6(&7,21

+HPRUUKDJLFDQG7KURPERWLF'LVHDVHV
287/,1(

&KDSWHU+HPRVWDVLV
&KDSWHU+HUHGLWDU\&ORWWLQJ)DFWRU'HILFLHQFLHV%OHHGLQJ
'LVRUGHUV
&KDSWHU9RQ:LOOHEUDQG'LVHDVH
&KDSWHU+HUHGLWDU\3UHGLVSRVLWLRQWR7KURPERVLV
&KDSWHU7KURPERWLF'LVRUGHUVLQ&KLOGUHQ
&KDSWHU3RVWQHRQDWDO9LWDPLQ.'HILFLHQF\
&KDSWHU/LYHU'LVHDVH
&KDSWHU$FTXLUHG,QKLELWRUVRI&RDJXODWLRQ
&KDSWHU'LVVHPLQDWHG,QWUDYDVFXODU&RDJXODWLRQ
&KDSWHU3ODWHOHWDQG%ORRG9HVVHO'LVRUGHUV
&+$37(5

+HPRVWDVLV
-3DXO6FRWW9HURQLFD+)ORRG/HVOLH-5DIILQL

+HPRVWDVLVLVWKHSURFHVVRIEORRGFORWWLQJLQDUHDVRIEORRGYHVVHOLQMXU\2YHU
WLPHWKHFORWLVO\VHGE\WKHILEULQRO\WLFV\VWHPDQGQRUPDOEORRGIORZLV
UHVWRUHG,IFORWWLQJLVLPSDLUHGKHPRUUKDJHRFFXUV,IFORWWLQJLVH[FHVVLYH
WKURPERWLFFRPSOLFDWLRQVHQVXH7KHKHPRVWDWLFUHVSRQVHQHHGVWREHUDSLGDQG
UHJXODWHGVXFKWKDWWUDXPDGRHVQRWWULJJHUDV\VWHPLFUHDFWLRQEXWPXVWLQLWLDWHD
UDSLGORFDOL]HGUHVSRQVH:KHQDSODWHOHWDGKHUHVWRDVLWHRIYDVFXODULQMXU\WKH
SODWHOHWVXUIDFHSURYLGHVDUHDFWLRQVXUIDFHZKHUHFORWWLQJIDFWRUVELQG7KH
DFWLYHHQ]\PHLVEURXJKWWRJHWKHUZLWKLWVVXEVWUDWHDQGDFDWDO\WLFFRIDFWRURQD
UHDFWLRQVXUIDFHDFFHOHUDWLQJUHDFWLRQUDWHVDQGSURYLGLQJDFWLYDWHGSURGXFWVIRU
UHDFWLRQZLWKFORWWLQJIDFWRUVIXUWKHUGRZQWKHFRDJXODWLRQFDVFDGH$FWLYH
FORWWLQJLVFRQWUROOHGE\QHJDWLYHIHHGEDFNORRSVWKDWLQKLELWWKHFORWWLQJSURFHVV
ZKHQWKHSURFRDJXODQWSURFHVVFRPHVLQFRQWDFWZLWKLQWDFWHQGRWKHOLXP7KH
PDLQFRPSRQHQWVRIWKHKHPRVWDWLFSURFHVVDUHWKHYHVVHOZDOOSODWHOHWV
FRDJXODWLRQSURWHLQVDQWLFRDJXODQWSURWHLQVDQGILEULQRO\WLFV\VWHP0RVW
FRPSRQHQWVRIKHPRVWDVLVDUHPXOWLIXQFWLRQDOILEULQRJHQVHUYHVDVWKHOLJDQG
EHWZHHQSODWHOHWVGXULQJSODWHOHWDJJUHJDWLRQDQGDOVRDVWKHVXEVWUDWHIRU
WKURPELQWKDWIRUPVWKHILEULQFORW3ODWHOHWVSURYLGHWKHUHDFWLRQVXUIDFHRQ
ZKLFKFORWWLQJUHDFWLRQVRFFXUIRUPWKHSOXJDWWKHVLWHRIYHVVHOLQMXU\DQG
FRQWUDFWWRFRQVWULFWDQGOLPLWFORWVL]H

7KH+HPRVWDWLF3URFHVV
7KHLQWDFWYDVFXODUHQGRWKHOLXPLVWKHSULPDU\EDUULHUDJDLQVWKHPRUUKDJH7KH
HQGRWKHOLDOFHOOVWKDWOLQHWKHYHVVHOZDOOQRUPDOO\LQKLELWFRDJXODWLRQDQG
SURYLGHDVPRRWKVXUIDFHWKDWSHUPLWVUDSLGEORRGIORZ
$IWHUYDVFXODULQMXU\YDVRFRQVWULFWLRQRFFXUVDQGIORZLQJEORRGFRPHVLQ
FRQWDFWZLWKWKHVXEHQGRWKHOLDOPDWUL[9RQ:LOOHEUDQGIDFWRU9:)FKDQJHV
FRQIRUPDWLRQDQGSURYLGHVWKHJOXHWRZKLFKWKHSODWHOHW9:)UHFHSWRUWKH
JO\FRSURWHLQ,EFRPSOH[ELQGVWHWKHULQJSODWHOHWVWRVLWHVRILQMXU\&RPSOH[
VLJQDOLQJRFFXUVIURPWKHRXWVLGHPHPEUDQHUHFHSWRUWRLQWUDFHOOXODUSDWKZD\V
DFWLYDWLQJWKHSODWHOHWVDQGWULJJHULQJVHFUHWLRQRIVWRUDJHJUDQXOHVFRQWDLQLQJ
DGHQRVLQHGLSKRVSKDWH$'3VHURWRQLQDQGVWRUHGSODVPDDQGSODWHOHW
PHPEUDQHSURWHLQV2QDFWLYDWLRQWKHSODWHOHWUHFHSWRUIRUILEULQRJHQ͠,,E͡LV
VZLWFKHGRQߡLQVLGHRXWߢVLJQDOLQJWRELQGILEULQRJHQDQGWULJJHUVWKH
DJJUHJDWLRQDQGUHFUXLWPHQWRIRWKHUSODWHOHWVWRIRUPWKHSODWHOHWSOXJ0XOWLSOH
SK\VLRORJLFDJRQLVWVFDQWULJJHUSODWHOHWDFWLYDWLRQDQGDJJUHJDWLRQLQFOXGLQJ
$'3FROODJHQWKURPELQDQGDUDFKLGRQLFDFLG$JJUHJDWLRQLQYROYHVWKH
LQWHUDFWLRQRIVSHFLILFUHFHSWRUVRQWKHSODWHOHWVXUIDFHZLWKSODVPDKHPRVWDWLF
SURWHLQVSULPDULO\ILEULQRJHQ
2QHRIWKHVXEHQGRWKHOLDOPDWUL[SURWHLQVWKDWLVH[SRVHGDIWHUYDVFXODULQMXU\
LVWLVVXHIDFWRU([SRVHGWLVVXHIDFWRUELQGVWRIDFWRU9,,DQGDFWLYDWHVWKH
FORWWLQJFDVFDGH)LJ7KHDFWLYDWHGFORWWLQJIDFWRUWKHQLQLWLDWHVWKH
DFWLYDWLRQRIWKHQH[WVHTXHQWLDOFORWWLQJIDFWRULQDV\VWHPDWLFPDQQHU2XU
XQGHUVWDQGLQJRIWKHVHTXHQFHRIVWHSVLQWKHFDVFDGHIROORZHGDVVLJQPHQWRIWKH
QXPHUDOVIRUWKHFORWWLQJIDFWRUVIRUWKHSDUWLFLSDQWSURWHLQVDQGWKXVWKH
VHTXHQFHVHHPVߡRXWRIQXPHULFDORUGHUߢ'XULQJWKHSURFHVVRISODWHOHW
DFWLYDWLRQLQWHUQDOL]HGSODWHOHWSKRVSKROLSLGVSULPDULO\SKRVSKDWLG\OVHULQH
EHFRPHH[WHUQDOL]HGDQGLQWHUDFWDWVSHFLILFUDWHOLPLWLQJVWHSVLQWKHFORWWLQJ
SURFHVVߚWKRVHLQYROYLQJWKHFRIDFWRUVIDFWRU9,,,;DVHFRPSOH[DQGIDFWRU9
SURWKURPELQDVHFRPSOH[%RWKWKHVHUHDFWLRQVDUHORFDOL]HGWRWKHSODWHOHW
VXUIDFHDQGEULQJWRJHWKHUWKHDFWLYHHQ]\PHDQDFWLYDWHGFRIDFWRUDQGWKH
]\PRJHQWKDWZLOOIRUPWKHQH[WDFWLYHHQ]\PHLQWKHFDVFDGH7KLVVHTXHQFH
UHVXOWVLQDPSOLILFDWLRQRIWKHSURFHVVZKLFKVXSSOLHVDEXUVWRIFORWWLQJZKHUHLW
LVSK\VLRORJLFDOO\QHHGHG,QYLYRDXWRFDWDO\VLVRIIDFWRU9,,JHQHUDWHVVPDOO
DPRXQWVRI9,,DFRQWLQXRXVO\VRWKHV\VWHPLVDOZD\VSRLVHGWRDFW1HDUWKH
ERWWRPRIWKHFDVFDGHWKHPXOWLSRWHQWHQ]\PHWKURPELQLVIRUPHG7KURPELQ
FRQYHUWVILEULQRJHQLQWRILEULQDFWLYDWHVIDFWRUV99,,,DQG;,DQGDJJUHJDWHV
SODWHOHWV$FWLYDWLRQRIIDFWRU;,E\WKURPELQDPSOLILHVIXUWKHUWKURPELQ
JHQHUDWLRQDQGFRQWULEXWHVWRLQKLELWLRQRIILEULQRO\VLV7KURPELQDOVRDFWLYDWHV
IDFWRU;,,,7KHVWDEOHILEULQSODWHOHWSOXJLVXOWLPDWHO\IRUPHGWKURXJKFORW
UHWUDFWLRQDQGFURVVOLQNLQJRIWKHILEULQFORWE\IDFWRU;,,,D
 
),* 7KHFORWWLQJFDVFDGHZLWKVHTXHQWLDODFWLYDWLRQDQGDPSOLILFDWLRQRIFORW
IRUPDWLRQ0DQ\RIWKHIDFWRUV)DUHDFWLYDWHGE\WKHFORWWLQJIDFWRUVVKRZQDERYH
WKHPLQWKHFDVFDGH7KHDFWLYDWHGIDFWRUVDUHGHVLJQDWHGE\WKHDGGLWLRQRIDQD2Q
WKHULJKWVLGHWKHPDMRUDQWLFRDJXODQWVDQGWKHVLWHVWKDWWKH\UHJXODWHDUHVKRZQ
WLVVXHIDFWRUSDWKZD\LQKLELWRU7)3,UHJXODWHVWLVVXHIDFWRU7)IDFWRU9,,DSURWHLQ&
DQGSURWHLQ63&6UHJXODWHIDFWRUV9,,,DQG9DQGDQWLWKURPELQ,,,$7,,,UHJXODWHV
IDFWRU;DDQGWKURPELQIDFWRU,,D7KHGRWWHGOLQHVKRZVWKDWLQYLYR7)DQGIDFWRU
9,,DDFWLYDWHERWKIDFWRUV,;DQG;EXWWKDWLQYLWURRQO\WKHDFWLYDWLRQRIIDFWRU;LV
PHDVXUHG8QDFWLYDWHGIDFWRU9,,,ZKHQERXQGWRLWVFDUULHUSURWHLQYRQ:LOOHEUDQG
IDFWRULVSURWHFWHGIURPSURWHLQ&LQDFWLYDWLRQ:KHQWKURPELQRUIDFWRU;DDFWLYDWHV
IDFWRU9,,,LWEHFRPHVXQERXQGIURPYRQ:LOOHEUDQGIDFWRUDWZKLFKSRLQWLWFDQ
SDUWLFLSDWHZLWKIDFWRU,;DLQWKHDFWLYDWLRQRIIDFWRU;LQWKHSUHVHQFHRISKRVSKROLSLG
3/DQG&DWKHߡWHQDVHߢFRPSOH[)DFWRU;,,,DFURVVOLQNVWKHILEULQFORWDQGWKHUHE\
PDNHVLWPRUHVWDEOH3UHNDOOLNUHLQKLJKPROHFXODUZHLJKWNLQLQRJHQ+0:.DQG
IDFWRU;,,DUHVKRZQLQEOXHEHFDXVHWKH\GRQRWKDYHDSK\VLRORJLFUROHLQFRDJXODWLRQ
DOWKRXJKWKH\FRQWULEXWHWRWKHFORWWLQJWLPHLQSDUWLDOWKURPERSODVWLQWLPH377

9LUWXDOO\DOOSURFRDJXODQWSURWHLQVDUHEDODQFHGE\DQWLFRDJXODQWSURWHLQVWKDW
UHJXODWHRULQKLELWSURFRDJXODQWIXQFWLRQ)RXUFOLQLFDOO\LPSRUWDQWQDWXUDOO\
RFFXUULQJDQWLFRDJXODQWVUHJXODWHWKHH[WHQVLRQRIWKHFORWWLQJSURFHVV
DQWLWKURPELQ,,,$7,,,SURWHLQ&SURWHLQ6DQGWLVVXHIDFWRUSDWKZD\
LQKLELWRU7)3,$7,,,LVDVHULQHSURWHDVHLQKLELWRUWKDWUHJXODWHVSULPDULO\
IDFWRU;DDQGWKURPELQDQGWRDOHVVHUH[WHQWIDFWRUV,;D;,DDQG;,,D:KHQ
WKURPELQLQIORZLQJEORRGHQFRXQWHUVLQWDFWHQGRWKHOLXPWKURPELQELQGVWR
WKURPERPRGXOLQLWVHQGRWKHOLDOUHFHSWRU7KHWKURPELQWKURPERPRGXOLQ
FRPSOH[WKHQFRQYHUWVSURWHLQ&LQWRDFWLYDWHGSURWHLQ&,QWKHSUHVHQFHRIWKH
FRIDFWRUSURWHLQ6DFWLYDWHGSURWHLQ&SURWHRO\]HVDQGLQDFWLYDWHVIDFWRU9DDQG
IDFWRU9,,,D,QDFWLYDWHGIDFWRU9DLVDIXQFWLRQDODQWLFRDJXODQWWKDWLQKLELWV
FORWWLQJ7)3,OLPLWVDFWLYDWLRQRIIDFWRU;E\IDFWRU9,,DDQGWLVVXHIDFWRUDQG
VKLIWVWKHDFWLYDWLRQVLWHRIWLVVXHIDFWRUDQGIDFWRU9,,DWRWKDWRIIDFWRU,;)LJ


),* 7KHKHPRVWDWLFPHFKDQLVP$'3$GHQRVLQHGLSKRVSKDWH*$*V
JO\FRVDPLQRJO\FDQV12QLWULFR[LGH3*,SURVWDF\FOLQSURVWDJODQGLQ,3$,
SODVPLQRJHQDFWLYDWRULQKLELWRU7$),WKURPELQDFWLYDWHGILEULQRO\WLFLQKLELWRU7;$
WKURPER[DQH$9:)YRQ:LOOHEUDQGIDFWRU

2QFHDVWDEOHILEULQSODWHOHWSOXJLVIRUPHGWKHILEULQRO\WLFV\VWHPOLPLWVLWV
H[WHQVLRQDQGDOVRO\VHVWKHFORWILEULQRO\VLVWRUHHVWDEOLVKYDVFXODULQWHJULW\
3ODVPLQJHQHUDWHGIURPSODVPLQRJHQE\HLWKHUXURNLQDVHOLNHRUWLVVXHW\SH
SODVPLQRJHQDFWLYDWRUGHJUDGHVWKHILEULQFORW,QWKHSURFHVVRIGLVVROYLQJWKH
ILEULQFORWILEULQGHJUDGDWLRQSURGXFWVDUHSURGXFHG7KHILEULQRO\WLFSDWKZD\LV
UHJXODWHGE\SODVPLQRJHQDFWLYDWRULQKLELWRUVDQG͠DQWLSODVPLQDVZHOODVE\
WKHWKURPELQDFWLYDWDEOHILEULQRO\VLVLQKLELWRU)LQDOO\WKHIORZRIEORRGLQDQG
DURXQGWKHFORWLVFUXFLDOEHFDXVHIORZLQJEORRGUHWXUQVWRWKHOLYHUZKHUH
DFWLYDWHGFORWWLQJIDFWRUFRPSOH[HVDUHUHPRYHGDQGQHZSURFRDJXODQWDQG
DQWLFRDJXODQWSURWHLQVDUHV\QWKHVL]HGWRPDLQWDLQKRPHRVWDVLVRIWKHKHPRVWDWLF
V\VWHP
3DWKRORJ\
&RQJHQLWDOGHILFLHQF\RIDQLQGLYLGXDOSURFRDJXODQWSURWHLQOHDGVWRDEOHHGLQJ
GLVRUGHUZKHUHDVGHILFLHQF\RIDQDQWLFRDJXODQWFORWWLQJIDFWRULQKLELWRU
SUHGLVSRVHVWKHSDWLHQWWRWKURPERVLV,QDFTXLUHGKHPRVWDWLFGLVRUGHUVWKHUHDUH
IUHTXHQWO\PXOWLSOHSUREOHPVZLWKKRPHRVWDVLVWKDWSHUWXUEDQGG\VUHJXODWH
KHPRVWDVLV$SULPDU\LOOQHVVVHSVLVDQGLWVVHFRQGDU\HIIHFWVVKRFNDQG
DFLGRVLVDFWLYDWHFRDJXODWLRQDQGILEULQRO\VLVDQGLPSDLUWKHKRVW
VDELOLW\WR
UHVWRUHQRUPDOKHPRVWDWLFIXQFWLRQ:KHQVHSVLVWULJJHUVGLVVHPLQDWHG
LQWUDYDVFXODUFRDJXODWLRQSODWHOHWVSURFRDJXODQWFORWWLQJIDFWRUVDQG
DQWLFRDJXODQWSURWHLQVDUHFRQVXPHGOHDYLQJWKHKHPRVWDWLFV\VWHPXQEDODQFHG
DQGSURQHWREOHHGLQJRUFORWWLQJ6LPLODUO\QHZERUQLQIDQWVDQGSDWLHQWVZLWK
VHYHUHOLYHUGLVHDVHKDYHV\QWKHWLFGHILFLHQFLHVRIERWKSURFRDJXODQWDQG
DQWLFRDJXODQWSURWHLQV6XFKG\VUHJXODWLRQFDXVHVWKHSDWLHQWWREHSUHGLVSRVHG
WRERWKKHPRUUKDJHDQGWKURPERVLVZLWKPLOGRUPRGHUDWHWULJJHUVWKDWUHVXOWLQ
PDMRUDOWHUDWLRQVLQWKHKHPRVWDWLFSURFHVV
,QWKHODERUDWRU\HYDOXDWLRQRIKHPRVWDVLVSDUDPHWHUVDUHPDQLSXODWHGWR
DOORZDVVHVVPHQWRILVRODWHGDVSHFWVRIKHPRVWDVLVDQGOLPLWWKH
PXOWLIXQFWLRQDOLW\RIVRPHRILWVFRPSRQHQWV7KHFRDJXODWLRQSURFHVVLVVWXGLHG
LQSODVPDDQWLFRDJXODWHGZLWKFLWUDWHWRELQGFDOFLXPZLWKDGGHGSKRVSKROLSLG
WRPLPLFWKHUHDFWLRQVXUIDFHQRUPDOO\SURYLGHGE\WKHSODWHOHWPHPEUDQHDQG
ZLWKDVWLPXOXVWRWULJJHUFORWWLQJ&DOFLXPLVDGGHGWRUHVWDUWWKHFORWWLQJ
SURFHVV7KLVUHVXOWVLQDQRPDOLHVVXFKWKDWWKHLQYLYRSK\VLRORJLFSDWKZD\RI
FORWWLQJLQZKLFKIDFWRU9,,DDFWLYDWHVIDFWRU,;LVE\SDVVHGLQVWHDGLQ
SURWKURPELQWLPH37IDFWRU9,,DDFWLYDWHVIDFWRU;,IWKLVZHUHWUXO\WKH
SK\VLRORJLFVLWXDWLRQWKHUHZRXOGEHDQLQYLYRE\SDVVPHFKDQLVPWKDWZRXOG
DPHOLRUDWHVHYHUHIDFWRU9,,,DQGIDFWRU,;GHILFLHQFLHVWKHPRVWFRPPRQ
VHYHUHEOHHGLQJGLVRUGHUV


&OLQLFDODQG/DERUDWRU\(YDOXDWLRQ
RI+HPRVWDVLV
-3DXO6FRWW9HURQLFD+)ORRG/HVOLH-5DIILQL

.H\ZRUGV
FRDJXODWLRQIDFWRU
ODERUDWRU\WHVWLQJ
37
377
SODWHOHWDJJUHJDWLRQ
WKURPELQWLPH
UHSWLODVHWLPH
YRQ:LOOHEUDQGGLVHDVH

&OLQLFDO+LVWRU\
)RUPRVWKHPRVWDWLFGLVRUGHUVWKHFOLQLFDOKLVWRU\SURYLGHVWKHPRVWXVHIXO
LQIRUPDWLRQ7RHYDOXDWHIRUDEOHHGLQJGLVRUGHUWKHKLVWRU\VKRXOGGHWHUPLQH
WKHVLWHRUVLWHVRIEOHHGLQJWKHVHYHULW\DQGGXUDWLRQRIKHPRUUKDJHDQGWKHDJH
DWRQVHW:DVWKHEOHHGLQJVSRQWDQHRXVRUGLGLWRFFXUDIWHUWUDXPD":DVWKHUHD
SUHYLRXVSHUVRQDORUIDPLO\KLVWRU\RIVLPLODUSUREOHPV"'LGWKHV\PSWRPV
FRUUHODWHZLWKWKHGHJUHHRILQMXU\RUWUDXPD"'RHVEUXLVLQJRFFXU
VSRQWDQHRXVO\"$UHWKHUHOXPSVZLWKEUXLVHVIRUZKLFKWKHUHLVPLQLPDOWUDXPD"
,IWKHSDWLHQWKDGSUHYLRXVVXUJHU\RUVLJQLILFDQWGHQWDOSURFHGXUHVZDVWKHUH
DQ\LQFUHDVHGEOHHGLQJ",IDFKLOGRUDGROHVFHQWKDVKDGVXUJHU\WKDWDIIHFWVWKH
PXFRVDOVXUIDFHVVXFKDVDWRQVLOOHFWRP\RUPDMRUGHQWDOH[WUDFWLRQVWKH
DEVHQFHRIEOHHGLQJXVXDOO\UXOHVRXWDKHUHGLWDU\EOHHGLQJGLVRUGHU'HOD\HGRU
VORZKHDOLQJRIVXSHUILFLDOLQMXULHVPD\VXJJHVWDKHUHGLWDU\EOHHGLQJGLVRUGHU
,QSRVWSXEHUWDOIHPDOHVLWLVLPSRUWDQWWRWDNHDFDUHIXOPHQVWUXDOKLVWRU\
%HFDXVHVRPHFRPPRQEOHHGLQJGLVRUGHUVVXFKDVYRQ:LOOHEUDQGGLVHDVH
9:'KDYHDIDLUO\KLJKSUHYDOHQFHPRWKHUVDQGIDPLO\PHPEHUVPD\KDYH
WKHVDPHPLOGEOHHGLQJGLVRUGHUDQGPD\QRWEHFRJQL]DQWWKDWWKHFKLOG
V
PHQVWUXDOKLVWRU\LVDEQRUPDO:RPHQZLWKPLOG9:'ZKRKDYHDPRGHUDWH
KLVWRU\RIEUXLVLQJIUHTXHQWO\KDYHDUHGXFWLRQLQV\PSWRPVGXULQJSUHJQDQF\RU
DIWHUDGPLQLVWUDWLRQRIRUDOFRQWUDFHSWLYHV6RPHPHGLFDWLRQVVXFKDVDVSLULQ
DQGRWKHUQRQVWHURLGDODQWLLQIODPPDWRU\GUXJV16$,'VLQKLELWSODWHOHW
IXQFWLRQDQGLQFUHDVHEOHHGLQJV\PSWRPVLQSDWLHQWVZLWKDORZSODWHOHWFRXQWRU
DEQRUPDOKHPRVWDVLV6WDQGDUGL]HGEOHHGLQJVFRUHVKDYHEHHQGHYHORSHGDQGDUH
XQGHUJRLQJLQYHVWLJDWLRQIRUWKHLUVHQVLWLYLW\DQGVSHFLILFLW\LQFKLOGUHQ
2XWVLGHWKHQHRQDWDOSHULRGWKURPERWLFGLVRUGHUVDUHUHODWLYHO\UDUHXQWLO
DGXOWKRRG,QWKHQHRQDWHSK\VLRORJLFGHILFLHQFLHVRISURFRDJXODQWVDQG
DQWLFRDJXODQWVSODFHWKHKHPRVWDWLFPHFKDQLVPDWJUHDWHUULVNIRULPEDODQFHDQG
FOLQLFDOHYHQWVFDQOHDGWRHLWKHUKHPRUUKDJHRUWKURPERVLV,IDFKLOGRUWHHQDJHU
SUHVHQWVZLWKGHHSYHLQWKURPERVLV'97RUSXOPRQDU\HPEROLVP3(D
GHWDLOHGIDPLO\KLVWRU\PXVWEHREWDLQHGWRHYDOXDWHIRU'973(P\RFDUGLDO
LQIDUFWLRQ0,RUFHUHEURYDVFXODUDFFLGHQWVWURNHLQRWKHUIDPLO\PHPEHUV
7KHSUHVHQFHRIWKURPERVLVHVSHFLDOO\LQWKHDEVHQFHRIDSURYRNLQJDJHQWLQ
WKHFKLOGRUWHHQDJHUVKRXOGLQGXFHWKHFOLQLFLDQWRWDNHDFDUHIXOIDPLO\KLVWRU\
DQGFRQVLGHUDWLRQRIHYDOXDWLRQIRUDKHUHGLWDU\RUDFTXLUHGSUHGLVSRVLWLRQWR
WKURPERVLV

3K\VLFDO([DPLQDWLRQ
7KHSK\VLFDOH[DPLQDWLRQVKRXOGIRFXVRQZKHWKHUEOHHGLQJV\PSWRPVDUH
DVVRFLDWHGSULPDULO\ZLWKWKHPXFRXVPHPEUDQHVRUVNLQPXFRFXWDQHRXV
EOHHGLQJRUZLWKWKHPXVFOHVDQGMRLQWVGHHSEOHHGLQJ7KHH[DPLQDWLRQ
VKRXOGGHWHUPLQHWKHSUHVHQFHRISHWHFKLDHHFFK\PRVHVKHPDWRPDV
KHPDUWKURVHVRUPXFRXVPHPEUDQHEOHHGLQJ3DWLHQWVZLWKGHIHFWVLQSODWHOHWߙ
EORRGYHVVHOZDOOLQWHUDFWLRQ9:'RUSODWHOHWIXQFWLRQGHIHFWVXVXDOO\KDYH
PXFRFXWDQHRXVEOHHGLQJZKLFKPD\LQFOXGHHSLVWD[LVPHQRUUKDJLDSHWHFKLDH
HFFK\PRVHVRFFDVLRQDOKHPDWRPDVDQGOHVVIUHTXHQWO\KHPDWXULDDQG
JDVWURLQWHVWLQDOEOHHGLQJ,QGLYLGXDOVZLWKDFORWWLQJGHILFLHQF\RIIDFWRU9,,,RU
,;KHPRSKLOLD$RU%KDYHV\PSWRPVRIGHHSEOHHGLQJLQWRPXVFOHVDQGMRLQWV
ZLWKPXFKPRUHH[WHQVLYHHFFK\PRVHVDQGKHPDWRPDIRUPDWLRQ3DWLHQWVZLWK
PLOG9:'RURWKHUPLOGEOHHGLQJGLVRUGHUVPD\KDYHQRDEQRUPDOILQGLQJVRQ
SK\VLFDOH[DPLQDWLRQ,QGLYLGXDOVZLWKGLVRUGHUVRIWKHFROODJHQPDWUL[DQG
YHVVHOZDOOPD\KDYHORRVHMRLQWVDQGOD[VNLQDVVRFLDWHGZLWKHDV\EUXLVLQJ
(KOHUV'DQORVV\QGURPH
3DWLHQWVXQGHUJRLQJHYDOXDWLRQIRUWKURPERWLFGLVRUGHUVVKRXOGEHDVNHGDERXW
VZROOHQZDUPWHQGHUH[WUHPLWLHVYHQRXVWKURPERVLVXQH[SODLQHGG\VSQHDRU
SHUVLVWHQWߡSQHXPRQLDߢHVSHFLDOO\LQWKHDEVHQFHRIIHYHU3(DQGYDULFRVLWLHV
DQGSRVWSKOHELWLFFKDQJHV$UWHULDOWKURPELXVXDOO\FDXVHDQDFXWHGUDPDWLF
LPSDLUPHQWRIRUJDQIXQFWLRQVXFKDVVWURNH0,RUDSDLQIXOZKLWHFROG
H[WUHPLW\

/DERUDWRU\7HVWV
,QSDWLHQWVZKRKDYHDSRVLWLYHEOHHGLQJKLVWRU\RUZKRDUHDFWLYHO\
KHPRUUKDJLQJDSODWHOHWFRXQW37DQGSDUWLDOWKURPERSODVWLQWLPH377VKRXOG
EHSHUIRUPHGDVVFUHHQLQJWHVWV,QLQGLYLGXDOVZLWKDEQRUPDOVFUHHQLQJWHVWV
IXUWKHUHYDOXDWLRQVKRXOGEHEDVHGRQWKRVHUHVXOWV,QDSDWLHQWZLWKDQDEQRUPDO
EOHHGLQJKLVWRU\DQGDSRVLWLYHIDPLO\KLVWRU\QRUPDOVFUHHQLQJWHVWVVKRXOGQRW
SUHFOXGHIXUWKHUODERUDWRU\HYDOXDWLRQZKLFKPD\LQFOXGHDWKURPELQWLPH
9:)WHVWLQJDQGSODWHOHWIXQFWLRQVWXGLHV+LVWRULFDOO\EOHHGLQJWLPHDQG
SODWHOHWIXQFWLRQDQDO\VLV3)$KDYHEHHQXVHGDVVFUHHQLQJWHVWVEXW
QHLWKHUKDVSURYHGWREHXVHIXOLQGLDJQRVLVRIPLOGEOHHGLQJGLVRUGHUV
7KHUHDUHQRXVHIXOURXWLQHVFUHHQLQJWHVWVIRUKHUHGLWDU\WKURPERWLF
GLVRUGHUV,IWKHIDPLO\KLVWRU\LVSRVLWLYHRUFOLQLFDOWKURPERVLVLVXQH[SODLQHG
VSHFLILFWKURPERSKLOLDDVVD\VVKRXOGEHSHUIRUPHG7KURPERVLVLVUDUHLQ
FKLOGUHQDQGZKHQLWLVSUHVHQWWKHSRVVLELOLW\RIDKHUHGLWDU\SUHGLVSRVLWLRQ
VKRXOGEHFRQVLGHUHGVHH&KDSWHU

3ODWHOHW&RXQW
3ODWHOHWFRXQWLVHVVHQWLDOLQWKHHYDOXDWLRQRIWKHFKLOGZLWKDSRVLWLYHEOHHGLQJ
KLVWRU\EHFDXVHWKURPERF\WRSHQLDLVWKHPRVWFRPPRQDFTXLUHGFDXVHRID
EOHHGLQJGLDWKHVLVLQFKLOGUHQ3DWLHQWVZLWKDSODWHOHWFRXQWRI!—/
UDUHO\KDYHVLJQLILFDQWFOLQLFDOEOHHGLQJ7KURPERF\WRVLVLQFKLOGUHQLVXVXDOO\
UHDFWLYHDQGLVQRWDVVRFLDWHGZLWKEOHHGLQJRUWKURPERWLFFRPSOLFDWLRQV
3HUVLVWHQWVHYHUHWKURPERF\WRVLVLQWKHDEVHQFHRIDQXQGHUO\LQJLOOQHVVPD\
UHTXLUHHYDOXDWLRQIRUWKHYHU\UDUHSHGLDWULFSUHVHQWDWLRQRIHVVHQWLDO
WKURPERF\WKHPLDRUSRO\F\WKHPLDYHUD

3URWKURPELQ7LPHDQG$FWLYDWHG3DUWLDO
7KURPERSODVWLQ7LPH
%HFDXVHFORWWLQJFRDJXODWLRQIDFWRUVZHUHQDPHGLQWKHRUGHURIGLVFRYHU\
WKH\GRQRWQHFHVVDULO\UHIOHFWWKHVHTXHQWLDORUGHURIDFWLYDWLRQ7DEOHV
DQG,QIDFWIDFWRUV,,,,9DQG9,ZHUHQRWVXEVHTXHQWO\IRXQGWREH
LQGHSHQGHQWSURWHLQVWKXVWKHVHWHUPVDUHQRORQJHUXVHG2QO\IDFWRUVKDYH
FRPPRQO\XVHGQDPHVILEULQRJHQIDFWRU,DQGSURWKURPELQIDFWRU,,7KH
GXDOPHFKDQLVPVRIDFWLYDWLQJFORWWLQJKDYHEHHQWHUPHGWKHLQWULQVLFVXUIDFH
DFWLYDWLRQDQGH[WULQVLFWLVVXHIDFWRUߙPHGLDWHGSDWKZD\V6WXG\RIWKH
KHPRVWDWLFPHFKDQLVPLVIXUWKHUFRPSOLFDWHGLQWKDWWKHLQWHUDFWLRQVLQYLYRPD\
XVHGLIIHUHQWSDWKZD\VIURPWKRVHVWXGLHGLQFOLQLFDOODERUDWRU\WHVWLQJ37
PHDVXUHVWKHDFWLYDWLRQRIFORWWLQJE\WLVVXHIDFWRUWKURPERSODVWLQLQWKH
SUHVHQFHRIFDOFLXP$GGLWLRQRIWLVVXHIDFWRUFDXVHVDEXUVWRIIDFWRU9,,D
JHQHUDWLRQ7KHWLVVXHIDFWRUߙIDFWRU9,,DFRPSOH[DFWLYDWHVIDFWRU;:KHWKHU
IDFWRU;LVDFWLYDWHGE\WKHLQWULQVLFRUWKHH[WULQVLFSDWKZD\IDFWRU;DRQWKH
SODWHOHWSKRVSKROLSLGVXUIDFHFRPSOH[HVZLWKIDFWRU9DQGFDOFLXPWKH
ߡSURWKURPELQDVHߢFRPSOH[WRDFWLYDWHSURWKURPELQWRWKURPELQDOVRUHIHUUHGWR
DVIDFWRU,,D2QFHWKURPELQLVJHQHUDWHGILEULQRJHQLVFRQYHUWHGWRDILEULQ
FORWWKHHQGSRLQWRIWKHUHDFWLRQVHH)LJ37LVQRWSURORQJHGZLWK
GHILFLHQFLHVRIIDFWRUV9,,,,;;,DQG;,,,QPRVWODERUDWRULHVWKHQRUPDO37
YDOXHLVVHF37KDVEHHQVWDQGDUGL]HGXVLQJWKHLQWHUQDWLRQDOQRUPDOL]HG
UDWLR,15VRWKDWYDOXHVFDQEHFRPSDUHGIURPRQHODERUDWRU\RULQVWUXPHQWWR
DQRWKHU7KLVUDWLRLVXVHGWRGHWHUPLQHVLPLODUGHJUHHVRIDQWLFRDJXODWLRQZLWK
YLWDPLQ.DQWDJRQLVWVVXFKDVZDUIDULQ

7DEOH

&RDJXODWLRQ&ORWWLQJ)DFWRUV

&/277,1*
6<121<0 ',625'(5
)$&725
, )LEULQRJHQ &RQJHQLWDOGHILFLHQF\DILEULQRJHQHPLDRUG\VIXQFWLRQ
G\VILEULQRJHQHPLD
,, 3URWKURPELQ &RQJHQLWDOGHILFLHQF\RUG\VIXQFWLRQ
9 /DELOHIDFWRUSURDFFHOHULQ &RQJHQLWDOGHILFLHQF\SDUDKHPRSKLOLD
9,, 6WDEOHIDFWRURU &RQJHQLWDOGHILFLHQF\
SURFRQYHUWLQ
9,,, $QWLKHPRSKLOLFIDFWRU &RQJHQLWDOGHILFLHQF\LVKHPRSKLOLD$FODVVLFKHPRSKLOLD
,; &KULVWPDVIDFWRU &RQJHQLWDOGHILFLHQF\LVKHPRSKLOLD%VRPHWLPHVUHIHUUHGWRDV
&KULVWPDVGLVHDVH
; 6WXDUW3URZHUIDFWRU &RQJHQLWDOGHILFLHQF\
;, 3ODVPDWKURPERSODVWLQ &RQJHQLWDOGHILFLHQF\VRPHWLPHVUHIHUUHGWRDVKHPRSKLOLD&
DQWHFHGHQW
;,, +DJHPDQIDFWRU &RQJHQLWDOGHILFLHQF\LVQRWDVVRFLDWHGZLWKFOLQLFDOV\PSWRPV
;,,, )LEULQVWDELOL]LQJIDFWRU &RQJHQLWDOGHILFLHQF\
7DEOH
5HIHUHQFH9DOXHVIRU&RDJXODWLRQ7HVWVLQ+HDOWK\
&KLOGUHQ

:N
:N )8//
7(67 *(67$7,21 <U <U <U $'8/7
*(67$7,21 7(50
ߥ
6FUHHQLQJ7HVWV
3URWKURPELQWLPHVHF       
      
   
$FWLYDWHGSDUWLDO       
WKURPERSODVWLQWLPHVHF ߦh     
ߦ
3URFRDJXODQWV
)LEULQRJHQ       
ߦ h     
  
)DFWRU,,  ߦ     
ߦ ߦ ߦ ߦ 
)DFWRU9   h     
ߦ  ߦ ߦ 
)DFWRU9,,  ߦ     
ߦ ߦ ߦ ߦ 
)DFWRU9,,,SURFRDJXODQW       
    
9RQ:LOOHEUDQGIDFWRU       
    
)DFWRU,;  ߦh     
ߦ ߦ ߦ ߦ 
)DFWRU;  ߦ     
ߦ ߦ ߦ  
)DFWRU;,   
ߦ h     
ߦ ߦ  ߦ 
)DFWRU;,,  ߦh     
ߦ   ߦ 
3UHNDOOLNUHLQ  ߦ     
ߦ    
+LJKPROHFXODUZHLJKW  ߦ     
NLQLQRJHQ ߦ    
)DFWRU;,,,D__  ߦ     
ߦ    
)DFWRU;,,,E__ ߦ     
ߦ ߦ ߦ  
$QWLFRDJXODQWV
$QWLWKURPELQ,,,  ߦh     
ߦ    
3URWHLQ& ߦh     

 ߦ ߦ ߦ ߦ
3URWHLQ6

7RWDOXQLWVP/ ߦh    
ߦ    
)UHHXQLWVP/    
   
3ODVPLQRJHQXQLWVP/      
    
7LVVXHW\SHSODVPLQRJHQ      
DFWLYDWRUQJP/      
ߦ ߦ ߦ 
$QWLSODVPLQXQLWVP/      
    
3ODVPLQRJHQDFWLYDWRU      
LQKLELWRU, ߦ     
 ߦ ߦ 

$OOIDFWRUVH[FHSWILEULQRJHQDUHH[SUHVVHGDVXQLWVP/ILEULQRJHQLQPJP/LQZKLFKSRROHG
QRUPDOSODVPDFRQWDLQVXQLWP/$OOGDWDDUHH[SUHVVHGDVWKHPHDQIROORZHGE\WKHXSSHUDQG
ORZHUERXQGDULHVHQFRPSDVVLQJRIWKHQRUPDOSRSXODWLRQVKRZQLQSDUHQWKHVHV1RUPDO
UDQJHVDERYHYDU\EDVHGRQWKHUHDJHQWVDQGLQVWUXPHQWVXVHG
ߥ
/HYHOVIRUZNDQGZNJHVWDWLRQDUHIURPPXOWLSOHVRXUFHVDQGFDQQRWEHDQDO\]HG
VWDWLVWLFDOO\
ߦ9DOXHVDUHVLJQLILFDQWO\GLIIHUHQWIURPWKRVHRIDGXOWV

h
9DOXHVDUHVLJQLILFDQWO\GLIIHUHQWIURPWKRVHRIIXOOWHUPLQIDQWV
__
9DOXHJLYHQDV&7$&RPPLWWHHRQ7KURPERO\WLF$JHQWVXQLWVP/1RUPDOUDQJHVDERYHYDU\
EDVHGRQWKHUHDJHQWVDQGLQVWUXPHQWVXVHG
'DWDIURP$QGUHZ03DHV%-RKQVWRQ0'HYHORSPHQWRIWKHKHPRVWDWLFV\VWHPLQWKHQHRQDWH
DQG\RXQJLQIDQW$P-3HGLDWU+HPDWRO2QFRODQG$QGUHZ09HJK3-RKQVWRQ0
HWDO0DWXUDWLRQRIWKHKHPRVWDWLFV\VWHPGXULQJFKLOGKRRG%ORRG

3DUWLDO7KURPERSODVWLQ7LPH
7KHLQWULQVLFSDWKZD\LQYROYHVWKHLQLWLDODFWLYDWLRQRIIDFWRU;,,ZKLFKLV
DFFHOHUDWHGE\RWKHUSODVPDSURWHLQVSUHNDOOLNUHLQDQGKLJKPROHFXODUZHLJKW
NLQLQRJHQ,QWKHFOLQLFDOODERUDWRU\IDFWRU;,,LVDFWLYDWHGXVLQJDVXUIDFHVLOLFD
RUJODVVRUDFRQWDFWDFWLYDWRUVXFKDVHOODJLFDFLG)DFWRU;,,DLQWXUQDFWLYDWHV
IDFWRU;,WRIDFWRU;,DZKLFKWKHQFDWDO\]HVIDFWRU,;WRIDFWRU,;D2QWKH
SODWHOHWSKRVSKROLSLGVXUIDFHIDFWRU,;DFRPSOH[HVZLWKIDFWRU9,,,DQGFDOFLXP
WRDFWLYDWHIDFWRU;ߡWHQDVHߢFRPSOH[
7KLVSURFHVVLVDFFHOHUDWHGE\LQWHUDFWLRQZLWKSKRVSKROLSLGDQGFDOFLXPDW
WKHVWHSVLQYROYLQJIDFWRUV9DQG9,,,$QLVRODWHGGHILFLHQF\RIDVLQJOHFORWWLQJ
IDFWRUPD\UHVXOWLQLVRODWHGSURORQJDWLRQRI37377RUERWKGHSHQGLQJRQWKH
ORFDWLRQRIWKHIDFWRULQWKHFORWWLQJFDVFDGH7KLVDSSURDFKLVXVHIXOLQ
GHWHUPLQLQJKHUHGLWDU\FORWWLQJIDFWRUGHILFLHQFLHVKRZHYHULQDFTXLUHG
KHPRVWDWLFGLVRUGHUVHQFRXQWHUHGLQFOLQLFDOSUDFWLFHPRUHWKDQFORWWLQJIDFWRU
LVIUHTXHQWO\GHILFLHQWVRWKHUHODWLYHSURORQJDWLRQRI37DQG377PXVWEH
DVVHVVHG
0HDVXUHPHQWRI377DVSHUIRUPHGLQWKHFOLQLFDOODERUDWRU\LVDFWXDOO\
ߡDFWLYDWHGߢ377PRVWUHIHUWRLWDV3777KLVWHVWPHDVXUHVWKHLQLWLDWLRQRI
FORWWLQJDWWKHOHYHORIIDFWRU;,,WKURXJKVHTXHQWLDOVWHSVWRWKHILQDOFORWHQG
SRLQW,WGRHVQRWPHDVXUHIDFWRU9,,IDFWRU;,,,RUDQWLFRDJXODQWV377XVHVD
FRQWDFWDFWLYDWRUVLOLFDNDROLQRUHOODJLFDFLGLQWKHSUHVHQFHRIFDOFLXPDQG
SKRVSKROLSLG%HFDXVHRIGLIIHUHQFHVLQUHDJHQWVDQGODERUDWRU\LQVWUXPHQWVWKH
QRUPDOUDQJHIRU377YDULHVDPRQJKRVSLWDOODERUDWRULHV1RUPDOUDQJHVIRU
377KDYHPXFKPRUHLQWHUODERUDWRU\YDULDELOLW\WKDQWKRVHIRU37
7KXVWKHPHFKDQLVPVVWXGLHGE\37DQG377DOORZWKHHYDOXDWLRQRIFORWWLQJ
IDFWRUGHILFLHQFLHVHYHQWKRXJKWKHVHSDWKZD\VPD\QRWEHWKHVDPHDVWKRVH
RFFXUULQJSK\VLRORJLFDOO\,QYLYRIDFWRU9,,DDFWLYDWHVIDFWRUV,;DQG;EXWDV
URXWLQHO\VWXGLHGLQWKHFOLQLFDOODERUDWRU\WKHSDWKZD\WKURXJKZKLFKIDFWRU
9,,DDFWLYDWHVIDFWRU,;LVQRWHYDOXDWHG,IWKHWLVVXHIDFWRUߙIDFWRU9,,DFRPSOH[
DFWLYDWHGRQO\IDFWRU;LWZRXOGEHGLIILFXOWWRH[SODLQZK\WKHPRVWVHYHUH
EOHHGLQJGLVRUGHUVDUHGHILFLHQFLHVRIIDFWRU9,,,KHPRSKLOLD$DQGIDFWRU,;
KHPRSKLOLD%,QYLYRWKURPELQLVJHQHUDWHGDQGIHHGVEDFNWRDFWLYDWHIDFWRU
;,DQGDFFHOHUDWHWKHFORWWLQJSURFHVV7KH377FDQEHSURORQJHGE\GHILFLHQFLHV
RIIDFWRU;,,SUHNDOOLNUHLQDQGKLJKPROHFXODUZHLJKWNLQLQRJHQ\HWWKHVH
GHILFLHQFLHVGRQRWUHVXOWLQEOHHGLQJ

7KURPELQ7LPH
7KURPELQWLPH77PHDVXUHVWKHILQDOVWHSLQWKHFORWWLQJFDVFDGHLQZKLFK
ILEULQRJHQLVFRQYHUWHGWRILEULQ7KHQRUPDO77YDULHVEHWZHHQODERUDWRULHVEXW
LVXVXDOO\VHF3URORQJDWLRQRI77RFFXUVZLWKUHGXFHGILEULQRJHQOHYHOV
K\SRILEULQRJHQHPLDRUDILEULQRJHQHPLDZLWKG\VIXQFWLRQDOILEULQRJHQ
G\VILEULQRJHQHPLDRULQWKHSUHVHQFHRIVXEVWDQFHVWKDWLQWHUIHUHZLWKILEULQ
SRO\PHUL]DWLRQVXFKDVKHSDULQDQGILEULQVSOLWSURGXFWV,IKHSDULQ
FRQWDPLQDWLRQLVDSRWHQWLDOFDXVHRISURORQJHG77DUHSWLODVHWLPHLVXVXDOO\
RUGHUHG$OWHUQDWLYHO\KHSDULQDVHFDQEHDGGHGWRWKHVDPSOHDQG77UHSHDWHG

5HSWLODVH7LPH
5HSWLODVHWLPHXVHVVQDNHYHQRPWRFORWILEULQRJHQ8QOLNHWKURPELQWLPH
UHSWLODVHWLPHLVQRWVHQVLWLYHWRKHSDULQDQGLVSURORQJHGRQO\E\UHGXFHGRU
G\VIXQFWLRQDOILEULQRJHQDQGILEULQVSOLWSURGXFWV7KHUHIRUHLI77LVSURORQJHG
EXWUHSWLODVHWLPHLVQRUPDOWKHSURORQJHG77LVFDXVHGE\KHSDULQDQGGRHVQRW
LQGLFDWHWKHSUHVHQFHRIILEULQVSOLWSURGXFWVRUUHGXFHGFRQFHQWUDWLRQRUIXQFWLRQ
RIILEULQRJHQ

0L[LQJ6WXGLHV
,IWKHUHLVXQH[SODLQHGSURORQJDWLRQRI37RU377DPL[LQJVWXG\LVXVXDOO\
SHUIRUPHG1RUPDOSODVPDLVDGGHGWRWKHSDWLHQW
VSODVPDDQGWKH37RU377
UHSHDWHG&RUUHFWLRQRI37RU377E\PL[LQJZLWKQRUPDOSODVPDVXJJHVWV
GHILFLHQF\RIDFORWWLQJIDFWRUEHFDXVHDOHYHORILQGLYLGXDOFORWWLQJ
SURWHLQVLVVXIILFLHQWWRSURGXFHQRUPDO37RU377,IWKHFORWWLQJWLPHLVQRW
FRUUHFWHGRURQO\SDUWLDOO\FRUUHFWHGDQLQKLELWRULVXVXDOO\SUHVHQW$QLQKLELWRU
RIFORWWLQJPD\EHHLWKHUDFKHPLFDOVLPLODUWRKHSDULQWKDWGHOD\VFRDJXODWLRQRU
DQDQWLERG\GLUHFWHGDJDLQVWDVSHFLILFFORWWLQJIDFWRURUWKHSKRVSKROLSLGXVHGLQ
FORWWLQJWHVWV,QWKHLQSDWLHQWVHWWLQJWKHPRVWFRPPRQFDXVHRIDSURORQJHG
377LVKHSDULQFRQWDPLQDWLRQRIWKHVDPSOH7KHSUHVHQFHRIKHSDULQLQWKH
VDPSOHFDQEHUXOHGLQRURXWHLWKHUE\DGGLWLRQRIKHSDULQDVHWRWKHVDPSOHDQG
UHSHDWLQJWKH377,IWKHPL[LQJVWXG\LVQRWFRUUHFWHGRULILWVUHVXOWEHFRPHV
PRUHSURORQJHGDQGWKHSDWLHQWKDVFOLQLFDOEOHHGLQJDQLQKLELWRURIDVSHFLILF
FORWWLQJIDFWRUDQWLERG\GLUHFWHGDJDLQVWWKHIDFWRUPRVWRIWHQIDFWRU9,,,
IDFWRU,;RUIDFWRU;,PD\EHSUHVHQW,IWKHSDWLHQWKDVQREOHHGLQJV\PSWRPV
DQGERWK377DQGWKHPL[LQJVWXG\DUHSURORQJHGDOXSXVOLNHDQWLFRDJXODQW
VHH&KDSWHULVRIWHQSUHVHQW3DWLHQWVZLWKWKHVHILQGLQJVXVXDOO\KDYHD
ORQJ377GRQRWEOHHGDQGPD\KDYHDFOLQLFDOSUHGLVSRVLWLRQWRH[FHVVLYH
FORWWLQJ

3ODWHOHW$JJUHJDWLRQ
:KHQDTXDOLWDWLYHSODWHOHWIXQFWLRQGHIHFWLVVXVSHFWHGSODWHOHWDJJUHJDWLRQ
WHVWLQJLVXVXDOO\RUGHUHG3ODWHOHWULFKSODVPDIURPWKHSDWLHQWLVDFWLYDWHGZLWK
RIDVHULHVRIDJRQLVWV$'3HSLQHSKULQHFROODJHQWKURPELQRUWKURPELQ
UHFHSWRUSHSWLGHDQGULVWRFHWLQ6RPHSODWHOHWDJJUHJRPHWHUVPHDVXUHVSHFLILF
DGHQRVLQHWULSKRVSKDWHUHOHDVHIURPWKHSODWHOHWVDVPHDVXUHGE\WKHJHQHUDWLRQ
RIOXPLQHVFHQFHYLDOXPLDJJUHJRPHWU\DQGDUHPRUHVHQVLWLYHLQGHWHFWLQJ
DEQRUPDOLWLHVRIWKHSODWHOHWUHOHDVHUHDFWLRQIURPVWRUDJHJUDQXOHV5HSHDW
WHVWLQJRUWHVWLQJRIRWKHUV\PSWRPDWLFIDPLO\PHPEHUVFDQKHOSWRGHWHUPLQH
WKHKHUHGLWDU\QDWXUHRIWKHGHIHFW0DQ\PHGLFDWLRQVHVSHFLDOO\DVSLULQRWKHU
16$,'VDQGYDOSURLFDFLGDOWHUSODWHOHWIXQFWLRQWHVWLQJ)LJSURYLGHVDQ
DSSURDFKWRWKHGLIIHUHQWLDOGLDJQRVLVRIPDQ\FRPPRQEOHHGLQJGLVRUGHUVEDVHG
RQVFUHHQLQJWHVWV

7HVWLQJIRU7KURPERWLF3UHGLVSRVLWLRQ
+HUHGLWDU\SUHGLVSRVLWLRQWRWKURPERVLVLVDVVRFLDWHGZLWKDUHGXFWLRQRI
DQWLFRDJXODQWIXQFWLRQSURWHLQ&SURWHLQ6$7,,,WKHSUHVHQFHRIDIDFWRU9
PROHFXOHWKDWLVUHVLVWDQWWRLQDFWLYDWLRQE\SURWHLQ&IDFWRU9/HLGHQHOHYDWHG
OHYHOVRISURFRDJXODQWVDPXWDWLRQRIWKHSURWKURPELQJHQHRUDGHILFLHQF\RI
ILEULQRO\VLVSODVPLQRJHQGHILFLHQF\DQGWKHUDUHPHWDEROLFGLVHDVH
KRPRF\VWLQXULDVHH&KDSWHU

7HVWVRIWKH)LEULQRO\WLF6\VWHP
(XJOREXOLQFORWO\VLVWLPHLVDVFUHHQLQJWHVWXVHGLQVRPHODERUDWRULHVWRDVVHVV
ILEULQRO\VLV0RUHVSHFLILFWHVWVDUHDYDLODEOHLQPRVWODERUDWRULHVWRGHWHUPLQH
WKHOHYHOVRISODVPLQRJHQSODVPLQRJHQDFWLYDWRUDQGLQKLELWRUVRIILEULQRO\VLV
$QLQFUHDVHLQILEULQRO\VLVPD\EHDVVRFLDWHGZLWKKHPRUUKDJLFV\PSWRPVDQGD
GHOD\LQILEULQRO\VLVLVDVVRFLDWHGZLWKWKURPERVLV

'HYHORSPHQWDO+HPRVWDVLV
7KHQRUPDOQHZERUQLQIDQWKDVUHGXFHGOHYHOVRIPRVWSURFRDJXODQWVDQG
DQWLFRDJXODQWVVHH7DEOH,QJHQHUDOWKHUHLVDPRUHPDUNHGDEQRUPDOLW\
LQWKHSUHWHUPLQIDQW$OWKRXJKPDMRUGLIIHUHQFHVH[LVWLQWKHQRUPDOUDQJHVIRU
QHZERUQDQGSUHWHUPLQIDQWVWKHVHUDQJHVYDU\JUHDWO\DPRQJODERUDWRULHVEDVHG
RQWKHLQVWUXPHQWVDQGUHDJHQWVXVHG'XULQJJHVWDWLRQWKHUHLVSURJUHVVLYH
PDWXUDWLRQDQGLQFUHDVHRIWKHFORWWLQJIDFWRUVV\QWKHVL]HGE\WKHOLYHU7KH
H[WUHPHO\SUHPDWXUHLQIDQWKDVSURORQJHG37DQG377YDOXHVDVZHOODVD
PDUNHGUHGXFWLRQLQDQWLFRDJXODQWSURWHLQOHYHOVSURWHLQ&SURWHLQ6DQG$7
,,,/HYHOVRIILEULQRJHQIDFWRUV9DQG9,,,9:)DQGSODWHOHWVDUHQHDU
QRUPDOWKURXJKRXWWKHODWHUVWDJHVRIJHVWDWLRQVHH&KDSWHU%HFDXVH
SURWHLQ&DQGSURWHLQ6DUHSK\VLRORJLFDOO\UHGXFHGIDFWRUV9DQG9,,,ZKLFK
DUHSUHVHQWDWQRUPDOOHYHOVDWELUWKDUHQRWEDODQFHGZLWKWKHLUUHJXODWRU\
SURWHLQV,QFRQWUDVWWKHSK\VLRORJLFGHILFLHQF\RIYLWDPLQ.ߙGHSHQGHQW
SURFRDJXODQWSURWHLQVIDFWRUV,,9,,,;DQG;LVSDUWLDOO\EDODQFHGE\WKH
SK\VLRORJLFUHGXFWLRQRI$7,,,7KHQHWHIIHFWLVWKDWQHZERUQVHVSHFLDOO\
SUHPDWXUHLQIDQWVDUHDWLQFUHDVHGULVNIRUFRPSOLFDWLRQVRIEOHHGLQJFORWWLQJ
RUERWK

%LEOLRJUDSK\
%RHQGHU-.UXLS0-/HHEHHN):$GLDJQRVWLFDSSURDFKWR
PLOGEOHHGLQJGLVRUGHUV-7KURPE+DHPRVWߙ

%UDQFKIRUG%'L3DROD-$SSURDFKWRWKHFKLOGZLWKD
VXVSHFWHGEOHHGLQJGLVRUGHU2UNLQ6+)LVKHU'(*LQVEHUJ
'HWDO1DWKDQDQG2VNL
VKHPDWRORJ\RILQIDQF\DQG
FKLOGKRRGHG6DXQGHUV(OVHYLHU3KLODGHOSKLDߙ

&DQWRU$%+HPRVWDVLVLQWKHQHZERUQDQGLQIDQW1DWKDQDQG
2VNL
VKHPDWRORJ\RILQIDQF\DQGFKLOGKRRGHG6DXQGHUV
(OVHYLHU3KLODGHOSKLDߙ
-DIIUD\-<RXQJ*.R5+7KHEOHHGLQJQHZERUQDUHYLHZRI
SUHVHQWDWLRQGLDJQRVLVDQGPDQDJHPHQW6HPLQ)HWDO
1HRQDWDO0HGߙ
/HYL0YDQGHU3ROO7&RDJXODWLRQDQGVHSVLV7KURPE5HV
ߙ
+DUULVRQ37KHUROHRI3)$WHVWLQJLQWKHLQYHVWLJDWLRQDQG
PDQDJHPHQWRIKDHPRVWDWLFGHIHFWVLQFKLOGUHQDQGDGXOWV%U
-+DHPDWROߙ
/LSSL*)UDQFKLQL00RQWDJQDQD0HWDO&RDJXODWLRQWHVWLQJ
LQSHGLDWULFSDWLHQWVWKH\RXQJDUHQRWMXVWPLQLDWXUHDGXOWV
6HPLQ7KURPE+HPRVWߙ
0DQQ.*%UXPPHO=LHGHQV.%ORRGFRDJXODWLRQ1DWKDQ
DQG2VNL
VKHPDWRORJ\RILQIDQF\DQGFKLOGKRRGHG
6DXQGHUV(OVHYLHU3KLODGHOSKLDߙ
1HZPDQ'.1HZPDQ3-3ODWHOHWVDQGWKHYHVVHOZDOO1DWKDQ
DQG2VNL
VKHPDWRORJ\RILQIDQF\DQGFKLOGKRRGHG
6DXQGHUV(OVHYLHU3KLODGHOSKLDߙ
3DUPDU1$OELVHWWL0%HUU\/5HWDO7KHILEULQRO\WLFV\VWHP
LQQHZERUQVDQGFKLOGUHQ&OLQ/DEߙ
>HUUDWXP@
6D[RQKRXVH0$0DQFR-RKQVRQ0-7KHHYDOXDWLRQDQG
PDQDJHPHQWRIQHRQDWDOFRDJXODWLRQGLVRUGHUV6HPLQ
3HULQDWROߙ
7RPDLXOR0%UDVV/)6WDONHU7-5HJXODWLRQRISODWHOHW
DFWLYDWLRQDQGFRDJXODWLRQDQGLWVUROHLQYDVFXODULQMXU\DQG
DUWHULDOWKURPERVLV,QWHUY&DUGLRO&OLQߙ
9HUVWHHJ+++HHPVNHUN-:0/HYL0HWDO1HZ
IXQGDPHQWDOVLQKHPRVWDVLV3K\VLRO5HYߙ
&+$37(5

+HUHGLWDU\&ORWWLQJ)DFWRU
'HILFLHQFLHV%OHHGLQJ'LVRUGHUV
-3DXO6FRWW9HURQLFD+)ORRG

+HPRSKLOLD$IDFWRU9,,,GHILFLHQF\DQGKHPRSKLOLD%IDFWRU,;GHILFLHQF\

DUHWKHPRVWFRPPRQDQGVHULRXVFRQJHQLWDOFRDJXODWLRQIDFWRUGHILFLHQFLHV7KH
FOLQLFDOILQGLQJVLQKHPRSKLOLD$DQGKHPRSKLOLD%DUHYLUWXDOO\LGHQWLFDO
+HPRSKLOLD&LVWKHEOHHGLQJGLVRUGHUDVVRFLDWHGZLWKUHGXFHGOHYHOVRIIDFWRU
;,VHH&KDSWHU5HGXFHGOHYHOVRIWKHFRQWDFWIDFWRUVIDFWRU;,,KLJK
PROHFXODUZHLJKWNLQLQRJHQDQGSUHNDOOLNUHLQDUHDVVRFLDWHGZLWKVLJQLILFDQW
SURORQJDWLRQRIDFWLYDWHGSDUWLDOWKURPERSODVWLQWLPHD377DOVRUHIHUUHGWRDV
377EXWDUHQRWDVVRFLDWHGZLWKKHPRUUKDJHDVGLVFXVVHGLQ&KDSWHU
2WKHUOHVVFRPPRQFRDJXODWLRQIDFWRUGHILFLHQFLHVDUHEULHIO\GLVFXVVHGLQ
VXEVHTXHQWVXEFKDSWHUV


)DFWRU9,,,RU)DFWRU,;'HILFLHQF\
+HPRSKLOLD$RU%
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
 DUWKURSDWK\
KHPDUWKURVLV
KHPRSKLOLD
KHPRUUKDJH
LQKLELWRU
WDPSRQDGH
WDUJHWMRLQW

'HILFLHQFLHVRIIDFWRUV9,,,DQG,;DUHWKHPRVWFRPPRQVHYHUHLQKHULWHG
EOHHGLQJGLVRUGHUV

3DWKRSK\VLRORJ\
)DFWRUV9,,,DQG,;SDUWLFLSDWHLQDFRPSOH[UHTXLUHGIRUWKHDFWLYDWLRQRIIDFWRU
;7RJHWKHUZLWKSKRVSKROLSLGDQGFDOFLXPWKH\IRUPWKHߡWHQDVHߢRUIDFWRU;ߙ
DFWLYDWLQJFRPSOH[)LJLQ&KDSWHUVKRZVWKHFORWWLQJSURFHVVDVLW
RFFXUVLQWKHWHVWWXEHZLWKIDFWRU;EHLQJDFWLYDWHGE\HLWKHUWKHFRPSOH[RI
IDFWRUV9,,,DQG,;RUWKHFRPSOH[RIWLVVXHIDFWRUDQGIDFWRU9,,,QYLYRWKH
FRPSOH[RIIDFWRU9,,DDQGWLVVXHIDFWRUDFWLYDWHVIDFWRU,;WRLQLWLDWHFORWWLQJ,Q
WKHODERUDWRU\SURWKURPELQWLPH37PHDVXUHVWKHDFWLYDWLRQRIIDFWRU;E\
IDFWRU9,,DQGLVWKHUHIRUHQRUPDOLQSDWLHQWVZLWKIDFWRU9,,,RUIDFWRU,;
GHILFLHQF\
$IWHULQMXU\WKHLQLWLDOKHPRVWDWLFHYHQWLVIRUPDWLRQRIWKHSODWHOHWSOXJ
WRJHWKHUZLWKJHQHUDWLRQRIWKHILEULQFORWZKLFKSUHYHQWVIXUWKHUKHPRUUKDJH,Q
KHPRSKLOLD$DQG%FORWIRUPDWLRQLVGHOD\HGDQGLVQRWUREXVW,QDGHTXDWH
WKURPELQJHQHUDWLRQOHDGVWRIDLOXUHWRIRUPDWLJKWO\FURVVOLQNHGILEULQFORWWR
VXSSRUWWKHSODWHOHWSOXJ3DWLHQWVZLWKKHPRSKLOLDVORZO\IRUPDVRIWIULDEOH
FORW:KHQXQWUHDWHGEOHHGLQJRFFXUVLQDFORVHGVSDFHVXFKDVDMRLQWFHVVDWLRQ
RIEOHHGLQJPD\EHWKHUHVXOWRIWDPSRQDGH:LWKRSHQZRXQGVLQZKLFK
WDPSRQDGHFDQQRWRFFXUSURIXVHEOHHGLQJPD\UHVXOWLQVLJQLILFDQWEORRGORVV
7KHFORWWKDWLVIRUPHGPD\EHIULDEOHDQGUHEOHHGLQJRFFXUVGXULQJWKH
SK\VLRORJLFO\VLVRIFORWVRUZLWKPLQLPDOQHZWUDXPD

&OLQLFDO0DQLIHVWDWLRQV
1HLWKHUIDFWRU9,,,QRUIDFWRU,;FURVVHVWKHSODFHQWDEOHHGLQJV\PSWRPVPD\
EHSUHVHQWIURPELUWKRUPD\RFFXULQWKHIHWXV2QO\RIQHRQDWHVZLWK
KHPRSKLOLDVXVWDLQLQWUDFUDQLDOKHPRUUKDJHVDQGRIPDOHLQIDQWVZLWK
KHPRSKLOLDEOHHGZLWKFLUFXPFLVLRQ7KXVLQWKHDEVHQFHRIDSRVLWLYHIDPLO\
KLVWRU\RIKHPRSKLOLD$RFFXUVE\VSRQWDQHRXVPXWDWLRQKHPRSKLOLDPD\
JRXQGLDJQRVHGLQWKHQHZERUQ2EYLRXVV\PSWRPVVXFKDVHDV\EUXLVLQJ
LQWUDPXVFXODUKHPDWRPDVDQGKHPDUWKURVHVEHJLQZKHQWKHFKLOGVWDUWVWR
FUXLVH%OHHGLQJIURPPLQRUWUDXPDWLFODFHUDWLRQVRIWKHPRXWKWRUQIUHQXOXP
PD\SHUVLVWIRUKRXUVRUGD\VDQGPD\FDXVHWKHSDUHQWVWRVHHNPHGLFDO
HYDOXDWLRQ(YHQLQSDWLHQWVZLWKVHYHUHKHPRSKLOLDRQO\KDYHHYLGHQFHRI
LQFUHDVHGEOHHGLQJE\\URIDJH$OWKRXJKEOHHGLQJPD\RFFXULQDQ\DUHDRI
WKHERG\WKHKDOOPDUNRIKHPRSKLOLFEOHHGLQJLVKHPDUWKURVLV%OHHGLQJLQWR
WKHMRLQWVPD\EHLQGXFHGE\PLQRUWUDXPDPDQ\KHPDUWKURVHVDUHVSRQWDQHRXV
7KHHDUOLHVWMRLQWKHPRUUKDJHVDSSHDUPRVWRIWHQLQWKHDQNOH,QWKHROGHUFKLOG
DQGDGROHVFHQWKHPDUWKURVHVRIWKHNQHHVDQGHOERZVDUHDOVRFRPPRQ
:KHUHDVWKHFKLOG
VHDUO\MRLQWKHPRUUKDJHVDUHUHFRJQL]HGRQO\DIWHUPDMRU
VZHOOLQJDQGIOXLGDFFXPXODWLRQLQWKHMRLQWVSDFHROGHUFKLOGUHQDUHIUHTXHQWO\
DEOHWRUHFRJQL]HEOHHGLQJEHIRUHWKHSK\VLFLDQGRHV7KH\FRPSODLQRIDZDUP
WLQJOLQJVHQVDWLRQLQWKHMRLQWDVWKHILUVWVLJQRIDQHDUO\MRLQWKHPRUUKDJH
5HSHDWHGEOHHGLQJHSLVRGHVLQWRWKHVDPHMRLQWLQDSDWLHQWZLWKVHYHUH
KHPRSKLOLDPD\UHVXOWLQDߡWDUJHWߢMRLQW5HFXUUHQWEOHHGLQJPD\WKHQEHFRPH
VSRQWDQHRXVEHFDXVHRIWKHXQGHUO\LQJSDWKRORJLFFKDQJHVLQWKHMRLQW
$OWKRXJKPRVWPXVFXODUKHPRUUKDJHVDUHFOLQLFDOO\HYLGHQWEHFDXVHRI
ORFDOL]HGSDLQRUVZHOOLQJEOHHGLQJLQWRWKHLOLRSVRDVPXVFOHUHTXLUHVVSHFLILF
PHQWLRQ$SDWLHQWPD\ORVHODUJHYROXPHVRIEORRGLQWRWKHLOLRSVRDVPXVFOH
YHUJLQJRQK\SRYROHPLFVKRFNZLWKRQO\DYDJXHDUHDRIUHIHUUHGSDLQLQWKH
JURLQ7KHKLSLVKHOGLQDIOH[HGLQWHUQDOO\URWDWHGSRVLWLRQGXHWRLUULWDWLRQRI
WKHLOLRSVRDV7KHGLDJQRVLVLVPDGHFOLQLFDOO\IURPWKHLQDELOLW\WRH[WHQGWKH
KLSEXWPXVWEHFRQILUPHGZLWKXOWUDVRQRJUDSK\RU&7)LJ/LIH
WKUHDWHQLQJEOHHGLQJLQWKHSDWLHQWZLWKKHPRSKLOLDLVFDXVHGE\EOHHGLQJLQWR
YLWDOVWUXFWXUHVFHQWUDOQHUYRXVV\VWHPXSSHUDLUZD\RUE\H[VDQJXLQDWLRQ
H[WHUQDOWUDXPDJDVWURLQWHVWLQDORULOLRSVRDVKHPRUUKDJH3URPSWWUHDWPHQW
ZLWKFORWWLQJIDFWRUFRQFHQWUDWHIRUWKHVHOLIHWKUHDWHQLQJKHPRUUKDJHVLV
LPSHUDWLYH,IKHDGWUDXPDLVRIVXIILFLHQWFRQFHUQWRVXJJHVWUDGLRORJLF
HYDOXDWLRQIDFWRUUHSODFHPHQWVKRXOGSUHFHGHUDGLRORJLFHYDOXDWLRQ/LIH
WKUHDWHQLQJKHPRUUKDJHVUHTXLUHUHSODFHPHQWWKHUDS\WRDFKLHYHDOHYHOHTXDOWR
WKDWRIQRUPDOSODVPD,8G/RU
 ),* 0DVVLYHKHPDWRPDLQWRWKHLOLRSVRDVPXVFOHLQDSDWLHQWZLWKKHPRSKLOLD%
$\UROGPDQZLWKVHYHUHGHILFLHQF\RIIDFWRU,;KHPRSKLOLD%ZDVDGPLWWHGIRU
ULJKWORZHUDEGRPLQDOSDLQRISURJUHVVLYHO\LQFUHDVLQJVHYHULW\DQGWHQGHUQHVV+HKDG
KDGDFRPPRQFROGZLWKVHYHUHFRXJKDQGORVVRIDSSHWLWHIRUDSSUR[LPDWHO\ZN$
$EGRPLQDOUDGLRJUDSKVKRZVSUHVHQFHRIWKHSVRDVVLJQRQWKHULJKWVLGHDQGOHIW
VKLIWHGFRORQJDV%&7VFDQVKRZVPDVVLYHKHPDWRPDLQWKHULJKWLOLRSVRDVPXVFOH
UHVXOWLQJLQDQWHULRUWUDQVORFDWLRQRIWKHULJKWNLGQH\&5HFRQVWUXFWHGGLPHQVLRQDO
LPDJHVKRZVPRUHFOHDUO\WKHNLGQH\WUDQVORFDWLRQDQGWKHH[WHQGHGEXWLQWDFWODUJH
YHVVHOV7KHVHDUHXVHIXOILQGLQJVIRUWKHGLDJQRVWLFSURFHGXUHVEHFDXVHSURJUHVVLYH
ULJKWORZHUDEGRPLQDOSDLQPD\FORVHO\VLPXODWHDFXWHDSSHQGLFLWLV7KHKHPRUUKDJH
ZDVVXFFHVVIXOO\PDQDJHGE\UHSODFHPHQWRIIDFWRU,;IRUZNZLWKRXWDQ\UHFXUUHQFH
7KHSDWLHQWGLGQRWKDYHDQ\LQKLELWRUVWRIDFWRU,;)URP0L\D]DNL.+LJDVKLKDUD0
0DVVLYHKHPRUUKDJHLQWRWKHLOLRSVRDVPXVFOH,QWHUQ0HG

3DWLHQWVZLWKPLOGKHPRSKLOLDZKRKDYHIDFWRU9,,,RUIDFWRU,;OHYHOV!
,8G/XVXDOO\GRQRWKDYHVSRQWDQHRXVKHPRUUKDJHV7KHVHLQGLYLGXDOVPD\
H[SHULHQFHSURORQJHGEOHHGLQJDIWHUGHQWDOZRUNVXUJHU\RULQMXULHVIURP
PRGHUDWHWUDXPDDQGPD\QRWEHGLDJQRVHGXQWLOWKH\DUHROGHU

/DERUDWRU\)LQGLQJVDQG'LDJQRVLV
$UHGXFHGOHYHORIIDFWRU9,,,RUIDFWRU,;ZLOOUHVXOWLQDODERUDWRU\ILQGLQJRID
SURORQJHG377,QVHYHUHKHPRSKLOLDWKH377YDOXHLVXVXDOO\WLPHVWKH
XSSHUOLPLWRIQRUPDO5HVXOWVRIWKHRWKHUVFUHHQLQJWHVWVRIWKHKHPRVWDWLF
PHFKDQLVPSODWHOHWFRXQWEOHHGLQJWLPH37WKURPELQWLPHDUHQRUPDO8QOHVV
WKHSDWLHQWKDVDQLQKLELWRUWRIDFWRU9,,,RU,;WKHPL[LQJRIQRUPDOSODVPD
ZLWKSDWLHQWSODVPDUHVXOWVLQFRUUHFWLRQRI377YDOXH7KHVSHFLILFDVVD\IRU
IDFWRUV9,,,DQG,;ZLOOFRQILUPWKHGLDJQRVLVRIKHPRSKLOLD,IFRUUHFWLRQGRHV
QRWRFFXURQPL[LQJDQLQKLELWRUPD\EHSUHVHQW,QߙRISDWLHQWVZLWK
KHPRSKLOLDZKRUHFHLYHLQIXVLRQVRIIDFWRU9,,,RUIDFWRU,;DIDFWRUVSHFLILF
DQWLERG\PD\GHYHORS7KHVHDQWLERGLHVDUHGLUHFWHGDJDLQVWWKHDFWLYHFORWWLQJ
VLWHDQGDUHWHUPHGLQKLELWRUV,QVXFKSDWLHQWVWKHTXDQWLWDWLYH%HWKHVGDDVVD\
IRULQKLELWRUVVKRXOGEHSHUIRUPHGWRPHDVXUHWKHDQWLERG\WLWHU
'LIIHUHQWLDO'LDJQRVLV
,Q\RXQJLQIDQWVZLWKVHYHUHEOHHGLQJPDQLIHVWDWLRQVWKHGLIIHUHQWLDOGLDJQRVLV
LQFOXGHVVHYHUHWKURPERF\WRSHQLDVHYHUHSODWHOHWIXQFWLRQGLVRUGHUVVXFKDV
%HUQDUG6RXOLHUV\QGURPHDQG*ODQ]PDQQWKURPEDVWKHQLDW\SHVHYHUHYRQ
:LOOHEUDQGGLVHDVHDQGYLWDPLQ.GHILFLHQF\

*HQHWLFVDQG&ODVVLILFDWLRQ
+HPRSKLOLDRFFXUVLQDSSUR[LPDWHO\PDOHVZLWKKDYLQJIDFWRU
9,,,GHILFLHQF\DQGߙKDYLQJIDFWRU,;GHILFLHQF\+HPRSKLOLDVKRZVQR
DSSDUHQWUDFLDOSUHGLOHFWLRQDSSHDULQJLQDOOHWKQLFJURXSV7KHVHYHULW\RI
KHPRSKLOLDLVFODVVLILHGRQWKHEDVLVRIWKHSDWLHQW
VEDVHOLQHOHYHORIIDFWRU9,,,
RUIDFWRU,;EHFDXVHIDFWRUOHYHOVXVXDOO\FRUUHODWHZLWKWKHVHYHULW\RIEOHHGLQJ
V\PSWRPV%\GHILQLWLRQ,8RIHDFKIDFWRULVGHILQHGDVWKDWDPRXQWLQP/
RIQRUPDOSODVPDUHIHUHQFHGDJDLQVWDVWDQGDUGHVWDEOLVKHGE\WKH:RUOG+HDOWK
2UJDQL]DWLRQ:+2WKXVP/RIQRUPDOSODVPDKDV,8G/
DFWLYLW\RIHDFKIDFWRU)RUHDVHRIGLVFXVVLRQZHXVHWKHWHUPDFWLYLW\WR
UHIHUWRWKHSHUFHQWDJHIRXQGLQQRUPDOSODVPDDFWLYLW\)DFWRU
FRQFHQWUDWHVDUHDOVRUHIHUHQFHGDJDLQVWDQLQWHUQDWLRQDO:+2VWDQGDUGVR
WUHDWPHQWGRVHVDUHXVXDOO\UHIHUUHGWRLQ,86HYHUHKHPRSKLOLDLVFKDUDFWHUL]HG
DVKDYLQJDFWLYLW\RIWKHVSHFLILFFORWWLQJIDFWRUDQGEOHHGLQJLVRIWHQ
VSRQWDQHRXV3DWLHQWVZLWKPRGHUDWHKHPRSKLOLDKDYHIDFWRUOHYHOVRIߙ
DQGXVXDOO\UHTXLUHPLOGWUDXPDWRLQGXFHEOHHGLQJ,QGLYLGXDOVZLWKPLOG
KHPRSKLOLDKDYHOHYHOV!PD\JRPDQ\\HDUVEHIRUHWKHFRQGLWLRQLV
GLDJQRVHGDQGIUHTXHQWO\UHTXLUHVLJQLILFDQWWUDXPDWRFDXVHEOHHGLQJ7KH
KHPRVWDWLFOHYHOIRUIDFWRU9,,,LV!ߙDQGIRUIDFWRU,;LWLV!ߙ
7KHORZHUOLPLWRIOHYHOVIRUIDFWRUV9,,,DQG,;LQQRUPDOLQGLYLGXDOVLV
DSSUR[LPDWHO\
7KHJHQHVIRUIDFWRUV9,,,DQG,;DUHFDUULHGQHDUWKHWHUPLQXVRIWKHORQJ
DUPRIWKH;FKURPRVRPHDQGDUHWKHUHIRUH;OLQNHGWUDLWV7KHPDMRULW\RI
SDWLHQWVZLWKKHPRSKLOLDKDYHUHGXFHGFORWWLQJIDFWRUSURWHLQߙRIWKRVH
ZLWKKHPRSKLOLD$DQGߙRIWKRVHZLWKKHPRSKLOLD%PDNHD
G\VIXQFWLRQDOSURWHLQ$SSUR[LPDWHO\ߙRISDWLHQWVZLWKVHYHUH
KHPRSKLOLD$KDYHWKHVDPHPXWDWLRQLQZKLFKWKHUHLVDQLQWHUQDOLQYHUVLRQ
ZLWKLQWKHIDFWRU9,,,JHQHWKDWUHVXOWVLQSURGXFWLRQRIQRSURWHLQ7KLVPXWDWLRQ
FDQEHGHWHFWHGLQWKHEORRGRISDWLHQWVRUFDUULHUVDQGLQWKHDPQLRWLFIOXLGE\
PROHFXODUWHFKQLTXHV$IULFDQ$PHULFDQVRIWHQKDYHDGLIIHUHQWIDFWRU9,,,
KDSORW\SHDQGWKLVGLIIHUHQFHPD\EHWKHUHDVRQWKDW$IULFDQ$PHULFDQVKDYH
KLJKHULQKLELWRUIRUPDWLRQ%HFDXVHRIWKHPXOWLSOHJHQHWLFFDXVHVRIHLWKHU
IDFWRU9,,,RUIDFWRU,;GHILFLHQF\PRVWFDVHVRIKHPRSKLOLDDUHFODVVLILHG
DFFRUGLQJWRWKHDPRXQWRIIDFWRU9,,,RUIDFWRU,;FORWWLQJDFWLYLW\,QWKH
QHZERUQIDFWRU9,,,YDOXHVPD\EHDUWLILFLDOO\HOHYDWHGEHFDXVHRIWKHDFXWH
SKDVHUHVSRQVHHOLFLWHGE\WKHELUWKSURFHVV7KLVDUWLILFLDOHOHYDWLRQPD\FDXVHD
PLOGO\DIIHFWHGSDWLHQWWRKDYHQRUPDORUQHDUQRUPDOOHYHOVRIIDFWRU9,,,
3DWLHQWVZLWKVHYHUHKHPRSKLOLDGRQRWKDYHGHWHFWDEOHOHYHOVRIIDFWRU9,,,,Q
FRQWUDVWIDFWRU,;OHYHOVDUHSK\VLRORJLFDOO\ORZLQWKHQHZERUQ,IVHYHUH
KHPRSKLOLDLVSUHVHQWLQWKHIDPLO\DQXQGHWHFWDEOHOHYHORIIDFWRU,;LV
GLDJQRVWLFRIVHYHUHKHPRSKLOLD%,QVRPHSDWLHQWVZLWKPLOGIDFWRU,;
GHILFLHQF\WKHSUHVHQFHRIKHPRSKLOLDFDQEHFRQILUPHGRQO\DIWHUVHYHUDO
ZHHNVRIOLIH
7KURXJKO\RQL]DWLRQRIWKH;FKURPRVRPHVRPHIHPDOHFDUULHUVRI
KHPRSKLOLD$RU%KDYHVXIILFLHQWUHGXFWLRQRIIDFWRU9,,,RUIDFWRU,;WR
SURGXFHPLOGEOHHGLQJGLVRUGHUV/HYHOVRIWKHVHIDFWRUVVKRXOGEHGHWHUPLQHGLQ
DOONQRZQRUSRWHQWLDOFDUULHUVWRDVVHVVWKHQHHGIRUWUHDWPHQWLQWKHHYHQWRI
VXUJHU\RUFOLQLFDOEOHHGLQJ
%HFDXVHIDFWRU9,,,LVFDUULHGLQSODVPDE\YRQ:LOOHEUDQGIDFWRUWKHUDWLRRI
IDFWRU9,,,WR9:)LVVRPHWLPHVXVHGWRGLDJQRVHFDUULHUVRIKHPRSKLOLDEXW
PD\JLYHIDOVHSRVLWLYHRUIDOVHQHJDWLYHUHVXOWV:KHQSRVVLEOHVSHFLILFJHQHWLF
PXWDWLRQVVKRXOGEHLGHQWLILHGLQWKHSURSRVLWXVDQGXVHGWRWHVWRWKHUIDPLO\
PHPEHUVZKRDUHDWULVNRIHLWKHUKDYLQJKHPRSKLOLDRUEHLQJFDUULHUV

7UHDWPHQW
(DUO\DSSURSULDWHWKHUDS\LVWKHKDOOPDUNRIH[FHOOHQWKHPRSKLOLDFDUH:KHQ
PLOGWRPRGHUDWHEOHHGLQJRFFXUVYDOXHVRIIDFWRU9,,,RUIDFWRU,;PXVWEH
UDLVHGWRKHPRVWDWLFOHYHOVLQWKHߙUDQJH)RUOLIHWKUHDWHQLQJRUPDMRU
KHPRUUKDJHVWKHGRVHVKRXOGDLPWRDFKLHYHOHYHOVRIDFWLYLW\
&DOFXODWLRQRIWKHGRVHRIUHFRPELQDQWIDFWRU9,,,)9,,,RUUHFRPELQDQW
IDFWRU,;),;LVDVIROORZV
 )RUIDFWRU9,,,WKHFRUUHFWLRQIDFWRULVEDVHGRQWKHYROXPHRIGLVWULEXWLRQRI
IDFWRU9,,,)RUIDFWRU,;WKHFRUUHFWLRQIDFWRULVEDVHGRQWKHYROXPHRI
GLVWULEXWLRQDQGWKHREVHUYHGULVHLQSODVPDOHYHODIWHULQIXVLRQRIUHFRPELQDQW
IDFWRU,;
7DEOHVXPPDUL]HVWKHWUHDWPHQWRIVRPHFRPPRQW\SHVRIKHPRUUKDJH
LQDSDWLHQWZLWKKHPRSKLOLD

7DEOH

7UHDWPHQWRI+HPRSKLOLD
7<3(2)
+(023+,/,$$ +(023+,/,$%
+(0255+$*(
+HPDUWKURVLV ,8NJIDFWRU9,,,FRQFHQWUDWHߥRQGD\ ,8NJIDFWRU,;FRQFHQWUDWHߦRQ
WKHQ,8NJWKHIROORZLQJGD\&RQVLGHU GD\WKHQ,8NJWKHIROORZLQJGD\
HYHU\RWKHUGD\XQWLOMRLQWIXQFWLRQLVQRUPDORU &RQVLGHUHYHU\RWKHUGD\XQWLOMRLQW
EDFNWREDVHOLQH&RQVLGHUSURSK\OD[LV IXQFWLRQLVQRUPDORUEDFNWREDVHOLQH
&RQVLGHUSURSK\OD[LV
0XVFOHRU ,8NJIDFWRU9,,,FRQFHQWUDWH,8NJ ,8NJIDFWRU,;FRQFHQWUDWHߦ,8NJ
VLJQLILFDQW HYHU\RWKHUGD\WUHDWPHQWPD\EHQHHGHGXQWLO HYHU\GD\VPD\EHQHHGHGXQWLO
VXEFXWDQHRXV UHVROYHG UHVROYHG
KHPDWRPD
0RXWKGHFLGXRXV ,8NJIDFWRU9,,,FRQFHQWUDWHߥ ,8NJIDFWRU,;FRQFHQWUDWHߦ
WRRWKRUWRRWK DQWLILEULQRO\WLFWKHUDS\ h UHPRYHORRVH DQWLILEULQRO\WLFWKHUDS\ h UHPRYHORRVH
H[WUDFWLRQ GHFLGXRXVWRRWK GHFLGXRXVWRRWK
(SLVWD[LV $SSO\SUHVVXUHIRUPLQSDFNZLWK $SSO\SUHVVXUHIRUPLQSDFNZLWK
SHWURODWXPJDX]HJLYHDQWLILEULQRO\WLFWKHUDS\h SHWURODWXPJDX]HDQWLILEULQRO\WLFWKHUDS\h
,8NJIDFWRU9,,,FRQFHQWUDWHߥLIWKLV ,8NJIDFWRU,;FRQFHQWUDWHߦLIWKLV
WUHDWPHQWIDLOV__ WUHDWPHQWIDLOV_
0DMRUVXUJHU\ ,8NJIDFWRU9,,,FRQFHQWUDWHWKHQ ,8NJIDFWRU,;FRQFHQWUDWHߦWKHQ
OLIHWKUHDWHQLQJ LQLWLDWH,8NJTKWRPDLQWDLQWURXJK ,8NJTKWRPDLQWDLQIDFWRU,;
KHPRUUKDJH OHYHO!,8G/IRUGD\VWKHQ,8NJ DW!,8G/IRUGD\VDQGWKHQDW!
TKWRPDLQWDLQWURXJK!,8G/IRUGD\V ,8G/IRUGD\VPRQLWRUIDFWRU,;OHYHOV
PRQLWRUIDFWRU9,,,OHYHOV

,OLRSVRDV ,8NJIDFWRU9,,,FRQFHQWUDWHWKHQ,8NJ ,8NJIDFWRU,;FRQFHQWUDWHߦWKHQ

KHPRUUKDJH TKXQWLODV\PSWRPDWLFWKHQ,8NJHYHU\  ,8NJ TK WR PDLQWDLQ IDFWRU ,; DW
RWKHUGD\IRUDWRWDORIGD\V !,8G/XQWLOSDWLHQWLVDV\PSWRPDWLF
 WKHQ,8HYHU\RWKHUGD\IRUDWRWDORI
GD\V
+HPDWXULD %HGUHVW—PDLQWHQDQFHIOXLGVLIQRW %HGUHVW—PDLQWHQDQFHIOXLGVLIQRW
FRQWUROOHGLQGD\V,8NJIDFWRU9,,, FRQWUROOHGLQGD\V,8NJIDFWRU,;
FRQFHQWUDWHLIQRWFRQWUROOHGJLYHSUHGQLVRQH FRQFHQWUDWHߦLIQRWFRQWUROOHGJLYH
XQOHVVSDWLHQWLV+,9LQIHFWHG SUHGQLVRQHXQOHVVSDWLHQWLV+,9LQIHFWHG
3URSK\OD[LV ,8NJIDFWRU9,,,FRQFHQWUDWHHYHU\RWKHU ,8NJIDFWRU,;FRQFHQWUDWHߦHYHU\
GD\WRDFKLHYHWURXJKOHYHOࡅ GD\VWRDFKLHYHWURXJKOHYHOࡅ

)RUKLSKHPDUWKURVLVRUWKRSHGLFHYDOXDWLRQIRUSRVVLEOHDVSLUDWLRQLVDGYLVDEOHWRSUHYHQW
DYDVFXODUQHFURVLVRIWKHIHPRUDOKHDG
ߥ)RUPLOGRUPRGHUDWHKHPRSKLOLDGHVPRSUHVVLQuJNJVKRXOGEHXVHGLQVWHDGRIIDFWRU9,,,

FRQFHQWUDWHLIWKHSDWLHQWLVNQRZQWRUHVSRQGZLWKDKHPRVWDWLFOHYHORIIDFWRU9,,,LIUHSHDWHG
GRVHVDUHJLYHQPRQLWRUIDFWRU9,,,OHYHOVIRUWDFK\SK\OD[LV
ߦ6WDWHGGRVHVDSSO\IRUUHFRPELQDQWIDFWRU,;FRQFHQWUDWHGLIIHUHQWGRVLQJPD\DSSO\IRUORQJ

DFWLQJUHFRPELQDQWIDFWRU,;FRQFHQWUDWHVRUSODVPDGHULYHGIDFWRU,;
h'RQRWJLYHDQWLILEULQRO\WLFWKHUDS\XQWLOKUDIWHUDGRVHRISURWKURPELQFRPSOH[FRQFHQWUDWH

__
1RQSUHVFULSWLRQFRDJXODWLRQSURPRWLQJSURGXFWVPD\EHKHOSIXO
5HSHDWUDGLRORJLFDVVHVVPHQWVKRXOGEHSHUIRUPHGEHIRUHGLVFRQWLQXDWLRQRIWKHUDS\

+,9+XPDQLPPXQRGHILFLHQF\YLUXV,8LQWHUQDWLRQDOXQLWVTKHYHU\WRKRXUV
$GDSWHGIURP'L3DROD-0RQWJRPHU\55*LOO-&)ORRG9++HPRSKLOLDDQGYRQ:LOOHEUDQG
GLVHDVH,Q2UNLQ6+)LVKHU'(*LQVEHUJ'HWDOHGLWRUV1DWKDQDQG2VNL
VKHPDWRORJ\RI
LQIDQF\DQGFKLOGKRRGHG3KLODGHOSKLD6DXQGHUV(OVHYLHUSSߙ

:LWKWKHDYDLODELOLW\RIUHFRPELQDQWUHSODFHPHQWSURGXFWVSURSK\OD[LVLVWKH
VWDQGDUGRIFDUHIRUPRVWFKLOGUHQZLWKVHYHUHKHPRSKLOLDWRSUHYHQW
VSRQWDQHRXVEOHHGLQJDQGHDUO\MRLQWGHIRUPLWLHV,QDGGLWLRQWRFXUUHQWO\
DYDLODEOHUHFRPELQDQWIDFWRUVSURGXFWVDUHEHLQJGHYHORSHGWRLQFUHDVHWKH
SODVPDKDOIOLIHDQGUHGXFHWKHLPPXQRJHQLFLW\RIKHPRVWDWLFIDFWRUV$VWXG\
FRPSDULQJSURSK\OD[LVZLWKDJJUHVVLYHHSLVRGLFWUHDWPHQWSURYLGHVHYLGHQFHIRU
WKHVXSHULRULW\RISURSK\OD[LVLQSUHYHQWLQJGHELOLWDWLQJMRLQWGLVHDVH,IWDUJHW
MRLQWVGHYHORSߡVHFRQGDU\ߢSURSK\OD[LVLVRIWHQLQLWLDWHG
:LWKPLOGIDFWRU9,,,KHPRSKLOLDWKHSDWLHQW
VHQGRJHQRXVO\SURGXFHGIDFWRU
9,,,FDQEHUHOHDVHGE\WKHDGPLQLVWUDWLRQRIGHVPRSUHVVLQDFHWDWH,QSDWLHQWV
ZLWKPRGHUDWHRUVHYHUHIDFWRU9,,,GHILFLHQF\WKHVWRUHGOHYHOVRIIDFWRU9,,,LQ
WKHERG\DUHLQDGHTXDWHDQGGHVPRSUHVVLQWUHDWPHQWLVLQHIIHFWLYH$
FRQFHQWUDWHGLQWUDQDVDOIRUPRIGHVPRSUHVVLQDFHWDWHQRWWKHHQXUHVLVRU
SLWXLWDU\UHSODFHPHQWGRVHFDQDOVREHXVHGWRWUHDWSDWLHQWVZLWKPLOG
KHPRSKLOLD$7KHGRVHLVuJVSUD\IRUFKLOGUHQZHLJKLQJNJDQG
uJVSUD\VIRUFKLOGUHQDQG\RXQJDGXOWVZHLJKLQJ!NJ0RVWFHQWHUV
DGPLQLVWHUDWULDORIGHVPRSUHVVLQWRGHWHUPLQHWKHOHYHORIIDFWRU9,,,DFKLHYHG
DIWHULWVLQIXVLRQ'HVPRSUHVVLQLVQRWHIIHFWLYHLQWKHWUHDWPHQWRIIDFWRU,;ߙ
GHILFLHQWKHPRSKLOLDEXWLVDQHIIHFWLYHDQGUHODWLYHO\OHVVH[SHQVLYHWUHDWPHQW
IRUPLOGIDFWRU9,,,GHILFLHQF\
3UHOLPLQDU\WULDOVRIIDFWRU,;JHQHWKHUDS\DUHXQGHUZD\ZLWKVRPH
HQFRXUDJLQJLQLWLDOUHVXOWV0XFRVDOEOHHGLQJPD\UHTXLUHDGMXQFWXVHRIDQ
DQWLILEULQRO\WLFVXFKDVDPLQRFDSURLFDFLGRUWUDQH[HPLFDFLG
7KHELVSHFLILFKXPDQL]HGPRQRFORQDODQWLERG\HPLFL]XPDEFDQEULGJH
DFWLYDWHGIDFWRU,;DQGIDFWRU;WKXVUHVWRULQJIXQFWLRQDODFWLYDWHGIDFWRU9,,,
DFWLYLW\LQSDWLHQWVZLWKKHPRSKLOLDZLWKRUZLWKRXWIDFWRU9,,,LQKLELWRUV
2QFHZHHNO\SURSK\ODFWLFVXEFXWDQHRXVLQMHFWLRQVRIHPLFL]XPDEPD\EHDEOH
WRUHGXFHWKHUDWHRIEOHHGLQJLQSDWLHQWVZLWKRUZLWKRXWIDFWRU9,,,LQKLELWRUV

3URSK\OD[LV
0DQ\SDWLHQWVDUHQRZJLYHQOLIHORQJSURSK\OD[LVWRSUHYHQWVSRQWDQHRXVMRLQW
EOHHGLQJ7KH1DWLRQDO+HPRSKLOLD)RXQGDWLRQUHFRPPHQGVWKDWSURSK\OD[LV
EHFRQVLGHUHGRSWLPDOWKHUDS\IRUFKLOGUHQZLWKVHYHUHKHPRSKLOLD8VXDOO\VXFK
SURJUDPVDUHLQLWLDWHGZLWKWKHVWRUQGMRLQWKHPRUUKDJH<RXQJFKLOGUHQ
RIWHQUHTXLUHWKHLQVHUWLRQRIDFHQWUDOFDWKHWHUWRHQVXUHYHQRXVDFFHVV6XFK
SURJUDPVDUHH[SHQVLYHEXWDUHKLJKO\HIIHFWLYHLQSUHYHQWLQJRUJUHDWO\OLPLWLQJ
WKHGHJUHHRIMRLQWSDWKRORJ\FRPSOLFDWLRQVLQFOXGHFHQWUDOOLQHLQIHFWLRQDQG
WKURPERVLV7UHDWPHQWLVXVXDOO\SURYLGHGHYHU\GD\VWRPDLQWDLQD
PHDVXUDEOHSODVPDOHYHORIFORWWLQJIDFWRUߙZKHQDVVD\HGMXVWEHIRUHWKH
QH[WLQIXVLRQWURXJKOHYHO1HZHUORQJDFWLQJIRUPXODWLRQVRIIDFWRU,;DUH
DYDLODEOHWKDWH[WHQGGRVLQJWRHYHU\ZHHNRUHYHU\RWKHUZHHN:KHWKHU
SURSK\OD[LVVKRXOGEHFRQWLQXHGLQWRDGXOWKRRGKDVQRW\HWEHHQDGHTXDWHO\
VWXGLHG,IPRGHUDWHDUWKURSDWK\GHYHORSVSUHYHQWLRQRIIXWXUHEOHHGLQJZLOO
UHTXLUHKLJKHUSODVPDOHYHOVRIFORWWLQJIDFWRUV,QWKHROGHUFKLOGZKRLVQRW
JLYHQSULPDU\SURSK\OD[LVVHFRQGDU\SURSK\OD[LVLVIUHTXHQWO\LQLWLDWHGLID
WDUJHWMRLQWGHYHORSV

6XSSRUWLYH&DUH
$OWKRXJKLWLVHDV\WRWHOOSDUHQWVWKDWWKHLUFKLOGVKRXOGDYRLGWUDXPDWKLV
DGYLFHLVQRWSUDFWLFDOLQDFWLYHFKLOGUHQDQGDGROHVFHQWV7RGGOHUVDUHDFWLYHDUH
FXULRXVDERXWHYHU\WKLQJDQGLQMXUHWKHPVHOYHVHDVLO\(IIHFWLYHPHDVXUHV
LQFOXGHDQWLFLSDWRU\JXLGDQFHLQFOXGLQJWKHXVHRIFDUVHDWVVHDWEHOWVDQGELNH
KHOPHWVDQGWKHDYRLGDQFHRIKLJKULVNEHKDYLRUV2OGHUER\VVKRXOGEH
FRXQVHOHGWRDYRLGYLROHQWFRQWDFWVSRUWVEXWWKLVLVVXHLVDFKDOOHQJH%R\VZLWK
VHYHUHKHPRSKLOLDRIWHQVXVWDLQKHPRUUKDJHVLQWKHDEVHQFHRINQRZQWUDXPD
(DUO\SV\FKRVRFLDOLQWHUYHQWLRQKHOSVWKHIDPLO\DFKLHYHDEDODQFHEHWZHHQ
RYHUSURWHFWLRQDQGSHUPLVVLYHQHVV3DWLHQWVZLWKKHPRSKLOLDVKRXOGDYRLG
DVSLULQDQGRWKHUQRQVWHURLGDODQWLLQIODPPDWRU\GUXJV16$,'VWKDWDIIHFW
SODWHOHWIXQFWLRQ7KHFKLOGZLWKDEOHHGLQJGLVRUGHUVKRXOGUHFHLYHWKH
DSSURSULDWHYDFFLQDWLRQVDJDLQVWKHSDWLWLV%HYHQWKRXJKUHFRPELQDQWSURGXFWV
PD\DYRLGH[SRVXUHWRWUDQVIXVLRQWUDQVPLWWHGGLVHDVHV3DWLHQWVH[SRVHGWR
SODVPDGHULYHGSURGXFWVVKRXOGEHVFUHHQHGSHULRGLFDOO\IRUKHSDWLWLV%DQG&
+,9DQGDEQRUPDOLWLHVLQOLYHUIXQFWLRQ

&KURQLF&RPSOLFDWLRQV
/RQJWHUPFRPSOLFDWLRQVRIKHPRSKLOLD$DQG%LQFOXGHFKURQLFDUWKURSDWK\WKH
GHYHORSPHQWRIDQLQKLELWRUWRHLWKHUIDFWRU9,,,RUIDFWRU,;DQGWKHULVNRI
WUDQVIXVLRQWUDQVPLWWHGLQIHFWLRXVGLVHDVHV$OWKRXJKDQDJJUHVVLYHRU
SURSK\ODFWLFDSSURDFKWRWUHDWPHQWKDVUHGXFHGWKHSUREOHPVRIFKURQLF
DUWKURSDWK\WKHVHSUREOHPVKDYHQRWEHHQHOLPLQDWHG
+LVWRULFDOO\FKURQLFDUWKURSDWK\KDVEHHQWKHPDMRUORQJWHUPGLVDELOLW\
DVVRFLDWHGZLWKKHPRSKLOLD7KHQDWXUDOKLVWRU\RIXQWUHDWHGKHPRSKLOLDLVRQHRI
F\FOLFUHFXUUHQWKHPRUUKDJHVLQWRVSHFLILFMRLQWVLQFOXGLQJKHPRUUKDJHVLQWRWKH
VDPHWDUJHWMRLQW,Q\RXQJFKLOGUHQWKHMRLQWGLVWHQGVHDVLO\DQGDODUJH
YROXPHRIEORRGPD\ILOOWKHMRLQWXQWLOWDPSRQDGHHQVXHVRUWKHUDS\LQWHUYHQHV
$IWHUMRLQWKHPRUUKDJHSURWHRO\WLFHQ]\PHVDUHUHOHDVHGE\ZKLWHEORRGFHOOV
LQWRWKHMRLQWVSDFHDQGKHPHLURQLQGXFHVPDFURSKDJHSUROLIHUDWLRQOHDGLQJWR
LQIODPPDWLRQRIWKHV\QRYLXP7KHV\QRYLXPWKLFNHQVDQGGHYHORSVIURQGOLNH
SURMHFWLRQVLQWRWKHMRLQWWKDWDUHVXVFHSWLEOHWREHLQJSLQFKHGDQGPD\LQGXFH
IXUWKHUKHPRUUKDJH7KHFDUWLODJLQRXVVXUIDFHEHFRPHVHURGHGDQGXOWLPDWHO\
PD\HYHQH[SRVHUDZERQHOHDYLQJWKHMRLQWVXVFHSWLEOHWRDUWLFXODUIXVLRQ,Q
WKHROGHUSDWLHQWZLWKDGYDQFHGDUWKURSDWK\EOHHGLQJLQWRWKHWDUJHWMRLQWZLWK
LWVWKLFNHQHGV\QRYLXPFDXVHVVHYHUHSDLQEHFDXVHWKHMRLQWPD\KDYHOLWWOH
VSDFHWRDFFRPPRGDWHEORRG2QFHDWDUJHWMRLQWLVVHHQWREHGHYHORSLQJWKH
SDWLHQWLVXVXDOO\JLYHQVKRUWRUORQJWHUPSURSK\OD[LVWRSUHYHQWSURJUHVVLRQRI
WKHDUWKURSDWK\DQGUHGXFHLQIODPPDWLRQ
,QKLELWRU)RUPDWLRQ
,QIXVLRQRIWKHGHILFLHQWFORWWLQJIDFWRUPD\LQLWLDWHDQLPPXQHUHVSRQVHLQ
SDWLHQWVZLWKHLWKHUIDFWRU9,,,RUIDFWRU,;GHILFLHQF\,QKLELWRUVDUHDQWLERGLHV
GLUHFWHGDJDLQVWIDFWRU9,,,RUIDFWRU,;WKDWEORFNWKHFORWWLQJDFWLYLW\)DLOXUHRI
DEOHHGLQJHSLVRGHWRUHVSRQGWRDSSURSULDWHUHSODFHPHQWWKHUDS\LVXVXDOO\WKH
ILUVWVLJQRIDQLQKLELWRU/HVVRIWHQLQKLELWRUVDUHLGHQWLILHGGXULQJURXWLQH
IROORZXSVFUHHQLQJIRULQKLELWRUV,QKLELWRUVGHYHORSLQDSSUR[LPDWHO\ߙ
RISDWLHQWVZLWKKHPRSKLOLD$EXWRQO\ߙRISDWLHQWVZLWKKHPRSKLOLD%
PDQ\RIZKRPPDNHDQLQDFWLYHG\VIXQFWLRQDOSURWHLQWKDWUHQGHUVWKHPOHVV
VXVFHSWLEOHWRDQLPPXQHUHVSRQVH+LJKO\SXULILHGIDFWRU,;RUUHFRPELQDQW
IDFWRU,;VHHPVWRLQFUHDVHWKHIUHTXHQF\RILQKLELWRUGHYHORSPHQWDQGVRPH
DQWLߙIDFWRU,;LQKLELWRUVLQGXFHDQDSK\OD[LV0DQ\SDWLHQWVZKRKDYHDQ
LQKLELWRUZLOOORVHLWZLWKFRQWLQXHGUHJXODULQIXVLRQV2WKHUVKDYHDKLJKHUWLWHU
RIDQWLERG\ZLWKVXEVHTXHQWLQIXVLRQVDQGPD\QHHGWRJRWKURXJK
GHVHQVLWL]DWLRQLPPXQHWROHUDQFHLQGXFWLRQSURJUDPVLQZKLFKKLJKGRVHVRI
IDFWRU9,,,IRUKHPRSKLOLD$RUIDFWRU,;IRUKHPRSKLOLD%DUHLQIXVHGLQDQ
DWWHPSWWRVDWXUDWHWKHDQWLERG\DQGSHUPLWWKHERG\WRGHYHORSWROHUDQFH)DFWRU
,;LPPXQHWROHUDQFHSURJUDPVKDYHUHVXOWHGLQQHSKURWLFV\QGURPHLQVRPH
SDWLHQWV5LWX[LPDEFRUWLFRVWHURLGVDQGRWKHULPPXQRVXSSUHVVLYHVKDYHDOO
EHHQXVHGDVDOWHUQDWHWKHUDS\IRUSDWLHQWVZLWKKLJKLQKLELWRUWLWHUVLQZKRP
LPPXQHWROHUDQFHSURJUDPVKDYHIDLOHG,IGHVHQVLWL]DWLRQIDLOVEOHHGLQJ
HSLVRGHVDUHWUHDWHGZLWKHLWKHUUHFRPELQDQWIDFWRU9,,DRUDFWLYDWHG
SURWKURPELQFRPSOH[FRQFHQWUDWHVIDFWRU9,,,LQKLELWRUE\SDVVLQJDFWLYLW\7KH
XVHRIWKHVHSURGXFWVE\SDVVHVWKHLQKLELWRULQPDQ\FDVHVEXWPD\LQFUHDVHWKH
ULVNRIWKURPERVLV(PLFL]XPDEPD\EHDQRWKHUDSSURDFKIRUSDWLHQWVZLWK
LQKLELWRUV6RPHSDWLHQWVZLWKORZWLWHUVRILQKLELWRUFDQEHWUHDWHGZLWKKLJK
GRVHIDFWRU9,,,GXULQJDEOHHGLQJHSLVRGH3DWLHQWVZLWKLQKLELWRUVUHTXLUH
UHIHUUDOWRDFHQWHUWKDWFDUHVIRUPDQ\VXFKSDWLHQWVDQGKDVDFRPSUHKHQVLYH
KHPRSKLOLDSURJUDP6RPHHYLGHQFHVXJJHVWVWKDWLQKLELWRUULVNPD\EHKLJKHU
ZLWKUHFRPELQDQWIDFWRUFRPSDUHGZLWKSODVPDGHULYHGIDFWRUEXWIXUWKHU
VWXGLHVDUHQHHGHG
,QWKHSDVWSODVPDGHULYHGWUHDWPHQWSURGXFWVWUDQVPLWWHGKHSDWLWLV%DQG&
DVZHOODV+,9WRODUJHQXPEHUVRISDWLHQWVZLWKKHPRSKLOLD,QWKHHUDRI
UHFRPELQDQWSURGXFWVWKHULVNRIDFTXLULQJVXFKLQIHFWLRQVVKRXOGEHPLQLPDO
EXWSDWLHQWVVKRXOGUHFHLYHDSSURSULDWHLPPXQL]DWLRQVDJDLQVWKHSDWLWLV%7KRVH
ZKRDUHH[SRVHGWREORRGSURGXFWVVKRXOGEHPRQLWRUHGIRUWUDQVIXVLRQUHODWHG
LQIHFWLRQV5HSRUWVKDYHDOVRLGHQWLILHGWKHWUDQVPLVVLRQRIYDULDQW&UHXW]IHOGW
-DNREGLVHDVHWRSDWLHQWVUHFHLYLQJWKHUDSHXWLFSODVPDDQGPD\ZDUUDQWVWXG\RI
SDWLHQWVZLWKKHPRSKLOLDIRUSULRQWUDQVPLVVLRQIURPSODVPDGHULYHGIDFWRU
FRQFHQWUDWHV

&RPSUHKHQVLYH&DUH
3DWLHQWVZLWKKHPRSKLOLDDUHEHVWPDQDJHGWKURXJKFRPSUHKHQVLYHKHPRSKLOLD
FDUHFHQWHUV6XFKFHQWHUVDUHGHGLFDWHGWRSDWLHQWDQGIDPLO\HGXFDWLRQDQGWKH
SUHYHQWLRQDQGWUHDWPHQWRIWKHFRPSOLFDWLRQVRIKHPRSKLOLDLQFOXGLQJFKURQLF
MRLQWGLVHDVHDQGLQKLELWRUGHYHORSPHQWDVZHOODVLQIHFWLRQHJKHSDWLWLV%RU
&+,96XFKFHQWHUVLQYROYHDWHDPWKDWLQFOXGHVSK\VLFLDQVQXUVHV
RUWKRSHGLVWVSK\VLFDOWKHUDSLVWVDQGSV\FKRVRFLDOZRUNHUV(GXFDWLRQUHPDLQV
FUXFLDOLQKHPRSKLOLDFDUHEHFDXVHSDWLHQWVZKRDUHUHFHLYLQJSURSK\OD[LVPD\
EHOHVVߡH[SHULHQFHGߢLQUHFRJQL]LQJEOHHGLQJHSLVRGHVWKDQDIIHFWHGFKLOGUHQ
IURPSUHYLRXVHUDV

%LEOLRJUDSK\
$OHGRUW/07KHHYROXWLRQRIFRPSUHKHQVLYHKDHPRSKLOLDFDUH
LQWKH8QLWHG6WDWHVSHUVSHFWLYHVIURPWKHIURQWOLQH
+DHPRSKLOLDߙ
%HUQWRUS(6KDSLUR$'0RGHUQKDHPRSKLOLDFDUH/DQFHW
ߙ
%UDQFKIRUG%50RQDKDQ3('L3DROD-1HZGHYHORSPHQWVLQ
WKHWUHDWPHQWRISHGLDWULFKHPRSKLOLDDQGEOHHGLQJGLVRUGHUV
&XUU2SLQ3HGLDWUߙ
%URGHULFN&5+HUEHUW5'/DWLPHU-HWDO$VVRFLDWLRQ
EHWZHHQSK\VLFDODFWLYLW\DQGULVNRIEOHHGLQJLQFKLOGUHQ
ZLWKKHPRSKLOLD-$0$ߙ
&RSSROD$7DJOLDIHUUL$'L&DSXD0HWDO3URSK\OD[LVLQ
FKLOGUHQZLWKKHPRSKLOLDHYLGHQFHEDVHGDFKLHYHPHQWVROG
DQGQHZFKDOOHQJHV6HPLQ7KURPE+HPRVWߙ

'L3DROD-0RQWJRPHU\55*LOO-&)ORRG9++HPRSKLOLD
DQGYRQZLOOHEUDQGGLVHDVH2UNLQ6+)LVKHU'(*LQVEHUJ
'HWDO1DWKDQDQG2VNL
VKHPDWRORJ\RILQIDQF\DQG
FKLOGKRRGHG6DXQGHUV(OVHYLHU3KLODGHOSKLD
ߙ
*HRUJH/$)RJDUW\3)*HQHWKHUDS\IRUKHPRSKLOLDSDVW
SUHVHQWDQGIXWXUH6HPLQ+HPDWROߙ
*RXZ6&YDQGHU%RP-*/MXQJ5HWDO)DFWRU9,,,SURGXFWV
DQGLQKLELWRUGHYHORSPHQWLQVHYHUHKHPRSKLOLDD1(QJO-
0HGߙ
.XONDUQL56RXFLH-0/XVKHU-HWDO6LWHRILQLWLDOEOHHGLQJ
HSLVRGHVPRGHRIGHOLYHU\DQGDJHRIGLDJQRVLVLQEDELHV
ZLWKKDHPRSKLOLDGLDJQRVHGEHIRUHWKHDJHRI\HDUVD
UHSRUWIURPWKHFHQWHUVIRUGLVHDVHFRQWURODQG3UHYHQWLRQ
V
&'&XQLYHUVDOGDWDFROOHFWLRQ8'&SURMHFW+DHPRSKLOLD
ߙ
.XPDU5'XQQ$&DUFDR0&KDQJLQJSDUDGLJPRI
KHPRSKLOLDPDQDJHPHQWH[WHQGHGKDOIOLIHFRQFHQWUDWHVDQG
JHQHWKHUDS\6HPLQ7KURPE+HPRVWߙ
/HLVVLQJHU&$$GYDQFHVLQWKHFOLQLFDOPDQDJHPHQWRI
LQKLELWRUVLQKHPRSKLOLDDDQG%6HPLQ+HPDWRO
ߙ
0DQFR-RKQVRQ0-$EVKLUH7&6KDSLUR$'HWDO
3URSK\OD[LVYHUVXVHSLVRGLFWUHDWPHQWWRSUHYHQWMRLQWGLVHDVH
LQER\VZLWKVHYHUHKHPRSKLOLD1(QJO-0HG
ߙ
0DQFR-RKQVRQ0-&ROOLVLRQVSRUWVDQGULVNRIEOHHGLQJLQ
FKLOGUHQZLWKKHPRSKLOLD-$0$ߙ
0DQFR-RKQVRQ0-6RXFLH-0*LOO-&3URSK\OD[LVXVDJH
EOHHGLQJUDWHVDQGMRLQWRXWFRPHVRIKHPRSKLOLDߙ
DVXUYHLOODQFHSURMHFW%ORRGߙ
7KH0HGLFDO/HWWHU(ORFWDWHIRUKHPRSKLOLDD0HG/HWW
ߙ
1DWKZDQL$&5HLVV807XGGHQKDP(*'HWDO/RQJWHUP
VDIHW\DQGHIILFDF\RIIDFWRU,;JHQHWKHUDS\LQKHPRSKLOLD%
1(QJO-0HGߙ
1DWKZDQL$&7XGGHQKDP(*'5DQJDUDMDQ6HWDO
$GHQRYLUXVDVVRFLDWHGYLUXVYHFWRUPHGLDWHGJHQHWUDQVIHULQ
KHPRSKLOLD%1(QJO-0HGߙ
2OGHQEXUJ-0DKODQJX-1.LP%HWDO(PLFL]XPDE
SURSK\OD[LVLQKHPRSKLOLDDZLWKLQKLELWRUV1(QJO-0HG
ߙ
3DVL.-5DQJDUDMDQ6*HRUJLHY3HWDO7DUJHWLQJRI
DQWLWKURPELQLQKHPRSKLOLDDRU%ZLWK51$LWKHUDS\1(QJO
-0HGߙ
3H\YDQGL)(WWLQJVKDXVHQ&(*RXGHPDQG-HWDO1HZ
ILQGLQJVRQLQKLELWRUGHYHORSPHQWIURPUHJLVWULHVWRFOLQLFDO
VWXGLHV+DHPRSKLOLD6XSSOߙ
3H\YDQGL)*DUDJLROD,<RXQJ*7KHSDVWDQGIXWXUHRI
KDHPRSKLOLDGLDJQRVLVWUHDWPHQWVDQGLWVFRPSOLFDWLRQV
/DQFHWߙ
3H\YDQGL)0DQQXFFL30*DUDJLROD,HWDO$UDQGRPL]HG
WULDORIIDFWRU9,,,DQGQHXWUDOL]LQJDQWLERGLHVLQKHPRSKLOLD
D1(QJO-0HGߙ
3LSH6:1HZWKHUDSLHVIRUKHPRSKLOLD+HPDWRORJ\$P6RF
+HPDWRO(GXF3URJUDPߙ
6DQWDJRVWLQR(0DUWLQRZLW]8/LVVLWFKNRY7HWDO/RQJ
DFWLQJUHFRPELQDQWFRDJXODWLRQIDFWRU,;DOEXPLQIXVLRQ
SURWHLQU,;)3LQKHPRSKLOLD%UHVXOWVRIDSKDVHWULDO
%ORRGߙ
6KLPD0+DQDEXVD+7DNL0HWDO)DFWRU9,,,PLPHWLF
IXQFWLRQRIKXPDQL]HGELVSHFLILFDQWLERG\LQKHPRSKLOLDD1
(QJO-0HGߙ
=LPPHUPDQ%9DOHQWLQR/$+HPRSKLOLDLQUHYLHZ3HGLDWU
5HYߙ

)DFWRU;,'HILFLHQF\+HPRSKLOLD&
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
IDFWRU;,
ILEULQRO\VLVLQKLELWRU
IUHVKIUR]HQSODVPD

)DFWRU;,GHILFLHQF\LVDQDXWRVRPDOGHILFLHQF\DVVRFLDWHGZLWKPLOGWR
PRGHUDWHEOHHGLQJV\PSWRPV,WLVIUHTXHQWO\HQFRXQWHUHGLQ$VKNHQD]L-HZV
EXWKDVEHHQIRXQGLQPDQ\RWKHUHWKQLFJURXSV,Q,VUDHOSHU
LQGLYLGXDOVDUHKRPR]\JRXVIRUWKLVGHILFLHQF\
7KHEOHHGLQJWHQGHQF\LVQRWDVVHYHUHDVLQIDFWRU9,,,RUIDFWRU,;
GHILFLHQF\7KHEOHHGLQJDVVRFLDWHGZLWKIDFWRU;,GHILFLHQF\LVQRWFRUUHODWHG
ZLWKWKHDPRXQWRIIDFWRU;,6RPHSDWLHQWVZLWKVHYHUHGHILFLHQF\PD\KDYH
PLQLPDORUQRV\PSWRPVDWWKHWLPHRIPDMRUVXUJHU\%HFDXVHIDFWRU;,
DXJPHQWVWKURPELQJHQHUDWLRQDQGOHDGVWRDFWLYDWLRQRIWKURPELQDFWLYDWDEOH
ILEULQRO\VLVLQKLELWRUVXUJLFDOEOHHGLQJLVPRUHSURPLQHQWLQVLWHVRIKLJK
ILEULQRO\WLFDFWLYLW\VXFKDVWKHRUDOFDYLW\8QOHVVWKHSDWLHQWSUHYLRXVO\KDG
VXUJHU\ZLWKRXWEOHHGLQJUHSODFHPHQWWKHUDS\VKRXOGEHFRQVLGHUHGDQGJLYHQ
SUHRSHUDWLYHO\GHSHQGLQJRQWKHQDWXUHRIWKHVXUJLFDOSURFHGXUH1RDSSURYHG
FRQFHQWUDWHRIIDFWRU;,LVDYDLODEOHLQWKH8QLWHG6WDWHVWKHUHIRUHWKHSK\VLFLDQ
PXVWXVHIUHVKIUR]HQSODVPD))3
%OHHGLQJGXULQJPLQRUVXUJHU\FDQEHFRQWUROOHGZLWKORFDOSUHVVXUH3DWLHQWV
XQGHUJRLQJGHQWDOH[WUDFWLRQVFDQEHPRQLWRUHGFORVHO\DQGPD\EHQHILWIURP
WUHDWPHQWZLWKDILEULQRO\WLFLQKLELWRUVXFKDVDPLQRFDSURLFDFLGRUWUDQH[DPLF
DFLGZLWKSODVPDUHSODFHPHQWWKHUDS\XVHGRQO\LIKHPRUUKDJHRFFXUV,QD
SDWLHQWZLWKKRPR]\JRXVGHILFLHQF\RIIDFWRU;,377LVRIWHQORQJHUWKDQLWLVLQ
SDWLHQWVZLWKHLWKHUVHYHUHIDFWRU9,,,RUIDFWRU,;GHILFLHQF\7KHSDUDGR[RI
IHZHUFOLQLFDOV\PSWRPVLQFRPELQDWLRQZLWKORQJHU377LVVXUSULVLQJEXWLW
RFFXUVEHFDXVHIDFWRU9,,DFDQDFWLYDWHIDFWRU,;LQYLYR7KHGHILFLHQF\RI
IDFWRU;,FDQEHFRQILUPHGE\VSHFLILFIDFWRU;,DVVD\V3ODVPDLQIXVLRQVRI
,8NJXVXDOO\LQFUHDVHWKHSODVPDFRQFHQWUDWLRQE\7KXVLQIXVLRQRI
SODVPDDWP/NJZLOOUHVXOWLQDSODVPDOHYHORIߙZKLFKLVXVXDOO\
VXIILFLHQWWRFRQWUROPRGHUDWHKHPRUUKDJH)UHTXHQWLQIXVLRQVRISODVPDZRXOG
EHQHFHVVDU\WRDFKLHYHKLJKHUOHYHOVRIIDFWRU;,%HFDXVHWKHKDOIOLIHRIIDFWRU
;,LVXVXDOO\ࡅKUPDLQWDLQLQJDGHTXDWHOHYHOVRIIDFWRU;,XVXDOO\LVQRW
GLIILFXOW
&KURQLFMRLQWEOHHGLQJLVUDUHO\DSUREOHPLQIDFWRU;,GHILFLHQF\DQGIRU
PRVWSDWLHQWVWKHGHILFLHQF\LVDFRQFHUQRQO\DWWKHWLPHRIPDMRUVXUJHU\
XQOHVVWKHUHLVDQGXQGHUO\LQJKHPRVWDWLFGHIHFWHJYRQ:LOOHEUDQGGLVHDVH

%LEOLRJUDSK\
$FKDU\D665DUHEOHHGLQJGLVRUGHUVLQFKLOGUHQLGHQWLILFDWLRQ
DQGSULPDU\FDUHPDQDJHPHQW3HGLDWULFVߙ

-DPHV36DORPRQ20LNRYLF'3H\YDQGL)5DUHEOHHGLQJ
GLVRUGHUVEOHHGLQJDVVHVVPHQWWRROVODERUDWRU\DVSHFWVDQG
SKHQRW\SHDQGWKHUDS\RI);,GHILFLHQF\+DHPRSKLOLD
6XSSOߙ
6HOLJVRKQ8)DFWRU;,LQKDHPRVWDVLVDQGWKURPERVLVSDVW
SUHVHQWDQGIXWXUH7KURPE+DHPRVWߙ


'HILFLHQFLHVRIWKH&RQWDFW)DFWRUV
1RQEOHHGLQJ'LVRUGHUV
-3DXO6FRWW9HURQLFD+)ORRG
.H\ZRUGV
IDFWRU;,,
KLJKPROHFXODUZHLJKWNLQLQRJHQ
SUHNDOOLNUHLQ

'HILFLHQF\RIWKHߡFRQWDFWIDFWRUVߢߚIDFWRU;,,SUHNDOOLNUHLQDQGKLJK
PROHFXODUZHLJKWNLQLQRJHQߚFDXVHVSURORQJHG377EXWQREOHHGLQJV\PSWRPV
%HFDXVHWKHVHFRQWDFWIDFWRUVIXQFWLRQDWWKHVWHSRILQLWLDWLRQRIWKHLQWULQVLF
FORWWLQJV\VWHPE\WKHUHDJHQWXVHGWRGHWHUPLQH377WKH377LVPDUNHGO\
SURORQJHGZKHQWKHVHIDFWRUVDUHDEVHQW7KXVWKHUHLVWKHSDUDGR[LFDOVLWXDWLRQ
LQZKLFK377LVH[WUHPHO\SURORQJHGZLWKQRHYLGHQFHRIFOLQLFDOEOHHGLQJ,WLV
LPSRUWDQWWKDWLQGLYLGXDOVZLWKWKHVHILQGLQJVEHZHOOLQIRUPHGDERXWWKH
PHDQLQJRIWKHLUFORWWLQJIDFWRUGHILFLHQF\EHFDXVHWKH\GRQRWQHHGWUHDWPHQW
HYHQIRUPDMRUVXUJHU\


)DFWRU9,,'HILFLHQF\
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
IDFWRU9,,
HSLVWD[LV
PHQRUUKDJLD

)DFWRU9,,GHILFLHQF\LVDUDUHDXWRVRPDOEOHHGLQJGLVRUGHUWKDWLVXVXDOO\
GHWHFWHGRQO\LQWKHKRPR]\JRXVVWDWH6HYHULW\RIEOHHGLQJYDULHVIURPPLOGWR
VHYHUHZLWKKHPDUWKURVHVVSRQWDQHRXVLQWUDFUDQLDOKHPRUUKDJHDQG
PXFRFXWDQHRXVEOHHGLQJHVSHFLDOO\HSLVWD[LVQRVHEOHHGDQGPHQRUUKDJLD
3DWLHQWVZLWKWKLVGHILFLHQF\KDYHJUHDWO\SURORQJHG37EXWQRUPDO377)DFWRU
9,,DVVD\VVKRZDPDUNHGUHGXFWLRQLQIDFWRU9,,%HFDXVHWKHSODVPDKDOIOLIH
RIIDFWRU9,,LVKUWKHUDS\ZLWK))3LVGLIILFXOWDQGLVRIWHQFRPSOLFDWHGE\
IOXLGRYHUORDG$FRPPHUFLDOFRQFHQWUDWHRIUHFRPELQDQWIDFWRU9,,DLVHIIHFWLYH
LQWUHDWLQJSDWLHQWVZLWKIDFWRU9,,GHILFLHQF\

%LEOLRJUDSK\
0DULDQL*%HUQDUGL))DFWRU9,,GHILFLHQF\6HPLQ7KURPE
+HPRVWߙ


)DFWRU;'HILFLHQF\
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
DP\ORLGRVLV
IDFWRU;

)DFWRU;GHILFLHQF\LVDUDUHHVWLPDWHGLQPLOOLRQDXWRVRPDOGLVRUGHUZLWK

YDULDEOHVHYHULW\0LOGGHILFLHQF\UHVXOWVLQPXFRFXWDQHRXVDQGSRVWWUDXPDWLF
EOHHGLQJZKHUHDVVHYHUHGHILFLHQF\UHVXOWVLQVSRQWDQHRXVKHPDUWKURVHVDQG
LQWUDFUDQLDOKHPRUUKDJHV)DFWRU;GHILFLHQF\LVWKHUHVXOWRIHLWKHUD
TXDQWLWDWLYHGHILFLHQF\RUDG\VIXQFWLRQDOPROHFXOH$UHGXFHGIDFWRU;OHYHOLV
DVVRFLDWHGZLWKSURORQJDWLRQRIERWK37DQG377,QSDWLHQWVZLWKKHUHGLWDU\
IDFWRU;GHILFLHQF\IDFWRU;OHYHOVFDQEHLQFUHDVHGZLWKXVHRIHLWKHU))3RU
SURWKURPELQFRPSOH[FRQFHQWUDWH7KHKDOIOLIHRIIDFWRU;LVDSSUR[LPDWHO\
KUDQGLWVYROXPHRIGLVWULEXWLRQLVVLPLODUWRWKDWRIIDFWRU,;7KXVXQLWNJ
ZLOOLQFUHDVHWKHSODVPDOHYHORIIDFWRU;E\
$OWKRXJKLWLVUDUHO\DSUREOHPLQSHGLDWULFSDWLHQWVV\VWHPLFDP\ORLGRVLV
PD\EHDVVRFLDWHGZLWKIDFWRU;GHILFLHQF\UHVXOWLQJIURPWKHDGVRUSWLRQRI
IDFWRU;RQWKHDP\ORLGSURWHLQ,QWKHVHWWLQJRIDP\ORLGRVLVWUDQVIXVLRQ
WKHUDS\RIWHQLVQRWVXFFHVVIXOEHFDXVHRIWKHUDSLGFOHDUDQFHRIIDFWRU;

%LEOLRJUDSK\
0HQHJDWWL03H\YDQGL))DFWRU;GHILFLHQF\6HPLQ7KURPE
+HPRVWߙ


3URWKURPELQ)DFWRU,,'HILFLHQF\
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
G\VSURWKURPELQHPLD
IDFWRU,,
K\SRSURWKURPELQHPLD
SURWKURPELQ

3URWKURPELQGHILFLHQF\LVFDXVHGHLWKHUE\DPDUNHGO\UHGXFHGSURWKURPELQ
OHYHOK\SRSURWKURPELQHPLDRUE\IXQFWLRQDOO\DEQRUPDOSURWKURPELQ
G\VSURWKURPELQHPLD/DERUDWRU\WHVWLQJLQKRPR]\JRXVSDWLHQWVVKRZV
SURORQJHG37DQG377)DFWRU,,RUSURWKURPELQDVVD\VVKRZDJUHDWO\UHGXFHG
SURWKURPELQOHYHO0XFRFXWDQHRXVEOHHGLQJLQLQIDQF\DQGSRVWWUDXPDWLF
EOHHGLQJODWHUDUHFRPPRQ3DWLHQWVDUHWUHDWHGZLWKHLWKHU))3RUUDUHO\
SURWKURPELQFRPSOH[FRQFHQWUDWHV,QSURWKURPELQGHILFLHQF\))3LVXVHIXO
EHFDXVHWKHKDOIOLIHRISURWKURPELQLVGD\V$GPLQLVWUDWLRQRI,8NJRI
SURWKURPELQZLOOLQFUHDVHWKHSODVPDDFWLYLW\E\$FTXLUHGIDFWRU,,
GHILFLHQF\FDQEHVHHQZLWKDVPDOOSHUFHQWDJHRIOXSXVDQWLFRDJXODQWVDQGLV
XVXDOO\DVVRFLDWHGZLWKVLJQLILFDQWEOHHGLQJ

%LEOLRJUDSK\
/DQFHOORWWL6'H&ULVWRIDUR5&RQJHQLWDOSURWKURPELQ
GHILFLHQF\6HPLQ7KURPE+HPRVWߙ


)DFWRU9'HILFLHQF\
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
IDFWRU9
KHPDWRPD
PHQRUUKDJLD
SDUDKHPRSKLOLD

'HILFLHQF\RIIDFWRU9LVDQDXWRVRPDOUHFHVVLYHPLOGWRPRGHUDWHEOHHGLQJ
GLVRUGHUWKDWKDVDOVREHHQWHUPHGSDUDKHPRSKLOLD+HPDUWKURVHVRFFXUUDUHO\
PXFRFXWDQHRXVEOHHGLQJDQGKHPDWRPDVDUHWKHPRVWFRPPRQV\PSWRPV
6HYHUHPHQRUUKDJLDLVDIUHTXHQWV\PSWRPLQZRPHQ/DERUDWRU\HYDOXDWLRQ
VKRZVSURORQJHG377DQG376SHFLILFDVVD\VIRUIDFWRU9VKRZDUHGXFWLRQLQ
IDFWRU9OHYHOV))3LVWKHRQO\FXUUHQWO\DYDLODEOHWKHUDSHXWLFSURGXFWWKDW
FRQWDLQVIDFWRU9)DFWRU9LVORVWUDSLGO\IURPVWRUHG))33DWLHQWVZLWKVHYHUH
IDFWRU9GHILFLHQF\DUHWUHDWHGZLWKLQIXVLRQVRI))3DWP/NJHYHU\KU
3ODWHOHWWUDQVIXVLRQLVDOVRDQRSWLRQEHFDXVHSODWHOHWVFRQWDLQIDFWRU9SHUKDSV
H[SODLQLQJWKHODFNRIEOHHGLQJVHHQLQPDQ\SDWLHQWVZLWKIDFWRU9GHILFLHQF\
5DUHO\DSDWLHQWZLWKDQHJDWLYHIDPLO\KLVWRU\RIEOHHGLQJKDVDQDFTXLUHG
DQWLERG\WRIDFWRU9

%LEOLRJUDSK\
$VVHOWD53H\YDQGL))DFWRU9GHILFLHQF\6HPLQ7KURPE
+HPRVWߙ
7KDOML1&DPLUH513DUDKHPRSKLOLDQHZLQVLJKWVLQWRIDFWRU
9GHILFLHQF\6HPLQ7KURPE+HPRVWߙ


&RPELQHG'HILFLHQF\RI)DFWRUV9
DQG9,,,
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
IDFWRU9
IDFWRU9,,,

&RPELQHGGHILFLHQF\RIIDFWRUV9DQG9,,,RFFXUVVHFRQGDU\WRWKHDEVHQFHRI
DQLQWUDFHOOXODUWUDQVSRUWSDWKZD\WKDWLVUHVSRQVLEOHIRUWUDQVSRUWLQJIDFWRUV9
DQG9,,,IURPWKHHQGRSODVPLFUHWLFXOXPWRWKH*ROJLFRPSDUWPHQWVLQYROYLQJ
/0$1DQG0&)'7KLVH[SODLQVWKHSDUDGR[LFDOGHILFLHQF\RIIDFWRUVRQH
HQFRGHGRQFKURPRVRPHDQGWKHRWKHURQWKH;FKURPRVRPH%OHHGLQJ
V\PSWRPVDUHRIWHQPLOGHUWKDQIRUKHPRSKLOLD$DQGDUHWUHDWHGZLWK))3WR
UHSODFHERWKIDFWRU9DQGIDFWRU9,,,

%LEOLRJUDSK\
=KHQJ&=KDQJ%&RPELQHGGHILFLHQF\RIFRDJXODWLRQIDFWRUV
9DQG9,,,DQXSGDWH6HPLQ7KURPE+HPRVWߙ



)LEULQRJHQ)DFWRU,'HILFLHQF\
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
DILEULQRJHQHPLD
G\VILEULQRJHQHPLD
ILEULQRJHQ

&RQJHQLWDODILEULQRJHQHPLDLVDUDUHDXWRVRPDOUHFHVVLYHGLVRUGHU
FKDUDFWHUL]HGE\DQDEVHQFHRIILEULQRJHQ3DWLHQWVZLWKDILEULQRJHQHPLDGRQRW
EOHHGDVIUHTXHQWO\DVSDWLHQWVZLWKKHPRSKLOLDDQGUDUHO\KDYHKHPDUWKURVHV
$IIHFWHGSDWLHQWVPD\SUHVHQWLQWKHQHRQDWDOSHULRGZLWKJDVWURLQWHVWLQDO
KHPRUUKDJHRUKHPDWRPDVDIWHUYDJLQDOGHOLYHU\,QDGGLWLRQWRPDUNHG
SURORQJDWLRQRI37DQG377WKURPELQWLPHLVSURORQJHG,QWKHDEVHQFHRI
FRQVXPSWLYHFRDJXORSDWK\DQXQPHDVXUDEOHILEULQRJHQOHYHOLVGLDJQRVWLF,Q
DGGLWLRQWRWKHTXDQWLWDWLYHGHILFLHQF\RIILEULQRJHQDQXPEHURIG\VIXQFWLRQDO
ILEULQRJHQVKDYHEHHQUHSRUWHGG\VILEULQRJHQHPLD5DUHO\SDWLHQWVZLWK
G\VILEULQRJHQHPLDSUHVHQWZLWKWKURPERVLV
 $KXPDQILEULQRJHQFRQFHQWUDWHLVFRPPHUFLDOO\DYDLODEOHIRUWKHUDS\RI
EOHHGLQJHSLVRGHVLQDILEULQRJHQHPLFSDWLHQWV%HFDXVHWKHSODVPDKDOIOLIHRI
ILEULQRJHQLVGD\VWUHDWPHQWZLWK))3RUFU\RSUHFLSLWDWHLVDOVRHIIHFWLYH
7KHKHPRVWDWLFOHYHORIILEULQRJHQLV!PJG/(DFKEDJRIFU\RSUHFLSLWDWH
FRQWDLQVPJRIILEULQRJHQ6RPHFOLQLFDODVVD\VIRUILEULQRJHQDUH
LQKLELWHGE\KLJKGRVHVRIKHSDULQ7KXVDJUHDWO\SURORQJHGWKURPELQWLPH
DVVRFLDWHGZLWKDORZILEULQRJHQOHYHOVKRXOGEHHYDOXDWHGZLWKGHWHUPLQDWLRQRI
UHSWLODVHWLPH3URORQJHGUHSWLODVHWLPHFRQILUPVWKDWIXQFWLRQDOOHYHOVRI
ILEULQRJHQDUHORZDQGWKDWKHSDULQLVQRWSUHVHQW

%LEOLRJUDSK\
%RUQLNRYD/3H\YDQGL)$OOHQ*HWDO)LEULQRJHQ
UHSODFHPHQWWKHUDS\IRUFRQJHQLWDOILEULQRJHQGHILFLHQF\-
7KURPE+DHPRVWߙ
'H0RHUORRVH3&DVLQL$1HHUPDQ$UEH]0&RQJHQLWDO
ILEULQRJHQGLVRUGHUVDQXSGDWH6HPLQ7KURPE+HPRVW
ߙ


)DFWRU;,,,'HILFLHQF\)LEULQ
6WDELOL]LQJ)DFWRURU
7UDQVJOXWDPLQDVH'HILFLHQF\
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
 IDFWRU;,,,
ILEULQFORW

%HFDXVHIDFWRU;,,,LVUHVSRQVLEOHIRUWKHFURVVOLQNLQJRIILEULQWRVWDELOL]HWKH
ILEULQFORWV\PSWRPVRIGHOD\HGKHPRUUKDJHDUHVHFRQGDU\WRLQVWDELOLW\RIWKH
FORW7\SLFDOO\SDWLHQWVKDYHWUDXPDGD\DQGWKHQKDYHDEUXLVHRUKHPDWRPD
WKHQH[WGD\&OLQLFDOV\PSWRPVLQFOXGHPLOGEUXLVLQJGHOD\HGVHSDUDWLRQRIWKH
XPELOLFDOVWXPSEH\RQGZNLQQHRQDWHVSRRUZRXQGKHDOLQJDQGUHFXUUHQW
VSRQWDQHRXVDERUWLRQVLQZRPHQ5DUHNLQGUHGVZLWK;,,,GHILFLHQF\ZLWK
KHPDUWKURVHVDQGLQWUDFUDQLDOKHPRUUKDJHKDYHEHHQGHVFULEHG5HVXOWVRIWKH
XVXDOVFUHHQLQJWHVWVIRUKHPRVWDVLVDUHQRUPDOLQSDWLHQWVZLWKIDFWRU;,,,
GHILFLHQF\6FUHHQLQJWHVWVIRUIDFWRU;,,,GHILFLHQF\DUHEDVHGRQWKH
REVHUYDWLRQWKDWWKHUHLVLQFUHDVHGVROXELOLW\RIWKHFORWEHFDXVHRIWKHIDLOXUHRI
FURVVOLQNLQJ7KHQRUPDOFORWUHPDLQVLQVROXEOHLQWKHSUHVHQFHRI0XUHD
ZKHUHDVLQDSDWLHQWZLWKIDFWRU;,,,GHILFLHQF\WKHFORWGLVVROYHV0RUHVSHFLILF
DVVD\VIRUIDFWRU;,,,DUHLPPXQRORJLF7KHKDOIOLIHRIIDFWRU;,,,LVGD\V
DQGWKHKHPRVWDWLFOHYHOLVߙDFWLYLW\7KHUHLVDKHDWWUHDWHGO\RSKLOL]HG
FRQFHQWUDWHRIFRDJXODWLRQIDFWRU;,,,DYDLODEOHWRWUHDWEOHHGLQJHSLVRGHVRUIRU
SURSK\OD[LV

%LEOLRJUDSK\
%LVZDV$,YDVNHYLFLXV97KRPDV$2OGHQEXUJ-&RDJXODWLRQ
IDFWRU;,,,GHILFLHQF\GLDJQRVLVSUHYDOHQFHDQG
PDQDJHPHQWRILQKHULWHGDQGDFTXLUHGIRUPV
+DHPRVWDVLRORJLHߙ
'RUJDODOHK$5DVKLGSDQDK-%ORRGFRDJXODWLRQIDFWRU;,,,DQG
IDFWRU;,,,GHILFLHQF\%ORRG5HYߙ
'UH\IXV0%DUURLV'%RUJ-<HWDO6XFFHVVIXOORQJWHUP
UHSODFHPHQWWKHUDS\ZLWK);,,,FRQFHQWUDWHILEURJDPPLQS
IRUVHYHUHFRQJHQLWDOIDFWRU;,,,GHILFLHQF\DSURVSHFWLYH
PXOWLFHQWUHVWXG\-7KURPE+DHPRVWߙ

$QWLSODVPLQRU3ODVPLQRJHQ
$FWLYDWRU,QKLELWRU'HILFLHQF\
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
DQWLSODVPLQ
SODVPLQRJHQDFWLYDWRULQKLELWRU

'HILFLHQF\RIHLWKHUDQWLSODVPLQRUSODVPLQRJHQDFWLYDWRULQKLELWRUERWKRI
ZKLFKDUHDQWLILEULQRO\WLFSURWHLQVUHVXOWVLQLQFUHDVHGSODVPLQJHQHUDWLRQDQG
SUHPDWXUHO\VLVRIILEULQFORWV$IIHFWHGSDWLHQWVKDYHDPLOGEOHHGLQJGLVRUGHU
FKDUDFWHUL]HGE\PXFRFXWDQHRXVEOHHGLQJEXWUDUHO\KDYHMRLQWKHPRUUKDJHV
%HFDXVHUHVXOWVRIWKHXVXDOKHPRVWDWLFWHVWVDUHQRUPDOIXUWKHUZRUNXSRID
SDWLHQWZLWKDSRVLWLYHEOHHGLQJKLVWRU\VKRXOGLQFOXGHHXJOREXOLQFORWO\VLVWLPH
LIDYDLODEOHZKLFKPHDVXUHVILEULQRO\WLFDFWLYLW\DQG\LHOGVDVKRUWHQHGUHVXOW
LQWKHSUHVHQFHRIWKHVHGHILFLHQFLHV6SHFLILFDVVD\VIRU͠DQWLSODVPLQDQG
SODVPLQRJHQDFWLYDWRULQKLELWRUDUHDYDLODEOH%OHHGLQJHSLVRGHVDUHWUHDWHGZLWK
))3EOHHGLQJLQWKHRUDOFDYLW\PD\UHVSRQGWRDQWLILEULQRO\WLFWKHUDS\

%LEOLRJUDSK\
%DXHU.$5DUHFRDJXODWLRQIDFWRUDEQRUPDOLWLHV2UNLQ6+
1DWKDQ'**LQVEHUJ'HWDO1DWKDQDQG2VNL
VKHPDWRORJ\
RILQIDQF\DQGFKLOGKRRGHG6DXQGHUV(OVHYLHU
3KLODGHOSKLDߙ
&DUSHQWHU6/0DWKHZ3$OSKDDQWLSODVPLQDQGLWV
 GHILFLHQF\ILEULQRO\VLVRXWRIEDODQFH+DHPRSKLOLD
ߙ
0HKWD56KDSLUR$'3ODVPLQRJHQDFWLYDWRULQKLELWRUW\SH
GHILFLHQF\+DHPRSKLOLDߙ
&+$37(5

9RQ:LOOHEUDQG'LVHDVH
9HURQLFD+)ORRG-3DXO6FRWW

9RQ:LOOHEUDQGGLVHDVH9:'LVWKHPRVWFRPPRQLQKHULWHGEOHHGLQJ

GLVRUGHUZLWKDQHVWLPDWHGSUHYDOHQFHFLWHGDWWRGHSHQGLQJ
RQWKHFULWHULDXVHGIRUGLDJQRVLV3DWLHQWVZLWK9:'W\SLFDOO\SUHVHQWZLWK
PXFRVDOEOHHGLQJ$IDPLO\KLVWRU\RIHLWKHU9:'RUEOHHGLQJV\PSWRPVDQG
FRQILUPDWRU\ODERUDWRU\WHVWLQJDUHDOVRUHTXLUHGIRUWKHGLDJQRVLVRI9:'

3DWKRSK\VLRORJ\
9:'LVFDXVHGE\DGHIHFWLQRUGHILFLHQF\RIYRQ:LOOHEUDQGIDFWRU9:)
9:)KDVVHYHUDOIXQFWLRQVLQFRDJXODWLRQ)LUVW9:)VHUYHVWRWHWKHUSODWHOHWV
WRLQMXUHGVXEHQGRWKHOLXPYLDELQGLQJVLWHVIRUSODWHOHWVDQGIRUFROODJHQ
6HFRQG9:)VHUYHVDVDFDUULHUSURWHLQIRUIDFWRU9,,,)9,,,SURWHFWLQJ
)9,,,IURPGHJUDGDWLRQLQSODVPD9:)LVVWRUHGLQHQGRWKHOLDOFHOOVDQGLQ
SODWHOHW:HLEHO3DODGHERGLHVDQGFLUFXODWHVDVDODUJHPXOWLPHULFJO\FRSURWHLQ
6KHDUVWUHVVLQGXFHVDFRQIRUPDWLRQDOFKDQJHLQ9:)WKDWIDFLOLWDWHVLWVDELOLW\
WRELQGSODWHOHWVWKURXJKDELQGLQJVLWHRQSODWHOHWJO\FRSURWHLQ,E*3,E7KLV
HQDEOHV9:)WRUHFUXLWSODWHOHWVWRWKHVLWHRIFORWIRUPDWLRQDIXQFWLRQ
GHSHQGHQWRQWKHKLJKPROHFXODUZHLJKW+0:PXOWLPHUIRUPVRI9:)
9:'W\SLFDOO\SUHVHQWVZLWKPXFRVDOEOHHGLQJVLPLODUWRWKDWVHHQZLWKRWKHU
SODWHOHWGHIHFWV(SLVWD[LVHDV\EUXLVLQJDQGPHQRUUKDJLDLQZRPHQDUH
FRPPRQFRPSODLQWV+RZHYHUV\PSWRPVDUHYDULDEOHDQGGRQRWQHFHVVDULO\
FRUUHODWHZHOOZLWK9:)OHYHOV6XUJLFDOEOHHGLQJSDUWLFXODUO\ZLWKGHQWDO
H[WUDFWLRQVRUDGHQRWRQVLOOHFWRP\LVDQRWKHUFRPPRQSUHVHQWDWLRQ6HYHUHW\SH
9:'PD\SUHVHQWZLWKMRLQWEOHHGV0RVWSDWLHQWVZLOOKDYHDIDPLO\KLVWRU\
RIEOHHGLQJ:RPHQDUHPRUHOLNHO\WREHGLDJQRVHGZLWK9:'EHFDXVHRIWKH
SRWHQWLDOIRUV\PSWRPVZLWKPHQRUUKDJLDEXWPHQDQGZRPHQDUHHTXDOO\OLNHO\
WRKDYH9:'+RZHYHUGLDJQRVLVEDVHGRQV\PSWRPVPD\EHGLIILFXOWVLQFH
PLQRUEUXLVLQJDQGHSLVWD[LVDUHQRWXQFRPPRQLQFKLOGKRRG6LJQLILFDQW
XQH[SODLQHGEUXLVLQJLQLQIDQWVDQGWRGGOHUVLVPRUHRIWHQIURPQRQDFFLGHQWDO
WUDXPDWKDQIURPDQXQGHUO\LQJEOHHGLQJGLVRUGHU

&ODVVLILFDWLRQ
9:'PD\EHFDXVHGE\TXDQWLWDWLYHRUTXDOLWDWLYHGHIHFWVLQ9:)0LOGWR
PRGHUDWHTXDQWLWDWLYHGHIHFWVDUHFODVVLILHGDVW\SH9:'ZKHUHDVVHYHUH
TXDQWLWDWLYHGHIHFWVLQZKLFKWKHUHLVQRGHWHFWDEOH9:)SURWHLQDUHFODVVLILHG
DVW\SH9:'7KHTXDOLWDWLYHGHIHFWVDUHJURXSHGWRJHWKHUDVW\SH9:'
7\SH9:'LVE\IDUWKHPRVWFRPPRQW\SHDFFRXQWLQJIRUߙRIDOO
9:'SDWLHQWV7\SLFDOV\PSWRPVLQFOXGHPXFRVDOEOHHGLQJVXFKDVHSLVWD[LV
DQGPHQRUUKDJLDDVZHOODVHDV\EUXLVLQJDQGSRWHQWLDOO\VXUJLFDOEOHHGLQJ
*XLGHOLQHVIURPWKH1DWLRQDO+HDUW/XQJDQG%ORRG,QVWLWXWHRIWKH1DWLRQDO
,QVWLWXWHVRI+HDOWKXVHD9:)OHYHODVPHDVXUHGE\WKH9:)DQWLJHQDVVD\
9:)$JRI,8G/IRUGLDJQRVLVRI9:'3DWLHQWVZLWK9:)$J
,8G/DUHPRVWOLNHO\WRKDYHDJHQHWLFGHIHFWLQ9:)3DWLHQWVZLWK9:)$J
EHWZHHQDQG,8G/DUHVDLGWRKDYHߡORZ9:)ߢ:KHWKHURUQRWWKLV
FDWHJRU\WUXO\UHSUHVHQWV9:'LVDVXEMHFWRIVRPHGHEDWH%HFDXVHVRPH
SDWLHQWVZLWK9:)OHYHOVLQWKLVUDQJHGRH[SHULHQFHEOHHGLQJPDQ\SK\VLFLDQV
HOHFWWRWUHDWWKHPHVSHFLDOO\IRUVXUJLFDOSURFHGXUHVVXFKDVWRQVLOOHFWRP\
3DWLHQWVZLWKW\SH9:'PD\KDYHORZ9:)DVDUHVXOWRILQFUHDVHG
FOHDUDQFHRIWKHLU9:)RUW\SH&9:''LDJQRVLVRIWKLVVXEW\SHLV
LPSRUWDQWEHFDXVHWUHDWPHQWRIWKHVHSDWLHQWVZLWKGHVPRSUHVVLQLVOLNHO\WREH
LQHIIHFWLYHQHFHVVLWDWLQJDGPLQLVWUDWLRQRI9:)FRQWDLQLQJSURGXFWV
9:)OHYHOVFDQEHLQIOXHQFHGE\H[WHUQDOIDFWRUV%ORRGW\SHKDVORQJEHHQ
NQRZQWRDIIHFW9:)ZLWKORZHU9:)OHYHOVVHHQLQSHRSOHZLWKEORRGJURXS
26WUHVVH[HUFLVHDQGSUHJQDQF\DOOLQFUHDVH9:)OHYHOVWKHUHIRUHDVLQJOH
QRUPDO9:)OHYHOGRHVQRWQHFHVVDULO\UXOHRXWWKHSUHVHQFHRI9:'&HUWDLQ
GLVHDVHVVXFKDVK\SRWK\URLGLVPVHH&KDSWHUDQGPHGLFDWLRQVVXFKDV
YDOSURLFDFLGFDQORZHU9:)OHYHOVLQDIIHFWHGSDWLHQWV5HSHDWWHVWLQJPD\EH
UHTXLUHGWRUXOHRXWRUFRQILUPDGLDJQRVLVRI9:'
7\SH9:'LVWKHPRVWVHYHUHIRUPDQGSUHVHQWVZLWKV\PSWRPVVLPLODUWR
WKRVHVHHQLQPLOGKHPRSKLOLD,QW\SH9:'WKH9:)SURWHLQLVFRPSOHWHO\
DEVHQW7\SH9:'LVVHHQDWDIUHTXHQF\RIDSSUR[LPDWHO\LQPLOOLRQ
SRSXODWLRQ,QDGGLWLRQWRPXFRVDOEOHHGLQJSDWLHQWVPD\H[SHULHQFHMRLQWEOHHGV
RUFHQWUDOQHUYRXVV\VWHPKHPRUUKDJH6RPHSK\VLFLDQVHOHFWWRWUHDWSDWLHQWV
ZLWKSURSK\OD[LVRUPRGLILHGSURSK\OD[LVIROORZLQJLQMXU\JLYHQWKDWWKHVH
SDWLHQWVW\SLFDOO\KDYHYHU\ORZ)9,,,,8G/%HFDXVHW\SH9:'LV
FDXVHGE\DODFNRI9:)WUHDWPHQWZLWK9:)FRQWDLQLQJFRQFHQWUDWHVLV
UHTXLUHG
7\SH$9:'LVFKDUDFWHUL]HGE\DGHIHFWLQ9:)PXOWLPHUL]DWLRQDQG
GHFUHDVHG9:)DFWLYLW\LQWHUPVRISODWHOHWELQGLQJ,WLVWKHPRVWFRPPRQRI
WKHW\SHYDULDQWVDFFRXQWLQJIRUDSSUR[LPDWHO\RI9:'FDVHV7\SH$
9:'FDQUHVXOWIURPPXWDWLRQVWKDWDIIHFWPXOWLPHUDVVHPEO\DQGSURFHVVLQJ
RUPXWDWLRQVWKDWUHVXOWLQLQFUHDVHGSURWHRO\VLVRIVHFUHWHG9:)6RPH
PXWDWLRQVDIIHFWERWKVHFUHWLRQDQGFOHDUDQFHRIWKH9:)5HJDUGOHVVRIWKH
PHFKDQLVPDOOW\SH$9:'SDWLHQWVODFNWKH+0:PXOWLPHUVDQGWKHUHIRUH
KDYHUHGXFHG9:)DFWLYLW\ZKLFKUHVXOWVLQEOHHGLQJ6\PSWRPVDUHW\SLFDOO\
PRUHVHYHUHWKDQWKRVHVHHQLQW\SH9:''HVPRSUHVVLQPD\KDYHFOLQLFDO
HIILFDF\IRUWUHDWPHQWRIPLQRUEOHHGLQJEXWVLJQLILFDQWVXUJLFDOFKDOOHQJHVRU
PDMRUEOHHGLQJV\PSWRPVJHQHUDOO\UHTXLUHD9:)FRQWDLQLQJFRQFHQWUDWHIRU
WUHDWPHQW
7\SH%9:'UHVXOWVIURPJDLQRIIXQFWLRQPXWDWLRQVWKDWLQFUHDVHWKH
DELOLW\RI9:)WRELQGSODWHOHWV7KLVOHDGVWRLQFUHDVHGFOHDUDQFHRIERWK9:)
DQGSODWHOHWVIURPFLUFXODWLRQDQGUHVXOWVLQWKHORVVRI+0:PXOWLPHUVDQG
GHFUHDVHG9:)DFWLYLW\VLPLODUWRWKDWVHHQLQW\SH$9:'6SHFLDOWHVWLQJLV
WKHUHIRUHUHTXLUHGWRGLDJQRVHW\SH%9:'HLWKHUE\GLUHFWPHDVXUHPHQWRI
WKHLQFUHDVHGSODWHOHWELQGLQJRUE\DQLQFUHDVHGUHVSRQVHWRORZGRVHULVWRFHWLQ
RQSODWHOHWDJJUHJDWLRQWHVWLQJ7KURPERF\WRSHQLDLVQRWDOZD\VSUHVHQWDQGPD\
EHPRUHSURPLQHQWGXULQJWLPHVRIVWUHVVVXFKDVVXUJHU\RUSUHJQDQF\
'HVPRSUHVVLQLVUHODWLYHO\FRQWUDLQGLFDWHGLQW\SH%9:'DVLWPD\DFFHOHUDWH
9:)SODWHOHWELQGLQJDQGFOHDUDQFH
3ODWHOHWW\SHSVHXGR9:'RFFXUVZKHQDPXWDWLRQLQSODWHOHW*3,EFDXVHV
VSRQWDQHRXVELQGLQJWR9:)DQGDOVRSUHVHQWVZLWKGHFUHDVHG9:)DFWLYLW\
ORVVRI+0:PXOWLPHUVDQGWKURPERF\WRSHQLDVLPLODUWRW\SH%9:'
6SHFLILFWHVWLQJLVUHTXLUHGWRGLVWLQJXLVKWKHFRQGLWLRQV%HFDXVHWKHGHIHFW
LQYROYHVSODWHOHWVWUHDWPHQWJHQHUDOO\UHTXLUHVSODWHOHWWUDQVIXVLRQ
7\SH09:'LQFOXGHVWKRVHSDWLHQWVZLWKGHFUHDVHG9:)DFWLYLW\EXW
QRUPDORUQHDUQRUPDOPXOWLPHUGLVWULEXWLRQ7KLVLVJHQHUDOO\FDXVHGE\D
GHIHFWLQWKHDELOLW\RI9:)WRELQGSODWHOHW*3,EEXWWKLVFDWHJRU\DOVR
LQFOXGHVSDWLHQWVZLWKGHIHFWVLQ9:)FROODJHQLQWHUDFWLRQV6RPHPLQRU
EOHHGLQJLQW\SH09:'PD\UHVSRQGWRGHVPRSUHVVLQEXWEHFDXVHW\SH0
9:'LVDIXQFWLRQDOGHIHFWWUHDWPHQWZLWK9:)FRQWDLQLQJFRQFHQWUDWHVLV
XVXDOO\UHTXLUHG
7\SH19:'LVFKDUDFWHUL]HGE\DGHIHFWLQWKHDELOLW\RI9:)WRELQG
)9,,,6RPHSDWLHQWVZLWKW\SH19:'PD\EHPLVGLDJQRVHGDVPLOG
KHPRSKLOLDWKHUHIRUHDKLJKLQGH[RIVXVSLFLRQIRUWKLVGLDJQRVLVLVUHTXLUHGLQ
SDWLHQWVZLWKORZ)9,,,DQGDQDEVHQWIDPLO\KLVWRU\RI)9,,,GHILFLHQF\

/DERUDWRU\'LDJQRVLV
7KHUHDUHQRUHOLDEOHVFUHHQLQJWHVWVIRU9:'3DWLHQWVZLWKVLJQLILFDQWEOHHGLQJ
PD\SUHVHQWZLWKDQHPLDDQGVRPHSDWLHQWVZLWKW\SH%9:'RUSODWHOHWW\SH
SVHXGR9:'PD\KDYHWKURPERF\WRSHQLD7KHSDUWLDOWKURPERSODVWLQWLPHPD\
EHSURORQJHGLI)9,,,LVORZEXWHVSHFLDOO\LQW\SH9:'LWLVRIWHQQRUPDO
SUHFOXGLQJXVHRIWKH377DVDVFUHHQLQJWHVW3ODWHOHWIXQFWLRQDQDO\VLVKDVEHHQ
FRQVLGHUHGDVDVFUHHQLQJWHVWIRU9:'EXWVXERSWLPDOVHQVLWLYLW\DQG
VSHFLILFLW\UHQGHUUHVXOWVGLIILFXOWWRLQWHUSUHW%OHHGLQJWLPHVDUHVLPLODUO\
XQUHOLDEOHLQGLDJQRVLVRI9:'
8QIRUWXQDWHO\QRVLQJOHWHVWFDQUHOLDEO\GLDJQRVH9:'WKHUHIRUHDSDQHORI
WHVWVLVXVXDOO\UHTXLUHG7DEOH7KHVHLQFOXGH9:)$JZKLFKPHDVXUHV
WKHWRWDODPRXQWRI9:)SURWHLQSUHVHQWDQG9:)DFWLYLW\WHVWW\SLFDOO\XVLQJ
WKHULVWRFHWLQFRIDFWRUDFWLYLW\DVVD\9:)5&RZKLFKSURYLGHVDPHDVXUHRI
WKHDPRXQWRIIXQFWLRQDO9:))9,,,DFWLYLW\LVDOVRXVXDOO\LQFOXGHGLQWKH
ZRUNXS$QRWKHUWHVWPHDVXUHV9:)ELQGLQJWRSODWHOHW*3,EZLWKRXWULVWRFHWLQ
9:)*3,E0EXWLVQRWXQLYHUVDOO\DYDLODEOH&ROODJHQELQGLQJPHDVXUHVDQ
DGGLWLRQDOIXQFWLRQRI9:)0XOWLPHUGLVWULEXWLRQSURYLGHVDQDVVHVVPHQWRI
+0:PXOWLPHUV7DEOHVXPPDUL]HVWKHH[SHFWHGODERUDWRU\ILQGLQJVIRU
HDFKW\SHRI9:')LJSURYLGHVPRUHGHWDLOHGDQDO\VLV

7DEOH

/DERUDWRU\7HVWLQJIRUYRQ:LOOHEUDQG'LVHDVH9:'
7(67 $%%5(9,$7,21 385326(
9:)DQWLJHQ 9:)$J 0HDVXUHVWRWDODPRXQWRI9:)SURWHLQSUHVHQW
9:)DFWLYLW\ 9:)5&R $VVHVVHVLQWHUDFWLRQRI9:)DQGSODWHOHWVDVPHGLDWHGE\ULVWRFHWLQ
9:) 9:)5&R9:)$J $GHFUHDVHGUDWLRLVIRXQGLQW\SH$W\SH%DQGW\SH09:'
DFWLYLW\DQWLJHQ
UDWLR
)DFWRU9,,, )9,,, 0HDVXUHVFLUFXODWLQJ)9,,,ZKLFKZLOOEHYHU\ORZLQW\SH1DQGW\SH
DFWLYLW\ 9:'
 0XOWLPHU 9:)PXOWLPHUV $OORZVYLVXDOL]DWLRQRI9:)PXOWLPHUVXVHGWRLGHQWLI\KLJKPROHFXODU
GLVWULEXWLRQ ZHLJKWPXOWLPHUVZKLFKZLOOEHDEVHQWLQW\SHV$DQG%9:'
,QVRPHODERUDWRULHVD*3,EELQGLQJDVVD\WKH9:)*3,E0LVDYDLODEOH

9:)9RQ:LOOHEUDQGIDFWRU

7DEOH
&ODVVLILFDWLRQRIYRQ:LOOHEUDQG'LVHDVH
7<3( 7<3( 7<3($ 7<3(% 7<3(0 7<3(1
9:)$J ࠲ $EVHQW ࠲ ࠲ ࠲ 1RUPDORU࠲
9:)5&R ࠲ $EVHQW ࠲࠲ ࠲࠲ ࠲࠲ 1RUPDORU࠲
)9,,, 1RUPDO ࠲࠲ 1RUPDORU࠲ 1RUPDORU࠲ 1RUPDORU࠲ ࠲࠲
0XOWLPHUGLVWULEXWLRQ 1RUPDO $EVHQW /RVVRI+0:0 /RVVRI+0:0 1RUPDO 1RUPDO

3ODWHOHWFRXQWLVDOVRXVXDOO\GHFUHDVHGLQW\SH%9:'
)9,,,IDFWRU9,,,+0:0KLJKPROHFXODUZHLJKWPXOWLPHUV9:)$JYRQ:LOOHEUDQGIDFWRU
DQWLJHQ9:)5&R9:)ULVWRFHWLQFRIDFWRUDFWLYLW\

),* 6SHFLDOL]HGODERUDWRU\WHVWLQJIRUYRQ:LOOHEUDQGGLVHDVH9:'࠲࠲࠲࠲࠲࠲

5HODWLYHGHFUHDVH࠰࠰࠰࠰࠰࠰UHODWLYHLQFUHDVH%7EOHHGLQJWLPH)9,,,&IDFWRU9,,,
FRDJXODQWDFWLYLW\/'5,3$ORZGRVHULVWRFHWLQLQGXFHGSODWHOHWDJJUHJDWLRQ1
QRUPDO1EXW࠲QRUPDOEXWGHFUHDVHGLQLQWHQVLW\3)$SODWHOHWIXQFWLRQDQDO\VLV37
9:'SODWHOHWW\SH9:'5,3$ULVWRFHWLQLQGXFHGSODWHOHWDJJUHJDWLRQ9:)$JYRQ
:LOOHEUDQGIDFWRUDQWLJHQ9:)5&R9:)DFWLYLW\E\ULVWRFHWLQFRIDFWRU9:)SS9:)
SURSHSWLGH&RXUWHV\RI'U5REHUW50RQWJRPHU\
 $GGLWLRQDOVSHFLDOL]HGWHVWLQJPD\EHHPSOR\HGWRKHOSGHWHUPLQHWKHFRUUHFW
GLDJQRVLV6SHFLILFWHVWLQJIRUW\SH&FOHDUDQFHGHIHFWVW\SH%DQGW\SH1
9:'FDQFRQILUPWKHVHGLDJQRVHV*HQHWLFGLDJQRVLVLVQRWW\SLFDOO\SHUIRUPHG
SDUWO\EHFDXVHRIWKHODUJHVL]HRIWKH9:)JHQHDQGWKHODUJHQXPEHURIEHQLJQ
VHTXHQFHYDULDWLRQV/DUJHJHQHGHOHWLRQVDUHUHVSRQVLEOHIRUVRPHFDVHVRI
9:'DQGZLOOQRWEHGHWHFWHGRQURXWLQH'1$VHTXHQFLQJ+RZHYHUXVHRI
JHQHWLFGLDJQRVLVLVLQFUHDVLQJSDUWLFXODUO\IRUW\SHV$%0DQG19:'

7UHDWPHQW
7UHDWPHQWRI9:'GHSHQGVRQWKHW\SHRI9:'SUHVHQWDQGWKHUHDVRQIRU
WUHDWPHQW7DEOH,QJHQHUDOW\SH9:'SDWLHQWVPD\EHWUHDWHGZLWK
GHVPRSUHVVLQZKLFKLQFUHDVHVWKHDPRXQWRIFLUFXODWLQJ9:)E\UHOHDVHIURP
VWRUDJH7KHH[FHSWLRQVDUHWKHUDUHW\SHSDWLHQWZKRODFNVDUHVSRQVHWR
GHVPRSUHVVLQDQGSDWLHQWVZLWKW\SH&9:'ZKRGRUHVSRQGZLWKDQLQFUHDVH
LQ9:)OHYHOVEXWZKRVHUDSLGFOHDUDQFHRIFLUFXODWLQJHQGRJHQRXV9:)
UHVXOWVLQDUDSLGUHWXUQWREDVHOLQHOHYHOV7UHDWPHQWRIW\SHVDQG9:'
UHTXLUHV9:)FRQWDLQLQJFRQFHQWUDWHVVLPLODUWRWKHWUHDWPHQWRIKHPRSKLOLD
'RVLQJGHSHQGVRQWKHW\SHRI9:'DQGWKHUHDVRQIRUWUHDWPHQW&DUHIXO
PRQLWRULQJRI9:)DQG)9,,,OHYHOVLVUHFRPPHQGHGWRWDLORUWUHDWPHQWIRU
VXUJHULHVDQGPDMRUWUDXPD)RUDOOW\SHVRI9:'DGMXQFWWKHUDS\VKRXOGEH
FRQVLGHUHGZKHQSRVVLEOHVXFKDVWKHXVHRIDQWLILEULQRO\WLFVIRURUDOVXUJHU\RU
KRUPRQDOWUHDWPHQWIRUPHQRUUKDJLD

7DEOH
7UHDWPHQWRI9RQ:LOOHEUDQG'LVHDVH

75($70(17 9:'7<3(6 5287( '26,1*

'HVPRSUHVVLQ 7\SH9:' ,9RU,1 uJNJ,9ߥ
6RPHW\SH9:' VSUD\,1NJ
XVHZLWKFDXWLRQ VSUD\V,1!NJ
9RQ:LOOHEUDQG 7\SH9:' ,9 ULVWRFHWLQFRIDFWRUDFWLYLW\XQLWVNJDGMXVW
IDFWRU9:) 7\SH9:' GRVHGHSHQGLQJRQEDVHOLQH9:)OHYHODQG
FRQFHQWUDWHVߦ 6HYHUHW\SH9:' GHVLUHGSHDN9:)OHYHO
RUW\SHFOHDUDQFH ,IUHFRPELQDQW9:)XVHGPD\QHHGWR
GHIHFWV DGPLQLVWHUDGGLWLRQDOUHFRPELQDQW)9,,,IRU
HPHUJHQF\WUHDWPHQW
$QWLILEULQRO\WLFV 0XFRVDOEOHHGLQJDOO 32RU $PLQRFDSURLFDFLGPJNJ32ORDGLQJGRVH
W\SHVRI9:' ,9 IROORZHGE\PJNJHYHU\KUh
7UDQH[DPLFDFLGPJ32WLPHVGDLO\IRU
 GD\V
5HFRPPHQGHGWUHDWPHQWZLWK6WLPDWHEUDQGQDVDOVSUD\DVWKLVIRUPLVFRQFHQWUDWHGWRJLYH
uJVSUD\2WKHUIRUPVDUHPXFKPRUHGLOXWHDQGZLOOQRWUHVXOWLQGHVLUHGLQFUHDVHLQ9:)
ߥ
0D[LPXPUHFRPPHQGHGGRVHLVuJGD\
ߦ
&XUUHQWO\ERWK+XPDWH3DQG:LODWHDUHDSSURYHGIRUWUHDWPHQWRI9:'9RQYHQGLLVD
UHFRPELQDQW9:)WKDWLVDOVRDSSURYHGIRUWUHDWPHQWRI9:'EXWGRHVQRWFRQWDLQ)9,,,
h
0D[LPXPUHFRPPHQGHGGRVHLVJGD\
,1,QWUDQDVDO,9LQWUDYHQRXV32RUDODGPLQLVWUDWLRQ

$OWHUQDWHWUHDWPHQWVWUDWHJLHVVKRXOGDOVREHFRQVLGHUHGSDUWLFXODUO\IRU
GLIILFXOWV\PSWRPVRUVHYHUH9:'+RUPRQDOWKHUDS\IRUZRPHQZLWK
PHQRUUKDJLDDOWKRXJKQRWVSHFLILFWR9:'FDQEHYHU\KHOSIXOLQPDQDJLQJ
V\PSWRPVDQGLPSURYLQJTXDOLW\RIOLIH/RFDOWUHDWPHQWRIHSLVWD[LVVXFKDV
QDVDOFDXWHU\RUSDFNLQJPD\EHKHOSIXOLQVRPHFLUFXPVWDQFHV,URQWKHUDS\IRU
SDWLHQWVZLWKLURQGHILFLHQF\DQHPLDPD\DOVREHUHTXLUHG

%LEOLRJUDSK\
'L3DROD-0RQWJRPHU\55*LOO-&HWDO+HPRSKLOLDDQGYRQ
ZLOOHEUDQGGLVHDVH2UNLQ6+)LVKHU'(*LQVEHUJ'
1DWKDQDQG2VNL
VKHPDWRORJ\RILQIDQF\DQGFKLOGKRRGHG
6DXQGHUV(OVHYLHU3KLODGHOSKLDߙ
(LNHQERRP-)HGHULFL$%'LUYHQ5-HWDO9:)SURSHSWLGH
DQGUDWLRVEHWZHHQ9:)9:)SURSHSWLGHDQG)9,,,LQWKH
FKDUDFWHUL]DWLRQRIW\SHYRQZLOOHEUDQGGLVHDVH%ORRG
ߙ
)HGHULFL$%&XUUHQWDQGHPHUJLQJDSSURDFKHVIRUDVVHVVLQJ
YRQZLOOHEUDQGGLVHDVHLQ,QW-/DE+HPDWRO
6XSSOߙ
*RRGHYH$&7KHJHQHWLFEDVLVRIYRQZLOOHEUDQGGLVHDVH
%ORRG5HYߙ
-DPHV$+(LNHQERRP-)HGHULFL$%6WDWHRIWKHDUWYRQ
ZLOOHEUDQGGLVHDVH+DHPRSKLOLD6XSSOߙ
/DIIDQ0$/HVWHU:2
'RQQHOO-6HWDO7KHGLDJQRVLVDQG
PDQDJHPHQWRIYRQZLOOHEUDQGGLVHDVHD8QLWHG.LQJGRP
 KDHPRSKLOLDFHQWUHGRFWRUVRUJDQL]DWLRQJXLGHOLQHDSSURYHG
E\WKH%ULWLVKFRPPLWWHHIRUVWDQGDUGVLQKDHPDWRORJ\%U-
+DHPDWROߙ
/HHEHHN):(LNHQERRP-&9RQ:LOOHEUDQG
VGLVHDVH1(QJO
-0HGߙ
0DQQXFFL30)HGHULFL$%-DPHV$+HWDO9RQZLOOHEUDQG
GLVHDVHLQWKHVWFHQWXU\FXUUHQWDSSURDFKHVDQGQHZ
FKDOOHQJHV+DHPRSKLOLDߙ
1LFKROV:/+XOWLQ0%-DPHV$+HWDO9RQZLOOHEUDQG
GLVHDVH9:'HYLGHQFHEDVHGGLDJQRVLVDQGPDQDJHPHQW
JXLGHOLQHVWKHQDWLRQDOKHDUW/XQJDQGEORRGLQVWLWXWH
1+/%,H[SHUWSDQHOUHSRUW86$+DHPRSKLOLD
ߙ
&+$37(5

+HUHGLWDU\3UHGLVSRVLWLRQWR
7KURPERVLV
/HVOLH-5DIILQL-3DXO6FRWW

1XPHURXVLQKHULWHGULVNIDFWRUVIRUWKURPERVLVKDYHEHHQLGHQWLILHGEXWWKH
PDMRULW\RILQGLYLGXDOVZKRLQKHULWRQHRIWKHVHULVNIDFWRUVGRQRWQHFHVVDULO\
GHYHORSWKURPERVLVGXULQJFKLOGKRRG,GHQWLILFDWLRQRILQKHULWHGULVNIDFWRUVWKDW
FRXOGEHLGHQWLILHGLQWKHODERUDWRU\LQLWLDOO\OHGWRZLGHVSUHDGWHVWLQJRIERWK
FKLOGUHQDQGDGXOWVZLWKWKURPERVLV7KHFOLQLFDOXWLOLW\RISHUIRUPLQJVXFKWHVWV
KDVEHHQVFUXWLQL]HGDQGLWLVLPSRUWDQWWRXQGHUVWDQGWKHSRWHQWLDOEHQHILWVDQG
OLPLWDWLRQVRIWHVWLQJ
7DEOHOLVWVWKHPRVWFRPPRQLQKHULWHGWKURPERSKLOLDVDQGWKHLU
SUHYDOHQFHLQWKHJHQHUDOSRSXODWLRQ7KHLQKHULWHGGHIHFWVZLWKWKHEHVW
XQGHUVWRRGSDWKRJHQLFOLQNLQFOXGHWKHIDFWRU9/HLGHQPXWDWLRQWKH
SURWKURPELQJHQHPXWDWLRQDQGGHILFLHQFLHVRISURWHLQ&SURWHLQ6DQG
DQWLWKURPELQ,,,$7,,,(OHYDWHGOHYHOVRIIDFWRU9,,,)9,,,DQG
KRPRF\VWHLQHDUHDVVRFLDWHGZLWKWKURPERVLVEXWWKHVHWKURPERSKLOLDVDUHOHVV
ZHOOFKDUDFWHUL]HGDQGQRWQHFHVVDULO\JHQHWLFDOO\GHWHUPLQHG$OWKRXJK
DGGLWLRQDODOWHUDWLRQVLQFRDJXODWLRQKDYHEHHQDVVRFLDWHGZLWKWKURPERWLFULVN
LQFOXGLQJHOHYDWHGFRQFHQWUDWLRQVRIIDFWRUV,;DQG;,KHSDULQFRIDFWRU,,
GHILFLHQF\HOHYDWHGOLSRSURWHLQDDQGG\VILEULQRJHQHPLDQRQHKDVJDLQHG
ZLGHVSUHDGDFFHSWDQFHLQURXWLQHWHVWLQJRIFKLOGUHQIRULQKHULWHGWKURPERSKLOLD
,QJHQHUDOWKHSURWKURPERWLFWHQGHQF\FRQIHUUHGE\WKHVHGHIHFWVLVHLWKHUD
UHVXOWRIDQLQFUHDVHGSURFRDJXODQWHIIHFWSURWKURPELQJHQHPXWDWLRQHOHYDWHG
)9,,,K\SHUKRPRF\VWHLQHPLDRUDGHFUHDVHGDQWLFRDJXODQWHIIHFWIDFWRU9
/HLGHQPXWDWLRQGHILFLHQF\RISURWHLQ&SURWHLQ6RU$7,,,

7DEOH
&RPPRQ,QKHULWHG7KURPERSKLOLDVDQG$FFRPSDQ\LQJ
'LDJQRVWLF/DERUDWRU\6WXGLHV
35(9$/(1&(,1 2''65$7,2)25
7+520%23+,/,$ :+,7( ),567(3,62'(97(,1 /$%25$725<678',(6
3238/$7,21 &+,/'+22'
)DFWRU9/HLGHQ '1$EDVHG3&5DVVD\RUVFUHHQ
PXWDWLRQ ZLWKDFWLYDWHGSURWHLQ&UHVLVWDQFH
+HWHUR]\JRWH  
+RPR]\JRWH  
3URWKURPELQ '1$EDVHG3&5DVVD\
PXWDWLRQ
+HWHUR]\JRWH  
+RPR]\JRWH ߚ ߚ
$QWLWKURPELQ,,,   $QWLWKURPELQDFWLYLW\YLD
GHILFLHQF\ FKURPRJHQLFRUFORWWLQJDVVD\
3URWHLQ6GHILFLHQF\   3URWHLQ6DFWLYLW\YLDDVVD\RU
LPPXQRORJLFDVVD\RIIUHHDQGWRWDO
SURWHLQ6DQWLJHQ
3URWHLQ&GHILFLHQF\   3URWHLQ&DFWLYLW\YLDFKURPRJHQLF
RUFORWWLQJDVVD\
+\SHUKRPRF\VWHLQHPLD ߚ ߚ )DVWLQJKRPRF\VWHLQH
(OHYDWHGIDFWRU9,,, ߚ ߚ )DFWRU9,,,DFWLYLW\YLDVWDJH
FORWWLQJRUFKURPRJHQLFDVVD\

'DWDIURP<RXQJ*$OELVHWWL0%RQGXHO0HWDO,PSDFWRILQKHULWHGWKURPERSKLOLDRQYHQRXV
WKURPERHPEROLVPLQFKLOGUHQ&LUFXODWLRQߙ
3&53RO\PHUDVHFKDLQUHDFWLRQ97(YHQRXVWKURPERHPEROLVP

7KHIDFWRU9/HLGHQPXWDWLRQLVWKHUHVXOWRIDVLQJOHQXFOHRWLGHFKDQJHDW
QXFOHRWLGHZLWKLQWKHIDFWRU9JHQH7KLVPXWDWLRQFDXVHVIDFWRU9DWR
EHFRPHUHVLVWDQWWRLQDFWLYDWLRQE\DFWLYDWHGSURWHLQ&DQGLVWKHPRVWFRPPRQ
LQKHULWHGULVNIDFWRUIRUWKURPERVLV7KLVGHIHFWLVDOVRNQRZQDVDFWLYDWHG
SURWHLQ&UHVLVWDQFH$SSUR[LPDWHO\RIWKH86ZKLWHSRSXODWLRQLV
KHWHUR]\JRXVIRUWKLVPXWDWLRQLWLVOHVVSUHYDOHQWLQRWKHUHWKQLFJURXSV
,QGLYLGXDOVZKRDUHKHWHUR]\JRXVKDYHDߙIROGLQFUHDVHGULVNRIYHQRXV
WKURPERVLVZKHUHDVKRPR]\JRWHVKDYHDUHODWLYHULVNRI7KHEDVHOLQH
DQQXDOULVNRIWKURPERVLVIRU\RXQJZRPHQRIUHSURGXFWLYHDJHLVSHU
DQGLQFUHDVHVWRIRUWKRVHWDNLQJRUDOFRQWUDFHSWLYHV)RU\RXQJZRPHQ
ZKRDUHKHWHUR]\JRXVIRUWKHIDFWRU9/HLGHQPXWDWLRQDQGDUHWDNLQJ2&VWKLV
EDVHOLQHDQQXDOULVNLVLQFUHDVHGߙIROGUHODWLYHULVNWRDSSUR[LPDWHO\WR
ZRPHQ
7KHSURWKURPELQJHQHPXWDWLRQLVD*WR$WUDQVLWLRQLQWKH߯
XQWUDQVODWHGUHJLRQRIWKHJHQHWKDWUHVXOWVLQLQFUHDVHGOHYHOVRISURWKURPELQ
PHVVHQJHU51$7KLVYDULDQWLVSUHVHQWLQDSSUR[LPDWHO\RI86ZKLWHV,W
LVDZHDNHUULVNIDFWRUIRUYHQRXVWKURPERVLVWKDQIDFWRU9/HLGHQZLWKD
UHODWLYHULVNRI
'HILFLHQFLHVRISURWHLQ&SURWHLQ6DQG$7,,,WKHQDWXUDODQWLFRDJXODQW
SURWHLQVDUHOHVVFRPPRQWKDQWKHJHQHWLFPXWDWLRQVGHVFULEHGSUHYLRXVO\EXW
DUHDVVRFLDWHGZLWKDVWURQJHUULVNRIWKURPERVLV$OWKRXJKKHWHUR]\JRXV
GHILFLHQFLHVGRQRWRIWHQSUHVHQWGXULQJFKLOGKRRGKRPR]\JRXVGHIHFWVPD\
UHVXOWLQVLJQLILFDQWV\PSWRPVLQLQIDQF\1HRQDWHVZLWKKRPR]\JRXV
GHILFLHQFLHVRI$7,,,SURWHLQ&RUSURWHLQ6PD\SUHVHQWZLWKSXUSXUD
IXOPLQDQV7KLVUDUHFRQGLWLRQLVFKDUDFWHUL]HGE\UDSLGO\VSUHDGLQJSXUSXULF
VNLQOHVLRQVUHVXOWLQJIURPWKURPERVHVRIWKHVPDOOGHUPDOYHVVHOVIROORZHGE\
EOHHGLQJLQWRWKHVNLQ,QDGGLWLRQWKHVHLQIDQWVPD\DOVRGHYHORSFHUHEUDO
WKURPERVLVRSKWKDOPLFWKURPERVLVGLVVHPLQDWHGLQWUDYDVFXODUFRDJXODWLRQDQG
ODUJHYHVVHOWKURPERVLV$QLQIDQWZLWKSXUSXULFVNLQOHVLRQVRIXQNQRZQFDXVH
VKRXOGUHFHLYHLQLWLDOUHSODFHPHQWZLWKIUHVKIUR]HQSODVPD'HILQLWLYHGLDJQRVLV
FDQEHGLIILFXOWLQWKHVLFNSUHPDWXUHQHRQDWHZKRPD\KDYHXQGHWHFWDEOHOHYHOV
RIWKHVHIDFWRUVEXWQRWKDYHDWUXHJHQHWLFGHILFLHQF\3URWHLQ&DQG$7,,,
FRQFHQWUDWHVDUHDOVRDYDLODEOHDQGKDYHEHHQGHPRQVWUDWHGWREHHIIHFWLYH
%RWKYHQRXVDQGDUWHULDOWKURPERVHVDUHFRPPRQLQ\RXQJSDWLHQWVZLWK
KRPRF\VWLQXULDDQLQERUQHUURURIPHWDEROLVPFDXVHGE\GHILFLHQF\RI
F\VWDWKLRQH͡V\QWKDVH,QWKLVYHU\UDUHFRQGLWLRQSODVPDOHYHOVRI
KRPRF\VWHLQHH[FHHGuPRO/0XFKPRUHFRPPRQDUHPLOGWRPRGHUDWH
HOHYDWLRQVRIKRPRF\VWHLQHZKLFKPD\EHDFTXLUHGRUDVVRFLDWHGZLWKD
SRO\PRUSKLVPLQWKHPHWK\OHQHWHWUDK\GURIRODWHUHGXFWDVH07+)5JHQH
$OWKRXJKPRGHUDWHHOHYDWLRQVRIKRPRF\VWHLQHKDYHEHHQDVVRFLDWHGZLWKERWK
YHQRXVDQGDUWHULDOWKURPERWLFHYHQWVWHVWLQJIRUSRO\PRUSKLVPVLQWKH07+)5
JHQHLVQRWLQGLFDWHGEHFDXVHWKHVHSRO\PRUSKLVPVDUHFRPPRQDQGE\
WKHPVHOYHVDUHQRWDVVRFLDWHGZLWKYHQRXVWKURPERHPEROLVP7KHSDWKRJHQLF
PHFKDQLVPVIRUWKURPERVLVLQKRPRF\VWLQHPLDDUHQRWZHOOXQGHUVWRRG
,QFUHDVHGSODVPDFRQFHQWUDWLRQVRIIDFWRU9,,,!,8G/DSSHDUWREH
UHJXODWHGE\ERWKJHQHWLFDQGHQYLURQPHQWDOIDFWRUVDQGDUHDVVRFLDWHGZLWKDQ
LQFUHDVHGULVNRIWKURPERVLV$OWKRXJKWKHUHLVDVWURQJFRPSRQHQWRI
KHULWDELOLW\FRQWULEXWLQJWRIDFWRU9,,,OHYHOVWKHPROHFXODUPHFKDQLVPV
UHVSRQVLEOHIRUHOHYDWHGIDFWRU9,,,DUHQRWZHOOXQGHUVWRRG)DFWRU9,,,LVDOVR
FRQVLGHUHGWREHDQDFXWHSKDVHUHDFWDQWDQGPD\LQFUHDVHWUDQVLHQWO\GXULQJ
SHULRGVRILQIODPPDWLRQ
$OWKRXJKLQWHUSUHWDWLRQRIJHQHWLFVWXGLHVIDFWRU9/HLGHQDQGSURWKURPELQ
JHQHPXWDWLRQVLVIDLUO\VWUDLJKWIRUZDUGVHYHUDOFKDOOHQJHVLQLQWHUSUHWDWLRQRI
WKURPERSKLOLDVWXGLHVDUHXQLTXHWRSHGLDWULFSDWLHQWV1HRQDWHVKDYHGHFUHDVHG
FRQFHQWUDWLRQVRISURWHLQ&SURWHLQ6DQG$7,,,WKDWLQFUHDVHUDSLGO\RYHUWKH
VWPRRIOLIHSURWHLQ&FRQFHQWUDWLRQVUHPDLQEHORZDGXOWOHYHOVWKURXJKRXW
PXFKRIFKLOGKRRG,WLVLPSRUWDQWWRXVHSHGLDWULFQRUPDOUDQJHVZKHQ
HYDOXDWLQJWKHVHYDOXHVDQGUHFRJQL]HWKDWRIWHQWKHQRUPDOUDQJHRYHUODSVZLWK
KHWHUR]\JRXVGHIHFWVDQGWKDWUHWHVWLQJPD\EHUHTXLUHGSDUWLFXODUO\LQ\RXQJ
FKLOGUHQ6HYHUDOQRQJHQHWLFIDFWRUVPD\DOVRLQIOXHQFHWKHUHVXOWVRILQKHULWHG
WKURPERSKLOLDWHVWLQJLQFOXGLQJDFXWHWKURPERVLVLQIHFWLRQLQIODPPDWLRQ
KHSDWLFG\VIXQFWLRQQHSKURWLFV\QGURPHPHGLFDWLRQDQGYLWDPLQ.GHILFLHQF\
,QVRPHSDWLHQWVWKHKHUHGLWDU\QDWXUHPD\EHFRQILUPHGE\WHVWLQJWKHSDUHQWV
7KURPERSKLOLDWHVWLQJLVRIWHQFRQVLGHUHGGXULQJFKLOGKRRGLQVLWXDWLRQVD
FKLOGZKRGHYHORSVWKURPERVLVDQGDFKLOGZKRKDVUHODWLYHVZLWKWKURPERVLVRU
WKURPERSKLOLD7KURPERSKLOLDWHVWLQJUDUHO\LQIOXHQFHVWKHDFXWHPDQDJHPHQWRI
DFKLOGZLWKDWKURPERWLFHYHQW7KHPDMRULW\RIFKLOGUHQZKRGHYHORS
WKURPERVLVKDYHPXOWLSOHFRH[LVWHQWDFTXLUHGULVNIDFWRUVVHH7DEOHLQ
&KDSWHULQKHULWHGWKURPERSKLOLDLVXQFRPPRQLQWKLVVFHQDULRDQGWHVWLQJ
LVJHQHUDOO\QRWZDUUDQWHG+RZHYHULQKHULWHGWKURPERSKLOLDLVPRUHFRPPRQLQ
DQRWKHUZLVHKHDOWK\FKLOGRUDGROHVFHQWZKRGHYHORSVDEORRGFORWRULQDFKLOG
ZKRGHYHORSVXQXVXDORUUHFXUUHQWWKURPERVLV7KURPERSKLOLDWHVWLQJPD\EH
XVHIXOLQWKHVHVLWXDWLRQVEHFDXVHLWPD\KHOSH[SODLQZK\WKHFKLOGGHYHORSHGD
EORRGFORW,QVRPHFDVHVLGHQWLILFDWLRQRIVWURQJRUFRPELQHGGHIHFWVPD\DOWHU
WKHGXUDWLRQRIWKHUDS\+RZHYHUFXUUHQWWUHDWPHQWUHFRPPHQGDWLRQVGRQRW
GLIIHUEDVHGRQWKHSUHVHQFHRUDEVHQFHRIDQLQKHULWHGWKURPERSKLOLD
7KHGHFLVLRQWRSHUIRUPWKURPERSKLOLDWHVWLQJLQDQRWKHUZLVHKHDOWK\FKLOG
ZLWKDIDPLO\KLVWRU\RIWKURPERVLVRUWKURPERSKLOLDVKRXOGEHFDUHIXOO\
FRQVLGHUHGZHLJKLQJWKHSRWHQWLDODGYDQWDJHVDQGOLPLWDWLRQVRIVXFKDQ
DSSURDFK*LYHQWKDWWKHDEVROXWHULVNRIWKURPERVLVLQFKLOGUHQLVH[WUHPHO\ORZ
LWLVXQOLNHO\WKDWDQLQKHULWHGWKURPERSKLOLDZLOOKDYHDQ\
LPSDFWRQFOLQLFDOGHFLVLRQPDNLQJIRUD\RXQJFKLOG7KHULVNRIWKURPERVLV
LQFUHDVHVZLWKDJHVRLGHQWLILFDWLRQRIDWKURPERSKLOLFGHIHFWLQDQDGROHVFHQW
PD\JXLGHWKURPERSURSK\OD[LVLQKLJKULVNVLWXDWLRQVORZHUH[WUHPLW\FDVWLQJ
RUSURORQJHGLPPRELOLW\LQIRUPWKHGLVFXVVLRQDERXWHVWURJHQEDVHG
FRQWUDFHSWLYHVDQGSURPRWHOLIHVW\OHPRGLILFDWLRQWRDYRLGEHKDYLRUDO
SURWKURPERWLFULVNIDFWRUVVHGHQWDU\OLIHVW\OHGHK\GUDWLRQREHVLW\DQG
VPRNLQJ/LPLWDWLRQVRIVXFKWHVWLQJLQFOXGHWKHFRVWDVZHOODVWKHSRWHQWLDOIRU
FDXVLQJXQQHFHVVDU\DQ[LHW\RUIDOVHUHDVVXUDQFH
%LEOLRJUDSK\
$QGUHZ03DHV%0LOQHU5HWDO'HYHORSPHQWRIWKHKXPDQ
FRDJXODWLRQV\VWHPLQWKHIXOOWHUPLQIDQW%ORRG
ߙ
%HUWLQD50.RHOHPDQ%3.RVWHU7HWDO0XWDWLRQLQEORRG
FRDJXODWLRQIDFWRU9DVVRFLDWHGZLWKUHVLVWDQFHWRDFWLYDWHG
SURWHLQ&1DWXUHߙ
%H]HPHU,'%DUH/$'RJJHQ&-0HWDO*HQHYDULDQWV
DVVRFLDWHGZLWKGHHSYHLQWKURPERVLV-$0$
ߙ
&RQQRUV-07KURPERSKLOLDWHVWLQJDQGYHQRXVWKURPERVLV1
(QJO-0HGߙ
&RSSROD$7XIDQR$&HUERQH$0HWDO,QKHULWHG
WKURPERSKLOLDLPSOLFDWLRQVIRUSUHYHQWLRQDQGWUHDWPHQWRI
YHQRXVWKURPERHPEROLVP6HPLQ7KURPE+HPRVW
ߙ
+LFNV/.%HULQJ+&DUVRQ.5HWDO7KH$6+FKRRVLQJ
ZLVHO\FDPSDLJQILYHKHPDWRORJLFWHVWVDQGWUHDWPHQWVWR
TXHVWLRQ%ORRGߙ
+RO]KDXHU6*ROGHQEHUJ1$-XQNHU5HWDO,QKHULWHG
WKURPERSKLOLDLQFKLOGUHQZLWKYHQRXVWKURPERHPEROLVPDQG
WKHIDPLOLDOULVNRIWKURPERHPEROLVPDQREVHUYDWLRQDOVWXG\
%ORRGߙ
.UHX]:6WROO0-XQNHU5HWDO)DPLOLDOHOHYDWHGIDFWRU9,,,
LQFKLOGUHQZLWKV\PSWRPDWLFYHQRXVWKURPERVLVDQGSRVW
WKURPERWLFV\QGURPHUHVXOWVRIDPXOWLFHQWHUVWXG\
$UWHULRVFOHU7KURPE9DVF%LROߙ
0DF&DOOXP3'LDJQRVLVDQGPDQDJHPHQWRIKHULWDEOH
WKURPERSKLOLDV%0-J
0DUWLQHOOL,%XFFLDUHOOL3$UWRQL$HWDO$QWLFRDJXODQW
WUHDWPHQWZLWKULYDUR[DEDQLQVHYHUHSURWHLQ6GHILFLHQF\
3HGLDWULFVHߙH
0LGGHOGRUS6YDQ+\OFNDPD9OLHJ$'RHVWKURPERSKLOLD
WHVWLQJKHOSLQWKHFOLQLFDOPDQDJHPHQWRISDWLHQWV"%U-
+DHPDWROߙ
0RQDJOH3%DUQHV&,JQMDWRYLF9HWDO'HYHORSPHQWDO
KDHPRVWDVLVLPSDFWIRUFOLQLFDOKDHPRVWDVLVODERUDWRULHV
7KURPE+DHPRVWߙ
1HVKDW9DKLG63LHUFH5+HUVKH\'HWDO$VVRFLDWLRQRI
WKURPERSKLOLDDQGFDWKHWHUDVVRFLDWHGWKURPERVLVLQFKLOGUHQ
DV\VWHPDWLFUHYLHZDQGPHWDDQDO\VLV-7KURPE+DHPRVW
ߙ
5DIILQL/7KURPERSKLOLDLQFKLOGUHQZKRWRWHVWKRZZKHQ
DQGZK\"+HPDWRORJ\$P6RF+HPDWRO(GXF3URJUDP
ߙ
5HYHO9LON6*7KURPERSKLOLDLQFKLOGUHQZLWKYHQRXV
WKURPERHPEROLFGLVHDVH7KURPE5HVߙ
6HJDO-%%URWPDQ'-1HFRFKHD$-HWDO3UHGLFWLYHYDOXHRI
IDFWRU9/HLGHQDQGSURWKURPELQ*$LQDGXOWVZLWK
YHQRXVWKURPERHPEROLVPDQGLQIDPLO\PHPEHUVRIWKRVH
ZLWKDPXWDWLRQ-$0$ߙ
6WHYHQV60:ROOHU6&%DXHU.$HWDO*XLGDQFHIRUWKH
HYDOXDWLRQDQGWUHDWPHQWRIKHUHGLWDU\DQGDFTXLUHG
WKURPERSKLOLD-7KURPE7KURPERO\VLVߙ
7KRUQEXUJ&''L[RQ13DXO\VRQ1XQH].HWDO
7KURPERSKLOLDVFUHHQLQJLQDV\PSWRPDWLFFKLOGUHQ7KURPE
5HVߙ
<DQJ-<.&KDQ$.&3HGLDWULFWKURPERSKLOLD3HGLDWU&OLQ
1RUWK$Pߙ
<RXQJ*$OELVHWWL0%RQGXHO0HWDO,PSDFWRILQKHULWHG
WKURPERSKLOLDRQYHQRXVWKURPERHPEROLVPLQFKLOGUHQ
&LUFXODWLRQߙ
&+$37(5

7KURPERWLF'LVRUGHUVLQ&KLOGUHQ
/HVOLH-5DIILQL-3DXO6FRWW

$GYDQFHPHQWVLQWKHWUHDWPHQWDQGVXSSRUWLYHFDUHRIFULWLFDOO\LOOFKLOGUHQ
FRXSOHGZLWKDKHLJKWHQHGDZDUHQHVVRIJHQHWLFULVNIDFWRUVIRUWKURPERVLV
KDYHOHGWRDQLQFUHDVHLQWKHGLDJQRVLVRIWKURPERHPEROLFHYHQWV7(VLQ
FKLOGUHQ7(VDUHVHHQLQSHGLDWULFWHUWLDU\FDUHFHQWHUVDQGPD\UHVXOWLQ
VLJQLILFDQWDFXWHDQGFKURQLFPRUELGLW\'HVSLWHLQFUHDVLQJLQUHODWLYHWHUPV7(V
LQFKLOGUHQDUHVWLOOUDUH'LDJQRVLVDQGWUHDWPHQWDUHRIWHQH[WUDSRODWHGIURP
DGXOWGDWD

(SLGHPLRORJ\
6WXGLHVKDYHFRQILUPHGDVLJQLILFDQWLQFUHDVHLQWKHGLDJQRVLVRIYHQRXV
WKURPERHPEROLVP97(LQSHGLDWULFWHUWLDU\KRVSLWDOVDFURVVWKH8QLWHG
6WDWHV$OWKRXJKWKHRYHUDOOLQFLGHQFHRIWKURPERVLVLQWKHJHQHUDOSHGLDWULF
SRSXODWLRQLVTXLWHORZWKHUDWHRI97(LQKRVSLWDOL]HGFKLOGUHQ
LVSHUDGPLVVLRQV,QIDQWV\UROGDFFRXQWIRUWKHODUJHVWSURSRUWLRQ
RISHGLDWULF97(VZLWKDQGSHDNGXULQJDGROHVFHQFH
7KHPDMRULW\RIFKLOGUHQZKRGHYHORSD7(KDYHPXOWLSOHULVNIDFWRUVWKDW
PD\EHDFTXLUHGLQKHULWHGRUDQDWRPLF7DEOH7KHSUHVHQFHRIDFHQWUDO
YHQRXVFDWKHWHU&9&SHULSKHUDOO\LQVHUWHGFHQWUDOYHQRXVFDWKHWHULVWKHPRVW
LPSRUWDQWULVNIDFWRUIRU97(LQSHGLDWULFSDWLHQWVDVVRFLDWHGZLWK
DSSUR[LPDWHO\RIQHRQDWDO97(DQGRIFKLOGKRRG97(&9&VDUH
RIWHQQHFHVVDU\IRUWKHFDUHRISUHPDWXUHQHRQDWHVDQGFKLOGUHQZLWKDFXWHDQG
FKURQLFGLVHDVHVDQGDUHXVHGIRULQWUDYHQRXV,9K\SHUDOLPHQWDWLRQ
FKHPRWKHUDS\GLDO\VLVDQWLELRWLFVRUVXSSRUWLYHWKHUDS\&9&VPD\GDPDJH
WKHHQGRWKHOLDOOLQLQJDQGRUFDXVHEORRGIORZGLVUXSWLRQLQFUHDVLQJWKHULVNRI
WKURPERVLV0DQ\RWKHUDFTXLUHGULVNIDFWRUVDUHDVVRFLDWHGZLWKWKURPERVLV
LQFOXGLQJWUDXPDLQIHFWLRQFKURQLFPHGLFDOLOOQHVVHVDQGPHGLFDWLRQV&DQFHU
FRQJHQLWDOKHDUWGLVHDVHDQGSUHPDWXULW\DUHWKHPRVWFRPPRQPHGLFDO
FRQGLWLRQVDVVRFLDWHGZLWK7(V

7DEOH
5LVN)DFWRUVIRU7KURPERVLV
*(1(5$/
,QGZHOOLQJFDWKHWHULQFOXGLQJ3,&&OLQHV
,QIHFWLRQ
7UDXPD
6XUJHU\
&DQFHU
,PPRELOLW\
&DUGLDFGLVHDVHSURVWKHWLFYDOYH
6\VWHPLFOXSXV
5KHXPDWRLGDUWKULWLV
,QIODPPDWRU\ERZHOGLVHDVH
3RO\F\WKHPLDGHK\GUDWLRQ
1HSKURWLFV\QGURPH
'LDEHWHV
3UHJQDQF\
2EHVLW\
3UHPDWXULW\
3DUR[\VPDOQRFWXUQDOKHPRJORELQXULD
$QWLSKRVSKROLSLGDQWLERG\V\QGURPH
7KURPERWLFWKURPERF\WRSHQLFSXUSXUD
,1+(5,7('7+520%23+,/,$
)DFWRU9/HLGHQPXWDWLRQ
3URWKURPELQPXWDWLRQ
$QWLWKURPELQGHILFLHQF\
3URWHLQ&GHILFLHQF\
3URWHLQ6GHILFLHQF\
+RPRF\VWLQXULD
(OHYDWHGIDFWRU9,,,
'\VILEULQRJHQHPLD
$1$720,&
7KRUDFLFRXWOHWREVWUXFWLRQ3DJHW6FKURHWWHUV\QGURPH
,OLDFYHLQFRPSUHVVLRQV\QGURPH0D\7KXUQHUV\QGURPH
$EVHQFHRILQIHULRUYHQDFDYD
0(',&$7,216
(VWURJHQFRQWDLQLQJFRQWUDFHSWLYHV
$VSDUDJLQDVH
+HSDULQKHSDULQLQGXFHGWKURPERF\WRSHQLD
&RUWLFRVWHURLGV
3,&&3HULSKHUDOO\LQVHUWHGFHQWUDOYHQRXVFDWKHWHU

$QWLSKRVSKROLSLGDQWLERG\V\QGURPH$36LVDZHOOGHVFULEHGV\QGURPH

LQDGXOWVFKDUDFWHUL]HGE\UHFXUUHQWIHWDOORVVDQGRUWKURPERVLV
$QWLSKRVSKROLSLGDQWLERGLHVDUHDVVRFLDWHGZLWKERWKYHQRXVDQGDUWHULDO
WKURPERVLV7KHPHFKDQLVPE\ZKLFKWKHVHDQWLERGLHVFDXVHWKURPERVLVLVQRW
ZHOOXQGHUVWRRG$GLDJQRVLVRI$36UHTXLUHVWKHSUHVHQFHRIERWKFOLQLFDODQG
ODERUDWRU\DEQRUPDOLWLHVVHH/DERUDWRU\7HVWLQJ7KHODERUDWRU\DEQRUPDOLWLHV
PXVWEHSHUVLVWHQWIRUZN%HFDXVHRIWKHKLJKULVNRIUHFXUUHQFHSDWLHQWV
ZLWK$36RIWHQUHTXLUHORQJWHUPDQWLFRDJXODWLRQ,WLVLPSRUWDQWWRQRWHWKDW
KHDOWK\FKLOGUHQPD\KDYHDWUDQVLHQWOXSXVDQWLFRDJXODQWRIWHQGLDJQRVHG
EHFDXVHRIDSURORQJHGSDUWLDOWKURPERSODVWLQWLPH377RQURXWLQH
SUHRSHUDWLYHWHVWLQJ,QWKLVVHWWLQJWUDQVLHQWDQWLERGLHVPD\EHDVVRFLDWHGZLWKD
UHFHQWYLUDOLQIHFWLRQDQGDUHQRWDULVNIDFWRUIRUWKURPERVLV$36LVQRWHGLQ
SDWLHQWVZLWKV\VWHPLFOXSXVHU\WKHPDWRVXVVHH&KDSWHUDQGPD\DOVREH
DVVRFLDWHGZLWKOLYHGRUHWLFXODULVQHXURSV\FKLDWULFFRPSOLFDWLRQV
WKURPERF\WRSHQLDRUDQHPLDWKHVHSDWLHQWVDUHRIWHQSHUVLVWHQWO\SRVLWLYHIRU
WKHDQWLSKRVSKROLSLGDQWLERG\&DWDVWURSKLFDQWLSKRVSKROLSLGV\QGURPHLVDUDUH
DQGSRWHQWLDOO\IDWDOGLVRUGHUFKDUDFWHUL]HGE\UDSLGRQVHWRIPXOWLRUJDQ
WKURPERVLVDQGRUWKURPERWLFPLFURDQJLRSDWKLHV
$QDWRPLFDEQRUPDOLWLHVWKDWLPSHGHEORRGIORZDOVRSUHGLVSRVHSDWLHQWVWR
WKURPERVLVDWDQHDUOLHUDJH$WUHVLDRIWKHLQIHULRUYHQDFDYDKDVEHHQGHVFULEHG
LQDVVRFLDWLRQZLWKDFXWHDQGFKURQLFORZHUH[WUHPLW\GHHSYHLQWKURPERVLV
'97&RPSUHVVLRQRIWKHOHIWLOLDFYHLQE\WKHRYHUO\LQJULJKWLOLDFDUWHU\
0D\7KXUQHUV\QGURPHVKRXOGEHFRQVLGHUHGLQSDWLHQWVZKRSUHVHQW
VSRQWDQHRXVO\ZLWKOHIWLOLRIHPRUDOWKURPERVLVDQGWKRUDFLFRXWOHWREVWUXFWLRQ
3DJHW6FKURHWWHUV\QGURPHIUHTXHQWO\SUHVHQWVZLWKHIIRUWUHODWHGD[LOODU\
VXEFODYLDQYHLQWKURPERVLV

&OLQLFDO0DQLIHVWDWLRQV
([WUHPLW\'HHS9HLQ7KURPERVLV
&KLOGUHQZLWKDFXWH'97RIWHQSUHVHQWZLWKH[WUHPLW\SDLQVZHOOLQJDQG
GLVFRORUDWLRQ$KLVWRU\RIDFXUUHQWRUUHFHQW&9&LQWKDWH[WUHPLW\VKRXOGEH
YHU\VXJJHVWLYH0DQ\WLPHVV\PSWRPVRI&9&DVVRFLDWHGWKURPERVLVDUHPRUH
VXEWOHDQGFKURQLFLQFOXGLQJUHSHDWHG&9&RFFOXVLRQRUVHSVLVRUSURPLQHQW
YHQRXVFROODWHUDOVRQWKHFKHVWIDFHDQGQHFN

3XOPRQDU\(PEROLVP
6\PSWRPVRISXOPRQDU\HPEROLVP3(LQFOXGHVKRUWQHVVRIEUHDWKSOHXULWLF
FKHVWSDLQFRXJKKHPRSW\VLVIHYHUDQGLQWKHFDVHRIPDVVLYH3(
K\SRWHQVLRQDQGULJKWVLGHGKHDUWIDLOXUH%DVHGRQDXWRSV\VWXGLHVLQSHGLDWULF
FHQWHUV3(LVRIWHQXQGLDJQRVHGEHFDXVH\RXQJFKLOGUHQDUHXQDEOHWRGHVFULEH
WKHLUV\PSWRPVDFFXUDWHO\DQGWKHLUUHVSLUDWRU\GHWHULRUDWLRQPD\EHPDVNHGE\
RWKHUFRQGLWLRQVVHH&KDSWHU

&HUHEUDO6LQRYHQRXV7KURPERVLV
6\PSWRPVPD\EHVXEWOHDQGPD\GHYHORSRYHUPDQ\KRXUVRUGD\V1HRQDWHV
ZLWKFHUHEUDOVLQRYHQRXVWKURPERVLVRIWHQSUHVHQWZLWKVHL]XUHVZKHUHDVROGHU
FKLOGUHQRIWHQFRPSODLQRIKHDGDFKHYRPLWLQJVHL]XUHVDQGIRFDOVLJQV7KH\
PD\DOVRKDYHSDSLOOHGHPDDQGDEGXFHQVSDOV\2OGHUSDWLHQWVPD\KDYHD
FRQFXUUHQWVLQXVLWLVRUPDVWRLGLWLVWKDWKDVFRQWULEXWHGWRWKHWKURPERVLV

5HQDO9HLQ7KURPERVLV
5HQDOYHLQWKURPERVLVLVWKHPRVWFRPPRQVSRQWDQHRXV97(LQQHRQDWHV
$IIHFWHGLQIDQWVPD\SUHVHQWZLWKKHPDWXULDDQDEGRPLQDOPDVVDQG
WKURPERF\WRSHQLD,QIDQWVRIGLDEHWLFPRWKHUVDUHDWLQFUHDVHGULVNIRUUHQDOYHLQ
WKURPERVLVDOWKRXJKWKHPHFKDQLVPIRUWKHLQFUHDVHGULVNLVXQNQRZQ
$SSUR[LPDWHO\RIFDVHVDUHELODWHUDO

3HULSKHUDO$UWHULDO7KURPERVLV
:LWKWKHH[FHSWLRQRIVWURNHWKHPDMRULW\RIDUWHULDO7(VLQFKLOGUHQDUH
VHFRQGDU\WRFDWKHWHUVRIWHQLQQHRQDWHVUHODWHGWRXPELOLFDODUWHU\OLQHVRULQ
SDWLHQWVZLWKFDUGLDFGHIHFWVXQGHUJRLQJFDUGLDFFDWKHWHUL]DWLRQ3DWLHQWVZLWKDQ
DUWHULDOWKURPERVLVDIIHFWLQJEORRGIORZWRDQH[WUHPLW\ZLOOSUHVHQWZLWKDFROG
SDOHEOXHH[WUHPLW\ZLWKSRRURUDEVHQWSXOVHV

6WURNH
,VFKHPLFVWURNHW\SLFDOO\SUHVHQWVZLWKKHPLSDUHVLVORVVRIFRQVFLRXVQHVVRU
VHL]XUHV7KLVFRQGLWLRQPD\RFFXUVHFRQGDU\WRSDWKRORJ\WKDWDIIHFWVWKH
LQWUDFUDQLDODUWHULHVHJVLFNOHFHOOGLVHDVHYDVFXORSDWK\RUWUDXPDWLFDUWHULDO
GLVVHFWLRQRUPD\UHVXOWIURPYHQRXVWKURPELWKDWHPEROL]HWRWKHDUWHULDO
FLUFXODWLRQSODFHQWDOWKURPELFKLOGUHQZLWKFRQJHQLWDOKHDUWGLVHDVHRUSDWHQW
IRUDPHQRYDOH
5DSLGO\3URJUHVVLYH7KURPERVLV7KURPERWLF
6WRUP
5DSLGSURJUHVVLRQRUPXOWLIRFDOWKURPERVLVLVDUDUHFRPSOLFDWLRQRI$36
KHSDULQLQGXFHGWKURPERF\WRSHQLDZLWKWKURPERVLVRUWKURPERWLF
WKURPERF\WRSHQLDSXUSXUDGXULQJDSSURSULDWHDQWLWKURPERWLFWKHUDS\
0XOWLRUJDQG\VIXQFWLRQVGHYHORSLQWKHSUHVHQFHRIVPDOOYHVVHORFFOXVLRQDQG
HOHYDWHG'GLPHUOHYHOV5HFXUUHQFHVDQGSRVWWKURPERWLFV\QGURPH376
PD\RFFXU7UHDWPHQWLQFOXGHVDJJUHVVLYHDQWLFRDJXODWLRQRIWHQZLWKGLUHFW
WKURPELQLQKLELWRUVRUIRQGDSDULQX[IROORZHGE\SURORQJHGZDUIDULQWKHUDS\,Q
UDUHFDVHVSODVPDSKHUHVLVRULPPXQRVXSSUHVVLRQPD\EHZDUUDQWHG

'LDJQRVLV
8OWUDVRXQGZLWK'RSSOHUIORZLVWKHPRVWFRPPRQO\HPSOR\HGLPDJLQJVWXG\
IRUWKHGLDJQRVLVRIXSSHUH[WUHPLW\RUPRUHRIWHQORZHUH[WUHPLW\97(6SLUDO
&7LVXVHGPRVWIUHTXHQWO\IRUWKHGLDJQRVLVRI3()LJ2WKHU
GLDJQRVWLFLPDJLQJRSWLRQVLQFOXGH&7DQG05YHQRJUDSK\ZKLFKDUH
QRQLQYDVLYHDOWKRXJKWKHVHQVLWLYLW\DQGVSHFLILFLW\RIWKHVHVWXGLHVLVQRW
NQRZQ7KHVHVWXGLHVPD\EHSDUWLFXODUO\KHOSIXOLQHYDOXDWLQJSUR[LPDORU
DEGRPLQDOWKURPERVLV)RUWKHGLDJQRVLVRIFHUHEUDOVLQRYHQRXVWKURPERVLVDQG
DFXWHLVFKHPLFVWURNHWKHPRVWVHQVLWLYHLPDJLQJVWXG\LVEUDLQ05,ZLWK
YHQRJUDSK\RUGLIIXVLRQZHLJKWHGLPDJLQJ
 
),* &KHVW&7VFDQIURP\UROGPDOHZLWKODUJHSXOPRQDU\HPEROLVP7KHUH
DUHODUJHILOOLQJGHIHFWVLQERWKWKHULJKWDQGWKHOHIWPDLQSXOPRQDU\DUWHU\

/DERUDWRU\7HVWLQJ
$OOFKLOGUHQZLWKD97(VKRXOGKDYHDFRPSOHWHEORRGFRXQWDQGDEDVHOLQH
SURWKURPELQWLPH37DQG377WRDVVHVVWKHLUFRDJXODWLRQVWDWXV,QDGXOWVZLWK
VXVSHFWHG'97WKH'GLPHUOHYHOKDVDKLJKQHJDWLYHSUHGLFWLYHYDOXHEXWWKH
SUHGLFWLYHYDOXHLVQRWDVZHOOHVWDEOLVKHGIRUFKLOGUHQ7KH'GLPHULVD
IUDJPHQWSURGXFHGZKHQILEULQLVGHJUDGHGE\SODVPLQDQGLVDPHDVXUHRI
ILEULQRO\VLV%DVHGRQWKHFOLQLFDOVFHQDULRRWKHUODERUDWRU\VWXGLHVVXFKDV
UHQDODQGKHSDWLFIXQFWLRQPD\EHLQGLFDWHG7HVWLQJIRU$36LQFOXGHV
HYDOXDWLRQIRUWKHOXSXVDQWLFRDJXODQWDVZHOODVDQWLFDUGLROLSLQDQGDQWLߙ͡
JO\FRSURWHLQDQWLERGLHVDQGVKRXOGEHFRQVLGHUHGLQSDWLHQWVZLWKLQIODPPDWRU\
GLVRUGHUVRUWKRVHZKRSUHVHQWZLWKWKURPERVLVDQGQRRWKHUREYLRXVULVN
IDFWRUV
7KHUHLVGHEDWHUHJDUGLQJZKLFKSDWLHQWVVKRXOGKDYHWHVWLQJIRULQKHULWHGULVN
IDFWRUV7KURPERSKLOLDWHVWLQJUDUHO\LQIOXHQFHVWKHDFXWHPDQDJHPHQWRIDFKLOG
ZLWKDWKURPERWLFHYHQW,GHQWLILFDWLRQRIDQLQKHULWHGWKURPERSKLOLDPD\
LQIOXHQFHWKHGXUDWLRQRIWUHDWPHQWSDUWLFXODUO\IRUWKRVHZLWKDVWURQJ
WKURPERSKLOLDDQGPD\DLGLQFRXQVHOLQJSDWLHQWVDERXWWKHLUULVNRIUHFXUUHQFH
7KHHYDOXDWLRQDQGLQWHUSUHWDWLRQRIFRDJXODWLRQVWXGLHVLQSHGLDWULFSDWLHQWV
PD\EHFRPSOLFDWHGE\WKHGHYHORSLQJKHPRVWDWLFV\VWHPDQGWKHGLIIHUHQFHVLQ
QRUPDOUDQJHVEHWZHHQLQIDQWVDQGDGXOWVVHH&KDSWHU

7UHDWPHQW
7KHUDSHXWLFRSWLRQVIRUFKLOGUHQZLWKWKURPERVLVLQFOXGHREVHUYDWLRQ
DQWLFRDJXODWLRQWKURPERO\VLVDQGVXUJHU\,QSUHPDWXUHQHRQDWHVDQGFULWLFDOO\
LOOFKLOGUHQZKRDUHDWKLJKULVNRIEOHHGLQJWKHSRWHQWLDOEHQHILWVPXVWEH
ZHLJKHGDJDLQVWWKHULVNVDQGFORVHREVHUYDWLRQZLWKUHSHDWLPDJLQJPD\EHDQ
RSWLRQ7KHPDMRULW\RIQRQQHRQDWHVZLWKV\PSWRPDWLFWKURPERVLVDUHWUHDWHG
ZLWKDQWLFRDJXODQWWKHUDS\7KHJRDORIDQWLFRDJXODWLRQLVWRUHGXFHWKHULVNRI
HPEROLVPKDOWFORWH[WHQVLRQDQGSUHYHQWUHFXUUHQFHVHH&KDSWHU
6\VWHPLFRUHQGRYDVFXODUWKURPERO\VLVPD\EHLQGLFDWHGIRURUJDQRUOLPE
WKUHDWHQLQJWKURPERVLV6XUJHU\PD\EHQHFHVVDU\IRUOLIHRUOLPEWKUHDWHQLQJ
WKURPERVLVZKHQWKHUHLVDFRQWUDLQGLFDWLRQWRWKURPERO\VLV7KHRSWLPDO
WUHDWPHQWIRUDFKLOGZLWKDFXWHLVFKHPLFVWURNHGHSHQGVRQWKHOLNHO\HWLRORJ\
DQGWKHVL]HRIWKHLQIDUFW&KLOGUHQZLWKVLFNOHFHOOGLVHDVHZKRGHYHORSVWURNH
DUHWUHDWHGZLWKFKURQLFUHGEORRGFHOOWUDQVIXVLRQVWRUHGXFHUHFXUUHQFH

&RPSOLFDWLRQV
&RPSOLFDWLRQVRI97(LQFOXGHUHFXUUHQWWKURPERVLVORFDORUGLVWDQWDQG
GHYHORSPHQWRI376$WKURPERVHGEORRGYHVVHOPD\SDUWLDOO\RUIXOO\
UHFDQDOL]HRUPD\UHPDLQRFFOXGHG2YHUWLPHDQRFFOXGHGGHHSYHLQPD\FDXVH
YHQRXVK\SHUWHQVLRQUHVXOWLQJLQEORRGIORZEHLQJGLUHFWHGIURPWKHGHHS
V\VWHPLQWRWKHVXSHUILFLDOYHLQVDQGSRWHQWLDOO\SURGXFLQJSDLQVZHOOLQJ
HGHPDGLVFRORUDWLRQDQGXOFHUDWLRQ7KLVFOLQLFDOSLFWXUHLVNQRZQDV
SRVWWKURPERWLFV\QGURPHDQGPD\EHFKURQLFDOO\GLVDEOLQJ6HYHUDOSURVSHFWLYH
VWXGLHVLQDGXOWVKDYHVKRZQ376WREHSUHVHQWLQߙRISDWLHQWVZLWKD
KLVWRU\RIWKURPERVLV7KHOLNHOLKRRGRIGHYHORSLQJ376LVKLJKHVWLQWKHVW\U
RIOLIHEXWFRQWLQXHVWRLQFUHDVHRYHUWLPH


$QWLFRDJXODQWDQG7KURPERO\WLF
7KHUDS\
/HVOLH-5DIILQL-3DXO6FRWW

.H\ZRUGV
DQWLFRDJXODWLRQ
GLUHFWRUDODQWLFRDJXODQW
'2$&
/0:+
ORZPROHFXODUZHLJKWKHSDULQ
WKURPERO\VLV
8)+
XQIUDFWLRQDWHGKHSDULQ
ZDUIDULQHPEU\RSDWK\

,QLWLDORSWLRQVIRUDQWLFRDJXODWLRQLQFKLOGUHQJHQHUDOO\LQFOXGHXQIUDFWLRQDWHG
KHSDULQ8)+RUORZPROHFXODUZHLJKWKHSDULQ/0:+IROORZHGE\/0:+
RUZDUIDULQIRURXWSDWLHQWPDQDJHPHQW7DEOH6HYHUDOGLUHFWRUDO
DQWLFRDJXODQWV'2$&VDSSURYHGIRUWUHDWPHQWRI7(LQSDWLHQWV!\UROGDUH
FXUUHQWO\LQSKDVH,,,FOLQLFDOWULDOVLQFKLOGUHQ7KHVHGUXJVDFWE\LQKLELWLQJ
IDFWRU;DRUWKURPELQ7DEOH'2$&VDUHUHFRPPHQGHGIRUDFXWHDQG
ORQJWHUPDQWLFRDJXODQWWKHUDS\IRUDGXOWVZLWK97(

7DEOH
&RPSDULVRQRI$QWLWKURPERWLF$JHQWV

81)5$&7,21$7(' /0:+(3$5,1
U73$ :$5)$5,1
+(3$5,1 (12;$3$5,1
,QGLFDWLRQ 5HFHQWRQVHWRI $FXWHRUFKURQLFWKURPEXV 6XEDFXWHRUFKURQLF $FXWHRUFKURQLF
OLIHRUOLPE SURSK\OD[LV WKURPERVLV WKURPEXVSURSK\OD[LV
WKUHDWHQLQJ WKURPERSURSK\OD[LV
WKURPEXV IRUFDUGLDFYDOYHV
$GPLQLVWUDWLRQ ,9FRQWLQXRXV ,9FRQWLQXRXVLQIXVLRQ 32RQFHGDLO\ 6&LQMHFWLRQWZLFHGDLO\
LQIXVLRQ
 0RQLWRULQJ ߡ/\WLFVWDWHߢ 377 ,15 $QWLߙIDFWRU;DDFWLYLW\
)'3RU'
GLPHU
2WKHU +LJKHUULVNRI 'LIILFXOWWRWLWUDWHUHTXLUHV +HDYLO\LQIOXHQFHGE\ 0RUHVWDEOHDQGHDV\WR
EOHHGLQJ IUHTXHQWGRVHDGMXVWPHQWV GUXJDQGGLHW WLWUDWHFRQFHUQRI
KLJKHUGRVHUHTXLUHGLQ RVWHRSHQLDZLWKORQJ
QHZERUQV WHUPXVH
)'3)LEULQGHJUDGDWLRQSURGXFWV,15LQWHUQDWLRQDOQRUPDOL]HGUDWLR,9LQWUDYHQRXV/0:ORZ
PROHFXODUZHLJKW32RUDO377SDUWLDOWKURPERSODVWLQWLPHU73$UHFRPELQDQWWLVVXHW\SH
SODVPLQRJHQDFWLYDWRU6&VXEFXWDQHRXV

7DEOH
'LUHFW2UDO$QWLFRDJXODQWV'2$&V

'$%,*$75$1 5,9$52;$%$1 $3,;$%$1 ('2;$%$1 %(75,;$%$1

)DFWRUWDUJHW ,,D ;D ;D ;D ;D
+DOIOLIHKU     
5HQDOFOHDUDQFH     

'UXJ 3JO\FRSURWHLQ 3JO\FRSURWHLQDQG 3JO\FRSURWHLQDQG 3 3JO\FRSURWHLQ
PHWDEROLVP &<3$ &<3$ JO\FRSURWHLQ
'UXJUHYHUVDO ,GDUXFL]XPDE $QGH[DQHWDOSKD $QGH[DQHWDOSKD $QGH[DQHW $QGH[DQHW
DOSKD DOSKD

7KHRSWLPDOGXUDWLRQRIDQWLFRDJXODWLRQIRUFKLOGUHQZLWK7(VLVQRWZHOO
HVWDEOLVKHG&XUUHQWJXLGHOLQHVUHFRPPHQGWKDWQHRQDWHVUHFHLYHZNWRPR
RIWKHUDS\IRU97(DQGWKDWROGHUFKLOGUHQUHFHLYHPRRIWKHUDS\3DWLHQWV
ZLWKVWURQJLQKHULWHGWKURPERSKLOLDUHFXUUHQWWKURPERVLVDQG$36PD\UHTXLUH
LQGHILQLWHDQWLFRDJXODWLRQ

8QIUDFWLRQDWHG+HSDULQ
%RWK8)+DQG/0:+DFWE\FDWDO\]LQJWKHDFWLRQRIDQWLWKURPELQ,,,$7,,,
8)+FRQVLVWVRIODUJHPROHFXODUZHLJKWSRO\VDFFKDULGHFKDLQVWKDWLQWHUDFWZLWK
$7,,,FDWDO\]LQJWKHLQKLELWLRQRIIDFWRU;DDQGWKURPELQDVZHOODVRWKHU
VHULQHSURWHDVHV

+HSDULQ'RVLQJ
%DVHGRQDGXOWGDWDDWKHUDSHXWLFKHSDULQGRVHDFKLHYHVDSURORQJDWLRQRIWKH
377RIWKHXSSHUOLPLWRIQRUPDO$EROXVGRVHRIXQLWVNJUHVXOWV
LQDWKHUDSHXWLF377LQWKHPDMRULW\RIFKLOGUHQ7KLVEROXVVKRXOGEHIROORZHG
E\DFRQWLQXRXVLQIXVLRQ,QLWLDOGRVLQJLVEDVHGRQDJHZLWKLQIDQWVKDYLQJWKH
KLJKHVWUHTXLUHPHQWV,WLVLPSRUWDQWWRFRQWLQXHWRPRQLWRUWKH377FORVHO\,Q
VRPHVLWXDWLRQVVXFKDVSDWLHQWVZLWKDOXSXVDQWLFRDJXODQWWKRVHZLWKHOHYDWHG
IDFWRU9,,,RUQHRQDWHVWKH377PD\QRWDFFXUDWHO\UHIOHFWWKHGHJUHHRI
DQWLFRDJXODWLRQDQGKHSDULQFDQEHPRQLWRUHGXVLQJDKHSDULQDQWL;DOHYHORI
XQLWVP/

+HSDULQ&RPSOLFDWLRQV
0DLQWDLQLQJWKH377LQWKHWKHUDSHXWLFUDQJHFDQEHGLIILFXOWLQ\RXQJFKLOGUHQ
IRUVHYHUDOUHDVRQV7KHELRDYDLODELOLW\RIKHSDULQLVGLIILFXOWWRSUHGLFWDQGPD\
EHLQIOXHQFHGE\SODVPDSURWHLQV,QPDQ\SDWLHQWVWKLVUHVXOWVLQPXOWLSOHGRVH
DGMXVWPHQWVUHTXLULQJFORVHPRQLWRULQJZLWKIUHTXHQWYHQLSXQFWXUH8)+DOVR
UHTXLUHVFRQWLQXRXV,9DFFHVVZKLFKPD\EHGLIILFXOWWRPDLQWDLQLQ\RXQJ
FKLOGUHQ
7KHPRVWFRPPRQDGYHUVHHIIHFWUHODWHGWRKHSDULQWKHUDS\LVEOHHGLQJ7KLV
LVZHOOGRFXPHQWHGLQWKHDGXOWPHGLFDOOLWHUDWXUHDQGWKHUHDUHFDVHUHSRUWVRI
OLIHWKUHDWHQLQJEOHHGLQJLQFKLOGUHQWUHDWHGZLWKKHSDULQ7KHWUXHIUHTXHQF\RI
EOHHGLQJLQSHGLDWULFSDWLHQWVUHFHLYLQJKHSDULQKDVQRWEHHQZHOOHVWDEOLVKHGDQG
LVUHSRUWHGDVߙ,IWKHDQWLFRDJXODQWHIIHFWRIKHSDULQPXVWEHUHYHUVHG
LPPHGLDWHO\SURWDPLQHVXOIDWHPD\EHDGPLQLVWHUHGWRQHXWUDOL]HWKHKHSDULQ
2WKHUDGYHUVHHIIHFWVLQFOXGHRVWHRSRURVLVDQGKHSDULQLQGXFHG
WKURPERF\WRSHQLD+,7$OWKRXJKUDUHLQSHGLDWULFSRSXODWLRQV+,7LVD
SURWKURPERWLFLPPXQHPHGLDWHGFRPSOLFDWLRQLQZKLFKDQWLERGLHVGHYHORSWRD
FRPSOH[RIKHSDULQDQGSODWHOHWIDFWRU7KHVHDQWLERGLHVUHVXOWLQSODWHOHW
DFWLYDWLRQVWLPXODWLRQRIFRDJXODWLRQWKURPERF\WRSHQLDDQGLQVRPHFDVHV
OLIHWKUHDWHQLQJWKURPERVLV,I+,7LVVWURQJO\VXVSHFWHGKHSDULQPXVWEH
GLVFRQWLQXHGLPPHGLDWHO\$QDOWHUQDWLYHSDUHQWHUDODQWLFRDJXODQWVXFKDV
DUJDWUREDQRUELYDOLUXGLQPD\EHXVHGLQWKLVVLWXDWLRQ

/RZ0ROHFXODU:HLJKW+HSDULQ
,QFRQWUDVWWR8)+/0:+FRQWDLQVVPDOOHUPROHFXODUZHLJKWSRO\VDFFKDULGH
FKDLQV7KHLQWHUDFWLRQRIWKHVPDOOHUFKDLQVZLWK$7,,,UHVXOWVSULPDULO\LQWKH
LQKLELWLRQRIIDFWRU;DZLWKOHVVRIDQHIIHFWRQWKURPELQ7KHVHYHUDO/0:+V
DYDLODEOHKDYHYDULDEOHLQKLELWRU\HIIHFWVRQWKURPELQ)RUWKLVUHDVRQWKH377
LVQRWDUHOLDEOHPHDVXUHRIWKHDQWLFRDJXODQWHIIHFWRI/0:+DQGWKHDQWLߙ
IDFWRU;DDFWLYLW\LVXVHGLQVWHDG%HFDXVHRIWKHHDVHRIGRVLQJDQGQHHGIRUOHVV
PRQLWRULQJ/0:+LVWKHPRVWIUHTXHQWO\XVHGDQWLFRDJXODQWLQSHGLDWULF
SDWLHQWV7KH/0:+IRUPXODWLRQWKDWKDVEHHQXVHGPRVWRIWHQLQSHGLDWULF
SDWLHQWVLVHQR[DSDULQ

(QR[DSDULQ'RVLQJ
7KHUHFRPPHQGHGVWDQGDUGVWDUWLQJGRVHRIHQR[DSDULQIRULQIDQWVPRROGLV
PJNJGRVHVXEFXWDQHRXVO\HYHU\KUDQGIRUSDWLHQWV!PRROGPJNJ
HYHU\KUDOWKRXJKPDQ\FHQWHUVXVHVOLJKWO\KLJKHUGRVHVIRUFKLOGUHQ\U
ROG,QJHQHUDOSHDNOHYHOVDUHDFKLHYHGKUDIWHULQMHFWLRQ$WKHUDSHXWLF
DQWLߙIDFWRU;DOHYHOGUDZQKUDIWHUWKHQGRUUGGRVHVKRXOGEH
,8P/WKHGRVHFDQEHWLWUDWHGWRDFKLHYHWKLVUDQJH7KHHOLPLQDWLRQKDOIOLIHRI
HQR[DSDULQLVKU(QR[DSDULQLVFOHDUHGE\WKHNLGQH\DQGVKRXOGEHXVHG
ZLWKFDXWLRQLQSDWLHQWVZLWKUHQDOLQVXIILFLHQF\,WVKRXOGEHDYRLGHGLQSDWLHQWV
ZLWKUHQDOIDLOXUH
$IWHUDQLQLWLDOSHULRGRIDQWLFRDJXODWLRQZLWKKHSDULQRU/0:+SDWLHQWV
PD\FRQWLQXHWRUHFHLYH/0:+DVDQRXWSDWLHQWIRUWKHGXUDWLRQRIWKHUDS\RU
PD\EHWUDQVLWLRQHGWRDQRUDODQWLFRDJXODQWVXFKDVZDUIDULQ

:DUIDULQ
:DUIDULQLVDQRUDODQWLFRDJXODQWWKDWFRPSHWLWLYHO\LQWHUIHUHVZLWKYLWDPLQ.
PHWDEROLVPH[HUWLQJLWVDFWLRQE\GHFUHDVLQJFRQFHQWUDWLRQVRIWKHYLWDPLQ.ߙ
GHSHQGHQWFRDJXODWLRQIDFWRUV,,9,,,;DQG;DVZHOODVSURWHLQ&DQGSURWHLQ
67KHUDS\VKRXOGEHVWDUWHGZKLOHDSDWLHQWLVDQWLFRDJXODWHGZLWKKHSDULQRU
/0:+EHFDXVHRIWKHULVNRIZDUIDULQLQGXFHGVNLQQHFURVLV7KLVWUDQVLHQW
K\SHUFRDJXODEOHFRQGLWLRQPD\RFFXUZKHQOHYHOVRISURWHLQ&GURSPRUH
UDSLGO\WKDQWKHSURFRDJXODQWIDFWRUV

'RVLQJ
:DUIDULQWKHUDS\LVRIWHQLQLWLDWHGZLWKDORDGLQJGRVHZLWKVXEVHTXHQWGRVH
DGMXVWPHQWVPDGHDFFRUGLQJWRDQRPRJUDP:KHQLQLWLDWLQJZDUIDULQWKHUDS\
8)+RU/0:+VKRXOGEHFRQWLQXHGXQWLOWKHLQWHUQDWLRQDOQRUPDOL]HGUDWLR
,15LVWKHUDSHXWLFIRUGD\V,QPRVWSDWLHQWVWKLVWDNHVGD\V7KH37LV
XVHGWRPRQLWRUWKHDQWLFRDJXODQWHIIHFWRIZDUIDULQ%HFDXVHWKHWKURPERSODVWLQ
UHDJHQWVXVHGLQ37DVVD\VKDYHZLGHO\YDU\LQJVHQVLWLYLWLHVWKH37SHUIRUPHG
LQRQHODERUDWRU\FDQQRWEHFRPSDUHGWRWKDWSHUIRUPHGLQDQRWKHUODERUDWRU\$V
DUHVXOWWKH,15ZDVGHYHORSHGDVDPHFKDQLVPWRVWDQGDUGL]HWKHYDULDWLRQLQ
WKHWKURPERSODVWLQUHDJHQW7KHWDUJHW,15UDQJHGHSHQGVRQWKHFOLQLFDO
VLWXDWLRQ,QJHQHUDODUDQJHRILVWKHWDUJHWIRUWKHWUHDWPHQWRI97(
+LJKULVNSDWLHQWVVXFKDVWKRVHZLWKPHFKDQLFDOKHDUWYDOYHV$36RUUHFXUUHQW
WKURPERVLVPD\UHTXLUHDKLJKHUWDUJHWUDQJH
3RO\PRUSKLVPVLQ&<3&DQG9.25&DIIHFWWKHSKDUPDFRNLQHWLFVDQG
SKDUPDFRG\QDPLFVRIZDUIDULQ3KDUPDFRJHQHWLFWHVWLQJFDQLGHQWLI\ZLOGW\SH
UHVSRQGHUVDVZHOODVWKRVHZKRDUHVHQVLWLYHLQFUHDVHGULVNRIEOHHGLQJDQG
KLJKO\VHQVLWLYH*HQRW\SLQJLQDGXOWVPD\KHOSVHOHFWZDUIDULQGRVHPRQLWRUIRU
EOHHGLQJRUFKRRVHD'2$&LQVWHDGRIZDUIDULQIRUSDWLHQWVKLJKO\VHQVLWLYHDQG
DWULVNIRUKHPRUUKDJH

&RPSOLFDWLRQV
$VZLWKWKHRWKHUDQWLFRDJXODQWVEOHHGLQJLVWKHPRVWFRPPRQDGYHUVHHIIHFW
7KHULVNRIVHULRXVEOHHGLQJLQFKLOGUHQUHFHLYLQJZDUIDULQIRUWKHWUHDWPHQWRI
97(KDVEHHQUHSRUWHGDWSHU\HDU&KLOGUHQZKRKDYHVXSUDWKHUDSHXWLF
,15DUHDWKLJKHUULVN7KHUHLVFRQVLGHUDEOHLQWHUSDWLHQWYDULDWLRQLQGRVH'LHW
PHGLFDWLRQVDQGLOOQHVVPD\LQIOXHQFHWKHPHWDEROLVPRIZDUIDULQUHTXLULQJ
IUHTXHQWGRVHDGMXVWPHQWVDQGODERUDWRU\VWXGLHV1XPHURXVPHGLFDWLRQVFDQ
DIIHFWWKHSKDUPDFRNLQHWLFVRIZDUIDULQE\DOWHULQJLWVFOHDUDQFHRUUDWHRI
DEVRUSWLRQ7KHVHHIIHFWVFDQKDYHDSURIRXQGLPSDFWRQWKH,15DQGPXVWEH
FRQVLGHUHGZKHQPRQLWRULQJDSDWLHQWUHFHLYLQJZDUIDULQ
7KHVWUDWHJLHVXVHGWRUHYHUVHZDUIDULQWKHUDS\GHSHQGRQWKHFOLQLFDOVLWXDWLRQ
DQGZKHWKHURUQRWWKHUHLVEOHHGLQJ9LWDPLQ.FDQEHDGPLQLVWHUHGWRUHYHUVH
WKHHIIHFWRIZDUIDULQEXWWDNHVVRPHWLPHWRKDYHHIIHFW,IWKHSDWLHQWLVKDYLQJ
VLJQLILFDQWEOHHGLQJIUHVKIUR]HQSODVPD))3P/NJVKRXOGEHJLYHQDORQJ
ZLWKWKHYLWDPLQ.$QRQDFWLYDWHGSODVPDGHULYHGIDFWRUSURWKURPELQ
FRPSOH[FRQFHQWUDWHLVDSSURYHGIRUXVHLQDGXOWVRQYLWDPLQ.DQWDJRQLVWVZKR
KDYHPDMRUEOHHGLQJ
1RQKHPRUUKDJLFFRPSOLFDWLRQVDUHXQFRPPRQLQFKLOGUHQ:DUIDULQLVD
WHUDWRJHQSDUWLFXODUO\LQWKHILUVWWULPHVWHU:DUIDULQHPEU\RSDWK\LV
FKDUDFWHUL]HGE\ERQHDQGFDUWLODJHDEQRUPDOLWLHVNQRZQDVFKRQGURG\VSODVLD
SXQFWDWD$IIHFWHGLQIDQWVPD\KDYHQDVDOK\SRSODVLDDQGH[FHVVLYH
FDOFLILFDWLRQVLQWKHHSLSK\VHVDQGYHUWHEUDH
'LUHFW2UDO$QWLFRDJXODQWV
2UDOGLUHFWWKURPELQLQKLELWRUVGDELJDWUDQRULQKLELWRUVRIIDFWRU;DDSL[DEDQ
ULYDUR[DEDQHGR[DEDQDUHDSSURYHGDJHQWVIRUWKHSUHYHQWLRQRUWUHDWPHQWRI
WKURPERVLVLQSDWLHQWV!\UROGVHH7DEOH)L[HGGRVLQJRUDO
DGPLQLVWUDWLRQQRGLHWDU\LQWHUIHUHQFHZLWKYLWDPLQ.DQGQRQHHGWRPRQLWRU
ODERUDWRU\WHVWVDVZHOODVLQLWLDOUHVXOWVVXJJHVWLQJQRQLQIHULRULW\WRZDUIDULQ
DQGIHZHUEOHHGLQJHSLVRGHVKDYHIDYRUHGWKHXVHRI'2$&V'UXJVDUH
DYDLODEOHWRUHYHUVHWKHHIIHFWVRI'2$&VLILQGLFDWHG7KHUHLVDSDXFLW\RI
HYLGHQFHRIWKHLUXWLOLW\LQFKLOGUHQDOWKRXJKWKHUHDUHVHYHUDORQJRLQJFOLQLFDO
WULDOV

7KURPERO\WLF7KHUDS\
$OWKRXJKDQWLFRDJXODWLRQDORQHLVRIWHQHIIHFWLYHDWPDQDJLQJWKURPERVLVPRUH
UDSLGFORWUHVROXWLRQPD\EHQHFHVVDU\RUGHVLUDEOH,QWKHVHVLWXDWLRQVD
WKURPERO\WLFDJHQWWKDWFDQDFWLYDWHWKHILEULQRO\WLFV\VWHPLVRISRWHQWLDO
EHQHILW7KHSKDUPDFRORJLFDFWLYLW\RIWKURPERO\WLFDJHQWVGHSHQGVRQWKH
FRQYHUVLRQRIHQGRJHQRXVSODVPLQRJHQWRSODVPLQ3ODVPLQLVWKHQDEOHWR
GHJUDGHVHYHUDOSODVPDSURWHLQVLQFOXGLQJILEULQDQGILEULQRJHQ%HFDXVHRIWKH
KLJKULVNRIEOHHGLQJWKURPERO\WLFWKHUDS\LVJHQHUDOO\UHVHUYHGIRUSDWLHQWV
ZLWKOLIHRUOLPEWKUHDWHQLQJWKURPERVLV
7LVVXHSODVPLQRJHQDFWLYDWRU73$LVDYDLODEOHDVDUHFRPELQDQWSURGXFWDQG
KDVEHFRPHWKHSULPDU\DJHQWXVHGIRUWKURPERO\VLVLQFKLOGUHQDOWKRXJKSURSHU
GRVHILQGLQJVWXGLHVKDYHQRWEHHQSHUIRUPHG

'RVLQJ
$QH[WUHPHO\ZLGHUDQJHRIGRVHVRI73$KDVEHHQXVHGIRUV\VWHPLFWKHUDS\
DQGQRFRQVHQVXVH[LVWVDVWRWKHRSWLPDOGRVH6\VWHPLF73$GRVHVRI
PJNJKUZHUHSUHYLRXVO\UHFRPPHQGHGDOWKRXJKUHFHQWUHSRUWVLQGLFDWH
VXFFHVVIXOWKHUDS\ZLWKIHZHUEOHHGLQJFRPSOLFDWLRQVXVLQJSURORQJHGLQIXVLRQV
ZLWKYHU\ORZGRVHVߚPJNJKU

0RQLWRULQJ
7KHUHLVQRVSHFLILFODERUDWRU\WHVWWRGRFXPHQWDߡWKHUDSHXWLFUDQJHߢIRU
WKURPERO\WLFWKHUDS\,WLVLPSRUWDQWWRPDLQWDLQWKHILEULQRJHQ!PJG/DQG
WKHSODWHOHWFRXQW!—/GXULQJWUHDWPHQW6XSSOHPHQWDWLRQRI
SODVPLQRJHQXVLQJ))3LVJHQHUDOO\UHFRPPHQGHGLQQHRQDWHVEHIRUHLQLWLDWLQJ
WKURPERO\VLVEHFDXVHRIWKHLUORZEDVHOLQHOHYHOV
7KHFOLQLFDODQGUDGLRORJLFUHVSRQVHWRWKURPERO\VLVVKRXOGEHFORVHO\
PRQLWRUHG7KHGXUDWLRQRIWKHUDS\GHSHQGVRQWKHFOLQLFDOUHVSRQVH,QYDVLYH
SURFHGXUHVLQFOXGLQJXULQDU\FDWKHWHUL]DWLRQDUWHULDOSXQFWXUHDQGUHFWDO
WHPSHUDWXUHVVKRXOGEHDYRLGHG
7KHUROHRIDGMXYDQW8)+GXULQJWKURPERO\WLFWKHUDS\LVFRQWURYHUVLDO
$QLPDOPRGHOVKDYHGHPRQVWUDWHGWKDWWKURPERO\WLFWKHUDS\FDQLQGXFHD
SURFRDJXODQWVWDWHZLWKDFWLYDWLRQRIWKHFRDJXODWLRQV\VWHPJHQHUDWLRQRI
WKURPELQDQGH[WHQVLRQRUUHRFFOXVLRQRIWKHWKURPERVLV,QSHGLDWULFSDWLHQWV
WKRXJKWWREHDWORZULVNIRUEOHHGLQJDGMXYDQW8)+VKRXOGEHFRQVLGHUHGXVLQJ
GRVHVRIXQLWVNJKU

&RPSOLFDWLRQV
7KHPRVWVHULRXVFRPSOLFDWLRQIURPWKURPERO\VLVLVEOHHGLQJZKLFKKDVEHHQ
UHSRUWHGLQߙRISDWLHQWV$EVROXWHFRQWUDLQGLFDWLRQVWRWKURPERO\VLV
LQFOXGHPDMRUVXUJHU\ZLWKLQGD\VKLVWRU\RIVLJQLILFDQWEOHHGLQJLQWUDFUDQLDO
SXOPRQDU\RUJDVWURLQWHVWLQDOSHULSDUWXPDVSK\[LDZLWKEUDLQGDPDJH
XQFRQWUROOHGK\SHUWHQVLRQDQGVHYHUHWKURPERF\WRSHQLD,QWKHHYHQWRIVHULRXV
EOHHGLQJWKURPERO\VLVVKRXOGEHVWRSSHGDQGFU\RSUHFLSLWDWHJLYHQWRUHSODFH
ILEULQRJHQ

7KURPERSURSK\OD[LV
7KHUHKDYHEHHQQRIRUPDOWULDOVRI97(SUHYHQWLRQLQFKLOGUHQ+RVSLWDOL]HG
DGROHVFHQWVZLWKPXOWLSOHULVNIDFWRUVIRUWKURPERVLVZKRDUHLPPRELOL]HGIRUD
SURORQJHGSHULRGPD\EHQHILWIURPSURSK\ODFWLFWUHDWPHQWZLWKHQR[DSDULQ
PJNJHYHU\KUPD[LPXPPJ

$QWLSODWHOHW7KHUDS\
,QKLELWLRQRISODWHOHWIXQFWLRQXVLQJDJHQWVVXFKDVDVSLULQLVPRUHOLNHO\WREH
SURWHFWLYHDJDLQVWDUWHULDO7(VWKDQ97(V$VSLULQRUDFHW\OVDOLF\OLFDFLG
$6$H[HUWVLWVDQWLSODWHOHWHIIHFWE\LUUHYHUVLEO\LQKLELWLQJF\FORR[\JHQDVH
SUHYHQWLQJSODWHOHWWKURPER[DQH$SURGXFWLRQ$VSLULQLVXVHGURXWLQHO\LQ
FKLOGUHQZLWK.DZDVDNLGLVHDVHDQGPD\DOVREHXVHIXOLQFKLOGUHQZLWKVWURNH
YHQWULFXODUDVVLVWGHYLFHVDQGVLQJOHYHQWULFOHFDUGLDFGHIHFWV7KH
UHFRPPHQGHGGRVHRIDVSLULQWRDFKLHYHDQDQWLSODWHOHWHIIHFWLQFKLOGUHQLV
PJNJGD\

%LEOLRJUDSK\
$JXLDU&/6R\ELOJLF$$YFLQ70\RQHV%/3HGLDWULF
DQWLSKRVSKROLSLGV\QGURPH&XUU5KHXPDWRO5HS

$OEHUWV0-*HQHWLFRIZDUIDULQGRVLQJRQHSRO\PRUSKLVPDWD
WLPH/DQFHWߙ
$QVDK'$3DWHO.10RQWHJQD/HWDO7LVVXHSODVPLQRJHQ
DFWLYDWRUXVHLQFKLOGUHQEOHHGLQJFRPSOLFDWLRQVDQG
WKURPEXVUHVROXWLRQ-3HGLDWUߙ
%DVNLQ-/3XL&+5HLVV8HWDO0DQDJHPHQWRIRFFOXVLRQ
DQGWKURPERVLVDVVRFLDWHGZLWKORQJWHUPLQGZHOOLQJFHQWUDO
YHQRXVFDWKHWHUV/DQFHWߙ
%UDQG£R/5:LOOLDPV6.DKU:+$HWDO([HUFLVHLQGXFHG
GHHSYHLQWKURPERVLVRIWKHXSSHUH[WUHPLW\$FWD+DHPDWRO
ߙ
%¼OOHU+5WHQ&DWH+RHN$-+RHV$:HWDO6DIHO\UXOLQJRXW
GHHSYHQRXVWKURPERVLVLQSULPDU\FDUH$QQ,QWHUQ0HG
ߙ
&DVWHOOXFFL/$&DPHURQ&/H*DO*HWDO&OLQLFDODQGVDIHW\
RXWFRPHVDVVRFLDWHGZLWKWUHDWPHQWRIDFXWHYHQRXV
WKURPERHPEROLVPDV\VWHPDWLFUHYLHZDQGPHWDDQDO\VLV
-$0$ߙ
&KDQJ.*UDI('DYLV.HWDO6SHFWUXPRIWKRUDFLFRXWOHW
V\QGURPHSUHVHQWDWLRQLQDGROHVFHQWV$UFK6XUJ
ߙ
&KRSUD9$QDQG6+LFNQHU$HWDO5LVNRIYHQRXV
WKURPERHPEROLVPDVVRFLDWHGZLWKSHULSKHUDOO\LQVHUWHG
FHQWUDOFDWKHWHUVDV\VWHPDWLFUHYLHZDQGPHWDDQDO\VLV
/DQFHWߙ
&RKHQ$7+DUULQJWRQ5$*ROGKDEHU6=HWDO([WHQGHG
WKURPERSURSK\OD[LVZLWKEHWUL[DEDQLQDFXWHO\LOOPHGLFDO
SDWLHQWV1(QJO-0HGߙ
'L1LVLR0YDQ(V1%¼OOHU+5'HHSYHLQWKURPERVLVDQG
SXOPRQDU\HPEROLVP/DQFHWߙ
(LNHOERRP-::HLW]-,6HOHFWLYHIDFWRU[DLQKLELWLRQIRU
WKURPERSURSK\OD[LV/DQFHWߙ
(LNHOERRP-::HLW]-,,GUDELRWDSDULQX[WUHDWPHQWIRUYHQRXV
WKURPERHPEROLVP/DQFHWߙ
(QGHQ7+DLJ<.ORZ1(HWDO/RQJWHUPRXWFRPHDIWHU
DGGLWLRQDOFDWKHWHUGLUHFWHGWKURPERO\VLVYHUVXVVWDQGDUG
WUHDWPHQWIRUDFXWHLOLRIHPRUDOGHHSYHLQWKURPERVLVWKH
&D9HQWVWXG\DUDQGRPL]HGFRQWUROOHGWULDO/DQFHW
ߙ
)LVFKHU+'-XXUOLQN'10DPGDQL00HWDO+HPRUUKDJH
GXULQJZDUIDULQWKHUDS\DVVRFLDWHGZLWKFRWULPR[D]ROHDQG
RWKHUXULQDU\WUDFWDQWLLQIHFWLYHDJHQWV$UFK,QWHUQ0HG
ߙ
*DEDOODK06KL-.XNUHMD.HWDO(QGRYDVFXODUWKURPERO\VLV
LQWKHPDQDJHPHQWRILOLRIHPRUDOWKURPERVLVLQFKLOGUHQD
PXOWLLQVWLWXWLRQDOH[SHULHQFH-9DVF,QWHUY5DGLRO
ߙ
*DJH%)%DVV$5/LQ+HWDO(IIHFWRIJHQRW\SHJXLGHG
ZDUIDULQGRVLQJRQFOLQLFDOHYHQWVDQGDQWLFRDJXODWLRQFRQWURO
DPRQJSDWLHQWVXQGHUJRLQJKLSRUNQHHDUWKURSODVW\-$0$
ߙ
*LDQQDNRSRXORV%.ULOLV6$7KHSDWKRJHQHVLVRIWKH
DQWLSKRVSKROLSLGV\QGURPH1(QJO-0HGߙ

*LRUGDQR37HVVH5/DVVDQGUR*HWDO&OLQLFDODQGODERUDWRU\
FKDUDFWHULVWLFVRIFKLOGUHQSRVLWLYHIRUDQWLSKRVSKROLSLG
DQWLERGLHV%ORRG7UDQVIXVߙ
*ROGHQEHUJ1$/RQJWHUPRXWFRPHVRIYHQRXVWKURPERVLVLQ
FKLOGUHQ&XUU2SLQ+HPDWROߙ
*ROGHQEHUJ1$'XUKDP-'.QDSS&OHYHQJHU5HWDO$
WKURPERO\WLFUHJLPHQIRUKLJKULVNGHHSYHQRXVWKURPERVLV
PD\VXEVWDQWLDOO\UHGXFHWKHULVNRISRVWWKURPERWLFV\QGURPH
LQFKLOGUHQ%ORRGߙ
*ROGHQEHUJ1$3RXQGHU(.QDSS&OHYHQJHU5HWDO
9DOLGDWLRQRIXSSHUH[WUHPLW\SRVWWKURPERWLFV\QGURPH
RXWFRPHPHDVXUHPHQWLQFKLOGUHQ-3HGLDWUߙ

*XSWD$-RKQVRQ'+1DJDOOD6$QWLSKRVSKROLSLGDQWLERGLHV
-$0$ߙ
7KH+RNXVDL97(,QYHVWLJDWRUV(GR[DEDQYHUVXVZDUIDULQIRU
WKHWUHDWPHQWRIV\PSWRPDWLFYHQRXVWKURPERHPEROLVP1
(QJO-0HGߙ
+XQW%-3HGLDWULFDQWLSKRVSKROLSLGDQWLERGLHVDQG
DQWLSKRVSKROLSLGV\QGURPH6HPLQ7KURPE+HPRVW
ߙ
.HDURQ&$NO($2UQHODV-HWDO$QWLWKURPERWLFWKHUDS\IRU
97(GLVHDVH&+(67JXLGHOLQHDQGH[SHUWSDQHOUHSRUW
&KHVWߙ
.XKOH6(XOPHVHNLDQ30DVVLFRWWH3HWDO$FOLQLFDOO\
VLJQLILFDQWLQFLGHQFHRIEOHHGLQJLQFULWLFDOO\LOOFKLOGUHQ
UHFHLYLQJWKHUDSHXWLFGRVHVRIXQIUDFWLRQDWHGKHSDULQD
SURVSHFWLYHFRKRUWVWXG\+DHPDWRORJLFDߙ
.\UOH3$9LWDPLQ.DQWDJRQLVWVVHOIGHWHUPLQDWLRQE\VHOI
PRQLWRULQJ"/DQFHWߙ
/DQGHQIHOG&61RQLQYDVLYHGLDJQRVLVRIGHHSYHLQWKURPERVLV
-$0$ߙ
/H*DO*.HUFUHW*<DKPHG.%HWDO'LDJQRVWLFYDOXHRI
 VLQJOHFRPSHWHFRPSUHVVLRQXOWUDVRQRJUDSK\LQSUHJQDQWDQG
SRVWSDUWXPZRPHQZLWKVXVSHFWHGGHHSYHLQWKURPERVLV
SURVSHFWLYHVWXG\%0-
/HH$&URZWKHU03UDFWLFDOLVVXHVZLWKYLWDPLQ.
DQWDJRQLVWVHOHYDWHG,15VORZWLPHLQWKHUDSHXWLFUDQJH
DQGZDUIDULQIDLOXUH-7KURPE7KURPERO\VLVߙ

/\OH&$6LGRQLR5)*ROGHQEHUJ1$1HZGHYHORSPHQWVLQ
SHGLDWULFYHQRXVWKURPERHPEROLVPDQGDQWLFRDJXODWLRQ
LQFOXGLQJWKHWDUJHWVSHFLILFRUDODQWLFRDJXODQWV&XUU2SLQ
3HGLDWUߙ
0DQFR-RKQVRQ0-+RZ,WUHDWYHQRXVWKURPERVLVLQFKLOGUHQ
%ORRGߙ
0DQFR-RKQVRQ0-:DQJ0*ROGHQEHUJ1$HWDO7UHDWPHQW
VXUYLYDODQGWKURPERHPEROLFRXWFRPHVRIWKURPERWLFVWRUP
LQFKLOGUHQ-3HGLDWUߙ
7KH0HGLFDO/HWWHU$QWLWKURPERWLFGUXJV0HG/HWW
ߙ
7KH0HGLFDO/HWWHU'DELJDWUDQHWH[LODWH3UDGD[DߚDQHZRUDO
DQWLFRDJXODQW0HG/HWW'UXJV7KHUߙ
7KH0HGLFDO/HWWHU3URWKURPELQFRPSOH[FRQFHQWUDWHVWR
UHYHUVHZDUIDULQUHODWHGEOHHGLQJ0HG/HWW'UXJV7KHU
ߙ
7KH0HGLFDO/HWWHU5HWKLQNLQJZDUIDULQIRUDWULDOILEULOODWLRQ
0HG/HWW'UXJV7KHUߙ
7KH0HGLFDO/HWWHU$SL[DEDQ(OLTXLVߚDQHZRUDO
DQWLFRDJXODQWIRUDWULDOILEULOODWLRQ0HG/HWW'UXJV7KHU
ߙ
7KH0HGLFDO/HWWHU.FHQWUDDIDFWRUSURWKURPELQFRPSOH[
FRQFHQWUDWHIRUUHYHUVDORIZDUIDULQDQWLFRDJXODWLRQ0HG/HWW
'UXJV7KHU
7KH0HGLFDO/HWWHU(GR[DEDQ6DYD\VDWKHIRXUWKQHZRUDO
DQWLFRDJXODQW0HG/HWWߙ
0L\DZDNL<6X]XNL$)XMLWD-HWDO7KURPERVLVIURPD
SURWKURPELQPXWDWLRQFRQYH\LQJDQWLWKURPELQUHVLVWDQFH1
(QJO-0HGߙ
0RQDJOH3&KDQ$*ROGHQEHUJ1HWDO$QWLWKURPERWLF
WKHUDS\LQQHRQDWHVDQGFKLOGUHQ$PHULFDQFROOHJHRIFKHVW
SK\VLFLDQV(YLGHQFHEDVHGFOLQLFDOSUDFWLFHJXLGHOLQHV&KHVW
H6ߙ6
3ROODFN&9-U5HLOO\3$YDQ5\Q-HWDO,GDUXFL]XPDEIRU
GDELJDWUDQUHYHUVDOIXOOFRKRUWDQDO\VLV1(QJO-0HG
ߙ
5DIILQL/+XDQJ<6:LWPHU&HWDO'UDPDWLFLQFUHDVHLQ
YHQRXVWKURPERHPEROLVPLQFKLOGUHQ
VKRVSLWDOVLQWKH8QLWHG
6WDWHVIURPWR3HGLDWULFVߙ
5LFKDUG$$.LP60RIIHWW%6HWDO&RPSDULVRQRIDQWL[D
OHYHOVLQREHVHDQGQRQREHVHSHGLDWULFSDWLHQWVUHFHLYLQJ
WUHDWPHQWGRVHVRIHQR[DSDULQ-3HGLDWUߙ
5LOH\75*DXWKLHU/HZLV0/6DQFKH]&.'RXJODV-65ROH
RIDJHQWVIRUUHYHUVLQJWKHHIIHFWVRIWDUJHWVSHFLILFRUDO
DQWLFRDJXODQWV$P-+HDOWK6\VW3KDUPߙ
5RQGLQD073HQGOHWRQ5&:KHHOHU0HWDO7KHWUHDWPHQWRI
YHQRXVWKURPERHPEROLVPLQVSHFLDOSRSXODWLRQV7KURPE5HV
ߙ
5R\30'LDJQRVLVRIYHQRXVWKURPERHPEROLVP%0-
ߙ
5XL],UDVWRU]D*&URZWKHU0%UDQFK:HWDO
$QWLSKRVSKROLSLGV\QGURPH/DQFHWߙ
6DUDFFR3%DJQD5*HQWLORPR&HWDO&OLQLFDOGDWDRI
QHRQDWDOV\VWHPLFWKURPERVLV-3HGLDWUߙ
6FKXOPDQ6.HDURQ&.DNNDU$-HWDO'DELJDWUDQYHUVXV
ZDUIDULQLQWKHWUHDWPHQWRIDFXWHYHQRXVWKURPERHPEROLVP
1(QJO-0HGߙ
6FKXOPDQ6.HDURQ&.DNNDU$.HWDO([WHQGHGXVHRI
GDELJDWUDQZDUIDULQRUSODFHERLQYHQRXVWKURPERHPEROLVP
 1(QJO-0HGߙ
6LHJHO'0&XUQXWWH-7&RQQROO\6-HWDO$QGH[DQHWDOIDIRU
WKHUHYHUVDORIIDFWRU[DLQKLELWRUDFWLYLW\1(QJO-0HG
ߙ
6WHJHPDQ%+GH%DVWRV05RVHQGDDO)5HWDO'LIIHUHQW
FRPELQHGRUDOFRQWUDFHSWLYHVDQGWKHULVNRIYHQRXV
WKURPERVLVV\VWHPDWLFUHYLHZDQGQHWZRUNPHWDDQDO\VLV
%0-
7UHPRU&&,,,&KXQJ5-0LFKHOVRQ$'HWDO+RUPRQDO
FRQWUDFHSWLRQDQGWKURPERWLFULVNDPXOWLGLVFLSOLQDU\
DSSURDFK3HGLDWULFVߙ
7XFNXYLHQH5&KULVWHQVHQ$/+HOJHVWDG-HWDO3HGLDWULF
YHQRXVDQGDUWHULDOQRQFHUHEUDOWKURPERHPEROLVPLQ
'HQPDUNDQDWLRQZLGHSRSXODWLRQEDVHGVWXG\-3HGLDWU
ߙ
9DQ(V1&RSSHQV06FKXOPDQ6HWDO'LUHFWRUDO
DQWLFRDJXODQWVFRPSDUHGZLWKYLWDPLQ.DQWDJRQLVWVIRUDFXWH
YHQRXVWKURPERHPEROLVPHYLGHQFHIURPSKDVHWULDOV
%ORRGߙ
9HUKHXJW):$*UDQJHU&%2UDODQWLFRDJXODQWVIRUVWURNH
SUHYHQWLRQLQDWULDOILEULOODWLRQFXUUHQWVWDWXVVSHFLDO
VLWXDWLRQVDQGXQPHWQHHGV/DQFHWߙ
:HOOV36)RUJLH0$5RGJHU0$7UHDWPHQWRIYHQRXV
WKURPERHPEROLVP-$0$ߙ
<RXQJ*$OELVHWWL0%RQGXHO0HWDO,PSDFWRILQKHULWHG
WKURPERSKLOLDRQYHQRXVWKURPERHPEROLVPLQFKLOGUHQD
V\VWHPDWLFUHYLHZDQGPHWDDQDO\VLVRIREVHUYDWLRQDOVWXGLHV
&LUFXODWLRQߙ
&+$37(5

3RVWQHRQDWDO9LWDPLQ.'HILFLHQF\
-3DXO6FRWW9HURQLFD+)ORRG

$OWKRXJKߡODWHߢKHPRUUKDJLFGLVHDVHKDVEHHQUHSRUWHGLQEUHDVWIHGFKLOGUHQ
YLWDPLQ.GHILFLHQF\RFFXUULQJDIWHUWKHQHRQDWDOSHULRGLVXVXDOO\VHFRQGDU\WR
DODFNRIRUDOLQWDNHRIYLWDPLQ.DOWHUDWLRQVLQWKHJXWIORUDDVDFRQVHTXHQFHRI
WKHORQJWHUPXVHRIEURDGVSHFWUXPDQWLELRWLFVOLYHUGLVHDVHRUPDODEVRUSWLRQ
RIYLWDPLQ.,QWHVWLQDOPDODEVRUSWLRQRIIDWVPD\DFFRPSDQ\F\VWLFILEURVLVRU
ELOLDU\DWUHVLDDQGUHVXOWLQDGHILFLHQF\RIIDWVROXEOHGLHWDU\YLWDPLQVZLWK
UHGXFHGV\QWKHVLVRIYLWDPLQ.ߙGHSHQGHQWFORWWLQJIDFWRUVIDFWRUV,,9,,,;
DQG;DQGSURWHLQV&DQG63URSK\ODFWLFDGPLQLVWUDWLRQRIZDWHUVROXEOH
YLWDPLQ.RUDOO\LVLQGLFDWHGLQWKHVHSDWLHQWVPJKUIRUFKLOGUHQDQG
PJKUIRUDGROHVFHQWVDQGDGXOWVRUYLWDPLQ.PD\EHDGPLQLVWHUHGDW
PJLQWUDYHQRXVO\,QSDWLHQWVZLWKDGYDQFHGFLUUKRVLVV\QWKHVLVRIPDQ\RIWKH
FORWWLQJIDFWRUVPD\EHUHGXFHGEHFDXVHRIKHSDWRFHOOXODUGDPDJH,QWKHVH
SDWLHQWVYLWDPLQ.PD\EHLQHIIHFWLYH7KHDQWLFRDJXODQWSURSHUWLHVRIZDUIDULQ
&RXPDGLQGHSHQGRQLQWHUIHUHQFHZLWKYLWDPLQ.ZLWKDFRQFRPLWDQW
UHGXFWLRQRIIDFWRUV,,9,,,;DQG;5DWSRLVRQVXSHUZDUIDULQSURGXFHVD
VLPLODUGHILFLHQF\YLWDPLQ.LVDVSHFLILFDQWLGRWH

%LEOLRJUDSK\
%XUNH&:9LWDPLQ.GHILFLHQF\EOHHGLQJRYHUYLHZDQG
FRQVLGHUDWLRQV-3HGLDWU+HDOWK&DUHߙ
3LSH6:*ROGHQEHUJ1$HWDO$FTXLUHGGLVRUGHUVRI
KHPRVWDVLV2UNLQ6+)LVKHU'(*LQVEHUJ'1DWKDQDQG
2VNL
VKHPDWRORJ\RILQIDQF\DQGFKLOGKRRGHG6DXQGHUV
(OVHYLHU3KLODGHOSKLDߙ
<DWHV656DURGH51HZVWUDWHJLHVIRUHIIHFWLYHWUHDWPHQWRI
YLWDPLQ.DQWDJRQLVWߙDVVRFLDWHGEOHHGLQJ-7KURPE+DHPRVW
6XSSO6ߙ6
&+$37(5

/LYHU'LVHDVH
-3DXO6FRWW9HURQLFD+)ORRG

%HFDXVHDOOWKHFORWWLQJIDFWRUVH[FHSWIDFWRU9,,,DUHSURGXFHGH[FOXVLYHO\LQWKH
OLYHUFRDJXODWLRQDEQRUPDOLWLHVDUHYHU\FRPPRQLQSDWLHQWVZLWKVHYHUHOLYHU
GLVHDVH2QO\RIVXFKSDWLHQWVKDYHVLJQLILFDQWFOLQLFDOEOHHGLQJVWDWHV
SRVVLEO\EHFDXVHRIFRQFRPLWDQWUHGXFWLRQLQDQWLFRDJXODWLRQSURWHLQV7KH
VHYHULW\RIWKHFRDJXODWLRQDEQRUPDOLW\DSSHDUVWREHGLUHFWO\SURSRUWLRQDOWRWKH
H[WHQWRIKHSDWRFHOOXODUGDPDJH7KHPRVWFRPPRQPHFKDQLVPFDXVLQJWKH
GHIHFWLVGHFUHDVHGV\QWKHVLVRIFRDJXODWLRQIDFWRUV3DWLHQWVZLWKVHYHUHOLYHU
GLVHDVHFKDUDFWHULVWLFDOO\KDYHQRUPDOWRLQFUHDVHGQRWUHGXFHGOHYHOVRIIDFWRU
9,,,DFWLYLW\LQSODVPD,QVRPHLQVWDQFHVGLVVHPLQDWHGLQWUDYDVFXODU
FRDJXODWLRQ',&VHH&KDSWHURUK\SHUILEULQRO\VLVPD\FRPSOLFDWHOLYHU
GLVHDVHPDNLQJODERUDWRU\GLIIHUHQWLDWLRQRIVHYHUHOLYHUGLVHDVHIURP',&
GLIILFXOW
7UHDWPHQWRIWKHFRDJXORSDWK\RIOLYHUGLVHDVHVKRXOGEHUHVHUYHGIRUSDWLHQWV
ZLWKFOLQLFDOEOHHGLQJ%HFDXVHDUHGXFWLRQLQYLWDPLQ.ߙGHSHQGHQWFRDJXODWLRQ
IDFWRUVLVFRPPRQLQWKRVHZLWKDFXWHRUFKURQLFOLYHUGLVHDVHYLWDPLQ.WKHUDS\
FDQEHJLYHQDVDWULDO9LWDPLQ.FDQEHJLYHQRUDOO\VXEFXWDQHRXVO\RU
LQWUDYHQRXVO\QRWLQWUDPXVFXODUO\DWDGRVHRIPJKUIRULQIDQWV
PJKUIRUFKLOGUHQDQGPJKUIRUDGROHVFHQWVDQGDGXOWV,QDELOLW\WR
FRUUHFWFRDJXORSDWK\ZLWKYLWDPLQ.LQGLFDWHVWKDWWKHFRDJXORSDWK\PD\EH
FDXVHGE\UHGXFHGOHYHOVRIFORWWLQJIDFWRUVWKDWDUHQRWYLWDPLQ.ߙGHSHQGHQW
DQGRUE\LQDGHTXDWHSURGXFWLRQRISUHFXUVRUYLWDPLQ.SURWHLQV7UHDWPHQWIRU
EOHHGLQJFRQVLVWVRIIDFWRUUHSODFHPHQWZLWKIUHVKIUR]HQSODVPD))3RU
FU\RSUHFLSLWDWH))3P/NJFRQWDLQVDOOFORWWLQJIDFWRUVEXW
UHSODFHPHQWRIILEULQRJHQIRUVHYHUHK\SRILEULQRJHQHPLDPD\UHTXLUH
FU\RSUHFLSLWDWHDWDGRVHRIXQLWSHUNJERG\ZHLJKW,QVHYHUHOLYHU
GLVHDVHLWLVRIWHQGLIILFXOWWRDWWDLQFRUUHFWLRQRIDEQRUPDOFORWWLQJVWXGLHV
GHVSLWHYLJRURXVWKHUDS\ZLWK))3DQGFU\RSUHFLSLWDWH6RPHSDWLHQWVZLWK
EOHHGLQJDVDUHVXOWRIOLYHUGLVHDVHKDYHUHVSRQGHGWRWKHUDS\ZLWK
GHVPRSUHVVLQDQGRWKHUVKDYHUHVSRQGHGWRWUHDWPHQWZLWKUHFRPELQDQWIDFWRU
9,,D
)UHTXHQWO\VHYHUHOLYHUGLVHDVHLVDVVRFLDWHGZLWKPRGHUDWHSURORQJDWLRQRI
EOHHGLQJWLPHWKDWLVQRWFRUUHFWHGE\YLWDPLQ.RUSODVPDUHSODFHPHQW
'HVPRSUHVVLQuJNJLQWUDYHQRXVO\LVHIIHFWLYHLQVKRUWHQLQJEOHHGLQJWLPH
DQGLVXVHGHIIHFWLYHO\WRDXJPHQWKHPRVWDVLVEHIRUHOLYHUELRSV\,QFOLQLFDO
WULDOVRIDGXOWVUHFRPELQDQWIDFWRU9,,DKDVQRWEHHQVKRZQWREHHIIHFWLYHIRU
WKHWUHDWPHQWRIEOHHGLQJFDXVHGE\VHYHUHOLYHUGLVHDVH

%LEOLRJUDSK\
0DJQXVVRQ0,JQMDWRYLF9+DUGLNDU:0RQDJOH3$
FRQFHSWXDODQGSUDFWLFDODSSURDFKWRKDHPRVWDVLVLQ
SDHGLDWULFOLYHUGLVHDVH$UFK'LV&KLOGߙ
3DQGLW716DURGH5%ORRGFRPSRQHQWVXSSRUWLQDFTXLUHG
FRDJXORSDWKLFFRQGLWLRQVLVWKHUHDPHWKRGWRWKHPDGQHVV"
$P-+HPDWRO6XSSO6ߙ6
3LSH6:*ROGHQEHUJ1$$FTXLUHGGLVRUGHUVRIKHPRVWDVLV
2UNLQ6+)LVKHU'(*LQVEHUJ'HWDO1DWKDQDQG2VNL
V
KHPDWRORJ\RILQIDQF\DQGFKLOGKRRGHG6DXQGHUV
(OVHYLHU3KLODGHOSKLDߙ
7ULSRGL$0DQQXFFL307KHFRDJXORSDWK\RIFKURQLFOLYHU
GLVHDVH1(QJO-0HGߙ
:LFNOXQG%0%OHHGLQJDQGFORWWLQJGLVRUGHUVLQSHGLDWULFOLYHU
GLVHDVH+HPDWRORJ\$P6RF+HPDWRO(GXF3URJUDP
ߙ
&+$37(5

$FTXLUHG,QKLELWRUVRI&RDJXODWLRQ
-3DXO6FRWW9HURQLFD+)ORRG

$FTXLUHGFLUFXODWLQJDQWLFRDJXODQWVLQKLELWRUVDUHDQWLERGLHVWKDWUHDFWRU

FURVVUHDFWZLWKFORWWLQJIDFWRUVRUFRPSRQHQWVXVHGLQFRDJXODWLRQVFUHHQLQJ
WHVWVSKRVSKROLSLGVWKHUHE\SURORQJLQJVFUHHQLQJWHVWVVXFKDVSURWKURPELQ
WLPH37DQGSDUWLDOWKURPERSODVWLQWLPH3776RPHRIWKHVHDQWLFRDJXODQWV
DUHDXWRDQWLERGLHVWKDWUHDFWZLWKSKRVSKROLSLGDQGWKHUHE\LQWHUIHUHZLWK
FORWWLQJLQYLWUREXWQRWLQYLYR7KHPRVWFRPPRQIRUPRIWKHVH
DQWLSKRVSKROLSLGDQWLERGLHVKDVEHHQUHIHUUHGWRDVWKHOXSXVDQWLFRDJXODQW
VHH&KDSWHU7KLVDQWLFRDJXODQWLVIRXQGLQSDWLHQWVZLWKV\VWHPLFOXSXV
HU\WKHPDWRVXV6/(VHH&KDSWHULQWKRVHZLWKRWKHUFROODJHQYDVFXODU
GLVHDVHVDQGLQDVVRFLDWLRQZLWK+,9LQIHFWLRQ,QRWKHUZLVHKHDOWK\FKLOGUHQ
VSRQWDQHRXVOXSXVOLNHLQKLELWRUVKDYHGHYHORSHGWUDQVLHQWO\DIWHULQFLGHQWDO
YLUDOLQIHFWLRQ7KHVHWUDQVLHQWLQKLELWRUVDUHXVXDOO\QRWDVVRFLDWHGZLWKHLWKHU
EOHHGLQJRUWKURPERVLV
$OWKRXJKWKHFODVVLFOXSXVDQWLFRDJXODQWLVPRUHRIWHQDVVRFLDWHGZLWKD
SUHGLVSRVLWLRQWRWKURPERVLVWKDQZLWKEOHHGLQJV\PSWRPVEOHHGLQJV\PSWRPV
LQDSDWLHQWZLWKWKHOXSXVDQWLFRDJXODQWPD\EHFDXVHGE\WKURPERF\WRSHQLD
ZKLFKPD\EHDPDQLIHVWDWLRQRIWKHDQWLSKRVSKROLSLGV\QGURPHRURIOXSXV
LWVHOIRUUDUHO\E\DFRH[LVWHQWVSHFLILFDXWRDQWLERG\DJDLQVWSURWKURPELQIDFWRU
,,7KLVDQWLSURWKURPELQDQWLERG\GRHVQRWLQDFWLYDWHSURWKURPELQEXWFDXVHV
DFFHOHUDWHGFOHDUDQFHRIWKHSURWHLQUHVXOWLQJLQORZOHYHOVRISURWKURPELQ
5DUHO\DQWLERGLHVPD\DULVHVSRQWDQHRXVO\DJDLQVWDVSHFLILFFORWWLQJIDFWRU
VXFKDVIDFWRU9,,,RUYRQ:LOOHEUDQGIDFWRUVLPLODUWRWKRVHVHHQPRUH
IUHTXHQWO\LQHOGHUO\SDWLHQWV7KHVHSDWLHQWVDUHSURQHWRH[FHVVLYHKHPRUUKDJH
DQGPD\UHTXLUHVSHFLILFWUHDWPHQW,QSDWLHQWVZLWKDKHUHGLWDU\GHILFLHQF\RID
FORWWLQJIDFWRUIDFWRU9,,,RUIDFWRU,;DQWLERGLHVPD\GHYHORSDIWHUH[SRVXUH
WRWUDQVIXVHGIDFWRUFRQFHQWUDWHV7KHVHKHPRSKLOLFLQKLELWRU\DQWLERGLHVDUH
GLVFXVVHGLQ&KDSWHU

/DERUDWRU\)LQGLQJV
,QKLELWRUVDJDLQVWVSHFLILFFRDJXODWLRQIDFWRUVXVXDOO\DIIHFWIDFWRUV9,,,,;DQG
;,RUUDUHO\SURWKURPELQ'HSHQGLQJRQWKHWDUJHWRIWKHDQWLERG\37DQGRU
377PD\EHSURORQJHG7KHPHFKDQLVPE\ZKLFKWKHLQKLELWRU\DQWLERG\
IXQFWLRQVGHWHUPLQHVZKHWKHUPL[LQJSDWLHQWSODVPDZLWKQRUPDOSODVPDZLOO
QRUPDOL]HFRUUHFWWKHFORWWLQJWLPH3DWLHQWSODVPDFRQWDLQLQJDQWLERGLHV
GLUHFWHGDJDLQVWWKHDFWLYHVLWHRIWKHFORWWLQJIDFWRUIDFWRU9,,,RUIDFWRU,;ZLOO
QRWFRUUHFWRQPL[LQJZLWKQRUPDOSODVPDZKHUHDVDQWLERGLHVWKDWOHDGWR
LQFUHDVHGFOHDUDQFHRIWKHIDFWRUSURWKURPELQZLOOFRUUHFWRQPL[LQJ
6SHFLILFIDFWRUDVVD\VDUHXVHGWRGHWHUPLQHZKLFKIDFWRULVLQYROYHG

7UHDWPHQW
0DQDJHPHQWRIWKHEOHHGLQJSDWLHQWZLWKDQLQKLELWRUDJDLQVWIDFWRU9,,,RU,;LV
WKHVDPHDVIRUWKHSDWLHQWZLWKKHPRSKLOLDZKRKDVDQDOORDQWLERG\DJDLQVW
IDFWRU9,,,RUIDFWRU,;,QIXVLRQVRIUHFRPELQDQWIDFWRU9,,DRUDFWLYDWHG
SURWKURPELQFRPSOH[FRQFHQWUDWHPD\EHQHHGHGWRFRQWUROVLJQLILFDQWEOHHGLQJ
2FFDVLRQDOO\KLJKGRVHFRDJXODWLRQIDFWRU9,,,RU,;PD\EHHIIHFWLYH
,PPXQRVXSSUHVVLYHDJHQWVKDYHEHHQXVHGߡRIIODEHOߢWRWUHDWWKHLQKLELWRURU
UHGXFHWLWHUV$FXWHEOHHGLQJFDXVHGE\DQDQWLSURWKURPELQDQWLERG\FDQRIWHQ
EHWUHDWHGZLWKDSODVPDLQIXVLRQDQGPD\EHQHILWIURPDVKRUWFRXUVHRI
FRUWLFRVWHURLGWKHUDS\
$V\PSWRPDWLFVSRQWDQHRXVLQKLELWRUVWKDWDULVHDIWHUDYLUDOLQIHFWLRQWHQGWR
GLVDSSHDUZLWKLQDIHZZHHNVWRPRQWKV,QKLELWRUVVHHQZLWKDQXQGHUO\LQJ
GLVHDVHVXFKDV6/(RIWHQGLVDSSHDUZKHQWKHSULPDU\GLVHDVHLVHIIHFWLYHO\
WUHDWHG

%LEOLRJUDSK\
&ROOLQV:3&KDOPHUV(+DUW'HWDO'LDJQRVLVDQG
PDQDJHPHQWRIDFTXLUHGFRDJXODWLRQLQKLELWRUVDJXLGHOLQH
IURP8.+&'2%U-+DHPDWROߙ
+XQW%-3HGLDWULFDQWLSKRVSKROLSLGDQWLERGLHVDQG
DQWLSKRVSKROLSLGV\QGURPH6HPLQ7KURPE+HPRVW
ߙ
-DQEDLQ0/HLVVLQJHU&$.UXVH-DUUHV5$FTXLUHG
KHPRSKLOLDDHPHUJLQJWUHDWPHQWRSWLRQV-%ORRG0HG
ߙ
.HVVOHU&0.Q¶EO3$FTXLUHGKHPRSKLOLDDQRYHUYLHZIRU
FOLQLFDOSUDFWLFH(XU-+DHPDWRO6XSSOߙ
0D]RGLHU.$UQDXG/0DWKLDQ$HWDO/XSXVDQWLFRDJXODQW
K\SRSURWKURPELQHPLDV\QGURPHUHSRUWRIFDVHVDQG
UHYLHZRIWKHOLWHUDWXUH0HGLFLQH%DOWLPRUH
ߙ
1HJULQL63DSSDODUGR)0XUGDFD*HWDO7KH
DQWLSKRVSKROLSLGDQWLERG\V\QGURPHIURPSDWKRSK\VLRORJ\
WRWUHDWPHQW&OLQ([S0HGߙ
3LSH6:*ROGHQEHUJ1$$FTXLUHGGLVRUGHUVRIKHPRVWDVLV
2UNLQ6+)LVKHU'(*LQVEHUJ'HWDO1DWKDQDQG2VNL
V
KHPDWRORJ\RILQIDQF\DQGFKLOGKRRGHG6DXQGHUV
(OVHYLHU3KLODGHOSKLDߙ
&+$37(5

'LVVHPLQDWHG,QWUDYDVFXODU
&RDJXODWLRQ
-3DXO6FRWW/HVOLH-5DIILQL

7KURPERWLFPLFURDQJLRSDWK\UHIHUVWRDKHWHURJHQHRXVJURXSRIFRQGLWLRQV
LQFOXGLQJGLVVHPLQDWHGLQWUDYDVFXODUFRDJXODWLRQ',&WKDWUHVXOWLQ
FRQVXPSWLRQRIFORWWLQJIDFWRUVSODWHOHWVDQGDQWLFRDJXODQWSURWHLQV
&RQVHTXHQFHVRIWKLVSURFHVVLQFOXGHZLGHVSUHDGLQWUDYDVFXODUGHSRVLWLRQRI
ILEULQOHDGLQJWRWLVVXHLVFKHPLDDQGQHFURVLVDJHQHUDOL]HGKHPRUUKDJLFVWDWH
DQGPLFURDQJLRSDWKLFKHPRO\WLFDQHPLD

(WLRORJ\
$Q\OLIHWKUHDWHQLQJVHYHUHV\VWHPLFGLVHDVHDVVRFLDWHGZLWKK\SR[LDDFLGRVLV
WLVVXHQHFURVLVVKRFNRUHQGRWKHOLDOGDPDJHPD\WULJJHU',&7DEOH
%HWWHUXQGHUVWDQGLQJRIWKHSDWKRSK\VLRORJ\RIKHPRVWDVLVKDVOHGWRDQ
DSSUHFLDWLRQRIWKHFULWLFDOLQWHUDFWLRQRIWKHFRDJXODWLRQSDWKZD\VZLWKWKH
LQQDWHLPPXQHV\VWHPDQGLQIODPPDWRU\UHVSRQVHWKDWOLNHO\FRQWULEXWHVWRWKH
ZLGHVSUHDGG\VUHJXODWLRQSUHVHQWLQ',&$FWLYDWLRQDQGUHOHDVHRIF\WRNLQHV
DQGFKHPRNLQHVDOWHUHQGRWKHOLDOIXQFWLRQWRDPRUHSURWKURPERWLFVWDWH
HQKDQFLQJWKHIRUPDWLRQRIPLFURYDVFXODUWKURPERVHVZLWKUHVXOWDQW
FRQVXPSWLRQRISURDQGDQWLFRDJXODQWSURWHLQV([FHVVLYHDFWLYDWLRQRIFORWWLQJ
FRQVXPHVERWKWKHSK\VLRORJLFDQWLFRDJXODQWVSURWHLQ&SURWHLQ6DQG$7,,,
DQGWKHSURFRDJXODQWVUHVXOWLQJLQDGHILFLHQF\RIIDFWRU9IDFWRU9,,,
SURWKURPELQILEULQRJHQDQGSODWHOHWV7\SLFDOO\WKHFOLQLFDOUHVXOWRIWKLV
VHTXHQFHRIHYHQWVLVKHPRUUKDJH7KHKHPRVWDWLFG\VUHJXODWLRQPD\DOVR
UHVXOWLQWKURPERVHVLQWKHVNLQNLGQH\VDQGRWKHURUJDQV
7DEOH
&DXVHVRI'LVVHPLQDWHG,QWUDYDVFXODU&RDJXODWLRQ
,1)(&7,216
0HQLQJRFRFFHPLDSXUSXUDIXOPLQDQV
%DFWHULDOVHSVLVVWDSK\ORFRFFDOVWUHSWRFRFFDO(VFKHULFKLDFROL6DOPRQHOOD
5LFNHWWVLD5RFN\0RXQWDLQVSRWWHGIHYHU
9LUXVHVF\WRPHJDORYLUXVKHUSHVVLPSOH[KHPRUUKDJLFIHYHUV
0DODULD
)XQJL
7,668(,1-85<
&HQWUDOQHUYRXVV\VWHPWUDXPDPDVVLYHKHDGLQMXU\
0XOWLSOHIUDFWXUHVZLWKIDWHPEROL
&UXVKLQMXU\
3URIRXQGVKRFNRUDVSK\[LD
+\SRWKHUPLDRUK\SHUWKHUPLD
0DVVLYHEXUQV
0$/,*1$1&<
$FXWHSURP\HORF\WLFOHXNHPLD
$FXWHPRQREODVWLFOHXNHPLD
:LGHVSUHDGPDOLJQDQFLHVQHXUREODVWRPD
9(1202572;,1
6QDNHELWHV
,QVHFWELWHV
0,&52$1*,23$7+,&',625'(56
6HYHUHWKURPERWLFWKURPERF\WRSHQLFSXUSXUDRUKHPRO\WLFXUHPLFV\QGURPH
*LDQWKHPDQJLRPD.DVDEDFK0HUULWWV\QGURPH
*$6752,17(67,1$/',625'(56
)XOPLQDQWKHSDWLWLV
,VFKHPLFERZHO
3DQFUHDWLWLV
+(5(',7$5<7+520%27,&',625'(56
+RPR]\JRXVFRPSRXQGKHWHUR]\JRXVSURWHLQ&SURWHLQ6RU$7,,,GHILFLHQF\
1(:%251
0DWHUQDOWR[HPLD
%DFWHULDORUYLUDOVHSVLVJURXS%VWUHSWRFRFFXVKHUSHVVLPSOH[YLUXV
$EUXSWLRSODFHQWDH
6HYHUHUHVSLUDWRU\GLVWUHVVV\QGURPH
1HFURWL]LQJHQWHURFROLWLV
(U\WKUREODVWRVLVIHWDOLV
)HWDOGHPLVHRIDWZLQ
0,6&(//$1(286
6HYHUHDFXWHJUDIWUHMHFWLRQ
$FXWHKHPRO\WLFWUDQVIXVLRQUHDFWLRQ
6HYHUHFROODJHQYDVFXODUGLVHDVH
.DZDVDNLGLVHDVH
+HSDULQLQGXFHGWKURPERVLV
,QIXVLRQRIDFWLYDWHGSURWKURPELQFRPSOH[FRQFHQWUDWHV
+\SHUS\UH[LDHQFHSKDORSDWK\KHPRUUKDJLFVKRFNV\QGURPH
$GDSWHGIURP0RQWJRPHU\556FRWW,3+HPRVWDVLVGLVHDVHVRIWKHIOXLGSKDVH,Q1DWKDQ'*
2VNL)$HGLWRUV+HPDWRORJ\RILQIDQF\DQGFKLOGKRRGYROHG3KLODGHOSKLD6DXQGHUV
&OLQLFDO0DQLIHVWDWLRQV
',&DFFRPSDQLHVDVHYHUHV\VWHPLFGLVHDVHSURFHVVXVXDOO\ZLWKVKRFN
%OHHGLQJIUHTXHQWO\ILUVWRFFXUVIURPVLWHVRIYHQLSXQFWXUHRUVXUJLFDOLQFLVLRQ
7KHVNLQPD\VKRZSHWHFKLDHDQGHFFK\PRVHV7LVVXHQHFURVLVPD\LQYROYH
PDQ\RUJDQVDQGFDQEHPRVWVSHFWDFXODUO\VHHQDVLQIDUFWLRQRIODUJHDUHDVRI
VNLQVXEFXWDQHRXVWLVVXHRUNLGQH\V$QHPLDFDXVHGE\KHPRO\VLVPD\GHYHORS
UDSLGO\EHFDXVHRIPLFURDQJLRSDWKLFKHPRO\WLFDQHPLD

/DERUDWRU\)LQGLQJV
7KHUHLVQRZHOOGHILQHGVHTXHQFHRIHYHQWV&HUWDLQFRDJXODWLRQIDFWRUVIDFWRUV
,,9DQG9,,,ILEULQRJHQDQGSODWHOHWVPD\EHFRQVXPHGE\WKHRQJRLQJ
LQWUDYDVFXODUFORWWLQJSURFHVVZLWKUHVXOWDQWSURORQJDWLRQRIWKHSURWKURPELQ
37SDUWLDOWKURPERSODVWLQ377DQGWKURPELQ77WLPHV3ODWHOHWFRXQWV
PD\EHSURIRXQGO\GHSUHVVHG7KHEORRGVPHDUPD\FRQWDLQIUDJPHQWHGEXUU
DQGKHOPHWVKDSHGUHGEORRGFHOOVVFKLVWRF\WHV,QDGGLWLRQEHFDXVHWKH
ILEULQRO\WLFPHFKDQLVPLVDFWLYDWHGILEULQRJHQGHJUDGDWLRQSURGXFWV'GLPHUV
DSSHDULQWKHEORRG7KH'GLPHULVIRUPHGE\ILEULQRO\VLVRIDFURVVOLQNHG
ILEULQFORW7KH'GLPHUDVVD\LVDVVHQVLWLYHDVWKHILEULQRJHQGHJUDGDWLRQ
SURGXFWWHVWDQGPRUHVSHFLILFIRUDFWLYDWLRQRIFRDJXODWLRQDQGILEULQRO\VLV

7UHDWPHQW
7KHVWVWHSVLQWKHWUHDWPHQWRI',&DUHWKHPRVWFULWLFDOWUHDWWKHWULJJHUWKDW
FDXVHG',&DQGUHVWRUHQRUPDOKRPHRVWDVLVE\FRUUHFWLQJWKHVKRFNDFLGRVLV
DQGK\SR[LDWKDWXVXDOO\FRPSOLFDWH',&,IWKHXQGHUO\LQJSUREOHPFDQEH
FRQWUROOHGDQGWKHSDWLHQWFDQEHVWDELOL]HGEOHHGLQJTXLFNO\FHDVHVDQGWKH
DEQRUPDOODERUDWRU\ILQGLQJVLPSURYH%ORRGFRPSRQHQWVDUHXVHGIRU
UHSODFHPHQWWKHUDS\LQSDWLHQWVZLWKKHPRUUKDJHDQGPD\FRQVLVWRISODWHOHW
LQIXVLRQVIRUWKURPERF\WRSHQLDFU\RSUHFLSLWDWHIRUK\SRILEULQRJHQHPLD
DQGRUIUHVKIUR]HQSODVPDIRUUHSODFHPHQWRIRWKHUFRDJXODWLRQIDFWRUVDQG
QDWXUDOLQKLELWRUV
7KHUROHRIKHSDULQLQ',&LVOLPLWHGWRSDWLHQWVZKRKDYHYDVFXODU
WKURPERVLVLQDVVRFLDWLRQZLWK',&RUZKRUHTXLUHSURSK\OD[LVEHFDXVHWKH\DUH
DWKLJKULVNIRUYHQRXVWKURPERHPEROLVP6XFKLQGLYLGXDOVVKRXOGEHWUHDWHGDV
RXWOLQHGLQ&KDSWHUZLWKFDUHIXODWWHQWLRQWRUHSODFHPHQWWKHUDS\WR
PDLQWDLQDQDGHTXDWHSODWHOHWFRXQWDQGWKXVOLPLWEOHHGLQJFRPSOLFDWLRQV
7KHSURJQRVLVRISDWLHQWVZLWK',&LVSULPDULO\GHSHQGHQWRQWKHRXWFRPHRI
WKHWUHDWPHQWRIWKHSULPDU\GLVHDVHDQGSUHYHQWLRQRIHQGRUJDQGDPDJH

%LEOLRJUDSK\
+RRN.0$EUDPV&67KHORVVRIKRPHRVWDVLVLQKHPRVWDVLV
QHZDSSURDFKHVLQWUHDWLQJDQGXQGHUVWDQGLQJDFXWH
GLVVHPLQDWHGLQWUDYDVFXODUFRDJXODWLRQLQFULWLFDOO\LOO
SDWLHQWV&OLQ7UDQVO6FLߙ
/HYL07RK&+7KDFKLO-HWDO*XLGHOLQHVIRUWKHGLDJQRVLV
DQGPDQDJHPHQWRIGLVVHPLQDWHGLQWUDYDVFXODUFRDJXODWLRQ
%ULWLVKFRPPLWWHHIRUVWDQGDUGVLQKDHPDWRORJ\%U-
+DHPDWROߙ
3LSH6:*ROGHQEHUJ1$$FTXLUHGGLVRUGHUVRIKHPRVWDVLV
2UNLQ6+)LVKHU'(*LQVEHUJ'HWDO1DWKDQDQG2VNL
V
KHPDWRORJ\RILQIDQF\DQGFKLOGKRRGHG6DXQGHUV
(OVHYLHU3KLODGHOSKLDߙ
5DMDJRSDO57KDFKLO-0RQDJOH3'LVVHPLQDWHGLQWUDYDVFXODU
FRDJXODWLRQLQSDHGLDWULFV$UFK'LV&KLOGߙ

7KDFKLO-7RK&+&XUUHQWFRQFHSWVLQWKHPDQDJHPHQWRI
GLVVHPLQDWHGLQWUDYDVFXODUFRDJXODWLRQ7KURPE5HV
6XSSO6ߙ6
& + $ 3 7 ( 5   

3ODWHOHWDQG%ORRG9HVVHO'LVRUGHUV
-3DXO6FRWW9HURQLFD+)ORRG

0HJDNDU\RSRLHVLV
3ODWHOHWVDUHQRQQXFOHDWHGFHOOXODUIUDJPHQWVSURGXFHGE\PHJDNDU\RF\WHVODUJH
SRO\SORLGFHOOVZLWKLQWKHERQHPDUURZDQGRWKHUWLVVXHV:KHQWKH
PHJDNDU\RF\WHDSSURDFKHVPDWXULW\EXGGLQJRIWKHF\WRSODVPRFFXUVDQGODUJH
QXPEHUVRISODWHOHWVDUHOLEHUDWHG3ODWHOHWVFLUFXODWHZLWKDOLIHVSDQRI
GD\V7KURPERSRLHWLQ732LVWKHSULPDU\JURZWKIDFWRUWKDWFRQWUROVSODWHOHW
SURGXFWLRQ)LJ/HYHOVRI732DSSHDUWRFRUUHODWHLQYHUVHO\ZLWK
SODWHOHWQXPEHUDQGPHJDNDU\RF\WHPDVV/HYHOVRI732DUHKLJKHVWLQWKH
WKURPERF\WRSHQLFVWDWHVDVVRFLDWHGZLWKGHFUHDVHGPDUURZPHJDNDU\RSRLHVLV
DQGPD\EHYDULDEOHLQVWDWHVRILQFUHDVHGSODWHOHWSURGXFWLRQ


),* 6FKHPHRIPHJDNDU\RF\WRSRLHVLVDQGSODWHOHWSURGXFWLRQLQLGLRSDWKLF
WKURPERF\WRSHQLFSXUSXUD,73+HPDWRSRLHWLFVWHPFHOOV+6&DUHPRELOL]HGDQG
 PHJDNDU\RF\WH0.DQGHU\WKURLGSURJHQLWRUV0(3DFFXPXODWHZLWK0.FRPPLWWHG
SURJHQLWRUV0.3JLYLQJULVHWRPDWXUH0.VXQGHUFRQWURORIWKURPERSRLHWLQ732
ZRUNLQJZLWKFKHPRNLQHVF\WRNLQHVDQGJURZWKIDFWRUVLQFOXGLQJVWHPFHOOIDFWRU
6&)DQGLQWHUOHXNLQ,/,/DQG,/(QGRUHSOLFDWLRQUHVXOWVLQSORLG\FKDQJHVLQ
0.VDQGLQFUHDVHGFKURPRVRPHQXPEHUXSWR10DWXUH0.VPLJUDWHWRWKH
HQGRWKHOLDOFHOOEDUULHUGHOLPLWLQJWKHYDVFXODUVLQXVDQGXQGHUWKHLQIOXHQFHRI
VWURPDOGHULYHGIDFWRU6')JLYHULVHWRSURSODWHOHWVWKDWSURWUXGHLQWRWKH
FLUFXODWLRQDQGSURGXFHODUJHQXPEHUVRISODWHOHWVXQGHUKHPRG\QDPLFGHWHUPLQDQWV
7KHUDSHXWLFDOO\JLYHQURPLSORVWLPDQGHOWURPERSDJHQWHUWKHPDUURZDQGMRLQZLWK
732WRVWLPXODWHPHJDNDU\RF\WRSRLHVLVDQGSODWHOHWSURGXFWLRQ)URP1XUGHQ$7
9LDOODUG-)1XUGHQ31HZJHQHUDWLRQGUXJVWKDWVWLPXODWHSODWHOHWSURGXFWLRQLQ
FKURQLFLPPXQHWKURPERF\WRSHQLFSXUSXUD/DQFHW

7KHSODWHOHWSOD\VPXOWLSOHKHPRVWDWLFUROHV7KHSODWHOHWVXUIDFHSRVVHVVHVD
QXPEHURILPSRUWDQWUHFHSWRUVIRUDGKHVLYHSURWHLQVLQFOXGLQJYRQ:LOOHEUDQG
IDFWRU9:)DQGILEULQRJHQDVZHOODVUHFHSWRUVIRUDJRQLVWVWKDWWULJJHU
SODWHOHWDJJUHJDWLRQVXFKDVWKURPELQFROODJHQDQGDGHQRVLQHGLSKRVSKDWH
$'3$IWHULQMXU\WRWKHEORRGYHVVHOZDOOWKHH[WUDFHOOXODUPDWUL[FRQWDLQLQJ
DGKHVLYHDQGSURFRDJXODQWSURWHLQVLVH[SRVHG6XEHQGRWKHOLDOFROODJHQELQGV
9:)ZKLFKXQGHUJRHVDFRQIRUPDWLRQDOFKDQJHWKDWLQGXFHVELQGLQJRIWKH
SODWHOHWJO\FRSURWHLQ,E*3,EFRPSOH[WKH9:)UHFHSWRU7KLVSURFHVVLV
FDOOHGSODWHOHWDGKHVLRQ3ODWHOHWVWKHQXQGHUJRDFWLYDWLRQ'XULQJWKHSURFHVVRI
DFWLYDWLRQWKHSODWHOHWVJHQHUDWHWKURPER[DQH$IURPDUDFKLGRQLFDFLGYLDWKH
HQ]\PHF\FORR[\JHQDVH$IWHUDFWLYDWLRQSODWHOHWVUHOHDVHDJRQLVWVVXFKDV
$'3DGHQRVLQHWULSKRVSKDWH$73FDOFLXPLRQV&DVHURWRQLQDQG
FRDJXODWLRQIDFWRUVLQWRWKHVXUURXQGLQJPLOLHX%LQGLQJRI9:)WRWKH*3,E
FRPSOH[WULJJHUVDFRPSOH[VLJQDOLQJFDVFDGHWKDWUHVXOWVLQDFWLYDWLRQRIWKH
ILEULQRJHQUHFHSWRUWKHPDMRUSODWHOHWLQWHJULQJO\FRSURWHLQ͠,,E͡*3,,E,,,D
&LUFXODWLQJILEULQRJHQELQGVWRLWVUHFHSWRURQWKHDFWLYDWHGSODWHOHWVOLQNLQJ
SODWHOHWVLQDSURFHVVFDOOHGDJJUHJDWLRQ7KLVVHULHVRIHYHQWVIRUPVD
KHPRVWDWLFSOXJDWWKHVLWHRIYDVFXODULQMXU\7KHVHURWRQLQDQGKLVWDPLQHWKDW
DUHOLEHUDWHGGXULQJDFWLYDWLRQLQFUHDVHORFDOYDVRFRQVWULFWLRQ,QDGGLWLRQWR
DFWLQJLQFRQFHUWZLWKWKHYHVVHOZDOOWRIRUPWKHSODWHOHWSOXJWKHSODWHOHW
SURYLGHVWKHFDWDO\WLFVXUIDFHRQZKLFKFRDJXODWLRQIDFWRUVDVVHPEOHDQG
HYHQWXDOO\JHQHUDWHWKURPELQWKURXJKDVHTXHQWLDOVHULHVRIHQ]\PDWLFFOHDYDJHV
/DVWO\WKHSODWHOHWFRQWUDFWLOHSURWHLQVDQGF\WRVNHOHWRQPHGLDWHFORWUHWUDFWLRQ

7KURPERF\WRSHQLD
7KHQRUPDOSODWHOHWFRXQWLV—/7KURPERF\WRSHQLDUHIHUVWRD
UHGXFWLRQLQSODWHOHWFRXQWWR—/DOWKRXJKFOLQLFDOO\VLJQLILFDQW
EOHHGLQJLVQRWVHHQXQWLOFRXQWVGURSZHOOEHORZ—/&DXVHVRI
WKURPERF\WRSHQLDLQFOXGHGHFUHDVHGSURGXFWLRQRQHLWKHUDFRQJHQLWDORUDQ
DFTXLUHGEDVLVVHTXHVWUDWLRQRIWKHSODWHOHWVZLWKLQDQHQODUJHGVSOHHQRURWKHU
RUJDQDQGLQFUHDVHGGHVWUXFWLRQRIQRUPDOO\V\QWKHVL]HGSODWHOHWVRQHLWKHUDQ
LPPXQHRUDQRQLPPXQHEDVLV7DEOHVDQGDQG)LJVHH
&KDSWHU

7DEOH
'LIIHUHQWLDO'LDJQRVLVRI7KURPERF\WRSHQLDLQ&KLOGUHQ
DQG$GROHVFHQWV
'HVWUXFWLYH7KURPERF\WRSHQLDV
3ULPDU\3ODWHOHW&RQVXPSWLRQ6\QGURPHV
,PPXQHWKURPERF\WRSHQLDV
$FXWHDQGFKURQLF,73
$XWRLPPXQHGLVHDVHVZLWKFKURQLF,73DVDPDQLIHVWDWLRQ
&\FOLFWKURPERF\WRSHQLD
$XWRLPPXQHO\PSKRSUROLIHUDWLYHV\QGURPHDQGLWVYDULDQWV
6\VWHPLFOXSXVHU\WKHPDWRVXV
(YDQVV\QGURPH
$QWLSKRVSKROLSLGDQWLERG\V\QGURPH
1HRSODVLDDVVRFLDWHGLPPXQHWKURPERF\WRSHQLD
7KURPERF\WRSHQLDDVVRFLDWHGZLWK+,9
1HRQDWDOLPPXQHWKURPERF\WRSHQLD
$OORLPPXQH
$XWRLPPXQHHJPDWHUQDO,73
'UXJLQGXFHGLPPXQHWKURPERF\WRSHQLDLQFOXGLQJKHSDULQLQGXFHGWKURPERF\WRSHQLD
3RVWWUDQVIXVLRQSXUSXUD
$OOHUJ\DQGDQDSK\OD[LV
3RVWWUDQVSODQWWKURPERF\WRSHQLD
1RQLPPXQHWKURPERF\WRSHQLDV
7KURPERF\WRSHQLDRILQIHFWLRQ
%DFWHUHPLDRUIXQJHPLD
9LUDOLQIHFWLRQ
3URWR]RDQ
7KURPERWLFPLFURDQJLRSDWKLFGLVRUGHUV
+HPRO\WLFXUHPLFV\QGURPH
(FODPSVLD+(//3V\QGURPH
7KURPERWLFWKURPERF\WRSHQLFSXUSXUD
%RQHPDUURZWUDQVSODQWDWLRQߙDVVRFLDWHGPLFURDQJLRSDWK\
'UXJLQGXFHGTXLQLQHHWF
3ODWHOHWVLQFRQWDFWZLWKIRUHLJQPDWHULDO
&RQJHQLWDOKHDUWGLVHDVH
'UXJLQGXFHGYLDGLUHFWSODWHOHWHIIHFWVULVWRFHWLQSURWDPLQH
7\SH%9:'RUSODWHOHWW\SH9:'
&RPELQHG3ODWHOHWDQG)LEULQRJHQ&RQVXPSWLRQ6\QGURPHV
'LVVHPLQDWHGLQWUDYDVFXODUFRDJXODWLRQ
.DVDEDFK0HUULWWV\QGURPH
+HPRSKDJRF\WLFO\PSKRKLVWLRF\WRVLVLQKHULWHGRUDFTXLUHG
 ,PSDLUHG3ODWHOHW3URGXFWLRQ
+HUHGLWDU\GLVRUGHUV
$FTXLUHGGLVRUGHUV
$SODVWLFDQHPLD
0\HORG\VSODVWLFV\QGURPH
0DUURZLQILOWUDWLYHSURFHVVߚQHRSODVLD
2VWHRSHWURVLV
1XWULWLRQDOGHILFLHQF\VWDWHVLURQIRODWHYLWDPLQ%DQRUH[LDQHUYRVD
'UXJRUUDGLDWLRQLQGXFHGWKURPERF\WRSHQLD
1HRQDWDOK\SR[LDRUSODFHQWDOLQVXIILFLHQF\
6HTXHVWUDWLRQ
+\SHUVSOHQLVP
+\SRWKHUPLD
%XUQV
+(//3+HPRO\VLVHOHYDWHGOLYHUHQ]\PHVDQGORZSODWHOHWV+,9KXPDQLPPXQRGHILFLHQF\
YLUXV,73LPPXQHWKURPERF\WRSHQLFSXUSXUD9:'YRQ:LOOHEUDQGGLVHDVH
)URP:LOVRQ'%$FTXLUHGSODWHOHWGHIHFWV,Q2UNLQ6+)LVKHU'(*LQVEHUJ'HWDOHGLWRUV
1DWKDQDQG2VNL
VKHPDWRORJ\RILQIDQF\DQGFKLOGKRRGHG3KLODGHOSKLD6DXQGHUV
(OVHYLHU%R[S

7DEOH
&ODVVLILFDWLRQRI)HWDODQG1HRQDWDO7KURPERF\WRSHQLDV

&21',7,21
)HWDO $OORLPPXQHWKURPERF\WRSHQLD
&RQJHQLWDOLQIHFWLRQHJ&09WR[RSODVPDUXEHOOD+,9
$QHXSORLG\HJWULVRP\RUWULSORLG\7XUQHUV\QGURPH
$XWRLPPXQHFRQGLWLRQHJ,736/(
6HYHUH5KKHPRO\WLFGLVHDVH
&RQJHQLWDOLQKHULWHGHJ:LVNRWW$OGULFK1RRQDQ&RUQHOLDGH/DQJH-DFREVHQ
V\QGURPHV
(DUO\RQVHWQHRQDWDO 3ODFHQWDOLQVXIILFLHQF\HJ3(7,8*5GLDEHWHV
KU 3HULQDWDODVSK\[LD
3HULQDWDOLQIHFWLRQHJ(VFKHULFKLDFROL*%6KHUSHVVLPSOH[
',&
$OORLPPXQHWKURPERF\WRSHQLD
$XWRLPPXQHFRQGLWLRQHJ,736/(
&RQJHQLWDOLQIHFWLRQHJ&09WR[RSODVPDUXEHOOD+,9
7KURPERVLVHJDRUWLFUHQDOYHLQ
%RQHPDUURZUHSODFHPHQWHJFRQJHQLWDOOHXNHPLD
.DVDEDFK0HUULWWV\QGURPH
0HWDEROLFGLVHDVHHJSURSLRQLFDQGPHWK\OPDORQLFDFLGHPLD
&RQJHQLWDOLQKHULWHGHJ7$5&$07
/DWHRQVHWQHRQDWDO! /DWHRQVHWVHSVLV
KU 1(&
&RQJHQLWDOLQIHFWLRQHJ&09WR[RSODVPDUXEHOOD+,9
$XWRLPPXQH
.DVDEDFK0HUULWWV\QGURPH
0HWDEROLFGLVHDVHHJSURSLRQLFDQGPHWK\OPDORQLFDFLGHPLD
 &RQJHQLWDOLQKHULWHGHJ7$5&$07
7KHPRVWFRPPRQFRQGLWLRQVDUHVKRZQLQEROG

&$07&RQJHQLWDODPHJDNDU\RF\WLFWKURPERF\WRSHQLD&09F\WRPHJDORYLUXV',&GLVVHPLQDWHG
LQWUDYDVFXODUFRDJXODWLRQ*%6JURXS%VWUHSWRFRFFXV+,9KXPDQLPPXQRGHILFLHQF\YLUXV,73
LGLRSDWKLFWKURPERF\WRSHQLFSXUSXUD,8*5LQWUDXWHULQHJURZWKUHVWULFWLRQ1(&QHFURWL]LQJ
HQWHURFROLWLV3(7SUHHFODPSVLD6/(V\VWHPLFOXSXVHU\WKHPDWRVXV7$5WKURPERF\WRSHQLD
ZLWKDEVHQWUDGLL
)URP5REHUWV,0XUUD\1$1HRQDWDOWKURPERF\WRSHQLDFDXVHVDQGPDQDJHPHQW$UFK'LV
&KLOG)HWDO1HRQDWDO(G)ߙ)


),* 'LIIHUHQWLDOGLDJQRVLVRIFKLOGKRRGWKURPERF\WRSHQLFV\QGURPHV7KH
V\QGURPHVLQLWLDOO\DUHVHSDUDWHGE\WKHLUFOLQLFDODSSHDUDQFH&OXHVOHDGLQJWRWKH
GLDJQRVLVDUHVKRZQLQLWDOLFV7KHPHFKDQLVPVDQGFRPPRQGLVRUGHUVOHDGLQJWR
 WKHVHILQGLQJVDUHVKRZQLQWKHORZHUSDUWRIWKHILJXUH'LVRUGHUVWKDWFRPPRQO\DIIHFW
QHRQDWHVDUHOLVWHGLQWKHVKDGHGER[HV+60+HSDWRVSOHQRPHJDO\,73LGLRSDWKLF
LPPXQHWKURPERF\WRSHQLFSXUSXUD1$73QHRQDWDODOORLPPXQHWKURPERF\WRSHQLF
SXUSXUD6/(V\VWHPLFOXSXVHU\WKHPDWRVXV7$5WKURPERF\WRSHQLDߙDEVHQWUDGLXV
773WKURPERWLFWKURPERF\WRSHQLFSXUSXUD8$&XPELOLFDODUWHU\FDWKHWHU9:'YRQ
:LOOHEUDQGGLVHDVH:%&ZKLWHEORRGFHOO)URP6FRWW-3%OHHGLQJDQGWKURPERVLV,Q
.OLHJPDQ50HGLWRU3UDFWLFDOVWUDWHJLHVLQSHGLDWULFGLDJQRVLVDQGWKHUDS\
3KLODGHOSKLD6DXQGHUVSDQG.OLHJPDQ500DUFGDQWH.--HQVRQ+%HWDO
HGLWRUV1HOVRQHVVHQWLDOVRISHGLDWULFVHG3KLODGHOSKLD(OVHYLHU6DXQGHUVS



,GLRSDWKLF$XWRLPPXQH
7KURPERF\WRSHQLF3XUSXUD
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
LGLRSDWKLFWKURPERF\WRSHQLFSXUSXUD
LPPXQHPHGLDWHGWKURPERF\WRSHQLFSXUSXUD
LQWUDFUDQLDOKHPRUUKDJH
,73

7KHPRVWFRPPRQFDXVHRIDFXWHRQVHWRIWKURPERF\WRSHQLDLQDQRWKHUZLVH
ZHOOFKLOGLVDXWRLPPXQHLGLRSDWKLFWKURPERF\WRSHQLFSXUSXUD,73

(SLGHPLRORJ\
,QDVPDOOQXPEHURIFKLOGUHQHVWLPDWHGDWLQZNDIWHUH[SRVXUHWR
DFRPPRQYLUDOLQIHFWLRQDQDXWRDQWLERG\GLUHFWHGDJDLQVWWKHSODWHOHWVXUIDFH
GHYHORSVZLWKUHVXOWDQWVXGGHQRQVHWRIWKURPERF\WRSHQLD$UHFHQWKLVWRU\RI
YLUDOLOOQHVVLVGHVFULEHGLQߙRIFKLOGUHQZLWK,737KHSHDNDJHLV\U
DOWKRXJKWKHDJHUDQJHVIURPHDUO\LQLQIDQF\WRHOGHUO\,QFKLOGKRRGPDOHVDQG
IHPDOHVDUHHTXDOO\DIIHFWHG,73VHHPVWRRFFXUPRUHRIWHQLQODWHZLQWHUDQG
VSULQJDIWHUWKHSHDNVHDVRQRIYLUDOUHVSLUDWRU\LOOQHVV

3DWKRJHQHVLV
7KHH[DFWDQWLJHQLFWDUJHWIRUPRVWVXFKDQWLERGLHVLQPRVWFDVHVRIFKLOGKRRG
DFXWH,73UHPDLQVXQGHWHUPLQHGDOWKRXJKLQFKURQLF,73PDQ\SDWLHQWV
GHPRQVWUDWHDQWLERGLHVDJDLQVW͠,,E͡DQG*3,E$IWHUELQGLQJRIWKHDQWLERG\
WRWKHSODWHOHWVXUIDFHFLUFXODWLQJDQWLERG\FRDWHGSODWHOHWVDUHUHFRJQL]HGE\WKH
)FUHFHSWRURQVSOHQLFPDFURSKDJHVLQJHVWHGDQGGHVWUR\HG0RVWFRPPRQ
YLUXVHVKDYHEHHQGHVFULEHGLQDVVRFLDWLRQZLWK,73LQFOXGLQJ(SVWHLQ%DUUYLUXV
(%9VHH&KDSWHUDQG+,9VHH&KDSWHU(%9UHODWHG,73LVXVXDOO\
RIVKRUWGXUDWLRQDQGIROORZVWKHFRXUVHRILQIHFWLRXVPRQRQXFOHRVLV+,9
DVVRFLDWHG,73LVXVXDOO\FKURQLF,QVRPHSDWLHQWV,73DSSHDUVWRDULVHLQ
FKLOGUHQLQIHFWHGZLWK+HOLFREDFWHUS\ORULRUUDUHO\IROORZLQJYDFFLQHV

&OLQLFDO0DQLIHVWDWLRQV
7KHFODVVLFSUHVHQWDWLRQRI,73LVDSUHYLRXVO\KHDOWK\\UROGFKLOGZKRKDV
VXGGHQRQVHWRIJHQHUDOL]HGSHWHFKLDHDQGSXUSXUD7KHSDUHQWVRIWHQVWDWHWKDW
WKHFKLOGZDVILQH\HVWHUGD\DQGQRZLVFRYHUHGZLWKEUXLVHVDQGSXUSOHGRWV
7KHUHPD\EHEOHHGLQJIURPWKHJXPVDQGPXFRXVPHPEUDQHVSDUWLFXODUO\ZLWK
SURIRXQGWKURPERF\WRSHQLDSODWHOHWFRXQW—/7KHUHLVDKLVWRU\RID
SUHFHGLQJYLUDOLQIHFWLRQZNEHIRUHWKHRQVHWRIWKURPERF\WRSHQLD)LQGLQJV
RQSK\VLFDOH[DPLQDWLRQDUHQRUPDORWKHUWKDQSHWHFKLDHDQGSXUSXUD
6SOHQRPHJDO\O\PSKDGHQRSDWK\ERQHSDLQDQGSDOORUDUHUDUH$VLPSOH
FODVVLILFDWLRQV\VWHPIURPWKH8QLWHG.LQJGRPKDVEHHQSURSRVHGWR
FKDUDFWHUL]HWKHVHYHULW\RIEOHHGLQJLQ,73RQWKHEDVLVRIV\PSWRPVDQGVLJQV
UDWKHUWKDQSODWHOHWFRXQWDVIROORZV

1RV\PSWRPV
0LOGV\PSWRPVEUXLVLQJDQGSHWHFKLDHRFFDVLRQDOPLQRUHSLVWD[LVYHU\
OLWWOHLQWHUIHUHQFHZLWKGDLO\OLYLQJ
0RGHUDWHV\PSWRPVPRUHVHYHUHVNLQDQGPXFRVDOOHVLRQVPRUH
WURXEOHVRPHHSLVWD[LVDQGPHQRUUKDJLD
 6HYHUHV\PSWRPVEOHHGLQJHSLVRGHVߚPHQRUUKDJLDHSLVWD[LVPHOHQDߚ
UHTXLULQJWUDQVIXVLRQRUKRVSLWDOL]DWLRQV\PSWRPVLQWHUIHULQJVHULRXVO\
ZLWKWKHTXDOLW\RIOLIH

7KHSUHVHQFHRIDEQRUPDOILQGLQJVVXFKDVKHSDWRVSOHQRPHJDO\ERQHRUMRLQW
SDLQUHPDUNDEOHO\PSKDGHQRSDWK\RWKHUF\WRSHQLDVRUFRQJHQLWDODQRPDOLHV
VXJJHVWVRWKHUGLDJQRVHVOHXNHPLDV\QGURPHV:KHQWKHRQVHWLVLQVLGLRXV
HVSHFLDOO\LQDQDGROHVFHQWFKURQLF,73RUWKHSRVVLELOLW\RIDV\VWHPLFLOOQHVV
VXFKDVV\VWHPLFOXSXVHU\WKHPDWRVXV6/(LVPRUHOLNHO\

2XWFRPH
6HYHUHEOHHGLQJLVUDUHRIFDVHVLQODUJHLQWHUQDWLRQDOVWXG\,Qߙ
RIFKLOGUHQZKRSUHVHQWZLWKDFXWH,73VSRQWDQHRXVUHVROXWLRQRFFXUVZLWKLQ
PR7KHUDS\GRHVQRWDSSHDUWRDIIHFWWKHQDWXUDOKLVWRU\RIWKHLOOQHVV)HZHU
WKDQRISDWLHQWVGHYHORSDQLQWUDFUDQLDOKHPRUUKDJH,&+3URSRQHQWVRI
LQWHUYHQWLRQDOWKHUDS\DUJXHWKDWWKHREMHFWLYHRIHDUO\WKHUDS\LVWRUDLVHWKH
SODWHOHWFRXQWWR!—/DQGSUHYHQWWKHUDUHGHYHORSPHQWRI,&+7KHUHLV
QRHYLGHQFHWKDWWKHUDS\SUHYHQWVVHULRXVEOHHGLQJ$SSUR[LPDWHO\RI
FKLOGUHQZKRSUHVHQWZLWKDFXWH,73JRRQWRKDYHFKURQLF,737KH
RXWFRPHSURJQRVLVPD\EHUHODWHGPRUHWRDJH,73LQ\RXQJHUFKLOGUHQLVPRUH
OLNHO\WRUHVROYHZKHUHDVGHYHORSPHQWRIFKURQLF,73LQDGROHVFHQWVDSSURDFKHV


/DERUDWRU\)LQGLQJV
6HYHUHWKURPERF\WRSHQLDSODWHOHWFRXQW—/LVFRPPRQDQGSODWHOHW
VL]HLVQRUPDORULQFUHDVHGUHIOHFWLYHRILQFUHDVHGSODWHOHWWXUQRYHU)LJ
,QDFXWH,73WKHKHPRJORELQYDOXHZKLWHEORRGFHOO:%&FRXQWDQG
GLIIHUHQWLDOFRXQWVKRXOGEHQRUPDO+HPRJORELQPD\EHGHFUHDVHGLIWKHUHKDYH
EHHQSURIXVHQRVHEOHHGVHSLVWD[LVRUPHQRUUKDJLD%RQHPDUURZH[DPLQDWLRQ
VKRZVQRUPDOJUDQXORF\WLFDQGHU\WKURF\WLFVHULHVZLWKFKDUDFWHULVWLFDOO\
QRUPDORULQFUHDVHGQXPEHUVRIPHJDNDU\RF\WHV6RPHRIWKHPHJDNDU\RF\WHV
PD\DSSHDUWREHLPPDWXUHDQGUHIOHFWLQFUHDVHGSODWHOHWWXUQRYHU,QGLFDWLRQV
IRUERQHPDUURZDVSLUDWLRQELRSV\LQFOXGHDQDEQRUPDO:%&FRXQWRU
GLIIHUHQWLDORUXQH[SODLQHGDQHPLDDVZHOODVKLVWRU\DQGSK\VLFDOH[DPLQDWLRQ
ILQGLQJVVXJJHVWLYHRIDERQHPDUURZIDLOXUHV\QGURPHRUPDOLJQDQF\2WKHU
ODERUDWRU\WHVWVVKRXOGEHSHUIRUPHGDVLQGLFDWHGE\WKHKLVWRU\DQG
H[DPLQDWLRQ+,9VWXGLHVVKRXOGEHGRQHLQDWULVNSRSXODWLRQVHVSHFLDOO\
VH[XDOO\DFWLYHWHHQV3ODWHOHWDQWLERG\WHVWLQJLVVHOGRPXVHIXOLQDFXWH,73$
GLUHFWDQWLJOREXOLQWHVW&RRPEVVKRXOGEHGRQHLIWKHUHLVXQH[SODLQHGDQHPLD
WRUXOHRXW(YDQVV\QGURPHDXWRLPPXQHKHPRO\WLFDQHPLDDQG
WKURPERF\WRSHQLDVHH&KDSWHU(YDQVV\QGURPHPD\EHLGLRSDWKLFRUDQ
HDUO\VLJQRIV\VWHPLFOXSXVHU\WKHPDWRVXVDXWRLPPXQHO\PSKRSUROLIHUDWLYH
V\QGURPHRUFRPPRQYDULDEOHLPPXQRGHILFLHQF\V\QGURPH$Q$1$VKRXOGEH
FRQVLGHUHGLQDGROHVFHQWVHVSHFLDOO\ZLWKRWKHUIHDWXUHVRI6/(VHH&KDSWHU



),* %ORRGDQGPDUURZDVSLUDWHIURPFKLOGZLWKLGLRSDWKLFWKURPERF\WRSHQLF
SXUSXUD$%ORRGVPHDUVKRZVODUJHSODWHOHWV%%RQHPDUURZDVSLUDWHVKRZV
LQFUHDVHGQXPEHUVRIPHJDNDU\RF\WHVPDQ\RIZKLFKDSSHDULPPDWXUH)URP
%ODQFKHWWH9%ROWRQ0DJJV3&KLOGKRRGLPPXQHWKURPERF\WRSHQLFSXUSXUD
GLDJQRVLVDQGPDQDJHPHQW3HGLDWU&OLQ1RUWK$Pߙ)LJS

'LDJQRVLVDQG'LIIHUHQWLDO'LDJQRVLV
7KHZHOODSSHDULQJFKLOGZLWKPRGHUDWHWRVHYHUHWKURPERF\WRSHQLDDQ
RWKHUZLVHQRUPDOFRPSOHWHEORRGFHOOFRXQW&%&DQGQRUPDOH[DPILQGLQJV
KDVDOLPLWHGGLIIHUHQWLDOGLDJQRVLVWKDWLQFOXGHVH[SRVXUHWRPHGLFDWLRQLQGXFLQJ
GUXJGHSHQGHQWDQWLERGLHVVSOHQLFVHTXHVWUDWLRQEHFDXVHRISUHYLRXVO\
XQDSSUHFLDWHGSRUWDOK\SHUWHQVLRQDQGUDUHO\HDUO\DSODVWLFSURFHVVHVVXFKDV
)DQFRQLDQHPLDVHH&KDSWHU2WKHUWKDQFRQJHQLWDOWKURPERF\WRSHQLD
V\QGURPHVVHH&KDSWHUVXFKDVWKURPERF\WRSHQLDߙDEVHQWUDGLXV7$5
V\QGURPHDQG0<+UHODWHGWKURPERF\WRSHQLDPRVWPDUURZSURFHVVHVWKDW
LQWHUIHUHZLWKSODWHOHWSURGXFWLRQHYHQWXDOO\FDXVHDEQRUPDOV\QWKHVLVRIUHG
EORRGFHOOV5%&VDQG:%&VDQGWKHUHIRUHPDQLIHVWGLYHUVHDEQRUPDOLWLHVRQ
WKH&%&'LVRUGHUVWKDWFDXVHLQFUHDVHGSODWHOHWGHVWUXFWLRQRQDQRQLPPXQH
EDVLVDUHXVXDOO\VHULRXVV\VWHPLFLOOQHVVHVZLWKREYLRXVFOLQLFDOILQGLQJVVXFKDV
KHPRO\WLFXUHPLFV\QGURPH+86DQGGLVVHPLQDWHGLQWUDYDVFXODU
FRDJXODWLRQ',&VHH)LJDQG7DEOHLQ&KDSWHU3DWLHQWV
UHFHLYLQJKHSDULQPD\GHYHORSKHSDULQLQGXFHGWKURPERF\WRSHQLD,VRODWHG
HQODUJHPHQWRIWKHVSOHHQVXJJHVWVWKHSRWHQWLDOIRUK\SHUVSOHQLVPFDXVHGE\
OLYHUGLVHDVHRUSRUWDOYHLQWKURPERVLV$XWRLPPXQHWKURPERF\WRSHQLDPD\EH
DQLQLWLDOPDQLIHVWDWLRQRI6/(+,9LQIHFWLRQFRPPRQYDULDEOH
LPPXQRGHILFLHQF\DQGUDUHO\O\PSKRPDRUDXWRLPPXQHO\PSKRSUROLIHUDWLYH
V\QGURPH:LVNRWW$OGULFKV\QGURPHPXVWEHFRQVLGHUHGLQ\RXQJPDOHVIRXQG
WRKDYHWKURPERF\WRSHQLDZLWKVPDOOSODWHOHWVSDUWLFXODUO\LIWKHUHLVDKLVWRU\RI
HF]HPDDQGUHFXUUHQWLQIHFWLRQVHH&KDSWHU

7UHDWPHQW
$QXPEHURIWUHDWPHQWRSWLRQVH[LVW7DEOHEXWWKHUHDUHQRGDWD
VKRZLQJWKDWWUHDWPHQWDIIHFWVHLWKHUVKRUWRUORQJWHUPFOLQLFDORXWFRPHRI,73
0DQ\SDWLHQWVZLWKQHZRQVHW,73KDYHPLOGV\PSWRPVZLWKILQGLQJVOLPLWHGWR
SHWHFKLDHDQGSXUSXUDRQWKHVNLQGHVSLWHVHYHUHWKURPERF\WRSHQLD&RPSDUHG
ZLWKXQWUHDWHGFRQWUROVWUHDWPHQWDSSHDUVWREHFDSDEOHRILQGXFLQJDPRUHUDSLG
ULVHLQSODWHOHWFRXQWWRWKHWKHRUHWLFDOO\VDIHOHYHORI!—/DOWKRXJKQR
GDWDLQGLFDWHWKDWHDUO\WKHUDS\SUHYHQWV,&+$QWLSODWHOHWDQWLERGLHVELQGWR
WUDQVIXVHGSODWHOHWVDVZHOODVWKH\GRWRDXWRORJRXVSODWHOHWV7KXVSODWHOHW
WUDQVIXVLRQLQ,73LVXVXDOO\FRQWUDLQGLFDWHGXQOHVVOLIHWKUHDWHQLQJEOHHGLQJLV
SUHVHQW,QLWLDODSSURDFKHVWRWKHPDQDJHPHQWRI,73LQFOXGHWKHIROORZLQJ

7DEOH
7UHDWPHQW2SWLRQVIRU,GLRSDWKLF7KURPERF\WRSHQLF
3XUSXUD,73

3526 &216 &267

2EVHUYDWLRQ 'RHVQRWH[SRVHSDWLHQWWRXQQHFHVVDU\ 0D\LQFUHDVHSDUHQWDQGSK\VLFLDQ 5HODWLYHO\
PHGLFDWLRQV DQ[LHW\ LQH[SHQVLYH
,9,* 5DSLGUHVSRQVHLQPRVWFDVHV ,9DGPLQLVWUDWLRQVLGHHIIHFWV ([SHQVLYH
&RUWLFRVWHURLGV 2UDOHIIHFWLYHLQߙRISDWLHQWV 6LGHHIIHFWVPD\QRWDIIHFWORQJWHUP ,QH[SHQVLYH
PLQLPDOVLGHHIIHFWVZLWKVKRUWFRXUVHV RXWFRPH
5LWX[LPDE /RQJWHUPUHPLVVLRQLQߙRI ,9DGPLQLVWUDWLRQLPPXQHVXSSUHVVLRQ 9HU\
 SDWLHQWV SRWHQWLDOIRUUHDFWLYDWLRQRIKHSDWLWLV H[SHQVLYH
6SOHQHFWRP\ &XUDWLYHLQRISDWLHQWV 5HTXLUHVVXUJHU\DQGDQHVWKHVLD ([SHQVLYH
OLIHORQJULVNRILQIHFWLRQ
7KURPERSRLHWLQ 3RWHQWLDOIRURUDODGPLQLVWUDWLRQߙ 1RWFXUDWLYHXVXDOO\UHTXLUHGORQJ 9HU\
UHFHSWRUDJRQLVWV RISDWLHQWVUHVSRQG WHUPFDQFDXVHHOHYDWHGOLYHUHQ]\PHV H[SHQVLYH
,9,QWUDYHQRXV,9,*LQWUDYHQRXVLPPXQHJOREXOLQ
$GDSWHGIURP)ORRG9+6FRWW-3%OHHGLQJDQGWKURPERVLV,Q.OLHJPDQ5/\H3%RUGLQL%HW
DOHGLWRUV1HOVRQSHGLDWULFV\PSWRPEDVHGGLDJQRVLV3KLODGHOSKLD6DXQGHUV(OVHYLHU

1RWKHUDS\RWKHUWKDQHGXFDWLRQDQGFRXQVHOLQJRIWKHIDPLO\DQGSDWLHQW
IRUSDWLHQWVZLWKPLQLPDOPLOGDQGPRGHUDWHV\PSWRPVDVGHILQHG
HDUOLHU7KLVDSSURDFKHPSKDVL]HVWKHXVXDOO\EHQLJQQDWXUHRI,73DQG
DYRLGVWKHWKHUDSHXWLFUROOHUFRDVWHUWKDWHQVXHVRQFHLQWHUYHQWLRQDO
WKHUDS\LVEHJXQ7KLVDSSURDFKLVPXFKOHVVFRVWO\DQGVLGHHIIHFWVDUH
PLQLPDO2EVHUYDWLRQLVUHFRPPHQGHGE\WKH$PHULFDQ6RFLHW\RI
+HPDWRORJ\JXLGHOLQHVIRUFKLOGUHQZLWKRQO\PLOGEOHHGLQJV\PSWRPV
VXFKDVEUXLVLQJRUSHWHFKLDH
7UHDWPHQWZLWKHLWKHU,9,*RUFRUWLFRVWHURLGVSDUWLFXODUO\IRUFKLOGUHQ
ZKRSUHVHQWZLWKPXFRFXWDQHRXVEOHHGLQJ$V$PHULFDQ6RFLHW\RI
+HPDWRORJ\JXLGHOLQHVVWDWHߡ$VLQJOHGRVHRI,9,*>LQWUDYHQRXV
LPPXQHJOREXOLQ@JNJRUDVKRUWFRXUVHRIFRUWLFRVWHURLGV
VKRXOGEHXVHGDVILUVWOLQHWUHDWPHQWߢ,9,*DWDGRVHRI
JNJGD\IRUGD\VLQGXFHVDUDSLGULVHLQSODWHOHWFRXQWXVXDOO\!
—/LQRISDWLHQWVZLWKLQKU,9,*DSSHDUVWRLQGXFHD
UHVSRQVHE\GRZQUHJXODWLQJ)FPHGLDWHGSKDJRF\WRVLVRIDQWLERG\
FRDWHGSODWHOHWV,9,*WKHUDS\LVERWKH[SHQVLYHDQGWLPHFRQVXPLQJWR
DGPLQLVWHU$GGLWLRQDOO\DIWHULQIXVLRQWKHUHLVDKLJKIUHTXHQF\RI
KHDGDFKHVDQGYRPLWLQJVXJJHVWLYHRI,9,*LQGXFHGDVHSWLFPHQLQJLWLV
&RUWLFRVWHURLGWKHUDS\KDVEHHQXVHGIRUPDQ\\HDUVWRWUHDWDFXWHDQG
FKURQLF,73LQDGXOWVDQGFKLOGUHQ'RVHVRISUHGQLVRQHDWPJNJ
KUDSSHDUWRLQGXFHDPRUHUDSLGULVHLQSODWHOHWFRXQWWKDQLQXQWUHDWHG
SDWLHQWVZLWK,73&RUWLFRVWHURLGWKHUDS\LVXVXDOO\FRQWLQXHGIRUVKRUW
FRXUVHXQWLODULVHLQSODWHOHWFRXQWWR!—/KDVEHHQDFKLHYHGWR
DYRLGWKHORQJWHUPVLGHHIIHFWVRIFRUWLFRVWHURLGWKHUDS\HVSHFLDOO\
JURZWKIDLOXUHGLDEHWHVPHOOLWXVDQGRVWHRSRURVLV

(DFKRIWKHVHPHGLFDWLRQVPD\EHXVHGWRWUHDW,73H[DFHUEDWLRQVZKLFK
XVXDOO\RFFXUVHYHUDOZHHNVDIWHUDQLQLWLDOFRXUVHRIWKHUDS\,QWKHVSHFLDOFDVH
RI,&+PXOWLSOHPRGDOLWLHVVKRXOGEHXVHGLQFOXGLQJSODWHOHWWUDQVIXVLRQ,9,*
KLJKGRVHFRUWLFRVWHURLGVDQGSURPSWFRQVXOWDWLRQE\QHXURVXUJHU\DQGVXUJHU\
7KHUHLVQRFRQVHQVXVUHJDUGLQJWKHPDQDJHPHQWRIDFXWHFKLOGKRRG,73
H[FHSWWKDWSDWLHQWVZKRDUHEOHHGLQJVLJQLILFDQWO\RIFKLOGUHQZLWK,73
VKRXOGEHWUHDWHG,QWUDFUDQLDOKHPRUUKDJHUHPDLQVUDUHDQGWKHUHDUHQRGDWD
VKRZLQJWKDWWUHDWPHQWDFWXDOO\UHGXFHVLWVLQFLGHQFH0XFRVDOEOHHGLQJLQ
SDUWLFXODULVWKHPRVWVLJQLILFDQWLQWHUPVRISUHGLFWLQJVHYHUHEOHHGLQJ
7KHUROHRIVSOHQHFWRP\LQ,73VKRXOGEHUHVHUYHGIRUFLUFXPVWDQFHV
WKHROGHUFKLOGࡅ\UZLWKVHYHUH,73WKDWKDVODVWHG!\UFKURQLF,73DQG
ZKRVHV\PSWRPVDUHQRWHDVLO\FRQWUROOHGZLWKWKHUDS\DQGZKHQOLIH
WKUHDWHQLQJKHPRUUKDJH,&+FRPSOLFDWHVDFXWH,73LIWKHSODWHOHWFRXQWFDQQRW
EHFRUUHFWHGUDSLGO\ZLWKWUDQVIXVLRQRISODWHOHWVDQGDGPLQLVWUDWLRQRI,9,*DQG
FRUWLFRVWHURLGV6SOHQHFWRP\LVDVVRFLDWHGZLWKDOLIHORQJULVNRIRYHUZKHOPLQJ
SRVWVSOHQHFWRP\LQIHFWLRQFDXVHGE\HQFDSVXODWHGRUJDQLVPVLQFUHDVHGULVNRI
WKURPERVLVDQGWKHSRWHQWLDOGHYHORSPHQWRISXOPRQDU\K\SHUWHQVLRQLQ
DGXOWKRRG$VDQDOWHUQDWLYHWRVSOHQHFWRP\ULWX[LPDEKDVEHHQXVHGߡRII
ODEHOߢLQFKLOGUHQWRWUHDWFKURQLF,73,QߙRIFKLOGUHQULWX[LPDEKDV
LQGXFHGDSDUWLDORUFRPSOHWHUHPLVVLRQ7KURPERSRLHWLQUHFHSWRUDJRQLVWVKDYH
DOVREHHQXVHGWRLQFUHDVHSODWHOHWFRXQWDQGDUHDSSURYHGIRUSHGLDWULFXVH

&KURQLF$XWRLPPXQH7KURPERF\WRSHQLF
3XUSXUD
$SSUR[LPDWHO\RISDWLHQWVZKRSUHVHQWZLWKDFXWH,73KDYHSHUVLVWHQW
WKURPERF\WRSHQLDIRU!PRDQGDUHVDLGWRKDYHFKURQLF,73$WWKDWWLPHD
FDUHIXOUHHYDOXDWLRQIRUDVVRFLDWHGGLVRUGHUVVKRXOGEHSHUIRUPHGHVSHFLDOO\IRU
DXWRLPPXQHGLVHDVHHJ6/(FKURQLFLQIHFWLRXVGLVRUGHUVHJ+,9DQG
QRQLPPXQHFDXVHVRIFKURQLFWKURPERF\WRSHQLDVXFKDVW\SH%DQGSODWHOHW
W\SHYRQ:LOOHEUDQGGLVHDVH;OLQNHGWKURPERF\WRSHQLDDXWRLPPXQH
O\PSKRSUROLIHUDWLYHV\QGURPHFRPPRQYDULDEOHLPPXQRGHILFLHQF\V\QGURPH
DXWRVRPDOPDFURWKURPERF\WRSHQLDDQG:LVNRWW$OGULFKV\QGURPHDOVR;
OLQNHG7KHSUHVHQFHRIFRH[LVWLQJ+S\ORULLQIHFWLRQVKRXOGEHFRQVLGHUHGDQG
LIIRXQGWUHDWHG7KHUDS\VKRXOGEHDLPHGDWFRQWUROOLQJV\PSWRPVDQG
SUHYHQWLQJVHULRXVEOHHGLQJ,Q,73WKHVSOHHQLVWKHSULPDU\VLWHRIERWK
DQWLSODWHOHWDQWLERG\V\QWKHVLVDQGSODWHOHWGHVWUXFWLRQ6SOHQHFWRP\LV
VXFFHVVIXOLQLQGXFLQJFRPSOHWHUHPLVVLRQLQߙRIFKLOGUHQZLWKFKURQLF
,737KLVHIIHFWPXVWEHEDODQFHGDJDLQVWWKHOLIHORQJULVNRIRYHUZKHOPLQJ
SRVWVSOHQHFWRP\LQIHFWLRQ7KLVGHFLVLRQLVRIWHQDIIHFWHGE\TXDOLW\RIOLIH
LVVXHVDVZHOODVWKHHDVHZLWKZKLFKWKHFKLOGFDQEHPDQDJHGXVLQJPHGLFDO
WKHUDS\VXFKDV,9,*FRUWLFRVWHURLGV,9DQWL'RUULWX[LPDE7ZRHIIHFWLYH
DJHQWVWKDWDFWWRVWLPXODWHWKURPERSRLHVLVURPLSORVWLPDQGHOWURPERSDJVHH
)LJDUHDSSURYHGE\WKH86)RRGDQG'UXJ$GPLQLVWUDWLRQ)'$WR
WUHDWDGXOWVDQGFKLOGUHQZLWKFKURQLF,73$OWKRXJKWKHVHGRQRWDGGUHVVWKH
PHFKDQLVPRIDFWLRQRI,73WKHLQFUHDVHLQSODWHOHWFRXQWPD\EHHQRXJKWR
FRPSHQVDWHIRUWKHLQFUHDVHGGHVWUXFWLRQDQGDOORZWKHSDWLHQWWRKDYHUHVROXWLRQ
RIEOHHGLQJDQGPDLQWDLQDSODWHOHWFRXQW!—/

%LEOLRJUDSK\
%R\OH6:KLWH5+%UXQVRQ$HWDO6SOHQHFWRP\DQGWKH
LQFLGHQFHRIYHQRXVWKURPERHPEROLVPDQGVHSVLVLQSDWLHQWV
ZLWKLPPXQHWKURPERF\WRSHQLD%ORRGߙ

%UHDNH\95%ODQFKHWWH96&KLOGKRRGLPPXQH
WKURPERF\WRSHQLDDFKDQJLQJWKHUDSHXWLFODQGVFDSH6HPLQ
7KURPE+HPRVWߙ
&KDWXUYHGL60F&UDH.57UHDWPHQWRIFKURQLFLPPXQH
WKURPERF\WRSHQLDLQFKLOGUHQZLWKURPLSORVWLP/DQFHW
ߙ
&RRSHU1%XVVHO-%7KHORQJWHUPLPSDFWRIULWX[LPDEIRU
FKLOGKRRGLPPXQHWKURPERF\WRSHQLD&XUU5KHXPDWRO5HS
ߙ
+HLWLQN3ROO©.01MLVWHQ-%RRQDFNHU&:HWDO&OLQLFDODQG
ODERUDWRU\SUHGLFWRUVRIFKURQLFLPPXQHWKURPERF\WRSHQLDLQ
FKLOGUHQDV\VWHPDWLFUHYLHZDQGPHWDDQDO\VLV%ORRG
ߙ
.¼KQH7,PEDFK30DQDJHPHQWRIFKLOGUHQDQGDGROHVFHQWV
ZLWKSULPDU\LPPXQHWKURPERF\WRSHQLDFRQWURYHUVLHVDQG
VROXWLRQV9R[6DQJߙ
0LWFKHOO:%%XVVHO-%7KURPERSRLHWLQUHFHSWRUDJRQLVWVD
 FULWLFDOUHYLHZ6HPLQ+HPDWROߙ
1HXQHUW&1RURR]L11RUPDQ*HWDO6HYHUHEOHHGLQJHYHQWV
LQDGXOWVDQGFKLOGUHQZLWKSULPDU\LPPXQH
WKURPERF\WRSHQLDDV\VWHPDWLFUHYLHZ-7KURPE+DHPRVW
ߙ
1HXQHUW&(%XFKDQDQ*5,PEDFK3HWDO%OHHGLQJ
PDQLIHVWDWLRQVDQGPDQDJHPHQWRIFKLOGUHQZLWKSHUVLVWHQW
DQGFKURQLFLPPXQHWKURPERF\WRSHQLDGDWDIURPWKH
LQWHUFRQWLQHQWDOFRRSHUDWLYH,736WXG\*URXS,&,6%ORRG
ߙ
1HXQHUW&/LP:&URZWKHU0HWDO$PHULFDQVRFLHW\RI
KHPDWRORJ\7KH$PHULFDQVRFLHW\RIKHPDWRORJ\
HYLGHQFHEDVHGSUDFWLFHJXLGHOLQHIRULPPXQH
WKURPERF\WRSHQLD%ORRGߙ
2
/HDU\67*ODQ]-00F&OXUH'/HWDO7KHULVNRILPPXQH
WKURPERF\WRSHQLFSXUSXUDDIWHUYDFFLQDWLRQLQFKLOGUHQDQG
DGROHVFHQWV3HGLDWULFVߙ
3ULFH9$XWRLPPXQHO\PSKRSUROLIHUDWLYHGLVRUGHUDQGRWKHU
VHFRQGDU\LPPXQHWKURPERF\WRSHQLDVLQFKLOGKRRG3HGLDWU
%ORRG&DQFHU6XSSO6ߙ6
3VDLOD%&RRSHU1%FHOOGHSOHWLRQLQLPPXQH
WKURPERF\WRSHQLD/DQFHWߙ
3VDLOD%3HWURYLF$3DJH/.HWDO,QWUDFUDQLDOKHPRUUKDJH
,&+LQFKLOGUHQZLWKLPPXQHWKURPERF\WRSHQLF,73
VWXG\RIFDVHV%ORRGߙ
5HYHO9LON6<DFRERYLFK-)UDQN6HWDO$JHDQGGXUDWLRQRI
EOHHGLQJV\PSWRPVDWGLDJQRVLVEHVWSUHGLFWUHVROXWLRQRI
FKLOGKRRGLPPXQHWKURPERF\WRSHQLDDWDQGPRQWKV
-3HGLDWUߙ
7HDFKH\'7/DPEHUW03'LDJQRVLVDQGPDQDJHPHQWRI
DXWRLPPXQHF\WRSHQLDVLQFKLOGKRRG3HGLDWU&OLQ1RUWK$P
ߙ
<DFRERYLFK-5HYHO9LON67DPDU\+&KLOGKRRGLPPXQH
 WKURPERF\WRSHQLDߚZKRZLOOVSRQWDQHRXVO\UHFRYHU"6HPLQ
+HPDWRO6XSSO6ߙ6


'UXJ,QGXFHG7KURPERF\WRSHQLD
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
KHSDULQ
LPPXQHWKURPERF\WRSHQLD

$QXPEHURIGUXJVDUHDVVRFLDWHGZLWKLPPXQHWKURPERF\WRSHQLDDVWKHUHVXOW
RIHLWKHUDQLPPXQHSURFHVVRUPHJDNDU\RF\WHLQMXU\6RPHFRPPRQGUXJVXVHG
LQSHGLDWULFVWKDWFDXVHWKURPERF\WRSHQLDLQFOXGHYDOSURLFDFLGSKHQ\WRLQ
FDUEDPD]HSLQHVXOIRQDPLGHVYDQFRP\FLQDQGWULPHWKRSULPVXOIDPHWKR[D]ROH
+HSDULQLQGXFHGWKURPERF\WRSHQLDDQGUDUHO\DQDVVRFLDWHGWKURPERVLVLV
VHOGRPVHHQLQSHGLDWULFVEXWLWRFFXUVZKHQDIWHUH[SRVXUHWRKHSDULQWKH
SDWLHQWKDVDQDQWLERG\GLUHFWHGDJDLQVWWKHKHSDULQߙSODWHOHWIDFWRUFRPSOH[
5HFRPPHQGHGWUHDWPHQWIRUKHSDULQLQGXFHGWKURPERF\WRSHQLDLQFOXGHVGLUHFW
WKURPELQLQKLELWRUVVXFKDVDUJDWUREDQRUGDQDSDURLGDQGUHPRYDORIDOOVRXUFHV
RIKHSDULQLQFOXGLQJOLQHIOXVKHV

%LEOLRJUDSK\
&XNHU$0DQDJHPHQWRIWKHPXOWLSOHSKDVHVRIKHSDULQ
LQGXFHGWKURPERF\WRSHQLD7KURPE+DHPRVW
ߙ
&XUWLV%5'UXJLQGXFHGLPPXQHWKURPERF\WRSHQLDLQFLGHQFH
 FOLQLFDOIHDWXUHVODERUDWRU\WHVWLQJDQGSDWKRJHQLF
PHFKDQLVPV,PPXQRKHPDWRORJ\ߙ
*UHLQDFKHU$+HSDULQLQGXFHGWKURPERF\WRSHQLD1(QJO-
0HGߙ
*UHLQDFKHU$&OLQLFDOSUDFWLFHKHSDULQLQGXFHG
WKURPERF\WRSHQLD1(QJO-0HGߙ
.DP7$OH[DQGHU0'UXJLQGXFHGLPPXQH
WKURPERF\WRSHQLD-3KDUP3UDFWߙ


1RQLPPXQH3ODWHOHW'HVWUXFWLRQ
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
KHPRO\WLFDQHPLD
WKURPERWLFPLFURDQJLRSDWK\

7KHV\QGURPHVRI',&VHH&KDSWHU+86VHH&KDSWHUDQG

WKURPERWLFWKURPERF\WRSHQLFSXUSXUDVHH&KDSWHUVKDUHWKH
KHPDWRORJLFSLFWXUHRIDWKURPERWLFPLFURDQJLRSDWK\LQZKLFKWKHUHLV5%&
GHVWUXFWLRQDQGFRQVXPSWLYHWKURPERF\WRSHQLDFDXVHGE\SODWHOHWDQGILEULQ
GHSRVLWLRQLQWKHPLFURYDVFXODWXUH7KHPLFURDQJLRSDWKLFKHPRO\WLFDQHPLDLV
FKDUDFWHUL]HGE\WKHSUHVHQFHRI5%&IUDJPHQWVLQFOXGLQJKHOPHWFHOOV
VFKLVWRF\WHVVSKHURF\WHVDQGEXUUFHOOV


+HPRO\WLF8UHPLF6\QGURPH
6HH&KDSWHU


7KURPERWLF7KURPERF\WRSHQLF
3XUSXUD
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
PLFURDQJLRSDWKLFKHPRO\WLFDQHPLD
UHQDOIDLOXUH
WKURPERWLFPLFURDQJLRSDWK\

7KURPERWLFWKURPERF\WRSHQLFSXUSXUD773LVDUDUHWKURPERWLF

PLFURDQJLRSDWK\FKDUDFWHUL]HGE\WKHSHQWDGRIIHYHUPLFURDQJLRSDWKLF
KHPRO\WLFDQHPLDWKURPERF\WRSHQLDDEQRUPDOUHQDOIXQFWLRQDQGFHQWUDO
QHUYRXVV\VWHP&16FKDQJHVWKDWLVFOLQLFDOO\VLPLODUWR+867DEOH
$OWKRXJK773FDQEHFRQJHQLWDOLWXVXDOO\SUHVHQWVLQDGXOWVDQGRFFDVLRQDOO\LQ
DGROHVFHQWV0LFURYDVFXODUWKURPELZLWKLQWKH&16FDXVHVXEWOHVKLIWLQJ
QHXURORJLFVLJQVWKDWYDU\IURPFKDQJHVLQDIIHFWDQGRULHQWDWLRQWRDSKDVLD
EOLQGQHVVDQGVHL]XUHV,QLWLDOPDQLIHVWDWLRQVDUHRIWHQQRQVSHFLILFZHDNQHVV
SDLQHPHVLVSURPSWUHFRJQLWLRQRIWKLVGLVRUGHULVFULWLFDO/DERUDWRU\ILQGLQJV
SURYLGHLPSRUWDQWFOXHVWRWKHGLDJQRVLVDQGVKRZPLFURDQJLRSDWKLFKHPRO\WLF
DQHPLDFKDUDFWHUL]HGE\PRUSKRORJLFDOO\DEQRUPDO5%&VZLWKVFKLVWRF\WHV
VSKHURF\WHVKHOPHWFHOOVDQGDQHOHYDWHGUHWLFXORF\WHFRXQWLQDVVRFLDWLRQZLWK
WKURPERF\WRSHQLD&RDJXODWLRQVWXGLHVDUHXVXDOO\QRQGLDJQRVWLF%ORRGXUHD
QLWURJHQDQGFUHDWLQLQHDUHVRPHWLPHVHOHYDWHG7KHWUHDWPHQWRIDFTXLUHG773
LVSODVPDSKHUHVLVSODVPDH[FKDQJHZKLFKLVHIIHFWLYHLQߙRISDWLHQWV
7UHDWPHQWZLWKSODVPDSKHUHVLVVKRXOGEHLQVWLWXWHGRQWKHEDVLVRI
WKURPERF\WRSHQLDDQGPLFURDQJLRSDWKLFKHPRO\WLFDQHPLDHYHQLIRWKHU
V\PSWRPVDUHQRW\HWSUHVHQW5LWX[LPDEFRUWLFRVWHURLGVDQGVSOHQHFWRP\DUH
UHVHUYHGIRUUHIUDFWRU\FDVHV&DSODFL]XPDEDQDQWL9:)KXPDQL]HG
LPPXQRJOREXOLQEORFNVWKHLQWHUDFWLRQRIXOWUDODUJH9:)PXOWLPHUVZLWK
SODWHOHWVDQGPDQ\UHVXOWLQUDSLGUHVROXWLRQRIDFXWH773

7DEOH
$'$076'HILFLHQF\DQG7KURPERWLF7KURPERF\WRSHQLF
3XUSXUD
/$%
',6($6( 3$7+23+<6,2/2*< 0$1$*(0(17
),1',1*6
7KURPERWLFWKURPERF\WRSHQLF $FTXLUHG$EWR $EWR $FTXLUHG3ODVPDSKHUHVLV
SXUSXUD773 $'$076 $'$076 ZLWKSODVPD
&RQJHQLWDO $'$076 &RQJHQLWDO6FKHGXOHG
,QDGHTXDWH  SODVPDLQIXVLRQV
$'$076
SURGXFWLRQ
$XWRLPPXQH773PD\EHWUDQVLHQWUHFXUUHQWGUXJWLFORSLGLQHFORSLGRJUHODVVRFLDWHGRUVHHQLQ
VRPHSUHJQDQF\DVVRFLDWHGFDVHVRI773
$'$076PXWDWLRQVDUHRIWHQIDPLOLDODQGFKURQLFUHODSVLQJ553

7KHPDMRULW\RIFDVHVRI773DUHFDXVHGE\DQDXWRDQWLERG\PHGLDWHG
GHILFLHQF\RI$'$076DGLVLQWHJULQDQGPHWDOORSURWHLQDVHZLWKD
WKURPERVSRQGLQW\SHPRWLIPHPEHUWKDWLVUHVSRQVLEOHIRUFOHDYLQJWKH
KLJKPROHFXODUZHLJKWPXOWLPHUVRI9:)DQGDSSHDUVWRSOD\DSLYRWDOUROHLQ
WKHHYROXWLRQRIWKHWKURPERWLFPLFURDQJLRSDWK\)LJ,QFRQWUDVWOHYHOV
RIWKHPHWDOORSURWHLQDVHLQ+86DUHXVXDOO\QRUPDO&RQJHQLWDOGHILFLHQF\RIWKH
PHWDOORSURWHLQDVHFDXVHVUDUHIDPLOLDOFDVHVRI773+86XVXDOO\PDQLIHVWHGDV
UHFXUUHQWHSLVRGHVRIWKURPERF\WRSHQLDKHPRO\WLFDQHPLDDQGUHQDO
LQYROYHPHQWZLWKRUZLWKRXWQHXURORJLFFKDQJHVWKDWRIWHQSUHVHQWLQLQIDQF\
DIWHUDQLQWHUFXUUHQWLOOQHVV$EQRUPDOLWLHVRIWKHFRPSOHPHQWV\VWHPKDYHQRZ
DOVREHHQLPSOLFDWHGLQUDUHFDVHVRIIDPLOLDO773$'$076GHILFLHQF\FDQ
EHWUHDWHGE\UHSHDWHGLQIXVLRQVRIIUHVKIUR]HQSODVPD
 
),* 3DWKRJHQHVLVRIWKURPERWLFWKURPERF\WRSHQLFSXUSXUD7737KHYRQ
:LOOHEUDQGIDFWRU9:)PXOWLPHUVIDFLOLWDWHSODWHOHWDGKHVLRQWRWKHVXEHQGRWKHOLXPE\
ELQGLQJWRH[SRVHGFRQQHFWLYHWLVVXHDQGWKHQWRSODWHOHWJO\FRSURWHLQ,E*3,E,Q
IORZLQJEORRGVKHDUVWUHVVXQIROGVXOWUDODUJH9:)PXOWLPHUVLQWKHSODWHOHWULFK
WKURPEXVDQGHQDEOHV$'$076WRFOHDYHDVSHFLILF7\U0HWERQGLQWKHQGRIWKH
$GRPDLQVLQ9:)VXEXQLWV&OHDYDJHUHGXFHV9:)PXOWLPHUVL]HDQGOLPLWVWKURPEXV
JURZWK,QWKHDEVHQFHRI$'$0769:)GHSHQGHQWSODWHOHWDFFXPXODWLRQFRQWLQXHV
DQGHYHQWXDOO\UHVXOWVLQPLFURYDVFXODUWKURPERVLVDQG773&RXUWHV\RI'U-(YDQ
6DGOHU:DVKLQJWRQ8QLYHUVLW\

%LEOLRJUDSK\
*HRUJH-11HVWHU&06\QGURPHVRIWKURPERWLF
PLFURDQJLRSDWK\1(QJO-0HGߙ
.DSSOHU65RQDQ%HQWOH6*UDKDP$7KURPERWLF
PLFURDQJLRSDWKLHV773+86+(//3+HPDWRO2QFRO&OLQ
1RUWK$Pߙ
/RLUDW&&RSSR39H\UDGLHU$7KURPERWLFWKURPERF\WRSHQLF
SXUSXUDLQFKLOGUHQ&XUU2SLQ3HGLDWUߙ
0DULRWWH(9H\UDGLHU$7KURPERWLFWKURPERF\WRSHQLF
SXUSXUDIURPGLDJQRVLVWRWKHUDS\&XUU2SLQ&ULW&DUH
ߙ
2UWHO7/(UNDQ'.LWFKHQV&6+RZ,WUHDWFDWDVWURSKLF
WKURPERWLFV\QGURPHV%ORRGߙ
3H\YDQGL)6FXOO\0.UHPHU+RYLQJD-$HWDO&DSODFL]XPDE
IRUDFTXLUHGWKURPERWLFWKURPERF\WRSHQLDSXUSXUD1(QJO-
0HGߙ
5HHVH-$0XWKXUDMDK'6.UHPHU+RYLQJD-$HWDO&KLOGUHQ
 DQGDGXOWVZLWKWKURPERWLFWKURPERF\WRSHQLFSXUSXUD
DVVRFLDWHGZLWKVHYHUHDFTXLUHG$'$076GHILFLHQF\
FRPSDULVRQRILQFLGHQFHGHPRJUDSKLFDQGFOLQLFDOIHDWXUHV
3HGLDWU%ORRG&DQFHUߙ
6DGOHU-(3DWKRSK\VLRORJ\RIWKURPERWLFWKURPERF\WRSHQLD
SXUSXUD%ORRG
6DGOHU-(0RDNH-/0L\DWD7*HRUJH-15HFHQWDGYDQFHVLQ
WKURPERWLFWKURPERF\WRSHQLFSXUSXUD+HPDWRORJ\$P6RF
+HPDWRO(GXF3URJUDPߙ
6FXOO\0&DWDODQG6&RSSR3HWDO&RQVHQVXVRQWKH
VWDQGDUGL]DWLRQRIWHUPLQRORJ\LQWKURPERWLF
WKURPERF\WRSHQLFSXUSXUDDQGUHODWHGWKURPERWLF
PLFURDQJLRSDWKLHV-7KURPE+DHPRVWߙ


.DVDEDFK0HUULWW6\QGURPH
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
KHPDQJLRPD
K\SRILEULQRJHQHPLD
WKURPERF\WRSHQLD

6HHDOVR&KDSWHU
7KHDVVRFLDWLRQRIDJLDQWKHPDQJLRPDZLWKORFDOL]HGLQWUDYDVFXODU
FRDJXODWLRQFDXVLQJWKURPERF\WRSHQLDDQGK\SRILEULQRJHQHPLDLVFDOOHG
.DVDEDFK0HUULWWV\QGURPH,QPRVWSDWLHQWVWKHVLWHRIWKHKHPDQJLRPDLV
REYLRXVEXWUHWURSHULWRQHDODQGLQWUDDEGRPLQDOKHPDQJLRPDVPD\UHTXLUHERG\
LPDJLQJIRUGHWHFWLRQ,QVLGHWKHKHPDQJLRPDWKHUHLVSODWHOHWWUDSSLQJDQG
DFWLYDWLRQRIFRDJXODWLRQZLWKILEULQRJHQFRQVXPSWLRQDQGJHQHUDWLRQRI
ILEULQRJHQGHJUDGDWLRQSURGXFWV$UWHULRYHQRXVPDOIRUPDWLRQZLWKLQWKH
OHVLRQVFDQFDXVHKHDUWIDLOXUH3DWKRORJLFDOO\.DVDEDFK0HUULWWV\QGURPH
DSSHDUVWRGHYHORSPRUHRIWHQDVDUHVXOWRIDNDSRVLIRUP
KHPDQJLRHQGRWKHOLRPDRUWXIWHGKHPDQJLRPDUDWKHUWKDQDVLPSOHKHPDQJLRPD
7KHSHULSKHUDOEORRGVPHDUVKRZVPLFURDQJLRSDWKLFFKDQJHV
0XOWLSOHPRGDOLWLHVKDYHEHHQXVHGWRWUHDW.DVDEDFK0HUULWWV\QGURPH
LQFOXGLQJSURSUDQROROVXUJLFDOH[FLVLRQLISRVVLEOHODVHUSKRWRFRDJXODWLRQ
KLJKGRVHFRUWLFRVWHURLGVORFDOUDGLDWLRQWKHUDS\DQWLDQJLRJHQLFDJHQWVVXFKDV
LQWHUIHURQ͠DQGYLQFULVWLQH2YHUWLPHPRVWSDWLHQWVZKRSUHVHQWLQLQIDQF\
KDYHUHJUHVVLRQRIWKHKHPDQJLRPD7UHDWPHQWRIWKHDVVRFLDWHGFRDJXORSDWK\
PD\EHQHILWIURPDWULDORIDQWLILEULQRO\WLFWKHUDS\ZLWKͤDPLQRFDSURLFDFLG
$PLFDURUDQWLFRDJXODWLRQZLWKORZPROHFXODUZHLJKWKHSDULQ

%LEOLRJUDSK\
&URWHDX6(*XSWD'7KHFOLQLFDOVSHFWUXPRINDSRVLIRUP
KHPDQJLRHQGRWKHOLRPDDQGWXIWHGDQJLRPD6HPLQ&XWDQ
0HG6XUJߙ
'UROHW%$7UHQRU&&UG%UDQG£R/5HWDO&RQVHQVXV
GHULYHGSUDFWLFHVWDQGDUGVSODQIRUFRPSOLFDWHGNDSRVLIRUP
KHPDQJLRHQGRWKHOLRPD-3HGLDWUߙ


6HTXHVWUDWLRQ
-3DXO6FRWW9HURQLFD+)ORRG
.H\ZRUGV
OHXNRSHQLD
VSOHHQ
WKURPERF\WRSHQLD

7KURPERF\WRSHQLDGHYHORSVLQLQGLYLGXDOVZLWKPDVVLYHVSOHQRPHJDO\EHFDXVH
WKHVSOHHQDFWVDVDVSRQJHIRUSODWHOHWVDQGVHTXHVWHUVODUJHQXPEHUV0RVWVXFK
SDWLHQWVDOVRKDYHPLOGOHXNRSHQLDDQGDQHPLDRQ&%&,QGLYLGXDOVZKRKDYH
WKURPERF\WRSHQLDFDXVHGE\VSOHQLFVHTXHVWUDWLRQVKRXOGXQGHUJRDZRUNXSWR
GLDJQRVHWKHHWLRORJ\RIVSOHQRPHJDO\LQFOXGLQJLQIHFWLRXVLQIODPPDWRU\
LQILOWUDWLYHQHRSODVWLFREVWUXFWLYHDQGKHPRO\WLFFDXVHV


&RQJHQLWDO7KURPERF\WRSHQLF
6\QGURPHV
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
FRQJHQLWDODPHJDNDU\RF\WLFWKURPERF\WRSHQLD
0<+
WKURPERF\WRSHQLDߙDEVHQWUDGLXVV\QGURPH
:LVNRWW$OGULFKV\QGURPH

6HH7DEOH
&RQJHQLWDODPHJDNDU\RF\WLFWKURPERF\WRSHQLD&$07XVXDOO\PDQLIHVWV
ZLWKLQWKHVWIHZGD\VWRZHHNRIOLIHZKHQWKHFKLOGSUHVHQWVZLWKSHWHFKLDH
DQGSXUSXUDFDXVHGE\SURIRXQGWKURPERF\WRSHQLD&$07LVFDXVHGE\DUDUH
GHIHFWLQKHPDWRSRLHVLVDVDUHVXOWRIDPXWDWLRQLQWKHVWHPFHOO732UHFHSWRU
03/2WKHUWKDQVNLQDQGPXFRXVPHPEUDQHDEQRUPDOLWLHVILQGLQJVRQ
SK\VLFDOH[DPLQDWLRQDUHQRUPDO([DPLQDWLRQRIWKHERQHPDUURZVKRZVDQ
DEVHQFHRIPHJDNDU\RF\WHV7KHVHSDWLHQWVRIWHQSURJUHVVWRPDUURZIDLOXUH
DSODVLDRYHUWLPH+HPDWRSRLHWLFVWHPFHOOWUDQVSODQWDWLRQ+6&7LVFXUDWLYH
7KURPERF\WRSHQLDߙDEVHQWUDGLXV7$5V\QGURPHFRQVLVWVRI
WKURPERF\WRSHQLDDEVHQFHRUK\SRSODVLDRIPHJDNDU\RF\WHVWKDWSUHVHQWVLQ
HDUO\LQIDQF\ZLWKELODWHUDOUDGLDODQRPDOLHVRIYDULDEOHVHYHULW\UDQJLQJIURP
PLOGFKDQJHVWRPDUNHGOLPEVKRUWHQLQJ)LJ0DQ\VXFKLQGLYLGXDOV
DOVRKDYHRWKHUVNHOHWDODEQRUPDOLWLHVRIWKHXOQDUDGLXVDQGORZHUH[WUHPLWLHV
7KXPEVDUHSUHVHQW,QWROHUDQFHWRFRZ
VPLONIRUPXODSUHVHQWLQPD\
FRPSOLFDWHPDQDJHPHQWE\WULJJHULQJJDVWURLQWHVWLQDOEOHHGLQJLQFUHDVHG
WKURPERF\WRSHQLDHRVLQRSKLOLDDQGDOHXNHPRLGUHDFWLRQ7KH
WKURPERF\WRSHQLDRI7$5V\QGURPHIUHTXHQWO\UHPLWVRYHUWKHVWIHZ\URIOLIH
7KHPROHFXODUEDVLVRI7$5V\QGURPHLVOLQNHGWR5%0$$IHZSDWLHQWVKDYH
EHHQUHSRUWHGWRKDYHDV\QGURPHRIDPHJDNDU\RF\WLFWKURPERF\WRSHQLDZLWK
UDGLRXOQDUV\QRVWRVLVFDXVHGE\DPXWDWLRQLQWKH+2;$JHQH'LIIHUHQW
IURP7$5V\QGURPHWKLVPXWDWLRQFDXVHVPDUURZDSODVLD
 
),* $QHZERUQWKHILUVWFKLOGRI\RXQJKHDOWK\SDUHQWVZLWKIXOO\H[SUHVVHG
WKURPERF\WRSHQLDߙDEVHQWUDGLXV7$5V\QGURPHLQFOXGLQJK\SHUHRVLQRSKLOLDDQG
DQHPLD+\SRSODVLDRIWKHGLVWDOKXPHULDQGWKHVKRXOGHUJLUGOHVELODWHUDOKLS
G\VSODVLDPLOGWDOLSHVFDOFDQHXVDQGFOLQRGDFW\O\RIERWKOLWWOHILQJHUVDUHVHHQ7KLV
SDWLHQWKDGDSURQRXQFHGDOOHUJ\WRFRZ
VPLONZLWKH[SRVXUHIROORZHGE\GLDUUKHD
YRPLWLQJDQGGHFUHDVHGZHLJKWDQGSODWHOHWFRXQWPDNLQJDFRZ
VPLONߙIUHHGLHW
 PDQGDWRU\$SHUVLVWHQWGHSUHVVHGQDVDOEULGJHDQGGHYHORSPHQWRISURQRXQFHG
ERZHGOHJVDUHVHHQ)URP:LHGHPDQQ+5.XQ]H-*URVVH)5HGLWRUV&OLQLFDO
V\QGURPHVHG>(QJOLVKWUDQVODWLRQ@/RQGRQ0RVE\:ROIHS

:LVNRWW$OGULFKV\QGURPH:$6LVFKDUDFWHUL]HGE\WKURPERF\WRSHQLD

ZLWKWLQ\SODWHOHWVHF]HPDDQGUHFXUUHQWLQIHFWLRQDVDFRQVHTXHQFHRILPPXQH
GHILFLHQF\VHH&KDSWHU:$6LVLQKHULWHGDVDQ;OLQNHGGLVRUGHUDQG
WKHJHQHIRU:$6KDVEHHQVHTXHQFHG7KH:$6SURWHLQDSSHDUVWRSOD\DQ
LQWHJUDOUROHLQUHJXODWLQJWKHF\WRVNHOHWDODUFKLWHFWXUHRIERWKSODWHOHWVDQG7
O\PSKRF\WHVLQUHVSRQVHWRUHFHSWRUPHGLDWHGFHOOVLJQDOLQJ7KH:$6SURWHLQLV
FRPPRQWRDOOFHOOVRIKHPDWRSRLHWLFOLQHDJH0ROHFXODUDQDO\VLVRIIDPLOLHV
ZLWK;OLQNHGWKURPERF\WRSHQLDKDVVKRZQWKDWPDQ\DIIHFWHGPHPEHUVKDYHD
SRLQWPXWDWLRQZLWKLQWKH:$6JHQHZKHUHDVLQGLYLGXDOVZLWKWKHIXOO
PDQLIHVWDWLRQRI:$6KDYHODUJHJHQHGHOHWLRQV([DPLQDWLRQRIWKHERQH
PDUURZLQ:$6VKRZVWKHQRUPDOQXPEHURIPHJDNDU\RF\WHVDOWKRXJKWKH\
PD\KDYHEL]DUUHPRUSKRORJLFIHDWXUHV7UDQVIXVHGSODWHOHWVKDYHDQRUPDOOLIH
VSDQ6SOHQHFWRP\RIWHQFRUUHFWVWKHWKURPERF\WRSHQLDVXJJHVWLQJWKDWWKH
SODWHOHWVIRUPHGLQ:$6KDYHDFFHOHUDWHGGHVWUXFWLRQ$IWHUVSOHQHFWRP\WKHVH
SDWLHQWVDUHDWLQFUHDVHGULVNIRURYHUZKHOPLQJLQIHFWLRQDQGUHTXLUHOLIHORQJ
DQWLELRWLFSURSK\OD[LVDJDLQVWHQFDSVXODWHGRUJDQLVPV$SSUR[LPDWHO\ߙRI
SDWLHQWVZLWK:$6GHYHORSO\PSKRUHWLFXODUPDOLJQDQFLHV6XFFHVVIXO+6&7
FXUHV:$6;OLQNHGPDFURWKURPERF\WRSHQLDDQGG\VHU\WKURSRLHVLVKDYH
EHHQOLQNHGWRPXWDWLRQVLQWKH*$7$JHQHDQHU\WKURLGDQGPHJDNDU\RF\WLF
WUDQVFULSWLRQIDFWRU
0<+UHODWHGWKURPERF\WRSHQLDFRPSULVHVDQXPEHURIGLYHUVHKHUHGLWDU\
WKURPERF\WRSHQLDV\QGURPHVHJ6HEDVWLDQ(SVWHLQ0D\+HJJOLQ)HFKWQHU
FKDUDFWHUL]HGE\DXWRVRPDOGRPLQDQWPDFURWKURPERF\WRSHQLDQHXWURSKLO
LQFOXVLRQERGLHVDQGDYDULHW\RISK\VLFDODQRPDOLHVLQFOXGLQJVHQVRULQHXUDO
GHDIQHVVUHQDOGLVHDVHDQGH\HGLVHDVH7KHVHKDYHDOOEHHQVKRZQWREHFDXVHG
E\GLIIHUHQWPXWDWLRQVLQWKH0<+JHQHQRQPXVFOHP\RVLQ,,DKHDY\FKDLQ
7KHWKURPERF\WRSHQLDLVXVXDOO\PLOGDQGQRWSURJUHVVLYH6RPHRWKHU
LQGLYLGXDOVZLWKUHFHVVLYHO\LQKHULWHGPDFURWKURPERF\WRSHQLDKDYH
DEQRUPDOLWLHVLQFKURPRVRPHT0XWDWLRQVLQWKHJHQHIRUJO\FRSURWHLQ,E͡
DQHVVHQWLDOFRPSRQHQWRIWKHSODWHOHW9:)UHFHSWRUFDQUHVXOWLQ%HUQDUG
6RXOLHUV\QGURPHVHH&KDSWHU

%LEOLRJUDSK\
 $OEHUV&$1HZEXU\(FRE52XZHKDQG:+*KHYDHUW&
1HZLQVLJKWVLQWRWKHJHQHWLFEDVLVRI7$5
WKURPERF\WRSHQLDDEVHQWUDGLLV\QGURPH&XUU2SLQ*HQHW
'HYߙ
%DOGXLQL&/6DYRLD$*HQHWLFVRIIDPLOLDOIRUPVRI
WKURPERF\WRSHQLD+XP*HQHWߙ
*HGGHV$(&RQJHQLWDODPHJDNDU\RF\WLFWKURPERF\WRSHQLD
3HGLDWU%ORRG&DQFHUߙ
:RUWK$-7KUDVKHU$-&XUUHQWDQGHPHUJLQJWUHDWPHQWRSWLRQV
IRU:LVNRWWDOGULFKV\QGURPH([SHUW5HY&OLQ,PPXQRO
ߙ


1HRQDWDO7KURPERF\WRSHQLD
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
PDWHUQDO,73
1$73
QHRQDWDODOORLPPXQHWKURPERF\WRSHQLD

6HHDOVR&KDSWHU
7KURPERF\WRSHQLDLQWKHQHZERUQUDUHO\LVLQGLFDWLYHRIDSULPDU\GLVRUGHURI
PHJDNDU\RSRLHVLV,WLVXVXDOO\WKHUHVXOWRIV\VWHPLFLOOQHVVRUWUDQVIHURI
PDWHUQDODQWLERGLHVGLUHFWHGDJDLQVWIHWDOSODWHOHWVVHH7DEOH1HRQDWDO
WKURPERF\WRSHQLDRIWHQRFFXUVLQDVVRFLDWLRQZLWKFRQJHQLWDOYLUDOLQIHFWLRQV
HVSHFLDOO\UXEHOODF\WRPHJDORYLUXVSURWR]RDOLQIHFWLRQHJWR[RSODVPRVLV
DQGV\SKLOLVDQGSHULQDWDOEDFWHULDOLQIHFWLRQVHVSHFLDOO\WKRVHFDXVHGE\JUDP
QHJDWLYHEDFLOOL7KURPERF\WRSHQLDDVVRFLDWHGZLWK',&PD\EHUHVSRQVLEOHIRU
VHYHUHVSRQWDQHRXVEOHHGLQJ7KHFRQVWHOODWLRQRIPDUNHGWKURPERF\WRSHQLDDQG
DEQRUPDODEGRPLQDOILQGLQJVLVFRPPRQLQQHFURWL]LQJHQWHURFROLWLVDQGRWKHU
FDXVHVRIQHFURWLFERZHO7KURPERF\WRSHQLDLQDQLOOFKLOGUHTXLUHVDSURPSW
VHDUFKIRUYLUDODQGEDFWHULDOSDWKRJHQV
$QWLERG\PHGLDWHGWKURPERF\WRSHQLDLQWKHQHZERUQRFFXUVEHFDXVHRI
WUDQVSODFHQWDOWUDQVIHURIPDWHUQDODQWLERGLHVGLUHFWHGDJDLQVWIHWDOSODWHOHWV
1HRQDWDODOORLPPXQHWKURPERF\WRSHQLFSXUSXUD1$73LVFDXVHGE\WKH
GHYHORSPHQWRIPDWHUQDODQWLERGLHVDJDLQVWDQWLJHQVSUHVHQWRQIHWDOSODWHOHWV
WKDWDUHVKDUHGZLWKWKHIDWKHUDQGUHFRJQL]HGDVIRUHLJQE\WKHPDWHUQDOLPPXQH
V\VWHP7KLVLVWKHSODWHOHWHTXLYDOHQWRI5KGLVHDVHRIWKHQHZERUQ7KH
LQFLGHQFHRI1$73LVLQOLYHELUWKV7KHFOLQLFDOPDQLIHVWDWLRQVRI
1$73DUHWKRVHRIDQDSSDUHQWO\ZHOOFKLOGZKRZLWKLQWKHVWIHZGD\VDIWHU
GHOLYHU\KDVJHQHUDOL]HGSHWHFKLDHDQGSXUSXUD/DERUDWRU\VWXGLHVVKRZD
QRUPDOPDWHUQDOSODWHOHWFRXQWEXWPRGHUDWHWRVHYHUHWKURPERF\WRSHQLDLQWKH
QHZERUQ'HWDLOHGUHYLHZRIWKHKLVWRU\VKRXOGVKRZQRHYLGHQFHRIPDWHUQDO
WKURPERF\WRSHQLD8SWRRILQIDQWVZLWKVHYHUH1$73PD\KDYH,&+
HLWKHUSUHQDWDOO\RULQWKHSHULQDWDOSHULRG8QOLNH5KGLVHDVHILUVWSUHJQDQFLHV
PD\EHVHYHUHO\DIIHFWHG6XEVHTXHQWSUHJQDQFLHVDUHRIWHQPRUHVHYHUHO\
DIIHFWHGWKDQWKHILUVW
7KHGLDJQRVLVRI1$73LVPDGHE\FKHFNLQJIRUWKHSUHVHQFHRIPDWHUQDO
DOORDQWLERGLHVGLUHFWHGDJDLQVWWKHIDWKHU
VSODWHOHWV6SHFLILFVWXGLHVFDQEHGRQH
WRLGHQWLI\WKHWDUJHWDOORDQWLJHQ7KHPRVWFRPPRQFDXVHLVLQFRPSDWLELOLW\IRU
WKHSODWHOHWDOORDQWLJHQ+3$D6SHFLILF'1$VHTXHQFHSRO\PRUSKLVPVKDYH
EHHQLGHQWLILHGWKDWSHUPLWLQIRUPDWLYHSUHQDWDOWHVWLQJWRLGHQWLI\DWULVN
SUHJQDQFLHV7KHGLIIHUHQWLDOGLDJQRVLVRI1$73LQFOXGHVWUDQVSODFHQWDOWUDQVIHU
RIPDWHUQDODQWLSODWHOHWDXWRDQWLERGLHVPDWHUQDO,73DQGPRUHFRPPRQO\
YLUDORUEDFWHULDOLQIHFWLRQ
7UHDWPHQWRI1$73UHTXLUHVWKHDGPLQLVWUDWLRQRI,9,*SUHQDWDOO\WRWKH
PRWKHU7KHUDS\XVXDOO\EHJLQVLQWKHVHFRQGWULPHVWHUDQGLVFRQWLQXHG
WKURXJKRXWWKHSUHJQDQF\)HWDOSODWHOHWFRXQWFDQEHPRQLWRUHGE\SHUFXWDQHRXV
XPELOLFDOEORRGVDPSOLQJ'HOLYHU\VKRXOGEHSHUIRUPHGE\FHVDUHDQVHFWLRQ
$IWHUGHOLYHU\LIVHYHUHWKURPERF\WRSHQLDSHUVLVWVWUDQVIXVLRQRIXQLWRI
SODWHOHWVWKDWVKDUHWKHPDWHUQDODOORDQWLJHQVHJZDVKHGPDWHUQDOSODWHOHWV
ZLOOFDXVHDULVHLQSODWHOHWFRXQWVWRSURYLGHHIIHFWLYHKHPRVWDVLV+RZHYHUD
UDQGRPGRQRUSODWHOHWWUDQVIXVLRQLVPRUHOLNHO\WREHUHDGLO\DYDLODEOH6RPH
FHQWHUVKDYHXQLWVDYDLODEOHWKDWPD\ODFNWKHDQWLJHQVPRVWRIWHQLQYROYHG
$IWHUWKHUHKDVEHHQRQHDIIHFWHGFKLOGJHQHWLFFRXQVHOLQJLVFULWLFDOWRLQIRUP
WKHSDUHQWVRIWKHKLJKULVNRIWKURPERF\WRSHQLDLQVXEVHTXHQWSUHJQDQFLHV
&KLOGUHQERUQWRPRWKHUVZLWKLGLRSDWKLFWKURPERF\WRSHQLFSXUSXUD
PDWHUQDO,73DSSHDUWRKDYHDORZHUULVNRIVHULRXVKHPRUUKDJHWKDQLQIDQWV
ERUQZLWK1$73DOWKRXJKVHYHUHWKURPERF\WRSHQLDPD\RFFXU7KHPRWKHU
V
SUHH[LVWLQJSODWHOHWFRXQWPD\KDYHVRPHSUHGLFWLYHYDOXHLQWKDWVHYHUH
PDWHUQDOWKURPERF\WRSHQLDEHIRUHGHOLYHU\DSSHDUVWRSUHGLFWDKLJKHUULVNRI
IHWDOWKURPERF\WRSHQLD,QPRWKHUVZKRKDYHKDGVSOHQHFWRP\IRU,73WKH
PDWHUQDOSODWHOHWFRXQWPD\EHQRUPDODQGLVQRWSUHGLFWLYHRIIHWDO
WKURPERF\WRSHQLD
7UHDWPHQWLQFOXGHVSUHQDWDODGPLQLVWUDWLRQRIFRUWLFRVWHURLGVWRWKHPRWKHU
DQG,9,*DQGVRPHWLPHVFRUWLFRVWHURLGVWRWKHLQIDQWDIWHUGHOLYHU\
7KURPERF\WRSHQLDLQDQLQIDQWZKHWKHUDUHVXOWRI1$73RUPDWHUQDO,73
XVXDOO\UHVROYHVZLWKLQPRDIWHUGHOLYHU\7KHSHULRGRIKLJKHVWULVNLVWKH
LPPHGLDWHSHULQDWDOSHULRG
7ZRV\QGURPHVRIFRQJHQLWDOIDLOXUHRISODWHOHWSURGXFWLRQRIWHQSUHVHQWLQWKH
QHZERUQSHULRG,Q&$07WKHQHZERUQPDQLIHVWVSHWHFKLDHDQGSXUSXUDVKRUWO\
DIWHUELUWK)LQGLQJVRQSK\VLFDOH[DPLQDWLRQDUHRWKHUZLVHQRUPDO
0HJDNDU\RF\WHVDUHDEVHQWIURPWKHERQHPDUURZ7KLVV\QGURPHLVFDXVHGE\D
PXWDWLRQLQWKHPHJDNDU\RF\WH732UHFHSWRUWKDWLVHVVHQWLDOIRUGHYHORSPHQWRI
DOOKHPDWRSRLHWLFFHOOOLQHV3DQF\WRSHQLDHYHQWXDOO\GHYHORSVDQG+6&7LV
FXUDWLYH7$5V\QGURPHFRQVLVWVRIWKURPERF\WRSHQLDWKDWSUHVHQWVLQHDUO\
LQIDQF\ZLWKELODWHUDOUDGLDODQRPDOLHVRIYDULDEOHVHYHULW\UDQJLQJIURPPLOG
FKDQJHVWRPDUNHGOLPEVKRUWHQLQJ,WIUHTXHQWO\UHPLWVRYHUWKHVWIHZ\URI
OLIHVHH&KDSWHUDQG)LJ

%LEOLRJUDSK\
&XUWLV%55HFHQWSURJUHVVLQXQGHUVWDQGLQJWKHSDWKRJHQHVLV
RIIHWDODQGQHRQDWDODOORLPPXQHWKURPERF\WRSHQLD%U-
+DHPDWROߙ
3HWHUVRQ-$0F)DUODQG-*&XUWLV%5HWDO1HRQDWDO
DOORLPPXQHWKURPERF\WRSHQLDSDWKRJHQHVLVGLDJQRVLVDQG
PDQDJHPHQW%U-+DHPDWROߙ

7KURPERF\WRSHQLD)URP$FTXLUHG
'LVRUGHUV&DXVLQJ'HFUHDVHG
3URGXFWLRQ
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
DSODVWLFDQHPLD
OHXNHPLD
WKURPERF\WRSHQLD

'LVRUGHUVRIWKHERQHPDUURZWKDWLQKLELWPHJDNDU\RSRLHVLVXVXDOO\DIIHFW5%&
DQG:%&SURGXFWLRQ,QILOWUDWLYHGLVRUGHUVLQFOXGLQJPDOLJQDQFLHVVXFKDV
DFXWHO\PSKRF\WLFOHXNHPLDKLVWLRF\WRVLVO\PSKRPDVDQGVWRUDJHGLVHDVH
XVXDOO\FDXVHHLWKHUDEQRUPDOLWLHVRQSK\VLFDOH[DPLQDWLRQO\PSKDGHQRSDWK\
KHSDWRVSOHQRPHJDO\RUPDVVHVRUDEQRUPDOLWLHVRIWKH:%&FRXQWRUDQHPLD
$SODVWLFSURFHVVHVPD\SUHVHQWDVLVRODWHGWKURPERF\WRSHQLDDOWKRXJKWKHUHDUH
XVXDOO\FOXHVRQWKH&%&OHXNRSHQLDQHXWURSHQLDDQHPLDRUPDFURF\WRVLV
&KLOGUHQZLWKFRQVWLWXWLRQDODSODVWLFDQHPLD)DQFRQLDQHPLDRIWHQEXWQRW
DOZD\VKDYHDEQRUPDOLWLHVRQH[DPLQDWLRQLQFOXGLQJUDGLDODQRPDOLHVRWKHU
VNHOHWDODQRPDOLHVVKRUWVWDWXUHPLFURFHSKDO\DQGK\SHUSLJPHQWDWLRQ%RQH
PDUURZH[DPLQDWLRQVKRXOGEHSHUIRUPHGZKHQWKURPERF\WRSHQLDLVDVVRFLDWHG
ZLWKDEQRUPDOLWLHVIRXQGRQSK\VLFDOH[DPLQDWLRQRURQH[DPLQDWLRQRIWKHRWKHU
EORRGFHOOOLQHV

3ODWHOHW)XQFWLRQ'LVRUGHUV
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
EOHHGLQJWLPH
3)$
SODWHOHWIXQFWLRQ

7KHUHLVQRVLPSOHDQGUHOLDEOHWHVWWRVFUHHQIRUDEQRUPDOSODWHOHWIXQFWLRQ
%OHHGLQJWLPHDQGWKHSODWHOHWIXQFWLRQDQDO\]HU3)$KDYHEHHQXVHGLQ
WKHSDVWEXWQHLWKHUKDVVXIILFLHQWVHQVLWLYLW\RUVSHFLILFLW\WRUXOHLQRUUXOHRXWD
SODWHOHWGHIHFW%OHHGLQJWLPHPHDVXUHVWKHLQWHUDFWLRQRISODWHOHWVZLWKWKHEORRG
YHVVHOZDOODQGWKXVLVDIIHFWHGE\ERWKSODWHOHWFRXQWDQGSODWHOHWIXQFWLRQ7KH
SUHGLFWLYHYDOXHRIEOHHGLQJWLPHLVSUREOHPDWLFEHFDXVHEOHHGLQJWLPHLV
GHSHQGHQWRQDQXPEHURIRWKHUIDFWRUVLQFOXGLQJWKHWHFKQLFLDQ
VVNLOODQGWKH
SDWLHQW
VFRRSHUDWLRQRIWHQDFKDOOHQJHLQWKHLQIDQWRU\RXQJFKLOG7KH3)$
PHDVXUHVSODWHOHWDGKHVLRQDQGDJJUHJDWLRQLQZKROHEORRGDWKLJKVKHDU
ZKHQWKHEORRGLVH[SRVHGWRHLWKHUFROODJHQHSLQHSKULQHRUFROODJHQ$'3
5HVXOWVDUHUHSRUWHGDVWKHFORVXUHWLPHLQVHFRQGV7KHXVHRIWKH3)$DVD
VFUHHQLQJWHVWUHPDLQVFRQWURYHUVLDODQGOLNHWKHEOHHGLQJWLPHODFNVVSHFLILFLW\
)RUSDWLHQWVZLWKDSRVLWLYHKLVWRU\RIEOHHGLQJVXJJHVWLYHRIYRQ:LOOHEUDQG
GLVHDVHRUSODWHOHWG\VIXQFWLRQVSHFLILF9:)WHVWLQJDQGSODWHOHWIXQFWLRQ
VWXGLHVVKRXOGEHGRQHLUUHVSHFWLYHRIWKHUHVXOWVRIWKHEOHHGLQJWLPHRU3)$

3ODWHOHWIXQFWLRQLQWKHFOLQLFDOODERUDWRU\LVPHDVXUHGXVLQJSODWHOHW
DJJUHJRPHWU\,QWKHDJJUHJRPHWHUDJRQLVWVVXFKDVFROODJHQ$'3ULVWRFHWLQ
HSLQHSKULQHDUDFKLGRQLFDFLGDQGWKURPELQRUWKHWKURPELQUHFHSWRUSHSWLGH
DUHDGGHGWRSODWHOHWULFKSODVPDDQGWKHFOXPSLQJRISODWHOHWVRYHUWLPHLV
PHDVXUHGE\DQDXWRPDWHGPDFKLQH$WWKHVDPHWLPHRWKHULQVWUXPHQWV
PHDVXUHWKHUHOHDVHRIJUDQXODUFRQWHQWVVXFKDV$73IURPWKHSODWHOHWVDIWHU
DFWLYDWLRQ7KHDELOLW\RISODWHOHWVWRDJJUHJDWHDQGWKHLUPHWDEROLFDFWLYLW\FDQ
EHDVVHVVHGVLPXOWDQHRXVO\:KHQDSDWLHQWLVEHLQJHYDOXDWHGIRUSRVVLEOH
SODWHOHWG\VIXQFWLRQLWLVFULWLFDOO\LPSRUWDQWWRH[FOXGHWKHSUHVHQFHRIRWKHU
H[RJHQRXVDJHQWVDQGWRVWXG\WKHSDWLHQWLISRVVLEOHRIIDOOPHGLFDWLRQVIRU
ZN)XUWKHUHYDOXDWLRQXVLQJIORZF\WRPHWULFDQDO\VLVRUPROHFXODUWHVWLQJLV
RIWHQQHFHVVDU\WRPDNHDPRUHGHILQLWLYHGLDJQRVLV

%LEOLRJUDSK\
/DVVLOD53ODWHOHWIXQFWLRQWHVWVLQEOHHGLQJGLVRUGHUV6HPLQ
7KURPE+HPRVWߙ


$FTXLUHG'LVRUGHUVRI3ODWHOHW
)XQFWLRQ
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
DVSLULQ
WKURPERF\WRSHQLD
XUHPLD

$QXPEHURIV\VWHPLFLOOQHVVHVDUHDVVRFLDWHGZLWKSODWHOHWG\VIXQFWLRQPRVW
IUHTXHQWO\OLYHUGLVHDVHNLGQH\GLVHDVHXUHPLDDQGGLVRUGHUVWKDWWULJJHU
LQFUHDVHGDPRXQWVRIILEULQGHJUDGDWLRQSURGXFWV7KHVHGLVRUGHUVIUHTXHQWO\
FDXVHSURORQJHGEOHHGLQJWLPHDQGDUHRIWHQDVVRFLDWHGZLWKRWKHUDEQRUPDOLWLHV
RIWKHFRDJXODWLRQPHFKDQLVP7KHPRVWLPSRUWDQWHOHPHQWRIPDQDJHPHQWLVWR
WUHDWWKHSULPDU\LOOQHVV,IWUHDWPHQWRIWKHSULPDU\SURFHVVLVQRWIHDVLEOH
LQIXVLRQVRIGHVPRSUHVVLQKDYHEHHQKHOSIXOLQDXJPHQWLQJKHPRVWDVLVDQG
FRUUHFWLQJEOHHGLQJWLPH,QVRPHSDWLHQWVWUDQVIXVLRQVRISODWHOHWVDQG
FU\RSUHFLSLWDWHKDYHDOVREHHQKHOSIXOLQLPSURYLQJKHPRVWDVLV
0DQ\GUXJVDOWHUSODWHOHWIXQFWLRQ7KHPRVWFRPPRQGUXJLQDGXOWVWKDW
DOWHUVSODWHOHWIXQFWLRQLVDFHW\OVDOLF\OLFDFLGDVSLULQ$VSLULQLUUHYHUVLEO\
DFHW\ODWHVWKHHQ]\PHF\FORR[\JHQDVHZKLFKLVFULWLFDOLQWKHIRUPDWLRQRI
WKURPER[DQH$$VSLULQXVXDOO\FDXVHVPRGHUDWHSODWHOHWG\VIXQFWLRQWKDW
EHFRPHVPRUHSURPLQHQWLIWKHUHLVDQRWKHUDEQRUPDOLW\RIWKHKHPRVWDWLF
PHFKDQLVP,QFKLOGUHQFRPPRQGUXJVWKDWDIIHFWSODWHOHWIXQFWLRQLQFOXGHRWKHU
QRQVWHURLGDODQWLLQIODPPDWRU\GUXJV16$,'VYDOSURLFDFLGDQGKLJKGRVH
SHQLFLOOLQ6SHFLILFDJHQWVWRLQKLELWSODWHOHWIXQFWLRQWKHUDSHXWLFDOO\LQFOXGH
WKRVHWKDWEORFNWKHSODWHOHW$'3UHFHSWRUFORSLGRJUHODQG͠,,E͡UHFHSWRU
DQWDJRQLVWVDVZHOODVDVSLULQ

%LEOLRJUDSK\
0LWFKHOO2)HOGPDQ'0'LDNRZ06LJDO6+7KH
SDWKRSK\VLRORJ\RIWKURPERF\WRSHQLDLQFKURQLFOLYHU
GLVHDVH+HSDW0HGߙ
7ULSRL$+HPRVWDVLVDEQRUPDOLWLHVLQFLUUKRVLV&XUU2SLQ
+HPDWROߙ


&RQJHQLWDO$EQRUPDOLWLHVRI3ODWHOHW
)XQFWLRQ
-3DXO6FRWW9HURQLFD+)ORRG
.H\ZRUGV
%HUQDUG6RXOLHUV\QGURPH
GHQVHERG\GHILFLHQF\
*ODQ]PDQQWKURPEDVWKHQLD
JUD\SODWHOHWV\QGURPH
+HUPDQVN\3XGODNV\QGURPH
0<+
4XHEHFSODWHOHWV\QGURPH
WKURPERF\WRSHQLD

6HYHUHSODWHOHWIXQFWLRQGHIHFWVXVXDOO\SUHVHQWZLWKSHWHFKLDHDQGSXUSXUD
VKRUWO\DIWHUELUWKHVSHFLDOO\DIWHUYDJLQDOGHOLYHU\'HIHFWVLQWKHSODWHOHW*3,E
FRPSOH[WKH9:)UHFHSWRURUWKH͠,,E͡FRPSOH[WKHILEULQRJHQUHFHSWRU
FDXVHVHYHUHFRQJHQLWDOSODWHOHWG\VIXQFWLRQ$OWKRXJKODERUDWRU\WHVWVRI
SODWHOHWIXQFWLRQDUHDYDLODEOHPROHFXODUFKDUDFWHUL]DWLRQE\JHQHWLFWHVWLQJLV
UDSLGO\SURJUHVVLQJIRUSODWHOHWGLVRUGHUV
%HUQDUG6RXOLHUV\QGURPHDVHYHUHFRQJHQLWDOSODWHOHWIXQFWLRQGLVRUGHULV
FDXVHGE\DEVHQFHRUVHYHUHGHILFLHQF\RIWKH9:)UHFHSWRURQWKHSODWHOHW
PHPEUDQH7KLVV\QGURPHLVFKDUDFWHUL]HGE\WKURPERF\WRSHQLDZLWKJLDQW
SODWHOHWVDQGJUHDWO\SURORQJHGEOHHGLQJWLPH!PLQRU3)$FORVXUH
WLPH3DWLHQWVPD\KDYHVLJQLILFDQWPXFRFXWDQHRXVDQGJDVWURLQWHVWLQDO*,
EOHHGLQJ3ODWHOHWDJJUHJDWLRQWHVWVVKRZDEVHQWULVWRFHWLQLQGXFHGSODWHOHW
DJJUHJDWLRQEXWQRUPDODJJUHJDWLRQWRDOORWKHUDJRQLVWV5LVWRFHWLQLQGXFHVWKH
ELQGLQJRI9:)WRSODWHOHWVDQGDJJOXWLQDWHVSODWHOHWV5HVXOWVRIVWXGLHVRI
9:)DUHQRUPDO7KH*3,EFRPSOH[LQWHUDFWVZLWKWKHSODWHOHWF\WRVNHOHWRQD
GHIHFWLQWKLVLQWHUDFWLRQLVEHOLHYHGWREHWKHFDXVHRIWKHODUJHSODWHOHWVL]H
%HUQDUG6RXOLHUV\QGURPHLVLQKHULWHGDVDQDXWRVRPDOUHFHVVLYHGLVRUGHU
&DXVDWLYHJHQHWLFPXWDWLRQVDUHXVXDOO\LGHQWLILHGLQWKHJHQHVIRUPLQJWKH*3,E
FRPSOH[RIJO\FRSURWHLQV,E͠,E͡9DQG,;
*ODQ]PDQQWKURPEDVWKHQLDLVDFRQJHQLWDOGLVRUGHUDVVRFLDWHGZLWKVHYHUH
SODWHOHWG\VIXQFWLRQWKDW\LHOGVSURORQJHGEOHHGLQJWLPHDQGDQRUPDOSODWHOHW
FRXQW3ODWHOHWVKDYHQRUPDOVL]HDQGPRUSKRORJLFIHDWXUHVRQWKHSHULSKHUDO
EORRGVPHDUDQGFORVXUHWLPHVIRU3)$RUEOHHGLQJWLPHDUHH[WUHPHO\
DEQRUPDO$JJUHJDWLRQVWXGLHVVKRZDEQRUPDORUDEVHQWDJJUHJDWLRQZLWKDOO
DJRQLVWVXVHGH[FHSWULVWRFHWLQEHFDXVHULVWRFHWLQDJJOXWLQDWHVSODWHOHWVDQGGRHV
QRWUHTXLUHDPHWDEROLFDOO\DFWLYHSODWHOHW7KLVGLVRUGHULVFDXVHGE\GHILFLHQF\
RIWKHSODWHOHWILEULQRJHQUHFHSWRU͠,,E͡WKHPDMRULQWHJULQFRPSOH[RQWKH
SODWHOHWVXUIDFHWKDWXQGHUJRHVFRQIRUPDWLRQDOFKDQJHVE\LQVLGHRXWVLJQDOLQJ
ZKHQSODWHOHWVDUHDFWLYDWHG)LEULQRJHQELQGVWRWKLVFRPSOH[ZKHQWKHSODWHOHW
LVDFWLYDWHGDQGFDXVHVSODWHOHWVWRDJJUHJDWH*ODQ]PDQQWKURPEDVWKHQLDLV
FDXVHGE\LGHQWLILDEOHPXWDWLRQVLQWKHJHQHVIRU͠,,ERU͡DQGLVLQKHULWHGLQDQ
DXWRVRPDOUHFHVVLYHPDQQHU)RUERWK%HUQDUG6RXOLHUV\QGURPHDQG
*ODQ]PDQQWKURPEDVWKHQLDWKHGLDJQRVLVLVFRQILUPHGE\IORZF\WRPHWULF
DQDO\VLVRIWKHSDWLHQW
VSODWHOHWJO\FRSURWHLQV%OHHGLQJLQ*ODQ]PDQQ
WKURPEDVWKHQLDPD\EHTXLWHVHYHUHDQGLVW\SLFDOO\PXFRFXWDQHRXVLQFOXGLQJ
HSLVWD[LVJLQJLYDODQG*,EOHHGLQJ7KHUHDUHUHSRUWVRIFXUDWLYHWKHUDS\XVLQJ
VWHPFHOOWUDQVSODQW
+HUHGLWDU\GHILFLHQF\RISODWHOHWVWRUDJHJUDQXOHVRFFXUVLQZHOO
FKDUDFWHUL]HGEXWUDUHV\QGURPHVWKDWLQYROYHGHILFLHQF\RILQWUDF\WRSODVPLF
JUDQXOHV'HQVHERG\GHILFLHQF\LVFKDUDFWHUL]HGE\DEVHQFHRIWKHJUDQXOHVWKDW
FRQWDLQ$'3$73&DDQGVHURWRQLQ7KLVGLVRUGHULVGLDJQRVHGE\WKH
ILQGLQJWKDW$73LVQRWUHOHDVHGRQSODWHOHWDJJUHJDWLRQVWXGLHVDQGLGHDOO\LV
FKDUDFWHUL]HGE\HOHFWURQPLFURVFRSLFVWXGLHV+HUPDQVN\3XGODNV\QGURPH
ZLWKVXEW\SHVLVDGHQVHJUDQXOHGHILFLHQF\FDXVHGE\GHIHFWVLQO\VRVRPDO
VWRUDJH$IIHFWHGSDWLHQWVSUHVHQWZLWKRFXORFXWDQHRXVDOELQLVPDQGKHPRUUKDJH
FDXVHGE\WKHSODWHOHWGHIHFWVRPHSDWLHQWVDOVRGHYHORSJUDQXORPDWRXVFROLWLV
UHVHPEOLQJ&URKQGLVHDVHRUSXOPRQDU\ILEURVLVLQWHUVWLWLDOOXQJGLVHDVH7DEOH
&K©GLDN+LJDVKLV\QGURPHDOVRSUHVHQWVZLWKDGHQVHJUDQXOHGHIHFW
LPPXQHG\VIXQFWLRQDQGDOELQLVPVHH&KDSWHU*UD\SODWHOHWV\QGURPH
LVFDXVHGE\WKHDEVHQFHRISODWHOHW͠JUDQXOHVUHVXOWLQJLQODUJHSODWHOHWVWKDW
DUHODUJHDQGDSSHDUJUD\RQ:ULJKWVWDLQRISHULSKHUDOEORRG,QWKLVUDUH
V\QGURPHDJJUHJDWLRQDQGUHOHDVHDUHDEVHQWZLWKPRVWDJRQLVWVRWKHUWKDQ
WKURPELQDQGULVWRFHWLQ(OHFWURQPLFURVFRSLFVWXGLHVDUHGLDJQRVWLF$XWRVRPDO
UHFHVVLYHJUD\SODWHOHWV\QGURPHLVPDSSHGWRGHIHFWVLQWKH1%($/JHQH
ZKLOHDXWRVRPDOGRPLQDQWGLVHDVHLVDVVRFLDWHGZLWKDPXWDWLRQLQ*),%
4XHEHFSODWHOHWV\QGURPHLVFDXVHGE\GHJUDGDWLRQRISODWHOHW͠JUDQXOHV
FDXVHGE\GHIHFWVLQ3/$8DXURNLQDVHW\SHSODVPLQRJHQDFWLYDWRU7UHDWPHQW
XVXDOO\LQYROYHVDQWLILEULQRO\WLFWKHUDS\

7DEOH
&RPSDULVRQRI7\SHVRI+HUPDQVN\3XGODN6\QGURPH
        
2FXORFXWDQHRXV 9DULDEOH 6HYHUHODFNRIKDLU 0LOG 6HYHUH 9DULDEOH 9DULDEOHLULV 9DULDEOH 9DULDEOH
DOELQLVP PLOG DQGLULVSLJPHQW PRGHUDWH EORQGH OLJKW KHWHURFKURPLD WDQVNLQ
PRGHUDWH OLJKWVNLQ KDLUJUD\ EURZQ VLOYHU
EURZQWR SLJPHQW LULV KDLU KDLU
ZKLWH EURZQLULV EURZQ
KDLU LULV
3ODWHOHW        
GHIHFWEUXLVLQJ
*UDQXORPDWRXV  ࠺ ࠺  ࠺   ࠺
FROLWLV
3XOPRQDU\   ࠺  ࠺ ࠺ ࠺ ࠺
ILEURVLV,/'
2WKHU 1HXWURSHQLD 'HSUHVVLRQ +LJK
V\PSWRPV )DLOXUHWRWKULYH FKROHVWHURO
+\SRWK\URLGLVP
&$+

3UHVHQW࠺DEVHQW&$+FRQJHQLWDODGUHQDOK\SHUSODVLD,/'LQWHUVWLWLDOOXQJGLVHDVH

2WKHU+HUHGLWDU\'LVRUGHUVRI3ODWHOHW
)XQFWLRQ
$EQRUPDOLWLHVLQWKHSDWKZD\VRISODWHOHWVLJQDOLQJDFWLYDWLRQDQGUHOHDVHRI
JUDQXODUFRQWHQWVFDXVHDKHWHURJHQHRXVJURXSRISODWHOHWIXQFWLRQGHIHFWVWKDW
DUHXVXDOO\PDQLIHVWHGDVLQFUHDVHGEUXLVLQJHSLVWD[LVDQGPHQRUUKDJLD
6\PSWRPVPD\EHVXEWOHDQGDUHRIWHQPDGHPRUHREYLRXVE\KLJKULVNVXUJHU\
VXFKDVWRQVLOOHFWRP\RUDGHQRLGHFWRP\RUE\DGPLQLVWUDWLRQRI16$,'V,QWKH
ODERUDWRU\EOHHGLQJWLPHLVYDULDEOHDQGFORVXUHWLPHDVPHDVXUHGE\WKH3)$
LVIUHTXHQWO\EXWQRWDOZD\VSURORQJHG3ODWHOHWDJJUHJDWLRQVWXGLHVVKRZ
GHILFLHQWDJJUHJDWLRQZLWKRUDJRQLVWVDQGRUDEQRUPDOUHOHDVHRIJUDQXODU
FRQWHQWV
7KHIRUPDWLRQRIWKURPER[DQHIURPDUDFKLGRQLFDFLG$$DIWHUWKHDFWLYDWLRQ
RISKRVSKROLSDVHLVFULWLFDOWRQRUPDOSODWHOHWIXQFWLRQ'HILFLHQF\RU
G\VIXQFWLRQRIHQ]\PHVVXFKDVF\FORR[\JHQDVHDQGWKURPER[DQHV\QWKDVH
ZKLFKPHWDEROL]H$$FDXVHVDEQRUPDOSODWHOHWIXQFWLRQ,QWKHDJJUHJRPHWHU
SODWHOHWVIURPVXFKSDWLHQWVGRQRWDJJUHJDWHLQUHVSRQVHWR$$
7KHPRVWFRPPRQSODWHOHWIXQFWLRQGHIHFWVDUHWKRVHFKDUDFWHUL]HGE\YDULDEOH
EOHHGLQJWLPH3)$FORVXUHWLPHVDQGDEQRUPDODJJUHJDWLRQZLWKRUDJRQLVWV
XVXDOO\$'3DQGRUFROODJHQ6RPHRIWKHVHLQGLYLGXDOVKDYHRQO\GHFUHDVHG
UHOHDVHRI$73IURPLQWUDF\WRSODVPLFJUDQXOHVWKHVLJQLILFDQFHRIWKLVILQGLQJLV
GHEDWHG
7UHDWPHQWRI3DWLHQWV:LWK3ODWHOHW
'\VIXQFWLRQ
6XFFHVVIXOWUHDWPHQWGHSHQGVRQWKHVHYHULW\RIERWKWKHGLDJQRVLVDQGWKH
KHPRUUKDJLFHYHQW,QDOOEXWVHYHUHSODWHOHWIXQFWLRQGHIHFWVGHVPRSUHVVLQ
uJNJLQWUDYHQRXVO\PD\EHXVHGIRUPLOGWRPRGHUDWHEOHHGLQJHSLVRGHV,Q
DGGLWLRQWRLWVHIIHFWRQVWLPXODWLQJOHYHOVRI9:)DQGIDFWRU9,,,GHVPRSUHVVLQ
FRUUHFWVEOHHGLQJWLPHDQGDXJPHQWVKHPRVWDVLVLQPDQ\LQGLYLGXDOVZLWKPLOG
WRPRGHUDWHSODWHOHWIXQFWLRQGHIHFWV$QWLILEULQRO\WLFWKHUDS\PD\EHXVHIXOIRU
PXFRVDOEOHHGV)RULQGLYLGXDOVZLWK%HUQDUG6RXOLHUV\QGURPHRU*ODQ]PDQQ
WKURPEDVWKHQLDSODWHOHWWUDQVIXVLRQVRIXQLWVLQJOHGRQRUSODWHOHWVFRUUHFW
WKHGHIHFWLQKHPRVWDVLVDQGPD\EHOLIHVDYLQJ5DUHO\DQWLERGLHVGHYHORSWRWKH
GHILFLHQWSODWHOHWSURWHLQUHQGHULQJWKHSDWLHQWUHIUDFWRU\WRWKHWUDQVIXVHG
SODWHOHWV,QVXFKSDWLHQWVWKHRIIODEHOXVHRIUHFRPELQDQWIDFWRU9,,DKDVEHHQ
HIIHFWLYHDQGWKLVWUHDWPHQWLVXQGHUJRLQJFOLQLFDOWULDOV,QERWKFRQGLWLRQV
+6&7KDVEHHQFXUDWLYH

%LEOLRJUDSK\
%ODYLJQDF-%XQLPRY15LYDUG*(+D\ZDUG&34XHEHF
SODWHOHWGLVRUGHUXSGDWHRQSDWKRJHQHVLVGLDJQRVLVDQG
WUHDWPHQW6HPLQ7KURPE+HPRVWߙ
*XQD\$\JXQ0+XL]LQJ0*DKO:$0ROHFXODUGHIHFWVWKDW
DIIHFWSODWHOHWGHQVHJUDQXOHV6HPLQ7KURPE+HPRVW
ߙ
*XQD\$\JXQ0)DOLN=DFFDL7&9LOERX[7HWDO1%($/LV
PXWDWHGLQJUD\SODWHOHWV\QGURPHDQGLVUHTXLUHGIRU
ELRJHQHVLVRISODWHOHW͠JUDQXOHV1DW*HQHWߙ

+LQFNOH\-'L3DROD-*HQHWLFEDVLVRIFRQJHQLWDOSODWHOHW
GLVRUGHUV+HPDWRORJ\$P6RF+HPDWRO(GXF3URJUDP
ߙ
/DPEHUW033RQF]0,QKHULWHGSODWHOHWGLVRUGHUV2UNLQ6+
)LVKHU'(*LQVEHUJ'HWDO1DWKDQDQG2VNL
VKHPDWRORJ\
 RILQIDQF\DQGFKLOGKRRGHG6DXQGHUV(OVHYLHU
3KLODGHOSKLDߙ
/DPEHUW038SGDWHRQWKHLQKHULWHGSODWHOHWGLVRUGHUV&XUU
2SLQ+HPDWROߙ
/RUHGDQD$V]WDORV06FKDIHUQDN.7*UD\-HWDO
+HUPDQVN\SXGODNV\QGURPHUHSRUWRIWZRSDWLHQWVZLWK
XSGDWHGJHQHWLFFODVVLILFDWLRQDQGPDQDJHPHQW
UHFRPPHQGDWLRQV3HGLDWU'HUPDWROߙ
0RQWHIHUUDULR'%RODU1$0DUQHWK$(HWDO$GRPLQDQW
QHJDWLYH*),%PXWDWLRQLQWKHJUD\SODWHOHWV\QGURPH1
(QJO-0HGߙ
1XUGHQ$71XUGHQ3&RQJHQLWDOSODWHOHWGLVRUGHUVDQG
XQGHUVWDQGLQJRISODWHOHWIXQFWLRQ%U-+DHPDWRO
ߙ
4XLURJD70H]]DQR',VP\SDWLHQWDEOHHGHU"$GLDJQRVWLF
IUDPHZRUNIRUPLOGEOHHGLQJGLVRUGHUV+HPDWRORJ\$P6RF
+HPDWRO(GXF3URJUDPߙ
6HZDUG6/-U*DKO:$+HUPDQVN\SXGODNV\QGURPHKHDOWK
FDUHWKURXJKRXWOLIH3HGLDWULFVߙ


'LVRUGHUVRIWKH%ORRG9HVVHOV
-3DXO6FRWW9HURQLFD+)ORRG

.H\ZRUGV
FROODJHQ
SODWHOHW
 YDVFXOLWLV
YDVFXORSDWK\

'LVRUGHUVRIWKHYHVVHOZDOOVRUVXSSRUWLQJVWUXFWXUHVPLPLFWKHILQGLQJVRID
EOHHGLQJGLVRUGHUDOWKRXJKFRDJXODWLRQVWXGLHVDUHXVXDOO\QRUPDO7KHILQGLQJV
RISHWHFKLDHDQGSXUSXULFOHVLRQVLQVXFKSDWLHQWVDUHRIWHQDWWULEXWDEOHWRDQ
XQGHUO\LQJYDVFXOLWLVRUYDVFXORSDWK\6NLQELRSV\FDQEHSDUWLFXODUO\KHOSIXOLQ
HOXFLGDWLQJWKHW\SHRIYDVFXODUSDWKRORJ\

+HQRFK6FK¶QOHLQ3XUSXUD
6HH&KDSWHU

(KOHUV'DQORV6\QGURPH
6HH&KDSWHU

2WKHU$FTXLUHG'LVRUGHUV
6FXUY\FKURQLFFRUWLFRVWHURLGWKHUDS\DQGVHYHUHPDOQXWULWLRQDUHDVVRFLDWHG
ZLWKߡZHDNHQLQJߢRIWKHFROODJHQPDWUL[WKDWVXSSRUWVWKHEORRGYHVVHOV
7KHUHIRUHWKHVHIDFWRUVDUHDVVRFLDWHGZLWKHDV\EUXLVLQJDQGSDUWLFXODUO\LQWKH
FDVHRIVFXUY\EOHHGLQJJXPVDQGORRVHQLQJRIWKHWHHWK/HVLRQVRIWKHVNLQWKDW
LQLWLDOO\DSSHDUWREHSHWHFKLDHDQGSXUSXUDPD\EHVHHQLQYDVFXOLWLFV\QGURPHV
VXFKDV6/(

%LEOLRJUDSK\
$PRV/(&DUSHQWHU6/+RHOW]HO0)/RVWDWVHDLQVHDUFKRID
GLDJQRVLVDFDVHRIXQH[SODLQHGEOHHGLQJ3HGLDWU%ORRG
&DQFHUߙ
+LFNH\6(9DUJD($.HUOLQ%(SLGHPLRORJ\RIEOHHGLQJ
V\PSWRPVDQGK\SHUPRELOH(KOHUVGDQORVV\QGURPHLQ
SDHGLDWULFV+DHPRSKLOLDHߙH
6(&7,21
7KH6SOHHQ
287/,1(

&KDSWHU$QDWRP\DQG)XQFWLRQRIWKH6SOHHQ
&KDSWHU6SOHQRPHJDO\
&KDSWHU+\SRVSOHQLVP6SOHQLF7UDXPDDQG6SOHQHFWRP\