5(&200(1'(' )25 )8//7(;7 38%/,&$7,21 3XUVXDQW WR 6L[WK &LUFXLW 5XOH 

(/(&7521,& &,7$7,21  )(' $SS 3 WK &LU )LOH 1DPH DS

81,7('67$7(6&28572)$33($/6 )257+(6,;7+&,5&8,7 BBBBBBBBBBBBBBBBB

s(66( 836+(5 $11,( ; $%5$+$0 (':$5'  %52'=,. s($1(77(   1RV %52'=,. +(15< +8&=(.   $85(/,$ +8&=(. 67(3+(1 !  .$/086 &$7+(5,1(  .$/086 .$5(1 .2+/  75$&< 7+$&.(5 s2+1  2j/28*+/,1  3ODLQWLIIV$SSHOODQWV    Y   *5266( 32,17( 38%/,&  6&+22/ 6<67(0 *5266(  32,17( %2$5' 2)   ('8&$7,21 68=$11( ./(,1  &+5,67,$1 )(1721 7,027+<  +2:/(77 3$8/ 3$*(/  &$5/ $1'(5621 s$&.  5<$1 s2+1 0,//6 &<17+,$   3$1*%251 6($56 7$</25  0$5< %(7+ +(50$1 s$<  s())5,(6 67(9( 0$77+(:6  (' 6+,1( /$55<  <$1.$86.$6LQGLYLGXDOO\ 

  8SVKHUHWDOY*URVVH 1RV 1RV 8SVKHUHWDOY*URVVH  3RLQWH3XEOLF6FKRRO 3RLQWH3XEOLF6FKRRO 6\VWHPHWDO 6\VWHPHWDO

,,, DQGLQWKHLUUHVSHFWLYH  FDSDFLWLHV  &21&/86,21 'HIHQGDQWV$SSHOOHHV 1 )RUWKHIRUHJRLQJUHDVRQVWKHMXGJPHQWRIWKHGLVWULFWFRXUW LV$)),50('

$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW'HWURLW 1RV     n$QQD'LJJV7D\ORU 'LVWULFWsXGJH $UJXHG sDQXDU\  'HFLGHGDQG)LOHG $SULO %HIRUH 5<$1DQG*,/0$1&LUFXLWsXGJHV 32/67(5 'LVWULFWsXGJH BBBBBBBBBBBBBBBBB &2816(/ $5*8(' 3KLOLS(&KDIIHH/$:2)),&(2)3+,/,3( &+$))(( *UDQG 5DSLGV 0LFKLJDQ IRU $SSHOODQWV 7LPRWK\ ' :LWWOLQJHU &/$5. +,// 3/& 'HWURLW 0LFKLJDQIRU$SSHOOHHV21%5,() 3KLOLS(&KDIIHH /$: 2)),&( 2) 3+,/,3 ( &+$))(( *UDQG 5DSLGV 0LFKLJDQIRU$SSHOODQWV7LPRWK\':LWWOLQJHU(YHO\Q/ 6XOOHQ&/$5.+,//3/&'HWURLW0LFKLJDQIRU$SSHOOHHV

7KH +RQRUDEOH 'DQ $ 3ROVWHU 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH 1RUWKHUQ 'LVWULFW RI 2KLR VLWWLQJ E\ GHVLJQDWLRQ  8SVKHUHWDOY*URVVH 1RV 1RV 8SVKHUHWDOY*URVVH  3RLQWH3XEOLF6FKRRO 3RLQWH3XEOLF6FKRRO 6\VWHPHWDO 6\VWHPHWDO

:KHQ DQ HPSOR\HU VXEMHFWV DQ HPSOR\HH WR D BBBBBBBBBBBBBBBBB FRQWLQXRXVO\RSHUDWLYHGDQJHURXVFRQGLWLRQWKDWLWNQRZV ZLOO FDXVH DQ LQMXU\ \HW UHIUDLQV IURP LQIRUPLQJ WKH 23,1,21 HPSOR\HH DERXW WKH GDQJHURXV FRQGLWLRQ VR WKDW KH LV BBBBBBBBBBBBBBBBB XQDEOH WR WDNH VWHSV WR NHHS IURP EHLQJ LQMXUHG D IDFWILQGHU PD\ FRQFOXGH WKDW WKH HPSOR\HU KDG 5<$1 &LUFXLW sXGJH  sHVVH 8SVKHU $QQLH $EUDKDP NQRZOHGJHWKDWDQLQMXU\LVFHUWDLQWRRFFXU (GZDUG %URG]LN +HQU\ +XF]HN 6WHSKHQ .DOPXV .DUHQ .RKO 7UDF\ 7KDFNHU DQG sRKQ 2j/RXJKOLQ KHUHLQDIWHU ,G DW   7KH FRXUW FRQVHTXHQWO\ DIILUPHG GHQLDO RI WKH FROOHFWLYHO\ UHIHUUHG WR DV mWKH SODLQWLIIVl  DUH FXVWRGLDQV GHIHQGDQWjV PRWLRQ IRU VXPPDU\ MXGJPHQW EHFDXVH WKH HPSOR\HGE\WKH*URVVH3RLQWH3XEOLF6FKRRO6\VWHP7KH\ mSODLQWLII>@SUHVHQWHGHYLGHQFHWKDWGHVSLWHNQRZOHGJHRIWKH EURXJKWD86&† DFWLRQDJDLQVWWKH*URVVH3RLQWH HDUOLHUH[SORVLRQGHIHQGDQWIDLOHGWRUHPHG\WKHFRQGLWLRQ 3XEOLF6FKRRO6\VWHPWKH*URVVH3RLQWH%RDUGRI(GXFDWLRQ WKDWFDXVHGLWl,GDW DQG YDULRXV LQGLYLGXDOO\ QDPHG GHIHQGDQWV KHUHLQDIWHU FROOHFWLYHO\ UHIHUUHG WR DV mWKH GHIHQGDQWVl  IRU DOOHJHG +HUHKRZHYHUHYHQLIZHDVVXPHWKHDVEHVWRVFRQWDLQLQJ LQMXULHV IURP H[SRVXUH WR IULDEOH DVEHVWRV GXULQJ D FDUSHW WLOHV FRQVWLWXWHG D mFRQWLQXRXVO\ RSHUDWLYH GDQJHURXV UHPRYDO MRE DW *URVVH 3RLQWHjV 6RXWK +LJK 6FKRRO  7KHLU FRQGLWLRQlDIDFWZHGRQRWUHVROYHWKHUHLVQRHYLGHQFHWKDW VSRXVHV DOVR EURXJKW GHULYDWLYH FODLPV  7KH GLVWULFW FRXUW DQ\RIWKHGHIHQGDQWVNQHZWKLVFRQGLWLRQZRXOGFDXVHLQMXU\ HQWHUHGVXPPDU\MXGJPHQWIRUWKHGHIHQGDQWVIURPZKLFKWKH DQGUHIUDLQHGIURPLQIRUPLQJWKHSODLQWLIIV7KHVXSHUYLVRU SODLQWLIIVQRZDSSHDO LQ *ROHF RUGHUHG WKH SODLQWLII WR UHWXUQ WR ZRUN ZLWK IXOO NQRZOHGJHWKDWWKHRSHUDWLQJFRQGLWLRQKDGUHFHQWO\UHVXOWHG :HPXVWGHFLGHZKHWKHUWKHSODLQWLIIVjHYLGHQFHHVWDEOLVKHV LQ DQ LQMXU\FDXVLQJ H[SORVLRQ  +HUH WKH SODLQWLIIVj SURRI PDWHULDOLVVXHVUHJDUGLQJWKHGHIHQGDQWVjOLDELOLW\XQGHUERWK VKRZV PHUHO\ WKDW     WKH GHIHQGDQWV DQG ZH QRWH RQO\  86& †   DQG WKH LQWHQWLRQDO WRUW H[FHSWLRQ WR WKH VRPH RI WKH LQGLYLGXDOO\ QDPHG GHIHQGDQWV  NQHZ RI WKH 0LFKLJDQ :RUNHUjV 'LVDELOLW\ &RPSHQVDWLRQ $FW 0,&+ JHQHUDO GDQJHUV DVVRFLDWHG ZLWK DVEHVWRV H[SRVXUH    WKH &203 /$:6 $11†   0:'&$ :HFRQFOXGH GHIHQGDQWVGLGQRWSURYLGH DGHTXDWHWUDLQLQJUHJDUGLQJWKH WKDWLWGRHVQRWDQGWKHUHIRUHZHZLOODIILUPWKHMXGJPHQWRI SURSHUPHWKRGIRUUHPRYLQJDVEHVWRVFRQWDLQLQJWLOHV DQG  WKHGLVWULFWFRXUW WKHGHIHQGDQWVGLGQRWSURYLGHDGHTXDWHSURWHFWLYHGHYLFHV VXFKDVFORWKLQJDLUUHVSLUDWRUVDLUPRQLWRULQJDQGWKHOLNH , :KLOHWKHGHIHQGDQWVjDFWLRQVPD\KDYHEHHQQHJOLJHQWRU HYHQJURVVO\QHJOLJHQWZHFRQFOXGHWKDWWKHSODLQWLIIVj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

6\VWHPLQ*URVVH3RLQWH0LFKLJDQ3ODLQWLIIVsHVVH8SVKHU 7KHGLVWULFWFRXUWFRQFOXGHG  DQGsRKQ2j/RXJKOLQZHUHVWXGHQWVDW6RXWK+LJK6FKRRODQG ZHUHHPSOR\HGDVWHPSRUDU\FXVWRGLDQV3ODLQWLII6WHSKHQ 7KHUH LV QR TXHVWLRQ RI DQ\ IDFW UDLVHG FRQFHUQLQJ .DOPXVZDVWKHIRUHPDQDQGVXSHUYLVHGWKHRWKHUFXVWRGLDQV VSHFLILFLQWHQWRIWKH'HIHQGDQWVWRFDXVHDQ\LQMXU\WR 3ODLQWLIIVsHDQHWWH%URG]LN$XUHOLD+XF]HNDQG&DWKHULQH WKH3ODLQWLIIVDQGWKHUHj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sD\sHIIULHV KHDGHQJLQHHUDW6RXWK+LJK6FKRRO WKHUHIRUH IRFXVHV RQ WKH GLVWULFW FRXUWjV FRQFOXVLRQ DV LW 'U (GZDUG 6KLQH 'U .OHLQjV SUHGHFHVVRU  /DUU\ UHODWHVWRWKLVVHFRQGDYHQXHRIHVWDEOLVKLQJDQLQWHQWLRQDO <DQNDXVNDV VXSHUYLVRU RI EXLOGLQJV DQG JURXQGV IRU WKH WRUWnZKHWKHU WKH GHIHQGDQWV KDG DFWXDO NQRZOHGJH WKDW 6FKRRO6\VWHP DQGQDPHGSDVWDQGSUHVHQW*URVVH3RLQWH LQMXU\ ZDV FHUWDLQ WR RFFXU DQG ZLOOIXOO\ GLVUHJDUGHG WKDW VFKRROERDUGPHPEHUV 7LPRWK\+RZOHWW &DUO $QGHUVRQ NQRZOHGJH sDFN5\DQsRKQ0LOOV&\QWKLD3DQJERUQ6HDUV7D\ORUDQG 6WHYH0DWWKHZV 7KH SODLQWLIIV UHO\ XSRQ *ROHF Y 0HWDO ([FKDQJH &RUSRUDWLRQ1:G 0LFK  WKHFRPSDQLRQ % FDVHWR7UDYLVY'UHLV .UXPS0IJ&R1:G DFDVHWKH0LFKLJDQ6XSUHPH&RXUWFRQFOXGHGILWZLWKLQWKH 7KH,QFLGHQW QDUURZFRQILQHVRIWKH0:'&$H[FHSWLRQ:HGRQRWDJUHH KRZHYHU WKDW *ROHF FRQWUROV  ,Q *ROHF WKH SODLQWLII ,Q HDUO\   *URVVH 3RLQWHjV 6RXWK +LJK 6FKRRO HPSOR\HH VXHG IRU LQMXULHV KH VXVWDLQHG DIWHU DQ H[SORVLRQ GHWHUPLQHGWKDWLWZRXOGUHSODFHWKHFDUSHWLQJORFDWHGLQWKH mVKRZHUHGlKLPZLWKPROWHQDOXPLQXPDIWHUKHORDGHGZHW PDLQRIILFHDUHD$VVLVWDQWSULQFLSDO3DJHOVROLFLWHGELGVIURP VFUDSPHWDOFRQWDLQLQJDHURVROFDQVLQWRDIXUQDFH*ROHF DQXPEHURIFDUSHWLQJVXSSOLHUVDQGXOWLPDWHO\VHOHFWHG1HZ 1:GDW7KUHHKRXUVEHIRUHWKLVH[SORVLRQD <RUN&DUSHW:RUOGWRUHPRYHUHSODFHDQGLQVWDOOWKHQHZ VLPLODUPLQRUH[SORVLRQRFFXUUHGUHVXOWLQJLQVOLJKWEXUQVWR FDUSHWLQJ$IWHUSHUIRUPLQJLQLWLDOWHVWVRQWKHYLQ\OIORRUWLOH WKHSODLQWLIIj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

DQHPSOR\HHLVLQMXUHGDVDUHVXOWRIDGHOLEHUDWHDFWRI sHIIULHVDQGLQVWUXFWHGWKHPWKDW6RXWK+LJKjVFXVWRGLDOVWDII WKHHPSOR\HUDQGWKHHPSOR\HUVSHFLILFDOO\LQWHQGHGDQ ZRXOGFRPSOHWHWKHFDUSHWUHPRYDO LQMXU\$QHPSOR\HUVKDOOEHGHHPHGWRKDYHLQWHQGHGWR LQMXUH LI WKH HPSOR\HU KDG DFWXDO NQRZOHGJH WKDW DQ $OWKRXJKWKHSODLQWLIIVFODLPWKDWWKH\SURWHVWHGSULRUWR LQMXU\ZDVFHUWDLQWRRFFXUDQGZLOOIXOO\GLVUHJDUGHGWKDW EHJLQQLQJWKHZRUNWKH\QHYHUWKHOHVVVWDUWHGUHPRYLQJWKH NQRZOHGJH  7KH LVVXH RI ZKHWKHU DQ DFW ZDV DQ FDUSHWDURXQGsXO\  :KHQWKH\VWDUWHGWRUHPRYHWKH LQWHQWLRQDOWRUWVKDOOEHDTXHVWLRQRIODZIRUWKHFRXUW FDUSHWWKH\QRWLFHGWKDWVRPHRIWKHXQGHUO\LQJYLQ\OIORRU WLOHV ZHUH VWLFNLQJ WR WKH EDFN RI WKH ROG FDUSHWLQJ  7R 0,&+ &203 /$:6 $11†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m$Q UHFHLYHGWZRKRXUVRIDVEHVWRVDZDUHQHVVWUDLQLQJEXWQRQH LQWHQWLRQDOWRUWVKDOOH[LVWRQO\ZKHQDQHPSOR\HHLVLQMXUHG RI WKHP KDG UHFHLYHG WKH DGGLWLRQDO  KRXUV RI WUDLQLQJ DV D UHVXOW RI D GHOLEHUDWH DFW RI WKH HPSOR\HU DQG WKH UHTXLUHGE\WKH$VEHVWRV+D]DUG(PHUJHQF\5HVSRQVH$FWRI HPSOR\HU VSHFLILFDOO\ LQWHQGHG DQ LQMXU\l  0,&+ &203   $+(5$ &)5†  D  EHIRUHFRQGXFWLQJ /$:6 $11 †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mWKH HPSOR\HU KDG DFWXDO NQRZOHGJH WKDW DQ WHVWLQJFRQGXFWHGE\(06/DQDFFUHGLWHG1DWLRQDO9ROXQWDU\ LQMXU\ ZDV FHUWDLQ WR RFFXU DQG ZLOOIXOO\ GLVUHJDUGHG WKDW /DERUDWRU\ $FFUHGLWDWLRQ 3URJUDP 19/3  ODERUDWRU\ NQRZOHGJHl0,&+ &203 /$:6 $11†  7KLV ORFDWHG LQ $QQ $UERU 0LFKLJDQ UHYHDOHG WKDW WKH WLOHV VHFRQG DYHQXH RI SURRI LV mD OHJLVODWLYH UHFRJQLWLRQ RI D FRQWDLQHGDQ\ZKHUHEHWZHHQDVEHVWRV$GGLWLRQDOO\ OLPLWHGFODVVRIFDVHVLQZKLFKOLDELOLW\LVSRVVLEOHGHVSLWHWKH WKHSODLQWLIIVjH[SHUWVUHSRUWHGWKDWDVDUHVXOWRIH[SRVXUHWR DEVHQFH RI D FODVVLF LQWHQWLRQDO WRUW DQG DV D PHDQV RI WKHDVEHVWRVWKHSODLQWLIIVDUHDWDVLJQLILFDQWLQFUHDVHGULVNRI LQIHUULQJDQHPSOR\HUjVLQWHQWWRLQMXUHIURPWKHVXUURXQGLQJ GHYHORSLQJLQWHUDOLDDVEHVWRVLVOXQJFDQFHUPHVRWKHOLRPD FLUFXPVWDQFHVLQWKRVHFDVHVl7UDYLV1:GDW NLGQH\ FDQFHU OHXNHPLD DQG O\PSKRPDnDOO UHTXLULQJ 7KLV DSSURDFK UHTXLUHV WKDW DQ HPSOR\HH VKRZ WKDW KLV H[SHQVLYHPHGLFDOPRQLWRULQJ HPSOR\HU  KDGmDFWXDONQRZOHGJHl   WKDWDQLQMXU\ZDV mFHUWDLQ WR RFFXUl  DQG   mZLOOIXOO\ GLVUHJDUGHG WKDW 7KH SODLQWLIIV ILOHG D FRPSODLQW ZLWK WKH 0LFKLJDQ NQRZOHGJHl  0,&+ &203 /$:6 $11 †    VHH 'HSDUWPHQWRI3XEOLF+HDOWKZKLFKUHVXOWHGLQFLWDWLRQVIRU 7UDYLV1:GDW  IDLOXUHWRSHUIRUPH[SRVXUHPRQLWRULQJWRGHWHUPLQHWKH  8SVKHUHWDOY*URVVH 1RV 1RV 8SVKHUHWDOY*URVVH  3RLQWH3XEOLF6FKRRO 3RLQWH3XEOLF6FKRRO 6\VWHPHWDO 6\VWHPHWDO

DLUERUQH FRQFHQWUDWLRQV RI DVEHVWRV UHTXLUHG E\ WKH % 2FFXSDWLRQDO 6DIHW\ DQG +HDOWK $GPLQLVWUDWLRQ 26+$ $VEHVWRV&RQVWUXFWLRQ6WDQGDUG &)5†  I 0,&+ &203 /$:6 $11†  DQG  IDLOXUHWRLQVWUXFWHPSOR\HHVLQWKHUHFRJQLWLRQDQG DYRLGDQFH RI XQVDIH FRQGLWLRQV LQYROYLQJ DVEHVWRV DQG WKH :HQH[WFRQVLGHUZKHWKHUWKHGLVWULFWFRXUWHUUHGZKHQLW VSHFLILFDVEHVWRVUHJXODWLRQVDSSOLFDEOHWRWKHZRUNVLWHWKDW FRQFOXGHG WKDW WKH SODLQWLIIVj HYLGHQFH GLG QRW VXIILFLHQWO\ KDYH EHHQ HVWDEOLVKHG WR FRQWURO RU HOLPLQDWH WKH KD]DUGV HVWDEOLVK D PDWHULDO LVVXH RI IDFW ZLWK UHJDUG WR WKH DVVRFLDWHGZLWKH[SRVXUHWRDVEHVWRV2Q)HEUXDU\  GHIHQGDQWVjOLDELOLW\XQGHUWKHLQWHQWLRQDOWRUWH[FHSWLRQWRWKH WKH(QYLURQPHQWDO3URWHFWLRQ$JHQF\ (3$ LVVXHGDVLPLODU 0:'&$ QRWLFHRIQRQFRPSOLDQFHSXUVXDQWWR6HFWLRQRIWKH7R[LF 6XEVWDQFHV &RQWURO $FW 76&$  DV DPHQGHG  86& $VZHKDYHVDLGWKHSODLQWLIIVj† FODLPIDLOVEHFDXVH †† IRUYLRODWLRQVRI&)5†6XESDUW( LQSDUWWKH\ZHUHQRWDEOHWRSURYHDQLQWHQWLRQDOLQMXU\:H UHFRJQL]HLWZRXOGEHDQRPDORXVLIWKHSODLQWLIIVj0:'&$ 7KHSODLQWLIIVILOHGDFRPSODLQWLQWKH8QLWHG6WDWHV'LVWULFW FODLPGLGQRWOLNHZLVHIDLOEXWZHQHYHUWKHOHVVRIIHUDEULHI &RXUWIRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDOOHJLQJYLRODWLRQV DQDO\VLVRIZK\LQRXUHVWLPDWLRQWKHSODLQWLIIVjSURRIGRHV RI     WKH $VEHVWRV +D]DUG (PHUJHQF\ 5HVSRQVH $FW RI QRWVXIILFLHQWO\VWDWHDQLQWHQWLRQDOWRUWDVVSHFLILFDOO\GHILQHG   $+(5$ 86&††   WKH$VEHVWRV E\WKH0:'&$ 6FKRRO+D]DUG$EDWHPHQW$FWRI  $6+$$ 86& ††   6HFWLRQRIWKH5HVRXUFH&RQVHUYDWLRQ ,Q WKH HDUO\ WZHQWLHWK FHQWXU\ WKH 0LFKLJDQ OHJLVODWXUH DQG5HFRYHU\$FWRI  5&5$ 86&†    WKH LPSOHPHQWHGDQRIDXOWZRUNHUVjFRPSHQVDWLRQV\VWHPDVWKH &OHDQ$LU$FW &$$ 86&††T   WKH6ROLG H[FOXVLYH UHPHG\ IRU HPSOR\HHV LQMXUHG ZKLOH RQ WKH MRE :DVWH'LVSRVDO$FW 6:'$ 86&††  N     VW([6HVV 3$SDUW†  &/,Q WKH&LYLO5LJKWV$FW86&†    VWULFWOLDELOLW\ H[FKDQJHHPSOR\HHVJDYHXSWKHULJKWWRVXHWKHLUHPSOR\HUV JURVV QHJOLJHQFH DQG ZLOOIXO DQG ZDQWRQ PLVFRQGXFW   IRUFHUWDLQRFFXSDWLRQDOLQMXULHV%D]LQDXY0DFNLQDF,VODQG XOWUDKD]DUGRXVDFWLYLW\  LQWHQWLRQDOPLVFRQGXFW DQG  &DUULDJH7RXUV 1:G  0LFK&W$SS  FRQVSLUDF\  7KH GHIHQGDQWV PRYHG IRU SDUWLDO VXPPDU\ /DUJHO\ LQ UHVSRQVH WR WKH 0LFKLJDQ 6XSUHPH &RXUWjV MXGJPHQWIROORZLQJZKLFKWKHGLVWULFWFRXUWGLVPLVVHGWKH GHFLVLRQLQ%HDXFKDPSY'RZ&KHPLFDO&R 1:G SODLQWLIIVj HQYLURQPHQWDO ODZ FODLPV FRQFOXGLQJ WKDW WKH  0LFK    WKH 0LFKLJDQ OHJLVODWXUH DPHQGHG WKH SODLQWLIIV KDG QR SULYDWH ULJKW RI DFWLRQ DQGRU WKDW WKH 0:'&$ H[FHSWLQJ LQWHQWLRQDO WRUWV IURP 0:'&$jV SODLQWLIIV KDG QRW H[KDXVWHG WKHLU DGPLQLVWUDWLYH UHPHGLHV H[FOXVLYHUHPHG\SURYLVLRQ7UDYLVY'UHLV .UXPS0IJ 7KH FRXUW UHVHUYHG LWV UXOLQJ RQ WKH SODLQWLIIVj FLYLO ULJKWV &R  1:G    0LFK     7KH DPHQGHG FODLP WKH FODLP RI LQWHQWLRQDO WRUW DQG WKH DFFRPSDQ\LQJ VWDWXWHSURYLGHVLQUHOHYDQWSDUW GHULYDWLYHFODLPVXQWLODIWHUGLVFRYHU\)ROORZLQJGLVFRYHU\ DQG XSRQ WKH GHIHQGDQWVj UHQHZHG PRWLRQ IRU VXPPDU\ 7KHULJKWWRWKHUHFRYHU\RIEHQHILWVDVSURYLGHGLQWKLV MXGJPHQW WKH GLVWULFW FRXUW GLVPLVVHG DOO RI WKH SODLQWLIIVj DFWVKDOOEHWKHHPSOR\HHjVH[FOXVLYHUHPHG\DJDLQVWWKH UHPDLQLQJ FODLPV  7KH SODLQWLIIV DSSHDO RQO\ WKH GLVWULFW HPSOR\HUIRUDSHUVRQDOLQMXU\RURFFXSDWLRQDOGLVHDVH FRXUWjVJUDQWRIVXPPDU\MXGJPHQWWRWKHGHIHQGDQWVRQWKHLU 7KH RQO\ H[FHSWLRQ WR WKLV H[FOXVLYH UHPHG\ LV DQ LQWHQWLRQDOWRUW$QLQWHQWLRQDOWRUWVKDOOH[LVWRQO\ZKHQ  8SVKHUHWDOY*URVVH 1RV 1RV 8SVKHUHWDOY*URVVH  3RLQWH3XEOLF6FKRRO 3RLQWH3XEOLF6FKRRO 6\VWHPHWDO 6\VWHPHWDO

UHVXOW,Q/HZHOOHQWKLVFRXUWFRQVLGHUHGZKHWKHUDQLQMXUHG 86&† FODLPDQGWKHLQWHQWLRQDOWRUWH[FHSWLRQWR HPSOR\HHFRXOGPDLQWDLQD86&† FODLPDIWHUWKH WKH0:'&$ JRYHUQPHQW GHFLGHG WR EXLOG D VFKRRO LQ WKH LPPHGLDWH YLFLQLW\ RI D KLJK YROWDJH FRQGXFWRU OLQH  7KH SODLQWLII ,, HPSOR\HHLQ/HZHOOHQDUJXHGWKDWm>L@IQHJOLJHQFHOLHVDWRQH HQGRIDVSHFWUXPDQGLQWHQWDWWKHRWKHUWKHFRQGXFWRI $1$/<6,6 WKHGHIHQGDQWVZDVIDUHQRXJKDZD\IURPQHJOLJHQFHDQG FORVH HQRXJK WR LQWHQWLRQDO LQIOLFWLRQ RI ERGLO\ LQMXU\ WR 7KLV FRXUW UHYLHZV D GLVWULFW FRXUWjV JUDQW RI VXPPDU\ FRQVWLWXWHDYLRODWLRQRIWKH&RQVWLWXWLRQl/HZHOOHQ)G MXGJPHQWGHQRYR2ZHQV&RUQLQJY1DWjO8QLRQ)LUH,QV DW   LQWHUQDO FLWDWLRQ RPLWWHG   'HVSLWH XQFRQWHVWHG &RRI3LWWVEXUJK 3D)G  WK&LU  HYLGHQFH WKDW WKH DSSOLFDEOH VDIHW\ DQG HOHFWULFDO FRGH 6XPPDU\MXGJPHQWLVSURSHUmLIWKHSOHDGLQJVGHSRVLWLRQV VWDQGDUGV KDG EHHQ YLRODWHG WKLV FRXUW XSKHOG WKH GLVWULFW DQVZHUVWRLQWHUURJDWRULHVDQGDGPLVVLRQVRQILOHWRJHWKHU FRXUWjV JUDQW RI VXPPDU\ MXGJPHQW LQ IDYRU RI WKH ZLWKWKHDIILGDYLWVLIDQ\VKRZWKDWWKHUHLVQRJHQXLQHLVVXH JRYHUQPHQWUHDVRQLQJWKDWmWKHGHIHQGDQWVREYLRXVO\GLGQRW DVWRDQ\PDWHULDOIDFWDQGWKDWWKHPRYLQJSDUW\LVHQWLWOHGWR PDNHDGHOLEHUDWHGHFLVLRQWRLQIOLFWSDLQDQGERGLO\LQMXU\ DMXGJPHQWDVDPDWWHURIODZl )(' 5 &,9 3 F VHH1L[ 7KHGHIHQGDQWVPD\KDYHEHHQQHJOLJHQWEXWLWLVQRZ Y2j0DOOH\)G WK&LU  ,QUHYLHZLQJ ILUPO\ VHWWOHG WKDW LQMXU\ FDXVHG E\ QHJOLJHQFH GRHV QRW D PRWLRQ IRU VXPPDU\ MXGJPHQW ZH GUDZ DOO MXVWLILDEOH FRQVWLWXWH D µGHSULYDWLRQj RI DQ\ FRQVWLWXWLRQDOO\ SURWHFWHG LQIHUHQFHVLQDOLJKWPRVWIDYRUDEOHWRWKHQRQPRYLQJSDUW\ LQWHUHVWl  ,G DW  FLWLQJ &ROOLQV  86 DW  (OZHOOY8QLY+RVSV+RPH&DUH6HUYV)G 'H6KDQH\ Y :LQQHEDJR &RXQW\ 'HSjW RI 6RF 6HUYV  WK&LU  86    'DQLHOVY:LOOLDPV86      7KH /HZHOOHQ FRXUW UHFRJQL]HG WKDW HYHQ $ DVVXPLQJ WKDW WKH GHIHQGDQWV KDG EHHQ mGHOLEHUDWH>O\@ 86&†  LQGLIIHUHQ>W@WRµXQUHDVRQDEOHULVNVRIKDUPjlWKHGHIHQGDQWV ZRXOG QRW EH OLDEOH IRU D FRQVWLWXWLRQDO YLRODWLRQ DV )LUVWZHUHYLHZZKHWKHUWKHGLVWULFWFRXUWHUUHG ZKHQLW FRQWHPSODWHGE\&ROOLQV/HZHOOHQ)GDW FRQFOXGHG WKDW WKH SODLQWLIIVj HYLGHQFH GLG QRW VXIILFLHQWO\ 6LPLODUO\ KHUH ZH FDQQRW ILQG QRU ZDV RXU DWWHQWLRQ HVWDEOLVK D PDWHULDO LVVXH RI IDFW ZLWK UHJDUG WR WKH LQYLWHGWRDQ\HYLGHQFHLQWKHUHFRUGZKLFKVXJJHVWVWKDWDQ\ GHIHQGDQWVjOLDELOLW\XQGHU86&† 6HFWLRQ  RIWKHGHIHQGDQWVPDGHDGHOLEHUDWHGHFLVLRQWRLQIOLFWSDLQRU SURYLGHVLQUHOHYDQWSDUW  ERGLO\LQMXU\RQDQ\RIWKHSODLQWLIIV1HLWKHULVWKHUHSURRI (YHU\ SHUVRQ ZKR XQGHU FRORU RI DQ\ VWDWXWH WKDWWKHGHIHQGDQWVHQJDJHGLQDUELWUDU\FRQGXFWLQWHQWLRQDOO\ RUGLQDQFHUHJXODWLRQFXVWRPRUXVDJHRIDQ\6WDWHRU GHVLJQHG WR SXQLVK WKH SODLQWLIIVnFRQGXFW ZKLFK ZH KDYH 7HUULWRU\RUWKH'LVWULFWRI&ROXPELDVXEMHFWVRUFDXVHV UHFRJQL]HGPD\UHVXOWLQWKHGHSULYDWLRQRIDFRQVWLWXWLRQDOO\ WREHVXEMHFWHGDQ\FLWL]HQRIWKH8QLWHG6WDWHVRURWKHU SURWHFWHGLQWHUHVW,G:LWKRXWPRUHZHFRQFOXGHWKDWWKH SHUVRQZLWKLQWKHMXULVGLFWLRQWKHUHRIWRWKHGHSULYDWLRQ SODLQWLIIVjHYLGHQFH HVWDEOLVKHVDWEHVWDFDVHVRXQGLQJLQ RIDQ\ULJKWVSULYLOHJHVRULPPXQLWLHVVHFXUHGE\WKH QHJOLJHQFHDQGQRWDFRQVWLWXWLRQDOWRUWXQGHU†  &RQVWLWXWLRQDQGODZVVKDOOEHOLDEOHWRWKHSDUW\LQMXUHG  8SVKHUHWDOY*URVVH 1RV 1RV 8SVKHUHWDOY*URVVH 3RLQWH3XEOLF6FKRRO 3RLQWH3XEOLF6FKRRO 6\VWHPHWDO 6\VWHPHWDO

LQ DQ DFWLRQ DW ODZ VXLW LQ HTXLW\ RU RWKHU SURSHU FRQFOXGH WKDW D mIDLU UHDGLQJl RI WKH SODLQWLIIVj FRPSODLQW SURFHHGLQJIRUUHGUHVV XQOLNH WKH FRPSODLQW LQ &ROOLQV GRHV DOOHJH D ZLOOIXO YLRODWLRQ6HH&ROOLQV86DW 86&†  :HVW6XSS  2XUQH[WLQTXLU\WKHUHIRUHLVZKHWKHUWKHSODLQWLIIVjSURRI &RQVHTXHQWO\ WR VWDWH D YLDEOH FODLP XQGHU  86& LV VXIILFLHQW DV D PDWWHU RI ODZ WR VWDWH D TXHVWLRQ RI IDFW † SODLQWLIIVPXVWSURGXFHHYLGHQFHWKDW   WKH\ZHUH UHJDUGLQJWKHGHIHQGDQWVjOLDELOLW\XQGHU86&†  GHSULYHG RI D ULJKW SULYLOHJH RU LPPXQLW\ VHFXUHG E\ WKH 7KLV FRXUW PDGH FOHDU LQ /HZHOOHQ Y 0HWURSROLWDQ IHGHUDO&RQVWLWXWLRQRUODZRIWKH8QLWHG6WDWHVDQG  WKH *RYHUQPHQW RI 1DVKYLOOH DQG 'DYLGVRQ &RXQW\ 7HQQ  GHSULYDWLRQZDVFDXVHGE\DSHUVRQZKLOHDFWLQJXQGHUWKH )G WK&LU  WKDWLQDQRQFXVWRGLDOVHWWLQJLQ FRORURIVWDWHODZ)ODJJ%URVY%URRNV86  RUGHUWRHVWDEOLVKOLDELOLW\IRUYLRODWLRQVRIVXEVWDQWLYHGXH    VHH&ROOLQVY&LW\RI+DUNHU+HLJKWV7H[ SURFHVV XQGHU †   D SODLQWLII PXVW SURYH WKDW WKH 86   6HFWLRQ LVQRWVHOIH[HFXWLQJEXW JRYHUQPHQWDODFWRUHLWKHULQWHQWLRQDOO\LQMXUHGWKHSODLQWLIIRU UDWKHU SURYLGHV D UHPHG\ mµIRU YLQGLFDWLQJ IHGHUDO ULJKWV DFWHGDUELWUDULO\LQWKHFRQVWLWXWLRQDOVHQVH,GDW VHH HOVHZKHUHFRQIHUUHGjl$OEULJKWY2OLYHU86 *D]HWWH Y &LW\ RI 3RQWLDF  )G   WK &LU    FLWDWLRQRPLWWHG 7KH6XSUHPH&RXUWKDVFDXWLRQHG   7KH/HZHOOHQFRXUWH[SUHVVHGGRXEWDVWRZKHWKHULQ FRXUWVWRFDUHIXOO\VFUXWLQL]HVRFDOOHGVXEVWDQWLYHGXHSURFHVV DQRQFXVWRGLDOFDVHmGHOLEHUDWHLQGLIIHUHQFHlFRXOGJLYHULVH FODLPV EURXJKW XQGHU †   mEHFDXVH JXLGHSRVWV IRU WRDYLRODWLRQRIVXEVWDQWLYHGXHSURFHVV/HZHOOHQ)G UHVSRQVLEOHGHFLVLRQPDNLQJLQWKLVXQFKDUWHUHGDUHDDUHVFDUFH DWQ VHH6WHPOHUY&LW\RI)ORUHQFH)G DQGRSHQHQGHGl&ROOLQV86DWm,WLVLPSRUWDQW WK&LU  :HSRLQWWKLVRXWEHFDXVHWKHGLVWULFWFRXUW WKHUHIRUH WR IRFXV RQ WKH DOOHJDWLRQV LQ WKH FRPSODLQW WR LQUXOLQJRQWKHGHIHQGDQWVjLQLWLDOPRWLRQIRUSDUWLDOVXPPDU\ GHWHUPLQHKRZ>WKHSODLQWLII@GHVFULEHVWKHFRQVWLWXWLRQDOULJKW MXGJPHQWVWDWHGWKDWm>W@KH FODLPFRXOGSRVVLEO\JR DWVWDNHDQGZKDWWKH>JRYHUQPHQWDODFWRU@DOOHJHGO\GLGWR IRUZDUGDVDFDVHRIGHOLEHUDWHLQGLIIHUHQFHl:HEHOLHYHWKH GHSULYH>WKHSODLQWLII@RIWKDWULJKWl,G PRUHH[DFWVWDQGDUGDQQRXQFHGLQ/HZHOOHQLVWKDWLQRUGHU WR VXFFHHG RQ D †   FODLP LQ D QRQFXVWRGLDO VHWWLQJ D :H EHJLQ WKHUHIRUH E\ ORRNLQJ DW KRZ WKH SODLQWLIIV SODLQWLII PXVW SURYH HLWKHU LQWHQWLRQDO LQMXU\ RU mDUELWUDU\ GHVFULEHWKHFRQVWLWXWLRQDOULJKWDWVWDNHLQWKHLUFRPSODLQW FRQGXFW LQWHQWLRQDOO\ GHVLJQHG WR SXQLVK VRPHRQHnHJ 7KH SODLQWLIIV DOOHJH WKDW WKH GHIHQGDQWV LQ RUGHULQJ WKH JLYLQJ D ZRUNHU µD SDUWLFXODUO\ GDQJHURXV DVVLJQPHQW LQ SODLQWLIIVWRUHPRYHWKHDVEHVWRVFRQWDLQLQJPDWHULDOVFDXVHG UHWDOLDWLRQIRUDSROLWLFDOVSHHFKRUEHFDXVHRIKLVRUKHU LQMXU\WRWKHSODLQWLIIVZKLFKZDVmZLOOIXOZDQWRQPDOLFLRXV JHQGHUjl/HZHOOHQ)GDW TXRWLQJ&ROOLQV86 DQGGHPRQVWUDWHGFRPSOHWHXWWHUDQGUHFNOHVVGLVUHJDUGIRU DW    2U DV VWDWHG LQ 6WHPOHU D SODLQWLII PXVW SURYH >WKHLU@ KHDOWK DQG VDIHW\l LQ YLRODWLRQ RI †    ,Q WKHLU mµFRQVFLHQFHVKRFNLQJjlEHKDYLRU6WHPOHU)GDW DSSHOODWHEULHILQJWKHSODLQWLIIVFODULI\WKDWWKHLU† FODLP TXRWLQJ&ROOLQV86DW  UHVWVRQ6HFWLRQRIWKH'XH3URFHVV&ODXVHRIWKH)RXUWHHQWK $PHQGPHQW VSHFLILFDOO\ WKH VXEVWDQWLYH FRPSRQHQW WKDW 7KH SODLQWLIIV XUJH WKDW WKH 6HFRQG &LUFXLWjV GHFLVLRQ LQ SURWHFWVDJDLQVWGHOLEHUDWHGHFLVLRQVRIJRYHUQPHQWRIILFLDOV /D%RXQW\Y&RXJKOLQ)G G&LU  UHTXLUHV WRmGHSULYHDQ\SHUVRQRIOLIHOLEHUW\RUSURSHUW\ZLWKRXW D UHYHUVDO RI WKH GLVWULFW FRXUWjV MXGJPHQW  KRZHYHU ZH GXHSURFHVVRIODZl86 &2167DPHQG;,9†:H FRQFOXGHWKDWRXUGHFLVLRQLQ/HZHOOHQGHPDQGVWKHRSSRVLWH