ABSTRACT

VHQWSUREDEO\WKHPRVWZLGHO\KHOG²DQGFHUWDLQO\WKHPRVWSDVVLRQDWHO\KHOG ² SRVLWLRQV RQ SRVLWLYH GLVFULPLQDWLRQ <HW DV , ZLOO DUJXH LQ WKLV FKDSWHU

QHLWKHURQHRIWKHPFDQVXUYLYHFORVHVFUXWLQ\ LQWKHIRUPVLQZKLFKWKH\DUH XVXDOO\DUWLFXODWHG:KDW·VZURQJZLWKWKHP"

&RPSHQVDWRU\VRFLDOMXVWLFH 7KHFDVH IRU3'RQJURXQGVRI VRFLDO MXVWLFHYLHZV LWDVDGHVLUDEOH IRUPRI SDUWLDOFRPSHQVDWLRQWRYLFWLPVRIJURVVKLVWRULFDOLQMXVWLFHV²LQMXVWLFHVWKDW KDYHH[WHQGHGLQVRPHFDVHVWRVXFKH[WUHPHVDVVODYHU\DQGYLUWXDOJHQRFLGH (YHQLQWKHFDVHRIDQHWKQLFJURXSZKRVHPHPEHUVDUHQRORQJHUH[SRVHGWR DJUHDWGHDORI LQMXVWLFH DQGRYHUWGLVFULPLQDWLRQ WKH DGYHUVH HIIHFWVRISDVW YLFWLPL]DWLRQUHPDLQVLJQLILFDQW &RQWHPSRUDU\85(*PHPEHUVFRQWLQXHWR VXIIHU ERWK IURP UHODWLYH VRFLRHFRQRPLF GHSULYDWLRQ ² GXH LQ FRQVLGHUDEOH SDUW WR ORZHUUDWHVRIDFFXPXODWLRQRIFDSLWDORIDOONLQGV DVDUHVXOWRISDVW YLFWLPL]DWLRQ²DQGIURPGHHSO\HQWUHQFKHGIRUPVRIVRFLDOH[FOXVLRQ LQYLG LRXV VWHUHRW\SLQJ DQG VWLJPDWL]DWLRQ 6XUHO\ WKH\ DUH GHVHUYLQJ RI VRPH FRPSHQVDWRU\ DGYDQWDJHZKHQ LW FRPHV WR DFFHVV WR KLJKHU HGXFDWLRQ DW D JRRGXQLYHUVLW\RUDGHVLUDEOHDQGZHOOSD\LQJMRE 6RPHFULWLFVUHMHFWWKLVDUJXPHQWRQWKHJURXQGVWKDWLQMXVWLFHFDQRQO\EH

GRQH E\ ² DQG UHGUHVV FDQ FRQVHTXHQWO\ RQO\ EH GXH WR ² LQGLYLGXDOV QRW JURXSV VRWKDWQRJURXSEDVHGFRPSHQVDWLRQFDQHYHUEHMXVWLILHG 7KLVSRVL WLRQ KRZHYHU LVVXUHO\WRRULJLG 7KHSRVVLELOLW\RI LQWHUJURXSLQMXVWLFHKDV EHHQ UHFRJQL]HG DQGFRUUHVSRQGLQJ LQWHUJURXS UHPHGLDO FRPSHQVDWLRQKDV EHHQZLGHO\DSSURYHG LQDQXPEHURIKLVWRULFDO FLUFXPVWDQFHV FDVHVRIZDU UHSDUDWLRQV DQG WKH FRPSHQVDWLRQ RI -HZV E\ SRVW1D]L *HUPDQ JRYHUQ PHQWV FRPH WR PLQG 2QH VKRXOG WKHUHIRUH HQWHUWDLQ WKH SRVVLELOLW\ WKDW WKHUH DUH KLVWRULFDO UHDVRQV ² LH VODYHU\ DQG LWV DIWHUPDWK ² ZK\ 85(* PHPEHUVDVDJURXSPLJKWEHRZHGFRPSHQVDWLRQE\RWKHUJURXSV 7KH LVVXH WKHQ WXUQV RQ WKH DSSURSULDWHQHVV RI 3' DV D PHFKDQLVP IRU

FRPSHQVDWLQJ85(*V IRU WKHKLVWRULFDO LQMXVWLFHGRQH WR WKHP +HUH VRPH VHULRXV SUREOHPV FRPH WR WKH IRUH )LUVW WKRVH85(*PHPEHUVZKR JDLQ GLUHFWO\ IURP 3' DUH DW PRVW D VPDOO QXPEHU RI DOO WKRVH ZKR KDYH EHHQ YLFWLPL]HGE\KLVWRULFDOLQMXVWLFH0RUHRYHU WKH\DUHYHU\SUREDEO\QRWDPRQJ WKRVHZKRKDYHVXIIHUHGPRVW²EHFDXVHWKH\DUHZHOOHQRXJKSRVLWLRQHGWR EH DSSO\LQJ IRU VHOHFWLRQ WR D GHVLUDEOH SRVLWLRQ LQ WKH ILUVW SODFH 6HFRQGO\ WKRVH DSSOLFDQWVZKRDUHGLVSODFHGE\3' IURP VHOHFWLRQ WR VXFKDSRVLWLRQ DUH DWPRVW D YHU\ VPDOO QXPEHU RI WKRVHZKR DUH OLNHO\ WR KDYH EHQHILWHG IURPWKHKLVWRULFDOLQMXVWLFH DQGQRWQHFHVVDULO\DPRQJWKRVHZKRKDYHEHQH ILWHGPRVWHYHQWKRXJKWKH\PD\RZHWKHLUUHODWLYHO\SULYLOHJHGSRVLWLRQWR VRPHH[WHQWWRWKHSDVWLQMXVWLFH 3URSRQHQWVRI3'DVDUHPHG\IRULQMXVWLFHPLJKWUHVSRQGE\DUJXLQJWKDW

WKH85(*DSSOLFDQWVZKRJDLQIURP3'GHVHUYHWREHWKHVSHFLILFUHFLSLHQWV RI FRPSHQVDWLRQ VLQFH WKHKLVWRULFDO LQMXVWLFHGRQH WR WKHLU FRPPXQLW\KDV KDG ² DPRQJ RWKHU HIIHFWV ² WKH VSHFLILF HIIHFW RI GLVDGYDQWDJLQJ WKHP LQ FRPSHWLWLRQ IRU VHOHFWLRQ WR GHVLUHG SRVLWLRQV )RU FRUUHVSRQGLQJ UHDVRQV WKRVH DSSOLFDQWV ZKR ORVH IURP 3' GHVHUYH WR EHDU WKH EXUGHQ RI WKDW

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

IRU WKHUHDUHFOHDUO\PXFKEHWWHUZD\VRIGRLQJLWWKDQYLD3'²ZD\VZKLFK ZRXOG WDUJHW PXFK EHWWHU WKRVH 85(*PHPEHUV GHVHUYLQJ FRPSHQVDWLRQ DQGZKLFKZRXOG VSUHDG WKH FRVW PXFKPRUH ZLGHO\ DPRQJ WKRVH SHRSOH ZKR KDYH EHQHILWHG IURP LW )RU H[DPSOH RQH FRXOG VXJJHVW VRPH NLQG RI UHGLVWULEXWLRQRILQFRPHIURPWD[SD\HUVLQJHQHUDOWRWKH85(*SRSXODWLRQ VWUXFWXUHGVRDVWRIDYRUWKHPRVWGLVDGYDQWDJHGPHPEHUVRIWKDWSRSXODWLRQ 6XFK UHGLVWULEXWLRQQHHGQRW UHVXOW LQ FDVKSD\PHQWV WR WKHEHQHILFLDULHV LW FRXOGLQVWHDGWDNHWKHIRUPRIUHVRXUFHVLQYHVWHGVRDVWRUDLVHWKHPLQLPXP OHYHOVRIVFKRROLQJDQGKHDOWKFDUHDYDLODEOHWR85(*PHPEHUV &ULWLFVZKR DUJXHWKDW3'FDQQRWEHMXVWLILHGDVFRPSHQVDWLRQWRUHPHG\KLVWRULFDOLQMXV WLFHDUHWKHUHIRUHRQVROLGJURXQG

5HYHUVHGLVFULPLQDWLRQ 7KH FDVH DJDLQVW 3' RQ JURXQGV RI SURFHGXUDO LQMXVWLFH YLHZV LW DV UHYHUVH GLVFULPLQDWLRQDJDLQVWWKRVHQRQ85(*DSSOLFDQWVIRUGHVLUHGSRVLWLRQVZKR DUHUHMHFWHGLQRUGHUWRFUHDWHURRPIRUWKRVH85(*PHPEHUVDFFHSWHGE\ YLUWXHRI3' 7KLVDUJXPHQWLVURRWHGLQWKHSUHVXPSWLRQWKDWWKHUHLVDOHJLW LPDWH VHW RI VHOHFWLRQ TXDOLILFDWLRQV RQ WKH EDVLV RIZKLFK DOO DSSOLFDQWV DUH HQWLWOHGWREHFRQVLGHUHG DQGWKDW3'LQWURGXFHVDQLOOHJLWLPDWHFKDUDFWHULVWLF ²VWDWXVDVD85(*PHPEHU²LQWRWKHPL[RITXDOLILFDWLRQVWKDWGHWHUPLQH DQ DSSOLFDQW·V PHULW IRU VHOHFWLRQ ,I 85(* VWDWXV LV LQGHHG DQ LOOHJLWLPDWH TXDOLILFDWLRQ WKHQ LWV XVH WR HQKDQFH SURVSHFWV RI VHOHFWLRQ GRHV DUELWUDULO\ GLVFULPLQDWH LQ IDYRU RI 85(* DSSOLFDQWV DQG DJDLQVW RWKHU DSSOLFDQWV WKHUHE\YLRODWLQJWKHLPSRUWDQWSURFHGXUDOSULQFLSOHRIHTXDORSSRUWXQLW\IRU DOODSSOLFDQWV %XW ZKDW PDNHV D TXDOLILFDWLRQ OHJLWLPDWH IRU WKH SXUSRVH RI VHOHFWLRQ

GHFLVLRQV"7KRVHZKRVHH3'DVUHYHUVHGLVFULPLQDWLRQWHQGWRDUJXHWKDW LQ RUGHU WR EH OHJLWLPDWH D TXDOLILFDWLRQ PXVW UHIOHFW VRPH NLQG RI ´PHULWµ UHIOHFWLQJYROXQWDU\DFWLRQE\WKHDSSOLFDQWUDWKHUWKDQDQLQYROXQWDU\FKDUDF WHULVWLFDVFULEHGWRWKHDSSOLFDQWE\YLUWXHRIKLVKHUIDPLO\EDFNJURXQG )RU PRVWRI WKHVH FULWLFV LW VHHPV VHOIHYLGHQW WKDWPHULW VKRXOGEHEDVHGRQ DQ DSSOLFDQW·VSDVWUHFRUGRIDFKLHYHPHQW 6RPHJRVRIDU²DWOHDVWLPSOLFLWO\²DV WRLGHQWLI\PHULWZLWKDQDSSOLFDQW·VVFRUHRQVWDQGDUGL]HGTXDOLI\LQJH[DPL QDWLRQV 7KH\ VHHSULPD IDFLH HYLGHQFHRI UHYHUVHGLVFULPLQDWLRQ LQ WKH IDFW WKDW3'HQDEOHV85(*DSSOLFDQWVWRJDLQDFFHVVWRXQLYHUVLWLHV DQGGHVLUDEOH

MREVZLWK ORZHU VFRUHVRQ VWDQGDUGL]HGH[DPLQDWLRQV WKDQ WKHLU QRQ85(* FRPSHWLWRUV %XW WKLV IDFWZRXOG LPSO\XQHTXDORSSRUWXQLW\RQO\ LI VXFK VFRUHV FRQVWL

WXWHG LQ DQG RI WKHPVHOYHV DQ DSSURSULDWH FULWHULRQ IRU GHWHUPLQLQJZKR LV TXDOLILHG IRU DGPLVVLRQ 0RUH VRSKLVWLFDWHG FULWLFV RI 3' UHFRJQL]H WKDW VXFK VWDQGDUGL]HGWHVWVPD\QRWEHWKHEHVWDYDLODEOHPHDVXUHVRIDFKLHYHPHQW VRWKH\ HQGRUVHPRUH UHILQHGPHDVXUHPHQWV WDNLQJ LQWR DFFRXQW RWKHU HYLGHQFH RI D FDQGLGDWH·V DFKLHYHPHQW :KDW DOO WKH IRUHJRLQJPHDVXUHVKDYH LQFRPPRQ LV WKDW WKH\ DUH EDVHG RQ SHUIRUPDQFH ZLWK UHVSHFW WR DQ DEVROXWH VWDQGDUG RI DFKLHYHPHQW ,ZLOOFKDUDFWHUL]HWKHPDVLQGLFDWRUVRI´ UHDOL]HGDFKLHYHPHQWµ 7KHUHDUHVHYHUDOZD\VLQZKLFKRQHPLJKWMXVWLI\XVLQJRQO\PHDVXUHVRI

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²IRULWPLJKW ZHOOEHVKRZQWKDW XQGHUFHUWDLQFLUFXPVWDQFHV WKHXVHRI85(*VWDWXVDVD TXDOLILFDWLRQOHDGVWRWKHEHVWUHVXOWV 7KHRQO\ZD\LQZKLFK3'FRXOGSURSHUO\EHUHMHFWHGDSULRULDVDIRUPRI

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²IRUH[DPSOH WKHPRUDOLPSHUDWLYHWR DVVXUHWKDWSHRSOHDUHQRWGLVDGYDQWDJHGE\YLUWXHRIWKHLU85(*VWDWXV 7KHPRVWFRPSHOOLQJPRUDOEDVLVIRUHQWLWOHPHQWWREHVHOHFWHGIRUDJRRG

SRVLWLRQLVZKDWDQDSSOLFDQWKDVHDUQHGWKURXJKKLVKHURZQSULRUHIIRUWDQG H[HUWLRQ 7KLV LV LQGHHG WKH UHDVRQ ZK\ PHDVXUHV RI SDVW DFKLHYHPHQW DUH RIWHQEHOLHYHGWREHDSSURSULDWHTXDOLILFDWLRQVIRUVHOHFWLRQ ZKHUHDVTXDOLILFD WLRQVDVVLJQHGE\YLUWXHRIIDPLO\EDFNJURXQGOLNH85(*VWDWXVDUHQRW $ SHUVRQ·V UHDOL]HG DFKLHYHPHQW KRZHYHU UHIOHFWV QRW RQO\ WKDW LQGLYLGXDO·V HIIRUW DQGH[HUWLRQ EXWDOVR WKH LQGLYLGXDO·V LQQDWHDELOLWLHV DQG VXUURXQGLQJ VLWXDWLRQDOFLUFXPVWDQFHV 6XUHO\EHLQJERUQZLWKJUHDWWDOHQW RUEHLQJUDLVHG LQDQDIIOXHQWKRXVHKROGZLWKDFFHVVWRDOONLQGVRIRSSRUWXQLWLHV FDQQRWEHD EDVLVRIPRUDOGHVHUW 7KXVUHDOL]HGDFKLHYHPHQWIDLOVWRTXDOLI\DVDEDVLVIRU PRUDO HQWLWOHPHQW WR VHOHFWLRQ 6RPH FRPELQDWLRQ RI UHDOL]HG DFKLHYHPHQW

DQG85(*VWDWXVPLJKWZHOOFRPHFORVHU WR UHIOHFWLQJ WKH LQGLYLGXDOHIIRUW DQGH[HUWLRQRQZKLFKPRUDOGHVHUWFDQOHJLWLPDWHO\EHEDVHG VLQFH85(* PHPEHUVZKR DWWDLQ D JLYHQ OHYHORI DFKLHYHPHQW DUH OLNHO\ WRKDYHKDG WR RYHUFRPH PRUH DGYHUVH VLWXDWLRQDO FLUFXPVWDQFHV WKDQ WKHLU QRQ85(* FRPSHWLWRUV ,FRQFOXGHWKDWDSSHDOVWRPRUDOLW\DQGMXVWLFHDUHVLPSO\QRWDGHTXDWHDVD

EDVLV IRU DVVHVVLQJ WKHGHVLUDELOLW\RISRVLWLYHGLVFULPLQDWLRQ &RQFHUQV DERXW PRUDOLW\DQGMXVWLFHJHQHUDWHDJRRGGHDORIWKHSDVVLRQLQGHEDWHVDERXWWKLV FRQWURYHUVLDO WRSLF DV GR QR GRXEW FRQVLGHUDWLRQV RI VHOILQWHUHVW $QG FRQFHUQVDERXWPRUDOLW\DQG MXVWLFHGUDZRQGHHSO\KHOGYDOXHV WKDWSHRSOH YHU\PXFKZDQW WR H[SUHVV %XW WKHUH DUHPDQ\ZD\V LQ ZKLFK WR H[SUHVV RQH·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

VRFLDO MXVWLFH REMHFWLYH E\ FRPSHQVDWLQJ 85(* PHPEHUV IRU D KLVWRULFDO LQMXVWLFHGRQHWRWKHLUFRPPXQLW\

3'UHSUHVHQWVGXHFRPSHQVDWLRQIURPWKHUHVWRIVRFLHW\WR85(*PHPEHUV

, KDYH UHMHFWHG WKLV DUJXPHQW LQ WKH VZHHSLQJ IRUP LQ ZKLFK LW LV XVXDOO\ DUWLFXODWHG 7KLVGRHVQRW KRZHYHU GLVSRVHRIWKHFDVHWKDWD3'SROLF\PD\ KDYHFRQVHTXHQFHV WKDWFRQWULEXWH LQ VRPHVLJQLILFDQWFRPSHQVDWRU\ZD\WR WKHDWWDLQPHQWRI VRFLDO MXVWLFH 7KHIROORZLQJ LVDYDULDQWRI WKHFRPSHQVD WLRQIRULQMXVWLFHWKHPHWKDWLVDFRQVHTXHQWLDOLVWDQGSRWHQWLDOO\YDOLGFODLP

3'DIILUPVVRFLHW\·VFRPPLWPHQWWRUHGXFHWKHFRQWLQXLQJGLVDGYDQWDJHVH[SHUL HQFHGE\85(*PHPEHUVDVDFRQVHTXHQFHRISDVWLQMXVWLFH

+HUHLWLVFODLPHGQRWWKDW3'SURYLGHVUHGUHVVWRLQGLYLGXDOVZKRKDYHEHHQ KDUPHG EXWWKDWLWVHUYHVDVDQLPSRUWDQWZD\RIVLJQDOLQJWKDWWKHOHDGHUVRI D VRFLHW\DUHFRPPLWWHG WR UHGXFLQJ WKHFRQWLQXLQJGLVDGYDQWDJHVDVVRFLDWHG ZLWK85(*PHPEHUVKLS 7KHUH FDQEHQRGRXEW WKDW WKH VRUU\KLVWRU\RI SDVWLQMXVWLFHGRQHWRSHRSOHVLPSO\EHFDXVHRIWKHLU85(*VWDWXVLVDPDMRU UHDVRQIRUWKHORZOHYHOVRIZHDOWKDFFXPXODWHGE\PRVW85(*IDPLOLHVQRW RQO\ LQ WKH IRUP RI SK\VLFDO DQG ILQDQFLDO DVVHWV EXW DOVR LQ WKH IRUP RI KXPDQDQGVRFLDOFDSLWDO /RZHUOHYHOVRIDFFXPXODWHGZHDOWKDUH LQWXUQ D PDMRU VRXUFHRI FRQWHPSRUDU\85(*GLVDGYDQWDJH ,WZRXOGEH LPSRVVLEOH WRGHWHUPLQHLQWKHFDVHRIHDFK85(*IDPLO\WKHSUHFLVHDPRXQWRIZHDOWK ORVWEHFDXVHRISDVWLQMXVWLFH VRWKHUHLVQRTXHVWLRQKHUHRISUHFLVHFRPSHQ VDWLRQ IRU KDUP GRQH %XW SROLFLHV WKDW VHUYH LQ D JHQHUDO ZD\ WR EHQHILW 85(*PHPEHUV FDQEH² DQGRIWHQ DUH² UHSUHVHQWHG DQGSHUFHLYHG DV DQ HIIRUW E\ VRFLHW\ DW ODUJH WR UHFRJQL]H DQG UHGUHVV D VLJQLILFDQW VRXUFH RI 85(* GLVDGYDQWDJH $V VXFK WKH\ FDQ KHOS WR HDVH WHQVLRQV DQG SURPRWH VRFLDOKDUPRQ\E\VKRZLQJ85(*PHPEHUVWKDWWKH\DUHZHOFRPHGDVHTXDO DQGLQWHJUDOSDUWLFLSDQWVLQWKHOLIHRIWKHVRFLHW\

$ VHFRQG DUJXPHQW IRU 3' LV DOVR FRQFHUQHG ZLWK WKH ZHOIDUH RI WKH VRFLHW\DVDZKROH

3'SURPRWHVWKHLQWHJUDWLRQRIVRFLHW\·VHOLWH

7KLV DUJXPHQW UHVWV RQ WKH SUHPLVH WKDW VRFLHW\ LVPDGH XS QRW MXVW RI DQ DJJUHJDWLRQ RI LQGLYLGXDOV EXW DOVR LQ D VLJQLILFDQW VHQVH DQ DJJUHJDWLRQ RI JURXSV %\ HQVXULQJ EHWWHU UHSUHVHQWDWLRQ RI SUHYLRXVO\ XQGHUUHSUHVHQWHG JURXSV LQ HOLWH SRVLWLRQV 3' LV VHHQ DV KDYLQJ FRQVHTXHQFHV WKDW JHQHUDWH VLJQLILFDQW VRFLDO SROLWLFDO DQG HFRQRPLF EHQHILWV ² QRW RQO\ IRU 85(* PHPEHUVEXWDOVRIRUWKHZKROHVRFLHW\ 7KHSURVSHFWLYHEHQHILWVDUHDUWLFX ODWHGLQWKHIROORZLQJFODLPV IRUHDFKRIZKLFK,SURYLGHDEULHIH[SODQDWLRQ

3'VWUHQJWKHQVWKHOHJLWLPDF\RIVRFLHW\·VOHDGHUVKLS

7KH OHJLWLPDF\ ² DQG WKHUHIRUH WKH HIIHFWLYHQHVV ² RI D VRFLHW\·V GHFLVLRQ PDNLQJ HOLWHGHSHQGV WR D FRQVLGHUDEOH H[WHQWRQ WKHGHJUHH WR ZKLFK LW LV SHUFHLYHG DV UHSUHVHQWDWLYH RI WKH JURXSV WKDW FRQVWLWXWH WKH VRFLHW\ 7KH VWUHQJWKRIDGHPRFUDWLFSROLWLFDOV\VWHPZLOOWKHUHIRUHEHHQKDQFHGLIUHVSRQ VLELOLW\ IRU GHFLVLRQPDNLQJ LV GLVWULEXWHG DPRQJ PHPEHUV RI DOO UHOHYDQW JURXSVUDWKHUWKDQGRPLQDWHGE\PHPEHUVRIMXVWRQHRUDIHZJURXSV

3'LQFUHDVHVWKHQXPEHURI85(*GHFLVLRQPDNHUV ZKRDUH OLNHO\ LQWXUQWR RIIHUPRUHDQGEHWWHURSSRUWXQLWLHVWRRWKHU85(*PHPEHUV

7KH RSSRUWXQLWLHV DYDLODEOH WR PHPEHUV RI DQ\ JURXS ZLOO DUJXDEO\ EH HQKDQFHGZKHQPRUHGHFLVLRQPDNLQJSRVLWLRQVDUHRFFXSLHGE\PHPEHUVRI WKDWJURXS

3'LQFUHDVHVWKHQXPEHURI85(*UROHPRGHOVDQGPHQWRUV

6XFK UROH PRGHOV DQG PHQWRUV FDQ EH HVSHFLDOO\ HIIHFWLYH LQ PRWLYDWLQJ \RXQJHU85(*PHPEHUV WR VWXG\ZHOO DQG WRZRUNKDUG WRGHYHORS WKHLU DELOLWLHV

3'LPSURYHVWKHSHUIRUPDQFHRIMREVLQZKLFKTXDOLW\RISHUIRUPDQFHLVHQKDQFHG LIWKHMREKROGHULVRI85(*VWDWXV

-REVVHUYLQJDPXOWLFXOWXUDOFOLHQWHOHDUHRIWHQEHVWFDUULHGRXWE\SHRSOHZLWK H[SHULHQFHLQPXOWLFXOWXUDOVLWXDWLRQV DQGMREVVHUYLQJPRVWO\PHPEHUVRID SDUWLFXODU85(*DUHRIWHQEHVWFDUULHGRXWE\SHRSOHIURPWKHVDPH85(*

3'JHQHUDWHVJUHDWHUFRQWULEXWLRQVRIFRPPXQLW\RULHQWHGVHUYLFH

%HFDXVHWKH\WKHPVHOYHVFRPHIURPGLVDGYDQWDJHGFRPPXQLWLHV PHPEHUVRI WKH85(*HOLWHDUHHVSHFLDOO\ OLNHO\WRFRQWULEXWHOHDGHUVKLSDQGYROXQWDU\ VHUYLFHV²QRWRQO\WRWKHLURZQFRPPXQLWLHV EXWDOVRWRWKHZLGHUVRFLHW\ 6XFK VHUYLFH FRQWULEXWLRQV FDQEH H[SHFWHGQRWRQO\ WR LQFUHDVH WKH DYDLO DELOLW\RIVHUYLFHV RSSRUWXQLWLHV DQGUHVRXUFHVWRSHRSOHDWWKHORZHUHQGRI WKH VRFLRHFRQRPLF ODGGHU ² LQFOXGLQJ PDQ\ 85(* PHPEHUV 7KH LPSURYHPHQW DQG H[SDQVLRQ RI VHUYLFHRULHQWHG RUJDQL]DWLRQV FDQ EH H[SHFWHGDOVR WR VWUHQJWKHQ LQVWLWXWLRQVRIFLYLO VRFLHW\ WKDW DUHFHQWUDO WRD VXFFHVVIXOGHPRFUDF\

3'KHOSVWRGLVSHOQHJDWLYHVWHUHRW\SHVRI85(*PHPEHUV

%\LQFUHDVLQJ85(*UHSUHVHQWDWLRQLQVRFLHW\·VPRVWKRQRUHGUROHV 3'FDQ KHOSWRGLVSHOVWHUHRW\SLFDOSHUFHSWLRQVRI85(*PHPEHUVDVWHQGLQJWREH LQKHUHQWO\LQFDSDEOHRIPHHWLQJWKHUHVSRQVLELOLWLHVDQGGHPDQGVRIVXFKSRVL WLRQV 0RUH JHQHUDOO\ DQ LQWHJUDWHG HOLWH FDQ KHOS WR RYHUFRPH LQWHUJURXS DQWLSDWKLHVDVVRFLDWHGZLWKSHUVLVWLQJVRFLDO HFRQRPLF DQGSROLWLFDOGLVSDULWLHV DORQJHWKQLFOLQHV 7KHQH[WWZREDVLFDUJXPHQWVLQIDYRURI3'VHHLWDVLPSURYLQJWKHHIIHF

WLYHQHVVRIRUJDQL]DWLRQVRULQVWLWXWLRQVWKDWLPSOHPHQW3'SROLFLHV 7KHILUVW RIWKHVHWZRDUJXPHQWVDGGUHVVHVWKHSURFHVVRIVHOHFWLRQRILQGLYLGXDOVIURPD SRRORIDSSOLFDQWV

3'LPSURYHVDFFXUDF\LQWKHDSSUDLVDORIDSSOLFDQWTXDOLILFDWLRQV

7KLV DUJXPHQW EHJLQV ZLWK WKH SUHVXPSWLRQ WKDW FRQYHQWLRQDO FULWHULD IRU DVVHVVLQJ WKH TXDOLILFDWLRQV RI DSSOLFDQWV IRU SRVLWLRQV LQ DQ RUJDQL]DWLRQ RU LQVWLWXWLRQDUHGHILFLHQWDVPHDVXUHVRIDSSOLFDQWV· WUXHSRWHQWLDO²HVSHFLDOO\LQ WKHFDVHRI85(*DSSOLFDQWV 7KLVLVDWWULEXWHGWRWKHIDFWWKDWFRQYHQWLRQDO FULWHULDOLNHVFRUHVRQVWDQGDUGL]HGWHVWVIDYRUDSSOLFDQWVZKRKDYHHQMR\HGD

VLWXDWLRQDODGYDQWDJHLQWKHLUSDVWSUHSDUDWLRQRUEURDGO\GHILQHGHGXFDWLRQ ²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´OHYHO WKH SOD\LQJ ILHOGµ IRU DOO DSSOLFDQWV DQG WR LGHQWLI\ WKHPRVW FDSDEOHDPRQJWKHP 7ZRGLIIHUHQWFODLPVRIEHQHILWVDUHDVVRFLDWHGZLWKWKLVDUJXPHQW

3' LPSURYHV RUJDQL]DWLRQDO SHUIRUPDQFH E\ LQFUHDVLQJ WKH DYHUDJH TXDOLW\ RI LQGLYLGXDOVVHOHFWHG

6HOHFWLRQ SURFHVVHV ZLOO LQFUHDVH WKH DYHUDJH TXDOLW\ RI VHOHFWHG DSSOLFDQWV EHFDXVHKLJKO\FDSDEOH85(*DSSOLFDQWVZKRZRXOGRWKHUZLVHEHUHMHFWHG ZLOOEH VHOHFWHG LQ IDYRURI OHVV FDSDEOHRWKHU DSSOLFDQWV ZKRZRXOGRWKHU ZLVHEHVHOHFWHG 2UJDQL]DWLRQDOSHUIRUPDQFHZLOOEHHQKDQFHGERWKE\WKH LQYROYHPHQW RI PRUH FDSDEOH LQGLYLGXDOV DQG E\ WKH KLJKHU RYHUDOO SHUIRU PDQFHVWDQGDUGVWKDWWKHLUSUHVHQFHZLOOHQDEOHWKHRUJDQL]DWLRQWRHQIRUFH

3' GLVSHOV 85(* PHPEHU F\QLFLVP GXH WR SHUFHLYHG XQIDLUQHVV RI VHOHFWLRQ SURFHVVHV

&RQILGHQFH WKDW VHOHFWLRQ SURFHGXUHV GR QRW GLVFULPLQDWH XQIDLUO\ DJDLQVW 85(*DSSOLFDQWVUHGXFHVUHVHQWPHQWRQWKHSDUWRI85(*PHPEHUVDJDLQVW RWKHUVDQGIRVWHUVEHWWHULQWHUJURXSUHODWLRQV 7KH RWKHU DUJXPHQW RULHQWHG SULPDULO\ WR RUJDQL]DWLRQDO RU LQVWLWXWLRQDO

HIILFLHQF\LVSUHPLVHGRQWKHSXWDWLYHDGYDQWDJHVRIGLYHUVLW\LQSHUVRQQHO

3'FRQWULEXWHVWRYDOXDEOHGLYHUVLW\LQDQRUJDQL]DWLRQ

+HUH LW LV FODLPHG WKDW E\ DVVXULQJ WKDW WKH VHW RI RFFXSDQWV RI FHUWDLQ NH\ SRVLWLRQVLVHWKQLFDOO\PRUHGLYHUVH 3'HQDEOHVDQRUJDQL]DWLRQRULQVWLWXWLRQ WRSURYLGHEHWWHUTXDOLW\JRRGVDQGRUVHUYLFHV WKXV

3'HQDEOHVRUJDQL]DWLRQVWRSHUIRUPEHWWHUE\YLUWXHRIJUHDWHUGLYHUVLW\LQWKHLU SHUVRQQHO

7KLVFODLPLVEDVHGRQWKHSUHPLVHWKDWGLYHUVLW\DPRQJSHUVRQQHOSURYLGHVD ZLGHUUDQJHRILGHDV JUHDWHUSHUVSHFWLYH PRUHSURGXFWLYHLQWHUDFWLRQV DQGLQ JHQHUDODPRUHLQQRYDWLYHDQGG\QDPLFHQYLURQPHQWWKDQFRXOGEHH[SHFWHG

IURP DPRUHXQLIRUPJURXSRI LQGLYLGXDOV 7KH FDVH IRU3' DV D VRXUFHRI GLYHUVLW\ SUHVXPHV RI FRXUVH WKDW GLYHUVLW\ZLWK UHVSHFW WR HWKQLF VWDWXV LQ SDUWLFXODU LVDQLPSRUWDQWVRXUFHRIWKHSRVLWLYHFRQWULEXWLRQVMXVWQRWHG 7KHODVWWZREDVLFDUJXPHQWVLQIDYRURI3'DUHRULHQWHGSULPDULO\WRWKH

ZHOIDUHRIPHPEHUVRI WKH85(*VHOLJLEOH IRU3' 7KH ILUVWRI WKHVHDUJX PHQWVHQYLVDJHVEHQHILWVDFFUXLQJWRDEURDGUDQJHRI85(*PHPEHUV

3'LQFUHDVHVPRWLYDWLRQRQWKHSDUWRI\RXQJ85(*PHPEHUV

3'SROLFLHVLQFUHDVHWKHUDQJHRIRSSRUWXQLWLHVDYDLODEOHWR85(*PHPEHUV ZKRZRXOGRWKHUZLVHWHQGWREHGLVFRXUDJHGE\WKHLUSURVSHFWVRIDGYDQFLQJ LQ D VRFLHW\ WKDW KDV EHHQ LQ YDULRXVZD\V LQKRVSLWDEOH WR WKHP 7KXV LW LV FODLPHGWKDW

3'PRWLYDWHV85(*\RXWKVWRZRUNKDUGHUWRGHYHORSWKHLUKXPDQFDSLWDO

3'SROLFLHVDUHH[SHFWHGWRVWLPXODWH\RXQJ85(*PHPEHUVWRLQYHVWPRUH RIWHQDQGRUPRUHIXOO\LQWKHGHYHORSPHQWDQGLPSURYHPHQWRIWKHLUKXPDQ FDSLWDO²WKHLUVNLOOVDQGFDSDELOLWLHV²LQRUGHUWRWDNHDGYDQWDJHRIWKHJUHDWHU RSSRUWXQLWLHVIRUDGYDQFHPHQWPDGHDYDLODEOHWRWKHP 7KH ILQDO DUJXPHQW IRU 3' LV DOVR RULHQWHG WR WKH ZHOIDUH RI 85(*

PHPEHUV²LQWKLVFDVH WKRVHZKRDUHWKHGLUHFWEHQHILFLDULHVRID3'SROLF\

3'VSUHDGVVRFLDOFDSLWDOWRWKRVHZKRPRVWQHHGLW

85(* PHPEHUV VWULYLQJ IRU DGYDQFHPHQW WHQG WR EH GLVDGYDQWDJHG E\ D UHODWLYHODFNRIFRQWDFWVDQGQHWZRUNVZLWKSHRSOHZKRFDQVPRRWKWKHLUZD\ WRJRRGFDUHHURSSRUWXQLWLHV ,QWKLVFRQWH[WLWLVFODLPHGWKDW

3'KHOSVWRRIIVHWGHILFLWVLQVRFLDOFDSLWDOWKDWKDQGLFDS85(*PHPEHUV

%\SURYLGLQJ85(*DSSOLFDQWVZLWKSUHIHUUHGDFFHVVWRGHVLUDEOHHGXFDWLRQDO LQVWLWXWLRQV DQG MRE RSSRUWXQLWLHV 3' FDQ KHOS WR RYHUFRPH WKHLU VRFLDO FDSLWDOGHILFLWYLVjYLVWKHLUSHHUVDQGHQDEOHWKHPWRJHWDFFHVVWRRSSRUWX QLWLHVWKDWZRXOGRWKHUZLVHEHGHQLHGWKHP

$UJXPHQWVDQGFODLPVPDGHLQRSSRVLWLRQWRSRVLWLYH GLVFULPLQDWLRQ 7KHFRQVHTXHQWLDOLVWDUJXPHQWVDGYDQFHGWRUHMHFW3'SROLFLHVFDQEHRUJD QL]HG LQWR VL[ EDVLF DUJXPHQWV DJDLQVW 3' PRVW RI ZKLFK PDNH VHYHUDO GLIIHUHQWFODLPV ,DJDLQGLVWLQJXLVKDUJXPHQWVDFFRUGLQJWRZKHWKHUWKH\DUH FRQFHUQHGSULPDULO\ZLWKWKHHIIHFWVRI3'RQDWKHVRFLHW\DVDZKROH E WKHRUJDQL]DWLRQVRU LQVWLWXWLRQVZKHUH3'SROLFLHV DUHEHLQJDSSOLHG RU F WKHZHOIDUHRIPHPEHUVRIWKH85(*VHOLJLEOHIRU3'

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

3'LVSRRUO\WDLORUHGWRKHOSWKHPRVWGLVDGYDQWDJHG

7KLVDUJXPHQWLVFRQFHUQHGZLWKWKHLPSOLFDWLRQVRID3'SROLF\IRUVRFLHW\ DVDZKROH ,WOHDGVWRWKHIROORZLQJWZRFODLPVDERXWXQGHVLUDEOHUHGLVWULEX WLYHFRQVHTXHQFHVRI3'

3'H[DFHUEDWHVLQHTXDOLWLHVDPRQJ85(*PHPEHUV

3' UHGLVWULEXWHV RSSRUWXQLWLHV IURP OHVVZHOORII RWKHUV WR EHWWHURII 85(* PHPEHUV

,QVXSSRUWRIWKHILUVWFODLPLWLVDUJXHGWKDW3'EHQHILFLDULHVDUHOLNHO\WREH DPRQJ WKH PRVW SULYLOHJHG DQG EHVWRII 85(* PHPEHUV WKH ´FUHDP\ OD\HUµ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

VRFLHW\DVDZKROHLVWKHIROORZLQJ

3'H[DFHUEDWHVFRQVFLRXVQHVVRIGLVWLQFWLRQVEHWZHHQHWKQLFLGHQWLW\JURXSV

7KLVDUJXPHQW²LQVKDUSFRQWUDVWWRWKHFRUUHVSRQGLQJDUJXPHQWLQIDYRU RI 3' ² UHVWV RQ WKH SUHPLVH WKDW VRFLHW\ RXJKW EHVW WR EH YLHZHG E\ HYHU\RQHDVDQDJJUHJDWLRQRILQGLYLGXDOVUDWKHUWKDQ LQDQ\VLJQLILFDQWVHQVH DQDJJUHJDWLRQRIJURXSV 7KRVHZKRPDNH WKLVDUJXPHQWGRQRWGHQ\WKDW PDQ\SHRSOHPD\VHHWKHPVHOYHV LQLPSRUWDQWZD\V DVPHPEHUVRI DSDUWLF XODULGHQWLW\JURXS EXWWKH\YLHZWKLVDVDOHJDF\RIWKHSDVWWKDWRXJKWQRWWR LQWUXGHRQSROLWLFDORUHFRQRPLFGHFLVLRQPDNLQJ (WKQLFFDWHJRULHVOLNHUDFH FDVWH WULEH HWF DUH HVSHFLDOO\ VXVSHFW LQ WKLV OLJKW WKH JUHDWHU LV D VRFLHW\·V REVHVVLRQZLWKHWKQLFJURXSLGHQWLW\ WKHJUHDWHULVWKHQHHGWRDYRLGWKHXVH RIVXFKFDWHJRULHVWRGLVWLQJXLVKEHWZHHQSHRSOH ,IDQ\SRVLWLRQVDUHILOOHGRQ

DEDVLVWKDWLQFOXGHVFRQVLGHUDWLRQRIDSHUVRQ·VHWKQLFVWDWXV WKLVZLOOSHUSHW XDWH LQYLGLRXV GLVWLQFWLRQV DQG VHUYH WR GLVLQWHJUDWH UDWKHU WKDQ WR LQWHJUDWH VRFLHW\ ,Q IRFXVLQJ DWWHQWLRQ RQ HWKQLF GLVWLQFWLRQV 3' LV VHHQ DV JHQHUDWLQJ D

YDULHW\RIDGYHUVHFRQVHTXHQFHV²DVUHIOHFWHGLQWKHIROORZLQJFODLPV

3' OHDGV WR PRUH GLYLVLYH LGHQWLW\ JURXS SROLWLFV DQG WKH %DONDQL]DWLRQ RI VRFLHW\

,QWHUJURXS GLYLVLYHQHVV ZLOO XQGHUPLQH WKH VWDELOLW\ DQG OHJLWLPDF\ RI D GHPRFUDWLFV\VWHP DQGLWZLOOZRUVHQUHODWLRQVEHWZHHQ85(*PHPEHUVDQG RWKHUPHPEHUVRIDVRFLHW\

3' HQFRXUDJHV GHFHLWIXO HIIRUWV WR FODLP 85(* VWDWXV LQ RUGHU WR JDLQ WKH UHVXOWLQJEHQHILWV

7KLVNLQGRIGHFHLWZLOOZRUVHQUHODWLRQVEHWZHHQ85(*DQGRWKHUPHPEHUV RIDVRFLHW\DQGOHDGWRZLGHVSUHDGF\QLFLVP

3'JHQHUDWHVVQRZEDOOLQJGHPDQGVIRUSUHIHUHQFHV IURPPHPEHUVRIJURXSV QRW FXUUHQWO\HOLJLEOHIRU3'

3UHIHUHQFHVIDYRULQJVRPHJURXSVLQHYLWDEO\OHDGWRGHPDQGVIRUSUHIHUHQFHV LQIDYRURIRWKHUJURXSV ZLWKHYHUZHDNHUJURXQGVIRUVSHFLDOFRQVLGHUDWLRQ 6XFKFRQVHTXHQFHVFDQFHUWDLQO\EHH[SHFWHGWRXQGHUPLQHVRFLDOKDUPRQ\ 7KHQH[W EDVLF DUJXPHQW DJDLQVW 3' LV OLNH DUJXPHQW RULHQWHG WR WKH

HIIHFWLYHQHVVZLWKZKLFKRUJDQL]DWLRQVRULQVWLWXWLRQVIXQFWLRQ EXWLWVORJLFLV SUHFLVHO\WKHRSSRVLWH

3'JHQHUDWHVLQDFFXUDF\LQWKHDSSUDLVDORIDSSOLFDQWTXDOLILFDWLRQV

/LNHDUJXPHQW WKLVRQHUHVWVRQWKHSUHPLVHWKDWWKHUHVKRXOGEHD´ OHYHO SOD\LQJ ILHOGµ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· SRWHQ WLDO IRUDFKLHYHPHQW LVDSSUDLVHG SUHIHUHQFHJLYHQWRDQ\RQHZLWK85(* VWDWXV ZLOO UHVXOW LQ DQ DUELWUDU\ DQG XQIDLU GLVWRUWLRQ RI WKH VHOHFWLRQ SURFHVV 7ZR GLIIHUHQW FODLPV DUH DVVRFLDWHG ZLWK WKLV DUJXPHQW HDFK RI ZKLFK

GLUHFWO\FRXQWHUVWKHFRUUHVSRQGLQJFODLPRIDUJXPHQW

3'ZRUVHQVRUJDQL]DWLRQDOSHUIRUPDQFHE\UHGXFLQJWKHDYHUDJHTXDOLW\RILQGL YLGXDOVVHOHFWHG

3'FDXVHVUHVHQWPHQWDWWKHXQIDLUQHVVRIVHOHFWLRQSURFHVVHVE\WKRVHZKRDUH LQHOLJLEOHIRUSUHIHUHQFHV

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²LQWKH VDPHZD\DVPDQ\PRUHXQVXFFHVVIXOGULYHUV DWWULEXWH WKHLU IDLOXUH WR ILQGD SDUNLQJVSDFHWRWKHH[LVWHQFHRIVSDFHVUHVHUYHGIRUKDQGLFDSSHGGULYHUVWKDQ WKHQXPEHURIWKHODWWHUZKRDUHDFWXDOO\DEOHWRSDUNLQDUHVHUYHGVSDFH 7KHUHPDLQLQJWKUHHDUJXPHQWVDJDLQVW3'DOOIRFXVRQDOOHJHGKDUPGRQH

WR 85(*PHPEHUV IRU WKH EHQHILW RI ZKRP 3' SROLFLHV DUH SUHVXPDEO\ HQDFWHG 7KHVKDUSHVWVXFKDUJXPHQWLVWKHIROORZLQJ

3' FUHDWHV DPLVPDWFK EHWZHHQ LWV GLUHFW EHQHILFLDULHV DQG WKHLU RUJDQL]DWLRQDO VHWWLQJV

2SSRQHQWV RI 3' FODLP WKDW LW GRHV D JUHDW GLVVHUYLFH WR WKH EHQHILFLDULHV WKHPVHOYHVE\FUHDWLQJDVHULRXVPLVPDWFKEHWZHHQWKHLUFDSDELOLWLHVDQGWKH H[SHFWDWLRQV RI WKHP LQ WKH SRVLWLRQV WR ZKLFK WKH\ DUH JLYHQ SUHIHUHQWLDO DFFHVV %HFDXVH3'SODFHVLWVEHQHILFLDULHVLQDQHGXFDWLRQDORUZRUNVHWWLQJLQ ZKLFK WKH\DUH OLNHO\ WRGRYHU\SRRUO\ FULWLFV VXJJHVW WKDW WKH\PLJKWZHOO KDYHEHHQEHWWHUVHUYHGE\SODFHPHQWLQDOHVVFKDOOHQJLQJSRVLWLRQ 7KHIROORZLQJWZRFODLPVDUHPDGHRQWKHEDVLVRIWKLVPLVPDWFKDUJXPHQW

85(*PHPEHUV JHQHUDOO\ GLVSOD\ SRRU SHUIRUPDQFH DQG DUH OLNHO\ WR IDLO LQ SRVLWLRQVWRZKLFKWKH\KDYHJDLQHGDFFHVVE\YLUWXHRI3'

3'H[DFHUEDWHVQHJDWLYHVWHUHRW\SHVRI85(*PHPEHUVDVLQQDWHO\LQIHULRU

7KHVHFRQGFODLPIROORZVIURPWKHILUVW LI WKH OHYHORISHUIRUPDQFHRIPRVW 85(*PHPEHUVLVVLJQLILFDQWO\EHORZWKDWRIPRVWRIWKHLUSHHUV WKLVFDQEH H[SHFWHG WR VWUHQJWKHQ DOUHDG\ H[LVWLQJ SUHGLOHFWLRQV WR YLHZ 85(* PHPEHUVDVLQQDWHO\OHVVFDSDEOHWKDQQRQ85(*PHPEHUV 7KHQH[WDUJXPHQWDJDLQVW3'LVDGLUHFWFRXQWHUSDUWWRSUR3'DUJXPHQW

3'LQGXFHVFRPSODFHQF\RQWKHSDUWRI\RXQJ85(*PHPEHUV

/LNH WKHFRUUHVSRQGLQJDUJXPHQW LQ IDYRURIDIILUPDWLYHDFWLRQ WKLV DUJX PHQW IRFXVHV SULPDULO\ RQ WKH ZD\ LQ ZKLFK 3' DIIHFWV WKH VWUXFWXUH RI LQFHQWLYHVIDFHGE\\RXQJ85(*PHPEHUV ,WLVFODLPHGWKDW

3'LQKLELWV85(*\RXWKVIURPZRUNLQJKDUGWRGHYHORSWKHLUKXPDQFDSLWDO

7KLVFODLPGUDZVDWWHQWLRQWRWKHIDFWWKDW3'·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

85(*PHPEHUVWKHPVHOYHV

3'UHVXOWVLQGHYDOXDWLRQRIWKHDFFRPSOLVKPHQWVRI85(*PHPEHUV

7KLVDUJXPHQWKROGVWKDWDQ\QRWDEOHDFFRPSOLVKPHQWRID85(*PHPEHULV OLNHO\ WR EH FUHGLWHGZLWK OHVV YDOXH LQ D FRQWH[W LQZKLFK 3' SROLFLHV DUH DSSOLHG WKDQ LWZRXOG LQ WKHDEVHQFHRI3' 7KLV LVEHFDXVH VXFKDQDFFRP SOLVKPHQWZLOOEHDWWULEXWHGDWOHDVWWRVRPHH[WHQWWRWKHSUHIHUHQFHFRQIHUUHG E\3' UDWKHU WKDQ WR WKH LQQDWH DELOLW\ DQGHIIRUWRI WKH85(*PHPEHU² ZKHWKHURUQRWWKHSHUVRQDFWXDOO\EHQHILWHGIURP3' 7KLVPD\QRWEHIDLU LQ FDVHVZKHUH3'KDVSOD\HGQRUROHLQWKH85(*PHPEHU·VDFFRPSOLVKPHQW %XW LI3' VHUYHV WR UHGXFH UDWKHU WKDQ WR LQFUHDVH WKH DFFXUDF\RIPHDVXUH PHQWRI85(*DSSOLFDQWTXDOLILFDWLRQV²DVLVFODLPHGE\DUJXPHQWDJDLQVW DUJXPHQW²WKHQLWLVUDWLRQDOIRUDQREVHUYHUWRLQIHUWKDWVHOHFWHGDSSOLFDQWV IURPDJURXSWKDWUHFHLYHV3'SUHIHUHQFHVZLOORQDYHUDJHEHOHVVTXDOLILHG DQG OHVV OLNHO\ WR DFKLHYH VXFFHVV RQ WKHLU RZQ WKDQ VHOHFWHG DSSOLFDQWV IURP D JURXSWKDWGRHVQRWUHFHLYHVXFKSUHIHUHQFHVRURWKHUHTXLYDOHQWSUHIHUHQFHV 6HYHUDO NLQGV RI DGYHUVH FRQVHTXHQFHV DUH FODLPHG WR UHVXOW IURP 3'

LQGXFHGGHYDOXDWLRQRI85(*PHPEHUDFFRPSOLVKPHQWV DVIROORZV

3' UHVXOWV LQ XQGHUDSSUHFLDWLRQ RI WKH WUXH FDSDELOLWLHV DQG DFKLHYHPHQWV RI VRPH85(*PHPEHUV

7KRVH 85(* DSSOLFDQWV ZKR ZRXOG KDYH EHHQ VHOHFWHG ZLWKRXW DQ\ 3' SUHIHUHQFHZLOODWWLPHVEHHUURQHRXVO\SUHVXPHGWRKDYHORZHUTXDOLILFDWLRQV DQGVNLOOVWKDQWKH\UHDOO\GR $SDUWIURPH[SHULHQFLQJKXUWIHHOLQJV WKH\PD\ ILQGWKHLURSSRUWXQLWLHVOLPLWHGEHFDXVHWKH\DUHXQGHUFUHGLWHGIRUWKHLUWUXH FDSDELOLWLHV DQG JHQXLQH DFKLHYHPHQWV 7KLV QRW RQO\ KXUWV WKRVH 85(* PHPEHUV LWFDQDOVROHDGWRLQHIILFLHQF\LQRUJDQL]DWLRQDOSHUIRUPDQFH

3'UHVXOWV LQ WKHGLVSDUDJHPHQWRI85(*PHPEHUV LQJHQHUDODVQRW UHDOO\ GHVHUYLQJ WR EH SODFHG LQ WKH SRVLWLRQV WR ZKLFK VRPH KDYH JDLQHG DFFHVV E\ YLUWXHRI3'

%HFDXVHPDQ\85(*PHPEHUVZLOOKDYHEHHQVHOHFWHGE\YLUWXHRI3'SUHI HUHQFHV RWKHUVZLOO EH OLNHO\ WR FRQFOXGH WKDWPRVW85(*PHPEHUVRI DQ RUJDQL]DWLRQDUHQRWDVFDSDEOHDVWKHLUSHHUV 7KLVFDQUHVXOWLQWKHFKDUDFWHUL ]DWLRQRIPRVW85(*PHPEHUVDVQRWUHDOO\EHORQJLQJLQWKHSRVLWLRQVWKDW WKH\KROG

3'UHVXOWVLQORZH[SHFWDWLRQVIRU85(*PHPEHUVRQWKHSDUWRIRWKHUV

:KHWKHU WKLV OHDGV WR QHJOHFW RU WR SDWURQL]DWLRQ RI85(*PHPEHUV LW LV OLNHO\WRGLVFRXUDJHWKHPIURPGHYHORSLQJWKHLUFDSDELOLWLHVDQGUHDOL]LQJWKHLU IXOOSRWHQWLDO

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

DPRQJWKHVL[DUJXPHQWVDJDLQVW3' 7KXVWKHDUJXPHQWIRU3'DV DPHDQVRI DFKLHYLQJJUHDWHUDFFXUDF\LQWKHHYDOXDWLRQRIDSSOLFDQWTXDOLILFDWLRQVDUJXPHQW LVGLUHFWO\RSSRVHGWRWKHDUJXPHQWDJDLQVW3'DVDVRXUFHRILQDFFXUDF\LQ VXFKHYDOXDWLRQ /LNHZLVH WKHDUJXPHQWWKDW3'LPSURYHVWKHPRWLYDWLRQDQG HIIRUWRI85(*VWXGHQWV LVGLUHFWO\FRQWUDGLFWHGE\WKHDUJXPHQW WKDW3' LQGXFHVFRPSODFHQF\DQGGHSHQGHQFHRQWKHSDUWRI85(*VWXGHQWV 7KH DUJXPHQW LQ IDYRU RI 3' IRU LQWHJUDWLQJ VRFLHW\·V HOLWH DQG WKH DUJXPHQW DJDLQVW3'IRUH[DFHUEDWLQJJURXSFRQVFLRXVQHVV FRPHWRRSSRVLWHFRQFOX VLRQVDERXWWKHXVHIXOQHVVRIPDNLQJJURXSGLVWLQFWLRQVEDVHGRQUDFH FDVWH WULEH UHOLJLRQ RUHWKQLFLW\ $QGWKHDUJXPHQWIRU3'RQJURXQGVRIFRPSHQVDWLRQIRU GLVDGYDQWDJHVGXHWRKLVWRULFDOLQMXVWLFHFDQEHMX[WDSRVHGZLWKWKHDUJXPHQW DJDLQVW3'WRWKHHIIHFWWKDWLWLVSRRUO\WDLORUHGWRKHOSWKHPRVWGLVDGYDQWDJHG 7KHUHPDLQLQJDUJXPHQWVRQHDFKVLGHGRQRWKDYHVXFKFRXQWHUSDUWV 7KH FODLPV OLVWHG XQGHU HDFK DUJXPHQW SUHVHQWHG LQ 7DEOHV DQG

SRLQW WR YDULRXV SRVVLEOH EHQHILFLDO DQG FRVWO\ FRQVHTXHQFHV WKDWPD\ UHVXOW IURP D 3' SROLF\ ,Q JHQHUDO D SROLF\ RI SRVLWLYH GLVFULPLQDWLRQ FDQ EH H[SHFWHG WRJHQHUDWH VRPHLIQRWDOORI WKHVHSRVVLEOHEHQHILFLDODQGFRVWO\ FRQVHTXHQFHV WRDQH[WHQWWKDWGHSHQGVRQWKHVSHFLILFQDWXUHRIWKHSROLF\

DQGWKHFRQGLWLRQVXQGHUZKLFKLWLVDSSOLHG $IXOOEHQHILWFRVWDQDO\VLVRID 3' SROLF\ ZRXOG UHTXLUH QRW RQO\ DQ DVVHVVPHQW RI WKH PDJQLWXGH RI WKH YDULRXVFRQVHTXHQFHVHQVXLQJIURPWKHSROLF\ EXWDOVRGHWHUPLQDWLRQRIWKH ZD\LQZKLFK²DQGWKHH[WHQW WRZKLFK²HDFKFRQVHTXHQFHDIIHFWVRYHUDOO VRFLHWDOZHOOEHLQJ $FULWLFDOVWHSLQWKLVNLQGRIDQDO\VLVLVWKHVSHFLILFDWLRQRI WKHSDUWLFXODUVRFLHWDOJRDOVWRZKLFKHDFKEHQHILFLDOFRQVHTXHQFHFRQWULEXWHV SRVLWLYHO\DQGWRZKLFKHDFKFRVWO\FRQVHTXHQFHFRQWULEXWHVQHJDWLYHO\ ,Q FRQYHQWLRQDO EHQHILWFRVW DQDO\VLV VRFLHWDO ZHOOEHLQJ LV HTXDWHG ZLWK

WKH OHYHO RI VRFLHWDO ZHDOWK DOO EHQHILWV DQG FRVWV DUHPHDVXUHG LQ WHUPV RI WKHLUPRQH\YDOXH DQG WKHUH LVD VLQJOH LPSOLFLW VRFLHWDOJRDO ²HIILFLHQF\ LQ JHQHUDWLQJVRFLHWDOZHDOWK 0\GLVFXVVLRQLQWKLVFKDSWHURIWKHDUJXPHQWVDQG FODLPV IRUDQGDJDLQVWSRVLWLYHGLVFULPLQDWLRQPDNHV LWFOHDU WKDW LQDVVHVVLQJ WKHEHQHILWVDQGFRVWVRI3'SROLFLHV ZHDUHGHDOLQJZLWKDYHU\EURDGVHWRI YDOXHG VRFLHWDO JRDOV 7KH IROORZLQJ IRXU JRDOV DSSHDU WR EH VXIILFLHQW WR HQFRPSDVVWKHNLQGVRIEHQHILWVDQGFRVWVWKDWSURSRQHQWVDQGRSSRQHQWVRI SRVLWLYHGLVFULPLQDWLRQKDYHLQPLQG

6RFLDOKDUPRQ\ LVHQKDQFHGZKHQGLIIHUHQWJURXSVLQDPXOWLFXOWXUDOVRFLHW\ DFFHSW DQG UHVSHFW RQH DQRWKHU DQG ZKHQ SUHYLRXVO\ PDUJLQDOL]HG JURXSVDUHZHOFRPHGLQWRWKHPDLQVWUHDPRIWKHVRFLHW\

'HPRFUDF\ LVIRUWLILHGZKHQDGHPRFUDWLFSROLWLFDOV\VWHPLVVWDEOHDQGLWV OHDGHUVKLSLVSHUFHLYHGDVOHJLWLPDWH ZKHQWKHLQVWLWXWLRQVWKDWPDNH XS FLYLF VRFLHW\ DUH VWURQJ DQG ZKHQ SHRSOH DUH HPSRZHUHG WR SDUWLFLSDWHFRQVWUXFWLYHO\LQGHPRFUDWLFSURFHVVHV

3URGXFWLYH HIILFLHQF\ LV LPSURYHG ZKHQ VRFLHW\·V UHVRXUFHV DUH DOORFDWHG DQGXVHGPRUHHIILFLHQWO\LH OHVVZDVWHIXOO\ LQWKHSURGXFWLRQDQG XWLOL]DWLRQRIJRRGVDQGVHUYLFHV VRWKDWPRUHQHWRXWSXW LVREWDLQ DEOHIURPWKHDYDLODEOHUHVRXUFHV

'LVWULEXWLYH HTXLW\ LV LQFUHDVHGZKHQ RSSRUWXQLWLHV UHVRXUFHV RU VHUYLFHV DUH UHGLVWULEXWHG IURP D JURXS WKDW LV UHODWLYHO\ZHOO RII WR D JURXS WKDW LV UHODWLYHO\ SRRUO\ RII ² HJ IURP ULFK WR SRRU RU IURP QRQ 85(*PHPEHUVWR85(*PHPEHUV

,Q 7DEOHV DQG IROORZLQJ HDFK SRVVLEOH EHQHILFLDO RU FRVWO\ FRQVH TXHQFH RI D 3' SROLF\ , LQGLFDWH WKH PDLQ VRFLHWDO JRDOV WR ZKLFK WKDW FRQVHTXHQFHFRQWULEXWHVSRVLWLYHO\RUQHJDWLYHO\ 7KHPXOWLSOLFLW\RIUHOHYDQWJRDOVPDNHVLWGLIILFXOWWRFDUU\RXWDFRPSUH

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

PDGHE\DIILUPDWLRQRIVRFLHW\·VFRPPLWPHQWWRUHGXFLQJWKHGLVDGYDQWDJHVRI 85(*PHPEHUV RU WKH YDOXH RI WKH FRQWULEXWLRQ WR GHPRFUDF\PDGH E\ VWUHQJWKHQLQJWKHOHJLWLPDF\RIVRFLHW\·VOHDGHUVKLS" $OWKRXJKDV\VWHPDWLFEHQHILWFRVWDQDO\VLVRIDQ\JLYHQ3'SROLF\LVVXUHO\

EH\RQGUHDFK DEHQHILWFRVWIUDPHZRUNRIDQDO\VLVFDQQRQHWKHOHVVEHKHOSIXO LQLOOXPLQDWLQJWKHFRQVHTXHQFHVRID3'SROLF\ )RURQHWKLQJ LWFDQJXLGH HPSLULFDOLQYHVWLJDWLRQRIWKHDFWXDOFRQVHTXHQFHVRIVSHFLILF3'SROLFLHVDQG WKHUHE\ VKHG OLJKW RQ WKH GHVLUDELOLW\ RI WKRVH SROLFLHV HYHQ LI LW GRHV QRW GHWHUPLQHSUHFLVHO\WKHH[WHQWWRZKLFKDJLYHQSROLF\JHQHUDWHVEHQHILWVDQG FRVWV ,Q3DUW,,RIWKHERRN,ZLOOSXUVXHVXFKDQHPSLULFDO LQYHVWLJDWLRQRI 86DQG,QGLDQ3'SROLFLHVLQWKHVSKHUHRIDGPLVVLRQVWRKLJKHUHGXFDWLRQDO LQVWLWXWLRQV $ EHQHILW²FRVW IUDPHZRUN DQDO\VLV FDQ DOVR JXLGH TXDOLWDWLYH DVVHVVPHQWRIWKHUHODWLYHPDJQLWXGHVRIWKHEHQHILWVDQGWKHFRVWVOLNHO\WREH JHQHUDWHG E\ GLIIHUHQW W\SHV RI 3' SROLFLHV FDUULHG RXW XQGHU GLIIHULQJ FLUFXPVWDQFHV 7KLVLVP\REMHFWLYHLQWKHUHPDLQGHURI3DUW, ,Q WKH IROORZLQJ WKUHHFKDSWHUV ,ZLOO VHHN WRDQDO\]HFRPSDUDWLYHO\KRZ

ZHOO3'SROLFLHVFDQEHH[SHFWHGWRZRUNLQWKH86DQGLQ,QGLD²JLYHQWKH YHU\GLIIHUHQWFRQWH[WVIRUSRVLWLYHGLVFULPLQDWLRQLQWKHWZRFRXQWULHV +RZ ZLOO,GHILQH´ ZRUNLQJZHOOµ LQYLHZRIWKHPXOWLSOLFLW\RIUHOHYDQWXQGHUO\LQJ JRDOV DQG WKH GLIILFXOWLHV RI PHDVXULQJ FRQWULEXWLRQV WR WKRVH JRDOV" , ZLOO FRQVLGHUD3'SROLF\WREHZRUNLQJZHOOLIVLJQLILFDQWO\PRUHRIWKHSRWHQWLDO EHQHILWVRI3'WKHFODLPV OLVWHG LQ7DEOH WKDQRI WKHSRWHQWLDO FRVWVRI 3'WKHFODLPVOLVWHGLQ7DEOHDUHUHDOL]HG ,ZLOOLQIHUWKDWWKLVLVWKHFDVH LIVLJQLILFDQWO\PRUHFODLPVRIEHQHILWVWKDQFODLPVRIFRVWVDUHYDOLGDWHG RULI² IRUWKHPRVWSDUW²FODLPVRIEHQHILWVDUHPRUHVWURQJO\YDOLGDWHGWKDQFODLPV RIFRVWV