       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 DS




81,7('67$7(6&28572)$33($/6
              )257+(6,;7+&,5&8,7
                BBBBBBBBBBBBBBBBB


:(676,'( 027+(56D              ;
0LFKLJDQ:HOIDUH5LJKWV           
2UJDQL]DWLRQ0,&+,*$1            
                                      1R
/($*8( )25 +80$1                  
6(59,&(6 ,1& )$0,/,(6 21        !
                                  
7+( 029( ,1& $0(5,&$1          
$&$'(0< 2) 3(',$75,&6            
$0(5,&$1 $&$'(0< 2)               
3(',$75,& '(17,676 %. E\ 
KHUQH[WIULHQG /2,6 $11 .      
                                  
's E\KHUQH[WIULHQG          
7$1*(/$ : '1s E\KHU         
QH[WIULHQG 7$1*(/$ :           
'0s E\KLVQH[WIULHQG         
7$1*(/$ : .. E\KHU          
QH[WIULHQG 9,&., . .7 E\    
                                  
KHUQH[WIULHQG 9('$ 7 s7    
E\KLVQH[WIULHQG 9('$ 7       
          3ODLQWLIIV$SSHOODQWV 
                                  
            Y                    
                                  
                                  
s$0(6 . +$9(0$1 s5            
'LUHFWRURIWKH6WDWHRI          
0LFKLJDQ'HSDUWPHQWRI            
&RPPXQLW\+HDOWK52%(57          
                                  

                             
       :HVWVLGH0RWKHUVHWDO                   1R      1R                         :HVWVLGH0RWKHUVHWDO        
        Y+DYHPDQHWDO                                                                                   Y+DYHPDQHWDO

                                                                    UHTXLUHPHQWV IRU DVVRFLDWLRQDO VWDQGLQJ  7KHUHIRUH ZH
    60('(6'HSXW\'LUHFWRURI                                     UHYHUVHWKHGLVWULFWFRXUWjVGLVPLVVDORIWKH0LFKLJDQFKDSWHUV
    WKH0HGLFDO6HUYLFHV                                           RIWKH$PHULFDQ$FDGHP\RI3HGLDWULFVDQGRIWKH$PHULFDQ
    $GPLQLVWUDWLRQ                                                $FDGHP\RI3HGLDWULF'HQWLVWVDVSODLQWLIIV
                                  
           'HIHQGDQWV$SSHOOHHV                                      'HIHQGDQWjVUHTXHVWIRUVXPPDU\MXGJPHQW0LFKLJDQ
                                                                   DOVR DVNV XV WR DIILUP WKH GLVPLVVDO RI WKH VXLW HYHQ LI ZH
    81,7(' 67$7(6 2) $0(5,&$                                      GLVDJUHH ZLWK WKH GLVWULFW FRXUWjV UHDVRQV IRU GLVPLVVLQJ LW
                     ,QWHUYHQRU                                   6HH$SSHOOHHVj%UDW,WJLYHVQXPHURXVJURXQGVDSDUW
                                 1                                  IURPWKRVHUHOLHGRQLQWKHGLVWULFWFRXUWRSLQLRQFODLPLQJ
         $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW               LQWHU DOLD WKDW  WKH LQGLYLGXDO SODLQWLIIV ODFN VWDQGLQJ
        IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW'HWURLW             WKH VWDWH GRHV SURYLGH WKH VFUHHQLQJ DQG WUHDWPHQW
       1Rn5REHUW+&OHODQG'LVWULFWsXGJH              VHUYLFHV DQG  WKH SODLQWLIIV IDLO WR VWDWH D FODLP DJDLQVW
                                                                    0LFKLJDQEHFDXVHSODLQWLIIVDOOHJHRQO\WKDWDVWDWHFRQWUDFWRU
                   $UJXHGsDQXDU\                        IDLOHG WR SURYLGH D VHUYLFH  ,Q VXSSRUW RI LWV UHTXHVWV
                                                                    0LFKLJDQ SURYLGHV UHFRUGV SULQWHG PDWHULDOV IO\HUV DQG
               'HFLGHGDQG)LOHG0D\                     PDQXDOVWKDWLWDVVHUWVVXSSRUWLWVFODLPV7KHGHIHQVHVUDLVH
                                                                    IDFWXDODQGOHJDOLVVXHVQRWDGGUHVVHGE\WKHGLVWULFWFRXUW
      %HIRUH0(55,77%2**6DQG0225(&LUFXLW                   :HDUHDGYLVHGWKDWGLVFRYHU\LQWKLVFDVHKDVEHHQVWD\HG
                         sXGJHV                                    VLQFHDWOHDVW2FWREHUVRPHWZR\HDUVDJRDQGOHVV
                                                                    WKDQWKUHHPRQWKVDIWHUWKHRULJLQDOFRPSODLQWZDVILOHG:H
                     BBBBBBBBBBBBBBBBB                              GHFOLQHWRUXOHRQWKHLVVXHVEHIRUHWKHGLVWULFWFRXUWKDVPDGH
                                                                    DIDFWXDOUHFRUG
                          &2816(/
                                                                                                &RQFOXVLRQ
$5*8('  sHQQLIHU 5 &ODUNH '(&+(57 35,&( 	
5+2$'63KLODGHOSKLD3HQQV\OYDQLD7KRPDV.*LOKRRO                $FFRUGLQJO\ ZH 5(9(56( WKH GLVWULFW FRXUWjV JUDQW RI
38%/,&,17(5(67/$:&(17(52)3+,/$'(/3+,$                         VXPPDU\ MXGJPHQW WR GHIHQGDQWV $)),50 LQ SDUW DQG
3KLODGHOSKLD 3HQQV\OYDQLD IRU $SSHOODQWV  (ULFD :HLVV      5(9(56( LQ SDUW WKH GLVWULFW FRXUWjV GLVPLVVDO RI
0DUVGHQ 2)),&( 2) 7+( $77251(< *(1(5$/                       RUJDQL]DWLRQDOSODLQWLIIVIRUODFNRIVWDQGLQJDQG5(0$1'
/DQVLQJ0LFKLJDQIRU$SSHOOHHV$OLVD%.OHLQ81,7('           WKHFDVHIRUIXUWKHUSURFHHGLQJVFRQVLVWHQWZLWKWKLVRSLQLRQ
67$7(6'(3$570(172)s867,&(:DVKLQJWRQ'&
IRU ,QWHUYHQRU 21 %5,()  sHQQLIHU 5 &ODUNH .HOO\ /
'DUU5RELQ36XPQHUsDFRE,.REULFN'(&+(5735,&(
	5+2$'63KLODGHOSKLD3HQQV\OYDQLD7KRPDV.*LOKRRO
38%/,&,17(5(67/$:&(17(52)3+,/$'(/3+,$
3KLODGHOSKLD3HQQV\OYDQLD0DULO\Q70XOODQH0,&+,*$1
/(*$/6(59,&(6'HWURLW0LFKLJDQ/RXUGHV$5LYHUD
1$7,21$/ +($/7+ /$: 352*5$0 ,1& /RV
    :HVWVLGH0RWKHUVHWDO                         1R       1R                    :HVWVLGH0RWKHUVHWDO      
      Y+DYHPDQHWDO                                                                                     Y+DYHPDQHWDO

)G   WK &LU  FLWLQJ +XQW Y :DVKLQJWRQ        $QJHOHV &DOLIRUQLD 6XVDQ . 0F3DUODQG 0,&+,*$1
$SSOH$GYjW&RPPjQ86                                $662&,$7,21 )25 &+,/'5(1 6RXWKILHOG 0LFKLJDQ
                                                                         0DUWKD sDQH 3HUNLQV 1$7,21$/ +($/7+ /$:
  7KHGLVWULFWFRXUWKHOGWKDWWKH:HOIDUH5LJKWV2UJDQL]DWLRQ           352*5$0 &KDSHO +LOO 1RUWK &DUROLQD IRU $SSHOODQWV
ODFNHGFRQVWLWXWLRQDOVWDQGLQJEHFDXVHSODLQWLIIVjFRPSODLQW             (ULFD :HLVV 0DUVGHQ 2)),&( 2) 7+( $77251(<
FRQWDLQHGOLWWOHLQIRUPDWLRQDERXWWKHRUJDQL]DWLRQOHDYLQJ             *(1(5$/ /DQVLQJ 0LFKLJDQ IRU $SSHOOHHV  $OLVD %
WKH GLVWULFW FRXUW XQDEOH WR GHWHUPLQH ZKHWKHU LW PHW WKH       .OHLQ0DUN%6WHUQ81,7('67$7(6'(3$570(17
UHTXLUHPHQWV VHW RXW DERYH  3ODLQWLIIVj DSSHDO DVNV XV WR      2)s867,&(:DVKLQJWRQ'&IRU,QWHUYHQRU'DYLG7
UHYHUVHWKLVKROGLQJEXWSURYLGHVQRIDFWVWKDWZRXOGOHDGXV            *ROGEHUJ '$9,' 7 *2/'%(5* /$: 2)),&( 1HZ
WRVHFRQGJXHVVWKHGLVWULFWFRXUWjVGHFLVLRQ7KHUHIRUHZH            <RUN 1HZ <RUN 'UHZ 6 'D\V ,,, 0255,621 	
DIILUP WKH GLVPLVVDO RI WKH 0LFKLJDQ :HOIDUH 5LJKWV               )2(567(5 :DVKLQJWRQ '& (UZLQ &KHPHULQVN\ /RV
2UJDQL]DWLRQDVDSODLQWLII                                             $QJHOHV&DOLIRUQLD)RUGKDP(+XIIPDQ&KDG$5HDGOHU
                                                                         s21(6'$<5($9,6	32*8(&ROXPEXV2KLRsDPHV
  7KH GLVWULFW FRXUW KHOG WKDW WKH WZR SURIHVVLRQDO               /)HOGHVPDQ)(/'(60$178&.(5/(,)(5),'(//
RUJDQL]DWLRQVODFNHGVWDQGLQJEHFDXVHWKHLUPHPEHUVFRXOG                	%$1.//3:DVKLQJWRQ'&/DUU\6*DJH%DUEDUD
QRW VXH LQ WKHLU RZQ ULJKW VLQFH WKH\ DUH QRW WKH LQWHQGHG   '$ (\PDQ &KDUOHV /XEDQG $LPHH 1 :DOO 32:(//
EHQHILFLDULHVRIWKH0HGLFDUHSURYLVLRQLQTXHVWLRQ86&           *2/'67(,1 )5$=(5 	 0853+< :DVKLQJWRQ '&
DD$6HHs$DW3ODLQWLIIVFRXQWHUWKDW         3K\OOLVsDPHV&,7<2)'(752,7/$:'(3$570(17
VRPH SURYLVLRQV RI WKH 0HGLFDLG DFW GR KDYH PHGLFDO              'HWURLW 0LFKLJDQ 5LFKDUG &OD\WRQ 7URWWHU 7(;$6
SURYLGHUV DV LQWHQGHG EHQHILFLDULHV  6HH HJ :LOGHU      s867,&()281'$7,216DQ$QWRQLR7H[DV3DWULFN:
86DW,Q:LOGHUWKH6XSUHPH&RXUWIRXQGWKDWPHGLFDO            %HDWW\ 5HEHFFD / 7KRPDV 5REHUW & 0DLHU 'DUUHOO 0
SURYLGHUV ZHUH LQWHQGHG EHQHILFLDULHV RI WKH %RUHQ                 3LHUUH sU 2)),&( 2) 7+( $77251(< *(1(5$/
$PHQGPHQW WR WKH 0HGLFDUH $FW EHFDXVH WKDW mSURYLVLRQ             &ROXPEXV2KLR7LPRWK\3+HDWKHU%(1s$0,1<2&80
HVWDEOLVK>HG@DV\VWHPIRUUHLPEXUVHPHQWRISURYLGHUVDQGLV             	+($7+(5&LQFLQQDWL2KLRIRU$PLFL&XULDH
SKUDVHG LQ WHUPV EHQHILWWLQJ KHDOWK FDUH SURYLGHUVl  ,G
/RRNLQJ WR WKH 0HGLFDUH SURYLVLRQ KHUH ZH ILQG VLPLODU                              BBBBBBBBBBBBBBBBB
ODQJXDJH  7KH VWDWXWH VSHDNV RI WKH QHHG WR mDVVXUH WKDW
SD\PHQWVDUHVXIILFLHQWWRHQOLVWHQRXJKSURYLGHUVl                                   23,1,21
86&DD$7KHWZRRUJDQL]DWLRQVFODLPWKDW                                  BBBBBBBBBBBBBBBBB
WKHGHIHQGDQWVKDYHLPSRVHGRQWKHPmRWKHUZLVHXQQHFHVVDU\
H[SHQGLWXUHVlPHDQLQJWKDWWKHRUJDQL]DWLRQVjPHPEHUVKDYH                0(55,77&LUFXLWsXGJH7KLVVXLWILOHGXQGHU86&
VXIIHUHGDQLQMXU\E\QRWUHFHLYLQJFRPSHQVDWLRQIRUPHGLFDO             DOOHJHVWKDWWKHVWDWHRI0LFKLJDQKDVIDLOHGWRSURYLGH
VHUYLFHVWKHLU PHPEHUVDUHHWKLFDOO\FRPSHOOHGWRSURYLGH              VHUYLFHV UHTXLUHG E\ WKH 0HGLFDLG SURJUDP  3ODLQWLIIV
6HHs$DW7KHLUPHPEHUVKDYHDOOHJHGDQLQMXU\            :HVWVLGH 0RWKHUV RWKHU DGYRFDF\ DQG SURIHVVLRQDO
LQIDFW OLPLWDWLRQ RI 0HGLFDUH VHUYLFHV WKDW UHVXOWHG LQ         RUJDQL]DWLRQV DQG HLJKW QDPHG LQGLYLGXDOV DOOHJH WKDW
UHGXFHG SD\PHQWV  VKRZQ WKLV LQMXU\ LV WUDFHDEOH WR          GHIHQGDQWV sDPHV +DYHPDQ GLUHFWRU RI WKH 0LFKLJDQ
GHIHQGDQWVj DFWLRQV DQG  VKRZQ WKH LQMXU\ FRXOG EH           'HSDUWPHQW RI &RPPXQLW\ +HDOWK DQG 5REHUW 6PHGHV
UHGUHVVHGWKURXJKDIDYRUDEOHGHFLVLRQVHH&OHYHODQG6XUJL             GHSXW\ GLUHFWRU RI WKH 0LFKLJDQ 0HGLFDO 6HUYLFHV
&HQWHU  )G DW  DQG WKH RUJDQL]DWLRQV PHHW WKH           $GPLQLVWUDWLRQ GLG QRW SURYLGH WKH HDUO\ DQG SHULRGLF
     :HVWVLGH0RWKHUVHWDO                       1R       1R                       :HVWVLGH0RWKHUVHWDO       
      Y+DYHPDQHWDO                                                                                      Y+DYHPDQHWDO

VFUHHQLQJGLDJQRVLVDQGWUHDWPHQWVHUYLFHVPDQGDWHGE\WKH           WKHVFUHHQLQJDQGWUHDWPHQWSURYLVLRQVmPXVWEHSURYLGHGl
0HGLFDLG$FWDQGUHODWHGODZV                                         LGDD$VHHDOVR&)5PDQGDWRU\
                                                                       ODQJXDJH  7KLUG WKH SURYLVLRQV DUH QRW VR YDJXH DQG
   7KH 0HGLFDLG SURJUDP FUHDWHG LQ  ZKHQ &RQJUHVV          DPRUSKRXVDVWRGHIHDWMXGLFLDOHQIRUFHPHQWDVWKHVWDWXWH
DGGHG7LWOH;,;WRWKH6RFLDO6HFXULW\$FWSURYLGHVDIHGHUDO         DQG UHJXODWLRQV FDUHIXOO\ GHWDLO WKH VSHFLILF VHUYLFHV WR EH
VXEVLG\WRVWDWHVWKDWFKRRVHWRUHLPEXUVHSRRULQGLYLGXDOVIRU        SURYLGHG6HH86&GU)LQDOO\&RQJUHVVGLG
FHUWDLQPHGLFDOFDUH6HH86&HWVHT	            QRWH[SOLFLWO\IRUHFORVHUHFRXUVHWRLQWKLVLQVWDQFHQRU
6XSSm0HGLFDLG$FWl+DUULVY0F5DH86                KDV LW HVWDEOLVKHG DQ\ UHPHGLDO VFKHPH VXIILFLHQWO\
m$OWKRXJKSDUWLFLSDWLRQLQWKHSURJUDPLV            FRPSUHKHQVLYHWRVXSSODQW6HH%OHVVLQJ86DW
YROXQWDU\ SDUWLFLSDWLQJ VWDWHV PXVW FRPSO\ ZLWK FHUWDLQ         
UHTXLUHPHQWVLPSRVHGE\WKH$FWDQGUHJXODWLRQVSURPXOJDWHG
E\WKH6HFUHWDU\RI+HDOWKDQG+XPDQ6HUYLFHVl:LOGHUY               3ODLQWLIIVKDYHDFDXVHRIDFWLRQXQGHUIRUDOOHJHG
9LUJLQLD+RVS$VVRF86/LNHDOO             QRQFRPSOLDQFHZLWKWKHVFUHHQLQJDQGWUHDWPHQWSURYLVLRQV
RWKHUVWDWHV0LFKLJDQSDUWLFLSDWHVLQWKH0HGLFDLGSURJUDP           RIWKH0HGLFDLG$FW
6LQFHRSHUDWLQJXQGHUDZDLYHUIURPWKH+HDOWK&DUH
)LQDQFH $GPLQLVWUDWLRQ 0LFKLJDQ KDV SURYLGHG HOLJLEOH                                   '2WKHU,VVXHV
UHVLGHQWV 0HGLFDLG VHUYLFHV E\ UHTXLULQJ WKHP WR HQUROO LQ
+HDOWK0DLQWHQDQFH2UJDQL]DWLRQVZKLFKSURYLGHPHGLFDO                    6WDQGLQJ,Q D VHSDUDWH RSLQLRQ WKH GLVWULFW FRXUW
FDUHLQH[FKDQJHIRUDIODWPRQWKO\IHHSHUSDUWLFLSDQWs$         GLVPLVVHG DV SODLQWLIIV WZR DGYRFDF\ RUJDQL]DWLRQV WKH
DW                                                           0LFKLJDQ /HDJXH IRU +XPDQ 6HUYLFHV DQG WKH 0LFKLJDQ
                                                                       :HOIDUH 5LJKWV 2UJDQL]DWLRQ DQG WZR SURIHVVLRQDO
   7KH0HGLFDLG$FWDQGUHODWHGUHJXODWLRQVVHWRXWDGHWDLOHG         RUJDQL]DWLRQV WKH 0LFKLJDQ FKDSWHUV RI WKH $PHULFDQ
OLVW RI VHUYLFHV HYHU\ VWDWH SURJUDP PXVW SURYLGH  6HH    $FDGHP\ RI 3HGLDWULFV DQG RI WKH $PHULFDQ $FDGHP\ RI
86&HWVHT&)5HWVHT7KH          3HGLDWULF'HQWLVWVs$DW7KH0LFKLJDQ/HDJXHIRU
$FWDOORZVWKH6HFUHWDU\RI+HDOWKDQG+XPDQ6HUYLFHVWR               +XPDQ6HUYLFHVGRHVQRWDSSHDOWKHGLVWULFWFRXUWjVUXOLQJ
OLPLW RU HQG SD\PHQWV WR D VWDWH ZKRVH 0HGLFDLG SURJUDP       :HDGGUHVVWKHDSSHDOVRIWKHRWKHUWKUHHRUJDQL]DWLRQV
GRHVQRWSURYLGHWKHVHVHUYLFHV6HH86&F
                                                                          7RKDYHVWDQGLQJDOLWLJDQWPXVWVKRZVRPHDFWXDORU
   $WLVVXHKHUHLVWKHIHGHUDOUHTXLUHPHQWWKDWSDUWLFLSDWLQJ         WKUHDWHQHG LQMXU\  IDLUO\ WUDFHDEOH WR WKH GHIHQGDQWjV
VWDWHVSURYLGHmHDUO\DQGSHULRGLFVFUHHQLQJGLDJQRVWLFDQG          FKDOOHQJHG DFWLRQ ZKLFK  FDQ OLNHO\ EH UHGUHVVHG E\ D
WUHDWPHQWVHUYLFHVIRULQGLYLGXDOVZKRDUHHOLJLEOHXQGHU        IDYRUDEOH GHFLVLRQ  6HH &OHYHODQG 6XUJL&HQWHU ,QF Y
WKHSODQDQGDUHXQGHUWKHDJHRIl,GGD%          sRQHV)GWK&LUm>$@QDVVRFLDWLRQKDV
VHHDOVRLGGUGHILQLQJVXFKVHUYLFHV&)5           VWDQGLQJWREULQJVXLWRQEHKDOIRILWVPHPEHUVZKHQDLWV
VDPH7KHUHTXLUHGVHUYLFHVLQFOXGHSHULRGLF          PHPEHUVZRXOGRWKHUZLVHKDYHVWDQGLQJWRVXHLQWKHLURZQ
SK\VLFDOH[DPLQDWLRQVLPPXQL]DWLRQVODERUDWRU\WHVWVKHDOWK         ULJKWEWKHLQWHUHVWVLWVHHNVWRSURWHFWDUHJHUPDQHWRWKH
HGXFDWLRQ VHH  86&  GU H\H H[DPLQDWLRQV       RUJDQL]DWLRQjVSXUSRVHDQGFQHLWKHUWKHFODLPDVVHUWHGQRU
H\HJODVVHVVHHLGGUWHHWKPDLQWHQDQFHVHHLG          WKH UHOLHI UHTXHVWHG UHTXLUHV WKH SDUWLFLSDWLRQ RI LQGLYLGXDO
GUGLDJQRVLVDQGWUHDWPHQWRIKHDULQJGLVRUGHUV           PHPEHUVLQWKHODZVXLWl1DWO5LIOH$VVjQY0DJDZ
DQGKHDULQJDLGVVHHLGGU
    :HVWVLGH0RWKHUVHWDO                         1R       1R                       :HVWVLGH0RWKHUVHWDO         
      Y+DYHPDQHWDO                                                                                        Y+DYHPDQHWDO

KROGLQJWKDWWKH%RUHQ$PHQGPHQWWRWKH0HGLFDLG                    ,QSODLQWLIIVVXHGWKHQDPHGGHIHQGDQWVXQGHU
$FW FUHDWHG D ULJKW HQIRUFHDEOH XQGHU   $XGHWWH Y       ZKLFKFUHDWHVDFDXVHRIDFWLRQDJDLQVWDQ\SHUVRQZKRXQGHU
6XOOLYDQ)GWK&LUDSSO\LQJWKHWHVW            FRORU RI VWDWH ODZ GHSULYHV DQ LQGLYLGXDO RI mDQ\ ULJKW
VHW RXW LQ :LOGHU WR GHWHUPLQH LI D SDUWLFXODU 0HGLFDLG         SULYLOHJHV RU LPPXQLWLHV VHFXUHG E\ WKH &RQVWLWXWLRQ DQG
SURYLVLRQFUHDWHVDULJKWHQIRUFHDEOHXQGHU                     ODZVlRIWKH8QLWHG6WDWHV86&7KH\DOOHJHG
                                                                         WKDW WKH GHIHQGDQWV KDG UHIXVHG RU IDLOHG WR LPSOHPHQW WKH
  ,Q%OHVVLQJWKH6XSUHPH&RXUWVHWGRZQWKHIUDPHZRUNIRU              0HGLFDLG $FW LWV HQDEOLQJ UHJXODWLRQV DQG LWV SROLF\
HYDOXDWLQJ D FODLP WKDW D VWDWXWH FUHDWHV D ULJKW SULYDWHO\     UHTXLUHPHQWVE\UHIXVLQJWRSURYLGHDQGQRWUHTXLULQJ
HQIRUFHDEOHDJDLQVWVWDWHRIILFHUVWKURXJK6HH              SDUWLFLSDWLQJ +02V WR SURYLGH WKH FRPSUHKHQVLYH
86 DW   $ VWDWXWH ZLOO EH IRXQG WR FUHDWH DQ         H[DPLQDWLRQV UHTXLUHGE\DDDQGGU
HQIRUFHDEOHULJKWLIDIWHUDSDUWLFXODUL]HGLQTXLU\WKHFRXUW          DQG&)5QRWUHTXLULQJSDUWLFLSDWLQJ+02V
FRQFOXGHVWKHVWDWXWRU\VHFWLRQZDVLQWHQGHGWREHQHILWWKH          WRSURYLGHWKHQHFHVVDU\KHDOWKFDUHGLDJQRVWLFVHUYLFHVDQG
SXWDWLYH SODLQWLII  LW VHWV D ELQGLQJ REOLJDWLRQ RQ D       WUHDWPHQW UHTXLUHG E\  GU  QRW HIIHFWLYHO\
JRYHUQPHQW XQLW UDWKHU WKDQ PHUHO\ H[SUHVVLQJ D                   LQIRUPLQJ SODLQWLIIV RI WKH H[LVWHQFH RI WKH VFUHHQLQJ DQG
FRQJUHVVLRQDO SUHIHUHQFH DQG  WKH LQWHUHVWV WKH SODLQWLII     WUHDWPHQWVHUYLFHVDVUHTXLUHGE\DDIDLOLQJ
DVVHUWV DUH QRW VR mµYDJXH DQG DPRUSKRXVj WKDW >WKHLU@           WRSURYLGHSODLQWLIIVWKHWUDQVSRUWDWLRQDQGVFKHGXOLQJKHOS
HQIRUFHPHQW ZRXOG VWUDLQ MXGLFLDO FRPSHWHQFHl ,G DW          QHHGHG WR WDNH DGYDQWDJH RI WKH VFUHHQLQJ DQG WUHDWPHQW
TXRWLQJ:ULJKWY5RDQRNH5HGHYHODQG+RXVLQJ$XWK               VHUYLFHV DV UHTXLUHG E\  DD% DQG  &)5
86     ,I WKHVH FRQGLWLRQV DUH PHW ZH           DQG  GHYHORSLQJ D 0HGLFDLG SURJUDP ZKLFK
SUHVXPH WKH VWDWXWH FUHDWHV DQ HQIRUFHDEOH ULJKW XQOHVV           ODFNV WKH FDSDFLW\ WR GHOLYHU WR HOLJLEOH FKLOGUHQ WKH FDUH
&RQJUHVV KDV H[SOLFLWO\ RU LPSOLFLWO\ IRUHFORVHG WKLV  6HH      UHTXLUHG E\  D DD$ DQG X
%OHVVLQJ86DW:RRGY7RPSNLQV)G                Es$
WK&LU7KHGLVWULFWFRXUWHUUHGZKHQLWGLGQRW
DSSO\WKLVWHVWWRHYDOXDWHSODLQWLIIVjFODLPV                            'HIHQGDQWV PRYHG WR GLVPLVV WKH SODLQWLIIV DQG IRU
                                                                         GLVPLVVDO RI WKH VXLW  ,Q  WKH GLVWULFW FRXUW JUDQWHG
   :HQRZDSSO\WKLVWHVW)LUVWWKHSURYLVLRQVZHUHFOHDUO\           GHIHQGDQWVj PRWLRQ WR GLVPLVV DV SODLQWLIIV IRXU
LQWHQGHGWREHQHILWWKHSXWDWLYHSODLQWLIIVFKLOGUHQZKRDUH            RUJDQL]DWLRQV ,WGLVPLVVHGWKH0LFKLJDQ/HDJXHIRU+XPDQ
HOLJLEOH IRU WKH VFUHHQLQJ DQG WUHDWPHQW VHUYLFHV  6HH       6HUYLFHVDQGWKH0LFKLJDQ:HOIDUH5LJKWV2UJDQL]DWLRQRQ
86&DD$m>,@WLVZHOOVHWWOHGWKDW0HGLFDLG          WKHJURXQGVWKDWWKH\ODFNHGFRQVWLWXWLRQDOVWDQGLQJDQGLW
HOLJLEOH FKLOGUHQ XQGHU WKH DJH RI WZHQW\RQH    DUH WKH   GLVPLVVHGWKH0LFKLJDQFKDSWHUVRIWKH$PHULFDQ$FDGHP\
LQWHQGHG EHQHILFLDULHV RI WKH >VFUHHQLQJ DQG WUHDWPHQW@            RI 3HGLDWULFV DQG RI WKH $PHULFDQ $FDGHP\ RI 3HGLDWULF
SURYLVLRQVl  'DMRXU % Y &LW\ RI 1HZ <RUN  :/           'HQWLVWVRQWKHJURXQGVWKDWWKH\ODFNHGSUXGHQWLDOVWDQGLQJ
 DW  6'1< sXO\   DFFRUG 0LOOHU Y
:KLWEXUQ  )G   WK &LU   :H KDYH
IRXQGQRIHGHUDODSSHOODWHFDVHVWRWKHFRQWUDU\6HFRQGWKH
SURYLVLRQVVHWDELQGLQJREOLJDWLRQRQ0LFKLJDQ7KH\DUH                   
                                                                               ,Q 'HFHPEHU  WKH GLVWULFW FRXUW DOVR GLVSRVHG RI SDUW RI
FRXFKHGLQPDQGDWRU\UDWKHUWKDQSUHFDWRU\ODQJXDJHVWDWLQJ             SODLQWLIIVjV IRXUWK FODLP WKDW 0LFKLJDQ KDG QRW SURYLGHG UHTXLUHG
WKDW 0HGLFDLG VHUYLFHV mVKDOO EH IXUQLVKHGl WR HOLJLEOH           WUDQVSRUWDWLRQ DVVLVWDQFH RQ JURXQGV RI UHV MXGLFDWD DQG FROODWHUDO
FKLOGUHQ86&DDHPSKDVLVDGGHGDQGWKDW             HVWRSSHO ILQGLQJ WKRVH LVVXHV ZHUH DGGUHVVHG LQ %RDWPDQ Y +DPPRQV
                                                                          )G  WK &LU  7KDW UXOLQJ LV QRW DSSHDOHG KHUH
      :HVWVLGH0RWKHUVHWDO                       1R       1R                       :HVWVLGH0RWKHUVHWDO       
       Y+DYHPDQHWDO                                                                                      Y+DYHPDQHWDO

,W DOORZHG WKH UHPDLQLQJ RUJDQL]DWLRQV DQG LQGLYLGXDOV WR        DJDLQVWDVWDWHRIILFHUEDVHGXSRQ([SDUWH<RXQJl86
FRQWLQXHDVSODLQWLIIV                                                 DW7KH0HGLFDLG$FWDOORZVWKH6HFUHWDU\RI+HDOWKDQG
                                                                        +XPDQ6HUYLFHVWRUHGXFHRUFXWRIIIXQGLQJWRVWDWHVWKDWGR
  ,Q0DUFKWKHGLVWULFWFRXUWJUDQWHGGHIHQGDQWVjPRWLRQ           QRWFRPSO\ZLWKWKHSURJUDPjVUHTXLUHPHQWV6HH:HVWVLGH
WR GLVPLVV DOO UHPDLQLQJ FODLPV  6HH :HVWVLGH 0RWKHUV Y      0RWKHUV  )6XSSG DW   7KLV RQH SURYLVLRQ WKH
+DYHPDQ)6XSSG('0LFK,QD                GLVWULFWFRXUWKHOGZDVDGHWDLOHGUHPHGLDOVFKHPHVXIILFLHQW
GHWDLOHGDQGIDUUHDFKLQJRSLQLRQWKHGLVWULFWFRXUWKHOGWKDW         WRPDNH([SDUWH<RXQJXQDYDLODEOH6HHLG
0HGLFDLGZDVRQO\DFRQWUDFWEHWZHHQDVWDWHDQGWKHIHGHUDO
JRYHUQPHQWWKDWVSHQGLQJSRZHUSURJUDPVVXFKDV0HGLFDLG                   :HGLVDJUHH,Q6HPLQROH7ULEHWKH6XSUHPH&RXUWIRXQG
ZHUH QRW VXSUHPH ODZ RI WKH ODQG WKDW WKH FRXUW ODFNHG       ([ SDUWH <RXQJ ZDV XQDYDLODEOH EHFDXVH &RQJUHVV KDG
MXULVGLFWLRQ RYHU WKH FDVH EHFDXVH 0LFKLJDQ ZDV WKH mUHDO       HVWDEOLVKHGDmFDUHIXOO\FUDIWHGDQGLQWULFDWHUHPHGLDOVFKHPH
GHIHQGDQW DQG WKHUHIRUH SRVVHVV>HG@ VRYHUHLJQ LPPXQLW\             IRUWKHHQIRUFHPHQWRIDSDUWLFXODUIHGHUDOULJKWl
DJDLQVW VXLWl LG WKDW LQ WKLV FDVH ([ SDUWH <RXQJ ZDV      86DWHPSKDVLVDGGHG7KHPHFKDQLVPHVWDEOLVKHG
XQDYDLODEOHWRFLUFXPYHQWWKHVWDWHjVVRYHUHLJQLPPXQLW\DQG           WKHUH LQFOXGHG WLPHWDEOHV LQFHQWLYHV  DQG mLQWULFDWH
WKDWHYHQLILWZHUHDYDLODEOHGRHVQRWFUHDWHDFDXVHRI        SURFHGXUHVl WR FDMROH VWDWHV DQG ,QGLDQ WULEHV WR QHJRWLDWH
DFWLRQ DYDLODEOH WR SODLQWLIIV WR HQIRUFH WKH SURYLVLRQV LQ     DJUHHPHQWV RQ JDPEOLQJ  ,G DW   7KH VFKHPH KHUH LQ
TXHVWLRQ                                                             FRQWUDVW VLPSO\ DOORZV WKH 6HFUHWDU\ WR UHGXFH RU FXW RII
                                                                        IXQGVLIDVWDWHjVSURJUDPGRHVQRWPHHWIHGHUDOUHTXLUHPHQWV
    7KLVDSSHDOIROORZHG:HUHYHUVHRQDOOLVVXHVSUHVHQWHG          6HH  86&  F  7KLV LV QRW D GHWDLOHG mUHPHGLDOl
                                                                        VFKHPHVXIILFLHQWWRVKRZ&RQJUHVVjVLQWHQWWRSUHHPSWDQ
                             $QDO\VLV                                   DFWLRQXQGHU([SDUWH<RXQJ0DU\ODQG3V\FKLDWULF6RF,QF
                                                                        Y:DVVHUPDQ)GQWK&LUUHMHFWLQJ
       $0HGLFDLG&RQWUDFWVDQGWKH6SHQGLQJ3RZHU                    DQ DVVHUWLRQ WKDW WKH 0HGLFDLG $FWjV UHPHGLDO VFKHPH LV
                                                                        VXIILFLHQWWRLQYRNHWKHUXOHRI6HPLQROH7ULEH
  0XFK RI WKH GLVWULFW FRXUWjV GHFLVLRQ UHVWV RQ LWV LQLWLDO
GHWHUPLQDWLRQVWKDWWKH0HGLFDLGSURJUDPLVRQO\DFRQWUDFW               3ODLQWLIIV VHHN RQO\ SURVSHFWLYH LQMXQFWLYH UHOLHI IURP D
EHWZHHQ WKH VWDWH DQG IHGHUDO JRYHUQPHQW DQG WKDW ODZV          IHGHUDOFRXUWDJDLQVWVWDWHRIILFLDOVIRUWKRVHRIILFLDOVjDOOHJHG
SDVVHGE\&RQJUHVVSXUVXDQWWRLWVSRZHUXQGHUWKH6SHQGLQJ             YLRODWLRQV RI IHGHUDO ODZ DQG WKH\ PD\ SURFHHG XQGHU ([
&ODXVHDUHQRWmVXSUHPHODZRIWKHODQGl:HDGGUHVVWKHVH             SDUWH<RXQJ
LQWXUQ
                                                                        &:KHWKHUWKHUHLVDSULYDWHULJKWRIDFWLRQXQGHU
   :KHWKHU0HGLFDLGLVRQO\DFRQWUDFW7KHGLVWULFWFRXUW
KHOG WKDW mWKH 0HGLFDLG SURJUDP LV D FRQWUDFW EHWZHHQ             6HFWLRQLPSRVHVOLDELOLW\RQDQ\RQHZKRXQGHUFRORU
0LFKLJDQDQGWKH)HGHUDOJRYHUQPHQWl:HVWVLGH0RWKHUV                RI VWDWH ODZ GHSULYHV D SHUVRQ RI mULJKWV SULYLOHJHV RU
)6XSSGDW7KHSURJUDPLWSRLQWVRXWLVQRW             LPPXQLWLHVl VHFXUHG E\ WKH ODZV RU WKH FRQVWLWXWLRQ RI WKH
PDQGDWRU\ VWDWHV FKRRVH ZKHWKHU WR SDUWLFLSDWH  6HH         8QLWHG6WDWHV86&7KH6XSUHPH&RXUWDQG
86&EHPSRZHULQJWKH6HFUHWDU\WRSD\IXQGVWR                WKLVFRXUWKDYHKHOGWKDWLQVRPHFLUFXPVWDQFHVDSURYLVLRQRI
VWDWHVWKDWVXEPLW0HGLFDLGSODQV,IDVWDWHGRHVFKRRVHWR          WKH0HGLFDLGVFKHPHFDQFUHDWHDULJKWSULYDWHO\HQIRUFHDEOH
SDUWLFLSDWH&RQJUHVVPD\WKHQmFRQGLWLRQUHFHLSWRIIHGHUDO            DJDLQVWVWDWHRIILFHUVWKURXJK6HH:LOGHU86DW
PRQH\V XSRQ FRPSOLDQFH E\ WKH UHFLSLHQW ZLWK IHGHUDO
    :HVWVLGH0RWKHUVHWDO                        1R       1R                       :HVWVLGH0RWKHUVHWDO           
      Y+DYHPDQHWDO                                                                                       Y+DYHPDQHWDO

HOHPHQWV RI 0HGLFDLGjV VFUHHQLQJ DQG WUHDWPHQW SURJUDP           VWDWXWRU\DQGDGPLQLVWUDWLYHGLUHFWLYHVl:HVWVLGH0RWKHUV
WKH\VHHNRQO\WRSUHYHQWWKHGHIHQGDQWVIURPGRLQJmZKDW               )6XSSGDWTXRWLQJ6RXWK'DNRWDY'ROH
>WKH\@KDYHQROHJDOULJKWWRGRlDQGWKHLUVXLWLVSHUPLWWHG          86
XQGHU([SDUWH<RXQJ
                                                                          7R FKDUDFWHUL]H SUHFLVHO\ WKH OHJDO UHODWLRQVKLS IRUPHG
   7KLUG WKH GLVWULFW FRXUW DVVHUWV WKDW ([ SDUWH <RXQJ LV    EHWZHHQ D VWDWH DQG WKH IHGHUDO JRYHUQPHQW ZKHQ VXFK D
XQDYDLODEOH EHFDXVH WKH VWDWH mLV WKH UHDO SDUW\ LQ LQWHUHVW   SURJUDP LV LPSOHPHQWHG WKH GLVWULFW FRXUW WXUQHG WR WZR
ZKHQLWVRIILFHUVDFWZLWKLQWKHLUODZIXODXWKRULW\l:HVWVLGH         6XSUHPH&RXUWRSLQLRQVRQUHODWHGVXEMHFWV,Q3HQQKXUVW
0RWKHUV)6XSSGDW,WKDVWZRUHDVRQVIRUILQGLQJ          6WDWH6FKRRODQG +RVSY+DOGHUPDQm3HQQKXUVW,lWKH
0LFKLJDQWKHUHDOSDUW\LQLQWHUHVW,WVILUVWUHDVRQIROORZV          &RXUW GHVFULEHG WKH 0HGLFDLG SURJUDP DV  mPXFK LQ WKH
IURPLWVILQGLQJWKDW0HGLFDLGLVDFRQWUDFW,I0HGLFDLGZHUH         QDWXUHRIDFRQWUDFWlDQGVSRNHRIWKHmµFRQWUDFWjlIRUPHG
RQO\DFRQWUDFWWKHQWKLVZRXOGEHDVXLWVHHNLQJWRFRPSHOD          EHWZHHQWKHVWDWHDQGWKHIHGHUDOJRYHUQPHQW86
VWDWHWRVSHFLILFSHUIRUPDQFH RIDFRQWUDFW6XFKVXLWVDUH           TXRWDWLRQPDUNVLQRULJLQDO7KHUHOHYDQWSDVVDJH
EDUUHGXQGHUDQLQHWHHQWKFHQWXU\6XSUHPH&RXUWFDVH,QUH             UHDGVLQIXOO
$\HUV  86   ZKLFK KHOG WKDW D mFODLP IRU
LQMXQFWLYH UHOLHI DJDLQVW VWDWH RIILFLDOV XQGHU WKH &RQWUDFWV      8QOLNHOHJLVODWLRQHQDFWHGXQGHU>RIWKH)RXUWHHQWK
&ODXVHLVEDUUHGE\VWDWHVRYHUHLJQLPPXQLW\EHFDXVHWKHVWDWH            $PHQGPHQW@KRZHYHUOHJLVODWLRQHQDFWHGSXUVXDQWWR
>LV@WKHUHDOSDUW\DWLQWHUHVWl,QUH(OOHWW)G           WKHVSHQGLQJSRZHULVPXFKLQWKHQDWXUHRIDFRQWUDFW
 WK &LU  H[SOLFDWLQJ ,Q UH $\HUV  :H KDYH        LQ UHWXUQ IRU IHGHUDO IXQGV WKH 6WDWHV DJUHH WR FRPSO\
DOUHDG\ KHOG WKDW 0HGLFDLG LV QRW PHUHO\ D FRQWUDFW EXW D      ZLWK IHGHUDOO\ LPSRVHG FRQGLWLRQV  7KH OHJLWLPDF\ RI
IHGHUDOVWDWXWH7KLVVXLWVHHNVRQO\WRFRPSHOVWDWHRIILFLDOV          &RQJUHVVjVSRZHUWROHJLVODWHXQGHUWKHVSHQGLQJSRZHU
WRIROORZIHGHUDOODZDQGWKXVLVQRWEDUUHGE\$\HUV                   WKXVUHVWVRQZKHWKHUWKH6WDWHYROXQWDULO\DQGNQRZLQJO\
                                                                          DFFHSWVWKHWHUPVRIWKLVmFRQWUDFWl
  7KHGLVWULFWFRXUWDOVRVD\VHUURQHRXVO\WKDW0LFKLJDQLVWKH
UHDOSDUW\LQLQWHUHVWEHFDXVHm>W@KHUHLVQRSHUVRQDOXQODZIXO        3HQQKXUVW,DWHPSKDVLVDGGHG
EHKDYLRUDWWULEXWHGlWRWKHGHIHQGDQWVWKDWSODLQWLIIVVHHNWR
HQMRLQ:HVWVLGH0RWKHUV)6XSSGDW,QWKHLU                sXVWLFH 6FDOLD H[SDQGHG RQ WKLV FRQWUDFW DQDORJ\ LQ KLV
LQLWLDOFRPSODLQWSODLQWLIIVPDNHFOHDUWKDWWKH\DUHVXLQJWKH        FRQFXUUHQFHLQ%OHVVLQJY)UHHVWRQH+HPDLQWDLQHGWKDWWKH
QDPHGGHIHQGDQWVEHFDXVHRImWKHLUIDLOXUHWRSURYLGHFKLOGUHQ          UHODWLRQVKLSZDVmLQWKHQDWXUHRIDFRQWUDFWlEHFDXVH
LQ0LFKLJDQZLWKHVVHQWLDOPHGLFDOGHQWDODQGPHQWDO
KHDOWK VHUYLFHV DV UHTXLUHG E\ IHGHUDO ODZl  s$ DW         7KHVWDWHSURPLVHVWRSURYLGHFHUWDLQVHUYLFHVWRSULYDWH
HPSKDVLVDGGHG                                                         LQGLYLGXDOV LQ H[FKDQJH IRU ZKLFK WKH )HGHUDO
                                                                          JRYHUQPHQWSURPLVHVWRJLYHWKH6WDWHIXQGV,QFRQWUDFW
  )LQDOO\ WKH GLVWULFW FRXUW UHIXVHG WR DOORZ SODLQWLIIV WR      ODZZKHQVXFKDQDUUDQJHPHQWLVPDGH$SURPLVHVWR
SURFHHGXQGHU<RXQJEHFDXVHRIWKH6XSUHPH&RXUWjVKROGLQJ                SD\ % PRQH\ LQ H[FKDQJH IRU ZKLFK % SURPLVHV WR
LQ6HPLQROH7ULEHWKDWm>Z@KHUH&RQJUHVVKDVSUHVFULEHGD                 SURYLGH VHUYLFHV WR & WKH SHUVRQ ZKR UHFHLYHV WKH
GHWDLOHGUHPHGLDOVFKHPHIRUWKHHQIRUFHPHQWDJDLQVWD6WDWH              EHQHILWRIWKHH[FKDQJHRISURPLVHVEHWZHHQWZRRWKHUV
RIDVWDWXWRULO\FUHDWHGULJKWDFRXUWVKRXOGKHVLWDWHEHIRUH            &LVFDOOHGDWKLUGSDUW\EHQHILFLDU\
FDVWLQJ DVLGH WKRVH OLPLWDWLRQV DQG SHUPLWWLQJ DQ DFWLRQ
                                                                        866FDOLDsFRQFXUULQJ
     :HVWVLGH0RWKHUVHWDO                       1R       1R                        :HVWVLGH0RWKHUVHWDO        
      Y+DYHPDQHWDO                                                                                       Y+DYHPDQHWDO

    'UDZLQJ RQ DERYH ODQJXDJH WKH GLVWULFW MXGJH WKHQ          DIHGHUDOULJKWXQGHUWKHFRORURIVWDWHODZl+DIHUY0HOR
FRQFOXGHGWKDWWKHm0HGLFDLGSURJUDPLVDFRQWUDFWEHWZHHQ             86FLWDWLRQRPLWWHG
0LFKLJDQDQGWKH)HGHUDOJRYHUQPHQWl:HVWVLGH0RWKHUV
 )6XSSG DW  IXUWKHU GHVFULELQJ LW DV D mFRQWUDFW       2I FRXUVH([ SDUWH <RXQJ LV D mILFWLRQl WR WKH H[WHQW LW
EHWZHHQVRYHUHLJQVlDQGmWKH0HGLFDLGFRQWUDFWlLGDW         VKDUSO\GLVWLQJXLVKHVEHWZHHQDVWDWHDQGDQRIILFHUDFWLQJRQ
7KHRQO\VLJQLILFDQWGLIIHUHQFHEHWZHHQ0HGLFDLGDQG             EHKDOIRIWKHVWDWHEXWLWLVDQHFHVVDU\ILFWLRQUHTXLUHGWR
DQRUGLQDU\FRQWUDFWKHDVVHUWHGLVmWKHVRYHUHLJQVWDWXVRI         PDLQWDLQ WKH EDODQFH RI SRZHU EHWZHHQ VWDWH DQG IHGHUDO
WKH SDUWLHVl ZKLFK OLPLWV WKH DYDLODEOH UHPHGLHV HDFK FDQ     JRYHUQPHQWVm7KHDYDLODELOLW\RISURVSHFWLYHUHOLHIRIWKH
VHHNDJDLQVWWKHRWKHU,G                                           VRUWDZDUGHGLQ([SDUWH<RXQJJLYHVOLIHWRWKH6XSUHPDF\
                                                                       &ODXVHl&RHXUGj$OHQH86DWTXRWLQJ*UHHQY
  &RQWUDU\ WR WKLV QDUURZ FKDUDFWHUL]DWLRQ WKH &RXUW LQ        0DQVRXU86DW:KHQDFRXUWDGGUHVVHVDFODLP
3HQQKXUVW,PDNHVFOHDUWKDWLWLVXVLQJWKHWHUPmFRQWUDFWl           PDGHXQGHU([SDUWH<RXQJLWVKRXOGVLPSO\DVNmZKHWKHUD
PHWDSKRULFDOO\ WR LOOXPLQDWH FHUWDLQ DVSHFWV RI WKH             FRPSODLQDQWDOOHJHVDQRQJRLQJYLRODWLRQRIIHGHUDOODZDQG
UHODWLRQVKLS IRUPHG EHWZHHQ D VWDWH DQG WKH IHGHUDO             VHHNVUHOLHISURSHUO\FKDUDFWHUL]HGDVSURVSHFWLYHl,GDW
JRYHUQPHQWLQDSURJUDPVXFKDV0HGLFDLG,WGRHVQRWVD\             2j&RQQRU s FRQFXUULQJ  2Q LWV VXUIDFH WKLV FDVH ILWV
WKDW0HGLFDLGLVRQO\DFRQWUDFW,WGHVFULEHVWKHSURJUDPDV         VTXDUHO\ZLWKLQ([SDUWH<RXQJ3ODLQWLIIVDOOHJHDQRQJRLQJ
mPXFK LQ WKH QDWXUH RIl D FRQWUDFW DQG SODFHV WKH WHUP      YLRODWLRQ RI IHGHUDO ODZ WKH 0HGLFDLG $FW DQG VHHN
mFRQWUDFWlLQTXRWDWLRQPDUNVZKHQXVLQJLWDORQH,G           SURVSHFWLYHHTXLWDEOHUHOLHIDQLQMXQFWLRQRUGHULQJWKHQDPHG
86 DW   ,W GLG QRW OLPLW WKH UHPHGLHV WR FRPPRQ ODZ   VWDWHRIILFLDOVKHQFHIRUWKWRFRPSO\ZLWKWKHODZ
FRQWUDFWUHPHGLHVRUVXJJHVWHGWKDWQRUPDOIHGHUDOTXHVWLRQ
GRFWULQHV GR QRW DSSO\  sXVWLFH 6FDOLDjV FRQFXUUHQFH LQ          7KHGLVWULFWFRXUWQRQHWKHOHVVKHOGWKDW([SDUWH<RXQJZDV
%OHVVLQJGRHVQRWDOWHUWKLV                                          LQDSSOLFDEOHIRUIRXUVHSDUDWHUHDVRQV7ZRFDQEHTXLFNO\
                                                                       GLVPLVVHG)LUVWLWKHOGWKDWSODLQWLIIVFRXOGQRWLQYRNH([
   %LQGLQJSUHFHGHQWKDVSXWWKHLVVXHWRUHVW7KH6XSUHPH           SDUWH <RXQJ EHFDXVH WKDW GRFWULQH FDQ RQO\ EH LQYRNHG WR
&RXUW KDV KHOG WKDW WKH FRQGLWLRQV LPSRVHG E\ WKH IHGHUDO     HQIRUFHIHGHUDOODZVWKDWDUHVXSUHPHODZRIWKHODQG6HH
JRYHUQPHQWSXUVXDQWWRVWDWXWHXSRQVWDWHVSDUWLFLSDWLQJLQ            :HVWVLGH0RWKHUV)6XSSGDW6LQFHZHKHOG
0HGLFDLG DQG VLPLODU SURJUDPV DUH QRW PHUHO\ FRQWUDFW           DERYHWKDWVSHQGLQJFODXVHHQDFWPHQWVDUHVXSUHPHODZRIWKH
SURYLVLRQV WKH\ DUH IHGHUDO ODZV  ,Q %HQQHWW Y .HQWXFN\    ODQG WKH\ PD\ EH WKH EDVLV IRU DQ ([ SDUWH <RXQJ DFWLRQ
'HSDUWPHQW RI (GXFDWLRQ .HQWXFN\ DUJXHG WKDW D IHGHUDO        6HFRQGWKHGLVWULFWFRXUWKHOG([SDUWH<RXQJLVXQDYDLODEOH
VWDWHJUDQWDJUHHPHQWmVKRXOGEHYLHZHGLQWKHVDPHPDQQHU             EHFDXVHXQGHUWKLVGRFWULQHDFRXUWODFNVmDXWKRULW\WRFRPSHO
DVDELODWHUDOFRQWUDFWl867KH&RXUW        VWDWHRIILFHUVSHUIRUPLQJGLVFUHWLRQDU\IXQFWLRQVl,GDW
UHMHFWHG WKLV DSSURDFK KROGLQJ WKDW m>X@QOLNH QRUPDO           7KLVFRUUHFWO\VWDWHVWKHKROGLQJLQ<RXQJEXWPLVXQGHUVWDQGV
FRQWUDFWXDOXQGHUWDNLQJVIHGHUDOJUDQWSURJUDPVRULJLQDWHLQ          ZKDWLWPHDQVE\mGLVFUHWLRQlm$QLQMXQFWLRQWRSUHYHQW>D
DQGUHPDLQJRYHUQHGE\VWDWXWRU\SURYLVLRQVH[SUHVVLQJWKH             VWDWHRIILFLDO@IURPGRLQJWKDWZKLFKKHKDVQROHJDOULJKWWR
MXGJPHQWRI&RQJUHVVFRQFHUQLQJGHVLUDEOHSXEOLFSROLF\l              GRLVQRWDQLQWHUIHUHQFHZLWKWKHGLVFUHWLRQRIDQRIILFHUl([
,GVHHDOVR%RDWPDQY+DPPRQV)GWK               SDUWH<RXQJ86DWTXRWHGLQ7HOHVSHFWUXP,QFY
&LUm6WDWHVPXVWIROORZIHGHUDOODZLQPDQDJLQJ          3XEOLF 6HUYLFH &RPjQ RI .\  )G   WK &LU
WKH >0HGLFDLG@ SURJUDPl  7KH IDFW WKDW WKHVH SURYLVLRQV      6LQFHWKHSODLQWLIIVKHUHFODLPWKDWWKHGHIHQGDQWVDUH
KDYH WKH ELQGLQJ IRUFH RI ODZ PHDQV WKDW 0HGLFDLG DQG         DFWLQJ XQODZIXOO\ LQ UHIXVLQJ WR LPSOHPHQW PDQGDWRU\
    :HVWVLGH0RWKHUVHWDO                       1R       1R                         :HVWVLGH0RWKHUVHWDO            
      Y+DYHPDQHWDO                                                                                        Y+DYHPDQHWDO

  %:KHWKHUWKHVXLWLVEDUUHGXQGHUVRYHUHLJQLPPXQLW\              VLPLODU IHGHUDO JUDQW SURJUDPV DUH QRW VXEMHFW PHUHO\ WR
                                                                       GRFWULQHVRIFRQWUDFWLQWHUSUHWDWLRQ
  7KH GLVWULFW FRXUW QH[W KHOG WKDW WKH SODLQWLIIVj VXLW LV
IRUHFORVHG E\ GRFWULQHV RI VRYHUHLJQ LPPXQLW\ EHFDXVH                :KHWKHU DFWV SDVVHG XQGHU WKH 6SHQGLQJ 3RZHU DUH
0LFKLJDQ LV WKH mUHDO SDUW\ DW LQWHUHVWl LQ WKH VXLW DQG     6XSUHPH/DZRIWKH/DQG$IWHUKROGLQJWKDW0HGLFDLGLV
SODLQWLIIVFDQQRWLQYRNHDQ\RIWKHH[FHSWLRQVWRVRYHUHLJQ            RQO\ D FRQWUDFW WR SD\ PRQH\ HQDFWHG XQGHU WKH VSHQGLQJ
LPPXQLW\WKDWZRXOGDOORZWKHLUVXLW:HVWVLGH0RWKHUV          SRZHU WKH GLVWULFW FRXUW WKHQ KHOG WKDW SURJUDPV HQDFWHG
)6XSSGDW                                                   SXUVXDQW WR WKH &RQVWLWXWLRQjV VSHQGLQJ SRZHU DUH QRW WKH
                                                                       mVXSUHPHODZRIWKHODQGlDQGGRQRWJLYHULVHWRUHPHGLHV
   $V H[SODLQHG E\ WKH 6XSUHPH &RXUW LQ PDQ\ FDVHV            LQYRNHGIRUWKHYLRODWLRQRIIHGHUDOVWDWXWHV6HH:HVWVLGH
VRYHUHLJQLPPXQLW\WKRXJKSDUWLDOO\FRGLILHGLQWKH(OHYHQWK          0RWKHUV  )6XSSG DW   5HO\LQJ RQ LWV
$PHQGPHQWLVDEDVLFIHDWXUHRIRXUIHGHUDOV\VWHP6HH             GHWHUPLQDWLRQ WKDW 0HGLFDLG DQG VLPLODU SURJUDPV DUH
HJ6HPLQROH7ULEHRI)ORULGDY)ORULGD86          mFRQWUDFWVFRQVHQVXDOO\HQWHUHGLQWRE\WKH6WDWHVZLWKWKH
7KHUHDUHH[FHSWLRQV&RQJUHVVPD\DEURJDWHD             )HGHUDO*RYHUQPHQWlWKHGLVWULFWFRXUWWKHQUHDVRQVWKDW
6WDWHjV LPPXQLW\ IURP VXLW XQGHU   RI WKH )RXUWHHQWK        WKH\ DUH mQRW VWDWXWRU\ HQDFWPHQWV E\ ZKLFK 6WDWHV PXVW
$PHQGPHQW RU D VWDWH PD\ FRQVHQW WR VXLW  6HH &ROOHJH       DXWRPDWLFDOO\ VXEPLW WR IHGHUDO SUHURJDWLYHVl  ,G 
6DYLQJV %DQN Y )ORULGD 3UHSDLG 3RVWVHFRQGDU\ (GXF              )6XSSG DW   7KHUH DUH WZR ZD\V WR XQGHUVWDQG WKLV
([SHQVHV %G  86     1RQH RI WKH          SDVVDJH2QHLVWKDWWKHGLVWULFWFRXUWLVPHUHO\IROORZLQJWKH
H[FHSWLRQVWKDWDOORZDQLQGLYLGXDOWRVXHDVWDWHGLUHFWO\DUH        ORJLFRILWVSUHYLRXVILQGLQJDQGKROGLQJWKDWIHGHUDOVWDWH
DW LVVXH KHUH KRZHYHU  7KRXJK WKH UHFRUG LV QRW HQWLUHO\   SURJUDPV DUH QRW VXSUHPH ODZ EHFDXVH WKH\ DUH RQO\
FOHDU LW DSSHDUV WKDW SODLQWLIIV DW ILUVW VXHG WKH QDPHG     FRQWUDFWV:HKDYHDOUHDG\UHMHFWHGWKHOLQHRIUHDVRQLQJWKDW
GHIHQGDQWV XQGHU   DQG RQO\ ZKHQ WKH GLVWULFW FRXUW     EHJLQVZLWKWKHDVVXPSWLRQWKDW0HGLFDUHLVRQO\DFRQWUDFW
H[SUHVVHG VNHSWLFLVP DERXW WKLV DYHQXH RI DWWDFN GLG WKH\
LQYRNH([SDUWH<RXQJDVDQDOWHUQDWLYHPHFKDQLVPWRUHDFK               7KH GLVWULFW FRXUW PD\ DOVR EH FODLPLQJ WKDW DFWV SDVVHG
WKHGHIHQGDQWV6HH:HVWVLGH0RWKHUV)6XSSGDW           XQGHUWKHVSHQGLQJSRZHUDUHQRWVXSUHPHODZEHFDXVHWKH
%HFDXVHVRYHUHLJQLPPXQLW\OLPLWVWKHMXULVGLFWLRQRIWKH          VSHQGLQJSRZHURQO\JLYHV&RQJUHVVWKHSRZHUWRVHWXSWKHVH
)HGHUDOFRXUWVZHDGGUHVVLWEHIRUHWXUQLQJWR              SURJUDPVQRWWRIRUFHVWDWHVWRSDUWLFLSDWHLQWKHP6HHLGDW
                                                                       $VWDWHFDQGHFOLQHWRSDUWLFLSDWHLQ0HGLFDLG6HH
   8QGHUWKHGRFWULQHGHYHORSHG LQ ([SDUWH<RXQJDQGLWV            LGDWm%HFDXVHFRQJUHVVLRQDOHQDFWPHQWVSXUVXDQWWRWKH
SURJHQ\DVXLWWKDWFODLPVWKDWDVWDWHRIILFLDOjVDFWLRQVYLRODWH    6SHQGLQJ 3RZHU WKDW VHW IRUWK WKH WHUPV RI IHGHUDOVWDWH
WKHFRQVWLWXWLRQRUIHGHUDOODZLVQRWGHHPHGDVXLWDJDLQVWWKH
VWDWHDQGVREDUUHGE\VRYHUHLJQLPPXQLW\VRORQJDVWKH
VWDWHRIILFLDOLVWKHQDPHGGHIHQGDQWDQGWKHUHOLHIVRXJKWLV             
RQO\HTXLWDEOHDQGSURVSHFWLYH6HH86VHH              7KH 6XSUHPDF\ &ODXVH VWDWHV WKDW WKH m&RQVWLWXWLRQ DQG WKH /DZV RI

DOVRHJ:LOOY0LFKLJDQ'HSWRI6WDWH3ROLFH86       WKH 8QLWHG 6WDWHV ZKLFK VKDOO EH PDGH LQ 3XUVXDQFH WKHUHRI    VKDOO EH

m6LQFH([SDUWH<RXQJLWKDVEHHQVHWWOHGWKDW       WKH VXSUHPH /DZ RI WKH /DQG     DQG WKH sXGJHV LQ HYHU\ VWDWH VKDOO EH


WKH (OHYHQWK $PHQGPHQW SURYLGHV QR VKLHOG IRU D VWDWH          ERXQG WKHUHE\ DQ\ 7KLQJ LQ WKH &RQVWLWXWLRQ RU WKH /DZV RI DQ\ 6WDWH WR
                                                                       WKH &RQWUDU\ QRWZLWKVWDQGLQJl   86 &RQVW DUW 9,        &RQJUHVVjV
RIILFLDOFRQIURQWHGE\DFODLPWKDWKHKDGGHSULYHGDQRWKHURI         VSHQGLQJ SRZHUV GHULYH IURP WKH 6SHQGLQJ &ODXVH ZKLFK JLYHV LW m3RZHU
                                                                       WR OD\ DQG FROOHFW 7D[HV    >WR@ SURYLGH IRU WKH FRPPRQ 'HIHQVH DQG
                                                                       JHQHUDO :HOIDUH RI WKH 8QLWHG 6WDWHVl   86 &RQVW DUW ,  
    :HVWVLGH0RWKHUVHWDO                        1R       1R                       :HVWVLGH0RWKHUVHWDO        
      Y+DYHPDQHWDO                                                                                       Y+DYHPDQHWDO

FRRSHUDWLYHDJUHHPHQWVGHSHQGRQWKHYROXQWDU\DJUHHPHQWRI             KDYHEHHQIHZDQGIDUEHWZHHQDQGKDYHQRWGHELOLWDWHG
SDUWLFLSDWLQJ6WDWHVlWKHGLVWULFWFRXUWFRQFOXGHVWKH\DUH    WKHJHQHUDOFRQFOXVLRQWKDWODZVRIDMXULVGLFWLRQWKDWUHFHLYHV
mQRWZLWKLQWKHDPELWRIWKH6XSUHPDF\&ODXVH>DQGVR@DUH              IHGHUDOIXQGVPXVWZKHQDUHOHYDQWFRQIOLFWORRPVJLYHZD\
QRWWKHVXSUHPHODZRIWKHODQGl,G,WHUURQHRXVO\VWDWHV          WR)HGHUDOODZl
WKDW LWV FRQFOXVLRQ LV GLFWDWHG mE\ WKH >6XSUHPH@ &RXUWjV
KROGLQJV LQ $OGHQ 3ULQ] 1HZ <RUN 6RXWK 'DNRWD DQG              7KHGLVWULFWFRXUWDFNQRZOHGJHVWKDWmWKH6XSUHPH&RXUW
3HQQKXUVW ,l  ,G  $OGHQ Y 0DLQH KROGV WKDW VRYHUHLJQ       KDVLQWKHSDVWKHOGWKDWIHGHUDOVWDWHFRRSHUDWLYHSURJUDPV
LPPXQLW\ SUHYHQWV WKH IHGHUDO JRYHUQPHQW IURP IRUFLQJ             HQDFWHGXQGHUWKH6SHQGLQJ3RZHUIDOOZLWKLQWKHDPELWRIWKH
XQFRQVHQWLQJVWDWHVWRVXEPLWWRVXLWLQWKHLURZQFRXUWV6HH         6XSUHPDF\&ODXVHl:HVWVLGH0RWKHUV)6XSSGDW
86%RWK3ULQ]Y8QLWHG6WDWHV86            FLWLQJ %OXP Y %DFRQ  86   &DUOHVRQ Y
  DQG 1HZ <RUN Y 8QLWHG 6WDWHV  86        5HPLOODUG867RZQVHQG86
KROGWKDW&RQJUHVVYLRODWHVWKH7HQWK$PHQGPHQWLI              ,WWKHQVWDWHVWKDWLQmUHFHQW\HDUVWKH6XSUHPH&RXUWKDV
LWFRPSHOVDVWDWHWRHQDFWOHJLVODWLRQRULPSOHPHQWDVSHFLILF         FRQGXFWHGDPRUHVHDUFKLQJDQDO\VLVRIWKHQDWXUHDQGH[WHQW
UHJXODWRU\ VFKHPH  6RXWK 'DNRWD XSKROGV WKH SRZHU RI           RI WKH 6XSUHPDF\ &ODXVHl VXJJHVWLQJ HUURQHRXVO\ WKDW LWV
&RQJUHVVWRSODFHFRQGLWLRQVRQDVWDWHjVUHFHLSWRIIHGHUDO            GHSDUWXUHIURPSUHFHGHQWLVGLFWDWHGE\UHFHQW6XSUHPH&RXUW
IXQGV   86 DW   3HQQKXUVW , KROGV WKDW LI       MXULVSUXGHQFH,G7KH&RXUWKDVUHFHQWO\KHOGWKDWZKHQD
&RQJUHVVZLVKHVWRLPSRVHREOLJDWLRQVRQVWDWHVWKDWFKRRVH             VWDWH DJHQF\ DFFHSWV IHGHUDO IXQGV DSSURSULDWHG XQGHU WKH
WRSDUWLFLSDWHLQYROLWLRQDOVSHQGLQJSRZHUSURJUDPVLWPXVW           VSHQGLQJ FODXVH WKH VXSUHPDF\ FODXVH UHTXLUHV FRQIOLFWLQJ
PDNHWKHREOLJDWLRQVH[SOLFLW86DW                       ORFDOODZWR\LHOG6HH'DOWRQY/LWWOH5RFN)DPLO\3ODQQLQJ
                                                                        6HUYV86VWDWLQJWKDWDSURYLVLRQ
   ,Q 7RZQVHQG Y 6ZDQN ZH GR ILQG ODQJXDJH E\ &KLHI          RI D VWDWH FRQVWLWXWLRQ LV LQYDOLG LI LW FRQIOLFWV ZLWK WKH
sXVWLFH%XUJHULQDRQHSDUDJUDSKFRQFXUUHQFHWRDXQDQLPRXV            0HGLFDLG$FWDFFRUG&6;7UDQVS,QFY(DVWHUZRRG
RSLQLRQWKDWODZVSDVVHGXQGHUWKHVSHQGLQJSRZHUDUHmLQQR            86     /DZUHQFH &RXQW\ Y /HDG
ZD\ PDQGDWRU\ RQ WKH VWDWHVl   86          'HDGZRRG6FK'LVW1R86
%XUJHU &s FRQFXUULQJ LQ WKH UHVXOW  7KH &KLHI sXVWLFH   7KH ZHOOHVWDEOLVKHG SULQFLSOH WKDW DFWV SDVVHG XQGHU
DSSHDUHGPHUHO\WREHQRWLQJWKDWWKH6XSUHPDF\&ODXVHGRHV             &RQJUHVVjV VSHQGLQJ SRZHU DUH VXSUHPH ODZ KDV QRW EHHQ
QRWFRPSHOVWDWHVWRSDUWLFLSDWHLQSURJUDPVHQDFWHGXQGHUWKH          DEDQGRQHGLQUHFHQWGHFLVLRQV
VSHQGLQJSRZHU6HH4XHUQY0DQGOH\86
FLWLQJ%XUJHUjVFRQFXUUHQFHWRVXSSRUWWKHSURSRVLWLRQ            2XUFRXUWKDVIROORZHGWKHVHGHFLVLRQV6HHHJ3ODQQHG
WKDW ZKLOH  mIHGHUDO HOLJLELOLW\ VWDQGDUGV DUH PDQGDWRU\ RQ     3DUHQWKRRG$IILOLDWHVRI0LFKY(QJOHU)G
VWDWHV WKDW DGRSW >D SURJUDP HQDFWHG XQGHU WKH VSHQGLQJ         WK&LUVWULNLQJGRZQDSURYLVLRQRI0LFKLJDQODZDV
FODXVHWKHODZ@LQQRZD\REOLJDWHVDVWDWHWRFRQWLQXHWKDW           FRQIOLFWLQJ ZLWK WKH 0HGLFDLG $FW   :H KDYH IRXQG QR
SURJUDPl7KLVFRQFXUUHQFHGRHVQRWHVWDEOLVKWKDWVSHQGLQJ           GHFLVLRQE\DQ\RWKHUIHGHUDOFLUFXLWFRXUWRIDSSHDOVWRWKH
SRZHU HQDFWPHQWV DUH QRW VXSUHPH ODZ RI WKH ODQG  6HH        FRQWUDU\:HUHDIILUPZHOOHVWDEOLVKHGSUHFHGHQWKROGLQJWKDW
2j%ULHQY0DVVDFKXVHWWV%D\7UDQV$XWK)G              ODZVYDOLGO\SDVVHGE\&RQJUHVVXQGHULWVVSHQGLQJSRZHUV
QVW&LUQRWLQJWKDWmLQGLYLGXDOsXVWLFHVKDYHIURP        DUHVXSUHPHODZRIWKHODQG
WLPH WR WLPH VXJJHVWHG WKDW WKH DXWKRULW\ IRU DGKHULQJ WR
)HGHUDOODZZKHQ&RQJUHVVHPSOR\VLWVVSHQGLQJSRZHULVQRW
WREHORFDWHGLQWKH6XSUHPDF\&ODXVH%XWWKHVHPRPHQWV
