:KHQWKHODVWRI WKH´JUHDWµ0XJKDOHPSHURUVWKH,VODPLQFOLQHG$XUDQJ]HEWULHGWRFKDQJH WKHVFULSWRIKLVVRYHUHLJQWKHDWHUKHZDVIRUWKHPRVWSDUWLJQRUHG³E\ KLVVRQVKLVDOOLHVDQGKLVHQHPLHVZKRFRQWLQXHGWRSUHWHQGDVLIWKHSUH YLRXVRUGHUZDVVWLOOLQSOD\$IWHU$XUDQJ]HE·VGHDWKWKHSUHWHQVHEHFDPH SHUPDQHQWDVWKHHPSLUHEURNHXSLQWRVXFFHVVRUVWDWHVWKDWFRQWLQXHGWR DFWDV´JRYHUQRUVµRIWKH0XJKDOVRYHUHLJQ:KHQWKH%ULWLVKHQWHUHG,QGLDQ SROLWLFVLQWKHHLJKWHHQWKFHQWXU\WKH\IRXQGWKHPVHOYHVHQWDQJOHGLQWKLV ´GHHSSOD\µRIVRYHUHLJQW\7KH\WRRDGRUQHGWKHUREHRI0XJKDOJRYHUQRU VKLSLQ%HQJDO , WLVGLϲ FXOWWRDSSUHFLDWHWRGD\WKHLQFRQJUXLW\RIWKH(DVW,QGLD&RPSD Q\·VVLWXDWLRQWKHZRUOG·VϮUVWMRLQWVWRFNFRUSRUDWLRQ³WKHEXGGLQJHVVHQFH RIFDSLWDOLVWPRGHUQLW\³KDGHPEUDFHGWKHPRVWGLYLQHRIPRQDUFKLHV@

$&76

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ϮYHGHFDGHVGXULQJZKLFKWKHFRPSDQ\PDQDJHGWR HOLPLQDWHRUGHIDQJDOOLWVPDMRUULYDOV+RZHYHULQZLWKWKHLUSROLWL FDODQGPLOLWDU\KROGRYHUWKHVXEFRQWLQHQWFRPSOHWHDPDVVLYHUHEHOOLRQ HUXSWHGDPRQJWKHFRPSDQ\·VRZQ,QGLDQVROGLHUV7KLVYLROHQWHSLVRGH ZKLFKQHDUO\EURXJKW%ULWLVKUXOHLQ,QGLDWRDQHQGEHFDPHNQRZQDVWKH *UHDW,QGLDQ0XWLQ\ 7  KHXSULVLQJRIZKLFKVSUHDGWKURXJKRXWQRUWKDQGFHQWUDO,QGLD DQGUDJHGIRUPRUHWKDQD\HDUGLGQRWKDYHRQHFHQWUDOFDXVHRUXQLϮHG VWUDWHJ\EHKLQGLW7KHHSLVRGHEHJDQZLWKDPXWLQ\DPRQJWKH,QGLDQVRO GLHUVRIWKHFRPSDQ\·V%HQJDO$UP\6RPHUHJLRQDOSRZHUVHVSHFLDOO\WKRVH ZKRKDGUHFHQWO\ORVWWKHLUGRPLQLRQWR(QJOLVKFRQTXHVWOLNHWKH0DUDWKD OHDGHU1DQD6DKLERUZHUHVRRQWRORVHLWWRWKHFRPSDQ\·VSROLFLHVOLNHWKH 5DQLRI-KDQVLDOVRMRLQHGLQ7KDWWKHUHZHUHVRPDQ\PRWLYHVDQGJULHY DQFHVEHKLQGWKHXSULVLQJPDGHLWSROLWLFDOO\LQFRKHUHQWDQGXOWLPDWHO\OHG WRLWVIDLOXUH:KDWLVVXUSULVLQJDQGVWLOOQRWSURSHUO\XQGHUVWRRGRUH[DP LQHGLVWKDWWKHNH\V\PERODURXQGZKLFKWKHGLYHUVHUHEHOJURXSVUDOOLHG ZDVWKHRFWRJHQDULDQ0XJKDOHPSHURU%DKDGXU6KDK=DIDU 7  KDW%DKDGXU6KDK·VVROHLQWHUHVWDQGFKLHIDFFRPSOLVKPHQWZDVFODVVL FDO8UGXSRHWU\GLGQRWVWRSWKHUHEHOVIURPGHFODULQJKLPWKHLUOHDGHUZKHQ WKH\FDSWXUHG'HOKL:KHQWKH(QJOLVKϮQDOO\PDQDJHGWRFUXVKWKHUHEHO OLRQDIWHUVHYHUHORVVHVDQGFRQVLGHUDEOHVDYDJHU\WKH\WRRKHOGKLPDFFRXQW DEOH'XULQJKLVWULDOWKH\FKDUJHGKLPZLWKOHDGLQJDQ,VODPLFFRQVSLUDF\ DJDLQVWWKH%ULWLVK³DFRQVSLUDF\ZLWKWHQWDFOHVUHDFKLQJRXWWR,UDQ0HFFD

>@

7+(´0,//(11,80µ2)

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ϮWIXO VOXPEHU ,W ZDV MXVW DV ZHOO EHFDXVHDWWKHHQGRIWKHIDUFLFDOWULDO%DKDGXU6KDKZDVIRXQGJXLOW\RI DOOFKDUJHVDQGH[LOHGWR%XUPDDORQJZLWKDKDQGIXORIPDOHDQGIHPDOH IDPLO\PHPEHUVZKRKDGVXUYLYHGWKHZDUDQG(QJOLVKUHWULEXWLRQ

7KH4XHVWLRQRI6RYHUHLJQW\ , Q)¬:%XFNOHUDOHDUQHGEXWXQFRQYHQWLRQDOKLVWRULDQRI,QGLDRI IHUHGDFRQWURYHUVLDODVVHVVPHQWRIWKH0XJKDOHPSHURU·VWULDO+HSRLQWHG RXWWKDW´LILQWKHUHZDVDQ\PXWLQHHULWZDVWKH(DVW,QGLD&RPSDQ\µ +LVDVVHUWLRQZDVEDVHGRQWKHREVHUYDWLRQWKDWWKHFRPSDQ\KDGEHHQD0X JKDOYDVVDOGHMXUH7KLVZDVDOHJDOϮFWLRQWKHFRPSDQ\KDGPDLQWDLQHGIRU RYHUDFHQWXU\E\VXEPLWWLQJLWVHOIWRFXVWRPVRI0XJKDONLQJVKLS+RZHYHU LQWKH\HDUVEHIRUHWKHUHEHOOLRQWKH(QJOLVKKDGEHJXQWRQHJOHFWWKHULWXDO SULYLOHJHVGXHWKHHPSHURU7KXV%XFNOHUDUJXHG´WKHDUP\WXUQHGWRLWV VRYHUHLJQ·VDOOHJLDQFHDJDLQVWLWVUHEHORϲ FHUµ³WKDWLVWKHFRPSDQ\,Q VWULFWO\OHJDOWHUPVWKHHPSHURUDQGKLVPHQZHUHLQWKHULJKW%XFNOHULQ VLVWHGLWZDVWKH(QJOLVKZKRZHUHWKHWUDQVJUHVVRUV , WVKRXOGFRPHDVQRVXUSULVHWKDW%XFNOHU·VDUJXPHQWZDVURXQGO\FULWL FL]HGE\KLVIHOORZ(QJOLVKKLVWRULDQVDVQDwYHO\LGHDOLVWLFDQGZKROO\LJQR UDQWRIVRFLDODQGSROLWLFDOUHDOLW\7KLVPD\EHVR%XWLWKDVWREHVDLGLQ WKHHFFHQWULFKLVWRULDQ·VGHIHQVHWKDWVRPHRIWKHDOWHUQDWLYHH[SODQDWLRQV RϸHUHGE\KLVFULWLFVZHUHQROHVVZKLPVLFDO2QH(QJOLVKKLVWRULDQLQKLV

>@

$&76

UHSO\WR%XFNOHUDUJXHGWKDWWKHPXWLQ\ZDVQRWDVWKHODWWHUKDGVXJJHVWHG D0XVOLPDWWHPSWWRUHFODLPWKHGLJQLW\RIWKHLUVRYHUHLJQEXWUDWKHULW´ZDV UHDOO\WKHRXWFRPHRIWKDWIXQGDPHQWDO+LQGXDQWDJRQLVPWR:HVWHUQFLYL OL]DWLRQDQG:HVWHUQPDWHULDOLVPZKLFKLQPRUHUHFHQWWLPHVKDVIRUPHG RQHRIWKHPDLQVSULQJVRIDQDUFKLFDOFRQVSLUDFLHVDQGQRQFRRSHUDWLRQ PRYHPHQWVµ ,QRWKHUZRUGV%XFNOHU·VFKLHIIDXOWZDVWKDWKLVKLVWRULFDO IDQFLHVUDQFRXQWHUWRWKHFRORQLDOIDQFLHVRIKLVFRQWHPSRUDULHV , QDQ\HYHQWWKHHQGXULQJYDOXHRI%XFNOHU·VVFKRODUVKLSZDVQRWLQKLV JUDQGH[SODQDWLRQRIKLVWRULFDOFDXVHVEXWLQWKHIUHVKLQWHUSUHWDWLRQVKH RϸHUHG RI WKH WUDGLWLRQV DQG FXVWRPV RI 0XJKDO VRYHUHLJQW\ +H QRWHG WKDW WKHFRPSDQ\KDGPDLQWDLQHGLWVULWXDOVXERUGLQDWLRQWRWKHERG\RI WKHHPSHURUE\SUHVHQWLQJRϸHULQJVQD]U XSRQJDLQLQJDUR\DODXGLHQFH DQGDFFHSWLQJUREHVRIKRQRUNKLO·DW DWOHDVWXQWLOZKHQLWDEDQGRQHG WKHVH SUDFWLFHV $URXQG WKLV WLPH WKH FRPSDQ\ KDG EHJXQ WR VKHG WKH FXPEHUVRPHSUHWHQVHRIEHLQJVXERUGLQDWHWRDPDQZKRKDGEHFRPHLQ (QJOLVKH\HVOLWWOHPRUHWKDQDWRXULVWDWWUDFWLRQ(YHQDVDQDWWUDFWLRQ WKHFRPSDQ\NHSWWKH0XJKDOUXOHULQWRRLPSRYHULVKHGDVWDWHWREHSUH VHQWDEOH2QHXQLPSUHVVHG(QJOLVKYLVLWRUWRWKHHPSHURULQKDGQRWHG LQKLVGLDU\WKDWWKH0XJKDOUXOHUZDVQRWKLQJEXWD´GLUW\PLVHUDEOHROG GRJµ 7  KLV(QJOLVKGLVUHJDUGIRU0XJKDOWUDGLWLRQVRIVRYHUHLJQW\GLGQRWDV %XFNOHUKDGLQVLVWHGFUHDWHDOHJDOEUHDFKRIFRQWUDFWVXϲ FLHQWE\LWVHOIWR LQVSLUH,QGLDQVROGLHUVWRUHYROW+RZHYHULWZDVKLJKO\V\PSWRPDWLFRI D JURZLQJ (QJOLVK GLVFRQQHFW IURP DQG GLVUHJDUG IRU ,QGLDQ VRFLHW\ 7KH GHFDGHVOHDGLQJXSWRKDGVHHQZLGHVSUHDGVRFLDODQGHFRQRPLFWUDQV IRUPDWLRQLQPDQ\VHJPHQWVRIDJUDULDQVRFLHW\DQGWKHFRORQLDOJRYHUQ PHQWKDGSDLGWRROLWWOHDWWHQWLRQWRWKHLPSOLFDWLRQVRIWKHVHVKLIWVIRU ,QGLDQV HOLWH DQG FRPPRQHU DOLNH 7KH (QJOLVK KDG ORVW WKHLU DϸHFWLYH FRQQHFWLRQWRORFDONQRZOHGJH$V&¬$%D\O\KDVDUJXHGDQLQFUHDVLQJO\ GLVWDQWDQGXQV\PSDWKHWLFDWWLWXGHKDGE\WKHPLGGOHRIWKHQLQHWHHQWKFHQ WXU\PDGHWKHFRORQLDOJRYHUQPHQWWRQHGHDIWR,QGLD·V´LQIRUPDWLRQRUGHUµ ,QWKHODQJXDJHRIVDFUHGNLQJVKLSLWZDVDVLIWKHUXOHUVKDGORVWWKHLUDELOLW\ WRVHHWKHV\PSWRPVRIGLVWUHVVDQGVLJQVRIGLVRUGHUVSUHDGLQJWKURXJK WKHERG\SROLWLF7KH(QJOLVKZHUHQRWOLVWHQLQJZKHQKRO\PHQEHJDQWR GUHDPDQGDVWURORJHUVEHJDQWRSUHGLFWWKDWWKHUXOHRIWKH´)UDQNVµZDVWR ODVWQRORQJHUWKDQDKXQGUHG\HDUVWKDWLWKDGEHJXQLQDQGVRZRXOG HQGLQ >@

7+(´0,//(11,80µ2)

$0XWLQ\RI.QRZOHGJHV  KHFRORQLDODUFKLYHVRQWKHXSULVLQJRIFRQWDLQDQXPEHURIUHEHOSDP 7 SKOHWVDQGOHWWHUVWKDWZHUHFROOHFWHGIRULQWHOOLJHQFHSXUSRVHVRUXVHGDV WULDOHYLGHQFH7KHVHDUWLIDFWVSUHVHUYHD´PHVVLDQLFµZRUOGYLHZWKDWLVVWULN LQJO\VLPLODUWRWKHRQHWKDWKDGLQIRUPHGWKHLQVWLWXWLRQDQGSUDFWLFHRI VDFUHGNLQJVKLSLQWKHFODVVLFDO0XJKDOSHULRG7KH\DUHIXOORIVLJQVRPHQV DQGSURSKHFLHVDJDLQVWWKH(QJOLVK,QWKHVHGRFXPHQWVWKHFRPSDQ\ZDV DFFXVHGQRWRILOOHJDOO\XVXUSLQJWHUULWRU\DQGSROLWLFDODXWKRULW\EXWUDWKHU RISHUYHUWLQJ,QGLD·VPRUDORUGHUDQGXSVHWWLQJLWVFRVPRORJLFDOEDODQFH$F FRUGLQJWRWKLVYLHZWKHHDUWKO\Hϸ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´:HVWHUQ.LQJµ6KDK*KXU EHH ZKRZRXOGFRPHIURPWKHZHVWSUHVXPDEO\$IJKDQLVWDQRU,UDQDQG GHIHDWWKH(QJOLVKLQEDWWOH7KHSURSKHF\KDGDSSDUHQWO\EHHQSULQWHGLQ 'HOKLDIHZPRQWKVEHIRUHDQGZDVDWWULEXWHGWR6KDK1L·PDWXOODKD ϮIWHHQWKFHQWXU\3HUVLDQVDLQWZLGHO\DFNQRZOHGJHGDVWKH´1RVWUDGDPXV RIWKH(DVWµ7KH(QJOLVKRϲ FHUZKRWUDQVODWHGWKLVSURSKHF\GHVFULEHGLWV LQWHUQDWLRQDOVLJQLϮFDQFHDQGSROLWLFDOGDQJHUWRKLVVXSHULRUVDVIROORZV 7  KH+RXVHRI7LPRXUQRGRXEWKDGDJRRGGHDOWRVD\WRWKHSULQWLQJDQGFLU FXODWLRQ RI WKH 3URSKHF\ DQG WKURXJK WKH LQϰXHQFH RI WKH ODWH .LQJV RI 'HOKLLWPXVWKDYHIRXQGLWVZD\LQWR$IJKDQLVWDQDQG3HUVLDDQGWKH)XU UXFKDEDG1DZDE7Dϸ XVVRRO+RVDLQ.KDQ QRGRXEWFDUULHGDFRS\ZLWKKLP WR0HFFD7KLV3URSKHF\LQWKHKDQGVRIDEOHPHQ0DKRPPHGDQV ZHOOYHUVHG LQLQWULJXHLVOLNHO\WRGRDQLPPHQVHDPRXQWRIPLVFKLHILQ%ULWLVK,QGLD

, QDQLQVLJKWIXODQDO\VLVRIVXFKUHEHOFRPPXQLTXpV%D\O\REVHUYHGWKDW WKHVHWH[WVUHSUHVHQWHGD´PXWLQ\RIVXERUGLQDWHGNQRZOHGJHVµ+HVKRZHG >@

$&76

WKDWWKLVIRUPRISROLWLFDOFRPPXQLFDWLRQDQGWKRVHZKRKDGZLHOGHGLW KDGEHHQUDSLGO\PDUJLQDOL]HGLQQLQHWHHQWKFHQWXU\%ULWLVK,QGLD7KH XSULVLQJRIIURPWKLVSHUVSHFWLYHZDVDVPXFKDUHEHOOLRQDJDLQVWDQ RSSUHVVLYHHSLVWHPRORJ\DVLWZDVDJDLQVWHFRQRPLFDQGSROLWLFDOH[SORLWDWLRQ :HPXVWDGGKRZHYHUWKDWWKLVLQVXUJHQF\RINQRZOHGJHVZDVDOVRWKHODVW JUHDWVLJKRIWKH0XJKDOZRUOGLQZKLFKVDFUHGVRYHUHLJQW\ZDVFRQFHLYHGRI DVPHVVLDQLFDQGPLOOHQQLDO 7  KLVFXOWXUDOORJLFFDQEHVHHQFOHDUO\DWZRUNLQDORQJSDPSKOHWLVVXHG IURP WKH UHEHO FDPS HQWLWOHG ´$GYLFH RI WKH 5R\DO $UP\µ 7KLV PXWLQRXV GRFXPHQWDOVRFRQWDLQHGUHIHUHQFHVWRWKHSURSKHFLHVRI6KDK1L·PDWXOODK DQGLWWRREHJDQLWVMXVWLϮFDWLRQRIZDUDJDLQVWWKH(QJOLVKLQH[SOLFLWO\PLO OHQDULDQWHUPV´1RZWKHDVWURORJHUVKDYHDVFHUWDLQHGDQGWKH(QJOLVK PHQDUHFRQYLQFHGRIWKHIDFWWKDWWKHLUUXOHLVQRWWRODVWORQJHUWKDQRQH KXQGUHG\HDUVµ

7KH$GYLFHRIWKH5R\DO$UP\  OWKRXJKZULWWHQXQGHUWKHH[LJHQFLHVRIZDUWKH´$GYLFHRIWKH5R\DO$UP\µ $ ZDVDGRFXPHQWGHVLJQHGWRHQJDJHWKHLPDJLQDWLRQDQGH[FLWHWKHSDVVLRQV RILWVDXGLHQFH´EUHWKUHQLQWKHIDLWKWKURXJKRXW,QGLD+LQGRRVDVZHOODV 0XVVXOPDQV>0XVOLPV@ZKRPVRHYHU*RGKDVH[DOWHGµ /LNHLWVDXGL HQFHWKHSDPSKOHW·VDXWKRUVKLSDOVRWUDQVFHQGHGFRPPXQDOERXQGDULHV,W ZDVSURGXFHGXQGHUWKHDXWKRULW\RID+LQGXOHDGHU.LVKRUL/DO/DKRUL %XWLWZDVFRPSRVHGE\D0XVOLPVFULEH6KD\NK6DLGZKRVHϰDLUIRUVWRU\ WHOOLQJZDVSURXGO\SURFODLPHGLQKLVQRPGHSOXPH&RORUIXO3HQUDQJLQ UDTDP ,QGHHGPXFKRIWKHSDPSKOHWZDVZULWWHQLQWKHHQWHUWDLQLQJDQG GLGDFWLFVW\OHRIDSRSXODUQDUUDWRURUVWUHHWSUHDFKHU 7  KHSDPSKOHWHHUVDFNQRZOHGJHGWKHVWUHVVIXOFRQGLWLRQVXQGHUZKLFK WKH\KDGSUHSDUHGWKLVGRFXPHQW´LQFDPSGXULQJWKHFRQIXVLRQRIDPDUFK DQG ZLWKRXW KDYLQJ WKH SURSHU SULQWLQJ PDWHULDOV DW KDQGµ   7KH KXUULHGDQGXQUHYLVHGQDWXUHRIWKHGRFXPHQWLVHYLGHQWLQLWVMXPEOHGRUJD QL]DWLRQ UHSHWLWLRQV GLJUHVVLRQV DQG FRQIXVHG MX[WDSRVLWLRQV RI SLRXV DQHFGRWHVURXVLQJYHUVHVSDVVLRQDWHSOHDVDQGH[KRUWDWLRQVWRϮJKW,Q LWVURXJKKHZQVWDWHKRZHYHULWSUHVHUYHVWKHYRLFHVDQGIHHOLQJVRIWKH UHEHOOLRXVVROGLHUVLQWKHLUGLYHUVLW\³EUDYHDQGIHDUIXOGHWHUPLQHGDQG ZDYHULQJKRSHIXODQGGHVSHUDWH >@

7+(´0,//(11,80µ2)

7  KHSDPSKOHWHHUVEHJDQE\JLYLQJWKHLUIRUPHUPDVWHUVFUHGLWZKHUHLW ZDVGXH7KH(QJOLVKKDGUXOHGVXFFHVVIXOO\WKH\QRWHGDVORQJDVWKH\KDG NHSW WKHLU SURPLVHV SHUIRUPHG SXEOLF VHUYLFH EXLOW URDGV PDLQWDLQHG VHFXULW\DQGDGPLQLVWHUHGMXVWLFH+RZHYHUDIWHUWKH\ZHUHGHIHDWHGLQ .DEXO³DUHIHUHQFHDVVXPHGO\WRWKHϮUVW$QJOR$IJKDQZDU² ³ WKH\KDGGHFLGHGWR´HϸDFHWKHUHOLJLRQRI0XKDPPDGµ7KLVHϸDFHPHQWRF FXUUHGQRWRQO\WKURXJKSURVHO\WL]LQJ&KULVWLDQPLVVLRQDULHVWKHSDPSKOHW LPSOLHGEXWYLDWHFKQLTXHVRIERGLO\SROOXWLRQDQGPLVFHJHQDWLRQGHVLJQHG WRFRUUXSWWKH,QGLDQERG\SROLWLF0LVVLRQDU\VFKRROVKDGVHUYHGWRFRUUXSW 0XVOLP DQG +LQGX FKLOGUHQ   +XQGUHGV RI (QJOLVKPHQ KDG VHGXFHG ´IHPDOHVRI,QGLDQKRXVHKROGVµ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² ,QVWHDGRIUHVSHFW DEOH+LQGXDQG0XVOLPVFKRODUVWKHFRPSDQ\KDGDSSRLQWHG´ORZFDVWHµ FRQYHUWVWR&KULVWLDQLW\WRFRXUWVRIMXVWLFH  $  VSDUWRIWKHVDPHHϸRUWWKH(QJOLVKKDGDOVRHQFRXUDJHGLQGHFHQF\DQG IRUQLFDWLRQ :LYHVZKRZHUHQRWVDWLVϮHGFRXOGQRZOHDYHWKHLUKXV EDQGV9HLOHGZRPHQZHUHUHTXLUHGWRDSSHDULQFRXUW :KHQDEURWKHU DWWDFNHGKLVVLVWHU·VORYHUWRDYHQJHIDPLO\KRQRUKHZDVLPSULVRQHGIRU \HDUVZKLOHWKHVLVWHUZDVVHWIUHHWRGRDVVKHSOHDVHG ,QDUHIHUHQFH WRWKHODWHVWLQVWDQFHRI(QJOLVKFRQTXHVWWKDWRIWKH3XQMDEWKHSDPSKOHW QRWHGWKDWWKHFRPSDQ\QRWRQO\WRRNWKHNLQJGRPDZD\IURPWKHUHLJQLQJ TXHHQUDQL EXWDOVRWRRNKHUVRQDQGFRQYHUWHGKLPWR&KULVWLDQLW\ $ VLPLODUVFKHPHZDVDWZRUNLWLPSOLHGZKHQWKH(QJOLVKJDYHWKHLU,QGLDQ VROGLHUVULϰHFDUWULGJHVPDGHZLWKSLJDQGFRZIDW³DZLGHO\UHFRJQL]HG VRXUFHRIWKHUHEHOOLRQ7KHJRYHUQRUJHQHUDOWKHSDPSKOHWLQVLVWHGKDGGH YLVHGWKLVFDUWULGJHWR&KULVWLDQL]HDOORI+LQGXVWDQ  >@

$&76

$  IWHUUHODWLQJLQJUHDWGHWDLOWKHH[WHQWRIVRFLDOGLVRUGHUDQGPRUDOFRU UXSWLRQVSUHDGLQJDFURVVWKHODQGWKHSDPSKOHWWXUQHGWRGHVFULELQJLWV FRQVHTXHQFHV+RO\PHQEHJDQWRVHHYLVLRQVRIZKDWZDVWRFRPH2QHPDQ ZKRKDGFRQVWDQWO\RϸHUHGSUD\HUVSUHVFULEHGE\$OLVDZWKHIROORZLQJYLVLRQ DKDZNSRXQFHGRQDJURXSRISDGG\ELUGVLQDϮHOGDQGVOLWWKHLUWKURDWVDQ RWKHUJURXSRISDGG\ELUGVDSSHDUHGDQGWKHKDZNGLGWKHVDPHWKLQJ7KH (QJOLVKDUHWKHSDGG\ELUGVWKHSDPSKOHWH[SODLQHGDQGWKH,QGLDQVROGLHUV ϮJKWLQJWKHPDUHWKHKDZN6LPLODUO\LQDQRWKHUGUHDPDPDQZKRKDG PHPRUL]HGWKHHQWLUH4XU·DQKDϮ] VDZWKDWWKHVHFRQGFDOLSK8PDUZDV FRQGXFWLQJSUD\HUVDWFRQJUHJDWLRQPRVTXH MDPL·PDVMLG LQ'HOKL  7KHVHGUHDPVIHDWXULQJ$OLDQG8PDUV\PEROVRI6KL·LVPDQG6XQQLVPLW VKRXOGEHQRWHGZHUHPHDQWWRDGGUHVVDEURDGUDQJHRI0XVOLPV%XWWKH SDPSKOHWFRQVWDQWO\HPSKDVL]HGWKURXJKRXWLWVQDUUDWLYHWKDWLWVPHVVDJH ZDVPHDQWWREHHYHQEURDGHU´,Q,QGLDWKHUHDUHWZRWULEHV+LQGRRDQG 0XVVXOPDQDQGQHLWKHURIWKHPIHHOGLVSRVHGWRHPEUDFH&KULVWLDQLW\(DFK LVGHWHUPLQHGWRXSKROGKLVUHVSHFWHGIDLWKµ  7  KHSDPSKOHWHHUVSOHDGHGWKDW´ZLWKWHDUVLQRXUH\HVµWKH\KDGXVHG PDQ\GHYLFHVWRFRUUHFWWKHVHZURQJVEXWQRWRQHZDVVXFFHVVIXO$WODVWD KRO\PDQGUHDPHGWKDWDOOWKHVDLQWVRI*RGZHUHDVVHPEOHGLQIURQWRIWKH 3URSKHWDQGFRPSODLQHGDJDLQVWWKHRSSUHVVLRQRIWKH(QJOLVK7KH3URSKHW LQUHVSRQVHWRRNKLV,QGLDQ+LQGL VZRUGIURPWKHZDLVWRI&KULVWDQGHQ WUXVWHGLWWRKLVFRPSDQLRQ8PDU,QWKLVZD\WKHSDPSKOHWLPSOLHGWKH 3URSKHWRI,VODPWRRNWKHVRYHUHLJQW\RYHU,QGLDDZD\IURP&KULVWLDQVDQG JDYHLWEDFNWRKLVRZQIROORZHUV7KLVYLVLRQVWUHQJWKHQHGWKHUHEHOV·UHVROYH WRXSKROGWKHLUIDLWKDQGHPEUDFHGHDWKUDWKHUWKDQ´REH\WKLVUDFHRIXQ FOHDQEDUEDULDQVZKRVHIRRGLVSRUNDQGZLQHDQGZKRVHKDELWLVOXVWDQG IRUQLFDWLRQµ  7  KHLPDJHU\DQGODQJXDJHXVHGLQWKHSDPSKOHWZDV,VODPLFEXWDOVRXQL YHUVDOO\GHVLJQHGWRDSSHDOWR,QGLDQVRIDOOIDLWKV,WUHODWHGWKHRPHQVDQG DXJXULHVIURPZHOONQRZQ0XVOLPDQG3HUVLDQVRXUFHV³WKH4XU·DQWKH SRHWU\ RI +DϮ] G   DQG WKH P\VWLFDO YHUVHV RI 6KDK 1L·PDWXOODK G¬ ³WRSURYHWKDW(QJOLVKUXOHZDVIDWHGWRFRPHWRDQHQGDIWHUDKXQGUHG \HDUV² %XWLWDOVRPDLQWDLQHGWKDWWKHVHVLJQVDQGSURSKHFLHV ZHUHPHDQLQJIXOWRERWK+LQGXVDQG0XVOLPV,WDFFXVHGWKH(QJOLVKRI SURVFULELQJWKHXVHRIWKH,VODPLFIRUPXOD%LVPLOODK%\WKH1DPHRI*RG  HYHQLQFKLOGUHQ·VERRNVZKLOHQRWLQJWKDWERWK+LQGXVDQG0XVOLPVXVHG LW 0RUHRYHULWREVHUYHGWKHKDUPIXOFRQVHTXHQFHVIRUWKH(QJOLVK >@

7+(´0,//(11,80µ2)

ZKHQWKH\VWRSSHGXVLQJWKLVIRUPXODLWEHFDPHHDVLHUIRUWKHVROGLHUVWR NLOOWKHP  7  KHSDPSKOHWDOVRXVHGZHOONQRZQFXOWXUDOGLϸHUHQFHVDPRQJ+LQGXV DQG0XVOLPVWRJRRGHϸHFW)RUH[DPSOHLQDQDWWHPSWWRGLVPLVVWKHVRO GLHUV·IHDUVWKDWWKH(QJOLVKSRVVHVVHGSRZHUVRIVRUFHU\LWRϸHUHGWKUHHRE VHUYDWLRQV)LUVWLWVXJJHVWHGZKDWDSSHDUHGWREHPDJLFZDVW\SLFDOO\D WHFKQLFDOPDOIXQFWLRQVXFKDVWKH´KDQJϮULQJµRIDQLQFRUUHFWO\ORDGHG FDQQRQVHFRQGLIWKH(QJOLVKSRVVHVVHGPDJLFDOSRZHULWUHSOLHGWKHQ+LQ GXVZLHOGHGLWWRRDQGWKLUGDOWKRXJK0XVOLPVFRQVLGHUHGPDJLFIRUELG GHQLWSRLQWHGRXWWKH\XVHGSRZHUIXOWHFKQLTXHVWRQHJDWHLWVSRZHUV²   7KH SDPSKOHW WKHQ OLVWHG D VHULHV RI 4XU·DQLF YHUVHV SUD\HUV DQG LQFDQWDWLRQVWKDWZRXOGDQQXOWKHHϸ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² $SRRUZDWHUFDU ULHUELKLVKWL LQ'HOKLZDVRQWKHVWHSVRIWKHFRQJUHJDWLRQDOPRVTXHMDPL· PDVMLG ZKHQKHZDVGUDZQWRDP\VWHULRXVJUHHQJORZQHDUE\+HGLVFRYHUHG WKDWLWZDVFRPLQJIURPWKHVKULQHRIWKH6XϮVDLQW6DUPDGEXULHGQHDUWKH PRVTXH6DUPDGLWVKRXOGEHQRWHGZDVDIDPRXVVHYHQWHHQWKFHQWXU\6XϮ RI3HUVLDQ$UPHQLDQRULJLQEHVWNQRZQIRUKLVPRFNHU\RIIRUPDOUHOLJLRXV GRFWULQHV+HGHVFULEHGKLPVHOIDVD´IROORZHURIWKH)XUTDQLHD6XÀ D +LQGX SULHVWD%XGGKLVW PRQND-HZLVKUDEELDQLQÀGHODQGDQDSRVWDWH 0XVOLPµDQGWKH0XJKDOHPSHURU$XUDQJ]HEKDGVHQWHQFHGKLPWRGHDWK IRUDSRVWDV\,WLVQRDFFLGHQWWKDWLQWKLVPRPHQWRIFULVHVDKRO\PDQVXFK DV6DUPDGZDVQHHGHGWRPLUDFXORXVO\RYHUFRPHFRPPXQDOGLYLVLRQV $  FFRUGLQJWRWKHSDPSKOHWDKDQGFDPHRXWRIWKHPRXQGDW6DUPDG·V VKULQHDQGJDYHWKHZDWHUFDUULHUDVHWRIJROGFRLQV$YRLFHWROGKLPWKDW WKHVHFRLQVZRXOGOHDGKLPWRWKHNLQJDQGJDYHKLPDPHVVDJHIRUWKH0X JKDOUXOHU´,KDYHQRZIUHHO\SDUGRQHGWKHVKHGGLQJRIP\EORRG8SWRWKLV GD\P\ZUDWKKDVEHHQERLOLQJDQGLQVSLWHRILQWHUFHVVLRQRIWKHVDLQWVLW KDVQHYHUJURZQOHVVWLOOQRZ1RZ,IUHHO\DQGRIP\RZQDFFRUGJUDQWDQ >@

$&76

DEVROXWHSDUGRQµ:KHQWKHZDWHUFDUULHUWULHGWRXVHWKHJROGFRLQVKHZDV DUUHVWHGE\WKHDXWKRULWLHVRQVXVSLFLRQRIWKHIW+HZDVHYHQWXDOO\EURXJKW LQIURQWRIWKH0XJKDONLQJDQGVRPDQDJHGWRJLYHKLPWKHVDLQW·VPHVVDJH 7KHVWRU\LPSOLHGWKDWWKHVDLQWKDGDEVROYHGWKH0XJKDOUXOHUIRUKLVDQFHV WRU·VFULPHRIVKHGGLQJWKH6XϮ·VEORRG7KLVDEVROXWLRQFOHDUHGWKHSDWKIRU WKH0XJKDOWREHFRPHDWUXHVRYHUHLJQDJDLQ6RRQDIWHUWKLVLQFLGHQWWKH SDPSKOHWUHFRUGHGWKHUHEHOVHQWHUHG'HOKLDQGSXWWKHNLQJRQWKHWKURQH 1RWRQO\ZHUHWKHVDLQWVRI\RUHDLGLQJWKHUHEHOV·HϸRUWV3UHVHQWGD\ RQHVZHUHDOVRDFWLYHO\LQYROYHGLQGHIHDWLQJWKH(QJOLVK7KHSDPSKOHWUH ODWHGWKHIROORZLQJRQJRLQJPLUDFOHIHDWXULQJDEODFNFODGPHVVLDQLFϮJXUH ² $SUHGLFWLRQKDGEHHQPDGHWKDWDPHQGLFDQWIDTLU LQDEODFNEODQ NHWZRXOGWDNHRYHUWKH(QJOLVK)RUW:LOOLDPLQ&DOFXWWD:KHQWKH(QJOLVK IRXQGDPDQRIVXFKDGHVFULSWLRQQHDUWKHIRUWWKH\DUUHVWHGDQGLPSULV RQHGKLP+RZHYHUKHGLVDSSHDUHGDQGQRZHYHU\)ULGD\WKHVRXQGRI0XV OLPFDOOWRSUD\HUVD]DQ FDPHIURPWKHFKDSHOLQWKHIRUW:KHQWKHWLPH ZDVULJKWWKHSDPSKOHWDQQRXQFHGWKLVPDQZRXOGDSSHDUDQGZUHVWFRQWURO RIWKHIRUWDZD\IURPWKH(QJOLVK 1  RWDOORIWKHUHEHOV·YLHZVZHUHP\VWLFDODQGPLUDFXORXVKRZHYHU7KH\ OLVWHGPDQ\RIWKHLUFRPSODLQWVZLWKKLVWRULFDOSUHFLVLRQDQGSROLWLFDOSUDJ PDWLVP7KH\QRWHGWKDWWKH(QJOLVKYLDWKHLU´UHJXODWLRQVµZDQWHGWRHOLP LQDWHWKHPDV&KULVWLDQVKDGHOLPLQDWHG0XVOLPVLQ6SDLQ 7KH\SRVHG WKHTXHVWLRQRIZK\LWZDVWKDWWKH(QJOLVKKDGQRLQϰXHQFHLQ5XPWKH 2WWRPDQ(PSLUH EXWVRPXFKLQ,QGLD² 7KH\SURYLGHGDWDEXODWHG FRXQWRIWKH(XURSHDQVWKH\KDGNLOOHG 7KH\FRPSLOHGDOLVWRIJULHY DQFHVDJDLQVWWKH(QJOLVKWREHVHQWWRWKHNLQJVRI,UDQ&KLQDDQGRWKHU WHUULWRULHV² 7KH\QRWHGKRZWKHFRPSDQ\KDGXQLODWHUDOO\EURNHQ LWVGHFDGHVORQJDJUHHPHQWZLWKWKHNLQJGRPRI$ZDGKDQGKRZWKH\ZHUH WU\LQJWRJHWWKHVKDKRI$ZDGKWRDϲ [KLVVHDOWRDGHHGRIVDWLVIDFWLRQWR KLGHWKHLUOHJDOWUDQVJUHVVLRQV  ,QUHDGLQJWKHSDPSKOHWKRZHYHURQHJHWVWKHVHQVHWKDWGHVSLWHWKHLU KLVWRULFDO DZDUHQHVV DQG SROLWLFDO DVWXWHQHVV ZKDW GHHSO\ SX]]OHG WKH UHEHOVZDVWKHQDWXUHRIWKHFRPSDQ\·VVRYHUHLJQW\+RZZDVLWWKDWDFRPPHU FLDOEXUHDXFUDWLFHQWLW\FRXOGWDNHWKHSODFHRIDNLQJ"7KHFRPSDQ\LQWKHLU H\HV GLG QRW EHKDYH DV DQ RUJDQL]DWLRQ VXERUGLQDWH WR D VRYHUHLJQ 7KH\ ZRQGHUHGDERXWWKHVWDWHRIDϸDLUVLQ(QJODQGLWVHOI7KHTXHHQRI(QJODQG WKHSDPSKOHWHHUVUHSRUWHGKDGEHFRPHDGHEDXFKHGDQGKHOSOHVVFUHDWXUH ²  7KH\ VDLG WKDW 9LFWRULD ZDV QRW DOORZHG VHH KHU RZQ KXVEDQG >@

7+(´0,//(11,80µ2)

EHFDXVHKHZDVVXVSHFWHGRIKDUERULQJ)UHQFKOR\DOWLHVVKHZDVLQVWHDG VHUYLFHGE\DQ(WKLRSLDQER\ZKRZDQWHGWRZKLVNKHUDZD\WR$IULFD,Q GHHG WKH SDPSKOHWHHUV UHPDUNHG WKH FRPSDQ\ ZDV SORWWLQJ WR WDNH KHU NLQJGRPMXVWDVWKH\KDGVWROHQWKHNLQJGRPVRI,QGLD.LQJVKLSZDVG\LQJ QRWRQO\LQ,QGLDEXWDOVRLQ(QJODQG,WWUXO\ZDVWKHHQGRIWKHZRUOG  %  XFNOHUZDVULJKWLQDVHQVHZKHQKHSRLQWHGRXWWKDWWKHFRPSDQ\·VJURZ LQJLQVXOWVWR0XJKDOVRYHUHLJQW\KDGFDXVHGWKH,QGLDQVROGLHUVWRFRPHWR WKHLUHPSHURU·VGHIHQVH7KHUHODWLRQVKLSEHWZHHQFDXVHDQGHϸHFWKRZHYHU ZDVQRWDVOHJDOO\GHWHUPLQHGRUSROLWLFDOO\WUDQVSDUHQWDV%XFNOHUKDGLPDJ LQHGLWWREH,WZDVQRWDEUHDFKRIODZRUDVHQVHRIOR\DOW\WRROG%DKDGXU 6KDKWKDWWXUQHGWKH,QGLDQVROGLHUVDQGWKHLUFRPSDWULRWVDJDLQVWWKH(QJ OLVK5DWKHULWZDVDGHHSO\DQGFROOHFWLYHO\IHOWSHUYHUVLRQ³IHOWDVERGLO\ SROOXWLRQVRFLDOGLVRUGHUDQGFRVPLFFKDRV³DWWKHQHZVRYHUHLJQRUGHUXVK HUHGLQE\WKHFRPSDQ\,WIHOWOLNHWKHDQDUFK\RIWKHPLOOHQQLXP6RFLDO OLIHZDVQRORQJHUJRYHUQHGE\VDFUHGWUDGLWLRQV6H[XDOUHODWLRQVZHUHFXW ORRVHIURPWKHQHFHVVLWLHVRINLQVKLSWLHV7DERRVRISROOXWLRQZHUHSXEOLFO\ DQG IRUFLEO\ ϰRXWHG 0RVW VHULRXVO\ RI DOO D VHULHV RI ´UHJXODWLRQVµ KDG UHSODFHGWKHERG\RIWKHVRYHUHLJQDVWKHEDVLVRIVRFLDORUGHU7KH*UHDW ,QGLDQ0XWLQ\ZDVDPRQJRWKHUWKLQJVDUHEHOOLRQDJDLQVWDQLQH[SOLFDEOH DQGXQEHDUDEOHGLVSHQVDWLRQWKDWFRQVWLWXWHGWRXVH)RXFDXOW·VDSKRULVWLF SKUDVH´VH[ZLWKRXWWKHODZDQGSRZHUZLWKRXWWKHNLQJµ

1RWHV   )UDQoRLV%HUQLHU7UDYHOVLQWKH0RJXO(PSLUHHG9LQFHQW$6PLWKWUDQV$U FKLEDOG&RQVWDEOHQGHG1HZ'HOKL/RZ3ULFH3XEOLFDWLRQV 7KLV DQHFGRWHIURP%HUQLHULVDOVRTXRWHGLQ(EED.RFK0XJKDO$UFKLWHFWXUH$Q2XW OLQHRI,WV+LVWRU\DQG'HYHORPHQW² 0XQLFK3UHVWHO    &OLϸRUG*HHUW]´&HQWHUV.LQJVDQG&KDULVPDµLQ/RFDO.QRZOHGJH1HZ@

$&76

OLNH6KDNHVSHDUH·V0DFEHWKDWURXEOHGFRQVFLHQFHWKDWPDQLFDOO\VHHNVWR UHDVVXUHLWVHOIEXWUDWKHUWKHEDVHXQWHPSHUHGDQLPDOLVWLFGHVLUHVDQGDS SHWLWHV WKDW GULYH KLP DQG SUHVXPDEO\ E\ H[WHQVLRQ GULYH KXPDQNLQG 8EX·VDVVDXOWLVJHQHUDOO\XQGHUVWRRGDVDQDWWDFNRQWKHPDWHULDOLVPRIWKH ERXUJHRLVLHEXWVXUHO\8EXKDVVWDNHGRXWDODUJHUPRUHFRPSOH[NLQJGRP WKDQWKDW&ULWLFVWKURXJKRXWWKHWZHQWLHWKFHQWXU\KDYHDOVRUHDG8EXDV DFULWLTXHRIW\UDQQLFDOUHJLPHVDQGDOWKRXJKWHPSWLQJWKLVLQWHUSUHWD WLRQLVDQDFKURQLVWLF6RZHPXVWORRNIXUWKHUIRUWKHFRQFHSWRIVRYHUHLJQW\ DWZRUNLQWKLVSOD\ , QKLV-DQXDU\OHWWHUWR$XUpOLHQ/XJQp3RsWKHPDQDJHURIWKH 7KpkWUHGHO·2HXYUH-DUU\SURSRVHVDSURGXFWLRQRI8EXURL+HFDVXDOO\VXJ JHVWVLWZLOOEH´LQWHUHVWLQJSHUKDSVµWRWKHGLUHFWRUDQGPHQWLRQVWKDWLW ZRXOGEH´FXULRXVµWRVWDJHLWLQDFHUWDLQZD\7KHQRQFKDODQFHJLYHVZD\ KRZHYHUWRZKDWDPRXQWVWRDV\VWHPDWLFUHMHFWLRQRIQDWXUDOLVWDQGUHDO LVWWKHDWULFDOSULQFLSOHVDORQJZLWKKLJKO\VSHFLϮFLGHDVIRUSUHVHQWLQJ8EX RQVWDJHDQLPDWHGE\DVWURQJJXLJQRORUSXSSHWDHVWKHWLF2QHVHHPLQJO\ LQQRFXRXVSRLQWLQ-DUU\·VOHWWHUEHDUVIXUWKHUVFUXWLQ\WKHIRXUWKLWHP ZKLFKDOORZVDVLQJOHVROGLHUWRVXϲ FHIRUDFURZG+LVVROXWLRQLVQRWHZRU WK\QRWRQO\LQWHUPVRILWVVLPXOWDQHRXVDQWLUHDOLVPDQGWKHDWULFDOUHVWUDLQW EXWDOVREHFDXVHLWKLQWVDWDQDWWLWXGH-DUU\ZLOOPDNHH[SOLFLWHOVHZKHUH GLVGDLQIRUWKHPDVVHV$VKHH[SODLQVFURZGVSRVHDWKHDWULFDOGLϲ FXOW\  DQG´DUHDQHPEDUUDVVPHQWWRLQWHOOLJHQFHµ 3HSSHUHGWKURXJKRXWKLVRWKHU WH[WVWKHGHVLUHWRPLQLPL]HWKHFURZGLVVKRZQWREHQRWRQO\DYLVXDODG YDQWDJHDQGGUDPDWXUJLFDOVWUDWHJ\EXWDOVRDVXUYLYDOWDFWLFIRUWKHWKH DWHU$FFRUGLQJWR-DUU\WKHDWHUKDVEHHQSODJXHGE\DQXQFRPSUHKHQGLQJ DXGLHQFHVLQFHDQWLTXLW\ZKHQWKHFURZGRQO\´XQGHUVWRRGRUSUHWHQGHG WRXQGHUVWDQGµZKDWWKH\ZDWFKHGEHFDXVHWKHVWRULHVZHUHIDPLOLDU +H UHMHFWVIRUWKLVUHDVRQWKHDWHUWKDWFRQIRUPVWRWKHWDVWHRIWKHSXEOLFVFRUQ IXOO\UHIHUULQJWR´WKHLQϮQLWHPHGLRFULW\RIWKHFURZGµ´WKHPXOWLWXGHµ ´LOOLWHUDWHE\GHϮQLWLRQµ,QIDFWSRLQWLQJRXWWKDWWKHVXEVWDQFHRISOD\V E\0ROLqUHDQG5DFLQHDUHORVWRQWKHFURZG-DUU\EHPRDQVWKHIDFWWKDWWKH WKHDWHUKDV´QRW\HWDFTXLUHGWKHIUHHGRPWRIRUFLEO\UHPRYHWKRVHZKRGR QRWXQGHUVWDQGµ - DUU\·VFRQWHPSWIRUWKHPDVVHVUXQVSDUDOOHOWRVRFLRSROLWLFDOWHQVLRQVRI WKHϮQGHVLqFOH'LVFXVVLRQVRIWKHFURZG³ODIRXOH³ZHUHHPEHGGHGLQFRQ FHUQVUHJDUGLQJVRYHUHLJQW\GDWLQJEDFNDWOHDVWWRWKH)UHQFK5HYROXWLRQ

>@

(;,77+(.,1*"

7KHTXHVWLRQRIZKDWNLQG RISRSXODUVRYHUHLJQW\KDGUHSODFHGWKHGLYLQH ULJKWRINLQJVZLWKWKHH[HFXWLRQRI/RXLV;9,DQGWKHTXHVWLRQRIKRZWR FRQWURODQGRUJDQL]HWKLVNLQGRIVRYHUHLJQW\KDGEHHQFHQWUDOWR)UHQFKDQG PRUHEURDGO\(XURSHDQ ZULWHUVVLQFHWKHHYHQWLWVHOI7KHRQJRLQJDQ[LHW LHVDQGXQFHUWDLQWLHVRYHULVVXHVRIDXWKRULW\DQGWKHUROHRIWKHPDVVHVEH FDPHDPDWWHURIDVPXFKFRQFHUQWRVRFLDOLVWVIURP+HQULGH6DLQW6LPRQ WKURXJK.DUO0DU[DQGRQWR-HDQ-DXUqVDQG*HRUJHV6RUHO DVWRFRQVHUYD WLYHWKLQNHUVORDWKWRDFFHSWQHZGHPRFUDWLFUHJLPHV <  HWWKHGLVGDLQ-DUU\H[KLELWVIRUWKHFURZGLVSDUWLFXODUO\VLJQLϮFDQWIRU LWVDSSHDUDQFHDVDPDMRUPRWLIFRQFHUQLQJOHJLWLPDF\DQGDXWKRULW\LQWKH DOPRVWH[DFWO\FRQWHPSRUDU\ZRUN7KH&URZG$6WXG\RIWKH3RSXODU0LQG/D SV\FKRORJLHGHVIRXOHV ZKLFKWKHVRFLDOSV\FKRORJLVW*XVWDYH/H%RQSXE OLVKHGWRFRQVLGHUDEOHDFFODLPMXVWDV-DUU\ZDVZRUNLQJWREULQJ8EXURLWR WKHVWDJH)RU/H%RQWKHFURZGLVWKHGHϮQLQJVRYHUHLJQSRZHURIWKHHUD ´WKHODVWVXUYLYLQJIRUFHRIPRGHUQWLPHVµIRUZKLFKKHKDVQRDGPLUDWLRQ ´WKHW\UDQQLFDODQGVRYHUHLJQIRUFHRIEHLQJDERYHGLVFXVVLRQµ /H%RQ YLHZVWKHPDVVHVDVDIRUFHGHVWUXFWLYHWRHYHU\OHYHORIVRFLHW\FRQVLVWLQJ RQO\RIEHDUHUVRIK\SQRWLFVXJJHVWLRQUDWKHUWKDQLQGLYLGXDOVXEMHFWV-DUU\·V PLVJLYLQJVSHUKDSVHYHQLQϰXHQFHGE\/H%RQ DUHIXQGDPHQWDOO\LQWKH DHVWKHWLFGRPDLQ\HWZLWKVLPLODUFRQFHUQVUHJDUGLQJSRSXODUVRYHUHLJQW\·V WHQGHQF\WRHϸDFHWKHLQGLYLGXDOHVSHFLDOO\DVDEHLQJFDSDEOHRIFULWLFDO WKRXJKWDQGFUHDWLYLW\ 7  KHLQLWLDOFURZGWKDWIDLOHGWRϮQGDQ\WKLQJZLWW\LQ8EXURL SURYRNHG ELWWHUFULWLFLVPIURP-DUU\+HDFFXVHGWKHDXGLHQFHRIEHLQJQRWRQO\LQFDSDEOH RIFRPSUHKHQGLQJDQ\WKLQJSURIRXQGEXWPRUHRYHURIKDYLQJPLVVHGZKDW LV SODLQO\ DQG UHSHDWHGO\ DUWLFXODWHG WKURXJKRXW WKH SOD\ E\ 0qUH 8EX ´:KDWDVWXSLGPDQ¬¬¬:KDWDVRUU\LPEHFLOHµ-DUU\·VSRVLWLRQFRXOGHDVLO\ EHWDNHQDVRQHRIPHUHVQREEHU\DQGHOLWLVP\HWWKHGDQJHUVRIDQXQWKLQN LQJSXEOLFDUHHPERGLHGLQWKHϮJXUHRI.LQJ8EXJLYLQJSDUWLFXODUIRUFH WR-DUU\·VJULHYDQFHV +  HLVIXOORIYLWULROLQDQDUWLFOHSXEOLVKHGMXVWDIHZZHHNVDIWHUVWDJLQJ 8EXURL´:KHQWKHFXUWDLQZDVUDLVHG,ZDQWHGWKHVFHQHWRFRQIURQWWKH SXEOLFOLNHD>PDJLF@PLUURULQZKLFKWKHYLFLRXVVHHWKHPVHOYHVZLWKEXOO KRUQVDQGDGUDJRQ·VERG\DFFRUGLQJWRWKHH[DJJHUDWLRQRIWKHLUYLFHVµ $OWKRXJKWKHFURZGZDVDSSDOOHGE\ZKDWWKH\VDZ³´WKHVLJKWRILWVRZQ LJQREOHGRXEOHµ³-DUU\KDGWDNHQSDLQVWRVHWXSWKLVHTXDWLRQ,QDEURFKXUH

>@

$&76

SDVVHGRXWDWWKHSHUIRUPDQFHWKHSOD\ZULJKWDQQRXQFHVKLVSURWDJRQLVW LQSUHFLVHO\WKHVDPHWHUPV´08EXLVDQLJQREOHEHLQJZKLFKLVZK\ZH UHVHPEOHKLPDWDOOµ - DUU\FKRRVHVWKHZRUG´LJQREOHµWRGHVFULEH8EXERWKWLPHVZKLFKQHX WUDOO\FRXOGH[SUHVV8EX·VORZRUFRPPRQVWDWXVEXWPRUHOLNHO\LVPHDQWWR UHJLVWHU8EX·VYLOHXQSULQFLSOHGFKDUDFWHU7KHWHUP´LJQREOHµKLJKOLJKWVWKH GLVWDQFHIURPQRELOLW\ZKHWKHURIFODVVVWDWXVRUPRUHVZKLFKLQWXUQFDOOV DWWHQWLRQWRWKHWUDYHVW\RI8EX·VVRYHUHLJQVWDWXV,QZDQWLQJWKHFURZG WRIDFHLWVGLVKRQRUDEOHGRXEOHLQWKHPLUURUSURYLGHGE\WKHWKHDWHUDQG PDNLQJWKDWRWKHUVHOIWXUQRXWWREHDNLQJZKRUXOHV´E\WKHSRZHURIWKH ORZHUDSSHWLWHVµ-DUU\LVQRWFDOOLQJDWWHQWLRQWRWKHGDQJHUVRIW\UDQQ\EXW UDWKHUSRLQWLQJWRWKHGDQJHUVRIDODFNRIVHOIJRYHUQDQFH $WFRUHKHLV LVVXLQJDFKDOOHQJHWRHDFKPHPEHURIWKHDXGLHQFHWRSDUWLFLSDWHLQDUWLV WLFFUHDWLRQWRULVHDERYHWKHFURZGLQVWHDGRIEHLQJSDVVLYHSXSSHWVPRYHG E\EDVHLQVWLQFWVLQRWKHUZRUGVWREHDVRYHUHLJQLQGLYLGXDO+HXQGHU VWDQGV KLV RZQ DUWLVWLF PRWLYDWLRQ DORQJ WKHVH OLQHV ´LI WKHUH DUH LQ WKH ZKROHXQLYHUVHϮYHKXQGUHGSHRSOHZKRUHODWLYHWRLQϮQLWHPHGLRFULW\ KDYHDELWRI6KDNHVSHDUHDQG/HRQDUGRLQWKHPµLWLVRQO\IDLUWRZULWHSOD\V IRUWKHPDQGWRJLYHWKHP´WKHDFWLYHSOHDVXUHRIFUHDWLQJµ -DUU\·VRSWL PLVPHYHQFRQTXHUVWKHGLVDSSRLQWPHQWKHIHHOVDERXWWKHFURZG·VUHVSRQVH WR8EXURLLQWKHHQGKHGHFODUHVWKHFURZGKDUPOHVVGHVSLWHLWVODUJHQXPEHUV VLQFHLWLVϮJKWLQJDJDLQVWLQWHOOLJHQFH,QWHOOLJHQFHIRU-DUU\LVH[SOLFLWO\ HTXDWHGZLWKQRELOLW\WKRXJKQRWHTXDWHGZLWKFODVV ZKHQKHWULXPSKDQWO\ DQQRXQFHV´8EXKDVQRWGLVHPEUDLQHGDOOWKHQREOHVµ8EX·VUHYROXWLRQ LQZKLFK8EXϮJXUHVDVSRSXODUVRYHUHLJQW\DJDLQVWLQGLYLGXDOVRYHUHLJQW\ KDVQRWEHHQDFKLHYHG%XWQHLWKHUKDV8EXEHHQGLVSDWFKHG7KH8EXVDUH ODVW VHHQ ϰHHLQJ E\ VKLS DWODUJH LQ WKH ZRUOG KDSSLO\ EHJLQQLQJ D QHZ DGYHQWXUH

5HYROXWLRQDQG5HSHWLWLRQ,RQHVFR·V0DFEHWW  KHWKLQNLQJLQWHOOLJHQWEHLQJYHUVXVWKHVWXSLGSHUVRQLVDOVRDFRQFHUQLQ 7 ,RQHVFR·V0DFEHWW,QGHHG,RQHVFREXLOGVWKLVWKHPHLQWRWKHWLWOH³WKDWLV LQWRWKHQDPH´0DFEHWWµ:LWKWKHDOWHUDWLRQRIMXVWRQHOHWWHU³WKHϮQDOWK EHFRPLQJDSDLURIWV ³,RQHVFRQRWRQO\EHJLQVWKHGRXEOLQJDQGWZLQQLQJ WKDWZLOOJXLGHWKHFKDUDFWHUVDQGSORWRIWKHSOD\EXWKHDOVRSKRQLFDOO\ >@

(;,77+(.,1*"

UHJLVWHUVWKH)UHQFKSURQXQFLDWLRQRI´0DFEHWKµZKHUHWKHDVSLUDWHGWK GRHVQRWH[LVW7KLVLQWXUQLQWURGXFHVDEHDVWIRUWKH)UHQFKKHDUErWHD WHUPWKDWFDQPHDQEHDVWDVZHOODVDVWXSLGSHUVRQDQLGLRWDIRRO :  KLOHWKHQXDQFHVRIWKH)UHQFKSURQXQFLDWLRQDUHRFFDVLRQDOO\QRWHGLQ WKH VFKRODUVKLS RQ WKLV SOD\ WKH LPSOLFDWLRQV KDYH JRQH XQH[SORUHG DV WKRXJKLWLVVHOIHYLGHQWMXVWZKDW,RQHVFRPHDQVWREHGRLQJE\LQWURGXF LQJWKLVDPELJXRXVErWHLQWRKLVSOD\RQVRYHUHLJQW\$XGLHQFHVRIWKHSOD\ VKRXOGKDYHQRWURXEOHLGHQWLI\LQJLQVWDQFHVRI0DFEHWWWKHFKDUDFWHUDFW LQJERWKDVDEUXWDOEHDVWDVVDVVLQDWLQJKLVVRYHUHLJQDQGDVDQLGLRWWDNHQ LQE\WKHPRVWEDQDORIVH[XDOVHGXFWLRQV³WRQDPHRQO\WKHPRVWEDVLFH[ DPSOHV %XW PRUH LPSRUWDQW LQ ZKDW ZD\V PLJKW 0DFEHWW WKH SOD\ EH XQGHUVWRRGWREHQHJRWLDWLQJWKHVWDNHVRIVRYHUHLJQW\ZLWKWHUPVVXFKDV ´EHDVWµDQG´LGLRWµKDXQWLQJLW" $  WDJODQFHZLWKD0DFEHWWD/DG\0DFEHWWD'XQFDQD%DQFRZLWFKHV DQGD0DFRODVWKHXOWLPDWHLQKHULWRURIWKHWKURQHWKHFDVWRI,RQHVFR·V 0DFEHWW ORRNVWRKDYHVWUDLJKWIRUZDUGSDUDOOHOVWR6KDNHVSHDUH·VWUDJHG\$V DQRVWHQVLEO\PLQRUYDULDWLRQ,RQHVFRJLYHVVWDJHWLPHWR&DQGRUDQG*ODPLVV WKHWUDLWRURXVHTXLYDOHQWVWR&DZGRUDQG*ODPLVV³ZKRDUHPHUHO\QDPHG DQGGHVFULEHGE\6KDNHVSHDUH$IXUWKHUWZLVWLVIRXQGLQWKHSURYHQDQFH RI/DG\0DFEHWWZKRLVWREHJLQZLWKDQXQKDSSLO\PDUULHG/DG\'XQFDQ DQGZKRLWWXUQVRXWLVRQHRIWKHZLWFKHVLQGLVJXLVH7KHVPDOOHUZDONRQ SDUWVDUHLQOLQHZLWKDFRXUWRUZDUHQYLURQPHQWZLWKWKHH[FHSWLRQRIWZR ZKRDUHJHQHUDOO\FKDONHGXSWR,RQHVFR·VDEVXUGLVWDHVWKHWLFDOHPRQDGH VHOOHUDWWKHEDWWOHVFHQHUDLVLQJWKHVSHFWHURI%UHFKW·V0RWKHU&RXUDJH DQG DEXWWHUϰ\KXQWHUZKRZDQGHUVRQVWDJHMXVWDIWHUWKHSOD\·VJUHDWHVWPR PHQWRIWHQVLRQDQGDSSHDUVDJDLQDWWKHHQGZKHQDOOWKHRWKHUFKDUDFWHUV KDYHOHIWWKHVWDJH , QWHUFKDQJHDELOLW\LVDFUXFLDOIHDWXUHRI,RQHVFR·VDHVWKHWLFVLQ0DFEHWW DQG QRZKHUH LV LW PRUH KLJKO\ SURQRXQFHG WKDQ LQ WKH FKDUDFWHUV RI 0DFEHWWDQG%DQFR7KHWZRJHQHUDOVVRFORVHO\UHVHPEOHHDFKRWKHUWKDW DV0DFEHWWSXWVLW´3HRSOHRIWHQWDNHPHIRUP\WZLQEURWKHU2UIRU%DQFR·V WZLQEURWKHUµ 0DFEHWWDQG%DQFRKDYHQHDUO\LGHQWLFDOVROLORTXLHVPLG EDWWOHGLVFXVVHGEHORZ ZKHUHWKH\UHϰHFWRQWKHEORRGVKHGDQGGHDWKFRXQW DWWKHLUKDQGVDQGHDFKUHDVVXUHVKLPVHOIRIKLVOR\DOW\WRKLVVRYHUHLJQ·V FDXVH6LJQLϮFDQWO\ZKHQWKHLUGXWLIXOQHVVKDVUXQLWVFRXUVHWKHLUIUXV WUDWLRQWDNHVWKHIRUPRIDQHDUYHUEDWLPUHSHWLWLRQRI&DQGRUDQG*ODPLVV·V LQLWLDO GHFLVLRQ WR UHYROW UHVWDUWLQJ WKH F\FOH RI LQVXUJHQF\ DQG OLQNLQJ >@

$&76

WKHPLQQRXQFHUWDLQWHUPVZLWKWKHSOD\·VRULJLQDOUHEHOVDQGWKHSOD\·V RWKHUVHWRIGRXEOHV 7KHHϸHFWRIWKHGpMjYXLVWRLQWURGXFHDVHQVHRILQ HYLWDELOLW\DVZHOODVEDQDOLW\WRWKHUHYROXWLRQDU\DWWHPSW+LVWRU\LVUH SHDWLQJLWVHOILQDSUHGLFWDEOHZD\DVRYHUHLJQLVLQSRZHUDQGWKHVXEMHFWV URXVHWKHPVHOYHVWRUHYROWZLWKWKHVDPHFDWFKSKUDVHVDVWKRXJKOHDUQHG E\URWHLQVFKRROIRUMXVWVXFKDQRFFDVLRQ 7  KHHPSKDVLVRQLQWHUFKDQJHDELOLW\³DQGUHODWHGRQUHSHWLWLRQ³SURYLGHV DVLJQLϮFDQWZD\WREHJLQWRXQGHUVWDQGQRWRQO\,RQHVFR·VFRPLFDHVWKHWLF WKHFDWHJRU\WRZKLFKLWKDVEHHQOLPLWHGE\FULWLFVDQGVFKRODUV EXWDOVR PRUHLPSRUWDQWO\,RQHVFR·VDSSURDFKWRVRYHUHLJQW\,Q0DFEHWWLQWHUFKDQJH DELOLW\ SRLQWV WR WKH VWUXFWXUH RI VRYHUHLJQW\ DQG VXEMHFWKRRG ,RQHVFR GLPLQLVKHVWKHSDUWLFXODULWLHVRILQGLYLGXDOVE\WZLQQLQJWKHPWKHUHE\ OD\LQJVWUHVVRQWKHVLQJXODULW\RIWKHVRYHUHLJQ³ZKRLVDOZD\VRQO\RQH³ RYHUDQGDJDLQVWWKHSOXUDOLW\RIWKHVXEMHFWV³ZKRDUHDOZD\VPDQ\DQG XQGLϸHUHQWLDWHG)XUWKHUPRUHWKHLQWHUFKDQJHDELOLW\RIWKHVXEMHFWVDOVR LQGLFDWHVWKHFURZG 7  KHHTXLYDOHQFHDWZRUNLQ,RQHVFR·V0DFEHWW³EHWZHHQWKHSDLUVRIFKDU DFWHUV KH WZLQV DQG LQ WKH FDVH RI WKH ZDU DQG ODWHU WKH DVVDVVLQDWLRQ EHWZHHQ WKH VRYHUHLJQ DQG WKRVH ZKR ZRXOG EH VRYHUHLJQ³LV QRW WR EH FRQIXVHGZLWKWKHHTXLYRFDWLRQDWZRUNLQ6KDNHVSHDUH·V0DFEHWK,RQHVFR·V VODQWXQGHUVFRUHVDFULWLFDOGLϸHUHQFHZRUWKVSHOOLQJRXWSUHFLVHO\EHFDXVH FRPSDULVRQVZLWK6KDNHVSHDUHUXQWKHULVNRIXQGHUVWDQGLQJ,RQHVFRDVEH LQJ QR PRUH WKDQ IDUFLFDOO\ UHGXFWLYH RI WKH FRPSOH[LW\ IRXQG LQ 6KDNH VSHDUH·VWUDJHG\7KHGLYHUJHQFHEHWZHHQWKHWZRSOD\ZULJKWVRQWKLVSRLQW LVIXQGDPHQWDOWRWKHLUUHVSHFWLYHDLPV,Q6KDNHVSHDUHDQWLWKHWLFDOYDOXHV DQGLGHDVDUHVKRZQWREHFRQIXVHG´)DLULVIRXODQGIRXOLVIDLUµ LQNHHSLQJ ZLWKDIRFXVRQWKHPRUDODEHUUDQFHRI0DFEHWK·VDPELWLRQIRUSRZHUDQGRQ WKHPRQVWURXVQHVVRIKLVFKRLFHV,Q,RQHVFRUHVHPEODQFHVYHUJLQJRQWKH LGHQWLFDODUHKLJKOLJKWHGLQNHHSLQJZLWKDIRFXVRQ0DFEHWW·VODFNRIRULJL QDOLW\DQGRQWKHSURVDLFTXDOLW\RIKLVGHVLUHV 7  KHHQGOHVVUHSHWLWLRQRIUHYROXWLRQLVDSHWWKHPHRI,RQHVFR·VWKURXJK RXWKLVZULWLQJVDQGWKHHTXLYDOHQFHDQGLQWHUFKDQJHDELOLW\XQGHUVFRUHG LQKLVDHVWKHWLFVLQ0DFEHWWZRUNWRWKLVHQG,Q´0RUH3DJHVIURP0\'LDU\µ SXEOLVKHGDVDSDUWRI1RWHVDQG&RXQWHU1RWHV LQ,RQHVFRH[SRXQGVRQ WKHPLVJXLGHGRSWLPLVPWKDWUHYROXWLRQZLOOEULQJDERXWFKDQJH´7KHZRUG UHYROXWLRQLVEDGO\FKRVHQE\WKHUHYROXWLRQDULHVµKHSRLQWVRXW´8QFRQ VFLRXVO\LWKHOSVXVWRVHHWKURXJKUHYROXWLRQDU\DFWLRQZKLFKLVLWVHOIV\Q >@

(;,77+(.,1*"

RQ\PRXVZLWKUHDFWLRQIRUHW\PRORJLFDOO\UHYROXWLRQPHDQVDUHWXUQDQG LVRSSRVHGWRHYROXWLRQµ+DQQDK$UHQGWPDGHDVLPLODUSRLQWWKRXJKWR GLϸHUHQWHQGVRQH\HDUODWHULQKHUERRN2Q5HYROXWLRQ6KHGUDZVDWWHQWLRQ WRWKHGLVWLQFWO\PRGHUQQRWLRQRIUHYROXWLRQDVWLHGWRIUHHGRPDQGWKHFUH DWLRQRIDWUXO\QHZRUGHUZKHUHDVWKHXVHRIWKHWHUPLQDQWLTXLW\ZDVOLW HUDOLPSO\LQJDUHWXUQWRWKHVDPHSODFH%XWZKLOH$UHQGWXQGHUVWDQGVD PHDQLQJIXOVKLIWWRKDYHWDNHQSODFHLQWKHVHQVHDQGFRQFHSWRIUHYROXWLRQ ,RQHVFRPDLQWDLQVWKHRULJLQDOGHϮQLWLRQSHUFHLYLQJLWDVKDXQWLQJPRGHUQ DWWHPSWVDWUHYROXWLRQGHVSLWHWKHPRGHUQH[SHFWDWLRQRIUHDOFKDQJH)RU ,RQHVFRWKHRϲ FHRISRZHUJHQHUDWHVLWVRZQGHSUDYLW\UHJDUGOHVVRIWKH SDUW\LQDXWKRULW\(PSKDVL]LQJWKHUHWXUQWRWKHVDPHLVRQHZD\,RQHVFR·V WKHDWHU´DYRLGVµUHYROXWLRQLQJHQHUDOWHUPVEXW0DFEHWWDOVRUHJLVWHUVDUDG LFDO UHOXFWDQFH WR ´WKH UHYROXWLRQµ PRUH VSHFLϮFDOO\ LQ LWV FULWLTXH RI WKH VXEWOHUWHPSWDWLRQVDQGGDQJHUVRISRSXODUVRYHUHLJQW\ , RQHVFR·VYLHZVRQUHYROXWLRQZHUHLPPHQVHO\XQSRSXODULQDUWLVWLFFLU FOHVLQWKHFRQWH[WRIWKHKLJKO\YRODWLOHGHFDGHVIROORZLQJ:RUOG:DU,,DQG HVSHFLDOO\LQODWHV)UDQFHZKHQUHYROXWLRQZDVWRXWHGDVVDOYLϮF/HIW LVWKRSHVLQFRPPXQLVPDQG0DRLVPGRPLQDWHGWKH)UHQFKLQWHOOHFWXDO VFHQHDQG,RQHVFR³IRUIDLOLQJWRMRLQLQWKHIHUYRUDQGLQGHHGIRUVSHDN LQJRXWDJDLQVWLW³ZDVXQGHUVWRRGWREHDULJKWZLQJFRQVHUYDWLYH0RUH DFFXUDWHO\KLVVWDQFHZDVRQHRIUDGLFDOVNHSWLFLVPWRZDUGDQ\SROLWLFDOUH JLPHSURPLVLQJDFXUHDOOIRUKXPDQLW\·VGLϲ FXOWLHV7KLVZDVQRWDEOLWKHO\ KHOGSRVLWLRQRILQGLϸHUHQFHTXLWHWKHFRQWUDU\JLYHQ,RQHVFR·VϮUVWKDQG H[SHULHQFHV6KDSHGE\WKHQLJKWPDUHRIZLWQHVVLQJQRWRQO\KLVIDWKHUEXW DOVRLQWHOOHFWXDOFROOHDJXHV³PRVWQRWDEOHDPRQJWKHPWKHKLVWRULDQRIUH OLJLRQV0LUFHD(OLDGHDQGSKLORVRSKHU(¬0&LRUDQ³VXEPLWWLQJWRDQGHQ GRUVLQJWKH,URQ*XDUG,RQHVFRPDGHLWKLVFDXVHWRUHVLVWFRPPLWPHQWVWR SROLWLFDOSDUWLHVHYHQDQGSHUKDSVHVSHFLDOO\ZKHQWKHWUHQGZDVLQWKHLU IDYRU - RXUQDOVDQGPHPRLUVPDNHQRVHFUHWRIWKHIDFWWKDWDVDUHVXOWRIIDPLO LDOEHWUD\DOVDQGZKDWKHSHUFHLYHGDVH[WUHPHHPRWLRQDOFUXHOW\,RQHVFR KHOGKLVIDWKHULQVHYHUHFRQWHPSW+LVDEKRUUHQFHZDVIXUWKHUH[DFHUEDWHG E\KLVIDWKHU·VVKLIWLQJSROLWLFDOOR\DOWLHVDQGWKHVHLQWXUQ,RQHVFRKLPVHOI VXJJHVWV KDGWKHHϸHFWRIVHDOLQJWKHSOD\ZULJKW·VGHWHUPLQDWLRQWRDELGH E\KLVRZQFRPPLWPHQWVUDWKHUWKDQDOORZWKRVHZKRPDQDJHGWREHLQ SRZHUWRGLFWDWHKLVEHOLHIV0RUHLQWHUHVWLQJWKDQSURYLGLQJDSV\FKRORJL FDOH[SODQDWLRQIRU,RQHVFR·VDSSURDFKWRZDUGSROLWLFDORSSRVLWLRQLVWKHZD\ >@

$&76

KLVUHϰHFWLRQVUHYHDOQRWPHUHMXGJPHQWEXWDQDWWHPSWWRFRPHWRWHUPV ZLWKKLVVFRUQ 0  \IDWKHUZDVQRWDFRQVFLRXVRSSRUWXQLVWKHEHOLHYHGLQWKHSRZHUVWKDWEH +HUHVSHFWHGWKH6WDWH+HEHOLHYHGLQWKH6WDWHQRPDWWHUZKDWLWUHSUH VHQWHG¬¬¬$VIDUDVKHZDVFRQFHUQHGWKHPLQXWHDSDUW\WRRNRYHULWZDV ULJKW7KLVZDVKRZKHFDPHWREHDQ,URQ*XDUGD)UHHPDVRQGHPRFUDWDQG D6WDOLQLVW¬¬¬:KDW,UHSURDFKHGKLPIRUZDVKLVEHLQJOLNHHYHU\ERG\HOVH :KDW,UHSURDFKHGKLPIRUZDVJRLQJLQWKHVDPHGLUHFWLRQDVKLVWRU\%XW KDYHQ·W+HLGHJJHU-XQJ6DUWUHDQGVRPDQ\RWKHUVGRQHH[DFWO\WKHVDPH WKLQJ"+HGLGVRLQDFUXGHUPRUHVLPSOLVWLFPRUHFDQGLGZD\SHUKDSV:DYHV RISXUHPDGQHVVVZHSWRYHUWKHZRUOG,QRUGHUWRUHVLVWWKHVHFXUUHQWVRQH PXVWWHOORQHVHOIWKDWKLVWRU\LVDOZD\VZURQJZKHUHDVLWLVJHQHUDOO\EHOLHYHG WKDWKLVWRU\LVDOZD\VULJKW +  HZDVOLNHHYHU\RQHHOVH7KDWLVZKDW,KHOGDJDLQVWKLP7KDWLVZKDW, ZDVZURQJWRKROGDJDLQVWKLP

6 HYHUDOWKLQJVVWDQGRXWLQ,RQHVFR·VDQDO\VLVRIKLVIDWKHU·VSROLWLFDOH[SH GLHQFLHV+HLVFDUHIXOWRQRWHKLVVHQVHWKDWWKHZRUOGLWVHOIZDVQRWLQLWV ULJKWPLQGDQGWKDWKLVIDWKHUZDVQRWDZDUHRIWKHSDWWHUQRIKLVEHKDYLRU 6LPLODUO\,RQHVFRREVHUYHVWKDWKLVIDWKHUZDVQRWWDNHQLQGXHWRQHIDULRXV GHVLUHVEXWEHFDXVHRIKLVVHQVHRIGXW\DQGUHVSHFWIRUDXWKRULW\+DYLQJ H[SORLWDEOHSULQFLSOHVKRZHYHUGRHVQRWFKDQJHWKHPRUDOYHUGLFW7KHUH SHDWHGDFFXVDWLRQLVWKDWKLVIDWKHUZDV´OLNHHYHU\ERG\HOVHµ³DFKDUJH HDVLO\H[WHQGHGWR&DQGRUDQG*ODPLVVRU0DFEHWWDQG%DQFR7KDWEHLQJLQ GLVWLQJXLVKDEOHIURPRWKHUVLVSUHVHQWHGDVDQLQGLFWPHQWJRHVVRPHGLVWDQFH LQXQGHUVFRULQJWKHVHULRXVLQWHQWRI,RQHVFR·VDHVWKHWLFVRIHTXLYDOHQFHIDU VXUSDVVLQJKXPRURXVHϸHFW , QGHHGRYHUDQGDERYHFRQYH\LQJWKHORJLFRIVRYHUHLJQW\WKDWPDQGDWHV DVLQJOHVRYHUHLJQRYHULQGLVWLQFWVXEMHFWVVLPLODULW\WRRWKHUVGHPRQVWUDWHV DPRUDOGDQJHU7KHLGHQWLFDOPLGEDWWOHVROLORTXLHVGHOLYHUHGϮUVWE\0DF EHWWDQGPRPHQWVODWHUE\%DQFRRϸHUDFULWLFDOLOOXVWUDWLRQ 7  KHEODGHRIP\VZRUGLVDOOUHGZLWKEORRG,·YHNLOOHGGR]HQVDQGGR]HQVRI WKHPZLWKP\EDUHKDQGV7ZHOYHGR]HQRϲ FHUVDQGPHQZKRQHYHUGLGPH DQ\KDUP,·YHKDGKXQGUHGVDQGKXQGUHGVRIRWKHUVH[HFXWHGE\ϮULQJVTXDG 7KRXVDQGVRIRWKHUVZHUHURDVWHGDOLYHZKHQ,VHWϮUHWRWKHIRUHVWVZKHUH >@

(;,77+(.,1*"

WKH\·GUXQIRUVDIHW\7HQVRIWKRXVDQGVRIPHQZRPHQDQGFKLOGUHQVXϸR FDWHGWRGHDWKLQFHOODUVEXULHGXQGHUWKHUXEEOHRIWKHLUKRXVHVZKLFK,·G EORZQXS+XQGUHGVRIWKRXVDQGVZHUHGURZQHGLQWKH&KDQQHOLQGHVSHUDWH DWWHPSWVWRHVFDSH0LOOLRQVGLHGRIIHDURUFRPPLWWHGVXLFLGH7HQPLOOLRQ RWKHUVGLHGRIDQJHUDSRSOH[\RUDEURNHQKHDUW7KHUH·VQRWHQRXJKJURXQG WREXU\WKHPDOO

$  SDVVDJHVXFKDVWKLV³ZLWKUHIHUHQFHVWKDWFRQMXUHVFHQHVIURPWKH +RORFDXVWWKH$OOLHGDLUVWULNHVDJDLQVWFLYLOLDQRFFXSLHGFLWLHVRI*HUPDQ\ DQGWKH9LHWQDP:DU³LQGLFDWHV,RQHVFR·VZLOOLQJQHVVWRH[WHQGDSROLWLFDO FULWLTXHZKLOHDYRLGLQJRXWULJKWSDUDOOHOVWKDWZRXOGUHQGHUWKHSOD\PHUHO\ WRSLFDO7KHVFRSHDQGQXPEHUVLQYROYHGSRLQWWRH[DJJHUDWLRQERPEDVWDQG IDQWDV\,RQHVFRZDONVDϮQHOLQHEHWZHHQKRUURUDQGKXPRURU´HQHPLHVRIWKH5HLFKµDVKHDOZD\VFODLPHG WRKDYHVDLG@RQP\FRQVFLHQFHJLYHVPHH[WUDRUGLQDU\VDWLVIDFWLRQ·೒µ $V $UHQGWSRLQWVRXWKLVFODLPWRVXFKQXPEHUVZDV´SUHSRVWHURXVµ(YHQVR DQGPRUHLPSRUWDQW´'HVSLWHDOOWKHHϸRUWVRIWKHSURVHFXWLRQHYHU\ERG\ FRXOGVHHWKDWWKLVPDQZDVQRWD¶PRQVWHU·EXWLWZDVGLϲ FXOWLQGHHGQRW WRVXVSHFWWKDWKHZDVDFORZQµ 7KHSX]]OHIRU$UHQGWOLHVH[DFWO\KHUH IRUWKHGHVLUHWRDFFRXQWIRUHYLOFUDYHVHDVLO\LGHQWLϮDEOHYLOODLQVUHSOHWH ZLWKLVRODWDEOHPRWLYHVIRUFUXHOW\DQGQRWϮQGLQJVXFKDEHDVWWKHWHPS WDWLRQLVWKHQWRVHHRQO\IDUFLFDOFKDUDFWHUVDFFLGHQWDOO\LQYROYHG7KHGLI ϮFXOW\RIFRXUVHLVWKDWHYLOLVQRWREOLJHGWREHUHFRJQL]DEOHLQWKHVH WHUPV5HIHUULQJWRWKHWH[WRIDWDSHGSROLFHH[DPLQDWLRQ$UHQGWGHVFULEHV LWDV´DYHULWDEOHJROGPLQHIRUDSV\FKRORJLVW³SURYLGHGKHLVZLVHHQRXJK WRXQGHUVWDQGWKDWWKHKRUULEOHFDQEHQRWRQO\OXGLFURXVEXWRXWULJKW IXQQ\µ 2QHKDVRQO\WRUHDGWKLVVWDWHPHQW³UHSODFLQJ´SOD\ZULJKWµIRU ´SV\FKRORJLVWµ³WRSHUFHLYHWKDW,RQHVFRKDVSUHFLVHO\WKLVSHUVSLFDFLW\ >@

$&76

7  KHOLNHQHVVEHWZHHQWKHKLVWRULFDOZDUFULPLQDODQG,RQHVFR·VϮFWLRQDO FUHDWLRQVH[WHQGVEH\RQGWKHFRPLQJOLQJRIKRUURUDQGKXPRUDQGWRZDUG ZKDW , DP FDOOLQJ WKH PRUDO GDQJHU RI VLPLODULW\ DQG LQWHUFKDQJHDELOLW\ $IWHUFDWDORJXLQJWKHQXPEHUVRIYLFWLPVDWWKHLUKDQGV0DFEHWWDQG%DQFR WDNHDPRPHQWWRUDWLRQDOL]HWKHLUDFWLRQV´7KH\ZHUHDOOWUDLWRUVRIFRXUVH (QHPLHVRIWKHSHRSOH³DQGRIRXUEHORYHGVRYHUHLJQWKH$UFKGXNH'XQFDQ ZKRP*RGSUHVHUYHµ 7KHGHWDFKPHQWDQGSRVLWLYHVSLQRQWKHVLWXDWLRQ FRQWLQXHVDVHDFKLQWXUQWDONVKLPVHOIRXWRIIHHOLQJDQ\JXLOWUHPRUVHRU LQGHHGSK\VLFDOSDLQ´,WKUDVKHGDERXWDELWWRRKDUG0\ZULVWDFKHV/XFN LO\LW·VQRWKLQJVHULRXV,W·VEHHQTXLWHDSOHDVDQWGD\UHDOO\)HHOLQJTXLWH EXFNHG¬¬¬1R1RUHJUHWV7KH\ZHUHWUDLWRUVDIWHUDOO,REH\HGP\VRYHU HLJQ·VRUGHUV,GLGP\GXW\µ $FRUUHVSRQGHQFHZLWK,RQHVFR·VIDWKHUFDQ EHKHDUGLQWKHVHUDWLRQDOL]DWLRQV(YRNLQJSKUDVHRORJ\DQGMXVWLϮFDWLRQ IURPERWK6RYLHW&RPPXQLVP´HQHPLHVRIWKHSHRSOHµ DQGPHGLHYDOPRQ DUFKLVP´RXUEHORYHGVRYHUHLJQµ ,RQHVFR·VJHQHUDOVZLOOXVHDQ\LGLRPDWLF H[SUHVVLRQVWKH\ϮQGWRKDQGHYHQLIWKH\DUHLGHRORJLFDOO\FRQWUDGLFWRU\ ,Q DGGLWLRQ WR 0DFEHWW DQG %DQFR VD\LQJ WKH VDPH WKLQJ PDNLQJ WKHP LQGLVWLQJXLVKDEOHIURPHDFKRWKHU³DQGE\H[WHQVLRQ´OLNHHYHU\RQHHOVHµ³ WKH\DOVRRSHUDWHIURPDUXGLPHQWDU\XQTXHVWLRQHGVHQVHRIGXW\WRWKH VRYHUHLJQZKRHYHUWKDWKDSSHQVWREH LQWKHVDPHZD\,RQHVFR·VIDWKHU ´EHOLHYHGLQWKH6WDWHQRPDWWHUZKDWLWUHSUHVHQWHGµ 5HWXUQLQJWR,RQHVFR·VUHPDUNVRQKLVIDWKHUKLVVWULNLQJVWDWHPHQWDWWKH HQG³WKDWKHZDVZURQJWRKROGLWDJDLQVWKLPIRUEHLQJOLNHHYHU\RQHHOVH³ UHJLVWHUVDQLPSRUWDQWLISHUSOH[LQJTXDOLϮFDWLRQ+LVVHOIUHSURDFKVXJ JHVWVWKDWVLPLODULW\PD\EHDQXQIRUWXQDWHVLGHHϸHFWEXWLWLVQRWZKHUH ,RQHVFRXOWLPDWHO\ORFDWHVWKHSUREOHP0DFEHWWDQG%DQFR·VMXVWLϮFDWLRQV DUHPDUNHGE\UHFRXUVHWRVWRFNSKUDVHVDQGVORJDQVZLWKRXWUHJDUGWRWKHLU DSSURSULDWHQHVVLPSO\LQJDWEHVWDVORSSLQHVVRIPLQGDWZRUVWDZLOOIXO GHVLUHWRGHFHLYHERWKVHOIDQGRWKHUV$UHQGW·VSHQHWUDWLQJLQVLJKWDERXW (LFKPDQQDQGKLVUROHLQWKH+RORFDXVWZDVWRLGHQWLI\WKH´EDQDOLW\RIHYLOµ E\ZKLFKVKHGRHVQRWPHDQWKDW(LFKPDQQZDVVLPSO\DQRUGLQDU\SHUVRQ RUHYHQDQRUGLQDU\FULPLQDO RUWKDWHYLOLVVLPSO\DZLGHVSUHDGFRPPRQ SODFHDQGWKHUHIRUHRIWULYLDOLPSRUW5DWKHURIWKHSDWKVWKDWFRXOGOHDG WRHYLOWKHUHLVDSDWKGHYRLGRIFOHDUFULPLQDOLQWHQWWKDWGRHVQRWQHFHV VDULO\ORRNHYLODWDOO$V$UHQGWXQGHUVWDQGVLWGXULQJWKHZDUVXFKDSDWK IXQFWLRQHGDVDVXUYLYDOWDFWLFDQGQRWRQO\IRUKLJKUDQNLQJ1D]LV6KH SRLQWV RXW WKDW WKH ´*HUPDQ VRFLHW\ RI HLJKW\ PLOOLRQ SHRSOH KDG EHHQ >@

(;,77+(.,1*"

VKLHOGHGDJDLQVWUHDOLW\DQGIDFWXDOLW\E\H[DFWO\WKHVDPHPHDQVWKHVDPH VHOIGHFHSWLRQOLHVDQGVWXSLGLW\WKDWKDGQRZEHFRPHLQJUDLQHGLQ(LFK PDQQ·VPHQWDOLW\µ 7  KH´PHDQVµWRZKLFK$UHQGWUHIHUVDQGWKHIRUPWKH´VWXSLGLW\µWDNHV LVDKDELWRIPLQGWKDWH[SUHVVHVLWVHOILQODQJXDJH´(LFKPDQQGHVSLWHKLV UDWKHUEDGPHPRU\UHSHDWHGZRUGIRUZRUGWKHVDPHVWRFNSKUDVHVDQGVHOI LQYHQWHG FOLFKpV ZKHQ KH GLG VXFFHHG LQ FRQVWUXFWLQJ D VHQWHQFH RI KLV RZQKHUHSHDWHGLWXQWLOLWEHFDPHDFOLFKp µ5HJDUGLQJ0DFEHWWDQG%DQFR DORQJVLGH(LFKPDQQSURYLGHVDQLPSRUWDQWRSSRUWXQLW\IRUDOORZLQJWKHErWH RI0DFEHWW³WKHWKUHDWRIERWKWKHEHDVWZKRVHDFWLRQVDUHRXWVLGHWKHODZ DQGWKHVWXSLGSHUVRQZKRLVXQDEOHWRWKLQN³WRFRPHPRUHIXOO\LQWRIR FXV%\SD\LQJDWWHQWLRQWRWKHKXPDQFDSDFLW\WRMXGJHDQGDUWLFXODWHDV FRQVWLWXWLYHHOHPHQWVRIERWKSHUVRQDOLQGLYLGXDOVRYHUHLJQW\DQGSROLWLFDO VRYHUHLJQW\WKHSOD\JRHVEH\RQGDSUHGLFWDEOHFRQGHPQDWLRQRIW\UDQQL FDOOHDGHUVWRDFRQVLGHUDWLRQRIKRZWKH\FRPHDERXW :  KHQ&DQGRULVFDSWXUHGDQGIDFHVH[HFXWLRQIRUWUHDVRQKLVJDOORZV VSHHFKKDVDGLVWLQFWO\GLϸHUHQWWRQHIURPWKDWRIKLVFRQWULWHFRXQWHUSDUW LQ6KDNHVSHDUH´,IRQO\,KDGZRQµKHZLVWIXOO\UHPDUNVEHIRUHUDWWOLQJ RϸWZRSODWLWXGHVLQDQHϸRUWWRFRPIRUWKLPVHOI´7KHYLFWRULVDOZD\VULJKW 9DHYLFWLVµ &DQGRUOLNH&DZGRUSUHVHQWVKLPVHOIDVDFDXWLRQDU\WDOH DOWKRXJKLQDEROGGHSDUWXUHKHGRHVQRW FRXQVHODJDLQVWXVXUSDWLRQRI WKHWKURQH,Q6KDNHVSHDUH·V0DFEHWKWKDWLVZKHUH&DZGRU³DQGDIWHUKLP 0DFEHWK³SUHVXPDEO\ JR ZURQJ E\ WDNLQJ XS DUPV DJDLQVW WKH GLYLQHO\ DQRLQWHGVRYHUHLJQ6LJQLϮFDQWO\,RQHVFR·V&DQGRUJLYHVYRLFHWRDQRWKHU XQGHUVWDQGLQJRIWKHORJLFRIVRYHUHLJQW\%RWKRIWKHFLWHGSKUDVHV&DQGRU UHOLHVRQFDQEHVXPPHGXSLQWKHSODLQH[SUHVVLRQ´0LJKWPDNHVULJKWµ &DQGRUOLNH,RQHVFR·VIDWKHUEHOLHYHVWKLV´,I,·GEHHQVWURQJHUµ&DQGRU DQQRXQFHV´,·GKDYHEHHQ\RXUDQRLQWHGNLQJ'HIHDWHG,·PDWUDLWRUDQGD FRZDUGµ 7KH UHVXOW RI WKH DFWLRQ QRW LWV PRWLYDWLQJ SULQFLSOH GHWHUPLQHV WKHYDOXHDQGFKDUDFWHURIWKHDJHQW´,IRQO\,·GZRQµKHFRQWLQXHVUHSHDW LQJ KLV SODLQWLYH³DQG SDWHQWO\ XQUHPRUVHIXO³UHIUDLQ EHIRUH SURYLGLQJ KLVH[SODQDWLRQ´%XW+LVWRU\ZDVDJDLQVWPH+LVWRU\LVULJKWREMHFWLYHO\ VSHDNLQJ,·PMXVWDKLVWRULFDOGHDGHQG¬¬¬7KHORJLFRIHYHQWVLVWKHRQO\ RQHWKDWFRXQWV+LVWRULFDOUHDVRQLVWKHRQO\UHDVRQ7KHUHDUHQRWUDQVFHQ GHQWDOYDOXHVWRVHWDJDLQVWLWµ,RQHVFRFRQVLGHUVWKLVDWUHDFKHURXVOLQHRI WKRXJKW5HFDOOWKHUHSURDFKKHOHYHOHGDWKLVIDWKHUIRU´JRLQJLQWKHVDPH GLUHFWLRQDVKLVWRU\µ+LVH[KRUWDWLRQWRUHVLVWVXJJHVWVWKDW&DQGRU·V´ORJLF >@

$&76

RIHYHQWVµKDVPLVVHGWKHPDUNSUHFLVHO\LQWKHDVVHVVPHQWWKDW´WKHUHDUH QRWUDQVFHQGHQWDOYDOXHVWRVHWDJDLQVWLWµ,QRWKHUZRUGVDFFRUGLQJWR,R QHVFRWKHUHLVLQGHHGVRPHWKLQJWUDQVFHQGHQWDOWRVHWDJDLQVWWKHIDWDOLVW QRWLRQ WKDW KLVWRU\ LV DOZD\V ULJKW -XVW ZKDW WKLV PLJKW EH LV GLVFXVVHG VKRUWO\  &UXFLDOO\ ZKDW ,RQHVFR LV ϮJKWLQJ LV D QRWLRQ RI VRYHUHLJQW\ DV ZHOOWKHEHOLHIWKDWZKRHYHUPDQDJHVWREHLQSRZHULVPHDQWWREHWKHUH XQWLOVRPHRQHVWURQJHUFRPHVDORQJ , QWKHϮQDOVFHQHLQVRPHWKLQJRIDFRXSGHWKpkWUH,RQHVFRUHWXUQVWR KLVVWUDWHJ\RIUHSHDWHGVSHHFKEXWZLWKDPSOLϮHGVWDNHV+HUHDVQRZKHUH HOVHLQWKHSOD\,RQHVFRJLYHV0DFROWKHH[DFWOLQHV³VHYHUDOGR]HQLQVXP³ VDLGE\0DOFROPLQDFWRI0DFEHWK0DFGXϸKDVVROLFLWHG0DOFROP'XQFDQ·V KHLUWROHDGDZDUDJDLQVWWKHW\UDQW0DFEHWKDQGUHFODLPWKHWKURQH0DO FROP·VUHVSRQVHKRZHYHUFRQWDLQVOLWWOHFRPIRUW´0\SRRUFRXQWU\µKH IRUHFDVWV´6KDOOKDYHPRUHYLFHVWKDQLWKDGEHIRUH0RUHVXϸHUDQGPRUH VXQGU\ZD\VWKDQHYHU%\KLPWKDWGRVXFFHHGµ´%ODFN0DFEHWKµKHSURP LVHV´:LOOVHHPDVSXUHDVVQRZDQGWKHSRRU6WDWH(VWHHPKLPDVDODPE EHLQJFRPSDU·G:LWKP\FRQϮQHOHVVKDUPVµ,QGHHG0DFEHWKPD\EH ´EORRG\/X[XULRXVDYDULFLRXVIDOVHGHFHLWIXO6XGGHQPDOLFLRXVVPDFN LQJRIHYHU\VLQ7KDWKDVDQDPHµEXWDFFRUGLQJWR0DOFROP´WKHUH·VQR ERWWRPQRQH,QP\YROXSWXRXVQHVVµ 7  KHRQO\GLϸHUHQFHLQ0DFRO·VODQJXDJHZKHQKHVD\V0DOFROP·VOLQHVLV DFKDQJHIURPWKHFRQGLWLRQDOWHQVH³´+DG,SRZHU,VKRXOG3RXUWKHVZHHW PLONRIFRQFRUGLQWR+HOOµ³WRWKHSUHVHQWDFWLYHWHQVH³´1RZ,KDYHSRZHU ,VKDOO3RXUWKHVZHHWPLONRIFRQFRUGLQWR+HOOµ,WLVQRWDSRWHQWLDOWKUHDW EXW DQ LPPLQHQW DFWLRQ ,Q 6KDNHVSHDUH·V WUDJHG\ WKHVH KRUULI\LQJ DQ QRXQFHPHQWVDUHPHWZLWKGLVJXVWDQGFRQVWHUQDWLRQE\0DFGXϸDVLWLV KRSHGWKH\ZLOOEHIRU0DOFROPFODLPVKHKDVVSRNHQVXFKRQO\DVDWHVWWR VHHZKHWKHU0DFGXϸKDVDϮQHUVHQVHRIOHJLWLPDWHVRYHUHLJQW\RUZLOOVLP SO\WKURZLQKLVORWZLWKWKHVWURQJHU0DFGXϸSDVVHVWKHWHVW %\WKHWLPH 0DFROϮQLVKHVKLVDGGUHVVLQWKH,RQHVFRSOD\KRZHYHUDOORIKLVZRXOGEH VXEMHFWVDQGVXSSRUWHUVDUHUHQGHUHGVSHHFKOHVVDQGKDYHOHIWWKHVWDJHDQG KHKLPVHOIYDQLVKHVLQPLVW0DFROKDVWKHODVWZRUGQRWRQO\RQWKLVVXE MHFWEXWLQWKLVSOD\,RQHVFRRϸHUVQRVRRWKLQJUHMRLQGHUWRFRXQWHUWKHEOHDN SURQRXQFHPHQW,QVWHDGKHRϸHUVDϮQDOWKHDWULFDOJHVWXUHWKDWLVW\SLFDOO\ UHDGDVDVLJQDWXUHPDUNRIWKH´DEVXUGµWKHEXWWHUϰ\KXQWHUFURVVHVWKH VWDJH

>@

(;,77+(.,1*"

&  RQVLGHULQJ0DFRO·VKDUURZLQJXQFKHFNHGVRYHUHLJQSURFODPDWLRQLWLV QRWZLWKRXWUHDVRQWKDWFULWLFVWDNH,RQHVFRWREHSXWWLQJIRUZDUGDSLFWXUH RIVRYHUHLJQW\EOXQWO\DWRGGVZLWK6KDNHVSHDUH·VFRQFOXVLRQIRU,RQHVFR·V YLVLRQDSSHDUVWREHZLWKRXWDQ\UHGHPSWLRQRUKRSHRIDJRRGNLQJUHVXP LQJUXOHZKHUHDV0DFEHWKDSSHDUVWRϮQLVKZLWKMXVWVXFKDQRSWLPLVP2Q WKHIDFHRILW,RQHVFR·V0DFEHWWVHHPVUHVLJQHGWRWKHSOD\·VORJLFRIWKHVWURQ JHU $QG \HW KLV SOD\ ZRUNV WR UHVLVW WKH OLPLWHG LGHD RI VRYHUHLJQW\ WKDW GLFWDWHVWKDW´PLJKWLVULJKWµDQGE\H[WHQVLRQWKDWKLVWRU\LVDOZD\VULJKW 3XWDQRWKHUZD\,RQHVFRLVQRWPDNLQJDVLPSOHSHVVLPLVWLFGHFODUDWLRQ UDWKHUKHLVFUHDWLQJDVSDFH³DWKHDWULFDOVSDFH³LQZKLFKWKHF\FOHPLJKWEH UHϰHFWHGRQRUSRWHQWLDOO\HYHQEHEURNHQ,QQRZD\GR,VXJJHVWWKDWWKHUH LV UHGHPSWLRQ OXUNLQJ \HW WKHUH LV UHVLVWDQFH 7KH TXHVWLRQ LV ZKHUH" $V , UHDGLW,RQHVFRLVQRWTXDUUHOLQJZLWK6KDNHVSHDUHE\UHIUDPLQJ0DOFROP·V VSHHFKLQWKHZD\KHGRHVEXWUDWKHUDOORZLQJWKHIRUFHRIWKHODQJXDJHWRKLW WKH DXGLHQFH ,QVWHDG RI D FRQIURQWDWLRQ EHWZHHQ 0DOFROP DQG 0DFGXϸ ,RQHVFRSURYLGHVDFRQIURQWDWLRQEHWZHHQ0DFRODQGWKHDXGLHQFHWKHRQO\ RQHVSUHVHQWWRKHDUKLVYLWULROLFDJHQGD:KRZLOOUHEXϸ0DFRO":KRZLOO UHVSRQGWRKLPDV0DFGXϸUHVSRQGVWR0DOFROP´)LWWRJRYHUQ"1RQRWWR OLYHµ" :KHUHLVWKHWKLQNLQJEHLQJZKRZLOOZHLJKOHJLWLPDWHVRYHUHLJQW\ DJDLQVWEUXWHIRUFH":KRZLOOSDVVWKHWHVW"+HUHWKHSRWHQWLDOIRUEHLQJ VWXSLGRUEHLQJDIRRO³WKHRWKHUNLQGRIErWH³FRPHVGLUHFWO\WRWKHIRUH,I LWLVSURSHUWRWKHKXPDQEHLQJWRWKLQNWRFRQVLGHUWKHQLWLVDWWKHULVNRI EHLQJDQLGLRWRUIRROWKDWRQHUHIUDLQVIURPGRLQJVR7KHWHVWDVLWLVGHYHO RSHGLQWKHSOD\KDVWRGRZLWKGLϸHUHQWLDWLQJRQHVHOIIURPRWKHUVDYRLG LQJWKHVDPHQHVVWKDWZRUNVWRGXOOWKRXJKWVLGHDVDQGDFWLRQV,RQHVFRLV HPSKDWLFRQWKLVVFRUH´:KDWLVLPSRUWDQWLQDZRUNRULQDQLQGLYLGXDOLV QRWKLVUHVHPEODQFHWRRWKHUVEXWUDWKHUKLVGLϸHUHQFHKLVRULJLQDOLW\KLV XQLTXHQHVVKLVLUUHGXFLELOLW\:KDWLVLPSRUWDQWLVHYHU\WKLQJWKDW,GR GLϸHUHQWO\IURPWKHRWKHUVµ5DWKHUWKDQVWDWLQJDQXQFRPSOLFDWHGREMHF WLYH,RQHVFRUHFRJQL]HVWKHGLϲ FXOW\DQGVLWXDWHVWKHDVSLUDWLRQWRVLQJXODU LW\ LQ WKH KXPDQ FRQGLWLRQ ´,W LV D FOLFKp WR VD\ WKDW ¶QRERG\ UHVHPEOHV DQ\ERG\HOVH·೒µKHFRQWLQXHV´,WLVDOVRDWUXWK,WLVDOVRWUXHWRVD\WKDW ¶HYHU\ERG\UHVHPEOHVHYHU\ERG\HOVH·7KLVLVPDQ·VFRQWUDGLFWRU\WUXWKµ೓ ( QGLQJ0DFEHWW ZLWKWKHϮJXUHRIWKHEXWWHUϰ\KXQWHUKLJKOLJKWVWKH DEVXUGLW\RIWKHVLWXDWLRQEXWLWDOVRTXLWHSODLQO\UHSUHVHQWVWKHRQJRLQJ VHDUFKIRUWKDWZKLFKLVHOXVLYH$WOHDVWRQHFULWLFKDVSURSRVHGWKDWWKH

>@

$&76

EXWWHUϰ\UHSUHVHQWVSRZHU@

(;,77+(.,1*"

SDWKRIUHYROYLQJDEVROXWLVWVRYHUHLJQV0DFEHWWFKDUWV7KHLPSOLFDWLRQLVQRW WKDWKXPDQEHLQJVDUHVRXOOHVVEXWTXLWHWKHFRQWUDU\,QPXFKWKHVDPH PDQQHUWKDW,RQHVFRUHMHFWHGWKHLQWHUSUHWDWLRQRIKLVHDUO\SOD\7KH%DOG 6RSUDQRDVVWUHVVLQJWKHIDLOXUHDQGLPSRVVLELOLW\RIKXPDQFRPPXQLFDWLRQ ZKHUHDV,RQHVFRXQGHUVWRRGKLVZRUNDV´DSOHDSDWKHWLFSHUKDSVIRUPX WXDOXQGHUVWDQGLQJµ ,DPVXJJHVWLQJWKDWLQ0DFEHWW,RQHVFRLVQRWSUHVHQW LQJDQLKLOLVWLFDOO\SHVVLPLVWLFSLFWXUHRISROLWLFDOVRYHUHLJQW\EXWVLJQDOLQJ DKXPDQIDFXOW\RUUHVRXUFHWKDWKDVQRWEHHQIXOO\XWLOL]HG $EULHIORRNDWWKH´WUDQVIRUPDWLRQµVFHQHLQZKLFKWKHZLWFKHVVHFXUH 0DFEHWW·VZLOOLQJQHVVWRPXUGHU'XQFDQZLOOGHPRQVWUDWH,RQHVFR·VVXEWOH DQGVRSKLVWLFDWHGLQVLVWHQFHRQ0DFEHWW·VIDLOXUHWRDGHTXDWHO\H[HUFLVHKLV PLQG7KHZLWFKHVWHPSW0DFEHWWZLWKWKHLGHDQRWRQO\RIEHLQJWKHSROLWL FDOVRYHUHLJQEXWDOVRPRUHLQWHUHVWLQJO\ZLWKWKHLGHDRIEHLQJDVRYHUHLJQ LQGLYLGXDO´%H\RXURZQPDVWHUµWKHZLWFKHVWDXQW´LQVWHDGRIWDNLQJVRPH RQHHOVH·VRUGHUVµ೓ ,URQLFDOO\DOWKRXJK0DFEHWWLVGUDZQWRZDUGDQGRV WHQVLEO\DJUHHVWRERWKIRUPVRIHPSRZHUPHQWZKDWTXLWHEODWDQWO\WDNHV SODFHLVVHGXFWLRQDQGVXEPLVVLRQ:KHQWKHZLWFKHVDUHIXOO\UHYHDOHGDV WKHEHDXWLIXO/DG\'XQFDQDQGKHUODG\LQZDLWLQJ0DFEHWW·VDFWLRQVDQG WHUPVRIDGGUHVVDUHDOOLQDVRYHUHLJQUHJLVWHUEXWWKHVRYHUHLJQW\LVQRW KLV0DFEHWWPDLQWDLQVKLVUROHDVVXEMHFWLQGHHGKHORZHUVKLPVHOIHYHQ IXUWKHU´2K\RXU0DMHVW\µKHH[FODLPVIDOOLQJWRKLVNQHHV´/HWPHEH\RXU VODYHµ KH SOHDGV DQG LQ D PRPHQW RI LQVSLUHG FRQIXVLRQ KH VSXWWHUV ´0DGDPVLUHRUUDWKHUVLUHQ¬¬¬µ೓:KLOHWKLVVFHQHREYLRXVO\WUDGHVRQWKH KLODULW\RIK\SHUEROL]HGVH[XDOLW\WKHUHLVPRUHWRLWWKDQWKHFRPLFSUH GLFWDELOLW\RI0DFEHWW·VUHDFWLRQDQGVWLOOPRUHWRLWEHVLGHVWKHLPSOLHG ERQGDJHRIKLVFKDUDFWHUSUHFLVHO\ZKHQKHZRXOGEHVRYHUHLJQ ,RQHVFRKDVJRQHEH\RQGSDURG\LQKLVH[SORUDWLRQRIVRYHUHLJQW\7KH /DWLQSKUDVHVWKURXJKRXWWKLVVFHQHUHYHDO,RQHVFR·VFDUHIXODWWHQWLRQWR PDWWHUVRIIDUPRUHVHULRXVLPSRUWWKDQWKHZD\VH[DQGSRZHUDUHHQPHVKHG DQGUXOHUVDUHHQVODYHG´$OWHUHJRVXUJHµWKHZLWFKHVLQWRQHFDOOLQJIRUWK QRWRQO\WKHLU´RWKHUVHOYHVµDVQREOHZRPHQEXWWKH´RWKHUVHOIµRI0DFEHWW WKHVHOIWKDWDVSLUHVWREHWKHVRYHUHLJQUDWKHUWKDQDVXEMHFW7KHLUOLVWVRI /DWLQDGYHUEVDQGSUHSRVLWLRQVDUUDQJHGDOOLWHUDWLYHO\IRUWKHPRVWSDUWDQG SHSSHUHGKHUHDQGWKHUHZLWKDOLQHWDNHQIURP*HQHVLVDQG9LUJLOJLYH WKHLPSUHVVLRQRIUDQGRPVLOO\KRFXVSRFXV@

$&76

EHDUELWUDU\7KHOLQHWUDQVODWHV´,VHHWKHEHWWHU>FRXUVH@IROORZWKHZRUVHµ ,RQHVFRKDVPDGHDVOLJKWFKDQJHWRWKHRULJLQDOSKUDVHWDNHQIURP2YLG·V 0HWDPRUSKRVHVERRNZKHUHWKHOLQHLVVDLGE\0HGHDDQGKDVRQHDGGLWLRQDO ZRUG´9LGHRPHOLRUDSURERTXHGHWHULRUDVHTXRUµ7KHOHIWRXWWHUPSURERTXH KROGVDNH\WR,RQHVFR·VVHQVHRIZKDWLVFUXFLDOO\PLVVLQJLQWKHEDWWOHDJDLQVW WKHORJLFRIVRYHUHLJQW\WKDWWDNHVPLJKWIRUULJKW3URERTXHPHDQV´DSSURYHµ RU´HVWHHPµLWLVDWHUPWKDWGHVLJQDWHVYDOXHDQGMXGJPHQW7KHRULJLQDO SKUDVH´,VHHDQGDSSURYHWKHEHWWHUFRXUVHEXWIROORZWKHZRUVHµUHJLVWHUV WKHDFNQRZOHGJPHQWRIFRQVLGHUDWLRQDSSUDLVDODQGGLVFHUQPHQW:LWKRXW LWDVLWVWDQGVLQWKHZLWFKHV·FXUVH´VHHLQJWKHEHWWHUµLVGRQHZLWKEODQN XQFRPSUHKHQGLQJH\HV³VWXSLGXQWKLQNLQJErWHH\HV 0  DFEHWW·VYLVLRQLVH[SOLFLWO\FDOOHGLQWRTXHVWLRQLQWKHEDQTXHWVFHQH ZKHUHMXVWDVLQ6KDNHVSHDUH·VYHUVLRQKHXQUDYHOVLQIURQWRIKLVJXHVWV :KHQ 0DFEHWW PLVWDNHV KLV SRUWUDLW IRU WKDW RI 'XQFDQ·V DFFXVLQJ KLV VXEMHFWVRIGLVOR\DOW\WKH\ZRQGHUDPRQJWKHPVHOYHV´LIP\RSLDLVEURXJKWRQ E\SRZHU"µDQGFRQFOXGH´LWKDSSHQVTXLWHIUHTXHQWO\µ೓0\RSLDKHUHJRHV EH\RQGOLWHUDOQHDUVLJKWHGQHVVWRUHϰHFWVPDOOPLQGHGQHVVDQGDODFNRI WKRVHWKLQJVWKDWDUH´SURSHUWRWKHKXPDQEHLQJµVRYHUHLJQRUQRLQVLJKW DQGLPDJLQDWLRQ$JDLQZKLOH,RQHVFRLVPDQLIHVWO\FULWLFL]LQJWKRVHLQ SRZHUKHLVDOVRDQGPRUHLQWHUHVWLQJO\LQP\DVVHVVPHQWFULWLFL]LQJWKRVH ZKRXQWKLQNLQJO\HQDEOHDQGVXSSRUWWKRVHZKRKDYHULVHQWRSRZHU7KH EDQTXHWVFHQHFHOHEUDWHV0DFEHWW·VFRURQDWLRQDVZHOODVKLVGHPLVH$VVRRQ DV0DFRONLOOV0DFEHWWDQGLVVHDWHGRQWKHWKURQHWKHVDPHJXHVWVZKRKDG JDWKHUHGWRKRQRU0DFEHWWVKRXW´/RQJOLYH0DFRORXUEHORYHGVRYHUHLJQµ DQGRWKHUVDUULYHKROGLQJSODFDUGVWKDWUHDG´0DFROLVDOZD\VULJKWµ೓1RW RQO\WKHVRYHUHLJQVXϸHUVIURPP\RSLDEXWDOVRWKRVHZKREODQNO\DFFHSW WKHVRYHUHLJQDVULJKW

&RXQWHUUHYROXWLRQLQWKH7KHDWHU 6 KDNHVSHDUH·V0DFEHWKLVDWDOHRIDPELWLRQJRQHDZU\-DUU\DQG,RQHVFRVLGH VWHSWKHWUDGLWLRQDOWUDJLFWRQHEXWWKHLUIRUPDOPRYHVWRIDUFHRQO\VFUDWFK WKHVXUIDFHRIWKHVLJQLϮFDQWGHSDUWXUHVHDFKSOD\ZULJKWPDNHVIURP6KDNH VSHDUH·VGUDPD8EXURL DQG0DFEHWW IROORZWKHWUDMHFWRU\RIUHYROXWLRQDQG XVXUSDWLRQRXWOLQHGLQWKH5HQDLVVDQFHGUDPDDQGDOWKRXJKHDFKSOD\VLP

>@

(;,77+(.,1*"

LODUO\SUHVHQWVDVLQJOHNLQJUHSODFLQJDQRWKHUERWK8EXDQG0DFEHWWHSLWR PL]HFKDUDFWHULVWLFVRIWKHFURZGIXQGDPHQWDOO\FKDQJLQJ6KDNHVSHDUH·V VWRU\RIUHYROXWLRQWRDPRGHUQVWRU\RIWKHUHYROXWLRQWKHVKLIWIURPDEVR OXWHVRYHUHLJQW\WRSRSXODUVRYHUHLJQW\ , Q WKHLU UHVSRQVHV WR WKH UHYROXWLRQ ERWK -DUU\ DQG ,RQHVFR H[SUHVV DQ[LHWLHVDERXWWKHFURZGUHYHDOLQJDQLPSRUWDQWZD\WKHDWHU´DYRLGVWKH UHYROXWLRQµ:LWKLQWKHORJLFRIDEVROXWHVRYHUHLJQW\WKHFURZGZDWFKHVGH IHUVWRDFNQRZOHGJHVDQGWKHUHIRUHFRUURERUDWHVWKHVRYHUHLJQ·VDXWKRULW\ :LWKLQWKHORJLFRISRSXODUVRYHUHLJQW\WKHFURZGUXOHV³LQVRIDUDVLWPXVW DWDOOWLPHVEHWDNHQLQWRDFFRXQWDVVHUWLQJLWVDXWKRULW\E\YLUWXHRIVL]HDQG QXPEHU-DUU\VHHNVWRPLQLPL]HWKHFURZG·VPDVVRQVWDJHDQGH[WHQGVD FULWLTXHRIWKHEDVHGHVLUHVDQGDSSHWLWHVWKDWIXHOWKHFURZGDQGQXUVHLWV SRZHU,RQHVFRKLQWVDWWKHFURZGZLWKGRXEOLQJRIFKDUDFWHUVDQGH[SORUHV WKHUHSHUFXVVLRQVRQSROLWLFDOOLIHRIWKHLQGLYLGXDO·VIDLOXUHWRWKLQNDQG MXGJHDVDQLQGLYLGXDO 7  KHWUDQVLWLRQWRGHPRFUDWLFSRSXODUVRYHUHLJQW\FUHDWHGWKHFKDOOHQJH RIKRZWRYLVXDOL]HDQGUHSUHVHQWWKHSHRSOHDQGLWVZLOO %\DQGODUJH WKHPRGHUQWKHDWHUGRHVQRWVWDJHSRSXODUZLOODVVXFKLQSDUWEHFDXVHWKH FURZGLVQROHVVGLϲ FXOWWRHϸHFWLYHO\UHSUHVHQWRQVWDJHWKDQLWLVLQD VLQJOHLPDJH@

6+,)76

3ODFLQJ0LFKHOHW·VZLVKWRIDWKRP´WKHP\VWHU\RIWKHPRQDUFKLFDOLQFDU QDWLRQµDYDQWODOHWWUHLQWKHWUDGLWLRQRIVFKRODUVKLSWKDWKDVFRPHWREH LGHQWLϮHGZLWK(UQVW.DQWRURZLF]/HIRUWDOORZVXVWRDVNSUHFLVHO\ZKDW KDSSHQVRQFHWKH´HPSW\SODFHµDSSHDUVDVVXUHG:KDWLVWKLVPRGHUQGHPR FUDWLFVKLIWVXSSRVHGO\DZD\IURPUR\DOW\DQGVRYHUHLJQW\WKDWWRVRPDQ\ REVHUYHUVDSSHDUVWRKDYHVHDOHGWKHIDWHRIVRYHUHLJQW\WKURXJKSRSXODU L]DWLRQ DQG WRZDUG HUDVXUH" /HIRUW QRWHV 0LFKHOHW·V UHPDUNDEOH LQVLJKWV WKDWLWLVWKHQDWXUDOERG\RIWKHNLQJWKDW´H[HUFLVHVWKHFKDUPWKDWGHOLJKWV WKHSHRSOHµDQGIXUWKHUPRUH´EHFDXVHUR\DOW\LVHPERGLHGLQDPDQWKH UR\DOSKDQWDVPDJRULDLVUHYLYHGZKHQWKHPDQLVWXUQHGLQWRDVSHFWD FOHµ೓  7KHSK\VLFDOERG\RIWKHNLQJUHJLVWHUVUR\DOW\QRWRQO\EHFDXVHLWLV XQGHUVWRRGWREHFRPELQHGZLWKWKHP\VWLFDOERG\EXWDOVREHFDXVH³DQG QRWGHVSLWHWKHIDFWWKDW³LWLVUHSOHWHZLWKDOOWKDWLVTXLQWHVVHQWLDOO\KX PDQPRUWDOLW\IDOOLELOLW\GHVLUHVDQGQHHGV7KHVDPHFRUSRUHDOLW\RIWKH NLQJSURGXFHVUR\DOW\DVDQDHVWKHWLFHϸHFW´WKHFKDUPWKDWGHOLJKWVµZKHQ LWLVSUHVHQWDV´DVSHFWDFOHµ:LWKLQWKHFRQWH[WRIWKH5HYROXWLRQWKLVEH FRPHV SDUWLFXODUO\ SUREOHPDWLF /HIRUW H[SODLQV 0LFKHOHW·V DJJULHYHG WRQH UHJDUGLQJWKHGHWHQWLRQRI/RXLV;9, , WZDVEHOLHYHGKHVXJJHVWVWKDWWKHGHSRVLWLRQRIWKHLQGLYLGXDOZRXOG KDYHWKHHϸHFWRIGHVDQFWLI\LQJKLP2QWKHFRQWUDU\´7KHPRVWVHULRXV DQGWKHFUXHOHVWEORZWKDWFRXOGKDYHEHHQVWUXFNDJDLQVWWKH5HYROXWLRQ ZDVWKHLQHSWLWXGHRIWKRVHZKRFRQVWDQWO\NHSW/RXLV;9,EHIRUHWKHH\HV RIWKHSRSXODWLRQDQGZKRDOORZHGKLPWRUHODWHWRWKHSRSXODWLRQERWK DV¬ D PDQ DQG DV D SULVRQHUµ :K\" %HFDXVH WKH PRUH KH ZDV UHYHDOHG LQ KLV K XPDQ VLQJXODULW\ DQG WKH PRUH YLVLEOH WKH OLYLQJ LQGLYLGXDO EHFDPH WKH PRUH KH¬UHPDLQHGDNLQJ¬¬¬$OOWKHVLJQVWKDWGHVLJQDWHKLPWREHDPDQUHVWRUHKLVNLQJ VKLS  

3  DUDGR[LFDOO\ZKDWWKHNLQJKDVLQFRPPRQZLWKDOO³KLVSK\VLFDOKXPDQ LW\DQGIDPLOLDOUHODWLRQV³FRQWULEXWHWRVHFXULQJKLVUR\DOW\@

35()$&(

SHUVLVWHQFHRIVRYHUHLJQW\ZKLFK/HIRUWXOWLPDWHO\GHVLJQDWHV´WKHUR\DOW\RI VSLULWµDQGDVVRFLDWHVZLWKDYDULHW\RIKXPDQLVPEXWDOVRWRDSSUHKHQG WKHFUXFLDOLQWHUWZLQHPHQWRIVRYHUHLJQW\DQGWKHDWHU7KHSUHVXPHGUHYR OXWLRQDU\DQGSRVWUHYROXWLRQDU\GHPRFUDWLFVKLIWGRHVQRW³LQGHHGFDQQRW³ VLPSO\GRZLWKRXWDFRPSOH[HQJDJHPHQWZLWKWKHVHDHVWKHWLFPDWHULDODQG VHPLRWLFIRUPV7KHHVVD\VLQWKLVVHFWLRQDUHLQWHUHVWHGLQVKLIWVWUDQVIRU PDWLRQVDQGWUDQVSRVLWLRQVRIVRYHUHLJQW\SULPDULO\PRGHUQRQHV1HZ IRUPVRIVRYHUHLJQW\³SRSXODUVRYHUHLJQW\WKHVRYHUHLJQVWDWH³UHTXLUHQHZ IRUPVRIUHSUHVHQWDWLRQWKHVFDϸROGRQZKLFKWKHVRYHUHLJQLVSUHVHQWHG DQGVXVWDLQHGKDVFKDQJHGIRUP7KHFRQWH[WVLQZKLFKSUREOHPDWLFVRI PRGHUQVRYHUHLJQW\KDYHUHHPHUJHGRIWHQZLWKDYHQJHDQFH DUHWKHIR FXVKHUH 'DQ(GHOVWHLQ·VVWXG\´5HYROXWLRQLQ3HUPDQHQFHDQGWKH)DOORI3RSXODU 6RYHUHLJQW\µHQJDJHVWKHSUREOHPRI´SHUPDQHQWUHYROXWLRQµDQGWKHVRY HUHLJQW\ UHOHYDQW WR UHYROXWLRQ LWVHOI ,Q WKHLU HDUO\ PRGHUQ LQFDUQDWLRQ UHYROXWLRQVIROORZHGDFRQVWLWXWLRQDOVFULSWDIWHUDEULHISRVVLEO\YLROHQW LQWHUUHJQXPWKHQHZUHJLPHJURXQGHGLWVOHJLWLPDF\E\DQDFWRISRSXODU VRYHUHLJQW\+RZZDVLWWKHQWKDWPRVWWZHQWLHWKFHQWXU\UHYROXWLRQVGLG QRWUHO\RQIUHHHOHFWLRQVWRDXWKRUL]HWKHLUJRYHUQPHQWV"(GHOVWHLQUHFRXQWV KRZ.DUO0DU[LQKLVFRPPHQWDU\RQWKHUHYROXWLRQVRI²DEDQ GRQHGWKHFRQVWLWXWLRQDOPRGHORIUHYROXWLRQVXEVWLWXWLQJLQLWVSODFHDQHZ ´SHUPDQHQWµPRGHOEDVHGRQWKH)UHQFK5HYROXWLRQDU\7HUURUDQGKHWUDFHV DQXPEHURIFRQVHTXHQFHVIRUWKLVUHWKLQNLQJRIUHYROXWLRQDU\SRZHUDQG DXWKRULW\SDUWLFXODUO\ZLWKUHJDUGWRTXHVWLRQVRIWKHLPDJHRIWKHSHRSOH DQGWKHDVVHUWLRQRIWKHLUVRYHUHLJQW\ , QKLVVHPLQDOHVVD\WUDQVODWHGKHUHIRUWKHϮ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ϸHUVD FULWLFDOFXOWXUDODQDO\VLVRIWKHFRQFHSWVRI´H[LOHµWKH´QHJDWLRQRIH[LOHµ

>@

6+,)76

DQGWKHLUUHODWLRQVKLSVWRUHGHPSWLRQDQGVRYHUHLJQW\LQWKHSURFHVVVKRZ LQJKRZWKHQHJDWLRQRIH[LOHDϸHFWVQRWRQO\WKHXQGHUVWDQGLQJRI-HZLVK UHDOLW\EXWDOVRWKHWUHDWPHQWRISULYDF\WRGD\DVZHOODVWKHWUHDWPHQWRI WKH3DOHVWLQLDQV / L&KHQ·VHVVD\DQDO\]HVKRZWKHSRVW(QOLJKWHQPHQWGLVFRXUVHRIV\P SDWK\DQGFLYLOL]HGVHQVLELOLW\EHFDPHDSRSXODUHSLVWHPRORJ\DQGLPSHULDO LGHRORJ\WKDWVHUYHGWRUHGHϮQHWKHEDVLVRIVRYHUHLJQW\LQPLGQLQHWHHQWK FHQWXU\6LQR:HVWHUQUHODWLRQV+RZHYHUWKHVHQWLPHQWDODQGFRQϰLFWXDO QDWXUHRIWKLVGLVFRXUVHDOVRJHQHUDWHGDPELJXLWLHVDQGDPELYDOHQFHZKHQ GRPLQDWHG SHRSOH DSSHDOHG WR VLPLODU VHQWLPHQWV DQG ZKHQ YLROHQFH DQG RSSUHVVLRQZHUHFRPPRQϮ[WXUHVRIFRORQLDOHPSLUH6WXG\LQJWKHSURGXF WLRQDQGFRQWHVWDWLRQRIWKHUHVXOWLQJ´DϸHFWLYHNQRZOHGJHµLQ6LQR:HVWHUQ UHODWLRQVDOORZVXVWRVHHWKHIUHTXHQWO\RYHUORRNHGHPRWLYHXQGHUVLGHRI LQWHUQDWLRQDOSROLWLFVDQGLWVHϸHFWRQVRYHUHLJQW\ ) LQDOO\6WHIDQRV*HURXODQRVORRNVDWWKHHDUO\WZHQWLHWKFHQWXU\ϮJXUH RIWKH1HZ0DQ³WKHSURPLVHGVRYHUHLJQRIDQDQWLFLSDWHGQHZHUDGLVEXU GHQHGRIWKHVRFLDOHFRQRPLFDQGSROLWLFDOIDLOXUHVRIWKHSUHVHQW$VWKH ´1HZ0DQµHPHUJHGLQWKHQLQHWHHQWKFHQWXU\DQGZDVUDGLFDOL]HGLQWKH SRVW²:RUOG:DU,HUDLWFDPHWRLQKDELWIDQWDVLHVRIFXOWXUDODQGDHVWKHWLF UHJHQHUDWLRQQRWRQO\LQQHZUDGLFDODXWKRULWDULDQUHJLPHVEXWDOVRLQPRVW SROLWLFDOVFLHQWLϮFDQGDYDQWJDUGHPRYHPHQWV*HURXODQRVIRUHJURXQGV WKHFDVHRI5LFKDUG:DJQHULQUHODWLRQWRWKHSUREOHPRIFRQFHLYLQJDQGVWDJ LQJQHZRUI XWXUDOIRUPVRIVRYHUHLJQW\DQGW\LQJWKHPWRWKHH[SHULHQFHRI VHFXODUDQGV\PEROLFKLVWRU\+HDUJXHVWKDW:DJQHU·VWKHRUL]DWLRQRIWKH WRWDODUWZRUNWRJHWKHUZLWKKLVVWDJLQJRI6LHJIULHG·VϮUVWDFWDUWLFXODWHVD UHODWLRQVKLSEHWZHHQDUWLVWFUHDWRUDQGKHUROHDGHUWKDWFRQWULEXWHVWRXQ GHUVWDQGLQJERWKWKHFRPSOHPHQWDU\ϮJXUHVRIWKH1HZ0DQ³SDUWLFXODUO\ WKHLUSODFHPHQWRQWKHFXVSRIERWKWKHEHJLQQLQJDQGWKHHQGRIKLVWRU\³ DQGWKHLUFRPSOLFDWLRQGXULQJWKHODWHU\HDUVRIWKHQLQHWHHQWKFHQWXU\E\ WKLFNRUGHQVHFRQFHSWVRIV\PEROLFKLVWRU\DQGE\VFLHQWLϮFGLVFRXUVHVDV VRFLDWHGZLWKGLϸHUHQWSROLWLFDOSHUVSHFWLYHV7XUQLQJWKHQWR&DUO-XQJDQG $OIUHG5RVHQEHUJWKHHVVD\H[DPLQHVKRZDVWDJLQJRI´WKHSHRSOHµDQGRI DV\PEROLFKHULWDJHZKLFKFDQVXSSRVHGO\RQO\EHLQWHUSUHWHGDQGUHGH SOR\HGE\WKH´JHQXLQHµQDWLRQDODUWLVWDQGSKLORVRSKLFDOSV\FKRORJLVWUH VSHFWLYHO\FDQUHVXOWLQϮFWLRQVRISROLWLFDOSDUWLFLSDWLRQDQGSRZHULQZKLFK WKHSHRSOHUDFHRUQDWLRQLVLQYROYHGLQDQDWRQFHKHURLFDQGDHVWKHWLFVHOI GHSOR\PHQW >@

35()$&(

1RWHV   &ODXGH/HIRUW´7KH3HUPDQHQFHRIWKH7KHRORJLFR3ROLWLFDO"µLQ3ROLWLFDO7KH RORJLHV3XEOLF5HOLJLRQVLQD3RVW6HFXODU:RUOGHG+HQWGH9ULHVDQG/DZUHQFH( 6XOOLYDQ1HZ@

) 2857((1

5HYROXWLRQLQ3HUPDQHQFHDQGWKH)DOO RI3RSXODU6RYHUHLJQW\ ' $ 1 ( ' ( / 6 7 ( , 1

) 520 ,76 25,*,16LQWKH3URWHVWDQW5HIRUPDWLRQXQWLOLWVJOREDOH[SOR VLRQLQWKHHLJKWHHQWKFHQWXU\UHYROXWLRQDU\WKRXJKWZHQWKDQGLQKDQG ZLWKFRQVWLWXWLRQDOLVP7KHVDPHDUJXPHQWVWKHRULVWVHPSOR\HGWRMXVWLI\ LQVXUUHFWLRQDJDLQVWDGHVSRWLFUXOHUDOVRVHUYHGDVWKHSULQFLSOHVRIWKHQHZ JRYHUQPHQWWRIROORZ7KHUHODWLRQEHWZHHQFRQVWLWXWLRQDQGUHYROXWLRQZDV V\PELRWLFSUHFLVHO\EHFDXVH DQRSSUHVVLYHUHJLPHYLRODWHGXQLYHUVDOVWDQ GDUGVRIMXVWLFHDQGOLEHUW\WKHQHZJRYHUQPHQWKDGWRREVHUYHDQGFKHULVK WKHP :KDW·V PRUH ERWK UHYROXWLRQ DQG FRQVWLWXWLRQ VKDUHG WKH VDPH XOWLPDWHDXWKRULW\SRSXODUFRQVHQW,WZDVRQO\´WKH3HRSOH>ZKRFDQ@EH -XGJHµRIZKHWKHUDUXOHU·VDFWLRQVURVHWRWKHOHYHORIGHVSRWLVP/RFNHFRQ FOXGHGDQGRQO\WKHSHRSOHZKRFRXOGFRQWUDFWDQHZJRYHUQPHQW3RSXODU VRYHUHLJQW\ZDVWKXVWKHIRUPRISROLWLFDODXWKRULW\WKDWFRXOGOHJLWLPDWHDQ RWKHUZLVHLOOHJDOUHEHOOLRQDQGWKHQVDQFWLRQWKHQHZRUGHUWKDWIROORZHG WKURXJKDUDWLϮFDWLRQSURFHVV 5HYROXWLRQLQWKLVHDUO\PRGHUQPRGHOZDV DOZD\VDPHDQVWRDFRQVWLWXWLRQDOHQG 7  KHYDOLGLW\RIWKLVPRGHOLVVWLOOUHFRJQL]HGWRGD\DVFDQEHVHHQLQ WKH$UDEXSULVLQJZKHUHUHYROXWLRQVDJDLQVWDXWRFUDWLFOHDGHUVZHUHVXF FHHGHG E\ FRQVWLWXHQW DVVHPEOLHV DQG RSHQ HOHFWLRQV LQ 7XQLVLD DQG DW OHDVWLQLWLDOO\LQ(J\SWDQG/LE\D %XWIRUDVLJQLϮFDQWVWUHWFKRIKLVWRU\ WKLVPRGHOZDVOHIWE\WKHZD\VLGH,QGHHGEHWZHHQ5XVVLD DQG &DPERGLD URXJKO\VSHDNLQJPRVWUHYROXWLRQVGLGQRWKDYHDFRQVWLWXWLRQ DV WKHLU XOWLPDWH JRDO ,I WKHVH UHYROXWLRQV GLG LQ VRPH FDVHV SURGXFH >@

6+,)76

FRQVWLWXWLRQVWKRVHFRQVWLWXWLRQVZHUHRIWHQGHOD\HGE\VL[WHHQ\HDUVLQ WKH&XEDQFDVH DQGWKHYDVWPDMRULW\RIWKHPZHUHQHYHUUDWLϮHGE\SRSXODU YRWH,UDQEHLQJRQHH[FHSWLRQ :KDW·VPRUHGHVSLWHPDQ\RIWKHVHUHYROX WLRQDU\VWDWHVDVVXPLQJWKHQDPHRID´3HRSOH·V5HSXEOLFµWKH\GLGQRWLQ IDFWJUDQWWKHSHRSOHWKHULJKWWRIUHHHOHFWLRQV$VWKHIDOORIWKH(DVWHUQ %ORFLQGHPRQVWUDWHGWKHVHSHRSOH·VUHSXEOLFVZHUHIRUWKHPRVWSDUW YHU\XQSRSXODU 7  KHWZHQWLHWKFHQWXU\KLVWRU\RIUHYROXWLRQWKXVUDLVHVDGLϸHUHQWNLQG RIUHGϰDJIRUWKHKLVWRULDQKRZGLGDSROLWLFDOFRQFHSWDQGWHUP WKDWZDV RULJLQDOO\MRLQHGDWWKHKLSZLWKSRSXODUVRYHUHLJQW\EHFRPHGLYRUFHGIURP LW",QWKLVHVVD\ZKLFKIRUPVSDUWRIDODUJHUUHVHDUFKSURMHFW,DQDO\]HWKH UROHWKDW.DUO0DU[SOD\HGLQWHDULQJUHYROXWLRQDZD\IURPSRSXODUVRYHU HLJQW\WKURXJKKLVWKHRU\RI´SHUPDQHQWUHYROXWLRQµ0DU[·VUROHLQWKLV VWRU\LVUHDOO\WKDWRIDQLQWHUPHGLDU\KHϮUVWGHYHORSHGKLVWKHRU\,DU JXHZKLOHVWXG\LQJWKHKLVWRU\RIWKH)UHQFK5HYROXWLRQ$V,KDYHVKRZQ HOVHZKHUHLWZDVLQGHHGWKH-DFRELQVZKRϮUVWPRYHGEH\RQGWKHFRQVWLWX WLRQDOPRGHORIUHYROXWLRQZLWKWKHSURFODPDWLRQRI´UHYROXWLRQDU\JRYHUQ PHQWµLQ2FWREHU&XULRXVO\0DU[GLGQRWPDNHPXFKRIWKLVGHFLVLRQ E\WKH-DFRELQGRPLQDWHG1DWLRQDO&RQYHQWLRQWRVXVSHQGWKH)UHQFKFRQ VWLWXWLRQEXWIRFXVHGLQVWHDGRQDGLϸHUHQWPRUH´SRSXOLVWµIHDWXUHRIWKLV SHULRGWKH´SHUPDQHQFHµRIWKH3DULVLDQVHFWLRQV7KURXJKKLVVWXG\RIWKH )UHQFK5HYROXWLRQDQGKLVDWWHPSWVWRDSSO\LWVSULQFLSOHVGXULQJWKH² UHYROXWLRQV0DU[FRQVXPHGWKHULIWEHWZHHQUHYROXWLRQDU\DQGFRQ VWLWXWLRQDOWKRXJKW,WZDVDFRQVXPPDWLRQZLWKZLGHUDQJLQJFRQVHTXHQFHV ZKLOHWRGD\ZHDVVRFLDWHWKHWKHRU\RISHUPDQHQWUHYROXWLRQPDLQO\ZLWK 7URWVN\ LW ZDV ZLGHO\ NQRZQ DQG GLVFXVVHG LQ 5XVVLDQ VRFLDOGHPRFUDWLF FLUFOHVZHOOEHIRUHKHHPEUDFHGLW 0DU[·VUHϰHFWLRQVRQ-DFRELQLVPWKXV SURYLGHGDNH\WKHRUHWLFDOMXVWLϮFDWLRQIRUWKHDQWLFRQVWLWXWLRQDODQGDQWL GHPRFUDWLFPRGHORIUHYROXWLRQZKLFKZRXOGWULXPSKLQ2FWREHUDQG IRUGHFDGHVWKHUHDIWHU

 DQG0DU[ ) HEUXDU\ZLWQHVVHGWZRLPSRUWDQWHYHQWVLQUHYROXWLRQDU\KLVWRU\WKH SXEOLFDWLRQRI7KH&RPPXQLVW0DQLIHVWR DQGWKHRXWEUHDNRIUHYROXWLRQLQ 3DULV7KHUHZDVQRFRQQHFWLRQEHWZHHQWKHVHHYHQWVDQG0DU[ZRXOGXS >@

5(92/87,21,13(50$1(1&($1'7+()$//2)3238/$5629(5(,*17@

6+,)76

GLVFRYHUHGWKHLURZQFODVVLGHQWLW\´2QO\DIWHUEHLQJGLSSHGLQWKHEORRG RI WKH -XQH LQVXUJHQWV GLG WKH WULFRORU EHFRPH WKH ϰDJ RI WKH (XURSHDQ UHYROXWLRQ³WKHUHGϰDJµ  +LVWRU\LWVHOIWKXVDOORZHG0DU[WRXSGDWHWKH UHYROXWLRQDU\WKHRU\KHDQG(QJHOVKDGODLGRXWSUHYLRXVO\LQWKH&RP PXQLVW0DQLIHVWR,QGHIHDWWKHSUROHWDULDQVKDGFRPHRXWRIWKHVKDGRZV RI WKH ERXUJHRLVLH DQG DVVXPHG WKHLU RZQ LGHQWLW\ DV D UHYROXWLRQDU\ FODVV :  KHUHWKHHVWDEOLVKPHQWRIFRQVWLWXWLRQDOUXOHKDGWUDGLWLRQDOO\EHHQUH JDUGHGDVWKHWHORVRIUHYROXWLRQDWOHDVWXSXQWLO 0DU[UHMHFWHGWKLV JRDO´:LWKWKH/HJLVODWLYH1DWLRQDO$VVHPEO\WKHSKHQRPHQRQRIWKHFRQVWL WXWLRQDOUHSXEOLF ZDVFRPSOHWHGWKDWLVWKHUHSXEOLFDQIRUPRIJRYHUQPHQW LQZKLFKWKHUXOHRIWKHERXUJHRLVFODVVLVFRQVWLWXWHGµ7KHFRQVWLWXWLRQ KHFODLPHGZDVQRWKLQJPRUHWKDQWKHLQVWUXPHQWWKDWWKHSDUW\LQSRZHU XVHVWRUHWDLQSRZHU´WKHLQWHUSUHWDWLRQRIWKHFRQVWLWXWLRQGLGQRWEHORQJ WRWKRVHZKRKDGPDGHLWEXWRQO\WRWKRVHZKRKDGDFFHSWHGLW¬¬¬>,@WV ZRUGLQJPXVWEHFRQVWUXHGLQLWVYLDEOHPHDQLQJDQG¬¬¬WKHERXUJHRLVPHDQ LQJZDVLWVRQO\YLDEOHPHDQLQJµ(PSOR\LQJDUHOLJLRXVOHJDODQDORJ\0DU[ DUJXHGWKDWLQWHUSUHWDWLRQZDVPHUHO\DPHDQVWRSRZHU´%RQDSDUWHDQG WKHUR\DOLVWPDMRULW\RIWKH1DWLRQDO$VVHPEO\ZHUHWKHDXWKHQWLFLQWHUSUHW HUVRIWKHFRQVWLWXWLRQDVWKHSULHVWLVWKHDXWKHQWLFLQWHUSUHWHURIWKH%LEOH DQGWKHMXGJHWKHDXWKHQWLFLQWHUSUHWHURIWKHODZVµ 7  KLVKHUPHQHXWLFDOFODLPKRZHYHUPDVNHGDPRUHUDGLFDOVWDQFH%\ UHMHFWLQJWKHFRQVWLWXWLRQ·VOHJLWLPDF\0DU[UHIXVHGWRJUDQWWKDWSRSXODU VRYHUHLJQW\VKRXOGKDYHWKHϮQDOZRUGLQVHWWOLQJSROLWLFDORXWFRPHV+HKDG VHHQϮUVWKDQGZKDWKDSSHQHGZKHQ)UHQFKSHDVDQWVDQGYLOODJHUVYRWHG WKH\HOHFWHGD%RQDSDUWH,QPDQ\UHVSHFWV0DU[·VUHVLVWDQFHWRSRSXODU HOHFWLRQV ZDV GULYHQ E\ D SDUDGR[ RI DXWKRULWDULDQ SRZHU LQ QLQHWHHQWK FHQWXU\)UDQFHGLUHFWGHPRFUDF\LQWKHIRUPRISOHELVFLWHVZDVDFHQWUDO SLOODURIVXSSRUWRI%RQDSDUWLVP&RQVWLWXWLRQDOLVPLQQLQHWHHQWKFHQWXU\ )UDQFHZDVFRXQWHUUHYROXWLRQDU\0DU[KDGWRPDNHSKLORVRSKLFDOOHPRQ DGHRXWRIKLVWRULFDOOHPRQV %  XW0DU[·VLPSDWLHQFHZLWKSRSXODUVRYHUHLJQW\FDQQRWMXVWEHFKDONHGXS WR D FRQVHUYDWLYH HOHFWRUDWH 9LHZLQJ DOO SROLWLFV WKURXJK WKH OHQV RI FODVV VWUXJJOHKHFDVWLJDWHGWKH6HFRQG5HSXEOLFDVQRWKLQJRWKHUWKDQD´ERXU JHRLV GLFWDWRUVKLSµ %RXUJHRLVGLFWDWXU  :LWK WKLV H[SUHVVLRQ KH PHDQW WZR WKLQJVϮUVWLWGHVLJQDWHGDUHJLPHWKDWGLGQRWKHVLWDWHWRXVHIRUFHWRLP SRVHLWVZLOODQGUHSUHVVGLVVHQWDVKHVKRZVLQKLVDQDO\VLVRIWKH-XQH >@

5(92/87,21,13(50$1(1&($1'7+()$//2)3238/$5629(5(,*17GLH3HUPDQHQ]HUNOlUXQJGHU5HYR OXWLRQ@WKHFODVVGLFWDWRUVKLSRIWKHSUROHWDULDWDVWKHQHFHVVDU\WUDQVLWSRLQW WRWKHDEROLWLRQRIFODVVGLVWLQFWLRQVJHQHUDOO\µ 7  KLVRIWTXRWHGSDVVDJHRIWKH&ODVV6WUXJJOHV PDUNVDQLPSRUWDQWWXUQ LQJSRLQWLQWKHKLVWRU\RIUHYROXWLRQDU\WKRXJKW:KHUHWKHOHJLWLPDF\RI SRVWUHYROXWLRQDU\UHJLPHVKDGSUHYLRXVO\EHHQWKRXJKWWRUHVWRQSRSXODU VRYHUHLJQW\KHUH0DU[SURSRVHVDGLϸHUHQWIRUPRISROLWLFDODXWKRULW\ZKLFK GHULYHVIURPWKHI XWXUHDFFRPSOLVKPHQWRIDUHYROXWLRQDU\SURJUDP7KHSUR OHWDULDWLVWKHRQO\FODVVWKDWFDQOHJLWLPDWHO\UXOHRYHUWKHRWKHUVEHFDXVH LWLVWKHRQO\FODVVGHVWLQHGWRDFFRPSOLVKWKHWUXHKLVWRULFDOSXUSRVHRI WKHUHYROXWLRQ&ODVVVRYHUHLJQW\ZKLFKZRXOGODWHUPRUSKLQWRSDUW\VRY HUHLJQW\EHFDPHWKHQHZJXDUDQWRURISRZHULQWKLVSHUPDQHQWPRGHORI UHYROXWLRQ 7  KLVSDVVDJHLVDOVRQRWHZRUWK\EHFDXVHLWDVVRFLDWHVWKLVW\SHRIUHYROX WLRQDU\DXWKRULW\ZLWKDFRQFHSWWKDWZRXOGEHFRPHFHQWUDOWR0DU[LVW WKRXJKW´WKHUHYROXWLRQLQSHUPDQHQFHµRU´SHUPDQHQWUHYROXWLRQµ0DU[ GRHVQRWH[SRXQGRQWKLVLGHDLQ7KH&ODVV6WUXJJOHVLQ)UDQFH´7KHVFRSHRI WKLVH[SRVLWLRQGRHVQRWSHUPLWRIGHYHORSLQJWKHVXEMHFWIXUWKHUµ WKRXJK WKHUHIHUHQFHWR%ODQTXLKDVOHGVRPHFRPPHQWDWRUVWRVHHNLWVRULJLQWKHUH %XWRQHGRHVQRWϮQGKHUHRULQDQ\RWKHURI0DU[·VGLVFXVVLRQVRISHU PDQHQWUHYROXWLRQWRZKLFK,WXUQVKRUWO\ WKH%ODQTXLVWQRWLRQWKDWUHY ROXWLRQDU\GLFWDWRUVDUHWREHGUDZQIURPWKHFRQVSLUDWRULDOJURXSWKDW ODXQFKHGWKHUHYROXWLRQLQWKHϮUVWSODFH6LQFHUHYROXWLRQVIRU0DU[DUH WKHQHFHVVDU\RXWFRPHVRIVRFLRHFRQRPLFFRQWUDGLFWLRQVLWZRXOGEHLOORJL FDOIRUKLPWRDGKHUHWR%ODQTXL·VPRGHORISODQQHGLQVXUUHFWLRQV)LQDOO\ WKHUHLVQRLQGLFDWLRQWKDW0DU[KDGLQPLQGKHUHDGLFWDWRUVKLSRIWKHW\SH >@

6+,)76

%ODQTXLLPDJLQHG³WKDWLVDQDOOSRZHUIXO&RPPLWWHHRI3XEOLF6DIHW\$V ZHZLOOVHHWKH)UHQFKUHYROXWLRQDU\SUDFWLFHWKDW0DU[SUHIHUUHGZDVIXQ GDPHQWDOO\GLϸHUHQW :  KDW 0DU[ VNHWFKHV RXW LQ WKH & ODVV 6WUXJJOHV LQ )UDQFH LV QRQHWKHOHVV PXFK FORVHU WR WKH DFFHOHUDWHG PRGHO RI SUROHWDULDQ UHYROXWLRQ GXULQJ D ERXUJHRLVUHYROXWLRQODWHUFKDPSLRQHGE\/HQLQDQGHYHQPRUHH[SOLFLWO\  7URWVN\ WKDQ WKH WZRVWDJH PRGHO RI ERXUJHRLV UHYROXWLRQ VXEVHTXHQWO\ IROORZHG E\ SUROHWDULDQ UHYROXWLRQ DQQRXQFHG LQ WKH 0  DQLIHVWR $QG WKLV VNHWFKZDVQRWDRQHRϸGUDIW,QGHHG0DU[´GHYHORSHGWKHVXEMHFWIXUWKHUµ LQ D VKRUW SLHFH SXEOLVKHG DURXQG WKH VDPH WLPH WKH IDPRXV 0DUFK  ´$GGUHVVRIWKH&HQWUDO&RPPLWWHHWRWKH&RPPXQLVW/HDJXHµFRZULWWHQ ZLWK(QJHOV+HUHWKHEDWWOHFU\RIWKH0DQLIHVWR´:RUNLQJ0HQRI$OO&RXQ WULHV8QLWHµDOVRWKHPRWWRRIWKH&RPPXQLVW/HDJXH ZDVXSGDWHGZLWKD PRUHPHQDFLQJRQH7KH*HUPDQZRUNHUV·´EDWWOHFU\PXVWEH7KH5HYROXWLRQ LQ3HUPDQHQFH>'LH5HYROXWLRQLQ3HUPDQHQ]@µ$VLQWKH&ODVV6WUXJJOHVLQ)UDQFH 0DU[DQG(QJHOVGHQRXQFHGFRQVWLWXWLRQDOLVPDJDLQDVDFODVVLQVWUXPHQWRI ´WKH FRQVWLWXWLRQDOGHPRFUDWLF SHWW\ ERXUJHRLVµ %XW WKH\ DOVR DGGHG WZR WZLVWVWRWKHWKHRU\RISHUPDQHQWUHYROXWLRQ7KHϮUVWZDVWHPSRUDOWKHUHY ROXWLRQVKRXOGEHSHUPDQHQWLQWKHOLWHUDOVHQVHWKDWLWVDFWLRQVPXVWEHRI LQGHϮQLWHGXUDWLRQ&RQYHUVHO\WKRVHZKRVHHNWRHQGWKHUHYROXWLRQVZLIWO\ VKRXOGEHYLHZHGZLWKVXVSLFLRQ :  KLOHWKHGHPRFUDWLFSHWW\ERXUJHRLVZDQWWREULQJWKHUHYROXWLRQWRDQHQG DVTXLFNO\DVSRVVLEOHDFKLHYLQJDWPRVWWKHDLPVDOUHDG\PHQWLRQHGLWLVRXU LQWHUHVWDQGRXUWDVNWRPDNHWKHUHYROXWLRQSHUPDQHQW>GLH5HYROXWLRQSHUPD QHQW]XPDFKHQ@XQWLODOOWKHPRUHRUOHVVSURSHUWLHGFODVVHVKDYHEHHQGULYHQ IURPWKHLUUXOLQJSRVLWLRQVXQWLOWKHSUROHWDULDWKDVFRQTXHUHGVWDWHSRZHU DQGXQWLOWKHDVVRFLDWLRQRIWKHSUROHWDULDQVKDVSURJUHVVHGVXϲ FLHQWO\IDU

3  HUPDQHQWUHYROXWLRQLVWKXVRQFHDJDLQDVVRFLDWHGZLWKFODVVGLFWDWRU VKLSHYHQLIWKLVH[SUHVVLRQLVQRWXVHGLQWKHWH[W,QGHHGLQVWHDGRIWKH FRPSDULVRQZLWKERXUJHRLVUXOHIRXQGLQWKH&ODVV6WUXJJOHVLQ)UDQFH0DU[ DQG(QJHOVLQWURGXFHGDGLϸHUHQWKLVWRULFDOSDUDOOHO´$VLQ)UDQFHLQ LW LV WKH WDVN RI WKH JHQXLQHO\ UHYROXWLRQDU\ SDUW\ LQ *HUPDQ\ WR FDUU\ WKURXJKWKHVWULFWHVWFHQWUDOL]DWLRQµ7KH\OHIWQRGRXEWVDERXWZKDWLWZDV VSHFLϮFDOO\WKLVHDUOLHUPRGHOKDGWRRϸHU,WZDVWKH7HUURU

>@

5(92/87,21,13(50$1(1&($1'7+()$//2)3238/$5629(5(,*17WHUURULVWLVFKHQ3KUDVHQ@7KH\ PXVW ZRUN WR HQVXUH WKDW WKH LPPHGLDWH UHYROXWLRQDU\ H[FLWHPHQW LV QRW VXGGHQO\VXSSUHVVHGDIWHUWKHYLFWRU\¬¬¬)DUIURPRSSRVLQJWKHVRFDOOHG H[FHVVHV³LQVWDQFHVRISRSXODUYHQJHDQFHDJDLQVWKDWHGLQGLYLGXDOVRUDJDLQVW SXEOLF EXLOGLQJV ZLWK ZKLFK KDWHIXO PHPRULHV DUH DVVRFLDWHG³WKH ZRUN HUV·SDUW\PXVWQRWRQO\WROHUDWHWKHVHDFWLRQVEXWPXVWHYHQJLYHWKHP GLUHFWLRQ

7  KLVSDVVDJHUHDGVLQSDUWOLNHDUHYHQJHϮFWLRQRIZKDWPLJKWKDYHKDSSHQHG LQVSULQJKDGWKH3DULVLDQZRUNHUVRQO\KDUDVVHGWKH3URYLVLRQDO*RY HUQPHQWPRUHYLJRURXVO\%XWLWFDQDOVREHUHDGDVDVRFLDOLVWDFFRXQWRI TXDWUHYLQJWWUHL]HZLWKWKHZRUNHUVLQWKHUROHRIWKHVDQVFXORWWHV(LWKHU ZD\0DU[DQG(QJHOVGHϮQHGSHUPDQHQWUHYROXWLRQRQWKHPRGHORIWKH´GH FLVLYHWHUURULVWLF>WHUURULVWLVFK@DFWLRQDJDLQVWWKHUHDFWLRQµWKDWFKDUDFWHU L]HGLQWKHLUYLHZWKHUDGLFDOSKDVHRIWKH)UHQFK5HYROXWLRQ7KHEDWWOHFU\ IRUSHUPDQHQWUHYROXWLRQZDVDOLWHUDOFDOOWREDWWOH´WKHZRUNHUVPXVWEH DUPHGDQGRUJDQL]HGµWKH\ZURWH´7KHZKROHSUROHWDULDWPXVWEHDUPHG DWRQFHZLWKPXVNHWVULϰHVFDQQRQDQGDPPXQLWLRQµ 7  KLVϮ[DWLRQRQ)UHQFKUHYROXWLRQDU\7HUURUUDLVHVWKHTXHVWLRQRIKRZ PXFK0DU[·VLGHDVDERXWUHYROXWLRQZHUHGHWHUPLQHGE\WKHHYHQWVRI² DQGKRZPXFKKHZDVWKLQNLQJDERXW6RPHKLVWRULDQVKDYHFKDU DFWHUL]HG0DU[DQG(QJHOV·VDJJUHVVLYHSRVWXUHLQWKH0DUFKDGGUHVVDVD GHSDUWXUHIURPWKHPLOGHUDQGPRUHFDXWLRXVDWWLWXGHWKH\KDGDGRSWHGDW WKHEHJLQQLQJRIWKHUHYROXWLRQ-RQDWKDQ6SHUEHUUHFHQWO\DUJXHGIRULQ VWDQFHWKDW´7KHSROLFLHV>0DU[@GHQRXQFHGLQWKH0DUFK$GGUHVV¬¬¬ZHUH DOOFHQWUDOIHDWXUHVRIKLVRZQDFWLYLWLHVGXULQJPRVWRI²µ,Q6SHU EHU·VYLHZ0DU[EHFDPHGLVHQFKDQWHGE\WKHIDLOXUHRISROLFLHVKHKDGDG YRFDWHGLQWKH1HXH5KHLQLVFKH=HLWXQJDQGVXEVHTXHQWO\PRYHGFORVHUWRWKH PRUHUDGLFDOZLQJRIWKH&RPPXQLVW/HDJXHUHSUHVHQWHGE\$QGUHDV*RWW VFKDONIURPZKRP6SHUEHUVXJJHVWV0DU[ERUURZHGWKHSKUDVH´SHUPDQHQW UHYROXWLRQµ :KLOH0DU[FOHDUO\XVHGWKH²UHYROXWLRQDVDQRSSRU WXQLW\WRWKLQNWKURXJKDQGZRUNRXWKLVRZQUHYROXWLRQDU\WKHRU\WKHUH LVSOHQW\RIHYLGHQFHWKDWKHKDWFKHGKLVPRUHUDGLFDOWKHRU\RISUROHWDULDQ UHYROXWLRQHDUOLHU$OUHDG\LQWKHIDOORIKHZDVPDNLQJDVWURQJFDVH

>@

6+,)76

IRU SURYLVLRQDO GLFWDWRUVKLS DQG DJDLQVW FRQVWLWXWLRQDOLVP FODLPLQJ WKDW ´HYHU\SURYLVLRQDORUJDQL]DWLRQRIWKHVWDWHUHTXLUHVDGLFWDWRUVKLSDQGDQ HQHUJHWLFGLFWDWRUVKLSDWWKDW)URPWKHYHU\EHJLQQLQJZHKDYHUHSURDFKHG &DPSKDXVHQIRUQRWDFWLQJGLFWDWRULDOO\IRUQRWKDYLQJLPPHGLDWHO\VPDVKHG XSDQGHOLPLQDWHGWKHUHPQDQWVRIWKHROGLQVWLWXWLRQV¬¬¬+HUU&DPSKDX VHQZDVOXOOLQJKLPVHOIZLWKFRQVWLWXWLRQDOGUHDPLQJµ,QIDFWWKHRULJLQV RI0DU[·VWKHRU\RISHUPDQHQWUHYROXWLRQDUHWREHGLVFRYHUHGZHOOEHIRUH WKHUHYROXWLRQHYHQEURNHRXWLQ

0DU[DQGWKH)UHQFK5HYROXWLRQ , QWKHLULOOXPLQDWLQJKLVWRU\RIWKHSKUDVH´SHUPDQHQWUHYROXWLRQµ5LFK DUG%'D\DQG'DQLHO*DLGRQRWHWKDW0DU[KDGXVHGWKHH[SUHVVLRQWKUHH WLPHVEHIRUHDQGϮUVWLQ(DFKWLPHWKH\UHPDUNLWZDVLQWKH FRQWH[WRIUHϰHFWLRQVRQWKH)UHQFK5HYROXWLRQDQGPRUHVSHFLϮFDOO\RQ WKH7HUURU7KHLPSRUWDQFHRIWKLVFRQWH[WLVSDUWLFXODUO\VWULNLQJLQWKHFDVH RI0DU[·VϮUVWXVDJHRIWKHWHUPLQ´2QWKH-HZLVK4XHVWLRQµ0DU[LQWUR GXFHVWKLVQRWLRQE\UDSLGO\VXUYH\LQJVRPHRIWKHKLJKOLJKWVRI L QSHULRGVZKHQWKHSROLWLFDOVWDWHDVVXFKLVERUQYLROHQWO\RXWRIFLYLOVRFL HW\ZKHQSROLWLFDOOLEHUDWLRQLVWKHIRUPLQZKLFKPHQVWULYHWRDFKLHYHWKHLU OLEHUDWLRQWKHVWDWHFDQDQGPXVWJRDVIDUDVWKHDEROLWLRQRIUHOLJLRQWKH GHVWUXFWLRQRIUHOLJLRQ%XWLWFDQGRVRRQO\LQWKHVDPHZD\WKDWLWSURFHHGV WRWKHDEROLWLRQRISULYDWHSURSHUW\WRWKHPD[LPXPWRFRQϮVFDWLRQWRSUR JUHVVLYHWD[DWLRQMXVWDVLWJRHVDVIDUDVWKHDEROLWLRQRIOLIHWKHJXLOORWLQH

:  KLOHWKHSDUWLFXODUUHIHUHQFHVLQWKLVSDVVDJHREYLRXVO\SRLQWEDFNWRWKH 7HUURU0DU[LVDOVRDWWHPSWLQJKHUHWRJHQHUDOL]HWKHVHHYHQWVWKH\DUHQRW VLPSO\FKDUDFWHULVWLFVRI-DFRELQLVPEXWDUHZKDWKDSSHQVLQ´SHULRGVZKHQ WKHSROLWLFDOVWDWHDVVXFKLVERUQYLROHQWO\RXWRIFLYLOVRFLHW\µ,WLVLQWKLV FRQWH[WRIYLROHQWSROLWLFDOELUWKWKDW0DU[ϮUVWLQYRNHVWKHLGHDRISHUPD QHQWUHYROXWLRQ $  WWLPHVRIVSHFLDOVHOIFRQϮGHQFHSROLWLFDOOLIHVHHNVWRVXSSUHVVLWVSUHUHT XLVLWHFLYLOVRFLHW\DQGWKHHOHPHQWVFRPSRVLQJWKLVVRFLHW\DQGWRFRQVWL WXWHLWVHOIDVWKHUHDOVSHFLHVOLIHRIPDQGHYRLGRIFRQWUDGLFWLRQV%XWLWFDQ >@

5(92/87,21,13(50$1(1&($1'7+()$//2)3238/$5629(5(,*17GLH5HYROXWLRQIUSHU PDQHQWHUNOlUW@DQGWKHUHIRUHWKHSROLWLFDOGUDPDQHFHVVDULO\HQGVZLWKWKH UHHVWDEOLVKPHQWRIUHOLJLRQSULYDWHSURSHUW\DQGDOOHOHPHQWVRIFLYLOVRFL HW\MXVWDVZDUHQGVZLWKSHDFH

7  HOOLQJWKHUHIHUHQFHKHUHWR´SHUPDQHQWUHYROXWLRQµLVXQIDYRUDEOHWKLV UHYROXWLRQDU\SKDVHUHVXOWHGRQO\LQWKHUHVWRUDWLRQRIWKHROGUHJLPH%XW WKHSKUDVHLWVHOILQYLWHVIXUWKHUVFUXWLQ\7KHWHUP´SHUPDQHQWµLVLWDOLFL]HG LQWKHRULJLQDO*HUPDQWH[WZKLOH0DU[RIWHQXVHGLWDOLFVIRUHPSKDVLVLQ FOXGLQJHOVHZKHUHLQWKLVSDVVDJH KHPD\SODXVLEO\KDYHXVHGWKHPKHUHWR LQGLFDWHWKHIRUHLJQ³DQGPRUHVSHFLϮFDOO\)UHQFK³RULJLQRIWKHZRUG,W ZDVQRWDWHUP0DU[KDGXVHGRIWHQEHIRUH :KDWPLJKWH[SODLQLWVVXG GHQDSSHDUDQFHLQKLVOH[LFRQZDVKLVUHDGLQJRIWKDWWLPH'D\DQG*DLGR GRQRWPHQWLRQWKDWZKHQ0DU[ZURWH´2QWKH-HZLVK4XHVWLRQµKHZDVLP PHUVHGLQWKHVWXG\RIWKH)UHQFK5HYROXWLRQ+HZDVOLYLQJLQ3DULVGXULQJ WKLVSHULRG2FWREHU²-DQXDU\ DQGFRQWHPSODWHGZULWLQJDKLVWRU\ RIWKH1DWLRQDO&RQYHQWLRQ+HDFFRUGLQJO\FRQVXOWHG3KLOLSSH%XFKH]DQG 3LHUUH&pOHVWLQ5RX[·V+LVWRLUHSDUOHPHQWDLUHGHOD5pYROXWLRQIUDQoDLVH²  DODUJHO\GRFXPHQWDU\KLVWRU\RIWKH5HYROXWLRQWROGIURPDV\P SDWKHWLFQHR-DFRELQSHUVSHFWLYH+HPD\DOVRKDYHUHDGeWLHQQH&DEHW·V +LVWRLUHSRSXODLUHGHOD5pYROXWLRQIUDQoDLVHGHj $QG LW LV SUHFLVHO\ DURXQGWKLVWLPHWKDW0DU[EHJDQDϲ [LQJWKHTXDOLϮHU´SHUPDQHQWµWR UHYROXWLRQQRWDEO\LQ7KH+RO\)DPLO\SXEOLVKHGLQEXWZULWWHQWKH\HDU EHIRUH ZKHUH0DU[UHPDUNVWKDW1DSROHRQ´SHUIHFWHGWKH7HUURUE\VXEVWL WXWLQJSHUPDQHQWZDU IRU SHUPDQHQWUHYROXWLRQ >(U YROO]RJ GHQ 7HUURULVPXV LQGHPHUDQGLH6WHOOHGHUSHUPDQHQWHQ 5HYROXWLRQGHQSHUPDQHQWHQ.ULHJ VHW]WH@µ +  HUHDVZHOOWKHYDOXHRI´SHUPDQHQWUHYROXWLRQµUHPDLQVTXHVWLRQDEOH WKHUHLVQRWKLQJ\HWWRLQGLFDWHWKDW0DU[DGPLUHGWKLVUHYROXWLRQDU\PRGHO %XW DJDLQ ZH FDQ VHH WKH VWURQJ FRQQHFWLRQ LQ 0DU[·V PLQG EHWZHHQ ´SHUPDQHQWUHYROXWLRQµDQGWKH7HUURURI:KDWPDGHWKDWFRQQHFWLRQ PHDQLQJIXO":KDWH[DFWO\GLG0DU[WDNHDZD\IURPKLVUHDGLQJV"$ϮUVWVWHS WRZDUGDQVZHULQJWKLVTXHVWLRQZRXOGEHWRUHVROYHWKHSKLORORJLFDOP\VWHU\ VXUURXQGLQJWKLVH[SUHVVLRQZKHUHGLGWKHWHUP´SHUPDQHQWUHYROXWLRQµ FRPHIURP"$VZHKDYHVHHQVFKRODUVKDYHVXJJHVWHGPDQ\GLϸHUHQWRULJLQV WKRXJKWKH\DUHPRVWO\VSHFXODWLYH %XWWKHUHLVLQIDFWDFOHDUVRXUFH >@

6+,)76

IRUWKLVH[SUHVVLRQZKLFKKLVWRULDQVKDYHFXULRXVO\RYHUORRNHGDQGWKDWLV LQWKHGRFXPHQWDU\UHFRUGRIWKH)UHQFK5HYROXWLRQLWVHOI , DPQRWFODLPLQJWKDW0DU[IRXQGWKHSUHFLVHH[SUHVVLRQUpYROXWLRQSHU PDQHQWHUHDG\PDGHLQWKHUHYROXWLRQDU\DUFKLYHVHYHQWKRXJKLWFDQLQIDFW EHIRXQG,QWHUHVWLQJO\WKHWZRXVHVRIWKLVH[SUHVVLRQWKDWFRPHFORVHVWWR 0DU[·VSKUDVLQJERWKHPSOR\LWQHJDWLYHO\,QDVSULQJWUHDWLVHGHDOLQJ ZLWKFRQVWLWXWLRQDOPDWWHUV-HDQ%DSWLVWH0RwVH-ROOLYHWDIRUPHUPHPEHU RIWKH/HJLVODWLYH$VVHPEO\XVHGLWWRZDUQDJDLQVWWKHGDQJHUVRIZHDNHQ LQJFHQWUDOSROLWLFDODXWKRULW\´7KHQVRFLHW\ZRXOGWUXO\KDYHQRVRFLDO DVSHFWLWZRXOGEHLQSHUSHWXDODQGSHUPDQHQWUHYROXWLRQµ೓  -ROOLYHW·VQHJD WLYHDVVHVVPHQWRI´SHUPDQHQWUHYROXWLRQµZDVHFKRHGLQDQRWKHUVKRUWWH[W RIWKHSHULRGWKH$GUHVVHGXFRQVHLOJpQpUDOSHUPDQHQWGXGpSDUWHPHQWGHO·2UQH jVHVFRQFLWR\HQV5HDGDWWKHEHJLQQLQJRIWKH-XO\VHVVLRQRIWKH1D WLRQDO&RQYHQWLRQLWVXPPRQHG)UHQFKPHQWREH´FRQWLQXRXVO\RQJXDUG DJDLQVWLOOZLVKHUVVLQFHWRPDLQWDLQ\RXLQDSHUPDQHQWVWDWHRIUHYROX WLRQRIOLFHQVHDQGRIDQDUFK\WKH\ZLOOXVHDOOVRUWVRIWULFNVµ೓  *  LYHQWKDWZHKDYHQRHYLGHQFHWKDW0DU[NQHZRIHLWKHURIWKHVHGRFX PHQWVLWZRXOGEHIRROLVKWRFODLPWKDWWKH\FRQVWLWXWH´WKHϮUVWµXVHVRI WKLVH[SUHVVLRQSDUWLFXODUO\DVWKH\DUHFRQFHSWXDOO\RSSRVHGWR0DU[·VWKH RU\%XWFRQVLGHUWKLVRWKHUDGGUHVVPDGHE\WKHFLWR\HQVHQUpTXLVLWLRQGHOD 6HFWLRQGH0DUVHLOOH DQGSUHVHQWHGWRWKHFRQYHQWLRQRQ6HSWHPEHU ´WKHUHYROXWLRQDU\DUP\DQGFDQRQVZLOOEHPDLQWDLQHGLQSHUPDQHQFH >O·DUPpHUpYROXWLRQQDLUHHWOHVFDQRQVYRQWrWUHHQSHUPDQHQFH@µWKH\GH FODUHG+HUHZHϮ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´ODSDWULHHQ GDQJHUµWKHKRPHODQG>LV@LQGDQJHU ,WZDVLQWKLVFRQWH[WWKDWWKHGHS XW\ -DFTXHV$OH[LV 7KXULRW UHOD\HG D GHPDQG H[SUHVVHG E\ WKH 3DULVLDQ VHFWLRQV

>@

5(92/87,21,13(50$1(1&($1'7+()$//2)3238/$5629(5(,*17/DSHUPDQHQFHGHVVHFWLRQVDGpMjpWpGHPDQGpHSDUSOXVLHXUV GpSDUWHPHQWV@,Q3DULVLWLVWKHSHUPDQHQFHRIWKHVHFWLRQVWKDWPDGHWKH 5HYROXWLRQLWLVWKHSHUPDQHQFHWKDWPXVWFRQVROLGDWHLW,GHPDQGWKDWWKH $VVHPEO\GHFUHHWKDWWKHVLWXDWLRQLVXUJHQWDQGWKDWWKHVHFWLRQVPHHWLQSHU PDQHQFH

+  LVPHDVXUHZDVSURPSWO\DSSURYHG´7KH1DWLRQDO$VVHPEO\KDYLQJGH FUHHGWKHVLWXDWLRQWREHXUJHQWGHFUHHVWKDWWKHDVVHPEOLHVRIWKH3DULVLDQ VHFWLRQVZLOOEHKHOGLQSHUPDQHQFH>VHWLHQGURQWHWVHURQWSHUPDQHQWHV@ XQWLORWKHUZLVHLQGLFDWHGµ೓+HUHZHϮQGDYHU\GLϸHUHQWXQGHUVWDQGLQJRI UHYROXWLRQDU\´SHUPDQHQFHµRQHWKDWLVPXFKFORVHUWR0DU[·VODWHUXVDJH 7RGHFODUHWKHSHUPDQHQFHGHVVHFWLRQVPHDQWWKDWLQVWHDGRIPHHWLQJRQDUHJ XODU EDVLV WKH 3DULVLDQ VHFWLRQV IRUW\HLJKW LQ WRWDO  VKRXOG NHHS WKHLU PHHWLQJSODFHVPDQQHGDQGRSHQDWDOOWLPHV3UDFWLFDOO\WKLVDPRXQWHGWR PRELOL]LQJWKHDUPHGFLWL]HQVRI3DULV7KHLPSRUWDQFHRIWKLVPHDVXUH ZRXOGVRRQEHFRPHFOHDURQ$XJXVWWKH3DULVLDQVHFWLRQVYRWHGPDVVLYHO\ LQIDYRURIRYHUWKURZLQJWKHNLQJDQGWKHQFDUULHGRXWWKHLUGHFLVLRQVWRUP LQJWKH7XLOHULHVSDODFHRQWKHQLJKWRI$XJXVW²:KHQD\HDU ODWHUWKHVHFWLRQGH0DUVHLOOHVGHFODUHGLWVLQWHQWLRQVWRPHHWHQSHUPDQHQFH LWH[SUHVVHGLWVFRQWLQXHGIDLWKLQWKLVEHOLHIWKDWWKH5HYROXWLRQFRXOGEH VDYHGWKURXJKSRSXODUDUPHGGHIHQVH:HDUHYHU\FORVHKHUHWR0DU[DQG (QJHOV·VDUJXPHQWLQWKH0DUFKDGGUHVVWKDW´WKHZRUNHUVPXVWEH DUPHGDQGRUJDQL]HGµ &  DQZHEHVXUHWKDW0DU[NQHZWKHUHYROXWLRQDU\KLVWRU\RIWKLVWHUP",W ZDVFHUWDLQO\ZLGHO\XVHGDVVLPSOHZRUGVHDUFKHVUHYHDOWKHSKUDVHHQ SHUPDQHQFHRFFXUVLQWKH$UFKLYHVSDUOHPHQWDLUHVPRUHWKDQWZRKXQGUHGWLPHV LQDQGPRUHWKDQWKUHHKXQGUHGLQ )RUWKHPRVWSDUWWKLV SKUDVHZDVHPSOR\HGLQUHIHUHQFHWRWKH3DULVLDQVHFWLRQVFRPELQDWLRQV RIWKHWHUPV´VHFWLRQV µDQG´SHUPDQHQWSHUPDQHQFHµRFFXUPRUHWKDQ WLPHVLQDQGPRUHWKDQLQ%XWRWKHUUHYROXWLRQDU\ERG LHVFRXOGDOVRPHHWHQSHUPDQHQFHDVWKH3DULVLDQVHFWLRQVZHUHVWRUPLQJWKH 7XLOHULHVSDODFHWKH/HJLVODWLYH$VVHPEO\GHFODUHGLWVHOIWREH´HQVpDQFH SHUPDQHQWHµ೓  7  KHVHTXDQWLWDWLYHPHDVXUHVDUHWDNHQIURPWKH$UFKLYHVSDUOHPHQWDLUHVD FROODWLRQRISULPDU\VRXUFHVVLPLODUWRWKH+LVWRLUHSDUOHPHQWDLUHZLWKRXWWKH

>@

6+,)76

SROLWLFDOHGLWRULDOL]LQJ0DU[KRZHYHUUHDGWKHODWWHU:DVWKHWKHPHRISHU PDQHQFH DVSURPLQHQWLQWKHVHYROXPHV"$VWKH\KDYHDOVREHHQGLJLWL]HG ZHFDQDJDLQPDUVKDOVRPHQXPEHUVYROXPHIRULQVWDQFHZKLFKFRYHUV WKHPRQWKRI0D\FRQWDLQVWHQPHQWLRQVRI´SHUPDQHQFHµHLWKHULQ UHIHUHQFHWRWKH3DULVLDQRU0DUVHLOODLV VHFWLRQVVHVVLRQVRIWKH1DWLRQDO &RQYHQWLRQ RU HYHQ WKH JXLOORWLQH ´OD JXLOORWLQH HVW HQ SHUPDQHQFH j /\RQµ ,QGHHGWKHSKUDVHHQSHUPDQHQFHFRXOGEHDSSOLHGWRDOPRVWDQ\ UHYROXWLRQDU\LQVWLWXWLRQWKXVLQGLFDWLQJLWVSRWHQF\*HRUJHV&RXWKRQD PHPEHURIWKH&RPPLWWHHRI3XEOLF6DIHW\GHFODUHGUDWKHUUHGXQGDQWO\  WKLVFRPPLWWHHLWVHOIWREHPHHWLQJ´HQSHUPDQHQFHFRQWLQXHOOHµ , QDGGLWLRQWRWKHVHH[DPSOHVIURPWKHUHYROXWLRQDU\WH[WVLWLVDOVRZRUWK SD\LQJDWWHQWLRQWRVRPHRI%XFKH]DQG5RX[·VHGLWRULDOFRPPHQWDU\7KH\ PDNHDSRLQWRIXQGHUVFRULQJWKHFXULRXVIDFWWKDWWKHSHUPDQHQWVHVVLRQ GHFODUHGE\WKH/HJLVODWLYH$VVHPEO\RQ$XJXVWZDVQHYHUOLIWHG $WD KLVWRULFDOOHYHOWKLVGHWDLOPLJKWVHHPOLNHDPHUHWHFKQLFDOLW\%XWLWRQFH DJDLQXQGHUVFRUHVWKHUHYROXWLRQDU\V\PEROLVPFDSWXUHGLQWKLVSKUDVH³ DQGSUDFWLFH³RI´SHUPDQHQFHµ:KHQWKHJRLQJJHWVWRXJKWKHWRXJKJHW SHUPDQHQW ) LQDOO\LW·VZRUWKQRWLQJWKDWWKHUHYROXWLRQDU\SUDFWLFHRIGHFODULQJSHU PDQHQFHGLGQRWGLHRXWZLWKWKHϮUVW)UHQFK5HYROXWLRQ$V-LOO+DUVLQKDV QRWHGZLWKRXWUHIHUULQJWR0DU[ UHYROXWLRQDULHVLQWKHVZRXOGVLPL ODUO\GHFODUHVHFWLRQPHHWLQJVWRWDNHSODFHHQSHUPDQHQFHLQFDVHVRISROLWL FDOHPHUJHQF\$VVKHZULWHV´WKHFDOOLQJRIPHHWLQJVHQSHUPDQHQFHµZDV RQHRI´WKHV\PEROVRIWKHUHYROXWLRQDU\SHULRGRIKDOIDFHQWXU\EHIRUHµWKDW WKH-XO\0RQDUFK\PHQVHOIFRQVFLRXVO\LQYRNHGDORQJZLWKWKH0DUVHLOODLVH DQGWKHYDULRXVVHFWLRQQDPHV3HUPDQHQFHUHPDLQHGSDUWRIWKHUHYR OXWLRQDU\UHSHUWRLUHXSXQWLOLQGHHGRQ)HEUXDU\WKHGD\/RXLV 3KLOLSSHDEGLFDWHGWKHGHSXW\&KDUOHV/DϮWWHSURSRVHGWKDWWKH&KDPEHU RI'HSXWLHVPHHWHQSHUPDQHQFH+LVPRWLRQZDVVHFRQGHGE\eWLHQQH$UPDQG 1DSROpRQGH&DPEDFpUqVZKRVHXQFOH-HDQ-DFTXHV5pJLVGH&DPEDFpUqV KDGEHHQDGHSXW\LQWKH1DWLRQDO&RQYHQWLRQEHIRUHEHFRPLQJFRQVXO DORQJVLGH1DSROHRQ%RQDSDUWH 7KHFKDPEHUGLVPLVVHGWKHPRWLRQEXW FOHDUO\WKHHFKRHVRIKDGQRW\HWGLHGRXWDVVXEVHTXHQWXVHVRIWKLV SKUDVHGXULQJWKHUHYROXWLRQLQGLFDWH 1RWRQO\WKHFKDPEHUPHW LQSHUPDQHQFHEXWLQ$SULOVRGLGWKH3DULVLDQFOXEV 7KHUHVXUJHQFHRI WKLVUHYROXWLRQDU\PHPRU\PD\H[SODLQZK\0DU[LQEHJDQFRQ VLGHULQJ´SHUPDQHQFHµLQDSRVLWLYHOLJKWDQGDOVRZK\RWKHUUHYROXWLRQDU\ >@

5(92/87,21,13(50$1(1&($1'7+()$//2)3238/$5629(5(,*17WKH0HQVKHYLN$OH[DQGU@0DUW\QRY RIDFRP SOHWH YLFWRU\ IRU 6RFLDO'HPRFUDF\ LQ D GHPRFUDWLF UHYROXWLRQ LH RI D UHYROXWLRQDU\GHPRFUDWLFGLFWDWRUVKLSRIWKHSUROHWDULDWDQGWKHSHDVDQWU\ >@

6+,)76

IRUVXFKDYLFWRU\ZLOOHQDEOHXVWRURXVH(XURSHDQGWKHVRFLDOLVWSUROHWDULDW RI(XURSHDIWHUWKURZLQJRϸWKH\RNHRIWKHERXUJHRLVLHZLOOLQLWVWXUQKHOS XVWRDFFRPSOLVKWKHVRFLDOLVWUHYROXWLRQFKDS 

'  XHWR0HQVKHYLNDFFXVDWLRQVWKDWKHKDGDEDQGRQHGRUWKRGR[0DU[LVP DQGSHUKDSVDOVRWRGLVWDQFHKLPVHOIIURP7URWVN\ZKRXQGHUWKHLQϰXHQFH RI$OH[DQGHU3DUYXVEHJDQWRFKDPSLRQWKHRQHVWDJHPRGHODWWKLVVDPH WLPH/HQLQHQGHGXSGRZQSOD\LQJKLVSODQVIRUGLFWDWRUVKLS%XWWKHUHFDQ EHOLWWOHGRXEWWKDW/HQLQZDVGUDZLQJRQ0DU[·VWKHRU\RISHUPDQHQWUHYR OXWLRQDQGWKURXJK0DU[RQWKH)UHQFK5HYROXWLRQH[DPSOH,Q7ZR7DFWLFV RI6RFLDO'HPRFUDF\IRULQVWDQFHKHTXRWHVDQDUWLFOHIURPWKH1HXH 5KHLQLVFKH=HLWXQJZKHUH0DU[ZULWHV´7KHZKROH)UHQFKWHUURULVP¬¬¬ZDV QRWKLQJEXWDSOHELDQPDQQHURIVHWWOLQJDFFRXQWVZLWKWKHHQHPLHVRIWKH ERXUJHRLVLHZLWKDEVROXWLVPIHXGDOLVPDQGSKLOLVWLQLVPµ7REHVXFFHVV IXO/HQLQDUJXHGWKHUHYROXWLRQDULHVZRXOGKDYHWR´VHWWOHDFFRXQWVZLWK WVDULVPLQWKH-DFRELQRULI\RXOLNHLQWKHSOHEHLDQZD\µDQGQRWIDOOSUH\ WRWKH´FRQVWLWXWLRQDOLOOXVLRQVµRIWKHERXUJHRLVSDUWLHV 7  KURXJKWKHPHGLXPRI0DU[WKH)UHQFKUXSWXUHZLWKWKHFRQVWLWXWLRQDO PRGHORIUHYROXWLRQZRXOGWKXVFRPHWREHFRQVXPPDWHGLQWKH%ROVKHYLN UHYROXWLRQ:KLOHWKHQRPLQDOREMHFWLYHRISHUPDQHQWUHYROXWLRQZDVWKH HYHQWXDOGLVVROXWLRQ´ZLWKHULQJDZD\µ RIWKHVWDWHDQGE\H[WHQVLRQRIDOO SROLWLFDOVRYHUHLJQW\WKHHQGOHVVSRVWSRQHPHQWRIWKLVJRDOOHGLQVWHDGWR WKHFRQFHQWUDWLRQRISRZHULQWKHKDQGVRIDUHYROXWLRQDU\GLFWDWRUVKLS :LWKWKH%ROVKHYLNVWKHSDUW\ZRXOGLQWKHRU\EHWKHVRYHUHLJQWKRXJK LQSUDFWLFHSRZHUZRXOGRIWHQIDOOLQWRWKHKDQGVRIDVLQJOHOHDGHU0DU[·V WKHRU\RISHUPDQHQWUHYROXWLRQWKXVOHGIXOOFLUFOHEDFNWRDPRGHORIVRYHU HLJQW\ WKDW FRQVWLWXWLRQDOLVP KDG EHHQ GHVLJQHG WR WKZDUW WKH ILJXUH WRZHULQJRYHUWKHPDVVHVKDGEHFRPHD5HG/HYLDWKDQ

1RWHV 0  \WKDQNVWR-Hϸ UH\)UHHGPDQ$QWKRQ\*UDIWRQ0HOYLQ5LFKWHU-HUUROG6HLJHO 5LFKDUG:ROLQ,VVHU:RORFKDQGWKHSDUWLFLSDQWVRIWKH&RQVRUWLXPIRU,QWHOOHF WXDODQG&XOWXUDO+LVWRU\LQ1HZ@

5(92/87,21,13(50$1(1&($1'7+()$//2)3238/$5629(5(,*17@

5(92/87,21,13(50$1(1&($1'7+()$//2)3238/$5629(5(,*17@

6+,)76

5HIHUHQFHG LQ *XpULQ / DOXWWHGHVFODVVHV Q 'D\ DQG *DLGR VLPLODUO\ QRWH WKDWWKLVDGGUHVV´ZDVGHVWLQHGWRSOD\DFHQWUDOUROHLQDOOWKHGHEDWHV RYHU WKH FODVV FKDUDFWHU DQG SROLWLFDO DOOLDQFHV RI WKH 5XVVLDQ UHYROXWLRQ LQ ²µ:LWQHVVHV    6HHPRUHJHQHUDOO\+*RUGRQ6NLOOLQJ´3HUPDQHQWRU8QLQWHUUXSWHG5HYROX WLRQµ&DQDGLDQ6ODYRQLF3DSHUV ²   /HQLQ$QWKRORJ\/HQLQTXRWHVIURP7KH&ODVV6WUXJJOHLQ)UDQFHLQWKHFRQ FOXVLRQWR7ZR7DFWLFVRI6RFLDO'HPRFUDF\6HHDOVR/HQLQ·VDUWLFOH´2Q&RQVWL WXWLRQDO,OOXVLRQVµLQ7RZDUGWKH6HL]XUHRI3RZHU3DUW,QS ²

>@

) ,)7((1

([LOH:LWKLQ6RYHUHLJQW\ & ULWLTXHRI´7KH1HJDWLRQRI([LOHµLQ,VUDHOL&XOWXUH $ 0 1 2 1 5 $ =  . 5 $ .2 7 =.,1

7 KH1HJDWLRQRIWKH'LDVSRUD 7  +(´1(*$7,212)(;,/(µHPERGLHVWKHHVVHQFHRIWKHOHDGLQJVWUHDP RI =LRQLVW LGHRORJ\ IURP ZKLFK GHULYH WKH GLϸHUHQW DVSHFWV RI WKH ,VUDHOL -HZLVK=LRQLVWFXOWXUDOH[SHULHQFH$FHQWUDOD[LVRIDQDOOHPEUDFLQJYLHZ SRLQWWKDWGHϮQHVWKHVHOIFRQVFLRXVQHVVRIWKH-HZVRI,VUDHOLWLQIRUPVWKHLU FRQFHSWLRQRIKLVWRU\DQGFROOHFWLYHPHPRU\DVZHOODVFXOWXUDOSUDFWLFHV WKDWERWKIDVKLRQDQGUHϰHFW=LRQLVW,VUDHOLLGHQWLW\)UDPLQJKLVWRULFDO UHDOLW\LQWHUPVRIWKH´QHJDWLRQRIH[LOHµKDVIDUUHDFKLQJLPSOLFDWLRQV HVSHFLDOO\RQWKHERXQGVRIWKHSROLWLFDODQGFXOWXUDOGLVFRXUVHDVZHOODVRQ GHϮQLQJWKHSROLWLFDOFRQVHQVXVLQ,VUDHO ´ 1HJDWLRQRIH[LOHµGHQRWHVDYLHZSRLQWWKDWVHHVPRGHUQ-HZLVKVHWWOH PHQWLQWKH/DQGRI,VUDHODORQJZLWKWKHHVWDEOLVKPHQWRI-HZLVKWHUULWR ULDOVRYHUHLJQW\DVWKHUHWXUQRIWKH-HZLVKSHRSOHWRDODQGGHϮQHGDVWKHLU RZQDIWHUWZRWKRXVDQG\HDUVRIH[LOH,Q=LRQLVWKLVWRULFDOFRQVFLRXVQHVV WKHQHJDWLRQRIH[LOHIXVHVDFRQWLQXXPEHWZHHQWKHDQFLHQWSDVW³LQZKLFK WKHUHH[LVWHGDQHQWLW\GHϮQHGDVDVRYHUHLJQQDWLRQ³DQGWKHSUHVHQWZKLFK SHUFHLYHVLWVHOI DVWKHUHQHZDORIWKDWVDPHHQWLW\7KHQHJDWLRQRIH[LOHLV XQGHUVWRRGE\WKRVHZKRH[SUHVVDQGGHϮQH=LRQLVWFRQVFLRXVQHVVDVWKH ´QRUPDOL]DWLRQµ RI -HZLVK H[LVWHQFH LQ WHUPV RI WKH IXOO UHDOL]DWLRQ RI -HZLVKKLVWRU\RUDWOHDVWLWV´VROXWLRQµ7KLVDSSURDFKZKLFKKDVUHFHLYHG FRXQWOHVVDXWKRULWDWLYHH[SUHVVLRQVKDVWKHVWDWXVRIDSDUDGLJPWKDWGLUHFWV >@

6+,)76

DOO WKH VWUHDPV RI =LRQLVP WKDW DFFHSW LW DV D JLYHQ 7KH\ SHUFHLYH WKH SHULRGRIH[LOHDVDQLQWHUPHGLDU\SHULRGHYHQLILQLWVFRQWH[WLPSRUWDQW FXOWXUDOYDOXHVZHUHFUHDWHGLWZDVLQDQGRILWVHOIPHDQLQJOHVVDFRQGLWLRQ RIGHϮFLHQWH[LVWHQFHSDUWLDODQGDEQRUPDO³DWLPHLQZKLFKWKH´VSLULWRI WKHQDWLRQµFRXOGQRWϮQGH[SUHVVLRQGXHWRWKHH[WHUQDOERXQGVWKDWSUH YHQWHG LWV UHDOL]DWLRQ 7KH /DQG LWVHOI GLG QRW NQRZ D PHDQLQJIXO KLVWRU\ DSDUWIURPWKHKLVWRU\RIWKH-HZLVKPLQRULW\WKDWVHWWOHGWKHUH7KH/DQGZDV DQHPSW\ODQGDQGLWV3DOHVWLQLDQSRSXODWLRQDQGFXOWXUHKDGEDUHO\DQ\ SDUW LQ WKH FU\VWDOOL]DWLRQ RI =LRQLVW VHOIFRQVFLRXVQHVV $FFRUGLQJ WR WKLV SHUFHSWLRQHYHU\-HZZDV´SURWR=LRQLVWµLQWKDWKHOLYHGDVWDWHRISHUSHWXDO WUDQVLHQFH\HDUQLQJ´WRUHWXUQµWRWKH/DQGRI,VUDHO³WKHRQO\WHUULWRU\ ZKHUHWKHQDWLRQFDQIXOϮOOLWVPLVVLRQ &  RQWDLQHGZLWKLQWKLVKLVWRULFDOSHUVSHFWLYHLVDQH[SOLFLWDVVXPSWLRQ WKDWWKHDFWRIQHJDWLQJWKHFRQGLWLRQRIEHLQJDGLDVSRUDWKH´UHWXUQµWRWKH /DQGZLOOOHDGDOPRVWRILWVRZQWRWKHIXOOUHDOL]DWLRQRI-HZLVKFXOWXUH RUWKHFUHDWLRQRIDQHZQDWLRQDOFXOWXUH ,QVSLUHGE\(XURSHDQURPDQWLF LGHDVWKHQRWLRQZDVIRUPHGWRFODLPWKDWWKHUHWXUQRIWKHSHRSOHWRLWV ODQGDQGLWVFRQQHFWLRQWRWKHVRLORIWKHKRPHODQGZRXOGHQVXUHWKHUHYLYDO RIFXOWXUDOFUHDWLYLW\7KLVFXOWXUHLVXQGHUVWRRGWREH´DXWKHQWLFµRQO\H[ WHUQDOFLUFXPVWDQFHVKDYHXQWLOQRZSUHYHQWHGLWVDSSHDUDQFHDQGGHYHO RSPHQW,WZDVDJDLQVWWKLVEDFNJURXQGWKDWWKHGLϸHUHQWLPDJHVRIWKH´QHZ -HZµ³WKH UHSUHVHQWDWLYH RI WKH DXWKHQWLF FXOWXUH DQG WKH V\PERO RI LWV LGHDV³ZHUHFUHDWHGDQGFU\VWDOOL]HG2YHUWKH\HDUVFKDQJHVWRRNSODFHLQ WKHLPDJHRIWKLVV\PERODVLQGLFDWHGE\WHUPVVXFKDV´+HEUHZµ´6DEUDµRU ´,VUDHOLµGLϸHUHQWLDWHGE\WKHLUFRQWHQWDQGWKHZD\VLQZKLFKWKH\IXQFWLRQ 1RQHWKHOHVV DOO RI WKHVH LPDJHV FRPH IURP WKH VDPH SULQFLSDO GHSDUWXUH SRLQWUHJDUGLQJWKHSUHVHQW-HZLVKH[LVWHQFHLQWKH/DQGDQGDOODUHLQFDU QDWLRQVRIWKHVDPHIRXQGDWLRQDODVSLUDWLRQ$OORIWKHVHLPDJHVDQGDOORI WKH H[SODQDWLRQV JLYHQ WR WKHP HPSKDVL]H WKH GLϸHUHQFH WKDW H[LVWV EH WZHHQWKHPDQGWKHSUHYLRXVH[LOLFFRQVFLRXVQHVVZKRVHHUDVXUHLVWKHFRQ GLWLRQIRUOLEHUDWLRQ(DFKLQLWVRZQZD\V\PEROL]HVWKH´HPDQFLSDWHGµ-HZ ,QVHPLQDO=LRQLVWZULWLQJVDVLQWKHSUD[LVWKDWIROORZVIURPWKHPWKHQHJD WLRQRILPDJHVFRQQHFWHGWRH[LOHVHUYHVDVDIRXQGLQJEDVLVRIFRQVFLRXVQHVV DVZHOODVDPHDQVDQGRULJLQRIOHJLWLPDF\IRUWKHD[LRPVDQGSROLWLFDODFWLY LW\RIWKHVWDWH , QWKLVZD\HOHPHQWVGHϮQHGDVH[LOLFZHUHUHMHFWHGDQGWKLVUHMHFWLRQ VHUYHGDVWKHEDVLVIRUWKHHVWDEOLVKPHQWRIWKHQHZDQWLH[LOLF-HZRVWHQ >@

(;,/(:,7+,1629(5(,*17
@

6+,)76

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´H[LOHµKHUHGHULYHVIURPWKHUHFRJQLWLRQWKDWDFULWLFDODWWHPSW WRSUHVHQWDFXOWXUDODOWHUQDWLYHUHTXLUHVWKHHPSOR\PHQWRIFRQFHSWVWKDW GHOLQHDWHWKHFXOWXUHEHLQJGLVFXVVHG7KLVGLUHFWLRQGLϸHUVIURPWKHSR VLWLRQWKDWSUHVHQWV´,VUDHOLQHVVµDVDFXOWXUDORSWLRQDQGWKHDVSLUDWLRQWR WXUQ,VUDHOLQWRD´QRUPDOµQDWLRQVWDWH7KHODWWHUSRVLWLRQLVJHQHUDOO\ PRWLYDWHGE\KRQHVWLQWHQWLRQVWRDFKLHYHWKHGHPRFUDWL]DWLRQRIWKHVWDWHDV ZHOODVE\DUHFRJQLWLRQRIKRZSUREOHPDWLFLWLVWRGHϮQHWKHVWDWHDV´WKH VWDWHRIWKH-HZLVKSHRSOHµ+RZHYHULWVSUHWHQVLRQWRGHϮQHWKHFROOHFWLYH LQDZD\WKDWZLOOLQFOXGHWKH$UDEFLWL]HQVRI,VUDHODORQJVLGHWKHWUHQGWR FUHDWHDQ,VUDHOLQDWLRQDOLVPVHHPLQJO\GHWDFKHGIURP-XGDLVPVWLSXODWHV WKHDFFHSWDQFHRI$UDEVLQWRWKHFROOHFWLYHRQWKHLUDJUHHPHQWWRDFFHSWWKH FXOWXUDOYDOXHVRI´,VUDHOLQHVVµDVWKHVHDUHGHWHUPLQHGE\WKH-HZLVKPD MRULW\7DONRIDQ,VUDHOLQDWLRQSUHVHUYHVWKHVDPHDVVXPSWLRQVXQGHUO\LQJ WKHKHJHPRQLF=LRQLVWFXOWXUH7KHELQDWLRQDOLVPRI,VUDHOLVQRWSDUWRIWKH VXJJHVWHGVHOIGHϮQLWLRQZKLFKIRUHFORVHVWKH3DOHVWLQLDQSHUVSHFWLYHDQG FROOHFWLYHLGHQWLW\7KHFXOWLYDWLRQRIWKLVNLQGRI,VUDHOLQHVVDOVRGHHSHQV WKHGLVUHJDUGIRUWKHEDVLFWKHRORJLFDOHOHPHQWERXQGXSLQWKHFRQFHSWXDO V\VWHPRIWKH+HEUHZODQJXDJHLQJHQHUDODQGLQWKHORDGHGPHDQLQJVRI WKHFRQFHSWV´H[LOHµJDOXW ´UHGHPSWLRQµJHXOD RUWKH´/DQGRI,VUDHOµHUHW] \LVUDHO LQSDUWLFXODUDVLIODQJXDJHZHUHQHXWUDO

>@

(;,/(:,7+,1629(5(,*17
@

6+,)76

LQWKHSROHPLFDOUHLQIRUFHPHQWRI-XGDLVP([LOHGRHVQRWRQO\RUQHFHVVDU LO\ V\PEROL]HWKHDEVHQFHRISRZHUFRQGLWLRQVRISRZHUOHVVQHVVWKDWH[ LVWHGLQH[LOHDUHRIFRXUVHZHOONQRZQEXWWKH\DUHSHUFHLYHGDVGHSHQGHQW RQVRPHFRQFUHWHKLVWRULFDOVLWXDWLRQDQGQRWRQWKHFRQGLWLRQRIH[LOHLW VHOI&RQWUDULO\WKHGLVFRXUVHRQH[LOHVLJQLϮHVDFHUWDLQSRVLWLRQLQUHODWLRQ WRWKHH[LVWLQJRUGHUDSRVLWLRQWKDWH[LVWVLQWKHJLYHQZRUOGEXWPDLQWDLQV DFULWLFDOGLVWDQFH 7  KHFRQFHSWRIH[LOHKDVDFTXLUHGDQH[WHQVLYHDQGULFKDQGZLGHVSHF WUXPRILQWHUSUHWDWLRQVDQGYDULRXVUHVSRQVHVDFURVVGLϸHUHQWSROLWLFDODQG VRFLDOFRQWH[WV7KH=LRQLVWSHUFHSWLRQRIH[LOHDVWKHODFNRIUHDOL]DWLRQRI WKHSROLWLFDODVSLUDWLRQVRIWKH-HZVDQGQRWKLQJPRUHHPSWLHVWKHFRQFHSW RIDOORILWVGHHSFRQWHQWVLQWKDWLWDFFHSWVWKHZRUOGRUGHULQLWVSUHVHQW IRUPDGRSWVWKHPRGHUQV\VWHPRIYDOXHVDQGKRSHVIRUWKHLUUHDOL]DWLRQ DOVR UHJDUGLQJWKH-HZV%\WKHVDPHWRNHQWKHUHLVQRSODFHWRFODLPWKDW H[LOHLVDSROLWLFDORUWKDWLWLQGLFDWHVSDVVLYLW\7KLVLVWKHSRLQWRIYLHZRI VRPHRQHZKRKDVDOUHDG\GHϮQHGWKHFXUUHQWUHDOLW\DV´QHJDWLRQRIH[LOHµ ZKLOH IODWWHQLQJ WKH WKHRORJLFDO PHDQLQJ :H QHHG D FOHDU GLVWLQFWLRQ EHWZHHQ´H[LOHµDVDEURDGFRQFHSWDLPHGDWUHDOLW\LQLWVHQWLUHW\DQG´H[LOHµ LQLWVPRGHUQVHQVH RU´GLDVSRUDµZKLFKKLJKOLJKWWKHH[LVWHQFHRI-HZVLQ RWKHUODQGVDQGLJQRUHWKHWKHRORJLFDOPHDQLQJRIWKLVFRQGLWLRQ 3  UHVHQWLQJH[LOHDVDWHPSRUDU\FRQGLWLRQWKDWFRQQRWHVDQDVSLUDWLRQIRU ´UHWXUQµWRWKH/DQGRI,VUDHOGRHVQRWVDWLVI\DQGJHQHUDOO\GRHVQRWVHUYH DVDFHQWUDOFRPSRQHQWLQWKHGHϮQLWLRQRIH[LOHDQGLQLWVUHSUHVHQWDWLRQ :LWKRXWGLPLQLVKLQJRQHLRWDWKHFHQWUDOLW\RIWKH/DQGRI,VUDHOLQSDVW UDEELQLF-HZLVKWKRXJKWLWVKRXOGEHQRWHGWKDWFRQWUDU\WRIRUPXODWLRQV ZLGHVSUHDGLQ=LRQLVWGLVFRXUVHWKH\HDUQLQJIRUWKH/DQGRI,VUDHOZDVQRW GHϮQHGLQUDEELQLFWKRXJKWDVWKHUHVXOWRIWKH´QHJDWLRQRIH[LOHµDQGLW ZDVFHUWDLQO\QRWIRUPXODWHGLQWHUPVRIRZQHUVKLSDQGDWWDFKPHQWWRDQ DQFLHQWSDVW,WZDVWKHVDPHZKHQWKHPHVVLDQLFXWRSLDLQFOXGHGGLVWLQFW IRXQGDWLRQVRIUHWXUQDQGUHKDELOLWDWLRQ7KHIXQGDPHQWDOPHDQLQJRIH[ LOHDQGLWVVXϸHULQJVLQWKH-HZLVKFRQVFLRXVQHVVDUHWKHV\PSWRPWKDWUHS UHVHQWVWKHFRQGLWLRQRIWKHZRUOGLQLWVHQWLUHW\DQGWKLVV\PSWRPXVHVWKH IDFWWKDWWKHZRUOGLVQRW\HWUHGHHPHGDVWKHEDVLVWREHDSSOLHGWRUHDOLW\ 7KHUHIRUHLQHYHU\GLVFXVVLRQRIH[LOHDVDWKHRORJLFDOFRQFHSWWKHGLVFXVVLRQ RIHYLO³WKHSHUFHSWLRQRIHYLORUWKHDEVHQFHRIJRRG³VWDQGVDWLWVFHQWHU +RZHYHUWKLVIRFXVRQHYLOGRHVQRWFRPHWREHRQLWVRZQ,WLVWKHEDVLVIRU WKH WUDGLWLRQDOUHOLJLRXV VWDQFH DQG EHKDYLRU WKDW DLPV DW UHGHPSWLRQ >@

(;,/(:,7+,1629(5(,*17
@

6+,)76

WKDWZDVWKHLQWHQWWKDWPRWLYDWHGVHYHUDORIWKHϮUVW=LRQLVWV³3LQVNHU +HU]ODQGLQDQHQWLUHO\GLϸHUHQWZD\/LOLHQEOXP³HYHQLIWKH\GLGQRW PDNHH[SOLFLWXVHRIWKHFRQFHSW)URPWKHLUSHUVSHFWLYHWKHUDWLRQDOHIRU =LRQLVPZDVWKHQHHGIRUVKHOWHULQOLJKWRIWKHLPSRVVLELOLW\RI-HZLVKH[LV WHQFHLQ(XURSHDVZHOODVWKHDZDUHQHVVRIWKHGDQJHUVWKDWOLHZLWKLQPRG HUQUHDOLW\7KHLUPRWLYHGLGQRWQHFHVVLWDWHWKHHQWLUHPHWDQDUUDWLYHRI WKHQHJDWLRQRIWKHGLDVSRUD7KHGHPDQGIRUVKHOWHULQQRZD\UHTXLUHGHP EUDFLQJWKHIXOOP\WK1HYHUWKHOHVVWKLVSHUFHSWLRQZDVVRRQH[FKDQJHGIRU WKHQRZKHJHPRQLFRQHZKLFKVRPHWLPHVHYHQVWRRGDJDLQVWWKHREMHFWLYHV WRϮQG´VKHOWHUµDQGWRUHVFXH-HZVLQ+XQJDU\RU$PHULFDIRUH[DPSOH  DQGZKLFKFRPSOHWHO\QHJDWHVWKHOHJLWLPDF\RID-HZLVKH[LVWHQFHRXWVLGH WKH/DQGRI,VUDHODQGEH\RQGWKHERXQGVRI=LRQLVWLGHRORJ\ , QIDFWWKH´QHJDWLRQRIH[LOHµLQWKHEURDGVHQVHRIWKHWHUPLVQRW UHGXFHGRQO\WR=LRQLVWGLVFRXUVHLWLVRQHRIWKHIRXQGDWLRQVWRQHVRIWKH VHOIGHϮQLWLRQRIPRGHUQ:HVWHUQ-HZU\LQLWVHQWLUHW\DQGRQHRIWKHFKDU DFWHULVWLF H[SUHVVLRQV RI PRGHUQLW\ 7KH VWUHDPV WKDW GHYHORSHG DURXQG 0RVHV0HQGHOVVRKQ·VWKRXJKWZKLFKVHUYHGDVDNLQGRID[LVWKDWGHϮQHG WKHQHZSDUDGLJPVRIPRGHUQ-HZLVKGLVFRXUVH DQGWKHUHVSRQVHVWRLWDOO VRXJKW³H[FHSW IRU RUWKRGR[ FLUFOHV³WR EXLOG D QHZ ZRUOGYLHZ LQ ZKLFK -HZLVKLGHQWLW\ZRXOGQRWEHEDVHGRQDFRQVFLRXVQHVVRIH[LOHEXWLQVWHDG RQEHORQJLQJWRVRFLHW\DQGDFFHSWLQJWKHYDOXHVRIWKHGRPLQDQWFXOWXUH7KH PHDQLQJ RI WKLV WUHQG ZDV WR PDNH WKH GHϮQLWLRQ RI -XGDLVP VXLWDEOH QRW RQO\ WR WKH ODQJXDJH RI PRGHUQ FXOWXUH EXW WR LWV EDVLF SULQFLSOHV³ZKLFK ZHUHXQGHUVWRRGWREHQHXWUDOWKDWLVWRVD\LQGLϸHUHQWWRUHOLJLRXVLGHQWLW\ , QWKHQLQHWHHQWKDQGWZHQWLHWKFHQWXULHVWKHGLVFXVVLRQRIWKHTXHVWLRQ RI-XGDLVPDVD´UHOLJLRQµRU´QDWLRQµZDVFRQGXFWHGIURPZLWKLQWKLVFRQFHS WXDOV\VWHP6HHPLQJO\FRQWUDU\SRVLWLRQVVKDUHGDFRPPRQGHQRPLQDWRU WKHGHϮQLWLRQRI-HZLVKH[LVWHQFHEDVHGRQDEUHDNIURPWKHH[LOLFSULQFLSOH DQG RQ WKH IXOO DFFHSWDQFH RI WKH FRQFHSW RI PRGHUQ QDWLRQDOLVP³WKH JXLGLQJSULQFLSOHRIWKHGRPLQDQWFXOWXUH,QWKLVZD\H[LOHFHDVHGWREHD VLJQLϮFDQWIDFWRUDQGZDVQRORQJHUGHϮQHGDVDIXQGDPHQWDOFRQGLWLRQ RQO\DVDFRQFHSWGHVFULELQJDKLVWRULFDOUHDOLW\VWHPPLQJIURPWKHSUHYLRXV SROLWLFDORUGHURUWKHIXWXUHRQHWKDWZRXOGUHSODFHLW)RUPDQ\-HZV-XGD LVPUHPDLQHGRQO\D´UHOLJLRQµGHϮQLQJLWDVVXFKSHUSHWXDWHGLQHϸHFW WKHSUREOHPDWLFRIEHORQJLQJWRWKHGRPLQDQWVRFLHW\GHϮQHGDV&KULVWLDQ E\UHVWULFWLQJWRWKHFULWLFDOVWDQFHWRZDUGLWWKDWFKDUDFWHUL]HGWKH-HZVDV DUHOLJLRXVPLQRULW\JURXS7KRVHZKRVHL]HGWKHRSSRVLWHSROHDQGFXOWL >@

(;,/(:,7+,1629(5(,*17
@

6+,)76

LGHRORJLFDOSURFODPDWLRQVVXFKDVWKLVDOVRUHPDLQHGERXQGE\WKHGHϮQL WLRQ IRUPXODWHG WKURXJK QHJDWLRQ WKH QHJDWLYH GHϮQLWLRQ RI FXOWXUH DV ´QHJDWLRQRIWKHGLDVSRUDµZDVDQGVWLOOLVWKHGHϮQLWHFOHDUDQGVLQJXODUDV SHFWRIFROOHFWLYHLGHQWLW\LWFRQWLQXHVWRVHUYHDVDPHFKDQLVPRIUHSUHVVLRQ RIHOHPHQWVWKDWGRQRWFRUUHVSRQGWRLWVPHWDQDUUDWLYH &RQVHTXHQWO\ LQ WKH -HZLVK FRQWH[W WKH XVH RI PRGHUQ QDWLRQDOLVW ODQJXDJHSURYRNHVXQLTXHSUREOHPVWKDWGRQRWVWHPIURPWKHFRQFHSWRI QDWLRQDOLVPLQDQGRILWVHOI7KHGLϲ FXOW\LVQRWFRXFKHGLQWKHDFWXDOGHϮ QLWLRQRI-HZLVKFROOHFWLYLW\EXWLQLWVFRQFUHWHFKDUDFWHULVWLFV,QIDFWLQLWV EDVLFPHDQLQJH[LOHGLVWLQFWO\GHϮQHVFROOHFWLYLW\DOWKRXJKWKLVFROOHFWLY LW\UHOLHVRQDW\SHRIVKDUHGPHPRU\WKDWLVHQWLUHO\GLϸHUHQWIURPWKDW ZKLFKGHϮQHVWKHODWHUQDWLRQDOFRQVFLRXVQHVV-HZLVKFROOHFWLYLW\DVH[ SUHVVHGIRUH[DPSOHLQWKHFRQFHSW´WKHSHRSOHRI,VUDHOµLVIRUPXODWHGLQ UHOLJLRXVWHUPVDVDQH[SUHVVLRQRISDUWQHUVKLSLQDZD\RIOLIHDQGLQDED VLFIDLWK1DWLRQDOFROOHFWLYLW\LVQRWDQHZH[SUHVVLRQRIWKHFRQFHSW´WKH -HZLVKSHRSOHµQRULVLWWKHVHFXODUL]DWLRQRIWKDWFRQFHSWLQWKHVHQVHWKDW LWLVEDVHGRQWKHQHJDWLRQRIZKDWSUHFHGHGLW³H[LOH 7  KLVIXQGDPHQWDOSUREOHPDWWKHKHDUWRIWKH=LRQLVWGHϮQLWLRQKDVUH FHLYHGDOPRVWQRDWWHQWLRQDQGSDUWLFXODUO\QRWLQWKHVHFXODUFRQWH[W6RPH FULWLFVWKHPRVWSURPLQHQWEHLQJ$¬%@

(;,/(:,7+,1629(5(,*17
@

6+,)76

UHDOLW\ EXW RQ WKH FRQWUDU\ D OHJLWLPL]DWLRQ RI D PHDQLQJIXO H[LVWHQFH ZLWKLQLW([LOHVLJQLϮHVDEVHQFHWKHUHFRJQLWLRQRIDQXQIXOϮOOHGSUHVHQWWKH FRQVFLRXVQHVV RI D GHIHFWLYH ZRUOG ,Q HPSKDVL]LQJ WKH GHIHFWLYH SUHVHQW H[LOHDVDFRQFHSWSXWVIRUWKDSRVLWLRQHQWLUHO\GLϸHUHQWIURPWKHPRGHUQ SRVLWLYLVW DSSURDFK³RQH RI ZKRVH H[SUHVVLRQV LV =LRQLVW LGHRORJ\³DQG WKXVFODULϮHVWKHPHDQLQJRIUHPHPEUDQFH7KH\HDUQLQJIRUUHGHPSWLRQLV EDVHGRQWKHFRQVFLRXVQHVVRIH[LOHDQGDVVXFKUHTXLUHVDWXUQWRWKHRS SUHVVHGIRXQGDWLRQVZLWKLQDFXOWXUHYLDXQGHUPLQLQJWKHPHPRU\RIWKH UXOHUV,WLVWKHUHIRUHDQDFWLRQFDUULHGRXWLQUHDOLW\DQGLVEDVHGRQEH VWRZLQJYDOXHWRWKHYLHZSRLQWRIWKHRSSUHVVHGDYLHZSRLQWQHFHVVDU\IRUD PRUDOSRVLWLRQWREHGHYHORSHG&RQVHTXHQWO\RQO\GHϮQLQJUHDOLW\DVH[LOH FDQOHDGWRWKHPRUDOYDOXHVWKDWVKRXOGJXLGHSROLWLFDODFWLRQ7KLVLVWKH VLWHLQ%HQMDPLQ·VWKRXJKWWKDWOLQNV0DU[LVPDQG-HZLVKWKHRORJ\WZRHOH PHQWVWKDWEHFRPHLQWHJUDWHGZLWKHDFKRWKHU%HQMDPLQ·VFULWLTXHRIWKH 0DU[LVWDSSURDFKLVEDVHGRQDIXQGDPHQWDOLGHQWLϮFDWLRQZLWKLWVJRDOVDV ZHOODVDQREOLJDWLRQWRLWVVWUXJJOH$QGLQWKHFRQWH[WRI-HZLVKWKRXJKW %HQMDPLQLVUHODWLQJWRGLϸHUHQWFRQFHSWLRQVWKDWH[LVWLQ-HZLVKWUDGLWLRQ DQGKHJUDQWVWKHPSROLWLFDOPHDQLQJDQFKRUVWKHPLQDFULWLTXHRIPRGHUQ :HVWHUQFXOWXUHDQGIRUPXODWHVWKHPLQWKHFRQFHSWXDOODQJXDJHRIWKDW FXOWXUH-HZLVKWHUPLQRORJ\FRPHVWRVHUYHDVWKHEDVLVIRUDSRVLWLRQWKDW KDVXQLYHUVDOYDOLGLW\(YHQPRUHLQWHUHVWLQJLVWKHZD\LQZKLFKKHLQWHU QDOL]HVNDEEDOLVWLFP\VWLFDOWUDGLWLRQVIRUZKLFK´UHPHPEUDQFHµ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ϮQLWLRQVRIWKHVHLGHDV([LOHLVWKHSODWIRUPLQ ZKLFKZKDWZRXOGLQWKHODQJXDJHRIPRGHUQ:HVWHUQFXOWXUHEHVHSDUDWHG LQWR´UHOLJLRQµDQG´QDWLRQDOLVPµLVLQWHJUDWHGWKDWVHSDUDWLRQLVSDUWRIWKH VDPHKLVWRULFDODSSURDFKWKDW%HQMDPLQDWWDFNV$VVWDWHGWKLVVHSDUDWLRQ >@

(;,/(:,7+,1629(5(,*17
@

6+,)76

PRGHUQ SHULRG WKH DSH[ EHLQJ 1D]L FULPHV  2Q WKH FRQWUDU\ ´-HZLVK KLVWRU\µLHWKHFRQWH[WVLQZKLFKD-HZLVKH[LVWHQFHZDVLQDFRPSOH[UHOD WLRQVKLSZLWKRWKHUHOHPHQWVRIVRFLHW\DQGFXOWXUH H[SUHVVHVDOLPLQDO VWDWH:HDUHWDONLQJKHUHDERXWDFROOHFWLYHWKDWGHVSLWHLWVEHLQJXQGHU VWRRGDQGLPSOLFLWO\GHϮQHGDVDWROHUDWHGPLQRULW\JURXSLQERWK&KULV WLDQDQG0XVOLPPLOLHXV GLGQRWJHQHUDOO\EHORQJWRWKHORZHUDQGRSSUHVVHG FODVVHVLQWKHVRFLHW\LQZKLFKLWOLYHG7KHGLVFXVVLRQRIWKHGLVFULPLQDWLRQ DQGRSSUHVVLRQRIPLQRULWLHVLQLQVWDQFHVZKHUHWKHUHH[LVWHGGLVFULPLQD WLRQDQGRSSUHVVLRQLVUHOHYDQWRQO\LQWKHPHDVXUHWRZKLFKLWLVFRQGXFWHG RQWKHEDVLVRIFRPSDULVRQZLWKWKHVWDWHRIRWKHUGLVFULPLQDWHGJURXSV 0RUHRYHUWKHIDFWWKDW-HZVSUHVHUYHDKLVWRU\WKDWLVQRWVLOHQWPDNHV ´-HZLVKKLVWRU\µLQWRDKLJKO\VLJQLϮFDQWDVVHWIRUVWXG\LQJWKHSDUDGLJPV RIJHQHUDOKLVWRU\LWHQDEOHVDQDOWHUQDWLYHZULWLQJRIKLVWRU\ , QUHFHQWGHFDGHVWKHUHKDYHEHHQPDQ\H[SUHVVLRQVRIWKLVDOWHUQDWLYH KLVWRU\LQZRUNWKDWKDVGHYLDWHGFRQVLGHUDEO\IURPWKHSLFWXUHRIWKHSDVW VKDSHGE\WKH´IRXQGLQJJHQHUDWLRQµRI=LRQLVWKLVWRULRJUDSK\7KLVQHZUH VHDUFKSUHVHQWV-HZLVKKLVWRU\DVSDUWRIWKHHQYLURQPHQWLQZKLFK-HZV OLYHGGHYHORSLQJLQGLϸHUHQWGLUHFWLRQVDQGWKXVEOXUULQJWKHGLFKRWRP\ EHWZHHQ´JHQHUDOµLH(XURSHDQ DQG´-HZLVKµKLVWRU\3UHVHQWLQJ-XGDLVP DVSDUWRIWKHYDULRXVFXOWXUDOFRQWH[WVLQZKLFKLWKDGGHYHORSHGZLWKRXW FRQFHGLQJLWVXQLTXHQHVVRULJQRULQJWKHHOHPHQWRIRSSUHVVLRQUDLVHVGLI ϮFXOWTXHVWLRQVDERXWWKHQDWLRQDOQDUUDWLYH&XUUHQWUHVHDUFKRQ.DEEDODK IRUH[DPSOHWKHZRUNRI0RVKH,GHO@

(;,/(:,7+,1629(5(,*17
@

6+,)76

'HϮQLQJ=LRQLVWVHWWOHPHQWDVDQH[SUHVVLRQRI´WKHQHJDWLRQRIH[LOHµDQG DVWKH´UHWXUQRIWKHSHRSOHWRWKHLUODQGµSUHYHQWHGDQ\DFNQRZOHGJPHQWRI WKHFROOHFWLYHDVSLUDWLRQVRIWKHORFDO$UDESRSXODWLRQDQGLWVSRLQWRIYLHZ DQG LW XQGRXEWHGO\ SUHYHQWHG WKH SRVVLELOLW\ RI WXUQLQJ WKH H[LVWHQFH RI WKLVFROOHFWLYLW\LQWRDSRVLWLYHHOHPHQWLQWKHSURFHVVRIHVWDEOLVKLQJWKH QHZ-HZLVKLGHQWLW\7KHFRQFHSWLRQRIKLVWRU\RIQHJDWLRQRIH[LOHDQGWKH HPSW\LQJRIWKH-HZLVKWLPHWKDWVSDQVIURPWKHORVVRIVRYHUHLJQW\RYHU WKH/DQGRI,VUDHOXQWLOWKHUHQHZHGVHWWOHPHQWWKHUHZHUHGLUHFWO\IXO ϮOOHGE\LPDJLQLQJWKH/DQG³WKHVSDFHRIWKHUHDOL]DWLRQDQGUHVROXWLRQ RIWKHKLVWRU\³DVDQ´HPSW\ODQGµ 6 LQFHHDUO\=LRQLVWWKLQNHUVWKHVXEMHFWKDVEHHQSHUFHLYHGDVDTXHVWLRQ WKDWVKRXOG´EHVROYHGµVRWKDWLWZRXOGFHDVHWRWURXEOHWKHYLVLRQRIUH GHPSWLRQWKURXJKWKH´QHJDWLRQRIH[LOHµ(YHQPDQ\RIWKRVHZKRZDUQHG WKDWWKH´$UDESUREOHPµVKRXOGEHGHDOWZLWKGLGQRWWXUQLWLQWRDSDUWRI WKHLUQHZ-HZLVKLGHQWLW\7KH\WRRDFFHSWHGWKHVXSHUϮFLDOLQVWLWXWLRQDO L]HGSDUWLWLRQEHWZHHQWKHTXHVWLRQRI´-HZLVKLGHQWLW\µDQG´WKH3DOHVWLQ LDQ TXHVWLRQµ DQG WKH\ DJUHHG WR UHOHJDWH WKH 3DOHVWLQLDQV EH\RQG WKH ERXQGVRIGLVFRXUVH$WOHDVWIURPWKHYLHZSRLQWRIWKHLPDJHVRIVHOILGHQWLW\ WKH/DQGFRQWLQXHGWRIXQFWLRQDVDQHPSW\ODQGDQGDVVXFKWKHPDVVLYH ´GLDORJXHµZLWK´WKH/DQGµDFFRPSDQLHGE\LPDJHVGUHQFKHGLQGHVLUH ZDV EDVHGRQWKHGHQLDORIWKHQDWLYHRIWKH/DQGWKH´RWKHUµ )URPDKLVWRULFDOSHUVSHFWLYHWKHGHQLDORIWKH3DOHVWLQLDQSUHVHQFHDV DGHSDUWXUHSRLQWIRUFXOWXUDOLGHQWLW\ϮQGVLWVGLVWLQFWH[SUHVVLRQLQWKH ZRUOGYLHZDQGYDOXHV\VWHPWKDWZDVFRQVROLGDWHGGXULQJWKHSHULRGRI WKH6HFRQG$OL\DKWKHFRQWH[WLQZKLFKWKHIXQGDPHQWDOFXOWXUDOP\WKV RIWKH=LRQLVW´QHJDWLRQRIH[LOHµFXOWXUHZHUHIRUPHG,WZDV WKHQWKDW WKHERXQGDULHVRIWKHUHODWLRQVZLWK3DOHVWLQLDQVZHUHGHϮQHGLQ=LRQLVW GLVFRXUVHZKLFKEHFDPHWKHERXQGDULHVRI´WKHFRQVHQVXVµLQLWVHQWLUHW\ LHWKDWZKLFKFRQWDLQVERWKVXSSRUWHUVRI´FRPSURPLVHµDVZHOODVWKHLU RSSRQHQWV  7KLV ZDV QRW D WKHRUHWLFDO FRQFHSWLRQ EXW WKH FXOWXUDO EDVLV WKDWHQDEOHGDSROLF\RIUHSUHVVLRQDQGH[SXOVLRQRI3DOHVWLQLDQVDSROLF\ WKDWZDVWKHUHDOL]DWLRQRIWKHLPDJHRIWKHHPSW\ODQG,QWKHIUDPHZRUN RIWKLVGLVFRXUVHWKH3DOHVWLQLDQDOZD\VKDGWRSURYHWRKLVRSSUHVVRUVWKDW KHZDVQRWDWKUHDWLIKHGLGQ·WSURYHWKLVDOOFRQVWLWXHQWVRIWKH,VUDHOL FRQVHQVXVVDZKLVSXQLVKPHQWDVOHJLWLPDWH :  LWKLQWKHLPDJHRIWKH´1HZ-HZµZKLFKJURZVRXWRIWKHQHJDWLRQRI H[LOHDQGWKHVKHGGLQJRIWKHH[LOLF-HZLVKLPDJHRQHFDQDOUHDG\ϮQG >@

(;,/(:,7+,1629(5(,*17
@

6+,)76

HGXFDWLRQWKH´FRQϰLFWµLVWDXJKWDVDVHSDUDWHVXEMHFWGHWDFKHGIURPWKH KLVWRU\ RI =LRQLVW VHWWOHPHQW 7KH 3DOHVWLQLDQV DSSHDU LQ WKH FRQWLQXRXV QDUUDWLYHRI´WKHGHYHORSPHQWRI-HZLVKVHWWOHPHQWµRQO\DWPRPHQWVRIFUL VLV´LQFLGHQWVµLQZKLFKYLROHQWRSSRVLWLRQZDVUHYHDOHGWRFRQWLQXHG-HZLVK LPPLJUDWLRQDQG%ULWDLQ·VSUR=LRQLVWSROLF\RID´QDWLRQDOKRPHµ7KLVGLVUH JDUGJLYHVULVHWRDGLVWRUWHGV\VWHPRILPDJHVWKDWGLVDOORZVDQ\XQGHU VWDQGLQJRIWKHDFWLRQVDQGUHVLVWDQFHRIWKH3DOHVWLQLDQV,QLQVWLWXWLRQVRI KLJKHU HGXFDWLRQ GLVFLSOLQHV DUH GLYLGHG EHWZHHQ ´WKH KLVWRU\ RI -HZLVK VHWWOHPHQWµSDUWRIWKH´+LVWRU\RIWKH-HZLVK3HRSOHµ DQG´WKHKLVWRU\RI 3DOHVWLQLDQQDWLRQDOLVPµLQWKHϮHOGRI2ULHQWDO6WXGLHV  .  H\TXHVWLRQVDERXWWKHKLVWRU\RIWKH/DQGRI,VUDHODUHEDUHO\H[DPLQHG LQWKLVIUDPHZRUN,Q,VUDHOLKLVWRULFDOFRQVFLRXVQHVVWKHUHLVQRPHPRU\RI WKH3DOHVWLQLDQYLHZSRLQWRQHYHQWVDQGWKHFRQVFLRXVQHVVRIWKHMXVWLFHRI WKHYLFWRUVUHPDLQVXQGLVWXUEHG&HQWUDOKLVWRULFDOTXHVWLRQV³VXFKDVWKH H[SXOVLRQRI$UDEVIURPWKHLUODQGWKH3DOHVWLQLDQUHODWLRQWRWKH%ULWLVK 0DQGDWHDQGWKHLURSSRVLWLRQWRWKH%DOIRXU'HFODUDWLRQDQGHVSHFLDOO\WKH FUHDWLRQRIWKHUHIXJHHSUREOHP³DUHYLUWXDOO\QRWGLVFXVVHGDQGZKHQWKH\ DUHGLVFXVVHGWKH\GRQRWEHFRPHSDUWRIWKHFXOWXUDOFRQYHUVDWLRQDERXW WKHTXHVWLRQRIVHOILGHQWLW\DQGWKHIRUPDWLRQRIWKHFROOHFWLYHFRQVFLRXV QHVV$VRSKLVWLFDWHGFXOWXUDOPHFKDQLVPVKRYHVDVLGHDWWHPSWVWRDFWXDO L]HWKHVHGLVFXVVLRQV7KHJUDYHVWLPSOLFDWLRQRIWKHFRQFHSWLRQRIKLVWRU\ WKDWLVGHULYHGIURPWKH´QHJDWLRQRIH[LOHµLVWKHGHQLDORIWKH3DOHVWLQLDQ WUDJHG\WKDWDFFRPSDQLHGWKHFUHDWLRQRIWKH6WDWHRI,VUDHO7KLVGHQLDO ZKLFKLVHVVHQWLDOO\DFRPSOHWHGLVUHJDUGRI3DOHVWLQLDQPHPRU\DQGRI WKHFKDUDFWHURIWKH/DQGSUHLVRQHRIWKHGLVWLQFWFKDUDFWHULVWLFVRI ,VUDHOLFXOWXUHDQGWKLVLVHPSKDVL]HGE\WKHFHQWUDOSODFHLQ-HZLVKFRQVFLRXV QHVVRIWKHP\WKRI·DORQJVLGHWKHHPSW\VSDFHOHIWE\IRUJHWWLQJWKH 3DOHVWLQLDQWUDJHG\ ,WLVHVSHFLDOO\LPSRUWDQWWKDWSROLWLFDOSDWWHUQVRIFXOWXUHHQDEOHWKH V\VWHPDWLFGHQLDODQGIRUJHWWLQJRIHYHQWVWKHWRWDOGLVUHJDUGIRUWKHIDWHRI WKH3DOHVWLQLDQVDQGWKHGUDVWLFFKDQJHWKDWWRRNSODFHLQ,VUDHOIROORZLQJ WKHHVWDEOLVKPHQWRIWKHVWDWHDQGLWVDFFRPSDQ\LQJZDU7KHVLOHQFLQJ RIWKHVXEMHFWLVDQDFWLYHFXOWXUDOSURMHFWWKDWGHϮQHVWKHERXQGVRIWKHFRQ VHQVXV DQG SUHYHQWV D GLVFXVVLRQ RI WKH IDWH RI WKH UHIXJHHV³ZKHWKHU E  HFDXVHRIWKHLQDELOLW\WRGHDOZLWKJXLOWRUEHFDXVHRIWKHWHQGHQF\WRSUH VHUYHWKHP\WK7KLVSURMHFWZDVDOVRFDUULHGRXWLQWKHHUDVXUHRIWKHQDPHV RI3DOHVWLQLDQWRZQVWKDWZHUHGHVWUR\HGDVSDUWRIWKHWUHQGWRHUDVHWKHP >@

(;,/(:,7+,1629(5(,*17
+HEUHZ@2QWKHURPDQWLFDV SHFWVRIWKLVLGHDVHH+HEUHZ@   7KHWHQVLRQEHWZHHQWKHGHVLUHIRUD´QHZµFXOWXUHDQGWKHLQWHQWLRQWRUHQHZ UHϰHFWVDIXQGDPHQWDOWHQVLRQWKDWFKDUDFWHUL]HVWKHPHVVLDQLFLGHDLQ-XGD LVP6HH*HUVKRP6FKROHP´8QGHUVWDQGLQJWKH0HVVLDQLF,GHDLQ,VUDHOµLQ([ SOLFDWLRQVDQG,PSOLFDWLRQV7HO$YLY$P2YHG >+HEUHZ@²)URPWKLV SHUVSHFWLYH=LRQLVPWRXFKHVRQWKHFHQWUDOPHVVLDQLFTXHVWLRQ7KHVHWZR WUHQGVEHFRPHLQWHJUDWHGLQ=LRQLVWFXOWXUH   2QWKHLPDJHRIWKHQHZ-HZVHH6KDYLW)URP+HEUHZWR&DQDDQLWH/LHEPDQDQG 'RQ+HEUHZ@+DLP1DJLG´7KH+HEUHZ5HYROXWLRQµLQ7KH+HEUHZ@DQG %RDV(YURQ-HZLVK6WDWHRU,VUDHOL1DWLRQ"%ORRPLQJWRQ,QGLDQD8QLYHUVLW\3UHVV   2Q LPDJHV RI WKH QHZ +HEUHZ FXOWXUH VHH ,WDPDU (YHQ =RKDU ´7KH *URZWKDQG&U\VWDOOL]DWLRQRI/RFDODQG1DWLYH+HEUHZ&XOWXUHLQ,VUDHO² µ.DWHGUD  ²>+HEUHZ@)RUGHEDWHVDERXWWKHVHGHSLFWLRQV VHH1XULW*UDHW]HG9DQWDJH3RLQW&XOWXUHDQG6RFLHW\LQWKH/DQGRI,VUDHO5DPDW *DQ2SHQ8QLYHUVLW\RI,VUDHO >+HEUHZ@   7RP6HJHYSXWIRUWKDJHQHUDOGLVFXVVLRQRIWKHGLϸHUHQWHOHPHQWVIRUZKLFK WKHFUHDWLRQRI,VUDHOLQHVVOHGWRLQVWDQFHVRIUDGLFDOUHSUHVVLRQ7RP6HJHY 7KH)LUVW,VUDHOLV1HZ+HEUHZ@²(UQHVW6LPRQ$UH:H6WLOO -HZV7HO$YLY6LIUL\DW3R·DOLP >+HEUHZ@   ,Q=LRQLVWGLVFRXUVHGLϸHUHQWGHEDWHVGHYHORSHGRYHUKRZWRLPSOHPHQWWKH ´QHJDWLRQRIWKHGLDVSRUDµLQSUDFWLFHDVZHOODVUHJDUGLQJWKHFKDUDFWHURI WKH QHZ FXOWXUH DQG LWV PHDVXUH RI FRQWLQXLW\ LQ UHODWLRQ WR WKH H[LVWLQJ FXOWXUH6HH/X]3DUDOOHOV0HHW   6HH IRU H[DPSOH +HEUHZ@ >@

6+,)76

´=RKDUDQG(URVµOHFWXUHLQPHPRU\RI*HUVKRP6FKROHPDWWKH,VUDHOL1D WLRQDO$FDGHP\IRU6FLHQFHV-HUXVDOHP >+HEUHZ@   *LO(\DO7KH'LVHQFKDQWPHQWRIWKH2ULHQW 6WDQIRUG6WDQIRUG8QLYHUVLW\3UHVV  ²   (GZDUG6DLG2ULHQWDOLVP1HZE\LPDJLQDWLRQ@IRUDJHQHUDOL]HGSLFWXUHRIVXϸHULQJDQGZKR GRFXPHQWVWKLVVXϸHULQJLQWKHLQWHUHVWVRIHYHQWXDOVRFLDOLQWHUYHQWLRQ³ VXFK D SHUVRQ RFFXSLHV WKH SRVLWLRQ RI WKH PRGHUQ VXEMHFWµ ,Q FODLPLQJ V\PSDWK\ IRU WKH SDLQ RI RWKHUV WKH VHQWLPHQWDO VSHFWDWRU EHFDPH ERWK WKHVSHDNLQJDQGIHHOLQJVXEMHFWDQGDYLFDULRXVVXϸHUHU7KHDGRSWHGSDLQ RULQMXU\WKXVHQGRZHGKLPRUKHUZLWKDPRUDODXWKRULW\DQGDQHZOHJDO ULJKWWRSURWHFWWKHDFWXDOVXϸHUHURUKXPDQLW\LQJHQHUDO7KLVORJLFLVDW WKHURRWRIWKHPRGHUQGRFWULQHRIKXPDQLWDULDQLQWHUYHQWLRQDOWKRXJKIHZ KDYHGLVFXVVHGLWIURPWKHSHUVSHFWLYHRIVHQWLPHQWDOLW\WRXQGHUVWDQGKRZ DQXQUHODWHGVSHFWDWRUDFTXLUHVOHJDOVWDQGLQJE\REVHUYLQJDQRWKHU·VSDLQ RULQMXU\7REHWWHUXQGHUVWDQGWKLVZHQHHGWRWUDFHWKH´SUHKLVWRU\µRI WKLVVHQWLPHQWDOGLVFRXUVHLQWKHFDQRQVRILQWHUQDWLRQDOODZ

7KH'LVFRXUVHRI,QMXU\LQWKH/DZRI 1DWLRQVDQG,QWHUQDWLRQDO/DZ , WLVZHOONQRZQWKDWWKHGRFWULQHRIMXVWZDULVDFRUQHUVWRQHRILQWHUQD WLRQDOODZDQGLWVHDUO\PRGHUQ(XURSHDQSUHGHFHVVRU%XWDWWKHKHDUWRI WKLVNH\FRQFHSWLVDFRQFHSWLRQRILQYLRODEOHULJKWVDQGWKHLUYXOQHUDELOLW\ DQGQHFHVVDU\GHIHQVH+XJR*URWLXVD'XWFKMXULVWDQGRQHRIWKHIRXQGHUV RIWKHODZRIQDWLRQVFLWHG6W$XJXVWLQHDQGRWKHUFODVVLFVRXUFHVLQGHFODU LQJLQWKHHDUO\VWKDW´WKHUHLVQRRWKHUUHDVRQDEOHFDXVHRIPDNLQJZDU EXWDQLQMXU\UHFHLYHGµRUWKUHDWHQHG7KHWKUHHPDLQJURXQGVIRUZDJLQJD MXVWZDUZHUHWRGHIHQGRQH·VOLIHDQGSURSHUW\DJDLQVWLQMXU\WRUHFRYHU ZKDWZDVXQMXVWO\WDNHQDZD\DQGWRSXQLVKSDVWLQMXU\,QRWKHUZRUGV >@

6+,)76

DOWKRXJKMXVWZDULWVHOIZDVFRXFKHGDVDOHJDOULJKWLWVMXULGLFDODQGSKLOR VRSKLFDORULJLQVOD\LQWKHLGHDRISURWHFWLRQRIRQHVHOIIURPLQMXU\$JUHHLQJ ZLWK*URWLXVLQWKLVUHJDUG(PHUGH9DWWHODOHDGLQJHLJKWHHQWKFHQWXU\ 6ZLVVMXULVWIXUWKHUGHϮQHG´LQMXU\RULQMXVWLFH>DV@EHLQJDWUHVSDVVDJDLQVW WKHSHUIHFWULJKWRIDQRWKHUµ7KHMXVWFDXVHVRIZDUKHUHKDGWKHFODLP DQWDVWKHSULPDU\VXϸHUHU:KHWKHUDZDUZDVFRQVLGHUHGMXVWZRXOGGH SHQGRQZKDWFRQVWLWXWHGDOHJDOO\UHFRJQL]HGLQMXU\$VZHVKDOOVHHWKH VRFLDODQGFXOWXUDOVSHFLϮFLWLHVLQFRQVWUXFWLQJLQMXU\ZRXOGEHFUXFLDOIRU PDNLQJ WKDW GHWHUPLQDWLRQ LQ LQWHUQDWLRQDO FRQϰLFWV ,W LV ZRUWK QRWLQJ WKDWDVXFFHVVIXOFODLPWRLQMXU\ZDVDQGVWLOOLVPRUHWKDQMXVWDPRUDO RUOHJDOLVVXH$PRQJRWKHUWKLQJVVHHNLQJSURWHFWLRQIURPDOOHJHGYXO QHUDELOLW\DQGGDPDJHVDNH\HOHPHQWRIWKHLQMXU\GLVFRXUVHDOPRVWKDGDQ LQKHUHQWO\HPRWLYHRUVHQWLPHQWDOGLPHQVLRQLPSOLFLWO\RUH[SOLFLWO\SRU WUD\LQJ WKH FODLPDQW DV WKH VXϸHUHU RI XQMXVWLϮHG DFWLRQV DQG ZRUWK\ RI V\PSDWK\DQGUHPHG\ , QFRPSDULVRQZLWKWKLVGRFWULQHRIMXVWZDUEDVHGRQGLUHFWLQMXU\ WKHFRQFHSWRIVHFRQGDU\LQMXU\UHPDLQHGPRUHFRQWURYHUVLDOLQPRGHUQ LQWHUQDWLRQDOODZEXWWKLVGRHVQRWPDNHLWOHVVLPSRUWDQWLQFHUWDLQVLWXD WLRQV,QIDFWLWKDVEHFRPHRQHRIWKHPRVWH[WHQVLYHO\VWXGLHGWRSLFVLQ LQWHUQDWLRQDOODZRYHUWKHODVWIHZGHFDGHV7KHUHFHQWGHEDWHRYHUXQLODW HUDOKXPDQLWDULDQLQWHUYHQWLRQKDVIRFXVHGRQZKHWKHULWLVDPRUDOO\MXV WLϮDEOHGRFWULQHRUDQDEXVHSURQHSUHWH[WIRUPLOLWDU\DJJUHVVLRQ:KDW LVRYHUORRNHGLQWKHGHEDWHLVWKHIDFWWKDWWKHVHQWLPHQWDOGLVFRXUVHRIKX PDQLW\DQGV\PSDWK\ZDVDPDMRUVRXUFHRIERWKWKHPRUDODXWKRULW\IRUWKH GRFWULQHRIKXPDQLWDULDQLQWHUYHQWLRQRQWKHRQHKDQGDQGRILWVVXVFHSWL ELOLW\WRPDQLSXODWLRQIRUXQUHODWHGSXUSRVHVRQWKHRWKHU$EULHIVXUYH\RI DIHZLQϰXHQWLDOWUHDWLVHVRQWKHODZRIQDWLRQVRULQWHUQDWLRQDOODZLOOXV WUDWHVWKLV ) LUVWLWLVZRUWKVWUHVVLQJWKDWWKHVHQWLPHQWDOGLVFRXUVHZDVDQGLVPXFK EURDGHUWKDQLVLPSOLHGE\WKHPRGHUQGRFWULQHRIKXPDQLWDULDQLQWHUYHQ WLRQ7KHODWWHUGRFWULQHKDVRIWHQEHHQWUDFHGEDFNWR*URWLXV%HIRUHKLP KRZHYHU)UDQFLVFRGH9LFWRULDD6SDQLVKWKHRORJLDQDQGDQRWKHUIRXQGLQJ MXULVWRIWKHODZRIQDWLRQVKDGDUJXHGLQWKHVWKDWWKH$PHULQGLDQ JRYHUQPHQWV·´W\UDQQLFDODQGRSSUHVVLYHµODZVDQGWUHDWPHQWRIWKHLU´LQQR FHQWµVXEMHFWVHJWKHLUUHSRUWHGFDQQLEDOLVP FRQVWLWXWHGDFDXVHRIMXVW ZDUE\DEHQHYROHQW&KULVWLDQVWDWHOLNH6SDLQRQEHKDOIRIWKHQDWLYHYLF WLPV)RU9LFWRULDLWZDVLUUHOHYDQWZKHWKHURUQRWWKHQDWLYHVGHVLUHGVXFK >@

$))(&7,9(629(5(,*17
LHVXEMHFWLY LW\@DVWREHDEOHWRFRQVLJQWKHPVHOYHVRUWKHLUFKLOGUHQWRGHDWKµ7KHQD WLYHJRYHUQPHQW·VGRPHVWLFFUXHOW\ZDVKHUHLPSOLFLWO\ WUHDWHGDVDQLQMXU\ WRERWKKXPDQLW\DQGWKHSUHVXPDEO\V\PSDWKHWLFIRUHLJQHUV*URWLXVH[ SDQGHG9LFWRULD·VDUJXPHQWWRFRQWHQGWKDWZDUFRXOGEHMXVWO\XQGHUWDNHQ DJDLQVWIRUHLJQHUVZKRZHUH´LQKXPDQWRWKHLUSDUHQWVµDWHKXPDQϰHVK RUFRPPLWWHGRWKHURϸHQVHVDJDLQVWQDWXUH7KHLU´GHSUDYLW\RIPLQGµZDV GHHPHGVRJUHDWDVWRKDYHFXWWKHPRϸIURPKXPDQVRFLHW\DQGPDGHWKHP HQHPLHVRIWKHZKROHZRUOG&LWLQJ$ULVWRWOHDQGRWKHUFODVVLFDODXWKRULWLHV *URWLXVVWDWHGWKDW´WKHMXVWHVWZDULVWKDWZKLFKLVXQGHUWDNHQDJDLQVWZLOG UDSDFLRXVEHDVWVDQGQH[WWRLWLVWKDWDJDLQVWPHQZKRDUHOLNHEHDVWVµ 7KXVE\LQYRNLQJWKHPRUDOVHQWLPHQWVDVVRFLDWHGZLWKWKHVHQVDWLRQDO LPDJHRIFUXHOW\DQGLQKXPDQLW\*URWLXVH[SHOOHGWKHEHDVWOLNHPHPEHUV IURPWKHXQLYHUVDOL]HGKXPDQVRFLHW\RUODZRIQDWLRQVUHWDLQLQJWKHPRQO\ DVWKHREMHFWVRISXQLVKPHQWXQGHUWKHODZRIQDWXUH7KLVGRFWULQHRIMXVW ZDU DJDLQVW DQRWKHU VWDWH LQ RUGHU WR UHOLHYH WKH ODWWHU·V VXEMHFWV IURP W\UDQQLFDORUFUXHORSSUHVVLRQVHUYHGWRRYHUULGHWKHSUHYDLOLQJYLHZRIDQ LQGHSHQGHQWJRYHUQPHQW·VIXOODXWRQRP\RYHUGRPHVWLFPDWWHUV 6 RPHVFKRODUVPLJKWDUJXHWKDWWKHLPDJHRIVXϸHULQJKXPDQLW\HYRNHG LQVXFKWH[WVZDVMXVWDUKHWRULFDOGHYLFHRUWKDW9LFWRULDDQG*URWLXVMXVWL ϮHGWKHSRVVLEOHZDUDJDLQVWWKH$PHULQGLDQVRU2ULHQWDOFRXQWULHVRQWKH EDVLVRIPRUDOLW\DORQHKDYLQJQRWKLQJWRGRZLWKVHQWLPHQW7KHIRUPHU DUJXPHQWLVRYHUVLPSOLVWLFDQGWHQGVWRUHGXFHWKHVHWH[WVRILQWHUQDWLRQDO ODZWROLWWOHPRUHWKDQSUHWH[WVRISRZHUSROLWLFV7KHODWWHUDUJXPHQWDV VXPHVDQRYHUUDWLRQDOLVWLFYLHZRIPRUDOLW\ZKLOHGLFKRWRPL]LQJPRUDOLW\ DQGVHQWLPHQW6FKRODUVKDYHVKRZQWKDWFODLPVWRPRUDODXWKRULW\SROLWL FDO SRZHU DQG OHJDO ULJKWV VRXQG PRUH FUHGLEOH RU OHJLWLPDWH ZKHQ WKH\ DSSHDOWRKXPDQVHQWLPHQWV/LNHZLVHWKHSHUVXDVLYHSRZHURIKXPDQLWDU LDQLQWHUYHQWLRQEDVHGRQWKHGRFWULQHRIVHFRQGDU\LQMXU\ERWKPRUDOO\DQG OHJDOO\VSHDNLQJKLQJHGRQWKHHPRWLRQDOSRZHURIWKHLPDJHRIKXPDQLW\ LQSDLQ,Q*URWLXV·VZRUGV´LIWKHLQMXVWLFHEH>VR@YLVLEOHµXQGHUWKHIRUHLJQ W\UDQQLHVWKDW´QRJRRGPDQOLYLQJFDQDSSURYHRIWKHULJKWRIKXPDQVR FLHW\VKDOOQRWEHWKHUHIRUHH[FOXGHGµIURPLQWHUIHUHQFHZLWKWKRVHIRUHLJQ QDWLRQV,QRWKHUZRUGVWKHVHQWLPHQWDOUHDFWLRQVWRWKH´LQMXVWLFHµVHHQRU LPDJLQHGE\WKHXQUHODWHGVSHFWDWRUVFUHDWHGDPRUDOREOLJDWLRQDQGDOHJDO ULJKWIRUWKHODWWHUWRLQWHUYHQH,WZDVQRWLQMXU\WRWKHIRUHLJQVSHFWDWRUV· ULJKWV RU SURSHUW\ EXW LQMXU\ WR WKHLU IHHOLQJV RU PRUDO VHQVLELOLWLHV WKDW >@

6+,)76

FRQVWLWXWHGWKHJURXQGVRILQWHUYHQWLRQ&RQVFLRXVRIPDQ\UHFRUGHGLQ VWDQFHVLQZKLFKWKHVHVHQWLPHQWVZHUHXVHGDVSUHWH[WVIRU´DPELWLRQDQG DYDULFHµ *URWLXV QHYHUWKHOHVV FRQFOXGHG WKDW DEXVHV E\ WKH ZLFNHG VKDOO QRWLQYDOLGDWHZKDWLVMXVW*URWLXVKDGDOUHDG\EHJXQWRVHHKXPDQLWDULDQ LQWHUYHQWLRQDVD´PXFKPRUHKRQRUDEOH>DFW@WRUHYHQJHRWKHUSHRSOHV·LQMXULHVµ UDWKHUWKDQRQH·VRZQVXϸHULQJ 7KHWHQVLRQVEHWZHHQWKHJHQHUDOSULQFLSOHRIUHVSHFWIRUWHUULWRULDOVRY HUHLJQW\DQGWKHOLQJHULQJLQϰXHQFHRIXQLYHUVDOLVWLGHDVRIQDWXUDOODZDQG MXVWLFHFRQWLQXHGLQWRWKHQH[WWZRFHQWXULHV9DWWHOZDVXQHTXLYRFDOWKDW ´QDWLRQVDUHDEVROXWHO\IUHHDQGLQGHSHQGHQWµDQGKHH[SOLFLWO\FULWLFL]HG *URWLXVIRUDGYRFDWLQJWKHULJKWWRSXQLVKDQRWKHUVWDWHIRUYLRODWLQJWKHODZ RIQDWXUH$FFRUGLQJWRKLPWKHULJKWRISXQLVKPHQWRIQDWLRQVFRXOGEHGH ULYHG´VROHO\IURPWKHLUULJKWWRSURYLGHIRUWKHLURZQVDIHW\µDQGFODLPHG RQO\DJDLQVWWKRVHE\ZKRPWKH\KDYHEHHQ´LQMXUHGµ ,QVLVWLQJWKDWIRU HLJQVWDWHVVKRXOGKDYH´QRULJKWWRLQWHUIHUHLQWKHJRYHUQPHQWRIDQRWKHU LQGHSHQGHQW VWDWHµ 9DWWHO QRQHWKHOHVV GLG LQFOXGH DQ H[FHSWLRQ WR WKLV JHQHUDO UXOH XQOHVV WKH ´RSSUHVVHG SHRSOHµ UHTXHVWHG IRUHLJQ DVVLVWDQFH DJDLQVW WKHLU RZQ JRYHUQPHQW 7KHUHIRUH GHVSLWH KLV VWURQJ REMHFWLRQ WR *URWLXV·V GRFWULQH RI LQWHUYHQWLRQ 9DWWHO·V SRVLWLRQ ZDV VRIWHQHG E\ WKLV LPDJLQHGVFHQDULRRIFUXHOW\DQGKXPDQLWDULDQVHQWLPHQWPRQVWURXVIRU HLJQUXOHUV´UHQGHUWKHPVHOYHVWKHVFRXUJHVDQGKRUURURIWKHKXPDQUDFH WKH\DUHVDYDJHEHDVWVZKRPHYHU\EUDYHPDQPD\MXVWO\H[WHUPLQDWHIURP WKHIDFHRIWKHHDUWKµ +  HQU\:KHDWRQDQ$PHULFDQGLSORPDWDQGRQHRIWKHIHZPRVWLQϰXHQ WLDOLQWHUQDWLRQDOODZ\HUVLQWKHQLQHWHHQWKFHQWXU\ZLWQHVVHGWKHIXUWKHU SRVLWLYLVWWXUQRILQWHUQDWLRQDOODZZKRVHXOWLPDWHVRXUFHRIOHJLWLPDWLRQ ZDVVDLGWREHEDVHGRQWKHFRQVHQWRIVRYHUHLJQVWDWHV+HDOVRSOD\HGDOHDG LQJUROHLQGHYHORSLQJZKDW$QWRQ\$QJKLHKDVFDOOHGWKH´UHFRJQLWLRQGRF WULQHµZKLFKPDGHWKHOHJDOVWDWXVRILQGHSHQGHQWQRQ&KULVWLDQVWDWHVD PDWWHUWREHGHWHUPLQHGE\WKH&KULVWLDQSRZHUV:KDWZDV:KHDWRQ·VDW WLWXGHWRZDUGKXPDQLWDULDQLQWHUYHQWLRQLQGLVUHJDUGRIVWDWHVRYHUHLJQW\" ,QKLVZLGHO\FLWHG(OHPHQWVRI,QWHUQDWLRQDO/DZ :KHDWRQMXVWLϮHGWKH &KULVWLDQ(XURSHDQSRZHUV·FROOHFWLYHDVVLVWDQFHRIWKH*UHHNUHEHOVDJDLQVW WKH 2WWRPDQ (PSLUH LQ ² RQ WKH JURXQGV WKDW WKH *UHHNV ´DIWHU HQGXULQJDJHVRIFUXHORSSUHVVLRQKDGVKDNHQRϸWKH2WWRPDQ\RNHµ)RU KLPWKLVH[DPSOH´DϸRUGVDIXUWKHULOOXVWUDWLRQRIWKHSULQFLSOHVRILQWHUQD WLRQDOODZDXWKRUL]LQJVXFKDQLQWHUIHUHQFH¬¬¬ZKHUHWKHJHQHUDOLQWHUHVWV >@

$))(&7,9(629(5(,*17
LQ,QGLD@ZLWKLQGLϸHUHQFHµ ,QWKHWULDORI+DVWLQJV(GPXQG %XUNHFDOOHGWKLVNLQGRIUHIXVDOWRH[WHQGWKHPHWURSROLWDQOHJDODQGPRUDO VWDQGDUGVWRQRQ:HVWHUQSHRSOHDSUDFWLFHRI´JHRJUDSKLFDOPRUDOLW\µ)RU %XUNHWKHGLVSDUDJLQJUHSUHVHQWDWLRQRIWKH,QGLDQSHRSOHDVDOLHQDQGLQ IHULRUZDVPRUHUHVSRQVLEOHWKDQWKHJHRJUDSKLFDOGLVWDQFHIRUWKH%ULWLVK UHIXVDOWRHPSDWKL]HZLWKWKRVHVXϸHUHUVRI%ULWLVKFRORQLDOLQMXVWLFH$V WKRVHGLVWDQWSHRSOHKDG´QRRWKHUUHPHG\EXWWKHV\PSDWKLHVRIPDQNLQGµ %XUNHFRQVLGHUHGWKH%ULWLVKUHIXVDOWRH[WHQGV\PSDWK\DUREEHU\LQLWVHOI %\FRQVWUXLQJWKHZLWKKROGLQJRIV\PSDWK\WRWKHFRORQL]HGSRSXODWLRQDV DQLQMXU\WRKXPDQLW\%XUNHUHYHDOHGWKHϰLSVLGHRIWKHQRZZLGHVSUHDG GLVFRXUVHRIVHQWLPHQWDOOLEHUDOLVPDQGKXPDQLWDULDQLVP 7  KHFKDUJHRIJHRJUDSKLFDOPRUDOLW\ZDVDOVRZKDWHPSRZHUHGWKHFULW LFVRIWKH6HFRQG2SLXP:DULQWKHLUDWWDFNRQWKH3DOPHUVWRQJRYHUQPHQW :KHQWKHGHEDWHRYHUWKHZDUZLWK&KLQDFDPHXSLQWKH+RXVHRI&RPPRQV LQ0DUFK6LU:LOOLDP*ODGVWRQHDUJXHGWKDW%ULWDLQFRXOGQRWMXVWLI\ LWVERPEDUGPHQWRI&DQWRQDQGWKHZDULQWHUPVRI´PXQLFLSDOLPSHULDORU FRORQLDOODZµ´LQWHUQDWLRQDOODZµRU´WKHKLJKHUJURXQGRIQDWXUDOMXVWLFHµ೓ 3DOPHUVWRQDQGKLVVXSSRUWHUVWULHGKDUGWRPRXQWDGHIHQVHE\LQWHUSUHW LQJLQWHUQDWLRQDOODZWRVXLWWKHLURZQDUJXPHQWVEXWLQWKH+RXVHRI/RUGV LQ )HEUXDU\  WKH (DUO RI &DUQDUYRQ XUJHG KLV DXGLHQFHV WR DWWHQG WR ´WKHLQMXVWLFHFRPPLWWHGE\WKLVFRXQWU\LQHQIRUFLQJWKHSULQFLSOHVRILQ WHUQDWLRQDOODZZKHQWKRVHODZVDSSOLHGLQRXURZQIDYRXUDQGUHIXVLQJ WR UHFRJQL]H WKHP ZKHQ WKHLU DSSOLFDWLRQ MXVWLILHG WKH FRQGXFW RI WKH &KLQHVHµ೓   +RZHYHULWZDV-RKQ5RHEXFNDOHDGLQJUDGLFDOUHIRUPHUZKR PRVWFOHDUO\HFKRHG%XUNH·VFULWLFLVPRIJHRJUDSKLFDOPRUDOLW\ZKHQKH VWDWHGLQWKH+RXVHRI&RPPRQV´,ZLVK>WKRVHZKRVXSSRUWHGWKHZDUZLWK >@

6+,)76

&KLQD@ZRXOGVXSSRVHWKDWWKHVHWUDQVDFWLRQVWRRNSODFHLQWKHFLW\RI/LYHU SRRODQGWKH0HUVH\IRU,KDYHIRXQGWKDW(XURSHDQDQGZHVWHUQSHRSOH JHQHUDOO\KDYHRQHUXOHRIPRUDOLW\IRUWKHZHVWDQGDQRWKHUIRUWKHHDVWµ 7KDWSULQFLSOHKDGLQGHHGEHHQSXWIRUZDUGLQ3DUOLDPHQWEXWLWZDVKLVEH OLHIWKDW´WKHUXOHRIPRUDOLW\H[WHQGVRYHUWKHJOREHFKHHUV DQGZKDWLV MXVWDQGXQMXVWLQWKH0HUVH\LVHTXDOO\MXVWRUXQMXVWLQWKHULYHUEHIRUH&DQ WRQ5HQHZHGFKHHUV µ೓  7  RURXVHKLVDXGLHQFH·VV\PSDWK\WRZDUGWKH,QGLDQVDIDU%XUNHGHVFULEHG ERWK,QGLDQVXϸHULQJDQG%ULWLVKFUXHOW\LQYLYLGGHWDLOEHFDXVHKHNQHZWKDW KLVWDVNDV-HQQLIHU3LWWVKDVQRWHGUHTXLUHGFDUHIXO´WKHDWULFVµ೓%XUNH VWDWHG´,DPVHQVLEOHWKDWDFROGVW\OHRIGHVFULELQJDFWLRQV¬¬¬>LV@FRQWUDU\ WRWKHMXVWLFHGXHWRWKHSHRSOHDQGWRDOOJHQXLQHKXPDQIHHOLQJVDERXW WKHPµ೓ 7KHUHIRUHKLVVWUDWHJ\LQWKHLPSHDFKPHQWGHEDWHZDVWRFUHDWH ´GHOLEHUDWHO\VKRFNLQJLPDJHU\WRRYHUFRPHZKDWKHIHDUHGZDVWKHLQVX SHUDEOHLQGLϸHUHQFHµRIWKH%ULWLVKHOLWHVDQGSXEOLFWRZDUGWKHVXϸHULQJRI DGLVWDQWSHRSOHRIWHQGHVSLVHGDQGLJQRUHGE\WKH%ULWLVK ,QWHUHVWLQJO\ ERWKFULWLFVDQGGHIHQGHUVRIWKH6HFRQG2SLXP:DUGHSOR\HGVLPLODUVWUDW HJLHV-XVWDV%XUNHWULHGWRPDNHWKH,QGLDQVOHVVDOLHQWRKLVDXGLHQFH-RKQ 5RHEXFNDOVRVWUHVVHGLQWKDW´&KLQDLVDPRQJFLYLOL]HGQDWLRQVµDQG WKDW WKH &KLQHVH ´DUH D FLYLOL]HG SHRSOHµ HYHQ WKRXJK WKHLU FLYLOL]DWLRQ ´LVQRWRXUVµDQG´LVRIDSDUWLFXODUNLQGµLQWKHVHQVHWKDW´WKH\KDYHQRW DSSOLHGWKHLULQWHOOLJHQFHWRWKHDUWRIZDUµDVDJJUHVVLYHO\DVWKH%ULWLVK,WLV WUXHWKDW´WKH\KDYHEHHQFDOOHGEDUEDURXV>E\XV@EXWLWPXVWQRWEHIRUJRW WHQWKDWWKH\>DOVR@FDOOXVEDUEDULDQVµ7RLPSUHVVKLVDXGLHQFHVIXUWKHU KHUHGLUHFWHGWKHLUDWWHQWLRQWRWKHVKDUSFRQWUDVWEHWZHHQWKHLUVHOILPDJH DQGWKHDFWXDOFRQVHTXHQFHVRI%ULWLVKH[SDQVLRQRYHUVHDV7KH´FLWL]HQVRI &DQWRQ KDYH VHHQ WKHLU GZHOOLQJ FXW XS DQG GHVWUR\HG WKH\ KDYH VHHQ WKHLUUHODWLYHVEXWFKHUHGE\WKHZRQGHURXVFLYLOL]DWLRQRI(QJODQGWKHLU EORRGKDVϰRZHGDQGIRUZKDW"$OOEHFDXVHLWLVVDLGWKHϰDJRI(QJODQGKDV EHHQ WDUQLVKHG E\ WKH SROLFH Rϲ FHUV RI &DQWRQµ :KDW ZRXOG KDSSHQ LI ´/RQGRQZHUHVRVKHOOHGE\DSHRSOHRIVXSHULRUFLYLOL]DWLRQWRRXUVHOYHVµ"+H KDGQRGRXEWWKDWHYHU\(QJOLVKPDQZRXOGWKHQEHUHDG\WRVDFULϮFHKLP VHOIWR´GHVWUR\WKHEDUEDULDQVDVZHPLJKWFDOOWKHPZKRKDGEDWWHUHGWKH FLW\DERXWRXUHDUVµ೓$VWKH%ULWLVKZHUHVXSSRVHGO\WKHRQO\JUHDWSHRSOH ZLWKDFRQVWLWXWLRQDOJRYHUQPHQWDQGODUJH(DVWHUQGRPLQLRQVDFFRUGLQJWR 5RHEXFN%ULWLVKDFWVLQWKH(DVWZRXOGEHVHHQDVUHSUHVHQWDWLYHRIWKHHQ WLUH:HVWHUQFLYLOL]DWLRQDQGRI&KULVWLDQLW\$QXPEHURIRWKHUPHPEHUVRI >@

$))(&7,9(629(5(,*17
DQG@,IHHOVKDPHIRUP\FRXQWU\µ೓ :  KHWKHUWKHVHFULWLFV·UHSUHVHQWDWLRQKDVWKHLQWHQGHGRUXQLQWHQGHG HϸHFWRIJLYLQJGXHUHFRJQLWLRQWRWKHVRYHUHLJQDQGFLYLOL]HGVWDWXVRI&KLQD 3DOPHUVWRQDQGKLVDOOLHVGHSOR\HGWKHVHQWLPHQWDOGLVFRXUVHWRGHQ\RUGLV SODFHWKDWVWDWXV7KHJRYHUQPHQWVHQW3DUOLDPHQWDYROXPHRIPRUHWKDQ WZRKXQGUHGSDJHVRI&RUUHVSRQGHQFH5HJDUGLQJ,QVXOWVLQ&KLQD GXULQJWKH \HDUV²ZKLFKZDVGHVLJQHGWRSLOHDOOWKH´RXWUDJHVµRQWKHEDFN RIWKH$UURZLQFLGHQWWR´PDNHLWELJHQRXJKµWRMXVWLI\WKHZDU,WWXUQHG RXWWKDWWKHVHWKLUW\VHYHQ´LQVXOWVµLQFOXGHGQRWRQO\6LQR$PHULFDQGLV SXWHVEXWDOVR%ULWLVKRXWUDJHVDJDLQVWWKH&KLQHVH7KH%ULWLVKJRYHUQPHQW VXUYLYHGDYRWHRIFHQVXUHLQWKH+RXVHRI/RUGVEXWORVWLQWKH&RPPRQVRQ )HEUXDU\E\YRWHVWR,QUHVSRQVH3DOPHUVWRQGLVVROYHG3DU OLDPHQWDQGPDGHDQDSSHDOWRWKHSHRSOHE\FDOOLQJDJHQHUDOHOHFWLRQ 1  HZVRI&KLQHVHUHVLVWDQFHWRRUDWWDFNRQWKH%ULWLVKLQFOXGLQJDUHSRUWHG DWWHPSWE\D&KLQHVHEDNHUWRVHOOSRLVRQHGEUHDGWRIRUHLJQHUVLQ+RQJ.RQJ LQ-DQXDU\DIWHUWKH%ULWLVKERPEDUGPHQWRI&DQWRQPDGHIRUVHQVD WLRQDOKHDGOLQHVLQ(QJOLVKQHZVSDSHUVWKDWFRQGHPQHGWKH&KLQHVHIRU ´FROGEORRGHGPXUGHUVµRU´GLDEROLFµFUXHOW\7KH0RUQLQJ3RVWWKH%ULWLVK QHZVSDSHU ZLWK WKH ODUJHVW FLUFXODWLRQ DIWHU WKH 7LPHV DWWULEXWHG WKH DWWHPSWHGSRLVRQLQJWR&RPPLVVLRQHU@

6+,)76

DQGWKDWRIWKH+HURZKRLVZKRHPERGLHVWKH9RONLQWKDWKHEHDUVLWVQHHG WKURXJKWUXHSROLWLFDOZLOODQGHWKLFDOSXUSRVH1HLWKHUFDQH[LVWZLWKRXW 9RON DQG$UWZRUNQHLWKHUFDQEHWUXHDV\PSWRWLFDOO\IURPLWVWUXWK2QO\ WKDQNVWRWKH$UWZRUNFDQWKH\SHUIHFWO\H[SUHVVDQGUHVWDJHWKH9RONDF TXLULQJDVDUHVXOWDVRUWRIGLYLQHULJKWRYHULW-XVWOLNHWKH9RONLWVHOIWKH $UWLVWDQGWKH$UWZRUNHPHUJHIURPDWUXHZDQW RUQHHG >1RWK³UHFDOOWKH QDPHRI6LHJIULHG·VVZRUG@E\FRQWUDVWZLWKWKH´HQHPLHVRIWKH9RONµZKR ´IHHOQRZDQWµDQGZLWKWKH´IDVKLRQµDQGFRPPHUFHZKLFK:DJQHUDVVRFL DWHGZLWKWKHIDOVH´HJRWLVWLFµFRQWHPSRUDU\DUWLVW7KHIHHOLQJRIFROOHF WLYHZDQW´HLQHJHPHLQVFKDIWOLFKH1RWKµ WXUQHGWKH9RONLQWRWKHJURXQG RIWKH$UWLVW·VH[LVWHQFHDQGWKHIRUFHWKDWLVSURSHOOHGE\KLV$UWZRUN $FUXFLDOVHFRQGPRYHLQYROYHVWKHWKHRUL]DWLRQRIWKHDUWLVW·VRZQSODFH 7KHDUWLVWDFTXLUHVKLVVWDWXVDVFRQGXLWRIWKHYLWDOLW\RIWKH9RON LQWRWKH DUWZRUNϮUVWDVRQHRIWKHVHWRIDUWLVWVWKDWFRQVWLWXWHWKH9RON·VDHVWKHWLF FRUH2QFHKHFUHDWHVZLWKDQGIRULWKHDFTXLUHVDVHFRQGSHUIHFWHGLGHQ WLW\ZLWKWKH9RON :  KRWKHQZLOOEHWKH$UWLVWRIWKH)XWXUH"7KHSRHW"7KHSHUIRUPHU"7KHPX VLFLDQ"7KHSODVWLFLDQ"³/HWXVVD\LWLQRQHZRUGWKH9RON7KDWVHOIVDPH9RON WRZKRPZHRZHWKHRQO\JHQXLQH$UWZRUNVWLOOOLYLQJHYHQLQRXUPRGHUQPHPRU\ KRZHYHUPXFKGLVWRUWHGE\RXUUHVWRUDWLRQVWRZKRPDORQHZHRZHDOO$UWLWVHOI

7  KH$UWLVWQRWRQO\H[SUHVVHVWKH9RONFRPSUHVVLQJLWLQWRWKH$UWZRUNEXW LVWDVNHGVSHFLϮFDOO\ZLWKUHXQLWLQJWKH9RONZLWKLWVHOILURQLQJRXWLWVIROGV KHDOLQJWKHϮVVXUHVZLWKLQLWDQGHQVXULQJWKHVXSUHPDF\RILWVQHHG7KLV LVFOHDUHVWDWWKHHQGRI2SHUDDQG'UDPD UHMHFWLQJ´WKH6WDWHµDQG´WKH 3KLOLVWLQHµWKDWGRPLQDWHFXUUHQWOLIH:DJQHUUHIXVHVWRJLYHXS :  HVKDOOQRWZLQKRSHDQGQHUYHXQWLOZHEHQGRXUHDUWRWKHKHDUWEHDWRI KLVWRU\DQGFDWFKWKHVRXQGRIWKDWVHPSLWHUQDOYHLQRIOLYLQJZDWHUVZKLFK KRZHYHUEXULHGXQGHUWKHZDVWHKHDSRIKLVWRULFFLYLOL]DWLRQ\HWSXOVHVRQLQ DOOLWVSULVWLQHIUHVKQHVV¬¬¬:KHUHWKHVWDWHVPDQGHVSDLUVWKHSROLWLFLDQGURSV KLVKDQGVWKHVRFLDOLVWSODJXHVKLPVHOIZLWKIUXLWOHVVV\VWHPVDQGHYHQWKH SKLORVRSKHUFDQRQO\LQWHUSUHWEXWQRWDQQRXQFH¬¬¬WKHUHLWLVWKDWWKH $UWLVW ZLWK KLV FOHDU H\H FDQ VHH VKDSHV >*HVWDOWHQ@ WKDW UHYHDO WKHPVHOYHV RQO\ WR D ORQJLQJ WKDW GHPDQGV WKH RQO\ WUXWK³0DQ 7KH $UWLVW KDV WKH SRZHURIVHHLQJEHIRUHKDQGD\HWXQVKDSHQZRUOG >@

7+(629(5(,*17@

7+(629(5(,*17@

7+(629(5(,*17@

6+,)76

3  V\FKRORJLVWVRIGLϸ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´7KH&ULVLVRI3V\FKRO RJ\µLGHQWLϮHGWKHFULVLVRIWKHGLVFLSOLQHZLWKWKHFULVLVRIWKHERXUJHRLV ZRUOGDQGKHUDOGHGWKHFDSDFLW\RISV\FKRORJ\WREHFRPHLQWKH´QHZVRFL HW\µWKH´VFLHQFHRIWKHQHZPDQµSUHFLVHO\EHFDXVHRILWVFDSDFLW\WRGLJ EHQHDWKERXUJHRLVOLIHDQGUHFRYHUWKHWUXWKRIVRFLHW\LWVHOI 2  XUVFLHQFHFRXOGQRWDQGFDQQRWGHYHORSLQWKHROGVRFLHW\:HFDQQRWPDV WHUWKHWUXWKDERXWSHUVRQDOLW\DQGSHUVRQDOLW\LWVHOIVRORQJDVPDQNLQGKDV QRWPDVWHUHGWKHWUXWKDERXWVRFLHW\DQGVRFLHW\LWVHOI,QFRQWUDVWLQWKH QHZVRFLHW\RXUVFLHQFHZLOOWDNHDFHQWUDOSODFHLQOLIH¬¬¬7KHQHZVRFLHW\ ZLOOFUHDWHWKHQHZPDQ:KHQRQHPHQWLRQVWKHUHPROGLQJRIPDQDVDQ LQGLVSXWDEOHWUDLWRIWKHQHZPDQNLQGDQGWKHDUWLϮFLDOFUHDWLRQRIDQHZ ELRORJLFDOW\SHWKHQWKLVZLOOEHWKHRQO\DQGϮUVWVSHFLHVLQELRORJ\ZKLFK ZLOOFUHDWHLWVHOI,QWKHIXWXUHVRFLHW\SV\FKRORJ\ZLOOLQGHHGEHWKHVFLHQFH RIWKHQHZPDQ:LWKRXWWKLVWKHSHUVSHFWLYHRI0DU[LVPDQGWKHKLVWRU\RI VFLHQFHZRXOGQRWEHFRPSOHWH%XWWKLVVFLHQFHRIWKHQHZPDQZLOOVWLOOUH PDLQSV\FKRORJ\1RZZHKROGLWVWKUHDGLQRXUKDQGV

, W LV WRR HDV\ WR UHDG WKLV DSSURDFK DV VWDQGLQJ DW D GLVWDQFH IURP WKH 5RPDQWLFPRWLIRIDEHJLQQLQJRIKLVWRU\DQGWKHϮUVWPDQWKDWVWRRGRQLW 9\JRWVN\·VFODLPWREHHVWDEOLVKLQJMRLQLQJDQDO\]LQJIDEULFDWLQJWKH1HZ 0DQDWWKHPRPHQWRILWVWUXHϮQDOO\QDWXUDOLQFHSWLRQFDUULHVSUHFLVHO\WKH VDPHYDULHW\RI5RPDQWLFLVPDQGWKHODFNRIDUHIHUHQFHWRDϮUVWPDQLV EHOLHGSUHFLVHO\E\WKHVXJJHVWLRQWKDWWKHUHPROGLQJRIPDQFDQGLVGDLQ WKHVDPHSURVDLF KLVWRU\RXWRIZKLFKLWKDVHPHUJHG9\JRWVN\·VODQJXDJH EULGJLQJDUKHWRULFRI´UHPROGLQJµZLWKRQHRIDQWLFLSDWHGKXPDQLVWLFVHOI

>@

7+(629(5(,*17@

6+,)76

WRFRQVFLRXVO\GRPLQDWHXQFRQVFLRXVHQHUJLHVOLNHWKHKHURZKRVWUXJJOHV DQGHYHQWXDOO\WULXPSKVRYHUDPRQVWHUDQGLVUHERUQDWWKHPRPHQWRIKLV WULXPSKWKHQ´WKHXQFRQVFLRXVUREEHGRILWVHQHUJ\QRORQJHURFFXSLHV WKHGRPLQDQWSRVLWLRQµ 7KHGRPLQDWLRQRIWKLVXQFRQVFLRXVLVDKHURLF DWWHPSWDWVHOIWUDQVFHQGHQFHDQGLQGLYLGXDWLRQ 7  KHFROOHFWLYHXQFRQVFLRXVFRQFHSW-XQJFRQWLQXHGKDVDFTXLUHGSDUWLF XODUVDOLHQFHLQWKHSHULRGVLQFHPDUNHGE\WKH´HQGRIUHOLJLRQµDQG WKHGLϸ XVLRQDQGFRPSOLFDWLRQRIWKHV\PEROLFXQFRQVFLRXV,QVRIDUDVZH GRQRWEHOLHYHWKHV\PEROLFFROOHFWLYHXQFRQVFLRXVKDVEHFRPHFRQIXVHGLI QRWLPSRYHULVKHGZKHUHDVLQIRUH[DPSOH&DWKROLFLVPRQHLQKDELWVDJLYHQ VHWRIDYDLODEOHV\PEROVIRU´XVµWKHV\QWKHVLVRILQGLYLGXDODQGFROOHFWLYH XQFRQVFLRXVLVPRUHFRPSOLFDWHGDQGWKHQHHGWRVWXG\DQGGHSOR\WKHVH DUFKHW\SHVDOOWKHPRUHSUHVVLQJ-XQJFODLPHGLQ´2QO\LQWKHDJHRI HQOLJKWHQPHQWGLGSHRSOHGLVFRYHUWKDWWKHJRGVGLGQRWUHDOO\H[LVWEXW ZHUHVLPSO\SURMHFWLRQV7KXVWKHJRGVZHUHGLVSRVHGRI%XWWKHFRUUHVSRQG LQJSV\FKRORJLFDOIXQFWLRQLQJZDVE\QRPHDQVGLVSRVHGRILWODSVHGLQWR WKHXQFRQVFLRXVDQGPHQZHUHWKHUHXSRQSRLVRQHGE\WKHVXUSOXVRIOLELGR WKDWKDGRQFHEHHQODLGXSLQWKHFXOWRIGLYLQHLPDJHVµ2QO\WKHSV\FKR DQDO\VWFDQFXUHWKHSDWKRORJ\FDXVHGE\WKHORVVRIRUJDQL]HGV\PEROLF V\VWHPV +  HQFHWKHV\QWKHVLVRIWKLVDUJXPHQWRQVXEMHFWLYHZKROHQHVVZLWKWKH SXUSRVHRIWKHSKLORVRSKHUSV\FKRDQDO\VWDQGWKHDUWLVWZKRH[SUHVVHVLW ,QWKHDUWLVWRUFUHDWLYHPDQWKHFROOHFWLYHXQFRQVFLRXV´FRPHVDOLYH¬¬¬OLNH DQDOOSHUYDGLQJRPQLSUHVHQWRPQLVFLHQWVSLULW,WNQRZVPDQD VKHDO ZD\VZDVDQGQRWDVKHLVDWWKLVPRPHQWLWNQRZVKLPDVP\WKµ$VZLWKWKH $UWLVWLQ:DJQHU·V$UWZRUNRIWKH)XWXUH-XQJ·VDQDO\VWDQGDUWLVWDUHERXQG WRWKHXQFRQVFLRXVZKLFKUHSODFHVWKH9RON DQGDUHFDSDEOHRIUDLVLQJLW WR VHOIFRQVFLRXVQHVV LQGLYLGXDO DQG FROOHFWLYH -XQJ·V VHOIFRQFHSWLRQ DVWUDQVIHUHQWLDOIDFLOLWDWRUHQDEOHVSUHFLVHO\KLVVHQVHRIKLVSURMHFWDVRQH RIRUJDQL]LQJ,QGR(XURSHDQDUFKHW\SHVDQG9|ONHUSV\FKRORJLHLQDPDQQHU WKDWDLGHGPDQWRHVFDSHDUHODSVHLQWRDGDUNGHIRUPHGSDUWLDOO\VSHDNLQJ TXDVLHWKQRUDFLDO FROOHFWLYH XQFRQVFLRXV ,W LV WKHVH HOHPHQWV WKDW ZRXOG WULXPSK LQ -XQJ·V UDFLDO DQG SUR1D]L FODLPV RI WKH PLG V DQG WKDW SURPLVHGHYHQXQFRQVFLRXVFROOHFWLYHUHQHZDO

>@

7+(629(5(,*17@

7+(629(5(,*17@

,1'(;

F LWDWLRQV F LYLOZDU² ²6HHDOVR (QJOLVK&LYLO:DUZDU &ODVV6WUXJJOHVLQ)UDQFH7KH0DU[  ²² &  OHRSDWUD(J\SWLDQTXHHQ  &  O\WHPQHVWUD F RGHQRLU²² &  ROG:DU² F ROOHFWLYHXQFRQVFLRXV²6HHDOVR -XQJ&DUO* F RPHG\² &RPPXQLVW0DQLIHVWR7KH0DU[ ² Q &  RPPXQLVW3DUW\6HH/HQLQLVWSDUW\ F RPPXQLVWVWDWH6HH/HQLQLVWVWDWH &  RQGRUFHW0DUTXLVGH &  RQIXFLXV&RQIXFLDQLVP  F RQVWLWXWLRQDOLVP²  F RQVWLWXWLRQV F RUSVH 6HHDOVR ERG\´ERG\FRUSVHµ F RXUWUR\DO² ²²   F RXUWO\GHFRUXP &  UHRQ &  URPZHOO2OLYHU² ² F URZGWKH²² ² Q6HHDOVR/H%RQ *XVWDYH&URZG7KH/H%RQ  &URZG7KH/H%RQ ² F XOWRIWKHOHDGHURI/HQLQ RIWKHVRYHUHLJQRI 6WDOLQ  G  DQFHQ GDR '  DRLVWV

'  ·$UJHQVRQ0DUTXLV '  DULXV² '  DYHQSRUW&KDUOHV '  DYLG-DFTXHV/RXLV G  H%DHFTXH$QWRLQH '  HFODUDWLRQRIWKH5LJKWVRI0DQ DQG&LWL]HQ G  HFRORQL]DWLRQ G  HJHQHUDWLRQWKHRU\ G  HPRFUDF\² ²² ²² ²  G  HPRFUDWLFWKHRU\ ² GHSRVLWLRQ² 'HUULGD-DFTXHVQQ QQ G  HVSRWLVP  G  LFWDWRUVKLS²² 'LRPHGHV² G  LYLQHPDQGDWH6HH$OO8QGHU+HDYHQ +HDYHQ0DQGDWHRI+HDYHQ G  LYLQHULJKW²  '  RQDWXV '  RQJ=KRQJVKX² G  UDPD²² ²² '  XPp]LO*HRUJHV '  XUNKHLPePLOH '  ]HU]KLQVN\)HOL[  H FRQRPLFV H ϲ J\ 6HHDOVRERG\´ERG\ Hϲ J\µ (LNRQ%DVLOLNH (LNRQRNODVW0LOWRQ  ( OLDGH0LUFHD ( OLDV1RUEHUW ( OL]DEHWK,(QJOLVKTXHHQ  HPEDOPLQJ²²² 

>@

,1'(;

H PSLUH²  ²  6HHDOVRLPSHULDOLPSHULDOLVP (QHP\RIWKH3HRSOH,EVHQ  ( QJHOV)ULHGULFK²² ²Q ( QJODQG² ²² 6HHDOVR(QJOLVK&LYLO:DU (QJOLVK&RPPRQZHDOWK (QJOLVK&LYLO:DU² ( QJOLVK&RPPRQZHDOWK ( QJOLVK(DVW,QGLD&RPSDQ\  ( QXNLG]H$YHO H SLF H SLFWKHDWHU ( WHRFOHV ( WKLRSLD² ( XDQWKLXV H XJHQLFV (XPHQLGHV$HVFK\OXV  ( XULSLGHV ( XURSHDQ8QLRQ H [FHSWLRQVWDWHRIQ H [LOH²  ) DUJH$UOHWWH I DVFLVP ) HXHUEDFK/XGZLJ² ) LUVW(PSHURURI4LQ ) LUVW2SLXP:DU IRUJLYHQHVV² Q ) RXFDXOW0LFKHOQ QQ ) UDQFH² ²²Q ²6HH DOVR)UHQFK5HYROXWLRQ ) UDQNIXUW1DWLRQDO$VVHPEO\ I UHHVRLOGRFWULQH ) UHQFK5HYROXWLRQ² ²WKH\HDU²

²²²WKHV WKH\HDUV²² ) ULHGULFK,, )KUHUSULQ]LSQ ) XUHW)UDQoRLV  *  DOYDQL/XLJL *  DPERQL'DULR *  HHUW]&OLϸRUGQQ  *  HUPDQ\Q  *  HQJKLV.KDQ6HH&KLQJJLV.KDQ *  LUDUG5HQp *  ODGVWRQH:LOOLDP *RG·V'HFUHHDQG-XGJPHQWTD˂č ZDOTDGDU LQDO%LGOҸVҸ·V WUHDWLVH *  RUEDFKHY0LNKDLO *  RWWVFKDON$QGUHDV *RYHUQPHQWRI3RODQG7KH5RXVVHDX   *  UHDW,QGLDQ0XWLQ\²² *  URWLXV+XJR² J XLOORWLQH² JXR *  \N.KDQ  +  DEHUPDV-UJHQ +  DGDQDWLRQ +  DHFNHO(UQVW² +  DϮ]3HUVLDQSRHW  +  DLOH6HODVVLH(WKLRSLDQHPSHURU  ² K  DODNKD-HZLVKODZ  +  DOGDQH-RKQ%¬6 ҇  DPGčQ.KRMDWUHDWLVHLQVXSSRUW RITXDUDQWLQH +  DPLOWRQ$OH[DQGHU +DPOHW6KDNHVSHDUH Q²  +  DQ)HL²² +  HDYHQDEND ²² ²6HHDOVR$OO8QGHU +HDYHQ0DQGDWHRI+HDYHQ6RQ RI+HDYHQ

>@

,1'(;

+  HJHO*¬:¬)Q  +  HLDQSHULRG² +  HLGHJJHU0DUWLQ² +  HQU\9,,,(QJOLVKNLQJ  +  pUDXOW5HQp +  HUFXOHV² +  HUGHU-RKDQQ*RWWIULHG +  HUGLQJ.ODXV +  HU]O7KHRGRUQ KLMUD² +  LSSLDV +LSSRO\WXV(XULSLGHV  KLVWRULRJUDSK\Q  K  LVWRU\´HQGµRI +LVWRU\RIWKH)UHQFK5HYROXWLRQ 0LFKHOHW ² +  LWOHU$GROIQQ QQ +  REEHV7KRPDV ² ²6HHDOVR /HYLDWKDQ KRPRVDFHUQQ6HHDOVR $JDPEHQ*LRUJLR +  RQJ7DLML +  RXVHRIWKH8QLRQV +  XHW0DULH+pOqQH +  XLKXL&KLQHVH0XVOLPV ² ²² K  XPDQLVP K  XPDQLWDULDQLVPKXPDQLWDULDQ LQWHUYHQWLRQ² +  XQGUHG6FKRROVRI7KRXJKW +  XQW/\QQ +  X[OH\-XOLDQ +  X[OH\7KRPDV+HQU\ K  \GURO\VLV²  , EQ¶$EGࡃQWUHDWLVHRQWKHєLVEDRI , EQDO.KDࠃҸESODJXHWUHDWLVHRI , EQDO.KčWLPDKSODJXHWUHDWLVHRI , EQDO:DUGҸSODJXHWUHDWLVHRI , EQ҇DMDUDO·$VTDOčQҸSODJXHWUHDWLVH RI

, EQ4XWD\ED ,EVHQ+HQULN L FRQRFODVP  , GHO0RVKH² L PSHULDOLPSHULDOLVP² ²² ²²Q ²²²6HHDOVR HPSLUH , QGLD² Q²²² , QGR(XURSHDQP\WKRORJ\DQG OLQJXLVWLFV² ² L QMXU\WRKXPDQLW\²DQG LQWHUQDWLRQDOODZSULPDU\ RUVHFRQGDU\ , QQHU$VLDQ*UHDW&RGHRI ´0RQJRO*UHDW&RGHµ Q , QQHU$VLDQQRPDGV² L QWHUQDWLRQDOLVP6HHDOVR RUGHULQWHUQDWLRQDO L QWHUQDWLRQDOODZQQ ² ,RQ(XULSLGHV  , RQHVFR(XJqQH²² Q7KH%DOG6RSUDQR ´/DFKDVVHjO·KRPPHµ0DFEHWW ²´0RUH3DJHVIURP0\ 'LDU\µ² , UDQQ² Q , URQ*XDUG , VODPLFMXULVSUXGHQFHϮTK  , VODPLFPLOOHQQLXP6HHPLOOHQQLXP ,VODPLF , WDO\Q  - DFRELQLVP-DFRELQV ² - DKDQJLU0XJKDOHPSHURU  - DPHV,%ULWLVKNLQJ   - DSDQ² Q

>@

,1'(;

- DUU\$OIUHG²²² 8EXURL² - HVXV - LQG\QDVW\  - RZLWW.HQQHWK - XQJ&DUO*² - XUFKHQ-XUFKHQSROLWLHV² MXߖHQJXUXQ²Q Q  .  DKQ3DXO:Q .  DQJ[L(PSHURU² .  DQW,PPDQXHO² ² .  DQWRURZLF](UQVWQ QQ²² 7KH.LQJ·V7ZR%RGLHV6HHDOVR ´WZRERGLHVµVFHQDULR .  DSXߓFL‫ش‬VNL5\V]DUG² .  DXWVN\.DUO N KDQ Q6HHDOVR&KLQJJLV.KDQ .  KUXVKFKHY1LNLWDQ QQ² .LQJ·V7ZR%RGLHV7KH.DQWRURZLF]  6HH.DQWRURZLF](UQVW´WZR ERGLHVµVFHQDULR N LQJ·VWZRERGLHV6HH´WZRERGLHVµ VFHQDULR .  LWDQ/LDR .  ODJHV/XGZLJ .  QRVVRV N QRZOHGJHDϸHFWLYH .  RMqYH$OH[DQGUH .  RRN5$EUDKDP,VDDF .  RUHDLQYDVLRQ RIE\7RWR\RPL+LGH\RVKL .  RVHOOHFN5HLQKDUW .R]HO·WVHY9ODGLVODY .  URFKPDO1DFKPDQ .  \RWR-DSDQ  ´ /DFKDVVHjO·KRPPHµ,RQHVFR   / DQGHV-RDQ

O DQJXDJH²Q² DQGDGPLQLVWUDWLRQ QDWLRQDOLVW / DWLQ / DWRXU%UXQR O DZ²LQWHUQDWLRQDOQ Q²DQG MXULVSUXGHQFH ²QDWXUDO 5RPDQ /DZVRI&DQG\7KH(QJOLVKSOD\  ² /H%RQ*XVWDYH6HHDOVR FURZGWKH&URZG7KH/H%RQ  / HIRUW&ODXGH Q² O HJLWLPDF\OHJLWLPDWLRQ ² ²²      / HQLQ9ODGLPLU² ²QQQ / HQLQ,QVWLWXWH / HQLQLVP²² GLVFRXUVHRIDQGVRYHUHLJQW\  / HQLQLVWSDUW\ / HQLQLVWV\VWHP /HQLQ·V0DXVROHXP²  O HSURV\ /HWWHUWR'·$OHPEHUWRQWKH7KHDWHU 5RXVVHDX  OHWWUHV  GHFDFKHWQ² /HYLDWKDQ+REEHV ² O LEHUDOLVP UDWLRQDOVHQWLPHQWDO  O LEHUDWLRQ  / LHEHV@

,1'(;

O LQJXLVWLFV²  / L=KLVXL / RFNH-RKQQ / RSXNKLQ@

,1'(;

S  XQLVKPHQWQ Q Q Q Q  TDJKDQRUTDQ 6HHNKDQ 4  LDQORQJ(PSHURUQ  4  LQJG\QDVW\QQ QQ² Q²²Q FRPSDULVRQZLWK0XJKDO G\QDVW\²Q 4LQJ.DQJ[L²Q T  XDUDQWLQHQ 4  XU·DQ  U DFHQQ² Q U DFLDOVFLHQFH 5  DQFLqUH-DFTXHVQ U HEHOOLRQV² Q 6HHDOVR0DQGDWHRI +HDYHQ U HJLFLGH²² U HOLF6HHDOVR ERG\ 5  HQDLVVDQFHQ  UHVLVWDQFH  U HYROXWLRQ ²²² ²² )UHQFK ²²² ²² SHUPDQHQWLQSHUPDQHQFH² 5XVVLDQQLQ WKHWKHDWHU U KHWRULFRISRZHU  ²Q 

5LFKDUG,,6KDNHVSHDUH ²  U LJKWVKXPDQ ² ULWXDOFRXUW[YL²Q QQ ² ² Q²² QQQ6HHDOVR FHUHPRQ\ 5  LYHUV:¬+¬5²Q 5  REHVSLHUUH0D[LPLOLHQ  5  RH6LU7KRPDV 5  RHEXFN-RKQ² 5  RPDNRY@

,1'(;

V FDϸROGVLWHRIH[HFXWLRQ  Q6HHDOVR VRYHUHLJQW\VFDϸROGRI 6 FDOLJHU-XOLXV&DHVDUQ 6 FKLQGHUKDQQHV*HUPDQEDQGLW  H[HFXWLRQRI² 6FKOLHPDQQ+HLQULFK 6FKPLWW&DUO[Y² QQQ ²²QQ QQQ 6 FKQDSS-Hϸ UH\ V FKRODUVKLS² ²QQ   6 FKROHP*HUVKRPQ 6 FKRSHQKDXHU$UWKXU²Q V FLHQFHVRIOLIH6HH ELRORJ\SV\FKRORJ\ 6 HFRQG$OL\DK=LRQLVPLPPLJUDWLRQ  ² 6 HFRQG7HPSOHQ V HOIJRYHUQDQFH 6 HOLP2WWRPDQVXOWDQ   6 HQQR5LN\€Q V HQWLPHQWDOGLVFRXUVH² Q V HUPRQ 6HYHQ$JDLQVW7KHEHV$HVFK\OXV  6 HYHQ*UHDW*ULHYDQFHV Q 6 KDK-DKDQ0XJKDOHPSHURU  6 KDK1L·PDWXOODK6XϮVDLQW   6 KDNHVSHDUH:LOOLDP[YL²  6 KDNHVSHDUH:LOOLDPZRUNVE\ &RULRODQXVQ+DPOHWQ ²0DFEHWK  0HDVXUHIRU0HDVXUH5LFKDUG ,,² 6 KDQJG\QDVW\Q 6 KDQJ@

,1'(;

6 WDURELQVNL-HDQ V WDWH²²²  ²OLEHUDO ²² ² 6HHDOVRIDVFLVPPRQDUFK\ WRWDOLWDULDQLVP 6 WUDQG0DUN² V XEMHFWKRRGVXEMHFWLYLW\  V XFFHVVLRQ²  6 XϮVP V \PEROLVP²  ²² ²² ²² ²VRYHUHLJQW\DVV\PEROLF IRUPQ V \PSDWK\(QOLJKWHQPHQWGLVFRXUVH RQ  7  DKULU6TXDUH&DLUR 7  DM0DKDO 7  DQJG\QDVW\²Q W HUULWRU\² QQQ² ² ¬ 7  HUURURI²²6HHDOVR )UHQFK5HYROXWLRQ W HUURULVPDQG´ZDURQWHUURUµ ² W KHDWHUIRFXVRQWKHLQGLYLGXDOLQ ² WKHDWULFDOLW\² PRGHUQ² RI¬VRYHUHLJQW\Q QQ²Q² Q² ²Q W KHRORJ\SROLWLFDO² ²QQQQ² ²

Q  7  KLUG5HSXEOLF)UDQFH  7  KXF\GLGHV 7  RNXJDZD,H\DVX W RWDOLWDULDQLVPQ 7  R\RWRPL+LGH\RVKL-DSDQHVHGDLP\‫ گ‬ ² W UDJHG\*UHHN² FKRUXVLQ²GHϮQLWLRQVRI ²HWKLFDOYDOXHVLQ²NLQJV LQ²IRU1LHW]VFKHRULJLQV RI6HHDOVR,RQHVFR(XJqQH 6KDNHVSHDUH:LOOLDP W UDQVSODQWDWLRQRIRUJDQV  7  UHDW\RI:HVWSKDOLD[YL²[YLL Q WULEXWHV\VWHP 7  URWVN\/HRQ²Q 7XUDQGRW3XFFLQL ² 7  XUNV7XUNLFSHRSOHV6HH DOVR+XLKXL ´WZRERGLHVµVFHQDULR Q6HHDOVR.DQWRURZLF] (UQVW W \UDQQ\ ²  8EXURL-DUU\ ² XOXV² XPPDQDWLRQRI,VODP   8  QLRQRI6RYLHW6RFLDOLVW5HSXEOLFV 8665 Q  X  VXUSDWLRQQ   9  DWLFDQWKHQ 9  DWWHO(PHUGH² 9  LFWRULD)UDQFLVFRGH² 9  LFWRULD(QJOLVKTXHHQ  9RONQ² 9|ONHUSV\FKRORJLHHWKQRSV\FKRORJ\  Q 9  ROWD$OHVVDQGUR²

>@

,1'(;

9  RURE·HY9ODGLPLU 9  \JRWVN\/HY  :DJQHU5LFKDUG² 6LHJIULHG ² :  DO]HU0LFKDHOQ Z  DU  ²MXVWQ² 6HHDOVRFLYLOZDU&ROG:DU (QJOLVK&LYLO:DU)LUVW2SLXP:DU WHUURULVP:DUULQJ6WDWHV3HULRG :RUOG:DU,:RUOG:DU,, :  DUULQJ6WDWHVSHULRG² ² :  HEHU0D[Q ZHLVXRV\VWHP² :  HQNLQJRI=KRX  :  KHDWRQ+HQU\² :  LOOHP$OH[DQGHU'XWFKNLQJ  ² :  LOOLV7KRPDV$QDWRP\RIWKH%UDLQDQG 1HUYHV²&LUFOHRI:LOOLV

²HDUO\OLIHRI²PHGLFDO SUDFWLFHRI :  ROLQ6KHOGRQ :  RUOG:DU, :  RUOG:DU,, :  XQGW:LOKHOPQ  ;  HU[HV ;XQ]L²²  <  DWHV)UDQFHV²Q <  HKH² @