Courtney v. Smith

Opinion

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

s2+1 0 &28571(< /$55< ; ( 752870$1DQG0$/&2/0  $ :(%67(5   1R 3ODLQWLIIV$SSHOODQWV  !  Y   '$9,' 5 60,7+0DMRU  *HQHUDO9LFH&RPPDQGHURI  WKH+4$)5&&9   'HIHQGDQW$SSHOOHH  1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH1RUWKHUQ'LVWULFWRI2KLRDW$NURQ 1Rn'DYLG''RZGsU'LVWULFWsXGJH $UJXHG0D\ 'HFLGHGDQG)LOHGsXO\ %HIRUH0(55,7768+5+(,15,&+DQG*,/0$1 &LUFXLWsXGJHV

  &RXUWQH\HWDOY6PLWK 1R

BBBBBBBBBBBBBBBBB &2816(/ $5*8('3DWULFNs'RQOLQ:DUUHQ2KLRIRU$SSHOODQWV 7KRPDV0%RQG\81,7('67$7(6'(3$570(172) s867,&( &,9,/ ',9,6,21 $33(//$7( 6(&7,21 :DVKLQJWRQ '& IRU $SSHOOHH  21 %5,()  3DWULFN s 'RQOLQ:DUUHQ2KLRIRU$SSHOODQWV7KRPDV0%RQG\ $QWKRQ\s6WHLQPH\HU81,7('67$7(6'(3$570(17 2)s867,&(&,9,/',9,6,21$33(//$7(6(&7,21 :DVKLQJWRQ'&IRU$SSHOOHH *,/0$1sGHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK 68+5+(,15,&+ s MRLQHG  0(55,77 s SS  GHOLYHUHGDVHSDUDWHGLVVHQWLQJRSLQLRQ BBBBBBBBBBBBBBBBB 23,1,21 BBBBBBBBBBBBBBBBB 521$/' /(( *,/0$1 &LUFXLW sXGJH  sRKQ 0 &RXUWQH\ /DUU\ ( 7URXWPDQ DQG 0DOFROP $ :HEVWHU EURXJKWVXLWDJDLQVW0DMRU*HQHUDO'DYLG56PLWKWKH9LFH &RPPDQGHU RI WKH 86 $LU )RUFH 5HVHUYH &RPPDQG $)5& DOOHJLQJ WKDW WKH IHGHUDO JRYHUQPHQW YLRODWHG LWV LQWHUQDOSROLFLHVDQGYDULRXVODZVE\RXWVRXUFLQJFHUWDLQZRUN SHUIRUPHG DW WKH

E\WKHVWDWXWHVXQGHUZKLFKWKH\EURXJKWVXLW)RUWKHUHDVRQV VHW IRUWK EHORZ ZH $)),50 WKH MXGJPHQW RI WKH GLVWULFW FRXUW ,%$&.*5281' $ )DFWXDOEDFNJURXQG 7KH%DVHLQTXHVWLRQLVORFDWHGLQ9LHQQD2KLR$FRVW FRPSDULVRQDQDO\VLVRIWKHZRUNSHUIRUPHGDWWKH%DVHEHJDQ LQ7KLVDFWLRQZDVLQLWLDWHGE\WKH$)5&SXUVXDQWWR WKHSURFHGXUHVVHWIRUWKLQ2IILFHRI0DQDJHPHQWDQG%XGJHW &LUFXODU1R$WKH&LUFXODU7KH&LUFXODUUHTXLUHVWKDW DOOFRPPHUFLDODFWLYLWLHVWKDWDUHQRWLQKHUHQWO\JRYHUQPHQWDO LQQDWXUHPXVWEHSHUIRUPHGE\SULYDWHFRQWUDFWRUVXQOHVVRQH RIVHYHUDOH[FHSWLRQVDSSOLHV$WLVVXHLQWKHSUHVHQWFDVHLV WKHH[FHSWLRQWKDWGLUHFWVWKHJRYHUQPHQWWRSHUIRUPZRUNLQ KRXVH LI D FRVW FRPSDULVRQ mGHPRQVWUDWHV WKDW WKH *RYHUQPHQW LV RSHUDWLQJ RU FDQ RSHUDWH WKH DFWLYLW\ RQ DQ RQJRLQJ EDVLV DW DQ HVWLPDWHG ORZHU FRVW WKDQ D TXDOLILHG FRPPHUFLDOVRXUFHl([HFXWLYH2IILFHRIWKH3UHVLGHQW20% &LUFXODU$SDUDG5HYLVHG7RFRPSO\ZLWKWKH SHULRGLF UHYLHZ PDQGDWHG E\ WKH &LUFXODU WKH $)5&jV DQDO\VLV VRXJKW WR GHWHUPLQH ZKHWKHU D SULYDWH FRQWUDFWRU FRXOGSHUIRUP%DVH2SHUDWLQJ6XSSRUW6HUYLFHV%26PRUH HFRQRPLFDOO\WKDQWKHIHGHUDOHPSOR\HHVZKRZHUHGRLQJWKH ZRUNRQWKH%DVH 7KH $)5& DQQRXQFHG LWV GHFLVLRQ WR JUDQW WKH %26 FRQWUDFWWR*ULIILQLQsDQXDU\RI:LWKLQDPRQWKRIWKH JRYHUQPHQWjV DQQRXQFHPHQW WKH XQLRQ UHSUHVHQWLQJ WKH %DVHjVHPSOR\HHVILOHGDQDSSHDORIWKHRXWVRXUFLQJGHFLVLRQ ZLWK WKH $)5&  7KLV LQWHUQDO DSSHDO ZDV PDGH SRVVLEOH EHFDXVHRIWKH&LUFXODUjVUHTXLUHPHQWWKDWDJHQFLHVHVWDEOLVK DQDGPLQLVWUDWLYHDSSHDOVSURFHGXUHWRUHVROYHFRPSODLQWVE\ mIHGHUDOHPSOR\HHVWKDWKDYHVXEPLWWHGIRUPDOELGVRU RIIHUV ZKR ZRXOG EH DIIHFWHG E\ D WHQWDWLYH GHFLVLRQ WR FRQYHUW WR RU IURP LQKRXVH FRQWUDFW RU >,QWHU6HUYLFH 6XSSRUW$JUHHPHQWV@DVDUHVXOWRIDFRVWFRPSDULVRQl20% &LUFXODU$6XSS3DUW,&KSDUD. E7KH$)5& GHQLHGWKHXQLRQjVDSSHDOLQ0DUFKRI  &RXUWQH\HWDOY6PLWK 1R 1R &RXUWQH\HWDOY6PLWK 

% 3URFHGXUDOEDFNJURXQG FRQVHTXHQFHV%XWWRVD\WKH\DUHQRWmDGYHUVHO\DIIHFWHGlE\ DJHQF\DFWLRQDEROLVKLQJWKHLUMREVGHILHVFRPPRQVHQVHDV 7KLVODZVXLWZDVILOHGLQWKH8QLWHG6WDWHV'LVWULFW&RXUW ZHOODVWKHSRVLWLRQDQGLQWHUSUHWDWLRQRIWKH:KLWH+RXVHn IRUWKH1RUWKHUQ'LVWULFWRI2KLRLQ0D\RI$FFRUGLQJ HPERGLHG LQ &LUFXODU $ n DERXW ZKR LV mGLUHFWO\ WR WKH SODLQWLIIVj DPHQGHG FRPSODLQW WKH JRYHUQPHQWjV DIIHFWHGlE\VXFKGHFLVLRQV)RUWKLVUHDVRQDVZHOODVWKH GHFLVLRQWRDZDUGWKH%26FRQWUDFWWR*ULIILQUDWKHUWKDQWR UHDVRQVJHQHUDOO\VWDWHGLQsXGJH0LNYDjVGLVVHQWLQ1DWLRQDO WKHLQKRXVHJRYHUQPHQWHPSOR\HHVYLRODWHG&LUFXODU$ )HGHUDWLRQRI)HGHUDO(PSOR\HHVY&KHQH\)G DQGLWVDFFRPSDQ\LQJ6XSSOHPHQW7KH%XGJHW DQG '&&LU,ZRXOGJUDQWVWDQGLQJ $FFRXQWLQJ$FWRIFK6WDWFRGLILHG DVDPHQGHGLQVFDWWHUHGVHFWLRQVRI86&WKH2IILFH RI)HGHUDO3URFXUHPHQW3ROLF\$FW$PHQGPHQWVRI 86&††WKH)HGHUDO$FWLYLWLHV,QYHQWRU\5HIRUP $FWRI86&†1RWH6XSSYDULRXV IHGHUDOSURFXUHPHQW VWDWXWHV86&†† DQGWKH$GPLQLVWUDWLYH3URFHGXUH$FW86& ††$OOWKUHHSODLQWLIIVZHUHWKHQZRUNLQJIRUWKH 9HKLFOH0DLQWHQDQFH*URXSDWWKH%DVHRQHRIWKHDFWLYLWLHV FRYHUHGE\WKH%26FRQWUDFW 7KH SODLQWLIIV ILOHG D PRWLRQ IRU FODVV FHUWLILFDWLRQ LQ $XJXVW RI  VHHNLQJ WR UHSUHVHQW  VLPLODUO\ VLWXDWHG FLYLOLDQ HPSOR\HHV DW WKH %DVH  7KDW VDPH PRQWK WKH JRYHUQPHQWILOHGDPRWLRQWRGLVPLVVIRUODFNRIVWDQGLQJ 7KHGLVWULFWFRXUWGHQLHGFODVVFHUWLILFDWLRQLQ6HSWHPEHURI  DQG GLVPLVVHG WKH FDVH IRU ODFN RI VWDQGLQJ DSSUR[LPDWHO\ WZR PRQWKV ODWHU  :LWK UHVSHFW WR WKH GHIHQGDQWVj PRWLRQ WKH FRXUW FRQFOXGHG WKDW WKH SODLQWLIIV ZHUHXQDEOHWRHVWDEOLVKWKHFRQVWLWXWLRQDOUHTXLUHPHQWVIRU VWDQGLQJ EHFDXVH WKHLU DOOHJHG LQMXULHVnWKH ORVV RI WKHLU MREVnKDG QRW RFFXUUHG DQG ZHUH RQO\ VSHFXODWLYH DQG EHFDXVHQRJXDUDQWHHH[LVWHGWKDWWKHLUMREVZRXOGKDYHEHHQ SUHVHUYHGHYHQLIWKH%26FRQWUDFWKDGUHPDLQHGLQKRXVH 7KHGLVWULFWFRXUWDOVRGHWHUPLQHGWKDWEHFDXVHWKHSODLQWLIIV ZHUH QRW ZLWKLQ WKH m]RQH RI LQWHUHVWVl LQWHQGHG WR EH SURWHFWHGE\WKHVWDWXWHVXQGHUZKLFKWKH\KDGEURXJKWVXLW WKH\GLGQRWVDWLVI\WKHSUXGHQWLDOUHTXLUHPHQWVRIVWDQGLQJ 7KLVWLPHO\DSSHDOIROORZHG  &RXUWQH\HWDOY6PLWK 1R 1R &RXUWQH\HWDOY6PLWK 

BBBBBBBBBBBBBB ,,$1$/<6,6 ',66(17 $ 6WDQGDUGRIUHYLHZ BBBBBBBBBBBBBB :HUHYLHZGHQRYRDGLVWULFWFRXUWjVGHFLVLRQWRGLVPLVVD 0(55,77&LUFXLWsXGJHGLVVHQWLQJ7KH$GPLQLVWUDWLYH FDVHIRUODFNRIVWDQGLQJ$P)HGjQRI*RYjW(PSOR\HHVY 3URFHGXUH$FWSURYLGHVWKDWDmSHUVRQVXIIHULQJOHJDOZURQJ &OLQWRQ)GWK&LUm)RUSXUSRVHVRI EHFDXVHRIDJHQF\DFWLRQRUDGYHUVHO\DIIHFWHGRUDJJULHYHG UXOLQJRQDPRWLRQWRGLVPLVVIRUODFNRIVWDQGLQJDFRPSODLQW E\DJHQF\DFWLRQZLWKLQWKHPHDQLQJRIDUHOHYDQWVWDWXWHLV PXVWEHYLHZHGLQWKHOLJKWPRVWIDYRUDEOHWRWKHSODLQWLIIDOO HQWLWOHGWRMXGLFLDOUHYLHZWKHUHRIl86&†HPSKDVLV PDWHULDO DOOHJDWLRQV RI WKH FRPSODLQW PXVW EH DFFHSWHG DV DGGHG  7KH WKUHH SODLQWLIIV FLYLOLDQ HPSOR\HHV RI WKH WUXHl  ,G  %XW WKH SODLQWLII DV WKH SDUW\ LQYRNLQJ IHGHUDO 'HIHQVH'HSDUWPHQWDWWKHD@ OLNHOLKRRG WKDW WKH LQMXU\ SDUWLHV DUH )HGHUDO HPSOR\HHV DQG WKHLU UHSUHVHQWDWLYH ZRXOG EH UHGUHVVHG E\ D IDYRUDEOH GHFLVLRQ RI WKH &RXUWl RUJDQL]DWLRQV DQG ELGGHUV RU RIIHURUV RQ WKH LQVWDQW %ODFK\Y%XWFKHU)GWK&LULQWHUQDO VROLFLWDWLRQl HPSKDVLV LQ RULJLQDO  7KH SUHFLVH TXHVWLRQ TXRWDWLRQPDUNVRPLWWHG/XMDQ86DWQRWLQJWKDW KHUHDTXHVWLRQQRWH[SUHVVO\DGGUHVVHGLQWKH'LVWULFW&RXUW mWKH FRUH FRPSRQHQW RI VWDQGLQJ LV DQ HVVHQWLDO DQG LVZKHWKHUWKLVSURYLVLRQRI&LUFXODU$GHILQLQJ)HGHUDO XQFKDQJLQJSDUWRIWKHFDVHRUFRQWURYHUV\UHTXLUHPHQWl HPSOR\HHV DV mGLUHFWO\ DIIHFWHG SDUWLHVl XQGHU WKH 7KH GLVWULFW FRXUW FRQFOXGHG WKDW WKH SODLQWLIIV IDLOHG WR 3URFXUHPHQW$FWLVVXIILFLHQWWRPDNHIHGHUDOHPSOR\HHVZKR VDWLVI\ WKH LQMXU\LQIDFW UHTXLUHPHQW EHFDXVH WKHLU DOOHJHG DUHDERXWWRORVHWKHLUMREVmDGYHUVHO\DIIHFWHGRUDJJULHYHGl LQMXULHVnWKHORVVRIWKHLUMREVnKDGQRWDFWXDOO\RFFXUUHGDQG SDUWLHV XQGHU WKH 3URFXUHPHQW $FW DQG $3$  7KH ZHUHWKHUHIRUHRQO\K\SRWKHWLFDO,QUHDFKLQJLWVGHFLVLRQWKH FRQWUDFWLQJRXWGHFLVLRQLQWKLVFDVHPD\WXUQRXWWREHILQH FRXUWQRWHGWKDWIHGHUDOUHJXODWLRQVUHTXLUHG*ULIILQWRRIIHU RQWKHPHULWVDQGWKHSODLQWLIIVZLOOVLPSO\KDYHWRVXIIHUWKH WKHSODLQWLIIVDVIHGHUDOHPSOR\HHVmWKHULJKWRIILUVWUHIXVDO  &RXUWQH\HWDOY6PLWK 1R 1R &RXUWQH\HWDOY6PLWK 

IRUHPSOR\PHQWRSHQLQJVXQGHUWKHFRQWUDFWLQSRVLWLRQVIRU LQWHUQDOTXRWDWLRQPDUNVRPLWWHG:RRGHQY%GRI5HJHQWV ZKLFKWKH\DUHTXDOLILHGl&)5†D7KH RI 8QLY 6\V RI *HRUJLD  )G   WK &LU GLVWULFWFRXUWDOVRH[SUHVVHGLWVYLHZWKDWmHYHQLIWKHFRQWUDFW KROGLQJWKDWmDVDSUHUHTXLVLWHWRFHUWLILFDWLRQLWPXVW KDG EHHQ DZDUGHG WR WKH LQKRXVH ELGGHUV WKHUH LV QR EHHVWDEOLVKHGWKDWWKH SURSRVHGFODVVUHSUHVHQWDWLYHVKDYH JXDUDQWHHWKDWSODLQWLIIVZRXOGQRWKDYHEHHQVXEMHFWWRD5,) VWDQGLQJWRSXUVXHWKHFODLPVDVWRZKLFKFODVVZLGHUHOLHILV >UHGXFWLRQLQIRUFH@DQ\ZD\l$VDUHVXOWWKHFRXUWFRQFOXGHG VRXJKWl:HWKHUHIRUHFRQFOXGHWKDWWKHGLVWULFWFRXUWGLGQRW WKDW WKH SODLQWLIIV ZHUH XQDEOH WR HVWDEOLVK WKH VHFRQG DQG HUULQGHQ\LQJWKHSODLQWLIIVjPRWLRQIRUFODVVFHUWLILFDWLRQ WKLUG UHTXLUHPHQWV RI $UWLFOH ,,, VWDQGLQJnFDXVDWLRQ DQG UHGUHVVDELOLW\ ,,,&21&/86,21 ,QUHVSRQVHWKHSODLQWLIIVDUJXHWKDWWKHGLVWULFWFRXUWIDLOHG )RU DOO RI WKH UHDVRQV VHW IRUWK DERYH ZH $)),50 WKH WR JLYH HIIHFW WR D VXSSRUWLQJ DIILGDYLW HVWDEOLVKLQJ WKDW MXGJPHQWRIWKHGLVWULFWFRXUW &RXUWQH\ORVWKLVMREDWWKH%DVHDQGKDGWRDFFHSWDSRVLWLRQ DW7RE\KDQQD$UP\5HSDLU'HSRWLQ3HQQV\OYDQLDPLOHV HDVWRIWKH%DVHLQRUGHUWRUHPDLQDIHGHUDOHPSOR\HH7KH DIILGDYLW VSHFLILHV WKDW &RXUWQH\jV WUDQVIHU OHG WR KLV EHLQJ VHSDUDWHG IURP KLV IDPLO\ DOO RI ZKRP UHPDLQHG LQ 2KLR &RXUWQH\ZDVWKHUHIRUHIRUFHGWRFRPPXWHPLOHVURXQG WULSHYHU\ZHHNHQGLQRUGHUWRVHHKLVIDPLO\$OWKRXJKWKHVH IDFWVGLGQRWDSSHDULQWKHSODLQWLIIVjFRPSODLQWWKHWLPHO\ ILOHGDIILGDYLWVXSSRUWVWKHSURSRVLWLRQWKDWDWOHDVWRQHRIWKH SODLQWLIIVKDVVWDQGLQJWREULQJWKLVODZVXLW:DUWKY6HOGLQ 86QRWLQJWKDWmLWLVZLWKLQWKHWULDO FRXUWjVSRZHUWRDOORZRUWRUHTXLUHWKHSODLQWLIIWRVXSSO\E\ DPHQGPHQW WR WKH FRPSODLQW RU E\ DIILGDYLWV IXUWKHU SDUWLFXODUL]HG DOOHJDWLRQV RI IDFW GHHPHG VXSSRUWLYH RI SODLQWLIIjVVWDQGLQJl 7KH DIILGDYLW GRHV QRW GLVFXVV ZKHWKHU &RXUWQH\jV QHZ SRVLWLRQ KDG D ORZHU VDODU\ RU UHGXFHG EHQHILWV VR ZH DUH XQDEOH WR GHWHUPLQH ZKHWKHU KLV PRYH UHVXOWHG LQ DQ\ HFRQRPLFKDUP&RXUWQH\jVJHRJUDSKLFVHSDUDWLRQIURPKLV IDPLO\ DQG WKH DVVRFLDWHG LQFRQYHQLHQFH DQG H[SHQVH RI KDYLQJWRWUDYHOPLOHVHDFKZHHNHQG WR EHZLWKWKHP PLJKWEHDVXIILFLHQWLQMXU\WRVDWLVI\WKHILUVWUHTXLUHPHQWRI $UWLFOH,,,VWDQGLQJ6HH$VVRFLDWHG%XLOGHUV &RQWUDFWRUV Y3HUU\)GWK&LUH[SODLQLQJWKDWmD VXIILFLHQWµLQMXU\LQIDFWjFDQEHDOOHJHGIURPDQRQHFRQRPLF RU DHVWKHWLF KDUPl  %XW WKH DIILGDYLW GRHV QRW DGGUHVV ZKHWKHU7URXWPDQRU:HEVWHUH[SHULHQFHGDQ\FRPSDUDEOH  &RXUWQH\HWDOY6PLWK 1R 1R &RXUWQH\HWDOY6PLWK 

)GDWTXRWLQJ65HS1RWK&RQJG6HVV LQFRQYHQLHQFHV RU VHSDUDWLRQV IURP WKHLU IDPLOLHV  $V D 86&RGH&RQJ $GPLQ1HZV UHVXOWHYHQLI&RXUWQH\jVFRPSHOOHGPRYHWR3HQQV\OYDQLD  &RKHQ  )G DW  QRWLQJ WKDW WKH OHJLVODWLYH PHHWVWKHLQMXU\LQIDFWUHTXLUHPHQWQHLWKHU7URXWPDQQRU KLVWRU\ RI †  LQGLFDWHV WKDW WKH REOLJDWLRQ WR SHUIRUP :HEVWHUKDYHSURYLGHGDQ\HYLGHQFHWRVXSSRUWDFRQFOXVLRQ mUHDOLVWLFDQGIDLUlFRVWFRPSDULVRQVmZDVPHDQWWRµHQDEOH WKDWWKH\KDYHVXIIHUHGDQLQMXU\LQIDFW SULYDWH LQGXVWU\ WR FRPSHWH ZLWK WKH JRYHUQPHQW VHFWRU ZKHQHYHU SRVVLEOH   jl TXRWLQJ 6 5HS 1R  WK 5DWKHU WKDQ GHFLGLQJ ZKHWKHU &RXUWQH\ KDV HVWDEOLVKHG &RQJG6HVV86&RGH&RQJ $GPLQ $UWLFOH,,,VWDQGLQJZKHQLWDSSHDUVXQOLNHO\WKDWWKHRWKHUWZR 1HZV SODLQWLIIVKDYHGRQHVRZHZLOOSURFHHGWRDQH[DPLQDWLRQRI WKHSUXGHQWLDOVWDQGLQJUHTXLUHPHQWV2XUFRQFOXVLRQEHORZ 6HFWLRQUHTXLUHVWKH'2'WRFRQVLGHUmWKHSRWHQWLDO WKDWWKHSODLQWLIIVKDYHIDLOHGWRVDWLVI\WKHUHTXLUHPHQWVRI HFRQRPLFHIIHFWRISHUIRUPDQFHRIWKHIXQFWLRQE\WKHSULYDWH SUXGHQWLDOVWDQGLQJHOLPLQDWHVWKHQHHGWRUXOHGHILQLWLYHO\RQ VHFWRU RQ    >H@PSOR\HHV RI WKH >'2'@ ZKR ZRXOG EH WKH TXHVWLRQ RI FRQVWLWXWLRQDO VWDQGLQJ  )HGjQ IRU $P DIIHFWHG E\ VXFK D FKDQJH LQ SHUIRUPDQFHl  86& ,PPLJUDWLRQ5HIRUP,QFY5HQR)G'& †E  % L%XWZHKDYHIRXQGQROHJLVODWLYHKLVWRU\ &LU  m%HFDXVH ZH ILQG WKDW WKH )HGHUDWLRQ ODFNV QRUKDYHWKHSODLQWLIIVFLWHGDQ\LQGLFDWLQJWKDWWKLVSURYLVLRQ SUXGHQWLDO VWDQGLQJ ZH QHHG QRW FRQVLGHU WKH LVVXH RI ZDV LQWHQGHG WR SUHVHUYH IHGHUDO HPSOR\PHQW  2Q WKH FRQVWLWXWLRQDOVWDQGLQJRUWKHSROLWLFDOTXHVWLRQGRFWULQHl FRQWUDU\ †  ZKHQ UHDG LQ FRQMXQFWLRQ ZLWK WKH RWKHU SURFXUHPHQW VWDWXWHV DQG WKH &LUFXODU UHFRJQL]HV WKDW WKH & 3UXGHQWLDOVWDQGLQJ '2'ZLOOOLNHO\WUDQVIHUZRUNWRSULYDWHFRQWUDFWRUVLQRUGHU WRLQFUHDVHJRYHUQPHQWHIILFLHQF\6HH&RKHQ)GDW 6HFWLRQDRIWKH$GPLQLVWUDWLYH3URFHGXUH$FW$3$  FRQFOXGLQJWKDWmWKHLQWHUHVWVRIIHGHUDOHPSOR\PHQW SHUPLWV LQMXUHG SDUWLHV WR REWDLQ MXGLFLDO UHYLHZ RI DJHQF\ DQGWKHJRDORISULYDWHSURFXUHPHQWDUHLQFRQVLVWHQWl DFWLRQVWKDWDOOHJHGO\YLRODWHIHGHUDOVWDWXWHV86&† m$SHUVRQVXIIHULQJOHJDOZURQJEHFDXVHRIDJHQF\DFWLRQRU )RUWKHVHUHDVRQVZHFRQFOXGHWKDWWKHSODLQWLIIVGRQRWIDOO DGYHUVHO\DIIHFWHGRUDJJULHYHGE\DJHQF\DFWLRQZLWKLQWKH ZLWKLQ WKH m]RQH RI LQWHUHVWl RI DQ\ RI WKH SURFXUHPHQW PHDQLQJRIDUHOHYDQWVWDWXWHLVHQWLWOHGWRMXGLFLDOUHYLHZ VWDWXWHVFLWHGLQWKHLUFRPSODLQW7KHVHVWDWXWHVWKXVFDQQRW WKHUHRIl  $ SODLQWLII VHHNLQJ MXGLFLDO UHYLHZ RI DJHQF\ VHUYH DV WKH EDVLV IRU WKH SODLQWLIIV WR EULQJ WKHLU $3$ DFWLRQ XQGHU WKH $3$ KRZHYHU PXVW QRW RQO\ PHHW WKH FKDOOHQJH FRQVWLWXWLRQDO UHTXLUHPHQWV RI VWDQGLQJ EXW PXVW DOVR GHPRQVWUDWHSUXGHQWLDOVWDQGLQJ1DWjO&UHGLW8QLRQ$GPLQ ' &ODVVDFWLRQ Y)LUVW1DWjO%DQN 7UXVW&R86 1&8$m:HKDYHLQWHUSUHWHG†DRIWKH$3$WRLPSRVH 7KHSODLQWLIIVDOVRDSSHDOWKHGLVWULFWFRXUWjVGHQLDORIWKHLU D SUXGHQWLDO VWDQGLQJ UHTXLUHPHQW LQ DGGLWLRQ WR WKH PRWLRQIRUFODVVFHUWLILFDWLRQ%DVHGXSRQRXUFRQFOXVLRQWKDW UHTXLUHPHQWLPSRVHGE\$UWLFOH,,,RIWKH&RQVWLWXWLRQWKDW WKHSODLQWLIIVODFNVWDQGLQJWREULQJWKHLUODZVXLWKRZHYHU D SODLQWLII KDYH VXIIHUHG D VXIILFLHQW LQMXU\ LQ IDFWl WKH\FDQQRWDGYDQFHWKHFODLPVRIRWKHUXQQDPHGLQGLYLGXDOV 3UXGHQWLDOVWDQGLQJH[LVWVLIWKHLQWHUHVWWKDWWKHSODLQWLIIVHHNV 6HH/HZLVY&DVH\86H[SODLQLQJWKDW WR SURWHFW LV mDUJXDEO\ ZLWKLQ WKH ]RQH RI LQWHUHVWV WR EH mHYHQQDPHGSODLQWLIIVZKRUHSUHVHQWDFODVVPXVWDOOHJHDQG SURWHFWHG RU UHJXODWHG E\ WKH VWDWXWH    LQ TXHVWLRQl ,G VKRZWKDWWKH\SHUVRQDOO\KDYHEHHQLQMXUHGQRWWKDWLQMXU\ HOOLSVLVLQRULJLQDOTXRWLQJ$VVjQRI'DWD3URFHVVLQJ6HUY KDVEHHQVXIIHUHGE\RWKHUXQLGHQWLILHGPHPEHUVRIWKHFODVV 2UJV,QFY&DPS86  WRZKLFKWKH\EHORQJDQGZKLFKWKH\SXUSRUWWRUHSUHVHQWl  &RXUWQH\HWDOY6PLWK 1R 1R &RXUWQH\HWDOY6PLWK 

7KH6XSUHPH&RXUW KDVDFNQRZOHGJHGWKDWWKHm]RQHRI FRPPHUFLDORULQGXVWULDOIXQFWLRQVWKDWZHUHEHLQJSHUIRUPHG LQWHUHVWl WHVW mKDV QRW SURYHG VHOIH[SODQDWRU\l  &ODUNH Y E\ '2' FLYLOLDQ HPSOR\HHV DV RI 2FWREHU   WR WKH 6HF,QGXV$VVjQ861HYHUWKHOHVV SULYDWH VHFWRU  86& †   UHTXLUH WKH '2' WR WKH&RXUWKDVVHWIRUWKVHYHUDOJHQHUDOSULQFLSOHVWRJRYHUQWKH REWDLQ VXSSOLHV DQG VHUYLFHV IURP SULYDWH VHFWRU VRXUFHV LI SUXGHQWLDOVWDQGLQJLQTXLU\ mUHDOLVWLFDQGIDLUlFRVWFRPSDULVRQVUHYHDOWKDWUHOLDQFHRQ SULYDWHFRQWUDFWRUVZRXOGEHPRUHHFRQRPLFDOWKDQWKHXVHRI 7KH m]RQH RI LQWHUHVWl WHVW LV D JXLGH IRU GHFLGLQJ IHGHUDOFLYLOLDQHPSOR\HHV86&†REOLJHWKH ZKHWKHU LQ YLHZ RI &RQJUHVVj HYLGHQW LQWHQW WR PDNH '2' WR FROOHFW DQG UHWDLQ mFRVW LQIRUPDWLRQ GDWDl DIWHU DJHQF\ DFWLRQ SUHVXPSWLYHO\ UHYLHZDEOH D SDUWLFXODU FKDQJLQJ WKH VRXUFH RI '2' VHUYLFHV RU IXQFWLRQV IURP SODLQWLII VKRXOG EH KHDUG WR FRPSODLQ RI D SDUWLFXODU FLYLOLDQ HPSOR\HHV WR SULYDWH FRQWUDFWRUV RU IURP SULYDWH DJHQF\GHFLVLRQ,QFDVHVZKHUHWKHSODLQWLIILVQRWLWVHOI FRQWUDFWRUV WR FLYLOLDQ HPSOR\HHV  86& †  WKH VXEMHFW RI WKH FRQWHVWHG UHJXODWRU\ DFWLRQ WKH WHVW PDQGDWHWKDWWKH'2'FRQVLGHUmUHWLUHPHQWV\VWHPFRVWV GHQLHVDULJKWRIUHYLHZLIWKHSODLQWLIIjVLQWHUHVWVDUHVR RIERWKWKH>'2'@DQGWKHFRQWUDFWRUlLQFRQGXFWLQJDQ\ PDUJLQDOO\UHODWHGWRRULQFRQVLVWHQWZLWKWKHSXUSRVHV FRVWFRPSDULVRQVUHTXLUHGE\WKH&LUFXODU86&† LPSOLFLW LQ WKH VWDWXWH WKDW LW FDQQRW UHDVRQDEO\ EH DQG  VHW IRUWK UHTXLUHPHQWV IRU FRQWUDFWV WR SHUIRUP mD DVVXPHGWKDW&RQJUHVVLQWHQGHGWRSHUPLWWKHVXLW7KH GHSRWOHYHO PDLQWHQDQFH DQG UHSDLU ZRUNORDGl   86& WHVW LV QRW PHDQW WR EH HVSHFLDOO\ GHPDQGLQJ LQ † SDUWLFXODUWKHUHQHHGEHQRLQGLFDWLRQRIFRQJUHVVLRQDO SXUSRVHWREHQHILWWKHZRXOGEHSODLQWLII :HFRQFOXGHWKDWQRQHRIWKHVHVWDWXWHVVXSSRUWDILQGLQJ WKDW &RQJUHVV LQWHQGHG WR SURWHFW WKH MREV RI IHGHUDO ,G DW  IRRWQRWH RPLWWHG  5DWKHU WKDQ H[DPLQLQJ HPSOR\HHV  &RKHQ  )G DW  KROGLQJ WKDW WKH ZKHWKHU&RQJUHVVVSHFLILFDOO\LQWHQGHGWREHQHILWWKHSODLQWLII SODLQWLIIVZHUHQRWZLWKLQWKH]RQHRILQWHUHVWVSURWHFWHGE\ WKHm]RQHRILQWHUHVWlLQTXLU\FRQVLVWVRImILUVWGLVFHUQ>LQJ@ HLWKHU†RU†&KHQH\)GDWm,QVRIDU WKH LQWHUHVWV DUJXDEO\    WR EH SURWHFWHG E\ WKH VWDWXWRU\ DVDSSHOODQWVDVVHUWDQLQWHUHVWGLIIHUHQWIURPWKHFLWL]HQU\DW SURYLVLRQ DW LVVXHl DQG mWKHQ LQTXLU>LQJ@ ZKHWKHU WKH ODUJHWKDWLQWHUHVWnWKHSURWHFWLRQRIJRYHUQPHQWHPSOR\HHV SODLQWLIIjVLQWHUHVWVDIIHFWHGE\WKHDJHQF\DFWLRQLQTXHVWLRQ ZKRVH MRE RSSRUWXQLWLHV ZRXOG EH LPSDLUHG EHFDXVH RI DUH DPRQJ WKHPl  1&8$  86 DW  HOOLSVLV LQ FRQWUDFWLQJRXWnLVFORVHWRWKHYHU\EXUHDXFUDWLFLQWHUHVWLQ RULJLQDOLQWHUQDOTXRWDWLRQPDUNVRPLWWHG H[SDQVLRQRIJRYHUQPHQWWKDW&RQJUHVVVRXJKWWRUHVWUDLQLQ DOORIWKHVHVWDWXWHVl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†  LQGLFDWHV WKDW mWKH ,QFY%DEELWW)GWK&LUH[SODLQLQJ SURYLVLRQ IRU D µUHDOLVWLF DQG IDLUj FRVW FRPSDULVRQ ZDV WKDWIRUWKHSXUSRVHRISUXGHQWLDOVWDQGLQJmDSODLQWLIIjVFODLP GHVLJQHGWRSURWHFWWKHLQWHJULW\RIWKHFRQWUDFWLQJRXWSURFHVV PXVW EH PRUH WKDQ D µJHQHUDOL]HG JULHYDQFHj WKDW LV E\UHVROYLQJµKDQGLFDSVjDJDLQVWJRYHUQPHQWFRQWUDFWRUVnWKH SHUYDVLYHO\VKDUHGE\DODUJHFODVVRIFLWL]HQVlFLWLQJ9DOOH\ DSSDUHQWLQWHQGHGEHQHILFLDULHVRI>WKHVWDWXWH@l&KHQH\  &RXUWQH\HWDOY6PLWK 1R 1R &RXUWQH\HWDOY6PLWK 

UHYLHZ SURFHVV WKHUHIRUH EHQHILWV IHGHUDO HPSOR\HHV ZKR )RUJH &KULVWLDQ &ROOHJH Y $PHULFDQV 8QLWHG IRU WKH FRQWHQG WKDW WKHLU ZRUN LV LQKHUHQWO\ JRYHUQPHQWDO DQG 6HSDUDWLRQRI&KXUFKDQG6WDWH,QF86 FRQVHTXHQWO\VKRXOGQRWEHRQWKHOLVWV  1DWjO)HGjQRI)HG(PSOR\HHVY&KHQH\)G '&&LU&KHQH\m$SSHOODQWVPD\KDYH %XWQRWKLQJLQWKH)$,5$SURYLGHVIRUUHYLHZRIWKHFRVW PDQ\µLQWHUHVWVjEXWIRU]RQHRILQWHUHVWSXUSRVHVZHPXVW FRPSDULVRQV WKDW DQ DJHQF\ SHUIRUPV  0RUHRYHU WKH ORRNWRWKHLUSDUWLFXODULQWHUHVWVQRWWRWKHLQWHUHVWVDPRXQWLQJ UHTXLUHPHQWWKDWDJHQFLHVSUHSDUHOLVWVRIDOODFWLYLWLHVWKDWDUH WRJHQHUDOL]HGJULHYDQFHVRIDOOFLWL]HQVl QRW LQKHUHQWO\ JRYHUQPHQWDO DFFRUGV ZLWK WKH IHGHUDO JRYHUQPHQWjVSROLF\DVH[SUHVVHGLQWKH&LUFXODUWRSURFXUH 6LPLODUO\ WKH 6XSUHPH &RXUW KDV DGPRQLVKHG DJDLQVW LWV JRRGV DQG VHUYLFHV IURP SULYDWH FRQWUDFWRUV ZKHQHYHU DOORZLQJ SODLQWLIIV WR PHHW WKH FRQVWLWXWLRQDO RU SUXGHQWLDO SRVVLEOH  7KLV SROLF\ LV DOVR DSSDUHQW LQ WKH )$,5$jV UHTXLUHPHQWVRIVWDQGLQJE\DVVHUWLQJWKDWQRRWKHUSODLQWLIIV OHJLVODWLYH KLVWRU\  ,G DW  DFNQRZOHGJLQJ WKDW WKH DUH DYDLODEOH WR FKDOOHQJH WKH JRYHUQPHQW DFWLRQV  9DOOH\ )$,5$jV SULQFLSDO VSRQVRU 6HQDWRU &UDLJ 7KRPDV VWDWHG )RUJH &KULVWLDQ &ROOHJH  86 DW  m%XW µ>W@KH mWKDW&RQJUHVVLQWHQGHG>WKH)$,5$@WRµFRGLI>\@DSURFHVVWR DVVXPSWLRQWKDWLIUHVSRQGHQWVKDYHQRVWDQGLQJWRVXHQR DVVXUH JRYHUQPHQW UHOLDQFH RQ WKH SULYDWH VHFWRU WR WKH RQHZRXOGKDYHVWDQGLQJLVQRWDUHDVRQWRILQGVWDQGLQJjl PD[LPXPH[WHQWIHDVLEOHjlFLWLQJ&RQJ5HF6 TXRWLQJ6FKOHVLQJHUY5HVHUYLVWV&RPPWR6WRSWKH:DU 6GDLO\HGsXO\VWDWHPHQWRI6HQ7KRPDV  86DOWHUQDWLRQLQRULJLQDO :HPXVW 7KH)$,5$WKHUHIRUHSURYLGHVQRLQGLFDWLRQWKDW&RQJUHVV WKHUHIRUHGHWHUPLQHZKHWKHUWKHSODLQWLIIVjGHVLUHWRFRQWLQXH LQWHQGHG WR EHQHILW RU SURWHFW IHGHUDO HPSOR\HHV ZKR DUH ZRUNLQJDWWKH%DVHIDOOVZLWKLQWKHm]RQHRILQWHUHVWlRIDQ\ SHUIRUPLQJ ZRUN WKDW LV FRQFHGHGO\ QRW LQKHUHQWO\ RIWKHVWDWXWHVFLWHGLQWKHLUFRPSODLQW JRYHUQPHQWDO  20%&LUFXODU$DQG6XSSOHPHQW )RUWKHVHUHDVRQVZHFRQFOXGHWKDWWKHSODLQWLIIVjLQWHUHVW LQPDLQWDLQLQJWKHLUIHGHUDOHPSOR\PHQWLVDWEHVWPDUJLQDOO\ 7KH SODLQWLIIV ILUVW UHO\ XSRQ WKH &LUFXODU DQG LWV UHODWHGWRDQGPRUHOLNHO\LQFRQVLVWHQWZLWKWKHSXUSRVHRI 6XSSOHPHQW WR GHPRQVWUDWH WKDW WKHLU LQWHUHVWV DUH DPRQJ WKH)$,5$6HH$P)HGjQRI*RYjW(PSOR\HHVY&RKHQ WKRVH WKDW mD UHOHYDQW VWDWXWHl VHHNV WR SURWHFW   86& )GWK&LU&RKHQFRQFOXGLQJWKDW †   %XW QHLWKHU WKH &LUFXODU QRU WKH 6XSSOHPHQW DUH mWKHLQWHUHVWVRIIHGHUDOHPSOR\PHQWDQGWKHJRDORISULYDWH VWDWXWHV&KHQH\)GDWm7KH&LUFXODULVQRWD SURFXUHPHQWDUHLQFRQVLVWHQWl7KLVVWDWXWHWKHUHIRUHFDQQRW VWDWXWHDQGDOWKRXJKSURPXOJDWHGSXUVXDQWWRFRQJUHVVLRQDO VHUYHDVmDUHOHYDQWVWDWXWHlIRUWKHSXUSRVHRIWKHSODLQWLIIVj DXWKRULW\WKH&LUFXODULWVHOIFDQQRWJUDQWVWDQGLQJlFLWDWLRQ $3$FKDOOHQJH RPLWWHG,QVWHDGWKH\UHSUHVHQWDQGLPSOHPHQWWKHSROLF\RI WKH ([HFXWLYH %UDQFK ZKLFK LVVXHG WKH &LUFXODU DQG  9DULRXVSURFXUHPHQWVWDWXWHV 6XSSOHPHQW SXUVXDQW WR WKH DXWKRULW\ RI WKH %XGJHW DQG $FFRXQWLQJ$FWRIWKH2IILFHRI)HGHUDO3URFXUHPHQW )LQDOO\WKHSODLQWLIIVVHHNWRUHO\XSRQVHYHUDOSURFXUHPHQW 3ROLF\$FW$PHQGPHQWVRIDQGWKH)HGHUDO$FWLYLWLHV VWDWXWHVWRHVWDEOLVKWKDWWKH\KDYHSUXGHQWLDOVWDQGLQJ7KHVH ,QYHQWRU\ 5HIRUP $FW RI   ([HFXWLYH 2IILFH RI WKH VWDWXWHV DPRQJ RWKHU WKLQJV  UHTXLUH WKH XVH RI 3UHVLGHQW20%&LUFXODU$SDUD5HYLVHG:H FRPSHWLWLYH SURFHGXUHV mLQ FRQGXFWLQJ D SURFXUHPHQW IRU WKHUHIRUH FRQFOXGH WKDW WKH SODLQWLIIV FDQQRW UHO\ XSRQ WKH SURSHUW\RUVHUYLFHVl86&†DPDQGDWHWKDW &LUFXODUDQG6XSSOHPHQWWRREWDLQMXGLFLDOUHYLHZRIZKHWKHU WKH 'HSDUWPHQW RI 'HIHQVH '2' FRPSO\ ZLWK FHUWDLQ WKH $)5& SURSHUO\ DZDUGHG WKH %26 FRQWUDFW WR *ULIILQ UHSRUWLQJ DQG DQDO\VLV UHTXLUHPHQWV EHIRUH WUDQVIHUULQJ  &RXUWQH\HWDOY6PLWK 1R 1R &RXUWQH\HWDOY6PLWK 

&KHQH\)GDWKROGLQJWKDWWKHSODLQWLIIVZKR  7KH)HGHUDO$FWLYLWLHV,QYHQWRU\5HIRUP$FWRI DVVHUWHG D FODLP XQGHU WKH $3$ WR FKDOOHQJH WKH $UP\jV GHFLVLRQ WR RXWVRXUFH WKH ZRUN WKDW WKH SODLQWLIIV KDG 6KLIWLQJ WR WKH &LUFXODUjV ILQDO DXWKRUL]LQJ VWDWXWH WKH SUHYLRXVO\SHUIRUPHGFRXOGQRWUHO\XSRQWKH&LUFXODUDVmD SODLQWLIIV QH[W UHO\ XSRQ WKH )HGHUDO $FWLYLWLHV ,QYHQWRU\ UHOHYDQWVWDWXWHlIRUWKHSXUSRVHRIWKHLUODZVXLW 5HIRUP $FW RI   86& †  1RWH 6XSS  )$,5$WRVXSSRUWWKHLUSUXGHQWLDOVWDQGLQJDUJXPHQW7KLV 1HYHUWKHOHVVWKH&LUFXODULVUHOHYDQWLQVRIDUDVLWSURYLGHV VWDWXWHUHTXLUHVWKHKHDGRIHDFKH[HFXWLYHDJHQF\WRVXEPLW DQLQGLFDWLRQRIWKHFRQJUHVVLRQDOSXUSRVHEHKLQGDQ\RIWKH mDOLVWRIDFWLYLWLHVSHUIRUPHGE\)HGHUDO*RYHUQPHQWVRXUFHV UHOHYDQWVWDWXWHVWKDWSODLQWLIIVFRQWHQGWKH$)5&YLRODWHG IRUWKHH[HFXWLYHDJHQF\WKDWLQWKHMXGJPHQWRIWKHKHDGRI &ODUNH86DWH[SODLQLQJWKDWmZHDUHQRWOLPLWHG WKH H[HFXWLYH DJHQF\ DUH QRW LQKHUHQWO\ JRYHUQPHQWDO WRFRQVLGHULQJWKHVWDWXWHXQGHUZKLFKUHVSRQGHQWVVXHGEXW IXQFWLRQVlWRWKH'LUHFWRURIWKH20%RQD\HDUO\EDVLV PD\ FRQVLGHU DQ\ SURYLVLRQ WKDW KHOSV XV WR XQGHUVWDQG 86&†1RWH†D7KHVHOLVWVZKLFKDJHQF\KHDGV &RQJUHVVjRYHUDOOSXUSRVHVlLQWKHUHOHYDQWVWDWXWHV1DWjO PXVWSURYLGHWR&RQJUHVVDQGZKLFKWKH'LUHFWRURIWKH20% $LU7UDIILF&RQWUROOHUV$VVjQY3HQD1R:/ PXVWSXEOLVKLQWKH)HGHUDO5HJLVWHULGHQWLI\WKHDFWLYLWLHV DW WK&LU0DUFKXQSXEOLVKHGWDEOH WKDW WKH DJHQF\ KHDGV FDQ FRQVLGHU FRQWUDFWLQJ RXW WR WKH GHFLVLRQm7RWKHH[WHQWWKDWWKHSROLFLHVRI20%&LUFXODU SULYDWHVHFWRU,G†FG7KH)$,5$UHTXLUHVWKHDJHQF\ $DUHUHIOHFWHGLQWKH>UHOHYDQWVWDWXWH@DQGFDQLQIRUPRXU KHDG WR XWLOL]H mUHDOLVWLF DQG IDLUl FRVWV LQ FRPSDULQJ WKH XQGHUVWDQGLQJRI>WKDWVWDWXWH@LWVSROLFLHVPD\EHFRQVLGHUHG H[SHQVHRISURFXULQJVHUYLFHVIURPDSULYDWHFRQWUDFWRUZLWK LQGHWHUPLQLQJVWDQGLQJl WKH FRVWV RI IHGHUDO HPSOR\HHV SHUIRUPLQJ WKH ZRUN  ,G †H %XWWKH&LUFXODUSURYLGHVPLQLPDOVXSSRUWDWEHVWIRUWKH SODLQWLIIVjDUJXPHQWWKDWWKHLUGHVLUHWRPDLQWDLQJRYHUQPHQW $OWKRXJK WKH )$,5$ DOORZV FKDOOHQJHV E\ LQWHUHVWHG HPSOR\PHQWIDOOVZLWKLQWKH]RQHRILQWHUHVWVSURWHFWHGE\WKH SDUWLHVLQFOXGLQJm>D@QRIILFHURUHPSOR\HHRIDQRUJDQL]DWLRQ UHOHYDQWVWDWXWHV$VQRWHGDERYHWKH&LUFXODUH[SUHVVHVDQ ZLWKLQDQH[HFXWLYHDJHQF\WKDWLVDQDFWXDORUSURVSHFWLYH XQPLVWDNDEOHSUHIHUHQFHIRUWKHIHGHUDOJRYHUQPHQWWRUHO\ RIIHURUWRSHUIRUPWKHDFWLYLW\lLG†E WKHVHDSSHDOV XSRQSULYDWHFRQWUDFWRUVWRSHUIRUPFRPPHUFLDODFWLYLWLHVWKDW WR H[HFXWLYH DJHQFLHV DUH OLPLWHG WR mD FKDOOHQJH RI DQ WKHJRYHUQPHQWUHTXLUHV([HFXWLYH2IILFHRIWKH3UHVLGHQW RPLVVLRQRIDSDUWLFXODUDFWLYLW\IURPRUDQLQFOXVLRQRID 20%&LUFXODU$SDUDD5HYLVHGm>,@WKDVEHHQ SDUWLFXODUDFWLYLW\RQDOLVWl,G†D$P)HGjQRI DQGFRQWLQXHVWREHWKHJHQHUDOSROLF\RIWKH*RYHUQPHQWWR *RYjW(PSOR\HHVY8QLWHG6WDWHV)HG&O)HG UHO\ RQ FRPPHUFLDO VRXUFHV WR VXSSO\ WKH SURGXFWV DQG &OQRWLQJWKDWWKH)$,5$mVSHFLILFDOO\GLVWLQJXLVKHV VHUYLFHVWKH*RYHUQPHQWQHHGVl7KH&LUFXODUDOVRVSHFLILHV EHWZHHQWKHDJHQF\jVGHFLVLRQWRSODFHDSDUWLFXODUDFWLYLW\RQ WKDWLWGRHVQRW WKH OLVW WR EH FRQWUDFWHG RXW DQG WKH DJHQF\jV GHFLVLRQ WR FRQWUDFWRXWWRDSDUWLFXODUVRXUFHlWKDW†DRIWKHVWDWXWH >H@VWDEOLVK DQG VKDOO QRW EH FRQVWUXHG WR FUHDWH DQ\ mLV FRJQL]DQW RI WKLV GLVWLQFWLRQ DQG H[SUHVVO\ OLPLWV VXEVWDQWLYHRUSURFHGXUDOEDVLVIRUDQ\RQHWRFKDOOHQJH DXWKRUL]HG FKDOOHQJHVl WR WKH RPLVVLRQ RU LQFOXVLRQ RI DQ DQ\ DJHQF\ DFWLRQ RU LQDFWLRQ RQ WKH EDVLV WKDW VXFK DFWLYLW\RQDOLVWDQGWKDWWKH)$,5$jVGHILQLWLRQRILQWHUHVWHG DFWLRQ RU LQDFWLRQ ZDV QRW LQ DFFRUGDQFH ZLWK WKLV SDUWLHVLQ†EmH[SUHVVO\OLPLWVFKDOOHQJHVWRWKRVHµZLWK &LUFXODU H[FHSW DV VSHFLILFDOO\ VHW IRUWK LQ 3DUW , UHVSHFW WR DQ DFWLYLW\ UHIHUUHG WR LQ VXEVHFWLRQ >@Djl &KDSWHUSDUDJUDSK.RIWKH6XSSOHPHQWµ$SSHDOVRI LQWHUQDO FLWDWLRQ RPLWWHG DOWHUDWLRQ LQ RULJLQDO DIIjG RQ &RVW &RPSDULVRQ 'HFLVLRQVj DQG DV VHW IRUWK LQ DOWHUQDWLYHJURXQGV)G)HG&LU7KLV  &RXUWQH\HWDOY6PLWK 1R 1R &RXUWQH\HWDOY6PLWK 

SROLF\ WKDW WKH 2)33 ZDV GLUHFWHG WR LPSOHPHQW UHIOHFWV D $SSHQGL[3DUDJUDSK*FRQVLVWHQWZLWK6HFWLRQRI GHVLUH WR RXWVRXUFH JRYHUQPHQW ZRUN ZKHQHYHU GRLQJ VR WKH)HGHUDO$FWLYLWLHV,QYHQWRU\5HIRUP$FWRI ZRXOGUHVXOWLQLQFUHDVHGFRVWHIILFLHQF\&KHQH\)G DWm$IWHUDWKRURXJKUHYLHZRIWKH2)33$$DQGLWV ,G DW SDUD F  VHH LG 6XSS 3DUW , &K  SDUD . OHJLVODWLYH KLVWRU\ ZH KDYH IRXQG QRWKLQJ WR VXJJHVW D m7KH SURFHGXUH GRHV QRW DXWKRUL]H DQ DSSHDO RXWVLGH WKH FRQJUHVVLRQDO SXUSRVH PRUH WKDQ PDUJLQDOO\ UHODWHG WR WKH DJHQF\RUMXGLFLDOUHYLHZl7KLVOLPLWDWLRQVXJJHVWVWKDW LQWHUHVWVRIIHGHUDOHPSOR\HHVYLVDYLVSURFXUHPHQWSROLF\ WKH LQWHUQDO DGPLQLVWUDWLYH DSSHDOV SURFHVV VHW IRUWK LQ WKH 7KURXJKRXW WKH OHJLVODWLYH KLVWRU\ RI 2)33$$ DQG LWV 6XSSOHPHQWLVLQWHQGHGWREHWKHVROHEDVLVIRUFKDOOHQJLQJ DPHQGPHQWV&RQJUHVVHPSKDVL]HGHFRQRP\DQGHIILFLHQF\ DJHQF\DFWLRQWKDWDOOHJHGO\YLRODWHVWKH&LUFXODU LQJRYHUQPHQWRSHUDWLRQVl$VWKH'&&LUFXLWQRWHGWKH 6HQDWH5HSRUWDFFRPSDQ\LQJWKH2)33$$mGRHVQRWPHUHO\ 7KHGLVVHQWIRFXVHVRQWKH&LUFXODUjVGHILQLWLRQRImGLUHFWO\ IDYRUWKHSULYDWHVHFWRULWHQGRUVHVµUHOLDQFHjRQWKHSULYDWH DIIHFWHGSDUWLHVlWRVXSSRUWLWVFRQFOXVLRQWKDWWKHSODLQWLIIV VHFWRUl,GTXRWLQJ65HS1RWK&RQJVW6HVV DUHmDGYHUVHO\DIIHFWHGRUDJJULHYHGE\DJHQF\DFWLRQZLWKLQ 86&RGH&RQJ $GPLQ1HZV WKH PHDQLQJ RI D UHOHYDQW VWDWXWHl   86& †   :H EHOLHYH WKDW UHOLDQFH XSRQ WKLV GHILQLWLRQ LV PLVSODFHG $FFXUDWH FRPSDULVRQV EHWZHHQ WKH FRVW RI LQKRXVH KRZHYHUIRUWZRUHDVRQV)LUVWDVQRWHGDERYHWKH&LUFXODU SHUIRUPDQFHDQGSULYDWHFRQWUDFWVDUHHVVHQWLDOWRDFKLHYLQJ LVQRWDVWDWXWH6HFRQGDSDUW\FDQQRWEHmDGYHUVHO\DIIHFWHG WKH2)33jVJRDOVEXWWKLVGHVLUHGUHVXOWGRHVQRWVXSSRUWD ZLWKLQWKHPHDQLQJRIDUHOHYDQWVWDWXWHlXQOHVVWKHSDUW\ ILQGLQJWKDW&RQJUHVVKDGDFRQFHUQZLWKSUHVHUYLQJIHGHUDO LVZLWKLQWKH]RQHRILQWHUHVWVRXJKWWREHSURWHFWHGE\WKDW HPSOR\PHQW ZKHQ LW HQDFWHG WKH 2)33$$  ,QVWHDG LW VWDWXWH  7KH &LUFXODUjV LGHQWLILFDWLRQ RI mGLUHFWO\ DIIHFWHG GHPRQVWUDWHV&RQJUHVVjVLQWHUHVWLQHQVXULQJWKDWJRYHUQPHQW SDUWLHVl LQ RXU RSLQLRQ UHODWHV WR QRWKLQJ PRUH WKDQ WKH IXQGVDUHVSHQWHIILFLHQWO\6HHLGFRQFOXGLQJWKDWWKH6HQDWH LQWHUQDO DGPLQLVWUDWLYH DSSHDOV SURFHVV GHWDLOHG LQ WKH 5HSRUWjV mFDOO IRU µULJRURXV FRPSDULVRQ RI FRQWUDFW FRVW 6XSSOHPHQW  :H WKHUHIRUH UHVSHFWIXOO\ GLVDJUHH ZLWK WKH YHUVXVLQKRXVHFRVWjUHDGLQWKHFRQWH[WRIWKHZKROHSROLF\ GLVVHQWjV FRQFOXVLRQ WKDW WKH SODLQWLIIVj VWDWXV DV mGLUHFWO\ LOOXVWUDWHVWKDW&RQJUHVVZDQWHGLQKRXVHFRVWVHVWLPDWHVWREH DIIHFWHG SDUWLHVl XQGHU WKH &LUFXODUjV WHUPV SODFHV WKHP VWULFWO\UHYLHZHGVRDVQRWWRIUXVWUDWHWKHHPSKDVLVRQWKH ZLWKLQWKH]RQHRILQWHUHVWVRXJKWWREHSURWHFWHGE\DUHOHYDQW SULYDWH VHFWRUl TXRWLQJ 6 5HS 1R  WK &RQJ VW VWDWXWH 6HVV86&RGH&RQJ $GPLQ1HZV 7KHGHVLUHWRDFKLHYHWKLVJRDOLVVKDUHGE\DOOWD[SD\HUVDQG  7KH%XGJHWDQG$FFRXQWLQJ$FWRI LVQRWDSDUWLFXODULQWHUHVWRIWKHSODLQWLIIV 7KHILUVWVWDWXWHXSRQZKLFKWKHSODLQWLIIVUHO\WRPHHWWKH )RU WKHVH UHDVRQV ZH FRQFOXGH WKDW WKH SODLQWLIIVj SUXGHQWLDO VWDQGLQJ UHTXLUHPHQWV LV WKH %XGJHW DQG FRJQL]DEOHLQWHUHVWVDUHQRWZLWKLQWKHm]RQHRILQWHUHVWVlWKDW $FFRXQWLQJ$FWRIFK6WDWFRGLILHG WKH2)33$$SURWHFWVRUUHJXODWHV&KHQH\)GDW DVDPHQGHGLQVFDWWHUHGVHFWLRQVRI86&WKH$FW FRQFOXGLQJWKDWWKHSODLQWLIIVjLQWHUHVWVmDUHLQFRQVLVWHQWZLWK 7KLVOHJLVODWLRQZKLFKKDVEHHQDPHQGHGWKLUWHHQWLPHVVLQFH WKH SXUSRVHV RI WKH 2)33$$ DQG QRW ZLWKLQ WKH ]RQH RI LWVRULJLQDOHQDFWPHQWZDVGHVLJQHGmWRFRRUGLQDWHEXGJHWLQJ LQWHUHVWRIWKDW$FWl7KH2)33$$WKHUHIRUHFDQQRWVHUYHDV SURFHGXUHV DQG WR LQFUHDVH HIILFLHQF\ LQ JRYHUQPHQW mDUHOHYDQWVWDWXWHlSXUVXDQWWRZKLFKWKHSODLQWLIIVFDQEULQJ RSHUDWLRQV DIWHU YDVW JRYHUQPHQWDO JURZWK GXULQJ :RUOG WKHLU$3$FKDOOHQJH :DU,l&KHQH\)GDW7KH$FWVRXJKW WR DFKLHYH WKHVH JRDOV E\  FUHDWLQJ WKH %XUHDX RI WKH %XGJHWWKHSUHGHFHVVRUWRWKH20%ZLWKLQWKH'HSDUWPHQW  &RXUWQH\HWDOY6PLWK 1R 1R &RXUWQH\HWDOY6PLWK 

RIWKH7UHDVXU\DQGHVWDEOLVKLQJWKH*HQHUDO$FFRXQWLQJ m]RQHRILQWHUHVWVlSURWHFWHGRUUHJXODWHGE\WKH$FW,G 2IILFH*$2WRVHUYH&RQJUHVVjVLQWHUHVWVLQDXGLWLQJIHGHUDO DW  m>7@KH OHJLVODWLYH KLVWRU\ RI WKH %XGJHW DQG SURJUDPVDQGH[SHQGLWXUHV,GDWGLVFXVVLQJWKH $FFRXQWLQJ$FWRIDVDPHQGHGOHDGVXVWRFRQFOXGH NH\FRPSRQHQWVRIWKH$FW86&†† WKDW&RQJUHVVGLGQRWFRQWHPSODWHLQKRXVHIHGHUDOHPSOR\HHV  UHFRJQL]LQJ WKH 20% DV mDQ RIILFH LQ WKH ([HFXWLYH DQG IHGHUDO HPSOR\HH ODERU XQLRQV DV SODLQWLIIVl  7KH 2IILFHRIWKH3UHVLGHQWlGHVLJQDWLQJWKHNH\VWDIISRVLWLRQVDW SODLQWLIIVj SDUWLFXODU LQWHUHVWV DUH LQVWHDG PRVW DFFXUDWHO\ WKH20%DQGJUDQWLQJWKH20%jV'LUHFWRUWKHDXWKRULW\WR YLHZHGDVEHLQJmVRPDUJLQDOO\UHODWHGWRRULQFRQVLVWHQWZLWK DSSRLQW HPSOR\HHV DQG PDNH QHFHVVDU\ H[SHQGLWXUHV  WKHSXUSRVHVLPSOLFLWLQWKHVWDWXWHWKDWLWFDQQRWUHDVRQDEO\ 86& ††  VHWWLQJ IRUWK WKH *$2jV GXWLHV DQG EH DVVXPHG WKDW &RQJUHVV LQWHQGHG WR SHUPLW WKH VXLWl GHVLJQDWLQJ LWV NH\ SHUVRQQHO  7KHVH WZR RIILFHV ZHUH &ODUNH Y 6HF ,QGXV $VVjQ  86    LQWHQGHGWRVHUYHDVmFKHFNVDQGEDODQFHVlRYHUWKHEXGJHWLQJ &KHQH\  )G DW  m$W PRVW IHGHUDO HPSOR\HHVj SURFHVV&KHQH\)GDWQRWLQJWKDWm&RQJUHVV LQWHUHVWV DUH PDUJLQDOO\ UHODWHG WR WKLV FHQWUDOL]HG DQQXDO FRQVLGHUHG WKHVH WZR VHSDUDWH RIILFHV WKH %XUHDX DQG WKH EXGJHWLQJ SURFHVV EDODQFHG EHWZHHQ WKH ([HFXWLYH DQG *$2RQHZLWKLQHDFKSROLWLFDOEUDQFKDVDIXQFWLRQDODQG /HJLVODWLYHEUDQFKHV>LQWKH$FW@,WLVPRUHORJLFDOWR YDOLGFRQVWLWXWLRQDOµFKHFNDQGEDODQFHjRYHUWKHH[SHQGLWXUH FRQFOXGHWKDWIHGHUDOHPSOR\HHVjLQWHUHVWVDUHLQFRQVLVWHQWl RIIXQGVlFLWLQJ&RQJ5HFVWDWHPHQWRI LQWHUQDOTXRWDWLRQPDUNVDQGFLWDWLRQRPLWWHG$VDUHVXOW 5HSsDPHV:*RRG  WKH$FWFDQQRWVHUYHDVmDUHOHYDQWVWDWXWHlSXUVXDQWWR ZKLFK WKH SODLQWLIIV FDQ EULQJ WKHLU $3$ FKDOOHQJH WR WKH :H DJUHH ZLWK WKH &RXUW RI $SSHDOV IRU WKH 'LVWULFW RI $)5&jVRXWVRXUFLQJGHFLVLRQ &ROXPELDjVFRQFOXVLRQWKDWWKH$FWjVOHJLVODWLYHKLVWRU\ SURYLGHV QR VXSSRUW IRU WKH SURSRVLWLRQ WKDW &RQJUHVV  7KH 2IILFH RI )HGHUDO 3URFXUHPHQW 3ROLF\ $FW LQWHQGHGWRVDIHJXDUGWKHHPSOR\PHQWRIIHGHUDOHPSOR\HHV $PHQGPHQWVRI RUHYHQWRSURYLGHWKRVHZRUNHUVZLWKDSURFHGXUHE\ZKLFK WKH\ FRXOG FKDOOHQJH EXGJHWDU\ GHFLVLRQV ZKLFK DGYHUVHO\ 7KHVHFRQGVWDWXWHFLWHGE\WKHSODLQWLIIVLQVXSSRUWRIWKHLU DIIHFWHGWKHP&KHQH\)GDWm1RWKLQJLQWKH SUXGHQWLDO VWDQGLQJ DUJXPHQW LV WKH 2IILFH RI )HGHUDO OHJLVODWLYH KLVWRU\ RI WKH  $FW VXJJHVWV WKDW &RQJUHVV 3URFXUHPHQW 3ROLF\ $FW $PHQGPHQWV RI   86& FRQWHPSODWHG WKH SURWHFWLRQ RI HPSOR\PHQW RI IHGHUDO ††  2)33$$  7KLV OHJLVODWLRQ H[WHQGHG WKH HPSOR\HHVl,QVWHDGWKHOHJLVODWLYHKLVWRU\LQGLFDWHVWKDW H[LVWHQFHRIWKH2IILFHRI)HGHUDO3URFXUHPHQW3ROLF\WKH &RQJUHVV ZDV DZDUH WKDW D QXPEHU RI IHGHUDO HPSOR\HHV 2)33 ZKLFK &RQJUHVV KDG HVWDEOLVKHG LQ  DQG ZRXOGORVHWKHLUMREVDVDUHVXOWRIWKHFKDQJHVLPSOHPHQWHG DPHQGHGYDULRXVDVSHFWVRIWKHVWDWXWH7KHFHQWUDOSXUSRVH E\ WKH  $FW  ,G DW  FLWLQJ 5HSUHVHQWDWLYH RIWKH2)33LVmWRSURYLGHRYHUDOOGLUHFWLRQRI*RYHUQPHQW *RRGjV DFNQRZOHGJPHQW WKDW IHGHUDO HPSOR\HHV ZRXOG EH ZLGHSURFXUHPHQWSROLFLHVUHJXODWLRQVSURFHGXUHVDQGIRUPV GLVFKDUJHG E\ WKH %XUHDX RI WKH %XGJHW DQG QRWLQJ WKDW IRUH[HFXWLYHDJHQFLHVDQGWRSURPRWHHFRQRP\HIILFLHQF\ mDOWKRXJK&RQJUHVVZDVZHOODZDUHWKDWWKHUHIRUPDWLRQRI DQGHIIHFWLYHQHVVLQWKHSURFXUHPHQWRISURSHUW\DQGVHUYLFHV WKHIHGHUDOEXGJHWLQJSURFHVVZRXOGUHVXOWLQDORVVRIIHGHUDO E\ WKH H[HFXWLYH EUDQFK RI WKH )HGHUDO *RYHUQPHQWl   MREVLWDIIRUGHGWKHGLVFKDUJHGHPSOR\HHVQHLWKHUSURWHFWLRQ 86&†D QRUUHPHG\l 1RWKLQJ LQ WKH 2)33$$ RU LQ LWV OHJLVODWLYH KLVWRU\ :H WKHUHIRUH FRQFOXGH WKDW WKH SODLQWLIIVj LQWHUHVWV LQ VXSSRUWVWKHFRQFOXVLRQWKDW&RQJUHVVLQWHQGHGWRSURWHFWWKH PDLQWDLQLQJWKHLUHPSOR\PHQWDWWKH%DVHDUHQRWZLWKLQWKH HPSOR\PHQW RI IHGHUDO ZRUNHUV  ,QVWHDG WKH SURFXUHPHQW