00a0317p.06

9LQFHQWY6HDEROG 1R
JURXQGVZHQHHGQRWDGGUHVVKLVUHPDLQLQJDUJXPHQWVLQDQ\
JUHDWGHWDLO
:LWKUHJDUGWRKLVPRWLRQIRUVHYHUDQFH9LQFHQWIDLOHGWR
GHPRQVWUDWHWRWKHWULDOFRXUW³DVWURQJVKRZLQJRIIDFWXDOO\
VSHFLILF DQG FRPSHOOLQJ SUHMXGLFH WKDW >ZRXOG@ PLVOHDG RU
FRQIXVHWKHMXU\´8QLWHG6WDWHVY&REOHLJK)G
WK &LU TXRWLQJ 8QLWHG 6WDWHV Y 9LQVRQ
)G WK &LU LQWHUQDO TXRWDWLRQ PDUNV
RPLWWHG :LWKUHJDUGWR9LQFHQW¶VFODLPWKDWKHZDVGHQLHG
DVSHHG\WULDOXQGHUWKH6L[WK$PHQGPHQWQRQHRIWKHGHOD\
ZDVFDXVHGE\WKHJRYHUQPHQWWKHUHZDVQRVKRZLQJRIEDG
IDLWK RU DWWHPSWV E\ WKH JRYHUQPHQW WR VHHN D WDFWLFDO
DGYDQWDJHDQG9LQFHQWZKROO\IDLOHGWRLGHQWLI\DQ\VSHFLILF
ZD\LQZKLFKKLVGHIHQVHZDVSUHMXGLFHGDVDUHVXOWRIWKH
GHOD\ 6HH %DUNHU Y :LQJR 86
$FFRUGLQJO\WKHVHDVVLJQPHQWVRIHUURUDUHZLWKRXWPHULW
&21&/86,21
)RUWKHUHDVRQVVHWIRUWKLQ3DUWV,,$DQG,,%DERYHZH
5(9(56(WKHGLVWULFWFRXUW¶VGHQLDORI9LQFHQW¶VSHWLWLRQIRU
ZULWRIKDEHDVFRUSXVDQG5(0$1'WRWKHGLVWULFWFRXUWZLWK
LQVWUXFWLRQV WR JUDQW WKH SHWLWLRQ IRU KDEHDV FRUSXV XQOHVV
ZLWKLQDUHDVRQDEOHWLPHWKH&RPPRQZHDOWKHOHFWVWRDIIRUG
9LQFHQWDQHZWULDO

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21
3XUVXDQW WR 6L[WK &LUFXLW 5XOH
(/(&7521,& &,7$7,21 )(' $SS 3 WK &LU
)LOH 1DPH DS
81,7('67$7(6&28572)$33($/6
)257+(6,;7+&,5&8,7
BBBBBBBBBBBBBBBBB
'($1 9,1&(17
3HWLWLRQHU$SSHOODQW
Y
:,//,$0 6($%2/':DUGHQ
5HVSRQGHQW$SSHOOHH
;!

1
1R
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH:HVWHUQ'LVWULFWRI.HQWXFN\DW%RZOLQJ*UHHQ
1R²-RVHSK+0F.LQOH\-U'LVWULFW-XGJH
$UJXHG$XJXVW
'HFLGHGDQG)LOHG6HSWHPEHU
%HIRUH.(,7+&2/(DQG*,/0$1&LUFXLW-XGJHV
BBBBBBBBBBBBBBBBB
&2816(/
$5*8(' 2OHK 5 7XVWDQLZVN\ '(3$570(17 2)
38%/,&$'92&$&<)UDQNIRUW.HQWXFN\IRU$SSHOODQW
.HQW7<RXQJ2)),&(2)7+($77251(<*(1(5$/
&5,0,1$/$33(//$7(',9,6,21)UDQNIRUW.HQWXFN\
IRU $SSHOOHH 21 %5,() 2OHK 5 7XVWDQLZVN\
'(3$570(17 2) 38%/,& $'92&$&< )UDQNIRUW
.HQWXFN\IRU$SSHOODQW.HQW7<RXQJ2)),&(2)7+(

-- 1 of 8 --

9LQFHQWY6HDEROG 1R
$77251(< *(1(5$/ &5,0,1$/ $33(//$7(
',9,6,21)UDQNIRUW.HQWXFN\IRU$SSHOOHH
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
5*8<&2/(-5&LUFXLW-XGJH,Q$XJXVWDMXU\
LQ%XWOHU&RXQW\.HQWXFN\FRQYLFWHG3HWLWLRQHU$SSHOODQW
'HDQ9LQFHQWDORQJZLWKFRGHIHQGDQWV/HUR\.LQVHUDQG
5RQDOG-RKQVRQRIILUVWGHJUHHUREEHU\ILUVWGHJUHHEXUJODU\
DQGPXUGHU,WZDVHVWDEOLVKHGDWWULDOWKDWRQ-XQH
WKHGHIHQGDQWVEURNHLQWRWKHKRPHRI +DUROG+D\HVEHDW
KLPERXQGKLPZLWKGXFWWDSHDQGUREEHGWKHKRPHOHDYLQJ
+D\HVWRGLHRIEOXQWIRUFHLQMXULHVWRWKHKHDG$OOWKUHH
GHIHQGDQWVZHUHVHQWHQFHGWRWZHQW\\HDUV¶LPSULVRQPHQWRQ
ERWK WKH UREEHU\ DQG WKH EXUJODU\ FRQYLFWLRQV DQG OLIH
LPSULVRQPHQWRQWKHPXUGHUFRQYLFWLRQV$IWHUWKH.HQWXFN\
6XSUHPH&RXUWDIILUPHGWKHLUFRQYLFWLRQVRQGLUHFWDSSHDOLQ
.LQVHU Y &RPPRQZHDOWK 6:G .\
9LQFHQWDQG-RKQVRQILOHGSHWLWLRQVIRUZULWVRIKDEHDVFRUSXV
SXUVXDQWWR86&†7KHGLVWULFWFRXUWGHQLHGHDFK
SHWLWLRQEXWWKLV&RXUWUHYHUVHGFRQFOXGLQJWKDW9LQFHQWDQG
-RKQVRQZHUHHQWLWOHGWRKDEHDVUHOLHIRQWKHJURXQGWKDWWKHLU
6L[WK$PHQGPHQWULJKWVWRFRQIURQWDWLRQKDGEHHQYLRODWHG
6HH 9LQFHQW Y 3DUNH )G WK &LU
-RKQVRQY3DUNV)G:/ WK&LU)HE
:HUHPDQGHGWKHFDVHIRUUHWULDODQGRQ)HEUXDU\
DMXU\IRXQG9LQFHQWDQG-RKQVRQJXLOW\RIILUVW
GHJUHH UREEHU\ ILUVW GHJUHH EXUJODU\ DQG ZDQWRQ PXUGHU
9LQFHQWZDVVHQWHQFHGWRILIWHHQ\HDUV¶LPSULVRQPHQWRQERWK
WKHUREEHU\DQGEXUJODU\FRQYLFWLRQVDQGOLIHLPSULVRQPHQW
RQ WKH PXUGHU FRQYLFWLRQ WKH VHQWHQFHV ZHUH WR UXQ
FRQVHFXWLYHO\ 7KH .HQWXFN\ 6XSUHPH &RXUW DIILUPHG
9LQFHQW¶V FRQYLFWLRQV EXW UHPDQGHG WKH FDVH WR WKH %XWOHU
&LUFXLW&RXUWIRUUHVHQWHQFLQJEHFDXVH.HQWXFN\ODZUHTXLUHV
WKDWWKHILIWHHQ\HDUVHQWHQFHVZHUHWRUXQFRQFXUUHQWO\ZLWK
WKHOLIHVHQWHQFH2Q$SULO9LQFHQWILOHGDVHFRQG
SHWLWLRQIRUZULWRIKDEHDVFRUSXVDVVHUWLQJLQWHUDOLDWKDW
YDULRXVWHVWLPRQ\YLRODWHGKLV6L[WK$PHQGPHQWULJKWVXQGHU
1R 9LQFHQWY6HDEROG
5XOHVRI(YLGHQFH,WKDVQRHYLGHQWLDU\YDOXH,WFDQQRW
EH FRQVLGHUHG DV HYLGHQFH ,W KDV QR FUHGLELOLW\ DQG
VKRXOGEHWRWDOO\GLVUHJDUGHGE\\RXLQHYHU\VKDSHIRUP
DQGIDVKLRQ,WVKRXOGEHSXWRXWRI\RXUPLQGVDVLIWKH
VWDWHPHQWZDVQHYHUPDGH
7KH .HQWXFN\ 6XSUHPH &RXUW IRXQG WKDW WKH WULDO FRXUW¶V
DGPRQLWLRQFXUHGDQ\GHIHFW
7KH PDJLVWUDWH MXGJH GHWHUPLQHG DQG WKH GLVWULFW FRXUW
DJUHHGWKDWWKHDGPLVVLRQRI6KHSKDUG¶VWHVWLPRQ\GLGQRW
DPRXQW WR UHYHUVLEOH HUURU UHO\LQJ LQ SDUW RQ LWV HDUOLHU
GHWHUPLQDWLRQ WKDW *DGGLH¶V WHVWLPRQ\ UHJDUGLQJ .LQVHU¶V
VWDWHPHQWV SURSHUO\ ZDV DGPLWWHG DQG WKXV 6KHSKDUG¶V
LPSURSHUVWDWHPHQWVKDGEXWDYHU\VOLJKWHIIHFWRQWKHMXU\
$VZHKDYHGHWHUPLQHGKRZHYHUWKHDGPLVVLRQRI*DGGLH¶V
WHVWLPRQ\ZDVLPSURSHUDQGYLRODWHG9LQFHQW¶V&RQIURQWDWLRQ
&ODXVH ULJKWV %HFDXVH 6KHSKDUG¶V WHVWLPRQ\ DOVR ZDV
LPSURSHU XQGHU %UXWRQ ZH KROG WKDW WKH HUURUV WDNHQ
WRJHWKHU³KDG>D@VXEVWDQWLDODQGLQMXULRXVHIIHFWRULQIOXHQFH
LQGHWHUPLQLQJWKHMXU\¶VYHUGLFW´%UHFKW86DW
:HILQGWKDWWKHLQWURGXFWLRQRI.LQVHU¶VVWDWHPHQWVWKURXJK
*DGGLH¶V WHVWLPRQ\ WRJHWKHU ZLWK -RKQVRQ¶V VWDWHPHQW
WKURXJK 6KHSKDUG¶V WHVWLPRQ\ UHQGHUHG WKH JRYHUQPHQW¶V
FDVH DJDLQVW 9LQFHQW VLJQLILFDQWO\ PRUH SHUVXDVLYH :H
WKHUHIRUHFRQGLWLRQDOO\*5$179LQFHQW¶VSHWLWLRQIRUZULWRI
KDEHDVFRUSXVVXEMHFWWRWKH&RPPRQZHDOWK UHWU\LQJKLP
ZLWKLQDUHDVRQDEOHSHULRGRIWLPH
,,,6HYHUDQFHDQG6SHHG\7ULDO
9LQFHQWDOVRDUJXHVRQDSSHDOWKDWWKHWULDOFRXUWLPSURSHUO\
GHQLHG KLV PRWLRQ WR VHYHU KLV UHWULDO IURP WKDW RI FR
GHIHQGDQW-RKQVRQ¶VDQGWKDWKLV6L[WK$PHQGPHQWULJKWWR
DVSHHG\WULDOZDVYLRODWHGLQWKDWòPRQWKVHODSVHGIURP
WKHWLPHWKLV&RXUWRUGHUHGWKDW9LQFHQWEHUHWULHGZLWKLQD
UHDVRQDEOHWLPHLQ9LQFHQWY3DUNH)G WK&LU
XQWLOWKHVWDUWRI9LQFHQW¶VUHWULDO1HLWKHURIWKHVH
DVVLJQPHQWV RI HUURU KDV DQ\ PHULW DQG EHFDXVH ZH KDYH
JUDQWHG9LQFHQW¶VKDEHDVSHWLWLRQRQ&RQIURQWDWLRQ&ODXVH

-- 2 of 8 --

9LQFHQWY6HDEROG 1R
-RKQVRQ GLG QRW WHVWLI\ DW WKH UHWULDO WKRXJK 9LQFHQW GLG ,QFLGHQWDOO\
LW ZDV D %UXWRQ YLRODWLRQ GXULQJ WKH ILUVW WULDO WKDW UHVXOWHG LQ WKH JUDQW RI
9LQFHQW¶V KDEHDV SHWLWLRQ DQG UHWULDO ZKLFK LV WKH VXEMHFW RI WKH SUHVHQW
KDEHDV DFWLRQ 6HH 9LQFHQW Y 3DUNH )G WK &LU ,Q WKH
ILUVW WULDO 'HWHFWLYH *DGGLH WHVWLILHG WKDW .LQVHU¶V VLVWHU (YD 0DH .LQVHU
WROG *DGGLH WKDW .LQVHU WROG KHU WKDW 9LQFHQW FRPPLWWHG WKH PXUGHU 7KLV
&RXUW KHOG WKDW *DGGLH¶V WHVWLPRQ\ KHDUVD\ ZLWKLQ KHDUVD\ YLRODWHG WKH
9LQFHQW¶V 6L[WK $PHQGPHQW FRQIURQWDWLRQ ULJKWV DQG ZDUUDQWHG D QHZ
WULDO 6HH LG DW
WZR\HDUVDIWHUWKHGDWHRIWKHFULPHVKHKDGDFRQYHUVDWLRQ
ZLWK5RQQLH-RKQVRQ6KHSKDUGWHVWLILHG³:HOOKHZDVP\
VLVWHU¶VER\IULHQGVR,DVNHGKLPGLGKHNLOO+DUROG+D\HV
DQGKHVDLGQR,GLGQ¶WNLOOKLP/HUR\>.LQVHU@DQG'HDQ
>9LQFHQW@GLG´
)ROORZLQJWKLVVWDWHPHQWWKHWULDOFRXUWKHOGDQRWKHULQ
FKDPEHUV FRQIHUHQFH DOORZLQJ GHIHQVH FRXQVHO WR SXW LWV
REMHFWLRQVRQUHFRUGDQGPRYHIRUDPLVWULDORQWKHJURXQG
WKDWWKHWHVWLPRQ\YLRODWHG%UXWRQY8QLWHG6WDWHV86
ZKLFKKHOG
$ GHIHQGDQW PD\ EH SUHMXGLFHG E\ WKH DGPLVVLRQ LQ
HYLGHQFH DJDLQVW D FRGHIHQGDQW RI D VWDWHPHQW RU
FRQIHVVLRQPDGHE\WKDWFRGHIHQGDQW7KLVSUHMXGLFH
FDQQRW EH GLVSHOOHG E\ FURVVH[DPLQDWLRQ LI WKH
FRGHIHQGDQW GRHV QRW WDNH WKH VWDQG /LPLWLQJ
LQVWUXFWLRQV WR WKH MXU\ PD\ QRW LQ IDFW HUDVH WKH
SUHMXGLFH
,GDW LQWHUQDOTXRWDWLRQPDUNVDQGFLWDWLRQRPLWWHG
7KH WULDO FRXUW RYHUUXOHG WKH PRWLRQ DQG JDYH WKH MXU\ D
OLPLWLQJ LQVWUXFWLRQ ILQGLQJ WKDW WKH HUURU ZDV QRW RI D
VXIILFLHQWPDJQLWXGHVXFKWKDWLWKDGDOLNHOLKRRGRIDIIHFWLQJ
WKHRXWFRPHRIWKHWULDO7KHWULDOFRXUWLQVWUXFWHG
:LWKUHJDUGVWRWKHWHVWLPRQ\WKDWWKH\RXQJODG\JDYH
MXVW SULRU WR OXQFK WKDW WHVWLPRQ\ ZDV FRQWUDU\ WR WKH
5XOHVRI(YLGHQFH$KWKHTXHVWLRQZDVSURSHUEXWWKH
DQVZHU ZDV JLYHQ EHIRUH WKH &RXUW FRXOG VWRS KHU RU
DQ\RQHHOVHFRXOGVWRSKHULVLQFOHDUYLRODWLRQRIRXU
1R 9LQFHQWY6HDEROG
WKH &RQIURQWDWLRQ &ODXVH 8SRQ UHFRPPHQGDWLRQ RI WKH
PDJLVWUDWHMXGJHWKHGLVWULFWFRXUWGHQLHG9LQFHQW¶VKDEHDV
SHWLWLRQ7KLVDSSHDOIROORZV
)RU WKH UHDVRQV WKDW IROORZ ZH 5(9(56( WKH GLVWULFW
FRXUW¶V MXGJPHQW DQG 5(0$1' WR WKH GLVWULFW FRXUW ZLWK
LQVWUXFWLRQV WR JUDQW WKH SHWLWLRQ IRU KDEHDV FRUSXV XQOHVV
ZLWKLQDUHDVRQDEOHWLPHWKH&RPPRQZHDOWKHOHFWVWRDIIRUG
9LQFHQWDQHZWULDO
',6&866,21
,6WDQGDUGRI5HYLHZ
:HUHYLHZDGLVWULFWFRXUW¶VOHJDOFRQFOXVLRQVLQDKDEHDV
SURFHHGLQJGHQRYRDQGLWVIDFWXDOILQGLQJVIRUFOHDUHUURU
6HH /XFDV Y 2¶'HD )G WK &LU
%HFDXVH9LQFHQWILOHGKLVKDEHDVSHWLWLRQRQ$SULO
UHYLHZ RI WKH VWDWH FRXUW¶V GHFLVLRQ LV JRYHUQHG E\ WKH
VWDQGDUGVVHWIRUWKLQWKH$QWLWHUURULVPDQG(IIHFWLYH'HDWK
3HQDOW\$FWRI ³$('3$´ 6HH/LQGKY0XUSK\
86 +DUSVWHUY2KLR)G
WK&LU $VDPHQGHG86&† G SURYLGHV
G $QDSSOLFDWLRQIRUDZULWRIKDEHDVFRUSXVRQEHKDOI
RIDSHUVRQLQFXVWRG\SXUVXDQWWRWKHMXGJPHQWRID6WDWH
FRXUWVKDOOQRWEHJUDQWHGZLWKUHVSHFWWRDQ\FODLPWKDW
ZDVDGMXGLFDWHGRQWKHPHULWVLQ6WDWHFRXUWXQOHVVWKH
DGMXGLFDWLRQRIWKHFODLP
UHVXOWHG LQ D GHFLVLRQ WKDW ZDV FRQWUDU\ WR RU
LQYROYHG DQ XQUHDVRQDEOH DSSOLFDWLRQ RI FOHDUO\
HVWDEOLVKHG )HGHUDO ODZ DV GHWHUPLQHG E\ WKH
6XSUHPH&RXUWRIWKH8QLWHG6WDWHVRU
UHVXOWHG LQ D GHFLVLRQ WKDW ZDV EDVHG XSRQ DQ
XQUHDVRQDEOHGHWHUPLQDWLRQRIWKHIDFWVLQOLJKWRI
WKHHYLGHQFHSUHVHQWHGLQWKH6WDWHFRXUWSURFHHGLQJ
86&† G ,Q:LOOLDPVY7D\ORU6&W
WKH 6XSUHPH &RXUW UHFHQWO\ H[SODLQHG WKDW DQ

-- 3 of 8 --

9LQFHQWY6HDEROG 1R
.LQVHU ZKR ZDV FRQYLFWHG DORQJ ZLWK 9LQFHQW DQG -RKQVRQ LQ WKH ILUVW
WULDO ZDV QRW RQ UHWULDO
³XQUHDVRQDEOHDSSOLFDWLRQ´RIFOHDUO\HVWDEOLVKHGIHGHUDOODZ
HVWDEOLVKHGE\6XSUHPH&RXUWSUHFHGHQWRFFXUVLI³WKHVWDWH
FRXUW LGHQWLILHV WKH FRUUHFW JRYHUQLQJ OHJDO UXOH IURP >WKH
6XSUHPH &RXUW¶V@ FDVHV EXW XQUHDVRQDEO\ DSSOLHV LW WR WKH
IDFWVRIWKHSDUWLFXODUVWDWHSULVRQHU¶VFDVH´6HHLGDW
$VWDWHFRXUWGHFLVLRQFDQEH³FRQWUDU\WR´FOHDUO\HVWDEOLVKHG
IHGHUDOODZLIWKHVWDWHFRXUWDUULYHVDWDFRQFOXVLRQRSSRVLWH
WRWKDWUHDFKHGE\WKH6XSUHPH&RXUWRQDTXHVWLRQRIODZRU
FRQIURQWVIDFWVWKDWDUHPDWHULDOO\LQGLVWLQJXLVKDEOHIURPD
UHOHYDQW6XSUHPH&RXUWSUHFHGHQWDQGDUULYHVDWDQRSSRVLWH
UHVXOW6HH0DFKDFHNY+RIEDXHU)G WK
&LU0D\ FLWLQJ:LOOLDPV6&WDW
,,&RQIURQWDWLRQ&ODXVH
$
9LQFHQWILUVWDVVHUWVWKDWWKHWULDOFRXUWYLRODWHGKLV6L[WK
$PHQGPHQWULJKWWRFRQIURQWDWLRQZKHQLWDOORZHG'HWHFWLYH
*DGGLH RI WKH .HQWXFN\ 6WDWH 3ROLFH WR WHVWLI\ DV WR SRVW
DUUHVW FXVWRGLDO KHDUVD\ VWDWHPHQWV PDGH E\ IRUPHU FR
GHIHQGDQW.LQVHU3ULRUWRWKHUHWULDO9LQFHQWILOHGDPRWLRQ
WR H[FOXGH .LQVHU¶V FRQIHVVLRQ DV YLRODWLYH RI WKH
&RQIURQWDWLRQ &ODXVH EXW WKH WULDO FRXUW GHQLHG 9LQFHQW¶V
PRWLRQKROGLQJWKDWWKHFRQIHVVLRQZRXOGEHDGPLVVLEOHLQ
WKHHYHQWWKDW.LQVHUUHIXVHGWRWHVWLI\7KHWULDOFRXUWUHOLHG
XSRQ7D\ORUY&RPPRQZHDOWK6:G .\
KROGLQJ WKDW D FRGHIHQGDQW¶V FRQIHVVLRQ ZDV DGPLVVLEOH
XQGHUH[FHSWLRQWRKHDUVD\UXOHIRUVWDWHPHQWDJDLQVWSHQDO
LQWHUHVWE\XQDYDLODEOHGHFODUDQWQRWZLWKVWDQGLQJWKHIDFWWKDW
WKH FRQIHVVLRQ LPSOLFDWHG WKH GHIHQGDQW EHFDXVH WKH FR
GHIHQGDQWDGPLWWHGWRKDYLQJEHHQDQDFWLYHSDUWLFLSDQWLQWKH
FULPH FHUW GHQLHG 86 RYHUUXOHG RQ
RWKHUJURXQGV6W&ODLUY5RDUN6:G .\
%HIRUH.LQVHUZDVFDOOHGWRWKHVWDQGWKHFRXUWFRQGXFWHG
DQ LQFKDPEHUV FRQIHUHQFH ZLWK DOO FRXQVHO SUHVHQW WR
1R 9LQFHQWY6HDEROG
LQGLVWLQJXLVKDEOH IURP WKRVH LQ :LOOLDPVRQ UHDFKHG D
FRQFOXVLRQRSSRVLWHWRWKDWUHDFKHGE\:LOOLDPVRQZHWKLQN
LWDOVRZDVDQ³XQUHDVRQDEOHDSSOLFDWLRQ´RIWKHJRYHUQLQJ
OHJDO VWDQGDUG HVWDEOLVKHG LQ :LOOLDPVRQ 6HH 86&
† G VHHDOVR:LOOLDPV6&WDW H[SODLQLQJ
WKDW³FRQWUDU\WR´DQG³XQUHDVRQDEOHDSSOLFDWLRQ´GRLQIDFW
KDYHLQGHSHQGHQWPHDQLQJV 'HVSLWHWKHIDFWWKDWWKH
DGPLVVLRQRI*DGGLH¶VWHVWLPRQ\FOHDUO\YLRODWHG9LQFHQW¶V
6L[WK$PHQGPHQWFRQIURQWDWLRQULJKWVZHUHFRJQL]HWKDWZH
PD\JUDQW9LQFHQW¶VKDEHDVSHWLWLRQRQO\LIZHGHWHUPLQHWKDW
WKHHUURUZDVQRWKDUPOHVV6HH:ULJKW86DW
+LOOY%ULJDQR)G WK&LU 7R
PDNH VXFK D GHWHUPLQDWLRQ ZH PXVW GHFLGH WKDW WKH WULDO
FRXUW¶VHUURU³KDGVXEVWDQWLDODQGLQMXULRXVHIIHFWRULQIOXHQFH
LQGHWHUPLQLQJWKHMXU\¶VYHUGLFW´6HH1HYHUV)GDW
KROGLQJWKDWWKH%UHFKWY$EUDKDPVRQ86
VWDQGDUG FRQWLQXHV WR DSSO\ RQ KDEHDV UHYLHZ
HYHQDIWHUWKHDPHQGPHQWVWR$('3$ *DGGLH¶VWHVWLPRQ\
DORQHPLJKWQRWKDYHKDGD³VXEVWDQWLDODQGLQMXULRXVHIIHFW´
RQWKHRXWFRPHRIWKHFDVHJLYHQWKHRWKHUHYLGHQFHDJDLQVW
9LQFHQWHVWDEOLVKHGDWWULDO+RZHYHUDVZHGLVFXVVEHORZLQ
3DUW % *DGGLH¶V WHVWLPRQ\ ZDV QRW WKH RQO\ LPSURSHU
WHVWLPRQ\DGGXFHGDW9LQFHQW¶VWULDO
%
9LQFHQWDVVHUWVWKDWWKHWULDOFRXUWDOVRYLRODWHGKLV6L[WK
$PHQGPHQWULJKWWRFRQIURQWDWLRQZKHQLWDOORZHG7DPP\
6HDEROW6KHSKDUGWRWHVWLI\WKDWD\HDURUWZRIROORZLQJWKH
FULPH'HIHQGDQW-RKQVRQWROGKHUWKDWKHKDGQRWPXUGHUHG
+D\HVEXWWKDWLWZDV9LQFHQWDQG.LQVHU6KHSKDUGZDVWKH
HLJKWHHQWK ZLWQHVV FDOOHG LQ WKH &RPPRQZHDOWK¶V FDVH LQ
FKLHI%HIRUH6KHSKDUGWHVWLILHGWKHWULDOFRXUWKHOGDQLQ
FKDPEHUVFRQIHUHQFHWRGHWHUPLQHZKDWWKH&RPPRQZHDOWK
WKRXJKW WKH VXEVWDQFH RI KHU WHVWLPRQ\ ZRXOG EH 7KH
&RPPRQZHDOWK VWDWHG WKDW EDVHG RQ 6KHSKDUG¶V UHEXWWDO
VWDWHPHQWVPDGHGXULQJWKHILUVWWULDOLWDQWLFLSDWHGWKDWVKH
ZRXOGWHVWLI\WKDW³-RKQVRQWROGKHUWKDWWKH\ZHUHDOOWKHUH
DQG WKH\ NLOOHG +DUROG +D\HV´ 7KH FRXUW WKHQ DOORZHG
6KHSKDUGWRWHVWLI\DQGVKHVWDWHGWKDWDSSUR[LPDWHO\RQHRU

-- 4 of 8 --

9LQFHQWY6HDEROG 1R
7KXVERWK:LOOLDPVRQDQG/LOO\LQVWUXFWWKDWWKHVWDWHPHQWV
PDGHE\.LQVHUDUHSUHVXPSWLYHO\XQUHOLDEOHDQGWRUHEXWWKLV
SUHVXPSWLRQ ZH PXVW HYDOXDWH WKH ³LQGLFLD RI UHOLDELOLW\´
DVVRFLDWHGZLWKHDFKLQGLYLGXDOUHPDUNRUGHFODUDWLRQPDGH
E\.LQVHU,QVRGRLQJZHPXVWEHDULQPLQGWKDWLWLVKLJKO\
XQOLNHO\WKDW.LQVHU¶VSRVWDUUHVWFXVWRGLDOVWDWHPHQWVZKLFK
FOHDUO\VKLIWWKHEUXQWRIWKHEODPHWRGHIHQGDQWV9LQFHQWDQG
-RKQVRQHIIHFWLYHO\FDQEHUHEXWWHG6HHLG
+HUH *DGGLH¶V WHVWLPRQ\ UHYHDOV WKDW ZKLOH .LQVHU¶V
RYHUDOOFRQIHVVLRQZDVVHOILQFXOSDWRU\LQVRIDUDVLWSODFHG
KLPDWWKHVFHQHRIWKHFULPHDVDSDUWLFLSDQWPDQ\RIWKH
VWDWHPHQWV ZHUH QRW LQGLYLGXDOO\ VHOILQFXOSDWRU\ DV LV
UHTXLUHG XQGHU :LOOLDPVRQ DQG LQ IDFW ZHUH ZKROO\ VHOI
H[FXOSDWRU\LPSOLFDWLQJERWK9LQFHQWDQG-RKQVRQ.LQVHU
WROG*DGGLH
>9LQFHQW@ KLW >+D\HV@ ZLWK D ELOO\ FOXE 5RQQLH
-RKQVRQZDVRYHUWKHUHE\0U+D\HV+HKDGDKNLFNHG
KLP>,@DWWKHWLPHZDVEDFNLQWKHNLWFKHQDURXQG
WKHWDEOH>,@ZDVORRNLQ¶DURXQGWR±WRVHHZKDW>,@FRXOG
ILQG'HDQR>9LQFHQW@FDPHRXWRIWKHEDFNURRP
DQGKHKROOHUHGWR0U+D\HV³ZKHUHLVLWDW´DQG0U
+D\HVVDLGWKHUHZDVQ¶WDQ\±³WKHUH¶VQRWDQ\PRUH´DQG
'HDQRZHQWRYHUWKHUHDQGKLWKLPWKUHHRUIRXUPRUH
WLPHZLWKWKDWELOO\FOXE5RQQLH>-RKQVRQ@SXWWKH
WDSHRQ0U+D\HVRQKLVH\HVDQGRQKLVPRXWK
7KH WULDO FRXUW KHOG WKDW .LQVHU¶V VWDWHPHQWV ZHUH VHOI
LQFXOSDWRU\LQWKDWWKH\VKRZWKDW.LQVHUZDVDQDFWLYHDQG
ZLOOLQJSDUWLFLSDQWLQWKHFULPHDQGPDGHQRHIIRUWWRSUHYHQW
RUGLPLQLVKWKHVHYHULW\RIWKHEORZV9LQFHQWDQG-RKQVRQ
JDYHWR+D\HV7KHPDJLVWUDWHMXGJHDQGLQWXUQWKHGLVWULFW
FRXUW DJUHHG :H KRZHYHU GLVDJUHH $OO RI WKHVH
VWDWHPHQWVDWWHPSWWRGLVWDQFH.LQVHUIURPWKHPXUGHUDQG
PLQLPL]HKLVSDUWLFLSDWLRQLQWKHFULPH.LQVHUFOHDUO\ZDV
DWWHPSWLQJ WR VKLIW WKH EODPH DZD\ IURP KLPVHOI DQG RQWR
9LQFHQWDQG-RKQVRQ)LQGLQJRWKHUZLVHZDV³FRQWUDU\WR´
WKHFOHDUO\HVWDEOLVKHGIHGHUDOODZVHWIRUWKLQ:LOOLDPVRQLQ
WKDW WKH WULDO FRXUW IDFHG ZLWK IDFWV PDWHULDOO\
1R 9LQFHQWY6HDEROG
GHWHUPLQHLI.LQVHUZRXOGWHVWLI\YROXQWDULO\$V.LQVHUKDG
EHHQWULHGDQGFRQYLFWHGDQGKLVVHQWHQFHKDGEHHQDIILUPHG
LWZDVGHWHUPLQHGWKDW.LQVHUSRVVHVVHGQR)LIWK$PHQGPHQW
ULJKW WKDW ZRXOG DOORZ KLP WR UHIXVH WR WHVWLI\ 7KH FRXUW
GHFLGHGWKDWLWZRXOGDOORZWKH&RPPRQZHDOWKWRFDOO.LQVHU
WRWKHVWDQG2QFHRQWKHVWDQG.LQVHUUHIXVHGWRWDNHWKH
RDWK DQG ZRXOG QRW WHVWLI\ GHVSLWH WKH IDFW WKDW WKH FRXUW
DGYLVHGKLPKHSRVVHVVHGQR)LIWK$PHQGPHQWULJKWDJDLQVW
VHOILQFULPLQDWLRQ DQG WKDW KH ZRXOG EH KHOG LQ FRQWHPSW
7KH FRXUW UHFHVVHG IRU WKH GD\ DQG WKH QH[W PRUQLQJ
DSSRLQWHG FRXQVHO IRU .LQVHU FRQILUPLQJ RQFH DJDLQ WKDW
DFFRUGLQJ WR WKH IHGHUDO FRXUW FOHUN DQG WKH .HQWXFN\
6XSUHPH&RXUWFOHUN.LQVHUFRXOGLQYRNHQRULJKWXQGHUWKH
)LIWK$PHQGPHQWWKDWZRXOGHQDEOHKLPWRUHIXVHWRWHVWLI\
$IWHU.LQVHUDJDLQUHIXVHGWRWHVWLI\WKHFRXUWRUGHUHGKLPLQ
FRQWHPSWDQGKHOGKLPWREHDQ³XQDYDLODEOHZLWQHVV´XQGHU
.\ 5 (YLG D UHFRJQL]LQJ WKH XQDYDLODELOLW\ RI D
ZLWQHVVLQVLWXDWLRQZKHUHGHFODUDQW³SHUVLVWVLQUHIXVLQJWR
WHVWLI\ FRQFHUQLQJ WKH VXEMHFW PDWWHU RI WKH GHFODUDQW¶V
VWDWHPHQWGHVSLWHDQRUGHURIWKHFRXUWWRGRVR´
7KHUHDIWHUWKH&RPPRQZHDOWKDQQRXQFHGLWVLQWHQWLRQWR
FDOO'HWHFWLYH*DGGLHWRWKHVWDQGWRWHVWLI\DVWRWKHSRVW
DUUHVWFXVWRGLDOVWDWHPHQWVPDGHE\.LQVHU%HIRUHDOORZLQJ
*DGGLH WR LQWURGXFH .LQVHU¶V FRQIHVVLRQ WKH FRXUW KHOG
DQRWKHULQFKDPEHUVFRQIHUHQFHWRGLVFXVV*DGGLH¶VLQWHQGHG
WHVWLPRQ\FRQFHUQLQJWKHVXEVWDQFHRI.LQVHU¶VFRQIHVVLRQ
DQG WKH WDNLQJ RI KLV VWDWHPHQWV *DGGLH H[SODLQHG WKDW
.LQVHUKDGVLJQHGDSURSHUO\H[HFXWHG0LUDQGDULJKWVIRUP
DQGWKDW.LQVHU¶VDWWRUQH\*DU\/RJVGRQKDGDGYLVHGKLPWR
JLYHDVWDWHPHQW7KHFRXUWDOVRUHYLHZHGWKHWUDQVFULSWIURP
DVXSSUHVVLRQKHDULQJLQZKLFK/RJVGRQWHVWLILHGWKDWKH
DQG.LQVHUKDGGLVFXVVHGDWOHQJWK.LQVHU¶VRSWLRQRIPDNLQJ
DVWDWHPHQW/RJVGRQWHVWLILHGWKDW.LQVHU³VLQFHUHO\GHVLUHG
WRPDNHDVWDWHPHQW´XQGHUVWRRGKLV0LUDQGDULJKWVZDVQRW
XQGHU GXUHVV RU FRPSXOVLRQ DQG XQGHUVWRRG WKDW QR
LQGXFHPHQWV RU SURPLVHV KDG EHHQ PDGH E\ WKH SROLFH RU
SURVHFXWRU'HIHQVHFRXQVHODUJXHGWKDW.LQVHU¶VFRQIHVVLRQ
ZDV QRW D VWDWHPHQW DJDLQVW SHQDO LQWHUHVW XQGHU KHDUVD\
H[FHSWLRQ .\ 5 (YLG E EHFDXVH LW VRXJKW WR

-- 5 of 8 --

9LQFHQWY6HDEROG 1R
,W ZDV HVWDEOLVKHG DW WULDO WKDW DOWKRXJK +D\HV GLHG RI EOXQW IRUFH
LQMXULHV WR WKH KHDG KH ZRXOG KDYH GLHG RI VXIIRFDWLRQ UHVXOWLQJ IURP KLV
EURNHQ QRVH DQG WKH VZHOOLQJ RI KLV PRXWK DQG WRQJXH FDXVHG E\ WKH GXFW
WDSH
LQFXOSDWH 9LQFHQW DQG -RKQVRQ ZKLOH PLQLPL]LQJ .LQVHU¶V
RZQ SDUWLFLSDWLRQ LQ WKH FULPH +RZHYHU WKH FRXUW
GHWHUPLQHG WKDW .LQVHU¶V FRQIHVVLRQ ZDV VXIILFLHQWO\ VHOI
LQFXOSDWRU\LQVRIDUDVKHLQGLFDWHGWKDWKHZDVDQDFWLYHDQG
ZLOOLQJSDUWLFLSDQWLQWKHFULPHDQGPDGHQRHIIRUWWRSUHYHQW
RUGLPLQLVKWKHVHYHULW\RIWKHEORZV9LQFHQWDQG-RKQVRQ
JDYHWR+D\HV7KHFRXUWWKHQDOORZHG*DGGLHWRWHVWLI\DVWR
.LQVHU¶VFRQIHVVLRQVWDWLQJ³WKHSUHVXPSWLRQRIXQUHOLDELOLW\
KDVEHHQRYHUFRPHE\WKHHYLGHQFHWKDWZH¶YHKHDUGDQG
WKHFRQIHVVLRQWRWKHH[WHQWWKDWLWLVUHOHYDQWWRWKHPDWWHUV
FKDUJHGLVDGPLVVLEOHDVHYLGHQFH´
'HWHFWLYH*DGGLHWKHQWHVWLILHGWKDWRQ$XJXVW
.LQVHUPDGHDVWDWHPHQWWR*DGGLHDWWKH6WDWH3ROLFH3RVWLQ
%RZOLQJ*UHHQ.HQWXFN\.LQVHUWROG*DGGLHWKHIROORZLQJ
+H 9LQFHQW DQG -RKQVRQ EURNH LQWR WKH KRPH RI +DUROG
+D\HV ILQGLQJ +D\HV DVOHHS RQ WKH FRXFK 9LQFHQW
DSSURDFKHG+D\HVDQGVWUXFNKLPWZLFHLQWKHKHDGZLWKD
ELOO\FOXEDQGEHJDQWRVHDUFKWKHKRXVHIRUPRQH\-RKQVRQ
NLFNHG+D\HVDQGWKHQEHJDQWRXVHGXFWWDSHWRFRQVWUDLQ
KLP9LQFHQWUHWXUQHGWRWKHURRPDQGEHJDQLQWHUURJDWLQJ
+D\HVDERXWWKHZKHUHDERXWVRIVRPHPRQH\WKDWGHIHQGDQWV
EHOLHYHGZDVLQWKHKRXVH9LQFHQWDJDLQVWUXFN+D\HVZLWK
WKHFOXEWKUHHRUIRXUPRUHWLPHVEHIRUHFRQWLQXLQJKLVVHDUFK
$OOWKHZKLOH.LQVHUZDVVHDUFKLQJWKHKRXVHIRUWKHPRQH\
9LQFHQW WKHQ \HOOHG WR WKH RWKHUV WKDW ³KH¶G IRXQG LW´ DQG
UHWXUQHGWRWKHURRPZLWKDVDFNRIPRQH\-RKQVRQWKHQ
WDSHGVKXW+D\HV¶VH\HVDQGPRXWKDQGWKHWKUHHGHIHQGDQWV
OHIWWKHKRXVH 9LQFHQWDVVHUWVWKDW*DGGLH¶VWHVWLPRQ\
YLRODWHGKLV6L[WK$PHQGPHQWULJKWWRFRQIURQWDWLRQ7KH
6L[WK$PHQGPHQWSURYLGHVWKDWLQ³DOOFULPLQDOSURVHFXWLRQV
WKHDFFXVHGVKDOOHQMR\WKHULJKWWREHFRQIURQWHGZLWK
ZLWQHVVHVDJDLQVWKLP´,GDKRY:ULJKW86
FLWLQJ86&RQVWDPHQG9, ,Q,GDKRY:ULJKW
WKH6XSUHPH&RXUWUHFRJQL]HG
1R 9LQFHQWY6HDEROG
GHIHQGDQW5DWKHULWVLPSO\PHDQVWKDWWKH*RYHUQPHQWPXVW
VDWLVI\WKHVHFRQGSURQJRIWKH2KLRY5REHUWV86
WHVW LQ RUGHU WR LQWURGXFH VXFK VWDWHPHQWV´ ,G
LQWHUQDOTXRWDWLRQPDUNVDQGDOWHUDWLRQVRPLWWHG /LOO\DOVR
UHFRJQL]HG
1RWKLQJ LQ RXU SULRU RSLQLRQV KRZHYHU VXJJHVWV WKDW
DSSHOODWH FRXUWV VKRXOG GHIHU WR ORZHU FRXUWV¶
GHWHUPLQDWLRQVUHJDUGLQJZKHWKHUDKHDUVD\VWDWHPHQWKDV
SDUWLFXODUL]HG JXDUDQWHHV RI WUXVWZRUWKLQHVV 7R WKH
FRQWUDU\WKRVHRSLQLRQVLQGLFDWHWKDWZHKDYHDVVXPHG
DV ZLWK RWKHU IDFWLQWHQVLYH PL[HG TXHVWLRQV RI
FRQVWLWXWLRQDOODZWKDWLQGHSHQGHQWUHYLHZLVQHFHVVDU\
WRPDLQWDLQFRQWURORIDQGWRFODULI\WKHOHJDOSULQFLSOHV
JRYHUQLQJWKHIDFWXDOFLUFXPVWDQFHVQHFHVVDU\WRVDWLVI\
WKHSURWHFWLRQVRIWKH%LOORI5LJKWV

7KH&RPPRQZHDOWKFRUUHFWO\QRWHVWKDWWKHSUHVXPSWLRQ
RIXQUHOLDELOLW\WKDWDWWDFKHVWRFRGHIHQGDQWV¶FRQIHVVLRQV
PD\EHUHEXWWHG:HKDYHKHOGLQIDFWWKDWDQ\LQKHUHQW
XQUHOLDELOLW\WKDWDFFRPSDQLHVFRFRQVSLUDWRUVWDWHPHQWV
PDGH GXULQJ WKH FRXUVH DQG LQ IXUWKHUDQFH RI WKH
FRQVSLUDF\LVSHUVHUHEXWWHGE\WKHFLUFXPVWDQFHVJLYLQJ
ULVH WR WKH ORQJ KLVWRU\ RI DGPLWWLQJ VXFK VWDWHPHQWV
1RQHWKHOHVV WKH KLVWRULFDO XQGHUSLQQLQJV RI WKH
&RQIURQWDWLRQ &ODXVH DQG WKH VZHHS RI RXU SULRU
FRQIURQWDWLRQ FDVHV RIIHU RQH FRJHQW UHPLQGHU ,W LV
KLJKO\ XQOLNHO\ WKDW WKH SUHVXPSWLYH XQUHOLDELOLW\ WKDW
DWWDFKHVWRDFFRPSOLFHV¶FRQIHVVLRQVWKDWVKLIWRUVSUHDG
EODPHFDQEHHIIHFWLYHO\UHEXWWHGZKHQWKHVWDWHPHQWV
DUH JLYHQ XQGHU FRQGLWLRQV WKDW LPSOLFDWH WKH FRUH
FRQFHUQVRIWKHROGH[SDUWHDIILGDYLWSUDFWLFHWKDWLV
ZKHQ WKH JRYHUQPHQW LV LQYROYHG LQ WKH VWDWHPHQWV¶
SURGXFWLRQDQGZKHQWKHVWDWHPHQWVGHVFULEHSDVWHYHQWV
DQGKDYHQRWEHHQVXEMHFWHGWRDGYHUVDULDOWHVWLQJ
,G DW LQWHUQDO TXRWDWLRQ PDUNV FLWDWLRQV DQG
DOWHUDWLRQVRPLWWHG

-- 6 of 8 --

9LQFHQWY6HDEROG 1R
LQWKHGHFODUDQW¶VSRVLWLRQZRXOGQRWKDYHPDGHWKHVWDWHPHQW
XQOHVVEHOLHYLQJLWWREHWUXH¶DQGWKLVTXHVWLRQFDQRQO\EH
DQVZHUHGLQOLJKWRIDOOWKHVXUURXQGLQJFLUFXPVWDQFHV´,G
DW TXRWLQJ )(' 5 (9,' E IRRWQRWH
RPLWWHG
%HFDXVH WKH GHFODUDQW LQ :LOOLDPVRQ LPSOLFDWHG WKH
GHIHQGDQWZKLOHLQSROLFHFXVWRG\DQGDIWHUDOUHDG\KDYLQJ
FRQIHVVHGWRWKHFULPHWKH&RXUWFRQFOXGHGWKDWQDPLQJWKH
GHIHQGDQWGLGOLWWOHWRLPSOLFDWHWKHGHFODUDQWDQ\IXUWKHUDQG
ZDVSUREDEO\DQHIIRUWWRVHFXUHDOHVVHUSXQLVKPHQWWKURXJK
FRRSHUDWLRQ 6HH LG DW RSLQLRQ RI 2¶&RQQRU - LQ
ZKLFK6FDOLD-MRLQHG LGDW RSLQLRQRI*LQVEXUJ
-LQZKLFK%ODFNPXQ6WHYHQVDQG6RXWHU--MRLQHG 6HH
DOVR8QLWHG6WDWHVY%R\FH)G G&LU
KROGLQJWKDWDVWDWHPHQWJLYHQLQFXVWRG\ZDVQRWUHOLDEOH
EHFDXVH FLUFXPVWDQFHV LQGLFDWHG WKDW LW PD\ KDYH EHHQ
³PRWLYDWHGE\DGHVLUHWRFXUU\IDYRU´ +RZHYHUEHFDXVH
WKH ORZHU FRXUW IDLOHG WR FRQGXFW WKH DSSURSULDWH DQDO\VLV
EUHDNLQJGRZQHDFKUHPDUNVHQWHQFHE\VHQWHQFH:LOOLDPVRQ
UHPDQGHGWKHFDVHZLWKRXWUHDFKLQJWKHLVVXHRIZKHWKHUWKH
&RQIURQWDWLRQ&ODXVHUHQGHUHGWKHVWDWHPHQWVLQDGPLVVLEOH
H[SUHVVO\ GHFOLQLQJ WR GHWHUPLQH ZKHWKHU WKH KHDUVD\
H[FHSWLRQIRUVWDWHPHQWVDJDLQVWLQWHUHVWLV³ILUPO\URRWHG´IRU
&RQIURQWDWLRQ&ODXVHSXUSRVHV6HHLGDW
$OWKRXJK WKH 6L[WK &LUFXLW KDV KHOG WKDW WKH KHDUVD\
H[FHSWLRQIRUVWDWHPHQWVDJDLQVWSHQDOLQWHUHVWFRQVWLWXWHVD
ILUPO\URRWHGH[FHSWLRQIRUSXUSRVHVRI&RQIURQWDWLRQ&ODXVH
DQDO\VLVVHH*LOOLDPY0LWFKHOO)G WK&LU
1HXPDQY5LYHUV)G WK&LU
WKH6XSUHPH&RXUWUHFHQWO\HQGHGDFLUFXLWVSOLWE\
KROGLQJ WKDW ³DFFRPSOLFHV¶ FRQIHVVLRQV WKDW LQFXOSDWH D
FULPLQDOGHIHQGDQWDUHQRWZLWKLQDILUPO\URRWHGH[FHSWLRQWR
WKH KHDUVD\ UXOH DV WKDW FRQFHSW KDV EHHQ GHILQHG LQ RXU
&RQIURQWDWLRQ&ODXVHMXULVSUXGHQFH´/LOO\Y9LUJLQLD
86 HPSKDVLV DGGHG /LOO\ QRWHG WKDW
³>W@KLVRIFRXUVHGRHVQRWPHDQWKDWWKH&RQIURQWDWLRQ
&ODXVH LPSRVHV D EODQNHW EDQ RQ WKH JRYHUQPHQW¶V XVH RI
QRQWHVWLI\LQJ DFFRPSOLFH VWDWHPHQWV WKDW LQFULPLQDWH D
1R 9LQFHQWY6HDEROG
5XOH RI WKH .HQWXFN\ 5XOHV RI (YLGHQFH PLUURUV WKH ODQJXDJH RI
WKH )HG 5 (YLG
)URP WKH HDUOLHVW GD\V RI RXU &RQIURQWDWLRQ &ODXVH
MXULVSUXGHQFHZHKDYHFRQVLVWHQWO\KHOGWKDWWKH&ODXVH
GRHVQRWQHFHVVDULO\SURKLELWWKHDGPLVVLRQRIKHDUVD\
VWDWHPHQWVDJDLQVWDFULPLQDOGHIHQGDQWHYHQWKRXJKWKH
DGPLVVLRQRIVXFKVWDWHPHQWVPLJKWEHWKRXJKWWRYLRODWH
WKHOLWHUDOWHUPVRIWKH&ODXVH

>6@WDWHPHQWVDGPLWWHGXQGHUD³ILUPO\URRWHG´KHDUVD\
H[FHSWLRQ DUH VR WUXVWZRUWK\ WKDW DGYHUVDULDO WHVWLQJ
ZRXOGDGGOLWWOHWRWKHLUUHOLDELOLW\
,GDKR Y :ULJKW 86 DW LQWHUQDO FLWDWLRQV
RPLWWHG 7KH&RXUWKHOGWKDWLIWKHKHDUVD\VWDWHPHQWIDOOV
ZLWKLQDILUPO\URRWHGH[FHSWLRQLWGRHVQRWUXQDIRXORIWKH
&RQIURQWDWLRQ&ODXVH,G7KRVHVWDWHPHQWVWKDWGRQRWIDOO
ZLWKLQDWUDGLWLRQDOH[FHSWLRQEXWIDOOZLWKLQWKHUHVLGXDORU
FDWFKDOOKHDUVD\H[FHSWLRQDOVRPD\EHDGPLWWHGZLWKRXW
LPSOLFDWLQJWKH&RQIURQWDWLRQ&ODXVHLIWKHSURSRQHQWVKRZV
WKDW³SDUWLFXODUL]HGJXDUDQWHHVRIWUXVWZRUWKLQHVV´PDNHWKH
VWDWHPHQWV VR WUXVWZRUWK\ WKDW FURVVH[DPLQDWLRQ RI WKH
KHDUVD\ GHFODUDQW ZRXOG DGG OLWWOH WR WKH UHOLDELOLW\ RI WKH
VWDWHPHQWV,G6HHDOVR2KLRY5REHUWV86
KROGLQJ WKDW KHDUVD\ VWDWHPHQWV GR QRW YLRODWH WKH
&RQIURQWDWLRQ&ODXVHZKHQWKHSURVHFXWLRQVKRZVWKDWWKH
GHFODUDQWLVXQDYDLODEOHDQGWKDWWKHVWDWHPHQWEHDUVDGHTXDWH
³LQGLFLDRIUHOLDELOLW\´ FLWLQJ%DUEHUY3DJH86
KROGLQJ WKDW WKH JRYHUQPHQW PXVW VKRZ WKH
XQDYDLODELOLW\ RI D ZLWQHVV EHIRUH LW PD\ LQWURGXFH OHVV
UHOLDEOHDFFRXQWVRIZLWQHVV¶VVWDWHPHQWVDWWULDO
5XOHRIWKH)HGHUDO5XOHRI(YLGHQFHVHWVIRUWKFHUWDLQ
H[FHSWLRQVWRWKHKHDUVD\UXOHWKDWDSSO\ZKHQWKHGHFODUDQW
LV DQ XQDYDLODEOH ZLWQHVV 5XOH VWDWHV WKDW
³>X@QDYDLODELOLW\DVDZLWQHVVLQFOXGHVVLWXDWLRQVLQZKLFKWKH
GHFODUDQW SHUVLVWV LQ UHIXVLQJ WR WHVWLI\ FRQFHUQLQJ WKH

-- 7 of 8 --

9LQFHQWY6HDEROG 1R
VXEMHFWPDWWHURIWKHGHFODUDQW¶VVWDWHPHQWGHVSLWHDQRUGHURI
WKHFRXUWWRGRVR´)(' 5 (9,' D 7KH5XOH
SURYLGHV WKDW LI WKH GHFODUDQW LV LQ IDFW XQDYDLODEOH DV D
ZLWQHVVVWDWHPHQWVDJDLQVWLQWHUHVWDUHQRWH[FOXGHGE\WKH
KHDUVD\UXOH)(' 5 (9,' E $³VWDWHPHQWDJDLQVW
LQWHUHVW´LVGHILQHGDVIROORZV
$VWDWHPHQWZKLFKZDVDWWKHWLPHRILWVPDNLQJVRIDU
FRQWUDU\ WR WKH GHFODUDQW¶V SHFXQLDU\ RU SURSULHWDU\
LQWHUHVWRUVRIDUWHQGHGWRVXEMHFWWKHGHFODUDQWWRFLYLO
RUFULPLQDOOLDELOLW\RUWRUHQGHULQYDOLGDFODLPE\WKH
GHFODUDQWDJDLQVWDQRWKHUWKDWDUHDVRQDEOHSHUVRQLQWKH
GHFODUDQW¶VSRVLWLRQZRXOGQRWKDYHPDGHWKHVWDWHPHQW
XQOHVVEHOLHYLQJLWWREHWUXH $ VWDWHPHQWWHQGLQJWR
H[SRVHWKHGHFODUDQWWRFULPLQDOOLDELOLW\DQGRIIHUHGWR
H[FXOSDWH WKH DFFXVHG LV QRW DGPLVVLEOH XQOHVV
FRUURERUDWLQJ FLUFXPVWDQFHV FOHDUO\ LQGLFDWH WKH
WUXVWZRUWKLQHVVRIWKHVWDWHPHQW
)(' 5 (9,' E +HUHQHLWKHUSDUW\FKDOOHQJHVWKH
WULDO FRXUW¶V GHWHUPLQDWLRQ WKDW .LQVHU ZDV LQ IDFW DQ
XQDYDLODEOH ZLWQHVV XQGHU 5XOH 9LQFHQW DUJXHV
KRZHYHU WKDW *DGGLH¶V WHVWLPRQ\ GRHV QRW IDOO ZLWKLQ WKH
KHDUVD\ H[FHSWLRQ EHFDXVH .LQVHU¶V FRQIHVVLRQ ZDV QRW ³D
VWDWHPHQWDJDLQVWLQWHUHVW´LQWKDW.LQVHUHVVHQWLDOO\VRXJKWWR
GLVWDQFHKLPVHOIIURPWKHPXUGHU
,Q:LOOLDPVRQY8QLWHG6WDWHV86 WKH
6XSUHPH&RXUWGHILQHGWKHVFRSHRI5XOH E ZKHQWKH
GHFODUDQW¶VVWDWHPHQWVERWKVXEMHFWWKHGHFODUDQWWRFULPLQDO
OLDELOLW\ DQG LQFXOSDWH WKH GHIHQGDQW ,Q :LOOLDPVRQ WKH
SURVHFXWLRQVRXJKWWRDGPLWKHDUVD\VWDWHPHQWVPDGHE\WKH
GHFODUDQW ZKR KDG EHHQ DUUHVWHG DIWHU SROLFH IRXQG ODUJH
DPRXQWVRIFRFDLQHLQWKHFDUKHZDVGULYLQJDQGZKRPDGH
FXVWRGLDOVWDWHPHQWVWRD'($DJHQWWKDWLQGLFDWHGWKDWWKH
FRFDLQH EHORQJHG WR WKH GHIHQGDQW 6HH LG DW
:LOOLDPVRQILUVWFRQVLGHUHGWKHTXHVWLRQRIZKDWLVPHDQWE\
D³VWDWHPHQW´LQOLJKWRIWKHSULQFLSOHWKDW³5XOH E LV
IRXQGHGRQWKHFRPPRQVHQVHQRWLRQWKDWUHDVRQDEOHSHRSOH
HYHQUHDVRQDEOHSHRSOHZKRDUHQRWHVSHFLDOO\KRQHVWWHQG
1R 9LQFHQWY6HDEROG
QRWWRPDNHVHOILQFXOSDWRU\VWDWHPHQWVXQOHVVWKH\EHOLHYH
WKHPWREHWUXH´,GDW5HDVRQLQJWKDWWKLVSULQFLSOH
PDQGDWHV D QDUURZ GHILQLWLRQ RI ³VWDWHPHQW´ DV ³D VLQJOH
GHFODUDWLRQRUUHPDUN´UDWKHUWKDQDEURDGGHILQLWLRQDV³D
UHSRUWRUQDUUDWLYH´WKH&RXUWKHOG
,QRXUYLHZWKHPRVWIDLWKIXOUHDGLQJRI5XOH E
LV WKDW LW GRHV QRW DOORZ DGPLVVLRQ RI
QRQVHOILQFXOSDWRU\VWDWHPHQWVHYHQLIWKH\DUHPDGH
ZLWKLQ D EURDGHU QDUUDWLYH WKDW LV JHQHUDOO\
VHOILQFXOSDWRU\7KHGLVWULFWFRXUWPD\QRWMXVWDVVXPH
IRU SXUSRVHV RI 5XOH E WKDW D VWDWHPHQW LV
VHOILQFXOSDWRU\EHFDXVHLWLVSDUWRIDIXOOHUFRQIHVVLRQ
DQGWKLVLVHVSHFLDOO\WUXHZKHQWKHVWDWHPHQWLPSOLFDWHV
VRPHRQHHOVH
,GDWVHHDOVR8QLWHG6WDWHVY-LQDGX)G
WK&LU KROGLQJWKDWDFRXUWPXVWHYDOXDWH
WKH DGPLVVLELOLW\ RI HDFK GHFODUDWLRQ RU UHPDUN ZLWKLQ WKH
FRQIHVVLRQZKHQGHWHUPLQLQJZKHWKHUWKRVHVWDWHPHQWVDUH
DGPLVVLEOHXQGHUWKHKHDUVD\H[FHSWLRQIRUVWDWHPHQWVDJDLQVW
SHQDOLQWHUHVW 8QLWHG6WDWHVY&DQDQ)G WK&LU
³>:@KHQUXOLQJXSRQDQDUUDWLYH¶VDGPLVVLELOLW\XQGHU
>5XOH E @DFRXUWPXVWEUHDNLWGRZQDQGGHWHUPLQH
WKH VHSDUDWH DGPLVVLELOLW\ RI HDFK VLQJOH GHFODUDWLRQ RU
UHPDUN´ LQWHUQDO TXRWDWLRQ PDUNV DQG FLWDWLRQ RPLWWHG
:LOOLDPVRQZHQWRQWRH[SODLQ
7KHUHDUHPDQ\FLUFXPVWDQFHVLQZKLFK5XOH E
GRHVDOORZWKHDGPLVVLRQRIVWDWHPHQWVWKDWLQFXOSDWHD
FULPLQDO GHIHQGDQW (YHQ WKH FRQIHVVLRQV RI DUUHVWHG
DFFRPSOLFHV PD\ EH DGPLVVLEOH LI WKH\ DUH WUXO\ VHOI
LQFXOSDWRU\UDWKHUWKDQPHUHO\DWWHPSWVWRVKLIWEODPH
RUFXUU\IDYRU
,GDW HPSKDVLVDGGHG 7KXVWKHSURSHU5XOH E
DQDO\VLV XQGHU :LOOLDPVRQ UHTXLUHV H[DPLQLQJ WKH
FLUFXPVWDQFHVLQZKLFKWKHVWDWHPHQWVDUHPDGHLQRUGHUWR
GHWHUPLQHZKHWKHUWKH\DUHVHOILQFXOSDWRU\RUVHOIVHUYLQJ
7KHSURSHULQTXLU\LV³ZKHWKHUWKHVWDWHPHQWZDVVXIILFLHQWO\
DJDLQVWWKHGHFODUDQW¶VSHQDOLQWHUHVWμWKDWDUHDVRQDEOHSHUVRQ

-- 8 of 8 --