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µWKHUH LV QR 1DWXUH¶ HQYLURQPHQWDO DHVWKHWLFLDQVUHPLQGXVWKDWLIZHVWHSRXWLQWRWKHQDWXUDOZRUOGZHWRRZRXOGEHVHGXFHGE\LWV LPPHQVH EHDXW\ 7KLV FRQIOLFW SURYRNHV D SUREOHP LQ DHVWKHWLF WKHRU\ ZKLFK ULVNV ORVLQJ WKH SROLWLFDOZD\ZLWKZKLFKHQYLURQPHQWDOSKLORVRSK\QHFHVVLWDWHVDHVWKHWLFFRQVLGHUDWLRQ,QVWHDG, DUJXH WKDW .DQWLDQ DHVWKHWLFV VKRXOG EH UHYLYHG DORQJVLGH %HUQDUG 6WLHJOHU¶V SKLORVRSK\ RI WHFKQLFV DQG %UXQR /DWRXU¶V WKHRU\ RI WKH FROOHFWLYH WR UHVSRQG WR WKH DHVWKHWLF FKDOOHQJHV SUHVHQWHG E\ %LRDUW 6WLHJOHU VXJJHVWV D UDGLFDO QHZ ZD\ RI RYHUFRPLQJ WKH VXEMHFWREMHFW GLYLVLRQV EXUGHQLQJ ERWK DHVWKHWLF WKHRU\ DQG HQYLURQPHQWDO DHVWKHWLFV ZKLOH /DWRXU SURPRWHV H[SDQGLQJDHVWKHWLFLQWHUDFWLRQVZLWKQRQKXPDQVWHFKQLFDOEHLQJVDQGZRUNVRIDUW7KHSURMHFW RI UHFRQFHSWXDOL]LQJ WKH SROLWLFV RI DHVWKHWLFV IRU HQYLURQPHQWDO WKRXJKW LV UHYHDOHG WKURXJK D UHDGLQJRI(GXDUGR.DF¶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¶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¶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¶V&ULWLTXHRI$HVWKHWLF-XGJPHQWV $HVWKHWLF-XGJPHQWV YLL 6XEOLPH([SHULHQFHV 2QWKH'LVWLQFWLRQEHWZHHQ1DWXUHDQG$UW ,, 'HEXQNLQJWKH0\WKRI(QYLURQPHQWDO$HVWKHWLFV D $HVWKHWLF$WWLWXGHV7RZDUGV1DWXUH 3UREOHPVZLWKD6FLHQWLILF%DVLVIRU(QYLURQPHQWDO$HVWKHWLFV 7KH4XHVWLRQRI0RUDOLW\LQ(QYLURQPHQWDO$HVWKHWLFV 7KH,GHDWKDW$UWLVDQ³$HVWKHWLF$IIURQWWR1DWXUH´ E ,VWKHUHD1HHGIRUD6HSDUDWH8QGHUVWDQGLQJIRU1DWXUH" 6HHNLQJD'HILQLWLRQRI1DWXUHIRU(QYLURQPHQWDO$HVWKHWLFV &RQFOXVLRQ/RFDWLQJWKH7UDQVFHQGHQWDO6XEMHFW &+$37(5%,2$57$6$3266,%,/,7<)255(&21&,/,1*7+($(67+(7,& ',9,6,21%(7:((1$57$1'1$785( , 7KH&RQWURYHUV\RI%LRDUW ,, 5HYHODWLRQDU\%LRORJ\ ,,, (WKLFVRI%LRDUW ,9 %ULGJLQJ.DQWLDQ0RUDOLW\ZLWKDQ$HVWKHWLF(YDOXDWLRQRI%LRDUW 9 &RQFOXVLRQ7KH&RQWULEXWLRQRI(GXDUGR.DF¶V%LRDUW7UDQVJHQLF$UW 3UDFWLFHIRU(WKLFDODQG$HVWKHWLF&RQVLGHUDWLRQVRID3ROLWLFVRI1DWXUH &+$37(5(;3/25,1*7+('<1$0,&%(7:((17(.+1($1'3+86,6,1 *(1(6,6 ,QWURGXFWLRQ *HQHVLV ,QWURGXFWLRQWR%HUQDUG6WLHJOHU¶V7HFKQLFVDQG7LPH7KH)DXOWRI (SLPHWKHXV 7KH$SRUHWLF2ULJLQRIWKH'LYLVLRQEHWZHHQ+XPDQVDQG1DWXUH $+HUPHQHXWLF8QGHUWDNLQJ (SLSK\ORJHQHWLF(YROXWLRQ YLLL (VWDEOLVKLQJD3URSHU'\QDPLFEHWZHHQ7HNKQHDQG3KXVLV 5HORFDWLQJWKH7UDQVFHQGHQWDO6XEMHFW &+$37(572:$5'6$1$(67+(7,&32/,7,&62)1$785( ,QWURGXFWLRQ %UXQR/DWRXU¶V3ROLWLFVRI1DWXUH (VVD\&RQFHUQLQJ+XPDQ8QGHUVWDQGLQJ 5HFRQVLGHULQJWKH2QWR(SLVWHPRORJLFDO&KDOOHQJHVIRU&RQFHLYLQJDQ$HVWKHWLF 'LVFRXUVHRI1DWXUH &ULVLVRI2EMHFWLYLW\&ULVLVRI5HSUHVHQWDWLRQ $UWDV&RQWURYHUV\)DFWVDQG9DOXHV 6SHHFKDQG5HSUHVHQWDWLRQLQWKH&ROOHFWLYH 7RZDUGVDQ$HVWKHWLF3ROLWLFVRI1DWXUH &21&/86,21 %,%/,2*5$3+< $33(1',&(6 $SSHQGL[$3(7$)LOHV $SSHQGL[%*HQHVLV $SSHQGL[&(VVD\&RQFHUQLQJ+XPDQ8QGHUVWDQGLQJ6XH&RH¶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³6FUHHQVKRWRIWKH*HQHVLV:HE,QWHUIDFH´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¶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³,QWURGXFWLRQ´,Q+HJHO*:),QWURGXFWRU\/HFWXUHVRQ$HVWKHWLFV/RQGRQ 3HQJXLQ%RRNVS[LL *DGDPHULQ7UXWKDQG0HWKRGGLVFXVVHVDWOHQJWKWKHYDULHGXVHDQGPHDQLQJRI%LOGXQJ FXOWXUHLQ*HUPDQWKRXJKWDQGKLVWRU\$WLWVRULJLQVLWLV³DµULVLQJXSWRKXPDQLW\WKURXJKFXOWXUH¶´ <HW*DGDPHULQGLFDWHVWKDW³7KHILUVWLPSRUWDQWWKLQJWRQRWHLVWKDWWKHHDUOLHULGHDRIDµQDWXUDOIRUP¶± ZKLFKUHIHUVWRH[WHUQDODSSHDUDQFH«DQGLQJHQHUDOWRWKHVKDSHVFUHDWHGE\QDWXUH«ZDVDWWKDWWLPH GHWDFKHGDOPRVWHQWLUHO\IURPWKHQHZLGHD1RZ%LOGXQJLVLQWLPDWHO\DVVRFLDWHGZLWKWKHLGHDRIFXOWXUH DQGGHVLJQDWHVSULPDULO\WKHSURSHUKXPDQZD\RIGHYHORSLQJRQH¶VWDOHQWVDQGQDWXUDOFDSDFLWLHV´SS 6HH)ULHGULFK9RQ6FKLOOHU-&/HWWHUV8SRQWKH$HVWKHWLF(GXFDWLRQRI0DQ,Q/LWHUDU\DQG 3KLORVRSKLFDO(VVD\V)UHQFK*HUPDQDQG,WDOLDQ1HZ<RUN&ROOLHU>F@6HULHV7KH+DUYDUG &ODVVLFV VRPHWKLQNHUVFODLPLQJWKDWµWKHUHLVQR1DWXUH¶OHDYLQJOLWWOHURRPIRUGLVFXVVLRQ2QWKHRWKHU KDQGHQYLURQPHQWDODHVWKHWLFLDQVLQVLVWWKDWRXUDHVWKHWLFH[SHULHQFHRIQDWXUHLVPDUNHGO\ GLVWLQFWIURPWKRVHDULVLQJIURPDUW7KHVHWKLQNHUVFODLPWKDWLIRQO\ZHZHUHWRVWHSRXWLQWRWKH QDWXUDOZRUOGZHWRRZRXOGEHVHGXFHGE\QDWXUH¶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³KXPDQVDV PHUHO\DQHOHPHQWZLWKLQQDWXUHUDWKHUWKDQPDVWHUVRILW´ZKLFKHQYLURQPHQWDODHVWKHWLFLDQV LQVLVWUHTXLUHVFRQVLGHULQJWKHDHVWKHWLFYDOXHRIQDWXUH ,QLWLDWHGE\5RQDOG+HSEXUQ¶VVHPLQDOSDSHU³&RQWHPSRUDU\$HVWKHWLFVDQGWKH1HJOHFWRI 1DWXUDO%HDXW\´WKHVXEWRSLFRIHQYLURQPHQWDODHVWKHWLFVLQDQDO\WLFSKLORVRSK\ZDV VXEVHTXHQWO\SLRQHHUHGE\$OOHQ&DUOVRQGXHWRDFRQFHUQKLJKOLJKWLQJWKHQHJOHFWRI )RUH[DPSOHWKHLGHDWKDWµWKHUHLVQR1DWXUH¶GHVFHQGVIURPDFULWLTXHRIHFRORJ\QRWRULRXVO\VXSSRUWHG E\DZLGHDUUD\RIWKLQNHUVLQFOXGLQJ7LPRWK\0RUWRQ6ODYRYäLåHN%UXQR/DWRXU DQG1HLO(YHUQGHQDPRQJRWKHUV$OWKRXJK/DWRXUDQG(YHUQGHQSURYLGHOLWWOHGLVFXVVLRQ RQWKHDHVWKHWLFLPSOLFDWLRQVRIDEDQGRQLQJWKHLGHDRIQDWXUH0RUWRQDQGäLåHNDUWLFXODWHWKH UHSHUFXVVLRQVRIWKLVQRWLRQWRZDUGVWKHGHYHORSPHQWRIDQHFRORJLFDOO\PLQGHGDHVWKHWLFWKHRU\ )LVKHU-RKQ$³&KDSWHU(QYLURQPHQWDO$HVWKHWLFV´,Q2[IRUG+DQGERRNRI$HVWKHWLFV (G/HYLQVRQ-1HZ<RUN2[IRUG8QLYHUVLW\3UHVVSS )LVKHUS FRQVLGHUDWLRQVRIQDWXUDOEHDXW\LQDHVWKHWLFWKRXJKW&DUOVRQDUWLFXODWHVDWKHRU\RI3RVLWLYH $HVWKHWLFV3$E\DUJXLQJWKDWQDWXUHLVLQKHUHQWO\EHDXWLIXOUHYHDOHGE\VFLHQWLILFNQRZOHGJH DQGWKHUHIRUHGHVHUYHVGLVWLQFWWUHDWPHQWLQDHVWKHWLFSKLORVRSK\&DUOVRQ¶VLQIOXHQFHLQWKH GHYHORSPHQWRIWKHWKHRU\RIHQYLURQPHQWDODHVWKHWLFVFRQWLQXHVWRGD\DQGKDVOHGWRDGLYLVLRQ LQWKLVILHOGDPRQJVWSKLORVRSKHUVZKRDUJXHIRUWKHSULPDF\RIVFLHQWLILF³REMHFWLYH´ NQRZOHGJHDJDLQVWWKRVHZKRIRUZDUGFXOWXUDORUSHUVRQDO³VXEMHFWLYH´NQRZOHGJHDVWKH µFRUUHFW¶ZD\WRDHVWKHWLFDOO\DSSUHFLDWHQDWXUH )RUHQYLURQPHQWDODHVWKHWLFLDQVWKH³QHJOHFWRIQDWXUH´LQDHVWKHWLFSKLORVRSK\LVUHPHGLHGE\ XQGHUOLQLQJWKRVHVHQVRU\SHUFHSWLRQVRIQDWXUHZKLFKLQVSLUH³DSSURSULDWH´DHVWKHWLFUHVSRQVHV RQHVZKLFKEHQHILWHQYLURQPHQWDOVHQWLPHQWVE\DOORZLQJLQGLYLGXDOVWRFRQVLGHUHFRORJLFDO SULQFLSOHVVXFKDVKROLVPLQWHUFRQQHFWHGQHVVDQGWKHEDODQFHRIQDWXUHZKHQFRQWHPSODWLQJ QDWXUDOEHDXW\$VDUHVXOWHQYLURQPHQWDODHVWKHWLFVURXWLQHO\XSKROGVDSUHVHUYDWLRQLVWDWWLWXGH ZKLFKLQHYLWDEO\SOD\VDNH\UROHLQLWVDUJXPHQWVWKDWDVVHUWWKH³DHVWKHWLFYDOXHRIXQGHYHORSHG RUZLOGQDWXUHLVVXSHULRUWRWKDWRIGHYHORSHGQDWXUH´7KLVUHVXOWVLQWKHGLVFLSOLQHDGRSWLQJ³D PRUHFRQVHTXHQWLDOFRQFHSWLQHQYLURQPHQWDODHVWKHWLFV>EHFDXVH@LIDVDHVWKHWLF SUHVHUYDWLRQLVWVDUJXHWKHDHVWKHWLFYDOXHRIXQGHYHORSHGQDWXUHRXJKWWRUHVWUDLQRXUXVHRILWIRU UHVRXUFHH[WUDFWLRQLQGXVWU\UHFUHDWLRQHWFWKHQDHVWKHWLFYDOXHKDVWREHDUVLJQLILFDQWZHLJKW´ <HW,TXHVWLRQKRZWKLVYDOXHLVGHWHUPLQHGLQHQYLURQPHQWDODHVWKHWLFVDQGZKDWSXUSRVHLW VHUYHVLQ³WUDQVIRUPLQJSUHYLRXVDWWLWXGHVWRZDUGVQDWXUH´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³HFRORJ\FDQQRWEHSUHVXPHGWREHWKHH[FOXVLYHDOO\RIWKHHQYLURQPHQWDOPRYHPHQWIRULW SURYLGHVLQIRUPDWLRQWKDWFDQMXVWDVZHOOEHXVHGWRPDQLSXODWHQDWXUHDVWRGHIHQGLW´7KXVWKH ODFNRIDFULWLFDODQDO\VLVRIWKHSROLWLFVRIHQYLURQPHQWDOLVPDQGLWVDWWDFKPHQWZLWKQDWXUH GHPRQVWUDWHVDWHQGHQF\WRZDUGVHVVHQWLDOLVPLQHQYLURQPHQWDODHVWKHWLFGLVFRXUVHZKLFKEHWUD\V WKHLQWHQWLRQVRILWVDGYRFDWHV 7KH3ROLWLFVRI1DWXUH %UXQR/DWRXU¶V3ROLWLFVRI1DWXUHDQDO\]HVWKHSUREOHPRI1DWXUHLQHQYLURQPHQWDOSKLORVRSK\ EH\RQGLWVDWWDFKPHQWZLWKHFRORJ\DQGWKHVXEVHTXHQWZD\VLQZKLFKLWKDVEHHQFULWLTXHGIRU EHLQJFKDUDFWHUL]HGDVSULPDULO\VRFLDOO\FRQVWUXFWHG,QVWHDG/DWRXUOD\VWKHPHWDSK\VLFDO ³1DWXUH´FDSLWDOL]HGLVXVHGWRLQGLFDWHWKHH[WHUQDOPDWHULDOFRQQRWDWLRQDVVRFLDWHGZLWKWKHWKHRU\RI 3$LQHQYLURQPHQWDODHVWKHWLFVZKLOH³QDWXUH´XQFDSLWDOL]HGLVXVHGDVDSRLQWRIGLVFXVVLRQDERXWWKH VWDNHRIWKHDHVWKHWLFGLVFRXUVHRIQDWXUHODWHUHTXDWHGZLWKWKHWHUPSKXVLV (YHUQGHQ17KH6RFLDO&UHDWLRQRI1DWXUH%DOWLPRUH-RKQ+RSNLQV8QLYHUVLW\3UHVVSS /DWRXUFULWLTXHVWKLQNHUVOLNH(YHUQGHQLQ7KH3ROLWLFVRI1DWXUHE\VWDWLQJ³,WVHHPVWREHWKH FDVHWKDWWKHPRVWVRSKLVWLFDWHGRIWKHKXPDQVFLHQFHVKDYHDOVRORQJVLQFHDEDQGRQHGWKHQRWLRQRIQDWXUH E\VKRZLQJWKDWZHQHYHUKDYHLPPHGLDWHDFFHVVWRµQDWXUHLQJHQHUDO¶KXPDQVRQO\JDLQDFFHVVWKURXJK WKHPHGLDWLRQRIKLVWRU\RIFXOWXUH±ZKLFKDUHVSHFLILFDOO\VRFLDODQGPHQWDOFDWHJRULHV´S+H JURXQGZRUNWRREVWUXFWWKHDPELWLRQVRIHFRORJLFDOPRYHPHQWVDVDZKROH+LVSRVLWLRQLV SDUWLFXODUO\DVWXWHEHFDXVHKHDUJXHVWKDWWKHWKHRU\DQGSUDFWLFHEHKLQGHFRORJLFDOPRYHPHQWV KDYHIDOOHQVKRUWLQWKHLUDWWHPSWVWRLQWURGXFHDSROLWLFVRIQDWXUHQRWEHFDXVHHFRORJ\³ILQDOO\ LQWURGXFHVQDWXUHLQWRSROLWLFDOSUHRFFXSDWLRQVWKDWKDGHDUOLHUEHHQWRRH[FOXVLYHO\RULHQWHG WRZDUGVKXPDQV>EXW@EHFDXVHLWFRQWLQXHVDODVWRXVHQDWXUHWRDERUWSROLWLFV´7KHGLYLVLRQ EHWZHHQSROLWLFVDQGQDWXUHKHDUJXHVSUHYHQWVHFRORJ\IURPUHGHILQLQJSXEOLFOLIHEHFDXVHWKH WHUPVSROLWLFVDQGQDWXUHKDYHEHHQSLWWHGDJDLQVWHDFKRWKHUZLWKRXWH[DPLQLQJWKHRQWR HSLVWHPRORJLFDOIUDPHZRUNHQJHQGHULQJWKHLUGLYLVLRQ 2QWRORJ\KHUHLVGHILQHGDVWKHUHDOPRIPDWHULDOWKLQJVDQGRXUZD\RIDFFHVVLQJNQRZOHGJHRI WKHLULQWULQVLFTXDOLWLHVZKLOHHSLVWHPRORJ\UHIHUVWRWKHVWXG\RIKRZVXEMHFWVDUHFDSDEOHRI FRQFHLYLQJWKHVHODZVRIKRZKXPDQNQRZOHGJHSURSHULVFRQVWLWXWHG7KHJDSEHWZHHQ RQWRORJ\DQGHSLVWHPRORJ\LVFUHDWHGE\ZKDW/DWRXUUHIHUVWRDVD³GRXEOHUXSWXUH´ZKLFK SURGXFHVDFRQFHSWXDODSDUWKHLGEHWZHHQWZRUHDOLWLHVEDVHGRQWKHµP\WKRIWKH&DYH¶D 3ODWRQLFPHWDSKRUGHPDUFDWLQJKXPDQVRFLDOSROLWLFDODQGFXOWXUDOH[LVWHQFHIURPWKHUHDOPRI 1DWXUHDQGREMHFWLYHWUXWK7KHVRFLDOSULVRQRU&DYHZKHUHKXPDQEHLQJVH[LVWLQSROLWLFDO UHODWLRQVZKLFKHUXSWLQHQGOHVVFRQIOLFWLVFRQWUDVWHGZLWKDQRWKHUUHDOLW\RXWVLGHWKH&DYHWKH UHDOPRI1DWXUHDQGREMHFWLYHWUXWK1DWXUHLVWKXVSHUFHLYHGWRHQFRPSDVVWKHPDWHULDOZRUOG FRQWDLQLQJHVVHQWLDOXQFKDQJLQJXQLYHUVDO³WUXWKV´LHODZVXQDIIHFWHGE\WKHVXEMHFWLYHPRUDO ODZVJRYHUQLQJKXPDQVRFLDOUHODWLRQV7KLVGRXEOHUXSWXUHSUHFOXGHVWKHSRVVLELOLW\RIDFKLHYLQJ DPHWDSK\VLFVZKLFKXQLILHVWKURXJKWKLQNLQJWKHHVVHQWLDOUHODWLRQEHWZHHQVXEMHFWLYHO\DQG FKDOOHQJHVWKLVSRVLWLRQDVRQHZKLFKRFFXSLHVWKHHSLVWHPRORJLFDOGLYLGHRIWKHRQWRHSLVWHPRORJLFDO SUREOHPRIWKLQNLQJQDWXUHIRUSROLWLFV³7KHH[DPSOHVRIWLHVEHWZHHQFRQFHSWLRQVRIQDWXUHDQG FRQFHSWLRQVRISROLWLFVDUHVRQXPHURXVWKDWZHFDQFODLPZLWKJRRGUHDVRQWKDWHYHU\HSLVWHPRORJLFDO TXHVWLRQLVDOVRXQPLVWDNDEO\DSROLWLFDOTXHVWLRQ´S /DWRXUSDXWKRU¶VHPSKDVLV ,ELGS REMHFWLYHO\XQGHUVWDQGLQJPDWHULDOUHDOLW\EHFDXVHLWFRQYROXWHVWKHRQWRHSLVWHPRORJLFDO IUDPHZRUNFRQIURQWLQJWKHLGHDRI1DWXUH,QWKHFDVHRI:HVWHUQWKRXJKWDERXWQDWXUHWKH GRXEOHUXSWXUHUHVXOWVLQWKHVLJQLILFDQWGHJUHHWRZKLFKSROLWLFVDQGQDWXUHGLVMRLQWWKHSRVVLELOLW\ RIDEURDGHUSKLORVRSKLFDOHIIRUWWRZDUGVDUULYLQJDWDFRKHVLYHPHWDSK\VLFVWKDWPLJKW HQIUDQFKLVHDPRUHVXVWDLQDEOHVRFLHW\,FRQWHQGWKDWLWLVWKLVWUDGLWLRQLQHQYLURQPHQWDO DHVWKHWLFVLQIRUPHGE\WKHVHJUHJDWLRQLQKHUHQWLQWKHGRXEOHUXSWXUHZKLFKFRQIODWHVHFRORJLFDO NQRZOHGJHWRDXWKRULWDWLYHRQWRORJLFDONQRZOHGJHRIQDWXUHDQGWKHUHIRUHQHJOHFWVWRDGGUHVVWKH HSLVWHPRORJLFDOIUDPHZRUNIURPZKLFKWKLVNQRZOHGJHLVGHULYHG /DWRXUIRUZDUGVDWKHRU\RIWKH³FROOHFWLYH´DVDZD\WRRYHUFRPHWKHSRODUL]DWLRQRISROLWLFVDQG QDWXUHDWKHRU\ZKLFKGLFWDWHVWKDWZHUHGHILQHWKHWHUPVRIWKHGHEDWHDQGUHSODFHWKH ELFDPHUDOLVPRIRXUWUDGLWLRQDOZD\VRIWUHDWLQJ1DWXUHDVGLVWLQFWIURPSROLWLFV7KHFROOHFWLYH ³RIIHU>V@XVLQGLVSHQVDEOHDOWHUQDWLYHVWRWKHQDWXUHSROLWLFVRSSRVLWLRQE\SURSRVLQJZD\VRI FROOHFWLQJDVVRFLDWLRQVRIKXPDQVDQGQRQKXPDQVDVDVLQJOHFROOHFWLYHFOHDUO\LGHQWLILHGDV SROLWLFDO´/DWRXUSRLQWVRXWWKDWWKLVSUHVHQWVHSLVWHPRORJLFDOSUREOHPVIRUWKLQNLQJWKHUROHRI 6FLHQFHZKLFKKDVWUDGLWLRQDOO\KHOGUHVSRQVLELOLW\IRUXQFRYHULQJQDWXUHDQGQRZIDFHVD ³FULVLVRIREMHFWLYLW\´EHFDXVHLWFDQQRWDQ\ORQJHUUHYHUWWRDZRUOGZKHUHWKHP\WKRIWKHFDYH RIWKHVHSDUDWLRQRISROLWLFVDQGQDWXUHLVDFFHSWHGDQ\ORQJHU/DWRXUDUJXHVWKDWWKHGLOHPPDRI KRZWKLVXQGHUPLQHV6FLHQFH¶VDFFHVVWRWUXWKLQWKH³FROOHFWLYH´FDQEHRYHUFRPHLIWKHUROHRI )RUDQLQGHSWKDQDO\VLVRIWKLVLVVXHDQGDGHWDLOHGFULWLTXHRI/DWRXUUHIHUWR%UDVVLHU5 ³&RQFHSWVDQG2EMHFWV´LQ(G%U\DQW/6UQLFHN1+DUPDQ*7KH6SHFXODWLYH7XUQ &RQWLQHQWDO0DWHULDOLVPDQG5HDOLVP0HOERXUQHUHSUHVVSS /DWRXUS ³6FLHQFH´FDSLWDOL]HGLVGHILQHGE\/DWRXUDV³WKHSROLWLFL]DWLRQRIWKHVFLHQFHVE\SROLWLFDO HSLVWHPRORJ\LQRUGHUWRPDNHSXEOLFOLIHLPSRWHQWE\EULQJLQJWREHDURQLWWKHWKUHDWRIVDOYDWLRQE\DQ DOUHDG\XQLILHGQDWXUH´*ORVVDU\S7KLVLVWREHGLVWLQJXLVKHGIURPWKH³VFLHQFHV´XQFDSLWDOL]HG ZKLFKUHIHUVWRWKHDFWXDOSUDFWLFHVXQGHUWDNHQE\VFLHQWLVWVZKHUHE\³WKHLUSUDFWLFHLVGHILQHGDVRQHRIWKH ILYHHVVHQWLDOVNLOOVRIWKHFROOHFWLYHLQVHDUFKRISURSRVLWLRQVZLWKZKLFKLWLVWRFRQVWLWXWHWKHFRPPRQ ZRUOGDQGWDNHUHVSRQVLELOLW\IRUPDLQWDLQLQJWKHSOXUDOLW\RIH[WHUQDOUHDOLWLHV´*ORVVDU\S WKHVFLHQFHVLVWRUHVLVWWKHLPSXOVHWRGHVFULEHDVLQJXODU1DWXUHLQVWHDGGHVFULELQJQDWXUHVDQG WKHUHE\DOORZLQJIRUDSROLWLFDODVVHPEO\ZKLFKHQFRPSDVVHVERWKQRQKXPDQVDQGKXPDQVLQD FROOHFWLYH)RU/DWRXUWKHVFLHQWLILFZRUNWKDWRSHUDWHVZLWKLQWKHFROOHFWLYH³ZLOOEHPRUH LQVSLULQJWKDQWRSURYHWKHUHH[LVWVµFXOWXUDODQGVRFLDOILOWHUVWKURXJKZKLFK¶KXPDQVPXVW QHFHVVDULO\SDVV´<HWLWLVSUHFLVHO\WKHµFXOWXUDODQGVRFLDOILOWHUV¶ZKLFKFRORXUWKH LPDJLQDWLRQVRILQGLYLGXDOVDQGLI/DWRXUWKLQNVZHVKRXOGVSHDNRI³WKHSOXULYHUVHRIWKH FRVPRVWREHEXLOWQRWRIWKHVKDGRZVSURMHFWHGRQWKHZDOORIWKH&DYH´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¶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³VXEMHFWLYH´ OHQVDFFRPSDQ\LQJWKHHPSOR\PHQWRIDUWLVWVE\LQVWHDGXVLQJWKHQHZO\LQYHQWHGSKRWRJUDSKLF FDPHUDZKRVHPHFKDQLFDOREMHFWLYLW\ZDVWKRXJKWWREHLQFRQWHVWDEOHDWWKHWLPH7KURXJK VHYHUDOFDVHVWXGLHVWKHDXWKRUVGHPRQVWUDWHWKDWFDPHUDSURGXFHGLPDJHVZKLOHSUHVHQWHGDV ³REMHFWLYH´ZHUHRIWHQIUDXJKWZLWKSUHFRQFHSWLRQVDERXWDQGH[SHFWDWLRQVRI1DWXUH7KXVWKH ³FULVLVRIREMHFWLYLW\´WREHIDFHGE\6FLHQFHDFFRUGLQJWR/DWRXULVQRWE\DQ\PHDQVDQHZ SKHQRPHQRQDV'DVWRQDQG*DOLVRQGHPRQVWUDWHEXWRQHZKLFKKDVKLVWRULFDOO\FRQIURQWHG VFLHQWLVWVZKRSURGXFHGWKHFRQFHSWRIREMHFWLYLW\WKURXJKDQLQFUHDVLQJUHOLDQFHRQLQVWUXPHQWV DQGDQHVWDEOLVKPHQWRISDUWLFXODUVHWVRIVFLHQWLILFPHWKRGRORJLHVDQGSUDFWLFHV 'DVWRQ/*DOLVRQ32EMHFWLYLW\&DPEULGJH=RQH%RRNV 7KLVSKHQRPHQRQLVQRWQHZRIFRXUVHDQGLVH[SODLQHGE\WKHWKHRU\RIREVHUYHUELDV,LQWURGXFHWKH LGHDVLQ'DVWRQDQG*DOLVRQ¶VWH[WLQSDUWLFXODUEHFDXVHWKH\WUDFHWKHHPHUJHQFHRIWKHXVHRIWKHWHUP ³REMHFWLYLW\´WRWKHHVWDEOLVKPHQWRIVFLHQWLILFSUDFWLFHVLQWKHWKFHQWXU\WKLVPRYHPHQWFRLQFLGHVZLWK WKHZRUNRI5RPDQWLFWKLQNHUVDWWKHWLPHZKRZHUHDWWHPSWLQJWRSURYRNHVXEMHFWLYHZD\VRI XQGHUVWDQGLQJQDWXUH 2QQR2HUOHPDQV¶5RPDQWLFLVPDQGWKH0DWHULDOLW\RI1DWXUHVLIWVWKURXJKWKHWHQVLRQVDPRQJVW VFLHQWLVWVSKLORVRSKHUVDQGDUWLVWVRIWKH5RPDQWLFHUDPDQ\RIZKRPZHUHFRPPLWWHGWR UHWKLQNLQJQDWXUHIROORZLQJ&KDUOHV'DUZLQ¶VSXEOLFDWLRQRI2QWKH2ULJLQRI6SHFLHV 2HUOHPDQVUHYLYHVNH\LGHDVH[SORUHGWKURXJKRXW5RPDQWLFLVPFRQFHUQLQJWKHPDWHULDOLW\RI QDWXUHODWHUIRUJRWWHQLQWKHUKHWRULFRYHUZKDWSURSHUO\FRQVWLWXWHVKXPDQQDWXUHUHODWLRQVKLSV +HUDLVHVWKHLPSRUWDQFHRIGHEDWHVHPHUJLQJSULRUWR'DUZLQ¶VZRUNRYHUWKHFRPSOH[LW\RI WD[RQRPLFLVVXHVZKLFKZHUHUHVLVWHGE\5RPDQWLFWKLQNHUVZKRVWRRGDGDPDQWO\DJDLQVWWKH WKHRU\DQGSUDFWLFHRIWD[RQRP\DQGFODVVLILFDWLRQRIVSHFLHVHPHUJLQJDWWKHWLPH7KHVH GHEDWHVVHUYHDVDYDOXDEOHFRXQWHUSDUWWRUHDGLQJ2EMHFWLYLW\EHFDXVHWKH\FRPSOHPHQWWKH ODWWHU¶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¶V7KH0HWDPRUSKRVLVRI3ODQWVDVZHOODVWKHFRQWULEXWLRQVRIWKH FRQWHPSRUDU\UHYLYDORI/DPDUN¶VWKHRU\RIHYROXWLRQ>6HH6WHHOH(-/LQGOH\5$%ODQGHQ59 /DPDUN¶V6LJQLWXUH+RZ5HWURJHQHVDUH&KDQJLQJ'DUZLQ¶V1DWXUDO6HOHFWLRQ3DUDGLJP1HZ <RUN%DVLF%RRNV@ &RQWHPSRUDU\VFKRODUVDUHLQFUHDVLQJO\LQYROYHGLQLQWHUGLVFLSOLQDU\GLVFXVVLRQZLWKUHVSHFWWR H[FKDQJLQJWHFKQLTXHVWHFKQRORJLHVDQGNQRZOHGJHVHWVEHWZHHQDUWDQGVFLHQFHDVHYLGHQFHGIURPWDONV SUHVHQWHGDWWKH³$UW0HHWV6FLHQFH´FRQIHUHQFHVHULHVKRVWHGE\7HFKQRVFLHQFH6DORQ>6HH0XUSK\0 0\HUV16FKUDGHU$'LUHFWRUV³$UW0HHWV6FLHQFH´7HFKQRVFLHQFH6DORQ&RQIHUHQFH6HULHV 7RURQWR66+5&6LWXDWLQJ6FLHQFH5HVHDUFK&OXVWHU*UDQWKWWSWHFKQRVDORQZRUGSUHVVFRP$WWHQGHG -DQXDU\@ UHSUHVHQWLQJWKHSRVVLELOLWLHVRIVSHHFKRQWKHSDUWRIQRQKXPDQV)RUH[DPSOHLQDQHDUOLHUWH[W 7KLQJVWKDW7DONÜ'DVWRQH[SORUHVWKHZD\VLQZKLFKDUWZRUNVSURGXFHWKHSRWHQWLDOIRUVSHHFK DPRQJVSHFWDWRUVE\RFFXS\LQJDPRGHRIVSHHFKRQWKHEDVLVRIWKHLUVWDWXVDVD FRPPXQLFDWLYHREMHFWDUJXLQJWKDW³QRWRQO\GRHVWKHREMHFWVHHLWDOVRWDONV´,QWKLVWKHVLV ,EDVHP\DUJXPHQWVRQWKHQRWLRQWKDWZRUNVRIDUWDUHPXFKPRUHHIIHFWLYHLQWKHIRUPDWLRQRID GHPRFUDWLFFROOHFWLYHEHFDXVHWKH\SURGXFHDIRUXPIRUSDUWLFLSDWLRQLQGLVFRXUVHWKDWLVPXFK PRUHSXEOLFO\DFFHVVLEOHDQGLQFOXVLYHWKDQWKRVHVROHO\HPHUJLQJIURPWKHUHDOPRIVFLHQFH $UWZRUNVIXQFWLRQWRFKDOOHQJHRXUSUHFRQFHSWLRQVDQGTXHVWLRQRXUDVVXPSWLRQVRIVRFLHW\DQG FXOWXUHE\EHVWRZLQJRQXVWKHDELOLW\WRH[SUHVVDHVWKHWLFMXGJPHQWVDVRSSRVHGWRPHUHO\ DFFHSWLQJLWVLQYHVWLJDWLRQVDV³WUXWK´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¶VWKHRU\IRUDFKLHYLQJWKH JRDOVRIWKHFROOHFWLYHWKHWKHPDWLFRYHUYLHZLQWKH3ROLWLFVRI1DWXUHLQVRPHUHVSHFWVPLUURUV GHYHORSPHQWVLQFRQWHPSRUDU\DHVWKHWLFWKHRU\.DQW¶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³QHJOHFWRIQDWXUH´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¶VUHDGLQJRI/DFDQHVWDEOLVKHVWKHVRFLDOXQFRQVFLRXV GLVWLQJXLVKHGE\WKH6\PEROLFWKH,PDJLQDU\DQGWKH5HDODVWKUHHLQWHUORFNLQJVSKHUHVZKLFKFRPSULVH H[SHULHQFHVRIUHDOLW\=L]HN¶VDQDO\VLVRIILOPDQGILFWLRQLQWKLVWH[WUHYHDOVWKHSV\FKRDQDO\WLFDO GLPHQVLRQRIDHVWKHWLFLQWHUDFWLRQ5HDGDORQJVLGH5DQFLqUH¶V³'LVWULEXWLRQRIWKH6HQVLEOH´LQ 3ROLWLFVRI$HVWKHWLFVDHVWKHWLFLQWHUDFWLRQWDNHVRQDSROLWLFDORYHUWRQHZKLFKVHUYHVWRGLFWDWHDQG UHLQIRUFHVHQVRU\SRVVLELOLWLHVRIDHVWKHWLFH[SHULHQFHV HPSOR\PHQWRIWKHOLWHUDODQGYLVXDOODQJXDJHZKLFKLWVHOIPXVWEHPDQRHXYUHGIURPZLWKLQ SROLWLFDOODQGVFDSHV7KHUHIRUHWKLQNLQJDERXWWKHUHODWLRQEHWZHHQDUWDQGQDWXUHPHDQVSDXVLQJ WRFRQVLGHUWKHZD\RXUSHUFHSWLRQRIPDWHULDOUHDOLW\LQJHQHUDOLVIRUPHGE\WKHV\PEROLFZKLFK LQWXUQGHPDUFDWHVWKHYLVLEOHIURPWKHLQYLVLEOHLQHYLWDEO\FRQVWUXFWLQJDQHQYLURQPHQWDOSROLWLFV IURPWKHDHVWKHWLFVRIQDWXUH 7KH3ROLWLFVRI(QYLURQPHQWDO$HVWKHWLFV $OWKRXJKWKHLQFOXVLRQRIFRQVLGHUDWLRQVRIQDWXUDOEHDXW\PD\SURYHVLJQLILFDQWIRU FRQWHPSRUDU\DHVWKHWLFSKLORVRSK\HQYLURQPHQWDODHVWKHWLFVFXULRXVO\GLVPLVVHVLWVWHQHWVLQWKH ULFKDHVWKHWLFWUDGLWLRQLQKHULWHGE\.DQW,QVWHDGWKHGLVFLSOLQHRIHQYLURQPHQWDODHVWKHWLFV LQLWLDWHVDQGFRQWLQXHVWRSURPRWHDGLVWXUELQJO\DSROLWLFDODQGSUREOHPDWLFQRWLRQRIQDWXUH GHVSLWHWKHORQJVWDQGLQJUHMHFWLRQRIDVWULFWO\PDWHULDOLVWLHVFLHQWLILFDOO\GLFWDWHGFRQFHSWLRQ RIQDWXUHLQHQYLURQPHQWDOSKLORVRSK\'HVSLWHWKHLQVLVWHQFHE\WKLQNHUVLQHQYLURQPHQWDO DHVWKHWLFVRIWKHQHHGWRRXWOLQHDGLVWLQFWDHVWKHWLFSKLORVRSK\RIQDWXUHDPDMRULW\RIWKHNH\ LVVXHVLQWKLVGLVFRXUVHZHUHDOUHDG\WUHDWHGE\.DQWWZRFHQWXULHVHDUOLHU1RWRQO\GRHV.DQW SURYLGHWKHIRXQGDWLRQIRUWUDQVFHQGHQWDOVXEMHFWLYLW\DVDGLVWLQFWIDFXOW\RIPLQGKHFRQQHFWV MXGJPHQWVRIWDVWHZLWKWKHJURXQGZRUNIRUWKLQNLQJLQWHUVXEMHFWLYLW\DVDSRVVLELOLW\IRU UHSUHVHQWDWLRQLQDFRPPXQLW\HVWDEOLVKHVWHOHRORJ\DVWKHZD\LQZKLFKQDWXUHLVDSSUHKHQGHG ERWKDHVWKHWLFDOO\DQGDVVXEOLPHDQGSURYLGHVDZD\IRUWKLQNLQJKXPDQPRUDOLW\DVWKHSRVVLEOH µYRLFH¶RIQDWXUH:LWKDWH[WVRULFKLQWKRXJKWDQGGHWDLOKRZKDYHHQYLURQPHQWDODHVWKHWLFLDQV IDLOHGWRUHYLYHWKLVGLVFRXUVHRSWLQJLQVWHDGWRVTXDEEOHRYHUWKHWLUHVRPHGHEDWHRYHU ³REMHFWLYHO\´DQG³VXEMHFWLYHO\´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³IULYRORXV´PDQLSXODWLRQVLQWKHQDPHRIDUW7KLVLQIHUVWKDWWKHLQWHQWLRQWRFUHDWHDQDHVWKHWLF REMHFWLVQRWDZRUWKZKLOHHQGHDYRUDQGWKHUHIRUHFDQQRWMXVWLI\SRWHQWLDOO\HQGDQJHULQJWKHOLIH =XUU,&DWWV2³7KHHWKLFDOFODLPVRI%LR$UWNLOOLQJWKHRWKHURUVHOIFDQQLEDOLVP"´ KWWSZZZWFDXZDHGXDXSXEOLFDWLRQ7KH(WKLFDO&ODLPVRI%LRDUWSGI$FFHVVHG0D\S 7KHFRQFHSWRI³UHYHODWLRQDU\ELRORJ\´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¶VFRQFHSWLRQRIDUWDV ZRUOGPDNLQJLQ3RHWU\/DQJXDJH7KRXJKWDQG+DQQDK$UHQGW¶VDQDO\VLVRIDUWLQ7KH+XPDQ &RQGLWLRQ EHWZHHQWKHDHVWKHWLFVRIQDWXUHDQGDUW,JURXQGWKLVVLWHDVQHFHVVDU\IRUDSROLWLFVRIQDWXUH EHFDXVHWKHFRQWURYHUVLDOGLVFRXUVHSURYRNHGE\ELRDUWFUHDWLRQVLVIXQGDPHQWDOWRLQYRNLQJ /DWRXU¶VFROOHFWLYHE\GHPDQGLQJDVSDFHIRUDHVWKHWLFUHIOHFWLRQ,QVRIDUDVELRDUWZRUNVXVH OLYLQJEHLQJVDQGOLIHLQWKHLUFUHDWLRQVWKHVHZRUNVSRWHQWLDOO\XQGHUPLQHWKHVWDWXVRIDUWLQ DHVWKHWLFWKLQNLQJEHFDXVHWKH\DUHLUUHGXFLEOHWRUHPDLQLQJDQ³REMHFW´SURSHU7KXVWKH TXHVWLRQDEOHOHJLWLPDF\RIELRDUW¶VRQWRORJLFDOVWDWXVIXUWKHUEHFNRQVDUHGHILQLWLRQRIERWK ³QDWXUH´DQG³DUW´ZKLFK,VXEVHTXHQWO\DSSURDFKIURPWKHSHUVSHFWLYHRI6WLHJOHU¶VSKLORVRSK\ RIWHFKQLFVLQ&KDSWHU 5H([DPLQLQJWKH5ROHRI7HFKQRORJ\1DWXUH ,Q&KDSWHU,DWWHPSWWRWKLQNWKURXJKWKHSRVVLELOLW\RIHVWDEOLVKLQJDQRQWRORJLFDOGLYLVLRQRI QDWXUHDQGDUWWKURXJKDUHDGLQJRI(GXDUGR.DF¶V*HQHVLVDORQJVLGH%HUQDUG6WLHJOHU¶V WKHRU\RIWHFKQLFVLQ7HFKQLFVDQG7LPH,H[DPLQHWKHSRVVLELOLWLHVIRUGLIIHUHQWLDWLQJKXPDQV DQGQDWXUHEDVHGRQ6WLHJOHU¶VGLVWLQFWLRQEHWZHHQWKHZKRDQGWKHZKDWZKLFKKHDUJXHV SUHYHQWVPHWDSK\VLFVIURPDFKLHYLQJDFRPSOHWHWKRXJKWRIEHLQJGXHWRDODFNRIFRQVLGHUDWLRQ IRUWKHGHWHUPLQDQWG\QDPLFRIWHFKQLFVDVLQRUJDQLFRUJDQL]HGEHLQJV7KHIORXULVKLQJRIWKH W\SHVRIWHFKQLFDOREMHFWVZHZLWQHVVWRGD\6WLHJOHUDUJXHVLVWKHRXWFRPHRIWHFKQLFVIROORZLQJ LWVRZQHYROXWLRQDU\WUDMHFWRU\ZKLFKEUHDNVIURPRUJDQLF³QDWXUDO´HYROXWLRQE\ZD\RIWKH SURFHVVRIHSLSK\ORJHQHVLV7KURXJKWKHSURFHVVRIHSLSK\ORJHQHVLVZKLFKFKDUDFWHUL]HVWKHZD\ KXPDQHYROXWLRQLVFRFRQVWLWXWHGE\WHFKQLFDOHYROXWLRQ6WLHJOHUSURYLGHVDJURXQGIRU FKDUDFWHUL]LQJWKHKXPDQQRQKXPDQDPELJXLW\ZKLFKDFWVDVDWKUHVKROGUDWKHUWKDQDEDUULHU EHWZHHQWKHµZKR¶DQGWKHµZKDW¶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¶VSKLORVRSK\RIWHFKQLFVH[SOLFDWHVWKHWKHRUHWLFDOYDOXHRI.DF¶V*HQHVLVZKLFK FKDUDFWHUL]HVWKHWUDGLWLRQDOKXPDQQDWXUHRSSRVLWLRQDVDQDEVXUGLW\E\VXEPLWWLQJWKHP\WKRI WKHRULJLQRIWKHKXPDQWRWKH³QDWXUDO´SURFHVVHVRIJHQHWLFPXWDWLRQ7KLVZRUNLOOXVWUDWHVQRW RQO\WKHZD\LQZKLFKODQJXDJHFRQVWUXFWVXQGHUVWDQGLQJDQGLWVKHUPHQHXWLFSRVVLELOLWLHVEXW DOVRKLJKOLJKWVWKHLPSRVVLELOLW\RIFRQFHLYLQJFXOWXUDODQGQDWXUDOGHYHORSPHQWVDVPXWXDOO\ H[FOXVLYH,DUJXHWKDW.DF¶VFRQWULEXWLRQGHPDQGVDUHLQWHUSUHWDWLRQRIWKHG\QDPLFVRISKXVLV DQGWHNKQHEHFDXVHEHLQJVFDQQRORQJHUEHFRQFHLYHGLQLVRODWLRQIURPWHNKQHZKLFKLWVHOI WUDFHVEHLQJV¶JHVWDWLRQDOSRVVLELOLWLHV,QVWHDGWKHSRWHQWLDOIRUWHNKQHRXJKWWREHH[SORUHGDV LQWULQVLFWREHLQJVDVVXFKLQVRIDUDVJHQHWLFGHWHUPLQDWLRQVRSHUDWHLQHQYLURQPHQWVIRXQGHGRQ SULQFLSOHVRILQWHUDFWLRQVHOHFWLRQDQGDGDSWDWLRQ,EHOLHYHWKLVSUHVHQWVDUHIUHVKLQJQHZ GLUHFWLRQIRUH[SORULQJWKHDHVWKHWLFVRIQDWXUHEXWLVRQHZKLFKXOWLPDWHO\UHQGHUVTXHVWLRQDEOH .DQW¶VWUDQVFHQGHQWDOVXEMHFWDVWKHVLQJXODUPRGHRIEHLQJWKDWFDQHPERG\WKHSRVVLELOLW\IRU DHVWKHWLFH[SHULHQFHV 7RZDUGVD3ROLWLFVRIWKH$HVWKHWLFVRI1DWXUH &KDSWHUUHYLHZVWKHQHHGDQGSRVVLELOLW\IRUDQDHVWKHWLFVRIQDWXUHSUHGLFDWHGRQWKHSROLWLFVRI QDWXUHE\UHYLHZLQJWKHJURXQGVIRUWKLVGLVFRXUVHWKURXJK+DQQDK$UHQGW¶VSROLWLFDOUHDGLQJRI .DQWLDQDHVWKHWLFV,UHYLVLWNH\WKHPHVUDLVHGLQWKHSUHYLRXVFKDSWHUVE\JURXQGLQJP\ GLVFXVVLRQLQDUHDGLQJRI(GXDUGR.DFDQG,NXR1DNDPDUD¶V(VVD\&RQFHUQLQJ+XPDQ 8QGHUVWDQGLQJ(&+87KLVZRUNLVUHDGWKURXJK/DWRXU¶VWKHRU\RIWKHFROOHFWLYHZKLFKSODFHV .DQWLDQDHVWKHWLFVRQWULDO,IRFXVP\FRQFOXVLRQVDQGUHFRPPHQGDWLRQVIRUWKLVUHDGLQJE\ UHIOHFWLQJRQ.DQW¶VH[FOXVLYHO\KXPDQWUDQVFHQGHQWDOVXEMHFW¶VSULYLOHJHDQGDFFHVVWRVSHHFK SUHVHQWLQJ(&+8DVDZRUNWKDWXQGHUPLQHVWKHVWDUNGLYLVLRQLQDHVWKHWLFWKLQNLQJEHWZHHQ VXEMHFWVDQGREMHFWVKXPDQVDQGQDWXUH,QTXLULQJIXUWKHULQWRWKHLPSOLFDWLRQVRI6WLHJOHU¶V WKHRU\RIWHFKQLFVLQOLJKWRIWKHRQWRHSLVWHPRORJLFDOFKDOOHQJHVIRUWKLQNLQJWKHDHVWKHWLFVRI QDWXUH,FRQVLGHUWKHSRWHQWLDORXWFRPHWKDWELRDUWZRUNVDQGRXUDHVWKHWLFUHIOHFWLRQXSRQWKHP DOORZIRUUHLPDJLQLQJWKHSROLWLFVRIQDWXUHLQHQYLURQPHQWDOWKRXJKW &+$37(5 (;$0,1,1*7+($(67+(7,&',9,6,21%(7:((11$785($1'$57 , ',9,6,21,1$(67+(7,&3+,/2623+< :KDWGRZHPHDQZKHQZHVSHDNRIDHVWKHWLFV"7KHWHUPZDVILUVWFRLQHGE\$OH[DQGHU %DXPJDUWHQLQWKHHLJKWHHQWKFHQWXU\EXWLWZDVWKURXJK,PPDQXHO.DQW¶VZRUNWKDWDHVWKHWLFV JDLQHGPRPHQWXPDQGEHFDPHLQVWDQWLDWHGDVDFDWHJRU\LQSKLORVRSKLFDOWKRXJKW([DPLQLQJ WKHTXHVWLRQRIKRZEHDXW\LVGHWHUPLQHGDHVWKHWLFWKHRU\VXEVHTXHQWO\H[WHQGHGLWV SKLORVRSKLFDOSULQFLSOHVWRGRPLQDWHWKHDSSUHFLDWLRQRIDUWIRUWZRFHQWXULHV$UJXLQJWKDW DHVWKHWLFH[SHULHQFHVRIQDWXUHDUHGLVWLQFWIURPWKRVHLQYROYLQJDUW$OOHQ&DUOVRQDVVHUWVWKDW DIWHUWKHHLJKWHHQWKFHQWXU\³>W@KHSKLORVRSKLFDOVWXG\RIDHVWKHWLFVRIQDWXUH«ZHQWLQWRVWHDG\ GHFOLQH0DQ\RIWKHPDLQLGHDVVXFKDVWKHLGHDRIWKHVXEOLPHWKHQRWLRQRIGLVLQWHUHVWHGQHVV DQGWKHWKHRUHWLFDOFHQWUDOLW\RIQDWXUHUDWKHUWKDQDUWUHDFKHGWKHLUFOLPD[ZLWK.DQW´,DVN ZHUHWKHDHVWKHWLFVRIQDWXUHWUXO\DEDQGRQHGDIWHU.DQWDV&DUOVRQFODLPVRUUDWKHUZDVWKH TXHVWLRQRIQDWXUHLQSKLORVRSK\WUDQVIRUPHGWKRXJK.DQW"7RDQVZHU,TXHVWLRQWKHUROHRIWKH DHVWKHWLFGLYLVLRQEHWZHHQQDWXUHDQGDUWLQ.DQW¶VDHVWKHWLFGRFWULQHLQRUGHUWRHYDOXDWHWKH UHOHYDQFHRIHQYLURQPHQWDODHVWKHWLFVLQOLJKWRIWKHQHHGIRUDSROLWLFVRIQDWXUH,FULWLFDOO\ H[DPLQHWKHWHQHWVRIWKLVILHOGIRFXVLQJP\DQDO\VLVRQ$OOHQ&DUOVRQ¶VWKHRUHWLFDOGHYHORSPHQW RI3RVLWLYH$HVWKHWLFV3$ZKLFKSURPRWHVSULVWLQHQDWXUHDVHOXFLGDWHGE\VFLHQWLILFNQRZOHGJH WREHWKHDHVWKHWLFLGHDOIRUQDWXUH ,QZRRG0(G³,QWURGXFWLRQ´,Q+HJHO*:),QWURGXFWRU\/HFWXUHVRQ$HVWKHWLFV/RQGRQ 3HQJXLQ%RRNVS[LL &DUOVRQ$$HVWKHWLFVDQGWKH(QYLURQPHQW7KH$SSUHFLDWLRQRI1DWXUH$UWDQG$UFKLWHFWXUH S D ,QWURGXFWLRQWR(QYLURQPHQWDO$HVWKHWLFV $HVWKHWLFXQGHUVWDQGLQJLVRIWHQFRQVLGHUHGLQGLFDWLYHRIDQREMHFW¶VEHDXW\ZLWKDUWZRUNV WKRXJKWRIDVEHDXWLIXOEDVHGRQFXOWXUDOVWDQGDUGVRIEHDXW\WKDWDUHUHIOHFWHGDQGVKDSHGE\ DUWLVWLFGLVFUHWLRQ,QKLVVHPLQDOSDSHU³&RQWHPSRUDU\$HVWKHWLFVDQGWKH1HJOHFWRI 1DWXUDO%HDXW\´5RQDOG+HSEXUQDUJXHVWKDWDHVWKHWLFWKHRU\WRGDWHIRFXVHVDOPRVWH[FOXVLYHO\ RQZRUNVRIDUW+HSEXUQFODLPVWKDWVLQFHPDQ\SHRSOHILQGVFHQLFDQGRUGLQDU\DVSHFWVRIQDWXUH EHDXWLIXOLWPXVWPHDQWKDWQDWXUHSRVVHVVHVXQLTXHDHVWKHWLFSURSHUWLHVWKHDSSUHFLDWLRQRI ZKLFKFDQQRWEHEDVHGRQWKHVDPHPHWKRGVDVWKRVHXVHGWRHYDOXDWHDUW)ROORZLQJ+HSEXUQ¶V ZRUNVHYHUDODQDO\WLFSKLORVRSKHUVZHUHLQWULJXHGE\DHVWKHWLFFRQFHUQVDERXWQDWXUHDQGIHOW WKDWIRUPDOUHIOHFWLRQRQQDWXUDOEHDXW\ZDVLJQRUHGRYHUPDWWHUVLQYROYLQJVRFLDODQGSROLWLFDO HQYLURQPHQWDODZDUHQHVV <HWLWZDV$OOHQ&DUOVRQZKRSLRQHHUHGWKHGLVFLSOLQHRIHQYLURQPHQWDODHVWKHWLFVIROORZLQJKLV GHYHORSPHQWRIWKHWKHRU\RI3RVLWLYH$HVWKHWLFV3$%\DVVHUWLQJQDWXUH¶VLQKHUHQWEHDXW\3$ DUJXHVWKDWDVHSDUDWHGLVFRXUVHIRUDHVWKHWLFH[SHULHQFHVRIQDWXUHIURPWKRVHRIDUWLVQHHGHG VLQFHWKHODWWHUUHOLHVRQDSSUHFLDWLRQIURPDVXEMHFWLYHVWDQGSRLQWDQGLVLQDGHTXDWHIRU DSSOLFDWLRQWRH[SHULHQFHVRIQDWXUH3$DVVHUWVWKDWZHDUHLPSOLFDWHGLQHQFRXQWHUVZLWKQDWXUH ZKLFKLVFKDUDFWHUL]HGE\WKHIDFWWKDWZHFDQQRW³VHSDUDWHRXUVHOYHVRXW´RIQDWXUHDQG WKHUHIRUHZHDUHXQDEOHWRHVWDEOLVKWKHQHFHVVDU\GLVWDQFHDFFRUGHGWRWKHSURSHUDSSUHFLDWLRQRI (QYLURQPHQWDODHVWKHWLFVLVDOVRUHIHUUHGWRDV1DWXUDODHVWKHWLFVWKHWZRDUHXVHGV\QRQ\PRXVO\E\ QDWXUDODHVWKHWLFLDQV,QWKLVWKHVLV,XVHHQYLURQPHQWDODHVWKHWLFVWRGHQRWHWKHGLVFLSOLQHLQRUGHUWRLVRODWH WKHTXHVWLRQRIQDWXUHUDLVHGLQLWVGLVFRXUVH 5HIHUUHGWRDVDµSLRQHHURIHQYLURQPHQWDODHVWKHWLFV¶,KDYHVHOHFWHG&DUOVRQEHFDXVHKHLVUHSUHVHQWDWLYH RIWKHERG\RIOLWHUDWXUHSHUWDLQLQJWRHQYLURQPHQWDODHVWKHWLFV.H\QDWXUDODHVWKHWLFLDQVKDYHSXEOLVKHGLQ FROODERUDWLRQZLWKKLPLQHGLWHGWH[WVDQGKHZDVWKHILUVWWRGHILQHWKHGLVFLSOLQHDIWHU+HSEXUQLQWKHHDUO\ V6FKRODUVZLWKZKRPKHKDVQRWFROODERUDWHGRIWHQUHVSRQGGLUHFWO\WRKLVFODLPVLQWKHLUZRUNV >6HH0RRUH6DLWR6LPXV)LVKHU%HUOHDQW &DUOVRQ%HUOHDQW+HSEXUQ@ ZRUNVRIDUW7KLVµFORVHQHVV¶UHVXOWVLQDQLQWLPDWHUDWKHUWKDQGLVWDQFHGDHVWKHWLFH[SHULHQFH ZKHQRQHPRYHVRQHWUDQVIRUPVRQH¶VH[SHULHQFHE\FKDQJLQJRQH¶VSRVLWLRQLQUHODWLRQWRWKH µREMHFWV¶RIRQH¶VDHVWKHWLFDWWHQWLRQ$GGLWLRQDOO\WKHHQYLURQPHQWXQGHUFRQVLGHUDWLRQXQOLNHD ZRUNRIDUWLVQHLWKHUVWDWLFQRULQHUWEXWFRQVWDQWO\LQPRWLRQWKURXJKWLPHDQGVSDFH/DVWO\WKH HQYLURQPHQWLVQRWWKHUHVXOWRIDQLQWHQWLRQDOVXEMHFWGHVLJQLQJLWVFRPSRVLWLRQEXWLVDP\ULDG RISURFHVVHVZKLFKXQIROGVRQLWVRZQDFFRUG 6HOILGHQWLILHGDVQDWXUDODHVWKHWLFLDQVSKLORVRSKHUVHQJDJHGLQH[SOLFDWLQJWKHVLJQLILFDQFHRI QDWXUDOEHDXW\SUHGLFDWHGRQ&DUOVRQ¶VWKHRU\RI3$SURGXFLQJWKHRUHWLFDOPRGHOVDOORZHGWKHLU SURSRQHQWVWRKHOSXQHDUWKWKHZD\QDWXUHLVDSSUHFLDWHGDHVWKHWLFDOO\SULPDULO\³LQYLUWXHRI WUDQVIRUPLQJSUHYLRXVDWWLWXGHVWRZDUGVQDWXUH´1DWXUDODHVWKHWLFLDQVKRZHYHUDUHSUHVHQWO\ GLYLGHGLQWRWZRFDPSVHDFKRIZKRVHVWDQFHOLHVLQDGYDQFLQJHLWKHU&RQFHSWXDOLVWRU1RQ &RQFHSWXDOLVWPRGHVRIDHVWKHWLFDSSUHFLDWLRQ &RQFHSWXDOLVPY1RQ&RQFHSWXDOLVP ,QLWLDWHGE\&DUOVRQ¶VFRJQLWLYHDHVWKHWLFIUDPHZRUN&RQFHSWXDOLVPRU&RJQLWLYLVPLVIRXQGHG RQPRGHOVSUHGLFDWLQJDQDSSUHFLDWLRQRIQDWXUH³RQLWVRZQWHUPV´ZKLOHSURPRWLQJVFLHQWLILF NQRZOHGJHQDWXUDOKLVWRU\DQGRUFXOWXUDODQGKLVWRULFDONQRZOHGJHDVSRVVHVVLQJGLUHFWDFFHVV WRQDWXUH$FFRUGLQJO\&DUOVRQ¶VSRVLWLRQHQFRXUDJHVWKHEHOLHIWKDWWKHHPSLULFDOHYLGHQFH GLVFRYHUHGDQGHQWUHQFKHGE\VFLHQFHRSSRVHVWKHKLVWRULFDORUIRUPDOHYDOXDWLRQVXQGHUZD\LQ &DUOVRQS[[ &DUOVRQS[[ 6HH&DUOVRQ$$HVWKHWLFVDQGWKH(QYLURQPHQW7KH$SSUHFLDWLRQRI1DWXUH$UWDQG $UFKLWHFWXUH1HZ<RUN5RXWOHGJH )LVKHUS DHVWKHWLFH[SHULHQFHVRIDUWE\DGYRFDWLQJWKDW³DOWKRXJKZHKDYHQRWFUHDWHGQDWXUHZH\HW NQRZDJUHDWGHDODERXWLW7KLVNQRZOHGJHHVVHQWLDOO\FRPPRQVHQVHVFLHQWLILFNQRZOHGJH VHHPVWRPHWKHRQO\YLDEOHFDQGLGDWHIRUSOD\LQJWKHUROHFRQFHUQLQJWKHDSSUHFLDWLRQRI QDWXUH´7KLVSRVLWLRQIXHOVREMHFWLYLVWQDWXUDODHVWKHWLFLDQVWRDUJXHWKDWDHVWKHWLFH[SHULHQFHV RIDUWDUHXQOLNHWKRVHRIQDWXUHVLQFHVFLHQFHSURYLGHVDIDFWXDOEDVLVIRUDHVWKHWLFH[SHULHQFHVRI QDWXUH+RZHYHUWKHDUJXPHQWIRU&RQFHSWXDOLVPLVGHOLEHUDWHO\HQIUDQFKLVHGE\&DUOVRQ¶V QRWLRQRI3$ZKLFKHVWDEOLVKHVHQYLURQPHQWDODHVWKHWLFVDJDLQVWWKHVXEMHFWLYHDSSUHFLDWLRQRI DUWDQGWKHUHE\SRVLWVDUDGLFDOO\REMHFWLYHFULWHULRQLQZKLFK1DWXUHGHIDXOWVWRDQH[WHUQDODQG PDWHULDORQWRORJLFDOVWDWXVDYDLOHGRQO\E\VFLHQWLILFNQRZOHGJH&RQFHSWXDOLVPORJLFDOO\ FUHDWHVDJDSLQDHVWKHWLFWKHRU\E\FRXQWHULQJ³DUWLVWLF´DHVWKHWLFV¶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±IRUPOLQHVKDSHFRORXUWH[WXUHFXPXODWLYHO\UHVXOWLQJLQDWRWDOLW\RIPHDQLQJ UHODWHGWRWKHZRUN¶VEHDXW\LHLWVDHVWKHWLFTXDOLWLHV6HH&DUOVRQSS ,ELGS $OWKRXJK,KDYHPHQWLRQHGWKDW1RQFRQFHSWXDOLVWVWDNHWKHRSSRVLWHVWDQFHZLWKUHVSHFWWRWKHGHILQLWLRQ RIQDWXUHGHIHQGHGE\&RQFHSWXDOLVWVRIQDWXUDODHVWKHWLFVWKH\GRVRQRWE\GHQ\LQJDPDWHULDOH[WHUQDO GHILQLWLRQRI1DWXUHEXWE\VLWXDWLQJWKHLPSRUWDQFHRIDHVWKHWLFH[SHULHQFHVDVDVWULFWO\VXEMHFWLYH SKHQRPHQRQ7KHUHPDUNWKDWWKLVUHYHUWVQDWXUHWRDVWULFWO\³RQWRORJLFDOVWDWXV´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³$Q([FKDQJHRQ 'LVLQWHUHVWHGQHVV´,Q&RQWHPSRUDU\$HVWKHWLFV KWWSZZZFRQWHPSDHVWKHWLFVRUJQHZYROXPHSDJHVDUWLFOHSKS"DUWLFOH,' 7KHUHODWLRQVKLSWKHYLHZHUKROGVZLWKWKHREMHFWWKHQLVEDVHGRQFRUUHFWO\DSSO\LQJNQRZOHGJH RIWKHREMHFWIURPDGLVLQWHUHVWHGSRVLWLRQIRUWKHHYDOXDWLRQRILWVDHVWKHWLFTXDOLWLHVZLWKRXW VXEMHFWLYHELDV,QWKLVZD\WKHUHLV³WUXWK´WRDHVWKHWLFMXGJPHQWVDULJKWDQGZURQJZD\WR GHWHUPLQHDQREMHFW¶VEHDXW\DFRQGLWLRQZKLFKWKHQSURGXFHVDQRQWRHSLVWHPRORJLFDO GLVWLQFWLRQIURPZRUNVRIDUWZKLFKOHJLWLPL]HVWKHLUVHSDUDWHDHVWKHWLFWUHDWPHQW %\GLVDJUHHLQJWKDWDSUHYDLOLQJFRQFHSWRIQDWXUHSURYLGHGE\VFLHQFHFXOWXUHRUKLVWRU\LV UHTXLUHG1RQ&RQFHSWXDOLVWWKHRULVWVUHMHFWDOOFRQFHSWXDOIUDPHZRUNVDVVHUWLQJWKDWDQ LQGLYLGXDO¶VVXEMHFWLYLW\DORQHLVVXIILFLHQWIRUDSSUHFLDWLRQ7KH1RQ&RQFHSWXDOLVWSRVLWLRQGRHV QRWGHQ\WKHPDWHULDOXQGHUVWDQGLQJRIQDWXUHHPEHGGHGLQ&RQFHSWXDOLVWDUJXPHQWVEXWPHUHO\ VLWXDWHVDHVWKHWLFH[SHULHQFHVRIQDWXUHLQVWULFWO\VXEMHFWLYHSKHQRPHQD7KHSUREOHPLVWKDW ZKHQ1RQ&RQFHSWXDOLVWVXEMHFWLYLVWQDWXUDODHVWKHWLFLDQVDUJXHDJDLQVW&RQFHSWXDOLVWV±E\ FODLPLQJWKHUHFDQEHQR³REMHFWLYH´ZD\RIDSSUHFLDWLQJQDWXUH±WKHIRUPHUIDOOVKRUWLQ UHDOL]LQJWKDWWKHLURZQWHQGHQF\WRZDUGVDVXEMHFWLYLVWVWDQGSRLQWRIDHVWKHWLFDSSUHFLDWLRQLV FRQWUDGLFWHGE\WKHLUDFFHSWDQFHRIWKHWKHRU\RI3$%\DFFHSWLQJWKDW³VXEMHFWLYH´DHVWKHWLF DSSUHFLDWLRQLVSURSHUWRDUWZKLOH³REMHFWLYH´DSSUHFLDWLRQLVSURSHUWRQDWXUH1RQ &RQFHSWXDOLVWVHQGXSKDYLQJWRIDFHWKHEXUGHQRIKRZWRGHILQH1DWXUHEH\RQGDPDWHULDORU HVVHQWLDOLVWLHQRQREMHFWLYHXQGHUVWDQGLQJLQRUGHUWRRYHUFRPHWKHLQKHUHQWDVVXPSWLRQ JURXQGLQJ3$7KLVFKDOOHQJHLVHYLGHQWLQ5RQDOG0RRUH¶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¶VWKHVLVRI 3$VLQFHLQRUGHUWRIRUZDUGDQ\PRGHOLQWKLVGLVFLSOLQHRQHPXVWDFFHSWWKDWWKHLQKHUHQWEHDXW\RIQDWXUH LVDIXQGDPHQWDOWUXWKZKLFKPXVWEHLOOXPLQDWHGDJDLQVWWKHDHVWKHWLFXQGHUVWDQGLQJRIDUW DOOPRGHOVDUHOHJLWLPDWHPRGHVRIDSSUHFLDWLQJQDWXUHWKHLUIRFXVPXVWUHPDLQRQ³DSSUHFLDWLQJ QDWXUHDVQDWXUDO´7KHFKDOOHQJHKHUHLVWKDWDQ\QRQPDWHULDOGHILQLWLRQRIQDWXUHWHQGVWR HLWKHUJHWGLYHUWHGWRH[SODQDWLRQVLQYROYLQJWKHµFXOWXUDOFRQVWUXFWLRQRIQDWXUH¶ZKLFKUHVXOWVLQ DSOXUDOLW\RIDHVWKHWLFH[SHULHQFHVUHQGHULQJWKHSURMHFWRIDXQLYHUVDODHVWKHWLFIRXQGDWLRQPRRW RUWKHVXEMHFWLYLW\GRXEOHVXSRQLWVHOIDQGWKHDUJXPHQWDWLYHSDWKDWWHPSWVWRHVWDEOLVKWKHµULJKW W\SHRIVXEMHFWLYHPLQGRUVWDWH¶FDSDEOHRIIDFLOLWDWLQJDQDXWKHQWLFH[SHULHQFHRIQDWXUH7KLV ODWWHUFKDOOHQJHDOORZVWKHVXEMHFWLYLVWSRVLWLRQWREHXQGHUPLQHGE\&RQFHSWXDOLVWVZKREHOLHYH 7KHPRUHQDWXUHLVUHJDUGHGDVDUHDOPIUHHIURPWKHXQGHUVWDQGLQJPDUVKDOOLQJLQIOXHQFHRI VFLHQFHWKHPRUHLWEHFRPHVDP\VWHU\±DOLHQDORRIGLVWDQWXQNQRZDEOH,WLVDVKRUWVWHSIURP GHFODULQJQDWXUDOEHDXW\LQHIIDEOHWRGHFODULQJLWXQLQWHOOLJLEOHWKHUHLVQRGHQ\LQJWKDWQDWXUHLV VRPHWKLQJDERXWZKLFKVFLHQWLVWVNQRZDORW 7KXVLQHQYLURQPHQWDODHVWKHWLFXQGHUVWDQGLQJRQHHLWKHUKDVWREHFRQWHQWZLWKWKHGHILQLWLRQRI 1DWXUHEHVWRZHGE\VFLHQFHRURQHKDVWRUHFRQFHSWXDOLVHWKHZKROHHQWHUSULVHRIDHVWKHWLF WKLQNLQJLQRUGHUWRHVWDEOLVKDVXEMHFWLYHFULWHULRQIRUWKHSRVVLELOLW\IRUDHVWKHWLFMXGJPHQWVRI QDWXUH7KHDGKRFDSSURDFKRIWKH1RQ&RQFHSWXDOLVW¶VDUJXPHQWUHYHDOVDIDLOXUHWRUHDOL]H WKDWWKHµULJKWVWDWH¶IRUDHVWKHWLFH[SHULHQFHVRIQDWXUHZDVDOUHDG\WKHUHLQWKHILUVWSODFHLQ ,PPDQXHO.DQW¶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±RWKHUZLVHWKH.DQWLDQ IUDPHZRUNVXIILFHVRUUHTXLUHVUHYLVLRQ 7KH)RXU0RPHQWVHVWDEOLVKHVWKLVSUHUHTXLVLWHLQWKH&ULWLTXHRIWKH$HVWKHWLF3RZHURI-XGJPHQW DUWIURPHQYLURQPHQWDODHVWKHWLFVLVQHHGHGWRDOORZIRUFRQVLGHUDWLRQRIKRZHQYLURQPHQWDO DUWZRUNVFUHDWHDHVWKHWLFVSDFHVIRUFRPPXQLWLHVLQRUGHUWRGHYHORSDQDSSUHFLDWLRQDQG IRXQGDWLRQIRUHQJDJHPHQWZLWKWKHLUQDWXUDOHQYLURQPHQWV+RZHYHUEHFDXVH&DUOVRQFODLPV WKDWDUWZRUNVFUHDWHDQ³DHVWKHWLFDIIURQWWRQDWXUH´DVSDUWRIWKHIUDPHZRUNRI3$,DUJXH WKHVHDWWHPSWVDUHORJLFDOO\FRQWUDGLFWRU\DQGWKDWWKLVSKLORVRSKLFDOFKDOOHQJHZLWKLQ3$ZKLFK XQGHUOLHVDOOYDULDQWVRIHQYLURQPHQWDODHVWKHWLFVUHTXLUHVUHGUHVV%\SHUSHWXDWLQJWKHQRWLRQ WKDWDUWZRUNVSURYRNHDQ³DHVWKHWLFDIIURQWWRQDWXUH´&DUOVRQIXUWKHUVFRQYROXWHVWKHFRQFHUQVRI DQHQYLURQPHQWDODHVWKHWLFVZKLFKQHJOHFWVWRFRQFHUQLWVHOIZLWKWKHTXHVWLRQHQVXLQJLWV FRPPHQFHPHQWKRZDHVWKHWLFH[SHULHQFHVRIQDWXUHDIIHFWKXPDQDWWLWXGHVWRZDUGVQDWXUH7KDW LVWKHTXHVWLRQRIZKHWKHURUQRWQDWXUHLVSHUFHLYHGDVEHDXWLIXORUWREHPRUHDFFXUDWHWKHZD\ LQZKLFKRQHUHODWHVWRRQH¶VH[SHULHQFHRIQDWXUDOEHDXW\UHVXOWVLQWKHGHYHORSPHQWRID UHODWLRQVKLSWRQDWXUHWKDWSURGXFHVPDLQWDLQVRUGHQRXQFHVWKHYDOXHRQHDFFRUGVWRQDWXUDO HQYLURQPHQWV 7KHGLOHPPDIDFLQJHQYLURQPHQWDODHVWKHWLFVLVWKXVKRZWRHYDOXDWHZKHWKHURUQRWLWDFKLHYHV ³WUDQVIRUPLQJSUHYLRXVDWWLWXGHVWRZDUGVQDWXUH´:KDWDUHWKHVHDWWLWXGHVDQGKRZGRHV HQYLURQPHQWDODHVWKHWLFVWUDQVIRUPWKHPLILWPHUHO\PXOWLSOLHVLQYDULDWLRQWKHZD\VQDWXUHLV DEOHWREHSHUFHLYHG":KDWLVSUREOHPDWLFDERXWDWWLWXGHVWRZDUGVQDWXUHDQGZKDWVWKH DWWLWXGHVHQYLURQPHQWDODHVWKHWLFVVWULYHVWRFRUUHFW"7KLVHYDOXDWLRQFDQQRWEHDWWHPSWHG, )RUH[DPSOH6LPXVGHYHORSVDFRPPXQLW\EDVHGDSSURDFKWRQDWXUDODHVWKHWLFVZKLFKLQFOXGHV ZRUNVRIDUWLIWKH\IXUWKHUWKHQRWLRQRIµHFRORJLFDOFLWL]HQVKLS¶KRZHYHU6LPXV¶LGHDRIQDWXUHLVVWLOO SUHGLFDWHGRQPDWHULDOHFRORJ\ &DUOVRQSS )LVKHUS 7KHLQWURGXFWLRQRIHQYLURQPHQWDODHVWKHWLFVDFFRUGLQJWR)LVKHUDOLJQHGZLWK³WKHUDSLGJURZWK RIFRQFHUQIRUWKHQDWXUDOHQYLURQPHQWRYHUWKHODVWWKLUGRIWKHWZHQWLHWKFHQWXU\´DULVLQJQDPHO\³LQ YLUWXHRIWUDQVIRUPLQJSUHYLRXVDWWLWXGHVWRZDUGVQDWXUHHQYLURQPHQWDOLVWWKLQNLQJKDVSRVHGTXHVWLRQV DERXWKRZZHFRQFHSWXDOL]HRXUDHVWKHWLFLQWHUDFWLRQVZLWKQDWXUHWKHDHVWKHWLFYDOXHRIQDWXUHDQGWKH VWDWXVRIDUWDERXWQDWXUH´S EHOLHYHXQWLOZHUHH[DPLQHZKHWKHUDVHSDUDWHDHVWKHWLFGLVFRXUVHIRUQDWXUHIURPWKDWRIDUWLV QHFHVVDU\LQWKHILUVWSODFH7RDGGUHVVWKHVHTXHVWLRQVLQWKHQH[WVHFWLRQ,H[DPLQHWKHQHFHVVLW\ IRUDGLVFRXUVHRIHQYLURQPHQWDODHVWKHWLFVLQFRQWHPSRUDU\HQYLURQPHQWDOWKRXJKWE\ LQYHVWLJDWLQJWKHZD\DUWDQGQDWXUHDUHGLIIHUHQWLDWHGLQ.DQW¶VDHVWKHWLFWKHRU\LQ&ULWLTXHRIWKH 3RZHURI-XGJPHQW'HULYLQJP\DQDO\VLVIURPWKHXQGHUVWDQGLQJRIQDWXUHHODERUDWHGE\3$, VFUXWLQL]HWKHRQWRHSLVWHPRORJLFDOFKDOOHQJHVFRQIURQWLQJWKLVIRXQGDWLRQLQHQYLURQPHQWDO DHVWKHWLFV E .DQW¶V&ULWLTXHRI .DQW¶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µ7KH )RXU0RPHQWV¶LQWKHDHVWKHWLFSRZHURIMXGJPHQWWKLVUHODWHVWR.DQW¶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³DUHQRWDUULYHGDWE\HLWKHU GHGXFWLRQRULQGXFWLRQLQVKRUWWKH\KDYHQRWKLQJLQFRPPRQZLWKORJLFDORSHUDWLRQV>WKH\KDYH@ DOZD\VHYHQLQ.DQWEHHQWKRXJKWRIDVµWDVWH¶DQGWKHUHIRUHDVEHORQJLQJWRWKHUHDOPRIDHVWKHWLFV´ >$UHQGW+/HFWXUHVRQ.DQW¶V3ROLWLFDO3KLORVRSK\7UDQV%HLQHU5&KLFDJR8QLYHUVLW\RI &KLFDJR3UHVVS@ SRZHURIMXGJPHQWHVWDEOLVKHVWKHJURXQGIRUWKHSRVVLELOLW\RIDHVWKHWLFMXGJPHQWVWKURXJKDQ DSSUHKHQVLRQRIQDWXUHEDVHGRQDWHOHRORJLFDOSULQFLSOHRI³SXUSRVLYHQHVVZLWKRXWSXUSRVH´ $HVWKHWLF-XGJPHQWV 7KHFRQGLWLRQVHVWDEOLVKHGLQµ7KH)RXU0RPHQWV¶DUHSUHGLFDWHGRQLVXEMHFWLYHUHIOHFWLRQLL GLVLQWHUHVWHGQHVVLLLWKHILQDOLW\RIWKHREMHFWDQGLYWKHVHQVXVFRPPXQLV%\JURXQGLQJWKH WUDQVFHQGHQWDOVXEMHFWMXGJPHQWVRIWDVWHDOORZIRUWKHDSSUHFLDWLRQRIEHDXW\E\HODERUDWLQJD UHODWLRQVKLSWRREMHFWVZKLFKDUHGHYRLGRILQWHUHVWWRLQVSLUHDIUHHSOD\EHWZHHQWKHLPDJLQDWLRQ DQGWKHXQGHUVWDQGLQJ7KLVPHDQVWKDWWKHXQLYHUVDOLW\ZKLFKDULVHVDWWKHIRUHIURQWRIDHVWKHWLF H[SHULHQFHVIRUZKLFKRQHLVDEOHWRPDNHDMXGJPHQWRIWDVWHLV³RIDVSHFLDONLQGLWGRHVQRW MRLQWKHSUHGLFDWHRIEHDXW\WRWKHFRQFHSWRI2EMHFWWDNHQLQLWVHQWLUHORJLFDOVSKHUHDQG\HWGRHV H[WHQGWKLVSUHGLFDWHRYHUWKHZKROHVSKHUHRIMXGJLQJ6XEMHFWV´$FFRUGLQJWR.DQWDHVWKHWLF MXGJPHQWVDUHILUPO\URRWHGLQVXEMHFWLYLW\ZKLFKLVZK\WKHHPSLULFDOSURRIJURXQGLQJ MXGJPHQWVRIWDVWHLVIRXQGLQWKHVHQVXVFRPPXQLV³WKHQHFHVVLW\RIWKHXQLYHUVDODVVHQWWKDWLV WKRXJKWLQDMXGJPHQWRIWDVWHLVDVXEMHFWLYHQHFHVVLW\ZKLFKLVUHSUHVHQWHGDVREMHFWLYHXQGHU WKHSUHVXSSRVLWLRQRIDFRPPRQVHQVH´7KHDSULRULFRQGLWLRQVIRUMXGJPHQWVRIWDVWHPHHWWKH REMHFWLYHUHTXLUHPHQWVIRUDHVWKHWLFH[SHULHQFHVRILQGLYLGXDOVXEMHFWVDQGSURYLGHSKLORVRSK\ ZLWKDQHZGLVFLSOLQHGLVWLQFWIURPORJLFDQGUHDVRQIRUFRQWHPSODWLQJEHDXW\ 7KHSXUSRVLYHV\VWHPLVRQHZKLFKRSSRVHVDQLQILQLWHXQERXQGHGFRQFHSWLRQRIQDWXUHZKLFKZRXOG GLYHUJHLQWRQRWRQO\SXUHLQGHWHUPLQDF\EXWUDQGRPQHVVDQGRFFDVLRQEH\RQGWKHSRZHUVRIMXGJPHQW EHORQJLQJWRWKHVXEMHFW-XGJPHQWPXVWGLUHFWLWVHOIWRWKHIRUPRIDQREMHFWZKLFKUHODWHVWRWKH ³µFRUUHVSRQGHQFHRIIRUPZLWKWKHSRVVLELOLW\RIWKHWKLQJLWVHOILQDFFRUGDQFHZLWKDFRQFHSWRILWZKLFK SUHFHGHVDQGFRQWDLQVWKHJURXQGRIWKLVIRUP¶´S[[YL7KHWHOHRORJLFDOSULQFLSOHWKXVDOORZVXVWR³VHH WKHRUJDQLVPDQGHYHQQDWXUHDVDZKROHDVKDYLQJVRPHVRUWRIUDWLRQDOSXUSRVH±DOWKRXJKWKHSULQFLSOH WKDWQDWXUHKDVDSXUSRVHZKLFKLVWKHXQVWDWHGDSULRULSULQFLSOHRIWHOHRORJLFDOMXGJPHQWFDQRQO\EHD UHJXODWLYHSULQFLSOHIRUUHIOHFWLQJMXGJPHQWQRWDFRQVWLWXWLYHSULQFLSOHIRUGHWHUPLQLQJMXGJPHQWWKDW DFWXDOO\FRQWULEXWHVWRRXUVFLHQWLILFNQRZOHGJHRIQDWXUH´>*X\HU3³(GLWRU¶V,QWURGXFWLRQ´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¶VDSSHDUDQFH IRURQH¶VVXEMHFWLYLW\VXEOLPHH[SHULHQFHVFRQVLVWRIDVLPLODUUDSWXUHLQVHQVHWKURXJKWKH IDFXOW\RIUHDVRQ.DQWEHOLHYHVWKDWWKHEHDXWLIXO³GLUHFWO\EULQJVZLWKLWDIHHOLQJRIWKH SURPRWLRQRIOLIH´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¶VUHGXFWLRQRIDOO .DQWZULWHV³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´S ,ELG ,ELG ,ELGSS WKLQJVWRHLWKHUVXEMHFWVRUREMHFWVLVDGXDOLVPZKLFKXQGHUZULWHVKLVRHXYUHDOWKRXJKKH DUJXDEO\DWWHPSWVWRFRQQHFWWKLVZLWKWKHWHOHRORJLFDOSRZHURIMXGJPHQW+LVZKROHHQWHUSULVH RIWKHWKUHHFULWLTXHVLVSUHPLVHGRQWKHSULQFLSOHWKDWVLQFHZHFDQQHYHUDUULYHDWDQ XQGHUVWDQGLQJRIWKHWKLQJLQLWVHOIRXURQO\DFFHVVWRNQRZOHGJHLVWKHH[WHQWWRZKLFKFRJQLWLRQ LVFDSDEOHRIWKLQNLQJLWVHOI.QRZOHGJHRIREMHFWVLVLPSRVVLEOHLQ.DQW¶VSKLORVRSK\EHFDXVH WKRXJKWLVRQO\DFFHVVHGE\VXEMHFWVYLDDSSHUFHSWLRQWKLVSURFHVVLVIDFLOLWDWHGE\UDWLRQDOLW\LQ ZKLFKPLQGVFDQFRPSUHKHQGWKHLUH[SHULHQFHRIREMHFWVRQO\WKURXJKWKHSKHQRPHQRQLQ TXHVWLRQOHDYLQJWKHWKLQJLQLWVHOIWKHREMHFW¶VHVVHQFHXQNQRZQ7KLVOLPLWEHWZHHQVXEMHFWV DQGREMHFWVDGYDQFHVWKHFODLPWKDWDHVWKHWLFH[SHULHQFHVDUHVWULFWO\KXPDQVLQFHRQO\WKHKXPDQ LVFRQVWLWXWHGDVDWUDQVFHQGHQWDOVXEMHFW .DQW¶VSUHOLPLQDU\WKHRU\RIDUWSURYLGHVXVZLWKVRPHLQGLFDWLRQRIDVHFRQGGLVWLQFWLRQ GLIIHUHQWLDWLQJDHVWKHWLFH[SHULHQFHVRIDUWIURPQDWXUH,IZHDUHWRVHDUFKIRUDGHILQLWLRQRIDUW LQ.DQWZHZRXOGGLVFRYHUWKDWWKHEDVLVIRULWVGLVWLQFWLRQLVWKDWDUWLVDSURGXFWRIIUHHGRP 7KLVLVZK\RQO\KXPDQVDUHFDSDEOHRISURGXFLQJDUWZRUNVVLQFHWKH\SRVVHVVUDWLRQDOWKRXJKW DQGWKHFRQVFLRXVIUHHGRPWREHDEOHWRLQWHQWLRQDOO\FUHDWHDUWZRUNVZKLFKQRWRQO\SURGXFH IHHOLQJVRISOHDVXUHEXWDUHXQIHWWHUHGE\WKHLQVWLQFWXDOGULYHGLFWDWLQJWKHSURGXFWVRI QRQKXPDQV.DQWH[SODLQVWKLVLQWKHIROORZLQJSDVVDJH %\ULJKWRQO\SURGXFWLRQWKURXJKIUHHGRPLHWKURXJKDFDSDFLW\IRUFKRLFHWKDWJURXQGVLWV DFWLRQVLQUHDVRQVKRXOGEHFDOOHGDUW)RUDOWKRXJKSHRSOHDUHIRQGRIGHVFULELQJWKHSURGXFWRI WKHEHHVWKHUHJXODUO\FRQVWUXFWHGKRQH\FRPEVDVDZRUNRIDUWWKLVLVGRQHRQO\RQDFFRXQWRI DQDORJ\ZLWKWKHODWWHUWKDWLVDVVRRQDVZHUHFDOOWKDWWKH\GRQRWJURXQGWKHLUZRUNRQDQ\ UDWLRQDOFRQVLGHUDWLRQRIWKHLURZQZHVD\WKDWLWLVDSURGXFWRIWKHLUQDWXUHRILQVWLQFWDQGDV DUWLWLVDVFULEHGRQO\WRWKHLUFUHDWRU +HJHOFULWLTXHV.DQWRQWKLVSRLQWZULWLQJ³+HKDGQRFRXUVHRSHQEXWWRSURSRXQGWKHXQLW\ PHUHO\LQWKHIRUPRIVXEMHFWLYHLGHDVRIWKHUHDVRQWRZKLFKQRDGHTXDWHUHDOLW\FRXOGEHVKRXOGWR FRUUHVSRQGZKLFKPLJKWLQGHHGEHGHGXFHGIURPWKHSUDFWLFDOUHDVRQEXWZKRVHHVVHQWLDOQDWXUHZDVQRW IRUKLPNQRZDEOHE\WKRXJKWDQGZKRVHSUDFWLFDODFFRPSOLVKPHQWUHPDLQHGDPHUHRXJKWGHIHUUHGWR LQILQLW\´SS .DQWS $OWKRXJKWKHUHLVQRH[SOLFLWRQWRORJLFDOGLVWLQFWLRQEHWZHHQZRUNVRIDUWDQGQDWXUHH[FHSWWKDW WKHIRUPHUSRVVHVVHVWKHPDUNRIKXPDQLQWHQWLRQ.DQW\HWSRVHVWKHTXHVWLRQ³1RZZKDWLVWKH GLVWLQFWLRQEHWZHHQVXFKGLIIHUHQWDVVHVVPHQWVRIWZRVRUWVRIREMHFWVZKLFKLQWKHPHUH MXGJPHQWRIWDVWHZRXOGVFDUFHO\FRPSHWHIRUSUHHPLQHQFHRYHUHDFKRWKHU"´ 7KLVWKLUGGLIIHUHQFHUHOLHVRQWKHPRUDOLPSHUDWLYHDIIRUGHGWRQDWXUHZKLFKLVGHQLHGLQ MXGJPHQWVRIWKHEHDXWLIXOLQZRUNVRIDUW7KHVLJQLILFDQWGLVWLQFWLRQEHWZHHQDUWDQGQDWXUHLQ .DQW¶VGRFWULQHLVWKDWDOWKRXJKERWKDUHEDVHGRQWKHUHIOHFWLQJMXGJPHQWZKHUHE\WKHUHLVQR SUHGHWHUPLQHGLQWHUHVWLQWKHREMHFWRUDFRQFHSWIRUWKHREMHFWLQDFFRUGDQFHZLWKWKHMXGJPHQWRI WDVWHZKHQLQGLYLGXDOVDHVWKHWLFDOO\H[SHULHQFHQDWXUHXQOLNHDUWWKH\ 7DNHDQLPPHGLDWHLQWHUHVWLQWKHEHDXW\RIQDWXUHQRWPHUHO\WRKDYHWDVWHLQRUGHUWRMXGJHLW >DQGWKLV@LVDOZD\VDPDUNRIDJRRGVRXODQGWKDWLIWKLVLQWHUHVWLVKDELWXDOLWDWOHDVWLQGLFDWHVD GLVSRVLWLRQRIWKHPLQGWKDWLVIDYRUDEOHWRWKHPRUDOIHHOLQJLILWLVJODGO\FRPELQHGZLWKWKH YLHZLQJRIQDWXUH´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¶VDUJXPHQWDORQJZLWKWKHQRWLRQRIGLVLQWHUHVWHGQHVVVKDVUHVXOWHGLQLWVXQFULWLFDO DGRSWLRQOHDGLQJWRWKHNLQGVRISUHVFULSWLYHHYDOXDWLRQVRIDUWSURPRWHGGXULQJ0RGHUQLVPLH IRUPDOLVP³$VFRQFHLYHGE\*UHHQEHUJLQSDUWLFXODUPRGHUQLVPLVDEHODWHGDQGIXWLOHDWWHPSWWRUHVWRUH RUDQWLFLSDWHWKHSXULW\VSHFLILFWRWKHPHGLXPRIHDFKSDUWLFXODUDUWRQWKHDVVXPSWLRQWKDWDGHILQLWLYH EUHDNZLWKFRQYHQWLRQDOPRGHVRIUHSUHVHQWDWLRQZLOOHQDEOHWKHOLEHUDWLQJGLVVROXWLRQRIFRQWHQWLQWRIRUP´ >6HH+DOOZDUG3³-DFTXHV5DQFLqUHDQGWKH6XEYHUVLRQRI0DVWHU\´,Q3DUDJUDSK9RO 0DUFKS@*UHHQEHUJ¶VZKLJJLVKKLVWRU\LVODUJHO\DEDQGRQHGWRGD\DQGUHPDLQVDKLJKO\ SUREOHPDWLFXQGHUVWDQGLQJRIDUWDQGDHVWKHWLFV 7KHSUHHPLQHQFHRIWKHEHDXW\RIQDWXUHRYHUWKHEHDXW\RIDUWLQDORQHDZDNHQLQJDQLPPHGLDWH LQWHUHVWHYHQLIWKHIRUPHUZHUHWREHVXUSDVVHGE\WKHODWWHULQUHVSHFWRIIRUPLVLQDJUHHPHQW ZLWKWKHUHILQHGDQGZHOOIRXQGHGWKLQNLQJRIDOOKXPDQEHLQJVZKRKDYHFXOWLYDWHGWKHLUPRUDO IHHOLQJ +RZHYHUZHPXVWDVNKRZDQGZK\QDWXUHVSHFLILFDOO\DZDNHQVDPRUDOIHHOLQJDQGZKDWLVWKH LPSRUWDQFHRIWKLVGLVWLQFWLRQLQWKHFRQWH[WRI.DQW¶VSKLORVRSK\" 7KHPRUDOLQFOLQDWLRQZHUHFHLYHIURPQDWXUHLVDUHVXOWRILWVWHOHRORJ\RSHUDWLQJDV ³SXUSRVLYHQHVVZLWKRXWSXUSRVH´7KLVILQDOGLVWLQFWLRQEHWZHHQQDWXUHDQGDUWLVEDVHGRQWKH LGHDWKDWWKHDHVWKHWLFUHODWLRQEHWZHHQWKHVXEMHFWDQGWKHREMHFW¶VILQDOLW\UHVWVIRU.DQWRQD WHOHRORJLFDOSULQFLSOHWKDWFRQQHFWVQDWXUHZLWKKLVPRUDOGRFWULQH6LQFH.DQWEHOLHYHVWKDWWKH IDFXOW\RIUHDVRQLVUHVSRQVLEOHIRUDQLQGLYLGXDO¶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³SXUSRVLYHQHVVZLWKRXWSXUSRVH´LVUHYHDOHG WKURXJKRXUDHVWKHWLFMXGJPHQWRILWEULGJHVDQLQGLYLGXDO¶VMXGJPHQWRIWDVWHZLWKDQLQWHOOHFWXDO MXGJPHQWE\ZD\RIWKHIDFXOW\RIUHDVRQ.DQWIDPRXVO\DUJXHGWKDWEHLQJVVKRXOGEHMXGJHGDV HQGVLQWKHPVHOYHVUDWKHUWKDQDPHDQVWRDQHQG7KLVFUHGHQFHLQWKHDHVWKHWLFVHQVHLVD UHIOHFWLRQRIQDWXUHDVDZKROH6LQFHZHFDQQRWVXEMHFWWKHREMHFWRIRXUDHVWKHWLFUHIOHFWLRQVWR DQ\OHYHORILQVWUXPHQWDOLW\WKHH[SHULHQFHRIQDWXUHLVFRQFHLYDEOHRQO\LIWKHREMHFWRIRXU .DQWS 7KHIRXQGDWLRQIRU.DQW¶VDHVWKHWLFGRFWULQHLQUHODWLRQWRWKHFDWHJRULFDOLPSHUDWLYHH[SOLFDWHGLQKLV *URXQGZRUNIRUWKH0HWDSK\VLFVRI0RUDOVZLOOEHGHWDLOHGLQ&KDSWHU *X\HU3³(GLWRU¶V,QWURGXFWLRQ´,Q&ULWLTXHRIWKH$HVWKHWLF3RZHURI-XGJPHQWS[[YLL ,ZRXOGOLNHWRWKDQN3HWHU7LPPHUPDQKLVDVVLVWDQFHLQGHYHORSLQJWKLVDUJXPHQW DSSUHFLDWLRQUHVWVRQWKHGHDRIQDWXUHZKLFKUHVLVWLQJWKHQHFHVVDU\UHLILFDWLRQWRWXUQLWLQWRDQ REMHFWSXUHO\IRUDHVWKHWLFUHIOHFWLRQLVJLYHQLQWKHQRWLRQWKDWQDWXUHH[LVWVDV³SXUSRVLYHQHVV ZLWKRXWSXUSRVH´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¶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¶V7KH(FRORJLFDO7KRXJKW (FRORJ\ZLWKRXW1DWXUH5HWKLQNLQJ(QYLURQPHQWDO$HVWKHWLFVDVZHOODV2QQR2HUOHPDQ¶V 5RPDQWLFLVPDQGWKH0DWHULDOLW\RI1DWXUH .DQWSS LQHQYLURQPHQWDOSKLORVRSK\7KHUHIRUHLQRUGHUWRH[SORUHZKHWKHURUQRWWKHUHH[LVWVDQ RQWRORJLFDOGLVWLQFWLRQEHWZHHQQDWXUHDQGDUWWKUHHFRQFHUQVZLOOEHDGGUHVVHGWRDGMXGLFDWHWKHLU YDOLGLW\YLD3$¶VUDWLRQDOHIRUDWKHRUHWLFDOELIXUFDWLRQZLWKDUWLQDHVWKHWLFSKLORVRSK\LWKH VFLHQWLILFXQGHUVWDQGLQJRIQDWXUHLLWKHPRUDOLPSHWXVJLYHQE\DHVWKHWLFH[SHULHQFHVRIQDWXUH WRZDUGVKXPDQLVWDQGHFRORJLFDOLGHDOVDQGLLLWKHFRQVLGHUDWLRQWKDWDUWLVRQWRORJLFDOO\GLVWLQFW IURPQDWXUHDQGSUHVHQWVDQDHVWKHWLFDIIURQWWRQDWXUH D $HVWKHWLF$WWLWXGHVWRZDUGV1DWXUH 3UREOHPVZLWKD6FLHQWLILF%DVLVIRU(QYLURQPHQWDO$HVWKHWLFV &DUOVRQ¶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³DHVWKHWLFDIIURQWWRQDWXUH´WKLVDIIURQWLVQRWURRWHGLQWKHPDWHULDOVHPSOR\HGE\ DUWLVWVIRU&DUOVRQDGDPDQWO\UHMHFWVHQYLURQPHQWDODUWZKLOHSURPRWLQJ-DSDQHVHJDUGHQVDV ³WKLQJVEHWZHHQDUWDQGQDWXUH´ZKLFKLQFLWHDHVWKHWLFDSSUHFLDWLRQ5DWKHUWKHZD\LQZKLFK QDWXUHDQGDUWDUHSLWWHGLQRSSRVLWLRQWRHDFKRWKHULVDUHVXOWRIDSDUWLFXODUFRQFHSWLRQRIWKH G\QDPLFEHWZHHQWHNKQƝDQGSKXVLV,ZRXOGDUJXHWKDWWKHSUREOHPIRU&DUOVRQLVQRWQHFHVVDULO\ 7KLVSUREOHPZLOOEHIXUWKHUGLVFXVVHGLQ&KDSWHULQWKHFRQWURYHUV\RI%LR$UWDQGIXUWKHU SUREOHPDWL]HGLQ&KDSWHUDQG&KDSWHU &DUOVRQS HFRORJ\EXWUDWKHUWKDWRIDFKLHYLQJDQRQWRORJLFDOGLVWLQFWLRQIURPDUWSUHPLVHGRQWKHZD\LQ ZKLFKVFLHQFHLVSULYLOHJHGZLWKDFFHVVWRSKXVLV3KXVLVFDQEHWUDQVODWHGDVµQDWXUH¶DQGGHILQHG DV³WKHILUVWDQGHVVHQWLDOQDPHIRUEHLQJVWKHPVHOYHVDQGDVDZKROHWKHEHLQJLVZKDW IORXULVKHVRQLWVRZQLQQRZD\FRPSHOOHGZKDWULVHVDQGFRPHVIRUZDUGDQGZKDWJRHVEDFN LQWRLWVHOIDQGSDVVHVDZD\,WLVWKHUXOHWKDWULVHVDQGUHVLGHVLQLWVHOI´7KHXQGHUVWDQGLQJRI DUWKRZHYHULVDOZD\VDOLJQHGZLWKDQRWLRQRIWHNKQƝZKRVHRIWHQFUDVVWUDQVODWLRQFRQFHLYHVLW DVDµPDVWHU\RYHUQDWXUHSKXVLV¶:KHQLQWHUSUHWHGWKLVZD\,DUJXHWKDW&DUOVRQ¶VDUJXPHQW IRUVFLHQWLILFNQRZOHGJHDVWKHJURXQGLQJIRUDHVWKHWLFH[SHULHQFHVRIQDWXUHUHTXLUHVIXUWKHU FRQVLGHUDWLRQ ,DJUHHZLWKWKHFRQFHSWWKDWVFLHQWLILFHSLVWHPRORJ\LVHQWLUHO\SUHGLFDWHGRQUHYHDOLQJWKH µQDWXUH¶RIQDWXUHRUWKHSKXVLVRIQDWXUH7KLVLQWLPDWHUHODWLRQVKLSLQIDFWKDVEHHQH[SORUHGDW OHQJWKE\3LHUUH+DGRWLQ7KH9HLORI,VLV+RZHYHUWKHLVVXH,WDNHZLWKWKLVDVWKHEDVLVIRU GLVWLQJXLVKLQJDQDHVWKHWLFDSSUHFLDWLRQRIQDWXUHLVWZRIROG)LUVWO\LWLVQDLYHWRWKLQNWKDW VFLHQFHLVDEOHWRVRPHKRZSURGXFHXQUHVWUDLQHGDFFHVVWRSKXVLVZLWKRXWWHFKQRORJLHVWKDWLV ZLWKRXWWHNKQƝ6FLHQWLILFLQYHVWLJDWLRQOLNHDUWLVWLFLQYHVWLJDWLRQLVDOZD\VFRQWLQJHQWXSRQWKH XVHRIDWHFKQLFDODSSDUDWXV7KLVXVHQHFHVVDULO\UHVXOWVLQDUHLILFDWLRQRIQDWXUH7KHQHHGIRU VFLHQFHWRWUDQVIRUPQDWXUHLQWRDVWDWLFREMHFWVKRXOGQRWDUULYHDVDVKRFNIRUH[DPSOHWKLV DUJXPHQWLVXVHGE\/RUUDLQH'DVWRQDQG3HWHU*DOLVRQWRH[SODLQWKHZD\LQZKLFKVFLHQFHKDV EHHQDEOHWRDIIRUGLWVHSLVWHPRORJLFDODXWKRULW\,I&DUOVRQZHUHWRLQYHVWLJDWHWKHKLVWRU\RIWKH WHFKQLFDOUHLILFDWLRQRIQDWXUHKHZRXOGILQGWKDWVFLHQFHDVPXFKDVDUWUHTXLUHVWKHXVHRI +HLGHJJHUS +DGRWWUDFHVWKHKLVWRU\RIWKHLGHDRIQDWXUHWKURXJKRXWDQWLTXLW\GHPRQVWUDWLQJLWVGHYHORSPHQWLQ UHODWLRQWRGLVFRXUVHRQDHVWKHWLFVVFLHQFHDQGWHFKQRORJ\>6HHDOVR&ROOLQJZRRG5*7KH,GHD RI1DWXUH/RQGRQ2[IRUG8QLYHUVLW\3UHVVDQG:LOOLDPV5³,GHDVRI1DWXUH´,Q&XOWXUHDQG 0DWHULDOLVP/RQGRQ9HUVRSS@ 'DVWRQ/*DOLVRQ32EMHFWLYLW\&DPEULGJH=RQH%RRNV IUDPHVDOEHLWFRQFHSWXDODQGLQVWUXPHQWDORQHVLQRUGHUWRFRQGXFWDQ\HPSLULFDOLQYHVWLJDWLRQ RIQDWXUH6LQFHVFLHQWLILFNQRZOHGJHLVQRWSRVVLEOHZLWKRXWDGHWRXUWKURXJKWHNKQƝWKH DUJXPHQWWKDWZRUNVRIDUWGHQLJUDWHDSXUHDHVWKHWLFDSSUHFLDWLRQRIQDWXUHE\YLUWXHRIWKHLU SURYHQDQFHLQWHFKQLFDOPDQLSXODWLRQVKRXOGLSVRIDFWRUHMHFWDVFLHQWLILFEDVLVIRUDHVWKHWLF DSSUHFLDWLRQRIQDWXUHEHFDXVHWKLVNQRZOHGJHWRRUHYHDOVWKHEHDXW\RIQDWXUHWKURXJKWKHXVHRI WHFKQLFDOLQVWUXPHQWDWLRQ 7KHVHFRQGSUREOHPZLWKDVFLHQWLILFEDVLVIRUWKHDHVWKHWLFDSSUHFLDWLRQRIQDWXUHLVWKDWDHVWKHWLF WKRXJKWLVDEVROXWHO\DQGXQDSRORJHWLFDOO\DQWLWKHWLFDOWRVFLHQWLILFFRJQLWLRQDVVXFK.DQW¶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«>EXW@WKLVLVRODWHG VHQVXRXVWKLQJDVVXFKKDVQRIXUWKHUUHODWLRQWRWKHPLQGLQDVPXFKDVWKHLQWHOOLJHQFHDLPVDW WKHXQLYHUVDOWKHODZWKHWKRXJKWDQGQRWLRQRIWKHREMHFW1RWRQO\«GRHVLWDEDQGRQDOO &DUOVRQDUJXHVWKDWDHVWKHWLFWKHRULHVRIDUWFDQQRWEHDSSOLHGWRQDWXUHEHFDXVHWKHIRUPHU¶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±IURP+HJHOWR +HLGHJJHUWRFRQWHPSRUDU\DHVWKHWLFWKLQNHUV±LVVXFKDQDYHQXHRIFRQIODWLQJFRJQLWLRQZLWK DHVWKHWLFMXGJPHQWVFRQFHLYDEOHIRULWQHFHVVDULO\UHGXFHVWKHSULQFLSOHVRISOHDVXUHLQ MXGJPHQWVRIWDVWHWRWKDWRIPHUHLQVWUXPHQWDOLVP2QHFRXOGFKDOOHQJHWKHDUFKLWHFWRQLF VWUXFWXUHRI.DQW¶VWKRXJKWEHWZHHQWKHUHDOPVRIXQGHUVWDQGLQJDQGMXGJPHQWLQRUGHUWROLQN WKHPWRDOORZQRQVHQVXDOLHFRJQLWLYHMXGJHPHQWVDVDPRGDOLW\H[LVWLQJLQWKH)RXU0RPHQWV EXWWKLVSURRIKDVQRW\HWEHHQDWWHPSWHG7KHUHLVKRZHYHURQHRWKHUDOWHUQDWLYHIRUHPSOR\LQJ VFLHQFHDVDPHWKRGIRUPDNLQJDHVWKHWLFMXGJPHQWVRQHZKLFKIRUZDUGVDFRPSOHWH DEDQGRQPHQWRI.DQWLDQDHVWKHWLFVDOWRJHWKHU$UJXDEO\WKLVLVZKDWLVDFFRPSOLVKHGLQ3$ :KHWKHUWKLVWKHRU\LVDEOHWRHQJDJHLQDQ\DHVWKHWLFFULWLTXHKRZHYHULVTXHVWLRQDEOH 7KH4XHVWLRQRI0RUDOLW\LQ(QYLURQPHQWDO$HVWKHWLFV ,FRQWHQGWKDWWKHUHDVRQHQYLURQPHQWDODHVWKHWLFVHPHUJHVDVDQDOWHUQDWLYHWRWKHDHVWKHWLF XQGHUVWDQGLQJHPSOR\HGIRUWKHDSSUHFLDWLRQRIDUWLVGXHWRDQHHGWRGHILQHDQREMHFWIRU LQYHVWLJDWLQJWKHEHDXWLIXOLQQDWXUHWHQDEO\HPSOR\HGWRZDUGVDQHPSKDVLVRIKXPDQLVWLFDQG HFRORJLFDOLGHDOV<HWWKHRQWRHSLVWHPRORJLFDOVWDNHRI1DWXUHEHJHWWLQJWKLVHQGHDYRU SDUDGR[LFDOO\SUHFOXGHVWKHSRVVLEOHHPHUJHQFHRIPRUDODQGHWKLFDODUJXPHQWVWKDWMXVWLI\LWV GLVFRXUVH2QWKHRQHKDQGDUHOLDQFHRQVFLHQWLILFNQRZOHGJHLVOLNHO\FRQFHLYHGZLWKUHVSHFWWR +HJHOS 7KLVFRQVLGHUDWLRQZDVLQWURGXFHGWRPHE\67XUSLQZKRVHDVVLVWDQFHWRWKLVSURMHFWKDVEHHQ LQYDOXDEOH>6HH7XUSLQ6$HVWKHWLFVRI([SHQGLWXUH$UW3KLORVRSK\DQGWKH,QILQLWH)DFXOW\ 3K''LVVHUWDWLRQ8QLYHUVLW\RI7RURQWRKWWSZZZV\QHUJLHVFDQDGDRUJWKHVHVRWX@ 7KLVFDQDUJXDEO\EHDFKLHYHGVWLOOSUHVHUYLQJDGLVWLQFWXQGHUVWDQGLQJIURPZRUNVRIDUWE\IDYRXULQJ WKHVXEOLPHDVWKHH[FOXVLYHPRGHRIHODERUDWLQJH[SHULHQFHVRIQDWXUH %\WKHLURZQYROLWLRQQDWXUDODHVWKHWLFLDQVSURSRVHPRGHOVIRUDMXVWLILFDWLRQWRZDUGVDSSURSULDWHPRGHV RIDSSUHFLDWLQJQDWXUH±FLWLQJWKHGDQJHUVRILQWHUDFWLQJZLWKQDWXUHLQDOWHUQDWLYHZD\VLPSO\LQJWKHOLQN EHWZHHQRQH¶VFRQFHSWXDOSUHWHQFHVDQGRQH¶VDFWLRQV SULQFLSOHVDULVLQJIURP'HHS(FRORJ\+ROLVPDQG9LWDOLVPLQHQYLURQPHQWDOWKRXJKWDOORI ZKLFKDVVXPHDQLQWULQVLFYDOXHIRU1DWXUHZKRVHSK\VLFDOHQJDJHPHQWLVDQWLSRGDOWRDUWDQG ZKRVHWKHRUHWLFDOFRQVLGHUDWLRQVSURGXFHSUDFWLFDOVROXWLRQVHJLQWKHIRUPRI³PRGHOV´IRU SUHVHUYLQJWKHVHYDOXHV2QWKHRWKHUKDQG&DUOVRQZULWHVWKDWKHGRHVQRWWDNHLQWRFRQVLGHUDWLRQ ³WKHHFRORJLFDOOHJDODQGPRUDOLVVXHV´UDLVHGE\HQYLURQPHQWDODUWZRUNVZKLFKE\WKHVDPH WRNHQSUHVHQWDQ³DHVWKHWLFDIIURQW´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¶VWKHRU\RI3$LVXOWLPDWHO\FRQWUDGLFWRU\WRWKHSUHPLVH WKDWWKHUHH[LVWVDQHHGIRUHQYLURQPHQWDODHVWKHWLFVEDVHGRQQDWXUH¶VLQKHUHQWEHDXW\)RUE\ UHYRNLQJWKHPRUDOLPSHUDWLYHLQVFULEHGE\WKHWHOHRORJLFDOMXGJPHQWWKHUHLVQRUHDOMXVWLILFDWLRQ IRUPDNLQJWKHFODLPWKDWQDWXUDOEHDXW\GHPDQGVRXUDSSUHFLDWLRQ)XUWKHUPRUHWKHDUJXPHQWIRU QDWXUH¶VLQKHUHQWEHDXW\LVSUHVHQWHGWDXWRORJLFDOO\DWWHPSWLQJWRHVWDEOLVKWKLVQRWLRQDVIDFW 7KLVDWWLWXGHLVQRWMXVWUDLVHGLQ&DUOVRQ¶VHYDOXDWLRQRI/DQG$UWEXWDOVRZRUNVDJDLQVWWKH³QDWXUDO HQYLURQPHQWDOPRGHO>ZKLFK@LQLWVUHMHFWLRQRIDSSUHFLDWLYHPRGHOVFRQGHPQHGDVDQWKURSRFHQWULF SDUDOOHOVHQYLURQPHQWDOHWKLFVLQWKHODWWHU¶VUHMHFWLRQRIDQWKURSRFHQWULFPRGHOVIRUWKHPRUDODVVHVVPHQW RIWKHQDWXUDOZRUOGDQGWKHUHSODFHPHQWRIVXFKPRGHOVZLWKSDUDGLJPVGURZQIURPWKHHQYLURQPHQWDODQG QDWXUDOVFLHQFHV´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¶VSKLORVRSK\WKDWMXGJPHQWVRIWDVWHQHFHVVDULO\UHVXOWLQMXGJPHQWVRIEHDXW\ PLVVLQJWKHUHVXOWDQWFRPPXQLW\HQDEOHGE\WKHVHQVXVFRPPXQLVZKLFKSUHYHQWVWKHµFRPPRQ VHQVH¶RIVXFKMXGJPHQWV3UHVXSSRVLQJWKDWQDWXUHLVLQKHUHQWO\EHDXWLIXOLVFRQIRXQGLQJLQ DQRWKHUVHQVHEHDXW\LVQHYHUPHDQWWREHWKHSURSHUW\RIDQREMHFWEHLWDZRUNRIDUWRUDQ REMHFWRIQDWXUHLWLVDVXEMHFWLYHMXGJPHQWXSRQWKHREMHFW¶VUHSUHVHQWDWLRQRILWVHOI7KH LPSHUDWLYHRISURYLGLQJDUDWLRQDOHIRUWKHVHSDUDWHDHVWKHWLFWUHDWPHQWRIQDWXUHIURPDUWEDVHGRQ PRUDODQGHWKLFDOJURXQGVLVIRXQGODFNLQJLQHQYLURQPHQWDODHVWKHWLFV&RQVHTXHQWO\3$LVRQO\ DEOHWRSURYLGHDQHJDWLYHGHILQLWLRQRIQDWXUHEDVHGRQDGLDOHFWLFDORSSRVLWLRQWRZRUNVRIDUW &DUOVRQSS 7KH,GHDWKDW$UWLVDQ³$HVWKHWLF$IIURQWWR1DWXUH´ 7KHFODLPWKDWDUWLVDQ³DHVWKHWLFDIIURQWWRQDWXUH´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ƝKHUDOGLQJWKHIRUPHUIRUSRVVHVVLQJVSHFLDODHVWKHWLFDQGPDWHULDOSURSHUWLHVDQG FRQGHPQLQJWKHODWWHUEDVHGRQLWVHQFURDFKPHQWXSRQWKHIRUPHU7KLVSUHPLVHVWDQGVRQO\LQ OLHXRIDQH[WHUQDOPDWHULDO1DWXUHFKDUDFWHUL]HGE\LQFRQWHVWDEOHLQKHUHQWEHDXW\ 7KHDWWDFNRQDUWLVLQVWHDGPDGHLQRUGHUWRVXEVWDQWLDWHWKHOHJLWLPDF\RIHQYLURQPHQWDO DHVWKHWLFVE\K\SHUEROL]LQJWKHFDWHJRULHV³QDWXUH´DQG³DUW´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¶VURXWHWKHQDVFLHQWLILFXQGHUVWDQGLQJRIQDWXUHSRWHQWLDOO\SURYLGHVSHGDJRJLFDO YDOXHE\LQWULJXLQJDQLQGLYLGXDO¶VLQWHUHVWLQDQGNQRZOHGJHRIQDWXUDOV\VWHPV,IZHWDNHWKH 1RQ&RQFHSWXDOLVW¶VURXWHWKHQSHUKDSVLQFUHDVLQJRXUVHQVLWLYLW\WRQDWXUDOEHDXW\SURYLGHVD PRGHIRUUHIOHFWLRQUHODWHGWRRQH¶VRZQVHOIDZDUHQHVV,QHLWKHURIWKHVHYLHZSRLQWVDQ DHVWKHWLFH[SODQDWLRQLVQHLWKHUUHTXLUHGIRUWKHFRQVLGHUDWLRQRIQDWXUHQRULVLWQHFHVVDULO\WKH FDXVHIRUWKHVHHIIHFWV'HVSLWHWKHSRWHQWLDOEURDGHUHQYLURQPHQWDOREMHFWLYHVUHVXOWLQJIURPWKH &RQFHSWXDOLVWRU1RQ&RQFHSWXDOLVWSRVLWLRQVQHLWKHURQHRIWKHVHYLHZVDUHVXIILFLHQWIRUD GLVWLQFWDHVWKHWLFGLVFRXUVHVLQFHWKH\ERWKEHJWKHTXHVWLRQDERXWZKDWREMHFWDQGREMHFWLYHLV VHUYHGLQWKHLULQYHVWLJDWLRQV)RULQVWDQFHLWVWLOOUHPDLQVXQFOHDUZKHWKHUHQYLURQPHQWDO DHVWKHWLFVSHUWDLQWR³HQYLURQPHQWV´RU³QDWXUH´6LQFH³HQYLURQPHQWV´DUHQRWW\SLFDOO\ LQVXODWHGIURPKXPDQDFWLYLWLHVHJXUEDQDUHDVDUH³HQYLURQPHQWV´DVZHOODVSDVWXUHVDQG IRUHVWVFRQIXVLRQDERXWZKHWKHUHQYLURQPHQWDODHVWKHWLFVFRQFHUQVVWULFWO\QDWXUDORUDOVREXLOW )RUH[DPSOHWKHDUJXPHQWWKDWVFLHQWLILFNQRZOHGJHLVHVVHQWLDOWRHQYLURQPHQWDODHVWKHWLFVVWDQGV ZLWKRXWGHPRQVWUDEOHSURRI0RUHRYHULWLVOLNHO\WKDWRQH¶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³SXUHSULVWLQHQDWXUH´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³WUDQVIRUPLQJSUHYLRXVDWWLWXGHVWRZDUGVQDWXUH´DQGWKDWP\ OLQHRIUHDVRQLQJLVELDVHG,QWKDWFDVH,ZRXOGJODGO\DFFHSWWKLVFULWLTXHLIHQYLURQPHQWDO &DUOVRQDUJXHVWKDWWKHUHDVRQIRUWKHVHLQFOXVLRQVH[FOXVLRQVOLHLQ'DYLG&UDZIRUG¶VGLVWLQFWLRQ EHWZHHQGLDOHFWLFDODQGKDUPRQLRXVUHODWLRQVKLSVEHWZHHQQDWXUHDQGDUW,Q/DQG$UWZRUNVDQGDUWZRUNV LQJHQHUDOWKHUHODWLRQVKLSLVGLDOHFWLFDOEXWZLWKJDUGHQVWKHUHODWLRQVKLSFDQEHKDUPRQLRXVLQVRIDUDV WKHUXOHVIRUFRQVLGHULQJDUWFDQDOVREHDSSOLHGWRQDWXUHDVLQWKHFDVHRI)UHQFKJDUGHQVRUWKHUXOHVIRU FRQVLGHULQJQDWXUHFDQEHDSSOLHGWRDUWDVLQWKHFDVHRI(QJOLVKJDUGHQV$-DSDQHVHJDUGHQRQWKHRWKHU KDQG³HPSOR\VWKHDUWLILFLDOLQWKHFUHDWLRQRIDQLGHDOL]HGYHUVLRQRIQDWXUHWKDWHPSKDVL]HVWKHHVVHQWLDO ,WWKHUHE\DFKLHYHVDQDSSHDUDQFHRILQHYLWDELOLW\±WKHORRNRIVRPHWKLQJWKDWFRXOGQRWKDYHEHHQ RWKHUZLVH±DQGLQDFKLHYLQJWKLVORRNLWDVSULVWLQHQDWXUHLWVHOIULVHVDERYHFULWLFDOMXGJPHQW´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³HQYLURQPHQW´RU³QDWXUH´RXJKWWREHHVWDEOLVKHGLQWKLVGLVFRXUVH"7RGDWHH[WHQVLYH GLVFXVVLRQVKDYHEHHQSURYLGHGE\QDWXUDODHVWKHWLFLDQVRQWKHPXOWLSOHZD\VWRGHWHUPLQHKRZ ZHKDYHDHVWKHWLFH[SHULHQFHVRIQDWXUH<HWLWUHPDLQVWREHMXVWLILHGZK\LWLVQHFHVVDU\WRKDYH DGLVFRXUVHDERXWDHVWKHWLFH[SHULHQFHVRIQDWXUHWKDWLVGLVWLQFWIURPWKRVHRIDUW)RUWKLVUHDVRQ 6LPXVLVFRUUHFWLQSRLQWLQJRXWWKDW³ZKDW¶VDWSOD\KHUHLVWKDWWKHLGHDRIQDWXUHLVEHLQJ DHVWKHWLFDOO\DIIURQWHG%XWZKRVHLGHDRIQDWXUH"´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³(QYLURQPHQWDO$UWDQG(FRORJLFDO&LWL]HQVKLS´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¶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µQDWXUDO¶LPSO\LQJWKHSRVVHVVLRQRILQWULQVLFTXDOLWLHVZKLFKQDWXUDO DHVWKHWLFLDQVDUJXHJURXQGVDQRQWRORJLFDOGLVWLQFWLRQWKDWMXVWLILHVLWVDSDUWKHLGIURPµDUWLVWLF¶ DHVWKHWLFV7KHUHOLDQFHRQVFLHQWLILFNQRZOHGJHWRUHYHDOQDWXUHIRUDHVWKHWLFUHIOHFWLRQPD\EH VHGXFWLYHIRUHQYLURQPHQWDOLVP\HWDFWXDOO\HYDGHVWKHZRUNRIRQWRORJ\EHFDXVHLWPHUHO\ UHF\FOHVHVVHQWLDOLVWGHILQLWLRQVIRUQDWXUHZKLFKUHPDLQLQHSWZKHQIDFHGZLWKWKHPRUDORU SROLWLFDOSURYRFDWLRQVLQYRNHGLQDHVWKHWLFHYDOXDWLRQV7KHDHVWKHWLFGLYLVLRQEHWZHHQQDWXUHDQG DUWWKHUHIRUHSURPRWHVDGLVWLQFWLRQEHWZHHQLQGLYLGXDOVZKRXSKROGWKHYDOXHVRI3$QDPHO\ WKDWQDWXUDOEHDXW\LVPRUHYDOXDEOHWKDQWKHEHDXW\RIDUW±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¶VELRDUWFUHDWLRQV , &RQWURYHUV\RI%LRDUW %LR$UWLVRIWHQOXGLFURXV,WFDQEHOXPS\JURVVXQVDQLWDU\VRPHWLPHVLQYLVLEOHDQGWULFN\WRNHHSVWLOORQ WKHDXFWLRQEORFN%XWDWWKHVDPHWLPHLWGRHVVRPHWKLQJYHU\WUDGLWLRQDOWKDWDUWLVVXSSRVHGWRGRGUDZ DWWHQWLRQWRWKHEHDXWLIXODQGJURWHVTXHGHWDLOVRIQDWXUHWKDWZHPLJKWRWKHUZLVHQHYHUVHH (GXDUGR.DFFRLQHGµ%LR$UW¶LQWRQDPHWKHHPHUJHQFHRIFRQWHPSRUDU\DUWSUDFWLFHV ZKLFKXVH³OLIHDQGOLYLQJEHLQJVERWKDVDPHGLXPDQGDVVXEMHFWPDWWHU´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³DHVWKHWLFHQGV´LVPHUHO\WKHXQFULWLFDODGRSWLRQRIWKHUHGXFWLRQLVWORJLFRI VFLHQWLILFWKRXJKWHPSOR\HGIRUWKHIULYRORXVH[SORLWDWLRQRIOLYLQJRUJDQLVPVLQWKHQDPHRI 7KLVJHQUHRIDUWLVGHHPHG³%LR$UW´E\.DFXVHGLQWHUFKDQJHDEO\ZLWKLWVDOWHUQDWLYHVSHOOLQJ³%LRDUW´, SUHIHUWRXVHWKHODWWHUXVHRIWKHWHUPLQWKLVWKHVLVH[FHSWZKHUHLWLVXVHGLQTXRWDWLRQ:KHUHLWLVQRW FDSLWDOL]HG³ELRDUW´UHIHUVLQJHQHUDOWRWKHVSHFLILFZRUNVRIELRDUWLVWV 9RLJW(³7KH$UWLV$OLYH´,Q,VRWRSH$-RXUQDORI/LWHUDU\6FLHQFHDQG1DWXUH:ULWLQJ9RO )DOO:LQWHUSS =XUU,&DWWV2³7KHHWKLFDOFODLPVRI%LR$UWNLOOLQJWKHRWKHURUVHOIFDQQLEDOLVP"´ KWWSZZZWFDXZDHGXDXSXEOLFDWLRQ7KH(WKLFDO&ODLPVRI%LRDUWSGI$FFHVVHG0D\S ,ELG µDUW¶,QGLFDWLQJWKDWWKH³KXPDQLQWHUYHQWLRQLQWKHSURFHVVRIQDWXUDOVHOHFWLRQ±E\ZKLFK QDWXUHFKDQJHVWKHJHQHWLFLQKHULWDQFHRIVSHFLHV±KDVDORQJKLVWRU\´%LUNH¶VDUJXPHQWLVQRW QHZ%LRDUWLVWVKDYHFRQWLQXRXVO\EHHQDFFXVHGRIDQWKURSRFHQWULVPRISRVVHVVLQJDµJRG FRPSOH[¶WKHLUZRUNVKDYHEHHQGHULYDWLYHO\GHVFULEHGDVRYHUFHOHEUDWHGULVN\DQGSURYRFDWLYH RISXEOLFDSSUHKHQVLRQ%LRDUWFUHDWLRQVWKHUHIRUHFRQWLQXHWRSURYRNHPDQ\FRQWURYHUVLHV KLQJLQJRQWKHDHVWKHWLFDQGHWKLFDOVLJQLILFDQFHRILWKHDXWKRULW\RIELRDUWLVWVWRXQGHUWDNH JHQHWLFDOWHUDWLRQRIRUJDQLVPVLLWKHSUHVHQWDQGIXWXUHULVNWROLIHIRUPVZKLFKKDYHEHHQ JHQHWLFDOO\FUHDWHGRUPRGLILHGLLLWKHSXUSRVHRIWKHVHXQGHUWDNLQJVIRUWKHµVDNHRIDUW¶ 3HUKDSVSXEOLFXQFHUWDLQW\DQGODFNRIIDPLOLDULW\ZLWKFRQWHPSRUDU\DUWDOORZVLWVRSSRQHQWVWR H[SORLWWKLVXQHDVHE\EHOLWWOLQJDQGGLVPLVVLQJELRDUWZRUNVDVIULYRORXVPDQLSXODWLRQVRIQDWXUH LQWKHQDPHRIµDUW¶+RZHYHUZHPLJKWDVNZK\FULWLFLVPVDJDLQVW%LRDUWFUHDWLRQVDYRLGEHLQJ GLUHFWHGDWWKHWHFKQLTXHVHPSOR\HGE\ELRDUWLVWVZKLFKDUHDSSURSULDWHGIURPVFLHQWLVWV 2SSRQHQWVUDWKHUSUHIHUWRDWWDFNWKHDHVWKHWLFVLJQLILFDQFHRI%LRDUWZRUNVFDVWLQJWKHPDV µXQQDWXUDO¶DQGµXVHOHVV¶7KLVVWUDWHJ\LVUHSHDWHGLQPDQ\LQVWDQFHVE\%LUNHZKRGHIHQGVKHU SHUVRQDODYHUVLRQWR%LRDUWFKDUDFWHUL]HGDVWKH³\XN´IDFWRU6KHDUJXHV >:@H VKRXOG EH DUJXLQJ SDVVLRQDWHO\ IRU D PRUH HQOLJKWHQHG DSSURDFK WR XQGHUVWDQGLQJ KRZ DQLPDOV DQG WKHLU ERGLHV ZRUN RQH ZKLFK DFNQRZOHGJHV DQG FHOHEUDWHV WKHLU FRPSOH[LW\ DQG LQWHJULW\±DVZHOODVWKHLURZQLQWULQVLFDHVWKHWLFTXDOLWLHV±DQGKDYLQJYDOXHGWKHPOHDYHVWKHP DORQH %LUNH/³0HGGOLQJZLWK0HGXVDRQJHQHWLFPDQLSXODWLRQDUWDQGDQLPDOV´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³WKHUHPXVWEHDFOHDUEHQHILW RWKHUZLVHWKHH[SHULPHQWVZLWKWKHLUULVNRIDQLPDOVXIIHULQJFDQQRWEHMXVWLILHG´2IFRXUVH WKHEHQHILWKHUHLVIRUKXPDQVDQGWKHXWLOLWDULDQORJLFLVUDLVHGLQRUGHUWRMXVWLI\VFLHQWLILFDQG QRWDUWLVWLFHQGHDYRXUVZKLOHVLPXOWDQHRXVO\DFFXVLQJELRDUWLVWVRIDQWKURSRFHQWULVP5DWKHUWKH µJRGFRPSOH[¶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µUHYHODWLRQDU\ELRORJ\¶E\(ODLQH'HZDUDXWKRURI7KH6HFRQG7UHHRI&ORQHV &KLPHUDVDQG4XHVWVIRU,PPRUWDOLW\ ,ELGS $QDYLGRSSRQHQWRI%LR$UWZRUNVLV$PHULFDQHFRQRPLVWDQGHQYLURQPHQWDODFWLYLVW-HUHP\5LINLQ ZKRZDUQVXVWKDWZKDWLVDWVWDNHLQELRDUWLV³/LIHORQJWKRXJKWRIDV*RG VKDQGLZRUNDQGPRUHUHFHQWO\ YLHZHGDVDUDQGRPSURFHVVJXLGHGE\WKHLQYLVLEOHKDQGRIQDWXUDOVHOHFWLRQQRZUHLPDJLQHGDVDQ DUWLVWLFPHGLXP´>5LINLQ-³'D]]OHGE\WKHVFLHQFH´,Q7KH*XDUGLDQ-DQXDU\ KWWSZZZJXDUGLDQFRXNHGXFDWLRQMDQKLJKHUHGXFDWLRQXN$FFHVVHG-XQH@ 7KDFNHU(³$HVWKHWLF%LRORJ\%LRORJLFDO$UW´,Q&RQWH[WLQ¶$UW KWWSZZZ\RXJHQLFVQHWJULIILVFRQWH[WLQIDOOBWKDFNHULQGH[KWP$FFHVVHG-XQH ,QMXVW\HDUVELRORJLFDOVFLHQFHKDGHYROYHGIURP'DUZLQ¶VDQG0HQGHO¶VVLPSOHDWWHPSWVWR REVHUYHWKHODZVJRYHUQLQJFKDQJHWRWKLVUROOLQJVWHZRIFRPSOH[LW\6XFKHLJKWHHQWKFHQWXU\ FODVVLILFDWLRQVDVWKHGHILQLWLRQRIDVSHFLHV±WKHFDSDFLW\WREUHHGDQGJHWYLDEOHRIIVSULQJ±ZHUH FRPSOHWHO\EHVLGHWKHSRLQWLIRQHFRXOGPDNHFKLPHUDVE\IXVLQJHPEU\RVRIGLIIHUHQWVSHFLHVLQ DGLVK$QGZKHQWKHJHQHVRIILVKDQGEDFWHULDDQGPLFHFDQEHFRPELQHGLQDQLPDOVRUSODQWV ZKHQVWHPFHOOVFDQEHUHSURGXFHGLQDOPRVWLQILQLWHQXPEHUVZKHQDGXOWFHOOVFDQEHWXUQHGEDFN WRWKHVWDUWSRLQW±WKHHTXLYDOHQWRISRXULQJVSLOOHGIORXUEDFNLQWRWKHEDJ±WKHQELRORJLFDO VFLHQFHKDVEHFRPHDNLQGRIUHYHODWLRQ 'HZDULQYHVWLJDWHVWKHFXUUHQWVWDWHRIELRORJLFDOUHVHDUFKDQGH[SHULPHQWDWLRQE\WUDFNLQJ GHFLVLRQPDNLQJSURFHVVHVIXQGLQJSURFHGXUHVUHVHDUFKSURSRVDOVDQGK\SRWKHVHVXQGHUWDNHQLQ VRPHRIWKHPRVWDGYDQFHGDUHDVRIUHVHDUFK6KHZRQGHUVKRZELRORJLVWVGHFLGHZKLFKTXHVWLRQV DUHLPSRUWDQWWRSXUVXHDQGZKDWWKH\KRSHWRDFKLHYH,QWKHDJHRIUHYHODWLRQDU\ELRORJ\'HZDU ILQGVLQVWHDGWKHSXUVXLWRINQRZOHGJHRXWVWULSSHGE\WKHSRWHQWLDOIRUFRPPHUFLDOL]LQJLWV UHVXOWV7UDYHUVLQJWKHGDUNXQGHUEHOO\RIDZRUOGZKHUHDIXOOIOHGJHGUDFHLVXQGHUZD\DPRQJ WKRVHFODPRULQJWREHWKHILUVWWRGLVFRYHUWKHVHFUHWVRIOLIHLWEHFRPHVLPPHGLDWHO\DSSDUHQWWKDW WKHSROLVKHGDXWKRULWDWLYHDQGQREOHSXUVXLWRIVFLHQFHSRUWUD\HGLQKLJKVFKRROWH[WERRNVDQG JORVV\PDJD]LQHFRYHUVLVDFWXDOO\DFXWWKURDWZRUOGRIILHUFHO\FRPSHWLWLYHULVN\XQGHU UHJXODWHGFRQYROXWHGSROLWLFDOO\FKDUJHGDQGHWKLFDOO\VXVSHFWUHODWLRQVEHWZHHQWKHVWUDQJH EHGIHOORZVRIVFLHQWLVWVYHQWXUHFDSLWDOLVWVDQGIXQGLQJDJHQFLHV'HZDUTXLFNO\GHIODWHVWKH QRWLRQWKDWWKHUHVHDUFKEHLQJFRQGXFWHGWRGD\LVSXUVXHGVROHO\IRUWKHZHOOEHLQJRIKXPDQV ³&RXOGRQHFDOOWLQNHULQJZLWKUHFLSHVRUOHDUQLQJE\GRLQJVFLHQFH":DVQ¶WLWPRUHDORQJWKH OLQHVRIDOFKHP\"6FLHQFHLVQRWVXSSRVHGWREHOLNHWKLV,NHSWWHOOLQJP\VHOI´:HTXLFNO\ UHDOL]HWKDWLQWKHQDPHRIµVFLHQFH¶RQHILQGVDFRQWDPLQDWHGZRUOGZKHUHHWKLFDODQGPRUDO FRQVLGHUDWLRQVDUHHDVLO\FRPSURPLVHGZKHQIDPHIRUWXQHDQGSRZHUPHHW7KHUHDOVWDNHRI WKLVHQWDQJOHPHQWKRZHYHULVWKHGLIILFXOW\LQILQGLQJDVRXUFHRIDQLPSDUWLDOWKLUGSDUW\ 'HZDU(7KH6HFRQG7UHH2Q&ORQHV&KLPHUDVDQG4XHVWVIRU,PPRUWDOLW\1HZ<RUN &DUUROO*UDIS ,ELGS ,ELGS SHUVSHFWLYH,QWKHVHFLUFXPVWDQFHVELRDUWLVWVRIIHUQRWRQO\DQµRXWVLGHU¶VSHUVSHFWLYH¶EXWPDNH YLVLEOHWKHFRPSOH[LW\RIWKHDIRUHPHQWLRQHGLVVXHV 7KHLVVXHWKHQRIZKR³OHJLWLPDWHO\´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³JHQHWLFVELRLQIRUPDWLFV DQGELRWHFKQRORJ\LVYHU\PXFKDIXQFWLRQRIWKHZD\VELRORJ\KDVEHHQDGDSWHGWRWKH PHFKDQLVPVRIWKHKHJHPRQLFGR[DRIRXUWLPHQHROLEHUDOLVP´)UHHGRPLQDQHROLEHUDO KHJHPRQLFLGHRORJ\LPSDFWVWKHSRWHQWLDOIRUDUWLVWLFH[SUHVVLRQEHFDXVH³OLNHDOOYDOXHVLQRXU SDUWLFXODUOLEHUDOGHPRFUDF\IUHHGRPLVXQGHUVWRRGDVSULYDWHDQGRQHRIWKHMREVRIWKHDUWLVWLV WRSHUIRUPIUHHGRP±EXWDOWRJHWKHUWRRPXFKLQWKHWHUPVE\ZKLFKRXUVRFLHW\LVPRVW FRQGLWLRQHGWRUHFRJQL]HLW´7KHELRDUWLVWWKXVSOD\VDQLPSRUWDQWUROHLQFUHDWLQJDIRUXPIRU SXEOLFGHEDWH)RULQVWDQFHDOWKRXJKWKH\DUHSHUFHLYHGDVWUHVSDVVHUVLQWRWKHVDQFWLW\RI 3HQWHFRVW&³2XWILWWLQJWKH/DERUDWRU\RIWKH6\PEROLF7RZDUGD&ULWLFDO ,QYHQWRU\RI%LRDUW´,Q7DFWLFDO%LRSROLWLFV$UW$FWLYLVPDQG7HFKQRVFLHQFH(GVGD&RVWD% 3KLOLS.&DPEULGJH7KH0,73UHVVS ,ELGS ,ELGS ODERUDWRULHVWRZKLFKRQO\VFLHQWLVWVDUHJLYHQDFFHVVDQGPHPEHUVKLSLWLVSUHFLVHO\WKH µRXWVLGHU¶VWDWXVRIELRDUWLVWVZKLFKFRPSOLFDWHVWKHGLVWLQFWLRQDJDLQVWWKRVHZKRµOHJLWLPDWHO\¶ SRVVHVVWKLVDXWKRULW\DGGUHVVLQJWKHQHFHVVLW\RISXEOLFSDUWLFLSDWLRQDQGGHEDWH &LWLQJWKHIDFWWKDWDUWLVWVDQGVFLHQWLVWVKDYHDORQJKLVWRU\RIZRUNLQJWRJHWKHUELRDUWLVWV,RQDW =XUUDQG2URQ&DWWVUHFRJQL]HWKDWWKLV³QHZSKHQRPHQRQRIELRORJLFDODUWLVWVLVYHU\GLIIHUHQW IURPWKLVWUDGLWLRQDODUWLVWLFHQJDJHPHQW«EHFDXVHZLWKLWELRORJLFDOPDWHULDOVOLIHDQGVFLHQWLILF WRROVDQGSURWRFROVKDYHEHHQDQLQWHJUDOSDUWRIWKHDUWLVWLFSURFHVVDVZHOODVWKHDUWZRUN LWVHOI´7KH\DJUHHWKDWWKHHWKLFDODQGSROLWLFDOWHQVLRQVSURYRNHGE\WKHXVHRIELRWHFKQRORJLHV DUHQRWOLPLWHGWRDUWLVWLFSURGXFWLRQDORQHHYHQLIWKHLUFRQFHUQVVHHPWRUHVRQDWHSDUWLFXODUO\ VWURQJO\ZLWKZRUNVRIDUWVLQFH³WKHYHU\H[LVWHQFHRIVRPHRIWKHRXWFRPHVRIELRWHFKQRORJLHV EULQJLQWRTXHVWLRQGHHSURRWHGSHUFHSWLRQVRIOLIHDQGLGHQWLW\FRQFHSWRIVHOIDQGWKHSRVLWLRQ RIWKHKXPDQLQUHJDUGWROLYLQJEHLQJVDQGWKHHQYLURQPHQW$UWKDVDORQJKLVWRU\RIGHDOLQJ ZLWKWKHVHLVVXHV´%\PDNLQJYLVLEOHWKHWHQVLRQVFRQWUDGLFWLRQVGLIILFXOWLHVDSSUHKHQVLRQV ULVNVDQGDOOXVLRQVHPEHGGHGLQWKHFKDOOHQJHSUHVHQWHGWRVRFLDOHWKLFDOSROLWLFDOUHVSRQVLELOLWLHV WKURXJKPDQLSXODWLRQVRIOLIHELRDUWLVWVDUH³IRUFLQJWKHDXGLHQFHWRHQJDJHZLWKWKHOLYLQJ DUWZRUNDQGWRVKDUHWKHFRQVHTXHQFHVUHVSRQVLELOLWLHVLQYROYHGZLWKWKHPDQLSXODWLRQFUHDWLRQ 7KHSXEOLFLVSDUWRIDQDFWLYHSURFHVVRIQHJRWLDWLRQLQERWKDHVWKHWLFDQGVFLHQWLILFHQGHDYRXUVZKHUHE\ WKHLGHQWLW\RIµDUWLVW¶DQGµVFLHQWLVW¶DUHQRWUHVWULFWHGSURIHVVLRQVIRUWKHELRDUWLVW)RUH[DPSOHELRDUWLVWV $GDP=DUHWVN\DQG%UDQGRQ%DOOHQJpHHPERG\WKHGLIILFXOW\RIVXFKFOHDUGLVWLQFWLRQV3HQWHFRVW GHVFULEHVKRZ=DUHWVN\³>6@SHQWD\HDUDVDEHQFKVFLHQWLVWLQWKH$UQROG'HPDLQ/DERUDWRU\RI 0LFURELRORJ\DQG,QGXVWULDO)HUPHQWDWLRQDW0,7ZKHUHKHFRQGXFWHGKLVRZQH[SHULPHQWVIXUQLVKHG KLPZLWKDQLQVLGHU¶VH[SHULHQFHRIWKHWHFKQRORJ\PHWKRGVDQGFXOWXUHRIUHVHDUFKELRORJ\EXWKHKDVQRW DVVHPEOHGWKHVHWRDVVXPHWKHDXWKRULW\RIDVFLHQWLVWRUWRSXUVXHWKHNLQGVRIUHVHDUFKDTXDOLILHGVFLHQWLVW PLJKWKHLVPXFKPRUHLQWHUHVWHGLQOLQLQJXSWKHVHWRROVWRVNHZWKHPZLWKSDWHQWLUUDWLRQDOLW\ H[KLELWLRQLVPDHVWKHWLFH[SHULPHQWDWLRQKXPRUHPRWLRQDODWWDFKPHQWWKHIODWIRRWHGOD\SHUVRQ¶V TXHVWLRQDQGDZHOOSRQGHUHGWUDQVSDUHQF\ERUGHULQJRQWKHFRQIHVVLRQDO´%DOOHQJpHRQWKHRWKHUKDQG KDV³)RURYHUDGHFDGHFRQGXFWHGVHULRXVILHOGUHVHDUFKLQZHWODQGVDQGRWKHUHFRV\VWHPVWRPDNH FRQWULEXWLRQVWRVFLHQWLILFLQVWLWXWLRQVHFRORJLFDOUHFODPDWLRQHIIRUWVDQGHQYLURQPHQWDOHGXFDWLRQWKURXJK LQQRYDWLYHYLVXDOIRUPVRIGRFXPHQWLQJDQGFRPPXQLFDWLQJKLVILQGLQJV´S =XUU&DWWVS ,ELGS RIOLIHIRUDHVWKHWLFHQGV´7KHIDFWRIWKHPDWWHULVWKDWWKHGHILQLWLRQVRIZKDWDEHLQJLVWKH GHEDWHRYHUQRWKLQJOHVVWKDQWKHLQWHJULW\RIOLIHKDYHGLVVROYHGVHHPLQJO\RYHUQLJKWLQWKH FRPSOH[LW\RIUHYHODWLRQDU\ELRORJ\LQVRIDUDVLWWURXEOHVDQ\DWWHPSWVWRDUJXHWKDWWHFKQRORJLHV LQVFLHQWLILFUHVHDUFKDUHXVHGPHUHO\WRUHYHDOQDWXUDOSURFHVVHV7KXVWKHFRQVHTXHQFHVRIWKH GHVXOWRU\FULWLFLVPVDJDLQVWELRDUWDUHWKDWWKH\VKURXGKRZWKHVHZRUNVUDLVHNH\HWKLFDODQG DHVWKHWLFLVVXHVZKLFKUHPDLQXQDQDO\]HG ,,, (WKLFVRI%LRDUW 6RPHRILWRIIHQGVP\VHQVHRIEHDXW\LQKHUHQWLQQDWXUH±,DPEHZLOGHUHGE\WKHXVHRIELRWHFKQRORJ\WR FUHDWH³QRQVHQVH´SDWWHUQVLQOLYLQJEXWWHUIO\ZLQJVDQGDWWKHVDPHWLPHDPXVHGWKDWWKLVFUHDWLRQ SURYRNHGPXFKPRUHSXEOLFRXWFU\WKDQDOWHUDWLRQVLQWKHQDPHRIDUWWRDFRFNURDFK¶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¶VKRD[RQ3(7$¶VZHEVLWHRVWHQVLEO\ SURPRWLQJWKHUHOHDVHRIWKHILUVWDYDLODEOHSDFNDJHRI³1HZNLUN1XJJHWV´SURGXFHGIURP ³,QJULG¶VXSSHUDUPDQGFXOWXUHGLQDµQXWULHQWVRXS¶RIPXVKURRPVKXPDQFROODJHQDQGVR\ EURWKWRIRUPP\REODVWV7KHP\REODVWVUHSURGXFHUDSLGO\WRIRUPôLQFKWKLFNVKHHWVRIZKDW 3(7$FDOOVµSHUFHQWYLFWLPOHVVPHDW¶´7KLVGHPRQVWUDWHVQRWRQO\WKDWWKHHWKLFDOTXHVWLRQ RIWKHFRQVXPSWLRQRIPHDWKDVWKHSRWHQWLDOWREHFRPSOHWHO\UHLPDJLQHGE\ELRDUWLVWVDOEHLWLQ WKLVFDVHLWLVLQWKHIRUPRIFDQQLEDOLVPEXWDOVRWKDWRXUDHVWKHWLFUHODWLRQVKLSVZLWKIRRG SURGXFWVLQWKLVH[DPSOHXQGHUJRXSKHDYDODVZHOO:KDWZHPD\KDYHWKRXJKWDQGSHUKDSV VWLOOWKLQNDUHREMHFWLRQDEOHVHQVHH[SHULHQFHVPLJKWZHOOEHHPEUDFHGE\IXWXUHJHQHUDWLRQV 3(7$³3(7$/DXQFKHV9LFWLPOHVV1XJJHWV´LQ7KH3(7$)LOHV3(7$¶V2IILFLDO%ORJ3RVWHG $SULOKWWSZZZSHWDRUJEWKHSHWDILOHVDUFKLYHSHWDODXQFKHVYLFWLPOHVV QXJJHWVDVS[$FFHVVHG-XQH6HH$SSHQGL[$)LJXUH ZKRVHVSLULWLVIRXQGLQ1HZNLUN¶VFRPPHQWZKHUHXSRQUHIOHFWLQJRQWKHFRQVXPSWLRQRIKHU RZQIOHVKVKHUHPDUNV³7KH\VD\HYHU\WKLQJWDVWHVOLNHFKLFNHQDQGQRZVRGR,´ 5HEXNLQJDFFXVDWLRQVIURPWKHVFLHQWLILFFRPPXQLW\WKDWELRDUWLVWVIDLOWRKHHGWKHUHTXLUHPHQWV RIHWKLFDOUHYLHZVRIWKHLUZRUNV=XUUDQG&DWWVFRPHPEHUVRIWKHDUWLVWLFFROOHFWLYH³7KH 7LVVXH&XOWXUH$UW3URMHFW´7&$DQGIRXQGHUVRI6\PELRWLF$SURYLGHDEDFNJURXQGWR ELRDUWHWKLFV 7KHSUDFWLFHRIELRDUWVHHPVWRKLJKOLJKWLQPDQ\FDVHVWKHLQFRQVLVWHQF\LQWKHZD\VRFLHW\ SHUFHLYHVWKHH[SORLWDWLRQRIOLYLQJV\VWHPV7KURXJKWKHDFWXDOHQJDJHPHQWZLWKWKHPRGHVRI PDQLSXODWLRQRIOLYLQJV\VWHPVIRUWKHSXUSRVHRIDUWLVWLFH[SORLWDWLRQWKHDUWZRUNVDUHSRLQWLQJ HLWKHULQWHQWLRQDOO\RUXQLQWHQWLRQDOO\WRWKHVHLQVWDQWVRILQFRQVLVWHQF\LQWKHIUDPHZRUNRIHWKLFDO FRQGXFW %HJLQQLQJZLWKDQDQDO\VLVRI3HWHU6LQJHU¶VXWLOLWDULDQHWKLFV=XUUDQG&DWWVGHILQHIRXUPDLQ HWKLFDOSRVLWLRQVXVHGLQHQYLURQPHQWDOHWKLFVWRFRQVLGHUWKHHWKLFVRIELRDUWL³KXPDQGRPLQLRQ HWKLFV´LLDSUHVHUYDWLRQLVWHQYLURQPHQWDOPRGHO³IRUWKHZHOOEHLQJDQGVXUYLYDORIKXPDQ NLQG´LLL³DQLPDOFHQWHUHGHWKLFV´DQGLY³OLIHFHQWHUHGHWKLFV´'LVPLVVLQJWKHILUVWWZRW\SHV RIHWKLFDOPRGHOVIRUWKHLUSODLQDQWKURSRFHQWULVPWKHFRQGXFWSUHVFULEHGUHGXFHVWUHDWPHQWRI QRQKXPDQEHLQJVDVDPHDQVIRUKXPDQHQGVWKHDXWKRUVGLUHFWWKHLUGLVFXVVLRQWRDQLPDODQG OLIHFHQWHUHGHWKLFV 3UHPLVHGRQ6LQJHU¶V8WLOLWDULDQHWKLFVDQLPDOFHQWHUHGHWKLFVGLFWDWHWKDWDXQLYHUVDOHWKLFDO SRVLWLRQ³ORRNVDWZHLJKLQJWKHPRUDOUHVSRQVLELOLW\E\WKHFRQVHTXHQFHVRIDFWLRQVDQDFWLRQLV 3(7$ ,RQDW=XUUDQG2URQ&DWWVIRXQGHG6\PELRWLF$LQLQFROODERUDWLRQZLWKVFLHQWLILFGLUHFWRUV 3URIHVVRU0LUDQGD*URXQGVDQG'U6WXDUW%XQWDWWKH8QLYHUVLW\RI:HVWHUQ$XVWUDOLD¶V6FKRRORI $QDWRP\DQG%LRORJ\³WRFUHDWHDVSDFHIRUDUWLVWVDQGRWKHUQRQELRORJLVWVZLWKLQDELRORJLFDOVFLHQWLILF GHSDUWPHQWWRHQJDJHLQFULWLFDOUHVHDUFKLQDQH[SHULPHQWDOZD\ZLWKWKHPDQLSXODWLRQRIOLYLQJV\VWHPRU SDUWVRIOLYLQJV\VWHP´=XUU&DWWVS ,ELGS ,ELGS PRUDOO\ULJKWLIWKHFRQVHTXHQFHVRIWKDWDFWLRQDUHPRUHIDYRUDEOHWKDQXQIDYRUDEOH«>EDVHGRQ@ PD[LPL]LQJKDSSLQHVV«DQGPLQLPL]LQJVXIIHULQJ´=XUUDQG&DWWVDUJXHWKDWWKLVSRVLWLRQLV UHODWLYLVWLFTXHVWLRQLQJZKHWKHUWKLVYLHZSRLQWLV³QRWPHUHO\DQDQWKURSRFHQWULFHYHQ (XURFHQWULFFRQVWUXFWWKDWLVDSSOLHGWRWKHUHVWRIWKHOLYLQJZRUOG"´7KHLGHDLVWKDWDQ\ HYDOXDWLRQRIDQLPDOVXIIHULQJZRXOGUHTXLUHPDNLQJDMXGJPHQWRQWKHOHYHORIVHQWLHQF\WKH DQLPDOSRVVHVVHVZKLFKLVLQHYLWDEO\GHULYHGIURPDQXQGHUVWDQGLQJRIKXPDQFRQVFLRXVQHVV WKLVXQGHUVWDQGLQJLVOLPLWHGLQFRQFHLYLQJRIWKHKDSSLQHVVVXIIHULQJRIWKH2WKHUEHFDXVHLWLV EDVHGRQWKHH[SHULHQFHRIWKHVHOI:KLOHGUDZLQJRQ6LQJHU¶VSUHPLVHV=XUUDQG&DWWVSUHIHUWR FRXSOHWKHVHFRQVLGHUDWLRQVZLWKDFRQVHTXHQWLDOLVWSRVLWLRQZKLFKFRQFHLYHVRIWKHVHHWKLFDO SULQFLSOHVDVSDUWRIHQJDJLQJZLWKOLYLQJEHLQJV7KH\ZULWH ,WVKRXOGEHFRQVLGHUHGWKDWOLYLQJV\VWHPVDOZD\VDIIHFWHGDQGLQWHUYHQHZLWKRWKHUOLYLQJEHLQJV DQG«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³UDWKHUTXHVWLRQVWKHDVVXPSWLRQVWKDWWKHUHLVDVWULFWOLQHVHSDUDWLQJEHWZHHQOLIHDQGQRQOLIHRU WKHGHILQLWLRQRIZKDWLVOLIH´FHUWDLQHWKLFDOFRQVLGHUDWLRQVDULVH7KHVHHWKLFDOFRQVLGHUDWLRQV HPHUJHIURPWKHDPELJXLW\SUHVHQWLQWKHD[LRPLQZKLFKWZRQRWLRQVLQWHUVHFWLWKHLGHDWKDW QDWXUHLVUDGLFDOO\XQFRQFHLYDEOHWRXVDQGLLWKDWZHKDYHDPRUDOGXW\LQRXUDFWLRQV=XUUDQG &DWWVGHVFULEHWKLVD[LRP $VWKHDUWZRUNLVDOLYHLWLVFRQVWDQWO\FKDQJLQJ%\WKDWWKHDUWLVWVDUHIRUFLQJWKHDXGLHQFHWRWDNH DQDFWLYHUROHLQWKHGHFLVLRQVLQUHJDUGWRWKHH[LVWHQFHRIWKHDUWZRUNLWVPDLQWHQDQFHDQGLWV XOWLPDWHGHDWK2EVHUYLQJDUWWKHQEHFRPHVDQDFWLYHUROHLQWKHµSHUIRUPDQFH¶RIOLIHDQGGHDWKRI =XUU&DWWVS ,ELG ,ELGS ,ELGSS WKHDUWZRUNDQLQGLIIHUHQWUHODWLRQWRWKH2WKHUWKDWLVORFDWHGVRPHZKHUHLQWKHFRQWLQXXP EHWZHHQWKHOLYLQJDQGWKHQRQOLYLQJLVDOPRVWLPSRVVLEOH ,QFRUSRUDWLQJWKLVGLPHQVLRQLQWRWKHLUH[KLELWLRQVE\LQYLWLQJWKHLUDXGLHQFHVWRSDUWLFLSDWHLQ QHJRWLDWLQJHWKLFDOSUDFWLFHVDURXQGWKHVHLQEHWZHHQOLYLQJFUHDWXUHV=XUUDQG&DWWV¶ZRUN ³HPSKDVL]HVHWKLFDOFRQFHUQVE\VWDJLQJULWXDOVWKDWDWWHPSWWRH[SRVHDQGV\PEROL]HRXUGLIIHUHQW XVXDOO\FRQIOLFWLQJUHODWLRQVWROLYLQJV\VWHPV´7KHVHULWXDOVDQGUHODWLRQVRIIHUERWKSUDFWLFDO EHQHILWDQGWKHSRVVLELOLW\RIFRQFHSWXDOFRQVLGHUDWLRQZKHQYLHZLQJDUWZKLFK=XUUDQG&DWWV DGGUHVV >%@\FHOHEUDWLQJDQGWHUPLQDWLQJDUWLVWLFVHPLOLYLQJDUWIRUPVZHWURXEOHWKHFRQYHQWLRQDODUW YLHZHU¶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³GUDZVDVWULFWERUGHUEHWZHHQOLYLQJDQGQRQOLYLQJEHLQJVDQGDUJXHVIRUDQHWKLFDO WUHDWPHQWRIOLIH±WKHVDQFWLW\RIOLIH>ZKLFK@LVGHRQWRORJLFDODQGDEVROXWLVWE\QDWXUH´,IWKH DUJXPHQWIURPVFLHQFHLVWKDWELRWHFKQRORJLFDOUHVHDUFKLVXQGHUWDNHQIRUWKHVHUYLFHVUHQGHUHGWR KXPDQLW\IRUH[DPSOHLQWKHILHOGRIIRRGSURGXFWLRQRUKHDOWKFDUHWKHQ.DQWLQIRUPVXVWKDW HWKLFDOSURSRVLWLRQVFDQQRWEHSUHGLFDWHGRQWKLVEDVLVRIHQGVDQGPHDQVVLQFH³WKHFDWHJRULFDO LPSHUDWLYHZRXOGEHWKDWZKLFKUHSUHVHQWHGDQDFWLRQDVREMHFWLYHO\QHFHVVDU\RILWVHOIZLWKRXW UHIHUHQFHWRDQRWKHUHQG´7KHGHRQWRORJLFDOHWKLFDOIUDPHZRUNHPSOR\HGE\=XUUDQG&DWWVLV WKXVGHULYHGIURP.DQW¶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¶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¶VSHUVRQDOYROLWLRQ JDLQRUIHHOLQJLHRQWKHEDVLVRILQFOLQDWLRQRUQHFHVVLW\7KLVLVXOWLPDWHO\JRRGEHFDXVHWKH LQWHQWLRQRIDQDFWRIGXW\HPHUJHVIURPWKHLQGLYLGXDOZKRIROORZVDKLJKHUODZWKDWRIKXPDQ UHDVRQLQJ'HWHUPLQDWLRQRIWKHDSULRULODZZKLFKLVDODZZKRVHFRQGLWLRQLVJLYHQWRLWVHOI WKURXJKUHDVRQLQJEHJLQVIRU.DQWZLWKWKHJRRGZLOOFRXSOHGZLWKWKHFRQFHSWRIGXW\7DNHQ WRJHWKHUUHDVRQPXVWUHO\RQWKH³UHSUHVHQWDWLRQRIDQREMHFWLYHSULQFLSOH´ZKRVHIRUPXODLV JLYHQWKURXJKWKHFDWHJRULFDOLPSHUDWLYH 7KHFDWHJRULFDOLPSHUDWLYHSURYLGHVWKHRXJKWIRURXUDFWLRQVZKLFKHQGRUVHVWZRSULQFLSOHVIRU PRUDOLW\7KHILUVWLVWKHHYDOXDWLRQRIDOOEHLQJVDVHQGVLQWKHPVHOYHVDQGQRWDVDPHDQVWRDQ HQG7KLVFRQFHSWGHSHQGVXSRQWKHLGHDWKDWUHDVRQVKRXOGQRWEHGLFWDWHGE\XVHIXOQHVVVRRXU PRUDOGXW\UHVWVXSRQQRWH[WHUQDOFRQGLWLRQVLHWUHDWLQJWKLQJVRXWVLGHRIRXUVHOYHVDVHQGV EXWUDWKHULQWHUQDOFRQGLWLRQVWKHUHIRUHWKHHQGLVJLYHQLQWKHLPSHUDWLYHLWVHOIDQGLV³WKDWZKLFK UHSUHVHQWHGDQDFWLRQDVREMHFWLYHO\QHFHVVDU\RILWVHOIZLWKRXWUHIHUHQFHWRDQRWKHUHQG´,Q WKLVZD\.DQWLDQPRUDOLW\LVGHRQWRORJLFDOLQWKHVHQVHWKDWLWGRHVQRWSURYLGHUXOHVIRUHQJDJLQJ ZLWKDQ\SDUWLFXODUVRIH[WHUQDOUHDOLW\EXWUDWKHUHVWDEOLVKHVWKHNLQGRIPRUDOFRQGXFWQHFHVVDU\ IRUVXEMHFWLYHMXGJPHQWWRVHWUXOHVIRULWVHOIEDVHGRQUHDVRQ7KHUXOHWKDWDOORZVDQLQGLYLGXDO¶V PRUDOMXGJPHQWWRDFFRXQWIRUWKHLPSDFWRIRQH¶VDFWLRQVLVEDVHGRQRQH¶VGXW\DVDIUHHFLWL]HQ DSURSRVLWLRQGLFWDWHGE\WKHPRUDOPD[LP7KHPRUDOPD[LPVHWVWKHVHFRQGSULQFLSOHZKLFK SURYLGHVWKHUXOHZLWKZKLFKWRPHDVXUHRXUDFWLRQVE\FRPPDQGLQJZH³DFWDVLIWKHPD[LPRI \RXUDFWLRQZHUHWREHFRPHE\\RXUZLOODXQLYHUVDOODZRIQDWXUH´7KLVFRPSRQHQWDOORZVRQH .DQWS ,ELGSHPSKDVLVDGGHG ,ELGSDXWKRU¶VHPSKDVLV WRHYDOXDWHWKHZRUWKRIRQH¶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³7KH\FDQKDUGO\ZDON´VKHVDLG ³,W¶VDPLONPDFKLQH7KDW¶VVHOHFWLRQ:KHWKHULW¶VEDGSHUVH,¶GVD\QR%XWZKHQ\RXJHWWR KXPDQV,VD\LW¶VFDWHJRULFDOO\DEDGWKLQJ´7KHPRUH,H[DPLQHGKHUDUJXPHQWWKHPRUHLW VHHPHGEHVHWZLWKFRQWUDGLFWLRQV2QWKHRQHKDQG5RVVDQWGLGQ¶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³+RZDQLPSHUDWLYHRIVNLOOLV SRVVLEOHUHTXLUHVQRVSHFLDOGLVFXVVLRQ:KRHYHUZLOOVWKHHQGDOVRZLOOVWKHLQGLVSHQVDEO\ QHFHVVDU\PHDQVWRLWWKDWDUHZLWKLQKLVSRZHU´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³VD\VRQO\WKDWWKHDFWLRQLVJRRGIRUVRPHSRVVLEOHRU DFWXDOSXUSRVHLWLVDSUREOHPDWLFDOO\SUDFWLFDOSULQFLSOHLQWKHVHFRQGDQDVVHUWRULFDOO\ SUDFWLFDOSULQFLSOH´.DQWFULWLTXHVWKLVSRVLWLRQIRUWKHSUXGHQFHLWLPSOLHVZKLFK³FDQQRWWR VSHDNSUHFLVHO\FRPPDQGDWDOOWKDWLVSUHVHQWDFWLRQVREMHFWLYHO\DVSUDFWLFDOO\QHFHVVDU\WKDW WKH\DUHWREHWDNHQDVFRXQVHOVFRQVLOLDUDWKHUWKDQDVFRPPDQGVSUDHFHSWDRIUHDVRQ´ )RU.DQWVFLHQFHLVEDVHGRQWKHGHWHUPLQLQJSRZHURIMXGJPHQWZKLOHFRQYHUVHO\MXGJPHQWVRI WDVWHDHVWKHWLFVDUHEDVHGRQWKHUHIOHFWLQJSRZHURIMXGJPHQWZKRVHODZLVJLYHQLQWKHIRUPRI DWHOHRORJLFDOSULQFLSOH±³SXUSRVLYHQHVVZLWKRXWSXUSRVH´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¶VHPSKDVLV ,ELG 7KHGLIIHUHQFHLVWKDWWKHFDWHJRULFDOLPSHUDWLYHGHVLJQDWHVDV\QWKHWLFDSULRULSULQFLSOHZKHUHDVWKH UHIOHFWLQJSRZHURIMXGJPHQWLVGHYRLGRIVXFKV\QWKHVLV6\QWKHVLVLVWREHXQGHUVWRRGLQDFFRUGDQFHZLWK WKHZD\LQZKLFKWKHDSULRULSULQFLSOHJXLGHVDFWLRQVEDVHGRQSUDFWLFDOUHDVRQ6HH.RUVJDDUG&0 ³,QWURGXFWLRQ´*URXQGZRUNRIWKH0HWDSK\VLFVRI0RUDOVS[[YL PHDQVLQLWWRXVHIRURXUHQGV7KLVDSULRULSULQFLSOHLVQRWWKHUHIRUHFRQVWLWXWLYHRIDFRQFHSW RIQDWXUHUDWKHULWUHJXODWHVWKHLPDJLQDWLRQZLWKWKHXQGHUVWDQGLQJLQRUGHUWRSURYLGHDJURXQG IRUWKHUHIOHFWLQJSRZHURIMXGJPHQWWRIORXULVKDSRZHUZKLFKLQIRUPVDHVWKHWLFH[SHULHQFHV6R HYHQKHUH.DQWWHOOVXVWKDWRXUDHVWKHWLFXQGHUVWDQGLQJRIQDWXUHQHYHUDUULYHVDWµQDWXUH¶LWVHOI LWPHUHO\SURYLGHVDEDVLVIRUZKLFKZHFDQJUDVSµQDWXUDO¶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µQDWXUH¶GHULYHGIURPWKHWHOHRORJLFDOSULQFLSOHFDQQHYHUEHNQRZQ ,IZHOHDUQHGWKDWEHDXW\LVQRWWKHSURSHUW\RIDQREMHFWEXWDQLQGLYLGXDO¶VVXEMHFWLYHUHIOHFWLRQ RILWWKHQPD\EHELRDUWFUHDWLRQVDUHDOOXJO\7KLVMXGJPHQWKRZHYHUFDQRQO\EHGHULYHGIURP DQLGHDRIQDWXUDOEHDXW\WKDWLVMXVWWKDW³QDWXUDO´LHIUHHIURPWHNKQƝKXPDQGH[WHULW\HWF 7KHDHVWKHWLFVRIELRDUWLQVWHDGFRPSHOVXVWRFRQIURQWRXUPRUDOUHVSRQVLELOLW\WR³QDWXUH´± QDWXUDORUQRWE\SRLQWLQJWRWKHZD\LQZKLFKDQLQQRFXRXVSXUVXLWRIDHVWKHWLFSOHDVXUHLVQRW RQO\GHHSO\DQWKURSRFHQWULFEXWDSHUSHWXDWLRQRIFRQVXPHULGHDOV.DQW¶VPRUDOLPSHUDWLYH XQGHUVFRUHVWKHWHOHRORJLFDOSULQFLSOHIRXQGLQJMXGJPHQWVRIWDVWHIRUZKLFKWKHH[LVWHQFHRI QDWXUHLQVRIDUDVLWUHYHDOVWRVXEMHFWLYLW\D³SXUSRVLYHQHVVZLWKRXWSXUSRVH´EULGJHVDQ LQGLYLGXDO¶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¶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µXVHOHVVQHVV¶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¶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¶VELRDUWSUDFWLFHWRVHUYHDVH[HPSODU\ZRUNVIRULQYHVWLJDWLQJNH\WKHPHV XQGHUVFRULQJDHVWKHWLFDQGSROLWLFDOLVVXHVIRUFRQVLGHULQJKXPDQQDWXUHUHODWLRQV$QDVVHVVPHQW RI.DF¶VHWKLFDOIUDPHZRUNLQKLVELRDUWFUHDWLRQVLVULIHZLWKDOWHULW\DQGVXEWOHW\UHTXLULQJD GLVWLQFWLQWHUSUHWDWLYHIUDPHZRUNRWKHUWKDQWKRVHRIIHUHGLQWUDGLWLRQDODHVWKHWLFWKHRU\)RU LQVWDQFH6WHYHQ%DNHUUHPDUNVWKDW³.DFVHHPVWRRYHUORRNWKHODUJHUSLFWXUH´7KLVSRLQWLV DFNQRZOHGJHGE\&DU\:ROIHZKRGHVFULEHVKRZ%DNHU¶VFRPPHQWLVPDGHLQUHIHUHQFHWRWKH ZD\LQZKLFK.DF¶VZRUN³GHSHQGVXSRQDQGLQDIXQGDPHQWDOVHQVHUHSURGXFHVDQHQWLUHVHWRI LQVWLWXWLRQVDQGSUDFWLFHVRIVFLHQWLILFUHVHDUFKWKDWVXEMHFWPLOOLRQVRIDQLPDOVD\HDUWR GLVWUHVVLQJRIWHQSDLQIXODQGXVXDOO\IDWDOH[SHULPHQWDWLRQDVXEMHFWLRQRIQRQKXPDQEHLQJVRI µXQSUHFHGHQWHGSURSRUWLRQV¶´<HW:ROIHLQVLVWVWKDWZKLOHWKLVFRQFHUQLVLPSRUWDQWLWLVVWLOO QHFHVVDU\WRDFFRXQWIRUWKHDHVWKHWLFLPSRUWDQFHRI.DF¶VELRDUWZRUNV )RU:ROIHWKHORJLFRIUHSUHVHQWDWLRQDOLVPLQDUWZRUNVUHSUHVHQWLQJQRQKXPDQVDVWKHLUVXEMHFW PDWWHUUHYHDOVµZD\VRIVHHLQJ¶GHOLQHDWLQJDQGUHLQIRUFLQJHVWDEOLVKHGKXPDQQDWXUHUHODWLRQV 7KXV:ROIHTXHVWLRQVWKHHWKLFDOVWDQGLQJRIDQLPDOVDQGWKHLULQFOXVLRQDVVXEMHFWPDWWHUIRUDUW ZKLFKLQYROYHV >1@RWMXVWWKHDUWLVWLFFKDOOHQJHEXWDOVRWKHODUJHUSKLORVRSKLFDODQGHWKLFDOFKDOOHQJHRIVSHDNLQJ IRUQRQKXPDQDQLPDOVVSHDNLQJWRRXUUHODWLRQVZLWKWKHPDQGKRZWDNLQJWKRVHUHODWLRQV VHULRXVO\XQDYRLGDEO\UDLVHVWKHTXHVWLRQRIZKRµZH¶DUH±DTXHVWLRQWKDWPD\JHWDQVZHUHGTXLWH LQGLUHFWO\QRWLQWKHPDQLIHVWFRQWHQWRIWKHDUWZRUNRULWVµPHVVDJH¶EXWLQLWVIRUPDOVWUDWHJLHV´ :ROIHWKHUHIRUHUHVSRQGVWR%DNHU¶VDIRUHPHQWLRQHGSRLQWE\QRWLQJWKDWZKLOH³VXFKFRQFHUQV DUHLPSRUWDQW´WKH\DUHV\PSWRPDWLFRI³KDELWXDORYHUVLPSOLILFDWLRQVHQGHPLFWRDGGUHVVLQJ WKRVHFRQFHUQV´WKRVHFRQFHUQLQJWKHFUXHOW\WRZKLFKDQLPDOVDUHVXEMXJDWHG+HDUJXHVWKDW %DNHU¶VFULWLTXHXOWLPDWHO\FXUWDLQVKRZWKHUHDOYDOXHRI.DF¶VZRUN³KDYHDOHVVREYLRXV´ UHODWLRQVKLSWRQRQKXPDQVSRLQWLQJRXWKRZWKH³TXHVWLRQRISRVWKXPDQLVPJHQHUDOO\´ZLWK %DNHU6³3KLORVRSK\LQWKH:LOG"´,Q7KH(LJKWK'D\7KH7UDQVJHQLF$UWRI(GXDUGR.DF 3KRHQL[7KH,QVWLWXWHIRU6WXGLHVLQWKH$UWV$UL]RQD6WDWH8QLYHUVLW\SS :ROIH&³)URP'HDG0HDWWR*ORZLQWKH'DUN%XQQLHV6HHLQJ³WKH$QLPDO4XHVWLRQ´LQ &RQWHPSRUDU\$UW´LQ3DUDOOD[9RO1RSS± ,ELGS ,ELGS UHVSHFWWRWKHUHSUHVHQWDWLRQRIDQLPDOVLQDUWKDVEHHQLJQRUHG:ROIHWKXVLQGLFDWHVWKDW.DF¶V ³SURMHFWVHWKLFDOO\LQWHUYHQHLQRXUUHFHLYHGYLHZVRIWKHKXPDQDQLPDOUHODWLRQVKLS´ZKLFK SURYRNHDVLJQLILFDQWLQTXLU\IRUSRVWKXPDQLVP ,WLV:ROIH¶VFRQVLGHUDWLRQRI.DF¶VZRUNDVDSRVWKXPDQLVWLQTXLU\ZKLFKVHUYHVYDOXHWRWKH UHPDLQLQJFKDSWHUVRIWKLVWKHVLV7KHIROORZLQJFKDSWHUVWKHUHIRUHH[SORUHWKHZD\LQZKLFK (GXDUGR.DF¶VELRDUWZRUNVFKDOOHQJHWKHUHODWLRQVEHWZHHQRQWKHRQHKDQGXQGHUVWDQGLQJVRI QDWXUHDVDQDEVWUDFWFRQFHSWJURXQGHGXSRQKXPDQQDWXUHUHODWLRQVFLUFXPVSHFWLYHRIWKH PDQQHUE\ZKLFKWKH\SRWHQWLDOO\XQGHUPLQHRXURQWRHSLVWHPRORJLFDOIUDPHZRUNVDQGWKH UHVXOWDQWDHVWKHWLFLPSOLFDWLRQVWKLVHQJHQGHUV2QWKHRWKHUKDQG,H[DPLQHWKHSRVVLELOLW\RI GHULYLQJGLVWLQFWDHVWKHWLFFRQVLGHUDWLRQVSRWHQWIRUDSROLWLFVRIQDWXUHIURPWKLVDQDO\VLV ,IRFXV&KDSWHURQ.DF¶V*HQHVLVWKURXJKDUHDGLQJRI6WLHJOHU¶VWKHRU\RIWHFKQLFVWR GHPRQVWUDWHWKDWLIZHIROORZWKHORJLFRSHUDWLQJWKURXJKRXW*HQHVLVZHDUHREOLJDWHGWRUHYLVLW RXUDVVXPSWLRQVUHJDUGLQJWKHRULJLQVRIKXPDQLW\DQGWRFRQVLGHUIURPDFULWLFDOYLHZSRLQW .DQW¶VIRXQGDWLRQVIRUDVFHUWDLQLQJWUDQVFHQGHQWDOVXEMHFWLYLW\FRQGLWLRQLQJDHVWKHWLFMXGJPHQWV ,Q&KDSWHU,WHVWWKHRXWFRPHVRIWKLVUHDGLQJLQOLJKWRIWKHSURVSHFWVWKLVHQWDLOVIRUDFKLHYLQJ /DWRXU¶VFROOHFWLYHRXWOLQHGLQWKH,QWURGXFWLRQWRWKLVWKHVLV,UHWXUQWR/DWRXU¶VIUDPHZRUNLQ RUGHUWRSURYLGHDUHDGLQJRI.DF¶VDQG1DNDPDUD¶V(VVD\&RQFHUQLQJ+XPDQ8QGHUVWDQGLQJ DORQJVLGHDUHFRQVLGHUDWLRQRIWKHHWKLFDOGLPHQVLRQRI.DF¶VELRDUWSUDFWLFHDVDVHJXHIRU UHFRQVLGHULQJ.DQW¶VWUDQVFHQGHQWDOVXEMHFWLYLW\DQGWKHSROLWLFDOYDOXHMXGJPHQWVRIWDVWHRIIHU IRUFRQFHLYLQJWKHIXQFWLRQDOLW\RIUHSUHVHQWDWLRQRIIHUHGWRLQGLYLGXDOVLQDFROOHFWLYH :ROIHS ,ELG &+$37(5 (;3/25,1*7+('<1$0,&%(7:((1(.+1Ɯ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±DQDUULYDOODGHQZLWKWKHJULHIRIWKH WXUPRLORIODERXUDQGZLHOGLQJWKHVZRUGRIWKLVSRZHULWLVWKLVEHJLQQLQJLQZKLFKKXPDQLW\ ILQGVKHUVHOIWUDSSHGEHWZHHQDQLQILQLWHVLPDOO\XQFHUWDLQIXWXUHZKLOHKDXQWHGE\DGLVWDQFHGDQG IRUJRWWHQSDVW )LQGLQJUHVRQDQFHRIWKLVWKHPHLQ(GXDUGR.DF¶V*HQHVLVH[HPSOLILHVWKHSURYRFDWLRQ XQGHUO\LQJELRDUWFUHDWLRQVZKLFKE\HPSOR\LQJOLYLQJPDWHULDOVEHJHWVDUHH[DPLQDWLRQRIWKH WHFKQLFDOLW\RIOLIHRIWKHWHFKQLFDOZD\LQZKLFKZHDUHKXPDQ,QWKHIRUHZRUGWR(GXDUGR 'HZDU(7KH6HFRQG7UHH2Q&ORQHV&KLPHUDVDQG4XHVWVIRU,PPRUWDOLW\1HZ<RUN&DUUROO *UDIS .DF¶VHOHSUHVHQFH%LR$UW-DPHV(ONLQVZDUQVWKHUHDGHU³<RXZRQ¶WILQGPXFKGLVFXVVLRQ LQWKLVERRNDERXWDHVWKHWLFVEHFDXVHWKHFRPPXQLFDWLRQPRGHORIDUWLVSUHHPLQHQW:KDW PDWWHUVLVWKHIRUPDQGQRYHOW\RIFRPPXQLFDWLRQLWVHOIUDWKHUWKDQLWVDIIHFWLYHYDOXH´(ONLQVLV RIFRXUVHUHIHUULQJWR.DF¶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ƝWRFULWLTXH WKHSRODUL]DWLRQRIKXPDQVDQGQDWXUHDQGH[SORUHWKHSRVVLELOLW\RIKHWHURJHQHRXV LQWHUGHSHQGHQF\:KLOHDWIDFHYDOXHLWPLJKWDSSHDUDFFHSWDEOHWKDW.DFUHVLVWVVXEMHFWLQJKLV ZRUNWRDHVWKHWLFWKHRU\E\XQGHUPLQLQJWUDGLWLRQDOQRWLRQVRIQDWXUHDQDHVWKHWLFGLVFRXUVHRI QDWXUHLVQRWH[FOXGHGIURPLWVFRQVLGHUDWLRQEXWUDWKHUFHQWUDOWRLW,IDWUDGLWLRQDODHVWKHWLF UHDGLQJRI.DF¶VZRUNLVGHQLHGWRXVEHFDXVHLWLVSHUFHLYHGDVDWUDQVJUHVVLRQRIERWKQDWXUHDQG DUWWKHQ,VXJJHVWWKDW%HUQDUG6WLHJOHU¶VSKLORVRSK\RIWHFKQLFVIDFLOLWDWHVRXUWKLQNLQJE\ HODERUDWLQJWKHDHVWKHWLFVWDNHLPSOLHGLQ*HQHVLV .DF(7HOHSUHVHQFH%LR$UW1HWZRUNLQJ+XPDQV5DEELWV5RERWV$QQ$UERU7KH 8QLYHUVLW\RI0LFKLJDQ3UHVVSYLLL 7KHSKLORVRSKLFDOWHQHWVUDLVHGLQ6WLHJOHU¶VWKHRU\RIWHFKQLFVLQHFKQLFVDQG7LPH7KH)DXOW RI(SLPHWKHXVSURYLGHDIRUXPIRUUHWKLQNLQJWKHRQWRORJLFDOIUDPHZRUNJURXQGLQJWKHVHQRWLRQV DQGDOVRHQJHQGHUDUHDGLQJRI*HQHVLVZLWKWKH(QFU\SWLRQ6WRQHV([SOLFDWLQJWKHNH\WKHPHVRI WKHVHZRUNVDOORZXVWRTXHVWLRQWKHRQWRHSLVWHPRORJLFDOIRXQGDWLRQRI.DQWLDQDHVWKHWLFV JURXQGHGRQWKHWUDQVFHQGHQWDOVXEMHFWZKRVHDPELJXLW\DOORZVIRUDUHLQWHUSUHWDWLRQRIWKH G\QDPLFVRIWHNKQƝDQGSKXVLVHVVHQWLDOIRUUHYLYLQJDHVWKHWLFFRQVLGHUDWLRQVRIQDWXUH%\ UHYLVLWLQJWKLVTXHVWLRQRIRULJLQRIWKHIDWHRIKXPDQLW\IUDXJKWE\DWUDXPDWLFIDOOIURPJUDFH± VLPXOWDQHRXVO\HYLFWLQJPDQIURPWKH*DUGHQRI(GHQZKLOHEHVWRZLQJKLPZLWKDYDULHGDQG G\QDPLF(DUWKZHILQGRXUVHOYHVUHWXUQLQJWRWKHIRXQGDWLRQVRIDHVWKHWLFWKHRU\UHVWLQJRQWKH SUHFDULRXVQRWLRQRIWKHWUDQVFHQGHQWDOVXEMHFW *HQHVLV /HWPDQKDYHGRPLQLRQRYHUWKHILVKRIWKHVHDDQGRYHUWKHIRZORIWKHDLUDQGRYHUHYHU\OLYLQJWKLQJWKDW PRYHVXSRQWKHHDUWK´*HQHVLV (GXDUGR.DF¶V*HQHVLVEHJLQVZLWKDIDPLOLDUGLYLQH%LEOLFDOSDVVDJHZKRVHUHOHYDQFH UHOLHVRQUHWXUQLQJWRWKHV\PEROLFIXQFWLRQLQKHUHQWLQWKHVWDWHPHQW³/HWPDQKDYHGRPLQLRQ RYHUWKHILVKRIWKHVHDDQGRYHUWKHIRZORIWKHDLUDQGRYHUHYHU\OLYLQJWKLQJWKDWPRYHVXSRQ WKHHDUWK´8SRQUHDGLQJWKLVVWDWHPHQWXSRQUHVWLQJRQH¶VH\HVRQLWVFRPSOHWLRQUHYHUEHUDWHV UHDOLWLHVRIJHQHUDWLRQVRIPHQWRLOLQJWLOOLQJDQGWRUFKLQJWKHHDUWK7KHGDZQRIFLYLOL]DWLRQWKH GHVWLQ\RIPDQZDVERUQIURPWKLVSDVVDJHDQGLWUHIOHFWVERWKWKHSLRXVPHDQLQJRIWKHVDFUHG WH[WDQGRIIHUVXVWRFRQVLGHUWKHQHFHVVLW\RIDKHUPHQHXWLFDOUHYLVLWDWLRQ+RZHYHUWRLQWHUSUHW WKLVSDVVDJHVHOHFWHG³IRULWVLPSOLFDWLRQVUHJDUGLQJWKHGXELRXVQRWLRQRIGLYLQHO\VDQFWLRQHG KXPDQLW\¶VVXSUHPDF\RYHUQDWXUH´UHTXLUHVWKHUHDOL]DWLRQWKDWLWVPHDQLQJLVLQH[WULFDEO\ $SSHQGL[%)LJXUH LQWHUWZLQHGZLWKLQWKHFRQWH[WRI.DF¶VRSHUDWLRQ7KHDUWLVWVFLHQWLVWWXUQHGLQWHUSUHWHUERUURZV WKLVVHQWHQFHIURPWKH%LEOHDQGWUDQVODWHVWKHWH[WLQWR0RUVHFRGHVXEVHTXHQWO\WUDQVFULEHG LQWR'1$EDVHSDLUV&RQVLGHULQJWKHKHUPHQHXWLFDOIUDPHZRUNRIIHUHGE\*DGDPHURXUUHDGLQJ RI.DF¶VLURQLFJHVWXUHUHVWVRQ*DGDPHU¶VUHFRPPHQGDWLRQWKDW³LQWHUSUHWDWLRQPXVWILQGWKH ULJKWODQJXDJHLILWUHDOO\ZDQWVWRPDNHWKHWH[WVSHDN´ )LUVWH[KLELWHGLQ*HQHVLVZDVLQVWDOOHGDWWKH$UV(OHFWURQLFD&HQWUHLQ/LQ]$XVWULD7KH H[KLELWLRQGLVSOD\HGD3HWULHGLVKFRQWDLQLQJ-0JHQHWLFDOO\HQJLQHHUHGEDFWHULDORUJDQLVPV DQGWKHFU\VWDOOL]HG'1$³DUWLVW¶VJHQH´SURGXFHGE\.DFZKLFKLVSODFHGXQGHUDPLFURYLGHR FDPHUD89OLJKWER[DQGPLFURVFRSHLOOXPLQDWRU7KHVHGHYLFHVDUHFRQQHFWHGWRWZR FRPSXWHUV7KHILUVWDOORZVUHPRWHXVHUVRYHUDQ,QWHUQHW:HE6HUYHUWRDFWLYDWHWKH89OLJKWE\ HPLWWLQJYLVLEOHF\DQDQG\HOORZOLJKWUD\VZKLFKVWLPXODWHWKHEDFWHULDDFFHOHUDWLQJLWVPXWDWLRQ UDWH7KHVHFRQGFRPSXWHUSOD\VD'1$PXVLFV\QWKHVLVFRPSRVHGE\3HWHU*HQD8SRQWKH H[KLELWLRQ¶VFORVLQJ.DFUHWULHYHVWKH3HWULHGLVK¶VFRQWHQWVDQGUHWXUQVWKHPWRWKHODEWRUHYHDO WKHDOWHUHGJHQHWLFFRGH+HWKHQUHWUDQVFULEHVLWLQWR0RUVHFRGHDQGUHWUDQVODWHVLWLQWR(QJOLVK ZKHUHE\LWUHDGV³/HWDDQKDYHGRPLQLRQRYHUWKHILVKRIWKHVHDDQGRYHUWKHIRZORIWKHDLUDQG RYHUHYHU\OLYLQJWKLQJWKDWLRYHVXDHRQWKHHDUWK´ *HQHVLVLVFRPSULVHGRIWKUHHSKDVHV7KHILUVWZKLFKLVGHVFULEHGDERYHEHJLQVZLWKWKH FRQFHSWXDOL]DWLRQDQGV\QWKHVLVRIWKH³DUWLVW¶VJHQH´WKHPXWDWLRQVRFFXUULQJLQUHVSRQVHWRWKH DFWLYDWLRQRI89OLJKWE\SDUWLFLSDQWVRYHUWKH:HEDQGWKHVXEVHTXHQWWUDQVODWLRQRIWKH .DF(7HOHSUHVHQFH%LR$UW1HWZRUNLQJ+XPDQV5DEELWV5RERWV$QQ$UERU7KH 8QLYHUVLW\RI0LFKLJDQ3UHVVS *DGDPHU + 7UXWK DQG 0HWKRG 7UDQV :HLQVKHLPHU - 0DUVKDOO '* /RQGRQ DQG 1HZ <RUN&RQWLQXXPS $SSHQGL[%)LJXUH PXWDWLRQVRIWKHJHQHYLDWKHWULSDUWLWHFRGHFUHDWHGE\.DF7KHVHFRQGSKDVHLQYROYHVWKHGLJLWDO PRGHOOLQJRIWKH*HQHVLVSURWHLQDVDWKUHHGLPHQVLRQDOVWUXFWXUHLQWHQGHGWRGHSLFWWKH FRPSOH[LW\RI³WKHIUDJLOLW\RIWKLVPROHFXODUREMHFW´7KHWKLUGSKDVHLQYROYHVWKHFUHDWLRQRI ILYHDGGLWLRQDOZRUNVZKLFKFRPSOHPHQWDQGHOXFLGDWHNH\LVVXHVDULVLQJIURPWKH*HQHVLV SURMHFWDQGLQFOXGH(QFU\SWLRQ6WRQHV7UDQVFULSWLRQ-HZHOV)RVVLO)ROGV7KH%RRNRI 0XWDWLRQVDQG,Q2XU2ZQ,PDJH)RUWKHSXUSRVHVRIUHDGLQJWKLVZRUNLQWHUPVRIZKDWLV RIIHUHGIRUWKHRUL]LQJNH\SUREOHPVIRUWKLQNLQJWKHDHVWKHWLFVRIQDWXUH,OLPLWP\DQDO\VLVWRD GLVFXVVLRQRIWKHILUVWSKDVHRIWKHSURMHFWDORQJVLGHWKH(QFU\SWLRQ6WRQHVZKLFKUHSUHVHQWVWKH WUDQVODWLRQSURFHVV.DFXQGHUWDNHVLQ*HQHVLV$FFRUGLQJWR.DFWKLVWUDQVODWLRQ³VHWVLQLQGHOLEOH IRUPWKHV\PEROLFDQGSUDJPDWLFDVVRFLDWLRQDPRQJELRORJ\KXPDQODQJXDJHDQG FRPPXQLFDWLRQPHGLDDVHPERGLHGE\WKHWH[WV0RUVHWUDQVODWLRQVDQGJHQHWLFVHTXHQFHVODVHU HWFKHGRQJUDQLWH´ 7KH(QFU\SWLRQ6WRQHVFUHDWHGLQWKHWKLUGSKDVHRIWKH*HQHVLVSURMHFWDUHDVHWRI,QGLDQ EODFNJUDQLWHWDEOHWVKDQGFXWDQGURFNSLWFKHGDQGLQVFULEHGZLWKWKHWULDGLFFRGH.DFXVHVIRU WKHFUHDWLRQWUDQVODWLRQDQGV\QWKHVLVRIWKH³DUWLVW¶VJHQH´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³/HWDDQKDYH GRPLQLRQRYHUWKHILVKRIWKHVHDDQGRYHUWKHIRZORIWKHDLUDQGRYHUHYHU\OLYLQJWKLQJWKDW LRYHVXDHRQWKHHDUWK´7KHFUHDWLRQRIWKH(QFU\SWLRQ6WRQHVPLPLFVLQ³PDWHULDODQGYLVXDO VWUXFWXUH´WKHGLVFRYHU\DQGGHFRGLQJRIWKH5RVHWWD6WRQHGDWHGIURP%&LQZKRVH ³WULDGLFFRQILJXUDWLRQFULWLFDOO\UHYHDOVWKHLQWHUVHPLRWLFRSHUDWLRQVWKDWOLHDWWKHKHDUWRIRXU FXUUHQWXQGHUVWDQGLQJRIOLIHSURFHVVHV´ *HQHVLVXQOLNHRWKHUELRDUWZRUNVGRHVQRWPHUHO\TXHVWLRQWKHHWKLFDOUHODWLRQVKLSVKHOG EHWZHHQKXPDQVDQGQRQKXPDQVZLWKUHVSHFWWRWKHLQFOXVLRQRIOLYLQJEHLQJVLQDUW5DWKHUWKH EDFWHULDSURSDJDWLQJWKHSRVVLELOLW\IRUPXWDWLRQRIWKH³DUWLVW¶VJHQH´HPERG\WKHVLPSOHVW JHVWDWLRQDOFKDUDFWHULVWLFVRIOLIHZKRVHHPSOR\PHQWLQH[SHULPHQWDOHQGHDYRUVLVRIWHQ FRQVLGHUHGQRQFRQVHTXHQWLDO+RZHYHULQWKHSUHYLRXVFKDSWHUZHHQGHGZLWKWKHTXHVWLRQRI KRZELRDUWZRUNVSRWHQWLDOO\SRVVHVVDJD]HZKLFKLVGHILDQWO\UHWXUQHGWRWKHYLHZHU%XWZKDWLV LWWKDWZHPHDQZKHQZHWKLQNRIEHLQJVSRVVHVVLQJVXEMHFWLYLW\"&DU\:ROIHDUJXHVWKDWWKH LQFRUSRUDWLRQRIOLYLQJRUJDQLVPVZLWKRUZLWKRXWQHXURORJLFDOFHQWHUVLQ.DF¶VWUDQVJHQLF ZRUNVLVWKDWRID³UHFXUVLYHVHOIUHIHUHQFH´ZKRVHLQFOXVLRQLV³FUXFLDOWRKRZGLIIHUHQWNLQGVRI DXWRSRLHWLFEHLQJVHVWDEOLVKWKHLUGLIIHUHQFHIURPHYHU\WKLQJHOVHLQWKHZRUOGZKLFKLVWRVD\ WKHLUVSHFLILFZD\VRIEHLQJLQWKHZRUOG±DµEHLQJ¶WKDWLVQRZWKRURXJKO\VXERUGLQDWHGWRDQ DXWRSRLHWLFEHFRPLQJ´7KLVLQWHUSUHWDWLRQDOORZVXVWRWKLQNWKHDPELJXLW\LQKHUHQWEHWZHHQ WKLQNLQJEHLQJVDVUHGXFLEOHWRJHQHWLFFRGHDQGWKHZD\LQZKLFKJHQRW\SLFRUSKHQRW\SLF GLIIHUHQFHVHYLGHQFHVOLIHDVVXFKDVEHLQJVZKLFKGLIIHUHQWLDWHDQGSURPRWHWKHPVHOYHVLQ $SSHQGL[%)LJXUH .DFSS .DFKWWSZZZHNDFRUJJHQVHULHVKWPO :ROIH & ³)URP 'HDG 0HDW WR *ORZ LQ WKH 'DUN %XQQLHV 6HHLQJ ³WKH $QLPDO 4XHVWLRQ´ LQ &RQWHPSRUDU\$UW´LQ3DUDOOD[9RO1RS GLVWLQFWLRQIURPRWKHUV:ROIHREVHUYHVWKDW.DF¶VSUDFWLFHWKXVEHFNRQVDUDGLFDOQHZDHVWKHWLF UHJLPH )RU.DFLWLVQRWVLPSO\DPDWWHURIQHZIRUPVRIYLVXDOLW\±WKLVFDOOVIRUDUHFDOLEUDWLRQ UHGLVWULEXWLRQDQGGLVSODFHPHQWRIWKHUHODWLRQVKLSEHWZHHQPHDQLQJDQGWKHHQWLUHVHQVRULXPRI OLYLQJEHLQJVLQZKLFKYLVXDOLW\LWVHOI±DVWKHKXPDQVHQVRU\DSSDUDWXVSDUH[FHOOHQFH±LVQRZ WKRURXJKO\GHFHQWHUHGDQGVXEMHFWHGWRDUDWKHUGLIIHUHQWNLQGRIORJLF ,ILQWKHSUHYLRXVFKDSWHUV,EHJDQWRXQSDFN.DQWLDQDHVWKHWLFVWRFRQVLGHUZKDWLVRIIHUHGIRU WKHDHVWKHWLFVRIQDWXUHWKHQWKHTXHVWLRQLQYHVWLJDWHGLQWKLVFKDSWHULVKRZ*HQHVLVPLJKWDVVLVW LQDQH[DPLQDWLRQRIWKHIRXQGDWLRQRIDHVWKHWLFVEDVHGRQWKHWUDQVFHQGHQWDOVXEMHFW,QWKLV FKDSWHU,VXJJHVWWKDW(GXDUGR.DF¶V*HQHVLVLVDQH[DPSOHRIDELRDUWZRUNZKLFKH[DPLQHVWKH WKHPHRIRULJLQLQ:HVWHUQWKRXJKWE\SUREOHPDWL]LQJWKHWUDQVFHQGHQWDOVXEMHFWDVDTXHVWLRQDEOH FDWHJRU\%\UHILJXULQJWKHG\QDPLFEHWZHHQWHNKQƝDQGSKXVLVDQGWKHIRXQGDWLRQRI.DQWLDQ DHVWKHWLFVWKHGLYLVLRQEHWZHHQQDWXUHDQGDUWLVFDOOHGLQWRTXHVWLRQ,UHO\RQ%HUQDUG6WLHJOHU¶V DQDO\VLVRIWHFKQLFVWRLQYHVWLJDWHIXUWKHUWKHQHHGIRUDQRQWRHSLVWHPRORJLFDOFRQFHSWRIQDWXUH IRUDHVWKHWLFUHIOHFWLRQUHFRPPHQGLQJWKHLQFOXVLRQRIDUWIRUWKHFRQWLQXDOH[SORUDWLRQRIQDWXUH DVDQHLGHWLFFDWHJRU\LQIRUPLQJDHVWKHWLFH[SHULHQFHV([SORULQJWKHZD\LQZKLFK*HQHVLV JURXQGVDQDQDO\WLFRIWKHDHVWKHWLFIRXQGDWLRQE\WURXEOLQJWKHQRWLRQRIRULJLQUHYHDOLQJDQ LQWULFDWHUHODWLRQVKLSEHWZHHQODQJXDJHDQGJHQHWLFFRGHVDQGHVWDEOLVKLQJDSURSHUG\QDPLF EHWZHHQWHNKQƝDQGSKXVLV,DVN%\FKDOOHQJLQJKLVWRULFDOSUHFXUVRUVRI:HVWHUQPHWDSK\VLFV KRZGRHV*HQHVLVRSHUDWHDVDGLVUXSWLRQRIDHVWKHWLFIRXQGDWLRQVWKURXJKLWVPHWKRGRORJLFDO PDWHULDOL]DWLRQDQGGHFRQVWUXFWLRQRIODQJXDJHDQGSURYLGHWKHRSSRUWXQLW\IRUUHLQYHQWLQJ VRFLDOWHFKQRORJLFDODQGSROLWLFDOLGHDOVLQWHJUDOWRLQIRUPLQJWKHSROLWLFVRIQDWXUH",SUHVHQW 6WLHJOHU¶VWKHRU\RIWHFKQLFVDVWKHJURXQGIRUWKLQNLQJWKLVTXHVWLRQVLQFHKLVSKLORVRSK\ HQFRPSDVVHVWKHIDWHIXOJDSLQPHWDSK\VLFVZKLFKSURGXFHVWKHLQLWLDOVHSDUDWLRQRIVXEMHFWVDQG :ROIHS REMHFWVDVHSDUDWLRQZHKDYHEHHQZUHVWOLQJZLWKIRUFRQFHSWXDOL]LQJDHVWKHWLFH[SHULHQFHVRI QDWXUHDVGLVWLQFWIURPWKRVHRIDUW ,QWURGXFWLRQWR%HUQDUG6WLHJOHU¶V7HFKQLFVDQG7LPH7KH)DXOWRI(SLPHWKHXV %HUUQDUG6WLHJOHU¶VHFKQLFVDQG7LPHEHJLQVE\DVVHUWLQJWKDWWKH:HVWHUQPHWDSK\VLFDO WUDGLWLRQKDVOLPLWHGLWVWKRXJKWRQWKHH[DPLQDWLRQRIWKHORVVRIEHLQJDVDFRQVHTXHQFHRI FRQFHLYLQJWHFKQLFVDVPHUHFDOFXODWLRQ'HPRQVWUDWLQJWKDWWKLVIRXQGDWLRQLQSKLORVRSK\ SURGXFHVDIDOVHRSSRVLWLRQEHWZHHQSKXVLVDQGWHNKQƝZKRVHG\QDPLFLVHQFU\SWHGLQWKH WKLQNLQJRIWHFKQLFV6WLHJOHURSHQVE\VWDWLQJ³DWLWVYHU\RULJLQDQGXSXQWLOQRZSKLORVRSK\KDV UHSUHVVHGWHFKQLFVDVDQREMHFWRIWKRXJKW7HFKQLFVLVWKHXQWKRXJKW´7KLVWKRXJKWKHDVVHUWV LVUHDFKHGLQ+HLGHJJHU¶VH[LVWHQWLDODQDO\WLF%\FRQFHLYLQJWKHZD\LQZKLFKSKLORVRSK\KDV GHOLQHDWHGWKHWKLQNLQJRIEHLQJDVDTXHVWLRQRIWLPH6WLHJOHUSRLQWVRXWWKDW³WKHPHDQLQJRI PRGHUQWHFKQLFVLVDPELJXRXVLQ+HLGHJJHU¶VZRUN,WDSSHDUVVLPXOWDQHRXVO\DVWKHXOWLPDWH REVWDFOHWRDQGDVWKHXOWLPDWHSRVVLELOLW\RIWKRXJKW´ $QH[LVWHQWLDODQDO\WLF6WLHJOHUDUJXHVUHTXLUHVDFRQFHSWXDOL]DWLRQRIWKHG\QDPLFRIWHFKQLFV GHILQHGDVDSURFHVVRUV\VWHPRIWHFKQRORJLFDOGHYHORSPHQWRYHUWLPHLWLVWKH³TXHVWLRQRI WKLQNLQJEHLQJZLWKRXWEHLQJV±WKDWLVZLWKRXW'DVHLQ´,WLVIURP+HLGHJJHU¶VWKLQNLQJZKLFK H[WUDFWV'DVHLQIURPWKH*HVWDOWWRIDFH%HLQJDVDTXHVWLRQRIWLPHWKDWWKHUHTXLUHPHQWWRWKLQN WKH*HVWHOOLVQHJOHFWHG³)RU*HVWHOODOVRGHWHUPLQHVWKHFRDSSURSULDWLQJRIEHLQJDQGRIWLPHLQ 6WLHJOHU%7HFKQLFVDQG7LPH7KH)DXOWRI(SLPHWKHXV7UDQV%HDUGVZRUWK5 &ROOLQV*6WDQGIRUG6WDQIRUG8QLYHUVLW\3UHVVS ,ELGSL[ ,ELGS ,ELG WHUPVRIWKHµWKHUHLV¶RIEHLQJDQGWLPH´6WLHJOHUWKXVUHYLVHV+HLGHJJHU¶VRYHUVLJKWE\ HODERUDWLQJKRZVSHHGGHILQHVWHFKQLFVSURSHUDQGUHPDLQVXQWKRXJKWLQSKLORVRSK\FDXJKWLQ WKHWKHPHRIIRUJHWWLQJDVWKHH[LVWHQWLDOFRQFHUQRIKXPDQLW\$QWLFLSDWLQJDODWHUDUJXPHQWWKDW WHFKQLFL]DWLRQLVWKXVUHVSRQVLEOHIRUWKHHLGHWLFEOLQGLQJRIEHLQJ¶VVHOIXQGHUVWDQGLQJWHFKQLFV LVSUHVHQWHGDV³UHGXFLEOHQHLWKHUWRPHFKDQLFVQRWWRELRORJ\QRUDQWKURSRORJ\´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³FRQVFLRXVQHVV´LVEDVHGRQWKHH[WHUQDOL]DWLRQRIPHPRU\YLDWKHWHFKQLFDO REMHFWLLLWKLVSURGXFHVWKHVSDFHRIRXUHLGHWLFEOLQGLQJZKLFKUHWXUQVSKLORVRSK\WRWKHWKHPH RIIRUJHWWLQJHOXFLGDWHGWKURXJKWKHP\WKRI(SLPHWKHXV¶IDXOW 6WLHJOHUS $VWKHDIIOLFWLRQRIK\SRPQHVLVDQGDQDPQHVLVLQVRFLHW\LHWKH³REVROHVFHQFHRIWKHKXPDQ´)RU IXUWKHUUHDGLQJSOHDVHUHIHUWR6WLHJOHU%³$QDPQHVLVDQG+\SRPQHVLV7KH0HPRULHVRI 'HVLUH´LQ(GV$UPDQG/%UDGOH\$7HFKQLFLW\3UDJXH/LWWHUDULD3UDJHQVLDSS 6WLHJOHUSS (SLPHWKHXV¶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± RQZKDWLVRQWKHSULQFLSOHDQGWKHRULJLQRIEHLQJ7KHTXHVWLRQRIRULJLQLVWKHTXHVWLRQRIEHLQJ,IWKH VWDNHVDUHWKHEHLQJRIWKHKXPDQWKHRULJLQRIWKHKXPDQGHILQLQJZKDWLVLWVµQDWXUH¶LWVSKXVLVRQHZLOO KDYHWRNQRZKRZWRGLVWLQJXLVKEHWZHHQZKDWLWHVVHQWLDOO\LVDQGZKDWLWLVDFFLGHQWO\ ,Q*HQHVLVWKHSDVVDJH³/HWPDQKDYHGRPLQLRQRYHUWKHILVKRIWKHVHDDQGRYHUWKHIRZORIWKH DLUDQGRYHUHYHU\OLYLQJWKLQJWKDWPRYHVXSRQWKHHDUWK´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¶SUHGLFDPHQWWRRODWHEHFDXVHLWZDVWLPHIRUPDQWREHERUQLQWR WKHZRUOG,QDKXUU\3URPHWKHXVVWHDOVWKHJLIWRIWKHDUWVIURPWKHJRGV+HSKDHVWXVDQG$WKHQDDVZHOODV ILUHZLWKRXWZKLFKWKHVNLOOVEHVWRZHGZRXOGODFNWKHPHDQVIRUUHDOL]DWLRQDQGJLYHVWKHPWRPDQ ZKLFK³,QWKLVZD\PDQDFTXLUHGVXIILFLHQWUHVRXUFHVWRNHHSKLPDOLYHEXWKHKDGQRSROLWLFDOZLVGRP´ S3URPHWKHXVLVVXEVHTXHQWO\SHUVHFXWHGIRUKLVWKHIW7KHFRQVHTXHQFHVZHUHWKDW³VLQFHWKHQPDQ KDGDVKDUHLQWKHSRUWLRQRIWKHJRGVLQWKHILUVWSODFHEHFDXVHRIKLVGLYLQHNLQVKLSKHDORQHDPRQJOLYLQJ FUHDWXUHVEHOLHYHGLQJRGVDQGVHWWRZRUNWRHUHFWDOWDUVDQGLPDJHVRIWKHP6HFRQGO\E\WKHDUWZKLFK WKH\SRVVHVVHGPDQVRRQGLVFRYHUHGDUWLFXODWHVSHHFKDQGQDPHVDQGLQYHQWHGKRXVHVDQGFORWKHVDQG VKRHVDQGEHGGLQJDQGJRWIRRGIURPWKHHDUWK´6WLHJOHUS ,ELGS *HQHVLV ³>:KR@LVWKHILUVWLQWHUYHQRUVHWWLQJRIIWKLVVHULHVRISULPDU\DQGVHFRQGDU\FDXVHVDQGHIIHFWVLQZKLFK WKHHIIHFWVHWRIIE\WKHFDXVHGHUHDOL]HVLWE\WKHVDPHWRNHQDVQHJDWLYHSRZHUWKHSDUDGR[RIWHFKQRORJ\ DQGDOOLWVFRXQWHUHIIHFWVDUHWKHDFFRPSOLVKPHQWRIDGLYLQHZLOO´6WLHJOHUS 2VWKRII6³*HQHVLV´LQ/HRQDUGR'LJLWDO5HYLHZV2FWREHUKWWSPLWSUHVVPLWHGXH MRXUQDOV/HRQDUGRUHYLHZVRFWH[B*(1(6,6BRVWKRIIKWPO$FFHVVHG0D\ EHFNRQLQJDUHLQWHUSUHWDWLRQRIWKHRULJLQRIQDWXUHLQH[WULFDEOHIURPWKHTXHVWLRQRIWKHRULJLQ DQGGHVWLQ\RIPDQ.DFH[SODLQV 7KHELEOLFDOSDVVDJHIURP.-9HPSOR\HGLQP\WUDQVJHQLFZRUN*HQHVLVLVHPEOHPDWLFDVLW VSHDNVRIGRPLQLRQ.LQJ-DPHVLVWKHIRXQGLQJPRQDUFKRIWKH8QLWHG6WDWHV8QGHUKLVUHLJQ WKHILUVWVXFFHVVIXOFRORQLHVZHUHHVWDEOLVKHG,QKLVRZQZRUGV.LQJ-DPHVVRXJKWWRSURSDJDWH µ&KULVWLDQUHOLJLRQWRVXFKSHRSOHDV\HWOLYHLQGDUNQHVV¶7KHFRORQL]HUVEURXJKWKLVDXWKRUL]HG WUDQVODWLRQ7KH*HQHVLVRIWKH1HZ:RUOGZDVEXLOWXSRQGRPLQLRQµRYHUHYHU\OLYLQJEHLQJWKDW PRYHVXSRQWKHHDUWK¶ ,QWKLVZD\*HQHVLVLQYRNHVWKHTXHVWLRQRIWKHRULJLQRIKXPDQLW\LQUHODWLRQWRGRPLQDQFHRYHU QDWXUH 7KHOLPLWVRIWKLQNLQJKXPDQLW\¶VIXWXUHUHTXLUHVDWKLQNLQJRIKXPDQLW\¶VELUWKZKLFKLV HTXLYDOHQWWRGHWHUPLQLQJWKHTXDOLWLHVDQGFKDUDFWHULVWLFVRIKRZWKHKXPDQGLIIHUHQWLDWHVIURP QDWXUH6WLHJOHUQRWHVWKDWLQ(VVD\RQWKH2ULJLQRI/DQJXDJH5RXVVHDXSRVLWVWKHTXHVWLRQ ³ZKDWLVPDQRUZKDWLVWKHQDWXUHRIPDQ´LQRUGHUWRUHYHDOWKHHVVHQFHRIKXPDQEHLQJV ZKLFKPXVWEHFRQFHLYHGRQDWUDQVFHQGHQWDOJURXQG7KLVJURXQGTXDOLILHVWKHKXPDQDVD VXEMHFWFRPSOHWHLQVSLULWDQGNQRZOHGJHDWWKHRULJLQZKRORVHVWKLVVHOIXQGHUVWDQGLQJDIWHUWKH IDOOEHFDXVH5RXVVHDXDUJXHV³7KHHVVHQFHWKHRULJLQLPSRVVLEOHWRILQGLQWKHIDFWVWKHIDOO FDOOVIRUWKURXJKOLVWHQLQJWRWKHYRLFHRISXUHQDWXUHDWUDQVFHQGHQWDOUHFROOHFWLRQ´$FFRUGLQJ WR6WLHJOHUWKH³IDOORIPDQ´LVSRVVLEOHIRU5RXVVHDXRQO\E\SUHVHQWLQJDILFWLWLRXVDFFRXQWRIDQ ³RULJLQ´EDVHGRQDQH[SHULPHQWDOSURFHGXUHZKHUHE\5RXVVHDXPDNHVXVWKLQNWKDW³LWLVD TXHVWLRQERWKRIDGLVWLQFWLRQDQGRIDGLVWLQFWLRQWKDWFDQRQO\EHH[SUHVVHGE\DQRSSRVLWLRQ´ :KDWWKLVPHDQVLVWKDWWKHH[SHULPHQWDOSURFHGXUHIRUWKHGLVFRYHU\RIPDQ¶VQDWXUHLVD UHTXLUHPHQWRIWKHQHHGWRSURYLGHDSULRULJURXQGVIRUZKLFK³H[SHULPHQWDWLRQZRXOGRQO\ UHILQHDSRVWHULRULDQGPHGLDWHO\DQDQVZHUUHFHLYHGWKURXJKDQRWKHUDSULRULFKDQQHOIURPWKH .-9UHIHUVWR.LQJ-DPHV¶9HUVLRQRIWKH2OG7HVWDPHQW.DFS 6WLHJOHUS ,ELG ,ELGS LQVWDQFHRIRULJLQDOLPPHGLDF\RULJLQDOHTXDOLW\LVQDWXUDOULJKWQRZQDWXUDOODZWREHQDWXUDO PXVWVSHDNµGLUHFWO\IURPWKHYRLFHRIQDWXUH¶´7KHVHQWLPHQWLVUHIOHFWHGLQWKHSDVVDJH LQVFULEHGLQ*HQHVLVIRUWKHKXPDQEHLQJKDVDOZD\VQHFHVVLWDWHGVXSHUQDWXUDOH[SODQDWLRQVWR DFFRXQWIRULWVµVRXO¶RUHOVHLWVFRQVFLRXVQHVVIURPDQDUULYDODERYHRUEHIRUHH[LVWHQFH +RZHYHUWKHLPSRVVLELOLW\RIDUULYLQJDWWKLVWUXWKRIWKHKXPDQEHLQJ¶VWUDQVFHQGHQWDO VXEMHFWLYLW\EDVHGRQDIDOOIURPQDWXUH6WLHJOHUFRQWHQGVLVWKHUHVXOWRI0HQR¶VDSRULDZKLFK JURXQGVWKHIRXQGDWLRQRIPHWDSK\VLFVEHFDXVH >,@IWUXWKLVWUXO\VRPHWKLQJWKDWLVDFKLHYHGDQGDFKLHYHGLQGLDORJXHRQHFDQQRWOHDUQWKHUHLV WKHUHIRUHQRWKLQJQHZRQHFDQQRWVD\ZKDWLV$GLVFRXUVHRIWUXWKZRXOGQRWEHDVLPSOH FROOHFWLRQRIIDFWVEXWZRXOGXQLWHWKHVHIDFWVLQDQHVVHQWLDOXQLW\WKDWZRXOGVSHDNWKHLURULJLQ VXFKDGLVFRXUVHLVDGHFHSWLRQ 7KURXJKWKHQDUUDWLYHRIWKHRULJLQ6WLHJOHUDUJXHVDµP\WKLFDOWXUQ¶PXVWEHWDNHQ³LQWKDWWKH\ >SKLORVRSKHUV@VSHDNZKDWLVWRVSHDNZKDWLVTXDZKDWDEVROXWHO\LVLVDOZD\VWRHQGXUH0HQR¶V DSRULDWRZKLFKDSRVLWLYHDQVZHUFDQQRWEHJLYHQ´ 7KHFRQVHTXHQFHVRI0HQR¶VDSRULDWURXEOHWKHZD\LQZKLFK5RXVVHDX¶VWUDQVFHQGHQWDOORJLF FRQVWUXHVWKHGLYLVLRQEHWZHHQKXPDQVDQGQDWXUH)RUH[DPSOHLI5RXVVHDXLQIRUPVXVWKDWWKH KXPDQLVFRPSOHWHDWWKHVWDUWDQGFRUUXSWHGDIWHUWKHIDOOLQWR1DWXUH6WLHJOHUSHUFHLYHVWKLVDVD FRQWLQXDWLRQRIWKHGLDOHFWLFDOWUDGLWLRQRISKLORVRSK\SUHVFULEHGWRWUHDWWKHDSRULD+LVVROXWLRQ LVWRWKLQNUDWKHUWKURXJKWKHGLIIpUDQFHRIWKHVHWKRXJKWVZKLFK5RXVVHDXLGHQWLILHVDV GLIIHUHQFHKHUHH[SODLQHG 6WLHJOHUS 7KHUHVROXWLRQIRUZDUGHGE\6RFUDWHVRQWKHQHHGIRUPDWKDQGSKLORVRSK\LVEDVHGRQWKHSURSRVLWLRQ WKDWPDQ¶VVRXOLVLPPRUWDODQGLWLVWKHVRXOZKLFKSRVVHVVHVNQRZOHGJHZKLFKLVORVWLQWKHIDOODQG UHGLVFRYHUHGLQOLIH6WLHJOHUSS ,ELGS 6WLHJOHUGHVFULEHVLWVUROHIRU³7KHDPELJXLW\RIWKHLQYHQWLRQRIWKHKXPDQWKDWZKLFKKROGV WRJHWKHUWKHZKRDQGWKHZKDWELQGLQJWKHPZKLOHNHHSLQJWKHPDSDUWLVGLIIpUDQFHXQGHUPLQLQJWKH DXWKHQWLFLQDXWKHQWLFGLYLGH´S 7KHUHLVQRGLIIHUHQFHDWWKHRULJLQEXWRULJLQDU\HTXDOLW\ZHPXVWEXWDIWHUZDUGPDNHDQ RULJLQDU\GLIIHUHQFHEHWZHHQZKDWWKHRULJLQLVDQGZKDWLWQRORQJHULVZKLOHUHFDOOLQJ UHLQYLJRUDWLQJUHVXUUHFWLQJLQRXUVHOYHVWKHRULJLQ<XDLQGLIIHUHQWLDWLRQWKHSUREOHPZLOOEHWR ³GLVWLQJXLVKSURSHUO\ZKDWLVRULJLQDODQGZKDWLVDUWLILFLDOLQWKHDFWXDOQDWXUHRIPDQ´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³WUXWK´RIWKHRULJLQLVQHFHVVDULO\DSRUHWLFLWLVDOZD\VDILFWLRQ3URYRNLQJWKLV FRQFHUQ.DF¶V*HQHVLVGLVPDQWOHVWKHWUDQVFHQGHQWDOIRXQGDWLRQRIWKHDEUXSWDUULYDORIWKH KXPDQXQGHUVWRRGYLDLWVFDSDFLW\IRUODQJXDJHFRQFHLYHGDVRXWVLGHERWKLQVSDFHDQGWLPH RIQDWXUH7KHFDWDO\WLFYDOXHRI6WLHJOHU¶VFULWLTXHRI5RXVVHDXLVDFKLHYHGE\XQGHUFXWWLQJWKH ORJLFRIWKHDSRULDIRUZKLFK³$GLVWLQFWLRQZLOOEHUHODWHGWRVDYHSULQFLSOHIURPIDFW´6WLHJOHU DVNV³EXWZKDWLVDILFWLRQLIQRWDQDUWLILFH"$QDUWLILFHZLOOEHQHHGHGWRGLVWLQJXLVKWKH DUWLILFLDOIURPWKHQDWXUDO'RHVWKLVDUWLILFHQRWULVNLQWXUQFUHDWLQJFRQIXVLRQVFRQFHDOLQJRWKHU WKLQJV"´:KDWLVFRQFHDOHGLQSUHVHUYLQJDQHVVHQFHRIPDQ"1DPHO\6WLHJOHUFRQWHQGVWKDW 5RXVVHDX¶VRULJLQLVGXSOLFLWRXVZKHUHE\WKHIDOORIPDQLQWRQDWXUHPDUNVWKHILUVWRULJLQDQGWKH IDOORIPDQLQWRWHFKQLFVGHOLPLWVWKHVHFRQG 7KHSURVWKHVLVLVWKHRULJLQRILQHTXDOLW\7KHPDQRISXUHQDWXUHKDVHYHU\WKLQJDERXWKLPVHOI FDUULHVKLPVHOIZKROHDQGHQWLUHDERXWKLPVHOIKLVERG\LVµWKHRQO\LQVWUXPHQWKHXQGHUVWDQGV¶ 6WLHJOHUS ,ELGS KHLVQHYHULQKLPVHOILQGHIDXOWQRILVVXUHLVDWZRUNLQKLPWKDWZRXOGEHSURYRNHGE\DSURFHVV RIGLIIHUHQWLDWLRQRQWKHRXWVLGHRIKLPVHOIQRUDGLIIHUHQWLDWLRQRIDQµRXWVLGH¶WKDWZRXOGEH HVVHQWLDOLQWHULRUL]HGWRKLPKHGHSHQGVRQQRRXWVLGH´ 7KHLVVXH6WLHJOHUWKXVWDNHVZLWK5RXVVHDXLVQRWWKHFUHDWLRQRIWKHP\WKRIRULJLQDU\PDQEXW WKHLPSRVVLELOLW\RIKLVH[LVWHQFHGXHWRWKHZD\LQZKLFKWKLVFRQVWUXFWLRQFRQFHDOVWKH FRQWUDGLFWRU\ZD\PDQLVDFWXDOO\WKHZD\LQZKLFKKXPDQVDUHWHFKQLFDOIURPWKHVWDUW,QWLWOLQJ WKHZRUN*HQHVLV,DUJXHWKDW.DFLQYRNHVWKLVGLVFRXUVHE\H[WUDFWLQJDSDVVDJHZKLFKLV H[SOLFLWO\VHOHFWHGIRUWKHZD\LQZKLFKLWPDUNVWKHRULJLQRIKXPDQLW\LQWRQDWXUH±ZKHWKHUWKLV LVDFKLHYHGDFWXDOO\RULGHDOO\LWVUHLILFDWLRQLQWKH*HQHVLVSURMHFWVXEYHUWVLWVDSRUHWLFYDOXH $+HUPHQHXWLF8QGHUWDNLQJ ,WLVLQWKHDSRULDRIWKHRULJLQRIODQJXDJHWKDWWKHFKDVPGHHSHQVZKDWZLOOKDYHFRPHILUVWODQJXDJHIRU WKHIRXQGDWLRQRIVRFLHW\RUVRFLHW\IRUDGHFLVLRQRQODQJXDJH" 6WLHJOHU¶VGHWRXUYLD5RXVVHDXGHPRQVWUDWHVWKDW5RXVVHDX¶VDSULRULFRQGLWLRQIRUDWWHPSWLQJWR SUHVHUYHDQHVVHQFHRIWKHKXPDQLVDQLPSRVVLELOLW\:KHUHLQIDFWWKHSUREOHPRIDGHIDXOWRI RULJLQOLHVQRWDVD³IDOOLQWREHLQJ´EXWUDWKHULQWKHORVVRIPHPRU\±VSHFLILFDOO\WKHORVVRID PHPRU\ZKLFKLVQRORQJHUKHOGLQJHQHWLFVFULSW7KHTXHVWLRQRIRULJLQLVWKXVWUDQVIRUPHGE\ VXEMHFWLQJLWVWUDQVFHQGHQWDOLPSOLFDWLRQVWRDQRQWRORJLFDOLQYHVWLJDWLRQRQHZKLFKLVIXUWKHUHG E\.DFDQG6WLHJOHU7KLVUHIOHFWLRQ6WLHJOHUDUJXHVUHYHDOVWKHZD\LQZKLFKWKHWHFKQLFDOREMHFW VXSSOHPHQWVKXPDQVXEMHFWLYLW\DVFDOFXODWLRQDQGVXEVHTXHQWO\³GULYHV:HVWHUQNQRZOHGJH GRZQDSDWKWKDWOHDGVWRDIRUJHWWLQJRILWVRULJLQZKLFKLVDIRUJHWWLQJRILWVWUXWK´,QVWHDG 6WLHJOHUSURSRVHVWKDWH[DPLQLQJWKHHVVHQFHRIPDQUHTXLUHVUDWKHUTXHVWLRQLQJWKHUHODWLRQ EHWZHHQWKHZKRDQGWKHZKDWRIZKHWKHULWLVWKHKXPDQZKRLQYHQWVWHFKQLFVRUZKHWKHULWLV WHFKQLFVWKDWLQYHQWVWKHKXPDQ+HQRWHVWKDWWKLV³DPELJXLW\VLJQDOVDTXHVWLRQWKDWEUHDNVGRZQ 6WHLJOHUS ,ELGS ,ELGS LQWRWZRµZKR¶RUµZKDW¶GRHVWKHLQYHQWLQJ"µ:KR¶RUµZKDW¶LVLQYHQWHG"7KHDPELJXLW\RIWKH VXEMHFWDQGLQWKHVDPHPRYHWKHDPELJXLW\RIWKHREMHFWRIWKHYHUEµLQYHQW¶WUDQVODWHVQRWKLQJ HOVHEXWWKHYHU\VHQVHRIWKHYHUE´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³PHDQWWRSURPSWYLHZHUVWRFRQIURQWWKHGDQJHUVRIUHGXFLQJOLIHWRVLQJOHIDFWRUVVXFKDV JHQHV´WKHGDQJHUDSSHDUVUDWKHUWREHVLWXDWHGLQWKHWHQVLRQEHWZHHQWKHFXOWXUDODQGPDWHULDO LGHDVRIQDWXUHDQGWKHSROLWLFVDULVLQJIURPWKHVHFRQFHSWLRQV7KHVLJQLILFDQFHRIJHQHWLFFRGHV FDUULHVWKHZHLJKWRILQFRPPHQVXUDELOLW\EHWZHHQWKHKLVWRULFDOO\GRPLQDQWWKHRORJLFDOWUDGLWLRQV GLFWDWHGE\:HVWHUQUHOLJLRQDQGWKHRQWRORJLFDOHYLGHQFHVXSSRUWLQJHYROXWLRQ7KHFRQFHLYDEOH LURQ\HPSOR\HGLQWUDQVODWLRQVHUYHV.DFLQVRIDUDVKHLVHTXLSSHGWRFKDOOHQJHWKHDXWKHQWLFLW\ RIWKHPHDQLQJRIWKLVWH[WDQGVLPXOWDQHRXVO\DFKLHYHVUHSUHVHQWLQJWKHVWDWHPHQWVXEMHFWHGWRD UHQHZHGFRQWHPSRUDQHRXVXQGHUVWDQGLQJ <HWWKHLPSOLFLWSROLWLFDOFRQQRWDWLRQVRI*HQHVLVDUHRIWHQORVWRQFULWLFVLQWHUSUHWLQJELRDUW)RU LQVWDQFHLQ³:KRLVLQ&RQWURO+HUH"0HGLDWLQJRQ(GXDUGR.DF¶V7UDQVJHQLF$UW´.DWKHULQH +D\OHVZULWHV 6WLHJOHUS .DFS 7KHUHODWLRQ.DFHVWDEOLVKHVEHWZHHQWKH0RUVHFRGHHQFU\SWLRQRIWKHGRPLQLRQSDVVDJHDQG '1$VHTXHQFHVLVHQWLUHO\DUELWUDU\,WFUHDWHVHTXLYDOHQFHEHWZHHQODQJXDJHXQGHUVWRRGE\ KXPDQVDQGWKHELRORJLFDOVSHFLILFLW\RISURWHLQIROGLQJ7KLQNLQJWKLVFRQQHFWLRQDVD µWUDQVODWLRQ¶REVFXUHVWKHUDGLFDOGLVFRQWLQXLW\LWHQDFWV7KHUHLVQRWKLQJLQHLWKHUFXOWXUHRUQDWXUH WKDWWLHVWRJHWKHU'1$SURFHVVHVZLWKGRWVDQGGDVKHVRWKHUWKDQWKHDVVRFLDWLRQVVHWXSE\WKH DUWLVW +RZHYHUWKHUROHRI0RUVHFRGHDVDWUDQVODWLRQV\VWHPUDWKHUWKDQEHLQJDQDUELWUDU\LQFOXVLRQ LQWKH*HQHVLVSURMHFWRYHUVKDGRZV.DF¶VXQGHUO\LQJSROLWLFDOSRVLWLRQDJDLQVWWKHSURGXFWLRQ DQGGLVWULEXWLRQRINQRZOHGJHDQGWHFKQRORJ\LQVRFLHW\7KLVLVHYLGHQFHGIURP.DF¶VUDWLRQDOH WKDW³0RUVHFRGHZDVFKRVHQSDUWO\EHFDXVHDVILUVWHPSOR\HGLQUDGLRWHOHJUDSK\LWUHSUHVHQWV WKHGDZQRIWKHLQIRUPDWLRQDJH±WKHJHQHVLVRIJOREDOFRPPXQLFDWLRQV´+HIXUWKHUVWDWHVWKDW 0RUVHFRGHLVPHDQWWRV\PEROLFDOO\FKDUJHFULWLFLVPDJDLQVWWKHLQYHQWRU6DPXHO0RUVH¶V QDWLYLVWOHDQLQJVFHQWHUHGRQUDFLVPDQWLLPPLJUDWLRQDQWL6HPHWLFDQGDQWL&DWKROLFEHOLHIV,Q DIRRWQRWH.DFH[SODLQV³7KHWUDQVODWLRQIURP.-90RUVHWRDJHQHLVPHDQWWRUHYHDOWKH FRQWLQXLW\EHWZHHQLPSHULDOLVWLGHRORJ\DQGWKHUHGXFWLRQLVWLFYLHZRIJHQHWLFVERWKIRFXVHGRQ VXSSUHVVLQJWKHFRPSOH[LW\RIKLVWRULFSROLWLFDOHFRQRPLFDQGHQYLURQPHQWDOIRUFHVWKDWPDNH XSVRFLDOOLIH´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³:KR,VLQ&RQWURO+HUH"0HGLDWLQJRQ(GXDUGR.DF¶V7UDQVJHQLF$UW´,Q7KH (LJKWK'D\7KH7UDQVJHQLF$UWRI(GXDUGR.DF3KRHQL[7KH,QVWLWXWHIRU6WXGLHVLQWKH$UWV$UL]RQD 6WDWH8QLYHUVLW\S .DFS .DFSS HYROXWLRQDU\WUDMHFWRULHVRIERWKELRORJLFDODQGWHFKQRORJLFDOEHLQJV7KHVHFRQVLGHUDWLRQVLQYLWH DKHUPHQHXWLFDOLQWHUSUHWDWLRQRIWKH*HQHVLVSURMHFWZLWKUHVSHFWWRERWKLWVFRQWHQWDQGIRUP )RULQVWDQFHSHUFHLYLQJ0RUVHFRGHDVDPHWDSKRUIRUPROHFXODUELRORJ\.DFDVNV³+RZGRZH JRIURPWKHPHWDSKRURIµJHQHVDVFRGH¶WRWKHµIDFW¶WKDWµJHQHVDUHFRGH¶"´.DF¶V LQYHVWLJDWLRQVDOORZKLPWRFULWLTXHWKHµGXELRXV¶RULJLQV\PEROL]HGLQWKH%LEOLFDOSDVVDJHE\ V\QWKHVL]LQJLWVFODLPWRJHQHWLFVFULSWGRFXPHQWHGLQWKH(QFU\SWLRQ6WRQHVZKRVH³WULDGLF FRQILJXUDWLRQ´RIVHTXHQWLDOWUDQVODWLRQVWKHUHE\LQVFULEHGUHSUHVHQWVWKHSURFHVVDYDLOLQJKLV PDWHULDOL]DWLRQRIWKH³DUWLVW¶VJHQH´7UDGLWLRQDOKHUPHQHXWLFVSUHGRPLQDQWO\DWWHQGVWR LQWHUSUHWDWLRQVRI%LEOLFDOWH[W<HW*DGDPHUUHYHDOVWKDWWKHPHDQLQJRIDWH[WUHVWVLQWKH DPELJXLW\EHWZHHQLWVOLWHUDOFRQILJXUDWLRQDQGWKHDXWKRU¶VLQWHQWLRQ6LQFHWKHODWWHUSRVVLELOLW\ LVUDGLFDOO\UHPRYHGIURP%LEOLFDOLQWHUSUHWDWLRQZHVKRXOGUDWKHUUHO\RQ*DGDPHU¶VQRWLRQRI ³KLVWRULFDOO\HIIHFWHGFRQVFLRXVQHVV´ZKLFKDVFULEHVPHDQLQJWREHKHOGLQFXOWXUDOFRQWHQWDQG FRQWH[WZKRVHSRVVLELOLWLHVDULVHIURPDQGFDQRQO\EHUHFLSURFDWHGLQUHWXUQE\WKHFXOWXUHIURP ZKLFKLWLVSURGXFHG%\H[WUDFWLQJDSDVVDJHIURPWKH%LEOHWKHVHKHUPHQHXWLFDOSRVVLELOLWLHV DUHLQWHUUXSWHGE\.DF ,VHOHFWHGWKH.LQJ-DPHV(QJOLVKYHUVLRQ.-9LQVWHDGRIWKH+HEUHZRULJLQDOWH[WDVDPHDQVRI KLJKOLJKWLQJWKHPXOWLSOHPXWDWLRQVRIWKH2OG7HVWDPHQWDQGLWVLQWHUSUHWDWLRQVDQGDOVRWR LOOXVWUDWHWKHLGHRORJLFDOLPSOLFDWLRQVRIDQDOOHJHGµDXWKRULWDWLYH¶WUDQVODWLRQ6LQFHWKHILUVW YHUVLRQRIWKHWH[WKDGQRFRQQHFWLRQEHWZHHQOHWWHUVQRVSDFHVEHWZHHQZRUGVDQGVHQWHQFHVQR SHULRGVRUFRPPDVDQGQRFKDSWHUVWKHPDWHULDOHQFRXUDJHGPXOWLSOHLQWHUSUHWDWLRQV6XEVHTXHQW WUDQVODWLRQVDQGHGLWLRQVDWWHPSWHGWRVLPSOLI\DQGRUJDQL]HWKHWH[WV±WKDWLVWRDUUHVWLWV FRQWLQXRXVWUDQVPXWDWLRQ±RQO\WRJHQHUDWHPRUHYHUVLRQV .DFS *DGDPHU + 7UXWK DQG 0HWKRG 7UDQV :HLQVKHLPHU - 0DUVKDOO '* /RQGRQ DQG 1HZ <RUN&RQWLQXXP .DFSHPSKDVLVDGGHG .DF¶VHPSKDVLVRQ³PXOWLSOHPXWDWLRQV´³PXOWLSOHLQWHUSUHWDWLRQV´DQGWKHDWWHPSWVWRIL[ PHDQLQJLVUHIOHFWLYHRIWKHIOXLGLW\RIWKHPDWHULDOLW\RIWKHZULWWHQZRUGDQGLWVSRWHQWLDOIRU LQIRUPLQJWKHSRVVLELOLWLHVRIWKRXJKW 7KHKHUPHQHXWLFDQGRQWRORJLFDORSHUDWLRQ.DFHPEDUNVXSRQLQ*HQHVLVHOLFLWVWZRWUDMHFWRULHV IRURXUDQDO\VLV,QWKHILUVWFDVHZHFRXOGUHDGWKHZRUNEDVHGRQ.DF¶VLQWHQWLRQDVGHVFULEHGLQ KLVSXEOLVKHGZRUNV,QWKHVHFRQGZHFDQFRQVLGHUWKHODUJHULPSOLFDWLRQVRIWKHSURMHFWIRU SKLORVRSK\,IWKHVLJQLILFDQFHRIWKHZULWWHQZRUGIXQFWLRQVDVDPQHPRWHFKQRORJLFDOGHYLFH HPERG\LQJNQRZOHGJHH[WHUQDOL]HGIURPWKHPLQGWKHQZKDW.DFSURSRVHVLQ*HQHVLVLVWKDWRXU UHODWLRQVKLSWRODQJXDJHDQGWKHWHFKQLFDOGHYLFHVZKLFKVXSSOHPHQWWKRXJKWQHHGQRWEH DSSHDVHGVRHDVLO\.DFREVHUYHVWKDW%DNKWLQ¶VFULWLTXHRIWKHFRQFHSWRIWKHQRYHO³IUHH]HV VSHHFKUDWKHUWKDQSURPRWHVLWVIORZSUHVHUY>LQJ@LPDJLQHGLQWHUDFWLRQVRQSDSHU>ZKLFK@GRHV QRWHQDEOHWKHWUXO\GLDORJLFDQGXQSUHGLFWDEOHQDWXUHRIODQJXDJHDVH[SHULHQFHGLQ LQWHUORFXWLYHUHFLSURFLW\´.DF¶VUHFRPPHQGDWLRQIRUH[SDQGLQJDUW¶VFDSDFLW\WRLQWHUURJDWH FRPPXQLFDWLRQWHFKQRORJLHVDQGWKHZD\LQZKLFKWKH\HQJHQGHUH[FKDQJHEHWZHHQEHLQJV WKHUHIRUHLVWRDGRSW%DNKWLQ¶VGLDORJLFDOPRGHORIFRPPXQLFDWLRQ 7KHGLDORJLFSULQFLSOHFKDQJHVRXUFRQFHSWLRQRIDUWLWRIIHUVDQHZZD\RIWKLQNLQJWKDWUHTXLUHV WKHXVHRIELGLUHFWLRQDORUPXOWLGLUHFWLRQDOPHGLDDQGWKHFUHDWLRQRIVLWXDWLRQVWKDWFDQDFWXDOO\ SURPRWHLQWHUVXEMHFWLYHH[SHULHQFHVWKDWHQJDJHWZRRUPRUHLQGLYLGXDOVLQUHDOGLDORJLF H[FKDQJHV7KURXJKFUHDWLYHQHWZRUNWRSRORJLHVDUWLVWVFDQHQDEOHWKHUHDOL]DWLRQRIH[SHULHQFHV FDOO>HG@µPXOWLORJLFLQWHUDFWLRQV¶>ZKLFK@DUHFRPSOH[UHDOWLPHFRQWH[WVLQZKLFKWKHSURFHVVRI GLDORJXHLVH[WHQGHGWRWKUHHRUPRUHSHUVRQVLQDQRQJRLQJRSHQH[FKDQJH <HWLQ*HQHVLVWKHTXHVWLRQPXVWEHUDLVHGZLWKZKRPLV.DFHQJDJLQJLQ³GLDORJLFDO FRPPXQLFDWLRQ´"3HUPLWWLQJXVHUVRYHUDQ,QWHUQHW:HE6HUYHU³WRFOLFNRUQRWWRFOLFN´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¶VSDUWLFLSDQWLVIDFHGZLWKUHDIILUPLQJDELQDU\FKRLFHSUHVHQWHGWR KLPKHUVHOIDQGLVMXGJHGRQKLVKHUDFWLRQVDFFRUGLQJO\EDVHGRQDVWULFWDGKHUHQFHWRLWVIRUP 6RZHPXVWDVN±LVWKHLQYLWDWLRQWRWKHYLHZHUDVSDUWLFLSDQWDUXVHIRU.DF¶VUHDOGHVLUHWR FRPPXQLFDWHZLWKWKHWH[WLWVHOI" ,VXJJHVWLQVWHDGWKDW*HQHVLVEHLQWHUSUHWHGDVDQLQWHUURJDWLRQRIWKHFRQFHSWRIQDWXUHLQKHULWHG IURP:HVWHUQWKRXJKWZKRVHWUDQVJUHVVLRQOLHVLQWUDYHUVLQJWKHRQWRHSLVWHPRORJLFDOGLYLGH FRQMHFWXULQJRXUHLGHWLFFDWHJRULHV(YROXWLRQDU\WKHRU\XQGHUVFRUHVDQRQWRORJLFDOXQGHUVWDQGLQJ RIQDWXUHRI³QDWXUDOIRUFHV´ZKLOHGHHSO\URRWHGHSLVWHPRORJLFDOLGHDVSUHPLVHGXSRQDQ XQVKDNDEOHDQWKURSRFHQWULVPLPSHOVFRQWUDGLFWLRQDQGGLVFRXUVH7KHVHFRQFHUQVWURXEOH.DF ZKRZULWHV $V,FRQWHPSODWHGWKHVDOW\ORRNLQJSRZGHUDFFXPXODWHGDWWKHERWWRPRIWKHWUDQVSDUHQWYLDOLW EHFDPHFOHDUWKDWWKHLVRODWHGJHQHLVLQHUWPDWWHUDQGWKDWDORQHLVGHVWLWXWHRIWKHDJHQF\RIWHQ DVFULEHGWRLW,QRWKHUZRUGVE\LWVHOIWKHJHQHFDQQRWGRDQ\WKLQJEHFDXVH±WRUHLWHUDWHWKH YHUEDOPHWDSKRU±WREHPHDQLQJIXOLWQHHGVDFRQWH[W7KHFRQWH[WRIWKHJHQHLVWKHERG\RIDQ RUJDQLVPDQGWKHFRQWH[WRIWKHRUJDQLVPLVLWVHQYLURQPHQW,QWKHFDVHRIP\*HQHVLVWKH RUJDQLVPVDUHEDFWHULDDQGWKHLUHQYLURQPHQWLVDWRQFHWKHLUGLVKWKHJDOOHU\DQGWKH,QWHUQHW,Q WKHFRQWH[WRIWKHZRUNWKHDELOLW\WRFKDQJHWKHVHQWHQFHLVDV\PEROLFJHVWXUHLWPHDQVWKDWZH GRQRWDFFHSWLWVPHDQLQJLQWKHIRUPZHLQKHULWHGLWDQGWKDWQHZPHDQLQJVHPHUJHDVZHVHHNWR FKDQJHLW ,LQVLVWWKDW*HQHVLVVXFFHHGVEHFDXVHLWVXEMHFWVWKHHLGHWLFFDWHJRULHVRIµOLIH¶LQWKLVZRUNLWLV LQWKHIRUPRIWKHEDFWHULDORUJDQLVPDQGWKHPDWHULDOLW\RIOLIHLQWKHIRUPRIJHQHVPDNLQJXS .DFS .DFSS WKH*HQHVLVSURWHLQWRWKHIRUFHVRIWKHRWKHUUDLVLQJWKHTXHVWLRQRIWKHµZKR¶DQGWKHµZKDW¶ :KHUHE\WKHµZKR¶LVQRWXVKXPDQVEXWQDWXUHDVVXFKDQGWKHHYROXWLRQDU\SURFHVVHV XQIROGLQJLWVµWUXWK¶ZKHUHDVWKHµZKDW¶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¶V PXWDWLRQVVSHDNVQRWRQO\RIGRPLQLRQEXWDOVRRIULFKLQWHUFRQQHFWLRQVLQZKLFKFDXVDWLRQLV PXOWLSOHDQGPDVVLYHO\SDUDOOHOWKXVJLYLQJWKHOLHWRKXPDQDJHQF\DVWKHXQLTXHO\LPSRUWDQW HOHPHQWLQWKHULFKVWHZRIUHFXUVLYHIHHGEDFNORRNVZHFDOOOLIH %\ZKDWPHDQVKRZHYHUDUHZHWRPDNHVHQVHRIWKHGHSWKRI*HQHVLV"6LJQLI\LQJWKHZD\LQ ZKLFK³WKHSURMHFWSRLQWVWRZDUGWKHGLVWULEXWHGDQGSDUWLDODJHQF\WKDWKXPDQVFDQHQDFWZKHQ RSHUDWLQJLQFRQWH[WVWKDWLQFOXGHFRPSOH[PHGLDWLQJWHFKQRORJLHV´LVYLWDOIRUWKLQNLQJD GLVWLQFWLRQRUSHUKDSVDQRYHUODSRIDUWDQGQDWXUH,QWKHQH[WVHFWLRQ,VXJJHVWWKDW6WLHJOHU¶V FRQFHSWRIHSLSK\ORJHQHVLVKHOSVWRHOXFLGDWHWKLVWKHPHLQ.DF¶V*HQHVLV (SLSK\ORJHQHWLF(YROXWLRQ 2QHPXVWILUVWDVNZKDWPLUDJHRIWKHFRUWH[LVH[SHULHQFHG>V¶pSURXYH@DVSDWKEUHDNLQJLQWKHKDUGQHVV RIIOLQWZKDWSODVWLFLW\RIJUD\PDWWHUFRUUHVSRQGVWRWKHIODNHRIPLQHUDOPDWWHUZKDWSURWRVWDJHRIWKH PLUURULVWKXVLQVWDOOHG2QHPXVWWKHQDVNZKDWWKHFORVXUHRIWKHFRUWLFDOHYROXWLRQRIWKHKXPDQLPSOLHV IURPWKHYDQWDJHRIDJHQHUDOKLVWRU\RIOLIHWKHFORVXUHRIWKHFRUWLFDOHYROXWLRQRIWKHKXPDQDQG WKHUHIRUHWKHSXUVXLWRIWKHHYROXWLRQRIWKHOLYLQJE\RWKHUPHDQVWKDQOLIH±ZKLFKLVZKDWWKHKLVWRU\RI WHFKQLFVFRQVLVWVLQIURPWKHILUVWIODNHGSHEEOHVWRWRGD\DKLVWRU\WKDWLVDOVRWKHKLVWRU\RIKXPDQLW\±D VWDWHPHQWWKDWZLOOOHDGXVWRWKHXQXVXDOFRQFHSWRIµHSLSK\ORJHQHVLV¶ 7KHLQWHQGHGPHDQLQJRIQDWXUHWREHGUDZQKHUHFRQWLQXHVP\UHIOHFWLRQRIQDWXUHDVDQXQSUHGLFWDEOH XQFRQWDLQDEOHUHPDLQGHURIWKRXJKWZKRVHWKLQNLQJLVOLPLWHGE\'DUZLQLDQWKRXJKW%DVLFDOO\,GRQRW PHDQWRUHGXFHQDWXUHWRHYROXWLRQEXWUDWKHUVXJJHVWWKDWLQWKHFRQWH[WRI*HQHVLVQDWXUHLVH[KLELWHGDV WKHIRUFHRIWKHVHUXOHVLWVHOIXQREVHUYDEOHEXWGHWHFWDEOHRQO\LQVRIDUDVLWVDIIHFWVDUHREVHUYHGDV ³VSRQWDQHRXVPXWDWLRQV´DQGLVWKXVUDGLFDOO\DQWLWHOHRORJLFDO +D\OHVS 6WLHJOHUS %\WUDQVIRUPLQJODQJXDJHLQWRJHQHWLFFRGHWREHUHYHUWHGEDFNWRODQJXDJH.DFXQGHUWDNHVDQ LQYHVWLJDWLRQRIWKHFRQFHSWRIHYROXWLRQDVDIUDPHZRUNIRUXQGHUVWDQGLQJQDWXUHZKLFKGRHVQRW IXQFWLRQH[FOXVLYHO\YLDµEOLQG¶SURFHVVHVQRUFDQEHVDLGWREHHQWLUHO\GHWHUPLQHGE\WKHIRUFHV RIQDWXUDOVHOHFWLRQ5DWKHULIVHOHFWLRQDQGPXWDWLRQDUHQHLWKHUHQWLUHO\UDQGRPQRUFRPSOHWHO\ GHWHUPLQHGWKHORFDWLRQDQGUROHRIWKHVXEMHFWLVUHQGHUHGTXHVWLRQDEOH,QVWHDG.DFLVFDUHIXO QRWWRGLVSURYHWKHWUDQVFHQGHQWDOVXEMHFWEXWOLNH6WHLJOHUDUWLFXODWHVWKDWDFURVVLQJLQWR VXEMHFWLYLW\LVQRWDFKLHYHGLQDOHDSIURPDQDSULRULµRULJLQ¶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±LWVWLOORFFXUVDWWKHUK\WKPRIµJHQHWLFGULIW¶± WKDWRQHFDQKDUGO\LPDJLQHWKHKXPDQDVLWVRSHUDWRUWKDWLVDVLWVLQYHQWRUUDWKHURQHPXFK PRUHUHDGLO\LPDJLQHVWKHKXPDQDVZKDWLVLQYHQWHG 6WLHJOHUH[SODLQVWKDWKXPDQH[LVWHQFHLVPDUNHGQRWRQO\E\HSLJHQHWLFSRVVLELOLWLHVWKRVHZKLFK LPSHOVHOHFWLRQRIWUDLWVYLDWKHLQGLYLGXDODQGWKHVRFLDOJURXSEXWHSLSK\ORJHQHWLF SRVVLELOLWLHVKHUHGHILQHG 6WLHJOHUS 6WLHJOHUGHVFULEHVWKHG\QDPLFRIHSLJHQHVLV³,QQRQDUWLILFLDOOLIHQRQWHFKQLFDOQRQDUWLFXODWHGE\ WKHGLIIpUDQFHRIGLIIp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´S DXWKRU¶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¶VQRWLRQRIHSLSK\ORJHQHVLVDULVHVIURPDSSO\LQJ'HUULGD¶VWKLQNLQJRIGLIIpUDQFHWR +HLGHJJHU¶VWHPSRUDOLW\RI'DVHLQLQWKH*HVWHOOZKRVHJURXQGLQIDFWLFLW\LPSOLHVD³VWUXFWXUHRI LQKHULWDQFHDQGWUDQVPLVVLRQ´ZKLFK6WLHJOHUHPSKDVL]HV >,@VQRWDµSURJUDP¶LQWKHTXDVLGHWHUPLQLVWELRORJLFDOVHQVHEXWDFLSKHULQZKLFKWKHZKROHRI 'DVHLQ¶VH[LVWHQFHLVFDXJKWWKLVHSLJHQHWLFVHGLPHQWDWLRQDPHPRUL]DWLRQRIZKDWKDVFRPHWRSDVV LVZKDWLVFDOOHGWKHSDVWZKDWZHVKDOOQDPHWKHHSLSK\ORJHQHVLVRIPDQPHDQLQJWKHFRQVHUYDWLRQ DFFXPXODWLRQDQGVHGLPHQWDWLRQRIVXFFHVVLYHHSLJHQHVHVPXWXDOO\DUWLFXODWHG 'DVHLQFKDUDFWHUL]HGE\WHPSRUDOLW\KLVWRULDOLW\VHOIXQGHUVWDQGLQJDQGIDFWLFLW\UHSUHVHQWVD SDVWZKLFKLVµKLVWRULFDO¶DQGFDQSRVVLELOL]HDSDVWZKLFKLVQRWLWVRZQ7KLVPHDQVWKDWWKH PDWHULDODQGWHPSRUDOFRQGLWLRQVRI'DVHLQ¶VH[LVWHQFHLVWKHUHVXOWRIWKHFKRLFHVPDGHLQWKH SDVWZKLFKHOLPLQDWHVLPXOWDQHRXVO\WKHLUSRVVLELOLWLHVRIH[LVWHQFHLQWKHSUHVHQWDQGIXWXUH GHWHUPLQLQJ'DVHLQ¶VQRQOLYHGXQGHUVWDQGLQJRILWVHOI$V6WLHJOHUH[SODLQV 'DVHLQLVLQWKHPRGHRIµKDYLQJWREH¶EHFDXVHLWQHYHU\HWWRWDOO\LVLQDVPXFKDVLWH[LVWVLWLVQHYHU ILQLVKHGLWDOZD\VDOUHDG\DQWLFLSDWHVLWVHOILQWKHPRGHRIµQRW\HW¶%HWZHHQELUWKDQGGHDWK H[LVWHQFHLVZKDWH[WHQGVLWVHOIEHWZHHQµDOUHDG\¶DQGµQRW\HW¶7KLVHFVWDVLVLVFRQVWLWXWHGWKURXJKWKH KRUL]RQRIGHDWKLQWKDW'DVHLQLQDQ\DFWRIVHOIDQWLFLSDWLRQLVDOZD\VDOUHDG\DQWLFLSDWLQJLWVRZQ GHDWKLWVRZQHQGWKDWLVµWKHPRVWH[WUHPHSRVVLELOLW\¶DQGWKDWFRQVWLWXWHVWKHRULJLQDU\WHPSRUDOLW\ RIH[LVWHQFH 7KLVRULJLQDU\WHPSRUDOLW\UHSUHVHQWVDG\QDPLFEHWZHHQWKHH[WUHPHSRVVLELOLWLHVRIH[LVWHQFHRI WKHWHUUDLQEHWZHHQELUWKDQGGHDWKZKRVHPHDQLQJLVPXWXDOO\GHWHUPLQHGE\HDFKRWKHU7KH LQGHWHUPLQDQF\RIHYROXWLRQDU\SURFHVVHVUHSUHVHQWHGLQWKHIRUPRIWKHWHFKQLFDOREMHFWXQYHLOV QDWXUH¶VUDGLFDOXQFHUWDLQW\ZKRVHWKLQNLQJGHILHVFRQWDLQPHQW6LQFHELRWHFKQRORJLFDO PDQLSXODWLRQVDUHFDSDEOHRIREOLWHUDWLQJWKHFRQFHSWRIEHLQJDVVXFKLQVRIDUDVLWVSRVVLELOLW\RI ,ELG 6WLHJOHUS ,ELGS H[LVWHQFHLVUDGLFDOO\GHWHUPLQHGE\LPPLQHQWGHDWKWKHQOLIHDVZHNQRZLWPXVWEH UHFRQFHSWXDOL]HGLQWKHIDFHRIUHYHODWLRQDU\ELRORJ\DQGEHFRPHVWKHVLWHRIDSROLWLFVRIQDWXUH (VWDEOLVKLQJD3URSHU'\QDPLFEHWZHHQ7HNKQƝDQG3KXVLV 6WLHJOHU¶VFRQFHSWRIHSLSK\ORJHQHVLVVXJJHVWV,SURSRVHWKDWWKHG\QDPLFEHWZHHQWHNKQƝDQG SKXVLVEHUHFRQVLGHUHG,IWKHLUGLVWLQFWLRQGHQRWHVDOOWKLQJVWHFKQLFDOIURPDOOWKLQJVOLYLQJWKLV QRWLRQVXEVWDQWLDWHVWKHZD\LQZKLFKVXEMHFWREMHFWGLYLVLRQVDUHSHUFHLYHGDQGPRUHRYHU LOOXPLQDWHVWKLVVLJQLILFDQFHIRUDHVWKHWLFUHIOHFWLRQ3KXVLV+HLGHJJHUGHILQHVDV³WKHILUVWDQG HVVHQWLDOQDPHIRUEHLQJVWKHPVHOYHVDQGDVDZKROHWKHEHLQJLVZKDWIORXULVKHVRQLWVRZQLQ QRZD\FRPSHOOHGZKDWULVHVDQGFRPHVIRUZDUGDQGZKDWJRHVEDFNLQWRLWVHOIDQGSDVVHVDZD\ ,WLVWKHUXOHWKDWULVHVDQGUHVLGHVLQLWVHOI´7KHFROORTXLDOWUDQVODWLRQRIWHNKQƝRQWKHRWKHU KDQGLVRIWHQHTXDWHGZLWKDUWDVFUDIWRUWHFKQLTXHEXWLWLQVWHDGVLJQLILHVNQRZOHGJHSURSHU )URPWKHYHU\RXWVHWWKHZRUGLVQRWDQGQHYHULVWKHGHVLJQDWLRQRIDµPDNLQJ¶DQGDSURGXFLQJ UDWKHULWGHVLJQDWHVWKDWNQRZOHGJHZKLFKVXSSRUWVDQGFRQGXFWVHYHU\KXPDQLUUXSWLRQLQWRWKH PLGVWRIEHLQJV)RUWKDWUHDVRQWHNKQƝLVRIWHQWKHZRUGIRUKXPDQNQRZOHGJHZLWKRXW TXDOLILFDWLRQ ,IWHNKQƝLVWDNHQLQLWVWUXHVHQVHDVNQRZOHGJHWKHQWKHGLIILFXOW\RIDVFHUWDLQLQJDQRQWRORJLFDO GLVWLQFWLRQEHWZHHQQDWXUHDQGDUWEHFRPHVIXUWKHUFRQYROXWHG)RUDQ\NQRZOHGJHRIQDWXUHLV DOZD\VDIRUPRIWHNKQƝ7KHWHUP³QDWXUH´UDWKHUDFWVDVDFRQWDLQHUIRUDSOHWKRUDRIDEVWUDFW OLQJXLVWLFDQGFRQFHSWXDOWHFKQLTXHVZKRVHUHODWLRQWRSKXVLVLVUHYHDOHGWKHPRPHQWZKHQ³,I PDQWULHVWRZLQDIRRWKROGDQGHVWDEOLVKKLPVHOIDPRQJWKHEHLQJVSK\VLVWRZKLFKKHLV H[SRVHGLIKHSURFHHGVWRPDVWHUEHLQJVLQWKLVRUWKDWZD\WKHQKLVDGYDQFHDJDLQVWEHLQJVLV ERUQHDQGJXLGHGE\DNQRZOHGJHRIWKHP6XFKNQRZOHGJHLVFDOOHGWHNKQƝ´ +HLGHJJHUS ,ELG ,ELG 7KLVERXQGDU\EHWZHHQSKXVLVDQGWHNKQƝ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Ɲ,IZHFRQVLGHUWKLVG\QDPLFWROD\DWWKHKHDUWRIWKH RSHUDWLRQRI*HQHVLVWKHQWHNKQƝLVERWKJLYHQE\EHLQJVLQWKHIRUPRIJHQHWLFGHWHUPLQDQF\ DQGLQGHWHUPLQDQF\DVPXFKDVLWLVXVHGE\EHLQJVDVDPHDQVIRUIXUWKHULQJWKHLURZQ QHFHVVLW\7HNKQƝWKXVGHOLPLWVQRWRQO\NQRZOHGJHEXWSRZHUSURSHU7KHDFWXDOG\QDPLF EHWZHHQWHNKQƝDQGSKXVLVWKHUHIRUHDOZD\VVLWXDWHVWKHVLWHRISROLWLFV)RULIWHNKQƝEHFRPHV VXEMXJDWHGWRSKXVLVDVZLWQHVVHGLQ*HQHVLVWKHQWKHSURSHQVLW\IRUWHNKQƝLHDVWKHFDSDFLW\ WR³PDVWHUEHLQJVLQWKLVRUWKDWZD\´LPSOLHVWKDWWKHG\QDPLFRIWHFKQLFVFDQQRORQJHUEH FRQFHLYHGDVWKHSUDFWLFHRIH[FOXVLYHO\KXPDQDFWLYLWLHV 5HORFDWLQJWKH7UDQVFHQGHQWDO6XEMHFW )RUWKHHQGRIWKHKXPDQFDQQRWEHLQYHVWLJDWHGZLWKRXWLQYHVWLJDWLQJLWVRULJLQMXVWDVTXHVWLRQLQJGHDWK LVTXHVWLRQLQJELUWKLQDPLUURU7RDVNWKHTXHVWLRQRIWKHELUWKRIWKHKXPDQLVWRSRVHWKHTXHVWLRQRIWKH µELUWKRIGHDWK¶RURIWKHUHODWLRQWRGHDWK 7KHTXHVWLRQLVWKXVUDLVHGRIKRZWRUHFRQFHSWXDOL]HSKXVLVZLWKUHVSHFWWRWKHLGHDWKDWWHFKQLFVLV FRPSULVHGRI³LQRUJDQLFRUJDQL]HGEHLQJV´6WLHJOHUSHPSKDVLVDGGHG ,ELGS 6WLHJOHUDVVHUWVWKDWZKDWLVDWVWDNHLQWKLQNLQJWKHRULJLQLVWKHSKLORVRSKLFDO³GHQLDORIDQ RULJLQDU\GLIIHUHQFHWKDWDOORZVRQHWRDIILUPWKDWDIWHUWKHIDOOWKHUHLVDGLIIHUHQFHEHWZHHQ SULQFLSOHDQGIDFWKHUHUHEDSWL]HGDVQDWXUHDQGFXOWXUH´7KHUHIRUHWKHRULJLQRQO\H[LVWV LQVRIDUDVLWDWWHPSWVWRDFFRXQWIRUWKHVWDWHRIWKHKXPDQSUHFHGLQJWKHGHYHORSPHQWRIODQJXDJH DVWKHWKUHVKROGWREHFURVVHGIRUWKHSRVVLELOLW\RIDWUDQVFHQGHQWDOVXEMHFWLYLW\,I5RXVVHDX¶V WUDQVFHQGHQWDOVXEMHFWUHTXLUHVDUHYHUVLRQWRDP\WKLFDORULJLQZKRVHQRWLRQLVXQGHUPLQHGE\ 6WLHJOHUE\ZD\RI0HQR¶VDSRULDWKHQLVWKHUHJURXQGVIRU.DQWWRGHPRQVWUDWHWKHDSULRUL JURXQGVIRUDWUDQVFHQGHQWDOVXEMHFWLYLW\JURXQGLQJDHVWKHWLFMXGJPHQWV" 8QOLNH5RXVVHDX.DQW¶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¶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µJHQHWLF¶7KLVWKRXJKW,DUJXHLQFLWHVDSROLWLFVRIQDWXUHZKRVHSRVVLELOLW\ZLOOEHH[SORUHGLQ WKHIROORZLQJILQDOFKDSWHU $XEU\GH*UD\FLWHVDJLQJDQGGHDWKDVDµGLVHDVH¶WREHFXUHG>6HHGH*UD\$³$URDGPDSWR HQGDJLQJ´LQ7HG*OREDO>9LGHRILOH@5HWULHYHGIURP KWWSZZZWHGFRPWDONVDXEUH\BGHBJUH\BVD\VBZHBFDQBDYRLGBDJLQJKWPO$FFHVVHG$SULO@ 7KLVLGHDLVGHYHORSHGE\+DQQDK$UHQGW6HH$UHQGW+7KH+XPDQ&RQGLWLRQ&KLFDJR 8QLYHUVLW\RI&KLFDJR3UHVV &+$37(5 72:$5'6$1$(67+(7,&32/,7,&62)1$785( ,QWURGXFWLRQ ,QWKHSUHYLRXVFKDSWHU,GHPRQVWUDWHGWKDWDQDHVWKHWLFWKLQNLQJRIQDWXUHUHTXLUHVXVWRDFFRXQW IRUDSROLWLFVRIQDWXUH±IRULIEHLQJVSKXVLVDUHFKDUDFWHUL]HGE\WHNKQƝDQGWHFKQLFVWHNKQƝ LVWREHFRQFHLYHGDVEHLQJVWKHQZKDWLPSDFWVGRHVWKLVSUHVHQWIRURXUDHVWKHWLFWKLQNLQJRI QDWXUH"7KHTXHVWLRQVDGGUHVVHGLQWKLVWKHVLVDUHUHLWHUDWHGIURP&KDSWHU,VDVHSDUDWH DHVWKHWLFGLVFRXUVHIRUQDWXUHUHTXLUHG":KDWLVWKHSXUSRVHRIQDWXUDOEHDXW\DQGGRHVDUW LPSRVHRUHQKDQFHDHVWKHWLFH[SHULHQFHVRIQDWXUH":KDWGHILQLWLRQRIµHQYLURQPHQW¶RUµQDWXUH¶ RXJKWWREHHVWDEOLVKHGLQWKLVGLVFRXUVH"7KHLUDQVZHUV,DUJXHDUHGHULYHGIURPWKHUROHRI PRUDOLW\DQGLWVUHODWLRQVKLSWRDUWHPERG\LQJWKHFRQFHUQVRIELRDUWZRUNVUDLVHGLQ&KDSWHU DQGWKHSUREOHPRIWKLQNLQJWHFKQLFVLQUHODWLRQWRWKHWUDQVFHQGHQWDOVXEMHFWGLVFXVVHGLQ&KDSWHU ,QWKLVFKDSWHU,UHO\RQ(GXDUGR.DFDQG,NXR1DNDPXUD¶V(VVD\&RQFHUQLQJ+XPDQ 8QGHUVWDQGLQJLQRUGHUWRHYDOXDWHWKHZD\ELRDUWHPERGLHVWKHSRVVLELOLW\WRZDUGVDFKLHYLQJDQ DHVWKHWLFSROLWLFVRIQDWXUH %UXQR/DWRXU¶V3ROLWLFVRI1DWXUH ,QWKHLQWURGXFWLRQWRWKLVWKHVLVDGHWDLOHGVXPPDU\RI%UXQR/DWRXU¶V3ROLWLFVRI1DWXUHZDV SUHVHQWHGLQRUGHUWRGHPRQVWUDWHWKHQHFHVVLW\RIUHWKLQNLQJWKHWHUPVQDWXUHDQGSROLWLFV+LV UHFRPPHQGHGVROXWLRQIRUPRELOL]LQJDSROLWLFVRIQDWXUHLVWRDEDQGRQWKHLGHDRI1DWXUHDVWKH H[WHUQDOFRPSOHPHQWWRSROLWLFVIRUZKLFKWKHUHFDQQRORQJHUEHTXHVWLRQVRIRQWRORJ\DQG FDWHJRULHVRIUHSUHVHQWDWLRQGLVWLQFWIURPHSLVWHPRORJLFDOTXHVWLRQV/DWRXU¶VQRWLRQRIWKH $SSHQGL[&)LJXUHV FROOHFWLYHLVWKXVDGRSWHGDVWKHREMHFWLYHIRUUHIOHFWLQJRQWKHYDOXHRIDHVWKHWLFFRQVLGHUDWLRQVRI QDWXUHEHFDXVHLWLVDUWLFXODWHGDVDSURSHUO\SROLWLFDOVSKHUHLQVRIDUDVLWFROODSVHVDVHSDUDWLRQ EHWZHHQQDWXUHDQGSROLWLFVDQGHQIUDQFKLVHVWKHSRVVLELOLW\RIUHSUHVHQWDWLRQVRIERWKKXPDQV DQGQRQKXPDQVIRUGHPRFUDWLFSDUWLFLSDWLRQLQDUHSXEOLF+RZHYHUQRWZLWKVWDQGLQJWKHZD\LQ ZKLFK/DWRXU¶VSURMHFWLVYLWDOIRUHQFRPSDVVLQJDSROLWLFVRIQDWXUHLQHQYLURQPHQWDOWKRXJKWWKH SRWHQWLDOIRUUHYLYLQJDQDHVWKHWLFGLVFRXUVHRIQDWXUHLQWKHVFRSHRIKLVDPELWLRQUHPDLQV ZDQWLQJ7KLVZDVGLVFXVVHGLQOLJKWRIWKHSUREOHPRIKLVUHOLDQFHRQWKHVFLHQFHVIRUWKH GLVWULEXWLRQRIWKHFDSDFLWLHVRIVSHHFKRQWKHSDUWRIQRQKXPDQVLQWKHFROOHFWLYH ,QWKLVFKDSWHU,H[WUDFWDQDHVWKHWLFUHDGLQJRI/DWRXULQRUGHUWRGHPRQVWUDWHWKHZD\LQZKLFK ELRDUWZRUNVQRXULVKWKHLPDJLQDWLRQDQGSURGXFHWKHQHFHVVDU\VSDFHVWRPHHWWKHUHTXLUHPHQWV RIWKH³FROOHFWLYH´DORQJVLGHWKHZRUNRIWKHDOUHDG\RYHUSULYLOHJHGVFLHQFHV,DUJXHWKDWLIWKH UHDOLVVXHLVWKHZD\LQZKLFKVSHHFKDQGUHSUHVHQWDWLRQDUHGHQLHGWRQRQKXPDQVDQGGLVWULEXWHG XQHTXDOO\DPRQJVWKXPDQVLQWKHSUHVHQWSROLWLFDODVVHPEO\PDNLQJLWLPSRVVLEOHWRVKDUHFLYLF SULYLOHJHDQGHQJDJHPHQWLQDQHTXLWDEOHPDQQHUWKHQELRDUWKDVDOUHDG\EHJXQWRHQJDJHLQWKH FROOHFWLYH,SURYLGHDUHDGLQJRI/DWRXUWKURXJK(GXDUGR.DFDQG,NXR1DNDPXUD¶V(VVD\ &RQFHUQLQJ+XPDQ8QGHUVWDQGLQJ(&+8H[SOLFDWLQJWKHVSHFLILFZD\DUWSURPRWHVWKHJRDOV RIWKHFROOHFWLYH7KLVGLVFXVVLRQIRFXVHVRQDQDO\]LQJNH\DVSHFWVRI/DWRXU¶VWKHPHVZKLFK LQFOXGHLKRZWKHFULVLVRIREMHFWLYLW\LQVFLHQFHUHTXLUHVFRQVLGHUDWLRQVRIWKHFULVLV UHSUHVHQWDWLRQLQDUWLLWKHWKHRUHWLFDOFRQVLGHUDWLRQVGHULYHGIURP.DQWLDQDHVWKHWLFVIRUWKH SRVVLELOLW\RIGLVWULEXWLQJWKHFDSDFLWLHVRIVSHHFKDQGUHSUHVHQWDWLRQWRQRQKXPDQVDQGLLLWKH ZD\LQZKLFKDGHPRFUDWLFFROOHFWLYHRIKXPDQVDQGQRQKXPDQVFDQEHFRQFHLYHGLQOLJKWRI +DQQDK$UHQGW¶VSROLWLFDOUHDGLQJRI.DQWLDQDHVWKHWLFV (VVD\&RQFHUQLQJ+XPDQ8QGHUVWDQGLQJ (&+8LVDFROODERUDWLYHZRUNFUHDWHGE\(GXDUGR.DFDQG,NXR1DNDPXUDILUVWH[KLELWHGLQ 2FWREHULQ1HZ<RUN¶V6FLHQFH+DOODQGWKH&HQWHUIRU&RQWHPSRUDU\$UWDWWKH8QLYHUVLW\ RI.HQWXFN\,WZDVVXEVHTXHQWO\UHLQVWDOOHGLQ+DUULVEXUJ3HQQV\OYDQLDDWWKH6XVTXHKDQD$UW 0XVHXP7KHZRUNIHDWXUHVDFDQDU\LQDODUJHZKLWHFDJHHTXLSSHGZLWKFLUFXLWERDUGV PLFURSKRQHDQGVSHDNHUVHSDUDWHGE\SOH[LJODVVZKLFKLVKRRNHGXSYLDQHWZRUNFRQQHFWLRQWRD VSHDNHUDQGPLFURSKRQHDIIL[HGWRDSKLORGHQGURQSODQW7KHSKLORGHQGURQSODQWGLVSOD\HGLQ 1HZ<RUNLVFRQQHFWHGWRVHQVRU\HTXLSPHQWGHVLJQHGWRGHWHFWDQGLQWHUSUHWWKHPLFURYROWDJH IOXFWXDWLRQLQUHVSRQVHWRDXGLRVWLPXODWLRQUHFHLYHGIURPWKHFDQDU\¶VYRFDOL]DWLRQVL[KXQGUHG PLOHVDZD\ORFDWHGLQ.HQWXFN\7KHSKLORGHQGURQSODQW¶VELRSK\VLFDOFKHPLFDOUHDFWLRQVDUH VXEVHTXHQWO\GHWHFWHGDQGLQWHUSUHWHGE\DFRPSXWHUSURJUDPZKLFKWUDQVODWHVWKHGDWDLQWR VRXQGUHGLUHFWHGWRFRPPXQLFDWHZLWKWKHFDQDU\$WILUVWJODQFHZHPLJKWWKLQNWRUHDGWKLV ZRUNLQFRQMXQFWLRQZLWK-RKQ/RFNH¶V$Q(VVD\&RQFHUQLQJ+XPDQ8QGHUVWDQGLQJEXW .DFLQVLVWVWKDWWKHZRUNUDWKHUVSHDNV³QRWWR/RFNH¶VSKLORVRSKLFDOZRUNEXWWRWKHOLYHEL GLUHFWLRQDOLQWHUDFWLYHWHOHPDWLFLQWHUVSHFLHVVRQLFLQVWDOODWLRQ´ $FFRUGLQJWR.DFWKHSXUSRVHRI(&+8LVWRHQDEOH³DQLVRODWHGDQGFDJHGDQLPDOWRKDYHD WHOHPDWLFFRQYHUVDWLRQZLWKDPHPEHURIDQRWKHUVSHFLHVGUDPDWL]>LQJ@WKHUROHRI FRPPXQLFDWLRQDQGWHOHFRPPXQLFDWLRQVLQKXPDQOLYHV>DQG@UHIOHFWVRXURZQORQJLQJIRU LQWHUDFWLRQ´7KHSURJUDPZKLFKGHWHFWVDQGLQWHUSUHWVWKHPLFURYROWDJHIOXFWXDWLRQRIWKHSODQW LVGHVFULEHG³LURQLFDOO\WRGHWHFWKXPDQPHQWDODFWLYLW\>DQG@HPSOR\HGLQWKLVZRUNWRLQVSHFW .DF(³(VVD\&RQFHUQLQJ+XPDQ8QGHUVWDQGLQJ´LQ/HRQDUGR(OHFWURQLF$OPDQDF 9RO1R$XJXVWSKWWSZZZOHRDOPDQDFRUJZSFRQWHQWXSORDGV/($YQSGI6HH $SSHQGL[&)LJXUH ,ELG6HH$SSHQGL[&)LJXUH ,ELG .DFSJ WKHYLWDODFWLYLW\RIDQRUJDQLVPJHQHUDOO\XQGHUVWRRGDVGHYRLGRIFRQVFLRXVQHVV´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¶VµFULVLVRI REMHFWLYLW\¶IRUDFKLHYLQJ/DWRXU¶VFROOHFWLYH,DUJXHWKDWDUWSURIRXQGO\UHYHDOVRSSRUWXQLWLHVWR FRPSOHPHQWWKHZRUNRIVFLHQFHEHFDXVHRIWKHZD\LQZKLFKWKHµFULVLVRIUHSUHVHQWDWLRQ¶LQ DHVWKHWLFGLVFRXUVHDOORZVXVWRDGGUHVVSDUWLFXODUQRQVFLHQWLILFLVVXHVSUREOHPDWL]LQJ KXPDQQRQKXPDQLQWHUDFWLRQV7KHSRWHQWLDOWKHQIRUELRDUWWRFRQWULEXWHPHDQLQJIXOO\LQWKH SXUVXLWWRZDUGVWKHGHPRFUDWLFUHSXEOLFFRPSULVHGRIKXPDQVDQGQRQKXPDQVLQDVLQJOH FROOHFWLYHLVJLYHQLQWKHIRUPRIWKHFRQWURYHUVLHVSURYRNHGE\LWVFUHDWLRQV7KLUGO\, LQWHUURJDWH/DWRXU¶VDWWHPSWVWRFROODSVHRQWRHSLVWHPRORJLFDOGLVWLQFWLRQVLQIDYRXURIDUHDOPRI SXUHSROLWLFVKRZHYHUXQLQWXLWLYHWKLVDSSHDUVZLWKUHVSHFWWRWKHDUJXPHQWRIWKLVWKHVLV7KLVLV XQGHUWDNHQGXHWRDQHHGWRFRQVLGHUWKHZD\LQZKLFK6WLHJOHU¶VSDUWLFXODURQWRORJLFDO FRQFHSWLRQRIEHLQJVJLYHVULVHWRHSLVWHPRORJLFDOFRQFHUQVZKLFKDUHLPSRUWDQWIRU GLVWLQJXLVKLQJWKHVSHFLILFDHVWKHWLFVWDNHVIRUDQDHVWKHWLFGLVFRXUVHRIQDWXUH)RXUWKO\,UHYLYH ,ELG WKHTXHVWLRQRIWKHWUDQVFHQGHQWDOVXEMHFWEDVHGRQ/DWRXU¶VLQWHQWLRQLHUHVSHFWLYHRIWKH GLVWULEXWLRQDQGFDSDFLW\RIWKHSRZHUVRIVSHHFKIRUWKHSDUWRIQRQKXPDQVE\UHIOHFWLQJXSRQ .DQWLDQDHVWKHWLFVDQG6WLHJOHU¶VQRWLRQRIWKHKXPDQWRGLVFRYHUWKHSRWHQWLDOVXSSRUWIURP WKHVHWKHRULVWVWRZDUGVWKLVHQGHDYRU)LQDOO\,FRPSDUH/DWRXU¶VIUDPHZRUNHQJHQGHULQJWKH JURXQGIRUWKHULVHRIWKHFROOHFWLYHDORQJVLGH+DQQDK$UHQGW¶VSROLWLFDOUHDGLQJRI.DQWLDQ DHVWKHWLFVIRXQGHGRQWKHVLJQLILFDQFHRIWKHVHQVXVFRPPXQLV7KURXJKRXWWKHVHDUJXPHQWV, UHWXUQWR(&+8WRUHIOHFWXSRQWKHZD\LQZKLFKWKLVZRUNVHUYHVWRH[HPSOLI\KRZELRDUWLQFLWHV DHVWKHWLFUHIOHFWLRQE\SURPRWLQJDSURGXFWLYHGLVFXVVLRQRIWKHSROLWLFVRIQDWXUH 5HFRQVLGHULQJWKH2QWR(SLVWHPRORJLFDO&KDOOHQJHVIRU&RQFHLYLQJDQ$HVWKHWLF'LVFRXUVH RI1DWXUH /DWRXU¶VIRXQGDWLRQIRUFRQFHSWXDOL]LQJWKHSUREOHPRIWKHQHHGIRUDSROLWLFVRIQDWXUHUHVWVRQ WKHUHOLDQFHRIDSDUWLFXODUHPSOR\PHQWRIµHSLVWHPRORJLFDO¶FRQVLGHUDWLRQVIRUWKHVDNHRI SROLWLFVMX[WDSRVHGZLWKWKHDSROLWLFDOµRQWRORJLFDO¶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¶VWKHRU\RI3$SUHVHQWHGWKH ZD\LQZKLFK.DQW¶VQRWLRQRIGLVLQWHUHVWHGQHVVHQIUDQFKLVHGWKHFDSDFLW\WRWKLQNDQDHVWKHWLFV RIQDWXUHSUHGLFDWHGRQVFLHQWLILFNQRZOHGJH7KHUHOLDQFHRQVFLHQWLILFNQRZOHGJHDVWKHPRGH ZLWKZKLFKWREDVHDQDHVWKHWLFUHIOHFWLRQRIQDWXUHLVIRXQGHGRQWKHZD\LQZKLFKLWV HSLVWHPRORJLFDOµREMHFWLYLW\¶HQJHQGHUVDNLQGRIGLVLQWHUHVWHGQHVVRQWKHSDUWRIWKHVSHFWDWRU 7KHDHVWKHWLFVXSSRVLWLRQVRIWKLVDUJXPHQWZHUHGHYHORSHGRXWRIDFRQFHUQIRUTXDOLI\LQJDOHYHO RIGLVLQWHUHVWHGQHVVWRZDUGVREMHFWVRIQDWXUHSHUFHLYHGWREHWDLQWHGE\LQGLYLGXDOVXEMHFWLYLW\ 7KHFKDOOHQJHRIWKLQNLQJGLVLQWHUHVWHGQHVVKRZHYHUPXVWEHFRQVLGHUHGLQOLJKWRIWKHZD\LQ ZKLFKLWLQIDFWRSHUDWHVLQ.DQWLDQDHVWKHWLFV $QRYHUYLHZRI.DQW¶VDHVWKHWLFIUDPHZRUNLQ&KDSWHUH[SOLFDWHGWKHZD\LQZKLFKDSULRUL SULQFLSOHVIRUVXEMHFWLYLW\SURYLGHVWKHVXEMHFWZLWKDGLVWLQFWIDFXOW\RIPLQGIRUPDNLQJ MXGJPHQWVRIWDVWHEDVHGRQµ7KH)RXU0RPHQWV¶7KH)RXU0RPHQWVRXWOLQHWKHFRQGLWLRQVIRU WKHSRVVLELOLW\RIDHVWKHWLFH[SHULHQFHVRQHRIZKLFKLVEDVHGRQDUHODWLRQRIGLVLQWHUHVWHGQHVV WKHVXEMHFWKROGVZLWKWKHREMHFWRIKLVRUKHUDWWHQWLRQ7KLVFRQFHSWKRZHYHULVQRWIRUZDUGHG E\.DQWLQRUGHUWRXVXUSVXEMHFWLYLW\IURPWKHH[SHULHQFHRIWKHREMHFWEXWUDWKHUWRSUHYHQWWKH WUHDWPHQWRIWKHDHVWKHWLFREMHFWDVDPHDQVWRDQHQG7KXVGLVLQWHUHVWHGQHVVGRHVQRWUHIHUWR WKHREMHFW¶VULVNRIEHLQJµWDLQWHG¶E\VXEMHFWLYLW\EXWLQVWHDGRXJKWWREHWKRXJKWLQWDQGHPZLWK WKHPRUDOFRQVLGHUDWLRQVRIKRZDQDHVWKHWLFYLHZLQJUHTXLUHVWKDWRQHPXVWVXVSHQGRQH¶VRZQ VHOI±LQWHUHVW7KLVFODULILFDWLRQRIWKHUROHGLVLQWHUHVWHGQHVVSOD\VLQIRUPLQJWKHSRVVLELOLW\RI DHVWKHWLFMXGJPHQWVKDUPRQL]HVZLWKP\SUHYLRXVSRLQWWKDWDVFLHQWLILFYLHZLQJRIQDWXUHZRXOG SURGXFHDQRXWFRPHZKLFKLVEDVHGRQFRJQLWLRQDQGLVWKXVDQWLWKHWLFDOWRDHVWKHWLFMXGJPHQWV <HWDHVWKHWLFMXGJPHQWVQRQHWKHOHVVGRQRWVWULFWO\RFFXS\WKHDSSUHFLDWLRQRIZRUNVRIDUW ,Q&KDSWHU,GLVFXVVHGKRZ&DUOVRQ¶V³REMHFWRULHQWHG´DHVWKHWLFVUHOLHVRQDQRWLRQRIGLVLQWHUHVWHGQHVV GLVWLQFWIURPH[SHULHQFHVRIQDWXUH,QGHHG,GHPRQVWUDWHGKRZWKHWHOHRORJLFDOSULQFLSOHVHUYHV WRFRQQHFWWKHH[SHULHQFHRIERWKQDWXUHDQGDUW2QHSRVVLELOLW\ZDVQRWHQWLUHO\H[SORUHGHDUOLHU LQWKLVWKHVLVKRZHYHUDQGLWLVIRXQGLQWKHFDSDFLW\IRU.DQW¶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µFRQFHSWXDOJDS¶ZLWKZKLFKQDWXUHSUHVHQWVLWVHOIDVXQDEOHWREHFRQWDLQHGE\ UHDVRQWKHQWKHDHVWKHWLFIHHOLQJRIQDWXUHSUHPLVHGRQWKHWHOHRORJLFDOSULQFLSOHIXQGDPHQWDOO\ RSHQVXSQHZSRVVLELOLWLHVRIXQGHUVWDQGLQJYLDWKHVXEOLPH7KXVWKHµRQWRORJLFDOJDS¶VRWR VSHDNUHVWVLQWKHRSHQLQJHQJHQGHUHGE\VXEOLPHH[SHULHQFHVZLWKUHVSHFWWRWKHODFNRID FRQFHSWRIQDWXUHZKRVHREMHFWVDUHFDSDEOHRILQVSLULQJERWKDSSUHFLDWLRQDQGVLPXOWDQHRXVO\ GHQ\LQJXVDQ\UDWLRQDOFRQFHSWIRUWKHLUµRUJDQLFXQLW\¶7KLVLVZKHUHWKHLPSRUWDQFHRIWKH PRUDOSURSRVLWLRQHQWHUVIRULIWKHUXSWXUHFUHDWHGE\WKHIHHOLQJRIWKHVXEOLPHUHVWVRQWKH .DQWSHPSKDVLVDGGHG WHOHRORJLFDOMXGJPHQWZKRVHDSULRULUXOHLVJLYHQDV³SXUSRVLYHQHVVZLWKRXWSXUSRVH´WKHQ QDWXUHDVDQHQGLQLWVHOIFDQQRWEHNQRZQ7KDWLVWRVD\LWUHVLVWVDOOFODVVLILFDWLRQVUHLILFDWLRQV DQGFDQQRWHYHQEHFRPHDQREMHFWIRUWKHPLQGLHLWHYDGHVµUDWLRQDOLW\¶8QGHUVWRRGLQWKLV VHQVHGRHVWKHDGRSWLRQRIWKHVXEOLPHDOORZXVWRGLUHFWDQDHVWKHWLFGLVFXVVLRQRIQDWXUH WRZDUGVLWVµRWKHU¶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³GLVLQWHUHVWHGQHVV´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³UDSWXUH´RIRXU VHQVHH[SHULHQFHV,QIDFW(&+8HOLFLWVTXLWHWKHRSSRVLWHIHHOLQJIURPWKHVXEOLPHLW HPSKDVLVHVWKHµGLVLQWHUHVW¶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¶VFULVLVRIREMHFWLYLW\+HSRVHVWKHTXHVWLRQ UKHWRULFDOO\DVNLQJ³:K\WDNHDQLQWHUHVWLQSROLWLFDOHFRORJ\WKHQLILWVOLWHUDWXUHRQO\PDQDJHV WRSOXQJHXVEDFNLQWKH&DYH"%HFDXVHSROLWLFDOHFRORJ\KDVQRWKLQJWRGRRUUDWKHUILQDOO\QR ORQJHUKDVDQ\WKLQJWRGRZLWKQDWXUHVWLOOOHVVZLWKLWVFRQVHUYDWLRQSURWHFWLRQRUGHIHQVH´ 7KHUHIRUH/DWRXUWHOOVXVZHPXVWGLVWLQJXLVKEHWZHHQ³WKHSUDFWLFHRIHFRORJ\PRYHPHQWVDQG WKHWKHRU\RIWKDWPLOLWDQWSUDFWLFH´ZKHUHE\ $VVRRQDVZHEHJLQWRWXUQRXUDWWHQWLRQWRZDUGWKHSUDFWLFHRIHFRORJLFDOFULVHVZHQRWLFHDW RQFHWKDWWKH\DUHQHYHUSUHVHQWHGLQWKHIRUPRIFULVHVRIµQDWXUH¶7KH\DSSHDUUDWKHUDVFULVHVRI REMHFWLYLW\HPSKDVL]>LQJ@WRZKDWH[WHQWWKHFULVLVEHDUVRQDOOREMHFWVQRWMXVWRQWKRVHRQ ZKLFKWKHODEHOµQDWXUDO¶KDVEHHQFRQIHUUHG (FRORJLFDOPRYHPHQWVDFFRUGLQJWR/DWRXUUDWKHUFODLPWR³VSHDNDERXWQDWXUH´WR³SURWHFW QDWXUHIURPPDQNLQG´WR³GHIHQGQDWXUHIRULWVRZQVDNH´WRWKLQNWKURXJKWKH³/DZVRI /DWRXUSDXWKRU¶VHPSKDVLV /DWRXUSSDXWKRU¶VHPSKDVLV 6FLHQFH´DQGGHWHUPLQHWKHLUPRGHOVWR³VSHDNRIWKHZKROH´DQGWRLQFUHDVH³SROLWLFDOSRZHURI WKHIXWXUH´:KHQLQVWHDGKHSRLQWVRXWWKH\³VSHDNRILPEURJOLRVSUHVXSSRVLQJKXPDQ SDUWLFLSDWLRQ´³LQFUHDVHKXPDQLQFOXVLRQ´VHOHFWLYHO\GHIHQGQDWXUHIRUDQDUURZJURXSRI LQGLYLGXDOVEHFRPLQJPLUHGLQVFLHQWLILFFRQWURYHUV\WKHLUZRUN³UHVXOWVLQKHWHUDUFKLF DVVHPEODJHVZKLFKFRQWUDGLFWVWKHLGHDRI1DWXUH¶VIUDJLOLW\´³IRFXVRQO\RQVHOHFWHGLVRODWHG LQFLGHQWV´DQGILQDOO\UHGXFHVSROLWLFVWR³WLQ\SRUWLRQVRIHOHFWRUDOVWUDSKDQJHUV´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¶VDQDO\VLVRIWKHFULVLVRIUHSUHVHQWDWLRQIDFHGLQ DUWZKLFKDVNVKRZWKHLQFOXVLRQRIQRQKXPDQEHLQJVDVWKHVXEMHFWPDWWHUIRUDUWLVWVLVRQHWKDW EHDUVGLUHFWO\XSRQ >1>RWMXVWWKHDUWLVWLFFKDOOHQJHEXWDOVRWKHODUJHUSKLORVRSKLFDODQGHWKLFDOFKDOOHQJHRIVSHDNLQJ IRUQRQKXPDQDQLPDOVVSHDNLQJWRRXUUHODWLRQVZLWKWKHPDQGKRZWDNLQJWKRVHUHODWLRQV VHULRXVO\XQDYRLGDEO\UDLVHVWKHTXHVWLRQRIZKRµZH¶DUH±DTXHVWLRQWKDWPD\JHWDQVZHUHGTXLWH LQGLUHFWO\QRWLQWKHPDQLIHVWFRQWHQWRIWKHDUWZRUNRULWVµPHVVDJH¶EXWLQLWVIRUPDOVWUDWHJLHV /DWRXUSS /DWRXUSS :ROIHSDXWKRU¶VHPSKDVLV )RU:ROIHDSSURDFKLQJWKHTXHVWLRQRIKXPDQQRQKXPDQUHODWLRQVLQZRUNVRIDUWLVLPSRUWDQW EHFDXVHRIWKHZD\LQZKLFKDUWZRUNVDUHFDSDEOHRISOD\LQJLQWRRUGLVUXSWLQJRXUXQFRQVFLRXV H[SHFWDWLRQVDQGHVWDEOLVKHGSHUFHSWLRQVRIQRQKXPDQVDVDYLVXDOVWUDWHJ\7KLVVWUDWHJ\LV LPSRUWDQWIRU:ROIH¶VDQDO\VLVEHFDXVHKHDUJXHVZKDWZHPXVWUHIOHFWXSRQLQWKHTXHVWLRQRI WKHDQLPDOLQDUWLVQRWPHUHO\WKHPHGLXPHPSOR\HGE\WKHDUWLVWLQWKHFUHDWLRQRIWKHLUZRUNV EXW³KRZSDUWLFXODUDUWLVWLFVWUDWHJLHVWKHPVHOYHVGHSHQGXSRQRUUHVLVWDFHUWDLQKXPDQLVPWKDWLV TXLWHLQGHSHQGHQWRIWKHPDQLIHVWFRQWHQWRIWKHZRUNWKHIDFWWKDWLWPD\EHµDERXW¶QRQKXPDQ DQLPDOVLQVRPHREYLRXVZD\´ :ROIH¶VFRQWULEXWLRQWRXQGHUVWDQGLQJWKHZD\LQZKLFKWKHUHSUHVHQWDWLRQDOLVPRIDUWLVWLF VWUDWHJLHVUHLQIRUFHRUXQGHUPLQHSHUFHSWXDOUHJLPHVRIWKLQNLQJWKHTXHVWLRQRIQDWXUHLVFHQWUDO WRWKLVWKHVLV,DUJXHGLQ&KDSWHUWKDWWKHDHVWKHWLFDQGHWKLFDOVWDNHRIELRDUWDULVHVRXWRIWKH FRQWURYHUV\SURYRNHGE\LWVFUHDWLRQVOHDGLQJVRPHVFLHQWLVWVWRUHVLVWWKHHQWU\RIELRDUWLVWVLQWR WKHODERUDWRU\DQGWRUHMHFWWKHVXEVHTXHQWZD\VELRDUWLVWVDOVRHPSOR\QRQKXPDQVLQWKHLU LQYHVWLJDWLRQVDOEHLWIRUµDHVWKHWLFHQGV¶7KLVUHVLVWDQFHWRELRDUWRQWKHSDUWRIVFLHQWLVWV SDUDOOHOWKHFRQFHUQVUDLVHGDJDLQVWDUWLQWKHGLVFXVVLRQRIHQYLURQPHQWDODHVWKHWLFV±WKDW DUWZRUNVLPSRVHXSRQQDWXUDOEHDXW\H[LQWKHWUDGLWLRQRI/DQG$UW7KHUHIRUHVRPHFULWLFV VD\DUWLVWVFDQDQGVKRXOGSHUKDSVUHQGHUWKHLUµDHVWKHWLFLQWHUSUHWDWLRQVRIQDWXUH¶LQRWKHUZD\V IRUH[DPSOHWKURXJKSDLQWLQJRUGUDZLQJDOWKRXJK&DUOVRQLVSDUWLFXODUO\REVWLQDWHDERXWWKLV LVVXHORDWKLQJWKHODQGVFDSHSDLQWLQJFKDUDFWHUL]HGE\WKH3LFWXUHVTXHDVPXFKDV/DQG$UW ZRUNVZKLFKUHVLVWWKLVµIUDPLQJ¶RIQDWXUH :ROIHSDXWKRU¶VHPSKDVLV 5HFDOO%LUNH¶VFRPPHQWIURP&KDSWHU³>:@HVKRXOGEHDUJXLQJSDVVLRQDWHO\IRUDPRUH HQOLJKWHQHGDSSURDFKWRXQGHUVWDQGLQJKRZDQLPDOVDQGWKHLUERGLHVZRUNRQHZKLFKDFNQRZOHGJHVDQG FHOHEUDWHVWKHLUFRPSOH[LW\DQGLQWHJULW\±DVZHOODVWKHLURZQLQWULQVLFDHVWKHWLFTXDOLWLHV±DQGKDYLQJ YDOXHGWKHPOHDYHVWKHPDORQH´S +RZHYHU:ROIHDUJXHVWKDWWKHZD\LQZKLFKUHSUHVHQWDWLRQDOLVPHPSOR\VDYLVXDOVWUDWHJ\ GRHVQRWQHFHVVDULO\GHSHQGXSRQRULVDEOHWRHYDGHWKHULVNRIYLROHQFHHQDFWHGDJDLQVWLWV VXEMHFWWKURXJKWKHVHOHFWLRQRIDPRUHµLQQRFHQW¶FKRLFHRIPHGLXPXVHGE\WKHDUWLVW:ROIH EHJLQVE\FRQVLGHULQJWKHUHSUHVHQWDWLRQDOVWUDWHJLHVRI6XH&RH¶VSDLQWLQJVLQKHU'HDG0HDW SURMHFWGLVFRYHULQJWKDWDOWKRXJKLWDSSHDUVWKDWWKHPHORGUDPDLQYRNHGE\KHUILJXUDWLRQRI DQLPDOVSXWWRGHDWKLQVODXJKWHUKRXVHVLVVLJQLILFDQWLQVRIDUDVRXUV\PSDWKLHVDUHLQFLWHGE\ WKHVHSDLQWLQJVKHFDUHIXOO\GHPRQVWUDWHVKRZWKLVDSSURDFKWRUHQGHULQJWKHQRQKXPDQPXVWEH WKRXJKWZLWKUHVSHFWWRWKHSDUWLFXODUQHJRWLDWRU\SUDFWLFHVRIDUWLVWV2Q&RH¶VZRUNKHZULWHV 7KHYLROHQFHZHILQGKHUHLVQRWµDUWLIDFWXDO¶DVVRFLDWHGZLWKWKHLQHVFDSDEOHYLROHQFHDQG GLVILJXUDWLRQRIUHSUHVHQWDWLRQLWVHOIEXWLVLQVWHDGDVVRFLDWHGZLWKWKHH[WHUQDO±WKDWLVWRVD\ H[WUDUHSUHVHQWDWLRQDO±IRUFHVRIFDSLWDOLVPDQGIDFWRU\IDUPLQJ>ZKLFKLV@DIDLWKIXORUSHUKDSV ZHVKRXOGVD\µGUDPDWLF¶HQRXJKUHSUHVHQWDWLRQWRLQGHHGGLGDFWLFDOO\LQFLWHHWKLFDODFWLRQRQ WKHSDUWRIWKHYLHZHU <HWKHLQWHUURJDWHV&RHIRUHPSOR\LQJWKLVVWUDWHJ\DVNLQJ >,@IWKHHWKLFDOIXQFWLRQRIDUWLVZKDW&RHWKLQNVLWLVZK\QRWMXVWVKRZSHRSOHSKRWRJUDSKVRI VWRFN\DUGVVODXJKWHUKRXVHVDQGWKHNLOOLQJIORRUWRDFKLHYHWKLVHQG"7RSXWLWDQRWKHUZD\ZKDW GRHVDUWDGG"$QGZKDWGRHVLWPHDQWKDWKHUDUWKDVWREHPRUHWKDQUHDOWREHUHDO",VQ¶WWKH µPHORGUDPDRIYLVLELOLW\¶WKDWZHILQGLQ'HDG0HDWZKLFKLVFDOFXODWHGWRµJLYHWKHDQLPDOD IDFH¶DOVRLQDQRWKHUVHQVHDQHIIDFHPHQWRIWKHYHU\UHDOLW\LWDLPVWRUHSUHVHQWRQHWKDWTXLWH FRQVSLFXRXVO\PDQLIHVWVLWVHOILQWKHK\SHUEROHGLVILJXUDWLRQDQGPHORGUDPDRI&RH¶VZRUN"7KH SDUDGR[LFDOUHVXOWIRU&RH¶VZRUNWKHQLVWKDWLWDSSHDOVWRXVWRUHDGLWDVGLUHFWO\LQGHHG PHORGUDPDWLFDOO\OHJLEOHRIWKHFRQWHQWLWUHSUHVHQWVEXWWKHRQO\ZD\LWDFKLHYHVWKDWHQGLV WKURXJKLWVILJXUDOH[FHVVZKLFKLVSUHFLVHO\QRWRIWKHVODXJKWHUKRXVHEXWRIWKHLQWHUSRVLQJ PDWHULDOLW\RIUHSUHVHQWDWLRQLWVHOI 7KLVH[WHQVLYHGLVFXVVLRQRI:ROIH¶VFKDUDFWHUL]DWLRQRI&RH¶VZRUNVHUYHVLQYDOXDEOHDVVLVWDQFH IRUFRQFHSWXDOL]LQJWKHFRQWULEXWLRQDUWZRUNVDQGWKHLUDHVWKHWLFUHJLPHVVHUYHIRUUHWKLQNLQJ KXPDQQRQKXPDQUHODWLRQVZLWKUHVSHFWWRWKHLUSRVVLELOLW\RIVSHHFKDQGUHSUHVHQWDWLRQLQWKH FROOHFWLYH)RU:ROIHKLJKOLJKWVWKDWDOWKRXJK&RH¶VVWUDWHJLHVRIUHSUHVHQWDWLRQDOLVPKDYHWKH 9LROHQFHLVSHUKDSVWRRVWURQJDZRUGWREHXVHGKHUHEXWFDSWXUHVWKHVHQVHWKDWDQDFWFDQEHYLROHQW HYHQLILWLVQRWSK\VLFDOO\KDUPIXOIRUWKHGHQLDORIVSHHFKWRWKHVXEMHFWLQDUWZRUNVHQDFWVDSDUWLFXODU NLQGRIYLROHQFH 6HH$SSHQGL[&)LJXUH :ROIHS ,ELG SRZHUWRFDSWXUHWKHYLHZHU¶VVHQVHRIPRUDOUHVSRQVLELOLW\WKHYHU\IDFWWKDWWKHZRUNRIDUWLV SURGXFHGZLWKDKXPDQYLHZHULQPLQGLVLQGLFDWLYHRIWKHKXPDQLVPZKLFKLVHTXDOO\ LPSOLFDWHGLQWKHYLROHQFHWKHZRUNFRQGHPQVLQVRIDUDV'HDG0HDWQHJOHFWVWRDGGUHVV³WKDWWKH NQLYHVDQGKRRNVRIWKHVODXJKWHUKRXVHDUHQHYHUDVVRFLDWHGZLWKWKHEUXVKRIWKHSDLQWHUDQGWKH YLROHQFHRIUHSUHVHQWDWLRQDVGLVILJXUDWLRQ´:ROIHKRZHYHUFRPPHQGV&RH¶V'HDG0HDW SURMHFWIRUWKHZD\LQZKLFK³WKHHQWLUHDIIDLULQVLGHWKHVSDFHRIWKHSDLQWLQJLVVWDJHGRQO\IRU XVWKHYLHZHULQ&RH¶VZRUNLVQ¶WµGHQLHG¶EXWUDWKHUDGGUHVVHGDQGKHOGUHVSRQVLEOHDVLW ZHUHHYHQFXOSDEOHIRUZKDWLVEHLQJVKRZQLQVLGHWKHIUDPH´7KHVLJQLILFDQFHRI UHSUHVHQWDWLRQDOLVPLQDUWWKHUHIRUHLVWKDWWKHVLWHRIWKHZRUNRIDUWSURGXFHVIRUWKHYLHZHUWKH RSSRUWXQLW\WRGLVFXUVLYHO\QHJRWLDWHWKHZHLJKWJLYHQWRWKHFKDOOHQJHRIWKHFULVLVRI UHSUHVHQWDWLRQZKLFKWKHDUWLVWKHUVHOIPXVWPHGLDWH5HIOHFWLQJRQWKHZRUNRIDUWDHVWKHWLFDOO\ WKHQSURPRWHVVSHHFKDOEHLWLWLVDVLOHQWRQHZKRVHFRQYHUVDWLRQVDUHRQO\HQWHUHGWKURXJKTXLHW FRQWHPSODWLRQ 0RUHRYHUWKHSXUSRVHRIIRUZDUGLQJWKHTXHVWLRQRIUHSUHVHQWDWLRQDOLVPLQDUWLVUDLVHGE\:ROIH LQRUGHUWRFRQVLGHUWKHZD\LQZKLFK(GXDUGR.DF¶VWUDQVJHQLFELRDUWSUDFWLFHXQGHUWDNHVD SRVWKXPDQLVWLQTXLU\LQWRWKHDUWLVWLFSURGXFWLRQDQGDHVWKHWLFUHIOHFWLRQRIUHSUHVHQWDWLRQVRI QRQKXPDQV$QDO\]LQJWKHZD\LQZKLFK.DF¶VFUHDWLRQVGHQ\UHDIILUPLQJWKHHVWDEOLVKHG DQWKURSRFHQWULFGLFKRWRPRXVUHODWLRQZLWKQRQKXPDQVE\UHVLVWLQJDQRFXODUFHQWULFDQG GLVLQWHUHVWHGDSSURDFKWRH[SHULHQFLQJDUW:ROIHZULWHVWKDWWKLVLQYROYHV >,@Q.DF¶VZRUN±DVRQHPLJKWQRZH[SHFW±DFLUFXODUDQGLQGHHGUHFXUVLYHSURFHGXUHZKHUHWKH DUWLVWXVHVRURWKHUZLVHDSSHDOVWRVSHFLILFDOO\KXPDQYLVXDOKDELWVFRQYHQWLRQVDQGVRRQIRUWKH SXUSRVHVRIPDNLQJWKHSRLQWWKDWWKHYLVXDODVZHWUDGLWLRQDOO\WKLQNRILWFDQSUHFLVHO\QRORQJHU EHLQGH[HGWRWKRVHFRQYHQWLRQVDQGKDELWVDWDOO ,ELGS ,ELGSDXWKRU¶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³7KHODEFRDWVDUHWKH VSRNHVSHUVRQVRIWKHQRQKXPDQVDQGDVLVWKHFDVHZLWKDOOVSRNHVSHUVRQVZHKDYHWRHQWHUWDLQ VHULRXVEXWQRWGHILQLWLYHGRXEWVDERXWWKHLUFDSDFLW\WRVSHDNLQWKHQDPHRIWKRVHWKH\ UHSUHVHQW´7KLVDUJXPHQWLVUHPLQLVFHQWRIWKHEOLQGIDLWKLQ6FLHQFHZKRVHµFULVLVRI REMHFWLYLW\¶LVDFRQVHTXHQFHRIWKHREVWUXFWLRQVIRUUHDFKLQJSROLWLFDOHFRORJ\WREHJLQZLWK,I WKHQRWLRQRIWKHVSRNHVSHUVRQGHVLJQDWHV³QRWWKHWUDQVSDUHQF\RIVSHHFKLQTXHVWLRQEXWWKH HQWLUHJDPXWUXQQLQJIURPFRPSOHWHGRXEWWRWRWDOFRQILGHQFH´WKHQ,LQVLVWWKDWDUWLVWVDUH HVSHFLDOO\VNLOOHGIRUWKLVSRVLWLRQ,WLVGXHWRWKHDUWLVWLFLPDJLQDWLRQHYLGHQFHGWKURXJKELRDUW FUHDWLRQVZKLFKDOORZVIRUELRDUWLVWVWRDFWDVVSRNHVSHUVRQVRQEHKDOIRIQRQKXPDQVE\ ERUURZLQJWHFKQLTXHVIURPVFLHQFHWRUHSUHVHQWQRQKXPDQOLIHLQQRYHOZD\VDQGWKURXJKQRYHO LQWHUDFWLRQV $UWDV&RQWURYHUV\)DFWVDQG9DOXHV /DWRXUVWUHVVHVWKDW³7KHFRPSRVLWLRQRIWKHFRPPRQZRUOGKDVWREHWKHREMHFWRIDGHEDWH >VLQFH@WKHRQO\ZD\WRUHFRJQL]HWKHµFLWL]HQU\¶ZLWKLQWKHFROOHFWLYHWKDWPD\EHUHOHYDQWIRU /DWRXUS /DWRXUS SXEOLFOLIHLVWRGHILQHWKHFROOHFWLYHDVDQDVVHPEO\RIEHLQJVFDSDEOHRIVSHDNLQJ´,KDYH GHPRQVWUDWHGLQ&KDSWHUKRZHYHUWKDWELRDUWZRUNVDOUHDG\SURYRNHGHEDWHDQGHVWDEOLVK FRQWURYHUV\WRZDUGV³WKHFRPSRVLWLRQRIWKHFRPPRQZRUOG´7KHFRQWURYHUV\VXUURXQGLQJELRDUW VHWVXSWKHUHDOLW\RIKRZWKHVHZRUNVGLVDSSRLQWVRPHDXGLHQFHV¶LPDJLQDWLRQDQGDSSUHFLDWLRQ EHFDXVHWKH\DUHSUHPDWXUHO\SHJJHGDVµXQQDWXUDO¶DQGµXVHOHVV¶LQFRPSDULVRQZLWKWKH VFLHQWLILFSUDFWLFHVWKH\DSSURSULDWH.DFSUHVHQWVKLVREVHUYDWLRQVRIWKLVVHQWLPHQWIURP H[KLELWLRQVRI(&+8 6FLHQWLVWVDWERWKSODFHVZHUHTXLFNWRDVNLIDQGKRZZHZHUHPHDVXULQJWKHELUG¶VDQGWKHSODQW¶V UHVSRQVHVDQGWRSRLQWRXWWKDWUHVHDUFKLQWKLVILHOGKDVEHHQJRLQJRQVLQFHWKHµV7KHVHNLQGV RITXHVWLRQVDQGREVHUYDWLRQVPDNHXVZRQGHUDERXWWKHSRVVLELOLW\RIDWUXHGLDORJXHEHWZHHQ VFLHQFHDQGDUWVLQFHWKH\UHYHDODEDVLFPLVXQGHUVWDQGLQJRIRXUZRUNRQWKHLUSDUW6FLHQWLVWV ZHUHVLJKWHGZLWKDPL[WXUHRIFXULRVLW\DQGDSSUHFLDWLRQRQFHZHH[SODLQHGWKDWZHZHUHQRW FRQFHUQHGZLWKDQ\NLQGRIPHDVXUHPHQWDQGWKDWWKHZRUNVKRXOGLQIDFWEHUHJDUGHGDVDKXPDQ PHWDSKRU .DF¶VFRPPHQWVKLJKOLJKW/DWRXU¶VSUREOHPDWLFRIWKHFRQIODWLRQRI³IDFWV´DQG³YDOXHV´SUHVHQW IRUFURVVGLVFLSOLQDU\OHDUQLQJDQGH[FKDQJHUHTXLUHGIRUWKHZRUNRIWKHFROOHFWLYH/DWRXU LQGLFDWHVWKHFKDOOHQJHVWKLVSUHVHQWVIRUFRQFHLYLQJWKHRQWRHSLVWHPRORJLFDOGLOHPPDRIDUULYLQJ DWDGHILQLWLRQRIQDWXUHEHFDXVHKHVD\VZKHQZHUHO\RQVFLHQWLILFIDFWVWRXQGHUVWDQGQDWXUH ZHWUHDWHYHU\WKLQJHVSHFLDOO\RXUVHOYHVLQFOXGLQJRXUKXPDQLW\REMHFWLYHO\DV³DFRXQWDEOHDQG FDOFXODEOHWKLQJDERWWRPOLQHLQWHUPVRIHQHUJ\RQHVSHFLHVDPRQJRWKHUV´:KHUHDVZKHQ ZHUHO\RQYDOXHVLQFOXGLQJDHVWKHWLFSROLWLFDOHFRQRPLFDQGPRUDOZHORVHQDWXUHWRWKH ³XQFHUWDLQW\RIP\WKLQWRSRHWU\RUURPDQWLFLVPHYHU\WKLQJEHFRPHVVRXODQGVSLULW,IZHPL[ IDFWVDQGYDOXHVZHJRIURPEDGWRZRUVHIRUZHDUHGHSULYLQJRXUVHOYHVRIERWKDXWRQRPRXV NQRZOHGJHDQGLQGHSHQGHQWPRUDOLW\´ /DWRXUS .DF/HRQDUGR(OHFWURQLF$OPDQDF9RO1RS6HH$SSHQGL[&)LJXUHV /DWRXUS ,ELG 5D\%UDVVLHUKDUVKO\FULWLTXHV/DWRXU¶VSKLORVRSK\HTXDOL]LQJWKHJURXQGEHWZHHQRQWRORJ\DQG HSLVWHPRORJ\LQWKLVZD\VWDWLQJ ,QGLVPLVVLQJWKHHSLVWHPRORJLFDOREOLJDWLRQWRH[SODLQZKDWPHDQLQJLVDQGKRZLWUHODWHVWR WKLQJVWKDWDUHQRWPHDQLQJV/DWRXUOLNHDOOSRVWPRGHUQLVWV±KLVRZQSURWHVWDWLRQVWRWKHFRQWUDU\ QRWZLWKVWDQGLQJ±UHGXFHVHYHU\WKLQJWRPHDQLQJVLQFHWKHGLIIHUHQFHEHWZHHQµZRUGV¶DQG µWKLQJV¶WXUQVRXWWREHQRPRUHWKDQDIXQFWLRQDOGLIIHUHQFHDVFULEHGWRWKHPHWDSKRUµDFWDQW¶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³IDFWV´DQG³YDOXHV´LQWKHILUVWSODFH7KHUHIRUHDOWKRXJK/DWRXUIUDPHVWKH WHQVLRQEHWZHHQIDFWVDQGYDOXHVDVSUHVHQWLQJDSUREOHPIRU6FLHQFHEHFDXVHLWVMRELVVXSSRVHG WRUHPDLQQHXWUDOLH³REMHFWLYH´LQLWVHQWHUSULVHRIJDWKHULQJDQXQUHOHQWLQJ³FROOHFWLRQRI IDFWV´ZKLFKFDXVHVLWWRIDFHDFULVHVRIREMHFWLYLW\WKLVFRQFOXVLRQLVRQO\GUDZQIURP/DWRXU¶V DVVXPSWLRQWKDW³IDFWV´DQG³YDOXHV´FDQEHVWDUNO\GLYLGHGDVVXFK:KHUHDVLQDUW³YDOXHV´DUH PRUHOLNHO\WREHXQGHUVWRRGDVHYDOXDWLRQVRIVRFDOOHG³IDFWV´DQG³IDFWV´DUHSUHVHQWHGLQRUGHU WRFKDOOHQJHVRFDOOHG³YDOXHV´$UW,DUJXHRFFXSLHVDQDPELJXRXVVSDFHQRWVSHDNLQJ VSHFLILFDOO\WRIDFWVRUYDOXHVEXWUDWKHUUDGLFDOO\EUHDNVIURPFRQYHQWLRQDODSSURDFKHVWRWKHLU GHWHUPLQDWLRQVE\GLVUXSWLQJWKHVHFDWHJRULHVDQGGLVWRUWLQJWKHLUFODLPVWRWUXWKRIIHULQJ UHSUHVHQWDWLRQDQGVSHHFKLQWKHSODFHRIREMHFWLYLW\ %UDVVLHULVUHIHUULQJWRWKHJURXQGZRUNRI³,UUHGXFWLRQV´/DWRXUHVWDEOLVKHVLQ7KH3DVWHXUL]DWLRQRI )UDQFHDQGLQ:H+DYH1HYHU%HHQ0RGHUQ>6HH+DUPDQ*³7KH,PSRUWDQFHRI %UXQR/DWRXUIRU3KLORVRSK\´LQ&XOWXUDO6WXGLHV5HYLHZ0DUFK9ROSS@ %UDVVLHU5³&RQFHSWVDQG2EMHFWV´LQ(G%U\DQW/6UQLFHN1+DUPDQ*7KH 6SHFXODWLYH7XUQ&RQWLQHQWDO0DWHULDOLVPDQG5HDOLVP0HOERXUQHUHSUHVVS 6SHHFKDQG5HSUHVHQWDWLRQLQWKH&ROOHFWLYH /DWRXU¶VFKDUDFWHUL]DWLRQRIWKHRQWRHSLVWHPRORJLFDOVWDNHRIWKHDHVWKHWLFVRIQDWXUHZKLOH SURGXFWLYHO\SURPRWLQJDSROLWLFVRIQDWXUHGHIODWHVRXUHIIRUWVWRFRQVLGHUWKHRQWRORJLFDOZD\ QDWXUHLQIRUPVRXUDHVWKHWLFUHIOHFWLRQRIELRDUWZRUNV,SUHVHQWHG6WLHJOHU¶VWKHRU\RIWHFKQLFVLQ &KDSWHUWRLQGLFDWHWKDWKLVFRQFHSWRIHSLSK\ORJHQHVLVDOORZVXVWRUHWKLQNWKHG\QDPLF EHWZHHQWHNKQƝDQGSKXVLVIRUDQDHVWKHWLFVRIQDWXUH,QWKLVVHFWLRQ,DVNKRZGRHV6WLHJOHU¶V FRQWULEXWLRQVWRWKLQNLQJWKHRQWRHSLVWHPRORJLFDOXQIROGLQJRIQDWXUHLHSKXVLVDVDG\QDPLF ZKLFKXQOHDVKHVWKHIORXULVKLQJRIWHFKQLFVPDUNHGE\WKRXJKWWKDWLVODQJXDJHDQGE\ H[WHQVLRQXQWKRXJKWLHµIRUJHWWLQJ¶UHYHDOWKHSROLWLFDOVLJQLILFDQFHRIELRDUWZRUNVLQLWV HIIRUWVWRRUJDQL]HWKHFROOHFWLYHDVDSRVWKXPDQLVWHQGHDYRU" ,QWKHH[DPSOHRI(&+8.DFEHJLQVE\WKHRUL]LQJZKDWZRXOGKDSSHQLIZHEHJDQWRFRQFHLYH RIFRPPXQLFDWLRQWHFKQRORJLHVDQGE\H[WHQVLRQWHFKQRORJ\DVVXFKDVDQHQGLQLWVHOIQRW PHUHO\HQVODYHGIRUKXPDQQHFHVVLW\EXWDVDEHLQJLQLWVHOILQDOLJQPHQWZLWK6WLHJOHU¶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¶VREVHUYDWLRQWKDWZKLOHYLHZLQJ (&+8³KXPDQVLPPHGLDWHO\DOWHUHGWKHLUEHKDYLRU´LQGLFDWHVKRZWKHSRWHQWLDOWRWUDQVIRUP KXPDQQDWXUHDQGKXPDQQRQKXPDQUHODWLRQVLVPDGHSRVVLEOHE\ELRDUW%XWZHVWLOOKDYH\HWWR GLVFRYHUKRZWKLVEHKDYLRXUPLJKWKDYHEHHQWUDQVIRUPHGDQGZKDWLWVVLJQLILFDQFHPLJKWEHIRU DQDHVWKHWLFGLVFRXUVHRIQDWXUH7KHDHVWKHWLFUHIOHFWLRQRIWKHLPSOLFDWLRQVRI(&+8WKHUHIRUH QHFHVVLWDWHVDUHWXUQWR.DQWLDQDHVWKHWLFVLQRUGHUWRGUDZOHVVRQVIRUWKHSRVVLELOLW\RI FRQFHSWXDOL]LQJDSRVWKXPDQWUDQVFHQGHQWDOVXEMHFWLYLW\WRZDUGVWKHREMHFWLYHRIEHVWRZLQJ VSHHFKDQGUHSUHVHQWDWLRQRIQRQKXPDQVLQDFROOHFWLYH .DF/HRQDUGR(OHFWURQLF$OPDQDF9RO1RS 5HVSHFWLQJWKHIRXQGDWLRQRI.DQWLDQDHVWKHWLFVHQWDLOVWKLQNLQJWKHZD\LQZKLFKRXUFDSDFLW\IRU VD\LQJDQ\WKLQJDERXWVRFDOOHG³H[WHUQDO´UHDOLW\LVUDGLFDOO\UHPRYHGIRUZKLFKWKH HVWDEOLVKPHQWRIWUDQVFHQGHQWDOVXEMHFWLYLW\ZDVJLYHQVLPSO\E\WKHDSULRULUXOHUHFLSURFDWLQJ UHDVRQWRWKHOLPLWVRIUHDVRQLQJ7KXVDOWKRXJKZHFRXOGQHYHULPSO\IURP.DQW¶VSURRIWKH SRVVLELOLW\WKDWQRQKXPDQVSRVVHVVUHDVRQLQJEHFDXVHQRQKXPDQVDUHSUHGLFDWHGRQLQVWLQFWDQG QHFHVVLW\ZHPLJKWFRQFHGHWKDWLIHSLSK\ORJHQHWLFSRVVLELOLWLHVHPDQFLSDWHIUHHGRPIURP QHFHVVLW\LHEDVHGRQWKHLGHDWKDWWKHHYROXWLRQDU\WUDMHFWRULHVRILQRUJDQLFRUJDQL]HGEHLQJV FRXSOHGZLWKRUJDQLFHYROXWLRQFDQQRWEHFDOFXODWHGEXWSURGXFHVDG\QDPLFZKLFKLVUDGLFDOO\ LQGHWHUPLQDEOHWKHQSHUKDSV.DQWPLJKWDOVREHZLOOLQJWRFRQFHGHFRQVFLRXVQHVVWRQRQKXPDQV EDVHGRQWKHLGHDRIIUHHGRP.DQWLQIDFWFRQVLGHUVWKLVSRVVLELOLW\ZKHQKHVD\V³(YHQWKH VRQJRIWKHELUGZKLFKZHFDQQRWEULQJXQGHUDQ\PXVLFDOUXOHVVHHPVWRFRQWDLQPRUHIUHHGRP DQGWKXVPRUHWKDWLVHQWHUWDLQLQJIRUWDVWHWKDQHYHQDKXPDQVRQJWKDWLVSHUIRUPHGZLWKLQ DFFRUGDQFHZLWKWKHUXOHVRIWKHDUWRIPXVLF´$GGLWLRQDOO\LIWKHZD\LQZKLFKSURRIIRUWKH WUDQVFHQGHQWDOVXEMHFWLVJLYHQLQDHVWKHWLFVLVYLDWKHFDSDFLW\IRUWKHH[SUHVVLRQRIRQH¶V MXGJPHQWDVDXQLYHUVDOWUXWKWKHREMHFWLYHYDOLGLW\RIWKLVSURRIOLHVRQO\LQVRIDUDVLWLV H[SUHVVHGSXEOLFO\LQDFRPPXQLW\.DF¶VHPSKDVLVRQWHOHFRPPXQLFDWLRQVKLJKOLJKWVWKLV SRVVLELOLW\IRUDHVWKHWLFLQWHUVXEMHFWLYLW\ZKLFK³HQFRXUDJH>V@GLDORJLFDOLQWHUDFWLRQDQGFRQIURQW FRPSOH[LVVXHVFRQFHUQLQJLGHQWLW\DJHQF\UHVSRQVLELOLW\DQGWKHYHU\SRVVLELOLW\RI FRPPXQLFDWLRQ´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µWKLQJVLQ WKHPVHOYHV¶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¶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¶VODUJHUVSKHUHRIDFWLRQV /DWRXU¶V3ROLWLFVRI1DWXUHZDVHPSOR\HGLQWKLV&KDSWHUWRLQGLFDWHWKDWWKHUHLVQR1DWXUH VHSDUDWHIURPSROLWLFVEXWUDWKHUWKDWWKHDHVWKHWLFVRIQDWXUHPXVWEHWKRXJKWWKURXJKWKH FROOHFWLYHDVWKHVSKHUHRIUHODWLRQVEHWZHHQEHLQJVSKXVLVZKRVHVSHHFKDQGUHSUHVHQWDWLRQ DUHFRQFHLYDEOHLQDG\QDPLFZLWKWHNKQƝ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ƝDQGSKXVLVSUHYHQWVXVIURPJUDVSLQJWKHSRVVLELOLWLHVDULFKHUXQGHUVWDQGLQJRI LQWHUFRQQHFWLRQSRWHQWLDOO\UHYHDOHGLQDHVWKHWLFH[SHULHQFHV ,Q&KDSWHU,GLVSHOOHGWKHP\WKRIHQYLURQPHQWDODHVWKHWLFVDQGLWVSUHUHTXLVLWHIRXQGDWLRQLQ 3$DVLQFDSDEOHRIVSHDNLQJRIQDWXUHRUDHVWKHWLFVLQDQ\VXEVWDQWLDOZD\EHFDXVHLWIDLOVWR FRQVLGHUWKHHVVHQWLDOZD\VFLHQFHDQGDUWHQJDJHLQWKHFRUUHODWHWHNKQƝDQGSKXVLVFRQWULEXWLQJ WRWKHRQWRHSLVWHPRORJLFDOGHWHUPLQDWLRQVIRUDSROLWLFVRIQDWXUH8OWLPDWHO\DOWKRXJKZH GHWHUPLQHGOLWWOHZRUWKIRUHQYLURQPHQWDODHVWKHWLFV.DQWLDQDHVWKHWLFVZDVVXEVHTXHQWO\WHDVHG WXUQHGDQGWHVWHGWKURXJKRXWWKLVWKHVLVVFUXWLQL]HGIRULWVFDSDFLW\WRHQJDJHLQWKHSROLWLFVRI QDWXUH1RZVOLJKWO\EUXLVHGVOLJKWO\DOWHUHGZHFDQFRQFOXGHWKDWWKHVWUHQJWKRI.DQW¶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¶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¶V3ROLWLFDO3KLORVRSK\7UDQV%HLQHU5&KLFDJR 8QLYHUVLW\RI&KLFDJR3UHVV %DNHU6³3KLORVRSK\LQWKH:LOG"´,Q7KH(LJKWK'D\7KH7UDQVJHQLF$UWRI(GXDUGR .DF3KRHQL[7KH,QVWLWXWHIRU6WXGLHVLQWKH$UWV$UL]RQD6WDWH8QLYHUVLW\SS %DWDLOOH*7KH&UDGOHRI+XPDQLW\(G.HQGDOO67UDQV.HQGDOO0 .HQGDOO61HZ<RUN=RQH%RRNV %HUOHDQW$&DUOVRQ$(GV7KH$HVWKHWLFVRI1DWXUDO(QYLURQPHQWV3HWHUERURXJK %URDGYLHZ3UHVV %HUOHDQW$+HSEXUQ5³$Q([FKDQJHRQ'LVLQWHUHVWHGQHVV´,Q&RQWHPSRUDU\ $HVWKHWLFV KWWSZZZFRQWHPSDHVWKHWLFVRUJQHZYROXPHSDJHVDUWLFOHSKS"DUWLFOH,' %LUNH/³0HGGOLQJZLWK0HGXVDRQJHQHWLFPDQLSXODWLRQDUWDQGDQLPDOV´,Q$, 6RFLHW\9RO-DQXDU\SS %UDVVLHU5³&RQFHSWVDQG2EMHFWV´LQ(G%U\DQW/6UQLFHN1+DUPDQ*7KH 6SHFXODWLYH7XUQ&RQWLQHQWDO0DWHULDOLVPDQG5HDOLVP0HOERXUQHUHSUHVVSS &DUOVRQ$³(QYLURQPHQWDO$HVWKHWLFV7KH(PHUJHQFHRI(QYLURQPHQWDO$HVWKHWLFV´ 7KH6WDQIRUG(QF\FORSHGLD2QOLQH-DQXDU\>5HYLVHG'HFHPEHU@ KWWSSODWRVWDQIRUGHGXHQWULHVHQYLURQPHQWDODHVWKHWLFV$FFHVVHG'HFHPEHU &DUOVRQ$$HVWKHWLFVDQGWKH(QYLURQPHQW7KH$SSUHFLDWLRQRI1DWXUH$UWDQG $UFKLWHFWXUH1HZ<RUN5RXWOHGJH &ROOLQJZRRG5*7KH,GHDRI1DWXUH/RQGRQ2[IRUG8QLYHUVLW\3UHVV 'DUZLQ&2QWKH2ULJLQRI6SHFLHV<RUN(PSLUH%RRNV 'DVWRQ/*DOLVRQ3³(SLVWHPRORJLHVRIWKH(\H´LQ2EMHFWLYLW\&DPEULGJH=RQH %RRNV 'DVWRQ/³7KLQJVWKDW7DON´LQ7KLQJVWKDW7DON2EMHFW/HVVRQVIURP$UWDQG6FLHQFH (G'DVWRQ/1HZ<RUN=RQH%RRNVSS¶ GH*UD\$³$URDGPDSWRHQGDJLQJ´LQ7HG*OREDO>9LGHRILOH@5HWULHYHGIURP KWWSZZZWHGFRPWDONVDXEUH\BGHBJUH\BVD\VBZHBFDQBDYRLGBDJLQJKWPO$FFHVVHG $SULO 'HZDU(7KH6HFRQG7UHH2Q&ORQHV&KLPHUDVDQG4XHVWVIRU,PPRUWDOLW\1HZ <RUN&DUUROO*UDI (ONLQV-7KH2EMHFW6WDUHV%DFN2QWKH1DWXUHRI6HHLQJ%RVWRQ+RXJKWRQ0LIIOLQ +DUFRXUW (YHUQGHQ17KH6RFLDO&UHDWLRQRI1DWXUH%DOWLPRUH-RKQ+RSNLQV8QLYHUVLW\3UHVV )LVKHU-RKQ$³&KDSWHU(QYLURQPHQWDO$HVWKHWLFV´LQ2[IRUG+DQGERRNRI $HVWKHWLFV(G/HYLQVRQ-1HZ<RUN2[IRUG8QLYHUVLW\3UHVVSS )LVKHU-$³$HVWKHWLFV´LQ(G-DPLHVRQ'$&RPSDQLRQWR(QYLURQPHQWDO 3KLORVRSK\2[IRUG%ODFNZHOO3XEOLVKLQJ/WGSS )ULHGULFK9RQ6FKLOOHU-&/HWWHUV8SRQWKH$HVWKHWLF(GXFDWLRQRI0DQ,Q/LWHUDU\DQG 3KLORVRSKLFDO(VVD\V)UHQFK*HUPDQDQG,WDOLDQ1HZ<RUN&ROOLHU>F@6HULHV 7KH+DUYDUG&ODVVLFV *DGDPHU+7UXWKDQG0HWKRG7UDQV:HLQVKHLPHU-0DUVKDOO'* /RQGRQDQG1HZ<RUN&RQWLQXXP *RHWKH-:7KH0HWDPRUSKRVLVRI3ODQWV&DPEULGJH7KH0,73UHVV *UDQGH-%DODQFH$UWDQG1DWXUH/RQGRQ%ODFN5RVH%RRNV *URV](&KDRV7HUULWRU\$UW'HOHX]HDQGWKH)UDPLQJRIWKH(DUWK1HZ <RUN&ROXPELD8QLYHUVLW\3UHVV +DGRW37KH9HLORI,VLV$Q(VVD\RQWKH+LVWRU\RIWKH,GHDRI1DWXUH7UDQV &KDVH0&DPEULGJH7KH%HONQDS3UHVVRI+DUYDUG8QLYHUVLW\3UHVV +DOOZDUG3³-DFTXHV5DQFLqUHDQGWKH6XEYHUVLRQRI0DVWHU\´,Q3DUDJUDSK9RO 0DUFKSS +DUPDQ*³7KH,PSRUWDQFHRI%UXQR/DWRXUIRU3KLORVRSK\´LQ&XOWXUDO6WXGLHV 5HYLHZ0DUFK9ROSS +D\OHV1.³:KR,VLQ&RQWURO+HUH"0HGLDWLQJRQ(GXDUGR.DF¶V7UDQVJHQLF$UW´,Q 7KH(LJKWK'D\7KH7UDQVJHQLF$UWRI(GXDUGR.DF3KRHQL[7KH,QVWLWXWHIRU6WXGLHV LQWKH$UWV$UL]RQD6WDWH8QLYHUVLW\SS +HJHO*:),QWURGXFWRU\/HFWXUHVRQ$HVWKHWLFV7UDQV%RVDQTXHW%3HQJXLQ %RRNV +HLGHJJHU01LHW]VFKH9ROXPHV2QHDQG7ZR7UDQV.UHOO')1HZ<RUN +DUSHU&ROOLQV3XEOLVKHUV +HLGHJJHU0³7KH4XHVWLRQ&RQFHUQLQJ7HFKQRORJ\´LQ7KH4XHVWLRQ &RQFHUQLQJ7HFKQRORJ\DQG2WKHU(VVD\V7UDQV/RYLWW:1HZ<RUN +DUSHU3HUHQQLDOSS +HLGHJJHU03RHWU\/DQJXDJH7KRXJKW7UDQV+RIVWDGWHU$1HZ<RUN +DUSHU3HUHQQLDOSS ,QZRRG0(G³,QWURGXFWLRQ´,Q+HJHO*:),QWURGXFWRU\/HFWXUHVRQ$HVWKHWLFV /RQGRQ3HQJXLQ%RRNV .DF((G6LJQVRI/LIH%LR$UWDQG%H\RQG&DPEULGJH7KH0,73UHVV .DF(7HOHSUHVHQFH%LR$UW1HWZRUNLQJ+XPDQV5DEELWV5RERWV$QQ $UERU7KH8QLYHUVLW\RI0LFKLJDQ3UHVV .DF(:RUNVIURPWKH*HQHVLV6HULHV5HWULHYHGIURP KWWSZZZHNDFRUJJHQVHULHVKWPO .DF(³(VVD\&RQFHUQLQJ+XPDQ8QGHUVWDQGLQJ´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³$SSUHFLDWLQJ1DWXUDO%HDXW\DV1DWXUDO´,Q(GV&DUOVRQ$DQG 0RUWRQ77KH(FRORJLFDO7KRXJKW&DPEULGJH3UHVLGHQWDQG)HOORZVRI +DUYDUG&ROOHJH 0RUWRQ7(FRORJ\ZLWKRXW1DWXUH5HWKLQNLQJ(QYLURQPHQWDO$HVWKHWLFV%RVWRQ +DUYDUG8QLYHUVLW\3UHVV 0XUSK\00\HUV16FKUDGHU$'LUHFWRUV³$UW0HHWV6FLHQFH´7HFKQRVFLHQFH 6DORQ&RQIHUHQFH6HULHV7RURQWR66+5&6LWXDWLQJ6FLHQFH5HVHDUFK&OXVWHU*UDQW KWWSWHFKQRVDORQZRUGSUHVVFRP>$WWHQGHG-DQXDU\@ 2HUOHPDQV25RPDQWLFLVPDQGWKH0DWHULDOLW\RI1DWXUH7RURQWR8QLYHUVLW\RI 7RURQWR3UHVV 2VWKRII6³*HQHVLV´LQ/HRQDUGR'LJLWDO5HYLHZV2FWREHUKWWSPLWSUHVVPLWHGXH MRXUQDOV/HRQDUGRUHYLHZVRFWH[B*(1(6,6BRVWKRIIKWPO$FFHVVHG0D\ 3HQWHFRVW&³2XWILWWLQJWKH/DERUDWRU\RIWKH6\PEROLF7RZDUGD&ULWLFDO ,QYHQWRU\RI%LRDUW´,Q7DFWLFDO%LRSROLWLFV$UW$FWLYLVPDQG7HFKQRVFLHQFH(GVGD &RVWD%3KLOLS.&DPEULGJH7KH0,73UHVVSS 3(7$³3(7$/DXQFKHV9LFWLPOHVV1XJJHWV´LQ7KH3(7$)LOHV3(7$¶V2IILFLDO%ORJ 3RVWHG$SULOKWWSZZZSHWDRUJEWKHSHWDILOHVDUFKLYHSHWD ODXQFKHVYLFWLPOHVVQXJJHWVDVS[$FFHVVHG-XQH 5DQFLqUH-7KH3ROLWLFVRI$HVWKHWLFV7UDQV5RFNKLOO*/RQGRQ1HZ <RUN&RQWLQXXP 5LINLQ-³'D]]OHGE\WKHVFLHQFH´,Q7KH*XDUGLDQ-DQXDU\ KWWSZZZJXDUGLDQFRXNHGXFDWLRQMDQKLJKHUHGXFDWLRQXN$FFHVVHG-XQH 6DLWR<³7KH$HVWKHWLFVRI8QVFHQLF1DWXUH´,Q(GV&DUOVRQ$/LQWRWW6 1DWXUH$HVWKHWLFVDQG(QYLURQPHQWDOLVP)URP%HDXW\WR'XW\1HZ<RUN&ROXPELD 8QLYHUVLW\3UHVVSS 6DLWR<³$SSUHFLDWLQJ1DWXUHRQ,WV2ZQ7HUPV´,Q(GV&DUOVRQ$%HUOHDQW$ 7KH$HVWKHWLFVRI1DWXUDO(QYLURQPHQWV3HWHUERURXJK%URDGYLHZ3UHVVSS 6LPXV-³(QYLURQPHQWDO$UWDQG(FRORJLFDO&LWL]HQVKLS´,Q(QYLURQPHQWDO(WKLFV9RO 6SULQJSS KWWSVHFXUHSGFQHWRUJHQYLURHWKLFVFRQWHQWHQYLURHWKLFVBBBBB 6WDFH\)³%LRDUWWKHHWKLFVEHKLQGWKHDHVWKHWLFV´,Q1DWXUH5HYLHZV 0ROHFXODU%LRORJ\9RO-XO\SS 6WHHOH(-/LQGOH\5$%ODQGHQ59/DPDUN¶V6LJQLWXUH+RZ5HWURJHQHVDUH &KDQJLQJ'DUZLQ¶V1DWXUDO6HOHFWLRQ3DUDGLJP1HZ<RUN%DVLF%RRNV 6WLHJOHU%³7DNH&DUH3UHQGUHVRLQ´,Q7UDQV$UQROG6&URJDQ35RVV '$UV,QGXVWULDOLVKWWSZZZDUVLQGXVWULDOLVRUJQRGH>5HWULHYHG$SULO@ 6WLHJOHU%³$QDPQHVLVDQG+\SRPQHVLV7KH0HPRULHVRI'HVLUH´LQ(GV$UPDQG /%UDGOH\$7HFKQLFLW\3UDJXH/LWWHUDULD3UDJHQVLDSS 6WLHJOHU%7HFKQLFVDQG7LPH7KH)DXOWRI(SLPHWKHXV7UDQV %HDUGVZRUWK5&ROOLQV*6WDQGIRUG6WDQIRUG8QLYHUVLW\3UHVV 7KDFNHU(³$HVWKHWLF%LRORJ\%LRORJLFDO$UW´,Q&RQWH[WLQ¶$UW KWWSZZZ\RXJHQLFVQHWJULIILVFRQWH[WLQIDOOBWKDFNHULQGH[KWP>$FFHVVHG-XQH @ 7XUSLQ6$HVWKHWLFVRI([SHQGLWXUH$UW3KLORVRSK\DQGWKH,QILQLWH)DFXOW\ 3K''LVVHUWDWLRQ8QLYHUVLW\RI7RURQWR KWWSZZZV\QHUJLHVFDQDGDRUJWKHVHVRWX 9DOOYHUG~-³%LRHWKLFDO$UW*HQRPH6HQVH&RQVWUXFWLRQ7KURXJK$UWLVWLF ,QWHUDFWLRQV´,Q$HVWKHWKLND,QWHUQDWLRQDO-RXUQDORQ&XOWXUH6XEMHFWLYLW\DQG $HVWKHWLFV9RO0D\SS 9RLJW(³7KH$UWLV$OLYH´,Q,VRWRSH$-RXUQDORI/LWHUDU\6FLHQFHDQG 1DWXUH:ULWLQJ9RO)DOO:LQWHUSS :LOOLDPV5³,GHDVRI1DWXUH´,Q&XOWXUHDQG0DWHULDOLVP/RQGRQ9HUVRSS :LOOLDPV57KH&RXQWU\DQGWKH&LW\1HZ<RUN2[IRUG8QLYHUVLW\3UHVV :LOVRQ$7KH&XOWXUHRI1DWXUH1RUWK$PHULFDQ/DQGVFDSHIURP'LVQH\WRWKH([[RQ 9DOGH]7RURQWR%HWZHHQWKH/LQHV :ROIH&³)URP'HDG0HDWWR*ORZLQWKH'DUN%XQQLHV6HHLQJ³WKH$QLPDO4XHVWLRQ´ LQ&RQWHPSRUDU\$UW´LQ3DUDOOD[9RO1RSS äLåHN6/RRNLQJ$ZU\$Q,QWURGXFWLRQWR-DFTXHV/DFDQWKURXJK3RSXODU&XOWXUH &DPEULGJH7KH0,73UHVV =XUU,&DWWV2³7KHHWKLFDOFODLPVRI%LR$UWNLOOLQJWKHRWKHURUVHOI FDQQLEDOLVP"´KWWSZZZWFDXZDHGXDXSXEOLFDWLRQ7KH(WKLFDO&ODLPVRI%LRDUWSGI $FFHVVHG0D\SS 131 Appendix A Figure 1.1 PETA, 2008. Newkirk Nuggets: A 100% Human(E) Alternative! [Electronic Image], Retrieved June 5, 2011, from: http://www.peta.org/b/thepetafiles/archive/2008/04/01/peta-launchesvictimless-nuggets.aspx. 132 Appendix B Figure 2.1 Eduardo Kac, 1999. Genesis [Electronic Image], Retrieved June 5, 2011, from: http://www.jenthewriter.info/eduardokac.html. Figure 2.2 Eduardo Kac, 2001. Encryption Stones [Electronic Image], Retrieved June 5, 2011, from: http://www.ekac.org/genseries.html. 133 Figure 2.3 Eduardo Kac, 2001. Genesis Protein [Electronic Image], Retrieved June 5, 2011, from: http://www.ekac.org/genprot.html. Figure 2.4 Eduardo Kac, 2001. Transcription Jewels [Electronic Image], Retrieved June 5, 2011, from: http://www.ekac.org/genprot.html. 134 Figure 2.5 Eduardo Kac, 2001. Fossil Folds [Electronic Image], Retrieved June 5, 2011, from: http://www.ekac.org/genseries.html. Figure 2.6 Eduardo Kac, 2001 The Book of Mutations [Electronic Image], Retrieved June 5, 2011, from: http://www.ekac.org/genseries.html. 135 Figure 2.7 Eduardo Kac, 2001. In Our Own Image [Electronic Image], Retrieved June 5, 2011, from: http://www.ekac.org/genseries.html. 136 Figure 2.8 Eduardo Kac, 1999. “Screen shot of the Genesis Web Interface,” Ars Electronica 1999. [Electronic Image], Retrieved June 5, 2011, from: http://www.viewingspace.com/genetics_culture/pages_genetics_culture/gc_w03/kac_webarchive/ genesis_page/web_interface/genwebinterf.html. 137 Appendix C Figure 3.1 Eduardo Kac, 1994. Essay Concerning Human Understanding [Electronic Image], Retrieved June 5, 2011, from: http://www.ekac.org/essay.html. 138 Figure 3.2 Eduardo Kac, 1994. Essay Concerning Human Understanding [Electronic Image], Retrieved June 5, 2011, from: http://www.ekac.org/essay.html. Figure 3.3 Sue Coe, 2005, Dead Meat Project [Electronic Image], Retrieved August 15, 2012, from: http://www.13point7billion.org/2012_04_01_archive.html. 139 Figure 3.4 Figure 3.6 Figure 3.5 Figure 3.7 Eduardo Kac, 1994. Essay Concerning Human Understanding [Electronic Images], Retrieved June 5, 2011, from: http://www.ekac.org/essay.2.html. 140 Figure 3.8 Eduardo Kac, 1994. Essay Concerning Human Understanding [Electronic Image], Retrieved June 5, 2011, from: http://www.ekac.org/essay.2.html.
© Copyright 2025 Paperzz