Series in Thermal & Fluid

Physics & Engineering

Editor: G.F. Hewitt

Practical Thermal
Design of
Shell-and-Tube
Heat Exchangers
R. Mukherjee
 3UDFWLFDO7KHUPDO'HVLJQ

RI

6KHOODQG7XEH+HDW([FKDQJHUV


E\

50XNKHUMHH
+HDW7UDQVIHU&RQVXOWDQW
1HZ'HOKL,QGLD


 3UDFWLFDO7KHUPDO'HVLJQRI6KHOODQG7XEH+HDW([FKDQJHUV

50XNKHUMHH
UDMLYPXNKHUMHH#YVQOFRP

/LEUDU\RI&RQJUHVV&DWDORJLQJLQ3XEOLFDWLRQ'DWDLQ3URFHVV

&DWDORJUHFRUGLVDYDLODEOHIURPWKH/LEUDU\RI&RQJUHVV

7KLVERRNUHSUHVHQWVLQIRUPDWLRQREWDLQHGIURPDXWKHQWLFDQGKLJKO\UHJDUGHGVRXUFHV5HSULQWHG
PDWHULDO LV TXRWHG ZLWK SHUPLVVLRQ DQG VRXUFHV DUH LQGLFDWHG $ ZLGH YDULHW\ RI UHIHUHQFHV DUH
OLVWHG(YHU\UHDVRQDEOHHIIRUWKDVEHHQPDGHWRJLYHUHOLDEOHGDWDDQGLQIRUPDWLRQEXWWKHDXWKRU
DQG WKH SXEOLVKHU FDQQRW DVVXPH UHVSRQVLELOLW\ IRU WKH YDOLGLW\ RI DOO PDWHULDOV IRU WKH FRQ
VHTXHQFHVRIWKHLUXVH

$OOULJKWVUHVHUYHG7KLVERRNRUDQ\SDUWVWKHUHRIPD\QRWEHUHSURGXFHGLQDQ\ IRUPZLWKRXW
ZULWWHQFRQVHQWIURPWKHSXEOLVKHU

'LUHFWLQTXLUHVWR%HJHOO+RXVH,QF0DGLVRQ$YHQXH1HZ<RUN1<

‹E\%HJHOO+RXVH,QF

,6%1

3ULQWHGLQWKH8QLWHG6WDWHVRI$PHULFD

LL
 'HGLFDWLRQ

7RWKHPHPRU\RIP\SDUHQWVZKRWDXJKWPHWREHOLHYHLQP\VHOI

7RP\ZLIH.DOSDQDIRUKHUXQIODJJLQJSDWLHQFHDQGVXSSRUW

7RP\GDXJKWHU6KLOSLDQGP\VRQLQODZ%DSSDIRUWKHLUIDLWKDQGFRQYLFWLRQ

)LQDOO\WRWKHUHDGHUZKRPDGHWKHHQWLUHHIIRUWZRUWKZKLOH

LLL
 $FNQRZOHGJPHQWV

,DPLQGHEWHGWR$OPLJKW\*RGIRUKDYLQJJLYHQPHWKHHGXFDWLRQLQWHOOLJHQFHRSSRUWX
QLW\VWUHQJWKDQGIHUYRUWRZULWHWKLVERRN
, DP DOVR LQGHEWHG WR DOO WKRVH IURP ZKRP , OHDUQHG KHDW H[FKDQJHU GHVLJQ RYHU WKH
\HDUV,UHJUHWLWLVQRWSRVVLEOHWRUHFRXQWWKHLUQDPHVLQGLYLGXDOO\IRUWKHVLPSOHUHDVRQWKDW
LWZRXOGEHWRRORQJDOLVW
:LWKRXW WKH HQFRXUDJHPHQW DQG VXSSRUW RI &\QWKLD 0DVFRQH SUHVHQWO\ 7HFKQLFDO
(GLWRU DW &KHPLFDO (QJLQHHULQJ 3URJUHVV DQG KHU SHHU *DLO 1DOYHQ , ZRXOG QHYHU KDYH
VWDUWHGZULWLQJWKHERRN
7KLV ERRN PLJKW QRW KDYH EHHQ SRVVLEOH ZLWKRXW WKH ZRQGHUIXO H[SRVLWLRQ RI KHDW
H[FKDQJHUWHFKQRORJ\E\+HDW7UDQVIHU5HVHDUFK,QF+75,0\ORQJH[SHULHQFHLQWKH
ILHOG RI KHDW H[FKDQJHUV KDV EHHQ YHU\ ODUJHO\ KRQHG RQ WKH SODWIRUP RI +75, ZKRVH
VRIWZDUH,KDYHEHHQXVLQJVLQFH
1RERG\FDQZULWHDERRNRQVKHOODQGWXEHKHDWH[FKDQJHUVZLWKRXWVRXUFLQJIURPWKH
6WDQGDUGV RI 7XEXODU ([FKDQJHU 0DQXIDFWXUHUV $VVRFLDWLRQ 7(0$ DQG , DP QR
H[FHSWLRQ
,DPJUDWHIXOWR+75,%HJHOO+RXVH&DO*DYLQ$,&K(7(0$$%%/XPPXV+HDW
7UDQVIHU %URZQ )LQWXEH 823 $OID /DYDO DQG +HDWULF IRU VRPH RI WKH GLDJUDPV DQG
SKRWRJUDSKVXVHGLQWKLVERRNWKDWKDYHEHHQGXO\DFNQRZOHGJHGZKHUHWKH\DSSHDU
, ZLOO DOZD\V EH LQGHEWHG WR %LOO %HJHOO DW %HJHOO +RXVH IRU GHFLGLQJ WR SXEOLVK WKLV
ERRN
+RZFDQ,IRUJHWP\JRRGIULHQG*UDKDP3ROOH\",WZDVKHZKROHGPHWR%LOOLQWKH
ILUVWSODFH
,DPJUDWHIXOWR-DQHW5RJHUVDW%HJHOO+RXVHIRUPDQDJLQJP\ERRN'RQQD7KRPSVRQ
DW0HVVDJH3URVIRUXQGHUWDNLQJWKHDUGXRXVWDVNRIFRS\HGLWLQJP\ERRNDQGGRLQJLWZLWK
DSORPEDQGDOOWKRVHDW%HJHOO+RXVHZKRZHUHUHVSRQVLEOHIRUWKHSURGXFWLRQRIWKLVERRN
:KDWZHDUHDEOHWRDFFRPSOLVKLQRXUOLYHVZKHWKHUSURIHVVLRQDOO\RURWKHUZLVHLVWKH
UHVXOW RI WKH /RUG¶V JUDFH DQG WKH HQFRXUDJHPHQW DQG VXSSRUW ZH UHFHLYH IURP P\ULDG
VRXUFHV 7KLV ERRN LV WKHUHIRUH WUXO\ D FROODERUDWLYH HIIRUW DQG WKH FUHGLW EHORQJV WR WKH
KXPDQIUDWHUQLW\DWODUJHUDWKHUWKDQWRDQ\LQGLYLGXDO

LY
 $ERXWWKH$XWKRU

50XNKHUMHHLVDFRQVXOWDQWLQXQILUHGKHDWWUDQVIHUEDVHGLQ1HZ'HOKL,QGLD+HKDV
RYHU\HDUVRIH[SHULHQFHLQWKHWKHUPDOGHVLJQUHYDPSLQJDQGWURXEOHVKRRWLQJRIDLU
FRROHGDQGVKHOODQGWXEHKHDWH[FKDQJHUVDQGFRQVLGHUDEOHH[SHULHQFHLQWKHGHVLJQRI
KHDW H[FKDQJHU QHWZRUNV +H KDV ZULWWHQ VHYHUDO DUWLFOHV DQG SUHVHQWHG PDQ\ SDSHUV DW
WHFKQLFDOV\PSRVLD0XNKHUMHH KDVDOVRVHUYHGDVIDFXOW\IRUQXPHURXVFRXUVHVRQ KHDW
H[FKDQJHUGHVLJQDQGRSHUDWLRQHQHUJ\FRQVHUYDWLRQDQGKHDWH[FKDQJHUQHWZRUNVDQG
SUHVHQWO\WHDFKHVDQLQWHQVLYHWZRGD\LQKRXVHUHIUHVKHUFRXUVHLQWKHGHVLJQDQGRSHUD
WLRQ RI KHDW H[FKDQJHUV WKDW FDQ EH RIIHUHG DW DQ\ SODQW RU RIILFH ORFDWLRQ DURXQG WKH
ZRUOG+HLVDQKRQRUVJUDGXDWHLQFKHPLFDOHQJLQHHULQJIURP-DGDYSXU8QLYHUVLW\&DO
FXWWD,QGLD
,Q KLVVSDUHWLPH0XNKHUMHH HQMR\VUHDGLQJ .DKOLO *LEUDQ LVDELJIDYRULWH ZULWLQJ
OLVWHQLQJWRPXVLFDQGFROOHFWLQJTXRWDWLRQV+HOLYHVLQ1HZ'HOKLZLWKKLVZLIH.DOSDQD
7KHLUGDXJKWHU6KLOSLDQGKHUKXVEDQG%DSSDOLYHLQ,OOLQRLVZLWKWKHLUEDE\VRQ6RKXP













50XNKHUMHH

Y
 7$%/(2)&217(176


3UHIDFH [
&KDSWHU,QWURGXFWLRQ  
&KDSWHU&ODVVLILFDWLRQRI6KHOODQG7XEH+HDW([FKDQJHUV 
&RPSRQHQWVRI6KHOODQG7XEH+HDW([FKDQJHUV  
)URQWDQG5HDU+HDGV  
&ODVVLILFDWLRQE\&RQVWUXFWLRQ 
)L[HGWXEHVKHHWKHDWH[FKDQJHU  
8WXEHKHDWH[FKDQJHU 
)ORDWLQJKHDGKHDWH[FKDQJHU  
&ODVVLILFDWLRQE\6HUYLFH 
&KDSWHU7KHUPDO'HVLJQDQG2SWLPL]DWLRQRI6LQJOH3KDVH+HDW([FKDQJHUV  
%URDG2EMHFWLYHVRI7KHUPDO'HVLJQ 
'DWDWREH)XUQLVKHGIRU7KHUPDO'HVLJQ  
7XEHVLGH 
(IIHFWVRIWXEHVLGHYHORFLW\  
+HDWWUDQVIHUFRHIILFLHQW  
3UHVVXUHGURS  
&$6(678'<237,0,=,1*78%(6,'('(6,*1  
,PSRUWDQFHRIVWHSZLVHFDOFXODWLRQVIRUYLVFRXVOLTXLGV 
&$6(678'<67(3:,6(&$/&8/$7,216  
6KHOOVLGH 
6KHOOW\SH 
7XEHOD\RXWSDWWHUQ  
7XEHSLWFK 
%DIIOLQJ  
6WUHDPDQDO\VLV  
&$6(678'<9$5,$7,212)7(03(5$785(352),/(',67257,21)$&725
 :,7+%$))/(63$&,1*  
&$6(678'<237,0,=,1*%$))/('(6,*1  
5HGXFWLRQRIVKHOOVLGHSUHVVXUHGURS 
&$6(678'<86(2)'28%/(6(*0(17$/%$))/(6  
&KDSWHU0HDQ7HPSHUDWXUH'LIIHUHQFH  
/RJDULWKPLF0HDQ7HPSHUDWXUH'LIIHUHQFH/07' 
&RXQWHUFXUUHQW)ORZ 
&R&XUUHQW)ORZ 
&RXQWHUFXUUHQWDQG&R&XUUHQW)ORZ7KH)W)DFWRU  
7HPSHUDWXUH&URVV 

YL
 +HDW5HOHDVH3URILOHVDQG=RQH:LVH&DOFXODWLRQV 
7HPSHUDWXUH3URILOH'LVWRUWLRQ 
&$6(678'<+2:$7(03(5$785(352),/(',67257,21352%/(0
 ,6%(77(5+$1'/('%<7:26+(//6,16(5,(6 

&KDSWHU$OORFDWLRQRI6LGHV6KHOOVLGHDQG7XEHVLGH
,QWURGXFWLRQ 
3DUDPHWHUVIRU$OORFDWLRQRI6LGHV
9LVFRVLW\ 
&RUURVLYHQHVV 
)RXOLQJWHQGHQF\
3UHVVXUH
)ORZUDWH
7HPSHUDWXUHUDQJH
&$6(678'<$//2&$7,212))/8,'6,'(6 
&KDSWHU0HWKRGRORJ\RIWKH8VHRI0XOWLSOH6KHOOV 
0XOWLSOH6KHOOVLQ3DUDOOHO 
0XOWLSOH6KHOOVLQ6HULHV
)RUWHPSHUDWXUHFURVVFRQGLWLRQV
)RUEHWWHUXWLOL]DWLRQRIDOORZDEOHSUHVVXUHGURS 
)RULPSURYLQJWKHWHPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQIDFWRU 
&$6(678'<86(2)08/7,3/(6+(//6,16(5,(6
0XOWLSOH6KHOOVLQ6HULHV3DUDOOHO 
&$6(678'<86(2)08/7,3/(6+(//6,16(5,(63$5$//(/ 
&KDSWHU7KHUPDO'HVLJQDQG2SWLPL]DWLRQRI&RQGHQVHUV
,QWURGXFWLRQ 
&ODVVLILFDWLRQ 
$FFRUGLQJWRFRQVWUXFWLRQ
$FFRUGLQJWROD\RXW 
$FFRUGLQJWRVHUYLFH
$FFRUGLQJWRFRRODQW 
$FFRUGLQJWRFRQGHQVLQJUDQJH
$FFRUGLQJWRRSHUDWLQJSUHVVXUH
0HFKDQLVPVRI&RQGHQVLQJ
9HUWLFDOLQWXEHFRQGHQVDWLRQ
+RUL]RQWDOLQWXEHFRQGHQVDWLRQ
&RQGHQVDWLRQRXWVLGHWXEHV
&RQGHQVDWLRQRIPL[HGYDSRUVDQGPL[WXUHVRIYDSRUVDQGQRQFRQGHQVDEOHV 
3UDFWLFDO*XLGHOLQHVIRU7KHUPDO'HVLJQ
%DIIOLQJ
&$6(678'<,627+(50$/&21'(16$7,21:,7+6,1*/(3$666+(//
 $1'6,1*/(6(*0(17$/%$))/(6 
&$6(678'<&21'(16$7,21:,7+6,1*/(3$666+(//$1'
 '28%/( 6(*0(17$/%$))/(6 
&$6(678'<&21'(16$7,21:,7+',9,'(')/2:6+(// 
0XOWLSOHVKHOOVLQVHULHVRUSDUDOOHO
&$6(678'<&21'(16$7,21:,7+08/7,3/(6+(//6,16(5,(6
&$6(678'<&21'(16$7,21:,7+08/7,3/(6+(//6,16(5,(63$5$//(/  
&RQGHQVDWLRQZLWKGHVXSHUKHDWLQJDQGRUVXEFRROLQJ 
&$6(678'<&21'(16$7,21:,7+:(7:$//'(683(5+($7,1*  
&$6(678'<&21'(16$7,21:,7+'5<:$//'(683(5+($7,1*  
&$6(678'<&21'(16$7,21:,7+,17(*5$/68%&22/,1*  
1R]]OHVL]LQJ 
&RQGHQVLQJSURILOHVDQG07' 

YLL
 /RZSUHVVXUHFRQGHQVHUGHVLJQ  
&$6(678'<78%(6,'(&21'(16$7,21  
6SHFLDO$SSOLFDWLRQV  
8VHRIORZILQWXEHV  
&$6(678'<86(2)/2:),178%(6 
9DFXXPFRQGHQVHUGHVLJQ(MHFWRUFRQGHQVHUVDQGVXUIDFHFRQGHQVHUV  
&$6(678'<(-(&725,17(5&21'(16(5  
&KDSWHU7KHUPDO'HVLJQDQG2SWLPL]DWLRQRI5HERLOHUV 
3RRO%RLOLQJ  
3DUDPHWHUV$IIHFWLQJ3RRO%RLOLQJ  
6XUIDFHHIIHFWV  
0L[WXUHHIIHFWV 
3UHVVXUHHIIHFWV  
7XEHEXQGOHJHRPHWU\HIIHFWV 
0D[LPXP+HDW)OX[ 
)ORZ%RLOLQJ  
'LVWLOODWLRQ&ROXPQ5HERLOHUV 
,QWHUQDOUHERLOHUV  
&$6(678'</,*+7+<'52&$5%215(%2,/(5,17(51$/5(%2,/(5  
.HWWOHUHERLOHUV 
&$6(678'<675,33(55(%2,/(5.(77/(5(%2,/(5  
+RUL]RQWDOWKHUPRV\SKRQUHERLOHUV  
&$6(678'<',67,//$7,21&2/8015(%2,/(5+25,=217$/7+(5026<3+21  
9HUWLFDOWKHUPRV\SKRQUHERLOHUV  
&$6(678'<',67,//$7,21&2/8015(%2,/(59(57,&$/7+(5026<3+21  
&$6(678'<',67,//$7,21&2/8015(%2,/(5
 9(57,&$/7+(5026<3+21 .(77/( 
)RUFHGIORZUHERLOHUV  
&$6(678'<',67,//$7,21&2/8015(%2,/(5
 9(57,&$/7+(5026<3+21)25&(')/2:  
6HOHFWLRQRI5HERLOHUV 
6WDUW8SRI5HERLOHUV  
&KDSWHU3K\VLFDO3URSHUWLHVDQG+HDW5HOHDVH3URILOHV 
3K\VLFDO3URSHUWLHV  
3K\VLFDO3URSHUW\3URILOHV  
+HDW5HOHDVH3URILOHV  
+RZWR)HHG+HDW5HOHDVH3URILOHV  
&KDSWHU2YHUGHVLJQ 
0HFKDQLFVRI2YHUGHVLJQ 
2YHUGHVLJQLQ6LQJOH3KDVH+HDW([FKDQJHUV 
&$6(678'<())(&72)29(5'(6,*1²+,*+7(03(5$785($3352$&+&$6(  
&$6(678'<())(&72)29(5'(6,*1²/2:7(03(5$785($3352$&+&$6(  
2YHUGHVLJQLQ5HERLOHUV 
2YHUGHVLJQLQ&RQGHQVHUV 
2YHUGHVLJQ)DFWRU 
7XEH3OXJJLQJ  
&KDSWHU)RXOLQJ,WV&RQVHTXHQFHVDQG0LWLJDWLRQ  
&DWHJRULHVRI)RXOLQJ 
3URJUHVVRI)RXOLQJ 
3DUDPHWHUV7KDW$IIHFW)RXOLQJ 
+RZWR3URYLGHD)RXOLQJ$OORZDQFH  
6HOHFWLRQRI)RXOLQJ5HVLVWDQFH 

YLLL
 'HVLJQ*XLGHOLQHVWR0LQLPL]H)RXOLQJ 
8VHKHDWH[FKDQJHUW\SHVWKDWIRXOOHVV 
:KHQVKHOODQGWXEHH[FKDQJHUVKDYHWREHXVHG  
'LUW\IOXLGLQVLGHWXEHV  
'LUW\IOXLGRXWVLGHWXEHV  
&$6(678'<,1&5($6,1*6+(//6,'(9(/2&,7<)255('8&,1*)28/,1*  
&$6(678'<86(2))28/,1*/$<(57+,&.1(66  
&KDSWHU9LEUDWLRQ$QDO\VLV  
,QWURGXFWLRQ 
0HFKDQLFVRI)ORZ,QGXFHG9LEUDWLRQ 
1DWXUDOIUHTXHQF\  
)ORZLQGXFHGYLEUDWLRQSKHQRPHQD  
+RZDQGZKHQWXEHVYLEUDWH  
'DPSLQJ  
0RGHVRIWXEHIDLOXUH 
+RZWR3UHGLFW'DPDJLQJ)ORZ,QGXFHG9LEUDWLRQ 
9LWDO/LQNEHWZHHQ)ORZ,QGXFHG9LEUDWLRQDQG3UHVVXUH'URS  
3URGXFLQJD'HVLJQWKDWLV6DIHDJDLQVW)ORZ,QGXFHG9LEUDWLRQ  
&$6(678'<352'8&,1*$6$)('(6,*186,1*
 '28%/( 6(*0(17$/%$))/(6,1$6,1*/(3$666+(//  
&$6(678'<352'8&,1*$6$)('(6,*186,1*
 $',9,'(' )/2:6+(//$1'6,1*/(6(*0(17$/%$))/(6  
&$6(678'<352'8&,1*$6$)('(6,*186,1*
 $',9,'(' )/2:6+(//$1''28%/(6(*0(17$/%$))/(6 
&$6(678'<352'8&,1*$6$)('(6,*186,1*
 $1278%(6,1:,1'2:'(6,*1  
5RG%DIIOHV  
$FRXVWLF9LEUDWLRQ  
&KDSWHU(QKDQFHG+HDW7UDQVIHU  
:KDWLV(QKDQFHG+HDW7UDQVIHU" 
%HQHILWVRI(QKDQFHG+HDW7UDQVIHU 
+HDW7UDQVIHU(QKDQFHPHQW7HFKQLTXHV  
/RZILQWXEHV  
+LJKIOX[WXEHV 
&RUUXJDWHGWXEHV 
7XEHLQVHUWV 
7ZLVWHGWDSHLQVHUWV 
:LUHILQWXEHLQVHUWV 
&$6(678'<&203$5,6212)'(6,*16:,7+%$5(78%(6$1'78%(6
 :,7+:,5( ),178%(,16(576 
52'EDIIOHKHDWH[FKDQJHUV  
+HOLFDOEDIIOHV+HOL[FKDQJHUV 
7ZLVWHGWXEHKHDWH[FKDQJHUV  
3ODWHKHDWH[FKDQJHUV 
6SLUDOSODWHKHDWH[FKDQJHUV 
3ODWHILQKHDWH[FKDQJHUV  
3ULQWHGFLUFXLWKHDWH[FKDQJHUV 
+\EULGKHDWH[FKDQJHUV 
(YDOXDWLRQRIKHDWWUDQVIHUHQKDQFHPHQWWHFKQLTXHV 
,1'(; 


L[
 35()$&(

:KHQ,ZDVD\RXQJER\LQVFKRRO,ORQJHGWREHDGRFWRUEXWIDWHGHHPHGRWKHUZLVHDQG
, HQGHG XS EHFRPLQJ D FKHPLFDO HQJLQHHU 1RZ FKHPLFDO HQJLQHHULQJ OLNH DOO RWKHU
ILHOGVLVDYHU\YDVWILHOGEXW,HQGHGXSLQWKHYHU\QDUURZVSHFLDOL]DWLRQRIWKHUPDOGH
VLJQ RIVKHOODQGWXEHDQGDLUFRROHG KHDWH[FKDQJHUV, PXVWFRQIHVVWKDWDIWHUHLJKWWR
WHQ\HDUVRIWKLVDFWLYLW\P\VRXO\HDUQHGIRUDFKDQJHDQG,VRXJKWWRGLYHUVLI\LQWRWKH
ZRUOGRIILUHGKHDWHUV+RZHYHUIRUYDULRXVUHDVRQVWKLVGLGQRWPDWHULDOL]HDQG,FRQ
WLQXH WR URYH WKH ZRUOG RI XQILUHG KHDW WUDQVIHU $IWHU D SHULRG RI DQRWKHU ILYH \HDUV ,
IRXQGP\LQWHUHVWLQKHDWH[FKDQJHUVUHNLQGOHGWKDQNVWRWKHZRQGHUIXOH[SRVLWLRQRIWKLV
WHFKQRORJ\ E\ +75, +HDW 7UDQVIHU 5HVHDUFK ,QF 3LQFK WHFKQRORJ\ FDPH RI DJH
DURXQG WKDW WLPH DQG SURYHG WR EH D SHUIHFW IRLO DQG DGMXQFW WR KHDW H[FKDQJHU WKHUPDO
GHVLJQ
,KDYHDOZD\VEHHQLQVSLUHGE\WKHVHZRUGVRI*HRUJH(OLRW³:KDWGRZHOLYHIRULIQRW
WR PDNH WKH ZRUOG OHVV GLIILFXOW IRU HDFK RWKHU"´ %XR\HG E\ D SRVLWLYH IUDPH RI PLQG ,
WKRXJKW WKDW LW PLJKW EH D JRRG LGHD WR VKDUH VRPH RI WKH WKLQJV WKDW , KDG OHDUQHG ZLWK
UHDGHUV DFURVV WKH ZRUOG DQG VWDUWHG ZULWLQJ DQ RGG SDSHU RU WZR IRU MRXUQDOV VXFK DV
&KHPLFDO (QJLQHHULQJ 3URJUHVV DQG +\GURFDUERQ 3URFHVVLQJ $ PDMRU DFFLGHQW OHIW PH
VHYHUHO\KDQGLFDSSHGDQGFXUWDLOHGP\PRELOLW\GUDVWLFDOO\7KLVSURYHGWREHDEOHVVLQJLQ
GLVJXLVHDVIDUDVP\OLWHUDU\SURZHVVZDVFRQFHUQHG:LWKDORWRIWLPHRQP\KDQGVDQGD
3&DWKRPH,ZURWHDIHZFRPSUHKHQVLYHSDSHUVIRU&KHPLFDO(QJLQHHULQJ3URJUHVVDQG
+\GURFDUERQ 3URFHVVLQJ DQG UHFHLYHG VRPH YHU\ DSSUHFLDWLYH DQG KHDUWHQLQJ IHHGEDFN
7KLV JDYH PHWKH FRQILGHQFHWKDW , FRXOG QRZ ZULWHDIXOOIOHGJHGERRNDQ LGHDWKDW0V
&\QWKLD0DVFRQHSUHVHQWO\7HFKQLFDO(GLWRUDW&KHPLFDO(QJLQHHULQJ3URJUHVVVXSSRUWHG
NHHQO\
0\GHVLUHWRZULWHWKLVERRNZDVSUHFLSLWDWHGE\WKHDEVHQFHRIVXFKDERRN5HFHQWKHDW
H[FKDQJHUGHVLJQOLWHUDWXUHKDVEHHQSUHGRPLQDQWO\RFFXSLHGE\SURFHHGLQJVRIFRQIHUHQFHV
7KHUHLVQRERRNRQWKHPDUNHWWKDWH[SODLQVWKHORJLFRIKHDWH[FKDQJHUWKHUPDOGHVLJQDQG
JLYHV SUDFWLFDO VXJJHVWLRQV UHFRPPHQGDWLRQV DQG UHDOOLIH FDVH VWXGLHV IRU DFWXDOO\
GHVLJQLQJLQGXVWULDOKHDWH[FKDQJHUV6R,GHFLGHGWRZULWHMXVWVXFKDERRN
7KH WKHRUHWLFDO DVSHFWV RI VLQJOHSKDVH KHDW WUDQVIHU FRQGHQVDWLRQ DQG YDSRUL]DWLRQ
KDYHEHHQSUHVHQWHGYHU\ZHOOLQVHYHUDOERRNV6RZKDWZDVUHDOO\UHTXLUHGZDVDSUDFWLFDO
³KRZWRGHVLJQ´ERRNZLWKQXPHURXVZRUNHGRXWH[DPSOHVRUFDVHVWXGLHVWRHPEHOOLVKRU
LOOXVWUDWHDSDUWLFXODUWHFKQLTXHIDFHWRUVW\OH RI GHVLJQ7KHWKRXVDQGV RI KHDW H[FKDQJHU
GHVLJQV WKDW , KDYH EHHQ DVVRFLDWHG ZLWK RYHU WKH ODVW  \HDUV SURYLGHG QXPHURXV VXFK
RSSRUWXQLWLHV 7KH\ VD\ WKDW RQH SLFWXUH LV PRUH HORTXHQW WKDQ D WKRXVDQG ZRUGV ,I \RX
H[WHQGWKLVORJLFRQHDSSURSULDWHLOOXVWUDWLRQE\DFDVHVWXG\LVPRUHHPLQHQWO\GLGDFWLFWKDQ
DORQJGLVVHUWDWLRQRQDSDUWLFXODUVXEMHFWDVDFDVHVWXG\OHDYHVQRWKLQJWRWKHLPDJLQDWLRQ

[
7KURXJKRXW WKH ERRN WKHUHIRUH FDUHIXOO\FKRVHQ H[DPSOHV DUH SUHVHQWHG DW VWUDWHJLF
ORFDWLRQV VR WKDW WKH UHDGHU ZLOO KDYH D FOHDU XQGHUVWDQGLQJ RI WKH VXEMHFW PDWWHU EHLQJ
GLVFXVVHG
:KLOH ZRUNLQJ ZLWK +75, VRIWZDUH , KDYH DOZD\V WULHG WR REVHUYH WKH LQWHUSOD\ RI
SDUDPHWHUVDQGDEDVLFXQGHUVWDQGLQJRIFDXVHDQGHIIHFW,KDYHDOVRDOZD\VDWWHPSWHGWR
XQGHUVWDQGZK\WKLQJVKDSSHQWKHZD\WKH\GR)RUH[DPSOHZK\GRYLVFRXVOLTXLGVEHKDYH
VR SRRUO\ LQVLGH WXEHV" :K\ GRHV SXWWLQJ VKHOOV LQ VHULHV UHGXFH WKH SHQDOW\ GXH WR
WHPSHUDWXUH SURILOH GLVWRUWLRQ" :K\ LV IORZLQGXFHG YLEUDWLRQ UHDOO\ D SUHVVXUH GURS
SUREOHP"$QGVRRQ:KLOHZRUNLQJRQGHVLJQV,KDYHDOZD\VDVNHGP\VHOI³,VQ¶WWKHUHD
EHWWHUZD\RIGRLQJWKLV"´6XFKDQDWWLWXGHKDVKHOSHGLPPHQVHO\LQLPSURYLQJWKHTXDOLW\RI
WKHGHVLJQVDQG,H[KRUWDOOGHVLJQHUVWRDGRSWDVLPLODUDWWLWXGH
7KLVERRNKDVWKHUHIRUHEHHQZULWWHQSULPDULO\IRUWKHKHDWH[FKDQJHUWKHUPDOGHVLJQHU
%XW ,DPFRQILGHQWWKDW LW ZLOOEH XVHIXOWR SURFHVV HQJLQHHUVDVZHOODVLJQLILFDQWSDUWRI
ZKRVH URXWLQH MRE LV WR VSHFLI\ KHDW H[FKDQJHUV 6LQFH RSHUDWLQJ DVSHFWV DUH DOVR RIWHQ
GLVFXVVHG,WUXVWLWZLOOEHRILQWHUHVWWRSODQWRSHUDWLRQVSHFLDOLVWVDVZHOO
/DVWEXWQRWOHDVWLWLVP\IRQGKRSHWKDWHYHQXQGHUJUDGXDWHFKHPLFDODQGPHFKDQLFDO
HQJLQHHULQJ VWXGHQWV ZLOO ILQG LW LQWHUHVWLQJ LQIRUPDWLYH DQG XVHIXO , VWLOO UHPHPEHU WKDW
ZKHQ,ZDVDQXQGHUJUDGXDWHVWXGHQW,XVHGWRORQJIRUPRUHSUDFWLFDOUHDOOLIHLQIRUPDWLRQ
DERXWLQGXVWULDOSUDFWLFH,IRQHFRQVLGHUVWKDWPDQ\HQJLQHHULQJJUDGXDWHVHQGXSZRUNLQJ
LQWKHFKHPLFDOSURFHVVLQGXVWULHVWKHUHPD\EHDORWRIPHULWLQDGGLQJVXFKDIODYRUWRKHDW
WUDQVIHULQWKHXQLYHUVLW\FXUULFXOXPDVLQGHHGLWLVWRDOORWKHUILHOGVRIKXPDQOHDUQLQJ7KH
MX[WDSRVLWLRQRILQGXVWULDOHTXLSPHQWGHVLJQSUDFWLFHZLWKEDVLFWKHRU\ZLOOJRDORQJZD\LQ
PDNLQJWKHVXEMHFWPRUHPHDQLQJIXO
%HLQJ WKH ILUVW ERRN , KDYH ZULWWHQ WKHUH LV ERXQG WR EH VLJQLILFDQW VFRSH IRU
LPSURYHPHQW,ZLOOEHYHU\JUDWHIXOWRDQ\RQHRIIHULQJSRVLWLYHJXLGDQFHRQVKRUWFRPLQJV
DVZHOODVLQDFFXUDFLHV

50XNKHUMHH
+HDW7UDQVIHU&RQVXOWDQW
1HZ'HOKL,QGLD



[L
[LL
 &+$37(5

,QWURGXFWLRQ

6KHOODQGWXEHKHDWH[FKDQJHUV67+(VLQWKHLUYDULRXVPDQLIHVWDWLRQVDUHXQGRXEWHGO\

WKH PRVW ZLGHO\ DQG FRPPRQO\ XVHG XQILUHG KHDW WUDQVIHU HTXLSPHQW LQ WKH FKHPLFDO
SURFHVVLQJ LQGXVWULHV 7KH\ DUH DOVR XVHG H[WHQVLYHO\ LQ FRDO DQG JDVEDVHG QXFOHDU
RFHDQWKHUPDODQGJHRWKHUPDOSRZHUJHQHUDWLRQIDFLOLWLHV
$OWKRXJKVWURQJO\FKDOOHQJHGE\WKHSODWHKHDWH[FKDQJHULQUHFHQW\HDUVWKH67+(VWLOO
UHPDLQV WKH XQGLVSXWHG OHDGHU LQ WKH DUHQD RI KHDW H[FKDQJHUV 7KH UHDVRQV IRU WKLV DUH
PDQLIROG
 67+(VDUHYHU\IOH[LEOHLQVL]HDQGFDQYDU\IURPOHVVWKDQRQHVTXDUHPHWHUWRD
WKRXVDQGVTXDUHPHWHUVDQGHYHQPRUH
 7KH\DUHPHFKDQLFDOO\UREXVWWRZLWKVWDQGQRUPDOVKRSIDEULFDWLRQVWUHVVHVWKH
ULJRUVRIWUDQVSRUWDWLRQDQGHUHFWLRQDVZHOODVWKHVWUHVVHVRIQRUPDODQGDEQRU
PDORSHUDWLQJFRQGLWLRQV
 7KH\ FDQ EH FOHDQHG UHODWLYHO\ HDVLO\ %RWK PHFKDQLFDO DV ZHOO DV FKHPLFDO
FOHDQLQJSURJUDPVFDQEHHPSOR\HG
 7KH FRPSRQHQWV WKDW DUH PRVW OLDEOH WR IDLOXUH²WXEHV DQG JDVNHWV²FDQ EH UH
SODFHGHDVLO\
 *RRGWKHUPDODQGPHFKDQLFDOGHVLJQPHWKRGVDUHZLGHO\DYDLODEOH
 $YHU\ZLGHIDEULFDWLRQEDVHLVDYDLODEOHJOREDOO\
%HVLGHVWKHGHYHORSPHQWRIWXEHLQVHUWVKHOLFDOEDIIOHVDQGWZLVWHGWXEHVSURPLVHVWR
PDNHWKH67+(HYHQPRUHVXSHULRUDVWKHVHHOLPLQDWHVRPHRIWKHLQKHUHQWVKRUWFRPLQJVRI
67+(V
(YLGHQWO\ VLQFH WKH 67+( LV WKH ROGHVW PRGHO RI WKH KHDW H[FKDQJHU LW KDV D ZHOO
HVWDEOLVKHG PHWKRGRORJ\ >²@ 8QWLOWKH ODWH VDQG HDUO\ VWKLV NQRZOHGJH ZDV
QRW HVRWHULF EXW ZDV ZLGHO\ XQGHUVWRRG +RZHYHU ZLWK WKH GHYHORSPHQW RI WKH VKHOOVLGH
VWUHDPDQDO\VLVPRGHODQGWKHVXEVHTXHQWDGYHQWRIWKHSHUVRQDOFRPSXWHUDQGWUHPHQGRXV
FRPSXWLQJVSHHGVSRZHUIXOVRIWZDUH IRUWKHWKHUPDO GHVLJQ RI67+(V JUDGXDOO\ HYROYHG
7RGD\VHYHUDOYHU\VRSKLVWLFDWHGVRIWZDUHSDFNDJHVDUHDYDLODEOHIRUWKHWKHUPDOGHVLJQRI
67+(V D WDVN QRZ FDUULHG RXW E\ HQJLQHHULQJ FRQWUDFWRUV IDEULFDWRUV DQG RSHUDWLQJ
FRPSDQLHV DOO RYHU WKH ZRUOG UHSUHVHQWLQJ D ZLGH JOREDO IUDWHUQLW\ 6LQFH WKHVH VRIWZDUH
SDFNDJHVDUHYHU\XVHUIULHQGO\DVZHOOLWLVQRZYHU\FRQYHQLHQWWRRSWLPL]HDQGSURGXFHD
QHDUSHUIHFWGHVLJQIRUDJLYHQDSSOLFDWLRQ
+RZHYHU ZLWK WKH DYDLODELOLW\ RI VXFK VXSHULRU VRIWZDUH WKHUH KDV EHHQ DQ XQGXH
GHSHQGHQFHRQWKHVRIWZDUHDQGPXFKRIWKHEDVLFXQGHUVWDQGLQJRIWKHUPDOGHVLJQKDVEHHQ
ORVW,QRWKHUZRUGVWKHVHVRIWZDUHSDFNDJHVDUHRIWHQHPSOR\HGDV³EODFNER[HV´ZLWKRXW
WKHGHVLJQHUEHLQJWUXO\LQFRQWURORIWKHGHVLJQSURFHVVDQGXQGHUVWDQGLQJWKHQXDQFHVRI

GHVLJQ ,W PXVW EH DSSUHFLDWHG WKDW VRIWZDUH LV RQO\ D WRRO DQG ZLWK DQ\ VRSKLVWLFDWHG
VRIWZDUHDSURSHUDQGVRXQGXQGHUVWDQGLQJRIWKHIXQGDPHQWDOSULQFLSOHVDQGLQWHUSOD\RI
SDUDPHWHUVLVHVVHQWLDOLQRUGHUWRH[SORLWLWVXFFHVVIXOO\IRUSURGXFLQJDQRSWLPXPGHVLJQ
7KHSULQFLSDOSXUSRVH RI ZULWLQJWKLVERRN LVWR KHOSWKH KHDW H[FKDQJHUWKHUPDO GHVLJQHU
DWWDLQVXFKDQXQGHUVWDQGLQJ
$V H[DPSOH LV EHWWHU WKDQ SUHFHSW VHYHUDO FDVH VWXGLHV DUH SUHVHQWHG LQ WKLV ERRN LQ
RUGHU WR YLYLGO\ EULQJ RXW D SDUWLFXODU PHWKRGRORJ\ SULQFLSOH RU SUDFWLFH WKDW KDV EHHQ
DGYRFDWHG
7KH GHVLJQ RI 67+(V FRPSULVHV WZR GLVWLQFW DFWLYLWLHV YL] WKHUPDO GHVLJQ DQG
PHFKDQLFDO GHVLJQ ,Q WKHUPDO GHVLJQ WKH EDVLF VL]LQJ RI WKH KHDW H[FKDQJHU LV
DFFRPSOLVKHG7KDWLVWRVD\SDUDPHWHUVVXFKDVWKHQXPEHURXWHUGLDPHWHUWKLFNQHVVDQG
OHQJWK RIWXEHVWXEH SLWFK QXPEHU RIWXEH SDVVHVVKHOO GLDPHWHUEDIIOH VSDFLQJDQGFXW
QR]]OH VL]HV DQG VRPH RWKHU FRQVWUXFWLRQ GHWDLOV DUH IUR]HQ ,Q WKH VXEVHTXHQW DFWLYLW\ RI
PHFKDQLFDO GHVLJQ WKH WKLFNQHVVHV DQG SUHFLVH GLPHQVLRQV RI WKH YDULRXV FRPSRQHQWV DUH
GHWHUPLQHG DQG D ELOO RI PDWHULDOV SURGXFHG 'HWDLOHG HQJLQHHULQJ GUDZLQJV DUH SUHSDUHG
EDVHGXSRQZKLFKDFWXDOIDEULFDWLRQGUDZLQJVDUHPDGH,QWKLVERRNDVWKHWLWOHVXJJHVWV
ZHVKDOOWDONSULQFLSDOO\DERXWWKHUPDOGHVLJQ
3UHVHQWO\ WKHUH LV QR ERRN DYDLODEOH RQ ³SUDFWLFDO´ VKHOODQGWXEH KHDW H[FKDQJHU
WKHUPDOGHVLJQ7KHERRNVWKDWDUHDYDLODEOHGZHOOKHDYLO\RUIXOO\RQWKHWKHRUHWLFDODVSHFWV
RIXQILUHGKHDWWUDQVIHUDVWKH\DUHDSSOLFDEOHWRVKHOODQGWXEHKHDWH[FKDQJHUV,IWKH\FDUU\
ZRUNHGRXW H[DPSOHV WKHVH DUH YHU\ VLPSOLVWLF DQG FHUWDLQO\ QRW FRPSDUDEOH WR ZKDW WKH
FRPPHUFLDOVRIWZDUHGHVLJQHUVHPSOR\IRUFDUU\LQJRXWUHDOOLIHGHVLJQV7KHSUHVHQWERRNLV
EDVHGXSRQWKHDXWKRU¶VH[SHULHQFHRI\HDUVLQWKHGHVLJQRIKHDWH[FKDQJHUVIRUWKHRLO
UHILQHULHVDQGFKHPLFDOSURFHVVLQGXVWULHVDQGPLUURUVPDQ\UHDOOLIHVLWXDWLRQVZKLFKZHUH
IDU IURP VWUDLJKWIRUZDUG $OO WKHVH H[SHULHQFHV KDYH EHHQ SXW WRJHWKHU LQ D VWUXFWXUHG
IRFXVHGORJLFDODQGGLGDFWLF PDQQHUDQGVSHFLDOHIIRUWKDVEHHQPDGHDWEULQJLQJRXWWKH
LQWHUSOD\RISDUDPHWHUVIRUDWKRURXJKXQGHUVWDQGLQJRIEDVLFLVVXHV
1RZZHFRPHWRWKHLQGLYLGXDOFKDSWHUVWKHPVHOYHV&KDSWHU³&ODVVLILFDWLRQRIVKHOO
DQGWXEH KHDW H[FKDQJHUV´ JLYHV D GHWDLOHG UXQGRZQ RI WKH YDULRXV FRPSRQHQWV DQG
FRQVWUXFWLRQDO IHDWXUHV RI67+(VDVD JRRGXQGHUVWDQGLQJ RIWKHVH LV YLWDOWRWKHWKHUPDO
GHVLJQRIWKLVHTXLSPHQW)RUH[DPSOHWKHWKHUPDOHQJLQHHUPXVWEHYHU\IDPLOLDUZLWKWKH
YDULRXVFRPSRQHQWVDQGWKHLUUHODWLRQVKLSNQRZZKHQWRXVHZKLFKW\SHRI67+(DQGEH
DZDUHRIWKHFOHDUDQFHVEHWZHHQYDULRXVFRPSRQHQWVVRPHRIZKLFKDUHFUXFLDO$VVXFK
WKLVFKDSWHUZLOOEHRIFRQVLGHUDEOHLQWHUHVWWRPHFKDQLFDOGHVLJQHUVRI67+(VDVLWH[SODLQV
WKHLPSOLFDWLRQVRIVHYHUDOFRQVWUXFWLRQDOIHDWXUHVRQWKHUPDOGHVLJQ
&KDSWHU  ³7KHUPDO GHVLJQ DQG LWV RSWLPL]DWLRQ VLQJOHSKDVH KHDW H[FKDQJHUV´ LV D
YHU\ LPSRUWDQW FKDSWHUDV LW GLVFXVVHV YDULRXVEDVLFIHDWXUHV ZKLFKDUHUHOHYDQW QRW MXVWWR
VLQJOHSKDVH KHDW H[FKDQJHUV EXW WR FRQGHQVHUV DQG UHERLOHUV DV ZHOO 6KHOOVLGH VWUHDP
DQDO\VLVDQGWKHFRQVHTXHQWWHPSHUDWXUHSURILOHGLVWRUWLRQZLWKLWVDVVRFLDWHGSHQDOW\IDFWRU
DUHH[SODLQHGDWOHQJWK7KHVHDUHYHU\EDVLFFRQFHSWVZKLFKIRUPPXFKRIWKHIRXQGDWLRQRI
NQRZOHGJH IRU KHDW H[FKDQJHU GHVLJQ 7KH VLPXOWDQHRXV RSWLPL]DWLRQ RI VKHOOVLGH DQG
WXEHVLGHFDOFXODWLRQVLVFHUWDLQO\QRWDQHDV\WDVN:LWKVRPDQ\SDUDPHWHUVVXFKDVW\SHRI
VKHOO EDIIOLQJ WXEH SLWFK DQG WXEH OD\RXW SDWWHUQ VKHOOVLGH RSWLPL]DWLRQ LV LWVHOI TXLWH
FRPSOH[ +RZHYHU ZLWK WKH KHOS RI ORJLFDO H[SODQDWLRQ DUJXPHQWV DQG FDVH VWXGLHV WKH
GHVLJQ PHWKRGRORJ\ LV PDGH HDV\ WR XQGHUVWDQG DQG DSSO\ 7KH VHOHFWLRQ RI VKHOO DQGRU
EDIIOLQJ VW\OHV IRU WKH SURJUHVVLYH UHGXFWLRQ RI VKHOOVLGH SUHVVXUH GURS LV EURXJKW RXW LQ D
FOHDUVWHSE\VWHSPHWKRG
&KDSWHU  LV HQWLWOHG ³0HDQ WHPSHUDWXUH GLIIHUHQFH´ $IWHU GLVFXVVLQJ IXQGDPHQWDO


LVVXHVRIFRFXUUHQWDQGFRXQWHUFXUUHQWIORZLWSURJUHVVHVWRDFRPELQDWLRQRIWKHWZRDQG
WKHUHVXOWDQW)WFRUUHFWLRQIDFWRU,WGLVFXVVHVWHPSHUDWXUHFURVVWKHXVHRIPXOWLSOHVKHOOVLQ
VHULHV DQG WKH GHWHUPLQDWLRQ RI )W IRU YDULRXV VLWXDWLRQV )LQDOO\ LW GLVFXVVHV VKHOOVLGH
WHPSHUDWXUHSURILOHGLVWRUWLRQDQGLWVDVVRFLDWHGSHQDOW\RQWKH07'RIDKHDWH[FKDQJHU$
FDVHVWXG\GHPRQVWUDWHVKRZDQGZKHQWRUHGXFHWKLVSHQDOW\IDFWRUE\WKHXVHRIPXOWLSOH
VKHOOVLQVHULHVHYHQZKHQWKHUHLVQRWHPSHUDWXUHFURVV
7KHDOORFDWLRQRIVLGHVWKDWLVZKLFKVWUHDPVKRXOGEHDOORFDWHGWRWKHVKHOOVLGHRIDQ
67+(DQGZKLFKVWUHDPWRWKHWXEHVLGHLVRIWHQQRWDVWUDLJKWIRUZDUGSURFHVV7KHVHYHUDO
SDUDPHWHUV WKDW LQIOXHQFH WKH VHOHFWLRQ SURFHVV DUH GLVFXVVHG LQ FRQVLGHUDEOH GHWDLO LQ
&KDSWHU  ³$OORFDWLRQ RI VLGHV VKHOOVLGH DQG WXEHVLGH´ $ FDVH VWXG\ JXLGHV WKH UHDGHU
WKURXJKWKHVHOHFWLRQSURFHVV
&KDSWHU  LV RQ WKH ³0HWKRGRORJ\ RI WKH XVH RI PXOWLSOH VKHOOV´ 0XOWLSOH VKHOOV DUH
RIWHQUHTXLUHGWREHXVHGHLWKHULQVHULHVRULQSDUDOOHORULQDFRPELQDWLRQWKHUHRI,QVRPH
H[WUHPHVLWXDWLRQVRQHVLGHVD\WKHVKHOOVLGHLVFRQQHFWHGLQVHULHVZKLOHWKHRWKHUVLGHLQ
WKLVFDVHWKHWXEHVLGHLQSDUDOOHO7KLVFKDSWHUHPEHOOLVKHGE\WZRFDVHVWXGLHVH[SORUHVLQ
GHWDLO WKH PHWKRGRORJ\ RI VHOHFWLRQ RI PXOWLSOH VKHOOV $PRQJ RWKHU WKLQJV LW LV FOHDUO\
EURXJKWRXWWKDWPXOWLSOHVKHOOVLQVHULHVDUHQRWMXVWXVHGIRU³WHPSHUDWXUHFURVV´VLWXDWLRQV
EXWDOVRWRXWLOL]HDOORZDEOHVKHOOVLGHSUHVVXUHGURSIXOO\DQGRIWHQUHVXOWLQDORZHUILUVWFRVW
ZKHQFRPSDUHGWRDVLQJOHVKHOOGHVLJQ
6RIDUWKHERRNKDVGZHOWRQWKHWKHUPDOGHVLJQRIVLQJOHSKDVH67+(V:HQRZPRYH
RYHU WR VHUYLFHV DQG DSSOLFDWLRQV LQYROYLQJ SKDVH FKDQJH &KDSWHU  ³7KHUPDO GHVLJQ RI
FRQGHQVHUV´ LV D FRPSUHKHQVLYH HODERUDWLRQ RI WKLV VXEMHFW $IWHU D EULHI FODVVLILFDWLRQ RI
FRQGHQVHUVDFFRUGLQJWRYDULRXVFRQVWUXFWLRQDQGVHUYLFHSDUDPHWHUVDQGDEULHIDFFRXQWRI
WKHPHFKDQLVPVRIFRQGHQVDWLRQWKHFKDSWHUFRPHVWRLWVUHDOLQWHQWSUDFWLFDOJXLGHOLQHVIRU
WKHUPDO GHVLJQ 7KHVH LQFOXGH WKH GHWHUPLQDWLRQ RI VKHOO VW\OH DQG EDIIOLQJ WKH XVH RI
PXOWLSOHVKHOOVWKHKDQGOLQJRIGHVXSHUKHDWLQJDQGVXEFRROLQJQR]]OHVL]LQJDQGKDQGOLQJ
RIFRQGHQVLQJSURILOHVDQGSK\VLFDOSURSHUW\SURILOHV/RZSUHVVXUHFRQGHQVLQJWKHXVHRI
ORZILQWXEHVDQGYDFXXPFRQGHQVHUGHVLJQDUHDOVRDGGUHVVHG7KHUHDUHLQDOOHOHYHQFDVH
VWXGLHVLQWKLVFKDSWHUWRKLJKOLJKWYDULRXVLVVXHVLQFRQGHQVHUGHVLJQ
&KDSWHU  LV RQ ³7KHUPDO GHVLJQ RI UHERLOHUV´ DQG EHJLQV ZLWK DQ DFFRXQW RI SRRO
ERLOLQJDQGWKHSDUDPHWHUVZKLFKDIIHFWWKHVDPH$IWHUDEULHIGLVFXVVLRQRIIORZERLOLQJ
WKHUHDGHULVWKHQWDNHQWKURXJKDQDQDO\WLFDOGHVFULSWLRQRIWKHYDULRXVW\SHVRIGLVWLOODWLRQ
FROXPQ UHERLOHUV ZKLFK LQFOXGHV WKH SULQFLSDO IHDWXUHV DGYDQWDJHV DQG GLVDGYDQWDJHV RI
HDFK $PRQJ DOO UHERLOHUV WKH GHVLJQ RI YHUWLFDO WKHUPRV\SKRQ UHERLOHUV LV WKH PRVW
HODERUDWHDQGFRPSOH[DQGIORZUHJLPHOLTXLGFLUFXODWLRQWXEHVL]HHOHYDWLRQDQGSLSLQJ
SOD\DPRUHSURIRXQGUROHKHUHWKDQLQRWKHUUHERLOHUV6SHFLDOFRQVLGHUDWLRQVVXFKDVYHU\
ZLGHERLOLQJUDQJHRSHUDWLRQQHDUFULWLFDOSUHVVXUHILOPERLOLQJDQGERLOLQJDWYHU\ORZǻ7
DUHDOOGLVFXVVHGLQDOXFLGPDQQHU7KHFKDSWHUFORVHVDIWHURIIHULQJDJXLGHRQWKHVHOHFWLRQ
RIUHERLOHUVDQGDGLVFXVVLRQ RIWKHVWDUWXS RIUHERLOHUV7KHUHDUHVL[FDVHVWXGLHV LQWKLV
FKDSWHURQUHERLOHUV
,Q&KDSWHU³3K\VLFDOSURSHUWLHVDQG KHDWUHOHDVH SURILOHV´ LQVLJKW LV RIIHUHG RQ WKH
YDULRXVYDSRUDQGOLTXLGSK\VLFDOSURSHUWLHVZKLFKDUHHVVHQWLDOIRUWKHUPDOGHVLJQ7KHVHDUH
QHFHVVDULO\ WR EH IXUQLVKHG E\ WKH SURFHVV OLFHQVRU 6RPH XQXVXDO VLWXDWLRQV UHJDUGLQJ
YDULDWLRQ RI SK\VLFDO SURSHUWLHV ZLWK WHPSHUDWXUH DUH UHSRUWHG RQH H[DPSOH EHLQJ
K\GURFDUERQK\GURJHQPL[WXUHV7KHUHDGHULVJLYHQJXLGDQFHRQKRZWRIHHGKHDWUHOHDVH
SURILOHVDPDWWHUWKDWLVQRWDVVLPSOHDVLWPD\DSSHDU
7KH VXEMHFW RI RYHUGHVLJQ RI KHDW H[FKDQJHUV LV SHUFHLYHG WR EH LPSRUWDQW HQRXJK WR
GHVHUYH DQ HQWLUH FKDSWHU KHQFH &KDSWHU  ,W GHVFULEHV ZK\ RYHUGHVLJQ LV SURYLGHG DQG


GLVFXVVHVWKHPRGDOLWLHVRIRYHUGHVLJQIRUVLQJOHSKDVHVHUYLFHVFRQGHQVHUVDQGUHERLOHUV
*XLGHOLQHVDUHIXUQLVKHGUHJDUGLQJWKHRSWLPXPRYHUGHVLJQYDOXHIRUYDULRXVVLWXDWLRQV7KH
HIIHFW RI RYHUGHVLJQ LV EURXJKW RXW E\ FDVH VWXGLHV IRU WZR GLIIHUHQW VLWXDWLRQV D KLJK
WHPSHUDWXUHDSSURDFKFDVHDQGDORZWHPSHUDWXUHDSSURDFKFDVH
&KDSWHU³)RXOLQJLWVFDXVHVDQGPLWLJDWLRQ´LVDFKDSWHURIFRQVLGHUDEOHSUDFWLFDO
VLJQLILFDQFH WRWKHWKHUPDOGHVLJQHUDVIRXOLQJ LV RIWHQDVHYHUHSUREOHP $IWHUUHYLHZLQJ
WKHYDULRXVFDWHJRULHVRIIRXOLQJDQGWKHSDUDPHWHUVZKLFKDIIHFWLWVXJJHVWLRQVDUHRIIHUHG
RQ KRZWR VSHFLI\ IRXOLQJUHVLVWDQFH&RPSUHKHQVLYH JXLGHOLQHVDUHWKHQUHFRPPHQGHG LQ
RUGHUWRPLQLPL]HIRXOLQJ$OWKRXJKIRXOLQJLVDQH[WUHPHO\FRPSOH[SKHQRPHQRQLWLVVWLOO
SRVVLEOH WR PLQLPL]H LW E\ DGRSWLQJ WKHVH GHVLJQ SUDFWLFHV 7KHVH UDQJH IURP WKH XVH RI
VSHFLILFQRQWXEXODUKHDWH[FKDQJHUVLQFHUWDLQVLWXDWLRQVWRYDULRXVVWHSVDQGPHDVXUHVWKH
GHVLJQHQJLQHHUFDQDGRSWIRU67+(VZKHWKHUWKHIRXOLQJIOXLGLVRQWKHWXEHVLGHRURQWKH
VKHOOVLGH2QHFDVHVWXG\GHPRQVWUDWHVKRZWKHVKHOOLVGHYHORFLW\RIDGLUW\VWUHDPFDQEH
LQFUHDVHGDQGDQRWKHUFDVHVWXG\VKRZVWKHSURIRXQGLQIOXHQFHRIIRXOLQJOD\HUWKLFNQHVVRQ
SUHVVXUHGURS
&KDSWHULVRQIORZLQGXFHGYLEUDWLRQDQDO\VLV7KLVLVDQH[WUHPHO\LPSRUWDQWVXEMHFW
DV KHDW H[FKDQJHUV PXVW EH GHVLJQHG VR WKDW WKH\ DUH VDIH DJDLQVW IDLOXUH RI WXEHV GXH WR
IORZLQGXFHG YLEUDWLRQ 7KH PHFKDQLFV RI IORZLQGXFHG YLEUDWLRQ DQG WKH PRGHV RI WXEH
IDLOXUHDUH GHVFULEHG *XLGHOLQHVDUH GHVFULEHGIRU SUHGLFWLQJIORZLQGXFHG YLEUDWLRQ)RXU
FDVH VWXGLHV DUH SUHVHQWHG RQ KRZ WR SURGXFH GHVLJQV WKDW DUH VDIH DJDLQVW IORZLQGXFHG
YLEUDWLRQ 7KH YLWDO OLQN EHWZHHQ DOORZDEOH SUHVVXUH GURS DQG IORZLQGXFHG YLEUDWLRQ LV
EURXJKWRXWFOHDUO\)LQDOO\WKHUHLVDEULHIH[SRVLWLRQRIWKHPHFKDQLFVRIDFRXVWLFYLEUDWLRQ
ZLWKZD\VDQGPHDQVRISUHYHQWLQJLW
(QKDQFHG KHDW WUDQVIHU LV QRW D QHZ VXEMHFW EXW LW KDV EHFRPH SRSXODU RQO\ RI ODWH
&KDSWHU  GZHOOV RQ HQKDQFHG KHDW WUDQVIHU WKH YDULRXV WHFKQLTXHV WKDW DUH DSSOLHG WR
DFKLHYHLWDQGLWVEHQHILWVDVFRPSDUHGWRFRQYHQWLRQDOVKHOODQGWXEHKHDWH[FKDQJHUV

5HIHUHQFHV
>@ -DFRE0+HDW7UDQVIHU9RO-RKQ:LOH\DQG6RQV
>@ .HUQ'43URFHVV+HDW7UDQVIHU0F*UDZ+LOO%RRN&R
>@ 0F$GDPV:++HDW7UDQVPLVVLRQUG(GLWLRQ0F*UDZ+LOO%RRN&R
>@ /XGZLJ(($SSOLHG3URFHVV'HVLJQIRU&KHPLFDODQG3HWURFKHPLFDO3ODQWV9RO*XOI
3XEOLVKLQJ&RQGHGUGHG
>@ &RXOVRQ -0 DQG 5LFKDUGVRQ -) &KHPLFDO (QJLQHHULQJ 9RO  3HUJDPRQ 3UHVV 
QGHGUGHGWKHG


 &+$37(5

&ODVVLILFDWLRQRI
6KHOODQG7XEH+HDW([FKDQJHUV

&RPSRQHQWVRI6KHOODQG7XEH+HDW([FKDQJHUV
,QRUGHUWREHDEOHWRSURGXFHRSWLPXPGHVLJQVLWLVHVVHQWLDOIRUWKHWKHUPDOGHVLJQHUWR
KDYH D JRRG ZRUNLQJ NQRZOHGJH RI WKH PHFKDQLFDO IHDWXUHV RI VKHOODQGWXEH KHDW H[
FKDQJHUV67+(VDQGPRUHLPSRUWDQWO\KRZWKH\LQIOXHQFHWKHUPDOGHVLJQ
7KHSULQFLSDOFRPSRQHQWVRIDQ67+(DUH
D VKHOO
E VKHOOFRYHU
F WXEHV
G FKDQQHO
H FKDQQHOFRYHU
I WXEHVKHHW
J EDIIOHV
K IORDWLQJKHDGFRYHU
L QR]]OHV
2WKHUFRPSRQHQWVLQFOXGHWLHURGVDQGVSDFHUVSDVVSDUWLWLRQSODWHVLPSLQJHPHQWSODWH
ORQJLWXGLQDOEDIIOHVHDOLQJVWULSVVOLGLQJVWULSVVXSSRUWVDQGIRXQGDWLRQ

7XEHEXQGOH
7KHWXEHEXQGOHLVWKHKHDUWRIWKHVKHOODQGWXEHXQLWDQGFRPSULVHVWXEHVWXEHVKHHWV
EDIIOHVIORDWLQJKHDGFRYHUVSOLWULQJWLHURGVVSDFHUVLPSLQJHPHQWEDIIOHORQJLWXGLQDO
EDIIOHDQGVHDOLQJVOLGLQJVWULSV
7KH6WDQGDUGVRIWKH7XEXODU([FKDQJHU0DQXIDFWXUHUV$VVRFLDWLRQ7(0$>@VKRXOG
EHUHIHUUHGWRIRUWKHIROORZLQJGHVFULSWLRQRIWKHVHYDULRXVFRPSRQHQWV

7XEHV
7XEHVUHSUHVHQWWKH PRVW YLWDOFRPSRQHQWDVLWLVWKURXJKWKHWXEHZDOOWKDWDFWXDOKHDW
WUDQVIHUWDNHVSODFH2QHIOXLGIORZVLQVLGHWKHWXEHVZKLOHDQRWKHUIORZVDFURVVRUDORQJ
WKHRXWVLGHRIWKHWXEHV7XEHVPD\EHHLWKHUVHDPOHVVRUHOHFWULFUHVLVWDQFHZHOGHGEXW
IRUUHDVRQVRIPHFKDQLFDOLQWHJULW\DQGWKHUHE\UHOLDELOLW\WKHIRUPHULVXVXDOO\SUHIHUUHG
7XEHVDUHXVXDOO\GHILQHGE\RXWHUGLDPHWHU2'DQGZDOOWKLFNQHVVRU%:*6LQFH
WKH RXWHU GLDPHWHU LV IL[HG DQG WKH LQVLGH GLDPHWHU YDULHV DFFRUGLQJ WR WKH WKLFNQHVV LW LV


 PRUH FRQYHQLHQW WR VSHFLI\
WXEHV E\ WKHLU RXWHU GLDPHWHU
%HVLGHV RXWHU GLDPHWHU LV
PRUH LPSRUWDQW WKDQ LQQHU
GLDPHWHUDVWKHKROHVLQEDIIOHV
DQG WXEHVKHHWV KDYH WR EH
GULOOHG EDVHG RQ WKH RXWHU
GLDPHWHU RI WKH WXEHV :DOO
WKLFNQHVV FDQ EH HLWKHU PLQL
PXP ZDOO ZKHQ WKHUH LV QR
XQGHUWROHUDQFHEXWRQO\RYHU
WROHUDQFH RU DYHUDJH ZDOO
)LJ7XEHWRWXEHVKHHWMRLQW ZKHQ WKHUH LV ERWK XQGHU
WROHUDQFH DQG RYHUWROHUDQFH
7KHXVXDOSUDFWLFHLVWRRUGHUWXEHVZLWKPLQLPXPZDOOIRUFDUERQVWHHODQGORZDOOR\VWHHO
WXEHVDQGZLWKDYHUDJHZDOOIRUQRQIHUURXVDQGKLJKDOOR\VWHHOWXEHV
'HSHQGLQJ XSRQ WKH QDWXUH RI WKH ZRUNLQJ IOXLGV WXEHV DUH HPSOR\HG LQ YDULRXV
PDWHULDOVRIFRQVWUXFWLRQWKHSULQFLSDOEHLQJFDUERQVWHHOORZDQGKLJKDOOR\VWHHOVVSHFLDO
VWDLQOHVV VWHHOV $GPLUDOW\ EUDVV DQG EURQ]H DQG DOOR\V RI FRSSHU DQG QLFNHO LQ YDULRXV
SURSRUWLRQV LQFOXGLQJ 0RQHOWLWDQLXPDQG HYHQ H[RWLF PDWHULDOVVXFKDV +DVWHOOR\VDQG
WDQWDOXP 7XEHV DUH XVXDOO\ EDUH EXW LQ VLWXDWLRQV ZKHUH WKH VKHOOVLGH KHDW WUDQVIHU
FRHIILFLHQWLVKLJKO\FRQWUROOLQJORZILQWXEHVDUHVRPHWLPHVXVHGDGYDQWDJHRXVO\SURYLGHG
WKHVKHOOVLGHIOXLGLVQRWGLUW\
7XEHVDUH KHOGDWERWK HQGVRQH HQG IRU 8WXEHV E\ GULOOHG SODWHV FDOOHGWXEHVKHHWV
:KHUHDVIRUIL[HGWXEHVKHHWDQG 8WXEH KHDW H[FKDQJHUVWXEHVKHHWVDUHVWDWLRQDU\ RQH RI
WKH WZR WXEHVKHHWV LQ D IORDWLQJKHDG KHDW H[FKDQJHU LV OLWHUDOO\ D IORDWLQJ WXEHVKHHW
7XEHVKHHW WKLFNQHVV FDQ YDU\ IURP D PHUH  LQ  PP IRU ORZSUHVVXUH DQG ORZVKHOO
GLDPHWHU DSSOLFDWLRQV WR RYHU  LQ  PP LQ KLJKSUHVVXUH DQG ODUJHVKHOO GLDPHWHU
DSSOLFDWLRQV
'HSHQGLQJXSRQWKHVHYHULW\RIWKHVLWXDWLRQWXEHVDUHHLWKHUH[SDQGHGLQWRJURRYHVLQ
WKH WXEHVKHHW RU ZHOGHG WR WKHP $Q H[SDQGHG WXEHWRWXEHVKHHW MRLQW XVXDOO\ KDV WZR
JURRYHVDVVKRZQLQ)LJD7KHWXEHVDUHH[SDQGHGE\URWDWLQJGULOOWXEHH[SDQGHUVVR
WKDWWXEHPHWDODFWXDOO\IORZVLQWRWKHJURRYHV:HOGHGWXEHWRWXEHVKHHWMRLQWV)LJE
DIIRUG KLJKHU LQWHJULW\ DOEHLW DW D KLJKHU FRVW DQG DUH XVXDOO\ HPSOR\HG IRU VHYHUH
FRQGLWLRQV VXFK DV KLJK SUHVVXUH VD\ LQ H[FHVV RI  SVLJ RU  NJFP J RU ZKHQ
KDQGOLQJWR[LFRULQIODPPDEOHIOXLGVZKHUHOHDNDJHLVQRWSHUPLWWHG:KHQWKHKRWDQGFROG
VWUHDPVFDQQRWEHDOORZHGWRPL[DVSHFLDOGRXEOHWXEHVKHHWFRQVWUXFWLRQLVHPSOR\HG

%DIIOHV
%DIIOHVVHUYHWRVXSSRUWWKHWXEHVDVZHOODVWRLPSDUWDVXIILFLHQWO\KLJKVKHOOVLGHYHORF
LW\WR\LHOGDVDWLVIDFWRU\KHDWWUDQVIHUFRHIILFLHQW%DIIOHVDUHKHOGVHFXUHO\LQSODFHE\D
FRPELQDWLRQRIWLHURGVDQGVSDFHUV$IWHUDEDIIOHKDVEHHQJXLGHGDORQJWKHWLHURGVD
VHWRIVSDFHUVLVLQWURGXFHGRYHUWKHWLHURGVDIWHUZKLFKWKHQH[WEDIIOHLVLQVHUWHGDQG
VRRQ(YLGHQWO\WKHOHQJWKRIWKHVSDFHUVLVHTXDOWRWKHEDIIOHVSDFLQJ'HWDLOVRIEDIIOH
FRQILJXUDWLRQDUHGLVFXVVHGLQGHWDLOLQ6HFWLRQ
$ VPDOO FOHDUDQFH EHWZHHQ WKH WXEH RXWVLGH GLDPHWHU DQG WKH EDIIOH KROH GLDPHWHU LV
HVVHQWLDO WR SHUPLW WXEHV WR EH LQVHUWHG WKURXJK EDIIOHV DQG DVVHPEO\ DV ZHOO DV IRU WXEH
UHSODFHPHQW LI DQG ZKHQ UHTXLUHG 7(0$ VSHFLILHV WKLV JDS DV  LQ  PP IRU D


7DEOH7DEOH5&%RI7(0$6WDQGDUGV6WDQGDUGFURVVEDIIOHDQGVXSSRUWSODWHFOHDUDQFHV
1RPLQDO6KHOO,' 'HVLJQ,'RI6KHOOPLQXV%DIIOH2'
²LQ²PP LQPP
²LQ²PP LQPP
²LQ²PP LQPP
²LQ²PP LQPP
²LQ²PP LQPP
²LQ²PP LQPP

PD[LPXPXQVXSSRUWHGWXEHOHQJWKODUJHUWKDQLQPPDQGLQPPIRUD

PD[LPXPXQVXSSRUWHGWXEHOHQJWKVPDOOHUWKDQLQPP$SDUWRIWKHVKHOOVLGHIOXLG
OHDNV WKURXJK WKLV VPDOO JDS WKLV LV RQH RI WKH VKHOOVLGH OHDNDJH VWUHDPV DQG ZLOO EH
GLVFXVVHGLQGHWDLOLQ6HFWLRQ$QH[FHVVLYHFOHDUDQFHSURYLGHVH[FHVVLYHOHDNDJHDQG
LQVXIILFLHQWWXEHVXSSRUWZLWKWKHSRVVLELOLW\RIYLEUDWLRQ
7KHRXWHUGLDPHWHURIWKHEDIIOHKDVWREHOHVVWKDQWKHLQVLGHGLDPHWHURIWKHVKHOOWR
SHUPLWLQVHUWLRQRIWKHWXEHEXQGOHLQWRWKHVKHOODQGUHPRYDORIWKHWXEHEXQGOHIURPWKH
VKHOO +RZHYHU VLQFH WKH VKHOOVLGH OHDNDJH VWUHDP EHWZHHQ WKH VKHOO DQG WKH EDIIOHV LV
SDUWLFXODUO\GHWULPHQWDOWRVKHOOVLGHWKHUPDOSHUIRUPDQFHVHH6HFWLRQWKLVJDSVKRXOG
EH DV VPDOO DV SRVVLEOH 7DEOH  VKRZV WKLV JDS IRU YDULRXV VKHOO ,' UDQJHV DV SHU WKH
7(0$VWDQGDUGV

&KDQQHOFKDQQHOFRYHUDQGSDVVSDUWLWLRQSODWHV
7KHFKDQQHOVHUYHVWRLQWURGXFHWKHWXEHVLGHZRUNLQJIOXLGLQWRWKHH[FKDQJHUDVZHOODV
WR GLUHFW LW RXW RI WKH H[FKDQJHU $ FKDQQHO PD\ HLWKHU EH RI D ERQQHW FRQVWUXFWLRQ
7(0$ KHDG W\SH % ZKHUH D GLVKHG HQG LV ZHOGHG WR WKH FKDQQHO EDUUHO RU KDYH D
IODQJHG FKDQQHO FRYHU 7(0$ KHDG W\SH $ 3DVVSDUWLWLRQ SODWHV LQVLGH WKH FKDQQHOV
VHUYHWRGLUHFWWKHWXEHVLGHIOXLGDORQJWKHWXEHVDVGHVLUHGE\WKHWKHUPDOHQJLQHHULH
WKH\YDU\WKHQXPEHURIWXEHSDVVHV7KH\ILWWLJKWO\LQWRJURRYHVLQWKHWXEHVKHHWDQG
FKDQQHO FRYHULQ RUGHUWR HOLPLQDWHWKHSRVVLELOLW\ RI OHDNDJH RIWKHWXEHVLGHIOXLGIURP
RQHSDVVWRWKHQH[W²VXFKOHDNDJHZRXOGHYLGHQWO\EHKLJKO\GHWULPHQWDOWRVDWLVIDFWRU\
SHUIRUPDQFHRIDKHDWH[FKDQJHU7KHDFWXDOVHDOLQJLVHIIHFWHGE\ZHOOVHWJDVNHWVWKDW
PXVWEHFKHFNHGSHULRGLFDOO\DQGUHSODFHGZKHQHYHUWKH\DUHIRXQGZDQWLQJ
7KHDUUDQJHPHQWRIWKHSDVVSDUWLWLRQSODWHVLQPXOWLSDVVKHDWH[FKDQJHUVLVVRPHZKDW
DUELWUDU\+RZHYHUDOORIWKHPWU\WRDFFRPSOLVKWKHIROORZLQJJRDOVPD[LPL]HWKHQXPEHU
RIWXEHVZKLOHHPSOR\LQJDIDLUO\HYHQGLVWULEXWLRQRIWXEHVLQWKHYDULRXVSDVVHV$QRWKHU
FRQVLGHUDWLRQ LQ VRPH LQVWDQFHV LV WR PLQLPL]H WKH QXPEHU RI IORZ ODQHV LQ WKH IORZ
GLUHFWLRQZKHQWKHVDPHKDVDFUXFLDOEHDULQJRQWKHVKHOOVLGHVWUHDPDQDO\VLVDQGWKHUHIRUH
SHUIRUPDQFH)RUH[DPSOHKDYLQJWZRSDVVSDUWLWLRQODQHVLQWKHIORZGLUHFWLRQLQVWHDGRI
WKUHHZLOOUHVXOWLQDVPDOOHUSDVVSDUWLWLRQOHDNDJHVWUHDPIORZIUDFWLRQ
6RPHXVXDOSDWWHUQVRISDVVSDUWLWLRQDUUDQJHPHQWVIRUGLIIHUHQWQXPEHUVRIWXEHSDVVHV
DUHLOOXVWUDWHGLQ)LJ

6KHOODQGVKHOOFRYHU
7KHVKHOOVHUYHVWRFRQWDLQWKHVKHOOVLGHIORZLQJVWUHDPDQGIRUPVWKHRXWHUFDVLQJRIWKH
WXEHEXQGOH,WDOVRVHUYHVWRLQWURGXFHWKHZRUNLQJIOXLGVLQWRWKHKHDWH[FKDQJHUDVZHOO
DVWRUHPRYHWKHPIURPWKHKHDWH[FKDQJHU$VKHOOFRYHULVUHTXLUHGLQWKHFDVHRIVSOLW
ULQJSXOOWKURXJKIORDWLQJKHDGKHDWH[FKDQJHUV


 
)LJ  8VXDO SDWWHUQV RI SDVV SDUWLWLRQ DUUDQJHPHQWV 5HSULQWHG IURP WKH +HDW ([FKDQJHU 'HVLJQ +DQG
ERRNZLWKSHUPLVVLRQRI%HJHOO+RXVH,QF

,PSLQJHPHQWSODWH
7KH LQOHW QR]]OH LV RIWHQ SURYLGHG ZLWK DQ LPSLQJHPHQW SODWH WR SURWHFW WKH XSSHUPRVW
WXEHV ORFDWHG MXVW EHORZ WKH VKHOOVLGH LQOHW QR]]OH DJDLQVW GLUHFW LPSLQJHPHQW E\ WKH
VKHOOVLGHIOXLG6XFKLPSLQJHPHQWFDQFDXVHHURVLRQFDYLWDWLRQDQGRUYLEUDWLRQ7(0$
VSHFLILHVDQXSSHUOLPLWRQȡYRIOEIWVHFNJPVHFIRUQRQFRUURVLYHQRQ
DEUDVLYHVLQJOHSKDVHIOXLGV)RUDOORWKHUOLTXLGVLQFOXGLQJDOLTXLGDWLWVERLOLQJSRLQW
WKH OLPLW RQ ȡY LV  OEIW VHF  NJP VHF )RU DOO VDWXUDWHG YDSRUV DQG DOO WZR
SKDVHPL[WXUHVDQLPSLQJHPHQWSODWHLVDOZD\VUHTXLUHGDVLQ
WKHVHVHUYLFHVLWLVSRVVLEOHWRKDYHOLTXLGGURSOHWVWUDYHOLQJDW
YDSRUYHORFLWLHVZLWKYHU\KLJKYDOXHVRIȡY
$Q LPSLQJHPHQW SODWH PXVW EH ORFDWHG VXIILFLHQWO\ EHORZ
WKHVKHOO,'VRDVWROHDYHVXIILFLHQWIORZDUHDEHWZHHQWKHVKHOO
DQGWKHSODWHIRUWKHIORZWRGLVFKDUJHZLWKRXWH[FHVVLYHYHORFLW\
DQG WKHUHE\ SUHVVXUH ORVV &RQVHTXHQWO\ D IHZ URZV RI WXEHV
XVXDOO\KDYHWREHHOLPLQDWHGIURPWKHWRSRIWKHWXEHILHOGVHH

)LJ
)LJ  ,PSLQJHPHQW SODWH
5HSULQWHG IURP WKH +HDW 6OLGLQJDQGVHDOLQJVWULSV
([FKDQJHU 'HVLJQ +DQG
ERRN  ZLWK SHUPLVVLRQ $SDLU RIVOLGLQJVWULSVLVSURYLGHGDWWKHERWWRP RIIORDWLQJ
RI%HJHOO+RXVH,QF KHDGWXEHEXQGOHVIRUWKHLULQVHUWLRQDQGUHPRYDOWRDQGIURP

 
)LJ7XEHOD\RXWGLDJUDP5HSULQWHGIURPWKH+HDW([FKDQJHU'HVLJQ+DQGERRNZLWKSHUPLVVLRQ
RI%HJHOO+RXVH,QF

WKHVKHOO$VXIILFLHQW QXPEHU RIVHDOLQJVWULSV LVUHTXLUHGWREHLQVHUWHG LQWKH JDSEH

WZHHQWKHVKHOODQGWKHRXWHUPRVWWXEHVLQIORDWLQJKHDGWXEHEXQGOHVWRPLQLPL]HOHDN
DJHRIWKHVKHOOVLGHIOXLGDURXQGWKHWXEHEXQGOH
$ W\SLFDO WXEH OD\RXW GUDZLQJ LV VKRZQ LQ )LJ  VKRZLQJ PDQ\ RI WKH DERYH
FRPSRQHQWVYL]WXEHVWLHURGVVHDOLQJVWULSVVOLGLQJVWULSVDQGLPSLQJHPHQWSODWH

/RQJLWXGLQDOEDIIOH
%\LWVYHU\QDPHDORQJLWXGLQDOEDIIOHLVSODFHGWUDQVYHUVHO\DORQJWKHFHQWHUOLQHRIWKH
VKHOODQGLVHPSOR\HGWRGLYLGHWKHVKHOOLQWRWZRRUPRUHFRPSDUWPHQWVVHH)LJVD

 
 D6FKHPDWLF E7\SLFDODUUDQJHPHQW
)LJ/RQJLWXGLQDOEDIIOH5HSULQWHGIURPWKH+HDW([FKDQJHU'HVLJQ+DQGERRNZLWKSHUPLVVLRQRI
%HJHOO+RXVH,QF


DQGE)RUH[DPSOHDVLQJOHORQJLWXGLQDOEDIIOHIURPRQHWXEHVKHHWWRMXVWVKRUWRIWKH
RWKHUWXEHVKHHWSURGXFHVDQ)VKHOOWKDWLVDVKHOO ZLWKWZRVKHOOSDVVHV/RQJLWXGLQDO
EDIIOHVPD\DOVREHHPSOR\HGWRSURGXFH*DQG+VKHOOVVHH)LJ
,WZLOOEHDSSDUHQWWKDWLQWKHFDVHRIUHPRYDEOHWXEHEXQGOHVWKHORQJLWXGLQDOEDIIOHZLOO
EHDSDUWRIWKHWXEHEXQGOHDQGFDQWKHUHIRUHQRWEHIL[HGWRWKHVKHOO,QRUGHUWRSUHYHQW
E\SDVVLQJRIWKHVKHOOVLGHIOXLGIURPWKHILUVWSDVVWRWKHVHFRQGSDVVDORQJWKHHGJHVRIWKH
ORQJLWXGLQDOEDIIOHLQDQ)VKHOOIOH[LEOHVWULSVDUHHPSOR\HGDWERWKHQGVRIWKHORQJLWXGLQDO
EDIIOHDOODORQJWKHOHQJWKRIWKHVKHOO)LJE$OVRWKHVKHOOVLGHSUHVVXUHGURSLVXVXDOO\
OLPLWHGWRNJFPLQ)VKHOOVLQRUGHUWRPLQLPL]HWKHSRVVLELOLW\RIOHDNDJHDFURVVWKH
ORQJLWXGLQDOEDIIOH
+RZHYHULQWKHFDVHRIIL[HGWXEHVKHHWKHDWH[FKDQJHUVVLQFHWKHWXEHEXQGOHFDQQRW
EHUHPRYHGIURPWKHVKHOOWKHORQJLWXGLQDOEDIIOHFDQEHIL[HGWRWKHVKHOOE\ZHOGLQJ
7(0$KDVGHYHORSHGDQRPHQFODWXUHIRUWKHVSHFLILFDWLRQRIYDULRXVFRQVWUXFWLRQW\SHV
$Q 67+( LV GLYLGHG LQWR WKUHH SDUWV WKH IURQW KHDG WKH VKHOO DQG WKH UHDU KHDG 7KH
QRPHQFODWXUHIRUWKHYDULRXVFRQVWUXFWLRQSRVVLELOLWLHVDUHVKRZQLQ)LJ

)URQWDQG5HDU+HDGV
5HIHUULQJWRWKHFODVVLILFDWLRQLQ7(0$)LJWKHUHDUHILYHIURQWKHDGW\SHV$%
&'DQG17KHUHDUHHLJKWUHDUKHDGW\SHV/013678DQG:ZKLFKFRUUH
VSRQG LQ SUDFWLFH WR RQO\ WKUHH JHQHUDO FRQVWUXFWLRQ W\SHV QDPHO\ IL[HGWXEHVKHHW 8
WXEHDQGIORDWLQJKHDG5HDUKHDG/ LV LGHQWLFDOWRDIURQW KHDG $DQGUHDUKHDG0LV
LGHQWLFDOWRDIURQWKHDG%ZKLOH1LVWKHVDPHQRPHQFODWXUH7KHVHWKUHHUHDUKHDGW\SHV
EHORQJWRIL[HGWXEHVKHHWKHDWH[FKDQJHUV8DSSOLHVWR8WXEHKHDWH[FKDQJHUVZKLOH6
73DQG:UHSUHVHQWYDULRXVW\SHVRIIORDWLQJKHDGFRQVWUXFWLRQ,QWKHIROORZLQJVHF
WLRQ WKH GLIIHUHQW W\SHV RI KHDGV ZLOO EH GLVFXVVHG 7KH RYHUDOO FODVVLILFDWLRQ RI IL[HG
WXEHVKHHW 8WXEH DQG IORDWLQJKHDG KHDW H[FKDQJHUV ZLOO EH GLVFXVVHG LQ 6HFWLRQ 
7KHYDULRXVVKHOOW\SHVZLOOEHGLVFXVVHGLQ6HFWLRQ

$0W\SHKHDG
,Q WKLV W\SH WKH FKDQQHO EDUUHO LV IODQJHG DW ERWK HQGV 7KH WXEHVKHHW LV EROWHG WR RQH
IODQJH DQG D IODW FKDQQHO FRYHU WR WKH RWKHU 7KXV RQO\ WKH FKDQQHO FRYHU KDV WR EH UH
PRYHGIRUFOHDQLQJRIWKHWXEHVE\URGGLQJRUK\GUREODVWLQJWKHFKDQQHODQGSLSLQJDUH
QRWGLVWXUEHG+RZHYHUIRUDQ\LQVSHFWLRQRUUHSDLURIDWXEHWRWXEHVKHHWMRLQWWKHHQ
WLUHFKDQQHOZLOOXVXDOO\EHUHTXLUHGWREHUHPRYHGHVSHFLDOO\IRUSHULSKHUDOWXEHV5H
PRYDORIWKHHQWLUHFKDQQHOLVDOVRUHTXLUHGIRUUHPRYDORIWKHWXEHEXQGOH
'HVSLWHLWVKLJKHUFRVWGXHWRWKHSUHVHQFHRIWZRIODQJHGMRLQWVWKLVW\SHRIFKDQQHOLV
YHU\ FRPPRQO\ XVHG HVSHFLDOO\ LQ SHWUROHXP UHILQHULHV ZKHUH GLUW\ IOXLGV DUH KDQGOHG
QHFHVVLWDWLQJIUHTXHQWEXQGOHUHPRYDO

%0W\SHKHDG
,Q WKLV FRQVWUXFWLRQ WKH FKDQQHO EDUUHO LV IODQJHG DW RQH HQG RQO\ WKH RWKHU HQG EHLQJ
ZHOGHGWRDVHPLHOOLSWLFDOERQQHWRUGLVKHGHQG7KLVW\SHLVOLJKWHUDQGFKHDSHUWKDQWKH
$W\SH HVSHFLDOO\DWKLJKSUHVVXUHVDVWKHWKLFNQHVV RIWKHERQQHW LVFRQVLGHUDEO\OHVV
WKDQWKDWRIDIODWFRYHUSODWH+HUHWKHHQWLUHERQQHWKDVWREHUHPRYHGIRUFOHDQLQJHYHQ
WKHLQVLGHRIWXEHVZKLFKPHDQVWKDWWKHFKDQQHOSLSLQJFRQQHFWLRQVKDYHWREHGLVPDQ
WOHG)RUUHPRYDORIWKHEXQGOHIRUFOHDQLQJWKHRXWVLGHRIWXEHVWKHHQWLUHFKDQQHOKDVWR
EHUHPRYHGDQ\ZD\DVLQGHHGKDVWREHWKH$W\SHFKDQQHO7KHUHIRUHWKLVFKDQQHOW\SH
LVUHFRPPHQGHGIRUVHUYLFHVZKHUHWKHWXEHVLGHIOXLGLVFOHDQ,WZLOOEHVHHQLQ6HFWLRQ

WKDW8WXEHVDUHUHFRPPHQGHGIRUFOHDQWXEHVLGHIOXLGV7KXVD%(8FRQVWUXFWLRQ
LV FRPPRQO\ LQFRUSRUDWHG LQ KHDW H[FKDQJHUV KDQGOLQJ FOHDQ WXEHVLGH IOXLGV VXFK DV
VWHDPRUUHIULJHUDQWV
)RU VHUYLFHV KDYLQJ D KLJK GHVLJQ SUHVVXUH RQ WKH WXEHVLGH D %W\SH FKDQQHO LV
DGYDQWDJHRXVDVLWOHDGVWRFRVWVDYLQJVGXHWRWKLQZDOOERQQHWFRQVWUXFWLRQ
$%W\SHFKDQQHO PD\DOVREHSUHIHUUHGWRDQ$W\SHFKDQQHOIRUVPDOOGLDPHWHUKHDW
H[FKDQJHUVZKHUHLWLVQRWGLIILFXOWWRUHPRYHWKHHQWLUHFKDQQHOGXHWRWKHORZHUZHLJKW

&W\SHKHDG
7KLV LV VLPLODU WR WKH $ W\SH LQ WKDW WKHUH LV D IODW FKDQQHO FRYHU +RZHYHU KHUH WKH
WXEHVKHHW HQG RI WKH FKDQQHO LV QRW IODQJHG WR WKH WXEHVKHHW EXW ZHOGHG WR LW²WKH
WXEHVKHHWLVIODQJHGWRWKHVKHOO(YLGHQWO\WKLVW\SHRIFRQVWUXFWLRQLVLQWHQGHGRQO\IRU
UHPRYDEOH EXQGOHV ,W PLQLPL]HV EROWHG MRLQWV DQG WKHLU GLVPDQWOLQJ RQ WKH WXEHVLGH
ZKLFK ZRXOG EH DGYDQWDJHRXV LQ VHUYLFHV KDQGOLQJ LQIODPPDEOH RU OHWKDO IOXLGV RQ WKH
WXEHVLGH


)LJXUH7(0$FRQVWUXFWLRQW\SHV6RXUFH7(0$6WDQGDUGV

 ,W DOVR HQDEOHV WKH HQWLUH FKDQQHO DQG WXEH EXQGOH WR EH OHIW LQ VLWX ZKLOH WKH VKHOO LV
GUDZQDZD\7KLVZLOOEHDGYDQWDJHRXVZKHQWKHWXEHEXQGOHLVPXFKKHDYLHUWKDQWKHVKHOO
VRWKDWLWEHFRPHVHDVLHUWRUHPRYHWKHVKHOOLQVWHDGRIWKHWXEHEXQGOH
7KHUHLVRQHGLVWLQFWGLVDGYDQWDJHLQWKLVFKDQQHOW\SH$IWHUUHPRYDORIWKHFRYHUSODWH
DFFHVV WR WKH WXEHWRWXEHVKHHW MRLQWV IRU DQ\ UHSDLUV LV GLIILFXOW ,W WKHUHIRUH EHFRPHV
QHFHVVDU\WRVSHFLI\DODUJHUWXEHEXQGOHVKHOOFOHDUDQFHWKDQLVRWKHUZLVHUHTXLUHGWKHUHE\
LQFUHDVLQJWKHFRVW&RQVHTXHQWO\WKH&W\SHKHDGLVQRWFRPPRQO\XVHG

1W\SHKHDG
:HKDYHMXVWVHHQWKDWLQWKH&W\SHWKHWXEHVKHHWLVLQWHJUDOWRWKHFKDQQHODQGIODQJHG
WRWKHVKHOO,QWKH1W\SHWKHWXEHVKHHWLVLQWHJUDOWRERWKWKHFKDQQHODQGWKHVKHOODQG
FDQ HYLGHQWO\ EH XVHG RQO\ IRU IL[HGWXEHVKHHW KHDW H[FKDQJHUV ,W ZLOO EH QRWLFHG WKDW
KHUHZKLOHMRLQWVDUHPLQLPL]HGIRUWKHWXEHVLGHWKH\DUHWRWDOO\HOLPLQDWHGIRUWKHVKHOO
VLGH7KXVWKH\DUHHPSOR\HGLQVHUYLFHVKDQGOLQJWR[LFRUOHWKDOIOXLGVRQWKHVKHOOVLGH
/LNHWKH$W\SHKHDGRQHDGYDQWDJHLVWKDWWKHFKDQQHOSLSLQJMRLQWVGRQRWKDYHWREH
GLVWXUEHGIRUFOHDQLQJWKHWXEHVIURPWKHLQVLGH+RZHYHULWKDVWKHVDPHGLVDGYDQWDJHDV
WKH&±W\SHKHDGUHJDUGLQJDFFHVVWRWKHSHULSKHUDOWXEHWRWXEHVKHHWMRLQWV
,QRQHYDULDWLRQRIWKH1W\SHKHDGWKHWXEHVKHHWLVLQWHJUDOWRWKHVKHOOEXWIODQJHGWR
WKHFKDQQHO

'W\SHKHDG
)RUFKDQQHOVIRUKLJKSUHVVXUHVHUYLFHVRQWKHWXEHVLGHGHVLJQSUHVVXUH!SVLJRU
NJFPJVSHFLDOO\GHVLJQHGDQGQRQEROWHGFORVXUHVDUHHPSOR\HG0DQ\RIWKHVH
DUH SDWHQWHG 7KHVH VSHFLDO KLJKSUHVVXUH FKDQQHOV DUH JHQHUDOO\ UHIHUUHG WR DV 'W\SH
FORVXUHV9HU\ODUJHGLDPHWHUEROWVDQGQXWVDUHUHTXLUHGWREHHPSOR\HGVRWKDWWKHXVH
RIK\GUDXOLFEROWWHQVLRQHUVEHFRPHVQHFHVVDU\

&RQLFDOKHDG
$OWKRXJKQRWIRUPDOO\GHVLJQDWHGLQWKH7(0$QRPHQFODWXUHWKHVHKHDGVDUHXVHGTXLWH
RIWHQLQVLQJOHWXEHSDVVKHDWH[FKDQJHUVHVSHFLDOO\LQYHUWLFDOWKHUPRV\SKRQUHERLOHUV
7KHVHDUHVLPSO\FRQLFDOVHFWLRQVIODQJHGDWERWKHQGVZLWKWKHIODQJHDWWKHODUJHUGL
DPHWHUEROWHGWRWKHWXEHVKHHWDQGWKHIODQJHDWWKHVPDOOHUGLDPHWHUEROWHGD[LDOO\WRWKH
SLSLQJ $SDUWIURPWKHFRQYHQLHQFH RI PDWFKLQJWKHFROXPQUHWXUQ OLQH HOHYDWLRQ ZKHQ
DVVRFLDWHGZLWKDEHQGLQDYHUWLFDOWKHUPRV\SKRQUHERLOHUVHH&KDSWHUFRQLFDOKHDGV
DUH XVHG ZKHQ WKH QR]]OH LV WRR ODUJH WR EH ILWWHG D[LDOO\ WR WKH FKDQQHO 1RUPDOO\ WKH
GLDPHWHURIDQR]]OHLVOLPLWHGWRKDOIWKHGLDPHWHURIWKHFKDQQHORUVKHOOWRZKLFKLW
KDVWREHFRQQHFWHGEDVHGXSRQVWUHQJWKFRQVLGHUDWLRQV7KXVLQVHUYLFHVKDQGOLQJORZ
SUHVVXUHJDVHVRUYDSRUVRQWKHWXEHVLGHRUVLPSO\YHU\KLJKIORZUDWHVZKHUHWKHQR]]OH
VL]HLVJUHDWHUWKDQRIWKHFKDQQHOGLDPHWHUFRQLFDOQR]]OHVRIIHUDFRQYHQLHQWVROX
WLRQ6KRXOGWKHLQVLGHRIWXEHVUHTXLUHFOHDQLQJKRZHYHUERWKWKHFRQLFDOFKDQQHOVZLOO
KDYHWREHUHPRYHG
6RPHWLPHVRQO\RQHFKDQQHOLVUHTXLUHGWREHFRQLFDODQGWKHRWKHUFDQEHF\OLQGULFDO
)RU H[DPSOH LQ WKH FDVH RI D YHUWLFDO WKHUPRV\SKRQ UHERLOHU WKH LQOHW OLTXLG OLQH LV TXLWH
VPDOOFRPSDUHGWRWKHFKDQQHOGLDPHWHUDQGWKHUHIRUHWKHLQOHWFKDQQHOFDQEHF\OLQGULFDO
7KHRXWOHWWZRSKDVHOLQHPD\KRZHYHUEHPRUHWKDQRIWKHFKDQQHOGLDPHWHUDQGLV
FRQYHQLHQWO\ PDGH FRQLFDO 6LPLODUO\ LQ WKH FDVH RI D ORZSUHVVXUH FRQGHQVHU WKH LQOHW
YDSRUOLQHFDQEHTXLWHODUJHZKLOHWKHRXWOHWFRQGHQVDWHOLQHFDQEHUDWKHUVPDOO+HUHWKH
LQOHWFKDQQHOZLOOEHFRQLFDODQGWKHRXWOHWFKDQQHOF\OLQGULFDO

 
)LJ)L[HGWXEHVKHHWKHDWH[FKDQJHU5HSULQWHGIURPWKH+HDW([FKDQJHU'HVLJQ+DQGERRN ZLWK
SHUPLVVLRQRI%HJHOO+RXVH,QF

6KHOOW\SHV
6KHOOW\SHVDUHGLVFXVVHGLQGHWDLOLQ6HFWLRQ

&ODVVLILFDWLRQE\&RQVWUXFWLRQ
)L[HGWXEHVKHHWKHDWH[FKDQJHU
$ IL[HGWXEHVKHHW KHDW H[FKDQJHU )LJ  KDV VWUDLJKW WXEHV VHFXUHG DW ERWK HQGV WR
WXEHVKHHWV ZHOGHG WR WKH VKHOO 7KH FRQVWUXFWLRQ PD\ KDYH UHPRYDEOH FKDQQHO FRYHUV
HJ$(/ERQQHWW\SHFKDQQHOFRYHUVHJ%(0RULQWHJUDOWXEHVKHHWVHJ1(1
7KH SULQFLSDO DGYDQWDJH RI D IL[HGWXEHVKHHW FRQVWUXFWLRQ LV ORZ FRVW DV LW KDV WKH
VLPSOHVWFRQVWUXFWLRQ,QIDFWWKHIL[HGWXEHVKHHWLVWKHFKHDSHVWFRQVWUXFWLRQW\SHDVORQJ
DVQRH[SDQVLRQMRLQWLVUHTXLUHG2WKHUDGYDQWDJHVDUH
 SHUPLWVPHFKDQLFDOFOHDQLQJRIWKHLQVLGHRIWKHWXEHVDVWKHVHDUHDFFHVVLEOHDI
WHUUHPRYDORIWKHFKDQQHOFRYHURUERQQHWDQG
 RIIHUVPD[LPXPSURWHFWLRQDJDLQVWOHDNDJHRIWKHVKHOOVLGHIOXLGDVWKHUHDUHQR
IODQJHGMRLQWVDQDGYDQWDJHIRUOHWKDORULQIODPPDEOHVHUYLFHV
7KHGLVDGYDQWDJHVRIDIL[HGWXEHVKHHWFRQVWUXFWLRQDUH
 $VWKHEXQGOH LV³IL[HG´WRWKHVKHOODQGFDQQRWEHUHPRYHGWKH RXWVLGH RIWKH
WXEHVFDQQRWEHFOHDQHGPHFKDQLFDOO\6LQFHPHFKDQLFDOFOHDQLQJE\URGGLQJRU
MHWWLQJLVXVXDOO\UHVRUWHGWRWKLVUHSUHVHQWVDOLPLWDWLRQLQWKDWWKHVKHOOVLGHIOXLG
VKRXOGEHFOHDQDVRWKHUZLVHWKHQHFHVVDU\FOHDQLQJRIWKHRXWVLGHRIWKHWXEHV
FDQQRWEHFDUULHGRXW+RZHYHULWVKRXOGEHQRWHGWKDWFKHPLFDOFOHDQLQJLVIHD
VLEOH+HQFHLIDVDWLVIDFWRU\FKHPLFDOFOHDQLQJSURJUDPFDQEHGHWHUPLQHGDQG
HPSOR\HG IL[HGWXEHVKHHW FRQVWUXFWLRQ PD\ EH VHOHFWHG IRU IRXOLQJ VHUYLFHV RQ
WKHVKHOOVLGH6LQFHFKHPLFDOFOHDQLQJLVFXPEHUVRPHDQGGLIILFXOWWRHPSOR\LW
LVQRWYHU\SUHYDOHQW
 ,QWKH HYHQW RIDODUJH GLIIHUHQWLDOWHPSHUDWXUHEHWZHHQWKHWXEHVDQGWKHVKHOO
WKHWXEHVKHHWVZLOOEHXQDEOHWRDEVRUEWKHGLIIHUHQWLDOVWUHVVWKHUHE\PDNLQJLW
QHFHVVDU\WRLQFRUSRUDWHDQH[SDQVLRQMRLQWRQWKHVKHOO7KLVWDNHVDZD\WKHDG
YDQWDJHRIORZFRVWWRDVLJQLILFDQWH[WHQW
8WXEHKHDWH[FKDQJHU
$VWKHQDPHLPSOLHVWKHWXEHVRID8WXEHKHDWH[FKDQJHU)LJDUHEHQWLQWKHVKDSH
RID8(YLGHQWO\WKHUHLVRQO\RQHWXEHVKHHWLQD8WXEHKHDWH[FKDQJHU+RZHYHUWKH
EHQGLQJRIWXEHVUHSUHVHQWVDQDGGLWLRQDOFRVW)XUWKHUWKHPLQLPXP8EHQGGLDPHWHULV
XVXDOO\WKUHHWLPHVWKHWXEHRXWVLGHGLDPHWHUVRWKDWWKHFHQWUDOSDVVSDUWLWLRQODQHLVFRQ
VLGHUDEO\ ODUJHU LQ D 8WXEH KHDW H[FKDQJHU WKDQ LQ RQH KDYLQJ VWUDLJKW WXEHV &RQVH

 
)LJ8WXEHKHDWH[FKDQJHU5HSULQWHGIURPWKH+HDW([FKDQJHU'HVLJQ+DQGERRN ZLWKSHUPLVVLRQ
RI%HJHOO+RXVH,QF
TXHQWO\ IRU D JLYHQ QXPEHU RI WXEHV D 8WXEH KHDW H[FKDQJHU ZLOO KDYH D ODUJHU VKHOO
GLDPHWHU(YLGHQWO\WKLVGLIIHUHQFHLQVKHOOGLDPHWHUZLOOEHODUJHUIRUVPDOOVKHOOGLDPH
WHUV ZKHUH WKH FHQWUDO 8EHQG ODQH ZLOO UHSUHVHQW D ODUJHU IUDFWLRQ RI WKH VKHOO FURVV
VHFWLRQDODUHDDQGWKHUHE\UHVXOWLQDODUJHUUHGXFWLRQLQWKHQXPEHURIWXEHVWKDWFDQEH
DFFRPPRGDWHG
7KHDGGLWLRQDOFRVWRIWKHEHQGLQJRI8WXEHVDQGWKHODUJHUVKHOOGLDPHWHUPRUHRUOHVV
RIIVHWWKHVDYLQJLQFRVWGXHWRWKHHOLPLQDWLRQRIRQHWXEHVKHHW7KXVWKHFRVWRID8WXEH
KHDWH[FKDQJHULVFRPSDUDEOHWRWKDWRIDIL[HGWXEHVKHHWH[FKDQJHU
7KHDGYDQWDJHRID8WXEHKHDWH[FKDQJHULVWKDWEHLQJIUHHDWRQHHQGLWSHUPLWVWKH
EXQGOH WR H[SDQG RU FRQWUDFW DFFRUGLQJ WR WKH GLIIHUHQWLDO VWUHVV VHW XS 7KXV QR GHWDLOHG
FDOFXODWLRQV DUH UHTXLUHG WR EH SHUIRUPHG IRU WKH GHVLJQ FRQGLWLRQ DQG YDULRXV RWKHU
FRQGLWLRQV VWDUWXS XSVHW VKXWGRZQ HWF WR GHWHUPLQH WKH UHTXLUHPHQW RI DQ H[SDQVLRQ
MRLQW RQ WKH VKHOO %HVLGHV LW SHUPLWV WKH RXWVLGH RI WKH WXEHV WR EH FOHDQHG DV WKH WXEH
EXQGOHFDQEHUHPRYHG
7KH GLVDGYDQWDJH RI WKH 8WXEH FRQVWUXFWLRQ LV WKDW WKH LQVLGH RI WKH WXEHV FDQQRW EH
FOHDQHG HIIHFWLYHO\VLQFHWKH 8EHQGV ZRXOGUHTXLUH IOH[LEOHHQG GULOOVKDIWV IRU FOHDQLQJ
7KXV8WXEHKHDWH[FKDQJHUVVKRXOGQRWEHXVHGIRUVHUYLFHVZKLFKKDYHDGLUW\IOXLGLQVLGH
WKH WXEHV 7KLV SODFHV D YHU\ VHYHUH OLPLWDWLRQ RQ 8WXEH KHDW H[FKDQJHUV IRU UHILQHU\
VHUYLFHV ZKLFK XVXDOO\ KDYH GLUW\ VWUHDPV RQ ERWK WKH WXEHVLGH DQG WKH VKHOOVLGH 7KLV LV
SULPDULO\WKHUHDVRQZK\IL[HGWXEHVKHHWRU8WXEHKHDWH[FKDQJHUVDUHDYHU\XQFRPPRQ
VLJKWLQRLOUHILQHULHV

)ORDWLQJKHDGKHDWH[FKDQJHU
7KHIORDWLQJKHDGLVWKHPRVWYHUVDWLOHW\SHRI67+(DQGDOVRWKHFRVWOLHVW,WLVVRFKULV
WHQHGEHFDXVHZKLOHRQHWXEHVKHHWLVIL[HGUHODWLYHWRWKHVKHOOWKHRWKHULVIUHHWR³IORDW´
ZLWKLQWKHVKHOO7KXVLWSHUPLWVIUHHH[SDQVLRQRIWKHWXEHEXQGOHDQGDOVRSHUPLWVWKH
FOHDQLQJRIERWKWKHLQVLGHDQGRXWVLGHRIWKHWXEHV,WFDQWKHUHIRUHEHXVHGIRUVHUYLFHV
ZKHUHERWKWKHVKHOOVLGHDQGWKHWXEHVLGHIOXLGVDUHGLUW\DQGFRQVHTXHQWO\LWLVWKHVWDQ
GDUGFRQVWUXFWLRQW\SHXVHGLQGLUW\VHUYLFHVDVLQRLOUHILQHULHV
7KHKLJKHUFRVWRIWKHIORDWLQJKHDGKHDWH[FKDQJHULVGXHWRWKHIDFWWKDWWKHUHDUHPRUH
FRPSRQHQWVLQWKLVW\SHRIFRQVWUXFWLRQVHH)LJV²WKDQLQWKHIL[HGWXEHVKHHWRU
WKH8WXEHW\SHV)XUWKHUPRUHWKHVKHOOGLDPHWHULVODUJHULQDIORDWLQJKHDGFRQVWUXFWLRQDV
LWKDVWREHJUHDWHUWKDQWKHIORDWLQJWXEHVKHHWVRWKDWWKHWXEHEXQGOHPD\EHSXOOHGRXW
7KHUHDUHYDULRXVW\SHVRIIORDWLQJKHDGFRQVWUXFWLRQ
3XOOWKURXJKZLWKEDFNLQJGHYLFH7(0$W\SH6
7KLVLVWKHPRVWFRPPRQDSSOLFDWLRQLQWKHFKHPLFDOSURFHVVLQGXVWULHV5HIHUULQJWR)LJ
 LW LV VHHQ WKDW WKH IORDWLQJKHDG FRYHU LV VHFXUHG DJDLQVW WKH IORDWLQJ WXEHVKHHW E\

 
)LJ  )ORDWLQJKHDG KHDW H[FKDQJHU ZLWK EDFNLQJ GHYLFH 7(0$ W\SH 6 5HSULQWHG IURP WKH +HDW ([
FKDQJHU'HVLJQ+DQGERRNZLWKSHUPLVVLRQRI%HJHOO+RXVH,QF

EROWLQJLWWRDQLQJHQLRXVGHYLFH²DVSOLWEDFNLQJULQJ7KLVIORDWLQJKHDGFORVXUH LVOR
FDWHGEH\RQGWKHHQGRIWKHVKHOODQGFRQWDLQHGE\DVKHOOFRYHURIDODUJHUGLDPHWHU)RU
GLVPDQWOLQJ WKH KHDW H[FKDQJHU WKH VKHOO FRYHU LV UHPRYHG ILUVW WKHQ WKH VSOLW EDFNLQJ
ULQJDQGILQDOO\WKHIORDWLQJKHDGFRYHUDIWHUZKLFKWKHWXEHEXQGOHFDQEHUHPRYHGIURP
WKH³VWDWLRQDU\´HQG)RUDVVHPEOLQJWKHKHDWH[FKDQJHUWKHUHYHUVHRUGHULVIROORZHG
3XOOWKURXJK7(0$W\SH7
,QWKLVFRQVWUXFWLRQWKHHQWLUHWXEHEXQGOHLQFOXGLQJWKHIORDWLQJKHDGDVVHPEO\FDQEH
UHPRYHGIURPWKHVWDWLRQDU\HQGDVWKHVKHOOGLDPHWHULVPDGHODUJHHQRXJKWRPDWFKWKH
GLDPHWHU RI WKH IORDWLQJKHDG IODQJH VHH )LJ  7KH IORDWLQJKHDG FRYHU LV EROWHG
GLUHFWO\WRWKHIORDWLQJWXEHVKHHWVRWKDWDVSOLWEDFNLQJULQJLVQRWUHTXLUHG
7KHDGYDQWDJHRIWKLVW\SHRIFRQVWUXFWLRQLVWKDWWKHWXEHEXQGOHPD\EHUHPRYHGIURP
WKH VKHOO ZLWKRXW UHPRYLQJ HLWKHU WKH VKHOO RU WKH IORDWLQJKHDG FRYHU WKXV UHGXFLQJ
PDLQWHQDQFHWLPH,WLVSDUWLFXODUO\VXLWHGWRDQGXVXDOO\HPSOR\HGRQO\IRUNHWWOHUHERLOHUV
KDYLQJDGLUW\KHDWLQJPHGLXPZKHUH8WXEHVFDQQRWEHHPSOR\HG7KHVKHOOGLDPHWHULVWKH
ODUJHVWLQWKLVW\SHRIFRQVWUXFWLRQDVQRWRQO\WKHIORDWLQJWXEHVKHHWEXWWKHIORDWLQJKHDG
FRYHU KDV WR EH UHPRYHG WKURXJK WKH VKHOO +HQFH WKH FRVW LV WKH KLJKHVW LQ WKLV W\SH RI
FRQVWUXFWLRQ
2XWVLGHSDFNHGVWXIILQJER[7(0$W\SH3
,QWKLVFRQVWUXFWLRQWKHVKHOOVLGHIOXLGLVVHDOHGE\ULQJVRISDFNLQJFRPSUHVVHGZLWKLQD
VWXIILQJER[ E\ D IROORZHU ULQJ VHH )LJ  7KH SDFNLQJ SHUPLWV PRYHPHQW RI WKH
IORDWLQJWXEHVKHHW6LQFHWKLVFRQVWUXFWLRQLVSURQHWROHDNDJHLWVXVHLVOLPLWHGWRVKHOO
VLGHVHUYLFHVZKLFKDUHQRQKD]DUGRXVDQGQRQWR[LFVHUYLFHVDVZHOODVKDYLQJPRGHUDWH
SUHVVXUHDQGWHPSHUDWXUHSVLJRUNJFPJDQGƒ)RUƒ&


)LJ3XOOWKURXJKIORDWLQJKHDGH[FKDQJHU7(0$W\SH75HSULQWHGIURPWKH+HDW([FKDQJHU'HVLJQ
+DQGERRNZLWKSHUPLVVLRQRI%HJHOO+RXVH,QF


 
)LJ 2XWVLGHSDFNHG VWXIILQJ ER[ IORDWLQJKHDG KHDW H[FKDQJHU 7(0$ W\SH 3 5HSULQWHG IURP WKH
+HDW([FKDQJHU'HVLJQ+DQGERRNZLWKSHUPLVVLRQRI%HJHOO+RXVH,QF

2XWVLGHSDFNHGODQWHUQULQJ7(0$W\SH:
+HUHWKHVKHOOVLGHDQGWXEHVLGHIOXLGVDUHVHDOHGE\VHSDUDWHULQJVRISDFNLQJRU2ULQJV
DQGVHSDUDWHGE\DODQWHUQULQJSURYLGHGZLWKZHHSKROHV)LJ+HQFHDQ\OHDNDJH
ZLOOEHWRWKH RXWVLGH7KH ZLGWKRIWKHWXEHVKHHWQHFHVVDULO\KDVWREHVXIILFLHQWWRDF
FRPPRGDWHWKHWZRSDFNLQJULQJVDQGWKHODQWHUQULQJSOXVWKHH[SDQVLRQPDUJLQ7KLV
GHVLJQLVOLPLWHGWRSVLJNJFPJDQGƒ)ƒ&%HFDXVHRILWVYHU\FRQ
VWUXFWLRQWKHQXPEHURIWXEHSDVVHVFDQRQO\EHHLWKHURQHRUWZR

&ODVVLILFDWLRQE\6HUYLFH
6KHOODQGWXEH KHDW H[FKDQJHUV PD\ DOVR EH FODVVLILHG DFFRUGLQJ WR WKHLU VHUYLFH %DVL
FDOO\DVHUYLFHPD\EHVLQJOHSKDVHVXFKDVWKHFRROLQJRUKHDWLQJRIDOLTXLGRUJDVRU
WZRSKDVHVXFKDVFRQGHQVLQJRUYDSRUL]LQJ6LQFHWKHUHDUHWZRVLGHVWRDQ67+(WKLV
FDQOHDGWRVHYHUDOFRPELQDWLRQVRIVHUYLFHV
%URDGO\VHUYLFHVFDQEHFODVVLILHGDVIROORZV
D VLQJOHSKDVHERWKVKHOOVLGHDQGWXEHVLGH
E FRQGHQVLQJRQHVLGHFRQGHQVLQJDQGWKHRWKHUVLQJOHSKDVH
F YDSRUL]LQJRQHVLGHYDSRUL]LQJDQGWKHRWKHUVLQJOHSKDVH
G FRQGHQVLQJYDSRUL]LQJRQHVLGHFRQGHQVLQJDQGWKHRWKHUYDSRUL]LQJ


)LJ  2XWVLGHSDFNHG ODQWHUQ ULQJ IORDWLQJKHDG KHDW H[FKDQJHU 7(0$ W\SH : 5HSULQWHG IURP WKH
+HDW([FKDQJHU'HVLJQ+DQGERRNZLWKSHUPLVVLRQRI%HJHOO+RXVH,QF


7KHIROORZLQJQRPHQFODWXUHLVXVXDOO\XVHGIRUWKHVDNHRIFRQYHQLHQFH
+HDWH[FKDQJHU²ERWKVLGHVVLQJOHSKDVHSURFHVVVWUHDPVWKDWLVQRWDQXWLOLW\
&RROHU²RQHVWUHDPDSURFHVVIOXLGDQGWKHRWKHUVWUHDPDFROGXWLOLW\VXFKDVFRRO
LQJZDWHURUDLU
+HDWHU²RQHVWUHDPDSURFHVVIOXLGDQGWKHRWKHUVWUHDPDKRWXWLOLW\VXFKDVVWHDP
RUKRWRLO
&RQGHQVHU²RQHVWUHDPDFRQGHQVLQJYDSRUDQGWKHRWKHUVWUHDPDFROGXWLOLW\VXFK
DVFRROLQJZDWHURUDLU
&KLOOHU²RQHVWUHDPDSURFHVVIOXLGEHLQJFRQGHQVHGDWVXE]HURWHPSHUDWXUHDQGWKH
RWKHUVWUHDPDERLOLQJUHIULJHUDQWRUSURFHVVVWUHDPHYLGHQWO\FU\RJHQLF
5HERLOHU²RQHVWUHDPDERWWRPVWUHDPIURPDGLVWLOODWLRQFROXPQDQGWKHRWKHUDKRW
XWLOLW\VWHDPRUKRWRLORUDSURFHVVVWUHDP
9DSRUL]HU²RQHVWUHDPDYDSRUL]LQJOLTXLGDQGWKHRWKHUVWUHDPDJDVRUDOLTXLGRUD
FRQGHQVLQJYDSRU
,W PD\EHQRWHGWKDWDFRQGHQVLQJVWUHDP PD\EH FRQGHQVLQJWRWDOO\ RUSDUWLDOO\6LPL
ODUO\ D YDSRUL]LQJ VWUHDP PD\ DOVR EH YDSRUL]LQJ SDUWLDOO\ RU WRWDOO\ )RU H[DPSOH D
WKHUPRV\SKRQ UHERLOHU HIIHFWV SDUWLDO YDSRUL]DWLRQ ZKHUHDV D NHWWOH UHERLOHU PD\ HIIHFW
HLWKHUSDUWLDORUWRWDOYDSRUL]DWLRQ,QDGLVWLOODWLRQFROXPQKDYLQJWRWDOUHIOX[WKHHQWLUH
RYHUKHDG YDSRU LVFRQGHQVHGWKHUHE\UHSUHVHQWLQJDWRWDOFRQGHQVHU+RZHYHULW RIWHQ
KDSSHQVWKDWWKHUH LV RQO\SDUWLDOUHIOX[EDFNWRWKH GLVWLOODWLRQ FROXPQDQGWKHEDODQFH
RYHUKHDGLVDSURGXFWRUJRHVIRUIXUWKHUSURFHVVLQJ7KLVUHSUHVHQWVDSDUWLDOFRQGHQVHU

5HIHUHQFHV
>@ 7XEXODU ([FKDQJHU 0DQXIDFWXUHUV $VVRFLDWLRQ 6WDQGDUGV RI WKH 7XEXODU ([FKDQJHU 0DQX
IDFWXUHUV$VVRFLDWLRQWK(GLWLRQ7(0$1HZ<RUN





 &+$37(5

7KHUPDO'HVLJQDQG2SWLPL]DWLRQ
RI6LQJOH3KDVH+HDW([FKDQJHUV

7KH GHVLJQ RI VKHOODQGWXEH KHDW H[FKDQJHUV FRPSULVHV WZR GLVWLQFW DFWLYLWLHV WKHUPDO
GHVLJQ DQG PHFKDQLFDO GHVLJQ ,Q WKHUPDO GHVLJQ WKH KHDW H[FKDQJHU LV VL]HG ZKLFK
PHDQV WKDW DOO WKH SULQFLSDO FRQVWUXFWLRQ SDUDPHWHUV VXFK DV VKHOO W\SH DQG GLDPHWHU
QXPEHURIWXEHVWXEH2'DQGWKLFNQHVVWXEHOHQJWKWXEHSLWFKQXPEHURIWXEHSDVVHV
EDIIOH VSDFLQJ DQG FXW DQG QR]]OH VL]HV DUH GHWHUPLQHG ,Q PHFKDQLFDO GHVLJQ GHWDLOHG
FDOFXODWLRQVDUHFDUULHG RXWWR GHWHUPLQHWKHGLPHQVLRQVRIYDULRXVFRPSRQHQWVVXFKDV
WXEHVKHHWVIODQJHVVKHOOHWFDQGDFRPSOHWHELOORIPDWHULDOVDQGHQJLQHHULQJGUDZLQJV
VXFKDVEXQGOHDVVHPEO\DQGVHWWLQJSODQGUDZLQJVDUHJHQHUDWHG,QWKLVERRNZHVKDOO
WDONSUHGRPLQDQWO\DERXWWKHUPDOGHVLJQ
7KHEDVLFHTXDWLRQVIRUWXEHVLGHDQGVKHOOVLGHKHDWWUDQVIHUDQGSUHVVXUHGURSDUHZHOO
NQRZQDQGDUHSUHVHQWHG LQVHYHUDOERRNVVHHUHIHUHQFHV7KLVFKDSWHU ZLOO GZHOO RQWKH
DSSOLFDWLRQ RI WKHVH DQG RWKHU FRUUHODWLRQV IRU WKH RSWLPXP WKHUPDO GHVLJQ RI KHDW
H[FKDQJHUV%HIRUHZHSURFHHGDQ\IXUWKHUOHWXVVHHZKDWWKHEURDGREMHFWLYHVRIDWKHUPDO
GHVLJQHUDUHZKHQKHRUVKHVHWVRXWWRSURGXFHDWKHUPDOGHVLJQ

%URDG2EMHFWLYHVRI7KHUPDO'HVLJQ
7KHEDVLFDLPVRIDWKHUPDOGHVLJQHUDUHWR
D 3URGXFHDWKHUPDOGHVLJQWKDWKDVDORZRYHUDOOFRVWWKHORZHUWKHEHWWHU
7KHRYHUDOOFRVWRIDKHDWH[FKDQJHULVWKHVXPRIWKHLQLWLDOFRVWDQGWKHRSHUDWLQJFRVW
7KH LQLWLDO FRVW LV HYLGHQWO\ WKH IL[HG FRVW RU WKH ILUVW FRVW RI WKH KHDW H[FKDQJHU 7KH
RSHUDWLQJ FRVW LV WKH VXP RI WKH SXPSLQJ FRVW WKH PDLQWHQDQFH FRVW DQG WKH GRZQWLQH
FRVW7KHPDLQWHQDQFHFRVWLVWKHVXPRIWKHFRVWRISHULRGLFDOO\FOHDQLQJWKHH[FKDQJHU
WKHFRVWRIDQ\DQWLIRXODQWWUHDWPHQWDQGWKHFRVWRIDQ\UHSDLURUUHSODFHPHQW
7KXVLWLVQRWHQRXJKWRSURGXFHDGHVLJQKDYLQJDYHU\ORZIL[HGFRVWLILWVRSHUDWLQJ
FRVWLVKLJKGXHIRUH[DPSOHWRIUHTXHQWIRXOLQJDQGWKHUHE\WKHUHTXLUHPHQWIRUIUHTXHQW
FOHDQLQJ 'HVLJQHUV RIWHQ ORVH VLJKW RI WKH RSHUDWLQJ FRVW RI D KHDW H[FKDQJHU DQG VKRXOG
DOZD\V DWWHPSW WR PLQLPL]H IRXOLQJ DQG DOVR PLQLPL]H SUHVVXUH GURS 7KLV UHSUHVHQWV D
GLUHFWFRQIOLFWEHFDXVHDVZHVKDOOVHHODWHURQLQWKHERRNWKHEHVWZD\WRPLQLPL]HIRXOLQJ
LVWR PD[LPL]H YHORFLW\ ZLWKLQ OLPLWV RI HURVLRQ RI FRXUVH ZKLFK ZLOO GLUHFWO\ PD[LPL]H
SUHVVXHGURSDQGWKHUHE\SRZHUFRQVXPSWLRQ2EYLRXVO\WKHQWKHGHVLJQHUKDVWRRSWLPL]H
WKHGHVLJQVRWKDWZKLOHWKHYHORFLW\LVQRWORZHQRXJKWRH[DFHUEDWHIRXOLQJWKHSUHVVXUH
GURSLVQRWH[FHVVLYHO\KLJK
,Q WKLV FRQWH[W WKH VHOHFWLRQ RI WKH PDWHULDOV RI FRQVWUXFWLRQ LV YHU\ LPSRUWDQW 7KH
PDWHULDOVVKRXOGEHJRRGHQRXJKWRSHUPLWWKHKHDWH[FKDQJHUWRIXQFWLRQIRUWKHOLIHWLPHRI
 
WKH SODQW W\SLFDOO\ ² \HDUV ZLWKRXW PDMRU UHSDLUV DQG ZLWKRXW UHSODFHPHQW RI
FRPSRQHQWV VXFK DV WXEHV +RZHYHU WKH PDWHULDOV VKRXOG QRW EH LQRUGLQDWHO\ H[SHQVLYH
EHFDXVHWKHQWKHILUVWFRVWRIWKHKHDWH[FKDQJHUZLOOEHFRPHXQQHFHVVDULO\KLJK
E 8WLOL]HDOORZDEOHSUHVVXUHGURSVDVIXOO\DVSRVVLEOH
,WZLOOEHHDVLO\DSSUHFLDWHGWKDWWKHKLJKHUWKHYHORFLW\RIDJLYHQVWUHDPWKHKLJKHUZLOO
EHLWVKHDWWUDQVIHUFRHIILFLHQW+RZHYHUDFFRPSDQ\LQJWKHKLJKKHDWWUDQVIHUFRHIILFLHQW
ZLOOEHDKLJKSUHVVXUHGURS6RZKLOHWKHIRUPHUKLJKKHDWWUDQVIHUFRHIILFLHQWZLOOWHQG
WRUHGXFHWKHILUVWFRVWRIWKHKHDWH[FKDQJHUWKHODWWHUKLJKSUHVVXUHGURSZLOOWHQGWR
LQFUHDVHWKHRSHUDWLQJFRVWRIWKHKHDWH[FKDQJHU7KXVDYHU\LPSRUWDQWJRDOIRUDJRRG
WKHUPDOGHVLJQLVWKHEHVWXWLOL]DWLRQRIWKHDOORZDEOHSUHVVXUHGURS7KLVLVGLVFXVVHGLQ
PRUHGHWDLQLQ6HFWLRQ
,WVRPHWLPHVKDSSHQVWKDWWKHSHUPLWWHGSUHVVXUHGURSLVXQQHFHVVDULO\KLJKWRSURGXFHD
JRRGGHVLJQDQGLILQVXFKFDVHVWKHSXPSVSHFLILFDWLRQVKDYHQRWEHHQIUR]HQWKH\FDQEH
UHYLVHG WR WDNH DGYDQWDJH RI WKH ORZHU WKDQ DQWLFLSDWHG SUHVVXUH GURS +RZHYHU LI WKH
SXPS VSHFLILFDWLRQV KDYH DOUHDG\ EHHQ IUR]HQ WKH SRVVLEOH VDYLQJV LQ SXPSLQJ SRZHU
FDQQRW EH UHDOL]HG DQG WKH GLIIHUHQWLDO SUHVVXUH GURS ZLOO MXVW EH ZDVWHG DFURVV D FRQWURO
YDOYH
F 0DLQWDLQDJRRGIORZSDWWHUQRQWKHVKHOOVLGHDQGDGHTXDWHYHORFLWLHVRQERWKVLGHVWR
PLQLPL]HIRXOLQJ
7KLVKDVEHHQGLVFXVVHGDERYHDQGLVWUHDWHGLQPXFKPRUHGHWDLOLQ&KDSWHUVDQG
G 3URGXFHDGHVLJQWKDWLVVDIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ
7KHWKHUPDOGHVLJQHUKDVWRSURGXFHDGHVLJQWKDWLVVDIHDJDLQVWDQ\SRVVLELOLW\RIIDLOXUH
RI WXEHV GXH WR IORZLQGXFHG YLEUDWLRQ &KDSWHU  LV D GHWDLOHG H[SRVLWLRQ RI IORZ
LQGXFHG YLEUDWLRQ LQ VKHOODQGWXEH KHDW H[FKDQJHUV DQG GLVFXVVHV YDULRXV FRQVWUXFWLRQ
VW\OHVRQWKHVKHOOVLGHWKDWFDQEHDGRSWHGWRPDNHDGHVLJQVDIHDJDLQVWIDLOXUHRIWXEHV
GXHWRIORZLQGXFHGYLEUDWLRQ2QFHDJDLQWKHIL[HGFRVWRIWKHKHDWH[FKDQJHUPXVWEH
FRQVLGHUHG DQG RQO\ WKH ORZHVWFRVW GHVLJQ VW\OH VKRXOG EH DGRSWHG WR PDNH WKH KHDW
H[FKDQJHUVDIH7KXVDQRWXEHVLQZLQGRZ GHVLJQLVLQKHUHQWO\VDIHUDJDLQVW YLEUDWLRQ
IDLOXUH EXW LV PRUH H[SHQVLYH WKDQ IRU H[DPSOH D GLYLGHGIORZ VKHOO 7KHUHIRUH LI WKH
ODWWHUFDQSURGXFHDVDIHGHVLJQDQRWXEHVLQZLQGRZGHVLJQVKRXOGQRWEHHPSOR\HG

'DWDWREH)XUQLVKHGIRU7KHUPDO'HVLJQ
%HIRUHFRPLQJWRWKHDFWXDOWKHUPDOGHVLJQRIDVKHOODQGWXEHKHDWH[FKDQJHUOHWXVWDNH
DORRNDWWKHGDWDUHTXLUHGIRUWKHVDPH
7KH IROORZLQJ LQIRUPDWLRQ PXVWEH IXUQLVKHGE\WKH SURFHVV OLFHQVRUIRUERWKVWUHDPV
ZKHUHYHUDSSOLFDEOHEHIRUHWKHUPDOGHVLJQFDQEHWDNHQXS

)ORZUDWH
7KHFRPSOHWHEUHDNGRZQRIYDSRUOLTXLGVWHDPZDWHUDQGQRQFRQGHQVDEOHIORZUDWHV
PXVWEHIXUQLVKHGDVDSSOLFDEOHDWERWKWKHLQOHWDQGRXWOHWRIWKHKHDWH[FKDQJHU

,QOHWDQGRXWOHWWHPSHUDWXUHV

+HDWUHOHDVHSURILOHV
%\ KHDW UHOHDVH SURILOHV DUH PHDQW SORWV RI WKH IROORZLQJ YDULDEOHV ZLWK WHPSHUDWXUH
ZKHUHYHUDSSOLFDEOH
 
 • KHDWGXW\
• ZHLJKWIUDFWLRQYDSRU
• YDSRUPROHFXODUZHLJKW
(YLGHQWO\IRUVLQJOHSKDVHVHUYLFHVWKHODVWWZRDUHQRWDSSOLFDEOH%HVLGHVWKHSORWRI
KHDWGXW\YHUVXVWHPSHUDWXUHLVHVVHQWLDOO\OLQHDUVRWKDWQRKHDWUHOHDVHSURILOHLVUHDOO\
UHTXLUHG
+RZHYHUIRUDQ\VHUYLFHLQYROYLQJSKDVHFKDQJHKHDWUHOHDVHSURILOHVDVGHILQHGDERYH
DUHDPXVW,IWKHWHPSHUDWXUHGLIIHUHQFHEHWZHHQWKHLQOHWDQGWKHRXWOHWLVUDWKHUVPDOOVXFK
DVƒ)ƒ&RUƒ)ƒ&DVWUDLJKWOLQHKHDWGXW\YHUVXVWHPSHUDWXUHPD\EHVSHFLILHGDV
WKHFXUYDWXUHZLOOEHPLQLPDO+HDWUHOHDVHDQGRWKHUSURILOHVZLOOEHGLVFXVVHGLQGHWDLOLQ
&KDSWHU

2SHUDWLQJSUHVVXUH
7KLVLVQRWUHDOO\UHTXLUHGIRUOLTXLGVDVWKHLUSURSHUWLHVGRQRWYDU\ZLWKSUHVVXUHWRDQ\
VLJQLILFDQW H[WHQW +RZHYHU LW LV UHTXLUHG IRU JDVHV DQG YDSRUV DV WKHLU SURSHUWLHV
SDUWLFXODUO\ JDV GHQVLW\ YDU\ ZLWK SUHVVXUH +RZHYHU LI WKH SK\VLFDO SURSHUWLHV DUH
IXUQLVKHG WKH RSHUDWLQJ SUHVVXUH LV QR ORQJHU UHTXLUHG IRU VLQJOHSKDVH JDV DQG
FRQGHQVLQJYDSRUVWUHDPV)RUUHERLOHUVDQGYDSRUL]HUVKRZHYHUWKHRSHUDWLQJSUHVVXUH
LVVWLOOUHTXLUHGEHFDXVHERLOLQJKHDWWUDQVIHUFRHIILFLHQWLVDVWURQJIXQFWLRQRIRSHUDWLQJ
SUHVVXUHDQGFULWLFDOSUHVVXUH7KLVZLOOEHGLVFXVVHGLQGHWDLOLQ&KDSWHU

$OORZDEOHSUHVVXUHGURS
7KLV LV D YHU\ LPSRUWDQW SDUDPHWHU IRU KHDW H[FKDQJHU GHVLJQ DQG WKH SURFHVV OLFHQVRU
VKRXOG EH DZDUH RI WKH VLJQLILFDQFH RI WKH VDPH IRU WKHUPDO GHVLJQ 7KH KLJKHU WKH
SUHVVXUHGURSWKHKLJKHUZLOOEHWKHKHDWWUDQVIHUFRHIILFLHQWDQGWKHUHE\WKHORZHUWKH
KHDW WUDQVIHU DUHD DQG IL[HG FRVW +RZHYHU WKH RSHUDWLQJ FRVW ZLOO EH KLJKHU
&RQVHTXHQWO\WKHDOORZDEOHSUHVVXUHGURSUHSUHVHQWVWKHRSWLPXPEDODQFHEHWZHHQIL[HG
FRVWDQGRSHUDWLQJFRVWRIDKHDWH[FKDQJHUVXFKWKDWWKHWRWDOFRVWLVPLQLPDO*HQHUDOO\
IRUOLTXLGVDYDOXHRI²SVL²NJFPLVSHUPLWWHGSHUVKHOO$KLJKHUYDOXHLV
XVXDOO\ZDUUDQWHGIRUYLVFRXVOLTXLGVHVSHFLDOO\LIURXWHGWKURXJKWKHWXEHVLGH)RUJDVHV
WKHXVXDOO\DOORZHGYDOXHLV²SVL²NJFPDYHU\W\SLFDOYDOXHEHLQJ
SVLNJFP
,W PXVW EH VWDWHG KHUH WKDW ZKHUHDV W\SLFDO YDOXHV DUH JHQHUDOO\ DSSOLFDEOH VSHFLILF
LQVWDQFHV PXVW EH LQYHVWLJDWHG PRUH WKRURXJKO\ )RU H[DPSOH LI LW LV IRXQG WKDW WKH
DOORZDEOH SUHVVXUH GURS IRU D SDUWLFXODU VWUHDP LV UHSUHVHQWLQJ D VHYHUH FRQVWUDLQW LQ
SURGXFLQJDVDWLVIDFWRU\WKHUPDO GHVLJQWKH HIIHFW RID KLJKHUDOORZDEOHSUHVVXUH PXVWEH
H[DPLQHGWRDUULYHDWWKHRSWLPXPGHVLJQEDVHGXSRQPLQLPXPWRWDOFRVW
,WPD\EHVWDWHGKHUHWKDWWKLVDVSHFWLVYHU\LPSRUWDQWIRUJRRGWKHUPDOGHVLJQRIKHDW
H[FKDQJHUVDQGLQGHHGIRUDQ\JRRGGHVLJQWKHGHVLJQHUPXVWQRWIROORZWKHEHDWHQSDWKEXW
DOZD\V TXHVWLRQ WKH YDULRXV SDUDPHWHUV VSHFLILHG DQG H[DPLQH DOWHUQDWLYHV ,W VKRXOG EH
UHPHPEHUHG WKDW VRPH RI WKH SDUDPHWHUV VSHFLILHG DUH QRW UHDOO\ VDFURVDQFW EXW DUH RQO\
EDVHG XSRQ KHUHGLWDU\ HQJLQHHULQJ SUDFWLFH $ VSHFLDO VLWXDWLRQ PD\ FDOO IRU VSHFLDO
PHDVXUHV7KHDXWKRUKDVIRXQGWKDWLWDOZD\VKHOSVWRNHHSDVNLQJRQHVHOI³,VWKHUHQRWD
EHWWHUZD\RIGRLQJWKLV":K\GRQ
W,VHHZKDWKDSSHQVLI,FKDQJHWKLVSDUDPHWHU"´

)RXOLQJUHVLVWDQFH
7KLVLVDQRWKHUH[WUHPHO\LPSRUWDQWSDUDPHWHUDQGRQHWKDWLVXQIRUWXQDWHO\EDVHGPRUH

 
XSRQ H[SHULHQFH WKDQ IXQGDPHQWDO XQGHUVWDQGLQJ WKDQNV WR WKH FRPSOH[LW\ RI WKH
SKHQRPHQRQ ,I WKH IRXOLQJ UHVLVWDQFH RI D SDUWLFXODU VWUHDP LV QRW IXUQLVKHG WKH KHDW
H[FKDQJHUGHVLJQHUVKRXOGDGRSWWKHVDPHIURP7(0$VWDQGDUGVRUIURPSDVWRSHUDWLQJ
H[SHULHQFH7KLVVXEMHFWLVGLVFXVVHGLQIDUJUHDWHUGHWDLOLQ&KDSWHU

3K\VLFDOSURSHUWLHV
3ULQFLSDOO\ YLVFRVLW\WKHUPDOFRQGXFWLYLW\ GHQVLW\DQGVSHFLILF KHDWSUHIHUDEO\DWERWK
LQOHW DQG RXWOHW WHPSHUDWXUHV DUH UHTXLUHG 9LVFRVLW\ GDWD PXVW EH VXSSOLHG DW LQOHW DQG
RXWOHW WHPSHUDWXUHV HVSHFLDOO\ IRU OLTXLGV DV WKH YDULDWLRQ ZLWK WHPSHUDWXUH LV
FRQVLGHUDEOH DQG LUUHJXODU QRW OLQHDU VHPLORJ RU ORJORJ $GGLWLRQDO SURSHUWLHV
UHTXLUHG DUH ODWHQW KHDW DQG VXUIDFH WHQVLRQ IRU FRQGHQVLQJYDSRUL]LQJ VHUYLFHV DQG
FULWLFDOSUHVVXUHDQGWHPSHUDWXUHIRUYDSRUL]LQJVHUYLFHV

+HDWGXW\
(YLGHQWO\ WKH KHDW GXW\ VSHFLILHG VKRXOG EH FRQVLVWHQW IRU ERWK WKH VKHOOVLGH DQG WKH
WXEHVLGH,QIDFWLWLVDJRRGLGHDIRUWKHWKHUPDOHQJLQHHUWRFRUURERUDWHWKLVDVOLFHQVRUV
RFFDVLRQDOO\VOLSRQWKLVDVSHFW

7\SHRIKHDWH[FKDQJHU
,IWKHW\SHRIKHDWH[FKDQJHULVQRWIXUQLVKHGWKHKHDWH[FKDQJHUGHVLJQHUFDQFKRRVHWKH
VDPHEDVHGXSRQWKHFKDUDFWHULVWLFVRIWKHYDULRXVW\SHVRIFRQVWUXFWLRQH[SODLQHGHDUOLHU
LQ&KDSWHU,QIDFWWKHKHDWH[FKDQJHUGHVLJQHULVQRUPDOO\LQDEHWWHUSRVLWLRQWKDQWKH
SURFHVVHQJLQHHUWRFKRRVHWKHW\SHRIKHDWH[FKDQJHU

/LQHVL]HV
,WLVGHVLUDEOHWRPDWFKQR]]OHVVL]HVZLWKOLQHVL]HVDVQRH[SDQGHURUUHGXFHUZLOOWKHQ
EH UHTXLUHG +RZHYHU FULWHULD IRU QR]]OH VL]LQJ YHORFLW\ DQG ȡY DUH XVXDOO\ PRUH
VWULQJHQW IRU KHDW H[FKDQJHU QR]]OHV WKDQ IRU OLQHV HVSHFLDOO\ IRU WKH VKHOOVLGH LQOHW
1R]]OH VL]LQJ LV EDVHG XSRQ SUHVVXUH GURS ZKLFK LQ WXUQ LV EDVHG XSRQ H[SDQVLRQ DQG
FRQWUDFWLRQ ORVVHV ZKHUHDV OLQH VL]LQJ LV EDVHG XSRQ OLQH SUHVVXUH GURS ZKLFK LV
GHSHQGHQWXSRQYHORFLW\DQGOHQJWKRIWKHOLQH&RQVHTXHQWO\QR]]OHVL]HVDUHVRPHWLPHV
UHTXLUHG WR EH RQH VL]H RU HYHQ PRUH LQ H[FHSWLRQDO FLUFXPVWDQFHV KLJKHU WKDQ WKH
FRUUHVSRQGLQJOLQHVL]HV7KLVLVHVSHFLDOO\WUXHIRUVPDOOOLQHVL]HVZKHUHWKHFKDQJHLQ
IORZDUHDIURPRQHSLSHVL]HWRWKHQH[WLVTXLWHFRQVLGHUDEOH

3UHIHUUHGWXEHVL]H
%\WXEHVL]HLVPHDQWWXEH2'WKLFNQHVVDQGOHQJWK7KHFXVWRPHUPD\KDYHDSUHIHUUHG
WXEH 2'WKLFNQHVV XVXDOO\ EDVHG XSRQ LQYHQWRU\ FRQVLGHUDWLRQV DQG WKH DYDLODEOH SORW
DUHD ZLOO GHWHUPLQH WKH PD[LPXP SHUPLWWHG WXEH OHQJWK 0DQ\ SODQW RZQHUV SUHIHU WR
VWDQGDUGL]HDOOWKUHHGLPHQVLRQVEDVHGDJDLQXSRQLQYHQWRU\FRQVLGHUDWLRQV
,WPD\EHPHQWLRQHGKHUHWKDWIRUDIL[HGWXEHVKHHWKHDWH[FKDQJHUQRH[WUDOHQJWKKDV
WR EH DOORFDWHG IRU EXQGOH UHPRYDO DV PXVW EH GRQH IRU 8WXEH DQG IORDWLQJKHDG KHDW
H[FKDQJHUV+RZHYHUWKHUHPD\EHH[FHSWLRQVWRDVWDQGDUGL]DWLRQSURJUDP)RUH[DPSOHD
SODQWPD\KDYHVWDQGDUGL]HGLQPP2'DQG%:*PPWKLFNWXEHV
+RZHYHU IRU D YHUWLFDO WKHUPRV\SKRQ UHERLOHU RU WXEHVLGH FRQGHQVHU LW PD\ EHFRPH
XQDYRLGDEOH WR HPSOR\ LQ PP 2' WXEHV XQGHU FHUWDLQ FLUFXPVWDQFHV $OVR IRU
YHU\VPDOOKHDWH[FKDQJHUVLWPD\EHMXGLFLRXVWRHPSOR\DVKRUWHUWXEHOHQJWK
$V VSDUH WXEHV DUH QRW XVXDOO\ VWRFNHG IRU IL[HGWXEHVKHHW KHDW H[FKDQJHUV D

 
VWDQGDUGL]DWLRQSURJUDP LV QRWUHDOO\ ZDUUDQWHG IRUVXFK KHDW H[FKDQJHUV&RQVHTXHQWO\D
GHVLJQHU KDV IUHHGRP LQ RSWLPL]LQJWKHWXEH OHQJWKIRU IL[HGWXEHVKHHW KHDW H[FKDQJHUVDV
HODERUDWHGLQ6HFWLRQV²

0D[LPXPVKHOOGLDPHWHU
7KLVLVEDVHGXSRQFRQVLGHUDWLRQVRIWXEHEXQGOHUHPRYDODQGLVOLPLWHGE\OLIWLQJFUDQH
FDSDFLWLHV,WLVHYLGHQWWKDWVXFKOLPLWDWLRQVDUHDSSOLFDEOHRQO\WRUHPRYDEOHWXEHEXQGOH
KHDWH[FKDQJHUVQDPHO\8WXEHDQGIORDWLQJKHDG)RUIL[HGWXEHVKHHWKHDWH[FKDQJHUV
WKHUHLVQRVXFKOLPLWDWLRQ7KHRQO\OLPLWDWLRQIRUIL[HGWXEHVKHHWKHDWH[FKDQJHUVLVWKH
PDQXIDFWXUHU
V IDEULFDWLQJ FDSDELOLW\ DV ZHOO DV WKH DYDLODELOLW\ RI VXFK FRPSRQHQWV DV
IRUJLQJVGLVKHGHQGVDQGIODQJHV7KXVZKHUHDVIORDWLQJKHDGKHDWH[FKDQJHUVDUHRIWHQ
OLPLWHGWRDVKHOO,'RI±LQ²PPDQGDWXEHOHQJWKRIIWPP
RUIWPPIL[HGWXEHVKHHW KHDW H[FKDQJHUVDUHEXLOWXSWRDVKHOO,' RIIW
PPDQGWXEHOHQJWKRIIWPPRUHYHQPRUH

0DWHULDOVRIFRQVWUXFWLRQ02&
6KRXOGWKH02&RIWXEHVDQGVKHOOEHLGHQWLFDODOOFRPSRQHQWVRIDKHDWH[FKDQJHUZLOO
EHRIWKLV02&7KXVRQO\WKHVKHOODQGWXEH02&QHHGEHVSHFLILHG+RZHYHULIWKH
VKHOODQGWXEHVDUHRIGLIIHUHQWPHWDOOXUJ\WKH02&VRIDOOSULQFLSDOFRPSRQHQWVVKRXOG
EH VSHFLILHG WR DYRLG DQ\ DPELJXLW\ 7KH SULQFLSDO FRPSRQHQWV DUH VKHOO DQG VKHOO
FRYHU WXEHV FKDQQHO DQG FKDQQHO FRYHU WXEHVKHHWV DQG EDIIOHV 7XEHVKHHWV DQG
IORDWLQJKHDGFRYHUVUHSUHVHQWVSHFLDOFDVHVDVWKH\PD\EHOLQHGRUFODGRQERWKVLGHVRU
RQRQHVLGHRQO\

&RUURVLRQDOORZDQFH
7KLV LV UHDOO\ DQ DGMXQFW WR WKH 02&V DQG VKRXOG EH VSHFLILHG E\ FRPSRQHQW LQ FDVHV
ZKHUHWKH02&LVQRWLGHQWLFDOIRUDOOFRPSRQHQWV1RFRUURVLRQDOORZDQFHLVDSSOLHGRQ
WXEHV DV WKH VWDQGDUG WKLFNQHVVHV UHFRPPHQGHG E\ 7(0$ DOUHDG\ LQFRUSRUDWH D
FRUURVLRQDOORZDQFH
)RU VHUYLFHV LQYROYLQJ PXOWLSOH VKHOOV LQ VHULHV WKH PDWHULDOV RI FRQVWUXFWLRQ DQG
FRUURVLRQDOORZDQFHRIWHQYDU\SURJUHVVLYHO\IURPWKHKRWWHVWVKHOOWRWKHFROGHVWVKHOO

6SHFLDOFRQVLGHUDWLRQV
&\FOLQJ XSVHW FRQGLWLRQV DOWHUQDWH FDVHV RI RSHUDWLRQ DQG ZKHWKHU RSHUDWLRQ LV
FRQWLQXRXV RU LQWHUPLWWHQW VKRXOG DOO EH VSHFLILHG VR WKDW DOO GHPDQGV PDGH RQ D KHDW
H[FKDQJHUGXULQJLWVH[SHFWHGOLIHWLPHFDQEHWDNHQLQWRDFFRXQWIRUGHVLJQ
$OWHUQDWH FDVHV RI RSHUDWLRQ KDYH WR EH DVVHVVHG FDUHIXOO\ DV D VLQJOH FDVH QHHG QRW
UHSUHVHQWWKHFRQWUROOLQJFDVHRQDOOFRXQWV+HDWWUDQVIHUDUHDVKHOOVLGHSUHVVXUHGURSDQG
WXEHVLGHSUHVVXUH GURSDUHWKHEURDGFRQWUROOLQJSDUDPHWHUV0RUH RIWHQWKDQ QRWDVLQJOH
FDVH LV FRQWUROOLQJ IURP DOO SRLQWV RI FRQVLGHUDWLRQ 2FFDVLRQDOO\ LW PD\ KDSSHQ WKDW RQH
FDVH LV FRQWUROOLQJ IRU WKH UHTXLUHG KHDW WUDQVIHU DUHD DQRWKHU FDVH IRU VKHOOVLGH SUHVVXUH
GURSDQG\HWDQRWKHUFDVHIRUWXEHVLGHSUHVVXUHGURS,QVXFKVLWXDWLRQVLWLVDGYLVDEOHWRUXQ
DOOFDVHVWRHQVXUHVDWLVIDFWRU\RSHUDWLRQLQHDFKFRQGLWLRQ,QIDFWLWLVDGYLVHGWKDWXQOHVV
WKH GHVLJQHU LV YHU\ H[SHULHQFHG DOO FDVHV EH UXQ WR HQVXUH WKDW QR HUURU RI MXGJPHQW LV
FRPPLWWHGLQLGHQWLI\LQJWKHFRQWUROOLQJFDVHV

7XEHVLGH
7XEHVLGHFDOFXODWLRQVDUHPXFKVLPSOHUWKDQVKHOOVLGHFDOFXODWLRQVEHFDXVHRQWKHWXEH

 
VLGH WKHUH LV MXVW RQH VWUHDP IORZLQJ WKURXJK D FLUFXODU FRQGXLW DV DJDLQVW WKH PDLQ
FURVVIORZDQGWKHOHDNDJHE\SDVVVWUHDPVRQWKHVKHOOVLGHDVZHVKDOOVHHODWHU

(IIHFWVRIWXEHVLGHYHORFLW\
%RWKKHDWWUDQVIHUFRHIILFLHQWDQGSUHVVXUHGURSYDU\ZLWKWXEHVLGHYHORFLW\EXWWKHODWWHU
PXFK PRUH VWURQJO\ WKDQ WKH IRUPHU $ JRRG GHVLJQ ZLOO PDNH WKH EHVW XVH RI WKH
DOORZDEOHSUHVVXUHGURSDVWKLVZLOO\LHOGWKHKLJKHVWKHDWWUDQVIHUFRHIILFLHQWDQGWKHUHE\
WKHORZHVWKHDWWUDQVIHUDUHDDQGFKHDSHVWGHVLJQ
/HWXVQRZVHHKRZWXEHVLGHYHORFLW\LVLQFUHDVHG,IWKHHQWLUHWXEHVLGHIOXLGZHUHWR
IORZ WKURXJK DOO WKH WXEHV ZKLFK LV FDOOHG D VLQJOH WXEH SDVV WKHQ LW ZRXOG UHVXOW LQ D
FHUWDLQ YHORFLW\ 8VXDOO\ WKLV YHORFLW\ LV XQDFFHSWDEO\ ORZ DV LW \LHOGV D YHU\ ORZ KHDW
WUDQVIHUFRHIILFLHQWDQGWKHUHIRUHKDVWREHLQFUHDVHG%\LQFRUSRUDWLQJSDVVSDUWLWLRQSODWHV
DQGFRUUHVSRQGLQJJDVNHWVLQWKHFKDQQHOVWKHWXEHVLGHIOXLGLVPDGHWRIORZVHYHUDOWLPHV
WKURXJKDIUDFWLRQRIWKHWRWDOQXPEHURIWXEHVDWDWLPH7KXVDKHDWH[FKDQJHUPD\KDYH
WXEHVDQGSDVVHVVRWKDWWKHIOXLGIORZVWKURXJKWXEHVDWDWLPHDQGWZLFHDORQJ
WKHH[FKDQJHUILUVWIURPOHIWWRULJKWDQGWKHQIURPULJKWWROHIWRUYLFHYHUVD7KHYHORFLW\
ZLOOHYLGHQWO\EHWZLFHWKDWRIWKHYHORFLW\LIWKHUHZHUHRQO\RQHSDVV
7KHQXPEHURIWXEHSDVVHVLVXVXDOO\DQGVRRQ(YLGHQWO\D8WXEHKHDW
H[FKDQJHU FDQ RQO\ KDYH DQ HYHQ QXPEHU RI WXEH SDVVHV )ORDWLQJKHDG KHDW H[FKDQJHUV
PXVWDOVRKDYHDQHYHQQXPEHURISDVVHVDVRWKHUZLVHWKHWXEHVLGHIOXLGLVUHTXLUHGWROHDYH
WKURXJK WKH IORDWLQJKHDG FRYHU DQG WKH VKHOO FRYHU 7KLV UHTXLUHV D VSHFLDO WDLOSLSH
DUUDQJHPHQWZLWKEHOORZV²DQDUUDQJHPHQWVXVFHSWLEOHWROHDNDJH7KXVDVLQJOHWXEHSDVV
LVUHFRPPHQGHGRQO\IRUIL[HGWXEHVKHHWH[FKDQJHUVZKHUHLWLVDPXVWIRUH[DPSOHZKHUH
WUXHFRXQWHUFXUUHQWIORZ LVUHTXLUHG RU ZKHUHWZR WXEH SDVVHV FDXVHDQ H[FHVVLYHSUHVVXUH
GURS ZLWK WKH GHVLUHG WXEH OHQJWK $Q RGG QXPEHU RI SDVVHV LV XVXDOO\ DYRLGHG DV WKH
WXEHVLGH RXWOHW SLSLQJ KDV WR EH WDNHQ EDFN DOO DORQJ WKH OHQJWK RI WKH KHDW H[FKDQJHU ,Q
H[FHSWLRQDOFLUFXPVWDQFHVKRZHYHUDIORDWLQJKHDGKHDWH[FKDQJHUPD\KDYHDVLQJOHWXEH
SDVV
$YHU\ODUJHQXPEHURIWXEHSDVVHVOHDGVWRGLIILFXOWLHVLQIDEULFDWLRQHVSHFLDOO\LIWKH
VKHOO GLDPHWHU LV VPDOO &RQVHTXHQWO\ WKH PD[LPXP QXPEHU RI WXEH SDVVHV LV XVXDOO\
UHVWULFWHG WR  DOEHLW IRU D YHU\ ODUJH VKHOO GLDPHWHU VD\ ± LQ ² PP ,W
PXVW EH DGGHG KHUH WKDW LQ WKH YDVW PDMRULW\ RI FDVHV WKH QXPEHU RI WXEH SDVVHV LV QRW
UHTXLUHG WR EH JUHDWHU WKDQ  ,W ZLOO EH HYLGHQW WKDW WKH QXPEHU RI WXEH SDVVHV ZLOO EH
UHTXLUHGWREHKLJKZKHQWKHQXPEHURIWXEHVLVUDWKHUODUJHDQGRUWKHWXEHVLGHIORZUDWH
UDWKHUVPDOO7KLVVLWXDWLRQLVH[DFHUEDWHGZKHQWKHWXEHVLGHYLVFRVLW\LVKLJKEHFDXVHWKHQD
KLJKHUPDVVYHORFLW\LVUHTXLUHGWRREWDLQDVDWLVIDFWRU\5H\QROG¶VQXPEHU

+HDWWUDQVIHUFRHIILFLHQW
7KHWXEHVLGHKHDWWUDQVIHUFRHIILFLHQWLVDIXQFWLRQRIWKH5H\QROG¶VQXPEHUWKH3UDQGWO
QXPEHUDQGWKHWXEHGLDPHWHU
5H\QROG¶VQXPEHU5HLV'*XZKHUH
' WXEH,'
* PDVVYHORFLW\
ȝ YLVFRVLW\
3UDQGWOQXPEHU3ULVFȝNZKHUH
F VSHFLILFKHDW
 
 ȝ YLVFRVLW\
N WKHUPDOFRQGXFWLYLW\
,I WKHVH DUH EURNHQ GRZQ LQWR WKH IXQGDPHQWDO SDUDPHWHUV WKH\ DUH WKH SK\VLFDO
SURSHUWLHVQDPHO\YLVFRVLW\WKHUPDOFRQGXFWLYLW\DQGVSHFLILFKHDWWXEHGLDPHWHUDQG
YHU\LPSRUWDQWO\PDVVYHORFLW\
7KHYDULDWLRQLQOLTXLGYLVFRVLW\EHLQJTXLWHFRQVLGHUDEOHWKLVSK\VLFDOSURSHUW\KDVWKH
PRVWGUDPDWLFHIIHFWRQKHDWWUDQVIHUFRHIILFLHQW
/HWXVWDNHDORRNDWWKHIXQGDPHQWDOHTXDWLRQIRUWXUEXOHQWKHDWWUDQVIHULQVLGHWXEHV

1X 5H3U 

RU
K'N '*ȝFȝN 
RU
K '*ȝFȝNN' 

7KXVKHDWWUDQVIHUFRHIILFLHQWYDULHVWRWKHSRZHURIPDVVYHORFLW\,WDOVRYDULHVWR
WKHSRZHURIWXEH,'PDVVYHORFLW\UHPDLQLQJFRQVWDQW7KDWLVWRVD\IRUWKHVDPH
WRWDOWXEHVLGHIORZDUHDSHUSDVVZKLFKZLOO\LHOGWKHVDPHPDVVYHORFLW\DVPDOOHUWXEH
VL]HZLOO\LHOGDKLJKHUKHDWWUDQVIHUFRHIILFLHQW
:LWKUHJDUGVWRWKHYDULDWLRQRIKHDWWUDQVIHUFRHIILFLHQWZLWKIOXLGYLVFRVLW\LWZLOOEH
VHHQ WKDW WKHUH DUH WZR RSSRVLQJ WHQGHQFLHV RQH LQ ZKLFK YLVFRVLW\ LV D SDUDPHWHU RI WKH
5H\QROG¶VQXPEHUDQGWKHRWKHULQZKLFKLWLVDSDUDPHWHURI3UDQGWOQXPEHU7KXV

K Įȝ Įȝ 

ZKLFKLVWRVD\WKHKHDWWUDQVIHUFRHIILFLHQWLVLQYHUVHO\SURSRUWLRQDOWRWKHSRZHURI
YLVFRVLW\
$QLQWHUHVWLQJDVSHFWWRREVHUYHKHUHLVWKDWHYHQIRUWKHVDPH5H\QROG¶VQXPEHUWZR
OLTXLGVRIIDLUO\GLIIHUHQWYLVFRVLWLHVZLOO\LHOGIDLUO\GLIIHUHQWKHDWWUDQVIHUFRHIILFLHQWVGXHWR
WKHLUGLIIHUHQW3UDQGWOQXPEHUV²WKHOLTXLGKDYLQJWKHKLJKHUYLVFRVLW\ZLOOKDYHWKHKLJKHU
3UDQGWOQXPEHUDQGWKHUHE\WKHKLJKHUKHDWWUDQVIHUFRHIILFLHQW7KH5H\QROG¶VQXPEHUVFDQ
EHWKHVDPHLIWKHKLJKHUYLVFRVLW\VWUHDPKDVDFRUUHVSRQGLQJO\KLJKHUPDVVIORZUDWH
,W ZLOO DOVR EH VHHQ WKDW KHDW WUDQVIHU FRHIILFLHQW LV GLUHFWO\ SURSRUWLRQDO WR WKH 
H[SRQHQWRIWKHUPDOFRQGXFWLYLW\
&XULRXVO\ LW DSSHDUV WKDW WKH KHDW WUDQVIHU FRHIILFLHQW LV SURSRUWLRQDO WR WKH 
H[SRQHQWRIVSHFLILFKHDW:KLOHWKLVLVWUXHLWVKRXOGDOVREHUHDOL]HGWKDWWKHKHDWGXW\ZLOO
LQFUHDVH GLUHFWO\ ZLWK VSHFLILF KHDW VR WKDW DOO RWKHU WKLQJV UHPDLQLQJ WKH VDPH D KLJKHU
VSHFLILFKHDWZLOOUHVXOWLQDFRQVLGHUDEO\KLJKHUKHDWGXW\WKDQKHDWWUDQVIHUFRHIILFLHQW
7KHDERYHOHDGVWRVRPHYHU\LQWHUHVWLQJJHQHUDOLWLHVRIKHDWWUDQVIHU
$ KLJK WKHUPDO FRQGXFWLYLW\ SURPRWHV D KLJK KHDW WUDQVIHU FRHIILFLHQW 7KXV FRROLQJ
ZDWHU KDV DQ H[WUHPHO\ KLJK KHDW WUDQVIHU FRHIILFLHQW >WKHUPDO FRQGXFWLYLW\ DURXQG 
%WXK IW ƒ)  NFDOK P ƒ&@ IROORZHG E\ K\GURFDUERQ OLTXLGV >WKHUPDO FRQGXFWLYLW\
EHWZHHQ  DQG  %WXK IW ƒ)  DQG  NFDOK P ƒ&@ DQG WKHQ IROORZHG E\
K\GURFDUERQJDVHV>WKHUPDOFRQGXFWLYLW\EHWZHHQDQG%WXKIWƒ)DQG
NFDOKPƒ&@
+\GURJHQLVDQXQXVXDOJDVDVLWKDVDQH[FHSWLRQDOO\KLJKWKHUPDOFRQGXFWLYLW\VDPH

 
DVRUHYHQJUHDWHUWKDQWKDWRIK\GURFDUERQOLTXLGVDVZHOODVDQH[FHSWLRQDOO\KLJKVSHFLILF
KHDWKHQFHLWVKHDWWUDQVIHUFRHIILFLHQWLVLQWKHUDQJHRIK\GURFDUERQOLTXLGV
7\SLFDOKHDWWUDQVIHUFRHIILFLHQWVRIYDULRXVIOXLGVDUHDVIROORZV
 &RROLQJZDWHU %WXKIWƒ)NFDOKPƒ&
 +\GURFDUERQOLTXLGV ±%WXKIWƒ)±NFDOKPƒ&
 +\GURFDUERQJDVHV ±%WXKIWƒ)±NFDOKPƒ&
7KHUDWKHUODUJHYDULDWLRQLQWKHKHDWWUDQVIHUFRHIILFLHQWRIK\GURFDUERQOLTXLGVLVGXHWR
WKHUDWKHUODUJHYDULDWLRQLQWKHLUYLVFRVLW\IURPOHVVWKDQFSIRUHWK\OHQHDQGSURS\OHQH
WR JUHDWHU WKDQ  FS DQG HYHQ PRUH IRU KHDY\ K\GURFDUERQ OLTXLGV VXFK DV YDFXXP
UHVLGXHDQGELWXPHQ
7KHODUJHYDULDWLRQLQWKHKHDWWUDQVIHUFRHIILFLHQWRIK\GURFDUERQJDVHVLVDWWULEXWDEOHWR
WKHODUJHYDULDWLRQLQRSHUDWLQJSUHVVXUH:LWKDQLQFUHDVHLQRSHUDWLQJSUHVVXUHJDVGHQVLW\
LQFUHDVHV$VSUHVVXUHGURSLVDGLUHFWO\SURSRUWLRQDOWRWKHVTXDUHRIPDVVYHORFLW\DQGE
LQYHUVHO\SURSRUWLRQDOWRGHQVLW\DKLJKHUPDVVYHORFLW\FDQEHPDLQWDLQHGZKHQWKHGHQVLW\
LVJUHDWHUIRUWKHVDPHSUHVVXUHGURS7KLVKLJKHUPDVVYHORFLW\WUDQVODWHVLQWRDKLJKHUKHDW
WUDQVIHUFRHIILFLHQW

3UHVVXUHGURS
6RIDUZHKDYHGLVFXVVHGWKHYDULDWLRQRIKHDWWUDQVIHUFRHIILFLHQWZLWKWKHYDULDWLRQRI
WXEH,'PDVVYHORFLW\DQGSK\VLFDOSURSHUWLHV)RUDJLYHQIOXLGWKHPDVVYHORFLW\H[HUWV
DYHU\VWURQJLQIOXHQFHRQWKHKHDWWUDQVIHUFRHIILFLHQW:KHUHDVWKHWXEHVLGHKHDWWUDQVIHU
FRHIILFLHQW YDULHV WR WKH  H[SRQHQW RI WXEHVLGH PDVV YHORFLW\ LQ WXUEXOHQW IORZ
WXEHVLGHSUHVVXUHGURSYDULHVZLWKWKHVTXDUHRIPDVVYHORFLW\
)XUWKHUWKHWXEHVLGHILOPUHVLVWDQFHUHSUHVHQWVRQO\DIUDFWLRQRIWKHWRWDOUHVLVWDQFHWR
KHDWWUDQVIHUWKHRWKHUVEHLQJWXEHVLGHIRXOLQJUHVLVWDQFHVKHOOVLGHILOPUHVLVWDQFHVKHOOVLGH
IRXOLQJ UHVLVWDQFH DQG WXEH ZDOO PHWDO UHVLVWDQFH VR WKDW IRU DQ LQFUHDVH LQ WKH WXEHVLGH
PDVV YHORFLW\ WKH LQFUHDVH LQ WKH RYHUDOO KHDW WUDQVIHU FRHIILFLHQW ZLOO EH HYHQ OHVV
&RQVHTXHQWO\ WKHUH ZLOOEHDQ RSWLPXP PDVV YHORFLW\ DERYH ZKLFK LW ZLOOEH ZDVWHIXOWR
LQFUHDVH PDVV YHORFLW\ DQ\ IXUWKHU ,Q RWKHU ZRUGV WKHUH LV DQ RSWLPXP YHORFLW\ IRU WKH
FRQYHUVLRQRISUHVVXUHGURSWRKHDWWUDQVIHU
7KHYDULDWLRQRIWXEHVLGHKHDWWUDQVIHUFRHIILFLHQWRYHUDOOKHDWWUDQVIHUFRHIILFLHQWDQG
SUHVVXUHGURSZLWKWXEHVLGHYHORFLW\DUHVKRZQGLDJUDPPDWLFDOO\LQ)LJ7KHVHFXUYHV
GHPRQVWUDWH YLYLGO\ KRZ PXFK TXLFNHU WKH WXEHVLGH SUHVVXUH LQFUHDVHV ZLWK WXEH VLGH
YHORFLW\WKDQGRHVWKHRYHUDOO
KHDWWUDQVIHUFRHIILFLHQW
9HU\KLJKYHORFLWLHVDOVR
OHDGWRHURVLRQ+RZHYHUWKH
SUHVVXUH GURS OLPLWDWLRQ
XVXDOO\ EHFRPHV FRQWUROOLQJ
PXFK EHIRUH HURVLYH YHORFL
WLHV DUH DWWDLQHG 7KH PLQL
PXP UHFRPPHQGHG OLTXLG
YHORFLW\ LQVLGH WXEHV LV 
IWV  PV ZKLOH WKH
PD[LPXP LV ² IWV
)LJ  9DULDWLRQ LQ WXEHVLGH KHDW WUDQVIHU FRHIILFLHQW RYHUDOO KHDW ² PV ,QWKH FDVH RI
WUDQVIHUFRHIILFLHQWDQGWXEHVLGHSUHVVXUHGURSZLWKWXEHVLGHYHORFLW\ KLJKO\ YLVFRXV OLTXLGV KRZ

 
HYHULWLVRIWHQQRWSRVVLEOHWRDFKLHYHDYHORFLW\RIHYHQIWVPVXQOHVVDYHU\KLJK
SUHVVXUHGURSLVSHUPLWWHG
)XUWKHUPRUH SUHVVXUH GURS LV SURSRUWLRQDO WR WKH VTXDUH RI WKH YHORFLW\ DQG WKH WRWDO
OHQJWK RI WUDYHO 7KXV ZKHQ WKH QXPEHU RI SDVVHV LV LQFUHDVHG IURP  WR  LQ RUGHU WR
LQFUHDVHWKHWXEHVLGHYHORFLW\WKHODWWHULVGRXEOHGDQGVRLVWKHOHQJWKRIWUDYHOVRWKDWWKH
SUHVVXUHGURSLQFUHDVHVE\îRUWLPHV2UZKHQWKHQXPEHURISDVVHVLVLQFUHDVHG
IURP  WR  WKH SUHVVXUH GURS LQFUHDVHV E\  î  RU  WLPHV 7KXV ZKHQ WKH
QXPEHURIWXEHSDVVHVLVLQFUHDVHGIRUDJLYHQQXPEHURIWXEHVDQGDJLYHQWXEHVLGHIORZ
UDWHWKHSUHVVXUHGURSLQFUHDVHVWRWKHWKLUGSRZHURIWKLVLQFUHDVH,QDFWXDOSUDFWLFHWKLV
LQFUHDVH LV VRPHZKDW OHVV EHFDXVH WKH IULFWLRQ IDFWRU UHGXFHV DW WKH KLJKHU 5H\QROG¶V
QXPEHUVRWKDWWKHH[SRQHQWPD\EHFRQVLGHUHGWREHDSSUR[LPDWHO\LQVWHDGRI
,WPXVWEHHDVLO\DSSUHFLDWHGWKDWWKHLQFUHDVHLQWXEHVLGHSUHVVXUHGURSZLWKWKHLQFUHDVH
RIWKH QXPEHU RIWXEH SDVVHVLVDUDWKHUVWHHSFKDQJH &RQVHTXHQWO\ LW RIWHQ KDSSHQVWKDW
ZLWK WZR SDVVHV DQG D JLYHQ QXPEHU RI WXEHV WKH SUHVVXUH GURS LV PXFK ORZHU WKDQ WKH
DOORZDEOHYDOXHEXWZLWKIRXUSDVVHVLWH[FHHGVWKHDOORZDEOHYDOXH,QVXFKFLUFXPVWDQFHV
WKHWXEHGLDPHWHUDQGRUWKHWXEHOHQJWKPD\EHYDULHGVRWKDWWKHDOORZDEOHSUHVVXUHGURSLV
IXOO\XWLOL]HGRUDWOHDVWXWLOL]HGWRDYHU\ODUJHH[WHQW7KLVZLOOHYLGHQWO\\LHOGWKHKLJKHVW
WXEHVLGHKHDWWUDQVIHUFRHIILFLHQWLQDJLYHQVLWXDWLRQ+RZHYHULWVKRXOGEHERUQHLQPLQG
WKDWWKHVPDOOHVWWXEHGLDPHWHUDQGORQJHVWWXEHOHQJWKUHVXOWLQWKHFKHDSHVWKHDWH[FKDQJHU
HVVHQWLDOO\ EHFDXVH WKH VKHOO GLDPHWHU LV WKH VPDOOHVW 6HH &DVH 6WXG\  ODWHU LQ WKLV
FKDSWHU
7KH IROORZLQJWXEH GLDPHWHUVDUHXVXDOO\ XVHG LQWKH FKHPLFDOSURFHVV LQGXVWULHV
DQGLQ2IWKHVHLQDQGLQDUHWKHPRVWSRSXODU7XEHVOHVV
WKDQLQPP2'VKRXOGQRWEHXVHGIRUIRXOLQJVHUYLFHVLQIDFWWKHXVHRILQ
PP 2' WXEHV LV SUHIHUDEOH 7KH XVH RI VPDOOGLDPHWHU WXEHV VXFK DV  LQ 
PP2'LVUHDOO\ZDUUDQWHGRQO\IRUVPDOOKHDWH[FKDQJHUV>VD\KHDWWUDQVIHUDUHDOHVVWKDQ
IWP@EHFDXVHIRUODUJHKHDWH[FKDQJHUVWKHQXPEHURIWXEHVZLOOEHYHU\ODUJHVR
WKDW WKH FRVW RI GULOOLQJ WXEHVKHHWV DQG EDIIOHV PD\ RIIVHW WR D ODUJH H[WHQW WKH FRVW
DGYDQWDJHRIDVPDOOHUVKHOOGLDPHWHU
6RPH SODQW RSHUDWRUV SUHIHU WR VWDQGDUGL]H RQ WXEH GLDPHWHU DV ZHOO DV OHQJWK VR WKDW
LQYHQWRU\IRUUHWXELQJRIH[LVWLQJWXEHEXQGOHVRUIDEULFDWLQJQHZRQHVPD\EHPLQLPL]HG
,Q VXFK D VLWXDWLRQ LW EHFRPHV PRUH GLIILFXOW WR RSWLPL]H WKH WXEHVLGH GHVLJQ RI KHDW
H[FKDQJHUVDQGVRPHWLPHVDUDWKHUKLJKRYHUGHVLJQPD\KDYHWREHDFFHSWHGRQO\WRVDWLVI\
WKH DOORZDEOH SUHVVXUH GURS 7KDW LV WR VD\ WKH QXPEHU RI WXEHV LV LQFUHDVHG QRW WR
LQFRUSRUDWH DGGLWLRQDO KHDW WUDQVIHU DUHD EXW MXVW WR UHGXFH WKH YHORFLW\ DQG WKHUHE\ WKH
WXEHVLGH SUHVVXUH GURS (YLGHQWO\ WKLV ZLOO OHDG WR DQ XQQHFHVVDU\ RYHUGHVLJQ 6XFK D
FRQGLWLRQLVUHIHUUHGWRDVDSUHVVXUHGURSOLPLWLQJGHVLJQ
+RZHYHULIVXFKDVWUHDPVXEVHTXHQWO\JRHVWRDQRWKHUKHDWH[FKDQJHUWKHH[WUDKHDW
GXW\WKDWZLOOEHWUDQVIHUUHGGXHWRWKHRYHUVL]LQJVKRXOGEHWDNHQDGYDQWDJHRIDQGRQO\WKH
EDODQFHKHDWGXW\FRQVLGHUHGIRUWKHODWWHU
&RQVLGHUD KRWVWUHDPWKDW LVWREH FRROHG IURP ƒ) ƒ&WRƒ) ƒ&E\D
FROGVWUHDP$UHSUHVHQWLQJDKHDWGXW\RIî%WXKîNFDOKDQGIURP
ƒ)ƒ&WRƒ)ƒ&E\DFROGVWUHDP%UHSUHVHQWLQJDKHDWGXW\RIî
%WXKîNFDOK7KHWRWDODOORZDEOHSUHVVXUHGURSIRUWKHKRWVWUHDPLVSVL
NJFP RXW RI ZKLFK  SVL  NJFP LV DOORFDWHG WR WKH KRW VKHOO DQG  SVL 
NJFPWRWKHFROGVKHOO:KLOHFDUU\LQJRXWWKHGHVLJQRIWKHKRWVKHOOLWLVIRXQGWKDWLQ
RUGHUWRUHVWULFWWKHKRWVWUHDPSUHVVXUHGURSWRSVLNJFPWKHUHLVDQLQFLGHQWDO
RYHUGHVLJQRIZKLFKWUDQVODWHVWRDKHDWGXW\RIî%WXKîNFDOK

 
 7DEOHD+HDWH[FKDQJHUVHUYLFHIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG +\GURFDUERQOLTXLG +\GURFDUERQOLTXLG

 )ORZUDWHOEKNJK  

 7HPSHUDWXUHLQRXWƒ)ƒ&  

 $OORZDEOHSUHVVXUHGURSSVLNJFP  


 )RXOLQJUHVLVWDQFHKIW ƒ)%WX  
KPƒ&NFDO

 +HDWGXW\00%WXK00NFDOK 

 9LVFRVLW\LQRXWFS  

 'HQVLW\LQRXWOEIWNJP  

 7KHUPDOFRQGXFWLYLW\LQRXW  

%WXKIWƒ)NFDOKPƒ&  

 6SHFLILFKHDW%WXOEƒ)NFDONJƒ&  

 0DWHULDORIFRQVWUXFWLRQ &DUERQVWHHO 7XEHV66

RWKHUSDUWV&U0R

 /LQHVL]HLQPPQRPLQDO  

FRUUHVSRQGLQJ WR DQ RXWOHW WHPSHUDWXUH RI ƒ) ƒ& $V WKH EDODQFH KHDW GXW\ LV
±RUî%WXK>±RUîNFDOK@WKH
FROGVKHOOQHHGEHGHVLJQHGRQO\IRUWKLVKHDWGXW\DQGQRWIRUî%WXKî
NFDOK2IFRXUVHWKHGHVLUHGRYHUVXUIDFLQJFDQEHLQFRUSRUDWHGLQHDFKVKHOO
,QWKLVFRQWH[WLWLVLPSRUWDQWWRUHDOL]HWKDWWKHWRWDOSUHVVXUHGURSIRUDJLYHQVWUHDP
KDVWREHPHW7KHGLVWULEXWLRQRISUHVVXUHGURSLQWKHYDULRXVKHDWH[FKDQJHUVIRUDJLYHQ
VWUHDPLQDSDUWLFXODUFLUFXLWPD\EHYDULHGDVIRXQGEHVWWRREWDLQJRRGKHDWWUDQVIHULQDOO
WKHKHDWH[FKDQJHUV
)RU H[DPSOH FRQVLGHU WKDW WKH WRWDO DOORZDEOH SUHVVXUH GURS IRU D GLVWLOODWLRQ FROXPQ
RYHUKHDGVWUHDPLVSVLNJFP7KLVRYHUKHDGVWUHDPKDVWRILUVWIORZWKURXJKDQ
DLUFRROHG FRQGHQVHU DQG VXEVHTXHQWO\ IORZ WKURXJK D ZDWHUFRROHG FRQGHQVHU ,I D
VDWLVIDFWRU\DLUFRROHUGHVLJQFDQEHDFFRPSOLVKHGZLWKDWXEHVLGHSUHVVXUHGURSRIRQO\
SVLNJFPWKHEDODQFHSUHVVXUHGURSRI²RUSVL>²RU
NJFP@LVDYDLODEOHIRUWKHWULPFRQGHQVHU
$QRWKHU H[DPSOH LV D FROG OLTXLG VWUHDP IORZLQJ WKURXJK VHYHUDO SUHKHDW H[FKDQJHUV
1RUPDOO\DSUHVVXUH GURS RISVL NJFP LVSHUPLWWHG IRUOLTXLGVWUHDPVSHUVKHOO
&RQVLGHUWKDWWKHUHDUHILYHVXFKSUHKHDWH[FKDQJHUVKDYLQJRQHVKHOOHDFK&RQVHTXHQWO\D
WRWDOSUHVVXUHGURSRI>î@RUSVLNJFPLVSHUPLWWHGIRUWKHHQWLUHFLUFXLW
$V WKH FROG VWUHDP IORZV WKURXJK WKH SUHKHDW H[FKDQJHUV LWV WHPSHUDWXUH LQFUHDVHV DQG
WKHUHE\ LWV YLVFRVLW\ GHFUHDVHV $V WKH KHDW WUDQVIHU FRHIILFLHQW GHFUHDVHV ZLWK LQFUHDVLQJ
YLVFRVLW\IRUWKHVDPHSUHVVXUHGURSLWZLOOEHSUXGHQWWRDOORFDWHPRUHSUHVVXUHGURSIRUWKH
FROGHUKHDWH[FKDQJHUVZKHUHWKHFROGVWUHDPLVPRUHYLVFRXV,QWKLVZD\HYHQZKHQWKH
FROGVWUHDPLVPRUHYLVFRXVLWFDQEHPDGHWRDFKLHYHDKLJKHUKHDWWUDQVIHUFRHIILFLHQWWKDQ
ZRXOGEHSRVVLEOHE\DQHYHQGLVWULEXWLRQRISUHVVXUHGURSLQDOORIWKHILYHKHDWH[FKDQJHUV

 
 7DEOHE'HWDLOVRIILUVWGHVLJQSURGXFHGIRU&DVH6WXG\
 &DVH$ &DVH%
 7\SHRIH[FKDQJHU )ORDWLQJKHDG7(0$$(6

 6KHOO,'LQPP  

 7XEH2'LQPPîQRRIWXEHV îî îî
îQRRIWXEHSDVVHV

 +HDWWUDQVIHUDUHDIWP  

 7XEHSLWFK[WXEHOD\RXWDQJOH R R

 %DIIOHW\SHDQGVSDFLQJLQPP VLQJOHVHJPHQWDO VLQJOHVHJPHQWDO

 

 %DIIOHFXWGLDPHWHU  

 9HORFLW\IWV 6KHOOVLGH  

PV 7XEHVLGH  
 +HDWWUDQVIHU 6KHOOVLGH  
FRHIILFLHQW%WXK
IWƒ)NFDOKP 7XEHVLGH  
ƒ&
2YHUDOO  
 3UHVVXUHGURSSVL 6KHOOVLGH  
NJFP
7XEHVLGH  

 6KHOOVLGH  

 3HUFHQWKHDW 7XEHVLGH  
WUDQVIHUUHVLVWDQFH
)RXOLQJ  
0HWDOZDOO  

 %DIIOHKROHWRWXEH$  

 6WUHDPDQDO\VLV 0DLQFURVVIORZ%  
IORZIUDFWLRQV
6KHOOEXQGOH&  
6KHOOWREDIIOH(  

 2YHUGHVLJQ  

 $SSUR[EXQGOHZWOENJ  

 $SSUR[HPSW\H[FKDQJHUZWOENJ  

&$6(678'<237,0,=,1*78%(6,'('(6,*1
/HWXVFRQVLGHUWKHKHDWH[FKDQJHUVHUYLFHVSHFLILHGLQ7DEOHD
$ 7(0$ $(6 VSOLWULQJ SXOOWKURXJK IORDWLQJKHDG FRQVWUXFWLRQ LV WR EH HPSOR\HG
7XEHVDUHWREHHLWKHULQPP2'RULQPP2'LQPP
WKLFNDQGLQPPORQJ+RZHYHUWKHLQPP2'ZLOOEHSUHIHUUHG
7KHWXEHOHQJWKFDQEHUHGXFHGLIWKLVLVIRXQGWREHDGYDQWDJHRXV
$ILUVWGHVLJQZDVSURGXFHGXVLQJLQPP2'WXEHVDQGIWPP
ORQJWXEHVDVVKRZQLQ&DVH$RI7DEOHE,WZLOOEHQRWLFHGWKDWWKHWXEHVLGHSUHVVXUH
 
GURSZDVRQO\SVLNJFPZKHQSVLNJFPZDVSHUPLWWHG)XUWKHUWKH
WXEHVLGHKHDWWUDQVIHUUHVLVWDQFHZDVRIWKHWRWDOZKLFKPHDQWWKDWLIWKHDOORZDEOH
SUHVVXUHGURSZHUHEHWWHUXWLOL]HGWKHKHDWWUDQVIHUDUHDZRXOGGHFUHDVH+RZHYHUZKHQWKH
QXPEHURIWXEHSDVVHVZDVLQFUHDVHGIURPWRNHHSLQJWKHVKHOOGLDPHWHUWKHVDPHDQG
GHFUHDVLQJWKHQXPEHURIWXEHVIURPWRGXHWRWKHH[WUDSDVVSDUWLWLRQODQHVWKH
WXEHVLGHSUHVVXUHGURSLQFUHDVHGWRSVLNJFPZKLFKZDVXQDFFHSWDEOH,WPD\
EH DGGHG KHUH WKDW WKH VKHOOVLGH GHVLJQ ZDV VDWLVIDFWRU\ ZLWK WKH DOORZDEOH SUHVVXUH GURS
TXLWHZHOOXWLOL]HGDQGDQDFFHSWDEOHVWUHDPDQDO\VLV
$VWKHRYHUGHVLJQLQWKHSDVVGHVLJQZDVDQDWWHPSWZDVPDGHWRGHFUHDVHWKH
WXEHOHQJWKLQDQHIIRUWWRUHGXFHWKHWXEHVLGHSUHVVXUHGURS,WZDVIRXQGWKDWWKHWXEHOHQJWK
FRXOG EH UHGXFHG WR  IW  PP ZKHUH WKH RYHUGHVLJQ ZDV  +RZHYHU WKH
WXEHVLGH SUHVVXUH GURS ZDV  SVL  NJFP ZKLFK ZDV VWLOO PXFK KLJKHU WKDQ WKDW
SHUPLWWHG
$VWKH GHVLJQ ZLWKLQ PP 2' WXEHVDQGWXEHSDVVHV GLG QRWXWLOL]HWKH
DOORZDEOH WXEHVLGH SUHVVXUH GURS DQG WKDW ZLWK LQ PP 2' WXEHV DQG  WXEH
SDVVHV FRXOG QRW UHVWULFW WKH WXEHVLGH SUHVVXUH GURS WR ZLWKLQ WKH DOORZDEOH YDOXH LW ZDV
ORJLFDO WR DWWHPSW D GHVLJQ ZLWK LQ PP 2' WXEHV 7KLV GHVLJQ LV GHWDLOHG DV
&DVH % LQ 7DEOH E ,W ZLOO EH VHHQ WKDW WKHUH LV D FRQVLGHUDEOH UHGXFWLRQ LQ WKH VKHOO
GLDPHWHU>IURPLQPPWRLQPP@DQGDQDSSUHFLDEOHUHGXFWLRQLQWKH
KHDWWUDQVIHUVXUIDFHIURPIWPWRIWP
'XHWRWKH PXFK KLJKHUWXEHVLGH YHORFLW\>IWVPV YHUVXV IWV  PV
HDUOLHU@WKHWXEHVLGHSUHVVXUHGURSZDVPXFKKLJKHU>SVLNJFPFRPSDUHGWR
SVLNJFP@DVZDVWKHWXEHVLGHKHDWWUDQVIHUFRHIILFLHQW>%WXKIW ƒ)DV
DJDLQVW  %WXK IW ƒ)  NFDOK P ƒ&@ 7KLV OHG WR DQ RYHUDOO KHDW WUDQVIHU
FRHIILFLHQWRI%WXKIW ƒ)NFDOKPƒ&DVDJDLQVW%WXKIW ƒ)NFDOK
Pƒ&LQWKH&DVH$GHVLJQ,WZLOODOVREHVHHQWKDWWKHUHLVDQDSSUHFLDEOHUHGXFWLRQLQWKH
FRVW RI WKH KHDW H[FKDQJHU DV WKH EXQGOH ZHLJKW UHGXFHV IURP a OE a NJ WR
aOEaNJDQGWKHHPSW\ZHLJKWIURPaOEaNJWRaOE
aNJ
7KHDERYHH[DPSOHVKRZVKRZEHWWHUXWLOL]DWLRQRIDOORZDEOHWXEHVLGHSUHVVXUHGURSOHG
WRDPRUHHFRQRPLFDOGHVLJQ+RZHYHULIWKHXVHRILQPP2'WXEHVKDGQRW
EHHQSHUPLWWHGEHFDXVHRIWKHIRXOLQJQDWXUHRIWKHIOXLGRUIRULQYHQWRU\UHDVRQVWKH&DVH$
GHVLJQZRXOGKDYHEHHQUHTXLUHGWREHDGRSWHG

,PSRUWDQFHRIVWHSZLVHFDOFXODWLRQVIRUYLVFRXVOLTXLGV
:KHQWKHYDULDWLRQLQWXEHVLGHYLVFRVLW\LVODUJHDVLQJOHSRLQWFDOFXODWLRQRIWKHWXEHVLGH
KHDW WUDQVIHU FRHIILFLHQW DQG SUHVVXUH GURS ZLOO JLYH XQUHDOLVWLF UHVXOWV 7KLV ZLOO EH
SDUWLFXODUO\ WUXH LQ FDVHV ZKHUH WKH IORZ UHJLPH YDULHV IURP WXUEXOHQW WR WUDQVLWLRQ RU
WUDQVLWLRQWRODPLQDURUZKHUHDOOWKUHHUHJLPHVH[LVWDVWKHWKHUPDOSHUIRUPDQFHLVYHU\
GLIIHUHQWIRUWKHYDULRXVIORZUHJLPHV,QVXFKFDVHVLWZLOOEHQHFHVVDU\WRSHUIRUPWKH
FDOFXODWLRQV VWHSZLVH RU ]RQHZLVH 0RGHUQ VRIWZDUH DXWRPDWLFDOO\ HPSOR\ ]RQHZLVH
FDOFXODWLRQVWKHQXPEHURI]RQHVLVGHWHUPLQHGIURPWKHQXPEHURIWXEHSDVVHVDQGWKH
YDULDWLRQLQWKH5H\QROG¶VQXPEHU
7R GHPRQVWUDWH WKH LPSRUWDQFH RI FDUU\LQJ RXW ]RQHZLVH FDOFXODWLRQV ZH VKDOO QRZ
WDNH D ORRN DW WKH GHVLJQ RI D NHWWOHW\SH VWHDP JHQHUDWRU LQ D UHILQHU\ KDYLQJ D ODUJH
YDULDWLRQ LQ WKH WXEHVLGH YLVFRVLW\ DQG VHH WKH H[WHQW RI WKH YDULDWLRQ RI UHVXOWV E\
SHUIRUPLQJWKHFDOFXODWLRQVSRLQWZLVHDQGVWHSZLVH

 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG %):6WHDP +\GURFDUERQOLTXLG

 )ORZUDWHOEKNJK IXOO\ 

YDSRUL]HG

 7HPSHUDWXUHLQRXWƒ)ƒ&  
 $OORZDEOHSUHVVXUHGURSSVLNJFP 1HJ 

 )RXOLQJUHVLVWDQFHKIW ƒ)%WX  
KPƒ&NFDO

 9LVFRVLW\LQRXWFS  

 7KHUPDOFRQGXFWLYLW\%WXKIWƒ)NFDOKP  
ƒ& 6WDQGDUG
 'HQVLW\LQRXWOEIWNJP 

 6SHFLILFKHDW%WXOEƒ)NFDONJƒ& 

 +HDWGXW\00%WXK00NFDOK 

&$6(678'<67(3:,6(&$/&8/$7,216
7KH SULQFLSDO SURFHVV SDUDPHWHUV DUH VKRZQ LQ 7DEOH D ,W PD\ EH QRWLFHG WKDW WKH
YLVFRVLW\RIWKHK\GURFDUERQOLTXLGYDULHVIURPFSDWWKHLQOHWWRFSDWWKHRXWOHW
7XEHVôLQPP2'î%:*PPWKLFNîIWPPORQJRI&U
ò0RZHUHWREHXVHGLQD7(0$$.7FRQVWUXFWLRQ7KHWXEHEXQGOHZHLJKWZDVQRWWR
H[FHHGOEWRQV
$GHVLJQZDVSURGXFHGE\SHUIRUPLQJWKHFDOFXODWLRQVVWHSZLVHZKLFKWKHVRIWZDUHGRHV
DVDURXWLQH'HWDLOVRIWKLVGHVLJQDUHVKRZQLQ7DEOHE,WZLOOEHVHHQWKDWWZRNHWWOHV
DUHXVHGLQSDUDOOHO7KLVLVEHFDXVHWKHWXEHEXQGOHZHLJKWZDVH[FHHGLQJWKHVSHFLILHGOLPLW
LQDVLQJOHVKHOOGHVLJQ7KHDOORZDEOHWXEHVLGHSUHVVXUHGURSKDVEHHQIXOO\XWLOL]HGWKXV
WKH RYHUGHVLJQ RI  FDQQRW EH UHGXFHG E\ KDYLQJ D VPDOOHU QXPEHU RI WXEHV $V
H[SHFWHGWKHWXEHVLGHUHVLVWDQFHLVKLJKO\FRQWUROOLQJFRQWULEXWLQJRIWKHWRWDO
1RZ VXSSRVH WKDW WKH WXEHVLGH FDOFXODWLRQV ZHUH WR EH FDUULHG RXW DW D VLQJOH SRLQW
QDPHO\WKHDYHUDJHWHPSHUDWXUH RQWKHWXEHVLGH ZKLFK LV ƒ)ƒ&,W FDQEHVHHQ
IURPWKHWXEHVLGHPRQLWRUWKDWWKHWXEHVLGHKHDWWUDQVIHUFRHIILFLHQWDWWKLVYDOXHRIWXEHVLGH
EXON WHPSHUDWXUH LV DSSUR[  %WXK IW ƒ)  NFDOK P ƒ& DQG WKH RYHUDOO KHDW
WUDQVIHU FRHIILFLHQW LV DSSUR[  %WXK IW ƒ)  NFDOK P ƒ& 1RWH WKLV YDOXH LV
VLJQLILFDQWO\KLJKHUWKDQWKHYDOXHGHWHUPLQHGE\WKHVRIWZDUHRQD]RQHZLVHEDVLVQDPHO\
%WXKIW ƒ)NFDOKP ƒ&7KHUDWLRRIWKHWZRYDOXHVLVRU
7KXVLIWKHWKHUPDOGHVLJQFDOFXODWLRQVZHUHSHUIRUPHGRQDVLQJOHSRLQWWKHPHDQWXEHVLGH
EXONWHPSHUDWXUHWKHQWKHGHVLJQZRXOGKDYHEHHQYHU\FRQVHUYDWLYH

6KHOOVLGH
:K\WKHVKHOOVLGHLVPRUHFRPSOH[
&RQVLGHUWKHYDULRXVSDUDPHWHUVRQWKHVKHOOVLGH
• W\SHRIVKHOO
• WXEHOD\RXWSDWWHUQ
 
 7DEOHE7KHUPDOGHVLJQRIVWHDPJHQHUDWRU
 7\SHRIH[FKDQJHU 7(0$$.7NHWWOH

 1RRIVKHOOV LQSDUDOOHO

 3RUWNHWWOH,'LQPP 

 7XEH2'îWXEHWKLFNQHVVîWXEHOHQJWKLQPP î%:*î

 1RRIWXEHVîQRRIWXEHSDVVHV [

 7XEHSLWFKîWXEHOD\RXWDQJOH îR

 %DIIOLQJ )XOOVXSSRUWSODWHVRQO\
 
 +HDWWUDQVIHUDUHDIW P  [ 

9HORFLW\IWVPV 

 7XEHVLGH

3UHVVXUHGURSSVLNJFP  

6KHOOVLGH 

 +HDWWUDQVIHUFRHIILFLHQW
%WXKIWƒ)NFDOKP 7XEHVLGH 
ƒ&
2YHUDOO 
 6KHOOVLGH 

 3HUFHQWKHDWWUDQVIHU 7XEHVLGH 
UHVLVWDQFH
)RXOLQJ 
0HWDOZDOO 

 2YHUGHVLJQ 

• WXEHSLWFK
• W\SHRIEDIIOHV
• EDIIOHVSDFLQJDQGEDIIOHFXW
&RQVLGHUDOVRWKDWRQWKHVKHOOVLGHWKHUHLVQRWMXVWRQHVWUHDPDVZLWKLQWXEHVEXWRQH
SULQFLSDO FURVVIORZ VWUHDP DQG IRXU OHDNDJHE\SDVV VWUHDPV $V ZH VKDOO GLVFXVV LQ
6HFWLRQWKHIORZIUDFWLRQVRIHDFKRIWKHVHILYHVWUHDPVZLOOKDYHWREHGHWHUPLQHG
EDVHG XSRQ HTXDO SUHVVXUH GURS VLQFH WKH\ DUH LQ SDUDOOHO DQG WKHQ WKH KHDW WUDQVIHU
FDOFXODWLRQV SHUIRUPHG %HVLGHV WKH SUHVHQFH RI ILYH VWUHDPV OHDGV WR D WHPSHUDWXUH
SURILOHGLVWRUWLRQSUREOHPZLWKDQDWWHQGDQWSHQDOW\LQWKH07'7KLVZLOOEHGLVFXVVHG
LQ GHWDLO LQ 6HFWLRQ  ,W QRZ EHFRPHV HYLGHQW ZK\ VKHOOVLGH GHVLJQ LV PXFK PRUH
GLIILFXOWWKDQWXEHVLGHGHVLJQ
/HWXVQRZFRQVLGHUWKHDERYHSDUDPHWHUVLQPRUHGHWDLO

6KHOOW\SH
'HSHQGLQJXSRQKRZDIOXLGIORZVWKURXJKDVKHOO7(0$GHILQHVYDULRXVVKHOOSDWWHUQV
(-)*+.DQG;)LJ
$7(0$(VKHOOLVDVLQJOHSDVVVKHOOZKHUHWKHVKHOOVLGHIOXLGHQWHUVDWRQHHQGRIWKH
VKHOODQG OHDYHVDWWKH RWKHU HQG7KLVLVE\IDUWKH PRVWFRPPRQVKHOOW\SHWKDW RQH ZLOO
FRPHDFURVVLQWKHFKHPLFDOSURFHVVLQGXVWULHV
$ 7(0$ ) VKHOO )LJV D DQG E LV D SDVV VKHOO ZKHUH D ORQJLWXGLQDO EDIIOH

 
GLYLGHVWKHVKHOOLQWRWZRSDVVHVDQXSSHUSDVVDQGDORZHUSDVV7KHVKHOOVLGHIOXLGHQWHUV
WKHVKHOODWRQHHQGLQHLWKHUWKHXSSHUKDOIRUWKHORZHUKDOIWUDYHUVHVWKHHQWLUHOHQJWKRIWKH
VKHOOWKURXJKRQHKDOIWKHVKHOOFURVVVHFWLRQDODUHDDQGWKHQWXUQVDURXQGDQGIORZVWKURXJK
WKH VHFRQG SDVV EHIRUH ILQDOO\ OHDYLQJ DW WKH HQG RI WKH VHFRQG SDVV (YLGHQWO\ WKH
ORQJLWXGLQDOEDIIOHGRHVQRWH[WHQGWRWKHWXEHVKHHWDWWKHIDUHQGEXWVWRSVZHOOVKRUWVRWKDW
WKHVKHOOVLGHIOXLGFDQIORZLQWRWKHVHFRQGSDVV7KLVFRQVWUXFWLRQLVXVHGIRUWHPSHUDWXUH
FURVVVLWXDWLRQVWKDWLVZKHUHWKHFROGIOXLGOHDYHVDWDWHPSHUDWXUHKLJKHUWKDQWKHRXWOHW
WHPSHUDWXUHRIWKHKRWVWUHDP,IDSDVV)VKHOOKDVRQO\WXEHSDVVHVWKLVEHFRPHVDWUXH
FRXQWHUFXUUHQWDUUDQJHPHQWZKHUHDODUJHWHPSHUDWXUHFURVVFDQEHUHDOL]HG
$7(0$-VKHOO)LJLVDGLYLGHGIORZVKHOOZKHUHLQWKHVKHOOVLGHIOXLGHQWHUVWKH
VKHOODWWKHFHQWHUDORQJWKHOHQJWKDQGGLYLGHVLQWRWZRKDOYHVRQHIORZLQJWRWKHOHIWDQG
WKHRWKHUWRWKHULJKWDQGOHDYLQJVHSDUDWHO\7KH\DUHWKHQFRPELQHGLQWRDVLQJOHVWUHDP
7KLVLVLGHQWLILHGDVD-VKHOO$OWHUQDWLYHO\WKHVWUHDPPD\EHVSOLWLQWRWZRKDOYHVDQG
HQWHUWKHVKHOODWWKHWZRHQGVIORZWRZDUGVWKHFHQWHUDQGOHDYHDVDVLQJOHVWUHDP7KLVLV
LGHQWLILHGDVD-VKHOO :KHWKHUWRXVHD-VKHOO RUD-VKHOO LV GHWHUPLQHG E\WKH
FRQYHQLHQFHRIQR]]OHGHVLJQ,IWKHVWUHDPLVDVHQVLEOHOLTXLGRUJDVLWGRHVQRWPDNHDELJ
GLIIHUHQFH+RZHYHULIWKHHQWHULQJVWUHDPLVDYDSRUZKLFKWKHQFRQGHQVHVWKHLQOHWOLQH
ZLOOEHPXFKODUJHUWKDQWKHRXWOHWOLQH,WZLOOEHEHWWHULQWKLVFDVHWRHPSOR\D-VKHOODV
WKHODUJHUOLQHZLOOEHGLYLGHGLQWRWZRVPDOOHUOLQHVZKLFKZLOOWKHQHQWHUWKHVKHOO8VLQJD
-VKHOOZRXOGPHDQDVLQJOHODUJHLQOHWQR]]OHDQGWZRPXFKVPDOOHURXWOHWQR]]OHV)RU
H[DPSOHLIWKHLQOHWOLQHLVLQPPDQGWKHRXWOHWLQPPD-VKHOOZLOO
PHDQWZRLQPPQR]]OHVDWWKHLQOHWDQGDLQPPQR]]OHDWWKHRXWOHW,ID
- FRQILJXUDWLRQ ZHUH XVHG KHUH LW ZRXOG KDYH WUDQVODWHG LQWR D LQ PP LQOHW
QR]]OHDQGWZRLQPPRXWOHWQR]]OHV7KHWZRVPDOOHULQOHWQR]]OHVLQRU
PPZLOOUHVXOWLQWKHDFFRPPRGDWLRQRIDODUJHUQXPEHURIWXEHVLQDJLYHQVKHOOGLDPHWHU
WKDQWKHODUJHULQOHWQR]]OHLQRUPP7KLVZLOOEHSDUWLFXODUO\WUXHLIWKHLQOHWOLQH
VL]H LV TXLWH ODUJH FRPSDUHGWRWKHVKHOO GLDPHWHU,IWKHVKHOO GLDPHWHU LV YHU\ ODUJHVD\
 LQ RU  PP LQ WKH H[DPSOH MXVW GHVFULEHG LW ZLOO QRW PDNH DQ DSSUHFLDEOH
GLIIHUHQFHZKHWKHUWKHLQOHWQR]]OHLVLQPPRULQPP+RZHYHULIWKH
VKHOOGLDPHWHULVRQO\LQPPLWZLOOPDNHDQDSSUHFLDEOHGLIIHUHQFH7KHUHYHUVH
ZLOOEHWUXHLQWKHFDVHRIDYDSRUL]HUKDYLQJDVPDOOLQOHWOLQHVL]HDQGDPXFKODUJHURXWOHW
OLQHVL]HWKDWLVLWZLOOEHDGYDQWDJHRXVWRHPSOR\D-VKHOODVFRPSDUHGWRD-VKHOO
$ 7(0$ * VKHOO LV D VSOLWIORZ VKHOO ZLWK WKH FRQILJXUDWLRQ VKRZQ LQ )LJ  7KLV
FRQVWUXFWLRQLVXVXDOO\HPSOR\HGIRUKRUL]RQWDOWKHUPRV\SKRQUHERLOHUV7KHUHLVRQO\RQH
FHQWUDOVXSSRUWSODWHDQGQREDIIOHV(YLGHQWO\DV7(0$VSHFLILHVDPD[LPXPXQVXSSRUWHG
WXEHOHQJWKRIDERXWLQPPD*VKHOOFDQQRWEHXVHGIRUKHDWH[FKDQJHUVKDYLQJ
DWXEHOHQJWKJUHDWHUWKDQLQPPDVWKHXQVXSSRUWHGOHQJWKZRXOGWKHQH[FHHG
WKH 7(0$ OLPLW RI  LQ RU  PP W\SLFDOO\ YDULHV ZLWK WXEH 2' WKLFNQHVV DQG
PDWHULDO
:KHQDODUJHUWXEHOHQJWKKDVWREHHPSOR\HGD7(0$+VKHOOLVDGRSWHG)LJ
$Q+VKHOOLVUHDOO\WZR*VKHOOVSODFHGVLGHE\VLGHVRWKDWQRZWKHUHDUHWZRIXOOVXSSRUW
SODWHV7KHGHVFULSWLRQIRUWKLVFRQILJXUDWLRQLV³GRXEOHVSOLW´DVWKHIORZLVVSOLWWZLFHDQG
UHFRPELQHG WZLFH 7KLV FRQVWUXFWLRQ LV DOVR LQYDULDEO\ HPSOR\HG IRU KRUL]RQWDO WKHUPR
V\SKRQ UHERLOHUV 7KH DGYDQWDJH ZLWK 7(0$ * DQG + VKHOOV LV WKDW WKH SUHVVXUH GURS LV
UHGXFHGGUDVWLFDOO\6LQFHWKHUHDUHQRSXPSVLQWKHUPRV\SKRQUHERLOHUFLUFXLWVWKHSUHVVXUH
GURS KDV WR EH UHVWULFWHG WR D EDUH PLQLPXP KHQFH WKHVH FRQILJXUDWLRQV DUH HPSOR\HG
%HVLGHV DQG QR OHVV LPSRUWDQWO\ WKH QDWXUDO WHQGHQF\ RI WKH WZR SKDVHV WR VHSDUDWH LV
PLQLPL]HG

 
 $7(0$;VKHOO)LJLVDSXUHFURVVIORZVKHOOZKHUHWKHVKHOOVLGHIOXLGHQWHUVDW
WKHWRSRUERWWRPRIWKHVKHOODQGIORZVDFURVVWKHWXEHVDQGH[LWVIURPWKHRSSRVLWHVLGHRI
WKHVKHOO7KHIORZPD\EHLQWURGXFHGWKURXJKPXOWLSOHQR]]OHVORFDWHGVWUDWHJLFDOO\DORQJ
WKH OHQJWK RI WKH VKHOO LQ RUGHU WR DFKLHYH D EHWWHU GLVWULEXWLRQ $V SUHVVXUH GURS ZLOO EH
H[WUHPHO\ORZLQIDFWWKHUHLVKDUGO\DQ\SUHVVXUHGURSLQWKHVKHOODQGZKDWHYHUSUHVVXUH
GURSWKHUH LV LV YLUWXDOO\DOO LQWKH QR]]OHVWKLV FRQILJXUDWLRQ LV HPSOR\HGIRU FRROLQJ RU
FRQGHQVLQJ YDSRUV DW YHU\ ORZ SUHVVXUH SDUWLFXODUO\ YDFXXP )XOO VXSSRUW SODWHV FDQ EH
ORFDWHGDVUHTXLUHG IRUVWUXFWXUDO LQWHJULW\WKH\ GR QRW LQWHUIHUH ZLWK WKHVKHOOVLGH IORZDV
WKH\DUHSDUDOOHOWRWKHIORZGLUHFWLRQ
$7(0$.VKHOO)LJLVDVSHFLDOFURVVIORZVKHOOHPSOR\HGIRUNHWWOHUHERLOHUV.
IRUNHWWOHKDYLQJDQLQWHJUDOYDSRUGLVHQJDJHPHQWVSDFHLQWKHVKDSHRIDQHQODUJHGVKHOO
+HUHWRRIXOOVXSSRUWSODWHVFDQEHHPSOR\HGDVUHTXLUHG

7XEHOD\RXWSDWWHUQ
7KHUHDUHIRXUWXEHOD\RXWSDWWHUQV)LJ
• WULDQJXODUƒ
• URWDWHGWULDQJXODUƒ
• VTXDUHƒ
• URWDWHGVTXDUHƒ
$WULDQJXODURUURWDWHGSDWWHUQZLOOHYLGHQWO\DFFRPPRGDWHPRUHWXEHVWKDQDVTXDUHRU
URWDWHG VTXDUH SDWWHUQ )XUWKHU D WULDQJXODU SDWWHUQ SURGXFHV KLJK WXUEXOHQFH DQG
WKHUHIRUH D KLJK KHDW WUDQVIHU FRHIILFLHQW +RZHYHU D WULDQJXODU RU URWDWHG WULDQJXODU
SDWWHUQ GRHV QRW SHUPLW PHFKDQLFDO FOHDQLQJ RI WXEHV IRU WKH QRUPDOO\ XVHG WXEH SLWFK
WLPHVWKHWXEH2'DVDFFHVVODQHVIRUFOHDQLQJDUHQRWDYDLODEOH&RQVHTXHQWO\D
WULDQJXODUOD\RXWSDWWHUQLVOLPLWHGLQXVHWRFOHDQVHUYLFHVRQWKHVKHOOVLGH)RUVHUYLFHV
ZKLFKUHTXLUHPHFKDQLFDOFOHDQLQJRQWKHVKHOOVLGHDVTXDUHRUURWDWHGVTXDUHSLWFKKDV
WREHXVHG
,WVKRXOGEH QRWHG KHUHWKDW FKHPLFDO FOHDQLQJ GRHV QRWUHTXLUHDFFHVV ODQHV VRWKDWD
WULDQJXODU SLWFK PD\ EH XVHG IRU D GLUW\ VKHOOVLGH VHUYLFH SURYLGHG FKHPLFDO FOHDQLQJ LV
VXLWDEOHDQG HIIHFWLYH,IWKH WXEHSLWFK LV LQFUHDVHGVXIILFLHQWO\DFFHVV ODQHV ZLOOEHFRPH
DYDLODEOHEXWDVWKHVKHOO ,' ZLOO LQFUHDVH VXEVWDQWLDOO\DQG ZHOOEH\RQGWKDW IRUDVTXDUH
SLWFKWKHYHU\SXUSRVHRIDFFRPPRGDWLQJPRUHWXEHVZLOOEHGHIHDWHG
$ URWDWHG WULDQJX
ODU SDWWHUQ GRHV QRW
RIIHU DQ\ DGYDQWDJH
RYHU D WULDQJXODU SDW
WHUQ LQ WKH FRQYHUVLRQ
RI SUHVVXUH GURS WR
KHDW WUDQVIHU DQG
KHQFHLWVXVHLVUDUH
)RU GLUW\ VHUYLFHV
RQ WKH VKHOOVLGH WKH
XVXDOSUDFWLFHLVWRXVH
DVTXDUHOD\RXWSDWWHUQ
+RZHYHU VLQFH WKLV LV
)LJ  7XEH OD\RXW SDWWHUQ 5HSULQWHG IURP WKH +HDW ([FKDQJHU 'HVLJQ DQ LQOLQH SDWWHUQ LW
+DQGERRNZLWKSHUPLVVLRQRI%HJHOO+RXVH,QF SURGXFHV ORZHU WXUEX
 
OHQFH &RQVHTXHQWO\ ZKHQ WKH VKHOOVLGH 5H\QROG¶V QXPEHU LV ORZ   LW LV XVXDOO\
DGYDQWDJHRXVWRHPSOR\DURWDWHGVTXDUHSDWWHUQDVWKLVSURGXFHVDPXFKKLJKHUWXUEXOHQFH
ZKLFKUHVXOWVLQDKLJKHUHIILFLHQF\RIFRQYHUVLRQRISUHVVXUHGURSWRKHDWWUDQVIHU
,WKDVEHHQVHHQHDUOLHUWKDWIL[HGWXEHVKHHWFRQVWUXFWLRQLVXVXDOO\HPSOR\HGIRUFOHDQ
VHUYLFHV RQ WKH VKHOOVLGH 8WXEH FRQVWUXFWLRQ IRU FOHDQ VHUYLFHV RQ WKH WXEHVLGH DQG
IORDWLQJKHDG FRQVWUXFWLRQ IRU GLUW\VHUYLFHV RQ ERWKWKHVKHOOVLGHDQGWXEHVLGH)RU FOHDQ
VHUYLFHVRQERWKVKHOOVLGHDQGWXEHVLGHHLWKHUIL[HGWXEHVKHHWRU8WXEHFRQVWUXFWLRQPD\EH
XVHGDOWKRXJK8WXEHLVSUHIHUDEOHDVLWSHUPLWVGLIIHUHQWLDOH[SDQVLRQEHWZHHQWKHVKHOODQG
WKHWXEHV,WWKHUHIRUHIROORZVWKDWDWULDQJXODUWXEHOD\RXWSDWWHUQPD\EHXVHGIRUIL[HG
WXEHVKHHWH[FKDQJHUVDQGDVTXDUHRUURWDWHGVTXDUHSDWWHUQIRUIORDWLQJKHDGH[FKDQJHUV
)RU8WXEHH[FKDQJHUVDWULDQJXODUSDWWHUQPD\EHXVHGSURYLGHGWKHVKHOOVLGHVWUHDPLV
FOHDQDQGDVTXDUHRUURWDWHGVTXDUHSDWWHUQLIWKHVDPHLVGLUW\

7XEHSLWFK
7KLV LV GHILQHG DV WKH VKRUWHVW GLVWDQFH EHWZHHQ WZR DGMDFHQW WXEHV )RU D WULDQJXODU
SDWWHUQ7(0$VSHFLILHVDPLQLPXPWXEHSLWFKRIWLPHVWKHWXEH2'7KXVD
LQPPWXEHSLWFKLVXVXDOO\HPSOR\HGIRULQPP2'WXEHV+RZHYHU
LQ WKH FDVH RI D ZHOGHG WXEHWRWXEHVKHHW MRLQW WKH PLQLPXP ZHOG OLJDPHQW PXVW EH
SURYLGHGXVXDOO\LQPPRQDGLDPHWUDOEDVLV
)RU VTXDUH RU URWDWHG VTXDUH SDWWHUQV 7(0$ DGGLWLRQDOO\ UHFRPPHQGV D PLQLPXP
FOHDQLQJODQHRILQPPEHWZHHQDGMDFHQWWXEHV7KXVWKHPLQLPXPWXEHSLWFKKHUHLV
>WXEH2'LQPP@$W\SLFDOH[DPSOHLVPPWXEHVODLGRQDPPVTXDUHSLWFK
,Q WKH FDVH RI PP 2' WXEHV KRZHYHU PP WXEH SLWFK ZLOO QRW VXIILFH EHFDXVH
DOWKRXJK LW SURYLGHVD PPFOHDQLQJ ODQHWKHUDWLR RIWXEHSLWFKWRWXEH 2' LV OHVVWKDQ
&RQVHTXHQWO\PP2'WXEHVDUHODLGRXWRQDVTXDUHRUURWDWHGVTXDUHSLWFKRI
PPRUPP)RU LQ2'WXEHVWKHPLQLPXPWXEHSLWFKLVLQDQGIRULQ2'
WXEHVLWLVLQ
'HVLJQHUV SUHIHU WR HPSOR\ WKH PLQLPXP UHFRPPHQGHG WXEH SLWFK DV LW OHDGV WR WKH
VPDOOHVWVKHOOGLDPHWHUIRUDJLYHQQXPEHURIWXEHV+RZHYHULQH[FHSWLRQDOFLUFXPVWDQFHV
WKHWXEHSLWFKPD\EHLQFUHDVHGWRDKLJKHUYDOXHLQRUGHUWRIRUH[DPSOHUHGXFHVKHOOVLGH
SUHVVXUH GURS 7KLV LV SDUWLFXODUO\ WUXH LQ WKH FDVH RI D FURVVIORZ VKHOO ZKHUH DOO RWKHU
PHFKDQLVPVRIUHGXFLQJWKHVKHOOVLGHSUHVVXUHGURSDUHH[KDXVWHG

%DIIOLQJ
7KLV LV WKH PRVW SURIRXQG DQG LPSRUWDQW DVSHFW RI 67+( GHVLJQ 7KH VHOHFWLRQ RI DQ
RSWLPXPEDIIOHGHVLJQDORQJZLWKWKHVHOHFWLRQRIWKHEHVWVKHOOW\SHJRHVDORQJZD\LQ
HQVXULQJHIILFLHQWGHVLJQDQGRSHUDWLRQRI67+(V$VWKLVLVWKHPRVWGLIILFXOWDVSHFWRI
67+( GHVLJQ LW LV DOVR WKH DUHD ZKHUH PRVW GHVLJQ GHILFLHQFLHV UHVXOW 7KXV D JRRG
XQGHUVWDQGLQJRIWKHFRPSOH[LWLHVRIVKHOOVLGHGHVLJQLVHVVHQWLDOIRURSWLPXPGHVLJQRI
67+(V
7\SHVRIEDIIOHV
%DIIOHVDUHXVHGWRDVXSSRUWWXEHVEHQDEOHDGHVLUDEOHYHORFLW\WREHSURGXFHGIRUWKH
VKHOOVLGHIOXLGDQG FSUHYHQWIDLOXUH RIWXEHV GXHWR IORZLQGXFHG YLEUDWLRQ7KHUHDUH
WZR SULQFLSDO W\SHV RI EDIIOHV SODWH W\SH DQG URG W\SH 3ODWH EDIIOHV PD\ EH VLQJOH
VHJPHQWDOGRXEOHVHJPHQWDORUWULSOHVHJPHQWDO7KHYDULRXVW\SHVRIEDIIOHVDUHVKRZQ
LQ)LJ7KHGHVLJQHUKDVWRVHOHFWWKHPRVWDSSURSULDWHW\SHRIEDIIOHVIRUWKHDSSOLFD

 
WLRQDWKDQG7KHYDULRXVW\SHVRISODWHEDIIOHVDQGWKHLUVHOHFWLRQDUHGLVFXVVHGLQGHWDLO
ODWHULQ6HFWLRQ
%DIIOHVSDFLQJ
%DIIOHVSDFLQJLVWKHFHQWHUOLQHWRFHQWHUOLQHGLVWDQFHEHWZHHQDGMDFHQWEDIIOHV,WLVRQH
RIWKH PRVW YLWDOSDUDPHWHUV LQVKHOODQGWXEH KHDW H[FKDQJHU GHVLJQDVLW H[HUWVDYHU\
VWURQJLQIOXHQFHRQWKHVKHOOVLGHWKHUPDODQGK\GUDXOLFSHUIRUPDQFH
0LQLPXPEDIIOHVSDFLQJ
$VSURSRXQGHGLQWKHVWDQGDUGVRI7(0$WKHPLQLPXPEDIIOHVSDFLQJLVRQHILIWKRIWKH
VKHOOLQVLGHGLDPHWHU RULQPP ZKLFKHYHULVORZHU(YHQ ORZHUEDIIOHVSDFLQJ
ZLOOFDXVH
D 3RRUEXQGOHSHQHWUDWLRQE\WKHVKHOOVLGHIOXLG:LWKDUHGXFWLRQLQEDIIOHVSDFLQJ
WKH FURVVIORZ DUHD GHFUHDVHV WKHUHE\ LQFUHDVLQJ WKH UHVLVWDQFH WR IORZ LQ WKLV
SDWK&RQVHTXHQWO\DODUJHUIUDFWLRQRIWKHVKHOOVLGHIOXLGZLOOE\SDVVDURXQGWKH
WXEHEXQGOHDORQJWKHVKHOOZDOODQGWKURXJKWKHSDVVSDUWLWLRQODQHVDQGEDIIOH
KROHWXEHFOHDUDQFHVWKHUHE\UHGXFLQJEXQGOHSHQHWUDWLRQ7KLVZLOOEHGLVFXVVHG
LQGHWDLOLQ6HFWLRQ
E 'LIILFXOW\ RI PHFKDQLFDO FOHDQLQJ
RI GHSRVLWV RQ WKH RXWVLGH VXUIDFH RI
WKHWXEHV
0D[LPXP%DIIOH6SDFLQJ
7KH PD[LPXP EDIIOH VSDFLQJ LV
XVXDOO\ WKH VKHOO ,' +LJKHU EDIIOH
VSDFLQJZLOOOHDGWR
D 3UHGRPLQDQWO\ ORQJLWXGLQDO IORZ
ZKLFK LV OHVV HIILFLHQW WKDQ FURVVIORZ
DQG
E /DUJH XQVXSSRUWHG WXEH VSDQV
ZKLFK ZLOO UHVXOW LQ WKH H[FKDQJHU
EHLQJ SURQH WR IDLOXUH RI WXEHV E\
IORZLQGXFHGYLEUDWLRQ
$QH[FHSWLRQLVDQRWXEHVLQZLQGRZ
FRQVWUXFWLRQ RU D FURVVIORZ VKHOO GH
VFULEHG ODWHU LQ 6HFWLRQ  ZKHUH
WKH IORZ LV LQSXUHFURVVIORZ,QIDFW
LQ VXFK VLWXDWLRQV WKH EDIIOH VSDFLQJ
ZLOO QHFHVVDULO\ EH YHU\ KLJK DV WKH
YHU\UHDVRQIRUWKHLUXVHLVWKHUHGXF
WLRQ RI VKHOOVLGH SUHVVXUH GURS 7KHUH
LVRQO\FURVVIORZLQWKHVHDSSOLFDWLRQV
DQG LQWHUPHGLDWH VXSSRUWV FDQ EH
HDVLO\ LQFRUSRUDWHG LI UHTXLUHG WR
UHGXFH WKH XQVXSSRUWHG WXEH VSDQ VR
WKDWWKHUHLVQRSRVVLELOLW\RIIDLOXUHRI
)LJ7\SHVRIEDIIOHV>@5HSURGXFHGZLWKSHUPLVVLRQ
WXEHVGXHWRIORZLQGXFHGYLEUDWLRQ
&RS\ULJKW$,&K($OOULJKWVUHVHUYHG

 
2SWLPXPEDIIOHVSDFLQJ
)RUWXUEXOHQWIORZRQWKHVKHOOVLGH5H!WKHKHDWWUDQVIHUFRHIILFLHQWYDULHVWRWKH
² SRZHU RI YHORFLW\ KRZHYHU SUHVVXUH GURS YDULHV WR WKH ² SRZHU )RU
ODPLQDUIORZ5HWKHH[SRQHQWVDUHIRUKHDWWUDQVIHUFRHIILFLHQWDQGIRU
SUHVVXUH GURS ,W LV WKHUHIRUH DSSDUHQW WKDW DV EDIIOH VSDFLQJ LV GHFUHDVHG WKH SUHVVXUH
GURS LQFUHDVHV DWD PXFK IDVWHU UDWH WKDQ WKH KHDW WUDQVIHU FRHIILFLHQW GRHV7KLV PHDQV
WKDWWKHUHZLOOEHDQRSWLPXPEDIIOHVSDFLQJWRVKHOOLQVLGHGLDPHWHUUDWLRZKLFKZLOOJLYH
WKH KLJKHVW HIILFLHQF\ RI FRQYHUVLRQ RI SUHVVXUH GURS WR KHDW WUDQVIHU 7KLV UDWLR LV
QRUPDOO\EHWZHHQDQG
8VLQJDYHU\ORZEDIIOHVSDFLQJWHQGVWRLQFUHDVHWKHOHDNDJHDQGE\SDVVVWUHDPV,WLV
HDV\ WR XQGHUVWDQG ZK\ WKLV KDSSHQV $OO WKH ILYH VKHOOVLGH VWUHDPV DUH LQ SDUDOOHO DQG
WKHUHIRUHZLOOKDYHWKHVDPHSUHVVXUHGURS7KHOHDNDJHSDWKGLPHQVLRQVWXEHWREDIIOHKROH
FOHDUDQFH EDIIOHWRVKHOO FOHDUDQFH SDVVSDUWLWLRQ ZLGWK DQG VKHOO ,' WR RXWHU WXEH OLPLW
FOHDUDQFHDUHIL[HG&RQVHTXHQWO\DVEDIIOHVSDFLQJLVGHFUHDVHGWKHUHVLVWDQFHRIWKHPDLQ
FURVVIORZSDWKDQGWKHUHE\LWVSUHVVXUHGURSLQFUHDVHV$VWKHSUHVVXUHGURSRIDOOWKHILYH
VWUHDPVKDYHWREHHTXDOWKHOHDNDJHDQGE\SDVVVWUHDPVLQFUHDVHXQWLOWKHSUHVVXUHGURSRI
DOO WKH VWUHDPV EDODQFH RXW 7KH QHW UHVXOW LV DQ LQFUHDVH LQ WKH SUHVVXUH GURS ZLWKRXW D
FRUUHVSRQGLQJLQFUHDVHLQWKHKHDWWUDQVIHUFRHIILFLHQWGXHWRWKHIDFWWKDWWKHOHDNDJHDQG
E\SDVVVWUHDPVDUHPXFKOHVVHIILFLHQWWKDQWKHPDLQFURVVIORZVWUHDP
%DIIOHFXW
7KLVLVLOOXVWUDWHGLQ)LJDQGLVH[SUHVVHGDVWKHSHUFHQWDJHRIWKHVHJPHQWKHLJKWWR
WKHVKHOOLQVLGHGLDPHWHU$OWKRXJKWKLVLVDOVRDQLPSRUWDQWSDUDPHWHUIRUVKHOODQGWXEH
KHDWH[FKDQJHUGHVLJQLWVHIIHFWLVOHVVSURIRXQGWKDQWKDWRIEDIIOHVSDFLQJ
%DIIOHFXWFDQYDU\EHWZHHQRUHYHQVRPHZKDWOHVVIRUODUJHGLDPHWHUVKHOOVDQG
RIWKHVKHOOLQVLGHGLDPHWHU7KHXSSHUOLPLWLVGXHWRWKHIDFWWKDWLILWZHUHJUHDWHUWKDQ
WKHFHQWUDOURZRIWXEHVZRXOGQRWEHVXSSRUWHGE\DQ\EDIIOH

+RZVPDOODQGODUJHEDIIOHFXWVDUHLQHIILFLHQW
%RWKYHU\VPDOODQGYHU\ODUJHEDIIOHFXWVDUHGHWULPHQWDOWRHIILFLHQWKHDWWUDQVIHURQWKH
VKHOOVLGH:KHQWKHEDIIOHFXWLVYHU\VPDOOWKHSULQFLSDOSRUWLRQRIWKHIORZDFWVOLNHD
MHW WKURXJK WKH ZLQGRZ DQG WKHQ IROORZV DQ 6VKDSHG SDWWHUQ DFURVV WKH WXEH EXQGOH
WKHUHE\ JHQHUDWLQJ ODUJH HGGLHVRIUHFLUFXODWLQJ IOXLG LQWKHUHJLRQV QHDUWKHEDIIOHWLSV
7KLVLVVKRZQLQ)LJD
:KHQWKH EDIIOH FXW LV YHU\ ODUJHWKH PDMRU SDUW RIWKHVKHOOVLGHVWUHDPE\SDVVHV WKH
JUHDWHUSDUWRIWKHEXQGOHDQGIORZVEHWZHHQWKHEDIIOHWLSVSUHGRPLQDQWO\LQORQJLWXGLQDO
IORZ/DUJHHGGLHVRIUHFLUFXODWLQJIOXLGDUHFUHDWHGZKLFKDUHLQHIILFLHQWIRUKHDWWUDQVIHU
7KLVLVGHSLFWHGLQ)LJE
%RWKYHU\VPDOODQGYHU\ODUJHEDIIOHFXWVUHVXOWLQ
KLJKO\QRQLGHDOIORZDQGWKLVLVUHSUHVHQWHGE\DSHQDOW\
IDFWRU ZKLFK PD\ EH WHUPHG QRQLGHDO ZLQGRZ IORZ
SHQDOW\IDFWRU
7KHLGHDOIORZSDWWHUQRQWKHVKHOOVLGHLVFURVVIORZ
+RZHYHUEDIIOHVDUH HVVHQWLDOIRUVXSSRUWLQJWKHWXEHV
DQG LQFUHDVLQJ WKH VKHOOVLGH YHORFLW\ DQG UHVXOW LQ DO
WHULQJ WKH LGHDO FURVVIORZ SDWWHUQ 7KHUHIRUH DQ
DSSURSULDWHFRUUHFWLRQIDFWRUKDVWREHHPSOR\HGWRWKH
LGHDO WXEH EXQGOH KHDW WUDQVIHU FRHIILFLHQW 7KLV IDFWRU )LJ%DIIOHFXW

 
 
)LJ(IIHFWRIVPDOODQGODUJHEDIIOHFXWV5HSULQWHGIURPWKH+HDW([FKDQJHU'HVLJQ+DQGERRN
ZLWKSHUPLVVLRQRI%HJHOO+RXVH,QF
PD\ EHFRPH TXLWH VHYHUH IRU YHU\VPDOODQG YHU\ ODUJHEDIIOH FXWV 2QO\ LQWKH FDVH RID
ZHOOSURSRUWLRQHGEDIIOHVSDFLQJWREDIIOHFXWJHRPHWU\GRHVWKHIORZSDWWHUQDSSURDFKWKDW
RIDQLGHDOWXEHEDQNDVVKRZQLQ)LJF

5HFRPPHQGHGEDIIOHFXW
,W LV VWURQJO\ UHFRPPHQGHG WKDW RQO\ EDIIOH FXWV EHWZHHQ  DQG  EH HPSOR\HG
5HGXFLQJ EDIIOH FXW EHORZ  WR LQFUHDVH WKH VKHOOVLGH KHDW WUDQVIHU FRHIILFLHQW RU
LQFUHDVLQJWKHEDIIOHFXWEH\RQGWRGHFUHDVHWKHVKHOOVLGHSUHVVXUHGURSXVXDOO\OHDG
WRDSRRUGHVLJQ2WKHUFKDQJHVLQWXEHEXQGOHJHRPHWU\VKRXOGEHH[DPLQHGWRDFKLHYH
WKH DERYH JRDOV )RU H[DPSOH GRXEOHVHJPHQWDO EDIIOHV RU D GLYLGHGIORZ RU HYHQ D
FURVVIORZVKHOOPD\EHXVHGWRUHGXFHWKHVKHOOVLGHSUHVVXUHGURS7KLVZLOOEHGLVFXVVHG
LQGHWDLOLQ6HFWLRQ

2ULHQWDWLRQRIEDIIOHFXW
%DIIOHFXW PD\EH HLWKHUKRUL]RQWDORUYHUWLFDOVHH)LJ)RUVLQJOHSKDVHIOXLGVRQ
WKHVKHOOVLGHDKRUL]RQWDOEDIIOHFXWLVUHFRPPHQGHG DVWKLVPLQLPL]HVDFFXPXODWLRQRI
GHSRVLWVDWWKHERWWRPRIWKHVKHOODQGDOVRSUHYHQWVVWUDWLILFDWLRQ+RZHYHULQWKHFDVHRI
DSDVVVKHOO7(0$VKHOOVW\OH)DYHUWLFDOFXWLVSUHIHUUHGIRUHDVHRIIDEULFDWLRQDQG
EXQGOHDVVHPEO\
)RUFRQGHQVLQJRQWKHVKHOOVLGHDYHUWLFDOFXWLVLQYDULDEO\HPSOR\HG7KLVLVGLVFXVVHG
LQGHWDLOLQ&KDSWHU
.HHSFURVVIORZDQGZLQGRZYHORFLWLHVHTXDO
)ORZDFURVVWXEHVLVUHIHUUHGWRDVFURVVIORZZKHUHDVIORZWKURXJKWKH ZLQGRZDUHDLV
UHIHUUHG WR DV ZLQGRZ IORZ VHH )LJ ²WKH WXEHV KDYH QRW EHHQ VKRZQ WR HQKDQFH
FODULW\RUORQJLWXGLQDOIORZDVIORZLVSUHGRPLQDQWO\DORQJWKHWXEHV9HORFLWLHVLQWKH
FURVVIORZ DQG ZLQGRZ UHJLRQV DUH UHIHUUHG WR DV FURVVIORZ DQG ZLQGRZ YHORFLWLHV
UHVSHFWLYHO\ 7KH FURVVIORZ YHORFLW\ DQG WKH ZLQGRZ YHORFLW\ VKRXOG EH DV FORVH DV
SRVVLEOH DQG SUHIHUDEO\ ZLWKLQ  RI HDFK RWKHU :LWK JUHDWHU UDWLRV UHSHDWHG
DFFHOHUDWLRQ DQG GHFHOHUDWLRQ DORQJ
WKHOHQJWKRIWKHWXEHEXQGOHUHVXOWVLQ
LQHIILFLHQWFRQYHUVLRQRISUHVVXUHGURS
WR KHDW WUDQVIHU 7KLV UHVXOWV LQ WKH
QRQLGHDO ZLQGRZ IORZ SHQDOW\ IDFWRU
$ ODUJH EDIIOH FXW LV ZRUVH WKDQ D
VPDOOEDIIOHFXW+HQFHWKHEDIIOHFXW
VKRXOG QHYHU H[FHHG   IRU D
)LJ+RUL]RQWDODQGYHUWLFDOEDIIOHFXW VHQVLEOHIOXLGRQWKHVKHOOVLGH
 
 ,W LV ZRUWKZKLOH WR PHQWLRQ KHUH
WKDW WKH JXLGHOLQHV DQG UXOHV RI WKXPE
VXJJHVWHG LQ WKLV DQG WKH SUHFHGLQJ
VHFWLRQV DUH MXVW WKDW²JXLGHOLQHV 7KH
GHVLJQHUVKRXOGYDU\WKHEDIIOHVSDFLQJ
DQG FXW DQG VHOHFW WKH EHVW RU PRVW
RSWLPXP YDOXHV :LWK KLJKVSHHG
GHVNWRS DQG HYHQ ODSWRS FRPSXWHUV
WKLV RSWLPL]DWLRQ QRW RQO\ WDNHV YHU\
)LJ&URVVIORZDQGZLQGRZIORZ>@5HSURGXFHGZLWK
OLWWOH WLPH EXW LW DOVR PDNHV WKH SHUPLVVLRQ&RS\ULJKW$,&K($OOULJKWVUHVHUYHG
GHVLJQHU¶V ZRUN FUHDWLYH DQG WKHUHE\
HQMR\DEOH
6WUHDPDQDO\VLV
7XEHVLGH FDOFXODWLRQV IRU KHDW WUDQVIHU FRHIILFLHQW DQG SUHVVXUH GURS DUH IDLUO\ VWUDLJKW
IRUZDUG 6LQJOHSRLQW FDOFXODWLRQV EDVHG XSRQ DYHUDJH SK\VLFDO SURSHUWLHV DUH XVXDOO\
DGHTXDWH+RZHYHUZKHQWKHIORZSDWWHUQ H[WHQGVIURP ODPLQDUWRWUDQVLWLRQDQG HYHQ
EH\RQG LQ D JLYHQ KHDW H[FKDQJHU ]RQHZLVH FDOFXODWLRQV PXVW EH FDUULHG RXW EHFDXVH
KHDW WUDQVIHU FRHIILFLHQW DQG SUHVVXUH GURS FKDUDFWHULVWLFV DUH YHU\ GLIIHUHQW IRU WKH WZR
UHJLPHV
2QWKHVKHOOVLGHKRZHYHUWKHVLWXDWLRQLVPXFKPRUHFRPSOH[DVWKHUHLVQRWMXVWRQH
VWUHDPEXWD PDLQ FURVVIORZ VWUHDPDQG IRXU OHDNDJHE\SDVVVWUHDPV7KLV LV LOOXVWUDWHG LQ
)LJ D $V SHU WKH RULJLQDO PRGHO SURSRVHG E\ 7LQNHU >@ WKH YDULRXV VWUHDPV DUH DV
IROORZV
• %VWUHDP²WKHPDLQFURVVIORZVWUHDP
• $VWUHDP²EDIIOHKROHWXEHOHDNDJHVWUHDP
• &VWUHDP²EXQGOHE\SDVVVWUHDP
• )VWUHDP²SDVVSDUWLWLRQODQHE\SDVVVWUHDP
• (VWUHDP²VKHOOEDIIOHOHDNDJHVWUHDP
,WLVDPDWWHURIFRQMHFWXUHDVWRZK\WKHOHWWHU'KDGQRWEHHQLQFOXGHGE\'U7LQNHULQ
KLVQRPHQFODWXUH7KH$DQG(VWUHDPVDUHVKRZQPRUHYLYLGO\LQ)LJE
,WZLOOEHHDVLO\DSSUHFLDWHGIURP)LJDWKDWWKH%VWUHDPLVKLJKO\HIIHFWLYHIRUKHDW
WUDQVIHU7KXVWKH&VWUHDPLVLQFRQWDFWRQO\ZLWKWKHSHULSKHUDOWXEHVDURXQGWKHEXQGOH
DQGWKH)VWUHDPLVLQFRQWDFWZLWKWKHWXEHVRQO\DORQJERWKVLGHVRIWKHSDVVSDUWLWLRQODQHV
)RUWKLVUHDVRQDQGDOVREHFDXVHWKHLUYHORFLWLHVDUHPXFKORZHUGXHWRWKHPXFKZLGHUIORZ
SDVVDJHVWKHVHVWUHDPVDUHIDUOHVVHIILFLHQWWKDQWKH%VWUHDP,Q8WXEHKHDWH[FKDQJHUV
WKH FHQWUDO 8EHQG
ODQH LV UDWKHU ODUJH
XVXDOO\ WZLFH WKH
WXEH GLDPHWHU DQG
FRQVHTXHQWO\WKH)
VWUHDP LV HYHQ OHVV
HIILFLHQW IRU VXFK
KHDWH[FKDQJHUV
$V UHJDUGV WKH
$ VWUHDP LW PD\
DSSHDU WR EH TXLWH )LJD6KHOOVLGHIORZGLVWULEXWLRQ&RXUWHV\RI+75,

 
HIILFLHQW DV WKH VKHOOVLGH IOXLG LV DFWXDOO\ LQ FRQWDFW ZLWK WKH WXEHV +RZHYHU EHWZHHQ
VHSDUDWLQJIURPWKHPDLQFURVVIORZVWUHDPLQRQHEDIIOHVSDFHDQGUHMRLQLQJLWLQWKHQH[W
WKH $ VWUHDP GRHV QRW WUDYHO DQ\ DSSUHFLDEOH GLVWDQFH WXEH OHQJWK VR WKDW LW LV QRW YHU\
HIILFLHQW
$OWKRXJKWKH$&DQG)VWUHDPVDUHOHVVHIILFLHQWFRPSDUHGWRWKH%VWUHDPWKH\GR
SDUWLFLSDWHLQWKHSURFHVVRIKHDWWUDQVIHUDQGFRQWULEXWHWRWKHRYHUDOOKHDWGXW\+RZHYHU
WKH(VWUHDPLVE\IDUWKHZRUVWVWUHDPDVLWIORZVDORQJWKHVKHOOZDOOZKHUHWKHUHDUHQR
WXEHV,WLVWKHEDQHRIKHDWH[FKDQJHUGHVLJQHUVDVLWGRHVQRWFRQWULEXWHWRWKHSURFHVVRI
KHDWWUDQVIHUEHWZHHQWKHWZRVWUHDPVDQGUHSUHVHQWVDWRWDOZDVWH8QIRUWXQDWHO\GHVSLWHWKH
EHVWIDEULFDWLRQSUDFWLFHDFOHDUDQFHEHWZHHQWKHVKHOODQGWKHEDIIOHVLVXQDYRLGDEOH7KLV
FOHDUDQFHLVTXLWHVXEVWDQWLDOIRUODUJHGLDPHWHUIORDWLQJKHDGKHDWH[FKDQJHUV)RUDJLYHQ
W\SHRIKHDWH[FKDQJHUWKHODUJHUWKHVKHOOGLDPHWHUWKHODUJHULVWKLVJDS7KHYDULDWLRQRI
WKLV FOHDUDQFH ZLWK VKHOO GLDPHWHU LV JLYHQ LQ7DEOH5&% RIWKH7(0$ VWDQGDUGVDQG
ZDVUHSURGXFHGLQ6HFWLRQIRUUHDG\UHIHUHQFH
7KH IUDFWLRQV RI WKHVH ILYH IORZ VWUHDPV FDQ EH GHWHUPLQHG IRU D JLYHQ VLWXDWLRQ RI
H[FKDQJHU JHRPHWU\ DQG VKHOOVLGH IORZ FRQGLWLRQV E\ DQ\ VSHFLDOL]HG KHDW H[FKDQJHU
WKHUPDOGHVLJQVRIWZDUH(VVHQWLDOO\WKHILYHVWUHDPVDUHLQSDUDOOHODQGIORZDORQJSDWKVRI
YDU\LQJ K\GUDXOLF UHVLVWDQFHV 7KXV WKHVH IUDFWLRQV ZLOO EH VXFK WKDW WKH SUHVVXUH GURS RI
HDFKZLOOEHLGHQWLFDOVLQFHDOOWKHVWUHDPVFRPPHQFHDQGWHUPLQDWHDWWKHLQOHWDQGRXWOHW
QR]]OHVUHVSHFWLYHO\7KDWLVWRVD\WKHVWUHDPIUDFWLRQVDUHGHWHUPLQHGIURPDQLWHUDWLRQRI
WKH SUHVVXUH GURS FDOFXODWLRQV 6XEVHTXHQWO\ EDVHG XSRQ WKH HIILFLHQF\ RI HDFK RI WKHVH
VWUHDPVWKHRYHUDOOVKHOOVLGHVWUHDPHIILFLHQF\DQGWKXVWKHVKHOOVLGHKHDWWUDQVIHUFRHIILFLHQW
LVHVWDEOLVKHG
,WKDVDOUHDG\EHHQPHQWLRQHGWKDWDKLJK&VWUHDPLVGHWULPHQWDOWRJRRGVKHOOVLGHKHDW
WUDQVIHU,WKDVDOVREHHQPHQWLRQHGWKDWZKLOHWKHVKHOOWXEHEXQGOHFOHDUDQFHLVUHODWLYHO\
VPDOOLQIL[HGWXEHVKHHWDQG8WXEHKHDWH[FKDQJHUVLWLVTXLWHVXEVWDQWLDOLQVSOLWULQJSXOO
WKURXJK IORDWLQJKHDG KHDW H[FKDQJHUV E\ YLUWXH RI WKH YHU\ FRQVWUXFWLRQ ,Q RUGHU WR
PLQLPL]HWKLV&VWUHDP ZKHUH LW LV KLJK³VHDOLQJVWULSV´VKRXOGEH ORFDWHGDORQJWKHWXEH
URZV RQH SDLU IRU HYHU\  WXEH URZV ,W LV UHFRPPHQGHG WKDW VHDOLQJ VWULSV DOZD\V EH
LQFRUSRUDWHG LQ IORDWLQJKHDG KHDW H[FKDQJHUV )RU IL[HGWXEHVKHHW DQG 8WXEH KHDW
H[FKDQJHUVKRZHYHUVXFKVHDOLQJVWULSVDUHXVXDOO\QRWQHFHVVDU\DVWKHFOHDUDQFHEHWZHHQ
WKHVKHOODQGWKHRXWHUWXEHOLPLWLVIDUOHVV
$V IRU WKH ODUJH 8EHQG SDVVSDUWLWLRQ ODQH GXPP\ WXEHV VHDO URGV RU VHDOLQJ VWULSV
PD\EHLQFRUSRUDWHGZKHUHWKLVODQHLVSDUDOOHOWRWKHIORZGLUHFWLRQ)RUH[DPSOHLID8
WXEHKHDWH[FKDQJHUKDVIRXUWXEHSDVVHVWKHUHZLOOEHRQHYHUWLFDOODQHDQGRQHKRUL]RQWDO
ODQH6LQFH8EHQGVDUHXVXDOO\DUHGLVSRVHGLQWKHYHUWLFDOSODQHIRUEHWWHUGUDLQDJHRIWKH
WXEHVLGHIOXLGXSRQVKXWGRZQWKHODUJHODQHZLOOEHLQWKHKRUL]RQWDOSODQH,IWKHEDIIOHFXW
LV YHUWLFDO WKLV ODUJH ODQH ZLOO EH SDUDOOHO WR WKH IORZ GLUHFWLRQ 0RVW VRSKLVWLFDWHG KHDW
H[FKDQJHUWKHUPDO GHVLJQVRIWZDUH
SDFNDJHV FDQ LQFRUSRUDWH VXFK
VHDOLQJVWULSVDQGGXPP\WXEHVDQG
FDUU\ RXW VWUHDP DQDO\VLV
DFFRUGLQJO\
,WFDQEHHDVLO\XQGHUVWRRGWKDW
DV WKH IORZ IUDFWLRQV GHSHQG
VWURQJO\ XSRQ WKH SDWK UHVLVWDQFHV
YDULDWLRQ RI DQ\ RI WKH IROORZLQJ
)LJE%DIIOHWRVKHOODQGWXEHWREDIIOHKROHOHDNDJHVWUHDPV FRQVWUXFWLRQ SDUDPHWHUV ZLOO DIIHFW

 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG +\GURFDUERQOLTXLG &RROLQJZDWHU

 )ORZUDWHOEKNJK  

 ,QOHWRXWOHWWHPSHUDWXUHƒ)ƒ&  

 +HDWGXW\00%WXK00NFDOK 

 'HQVLW\LQRXWOEIWNJP  

 9LVFRVLW\LQRXWFS  

6WDQGDUG
 6SHFLILFKHDWLQRXW%WXOEƒ)NFDONJƒ& 

 7KHUPDOFRQGXFWLYLW\LQRXW 

%WXKIWƒ)NFDOKPƒ&

 $OORZDEOHSUHVVXUHGURSSVLNJFP  

 )RXOLQJUHVLVWDQFHKIWƒ)%WXKPƒ&NFDO  

 0DWHULDORIFRQVWUXFWLRQ &6 $GP%UDVV

WKH VWUHDP DQDO\VLV IRU D JLYHQ VKHOO W\SH DQG EDIIOH W\SH DQG WKHUHE\ WKH VKHOOVLGH
SHUIRUPDQFHRIDKHDWH[FKDQJHUKDQGOLQJDSDUWLFXODUVHUYLFH
 EDIIOHVSDFLQJDQGEDIIOHFXW
 WXEHOD\RXWDQJOHDQGWXEHSLWFK
 QXPEHURISDVVODQHVLQWKHIORZGLUHFWLRQDVZHOODVODQHZLGWK
 EDIIOHKROHWXEH2'FOHDUDQFH
 VKHOO,'EDIIOH2'FOHDUDQFH
 ORFDWLRQRIVHDOLQJVWULSVDQGVHDOLQJURGV
7KH VKHOOVLGH IOXLG YLVFRVLW\ DOVR DIIHFWV VWUHDP DQDO\VLV SURIRXQGO\ DV WKH VKHOOVLGH
5H\QROG¶V QXPEHU KDV D SURIRXQG HIIHFW RQ WKH K\GUDXOLFV RI VKHOOVLGH IORZ ,W ZLOO EH
VHHQODWHUKRZ YLVFRXVOLTXLGVRQWKHVKHOOVLGHWHQGWR KDYHDUDWKHUKLJK(VWUHDPDQG
KRZWKH\DUHKDQGOHGLQJHQLRXVO\
%HVLGHVDIIHFWLQJWKHVKHOOVLGHKHDWWUDQVIHUDQGSUHVVXUHGURSSHUIRUPDQFHWKHVWUHDP
DQDO\VLV DOVR DIIHFWV WKH PHDQ WHPSHUDWXUH GLIIHUHQFH RI D 67+( RIWHQ ZLWK DGYHUVH
FRQVHTXHQFHV7KLVZLOOEHH[SODLQHGODWHULQ&KDSWHU
0DQ\ GHVLJQ FRQVLGHUDWLRQV DQG UHFRPPHQGDWLRQV KDYH EHHQ H[SRXQGHG LQ GHWDLO
DERYHWKHSULQFLSDORIWKHVHEHLQJVWUHDPDQDO\VLVWHPSHUDWXUHSURILOHGLVWRUWLRQIDFWRUDQG
EDIIOHGHVLJQ7ZRFDVHVWXGLHVZLOOQRZEHSUHVHQWHGWREULQJWKHVHRXWYLYLGO\7KHILUVW
FDVHVWXG\ ZLOO GHPRQVWUDWH KRZWKHWHPSHUDWXUH SURILOH GLVWRUWLRQFRUUHFWLRQIDFWRU YDULHV
ZLWKEDIIOHVSDFLQJDQGWKHVHFRQGZLOOGHPRQVWUDWHKRZWRRSWLPL]HEDIIOHGHVLJQIRUDKHDW
H[FKDQJHUZLWKRXWDWHPSHUDWXUHSURILOHGLVWRUWLRQIDFWRUSUREOHP

&$6(678'<9$5,$7,212)7(03(5$785(352),/(
',67257,21)$&725:,7+%$))/(63$&,1*
/HW XV FRQVLGHU D OLJKW K\GURFDUERQ FRROHU LQ DQ RLO UHILQHU\ FRPSOH[ 7KH SULQFLSDO
SURFHVVSDUDPHWHUVDUHLQGLFDWHGLQ7DEOHDLQPP2'îPPWKLFN
î  IW  PP ORQJ WXEHV RI $GPLUDOW\ EUDVV DQG D IORDWLQJKHDG FRQVWUXFWLRQ

 
 7DEOHE3ULQFLSDOFRQVWUXFWLRQSDUDPHWHUVIRU&DVH6WXG\
 &RQVWUXFWLRQ3DUDPHWHU
 7\SHRIH[FKDQJHU )ORDWLQJKHDG7(0$$(6

 6KHOO,'LQPP 

 7XEHV QRVLQPP2'îLQPPWKLFNî

IWPPORQJ

 1RRIWXEHSDVVHV 

 7XEHSLWFKLQPP URWDWHGVTXDUHGHJ

 %DIIOLQJ 6LQJOHVHJPHQWDOFXWGLDPHWHU

 1RPLQDOFRQQHFWLRQVL]HLQPP VKHOOVLGHRQWXEHVLGH

 
 +HDWWUDQVIHUDUHDIW P  

 (PSW\H[FKDQJHUZHLJKWOENJ 

7(0$W\SH$(6DUHWREHXVHG
7KH FRQVWUXFWLRQ SDUDPHWHUV VDYH EDIIOH VSDFLQJ WKDW HPHUJHG IURP WKH GHVLJQ DUH
LQGLFDWHGLQ7DEOHE1RWHWKDWWKHEDIIOHFXWLVRQGLDPHWHU:HZLOOQRZVHHWKH
HIIHFWRIYDU\LQJWKHEDIIOHVSDFLQJRQWKHSHUIRUPDQFHRIWKHFRROHU
/HWXVILUVWFRQVLGHUDEDIIOHVSDFLQJRILQPPZKLFKLVDERXWRIWKH
VKHOO ,' RI  LQ  PP D JRRG VWDUWLQJ SRLQW 7KH UHVXOWV RI WKH H[FKDQJHU
SHUIRUPDQFHDUHVKRZQLQ7DEOHF,WZLOOEHVHHQWKDWGXHWRWKHORZVKHOOVLGHIORZUDWH
WKH VKHOOVLGH FURVV DQG ZLQGRZ YHORFLWLHV DUH UDWKHU ORZ VR WKDW SHUPLVVLEOH VKHOOVLGH
SUHVVXUH GURS KDV QRWEHHQ SURSHUO\XWLOL]HGDVD FRQVHTXHQFHWKH VKHOOVLGH KHDWWUDQVIHU
FRHIILFLHQWLVTXLWHORZDVZHOO
7KH VWUHDPDQDO\VLV LV QRW YHU\ GLVWLQJXLVKHGDOWKRXJKWKH PDLQ FURVVIORZ IUDFWLRQ LV
SDVVDEOHDWWKHEDIIOHVKHOOOHDNDJHIUDFWLRQLVTXLWHKLJKDW$VDUHVXOWRIWKLV
DQG D PRGHUDWHO\ KLJK UDWLR RI WKH VKHOOVLGH WHPSHUDWXUH GLIIHUHQFH WR WKH DSSURDFK DW WKH
VKHOORXWOHWWKHWHPSHUDWXUHSURILOHGLVWRUWLRQSHQDOW\IDFWRULV7KLVUHSUHVHQWVD
GLUHFWORVVLQWKH07'
,QDQDWWHPSWWRXWLOL]HWKHDOORZDEOHVKHOOVLGHSUHVVXUHGURSEHWWHUDQGWKHUHE\LQFUHDVH
WKHVKHOOVLGHKHDWWUDQVIHUFRHIILFLHQWWKHEDIIOHVSDFLQJZDVGHFUHDVHGSURJUHVVLYHO\IURP
LQPPWRLQPPLQPPDQGLQPP7KHUHVXOWV
RI WKHVH UXQV DUH DOVR VKRZQ LQ 7DEOH F ,W ZLOO EH VHHQ WKDW ZLWK WKH LQFUHDVH LQ WKH
FURVVIORZ YHORFLW\ WKHUH LV DQ LQFUHDVH LQ WKH VKHOOVLGH KHDW WUDQVIHU FRHIILFLHQW DQG WKH
VKHOOVLGH SUHVVXUH GURS ,W ZLOO DOVR EH VHHQ WKDW WKHUH LV D VLJQLILFDQW GHWHULRUDWLRQ LQ WKH
VWUHDPDQDO\VLVZLWKDQLQFUHDVHLQWKHEDIIOHVKHOOOHDNDJHIUDFWLRQIURPWRDQG
DGHFUHDVHLQWKHPDLQFURVVIORZIUDFWLRQIURPWR$VDGLUHFWFRQVHTXHQFHWKH
WHPSHUDWXUHSURILOHGLVWRUWLRQSHQDOW\IDFWRUUHGXFHVVWHDGLO\IURPWR
7KXVZLWKWKHSURJUHVVLYHUHGXFWLRQLQWKHEDIIOHVSDFLQJWKHUHDUHWZRIRUFHVDWSOD\
KHUH D DQ LQFUHDVH LQ WKH VKHOOVLGH FURVVIORZ YHORFLW\ DQG WKHUHE\ DQ LQFUHDVH LQ WKH
VKHOOVLGH DQG WKHUHE\ WKH RYHUDOO KHDW WUDQVIHU FRHIILFLHQW DQG E D UHGXFWLRQ LQ WKH
WHPSHUDWXUH SURILOH GLVWRUWLRQ SHQDOW\ IDFWRU :KHUHDV WKH IRUPHU WHQGV WR UHGXFH WKH KHDW
WUDQVIHUDUHDWKHODWWHUWHQGVWRLQFUHDVHLW'HSHQGLQJXSRQWKHUDWHVRIWKHVHWZRYDULDWLRQV
WKHRYHUGHVLJQILUVWGHFUHDVHVIURPWRDQGWKHQLQFUHDVHVWRDQGILQDOO\

 
 7DEOHF'HWDLOHGUHVXOWVRIWKHYDULRXVLWHUDWLRQVIRU&DVH6WXG\
 5XQ 5XQ 5XQ 5XQ
 %DIIOHVSDFLQJLQPP    

 EDIIOHKROHWRWXEH    

 PDLQFURVVIORZ    
 6WUHDP
EXQGOHVKHOO    
IUDFWLRQV
EDIIOHVKHOO    
SDVVSDUWLWLRQ    
 7HPSHUDWXUHSURILOH    
GLVWRUWLRQFRUUHFWLRQIDFWRU

 YHORFLW\    

FURVVZLQGRZ    

IWVPV    
 6KHOOVLGH
SUHVVXUHGURS    
SVLNJFP
 6KHOOVLGHKHDWWUDQVIHU    
FRHIILFLHQW%WXKIWƒ)NFDOK    
Pƒ&
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW    
%WXKIWƒ)NFDOKPƒ&

 07'ƒ)ƒ&    

 2YHUGHVLJQ    

$OWKRXJK WKH GHVLJQ ZLWK LQ PP EDIIOH VSDFLQJ SURGXFHV WKH KLJKHVW
RYHUGHVLJQLWVVWUHDPDQDO\VLVLVUHDOO\TXLWHXQVDWLVIDFWRU\ZLWKDYHU\ORZPDLQFURVVIORZ
IUDFWLRQDQGDUDWKHUKLJKEDIIOHVKHOOOHDNDJHIUDFWLRQ6XFKDSRRUVWUHDPDQDO\VLV
WHQGV WR SURGXFH PXFK KHDYLHU IRXOLQJ RQ WKH VKHOOVLGH &RQVLGHULQJ WKDW WKH IRXOLQJ
UHVLVWDQFHRIWKHSUHVHQWVKHOOVLGHVWUHDPLVIDLUO\KLJKKIW ƒ)%WXRUKP
ƒ&NFDOLWPD\EHSUXGHQWWRDLPIRUDEHWWHUVWUHDPDQDO\VLV$FFRUGLQJO\WKHGHVLJQZLWK
WKHLQPPRUHYHQLQPPEDIIOHVSDFLQJPD\EHFKRVHQDVWKHILQDO
GHVLJQ7KHRYHUGHVLJQLVRQO\PDUJLQDOO\ORZHUZKHUHDVWKHVWUHDPDQDO\VLVLVIDUEHWWHU
,WPXVWEHDGGHGKHUHWKDWDVWKHVKHOOVLGHSUHVVXUHGURSXWLOL]DWLRQLVUDWKHUSRRULQWKHVH
VLQJOHVKHOOGHVLJQVWKH\DUHQRWHOHJDQWVROXWLRQVDQGLWPD\EHPXFKEHWWHUWRFRQVLGHUD
WZRVKHOOVLQVHULHVGHVLJQERWKLQWHUPVRIORZHUILUVWFRVWDQGORZHURSHUDWLQJFRVWGXHWR
DVLJQLILFDQWO\KLJKHUVKHOOVLGHYHORFLW\DQGDEHWWHUVWUHDPDQDO\VLV7KLVZLOOEHH[DPLQHG
ODWHULQ&DVH6WXG\LQ&KDSWHU

&$6(678'<237,0,=,1*%$))/('(6,*1
&RQVLGHUWKHKHDWH[FKDQJHUVHUYLFHVSHFLILHGLQ7DEOHDDORQJZLWKDOOWKHLPSRUWDQW
FRQVWUXFWLRQSDUDPHWHUVH[FHSWEDIIOHVSDFLQJDQGEDIIOHFXW)RUWKHVDNHRIGHPRQVWUDW
LQJKRZWRRSWLPL]HWKHEDIIOHGHVLJQFRQVLGHUDILUVWGHVLJQ'HVLJQ$LQ7DEOHE
+HUHWKHEDIIOHVSDFLQJLVPPDQGWKHEDIIOHFXW6LQFHWKHUHDUHWZRLQGHSHQ
GHQWYDULDEOHVEDIIOHVSDFLQJDQGEDIIOHFXWOHWXVILUVWUHWDLQWKHEDIIOHFXWDVDQG
YDU\ WKH EDIIOH VSDFLQJ 6XEVHTXHQWO\ WKH EDIIOH VSDFLQJ ZLOO EH NHSW FRQVWDQW DQG WKH
 
 7DEOHD3ULQFLSDOSURFHVVDQGFRQVWUXFWLRQSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG +\GURFDUERQOLTXLG +\GURFDUERQOLTXLG

 )ORZUDWHOEKNJK  

 ,QOHWRXWOHWWHPSHUDWXUHƒ)ƒ&  

 +HDWGXW\00%WXK00NFDOK 

 'HQVLW\LQRXWOEIWNJP  

 9LVFRVLW\LQRXWFS  

 6SHFLILFKHDWLQRXW%WXOEƒ)NFDONJƒ&  

 7KHUPDOFRQGXFWLYLW\LQRXWNFDOKPƒ&  

 $OORZDEOHSUHVVXUHGURSSVLNJFP  

 )RXOLQJUHVLVWDQFHKIWƒ)%WX  

KPƒ&NFDO

 0DWHULDORIFRQVWUXFWLRQ &6 &Uò0R

 7\SHRIH[FKDQJHU )ORDWLQJKHDG7(0$$(6

 6KHOO,'LQPP 

 1RRIWXEHV[QRRIWXEHSDVVHV [

 7XEH2'îWKLFNîOHQJWKLQPP îî

 +HDWWUDQVIHUDUHDIWP 

 /LQHVL]HLQPP  

EDIIOHFXWYDULHG,QUHDOSUDFWLFHERWKSDUDPHWHUVVKRXOGEHYDULHGVLPXOWDQHRXVO\EXW
E\NHHSLQJ RQHSDUDPHWHUFRQVWDQWDQG YDU\LQJWKH RWKHULWZLOOEH HDVLHUWRDSSUHFLDWH
WKHLQIOXHQFHRIHDFKSDUDPHWHU
$FFRUGLQJO\LQ'HVLJQV%DQG&WKHEDIIOHVSDFLQJZDVFKDQJHGWRLQPP
DQGLQPPUHVSHFWLYHO\1RZFRQVLGHUWKHWKUHHGHVLJQVLQ7DEOHE7KHUHLV
QRWHPSHUDWXUHSURILOHGLVWRUWLRQIDFWRUSUREOHPKHUHDVWKHVKHOOVLGHWHPSHUDWXUHGLIIHUHQFH
LVUDWKHUORZ>² ƒ)RU² ƒ&@DQGWKHDSSURDFKWHPSHUDWXUH
DWWKHVKHOORXWOHWUDWKHUKLJK>² ƒ)RU² ƒ&@VRWKDWWKH
UDWLRRIWKHWZRLVRURUZKLFKLVYHU\ORZ)XUWKHUDVWKHEDIIOH
FXWLVDQGWKHFURVVIORZDQGWKHZLQGRZIORZYHORFLWLHVDUHFORVHWRHDFKRWKHUWKHUHLV
QRQRQLGHDOZLQGRZIORZSHQDOW\IDFWRUHLWKHU
,WZLOOEHVHHQWKDWDVWKHEDIIOHVSDFLQJLVLQFUHDVHGIURPLQPPWRLQ
PPWKHPDLQFURVVIORZWKHEXQGOHVKHOOE\SDVVVWUHDPDQGWKHSDVVSDUWLWLRQE\SDVV
VWUHDPLQFUHDVHSURJUHVVLYHO\ZKHUHDVWKHEDIIOHKROHWXEHDQGEDIIOHVKHOOOHDNDJHVWUHDPV
GHFUHDVHSURJUHVVLYHO\7KHRYHUDOOKHDWWUDQVIHUHIILFLHQF\RIWKHVKHOOVLGHVWUHDPLQFUHDVHV
SURJUHVVLYHO\7KHUHDUHDQXPEHURIIDFWRUVDWSOD\KHUHWKHFURVVIORZDQGZLQGRZIORZ
YHORFLWLHV WKH QXPEHU RI EDIIOH VSDFHV WKH VWUHDP DQDO\VLV DQG WKH RYHUDOO VKHOOVLGH
HIILFLHQF\7KH QHWUHVXOW LVWKDW ZLWKDQ LQFUHDVH LQWKHEDIIOHVSDFLQJIURP  LQ 
PP WR  LQ  PP WKH VKHOOVLGH KHDW WUDQVIHU FRHIILFLHQW GURSV DSSUHFLDEO\ IURP
%WXKIW ƒ)NFDOKP ƒ&WR%WXKIW ƒ)NFDOKP ƒ&ZKLOHWKH
 
 7DEOHE5HVXOWVRIYDULDWLRQLQEDIIOHVSDFLQJIRUEDIIOHFXWIRU&DVH6WXG\
 'HVLJQ&DVH%DIIOHVSDFLQJ
$ % &
LQ LQ LQ
PP PP PP
 %DIIOHKROHWXEHOHDNDJHVWUHDP$   

 0DLQFURVVIORZVWUHDP%   

 %XQGOHVKHOOE\SDVVVWUHDP&   

 %DIIOHVKHOOOHDNDJHVWUHDP(   

 3DVVSDUWLWLRQE\SDVVVWUHDP)   

 2YHUDOOVKHOOVLGHKHDWWUDQVIHUHIILFLHQF\   

 6KHOOVLGHYHORFLW\ FURVVIORZ   

IWVPV
ZLQGRZIORZ   

 6KHOOVLGHSUHVVXUHGURSSVLNJFP    
 +HDWWUDQVIHU VKHOOVLGH   
FRHIILFLHQW
%WXKIWƒ)NFDOK WXEHVLGH   
Pƒ&
RYHUDOO   

 2YHUGHVLJQ   

VKHOOVLGHSUHVVXUHGURSSOXQJHVIURPSVLNJFPWRSVLNJFP

:LWKDIXUWKHULQFUHDVHLQWKHEDIIOHVSDFLQJIURPLQPPWRLQ
PP ZKLOH WKH VKHOOVLGH SUHVVXUH GURS IDOOV IXUWKHU WR  NJFP WKH VKHOOVLGH KHDW
WUDQVIHUFRHIILFLHQWLQFUHDVHVPDUJLQDOO\WR%WXKIWƒ)NFDOKPƒ&
$V WKH DOORZDEOH VKHOOVLGH SUHVVXUH GURS LV  NJFP 'HVLJQ $ LV UXOHG RXW DV LWV
VKHOOVLGHSUHVVXUHGURSIDUH[FHHGVWKLVOLPLW7KHVKHOOVLGHSUHVVXUHGURSLQGHVLJQ%DOVR
H[FHHGVWKHDOORZDEOHYDOXHDOWKRXJKPDUJLQDOO\7KXV'HVLJQ&LVWKHEHVW²QRWRQO\LVLWV
VKHOOVLGHSUHVVXUHGURSZLWKLQWKHDOORZDEOHYDOXHEXWLWVRYHUGHVLJQLVKLJKHUDQGLWVVWUHDP
DQDO\VLVEHWWHUWKDQWKRVHRI'HVLJQ%
/HWXVQRZFRQVLGHUWKHHIIHFWRIYDU\LQJWKHEDIIOHFXWUHWDLQLQJWKHEDIIOHVSDFLQJDV
LQPP7KHUHVXOWVDUHVKRZQLQ7DEOHF'HVLJQ$KHUHLVWKHVWDUWLQJSRLQW
ZLWKDEDIIOHFXWRI,WLVSURJUHVVLYHO\LQFUHDVHGWRDQGLQ'HVLJQV%
&DQG',QWKHILQDOGHVLJQ'HVLJQ(WKHUHVXOWVRIDEDIIOHFXWKDVDOVREHHQVKRZQ
:LWK WKH SURJUHVVLYH LQFUHDVH RI EDIIOH FXW IURP  WR  WKH IROORZLQJ FKDQJHV DUH
REVHUYHG
 7KHPDLQFURVVIORZVWUHDPIUDFWLRQLQFUHDVHVDSSUHFLDEO\
 7KH EDIIOH KROHWXEH EDIIOHVKHOO DQG SDVVSDUWLWLRQ VWUHDP IUDFWLRQV GHFUHDVH
VWHDGLO\
 7KHEXQGOHVKHOOE\SDVVVWUHDPIUDFWLRQUHPDLQVTXLWHVWHDG\
 7KH RYHUDOO KHDW WUDQVIHU HIILFLHQF\ RI WKH VKHOOVLGH VWUHDP ILUVW GHFUHDVHV DQG
WKHQLQFUHDVHV
 +RZHYHU DV WKH ZLQGRZ YHORFLW\ GHFUHDVHV SURJUHVVLYHO\ WKH VKHOOVLGH KHDW

 
 7DEOHF5HVXOWVRIYDULDWLRQLQEDIIOHFXWIRUPPEDIIOHVSDFLQJIRU&DVH6WXG\
 'HVLJQ&DVH%DIIOHFXWGLDPHWHU
 $ % & ' (
    
 %DIIOHKROHWXEHOHDNDJHVWUHDP$     
 0DLQFURVVIORZVWUHDP%     

 %XQGOHVKHOOE\SDVVVWUHDP&     

 %DIIOHVKHOOOHDNDJHVWUHDP(     

 3DVVSDUWLWLRQE\SDVVVWUHDP)     

 2YHUDOOVKHOOVLGHKHDWWUDQVIHUHIILFLHQF\     

 FURVVIORZ     

 6KHOOVLGHYHORFLW\IWV     
PV ZLQGRZIORZ     
    

 6KHOOVLGHSUHVVXUHGURSSVLNJFP     

    
     
 VKHOOVLGH
    
 +HDWWUDQVIHU
FRHIILFLHQW%WXKIWƒ) WXEHVLGH     
NFDOKPƒ&     

RYHUDOO     

    
 &RUUHFWLRQIDFWRUIRUQRQLGHDO     
ZLQGRZIORZ

 2YHUGHVLJQ     



WUDQVIHU FRHIILFLHQW DOVR GHFUHDVHV 7KH SUHVVXUH GURS DOVR GHFUHDVHV DW DOPRVW
WKHVDPHUDWHDVWKHKHDWWUDQVIHUFRHIILFLHQW
 $WWKHKLJKHUEDIIOHFXWVRIDQGWKHQRQLGHDOZLQGRZIORZFRUUHFWLRQ
IDFWRUEHFRPHVUDWKHUORZDQG
 7KHDERYHIDFWRUVDUHILQDOO\UHIOHFWHGLQWKHRYHUGHVLJQYDOXHV'HVLJQV(DQG$
KDYH WKH KLJHVW RYHUGHVLJQ YDOXHV EXW WKH\ FDQQRW EH DFFHSWHG GXH WR WKHLU
VKHOOVLGHSUHVVXUHGURSEHLQJLQH[FHVVRIWKHDOORZDEOHYDOXH7KHQH[WKLJKHVW
RYHUGHVLJQLVLQ'HVLJQ%ZKLFKLVWKHUHIRUHDFFHSWHGDVWKHILQDOGHVLJQ

5HGXFWLRQRIVKHOOVLGHSUHVVXUHGURS
6KHOOVLGH SUHVVXUH GURS UHGXFWLRQ LV DOPRVW DOZD\V DFFRPSOLVKHG E\ PRGLI\LQJ WKH
VKHOOEDIIOHVW\OHDQGGHVLJQDQGRFFDVLRQDOO\E\WKHXVHRILQFUHDVHGWXEHSLWFK7KHVH
ZLOOQRZEHGLVFXVVHGLQGHWDLO

 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG *DV &RROLQJZDWHU

 )ORZUDWHOEKNJK  

 ,QOHWRXWOHWWHPSHUDWXUHƒ)ƒ&  

 +HDWGXW\00%WXK00NFDOK 

 2SHUDWLQJSUHVVXUHSVLDNJFPDEV  

 $OORZDEOHSUGURSSVLNJFP  


 )RXOLQJUHVLVWDQFHKIW ƒ)  
%WXKPƒ&NFDO

 0DWHULDORIFRQVWUXFWLRQ &DUERQVWHHO &DUERQVWHHO

 &RQQHFWLRQVL]HLQPPQRPLQDO  

0RGLI\LQJVKHOOEDIIOHVW\OHDQGGHVLJQ
6LQJOHSDVVVKHOODQGVLQJOHVHJPHQWDOEDIIOHV
7KHILUVWEDIIOHDOWHUQDWLYHLVWKHVLQJOHVHJPHQWDOLQDVLQJOHSDVV7(0$VW\OH(VKHOO
VHH)LJ3HUKDSVPRUHKHDWH[FKDQJHUVDUHGHVLJQHGZLWKDQ(VKHOOWKDQDOORWKHU
W\SHVSXWWRJHWKHU+RZHYHULQ PDQ\VLWXDWLRQVWKHVKHOOVLGHSUHVVXUH GURSLVWRR KLJK
ZLWK VLQJOHVHJPHQWDO EDIIOHV LQ D VLQJOHSDVV VKHOO HYHQ DIWHU LQFUHDVLQJ WKH EDIIOH
VSDFLQJ DQG EDIIOH FXW WR WKH KLJKHVW UHFRPPHQGHG YDOXHV VHH 6HFWLRQ  6XFK D
VLWXDWLRQ PD\ DULVH ZKHQ KDQGOLQJ D YHU\ KLJK VKHOOVLGH IORZ UDWH DQGRU ZKHQ WKH
VKHOOVLGHIOXLGLVDORZSUHVVXUHJDV,QVXFKVLWXDWLRQVWKHILUVWDOWHUQDWLYHWKHGHVLJQHU
VKRXOGFRQVLGHULVWKHGRXEOHVHJPHQWDOEDIIOHVHH)LJ

6LQJOHSDVVVKHOODQGGRXEOHVHJPHQWDOEDIIOHV
%\FKDQJLQJWKHEDIIOLQJIURPVLQJOHVHJPHQWDOWRGRXEOHVHJPHQWDODWWKHVDPHVSDFLQJ
LQDQRWKHUZLVHLGHQWLFDOKHDWH[FKDQJHUWKHFURVVIORZYHORFLW\EHFRPHVDSSUR[LPDWHO\
RQHKDOIVLQFHWKHVKHOOVLGHIORZLVGLYLGHGLQWRWZRLGHQWLFDOSDUDOOHOVWUHDPV7KLVUHVXOWV
LQD ODUJHUHGXFWLRQLQWKH FURVVIORZSUHVVXUH GURS+RZHYHUWKH ZLQGRZ YHORFLW\DQG
WKHUHIRUHWKHZLQGRZSUHVVXUHGURSFDQQRWEHUHGXFHGDSSUHFLDEO\EHFDXVHWKHPD[LPXP
UHFRPPHQGHG EDIIOH FXW VKRXOG KDYH EHHQ WULHG ZLWK VLQJOHVHJPHQWDO EDIIOHV EHIRUH
FKDQJLQJ RYHU WR GRXEOHVHJPHQWDO EDIIOHV 1HYHUWKHOHVV VLQFH WKH FURVVIORZ SUHVVXUH
GURS LV LQYDULDEO\ PXFK JUHDWHUWKDQWKH ZLQGRZSUHVVXUH GURSWKHUHLVDQDSSUHFLDEOH
UHGXFWLRQ LQWKHWRWDOSUHVVXUH GURS(YLGHQWO\WKHUHLVDOVRDUHGXFWLRQ LQWKHVKHOOVLGH
KHDW WUDQVIHU FRHIILFLHQW EXW WKLV LV FRQVLGHUDEO\ OHVV WKDQ WKH UHGXFWLRQ LQ WKH SUHVVXUH
GURS$GHWDLOHGSUHVHQWDWLRQRQWKHXVHRIGRXEOHVHJPHQWDOEDIIOHVDSSHDUVLQ>@

&$6(678'<86(2)'28%/(6(*0(17$/%$))/(6
/HWXVFRQVLGHUWKHKHDWH[FKDQJHUVHUYLFHVSHFLILHGLQ7DEOHD7XEHVLQ
PP2'DQGLQPPWKLFNDQGDIORDWLQJKHDG7(0$$(6FRQVWUXFWLRQDUH
WREHXVHG7KHWXEHSLWFKLVWREHLQPPVTXDUH7KHHQWLUHH[FKDQJHULVWREH
RIFDUERQVWHHOFRQVWUXFWLRQ

 
 7DEOHE5HVXOWVRIGHVLJQZLWKVLQJOHDQGGRXEOHVHJPHQWDOEDIIOHVIRU&DVH6WXG\
 6LQJOHVHJPHQWDO 'RXEOHVHJPHQWDO
GHVLJQ GHVLJQ
 7\SHRIH[FKDQJHU )ORDWLQJKHDG7(0$$(6

 6KHOO,'LQPP  

 1XPEHURIWXEHV  

 7XEHSLWFKLQPPOD\RXWDQJOH VTXDUH

 1XPEHURIWXEHSDVVHV  

 7RWDOQRRI  
FURVVSDVVHV

 %DIIOLQJ %DIIOHVSDFLQJ  
LQLQPP

%DIIOHFXW GLD URZVRYHUODS

RQDUHD
 6KHOOVLGH FURVVIORZ  
YHORFLW\IWV
PV ZLQGRZIORZ  

 7XEHVLGHYHORFLW\IWVPV  


 6KHOOVLGHSUHVVXUHGURSSVLNJFP   
 7XEHVLGHSUHVVXUHGURSSVLNJFP  

 +HDWWUDQVIHU 6KHOOVLGH  

FRHIILFLHQW
7XEHVLGH  
NFDOKPƒ&
2YHUDOO  

 2YHUGHVLJQ  

 6DIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZ 1RFURVVIORZYHORFLW\! <HV
LQGXFHGYLEUDWLRQ FULWLFDOYHORFLW\

$ GHVLJQ ZDV ILUVWWULHG ZLWKVLQJOHVHJPHQWDO EDIIOHV ,W ZDVIRXQGWKDW ZLWKDEDIIOH

VSDFLQJRILQPPDQGDEDIIOHFXWRIRQGLDPHWHUWKHVKHOOVLGHSUHVVXUH
GURSFRXOGEHUHVWULFWHGWRWKHSHUPLVVLEOH YDOXH+RZHYHULW ZDV REVHUYHGWKDWWKHWXEHV
ZHUH KLJKO\ SURQH WR IDLOXUH GXH WR IORZLQGXFHG YLEUDWLRQ IOXLGHODVWLF ZKLUOLQJ 7KLV
SKHQRPHQRQZLOOEHGLVFXVVHGLQGHWDLOLQ&KDSWHU,WZLOOEHVHHQIURP7DEOHEWKDW
WKHRYHUGHVLJQPDUJLQLVUDWKHUKLJK+RZHYHULIWKHQXPEHURIWXEHVDQGWKHUHE\
WKH VKHOO GLDPHWHU LV UHGXFHG WKH VKHOOVLGH SUHVVXUH GURS ZLOO LQFUHDVH WR EH\RQG WKH
SHUPLVVLEOHYDOXH,IWKHEDIIOHVSDFLQJLVLQFUHDVHGIXUWKHUWRFRQWDLQWKHVKHOOVLGHSUHVVXUH
GURSWKHGHVLJQZLOOEHFRPHHYHQPRUHXQVDIHDJDLQVWIORZLQGXFHGYLEUDWLRQ
7KLV GHVLJQ ZDVWKHUHIRUHDEDQGRQHGDQG GRXEOHVHJPHQWDOEDIIOHV FRQVLGHUHG,W ZDV
IRXQGWKDWWKHSHUPLWWHGVKHOOVLGHSUHVVXUHGURSFRXOGEHDGKHUHGWRDQGDGHVLJQSURGXFHG
WKDWLVVDIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ7KHUHVXOWVRIWKLVGHVLJQ
DUH DOVR VKRZQ LQ 7DEOH E 7KH EDIIOH VSDFLQJ LV  LQ  PP DQG WKHUH LV DQ
RYHUODS RI IRXU WXEH URZV &RPSDULQJ WKH WZR GHVLJQV LW ZLOO EH VHHQ WKDW WKH GRXEOH
VHJPHQWDOEDIIOHGHVLJQZDVDEOHWRUHGXFHWKHEDIIOHVSDFLQJDQGWKHUHE\WKHXQVXSSRUWHG

 
VSDQ FRQVLGHUDEO\ IRU DERXW WKH VDPH VKHOOVLGH YHORFLW\ SUHVVXUH GURS DQG KHDW WUDQVIHU
FRHIILFLHQW7KHORZHUXQVXSSRUWHGVSDQZDVWKHNH\WRDGHVLJQWKDWLVVDIHDJDLQVWIDLOXUHRI
WXEHVGXHWRIORZLQGXFHGYLEUDWLRQWKLVZLOOEHGLVFXVVHGLQGHWDLOLQ&KDSWHU

'LYLGHGIORZVKHOODQGVLQJOHVHJPHQWDOEDIIOHV
,I WKH DOORZDEOH VKHOOVLGH SUHVVXUH GURS FDQQRW EH FRPSOLHG ZLWK HYHQ ZLWK GRXEOH
VHJPHQWDO EDIIOHV DW D UHODWLYHO\ ODUJH VSDFLQJ RU LI VXFK D GHVLJQ EHFRPHV SURQH WR
IDLOXUH RI WXEHV GXH WR IORZLQGXFHG YLEUDWLRQ D GLYLGHGIORZ VKHOO 7(0$ - ZLWK
VLQJOHVHJPHQWDOEDIIOHVVKRXOGEHLQYHVWLJDWHGQH[WVHH)LJ+HUHRQHKDOIRIWKH
VKHOOVLGHIOXLGIORZVDORQJHDFKKDOIRIWKHVKHOOOHQJWKZKHQFRPSDUHGWRWKHVLQJOHSDVV
VKHOO$VSUHVVXUHGURSLVSURSRUWLRQDOWRWKHVTXDUHRIWKHYHORFLW\DQGWRWKHOHQJWKRI
WUDYHODGLYLGHGIORZVKHOOZLOOUHVXOWLQDSSUR[LPDWHO\RQHHLJKWKWKHSUHVVXUHGURSLQDQ
RWKHUZLVH LGHQWLFDO VLQJOHSDVV H[FKDQJHU 7KH VXSHULRULW\ RI D GLYLGHGIORZ VKHOO RYHU
GRXEOHVHJPHQWDOEDIIOHVLVWKDWLWRIIHUVDQHYHQODUJHUUHGXFWLRQLQSUHVVXUHGURSVLQFH
QRWRQO\FURVVIORZYHORFLW\EXWHYHQZLQGRZYHORFLW\FDQEHUHGXFHGDQGWKHOHQJWKRI
WUDYHO LV RQHKDOI 7KH GLVDGYDQWDJH LV WKH LQFUHDVH LQ FRVW GXH WR WKH DGGLWLRQDO SLSLQJ
UHTXLUHG
$VGLYLGHGIORZFRQVWUXFWLRQLVTXLWHFRPPRQLQSURFHVVFRQGHQVHUVD&DVH6WXG\ZLOO
EHSUHVHQWHGLQ&KDSWHULQZKLFKZHZLOOGLVFXVVFRQGHQVHUVLQGHWDLO
'LYLGHGIORZVKHOODQGGRXEOHVHJPHQWDOEDIIOHV
,IHYHQDGLYLGHGIORZVKHOOZLWKVLQJOHVHJPHQWDOEDIIOHVLVXQDEOHWRPHHWWKHDOORZDEOH
VKHOOVLGHSUHVVXUHGURSOLPLWDQGHQVXUHDGHVLJQVDIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZ
LQGXFHGYLEUDWLRQLWZLOOEHQHFHVVDU\WRDGRSWDFRPELQDWLRQRIDGLYLGHGIORZVKHOODQG
GRXEOHVHJPHQWDOEDIIOHV(YLGHQWO\ZLWKVXFKDFRPELQDWLRQDYHU\ODUJHUHGXFWLRQLQ
VKHOOVLGH SUHVVXUH GURS LV SRVVLEOH DV ORZ DV  FRPSDUHG WR D VLQJOHSDVV H[FKDQJHU
KDYLQJWKHVDPHEDIIOHVSDFLQJDQGFXW,QVKDUSFRQWUDVWWKHKHDWWUDQVIHUFRHIILFLHQWZLOO
UHGXFHWRRQO\DERXW
$VWKLVFRQVWUXFWLRQLVDOVRPXFKPRUHSUHYDOHQWDPRQJFRQGHQVHUVD&DVH6WXG\ZLOO
EHSUHVHQWHGLQ&KDSWHU
1RWXEHVLQZLQGRZVHJPHQWDOEDIIOHV
7KLVLVGLVFXVVHGLQGHWDLOODWHULQ&KDSWHU
&URVVIORZVKHOO
7KHUHDUHVRPHVHUYLFHVZKHUHWKHSUHVVXUHGURSOLPLWDWLRQLVVRVHYHUHWKDWQRQHRIWKH
DERYH VKHOOEDIIOLQJ GHVLJQV FDQ \LHOG D VDWLVIDFWRU\ GHVLJQ $ VWHDP HMHFWRU FRQGHQVHU
RSHUDWLQJDWDSUHVVXUHRIPP+JDQGKDYLQJDQDOORZDEOHSUHVVXUHGURSRIPP+J
LV DQ H[DPSOH 7KH XOWLPDWH WHFKQLTXH LQ VKHOOVLGH SUHVVXUH GURS UHGXFWLRQ LV DSSOLHG
VXFFHVVIXOO\ LQ VXFK D VLWXDWLRQ WKH XVH RI WKH FURVVIORZ VKHOO 7(0$ ; VW\OH +HUH
SXUHFURVVIORZWDNHVSODFHDWDYHU\ORZYHORFLW\DQGFRQVHTXHQWO\WKHUHLVYLUWXDOO\QR
SUHVVXUH GURS LQ WKH VKHOO :KDWHYHU SUHVVXUH GURS WKHUH LV LW LV DOPRVW HQWLUHO\ LQ WKH
QR]]OHV(YLGHQWO\VXSSRUWSODWHVZLOOKDYHWREHXVHGWRPHHW7(0$UHTXLUHPHQWVDQG
SUHYHQWDQ\SRVVLEOH IORZLQGXFHGWXEH YLEUDWLRQ6LQFHWKHVKHOOVLGHIORZ LVSDUDOOHOWR
WKHVHVXSSRUWSODWHVVKHOOVLGHSUHVVXUHGURSLVQRWLQFUHDVHG
,QFUHDVHGWXEHSLWFK
)RUDJLYHQQXPEHURIWXEHVWKHVPDOOHUWKHWXEHSLWFKWKHVPDOOHUWKHVKHOOGLDPHWHUDQG

 
WKHUHIRUHWKHORZHUWKHILUVWFRVW&RQVHTXHQWO\GHVLJQHUVWHQGWRSDFNLQDVPDQ\WXEHV
DV PHFKDQLFDOO\ SRVVLEOH OLPLWHG HLWKHU E\ OLJDPHQW ZLGWK GLVWDQFH EHWZHHQ DGMDFHQW
WXEHV  WXEH SLWFK ² WXEH 2' IRU IDEULFDWLRQ SXUSRVHV RU FOHDQLQJ UHTXLUHPHQWV
*HQHUDOO\DVVSHFLILHGLQWKH7(0$VWDQGDUGVGHVLJQHUVXVHWLPHVWKHWXEH2'DV
WKHWXEHSLWFK)RUVTXDUHRUURWDWHGVTXDUHSLWFKDPLQLPXPFOHDQLQJODQHRILQRU
PP LVDGGLWLRQDOO\UHFRPPHQGHGE\7(0$7KXVLQPP2'WXEHVDUH
ODLGRXWRQDLQPPWULDQJXODUSLWFKRUDLQPPVTXDUHSLWFK
7KH RSWLPXP WXEH SLWFKWRWXEH 2' UDWLR IRU FRQYHUVLRQ RI SUHVVXUH GURS WR KHDW
WUDQVIHULVJHQHUDOO\²IRUWXUEXOHQWIORZDQGDURXQGIRUODPLQDUIORZ
,QFUHDVLQJ WKH WXEH SLWFK WR UHGXFH SUHVVXUH GURS LV JHQHUDOO\ QRW UHFRPPHQGHG DV LW
LQFUHDVHV WKH VKHOO GLDPHWHU DQG WKHUHE\ WKH FRVW 3UHVVXUH GURS UHGXFWLRQ LV XVXDOO\
DFKLHYHGE\PRGLILFDWLRQRIEDIIOHVSDFLQJFXWDQGRUVKHOOW\SHLQDIDUFKHDSHUGHVLJQ
+RZHYHULQWKHFDVHRI;VKHOOVLWPD\EHQHFHVVDU\WRLQFUHDVHWKHWXEHSLWFKIURPWKH
7(0$PLQLPXPWRPHHWSUHVVXUHGURSOLPLWDWLRQVDVWKHUHDUHQRRWKHUSDUDPHWHUVZKLFK
FDQEHPRGLILHG
$ &DVH 6WXG\ VKRZLQJ WKH ORJLF RI VHOHFWLQJ WKH VKHOO W\SH DQG WKH EDIIOH W\SH LV
SUHVHQWHG LQ &KDSWHU  RQ IORZLQGXFHG YLEUDWLRQ DV SUHVVXUH GURS DQG IORZLQGXFHG
YLEUDWLRQDUHLQH[WULFDEO\OLQNHGWRJHWKHU

5HIHUHQFHV
>@ 7LQNHU76KHOOVLGH&KDUDFWHULVWLFVRI6KHOODQG7XEH+HDW([FKDQJHUV3DUWV,,,DQG
,,,*HQHUDO'LVFXVVLRQRI+HDW7UDQVIHU3URF,QVWLWXWLRQRI0HFKDQLFDO(QJLQHHUV/RQGRQ
>@ 0XNKHUMHH5³8VH'RXEOHVHJPHQWDO%DIIOHVLQ6KHOODQG7XEH+HDW([FKDQJHUV´
&KHPLFDO(QJLQHHULQJ3URJUHVV1RYSS²

)XUWKHU5HDGLQJ
 +HZLWW*)HG+HDW([FKDQJHU'HVLJQ+DQGERRN9ROXPHVDQG%HJHOO
+RXVH,QF1HZ<RUN
 .DNDF6HWDO+HDW([FKDQJHUV7KHUPDO¥+\GUDXOLF)XQGDPHQWDOVDQG'HVLJQ
+HPLVSKHUH3XEOLVKLQJ&RUSRUDWLRQ1HZ<RUN
 0F.HWWD--HG+HDW7UDQVIHU'HVLJQ0HWKRGV0DUFHO'UHNNHU,QF1HZ<RUN
 5RKVHQRZ:0DQG+DUWQHWW-3HGV+DQGERRNRI+HDW7UDQVIHU6HFWLRQ
0F*UDZ+LOO%RRN&R
 $]EHO'+HDW7UDQVIHU$SSOLFDWLRQVLQ3URFHVV(QJLQHHULQJ1R\HV3XEOLFDWLRQV
1HZ-HUVH\


 
 &+$37(5

0HDQ7HPSHUDWXUH'LIIHUHQFH

7HPSHUDWXUH GLIIHUHQFH LV WKH GULYLQJ IRUFH IRU KHDW WUDQVIHU DQG DV VXFK LV D YHU\
LPSRUWDQW SDUDPHWHU LQ KHDW H[FKDQJHU GHVLJQ 7KHUH DUH PDQ\ LVVXHV LQYROYHG LQ WKH
PHFKDQLFV DQG GHWHUPLQDWLRQ RI WKH PHDQ WHPSHUDWXUH GLIIHUHQFH 07' RI D KHDW
H[FKDQJHUDQGKHQFHDQHQWLUHFKDSWHULVGHYRWHGWRWKLVVXEMHFW

/RJDULWKPLF0HDQ7HPSHUDWXUH'LIIHUHQFH/07'
$VLVZHOONQRZQWHPSHUDWXUHGLIIHUHQFHLVWKHGULYLQJIRUFHIRUKHDWWUDQVIHU6LQFHWKH
WHPSHUDWXUH GLIIHUHQFH YDULHV DFURVV WKH OHQJWK RI D KHDW WUDQVIHU VHFWLRQ LW KDV WR EH
ZHLJKHGWRREWDLQDPHDQYDOXHIRUDVLQJOHSRLQWGHWHUPLQDWLRQRIKHDWWUDQVIHUDUHD7KH
PHDQWHPSHUDWXUHGLIIHUHQFHLQD KHDWWUDQVIHUSURFHVVFDQEHVKRZQWREH HTXDOWRWKH
ORJDULWKPLFPHDQRIWKHWZRWHUPLQDOWHPSHUDWXUHGLIIHUHQFHVRQHDWWKHKRWHQGRIWKH
KHDWWUDQVIHUVHFWLRQDQGWKHRWKHUDWWKHFROGHQG+HQFHWKLVLVUHIHUUHGWRDVWKH/07'
,QWKHGHULYDWLRQRIWKH/07'DVWKHWUXHPHDQWHPSHUDWXUHGLIIHUHQFHWKHIROORZLQJ
DVVXPSWLRQVDUHUHTXLUHGWREHPDGH
D 7KHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWLVFRQVWDQWRYHUWKHHQWLUHOHQJWKRIWKHSDWK
E 7KH PDVV IORZ UDWH DQG VSHFLILF KHDW RI ERWK WKH VWUHDPV DUH FRQVWDQW RYHU WKH
HQWLUHOHQJWKRIWKHSDWK
F 7KHUH LV QR SKDVH FKDQJH LQ HLWKHU IORZLQJ VWUHDP WKDW LV RQO\ VHQVLEOH KHDW
WUDQVIHUWDNHVSODFH
G +HDWORVVHVDUHQHJOLJLEOH

&RXQWHUFXUUHQW)ORZ
:KHQWZRVWUHDPVIORZLQ RSSRVLWH
GLUHFWLRQV DFURVV D WXEH ZDOO ZH
KDYH WUXH FRXQWHUFXUUHQW IORZ )LJ
 ,Q WKLV VLWXDWLRQ WKH RQO\
OLPLWDWLRQLVWKDWDWDOOORFDWLRQVWKH
KRWVWUHDPVKRXOGEHKRWWHUWKDQWKH
FROG VWUHDP 7KH RXWOHW WHPSHUDWXUH
RI WKH FROG VWUHDP KRZHYHU PD\
ZHOO EH KLJKHU WKDQ WKH RXWOHW
WHPSHUDWXUHRIWKHKRWVWUHDP
/HWXVFRQVLGHUWKHIROORZLQJKRW
DQGFROGVWUHDPGDWDIRU)LJ )LJ&RXQWHUFXUUHQWIORZ

 
  +RW VWUHDP IORZ UDWH 
OEK  NJK VSHFLILF KHDW
 %WXOE ƒ)  NFDONJ ƒ&
DQG LQOHW WHPSHUDWXUH ƒ)
ƒ&
 &ROG VWUHDP IORZ UDWH 
OEKNJKVSHFLILFKHDW
%WXOEƒ)NFDONJƒ&DQGLQOHW
WHPSHUDWXUHƒ)ƒ&
/HW XV DOVR FRQVLGHU D PLQLPXP
)LJ&RFXUUHQWIORZ
WHPSHUDWXUH DSSURDFK EHWZHHQ WKH
KRWDQGFROGVWUHDPVWREHƒ)ƒ&,WZLOOEHVHHQE\DKHDWEDODQFHWKDWIRUDKRW
HQG WHUPLQDO RI ƒ) ƒ& WKH KRW VWUHDP ZLOO OHDYH DW ƒ) ƒ& DQG WKH FROG
VWUHDPZLOOOHDYHDWƒ)ƒ&UHSUHVHQWLQJDKHDWGXW\RI%WXK
NFDOK7KLVLVUHSUHVHQWHGLQ)LJ7KHWHPSHUDWXUHGLIIHUHQFHDWWKHKRWWHUPLQDOLV
²RUƒ)>²RUƒ&@ZKLFKZDVWKHPLQLPXPVSHFLILHGDQGWKH
WHPSHUDWXUHGLIIHUHQFHDWWKHFROGWHUPLQDO LV²RUƒ)>²RUƒ&@
7KXVWKH/07'ZLOOEHƒ)ƒ&

&R&XUUHQW)ORZ
,IWKHKRWDQGFROGVWUHDPVIORZLQWKHVDPHGLUHFWLRQZHKDYHFRFXUUHQWIORZ7KLVLV
UHSUHVHQWHGLQ)LJ$JDLQFRQVLGHUWKHVDPHKRWDQGFROGVWUHDPIORZUDWHVDQGLQOHW
WHPSHUDWXUHVDVLQWKHFRXQWHUFXUUHQWFDVHDERYH,W ZLOOEHVHHQE\DKHDWEDODQFHWKDW
FRUUHVSRQGLQJWRDPLQLPXPWHPSHUDWXUHGLIIHUHQFHRIƒ)ƒ&WKHKRWVWUHDPZLOO
OHDYHDWƒ)ƒ&DQGWKHFROGVWUHDPDWƒ)ƒ&WKHUHE\UHSUHVHQWLQJD
KHDWGXW\ RI RQO\%WXKNFDOKVHH)LJ7KLVLVFRQVLGHUDEO\
ORZHU WKDQ WKH KHDW GXW\ WKDW FRXOG EH WUDQVIHUUHG LQ FRXQWHUFXUUHQW IORZ $OVR WKH
WHPSHUDWXUHGLIIHUHQFHDWWKHKRWVWUHDPLQOHWHQGLV²RUƒ)>²RU
ƒ&@DQGWKDWDWWKHKRWVWUHDPRXWOHWHQGLV²RUƒ)>²RU
ƒ&@7KXVWKH/07'KHUHZLOOEHFRQVLGHUDEO\KLJKHUDWƒ)ƒ&
7KXVZLWKFRFXUUHQWIORZQRWRQO\LVWKHDPRXQWRIKHDWWKDWFDQEHWUDQVIHUUHGORZHU
WKH/07'LVDOVRPXFKORZHUWKDQWKDWIRUFRXQWHUFXUUHQWIORZDOEHLWIRUWKHVDPHVWUHDP
WHPSHUDWXUHV&RQVLGHUDKRWVWUHDPLQOHWRXWOHWWHPSHUDWXUHRIƒ)ƒ&DQGD
FROG VWUHDP LQOHWRXWOHW WHPSHUDWXUH RI ƒ) ƒ& ,Q FRXQWHUFXUUHQW IORZ WKH
VLWXDWLRQZLOOEH
Æ   Æ
Å   Å
   
   
   
7KXVWKH/07'ZLOOEHƒ)ƒ)
,QFRFXUUHQWIORZWKHVLWXDWLRQZLOOEH
Æ   Æ
Æ   Æ
   
   
   
 
7KXVWKH/07'KHUHLVƒ)ƒ&
&RFXUUHQW IORZ \LHOGV D ORZHU /07' IRU WKH VDPH WHUPLQDO GLIIHUHQFHV EHFDXVH
ZKHUHDVRQHWHUPLQDOWHPSHUDWXUHGLIIHUHQFHLVUDWKHUKLJKWKHRWKHULVYHU\ORZ7KDWLVWKH
WHPSHUDWXUHGLIIHUHQFHVDORQJWKHSDWKRIKHDWWUDQVIHUDUHQRWEDODQFHGWKHUHE\\LHOGLQJD
ORZHU/07':KDWLVHYHQPRUHVHULRXVZLWKFRFXUUHQWIORZLVWKDWWKHFROGVWUHDPRXWOHW
WHPSHUDWXUH KDV WR EH VRPHZKDW ORZHU WKDQ WKH KRW VWUHDP RXWOHW WHPSHUDWXUH ZKLFK LV D
YHU\ELJ OLPLWDWLRQ7KLV LV QRWWUXH IRUWKHFRXQWHUFXUUHQWVLWXDWLRQ ZKHUHWKH FROGVWUHDP
RXWOHWWHPSHUDWXUHPD\ZHOOEHJUHDWHUWKDQWKHKRWVWUHDPRXWOHWWHPSHUDWXUH&RQVHTXHQWO\
FRXQWHUFXUUHQWIORZLVDOPRVWDOZD\VSUHIHUUHGWRFRFXUUHQWIORZ
$OPRVW EHFDXVH LQ VRPH VLWXDWLRQV RWKHU FRQVLGHUDWLRQV RYHUULGH )RU H[DPSOH IRU
FRROLQJD YHU\ YLVFRXV OLTXLGD FRFXUUHQW IORZ PD\EH HPSOR\HG LQ RUGHUWRSUHYHQWWKH
RXWOHWKRWVWUHDPIURP HQFRXQWHULQJWKHFROGHVWFRRODQWVRWKDWLWVZDOOYLVFRVLW\LVQRWDV
KLJKDVLWZRXOGEHLILWGLGHQFRXQWHUWKHFROGHVWFRRODQW7KHSUREOHPZLWKWKHKLJKHUZDOO
YLVFRVLW\LVWKDWLWUHGXFHVWKHKRWVWUHDPKHDWWUDQVIHUFRHIILFLHQW$QHYHQPRUHLPSRUWDQW
FRQVLGHUDWLRQ LV FRQJHDOLQJ D FRQGLWLRQ WKDW DULVHV ZKHQ WKH WXEHZDOO WHPSHUDWXUH IDOOV
EHORZ WKH SRXUSRLQW RI WKH FRQJHDOLQJ OLTXLG (YLGHQWO\ D FRFXUUHQW DUUDQJHPHQW ZLOO
UHVXOW LQ D KLJKHU ZDOO WHPSHUDWXUH DW WKH FROG HQG ZKHUH FRQJHDOLQJ LV REYLRXVO\ PRUH
OLNHO\WRRFFXU+RZHYHUFRQVLGHULQJWKDWPRVWLQGXVWULDOKHDWH[FKDQJHUVKDYHWZRRUPRUH
WXEHSDVVHVSXUHFRFXUUHQWGRHVQRWKDYHPXFKSUDFWLFDOVLJQLILFDQFH
$QRWKHU H[DPSOH RI FRFXUUHQW IORZ LV D YHUWLFDO WKHUPRV\SKRQ UHERLOHU ZKLFK LV D
VLQJOHSDVV YHUWLFDO IL[HGWXEHVKHHW KHDW H[FKDQJHU ,Q VRPH VSHFLDO FLUFXPVWDQFHV FR
FXUUHQWIORZLVHPSOR\HGIRUUHDVRQVRIPRUHHIILFLHQWKHDWWUDQVIHU7KLVZLOOEHHODERUDWHG
ODWHULQ&KDSWHUZKLFKGLVFXVVHVUHERLOHUV

&RXQWHUFXUUHQWDQG&R&XUUHQW)ORZ7KH)W)DFWRU
/HWXVQRZFRQVLGHUDVKHOODQGWXEHKHDWH[FKDQJHU+HUHWKHVKHOOVLGHIOXLGPD\HLWKHU
EHFRPSOHWHO\PL[HGGXHWRKLJKWXUEXOHQFHRUPD\GHPRQVWUDWHDVHOHFWLYHWHPSHUDWXUH
SURILOHGXHWRORZWXUEXOHQFH7KHSUHVHQFHRIEDIIOHVDQGWKHFRQVHTXHQWWXUEXOHQWIORZ
DFURVVWKHWXEHVWHQGWRSURPRWHPL[LQJ
7KHIROORZLQJDVVXPSWLRQVQHHGWREHPDGHLQWKHGHWHUPLQDWLRQRIWKHWUXHWHPSHUDWXUH
GLIIHUHQFHIRUDVKHOODQGWXEHKHDWH[FKDQJHU
 7KHUHLVFRPSOHWHPL[LQJZLWKLQDQ\VKHOOFURVVSDVVRUWXEHSDVV
 7KHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWLVFRQVWDQWWKURXJKRXWWKHH[FKDQJHU
 7KHIORZUDWHDQGVSHFLILFKHDWRIERWKWKHVWUHDPVDUHFRQVWDQW
 7KHQXPEHURIFURVVSDVVHVLVJUHDWHUWKDQWKUHH
 7KHKHDWWUDQVIHUVXUIDFHLQHDFKSDVVLVHTXDO
 7KHUH LV QR SKDVH FKDQJH RI FRQGHQVDWLRQ RU YDSRUL]DWLRQ LQ DQ\ SDUW RI WKH
H[FKDQJHU
 7KH KHDW ORVV WR WKH VXUURXQGLQJV RU LQWHUQDOO\ DFURVV SDVV SDUWLWLRQ SODWHV LV
QHJOLJLEOH
7KH YHU\ILUVWDVVXPSWLRQLV QRWWRWDOO\WUXHDVPL[LQJLVQHYHUFRPSOHWH+RZHYHUWKH
ODFNRIFRPSOHWHPL[LQJGRHVQRWLQWURGXFHDYHU\VHULRXVHUURULQWKHGHWHUPLQDWLRQRI
WKH07'
7KHVHFRQGDVVXPSWLRQLVRIWHQXQWHQDEOHDVWKHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWYDULHV
VLJQLILFDQWO\ IURP RQH HQG RI WKH KHDW H[FKDQJHU WR WKH RWKHU ,Q VXFK FDVHV LW EHFRPHV
QHFHVVDU\WRGLYLGHWKHKHDWH[FKDQJHULQWRVHYHUDO]RQHVZKLFKLVQHFHVVDU\DQ\ZD\GXHWR
 
WKHYDULDWLRQRIWKHKHDWWUDQVIHUFRHIILFLHQWDQGSHUIRUP07'FDOFXODWLRQV]RQHZLVH
7KHQXPEHURIFURVVSDVVHVLVLQYDULDEO\IDUJUHDWHUWKDQWKUHH
'XH WR UHDVRQV DOUHDG\ H[SODLQHG HDUOLHU LQ WKH VHFWLRQV RQ WXEHVLGH KHDW WUDQVIHU
FRHIILFLHQW6HFWLRQDQGSUHVVXUHGURS6HFWLRQVKHOODQGWXEHKHDWH[FKDQJHUV
DUHLQYDULDEO\RIWZRRUPRUHWXEHSDVVHV,QDVLQJOHSDVVVKHOOWKHFRPPRQHVWW\SHWKH
VKHOOVLGHIOXLGIORZVLQRQHGLUHFWLRQIURPOHIWWRULJKWRUIURPULJKWWROHIW&RQVHTXHQWO\
KDOIWKHWXEHSDVVHVH[SHULHQFHFRXQWHUFXUUHQWIORZDQGWKHRWKHUKDOIH[SHULHQFHFRFXUUHQW
IORZ7KH07'IRUWKLVVLWXDWLRQLVQHLWKHUWKH/07'IRUFRXQWHUFXUUHQWIORZQRUWKDWIRU
FRFXUUHQW IORZ EXW D YDOXH LQ EHWZHHQ WKH WZR $ FRUUHFWLRQ IDFWRU FDOOHG WKH )W IDFWRU
ZKLFKGHSHQGVRQWKHIRXUWHUPLQDOWHPSHUDWXUHVKDVWREHDSSOLHGLQWKLVVLWXDWLRQDQGWKH
VDPHFDQEHGHWHUPLQHGIURPFKDUWVLQWKH7(0$VWDQGDUGV7KLVIDFWRULVXVHGWRPXOWLSO\
WKH/07'IRUFRXQWHUFXUUHQWIORZWRREWDLQWKH07',WGRHVQRWPDWWHUZKHWKHUWKHUHDUH
WZRRUIRXURUPRUHSDVVHV,WVKRXOGEHXQGHUVWRRGWKDWWKHKLJKHVWYDOXHRI)WLVDVWKH
07'FDQQHYHUH[FHHGWKH/07'IRUFRXQWHUFXUUHQWIORZ
7KH)WIDFWRULVGHWHUPLQHGDVIROORZV
/HW
7 KRWVWUHDPLQOHWWHPSHUDWXUH
7 KRWVWUHDPRXWOHWWHPSHUDWXUH
W FROGVWUHDPLQOHWWHPSHUDWXUH
W FROGVWUHDPRXWOHWWHPSHUDWXUH
7KH)WIDFWRULVGHWHUPLQHGIURP

5 7²7W²W 

6 W²W7²W 

6LQFHKHDWGXW\4 :&7²7 ZFW²W 

ZKHUH
: PDVVIORZUDWHRIKRWVWUHDP
Z PDVVIORZUDWHRIFROGVWUHDP
& VSHFLILFKHDWRIKRWVWUHDP
F VSHFLILFKHDWRIFROGVWUHDP
LWIROORZVWKDW77WW ZF:&ZKLFKLVWKHKHDWFDSDFLW\UDWLRWKHUDWLRRIWKH
SURGXFWRIPDVVIORZUDWHDQGVSHFLILFKHDWRIWKHFROGVWUHDPWRWKDWRIWKHKRWVWUHDP
7KXV5LVWKHKHDWFDSDFLW\UDWLR6LVFDOOHGWKH³WKHUPDOHIIHFWLYHQHVV´
7KH )W FRUUHFWLRQ IDFWRU LV UHDG IURP 5 DQG 6 YDOXHV MXVW GHWHUPLQHG IURP WKH
DSSURSULDWH7(0$FKDUW
/HW XV FRQVLGHU WKH FDVH RI D VLQJOHSDVV VKHOO ZLWK WZR RU PRUH SDVVHV /HW WKH KRW
VWUHDPLQOHWDQGRXWOHWWHPSHUDWXUHVEHR)R&DQGR)R&DQGWKHFROGVWUHDP
LQOHW DQG RXWOHW WHPSHUDWXUHV EH R) R& DQG R) R& 7KXV FDOFXODWLQJ LQ
&HOVLXV
5 7²7W²W ²²   
DQG
 
 6 W²W7²W ²²   

(YLGHQWO\ WKH VDPH QXPEHUV ZLOO EH REWDLQHG LI WKH YDOXHV LQ GHJUHHV )DKUHQKHLW DUH
XVHG
1RZ UHIHUULQJ WR WKH 7(0$ )W FKDUW IRU D VLQJOHSDVV VKHOO UHSURGXFHG KHUH DV )LJ
DZHILQGWKDWIRU5 DQG6 )W 
6LQFH HDFK VLWXDWLRQ LV GLIIHUHQW DV IDU DV WKH GHWDLOHG WHPSHUDWXUH GLVWULEXWLRQ LV
FRQFHUQHG GLIIHUHQW )W FRUUHFWLRQ FKDUWV DUH SUHVHQWHG LQ WKH 7(0$ VWDQGDUGV IRU WKH
IROORZLQJFRQILJXUDWLRQV
 VKHOOSDVVHYHQQXPEHURIWXEHSDVVHV
 VKHOOSDVVHVRUPXOWLSOHRIWXEHSDVVHV
 VKHOOSDVVHVRUPRUHHYHQQXPEHURIWXEHSDVVHV
 VKHOOSDVVHVRUPRUHHYHQQXPEHURIWXEHSDVVHV
 VKHOOSDVVHVRUPRUHHYHQQXPEHURIWXEHSDVVHV
 VKHOOSDVVHVRUPRUHHYHQQXPEHURIWXEHSDVVHV
  VKHOO SDVV  WXEH SDVVHV  FRXQWHUFXUUHQW DQG  FRFXUUHQW FURVVIORZ VKHOO
WXEHSDVV
 GLYLGHGIORZVKHOOSDVV-VKHOOWXEHSDVV
 GLYLGHGIORZVKHOOSDVVHYHQQXPEHURIWXEHSDVVHV
VSOLWIORZVKHOO*VKHOOWXEHSDVVHV
VSOLWIORZVKHOORUPXOWLSOHRIWXEHSDVVHV
GRXEOHVSOLWIORZVKHOO+VKHOOWXEHSDVVHV
7KH)WFRUUHFWLRQIDFWRUFKDUWVIRUWKHILUVWWZRFRQILJXUDWLRQVDERYHDUHUHSURGXFHGIURP
WKH7(0$VWDQGDUGVDV)LJVDDQGEUHVSHFWLYHO\
7KH UHDGHU LV LQIRUPHG KHUH WKDW VLQFH WKH ILUVW HLJKW RI WKH DERYH 7(0$ FKDUWV DUH
VWUHDPV\PPHWULFWDQG7PD\EHWDNHQDVWKHFROGDQGKRWIOXLGWHPSHUDWXUHVUHVSHFWLYHO\
UHJDUGOHVVRIZKHWKHUWKH\IORZWKURXJKWKHVKHOOVLGHRUWXEHVLGH+RZHYHUWKHEDODQFHILYH
FKDUWVDUH QRQVWUHDP V\PPHWULFWKHUHIRUHWDQG7 PXVWEHWDNHQDVWKH WXEHVLGHDQGWKH
VKHOOVLGHIOXLGWHPSHUDWXUHVUHVSHFWLYHO\
,WZLOOEHQRWLFHGLQWKH)WIDFWRUFKDUWVWKDWWKHFXUYHVVWDUWUDWKHUIODWDWWKHXSSHUOHIW
KDQGFRUQHUDQGUDSLGO\ LQFUHDVH LQVORSHEHIRUH HQGLQJ XSDVVWHHSDOPRVW YHUWLFDO OLQHV
6LQFHWKHYHUWLFDOSRUWLRQUHSUHVHQWVDQDUHDRIXQFHUWDLQW\LWLVVWURQJO\UHFRPPHQGHGWKDW
VXFKDQ RSHUDWLQJSRLQW QRWEHDGRSWHG7KHUHPHG\ LVWR XVHDQ H[WUDVKHOO LQVHULHV)RU
H[DPSOHLI5 DQG6 LWLVH[WUHPHO\XQFHUWDLQZKDWWKH)WIDFWRUZLOOEHZLWKD
VLQJOHVKHOODVWKHSRLQWOLHVRQWKHYHUWLFDOSRUWLRQRIWKH5 OLQH,QWKLVVLWXDWLRQLIZH
ZHUH WR XVH WZR VKHOOV LQ VHULHV WKH )W IDFWRU LV GHWHUPLQHG IURP WKH FRUUHVSRQGLQJ FKDUW
)LJEDV
,W ZLOO QRWEH RXW RISODFH KHUHWRVWDWHWKDWVKRXOG RQH RIWKH VWUHDPVEH LVRWKHUPDO
WKHUHZLOOEHQRFRUUHFWLRQIDFWRULQRWKHUZRUGV)W ,IERWKWKHVWUHDPVDUHLVRWKHUPDO
RQHFRQGHQVLQJDQGWKHRWKHUYDSRUL]LQJWKH/07'ZLOOVLPSO\EHHTXDOWRWKHDULWKPHWLF
GLIIHUHQFHEHWZHHQWKHWZRWHPSHUDWXUHV
$V UHJDUGV WKH WHPSHUDWXUH DSSURDFK EHWZHHQ WKH KRW DQG WKH FROG VWUHDPV WKH
IROORZLQJJXLGHOLQHVPD\EHFRQVLGHUHG
 ,QVHQVLEOHKHDWWUDQVIHUDQGFRQGHQVLQJWKHUHLVQROLPLWWRWKHWHPSHUDWXUHDS
SURDFKHLWKHUORZHURUKLJKHU²LWRQO\KDVWREHDSRVLWLYHYDOXH+RZHYHUFRQ
 
 VLGHULQJWKDWWKHUHTXLUHGKHDWWUDQVIHUDUHDLVLQYHUVHO\SURSRUWLRQDOWRWKH07'
DPLQLPXPWHPSHUDWXUHRIƒ&RUƒ&LVUHFRPPHQGHG
 ,QERLOLQJKHDWWUDQVIHUKRZHYHUWKHKHDWWUDQVIHUFRHIILFLHQWLVDIXQFWLRQRIWKH
WHPSHUDWXUHGLIIHUHQFHDFURVVWKHERLOLQJILOP$YHU\ORZWHPSHUDWXUHGLIIHUHQFH
VD\ ²ƒ& PD\ LQKLELW QXFOHDWH ERLOLQJ ZKHUHDV D YHU\ KLJK WHPSHUDWXUH
GLIIHUHQFH PD\ \LHOG ILOP ERLOLQJ 7KLV PDWWHU ZLOO EH GLVFXVVHG LQ GHWDLO LQ
&KDSWHU

7HPSHUDWXUH&URVV
$QLPSRUWDQWOLPLWDWLRQIRU²VKHOOVRQHVKHOOSDVVDQGRUPRUHWXEHSDVVHVLVWKDW
WKHRXWOHWWHPSHUDWXUHRIWKHFROGVWUHDPFDQQRWEHJUHDWHUWKDQWKHRXWOHWWHPSHUDWXUHRI
WKHKRWVWUHDP7KLVLVEHFDXVHRIWKHSUHVHQFHRIRQHRUPRUHFRFXUUHQWSDVVHV,QDFWXDO
WHUPV D YHU\ VPDOO WHPSHUDWXUH FURVV LV SRVVLEOH EXW VLQFH WKLV UHSUHVHQWV DQ DUHD RI
XQFHUWDLQW\ DQG WKH FUHGLW LV YHU\ VPDOO LW LV XVXDOO\ LJQRUHG DQG WKH HTXDO RXWOHW
WHPSHUDWXUHFRQGLWLRQUHVSHFWHG


)LJ D /07' FRUUHFWLRQ IDFWRU IRU RQH VKHOO SDVV DQG HYHQ QXPEHU RI WXEH SDVVHV 5HSULQWHG ZLWK
SHUPLVVLRQIURP6WDQGDUGVRI7(0$WK(GLWLRQ

 
 :KHQWKHUHLVDWHPSHUDWXUHFURVVPXOWLSOHVKHOOVLQVHULHVDUHUHTXLUHGWREHHPSOR\HG
LISXUHFRXQWHUFXUUHQWIORZFDQQRWEHUHDOL]HG7KHPRGDOLWLHVRIWKLVDUHGLVFXVVHGLQGHWDLO
LQ6HFWLRQ
$Q)VKHOOKDVVKHOOSDVVHVVRLIWKHUHDUHWXEHSDVVHVDVZHOOLWUHSUHVHQWVDSXUH
FRXQWHUFXUUHQWIORZVLWXDWLRQSURYLGHGWKHGLUHFWLRQVRIWKHIORZSDWKVDUHVHOHFWHGSURSHUO\
+RZHYHU LI DQ ) VKHOO KDV  RU PRUH WXEH SDVVHV LW LV QR ORQJHU D WUXH FRXQWHUFXUUHQW
VLWXDWLRQDQGFRQVHTXHQWO\WKH)WFRUUHFWLRQKDVWREHDSSOLHG$Q)VKHOOKDYLQJRUPRUH
WXEHSDVVHVLVUHSUHVHQWHGDVD²VKHOO7KH)WIDFWRUIRUD²VKHOOLVLGHQWLFDOWRWKDWIRU
WZR²VKHOOVLQVHULHVRUVKHOOSDVVHVLQ7(0$SDUODQFH
7KH7(0$)WIDFWRUFKDUWIRUVKHOOSDVVHVUHDOO\UHSUHVHQWVVKHOOVLQVHULHVWKDWIRU
VKHOOSDVVHVVKHOOVLQVHULHVDQGVRRQ

+HDW5HOHDVH3URILOHVDQG=RQH:LVH&DOFXODWLRQV
$Q LPSRUWDQW SRLQW WR QRWH KHUH LV WKDW WKH /07' DQG )W IDFWRU FRQFHSW DVVXPHV WKDW
WKHUHLVQRVLJQLILFDQWYDULDWLRQLQWKHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWDORQJWKHOHQJWKRI


)LJE/07'FRUUHFWLRQIDFWRUIRUWZRVKHOOSDVVHVDQGIRXURUPXOWLSOHRIIRXUWXEHSDVVHV5HSULQWHG
ZLWKSHUPLVVLRQIURP6WDQGDUGVRI7(0$WK(GLWLRQ

 
WKHVKHOO+RZHYHUWKHUHDUHVRPHVHUYLFHVZKHUHWKLVLVQRWWUXHHJWKHFRROLQJRID
YLVFRXV OLTXLG $V WKH OLTXLG LV FRROHG LWV YLVFRVLW\ LQFUHDVHV DQG WKLV UHVXOWV LQ D
SURJUHVVLYHUHGXFWLRQLQWKHVKHOOVLGHKHDWWUDQVIHUFRHIILFLHQW+HUHWKHVLPSOLVWLFRYHUDOO
07'DSSURDFK ZLOOEH LQDFFXUDWH7KH H[FKDQJHU PXVWEHEURNHQLQWRVHYHUDOVHFWLRQV
DQG WKH FDOFXODWLRQV SHUIRUPHG ]RQHZLVH ,Q IDFW FRPPHUFLDO VRIWZDUH SDFNDJHV
SUHVHQWO\DYDLODEOHFDUU\RXWVXFKGHWDLOHG]RQHZLVHFDOFXODWLRQV
1RZ FRQVLGHU WKH FDVH RI D FRQGHQVHU ZKHUHLQ D PL[WXUH RI K\GURFDUERQV LV EHLQJ
FRQGHQVHGRYHUDWHPSHUDWXUHUDQJH,IDSORWLVPDGH RIWKHYDULDWLRQRIKHDWGXW\YHUVXV
WHPSHUDWXUHLWLVXVXDOO\IRXQGWREHDFXUYHVXFKDVVKRZQLQ)LJ7KLVLVEHFDXVHPRUH
YDSRUV DUH FRQGHQVHG DW WKH KLJKHU
WHPSHUDWXUHV WKDQ DW WKH ORZHU WHP
SHUDWXUHVWKHUHE\UHVXOWLQJLQKLJKHU
KHDW GXWLHV EHLQJ WUDQVIHUUHG DW WKH
KLJKHU WHPSHUDWXUHV 6XFK D SORW RI
KHDWGXW\YHUVXVWHPSHUDWXUHLVFDOOHG
DKHDWUHOHDVHSURILOH(YLGHQWO\WKH
FDOFXODWLRQV ZLOO KDYH WR EH EURNHQ
LQWR VHYHUDO ]RQHV 7KH QXPEHU RI
]RQHVZLOOGHSHQGXSRQWKHYDULDWLRQ
RI WKH VORSH RI WKH KHDW UHOHDVH
)LJ7\SLFDOKHDWUHOHDVHSURILOHIRUFRQGHQVHU SURILOH7KH KLJKHUWKH YDULDWLRQWKH
ODUJHU ZLOO EH WKH QXPEHU RI ]RQHV
7KH KHDWUHOHDVH SURILOH ZLOO KDYHWR
EH EURNHQ LQWR D VXIILFLHQWO\ ODUJH
QXPEHURI]RQHVVXFKWKDWWKHSURILOH
LV HVVHQWLDOO\ OLQHDU LQ HDFK RI WKHVH
]RQHV 7KLV LV UHSUHVHQWHG LQ )LJV
DDQGEZKHUHLQLWZLOOEHVHHQ
WKDWDVPDOOHUQXPEHURI]RQHVWZR
$%DQG$&ZLOOVXIILFHLQ)LJD
EXW D ODUJHU QXPEHU RI ]RQHV IRXU
)LJD6SOLWWLQJDKHDWUHOHDVHFXUYHLQWRDVPDOOQXPEHURI
HVVHQWLDOO\OLQHDU]RQHV
$% %& &' DQG '( ZLOO EH
UHTXLUHGLQ)LJE
,Q WKH FDVH RI OLTXLGV DQG JDVHV
FRROHG E\ ZDWHU WKH 07' XVXDOO\
GHFUHDVHVIURPLQOHWWRRXWOHW7KLVLV
EHFDXVH WKH KRW HQG WHUPLQDO WHP
SHUDWXUH GLIIHUHQFH LV DOPRVW DOZD\V
KLJKHUWKDQWKDWDWWKHFROGHQGDVWKH
WHPSHUDWXUH GURS RI WKH KRW IOXLG LV
LQYDULDEO\ JUHDWHU WKDQ WKH WHPSHUD
WXUH ULVH RI FRROLQJ ZDWHU &RQVL
GHULQJDW\SLFDOOLTXLGFRROHUZKHUHLQ
WKH OLTXLG LV WR EH FRROHG IURP VD\
ƒ) ƒ& WR ƒ) ƒ& E\
FRROLQJ ZDWHU >LQOHWRXWOHW WHPSHUD
WXUH ƒ) ƒ& LW ZLOO EH
)LJE6SOLWWLQJDKHDWUHOHDVHFXUYHLQWRDODUJHQXPEHURI VHHQ WKDW WKH WHPSHUDWXUH GLIIHUHQFH
HVVHQWLDOO\OLQHDU]RQHV
 
DWWKHKRWHQGLV²RUƒ)>²RUƒ&@ZKHUHDVWKDWDWWKHFROGHQGLV
²RUƒ)>²RUƒ&@$VDFRQVHTXHQFHWKH07'LVKLJKHUDWWKHKRWHQGDQG
ORZHUDWWKHFROGHQG
,QWKHFDVHRIDYLVFRXVOLTXLGFRROHUWKHKHDWWUDQVIHUFRHIILFLHQWLVDOVRKLJKHUDWWKHKRW
HQGGXHWRWKHORZHUYLVFRVLW\RIWKHKRWOLTXLG7KXVERWKWKH07'DQGWKHKHDWWUDQVIHU
FRHIILFLHQWUHGXFH IURPWKH H[FKDQJHU LQOHWWRWKH RXWOHW&RQVHTXHQWO\IRUD JLYHQ OHQJWK
LQFUHPHQWWKHKHDWGXW\WUDQVIHUUHGLVPXFKKLJKHUDWWKHKRWHQGDQGPXFKORZHUDWWKHFROG
HQGVRWKDWLWLVQRWXQFRPPRQIRUWKHODVWKHDWGXW\WRUHTXLUHRUHYHQPRUHRI
WKHWRWDOKHDWWUDQVIHUVXUIDFH

7HPSHUDWXUH3URILOH'LVWRUWLRQ
$QLPSRUWDQWIDFWRUWKDWKDVQRWEHHQFRQVLGHUHGVRIDULVWKHWHPSHUDWXUHSURILOHGLVWRU
WLRQFRUUHFWLRQIDFWRU,WZDVGLVFXVVHGLQ&KDSWHUWKDWWKHUHLVQRWMXVWRQHIORZVWUHDP
RQWKHVKHOOVLGHEXWRQHPDLQFURVVIORZVWUHDPDQGIRXUOHDNDJHE\SDVVVWUHDPVVHH)LJ
D7KH OHDNDJHDQGE\SDVVVWUHDPVDUH OHVV HIILFLHQWIRU KHDWWUDQVIHUWKDQWKH PDLQ
FURVVIORZ VWUHDP ,Q IDFW WKH EDIIOHWRVKHOO OHDNDJH VWUHDP LV WRWDOO\ LQHIIHFWLYH DV LW
FRPSOHWHO\E\SDVVHVWKHKHDWWUDQVIHUVXUIDFHDQGWKHUHIRUHGRHVQRWHQWHUWKHKHDWWUDQV
IHUSURFHVVDWDOOFRQVHTXHQWO\LWVWHPSHUDWXUHSURILOHLVKRUL]RQWDO,WLVIRUWKLVUHDVRQ
WKDWWKLVVWUHDPLVWKHPRVWGHWULPHQWDOIRUKHDWWUDQVIHU,WLVOLNHDPHPEHURIDWHDPWKDW
UHIXVHV WR GR DQ\ ZRUN WKHUHE\ LQFUHDVLQJ WKH ORDG RQ WKH RWKHU PHPEHUV 7KH RWKHU
VWUHDPVDUHQRWDVHIILFLHQWDVWKHPDLQFURVVIORZVWUHDPEXWWKH\GRVRPHXVHIXOZRUN
&RQVLGHUDFDVHZKHUHWKHFROGIOXLGIORZVWKURXJKWKHVKHOOVLGH$VWKHPDLQFURVVIORZ
VWUHDPHQFRXQWHUVDYHU\ODUJHIUDFWLRQRIWKHWRWDOKHDWWUDQVIHUVXUIDFHLWSLFNVXSDYHU\
ODUJH SDUW RI WKH WRWDO KHDW GXW\ 7R LOOXVWUDWH WKLV PRUH YLYLGO\ DVVXPH WKDW WKH PDLQ
FURVVIORZVWUHDPLVRIWKHWRWDOVKHOOVLGHVWUHDPEXWWKDWLWHQFRXQWHUVRIWKHWRWDO
QXPEHU RI WXEHV $V D FRQVHTXHQFH LWV WHPSHUDWXUH ULVHV PRUH UDSLGO\ WKDQ LI WKH HQWLUH
VKHOOVLGHVWUHDPZHUHWRSLFNXSWKHHQWLUHKHDWGXW\7KHUHIRUHLWVWHPSHUDWXUHSURILOHZLOO
EHVWHHSHUWKDQWKDWRIWKHWRWDOVWUHDPDSSDUHQWWHPSHUDWXUHSURILOHZLWKRXWFRQVLGHULQJWKH
YDULRXVIORZIUDFWLRQVVHH)LJ
7KH WHPSHUDWXUH SURILOHV RI WKH WXEHEDIIOH KROH EXQGOHVKHOO DQG WKH SDVVSDUWLWLRQ
OHDNDJHE\SDVVVWUHDPV ZLOO GHSHQGXSRQWKHLUUHVSHFWLYH IORZ IUDFWLRQVDQGWKH IUDFWLRQDO
KHDWWUDQVIHUDUHDHQFRXQWHUHG+RZHYHUVLQFHWKHEDIIOHVKHOOOHDNDJHVWUHDPYLUWXDOO\GRHV
QRWH[SHULHQFHDQ\KHDWWUDQVIHUWKHRWKHUIRXUVWUHDPVKDYHWRSLFNXSWKHHQWLUHKHDWGXW\
7KHUHIRUH WKLV FRPELQHG
VWUHDP ZLOO KDYH D WHP
SHUDWXUH SURILOH VWHHSHU
WKDQ WKDW RI WKH DSSDUHQW
VWUHDP &RQVHTXHQWO\ WKH
WHPSHUDWXUH GLIIHUHQFH EH
WZHHQWKHKRWDQGWKHFROG
VWUHDPV ZLOO EH ORZHU DOO
DORQJ WKH OHQJWK RI WKH
KHDW H[FKDQJHU WKHUHE\
UHVXOWLQJ LQ WKH UHGXFWLRQ
RI WKH 07' 7KLV UHGXF
WLRQLQWKH07'LVNQRZQ
DV WKH WHPSHUDWXUH SURILOH )LJ 7HPSHUDWXUH SURILOH GLVWRUWLRQ GXH WR E\SDVVLQJ DQG OHDNDJH
GLVWRUWLRQ FRUUHFWLRQ IDF &RXUWHV\RI+75,

 
WRU7KH07'LVPXOWLSOLHGE\WKLVFRUUHFWLRQIDFWRUWRREWDLQWKHHIIHFWLYH07'
7KHWHPSHUDWXUHSURILOHRIWKHPDLQFURVVIORZVWUHDPZLOOQRWEHDVWHDG\FRQWLQXRXV
FXUYH DV WKH YDULRXV IORZ VWUHDPV UHPL[ LQ WKH ZLQGRZ UHJLRQ DQG DJDLQ VHSDUDWH DV
FURVVIORZ UHFRPPHQFHV $V IDU DV WKH WXEHEDIIOH KROH OHDNDJH VWUHDP LV FRQFHUQHG LW
VHSDUDWHVIURPWKHPDLQFURVVIORZVWUHDPDQGUHPL[HVZLWKLWLQDFRPSOH[IDVKLRQVHH)LJ
D ,W ZLOO EH HDV\ WR XQGHUVWDQG WKDW VLQFH WKH VKHOOVLGH VWUHDPV VHSDUDWH DQG UHPL[
UHSHDWHGO\DOODORQJWKHOHQJWKRIWKHH[FKDQJHUWKHGHWHUPLQDWLRQRIWKHDFWXDOWHPSHUDWXUH
SURILOHRIWKHYDULRXVVWUHDPVLVH[WUHPHO\FRPSOLFDWHG7KXVDVRSKLVWLFDWHGDQGSRZHUIXO
FRPSXWHUSURJUDPLVUHTXLUHGWRKDQGOHWKLVVLWXDWLRQDQGGHWHUPLQHWKHWHPSHUDWXUHSURILOH
GLVWRUWLRQFRUUHFWLRQIDFWRU
7KHWHPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQIDFWRULVPRUHSURQRXQFHGZKHQ
L WKH OHDNDJHE\SDVV VWUHDPV DUH KLJK HVSHFLDOO\ WKH EDIIOHWRVKHOO OHDNDJH
VWUHDP²WKLVLVHDV\WRXQGHUVWDQGDVWKHJUHDWHUWKHVHVWUHDPVWKHPRUHGLVWRUWHG
ZLOOEHWKHDFWXDORUQHWWHPSHUDWXUHSURILOHDQG
LL WKHUDWLR RIVKHOOVLGHWHPSHUDWXUHGLIIHUHQFH WKDW LVWKH GLIIHUHQFHEHWZHHQWKH
VKHOOVLGHLQOHWDQGRXWOHWWHPSHUDWXUHVWRWKHWHPSHUDWXUHDSSURDFKEHWZHHQWKH
KRWDQGFROGVWUHDPVDWWKHVKHOO RXWOHWLV KLJK,QRWKHUZRUGVDKLJKVKHOOVLGH
WHPSHUDWXUHGLIIHUHQFHDQGDORZWHPSHUDWXUHDSSURDFKDWWKHVKHOORXWOHWWHQGWR
UHVXOWLQDORZWHPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQIDFWRU
,QRUGHUWRXQGHUVWDQGWKHDERYHSKHQRPHQRQOHWXVGLVFXVVWKHPDWWHULQPRUHGHWDLO,Q
WKH IROORZLQJ GLVFXVVLRQ WKH IRXU VWUHDPV EDUULQJ WKH LQHIIHFWLYH ( VWUHDP ZLOO EH
FRQVLGHUHGWRJHWKHUDVDQHWRUHIIHFWLYHVWUHDPIRUHDVHRIFRPSUHKHQVLRQ:KHQHYHUZH
WDONRIWKHGLVWRUWHGVKHOOVLGHVWUHDPLWLVWKLVQHWVWUHDP
7KH ODUJHU WKH VKHOOVLGH WHPSHUDWXUH GLIIHUHQFH WKH JUHDWHU ZLOO EH WKH H[WHQW RI
WHPSHUDWXUH SURILOH GLVWRUWLRQ DV VKRZQ LQ )LJ  ,I WKH VKHOOVLGH WHPSHUDWXUH SURILOH LV
UHSUHVHQWHG E\ $% LW PD\ GLVWRUW WR $' VR WKDW %' LV WKH GLVWRUWLRQ +RZHYHU LI WKH
VKHOOVLGH WHPSHUDWXUH LV UHSUHVHQWHG E\ $& LW ZLOO GLVWRUW WR $( VR WKDW &( ZLOO EH WKH
GLVWRUWLRQ(YLGHQWO\&(ZLOOEHJUHDWHUWKDQ%'2QFHWKLVGLVWRUWLRQEHJLQVLWJHWVJUHDWHU
DQGJUHDWHUWKHORQJHULWLVDOORZHGWRSURFHHG+HQFHWKHJUHDWHUWKHVKHOOVLGHWHPSHUDWXUH
GLIIHUHQFHWKHJUHDWHUWKHGLVWRUWLRQ

)LJ  9DULDWLRQ RI WHPSHUDWXUH SURILOH GLVWRUWLRQ )LJ D 7HPSHUDWXUH SURILOH GLVWRUWLRQ LQ ODUJH
FRUUHFWLRQIDFWRU GHOWDWVDQGODUJHGHOWDWVRVLWXDWLRQ

 
 1RZ DOVR FRQVLGHU D WXEHVLGH WHPSHUDWXUH SURILOH *+ FRUUHVSRQGLQJ WR $% RU )+
FRUUHVSRQGLQJWR$&:KHQWKHVKHOOVLGHWHPSHUDWXUHSURILOHLV$%DQGGLVWRUWVWR$'DQG
WKHWXEHVLGHWHPSHUDWXUHSURILOHLV*+WKHUHGXFWLRQLQWKH07'LVQRWDSSUHFLDEOHDV'*LV
QRWPXFKOHVVWKDQ%*+RZHYHULIWKHVKHOOVLGHWHPSHUDWXUHSURILOHLV$&DQGGLVWRUWVWR
$( DQG WKH WXEHVLGH WHPSHUDWXUH SURILOH LV )+ LW ZLOO EH VHHQ WKDW WKHUH ZLOO EH DQ
DSSUHFLDEOHUHGXFWLRQLQWKH07'DV()LVFRQVLGHUDEO\OHVVWKDQ&)
,QRUGHUWRXQGHUVWDQGWKLVHYHQEHWWHUFRQVLGHUWKHSORWVLQ)LJVDEDQGF,Q
DOOWKHVHFDVHVWKHKRWVWUHDPLVRQWKHVKHOOVLGH)XUWKHUGHOWDWVUHSUHVHQWVWKHGLIIHUHQFH
EHWZHHQWKHVKHOOVLGH LQOHWDQG RXWOHWWHPSHUDWXUHVDQG GHOWDWVRUHSUHVHQWVWKHWHPSHUDWXUH
GLIIHUHQFHEHWZHHQWKHVKHOOVLGHDQGWKHWXEHVLGHVWUHDPVDWWKHVKHOORXWOHW
)LJXUHDUHSUHVHQWVDODUJHGHOWDWVDQGDODUJHGHOWDWVR'XHWRWKHODUJHGURSLQWKH
VKHOOVLGHWHPSHUDWXUHWKHWHPSHUDWXUHSURILOHGLVWRUWVDSSUHFLDEO\+RZHYHUVLQFHWKHWHP
SHUDWXUH GLIIHUHQFH EHWZHHQ WKH VKHOOVLGH DQG WXEHVLGH VWUHDPV DW WKH VKHOO RXWOHW LV UDWKHU
ODUJHWKHUHGXFWLRQLQWKHWHPSHUDWXUHGLIIHUHQFHDWWKLVWHUPLQDODQGKHQFHWKH07'LVQRW
FRQVLGHUDEOH
)LJXUHEUHSUHVHQWVDODUJHGHOWDWVDQGDVPDOOGHOWDWVR,WZLOOEHVHHQKHUHWKDWGXH
WRWKHIDLUO\ODUJHGLVWRUWLRQRIWKHVKHOOVLGHWHPSHUDWXUHSURILOHDQGWKHVPDOODSSURDFKDWWKH
VKHOO RXWOHW WKHUH ZLOO EHD YHU\VKDUSUHGXFWLRQ LQ WKHWHPSHUDWXUH GLIIHUHQFHDWWKH VKHOO
RXWOHWDQGWKHUHE\WKH07'
)LJXUHFUHSUHVHQWVDVPDOOGHOWDWVDQGDVPDOOGHOWDWVR,WZLOOEHVHHQKHUHWKDWGXH
WR WKH IDLUO\ VPDOO GLVWRUWLRQ RI WKH VKHOOVLGH WHPSHUDWXUH SURILOH WKHUH ZLOO QRW EH D YHU\
VKDUSUHGXFWLRQLQWKHWHPSHUDWXUHGLIIHUHQFHDWWKHVKHOORXWOHWHYHQWKRXJKWKHWHPSHUDWXUH
DSSURDFKLVIDLUO\VPDOO&RQVHTXHQWO\WKHUHGXFWLRQLQWKH07'ZLOOQRWEHDSSUHFLDEOH
,W LV QRZ XQGHUVWRRG ZK\ ERWK D KLJK VKHOOVLGH WHPSHUDWXUH GLIIHUHQFH DQG D ORZ
WHPSHUDWXUHDSSURDFKDWWKHVKHOO RXWOHWDUHUHTXLUHGWRSURGXFHD ORZWHPSHUDWXUH SURILOH
GLVWRUWLRQFRUUHFWLRQIDFWRU)XUWKHUDKLJKYLVFRVLW\RIWKHVKHOOVLGHIOXLGDQGDODUJHVKHOO
GLDPHWHUZLWKDFRUUHVSRQGLQJODUJHEDIIOHVKHOOFOHDUDQFHZLOO\LHOGDQDSSUHFLDEO\KLJK(
VWUHDPWKHUHE\FDXVLQJDPRUHVHYHUHWHPSHUDWXUHSURILOHGLVWRUWLRQ7KXVDYLVFRXVOLTXLG
FRROHUEHLQJFRROHGWKURXJKDODUJHWHPSHUDWXUHUDQJHLQDODUJHGLDPHWHUKHDWH[FKDQJHULV
DSULPHFDQGLGDWHIRUDVHYHUHWHPSHUDWXUHSURILOHGLVWRUWLRQ9DFXXPUHVLGXHEHLQJFRROHG
IURPƒ)ƒ&WRƒ)ƒ&E\WHPSHUHGZDWHUJHWWLQJKHDWHGIURPƒ)ƒ&

)LJ E 7HPSHUDWXUH SURILOH GLVWRUWLRQ LQ ODUJH )LJ F 7HPSHUDWXUH SURILOH GLVWRUWLRQ LQ VPDOO
GHOWDWVDQGVPDOOGHOWDWVRVLWXDWLRQ GHOWDWVDQGVPDOOGHOWDWVRVLWXDWLRQ

 
WRƒ)ƒ&LVVXFKDQH[DPSOH
7KH OHDNDJHE\SDVV VWUHDPV WHQG WR EH KLJK ZKHQ WKH VKHOOVLGH YLVFRVLW\ LV KLJK DQG
ZKHQWKHEDIIOHVSDFLQJLVVPDOO7KHODWWHUZDVH[SODLQHGLQ6HFWLRQDQGGHPRQVWUDWHG
LQ&DVH6WXG\7KXVFDUHKDVWREHH[HUFLVHGLQWKHGHVLJQRIYLVFRXVOLTXLGFRROHUV
7KH PLQLPXP UHFRPPHQGHG WHPSHUDWXUH SURILOH GLVWRUWLRQ FRUUHFWLRQ IDFWRU LV 
EHORZ ZKLFK WKH XVH RI WZR RU PRUH VKHOOV LQ VHULHV VKRXOG EH HPSOR\HG 7KH DEVROXWH
PLQLPXP LV  EHORZ ZKLFK WKH YHU\ PHWKRGRORJ\ WR GHWHUPLQH WKLV FRUUHFWLRQ IDFWRU
EHFRPHV VXVSHFW )XUWKHU WKLV IDFWRU UHSUHVHQWV D GLUHFW ORVV LQ 07' WKHUHE\ UHTXLULQJ D
FRUUHVSRQGLQJLQFUHDVHLQWKHKHDWWUDQVIHUDUHD+HQFHLWZLOOEHZRUWKZKLOHWRLQFUHDVHWKH
VDPHWRRUPRUHZKHQWKHWRWDOKHDWWUDQVIHUDUHDZLOOUHGXFHVXEVWDQWLDOO\
%\ XVLQJ PXOWLSOH VKHOOV LQ VHULHV WKH UDWLR RI VKHOOVLGH WHPSHUDWXUH GLIIHUHQFH WR WKH
WHPSHUDWXUHDSSURDFKDWWKHVKHOORXWOHWLVUHGXFHG7KHPL[LQJRIWKHPDLQFURVVIORZVWUHDP
ZLWKWKH E\SDVVDQG OHDNDJH VWUHDPV LQFOXGLQJ WKH (VWUHDPDIWHU HDFKVKHOOUHGXFHVWKH
SHQDOW\GXHWRWKHGLVWRUWLRQRIWKHWHPSHUDWXUHSURILOHDQGKHQFHLQFUHDVHVWKHWHPSHUDWXUH
SURILOH GLVWRUWLRQ FRUUHFWLRQ IDFWRU7KLV LVVKRZQ JUDSKLFDOO\ LQ)LJ,QDVLQJOHVKHOO
GHVLJQ WKH VKHOOVLGH WHPSHUDWXUH SURILOH ZLOO GLVWRUW IURP $% WR $( UHSUHVHQWLQJ DQ
DSSUHFLDEOHUHGXFWLRQ LQWKH 07'+RZHYHU LIDWZRVKHOOVLQVHULHV GHVLJQ LV HPSOR\HG
WKHVKHOOVLGHWHPSHUDWXUHSURILOHZLOOGLVWRUWWR$'DWWKHHQGRIVKHOO$WWKLVSRLQWDOOWKH
VKHOOVLGH VWUHDPV ZLOO UHPL[ DQG WKH WHPSHUDWXUH ZLOO ULVH WR ) ,Q VKHOO  WKH VKHOOVLGH
WHPSHUDWXUHSURILOHZLOOGLVWRUWWR)*7KXVWKHUHZLOOEHDQLQFUHDVHLQWKHRYHUDOO07'LQ
WKHWZRVKHOOGHVLJQFRUUHVSRQGLQJWRWKHDUHD)*('
$QRWKHU YHU\ LPSRUWDQW JDLQ ZLWK WKH XVH RI PXOWLSOH VKHOOV LQ VHULHV LV WKDW ZLWK D
VPDOOHUVKHOOGLDPHWHUWKHEDIIOHVSDFLQJFDQEHUHGXFHGVXEVWDQWLDOO\7KHFRPELQDWLRQRI
VPDOOHUVKHOOGLDPHWHUDQGFORVHUEDIIOHVSDFLQJLQFUHDVHVWKHVKHOOVLGHYHORFLW\DQGWKHUHE\
WKH VKHOOVLGH KHDW WUDQVIHU FRHIILFLHQW FRQVLGHUDEO\ 7KXV QRW RQO\ WKH 07' EXW DOVR WKH
RYHUDOOKHDWWUDQVIHUFRHIILFLHQWLQFUHDVHVDSSUHFLDEO\WKHUHE\UHVXOWLQJLQDPDMRUUHGXFWLRQ
LQWKHWRWDOKHDWWUDQVIHUDUHD
,Q PDQ\ VLWXDWLRQV D WHPSHUDWXUH SURILOH GLVWRUWLRQ FRUUHFWLRQ IDFWRU LV XQDYRLGDEOH
VXFK DV ZKHQ FRROLQJ D YLVFRXV OLTXLG RYHU D ODUJH WHPSHUDWXUH UDQJH DQG WKHUH LV QR
DOWHUQDWLYH WR WKH XVH RI PXOWLSOH VKHOOV LQ
VHULHV +RZHYHU LQ PDQ\ RWKHU VLWXDWLRQV
LPSURSHU EDIIOH VSDFLQJ XQQHFHVVDULO\
LPSRVHV VXFK D SHQDOW\ ZKHUH LW LV HDVLO\
DYRLGDEOH'HVLJQHUVQRUPDOO\WHQGWRSDFNLQ
EDIIOHV DV FORVH DV SRVVLEOH WR JHW WKH
PD[LPXP VKHOOVLGH KHDW WUDQVIHU FRHIILFLHQW
SUHVVXUHGURSSHUPLWWLQJ,QPDQ\VXFKFDVHV
WKH XVH RID VRPHZKDW KLJKHU EDIIOHVSDFLQJ
ZLOOUHGXFHWKHEDIIOHWRVKHOOOHDNDJHVWUHDP
)LJ  ,PSURYHPHQW LQ WHPSHUDWXUH SURILOH
GLVWRUWLRQ FRUUHFWLRQ IDFWRU E\ WKH XVH RI PXOWLSOH LQVLGHGLDPHWHU2IWHQDQHYHQKLJKHUEDIIOH
VKHOOVLQVHULHV
 
WKHSULQFLSDOFXOSULWDQGKHQFHLPSURYHWKH
07' SHQDOW\ IDFWRU DSSUHFLDEO\ WKHUHE\
SURGXFLQJD PXFK EHWWHU GHVLJQ7KLVDXWKRU
KDV VHHQ QXPHURXV RWKHUZLVH JRRG GHVLJQV
WDUQLVKHG E\ D YHU\ ORZ EDIIOH VSDFLQJ DQG
ZRXOG OLNH WR VWURQJO\ UHFRPPHQG D
PLQLPXPEDIIOHVSDFLQJ RI RIWKHVKHOO
VSDFLQJLVVWURQJO\LQGLFDWHGE\WKHSHQDOWLHV
 7DEOHD'HWDLOHGUHVXOWVRIWKHYDULRXVLWHUDWLRQVIRU&DVH6WXG\
WZRVKHOOVLQVHULHVGHVLJQ
 %DIIOHVSDFLQJLQPP
  
 %DIIOHWRWXEH   

6WUHDP 0DLQFURVVIORZ   
IUDFWLRQV
%XQGOHVKHOO   
%DIIOHVKHOO   

3DVVSDUWLWLRQ   

7HPSHUDWXUHSURILOHGLVWRUWLRQ   
FRUUHFWLRQIDFWRU
 9HORFLW\FURVVZLQGRZ   
 IWVPV   

6KHOOVLGH +HDWWUDQVIHUFRHIILFLHQW
  
%WXKIWƒ)NFDOKPƒ&

3UHVVXUHGURSSVLNJFP   

2YHUDOOKHDWWUDQVIHUFRHIILFLHQW%WXK
  
IWƒ)NFDOKPƒ&

07'ƒ)ƒ&   

2YHUGHVLJQ   

RIEDIIOHWRVKHOOOHDNDJHVWUHDPDQGWKHWHPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQIDFWRU

&$6(678'<+2:$7(03(5$785(352),/(',67257,21
352%/(0,6%(77(5+$1'/('%<7:26+(//6,16(5,(6
/HWXVUHIHUWR&DVH6WXG\SUHVHQWHGLQ&KDSWHU7KHHIIHFWRIEDIIOHVSDFLQJXSRQ
VWUHDP DQDO\VLV DQG WHPSHUDWXUH SURILOH GLVWRUWLRQ FRUUHFWLRQ IDFWRU ZDV EURXJKW RXW LQ
WKDWVWXG\7KHVKHOOVLGHWHPSHUDWXUHGLIIHUHQFHZDV²RUƒ&7KHWHPSHUDWXUH
DSSURDFKDWWKHVKHOO RXWOHW ZDV²RUƒ&7KXVWKHUDWLRRIWKH IRUPHUWRWKH
ODWWHU ZDV    ZKLFK LV PRGHUDWHO\ KLJK VR WKDW WKH WHPSHUDWXUH SURILOH
GLVWRUWLRQFRUUHFWLRQIDFWRUZRXOGEHH[SHFWHGWREHVRPHZKDWORZ,QGHHGUHIHUULQJWR
7DEOH F LW LV VHHQ WKDW WKH WHPSHUDWXUH SURILOH GLVWRUWLRQ FRUUHFWLRQ IDFWRU ZDV
VRPHZKDWORZLQFUHDVLQJSURJUHVVLYHO\IURPWRZLWKWKHLQFUHDVHLQEDIIOH
VSDFLQJIURPLQPPWRLQPP
1RZOHWXVVHHZKDWKDSSHQVLIWZRVKHOOVDUHXVHGLQVHULHVLQVWHDGRIRQH6LQFHWKH
KHDW WUDQVIHU DUHD ZLOO GRXEOH LI DQ LGHQWLFDO FRQVWUXFWLRQ LV XVHG OHW XV UHGXFH WKH WXEH
OHQJWKIURPIWPPWRIWPPVRWKDWWKHWRWDOWXEHOHQJWKDQGWKH
RYHUDOOKHDWWUDQVIHUDUHDUHPDLQWKHVDPH$QRWKHUSRVVLELOLW\LVWRUHGXFHWKHQXPEHURI
WXEHVLQHDFKVKHOOWRKDOIEXWWKLVZLOOHQWDLODFKDQJHLQWKHVKHOOGLDPHWHULWVHOIDQGZLOO
WKHUHE\ QRW HQDEOH D SURSHU FRPSDULVRQ WR EH PDGH EHWZHHQ RQH VKHOO DQG WZR VKHOOV LQ
VHULHV

 
 7DEOHE&RPSDULVRQRIWHPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQIDFWRU
EHWZHHQRQHVKHOODQGWZRVKHOOVLQVHULHV&DVH6WXGLHVDQG
 %DIIOHVSDFLQJPP
  
&DVH6WXG\6LQJOHVKHOO   
&DVH6WXG\7ZRVKHOOVLQVHULHV   

&HQWUDOEDIIOHVSDFLQJ RI LQ PP LQ  PPDQG LQ  PP
KDYHEHHQ HPSOR\HG 'XHWRVPDOO WXEH OHQJWKDQG GXHWRWKH IDFWWKDWDQ RGG QXPEHU RI
EDIIOH VSDFHV LV XVXDOO\ HPSOR\HG D GHVLJQ ZLWK D FHQWUDO EDIIOH VSDFLQJ RI  LQ 
PP FRXOG QRW PDWHULDOL]H 7KH UHVXOWV DUH GHWDLOHG LQ 7DEOH D 8SRQ FRPSDULVRQ ZLWK
7DEOHFLWZLOOEHVHHQWKDWEHWZHHQWKHVLQJOHVKHOODQGWZRVKHOOVLQVHULHVGHVLJQVWKH
VKHOOVLGHIORZIUDFWLRQVDQGWKHVKHOOVLGHKHDWWUDQVIHUFRHIILFLHQWDUHODUJHO\VLPLODUIRUWKH
VDPHEDIIOHVSDFLQJ%RWKWKHVKHOOVLGHDQGWKHWXEHVLGHSUHVVXUHGURSVDUHVRPHZKDWKLJKHU
LQ WKH WZRVKHOOVLQVHULHV GHVLJQ GXH WR WKH H[WUD QR]]OH DQG VKHOOFKDQQHO HQWU\ DQG H[LW
ORVVHV+RZHYHUDV ZLWKWKH VLQJOHVKHOO GHVLJQWKH SHUPLVVLEOHVKHOOVLGH SUHVVXUH GURS LV
VWLOOODUJHO\XQXWLOL]HGWKXVOHDGLQJWRDQXQHFRQRPLFDOGHVLJQ
7KH WHPSHUDWXUH SURILOH GLVWRUWLRQ FRUUHFWLRQ IDFWRU LV FRQVLGHUDEO\ KLJKHU ZLWK WZR
VKHOOV LQ VHULHV WKDQ ZLWK MXVW RQH VKHOO D GLUHFW FRPSDULVRQ LV VKRZQ LQ 7DEOH E $V
H[SODLQHG HDUOLHU LQWKLV FKDSWHUWKH PL[LQJ RIWKH PDLQ FURVVIORZVWUHDP ZLWKWKHE\SDVV
DQGOHDNDJHVWUHDPVLQFOXGLQJWKH(VWUHDPDIWHUWKHILUVWVKHOOUHGXFHVWKHSHQDOW\GXHWR
WKH WHPSHUDWXUH SURILOH GLVWRUWLRQ DQG KHQFH LQFUHDVHV WKH WHPSHUDWXUH SURILOH GLVWRUWLRQ
FRUUHFWLRQIDFWRU
)LQDOO\LWVKRXOGEHDGGHGKHUHWKDWWKHEHVWGHVLJQIRUWKHSUHVHQWVHUYLFHZLOOEHDWZR
VKHOOVLQVHULHV GHVLJQ UHWDLQLQJ D WXEH OHQJWK RI  IW  PP VR WKDW WKH VKHOO
GLDPHWHUDQGWKHUHE\WKH ILUVW FRVW RI WKH H[FKDQJHU FDQ EH PLQLPL]HG6XFKD GHVLJQ LV
GHWDLOHG LQ 7DEOH F DQG 7DEOH G 7KH IRUPHU GHSLFWV WKH SULQFLSDO FRQVWUXFWLRQ
SDUDPHWHUV VDYH EDIIOH VSDFLQJ DQG WKH ODWWHU WKH GHWDLOHG SHUIRUPDQFH UHVXOWV IRU IRXU
GLIIHUHQWYDOXHVRIEDIIOHVSDFLQJLQPPLQPPLQPP

7DEOHF3ULQFLSDOFRQVWUXFWLRQSDUDPHWHUVIRUWKHEHVWGHVLJQIRU&DVH6WXG\
 &RQVWUXFWLRQSDUDPHWHU
 7\SHRIH[FKDQJHU )ORDWLQJKHDG7(0$$(6

 6KHOO,'LQPP 

 7XEHV QRVLQPP2'îLQPP

WKLFNîIWPPORQJ

 1RRIWXEHSDVVHV 

 7XEHSLWFKLQPP URWDWHGVTXDUHƒ

 %DIIOLQJ VLQJOHVHJPHQWDOFXWGLDPHWHU

 1RPLQDOFRQQHFWLRQVL]HLQPP VKHOOVLGHRQWXEHVLGH

 +HDWWUDQVIHUDUHDIWP î î 

 (PSW\H[FKDQJHUZHLJKWOENJ î î 

 
 7DEOHG'HWDLOHGSHUIRUPDQFHUHVXOWVRIWKHEHVWGHVLJQIRU&DVH6WXG\
 5XQ 5XQ 5XQ 5XQ
 %DIIOHVSDFLQJLQPP    

 %DIIOHKROHWRWXEH    

 0DLQFURVVIORZ    
 6WUHDP
%XQGOHVKHOO    
IUDFWLRQV
%DIIOHVKHOO    
3DVVSDUWLWLRQ    
 7HPSHUDWXUHSURILOHGLVWRUWLRQ    
FRUUHFWLRQIDFWRU

 YHORFLW\    

 FURVVZLQGRZ    
IWVPV    

SUHVVXUHGURS    
 6KHOOVLGH SVLNJFP
KHDWWUDQVIHU    
FRHIILFLHQW    
%WXKIWƒ)NFDOK
Pƒ&

 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW    
%WXKIWƒ)NFDOKPƒ&    

 07'ƒ)ƒ&    
 2YHUGHVLJQ    

DQG  LQ  PP ,W ZLOO EH VHHQ E\ FRPSDULVRQ ZLWK 7DEOH F WKDW WKH VKHOOVLGH
YHORFLW\ WKH VKHOOVLGH KHDW WUDQVIHU FRHIILFLHQW DQG WKHUHE\ WKH RYHUDOO KHDW WUDQVIHU
FRHIILFLHQWDUHIDUKLJKHULQWKHSUHVHQWGHVLJQ7KHVWUHDPDQDO\VLVLVDOVRIDUEHWWHUZLWKD
PXFK KLJKHU PDLQ FURVVIORZ IUDFWLRQDQGD PXFK ORZHUEDIIOHVKHOO OHDNDJH IUDFWLRQ7KLV
WUDQVODWHV LQWR D VLJQLILFDQWO\ KLJKHU WHPSHUDWXUH SURILOH GLVWRUWLRQ FRUUHFWLRQ IDFWRU DQG
WKHUHE\DPXFKKLJKHU07'
7KHGHVLJQZLWKWKHLQPPEDIIOHVSDFLQJLVWKHEHVWDVLWDOPRVWIXOO\XWLOL]HV
WKHSHUPLVVLEOHSUHVVXUHGURSWKHUHE\SURGXFLQJWKHKLJKHVWKHDWWUDQVIHUFRHIILFLHQWDQGWKH
KLJKHVWRYHUGHVLJQ,QIDFWVXFKDKLJKRYHUGHVLJQLVQRWUHTXLUHGVRWKDWWKHVKHOO
GLDPWHUDQGWKHQXPEHURIWXEHVFDQEHUHGXFHGIXUWKHU
1RWHWKHFRQVLGHUDEO\UHGXFHGWRWDOIRUWKHWZRVKHOOVKHDWWUDQVIHUDUHDLQWKLVGHVLJQ
MXVW  P DV DJDLQVW WKH DUHD RI  P RI WKH VLQJOHVKHOO GHVLJQ GHSLFWHG LQ &DVH
6WXG\7KHWRWDO HPSW\ ZHLJKWFRUUHVSRQGLQJO\UHGXFHVIURPOE NJWR
OENJ

 
 

 
 &+$37(5

$OORFDWLRQRI6LGHV
6KHOOVLGHDQG7XEHVLGH

,QWURGXFWLRQ
7KLV LV D YHU\ VSHFLDOL]HG IDFHW RI KHDW H[FKDQJHU GHVLJQ DQG DQ DUHD ZKHUH YDVW
H[SHULHQFHLVSDUWLFXODUO\KHOSIXO,WLVPRUHRIDQDUWWKDQDSUHFLVHVFLHQFHEHFDXVHDV
ZHVKDOOVHHWKHUHDUHPDQ\IDFWRUVZKLFKKDYHWREHFRQVLGHUHGVLPXOWDQHRXVO\VRWKDWD
³IHHO´ RIWKHVLWXDWLRQ LVYHU\LPSRUWDQW)RUH[DPSOHZKDWLVKLJK YLVFRVLW\LQDJLYHQ
VLWXDWLRQ"$JLYHQYLVFRVLW\FDQEHHDVLO\KDQGOHGRQWKHWXEHVLGHSURYLGHGWKHIORZUDWH
RI WKDW IOXLG LV KLJK HQRXJK EXW ZKDW LV KLJK HQRXJK" $ ORZ 07' ZLOO OHDG WR D
UHODWLYHO\ KLJK KHDW WUDQVIHU DUHD WKDW ZLOO QHFHVVLWDWH WKH XVH RI D UDWKHU KLJK VKHOO
GLDPHWHU VR WKDW WKH JLYHQ IORZ UDWH PD\ EH YHU\ ORZ EXW ZKDW IORZ UDWH LV ORZ IRU D
SDUWLFXODU VKHOO GLDPHWHU" +HDW GXW\ IORZ UDWH YLVFRVLW\ DQG 07'DUH DOO LQH[WULFDEO\
OLQNHGLQWKLVFRPSOH[WDVNRIVLGHDOORFDWLRQ
$Q H[SHUW V\VWHP GHYLVHG WR KDQGOH VXFK D VLWXDWLRQ ZRXOG EH H[WUHPHO\ EHQHILFLDO
+RZHYHULWZRXOGEHH[WUHPHO\GLIILFXOWWRPDNHFRQVLGHULQJWKHVLPXOWDQHRXVYDULDWLRQRI
VR PDQ\ SDUDPHWHUV DQG ZRXOG DOVR WDNH RXW D ORW RI WKH HQMR\PHQW RI KHDW H[FKDQJHU
GHVLJQ %HVLGHV LW LVD IDU KDSSLHUVLWXDWLRQ ZKHQD GHVLJQHU OHDUQVWKH LQWULFDFLHV RIVLGH
DOORFDWLRQ IURP WKH YHU\ IXQGDPHQWDOV EHFDXVH WKHQ VKHKH ZLOO EH DEOH WR WDFNOH DQ\
VLWXDWLRQHYHQRQHZKLFKVKHKHKDVQRWHQFRXQWHUHGHDUOLHU
,QPDQ\LQVWDQFHVZKHUHWKHYDULRXVSDUDPHWHUVSODFHFRQWUDGLFWRU\GHPDQGVXSRQVLGH
DOORFDWLRQDVZHVKDOOVHHWKHRQO\ZD\RXWLVWRGHVLJQWKHKHDWH[FKDQJHUERWKZD\VKRW
VWUHDPRQVKHOOVLGHDQGKRWVWUHDPRQWXEHVLGHDQGVHOHFWWKHEHWWHUGHVLJQ
)RU PDQ\ VHUYLFHV KRZHYHU WKH DOORFDWLRQ RI VLGHV LV TXLWH VWUDLJKWIRUZDUG DQG HYHQ
HVWDEOLVKHG )RU H[DPSOH IRU FRROLQJ RU FRQGHQVLQJ K\GURFDUERQV FRROLQJ ZDWHU LV
LQYDULDEO\SODFHGLQVLGHWKHWXEHV7KLVLVEHFDXVHFRROLQJZDWHULVIRXOLQJDQGLWLVHDVLHUWR
FOHDQ WKH LQVLGH RI WXEHV WKDQ WKH RXWVLGH %HVLGHV LW LV JHQHUDOO\ SUHIHUUHG WR KDYH
FRQGHQVLQJRXWVLGHKRUL]RQWDOWXEHVDVWKHFRQGHQVDWHVHSDUDWHVIURPWKHXQFRQGHQVHGYDSRU
E\YLUWXHRIJUDYLW\+RZHYHUVKRXOGWKHSURFHVVVWUHDPEHFRUURVLYHDQGWKHUHIRUHUHTXLUH
WKHXVHRIH[SHQVLYHDOOR\VWHHODQLQWHUFKDQJHRIVLGHVPD\KDYHWREHH[DPLQHG7KLVLV
EHFDXVHZLWKWKHFRUURVLYHVWUHDPRQWKHVKHOOVLGHPRUHFRPSRQHQWVZLOOKDYHWREHPDGH
IURPWKHH[SHQVLYHPDWHULDO

3DUDPHWHUVIRU$OORFDWLRQRI6LGHV
7KHYDULRXVIDFWRUVWKDWKDYHWREHFRQVLGHUHGIRUWKHDOORFDWLRQRIVLGHVLQYDULDEO\SODFH
FRQWUDGLFWRU\ GHPDQGV RQ WKLV YHU\ DOORFDWLRQ WKHUHE\ PDNLQJ WKH VHOHFWLRQ RI VLGHV D

 
YHU\FRPSOLFDWHGDIIDLU/HWXVH[DPLQHHDFKRIWKHVHIDFWRUVLQGHWDLOEHIRUHFRQVLGHULQJ
DUHDOOLIHH[DPSOHIRUDEHWWHUXQGHUVWDQGLQJ

9LVFRVLW\
9LVFRXVIOXLGVDUHJHQHUDOO\EHWWHUKDQGOHGRQWKHVKHOOVLGH7KHKLJKHUWKHYLVFRVLW\WKH
WUXHULVWKLVVWDWHPHQW7KLV LVEHFDXVHDFRQVLGHUDEO\KLJKHU KHDWWUDQVIHUFRHIILFLHQW LV
REWDLQHG IRU WKH VDPH SUHVVXUH GURS RQ WKH VKHOOVLGH ZLWK D VWDJJHUHG WXEH OD\RXW²
WULDQJXODURUURWDWHGVTXDUHWKDQRQWKHWXEHVLGH7KHKLJKHUKHDWWUDQVIHUFRHIILFLHQWLV
HVVHQWLDOO\ GXH WR WKH LQFUHDVHG WXUEXOHQFH ZKLFK \LHOGV D KLJKHU 5H\QROG¶V QXPEHU
(YLGHQWO\DQLQOLQHWXEHOD\RXWZLOO\LHOGORZHUWXUEXOHQFHDQGWKHUHIRUHDORZHUKHDW
WUDQVIHUFRHIILFLHQW7KHKLJKHUWKHYLVFRVLW\RIWKHIOXLGWKHJUHDWHULVWKHLQFUHDVHLQWKH
HIILFLHQF\ RI FRQYHUVLRQ RI SUHVVXUH GURS WR KHDW WUDQVIHU FRHIILFLHQW IRU IORZ RQ WKH
VKHOOVLGHZLWKDVWDJJHUHGWXEHILHOGOD\RXWDVFRPSDUHGWRIORZRQWKHWXEHVLGH
7KHNH\LVVXHKHUHLVWXUEXOHQFHSHUVRQLILHGE\WKH5H\QROG¶VQXPEHU(YLGHQWO\PDVV
YHORFLW\ YLVFRVLW\DQGIORZSDWWHUQDUHWKHFUXFLDOSDUDPHWHUV IRUWXUEXOHQFH)RUDJLYHQ
YHORFLW\DVKHOOVLGHDOORFDWLRQZLOOJLYHDPXFKKLJKHUWXUEXOHQFHWKDQDWXEHVLGHDOORFDWLRQ
HVSHFLDOO\ZLWKDVWDJJHUHGWXEHOD\RXW+RZHYHULIWKH5H\QROG¶VQXPEHULVKLJKHQRXJKD
WXEHVLGHDOORFDWLRQPD\\LHOGDVDWLVIDFWRU\KHDWWUDQVIHUFRHIILFLHQW
,IDKLJKYLVFRXVIOXLGLVDOORFDWHGRQWKHVKHOOVLGHDVTXDUHRULQOLQHWXEHILHOGOD\RXW
PD\ JLYH D VDWLVIDFWRU\ KHDW WUDQVIHU FRHIILFLHQW SURYLGHG LWV IORZ UDWH LV KLJK HQRXJK WR
\LHOGDKLJK5H\QROG¶VQXPEHU,IQRWWKHXVHRIDVWDJJHUHGWXEHILHOGZLOOEHEHQHILFLDO
7XEHV DUUDQJHG LQ D VWDJJHUHG OD\RXW DUH DV HDV\ WR FOHDQ DV WXEHV DUUDQJHG LQ DQ LQOLQH
OD\RXWSURYLGHGFRQWLQXRXVFOHDQLQJODQHVDUHLQFRUSRUDWHG

&RUURVLYHQHVV
,I ERWK WKH VWUHDPV LQ D KHDW H[FKDQJHU DUH EHQLJQ DQG UHTXLUH RQO\ D EDVH PDWHULDO RI
FRQVWUXFWLRQ VXFK DV FDUERQ VWHHO FRUURVLYHQHVV LV QRW DQ LVVXH IRU VLGH DOORFDWLRQ
+RZHYHU LQ PDQ\ LQVWDQFHV RQH VWUHDP LV QRQFRUURVLYH DQG UHTXLUHV RQO\ D EDVH
PDWHULDO RI FRQVWUXFWLRQ ZKLOHWKH RWKHULVFRUURVLYHDQGUHTXLUHVDVXSHULRU PDWHULDORI
FRQVWUXFWLRQVXFKDVDOOR\VWHHO RUVWDLQOHVVVWHHO,IWKH FRUURVLYHIOXLGLVSODFHG RQWKH
WXEHVLGHRQO\WKHWXEHVLGHFRPSRQHQWVWXEHVFKDQQHODQGFKDQQHOFRYHUIORDWLQJKHDG
FRYHUDQGWXEHVLGHWXEHVKHHWIDFHKDYHWREHRIWKHVXSHULRUPHWDOOXUJ\+RZHYHULIWKH
FRUURVLYH IOXLG LV RQ WKH VKHOOVLGH WKH VKHOOVLGH FRPSRQHQWV WXEHV VKHOO VKHOO FRYHU
IORDWLQJKHDG FRYHU VKHOOVLGH IDFH RI WXEHVKHHW DQG EDIIOHV KDYH WR EH RI WKH VXSHULRU
PHWDOOXUJ\7KXVWKHFRPSDULVRQUHGXFHVWRFKDQQHODQGFKDQQHOFRYHUIRUWKHWXEHVLGH
DOORFDWLRQ YHUVXV VKHOO VKHOO FRYHU DQG EDIIOHV IRU WKH VKHOOVLGH DOORFDWLRQ WKH RWKHU
FRPSRQHQWV EHLQJ WKH VDPH RU FRPPHQVXUDWH &RQVLGHULQJ LGHQWLFDO JHRPHWU\ LQ ERWK
FDVHV²LGHQWLFDO QXPEHU RI WXEHV WXEH GLDPHWHU WXEH WKLFNQHVV WXEH OHQJWK DQG VKHOO
GLDPHWHU²WKHGHVLJQZLWKWKHFRUURVLYHVWUHDPRQWKHVKHOOVLGHZLOOEHPRUHH[SHQVLYH
7KLVLVEHFDXVHWKHFRVWRIWKHVKHOOVKHOOFRYHUDQGEDIIOHVZLOOEHJUHDWHUWKDQWKDWRI
WKHFKDQQHODQGFKDQQHOFRYHU7KHUHIRUHWKH PRUH FRUURVLYHIOXLGLVSUHIHUDEO\SODFHG
RQWKHWXEHVLGHRQWKLVFRQVLGHUDWLRQDORQH
)RXOLQJWHQGHQF\
$VWKHH[WHQWRIIRXOLQJLVJUHDWHURQWKHVKHOOVLGHGXHWRWKHGHDGVSDFHVWKHGLULWHUIOXLG
LV SUHIHUDEO\ URXWHG WKURXJK WKH WXEHVLGH %HVLGHV DIWHU IRXOLQJ EXLOGV XS WR D FHUWDLQ
OHYHOLWEHFRPHVPDQGDWRU\WRFOHDQWKHKHDWWUDQVIHUVXUIDFHV0HFKDQLFDOFOHDQLQJE\
K\GURMHWWLQJVWHDPLQJRUURGGLQJRIWKHLQVLGHRIWXEHVLVPXFKHDVLHUWKDQWKDWRIWKH
RXWVLGHRIWXEHV
 
 8QIRUWXQDWHO\GLUW\VWUHDPVDUHLQYDULDEO\PRUHYLVFRXVDQGPRUHYLVFRXVVWUHDPVDUH
PXFK EHWWHU KDQGOHG RQ WKH VKHOOVLGH DV H[SODLQHG DERYH 7KXV LQ WKLV VLWXDWLRQ IRXOLQJ
WHQGHQF\ DQG YLVFRVLW\ LPSRVH FRQWUDGLFWRU\ GHPDQGV IRU VLGH DOORFDWLRQ ,I WKH GLUW\ DQG
YLVFRXVVWUHDPLVURXWHGWKURXJKWKHVKHOOVLGHWKHLQLWLDOFRVWRIWKHKHDWH[FKDQJHUZLOOEH
ORZHUGXHWRWKHKLJKHUKHDWWUDQVIHUFRHIILFLHQWEXWWKHRSHUDWLQJFRVWZLOOEHKLJKHUGXHWKH
PRUH IUHTXHQW DQG PRUH GLIILFXOW FOHDQLQJ UHTXLUHG +RZHYHU LI WKH GLUW\ DQG YLVFRXV
VWUHDP LVURXWHGWKURXJKWKHWXEHVLGHWKH LQLWLDOFRVW ZLOOEH KLJKHUEXWWKH RSHUDWLQJ FRVW
ORZHU 7KHUHIRUH WKDW URXWLQJ ZKLFK UHVXOWV LQ WKH ORZHU RYHUDOO FRVW LQLWLDO FRVW SOXV
RSHUDWLQJFRVWZLOOEHWKH PRUHHFRQRPLFDODOWHUQDWLYH,WVKRXOGEHUHDOL]HGKHUHWKDWWKH
LQLWLDO RU IL[HG FRVW ZLOO GHSHQG QRW MXVW WKH YLVFRVLWLHV RI WKH VWUHDPV EXW WKH RWKHU
SDUDPHWHUVEHLQJGLVFXVVHGSUHVHQWO\

3UHVVXUH
$V ZLWK FRUURVLYHQHVV WKH FRVW RI D KHDW H[FKDQJHU ZLOO EH OHVV LI WKH KLJKHU SUHVVXUH
VWUHDPLVSODFHGRQWKHWXEHVLGH7KLVLVEHFDXVHZLWKDWXEHVLGHDOORFDWLRQIHZHUKLJKHU
WKLFNQHVVDQGWKHUHIRUHFRVWOLHUSDUWVZLOOEHUHTXLUHG%HVLGHVDQGQROHVVLPSRUWDQWO\
WXEHVRIDJLYHQPDWHULDO2'DQGWKLFNQHVVFDQZLWKVWDQGPXFKKLJKHULQWHUQDOSUHVVXUH
WKDQH[WHUQDOSUHVVXUH7KLVPHDQVWKDWZKHQWKHVKHOOVLGHGHVLJQSUHVVXUHLVUDWKHUKLJK
QRWRQO\WKHVKHOODQGDVVRFLDWHGFRPSRQHQWVVXFKDVWKHVKHOOFRYHUKDYHWREHWKLFNHU
EXWHYHQWKHWXEHWKLFNQHVVPD\LQFUHDVHIURPWKDWUHTXLUHGIRUWKHWXEHVLGHDOORFDWLRQ
+RZHYHULWVKRXOGEHUHDOL]HGWKDWLQWKHORZRULQWHUPHGLDWHSUHVVXUHUDQJHVD\XSWR
SVLJRUNJFPJWKHGLIIHUHQFHLQFRVWLVQRWVRSURQRXQFHGDVLQWKHKLJKHUSUHVVXUH
UDQJH7KHUHIRUHLWLVRQO\LIWKHRWKHUSDUDPHWHUVDUHIDLUO\FORVHWKDWSUHVVXUHUDWLQJZLOO
SOD\ D GHFLVLYH UROH LQ WKH ORZWRLQWHUPHGLDWH SUHVVXUH UDQJH +RZHYHU LI WKH GHVLJQ
SUHVVXUHRIRQHVWUHDPLVORZVD\SVLJRUNJFP JDQGWKDWRIWKHRWKHUKLJKVD\
SVLJRUNJFPJRUJUHDWHUWKHGHVLJQSUHVVXUHZLOOSOD\DFUXFLDOUROH

)ORZUDWH
)RU IORZ RQ WKH WXEHVLGH WKH 5H\QROG¶V QXPEHU LV D IXQFWLRQ RI PDVV YHORFLW\ WXEH
GLDPHWHUDQGYLVFRVLW\)RUIORZRQWKHVKHOOVLGHWKH5H\QROG¶VQXPEHULVDIXQFWLRQRI
PDVVYHORFLW\HTXLYDOHQWGLDPHWHUDQGYLVFRVLW\7KHHTXLYDOHQWGLDPHWHULVDIXQFWLRQ
RIWKHWXEHGLDPHWHUWXEHSLWFKDQGWKHOD\RXWDQJOH7KXVIRUDJLYHQWXEHGLDPHWHURU
HTXLYDOHQWGLDPHWHUWKH5H\QROG¶VQXPEHULVDIXQFWLRQRIPDVVYHORFLW\DQGYLVFRVLW\
,IDVWUHDPYLVFRVLW\LVKLJKVD\FSWKH5H\QROG¶VQXPEHULVLQYDULDEO\FRQGHPQHG
WREHORZDVWKHPDVVYHORFLW\FDQQRWEHLQFUHDVHGVXIILFLHQWO\WRREWDLQDKLJK5H\QROG¶V
QXPEHU >7KH PDVV YHORFLW\ VKRXOG QRW EH JUHDWHU WKDQ D FHUWDLQ YDOXH XVXDOO\ ²
OEVHF IW ² NJVHF P DV HURVLRQ PD\ RFFXU DW KLJKHU YHORFLWLHV@ 7KLV LV
SDUWLFXODUO\WUXHRQWKHWXEHVLGH+RZHYHUWKH5H\QROG¶VQXPEHULVRIWHQORZQRWEHFDXVH
WKHYLVFRVLW\LVKLJKEXWEHFDXVHWKHPDVVYHORFLW\LVUDWKHUORZ7KHWZRVLWXDWLRQVDUHTXLWH
GLIIHUHQWZKHUHDVWKH3UDQGWOQXPEHULVTXLWHKLJKLQWKHIRUPHUKLJKYLVFRVLW\LWLVORZHU
LQ WKH ODWWHU ORZ PDVV YHORFLW\ 6LQFH WKH KHDW WUDQVIHU FRHIILFLHQW LV D IXQFWLRQ RI ERWK
5H\QROG¶V QXPEHU DQG 3UDQGWO QXPEHU VHH 6HFWLRQ  WKH KLJKHU 3UDQGWO QXPEHU
VLWXDWLRQZLOO\LHOGDKLJKHUKHDWWUDQVIHUFRHIILFLHQWSURYLGHGWKH5H\QROG¶VQXPEHUVDUHWKH
VDPHLQERWKFDVHV
,WLVZHOONQRZQWKDWDVXIILFLHQWO\KLJKYHORFLW\KDVWREHDFKLHYHGLQRUGHUWRREWDLQD
VDWLVIDFWRU\KHDWWUDQVIHUFRHIILFLHQW,IWKHIORZUDWHRIRQHRIWKHVWUHDPVLVORZDQGLILWLV
SODFHGRQWKHWXEHVLGHWKHQLWVYHORFLW\FDQEHLQFUHDVHGE\LQFRUSRUDWLQJDJUHDWHUQXPEHU
RIWXEHSDVVHV2IFRXUVHWKLVFDQEHGRQHXSWRDFHUWDLQH[WHQW)RUH[DPSOHLIWKHUHDUH
 
RQO\WXEHVLQDKHDWH[FKDQJHUWKHQXPEHURISDVVHVFDQEHVL[RUHLJKWRUDWWKHPRVW
WHQ7KHODUJHUWKHVKHOOGLDPHWHUWKHJUHDWHUWKHQXPEHURIWXEHVDQGWKHKLJKHUWKHQXPEHU
RIWXEHSDVVHVFDQEH
+RZHYHUWRRPDQ\SDVVHVUHVXOWLQ
D D FXPEHUVRPH SDVVSDUWLWLRQ DUUDQJHPHQW ZLWK FRQVHTXHQW GLIILFXOWLHV LQ
IDEULFDWLRQDQGPDLQWHQDQFHDQG
E DQ LQHIILFLHQW VKHOOVLGH IORZ SDWWHUQ GXH WR WKH ODUJH QXPEHU RI SDVVSDUWLWLRQ
ODQHVSDUDOOHOWRWKHIORZGLUHFWLRQ
)XUWKHUDVWKHQXPEHURISDVVHV LVLQFUHDVHGWKHSUHVVXUHGURSDOVR LQFUHDVHVDQG PD\
H[FHHGWKHDOORZDEOHOLPLWVRWKDWWKLVDOVREHFRPHVDOLPLWDWLRQ
2QWKHVKHOOVLGHKRZHYHUWKHRQO\YDULDEOHVWRLQFUHDVHWKHYHORFLW\IRUDJLYHQVKHOO
GLDPHWHUDUHEDIIOHVSDFLQJDQGEDIIOHFXW,W ZDV H[SODLQHG LQ6HFWLRQ WKDWYHU\ ORZ
EDIIOH VSDFLQJ DQG FXW DUH GHWULPHQWDO WR JRRG WKHUPDOK\GUDXOLF SHUIRUPDQFH 7KXV WKH
EDIIOH VSDFLQJ VKRXOG QRW EH OHVV WKDQ ² RI WKH VKHOO GLDPHWHU DQG VKRXOG RIWHQ EH
KLJKHU 7KHUHIRUH LW LV GLIILFXOW WR REWDLQ D VDWLVIDFWRU\ YHORFLW\ DQG FRQVHTXHQWO\ D
VDWLVIDFWRU\ KHDW WUDQVIHU FRHIILFLHQW IRU D ORZIORZUDWH VWUHDP RQ WKH VKHOOVLGH ,I VXFK D
VWUHDPLVFRQVWUDLQHGWREHRQWKHVKHOOVLGHRIDKHDWH[FKDQJHULWVRPHWLPHVEHFRPHVPRUH
HFRQRPLFDOWRKDYHWZRRUHYHQPRUHVKHOOVLQVHULHVVRWKDWDPXFKKLJKHUYHORFLW\DQG
WKHUHE\DPXFKKLJKHUKHDWWUDQVIHUFRHIILFLHQWFDQEHREWDLQHG7KLVLVH[SODLQHGLQGHWDLO
ZLWKDFDVHVWXG\HDFKLQ6HFWLRQVDQG
7RVXPPDUL]HZKDWKDVEHHQVDLGVRIDUDVPDOOHUIORZUDWHUHTXLUHVDJUHDWHUQXPEHU
RIWXEHSDVVHV RQWKHWXEHVLGHDQGDVPDOOHU EDIIOHVSDFLQJDQGFXW RQ WKHVKHOOVLGHWR
DFKLHYHDVDWLVIDFWRU\PDVVYHORFLW\DQGWKHUHE\5H\QROG¶VQXPEHU,QERWKFDVHVWKLVZLOO
OHDGWRDKLJKHUSUHVVXUHGURSVRWKDWLQFHUWDLQFDVHVWKHVDPHPD\H[FHHGWKHDOORZDEOH
YDOXH ,Q VXFK FDVHV WKH QXPEHU RI WXEH SDVVHV RU WKH EDIIOH VSDFLQJFXW ZLOO KDYH WR EH
UHVWULFWHGWRVXFKYDOXHVWKDWWKHSUHVVXUHGURSOLPLWDWLRQLVFRPSOLHGZLWK
6LQFHWXUEXOHQFHH[LVWVRQWKHVKHOOVLGHDWPXFKORZHU5H\QROG¶VQXPEHUVWKDQRQWKH
WXEHVLGHDORZIORZUDWHVWUHDPLVXVXDOO\EHWWHUKDQGOHGRQWKHVKHOOVLGH+RZHYHULIWKH
IORZUDWHLVH[WUHPHO\VPDOODWXEHVLGHDOORFDWLRQLVRIWHQEHWWHUEHFDXVHRQWKHVKHOOVLGH
WKH EDIIOH VSDFLQJ DQG FXW FDQQRW EH GHFUHDVHG VXIILFLHQWO\ ZLWKRXW SURGXFLQJ DQ
XQVDWLVIDFWRU\VWUHDPDQDO\VLV
,WVKRXOGEHDSSUHFLDWHGWKDWIORZUDWHDQGYLVFRVLW\UHDOO\JRKDQGLQKDQG,WPD\EH
JHQHUDOL]HG WKDW KLJKIORZUDWHVWUHDPV FDQEH KDQGOHG VDWLVIDFWRULO\ RQ HLWKHUVKHOOVLGH RU
WXEHVLGHLQWHUPHGLDWH IORZUDWHVWUHDPV RQWKHVKHOOVLGHDQG YHU\VPDOOIORZUDWH VWUHDPV
RQ WKH WXEHVLGH 8QIRUWXQDWHO\ KLJK LQWHUPHGLDWH DQG ORZ DUH VXEMHFWLYH VLQFH WKH\ DUH
KHDYLO\ GHSHQGHQW RQ WKH VWUHDP YLVFRVLW\ DQG H[FKDQJHU VL]H VR D PRUH VSHFLILF
JHQHUDOL]DWLRQLVQRWSRVVLEOH,QPDQ\LQVWDQFHVERWKGHVLJQVRIWHQKDYHWREHFDUULHGRXW
DQGWKHPRUHVXSHULRURQHVHOHFWHGDIWHUDFDUHIXOVFUXWLQ\RIDOOWKHUHOHYDQWSDUDPHWHUV
7KHUH LV DQRWKHU H[WUHPHO\ LQWHUHVWLQJ DQJOH WR WKLV LVVXH RI IORZ UDWHV 6RPHWLPHV
FKDQJLQJVLGHVFDQUHVXOWLQDVWDUWOLQJLPSURYHPHQWLQWKHGHVLJQ&RQVLGHUWKHIROORZLQJ
H[FKDQJHU VHUYLFH VSHFLILHG E\ D SURFHVV OLFHQVRU IRU DQ HWK\OHQH SODQW KHDW H[FKDQJHU
OEKNJKRISURS\OHQHWREHFRROHGRQWKHVKHOOVLGHIURPƒ)ƒ&
WRƒ)ƒ&E\OEKNJKRIHWKDQHSURSDQHIHHGWREHKHDWHGRQWKH
WXEHVLGH IURP ƒ) ƒ& WR ƒ) ƒ& UHSUHVHQWLQJ D KHDW GXW\ RI  00
%WXK00NFDOK
$VVSHFLILHGDERYHWKHWHPSHUDWXUHFURVVFRQGLWLRQZRXOGUHTXLUHWKHXVHRIWZRVKHOOV
LQVHULHVVLQFHGXHWRORZWXEHVLGHIORZUDWHWZRRUPRUHSDVVHVZRXOGEHUHTXLUHGWRREWDLQ

 
DVDWLVIDFWRU\YHORFLW\DQGKHDWWUDQVIHUFRHIILFLHQW6LQFHWKHSURS\OHQHIORZZDVYHU\KLJK
DQLQWHUFKDQJHRIIOXLGVLGHVZDVFRQVLGHUHG2QO\RQHWXEHSDVVZDVQRZUHTXLUHGWRREWDLQ
DVDWLVIDFWRU\YHORFLW\ZKLFKPHDQWWKDWWUXHFRXQWHUFXUUHQWIORZZRXOGSUHYDLO7KHLVVXH
RI WHPSHUDWXUH FURVV EHFDPH UHGXQGDQW DQG D VLQJOH VKHOO ZDV DGHTXDWH WR DFKLHYH WKH
VSHFLILHGGXW\1HHGOHVVWRVD\WKLVUHVXOWHGLQFRQVLGHUDEOHHFRQRP\
,W LV H[WUHPHO\ LPSRUWDQW LQWKHWKHUPDO GHVLJQ RI KHDW H[FKDQJHUV DV LQGHHG LQDQ\
RWKHUFUHDWLYHDFWLYLW\WRFRQVWDQWO\DVNRQHVHOIWKLVVLPSOHTXHVWLRQ,VQ¶WWKHUHDEHWWHUZD\
RIGRLQJWKLV"7RRRIWHQZHWUHDGWKHEHDWHQSDWKDQGFRQVHTXHQWO\PLVVDOOWKHZRQGHUIXO
RSSRUWXQLWLHVWRLPSURYHDGHVLJQ,IRQO\ZHZRXOGLQYROYHRXUVHOYHVPRUHFORVHO\ZLWKWKH
WDVNDWKDQGWKHUHZRXOGEHPDQ\VXFKRSSRUWXQLWLHVLQFUHDWLYLW\

7HPSHUDWXUHUDQJH
7KLVSDUDPHWHULVQRWYHU\DSSDUHQWWRPDQ\GHVLJQHUVEXWRIWHQSOD\VDYHU\FUXFLDOUROH
LQWKHDOORFDWLRQ RI IOXLGVWRVKHOOVLGHDQGWXEHVLGH7KHUHDUHWZRFRQVLGHUDWLRQV ODUJH
WHPSHUDWXUHGLIIHUHQFHDQGWHPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQIDFWRU

/DUJHWHPSHUDWXUHGLIIHUHQFH
:KHQDSDUWLFXODUVWUHDPKDVDYHU\ODUJHWHPSHUDWXUHUDQJHWKHGLIIHUHQFHEHWZHHQLWV
LQOHWDQG RXWOHWWHPSHUDWXUHVDQGWKH QXPEHU RIWXEHSDVVHVLV RQO\WZR LW LVEHWWHUWR
URXWHWKHIOXLGWKURXJKWKHVKHOOVLGH7KLVLVEHFDXVHLISODFHGRQWKHWXEHVLGHWKLVVWUHDP
ZLOOLPSRVHDYHU\ODUJHWHPSHUDWXUHGLIIHUHQWLDOEHWZHHQWKHWZRKDOYHVRIWKHWXEHVKHHW
WKHUHE\ PDNLQJ WKH WXEHVKHHW SURQH WR GLVWRUWLRQ DQG WKH FKDQQHOWXEHVKHHWVKHOO MRLQW
SURQH WR OHDNDJH 7KH WHPSHUDWXUH GLIIHUHQFH WKDW LV FRQVLGHUHG OLPLWLQJ LV ² ƒ)
² ƒ& EHWZHHQ WZR DGMDFHQW WXEH SDVVHV ,I WKHUH DUH IRXU RU PRUH SDVVHV WKH
SUREOHP EHFRPHV PXFK OHVV VHYHUH DV WKH WHPSHUDWXUH JUDGLHQW DFURVV WKH IDFH RI WKH
WXEHVKHHWLVIDUPRUHHYHQ$OVRLIWKHUHLVRQO\RQHWXEHSDVVWKHUHLVQRSUREOHPDWDOO
EHFDXVHWKHQWKHHQWLUHIDFHRIRQHWXEHVKHHWLVVXEMHFWHGWRWKHKLJKHUWHPSHUDWXUHDQG
WKHHQWLUHIDFHRIWKHRWKHUWXEHVKHHWLVVXEMHFWHGWRWKHORZHUWHPSHUDWXUH

7HPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQIDFWRU
$FFRUGLQJ WR WKLV FRQVLGHUDWLRQ D IOXLG KDYLQJ D ODUJH WHPSHUDWXUH GLIIHUHQFH LV EHWWHU
SODFHGRQWKHWXEHVLGHDVLWPD\UHVXOWLQDORZWHPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQ
IDFWRU LI SODFHG RQ WKH VKHOOVLGH 7KH ODWWHU ZDV GLVFXVVHG DW OHQJWK LQ 6HFWLRQ  $V
PHQWLRQHG WKHUHLQ EHVLGHV D ODUJH VKHOOVLGH WHPSHUDWXUH GLIIHUHQFH WZR RWKHU IDFWRUV
PXVWDOVRH[LVWLQRUGHUWRSURGXFHDORZWHPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQIDFWRU
 WKH IOXLG LV UDWKHU YLVFRXV²WKH KLJKHU WKH YLVFRVLW\ WKH ZRUVH WKH VLWXDWLRQ
EHFDXVHWKHKLJKHUWKHEDIIOHVKHOOOHDNDJHVWUHDP²DQG
 WKH UDWLR RI WKH VKHOOVLGH WHPSHUDWXUH GLIIHUHQFH WR WKH WHPSHUDWXUH DSSURDFK
EHWZHHQWKHKRWDQGFROGVWUHDPVDWWKHVKHOOVLGHRXWOHWLVORZ

&$6(678'<$//2&$7,212))/8,'6,'(6
/HWXVFRQVLGHUDUHDOOLIH H[DPSOHWREHWWHUXQGHUVWDQGWKHSKLORVRSK\ RIDOORFDWLRQ RI
IOXLGVLGHV7KHSULQFLSDOSURFHVVSDUDPHWHUVIRUDKHDWH[FKDQJHUDUHHODERUDWHGLQ7DEOH
D
7DEOHEOLVWVWKHYDULRXVVLGHDOORFDWLRQSDUDPHWHUVDVWKH\DSSO\LQWKLVFDVH,WZLOO
EH VHHQ WKDW WZR SDUDPHWHUV IDYRU DOORFDWLRQ RI WKH FROG VWUHDP RQ WKH VKHOOVLGH WZR
SDUDPHWHUVIDYRUDOORFDWLRQRIWKHFROGVWUHDPRQWKHWXEHVLGHZKLOHWZRSDUDPHWHUVIDYRU
 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 &ROGVWUHDP +RWVWUHDP
 )ORZUDWHOEKNJK  

 7HPSHUDWXUHLQRXWƒ)ƒ&  

 9LVFRVLW\LQRXWFS  

 
 'HQVLW\LQRXWOEIW NJP   
 6SHFLILFKHDW%WXOEƒ)NFDONJƒ& DYJ DYJ
 7KHUPDOFRQGXFWLYLW\LQRXW%WXKIWƒ)  
NFDOKPƒ&
 )RXOLQJUHVLVWDQFHKIWƒ)%WX  
KPƒ&NFDO

 +HDWGXW\00%WXK00NFDOK 


 'HVLJQSUHVVXUHSVLJNJFP J  

 'HVLJQWHPSHUDWXUHƒ)ƒ&  

 1RPLQDOOLQHVL]HLQPP  

 0DWHULDORIFRQVWUXFWLRQ &6 &U0R

QHLWKHU:KDWZLOOILQDOO\GHWHUPLQHWKHIDYRUDEOHDOORFDWLRQRIVLGHVLVWKHRYHUDOOFRVWRIWKH
WZRGHVLJQVWKHFROGVWUHDPRQWKHVKHOOVLGHDQGWKHFROGVWUHDPRQWKHWXEHVLGH%\RYHUDOO
FRVWLVPHDQWWKHVXPRIWKHLQLWLDOFRVWDQGWKHRSHUDWLQJFRVW
,WLVVLJQLILFDQWWRQRWHKHUHWKDWVLQFHWKHWHUPLQDOYLVFRVLWLHVRIWKHWZRVWUHDPVDUHYHU\
VLPLODU LW YLVFRVLW\ GRHV QRW KDYH D VWURQJ LQIOXHQFH RQ WKH DOORFDWLRQ RI VLGHV 7KH
PDWHULDOVRIFRQVWUXFWLRQGHVLJQSUHVVXUHIRXOLQJUHVLVWDQFHDQGVWUHDPIORZUDWHVKDYHD
PXFKPRUHSURIRXQGLQIOXHQFH:KHUHDVWKHIRXOLQJUHVLVWDQFHRIWKHWZRVWUHDPVDIIHFWVWKH
RSHUDWLQJFRVWWKHRWKHUWKUHHSDUDPHWHUVDIIHFWWKHLQLWLDOFRVW7KHHIIHFWVRIWKHPDWHULDOV
RI FRQVWUXFWLRQ DQG WKH GHVLJQ SUHVVXUHV RQ WKH LQLWLDO FRVW DUH TXLWH VWUDLJKWIRUZDUG DV
H[SODLQHGHDUOLHUEXWWKDWRIWKHIORZUDWHVLVQRW
,WKDVEHHQH[SODLQHGHDUOLHUWKDWZLWKDORZIORZUDWHRQWKHVKHOOVLGHHYHQWKHVPDOOHVW
UHFRPPHQGHGEDIIOHVSDFLQJDQGEDIIOHFXWWKDW\LHOGDVDWLVIDFWRU\VWUHDPDQDO\VLVPD\IDLO
WR SURGXFH D VXIILFLHQWO\ KLJK YHORFLW\ &RQVHTXHQWO\ WKH DOORZDEOH SUHVVXUH GURS LV QRW
XWLOL]HGDQGWKHKHDWWUDQVIHUFRHIILFLHQWLVUDWKHUORZ:KHWKHUOEKNJKLV

7DEOHE)OXLGVLGHDOORFDWLRQFRQVLGHUDWLRQVIRU&DVH6WXG\
 3UHIHUUHGDOORFDWLRQ
 9LVFRVLW\ 1RSUHIHUHQFHDVYLVFRVLWLHVRIERWKVWUHDPVDUHYHU\VLPLODU

 &RUURVLYHQHVV &ROGVWUHDPRQVKHOOVLGHVLQFHKRWVWUHDPUHTXLUHVDVXSHULRUPHWDOOXUJ\

 )RXOLQJQDWXUH &ROGVWUHDPRQWXEHVLGHDVLWVIRXOLQJUHVLVWDQFHLVKLJKHU

 3UHVVXUH &ROGVWUHDPRQWXEHVLGHDVLWVGHVLJQSUHVVXUHLVPXFKKLJKHU

 )ORZUDWH &ROGVWUHDPRQVKHOOVLGHDVWKHKRWVWUHDPIORZUDWHLVPXFKORZHU

 7HPSHUDWXUHUDQJH 1RSUHIHUHQFHDVWKHWHPSHUDWXUHUDQJHRIQHLWKHUVWUHDPLVYHU\KLJK

 
 7DEOHF7KHUPDOGHVLJQVIRU&DVH6WXG\
 &ROGVWUHDP &ROGVWHHDP
RQVKHOOVLGH RQWXEHVLGH
 1RRIVKHOOVLQVHULHV  

 6KHOOGLDPHWHULQPP  

 7RWDOQRRIWXEHVSHUVKHOO  

 1RRIWXEHSDVVHV  

 %DIIOHVSDFLQJLQPP  

 %DIIOHFXWGLDPHWHU  

 +HDWWUDQVIHUDUHDIWP î î

 
 YHORFLW\IWVPV  
 &ROG SUGURSSVLNJFP  
 
VWUHDP
KHDWWUDQVIHUFRHIILFLHQW
 
%WXKIWƒ)NFDOKPƒ&

 YHORFLW\IWVPV  

 +RW SUHVVXUHGURSSVLJNJFP  
VWUHDP
KHDWWUDQVIHUFRHIILFLHQW
 
%WXKIWƒ)NFDOKPƒ&
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW
 
%WXKIWƒ)NFDOKPƒ&
 $SSUR[EXQGOHHPSW\ZHLJKWSHUVKHOO  
OEVNJV

 2YHUGHVLJQ  

DORZIORZUDWHRUQRWZLOOGHSHQGXSRQWKHGLDPHWHURIWKHVKHOOWKURXJKZKLFKLWZLOOIORZ
6LQFHLWLVXVXDOO\QRWSRVVLEOHWRDQWLFLSDWHWKHVKHOOGLDPHWHUZLWKRXWSHUIRUPLQJDGHVLJQ
ERWK GHVLJQV FROG VWUHDP RQ VKHOOVLGH DQG FROG VWUHDP RQ WXEHVLGH ZLOO KDYH WR EH
SHUIRUPHGLQRUGHUWRGHFLGHWKHFKHDSHUGHVLJQ
,Q WKH SUHVHQW LQVWDQFH WKH FRQIOLFWLQJ GHPDQGV PDGH E\ WKH GLIIHUHQW SDUDPHWHUV DV
VKRZQ LQ7DEOHE PDNH LW LPSRVVLEOHWR GHFLGH RQWKHIDYRUDEOHVLGHDOORFDWLRQSHUVH
+HQFHERWKGHVLJQVZHUHFDUULHGRXW²FUXGHRLORQVKHOOVLGHDQGFUXGHRLORQWXEHVLGH²DQG
DUHVKRZQLQ7DEOHF7XEHVLQPP2'îLQPPWKLFNîIW
PPORQJZHUHUHTXLUHGWREHXVHG$OWKRXJKWKHUHZDVQRWHPSHUDWXUHFURVVLWZDV
IRXQG WKDW WZR VKHOOV LQ VHULHV KDG WR EH XVHG WR XWLOL]H WKH DOORZDEOH SUHVVXUH GURS RI
ZKLFKHYHUVWUHDPZDVURXWHGWKURXJKWKHVKHOOVLGH
7KHIROORZLQJREVHUYDWLRQVFDQEHPDGH
 )RU WKH GHVLJQ KDYLQJ WKH FROG VWUHDP RQ WKH VKHOOVLGH YHORFLWLHV RI ERWK WKH
VWUHDPV DUH VDWLVIDFWRU\  IWV  PV IRU WKH FROG VWUHDP DQG  IWV
PVIRUWKHKRWVWUHDP
 )RUWKHGHVLJQKDYLQJWKHFROGVWUHDPRQWKHWXEHVLGHZKHUHDVWKHYHORFLW\RIWKH
FROGVWUHDPLVVDWLVIDFWRU\DWIWVPVWKDWRIWKHKRWVWUHDPLVVRPH
 
 ZKDWORZDWIWVPV$OWKRXJKWKHFROGVWUHDPLVWKHGLUWLHUVWUHDPDQG
ZLOO WKHUHIRUH EH EHWWHU URXWHG WKURXJK WKH WXEHVLGH SHU VH LW UHVXOWV LQ D
VRPHZKDWORZYHORFLW\RIWKHKRWVWUHDPZKLFKLVQRWDFOHDQVWUHDPHLWKHU$V
YHORFLW\ SOD\V D GRPLQDQW UROH LQ IRXOLQJ LW LV SUHIHUDEOH WR KDYH D VDWLVIDFWRU\
YHORFLW\IRU HDFKVWUHDPHYHQ LI LW PHDQVURXWLQJWKH GLUWLHUVWUHDPWKURXJKWKH
VKHOOVLGH
 :KHQ WKH GHVLJQ KDYLQJ WKH FROG VWUHDP RQ WKH VKHOOVLGH LV FRPSDUHG WR WKDW
KDYLQJWKHFROGVWUHDPRQWKHWXEHVLGHWKHIROORZLQJDUHREVHUYHG
D 7KHWRWDOKHDWWUDQVIHUDUHDLVDERXWORZHU
E 7KHEXQGOHDQGWRWDOHPSW\ZHLJKWVIRUHDFKVKHOODUHDQG
ORZHUUHVSHFWLYHO\7KHUHDUHWZRRSSRVLQJWHQGHQFLHVKHUHLWKHPXFK
KLJKHUGHVLJQSUHVVXUHRQWKHVKHOOVLGHDQGLLWKHUHGXFHGQXPEHURIWXEHV
DQGVKHOOGLDPHWHU:KLOHWKHIRUPHUWHQGHGWRLQFUHDVHWKHZHLJKWWKHODWWHU
WHQGHGWRGHFUHDVHLW6LQFHWKHHIIHFWRIWKHVPDOOHUVL]HZDVPRUH
SUHGRPLQDQWWKHH[FKDQJHUZHLJKWUHGXFHG
 7KXVWKHILUVWGHVLJQKDYLQJWKHFROGVWUHDPRQWKHVKHOOVLGHLVFKHDSHUVLQFHQRW
RQO\LVLWVZHLJKWVLJQLILFDQWO\ORZHULWDOVRKDVWKHPRUHIDYRUDEOHGHVLJQDWLRQ
RIPDWHULDOVRIFRQVWUXFWLRQ²WKHFRUURVLYHVWUHDPLVRQWKHWXEHVLGH%HVLGHVLW
\LHOGVVDWLVIDFWRU\YHORFLWLHVIRUERWKWKHVWUHDPVVRWKDWHYHQWKHRSHUDWLQJFRVW
ZLOOEHORZHU+HQFHWKLVGHVLJQZDVDGRSWHGDVWKHPRUHHFRQRPLFDORQH
,Q PDQ\LQVWDQFHVDVLQWKHSUHVHQWLWLVGLIILFXOWWRHVWDEOLVK ZKLFKDOORFDWLRQ RIVLGHV
ZLOO SURGXFH WKH FKHDSHU GHVLJQ ZLWKRXW ERWK WKH GHVLJQV EHLQJ FDUULHG RXW ,Q VRPH
LQVWDQFHV LW LV GLIILFXOW WR HVWDEOLVK ZKLFK GHVLJQ LV FKHDSHU HYHQ DIWHU WKH WKHUPDO
GHVLJQVDUHSURGXFHGXQWLOVRPHPHFKDQLFDOGHVLJQFDOFXODWLRQVRUHVWLPDWHVDUHFDUULHG
RXW ,Q WKLV FRQWH[W LW VKRXOG EH QRWHG WKDW DOWKRXJK DOO VRSKLVWLFDWHG KHDW H[FKDQJHU
WKHUPDOGHVLJQVRIWZDUHSDFNDJHVFXUUHQWO\DYDLODEOHLQFRUSRUDWHVXEURXWLQHVWRFDUU\RXW
FDOFXODWLRQVWR GHWHUPLQHWKHWXEHEXQGOHDQG HPSW\ H[FKDQJHU ZHLJKWVWKHUHVXOWVDUH
XVXDOO\ DSSUR[LPDWH 7KHUHIRUH ZKHQ WKH ZHLJKW HVWLPDWHV DUH UDWKHU FORVH IRU WKH WZR
GHVLJQVPRUHHODERUDWHZHLJKWFDOFXODWLRQVVKRXOGEHFDUULHGRXW



 
 &+$37(5

0HWKRGRORJ\RIWKH8VH
RI0XOWLSOH6KHOOV

0XOWLSOHVKHOOVPD\EHXVHGHLWKHULQVHULHVRULQSDUDOOHORULQDFRPELQDWLRQRIERWKWR
KDQGOHVLWXDWLRQVWKDWFDQQRWEHKDQGOHGDWDOOE\VLQJOHVKHOOVRUKDQGOHGZHOOE\WKHP
7KLVFKDSWHUGLVFXVVHVWKHPRGDOLWLHVRIWKHXVHRIPXOWLSOHVKHOOVZLWKWZRFDVHVWXGLHVWR
LOOXVWUDWHWKHVDPH

0XOWLSOH6KHOOVLQ3DUDOOHO
0XOWLSOHVKHOOVDUHXVHGLQSDUDOOHOSULPDULO\ZKHQWKHUHTXLUHGKHDWWUDQVIHUDUHDLVWRR
ODUJHWREHDFFRPPRGDWHGLQDVLQJOHVKHOO7KLVLVUHDOO\DSSOLFDEOHWRIORDWLQJKHDGRU
8WXEHKHDWH[FKDQJHUVZKLFKKDYHUHPRYDEOHWXEHEXQGOHVDQGDUHWKHUHIRUHOLPLWHGE\
FUDQH KDQGOLQJ FDSDFLWLHV ,Q ODUJH PRGHUQ UHILQHULHV DQG RWKHU FKHPLFDO SODQWV WXEH
EXQGOH ZHLJKWV DUH XVXDOO\ OLPLWHG WR  OEV  NJV ZKLFK WUDQVODWHV WR D
² IW ² P KHDW WUDQVIHU DUHD /DUJHU SODQWV SHUPLW ² WRQ WXEH
EXQGOHV 6LQFH IL[HGWXEHVKHHW KHDW H[FKDQJHUV GR QRW KDYH UHPRYDEOH WXEH EXQGOHV
EXQGOH ZHLJKW LV QRW D OLPLWDWLRQ IRU WKHP DQG FRQVHTXHQWO\ YHU\ ODUJH KHDW WUDQVIHU
DUHDVIWRUPDQGHYHQPRUHFDQEHDFFRPPRGDWHGLQDVLQJOHVKHOO7KH
RQO\ OLPLWDWLRQV KHUH DUH IDEULFDWLRQ FDSDELOLWLHV WUDQVSRUWDWLRQ IDFLOLWLHV DQG SORW DUHD
OLPLWDWLRQV
$QRWKHUUHDVRQWRXVHPXOWLSOHVKHOOVLQSDUDOOHOLVIRUWKHVDNHRIFRQWURO:KHQWKHUHLV
PRUHWKDQRQHFDVHRIRSHUDWLRQDQGZKHUHWKHVWUHDPIORZUDWHVDQGKHDWGXWLHVIRUWKH
GLIIHUHQWFDVHVYDU\FRQVLGHUDEO\WKHYHORFLW\PD\EHXQDFFHSWDEO\ORZIRUWKHORZHUIORZ
UDWH FDVH >/RZ YHORFLWLHV OHDG WR H[FHVVLYH IRXOLQJ VHH 6HFWLRQV   E DQG
G@$ORZYHORFLW\PD\DOVREHH[SHULHQFHGLQDWXUQGRZQFRQGLWLRQ,QRUGHUWR
DGGUHVV WKLV SUREOHP PXOWLSOH VKHOOV LQ SDUDOOHO PD\ EH XVHG DQG RQH RU PRUH VKHOOV E\
SDVVHGIRUWKHORZYHORFLW\FRQGLWLRQV
7KHORZYHORFLW\PD\EHH[SHULHQFHGRQWKHVKHOOVLGHWXEHVLGHRUERWK(YLGHQWO\IRU
DWXUQGRZQFRQGLWLRQWKHYHORFLW\ZLOOEHORZIRUERWKWKHVKHOOVLGHDQGWXEHVLGH
/HWXVGHPRQVWUDWHWKLVZLWKDQH[DPSOH/HWXVFRQVLGHUDKHDWH[FKDQJHUZKLFKKDVWR
EHGHVLJQHGIRUWZRFDVHVUHSUHVHQWLQJWZRGLIIHUHQWIHHGVWRFNV)RUWKHVDNHRIVLPSOLFLW\
OHWXV FRQVLGHUWKDWIRU&DVH %ERWK WKHVKHOOVLGHDQG WXEHVLGHIORZUDWHVDV ZHOODV KHDW
GXW\ DUH  RI WKH YDOXHV IRU &DVH $ WKH GHVLJQ FRQGLWLRQ (YLGHQWO\ &DVH $ LV
FRQWUROOLQJ DQG D VXLWDEOH WKHUPDO GHVLJQ FDQ EH SURGXFHG &RQVLGHU WKDW WKH VKHOOVLGH
YHORFLW\LVIWVPV)RU&DVH%WKLVZLOOUHGXFHWRRUIWV>
RUPV@ZKLFKLVUDWKHUORZDQGPD\UHVXOWLQH[FHVVLYHIRXOLQJ
1RZFRQVLGHUWKDWLQVWHDGRIDVLQJOHVKHOOWKHRULJLQDOGHVLJQLVFRQILJXUHGZLWKWZR

 
VKHOOVLQSDUDOOHO(YLGHQWO\WKHVKHOOVLGHYHORFLW\ZLOOEHVRPHZKDWORZHUWKDQIWV
PVDVWKHQHWIORZDUHDZLOOEHVRPHZKDWKLJKHUVD\IWVPV1RZVLQFHWKH
KHDWWUDQVIHUDUHDIRU&DVH%LVUDWKHUORZRQHRIWKHWZRVKHOOVPD\EHE\SDVVHG7KXVWKH
VKHOOVLGH YHORFLW\ ZLOO EH    IWV >   PV@ ZKLFK LV
VLJQLILFDQWO\KLJKHUWKDQIWVPV7KHPXOWLSOLHULVIRUWKHIDFWWKDWIORZLVQRZ
WDNLQJSODFHWKURXJKRQO\RQHVKHOODQGQRWWZRVKHOOVLQSDUDOOHO

0XOWLSOH6KHOOVLQ6HULHV
0XOWLSOHVKHOOVLQVHULHVDUHXVHGSULQFLSDOO\WR KDQGOHWHPSHUDWXUHFURVVFRQGLWLRQVEXW
WKHUH DUH PDQ\ VLWXDWLRQV ZKHQ WKHLU XVH EHFRPHV DGYDQWDJHRXV LQ RUGHU WR XWLOL]H WKH
SHUPLWWHGSUHVVXUHGURSPRUHHIIHFWLYHO\:HZLOOQRZORRNDWERWKWKHVHVLWXDWLRQV

)RUWHPSHUDWXUHFURVVFRQGLWLRQV
$WHPSHUDWXUHFURVVFRQGLWLRQ RFFXUVZKHQWKH RXWOHWWHPSHUDWXUH RIWKHFROGVWUHDPLV
JUHDWHUWKDQWKHRXWOHWWHPSHUDWXUHRIWKHKRWVWUHDP7KLVFRQGLWLRQLVTXLWHFRPPRQIRU
KHDW UHFRYHU\ DSSOLFDWLRQV VXFK DV IHHGERWWRP KHDW H[FKDQJHUV IRU UHDFWRUV GHVDOWHUV
GLVWLOODWLRQFROXPQVHWF)URPHOHPHQWDU\WKHUPRG\QDPLFVDVLQJOH²KHDWH[FKDQJHU
RQHVKHOOSDVVWZR RU PRUHWXEHSDVVHV FDQQRWDFKLHYHDWHPSHUDWXUHFURVVFRQGLWLRQ
EHFDXVHRQHSDVVLVFRXQWHUFXUUHQWDQGWKHRWKHUFRFXUUHQW$²SXUHFRXQWHUFXUUHQW
KHDWH[FKDQJHUFDQDFKLHYHDWHPSHUDWXUHFURVVFRQGLWLRQEXWKHDWH[FKDQJHUVLQYDULDEO\
UHTXLUHPRUHWKDQRQHWXEHSDVVLQRUGHUWRDFKLHYHDVDWLVIDFWRU\WXEHVLGHYHORFLW\DQG
WKHUHE\ D VDWLVIDFWRU\ WXEHVLGH KHDW WUDQVIHU FRHIILFLHQW 7KH EHVW WKDW D ² KHDW
H[FKDQJHUFDQDFKLHYHLVDQHTXDORXWOHWWHPSHUDWXUHFRQGLWLRQWKDWLVWKHFROGIOXLGDQG
KRWIOXLGRXWOHWWHPSHUDWXUHVDUHHTXDO
7KXVLIDWHPSHUDWXUHFURVVFRQGLWLRQLVWREHDFKLHYHGPXOWLSOHVKHOOVLQVHULHVKDYHWR
EHHPSOR\HG7KHQXPEHURIVKHOOVLQVHULHVZLOOGHSHQGXSRQWKHH[WHQWRIWKHWHPSHUDWXUH
FURVVWKDWLVWKHGLIIHUHQFHEHWZHHQWKHVKHOOVLGHDQGWKHWXEHVLGHRXWOHWWHPSHUDWXUHV7KH
KLJKHUWKHWHPSHUDWXUHFURVVWKHJUHDWHUWKHQXPEHURIVKHOOVUHTXLUHGLQVHULHV
,Q RUGHUWR GHWHUPLQHWKH QXPEHU RI VKHOOVUHTXLUHG IRUDSDUWLFXODUWHPSHUDWXUHFURVV
DSSOLFDWLRQ D VLPSOH FRQVWUXFWLRQ RI GUDZLQJ KRUL]RQWDO DQG YHUWLFDO OLQHV LV DOO WKDW LV
UHTXLUHG7KHFRQVWUXFWLRQPD\EHJLQIURPHLWKHUWKHKRWRUWKHFROGHQGDQGFDUULHGRQWLOO
WKHHQWLUHWHPSHUDWXUHSURILOHLVFRYHUHG,IVXFKDQDWWHPSWLVPDGHLWZLOOEHVHHQWKDWLIWKH
FRQVWUXFWLRQLVVWDUWHGDWWKHFROGHQGWKHILUVWKRUL]RQWDOOLQHZLOOKDYHWREHGUDZQIURPWKH
KRWVWUHDPWHPSHUDWXUHSURILOH,IKRZHYHUWKHFRQVWUXFWLRQLVVWDUWHGDWWKHKRWHQGWKHILUVW
KRUL]RQDO OLQH ZLOO KDYH WR EH GUDZQ IURP WKH FROG VWUHDP WHPSHUDWXUH SURILOH 7KLV
FRQVWUXFWLRQ PHWKRG LV DSSOLFDEOH QRW RQO\ WR OLQHDU KHDW GXW\WHPSHUDWXUH SURILOHV EXW WR
QRQOLQHDU RQHVDV ZHOO(YLGHQWO\VLQFHD IUDFWLRQDOVKHOO FDQQRWEHSURYLGHG WKH QH[W
KLJKHUZKROHQXPEHURIVKHOOVKDVWREHHPSOR\HGLQVHULHV
7KLVFDQEHDSSUHFLDWHGJUDSKLFDOO\LQ)LJ,Q)LJEZKHUHWKHWHPSHUDWXUHFURVV
LVPRGHUDWHWZRVKHOOVLQVHULHVDUHDGHTXDWH+RZHYHULQ)LJDZKLFKKDVDVXEVWDQWLDO
WHPSHUDWXUH FURVV IRXU VKHOOV DUH UHTXLUHG LQ VHULHV ,W PD\ EH VHHQ WKDW HDFK VKHOO RI D
PXOWLSOHVKHOOVLQVHULHVDSSOLFDWLRQDFKLHYHV HTXDO RXWOHWWHPSHUDWXUHV7KXV LQ)LJE
6KHOO  KDV D VKHOOVLGH DQG WXEHVLGH RXWOHW WHPSHUDWXUH RI ƒ) ƒ& 6KHOO  KDV D
VKHOOVLGHDQGWXEHVLGHRXWOHWWHPSHUDWXUHRIƒ)ƒ&DQGVRRQ

)RUEHWWHUXWLOL]DWLRQRIDOORZDEOHSUHVVXUHGURS
$VHODERUDWHGDERYHPXOWLSOHVKHOOVDUHJHQHUDOO\XVHGZKHQWKHUHLVDWHPSHUDWXUHFURVV

 
 
 D E
)LJ'HWHUPLQDWLRQRIWKHQXPEHURIVKHOOVLQVHULHV

FROG VWUHDP RXWOHW WHPSHUDWXUH JUHDWHU WKDQ KRW VWUHDP RXWOHW WHPSHUDWXUH DQG SXUH
FRXQWHUFXUUHQWIORZFDQQRWEHDFKLHYHG+RZHYHUWKHUHDUHRFFDVLRQVZKHQWKHVKHOOVLGH
IORZUDWHLVVRORZWKDWZLWKDVLQJOHVKHOODQGEDIIOHVSODFHGDVFORVHDVIHDVLEOH
RIWKHVKHOOLQVLGHGLDPHWHUWKHSUHVVXUHGURSLVH[FHHGLQJO\ORZDQGVRWRRLVWKHKHDW
WUDQVIHUFRHIILFLHQW,QVXFKFDVHVLWZRXOGEHSUXGHQWWRWU\WZRRUHYHQPRUHVKHOOVLQ
VHULHV DV LW PD\ UHVXOW LQ D FKHDSHU GHVLJQ E\ DFKLHYLQJ D PXFK KLJKHU VKHOOVLGH KHDW
WUDQVIHUFRHIILFLHQW3OHDVHVHH&DVH6WXG\LQ&KDSWHU

)RULPSURYLQJWKHWHPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQIDFWRU
<HWDQRWKHUUHDVRQIRUXVLQJWZRRU PRUHVKHOOVLQVHULHV LVWRLPSURYHWKHWHPSHUDWXUH
SURILOH GLVWRUWLRQ FRUUHFWLRQ IDFWRU 7KLV ZDV GLVFXVVHG LQ GHWDLO LQ 6HFWLRQ  DQG
WKHUHDIWHU LQ &DVH 6WXG\  LW ZDV GHPRQVWUDWHG KRZ D WHPSHUDWXUH SURILOH GLVWRUWLRQ
SUREOHPFDQEHEHWWHUKDQGOHGE\WKHXVHRIWZRVKHOOVLQVHULHV

&$6(678'<86(2)08/7,3/(6+(//6,16(5,(6
$FRROHUZDVWREHGHVLJQHGIRUFRROLQJDOLJKWK\GURFDUERQLQDQRLOUHILQHU\7KHSULQFL
SDOSURFHVVSDUDPHWHUVDUHVSHFLILHGLQ7DEOHD&DUERQVWHHOWXEHVLQPP
2'îLQPPWKLFNîIWPPORQJZHUHUHTXLUHGWREHXVHG
$GHVLJQZDVSUHSDUHGXVLQJRQO\RQHVKHOO(YHQZLWKDVPDOOEDIIOHVSDFLQJDQGFXW
WKHVKHOOVLGHYHORFLW\DQGWKHUHE\WKHKHDWWUDQVIHUFRHIILFLHQWZHUHYHU\ORZOHDGLQJWRD
YHU\ODUJHKHDWWUDQVIHUDUHDDQGVKHOOGLDPHWHU7KHDOORZDEOHVKHOOVLGHSUHVVXUHGURSZDV
KLJKO\XQGHUXWLOL]HG>SVLYHUVXVSVLNJFPYHUVXVNJFP@$Q\IXUWKHU
UHGXFWLRQ LQEDIIOH VSDFLQJDQG FXWUHVXOWHG LQDQXQDFFHSWDEOHVWUHDPDQDO\VLV ZLWK ODUJH
OHDNDJHVWUHDPVHVSHFLDOO\EDIIOHWRVKHOO
)XUWKHUVLQFHWKHRXWOHWWHPSHUDWXUHVZHUHHTXDOWKH)WIDFWRUZDVRQO\:LWKWZR
VKHOOVLQVHULHVWKLVZRXOGEHVXEVWDQWLDOO\KLJKHU<HWDQRWKHUGUDZEDFNZDVWKHUHODWLYHO\
ORZ WHPSHUDWXUH SURILOH GLVWRUWLRQ FRUUHFWLRQ IDFWRU RI  FDXVHG E\ D QRW YHU\
GLVWLQJXLVKHGVWUHDPDQDO\VLVDQGDUHODWLYHO\KLJKUDWLRRIVKHOOVLGHWHPSHUDWXUHGLIIHUHQFH
WRWKHWHPSHUDWXUHDSSURDFKDWWKHVKHOORXWOHW>±±RU±±
RU@

 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG /LJKWK\GURFDUERQ &RROLQJZDWHU

 )ORZUDWHOEKNJK  

 ,QOHWRXWOHWWHPSHUDWXUHƒ)ƒ&  

 +HDWGXW\00%WXK00NFDOK 
 
 'HQVLW\LQRXWOEIW NJP   

 9LVFRVLW\LQRXWFS  

 $YHUDJHVSHFLILFKHDW%WXOEƒ)NFDONJƒ&  VWDQGDUG

 7KHUPDOFRQGXFWLYLW\LQRXW%WXKIWƒ) 
NFDOKPƒ&

 $OORZDEOHSUHVVXUHGURSSVLNJFP  

 
 )RXOLQJUHVLVWDQFHKIW ƒ)%WXKP ƒ&NFDO  
 'HVLJQSUHVVXUHSVLJNJFPJ  
 0DWHULDORIFRQVWUXFWLRQ &6 &6

 1RPLQDOOLQHVL]HPP  

,QDQHIIRUWWRLQFUHDVHWKHVKHOOVLGHYHORFLW\DQGWKHUHE\LWVKHDWWUDQVIHUFRHIILFLHQWD
GHVLJQ ZDV FDUULHG RXW XVLQJ WZR VKHOOV LQ VHULHV $V H[SHFWHG WKHUH ZDV D FRQVLGHUDEOH
LPSURYHPHQW LQ WKH VKHOOVLGH SHUIRUPDQFH 7KH VWUHDP DQDO\VLV ZDV IDU EHWWHU DQG WKH
VKHOOVLGH YHORFLW\ FRQVLGHUDEO\ KLJKHUWKHUHE\UHVXOWLQJLQDLQFUHDVH LQWKHVKHOOVLGH
KHDWWUDQVIHUFRHIILFLHQW7KHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWZHQWXSIURP%WXKIW ƒ)
NFDOKPƒ&WR%WXKIWƒ)NFDOKPƒ&DQLQFUHDVHRI
)XUWKHU GXH WR D VLJQLILFDQW LQFUHDVH LQ ERWK WKH )W IDFWRU DQG WKH WHPSHUDWXUH SURILOH
GLVWRUWLRQFRUUHFWLRQIDFWRUWKH07'LQFUHDVHGE\7KXVWKHRYHUDOOKHDWWUDQVIHUDUHD
UHGXFHGIURPIWPWRIWPDUHGXFWLRQRIDQGWKHWRWDOHPSW\
ZHLJKWIURPOENJWROENJDUHGXFWLRQRI7KHVKHOOVLGH
SUHVVXUHGURSZDVIDUEHWWHUXWLOL]HGDWSVLNJFPIDUFORVHUWRWKHDOORZDEOHOLPLW
RISVLNJFP
(YLGHQWO\WKHWZRVKHOOGHVLJQZDVDGRSWHGVLQFHLWVLQLWLDOFRVWZRXOGEHVLJQLILFDQWO\
ORZHU WKDQ WKH VLQJOHVKHOO GHVLJQ 7KH VDOLHQW IHDWXUHV RI ERWK GHVLJQV DUH HODERUDWHG LQ
7DEOHE

0XOWLSOH6KHOOVLQ6HULHV3DUDOOHO
7KH XVH RI PXOWLSOH VKHOOV LQ VHULHV RU LQ SDUDOOHO LV TXLWH VWUDLJKWIRUZDUG +RZHYHU
VLWXDWLRQVVRPHWLPHVDULVH ZKHQQHLWKHUDVHULHVQRUDSDUDOOHODUUDQJHPHQWFDQEHXVHG
DQG D VHULHVSDUDOOHO DUUDQJHPHQW EHFRPHV XQDYRLGDEOH 7KLV DUUDQJHPHQW LV VKRZQ LQ
)LJDQGLVLOOXVWUDWHGE\WKHIROORZLQJUHDOOLIHVLWXDWLRQLQDUHILQHU\DSSOLFDWLRQ

&$6(678'<86(2)08/7,3/(6+(//6,16(5,(63$5$//(/
$K\GURFDUERQOLTXLGFRROHUKDGWREHGHVLJQHGIRUWKHGXW\VSHFLILHGLQ7DEOHD$V
WKH OLTXLG KDG WR EH FRROHG WKURXJK D ODUJH WHPSHUDWXUH UDQJH LW EHFDPH LPSHUDWLYH WR
 
 7DEOHE6DOLHQWIHDWXUHVRIWZRGHVLJQVIRU&DVH6WXG\
 'HVLJQZLWKD 'HVLJQZLWKVKHOOV
VLQJOHVKHOO LQVHULHV
 6KHOO,'LQPP  

 +HDWWUDQVIHUDUHDSHUVKHOOIWP  

 
 7RWDOKHDWWUDQVIHUDUHDIW P   
 1XPEHURIWXEHVSHUVKHOO  

 1RRIWXEHSDVVHV  
 7XEHSLWFKLQPP VTXDUH
 %DIIOHVSDFLQJLQPP  

 %DIIOHFXWGLDPHWHU  

 6KHOOVLGHYHORFLW\IWVPV  

 %DIIOHKROHWXEHOHDNDJH$  

0DLQFURVVIORZ%  

 6WUHDP %XQGOHVKHOOE\SDVV&  
DQDO\VLV
%DIIOHVKHOOOHDNDJH(  

3DVVSDUWLWLRQE\SDVV)  

2YHUDOOVKHOOVLGHVWUHDPHIILFLHQF\  

 6KHOOVLGHKHDWWUDQVIHUFRHIILFLHQW%WXKIWƒ)  

NFDOKPƒ&
 6KHOOVLGHSUHVVXUHGURSSVLNJFP  
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW%WXKIWƒ)  
NFDOKPƒ&

 )W  

 07' 7HPSHUDWXUHSURILOHGLVWRUWLRQ  

FRUUHFWLRQIDFWRU

&RUUHFWHG07'ƒ)ƒ&  

 2YHUGHVLJQ  

 $SSUR[EXQGOHZHLJKWOEVNJV  î



 $SSUR[HPSW\ZHLJKWOEVNJV  î



HPSOR\WZRVKHOOVLQVHULHVWRUHGXFHWKHDGYHUVHHIIHFWRIWKHVKHOOVLGHOHDNDJHVWUHDPV
HVSHFLDOO\WKHVKHOOWREDIIOHOHDNDJHVWUHDPRQWKHWHPSHUDWXUHSURILOHDQGWKHUHE\WKH
07' 8QIRUWXQDWHO\ ZKLOH WKH VKHOOVLGH SUHVVXUH GURS FRXOG EH FRQWDLQHG ZLWKLQ WKH
DOORZDEOHOLPLWZLWKWZRVKHOOVLQVHULHVWKHWXEHVLGHSUHVVXUHGURSFRXOGQRWHYHQZLWK

 
 WZRWXEHSDVVHVZKLFK LVWKH PLQLPXPIRUD
VSOLWULQJSXOOWKURXJKIORDWLQJKHDGFRQVWUXF
WLRQ7KHFRROLQJZDWHUIORZUDWHFRXOGQRWEH
UHGXFHG DV LWV RXWOHW WHPSHUDWXUH ZRXOG WKHQ
H[FHHG ƒ) ƒ& ZKLFK ZRXOG UHVXOW LQ
H[FHVVLYHIRXOLQJVFDOLQJ
7KHRQO\IHDVLEOHVROXWLRQWKHUHIRUHZDVWR
KDYH WKH VKHOOVLGH FRQQHFWHG LQ VHULHV DQG WKH
WXEHVLGHFRQQHFWHGLQSDUDOOHODVVKRZQLQ)LJ
%HLQJDVRPHZKDWXQXVXDOVLWXDWLRQZKLFK
FDQQRWEHKDQGOHGLQDVLQJOHUXQRQDQ\FRP
PHUFLDOKHDWH[FKDQJHUWKHUPDOGHVLJQVRIWZDUH
SDFNDJHLWKDGWREHGHVLJQHGFDUHIXOO\
$VLWZDVGHVLUDEOHWRKDYHWKHWZRVKHOOVRI
WKHVDPHVL]HLWZDVHYLGHQWWKDWWKHKRWWHUVKHOO
ZRXOGGHOLYHUDPXFKKLJKHUKHDWGXW\WKDQWKH
FROGHUVKHOOE\YLUWXHRI
)LJ6HULHVSDUDOOHODUUDQJHPHQW
 WKHKLJKHU07'DQG
 WKH KLJKHU VKHOOVLGH DQG WKHUHE\ RYHUDOO KHDW WUDQVIHU FRHIILFLHQW GXH WR WKH
ORZHUVKHOOVLGHYLVFRVLW\
&RQVHTXHQWO\ WKH WZR VKHOOV ZHUH UXQ LQGLYLGXDOO\ RQ D SURSULHWDU\ FRPSXWHU SURJUDP
VHYHUDOWLPHVZLWKGLIIHUHQWLQWHUPHGLDWHWHPSHUDWXUHVRIWKHK\GURFDUERQOLTXLGEHWZHHQ
WKHWZRVKHOOVXQWLOWKHWZRVKHOOVFRXOGEHRILGHQWLFDOVKHOO,'DQGWXEHOHQJWKDQGPRUH
RUOHVVWKHVDPHGHJUHHRIRYHUGHVLJQ7KHLQWHUPHGLDWHK\GURFDUERQOLTXLGWHPSHUDWXUH
ILQDOO\FDPHWRƒ)ƒ&DQGFRUUHVSRQGHGWRKHDW GXW\LQWKH KRWWHUVKHOO

7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG +\GURFDUERQOLTXLG &RROLQJZDWHU

 )ORZUDWHOEKNJK  

 ,QOHWRXWOHWWHPSHUDWXUHƒ)ƒ&  

 $OORZDEOHSUHVVXUHGURSSVLNJFP  
 )RXOLQJUHVLVWDQFHKIWƒ)%WX  
KPƒ&NFDO

 9LVFRVLW\LQRXWFS  

 'HQVLW\LQRXWOEIWNJP  

6WDQGDUG
 7KHUPDOFRQGXFWLYLW\LQRXW%WXKIWƒ) 
NFDOKPƒ& 

 6SHFLILFKHDWLQRXW%WXOEƒ)NFDONJƒ& 

 +HDWGXW\00%WXK00NFDOK 
 'HVLJQSUHVVXUHSVLJNJFPJ  

 0DWHULDORIFRQVWUXFWLRQ &6 $GPLUDOW\%UDVV

 
 7DEOHE6DOLHQWFRQVWUXFWLRQDQGSHUIRUPDQFHIHDWXUHVRIK\GURFDUERQOLTXLGFRROHU
 +RWVKHOO &ROGVKHOO
 7\SHRIVKHOO )ORDWLQJKHDG7(0$$(6

 6KHOO,'LQPP 

 7XEH2'îWKLFNQHVVîOHQJWKPP îî

 7XEHSLWFKLQPP URWDWHGVTXDUH

 %DIIOHVSDFLQJLQPP 

 %DIIOHFXWGLDPHWHU 
 1XPEHURIWXEHVîQRRIWXEHSDVVHV î î
 +HDWWUDQVIHUDUHDP  

 6KHOOVLGHWHPSLQRXWƒ)ƒ&  
 +HDWGXW\00%WXK00NFDOK  

 &RROLQJZDWHUIORZUDWHOEKNJK  

 7XEHVLGHYHORFLW\IWVPV  
 6KHOOVLGHFURVVIORZZLQGRZYHORFLW\  
IWVPV
 +HDWWUDQVIHU 6KHOOVLGH  
FRHIILFLHQW
%WXKIWƒ)NFDOK 7XEHVLGH  
Pƒ& 2YHUDOO  

 07'ƒ&  

 2YHUGHVLJQ  

 3UHVVXUHGURSSVL 6KHOOVLGH  

NJFP
7XEHVLGH  

 1RPLQDOQR]]OH 6KHOOVLGH  

VL]HLQPP
7XEHVLGH  

DQGWKHEDODQFHLQWKHFROGHURQH7KHGHWDLOHGFRQVWUXFWLRQDQGVRPHSHUIRUPDQFH
SDUDPHWHUVDUHVKRZQLQ7DEOHE7KHSULQFLSDOUHDVRQIRUWKLVZDVWKDWWKH07'LQ
WKH KRW VKHOO LV  KLJKHU WKDQ WKDW RI WKH FROG VKHOO WKH RYHUDOO KHDW WUDQVIHU
FRHIILFLHQWZDVRQO\PDUJLQDOO\KLJKHUDW
$V DOUHDG\ VWDWHG WKH FRROLQJ ZDWHU ZDV WR IORZ LQ SDUDOOHO WKURXJK WKH WZR VKHOOV
+RZHYHU LIWKH WRWDO FRROLQJ ZDWHUIORZUDWH ZHUHWREH GLYLGHG HTXDOO\ EHWZHHQWKHWZR
VKHOOVWKHFRROLQJZDWHUOHDYLQJWKHKRWWHUVKHOOZRXOGEHPXFKKLJKHUWKDQƒ)RUƒ&
ZKHUHDVWKDWOHDYLQJWKHFROGHUVKHOOZRXOGEHPXFKOHVVWKDQƒ)RUƒ&ZKLFKZDVWKH
FRPELQHG RXWOHW WHPSHUDWXUH $V FRROLQJ ZDWHU VFDOLQJ LV YHU\ SURQRXQFHG DW KLJKHU
WHPSHUDWXUHVWKLVZRXOGKDYHOHGWRKHDY\IRXOLQJLQWKHKRWWHUVKHOO,QRUGHUWRDYRLGWKLV
SUREOHPWKHFRROLQJZDWHUIORZUDWHZDVGLYLGHGWRWKHWZRVKHOOVLQWKHVDPHUDWLRDVWKHLU
KHDWGXWLHVQDPHO\VRWKDWWKHFRPELQHGRXWOHWWHPSHUDWXUHRIWKHWZRVKHOOVZRXOGEH
ƒ)RUƒ&
 
 7DEOHF3ULQFLSDOSDUDPHWHUVRIILQDOGHVLJQIRU&DVH6WXG\
1XPEHURIVKHOOV 6KHOOVLGHLQVHULHV7XEHVLGHLQSDUDOOHO

 +HDWWUDQVIHUDUHDIWP 

KRWVKHOOFROGVKHOO
 LQPP2'LQPPWKLFN
 7XEHGHWDLOV IWPPORQJWXEHV
LQKRWVKHOODQGWXEHVLQFROGVKHOO

 1XPEHURIWXEHSDVVHV LQKRWVKHOO

LQFROGVKHOO
 %DIIOHVSDFLQJLQPP 
 %DIIOHFXW GLDPHWHUKRUL]RQWDO

 &RROLQJZDWHUYHORFLW\IWVPV LQKRWWHUVKHOO

LQFROGHUVKHOO
 &RROLQJZDWHUSUHVVXUHGURSSVLNJFP 

 +\GURFDUERQOLTXLGSUHVVXUHGURSSVLNJFP >LQKRWVKHOO

DQGLQFROGVKHOO
 07'ƒ)ƒ& +RWVKHOOFROGVKHOO
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW
+RWVKHOOFROGVKHOO
%WXKIWƒ)NFDOKPƒ&

1RUPDOO\LWZRXOGKDYHEHHQQHFHVVDU\WRHPSOR\DIORZFRQWUROOHUWRDFKLHYHWKLVVSOLW
RIIORZUDWHWRWKHWZRVKHOOV+RZHYHULWZDVGLVFRYHUHGE\DKDSS\FRLQFLGHQFHWKDWE\
KDYLQJIRXUWXEHSDVVHVLQWKHKRWWHUVKHOODQGWZRWXEHSDVVHVLQWKHFROGHURQHWKHFRROLQJ
ZDWHUSUHVVXUHGURSLQERWKWKHVKHOOVZDVYLUWXDOO\LGHQWLFDO7KHSULQFLSDOSDUDPHWHUVRIWKH
ILQDOGHVLJQDUHVKRZQLQ7DEOHF,WPD\EHQRWHGWKDWWKHKRWVKHOOKDVWXEHVZKLOH
WKHFROGVKHOOKDVVLQFHWKHUHDUHIRXUWXEHSDVVHVLQWKHODWWHUDQGWZRLQWKHIRUPHU


 
 &+$37(5

7KHUPDO'HVLJQDQG2SWLPL]DWLRQ
RI&RQGHQVHUV

,QWURGXFWLRQ
7KH WKHUPDO GHVLJQ RI FRQGHQVHUV LV D IDVFLQDWLQJ VXEMHFW DV WKHUH LV D FRQVLGHUDEOH
YDULDWLRQ LQ VHUYLFH FRQVWUXFWLRQ RSHUDWLQJ SUHVVXUH FRQGHQVLQJ UDQJH DQG HYHQ WKH
FKRLFHRIFRRODQW'XHWRODUJHVFDOHUHVHDUFKFDUULHGRXWLQUHFHQW\HDUVWKHSKHQROPH
QRQ RI FRQGHQVLQJ LV QRZ TXLWH ZHOO XQGHUVWRRG DQG WKLV VRSKLVWLFDWHG NQRZOHGJH LV
HPERGLHGLQVHYHUDOSURSULHWDU\VRIWZDUHSDFNDJHV8QIRUWXQDWHO\WKHUHLVDORWWREHGH
VLUHGLQWKHDSSOLFDWLRQRIWKHVHVRIWZDUHSDFNDJHVLQWKHSUDFWLFDOGHVLJQRIFRQGHQVHUV
ERWKZLWKWKHLUVSHFLILFDWLRQE\SURFHVVOLFHQVRUVDQGWKHLUDFWXDOGHVLJQE\HQJLQHHULQJ
FRPSDQLHVDQGRUIDEULFDWRUV$VZLWKDQ\ FRPSOH[VXEMHFWLWLV LPSRUWDQWWR JUDVSWKH
IXQGDPHQWDOVDQGWKHLQWHUSOD\RISDUDPHWHUVLQRUGHUWRQRWRQO\HQMR\WKHDFWLYLW\EXWWR
SURGXFHHIILFLHQWDQGRSWLPL]HGGHVLJQVDVZHOO7KHDFFHQWLQWKHIROORZLQJVHFWLRQVZLOO
WKHUHIRUH QRW EH RQ D SOHWKRUD RI HTXDWLRQV²RI ZKLFK WKHUH LV D SUHSRQGHUDQFH LQ WKH
SXEOLVKHGOLWHUDWXUHVHH5HIV>±@²EXWUDWKHURQWKHLUDSSOLFDWLRQIRURSWLPXPGHVLJQ

&ODVVLILFDWLRQ
$FFRUGLQJWRFRQVWUXFWLRQ
,WLVXVXDOO\SUHIHUUHGWR KDYHFRQGHQVDWLRQRQWKHVKHOOVLGHRIDKHDW H[FKDQJHU7KHUH
DUHWZRLPSRUWDQWUHDVRQVIRUWKLV7KHILUVWLVWKDWLWLVHDVLHUWRVHSDUDWHWKHFRQGHQVDWH
IURP WKH XQFRQGHQVHG YDSRU RQ WKH VKHOOVLGH E\ WKH JUDYLWDWLRQDO IRUFH DV WKH FURVV
VHFWLRQDODUHDLVPXFKKLJKHUDQGWKHQXPEHURIVWUHDPVPXFKOHVVWKDQRQWKHWXEHVLGH
7KH VHFRQG LV WKDW ZDWHU LV WKH FRROLQJ PHGLXP LQ WKH YDVW PDMRULW\ RI FRQGHQVHUV
DOWKRXJKDLUKDVEHFRPH LQFUHDVLQJO\SRSXODUWKHXVHRI ZDWHU LVVWLOO PRUHSUHYDOHQW
DQGLVSUHIHUDEO\URXWHGWKURXJKWKHWXEHVLGHDVLWLVPRUHFRUURVLYHDVZHOODVIRXOLQJ
+RZHYHU LQ WKH SHWURFKHPLFDO DQG VSHFLDOW\ FKHPLFDO LQGXVWULHV WKH SURFHVV IOXLG LV
RIWHQ FRUURVLYH WKHUHE\ UHTXLULQJ DOOR\ VWHHO FRQVWUXFWLRQ ,Q VXFK LQVWDQFHV LW LV PRUH
HFRQRPLFDO WR URXWH WKH SURFHVV VWUHDP WKURXJK WKH WXEHVLGH IRU UHDVRQV RI HFRQRP\ DV
H[SODLQHG LQ 6HFWLRQ  ,Q VRPH RWKHU LQVWDQFHV WKH SURFHVV IOXLG LV DW KLJK SUHVVXUH
FRQVHTXHQWO\LWLVDJDLQEHWWHUURXWHGWKURXJKWKHWXEHVLGHDVH[SODLQHGLQ6HFWLRQ
$FRPSUHKHQVLYHVHOHFWLRQJXLGHLVSUHVHQWHGLQ>@

$FFRUGLQJWROD\RXW
&RQGHQVHUV DV ZLWK RWKHU VKHOODQGWXEH KHDW H[FKDQJHUV DUH SUHIHUUHG WR EH PRXQWHG
KRUL]RQWDOO\ IRU HDVH RI PDLQWHQDQFH HVSHFLDOO\ IRU H[FKDQJHUV KDYLQJ UHPRYDEOH WXEH
EXQGOHV,WLVPXFK HDVLHUWRUHPRYHDKRUL]RQWDOWXEHEXQGOHWKDQDYHUWLFDO RQH HVSH
 
FLDOO\LILWLVODUJH+RZHYHULQFHUWDLQVSHFLDOVLWXDWLRQVLWLVIDUEHWWHUWRKDYHDYHUWLFDO
FRQVWUXFWLRQ $ FRPPRQ H[DPSOH LV D UHIOX[ RU D NQRFNEDFN FRQGHQVHU +HUH YDSRU
IORZV XS LQVLGH WXEHV DQG FRQGHQVDWH IDOOV GRZQ SURJUHVVLYHO\ WKHUHE\ HIIHFWLQJ EHWWHU
VHSDUDWLRQ RI FRQGHQVDWHIURPXQFRQGHQVHG YDSRURU QRQFRQGHQVDEOHV,I GHVLUDEOH IRU
UHDVRQV PHQWLRQHGDERYHWR KDYHFRQGHQVDWLRQRQWKHVKHOOVLGHDYHUWLFDOFRQVWUXFWLRQ
FDQVWLOOEHHPSOR\HG&DUHZLOOKDYHWREHWDNHQLQVXFKVLWXDWLRQVWRSUHYHQWE\SDVVLQJ
RI WKH FRQGHQVLQJ YDSRUV DURXQG WKH WXEH EXQGOH 7KLV LV XVXDOO\ DFKLHYHG E\ WKH
MXGLFLRXVDSSOLFDWLRQRIDVHDOLQJDUUDQJHPHQW
,WVKRXOGEHUHDOL]HGWKDWDYHUWLFDOFRQVWUXFWLRQUHVXOWVLQDFRQVLGHUDEOHVDYLQJLQSORW
DUHD &RQVHTXHQWO\ ZKHQ D FRQGHQVLQJ VWUHDP LV URXWHG WKURXJK WKH VKHOOVLGH DQG LV
UHODWLYHO\QRQIRXOLQJVRWKDWQRFOHDQLQJLVUHTXLUHGDIL[HGWXEHVKHHWFRQVWUXFWLRQFDQEH
HPSOR\HGLQDYHUWLFDOSRVLWLRQ$YHUWLFDOFRQVWUXFWLRQFDQDOVREHHPSOR\HGIRUFRQGHQVLQJ
YDSRUVLQVLGHWXEHV
,QHLWKHUFDVHLIWKHFRQGHQVDWLRQLVWRWDOYDSRUFDQHQWHUDWWKHWRSRIWKHFRQGHQVHUDQG
IORZGRZQZDUG7KXVLWLVH[WUHPHO\FRPPRQWRKDYHVWHDPFRQGHQVHRQWKHVKHOOVLGHRI
YHUWLFDO WKHUPRV\SKRQ UHERLOHUV DQG IORZ IURP WRS WR ERWWRP )RU D YHUWLFDO SDUWLDO
FRQGHQVHUKRZHYHULWZLOOEHHVVHQWLDOWRKDYHWKHYDSRUIORZXSDQGWKHFRQGHQVDWHIORZ
GRZQWRHIIHFWVHSDUDWLRQ

$FFRUGLQJWRVHUYLFH
&RQGHQVDWLRQ FDQ HLWKHU EH WRWDO RU SDUWLDO 7KLV ZLOO GHSHQG XSRQ WKH VHUYLFH DQG WKH
RSHUDWLQJ FRQGLWLRQV RI SUHVVXUH DQG WHPSHUDWXUH $ SXUH FRPSRQHQW ZLOO FRQGHQVH
LVRWKHUPDOO\ DQG ZLOO LQYDULDEO\ EH WRWDOO\ FRQGHQVHG $ PL[WXUH RI FRPSRQHQWV RU D
PL[WXUH RI D FRQGHQVDEOH DQG D QRQFRQGHQVDEOH FDQ EH FRQGHQVHG HLWKHU WRWDOO\ RU
SDUWLDOO\GHSHQGLQJXSRQWKHSURFHVVUHTXLUHPHQWV

$FFRUGLQJWRFRRODQW
$VVWDWHGHDUOLHUZDWHULVWKHPRVWFRPPRQO\XVHGFRROLQJPHGLXPGXHWRLWVKLVWRULFDO
HDV\ DQG SOHQWLIXO DYDLODELOLW\ +RZHYHU GXH WR VWDWXWRU\ HQYLURQPHQWDO SROOXWLRQ
DEDWHPHQWUHTXLUHPHQWVWKHFRVWRIZDWHUWUHDWPHQWKDVLQFUHDVHGFRQVLGHUDEO\%HVLGHV
WKHDYDLODELOLW\RIZDWHUKDVGZLQGOHGRYHUWKHUHFHQWSDVWVRWKDWDLULVQRZLQYDULDEO\
WKHILUVWFKRLFHDVDFRROLQJPHGLXPIRUFRQGHQVDWLRQ
,WVKRXOGEHPHQWLRQHGKHUHWKDWVKRXOGWKHFRQGHQVLQJVWUHDPEHDWDVXIILFLHQWO\KLJK
WHPSHUDWXUH LW FDQ EH FRQGHQVHG DJDLQVW DQRWKHU VXLWDEOH SURFHVV VWUHDP WKDW KDV WR EH
KHDWHG RU YDSRUL]HG $IWHU SURFHVVWRSURFHVV FRQGHQVLQJ KDV EHHQ PD[LPL]HG RU UDWKHU
RSWLPL]HG LW EHFRPHV HVVHQWLDO WR UHMHFW DQ\ UHVLGXDO ODWHQW KHDW RI FRQGHQVDWLRQ WR WKH
DWPRVSKHUH
$VDPELHQWWHPSHUDWXUHLVKLJKHUWKDQWKDWRIZDWHUZDWHUFDQFRQGHQVHDVWUHDPWRD
ORZHUWHPSHUDWXUHWKDQFDQDLU7KXVLWEHFRPHVORJLFDOWRHPSOR\DLUILUVWDQGWKHQZDWHUDV
D FRROLQJ PHGLXP 7KH EUHDNWHPSHUDWXUH EHWZHHQ DLU DQG ZDWHU FRROLQJ KDV WR EH
HVWDEOLVKHGE\DGHWDLOHGVWXG\ZKHUHLQWKHWRWDOFRVWHTXLSPHQWFRVWDQGRSHUDWLQJFRVWLV
PLQLPL]HG 8VXDOO\ WKH EUHDNWHPSHUDWXUH LV ±ƒ) ±ƒ& KLJKHU WKDQ WKH GHVLJQ
DPELHQW WHPSHUDWXUH 7KLV ZLOO GHSHQG XSRQ WKH WRWDO FRVW RI ZDWHU LQFOXGLQJ WKH FRVW RI
WUHDWPHQW PDNHXS SLSLQJYDOYLQJ DQG DSSRUWLRQHG FRVW RI D FRROLQJ WRZHU WKH FRVW RI
HTXLSPHQWDQGWKHFRVWRIHQHUJ\
,QPDQ\VLWXDWLRQVVXFKDVLQHWK\OHQHSODQWVFRQGHQVDWLRQLVUHTXLUHGWREHFDUULHGRXW
DWWHPSHUDWXUHVEHORZDPELHQW(YLGHQWO\DLURUZDWHUFDQQRWEHXVHGLQWKHVHVLWXDWLRQVDQG
WKH XVH RI D UHIULJHUDQW EHFRPHV HVVHQWLDO ,Q IDFW VHYHUDO OHYHOV RI UHIULJHUDWLRQ H[LVW LQ
 
HWK\OHQHSODQWVGHSHQGLQJXSRQWKHWHPSHUDWXUHOHYHORIWKHSURFHVVVWUHDPV

$FFRUGLQJWRFRQGHQVLQJUDQJH
,I D FRQGHQVLQJ YDSRU LV D SXUH FRPSRQHQW FRQGHQVDWLRQ ZLOO HYLGHQWO\ EH LVRWKHUPDO
+RZHYHULIWKHFRQGHQVLQJVWUHDPLVDPL[WXUHRIYDULRXVFRPSRQHQWVWKHFRQGHQVDWLRQ
ZLOO EH DFFRPSOLVKHG RYHU D WHPSHUDWXUH UDQJH 7KH ZLGHU WKH PL[WXUH LQ WHUPV RI
YRODWLOLW\WKHZLGHULVWKHFRQGHQVLQJUDQJH
$QRWKHU FDVH LV ZKHQ D SXUH FRPSRQHQW KDV D QRQFRQGHQVDEOH DVVRFLDWHG ZLWK LW LQ
ZKLFKFDVHFRQGHQVDWLRQRIWKHFRQGHQVLQJFRPSRQHQWLVLQLWLDOO\TXLWHUDSLGPHDQLQJRYHU
DVPDOOWHPSHUDWXUHGURSVORZLQJGRZQSURJUHVVLYHO\DVWKHSHUFHQWDJHRIQRQFRQGHQVDEOH
LQFUHDVHV 2I FRXUVH WKHUH FRXOG EH DQ LQLWLDO GHVXSHUKHDWLQJ ]RQH LI WKH VWUHDP LV QRW
VDWXUDWHG $Q H[DPSOH LV D VWHDPMHW HMHFWRU FRQGHQVHU ZKHUH D PL[WXUH RI SUHGRPLQDQWO\
VWHDPDVVRFLDWHGZLWKVRPHKHDY\K\GURFDUERQYDSRUVDQGOHDNDJHDLUHQWHUVDFRQGHQVHU
$IWHUDODUJHGHVXSHUKHDWLQJ]RQHFRQGHQVDWLRQRIVWHDPLVYHU\UDSLGEXWIDOOVDEUXSWO\DV
WKHFRQFHQWUDWLRQRIQRQFRQGHQVDEOHVLQFUHDVHVGUDPDWLFDOO\
4XLWHDGLIIHUHQWVLWXDWLRQLVHQFRXQWHUHGLQDQDLUFRPSUHVVRULQWHUFRROHUZKHUHDYHU\
VPDOOSHUFHQWDJHRIDWPRVSKHULFZDWHUYDSRUHQWHUVWKHFRQGHQVHUDORQJZLWKEXONDLUZKLFK
KDVWREHFRROHG²DVWKHDLULVFRROHGVRPHDVVRFLDWHGZDWHUYDSRUFRQGHQVHV9DSRUVKHDU
LVXVXDOO\YHU\KLJKLQVXFKFDVHVGXHWRWKHKLJKYDSRUZHLJKWIUDFWLRQ
(YLGHQWO\ WKH GHWHUPLQDWLRQ RI WKH KHDW WUDQVIHU FRHIILFLHQW LV PXFK HDVLHU IRU SXUH
FRPSRQHQW LVRWKHUPDO FRQGHQVDWLRQ WKDQ IRU FRQGHQVDWLRQ RI D PL[WXUH WKURXJK D
WHPSHUDWXUHUDQJH,QWKHODWWHUFDVHVHQVLEOHYDSRUFRROLQJDQGGLIIXVLRQHQWHUWKHSLFWXUH
DQG FRPSOLFDWH PDWWHUV FRQVLGHUDEO\ 3XUHFRPSRQHQW FRQGHQVDWLRQ \LHOGV D PXFK KLJKHU
KHDW WUDQVIHU FRHIILFLHQW WKDQ FRQGHQVDWLRQ RI D PL[WXUH RI GLIIHUHQW FRPSRQHQWV RYHU D
WHPSHUDWXUHUDQJHDVDQRVHQVLEOHYDSRUFRROLQJLVLQYROYHGLQWKHIRUPHUDQGEWKHUHLV
QRPDVVWUDQVIHUUHVLVWDQFHRUGLIIXVLRQ7KLVDVSHFWLVGLVFXVVHGLQ6HFWLRQ

$FFRUGLQJWRRSHUDWLQJSUHVVXUH
7KH RSHUDWLQJ SUHVVXUH RI D FRQGHQVHU FDQ YDU\ IURP KLJK YDFXXP WR KXQGUHGV RI
DWPRVSKHUHV)RUH[DPSOHLQDQRLOUHILQHU\YDFXXPFROXPQVWHDPMHWHMHFWRUFRQGHQVHU
WKH RSHUDWLQJ SUHVVXUH FDQ EH DV ORZ DV  PP +J ZKHUHDV LQ DQ DPPRQLD SODQW RU D
SRO\HWK\OHQH SODQW FRQGHQVDWLRQ FDQ WDNH SODFH DW RYHU  DWPRVSKHUHV 6LQFH YDSRU
VKHDUSOD\VDYHU\LPSRUWDQWUROHLQQRQLVRWKHUPDOFRQGHQVDWLRQDQGVLQFHYDSRUGHQVLW\
LVGLUHFWO\SURSRUWLRQDOWRWKHRSHUDWLQJSUHVVXUHWKHODWWHUH[HUWVFRQVLGHUDEOHLQIOXHQFH
LQFRQGHQVHUGHVLJQ
(YLGHQWO\LWLVPXFKPRUHGLIILFXOWWRKDQGOHORZSUHVVXUHVHUYLFHVSULPDULO\EHFDXVH
RI WKH ORZ YDSRU GHQVLWLHV DQG WKH ORZ DOORZDEOH SUHVVXUH GURS 7KLV LV UHDOO\ D GRXEOH
SHQDOW\VLQFHDORZYDSRUGHQVLW\SURGXFHVDKLJKSUHVVXUHGURSDOORWKHUWKLQJVUHPDLQLQJ
FRQVWDQW7KXVKDQGOLQJDORZSUHVVXUHFRQGHQVLQJVHUYLFHRQWKHWXEHVLGHQHFHVVLWDWHVWKH
XVHRIRQHRUPRUHRIWKHIROORZLQJDORZHUQXPEHURIWXEHSDVVHVRIWHQRQO\RQHDODUJHU
WXEH GLDPHWHU DQGRU D VPDOOHU WXEH OHQJWK 2Q WKH VKHOOVLGH VSHFLDO IHDWXUHV VXFK DV D
GLYLGHGIORZ VKHOO DQGRU GRXEOHVHJPHQWDO EDIIOHV DUH RIWHQ UHTXLUHG WR EH HPSOR\HG LQ
RUGHU WR OLPLW WKH SUHVVXUH GURS WR ZLWKLQ WKH SHUPLWWHG YDOXH &RPPRQ WR DOO WKH DERYH
IHDWXUHVZKHWKHURQWKHWXEHVLGHRURQWKHVKHOOVLGHDUHDODUJHUIORZDUHDDQGDVKRUWHUIORZ
OHQJWK

 
0HFKDQLVPVRI&RQGHQVLQJ
&RQGHQVDWLRQ RFFXUV ZKHQ D YDSRU FRPHV LQ FRQWDFW ZLWK D VXUIDFH ZKLFK LV DW D
WHPSHUDWXUHEHORZLWVGHZSRLQW7KHQRUPDOPHFKDQLVPIRUKHDWWUDQVIHULQFRPPHUFLDO
FRQGHQVHUV LV ILOPZLVH FRQGHQVDWLRQ $OWKRXJK PXFK DFDGHPLF LQYHVWLJDWLRQ KDV EHHQ
GHYRWHG WR GURSZLVH FRQGHQVDWLRQ WKHUH KDV EHHQ YHU\ OLWWOH DSSOLFDWLRQ RI WKLV IRU
FRPPHUFLDO SXUSRVHV VLQFH VSHFLDO VXUIDFHV DUH UHTXLUHG WR PDLQWDLQ WKLV PRGH RI
FRQGHQVDWLRQ )XUWKHUPRUH EHQHILFLDO UHVXOWV DUH GHPRQVWUDWHG RQO\ DW ORZ OLTXLG
ORDGLQJV&RQVHTXHQWO\ZHVKDOOOLPLWWKLVGLVFXVVLRQWRILOPZLVHFRQGHQVDWLRQRQO\
:KHQ FRQGHQVDWLRQ RFFXUV D ILOP RI OLTXLG FRYHUV WKH KHDW WUDQVIHU VXUIDFH 7KH
WKLFNQHVVRIWKHILOPGHSHQGVXSRQWKHUDWHRIFRQGHQVDWLRQDQGWKHUDWHRIUHPRYDORIWKH
FRQGHQVDWH7KH ODWWHU GHSHQGVXSRQWKHDFWLRQV RIVKHDUDQG JUDYLW\7KHUHIRUHLWLV YHU\
LPSRUWDQW IRU FRQGHQVHU FDOFXODWLRQV WR GHWHUPLQH WKH IORZ UHJLPH VKHDUFRQWUROOHG RU
JUDYLW\FRQWUROOHGDVGLIIHUHQWFRUUHODWLRQVKDYHWREHHPSOR\HGLQWKHWZRUHJLPHV
:KHQ WKH FRQGHQVLQJ VWUHDP LV D PL[WXUH RI YDULRXV FRPSRQHQWV ZLWK RU ZLWKRXW
QRQFRQGHQVDEOHVWKHFRQGHQVDWLRQSURFHVVEHFRPHVIDUPRUHFRPSOH[WKDQIRUDSXUHYDSRU
VLQFH LW WKHQ LQYROYHV PDVV WUDQVIHU HIIHFWV ZKLFK FUHDWHV DGGLWLRQDO WKHUPDO UHVLVWDQFHV
WKHUHE\UHGXFLQJWKHKHDWWUDQVIHUFRHIILFLHQWFRQVLGHUDEO\

9HUWLFDOLQWXEHFRQGHQVDWLRQ
/HWXVFRQVLGHUFRQGHQVDWLRQLQVLGHYHUWLFDOWXEHV
DV WKLV LV WKH VLPSOHVW VLWXDWLRQ ZKHUH WKH
PHFKDQLVPV FDQ EH HDVLO\ YLVXDOL]HG )LJXUH 
UHSUHVHQWV WKH VLWXDWLRQ ZKHUHLQ LW ZLOO EH VHHQ
WKDWWKHFRQGHQVDWHILOPIORZVXQGHUWKHLQIOXHQFH
RI ERWK WKH VKHDU IRUFH DQG WKH IRUFH RI JUDYLW\
DQGLVUHVWUDLQHGE\WKHVKHDUIRUFHIULFWLRQDWWKH
ZDOO %DVHG XSRQ WKH EDODQFH RI WKHVH IRUFHV DQG
WKH OLTXLGDQG YDSRUIORZUDWHVDQGWKHLUSK\VLFDO
SURSHUWLHVWKHILOPWKLFNQHVVFDQEHGHWHUPLQHG

*UDYLW\FRQWUROOHGFRQGHQVDWLRQ
+HUH WKH IRUFH RI JUDYLW\ LV FRQVLGHUDEO\ KLJKHU
WKDQ WKDW RI VKHDU 7KLV LV WKH FODVVLFDO 1XVVHOW
PRGHRIFRQGHQVDWLRQZKHUHLQWKHILOPLVODPLQDU
DQGKHDWWUDQVIHULVFRQVLGHUHGWRWDNHSODFHWRWDOO\
E\FRQGXFWLRQWKURXJKWKHFRQGHQVDWHILOP
,Q SUDFWLFDO DSSOLFDWLRQV KRZHYHU WKH OLTXLG
ILOP GRHV QRW UHPDLQ ODPLQDU EXW DIWHU SDVVLQJ
WKURXJKDWUDQVLWLRQUHJLRQEHFRPHVWXUEXOHQWDIWHU
D FULWLFDO 5H\QROG¶V QXPEHU LV UHDFKHG :KHQ WKLV
KDSSHQVWKHKHDWWUDQVIHUFRHIILFLHQWLQFUHDVHV
7KH JHQHUDO YDULDWLRQ RI JUDYLW\FRQWUROOHG
FRQGHQVDWH KHDW WUDQVIHU FRHIILFLHQW LV GHSLFWHG
JUDSKLFDOO\LQ)LJ7KLVFXUYHLVJHQHUDOLQWKDW
)LJ  &RQGHQVDWLRQ RQ D YHUWLFDO VXUIDFH
LQ WKH DEVHQFH RI YDSRU VKHDU 5HSULQWHG
LW SRUWUD\V WKH W\SLFDO EHKDYLRU ZKHWKHU FRQGHQ
IURPWKH+HDW([FKDQJHU'HVLJQ+DQGERRN VDWLRQ LV LQVLGH WKH WXEHV RU RXWVLGH WKH WXEHV IRU
ZLWKSHUPLVVLRQRI%HJHOO+RXVH,QF ERWKYHUWLFDODQGKRUL]RQWDOOD\RXWV

 
6KHDUFRQWUROOHGFRQGHQVDWLRQ
,Q WKLV UHJLPH WKH YDSRU YHORFLW\ LV YHU\ KLJK DQG WKHUHIRUH WKH JUDYLW\ FRPSRQHQW
EHFRPHVQHJOLJLEOH7KHIORZSDWWHUQLVDQQXODUDQGLVVKRZQLQ)LJD7KHYDULDWLRQ
RIWKHKHDWWUDQVIHUFRHIILFLHQWLVHVVHQWLDOO\OLQHDUDQGLVUHSUHVHQWHGJUDSKLFDOO\LQ)LJ
E (YLGHQWO\ IRU WKH VDPH 5H\QROG¶V QXPEHU WKH KHDW WUDQVIHU FRHIILFLHQW ZLOO EH
KLJKHUZKHQWKH3UDQGWOQXPEHURIWKHFRQGHQVDWHLVKLJKHU
7KHPDLQIORZSDWWHUQRIYHUWLFDO
LQWXEH GRZQIORZ LV WKH H[LVWHQFH RI
DQQXODUIORZIRUDZLGHUDQJHRIIORZ
FRQGLWLRQV ,Q IDFW IRU D ORZ IORZ
UDWH FDVH DQQXODU IORZ SHUVLVWV
WKURXJKRXWWKHHQWLUHWXEH

5HIOX[FRQGHQVHUV
$UHIOX[FRQGHQVHULVDVSHFLDONLQG
RI YHUWLFDO WXEHVLGH FRQGHQVHU
ZKHUHLQ YDSRU WUDYHOV XS YHUWLFDO
WXEHV FRQGHQVHV DQG IDOOV EDFN LQ
)LJ  7\SLFDO YDULDWLRQ RI JUDYLW\FRQWUROOHG FRQGHQVDWH
DQ DQQXODU ILOP ZKLOH QRQFRQ ILOP KHDW WUDQVIHU FRHIILFLHQW ZLWK OLTXLG 5H\QROGV QXPEHU
GHQVDEOHV OHDYH IURP WKH WRS ,W LV 5HGUDZQIURP+75,
DOVR NQRZQ DV D ³NQRFNEDFN´
FRQGHQVHU DV WKH FRQGHQVDEOHV DUH
FRQGHQVHGDQGNQRFNHGEDFN
5HIOX[FRQGHQVHUVDUHHPSOR\HG
LQWKHFKHPLFDOSURFHVVLQGXVWULHVIRU
FRQGHQVLQJWKHPD[LPXPDPRXQWRI
D YDSRU IURP D QRQFRQGHQVDEOH RII
JDV RU IURP YDSRU VWUHDPV OHDYLQJ
YDSRUOLTXLG HQWUDLQPHQW VHSDUDWRUV
)RU GLVWLOODWLRQ FROXPQ DSSOLFDWLRQV
DUHIOX[FRQGHQVHUVLWVGLUHFWO\RQWRS
RI WKH FROXPQ WKHUHE\ HIIHFWLQJ
PDMRU VDYLQJV LQ SLSLQJ DQG VWUXF 
)LJ D $QQXODU IORZ LQ VKHDUFRQWUROOHG FRQGHQVDWLRQ
WXUH &RRODQW XVXDOO\ HQWHUV DW WKH LQVLGHYHUWLFDOWXEHV&RXUWHV\RI+75,
WRS WKHUHE\ SURYLGLQJ PD[LPXP
FRROLQJWRWKHYDSRUV
7KHPDMRUGLVDGYDQWDJHRIUHIOX[
FRQGHQVHUV LV WKHLU FDSDFLW\ OLPLWD
WLRQ GXH WR IORRGLQJ ZKLFK RFFXUV
ZKHQ WKH YDSRU YHORFLW\ LV VR KLJK
WKDW LW SUHYHQWV WKH IUHH GUDLQDJH RI
FRQGHQVDWH 7R SURYLGH EHWWHU FRQ
GHQVDWH GUDLQDJH DQG WR PLQLPL]H
FRQGHQVDWH EORFNDJH RI WKH YDSRU DW
WKH WXEH LQOHW WXEHV FDQ EH PDGH WR
H[WHQG EH\RQG WKH ORZHU WXEHVKHHW )LJ E 7\SLFDO YDULDWLRQ RI VKHDUFRQWUROOHG FRQGHQVDWH
DQG KDYH WKHLU HQGV WDSHUFXW ILOP KHDW WUDQVIHU FRHIILFLHQW ZLWK YDSRU 5H\QROGV QXPEHU
%HFDXVH RI WKH UHODWLYHO\ ORZ YHOR 5HGUDZQIURP+75,

 
 FLWLHV LQ UHIOX[ FRQGHQ
VHUV WKH\ DUH QRW ZHOO
VXLWHG IRU FRQGHQVLQJ
PL[WXUHV ZKLFK KDYH D
ODUJHDPRXQWRIQRQFRQ
GHQVDEOHJDVHV
$QXPEHURIVWXGLHV
KDYHEHHQFDUULHGRXWRQ
IORRGLQJ LQ UHIOX[ FRQ
GHQVHUV 7KH FRUUHOD
WLRQV ZKLFK DUH XVXDOO\
)LJD7\SLFDOIORZSDWWHUQVLQKRUL]RQWDOLQWXEHFRQGHQVDWLRQ5HSULQWHG
IURPWKH+HDW([FKDQJHU'HVLJQ+DQGERRN ZLWKSHUPLVVLRQRI%HJHOO HPSOR\HG WR FKHFN WKH
+RXVH,QF SRVVLELOLW\ RI IORRGLQJ
DUH>@DQG>@

+RUL]RQWDOLQWXEHFRQGHQVDWLRQ
+RUL]RQWDOWXEHVLGHFRQGHQVDWLRQ LVFRPPRQO\ HPSOR\HGLQDLUFRROHG KHDW H[FKDQJHUV
DVZHOODVLQNHWWOHW\SHFKLOOHUVIRUYDSRUL]LQJDUHIULJHUDQWRQWKHVKHOOVLGH,WUHSUHVHQWV
D PRUH GLIILFXOW VLWXDWLRQ EHFDXVH RI WKH PRUH FRPSOH[ QDWXUH RI WKH IORZ SDWWHUQV
HVSHFLDOO\LQWKHJUDYLW\FRQWUROOHGUHJLPH
)RUERWKKLJKDQGORZWRWDOPDVVYHORFLWLHVFRQGHQVDWLRQEHJLQVLQWKHDQQXODUUHJLPH
6XEVHTXHQWO\ LQWKH FDVH RI KLJK WRWDO PDVV YHORFLW\WKH FRQGHQVDWLRQSURJUHVVHVWRVOXJ
IORZZKHUHDVLQWKHFDVHRIORZWRWDOPDVVYHORFLW\LWSURJUHVVHVWRZDY\RUVWUDWLILHGIORZ
7KLV LV UHSUHVHQWHG LQ )LJ D &URVVVHFWLRQDO YLHZV RI VWUDWLILHG DQG DQQXODU IORZ DUH
VKRZQLQ)LJE
,QVWUDWLILHG IORZWKH KHDWWUDQVIHUFRHIILFLHQW LVDVWURQJ IXQFWLRQ RIWKH KHLJKW RIWKH
VWUDWLILHG OD\HU ZKLFK LV GLIILFXOW WR SUHGLFW ,Q WKH VKHDUFRQWUROOHG UHJLPH KRZHYHU WKH
FRQGLWLRQVDUHPXFKOHVVFRPSOLFDWHGDQGLQIDFWWKHKHDWWUDQVIHUFRHIILFLHQWLVYLUWXDOO\WKH
VDPHDVLQYHUWLFDOLQWXEHFRQGHQVDWLRQ

&RQGHQVDWLRQRXWVLGHWXEHV
&RQGHQVDWLRQ RXWVLGH KRUL]RQWDO WXEHV LV WKH PRVW FRPPRQ VLWXDWLRQ IRU VKHOODQGWXEH
SURFHVV FRQGHQVHUV LQ WKH FKHPLFDO SURFHVV LQGXVWULHV ZLWK FRROLQJ ZDWHU RU HYHQ D
VLQJOHSKDVH RU ERLOLQJ K\GURFDUERQ FRRODQW LQVLGH WXEHV 2QH FRPPRQ DSSOLFDWLRQ RI
FRQGHQVDWLRQ RXWVLGH YHUWLFDO WXEHV LV LQ VWHDPKHDWHG YHUWLFDO WKHUPRV\SKRQ UHERLOHUV
ZKHUHWKHSURFHVVVWUHDP YDSRUL]HV
LQVLGH WXEHV DQG VWHDP FRQGHQVHV
RQWKHVKHOOVLGH
)RU FRQGHQVDWLRQ RXWVLGH D VLQ
JOH WXEH ZLWKRXW YDSRU VKHDU WKH
1XVVHOWHTXDWLRQDJDLQDSSOLHV)RUD
WXEH EXQGOH KRZHYHU WKHUH DUH DG
GLWLRQDO HIIHFWV RI FRQGHQVDWH GULS
SLQJ IURP URZ WR URZ LQXQGDWLRQ
DQG WKH HIIHFW RI YDSRU VKHDU 7KH
WXEH VSDFLQJ DQG WXEHILHOG SDWWHUQ
)LJ E 6WUDWLILHG DQG DQQXODU IORZ LQ KRUL]RQWDO LQWXEH
FRQGHQVDWLRQ 5HSULQWHG IURP WKH +HDW ([FKDQJHU 'HVLJQ ZKHWKHU LQOLQH RU VWDJJHUHG DUH
+DQGERRNZLWKSHUPLVVLRQRI%HJHOO+RXVH,QF LPSRUWDQW YDULDEOHV IRUWKHVH HIIHFWV

 
:LWK WKH LQWURGXFWLRQ RI EDIIOHV WKH
VLWXDWLRQ EHFRPHV HYHQ PRUH FRP
SOH[ 7KXV FRQGHQVDWLRQ RQ WKH
RXWVLGH RI WXEH EXQGOHV LV IDU PRUH
GLIILFXOW WR SUHGLFW WKDQ WKDW LQVLGH
WXEHVGXHWRWKHPXFKPRUHFRPSOH[
JHRPHWU\
:KHQ FRQGHQVLQJ LV RQ WKH
VKHOOVLGH RI KRUL]RQWDO FRQGHQVHUV
EDIIOHV DUH LQYDULDEO\ FXW YHUWLFDOO\
DQG KDYH WULDQJXODU GUDLQ QRWFKHV DW
WKHERWWRP$YHUWLFDOEDIIOHFXWSHU )LJ(IIHFWRIYDSRUVKHDURQFRQGHQVDWLRQRXWVLGHDEDQN
PLWV WKH VHSDUDWLRQ RI FRQGHQVDWH RIWXEHV&RXUWHV\RI+75,
IURP XQFRQGHQVHG YDSRU GXH WR WKH
HIIHFWRIJUDYLW\,WVKRXOGEHUHDOL]HGWKDWWZRIRUFHVDFWRQWKHFRQGHQVDWHILOPRQWXEHV
WKHIRUFHRIJUDYLW\DQGWKDWRIYDSRUVKHDU,QWKHFDVHRIDKRUL]RQWDOVKHOODQGDYHUWLFDO
EDIIOH FXW WKH VKHDU IRUFH DFWV KRUL]RQWDOO\ ZKHUHDV WKH JUDYLWDWLRQDO IRUFH DFWV YHUWLFDOO\
GRZQZDUG7KXVGHSHQGLQJXSRQWKHEDODQFHRIWKHVH WZRIRUFHVWKHFRQGHQVDWLRQPRGH
ZLOOEHHLWKHUJUDYLW\FRQWUROOHGRUVKHDUFRQWUROOHG$FWXDOO\WKHGHPDUFDWLRQLVQRWVRILQH
DQGWKHUHLVDIDLUO\ZLGHWUDQVLWLRQUHJLRQDVZHOO,QLWLDOO\ZKHQWKHYDSRUHQWHUVWKHVKHOO
WKHYDSRUVKHDUFDQEHUDWKHUKLJKVRWKDWFRQGHQVDWLRQPD\ZHOOEHLQWKHVKHDUFRQWUROOHG
PRGH +RZHYHU ZLWK WKH SURJUHVV RI FRQGHQVDWLRQ YDSRU IORZ UDWH DQG WKHUHIRUH YDSRU
VKHDUGHFUHDVHVUDSLGO\DQGWKHPRGHDOWHUVILUVWWRWUDQVLWLRQDQGWKHQWRJUDYLW\FRQWUROOHG
'LIIHUHQWFRUUHODWLRQVDUHHPSOR\HGGHSHQGLQJXSRQZKHWKHUWKHFRQGHQVDWLRQLVLQWKH
VKHDUFRQWUROOHG RU JUDYLW\FRQWUROOHG UHJLPH 'LIIHUHQW VLWXDWLRQV H[LVW GHSHQGLQJ XSRQ
ZKHWKHU WKH WXEHV DUH KRUL]RQWDO RU YHUWLFDO 7KH JHQHUDO QDWXUH RI WKH YDULDWLRQ RI KHDW
WUDQVIHUFRHIILFLHQWZLWKOLTXLG5H\QROGVQXPEHULVWKHVDPHDVVKRZQLQ)LJ7KHHIIHFW
RIYDSRUVKHDULVYLYLGO\VKRZQLQ)LJ

&RQGHQVDWLRQRIPL[HGYDSRUVDQGPL[WXUHVRIYDSRUVDQGQRQFRQGHQVDEOHV
6R IDU ZH KDYH GLVFXVVHG FRQGHQVDWLRQ RI SXUH YDSRUV +RZHYHU D IDU PRUH SUDFWLFDO
DSSOLFDWLRQLVWKHFRQGHQVDWLRQRIDPL[WXUHRIYDSRUVZLWKRUZLWKRXWQRQFRQGHQVDEOHV
+HUH ZH PD\ KDYH WRWDO FRQGHQVDWLRQ RI D PXOWLFRPSRQHQW PL[WXUH RU SDUWLDO
FRQGHQVDWLRQRIRQO\VRPHRIWKHFRPSRQHQWV
7KLVVLWXDWLRQLVUDWKHUFRPSOLFDWHGDQGWKHIROORZLQJIHDWXUHVZLOOKDYHWREHFRQVLGHUHG
IRUGHVLJQ
D 6LQFH WKH KHDYLHU FRPSRQHQWV ZLOO FRQGHQVH ILUVW DQG WKH OLJKWHU FRPSRQHQWV
ODWHUFRQGHQVDWLRQZLOOWDNHSODFHRYHUDWHPSHUDWXUHUDQJH
E %HFDXVHWKHFRQGHQVDWLRQ LV QRW OLQHDUWKHUH ZLOOEH VHQVLEOH KHDW GXW\EHVLGHV
FRQGHQVLQJGXW\$Q\YDSRUWKDWKDVQRWEHHQFRQGHQVHGZLOOKDYHWREHFRROHG
WRLWVGHZSRLQWEHIRUHLWFDQFRQGHQVH6LPLODUO\DQ\YDSRUWKDWKDVFRQGHQVHG
ZLOOKDYHWREHFRROHGWRWKHILQDORXWOHWWHPSHUDWXUH6LQFHYDSRUFRROLQJKHDW
WUDQVIHUFRHIILFLHQWLVFRQVLGHUDEO\ORZHUWKDQWKDWRIFRQGHQVLQJLWUHGXFHVWKH
RYHUDOOKHDWWUDQVIHUFRHIILFLHQWDSSUHFLDEO\,WIROORZVWKHUHIRUHWKDWWKHZLGHU
WKH UDQJH RI FRPSRQHQWV DQG WKHUHE\ WKH ZLGHU WKH FRQGHQVLQJ WHPSHUDWXUH
UDQJHWKHORZHU ZLOOEHWKH KHDWWUDQVIHUFRHIILFLHQWDOO RWKHUWKLQJVUHPDLQLQJ
FRQVWDQW

 
 F $VWKHFRPSRVLWLRQRIWKHYDSRUDQGWKHOLTXLGYDU\FRQWLQXRXVO\DORQJWKHSDWK
RI FRQGHQVDWLRQ VR ZLOO WKHLU SK\VLFDO SURSHUWLHV 3DUWLFXODUO\ VLJQLILFDQW LV WKH
OLTXLGYLVFRVLW\
G 7KH PROHFXOHVRIWKH KHDY\FRPSRQHQWV PXVWGLIIXVH WKURXJKWKHEDUULHURIWKH
PROHFXOHVRIWKHOLJKWHUFRPSRQHQWVWRUHDFKWKHFRQGHQVLQJVXUIDFH7KHUHIRUH
WKHFRQGHQVDWLRQUDWHZLOOEHFRQWUROOHGE\WKHUDWHRIGLIIXVLRQDVZHOODVWKHUDWH
RIKHDWWUDQVIHU
7KHKHDWWUDQVIHUUDWHDFURVVWKHFRQGHQVDWHILOPLVFDOFXODWHGLQWKHVDPHZD\DVIRUSXUH
FRPSRQHQWV)RUWKHYDSRUFRROLQJSURFHVVKRZHYHUERWKWKHSURFHVVHVRIGLIIXVLRQDQG
WKHFRROLQJRIWKHYDSRUSKDVHWRWKHFRQGHQVDWLRQWHPSHUDWXUHRIWKHYDSRUPL[WXUHSUH
YDLOLQJDWWKHLQWHUIDFHPXVWEHFRQVLGHUHG

3UHVVXUHGURS
7KHGHWHUPLQDWLRQRISUHVVXUHGURSLQDFRQGHQVHULVDYHU\FRPSOH[WDVNVLQFHWKHYHOR
FLW\DQGIORZSDWWHUQFKDQJHFRQVWDQWO\DORQJWKHIORZSDWK7KHYDULRXVFRPSRQHQWVDUH
D LQOHWDQGH[LWORVVHVFRQWUDFWLRQDQGH[SDQVLRQLQQR]]OHVDQGKHDGHUV
E WZRSKDVHIULFWLRQORVV
F VWDWLFKHDG
G PRPHQWXPFKDQJH
7KHVWDWLFKHDGLVXVXDOO\LQVLJQLILFDQWLQFRQGHQVHUV
7KHPRPHQWXPFKDQJHUHVXOWVLQDSUHVVXUHJDLQVLQFHWKHUHLVGHFHOHUDWLRQRIWKHYDSRU
DVLWVIORZUDWHGHFUHDVHVZLWKWKHSURJUHVVRIFRQGHQVDWLRQ+RZHYHUWKLVLVLQVLJQLILFDQW
XQOHVV WKH FRQGHQVHU RSHUDWHV XQGHU YDFXXP LQ ZKLFK FDVH WKH SUHVVXUH JDLQ FRXOG EH
VXEVWDQWLDO
7KHWZRSKDVHIULFWLRQLVXVXDOO\WKHODUJHVWFRPSRQHQWRIWKHRYHUDOOSUHVVXUHGURSDQG
LV GHWHUPLQHG VWHSZLVH DORQJ WKH OHQJWK RI WKH FRQGHQVHU XVLQJ 0DUWLQHOOL¶V RU RWKHU
FRUUHODWLRQV 7KH 0DUWLQHOOL FRUUHODWLRQ LV SDUWLFXODUO\ DFFXUDWH IRU FRQGHQVLQJ LQVLGH
KRUL]RQWDOWXEHV

3UDFWLFDO*XLGHOLQHVIRU7KHUPDO'HVLJQ
,Q WKH FDVH VWXGLHV SUHVHQWHG LQ WKH IROORZLQJ VHFWLRQV YDULRXV DVSHFWV RI FRQGHQVHU
GHVLJQ ZLOO EH LOOXVWUDWHG QDPHO\ FRQGHQVLQJ UDQJH RSHUDWLQJ SUHVVXUH VKHOO
W\SHEDIIOLQJPXOWLSOHVKHOOVGHVXSHUKHDWLQJVXEFRROLQJDQGORZILQWXEHV

%DIIOLQJ
2IDOOWKHVKHOOVLGHSDUDPHWHUVEDIIOLQJLVWKHPRVWFUXFLDO%\EDIIOLQJLVPHDQWWKHW\SH
RI EDIIOHV VLQJOH RU GRXEOH VHJPHQWDO HWF EDIIOH VSDFLQJ DQG EDIIOH FXW %DIIOH FXW
PHDQVQRWRQO\WKHYDOXHRIWKHFXWEXWLWVRULHQWDWLRQDVZHOO7KHUHDGHUVKRXOGUHIHUWR
6HFWLRQIRUDGHWDLOHGGLVFXVVLRQRQEDIIOLQJ
$V ZLWK VLQJOHSKDVH KHDW WUDQVIHU WKH GHVLJQHU
V MRE LV WR EHVW XWLOL]H WKH DOORZDEOH
SUHVVXUHGURS7KHYDOXHRISUHVVXUHGURSXVXDOO\SHUPLWWHGLQDFRQGHQVHULV±SVL
±NJFPDQGPD\EHHYHQORZHUDWYHU\ORZSUHVVXUHV)RUH[DPSOHRQO\PP
+J LV SHUPLWWHG LQ D VWHDPMHW HMHFWRU SUHFRQGHQVHU IRU DQ RLO UHILQHU\ YDFXXP FROXPQ
RSHUDWLQJDWDW\SLFDOSUHVVXUHRIPP+J3UHVVXUHGURSKLJKHUWKDQSVLNJFP
LVXVXDOO\QRWUHTXLUHGWRREWDLQDUHDVRQDEO\KLJKFRQGHQVLQJKHDWWUDQVIHUFRHIILFLHQW
6LQFHYDSRUVKHDUGHFUHDVHVSURJUHVVLYHO\DORQJWKHOHQJWKRIDFRQGHQVHUWKHGHVLJQHU

 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG /LJKWK\GURFDUERQ &RROLQJZDWHU

 )ORZUDWHOEKNJK  


 2SHUDWLQJSUHVVXUHSVLDNJFP D  
  
 7HPSHUDWXUHLQRXWƒ)ƒ& >GHZSRLQWDQGEXEEOHSRLQW  
ƒ)ƒ&@

 $OORZDEOHSUHVVXUHGURSSVLJNJFPJ  


 )RXOLQJUHVLVWDQFHKIW ƒ)%WX  
KPƒ&NFDO
 +HDWGXW\%WXKNFDOK 

 'HVLJQSUHVVXUHSVLJNJFPJ  

 0DWHULDORIFRQVWUXFWLRQ &6 &6

FDQGHFUHDVHWKHEDIIOHVSDFLQJSURJUHVVLYHO\%\GRLQJVRWKHKHDWWUDQVIHUFRHIILFLHQWGRHV
QRW GHFUHDVH DV UDSLGO\ DV LW ZRXOG LI XQLIRUP EDIIOH VSDFLQJ ZHUH HPSOR\HG 7KLV LV
SDUWLFXODUO\WUXHLQDZLGHUDQJHFRQGHQVHUZKHUHWKHYDSRUSKDVHUHVLVWDQFHSOD\VDPRUH
SUHGRPLQDQW UROH +RZHYHU WKH EHQHILW REWDLQHG IURP VXFK DQ DUUDQJHPHQW LQ WHUPV RI D
KLJKHU KHDW WUDQVIHU FRHIILFLHQW IRU WKH VDPH SUHVVXUH GURS LV QRW YHU\ VLJQLILFDQW DQG
FRQVHTXHQWO\WKHXVHRIYDULDEOHEDIIOHVSDFLQJLVQRWYHU\SUHYDOHQW
&RQGHQVHUV XVXDOO\ KDYH VLQJOHSDVV VKHOOV 7(0$ W\SH ( DQG VLQJOHVHJPHQWDO
EDIIOHV +RZHYHU DV H[SODLQHG LQ 6HFWLRQ  D VXLWDEOH FRPELQDWLRQ RI VLQJOHGRXEOH
VHJPHQWDOEDIIOHVDQGVLQJOHSDVVGLYLGHGIORZVKHOOLVRIWHQUHTXLUHGWREHHPSOR\HGZKHQ
WKHUHLVDSUREOHPRIOLPLWLQJWKHVKHOOVLGHSUHVVXUHGURSWRZLWKLQWKHDOORZHGYDOXH
6LQFH FRQGHQVHUV SUHGRPLQDQWO\ KDQGOH YDSRUV WKH SRVVLELOLW\ RI D IORZLQGXFHG
YLEUDWLRQSUREOHPLVFOHDUO\KLJK:KLOHWKHVXEMHFWRIIORZLQGXFHGYLEUDWLRQLVGLVFXVVHGLQ
GHWDLOLQFKDSWHULWZLOOVXIILFHWRVD\KHUHWKDWZLWKDSURSHUVHOHFWLRQRIVKHOOW\SHDQG
EDIIOLQJ WKH SRVVLELOLW\ RI IORZLQGXFHG YLEUDWLRQ FDQ EH WRWDOO\ HOLPLQDWHG 1RWXEHVLQ
ZLQGRZGHVLJQSOD\VDSDUWLFXODUXVHIXOUROHLQWKLVDUHD
/HWXVLOOXVWUDWHVRPHRIWKHYDULRXVFRPELQDWLRQVRIVKHOOW\SHDQGEDIIOLQJ

&$6(678'<,627+(50$/&21'(16$7,21
:,7+6,1*/(3$666+(//$1'6,1*/(6(*0(17$/%$))/(6
&RQVLGHUDOLJKWK\GURFDUERQFRQGHQVHUKDYLQJWKHSULQFLSDOSURFHVVSDUDPHWHUVGHWDLOHG
LQ7DEOHD&6WXEHVLQPP2'LQPPWKLFNDQGIW
PORQJZHUHWREHXVHGLQDIL[HGWXEHVKHHWFRQVWUXFWLRQ7(0$W\SH$(/
$QLQLWLDOWKHUPDOGHVLJQZDVSUHSDUHGDQGLVVKRZQLQ7DEOHE7KLVKDGDVLQJOH
SDVVVKHOOWKHVLPSOHVWW\SHDEDIIOHVSDFLQJRILQPPDQGDEDIIOHFXWRI
RQGLDPHWHU,QRUGHUWRGHPRQVWUDWHWKHHIIHFWRIEDIIOHVSDFLQJRQVXFKDGHVLJQWKHEDIIOH
VSDFLQJZDVDOWHUHGWRLQPPLQPPLQPPDQGLQ
PPSURJUHVVLYHO\7KHUHVXOWVRIWKLVVWXG\DUHDOVRVKRZQLQ7DEOHE
/RRNLQJDWWKHWDEOHLWZLOOEHVHHQWKDWZKHQWKHEDIIOHVSDFLQJLVGHFUHDVHGIURP
LQ  PP WR  LQ  PP WKH VKHOOVLGH FRQGHQVLQJ KHDW WUDQVIHU FRHIILFLHQW

 
 7DEOHE7KHUPDOGHVLJQRIOLJKWK\GURFDUERQFRQGHQVHU
 %DIIOHVSDFLQJLQPP

     

   
7\SHRIH[FKDQJHU )L[HGWXEHVKHHW7(0$$(/
6KHOO,'LQPP 
1XPEHURIWXEHV 
7XEH2'îWKLFNQHVVîOHQJWKLQPP îî
1XPEHURIWXEHSDVVHV 
7XEHSLWFKLQPP VTXDUH
%DIIOHFXWGLDPHWHU 
 
+HDWWUDQVIHUDUHDIW P  

 YHORFLW\IWVPV 

7XEHVLGH SUGURSSVLNJFP 
KHDWWUDQVIHU 
FRHIILFLHQW%WXKIW 
ƒ)NFDOKPƒ&

 KHDWWUDQVIHU     

FRHIILFLHQW%WXKIW     
6KHOOVLGH ƒ)NFDOKPƒ&

SUGURSSVLNJFP     

    
1RPLQDO 6KHOOVLGHLQRXW 
FRQQHFWLRQ
VL]HLQPP 7XEHVLGHLQRXW 

2YHUDOOKHDWWUDQVIHUFRHIILFLHQW     

%WXKIWƒ)NFDOKPƒ&     
2YHUGHVLJQ     

LQFUHDVHV E\  $V WKH VKHOOVLGH ILOP UHVLVWDQFH LV RQO\ D VPDOO SDUW RI WKH RYHUDOO
UHVLVWDQFH WR KHDW WUDQVIHU DQG WKH EDODQFH UHVLVWDQFHV GR QRW DOWHU GXH WR D FKDQJH LQ WKH
EDIIOHVSDFLQJWKHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWLQFUHDVHVE\RQO\,QVWDUNFRQWUDVW
KRZHYHUWKHVKHOOVLGHSUHVVXUHGURSLQFUHDVHVE\DQHQRUPRXV7KLVLVH[SODLQHGE\
WKHIDFWWKDWLQLVRWKHUPDOFRQGHQVDWLRQWKHKHDWWUDQVIHUFRHIILFLHQWLVUDWKHUKLJKHYHQZLWK
DPRGHUDWHVKHDUUDWHVRWKDWWKHLQFUHDVHLQWKHVDPHZLWKKLJKHUVKHDULVQRWFRQVLGHUDEOH
+RZHYHU WKH SUHVVXUH GURS LV D YHU\ VWURQJ IXQFWLRQ RI WKH VKHOOVLGH YHORFLW\ DQG WKH
QXPEHU RI FURVVSDVVHV +HQFH ZLWK DQ LQFUHDVH RI ERWK WKHVH SDUDPHWHUV DV D UHVXOW RI
UHGXFHGEDIIOHVSDFLQJWKHVKHOOVLGHSUHVVXUHGURSLQFUHDVHVGUDPDWLFDOO\
,Q WKH SUHVHQW LQVWDQFH WKH GHVLJQ ZLWK D EDIIOH VSDFLQJ RI  LQ  PP PD\ EH
VHOHFWHGDVWKHILQDOGHVLJQDVWKHVKHOOVLGHSUHVVXUHGURSLVMXVWZLWKLQWKHSHUPLVVLEOHYDOXH
DQGWKHFRQGHQVHULVDGHTXDWHO\VXUIDFHGRYHUGHVLJQ

 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH

 )OXLG 'LVWLOODWLRQFROXPQ 'HPLQZDWHU

RYHUKHDG

 )ORZUDWHOEKNJK  


 2SHUDWLQJSUHVVXUHSVLDNJFP D  

7HPSHUDWXUHLQRXWƒ)ƒ&  

EXEEOHSRLQW

 0ROZWYDSRU  

OLTXLG  
 9LVFRVLW\LQRXWFS
YDSRU  

 OLTXLG  

 
 7KFRQGLQRXW%WXKIWƒ)
NFDOKPƒ& YDSRU  

 6SKHDWLQRXW%WXOEƒ) OLTXLG  

NFDONJƒ&
YDSRU  

OLTXLG  

 'HQVLW\LQRXWOEIWNJP
YDSRU  

 $OORZDEOHSUHVVXUHGURSSVLNJFP   
 )RXOLQJUHVLVWDQFHKIWƒ)%WXKPƒ&NFDO  

 +HDWGXW\00%WXK00NFDOK 

 'HVLJQSUHVVXUHSVLJNJFPJ  

 0DWHULDORIFRQVWUXFWLRQ &6 &6

&$6(678'<&21'(16$7,21:,7+6,1*/(3$66
6+(//$1''28%/(6(*0(17$/%$))/(6
&RQVLGHU D GLVWLOODWLRQ FROXPQ RYHUKHDG FRQGHQVHU VHUYLFH ZKRVH SULQFLSDO SURFHVV
SDUDPHWHUVDUHHODERUDWHGLQ7DEOHD$VLWVRSHUDWLQJWHPSHUDWXUHOHYHOLVUDWKHUKLJK
LWVHQHUJ\LVUHFRYHUHGIRUWKHSUHKHDWLQJRIGHPLQHUDOL]HGZDWHU,WPD\EHQRWHGWKDWWKH
YDSRUVDUHSDUWLDOO\FRQGHQVHGDWWKHLQOHWDQGWKDWLWVSUHVVXUHLVUDWKHUORZSVLDRU
NJFPDEVDQGVRFRQVHTXHQWO\LVWKHYDSRUGHQVLW\
$OWKRXJK WKH VKHOOVLGH VHUYLFH LV UDWKHU FOHDQ VR WKDW D IL[HGWXEHVKHHW FRQVWUXFWLRQ
FRXOG KDYH EHHQ XVHG D IORDWLQJKHDG FRQVWUXFWLRQ ZDV VSHFLILHG +RZHYHU WKLV LV
LPPDWHULDOLQWKHSUHVHQWFRQWH[W&DUERQVWHHOWXEHVLQPP2'LQ
PPWKLFNDQGIWPPORQJZHUHWREHXVHG
$ GHVLJQ ZDV DWWHPSWHG ZLWK DQ ( VLQJOHSDVV VKHOO DQG VLQJOHVHJPHQWDO EDIIOHV
+RZHYHULWZDVIRXQGWKDWLQRUGHUWRFRQWDLQWKHVKHOOVLGHSUHVVXUHWRWKHVSHFLILHGOLPLWRI
SVLNJFPWKHUHFRXOGEHRQO\HLJKWFURVVSDVVHVUHSUHVHQWLQJDEDIIOHVSDFLQJ
RILQPP&RQVHTXHQWO\WKHXQVXSSRUWHGWXEHVSDQFDPHWRDQG
 RI WKH PD[LPXP UHFRPPHQGHG E\ 7(0$ DW WKH LQOHW FHQWUDO DQG RXWOHW UHJLRQV
 
 7DEOHE6DOLHQWIHDWXUHVRIVLQJOHDQGGRXEOHVHJPHQWDO
EDIIOHGHVLJQVIRUGHKHSWDQL]HUFRQGHQVHU
 'HVLJQZLWKVLQJOH 'HVLJQZLWKGRXEOH
VHJPHQWDOEDIIOHV VHJPHQWDOEDIIOHV

7\SHRIVKHOO )ORDWLQJKHDG7(0$$(6

6KHOO,'LQPP 

+HDWWUDQVIHUDUHDP  

1XPEHURIWXEHV 
7XEH2'îWKLFNQHVVîOHQJWKPP îî
1RRIWXEHSDVVHV 
7XEHSLWFKLQPP VTXDUH

%DIIOHVSDFLQJLQPP  

%DIIOHFXWGLDPHWHU  URZVRYHUODS


6KHOOVLGH  
+7&%WXKIWƒ)
NFDOKPƒ& 7XEHVLGH  
2YHUDOO  

07'ƒ&  

2YHUGHVLJQ  

3UHVVXUHGURSSVLNJFP 6KHOOVLGH  

7XEHVLGH  
7XEHVLGHYHORFLW\IWVPV  
6KHOOVLGHFURVVIORZZLQGRZYHORFLW\  
IWVPV

3URS\OHQH 
1R]]OHVL]HLQRXWLQPP
'HPLQ:DWHU 
6DIHDJDLQVWIDLOXUHRIWXEHVGXHWR 1R <HV
IORZLQGXFHGYLEUDWLRQ

ZKHQLWLVSUXGHQWWRUHVWULFWWKLVWR0RUHLPSRUWDQWO\WKHWXEHVZHUHSURQHWRIDLOXUH
E\IORZLQGXFHGYLEUDWLRQIOXLGHODVWLFZKLUOLQJ6HH&KDSWHUIRUDGHWDLOHGGLVFXVVLRQRQ
IORZLQGXFHGYLEUDWLRQ
$VDGHVLJQZLWKVLQJOHVHJPHQWDOEDIIOHVZDVQRWIHDVLEOHWKHEDIIOLQJZDVPRGLILHGWR
GRXEOHVHJPHQWDO,WZDVQRZSRVVLEOHWRSURGXFHDGHVLJQZKLFKKDGDVKHOOVLGHSUHVVXUH
GURS ZLWKLQ WKH SHUPLWWHG YDOXH DQG ZKLFK ZDV VDIH DJDLQVW IDLOXUH RI WXEHV GXH WR IORZ
LQGXFHG YLEUDWLRQ %RWK WKH VLQJOHVHJPHQWDO DQG GRXEOHVHJPHQWDO EDIIOH GHVLJQV DUH
GHWDLOHGLQ7DEOHE
)RUDEHWWHUDSSUHFLDWLRQRIWKHGRXEOHVHJPHQWDOEDIIOHGHVLJQ7DEOHFSUHVHQWVWKH
YDULDWLRQRIVRPHRIWKHVLJQLILFDQWVKHOOVLGHDQGRYHUDOOSDUDPHWHUVDORQJWKHOHQJWKRIWKH
VKHOO $V WKHUH ZHUH  LQFUHPHQWV LQ WKH FRPSXWHU SULQWRXW DQG DV LW ZRXOG KDYH EHHQ

 
 7DEOHF9DULDWLRQLQFRQGHQVLQJSDWWHUQDORQJWXEHOHQJWK
LQGRXEOHVHJPHQWDOEDIIOHGHVLJQIRUGLVWLOODWLRQFROXPQRYHUKHDGFRQGHQVHU
 5HJLRQ 5HJLRQ 5HJLRQ 5HJLRQ 5HJLRQ 5HJLRQ 5HJLRQ 5HJLRQ 5HJLRQ
        

 9DSRUZHLJKW
        
IUDFWLRQ

 6KHOOVLGHKHDW         
WUDQVIHUFRHIIL         
FLHQW%WXKIW         
ƒ)NFDOKP
ƒ&

 )ORZUHJLPH 6KHDU 6KHDU 6KHDU 7UDQV 7UDQV 7UDQV *UDYLW\ *UDYLW\ *UDYLW\

 2YHUDOOKHDW         
WUDQVIHU         
FRHIILFLHQW         
%WXKIWƒ)
NFDOKPƒ&

        

 07'ƒ)ƒ&
        

 ,QFUHPHQWDO         
KHDWGXW\00         
%WXK00         
NFDOK

 &XPXODWLYH         
KHDWGXW\00         
%WXK00         
NFDOK

 ,QFUHPHQWDO         
DUHDUHTXLUHG        
IWP

 &XPXODWLYH         
DUHDUHTXLUHG         
IWP

FXPEHUVRPHWRGLVSOD\WKHPDOOWZRLQFUHPHQWVZHUHOXPSHGXSDVRQHUHJLRQWKXVWKHUH
DUHQLQHUHJLRQV7KHIROORZLQJREVHUYDWLRQVDUHLQWHUHVWLQJ
 7KH FRQGHQVLQJ KHDW WUDQVIHU FRHIILFLHQW GHFUHDVHV VWHDGLO\ IURP LQOHW WR WKH
SHQXOWLPDWH]RQHDQGWKHQGURSVVRPHZKDWVKDUSO\LQWKHODVW]RQH7KLVLVRQO\
WR EH H[SHFWHG VLQFH ZLWK WKH SURJUHVV RI FRQGHQVDWLRQ WKH IORZ UDWH RI WKH
XQFRQGHQVHGYDSRUUHGXFHVDQGWKHUHIRUHVRGRHVWKHYDSRUVKHDU+RZHYHUWKH
UHDGHUPD\KDYHREVHUYHGWKDWWKHFRQGHQVLQJKHDWWUDQVIHUFRHIILFLHQWLQUHJLRQ
 LV ORZHU WKDQ WKDW LQ UHJLRQ  7KLV LV EHFDXVH WKH LQOHW EDIIOH VSDFH LV PXFK
ODUJHU WKDQ WKH FHQWUDO EDIIOH VSDFH WKHUHE\ UHVXOWLQJ LQ PXFK ORZHU VKHDU DQG
FRQVHTXHQWO\DORZHUFRQGHQVLQJKHDWWUDQVIHUFRHIILFLHQW
 $ORQJ ZLWK WKH FRQGHQVLQJ KHDW WUDQVIHU FRHIILFLHQW WKH RYHUDOO KHDW WUDQVIHU
FRHIILFLHQWDOVRUHGXFHVIURPWKHLQOHWWRWKHRXWOHWRIWKHFRQGHQVHU)XUWKHUWKH
07'DOVRUHGXFHVIURP LQOHWWR RXWOHWDVDUHVXOWRIWKHWHPSHUDWXUHSURILOHV RI
WKHWZRVLGHV$VDUHVXOWIRUWKH HTXDOKHDWWUDQVIHUDUHDLQFUHPHQWV RIIW
PLQUHJLRQV²WKHLQFUHPHQWDOKHDWGXW\UHGXFHVVWHDGLO\IURP
00%WXK00NFDOKWR00%WXK00NFDOK

 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG 6SOLWWHURYHUKHDG &RROLQJZDWHU

 )ORZUDWHOEKNJK  


 2SHUDWLQJSUHVVXUHSVLDNJFP D  
  
 7HPSHUDWXUHLQRXWƒ)ƒ& GHZSRLQW 
EXEEOHSRLQW

 0ROZWYDSRU  

 OLTXLG  
 9LVFRVLW\LQRXWFS
YDSRU  
 OLTXLG  
 7KFRQG,QRXW
%WXKIWƒ)NFDOKPƒ& YDSRU  
 6SKHDWLQRXW%WXOEƒ) OLTXLG  
NFDONJƒ&
YDSRU  

OLTXLG  
 'HQVLW\OEIWNJP
YDSRU  
 $OORZDEOHSUHVVXUHGURSSVLNJFP  
 )RXOLQJUHVLVWDQFHKIWƒ)%WX  
KPƒ&NFDO
 +HDWGXW\00%WXK00NFDOK 

 'HVLJQSUHVVXUHSVLJNJFP J  

 0DWHULDORIFRQVWUXFWLRQ &6 &6

 7KH FRQGHQVLQJ KHDW WUDQVIHU FRHIILFLHQW KHUH LV LQ WKH UDQJH RI ±
%WXKIW ƒ)±NFDOKPƒ&ZKHUHDVLQ&DVH6WXG\LWZDVLQWKH
UDQJH RI ± %WXK IW ƒ) ± NFDOK P ƒ& 7KHUH DUH WZR
SULQFLSDO UHDVRQV IRU WKLV )LUVW LQ &DVH 6WXG\  WKH FRQGHQVLQJ IOXLG ZDV D
SXUH FRPSRQHQW FRQGHQVLQJ LVRWKHUPDOO\ ZKHUHDV LQ WKH SUHVHQW FDVH WKH
FRQGHQVLQJ IOXLG LV D PL[WXUH RI K\GURFDUERQV FRQGHQVLQJ RYHU D WHPSHUDWXUH
UDQJH6HFRQGDVWKH RSHUDWLQJSUHVVXUHDQGWKHUHE\ WKH YDSRUGHQVLW\LV PXFK
ORZHULQWKHSUHVHQWFDVHRQO\DPXFKORZHUYHORFLW\FDQEHWROHUDWHGZLWKLQWKH
SHUPLVVLEOH SUHVVXUH GURS 7KH ORZHU YDSRU YHORFLW\ WUDQVODWHV LQWR D ORZHU
FRQGHQVLQJKHDWWUDQVIHUFRHIILFLHQW

&$6(678'<&21'(16$7,21:,7+',9,'(')/2:6+(//
&RQVLGHUWKHVHUYLFHVSHFLILHGLQ7DEOHDIRUDVSOLWWHURYHUKHDGFRQGHQVHU
1RWHWKDWWKHRSHUDWLQJSUHVVXUHLVYHU\ORZSVLDNJFPDEV7KHFRQGHQVLQJ
UDQJH LV VPDOO > ²   ƒ)  ²   ƒ&@ KHQFH D OLQHDU KHDW GXW\ YHUVXV
WHPSHUDWXUHSURILOHZDVVSHFLILHGE\WKHOLFHQVRU
$ VLQJOHSDVV VKHOO 7(0$ ( VKHOO GHVLJQ ZLWK VLQJOHVHJPHQWDO EDIIOHV ZDV FRQVL

 
 7DEOHE6DOLHQWIHDWXUHVRIVLQJOHSDVVDQGGLYLGHGIORZVKHOO
GHVLJQVIRUVSOLWWHURYHUKHDGFRQGHQVHU
 'HVLJQZLWK 'HVLJQZLWK
VLQJOHSDVVVKHOO GLYLGHGIORZVKHOO

 7(0$W\SH $(6 $-6

 6KHOO,'LQPP 
 
 +HDWWUDQVIHUDUHDIW P  

 1XPEHURIWXEHV 

 7XEH2'îWKLFNQHVVîOHQJWKLQPP îî
 1RRIWXEHSDVVHV 
 7XEHSLWFKLQPP VTXDUH

 7\SHRIEDIIOHV GRXEOHVHJPHQWDO VLQJOHVHJPHQWDO

 %DIIOHVSDFLQJLQPP  

 %DIIOHFXWGLDPHWHU URZVRYHUODSYHUWLFDO YHUWLFDO

RQDUHD
+\GURFDUERQ  
 +HDWWUDQVIHUFRHIILFLHQW
%WXKIWƒ) 'HPLQZDWHU  
NFDOKPƒ&
2YHUDOO  

 3UHVVXUHGURS 6KHOOVLGH  

SVLNJFP
7XEHVLGH  
 07'ƒ)ƒ&  

 2YHUGHVLJQ  

 1R]]OHVL]HQRPLQRXW 6KHOOVLGH  [
LQPP
7XEHVLGH  

 6DIHDJDLQVWIDLOXUHRIWXEHVGXHWR 1R+LJKSUREDELOLW\RI 

IORZLQGXFHGYLEUDWLRQ IDLOXUHGXHWRIOXLGHODVWLF <HV
ZKLUOLQJ

GHUHG$VH[SHFWHGGXHWRWKHYHU\ORZRSHUDWLQJSUHVVXUHRQWKHVKHOOVLGHDQGWKHUHE\WKH
YHU\ORZYDSRUGHQVLW\LWZDVQRWSRVVLEOHWRVDWLVI\WKHVKHOOVLGHSUHVVXUHGURSOLPLWDWLRQ
1H[W D VLQJOHSDVV VKHOO GHVLJQ ZLWK GRXEOHVHJPHQWDO EDIIOHV ZDV FRQVLGHUHG %\
HPSOR\LQJDEDIIOHVSDFLQJRILQPPDQGRQO\URZVRYHUODSZKLFK\LHOGHGD
 EDIIOH FXW RQ DUHD LW ZDV SRVVLEOH WR UHVWULFW WKH VKHOOVLGH SUHVVXUH GURS WR WKH
SHUPLWWHG YDOXH KRZHYHU WKH WXEHV ZHUH IRXQG WR EH KLJKO\ SURQH WR IDLOXUH E\ IORZ
LQGXFHGYLEUDWLRQGXHWRIOXLGHODVWLFZKLUOLQJDQGDVVXFKWKLVGHVLJQFRXOGQRWEHDGRSWHG
$ GLYLGHGIORZ VKHOO 7(0$ - VKHOO ZDV WKHQ LQYHVWLJDWHG DQG LW ZDV IRXQG WKDW D
GHVLJQFRXOGEHSURGXFHGWKDWUHVSHFWHGWKHVKHOOVLGHSUHVVXUHGURSDQGDWWKHVDPHWLPH
ZDVVDIHDJDLQVWIDLOXUHGXHWRIORZLQGXFHGYLEUDWLRQ7KLVGHVLJQZDVDGRSWHG7KHEDIIOH
VSDFLQJZDVLQPPDQGWKHEDIIOHFXWRQGLDPHWHU
7KHUHVXOWVRIERWKWKH(DQG-VKHOOVDUHSUHVHQWHGLQ7DEOHE%HFDXVHRIWKHODUJH

 
VKHOO LQOHW QR]]OH VL]H LW ZLOO EH DGYDQWDJHRXV WR LQFRUSRUDWH D YDSRU EHOW RU GLVWULEXWLRQ
EHOWDWWKHVKHOOLQOHWLQERWKGHVLJQV$GLYLGHGIORZGHVLJQWZRLQOHWQR]]OHVDQGRQH
RXWOHW QR]]OH ZDV DGRSWHG DV WKH LQOHW QR]]OH ZDV PXFK ODUJHU WKDQ WKH RXWOHW QR]]OH
GLDPHWHULIDGHVLJQZHUHDGRSWHGWKHVKHOOLQOHWQR]]OHZRXOGEHPXFKODUJHULQRU
PPLQVWHDGRILQRUPPDOOQRPLQDO

0XOWLSOHVKHOOVLQVHULHVRUSDUDOOHO
0XOWLSOHVKHOOVLQSDUDOOHO
$VLQWKHFDVHRIVLQJOHSKDVHVHUYLFHVFRQGHQVHUVDUHDOVRRIWHQUHTXLUHGWREHRIPXOWL
SOHVKHOOFRQVWUXFWLRQ:KHQWKHUHTXLUHGKHDWWUDQVIHUDUHDLVWRRODUJHWREHLQFRUSRUDWHG
LQRQHVKHOO RIDUHPRYDEOHEXQGOHFRQGHQVHU8WXEHRUIORDWLQJKHDG PXOWLSOHVKHOOV
DUH XVHG LQ SDUDOOHO 7KXV LI WKH PD[LPXP SHUPLWWHG EXQGOH ZHLJKW LV  OEV 
WRQVDQGLIWKH ZHLJKWRIWKHWXEHEXQGOHLQDVLQJOHVKHOOGHVLJQFRPHVWROEV
WRQVWZRVKHOOVZLOOKDYHWREHXVHGLQSDUDOOHO$QDGGLWLRQDODGYDQWDJHZLWKWKHXVH
RIPXOWLSOHVKHOOVLQSDUDOOHOLVWKDWLWDIIRUGVWKHIDFLOLW\RIUXQQLQJWKHXQLWDWSDUWORDG
HYHQ ZKHQ RQH VKHOO LV GRZQ IRU PDLQWHQDQFH 2QH RLO UHILQLQJ FRPSDQ\ WKH DXWKRU
NQRZVRIKDVDVWDQGDUGSUDFWLFHRIHPSOR\LQJDWOHDVWWZRVKHOOVLQSDUDOOHOIRUHYHU\
FRQGHQVHUDQGFRROHUHDFKGHVLJQHGIRURIWKHWRWDOKHDWGXW\HYHQLIWKHWRWDOKHDW
WUDQVIHU DUHD UHTXLUHG LV VPDOO DQG FDQ HDVLO\ EH DFFRPPRGDWHG LQ RQH VKHOO 7KXV WKH
FRQGHQVHURUFRROHUFDQGHOLYHUKHDWGXW\HYHQZLWKRQHVKHOORXWRIFRPPLVVLRQ
6HD ZDWHU LV WKH FRRODQW LQ WKLV SODQW DQG WKH LQFLGHQFH RI ELRIRXOLQJ LV YHU\ KHDY\
WKHUHE\UHTXLULQJIUHTXHQWFOHDQLQJ+HQFHWKHDERYHGHVLJQSKLORVRSK\
0XOWLSOHVKHOOVLQVHULHV
7KHUHDVRQVIRUXVLQJPXOWLSOHVKHOOVLQVHULHVDUHPDQLIROG
 7KHUHLVDWHPSHUDWXUHFURVVEHWZHHQWKHFRQGHQVLQJVWUHDPDQGWKHFRRODQW)RU
H[DPSOH LI WKH RYHUKHDG YDSRUV RI D GLVWLOODWLRQ FROXPQ DUH WR EH FRROHG DQG
FRQGHQVHG IURP ƒ) ƒ& WR ƒ) ƒ& E\ FRROLQJ ZDWHU HQWHULQJ DW
ƒ)ƒ&DQGOHDYLQJDWƒ)ƒ&WZRVKHOOVLQVHULHVZLOOEHUHTXLUHG
 (YHQ LI WKH RXWOHW WHPSHUDWXUHV RI WKH WZR VWUHDPV DUH HTXDO DQG D VLQJOH VKHOO
PD\EHXVHGWKHUHLVDIDLUO\ELJDGYDQWDJHLQJRLQJIRUWZRVKHOOVLQVHULHV7KH
07'FRUUHFWLRQIDFWRU)WZLOOLQFUHDVHDSSUHFLDEO\IURPDURXQGLQWKHVLQJOH
VKHOOGHVLJQWRRYHUDQGHYHQXSWRGHSHQGLQJXSRQWKHWHUPLQDOWHP
SHUDWXUHVZLWKWZRVKHOOVLQVHULHVWKHUHE\UHSUHVHQWLQJD±UHGXFWLRQLQ
WKHKHDWWUDQVIHUDUHDRQWKLVFRXQWDORQH
7KLV LV SDUWLFXODUO\ DGYDQWDJHRXV ZKHQ WZR VKHOOV KDYH WR EH XVHG DQ\ZD\
EHFDXVHWKHUHTXLUHGKHDWWUDQVIHUDUHDLVWRRODUJHWREHLQFRUSRUDWHGLQDVLQJOH
VKHOO ,QVWHDG RI FRQQHFWLQJ WKH WZR VKHOOV LQ SDUDOOHO WKH\ DUH FRQQHFWHG LQ
VHULHV2IFRXUVHWKLVDUUDQJHPHQWZLOOSURGXFHDPXFKKLJKHUVKHOOVLGHSUHVVXUH
GURS VR WKDW LW FDQ EH HPSOR\HG RQO\ LI WKH DOORZDEOH SUHVVXUH GURS FDQ EH
DGKHUHGWR7KHXVHRIGRXEOHVHJPHQWDOEDIIOHVDQGRUDGLYLGHGIORZVKHOOKHOSV
FRQVLGHUDEO\LQDFKLHYLQJWKLV
:LWK WZR VKHOOV FRQQHFWHG LQ VHULHV KRZHYHU PXFK PRUH H[WHQVLYH
SLSLQJYDOYLQJLVUHTXLUHGWRWDNHRXWDQLQGLYLGXDOVKHOOIRUPDLQWHQDQFH
 7KHSHUPLWWHGVKHOOVLGHSUHVVXUHGURSFDQQRWEHXWLOL]HGLQDVLQJOHGHVLJQHYHQ
ZLWKWKHVPDOOHVWEDIIOHVSDFLQJDQGFXWIHDVLEOHFRQVHTXHQWO\WKHKHDWWUDQVIHU
FRHIILFLHQWZLOOEHORZDQGWKHUHIRUHWKHKHDWWUDQVIHUDUHDKLJK:LWKWZRVKHOOV
 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG 6WDELOL]HURYHUKHDG &RROLQJZDWHU

 )ORZUDWHOEKNJK  


 2SHUDWLQJSUHVVXUHSVLDNJFP D  

 7HPSHUDWXUHLQRXWƒ)ƒ&  

GHZSRLQW 

 :HLJKWIUDFWLRQYDSRULQRXW  

 $OORZDEOHSUHVVXUHGURSSVLNJFP  

9DSRU  
 9LVFRVLW\LQRXWFS
/LTXLG  
 
 7KHUPDOFRQGXFWLYLW\ 9DSRU 

LQRXW%WXKIWƒ)
NFDOKPƒ& /LTXLG  

 'HQVLW\LQRXWOEIW 9DSRU  

NJP
/LTXLG  

 6SHFLILFKHDWLQRXW 9DSRU  

%WXOEƒ)NFDONJƒ&
/LTXLG  
 )RXOLQJUHVLVWDQFHKIWƒ)%WX  
KPƒ&NFDO
 +HDWGXW\00%WXK00NFDOK 

 'HVLJQSUHVVXUHSVLJNJFP J  

 0DWHULDORIFRQVWUXFWLRQ &6 &6

LQ VHULHV UHVXOWLQJ LQ D PXFK VPDOOHU VKHOO GLDPHWHU WKH SHUPLWWHG VKHOOVLGH
SUHVVXUH GURS FDQ EH XWLOL]HG PXFK EHWWHU ZLWK D FRUUHVSRQGLQJ LQFUHDVH LQ WKH
VKHOOVLGH YHORFLW\ DQG WKHUHE\ WKH KHDW WUDQVIHU FRHIILFLHQW 7KXV WKHUH LV DQ
DSSUHFLDEOHUHGXFWLRQLQWKHRYHUDOOKHDWWUDQVIHUDUHD

&$6(678'<&21'(16$7,21:,7+08/7,3/(6+(//6,16(5,(6
7KHVDOLHQWSURFHVVSDUDPHWHUVRIDVWDELOL]HURYHUKHDGFRQGHQVHUDUHVSHFLILHGLQ7DEOH
D,WZLOOEHQRWHGWKDWWKHUHLVQRWHPSHUDWXUHFURVVVRWKDWPXOWLSOHVKHOOVLQVHULHVLV
QRWDPXVW7KHDOORZDEOHVKHOOVLGHSUHVVXUHGURSLVUDWKHUKLJKDWSVLNJFP
7KHXVXDOYDOXHIRUVXFKVHUYLFHVLV±SVL±NJFP
7XEHVRIFDUERQVWHHOLQPP2'DQGLQPPWKLFNZHUHWREH
XVHGLQDIORDWLQJKHDGFRQVWUXFWLRQ7(0$$(67KHUHTXLUHGKHDWWUDQVIHUDUHDLVIDUWRR
KLJKWREHLQFRUSRUDWHGLQDVLQJOHVKHOOVRWKDWWKHXVHRIWZRVKHOOVLVHVVHQWLDO(YLGHQWO\
WKH FKRLFH LV EHWZHHQ WZR VKHOOV LQ VHULHV DQG WZR VKHOOV LQ SDUDOOHO $V MXVW H[SODLQHG LQ
SRLQWLQWKHSUHYLRXVVHFWLRQ³0XOWLSOHVKHOOVLQVHULHV´WKH07'LVXVXDOO\VLJQLILFDQWO\
KLJKHU ZKHQ WZR VKHOOV DUH FRQQHFWHG LQ VHULHV WKDQ ZKHQ WKH\ DUH FRQQHFWHG LQ SDUDOOHO
7KHUHIRUH ZH VKDOO H[SORUH WKH SRVVLELOLW\ RI VXFK D FRQILJXUDWLRQ ILUVW DQG DFFHSW WKH
 
 7DEOHE6DOLHQWIHDWXUHVRIVWDELOL]HURYHUKHDGFRQGHQVHU
 7\SHRIKHDWH[FKDQJHU )ORDWLQJKHDG7(0$$(6

 6KHOO,'LQPP 

 1RRIWXEHV 

 7XEH2'îWKLFNQHVVîOHQJWKLQPP îî

 +HDWWUDQVIHUDUHDIWP î 

 1RRIWXEHSDVVHV 
 7XEHSLWFKLQPP VTXDUH
 7\SHRIEDIIOHV 6LQJOHVHJPHQWDO
 %DIIOHVSDFLQJLQPP 

 %DIIOHFXWGLDPHWHU 

 6KHOOVLGH 
 +HDWWUDQVIHUFRHIILFLHQW
%WXKIWƒ)NFDOKPƒ& 7XEHVLGH 
2YHUDOO 

 07'ƒ& 

 2YHUGHVLJQ 

6KHOOVLGH 

 3UHVVXUHGURSSVLNJFP
7XEHVLGH 
 0DLQFURVVIORZ 
 %DIIOHKROHWRWXEH 
 6WUHDPDQDO\VLV %XQGOHVKHOO 
3DVVSDUWLWLRQ 
%DIIOHVKHOO 
 &RROLQJZDWHUYHORFLW\IWVPV 

 1RPLQDOQR]]OHVL]HLQPP 6KHOOVLGH ,QLQWHUFRQQHFWLQJRXW

7XEHVLGH ,Q2XW
 6DIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ <HV

GHVLJQLILWLVIHDVLEOHWKDWLVDLIWKHFRQGHQVHULVDGHTXDWHO\VXUIDFHGEWKHVKHOOVLGH

SUHVVXUH GURS DQG WKH WXEHVLGH SUHVVXUH GURS DUH ZLWKLQ WKH DOORZDEOH OLPLWV DQG F WKH
GHVLJQLVVDIHDJDLQVWWKHSRVVLELOLW\RIIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ
$ GHVLJQ ZDV PDGH ZLWK WZR VKHOOV LQ VHULHV DQG WKH SULQFLSDO FRQVWUXFWLRQ DQG
SHUIRUPDQFHSDUDPHWHUVDUHGHWDLOHGLQ7DEOHE7KHGHVLJQZDVDFFHSWDEOHRQDOORIWKH
DERYHFRXQWV,QWKHVWUHDPDQDO\VLVLWZLOOEHVHHQWKDWWKHWXEHEDIIOHKROHLVIDLUO\KLJKDW
 +RZHYHU WKLV VWUHDP LV TXLWH HIIHFWLYH IRU KHDW WUDQVIHU DQG LV RIWHQ TXLWH KLJK LQ
VKHOOVLGHFRQGHQVHUV

 
 7DEOHF%UHDNXSLQSHUIRUPDQFHLQWZRVKHOOVRIVWDELOL]HURYHUKHDGFRQGHQVHU
 +RWVKHOO &ROGVKHOO
 +HDWGXW\00%WXK00NFDOK  

 6KHOOVLGHWHPSHUDWXUHLQRXWƒ)ƒ&  

 &RROLQJZDWHUWHPSLQRXWƒ)ƒ&  

 6KHOOVLGHYDSRUZHLJKWIUDFWLRQLQRXW  

 07'ƒ)ƒ&  

 6KHOOVLGHSUGURSNJFP  
 6KHOOVLGHKHDWWUDQVIHUFRHIILFLHQW WR WR
%WXKIWƒ)NFDOKPƒ& DYJ DYJ
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW  
%WXKIWƒ)NFDOKPƒ&

 &RQGHQVLQJIORZUHJLPH ILUVWUHJLRQVVKHDU ILUVW]RQHVWUDQVLWLRQ

QH[W]RQHVWUDQVLWLRQ 1H[W]RQHVJUDYLW\
 2YHUGHVLJQ  

7DEOHFSUHVHQWVDEUHDNXSLQWKHVKHOOVLGHSHUIRUPDQFHRIWKHWZRVKHOOVDVWKHVDPH
LVUDWKHULQWHUHVWLQJ$VH[SHFWHGZLWKGHFUHDVLQJYDSRUZHLJKWIUDFWLRQZLWKWKHSURJUHVVRI
FRQGHQVDWLRQ WKH IORZ UHJLPH FKDQJHV IURP VKHDUFRQWUROOHG WR WUDQVLWLRQ LQ WKH KRW VKHOO
DQG IURP WUDQVLWLRQ WR JUDYLW\FRQWUROOHG LQ WKH FROG VKHOO $V D GLUHFW FRQVHTXHQFH WKH
FRQGHQVLQJ KHDWWUDQVIHU FRHIILFLHQW IDOOVVWHDGLO\7KH KRWVKHOO KDVDQDSSUHFLDEO\ KLJKHU
VKHOOVLGHDQGWKHUHE\RYHUDOOKHDWWUDQVIHUFRHIILFLHQWDVZHOODVDKLJKHU07'WKDQWKHFROG
VKHOO&RQVHTXHQWO\LWGHOLYHUVDERXWRIWKHWRWDOKHDWGXW\
7KH VKHOOVLGH SUHVVXUH GURS LV DOVR KLJKHU LQ WKH KRWWHU VKHOO VLQFH LW KDQGOHV D KLJKHU
YDSRUIORZUDWH,QIDFWWKHSUHVVXUHGURSLQWKHKRWWHUVKHOOLVDOPRVWWLPHVWKDWLQWKH
FROGHU VKHOO $V WKH SHUPLWWHG VKHOOVLGH SUHVVXUH GURS LV TXLWH KLJK LQ WKLV FDVH WKH EDIIOH
VSDFLQJDQGEDIIOHFXWLQWKHWZRVKHOOVDUHNHSWLGHQWLFDO+RZHYHULIWKHSHUPLWWHGVKHOOVLGH
SUHVVXUH GURS KDG EHHQ PXFK OHVV DQ XQHTXDO EDIIOH VSDFLQJ DQG FXW FRXOG KDYH EHHQ
HPSOR\HG²KLJKHULQWKHKRWWHUVKHOOKDQGOLQJWKHKLJKHUYDSRUIORZUDWHDQGORZHULQWKH
FROGHUVKHOOKDQGOLQJWKHORZHUYDSRUIORZUDWH

&$6(678'<&21'(16$7,21:,7+08/7,3/(6+(//6,16(5,(63$5$//(/
/HW XV FRQVLGHU WKH FRQGHQVLQJ VHUYLFH VSHFLILHG LQ 7DEOH D 7KLV LV D GLVWLOODWLRQ
FROXPQRYHUKHDGWULPFRQGHQVHUZKLFKIROORZVDQDLUFRROHGFRQGHQVHUZLWKRIWKH
YDSRUV DOUHDG\ FRQGHQVHG LQ WKH DLUFRROHG FRQGHQVHU ,W LV DQ H[LVWLQJ KHDW H[FKDQJHU
ZKLFKKDGEHHQGHVLJQHGZLWKIRXUVKHOOVLQSDUDOOHOVLQFHWKHKHDWWUDQVIHUDUHDLVYHU\
ODUJH7KHFRQVWUXFWLRQGHWDLOVDQGSHUIRUPDQFHSDUDPHWHUVDUHHODERUDWHGLQ7DEOHE
,WZLOOEHREVHUYHGWKDWWKHSHUPLWWHGVKHOOVLGHSUHVVXUHGURSZDVQRWIXOO\XWLOL]HGVRWKDW
WKHXVHRIGRXEOHVHJPHQWDOEDIIOHVDSSHDUVVRPHZKDWLPSUXGHQW7KHVWUHDPDQDO\VLVLV
QRW YHU\ VDWLVIDFWRU\ ZLWK D UHODWLYHO\ ORZ PDLQ FURVVIORZ IUDFWLRQ DQG RYHUDOO
HIIHFWLYHQHVV 7KH FRQGHQVHU LV RSHUDWLQJ WRWDOO\ LQ WKH JUDYLW\FRQWUROOHG UHJLPH DQG
WKHUHIRUHWKHFRQGHQVLQJKHDWWUDQVIHUFRHIILFLHQWLVH[WUHPHO\ORZ
/HWXVWKHUHIRUHDWWHPSWWRUHGXFHWKHVL]H RIWKHFRQGHQVHUE\XWLOL]LQJWKHSHUPLWWHG
VKHOOVLGHSUHVVXUHGURSEHWWHU7ZRFKDQJHVFDQEHFRQVLGHUHGIRUWKLV
 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVIRU&DVH6WXG\

 6KHOOVLGH 7XEHVLGH

 )OXLG 'LVWLOODWLRQFROXPQRYHUKHDG &RROLQJZDWHU

 )ORZUDWHOEKNJK  

 2SHUDWLQJSUHVVXUHSVLDNJFPD  

 7HPSHUDWXUHLQRXWƒ)ƒ&  

 9DSRUZHLJKWIUDFWLRQLQRXW  

 9DSRUPROHFXODUZHLJKW  

/LTXLG  
9LVFRVLW\LQRXWFS
9DSRU  

 7KFRQGLQRXW%WXKIWƒ) /LTXLG  6WDQGDUG
NFDOKPƒ& 
9DSRU 

 'HQVLW\LQRXWOEIW /LTXLG 

NJP
9DSRU  

 $OORZDEOHSUHVVXUHGURSSVLNJFP   
 )RXOLQJUHVLVWDQFHKIWƒ)%WX  
KPƒ&NFDO

 +HDWGXW\00%WXK00NFDOK 


 'HVLJQSUHVVXUHSVLJNJFP J  

 0DWHULDORIFRQVWUXFWLRQ &6 &6



D FKDQJHLQEDIIOHW\SHIURPGRXEOHVHJPHQWDOWRVLQJOHVHJPHQWDO
E FKDQJHLQWKHFRQILJXUDWLRQIURPIRXUVKHOOVLQSDUDOOHOWRWZRVKHOOVLQVHULHVDQG
WZRVKHOOVLQSDUDOOHO
)LUVW OHW XV FRQVLGHU D UHYLVHG GHVLJQ ZLWK VLQJOHVHJPHQWDO EDIIOHV 7KH UHYLVHG SHU
IRUPDQFH LV DOVR VKRZQ LQ 7DEOH E 3OHDVH QRWH WKDW DOWKRXJK WKH VKHOOVLGH YHORFLW\
KDV LQFUHDVHG VLJQLILFDQWO\ DQG VR KDV WKH VKHOOVLGH SUHVVXUH GURS WKH VKHOOVLGH KHDW
WUDQVIHU FRHIILFLHQW KDV KDUGO\ LPSURYHG 3OHDVH DOVR QRWLFH WKDW WKH FRQGHQVHU LV VWLOO
WRWDOO\LQWKHJUDYLW\FRQWUROOHGUHJLPHDQGKDVDQHYHQSRRUHUVWUHDPDQDO\VLV$OWKRXJK
WKH VKHOOVLGH YHORFLW\ KDV LQFUHDVHG WKH LQFUHDVH KDV QRW EHHQ ODUJH HQRXJK WR OLIW WKH
FRQGHQVHURXWRIWKHJUDYLW\FRQWUROOHGUHJLPH
1RZOHWXVFRQVLGHUWKHVHFRQGRSWLRQ²HPSOR\LQJWZRVKHOOVLQVHULHVDQGWZRVKHOOV
LQ SDUDOOHO 7KHUH DUH WZR GUDVWLF LPSURYHPHQWV )LUVW WKH 07' LQFUHDVHV IURP ƒ)
ƒ& WR ƒ) ƒ& DQ LQFUHDVH RI  6HFRQG WKH VKHOOVLGH YHORFLW\ KDV
LQFUHDVHGVXEVWDQWLDOO\ZKLFKSXVKHVWKHFRQGHQVHUSUHGRPLQDQWO\LQWRWKHWUDQVLWLRQUHJLPH
WKHUHE\LQFUHDVLQJWKHFRQGHQVLQJKHDWWUDQVIHUFRHIILFLHQWIURP%WXKIWƒ)NFDOK
Pƒ&WR%WXKIWƒ)NFDOKPƒ&DQLQFUHDVHRI7KHRYHUDOOKHDWWUDQVIHU
FRHIILFLHQWLQFUHDVHV7KXVWKHKHDWIOX[ZKLFKLVWKHSURGXFWRIWKH07'DQGWKH
KHDWWUDQVIHUFRHIILFLHQWLQFUHDVHVE\DQGUHVXOWVLQDVXEVWDQWLDOUHGXFWLRQLQWKHKHDW
 
 7DEOHE6DOLHQWIHDWXUHVRIPXOWLSOHVKHOOGHVLJQVIRU
GLVWLOODWLRQFROXPQRYHUKHDGWULPFRQGHQVHU
 2ULJLQDO3GHVLJQ 5HYLVHG3GHVLJQ 1HZ63GHVLJQ
7\SHRIKHDWH[FKDQJHU )ORDWLQJKHDG7(0$W\SH$(6
6KHOO,'LQPP   

+HDWWUDQVIHUDUHDIWP î î î

  
1XPEHURIWXEHV   
7XEH2'îWKLFNQHVVîOHQJWK îî
LQPP
1RRIWXEHSDVVHV   
7XEHSLWFKLQPP VTXDUH
%DIIOHW\SH GRXEOHVHJPHQWDO VLQJOHVHJPHQWDO GRXEOHVHJPHQWDO
%DIIOHVSDFLQJLQPPQR   
RIFURVVSDVVHV

%DIIOHFXWGLDPHWHU URZVRYHUODS  URZVRYHUODS

DUHD RQDUHD
 +HDWWUDQVIHU 6KHOOVLGH   
FRHIILFLHQW
%WXKIWƒ) 7XEHVLGH   
NFDOKPƒ& 2YHUDOO   

3UHVVXUHGURS 6KHOOVLGH   
DOORZFDOF   
SVLNJFP   
7XEHVLGH
 

 9HORFLW\ 7XEHVLGH   

IWVPV 6KHOOVLGH   
&URVVZLQGRZ   
 0DLQFURVVIORZ   
 6WUHDP %DIIOHWRVKHOO   
DQDO\VLV
2YHUDOO   
HIIHFWLYHQHVV
 07'ƒ)ƒ&   
 2YHUGHVLJQ   
 1RPLQDO 6KHOOVLGH   
QR]]OHVL]H
LQRXWPP 7XEHVLGH   

 &RQGHQVLQJUHJLPH *UDYLW\LQDOO]RQHV *UDYLW\LQDOO]RQHV 6KHDU7UDQVLWLRQ

WUDQVIHUDUHD$OVRQRWHWKDWWKHVWUHDPDQDO\VLVKDVLPSURYHGFRQVLGHUDEO\GXHWRWKHODUJHU
EDIIOHVSDFLQJDQGFXW7KLVKDVDOVRFRQWULEXWHGWRZDUGVWKHLQFUHDVHLQWKHFRQGHQVLQJKHDW
WUDQVIHUFRHIILFLHQW
7KHVKHOO FRQQHFWLRQV KDGWREH LQFUHDVHGIURP  LQ  PP WR LQ  PP
 
VLQFHWKHUHDUHQRZWZRVKHOOVLQSDUDOOHOLQVWHDGRIIRXU$VKHOOLQVLGHGLDPHWHURILQ
PPZDVIRXQGDGHTXDWHIRUWKLVVLWXDWLRQDIWHULQFRUSRUDWLQJDYDSRUEHOWDWWKHVKHOO
LQOHW
7KHWRWDOZHLJKWRIWKHIRXUEXQGOHVKDVUHGXFHGIURPDSSUR[WRQVLQWKHRULJLQDO
GHVLJQ WR DSSUR[  WRQV LQ WKH 6 3 WZR VKHOOV LQ VHULHV DQG WZR VKHOOV LQ SDUDOOHO
GHVLJQDQGWKHWRWDO HPSW\ ZHLJKW IURPDSSUR[WRQVWRDSSUR[WRQV7KXVWKH
UHYLVHGGHVLJQZLOOEHFRQVLGHUDEO\FKHDSHU
$OORIWKHDERYHGHVLJQVZHUHVDIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ

&RQGHQVDWLRQZLWKGHVXSHUKHDWLQJDQGRUVXEFRROLQJ
7KHYDSRUWKDWHQWHUVDFRQGHQVHULVXVXDOO\VDWXUDWHGVRWKDWFRQGHQVDWLRQEHJLQVULJKW
DZD\7KLVLVDOZD\VWKHFDVHZKHQWKHYDSRUFRPHVIURPWKHWRSRIDGLVWLOODWLRQFROXPQ
+RZHYHULWVRPHWLPHVKDSSHQVWKDWWKHYDSRULVQRWDGLVWLOODWLRQFROXPQRYHUKHDGDQGLV
VXSHUKHDWHG ,Q VXFK D FDVH WKHUH ZLOO EH GHVXSHUKHDWLQJ XQWLO WKH YDSRU EHFRPHV
VDWXUDWHGDWWKHRSHUDWLQJSUHVVXUHIROORZHGE\FRQGHQVDWLRQ
7KH FRQGHQVDWH OHDYLQJ D FRQGHQVHU LV XVXDOO\ D VDWXUDWHG OLTXLG EXW LV VRPHWLPHV
UHTXLUHGWREHVXEFRROHGIRUSURFHVVUHDVRQVHJWKHFRQGHQVDWHLVYRODWLOHDQGKDVWREH
FRROHG WR SUHYHQW IODVKLQJ LW KDV YDOXDEOH KHDW ZKLFK FDQ EH UHFRYHUHG RU D GLVWLOODWLRQ
FROXPQUHTXLUHVVXEFRROHGFRQGHQVDWHDVUHIOX[
7KXVZHPD\KDYHDQ\RIWKHIROORZLQJFRPELQDWLRQVLQDFRQGHQVLQJVHUYLFH
 RQO\FRQGHQVDWLRQ
 GHVXSHUKHDWLQJDQGFRQGHQVDWLRQ
 GHVXSHUKHDWLQJFRQGHQVDWLRQDQGVXEFRROLQJ
 FRQGHQVDWLRQDQGVXEFRROLQJ
7KH SULQFLSDO GLIIHUHQFH EHWZHHQ FRQGHQVDWLRQ DQG WKH RWKHU WZR SKHQRPHQD DUH WKH
IROORZLQJ
 'HVXSHUKHDWLQJ LQYROYHV WKH VHQVLEOH FRROLQJ RI D YDSRU DQG FRQVHTXHQWO\ LWV
KHDWWUDQVIHUFRHIILFLHQWLVH[WUHPHO\ORZ
 'XHWRWKHORZDOORZDEOHSUHVVXUHGURSWKHEDIIOHVSDFLQJLQDFRQGHQVHULVIDLUO\
KLJK
:KHQ WKH YDSRU KDV WRWDOO\ FRQGHQVHG KRZHYHU WKH GHQVLW\ LQFUHDVHV FRQVLGHUDEO\ VR
WKDW LI WKH VDPH EDIIOH VSDFLQJ LV HPSOR\HG WKH YHORFLW\ DQG WKHUHIRUH KHDW WUDQVIHU
FRHIILFLHQWZLOOEHUDWKHUORZLQWKHVXEFRROLQJUHJLPH
/HWXVFRQVLGHUGHVXSHUKHDWLQJDQGVXEFRROLQJVHSDUDWHO\

'HVXSHUKHDWLQJ
7KHWXEHZDOOWHPSHUDWXUH ZLOODOZD\VEHORZHUWKDQ WKHEXON YDSRUWHPSHUDWXUHVLQFH
FRRODQWIORZVRQWKHRWKHUVLGH7UXHGHVXSHUKHDWLQJZLOOH[LVWRQO\DVORQJDVWKHWXEH
ZDOO WHPSHUDWXUH LV JUHDWHU WKDQ WKH YDSRU VDWXUDWLRQ WHPSHUDWXUH ,I WKH WXEHZDOO
WHPSHUDWXUHLVOHVVWKDQWKHGHZSRLQWRIWKHYDSRULWLVVDLGWREHD³ZHWZDOOFRQGLWLRQ´
+RZHYHULIWKHWXEHZDOOWHPSHUDWXUHLVJUHDWHUWKDQWKHGHZSRLQWLWLVVDLGWREH³GU\
ZDOOFRQGLWLRQ´
7KH WXEHZDOO WHPSHUDWXUH ZLOO GHSHQG XSRQ ERWK WKH KHDW WUDQVIHU FRHIILFLHQW RI WKH
GHVXSHUKHDWLQJYDSRUDQGWKDWRIWKHFRRODQW$VWKHIRUPHUZLOOLQYDULDEO\EHPXFKORZHU
WKDQ WKH ODWWHU WKH WXEHZDOO WHPSHUDWXUH ZLOO WHQG WR EH FORVH WR WKH FRRODQW EXON
WHPSHUDWXUH&RQVHTXHQWO\RQO\DSDUWRIWKHGHVXSHUKHDWLQJKHDWGXW\ZLOOEHWUDQVIHUUHGDV

 
JDV FRROLQJ ZKLOH WKHUHVW ZLOOEHWUDQVIHUUHGDVFRQGHQVLQJ (YLGHQWO\ KRZ PXFK RIWKH
KHDWGXW\ZLOOEHWUDQVIHUUHGDVJDVFRROLQJGU\ZDOODQGKRZPXFKDVFRQGHQVLQJZHW
ZDOO ZLOO GHSHQG XSRQ WKH H[WHQW RI VXSHUKHDW DQG WKH GHVXSHUKHDWLQJ DQG FRRODQW KHDW
WUDQVIHUFRHIILFLHQWV7KLVZLOOEHREVHUYHGLQWKHFDVHVWXG\SUHVHQWHGODWHULQWKLVVHFWLRQ
,QDFWXDOSUDFWLFHWKHSKHQRPHQRQLVVRPHZKDWFRPSOLFDWHGVLQFHHYHQZLWKZHWZDOO
GHVXSHUKHDWLQJWKHEXONYDSRULVVWLOOVXSHUKHDWHG7KXVDOWKRXJKFRQGHQVDWHIRUPVDWWKH
WXEHZDOOWKHXQFRQGHQVHGVXSHUKHDWHGYDSRUUHIODVKHVVRPHRIWKHFRQGHQVDWH7KLVSUR
FHVV FRQWLQXHV XQWLO WKH EXON YDSRU FRROV GRZQ WR WKH GHZ SRLQW ZKHQ WUXH FRQGHQVDWLRQ
EHJLQV)RUDOOSUDFWLFDOSXUSRVHVKRZHYHUWKHKHDWWUDQVIHUFRHIILFLHQWLQWKHZHWZDOOFRQ
GLWLRQLVYLUWXDOO\WKHVDPHDVLQWKHWUXHFRQGHQVLQJPRGHLQUHDOLW\LWLVVRPHZKDWORZHU
$OOVRSKLVWLFDWHGKHDWH[FKDQJHUWKHUPDOGHVLJQVRIWZDUHFDQKDQGOHGHVXSHUKHDWLQJLQ
ERWKWKHGU\ZDOODQGZHWZDOOPRGHVGHVFULEHGDERYH
7KHSHQDOW\LQWKHIRUPRIDGGLWLRQDOKHDWWUDQVIHUDUHDDVVRFLDWHGZLWKGHVXSHUKHDWLQJ
LVXVXDOO\UDWKHUVPDOOVLQFHWKHORVVLQWKHKHDWWUDQVIHUFRHIILFLHQWLVODUJHO\FRPSHQVDWHGE\
WKH LQFUHDVH LQ 07' 7KH JUHDWHU WKH VXSHUKHDW WKH JUHDWHU LV WKH GHFUHDVH LQ WKH KHDW
WUDQVIHUFRHIILFLHQWEXWWKHQWKHJUHDWHULVWKHLQFUHDVHLQ07'&RQVHTXHQWO\IRUWKHVDPH
WRWDOKHDWGXW\WKHGLIIHUHQFHLQKHDWWUDQVIHUDUHDEHWZHHQRQO\FRQGHQVLQJDQGFRQGHQVLQJ
SUHFHGHG E\ GHVXSHUKHDWLQJ LV QRW DSSUHFLDEOH +RZHYHU WKH SUHVVXUH GURS PD\ LQFUHDVH
DSSUHFLDEO\HVSHFLDOO\LIWKHRSHUDWLQJSUHVVXUHLVORZ
2FFDVLRQDOO\ D GHVXSHUKHDWHU DQG D FRQGHQVHU DUH VHSDUDWH VKHOOV 2QH DGYDQWDJH RI
VXFK DQ DUUDQJHPHQW LV WKDW WKH FRRODQW PD\ EH KHDWHG WR D WHPSHUDWXUH KLJKHU WKDQ WKH
VDWXUDWLRQ WHPSHUDWXUH SURYLGHG GU\ZDOO GHVXSHUKHDWLQJ LV HQVXUHG LQ WKH GHVXSHUKHDWHU
)RUWKLVSXUSRVHWKHHQWLUHVXSHUKHDWLVQRWUHPRYHGLQWKHGHVXSHUKHDWHUDVPDOOSDUWRILW
LVFDUULHGRQWRWKHFRQGHQVHU
,QVWHDGRIDVHSDUDWHGHVXSHUKHDWHUDQLQWHJUDOGHVXSHUKHDWHUPD\DOVREHHPSOR\HGLQ
WKH VDPH VKHOO VKURXGHG LQ RUGHU WR HQVXUH GU\ZDOO LQ WKH GHVXSHUKHDWHU 6XFK D
FRQVWUXFWLRQLVFRPPRQO\HPSOR\HGLQSRZHUSODQWIHHGZDWHUKHDWHUVZKHUHLQWKHIHHGZDWHU
LVKHDWHGWRDWHPSHUDWXUHJUHDWHUWKDQWKHVDWXUDWLRQWHPSHUDWXUHRIWKHFRQGHQVLQJVWHDP

&$6(678'<&21'(16$7,21:,7+:(7:$//'(683(5+($7,1*
/HW XV FRQVLGHU WKH OLJKW K\GURFDUERQ FRQGHQVHU SUHVHQWHG LQ FDVH 6WXG\  ,Q WKDW
H[DPSOHWKHK\GURFDUERQHQWHULQJWKHFRQGHQVHUZDVVDWXUDWHG,QRUGHUWRGHPRQVWUDWH
WKH HIIHFW RI VXSHUKHDW RQ WKH SHUIRUPDQFH RI D FRQGHQVHU ZH VKDOO FRQVLGHU IRXU
DUELWUDU\ FDVHV RI K\GURFDUERQ VXSHUKHDW ƒ) ƒ& ƒ) ƒ& ƒ) ƒ&
DQG ƒ) ƒ&7KH VDWXUDWLRQ WHPSHUDWXUH LV ƒ) ƒ&7KH FRROLQJ ZDWHU
IORZUDWHZDVLQFUHDVHGLQWKHVDPHUDWLRDVWKHKHDWGXW\WKHUHE\UHWDLQLQJWKHVDPHLQOHW
DQG RXWOHW WHPSHUDWXUHV ƒ) ƒ&DQG ƒ) ƒ&7KH H[LVWLQJ GHVLJQ RI WKH
OLJKWK\GURFDUERQFRQGHQVHULQ&DVH6WXG\ZLWKWKHEDIIOHVSDFLQJRIPPZDV
UHUXQIRUWKHVHFDVHVRIVXSHUKHDWDQGWKHUHVXOWVDUHUHSRUWHGLQ7DEOHDDORQJZLWK
WKDWIRUWKHVDWXUDWHGFDVHLWVHOI7KHIROORZLQJZLOOEHREVHUYHGLQ7DEOHD
D :LWKWKHJUDGXDOLQFUHDVHLQWKHGHVXSHUKHDWLQJWHPSHUDWXUHUDQJHDQGKHDWGXW\
WKHVKHOOVLGHKHDWWUDQVIHUFRHIILFLHQWUHGXFHVPRGHUDWHO\IURP%WXKIW ƒ)
NFDOK Pƒ&WR%WXKIW ƒ)NFDOK Pƒ&DGURSRIDERXW

E 7KH RYHUDOO KHDW WUDQVIHU FRHIILFLHQW UHGXFHV PDUJLQDOO\ IURP %WXK IW ƒ)
NFDOK P ƒ&WR%WXKIW ƒ)NFDOK P ƒ&DGHFUHDVHRI RQO\
7KLVLVEHFDXVHDWKHVKHOOVLGHUHVLVWDQFHFRQWULEXWHVDURXQGRIWKH

 
 7DEOHD5HVXOWVRIOLJKWK\GURFDUERQFRQGHQVHUZLWKYDU\LQJGHJUHHVRIVXSHUKHDW
 6DWXUDWHG 6XSHUKHDWHG
WLQ  WLQ ƒ) WLQ ƒ) WLQ ƒ) WLQ ƒ)
ƒ)ƒ& ƒ& ƒ& ƒ& ƒ&
 +HDWGXW\00%78K     
00NFDOK     

 &:IORZOEKNJK     

    
 6KHOOVLGHFRQGHQVLQJKHDW
WUDQVIHUFRHIILFLHQW%WXKIW     
ƒ)NFDOKPƒ&     

 7XEHVLGHKHDWWUDQVIHU
FRHIILFLHQW%WXKIWƒ)     
NFDOKPƒ&
 2YHUDOOKHDWWUDQVIHU     
FRHIILFLHQW8%WXKIWƒ)     
NFDOKPƒ&
 8î07'NFDOKP     
 6KHOOVLGHSUGURS     
SVLNJFP
 7XEHVLGHSUGURS     
SVLNJFP
 07'ƒ)ƒ&     
 2YHUGHVLJQ     
 VKHOO     

 WKHUPDO WXEH     

UHVLVWDQFH
IRXOLQJ     

PHWDO     

WRWDOUHVLVWDQFHDQGVRGRHVWKHIRXOLQJUHVLVWDQFHDQGEWKHUHLVDQLQFUHDVHLQ
WKHWXEHVLGHKHDWWUDQVIHUFRHIILFLHQWIURP%WXKIW ƒ)NFDOKP ƒ&
WR%WXKIWƒ)NFDOKPƒ&
F 7KH 07' LQFUHDVHV VKDUSO\ IURP ƒ) ƒ& WR ƒ) ƒ& WKHUHE\
PRUH WKDQ FRPSHQVDWLQJ IRU WKH ORVV LQ WKH RYHUDOO KHDW WUDQVIHU FRHIILFLHQW
7KXVWKHUHLVDVWHDG\LQFUHDVHLQWKHWKHKHDWIOX[8î07'IURP%WXK
IWNFDOKPWR%WXKIWNFDOKP
G 7KH RYHUGHVLJQFKDQJHVVXEVWDQWLDOO\IURPWRSULQFLSDOO\GXH
WR WKH LQFUHDVH LQ KHDW GXW\ IURP  00 %WXK  00 NFDOK WR 
00%WXK00NFDOKZLWKLQFUHDVLQJVXSHUKHDWRIWKHLQOHWK\GURFDUERQ
VWUHDP

&$6(678'<&21'(16$7,21:,7+'5<:$//'(683(5+($7,1*
,Q&DVH6WXG\DERYHZHWZDOOFRQGLWLRQVSUHYDLOHGDVWKHWXEHZDOOWHPSHUDWXUHZDV
UDWKHUORZ7KLV ZDVDGLUHFWFRQVHTXHQFH RIWKHKLJKWXEHVLGH KHDWWUDQVIHUFRHIILFLHQW
 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG )XHORLO 6WHDP

 )ORZUDWHOEKNJK  


 2SHUDWLQJSUHVVXUHSVLDNJFP D  
 7HPSHUDWXUHLQRXWƒ)ƒ&  

 9LVFRVLW\LQRXWFS  

 7KHUPDOFRQGXFWLYLW\%WXKIWƒ) 

NFDOKPƒ& 6WDQGDUG
 6SHFLILFKHDWLQRXW%WXOEƒ)NFDONJƒ& 
 
 'HQVLW\LQRXWOEIW NJP  

 $OORZDEOHSUHVVXUHGURSSVLNJFP  


 )RXOLQJUHVLVWDQFHKIW ƒ)%WX
 
KPƒ&NFDO

 +DWGXW\00%WXK00NFDOK 

 'HVLJQSUHVVXUHSVLJNJFPJ  

 0DWHULDORIFRQVWUXFWLRQ &6 &6

ZKLFKUHVXOWHGLQDORZWHPSHUDWXUHGURSDFURVVWKHWXEHVLGHILOPWKHUHE\SXOOLQJGRZQ
WKH WXEHZDOO WHPSHUDWXUH WRZDUGV WKH WXEHVLGH EXON WHPSHUDWXUH $V ZHWZDOO
GHVXSHUKHDWLQJ LV QRW YHU\ LQIHULRU WR WUXH FRQGHQVLQJ WKH UHGXFWLRQ LQ WKH FRQGHQVLQJ
KHDWWUDQVIHUFRHIILFLHQWZDVQRWDSSUHFLDEOH,QIDFWWKH07'LPSURYHGPXFKPRUHWKDQ
WKHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWUHGXFHG7KXVUHIHUULQJWR7DEOHDDQGFRPSDULQJ
WKHVDWXUDWHGK\GURFDUERQFDVHZLWKWKDWRIDVXSHUKHDWHGLQOHWƒ)RUƒ&LWZLOO
EHVHHQWKDWWKHGXW\LQWKHODWWHUFDVHLVKLJKHUZKHUHDVWKHGLIIHUHQFHLQRYHUGHVLJQ
LV²RU,QRWKHUZRUGVWKHRYHUDOOSHUIRUPDQFHZDVRU
WLPHVEHWWHU
/HWXVQRZFRQVLGHUDQHQWLUHO\GLIIHUHQWDSSOLFDWLRQRQHLQZKLFKVXSHUKHDWZLOOUHVXOW
LQLQIHULRUSHUIRUPDQFH7KLVLVDIXHORLOKHDWHUZLWKYLVFRXVIXHORLOEHLQJKHDWHGE\VWHDP
7KHSULQFLSDOSURFHVVSDUDPHWHUVDUHSUHVHQWHGLQ7DEOHD
$ GHVLJQ ZDV SUHSDUHG ZLWK VDWXUDWHG VWHDP DQG WKH VDOLHQW FRQVWUXFWLRQ DQG
SHUIRUPDQFHSDUDPHWHUVDUHLQGLFDWHGLQ7DEOHE
7KHVWHDPFRQGLWLRQLVQRZFKDQJHGWRVXSHUKHDWHGZLWKDQLQOHWWHPSHUDWXUHRIƒ)
ƒ&:KHQWKHVDPHGHVLJQZDVFKHFNHGLWZDVIRXQGWRKDYHDQRYHUGHVLJQRI
ZKHQDPLQLPXPRYHUGHVLJQRILVUHTXLUHG7KXVWKHUHGXFWLRQLQSHUIRUPDQFHLV
IURP DQ RYHUGHVLJQ RI  WR DQ RYHUGHVLJQ RI  7KH GHVXSHUKHDWLQJ ]RQH KDV D
FRQVLGHUDEO\ ORZHU KHDWWUDQVIHU FRHIILFLHQWDQGDOWKRXJKWKH07' LVDSSUHFLDEO\ KLJKHU
WKHKHDWIOX[LVVLJQLILFDQWO\ORZHU7KHUHOHYDQWGHWDLOVDUHSUHVHQWHGLQ7DEOHF,WZLOOEH
VHHQWKDWDOWKRXJKWKHGHVXSHUKHDWLQJKHDWGXW\LVRQO\RIWKHWRWDOLWUHTXLUHVDKHDW
WUDQVIHUDUHDRIRIWKHWRWDO,QVLWXDWLRQVZKHUHWKHGHVXSHUKHDWLQJKHDWGXW\LVKLJKHU
WKHUHGXFWLRQLQSHUIRUPDQFHFRXOGEHHYHQPRUH

 
 7DEOHE6DOLHQWIHDWXUHVRIGHVLJQRIIXHORLOKHDWHU
 7(0$W\SH %(8

 6KHOO,'LQPP 

 
 +HDWWUDQVIHUDUHDIW P  

 1XPEHURIWXEHV 8WXEHV

 1RRIWXEHSDVVHV 

 7XEH2'îWKLFNQHVVîOHQJWKLQPP îî

 7XEHSLWFKLQPP URWDWHGVTXDUH
 %DIIOHVSDFLQJLQPP 
 %DIIOHFXWGLDPHWHU 

 1RPLQDOVKHOOVLGHFURVVZLQGRZYHORFLW\IWVPV 

 0DLQFURVVIORZ 
 6WUHDPDQDO\VLV %DIIOHWRVKHOO 
2YHUDOOHIIHFWLYHQHVV 

 6KHOOVLGH 


 +7&%WXKIW ƒ) 7XEHVLGH 
NFDOKPƒ&
2YHUDOO 

 3UHVVXUHGURSSVL 6KHOOVLGH 

NJFP 7XEHVLGH 
 07'ƒ& 

 2YHUGHVLJQ 

 1R]]OHVL]HLQRXWLQ 6KHOOVLGH 

PP
7XEHVLGH 

6XEFRROLQJ
7KLV LV D PXFK PRUH GLIILFXOW VLWXDWLRQ WKDQ GHVXSHUKHDWLQJ 8VXDOO\ VRPH GHJUHH RI
VXEFRROLQJLVGHVLUHGWRSUHYHQWIODVKLQJLQWKHFRQGHQVDWHGLVFKDUJHDQGWKHUHE\FDXVH
SUREOHPVZKHQWKHFRQGHQVDWHLVSXPSHG$VPDOOGHJUHHRIVXEFRROLQJLVDFFRPSOLVKHG
LQ D WRWDO FRQGHQVHU HYHQ ZLWKRXW VSHFLDOO\ FDWHULQJ WR LW EXW D ODUJHU GHJUHH RI
VXEFRROLQJLVJHQHUDOO\QRWUHFRPPHQGHGLQWKHVDPHVKHOOGXHWRWKHIROORZLQJ
D 7KHKHDWWUDQVIHUFRHIILFLHQWLVYHU\ORZGXHWRWKHORZYHORFLW\
E 7KHWUXHOLTXLGOHYHODQG07'DUHYHU\GLIILFXOWWRGHWHUPLQH
,IVXEFRROLQJLVUHTXLUHGLQWKHVDPHVKHOODVWKHFRQGHQVHUWKHEHVWFRQILJXUDWLRQLVWKH
YHUWLFDO LQWXEH 7KH ZRUVW FRQILJXUDWLRQ LV WKH KRUL]RQWDO LQWXEH 7KH PRVW FRPPRQ
FRQGHQVDWLRQ FRQILJXUDWLRQ LV KRUL]RQWDO VKHOOVLGH :KLOH WKLV LV QRW YHU\ ZHOO VXLWHG WR
DFFRPSOLVKVXEFRROLQJLWFDQEHPDGHWRIXQFWLRQYHU\HIIHFWLYHO\DQGHFRQRPLFDOO\E\
LQFRUSRUDWLQJDPHWKRGRORJ\GHVFULEHGEHORZ
7KHSULQFLSDOSUREOHPZLWKFRQGHQVDWLRQRXWVLGHKRUL]RQWDOWXEHVLVWKDWWKHFRQGHQVDWH

 
 7DEOHF$QDO\VLVRIGHVLJQRIIXHORLOKHDWHUZLWKVXSHUKHDWHGVWHDP
 'HVXSHUKHDWLQJ]RQH &RQGHQVLQJ]RQH
 +HDWGXW\00%WXK00NFDOK  

 KHDWGXW\  

 7XEHVLGHKHDWWUDQVIHUFRHIILFLHQW WR WR
%WXKIWƒ)NFDOKPƒ&
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW WRWR WRWR
%WXKIWƒ)NFDOKPƒ&

 07'ƒ)ƒ& WR WR

 +HDWIOX[%WXKIWNFDOKP WR WR

WR WR
 +HDWWUDQVIHUDUHDUHTXLUHGIWP  

 KHDWWUDQVIHUDUHDRIWRWDO  

VHSDUDWHV DQG IDOOV WR WKH ERWWRP RI WKH VKHOO E\ YLUWXH RI LWV KLJK GHQVLW\ 7KXV WKH
FRQGHQVDWHGRHVQRWHQFRXQWHUWKHUHTXLVLWHKHDWWUDQVIHUVXUIDFH
7KH VKHOO PD\ EH SDUWLDOO\ IORRGHG E\ XVLQJ D GDP EDIIOH RU D ORRS VHDO WR SURYLGH
FRQWDFWIRUFRQGHQVDWHZLWKWXEHV+RZHYHUVXEFRROLQJFDQQRWEHSUHGLFWHGDFFXUDWHO\VLQFH
WKHDFWXDOOLTXLG OHYHO PD\EH TXLWH GLIIHUHQW GHSHQGLQJXSRQWKHSUHVVXUH JUDGLHQW LQWKH
VKHOO)XUWKHUVLQFHDOOWKHWXEHVZLOOEHIORRGHGDORQJWKHHQWLUHOHQJWKWKHLQLWLDOOHQJWKRI
WKHIORRGHGWXEHVZLOOEHXQDYDLODEOHIRUFRQGHQVLQJ7KXVLIWKHVKHOOLVGLYLGHGLQWRWZR
SDUWV RQH IRU FRQGHQVLQJ DQG WKH RWKHU IRU VXEFRROLQJ WKH IORRGHG WXEHV LQ WKH ILUVW SDUW
IURP WKH VKHOO LQOHW ZLOO EH XQDYDLODEOH IRU FRQGHQVLQJ DQG WKH XQIORRGHG WXEHV LQ WKH
VHFRQG SDUW ZLOO EH XQDYDLODEOH IRU VXEFRROLQJ 7KLV LV UHSUHVHQWHG LQ )LJ  (YLGHQWO\
VXFKDGHVLJQLVYHU\LQHIILFLHQW
2QH ZD\ RXW LV WR HPSOR\ WZR VHSDUDWH VKHOOV RQH IRU FRQGHQVLQJ DQG WKH RWKHU IRU
VXEFRROLQJ &RQVLGHULQJ WKDW FRQGHQVLQJ DQG VXEFRROLQJ DUH WZR HQWLUHO\ GLIIHUHQW
SKHQRPHQD WKLV LV WHFKQLFDOO\ VRXQG VLQFH HDFK VKHOO FDQ WKHQ EH PDGH YHU\ HIILFLHQW
+RZHYHU WKH FRVW RI WKH HTXLSPHQW LQFUHDVHV FRQVLGHUDEO\ ,I WKH FRQGHQVHU DQG WKH
VXEFRROHU DUH IDLUO\ ODUJH XQLWV VR WKDW WZR VKHOOV ZLOO EH UHTXLUHG DQ\ZD\ VXFK DQ
DUUDQJHPHQW ZLOO EH DFFHSWDEOH +RZHYHU WKLV LV XVXDOO\ QRW WKH FDVH VR WKDW DQ LQWHJUDO
FRQGHQVHUVXEFRROHUUHSUHVHQWVDPRUHHFRQRPLFDOGHVLJQ
%\ XVLQJ D VSHFLDO GHVLJQ LW LV
SRVVLEOH WR LQFRUSRUDWH DQ HIILFLHQW
FRQGHQVHUDQGDQHIILFLHQWVXEFRROHU
LQWKHVDPHVKHOO7KLVLVGHVFULEHGLQ
WKHIROORZLQJFDVHVWXG\

&$6(678'<
&21'(16$7,21:,7+
,17(*5$/68%&22/,1*
$ VKHOODQGWXEH FRQGHQVHU ZDV
UHTXLUHG IRU FRQGHQVLQJ GLVWLOODWLRQ
FROXPQ RYHUKHDG 7KH SULQFLSDO )LJ(IIHFWRIIORRGLQJLQDKRUL]RQWDOVKHOOVLGHFRQGHQVHU

 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG 'LVWLOODWLRQFROXPQRYHUKHDG &RROLQJZDWHU

 )ORZUDWHOEKNJK  


 2SHUDWLQJSUHVVXUHSVLDNJFP D  
  
 7HPSHUDWXUHLQRXWƒ)ƒ& GHZSRLQW  
EXEEOHSRLQW 

 9DSRUPROHFXODUZHLJKW  

 9LVFRVLW\OLTXLGLQRXWFS  
 7KHUPDOFRQGXFWLYLW\OLTYDS 

%WXKIWƒ)NFDOKPƒ& 6WDQGDUG
 6SHFLILFKHDWOLTYDS%WXOEƒ)NFDONJƒ& 
 6SJUDYLW\OLTXLG #ƒ)ƒ&

 $OORZDEOHSUHVVXUHGURSSVLNJFP   
 )RXOLQJUHVLVWDQFHKIWƒ)%WXKPƒ&NFDO  

 7RWDO 

 +HDWGXW\00%WXK00NFDOK &RQGHQVLQJ 
6XEFRROLQJ 
 'HVLJQSUHVVXUHSVLJNJFPJ IXOOYDFXXP 
 'HVLJQWHPSHUDWXUHƒ)ƒ&  

SURFHVV SDUDPHWHUV DUH OLVWHG LQ 7DEOH D 7KH LQOHW YDSRU LV VDWXUDWHG VR WKDW
FRQGHQVLQJEHJLQVDWƒ)ƒ&DQGLVRYHUDWƒ)ƒ&6XEFRROLQJSURFHHGV
IURP ƒ) ƒ& WR WKH RXWOHW WHPSHUDWXUH RI ƒ) ƒ& VR WKDW WKH RXWOHW
FRQGHQVDWHLVVXEFRROHG7KHKLJKYLVFRVLW\RIWKHFRQGHQVDWHPD\EHQRWHGLWZLOOUHVXOW
LQDQH[WUHPHO\ORZVXEFRROLQJKHDWWUDQVIHUFRHIILFLHQW
6LQFHWKHSKHQRPHQDRIFRQGHQVLQJDQGOLTXLGVXEFRROLQJDUHYDVWO\GLIIHUHQWLWZRXOG
KDYHEHHQDQRUPDOSUDFWLFHWRHPSOR\WZRVKHOOVLQVHULHVWKHXSSHURQHIRUFRQGHQVLQJDQG
WKHORZHURQHIRUVXEFRROLQJ+RZHYHULQWKHSUHVHQWLQVWDQFHWKHDOORZDEOHSUHVVXUHGURS
IRUWKHFRQGHQVLQJVXEFRROLQJVWUHDPLVRQO\SVLNJFP$VWKHXVHRIWZRVKHOOV
LQVHULHVZRXOGKDYHUHVXOWHGLQDGGLWLRQDOSUHVVXUHGURSLQWKHH[WUDQR]]OHVDQGSLSLQJLW
EHFDPHQHFHVVDU\WRHPSOR\DVLQJOHVKHOO
,Q SRZHU SODQW IHHGZDWHU KHDWHUV LW LV FRPPRQ WR HPSOR\ VHSDUDWH ]RQHV IRU GH
VXSHUKHDWLQJDQGVXEFRROLQJ7KLVLGHDZDVDSSOLHGWRWKHVXEMHFWFRQGHQVHU$ORQJLWXGLQDO
EDIIOHZDVXVHGWRGLYLGHWKHVKHOOLQWRWZRVHSDUDWH]RQHVDQXSSHUFRQGHQVLQJ]RQHDQGD
ORZHUVXEFRROLQJ]RQH$VFRQGHQVLQJZDVQHDUO\LVRWKHUPDODQGYDSRUVKHDUZDVYHU\KLJK
GXH WR WKH H[WUHPHO\ ORZ RSHUDWLQJ SUHVVXUH EDIIOHV ZHUH QRW UHTXLUHG WR DFKLHYH D KLJK
FRQGHQVLQJ KHDW WUDQVIHU FRHIILFLHQW 2QO\ FURVVIORZ ZDV HPSOR\HG ZLWK WKH UHTXLUHG
VXSSRUWSODWHVWRUHGXFHSUHVVXUHGURSWRDPLQLPXPZKLOHVWLOODFKLHYLQJDUDWKHUKLJKKHDW
WUDQVIHUFRHIILFLHQW
,Q WKH VXEFRROLQJ ]RQH KRZHYHU LW ZDV LPSHUDWLYH WR XVH EDIIOHV WR LQFUHDVH WKH
FRQGHQVDWH YHORFLW\ WR D VXIILFLHQWO\ KLJK YDOXH VR DV WR REWDLQ D UHDVRQDEO\ KLJK KHDW
 
 7DEOHE6DOLHQWIHDWXUHVRIYHU\ORZSUHVVXUHRYHUKHDGFRQGHQVHUGHVLJQ
 &RQGHQVLQJ]RQH 6XEFRROLQJ]RQH
7\SHRIKHDWH[FKDQJHU )L[HGWXEHVKHHW
6KHOO,'LQPP 
+HDWWUDQVIHUDUHDIWP  
)ORZSDWWHUQRQVKHOOVLGH &URVVIORZ %DIIOHGXSDQGRYHU
1XPEHURIWXEHV  
7XEHOHQJWKIWPP 
7XEH2'îWKLFNQHVVLQPP ôî%:*
1RRIWXEHSDVVHV  
7XEHSLWFKLQPP VTXDUH
%DIIOHVSDFLQJLQPP 2QO\VXSSRUWSODWHV 
%DIIOHFXWGLDPHWHU 1LO KRU

+HDWWUDQVIHUFRHII 6KHOOVLGH  

%WXKIWƒ) 7XEHVLGH  
NFDOKPƒ&
2YHUDOO  
07'ƒ)ƒ&  

2YHUGHVLJQ  

3UHVVXUHGURS 6KHOOVLGH 1HJOLJLEOH

SVLNJFP
7XEHVLGH 
&RROLQJZDWHUYHORFLW\IWVPV 

1RPLQDOQR]]OHVL]HLQRXW 6KHOOVLGH 

LQPP
7XEHVLGH 

WUDQVIHUFRHIILFLHQW7KHFRQVWUXFWLRQLVDNLQWRD7(0$*VKHOOKRZHYHUDVZLOOEHVHHQ
ODWHUWKHQXPEHURIWXEHVLQWKHXSSHUFRQGHQVLQJDQGORZHUVXEFRROLQJ]RQHVLVTXLWH
GLIIHUHQW 7KXV LW EHFDPH QHFHVVDU\ WR UXQ WKH FRQGHQVLQJ DQG VXEFRROLQJ VHFWLRQV
LQGLYLGXDOO\DV7(0$)VKHOOVDQGFRQVLGHUWKHUHVXOWVRIWKHDSSURSULDWHSDVVRQO\IRUHDFK
UXQ 6HYHUDO UXQV KDG WR EH WDNHQ LQ RUGHU WR RSWLPL]H WKH GLVWULEXWLRQ RI WXEHV LQ WKH
FRQGHQVLQJDQGWKHVXEFRROLQJ]RQHVVRWKDWWKHRYHUDOOQXPEHURIWXEHVDQGWKHUHE\WKH
FRVWZHUHWKHPLQLPL]HG
7KHILQDONH\UHVXOWVDVZHOOWKHLQWHUHVWLQJFRQVWUXFWLRQIHDWXUHVWKDWILQDOO\HPHUJHG
DUH HODERUDWHG LQ 7DEOH E ,W ZLOO EH QRWLFHG WKDW DOWKRXJK WKH VXEFRROLQJ KHDW GXW\
%WXKRUNFDOKZDVRQO\RIWKHWRWDO%WXKRU
NFDOKLWVUHTXLUHGKHDWWUDQVIHUDUHDZDVDVKLJKDVRIWKHWRWDO7KLVZDVDWWULEXWDEOH
WRWKHPXFKORZHU07'DQGRYHUDOOKHDWWUDQVIHUFRHIILFLHQW&RQVHTXHQWO\WKHFRQGHQVLQJ
]RQHKDGRQO\WXEHVZKHUHDVWKHVXEFRROLQJ]RQHKDG

1R]]OHVL]LQJ
1R]]OHVDUHVL]HGRQWKHEDVLVRIρYZKLFKGHWHUPLQHVSUHVVXUHGURSDQGWKHWHQGHQF\WR

 
HURGH 7KH ODWWHU DVVXPHV DGGHG VLJQLILFDQFH IRU FRQGHQVHUV HVSHFLDOO\ IRU VDWXUDWHG
YDSRUV7KLV LV EHFDXVH WKHUH PD\ EH D IHZ GURSOHWV RI FRQGHQVDWH LQ WKH YDSRU VWUHDP
HQWHULQJDFRQGHQVHUZKLFKZLOOWKHQWUDYHODWWKHYDSRUYHORFLW\SURGXFHDQH[WUHPHO\
KLJKρYDQGWKHUHE\WHQGWRHURGHWXEHVLQWKHWRSURZ7KXVLWLVDOZD\VDGYLVDEOHWR
LQFRUSRUDWHDQLPSLQJHPHQWSODWHMXVWEHORZWKHVKHOOLQOHWQR]]OHRIDFRQGHQVHU
,WLVDXVXDOSUDFWLFHWROLPLWWKHSUHVVXUHGURSLQWKHLQOHWDQGRXWOHWQR]]OHVRIDKHDW
H[FKDQJHUWRDERXWRIWKHWRWDODOORZHGIRUHLWKHUVLGHVKHOOVLGHRUWXEHVLGHDQGWKH
VDPHKROGVWUXHIRUFRQGHQVHUV7KLVLVWROHDYHVXIILFLHQWSUHVVXUHGURSIRUWKHVKHOORUWXEHV
SURSHU ZKHUH KHDW WUDQVIHU DFWXDOO\ WDNHV SODFH 6LQFH WKHUH LV H[SDQVLRQ DW WKH VKHOO RU
FKDQQHOLQOHWDQGFRQWUDFWLRQDWWKHVKHOORUFKDQQHORXWOHWWKHSUHVVXUHGURSLQWKHLQOHW
QR]]OHLVDOZD\VJUHDWHUWKDQWKDWLQWKHRXWOHWQR]]OHIRUWKHVDPHρY$ρYRI
OEIWVHF ± NJP VHF LVXVXDOO\ FRQVLGHUHG IRUWKHVL]LQJ RI QR]]OHV IRU JDV RU
YDSRUOLTXLGVHUYLFHV)RUOLTXLGVDρYRIOEIWVHFNJPVHFLVTXLWHQRUPDO
DQG  OEIW VHF  NJP VHF DQ XSSHU OLPLW 7KLV LV IRU WKH VLPSOH UHDVRQ WKDW D
KLJKHU SUHVVXUH GURS LV SHUPLWWHG IRU OLTXLGV WKDQ IRU JDVHV FRQGHQVLQJ YDSRUV DQG
YDSRUL]LQJOLTXLGV,WPXVWEHHYLGHQWWKDWWKHKLJKHUWKHYDOXHRIρYSHUPLWWHGWKHVPDOOHU
ZLOOEHWKHVL]HRIDQR]]OH
,W PXVW EH VWDWHG KHUH WKDW LW LV YHU\ LPSRUWDQW WR VL]H FRQGHQVDWH QR]]OHV IRU SURSHU
GUDLQDJH VR DV WR SURYLGH ZHLUW\SH IORZ UDWKHU WKDQ D IORRGHG GUDLQ SLSH ,Q WKH ODWWHU
VLWXDWLRQIORRGLQJPD\UHVXOWZLWKDGHOHWHULRXVHIIHFWRQWKHSHUIRUPDQFHRIWKHFRQGHQVHU
,WLVDFRPPRQSUDFWLFHWRVL]HVWHDPFRQGHQVDWHQR]]OHVIRUDYHORFLW\RIIWVPV
DQG K\GURFDUERQ FRQGHQVDWH QR]]OHV IRU  IWV ± PV LQ RUGHU WR DFKLHYH ZHLU
W\SHIORZ

&RQGHQVLQJSURILOHVDQG07'
,Q VLQJOHSKDVH DSSOLFDWLRQV WKH YDULDWLRQ RI KHDW GXW\ YHUVXV WHPSHUDWXUH RU WKH KHDW
UHOHDVHSURILOHLVHVVHQWLDOO\OLQHDU(VVHQWLDOO\EHFDXVHYDSRURUOLTXLGVSHFLILFKHDWGRHV
LQFUHDVHZLWKWHPSHUDWXUHEXWWKLVYDULDWLRQLVQRWODUJHHQRXJKWRLPSDUWDQDSSUHFLDEOH
FXUYDWXUHWRWKHKHDWUHOHDVHSURILOH
+RZHYHULQWKHFDVHRIFRQGHQVHUVWKHUHLVXVXDOO\DQDSSUHFLDEOHFXUYDWXUHLQWKHKHDW
UHOHDVH SURILOH 7KLV LV SDUWLFXODUO\ WUXH ZKHQ WKH FRQGHQVLQJ VWUHDP LV D PXOWLFRPSRQHQW
PL[WXUH 'XHWRWKH HIIHFW RISDUWLDOSUHVVXUHVWKH OHVV YRODWLOHFRPSRQHQWV ZLOO FRQGHQVH
ILUVWDQGWKHPRUHYRODWLOHFRPSRQHQWVODWHU7KXVVLQFHPRUHKHDWGXW\ZLOOEHWUDQVIHUUHG
SHUXQLWRIWHPSHUDWXUHGLIIHUHQFHDWWKHKRWWHUHQGRIWKHFRQGHQVHUWKDQDWWKHFROGHUHQG
WKHVORSHRIWKHFXUYHZLOOEHVWHHSHUDWWKHKRWWHUHQGWKDQDWWKHFROGHUHQGDVVKRZQLQ
)LJ D +RZHYHU D SXUH FRPSR
QHQWFRQGHQVHU ZLOO KDYHDQ LVRWKHU
PDOKHDWUHOHDVHSURILOHDVVKRZQLQ
)LJE
7KH VLWXDWLRQ LV IXUWKHU FRPSOL
FDWHG ZKHQ GHVXSHUKHDWLQJ DQGRU
VXEFRROLQJ]RQHVDUHDOVRSUHVHQW$
W\SLFDO GHVXSHUKHDWLQJ FRQGHQVLQJ
DQGVXEFRROLQJVLWXDWLRQLVVKRZQLQ
)LJF(YLGHQWO\LIWKHFRQGHQVLQJ
VWUHDP LV D SXUH FRPSRQHQW WKH
SURILOH LQ WKH FRQGHQVLQJ ]RQH ZLOO
)LJD&RQGHQVLQJSURILOHRIDPXOWLFRPSRQHQWPL[WXUH EHOLQHDU

 
 ,WLVH[WUHPHO\LPSRUWDQWWRIHHGWKHFRQGHQVHUKHDWUHOHDVHSURILOHWRWKHWKHUPDOGHVLJQ
VRIWZDUH 7KH HQWLUH SURILOH ZLOO KDYH WR EH GLYLGHG LQWR D VXIILFLHQWO\ KLJK QXPEHU RI
YLUWXDOO\ VWUDLJKWOLQH VHJPHQWV DQG WKH FDOFXODWLRQV SHUIRUPHG VHJPHQWZLVH 7KLV LV
LPSRUWDQWEHFDXVHQRWRQO\WKH07'EXWWKHVKHOOVLGHFRQGHQVLQJKHDWWUDQVIHUFRHIILFLHQW
ZLOOYDU\VLJQLILFDQWO\IURPLQOHWWRRXWOHW7KHKLJKHUFRQGHQVLQJGXW\DWWKHLQOHWHQGZLOO
SURGXFHDFRUUHVSRQGLQJO\KLJKHUKHDWWUDQVIHUFRHIILFLHQW
%HVLGHVKHDWGXW\WKHYDSRUZHLJKWIUDFWLRQZLOODOVRKDYHWREHIHGDJDLQVWWHPSHUDWXUH
7KLVFDQEHHDVLO\XQGHUVWRRGDVWKHUHODWLYHDPRXQWVRIYDSRUDQGOLTXLGLQWKHFRQGHQVLQJ
VWUHDP ZLOO GHWHUPLQH WKH KHDW WUDQVIHU FRHIILFLHQW DQG SUHVVXUH GURS LQ YDULRXV VHJPHQWV
LQFUHPHQWVRIWXEHOHQJWK

/RZSUHVVXUHFRQGHQVHUGHVLJQ
7KH WKHUPDO GHVLJQ RI FRQGHQVHUV RSHUDWLQJ DW ORZ SUHVVXUHV UHSUHVHQWV D SUREOHP
UHVWULFWLQJ WKH SUHVVXUH GURS WR ZLWKLQ WKH SHUPLWWHG YDOXH 7KHUH LV QR KDUGDQGIDVW
GHILQLWLRQRIORZSUHVVXUH²SVLD²NJFPDEVRUORZHUPD\EHFRQVLGHUHGWR
EHORZSUHVVXUH7KHORZHUWKHRSHUDWLQJSUHVVXUHWKHJUHDWHUWKHGLIILFXOW\LQFRPSO\LQJ
ZLWKWKHSHUPLVVLEOHSUHVVXUHGURS7KLVLVHVVHQWLDOO\GXHWRWKHORZYDSRUGHQVLW\RIWKH
YDSRUEHLQJKDQGOHG
&RQGHQVLQJRQWKHWXEHVLGH
:KHQWKHFRQGHQVLQJVWUHDPLVRQWKHWXEHVLGHWKHYDULDEOHVDUHWKHGLDPHWHUDQGOHQJWK
RIWKHWXEHVDQGWKHQXPEHURIWXEHSDVVHV,QWKHFDVHRIIL[HGWXEHVKHHWFRQGHQVHUVWKH
QXPEHURIWXEHSDVVHVLVHLWKHURQHRUWZR7KXVWKHQXPEHURIWXEHSDVVHVLVDELJVWHS
FKDQJH IRU SUHVVXUH GURS EHFDXVH
IRU D JLYHQ QXPEHU RI WXEHV RI D
JLYHQ GLDPHWHU DQG WKLFNQHVV
UHGXFLQJWKHQXPEHURISDVVHVIURP
WZR WR RQH UHVXOWV LQ DQ DS
SUR[LPDWHO\VHYHQIROGUHGXFWLRQLQ
SUHVVXUHGURS
,Q 8WXEH FRQGHQVHUV WKH QXP
EHU RIWXEHSDVVHV LV LQYDULDEO\WZR
,Q IORDWLQJKHDG FRQGHQVHUV WKH
QXPEHU RI WXEH SDVVHV LV DOVR QRU
PDOO\ WZR (YHU\ DGGLWLRQDO WXEH )LJE&RQGHQVLQJSURILOHRIDSXUHFRPSRQHQW
SDVV LQYROYHV H[LW RI WKH WZRSKDVH
VWUHDP IURP WKH WXEHV LQWR WKH
KHDGHU WXUQDURXQG DQG HQWU\ IURP
WKH KHDGHU LQWRWKHWXEHV RIWKH QH[W
SDVVHV 6LQFH WKLV UHSUHVHQWV DQ LQ
FUHDVHG SRVVLELOLW\ RI IORZ PDOGLV
WULEXWLRQ D ODUJHU QXPEHU RI WXEH
SDVVHV VKRXOG QRW EH HPSOR\HG
%HVLGHVDQLQFUHDVHLQWKHQXPEHURI
WXEH SDVVHV GRHV QRW UHVXOW LQ DQ
DSSUHFLDEOH LQFUHDVH LQ WKH WXEHVLGH
KHDW WUDQVIHU FRHIILFLHQW LQ FRQGHQ
VHUV XQOLNH LQ VLQJOHSKDVH DSSOLFD )LJF'HVXSHUKHDWLQJFRQGHQVLQJDQGVXEFRROLQJSURILOH

 
 WLRQV ZKHUHDV WKH SUHVVXUH GURS LQ
FUHDVHVDSSUHFLDEO\
,Q D IORDWLQJKHDG FRQGHQVHU D
VLQJOH WXEH SDVV FRQVWUXFWLRQ HQWDLOV
SRWHQWLDOPHFKDQLFDOSUREOHPVLQWKDW
WKHWXEHVLGHRXWOHWFRQQHFWLRQKDVWR
EHJLQ DW WKH IORDWLQJKHDG FRYHU DQG
SLHUFH WKH VKHOO FRYHU VHH )LJ 
 FRQVHTXHQWO\UHTXLULQJWKHXVH RIDQ
)LJ6LQJOHWXEHSDVVIORDWLQJKHDGFRQGHQVHUZLWKWDLOSLSH
DQG H[SDQVLRQ EHOORZV 5HSULQWHG IURP WKH +HDW ([FKDQJHU H[SDQVLRQEHOORZVRUH[SDQVLRQMRLQW
'HVLJQ +DQGERRN  ZLWK SHUPLVVLRQ RI %HJHOO +RXVH RQ WKH WDLOSLSH 7KLV PDNHV WKH
,QF IORDWLQJKHDGFRYHUVKHOOFRYHUSURQH
WRLQWHUQDOOHDNDJH,QDIL[HGWXEHVKHHWFRQGHQVHUDVLQJOHWXEHSDVVGRHVQRWUHSUHVHQWDQ\
SUREOHP

&$6(678'<78%(6,'(&21'(16$7,21
/HWXVFRQVLGHUWKHRYHUKHDGFRQGHQVHUSUHVHQWHGLQ&DVH6WXG\%RWKRIWKHVWUHDPV
GLVWLOODWLRQFROXPQRYHUKHDGDQGGHPLQHUDOL]HGZDWHUDUHFOHDQDQGWKHVHUYLFHKDVDORZ
WHPSHUDWXUH GLIIHUHQFH EHWZHHQ VKHOO DQG WXEH VLGHV KHQFH D IL[HGWXEHVKHHW FRQ
VWUXFWLRQ FDQ EH XVHG DQG WKH VWUHDPV VZLWFKHG IURP VKHOOVLGH WR WXEHVLGH ZLWKRXW DQ\
SUREOHP
/HWXVVWXG\WKH HIIHFW RIURXWLQJWKH FRQGHQVLQJVWUHDPWKURXJK WKHWXEHVLGH)RUWKH
ILUVWUXQWKHEDVLFFRQGHQVHUJHRPHWU\ZDVUHWDLQHGLGHQWLFDOWRWKHRULJLQDOJHRPHWU\ZLWK
WKHIROORZLQJHVVHQWLDOFKDQJHV
D FRQQHFWLRQVL]HVLQWHUFKDQJHGEHWZHHQVKHOOVLGHDQGWXEHVLGH
E QXPEHU RIWXEHSDVVHVUHGXFHG IURPIRXUWRRQHDVWXEHVLGHSUHVVXUH GURS ZLOO
EHH[FHVVLYHZLWKPRUHWKDQRQHWXEHSDVV
F WKH EDIIOHV ZHUH FKDQJHG IURP GRXEOHVHJPHQWDO WR VLQJOHVHJPHQWDO DQG WKH
EDIIOHFXWWRRQGLDPHWHU
G VKHOO W\SH FKDQJHG IURP $(6 WR $(/ LH D IL[HGWXEHVKHHW FRQVWUXFWLRQ D
IORDWLQJKHDGFRQVWUXFWLRQLVFRQWUDLQGLFDWHGIRUDVLQJOHWXEHSDVVDQGEHVLGHVLW
LVQRWHYHQUHTXLUHGKHUH
H 7KH QXPEHU RI WXEHV FRXOG KDYH EHHQ UHGXFHG LQ YLHZ RI WKH IL[HGWXEHVKHHW
FRQVWUXFWLRQDQGWKHVPDOOHUVKHOOLQOHWQR]]OHEXWZDVGHIHUUHGDVWKLVZDVRQO\
WKHILUVWUXQ
7KHFRQVWUXFWLRQDQGSHUIRUPDQFH GDWDRIWKH RULJLQDOGHVLJQ KDYLQJFRQGHQVLQJRQWKH
VKHOOVLGHDQGWKHUHYLVHGGHVLJQKDYLQJFRQGHQVLQJRQWKHWXEHVLGHDUHVKRZQLQ7DEOH
D,WZLOOEHVHHQWKDWWKHSHUIRUPDQFHRIWKHFRQGHQVHULVQRWPXFKGLIIHUHQWEHWZHHQ
WKHWZRGHVLJQVFRQGHQVDWLRQRQWKHVKHOOVLGHDQGFRQGHQVDWLRQRQWKHWXEHVLGHH[FHSW
IRU D PXFK ORZHU SUHVVXUH GURS RI WKH FRQGHQVLQJ VWUHDP LQ WKH ODWWHU 7KHUHIRUH DQ
DWWHPSWZDVPDGHWRUHGXFHWKHKHDWWUDQVIHUDUHDE\WDNLQJDGYDQWDJHRIWKLVPDUJLQLQ
SUHVVXUH GURS ,QFUHDVLQJ WKH QXPEHU RI WXEH SDVVHV IURP RQH WR WZR \LHOGHG DQ
RYHUGHVLJQRIEXWWKHWXEHVLGHFRQGHQVLQJSUHVVXUHGURSVKRWXSWRSVLRU
NJFPZHOOLQH[FHVVRIWKHSHUPLVVLEOHYDOXHRISVLRUNJFP
$QDWWHPSWZDVWKHQPDGHWRUHGXFHWKHQXPEHURIWXEHVDQGFRUUHVSRQGLQJO\WKHVKHOO
,',WZDVIRXQGWKDWWKHVKHOO,'FRXOGEHUHGXFHGIURPLQPPWRLQ
PPDQGWKHQXPEHURIWXEHVIURPWRDQGVWLOOKDYHDQRYHUGHVLJQPDUJLQRIDERXW
 
 7DEOHD6DOLHQWFRQVWUXFWLRQDQGSHUIRUPDQFHIHDWXUHV
RIYDULRXVGHVLJQVIRURYHUKHDGFRQGHQVHU
 &RQGHQVDWLRQRQWXEHVLGH

+RUL]RQWDOXQLW
2ULJLQDOGHVLJQ *HRPHWU\ 5HGXFHG
FRQGHQVDWLRQRQ LGHQWLFDOWR KHDWWUDQVIHU 9HUWLFDO
VKHOOVLGH RULJLQDOGHVLJQ DUHD XQLW
 7\SHRIKHDWH[FKDQJHU )ORDWLQJKHDG )L[HGWXEHVKHHW )L[HGWXEHVKHHW )L[HGWXEHVKHHW
 6KHOO,'LQPP    
 +HDWWUDQVIHUDUHD    
IWP
 7XEH2'îWKLFNî
OHQJWKîWXEHSLWFKLQ îîîVTXDUH
PP
 1XPEHURIWXEHV    
 1RRIWXEHSDVVHV  2QH 2QH 2QH
 %DIIOHW\SH GRXEOHVHJP VLQJOHVHJP VLQJOHVHJP 6LQJOHVHJP
 %DIIOHVSDFLQJLQ
PPQRRIFURVV    
SDVVHV

 %DIIOHFXWGLDPHWHU URZVRYHUODS   

DUHD
 1RPLQDOFRQQHFWLRQ 2YKG'HPLQZDWHU
VL]HLQRXWLQPP

+HDW 2YHUKHDG    
WUDQVIHUFRHII 'HPLQ
%WXKIWƒ)    
ZDWHU
NFDOKPƒ&
2YHUDOO    
2YHUKHDG    
3UHVVXUH
GURSNJFP 'HPLQ    
ZDWHU

07'ƒ)ƒ&    
2YHUGHVLJQ    
9DSRU5H\QROG¶VQR WR WR WR WR

7KHWXEHVLGHSUHVVXUHGURSZHQWXSPDUJLQDOO\IURPSVLNJFPWRSVL

NJFP7KXVGXHWRWKHFRQVWUDLQWRIKDYLQJWRXVHLQPP2'
LQ PP WKLFN DQG LQ PP ORQJ WXEHV WKH SHUPLVVLEOH FRQGHQVLQJ VWUHDP
SUHVVXUHGURSFRXOGQRWEHXWLOL]HGHIIHFWLYHO\
7RGHPRQVWUDWHWKHHIIHFWRIWXEHRULHQWDWLRQWKHWXEHVZHUHWKHQFKDQJHGIURPKRUL]RQ
WDOWRYHUWLFDOHYHU\WKLQJHOVHUHPDLQLQJLGHQWLFDODQGWKHUHVXOWVDUHDJDLQVKRZQRQ7DEOH
D,WZLOOEHVHHQWKDWWKHUHVXOWVDUHTXLWHVLPLODUZLWKDVPDOOGHFUHDVHLQWKHWXEHVLGH

 
FRQGHQVLQJ KHDW WUDQVIHU FRHIILFLHQW DQG D VPDOO LQFUHDVH LQ WKH WXEHVLGH FRQGHQVLQJ
WXEHVLGHSUHVVXUHGURS
&RQGHQVLQJRQWKHVKHOOVLGH
/HW XV QRZ FRQVLGHU ORZSUHVVXUH FRQGHQVLQJ RQ WKH VKHOOVLGH ZKLFK LV IDU PRUH
SUHYDOHQW WKDQ FRQGHQVLQJ RQ WKH WXEHVLGH ,Q 6HFWLRQ  5HGXFWLRQ RI VKHOOVLGH
SUHVVXUH GURS YDULRXV PHWKRGRORJLHV ZHUH GLVFXVVHG IRU UHGXFLQJ VKHOOVLGH SUHVVXUH
GURS(VVHQWLDOO\WKHYDULDEOHVDUHW\SHRIVKHOODQGW\SHRIEDIIOLQJ7KHIROORZLQJRUGHU
VKRXOGEHIROORZHGSURJUHVVLYHO\LQRUGHUWRUHGXFHVKHOOVLGHSUHVVXUHGURS
 7(0$(VKHOODQGVLQJOHVHJPHQWDOEDIIOHV
 7(0$(VKHOODQGGRXEOHVHJPHQWDOEDIIOHV
 7(0$-VKHOODQGVLQJOHVHJPHQWDOEDIIOHV
 7(0$-VKHOODQGGRXEOHVHJPHQWDOEDIIOHV
 7(0$(VKHOODQG17,:VLQJOHVHJPHQWDOEDIIOHV
 7(0$;VKHOO
7KDWLVILUVWDQ(VKHOOVKRXOGEHDWWHPSWHGZLWKVLQJOHVHJPHQWDOEDIIOHV6KRXOGLWQRW
EHSRVVLEOHWRSURGXFHDVDWLVIDFWRU\GHVLJQZLWKLWWKH(VKHOOVKRXOGEHUHWDLQHGEXWWKH
EDIIOLQJ FKDQJHG WR GRXEOHVHJPHQWDO 7KXV WKH GHVLJQHU VKRXOG SURFHHG WKURXJK D -
VKHOOWR17,:EDIIOHVDQGILQDOO\DQ;VKHOO
7KHUH LV D VWURQJ LQYLVLEOH OLQN EHWZHHQ VKHOOVLGH SUHVVXUH GURS DQG IORZLQGXFHG
YLEUDWLRQ7KHSUHVVXUHGURSSUREOHPUHDOO\WUDQVODWHVLQWRDYLEUDWLRQSUREOHP%\PDNLQJ
WKHEDIIOHVSDFLQJVXIILFLHQWO\KLJKWKHVKHOOVLGHSUHVVXUHGURSFDQEHFRQWDLQHGZLWKLQWKH
DOORZDEOHOLPLW+RZHYHUWKLVLQFUHDVHVWKHXQVXSSRUWHGWXEHVSDQWRVXFKDQH[WHQWWKDWWKH
FRQGHQVHUEHFRPHVSURQHWRIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ7KXVQRWRQO\
PXVWWKHDOORZDEOHVKHOOVLGHSUHVVXUHGURSEHUHVSHFWHGEXWWKHFRQGHQVHUWXEHVVKRXOGDOVR
EHVDIHDJDLQVWIDLOXUHGXHWRIORZLQGXFHGYLEUDWLRQ7KLVLVH[SODLQHGLQGHWDLOLQ&KDSWHU
RQIORZLQGXFHGYLEUDWLRQ
,QWKHH[WUHPHFDVHRIVWHDPMHWHMHFWRUFRQGHQVHUVRSHUDWLQJDWDURXQG±PP+JLW
EHFRPHV LPSHUDWLYH WR HPSOR\ D 7(0$ ; FRQVWUXFWLRQ WR VDWLVI\ WKH H[WUHPHO\ ORZ
DOORZDEOHSUHVVXUHGURSRI±PP+J6HH6HFWLRQIRUDFDVHVWXG\

6SHFLDO$SSOLFDWLRQV
6RPHVSHFLDODSSOLFDWLRQVLQFRQGHQVHUGHVLJQDUHGHVFULEHGLQWKHIROORZLQJVHFWLRQV
8VHRIORZILQWXEHV
)LQQHGWXEHVDUHFDWHJRUL]HGLQWRORZILQDQGKLJKILQWXEHVGHSHQGLQJXSRQILQGHQVLW\
/RZILQWXEHVUDQJHIURPILQVLQILQVPDQGLQPPILQKHLJKWWR
ILQVLQILQVPDQGLQPP KHLJKW7KHVPDOOHUILQ KHLJKWVDUHIDU
PRUH SRSXODU +LJKILQ WXEHV KDYH ² ILQVLQ ² ILQVP ZLWK WKH ILQ KHLJKW
EHLQJ  LQ RU  LQ /RZILQ WXEHV DUH HPSOR\HG LQ VKHOODQGWXEH KHDW H[FKDQJHUV
ZKLOHKLJKILQWXEHVDUHLQYDULDEO\HPSOR\HGLQDLUFRROHGKHDWH[FKDQJHUV
%DUH WXEHV DUH JHQHUDOO\ XVHG IRU FRQGHQVDWLRQ DV LQGHHG IRU DOO VKHOODQGWXEH KHDW
H[FKDQJHU DSSOLFDWLRQV EHFDXVH WKH\ DUH WKH FKHDSHVW EXW LQ FHUWDLQ FRQGHQVLQJ
DSSOLFDWLRQVWKHXVHRIORZILQWXEHVFDQUHVXOWLQDQHYHQFKHDSHUGHVLJQ7KHILQVQRWRQO\
LQFUHDVHWKHVXUIDFHDUHDEXWDOVRLQWURGXFHVXUIDFHWHQVLRQHIIHFWVWKDWFDQSOD\DVLJQLILFDQW
UROH LQ UHGXFLQJ WKH WKLFNQHVV RI WKH FRQGHQVDWH ILOP WKHUHE\ LQFUHDVLQJ WKH KHDW WUDQVIHU
FRHIILFLHQW$VSHUWKH*UHJRULJHIIHFWFRQGHQVDWLRQRQDORZILQWXEHRFFXUVSULPDULO\DW
 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVIRU&DVH6WXG\

 6KHOOVLGH 7XEHVLGH
 )OXLG /LJKWK\GURFDUERQ &RROLQJZDWHU

 )ORZUDWHOEKNJK  

 2SHUDWLQJSUHVVXUHSVLDNJFPD  

 
 7HPSHUDWXUHLQRXWƒ)ƒ& GHZSRLQWDQGEXEEOHSRLQW 


 $OORZDEOHSUHVVXUHGURSSVLNJFP  


 )RXOLQJUHVLVWDQFHKP ƒ&NFDO  
 +HDWGXW\00%WXK00NFDOK 

 'HVLJQSUHVVXUHSVLJNJFP J  

 0DWHULDORIFRQVWUXFWLRQ &6 &6

WKHWRSRIWKHILQV6XUIDFHWHQVLRQIRUFHVWKHQSXOOWKHFRQGHQVDWHLQWRWKHJURRYHVZKHUHLW
UXQVRII+RZHYHUZKHUHDVRQO\DVPDOOZHGJHRIOLTXLGH[LVWVDWWKHWRSRIWKHWXEHWKHUHLV
³IORRGLQJ´DWWKHERWWRPRIWKHWXEHV7KHUHVXOWDQWKHDWWUDQVIHUFRHIILFLHQWLVDSSUHFLDEO\
JUHDWHUWKDQWKDWIRUDXQLIRUPFRQGHQVDWHILOPWKLFNQHVV
(YLGHQWO\ ILQ JHRPHWU\ QDPHO\ VSDFLQJ WKLFNQHVV DQG KHLJKW RI ILQV ZLOO SOD\ D
VLJQLILFDQWHIIHFWLQWKHSHUIRUPDQFHRIORZILQWXEHV$VILQVSDFLQJGHFUHDVHVWKHUHZLOOEH
PRUHIORRGLQJDQGDWDFULWLFDOILQVSDFLQJLWLVSRVVLEOHIRUWKHHQWLUHWXEHVWRIORRGDQG
WKHUHE\KHDWWUDQVIHUZLOOVXIIHU&RQVHTXHQWO\WKHILQVSDFLQJPXVWEHRSWLPL]HGIRUEHVW
SHUIRUPDQFH
/RZILQWXEHVDUHDGYDQWDJHRXVO\XVHGZKHQWKHFRQGHQVLQJKHDWWUDQVIHUFRHIILFLHQWLV
FRQWUROOLQJ LQ WKH KHDW WUDQVIHU SURFHVV (YLGHQWO\ WKHVH ILQ WXEHV ILQG XVH LQ VKHOOVLGH
FRQGHQVHUV +RZHYHU WKH XVH RI WKHVH WXEHV LV FRQWUDLQGLFDWHG IRU IRXOLQJ VHUYLFHV ZKLFK
ZLOOFORJWKHJDSEHWZHHQWKHILQVDQGKDYHDGHOHWHULRXVFRQVHTXHQFHRQWKHSHUIRUPDQFHRI
WKH KHDW H[FKDQJHU $QRWKHU FRQWUDLQGLFDWLRQ LV WKDW WKH VXUIDFH WHQVLRQ RI WKH FRQGHQVDWH
VKRXOG QRW EH YHU\ KLJK EHFDXVH WKHQ FRQGHQVDWH PD\ QRW UXQ RII WKH ULGJHV EXW WHQG WR
EXLOGXSHYHQDWWKHWRSRIWKHWXEHV&RQVHTXHQWO\ORZILQWXEHVVKRXOGQRWEHXVHGIRUWKH
FRQGHQVDWLRQ RI VWHDP )RUWXQDWHO\ DV WKH KHDW WUDQVIHU FRHIILFLHQW RI FRQGHQVLQJ LV KLJK
HYHQZLWKEDUHWXEHVGXHWRWKHYHU\KLJKWKHUPDOFRQGXFWLYLW\RILWVFRQGHQVDWHWKHUHLV
UHDOO\ QR QHHG WR XVH ORZILQWXEHV IRUWKLV VHUYLFH7KXVWKH EHVWDSSOLFDWLRQ IRU ORZILQ
WXEHVLVFOHDQK\GURFDUERQVWUHDPVVXFKDVSURS\OHQH

&$6(678'<86(2)/2:),178%(6
$ OLJKW K\GURFDUERQ FRQGHQVHU ZDV WR EH GHVLJQHG IRU WKH VDOLHQW SURFHVV SDUDPHWHUV
VKRZQLQ7DEOHD7XEHVôLQPP2'î%:*PPWKLFNî
LQ PP ORQJ RI FDUERQ VWHHO ZHUH WR EH XVHG $ 7(0$ $(/ IL[HGWXEHVKHHW
FRQVWUXFWLRQZDVWREHHPSOR\HGLQYLHZRIWKHFOHDQVHUYLFHRQWKHVKHOOVLGH
$GHVLJQZDVSURGXFHGZLWKDKHDWWUDQVIHUDUHDRIIWPKDYLQJDVKHOO,'
RILQPP7KHVKHOOVLGHUHVLVWDQFHZDVDQGWKHWXEHVLGHRQO\D
UDWLRRI,WZDVWKHUHIRUHIHOWWKDWLWPD\EHDJRRGLGHDWRXVHORZILQWXEHVLQRUGHUWR
UHGXFHWKHFRVWRIWKHFRQGHQVHU

 
 7DEOHE6DOLHQWIHDWXUHVRIEDUHWXEHDQGORZILQGHVLJQVIRUOLJKWK\GURFDUERQFRQGHQVHU
 'HVLJQZLWKEDUHWXEHV 'HVLJQZLWKORZILQWXEHV
 7\SHRIKHDWH[FKDQJHU )L[HGWXEHVKHHW7(0$$(/
 6KHOO,'LQPP  
 
 +HDWWUDQVIHUDUHDIW P  EDUH2' ILQQHG
 1XPEHURIWXEHV  
 7XEH2'îWKLFNQHVVîOHQJWK ôî%:*PPî
LQPP
 1RRIWXEHSDVVHV  2QH
 7XEHSLWFKLQPP WULDQJXODU
 %DIIOHVSDFLQJLQPP  
 %DIIOHFXWGLDPHWHU  
6KHOOVLGH  
 +HDWWUDQVIHU
FRHIILFLHQW 7XEHVLGH  
%WXKIWƒ) RQ,'
NFDOKPƒ&
2YHUDOO  RQILQQHGDUHD
 2YHUGHVLJQ  
 07'ƒ)ƒ&  
 3UHVVXUHGURSSVL 6KHOOVLGH  
NJFP
7XEHVLGH  
 &RROLQJZDWHUYHORFLW\IWVPV  
 1R]]OHVL]H 6KHOOVLGH 
LQRXW
LQPP 7XEHVLGH 

 $SSUR[LPDWHHPSW\ZHLJKWOENJ  

8VLQJ :ROYHULQHW\SH ORZILQ WXEHV KDYLQJ LQ PP ILQ KHLJKW DQG 
ILQVLQILQVPWKHVKHOO,'FRXOGEHUHGXFHGWRLQPP7KHDSSUR[LPDWH
HPSW\ZHLJKWRIWKHFRQGHQVHUUHGXFHGIURPNJWRNJ'HSHQGLQJXSRQWKHFRVW
RIEDUHDQGORZILQWXEHVWKHFRVWRIWKLVFRQGHQVHUPLJKWEHUHGXFHGE\WKHXVHRIORZILQ
WXEHV
$VWKHOLJKWK\GURFDUERQFRQGHQVLQJKHDWWUDQVIHUFRHIILFLHQWZDVHIIHFWLYHO\HQKDQFHG
E\WKHXVHRIORZILQWXEHVIRXOLQJEHFDPHWKHPDMRUUHVLVWDQFHLQWKHORZILQWXEH
GHVLJQ,IWKHFRROLQJZDWHUIRXOLQJUHVLVWDQFHZHUHORZHUWKHUHGXFWLRQLQFRVWZRXOGKDYH
EHHQ DSSUHFLDEOH 7KXV ORZILQ WXEHV DUH LGHDO IRU VHUYLFHV WKDW KDYH FOHDQ VWUHDPV ERWK
LQVLGHDQGRXWVLGHWXEHV
7KH VDOLHQW IHDWXUHV RI ERWK WKH EDUH WXEH DQG WKH ORZILQ WXEH GHVLJQV DUH VKRZQ LQ
7DEOH E ,W LV LQWHUHVWLQJ WR QRWH WKDW RQ WKH VKHOOVLGH ERWK WKH LQOHW DQG WKH RXWOHW
FRQQHFWLRQV DUH  LQ  PP QRPLQDO 8VXDOO\ D FRQGHQVDWH OLQH LV VPDOOHU WKDQ WKH
FRUUHVSRQGLQJOLQHGXHWRLWVKLJKHUGHQVLW\KRZHYHUDLQPPQRPLQDOOLQHLQWKLV
FDVH ZDV JRLQJ WR UHVXOW LQ FRQGHQVDWH IORRGLQJ LQ WKH VKHOO DQG WKH VDPH ZDV WKHUHIRUH

 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVIRU&DVH6WXG\(MHFWRULQWHUFRQGHQVHU
 6KHOOVLGH 7XEHVLGH

)OXLG $LUE\ZW &RROLQJZDWHU

6WHDPE\ZW

)ORZUDWHOEKNJK  


2SHUDWLQJSUHVVXUHSVLDNJFP D  

7HPSHUDWXUHLQRXWƒ)ƒ&  

GHZSRLQW

$OORZDEOHSUHVVXUHGURSSVLNJFP  

 
)RXOLQJUHVLVWDQFHKIW ƒ)%WXKP ƒ&  
NFDO
+HDWGXW\00%WXK00NFDOK 

'HVLJQSUHVVXUHSVLJNJFPJ  

0DWHULDORIFRQVWUXFWLRQ &6 &6

LQFUHDVHGWRLQPPQRPLQDO

9DFXXPFRQGHQVHUGHVLJQ(MHFWRUFRQGHQVHUVDQGVXUIDFHFRQGHQVHUV
(MHFWRUFRQGHQVHUVDQGVXUIDFH FRQGHQVHUVDUHVSHFLDOFDVHV RI FRQGHQVHUVRSHUDWLQJ LQ
YDFXXP7KHVHLQYDULDEO\HPSOR\FURVVIORZVKHOOVDVWKHYDSRUGHQVLW\LVH[FHSWLRQDOO\
ORZ$W\SLFDOGHVLJQLVLOOXVWUDWHGLQWKHIROORZLQJFDVHVWXG\

&$6(678'<(-(&725,17(5&21'(16(5
&RQVLGHUWKH(MHFWRU,QWHUFRQGHQVHUVHUYLFHGHSLFWHGLQ7DEOHD$PL[WXUHRIVWHDP
DQGDLUZLWKDQHJOLJLEOHDPRXQWRIK\GURFDUERQVLVWREHFRQGHQVHGDWSVLD
NJFP DEVROXWH E\ FRROLQJ ZDWHU DW ƒ) ƒ& ,Q YLHZ RI WKH UHODWLYHO\ FOHDQ
VHUYLFH PRVWO\ VWHDP RQ WKH VKHOOVLGH D IL[HGWXEHVKHHW FRQVWUXFWLRQ ZDV SHUPLWWHG
7KXV WKH WXEH OHQJWK ZDV QRW IL[HG DQG FRXOG EH RSWLPL]HG 7KH WXEHV ZHUH WR EH RI
$GPLUDOW\%UDVVLQPP2'DQGLQPPWKLFN
$VWKH VKHOOVLGH RSHUDWLQJ SUHVVXUH LV H[WUHPHO\ ORZDQGWKHDOORZDEOH SUHVVXUH GURS
RQO\SVLNJFPDEDIIOHGFRQVWUXFWLRQHPSOR\LQJDVLQJOHSDVVRUGLYLGHGIORZ
VKHOOLVVLPSO\QRWIHDVLEOH$QRWXEHVLQZLQGRZGHVLJQZDVH[DPLQHGEXWHYHQWKDWFRXOG
QRWOLPLWWKHVKHOOVLGHSUHVVXUHGURSWRWKHSHUPLWWHGYDOXH+HQFHDSXUHFURVVIORZ7(0$
;VKHOOZDVHPSOR\HGDQGDGHVLJQSURGXFHG7KHSULQFLSDOFRQVWUXFWLRQDQGSHUIRUPDQFH
SDUDPHWHUVRIWKLVGHVLJQDUHVKRZQLQ7DEOHE
7KHIROORZLQJFRQVWUXFWLRQIHDWXUHVPD\EHQRWHG
 7KHVKHOOLQOHWQR]]OHDUHDZDVYHU\KLJKDQGWKHUHIRUHWKUHHLQOHWQR]]OHVRI
LQPPQRPLQDOZHUHHPSOR\HGRQWKHVKHOOVLGH7KHVHZHUHWREHORFDWHG
DORQJ WKH OHQJWK RI WKH VKHOO IRU DQ HYHQ GLVWULEXWLRQ 7KLV ZDV SRVVLEOH RQO\
EHFDXVHRIFURVVIORZRQWKHVKHOOVLGH
 7KH WXEH OHQJWK ZDV RSWLPL]HG DW  IW  PP VLQFH WKLV SURGXFHG DQ
DFFHSWDEOH WXEHVLGH YHORFLW\ RI  IWV  PV DQG DQ DFFHSWDEOH WXEHVLGH
SUHVVXUHGURSRISVLNJFP

 
 7DEOHE6DOLHQWIHDWXUHVRIGHVLJQRIHMHFWRULQWHUFRQGHQVHU
 7(0$W\SH $;/

 6KHOO,'LQPP 

 
 +HDWWUDQVIHUDUHDIW P  

 1XPEHURIWXEHVîWXEH2'îWKLFNQHVVLQPP îî

 7XEHOHQJWKIWPP 

 1RRIWXEHSDVVHV 
 7XEHSLWFKLQPP URWDWHGWULDQJXODUƒ
 1RRIWXEHVXSSRUWVVXSSRUWVSDFLQJLQPP 
 1RRILQWHUPHGLDWHVXSSRUWVLQHDFKFURVVSDVV 

 &RROLQJZDWHUYHORFLW\LQVLGHWXEHVIWVPV 

 6WUHDPDQDO\VLV 0DLQFURVVIORZ 

%XQGOHWRVKHOO 
 6WHDPDLU 
 +7&%WXKIWƒ)NFDOKPƒ& &RROLQJZDWHU 

2YHUDO 

 3UHVVXUHGURSSVLNJFP 6WHDPDLU 

&RROLQJZDWHU 
 07'ƒ)ƒ& 
 2YHUGHVLJQ 

 1R]]OHVL]HLQRXWLQPP 6KHOOVLGH î

7XEHVLGH 

 $URWDWHGWULDQJXODUWXEHSLWFKƒZDVXVHGLQRUGHUWRHOLPLQDWHWKHSRVVLELOLW\

RIDFRXVWLFYLEUDWLRQZKLFKZDVLQGLFDWHGZLWKDWULDQJXODUWXEHSLWFKƒ
 $WRWDO RIWKUHHIXOOVXSSRUWSODWHV ZHUH HPSOR\HG:LWKLQ HDFK³EDIIOH´VSDFH
WKUHHVXSSRUWSODWHVZHUHXVHGWRHOLPLQDWHDQ\SRVVLELOLW\RIIDLOXUHRIWXEHVGXH
WRIORZLQGXFHGYLEUDWLRQ
7KHIROORZLQJSHUIRUPDQFHIHDWXUHVDUHLQWHUHVWLQJWRQRWH
 7KH GHVXSHUKHDWLQJ KHDW GXW\ LV DSSUR[  RI WKH WRWDO DQG WKH GHVXSHU
KHDWLQJ KHDW WUDQVIHU DUHD LV RQO\ DERXW  RI WKH WRWDO 7KLV LV EHFDXVH
DOWKRXJK WKH GHVXSHUKHDWLQJ KHDW WUDQVIHU FRHIILFLHQW LV VLJQLILFDQWO\ ORZHU WKDQ
WKDWLQWKHFRQGHQVLQJ]RQH07'LVIDUJUHDWHU
 7KH VKHOOVLGH SUHVVXUH GURS LV SUHGRPLQDQWO\ LQ WKH QR]]OHV DERXW  LQ WKH
LQOHWQR]]OHDQGDERXWLQWKHRXWOHW
 7KHUDWHRIFRQGHQVDWLRQDVVKRZQ LQ)LJLV YHU\VWHHSLQLWLDOO\IURPWKH
GHZ SRLQW RI ƒ) ƒ& WR DERXW ƒ) ƒ& DIWHU ZKLFK LW GHFUHDVHV
UDSLGO\ DQG WKHQ IODWWHQV RXW GXH WR WKH SDUWLDO SUHVVXUH H[HUWHG E\ WKH
QRQFRQGHQVDEOHV
 
  &RQGHQVDWLRQ LV HQWLUHO\ LQ
WKH JUDYLW\FRQWUROOHG UH
JLPHEHFDXVHWKHIORZDUHD
ZDV YHU\ ODUJH DQG WKH
YDSRU YHORFLWLHV YHU\ ORZ
7KH FRQGHQVLQJ KHDW WUDQV
IHU FRHIILFLHQW IDOOV YHU\
VKDUSO\ IURP DURXQG 
%WXKIWƒ)NFDOKP
ƒ&DWWKH RQVHW RIFRQGHQ
VDWLRQ WR DV ORZ DV  )LJ9DULDWLRQRIZHLJKWIUDFWLRQYDSRUYHUVXVWHPSHUDWXUH
%WXK IW ƒ)  NFDOK P IRU&DVH6WXG\
ƒ&DWWKH ORZHUPRVWWXEHV
7KLV LV D GLUHFW UHVXOW RI WKH VKDUS UHGXFWLRQ LQ YDSRU 5H\QROG¶V QXPEHU DQG
WKHUHE\ WKH VHQVLEOH YDSRU FRROLQJ KHDW WUDQVIHU FRHIILFLHQW $V WKH 07' DOVR
GHFUHDVHV DSSUHFLDEO\ IURP WRS WR ERWWRP WKH KHDW IOX[ UHGXFHV SURIRXQGO\
7KXVIRUWKHODVWKHDWGXW\WKHKHDWWUDQVIHUDUHDUHTXLUHGLVDVKLJKDV
DQGIRUWKHODVWKHDWGXW\DVKLJKDV
 $VWKHVKHOOVLGHH[SHULHQFHVSXUHFURVVIORZWKHUHDUHRQO\WZRVWUHDPVWKHPDLQ
FURVVIORZ VWUHDP DQG WKH EXQGOHVKHOO E\SDVV VWUHDP $V WKH VKHOO ,' LV YHU\
KLJK WKH PDLQ FURVVIORZ VWUHDP LV DOVR YHU\ KLJK DQG WKHUH LV YHU\ OLWWOH
E\SDVVLQJDURXQGWKHWXEHEXQGOH

5HIHUHQFHV
>@ +HZLWW*)+HDW([FKDQJHU'HVLJQ+DQGERRN9ROXPH6HFWLRQ%HJHOO
+RXVH,QF1HZ<RUN
>@ %XWWHUZRUWK'DQG+HZLWW*)7ZR3KDVH)ORZDQG+HDW7UDQVIHU2[IRUG
8QLYHUVLW\3UHVV
>@ &ROOLHU-*&RQYHFWLYH%RLOLQJDQG&RQGHQVDWLRQ0F*UDZ+LOO
>@ 7DERUHN-+HZLWW*)DQG$IJDQ1HGV+HDW([FKDQJHUV7KHRU\DQG3UDFWLFH
+HPLVSKHUH3XEOLVKLQJ&RUS
>@ .DNDF6HG%RLOHUV(YDSRUDWRUVDQG&RQGHQVHUV-RKQ:LOH\DQG6RQV,QF
>@ .DNDF6%HUJOHV$(DQG0D\LQJHU)+HDW([FKDQJHUV7KHUPDO+\GUDXOLF
)XQGDPHQWDOV+HPLVSKHUH3XEOLVKLQJ&RUS
>@ (QJOLVK.*-RQHV:76SLOOHUV5&DQG2UU9³)ORRGLQJLQD9HUWLFDO8SGUDIW
3DUWLDO&RQGHQVHU´&KHPLFDO(QJLQHHULQJ3URJUHVVSS²
>@'LHKO-(DQG.RSSDQ\&5³)ORRGLQJ9HORFLW\&RUUHODWLRQIRU*DV/LTXLG
&RXQWHUIORZLQ9HUWLFDO7XEHV´&KHPLFDO(QJLQHHULQJ3URJUHVV6\PS6HULHV1R
SS²

 


 
 &+$37(5

7KHUPDO'HVLJQDQG
2SWLPL]DWLRQRI5HERLOHUV

$ UHERLOHU LV D KHDW H[FKDQJHU ZKRVH SULPDU\ SXUSRVH LV WR YDSRUL]H WKH ERWWRP RI D
GLVWLOODWLRQ DEVRUSWLRQ RU VWULSSLQJ FROXPQ DQG UHWXUQ WKH YDSRU WR WKH VDPH FROXPQ
%HIRUHFRPPHQFLQJDGLVFXVVLRQRQUHERLOHUVOHWXVILUVWEULHIO\GLVFXVVWKHSKHQRPHQRQ
RIERLOLQJLWVHOI
%RLOLQJLVDQH[WUHPHO\FRPSOH[KHDWWUDQVIHUSKHQRPHQRQDQGRQHWKDWLVFXUUHQWO\WKH
PRVWUHVHDUFKHG:KDWPDNHVERLOLQJSDUWLFXODUO\GLIILFXOWDQG\HWIDVFLQDWLQJLVWKDWLWLVWKH
RQO\ KHDW WUDQVIHU SKHQRPHQRQ ZKHUH WKH KHDW WUDQVIHU FRHIILFLHQW LV D IXQFWLRQ RI WKH
WHPSHUDWXUHGLIIHUHQFHDFURVVWKHILOP
7ZRW\SHV RIERLOLQJDUH HQFRXQWHUHG LQUHERLOHUVSRROERLOLQJDQG IORZ FRQYHFWLYH
ERLOLQJ .HWWOH DQG LQWHUQDO UHERLOHUV HPERG\ WKH IRUPHU ZKLOH WKHUPRV\SKRQ UHERLOHUV
UHSUHVHQWWKHODWWHU2IFRXUVHIRUFHGIORZ³UHERLOHUV´GRQRWH[SHULHQFHERLOLQJDWDOO

3RRO%RLOLQJ
/HWXVILUVWFRQVLGHUSRROERLOLQJ$W\SLFDOSRROERLOLQJFXUYHLVVKRZQLQ)LJ7KLV
FXUYHLVWKHVWDUWLQJSRLQWIRUDOOGLVFXVVLRQVRQSRROERLOLQJDQGLVRQHRIWKHIHZUHOD
WLRQVLQWKHERLOLQJSKHQRPHQRQWKDWLVZHOOXQGHUVWRRG
7KHSRROERLOLQJFXUYHLVDSORWRIKHDWIOX[DVDIXQFWLRQRIWHPSHUDWXUHGLIIHUHQFHǻ7
7KH KHDW IOX[ LV WKH DPRXQW RI KHDW WUDQVIHUUHG SHU XQLW DUHD RI KHDW WUDQVIHU VXUIDFH
&RQVHTXHQWO\LWLVDOVRWKHSURGXFWRIWKHKHDWWUDQVIHUFRHIILFLHQWDQGǻ7DV
4  8$ǻ7 
ZKHUH
4  KHDWGXW\
8  KHDWWUDQVIHUFRHIILFLHQW
$  KHDWWUDQVIHUDUHD
ǻ7  WHPSHUDWXUHGLIIHUHQFH
7KHUH DUH ILYH FOHDUO\GHILQHG UH
JLPHVLQWKHSRROERLOLQJFXUYH

5HJLPH$%1DWXUDOFRQYHFWLRQ
$FHUWDLQGHJUHHRIOLTXLGVXSHUKHDW
LV UHTXLUHG EHIRUH QXFOHDWLRQ FDQ
EHJLQDQGWKLVFRUUHVSRQGVWRDFHU )LJ3RROERLOLQJFXUYH

 
WDLQ ǻ7 :KHQ ǻ7 LV EHORZ WKLV YDOXH WKHUH LV QR QXFOHDWLRQ DQG RQO\ VHQVLEOH KHDW
WUDQVIHUE\QDWXUDOFRQYHFWLRQWDNHVSODFH

5HJLPH%&,QFLSLHQWERLOLQJ
,QWKLVUHJLPHǻ7LVVXIILFLHQWO\KLJKIRUQXFOHDWLRQWRFRPPHQFHDQGKHDWWUDQVIHUWDNHV
SODFHE\DFRPELQDWLRQRIQXFOHDWLRQDQGQDWXUDOFRQYHFWLRQ7KHKHDWWUDQVIHUFRHIILFLHQW
LVDSSUR[LPDWHO\WKHVXPRIWKHQDWXUDOFRQYHFWLRQDQGQXFOHDWHERLOLQJKHDWWUDQVIHUFR
HIILFLHQWV7KLVUHJLPHPD\EHFRQVLGHUHGWREHWKHWUDQVLWLRQEHWZHHQQDWXUDOFRQYHFWLRQ
DQGWUXHQXFOHDWLRQ

5HJLPH&'1XFOHDWHERLOLQJ
7KLV LV WKH UHJLPH RI WUXH QXFOHDWH ERLOLQJ ZKLFK LV WKH GHVLUHG PRGH RI ERLOLQJ KHDW
WUDQVIHUGXHWRLWVKLJKUDWHRIKHDWWUDQVIHU7KHEXEEOHVIRUPIDUPRUHUDSLGO\DQGIURP
PRUH FHQWHUV RI QXFOHDWLRQ DQG H[HUW DQ DSSUHFLDEOH DJLWDWLRQ RQ WKH OLTXLG +HUH KHDW
WUDQVIHULVDVWURQJIXQFWLRQRIǻ7DVGHPRQVWUDWHGE\WKHVWHHSLQFUHDVHRIWKHVORSHRI
WKHSRROERLOLQJFXUYH

5HJLPH'(8QVWHDG\VWDWHILOPERLOLQJ
$ERYHDFHUWDLQǻ7WKH KHDW IOX[EHJLQVWR GHFUHDVH ZLWKIXUWKHU LQFUHDVHLQǻ7DVDQ
XQVWHDG\VWDWHILOPERLOLQJSKHQRPHQRQGHYHORSV:KDWUHDOO\KDSSHQVKHUHLVWKDWGXH
WRWKHH[WUHPHO\KLJKUDWHRIQXFOHDWLRQWKHEXEEOHVFDQQRWHVFDSHIURPWKHKRWVXUIDFH
DQGD YDSRUILOPEODQNHWVWKHWXEHVXUIDFH+RZHYHUWKLV ILOP LVEORZQ RIIWKHVXUIDFH
DQG QXFOHDWLRQ VWDUWV XQWLO D YDSRU ILOP IRUPV DJDLQ 7KLV LV D UHJLPH RI XQVWDEOH
SHUIRUPDQFH DQG GHVLJQHUV VKRXOG HQVXUH WKDW QR SDUW RI D UHERLOHU OLHV LQ WKLV UHJLPH
2SHUDWLRQDOO\LWLVYHU\SRRUGXHWRLWVUHYHUVHFRQWUROFKDUDFWHULVWLFVQDPHO\DGHFUHDVH
LQWKHKHDWIOX[ZLWKLQFUHDVLQJǻ7,QDOOWKHRWKHUUHJLRQVKHDWIOX[LQFUHDVHVZLWKǻ7

5HJLPH()6WHDG\VWDWHILOPERLOLQJ
+HUHǻ7LVVRKLJKWKDWDSHUPDQHQWYDSRUILOPIRUPVRQWKHKHDWWUDQVIHUVXUIDFHVLQFH
QR OLTXLG FDQ H[LVW RQ WKH WXEH VXUIDFH 1DWXUDOO\ WKH KHDW WUDQVIHU FRHIILFLHQW UHGXFHV
FRQVLGHUDEO\ GXH WR WKH IRUPDWLRQ RI WKH YDSRU ILOP DQG VR GRHV WKH KHDW IOX[ :LWK
IXUWKHU LQFUHDVH LQǻ7WKH KHDWIOX[EHJLQVWR LQFUHDVHDJDLQ GXHWRWKH LQFUHDVH LQǻ7
VLQFHLWLVWKHSURGXFWRIWKHKHDWWUDQVIHUFRHIILFLHQWDQGǻ7
'XHWRWKHORZKHDWWUDQVIHUFRHIILFLHQWGHVLJQHUVGRQRWOLNHDUHERLOHUWRRSHUDWHLQWKLV
UHJLRQ+RZHYHULWLVSHUIHFWO\VWDEOHDQGWKHUHIRUHDFFHSWDEOHIRUDUHERLOHUWRRSHUDWHLQ
WKLVUHJLPHZKHQLWLVXQDYRLGDEOHGXHWRSURFHVVUHDVRQVIRUH[DPSOHWKHKHDWLQJPHGLXP
WHPSHUDWXUHFDQQRWEHUHGXFHG

3DUDPHWHUV$IIHFWLQJ3RRO%RLOLQJ
6LQFHWKHQXFOHDWHERLOLQJUHJLPHLVWKHPRVWUHOHYDQWDQGSUDFWLFDOWRGHVLJQHQJLQHHUV
WKHSDUDPHWHUVDIIHFWLQJQXFOHDWHERLOLQJZLOOEHGLVFXVVHGKHUH7KHVHDUHWKHHIIHFWVRI
VXUIDFHSUHVVXUHERLOLQJUDQJHDQGWXEHEXQGOHJHRPHWU\

6XUIDFHHIIHFWV
1XFOHDWHERLOLQJLVDVXUIDFHSKHQRPHQRQDQGPLFURVFRSLFSLWVDUHHVVHQWLDOIRUWKHIRU
PDWLRQDQGJURZWKRIEXEEOHV$FHUWDLQGHJUHHRIVXSHUKHDWLVDOVRUHTXLUHGIRUEXEEOH

 
JURZWK DQG WKH GHJUHH RI WKLV VXSHUKHDW LV D IXQFWLRQ RI WKH FDYLW\ UDGLXV 7KH VL]H
GLVWULEXWLRQRIPLFURVFRSLFSLWVRQWKHVXUIDFHRIWKHWXEHVLVDQLPSRUWDQWGHWHUPLQDQWRI
WKHKHDWWUDQVIHUFRHIILFLHQWHVSHFLDOO\DWORZWHPSHUDWXUHGLIIHUHQFHV
,QJHQHUDOURXJKVXUIDFHV\LHOGD
KLJKHU KHDW WUDQVIHU FRHIILFLHQW DQG
SROLVKHGVXUIDFHVDORZHUKHDWWUDQV
IHUFRHIILFLHQW$UWLILFLDOO\URXJKHQHG
VXUIDFHV VXFK DV KLJKIOX[ WXEHV
LQGXFH QXFOHDWH ERLOLQJ DW YHU\ ORZ
ǻ7 ZKHUH EDUH WXEHV ZRXOG RQO\
H[SHULHQFH QDWXUDO FRQYHFWLRQ RU
LQFLSLHQWERLOLQJWKHUHE\SURGXFLQJD
FRQVLGHUDEOH LQFUHDVH LQ WKH ERLOLQJ
KHDW WUDQVIHU FRHIILFLHQW +LJKIOX[
WXEHV KDYH D VSHFLDO DUWLILFLDOO\ )LJ9DULDWLRQRIKHDWIOX[ZLWKWHPSHUDWXUHGLIIHUHQFHIRU
VLQWHUHG VXUIDFH ZKLFK LQFRUSRUDWHV EDUHDQGKLJKIOX[WXEHV
VWDEOHUHHQWUDQWVLWHVDQGDUHVRFDOOHG
DV WKH\ LQFUHDVH WKH ERLOLQJ KHDW
WUDQVIHU FRHIILFLHQW DQG WKHUHE\ WKH
KHDWIOX[HVSHFLDOO\DWORZǻ7¶VVHH
)LJ  7KXV WKHVH WXEHV RIIHU D
GLVWLQFW DGYDQWDJH LQ VHUYLFHV ZKHUH
LW LV DGYDQWDJHRXV WR KDYH D ORZ )LJ  %RLOLQJ VLWHV 5HSULQWHG IURP WKH +HDW ([FKDQJHU
WHPSHUDWXUHGLIIHUHQFHGULYLQJIRUFH 'HVLJQ +DQGERRN  ZLWK SHUPLVVLRQ RI %HJHOO +RXVH
,QF
9DULRXVW\SHVRIERLOLQJVLWHVDUH
VKRZQLQ)LJ$VWDEOHUHHQWUDQW
VLWH LV RQH ZKLFK GRHV QRW SHUPLW
ZHWWLQJ ZKLFK ZRXOG PDNH WKH VLWH
XVHOHVV DV D ERLOLQJ VLWH EXW ZKLFK
DOORZVWKHYDSRUEXEEOHSURGXFHGWR
EH UHOHDVHG DQG IUHVK OLTXLG WR HQWHU
WKH VLWH WKXV SURGXFLQJ VXVWDLQHG
HIILFLHQWERLOLQJ
7KHPHFKDQLVPVRIERLOLQJIURP
DEDUHVXUIDFHDQGDVLQWHUHG SRURXV
VXUIDFH DUH VKRZQ VFKHPDWLFDOO\ LQ
)LJ  :KHUHDV EXEEOH JHQHUDWLRQ
IURPDEDUHVXUIDFHRFFXUVIURPUDQ )LJ0HFKDQLVPVRIYDSRUJHQHUDWLRQIURPEDUHDQGSRU 
GRP SLWV DQG VFUDWFKHV QXPHURXV RXVVXUIDFHV823$GYDQFHG+HDW7UDQVIHU7HFKQRORJ\ZLWK
VWDEOH EXEEOH QXFOHDWLRQ VLWHV DUH +,*+)/8;7XELQJ‹ 823//&$OOULJKWVUHVHUYHG
LQFRUSRUDWHG LQ WKH VLQWHUHG SRURXV 8VHGZLWKSHUPLVVLRQ
VXUIDFH
/RZILQ WXEHV )LJ  DOVR
\LHOG D KLJKHU KHDW WUDQVIHU FRHIIL
FLHQW XQGHU VXFK FLUFXPVWDQFHV EXW
WKHDXJPHQWDWLRQLVPXFKORZHUWKDQ
WKDW RIIHUHG E\ KLJKIOX[ WXEHV $Q

LPSRUWDQW OLPLWDWLRQ LQ WKH XVH RI )LJ/RZILQWXEH

 
KLJKIOX[DQGORZILQWXEHVLVWKDWWKHVHUYLFHVKRXOGEHFOHDQDVDQ\IRXOLQJZLOOHYLGHQWO\
QHJDWHWKHDXJPHQWDWLYHHIIHFW

0L[WXUHHIIHFWV
:KHQDSXUHFRPSRQHQWERLOVWKHRQO\KHDWWUDQVIHULVE\SKDVHFKDQJHERLOLQJZKLFK
SURGXFHV D KLJK KHDW WUDQVIHU FRHIILFLHQW SURYLGHG ǻ7 LV VXIILFLHQWO\ KLJK +RZHYHU
ZKHQDPL[WXUHRIGLIIHUHQWFRPSRQHQWVERLOVWKHUHLVDQDGGLWLRQDOVHQVLEOHKHDWLQJGXW\
EHVLGHVWKHERLOLQJKHDWGXW\&RQVHTXHQWO\WKHUHLVDUHGXFWLRQLQWKHQHWKHDWWUDQVIHU
FRHIILFLHQWDVWKHVHQVLEOHKHDWLQJKDVDORZHUKHDWWUDQVIHUFRHIILFLHQWHVSHFLDOO\LQSRRO
ERLOLQJZKHUHLWZLOOEHDFFRPSOLVKHGE\QDWXUDOFRQYHFWLRQ
(YLGHQWO\WKHJUHDWHUWKHQXPEHURIFRPSRQHQWVLQWKHERLOLQJOLTXLGWKHJUHDWHUZLOOEH
WKHUHGXFWLRQLQWKHQHWKHDWWUDQVIHUFRHIILFLHQW$JRRGPHDVXUHRIWKHPL[WXUHHIIHFWLVWKH
ERLOLQJUDQJHWKDWLVWKHGLIIHUHQFHEHWZHHQWKHGHZSRLQWDQGWKHEXEEOHSRLQW,QDSXUH
FRPSRQHQWWKLVLV]HURVLQFHWKHGHZSRLQWDQGWKHEXEEOHSRLQWDUHWKHVDPH7KHJUHDWHU
WKHQXPEHURIFRPSRQHQWVDQGWKHJUHDWHUWKHGLIIHUHQFHLQWKHLUYRODWLOLW\WKHJUHDWHUZLOO
EHWKHERLOLQJUDQJHDQGWKHORZHUWKHQHWERLOLQJKHDWWUDQVIHUFRHIILFLHQW
7KLVHIIHFWLVDNLQWRWKDWRIFRQGHQVDWLRQRIDPXOWLFRPSRQHQWPL[WXUHZKHUHWKHYDSRU
FRROLQJGXW\UHGXFHVWKHKHDWWUDQVIHUFRHIILFLHQWTXLWHVKDUSO\7KHUHGXFWLRQLVJUHDWHULQ
PXOWLFRPSRQHQW FRQGHQVDWLRQWKDQ LQ PXOWLFRPSRQHQW ERLOLQJEHFDXVH YDSRU FRROLQJ KHDW
WUDQVIHUFRHIILFLHQWVHQFRXQWHUHGLQFRQGHQVDWLRQDUHHYHQORZHUWKDQOLTXLGKHDWLQJKHDW
WUDQVIHUFRHIILFLHQWVHQFRXQWHUHGLQERLOLQJ

3UHVVXUHHIIHFWV
,Q SRRO ERLOLQJ WKH ERLOLQJ KHDW WUDQVIHU FRHIILFLHQW LQFUHDVHV ZLWK SUHVVXUH DOO RWKHU
WKLQJVUHPDLQLQJFRQVWDQW7KLVLVEHFDXVHRIWKHIROORZLQJHIIHFWV
 $V SUHVVXUH LQFUHDVHV OLTXLG VXUIDFH WHQVLRQ GHFUHDVHV VR WKDW VPDOOHU VWDEOH
EXEEOHVFDQEHIRUPHG7KLVHQDEOHVPRUHVLWHVWREHDFWLYHDQGLQFUHDVHVWKHUDWH
RI JHQHUDWLRQ RI EXEEOHV IURP HDFK VLWH WKHUHE\ SURPRWLQJ WKH KHDW WUDQVIHU
FRHIILFLHQW
 $VSUHVVXUHLQFUHDVHVWKHODWHQWKHDWRIYDSRUL]DWLRQGHFUHDVHV7KLVPHDQVWKDW
IRUDJLYHQKHDWGXW\PRUHYDSRULVJHQHUDWHGWKHUHE\FDXVLQJDQLQFUHDVHLQWKH
WXUEXOHQFHOHYHOZLWKDUHVXOWDQWLQFUHDVHLQWKHERLOLQJKHDWWUDQVIHUFRHIILFLHQW
$VWKHFULWLFDOSUHVVXUHLVUHDFKHGERWKVXUIDFHWHQVLRQDQGODWHQWKHDWDSSURDFK]HURVR
WKDWWKHERLOLQJKHDWWUDQVIHUFRHIILFLHQWEHFRPHVH[WUHPHO\KLJK

7XEHEXQGOHJHRPHWU\HIIHFWV
%HFDXVHRIWKHSUHVHQFHRIVXUURXQGLQJWXEHVLQDWXEHEXQGOHWKHUHLVDQLQFUHDVHLQWKH
HIIHFWLYH YHORFLW\ RIWKHWZRSKDVHIORZSDVWDJLYHQ WXEH7KLVUHVXOWVLQDGHFUHDVHLQ
WKHOLTXLGILOPWKLFNQHVV&RQVHTXHQWO\WKHKHDWWUDQVIHUFRHIILFLHQWIRUSRROERLOLQJLQD
WXEHEXQGOHLVJUHDWHUWKDQWKDWIRUVLQJOHWXEHERLOLQJ

0D[LPXP+HDW)OX[
7KHSUHGLFWLRQRIWKHPD[LPXPKHDWIOX[IRUDERLOLQJDSSOLFDWLRQLVH[WUHPHO\LPSRUWDQW
IRU LW UHSUHVHQWV D OLPLW ZKLFK FDQQRW EH VXUSDVVHG HYHQ E\ LQFUHDVLQJ WKH WHPSHUDWXUH
OHYHO RI WKH KHDWLQJ PHGLXP 5HPHPEHU KHDW IOX[ LV WKH SURGXFW RI WKH KHDW WUDQVIHU
FRHIILFLHQWDQGǻ77KLVPHDQVWKDWDQXQGHUVL]HGUHERLOHUFDQEHPDGHDGHTXDWHO\VXU

 
IDFHGE\DQLQFUHDVHLQWKHKHDWLQJPHGLXPWHPSHUDWXUHOHYHODQGWKHUHE\ǻ7RQO\LIWKH
UHVXOWDQWKHDWIOX[LVOHVVWKDQWKHPD[LPXPKHDWIOX[
7KH YDULDEOHV FRQWUROOLQJ WKH PD[LPXP KHDW IOX[ DUH SUHVVXUH DQG WXEH EXQGOH
JHRPHWU\ 8VXDOO\ WKH KHDW IOX[ LQFUHDVHV ZLWK LQFUHDVLQJ UHGXFHG SUHVVXUH UDWLR RI
RSHUDWLQJSUHVVXUHWRFULWLFDOSUHVVXUHXQWLODYDOXHRIDERXWDIWHUZKLFKLWGHFUHDVHVDOO
WKHZD\WRDUHGXFHGSUHVVXUHRI
$V FRPSDUHG WR D VLQJOH WXEH D WXEH EXQGOH KLQGHUV WKH UHOHDVH RI YDSRU DQG
FRQVHTXHQWO\WKHUHLVDQDSSUHFLDEOHGHFUHDVHLQWKHPD[LPXPKHDWIOX[,QFUHDVLQJWKHWXEH
SLWFKIDFLOLWDWHVYDSRUUHOHDVHDQGWKHUHE\LQFUHDVHVWKHPD[LPXPKHDWIOX[LQDWXEHEXQGOH

)ORZ%RLOLQJ
0DQ\ RI WKH SULQFLSOHV WKDW DSSO\ WR SRRO ERLOLQJ DSSO\ WR IORZ ERLOLQJ DV ZHOO 7KH
SULQFLSDOGLIIHUHQFHEHWZHHQWKHWZRLVWKDWXQOLNHLQSRROERLOLQJIORZLVUHVWULFWHGWRD
FKDQQHO LQIORZERLOLQJ$VDGLUHFWFRQVHTXHQFHK\GURG\QDPLF HIIHFWVDUHPXFK PRUH
SURQRXQFHGLQIORZERLOLQJWKDQLQSRROERLOLQJ
7KHUHDUHWZRGLVWLQFWJURXSVRIIORZUHJLPHVLQIORZERLOLQJ
D ZKHQOLTXLGLVDWWKHZDOOZHW²EXEEOHVOXJFKXUQDQGDQQXODU
E ZKHQYDSRULVDWWKHZDOOGU\²PLVWDQGILOP
6LQFH WKH KHDW WUDQVIHU FRHIILFLHQW LV PXFK KLJKHU XQGHU ZHW FRQGLWLRQV WKH GHVLJQHU
DOZD\VWULHVWRRSHUDWHLQWKLVUHJLRQ
8QGHU WKH PDMRULW\ RI RSHUDWLQJ FRQGLWLRQV HQFRXQWHUHG ERWK QXFOHDWH ERLOLQJ DQG
FRQYHFWLYH ERLOLQJ RFFXU LQ WKH KHDW WUDQVIHU SURFHVV DQG WKH FRQWULEXWLRQV E\ WKH WZR
PHFKDQLVPVDUHDGGLWLYH7KXVWKHQHWKHDWWUDQVIHUFRHIILFLHQWFDQEHH[SUHVVHGDV
KE KFRQYDKQE 
ZKHUH
D  QXFOHDWHERLOLQJVXSSUHVVLRQIDFWRU
KE  RYHUDOOERLOLQJKHDWWUDQVIHUFRHIILFLHQW
KFRQY  FRQYHFWLYHKHDWWUDQVIHUFRHIILFLHQW
KQE  QXFOHDWHERLOLQJKHDWWUDQVIHUFRHIILFLHQW
7KHQXFOHDWHERLOLQJVXSSUHVVLRQIDFWRUDFFRXQWVIRUWKHGHFUHDVHLQWKHQXFOHDWHERLOLQJ
UDWHFDXVHGE\WKHWZRSKDVHFRQYHFWLRQPHFKDQLVP
7KH QXFOHDWHERLOLQJ PHFKDQLVPWHQGVWRSUHGRPLQDWH LQWKH KHDW WUDQVIHUSURFHVV IRU
QDUURZ ERLOLQJUDQJH PL[WXUHV DQG DW KLJK RSHUDWLQJ SUHVVXUHV ZKHUHDV WKH FRQYHFWLYH
PHFKDQLVPWHQGVWRSUHGRPLQDWHIRUZLGHERLOLQJPL[WXUHVDQGDWORZSUHVVXUHV
6LQFH WKH KHDW WUDQVIHU FRHIILFLHQW IRU FRQYHFWLYH ERLOLQJ YDULHV DSSUHFLDEO\ ZLWK WKH
ERLOLQJUHJLPHFDOFXODWLRQVXVXDOO\KDYHWREHSHUIRUPHGVWHSZLVHRYHUVPDOOLQFUHPHQWVRI
WXEHOHQJWK

'LVWLOODWLRQ&ROXPQ5HERLOHUV
'LVWLOODWLRQFROXPQUHERLOHUVDUHRIWKHIROORZLQJFRQVWUXFWLRQW\SHV
 ,QWHUQDO
 .HWWOH
 9HUWLFDOWKHUPRV\SKRQ
 +RUL]RQWDOWKHUPRV\SKRQ
 )RUFHGIORZ

 
,QWKHILUVWIRXUW\SHVWKHUHLVQRSXPSDQGIORZLVE\PHDQVRIQDWXUDOGHQVLW\GLIIHUHQFH
RIWKHZRUNLQJIOXLGEHWZHHQFROXPQDQGUHERLOHU,QIRUFHGIORZKRZHYHUDVLPSOLHGE\
WKHQDPHLWVHOIWKHUHLVDSXPSIRUIRUFLQJIORZWKURXJKWKHUHERLOHU
/HW XV QRZ FRQVLGHU WKH VDOLHQW IHDWXUHV DGYDQWDJHV DQG GLVDGYDQWDJHV RI WKHVH
LQGLYLGXDOW\SHV

,QWHUQDOUHERLOHUV
3ULQFLSDOIHDWXUHV
,QWHUQDOUHERLOHUVHPSOR\DWXEHEXQGOHZKLFKLVLQVHUWHGGLUHFWO\LQWKHFROXPQDVVKRZQ
LQ)LJ7KLVLVWKHFKHDSHVWFRQVWUXFWLRQVLQFHWKHUH LV QRVKHOO RUVKHOOVLGHSLSLQJ
+RZHYHULWLVHYLGHQWWKDWRQO\DYHU\VPDOOKHDWWUDQVIHUDUHDFDQEHLQFRUSRUDWHGLQDQ
LQWHUQDOUHERLOHUEHFDXVHERWKWKHQXPEHURIWXEHVDQGWKHWXEHOHQJWKDUHOLPLWHGE\WKH
FROXPQ GLDPHWHU 7KH WXEH OHQJWK LV OLPLWHG GLUHFWO\ DQG WKH QXPEHU RI WXEHV LV DOVR
OLPLWHG EHFDXVH WKH PD[LPXP GLDPHWHU RI WKH RSHQLQJ WR DFFRPPRGDWH WKH LQWHUQDO
UHERLOHULVXVXDOO\RQHKDOIWKHFROXPQGLDPHWHU
5HIHUULQJWR)LJLWZLOOEHVHHQWKDWDSDUWRIWKHVWUDLJKWOHQJWKRIWXEHVLVLQWKH
FROXPQQR]]OH6LQFHWKHHQWU\RIOLTXLGLQWRWKLVVHFWLRQDVZHOODVWKHUHOHDVHRIYDSRUIURP
LWDUHKDPSHUHGLWLVDGYLVDEOHWRLJQRUHWKLVSDUWRIWKHVWUDLJKWOHQJWKZKHQGHWHUPLQLQJWKH
KHDWWUDQVIHUDUHDVLQFHLWLVQRWYHU\HIIHFWLYH8VXDOO\8WXEHVDUHXVHGEXWLIWKHKHDWLQJ
PHGLXPLVGLUW\VWUDLJKWWXEHVDQGDIORDWLQJKHDGFRQVWUXFWLRQ7(0$W\SH7VKRXOGEH
HPSOR\HG
6LQFHLQWHUQDOUHERLOHUVDOVRH[SHULHQFHSRROERLOLQJOLNHNHWWOHVGHVLJQSURFHGXUHVDUH
SUHFLVHO\WKHVDPH+HUHWKHVSDFHLQWKHFROXPQDERYHWKHUHERLOHUEXQGOHLWVHOIDFWVDV
WKHYDSRUGLVHQJDJLQJVSDFH

$GYDQWDJHV
 7KHDGYDQWDJHVIRUWKLVFRQVWUXFWLRQDUHWKHVDPHDVIRUNHWWOHVVHHVHFWLRQ
 $GGLWLRQDOO\ WKH FRVW LV FRQVLGHUDEO\ ORZHU GXH WR WKH DEVHQFH RI WKH VKHOO DQG
VKHOOVLGHSLSLQJ,QIDFWWKLVLVWKHFKHDSHVWFRQVWUXFWLRQ

'LVDGYDQWDJHV
 $JDLQWKHVHDUHWKHVDPHDVIRUNHWWOHVH[FHSWIRUWKHKLJKFRVW
 $GGLWLRQDOO\ DV DOUHDG\ H[SODLQHG WKH VXUIDFH WKDW FDQ EH LQFRUSRUDWHG LQ D JLYHQ
GLVWLOODWLRQ FROXPQ LV YHU\ OLPLWHG &RQVHTXHQWO\ LQWHUQDO UHERLOHUV DUH UDWKHU UDUH
WKH PRVW FRPPRQ DSSOLFDWLRQV
EHLQJLQSHWURFKHPLFDOSODQWXQLWV
VXFKDV HWK\OHQH JO\FROEHQ]HQH
EXWDGLHQH OLQHDU DON\O EHQ]HQH
HWF
 )RU DQ\ PDLQWHQDQFH ZRUN
HYHQ RQ WKH GLVWLOODWLRQ FROXPQ
WKHUHERLOHUKDVWREHUHPRYHG
/HWXV QRZ FRQVLGHUDFDVHVWXG\
ZKLFK ZLOO GHPRQVWUDWH SRRO
ERLOLQJRIDSXUHK\GURFDUERQ

)LJ,QWHUQDOUHERLOHU&RXUWHV\RI+75,

 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVRIOLJKWK\GURFDUERQUHERLOHU
 6KHOOVLGH 7XEHVLGH

 )OXLGFLUFXODWHG /LJKWK\GURFDUERQ /36WHDP

 )ORZUDWHOEKNJK  

 7HPSHUDWXUHLQRXWƒ)ƒ&  


 2SHUDWLQJSUHVVXUHSVLDNJFP DEV  

 3HUPLWWHGSUHVVXUHGURSSVLNJFP QHJO 

 
 )RXOLQJUHVLVWDQFHKIW ƒ)%WXKP ƒ&NFDO  

 +HDWGXW\%WXKNFDOK 


 'HVLJQSUHVVXUHSVLJNJFP J  

 'HVLJQWHPSHUDWXUHƒ)ƒ&  

 0DWHULDORIFRQVWUXFWLRQ &DUERQVWHHO

 1RPLQDOOLQHVL]HLQPP 6WDELQ 

&$6(678'</,*+7+<'52&$5%215(%2,/(5,17(51$/5(%2,/(5
&RQVLGHUWKHVHUYLFHHODERUDWHGLQ7DEOHD7KLVLVDOLJKWK\GURFDUERQUHERLOHUZKHUH
WKH OLJKW K\GURFDUERQ LV YDSRUL]HG RXWVLGH WXEHV DW  SVLD  NJFP DEV DQG
ƒ)ƒ&E\ORZSUHVVXUHVWHDPDWSVLDNJFPDEVDQGƒ)ƒ&
KDYLQJDVDWXUDWLRQWHPSHUDWXUHRIƒ)ƒ&6LQFHWKHKHDWGXW\LVYHU\VPDOOLW
ZDVH[SHFWHGWKDWWKHUHTXLUHG KHDWWUDQVIHUDUHDFRXOGEH HDVLO\ LQVWDOOHG LQDQLQWHUQDO
UHERLOHUDQGWKHXQLWZDVWKHUHIRUHVSHFLILHGDVVXFK7KHEXQGOHZDVWREH³VWDEEHG´LQ
WKHFROXPQKDYLQJDQLQWHUQDOGLDPHWHURILQPP
7XEHVRILQPP2'DQGLQPPWKLFNFDUERQVWHHOZHUHWREH
XVHG6LQFHWKHWXEHVLGHVWUHDPLVFOHDQ8WXEHVFRXOGEHHPSOR\HG
7KHUPDOGHVLJQZDVFDUULHGRXWDQGWKHSULQFLSDOFRQVWUXFWLRQDQGSHUIRUPDQFH
SDUDPHWHUV RI WKH UHVXOWDQW GHVLJQ DUH GHWDLOHG LQ 7DEOH E 6LQFH D SDUW RI WKH
VWUDLJKWOHQJWKRIWKHWXEHVZRXOGEHLQHIIHFWLYHVLQFHLWZRXOGEHH[WHQGLQJEH\RQG
WKHZDOORIWKHGUXPWKHVWUDLJKWOHQJWKRIWXEHVLQGLFDWHGLVWKHHIIHFWLYHYDOXHDQG
WKHDFWXDOVWUDLJKWWXEHOHQJWKZLOOKDYHWREHLQFUHDVHGE\WKHOHQJWKE\ZKLFKWKH
LQQHUIDFHRIWKHWXEHVKHHWH[WHQGVEH\RQGWKHZDOORIWKHGUXP
,WZLOOEHVHHQWKDWWKHHIIHFWLYHVWUDLJKWOHQJWKRIWKHWXEHVLVRQO\LQPP
DQGWKH 8EHQG GLDPHWHU ZLOOEHDSSUR[LPDWHO\ LQ PPWKHSRUW GLDPHWHUEHLQJ
 LQ  PP &RQVHTXHQWO\ HYHQ WKH RXWHUPRVW 8EHQGV ZLOO EH ZHOO FOHDU RI WKH
FROXPQZDOOVLQFHWKHFROXPQKDVDQLQWHUQDOGLDPHWHURILQPP
7KHGHVXSHUKHDWLQJRIVWHDPRQWKHWXEHVLGHK\GURFDUERQVWUHDPZDVFRPSOHWHO\LQWKH
ZHWZDOOPRGHGXHWRWKHORZWXEHZDOOWHPSHUDWXUH+HQFHWKHWHPSHUDWXUHSURILOHVRIERWK
WKHVWUHDPVDUHOLQHDUVRWKDWWKH07'LVWKHDULWKPHWLFGLIIHUHQFHRIƒ)ƒ&DQG
ƒ)ƒ&LHƒ)ƒ&
,W KDV EHHQ VWDWHG HDUOLHU WKDW ERLOLQJ LV WKH RQH SKHQRPHQRQ ZKHUH WKH KHDW WUDQVIHU
FRHIILFLHQWLVDIXQFWLRQRIWKHKHDWIOX[6WULFWO\VSHDNLQJWKLVKHDWIOX[LVWKHSURGXFWRIWKH
KHDWWUDQVIHUFRHIILFLHQWDQGǻ71RZVLQFH4 8$ǻ78ǻ7LVHTXDOWR4$ZKLFKLV
KRZKHDWIOX[LVSRSXODUO\SHUFHLYHGDV7KHLPSRUWDQWWKLQJWRUHDOL]HKHUHLVWKDWDVORQJDV

 
 7DEOHE3ULQFLSDOFRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUVRIOLJKWK\GURFDUERQUHERLOHU
 7\SHRIUHERLOHU ,QWHUQDO8WXEH

 3RUWGLDPHWHULQPP 

 1RRIWXEHVîQRRIWXEHSDVVHV 8¶Vî

 7XEH2'îWKLFNQHVVLQPP î

 (IIHFWLYHVWUDLJKWOHQJWKLQPP 

 +HDWWUDQVIHUDUHDIWP 


6KHOOVLGH 1LO
 3UHVVXUHGURSNJFP
7XEHVLGH 1HJOLJLEOH

6KHOOVLGH 
 +HDWWUDQVIHUFRHIILFLHQW%WXKIWƒ)
NFDOKPƒ& 7XEHVLGH 

2YHUDOO 

 07'ƒ)ƒ& 

 2YHUGHVLJQ 

WKH KHDWWUDQVIHUDUHDSURYLGHG LV H[DFWO\ HTXDOWRWKHUHTXLUHG KHDW WUDQVIHUDUHDWKH KHDW

IOX[LVWKHVDPHHLWKHUZD\+RZHYHUZKHQWKHKHDWWUDQVIHUDUHDSURYLGHGLVLQH[FHVVRI
WKH UHTXLUHG YDOXH WKHUH LV D GLIIHUHQFH EHWZHHQ WKH WZR DQG WKDW LV WKH H[WHQW RI
RYHUVXUIDFLQJ
7KLVEULQJVXVWRDQLQWHUHVWLQJSRLQW6RPHRIWKHROGHUKHDWH[FKDQJHUVRIWZDUHXVHGWR
GHWHUPLQH WKH ERLOLQJ KHDW WUDQVIHU FRHIILFLHQW DV D IXQFWLRQ RI WKH KHDW IOX[ ZKLFK ZDV
FRQVLGHUHGDV4$7KHUHIRUHLIWKHKHDWWUDQVIHUDUHDVSHFLILHGZDVPXFKLQH[FHVVRIWKDW
UHTXLUHGWKHERLOLQJ KHDWWUDQVIHU FRHIILFLHQW ZRXOGEH XQGXO\ ORZDQGWRWKDW H[WHQWWKH
GHVLJQZRXOGEHFRQVHUYDWLYH,QVXFKVLWXDWLRQVWKHSUXGHQWWKLQJWRGRZRXOGEHWROHWWKH
SURJUDPGHWHUPLQHWKHKHDWGXW\VLPXODWLRQPRGHDQGWKHQWRFKDQJHWKHKHDWWUDQVIHUDUHD
DVUHTXLUHGWRDUULYHDWDQRSWLPXPGHVLJQ
,QWKHSUHVHQWLQVWDQFHWKHERLOLQJKHDWWUDQVIHUFRHIILFLHQWZDVHYDOXDWHGDV%WXK
IWƒ)NFDOKPƒ&DQGWKHRYHUGHVLJQDV7KHRWKHUSHUIRUPDQFHSDUDPHWHUV
DUHUHSRUWHGLQ7DEOHE
(IIHFWRIǻ7
,QRUGHUWRGHPRQVWUDWHWKHHIIHFWRIǻ7RQWKHERLOLQJKHDWWUDQVIHUFRHIILFLHQWWKHVWHDP
SUHVVXUHZDVYDULHGSURJUHVVLYHO\WRSVLDDWDSVLDDWDDQGSVLD
DWD7KHUHVXOWDQWYDOXHVRIERLOLQJKHDWWUDQVIHUFRHIILFLHQWDORQJZLWKWKDWRIWKH
EDVHYDOXHDWSVLDDWDDUHUHSRUWHGLQF,WZLOOEHVHHQWKDWWKHERLOLQJKHDW
WUDQVIHUFRHIILFLHQWYDULHVDSSUHFLDEO\ZLWKǻ7

.HWWOHUHERLOHUV
3ULQFLSDOIHDWXUHV
$NHWWOHUHERLOHULVVRFDOOHGEHFDXVHRILWVDSSHDUDQFHGXHWRWKHHQODUJHGVKHOO)LJ
7KLVLVSURYLGHGIRUWKHGLVHQJDJHPHQWRIYDSRU&RQVHTXHQWO\NHWWOHVFDQIXOO\YDSRUL]H
WKHFROXPQERWWRPVWKHUHE\UHSUHVHQWLQJDQDGGLWLRQDOWKHRUHWLFDOVWDJHIRUWKHGLVWLOOD

 
 7DEOHF(IIHFWRIYDULDWLRQRIǻ7RQERLOLQJKHDWWUDQVIHUFRHIILFLHQW
 6WHDP3UHVVXUHSVLDNJFPDEV
   
%RLOLQJKHDWWUDQVIHU    
FRHIILFLHQW%WXKIWƒ)    
NFDOKPƒ&
07'ƒ)ƒ&    

WLRQSURFHVV7KH OLTXLG OHYHO LV PDLQWDLQHGDOLWWOHDERYHWKHWRS RIWKHWXEHEXQGOHE\

PHDQV RI D YHUWLFDO ZHLU ORFDWHG EH\RQG WKH EXQGOH 6RPHWLPHV D PRUH VRSKLVWLFDWHG
OHYHO FRQWURO DUUDQJHPHQW LV LQFRUSRUDWHG IRU EHWWHU FRQWURO²KHUH WKH OLTXLG OHYHO PD\
HYHQEHORZHUHGVKRXOGHQWUDLQPHQWEHFRPHH[FHVVLYH
7KHHQODUJHGVKHOOLVFDOOHGWKHNHWWOHDQGWKHUHGXFHGVKHOODWWKHWXEHVKHHWLVFDOOHGWKH
SRUW$NHWWOHUHERLOHUPD\EHRIIL[HGWXEHVKHHW8WXEHRUIORDWLQJKHDGFRQVWUXFWLRQDV
GLVFXVVHGLQ&KDSWHU(VVHQWLDOO\LIWKHKHDWLQJPHGLXPZKLFKLVLQVLGHWKHWXEHVLVFOHDQ
HJVWHDPD8WXEHNHWWOHLVWKHPRVWSUHIHUUHGFRQVWUXFWLRQGXHWRWKHORZHUFRVWDQGLWV
FDSDELOLW\WRSHUPLWGLIIHUHQWLDOH[SDQVLRQEHWZHHQWKHVKHOODQGWKHWXEHEXQGOH+RZHYHU
LI WKH KHDWLQJ PHGLXP LV GLUW\ 8WXEHV FDQQRW EH XVHG DQG WKH IROORZLQJ VHOHFWLRQ LV
LQGLFDWHG
 XVHIL[HGWXEHVKHHWFRQVWUXFWLRQLIWKHERLOLQJIOXLGLVFOHDQ
 XVHIORDWLQJKHDGFRQVWUXFWLRQLIWKHERLOLQJIOXLGLVGLUW\
,W PD\ EH QRWHG WKDW VLQFH D GLVKHGHQG FRQVWUXFWLRQ KDV QHFHVVDULO\ WR EH XVHG IRU D
NHWWOH UHERLOHU 7(0$ 6 VW\OH FDQQRW EH XVHG DQG D7(0$7 VW\OH EHFRPHV QHFHVVDU\
7(0$ $.7 DV PHQWLRQHG LQ 6HFWLRQ  (YLGHQWO\ VLQFH WKH HQWLUH IORDWLQJKHDG
DVVHPEO\ LQFOXGLQJ WKH IORDWLQJKHDG IODQJH ZLOO KDYH WR EH UHPRYHG IRU PDLQWHQDQFH
GXH WR WKH ODFN RI DFFHVV IURP RXWVLGH WKH UHERLOHU WKH SRUW GLDPHWHU ZLOO KDYH WR EH
VLJQLILFDQWO\KLJKHUWKDQWKHRXWHUWXEHOLPLW
)RUD8WXEHFRQVWUXFWLRQWKHQXPEHURIWXEHSDVVHVZLOOHYLGHQWO\EHWZRRUDKLJKHU
HYHQ QXPEHU IRU FOHDQ KHDWLQJ PHGLXPV ,W FDQ EH DQ\ HYHQ QXPEHU IRU D IORDWLQJKHDG
FRQVWUXFWLRQDQGFDQDGGLWLRQDOO\EHRQHIRUDIL[HGWXEHVKHHWFRQVWUXFWLRQLIUHTXLUHG
7KH ERLOLQJ OLTXLG HQWHUV DW WKH
ERWWRP RIWKHVKHOODQG WKH YDSRU OHDYHV
IURP WKH WRS RI WKH VKHOO )RU ZLGH
ERLOLQJ PL[WXUHVLW LVUHFRPPHQGHGWKDW
WKH OLTXLG HQWHU DW PXOWLSOH ORFDWLRQV
DORQJ WKH OHQJWK RI WKH VKHOO IRU EHWWHU
GLVWULEXWLRQ )RU ODUJH WXEH OHQJWKV VD\
DERYHIWRUPWZRRXWOHWQR]]OHV
DUH UHFRPPHQGHG WR UHGXFH WKH KRUL
]RQWDO YDSRU YHORFLW\ LQ WKH YDSRU GLV
HQJDJHPHQW VSDFH VR DV WR PLQLPL]H
HQWUDLQPHQW,IWKHUH LVDOLTXLG GUDZRII
GLVWLOODWLRQ FROXPQ ERWWRP SURGXFW LWV
QR]]OHZLOOHYLGHQWO\EHEH\RQGWKHZHLU
SODWHVHH)LJ,QH[WUHPHVLWXDWLRQV 
GHPLVWHUV DUH LQVWDOOHG LQ WKH RXWOHW QR] )LJ.HWWOHUHERLOHU&RXUWHV\RI+75,

 
]OHVWRYLUWXDOO\HOLPLQDWHPLVWHQWUDLQPHQW2QHSRVVLEOHH[DPSOHRIWKLVLVDFKLOOHUZKHUH
DOLTXLGUHIULJHUDQWLVYDSRUL]HGDQGKDVWREHUHWXUQHGWRWKHFRPSUHVVRU
$GYDQWDJHV
 7KHXVHRIDNHWWOHUHERLOHULQFRUSRUDWHVDQDGGLWLRQDOVWDJHIRUGLVWLOODWLRQ:KHUHWKH
QXPEHURIGLVWLOODWLRQVWDJHVLVQRWYHU\KLJKWKLVUHSUHVHQWVDGLVWLQFWDGYDQWDJH
 9HU\KLJKKHDWIOX[HVFDQEHDFKLHYHG
 'XH WR SRRO ERLOLQJ D NHWWOH UHERLOHU LV UHODWLYHO\ LQVHQVLWLYH WR K\GURG\QDPLFV
&RQVHTXHQWO\RSHUDWLRQLVPXFKEHWWHUWKDQWKHUPRV\SKRQVIRUWKHIROORZLQJ
D ZKHQWKHUHDUHIOXFWXDWLRQVLQRSHUDWLQJFRQGLWLRQV
E DWYHU\ORZSUHVVXUH
F DWKLJKSUHVVXUHQHDUFULWLFDO
 .HWWOHUHERLOHUVRSHUDWHHIILFLHQWO\HYHQDWORZǻ7
 .HWWOHUHERLOHUVFDQIXOO\YDSRUL]HWKHFROXPQERWWRPVVWUHDP
 6LQFH WKHUH LV QR H[WHUQDO WZRSKDVH SLSLQJ IURP WKH UHERLOHU WR WKH FROXPQ WKH
FRPSOLFDWHGSURFHVV RI GHWHUPLQLQJWKH RXWOHW OLQHSUHVVXUH GURS LV HOLPLQDWHG7KH
DGYDQWDJHLVWKDWWKLVDIIRUGVUHOLDELOLW\7KHVL]LQJRIWZRSKDVHRXWOHWSLSLQJDQGWKH
GHWHUPLQDWLRQ RI SUHVVXUH GURS LQ LW LV IUHTXHQWO\ DQ DUHD RI PDMRU XQFHUWDLQW\ LQ
WKHUPRV\SKRQV\VWHPV
 $WYHU\KLJKǻ7KLJKKHDWIOX[HVFDQEHVXVWDLQHGE\ORFDWLQJWXEHVDWDKLJKHUSLWFK
WKHUHE\SURYLGLQJYDSRUUHOHDVHODQHV
'LVDGYDQWDJHV
 .HWWOHUHERLOHUVDUHUHODWLYHO\FRVWO\GXHWRWKHHQODUJHGVKHOO:KHQDIORDWLQJKHDG
FRQVWUXFWLRQ7(0$$.7LVUHTXLUHGEHFDXVHRIDGLUW\KHDWLQJPHGLXPWKHFRVWLV
HYHQKLJKHU
 6LQFH WKH DFFXUDWH GHWHUPLQDWLRQ RI WKH 07' LV GLIILFXOW DQG XQFHUWDLQ D FRQVHU
YDWLYH DSSURDFK LV DGRSWHG DQG WKH 07' LV EDVHG XSRQ WKH VKHOOVLGH RXWOHW WHP
SHUDWXUHRQO\7KDWLVWKHLQOHWWHPSHUDWXUHRIWKHERLOLQJVWUHDPLVDOVRFRQVLGHUHGWR
EHLWV RXWOHWWHPSHUDWXUH7KH ORZHU07'UHVXOWV LQWKHLQFRUSRUDWLRQ RIDGGLWLRQDO
KHDWWUDQVIHUDUHDZKLFKIXUWKHULQFUHDVHVWKHFRVW(YLGHQWO\WKH KLJKHUWKHERLOLQJ
WHPSHUDWXUHUDQJHWKHJUHDWHUZLOOEHWKHSHQDOW\7KLVLVGHPRQVWUDWHGYHU\FOHDUO\
LQ&DVH6WXG\
 6LQFH WKHUH LV YHU\ OLWWOH WXUEXOHQFH DQG KHDY\ PDWHULDO UHVLGXH DFFXPXODWHV FRQ
WLQXDOO\ RQWKHWXEHVNHWWOHUHERLOHUVKDYHWKHWHQGHQF\WRIRXOUHDGLO\ HYHQ ZLWKD
IDLUO\KLJKGUDZRIIUDWH7KHKLJKUHVLGHQFHWLPHPD\HYHQUHVXOWLQGHJUDGDWLRQRI
WKHERLOLQJOLTXLG+HQFHNHWWOHUHERLOHUVDUHFRQWUDLQGLFDWHGIRUIRXOLQJVHUYLFHV

&$6(678'<675,33(55(%2,/(5.(77/(5(%2,/(5
/HW XV FRQVLGHU WKH GHVLJQ RI D VWULSSHU UHERLOHU WKH SULQFLSDO SURFHVV SDUDPHWHUV RI
ZKLFK DUH LQGLFDWHG LQ 7DEOH D ,W ZLOO EH QRWLFHG WKDW WKH ERLOLQJ IOXLG LV D ZLGH
ERLOLQJPL[WXUHEHFDXVHLWKDVDERLOLQJUDQJHEXEEOHSRLQWPLQXVGHZSRLQWRIƒ)
ƒ&&RQVHTXHQWO\WKHERLOLQJKHDWWUDQVIHUFRHIILFLHQWZLOOQRWEHSDUWLFXODUO\KLJK
2QO\  RI WKH OLTXLG HQWHULQJ WKH UHERLOHU LV YDSRUL]HG DQG WKH UHPDLQLQJ  LV
GUDZQ RII DV D SURGXFW $  IW  P VXUJH FDSDFLW\ LV WR EH LQFRUSRUDWHG LQ WKH
NHWWOH
 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVRIVWULSSHUUHERLOHUNHWWOHUHERLOHU
 6KHOOVLGH 7XEHVLGH

 )OXLGFLUFXODWHG +\GURFDUERQPL[WXUH 036WHDP

 )ORZUDWHOEKNJK  

 7HPSHUDWXUHLQRXWƒ)ƒ&  

EXEEOHSRLQW 

 %RLOLQJUDQJHƒ)ƒ&  


 2SHUDWLQJSUHVVXUHSVLDNJFP DEV  

 3HUPLWWHGSUHVVXUHGURSSVLNJFP QHJO 

 )RXOLQJUHVLVWDQFHKIWƒ)%WX  
KPƒ&NFDO

 +HDWGXW\00%WXK00NFDOK 

 'HVLJQSUHVVXUHSVLJNJFPJ  )XOOYDFXXP

 'HVLJQWHPSHUDWXUHƒ)ƒ&  

 0DWHULDORIFRQVWUXFWLRQ FDUERQVWHHO

 /LQHVL]HLQRXWLQPP  

&DUERQ VWHHO WXEHV ôLQ PP 2' DQG  %:* PP DUH WR EH XVHG $
PLQLPXP RYHUGHVLJQ RI  LV WR EH SURYLGHG $ 7(0$ %.8 FRQVWUXFWLRQ LV UHFRP
PHQGHG$VWKHKHDWLQJPHGLXPLVFOHDQWKHXVHRI8WXEHVLVSHUIHFWO\DFFHSWDEOH
6LQFHWKHERLOLQJVWUHDPLQWKLVDSSOLFDWLRQLVFOHDQSRROERLOLQJLVDFFHSWDEOH+RZHYHU
WKHERLOLQJUDQJHLVKLJKDQGFRQWUDLQGLFDWHVWKHXVHRISRROERLOLQJGXHWRERWKWKHORZHU
ERLOLQJKHDWWUDQVIHUFRHIILFLHQWDQGWKHORVVLQ07'WKLVZLOOUHVXOWLQDODUJHUDQGFRVWOLHU
XQLW+RZHYHUWKLVUHERLOHUZDVVSHFLILHGDVDNHWWOHUHERLOHUDQGDGHVLJQZLOOEHSURGXFHG
DVVXFK
7KHUPDO GHVLJQ ZDV SHUIRUPHG DQG WKH SULQFLSDO FRQVWUXFWLRQ DQG SHUIRUPDQFH
SDUDPHWHUV DUH GHWDLOHG LQ 7DEOH E ,W ZLOO EH QRWLFHG WKDW WKH ERLOLQJ KHDW WUDQVIHU
FRHIILFLHQWLVRQO\%WXKIW ƒ)NFDOKPƒ&SULQFLSDOO\GXHWRWKHODUJHERLOLQJ
UDQJH $V KDV EHHQ SRLQWHG RXW HDUOLHU WKH 07' ZDV GHWHUPLQHG FRQVLGHULQJ WKH LQOHW
VKHOOVLGHWHPSHUDWXUHDOVRDVƒ)ƒ&7KXVWKHKHDWWUDQVIHUDUHDLVUDWKHUODUJHDW
 IW  P GXH WR WKH ORZ
RYHUDOOKHDWWUDQVIHUFRHIILFLHQWDQGWKH
ORZ07'
,Q RUGHU WR GHPRQVWUDWH WKH HIIHFW
RI WKH ERLOLQJ UDQJH WKH VDPH ZDV
DUWLILFLDOO\ GHFUHDVHG LQ VWHSV IURP WKH
DFWXDO YDOXH RI ƒ) ƒ& WR
ƒ) ƒ& 7KH YDULDWLRQ RI WKH
ERLOLQJ KHDW WUDQVIHU FRHIILFLHQW LV
VKRZQ LQ 7DEOH F )RU D EHWWHU DS
SUHFLDWLRQ RI WKLV YDULDWLRQ )LJ 
VKRZVWKHYDULDWLRQRIWKHERLOLQJKHDW )LJ  9DULDWLRQ RI ERLOLQJ KHDWWUDQVIHU FRHIILFLHQW ZLWK
WUDQVIHU FRHIILFLHQW ZLWK ERLOLQJ WHP WHPSHUDWXUHUDQJHLQVWULSSHUUHERLOHU
 
 7DEOHE3ULQFLSDOFRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUV
RIVWULSSHUUHERLOHUNHWWOHUHERLOHU
 7\SHRIUHERLOHU %.8

 3RUWVKHOO,'LQPP 

 1RRIWXEHVîQRRIWXEHSDVVHV 8¶Vî

 7XEH2'î%:*îVWOHQJWKLQPP ôîî

 7XEHSLWFKLQPP VTXDUH

 1RPLQDOQR]]OHVL]H 6KHOOVLGH î
LQRXWLQPP
7XEHVLGH 

 (IIHFWLYHKHDWWUDQVIHUDUHDIWP 

 3UHVVXUHGURS 6KHOOVLGH 1LO
SVLNJFP
7XEHVLGH 1HJOLJLEOH
 +HDWWUDQVIHU 6KHOOVLGHERLOLQJK\GURFDUERQ 
FRHIILFLHQW%WXKIWƒ)
NFDOKPƒ& 7XEHVLGHFRQGHQVLQJVWHDP 
2YHUDOO 

 07'ƒ)ƒ& 

 2YHUGHVLJQ 

SHUDWXUHUDQJHJUDSKLFDOO\,WZLOOEHVHHQ
7DEOHF9DULDWLRQRIERLOLQJKHDWWUDQVIHU WKDW ZLWK GHFUHDVLQJ ERLOLQJ WHPSHUDWXUH
FRHIILFLHQWZLWKERLOLQJUDQJHNHWWOHUHERLOHU UDQJH WKH KHDW WUDQVIHU FRHIILFLHQW UH
%RLOLQJUDQJH %RLOLQJKHDWWUDQVIHUFRHIILFLHQW GXFHV JUDGXDOO\ DW ILUVW EXW PXFK PRUH
ƒ)ƒ& %WXKIWƒ)NFDOKPƒ& VKDUSO\ODWHU
 
+RUL]RQWDO
  WKHUPRV\SKRQUHERLOHUV
  3ULQFLSDOIHDWXUHV
  $ KRUL]RQWDOWKHUPRV\SKRQUHERLOHU KDV
  YDSRUL]DWLRQ RQ WKH VKHOOVLGH ZKLOH WKH
KHDWLQJ PHGLXP IORZV LQVLGH WKH WXEHV
 
)LJ  6LQFH WKHUH DUH QR SXPSV LQ
  WKHUPRV\SKRQUHERLOHUFLUFXLWVWKHSUHV
  VXUH GURS KDV WR EH UHVWULFWHG WR D EDUH
PLQLPXP $VDOUHDG\ GLVFXVVHG LQ6HF
 
WLRQ  D VSOLWIORZ VKHOO 7(0$ *
  VKHOO FRQILJXUDWLRQ RU D GRXEOH VSOLW
  IORZVKHOO7(0$+VKHOOERWKVKRZQ
LQ )LJ  DUH XVXDOO\ HPSOR\HG IRU
 
KRUL]RQWDO WKHUPRV\SKRQ UHERLOHUV 7KH
  DGYDQWDJHZLWK7(0$*DQG+VKHOOVLV
  WKDWWKHSUHVVXUH GURS LVUHGXFHG GUDVWL

 
FDOO\DVWKHUHDUHQRFURVVEDIIOHV%\
XVLQJDFHQWUDOIXOOVXSSRUWSODWHLQD
*VKHOODQGOLPLWLQJWKHWXEHOHQJWKWR
 IW  P WKH PD[LPXP XQVXS
SRUWHGWXEHVSDQLVUHVWULFWHGWRZLWKLQ
WKH 7(0$ OLPLW 6LPLODUO\ E\ XVLQJ
WZR IXOO VXSSRUW SODWHV LQ DQ + VKHOO
DQG UHVWULFWLQJ WKH WXEH OHQJWK WR
 IW  P QR FURVV EDIIOHV DUH
UHTXLUHG WR FRPSO\ ZLWK WKH 7(0$
PD[LPXP XQVXSSRUWHG WXEH VSDQ
OLPLW
7KHORQJLWXGLQDOEDIIOHDOVRVHUYHV
WR PLQLPL]HSKDVHVHSDUDWLRQDQGSUR
)LJ  +RUL]RQWDO WKHUPRV\SKRQ UHERLOHU &RXUWHV\ RI
PRWH PL[LQJ RI WKH OLJKW DQG KHDY\ +75,
FRPSRQHQWVDVYDSRUL]DWLRQSURFHHGV
$QRWKHUDGYDQWDJHRIWKHVSOLWIORZRUWKHGRXEOHVSOLWIORZVKHOOLVWKDWK\GURG\QDPLF
SUREOHPVDVVRFLDWHGZLWKEDIIOHGVKHOOVLGHIORZVXFKDVSKDVHVHSDUDWLRQZLWKYHUWLFDOO\FXW
EDIIOHV DQG SXOVDWLQJ IORZ ZLWK KRUL]RQWDOO\ FXW EDIIOHV DUH HOLPLQDWHG ,Q IDFW WKLV LV D
JHQHUDOOLPLWDWLRQIRUYDSRUL]DWLRQRQWKHVKHOOVLGH:KHUHDVDYHUWLFDOFXWLVUHFRPPHQGHG
IRU VKHOOVLGH FRQGHQVLQJ EHFDXVH LW HQDEOHV VHSDUDWLRQ RI WKH FRQGHQVDWH IURP WKH
XQFRQGHQVHG YDSRU D YHUWLFDO FXW LV KLJKO\ GHWULPHQWDO IRU VKHOOVLGH YDSRUL]DWLRQ 6LQFH
OLTXLG KDV D FRQVLGHUDEO\ KLJKHU GHQVLW\ WKDQ YDSRU LW ZLOO RFFXS\ RQO\ D VPDOO FURVV
VHFWLRQDODUHDDW WKHERWWRP RIWKH VKHOODQGWKHUHE\ QRWFRQWDFWWKH PDMRULW\ RIWKH KHDW
WUDQVIHUVXUIDFH&RQVHTXHQWO\HYHQLIWKHUHTXLUHGKHDWWUDQVIHUVXUIDFHLVSURYLGHGDODUJH
SDUWRILWZLOOQRWEHHIIHFWLYH
%HVLGHV*DQG+VKHOOV(DQG-VKHOOVDUHRFFDVLRQDOO\XVHGLQKRUL]RQWDOWKHUPRV\SKRQ
UHERLOHUVZKHQDKLJKHUYHORFLW\LVGHVLUHG6XFKDUHTXLUHPHQWPD\DULVHZKHQYDSRUL]LQJD
ZLGHERLOLQJ PL[WXUH )RU YHU\ ORZ SUHVVXUH DSSOLFDWLRQV LW PD\ EHFRPH QHFHVVDU\ WR
HPSOR\SXUHFURVVIORZLQD7(0$;VKHOO
$V HODERUDWHG LQ6HFWLRQ  8WXEHV PD\EH HPSOR\HGIRU FOHDQ KHDWLQJ PHGLXPV
HJ7(0$%+8+RZHYHULIWKHKHDWLQJPHGLXPLVGLUW\VWUDLJKWWXEHVDUHUHTXLUHGWREH
HPSOR\HG +HUH LI WKH ERLOLQJ IOXLG LV FOHDQ D IL[HGWXEHVKHHW HJ 7(0$ %+0
FRQVWUXFWLRQPD\EHXVHGEXWLILWLVGLUW\DIORDWLQJKHDGFRQVWUXFWLRQHJ7(0$$+6
ZLOOKDYHWREHHPSOR\HG
&LUFXODWLRQ LQ KRUL]RQWDO WKHUPRV\SKRQ UHERLOHUV LV SURYLGHG E\ WKH GLIIHUHQFH LQ
HOHYDWLRQEHWZHHQWKHFROXPQDQGWKHERWWRPRIWKHVKHOO
9DSRUL]DWLRQ LV XVXDOO\ OLPLWHG WR ± IRU EHVW RSHUDWLRQ²DQG QHYHU PRUH WKDQ
²LQRUGHUWRDYRLGWKHSHQDOWLHVRIORZKHDWWUDQVIHUFRHIILFLHQWH[FHVVLYHIRXOLQJGXH
WRKLJKVNLQWHPSHUDWXUHDQGUHGXFWLRQLQ07'

$GYDQWDJHV
 +LJKFLUFXODWLRQUDWHVLPSDUWDKLJKFRQYHFWLYHKHDWWUDQVIHUFRPSRQHQWDQGWKHUHE\
\LHOGDKLJKERLOLQJKHDWWUDQVIHUFRHIILFLHQW
 $KRUL]RQWDOWKHUPRV\SKRQUHERLOHURIIHUVDGLVWLQFWDGYDQWDJHLQ07'DVIROORZV
D $V FRPSDUHG WR D NHWWOH UHERLOHU WKH 07' LV KLJKHU EHFDXVH WKH SHQDOW\ IRU
07'LQNHWWOHV GHVFULEHG LQ6HFWLRQLVQRWDSSOLFDEOHKHUHVLQFHDUHJXODU
FRQYHFWLYHIORZSDWWHUQLVHVWDEOLVKHG%HVLGHVVLQFHWKHOLTXLGLVRQO\SDUWLDOO\
 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVRIGLVWLOODWLRQFROXPQUHERLOHUKRUL]RQWDOWKHUPRV\SKRQ
 6KHOOVLGH 7XEHVLGH

 )OXLGFLUFXODWHG &ROXPQERWWRPV /36WHDP

 )ORZUDWHOEKNJK  

 )UDFWLRQYDSRUL]HG  

 7HPSHUDWXUHLQRXWƒ)ƒ&  

 2SHUDWLQJSUHVVXUHSVLDNJFPDEV  

 3HUPLWWHGSUHVVXUHGURSSVLNJFP $VSHU 

WKHUPRV\SKRQFLUFXLW

 )RXOLQJUHVLVWDQFHKIWƒ)%WXKPƒ&NFDO  

 +HDWGXW\00%WXK00NFDOK 

 &ULWLFDOSUHVVXUHSVLDNJFP DEV 6WDQGDUGDVSHU 6WDQGDUGDVSHU
ZDWHUVWHDP ZDWHUVWHDP
 &ULWLFDOWHPSHUDWXUHƒ)ƒ&
 'HVLJQSUHVVXUHSVLJNJFPJ  

 'HVLJQWHPSHUDWXUHƒ)ƒ&  

 0DWHULDORIFRQVWUXFWLRQ FDUERQVWHHO

 /LQHVL]HLQRXWLQPP $VSHU 

WKHUPRV\SKRQFLUFXLW

YDSRUL]HGW\SLFDOO\±WKHRXWOHWWHPSHUDWXUHRIWKHYDSRUL]LQJVWUHDPLV

HYHQORZHUWKHUHE\OHDGLQJWRDIXUWKHULQFUHDVHLQWKH07'
E $VFRPSDUHGWRYHUWLFDOWKHUPRV\SKRQUHERLOHUVWKHLQFUHDVHLQERLOLQJSRLQWLV
OHVV GXHWRWKH PXFK ORZHUGLIIHUHQFH LQ HOHYDWLRQEHWZHHQWKHFROXPQDQGWKH
UHERLOHU 7KLV FDQ EHFRPH VLJQLILFDQW LQ ORZΔ7 DSSOLFDWLRQV HVSHFLDOO\ DW ORZ
RSHUDWLQJSUHVVXUHV
 7KHDERYHLVSDUWLFXODUO\WUXHIRUZLGHERLOLQJPL[WXUHVKDYLQJKLJKOLTXLGYLVFRVLW\
ZKHUH WKH KLJK GHJUHH RI PL[LQJ SURGXFHG E\ WKH SUHVHQFH RI EDIIOHV LQ DQ ( RU -
VKHOO\LHOGVDKLJKHUKHDWWUDQVIHUFRHIILFLHQW
 7KHIRXOLQJSRWHQWLDO LVUHGXFHGE\ YLUWXH RIWKH KLJKHU YHORFLW\DQGWKHORZHU H[LW
YDSRUIUDFWLRQ7KLVPLQLPL]HVWKHDFFXPXODWLRQRIKHDY\FRPSRQHQWVLQWKHUHERLOHU
7KXV KRUL]RQWDO WKHUPRV\SKRQ UHERLOHUV FDQ KDQGOH GLUW\ VWUHDPV PXFK EHWWHU WKDQ
NHWWOHUHERLOHUV
 +RUL]RQWDO WKHUPRV\SKRQ UHERLOHUV DUH OHVV VHQVLWLYH WKDQ YHUWLFDO WKHUPRV\SKRQ
UHERLOHUV WR IOXFWXDWLRQV LQ RSHUDWLQJ FRQGLWLRQV .HWWOHV RI FRXUVH DUH WKH OHDVW
VHQVLWLYH
'LVDGYDQWDJHV
 :KDWHYHU IRXOLQJ RFFXUV LV RQ WKH VKHOOVLGH ZKLFK LV PRUH GLIILFXOW WR FOHDQ WKDQ
IRXOLQJ LQVLGH WXEHV &RQVHTXHQWO\ YHUWLFDO WKHUPRV\SKRQ UHERLOHUV DUH VXSHULRU WR
KRUL]RQWDOWKHUPRV\SKRQUHERLOHUVIRUYDSRUL]LQJGLUW\VWUHDPV
 %HVLGHV WKH XVXDO IORDWLQJKHDG FRQVWUXFWLRQ PXOWLSOH QR]]OHV DQG PDQLIROG SLSLQJ
LQFUHDVHWKHFRVW7KHFRVWRIDKRUL]RQWDOWKHUPRV\SKRQUHERLOHULVDOPRVWDVPXFK
 
 7DEOHE3ULQFLSDOFRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUVRI
GLVWLOODWLRQFROXPQUHERLOHUKRUL]RQWDOWKHUPRV\SKRQ
 7\SHRIUHERLOHU +RUL]RQWDOWKHUPRV\SKRQ

 6KHOOGLDPHWHULQPP 

 1RRIWXEHVîQRRIWXEHSDVVHV î

 7XEH2'î%:*îOHQJWKLQPP îî

 
 (IIHFWLYHKHDWWUDQVIHUDUHDIW P  
6KHOOVLGH 
 3UHVVXUHGURSSVLNJFP
7XEHVLGH 

 6KHOOVLGH 

 +HDWWUDQVIHUFRHIILFLHQW%WXKIWƒ) 7XEHVLGH 
NFDOKPƒ&
2YHUDOO 

 6KHOOVLGH 

 +HDWWUDQVIHUUHVLVWDQFH 7XEHVLGH 

)RXOLQJ 
0HWDO 
 
 0D[LPXPKHDWIOX[%WXKIW NFDOKP  a

 'HVLJQKHDWIOX[%WXKIWNFDOKP WR

 07'ƒ)ƒ& 

 2YHUGHVLJQ 

DV WKDW RI D NHWWOH UHERLOHU LI ZH FRPSDUH 8WXEH WR 8WXEH RU IORDWLQJKHDG WR
IORDWLQJKHDG
 7ZRSKDVH IORZ LQ WKH H[LW SLSLQJ UHTXLUHV FDUHIXO DQDO\VLV DQG GHVLJQ ,I WKH H[LW
SLSLQJLVWRRVPDOOFKRNHIORZPD\UHVXOWWKHUHE\OHDGLQJWRLQVWDELOLW\2QWKHRWKHU
KDQGLIWKHRXWOHWSLSLQJLVWRRODUJHSKDVHVHSDUDWLRQPD\UHVXOW,QDZLGHERLOLQJ
PL[WXUHWKLVZLOOUHVXOWLQWKHDFFXPXODWLRQRIKHDY\FRPSRQHQWVLQWKHUHERLOHUZLWK
LWVDVVRFLDWHGSHQDOWLHVRIDJJUDYDWHGIRXOLQJDQGLQFUHDVHLQWKHERLOLQJWHPSHUDWXUH
WKHUHE\ GHFUHDVLQJ WKH 07' &RQVHTXHQWO\ WKH RXWOHW SLSLQJ KDV WR EH GHVLJQHG
FDUHIXOO\WRIXOO\H[SORLWWKHDGYDQWDJHVRIIHUHGE\WKLVFRQVWUXFWLRQ

&$6(678'<',67,//$7,21&2/8015(%2,/(5
+25,=217$/7+(5026<3+21
$KRUL]RQWDOWKHUPRV\SKRQUHERLOHUKDGWREHGHVLJQHGIRUWKHVHUYLFHGHWDLOHGLQ7DEOH
D7KHERLOLQJIOXLGLVDGLOXWHVROXWLRQVRWKDWWKHSK\VLFDOSURSHUWLHVZHUHYLUWXDOO\
WKDW RI ZDWHU &DUERQ VWHHO WXEHV LQ PP 2' î LQ PP WKLFN î
IW PP ORQJ ZHUH WR EH XVHG $Q RYHUVXUIDFLQJ RI  ZDV WR EH
LQFRUSRUDWHG
7KHUPDO GHVLJQ ZDV FDUULHG RXW DQG WKH SULQFLSDO FRQVWUXFWLRQ DQG SHUIRUPDQFH
SDUDPHWHUVDUHUHSRUWHGLQ7DEOHE%DVHGXSRQLQGLFDWLYHSLSLQJLVRPHWULFVWKHLQOHWDQG
RXWOHWSLSLQJOHQJWKVZHUHFRQVLGHUHGDVIWPDQGIWPUHVSHFWLYHO\:KLOH
 
SHUIRUPLQJWKHWKHUPDOGHVLJQWKHPDLQOLQHVZHUHVL]HGDVLQPPIRUWKHLQOHWDQG
LQPPIRUWKHRXWOHWDQGWKHQR]]OHSLSLQJZDVVL]HGDVLQPPIRUWKH
LQOHWDQGLQPPIRUWKHRXWOHW7KHUHTXLUHGVWDWLFKHDGZDVIRXQGWREHIW
PIURPWKHIROORZLQJSUHVVXUHGURSLQWKHFLUFXLWLQSVLNJFP
3UHVVXUHGURSLQUHERLOHU 
3UHVVXUHGURSLQLQOHWSLSLQJ 
3UHVVXUHGURSLQRXWOHWSLSLQJ 
7RWDOSUHVVXUHGURS 
,W ZLOO EH VHHQ IURP 7DEOH E WKDW WKH
YDOXHV RI WKH FRQGHQVLQJ DQG ERLOLQJ KHDW
WUDQVIHU FRHIILFLHQWV DQG WKHUHE\ WKH RYHU
DOOKHDWWUDQVIHUFRHIILFLHQWDUHYHU\KLJK,Q
IDFWWKH PDMRUUHVLVWDQFHWR KHDWWUDQVIHULV
IRXOLQJ ZKLFK DFFRXQWV IRU  RI WKH
WRWDO UHVLVWDQFH (YHQ WKH WXEH PHWDO UHVLV
WDQFH LV  RI WKH WRWDO ZKLFK LV DERXW
DVKLJKDVLWHYHUJHWV
7KH FULWLFDO KHDW IOX[ IRU WKH SUHVHQW
VHUYLFH LV RI WKH RUGHU RI  %WXK IW
 NFDOK P LQ WKH YDULRXV LQFUH
 PHQWVZKHUHDVWKHFDOFXODWHGKHDWIOX[YDULHV
)LJ9HUWLFDOWKHUPRV\SKRQUHERLOHU&RXUWHV\
RI+75, IURP  WR  %WXK IW  WR
NFDOKP

9HUWLFDOWKHUPRV\SKRQUHERLOHUV
%HIRUHFRPPHQFLQJDGLVFXVVLRQRIYHUWLFDO
WKHUPRV\SKRQ UHERLOHUV WKHPVHOYHV )LJ
 LW PD\ EH SRLQWHG RXW WKDW VHYHUDO
FROXPQFRQILJXUDWLRQVPD\EHHPSOR\HGWR
FRQWUROWKHFROXPQUHERLOHURSHUDWLRQEHWWHU
DVZHOODVWRHIIHFWFRVWHFRQRP\ERWKIL[HG
DQG RSHUDWLQJ 7KLV LV UHDOO\ D PDWWHU RI
SURFHVV GHVLJQ VLQFH LW DGGUHVVHV QXDQFHV
RI FROXPQ RSHUDWLRQ7KHUHDGHU LVUHIHUUHG
WR VRPH LQIRUPDWLYH SDSHUV LQ WKLV UHJDUG
>±@
,Q WKH SUHVHQW FRQWH[W LW ZLOO VXIILFH WR
VD\ WKDW WKHUH DUH EDVLFDOO\ WZR FROXPQUH
ERLOHU FRQILJXUDWLRQV²QDPHO\ RQFHWKURXJK
DQG UHFLUFXODWLQJ²DV VKRZQ LQ )LJ 
$OWKRXJKWKHVHKDYHEHHQVKRZQIRUYHUWLFDO
WKHUPRV\SKRQ UHERLOHUV WKH\ DUH DSSOLFDEOH
WRKRUL]RQWDOWKHUPRV\SKRQUHERLOHUVDVZHOO
7KH NH\ GLIIHUHQFH EHWZHHQ WKH WZR FRQ
ILJXUDWLRQV LVWKDWWKH YDSRU JHQHUDWHG LQWKH
UHERLOHU LV QRW DOORZHG WR PL[ ZLWK WKH
)LJ2QFHWKURXJKDQGUHFLUFXODWLRQUHERLOHUV FROXPQERWWRPSURGXFWLQWKHRQFHWKURXJK

 
VW\OHZKHUHDVLWLVDOORZHGWRGRVRLQWKHUHFLUFXODWLQJVW\OH
+RZHYHULWLVHYLGHQWO\YHU\LPSRUWDQWWKDWZKDWHYHUVW\OHKDVEHHQFRQVLGHUHGIRUWKH
SURFHVV GHVLJQ VKRXOG EH VSHFLILHG FOHDUO\ E\ WKH SURFHVV GHVLJQHU VR WKDW WKH UHERLOHU
WKHUPDOGHVLJQLVSHUIRUPHGDFFRUGLQJO\,QIDFWWKHSURFHVVGHVLJQHUVKRXOGLQWHUDFWZLWK
WKHKHDWH[FKDQJHUGHVLJQHUVRWKDWWKHNH\HOHPHQWVRISURFHVVGHVLJQDQGUHERLOHUGHVLJQ
PD\EHFRQVLGHUHGLQDUULYLQJDWWKHPRVWRSWLPXPFRQILJXUDWLRQLQDJLYHQVLWXDWLRQ
*RLQJRQHVWHSIXUWKHUWKHUHERLOHUGHVLJQHUPXVWQRWGHVLJQWKHUHERLOHULQLVRODWLRQDV
LWLVDSDUWRIWKHFROXPQUHERLOHUFROXPQFLUFXLWEXWPXVWGHVLJQWKHUHERLOHUDVDSDUWRIWKH
ZKROHV\VWHP6LQFHSLSLQJSOD\VDYHU\LPSRUWDQWUROHLQUHERLOHURSHUDWLRQHVSHFLDOO\WKH
RXWOHWSLSLQJUHERLOHUWRFROXPQWKH ILQDO GHVLJQ PXVWEH YHULILHG ZLWKWKHDFWXDOSLSLQJ
LVRPHWULFVILQDOO\GHYHORSHG

3ULQFLSDOIHDWXUHV
9HUWLFDOWKHUPRV\SKRQUHERLOHUV)LJDUHLQYDULDEO\ RIIL[HGWXEHVKHHWDQGVLQJOH
VKHOOSDVV7(0$(FRQVWUXFWLRQKDYLQJERLOLQJRQWKHWXEHVLGH%RLOLQJLQVLGHYHUWLFDO
WXEHV LV D IDYRUDEOH SURSRVLWLRQ XQOLNH ERLOLQJ RQ WKH RXWVLGH RI YHUWLFDO WXEHV DQG LV
YHU\ ZHOO UHVHDUFKHG %RLOLQJ RXWVLGH YHUWLFDO WXEHV LV FRPSOLFDWHG E\ WKH QHFHVVDU\
SUHVHQFHRIEDIIOHVDQGLVKHQFHXVHGRQO\LQVSHFLDOFLUFXPVWDQFHVDVH[SODLQHGODWHU
6LQFHERLOLQJLVLQVLGHWXEHVLWLVHVVHQWLDOWRKDYHDVLQJOHWXEHSDVVIRUDWKHUPRV\SKRQ
DUUDQJHPHQW EHFDXVH WKH IORZ RI D WZRSKDVH PL[WXUH DJDLQVW JUDYLW\ LV IUDXJKW ZLWK
MHRSDUG\ ,W KDV DOUHDG\ EHHQ H[SODLQHG LQ 6HFWLRQV  DQG  WKDW D VLQJOHSDVV
DUUDQJHPHQW VHH )LJ  LV D YHU\ XQGHVLUDEOH IHDWXUH IRU IORDWLQJKHDG FRQVWUXFWLRQ
&RQVHTXHQWO\ IL[HGWXEHVKHHW FRQVWUXFWLRQ LV LQYDULDEO\ HPSOR\HG IRU YHUWLFDO
WKHUPRV\SKRQUHERLOHUV+RZHYHUWKLVLPSRVHVDOLPLWDWLRQRQWKHKHDWLQJPHGLXPHLWKHULW
VKRXOGEH FOHDQ RU LI LW LV GLUW\WKH IRXOLQJFDXVHGE\ LW VKRXOGEHDPHQDEOHWRFKHPLFDO
FOHDQLQJ$VORQJDVWKHKHDWLQJPHGLXPLVVWHDPRUKRWRLOWKHUHLVQRSUREOHP+RZHYHULI
WKHKHDWLQJPHGLXPLVGLUW\WKHIROORZLQJRSWLRQVSUHVHQWWKHPVHOYHV
 LPSOHPHQWDFKHPLFDOFOHDQLQJSURJUDP
 XVHDIORDWLQJKHDGFRQVWUXFWLRQ
 KDYHERLOLQJRXWVLGHWXEHV
)ORZ2ULHQWDWLRQ
&RXQWHUFXUUHQW IORZ ERLOLQJ IOXLG IORZLQJ XS KHDWLQJ PHGLXP IORZLQJ GRZQ LV
HPSOR\HG IRU FRQGHQVLQJ KHDWLQJ PHGLXPV DV ZHOO DV VHQVLEOH KHDWLQJ PHGLXPV ZLWK
ZLGHERLOLQJUDQJHPL[WXUHV
)RU VHQVLEOH KHDWLQJ PHGLXPV DQG QDUURZ ERLOLQJUDQJH PL[WXUHV LW PD\ EH D JRRG
SUDFWLFH WR XVH FRFXUUHQW IORZ ERWKVWUHDPV IORZLQJ XS7KLVSURYLGHVD KLJKHUǻ7DQG
PRUHQXFOHDWHERLOLQJDWWKHERWWRPRIWKHWXEHVWKHUHE\LPSURYLQJFLUFXODWLRQ7KLVLVQRW
UHFRPPHQGHGIRUZLGHERLOLQJUDQJHPL[WXUHVVLQFHWKHORVVLQ07'ZLOOXVXDOO\EHJUHDWHU
WKDQWKHJDLQLQERLOLQJKHDWWUDQVIHUFRHIILFLHQW
)ORZ5HJLPHV
9DULRXVIORZUHJLPHVRFFXULQVLGHWKHWXEHVGHSHQGLQJXSRQWKHH[WHQWRIYDSRUL]DWLRQ
DVZHOODVYDULRXVSK\VLFDOSURSHUWLHVDVIROORZV
• 1RQERLOLQJ]RQHVXEFRROHGERLOLQJEXEEOHDQGVOXJIORZFKXUQIORZDQQXODU
IORZPLVWIORZDQGILOPERLOLQJ
• 7KHWZRSKDVHIORZOHDYLQJDYHUWLFDOWKHUPRV\SKRQUHERLOHULVXVXDOO\LQWKHDQ
 
 QXODURUVOXJUHJLPHDQGRFFDVLRQDOO\LQWKHEXEEOHUHJLPHZKHQWKHH[LWYDSRU
IUDFWLRQLVORZ
• 0LVW IORZ RFFXUV DW YHU\ KLJK ZHLJKW IUDFWLRQ YDSRUL]HG DQG LV YHU\ LQHIILFLHQW
IRU KHDWWUDQVIHU$UXOH RIWKXPEIRUDYRLGLQJ LWLVWR OLPLWWKH ZHLJKWIUDFWLRQ
YDSRUL]HGWR
• $FRPELQDWLRQRIQXFOHDWHERLOLQJDQGILOPERLOLQJVKRXOGDOVREHDYRLGHG7KLV
LVGLVFXVVHGLQGHWDLOODWHURQ
7XEH'LDPHWHU
7XEHGLDPHWHUDVVXPHVJUHDWHUVLJQLILFDQFHIRUYHUWLFDOWKHUPRV\SKRQUHERLOHUVWKDQIRU
VHQVLEOH KHDWLQJFRROLQJDQGFRQGHQVLQJVHUYLFHV*HQHUDOO\ôLQ RUPP2'WXEHV
DUH XVHG +RZHYHU ZKHQ WKH IUDFWLRQ YDSRUL]HG WHQGV WR EH KLJK !  WKH XVH RI
ELJJHUGLDPHWHUWXEHVLQLQDQGHYHQLQZLOOKHOS
:KHQWKHIUDFWLRQYDSRUL]HGWHQGVWREHORZWKHXVHRIVPDOOHUGLDPHWHUWXEHV
ZLOOEHRIDGYDQWDJH²LQRUPPLVXVXDOO\WKHVPDOOHVWWXEH2'EDVHGXSRQFOHDQLQJ
FRQVLGHUDWLRQV+RZHYHULIWKHWXEHVLGHIOXLGLVYHU\FOHDQWKHXVHRILQRUPP2'
WXEHVPD\EHFRQVLGHUHG
7XEH/HQJWK
7XEH OHQJWK PD\ EH YDULHG IURP  IW  PP WR  IW  PP GHSHQGLQJ
XSRQWKH KHDWWUDQVIHUDUHDUHTXLUHGDQGWKHWXEHVLGH IORZDUHDGHVLUHG6LQFHWKHVHDUH
IL[HGWXEHVKHHWH[FKDQJHUVLWLVQRWQHFHVVDU\WRXVHVWDQGDUGWXEHOHQJWKV
+RZHYHUZKHQXVLQJDODUJHWXEHOHQJWKLWVKRXOGEHHQVXUHGWKDWVXIILFLHQWKHDGURRP
H[LVWV DW WKH ERWWRP RI WKH UHERLOHU IRU URXWLQH PDLQWHQDQFH ,Q VRPH H[WUHPH FDVHV WKH
FROXPQVNLUWKHLJKWPD\KDYHWREHLQFUHDVHGRQWKLVDFFRXQW
(OHYDWLRQ
,Q D YHUWLFDO WKHUPRV\SKRQ UHERLOHU WKH FROXPQ ERWWRPV VWUHDP HQWHUV DW WKH ERWWRP
ULVHV DQG SDUWLDOO\ YDSRUL]HV DV LW IORZV XS WKH WXEHV DQG WKH WZRSKDVH PL[WXUH
GLVFKDUJHVLQWRWKHFROXPQ7KHGULYLQJIRUFHLVWKHGHQVLW\GLIIHUHQFHEHWZHHQWKHOLTXLG
LQWKHFROXPQDQGWKHWZRSKDVHIOXLGLQWKHWXEHV7KHGLIIHUHQFHLQHOHYDWLRQEHWZHHQ
WKH OLTXLG OHYHO LQWKH FROXPQDQGWKH ORZHUWXEHVKHHWUHSUHVHQWVWKH GULYLQJ KHDG7KH
OLTXLGOHYHOLQWKHFROXPQLVXVXDOO\PDLQWDLQHGDWWKHOHYHORIWKHWRSWXEHVKHHWVLQFHWKLV
QRUPDOO\UHSUHVHQWVWKHRSWLPXPEDODQFHEHWZHHQGULYLQJIRUFHDQGFLUFXLWUHVLVWDQFH,Q
WKHFDVHRIUHERLOHUVRSHUDWLQJDWYDFXXPKRZHYHULWLVFRPPRQWRHOHYDWHWKHUHERLOHU
VRWKDWWKHGULYLQJKHDGLV±RIWKHWXEHOHQJWK
,Q RUGHUWRXQGHUVWDQGWKLVFRQVLGHUWKH YDULDWLRQ RISUHVVXUH GURS ZLWK PDVV YHORFLW\
DQGWZRSKDVHGHQVLW\3UHVVXUHGURSYDULHVZLWKWKHVTXDUHRIPDVVYHORFLW\DQGLQYHUVHO\
ZLWKGHQVLW\1RZIRUDJLYHQKHDWGXW\WKHUHFDQEHHLWKHUDKLJKHUFLUFXODWLRQUDWHDQG
FRQVHTXHQWO\D ORZHU IUDFWLRQ YDSRUL]HG RUD ORZHU FLUFXODWLRQUDWHDQGD KLJKHU IUDFWLRQ
YDSRUL]HG7KHORZHUIUDFWLRQYDSRUL]HGZLOOPHDQDKLJKHUPL[WXUHGHQVLW\DQGYLFHYHUVD
7KXVZHKDYHWZRFDVHV
 DKLJKHUFLUFXODWLRQUDWHDQGDORZHUPL[WXUHGHQVLW\
 DORZHUFLUFXODWLRQUDWHDQGDKLJKHUPL[WXUHGHQVLW\
$V SHU WKH YDULDWLRQ RI SUHVVXUH GURS ZLWK PDVV YHORFLW\ DQG PL[WXUH GHQVLW\ DOUHDG\
VWDWHGWKHKLJKHUFLUFXODWLRQUDWHFDVHZLOOUHVXOWLQDKLJKHUSUHVVXUHGURSDQGWKHORZHU
FLUFXODWLRQUDWH\FDVHZLOOUHVXOWLQDORZHUSUHVVXUHGURS

 
 +RZHYHU LQ DQ RSHUDWLQJ WKHUPRV\SKRQ UHERLOHU WKHUH LV D QDWXUDO HTXLOLEULXP
FRQGLWLRQ ZKHQ WKH GULYLQJ KHDG LV EDODQFHG E\ WKH SUHVVXUH GURS LQ WKH FROXPQUHERLOHU
FROXPQ FLUFXLW &RQVHTXHQWO\ ZKHQ WKH GULYLQJ KHDG LV KLJKHU WKHUH ZLOO EH D KLJKHU
FLUFXODWLRQUDWHDQGZKHQWKHGULYLQJKHDGLVORZHUWKHUHZLOOEHDORZHUFLUFXODWLRQUDWH
'XH WR WKH VWDWLF KHDG RI WKH OLTXLG LQ WKH FROXPQ WKH OLTXLG HQWHULQJ D YHUWLFDO
WKHUPRV\SKRQ UHERLOHU KDV D KLJKHU ERLOLQJ SRLQW WKDQ WKDW LQ WKH GLVWLOODWLRQ FROXPQ
&RQVHTXHQWO\WKHUHZLOOEHDUHJLRQRIVXEFRROHGOLTXLGKHDWLQJEHIRUHWKHOLTXLGDWWDLQVLWV
ERLOLQJ SRLQW 'XH WR WKH VLQJOH WXEH SDVV WKH OLTXLG YHORFLW\ ZLOO EH UDWKHU ORZ DQG
FRQVHTXHQWO\VRZLOOEHWKHKHDWWUDQVIHUFRHIILFLHQW1RZZKHQWKHRSHUDWLQJSUHVVXUHLV
PRGHUDWHWKHHIIHFWRIWKLVSKHQRPHQRQLVRQO\PDUJLQDOEHFDXVHWKHVWDWLFKHDGUHSUHVHQWV
RQO\DVPDOOIUDFWLRQRIWKHRSHUDWLQJSUHVVXUH$WYDFXXPKRZHYHUWKHVLWXDWLRQLVPXFK
ZRUVHDQGWKHUH ZLOOEHDVXEVWDQWLDOVXEFRROHG OLTXLG KHDWLQJ ]RQH,Q RUGHUWR PLQLPL]H
WKLVSHQDOW\WKHUHERLOHULVHOHYDWHGVRWKDWWKHGULYLQJKHDGLVUHGXFHG7KHORZHUGULYLQJ
KHDGZLOOUHVXOWLQDORZHUHOHYDWLRQLQERLOLQJSRLQWDQGWKHUHE\DVPDOOHUVXEFRROHGOLTXLG
KHDWLQJ]RQH
3LSLQJ
7KH VL]LQJ RI RXWOHW SLSLQJ RU UHERLOHUWRFROXPQ SLSLQJ LV D YHU\ LPSRUWDQW DVSHFW RI
YHUWLFDOWKHUPRV\SKRQUHERLOHU GHVLJQ,QIDFWXQGXO\VPDOO RXWOHWSLSLQJLVWKHELJJHVW
VLQJOHFDXVHRIPDORSHUDWLRQRIYHUWLFDOWKHUPRV\SKRQUHERLOHUV
'HSHQGLQJXSRQWKHGLDPHWHURIWKHRXWOHWSLSHDQGWKHGLIIHUHQFHLQHOHYDWLRQEHWZHHQ
WKH XSSHU UHERLOHU FKDQQHO DQG WKH UHWXUQ QR]]OH WR WKH FROXPQ D FORVHGFRXSOHG RU D
FRQLFDOPLWHUHG DUUDQJHPHQW LV HPSOR\HG IRU WKH RXWOHW SLSLQJ 7KH IRUPHU LV SUHIHUUHG
EHFDXVHLWPLQLPL]HVWKHSUHVVXUHGURSLQWKHRXWOHWSLSLQJ:KHQWKHHOHYDWLRQGLIIHUHQFH
EHWZHHQWKHXSSHUWXEHVKHHWDQGWKHYDSRUUHWXUQOLQHWRWKHFROXPQLVVPDOOXVHDFORVH
FRXSOHGDUUDQJHPHQW:KHQLWLVODUJHXVHDFRQLFDOFKDQQHOZLWKDVXLWDEOHEHQG
,Q HLWKHU FDVHVLQFH WKH SUHVVXUH GURS LQWKH RXWOHWSLSLQJ LVFULWLFDOWKH OHQJWK RIWKH
RXWOHWSLSLQJDQGWKHQXPEHURIEHQGVVKRXOGDOZD\VEHPLQLPL]HG)XUWKHUDYDOYHVKRXOG
QHYHUEHSODFHGLQWKHRXWOHWSLSLQJ+RZHYHUDYDOYHSODFHGLQWKHLQOHWOLTXLGOLQHLVXVHIXO
WRVWDELOL]HIOXFWXDWLRQV
,W LV JHQHUDOO\ UHFRPPHQGHG WKDW WKH UDWLR RI WKH RXWOHW SLSLQJ IORZ DUHD WR WKH WRWDO
WXEHVLGHIORZDUHDVKRXOGEH IRU KLJK KHDW IOX[HV 7KLV FDQEHUHGXFHGIRU ORZHU KHDW
IOX[HVEXWVKRXOGEHDWOHDVW(YLGHQWO\WKHORZHUWKHRSHUDWLQJSUHVVXUHDQGWKHORZHU
WKHYDSRUPROHFXODUZHLJKWWKHODUJHUZLOOEHWKHRXWOHWSLSLQJGLDPHWHU
7KHUHERLOHUGHVLJQPD\EHSHUIRUPHGRQWKHEDVLVRIDQDVVXPHGQXPEHURIEHQGVLQ
WKH RXWOHWSLSLQJEXW RQFHWKHSLSLQJ LVRPHWULFVDUHILQDOL]HGWKHUHERLOHU GHVLJQ PXVWEH
YHULILHGZLWKWKHDFWXDOSLSLQJFRQILJXUDWLRQHVSHFLDOO\IRUORZSUHVVXUHRSHUDWLRQVD\
SVLJRUNJFPJDXJHDQGOHVV7KHUHDUHVHYHUDOLQVWDQFHVZKHQDYHUWLFDOWKHUPRV\SKRQ
UHERLOHUKDVQRWSHUIRUPHGVDWLVIDFWRULO\GXHWRDODUJHUQXPEHURIEHQGVLQWKHRXWOHWSLSLQJ
WKDQFDWHUHGWRLQLWVGHVLJQ

/LTXLGFLUFXODWLRQYDSRUL]DWLRQFRQVLGHUDWLRQV
,W PD\ QRW DOZD\V EH SRVVLEOH WR GHVLJQ D YHUWLFDO WKHUPRV\SKRQ UHERLOHU WR KDYH
SUHFLVHO\ WKH VDPH FLUFXODWLRQ DQG WKH IUDFWLRQ YDSRUL]HG VSHFLILHG LQ WKH SURFHVV GDWD
VKHHW 6KRXOG WKH YDULDWLRQ EH DSSUHFLDEOH VD\  RU PRUH WKH PDWWHU VKRXOG EH
GLVFXVVHGDQGUHVROYHGZLWKWKHSURFHVVOLFHQVRU
7XEHVLGH SUHVVXUH GURS LV DOZD\V KLJKHU IRU D KLJKHU FLUFXODWLRQ DQG ORZHU ZHLJKW
IUDFWLRQYDSRUL]HG7KHIUDFWLRQYDSRUL]HGVKRXOGQRWEHWRRKLJKDVLW

 
 D FDXVHVH[FHVVLYHIRXOLQJ
E UHGXFHVWKHWXEHVLGHKHDWWUDQVIHUFRHIILFLHQW
F UHGXFHVWKH07'GXHWRWKHKLJKHURXWOHWWHPSHUDWXUH
7KH PD[LPXP ZHLJKW IUDFWLRQ YDSRUL]HG UHFRPPHQGHG DV D UXOH RI WKXPE LV ±
+RZHYHU LQ WKH FDVH RI YDFXXP RSHUDWLRQ WKH VDPH PD\ EH UHOD[HG WR  DV
RWKHUZLVHWKHVXEFRROHGOLTXLGKHDWLQJ]RQHPD\LPSRVHDVHYHUHSHQDOW\7KHPLQLPXP
ZHLJKW IUDFWLRQ YDSRUL]HG JHQHUDOO\ UHFRPPHQGHG LV  EHFDXVH ORZHU YDSRUL]DWLRQ
PD\QRWSURGXFHJRRGSXPSLQJRU³WKHUPRV\SKRQLQJ´DFWLRQ

0D[LPXPDOORZDEOHGHVLJQKHDWIOX[
7KH PD[LPXP DOORZDEOH GHVLJQ KHDW IOX[ LV D YHU\ VWURQJ IXQFWLRQ RI WKH UHGXFHG
SUHVVXUHSSF7KXVIRUDOLJKWK\GURFDUERQUHERLOHUWKHPD[LPXPDOORZDEOHGHVLJQKHDW
IOXVLV%WXKIWNFDOKPDWDUHGXFHGSUHVVXUHRIEXWIDOOVDEUXSWO\
WR%WXKIWNFDOKPDVWKHUHGXFHGSUHVVXUHLQFUHDVHVWR:LWKIXUWKHU
LQFUHDVHLQWKHUHGXFHGSUHVVXUHWRDQGWKHPD[LPXPDOORZDEOHGHVLJQKHDWIOX[
SOXPPHWV WR  %WXK IW  NFDOK P DQG  %WXK IW  NFDOK P
UHVSHFWLYHO\

$GYDQWDJHV
 'XH WR WKH IL[HGWXEHVKHHW FRQVWUXFWLRQ WKH FRVW LV WKH ORZHVW IRU WKLV W\SH RI
UHERLOHU
 )RXOLQJLVOHVVSURQRXQFHGGXHWRWKHKLJKFLUFXODWLRQDQGWKHUHE\KLJKVKHDUUDWHV
%HVLGHV ZKDWHYHU IRXOLQJ RFFXUV LV HDVLHU WR FOHDQ VLQFH LW LV RQ WKH WXEHVLGH
+RZHYHU GXH WR WKH YHUWLFDO GLVSRVLWLRQ FOHDQLQJ LV QRW DV FRQYHQLHQW DV IRU
KRUL]RQWDOWXEHVXQOHVVWKHUHERLOHULVGLVPDQWOHGDQGSODFHGKRUL]RQWDOO\
 7KH07'LVWKHKLJKHVWGXHWRWKHSXUHFRXQWHUFXUUHQWVLWXDWLRQDQGVWUDLJKWIRUZDUG
WRGHWHUPLQH

'LVDGYDQWDJHV
 7KHPD[LPXPKHDWIOX[WKDWFDQEHVXSSRUWHGLVORZHUWKDQIRUVKHOOVLGHERLOLQJGXH
WRWKHUHGXFHGERLOLQJVLGHIORZDUHD7KLVLVSDUWLFXODUO\UHOHYDQWIRURSHUDWLRQQHDU
WKHFULWLFDOSUHVVXUH
 7KHRSHUDWLRQRIWKHVHUHERLOHUVLVUDWKHUVHQVLWLYHWRFKDQJHVLQRSHUDWLQJFRQGLWLRQV
&RQVHTXHQWO\XQOHVVDVRSKLVWLFDWHGVRIWZDUHSDFNDJHLVDYDLODEOHIRUGHVLJQWKHVH
UHERLOHUV DUH QRW UHFRPPHQGHG HVSHFLDOO\ DW ORZ SUHVVXUH VXEDWPRVSKHULF DQG
SUHVVXUHQHDUFULWLFDO
 7ZRSKDVH IORZ LQ WKH H[LW SLSLQJ UHTXLUHV FDUHIXO DQDO\VLV DQG GHVLJQ ,I WKH H[LW
SLSLQJLVWRRVPDOOFKRNHIORZPD\UHVXOWWKHUHE\OHDGLQJWRLQVWDELOLW\2QWKHRWKHU
KDQGLIWKHRXWOHWSLSLQJLVWRRODUJHSKDVHVHSDUDWLRQPD\UHVXOW,QDZLGHERLOLQJ
PL[WXUHWKLVZLOOUHVXOWLQWKHDFFXPXODWLRQRIKHDY\FRPSRQHQWVLQWKHUHERLOHUZLWK
LWVDVVRFLDWHGSHQDOWLHVRIDJJUDYDWHGIRXOLQJDQGLQFUHDVHLQWKHERLOLQJWHPSHUDWXUH
WKHUHE\ GHFUHDVLQJ WKH 07' &RQVHTXHQWO\ WKH RXWOHW SLSLQJ KDV WR EH GHVLJQHG
FDUHIXOO\
 )RUODUJHGLDPHWHUUHERLOHUVXQLIRUPGLVWULEXWLRQRIWKHERLOLQJIOXLGLQWRWKHYDULRXV
WXEHVPD\EHGLIILFXOWWRDFKLHYHXQOHVVVSHFLDOPHDVXUHVDUHDGRSWHG

 
 7KHKHDWWUDQVIHUDUHDLVOLNHO\WREHPXFKKLJKHUIRUORZSUHVVXUHVHUYLFHVGXHWRWKH
HOHYDWLRQRIWKHERLOLQJSRLQWDQGFRQVHTXHQWVXEFRROHGOLTXLGKHDWLQJDVH[SODLQHG
HDUOLHU

6SHFLDOGHVLJQFRQVLGHUDWLRQV
9HU\ZLGHERLOLQJUDQJH
$VDOUHDG\PHQWLRQHGLQVHFWLRQDERYHWKHFRQYHFWLYHFRPSRQHQWWHQGVWRSUHGRPL
QDWHLQVXFKDSSOLFDWLRQV,QIDFWQXFOHDWLRQPD\EHODUJHO\RUIXOO\VXSSUHVVHGWKHUHE\
UHVXOWLQJLQDSRRUKHDWWUDQVIHUFRHIILFLHQWGXHWKHORZPDVVYHORFLW\FDXVHGE\WKHVLQ
JOHWXEHSDVV6KRXOGWKHOLTXLGYLVFRVLW\EHUHODWLYHO\KLJKPDWWHUVZLOOEHHYHQZRUVH
7KHXVHRIDQLQFUHDVHGVWDWLFKHDGE\ORZHULQJWKHUHERLOHUPD\KHOSLQVXFKVLWXDWLRQV
E\ LPSURYLQJ WKH FLUFXODWLRQ DQG WKHUHE\ WKH KHDW WUDQVIHU FRHIILFLHQW 1HYHUWKHOHVV
YHUWLFDOWKHUPRV\SKRQUHERLOHUVPD\QRWEHHFRQRPLFDOO\DWWUDFWLYHIRUVXFKDSSOLFDWLRQV
$VDOUHDG\ H[SODLQHGLQ6HFWLRQNHWWOHUHERLOHUVDUHQRWYHU\JRRG HLWKHUIRUVXFK
FRQGLWLRQV+RUL]RQWDOWKHUPRV\SKRQUHERLOHUVFDQKDQGOHVXFKVHUYLFHVPXFKEHWWHU
2SHUDWLRQDWORZSUHVVXUH
2QFH DJDLQ WKH ERLOLQJ KHDW WUDQVIHU FRHIILFLHQW ZLOO WHQG WR EH ORZ IRU YHUWLFDO
WKHUPRV\SKRQUHERLOHUVGXHWRVHYHUDOIDFWRUV
 6XSSUHVVLRQRI QXFOHDWHERLOLQJ7KH ORZHUWKH RSHUDWLQJSUHVVXUHWKH ODUJHULV
WKHFDYLW\VL]HUHTXLUHGIRUHIIHFWLYHERLOLQJ7KLVVKRUWFRPLQJFDQEHRYHUFRPH
E\ WKH XVH RI KLJKIOX[ WXEHV +RZHYHU WKLV LV SURSULHWDU\ WHFKQRORJ\ ZLWK LWV
DVVRFLDWHGGLVDGYDQWDJHV
 6XEFRROHG OLTXLG KHDWLQJ 7KLV ZDV H[SODLQHG HDUOLHU LQ WKH VHFWLRQ HQWLWOHG
³(OHYDWLRQ´
 /RZOLTXLGFLUFXODWLRQUDWH7KLVLVDIDOORXWRIWKHVPDOOHUWKDQXVXDOHOHYDWLRQ
GLIIHUHQFH EHWZHHQ WKH FROXPQ DQG WKH UHERLOHU QHFHVVLWDWHG E\ WKH QHHG WR
UHGXFHVXEFRROHGOLTXLGKHDWLQJ7KHORZHUGLIIHUHQFHLQHOHYDWLRQWUDQVODWHVLQWR
D ORZHU OLTXLG FLUFXODWLRQ UDWH DQG FRQVHTXHQWO\ D ORZHU OLTXLG PDVV YHORFLW\
DQGFRQVHTXHQWO\DORZHUKHDWWUDQVIHUFRHIILFLHQW
7KXVWKHUHLVDFRQIOLFWEHWZHHQWZRRSSRVLQJWHQGHQFLHVLQDQGDERYHDORZHUKHDG
UHGXFHV VXEFRROHG OLTXLG KHDWLQJ EXW DOVR UHGXFHV WKH OLTXLG FLUFXODWLRQ UDWH :KLOH WKH
IRUPHU ZLOO WHQG WR LPSURYH WKH ERLOLQJ KHDW WUDQVIHU FRHIILFLHQW WKH ODWWHU ZLOO WHQG WR
UHGXFHLW7KXVDEDODQFHZLOOKDYHWREHVWUXFNEHWZHHQWKHVHWZRRSSRVLQJWHQGHQFLHV
7KLVLVGHPRQVWUDWHGLQ&DVH6WXG\LQDODWHUVHFWLRQ
2SHUDWLRQQHDUFULWLFDOSUHVVXUH
$V WKH RSHUDWLQJ SUHVVXUH LQFUHDVHV DQG DSSURDFKHV WKH FULWLFDO SUHVVXUH WKH GLIIHUHQFH
EHWZHHQWKHOLTXLGGHQVLW\DQGWKHYDSRUGHQVLW\GHFUHDVHVDQGFRQVHTXHQWO\VRGRHVWKH
GULYLQJKHDG7KLVWHQGVWRPDNH³WKHUPRV\SKRQLQJ´PRUHGLIILFXOW%HVLGHVDVDFRQVH
TXHQFHRIWKHUHGXFHGGLIIHUHQFHLQGHQVLW\EHWZHHQWKHOLTXLGDQGWKHYDSRUWKHSRWHQ
WLDOIRUYDSRUOLTXLGVHSDUDWLRQDOVRGHFUHDVHVWKHUHE\UHGXFLQJWKHPD[LPXPKHDWIOX[
.HWWOH UHERLOHUV RSHUDWH PXFK EHWWHU LQ VXFK FLUFXPVWDQFHV DV GHPRQVWUDWHG LQ &DVH
6WXG\2IFRXUVHWKHOLPLWDWLRQKHUHLVWKDWWKHERLOLQJIOXLGVKRXOGQRWEHGLUW\,IWKDW
ZHUH WR EH WKH FDVH WKH EHVW RSWLRQ ZLOO EH WR DGRSW D IRUFHGIORZ UHERLOHU ZLWK QR
YDSRUL]DWLRQ
,WPXVWEHPHQWLRQHGKHUHWKDWDXWKHQWLFSK\VLFDOSURSHUWLHVDUHYHU\LPSRUWDQWLQWKLV
UHJLRQDQGWKHVDPHDUHGLIILFXOWWRSUHGLFW(VSHFLDOO\LPSRUWDQWDUHYDSRUDQGOLTXLGGHQVLW\
 
DQG FULWLFDO SUHVVXUH DQG WHPSHUDWXUH 3VHXGRFULWLFDO SUHVVXUH DQG WHPSHUDWXUH DUH RIWHQ
IXUQLVKHG DQG DUH QRW DFFXUDWH HQRXJK )RU H[DPSOH WKH WUXH FULWLFDO SUHVVXUH LV XVXDOO\
JUHDWHUWKDQWKHSVHXGRFULWLFDOSUHVVXUH
)LOPERLOLQJ
)LOP ERLOLQJ RFFXUV DW YHU\ KLJK WHPSHUDWXUH GLIIHUHQFHV DQG LV XQGHVLUDEOH DV WKH KHDW
WUDQVIHUFRHIILFLHQWLVORZXVXDOO\±%WXKIWƒ)±NFDOKPƒ&DQGLWFDQ
UHVXOWLQKHDY\IRXOLQJDQGKRWVSRWSUREOHPV
)LOPERLOLQJFDQEHDYRLGHGE\XVLQJHLWKHURUERWKRIWKHIROORZLQJ
D 'HFUHDVHKHDWLQJPHGLXPWHPSHUDWXUHOHYHO²WKLVLVWKHGLUHFWDSSURDFK
E ,QFUHDVHWXEHGLDPHWHU²RIWHQWKLVFKDQJHDORQHLVVXIILFLHQWWRRYHUFRPHILOP
ERLOLQJ
6RPHWLPHV ILOP ERLOLQJ FDQQRW EH KHOSHG EHFDXVH LQFUHDVLQJ WKH WXEH GLDPHWHU LV QRW
VXIILFLHQW DQG WKH WHPSHUDWXUH OHYHO RI WKH KHDWLQJ PHGLXP FDQQRW EH GHFUHDVHG
(YLGHQWO\ WKLV LV DSSOLFDEOH WR VHQVLEOH KHDWLQJ PHGLXPV EHFDXVH ZLWK D FRQGHQVLQJ
PHGLXPVXFKDVVWHDPWKHSUHVVXUHOHYHO FDQEHUHGXFHGWR HOLPLQDWHILOPERLOLQJ,Q
VXFK LQVWDQFHV DV ORQJ DV WKH HQWLUH UHERLOHU LV LQ ILOP ERLOLQJ WKH GHVLJQ PD\ EH
DFFHSWHG
+RZHYHU LQ QR LQVWDQFH VKRXOG D GHVLJQ EH DFFHSWHG ZKHQ D SDUW RI WKH WXEHV LV LQ
QXFOHDWHERLOLQJDQGWKHEDODQFHLQILOPERLOLQJDQGWKLVLQFOXGHVRSHUDWLRQDWSDUWORDGRU
HYHQ VWDUWXS 7KLV LV EHFDXVH RSHUDWLRQ LV GLIILFXOW WR SUHGLFW VLQFH FKDQJHV LQ RSHUDWLQJ
FRQGLWLRQV FDQ UHVXOW LQ H[WUHPH FKDQJHV LQ SHUIRUPDQFH %HVLGHV UHYHUVH FRQWURO FKDUDF
WHULVWLFV SUHYDLO KHUH LQFUHDVLQJ ǻ7 GHFUHDVHV WKH YDSRU UDWH DQG KHDW GXW\ ZKLFK LV WKH
UHYHUVHRIWKHQRUPDOUHVSRQVHQDPHO\DQLQFUHDVHLQǻ7UHVXOWVLQDQLQFUHDVHLQKHDWGXW\
,QVXFKVLWXDWLRQVSDUWQXFOHDWHDQGSDUWILOPERLOLQJWKHKHDWLQJPHGLXPWHPSHUDWXUH
OHYHOVKRXOGEHFKDQJHGVRWKDWWKHHQWLUHUHERLOHULVHLWKHULQWKHQXFOHDWHERLOLQJUHJLPHE\
GHFUHDVLQJ WKH LQOHW WHPSHUDWXUH RU LQ WKH ILOP ERLOLQJ UHJLPH E\ LQFUHDVLQJ WKH RXWOHW
WHPSHUDWXUH
7KHWHPSHUDWXUHGLIIHUHQFHIRUWKHEHJLQQLQJRIILOPERLOLQJLVDYHU\VWURQJIXQFWLRQRI
WKHUHGXFHGSUHVVXUHSSFZKHUHDVWKHWHPSHUDWXUHGLIIHUHQFHIRUWKHHQGRIILOPERLOLQJ
GRHV QRW YDU\VLJQLILFDQWO\7KXV IRUD OLJKW K\GURFDUERQUHERLOLQJ VHUYLFHWKHǻ7 IRUWKH
FRPPHQFHPHQW RI ILOP ERLOLQJ LQFUHDVHV IURP ƒ) ƒ&  WR ƒ) ƒ& WR ƒ)
ƒ& WR ƒ) ƒ& DV WKH SSF UHGXFHV IURP  WR  WR  WR ILQDOO\ 
+RZHYHUWKHFRUUHVSRQGLQJYDOXHVRIǻ7IRUWKHFRPSOHWLRQRIILOPERLOLQJXQGHUJRDIDU
VPDOOHU FKDQJH IURP ƒ) ƒ& WR ƒ) ƒ& WR ƒ) ƒ& WR
ƒ)ƒ&
9HU\ORZǻ7
$YHU\ORZǻ7²OHVVWKDQƒ)ƒ&²LVVRPHWLPHVVSHFLILHGLQRUGHUWRHIIHFWHQHUJ\
HFRQRP\ RU GXH WR SURFHVV OLPLWDWLRQV $V KDV EHHQ VDLG HDUOLHU QXFOHDWH ERLOLQJ KHDW
WUDQVIHUFRHIILFLHQWLVYHU\ORZDWDORZǻ7DQGLVYHU\VHQVLWLYHWRPLFURVFRSLFVXUIDFH
FRQILJXUDWLRQ 7KH PRVW HIIHFWLYH VROXWLRQ LQ VXFK FLUFXPVWDQFHV LV WR HPSOR\ VSHFLDO
SRURXV VXUIDFHV KLJKIOX[ WXEHV ZKLFK DXJPHQW WKH QXFOHDWH ERLOLQJ KHDW WUDQVIHU
FRHIILFLHQWVHYHUDOIROG7KLVLVSURSULHWDU\KDUGZDUHZKLFKQHFHVVLWDWHVWKHGHVLJQWREH
LQWKHYHQGRU
VVFRSH,QIDFWORZǻ7DQGSRURXVERLOLQJVXUIDFHVRIWHQJRKDQGLQKDQG
/RZILQWXEHVDOVRJUHDWO\LPSURYHSHUIRUPDQFHE\YLUWXHRILQFUHDVHGQXFOHDWLRQDQG
WKH H[WHQGHG VXUIDFH +RZHYHU WKH XVH RI WKHVH WXEHV SRURXV VXUIDFH RU ORZILQ WXEHV
VKRXOGEHUHVWULFWHGWRFOHDQERLOLQJIOXLGV

 
7DEOHD6DOLHQWSURFHVVSDUDPHWHUVRIDGLVWLOODWLRQFROXPQUHERLOHUYHUWLFDOWKHUPRV\SKRQ
 6KHOOVLGH 7XEHVLGH

 )OXLGFLUFXODWHG +RWRLO +\GURFDUERQ

 )ORZUDWHOEKNJK  

 )OXLGYDSRUL]HG  

 

 7HPSHUDWXUHLQRXWƒ)ƒ&
 

 2SHUDWLQJSUHVVXUHSVLDNJFPDEV  

 3HUPLWWHGSUHVVXUHGURSSVLNJFP  $VSHU

WKHUPRV\SKRQFLUFXLW

 )RXOLQJUHVLVWDQFHKIWƒ)%WXKPƒ&NFDO  

 +HDWGXW\00%WXK00NFDOK 

 0ROZWYDSRURXW  

 &ULWLFDOSUHVVXUHSVLDNJFPDEV  

 &ULWLFDOWHPSHUDWXUHƒ)ƒ&  

 'HVLJQSUHVVXUHSVLJNJFPJ  

 'HVLJQWHPSHUDWXUHƒ)ƒ&  

 0DWHULDORIFRQVWUXFWLRQ &DUERQVWHHO

 /LQHVL]HLQRXWLQPP  

$ORZǻ7WUDQVODWHVLQWRDORZKHDWIOX[DQGDORZYDSRUL]DWLRQUDWHZKLFKPHDQVWKDW
WKH ³VLSKRQLQJ´ HIIHFW LV VXEGXHG &RQVHTXHQWO\ WKHUPRV\SKRQ UHERLOHUV DUH LQKHUHQWO\
XQVXLWDEOHIRUORZǻ7RSHUDWLRQDQGNHWWOHUHERLOHUVRSHUDWHPXFKEHWWHU
%RLOLQJRQWKHVKHOOVLGH
6LQFHYHUWLFDOWKHUPRV\SKRQUHERLOHUVKDYHDVLQJOHWXEHSDVVWKH\DUHLQYDULDEO\RIIL[HG
WXEHVKHHW FRQVWUXFWLRQ 7KXV WKH\ DUH QRW VXLWDEOH IRU GLUW\ KHDWLQJ PHGLXPV XQOHVV
FKHPLFDOFOHDQLQJFDQEHUHVRUWHGWR
6KRXOG WKH KHDWLQJ PHGLXP EH YHU\ GLUW\ D YHUWLFDO WKHUPRV\SKRQ UHERLOHU FDQ KDYH
ERLOLQJRQWKHVKHOOVLGH+RZHYHUGXHWRWKHSUHVHQFH RIEDIIOHVLQVXFKDFRQVWUXFWLRQLW
EHFRPHVYHU\GLIILFXOWWRVLPXODWHWKHVKHOOVLGHSHUIRUPDQFH7KHXVHRIURGEDIIOHVLVPXFK
EHWWHUVXLWHGWKDQWKDWRIVHJPHQWDOEDIIOHVHVSHFLDOO\VLQJOHVHJPHQWDOEDIIOHVZKLFKFDXVH
YDSRUWUDSSLQJDWWKHEDIIOHURRWV7KHXVHRIYHUWLFDOWKHUPRV\SKRQUHERLOHUVKDYLQJERLOLQJ
RQWKHVKHOOVLGHLVH[WUHPHO\UDUH
7KH IHDWXUHV RI YHUWLFDO WKHUPRV\SKRQ UHERLOHUV WKDW KDYH MXVW EHHQ GLVFXVVHG ZLOO EH
GHPRQVWUDWHGE\WZRFDVHVWXGLHV

&$6(678'<',67,//$7,21&2/8015(%2,/(5
9(57,&$/7+(5026<3+21
7KH SULQFLSDO SURFHVV SDUDPHWHUV RI D YHUWLFDO WKHUPRV\SKRQ UHERLOHU DUH HODERUDWHG LQ
7DEOH D %HLQJ D YHUWLFDO WKHUPRV\SKRQ D IL[HGWXEHVKHHW FRQVWUXFWLRQ ZDV WR EH
HPSOR\HG7XEHVZHUHWREHHLWKHULQPP2'DQGLQPPWKLFN

 
 7DEOHE7KHUPDOGHVLJQRIGLVWLOODWLRQFROXPQUHERLOHUYHUWLFDOWKHUPRV\SKRQ
 5XQ 5XQ 5XQ 5XQ 5XQ
%DVHGHVLJQ ZLWK ZLWK ZLWKIXUWKHU ZLWKVWLOO
ZLWK LQ UHGXFHG UHGXFHG IXUWKHU
LQPP PP KRWRLO KRWRLO UHGXFHGKRW
2'WXEHV 2'WXEHV WHPS WHPS RLOWHPS
 +RWRLOIORZUDWH     
OEKNJK     
     
 +RWRLOWHPSLQRXW     
ƒ)ƒ&     
 
 &LUFXODWLRQ     
OEKNJK     
 +\GUR
FDUERQ 
YDSRUL]HG     

 6KHOO,'LQPP     
 1RRIWXEHV     
 
 7XEH2'îWKLFNQHVV î î
LQPP  
    
 7XEHOHQJWKIWPP
    
 'ULYLQJKHDGLQPP

 +HDWWUDQVIHUDUHDIWP    
 +HDW +RWRLO     
WUDQVIHU +\GUR
FRHIILFLHQW FDUERQ     
%WXKIWƒ)
NFDOKPƒ& 2YHUDOO     
    
 07'ƒ)ƒ&     
 2YHUGHVLJQ     
 %RWWRP )LOP )LOP %XEEOH %XEEOH %XEEOH
 )ORZUHJLPH 0LGGOH )LOP )LOP )LOP %XEEOH %XEEOH
7RS )LOP )LOP )LOP )LOP 6OXJ
 <HVIXOO\ <HVIXOO\ 1RSDUWLDO 1RSDUWLDO <HVIXOO\
 'HVLJQDFFHSWDEOH ILOPERLOLQJ ILOPERLOLQJ ILOPERLOLQJ ILOPERLOLQJ QXFOHDWH
ERLOLQJ

RULQPP2'DQGLQPPWKLFN

6LQFHXVHRIVPDOOHUGLDPHWHUWXEHVOHDGVWRDFKHDSHUGHVLJQDILUVWGHVLJQZDVPDGH
ZLWKLQPP 2'WXEHV7KHUHVXOWVDUHVKRZQ LQ7DEOHEUXQ7KH PRVW
VWULNLQJDVSHFWRIWKLVGHVLJQLVWKDWWKHHQWLUHUHERLOHULVLQWKHILOPERLOLQJUHJLRQGXHWKH
YHU\KLJKWHPSHUDWXUHGLIIHUHQFHEHWZHHQWKHKHDWLQJPHGLXPDQGWKHERLOLQJIOXLG$VKDV
EHHQ VWDWHG HDUOLHU ZKLOH WKHUH LV QRWKLQJ ZURQJ ZLWK D ILOP ERLOLQJ GHVLJQ D GHVLJQHU
DOZD\VSUHIHUVWR KDYHD QXFOHDWHERLOLQJ GHVLJQDVLW XVXDOO\ OHDGVWRD PRUH HFRQRPLFDO
GHVLJQ%HVLGHVILOPERLOLQJFDQUHVXOWLQKHDYLHUIRXOLQJDQGKRWVSRWSUREOHPV
$V KDV DOVR EHHQ VWDWHG HDUOLHU RQH ZD\ WR DOWHU WKH RSHUDWLRQ RI D WKHUPRV\SKRQ
 
UHERLOHUIURPILOPERLOLQJWRQXFOHDWHERLOLQJLVWRLQFUHDVHWKHWXEHGLDPHWHUDVLWSURYLGHV
PRUH IORZ DUHD RQ WKH WXEHVLGH IRU D JLYHQ KHDW WUDQVIHU DUHD DQG D JLYHQ WXEH OHQJWK
$FFRUGLQJO\ LQ UXQ  LQ PP 2' DQG LQ PP WKLFN WXEHV ZHUH
XVHG)XUWKHUWKHWXEHOHQJWKZDVUHGXFHGIURPIWPPWRIWPP
+RZHYHULWZDVGLVFRYHUHGWKDWWKHUHERLOHUVWLOOUHPDLQHGLQWKHILOPERLOLQJPRGH7KLVOHG
WRWKHFRQFOXVLRQWKDWWKHH[LVWLQJǻ7ZDVWRRKLJKWRSHUPLWQXFOHDWHERLOLQJ
7KHQH[WUXQUXQZDVWDNHQZLWKDUHGXFHGKRWRLOLQOHWWHPSHUDWXUHƒ)ƒ&
LQVWHDGRIƒ)ƒ&7KHUHZHUHWZRVLJQLILFDQWFKDQJHV
 7KH UHERLOHU ZHQW SDUWO\ LQWR WKH QXFOHDWH ERLOLQJ UHJLPH DW WKH LQOHW RI WKH
UHERLOHU DQG DV D GLUHFW FRQVHTXHQFH WKH ERLOLQJ KHDW WUDQVIHU FRHIILFLHQW
LQFUHDVHGIURP%WXKIWƒ)NFDOKPƒ&LQUXQWR%WXKIW
ƒ)NFDOKPƒ&7KHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWLQFUHDVHGIURP
%WXK IW ƒ)  NFDOK P ƒ& WR  %WXK IW ƒ)  NFDOK P ƒ& DQ
LQFUHDVHRI
 7KH07'UHGXFHGIURPƒ)ƒ&WRƒ)ƒ&DVWHHS IDOO RI
DERXW
6LQFH WKH IDOO LQ WKH 07' ZDV PXFK JUHDWHU WKDQ WKH ULVH LQ WKH RYHUDOO KHDW WUDQVIHU
FRHIILFLHQWWKHKHDWWUDQVIHUDUHDZDVKLJKHUDWIWPDVFRPSDUHGWRWKH
IWPRIWKHSUHYLRXVGHVLJQ
+RZHYHUDV H[SODLQHG HDUOLHUWKLV GHVLJQ LV QRWDFFHSWDEOHEHFDXVH LW LV SDUWO\ LQWKH
QXFOHDWHERLOLQJUHJLPHDQGSDUWO\LQWKHILOPERLOLQJUHJLPH
5XQZDVWDNHQZLWKDIXUWKHUGHFUHDVHLQWKHKRWRLOLQOHWWHPSHUDWXUHGRZQWRƒ)
ƒ&+HUHDJUHDWHUSDUWRIWKHUHERLOHUZDVLQWKHQXFOHDWHERLOLQJUHJLPHEXWVLQFH
SDUWILOPERLOLQJVWLOOH[LVWHGDWWKHRXWOHWRIWKHUHERLOHUWKHGHVLJQZDVVWLOOQRWDFFHSWDEOH
)LQDOO\LQUXQDWRWDOO\QXFOHDWHERLOLQJGHVLJQFRXOGEHSURGXFHGZLWKDKRWRLOLQOHW
WHPSHUDWXUH RIƒ)ƒ& $OWKRXJK WKH RYHUDOOKHDWWUDQVIHU FRHIILFLHQW LQFUHDVHG
DSSUHFLDEO\WKH07'KDGSOXPPHWHGWRƒ)ƒ&+HQFHWKHKHDWWUDQVIHUDUHDZHQW
XSWRIWPFRQVLGHUDEO\KLJKHUWKDQWKHIWPLQWKHRULJLQDOILOP
ERLOLQJGHVLJQ
,WZDVIHOWSUXGHQWWRUHWDLQWKHRULJLQDOGHVLJQGXHWRWKHIROORZLQJ
D ,WZDVPXFKFKHDSHU
E 7RWDOO\ ILOP ERLOLQJ GHVLJQ LV SHUIHFWO\ DFFHSWDEOH IRU WKLV DSSOLFDWLRQ DV WKH
WHPSHUDWXUHOHYHOLVQRWKLJKHQRXJKIRUKRWVSRWVWRRFFXUDQGWKHERLOLQJIOXLGLV
FOHDQHQRXJKWRSUHFOXGHDQ\KHDY\IRXOLQJ
,IILOPERLOLQJZHUHQRWDFFHSWDEOHLWZRXOGKDYHEHFRPHQHFHVVDU\WRPRGLI\WKHKRWRLO
FLUFXLWLQRUGHUWRUHGXFHWKHKRWRLOLQOHWWHPSHUDWXUHWRWKHUHERLOHU
7KH DERYH H[DPSOH GHPRQVWUDWHV WKH QXDQFHV RI WKH ERLOLQJ PRGH LQ D YHUWLFDO
WKHUPRV\SKRQUHERLOHUYLVjYLVVRPHNH\RSHUDWLQJYDULDEOHV
7KHUHDGHUPD\DVNKHUHDVWRZK\WKHKRWRLOLQOHWWHPSHUDWXUHZDVVRKLJKLQWKHILUVW
SODFH7KHDQVZHULVWKDWWKHUHPXVWKDYHEHHQRWKHUXVHUVLQWKHSODQWZKLFKZHUHWRRSHUDWH
DW D PXFK KLJKHU WHPSHUDWXUH OHYHO +RZHYHU ZKHQ WZR RU PRUH XVHUV RSHUDWH DW UDWKHU
GLIIHUHQWWHPSHUDWXUHVDVXLWDEOHVHULHVSDUDOOHOKRWRLODUUDQJHPHQWLVXVXDOO\LPSOHPHQWHG
VRWKDWWKHǻ7LVRSWLPXPLQDOOWKHXVHUV
$VLJQLILFDQW REVHUYDWLRQWREH PDGH KHUH LVWKDWD KLJK KHDWLQJ PHGLXP KHDWWUDQVIHU
FRHIILFLHQWVXFKDVZLWKVWHDPRUKRWZDWHUUHVXOWVLQDKLJKHUWXEHZDOOWHPSHUDWXUHDQG
WKHUHE\ D KLJKHU ǻ7 DFURVV WKH ERLOLQJ ILOP 7KLV LQIOXHQFHV WKH ERLOLQJ KHDW WUDQVIHU

 
 7DEOHD6DOLHQWSURFHVVSDUDPHWHUVRIDGLVWLOODWLRQFROXPQUHERLOHUYHUWLFDOWKHUPRV\SKRQ
 6KHOOVLGH 7XEHVLGH
)OXLGFLUFXODWHG +36WHDP +\GURFDUERQ
)ORZUDWHOEKNJK  
)OXLGYDSRUL]HGOEKNJK  

 

7HPSHUDWXUHLQRXWƒ)ƒ&

2SHUDWLQJSUHVVXUHSVLDNJFP DEV  

$VSHU
3HUPLWWHGSUHVVXUHGURSSVLNJFP 
WKHUPRV\SKRQFLUFXLW
)RXOLQJUHVLVWDQFHKIWƒ)%WX
KPƒ&NFDO  

+HDWGXW\%WXKNFDOK 

0ROZWYDSRURXW  
&ULWLFDOSUHVVXUHSVLDNJFPDEV  
&ULWLFDOWHPSHUDWXUHƒ)ƒ&  

'HVLJQSUHVVXUHSVLJNJFP J  
'HVLJQWHPSHUDWXUHƒ)ƒ&  
0DWHULDORIFRQVWUXFWLRQ &DUERQVWHHO
/LQHVL]HLQRXWLQPP  

FRHIILFLHQWGHSHQGLQJXSRQWKHSRVLWLRQRIWKHLQLWLDORSHUDWLQJSRLQWRQWKHKHDWIOX[YHUVXV
ǻ7FXUYH)RUH[DPSOHLIDQLQLWLDORSHUDWLQJSRLQWLVLQWKHORZHUQXFOHDWHERLOLQJUHJLPHLW
LVSRVVLEOHWRLQFUHDVHWKHERLOLQJKHDWWUDQVIHUFRHIILFLHQWVLJQLILFDQWO\E\LQFUHDVLQJWKHKHDW
WUDQVIHUFRHIILFLHQWRIWKHKHDWLQJPHGLXPWKHUHE\LQFUHDVLQJǻ7DFURVVWKHERLOLQJILOP
6WHDPLVWKHSUHIHUUHGKHDWLQJPHGLXPIRUUHERLOHUVDVFRPSDUHGWRKRWRLOEHFDXVHLWLV
PRUHHFRQRPLFDODQGRIIHUVEHWWHUFRQWUROE\WKURWWOLQJ,WLVRQO\ZKHQWKHUHTXLUHGVWHDP
WHPSHUDWXUH DQG WKHUHE\ WKH VWHDP SUHVVXUH EHFRPH H[FHVVLYH WKDW VWHDP KHDWLQJ LV QR
ORQJHU HFRQRPLFDO 7KH XSSHU OLPLW RI D SURFHVV IOXLG WHPSHUDWXUH IRU VWHDP KHDWLQJ LV
XVXDOO\DURXQG±ƒ)±ƒ&VRWKDWVDWXUDWHGVWHDPDWSVLDNJFPDEV
DQGƒ)ƒ&PD\EHXVHG

&$6(678'<',67,//$7,21&2/801/,*+75(%2,/(5
9(57,&$/7+(5026<3+21.(77/(
7KHSULQFLSDOSURFHVVSDUDPHWHUVRIDQRWKHUGLVWLOODWLRQFROXPQUHERLOHUDUHHODERUDWHGLQ
7DEOH D 2QFH DJDLQ EHLQJ D YHUWLFDO WKHUPRV\SKRQ UHERLOHU D IL[HGWXEHVKHHW
FRQVWUXFWLRQZDVWREHHPSOR\HG7XEHVZHUHWREHLQPP2'DQGLQ
PPWKLFN
$ WKHUPDO GHVLJQ ZDV SURGXFHG DQG WKH SULQFLSDO FRQVWUXFWLRQ DQG SHUIRUPDQFH
SDUDPHWHUV DUH GHWDLOHG LQ 7DEOH E +RZHYHU DOWKRXJK WKH GHVLJQ DSSHDUHG WR EH
DFFHSWDEOHWKHIROORZLQJREVHUYDWLRQVZHUHLQWHUHVWLQJ

 
 7DEOHE3ULQFLSDOFRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUVRI
GLVWLOODWLRQFROXPQUHERLOHUYHUWLFDOWKHUPRV\SKRQ
 7\SHRIUHERLOHU 9HUWLFDOWKHUPRV\SKRQ

 6KHOOGLDPHWHULQPP 

 1RRIWXEHVîQRRIWXEHSDVVHV î

 7XEH2'î%:*îOHQJWKLQPP îPPWKLFNî

 
 (IIHFWLYHKHDWWUDQVIHUDUHDIW P  

 3UHVVXUHGURSSVLJNJFP 6KHOOVLGH 1HJOLJLEOH

7XEHVLGH 

6KHOOVLGH 

 +HDWWUDQVIHUFRHIILFLHQW%WXK
IWƒ)NFDOKPƒ& 7XEHVLGH 
2YHUDOO 

 0D[LPXPKHDWIOX[%WXKIWNFDOKP 

 
 'HVLJQKHDWIOX[%WXKIW NFDOKP  

 07'ƒ)ƒ& 

 2YHUGHVLJQ 

D $VDWLVIDFWRU\GHVLJQFRXOGQRWEHSURGXFHGZLWKWKHVSHFLILHGLQPP
2'WXEHVEHFDXVHDSDUWRIWKHUHERLOHU ZRXOGEH LQWKH QXFOHDWHERLOLQJ PRGH
DQG WKH EDODQFH LQ WKH ILOP ERLOLQJ PRGH 7KH WXEH RXWVLGH GLDPHWHU KDG WR EH
LQFUHDVHGWRLQPP
E 7KH PD[LPXP KHDW IOX[ ZDV  %WXK IW  NFDOK P ZKHUHDV WKH
GHVLJQKHDWIOX[ZDV%WXKIWNFDOKP
F $OWKRXJKWKHUHERLOHUZDVHQWLUHO\LQWKHQXFOHDWHERLOLQJUHJLPHDQ\DWWHPSWWR
UHGXFHWKHKHDWWUDQVIHUDUHDHLWKHUE\UHGXFLQJWKHQXPEHURIWXEHVRUWKHWXEH
OHQJWKUHVXOWHGLQSDUWRIWKHWXEHVJRLQJWRILOPERLOLQJ
G 7KH ǻ7 IRU WKH FRPPHQFHPHQW RI ILOP ERLOLQJ ZDV ƒ&DQG ǻ7DW WKH LQOHW
HQGERWWRPRIWKHUHERLOHUZDVYHU\FORVHWRLW
H 7KXVWKHVLWXDWLRQDSSHDUHGWREHH[WUHPHO\VHQVLWLYHVRWKDWPLQRUGLIIHUHQFHV
LQWKHRSHUDWLQJFRQGLWLRQVFRXOGHDVLO\UHVXOWLQSHUIRUPDQFHXSVHWV
I )LQDOO\WKHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWZDVUDWKHUORZDW%WXKIW ƒ)
NFDOKP ƒ&VRWKDWWKHUHTXLUHGKHDWWUDQVIHUDUHDZDVUDWKHUKLJKDW
IWP
,W ZDV IHOW WKDW D YHUWLFDO WKHUPRV\SKRQ GHVLJQ IRU WKLV VHUYLFH ZDV QRW DFFHSWDEOH
7KHUHDIWHU WKH HQWLUH SURFHVV VLPXODWLRQ ZDV UHYLVHG EDVHG XSRQ D NHWWOH W\SH UHERLOHU
7KHVDOLHQWSURFHVVSDUDPHWHUVRIWKHNHWWOHW\SHUHERLOHUDUHJLYHQLQ7DEOHF
,WZLOOEHQRWLFHGWKDWWKHKHDWGXW\ZDVHVVHQWLDOO\WKHVDPH7KHK\GURFDUERQRSHUDWLQJ
SUHVVXUHZDVLGHQWLFDOEXWVLQFHLWVFRPSRVLWLRQZDVGLIIHUHQWOLJKWHUGXHWRWKHGLIIHUHQW
RSHUDWLRQ LWV WHPSHUDWXUH OHYHO ZDV PXFK ORZHU 6XSHUKHDWHG VWHDP ZDV DYDLODEOH DW 
SVLDNJFPDEVDQGƒ)ƒ&WKHVDWXUDWLRQWHPSHUDWXUHEHLQJƒ)ƒ&
7KH FRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUV RIWKH NHWWOH GHVLJQDUHVKRZQ LQ7DEOH
 
 7DEOHF6DOLHQWSURFHVVSDUDPHWHUVRIGLVWLOODWLRQFROXPQUHERLOHUNHWWOHUHERLOHU
+HDWGXW\00%WXK00NFDOK 

 )ORZUDWHOEKNJK 


 3UHVVXUHSVLDNJFP DEV 
+\GURFDUERQ )UDFWLRQYDSRUL]HG 
 %RWWRPGUDZRIIOEKNJK 
 7HPSLQRXWƒ)ƒ& 

6WHDP 3UHVVXUHSVLDNJFP DEV 
7HPSHUDWXUHLQRXWƒ)ƒ& 

G7KH KHDWWUDQVIHUDUHDUHGXFHG IURP  IW PWRIW P GXH WRD
YHU\ODUJHLQFUHDVHLQWKH07'E\YLUWXHRIWKHUHYLVHGERLOLQJWHPSHUDWXUHDQGD
YHU\ODUJHLQFUHDVHLQWKHRYHUDOOKHDWWUDQVIHUFRHIILFLHQW7KHUDWLRRIWKHGHVLJQWR
PD[LPXPKHDWIOX[ZDVDVDJDLQVWLQWKHYHUWLFDOWKHUPRV\SKRQUHERLOHUGHVLJQ
LQGLFDWLQJDPXFKPRUHVWDEOHGHVLJQ7KHNHWWOHGHVLJQZDVDGRSWHG

)RUFHGIORZUHERLOHUV
,Q VSHFLDO VLWXDWLRQV LW EHFRPHV SUXGHQW WR VXSSUHVV YDSRUL]DWLRQ HJ IRXOLQJ OLTXLGV
KDYLQJDUDWKHUKLJKYLVFRVLW\ RUDZLGHERLOLQJ PL[WXUHRSHUDWLQJDWDORZSUHVVXUH,Q
WKH IRUPHU WKH KHDW WUDQVIHU FRHIILFLHQW FRXOG EH LQRUGLQDWHO\ ORZ DQG LQ WKH ODWWHU WKH
UHGXFWLRQ LQ 07' GXH WR WKH KHDG RI OLTXLG FRXOG EH GUDPDWLF ,Q VXFK VLWXDWLRQV LW LV
RIWHQEHWWHUWRKDYHQRYDSRUL]DWLRQE\KDYLQJDSXPSFLUFXODWHWKHOLTXLGDWDKLJKFLUFX
ODWLRQUDWHDQGDWDSUHVVXUHDERYHVDWXUDWLRQ)LJ7KHOLTXLGLVVHQVLEO\KHDWHGDQG
7DEOHG3ULQFLSDOFRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUVRI
GLVWLOODWLRQFROXPQUHERLOHUNHWWOHUHERLOHU
 7\SHRIUHERLOHU .HWWOH

 6KHOOSRUWGLDPHWHULQPP 

 1RRIWXEHVîQRRIWXEHSDVVHV 8¶Vî

 7XEH2'î%:*îVWUDLJKWOHQJWKIWPP îî

 
 +HDWWUDQVIHUDUHDIW P  

 3UHVVXUHGURSSVLNJFP 6KHOOVLGH 1HJOLJLEOH

7XEHVLGH 1HJOLJLEOH

 6KHOOVLGH 

 +HDWWUDQVIHUFRHIILFLHQW 7XEHVLGH 
%WXKIWƒ)NFDOKPƒ&
2YHUDOO 

 0D[LPXPKHDWIOX[%WXKIWNFDOKP 

 
 'HVLJQKHDWIOX[%WXKIW NFDOKP  

 07'ƒ)ƒ& 

 2YHUGHVLJQ 

 
WKHQ IODVKHG DFURVV D YDOYH MXVW EHIRUH
HQWU\ LQWR WKH GLVWLOODWLRQ FROXPQ
(YLGHQWO\ YHU\ ODUJH IORZUDWHVKDYHWR
EHFLUFXODWHGDVRQO\VHQVLEOHKHDW²DQG
QRODWHQWKHDW²LVLPSDUWHG
7KXV WKHVH ³UHERLOHUV´ DUH MXVW OLNH
RUGLQDU\ VLQJOHSKDVH KHDW H[FKDQJHUV
DQG WKH VDPH FRUUHODWLRQV DSSO\ 7KH
FROXPQ ERWWRP FRXOG EH HLWKHU RQ WKH
VKHOOVLGH RU RQWKHWXEHVLGHDV H[SODLQHG
LQ&KDSWHU
7KH GLVDGYDQWDJH RIWKLVW\SH RI³UH 
ERLOHU´LVWKHDGGLWLRQDOFRVWRIWKHSXPS )LJ)RUFHGIORZUHERLOHU&RXUWHV\RI+75,
DQG WKH KLJK RSHUDWLQJ FRVW&RQVHTXHQW
O\WKHVHDUHJHQHUDOO\SUHIHUUHGDQGHPSOR\HGRQO\LQWKHVSHFLDOVLWXDWLRQVGHVFULEHGDERYH

&$6(678'<',67,//$7,21&2/8015(%2,/(5
9(57,&$/7+(5026<3+21)25&(')/2:
$GLVWLOODWLRQFROXPQUHERLOHUZDVWREHGHVLJQHGIRUDSHWURFKHPLFDOSODQW7KHSULQFLSDO
SURFHVV SDUDPHWHUV DUH IXUQLVKHG LQ 7DEOH D ,W PD\ EH QRWLFHG WKDW WKH RSHUDWLQJ

7DEOHD6DOLHQWSURFHVVSDUDPHWHUVRIGLVWLOODWLRQFROXPQUHERLOHU
YHUWLFDOWKHUPRV\SKRQIRUFHGIORZUHERLOHU
 6KHOOVLGH 7XEHVLGH

 )OXLGFLUFXODWHG 6WHDP 'LVWLOODWLRQ&ROXPQ

%RWWRPV

 )ORZUDWHOEKNJK  

 )OXLGYDSRUL]HG  

 7HPSHUDWXUHLQRXWƒ)ƒ&  

 

 2SHUDWLQJSUHVVXUHSVLDNJFPDEV  

 3HUPLWWHGSUHVVXUHGURSSVLNJFP  $VSHU

WKHUPRV\SKRQFLUFXLW

 )RXOLQJUHVLVWDQFHKIWƒ)%WXKPƒ&NFDO  

 +HDWGXW\00%WXK00NFDOK 

 0ROZWYDSRURXW  

 &ULWLFDOSUHVVXUHSVLDNJFPDEV  

 &ULWLFDOWHPSHUDWXUHƒ)ƒ&  

 'HVLJQSUHVVXUHSVLJNJFPJ  

 'HVLJQWHPSHUDWXUHƒ)ƒ&  

 0DWHULDORIFRQVWUXFWLRQ &6 66

 /LQHVL]HLQRXWLQPP  

 
 7DEOHE3ULQFLSDOFRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUV
RIGLVWLOODWLRQFROXPQUHERLOHUYHUWLFDOWKHUPRV\SKRQIRUFHGIORZUHERLOHU

 7\SHRIUHERLOHU 9HUWLFDO 6XSSUHVVHG

WKHUPRV\SKRQ YDSRUL]DWLRQ

 6KHOOGLDPHWHULQPP  

 1RRIWXEHVîQRRIWXEHSDVVHV îRQH î

 7XEH2'î%:*îOHQJWKIWPP îî

 (IIHFWLYHKHDWWUDQVIHUDUHDIWP  

 7XEHVLGHLQOHWOLTXLGYHORFLW\IWVPV  

 3UHVVXUHGURSSVLNJFP 6KHOOVLGH 1HJOLJLEOH QHJOLJLEOH

7XEHVLGH 1HJOLJLEOH 

 6KHOOVLGH  

VSHFLILHG VSHFLILHG
 +HDWWUDQVIHUFRHIILFLHQW
%WXKIWƒ)NFDOKPƒ& 7XEHVLGH  
2YHUDOO  
 
 0D[LPXPKHDWIOX[%WXKIW NFDOKP   

 'HVLJQKHDWIOX[%WXKIWNFDOKP  

 07'ƒ)ƒ&  

 2YHUGHVLJQ 1LO 

SUHVVXUHLVH[WUHPHO\ORZ²SVLDNJFPDEV7KXVWKHUHZLOOEHDVLJQLILFDQW

VXEFRROHGOLTXLGKHDWLQJ]RQHGXHWRWKHHIIHFWRIWKHVWDWLFKHDG
$YHUWLFDOWKHUPRV\SKRQUHERLOHUFRQVWUXFWLRQZDVFRQVLGHUHGILUVW$FRQGHQVLQJVWHDP
KHDWWUDQVIHUFRHIILFLHQWRINFDOKPƒ&ZDVHPSOR\HG7XEHVôLQPP2'
ZHUHIRXQGXQVXLWDEOHDQGLQPP2'WXEHVZHUHXVHG,WZDVIRXQGWKDWWKHGHVLJQ
ZDVYHU\VHQVLWLYHWRWKHOLTXLGGULYLQJKHDGDQGDGHVLJQZDVILQDOL]HGZLWKDWXEHOHQJWKRI
 IW  P DQG D GULYLQJ KHDG RI  IW  P 7KH VDOLHQW FRQVWUXFWLRQ DQG
SHUIRUPDQFHSDUDPHWHUVRIWKLVGHVLJQDUHGHWDLOHGLQ7DEOHE
,WZLOOEHQRWLFHGWKDWWKHERLOLQJKHDWWUDQVIHUFRHIILFLHQWLVUDWKHUORZRQO\%WXK
IWƒ)NFDOKPƒ&7KLVZDVGXHWR
D ODUJHVXEFRROHGKHDWLQJ]RQHGXHWRWKHVWDWLFKHDG
E WKHORZWXEHVLGHOLTXLGYHORFLW\
7KHGHVLJQKHDWIOX[ZDVRQO\%WXKIWNFDOKP
,Q RUGHU WR GHPRQVWUDWH KRZ VHQVLWLYH WKH SHUIRUPDQFH RI WKLV UHERLOHU LV ZLWK OLTXLG
GULYLQJ KHDG 7DEOH F SUHVHQWV WKH SHUIRUPDQFH RI WKLV UHERLOHU ZLWK YDU\LQJ GULYLQJ
KHDGVIWPIWPIWPIWPDQGIWP
7KHIROORZLQJHIIHFWVDUHREVHUYHGZLWKLQFUHDVLQJVWDWLFKHDG
D KLJKHUFLUFXODWLRQDQGORZHUIUDFWLRQYDSRUL]HG
E KLJKHU OLTXLG YHORFLW\ DW WKH ERWWRP RI WKH UHERLOHU HQWU\ WR WXEHV DV D GLUHFW
UHVXOWRID
F LQFUHDVLQJOHQJWKRIVXEFRROHGOLTXLGKHDWLQJ]RQH
 
 7DEOHF9DULDWLRQLQSHUIRUPDQFHRIGLVWLOODWLRQFROXPQUHERLOHU
ZLWKGULYLQJKHDGYHUWLFDOWKHUPRV\SKRQ
 'ULYLQJKHDGIWP
    
 +HDWGXW\00%WXK00     
NFDOK
 /LTXLGFLUFXODWLRQ     
OEKNJK     
 :HLJKWIUDFWLRQYDSRUL]HG     
 %RLOLQJKHDWWUDQVIHU
    
FRHIILFLHQW%WXKIWƒ)
NFDOKPƒ&

 2YHUDOOKWFNFDOKPƒ&     

 07'ƒ)ƒ&     
 /HQJWKRIOLTXLGKHDWLQJ     
]RQHIWP     
 %RWWRP VOXJ EXEEOH EXEEOH EXEEOH EXEEOH
 %RLOLQJ 0LGGOH VOXJ VOXJ 6OXJ VOXJ VOXJ
UHJLPH
7RS DQQXODU DQQXODU DQQXODU DQQXODU VOXJ
 /LTXLGYHORFLW\DWWXEHLQOHW     
IWVPV     

G GHFUHDVLQJERLOLQJKHDWWUDQVIHUFRHIILFLHQWGXHWRF
$ORZHUKHDGZDVIRXQGWREHFDSDEOHRIWUDQVIHUULQJDKLJKHUKHDWGXW\+RZHYHUVLQFH
WKH KHDW GXW\ LV IL[HG WKLV ZLOO WUDQVODWH LQWR D ORZHU KHDW WUDQVIHU DUHD +RZHYHU WKH
IUDFWLRQ YDSRUL]HG ZDV VLJQLILFDQWO\ KLJKHU DQG ZRXOG WKHUHE\ FDXVH PRUH VHYHUH
IRXOLQJ7KXVDVWDWLFKHDGRIIWPZDVFRQVLGHUHGWREHRSWLPXP
+RZHYHUHYHQWKLVGHVLJQZDVQRWFRQVLGHUHGYHU\DSSURSULDWHLQYLHZRIWKHH[WUHPHO\
ORZ OLTXLG YHORFLW\ ZKLFK ZRXOG UHVXOW LQ KHDY\ IRXOLQJ $Q DOWHUQDWH GHVLJQ HPSOR\LQJ
³VXSSUHVVHGYDSRUL]DWLRQ´ZDVH[DPLQHGXVLQJLQPP2'WXEHV7KHERWWRPVFLU
FXODWLRQZDVIL[HGDWOEKNJKZKLFKFRUUHVSRQGHGWRDQRXWOHWWHPSHUD
WXUHRIƒ)ƒ&7KHVDOLHQWFRQVWUXFWLRQSDUDPHWHUVDUHIXUQLVKHGLQ7DEOHE
,W ZLOO EH QRWLFHG WKDW GXH WR WKH FRQVLGHUDEOH LQFUHDVH LQ WKH WXEHVLGH KHDW WUDQVIHU
FRHIILFLHQWWKHKHDWWUDQVIHUDUHDUHGXFHGIURPIWPWRIWP(YHQ
PRUH VLJQLILFDQW LV WKH KLJK WXEHVLGH YHORFLW\ RI  IWV  PV ZKLFK ZLOO PLQLPL]H
IRXOLQJ,WLVWUXHWKDWWKHSXPSLQJFRVWZLOOEHKLJKEXWWKHWRWDORSHUDWLQJFRVWPD\DFWXDOO\
EH OHVV LQ YLHZ RIWKH GLPLQLVKHG IRXOLQJ,W ZDV ILQDOO\ GHFLGHGWRDGRSWWKH³VXSSUHVVHG
YDSRUL]DWLRQ´ GHVLJQ $OWKRXJK D YHUWLFDO GLVSRVLWLRQ FDQ EH DGRSWHG D KRUL]RQWDO
GLVSRVLWLRQZLOOEHEHWWHUIRUHDVHRIPDLQWHQDQFH

6HOHFWLRQRI5HERLOHUV
1RZ WKDW WKH SULQFLSDO IHDWXUHV DGYDQWDJHV DQG GLVDGYDQWDJHV RI WKH YDULRXV W\SHV RI
GLVWLOODWLRQ FROXPQ UHERLOHUV KDYH EHHQ HODERUDWHG ZH DUH LQ D SRVLWLRQ WR GLVFXVV WKH
PHWKRGRORJ\RIVHOHFWLRQRIDUHERLOHUW\SHIRUYDULRXVDSSOLFDWLRQVDQGVLWXDWLRQV
 
 6LQFHWKHUHDUHVHYHUDOSDUDPHWHUVEDVHGXSRQZKLFKWKHVHOHFWLRQPXVWEHPDGHDQG
VLQFHVRPHRIWKHPPD\EHLQGLFDWHGIRUDSDUWLFXODUW\SHDQGRWKHUVFRQWUDLQGLFDWHGIRUWKH
VDPHW\SHDQRSWLPXPVHOHFWLRQPXVWEHPDGHLQPDQ\VLWXDWLRQV,QRWKHUZRUGVWKHW\SH
WKDWVFRUHVWKHPD[LPXPSRLQWVIRUDOOWKHSDUDPHWHUVVKRXOGEHDGRSWHG7KLVLVVLPLODUWR
WKHVHOHFWLRQRIVLGHVVKHOOVLGHDQGWXEHVLGHGHVFULEHGLQ&KDSWHU,WPXVWEHKLJKOLJKWHG
KHUH WKDW LW LV WKH WRWDO FRVW IL[HG FRVW SOXV RSHUDWLQJ FRVW WKDW GHWHUPLQHV WKH RSWLPXP
VHOHFWLRQ+RZHYHUVDWLVIDFWRU\RSHUDWLRQLVDYHU\LPSRUWDQWSUHUHTXLVLWHDQGPXVWQHYHUEH
FRPSURPLVHGLQWKHVHOHFWLRQSURFHVV
6LQFH NHWWOHV DQG LQWHUQDO UHERLOHUV DUH LGHQWLFDO LQ IHDWXUHV DQG RSHUDWLRQ FRPPHQWV
PDGHEHORZIRUNHWWOHVDSSO\WRLQWHUQDOUHERLOHUVWRRXQOHVVRWKHUZLVHQRWHG
 )RXOLQJWHQGHQF\
'LUW\IOXLGVDUHEHWWHUKDQGOHGLQYHUWLFDOWKHUPRV\SKRQVDVIRXOLQJLVPLQLPL]HG
DQGFOHDQLQJ RIWKHIRXOHG GHSRVLWVLV HDVLHU.HWWOHUHERLOHUVDUHWKH ZRUVWW\SH
IRUGLUW\VHUYLFHV
 0L[WXUHERLOLQJUDQJH
)RUZLGHERLOLQJPL[WXUHVWKHUPRV\SKRQUHERLOHUVDUHEHVWEHFDXVHZLWKNHWWOHV
WKHUH LV D GUDVWLF UHGXFWLRQ LQ WKH 07' +RUL]RQWDO WKHUPRV\SKRQV VFRUH RYHU
YHUWLFDOWKHUPRV\SKRQV)RUYHU\ZLGHERLOLQJPL[WXUHVKRZHYHUDVXSSUHVVHG
YDSRUL]DWLRQGHVLJQEHFRPHVIDYRUDEOH
 2SHUDWLQJSUHVVXUH
$W ORZ SUHVVXUH YDFXXP DQG DW KLJK SUHVVXUHV QHDU FULWLFDO YHUWLFDO WKHUPR
V\SKRQV DUH VHYHUHO\ OLPLWLQJ +RUL]RQWDO WKHUPRV\SKRQV DUH EHWWHU EXW NHWWOHV
DUH EHVW ,Q H[WUHPH VLWXDWLRQV IRUFHGIORZ UHERLOHUV DUH UHTXLUHG WR EH
HPSOR\HG
 7HPSHUDWXUHGLIIHUHQFH
$W KLJK ǻ7 ZKHUH WKH SRVVLELOLW\ RI ILOP ERLOLQJ LV KLJK NHWWOHV DUH WKH EHVW
9HUWLFDOWKHUPRV\SKRQVVKRXOGEHDYRLGHG

6WDUW8SRI5HERLOHUV
:KHQ D FOHDQ UHERLOHU LV VWDUWHG XS LW LV RYHUVXUIDFHG VLQFH WKHUH LV QR IRXOLQJ
&RQVHTXHQWO\WKHǻ7DFURVVWKHERLOLQJILOPZLOOEHKLJKHUWKDQWKDWGHVLJQHGIRUDQGVR
ZLOOEHWKHKHDWIOX[1RUPDOO\WKLVVKRXOGSRVHQRSUREOHPDVWKHUHERLOHUZLOOWHQGWR
GHOLYHUDODUJHUKHDWGXW\+RZHYHUDVSRLQWHGRXWHDUOLHUWKHRSHUDWLQJSRLQWPD\VKLIW
IURPVWDEOHQXFOHDWHERLOLQJWRXQVWDEOHQXFOHDWHERLOLQJZKHQFHWKHUHPD\EHDUHGXFWLRQ
LQSHUIRUPDQFH&RQVHTXHQWO\LWLVDOZD\VDGYLVDEOHWRVWDUWXSUHERLOHUVJUDGXDOO\
,IWKHKHDWLQJPHGLXPLVVWHDPRUDQ\RWKHUFRQGHQVLQJPHGLXPUHGXFWLRQRISUHVVXUH
RIIHUV H[FHOOHQW FRQWURO $ FRQWURO YDOYH GHFUHDVHV WKH IORZ UDWH DQG VDWXUDWLRQ SUHVVXUH
&RQVHTXHQWO\WKHVDWXUDWLRQWHPSHUDWXUHDQGWKH07'UHGXFHWRWKHGHVLUHGH[WHQW7KLVLV
WKHPRVWSUHIHUUHGPHWKRGRIFRQWURO
,QVRPHFDVHVWKHUHTXLVLWHSUHVVXUHGURSDFURVVDFRQWUROYDOYHLVQRWDYDLODEOH,QVXFK
FDVHV WKH FRQGHQVDWH IORZ LV SLQFKHG VR DV WR IORRG WKH ERWWRP SDUW RI WKH VKHOO WKHUHE\
UHGXFLQJ WKH HIIHFWLYH KHDW WUDQVIHU DUHD DQG RIIHULQJ WKH UHTXLUHG FRQWURO +RZHYHU WKLV
PHWKRGKDVGLVDGYDQWDJHVDQGVKRXOGRQO\EHHPSOR\HGDVDODVWUHVRUW
,IWKH KHDWLQJ PHGLXP LVDVHQVLEOH OLTXLG IORZ LVE\SDVVHGDURXQG WKHUHERLOHU7KLV
RIIHUVDWZRIROGFRQWUROE\UHGXFLQJDWKHKHDWLQJPHGLXPKHDWWUDQVIHUFRHIILFLHQWDQGE

 
WKH07'DVWKHRXWOHWWHPSHUDWXUHRIWKHKHDWLQJPHGLXPUHGXFHV$GLVDGYDQWDJHZLWKWKLV
PHWKRGLVWKHDFFHOHUDWHGIRXOLQJFDXVHGE\WKHUHGXFHGWXEHVLGHYHORFLW\

5HIHUHQFHV
>@ 6OROH\$:³3URSHUO\'HVLJQ7KHUPRV\SKRQ5HERLOHUV´&KHPLFDO(QJLQHHULQJ
3URJUHVV0DUFKSS²
>@ 0DUWLQ*5DQG6OROH\$:³(IIHFWLYHO\'HVLJQDQG6LPXODWH7KHUPRV\SKRQ
5HERLOHU6\VWHPV´+\GURFDUERQ3URFHVVLQJ-XO\SS²
>@ 0F&DUWK\$-³5HERLOHU6\VWHP'HVLJQ7KH7ULFNVRIWKH7UDGH´&KHPLFDO
(QJLQHHULQJ3URJUHVV0D\SS²

)XUWKHU5HDGLQJ
 +HZLWW*)+HDW([FKDQJHU'HVLJQ+DQGERRN%HJHOO+RXVH,QF1HZ<RUN
 /RYH'/³1R+DVVOH5HERLOHU6HOHFWLRQ´+\GURFDUERQ3URFHVVLQJ2FWUSS²
 <LOPD]6%³+RUL]RQWDO6KHOOVLGH7KHUPRV\SKRQ5HERLOHUV´&KHPLFDO(QJLQHHULQJ
3URJUHVV1RYSS
 7KRPH-5>@³5HERLOHUVZLWK(QKDQFHG%RLOLQJ7XEHV´+HDW7UDQVIHU(QJLQHHULQJ
SS²

 
 

 
 &+$37(5

3K\VLFDO3URSHUWLHVDQG
+HDW5HOHDVH3URILOHV

7KHLPSRUWDQFHRIIHHGLQJDXWKHQWLFSK\VLFDOSURSHUWLHVFDQQRWEHRYHUHPSKDVL]HG7KH
DXWKRU KDV VHHQ QXPHURXV LQVWDQFHV ZKHUHLQ WKH IHHGLQJ RI LQFRUUHFW SURSHUWLHV KDV
SURGXFHG LQFRUUHFWUHVXOWV%HVLGHVSK\VLFDOSURSHUWLHVWKHPVHOYHV KHDWUHOHDVHSURILOHV
DUHDOVRYHU\LPSRUWDQWDQGPXVWEHIHGDFFXUDWHO\DQGPHDQLQJIXOO\LQRUGHUWRSURGXFH
UHDOLVWLFDQGFRQVLVWHQWUHVXOWV
,WPXVWEHVWDWHGKHUHWKDWZKHQWKHIHHGLQJRIDQLQFRUUHFWSK\VLFDOSURSHUW\SURGXFHV
DQDEVXUGRUH[DJJHUDWHGKHDWWUDQVIHUFRHIILFLHQWRUSUHVVXUHGURSWKHH[SHULHQFHGGHVLJQHU
PD\RIWHQEHDEOHWRVHQVHLWEHFDXVHWKHVHYDOXHVZLOOEHZHOOEH\RQGWKHH[SHFWHGUDQJH
%XWQRWVRZLWKWKHLQH[SHULHQFHGRUOHVVH[SHULHQFHGGHVLJQHU&RQVHTXHQWO\LWLVVWURQJO\
UHFRPPHQGHGWKDWWKHLQSXWYDOXHVEHFKHFNHGFDUHIXOO\LQRUGHUWRHOLPLQDWHDQ\SUREDELOLW\
RILQFRUUHFWUHVXOWV

3K\VLFDO3URSHUWLHV
3OHDVHUHIHUWR6HFWLRQZKHUHDEULHIGLVFXVVLRQRISK\VLFDOSURSHUWLHVZDVSUHVHQWHG
9LVFRVLW\WKHUPDOFRQGXFWLYLW\VSHFLILFKHDWDQGGHQVLW\DUHWKHIXQGDPHQWDOSURSHUWLHV
IRU VLQJOHSKDVH DSSOLFDWLRQV $GGLWLRQDOO\ IRU FRQGHQVLQJYDSRUL]LQJ VHUYLFHV FULWLFDO
SUHVVXUHFULWLFDOWHPSHUDWXUHDQGVXUIDFHWHQVLRQDOVRDVVXPHVLJQLILFDQFH
,W PXVW EHVWDWHGDWWKH RXWVHWWKDWSK\VLFDOSURSHUWLHVVKRXOG EH IXUQLVKHGDWERWKWKH
LQOHW DQG RXWOHW WHPSHUDWXUHV HVSHFLDOO\ LI WKH GLIIHUHQFH EHWZHHQ WKH WZR WHPSHUDWXUHV LV
KLJK²ZKHQWKHYDOXHVRIWKHVHSURSHUWLHVDUHOLNHO\WRYDU\DSSUHFLDEO\
7KH SK\VLFDO SURSHUW\ WKDW YDULHV WKH PRVW ZLWK WHPSHUDWXUH LV OLTXLG YLVFRVLW\
HVSHFLDOO\LQWKHFDVHRIKHDY\OLTXLGV7RLOOXVWUDWHWKLVLIWKHLQOHWWHPSHUDWXUHRIDVWUHDP
WRDKHDWH[FKDQJHULVƒ)ƒ&DQGWKHRXWOHWƒ)ƒ&WKHYDULDWLRQLVQRWODUJH
DQG HYHQ DYHUDJH SK\VLFDO SURSHUWLHV PD\ EH IHG ZLWKRXW HQWDLOLQJ DQ\ VHULRXV HUURU
+RZHYHULIWKHLQOHWWHPSHUDWXUHLVƒ)ƒ&DQGWKHRXWOHWƒ)ƒ&LWZRXOGEH
LQDGYLVDEOHQRWWRIHHGSK\VLFDOSURSHUWLHVDWERWKWKHVHWHPSHUDWXUHV
,QPDQ\GHVLJQVWKHKHDWWUDQVIHUFRHIILFLHQWYDULHVFRQVLGHUDEO\DORQJWKHOHQJWKRIWKH
H[FKDQJHUSULPDULO\GXHWRWKHYDULDWLRQRIOLTXLGYLVFRVLW\&RXSOHGZLWKWKLVLVWKHIDFWWKDW
WKH07'PD\DOVRYDU\VLJQLILFDQWO\DORQJWKHOHQJWKRIWKHH[FKDQJHUGXHWRWKHQDWXUHRI
WHPSHUDWXUH SURILOHV RI WKH WZR VWUHDPV 7KDW LV RQH VWUHDP KDV D FRQVLGHUDEO\ ODUJHU
WHPSHUDWXUH FKDQJH IURP LQOHW WR RXWOHWWKDQWKH RWKHU,I RQH FRQVLGHUVWKH H[DPSOH RID
YLVFRXV OLTXLG FRROHU ERWK WKH KHDW WUDQVIHU FRHIILFLHQW DQG WKH 07' ZLOO UHGXFH
FRQVLGHUDEO\IURPLQOHWWRRXWOHWDORQJWKHOHQJWKRIWKHH[FKDQJHUVRWKDWWKHKHDWWUDQVIHU
DUHDUHTXLUHGSHUXQLWKHDWGXW\ZLOOLQFUHDVHIURPH[FKDQJHULQOHWWRRXWOHW&RQVHTXHQWO\LI

 
DYHUDJH SK\VLFDO SURSHUWLHV DUH IHG WKH UHVXOWV ZLOO EH XQUHDOLVWLF EHFDXVH D FRQVWDQW KHDW
WUDQVIHUFRHIILFLHQWZLOOEHDSSOLHG
,WLVWKHUHVSRQVLELOLW\RIWKHSURFHVVOLFHQVRUWRIXUQLVKDXWKHQWLFSK\VLFDOSURSHUWLHVDQG
WKLVXVXDOO\GRHVQRWUHSUHVHQWDSUREOHPVLQFHWKHRXWSXWRIDQ\VWDQGDUGSURFHVVVLPXODWRU
LQFOXGHV DOO UHOHYDQW SK\VLFDO SURSHUWLHV (YHQ LQ FDVHV ZKHUH FRPSUHKHQVLYH SK\VLFDO
SURSHUW\GDWDLVQRWIXUQLVKHGLWLVQRWGLIILFXOWWRREWDLQVSHFLILFKHDWGHQVLW\DQGWKHUPDO
FRQGXFWLYLW\GDWDRIK\GURFDUERQVDVWKHVDPHLVYHU\ZHOOGRFXPHQWHG>²@
7KHVSHFLILFKHDWYLVFRVLW\DQGWKHUPDOFRQGXFWLYLW\GDWDRIK\GURFDUERQYDSRUVDUHD
IXQFWLRQ RI PROHFXODU ZHLJKW DQG WHPSHUDWXUH 7KH YDOXHV RI DOO WKHVH SURSHUWLHV LQFUHDVH
OLQHDUO\ ZLWK WHPSHUDWXUH +\GURJHQ KDV D FRQVLGHUDEO\ KLJKHU VSHFLILF DQG WKHUPDO
FRQGXFWLYLW\WKDQK\GURFDUERQYDSRUV
7KHGHQVLW\RIDK\GURFDUERQYDSRUVLVH[SUHVVHGDVS0]57ZKHUH
S  RSHUDWLQJSUHVVXUH
0  PROHFXODUZHLJKW
]  FRPSUHVVLELOLW\IDFWRU
5  XQLYHUVDOJDVFRQVWDQW
7  DEVROXWHWHPSHUDWXUH
$WPRGHUDWHWHPSHUDWXUHVDQGSUHVVXUHVWKHFRPSUHVVLELOLW\IDFWRUPD\EHFRQVLGHUHGWR
EHZLWKRXWHQWDLOLQJDQ\VHULRXVHUURU
7KH VSHFLILF KHDW VSHFLILF JUDYLW\ DQG WKHUPDO FRQGXFWLYLW\ RI D K\GURFDUERQ OLTXLG
YDU\ ZLWK WHPSHUDWXUH DQG $3, JUDYLW\ :KLOH VSHFLILF JUDYLW\ DQG WKHUPDO FRQGXFWLYLW\
GHFUHDVH ZLWK WHPSHUDWXUH VSHFLILF KHDW LQFUHDVHV ZLWK WHPSHUDWXUH 7KH YLVFRVLW\ RI
K\GURFDUERQOLTXLGVYDULHVLUUHJXODUO\ZLWKWHPSHUDWXUHDQGWKHVDPHFDQQRWEHUHSUHVHQWHG
RQ DQ\ FRQYHQWLRQDO VFDOH OLQHDU VHPLORJ RU ORJORJ 7KLV YDULDWLRQ IRU YDULRXV
K\GURFDUERQOLTXLGVLVUHSUHVHQWHGLQVSHFLDOSORWVE\$670)LJ,WZLOOEHVHHQWKDW


)LJ  $670 SORW RI YDULDWLRQ RI K\GURFDUERQ OLTXLG YLVFRVLW\ ZLWK WHPSHUDWXUH 5HSULQWHG ZLWK
SHUPLVVLRQIURP6WDQGDUGVRI7(0$WK(GLWLRQ
 
WKHYDULDWLRQEHFRPHVH[WUHPHO\ODUJHIRUKHDY\OLTXLGVDWORZWHPSHUDWXUHV
:KLOHDOORWKHUSK\VLFDOSURSHUWLHVPD\EHREWDLQHGIURPYDULRXVVRXUFHVLIWKH\DUHQRW
IXUQLVKHG LQ WKH SURFHVV GDWD VKHHW LW ZLOO EH SUXGHQW WR LQVLVW XSRQ WKH OLTXLG YLVFRVLW\
YDOXHV IURP WKH SURFHVV OLFHQVRU 2I FRXUVH WKLV H[FOXGHV VWDQGDUG SXUH FRPSRQHQWV IRU
ZKLFKGDWDLVDYDLODEOHLQ>±@
,WVKRXOGDOVREHVWDWHGKHUHWKDWH[FHSWLQJOLTXLGYLVFRVLW\DOORWKHUSK\VLFDOSURSHUWLHV
YDU\OLQHDUO\ZLWKWHPSHUDWXUHIRUDOOSUDFWLFDOSXUSRVHVDQGKHQFHWKH\QHHGEHIXUQLVKHG
WRWKHKHDWH[FKDQJHUVRIWZDUHRQO\DWWKHLQOHWDQGRXWOHWWHPSHUDWXUHV+RZHYHUDVDOUHDG\
PHQWLRQHGWKHYDULDWLRQRIYLVFRVLW\ZLWKWHPSHUDWXUHLVKLJKO\QRQOLQHDUDQGFRQVHTXHQWO\
LIWKHYDULDWLRQLQOLTXLGYLVFRVLW\EHWZHHQWKHLQOHWWHPSHUDWXUHDQGWKHRXWOHWWHPSHUDWXUHLV
KLJKLWLVDGYLVDEOHWRIHHGWKHYLVFRVLW\YDOXHVDWLQWHUPHGLDWHWHPSHUDWXUHVDVZHOO
7KHUHDVRQIRUWKLVLVWKDWHYHQDVRSKLVWLFDWHGWKHUPDOGHVLJQVRIWZDUHSDFNDJHPD\QRW
KDYHWKH SURYLVLRQ RIEHLQJDEOHWR HYDOXDWHWKH LQWHUPHGLDWH YDOXHVDFFXUDWHO\(YLGHQWO\
WKH QXPEHU RI LQWHUPHGLDWH YLVFRVLW\ YDOXHVWKDWVKRXOGEHIHG ZLOO GHSHQGXSRQWKH YDUL
DWLRQLQYLVFRVLW\7KHLPSRUWDQWWKLQJWRGRLVWRIXUQLVKDVXIILFLHQWQXPEHURIYDOXHVVR
WKDW LI D VWUDLJKWOLQH LQWHUSRODWLRQ LV LPSOHPHQWHG EHWZHHQ DQ\ WZR SRLQWV IHG WKH UHSUH
VHQWDWLRQZLOOQRWEHHUURQHRXV
7KXVLIWKHLQOHWYLVFRVLW\LVFSDWƒ)ƒ&DQGWKHRXWOHWYLVFRVLW\LVFSDW
ƒ) ƒ& IXUQLVKLQJ DQ LQWHUPHGLDWH YLVFRVLW\ YDOXH RI  FS VD\ DW WKH PHDQ
WHPSHUDWXUH PD\ QRW EHXQUHDVRQDEOH +RZHYHU LIWKH LQOHWDQG RXWOHW YLVFRVLWLHVDW WKHVH
VDPH WHPSHUDWXUHV DUH  FS DQG  FS PRUH SRLQWV ZLOO KDYH WR EH IHG IRU D SURSHU
UHSUHVHQWDWLRQ(YLGHQWO\WKHJUHDWHUWKHQXPEHURISRLQWVIHGWKHPRUHDFFXUDWHZLOOEHWKH
UHVXOWV0RVWWKHUPDOGHVLJQVRIWZDUHSDFNDJHVSHUPLWWKHHQWU\RIYDOXHVXSWRDPD[LPXP
RIWHQWHPSHUDWXUHSRLQWV,WLVVXJJHVWHGWKDWWKHLQWHUPHGLDWHSRLQWVEHVRIHGWKDWWKHUDWLR
EHWZHHQDQ\WZRYLVFRVLW\YDOXHVLVPRUHRUOHVVWKHVDPH0DQ\GHVLJQHUVIHHOWHPSWHGWR
IHHGWKHLQWHUPHGLDWHSRLQWVDORQJURXJKO\HTXDOWHPSHUDWXUHLQFUHPHQWV7KXVLQWKHDERYH
FDVHWKHWHPSHUDWXUHYDULDWLRQEHWZHHQLQOHWDQGRXWOHWLV²RUƒ)>²
RU ƒ&@ 7KXV WKH GHVLJQHU PD\ IHHG LQWHUPHGLDWH YLVFRVLW\ YDOXHV DW WZR ƒ) ƒ&
LQWHUYDOV LH DW ƒ)ƒ& DQG ƒ) ƒ& +RZHYHU DV WKH YDULDWLRQ RI OLTXLG
YLVFRVLW\ LV QRW OLQHDU EXW H[SRQHQWLDO WKLV ZLOO QRW UHVXOW LQ D SURSHU UHSUHVHQWDWLRQ 7KH
YDULDWLRQLVPXFKVWHHSHUDWWKHORZHUWHPSHUDWXUHUDQJHVRWKHUHVKRXOGEHPRUHSRLQWVDW
WKHORZHUWHPSHUDWXUHHQG
,QWKHFDVHRIDFRQGHQVHUZKHUHWKHUHLVQROLTXLGDWWKHLQOHWDQGFRQGHQVDWLRQEHJLQVDW
DVOLJKWO\ORZHUWHPSHUDWXUHWKDWLVWKHLQOHWYDSRULVVRPHZKDWVXSHUKHDWHGDOLFHQVRU
V
GDWDVKHHWRIWHQLQGLFDWHVRQO\WKHRXWOHWOLTXLGSK\VLFDOSURSHUWLHV7KLVLVEHFDXVHLQWKH
GDWDVKHHWWKHUH LVSURYLVLRQ IRUVSHFLI\LQJSK\VLFDOSURSHUWLHV RQO\DWWKH LQOHWDQG RXWOHW
WHPSHUDWXUHV )RU H[DPSOH LI WKH LQOHW WHPSHUDWXUH LV ƒ) ƒ& DQG WKH RXWOHW
WHPSHUDWXUHLVƒ)ƒ&OLTXLGSK\VLFDOSURSHUWLHVDUHIXUQLVKHGRQO\DWƒ)ƒ&
$FRPPRQPLVWDNHLQVXFKFDVHVLVWRIHHGWKHOLTXLGSK\VLFDOSURSHUWLHVRQO\DWWKHRXWOHW
WHPSHUDWXUH:KDWPRVWKHDWH[FKDQJHWKHUPDOGHVLJQVRIWZDUHGRHVLQVXFKVLWXDWLRQVLVWR
DVVXPHWKDWWKHOLTXLGSK\VLFDOSURSHUWLHVDWWKHLQOHWWHPSHUDWXUHDUHLGHQWLFDOWRWKRVHDWWKH
RXWOHWWHPSHUDWXUH$VDOUHDG\H[SODLQHGWKLVPD\UHVXOWLQHUURU:KDWVKRXOGEHGRQHLQ
VXFK VLWXDWLRQV LV WR REWDLQ WKH OLTXLG SK\VLFDO SURSHUWLHV DW WKH LQOHW WHPSHUDWXUH IURP
VWDQGDUGSK\VLFDOSURSHUWLHVFKDUWVRUVHQVLEOHH[WUDSRODWLRQDQGIHHGWKHVDPHWRWKHWKHUPDO
GHVLJQVRIWZDUHSDFNDJH

 
3K\VLFDO3URSHUW\3URILOHV
%HVLGHV KHDW GXW\ DQG ZHLJKW IUDFWLRQ YDSRU DQ\ RWKHU SDUDPHWHU WKDW GRHV QRW YDU\
OLQHDUO\ ZLWKWHPSHUDWXUH ZLOODOVR KDYHWREHVSHFLILHGIRUDQDFFXUDWHWKHUPDOGHVLJQ
3K\VLFDOSURSHUWLHVVXFKDVVSHFLILFKHDWWKHUPDOFRQGXFWLYLW\DQGGHQVLW\RIERWKYDSRU
DQGOLTXLGHVVHQWLDOO\YDU\OLQHDUO\ZLWKWHPSHUDWXUHDVGRHVYDSRUYLVFRVLW\+RZHYHU
OLTXLGYLVFRVLW\GRHVQRWYDU\OLQHDUO\ZLWKWHPSHUDWXUHDQGLIWKHGLIIHUHQFHEHWZHHQWKH
LQOHW DQG RXWOHW WHPSHUDWXUHV LV QRW ORZ WKHUH FRXOG EH D VLJQLILFDQW YDULDWLRQ LQ WKLV
SDUDPHWHUIURPWKHLQOHWWRWKHRXWOHWRIWKHFRQGHQVHU,QVXFKDVLWXDWLRQWKHYDULDWLRQLQ
OLTXLGYLVFRVLW\ZLWKWHPSHUDWXUHVKRXOGDOVREHIHGDVDSDUWRIWKHKHDWUHOHDVHSURILOHV
$QRWKHU LQWHUHVWLQJ FDVH LV REVHUYHG LQ WKH FRQGHQVDWLRQ RI VWUHDPV FRQWDLQLQJ ERWK
K\GURJHQ DQG K\GURFDUERQV LQ K\GURJHQ SODQWV :KHQ VXFK D PL[WXUH LV FRROHG RQO\ WKH
K\GURFDUERQZLOOFRQGHQVHVRWKDWWKHFRQFHQWUDWLRQRIK\GURJHQZLOOLQFUHDVH$VWKHYDOXH
RIVSHFLILF KHDW LVWKH VDPH LQ %ULWLVKDQG PHWULFXQLWVRQO\ WKH YDOXHV ZLOOEH PHQWLRQHG
KHUHDIWHULQWKLVFKDSWHU1RZK\GURJHQKDVDPXFKKLJKHUVSHFLILFKHDWW\SLFDOO\DV
FRPSDUHG WR  RI K\GURFDUERQV VR WKDW DV WKH K\GURJHQ FRQFHQWUDWLRQ LQFUHDVHV WKH
VSHFLILF KHDW RI WKH PL[WXUH LQFUHDVHV 7KHUH LV DQRWKHU HIIHFW RQ WKH VSHFLILF KHDW RI WKH
PL[WXUHQDPHO\WKDWRIWHPSHUDWXUH7KHVSHFLILFKHDWRIERWKK\GURJHQDQGK\GURFDUERQV
GHFUHDVHV ZLWK D UHGXFWLRQ LQ WHPSHUDWXUH +RZHYHU WKH HIIHFW RI WKH LQFUHDVH LQ WKH
FRQFHQWUDWLRQRIK\GURJHQXVXDOO\IDURXWZHLJKVWKDWRIWKHUHGXFWLRQLQWHPSHUDWXUHVRWKDW
WKHVSHFLILFKHDWRIWKHPL[WXUHLQFUHDVHVDVWKHK\GURJHQFRQFHQWUDWLRQLQFUHDVHVZLWKWKH
UHGXFWLRQLQWHPSHUDWXUH
,Q PDQ\ VXFK FRQGHQVHUV WKHUH LV DQ LQLWLDO GHVXSHUKHDWLQJ ]RQH DIWHU ZKLFK WKH
FRQGHQVDWLRQRIK\GURFDUERQVWDUWV7KXVIURPWKHLQOHWWHPSHUDWXUHWRWKHGHZSRLQWWKHUH
ZLOOEHDGHFUHDVHLQWKHWRWDOYDSRUVSHFLILFKHDWDVWKHK\GURJHQFRQFHQWUDWLRQUHPDLQVWKH
VDPHDQGWKHWHPSHUDWXUHUHGXFHV+RZHYHURQFHFRQGHQVDWLRQRIK\GURFDUERQEHJLQVWKH
WRWDO YDSRUVSHFLILF KHDW ZLOOEHJLQWR LQFUHDVHDQGXVXDOO\ HQGV EHLQJVLJQLILFDQWO\ KLJKHU
WKDQ WKDW DW WKH LQOHW ,Q VXFK FDVHV WKHUHIRUH WKH YDULDWLRQ RI YDSRU VSHFLILF KHDW ZLWK
WHPSHUDWXUHPXVWEHIXUQLVKHGWRWKHWKHUPDOGHVLJQVRIWZDUHSDFNDJHDVZHOO
,WVKRXOGEHXQGHUVWRRGWKDWEHVLGHVDFFXUDWHO\GHWHUPLQLQJWKHKHDWWUDQVIHUFRHIILFLHQW
]RQHZLVHWKHYDSRUVSHFLILFKHDWSURILOHLVDOVRUHTXLUHGLQWKHDERYHFDVHIRUUHFRQFLOLQJ
WKHKHDWGXW\LQHDFK]RQH$QDFWXDOFDVHVWXG\IRUDK\GURJHQSODQWFRQGHQVHULVVKRZQLQ
)LJ EHORZ $ PL[WXUH RI QDSKWKDDQG K\GURJHQDW SVLD NJFPDEV LV FRQ
GHQVHGIURPƒ)ƒ&WRƒ)ƒ&7KHYDULDWLRQLQWKHWRWDOYDSRUVSHFLILFKHDWLV
UHSUHVHQWHGE\WKHFXUYH$%&',WZLOOEHVHHQWKDWWKHVSHFLILFKHDWGHFUHDVHVIURPDW
ƒ)ƒ&WRDWWKHGHZSRLQWRIƒ)ƒ&ZKHUHDIWHULWLQFUHDVHVVKDUSO\WR
DWƒ)ƒ&,IWKLVFXUYHZHUHQRWIHGDOLQHDUYDULDWLRQVKRZQE\WKHVWUDLJKWOLQH
$' ZRXOG EH FRQVLGHUHG E\ WKH VRIW
ZDUH $V D FRQVHTXHQFH LW ZRXOG IDLO
KRSHOHVVO\ WR UHFRQFLOH WKH KHDW GXW\ RI
HDFK]RQHVSHFLILHGLQWKHKHDWGXW\YHU
VXVWHPSHUDWXUHSURILOH EHFDXVH LW ZRXOG
FRQVLGHU PXFK KLJKHU YDOXHV RI PL[WXUH
VSHFLILFKHDW
7KHDERYHSKHQRPHQRQLVWUXHRIWKH
WKHUPDO FRQGXFWLYLW\ RI K\GURJHQK\GUR
FDUERQ PL[WXUHV DV ZHOO 7KXV DW ƒ)
)LJ  9DULDWLRQ RI YDSRU VSHFLILF KHDW ZLWK ƒ& WKH WKHUPDO FRQGXFWLYLW\ RI
WHPSHUDWXUHLQDK\GURJHQSODQWFRQGHQVHU K\GURJHQLV%WXKIWƒ)NFDOK
 
P ƒ& ZKHUHDV D W\SLFDO K\GURFDUERQ WKHUPDO FRQGXFWLYLW\ DW WKH VDPH WHPSHUDWXUH LV
 %WXK IWƒ) NFDOK Pƒ&,IWKH LQWHUPHGLDWH YDOXHV RIWKHWKHUPDOFRQGXF
WLYLW\RIWKHYDSRUPL[WXUHDUHQRWIHGDOLQHDULQWHUSRODWLRQZRXOGEHHPSOR\HGEHWZHHQWKH
YDOXHVIHGDWWKHLQOHWDQGRXWOHWWHPSHUDWXUHV&RQVHTXHQWO\PXFKKLJKHUYDOXHVRIWKHUPDO
FRQGXFWLYLW\ZRXOGEHFRQVLGHUHGWKHUHE\OHDGLQJWRDQXQUHDOLVWLFDOO\RSWLPLVWLFGHVLJQ
+HDW5HOHDVH3URILOHV
$KHDWUHOHDVHSURILOHLVDSORWRIKHDWGXW\DQGZHLJKWIUDFWLRQYDSRUYHUVXVWHPSHUDWXUH
DQGLVDQHVVHQWLDOSDUWRIWKHSURFHVVGDWDVKHHW
,Q VLQJOHSKDVH VHUYLFHV WKH KHDW UHOHDVH SURILOH LV HVVHQWLDOO\ OLQHDU +RZHYHU LQ
FRQGHQVLQJDQGYDSRUL]LQJVHUYLFHVWKHKHDWUHOHDVHSURILOHLVXVXDOO\QRWOLQHDU²WKHVORSH
YDULHVIURPLQOHWWRRXWOHW,IWKHWHPSHUDWXUHUDQJHLVORZWRPRGHUDWHVD\±ƒ)RU
±ƒ&WKHYDULDWLRQLQVORSHLVXVXDOO\VPDOODQGDOLQHDUSURILOHPD\EHFRQVLGHUHG
,IDKHDWUHOHDVHSURILOHLVOLQHDUWKHVDPHLVVWDWHGLQWKHSURFHVVGDWDVKHHWDQGDSORW
QHHGQRWEHIXUQLVKHGWRWKHFRPSXWHUSURJUDPRUFRQVLGHUHGIRUKDQGFDOFXODWLRQV
,IDKHDWUHOHDVHSURILOHLVQRWIXUQLVKHGDQGLWLVDOVRQRWVWDWHGWKDWWKHVDPHLVOLQHDUD
VWUDLJKWOLQHSURILOHPD\EHDVVXPHGSURYLGHGWKHWHPSHUDWXUHUDQJHLVORZWRPRGHUDWH
ƒ)RUƒ&+RZHYHU LIWKHWHPSHUDWXUHUDQJH LV KLJKHUWKH OLFHQVRU PD\EHDVNHGWR
HLWKHUIXUQLVKWKHKHDWUHOHDVHSURILOHRUFRQILUPWKDWDOLQHDUSURILOHPD\EHFRQVLGHUHG
:KHQDKHDWUHOHDVHSURILOHLVQRWOLQHDUWKHUHZLOOEHDQHUURULQWKHGHWHUPLQDWLRQRI
WKH07'E\FRQVLGHULQJLWWREHOLQHDU'HSHQGLQJXSRQWKHQDWXUHRIWKHSURILOHLWFRXOGEH
KLJKHURUORZHU²XVXDOO\LWLVORZHU7KHJUHDWHUWKHFXUYDWXUHRIWKHSURILOHWKHJUHDWHUZLOO
EH WKH GLIIHUHQFH LQ WKH 07' GHWHUPLQHG IURP WKH DFWXDO SURILOH DQG DQ DVVXPHG OLQHDU
SURILOH
7KHKHDWGXW\YHUVXVWHPSHUDWXUHSORWLVHVVHQWLDOIRUWKHGHWHUPLQDWLRQRI07'LQWKH
YDULRXV]RQHV7KHZHLJKWIUDFWLRQYDSRUFRQGHQVHGYHUVXVWHPSHUDWXUHGDWDLVHVVHQWLDOIRU
WZRUHDVRQV
D 7RUHFRQFLOHWKHKHDWGXW\RIHDFKUHJLRQ²WKLVLQFOXGHVWKHSKDVHFKDQJHGXW\DQG
WKH VHQVLEOH YDSRU DQG OLTXLG FRROLQJKHDWLQJ GXW\ 7KHUPDO GHVLJQ VRIWZDUH
SDFNDJHVXVXDOO\ HYDOXDWHWKH YDSRUDQG OLTXLGFRROLQJGXWLHVIURPWKHUHVSHFWLYH
IORZUDWHVLQOHWRXWOHWWHPSHUDWXUHVDQGVSHFLILFKHDWV7KH\WKHQVXEWUDFWWKHWRWDO
VHQVLEOH KHDWLQJFRROLQJ GXW\ IURP WKH WRWDO KHDW GXW\ WR REWDLQ WKH YDSR
UL]LQJFRQGHQVLQJ GXW\ 7KH ODWHQW KHDW LV WKHQ GHWHUPLQHG IURP WKH YDSRUL
]LQJFRQGHQVLQJ GXW\ DQG WKH DPRXQW RI OLTXLG YDSRUL]HGYDSRU FRQGHQVHG $
QHJDWLYHODWHQWKHDWRUDQXQXVXDOO\KLJKRUORZODWHQWKHDWLQGLFDWHDQHUURULQWKH
GDWDZKLFKVKRXOGWKHQEHH[DPLQHGDQGUHFWLILHG7KLVLVDYHU\LPSRUWDQWVWHSLQ
WKHGHVLJQRIFRQGHQVHUVDQGUHERLOHUVYDSRUL]HUV
E 7KH YDSRU DQG OLTXLG IORZ UDWHV LQ WKH YDULRXV ORFDWLRQV ]RQHV DUH UHTXLUHG WR
FRPSXWHWKHKHDWWUDQVIHUFRHIILFLHQWDQGSUHVVXUHGURS
+RZWR)HHG+HDW5HOHDVH3URILOHV
7KHQXPEHURISRLQWVVKRXOGEHVRFKRVHQWKDWHDFKVHJPHQWRIWKHFXUYHLVYLUWXDOO\D
VWUDLJKWOLQH5HIHUULQJWR)LJWKHIROORZLQJSRLQWVPXVWEHVSHFLILHGDVDPLQLPXP
$ƒ&(ƒ&)ƒ&DQG*ƒ&
3RLQWV%&DQG'QHHGQRWEHIHGEHFDXVHWKH\OLHRQWKHVWUDLJKWOLQH$($GGLWLRQDOO\
LW LV UHFRPPHQGHG WKDW RQH LQWHUPHGLDWH SRLQW PD\ EH IHG LQ VHFWRU () DQG DQRWKHU LQ
VHFWRU )* IRU H[WUD DFFXUDF\ DV WKHVH VHFWRUV KDYH VRPH FXUYDWXUH +RZHYHU SRLQWV (
DQG)DUHDEVROXWHO\HVVHQWLDOEHFDXVHLIQRWIHGWKHSURILOHZLOODOWHUFRQVLGHUDEO\
 
 1R H[WUD DFFXUDF\ LV DFKLHYHG E\
IHHGLQJVHYHUDOSRLQWVRQWKHVWUDLJKWSRU
WLRQ RI D FXUYH 2Q WKH RWKHU KDQG E\
IHHGLQJ XQQHFHVVDU\ SRLQWV WKH SURED
ELOLW\ RI D PLVPDWFK LQ KHDW GXW\ DQG D
FRQVHTXHQWQHJDWLYHODWHQWKHDWLQFUHDVHV
HVSHFLDOO\ LI WKH WHPSHUDWXUH LQFUHPHQWV
DQGRU WKH DPRXQW YDSRUL]HG RU FRQ
GHQVHGDUHVPDOO,W LVWKHUHIRUHUHFRP

)LJ+RZWRIHHGKHDWUHOHDVHSURILOHV PHQGHG WKDW WKH PLQLPXP QXPEHU RI
SRLQWV UHTXLUHG WR UHSUHVHQW WKH GDWD
DXWKHQWLFDOO\EHIHG
:KHQWKH GLYLVLRQV RQ WKHD[HVDUH TXLWH ODUJH LW LV VRPHWLPHV GLIILFXOWWRUHDGVRPH
LQWHUPHGLDWHSRLQWVIURPSORWV,QVXFKFDVHVLWLVKHOSIXOWRFRQVWUXFWLQWHUPHGLDWHOLQHVRU
SORWWKHVDPHGDWDRQJUDSKSDSHUKDYLQJPRUHLQWHUPHGLDWHGLYLVLRQV
7KHWHPSHUDWXUHSRLQWVWREHIHGWRWKHWKHUPDOGHVLJQVRIWZDUHVKRXOGEHVRFKRVHQWKDW
WKH KHDW UHOHDVH FXUYH LV UHSUHVHQWHG DXWKHQWLFDOO\ 7KH YDOXHV RI ZHLJKW IUDFWLRQ YDSRU
VKRXOGEHIHGDWWKHVHWHPSHUDWXUHV
(YHQ IRU VHUYLFHV ZKHUH RQO\ RQH VWUHDP KDV D QRQOLQHDU KHDW UHOHDVH SURILOH LW LV
EHQHILFLDOWRSORWERWKWKHSURILOHVWRJHWKHUDVXVHIXOLQVLJKWPD\EHREWDLQHGIURPVXFKD
FRPSRVLWHSORWHJWKHH[LVWHQFHRID³SLQFK´RUD³QHDUSLQFK´,PSRVVLEOHVLWXDWLRQVZLWK
WKHFROGVWUHDPJHWWLQJKRWWHUWKDQWKHKRWVWUHDPDWDQLQWHUPHGLDWHWHPSHUDWXUHSRLQWFDQ
DOVREHGHWHFWHGDQGDYRLGHGZLWKRXWZDVWLQJDQ\WLPHLQWKHUPDOGHVLJQ
,QWKHHYHQWRIDWHPSHUDWXUHFURVVRXWOHWWHPSHUDWXUHRIFROGVWUHDPJUHDWHUWKDQRXWOHW
WHPSHUDWXUH RI KRW VWUHDP WKH QXPEHU RI VKHOOV LQ VHULHV FDQ EH GHWHUPLQHG IURP D
FRPSRVLWHKHDWUHOHDVHSORW7KLVPHWKRGLVGHVFULEHGLQGHWDLOLQ6HFWLRQ
)RUDIHHGHIIOXHQWH[FKDQJHURUDQ\RWKHUVHUYLFHZKHUHERWKVWUHDPVKDYHDQRQOLQHDU
SORWWKHQXPEHURIVKHOOVUHTXLUHGLQVHULHVFDQVWLOOEHGHWHUPLQHGIURPDFRPSRVLWHKHDW
UHOHDVHSORW,QWLJKWVLWXDWLRQVWKHQH[WKLJKHUQXPEHURIVKHOOVLQVHULHVVKRXOGEHDGRSWHG
DVWKLVRIIHUVFRQVLGHUDEOHIOH[LELOLW\IRUFDVHVRIRSHUDWLRQRWKHUWKDQGHVLJQ)RUH[DPSOHLI
WKHQXPEHURIVKHOOVIURPVXFKDSORWLVGHWHUPLQHGWREHMXVWWKUHHLWLVDGYLVDEOHWRHPSOR\
IRXUVKHOOVLQVHULHV%HVLGHVRIIHULQJIOH[LELOLW\IRUDOWHUQDWHFDVHVRIRSHUDWLRQLWZLOODOVR
SHUPLWWKHXVHRILGHQWLFDOVKHOOVZLWKDQRPLQDORYHUGHVLJQPDUJLQLQHDFK7KLVPD\QRWEH
SRVVLEOHLIRQO\WKUHHVKHOOVDUHXVHGLQVHULHV²WRHPSOR\LGHQWLFDOVKHOOVVRPHVKHOOVPD\
KDYHDYHU\KLJKRYHUGHVLJQ7KLVLVEHFDXVHQRWUDQVIHURIGXW\LVSRVVLEOHIURPRQHVKHOOWR
DQRWKHUDVWKH³HTXDORXWOHWWHPSHUDWXUH´FRQGLWLRQSUHYDLOVLQDOOWKHLQGLYLGXDOVKHOOV
6RPHWLPHVDKHDWUHOHDVHSORWLVIXUQLVKHGLQDWDEXODUIDVKLRQ6LQFHLWLVQRWSRVVLEOHWR
DVVHVVWKHFXUYDWXUHRIDSORWIURPWDEXODWHGKHDWGXW\YHUVXVWHPSHUDWXUHGDWDLWLVVWURQJO\
UHFRPPHQGHGWKDWDFXUYHEHSORWWHGILUVWHLWKHUPDQXDOO\RUE\XVLQJDFRPSXWHU2QFHWKLV
FXUYHLVSORWWHGLWLVUHODWLYHO\VLPSOHWRGHFLGHDVWRKRZPDQ\SRLQWVVKRXOGEHIHGIRUD
SURSHUUHSUHVHQWDWLRQ7KHVDPHPHWKRGRORJ\GHVFULEHGDERYHVKRXOGWKHQEHIROORZHG
5HIHUHQFHV
>@ *DOODQW5:DQG5DLOH\-03K\VLFDO3URSHUWLHVRI+\GURFDUERQV9ROVDQG
QG(GLWLRQ0F*UDZ+LOO
>@ 'HDQ-$HG/DQJH
V+DQGERRNRI&KHPLVWU\(GLWLRQ0F*UDZ+LOO
>@ *UHHQ':HG3HUU\¶V&KHPLFDO(QJLQHHUV¶+DQGERRNWK(GLWLRQ0F*UDZ
+LOO

 
 &+$37(5

2YHUGHVLJQ

0HFKDQLFVRI2YHUGHVLJQ
$V WKH QDPH LPSOLHV RYHUGHVLJQ LV WKH H[WUD PDUJLQ LQFRUSRUDWHG LQ D GHVLJQ 8QOHVV
RWKHUZLVH VSHFLILHG LW LPSOLHV WKH PDUJLQ RQ WKH KHDW WUDQVIHU VXUIDFH 7KXV LI D KHDW
H[FKDQJHUVHUYLFHUHTXLUHVIWPKHDWWUDQVIHUDUHDDQGLIIWPLV
SURYLGHG ZH VD\ WKDW WKH RYHUGHVLJQ LV  'HVLJQHUV SUHIHU WR LQFRUSRUDWH DQ
RYHUGHVLJQ DV DQ LQVXUDQFH WRZDUGV XQFHUWDLQWLHV ZKLFK FRXOG EH LQ IORZ UDWHV
WHPSHUDWXUHVSK\VLFDOSURSHUWLHVDQGHYHQWKHVRIWZDUHLWVHOI
(YLGHQWO\LIDKHDWH[FKDQJHULVUHODWLYHO\VPDOODRUHYHQDRYHUGHVLJQPD\
QRW EH REMHFWLRQDEOH EHFDXVH LW LV WKH H[WUD DEVROXWH FRVW DQG QRW WKH SHUFHQWDJH WKDW LV
VLJQLILFDQW%HVLGHVDODUJHUPDUJLQPD\EHUHTXLUHGWREHUHWDLQHGLQFDVHVZKHUHJRLQJWR
WKH QH[W ORZHU SLSH VL]H UHVXOWV LQ XQGHUGHVLJQ RU YHU\ OLWWOH RYHUGHVLJQ )RU ODUJHU KHDW
H[FKDQJHUVDVPDOOHURYHUGHVLJQVXFKDVDPDUJLQPD\EHPRUHSUXGHQW(YLGHQWO\WKH
KLJKHU WKH DFFXUDF\ RI WKH SURFHVV GDWD DQG WKH KLJKHU WKH FRQILGHQFH OHYHO RI WKH GHVLJQ
PHWKRGVRIWZDUHWKHORZHUWKHPDUJLQRIRYHUGHVLJQWKDWQHHGVEHLQFRUSRUDWHG
)RU YHU\ ODUJH KHDW H[FKDQJHUV D VPDOOHU PDUJLQ PD\ EH UHWDLQHG GRZQ WR  IRU
UHDVRQVRIHFRQRP\7KXVIRUKHDWH[FKDQJHUVXSWRIWPDPDUJLQPD\
EHUHWDLQHGZKLFKPD\EHUHGXFHGSURJUHVVLYHO\WRIRU±IW±PDQG
EH\RQG,WZLOOEHHYLGHQWWKDWWKHVHYDOXHVDUHRILQGLFDWLYHQDWXUHRQO\
&OLHQWV RFFDVLRQDOO\ LQVLVW RQ VWDQGDUGL]DWLRQ RI KHDW H[FKDQJHU GHVLJQ IRU WKH KHDW
H[FKDQJHUV LQ D SODQW RU FRPSOH[ HYLGHQWO\ ZLWK WKH LQWHQWLRQ RI LQYHQWRU\ FRQWURO )RU
H[DPSOH LI VSDUH EXQGOHV DUH UHTXLUHG DQG VHYHUDO GHVLJQV DUH LGHQWLFDO D VLQJOH VSDUH
EXQGOHZLOOEHDGHTXDWHIRUDOORIWKHPVLQFHFOHDQLQJ RURWKHUPDLQWHQDQFHRIWKHVHYHUDO
H[FKDQJHUV FDQ EH FDUULHG RXW SURJUHVVLYHO\ &RQVLGHULQJ WKH YDULRXV FRQVWUXFWLRQ
SDUDPHWHUVRIVKHOODQGWXEHKHDWH[FKDQJHUVVWDQGDUGL]DWLRQRIGHVLJQVLVDUDWKHUGLIILFXOW
WDVN7KHGHVLJQHUPD\EHFRPSHOOHGWRFRPSURPLVHZLWKUDWKHUKLJKRYHUGHVLJQIRUVRPH
RIWKHKHDWH[FKDQJHUV
,WKDVEHHQPHQWLRQHGHDUOLHUWKDWXSWRLQ PPQRPLQDOVL]HSLSHVKHOOVDUH
HPSOR\HG,IDVWDQGDUGWXEH2'DQGOHQJWKKDYHWREHXVHGLWPD\VRKDSSHQWKDWDJLYHQ
SLSHVL]HVD\LQRUPP1%VKHOO\LHOGVDUDWKHUKLJKRYHUGHVLJQPDUJLQ+RZHYHU
LI WKH VKHOO VL]H LV ORZHUHG WR WKH QH[W VL]H  LQ RU  PP LQ WKLV FDVH WKH GHVLJQ
EHFRPHV XQGHUVL]HG 6LQFH WKLV LV QRW DFFHSWDEOH WKH GHVLJQHU LV FRPSHOOHG WR DFFHSW WKH
ODUJHRYHUGHVLJQRIWKHLQRUPPVKHOOGLDPHWHUGHVLJQ2QHPD\DUJXHWKDWHYHQ
ZLWK WKH ODUJHU VKHOO RQO\ WKH UHTXLVLWH QXPEHU RI WXEHV PD\ EH LQFRUSRUDWHG VR WKDW WKH
RYHUGHVLJQLVQRWXQQHFHVVDULO\KLJK7KLVORJLFLVFHUWDLQO\VRXQGDVWXEHVPD\FRVWXSWR
RIDKHDWH[FKDQJHU+RZHYHUFDUHVKRXOGEHWDNHQWRHQVXUHDSURSHUWXEHOD\RXWDQG
WKHUHE\DSURSHUVWUHDPGLVWULEXWLRQRQWKHVKHOOVLGH:KDWWKLVPHDQVLVWKDWWKHUHVKRXOG
 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\/RZWHPSHUDWXUHDSSURDFKFDVH
 6KHOOVLGH 7XEHVLGH
 6WUHDP /LTXLGK\GURFDUERQ /LTXLGK\GURFDUERQ
 )ORZUDWHOEKNJK  
 7HPSHUDWXUHLQRXWƒ)ƒ&  
 +HDWGXW\00%WXK00NFDOK 

 $OORZDEOHSUGURSSVLNJFP   

 )RXOLQJUHVLVWDQFHKIW ƒ)%WX
 
KPƒ&NFDO
 'HQVLW\LQRXWOEIWNJP  
 9LVFRVLW\LQRXWFS  
 7KHUPDOFRQGXFWLYLW\  
%WXKIWƒ)NFDOKPƒ& 
 6SHFLILFKHDW%WXOEƒ)NFDONJƒ&  
 &RQQHFWLRQVL]HLQPPQRPLQDO  

 'HVLJQSUHVVXUHSVLJNJFP J  
 'HVLJQWHPSHUDWXUHƒ&  
 0DWHULDORIFRQVWUXFWLRQ &DUERQVWHHO &DUERQVWHHO

QRWEHDODUJHJDSEHWZHHQWKHVKHOO,'DQGWKHRXWHUWXEHOLPLWEHFDXVHWKLVZLOOUHVXOWLQD
ODUJH&VWUHDP ,I WKHUH LVD ODUJH JDSVHDOLQJVWULSV VKRXOGEH HPSOR\HGWR PLQLPL]HWKH
VKHOOEXQGOHOHDNDJHVWUHDP+RZHYHULWZRXOGEHIDUEHWWHULIWKHJDSEHWZHHQWKHVKHOODQG
WKHRXWHUWXEHOLPLWLVPDLQWDLQHGDWWKHQRUPDOYDOXHIRUWKHJLYHQW\SHDQGGLDPHWHURIWKH
KHDW H[FKDQJHU DQG WXEHV HOLPLQDWHG IURP WKH WRS DQG WKH ERWWRP URZV RI WKH VKHOO
DVVXPLQJDKRUL]RQWDOEDIIOHFXWDQGXSDQGRYHUIORZ

2YHUGHVLJQLQ6LQJOH3KDVH+HDW([FKDQJHUV
,WZLOOEHHDVLO\DSSUHFLDWHGWKDWDQRYHUGHVLJQHGKHDWH[FKDQJHUZLOOGHOLYHUPRUHWKDQ
WKHGHVLJQKHDWGXW\,QWKHFDVHRIVHQVLEOHKHDWWUDQVIHUWKHFROGVWUHDPZLOOJHWKHDWHG
PRUH DQG WKH KRW VWUHDP ZLOO JHW FRROHG PRUH )RU WKH ILQDO FRQGLWLRQV RI WHUPLQDO
WHPSHUDWXUHVDQGKHDWGXW\WKHRYHUGHVLJQZLOOREYLRXVO\KDYHWREHQLO
7KHLQFUHDVHGKHDWGXW\WKDWDQRYHUGHVLJQHGKHDWH[FKDQJHUFDQSHUIRUPH[SUHVVHGDV
DSHUFHQWDJHRIWKHGHVLJQKHDWGXW\LVFDOOHGRYHUGHVLJQRQSHUIRUPDQFH7KXVLIDVWUHDP
KDV WR EH FRROHG E\ ƒ) ƒ& EXW DFWXDOO\ JHWV FRROHG E\ ƒ) ƒ& LW KDV D 
SHUIRUPDQFHRYHUGHVLJQ
7KHYDOXHRIRYHUGHVLJQRQSHUIRUPDQFHLVDOZD\VOHVVWKDQWKHYDOXHRIRYHUGHVLJQRQ
VXUIDFH7KLVLVEHFDXVHDVWKHKHDWGXW\LQFUHDVHVLQDQRYHUGHVLJQHGKHDWH[FKDQJHUWKH
07'ZLOOGHFUHDVH
:KLOH RYHUGHVLJQ RQ VXUIDFH LQGLFDWHV WKH SHUFHQWDJH RI WXEHV WKDW FDQ EH SOXJJHG LQ
FDVHRIOHDNLQJSURYLGHGRIFRXUVHWKHUHLVDFRUUHVSRQGLQJPDUJLQLQWKHWXEHVLGHSUHVVXUH
GURSRYHUGHVLJQRQSHUIRUPDQFHLQGLFDWHVKRZPXFKEHWWHUDQH[FKDQJHUPD\EHH[SHFWHG
WR SHUIRUP +HDW H[FKDQJHU VHUYLFHV DUH XVXDOO\ DQDO\]HG DQG LQWHUSUHWHG LQ WKH IRXOHG
 
 7DEOHE3ULQFLSDOFRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUV
IRU&DVH6WXG\/RZWHPSHUDWXUHDSSURDFKFDVH
 6KHOO,'LQPP 
 1RRIWXEHV 
 7XEH2'îWKLFNQHVVîOHQJWKLQPP îî
 1RRIWXEHSDVVHV 
 7XEHSLWFKLQPP URWDWHGVTXDUH
 7\SHRIEDIIOHV VLQJOHVHJPHQWDO
 %DIIOHVSDFLQJLQPP 
 %DIIOHFXW 
 1RRIVKHOOV 2QH
 
 +HDWWUDQVIHUDUHDIW P  
 9HORFLW\IWVPV 

 6KHOOVLGH 3UHVVXUHGURSSVLNJFP  
+HDWWUDQVIHUFRHIILFLHQW

%WXKIWƒ)NFDOKPƒ&
 9HORFLW\IWVPV 

 7XEHVLGH 3UHVVXUHGURSSVLNJFP  
+HDWWUDQVIHUFRHIILFLHQW 
%WXKIWƒ)NFDOKPƒ&
 07'ƒ& 

 2YHUDOOKHDWWUDQVIHUFRHIILFLHQWNFDOKP ƒ& 
 2YHUGHVLJQ 

FRQGLWLRQ+RZHYHUZKHQDKHDWH[FKDQJHULVQHZDQGWKHUHE\FOHDQ²RUDIWHULWKDVEHHQ
FOHDQHG ZKHQ XVHG IRU VRPH OHQJWK RI WLPH²LWV RYHUDOO KHDW WUDQVIHU FRHIILFLHQW LV PXFK
KLJKHU WKDQ WKDW LQ WKH IRXOHG FRQGLWLRQ VR WKDW LW LV RYHUVXUIDFHG RYHU DQG DERYH WKH
RYHUGHVLJQ WKH GHVLJQHU KDV LQFRUSRUDWHG (YLGHQWO\ WKH H[WHQW RI RYHUSHUIRUPDQFH ZLOO
GHSHQGXSRQWKHH[WHQWWRZKLFKWKHWRWDOIRXOLQJUHVLVWDQFHLVFRQWUROOLQJWKHKHDWWUDQVIHU
SURFHVV&RQVHTXHQWO\DQHZRUFOHDQHGKHDWH[FKDQJHUZLOOGHOLYHUDKHDWGXW\KLJKHUWKDQ
WKHGHVLJQYDOXH
7KHIROORZLQJWZRFDVHVWXGLHVDUHSUHVHQWHGWRLOOXVWUDWHWKHIRUHJRLQJ

&$6(678'<())(&72)29(5'(6,*1²
+,*+7(03(5$785($3352$&+&$6(
&RQVLGHUWKHFDVHRIDKHDWH[FKDQJHUKDYLQJWKHSULQFLSDOSURFHVVSDUDPHWHUVVSHFLILHG
LQ7DEOHD
$ WKHUPDO GHVLJQ ZDV PDGH IRU WKLV VHUYLFH DQG WKH SULQFLSDO FRQVWUXFWLRQ DQG
SHUIRUPDQFHSDUDPHWHUVDUH GHWDLOHG LQ7DEOHE7KH RYHUGHVLJQ RQ VXUIDFH LV
WKDW LV WKH KHDW WUDQVIHU DUHD SURYLGHG  IW RU  P LV  PRUH WKDQ WKDW
UHTXLUHGWRGHOLYHUWKHVSHFLILHGKHDWGXW\
 
 7DEOHF&RPSDUDWLYHVWDWHPHQWRIGHVLJQDQGH[SHFWHGSHUIRUPDQFHGXWLHV
IRU&DVH6WXG\/RZWHPSHUDWXUHDSSURDFKFDVH
 )RUGHVLJQGXW\ ([SHFWHG 3HUFHQW
SHUIRUPDQFH FKDQJH

+RWVWUHDP ,QOHWWHPSHUDWXUHƒ)ƒ&   

2XWOHWWHPSHUDWXUHƒ)ƒ&   

&ROGVWUHDP ,QOHWWHPSHUDWXUHƒ)ƒ&   

2XWOHWWHPSHUDWXUHƒ)ƒ&   

+HDWGXW\00%WXK00NFDOK   

07'ƒ)ƒ&   

2YHUDOOKHDWWUDQVIHUFRHIILFLHQWNFDOKPƒ&   1LO

2YHUGHVLJQ  1LO 

6LQFH WKH H[FKDQJHU LV RYHUVXUIDFHGWKH KRWVWUHDP ZLOO FRROVRPHZKDW PRUHDQGWKH

FROG VWUHDP ZLOO JHW KHDWHG VRPHZKDW PRUH XQWLO WKH UHTXLUHG DQG SURYLGHG KHDW WUDQVIHU
DUHDV PDWFK $ ³SHUIRUPDQFH UXQ´ ZDV WDNHQ IRU WKLV H[FKDQJHU WR DVFHUWDLQ LWV DFWXDO
H[SHFWHG RSHUDWLQJSHUIRUPDQFH7DEOH F JLYHVDFRPSDUDWLYH VWDWHPHQW RIWKH GHVLJQ
DQGH[SHFWHGGXWLHV
,WLVVHHQWKDWWKHH[FKDQJHUZLOODFWXDOO\GHOLYHUDKHDWGXW\RI00%WXK
00NFDOKLQVWHDGRIWKHGHVLJQYDOXHRI00%WXK00NFDOK7KHUHIRUH
WKH RYHUGHVLJQ RQSHUIRUPDQFH LV RURU:KDW KDV KDSSHQHG LV
WKDW WKH KHDW GXW\ KDV LQFUHDVHG DQG WKH 07' GHFUHDVHG VR WKDW WKH KHDW WUDQVIHU DUHD
UHTXLUHGLVHTXDOWRWKDWSURYLGHG7KHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWKDVYLUWXDOO\UHPDLQHG
WKHVDPHEXWWKLVPD\FKDQJHDVZHOOGHSHQGLQJSULQFLSDOO\XSRQWKHFKDQJHLQWHPSHUDWXUH
DQGWKHUHE\WKHSK\VLFDOSURSHUWLHVSULQFLSDOO\YLVFRVLW\
,WZLOOEHVHHQIURP7DEOHFWKDWZKLOHWKHUHLVQRFKDQJHLQWKHRYHUDOOKHDWWUDQVIHU
FRHIILFLHQWWKH07'LVORZHUE\DQGWKHKHDWGXW\LVKLJKHUE\6LQFHWKHKHDW
WUDQVIHUUHTXLUHG LV GLUHFWO\SURSRUWLRQDOWR WKH KHDW GXW\DQG LQYHUVHO\SURSRUWLRQDOWR WKH
07'WKH KHDWWUDQVIHUDUHDUHTXLUHG KDV JRQHXSE\ >²@ ZKLFK LV
SUHFLVHO\WKHRYHUGHVLJQRQVXUIDFHLQWKHEDVHGHVLJQ
,Q WKLV FDVH WKH GLIIHUHQFH EHWZHHQ WKH RYHUGHVLJQ RQ VXUIDFH  DQG WKH
RYHUGHVLJQ RQ SHUIRUPDQFH  LV XQXVXDOO\ ORZ 7KLV LV EHFDXVH WKH KRW DQG FROG
VWUHDPRXWOHWWHPSHUDWXUHVDUHUDWKHUZLGHDSDUWVRWKDWWKHUHLVFRQVLGHUDEOHVFRSHIRUPRUH
KHDWLQJRIWKHFROGVWUHDPDQGFRROLQJRIWKHKRWVWUHDP8VXDOO\KRZHYHUWKHGLIIHUHQFH
EHWZHHQWKHKRWVWUHDPRXWOHWWHPSHUDWXUHDQGWKHFROGVWUHDPRXWOHWWHPSHUDWXUHLVORZHUVR
WKDWDQLQFUHDVHLQKHDWGXW\LVDFFRPSDQLHGE\DVKDUSIDOOLQWKH07'&RQVHTXHQWO\WKH
RYHUGHVLJQLQSHUIRUPDQFHLVPXFKORZHUWKDQWKHRYHUGHVLJQRQVXUIDFH7\SLFDOO\D
RYHUGHVLJQRQVXUIDFHWUDQVODWHVWRD±RYHUGHVLJQRQSHUIRUPDQFH

&$6(678'<())(&72)29(5'(6,*1²
/2:7(03(5$785($3352$&+&$6(
7DEOHDHODERUDWHVWKHSULQFLSDOSDUDPHWHUVRIDOLTXLGOLTXLGKHDWH[FKDQJHU,WZLOO
EHQRWLFHGWKDWWKHUHLVDWHPSHUDWXUHFURVVZKLFKZLOOUHTXLUHWKHXVHRIWZRVKHOOVLQVH

 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\+LJKWHPSHUDWXUHDSSURDFKFDVH
 6KHOOVLGH 7XEHVLGH
 6WUHDP /LTXLGK\GURFDUERQ /LTXLGK\GURFDUERQ
 )ORZUDWHOEKNJK  
 7HPSHUDWXUHLQRXWƒ)ƒ&  
 +HDWGXW\00%WXK00NFDOK 

 $OORZDEOHSUGURSSVLNJFP   

 )RXOLQJUHVLVWDQFHKIW ƒ)%WX
 
KPƒ&NFDO
 'HQVLW\LQRXWOEIWNJP  
 9LVFRVLW\LQRXWFS  
 7KHUPDOFRQGXFWLYLW\%WXKIWƒ)NFDOK  
Pƒ&
 6SHFLILFKHDW%WXOER)NFDONJƒ& DYHUDJH DYHUDJH
 &RQQHFWLRQVL]HLQPPQRPLQDO  
 0DWHULDORIFRQVWUXFWLRQ FDUERQVWHHO FDUERQVWHHO

ULHV $ WKHUPDO GHVLJQ ZDV SUHSDUHG IRU WKLV VHUYLFH DQG WKH SULQFLSDO FRQVWUXFWLRQ DQG
SHUIRUPDQFHDUHSUHVHQWHGLQ7DEOHE7KHRYHUGHVLJQRQVXUIDFHLV
$ ³SHUIRUPDQFH UXQ´ ZDV WDNHQ QH[W DQG WKH H[SHFWHG SHUIRUPDQFH RI WKH KHDW
H[FKDQJHULVUHSRUWHGLQ7DEOHF,WZLOOEHVHHQWKDWWKHKHDWGXW\LV00%WXK
00NFDOKDVDJDLQVWWKHGHVLJQKHDWGXW\RI00%WXK00NFDOK
7KHRYHUGHVLJQRQSHUIRUPDQFHLVWKHUHIRUHRU7KXVWKHRYHUGHVLJQRQ
SHUIRUPDQFHLVFRQVLGHUDEO\OHVVWKDQWKDWRQVXUIDFH
,WZLOOEHVHHQIURP7DEOHFWKDWZKLOHWKHUHLVQRFKDQJHLQWKHRYHUDOOKHDWWUDQVIHU
FRHIILFLHQWWKH07'LVORZHUE\DQGWKHKHDWGXW\LVKLJKHUE\6LQFHWKHKHDW
WUDQVIHUDUHDUHTXLUHGLVGLUHFWO\SURSRUWLRQDOWRWKHKHDWGXW\DQGLQYHUVHO\SURSRUWLRQDOWR
WKH07'WKHKHDWWUDQVIHUDUHDUHTXLUHGKDVJRQHXSE\>²@RUZKLFK
LVSUHFLVHO\WKHRYHUGHVLJQRQVXUIDFHLQWKHEDVHGHVLJQ

2YHUGHVLJQLQ5HERLOHUV
2QHDUHDZKHUHWKLVFRXOGOHDGWRDSUREOHPLVDNHWWOHRUWKHUPRV\SKRQUHERLOHU8QOLNH
VHQVLEOH KHDWLQJFRROLQJ RU FRQGHQVLQJ ERLOLQJ KHDW WUDQVIHU FRHIILFLHQW LV D VWURQJ
IXQFWLRQRIWKHWHPSHUDWXUHGLIIHUHQFHDFURVVWKHERLOLQJILOP:KHQDUHERLOHULVFOHDQLW
ZLOO KDYH D PXFK KLJKHU WHPSHUDWXUH GLIIHUHQFH DFURVV WKH ERLOLQJ ILOP WKDQ ZKHQ LW LV
IRXOHG DQG GHVLJQHG IRU $V D UHVXOW LW PD\ HDVLO\ KDSSHQ WKDW LQVWHDG RI QXFOHDWH
ERLOLQJDVSHUWKHGHVLJQLQWKHIRXOHGFRQGLWLRQDUHERLOHUPD\H[SHULHQFHILOPERLOLQJ
ZKLFKLVPXFKOHVVHIILFLHQWWKDQQXFOHDWHERLOLQJ:KDWZRXOGEHHYHQZRUVHLVLIDSDUW
RIWKHWXEHVZRXOGH[SHULHQFHQXFOHDWHERLOLQJDQGWKHUHVWILOPERLOLQJ7KLVZLOOOHDGWR
XQVWDEOHSHUIRUPDQFHDQGGLIILFXOW\LQFRQWURO&RQVHTXHQWO\WKHUPRV\SKRQUHERLOHUVDUH
JHQHUDOO\VWDUWHGXSJUDGXDOO\ LIWKH KHDWLQJ PHGLXP LVVWHDP LWVSUHVVXUH LVLQFUHDVHG

 
 7DEOHE3ULQFLSDOFRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUV
IRU&DVH6WXG\+LJKWHPSHUDWXUHDSSURDFKFDVH
 6KHOO,'LQPP 
 1RRIWXEHV 
 7XEH2'îWKLFNQHVVîOHQJWKLQPP îî
 1RRIWXEHSDVVHV 
 7XEHOD\RXWDQJOHGHJUHHV 
 7\SHRIEDIIOHV VLQJOHVHJPHQWDO
 %DIIOHVSDFLQJLQPP 
 %DIIOHFXW 
 1RRIVKHOOV LQVHULHV
 
 +HDWWUDQVIHUDUHDIW P  î 
 07'ƒ)ƒ& 
 9HORFLW\IWVPV 

 6KHOOVLGH 3UHVVXUHGURSSVLNJFP  
+HDWWUDQVIHUFRHIILFLHQW%WXKIWƒ) 
NFDOKPƒ&
 9HORFLW\IWVPV 

 7XEHVLGH 3UHVVXUHGURSSVLNJFP  

+HDWWUDQVIHUFRHIILFLHQW%WXKIW ƒ) 
NFDOKPƒ&
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW%WXKIWƒ)NFDOKPƒ&

 2YHUGHVLJQ 

JUDGXDOO\DVWKHUHERLOHUJHWVIRXOHGSURJUHVVLYHO\7KLVKDVEHHQGLVFXVVHGLQ GHWDLOLQ
&KDSWHU
6LQFHERLOLQJKHDWWUDQVIHUFRHIILFLHQWLVGHSHQGHQWXSRQWHPSHUDWXUHGLIIHUHQFHDFURVV
WKH ERLOLQJ ILOP WKH GLIIHUHQWLDO IRXOLQJ UHVLVWDQFH ZLOO DOWHU WKH ERLOLQJ KHDW WUDQVIHU
FRHIILFLHQW +HQFH FDUH VKRXOG EH WDNHQ WR OLPLW WKH GLIIHUHQWLDO IRXOLQJ UHVLVWDQFH WR D
UHDVRQDEOH YDOXH VR WKDW WKH ERLOLQJ KHDW WUDQVIHU FRHIILFLHQW DQG WKHUHIRUH WKH WKHUPDO
GHVLJQDUHDXWKHQWLF)RUWKLVSXUSRVH LW LVVXJJHVWHGWKDWWKH RYHUGHVLJQ H[FHVVDUHD EH
PDLQWDLQHGDWDURXQG

2YHUGHVLJQLQ&RQGHQVHUV
,QWKHFDVHRIWRWDOFRQGHQVHUVRYHUGHVLJQRQVXUIDFHZLOOWUDQVODWHLQWRVXEFRROLQJ6LQFH
VXEFRROLQJ LV UDWKHU LQHIILFLHQW DV FRPSDUHG WR FRQGHQVLQJ LQ DQ LQWHJUDO VKHOO WKH
LQFUHDVHLQKHDWGXW\ZLOOEHYHU\VPDOO+RZHYHULQWKHFDVHRISDUWLDOFRQGHQVHUVWKHUH
FRXOGEHDQDSSUHFLDEOHLQFUHDVHLQKHDWGXW\GXHWRRYHUGHVLJQ
7KH PRVW LPSRUWDQW SDUDPHWHU ZKLFK FRQWUROV RYHUGHVLJQ RQ SHUIRUPDQFH LV WKH
WHPSHUDWXUH SURILOH RI WKH KRW DQG FROG VWUHDPV $V H[SODLQHG LQ DQ HDUOLHU VHFWLRQ RQ

 
 7DEOHF&RPSDUDWLYHVWDWHPHQWRIGHVLJQDQGH[SHFWHGSHUIRUPDQFHGXWLHV
IRU&DVH6WXG\+LJKWHPSHUDWXUHDSSURDFKFDVH
 )RUGHVLJQ ([SHFWHG 3HUFHQW
GXW\ SHUIRUPDQFH FKDQJH

+RWVWUHDP ,QOHWWHPSHUDWXUHƒ)ƒ&   

2XWOHWWHPSHUDWXUHƒ)ƒ&   

&ROGVWUHDP ,QOHWWHPSHUDWXUHƒ)ƒ&   

2XWOHWWHPSHUDWXUHƒ)ƒ&   

+HDWGXW\00%WXK00NFDOK   

07'ƒ)ƒ&   

2YHUDOOKHDWWUDQVIHUFRHIILFLHQWNFDOKPƒ&   QHJOLJLEOH

2YHUGHVLJQ  1HJOLJLEOH 

PXOWLSOHVKHOOVDVLQJOHVKHOOFDQQRWGHOLYHUDWHPSHUDWXUHFURVVSHUIRUPDQFH7KXVLIWKH
RXWOHWWHPSHUDWXUHVRIWKHWZRIOXLGVLQDVLQJOHVKHOODUHHTXDOWKHUHLVQRSRVVLELOLW\RIDQ\
LQFUHDVH LQ WKH KHDW GXW\ QR PDWWHU KRZ KLJK WKH RYHUGHVLJQ RQ VXUIDFH 7KH VPDOOHU WKH
GLIIHUHQFH EHWZHHQ WKH RXWOHW WHPSHUDWXUHV RI WKH WZR VWUHDPV WKH VPDOOHU WKH VFRSH IRU
LQFUHDVHLQKHDWGXW\GXHWRRYHUVXUIDFLQJ&DVH6WXG\VKRZQDERYHKDGDYHU\ODUJH
GLIIHUHQFH LQ WKH WZR WHPSHUDWXUHV WKH KRW VWUHDP GHVLJQ RXWOHW WHPSHUDWXUH ZDV ƒ)
ƒ& ZKLOH WKH FROG VWUHDP RXWOHW WHPSHUDWXUH ZDV ƒ) ƒ& &RQVHTXHQWO\ WKH
RYHUGHVLJQRQSHUIRUPDQFHZDVUDWKHUKLJK

2YHUGHVLJQ)DFWRU
$QRYHUGHVLJQIDFWRUPDUJLQLVRIWHQVSHFLILHGIRUWKHGHVLJQRIKHDWH[FKDQJHUVIRURQH
RUPRUHRIWKHIROORZLQJUHDVRQV
D IXWXUHLQFUHDVHLQFDSDFLW\
E SODQWFRQWUROIOH[LELOLW\
F XSVHWFRQGLWLRQV
G DOWHUQDWHIHHGVWRFNV
H XQFHUWDLQW\LQUHVXOWVRISURFHVVVLPXODWLRQ
7KLV RYHUGHVLJQ IDFWRU PD\ EH RQ KHDW WUDQVIHU VXUIDFH RQO\ H[FHVV DUHD ZKHQ WKH
WKHUPDOGHVLJQZLOOKDYHWREHSHUIRUPHGRQWKHVSHFLILHGIORZUDWHV8VXDOO\KRZHYHU
WKH RYHUGHVLJQ IDFWRU LV VSHFLILHG IRU ERWK IORZ UDWHV DQG KHDW GXW\ 6LQFH D KHDW
H[FKDQJHUFDQEHGHVLJQHGRQO\IRUDFRQVLVWHQWVHWRISDUDPHWHUVWKLVRYHUGHVLJQIDFWRU
VKRXOGEHWKHVDPHIRUVKHOOVLGHIORZUDWHWXEHVLGHIORZUDWHDQGWKHKHDWGXW\
6RPHWLPHVDSURFHVVGDWDVKHHWVSHFLILHVGLIIHUHQWIDFWRUVIRUIORZUDWHDQGKHDWGXW\
)RUH[DPSOHWKHVKHOOVLGHIORZIDFWRUPD\EHWKHWXEHVLGHIORZIDFWRUDQGWKH
KHDWGXW\,QVXFKFDVHVWKHPDWWHUVKRXOGEHUHFRQFLOHGZLWKWKHSURFHVVOLFHQVRUVR
WKDWWKHVDPHIDFWRULVVSHFLILHGIRUDOOWKHWKUHHSDUDPHWHUV,IQHFHVVDU\WKHOLFHQVRUPD\
VSHFLI\DQDGGLWLRQDOPXOWLSOLHUIRUIORZUDWHVIRUSUHVVXUHGURSSXUSRVHVRQO\LIWKHVDPHLV
H[SHFWHGWRJRXSXQGHUFHUWDLQFRQGLWLRQV
,QVRPHLQVWDQFHVWKHSURFHVVOLFHQVRUPD\VSHFLI\GLIIHUHQWPXOWLSOLHUVIRUWKHVKHOOVLGH

 
DQGWXEHVLGH IORZUDWHVIRUDQDOWHUQDWHFDVH RI RSHUDWLRQDQGUHTXHVWWKDWIRUWKHWKHUPDO
GHVLJQJHRPHWU\ILQDOL]HGWKHKHDWH[FKDQJHUGHVLJQHULQGLFDWHWKHRXWOHWWHPSHUDWXUHVRI
ERWKVWUHDPVIRUFHUWDLQVSHFLILHGLQOHWWHPSHUDWXUHV7KLVVLWXDWLRQLVDFFHSWDEOHVLQFHLWLV
UHDOLVWLFDQGWKHUHLVQRLQFRQVLVWHQF\$QDOWHUQDWHSHUIRUPDQFHUXQQHHGRQO\EHWDNHQWR
LQGLFDWHWKHGHVLUHGGDWD
,IWKHSURFHVVHQJLQHHUVSHFLILHVRYHUGHVLJQRQIORZDQGGXW\DQGDOVRVSHFLILHVH[FHVV
DUHDERWKVKRXOGEHFRPSOLHGZLWK7KHH[FHVVDUHDUHTXLUHGFRXOGEHWRZDUGVXQFHUWDLQWLHV
LQVLPXODWLRQ ZKHUHDVWKH PDUJLQ RQ IORZUDWHV FRXOG EHWRZDUGV IXWXUH LQFUHDVH LQSODQW
FDSDFLW\
,Q RUGHU WR PDLQWDLQ D VDWLVIDFWRU\ YHORFLW\ LQVLGH WKH WXEHV WKH RYHUGHVLJQ RI D KHDW
H[FKDQJHUPD\VRPHWLPHVEHRQWKHKLJKHUVLGHVLQFHUHGXFWLRQLQWKHQXPEHURIWXEHVWR
UHGXFHRYHUGHVLJQPD\LQFUHDVHWKHWXEHVLGHSUHVVXUHGURSEH\RQGWKHDOORZDEOHOLPLW7KLV
LVDFFHSWDEOH

7XEH3OXJJLQJ
$OWKRXJK QRW XVXDOO\ VSHFLILHG IRU WKH VDPH DQG RIWHQ QRW UHDOL]HG GLUHFWO\ DQ
RYHUGHVLJQ PDUJLQ LV RIWHQ XVHIXO LQ WKDW LW SHUPLWV D FHUWDLQ H[WHQW RI WXEH SOXJJLQJ
EHIRUHDKHDW H[FKDQJHUKDVWREHWDNHQ RXWIRUUHSDLU(YLGHQWO\WKHWKURXJKSXWRIWKH
WXEHVLGHIOXLGFDQEHVXVWDLQHGRQO\LIWKHUHLVVXIILFLHQWPDUJLQLQWXEHVLGHSUHVVXUHGURS
7KXVHYHQLIRQO\RIWKHWXEHVLQDKHDWH[FKDQJHUDUHSOXJJHGWKHWXEHVLGHSUHVVXUH
GURSZLOOLQFUHDVHE\DERXW:HDOONQRZWKDWGHVSLWHWKHEHVWSUDFWLFHVLQPDWHULDO
VHOHFWLRQDQGH[FKDQJHUGHVLJQIDEULFDWLRQWHVWLQJWXEHVGRIDLORFFDVLRQDOO\LQUHDOOLIH
7KHUHIRUH LW LV YHU\ XVHIXO LI WKH SHUPLWWHG WXEHVLGH SUHVVXUH GURS LV QRW XWLOL]HG
FRPSOHWHO\EXWDVPDOOPDUJLQOHIWXQXWLOL]HG


 
 &+$37(5

)RXOLQJ,WV&RQVHTXHQFHV
DQG0LWLJDWLRQ

)RXOLQJPD\EHGHILQHGDVWKHGHSRVLWLRQRIXQGHVLUDEOHPDWWHURQDKHDWWUDQVIHUVXUIDFH
DQG LV DQ LQHYLWDEOH FRQVHTXHQFH RI WKH SURFHVV RI KHDW WUDQVIHU EHWZHHQ WZR VWUHDPV
DFURVV D PHWDO ZDOO 7DERUHN FDOOHG LW WKH ³PDMRU XQUHVROYHG SUREOHP LQ KHDW WUDQVIHU´
ZD\ EDFN LQ  >@ DQG WKH VLWXDWLRQ GRHV QRW DSSHDU WR KDYH FKDQJHG VLJQLILFDQWO\
6LQFH IRXOLQJKDVDGLUHFW LPSDFWRQWKH HQHUJ\ HIILFLHQF\RIDKHDWH[FKDQJHURQERWK
KHDW WUDQVIHU DQG SUHVVXUH GURS LW LV HVVHQWLDO IRU WKH GHVLJQHU WR EH IXOO\ DZDUH RI WKH
SKHQRPHQRQLWVFRQVHTXHQFHVDQGLWVPLWLJDWLRQ
(YLGHQWO\ IRXOLQJ FDQ WDNH SODFH ERWK LQVLGH DQG RXWVLGH WXEHV GHSHQGLQJ XSRQ WKH
QDWXUHRIWKHIOXLGVIORZLQJ7KHGHSRVLWLRQRIWKHIRXODQWUHVXOWVLQ
 DUHGXFWLRQLQWKHRYHUDOO KHDWWUDQVIHUFRHIILFLHQW GXHWRWKH H[WUDUHVLVWDQFHWR
KHDWWUDQVIHUWKHUHE\UHVXOWLQJLQDODUJHUKHDWWUDQVIHUDUHD
 DUHGXFWLRQLQWKHDUHDRIWKHIORZSDVVDJHVUHVXOWLQJLQLQFUHDVHGSUHVVXUHGURS
RIWKHIORZLQJVWUHDPV
7KH H[WHQW RI IRXOLQJ YDULHV PDUNHGO\ ZLWK WKH QDWXUH RI WKH IOXLGV EHLQJ KDQGOHG
&RQVHTXHQWO\ H[FKDQJHUV WKDW KDQGOH FOHDQ IOXLGV PD\ UHPDLQ ODUJHO\ IUHH RI IRXOLQJ
ZKHUHDVH[FKDQJHUVWKDWKDQGOHGLUW\VWUHDPVPD\EHFRQVWDQWO\DIIOLFWHGE\LW
$ IDFW WKDW LV XVXDOO\ QRW UHFRJQL]HG LV WKDW WKH LQFUHDVH LQ SUHVVXUH GURS LV XVXDOO\ D
PRUHVHULRXVFRQVHTXHQFHRIIRXOLQJWKDQWKHLQFUHDVHLQWKHWKHUPDOUHVLVWDQFHDQGWKHUHE\
WKHUHGXFWLRQLQWKHKHDWWUDQVIHUFRHIILFLHQW:KHQDKHDWH[FKDQJHULVWDNHQRXWRIVHUYLFH
IRUFOHDQLQJLWLVLQYDULDEO\GXHWRWKHUHGXFHGWKURXJKSXWDVDUHVXOWRISDUWLDOEORFNDJHRI
IORZDUHDVUDWKHUWKDQUHGXFHGWKHUPDOSHUIRUPDQFH
7KHDGYHUVHHIIHFWVRIIRXOLQJDUH
 ,QFUHDVHGFDSLWDOFRVWGXHWRWKHUHGXFHGRYHUDOOKHDWWUDQVIHUFRHIILFLHQW
 $GGLWLRQDOHQHUJ\UHTXLUHPHQWWRPDNHXSIRUWKHORVVLQSHUIRUPDQFH
 0DLQWHQDQFH FRVWV IRU DQWLIRXODQW FKHPLFDO WUHDWPHQW DQG FOHDQLQJ RI IRXOHG
VXUIDFHV
 'RZQWLPHFRVWDVVRFLDWHGZLWKWKHRXWDJHRIWKHKHDWH[FKDQJHUIRUFOHDQLQJ
 5HGXFWLRQLQWKURXJKSXW
,Q RUGHU WR YLYLGO\ GHPRQVWUDWH WKH H[WHQW RI IRXOLQJ DQG LWV UHSHUFXVVLRQ LQ D KHDW H[
FKDQJHU7DEOHSUHVHQWVWKHSHUFHQWDJHRIWKHFRPELQHGVKHOOVLGHDQGWXEHVLGHIRXO
LQJUHVLVWDQFHLQWKHKHDWH[FKDQJHUVLQDQRLOUHILQHU\FUXGHSUHKHDWWUDLQ+HUHFUXGH
RLOLVSURJUHVVLYHO\KHDWHGE\WKHSURGXFWVDQGFLUFXODWLQJUHIOX[VWUHDPVIURPWKHDWPRV

 
 7DEOH)RXOLQJLQDFUXGHSUHKHDWWUDLQ
+HDWLQJPHGLXPIRXOLQJ 7RWDOIRXOLQJUHVLVWDQFH
&UXGHRLOIRXOLQJUHVLVWDQFH UHVLVWDQFHDVSHUFHQWRIWRWDO DVSHUFHQWRIWRWDO
,WHPQR DVSHUFHQWRIWRWDOUHVLVWDQFH UHVLVWDQFH UHVLVWDQFH

 (   

 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   
 (   

SKHULF DQG YDFXXP GLVWLOODWLRQ FROXPQV )RU D EHWWHU UHSUHVHQWDWLRQ WKH VDPH GDWD LV
SUHVHQWHG JUDSKLFDOO\ LQ )LJ  ,W ZLOO EH VHHQ WKDW WKH ORZHVW FRPELQHG FUXGH DQG
KHDWLQJ PHGLXP IRXOLQJ UHVLVWDQFH DV D SHUFHQWDJH RI WKH WRWDO UHVLVWDQFH WR KHDW
WUDQVIHULVWKHKLJKHVWLV7KHDYHUDJHZRUNVRXWWR7KXVRIWKH
WRWDO P RI KHDWWUDQVIHUDUHDSURYLGHGIRUDOO RIWKH KHDW H[FKDQJHUV P
KDGWREHSURYLGHGWRDFFRXQWIRUIRXOLQJDORQH
,QDVKHOODQGWXEH KHDW H[FKDQJHUWKHUHDUH ILYHUHVLVWDQFHVWR KHDWWUDQVIHU QDPHO\
VKHOOVLGHILOPVKHOOVLGH IRXOLQJWXEHVLGHILOPWXEHVLGHIRXOLQJDQG WXEH ZDOO,Q RUGHUWR
DSSUHFLDWH WKH SHUFHQWDJHV RI WKHVH UHVLVWDQFHV DQG WKHLU YDULDWLRQ )LJ  VKRZV WKHVH
YDOXHVIRUDW\SLFDOO\GLUW\VHUYLFHERWKVKHOOVLGHDQGWXEHVLGHDQGDW\SLFDOO\FOHDQVHUYLFH
ERWKVKHOOVLGHDQGWXEHVLGH
 
&DWHJRULHVRI)RXOLQJ
7KHUHDUHVL[SULQFLSDOFDWHJRULHVRIIRXOLQJ
 3UHFLSLWDWLRQIRXOLQJVFDOLQJLVWKHSUHFLSLWDWLRQRIGLVVROYHGVXEVWDQFHVRQWKH
KHDW WUDQVIHU VXUIDFH ,I WKH GLVVROYHG VROXWHV KDYH LQYHUVH VROXELOLW\ FKDUDF
WHULVWLFV WKH SUHFLSLWDWLRQ ZLOO WDNH SODFH RQ VXSHUKHDWHG VXUIDFHV 3UHFLSLWDWLRQ
IRXOLQJLVRIWHQUHIHUUHGWRDVVFDOLQJHJFDOFLXPVXOIDWHLQZDWHU
 3DUWLFXODWH IRXOLQJ LV WKH DFFXPXODWLRQ RI SDUWLFOHV VXVSHQGHG LQ D IOXLG RQ WKH
KHDW WUDQVIHU VXUIDFH ,W LV FDXVHG E\ JUDYLW\ LQ VRPH DSSOLFDWLRQV ZKHUH LW LV
UHIHUUHG WR DV VHGLPHQWDWLRQ IRXOLQJ $ FRPPRQ H[DPSOH RI VHGLPHQWDWLRQ
IRXOLQJLVWKDWRIUXVWSDUWLFOHVLQFRROLQJZDWHU
 &RUURVLRQIRXOLQJRFFXUVZKHQWKHKHDWWUDQVIHUVXUIDFHLWVHOIUHDFWVWRSURGXFH
FRUURVLRQ SURGXFWV ZKLFK WKHQ IRXO WKH KHDW WUDQVIHU VXUIDFH 5XVWLQJ RI FDUERQ
VWHHO LV WKH PRVW FRPPRQ H[DPSOH RI FRUURVLRQ IRXOLQJ $V WKH KHDW WUDQVIHU
VXUIDFHEHFRPHVURXJKHUGXHWRFRUURVLRQIRXOLQJLWSURGXFHVQXFOHDWLRQVLWHVIRU
SUHFLSLWDWLRQDQGSDUWLFXODWHIRXOLQJ
 &KHPLFDO UHDFWLRQ IRXOLQJ LV WKH IRUPDWLRQ RI GHSRVLWV E\ FKHPLFDO UHDFWLRQ
DPRQJ WKH GLIIHUHQW FRQVWLWXHQWV RI WKH IORZLQJ VWUHDP 7KH VXUIDFH PDWHULDO
LWVHOI GRHV QRW HQWHU LQWR UHDFWLRQ &RPPRQ H[DPSOHV DUH SRO\PHUL]DWLRQ
FRNLQJDQGFUDFNLQJRIK\GURFDUERQV
 %LRIRXOLQJLVWKHDWWDFKPHQWRIELRORJLFDOPLFURRUPDFURRUJDQLVPVWRWKHKHDW
WUDQVIHU VXUIDFH $ FRPPRQ H[DPSOH LV IRXOLQJ E\ EDUQDFOHV DQG DOJDH LQ VHD
ZDWHUVHUYLFHV
 6ROLGLILFDWLRQ IRXOLQJ LV
WKH VROLGLILFDWLRQ RI D
SXUHOLTXLG RUSDUWLFXODU
FRQVWLWXHQWV RI D OLTXLG
VROXWLRQ RQ D VXEFRROHG
KHDW WUDQVIHU VXUIDFH $
FRPPRQ H[DPSOH LV LFH
IRUPDWLRQ DW VXE]HUR
WHPSHUDWXUHV
,Q D JLYHQ KHDW H[FKDQJHU
DSSOLFDWLRQGHSHQGLQJXSRQWKH
VLWXDWLRQ RQH RU PRUH RI WKH )LJ  +HDW H[FKDQJHUV LQ D FUXGH SUHKHDW WUDLQ ± IRXOLQJ
DERYH PRGHV RI IRXOLQJ PD\ UHVLVWDQFHDVDSHUFHQWDJHRIWRWDOUHVLVWDQFHWRKHDWWUDQVIHU
RFFXU LQ FRQMXQFWLRQ 7KLV LV
ZKDWPDNHVIRXOLQJDYHU\FRP
SOH[ DQG XQSUHGLFWDEOH SKHQR
PHQRQ
7KHUHDUHVHYHUDOSDUDPHWHUV
ZKLFK DIIHFW WKH GHJUHH RI WKH
YDULRXVW\SHVRIIRXOLQJ

3URJUHVVRI)RXOLQJ
7KHEXLOGXSRIIRXOLQJRQDKHDW 
WUDQVIHUVXUIDFHLVLGHDOO\UHSUH )LJ  &RQWULEXWLRQ RI IRXOLQJ WRZDUGV RYHUDOO KHDW WUDQVIHU
FRHIILFLHQW± W\SLFDOVFHQDULRV
 
VHQWHGE\DQDV\PSWRWLFFXUYHDVVKRZQLQ)LJ7KHUHDUHWKUHHGLVWLQFWUHJLRQVLQ
WKLVFXUYH
D DQLQLWLDOSHULRG±ZKHUHWKHUHLVYHU\OLWWOHHYLGHQFHRIDQ\IRXOLQJDQGPD\EH
FRQVLGHUHG WR EH DQ LQLWLDWLRQ SHULRG ZKLFK PD\ UDQJH IURP D IHZ KRXUV WR
VHYHUDOZHHNV7KLVZLOOGHSHQGXSRQVHYHUDOSDUDPHWHUVZKLFKDUHGLVFXVVHGLQ
6HFWLRQ
E 3HULRG ± ZKHUHLQ D VWHDG\ LQFUHDVH LQ IRXOLQJ GHSRVLWLRQ LV REVHUYHG 7KLV
SHULRGFRXOGYDU\IURPDIHZKRXUVWRVHYHUDOPRQWKV
F 3HULRG±ZKHUHWKHUDWHRILQFUHDVHRIIRXOLQJUHVLVWDQFHGHFUHDVHVIURPWKDWLQ
WKH SHULRG ± DQG WKH FXUYH DWWDLQV D SODWHDX RU DV\PSWRWLF IRXOLQJ UHVLVWDQFH
YDOXH
,QUHDOOLIHKRZHYHUDIRXOLQJFXUYHPD\YDU\FRQVLGHUDEO\IURPWKLVLGHDOL]HGFXUYHVR
WKDWLQVRPHFDVHVWKHUHPD\EHQRLQLWLDWLRQSHULRGDQGLQRWKHUVWKHLQFUHDVHLQIRXOLQJ
UHVLVWDQFHPD\EHYLUWXDOO\OLQHDU:KDWHYHUWKHQDWXUHRIDIRXOLQJFXUYHWKHUHZLOOFRPH
D WLPH ZLWK PRVW IOXLGV ZKHQ WKH WKHUPDO DQG K\GUDXOLF SHUIRUPDQFH RI D JLYHQ KHDW
H[FKDQJHUZLOOGHWHULRUDWHWRVXFKDQH[WHQWWKDWWKHKHDWWUDQVIHUVXUIDFHZLOOKDYHWREH
FOHDQHGWRUHVWRUHWKHRULJLQDORUFORVHWRRULJLQDOSHUIRUPDQFH
(YLGHQWO\WKHKLJKHUWKHIRXOLQJUHVLVWDQFHFRQVLGHUHGIRUDSDUWLFXODUVWUHDPWKHORQJHU
ZLOODKHDWH[FKDQJHUEHDEOHWRRSHUDWHEHIRUHEHLQJVXEMHFWHGWRDVKXWGRZQ+RZHYHUWKH
KLJKHUIRXOLQJUHVLVWDQFHZLOODOVRPHDQDFRVWOLHUKHDWH[FKDQJHU7KHUHIRUHWKHVHOHFWLRQRI
DGHVLJQIRXOLQJUHVLVWDQFHZLOOKDYHWREHPDGHRQWKHEDVLVRIRSWLPL]DWLRQRIWKHWRWDOFRVW
IL[HGSOXVRSHUDWLQJFRVW
7KHUHLVDQRWKHUIDFWRUWKDWKDVWREHFRQVLGHUHGLQWKLVFRQWH[WDQGWKDWLVWKHQRUPDO
WXUQDURXQGRIDSODQW$OOSODQWVKDYHWREHVKXWGRZQSHULRGLFDOO\IRULQVSHFWLRQDQGRYHU
KDXOLQJRIHTXLSPHQWSLSLQJLQVWUXPHQWDWLRQHWF7KLVSHULRGXVXDOO\YDULHVIURPWR
PRQWKV 7KXV LW LV D QRUPDO SUDFWLFH WR FRQVLGHU WKLV QRUPDO WXUQDURXQG SHULRG IRU WKH
VHOHFWLRQRIGHVLJQIRXOLQJUHVLVWDQFHVRIDOOIORZLQJVWUHDPVVRWKDWWKHKHDWH[FKDQJHUVFDQ
EHFOHDQHGLQWKHVDPHSHULRG

3DUDPHWHUV7KDW$IIHFW)RXOLQJ
7KHSULQFLSDOSDUDPHWHUVDUH
 7KHQDWXUHRIWKHIORZLQJIOXLG²ZKHWKHUFOHDQRUGLUW\7KLVLVWKHVWDUWLQJSRLQW
IRUDOOGLVFXVVLRQVRQIRXOLQJDQGLWLVRQO\IRUGLUW\VWUHDPVWKDWDOOWKHVXEVH
TXHQW FRQVLGHUDWLRQV DVVXPH LPSRUWDQFH )RU KHDW H[FKDQJHUV KDQGOLQJ FOHDQ
VWUHDPV VXFK DV VWHDP DQG YHU\
OLJKW K\GURFDUERQV IRXOLQJ LV QRW D
SUREOHP DW DOO 2Q WKH RWKHU KDQG
KHDY\K\GURFDUERQVWUHDPVVXFKDV
ORQJ UHVLGXH RU YDFXXP JDV RLOV
IRXO UHDGLO\ DQG FDXVH FRQVLGHUDEOH
GHWHULRUDWLRQLQSHUIRUPDQFH
)LJ$QLGHDOL]HGIRXOLQJFXUYH
 
 )ORZ YHORFLW\ DQG WHPSHUDWXUH
DUH SHUKDSV WKH PRVW FUXFLDO YDUL
DEOHV WKDW FRQWURO WKH IRXOLQJ SUR
FHVV$KLJKYHORFLW\PLQLPL]HVYLU
WXDOO\DOOW\SHVRIIRXOLQJ)RXOLQJLV
D G\QDPLF SURFHVV ZKHUHLQ GHSRVL
 WLRQDQGUHPRYDO RIIRXODQW RFFXUVLPXOWDQHRXVO\7KH QHW IRXOLQJDWDQ\ JLYHQ
LQVWDQFH UHSUHVHQWV WKH HTXLOLEULXP EDODQFH EHWZHHQ WKHVH WZR RSSRVLQJ
SKHQRPHQD
:LWK LQFUHDVH LQ YHORFLW\ WKH YLVFRXV VXEOD\HU FORVH WR WKH WXEH ZDOO EH
FRPHVWKLQQHUWKHUHE\UHVXOWLQJLQDUHGXFWLRQLQWKHUHVLVWDQFHWRGLIIXVLRQIURP
WKHEXONWRWKHZDOO7KLVSHUPLWVDFRPSDUDWLYHO\KLJKHUUDWHRIGHSRVLWLRQIRUD
GLIIXVLRQFRQWUROOHGIRXOLQJSURFHVV+RZHYHUDWWKHVDPHWLPHWKHKLJKHUYHO
RFLW\LQFUHDVHVWKHVKHDULQJIRUFHVWKDWWHQGWRUHPRYHWKHIRXOHGGHSRVLW7KHQHW
UDWH RIIRXOLQJ ZLOOWKHUHIRUH GHSHQGXSRQWKHVHWZRRSSRVLQJ HIIHFWVRI YHOR
FLW\8VXDOO\WKHUDWHRIGHFUHDVHRIIRXOLQJGXHWRWKHLQFUHDVHLQWKHVKHDUIRUFH
LVJUHDWHUWKDQWKHUDWHRILQFUHDVHRIGHSRVLWLRQGXHWRWKHUHGXFWLRQRIWKHYLV
FRXVVXEOD\HU&RQVHTXHQWO\KLJKHUYHORFLWLHVLQYDULDEO\UHVXOWLQOHVVIRXOLQJ
7KH JHQHUDO QDWXUH RI WKH GHJUHH RI IRXOLQJ YHUVXV IORZ YHORFLW\ LV
UHSUHVHQWHGLQ)LJ
 7KH WHPSHUDWXUH RI WKH IOXLGIRXODQW LQWHUIDFH VWURQJO\ LQIOXHQFHV WKH H[WHQW RI
YDULRXV PRGHV RI IRXOLQJ %XON IOXLG WHPSHUDWXUHV DQG WKHLU KHDW WUDQVIHU
FRHIILFLHQWVDVZHOODVWKHIRXOLQJDQGWXEHZDOOUHVLVWDQFHVZLOOGHWHUPLQHWKLV
LQWHUIDFHWHPSHUDWXUH:KHQ QRUPDOVROXELOLW\VDOWVROXWLRQVDUHKHDWHGWKH\GR
QRW H[KLELW IRXOLQJ VLQFH WKH VROXELOLW\ LQFUHDVHV DW KLJKHU WHPSHUDWXUHV
+RZHYHUFRROLQJVXFKVROXWLRQVZLOOREYLRXVO\UHVXOWLQIRXOLQJSUREOHPV
7KH UHYHUVH LV WUXH IRU LQYHUVHVROXELOLW\ VDOWV VXFK DV FDOFLXP VXOIDWH
FDOFLXP FDUERQDWHDQG PDJQHVLXPK\GUR[LGH,IWKHWHPSHUDWXUHDWWKHVXUIDFH
LQFUHDVHVDERYHWKHVROXELOLW\OLPLWWKHGLVVROYHGVDOWVZLOOFRPHRXWRIVROXWLRQ
DQGGHSRVLWRQWKHWXEHVXUIDFH+RZHYHUDVIRXOLQJLQFUHDVHVWKHLQWHUIDFHWHP
SHUDWXUH UHGXFHV DV D UHVXOW RI WKH H[WUD WKHUPDO UHVLVWDQFH RI WKH IRXODQW
FRQVHTXHQWO\WKHQHWUDWHRIIRXOLQJUHGXFHV7KXVDQDV\PSWRWLFFXUYHUHVXOWV
7KHUDWHVRIFKHPLFDOUHDFWLRQDUHDVWURQJIXQFWLRQRIWHPSHUDWXUH7KXVLID
IRXOLQJ SURFHVV LQYROYHV D FKHPLFDO UHDFWLRQ WKH H[WHQW RI IRXOLQJ ZLOO GHSHQG
XSRQWHPSHUDWXUH7KHUDWHRI LQFUHDVH RUGHFUHDVH RIIRXOLQJ ZLWKWLPH ZLOOEH
UHODWHGWRWKHUDWHFRQVWDQWRIWKHFKHPLFDOUHDFWLRQLWVHOI
&RUURVLRQ LV EDVLFDOO\ D FKHPLFDO UHDFWLRQ &RQVHTXHQWO\ WKH IRXOLQJ RI
VXUIDFHVE\WKHSURGXFWVRIFRUURVLRQZLOOEHGHSHQGHQWXSRQWHPSHUDWXUH
%LRIRXOLQJLVDOVRDVWURQJIXQFWLRQRIWHPSHUDWXUH$WKLJKHUWHPSHUDWXUHV
WKHUDWHVRIFKHPLFDODQGHQ]\PHUHDFWLRQVLQFUHDVHZLWKDUHVXOWDQWLQFUHDVHLQ
WKHUDWHRIFHOOJURZWK+RZHYHULIWKHWHPSHUDWXUHLQFUHDVHVHYHQIXUWKHUVRPH
KHDWVHQVLWLYH FHOO FRQVWL
WXHQWVPD\GHDFWLYDWH)RUD
SDUWLFXODURUJDQLVPWKHUHLV
D WHPSHUDWXUH EHORZ ZKLFK
UHSURGXFWLRQDQGJURZWKDUH
UHWDUGHG DQG D WHPSHUDWXUH
DERYH ZKLFK WKH RUJDQLVP
FHDVHV WR WKULYH DQG PD\
HYHQEHGHVWUR\HG%HWZHHQ
WKHVHWZRWHPSHUDWXUHOHYHOV
LV D UDQJH ZKHUH FHOO DFWL
YLW\ LV WKH KLJKHVW 7KLV
WHPSHUDWXUH UDQJH PD\ EH )LJ9DULDWLRQLQIRXOLQJUHVLVWDQFHZLWKIORZYHORFLW\
 
 UDWKHU ODUJH IURP EHORZ IUHH]LQJ WR DERXW ƒ) ƒ& GHSHQGLQJ XSRQ WKH
RUJDQLVPLQTXHVWLRQ
 0DWHULDORIFRQVWUXFWLRQDQGVXUIDFHILQLVK²7KHURXJKQHVVVL]HDQGGHQVLW\RI
FDYLWLHVDIIHFWFU\VWDOOLQHQXFOHDWLRQVHGLPHQWDWLRQDQGWKHVWLFNLQJWHQGHQF\RI
GHSRVLWV ,W LV JHQHUDOO\ EHOLHYHG WKDW YHU\ VPRRWK VXUIDFHV DUH OHVV OLNHO\ WR
UHFHLYHDQGUHWDLQ GLUWWKDQDUHURXJKVXUIDFHV+RZHYHULW PD\EHDUJXHGWKDW
WKLVZLOOEHWUXHRQO\IRUWKHLQLWLDOIRXOLQJEHFDXVHWKHUHDIWHUWKHVXUIDFHZLOOQR
ORQJHU EH URXJK +RZHYHU WKH SUDFWLFDO H[SHULHQFH LV WKDW SROLVKHG RU VPRRWK
VXUIDFHVIRXOVLJQLILFDQWO\OHVVWKDQURXJKRQHV
,QVXFKDFRPSOLFDWHGVFHQDULRZKHUHWKHUHDUHYDULRXVPRGHVRIIRXOLQJDV
ZHOODVVHYHUDOIDFWRUVZKLFKGHWHUPLQHWKHGHJUHHRIWKHYDULRXVPRGHVRIIRXO
LQJLWLVHYLGHQWWKDWWKHSUHGLFWLRQRIWKHH[WHQWRIIRXOLQJLVH[WUHPHO\GLIILFXOW
&RQVHTXHQWO\ LW EHFRPHV XQDYRLGDEOH WR DGRSW D TXDOLWDWLYH DSSURDFK DQG UHO\
RQ SDVW H[SHULHQFH IRU WKH VHOHFWLRQ RI IRXOLQJ UHVLVWDQFHV IRU YDULRXV VHUYLFHV
7(0$ 7XEXODU ([FKDQJHU 0DQXIDFWXUHUV¶ $VVRFLDWLRQ VSHFLILHV SRLQW DQG
UDQJH YDOXHV RI YDULRXV VWUHDPV HQFRXQWHUHG LQ WKH FKHPLFDO SURFHVVLQJ LQGXV
WULHV>@7KHVHYDOXHVDUHIRUJXLGDQFHRQO\DQGVKRXOGEHPRGLILHGEDVHGXSRQ
DFWXDORSHUDWLQJIHHGEDFNZKHUHYHUDYDLODEOH,IQRDFWXDOGDWDLVDYDLODEOHWKH
7(0$YDOXHVVKRXOGEHDGRSWHG7KHVHOHFWLRQRIDSSURSULDWHIRXOLQJUHVLVWDQFHV
FRQWULEXWHVVLJQLILFDQWO\LQHQVXULQJVDWLVIDFWRU\RSHUDWLRQRIKHDWH[FKDQJHUV

+RZWR3URYLGHD)RXOLQJ$OORZDQFH
0DQ\ KHDW H[FKDQJHUV RSHUDWH VDWLVIDFWRULO\ IRU VHYHUDO \HDUV ZLWKRXW FOHDQLQJ 2WKHUV
DUH FRQVWDQWO\ DIIOLFWHG E\ IRXOLQJ +RZHYHU PRVW KHDW H[FKDQJHUV H[SHULHQFH VRPH
IRXOLQJ VR WKDW LW EHFRPHV QHFHVVDU\ WR SURYLGH VXIILFLHQW KHDW WUDQVIHU DUHD WR HQDEOH
WKHP WR RSHUDWH IRU D UHDVRQDEO\ ORQJ SHULRG RI WLPH XVXDOO\ RQH RUWZR \HDUVEHIRUH
UHTXLULQJVKXWGRZQDQGFOHDQLQJ
7KH H[WUD KHDW WUDQVIHU DUHD WKDW PXVW EH SURYLGHG WR DFFRXQW IRU IRXOLQJ LV XVXDOO\
GHWHUPLQHGLQRQHRIWKHIROORZLQJWKUHHZD\V
 $VVLJQ D IRXOLQJ UHVLVWDQFH WR HDFK VWUHDP WKDW LV D UHVLVWDQFH WR KHDW WUDQVIHU
FDXVHGE\WKHIRXOLQJOD\HUGHSRVLWHGRQWKHWXEHZDOO7KLVLVRIWHQLQFRUUHFWO\
UHIHUUHG WR DV D ³IRXOLQJ IDFWRU´ $ IDFWRU LV VRPHWKLQJ RQH PXOWLSOLHV ZLWK
ZKHUHDVDUHVLVWDQFHLVVRPHWKLQJRQHDGGV
 $SSO\DQRYHUDOO³FOHDQOLQHVVIDFWRU´ZKLFKLVWKHUDWLRRIWKHIRXOHGRYHUDOOKHDW
WUDQVIHUFRHIILFLHQWWRWKHFOHDQRYHUDOOKHDWWUDQVIHUFRHIILFLHQWXVXDOO\EHWZHHQ
²7KLVSUDFWLFH ZDVGHYHORSHGVSHFLILFDOO\IRUVWHDPVXUIDFHFRQGHQVHUV
LQWKHSRZHULQGXVWU\ZKHUHIRXOLQJLVSUHGRPLQDQWO\RQWKHFRROLQJZDWHUVLGH
6LQFHWKHFOHDQOLQHVVIDFWRUGRHVQRWGLVWLQJXLVKEHWZHHQIRXOLQJRQWKHWZRVLGHV
RIWKHWXEH ZDOODQGVLQFHLWLVDUELWUDU\LWVXVHLVQRWFRPPRQ LQWKHFKHPLFDO
SURFHVVLQGXVWULHV
 $WKLUGDSSURDFKLVWRDGGDFHUWDLQSHUFHQWDJHRIDGGLWLRQDOKHDWWUDQVIHUVXUIDFH
XVXDOO\±WRWKDWGHWHUPLQHGIURPWKHFOHDQRYHUDOOKHDWWUDQVIHUFRHIIL
FLHQW7KLVPHWKRGRORJ\DOVRGRHVQRWGLVWLQJXLVKEHWZHHQVKHOOVLGHDQGWXEHVLGH
IRXOLQJEXWWUHDWVWKHPWRJHWKHUDVDOXPSVXP)XUWKHULIWKHQXPEHURIWXEHVLV
LQFUHDVHGWRDGGKHDWWUDQVIHUDUHDWKHWXEHVLGHKHDWWUDQVIHUFRHIILFLHQWZLOOGH
FUHDVHGXHWRWKHORZHUYHORFLW\LQVLGHWKHWXEHV7KHVKHOOVLGHKHDWWUDQVIHUFRHI
ILFLHQWZLOODOVRGHFUHDVHEHFDXVHRIWKHUHGXFHGYHORFLW\FDXVHGE\WKHLQFUHDVHG

 
 VKHOO GLDPHWHU XQOHVV FRPSHQVDWHG IRU E\ UHGXFHG EDIIOH VSDFLQJ DQGRU EDIIOH
FXW 2QH ZD\ RXW LV WR LQFRUSRUDWH DQ ³RYHUGHVLJQ´ RU ³H[FHVV DUHD´ RI WKH
VSHFLILHGDPRXQW±LQWKHILQDO GHVLJQ JHRPHWU\EDVHGXSRQWKHDFWXDO
RYHUDOOKHDWWUDQVIHUFRHIILFLHQW
6LQFHWKHUHDUHLQQXPHUDEOHKHDWH[FKDQJHUVHUYLFHVFRPELQDWLRQVRIKRWIOXLGDQGFROG
IOXLGSRVVLEOHLQWKHFKHPLFDOSURFHVVLQGXVWULHVWKHORJLFDODQGVFLHQWLILFPHWKRGRORJ\
WRDFFRXQWIRUIRXOLQJLVWRXVHWKHIRXOLQJUHVLVWDQFHPHWKRG,QIDFWWKLVLVWKHPHWKRG
WKDWLVIROORZHGXQLYHUVDOO\

$SSO\IRXOLQJDOORZDQFHIRUIRXOLQJRQO\
,WPXVWEHPHQWLRQHGKHUHWKDWWKHDSSOLFDWLRQRIIRXOLQJUHVLVWDQFHVVKRXOGEHDLPHGRQO\
DW PDNLQJ DQ DOORZDQFH IRU DQWLFLSDWHG IRXOLQJ ,W VKRXOG QRW FDWHU WR XQFHUWDLQWLHV LQ
GHVLJQ PHWKRGRORJ\ ZKHWKHU LQ SURFHVV VLPXODWLRQ RU LQ WKH WKHUPDO GHVLJQ VRIWZDUH
WKH SUHGLFWLRQ RI SK\VLFDO SURSHUWLHV RU IXWXUH LQFUHDVH LQ SODQW FDSDFLW\ ,I VXFK
SRVVLELOLWLHVH[LVWWKH\VKRXOGEHFDWHUHGWRE\VSHFLILFDOORZDQFHVIRUHDFK)RUH[DPSOH
D  PDUJLQ PD\ EH UHWDLQHG IRU XQFHUWDLQWLHV LQ SK\VLFDO SURSHUWLHV DQGRU D 
PXOWLSOLHU PD\ EH DSSOLHG WR IORZ UDWHV DQG KHDW GXW\ LQ YLHZ RI IXWXUH FDSDFLW\
H[SDQVLRQ 7KH DGYDQWDJH RI WKLV PHWKRGRORJ\ LV WKDW WKHUH ZLOO EH D PXFK ORZHU
SUREDELOLW\ RI RYHUVSHFLI\LQJ WKH ³RYHUDOO´ PDUJLQ WKDW LV DSSOLHG RQ WKH KHDW WUDQVIHU
VXUIDFH WKDQ WKHUH ZRXOG EH E\ DSSO\LQJ D VLQJOH ³RYHUGHVLJQ´ IDFWRU EDVHG RQ DQ
³RYHUDOO´IHHORIWKHVLWXDWLRQWRFDWHUWRDOOWKHXQFHUWDLQWLHVDQGRUUHTXLUHPHQWV

'RQRWRYHUVSHFLI\IRXOLQJUHVLVWDQFH
'HVLJQHUV RIWHQ FRQVLGHU LW SUXGHQW WR DSSO\ FRQVHUYDWLYH IRXOLQJ UHVLVWDQFHV VR DV WR
REWDLQ D ORQJHU WXUQDURXQG SHULRG SHULRG EHWZHHQ VXFFHVVLYH FOHDQLQJV +RZHYHU
XQQHFHVVDULO\KLJKIRXOLQJUHVLVWDQFHVPD\DFWXDOO\FDXVHPRUHKDUPWKDQJRRGEHFDXVH
RIWKHIROORZLQJ
 7KH DSSOLFDWLRQ RI XQGXO\ ODUJH IRXOLQJ UHVLVWDQFHV ZLOO UHVXOW LQ ODUJH KHDW
H[FKDQJHUV ZKHUHE\ LW PD\ QRW EH SRVVLEOH WR PDLQWDLQ VXIILFLHQWO\ KLJK
YHORFLWLHV ZLWKLQ WKH SUHVVXUH GURSV SHUPLWWHG )RU H[DPSOH IRU WKH VDPH
WXEHVLGHYHORFLW\DODUJHUQXPEHURIWXEHVZLOOUHTXLUHDJUHDWHUQXPEHURIWXEH
SDVVHV WKLV ZLOO UHVXOW LQ D KLJKHU SUHVVXUH GURS ,I WKH UHVXOWDQW SUHVVXUH GURS
H[FHHGV WKH DOORZHG OLPLW WKH QXPEHU RI SDVVHV ZLOO KDYH WR EH UHGXFHG 7KLV
ORZHUYHORFLW\ZLOODFWXDOO\UHVXOWLQKHDYLHUIRXOLQJ
2Q WKH VKHOOVLGH D ODUJHU QXPEHU RI WXEHV ZLOO UHVXOW LQ D ODUJHU VKHOO
GLDPHWHU,QRUGHUWR PDLQWDLQWKHVKHOOVLGH YHORFLW\WKHEDIIOHVZLOOKDYHWREH
EURXJKWFORVHUZKLFKDJDLQZLOOUHVXOWLQDKLJKHUSUHVVXUHGURS,IWKLVSUHVVXUH
GURS H[FHHGV WKH DOORZDEOH OLPLW WKH EDIIOH VSDFLQJ ZLOO KDYH WR EH LQFUHDVHG
WKLV ZLOO UHVXOW LQ D ORZHU YHORFLW\ DQG WKHUHE\ JUHDWHU IRXOLQJ ,W LV IRU WKLV
UHDVRQWKDWIRXOLQJLVRIWHQUHIHUUHGWRDVD³VHOIIXOILOOLQJSURSKHF\´
7KHUH LV DQRWKHU SUREOHP ZKHQ EDIIOHV DUH EURXJKW FORVHU WKH OHDNDJH DQG
E\SDVVVWUHDPVLQFUHDVHWKHUHE\LQFUHDVLQJWKHLQHIILFLHQF\RIWKHVKHOOVLGHIORZ
7KLVZDVGLVFXVVHGLQGHWDLOLQ6HFWLRQ
7KXVLWLVLPSHUDWLYHIRUWKHGHVLJQHUQHYHUWRFRPSURPLVHRQIORZYHORFLW\
 7KHDSSOLFDWLRQ RIKLJKIRXOLQJUHVLVWDQFHV ZLOODOVRUHVXOWLQDODUJH GLIIHUHQFH
EHWZHHQWKHFOHDQDQGWKHGLUW\RYHUDOOKHDWWUDQVIHUFRHIILFLHQWV7KXVVXFKKHDW
H[FKDQJHUV ZLOO EH KLJKO\ RYHUVXUIDFHG ZKHQ FOHDQ DW VWDUWXS ZKHQFH WKH\
 
 PD\EHGLIILFXOWWRFRQWURO,QWKLVFRQWH[WLWLVDOZD\VDJRRGLGHDWRH[DPLQHWKH
SHUIRUPDQFHRIDKHDWH[FKDQJHUXQGHUFOHDQFRQGLWLRQVWRGHWHFWDQGDGGUHVVDQ\
SRWHQWLDO SUREOHPV 7KLV LV SDUWLFXODUO\ WUXH RI UHERLOHUV DQG ZDV GLVFXVVHG LQ
&KDSWHU
7KHUHIRUHLWLVVWURQJO\UHFRPPHQGHGWKDWRQO\UHDOLVWLFIRXOLQJUHVLVWDQFHV
EHFRQVLGHUHGIRUKHDWH[FKDQJHUGHVLJQ

6HOHFWLRQRI)RXOLQJ5HVLVWDQFH
$VKDVEHHQPHQWLRQHGHDUOLHUHYHQDIWHUVRPDQ\\HDUVRIUHVHDUFKRQIRXOLQJWKHKHDW
H[FKDQJHU GHVLJQHU VWLOO KDV WR LQYDULDEO\ IDOO EDFN RQ WKH YDOXHV RI IRXOLQJ UHVLVWDQFHV
IXUQLVKHGLQWKH7(0$VWDQGDUGV7KLVLVQRWVXUSULVLQJFRQVLGHULQJWKHYDULHW\RIIOXLGV
EHLQJ KDQGOHG LQ WKH FKHPLFDO SURFHVV LQGXVWULHV DORQJ ZLWK WKH YDULDWLRQ LQ IOXLG
YHORFLWLHVZDOOWHPSHUDWXUHVDQGPDWHULDOVRIFRQVWUXFWLRQ
7KXVLWEHFRPHVLPSRUWDQWIRUSODQWRSHUDWRUVWRPRQLWRUIRXOLQJIRUWKHYDULRXVIOXLGV
KDQGOHG :KLOH WKLV LV D WHGLRXV WDVN LW LV ZHOO ZRUWK WKH HIIRUW LQ WHUPV RI WKH UHDOLVWLF
IRXOLQJ UHVLVWDQFH GDWD WKDW ZLOO HPHUJH 2QH SUREOHP KHUH LV WKDW E\ PRQLWRULQJ D KHDW
H[FKDQJHU SHUIRUPDQFH LQ WHUPV RI KHDW GXW\ DQG WHUPLQDO WHPSHUDWXUHV LW LV SRVVLEOH WR
GHWHUPLQH RQO\ WKH RYHUDOO IRXOLQJ UHVLVWDQFH²WKDW LV WKH VXP RI WKH WXEHVLGH DQG WKH
VKHOOVLGHIRXOLQJUHVLVWDQFHV7KHEUHDNXSRIWKHRYHUDOOIRXOLQJUHVLVWDQFHLQWRWKHLQGLYLGXDO
IRXOLQJ UHVLVWDQFHV FDQ EH DFFRPSOLVKHG RQO\ E\ FDUHIXO DQDO\VLV RI WKH FRPELQHG IRXOLQJ
UHVLVWDQFHGDWDIRUYDULRXVVHUYLFHVPDQ\RIZKLFKKDYHFRPPRQIOXLGV
7KH7(0$IRXOLQJUHVLVWDQFHVHOHFWLRQJXLGHLVQRWZLWKRXWLWVOLPLWDWLRQV$SDUWIURP
FUXGH RLO DQG ZDWHU IRXOLQJ UHVLVWDQFHV RI RWKHU IOXLGV DUH IXUQLVKHG ZLWKRXW FRQVLGHULQJ
YDULDWLRQVLQWKHVDPHGXHWR
 VLGHDOORFDWLRQ²VKHOOVLGHRUWXEHVLGH
 IORZYHORFLW\
 WHPSHUDWXUHOHYHORIWKHIOXLGDVZHOODVWKHWHPSHUDWXUHOHYHORIWKHRWKHUIOXLG
 PDWHULDORIFRQVWUXFWLRQ
1HYHUWKHOHVV WKH 7(0$ YDOXHV RI IRXOLQJ UHVLVWDQFHV DUH WKH RQO\ RQHV XVXDOO\
DYDLODEOHDQGPRVWGHVLJQHUVXVH7(0$YDOXHVZLWKDKLJKOHYHORIVXFFHVV
$OVRZKLOHWKHHDUOLHU7(0$HGLWLRQVIXUQLVKHGRQO\SRLQWYDOXHVRIIRXOLQJUHVLVWDQFH
RI YDULRXV IOXLGV KDQGOHG LQ WKH FKHPLFDO SURFHVV LQGXVWULHV WKH ODWHVW  HGLWLRQ
IXUQLVKHVUDQJHYDOXHVIRUFHUWDLQIOXLGV7(0$YDOXHVDUHHYLGHQWO\LQGLFDWLYHDQGVKRXOG
EH XVHG ZLWK GLVFUHWLRQ LQ WKH DEVHQFH RI DQ\ RWKHU DXWKHQWLF LQKRXVH GDWD :KHUH UDQJH
YDOXHVDUHJLYHQVHOHFWLRQPXVWEHPDGHRQWKHEDVLVRIVSHFLILFV
)RUH[DPSOHWKHIRXOLQJUHVLVWDQFHRINHURVHQHKDVEHHQVSHFLILHGDV±KIW
ƒ)%WX±KPƒ&NFDO7KLVFDQEHLQWHUSUHWHGLQWKHIROORZLQJPDQQHU
)RU NHURVHQH SURGXFHG LQ WKH FUXGH GLVWLOODWLRQ XQLW RI DQ RLO UHILQHU\ SURFHVVLQJ D OLJKW
FUXGH WKH IRXOLQJ UHVLVWDQFH PD\ EH FRQVLGHUHG WR EH  K IW ƒ)%WX  K P
ƒ&NFDOZKHUHDVIRUNHURVHQHSURGXFHGLQWKHGHOD\HGFRNLQJXQLWRIDUHILQHU\SURFHVVLQJ
DKHDY\FUXGHWKHIRXOLQJUHVLVWDQFHPD\EHFRQVLGHUHGWREHKIWƒ)%WXK
P ƒ&NFDO 7KH ILQDO VHOHFWLRQ VKRXOG DOVR GHSHQG XSRQ WKH YHORFLW\ RI NHURVHQH LQ WKH
JLYHQKHDWH[FKDQJHUDVZHOODVWKHWHPSHUDWXUHOHYHORIWKHNHURVHQHDQGWKHWHPSHUDWXUHRI
WKHKHDWLQJFRROLQJPHGLXP
,W LV LQWHUHVWLQJ WR QRWH WKDW LQ WKH  HGLWLRQ RI WKH 7(0$ VWDQGDUGV WKH IRXOLQJ
UHVLVWDQFHRIFHUWDLQIOXLGVKDYHEHHQLQFUHDVHGZKLOHWKRVHRIFHUWDLQRWKHUIOXLGVKDYHEHHQ

 
GHFUHDVHGIURPWKHYDOXHVLQWKHODVWHGLWLRQ7KXVWKHIRXOLQJUHVLVWDQFHRIFRPSUHVVHGDLU
KDVEHHQUHGXFHGIURPWRKIWƒ)%WXIURPWRKPƒ&NFDO
ZKLOH WKDW RI UHGXFHG FUXGH KDV EHHQ LQFUHDVHG IURP  WR  K IW ƒ)%WX IURP
WRKPƒ&NFDO(YLGHQWO\WKHVHUHYLVLRQVKDYHEHHQLQFRUSRUDWHGRQWKH
EDVLVRIIHHGEDFNUHFHLYHGIURPSODQWRSHUDWRUVDVZHOODVIURPDEHWWHUXQGHUVWDQGLQJRIWKH
SKHQRPHQRQRIIRXOLQJ
7RVXPPDUL]HWKHVHOHFWLRQRIIRXOLQJUHVLVWDQFHKDVWREHGRQHFDUHIXOO\DQGVKRXOGEH
EDVHGXSRQSDVWH[SHULHQFH9DOXHVVSHFLILHGLQWKH7(0$VWDQGDUGVDUHIRUJXLGDQFHRQO\
DQG VKRXOG EH WHPSHUHG E\ RSHUDWLQJ IHHGEDFN DQG HQJLQHHULQJ MXGJPHQW $ SURSHU
VHOHFWLRQ RIIRXOLQJUHVLVWDQFH ZLOO JRDORQJ ZD\ LQ HQVXULQJWKHVDWLVIDFWRU\ RSHUDWLRQ RI
KHDWH[FKDQJHUV

'HVLJQ*XLGHOLQHVWR0LQLPL]H)RXOLQJ
$OWKRXJK LW LV GLIILFXOW WR GHWHUPLQH IRXOLQJ UHVLVWDQFHV DFFXUDWHO\ WKHUH DUH VHYHUDO
TXDOLWDWLYH DV ZHOO DV TXDQWLWDWLYH UXOHV RI WKXPE ZKLFK VKRXOG EH IROORZHG DV WKH\
PLQLPL]HWKHH[WHQWRIIRXOLQJ

8VHKHDWH[FKDQJHUW\SHVWKDWIRXOOHVV
)RXOLQJLVDOZD\VPRUHSURQRXQFHGLQGHDGVSDFHVGXHWRWKHODFNRIWXUEXOHQFH2QWKH
VKHOOVLGHRIVKHOODQGWXEHKHDWH[FKDQJHUVDGMDFHQWWRHDFKEDIIOHWKHUHDUHGHDGVSDFHV
ZKLFKDUHLQKHUHQWO\SURQHWRIRXOLQJ+RZHYHUWKHUHDUHRWKHUW\SHVRIKHDWH[FKDQJHUV
VXFKDVSODWHDQGVSLUDOKHDWH[FKDQJHUVLQZKLFKWKHUHDUHQRGHDGVSDFHVDQGZKLFK
WKHUHIRUH IRXO OHVV 7KHVH H[FKDQJHU W\SHV VKRXOG WKHUHIRUH EH DGRSWHG ZKHUHYHU
IHDVLEOH 8QIRUWXQDWHO\SODWHDQGVSLUDOKHDW H[FKDQJHUVKDYHDOLPLWDWLRQ LQWKH GHVLJQ
SUHVVXUH DV ZHOO DV GHVLJQ WHPSHUDWXUH )OXLGL]HGEHG KHDW H[FKDQJHUV DOVR PLQLPL]H
IRXOLQJLQVLGHWKHWXEHVE\WKHVFRXULQJDFWLRQRIVPDOOURXJKSDUWLFOHVRQWKHWXEHZDOO
0DQ\RIWKHVHKHDWH[FKDQJHUVDUHGLVFXVVHGLQVRPHGHWDLOLQ&KDSWHU

:KHQVKHOODQGWXEHH[FKDQJHUVKDYHWREHXVHG
'XH WR WKH OLPLWDWLRQV RI ³DOWHUQDWLYH´ KHDW H[FKDQJHUV VXFK DV SODWH DQG VSLUDO SODWH
VKHOODQGWXEHKHDWH[FKDQJHUVVWLOOUHPDLQWKHPRVWFRPPRQO\XVHGKHDWH[FKDQJHUVLQ
WKH FKHPLFDO SURFHVV LQGXVWULHV /HW XV WKHUHIRUH QRZ FRQVLGHU GHVLJQ VWUDWHJLHV WR
PLQLPL]HIRXOLQJLQVKHOODQGWXEHKHDWH[FKDQJHUV
)RUHDVLHUPDLQWHQDQFHWKHGLUWLHUVWUHDPVKRXOGEHURXWHGWKURXJKWKHWXEHVRIDVKHOO
DQGWXEH KHDW H[FKDQJHUDV LW LV PXFK HDVLHUWR FOHDQWKH LQVLGHWKDQWKH RXWVLGH RIWXEHV
+RZHYHULIWKHGLUWLHUVWUHDPLVYLVFRXVDVZHOOSODFLQJLWLQVLGHWKHWXEHVZLOOUHVXOWLQD
SRRUKHDWWUDQVIHUFRHIILFLHQWGXHWRODPLQDUIORZ
$ YLVFRXV VWUHDP IORZLQJ WKURXJK WKH VKHOOVLGH \LHOGV D PXFK KLJKHU KHDW WUDQVIHU
FRHIILFLHQWGXHWRWKHPXFKKLJKHUWXUEXOHQFH7KHKLJKHUKHDWWUDQVIHUFRHIILFLHQWWUDQVODWHV
LQWRDVPDOOHUDQGFKHDSHUKHDWH[FKDQJHU+RZHYHUFOHDQLQJZLOOEHPXFKPRUHGLIILFXOW
7KXV WKHUH LV D FRQIOLFW EHWZHHQ WKH LQLWLDO FRVW DQG WKH RSHUDWLQJ FRVW RI WKH H[FKDQJHU
$OORFDWLQJWKHGLUW\YLVFRXVVWUHDPWKURXJKWKHWXEHVLGHZLOOUHVXOWLQDKLJKHULQLWLDOFRVW
EXWDORZHURSHUDWLQJFRVW7KHUHYHUVHLVWUXHLIWKLVVWUHDPLVURXWHGWKURXJKWKHVKHOOVLGH
7KXVWKHRYHUDOOFRVWLQLWLDOFRVWSOXVRSHUDWLQJFRVWZLOOGHFLGHZKLFKDOORFDWLRQRIVLGHV
VKRXOGEHDGRSWHG6LQFHWKH GLUW\VWUHDP PD\EH RQ WKH VKHOOVLGH RQWKH WXEHVLGH RU RQ
ERWK WKH VLGHV OHW XV FRQVLGHU ERWK WKH SRVVLELOLWLHV²GLUW\ IOXLG LQVLGH WXEHV DV ZHOO DV
RXWVLGHWXEHV²DQGVHHZKDWPHDVXUHVVKRXOGEHDGRSWHGWRPLQLPL]HIRXOLQJ

 
'LUW\IOXLGLQVLGHWXEHV

D 8VHODUJHGLDPHWHUWXEHV
)RU D JLYHQ KHDW H[FKDQJHU VHUYLFH D VPDOOHU WXEH GLDPHWHU UHVXOWV LQ D VPDOOHU VKHOO
GLDPHWHUDQGWKHUHIRUHDFKHDSHU KHDW H[FKDQJHU+RZHYHU YHU\VPDOO GLDPHWHUWXEHV
DUH H[WUHPHO\ GLIILFXOW WR FOHDQ LQWHUQDOO\ HVSHFLDOO\ IRU UHODWLYHO\ ORQJ OHQJWKV
&RQVHTXHQWO\ LQ PP DQG LQ PP WXEHV DUH FRPPRQO\ XVHG IRU KHDW
H[FKDQJHU GHVLJQ 6PDOOHU GLDPHWHU WXEHV LQ RU PP 2' DQG LQ RU PP
2' PD\ EH XVHG IRU FOHDQ VHUYLFHV  +RZHYHU IRU GLUW\ VHUYLFHV IRXOLQJ UHVLVWDQFH
JUHDWHU WKDQ  K P ƒ&NFDO LW LV UHFRPPHQGHG WKDW LQ PP 2' WXEHV EH
XVHG 7KLV LV EHFDXVH WKH LQFUHDVH LQ WXEHVLGH SUHVVXUH GURS GXH WR WKH VDPH GHJUHH RI
IRXOLQJ VD\ D LQ RU PP WKLFN GHSRVLW ZLOO EH KLJKHU ZLWK VPDOOHU GLDPHWHU
WXEHV)XUWKHUPRUHVPDOOHU GLDPHWHUWXEHVWHQGWRJHWSOXJJHG PXFK PRUHUHDGLO\WKDQ
ODUJHUGLDPHWHURQHVDQGDUHPRUHGLIILFXOWWRFOHDQ

E 0DLQWDLQKLJKYHORFLW\
$KLJKYHORFLW\VXSSUHVVHVDOOW\SHVRIIRXOLQJ)RUFRROLQJZDWHUDVZHOODVRWKHUIRXOLQJ
OLTXLGVDPLQLPXP YHORFLW\ RIIWVPVLV JHQHUDOO\UHFRPPHQGHGDOWKRXJK
IWVPVLVSUHIHUDEOH7KHZRUVHWKHTXDOLW\RIWKHOLTXLGWKHKLJKHUVKRXOGEHWKH
PLQLPXPYHORFLW\WRUHVWULFWIRXOLQJWRDQDFFHSWDEOHOHYHO
2FFDVLRQDOO\DSURSHUYHORFLW\FDQQRWEHPDLQWDLQHGZLWKLQWKHOLPLWDWLRQRIDOORZDEOH
SUHVVXUHGURSEHFDXVHDODUJHQXPEHURIWXEHSDVVHVLVUHTXLUHGWRDFKLHYHWKLVYHORFLW\,Q
VXFK FDVHV HLWKHU D KLJKHU SUHVVXUH GURS VKRXOG EH DOORZHG RU WKH WXEH YHORFLW\ EHVW
PD[LPL]HGE\YDU\LQJWKHWXEHGLDPHWHUDQGOHQJWK
$SUREOHPXVXDOO\DULVHVIRUYLVFRXVDQGIRXOLQJOLTXLGVZKLFKDUHYHU\FRPPRQLQRLO
UHILQHULHVZKHUHDYHU\KLJKSUHVVXUHGURSLVUHTXLUHGWRVXVWDLQDVDWLVIDFWRU\YHORFLW\7KLV
FRXOG JR XS WR HYHQ ± SVL RU ± NJFP ZLWK PXOWLSOH VKHOOV LQ VHULHV ZKLFK
SULPDIDFLHPD\DSSHDUWREHXQDFFHSWDEOHEXWZKLFKVKRXOGEHH[DPLQHGIURPDQRYHUDOO
FRVWRSWLPL]DWLRQSRLQWRIYLHZ7KHVWDQGDUGYDOXHVRISUHVVXUHGURSSHUPLWWHGIRUYDULRXV
KHDW H[FKDQJHU VHUYLFHV W\SLFDOO\ ± SVL ± NJFP IRU JDVHV DQG
YDSRUL]LQJFRQGHQVLQJVHUYLFHVDQGSVLNJFPIRUOLTXLGVHUYLFHVDUHEDVHGXSRQ
VXFKDQRSWLPL]DWLRQ,WLVRQO\WKDWSVLNJFPLVQRWWKHSURSHUYDOXHIRUYLVFRXV
OLTXLGVDQG±SVL±NJFPSHUVKHOOGHSHQGLQJXSRQWKHYLVFRVLW\DQGWKHVLGH
DOORFDWLRQLVPRUHDXWKHQWLF$YLVFRXVIOXLGIORZLQJRQWKHWXEHVLGHUHTXLUHVDPXFKKLJKHU
SUHVVXUHGURSIRUWKHVDPHYHORFLW\WKDQZKHQLWLVIORZLQJRQWKHVKHOOVLGH
,WZLOOEHHDVLO\UHDOL]HGWKDWWKHKLJKHUWKHYHORFLW\LQWKHILQDOGHVLJQWKHKLJKHUZLOOEH
WKHKHDWWUDQVIHUFRHIILFLHQWDQGWKHORZHUZLOOEHWKHLQFLGHQFHRIIRXOLQJ,WLVWKHUHIRUH
VXJJHVWHGWKDWLQQRFDVHVKRXOGWKHYHORFLW\EHDOORZHGWRIDOOEHORZIWVPV7KH
PDJQLWXGHRIWKLVSUREOHPFDQEHIXOO\DSSUHFLDWHGZKHQLWLVFRQVLGHUHGWKDWSODQWVRIWHQ
UXQ LQ WXUQGRZQ FRQGLWLRQV GXH WR YDULRXV FRQVWUDLQWV ZKHQ WKH IORZ YHORFLWLHV DUH HYHQ
ORZHUWKDQWKHGHVLJQYDOXHV

F $OORZVXIILFLHQWPDUJLQLQSUHVVXUHGURS
:KHQKHDY\IRXOLQJLVDQWLFLSDWHGLWZRXOGEHZLVHWROHDYHVXIILFLHQWPDUJLQVD\±
DQGHYHQPRUHEHWZHHQWKHDOORZDEOHDQGFDOFXODWHGYDOXHVRISUHVVXUHGURS$
PRUHVFLHQWLILFDSSURDFKLVWRFRQVLGHUDQDSSURSULDWHIRXOLQJOD\HUWKLFNQHVVDVGLVFXVVHG
LQ WKH QH[W VHFWLRQ 7KH LGHD LV WR SHUPLW DQ H[FKDQJHU WR RSHUDWH DW GHVLJQ ORDG HYHQ

 
ZLWKWKH LQFUHDVHGSUHVVXUHGURS GXHWRIRXOLQJ,IWKHPDUJLQLV QRWSURYLGHGWKHIORZ
UDWH ZLOO UHGXFH LQ WKH IRXOHG FRQGLWLRQ VXFK WKDW WKH DYDLODEOH SUHVVXUH GURS LV QRW
H[FHHGHGWKHUHE\OLPLWLQJSODQWFDSDFLW\
G 8VHIRXOLQJOD\HUWKLFNQHVV
$OWKRXJKKHDWH[FKDQJHUGHVLJQHUVHPSOR\DIRXOLQJUHVLVWDQFHWRDFFRXQWIRUIRXOLQJLQ
WHUPV RI H[WUD WKHUPDO UHVLVWDQFH WR KHDW WUDQVIHU WKH\ GR QRW JHQHUDOO\ WUDQVODWH WKH
H[SHFWHG IRXOLQJ LQWR D IRXOLQJ OD\HU WKLFNQHVV WR DFFRXQW IRU LQFUHDVHG SUHVVXUH GURS
(YLGHQWO\DVDIRXOLQJGHSRVLWEXLOGVXSLWZLOOUHGXFHWKHIORZDUHDDQGFRQVHTXHQWO\
UHVXOW LQ DQ LQFUHDVHG SUHVVXUH GURS ,W LV TXLWH VWUDLJKWIRUZDUG WR WUDQVODWH WKH IRXOLQJ
UHVLVWDQFH LQWR D IRXOLQJ OD\HU WKLFNQHVV LI WKH WKHUPDO FRQGXFWLYLW\ RI WKH GHSRVLW LV
NQRZQ 8QIRUWXQDWHO\ WKH WKHUPDO FRQGXFWLYLWLHV RI IRXOLQJ GHSRVLWV IURP K\GURFDUERQ
OLTXLGV DUH QRW UHDGLO\ DYDLODEOH +RZHYHU WKH WKHUPDO FRQGXFWLYLW\ RI DVSKDOW LV 
%WXKIWƒ)NFDOKPƒ&6LQFHIRXOLQJOD\HUWKLFNQHVVZLOOEHVLJQLILFDQWRQO\IRU
YHU\IRXOLQJIOXLGVVXFKDVYDFXXPJDVRLOVIXHORLOVUHGXFHGFUXGHORQJUHVLGXHVKRUW
UHVLGXHDQGDVSKDOWDYDOXHRI%WXKIWƒ)NFDOKPƒ&PD\EHFRQVLGHUHGIRU
WKHGHSRVLWVIURPKHDY\DQGGLUW\K\GURFDUERQOLTXLGVRWKHUWKDQDVSKDOWDQGWKHIRXOLQJ
UHVLVWDQFH FRQYHUWHG WR WKH FRUUHVSRQGLQJ IRXOLQJ OD\HU WKLFNQHVV 7KXV D IRXOLQJ
UHVLVWDQFHRIKIW ƒ)%WXKP ƒ&NFDOZLOO\LHOGDIRXOLQJOD\HUWKLFNQHVVRI
LQPPDQGVRRQ
0RVWVRSKLVWLFDWHGWKHUPDOGHVLJQVRIWZDUHSDFNDJHVKDYHDSURYLVLRQIRULQFRUSRUDWLQJ
D IRXOLQJ OD\HU WKLFNQHVV $ FDVH VWXG\ LV SUHVHQWHG ODWHU GHPRQVWUDWLQJ WKH HIIHFW RI
DSSO\LQJIRXOLQJOD\HUWKLFNQHVVHVIRUERWKVKHOOVLGHDQGWXEHVLGH
H 8VHZLUHILQWXEHLQVHUWV
:LUHILQ WXEH LQVHUWV )LJ  &K  ZHUH GHYHORSHG WR LQFUHDVH KHDW WUDQVIHU
FRHIILFLHQWIRUODPLQDUIORZLQVLGHWXEHV+RZHYHULWZDVGLVFRYHUHGWKDWWKHXVHRIWKHVH
LQVHUWVDOVRUHVXOWHGLQDSURIRXQGUHGXFWLRQLQIRXOLQJ>@7KLVLVRQO\WREHH[SHFWHG
FRQVLGHULQJ WKDW WKH SULQFLSDO DFWLRQ RI WKHVH LQVHUWV LV WR SUHYHQW ERXQGDU\ OD\HU
VHSDUDWLRQ DQG SURPRWH UDGLDO PL[LQJ IURP WKH WXEH ZDOO WR WKH FHQWHU 7KH FKXUQLQJ
DFWLRQ QRWRQO\ LQFUHDVHVWKH KHDWWUDQVIHUFRHIILFLHQW E\ LQFUHDVHGFRQYHFWLRQEXWDOVR
PLQLPL]HV WKH GHSRVLWLRQ RI IRXODQWV GXH WR WKH H[WUD WXUEXOHQFH :LUHILQ LQVHUWV KDYH
EHHQGHPRQVWUDWHGWRUHGXFHWXEHVLGHIRXOLQJWRDGUDPDWLFOHYHOIRUPDQ\GLUW\VHUYLFHV
LQUHILQHULHVDQGDSSHDUWREHDQH[FHOOHQWDSSOLFDWLRQ+RZHYHUIRUUHDVRQVXQNQRZQWR
WKLVDXWKRUWKHLUXVHKDVQRWUHDOO\OLYHGXSWRWKHLUSRWHQWLDO
)RUDGHWDLOHGGLVFXVVLRQRQZLUHILQWXEHLQVHUWVLQFOXGLQJDFDVHVWXG\VHH&KDSWHU
I 8VHWZLVWHGWXEHKHDWH[FKDQJHUV
7KLV LV D UHFHQW LQQRYDWLRQ LQ VKHOODQGWXEH KHDW H[FKDQJHUV DQG LV DGGUHVVHG LQ VRPH
GHWDLOLQ6HFWLRQ
J 8VHRQOLQHFOHDQLQJ
6LQFHSUHYHQWLRQLVEHWWHUWKDQFXUHLW ZRXOGEHEHWWHULIIRXOLQJ FRXOGEHSUHYHQWHGLQ
WKHILUVWSODFH2QHVXFKPHWKRGRORJ\LVWKHXVHRIRQOLQHFOHDQLQJLQZKLFKEUXVKHVRU
UXEEHU EDOOV DUH FLUFXODWHG WKURXJK WKH WXEHV SHULRGLFDOO\²WKH VFRXULQJ DFWLRQ SUHYHQWV
DQ\ EXLOGXS RI IRXOLQJ 2QOLQH FOHDQLQJ LV SDUWLFXODUO\ DSSOLFDEOH WR FRROLQJ ZDWHU
IORZLQJLQVLGHWXEHVLQVWHDPVXUIDFHFRQGHQVHUVDVWKHFRROLQJZDWHUIRXOLQJUHVLVWDQFH
LVE\IDUWKHSUHGRPLQDQWUHVLVWDQFHWRKHDWWUDQVIHULQWKHVHDSSOLFDWLRQV

 
 7ZR V\VWHPV DUH FRPPRQO\ LQ XVH WKH EUXVK FOHDQLQJ V\VWHP DQG WKH EDOO FOHDQLQJ
V\VWHP,QWKHEUXVK FOHDQLQJ V\VWHP )LJ DD SRO\SURS\OHQH EUXVK LV PDGH WR IORZ
DORQJHDFKWXEHSHULRGLFDOO\5HWDLQLQJFDJHV)LJEDUHLQVHUWHGDWHDFKHQGRIHYHU\
WXEH $ FRPSXWHUFRQWUROOHG IRXUZD\ YDOYH )LJ F UHYHUVHV WKH IORZ GLUHFWLRQ
SHULRGLFDOO\ DW D SUHVSHFLILHG LQWHUYDO 7KH SHULRGLFLW\ RI WKH RSHUDWLRQ GHSHQGV XSRQ WKH
IRXOLQJQDWXUHRIWKHZDWHUWKHGLUWLHUWKHZDWHUWKHPRUHIUHTXHQWO\WKHIORZGLUHFWLRQZLOO
EHUHYHUVHG:KHQ WKH IORZUHYHUVHVWKHEUXVKHVWUDYHO IURP RQH HQG RIWKHWXEHVWRWKH
RWKHU WKXV UHPRYLQJ WKH GLUW RU GHEULV DQG PDLQWDLQLQJ WXEH FOHDQOLQHVV +HUH WKH\ DUH
UHWDLQHGLQWKHFDJHVXQWLOWKHQH[WIORZUHYHUVDOPDNHVWKHPWUDYHODJDLQWRWKHRWKHUHQG
7KHEUXVKHVXVXDOO\FRQVLVWRIQ\ORQEULVWOHVKHOGLQSODFHE\WLWDQLXPZLUHVDQGQRVH
FRQHV PDGH RI VSHFLDO SRO\SURS\OHQH 7KH EUXVK GLDPHWHU LV VOLJKWO\ ODUJHU WKDQ WKH WXEH
LQWHUQDOGLDPHWHUWRFUHDWHDQLQWHUIHUHQFHILWWKDWHQVXUHVSRVLWLYHEUXVKLQJDFWLRQDFURVVWKH
HQWLUH LQWHUQDOVXUIDFH RIWKHWXEH7KHUHWDLQLQJ FDJHV DUH PDGH RIVSHFLDOSRO\SURS\OHQH
ZKLFKLVUHVLVWDQWWRYDULRXVW\SHVRIZDWHU
,Q WKH EDOO FOHDQLQJ V\VWHP )LJ  VSRQJH UXEEHU EDOOV DUH FLUFXODWHG LQ D FORVHG
ORRSDQGPDGHWRWUDYHODORQJWKHOHQJWKRIWKHWXEHV6LQFHWKHEDOOVDUHVOLJKWO\ODUJHULQ
GLDPHWHUWKDQWKH,'RIWKHWXEHVWKH\DUHFRPSUHVVHGDVWKH\WUDYHODORQJWKHWXEHV7KLV
FRQVWDQWUXEELQJDFWLRQNHHSVWKHWXEHZDOOVFOHDQDQGIUHHRIDQ\GHSRVLWV%\VHOHFWLQJWKH
EDOOVSURSHUO\DXQLIRUPGLVWULEXWLRQFDQEHHQVXUHGVRWKDWDOOWXEHVDUHNHSWFOHDQ
7KHEDOOVDUHFLUFXODWHGLQDFORVHGORRSDQG
DUHFDXJKWDWWKHGLVFKDUJHHQGLQDVFUHHQDIWHU
ZKLFKWKH\DUHUHURXWHGWKURXJKDFROOHFWRUDQG
EDFNWRWKHFRQGHQVHU
K 8VHDVSDUHWXEHEXQGOHRUHYHQDVSDUH
KHDWH[FKDQJHU
)RU VHUYLFHV ZKHUH KHDY\ IRXOLQJ LV XQ
 DYRLGDEOHLWLVEHQHILFLDOWRKDYHDVSDUHWXEH
)LJ D %UXVK&RXUWHV\ RI :6$ (QJLQHHUHG
6\VWHPV0LOZDXNHH:,ZZZZVDHVFRP

)LJE&DJHVIRUUHWDLQLQJEUXVKHV&RXUWHV\
RI :6$ (QJLQHHUHG 6\VWHPV 0LOZDXNHH :,
EXQGOH :KHQHYHU WKH RSHUDWLQJ WXEH EXQGOH
JHWV IRXOHG KHDYLO\ DQG WKH KHDW H[FKDQJHU
SHUIRUPDQFH UHGXFHV EH\RQG DFFHSWDEOH
OLPLWVLWLVWDNHQRXWDQGWKHVSDUHWXEHEXQGOH
LQVHUWHG 7KH IRXOHG WXEH EXQGOH LV WKHQ
FOHDQHG DQG NHSW UHDG\ IRU WKH QH[W UHSODFH
PHQW DQG VR RQ +RZHYHU IL[HGWXEHVKHHW
ZZZZVDHVFRP

 
)LJ F )RXUZD\ YDOYH IRU UHYHUVLQJ IORZ )LJ  2QOLQH EDOO FOHDQLQJ V\VWHP &RXUWHV\ RI
GLUHFWLRQ&RXUWHV\RI:6$(QJLQHHUHG6\VWHPV :6$ (QJLQHHUHG 6\VWHPV 0LOZDXNHH :,
0LOZDXNHH:,ZZZZVDHVFRP ZZZZVDHVFRP
 
H[FKDQJHUVZLWKKHDY\WXEHVLGHIRXOLQJQHFHVVDULO\KDYHWRKDYHDVSDUHXQLWVLQFHWKHLU
WXEHEXQGOHVDUHQRWUHPRYDEOH
)RUH[WUHPHO\KHDY\DQGUDSLGIRXOLQJDSSOLFDWLRQVVXFKDVSRO\PHUL]LQJVHUYLFHVHJ
UHERLOHUVLQDEXWDGLHQHSODQWDWRWDOVSDUHXQLWLVGHVLUDEOH+HUHWKHLQFLGHQFHRIIRXOLQJLV
VR KHDY\WKDWWKHWXEHEXQGOH KDVWR EHFOHDQHG YHU\IUHTXHQWO\ VXFKDV RQFH HYHU\±
ZHHNV6LQFHWKHXQLWKDVWREHVKXWIRUUHPRYLQJDWXEHEXQGOHDQGUHSODFLQJLWLWEHFRPHV
DGYDQWDJHRXVWRKDYHDVSDUHXQLWDOWRJHWKHU
'LUW\IOXLGRXWVLGHWXEHV
D 8VHIORDWLQJKHDGRU8WXEHGHVLJQ
7KLVLVDPLQLPXPUHTXLUHPHQWEHFDXVHIL[HGWXEHVKHHWH[FKDQJHUVFDQQRWEHFOHDQHGRQ
WKHVKHOOVLGH²H[FHSWE\FKHPLFDO PHDQVZKLFK LV QRWYHU\ FRQYHQLHQW,IWKHWXEHVLGH
IOXLGLVFOHDQD8WXEHFRQVWUXFWLRQPD\EHXVHG+RZHYHULIWKHWXEHVLGHIOXLGLVDOVR
GLUW\DIORDWLQJKHDGFRQVWUXFWLRQVKRXOGEHXVHG
E 0LQLPL]HGHDGVSDFHV
8VLQJ D ZHOOSURSRUWLRQHG EDIIOH VSDFLQJWRVKHOO GLDPHWHU UDWLR DQG D PRGHUDWH EDIIOH
FXW SURGXFHV D IDYRUDEOH VKHOOVLGH VWUHDP DQDO\VLV WKHUHE\ PLQLPL]LQJ GHDG VSDFHV
DGMDFHQW WR HDFK EDIIOH 7KLV LV GHSLFWHG JUDSKLFDOO\ LQ )LJ  $V D UXOH RI WKXPE
EDIIOH VSDFLQJ VKRXOG EH EHWZHHQ ² RI WKH VKHOO ,' 7KH RSWLPXP EDIIOH FXW LV
 DQG LW VKRXOG QHYHU H[FHHG  $ JRRG EDIIOH GHVLJQ UHVXOWV LQ D JRRG VWUHDP
DQDO\VLV WKDW LV RQH ZLWK D KLJK PDLQ FURVVIORZ VWUHDP DQG ORZ OHDNDJH DQG E\SDVV
VWUHDPV6XFKDGHVLJQZLOOKDYHPLQLPXPGHDGVSDFHV
F 8VHODUJHUWXEHSLWFKIRUYHU\GLUW\VHUYLFHV
7XEH SLWFK LV XVXDOO\  WLPHV WXEH 2' DV UHFRPPHQGHG LQ WKH 7(0$ VWDQGDUGV
+RZHYHULIWKHVKHOOVLGHIOXLGLVYHU\GLUW\LWZLOOEHDGYDQWDJHRXVWRHPSOR\DKLJKHU
WXEHSLWFKVLQFHWKHLQFUHDVHLQVKHOOVLGHSUHVVXUHGURSZLWKWKHSURJUHVVRIIRXOLQJZLOO
EH VORZHU +RZHYHU FDUH VKRXOG EH WDNHQ WR PDLQWDLQ D IDLUO\ KLJK VKHOOVLGH YHORFLW\
EHFDXVHRWKHUZLVHLWVYHU\SXUSRVHZLOOEHGHIHDWHG$VDWLVIDFWRU\VWUHDPDQDO\VLVPXVW
DOVREHPDLQWDLQHG
G 0DLQWDLQKLJKYHORFLW\
$VRQWKHWXEHVLGHDKLJKYHORFLW\ZLOOPLQLPL]HDOOFDWHJRULHVRIIRXOLQJ$PLQLPXP
YHORFLW\ RI  IWV  PV LV XVXDOO\ UHFRPPHQGHG IRU OLTXLGV )RU ORZIORZUDWH
VWUHDPV RQ WKH VKHOOVLGH WKH
YHORFLW\ LV RIWHQ YHU\ ORZ HYHQ
ZLWKWKHVPDOOHVWEDIIOHVSDFLQJDQG
WKH SHUPLWWHG SUHVVXUH GURS KLJKO\
XQXWLOL]HG 6LQFH WKH VKHOOVLGH KHDW

WUDQVIHUFRHIILFLHQW ZLOOEH ORZWKH 0RGHUDWHEDIIOHFXWDQGEDIIOHVSDFLQJ
KHDW WUDQVIHU DUHD ZLOO EH ODUJH
7KXV QRW RQO\ ZLOO WKH KHDW
H[FKDQJHU EH FRVWO\ WKHUH ZLOO EH
SURQRXQFHGIRXOLQJDVZHOO
,Q VXFK VLWXDWLRQV LW LV XVXDOO\ 
:LGHEDIIOHVSDFLQJDQGODUJHEDIIOHFXW
EHWWHUWRHPSOR\WZRRUHYHQPRUH
VKHOOV LQ VHULHV HVSHFLDOO\ LI WKH )LJ(IIHFWRIEDIIOHVSDFLQJDQGFXWRQVKHOOVLGHIRXOLQJ
VKHOOVLGH KHDW WUDQVIHU FRHIILFLHQW LV &RXUWHV\RI+75,
 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG /LTXLGK\GURFDUERQ /LTXLGK\GURFDUERQ
 )ORZUDWHOEKNJK  
 7HPSHUDWXUHLQRXWƒ)ƒ&  
 +HDWGXW\00%WXK00NFDOK 
 9LVFRVLW\LQRXWFS  
 
 'HQVLW\LQRXWOEIW NJP   
 7KHUPDOFRQGXFWLYLW\LQRXW  
%WXKIWƒ)NFDOKPƒ&  
 6SHFLILFKHDWLQRXW%WXOEƒ)NFDONJƒ&  
 
 )RXOLQJUHVLVWDQFHKIW ƒ)%WXKP ƒ&NFDO  
 $OORZDEOHSUHVVXUHGURSNJFP  

 'HVLJQSUHVVXUHNJFP   
 'HVLJQWHPSHUDWXUHƒ)ƒ&  
 1RPLQDOFRQQHFWLRQVL]HLQPP  
 0DWHULDORIFRQVWUXFWLRQ &DUERQVWHHO &DUERQVWHHO

FRQWUROOLQJ'XHWRWKHORZHUVKHOO,'DQGFRQVHTXHQWO\WKHORZHUEDIIOHVSDFLQJZKLFKLV
UHODWHGWRWKHVKHOOGLDPHWHUWKHVKHOOVLGHYHORFLW\ZLOOEHDSSUHFLDEO\KLJKHUWKXVUHVXOWLQJ
LQUHGXFHGIRXOLQJDVZHOODVDVPDOOHUKHDWWUDQVIHUDUHD&DVH6WXG\GHPRQVWUDWHVWKLV
YLYLGO\

&$6(678'<,1&5($6,1*6+(//6,'(9(/2&,7<)255('8&,1*)28/,1*
&RQVLGHU WKH FDVH RI D KHDW H[FKDQJHU VHUYLFH KDYLQJ WKH SULQFLSDO SURFHVV SDUDPHWHUV
HODERUDWHG,Q7DEOHD
$ WKHUPDO GHVLJQ ZDV SURGXFHG ZLWK D VLQJOH VKHOO 7XEHV LQ 2' PP î 
%:*PPWKLFNZHUHWREHXVHG,WZDVIRXQGWKDWWKHVKHOOVLGHYHORFLW\ZDVRQO\
IWVPVDQGWKHVKHOOVLGHSUHVVXUHGURSRQO\SVLNJFPHYHQZLWKD
EDIIOHVSDFLQJRILQPPLQDLQPP,'VKHOO7KHVWUHDPDQDO\VLV
ZDVQRWSDUWLFXODUO\GLVWLQJXLVKHGZLWKDQ(VWUHDPRIDQGD%VWUHDPRIRQO\
7KH WHPSHUDWXUH SURILOH GLVWRUWLRQ SHQDOW\ IDFWRU ZDV  7KH VKHOOVLGH KHDW WUDQVIHU
FRHIILFLHQWZDVRQO\%WXKIW ƒ)NFDOKPƒ&DQGDVDUHVXOWWKHKHDWWUDQVIHU
DUHDZDVIWP7KHVKHOOVLGHUHVLVWDQFHZDVRIWKHRYHUDOOUHVLVWDQFHWR
KHDWWUDQVIHU
$ UHYLVHG GHVLJQ ZLWK WZR VKHOOV LQ VHULHV ZDV SURGXFHG 7KH VKHOOVLGH YHORFLW\
LQFUHDVHGWRIWVPVLWVSUHVVXUHGURSWRSVLNJFPDQGLWVKHDWWUDQVIHU
FRHIILFLHQWWR%WXKIWƒ)NFDOKPƒ&$VDUHVXOWRIWKHFRUUHVSRQGLQJLQFUHDVH
LQWKHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWDQGDOVRWKHVLJQLILFDQWLQFUHDVHLQWKH07'GXHWRWKH
XVHRIWZRVKHOOVLQVHULHVWKHWRWDOKHDWWUDQVIHUDUHDUHGXFHGIURPIWPWR
IWPDUHGXFWLRQRI7KHWRWDOHPSW\ZHLJKWUHGXFHGIURPOENJ
WR  OE  NJ D UHGXFWLRQ RI  7KLV UHYLVHG GHVLJQ DOVR KDG D PXFK EHWWHU
 
 7DEOHE3ULQFLSDOIHDWXUHVRIWZRGHVLJQVIRU&DVH6WXG\
 6LQJOHVKHOO 6KHOOVLQ6HULHV
 6KHOO,'LQPP  
 1RRIWXEHVîWXEHOHQJWKLQPP î î
 1RRIWXEHSDVVHV  
 7XEHSLWFKLQPPîWXEHOD\RXWDQJOH R
î 
 %DIIOHVSDFLQJLQPP  
 %DIIOHFXWGLDPHWHU  

 +HDWWUDQVIHUDUHDIWP  î


 9HORFLW\IWVPV  
 
3UHVVXUHGURSSVLNJFP   


 6KHOOVLGH +HDWWUDQVIHUFRHIILFLHQW%WXKIW ƒ)  
NFDOKPƒ&
%(VWUHDP  
$&VWUHDP  
7HPSSURILOHGLVWRUWLRQSHQDOW\IDFWRU  
 9HORFLW\IWVPV  
 7XEHVLGH 3UHVVXUHGURSSVLNJFP  

+HDWWUDQVIHUFRHIILFLHQW%WXKIW ƒ)  
NFDOKPƒ&
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW%WXKIWƒ)NFDOKPƒ&  
 07'ƒ)ƒ&  
 2YHUGHVLJQ  

 (PSW\ZHLJKWOENJ  î



VWUHDP DQDO\VLV ZLWK WKH PDLQ FURVVIORZ VWUHDP XS IURP  WR  DQG WKH RYHUDOO
VWUHDP HIIHFWLYHQHVV XS IURP  WR  7KH WHPSHUDWXUH SURILOH GLVWRUWLRQ SHQDOW\
IDFWRULPSURYHGWRGXHWRDWKHXVHRIWZRVKHOOVLQVHULHVDQGEDORZHU(
VWUHDP7KXVWKHUHYLVHGGHVLJQZLOOQRWRQO\UHVXOWLQORZHUIRXOLQJEHFDXVHRIWKHKLJKHU
VKHOOVLGHYHORFLW\DQGWKHEHWWHUVWUHDPDQDO\VLVEXWZLOODOVREHORZHULQILUVWFRVW
7KHSULQFLSDOIHDWXUHVRIWKHWZRGHVLJQVDUHHODERUDWHGLQ7DEOHE
H &KHFNSUHVVXUHGURSZLWKDIRXOLQJOD\HUWKLFNQHVV
-XVWDVIRUWKHWXEHVLGHDIRXOLQJOD\HUWKLFNQHVVVKRXOGEHHPSOR\HGIRUWKHVKHOOVLGHDV
ZHOO +HUH WKH VLWXDWLRQ LV VRPHZKDW PRUH FRPSOLFDWHG VLQFH LW ZLOO DIIHFW WKH PDLQ
FURVVIORZ DQG WKH OHDNDJHE\SDVV VWUHDPV XQHTXDOO\ 7KXV WKH EDIIOH KROHWXEH VWUHDP
ZLOOEHDIIHFWHGWKHPRVWDQGPD\EHWRWDOO\EORFNHGVLQFHWKLVFOHDUDQFHLVLQ
PPRULQPPGHSHQGLQJXSRQWKHWRWDOXQVXSSRUWHGWXEHVSDQDQGWKHWXEH
GLDPHWHU7KHVKHOOEDIIOHFOHDUDQFHLVDOVRDIIHFWHGDSSUHFLDEO\DQGPD\HYHQEHFRQVL
 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG /LTXLGK\GURFDUERQ /LTXLGK\GURFDUERQ
 )ORZUDWHOEKNJK  
 7HPSHUDWXUHLQRXWƒ)ƒ&  
 +HDWGXW\00%WXK00NFDOK 
 9LVFRVLW\LQRXWFS  
 
 'HQVLW\LQRXWOEIW NJP   
 7KHUPDOFRQGXFWLYLW\LQRXW  
%WXKIWƒ)NFDOKPƒ&
 )RXOLQJUHVLVWDQFHKIWƒ)%WX
 
KPƒ&NFDO
 $OORZDEOHSUHVVXUHGURSSVLNJFP  

 'HVLJQSUHVVXUHSVLJNJFP J  
 'HVLJQWHPSHUDWXUHƒ)ƒ&  
 1RPLQDOFRQQHFWLRQVL]HLQRXWLQPP  

GHUHGWREHWRWDOO\EORFNHGIRUYHU\GLUW\VHUYLFHVVXFKDVELWXPHQ(YHQWKHZLGWKRIWKH
ODQHV EHWZHHQ WXEHV WKURXJK ZKLFK WKH PDLQ FURVVIORZ WDNHV SODFH ZLOO EH UHGXFHG
7KXVGHSHQGLQJXSRQWKHUHGXFWLRQRIWKHYDULRXVIORZZLGWKVWKHVWUHDPDQDO\VLVZLOO
FKDQJH2IFRXUVHVLQFHWKHQHWUHVXOWZLOOEHDUHGXFWLRQRIIORZDUHDERWKWKHVKHOOVLGH
KHDW WUDQVIHU FRHIILFLHQW DQG WKH SUHVVXUH GURS ZLOO LQFUHDVH 7KH SUHVVXUH GURS ZLOO
LQFUHDVHPRUHWKDQWKHKHDWWUDQVIHUFRHIILFLHQWEHFDXVHWKHIRUPHULVDVWURQJHUIXQFWLRQ
RIYHORFLW\
/HWXVFRQVLGHUWKHIROORZLQJFDVHVWXG\LQRUGHUWRKDYHDEHWWHUIHHORIWKHHIIHFWRIWKH
IROORZLQJOD\HUWKLFNQHVVRQWKHSHUIRUPDQFHRIDKHDWH[FKDQJHU

&$6(678'<86(2))28/,1*/$<(57+,&.1(66
&RQVLGHUDH[FKDQJHUKDYLQJWKHSULQFLSDOSURFHVVSDUDPHWHUVHODERUDWHGLQ7DEOHD
7XEHVLQPP2'îLQPPWKLFNîLQPPORQJ
ZHUHWREHXVHG $OWKRXJKWKHUH ZDV QRWHPSHUDWXUHFURVVDVKHOOVLQVHULHV GHVLJQ ZDV
SURGXFHGWRPDNHJRRGXVHRIWKHDOORZDEOHSUHVVXUHGURSRIWKHVKRUWUHVLGXHVWUHDP,WZLOO
EHQRWLFHGWKDWWKHUHLVDKLJKRYHUGHVLJQ7KLVLVEHFDXVHWKHVSHFLILHGWXEHVRI
LQPP2'LQPPWKLFNDQGLQPPORQJRQO\ZHUHWR
EHXVHGRWKHUZLVHWKHWXEHOHQJWKFRXOGKDYHEHHQUHGXFHGWRLQPPDQGWKH
H[FKDQJHUZRXOGKDYHEHHQMXVWDGHTXDWHO\VXUIDFHG'HVSLWHWKHKLJKIRXOLQJUHVLVWDQFHVRQ
ERWK VLGHV QR IRXOLQJ OD\HU WKLFNQHVVHV ZHUH XVHG 7KH SULQFLSDO FRQVWUXFWLRQ SDUDPHWHUV
DQGWKHUHOHYDQWWKHUPDOSHUIRUPDQFHSDUDPHWHUVDUHVSHFLILHGLQ7DEOHE
1RZ OHW XV VHH ZKDW KDSSHQV ZKHQ DSSURSULDWH YDOXHV RI IRXOLQJ OD\HU WKLFNQHVV DUH
VSHFLILHGIRUWKHWKHUPDOGHVLJQUXQ)RXOLQJOD\HUWKLFNQHVVHVRILQPPDQG
LQPPZHUHVSHFLILHGIRUWKHVKHOOVLGHDQGWXEHVLGHVWUHDPVUHVSHFWLYHO\7KHUHVXOWV
DUHGHWDLOHGLQ7DEOHE,WZLOOEHQRWLFHGWKDWERWKWKHVKHOOVLGHDQGWXEHVLGHYHORFLWLHV
SUHVVXUH GURSV DQG KHDW WUDQVIHU FRHIILFLHQWV DV ZHOO DV WKH RYHUGHVLJQ KDYH LQFUHDVHG
 
7DEOHE&RPSDULVRQRIKHDWH[FKDQJHUSHUIRUPDQFHZLWKDQGZLWKRXWIRXOLQJOD\HUWKLFNQHVV
 :LWKRXWIRXOLQJ :LWKIRXOLQJ
OD\HUWKLFNQHVV OD\HUWKLFNQHVV
1RRIVKHOOV LQVHULHV
6KHOO,'LQPP 
1RRIWXEHVîQRRIWXEHSDVVHV î
7XEHSLWFKLQPPîWXEHOD\RXWDQJOH îURWDWHGVTXDUHR
%DIIOHVSDFLQJLQPP 
%DIIOHFXWGLDPHWHU 
 
+HDWWUDQVIHUDUHDIW P  î 
07'ƒ)ƒ&  
 $EDIIOHKROHWXEHOHDNDJH  

%PDLQFURVVIORZVWUHDP  
 6WUHDPDQDO\VLV
&EXQGOHVKHOOE\SDVV  
(EDIIOHVKHOOOHDNDJH  
)SDVVSDUWLWLRQE\SDVV  
 6KHOOVLGHYHORFLW\ &URVVIORZ  
IWVPV
:LQGRZIORZ  
 6KHOOVLGHKHDWWUDQVIHUFRHIILFLHQW%WXKIWƒ)NFDOKPƒ&  

 6KHOOVLGHSUHVVXUHGURSSVLNJFP   
 YHORFLW\IWVPV  
 7XEHVLGH KHDWWUDQVIHUFRHIILFLHQWNFDOKPƒ&  
SUHVVXUHGURSNJFP  
2YHUDOOKHDWWUDQVIHUFRHIILFLHQWNFDOKPƒ&  
2YHUGHVLJQ  


VXEVWDQWLDOO\,QIDFWWKHSUHVVXUHGURSVRQERWKVLGHVKDYHH[FHHGHGWKHDOORZDEOHPDUJLQV
7KLV SUREOHP ZRXOG QRW KDYH DULVHQ LI WKH RULJLQDO GHVLJQ KDG LQFRUSRUDWHG IRXOLQJ OD\HU
WKLFNQHVVHVDQGKDGEHHQGHVLJQHGDFFRUGLQJO\LQWKHILUVWSODFH
I 8VHKHOLFDOEDIIOHH[FKDQJHUV
)RUDGHWDLOHGDFFRXQWRI+HOL[FKDQJHUVWKHUHDGHULVUHIHUUHGWR6HFWLRQ
J 8VHWZLVWHGWXEHKHDWH[FKDQJHUV
)RUDGHWDLOHGDFFRXQWRIWZLVWHGWXEHKHDWH[FKDQJHUVWKHUHDGHULVUHIHUUHGWR6HFWLRQ




 
5HIHUHQFHV
>@ 7DERUHN-HWDO³)RXOLQJ²7KH0DMRU8QUHVROYHG3UREOHPLQ+HDW7UDQVIHU´3DUWV,
DQG,,&KHPLFDO(QJLQHHULQJ3URJUHVVSS²DQGSS²
>@ 7XEXODU ([FKDQJHU 0DQXIDFWXUHUV $VVRFLDWLRQ  6WDQGDUGV RI WKH 7XEXODU ([FKDQJHU
0DQXIDFWXUHUV$VVRFLDWLRQWK(GLWLRQ7(0$1HZ<RUN
>@ *RXJK 0- DQG 5RJHUV -9  ³5HGXFHG )RXOLQJ E\ (QKDQFHG +HDW 7UDQVIHU 8VLQJ
:LUH0DWUL[5DGLDO0L[LQJ(OHPHQWV´$,&K(6\PSRVLXP6HULHV9RO1RSS²

>@ *RXJK 0- DQG 5RJHUV -9  ³*HWWLQJ PRUH SHUIRUPDQFH IURP KHDW H[FKDQJHUV´
3URFHVVLQJ-XO\SS²

)XUWKHU5HDGLQJ
 (SVWHLQ 1  ³)RXOLQJ LQ +HDW ([FKDQJHUV´ 3URF 6L[WK ,QWHUQDWLRQDO +HDW 7UDQVIHU
&RQI .H\QRWH 3DSHUV 9RO  SS ² 7RURQWR +HPLVSKHUH 3XEOLVKLQJ &RUS 1HZ
<RUN
 *DUUHW3ULFH %$ HW DO  )RXOLQJ RI +HDW ([FKDQJHUV &KDUDFWHULVWLFV &RVWV
3UHYHQWLRQ&RQWURODQG5HPRYDO1R\HV3XEOLFDWLRQV3DUN5LGJH1HZ-HUVH\
 +HZLWW *) HG  +HDW ([FKDQJHU 'HVLJQ +DQGERRN  9ROV  DQG  %HJHOO
+RXVH,QF1HZ<RUN
 .QXGVHQ-*³)RXOLQJRI+HDW([FKDQJHUV$UH:H6ROYLQJWKH3UREOHP"´&KHPLFDO
(QJLQHHULQJ3URJUHVV)HEUXDU\SS²
 0HOR /) %RWW 75 DQG %HUQDUGR &$ HGV  )RXOLQJ 6FLHQFH DQG 7HFKQRORJ\
.OXZHU$FDGHPLF3XEOLVKHUV
 6RPHUVFDOHV ()&DQG .QXGVHQ -*HGV )RXOLQJ RI +HDW 7UDQVIHU(TXLSPHQW
+HPLVSKHUH3XEOLVKLQJ&RUS1HZ<RUN
 .DNDF 6 HW DO  +HDW ([FKDQJHUV 7KHUPDO+\GUDXOLF )XQGDPHQWDOV DQG 'HVLJQ
+HPLVSKHUH3XEOLVKLQJ&RUS1HZ<RUN
 -RVKL +0  ³0LWLJDWH IRXOLQJ WR LPSURYH KHDW H[FKDQJHU UHOLDELOLW\´ +\GURFDUERQ
3URFHVVLQJ-DQSS²
 %RWW75)RXOLQJRI+HDW([FKDQJHUV(OVHYLHU

 
 &+$37(5

9LEUDWLRQ$QDO\VLV

,QWURGXFWLRQ
:LWK WKH LQFUHDVH LQ WKH VL]H RI SODQWV LQ WKH FKHPLFDO SURFHVV LQGXVWULHV DQG D FRUUH
VSRQGLQJLQFUHDVHLQWKHVL]HRIVKHOODQGWXEHKHDWH[FKDQJHUVWXEHIDLOXUHGXHWRIORZ
LQGXFHGYLEUDWLRQKDVEHFRPHDPRUHYLVLEOHUHDOLW\7KHSULPHUHDVRQIRUWKLVKDVEHHQ
WKHVFDOHXSRIKHDWH[FKDQJHUVL]HVZLWKRXWDSURSHUXQGHUVWDQGLQJDQGDQDO\VLVRIIORZ
LQGXFHGYLEUDWLRQ7KHSULQFLSDOFXOSULWKDVEHHQWKHXVHRIODUJHUDQGODUJHUXQVXSSRUWHG
WXEHOHQJWKVHPSOR\HGWRKDQGOHWKHYHU\ODUJHIOXLGIORZUDWHVRQWKHVKHOOVLGH7RGD\
WKHVLWXDWLRQLVPXFKEHWWHUZLWKDIDLUO\JRRGZRUNLQJNQRZOHGJHRISURGXFLQJGHVLJQV
VDIH DJDLQVW IDLOXUH RI WXEHV GXH WR IORZLQGXFHG YLEUDWLRQ 7KH WHUP ³ZRUNLQJ
NQRZOHGJH´ LV YHU\ VLJQLILFDQW LQ WKDW IORZLQGXFHG YLEUDWLRQ LV DQ H[WUHPHO\ FRPSOH[
SKHQRPHQRQDQGZKDWWKHGHVLJQHUUHDOO\UHTXLUHVLVDSUDFWLFDODYRLGDQFHWHFKQLTXH
)ORZLQGXFHG YLEUDWLRQ DQDO\VLV RI D VKHOODQGWXEH KHDW H[FKDQJHU LV DQ LQWHJUDO
HOHPHQWRILWVWKHUPDOGHVLJQ$SURSHUGHVLJQLVRQHWKDWLWLVDEVROXWHO\VDIHDJDLQVWIDLOXUH
RIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ0RVWVRSKLVWLFDWHGWKHUPDOGHVLJQVRIWZDUHSDFNDJHV
FDUU\RXWYLEUDWLRQDQDO\VLVDVDURXWLQHLQJUHGLHQWRIWKHUPDOGHVLJQ7KLVLVHVVHQWLDOVLQFH
LWLVGXULQJWKHUPDOGHVLJQWKDWWKHJHRPHWU\RIDKHDWH[FKDQJHULVILQDOL]HGDQGLWLVWKLV
VDPHJHRPHWU\DORQJZLWKIORZDQGSK\VLFDOSURSHUW\SDUDPHWHUVWKDWGHWHUPLQHZKHWKHUD
JLYHQKHDWH[FKDQJHULVVDIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ
)ORZLQGXFHGYLEUDWLRQLVDYHU\FRPSOH[VXEMHFWDQGLQYROYHVWKHLQWHUSOD\RIVHYHUDO
SDUDPHWHUVPDQ\RIZKLFKDUHQRWYHU\ZHOOHVWDEOLVKHG$OWKRXJKPDQ\FDVHVRIIDLOXUHRI
WXEHV GXH WR IORZLQGXFHG YLEUDWLRQ KDYH EHHQ UHSRUWHG LQ WKH SDVW VHYHUDO \HDUV DQ
XQGHUVWDQGLQJ RI WKH IDFWRUV UHVSRQVLEOH IRU WKHVH IDLOXUHV OHDYH PXFK WR EH GHVLUHG 7KH
OLWHUDWXUH GHSLFWV VHYHUDO LQWHUHVWLQJ VWXGLHV RQ VSHFLILF IDFHWV RI WKH YLEUDWLRQ SUREOHP
KRZHYHU YHU\ IHZ LQYHVWLJDWLRQV KDYH FRQVLGHUHG WKH VSHFLILF SUREOHPV DVVRFLDWHG ZLWK
VKHOODQGWXEH KHDW H[FKDQJHUV ([SHULPHQWDO GDWD RQ IORZLQGXFHG YLEUDWLRQ DUH XVXDOO\
REWDLQHGXQGHUFRQWUROOHGFRQGLWLRQVXVLQJHLWKHUVLQJOHWXEHVRULGHDOWXEHEDQNVHPSOR\LQJ
FURVVIORZRUSDUDOOHOIORZFRQGLWLRQVKDUGO\UHSUHVHQWDWLYHRIDFWXDOFRQGLWLRQVLQLQGXVWULDO
KHDWH[FKDQJHUV
&RQVHTXHQWO\ H[WUDSRODWLRQ RI VXFK GDWD REWDLQHG XQGHU LGHDOL]HG WHVW FRQGLWLRQV WR
UHDOOLIH KHDW H[FKDQJHUV LV IUDXJKW ZLWK SHULO ,W LV WKHUHIRUH SUXGHQW WR EH VRPHZKDW
FRQVHUYDWLYHLQRQH
VDSSURDFKIRUSURGXFLQJDGHVLJQWKDWLVVDIHDJDLQVWIDLOXUHRIWXEHVGXH
WRIORZLQGXFHGYLEUDWLRQ8VXDOO\IRUWKHGHVLJQRIQHZKHDWH[FKDQJHUVWKLVFRQVHUYDWLVP
GRHV QRW UHVXOW LQ D VLJQLILFDQWO\ FRVWOLHU GHVLJQ VLQFH D VDIH GHVLJQ FDQ EH SURGXFHG E\
PRGLI\LQJWKHVKHOOW\SHDQGRUWKHEDIIOHVW\OHDQGEDIIOHGHVLJQ
,W ZLOO QRW EH LQ WKH VFRSH RI WKLV ERRN WR GZHOO LQ GHWDLO RQ WKH PHFKDQLVP RI IORZ
LQGXFHGYLEUDWLRQ+RZHYHUDEULHIGHVFULSWLRQLVRIIHUHGEHORZVRWKDWWKHUHDGHUFDQHDVLO\
 
XQGHUVWDQG WKH VXEVHTXHQW GLVFXVVLRQ )RU D GHWDLOHG XQGHUVWDQGLQJ RI WKH SKHQRPHQD
DVVRFLDWHGZLWKIORZLQGXFHGYLEUDWLRQDQGWKHLUPHFKDQLVPVSOHDVHUHIHUWR5HIV>±@

0HFKDQLFVRI)ORZ,QGXFHG9LEUDWLRQ
7XEHV DUH WKH PRVW IOH[LEOH SDUW RI D KHDW H[FKDQJHU DQG FRQVHTXHQWO\ WKH PRVW
YXOQHUDEOH WR IORZLQGXFHG YLEUDWLRQ FDXVHG E\ WKH IORZ RI IOXLG SDVW WKHP +HDW
H[FKDQJHUWXEHVRIWHQYLEUDWHEXWDWVXFKORZIUHTXHQFLHVWKDWWKHUHLVQRGDPDJH,WLV
RQO\ZKHQWKHIUHTXHQF\RIWKHWXEHYLEUDWLRQEHFRPHVDSSUHFLDEOHWKDWWKHUHLVDGDQJHU
RIIDLOXUH7KHORZHVWIUHTXHQF\DWZKLFKWXEHVYLEUDWHLVFDOOHGWKHIXQGDPHQWDOQDWXUDO
IUHTXHQF\ 7KH KLJKHU QDWXUDO IUHTXHQFLHV DUH NQRZQ DV WKH VHFRQG PRGH WKLUG PRGH
DQGVRRQ7KHIXQGDPHQWDOIUHTXHQF\LVZKDWGHVLJQHUVDUHXVXDOO\FRQFHUQHGZLWKDQG
WKLVLVVLPSO\UHIHUUHGWRDVWKHQDWXUDOIUHTXHQF\RIDWXEH

1DWXUDOIUHTXHQF\
7KHQDWXUDOIUHTXHQF\RIWXEHVGHSHQGVXSRQWKHIROORZLQJ
D WKHZD\LQZKLFKWKH\DUHIL[HGZKHWKHUFODPSHGRUVXSSRUWHG
E WKHQDWXUHRIWKHLQWHUPHGLDWHVXSSRUWVZKHWKHUFODPSHGSLQQHGRUVXSSRUWHG
F WKHWXEHXQVXSSRUWHGVSDQ
G WKHQXPEHURIVSDQV
H WKHWXEHPDWHULDODQGWKLFNQHVV2'
2UGLQDU\ VKHOODQGWXEH KHDW H[FKDQJHUV ZLWK SODWH EDIIOHV KDYH WXEHV WKDW DUH VLPSO\
VXSSRUWHGDWWKHWXEHVKHHWVDQGWKHEDIIOHV
6LQFHWKHILUVWDQGODVWEDIIOHVSDFHVDUHLQYDULDEO\ODUJHUWKDQWKHFHQWUDOEDIIOHVSDFLQJ
LQRUGHUWRDFFRPPRGDWHWKHQR]]OHVDQGVKHOOIODQJHVWKHXQVXSSRUWHGVSDQYDULHVDORQJWKH
OHQJWK RI WKH WXEHV DQG LV ODUJHVW DW WKH LQOHW DQG RXWOHW UHJLRQV 7KH GHWHUPLQDWLRQ RI WKH
QDWXUDO IUHTXHQF\ RI D WXEH VXSSRUWHG DW GLIIHUHQW VSDQV DORQJ LWV OHQJWK LV UDWKHU
FRPSOLFDWHG $ VRPHZKDW OHVV DFFXUDWH PHWKRG EXW RQH WKDW LV QRUPDOO\ DGHTXDWH IRU
HQJLQHHULQJFDOFXODWLRQVLVWKDWSURSRVHGE\0DF'XIIDQG)HOJDU>@ZKLFKDVVXPHVWKDWDOO
VSDQVDUHRIHTXDOOHQJWK7KLVPHWKRGFDQFRQVLGHUGLIIHUHQWW\SHVRIHQGDQGLQWHUPHGLDWH
VXSSRUW KRZHYHU LW LV FXVWRPDU\ WR FRQVLGHU FODPSHG HQGV DQG VLPSOH LQWHUPHGLDWH
VXSSRUWV IRU SUHGLFWLQJ WKH QDWXUDO IUHTXHQF\ RI KHDW H[FKDQJHU WXEHV  +HQFH YLEUDWLRQ
DQDO\VLV IRU VKHOODQGWXEH KHDW H[FKDQJHUV LV XVXDOO\ FDUULHG RXW LQGLYLGXDOO\ IRU WKUHH
UHJLRQV²WKHLQOHWFHQWUDODQGWKHRXWOHW²DQGWKHSRWHQWLDOIRUYLEUDWLRQGDPDJHHYDOXDWHG
7KHHTXDWLRQSURSRVHGE\0DF'XIIDQG)HOJDULV
IQ &Q(,JF:H/ 
ZKHUH
IQ  QDWXUDOIUHTXHQF\RIVWUDLJKWWXEHV+]
&Q  )UHTXHQF\FRQVWDQW
(  PRGXOXVRIHODVWLFLW\NJP
,  VHFWLRQDOPRPHQWRILQHUWLDP
JF   JUDYLWDWLRQDOFRQVWDQWPV
:H  HIIHFWLYHZHLJKWSHUXQLWWXEHOHQJWKLQFOXGLQJWKHZHLJKWRIWKH
IOXLGLQVLGHWXEHVNJP
/  WXEHXQVXSSRUWHGVSDQP
 
)RUWKH GHWHUPLQDWLRQRIWKH QDWXUDOIUHTXHQF\RIVWUDLJKWWXEHVDQG 8WXEHVWKHUHDGHU
PD\UHIHUWRWKH7(0$6WDQGDUGVWK(GLWLRQ6HFWLRQSS±,WZLOOEH
VHHQIURP7DEOH97(0$6WDQGDUGVSWKDWWKHUHLVDFRUUHFWLRQIDFWRUIRUDQ\
D[LDOVWUHVVHVWKDWPD\EHSUHVHQWLQKHDWH[FKDQJHUWXEHVHLWKHUFRPSUHVVLYHRUWHQVLOH
GXHWRWKH PDQXIDFWXULQJSURFHVV LWVHOIDV ZHOODV GXHWR RSHUDWLQJWHPSHUDWXUHV&RP
SUHVVLYHD[LDO ORDGV GHFUHDVHWKHWXEH QDWXUDOIUHTXHQF\ ZKHUHDVWHQVLOHD[LDO ORDGVLQ
FUHDVHLW'XULQJWKHIDEULFDWLRQRIEXQGOHVWXEHVDUHVRPHWLPHVSODFHGXQGHUFRPSUHV
VLRQDVDUHVXOWRIRYHUUROOLQJWKLVUHVXOWVLQDGHFUHDVHLQWKHQDWXUDOIUHTXHQF\
/RRNLQJDW(TLWLVVHHQWKDWWKHQDWXUDOIUHTXHQF\RIDWXEHYDULHV
D LQYHUVHO\ZLWKWKHVTXDUHRIWKHWXEHXQVXSSRUWHGVSDQ
E WRWKHSRZHURIWKHHODVWLFPRGXOXVRIWKHWXEHPDWHULDO
F WR WKH  SRZHU RI WKH PRPHQW RI LQHUWLD RI WKH WXEH FURVV VHFWLRQ WKH ODWWHU
YDULHVWRWKHSRZHURIRIWKHWXEHRXWVLGHDQGLQVLGHGLDPHWHUV
G LQYHUVHO\ WR WKH  SRZHU RI WKH HIIHFWLYH WXEH ZHLJKW SHU XQLW OHQJWK ZKLFK
LQFOXGHVWKHZHLJKWRIWKHIOXLGLQVLGHWKHWXEHV
+HQFHIRUDJLYHQWXEHPDWHULDORXWVLGHGLDPHWHUDQGWKLFNQHVVZKLFKDUHVSHFLILHGIRU
DJLYHQVHUYLFHDQGRYHUZKLFKWKHKHDWH[FKDQJHUWKHUPDOGHVLJQHUKDVQRFRQWUROWKH
RQO\ YDULDEOHVDUHWKHWXEHXQVXSSRUWHGVSDQDQGWKH GHQVLW\ RIWKHWXEHVLGH IOXLG7KLV
PHDQVWKDWIRUDJLYHQVHUYLFHWKH RQO\ YDULDEOH LVWKHWXEHXQVXSSRUWHGVSDQ,QIDFW
WKLVLVWKHPRVWFUXFLDOSDUDPHWHULQYLEUDWLRQDQDO\VLV
7KH GHWHUPLQDWLRQ RI WKH QDWXUDO IUHTXHQF\ RI D 8WXEH LV IDU PRUH GLIILFXOW WKDQ IRU
VWUDLJKWWXEHV8VXDOO\DVLPSOLILHGSURFHGXUHLVHPSOR\HGWKDWFRQVLGHUVWKHVWUDLJKWSRUWLRQ
DQG WKH EHQW SRUWLRQ VHSDUDWHO\ 3OHDVH UHIHU WR WKH DERYH UHIHUUHG VHFWLRQ RI WKH 7(0$
VWDQGDUGVIRUGHWDLOV

)ORZLQGXFHGYLEUDWLRQSKHQRPHQD
7KH YDULRXV IORZLQGXFHG WXEH YLEUDWLRQ SKHQRPHQD DUH YRUWH[ VKHGGLQJ WXUEXOHQW
EXIIHWLQJ DQG IOXLGHODVWLF ZKLUOLQJ $GGLWLRQDOO\ WKHUH LV DOVR WKH SKHQRPHQRQ RI
DFRXVWLFYLEUDWLRQ/HWXVFRQVLGHUWXEHYLEUDWLRQILUVW

9RUWH[VKHGGLQJ
:KHQ D IOXLG IORZV DFURVV D VLQJOH WXEH LW SURGXFHV D VHULHV RI YRUWLFHV LQ WKH
GRZQVWUHDP ZDNH )LJ  7KLV DOWHUQDWH VKHGGLQJ RI YRUWLFHV SURGXFHV DOWHUQDWLQJ
IRUFHVWKHIUHTXHQF\RIZKLFKYDULHVGLUHFWO\ZLWKWKHYHORFLW\RIIORZ7KLVIUHTXHQF\LV
XVXDOO\GHVFULEHGE\WKHGLPHQVLRQOHVV6WURXKDOQXPEHU
6  IVGRY 

ZKHUH
6  6WURXKDOQXPEHU
IV  YRUWH[VKHGGLQJIUHTXHQF\
Y  FURVVIORZYHORFLW\
GR  RXWVLGHGLDPHWHURIWXEH

9RUWH[ VKHGGLQJ DOVR RFFXUV ZKHQ IORZ )LJ9RUWH[VKHGGLQJUHVXOWLQJIURPIORZDFURVV
WDNHV SODFH DFURVV D WXEH EDQN +HUH WKH DWXEH5HSULQWHGIURPWKH+HDW([FKDQJHU'HVLJQ
6WURXKDO QXPEHU LV D IXQFWLRQ RI WKH ORQJL +DQGERRN  ZLWK SHUPLVVLRQ RI %HJHOO +RXVH
,QF
 
 WXGLQDODQGWUDQVYHUVHVSDFLQJRIWKH
WXEHV DV VKRZQ LQ )LJ  ZKHUH
WKH 6WURXKDO QXPEHU LV SORWWHG
DJDLQVWWKHUDWLRRIWXEHSLWFKWRWXEH
GLDPHWHU IRU ƒ WULDQJXODU ƒ
VTXDUH ƒ URWDWHG VTXDUH DQG
ƒ URWDWHG WULDQJXODU OD\RXW
DQJOHV ,QWHUHVWLQJO\ WKH YDOXHV RI
WKH 6WURXKDO QXPEHU GR QRW YDU\
VLJQLILFDQWO\ ZLWK WKH 5H\QROG¶V
QXPEHU 7KXV LW ZLOO EH VHHQ WKDW
)LJ6WURXKDOQXPEHUVIRUWXEHOD\RXWV5HSULQWHGIURP WKH WXEH OD\RXW DQJOH SOD\V D
WKH+HDW([FKDQJHU'HVLJQ+DQGERRN ZLWKSHUPLVVLRQ
RI%HJHOO+RXVH,QF
VLJQLILFDQW UROH LQ IORZLQGXFHG
YLEUDWLRQ
,WZLOODOVREHVHHQIURP(TWKDWVLQFHWKH6WURXKDOQXPEHULVIDLUO\FRQVWDQWIRU
DFHUWDLQWXEHOD\RXWDQJOHDQGWXEHSLWFKWKHKLJKHUWKHFURVVIORZYHORFLW\WKHKLJKHUZLOO
EHWKHYRUWH[VKHGGLQJIUHTXHQF\

7XUEXOHQWEXIIHWLQJ
+LJKO\WXUEXOHQWYDSRURUJDVIORZRQWKHVKHOOVLGHRIDKHDWH[FKDQJHUFRQWDLQVDZLGH
UDQJH RI IUHTXHQFLHV GLVWULEXWHG DURXQG D FHQWUDO GRPLQDQW IUHTXHQF\ :KHQ VXFK IORZ
EXIIHWV WKH WXEHV WKH\ VHOHFWLYHO\ H[WUDFW HQHUJ\ IURP WKH WXUEXOHQFH DW WKHLU QDWXUDO
IUHTXHQF\7KHFHQWUDOGRPLQDQWIUHTXHQF\LQFUHDVHVZLWKWKHFURVVIORZ YHORFLW\7KXV
WKHKLJKHUWKHFURVVIORZYHORFLW\WKHKLJKHUWKHWXUEXOHQWEXIIHWLQJIUHTXHQF\

)OXLGHODVWLFZKLUOLQJ
7KLVZDVSURSRXQGHGE\&RQQRUV>@DQGLVFKDUDFWHUL]HGE\WXEHVYLEUDWLQJLQDQRUELWDO
RU ³ZKLUOLQJ´ PDQQHU RQFH VXIILFLHQW HQHUJ\ LV DYDLODEOH IRU UHVRQDQFH WR RFFXU 7KLV
PRWLRQ LV SURGXFHG ZKHQ WKH VKHOOVLGH IORZ DFURVV WKH WXEHV FDXVHV ERWK OLIW DQG GUDJ
PRYHPHQWRIWKHWXEHVDWWKHLUQDWXUDOIUHTXHQFLHV,WFDQOHDGWRD³UXQDZD\´FRQGLWLRQLI
WKHHQHUJ\VXSSOLHGWRWKHWXEHVFDQQRWEHDEVRUEHGE\WKHV\VWHPGDPSLQJDQGWKHUHE\
OHDGWRIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ6XFKDIDLOXUHLVOLNHO\WRRFFXULI
WKHFURVVIORZYHORFLW\LVJUHDWHUWKDQDFULWLFDOYHORFLW\
7KHFULWLFDOYHORFLW\LVJLYHQE\WKHH[SUHVVLRQ
YFULW ȕIQ'R>0HGȡV'R@ 
ZKHUH
YFULWFULWLFDOYHORFLW\PV
ȕ IOXLGHODVWLFLQVWDELOLW\WKUHVKROGFRQVWDQWGLPHQVLRQOHVV
IQ QDWXUDOIUHTXHQF\RIWXEHV+]
G ORJGHFUHPHQWIRUWKHWXEHEXQGOHLQWKHVKHOOVLGHIOXLGXQGHUQR
IORZFRQGLWLRQVGLPHQVLRQOHVV
'R WXEHRXWVLGHGLDPHWHUP
0H HIIHFWLYHPDVVSHUXQLWWXEHOHQJWKNJP
ȡV GHQVLW\RIVKHOOVLGHIOXLGNJP
7KH IOXLGHODVWLF LQVWDELOLW\WKUHVKROG FRQVWDQWȕ LVDIXQFWLRQ RIWKHWXEHSLWFKUDWLRDQG

 
WKHWXEHOD\RXWDQJOH)OXLGHODVWLFLQVWDELOLW\KDVEHHQLQWHUSUHWHGWREHDPDMRUFDXVHRI
WXEHIDLOXUHGXHWRIORZLQGXFHGYLEUDWLRQ

+RZDQGZKHQWXEHVYLEUDWH
7KH HVVHQWLDO SKHQRPHQRQ LV WKH UHVRQDQFH EHWZHHQ WKH IRUFLQJ IUHTXHQF\ RI YRUWH[
VKHGGLQJ IRUOLTXLGVDQG YRUWH[VKHGGLQJDQGWXUEXOHQWEXIIHWLQJ IRUJDVHVDQG YDSRUV
DQGWKHQDWXUDOIUHTXHQF\RIWKHWXEHV,WZLOOEHVHHQIURPWKHDERYHGLVFXVVLRQWKDWERWK
WKH QDWXUDO WXEH IUHTXHQF\ DQG WKH IRUFLQJ IUHTXHQF\ YRUWH[ VKHGGLQJ DQG WXUEXOHQW
EXIIHWLQJDUHVWURQJIXQFWLRQVRIWKHEDIIOHVSDFLQJXQVXSSRUWHGWXEHVSDQ
 7KHWXEHQDWXUDOIUHTXHQF\YDULHVLQYHUVHO\DVWKHVTXDUHRIWKHWXEHXQVXSSRUWHG
VSDQ
 7KH IRUFLQJ IUHTXHQF\ RI ERWK YRUWH[ VKHGGLQJ DQG WXUEXOHQW EXIIHWLQJ YDULHV
GLUHFWO\ ZLWK WKH FURVVIORZ YHORFLW\ 6LQFH FURVVIORZ YHORFLW\ YDULHV LQYHUVHO\
ZLWK WKH EDIIOH VSDFLQJ IRUFLQJ IUHTXHQF\ DOVR YDULHV LQYHUVHO\ ZLWK EDIIOH
VSDFLQJ7KHEDIIOHVSDFLQJLVGLUHFWO\UHODWHGWRWKHWXEHXQVXSSRUWHGVSDQ7KXV
IRUFLQJIUHTXHQF\YDULHVLQYHUVHO\ZLWKXQVXSSRUWHGVSDQ
+HQFHZKHQWKHEDIIOHVSDFLQJRIDKHDWH[FKDQJHULVUHGXFHGWKHQDWXUDOWXEHIUHTXHQF\
LQFUHDVHV VLJQLILFDQWO\ PRUH WKDQ WKH IRUFLQJ IUHTXHQF\ &RQVHTXHQWO\ D ORZHU EDIIOH
VSDFLQJDOZD\VPDNHVDKHDWH[FKDQJHUVDIHUDJDLQVWIDLOXUHRIWXEHVGXHWRIORZLQGXFHG
YLEUDWLRQ

'DPSLQJ
:KHQDGHTXDWHHQHUJ\LVIHGWRWXEHVE\WKHIORZLQJIOXLGWKH\DUHH[FLWHGLQWRYLEUDWLRQ
7KH LQWHQVLW\ RI WKLV YLEUDWLRQ LV HYLGHQFHG E\ WKH H[WHQW RI SHULRGLF PRYHPHQW RI WKH
WXEHZLWKWKHJUHDWHVWGLVSODFHPHQWDPSOLWXGHXVXDOO\DWWKHPLGVSDQRIWKHWXEH
7KHHQHUJ\RIYLEUDWLRQLVGLVVLSDWHGE\LQWHUQDODQGH[WHUQDOGDPSLQJ,QWHUQDOGDPSLQJ
LVRIIHUHGE\WKHPHFKDQLFDOSURSHUWLHVRIWKHWXEHPDWHULDOWKHJHRPHWU\RIWKHLQWHUPHGLDWH
VXSSRUWVEDIIOHVDQGWKHWXEHEDIIOHFOHDUDQFH([WHUQDOGDPSLQJLVRIIHUHGE\WKHVKHOOVLGH
IOXLG ZLWKWKH YLVFRVLW\EHLQJ WKH GHWHUPLQLQJSDUDPHWHU7KXV OLTXLGV RIIHUFRQVLGHUDEOH
H[WHUQDOGDPSLQJEXWJDVHVDQGYDSRUVPXFKOHVV
6\VWHPGDPSLQJKDVDVWURQJLQIOXHQFHRQWKHYDULDWLRQRIDPSOLWXGHZLWKWLPH2QFH
WKHHQHUJ\FHDVHVWRH[FLWHYLEUDWLRQWKHDPSOLWXGHRIYLEUDWLRQGHFD\VZLWKWLPH7KHUDWHDW
ZKLFK IORZLQGXFHG YLEUDWLRQ GDPSHQV RXW LV XVXDOO\ H[SRQHQWLDO 7KH GLIIHUHQFH LQ
VXFFHVVLYHDPSOLWXGH SHDNV LVFDOOHG WKH ORJ GHFUHPHQWDQG LVD PHDVXUH RI WKH GHJUHH RI
GDPSLQJ7KHKLJKHUWKHYDOXHRIWKHORJGHFUHPHQWWKHJUHDWHULVWKHGHJUHHRIGDPSLQJ
+HDW H[FKDQJHU WXEHV DUH QRUPDOO\ OLJKWO\ GDPSHG VWUXFWXUHV ZLWK D ORZ YDOXH RI ORJ
GHFUHPHQW
,IWKHHQHUJ\WKDWLVLQSXWFDQQRWEHGLVVLSDWHGWKURXJKGDPSLQJWKHUHVXOWDQWDPSOLWXGH
RI YLEUDWLRQ ZLOO LQFUHDVH ZLWK WLPH DQG OHDG WR D ³UXQDZD\´ FRQGLWLRQ 7KLV LV GHVFULEHG
ODWHU XQGHU ³IOXLGHODVWLF ZKLUOLQJ´ ,I WKHUH LV D EDODQFH WKH DPSOLWXGH UHPDLQV FRQVWDQW
+RZHYHULIWKHV\VWHPGDPSLQJLVJUHDWHUWKDQWKHHQHUJ\LQSXWWKHDPSOLWXGHGHFD\VZLWK
WLPH7KLVLVUHSUHVHQWHGLQ)LJZKLFKDOVRTXDQWLILHVDQGGHSLFWVWKHORJGHFUHPHQW

0RGHVRIWXEHIDLOXUH
3URORQJHGYLEUDWLRQRIWXEHVOHDGVWRWKHLUIDLOXUHE\RQHRUPRUHRIWKHIROORZLQJPRGHV

 
 D %DIIOHGDPDJH²6LQFHEDIIOHKROHVDUHGULOOHGODUJHUWKDQWKHRXWVLGHGLDPHWHURI
WXEHVWRIDFLOLWDWHWKHLULQVHUWLRQLQWRWKHEDIIOHVGXULQJDVVHPEO\WXEHVDUHIUHHWR
PRYHDWWKHEDIIOHV7KHUHSHDWHGFXWWLQJDFWLRQDWWKHEDIIOHZDOOPD\UHVXOWLQ
WKHFXWWLQJRIWKHUHODWLYHO\WKLQWXEHZDOO
E 7XEH MRLQW OHDNDJH ² 7KH MRLQW EHWZHHQ WKH WXEH DQG WKH WXEHVKHHW ZHOGHG RU
H[SDQGHGFDQDOVRIDLOGXHWRYLEUDWLRQ
F &ROOLVLRQGDPDJH²$GMDFHQWWXEHVPD\LPSDFWZLWKRQHDQRWKHULIWKHDPSOLWXGH
RI YLEUDWLRQ LV ODUJH HQRXJK 6XFK UHSHDWHG LPSDFWLQJ FDQ UHGXFH WKH WXEH
WKLFNQHVVRYHUDSHULRGRIWLPHDQGHYHQWXDOO\VSOLWWKHWXEHRSHQ
G )DWLJXH ² 5HSHDWHG EHQGLQJ RI WKH WXEHV RYHU D SHULRG RI WLPH FDQ UHVXOW LQ
IDWLJXHIDLOXUHGXHWRWKHVWUHVVHVFUHDWHG
(DFKWXEHLQDVKHOODQGWXEHKHDWH[FKDQJHULVKHOGDWWKHWXEHVKHHWDWERWKHQGVDQGE\
WKH EDIIOHV DORQJ LWV OHQJWK :LWK 8WXEHV KRZHYHU WKHUH LV D VLQJOH WXEHVKHHW 7KH
GLVWDQFH EHWZHHQ DQ\ WZR DGMDFHQW SRLQWV RI VXSSRUW LV WKH XQVXSSRUWHG VSDQ ZKLFK LV
VXEMHFWWRYLEUDWLRQGXHWRWKHDFWLRQRIWKHIOXLGIORZLQJDFURVVWKHWXEHV$OWKRXJKWXEH
IDLOXUH GXH WR IORZLQGXFHG YLEUDWLRQ KDYH EHHQ UHSRUWHG IURP PDQ\ SDUWV RI D KHDW
H[FKDQJHUWKHDUHDVRIKLJKXQVXSSRUWHGVSDQVDQGKLJKORFDOYHORFLWLHVKDYHWKHJUHDWHVW
VXVFHSWLELOLW\HVSHFLDOO\WKHWXEHVZLWKLQWKHILUVWIHZWXEHURZVRIWKHEDIIOHWLSVVLQFH
WKHVHH[SHULHQFHWKHKLJKHVWORFDOYHORFLWLHV

+RZWR3UHGLFW'DPDJLQJ)ORZ,QGXFHG9LEUDWLRQ
7KHWXEHXQVXSSRUWHGVSDQLVUHDOO\WKHNH\WRWKHSUHYHQWLRQRIGDPDJLQJIORZLQGXFHG
YLEUDWLRQLQVKHOODQGWXEH KHDW H[FKDQJHUV,IWKLVVSDQFDQEHUHGXFHGDGHTXDWHO\WKH
WXEHQDWXUDOIUHTXHQF\ZLOOEHVXIILFLHQWO\KLJKHUWKDQWKHIRUFLQJIUHTXHQF\VRWKDWQR
UHVRQDQFH ZLOO RFFXU 8VXDOO\ WKH UDWLR RI WKH IRUFLQJ IUHTXHQF\ WR WKH WXEH QDWXUDO
IUHTXHQF\LVNHSWEHORZWRSURGXFHDVDIHGHVLJQ
,Q RUGHUWRSUHYHQWWKH RFFXUUHQFH RI IOXLGHODVWLF ZKLUOLQJ LW LVUHFRPPHQGHG WKDWWKH
UDWLR RI FURVVIORZ YHORFLW\WR FULWLFDOYHORFLW\ EH OHVVWKDQDQGWKLV LQFOXGHV FURVVIORZ
YHORFLW\LQWKHFHQWUDOURZVDVZHOODVWKHURZVQHDUWKHEDIIOHWLSV
,W ZLOO EH UHLWHUDWHG KHUH WKDW PHUH PDWFKLQJ RI IRUFLQJ IUHTXHQF\ GXH WR YRUWH[
VKHGGLQJ RU WXUEXOHQW EXIIHWLQJ DQG QDWXUDO IUHTXHQF\ RI WXEHV LV QRW HQRXJK WR UHVXOW LQ
GDPDJH RIWXEHV GXHWR IORZLQGXFHG YLEUDWLRQ7KH HQHUJ\FRQWHQW RIWKHIORZLQJVWUHDP
PXVW EH KLJK HQRXJK WR SURGXFH D VXI
ILFLHQWO\ ODUJH DPSOLWXGH RI YLEUDWLRQ
*HQHUDOO\ DQ DPSOLWXGH RI RYHU  D
FRQVHUYDWLYH YDOXH RI WKH JDS EHWZHHQ
WXEHVLQRWKHUZRUGVWXEHSLWFKPLQXVWXEH
2'LVFRQVLGHUHGWREHXQVDIH7KLVLVDS
SOLFDEOH QRW RQO\ IRU FROOLVLRQ GDPDJH EXW
IRU EDIIOH GDPDJH IDWLJXH DQG WXEH MRLQW
OHDNDJH EHFDXVH WKH JUHDWHU WKH DPSOLWXGH
RIYLEUDWLRQWKHJUHDWHULVWKHFXWWLQJDFWLRQ
DW WKH EDIIOHV DQG WKH JUHDWHU WKH IDWLJXH
 VWUHVVHVSURGXFHG$VORQJDVWKHDPSOLWXGH
)LJ'DPSLQJRIDYLEUDWLQJWXEHDIWHUH[FLWDWLRQ
VWRSV 5HSULQWHG IURP WKH +HDW ([FKDQJHU 'HVLJQ
LV OHVV WKDQ WKLV YDOXH D KHDW H[FKDQJHU
+DQGERRN  ZLWK SHUPLVVLRQ RI %HJHOO +RXVH QHHG QRW EH FRQVLGHUHG XQVDIH DJDLQVW
,QF GDPDJHGXHWRIORZLQGXFHGYLEUDWLRQHYHQ
 
LIWKHUDWLRRIIRUFLQJIUHTXHQF\WRQDWXUDOIUHTXHQF\LVJUHDWHUWKDQDQGOHVVWKDQ
7KXV WKH LPSRUWDQW FKHFNV WR EH FDUULHG RXW WR HQVXUH D VDIH GHVLJQ DJDLQVW WKH
SRVVLELOLW\RIIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQDUH
 7KHFURVVIORZYHORFLW\DWDOOORFDWLRQVLQWKHWXEHILHOGVKRXOGEHOHVVWKDQRI
WKHFULWLFDOYHORFLW\
 7KHUDWLRRIWKHYRUWH[VKHGGLQJIUHTXHQF\DQGWXUEXOHQWEXIIHWLQJIUHTXHQF\IRU
JDVHV RU YDSRUV WR WKH QDWXUDO IUHTXHQF\ RI WKH WXEHV VKRXOG EH OHVV WKDQ 
SURYLGHGWKHDPSOLWXGHRIYLEUDWLRQLVJUHDWHUWKDQRIWKHJDSEHWZHHQWXEHV
LIWKHDPSOLWXGHLVOHVVWKHIUHTXHQF\UDWLRFDQEHJUHDWHUWKDQ

9LWDO/LQNEHWZHHQ)ORZ,QGXFHG9LEUDWLRQDQG3UHVVXUH'URS
:HKDYHFRPHWRUHDOL]HWKDWWKHXQVXSSRUWHGWXEHVSDQLVWKHPRVWVLJQLILFDQWSDUDPHWHU
LQ IORZLQGXFHG YLEUDWLRQ :H DOVR NQRZ WKDW WKH EDIIOH VSDFLQJ DQG WKHUHE\ WKH
XQVXSSRUWHGWXEHVSDQLVUHDOO\OLQNHGWRWKHVKHOOVLGHSUHVVXUHGURSZKLFKLVDOVROLQNHG
WR WKH GHQVLW\ RI WKH VKHOOVLGH IOXLG 7KH EDIIOHV LQ D KHDW H[FKDQJHU FDQ EH EURXJKW DV
FORVHDVWKHDOORZDEOHVKHOOVLGHSUHVVXUHGURSZLOOSHUPLW
7KH DOORZDEOH SUHVVXUH GURS LV XVXDOO\ PXFK ORZHU IRU YDSRU RU FRQGHQVLQJ VHUYLFHV
WKDQ IRU OLTXLG KHDWLQJ RU FRROLQJ VHUYLFHV W\SLFDOO\ ± SVL ± NJFP IRU WKH
IRUPHUDQGSVLNJFPIRUWKHODWWHU7RPDNHPDWWHUVZRUVHYDSRUGHQVLW\LVPXFK
ORZHUIRUJDVHVDQGYDSRUVWKDQIRUOLTXLGV$VDGLUHFWUHSHUFXVVLRQRIWKHVHWZRUHDOLWLHV
EDIIOH VSDFLQJ DQG WKHUHE\ WXEH XQVXSSRUWHG VSDQ DUH PXFK ODUJHU LQ JDV FRROHUVKHDWHUV
DQG FRQGHQVHUV WKDQ LQ VHQVLEOH OLTXLG KHDWLQJFRROLQJ VHUYLFHV 7KH ORZHU WKH RSHUDWLQJ
SUHVVXUH WKH ODUJHU ZLOO EH WKH XQVXSSRUWHG VSDQ RWKHU SDUDPHWHUV UHPDLQLQJ FRQVWDQW
&RQVHTXHQWO\ IORZLQGXFHG YLEUDWLRQ GDPDJH LV IDU PRUH SUHYDOHQW LQ JDV FRROHUVKHDWHUV
DQG FRQGHQVHUV (YLGHQWO\ LQ WKH DERYH GLVFXVVLRQ WKH JDV RU YDSRU VWUHDP LV RQ WKH
VKHOOVLGHDQGWKLVZLOOFRQWLQXHWREHWKHSUHPLVHLQWKHVXEVHTXHQWGLVFXVVLRQ
&RQVLGHUZKDWW\SLFDOO\KDSSHQVLQWKHGHVLJQRIDJDVFRROHU7KHDOORZDEOHVKHOOVLGH
SUHVVXUH GURS LVUDWKHU ORZDQG VR LVWKH JDV GHQVLW\ :LWKDUHODWLYHO\ ORZEDIIOHVSDFLQJ
VD\RIWKHVKHOOLQVLGHGLDPHWHUDQGFXWVD\WKHFDOFXODWHGSUHVVXUHGURSIDU
H[FHHGV WKH DOORZDEOH SUHVVXUH GURS KRZHYHU IORZLQGXFHG YLEUDWLRQ PD\ QRW EH D
SUREOHP6LQFH WKHSHUPLWWHGVKHOOVLGHSUHVVXUH GURS PXVWEH FRPSOLHG ZLWKWKH GHVLJQHU
LQFUHDVHVWKHEDIIOHVSDFLQJDQGWKHEDIIOHFXWXQWLOKHRUVKHPDQDJHVWRUHGXFHWKHVKHOOVLGH
SUHVVXUH GURS WR WKH SHUPLWWHG YDOXH +RZHYHU WKH EDIIOH VSDFLQJ DQG WKHUHE\ WKH
XQVXSSRUWHGWXEHVSDQLVQRZVRKLJKWKDWIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQLVD
GLVWLQFWSRVVLELOLW\
7KH UHDO FXOSULW WKHUHIRUH LV WKH FRPELQDWLRQ RI WKH ORZ DOORZDEOH VKHOOVLGH SUHVVXUH
GURSDQGWKH ORZ YDSRUJDV GHQVLW\6LQFH JDV RU YDSRUGHQVLW\ LVD GLUHFWIXQFWLRQ RIWKH
RSHUDWLQJSUHVVXUHDQGWKHPROHFXODUZHLJKWRIWKHJDVRUYDSRUWKHPRVWGLIILFXOWVLWXDWLRQ
LVDORZPROHFXODUZHLJKWJDVDWDORZRSHUDWLQJSUHVVXUH6KRXOGWKHJDVRUYDSRUKDYHD
KLJKPROHFXODUZHLJKWDQGRUEHDWDKLJKSUHVVXUHSURGXFLQJDGHVLJQVDIHDJDLQVWIDLOXUH
GXHWRIORZLQGXFHGYLEUDWLRQZLOOEHIDUOHVVGLIILFXOW

3URGXFLQJD'HVLJQWKDWLV6DIHDJDLQVW)ORZ,QGXFHG9LEUDWLRQ
7KH GHVLJQHUKDVWKHWZLQ REMHFWLYHVRIVDWLVI\LQJWKHVKHOOVLGHSUHVVXUH GURS OLPLWDWLRQ
DQGSURGXFLQJDGHVLJQWKDWLVVDIHDJDLQVWWKHIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUD
WLRQ$VVWDWHGHDUOLHUWKHUHDOSOR\LVLQUHGXFLQJWKHXQVXSSRUWHGWXEHVSDQZKLOHVWLOO
UHVWULFWLQJ WKH VKHOOVLGH SUHVVXUH GURS WR ZLWKLQ WKH SHUPLWWHG YDOXH &RQVHTXHQWO\ WKH
 
 7DEOH5HVXOWVRIYLEUDWLRQDQDO\VLVRI&DVH6WXG\
 6LQJOHSDVVVKHOOZLWK 6LQJOHSDVVVKHOOZLWK
VLQJOHVHJPHQWDOEDIIOHV GRXEOHVHJPHQWDOEDIIOHV
 &ULWLFDOYHORFLW\IWVPV  
 $YHUDJHFURVVIORZYHORFLW\IWVPV  
 %DIIOHWLSFURVVIORZYHORFLW\IWVPV  
 9RUWH[VKHGGLQJUDWLR  
 8QVXSSRUWHGVSDQLQPP  
 8QVXSSRUWHGVSDQ7(0$PD[LPXP  
 &URVVIORZDPSOLWXGHLQPP  

PHWKRGRORJ\LVWKHVDPHDVHPSOR\HGIRUUHGXFLQJWKHVKHOOVLGHSUHVVXUHGURSDVWKDWLV
WKHFUX[RIWKHPDWWHU7KLVZDVGLVFXVVHGLQGHWDLOLQ&KDSWHU

6LQJOHSDVVVKHOODQGVLQJOHVHJPHQWDOEDIIOHV
7KHILUVWVKHOOVW\OHLVHYLGHQWO\WKH7(0$(VKHOOWKDWLVDVLQJOHVKHOOSDVV)LJ
+HUHWKH HQWLUHVKHOOVLGHIOXLGIORZVDORQJWKH HQWLUH OHQJWK RIWKHVKHOO $OVRWKHILUVW
EDIIOH VW\OH LV WKH VLQJOHVHJPHQWDO )LJ 7KH EDIIOH VSDFLQJ DQG FXW DUH LQFUHDVHG
SURJUHVVLYHO\XQWLOWKHDOORZDEOHVKHOOVLGHSUHVVXUHGURSOLPLWDWLRQLVPHW+RZHYHULILQ
VR GRLQJ WKH GHVLJQ EHFRPHV XQVDIH DJDLQVW IORZLQGXFHG YLEUDWLRQ WKH GHVLJQ LV
XQDFFHSWDEOHDQGWKHQH[WDOWHUQDWLYHVKRXOGEHDWWHPSWHG

6LQJOHSDVVVKHOODQGGRXEOHVHJPHQWDOEDIIOHV
,QWKHVHFRQGGHVLJQWKH7(0$(VKHOOLVUHWDLQHGEXWWKHEDIIOHVDUHFKDQJHGWRGRXEOH
VHJPHQWDO )LJ  :KDW KDSSHQV QRZ LV WKDW WKH VKHOOVLGH IOXLG LV PDGH WR VSOLW DQG
UHFRPELQH DV LW IORZV DORQJ WKH OHQJWK RI WKH VKHOO 7KXV WKH FURVVIORZ YHORFLW\ LV
DSSUR[LPDWHO\ RQH KDOI RI WKDW ZLWK VLQJOHVHJPHQWDO EDIIOHV DW WKH VDPH VSDFLQJ 7KH
ZLQGRZYHORFLW\GRHVQRWUHGXFHVLQFHWKHHQWLUHVKHOOVLGHIOXLGKDVWRIORZWKURXJKWKH
WRWDO ZLQGRZ DUHD +RZHYHU WKH PDMRU VKHOOVLGH SUHVVXUH GURS ZLWK VLQJOHVHJPHQWDO
EDIIOHVLVLQFURVVIORZVRWKDWWKHUHLVDQDSSUHFLDEOHUHGXFWLRQLQWKHSUHVVXUHGURSIRUDQ
RWKHUZLVH LGHQWLFDO KHDW H[FKDQJHU LQFOXGLQJ EDIIOH VSDFLQJ ZLWK VLQJOHVHJPHQWDO
EDIIOHV7KHXVHRIGRXEOHVHJPHQWDOEDIIOHVSHUPLWVWKHEDIIOHVWREHEURXJKWFORVHUIRU
WKHVDPHVKHOOVLGHSUHVVXUHGURS7KLVWUDQVODWHVLQWRDGHVLJQWKDWLVVDIHUDJDLQVWIDLOXUH
RIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ

&$6(678'<352'8&,1*$6$)('(6,*186,1*
'28%/(6(*0(17$/%$))/(6,1$6,1*/(3$666+(//
/HWXVUHIHUWR&DVH6WXG\SUHVHQWHGLQ&KDSWHU7KHVDOLHQWSURFHVVSDUDPHWHUVDUH
HODERUDWHG LQ 7DEOH D 7ZR GHVLJQV ZHUH SUHVHQWHG D VLQJOHSDVV VKHOO ZLWK VLQJOH
VHJPHQWDOEDIIOHVDQGDVLQJOHSDVVVKHOOZLWKGRXEOHVHJPHQWDOEDIIOHV7KHFRQVWUXFWLRQ
DQGSHUIRUPDQFHSDUDPHWHUVRIERWKRIWKHVHGHVLJQVZHUHSUHVHQWHGLQ7DEOHE7KH
GHVLJQ ZLWK VLQJOHVHJPHQWDO EDIIOHV KDG EHHQ IRXQG SURQH WR IDLOXUH RI WXEHV GXH WR
IORZLQGXFHG YLEUDWLRQZKLOHWKH GHVLJQ ZLWKGRXEOHVHJPHQWDOEDIIOHV ZDVIRXQGWREH
VDIH
7KHIORZLQGXFHGYLEUDWLRQDQDO\VLVKDGQRWEHHQSUHVHQWHGEHFDXVHWKHVDPHKDGQRW
 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG +\GURFDUERQJDV &RROLQJZDWHU
 )ORZUDWHOEKNJK  
 7HPSHUDWXUHLQRXWƒ)ƒ&  

 2SHUDWLQJSUHVVXUHSVLDNJFP D  

 $OORZDEOHSUHVVXUHGURSSVLNJFP   
 
 )RXOLQJUHVLVWDQFHKIW ƒ)%WXKP ƒ&NFDO  
 
 'HQVLW\LQRXWOEIW NJP   
 0ROHFXODUZHLJKW  

 ,QOHWRXWOHWYLVFRVLW\FS 
6WDQGDUG
 $YHUDJHVSHFLILFKHDW%WXOEƒ)NFDONJƒ& 
 $YHUDJHWKHUPDOFRQGXFWLYLW\%WXKIWƒ)

NFDOKPƒ&
 +HDWGXW\00%WXK00NFDOK 
 
 'HVLJQSUHVVXUHNJFP J   
 'HVLJQWHPSHUDWXUHƒ)ƒ&  
 0DWHULDORIFRQVWUXFWLRQ &DUERQVWHHO &DUERQVWHHO
 1RPLQDOOLQHVL]HLQPP  

EHHQGLVFXVVHGXSWRWKDWVWDJH7DEOHGHWDLOVWKHYLEUDWLRQDQDO\VLVUHVXOWVRIERWKRIWKH
GHVLJQVIRUWKHFHQWUDOUHJLRQ,WZLOOEHVHHQWKDWLQWKHILUVWGHVLJQWKHFURVVIORZYHORFLW\LV
RIWKHFULWLFDOYHORFLW\DQGWKHYRUWH[VKHGGLQJUDWLRLVXQDFFHSWDEO\KLJK,QWKHVHFRQG
GHVLJQKRZHYHUWKHFURVVIORZYHORFLW\LVRQO\RIWKHFULWLFDOYHORFLW\$OWKRXJKWKH
YRUWH[VKHGGLQJUDWLRLVWKHFURVVIORZDPSOLWXGHLVH[WUHPHO\ORZDWLQ
PPVRDVWRUHQGHUWKHGHVLJQSHUIHFWO\VDIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZLQGXFHG
YLEUDWLRQ 7KH SULQFLSDO FRQVWUXFWLRQDO GLIIHUHQFH EHWZHHQ WKH WZR GHVLJQV LV WKH
XQVXSSRUWHGVSDQLQPPLQWKHILUVWDQGLQPPLQWKHVHFRQG

'LYLGHGIORZVKHOODQGVLQJOHVHJPHQWDOEDIIOHV
,IZLWKDQ(VKHOODQGGRXEOHVHJPHQWDOEDIIOHVLWLVVWLOOQRWSRVVLEOHWRDFKLHYHWKHWZLQ
REMHFWLYHVRISURGXFLQJDGHVLJQVDIHDJDLQVWYLEUDWLRQIDLOXUHDQGVDWLVI\LQJWKHVKHOOVLGH
SUHVVXUH GURS OLPLWDWLRQ WKH QH[W FRQVWUXFWLRQ WR H[SORUH LV D GLYLGHGIORZ 7(0$ -
VW\OH VKHOO VHH )LJ  ZLWK VLQJOHVHJPHQWDO EDIIOHV +HUH ZLWK DQ LGHQWLFDO EDIIOH
VSDFLQJQRWRQO\WKHFURVVIORZEXWHYHQWKH ZLQGRZIORZ YHORFLW\ LVUHGXFHGVLQFHWKH
IORZ UDWH LWVHOI LV UHGXFHG WR RQH KDOI 7KXV IRU WKH VDPH VKHOOVLGH SUHVVXUH GURS WKH
EDIIOHVFDQEHEURXJKWHYHQFORVHUWKDQLVSRVVLEOHZLWKDQ(VKHOODQGGRXEOHVHJPHQWDO
EDIIOHV

 
 7DEOHE5HVXOWVRI&DVH6WXG\
 (VKHOOZLWK (VKHOOZLWK -VKHOOZLWK
VLQJOHVHJPHQWDO GRXEOHVHJPHQWDO VLQJOHVHJPHQWDO
EDIIOHV EDIIOHV EDIIOHV

 6KHOO,'LQPP   

 7RWDOQRRIWXEHVîQRRIWXEHSDVVHV î î î
 
 +HDWWUDQVIHUDUHDIW P    
 7XEH2'îWKLFNLQPP î
 7XEHOHQJWKîWXEHSLWFKLQPP îǻ
 %DIIOHVSDFLQJLQPP   

 %DIIOHFXWGLDPHWHU   

URZRYHUODS
 6KHOOVLGHSUHVVXUHGURSSVLNJFP   

 7XEHVLGHSUHVVXUHGURSSVLNJFP    
 6KHOOVLGHKHDWWUDQVIHUFRHIILFLHQW
  
%WXKIWƒ)NFDOPƒ&
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW
  
%WXKIWR)NFDOKPƒ&
 2YHUGHVLJQ   

9LEUDWLRQ$QDO\VLVFHQWUDOUHJLRQ
 &ULWLFDOYHORFLW\IWVPV   
 $YHUDJHFURVVIORZYHORFLW\IWVPV   
 9RUWH[VKHGGLQJUDWLR   
 7XUEXOHQWEXIIHWLQJUDWLR   
 8QVXSSRUWHGVSDQLQP   
 8QVXSSRUWHGVSDQ7(0$PD[LPXP   
   
 &URVVIORZȡY  OEIWVHF NJPVHF     
 &URVVIORZDPSOLWXGHLQPP   

&$6(678'<352'8&,1*$6$)('(6,*186,1*
$',9,'(')/2:6+(//$1'6,1*/(6(*0(17$/%$))/(6

/HWXVFRQVLGHUWKHVHUYLFHVSHFLILHG LQ7DEOHD&DUERQVWHHOWXEHVLQ

PP2'îLQPPWKLFNîIWPPORQJZHUHWREHXVHGIRUWKH
GHVLJQ1RWHWKHPRGHUDWHO\KLJKJDVIORZUDWHRQWKHVKHOOVLGHDQGWKHORZJDVGHQVLW\
$QDWWHPSWZDVILUVWPDGHWRSURGXFHDWKHUPDOGHVLJQZLWKDQG(VKHOODQGVLQJOH
VHJPHQWDOEDIIOHV7KHUHVXOWVDUHVKRZQLQ7DEOHE7KHYLEUDWLRQDQDO\VLVUHVXOWVDUH
IRU WKH FHQWUDO UHJLRQ ,W ZLOO EH VHHQ WKDW IRU D VKHOO ,' RI  LQ  PP WKH EDIIOH
VSDFLQJKDGWREHDVKLJKDVLQRUPPZKLFKLVZHOODERYHWKH7(0$OLPLWLQ
RUGHU WR FRQWDLQ WKH VKHOOVLGH SUHVVXUH GURS ZLWKLQ WKH DOORZDEOH OLPLW $V H[SHFWHG WKLV
 
GHVLJQ ZDV QRW DFFHSWDEOH VLQFH LW KDG D KLJK SUREDELOLW\ RI IDLOXUH RI WXEHV GXH WR IORZ
LQGXFHGYLEUDWLRQZLWKDWKHDYHUDJHFURVVIORZYHORFLW\WLPHVWKHFULWLFDOYHORFLW\DQG
EYHU\KLJKYRUWH[VKHGGLQJDQGWXUEXOHQWUDWLRV
6XFFHVVLYHGHVLJQVZHUHPDGHLQWKHIROORZLQJRUGHU
(VKHOOZLWKGRXEOHVHJPHQWDOEDIIOHV
-VKHOOZLWKVLQJOHVHJPHQWDOEDIIOHV
7KHUHVXOWVRIWKHVHGHVLJQVDUHDOVRVKRZQLQ7DEOH E/HWXVWDNHDORRNDWWKHP
)LUVWWKH ( VKHOO GHVLJQ ZLWK GRXEOHVHJPHQWDO EDIIOHV $OWKRXJK WKLV GHVLJQ ZDV PXFK
VDIHUDJDLQVWIDLOXUHGXHWRIORZLQGXFHG YLEUDWLRQWKDQWKHSUHYLRXV GHVLJQ ZLWKVLQJOH
VHJPHQWDOEDIIOHVLWZDVQRWVDIHHQRXJKEHFDXVH
 7KH DYHUDJH FURVVIORZ YHORFLW\  IWV RU  PV LV  RI WKH FULWLFDO
YHORFLW\IWVRUPV
 7KHYRUWH[VKHGGLQJDQGWKHWXUEXOHQWEXIIHWLQJUDWLRVDUHVWLOOXQDFFHSWDEO\KLJK
7KLVGHVLJQZDVDOVRWKHUHIRUHQRWDFFHSWDEOH
7KHWKLUGGHVLJQWULHGZDVD-VKHOOZLWKVLQJOHVHJPHQWDOEDIIOHV7KLVGHVLJQDSSHDUVWR
EH VDIHDJDLQVW IDLOXUH RIWXEHV GXHWR IORZLQGXFHG YLEUDWLRQVLQFH WKHDYHUDJH FURVVIORZ
YHORFLW\LVRQO\RIWKHFULWLFDOYHORFLW\7KHYRUWH[VKHGGLQJDQGWXUEXOHQWEXIIHWLQJ
UDWLRV  DQG  DUH QRW DEVROXWHO\ VDIH KRZHYHU FRQVLGHULQJ WKDW WKH FURVVIORZ
DPSOLWXGH LV RQO\  LQ  PP WKH XQVXSSRUWHG VSDQ LV RQO\ DERXW  RI WKH
7(0$PD[LPXPDQGWKHFURVVIORZȡYLVRQO\OEIWVHFNJPVHFWKLVGHVLJQ
PD\EHDFFHSWHGDVDVDIHGHVLJQ
,W PD\ EH QRWHG LQ WKH DERYH WDEOH KRZ WKH XQVXSSRUWHG VSDQ KDV EHHQ SURJUHVVLYHO\
UHGXFHG IURP  LQ  PP LQ WKH ILUVW GHVLJQ WR  LQ  PP LQ WKH VHFRQG
GHVLJQDQGWRLQPPLQWKHILQDOGHVLJQ&RQVHTXHQWO\WKHUDWLRVRI
 FURVVIORZYHORFLW\WRFULWLFDOYHORFLW\
 YRUWH[VKHGGLQJIUHTXHQF\WRQDWXUDOIUHTXHQF\RIWXEHV
 WXUEXOHQWEXIIHWLQJIUHTXHQF\WRQDWXUDOIUHTXHQF\RIWXEHV
KDYHSURJUHVVLYHO\EHHQUHGXFHG

'LYLGHGIORZVKHOODQGGRXEOHVHJPHQWDOEDIIOHV
6KRXOGHYHQDGLYLGHGIORZVKHOOFRQVWUXFWLRQZLWKVLQJOHVHJPHQWDOEDIIOHVEHXQDEOHWR
SURGXFHDVDWLVIDFWRU\GHVLJQWKHEDIIOHW\SHVKRXOGEHDOWHUHGWRGRXEOHVHJPHQWDO7KDW
LV D FRPELQDWLRQ RI D GLYLGHGIORZ VKHOO DQG GRXEOHVHJPHQWDO EDIIOHV VKRXOG EH
H[DPLQHG

&$6(678'<352'8&,1*$6$)('(6,*186,1*
$',9,'(')/2:6+(//$1''28%/(6(*0(17$/%$))/(6

/HWXVFRQVLGHUWKHVHUYLFHVSHFLILHGLQ7DEOHDIRUDK\GURFDUERQJDVFRROHU7XEHV
RI FDUERQ VWHHO LQ PP 2' LQ PP WKLFN DQG IW P
ORQJ ZHUHWREHXVHGLQDIL[HGWXEHVKHHW FRQVWUXFWLRQ$ PLQLPXP RYHUGHVLJQ RI
RQVXUIDFHZDVWREHLQFRUSRUDWHG
6LQFHWKHJDVIORZUDWHZDVYHU\KLJKDWOEKNJKDVLQJOHSDVVVKHOO
7(0$(ZDVTXLWHKRSHOHVVLQOLPLWLQJWKHVKHOOVLGHSUHVVXUHGURSWRWKHSHUPLVVLEOHYDOXH
DQGKDGWREHGLVFDUGHG
$ GLYLGHGIORZ VKHOO ZLWK VLQJOHVHJPHQWDO EDIIOHV ZDV FRQVLGHUHG DQG WKH SULQFLSDO

 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG +\GURFDUERQJDV &RROLQJZDWHU
 )ORZUDWHOEKNJK  
 7HPSHUDWXUHLQRXWƒ)ƒ&  

 2SHUDWLQJSUHVVXUHSVLDNJFP D  

 $OORZDEOHSUHVVXUHGURSSVLNJFP   
 
 )RXOLQJUHVLVWDQFHKIW ƒ)%WXKP ƒ&NFDO  
 
 'HQVLW\LQRXWOEIW NJP   
 0ROHFXODUZHLJKW  

 ,QOHWRXWOHWYLVFRVLW\FS 
6WDQGDUG
 $YHUDJHVSHFLILFKHDW%WXOEƒ)NFDONJƒ& 
 $YHUDJHWKHUPDOFRQGXFWLYLW\%WXKIWƒ)NFDOKPƒ& 
 +HDWGXW\00%WXK00NFDOK 

 'HVLJQSUHVVXUHSVLJNJFP J  
 'HVLJQWHPSHUDWXUHƒ)ƒ&  
 0DWHULDORIFRQVWUXFWLRQ &6 &6
 1RPLQDOOLQHVL]HLQPP  

FRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUVWKDWHPHUJHGDUHVKRZQLQ7DEOHE$OWKRXJK
WKH VKHOOVLGH SUHVVXUH GURS FRXOG EH FRQWDLQHG ZLWKLQ WKH DOORZDEOH OLPLW RI  SVL 
NJFPLWZDVRQO\ZLWKDYHU\ODUJHEDIIOHVSDFLQJRILQPP7KLVOHGWRDWXEH
XQVXSSRUWHG VSDQ WKDW ZDV  RI WKH 7(0$ PD[LPXP DQG D IORZLQGXFHG YLEUDWLRQ
DQDO\VLV WKDW ZDV IDU IURP VDWLVIDFWRU\ WKH FURVVIORZ YHORFLW\ ZDV ZHOO DERYH WKH FULWLFDO
YHORFLW\DQGWKHUDWLRVRIYRUWH[VKHGGLQJQDWXUDOIUHTXHQF\DQGWXUEXOHQWEXIIHWLQJQDWXUDO
IUHTXHQF\ZHUHXQDFFHSWDEO\KLJK7KLVGHVLJQDOVRKDGWREHUHOHJDWHGDQGWKHQH[WDWWHPSW
ZDVPDGHZLWKD-VKHOODQGGRXEOHVHJPHQWDOEDIIOHV
$ VDWLVIDFWRU\ GHVLJQ HPHUJHG ZLWK WKLV FRQVWUXFWLRQ 7KH VDOLHQW FRQVWUXFWLRQ DQG
SHUIRUPDQFHIHDWXUHV RIWKLV GHVLJQDUHVKRZQ LQ7DEOHEDV ZHOO1RW RQO\ FRXOG WKH
VKHOOVLGHSUHVVXUHEHOLPLWHGWRSVLNJFPWKHGHVLJQZDVVDIHDJDLQVWIDLOXUHRI
WXEHV GXH WR IORZLQGXFHG YLEUDWLRQ 7KH FURVVIORZ YHORFLWLHV ZHUH PXFK ORZHU WKDQ WKH
FULWLFDOYHORFLW\DQGDOWKRXJKWKHUDWLRVRIYRUWH[VKHGGLQJQDWXUDOIUHTXHQF\DQGWXUEXOHQW
EXIIHWLQJQDWXUDOIUHTXHQF\ZHUHDQGUHVSHFWLYHO\WKHFURVVIORZDPSOLWXGHZDV
VRORZDVWRUHQGHUWKHGHVLJQVDIH7KLVGHVLJQZDVWKHUHIRUHDFFHSWHG
7KH SULQFLSDO GLIIHUHQFH EHWZHHQ WKH WZR GHVLJQV DV IDU DV IORZLQGXFHG YLEUDWLRQ LV
FRQFHUQHG LV WKH XQVXSSRUWHG VSDQ  LQ  PP LQ WKH VLQJOHVHJPHQWDO EDIIOH
GHVLJQDQGLQPPLQWKHGRXEOHVHJPHQWDOEDIIOHGHVLJQ

1RWXEHVLQZLQGRZVHJPHQWDOEDIIOHV
7KHUHZLOOEHPDQ\VLWXDWLRQVZKHQHYHQDGLYLGHGIORZVKHOOZLWKGRXEOHVHJPHQWDOEDI
IOHVZLOOQRW\LHOGDVDWLVIDFWRU\GHVLJQ,QVXFKVLWXDWLRQVD³QRWXEHVLQZLQGRZ´VHH

 
 7DEOHE5HVXOWVRI&DVH6WXG\
 -VKHOOZLWKVLQJOH -VKHOOZLWKGRXEOH
VHJPHQWDOEDIIOHV VHJPHQWDOEDIIOHV
 1RRIVKHOOV 2QH 2QH
 6KHOO,'LQPP  
 7RWDOQRRIWXEHV  
 1RRIWXEHSDVVHV  
 
 +HDWWUDQVIHUDUHDIW P   
 %DIIOHVSDFLQJLQPP  
 %DIIOHFXWGLDPHWHU  URZVRYHUODS
 2YHUGHVLJQ  

 6KHOOVLGHSUHVVXUHGURSSVLNJFP   
 7XEHVLGHSUHVVXUHGURSSVLNJFP  
 6KHOOVLGHKHDWWUDQVIHUFRHIILFLHQW
 
%WXKIWƒ)NFDOPƒ&
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW
 
%WXKIWƒ)NFDOKPƒ&

9LEUDWLRQ$QDO\VLVFHQWUDOUHJLRQ
 &ULWLFDOYHORFLW\IWVPV  
 $YHUDJHFURVVIORZYHORFLW\IWVPV  
 9RUWH[VKHGGLQJUDWLR  
 7XUEXOHQWEXIIHWLQJUDWLR  
 8QVXSSRUWHGVSDQLQPP  
 8QVXSSRUWHGVSDQ7(0$PD[  
 &URVVIORZDPSOLWXGHLQPP  

)LJ  GHVLJQ VKRXOG EH FRQVLGHUHG 7KLV LV D VSHFLDO GHVLJQ ZKHUH DV WKH QDPH
LPSOLHV WKHUH DUH QR WXEHV LQ WKH ZLQGRZ UHJLRQ WKDW LV WXEHV DUH RQO\ LQ WKH UHJLRQ
FRPPRQWRDOOWKHEDIIOHV&RQVHTXHQWO\WKHXQVXSSRUWHGWXEHVSDQLVQRZHTXDOWRWKH
EDIIOH VSDFLQJ LWVHOI VLQFH DOO WKH EDIIOHV VXSSRUW DOO WKH WXEHV :LWK QRUPDO VLQJOH
VHJPHQWDOEDIIOHVWKHXQVXSSRUWHGWXEHVSDQ LVWZLFHWKHEDIIOHVSDFLQJVLQFHWXEHV LQ
WKHZLQGRZUHJLRQDUHVXSSRUWHGE\HYHU\DOWHUQDWHEDIIOH
6KRXOG LWEHFRPH QHFHVVDU\WRXVHDQ H[WUHPHO\ ODUJH EDIIOHVSDFLQJ LQDQRWXEHVLQ
ZLQGRZ GHVLJQ WR VDWLVI\ WKH VKHOOVLGH SUHVVXUH GURS OLPLWDWLRQ WKH XVH RI LQWHUPHGLDWH
VXSSRUWV LQFUHDVHV WKH QDWXUDO IUHTXHQF\ RI WKH WXEHV WKHUHE\ HQVXULQJ D GHVLJQ WKDW LV
DEVROXWHO\VDIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ:LWKWKHDGGLWLRQRI
LQWHUPHGLDWHVXSSRUWVWKHUHLVQRDSSUHFLDEOHLQFUHDVHLQWKHVKHOOVLGHSUHVVXUHGURSEHFDXVH
HVVHQWLDOO\ZHKDYHFURVVIORZDWYLUWXDOO\WKHVDPHYHORFLW\7KLVLVWKHWUXHIRUWHRIWKHQR
WXEHVLQZLQGRZGHVLJQ
7KHPLQLPXPQXPEHURIFURVVSDVVHVLQDQRWXEHVLQZLQGRZGHVLJQVKRXOGEHWKUHH

 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
 6KHOOVLGH 7XEHVLGH
 )OXLG +\GURFDUERQJDV +\GURFDUERQJDV
 )ORZUDWHOEKNJK  
 7HPSHUDWXUHLQRXWƒ)ƒ&  

 2SHUDWLQJSUHVVXUHSVLDNJFP D  

 $OORZDEOHSUHVVXUHGURSSVLNJFP   
 
 )RXOLQJUHVLVWDQFHKIW ƒ)%WXKP ƒ&NFDO  
 
 'HQVLW\LQRXWOEIW NJP   
 0ROHFXODUZHLJKW  
 $YHUDJHYLVFRVLW\FS  
 $YHUDJHVSHFLILFKHDW%WXOEƒ)NFDONJƒ&  
R R
 $YHUDJHWKHUPDOFRQGXFWLYLW\%WXKIW )NFDOKP &  
 +HDWGXW\00%WXK00NFDOK 

 'HVLJQSUHVVXUHSVLJNJFP J  
 'HVLJQWHPSHUDWXUHƒ)ƒ&  
 0DWHULDORIFRQVWUXFWLRQ &DUERQVWHHO 66/
 1RPLQDOVKHOOVLGHWXEHVLGHOLQHVL]HLQPP  

VLQFH WKLV D EDVLF DVVXPSWLRQ LQ WKH GHWHUPLQDWLRQ RI WKH PHDQ WHPSHUDWXUH GLIIHUHQFH
07'
$ QRWXEHVLQZLQGRZ GHVLJQ LV UHDOO\ WKH ODVW UHFRXUVH IRU D GHVLJQHU VLQFH VXFK D
GHVLJQUHTXLUHVDVLJQLILFDQWO\JUHDWHUVKHOOGLDPHWHUIRUDJLYHQKHDWWUDQVIHUDUHDWKHUHE\
LQFUHDVLQJLWVFRVWXVXDOO\E\DERXW±7KLVLVEHFDXVHQRWXEHVFDQEHORFDWHGLQWKH
ZLQGRZUHJLRQVRIWKHWXEHEXQGOH7KLVGHILFLHQF\LVRIIVHWWRVRPHH[WHQWE\WKHKLJKHU
VKHOOVLGH KHDW WUDQVIHU FRHIILFLHQW LQ D QRWXEHVLQZLQGRZ GHVLJQ ZKHQ FRPSDUHG WR D
FRQYHQWLRQDOWXEHVLQZLQGRZGHVLJQEHFDXVHWKHIRUPHUHPSOR\VSXUHFURVVIORZZKLFKLV
PRUH HIILFLHQW WKDQ D FRPELQDWLRQ RI FURVVIORZ DQG ZLQGRZ IORZ WKDW LV HPSOR\HG LQ WKH
ODWWHU

&$6(678'<352'8&,1*$6$)('(6,*186,1*
$1278%(6,1:,1'2:'(6,*1
&RQVLGHUWKHVHUYLFHHODERUDWHGLQ7DEOHD7KLVLVDJDVJDVKHDWH[FKDQJHUDQG\RX
ZLOOQRWLFHWKDWWKH07'LVYHU\VPDOODQGWKDWWKHUHLVDWHPSHUDWXUHFURVV6LQFHERWK
WKH VWUHDPV DUH YHU\ FOHDQ D IL[HGWXEHVKHHW FRQVWUXFWLRQ PD\ EH HPSOR\HG 7KH
H[SHFWHGKHDWWUDQVIHUDUHDEHLQJYHU\ODUJHIWPORQJWXEHVRILQ
PP 2' DQG  LQ PP WKLFN ZHUH WR EH XVHG 7KH WXEH PDWHULDO LV /
VWDLQOHVV VWHHO DQG WKH VKHOO PDWHULDO LV FDUERQ VWHHO ,W PD\ EH QRWHG WKDW WKH VKHOOVLGH
RSHUDWLQJSUHVVXUHLVUDWKHUORZDWSVLDNJFPDEV7KHIORZUDWHVRIERWKWKH
VWUHDPVDUHYHU\KLJKFRQVHTXHQWO\WKHOLQHVL]HVDUHDOVRKLJK
$ VLQJOH VKHOO SDVV 7(0$ ( GHVLJQ ZDV IRXQG XWWHUO\ LQIHDVLEOH GXH WR H[FHVVLYH

 
 7DEOHE5HVXOWVRI&DVH6WXG\
 -VKHOOZLWKVLQJOH -VKHOOZLWKGRXEOH
VHJPHQWDOEDIIOHV VHJPHQWDOEDIIOHV
 1RRIVKHOOV 2QH 2QH
 6KHOO,'LQPP  
 7RWDOQRRIWXEHVîQRRIWXEHSDVVHV îRQH îRQH
 7XEHSLWFKLQPP ǻ ǻ
 
 +HDWWUDQVIHUDUHDIW P   
 %DIIOHVSDFLQJLQPP  
 %DIIOHFXWGLDPHWHU  URZVRYHUODS
 SUHVVXUHGURSSVLNJFP  
 
 6KHOOVLGH 
KHDWWUDQVIHUFRHIILFLHQW%WXKIW
 
ƒ)NFDOPƒ&
 7XEHVLGHSUHVVXUHGURSSVLNJFP  
 2YHUDOOKHDWWUDQVIHUFRHIILFLHQW%WXKIWƒ)
 
NFDOKPƒ&
 07'ƒ)ƒ&  
 2YHUGHVLJQ  
 :HLJKWRIHPSW\H[FKDQJHUOENJ  

9LEUDWLRQ$QDO\VLVFHQWUDOUHJLRQ
 &ULWLFDOYHORFLW\IWVPV  
 $YHUDJHFURVVIORZYHORFLW\IWVPV  
 9RUWH[VKHGGLQJUDWLR  
 7XUEXOHQWEXIIHWLQJUDWLR  
 8QVXSSRUWHGVSDQLQPP  
 8QVXSSRUWHGVSDQ7(0$PD[  
   
 &URVVIORZȡY  OEIWVHF NJPVHF    

VKHOOVLGHSUHVVXUHGURS
$GLYLGHGIORZVKHOO7(0$-ZLWKVLQJOHVHJPHQWDOEDIIOHVZDVFRQVLGHUHGQH[WDQG
WKHILQDOGHVLJQWKDWHPHUJHGLVGHWDLOHGLQ7DEOHE$OWKRXJKWKHVKHOOVLGHSUHVVXUHGURS
FRXOG EH FRQWDLQHG ZLWKLQWKHDOORZDEOH OLPLW LW ZDVDWWKH H[SHQVH RIDYHU\ ODUJHEDIIOH
VSDFLQJ  LQ  PP ZKLFK LV FRQVLGHUDEO\ KLJKHU WKDQ WKH 7(0$ OLPLW &RQVH
TXHQWO\ WKH GHVLJQ KDG D YHU\ KLJK SUREDELOLW\ RI IDLOXUH RI WXEHV GXH WR IORZLQGXFHG
YLEUDWLRQDQGZDVWKHUHIRUHUHMHFWHG
,Q WKH QH[W GHVLJQ WKH GLYLGHGIORZ 7(0$ - VKHOO ZDV UHWDLQHG DQG WKH EDIIOHV
FKDQJHG IURP VLQJOHVHJPHQWDO WR GRXEOHVHJPHQWDO 7KH ILQDO FRQVWUXFWLRQ DQG SHUIRU
PDQFH SDUDPHWHUV DUH VKRZQ LQ 7DEOH E 7KLV GHVLJQ ZDV PXFK EHWWHU LQ WKDW WKH
VKHOOVLGHSUHVVXUHGURSFRXOGEHFRPSOLHGZLWKGHVSLWHDPXFKORZHUEDIIOHVSDFLQJLQ
PP7KHPD[LPXPXQVXSSRUWHGVSDQZDVDERUGHUOLQHRIWKH7(0$OLPLW6LQFH
 
 7DEOHF0RUHUHVXOWVRI&DVH6WXG\
 -VKHOOZLWK17,: (VKHOOZLWK17,:
VLQJOHVHJPHQWDO VLQJOHVHJPHQWDO
EDIIOHV EDIIOHV
1RRIVKHOOV 2QH 2QH
6KHOO,'LQPP  
7RWDOQRRIWXEHVîQRRISDVVHV îRQH îRQH
7XEHSLWFKLQPP ǻ ǻ
 
+HDWWUDQVIHUDUHDIW P   
%DIIOHVSDFLQJLQPP  
1RRILQWHUPHGLDWHVXSSRUWVLQHDFKEDIIOHVSDQ 2QH 
%DIIOHFXWGLDPHWHU  
 SUHVVXUHGURSSVLNJFP  
6KHOOVLGH 
KHDWWUDQVIHUFRHIILFLHQW%WXKIW ƒ)  
NFDOPƒ&
7XEHVLGHSUHVVXUHGURSSVLNJFP  
R
2YHUDOOKHDWWUDQVIHUFRHIILFLHQW%WXKIW )
 
NFDOKPƒ&
07'ƒ)ƒ&  
2YHUGHVLJQ  
:HLJKWRIHPSW\H[FKDQJHUOENJ  

9LEUDWLRQ$QDO\VLVFHQWUDOUHJLRQ
&ULWLFDOYHORFLW\IWVPV  
$YHUDJHFURVVIORZYHORFLW\IWVPV  
9RUWH[VKHGGLQJUDWLR  
7XUEXOHQWEXIIHWLQJUDWLR  
8QVXSSRUWHGVSDQLQPP  
8QVXSSRUWHGVSDQ7(0$PD[  
   
&URVVIORZȡY  OEIWVHF NJPVHF    
&URVVIORZDPSOLWXGHLQPP  

WKH DYHUDJH FURVVIORZ YHORFLW\ ZDV JUHDWHU WKDQ WKH FULWLFDO YHORFLW\ WKLV GHVLJQ WRR ZDV
XQVDIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ
1H[W D QRWXEHVLQZLQGRZ GHVLJQ ZDV DWWHPSWHG ZLWK WKH VKHOO W\SH UHWDLQHG DV
GLYLGHGIORZ 7(0$-7KH ILQDO FRQVWUXFWLRQDQGSHUIRUPDQFHSDUDPHWHUVDUH VKRZQ LQ
7DEOHF1RWLFHWKDWWKLVGHVLJQLVSHUIHFWO\VDIHDJDLQVWWKHSRVVLELOLW\RIIDLOXUHRIWXEHV
GXHWRIORZLQGXFHGYLEUDWLRQ7KHVKHOOLQVLGHGLDPHWHULVVRPHZKDWKLJKLQRU
PPVLQFHQRWXEHVFDQEHORFDWHGLQWKHZLQGRZUHJLRQV
7DNHDFRPSDUDWLYH ORRNDWWKHWKUHH GHVLJQV7KHXQVXSSRUWHGWXEHVSDQKDVUHGXFHG

 
IURPLQPPLQWKHILUVWGHVLJQWRLQPPLQWKHVHFRQGWRDPHUH
LQPPLQWKHWKLUG
$OO WKUHH GHVLJQV LQGLFDWHG D VWURQJ SRVVLELOLW\ RI DFRXVWLF YLEUDWLRQ LQ WKH ILUVW RU
IXQGDPHQWDOPRGHFRQVHTXHQWO\DVHWRIGHUHVRQDWLQJEDIIOHVZLOOKDYHWREHHPSOR\HGWR
HOLPLQDWHDFRXVWLFYLEUDWLRQ:HZLOOGLVFXVVDFRXVWLFYLEUDWLRQLQWKH6HFWLRQ
6RIDUDYHU\LPSRUWDQWSRLQWKDVQRWEHHQPHQWLRQHGZKLFKWKHGLVFHUQLQJUHDGHUPD\
KDYHQRWLFHGDVWKHUHLVDWHPSHUDWXUHFURVVD7(0$-VKHOOZLOOLPSRVHDSHQDOW\LQWKH
07'RIWKHKHDWH[FKDQJHUVLQFHRQHKDOIRIWKHWXEHOHQJWKLVLQFRXQWHUFXUUHQWIORZDQG
WKH RWKHU KDOI LQ FRFXUUHQW IORZ,Q WKH SUHVHQW FDVHDVWKHUH LVDVLJQLILFDQW FURVVWKH)W
IDFWRUFRPHVWRMXVWZKLFKLVDKXJHSHQDOW\
1RZDVORQJDVDUHJXODUWXEHVLQZLQGRZGHVLJQZDVEHLQJFRQVLGHUHGD-VKHOOKDGWR
EHXVHGEHFDXVHRIWKHVKHOOVLGHSUHVVXUHGURSOLPLWDWLRQ+RZHYHURQFHZHPRYHWRDQR
WXEHVLQZLQGRZ17,:GHVLJQWKLVOLPLWDWLRQLVQRORQJHUYDOLG/RJLFDOO\WKHUHIRUHDQ(
VKHOOVKRXOGEHFRQVLGHUHGKHUHDVLWZLOORIIHUDELJLPSURYHPHQWLQWKH07'$FFRUGLQJO\
VXFKDGHVLJQZDVWULHGDQGDPXFKFKHDSHUGHVLJQHPHUJHG7KHSDUDPHWHUVDUHSUHVHQWHG
LQ7DEOHF7KUHHFURVVSDVVHVZLWKVL[LQWHUPHGLDWHVXSSRUWVSURYLGHGDGHVLJQWKDWLV
DEVROXWHO\VDIHDJDLQVWWKHSRVVLELOLW\RIIDLOXUHRIWXEHVGXHWRIORZLQGXFHGYLEUDWLRQ
/HWXVFRPSDUHWKLVGHVLJQZLWKWKHSUHYLRXVRQHWKDWLVWKH17,:GHVLJQZLWKWKH-
VKHOO$VDUHVXOWRIWKHPXFKORZHUFURVVIORZYHORFLW\WKHVKHOOVLGHDQGWKHUHE\WKHRYHUDOO
KHDWWUDQVIHUFRHIILFLHQWDUHVLJQLILFDQWO\ORZHU+RZHYHUWKDQNVWRWKHODUJHLQFUHDVHLQWKH
07'WKHKHDWWUDQVIHUDUHDKDVUHGXFHGIURPIWP WRIWPDQG
WKH HPSW\ H[FKDQJHU ZHLJKW IURP  OE  NJ WR  OE  NJ ZKHQ
FRPSDUHGWRWKH-VKHOO17,:GHVLJQ7KXVWKH(VKHOO17,:GHVLJQZDVVHOHFWHGDVWKH
PRVWHFRQRPLFDOGHVLJQ

5RG%DIIOHV
5RG EDIIOHV DUH DQRWKHU PHDQV RI HOLPLQDWLQJ IDLOXUH RI WXEHV GXH WR IORZLQGXFHG
YLEUDWLRQ ,Q WKLV FRQFHSW DOO WKH WXEHV LQ D KHDW H[FKDQJHU DUH VXSSRUWHG LQ DOO IRXU
GLUHFWLRQVE\DPDWUL[RIURGVFDOOHGDEDIIOHVHWVHH)LJ7KHGLDPHWHURIWKHURGV
LV HTXDOWRWKHJDSEHWZHHQWKHWXEHVVRWKDWWKHURGVDFWXDOO\WRXFKWKHWXEHVDQGSLQ
WKHPRQDOOIRXUVLGHVWKXVUHVWUDLQLQJDQ\PRYHPHQW
%HFDXVHRIWKHLQKHUHQWXQREVWUXFWHGIORZSDWKFUHDWHGE\WKHURGVWKHIORZSDWWHUQLV
SUHGRPLQDQWO\ORQJLWXGLQDO6LQFHWKHIORZGLUHFWLRQLVQRWUHSHWLWLYHO\FKDQJHGDVLWLVZLWK
SODWHEDIIOHVYHORFLW\SURILOHVDUHPRUHXQLIRUP)XUWKHUPRUHVWDJQDQWUHJLRQVDUHYLUWXDOO\
HOLPLQDWHG$VDUHVXOWRIWKHDERYHWKHIROORZLQJDGGLWLRQDOEHQHILWVFDQEHUHDOL]HGE\WKH
XVHRIURGEDIIOHVLQDSSURSULDWHVLWXDWLRQV
D $ KLJKHUFRQYHUVLRQ RISUHVVXUHGURSWR KHDWWUDQVIHURQWKHVKHOOVLGH7KLVFDQ
EH HPSOR\HG WR REWDLQ D ORZHU SUHVVXUH GURS IRU WKH VDPH KHDW WUDQVIHU
FRHIILFLHQWRUDKLJKHUKHDWWUDQVIHUFRHIILFLHQWIRUWKHVDPHSUHVVXUHGURS
E 5HGXFHGIRXOLQJGXHWRWKHDEVHQFHRIVWDJQDQWUHJLRQV
5RGEDIIOHH[FKDQJHUVKDYHEHHQHPSOR\HGSUHGRPLQDQWO\IRUVHUYLFHVKDQGOLQJJDVHVRU
FRQGHQVLQJYDSRUL]LQJVWUHDPVVLQFHVXFKVHUYLFHV KDYHDKLJKSRVVLELOLW\ RIIDLOXUH RI
WXEHVGXHWRIORZLQGXFHGYLEUDWLRQ

$FRXVWLF9LEUDWLRQ
$FRXVWLF YLEUDWLRQ LQ VKHOODQGWXEH KHDW H[FKDQJHUV LQYROYHV H[FLWLQJ WKH DFRXVWLF
IUHTXHQF\RIWKHVKHOOFDYLW\WRFUHDWHQRLVH,WLVDFRQVHTXHQFHRIDIUHTXHQF\PDWFKEH

 
WZHHQDQH[FLWLQJIUHTXHQF\HLWKHUGXHWRYRUWH[VKHGGLQJRUWXUEXOHQWEXIIHWLQJDQGWKH
DFRXVWLF IUHTXHQF\ RI WKH VKHOO :KHQ WKLV KDSSHQV UHVRQDQFH RFFXUV DQG WKH NLQHWLF
HQHUJ\RIWKHIORZVWUHDPLVFRQYHUWHGLQWRVRXQGSUHVVXUHZDYHV
$FRXVWLF UHVRQDQFH RFFXUV GXH WR JDV FROXPQ RVFLOODWLRQ ZKLFK LV D PROHFXODU
SKHQRPHQRQ7KHRVFLOODWLRQRFFXUVSHUSHQGLFXODUWRERWKWKHGLUHFWLRQRIIORZDQGWKHWXEH
D[LVDQGSURGXFHVDFRXVWLF YLEUDWLRQ RIDVWDQGLQJ ZDYH W\SH²SUHFLVHO\ ZKDW KDSSHQVWR
WKHDLUFROXPQLQVLGHDIOXWHZKHQLWLVSOD\HG
7KH FKDUDFWHULVWLF IUHTXHQF\ RI DFRXVWLF YLEUDWLRQ LQ D VKHOODQGWXEH KHDW H[FKDQJHU
GHSHQGVXSRQDFKDUDFWHULVWLFGLPHQVLRQZKLFKLVWKHVKHOOLQVLGHGLDPHWHUDQGWKHYHORFLW\
RI VRXQG LQ WKH VKHOOVLGH IOXLG PHGLXP $ FRUUHFWLRQ KDV WR EH DGGHG IRU WKH SUHVHQFH RI
WXEHVLQWKHVKHOODVZHOODVWKHWXEHOD\RXWDQJOH
7KHDFRXVWLFUHVRQDQWIUHTXHQF\IDFFDQEHH[SUHVVHGE\WKHIROORZLQJHTXDWLRQ
IDF PXVRXQGG 
ZKHUH
P  WKHPRGHQXPEHUDGLPHQVLRQOHVVLQWHJHU
XVRXQG  YHORFLW\RIVRXQG
G  VKHOOGLDPHWHU
,WZLOOEHVHHQWKDWWKHDFRXVWLFUHVRQDQWIUHTXHQF\LVGLUHFWO\SURSRUWLRQDOWRWKHYHORFLW\
RI VRXQG DQG LQYHUVHO\ SURSRUWLRQDO WR WKH VKHOO GLDPHWHU 7KH YHORFLW\ RI VRXQG LV
LQYHUVHO\SURSRUWLRQDOWRWKHVTXDUHURRWRIWKHJDVRUYDSRUPROHFXODUZHLJKW
:KHQP WKHORZHVWDFRXVWLFIUHTXHQF\LVDFKLHYHGDQGWKHFKDUDFWHULVWLFOHQJWKLV
HTXDOWRWKHVKHOOLQVLGHGLDPHWHU7KLVLVNQRZQDVWKHIXQGDPHQWDOWRQH+LJKHURYHUWRQHV
P RUYLEUDWHDWIUHTXHQFLHVWZRWKUHHRUIRXUWLPHVWKHIXQGDPHQWDOIUHTXHQF\DV
VKRZQLQ)LJ
,Q D VKHOO ILOOHG ZLWK WXEHV WKH WXEH OD\RXW DQJOH GHILQHV WKH RSHQ ODQHV ZKHUH WKH
VWDQGLQJZDYHIRUPDWLRQLVPRVWSUREDEOH)LJXUHVKRZVDILUVWPRGHVWDQGLQJZDYHLQ
ERWK DQ LQOLQH VTXDUH DQG VWDJJHUHG URWDWHG VTXDUH WXEH DUUDQJHPHQW 7KH VKDGHG
SRUWLRQVUHSUHVHQWDUHDVZKHUHUHVRQDQFHFDQRFFXU
7KHDFRXVWLFIUHTXHQFLHVRIDKHDWH[FKDQJHUFDQEHH[FLWHGE\HLWKHUYRUWH[VKHGGLQJRU
WXUEXOHQWEXIIHWLQJZKHQWKHVHIUHTXHQFLHVDUH
EHWZHHQ  DQG  RI WKH DFRXVWLF
IUHTXHQF\ :KHQ WKLV KDSSHQV D ORXG QRLVH
PD\ EH SURGXFHG $FRXVWLF YLEUDWLRQ LV QRW


)LJ  7\SLFDO ZDYH IRUPV 5HSULQWHG IURP WKH )LJ  )LUVWPRGH VWDQGLQJ ZDYH IRUPDWLRQ >@
+HDW ([FKDQJHU 'HVLJQ +DQGERRN  ZLWK 5HSURGXFHG ZLWK SHUPLVVLRQ &RS\ULJKW 
SHUPLVVLRQRI%HJHOO+RXVH,QF $,&K($OOULJKWVUHVHUYHG

 
GHVWUXFWLYHXQOHVVWKHDFRXVWLFIUHTXHQF\LVLQ
UHVRQDQFH ZLWK WKH QDWXUDO IUHTXHQF\ RI WKH
WXEHVZKLFKLVYHU\UDUH+RZHYHUWKHQRLVH
SURGXFHGLVYHU\XQSOHDVDQWVRWKDWGHVLJQHUV
VKRXOG VWULYH WR HOLPLQDWH WKH SRVVLELOLW\ RI
DFRXVWLFYLEUDWLRQLQWKHGHVLJQVWDJHLWVHOI
,I WKH SUREDELOLW\ RI DFRXVWLF YLEUDWLRQ LV
LQGLFDWHGZKLOHFDUU\LQJRXWDWKHUPDOGHVLJQ
WKH GHVLJQHU VKRXOG H[DPLQH DQ DOWHUQDWLYH
WXEHOD\RXWDQJOH7KHXVHRIDRWXEHOD\RXW
DQJOH RIWHQ HOLPLQDWHV WKH SUREDELOLW\ RI )LJ  /RFDWLRQ RI GHUHVRQDWLQJ EDIIOHV
IRU
DFRXVWLF YLEUDWLRQ $OWKRXJK QRW ZHOO XQGHU SUHYHQWLQJ DFRXVWLF YLEUDWLRQ LQ D URWDWHG VTXDUH
VWRRG PRVW SUREOHPV RI DFRXVWLF YLEUDWLRQ WXEH OD\RXW FRQILJXUDWLRQ >@ 5HSURGXFHG ZLWK
KDYHRFFXUUHGLQKHDWH[FKDQJHUVHPSOR\LQJD SHUPLVVLRQ &RS\ULJKW  $,&K( $OO ULJKWV
UHVHUYHG
R WXEH OD\RXW DQJOH +HQFH WKH XVH RI WKLV
FRQILJXUDWLRQVKRXOGEHDYRLGHG
,I WKH SUREDELOLW\ RI DFRXVWLF YLEUDWLRQ FDQQRW EH HOLPLQDWHG RWKHUZLVH GHUHVRQDWLQJ
EDIIOHVVKRXOGEHLQFRUSRUDWHGLQDOOWKHFURVVSDVVHVVLQFHDFRXVWLFYLEUDWLRQFDQRFFXUDW
DQ\OHQJWKRIWKHVKHOO7KHVHDUHIODWSODWHVVHWSDUDOOHOWRERWKWKHFHQWHUOLQHRIWKHWXEHVDQG
WKHSODQHRIFURVVIORZDQGDUHZHOGHGWRWKHEDIIOHVWXEHVKHHWRQHLWKHUVLGH7KXVLIDKHDW
H[FKDQJHULVKRUL]RQWDOO\PRXQWHGDQGKDVKRUL]RQWDOO\FXWEDIIOHVWKHGHUHVRQDWLQJEDIIOHV
ZLOOEHLQWKHYHUWLFDOSODQH
7KH PRVW HIIHFWLYH ORFDWLRQ RI GHUHVRQDWLQJEDIIOHV LVWKHRUHWLFDOO\DWWKHDQWLQRGH RI
WKHGLVSODFHPHQWZDYHZKHUHWKHJDVSDUWLFOHGLVSODFHPHQWLVPD[LPXP+RZHYHUDFWXDO
H[SHULHQFH KDV VKRZQ WKDW WKH GHUHVRQDWLQJ EDIIOH QHHG QRW EH ORFDWHG SUHFLVHO\ DW WKH
DQWLQRGHLQRUGHUWREHHIIHFWLYHEXWFDQEHORFDWHGZLWKLQDIHZWXEHURZVRIWKHDQWLQRGH
7KH DGYDQWDJH ZLWK WKLV SUDFWLFH LV WKDW D VLQJOH GHUHVRQDWLQJ EDIIOH FDQ EH HPSOR\HG WR
SUHYHQWPRUHWKDQRQHPRGHRIDFRXVWLFYLEUDWLRQ$QH[DPSOHRIWKLVLVVKRZQLQ)LJ
ZKHUH VHYHUDO UHVRQDQW PRGHV P    DQG  DUH HOLPLQDWHG LQ D KHDW H[FKDQJHU
HPSOR\LQJDURWDWHGVTXDUHSLWFK
:LWKDVTXDUHWXEHSLWFKWKHSUHYHQWLRQRIILUVWPRGHYLEUDWLRQLVTXLWHVWUDLJKWIRUZDUG
DV VKRZQ LQ )LJ D +RZHYHU WKH VLWXDWLRQ LV VRPHZKDW PRUH GLIILFXOW IRU SUHYHQWLQJ
DFRXVWLFYLEUDWLRQLQWKHKLJKHUPRGHV3ODFLQJWKHILUVWGHUHVRQDWLQJEDIIOHDVVKRZQLQ)LJ
E UHVXOWV LQ WKH JHQHUDWLRQ RI DQ LQWHUPHGLDWH ZDYH OHQJWK DQG IUHTXHQF\ VR WKDW D
VHFRQGGHUHVRQDWLQJEDIIOHKDVWREHORFDWHGDVVKRZQ7KXVWZRGHUHVRQDWLQJEDIIOHVZLOO
KDYHWRHPSOR\HG7KHLGHDLVWRFUHDWHDFRXVWLFIUHTXHQFLHVTXLWHGLIIHUHQWIURPWKHIRUFLQJ


 D E
)LJ/RFDWLRQRIGHUHVRQDWLQJEDIIOHVIRUSUHYHQWLQJDFRXVWLFYLEUDWLRQLQDVTXDUHWXEHOD\RXWFRQILJX
UDWLRQ>@5HSURGXFHGZLWKSHUPLVVLRQ&RS\ULJKW$,&K($OOULJKWVUHVHUYHG

 
IUHTXHQFLHV GXHWR YRUWH[ VKHGGLQJ RUWXUEXOHQW EXIIHWLQJ LQ HDFKVHJPHQWIRUPHG E\WKH
GHUHVRQDWLQJEDIIOHV
)RU D GHWDLOHG DFFRXQW RI DFRXVWLF YLEUDWLRQ LQ VKHOODQGWXEH KHDW H[FKDQJHUV SOHDVH
UHIHUWR>@DQG>@

5HIHUHQFHV
>@ 0DF'XII -1 DQG )HOJDU 53  ³9LEUDWLRQ 'HVLJQ &KDUWV´ 7UDQV$60(  2FW
SS²
>@ &KHQ<1³)ORZLQGXFHG9LEUDWLRQDQG1RLVHLQ7XEHEDQN+HDW([FKDQJHUV'XHWR9RQ
.DUPDQ6WUHHWV´7UDQV$60(-(QJ,QGSS±
>@ &RQQRUV+-³)OXLGHODVWLF9LEUDWLRQRI7XEH$UUD\VH[FLWHG E\&URVV)ORZ´6\PS
RQ)ORZ,QGXFHG9LEUDWLRQLQ+HDW([FKDQJHUV$60($QQXDO:LQWHU0HHWLQJ1HZ<RUN
>@ 7XEXODU([FKDQJHU0DQXIDFWXUHUV$VVRFLDWLRQ6WDQGDUGVRIWKH7XEXODU([FKDQJHU
0DQXIDFWXUHUV$VVRFLDWLRQWK(GLWLRQ7(0$1HZ<RUN
>@ %DUULQJWRQ($³$FRXVWLF9LEUDWLRQVLQ7XEXODU([FKDQJHUV´&KHPLFDO(QJLQHHULQJ
3URJUHVVSS²
>@ %DUULQJWRQ($³&XUHH[FKDQJHUDFRXVWLFYLEUDWLRQ´+\GURFDUERQ3URFHVVLQJ-XO\
SS²
>@ +HZLWW *) HG  +HDW ([FKDQJHU 'HVLJQ +DQGERRN  9ROV  DQG  %HJHOO
+RXVH,QF1HZ<RUN

 
 &+$37(5

(QKDQFHG+HDW7UDQVIHU

6RIDULQWKLVERRN ZH KDYH GZHOW RQ KHDWWUDQVIHULQ FRQYHQWLRQDOVKHOODQGWXEH KHDW

H[FKDQJHUVKDYLQJEDUHWXEHVRIFLUFXODUFURVVVHFWLRQDQGSODWHEDIIOHVSHUSHQGLFXODUWR
WKHD[LVRIWKHWXEHVKHUHDIWHURQO\FDOOHGFRQYHQWLRQDOVKHOODQGWXEHKHDWH[FKDQJHUV
1RZ FRQYHQWLRQDO VKHOODQGWXEH KHDW H[FKDQJHUV DUH VR SHUYDVLYH LQ WKH FKHPLFDO
SURFHVV LQGXVWULHV WKDW WKH UHDGHU PD\ ZHOO DVVXPH WKHP WR HPERG\ HIILFLHQW KHDW
WUDQVIHU8QIRUWXQDWHO\WKLVLVIDUIURPWKHWUXWKEHFDXVHERWKRIWKHVHHOHPHQWVWKHEDUH
FLUFXODU WXEH DQG WKH SHUSHQGLFXODU SODWH EDIIOH LQYDULDEO\ UHSUHVHQW VLJQLILFDQW
OLPLWDWLRQVDVIDUDVHIILFLHQWKHDWWUDQVIHULVFRQFHUQHG7KLVLVEHFDXVHQHDUWKHWXEHZDOO
WKHUHLVDWKHUPDOO\LQHIILFLHQWERXQGDU\OD\HUZKHUHWKHUHLVYHU\OLWWOHRUQRPL[LQJ2QWKH
VKHOOVLGHWKHIRUPDWLRQRIHGGLHVFURVVIORZIURPRQHFURVVSDVVWRDQRWKHUDQGGHDGVSDFHV
DGMDFHQW WR HDFK EDIIOH DUH LQHIILFLHQW IORZ SKHQRPHQD ZKLFK UHVXOW LQ SRRU KHDW WUDQVIHU
HIILFLHQF\DQGDJJUDYDWHGIRXOLQJ%\PRGLI\LQJWKHEDUHFLUFXODUWXEHDQGRUWKHSHUSHQ
GLFXODU EDIIOH LW LV SRVVLEOH WR UHDOL]H VLJQLILFDQW LPSURYHPHQW LQ KHDW WUDQVIHU ,Q WKLV
FKDSWHU ZH ZLOO ORRN DW HQKDQFHG KHDW WUDQVIHU DV DSSOLFDEOH WR VKHOODQGWXEH KHDW
H[FKDQJHUVDQGGLVFXVVEULHIO\HQKDQFHGKHDWWUDQVIHULQQRQWXEXODUKHDWH[FKDQJHUV

:KDWLV(QKDQFHG+HDW7UDQVIHU"
%HIRUHDQVZHULQJWKLVTXHVWLRQOHWXVILUVWWDONDERXWHIILFLHQWKHDWWUDQVIHU%\LWVYHU\
QDWXUH FRQYHFWLYH KHDW WUDQVIHU LV DOZD\V DFKLHYHG DW WKH H[SHQVH RI IOXLG IORZ DQG
WKHUHE\SUHVVXUHGURS1RZWKHKLJKHUWKHKHDWWUDQVIHUFRHIILFLHQWWKHVPDOOHUZLOOEH
WKHKHDWWUDQVIHUDUHDDQGWKHORZHUWKHILUVWFRVWRIWKHKHDWH[FKDQJHU$WWKHVDPHWLPH
WKHKLJKHUWKHSUHVVXUHGURSWKHKLJKHUZLOOEHWKHRSHUDWLQJFRVW7KHUHIRUHLWLVYLWDOO\
LPSRUWDQW WR PLQLPL]H SUHVVXUH GURS IRU D JLYHQ KHDW WUDQVIHU FRHIILFLHQW VR WKDW WKH
RYHUDOOFRVWRIWKHKHDWH[FKDQJHUZKLFKLVWKHVXPRIWKHIL[HGFRVWDQGWKHRSHUDWLQJ
FRVW LV ORZ 7KH HIILFLHQF\ RI KHDW WUDQVIHU PD\ WKHUHIRUH EH GHILQHG LQ WHUPV RI WKH
FRQYHUVLRQRISUHVVXUHGURSWRKHDWWUDQVIHU
%HFDXVHRIWKHLULQKHUHQWGHILFLHQFLHVGHVFULEHGDERYHFRQYHQWLRQDOVKHOODQGWXEHKHDW
H[FKDQJHUV GR QRW KDYH D KLJK HIILFLHQF\ RI KHDW WUDQVIHU 7KLV LV QRW WR GHWUDFW IURP WKH
XVHIXOQHVVDQGYHUVDWLOLW\RIWKHVHKHDWH[FKDQJHUVVLQFHWKH\DUHVWLOORIWHQWKHEHVWEHWIRU
PDQ\DSSOLFDWLRQVLQWKHFKHPLFDOSURFHVVLQGXVWULHVHVSHFLDOO\IRUKLJKSUHVVXUHDQGKLJK
WHPSHUDWXUHVHUYLFHV1RQHWKHOHVVWKHUHDUHPDQ\VHUYLFHVZKHUHDOWHUQDWHKHDWH[FKDQJHU
FRQVWUXFWLRQVGHVHUYHVHULRXVFRQVLGHUDWLRQ
:HQRZFRPHWRWKHWHUP³HQKDQFHGKHDWWUDQVIHU´7KLVLVFRPPRQO\XQGHUVWRRGWREH
DQ HQKDQFHPHQW RU LQFUHDVH LQ WKH KHDW WUDQVIHU FRHIILFLHQW 1RZ DQ LQFUHDVH LQ WKH KHDW
WUDQVIHUFRHIILFLHQWFDQEHDFKLHYHGHYHQLQDFRQYHQWLRQDOVKHOODQGWXEHKHDWH[FKDQJHUE\
DQ LQFUHDVH LQ IOXLG YHORFLW\ EXW WKDW ZRXOG KDUGO\ TXDOLI\ DV KHDW WUDQVIHU HQKDQFHPHQW
 
VLQFHWKHLQFUHDVHLQSUHVVXUHGURSZLOOEHIDUJUHDWHUWKDQWKHLQFUHDVHLQWKHKHDWWUDQVIHU
FRHIILFLHQWFRQVHTXHQWO\WKHHIILFLHQF\RIFRQYHUVLRQRISUHVVXUHGURSWRKHDWWUDQVIHUZLOO
DFWXDOO\GHFUHDVH
:KDW HQKDQFHG KHDW WUDQVIHU UHDOO\ LPSOLHV LV DQ HQKDQFHPHQW RI WKH KHDW WUDQVIHU
FRHIILFLHQW IRU D JLYHQ SUHVVXUH GURS ,Q RWKHU ZRUGV HQKDQFHG KHDW WUDQVIHU SURGXFHV D
KLJKHUHIILFLHQF\RIFRQYHUVLRQRISUHVVXUHGURSWRKHDWWUDQVIHU7KHNH\WRHQKDQFHGKHDW
WUDQVIHULVKLJKHUWXUEXOHQFHZKLFKLVSURGXFHGQRWE\DQLQFUHDVHLQWKHIOXLGYHORFLW\EXW
E\ DQ LPSURYHPHQW LQ WKH EDVLF IORZ SDWWHUQ IRU WKH DSSOLFDWLRQ DW KDQG 7KH LQFUHDVHG
WXUEXOHQFHOHDGVWRQRWRQO\HQKDQFHGKHDWWUDQVIHUEXWUHGXFHGIRXOLQJDVZHOO7KLVLVQRW
VXUSULVLQJ ZKHQ RQH FRQVLGHUV WKDW WKH LQHIILFLHQW IORZ SKHQRPHQD PHQWLRQHG DW WKH
EHJLQQLQJ RIWKLV FKDSWHUDUHWKHURRWFDXVH RIERWK LQHIILFLHQW KHDWWUDQVIHUDQG H[FHVVLYH
IRXOLQJ ,Q IDFW LQ PDQ\ WURXEOHVRPH VLWXDWLRQV D UHGXFWLRQ LQ IRXOLQJ FDQ EH HYHQ PRUH
GHVLUDEOHWKDQDQHQKDQFHPHQWLQKHDWWUDQVIHU
$VHQKDQFHGKHDWWUDQVIHUSURGXFHVD³KLJKHU´HIILFLHQF\RIFRQYHUVLRQRISUHVVXUHGURS
WRKHDWWUDQVIHULWLVDUHODWLYHWHUPDQGDGDWXPKDVWREHGHILQHG$VWKHUHDGHUPD\HDVLO\
XQGHUVWDQG E\ QRZWKH FRQYHQWLRQDOVKHOODQGWXEH KHDW H[FKDQJHU IRUPVWKH GDWXP ZLWK
UHVSHFWWRZKLFKHQKDQFHGKHDWWUDQVIHULVDVVHVVHG
2QH LPSRUWDQW SRLQW WR EHDU LQ PLQG KHUH LV WKDW DOWKRXJK DQ HQKDQFHG KHDW WUDQVIHU
SURGXFW ZLOO SURGXFH D KLJKHU KHDW WUDQVIHU FRHIILFLHQW DQG WKHUHE\ D ORZHU KHDW WUDQVIHU
DUHDIRUDJLYHQSUHVVXUHGURSRIRQHRUERWKRIWKHVWUHDPVWKHILUVWFRVWRIWKHHQKDQFHG
KHDWWUDQVIHUKHDWH[FKDQJHUZLOOGHSHQGQRWMXVWXSRQWKHKHDWWUDQVIHUDUHDEXWDOVRXSRQ
LWVFRVWSHUXQLWDUHD)RUWKHILUVWFRVWWRUHGXFHDVFRPSDUHGWRDFRQYHQWLRQDOVKHOODQG
WXEHKHDWH[FKDQJHUWKHUHGXFWLRQLQKHDWWUDQVIHUDUHDVKRXOGEHJUHDWHUWKDQWKHLQFUHDVHLQ
WKHFRVWSHUXQLWDUHD
7KH WHUP KHDW WUDQVIHU DXJPHQWDWLRQ LV RIWHQ HPSOR\HG IRU HQKDQFHG KHDW WUDQVIHU RU
KHDWWUDQVIHUHQKDQFHPHQW

%HQHILWVRI(QKDQFHG+HDW7UDQVIHU
7KHSULQFLSDOEHQHILWVRIHQKDQFHGKHDWWUDQVIHUDUH
 5HGXFHWKHILUVWFRVWRIDKHDWH[FKDQJHU
%\YLUWXHRIWKHKLJKHURYHUDOOKHDWWUDQVIHUFRHIILFLHQWWKHVL]HDQGZHLJKWRIWKH
KHDW H[FKDQJHU ZLOO EH ORZHU ZLWK FRUUHVSRQGLQJ VDYLQJ LQ VWUXFWXUDO VWHHO
WKHUHE\UHGXFLQJWKHILUVWFRVW
 6DYHSXPSLQJSRZHU
7KHFRVWRIDKHDWH[FKDQJHUHPERG\LQJHQKDQFHGKHDWWUDQVIHUFDQEHNHSWWKH
VDPHDVWKDWRIDFRQYHQWLRQDO67+(DWWKH H[SHQVH RID PXFK ORZHUSUHVVXUH
GURSRQWKHVLGHZKLFKKDVEHHQHQKDQFHGWXEHVLGHVKHOOVLGHRUERWK7KLVZLOO
UHVXOWLQDGLUHFWVDYLQJLQSXPSLQJSRZHURIWKHFRUUHVSRQGLQJVWUHDPV
 5HGXFHGILUVWFRVWDQGSXPSLQJSRZHU
%\ QRW WDNLQJ IXOO DGYDQWDJH RI WKH SRVVLEOH HQKDQFHPHQW LQ WKH KHDW WUDQVIHU
FRHIILFLHQW LW LV SRVVLEOH WR REWDLQ DQ DGYDQWDJH LQ ERWK WKH ILUVW FRVW DQG WKH
SXPSLQJ FRVW(YLGHQWO\WKHUHGXFWLRQ LQWKHILUVWFRVWZLOOEH OHVVWKDQWKDWLQ
EHQHILWDERYHDQGWKHVDYLQJLQSXPSLQJSRZHUZLOOEHOHVVWKDQWKDWLQEHQHILW
DERYH

 
  8VHORZHU07'DQGWKHUHE\FKHDSHUXWLOLW\
6LQFHWKH RYHUDOOWXEHVLGH KHDWWUDQVIHUFRHIILFLHQW LVKLJKHU ZLWK HQKDQFHG KHDW
WUDQVIHUWKH07'FDQEHFRUUHVSRQGLQJO\ORZHUIRUWKHVDPHKHDWWUDQVIHUDUHD
&RQVHTXHQWO\ LQ D VWHDPKHDWHG H[FKDQJHU ORZHU SUHVVXUH VWHDP ZKLFK LV
FKHDSHUFDQEHXVHG7KLVZLOOKDYHWKHDGGHGDGYDQWDJHRIUHGXFLQJWKHWXEH
ZDOOWHPSHUDWXUHZKLFK LVDERQXVIRUDIRXOLQJDSSOLFDWLRQVLQFHWKH H[WHQW RI
IRXOLQJZLOOEHOHVV6LPLODUO\LQWKHFDVHRIUHIULJHUDQWVFKHDSHUFROGXWLOLW\FDQ
EHXVHGIRUORZWHPSHUDWXUHFRROHUVVXFKDVUHIULJHUDWHGFRROHUV
 5HGXFHQXPEHURIVKHOOV
$V GLVFXVVHG LQ GHWDLO LQ &KDSWHU  VHUYLFHV ZKLFK KDYH D WHPSHUDWXUH FURVV
ZKHUHWKHFROGVWUHDPLVKHDWHGWRDWHPSHUDWXUHJUHDWHUWKDQWKHRXWOHWWHPSHUD
WXUHRIWKHKRWVWUHDPUHTXLUHWZRRUPRUHVKHOOVLQVHULHVGHSHQGLQJXSRQWKH
H[WHQWRIWKHWHPSHUDWXUHFURVV,IWKHXVH RI HQKDQFHGKHDWWUDQVIHUUHVXOWVLQD
UHGXFWLRQLQWKHQXPEHURIWXEHVWRVXFKDQH[WHQWWKDWRQO\RQHWXEHZLOOVXIILFH
WUXH FRXQWHUFXUUHQW IORZ ZLOO EH UHDOL]HG DQG FRQVHTXHQWO\ RQO\ RQH VKHOO
UHTXLUHG7KLVZLOOUHVXOWLQFRQVLGHUDEOHHFRQRP\
 &RVWHIIHFWLYHLQUHYDPSDSSOLFDWLRQV
$ YHU\ SRWHQW EHQHILW RI HQKDQFHG KHDW WUDQVIHU LV LQ UHYDPSV KDQGOLQJ KLJKHU
IORZUDWHVDQGKHDW GXW\ ZKHUHLQVWHDG RIVXSSOHPHQWLQJ RUUHSODFLQJ H[LVWLQJ
KHDW H[FKDQJHUV E\ ELJJHU RQHV RQO\ WKH H[LVWLQJ WXEH EXQGOHV DUH UHSODFHG E\
QHZ WXEH EXQGOHV HPERG\LQJ HQKDQFHG KHDW WUDQVIHU IRU H[DPSOH D QHZ WXEH
EXQGOH ZLWK WZLVWHG WXEHV RU KHOLFDO EDIIOHV 7KLV ZRXOG HOLPLQDWH WKH FRVW RI
VWUXFWXUDODQGSLSLQJPRGLILFDWLRQVDQGDVVRFLDWHGGRZQWLPHZKLFKFDQEHYHU\
VLJQLILFDQW
 5HGXFHIRXOLQJ
'XHWRWKHHOLPLQDWLRQRIWKHSODLQFLUFXODUWXEHDQGWKHSHUSHQGLFXODUSODWHEDI
IOHDQG GXHWRWKHLQFUHDVHLQWXUEXOHQFHSURGXFHGE\WKH HQKDQFHPHQW GHYLFH
WKHH[WHQWRIIRXOLQJZLOOEHDSSUHFLDEO\OHVVWKDQWKDWLQDFRQYHQWLRQDO67+(

+HDW7UDQVIHU(QKDQFHPHQW7HFKQLTXHV
,Q RUGHU WR SURGXFH PRUH HIILFLHQW DQG WKHUHE\ FKHDSHU KHDW H[FKDQJHUV WKDQ
FRQYHQWLRQDOVKHOODQGWXEHKHDWH[FKDQJHUVWKUHHEURDGPHWKRGRORJLHVIRUKHDWWUDQVIHU
HQKDQFHPHQWKDYHEHHQSXUVXHG
7KH ILUVW PHWKRGRORJ\ KDV EHHQ WR UHWDLQ WKH EDVLF VKHOODQGWXEH FRQILJXUDWLRQ DQG
GHYHORSPRUHHIILFLHQWWXEHVRUEDIIOLQJ6RPHRIWKHPRUHFRPPRQH[DPSOHVRIWKLVDUH
• ORZILQWXEHV
• KLJKIOX[WXEHVIRUORZWHPSHUDWXUHGLIIHUHQFHERLOLQJDSSOLFDWLRQV
• FRUUXJDWHGWXEHV
• WXEHLQVHUWV
• URGEDIIOHV
• KHOLFDOEDIIOHV
• WZLVWHGWXEHKHDWH[FKDQJHUV
7KHVHFRQGPHWKRGRORJ\KDVEHHQWRPRYHRYHUIURPWKHVKHOODQGWXEHKHDWH[FKDQJHU
DQGSURGXFHEDVLFLQQRYDWLRQVLQWKHH[FKDQJHUW\SHLWVHOI([DPSOHVRIWKLVDUH

 
 • SODWHKHDWH[FKDQJHUV
• VSLUDOSODWHKHDWH[FKDQJHUV
• SODWHILQKHDWH[FKDQJHUV
• SULQWHGFLUFXLWKHDWH[FKDQJHUV
7KHWKLUGDQGILQDOPHWKRGRORJ\WKHPRVWUHFHQWRQHKDVEHHQWRFUHDWHDK\EULGRIWKH
67+(DQGWKHSODWHKHDWH[FKDQJHU3+(VRDVWRGHULYHWKHDGYDQWDJHVDQGHOLPLQDWH
WKHOLPLWDWLRQVRIHDFK
$VPHQWLRQHGHDUOLHUWKLVERRNEHLQJRQVKHOODQGWXEHKHDWH[FKDQJHUVZHZLOOWDNHD
GHWDLOHGORRNDWWKHILUVWPHWKRGRORJ\WXEXODUH[FKDQJHUVDQGDEULHIORRNDWWKHRWKHUWZR
QRQWXEXODUH[FKDQJHUV

/RZILQWXEHV
*DVHV H[KLELW H[WUHPHO\ ORZ KHDW WUDQVIHU FRHIILFLHQWV GXH WR WKHLU ORZ WKHUPDO
FRQGXFWLYLW\ DQG ORZ GHQVLW\ $Q H[FHSWLRQ LV K\GURJHQ ZKLFK KDV D WKHUPDO
FRQGXFWLYLW\RIWKHRUGHURIK\GURFDUERQOLTXLGV9LVFRXVOLTXLGVDOVRH[KLELWSRRUKHDW
WUDQVIHUFRHIILFLHQWV GXHWR YHU\SRRUWXUEXOHQFH :KHQDEDUHWXEH KHDW H[FKDQJHU KDV
ZLGHO\ GLIIHUHQW KHDW WUDQVIHU FRHIILFLHQWV RQ WKH WZR VLGHV WKH XVH RI ILQQHG WXEHV
LQFUHDVHVWKHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWFRQVLGHUDEO\(YLGHQWO\WKHILQVZLOOKDYH
WREHRQWKHVLGHWKDWKDVWKHSRRUKHDWWUDQVIHUFRHIILFLHQW7KHXVXDOVLWXDWLRQLVDORZ
KHDWWUDQVIHUFRHIILFLHQWRQWKHVKHOOVLGHZKLFKPDNHVLWKLJKO\DGYDQWDJHRXVWRHPSOR\
H[WHUQDOO\ ILQQHG WXEHV 7KH PRVW FRPPRQ H[DPSOH RI WKLV LV WKH DLUFRROHG KHDW
H[FKDQJHU ZKLFK KDVDLUIRUFHGDFURVV KLJKILQQHGWXEHV KDYLQJDOXPLQXP ILQV YDU\LQJ
IURPLQPPWRLQPPLQKHLJKW7KHVXUIDFHUDWLRZKLFKLVWKHUDWLR
RI WRWDO ILQQHG DQG EDUH WXEH DUHD WR EDUH WXEH DUHD W\SLFDOO\ YDULHV IURP  IRU LQ
PPWXEH2'òLQPPILQKHLJKWDQGILQVLQFKILQVPWRIRU
LQPPWXEH2'LQPPILQKHLJKWDQGILQVLQFKILQVP
/RZILQ WXEHV )LJ  FRPH LQ D VWDJJHULQJ DUUD\ RI ILQ KHLJKW DQG GHQVLW\ ZLWK D
VXUIDFHUDWLRYDU\LQJIURPMXVWXQGHUWRDERXW7KHVHDUHHPSOR\HGLQVKHOODQGWXEH
KHDWH[FKDQJHUVDQGDUHDGYDQWDJHRXVO\HPSOR\HGLQDSSOLFDWLRQVZKHUH
DWKHVKHOOVLGHIOXLGLVUHODWLYHO\FOHDQ
EWKHVKHOOVLGHKHDWWUDQVIHUFRHIILFLHQWLVUHODWLYHO\ORZ
FWKHWXEHVLGHKHDWWUDQVIHUFRHIILFLHQWLVKLJK
G WKH WXEHVLGH IRXOLQJ UHVLVWDQFH LV ORZ EHFDXVH RWKHUZLVH DQ LQFUHDVH LQ WKH
HIIHFWLYHWXEHVLGHIRXOLQJUHVLVWDQFH ZLOO QHXWUDOL]HWKHLQFUHDVH LQWKH HIIHFWLYH
VKHOOVLGH KHDW WUDQVIHU FRHIILFLHQW 7KH PDMRU DSSOLFDWLRQV DUH JDV FRROHUV DQG
FRQGHQVDWLRQRIORZVXUIDFHWHQVLRQIOXLGVVXFKDVUHIULJHUDQWV
$VORZILQQHGWXEHVXQGHUJRVHYHUHFROGZRUNLQJLWLVLPSRUWDQWWRHQVXUHWKDWWKHEDVH
WXEHPDWHULDOLVRIDVXLWDEOHJUDGH
,QWHUQDOO\ILQQHGWXEHVFDQEHHPSOR\HGDGYDQWDJHRXVO\LQVLWXDWLRQVZKHUHWKHWXEHVLGH
KHDWWUDQVIHUUHVLVWDQFHLVSUHGRPLQDQW

+LJKIOX[WXEHV
%RLOLQJ KHDW WUDQVIHU FRHIILFLHQW LV D YHU\ VWURQJ IXQFWLRQ RI WKH WHPSHUDWXUH GLIIHUHQFH
DFURVVWKHERLOLQJILOPZKLFKLQWXUQGHSHQGVXSRQWKHWHPSHUDWXUHGLIIHUHQFHEHWZHHQ
WKHKRWDQGWKHFROGVWUHDPV$WYHU\ORZWHPSHUDWXUHGLIIHUHQFHVDFURVVWKHERLOLQJILOP

 
 
)LJ&RUUXJDWHGWXEHVDVSLUDOO\LQGHQWHGDQGEVSLUDOO\IOXWHG>@ &RXUWHV\RI(6'8,QWHUQDWLRQDO
ZZZHVGXFRP
VXFKDV±ƒ)±ƒ&EDUHWXEHVFDQQRWVXVWDLQ QXFOHDWHERLOLQJDQG KHDWWUDQVIHU
RFFXUV E\ QDWXUDO FRQYHFWLRQ ZKLFK LV YHU\ LQHIILFLHQW 6SHFLDO VLQWHUHG WXEH VXUIDFHV
KDYHEHHQGHYHORSHGZKLFKLQFRUSRUDWHVWDEOHUHHQWUDQWFDYLWLHV7KHVHVXUIDFHVSURGXFH
QXFOHDWHERLOLQJHYHQDWH[WUHPHO\ORZWHPSHUDWXUHGLIIHUHQFHVWKHUHE\DXJPHQWLQJWKH
ERLOLQJKHDWWUDQVIHUFRHIILFLHQWVHYHUDOIROG
:LWKVXFKWXEHVLWLVSRVVLEOHWRDFFRPSOLVKDJLYHQKHDWGXW\ZLWKDPXFKORZHUKHDW
WUDQVIHUVXUIDFHWKDQLVSRVVLEOHZLWKEDUHWXEHV$OWHUQDWLYHO\ZLWKWKHVDPHKHDWWUDQVIHU
DUHD D PXFK ORZHU WHPSHUDWXUH GLIIHUHQFH FDQ EH HPSOR\HG IRU DFKLHYLQJ WKH VDPH KHDW
GXW\)RUFKLOOHUVHUYLFHVLQYROYLQJWKHERLOLQJRIUHIULJHUDQWVLQHWK\OHQHRURWKHUSODQWVWKLV
WUDQVODWHVLQWRVDYLQJVLQFRPSUHVVLRQSRZHU
,WRIWHQKDSSHQVWKDWWKHERLOLQJKHDWWUDQVIHUFRHIILFLHQWLVHQKDQFHGVRPXFKE\WKHXVH
RIKLJKIOX[WXEHVWKDWWKHKHDWLQJPHGLXPKHDWWUDQVIHUFRHIILFLHQWEHFRPHVFRQWUROOLQJ,Q
VXFKFDVHVLWEHFRPHVDGYDQWDJHRXVWRHPSOR\GRXEO\HQKDQFHGWXEHV)RUH[DPSOHLQD
YHUWLFDOWKHUPRV\SKRQUHERLOHUKDYLQJDFRQGHQVLQJKHDWLQJPHGLXP2'IOXWHGWXEHVDQG
,'KLJKIOX[FRDWHGWXEHVFDQEHHPSOR\HG
+LJKIOX[WXEHVDUHDOVRFRYHUHGLQ&KDSWHU

&RUUXJDWHGWXEHV
&RUUXJDWHGWXEHV)LJLQGXFHWXUEXOHQFHRQERWKWKHWXEHVLGHDQGVKHOOVLGHIOXLGV
WKXVHQVXULQJKLJK5H\QROG¶VQXPEHUVHYHQDWORZYHORFLW\7KLVUHVXOWVLQVLJQLILFDQWO\
HQKDQFHGSHUIRUPDQFHRYHUVPRRWKWXEHVZLWKWKHUHVXOWLQJDGYDQWDJHVRIORZHUVL]HDQG
VSDFH UHGXFHG IRXOLQJ VKRUWHU UHVLGHQFH WLPH DQG ORZHU KROGXS FORVHU WHPSHUDWXUH
DSSURDFKHVDQGXQLIRUPWHPSHUDWXUHGLVWULEXWLRQHYHQIRUYLVFRXVOLTXLGV6XUSULVLQJO\
WKHVHKHDWH[FKDQJHUVDUHQRWFRPPRQO\HPSOR\HGLQWKHFKHPLFDOSURFHVVLQGXVWULHVDW
SUHVHQW

7XEHLQVHUWV
7ZLVWHGWDSHLQVHUWV
7KHWZLVWHGWDSHPHWDOLQVHUW)LJLVHDV\WRPDNHDQGILW%\FUHDWLQJDVZLUOLQJ
IORZ SDWWHUQ WKH\ UHVXOW LQ LQFUHDVHG H[SRVXUH RI WKH IOXLG WR WKH LQQHU KHDW WUDQVIHU
VXUIDFH ZLWKD PLQLPXPSUHVVXUH GURSSHQDOW\+RZHYHULIWKHILW LVWRR ORRVHWKHILQ
HIIHFWDQGVRPHRIWKHVZLUOLQJDFWLRQRIWKHIOXLGLVORVW'DPDJHWRWKHWXEHVPD\DOVR
EHFDXVHGE\EHLQJUHSHDWHGO\KLWE\
WKH WDSHV ,I WKH ILW LV WRR WLJKW
LQVHUWLRQ RI WKH WDSHV LQWR WKH WXEHV
PD\EHGLIILFXOW
6LQFH WKH\ DUH YHU\ VLPSOH LQ
FRQVWUXFWLRQ WZLVWHG WDSH LQVHUWV )LJ7ZLVWHGWDSHWXEHLQVHUW

 
PLJKWDSSHDUWREHFRVWHIIHFWLYH+RZHYHUSHUIRUPDQFHGDWDRIWZLVWHGWDSHLQVHUWVDUHQRW
UHDGLO\ DYDLODEOH LQ WHUPV RI KHDW WUDQVIHU DXJPHQWDWLRQ SUHVVXUH GURS DQG IRXOLQJ
SURSHQVLW\DQGDVVXFK HYDOXDWLRQ LV GLIILFXOW%HVLGHVZKHUHDVWKHVH LQVHUWV RQO\ GLVUXSW
WKHODPLQDUIORZUHJLPHQHDUWKHWXEHZDOOVWKHPXFKPRUHVFLHQWLILFDOO\GHVLJQHGZLUHILQ
LQVHUWVQRWRQO\GLVUXSWWKHODPLQDUIORZUHJLPHQHDUWKHWXEHZDOOVEXWDOVRPL[WKHEXON
IOXLG6LQFHERWKDUHQHHGHGIRUHIIHFWLYHKHDWWUDQVIHUHQKDQFHPHQWZLUHILQWXEHLQVHUWVDUH
VXSHULRUHYHQIURPDIXQGDPHQWDOVWDQGSRLQW
:LUHILQWXEHLQVHUWV
:LUHILQ WXEH LQVHUWV )LJ  DUH PDQXIDFWXUHG IURP IRUPHG ZLUH ORRSV VSDFHG
UDGLDOO\ DQG D[LDOO\ ZLWKLQ WKH WXEH DQG VXSSRUWHG IURP D FHQWUDO FRUH 7KH LQVHUWV
FRQWLQXDOO\UHPRYHORZYHORFLW\RUVWDJQDQWIOXLGIURPWKHWXEHZDOODQGUHSOHQLVKLWZLWK
IOXLGIURPWKHFHQWHURIWKHWXEH%\GRLQJWKLVZLUHILQWXEHLQVHUWVPLQLPL]HWKHHIIHFW
RI IULFWLRQDO GUDJ WKHUHE\ SUHYHQWLQJ WKH IRUPDWLRQ RI D VWDEOH ERXQGDU\ OD\HU DQG
UHVXOWLQJ LQ GUDPDWLFDOO\ KLJKHU UDWHV RI KHDW WUDQVIHU IRU D JLYHQ SUHVVXUH GURS 7KLV
LQFUHDVHFDQYDU\IURPWRHYHQWLPHVGHSHQGLQJXSRQWKH5H\QROG¶VQXPEHULQWKH
EDUH WXEH VLWXDWLRQ WKH ORZHU WKH 5H\QROG¶V QXPEHU WKH JUHDWHU WKH HQKDQFHPHQW ,Q
DGGLWLRQ VKRUWHU UHVLGHQFH WLPH DQG UHGXFHG WHPSHUDWXUH GLIIHUHQFH GXH WR KLJKHU
WXEHVLGHKHDWWUDQVIHUFRHIILFLHQWFDQHOLPLQDWHWKHUPDOO\GHSHQGHQWFDXVHVRIIRXOLQJ
1RZIRUWKHVDPHOHQJWKRIWUDYHODQGYHORFLW\WKHVHLQVHUWVZLOOHYLGHQWO\UHVXOWLQDQ
LQFUHDVHG WXEHVLGH SUHVVXUH GURS WKDW PD\ EH XQDFFHSWDEOH +RZHYHU WKH QXPEHU RI WXEH
SDVVHVFDQEHGHFUHDVHGDSSURSULDWHO\VXFKWKDWWKHKHDWWUDQVIHUFRHIILFLHQWLVDSSUHFLDEO\
KLJKHUWKDQWKDWREWDLQHGZLWKEDUHWXEHVZKLOHWKHSUHVVXUHGURSLVVWLOOZLWKLQWKHDOORZDEOH
OLPLW7KXVWKHHIILFLHQF\RIFRQYHUVLRQRISUHVVXUHGURSWRKHDWWUDQVIHULVKLJKHUZLWKWKHVH
LQVHUWVXQGHUODPLQDUIORZFRQGLWLRQV
:KHQZLUHILQWXEHLQVHUWVZHUHILUVWDSSOLHGWKHSULQFLSDOEHQHILWZDVH[SHFWHGWREH
WKHLPSURYHGKHDWWUDQVIHUFKDUDFWHULVWLFV+RZHYHULWZDVIRXQGWKDWWKHH[WHQWRIIRXOLQJ
UHGXFHGGUDPDWLFDOO\7KLVLVQRWVXUSULVLQJFRQVLGHULQJWKDWWKHERXQGDU\OD\HUVHSDUDWLRQ
DQGWKHDEVHQFHRIHIIHFWLYHPL[LQJEHWZHHQWKHIOXLGDWWKHWXEHZDOODQGWKDWDWWKHFHQWHU
RI WKH WXEH DUH WKH SULQFLSDO FXOSULWV UHVSRQVLEOH IRU ERWK LQHIILFLHQW KHDW WUDQVIHU DQG
DJJUDYDWHGIRXOLQJ7KHLPSURYHGPL[LQJUHVXOWVLQ
 DVKRUWHUUHVLGHQFHWLPHRIWKHIOXLGZLWKLQWKHWXEH
 DORZHUWHPSHUDWXUHGLIIHUHQFHEHWZHHQWKHWXEHPHWDODQGIOXLGILOP
WKHUHE\UHGXFLQJWKHIRXOLQJSURSHQVLW\DSSUHFLDEO\ HVSHFLDOO\IRUWKHUPDOO\GHSHQGHQW
DSSOLFDWLRQV

$GYDQWDJHVRIZLUHILQWXEHLQVHUWV
6XPPDUL]LQJ WKH DERYH ZLUHILQ WXEH
LQVHUWVRIIHUVHYHUDODGYDQWDJHV
 7KH\ FDQ EH XVHG WR UHGXFH WKH IL[HG
FRVWRIDKHDWH[FKDQJHURUWRVDYHSXPSLQJ
SRZHURQWKHWXEHVLGH
 $VWKHWXEHVLGHKHDWWUDQVIHUFRHIILFLHQW
ZLOOEHKLJKHUZLWKLQVHUWVWKH07'FDQEH
FRUUHVSRQGLQJO\ ORZHU IRU WKH VDPH KHDW
WUDQVIHU DUHD &RQVHTXHQWO\ LQ D VWHDP
)LJ  :LUHILQ WXEH LQVHUW ‹ &DO *DYLQ /WG KHDWHG H[FKDQJHU ORZHU SUHVVXUH VWHDP
5HSULQWHGZLWKSHUPLVVLRQ

 
 7DEOHD3ULQFLSDOSURFHVVSDUDPHWHUVIRU&DVH6WXG\
6HUYLFH 6KHOOVLGH 7XEHVLGH
 7\SHRIH[FKDQJHU )ORDWLQJKHDG7(0$W\SH$(6
 )OXLG &UXGHRLO &UXGHRLO
 )ORZUDWHOEKNJK  
 7HPSHUDWXUHLQRXWƒ)ƒ&  
 +HDWGXW\00%WXK00NFDOK 
 7RWDODOORZDEOHSUHVVXUHGURS
VKHOOVLGHWXEHVLGHSVLNJFP 

 9LVFRVLW\LQRXWFS  

 
 'HQVLW\LQRXWOEIW NJP   
 $YHUDJHVSHFLILFKHDW%WXOEƒ)NFDONJƒ&  
 $YJWKHUPDOFRQGXFWLYLW\%WXKIWƒ)
 
NFDOKUPƒ&
 )RXOLQJUHVLVWDQFHKIWƒ)%WXKPƒ&NFDO  
 0DWHULDORIFRQVWUXFWLRQ &DUERQVWHHO &DUERQVWHHO

ZKLFKLVFKHDSHUFDQEHXVHG7KLVZLOOKDYHWKHDGGHGDGYDQWDJHRIUHGXFLQJ
WKHWXEHZDOOWHPSHUDWXUH ZKLFK LVDERQXV IRUDIRXOLQJDSSOLFDWLRQVLQFHWKH
H[WHQWRIIRXOLQJZLOOEHOHVV
 ,I WKH XVH RI WXEH LQVHUWV UHVXOWV LQ VXFK D UHGXFWLRQ LQ WKH QXPEHU RI WXEHV WR
VXFKDQH[WHQWWKDWRQO\RQHWXEHSDVVZLOOVXIILFHWUXHFRXQWHUFXUUHQWIORZZLOO
EH UHDOL]HG DQG FRQVHTXHQWO\ RQO\ RQH VKHOO XVHG HYHQ LQ WHPSHUDWXUHFURVV
VLWXDWLRQV
 $YHU\SRWHQWEHQHILWLVLQUHYDPSVZKHUHLQVWHDGRIVXSSOHPHQWLQJRUUHSODFLQJ
H[LVWLQJ KHDW H[FKDQJHUV WKH\ DUH PRGLILHG WR KDYH D ORZHU QXPEHU RI WXEH
SDVVHV DQG ILWWHG ZLWK DSSURSULDWH LQVHUWV WKHUHE\ HOLPLQDWLQJ WKH FRVW RI
VWUXFWXUDODQGSLSLQJPRGLILFDWLRQVDQGDVVRFLDWHGGRZQWLPHZKLFKFDQEHYHU\
VLJQLILFDQW
 $QRWKHUYHU\VLJQLILFDQWDGYDQWDJHRIXVLQJWXEHLQVHUWVLVWKHUHGXFWLRQRUHYHQ
HOLPLQDWLRQRIWKHUPDOO\GHSHQGDQWFDXVHVRIIRXOLQJE\YLUWXHRIUDGLDOPL[LQJ
VKRUWHU UHVLGHQFH WLPH DQG UHGXFHG WHPSHUDWXUH GLIIHUHQFH DFURVV WKH WXEH ,Q
IDFW ZKHUH H[FHVVLYH IRXOLQJ SODJXHV WKH SHUIRUPDQFH RI D KHDW H[FKDQJHU
PLWLJDWLRQ RIIRXOLQJ PD\EHWKHSULPHDGYDQWDJHVRXJKW+RZHYHUVLQFH GLUW\
OLTXLGVWUHDPVDUH JHQHUDOO\DOVR YLVFRXVWKHEHQHILWVRI HQKDQFHG KHDWWUDQVIHU
DQG UHGXFHG IRXOLQJ LQ VXFK VLWXDWLRQV XVXDOO\ JR KDQGLQKDQG $ QRWDEOH
GHVFULSWLRQRIWKHPLWLJDWLRQRIWXEHVLGHIRXOLQJLVGHVFULEHGLQ>@

&$6(678'<&203$5,6212)'(6,*16:,7+%$5(78%(6
$1'78%(6:,7+:,5(),178%(,16(576
/HWXVFRQVLGHUWKHWKHUPDOGHVLJQIRUDVHUYLFHZKRVHSULQFLSDOSURFHVVDQGRWKHUSDUD
PHWHUVDUHVSHFLILHGLQ7DEOHD7KLVKHDWH[FKDQJHULVIRUDFUXGHRLOFUXGHRLOVHU

 
 7DEOHE5HVXOWVRI&DVH6WXG\
 'HVLJQZLWKZLUHILQ
%DUHWXEHGHVLJQ WXEHLQVHUWV

1RRIVKHOOV ,QVHULHV  
,QSDUDOOHO  
6KHOOLQVLGHGLDPHWHULQPP  

7XEH2'îWKLFNQHVVîOHQJWKLQPP îî î%:*

 î
1RRIWXEHVSHUVKHOO  
1RRIWXEHSDVVHV  
7XEHSLWFKLQPP URWDWHGVTXDUH
%DIIOHVSDFLQJLQPP  
%DIIOHFXWGLDPHWHU  
 
+HDWWUDQVIHUDUHDSHUVKHOOIW P   
 
7RWDOKHDWWUDQVIHUDUHDIW P   

3UHVVXUHGURS 6KHOOVLGH  

SVLNJFP
7XEHVLGH  
+HDWWUDQVIHU 6KHOOVLGH  
FRHIILFLHQW
%WXKIWR) 7XEHVLGH  
NFDOKPR&
2YHUDOO  
 $EDIIOHKROHWRWXEH  
 OHDNDJH
6KHOOVLGHIORZ %0DLQFURVVIORZ  
IUDFWLRQV
&EXQGOHVKHOOE\SDVV  
(EDIIOHVKHOOE\SDVV  
)SDVVSDUWLWLRQE\SDVV  
7HPSHUDWXUHSURILOHGLVWRUWLRQFRUUHFWLRQIDFWRU  
07'ƒ)ƒ&  
2YHUGHVLJQ  

YLFHIRUDFUXGHRLOGHVDOWHUSURMHFW,WZLOOEHQRWLFHGWKDWWKHYLVFRVLW\RIWKHFUXGHRLO
VWUHDPVLVUDWKHUKLJK$VKDVEHHQUHDVRQHGHDUOLHUWKHORZHUYLVFRXVFUXGHRLOVWUHDPLV
URXWHGWKURXJKWKHWXEHVLGH6LQFHDIDLUO\GLUW\VHUYLFHLVLQYROYHGDIORDWLQJKHDGFRQ
VWUXFWLRQZDVWREHHPSOR\HG&DUERQVWHHOZDVWREHWKHPDWHULDORIFRQVWUXFWLRQIRUWKH
HQWLUHKHDWH[FKDQJHU6LQFHERWKRIWKHFUXGHRLOVWUHDPVZHUHWREHSXPSHGE\WKHVDPH
SXPSDWRWDOVKHOOVLGHWXEHVLGHDOORZDEOHSUHVVXUHGURSZDVVSHFLILHGSVL
NJFP
$ WKHUPDO GHVLJQ ZDV SURGXFHG XVLQJ EDUH WXEHV 7KH WRWDO KHDW WUDQVIHU VXUIDFH ZDV
IWPDQGWZHOYHVKHOOVKDGWREHXVHGWKUHHLQVHULHVDQGIRXULQSDUDOOHO$V

 
WKHWXEHVLGHKHDWWUDQVIHUFRHIILFLHQWZDVH[WUHPHO\ORZDQDOWHUQDWHGHVLJQZDVLQYHVWLJDWHG
XVLQJ ZLUHILQ WXEH LQVHUWV $V H[SHFWHG WKH WRWDO KHDW WUDQVIHU DUHD UHGXFHG FRQVLGHUDEO\
IURPWKHEDUHWXEHGHVLJQIURPIWPWRIWPDUHGXFWLRQRI
DERXW$IWHULQFRUSRUDWLQJWKHFRVWRIWKHLQVHUWVWKHFRVWRIWKHGHVLJQZLWKLQVHUWVZDV
RQO\RIWKHEDUHWXEHGHVLJQ7KHVDOLHQWFRQVWUXFWLRQIHDWXUHVRIERWKWKHGHVLJQVDUH
LQGLFDWHGLQ7DEOHE
7KHSULQFLSDOGLIIHUHQFHEHWZHHQWKHWZRGHVLJQVLVRIFRXUVHWKHWXEHVLGHKHDWWUDQVIHU
FRHIILFLHQW,QWKHEDUHWXEHGHVLJQLWLVRQO\%WXIW ƒ)NFDOKPƒ&ZKHUHDVLQ
WKHGHVLJQHPSOR\LQJZLUHILQLQVHUWVLWLV%WXIW ƒ)NFDOKPƒ&ZKLFKLV
WLPHVKLJKHU7KHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWLQFUHDVHVIURP%WXIWƒ)NFDOK
Pƒ&WR%WXIWƒ)NFDOKPƒ&ZKLFKLVWLPHVKLJKHU
$OWKRXJKWKHGHVLJQZLWKLQVHUWVKDVDEHWWHUVWUHDPDQDO\VLVLWKDVDORZHUWHPSHUDWXUH
SURILOHGLVWRUWLRQFRUUHFWLRQ7KLVPD\DSSHDUWREHDQRPDORXVXQWLOWKHGHVLJQHUREVHUYHV
WKDWWKHQXPEHURIVKHOOVLQVHULHVLVWKUHHLQWKHEDUHWXEHGHVLJQEXWWZRLQWKHGHVLJQZLWK
LQVHUWV

52'EDIIOHKHDWH[FKDQJHUV
7KHILUVW52'EDIIOH KHDW H[FKDQJHU5%+()LJWXEHEXQGOHV ZHUHEXLOWLQWKH
HDUO\ V WR UHSODFH H[LVWLQJ GRXEOH VHJPHQWDO SODWHEDIIOHG WXEH EXQGOHV WKDW KDG
IDLOHG GXH WR IORZLQGXFHG YLEUDWLRQ 7KH 5%+( LV D VKHOODQGWXEH KHDW H[FKDQJHU
HPSOR\LQJDQDUUD\RIURGVIRUVXSSRUWLQJWXEHV
7KHVHURGVZLWKDGLDPHWHUHTXDOWRWKHFOHDUDQFHEHWZHHQWKHWXEHURZVDUHZHOGHGWR
EDIIOHVXSSRUWULQJVVRWKDWDOWHUQDWLQJWXEHURZVDUHVXSSRUWHGE\WKHURGV LQ HDFKEDIIOH
7XEHV FDQ RQO\ EH ODLG RXW RQ D VTXDUH RU D URWDWHG VTXDUH SDWWHUQ 7KXV D VHW RI IRXU
EDIIOHV  WZR KDYLQJ YHUWLFDO VXSSRUW URGV DQG WZR KDYLQJ KRUL]RQWDO VXSSRUW URGV 
FRQVWLWXWHV RQH EDIIOH VHW ZKLFK VXSSRUWV WKH WXEHV LQ DOO IRXU GLUHFWLRQV DQG WKHUHE\
HOLPLQDWHV YLEUDWLRQ RI WKH WXEHV 7KHUH ZLOO EH VHYHUDO VXFK VHWV WR FRYHU WKH HQWLUH WXEH
OHQJWK  ,QGLYLGXDO VXSSRUW EDIIOHV DUH W\SLFDOO\ VSDFHG RQ  PP FHQWHUV VXFK WKDW WKH
PD[LPXPXQVXSSRUWHGWXEHVSDQRYHUDIRXUEDIIOHVHWLVPP
$OWKRXJKRULJLQDOO\GHYHORSHGWRHOLPLQDWHWXEHIDLOXUHVGXHWRIORZLQGXFHGYLEUDWLRQ
5%+(VZHUHODWHUIRXQGWRSRVVHVVDGGLWLRQDOEHQHILWVWKHSULQFLSDORQHEHLQJDQLQFUHDVHG
UDWLRRIKHDWWUDQVIHUWRSUHVVXUHGURSDVFRPSDUHGWRRUGLQDU\SODWHEDIIOH67+(V7KLVLV
DWWULEXWDEOH WR WKH HVVHQWLDOO\ ORQJLWXGLQDO IORZ RQ WKH VKHOOVLGH RI DQ 5%+( $QRWKHU
DGYDQWDJHZLWK5%+(VLVORZHUIRXOLQJRQWKHVKHOOVLGHGXHWRWKHHOLPLQDWLRQRIORZIORZ


)LJ  52'EDIIOH KHDW H[FKDQJHU D EDIIOH DUUDQJHPHQW DQG E EXQGOH GHWDLO &RXUWHV\ RI
&RQRFR3KLOOLSV
 
RUVWDJQDQWDUHDVDVVRFLDWHGZLWKSODWHEDIIOHV
7KXV 5%+(V DUH XVHG ZKHUH D ORZ SUHVVXUH GURS LV SHUPLWWHG RQ WKH VKHOOVLGH DQG
FRQYHQWLRQDOEDIIOHVFDQQRWSURGXFHDGHVLJQWKDWLVVDIHDJDLQVWIDLOXUHRIWXEHVGXHWRIORZ
LQGXFHGYLEUDWLRQ
2FFDVLRQDOO\ LW EHFRPHV LPSUDFWLFDO WR PDNH WKHVH KHDW H[FKDQJHUV ORQJ HQRXJK WR
FRQVXPH WKH DOORZDEOH VKHOOVLGH SUHVVXUH GURS 7KLV LV EHFDXVH RI WKH ORQJLWXGLQDO IORZ
SDWWHUQRQWKHVKHOOVLGHZKLFKWHQGVWRSURGXFHORZYHORFLW\DQGWKHUHE\ORZSUHVVXUHGURS
,QVXFKFDVHVDVKHOOSDVV)VKHOO52'EDIIOHH[FKDQJHUGHVLJQVKRXOGEHFRQVLGHUHG
0DMRU LQGXVWULDODSSOLFDWLRQV RI5%+(V LQFOXGH JDV FRROHUV IHHGHIIOXHQW H[FKDQJHUV
FRQGHQVHUVVWHDPJHQHUDWRUVDQGUHERLOHUV

+HOLFDOEDIIOHV+HOL[FKDQJHUV
$FRQYHQWLRQDOVKHOODQGWXEHKHDWH[FKDQJHUXVHVSHUSHQGLFXODUSODWHEDIIOHVWRVXSSRUW
WKHWXEHVDVZHOODVWRGLUHFWWKHVKHOOVLGHVWUHDPWRIORZDFURVVWKHWXEHVDWDGHVLUDEOH
YHORFLW\7KHWRUWXRXV]LJ]DJIORZRQWKHVKHOOVLGHJLYHVDUHODWLYHO\KLJKSUHVVXUHGURS
SHUXQLWRIKHDWWUDQVIHUVLQFHDJRRGSDUWRIWKHSUHVVXUHGURSLVZDVWHGLQUHYHUVLQJWKH
IORZ GLUHFWLRQUDWKHUWKDQ LQJHQHUDWLQJ JRRG KHDWWUDQVIHU$VWKHIORZSDVVHVDEDIIOH
WKH KLJK FURVVIORZ SUHVVXUH GURS IRUFHV WKH IOXLG WR OHDN WKURXJK WKH JDSV EHWZHHQ WKH
VKHOODQGWKHEDIIOH(VWUHDPDQGWKHEDIIOHKROHVDQGWKHWXEHV$VWUHDP7KLVKDVWZR
DGYHUVH HIIHFWV WKH 07' LV ORZHUHG GXH WR WKH GLVWRUWLRQ RI WKH VKHOOVLGH WHPSHUDWXUH
SURILOHDQGWKHVKHOOVLGHKHDWWUDQVIHUFRHIILFLHQWLVDOVRORZHUHGGXHWRUHGXFWLRQLQWKH
IORZUDWHRIWKHPDLQFURVVIORZVWUHDP
%HVLGHV EHFDXVH RI WKH YHU\ QDWXUH RI WKH IORZ RQ WKH VKHOOVLGH WKHUH ZLOO EH GHDG
VSDFHVRQHLWKHUVLGHRIHYHU\EDIIOHZKHUHIRXOLQJZLOOEHSURQRXQFHG,IWKHVHGHDGVSDFHV
FDQEHHOLPLQDWHGWKHSHUIRUPDQFHRIDKHDWH[FKDQJHUZLOOLPSURYHVLJQLILFDQWO\
7KH +HOL[FKDQJHU )LJ  ZDV GHYHORSHG ZLWK WKLV JRDO LQ PLQG (DFK EDIIOH
RFFXSLHV RQH TXDGUDQW RI WKH VKHOO DQG KDV D FHUWDLQ LQFOLQDWLRQ WR WKH FHQWHUOLQH RI WKH
H[FKDQJHUVXFFHVVLYHEDIIOHVWRXFKLQJDWWKHRXWVLGHHGJHVVRDVWRIRUPDFRQWLQXRXVKHOL[
7KHKHOLFDOIORZUHGXFHVVKHOOVLGHWXUQLQJORVVHVDQGWKHUHE\JLYHVDKLJKHUVKHOOVLGHKHDW
WUDQVIHUFRHIILFLHQWWKDQDQRUPDOVHJPHQWDOO\EDIIOHGKHDWH[FKDQJHUIRUWKHVDPHSUHVVXUH
GURS7KXVLQDKHDWH[FKDQJHUZKHUHWKHVKHOOVLGHILOPUHVLVWDQFHLVFRQWUROOLQJWKHUHZLOO
EHDQDSSUHFLDEOHLQFUHDVHLQWKHRYHUDOOKHDWWUDQVIHUFRHIILFLHQWIRUWKHVDPHSUHVVXUHGURS
WKHUHE\ UHVXOWLQJ LQ D VPDOOHU DQG FKHDSHU KHDW H[FKDQJHU $OWHUQDWLYHO\ IRU D JLYHQ KHDW
WUDQVIHU DUHD WKH VKHOOVLGH SUHVVXUH GURS ZLOO EH DSSUHFLDEO\ ORZHU WKDQ WKDW LQ D FRQYHQ
WLRQDOVHJPHQWDOO\EDIIOHGKHDWH[FKDQJHUWKHUHE\UHVXOWLQJLQUHGXFWLRQLQRSHUDWLQJFRVW
$GYDQWDJHVRI+HOL[FKDQJHUV
&RPSDUHG WR FRQYHQWLRQDO VHJPHQWDOO\
EDIIOHG KHDW H[FKDQJHUV +HOL[FKDQJHUV
RIIHUWKHIROORZLQJDGYDQWDJHV

 +LJKHU HIILFLHQF\ RI FRQYHUVLRQ RI

SUHVVXUHGURSWRKHDWWUDQVIHU7KLVOHDGV
WR VXEVWDQWLDO VDYLQJ LQ SUHVVXUH GURS
UHVXOWLQJLQUHGXFHGSXPSLQJSRZHU
 )RU IHHG SUHKHDW WUDLQV VXFK DV IRU
)LJ+HOL[FKDQJHU‹$%%/XPPXV+HDW7UDQVIHU
FUXGH ORQJ UHVLGXH DQG YDFXXP JDV
5HSULQWHGZLWKSHUPLVVLRQ RLOV WKH FRQVLGHUDEO\ ORZHU IHHG SUHV

 
 VXUHGURSWUDQVODWHVLQWRUHGXFHGPHFKDQLFDOGHVLJQSUHVVXUHRQWKHIHHGVLGHRI
WKH SUHKHDW H[FKDQJHUV 7KLV UHVXOWV LQ D UHGXFWLRQ LQ WKH LQLWLDO FRVW RI WKH
SUHKHDWH[FKDQJHUV
 5HGXFHG LQYHVWPHQW FRVWV IRU VHUYLFHV ZKHUH WKH VKHOOVLGH KHDW WUDQVIHU FRHI
ILFLHQWLVFRQWUROOLQJ
 5HGXFHG IRXOLQJ VLQFH WKH VKHOOVLGH IORZ LV YLUWXDOO\ DORQJ WKH EDIIOHV WKHUHE\
HOLPLQDWLQJGHDGVSDFHV
 5HGXFHGPDLQWHQDQFHFRVWV

%HVW$SSOLFDWLRQVRI+HOL[FKDQJHUV
+HOL[FKDQJHUVDUHEHVWVXLWHGIRUVHUYLFHVLQZKLFKWKHVKHOOVLGHKHDWWUDQVIHUFRHIILFLHQW
SOD\VDGHWHUPLQLQJUROHDQGRUZKHQWKHUHLVDQLQFHQWLYHWRUHGXFHWKHVKHOOVLGHSUHVVXUH
GURS RU IRXOLQJ 6KHOOVLGH PHGLD PD\ UDQJH IURP +ULFK JDV WR YLVFRXV IOXLGV ZLWK
IRXOLQJ WHQGHQFLHV LQ VLQJOH RU WZRSKDVH 7KXV +HOL[FKDQJHUV FDQ EH DGYDQWDJHRXVO\
HPSOR\HG IRU YDULRXV VHUYLFHV LQ UHILQHULHV DQG SHWURFKHPLFDO SODQWV 2YHU  +HOL[
FKDQJHUVKDYHEHHQVXSSOLHGDFURVVWKH ZRUOGDQGDUHUHSRUWHGWREH RSHUDWLQJVDWLVIDF
WRULO\3OHDVHUHIHUWR>@DQG>@IRUPRUHGHWDLOHGLQIRUPDWLRQRQWKH+HOL[FKDQJHU

7ZLVWHGWXEHKHDWH[FKDQJHUV
:HKDYHVHHQWKDWSHUSHQGLFXODUSODWHEDIIOHVFRQWULEXWHWRSRRUKHDWWUDQVIHUDQGKHDY\
IRXOLQJ DQG FRUURVLRQ E\ FUHDWLQJ QRIORZ DQG UHFLUFXODWLRQ DUHDV +LJK WXUQDURXQG
SUHVVXUHGURSRQWKHVKHOOVLGHFDXVHVOHDNVWXEHEDIIOHDQGVKHOOEDIIOHWKDWUHVXOWLQORZ
WKHUPDO HIIHFWLYHQHVV DV UHJDUGV ERWK WKH VKHOOVLGH KHDW WUDQVIHU FRHIILFLHQW DQG 07'
%DUHWXEHVRIFRQVWDQWFURVVVHFWLRQDUHQRWYHU\HIILFLHQWIRUKHDWWUDQVIHUDQGUHVXOWLQ
SRRUFRQYHUVLRQRISUHVVXUHGURSWRKHDWWUDQVIHU
7KHWZLVWHGWXEHKHDWH[FKDQJHU)LJHOLPLQDWHVWKHEDIIOHVDOWRJHWKHUE\OHWWLQJ
WKHWXEHVVXSSRUWWKHPVHOYHV7KHWXEHVDUHIRUPHGLQWRDQRYDOFURVVVHFWLRQZLWKDVXSHU
LPSRVHG WZLVW LQ D VSHFLDO PDQXIDFWXULQJ SURFHVV WKDW HQVXUHV JRRG PHFKDQLFDO LQWHJULW\
6ZLUOIORZLQVLGHWXEHVFUHDWHVWXUEXOHQFHHYHQDWORZYHORFLWLHVDQGRUKLJKYLVFRVLWLHV
2QWKHVKHOOVLGHFRPSOH[LQWHUUXSWHGVZLUOIORZZKLFKLVSUHGRPLQDQWO\ORQJLWXGLQDO
PD[LPL]HVWXUEXOHQFH ZKLOH PLQLPL]LQJ SUHVVXUH GURS 7KHIORZ GLVWULEXWLRQDQG YHORFLW\
DUHKRPRJHQRXV(YHQZLWKDWULDQJXODUSLWFKWKHWZLVWDUUDQJHPHQWIRUEDIIOHIUHHVXSSRUW
SURYLGHV FOHDQLQJ ODQHV WKDW SHUPLW FRPSOHWH PHFKDQLFDO FOHDQLQJ E\ K\GUREODVWLQJ 7KXV
WKH WZLVWHGWXEH KHDW H[FKDQJHU LV D GRXEO\HQKDQFHG KHDW H[FKDQJHU ZKLFK HQKDQFHV WKH


 D7ZLVWHGWXEHV E)LQLVKHGKHDWH[FKDQJHU
)LJ7ZLVWHGWXEHKHDWH[FKDQJHU‹%URZQ)LQWXEH&R5HSULQWHGZLWKSHUPLVVLRQ

 
SHUIRUPDQFHERWKLQVLGHDQGRXWVLGHWXEHV
$GYDQWDJHVRIWZLVWHGWXEHKHDWH[FKDQJHUV
 %HWWHUWKHUPDOK\GUDXOLFSHUIRUPDQFH7KHVHKHDWH[FKDQJHUVW\SLFDOO\\LHOG
KLJKHUKHDWWUDQVIHUFRHIILFLHQWIRUWKHVDPHSUHVVXUHGURSRUSUHVVXUHGURSIRU
WKHVDPHKHDWWUDQVIHUFRHIILFLHQWDVLQFRQYHQWLRQDOVKHOODQGWXEHKHDWH[FKDQJHUV
 5HGXFHGIRXOLQJDQGEHWWHUFOHDQDELOLW\E\YLUWXHRIDHOLPLQDWLRQRIGHDGVSRWVE
KLJKWXUEXOHQFHDQGFXQLIRUPYHORFLW\DQGFRQVWDQWIORZGLVWULEXWLRQ
 1RYLEUDWLRQVLQFHHDFKWXEHH[WHQVLYHO\VXSSRUWHGDWPXOWLSOHFRQWDFWSRLQWV
 6LPXOWDQHRXVKHDWWUDQVIHUHQKDQFHPHQWRQVKHOOVLGHDQGWXEHVLGH
 9HU\FRVWHIIHFWLYHEHFDXVHKHDWWUDQVIHULVHQKDQFHGRQERWKWXEHVLGHDQGVKHOOVLGH
7ZLVWHGWXEH KHDW H[FKDQJHUV UHSUHVHQW D VXSHULRU WHFKQRORJ\ DQG DUH EHFRPLQJ LQ
FUHDVLQJO\SRSXODULQPDQ\FRXQWULHV2YHUXQLWVKDYHEHHQVXSSOLHGDQGUHSRUWHGWR
EHRSHUDWLQJVDWLVIDFWRULO\
3ODWHKHDWH[FKDQJHUV
7KH JDVNHWHG SODWH KHDW H[FKDQJHU 3+( )LJ  ZDV RULJLQDOO\ LQWURGXFHG LQ WKH
VWRPHHWWKHK\JLHQLFGHPDQGVRIWKHGDLU\LQGXVWU\7KHILUVWELJDGYDQFHLQ3+(
GHVLJQFDPH LQWKH HDUO\VDQG LQFRUSRUDWHG ODWHUDOFRUUXJDWLRQVWRSURYLGH JUHDWHU
SODWHVWUHQJWKDQGSURPRWHWXUEXOHQFH
7KHKHUULQJERQHSDWWHUQFRQILJXUDWLRQZDVLQWURGXFHGWRZDUGVWKHHQGRIWKHVDQG
LPSDUWHGHYHQJUHDWHUVWUHQJWKRISODWHVWKHUHE\OHDGLQJWRWKLQQHUDQGOLJKWHUSODWHVDVZHOO
DV KLJKHU OHYHOV RI WXUEXOHQFH ZKLFK UHVXOWHG LQ KLJKHU KHDW WUDQVIHU FRHIILFLHQWV 5HFHQW
DGYDQFHV QRZ SHUPLW RSHUDWLRQ DW SUHVVXUHV RI XS WR  SVLJ  NJFP J DQG
WHPSHUDWXUHVXSWR ƒ)ƒ&6HPLZHOGHGDQG IXOO\ZHOGHG W\SHVDUHDOVRDYDLODEOH
WKDWSHUPLWRSHUDWLRQDWSUHVVXUHVRIDERYHSVLJNJFPJDQGR)R)
3+(VKDYHWKHIROORZLQJDGYDQWDJHVRYHU67+(VDQGDUHFRQVHTXHQWO\SUHIHUUHGRYHU
WKHODWWHULIWKHVHUYLFHLVZLWKLQWKHDOORZDEOHWHPSHUDWXUHDQGSUHVVXUH
D PXFKKLJKHUKHDWWUDQVIHUFRHIILFLHQWVUHVXOWLQJLQORZHUFRVWVSDFHUHTXLUHPHQW
DQGKROGXS
E FRQVLGHUDEO\ORZHUIRXOLQJ
F JUHDWHUIOH[LELOLW\DQGWKHDELOLW\WRKDQGOHZLGHO\GLIIHUHQWIORZUDWHV
G FDSDELOLW\ RI DFKLHYLQJ YHU\ FORVH WHP
SHUDWXUH DSSURDFKHV DQG KLJK GHJUHH RI
WHPSHUDWXUHFURVVRYHU


 )LJ6SLUDOKHDWH[FKDQJHU&RXUWHV\
)LJ3ODWHKHDWH[FKDQJHU&RXUWHV\RI$OID/DYDO RI$OID/DYDO

 
6SLUDOSODWHKHDWH[FKDQJHUV
7KHVSLUDOSODWHKHDWH[FKDQJHU)LJRIWHQUHIHUUHGWRDVWKHVSLUDOKHDWH[FKDQJHU
6+(ZDVRULJLQDOO\GHYHORSHGLQ6ZHGHQWRUHFRYHUZDVWHHQHUJ\IURPFRQWDPLQDWHG
ZDWHUHIIOXHQWLQSXOSPLOOV6LQFHWKHQWKHVSLUDOKHDWH[FKDQJHUKDVIRXQGLWVZD\LQWR
VHYHUDOGLYHUVHLQGXVWULHVLQFOXGLQJWKHFKHPLFDOSURFHVVLQJLQGXVWULHV
$VSLUDOKHDWH[FKDQJHUWDNHVWKHIRUPRIWZRFRQFHQWULFFKDQQHOVIRUPHGE\ZLQGLQJ
WZRVWULSVRIPHWDODURXQGDF\OLQGULFDOFRUHRQHFKDQQHOIRUHDFKRIWKHWZRIOXLGVZKLFK
DUHWRH[FKDQJHKHDW7KHIOXLGVDUHFRQVWUDLQHGEHWZHHQWKHSODWHVE\HQGFRYHUVRQHLWKHU
VLGH RI WKH ZLQGLQJV $W WKH SHULSKHU\ RI WKH 6+( QR]]OHV DQG KHDGHUV DUH HPSOR\HG WR
GLUHFWWKHIOXLGVLQWRDQGRXWRIWKHVSLUDOFKDQQHOV)ORZFDQEHHLWKHUVSLUDORUD[LDO
'XH WR WKH FRQWLQXRXV FXUYHG FKDQQHO WXUEXOHQW IORZ LV REWDLQHG DW D PXFK ORZHU
5H\QROG¶V QXPEHU WKDQ LQ D WXEXODU KHDW H[FKDQJHU 7KH VLQJOH IORZ SDVVDJH \LHOGV JRRG
IOXLG GLVWULEXWLRQ ZLWKIHZ GHDG VSRWV,W LVSRVVLEOHWR DFKLHYHDOPRVWWUXH FRXQWHUFXUUHQW
IORZ %\ YLUWXH RI WKHVH IHDWXUHV 6+(V \LHOG D KLJK HIILFLHQF\ RI FRQYHUVLRQ RI SUHVVXUH
GURSWR KHDWWUDQVIHU)XUWKHUDVWKH JDSVEHWZHHQ WKH FKDQQHOV FDQ YDU\ IURP  LQ 
PPWRLQPPDZLGHUDQJHRIIORZUDWLRFDQEHKDQGOHG
6+(VDUHW\SLFDOO\HPSOR\HGIRUVOXUULHVDQGYLVFRXVOLTXLGV7KH\WHQGWRIOXVKDZD\
VFDOHEHFDXVHDWKHVLQJOHFURVVVHFWLRQIRU HDFKIOXLG SURYLGHV KLJK VKHDUUDWHVDQG E
WXUEXOHQFHLVLQGXFHGE\WKHVZLUOLQJSDWK&RQVHTXHQWO\IRXOLQJUHVLVWDQFHVDUHFRQVLGHUHG
WR EH RQO\ D IUDFWLRQ RI WKH 7(0$ YDOXHV IRU 67+(V 6+(V DUH QRZ EHLQJ H[WHQGHG WR
FRQGHQVLQJDQGUHERLOLQJDSSOLFDWLRQV
5HFHQWDGYDQFHVLQ6+(GHVLJQKDYHUHVXOWHGLQH[FKDQJHUVWKDWFDQRSHUDWHDWSVLJ
 EDU DQG WHPSHUDWXUHV XS WR ƒ) ƒ& GHSHQGLQJ XSRQ VL]H DQG PDWHULDO RI
FRQVWUXFWLRQ

3ODWHILQKHDWH[FKDQJHUV
3ODWHILQ KHDW H[FKDQJHUV 3)+(V )LJ  DOVR FDOOHG EUD]HG DOXPLQXP KHDW
H[FKDQJHUVDUHFRQVWUXFWHGIURPDOWHUQDWLQJOD\HUVRIFRUUXJDWHGDQGIODWSDUWLQJVKHHWV
7KH VWDFNHG DUUDQJHPHQW LV WKHQ EUD]HG \LHOGLQJ WKH H[FKDQJHU FRUH +HDGHUV DQG
QR]]OHVDUHIL[HGWRURXWHWKH IOXLGV LQDQG RXWRIWKHFRUH+HDW LV H[FKDQJHGEHWZHHQ
IOXLGV WKURXJK ERWK VKHHWV 7KH FRUUXJDWLRQV RU ILQV VHUYH QRW RQO\ DV DGGLWLRQDO KHDW
WUDQVIHUDUHDEXWDOVRSURYLGHPHFKDQLFDOVXSSRUWIRUWKHFRUH
3)+(V ZHUH LQLWLDOO\ GHYHORSHG IRU KHDW H[FKDQJHUV LQ WKH DHURVSDFH LQGXVWU\ LQ WKH
VZKHUHSULPHUHTXLUHPHQWVZHUHORZZHLJKWDQGORZYROXPH/DWHUWKHLUXVHVSUHDGWR
WKH FKHPLFDO SURFHVV LQGXVWULHV SDUWLFXODUO\ WKH RIIVKRUH LQGXVWU\ ZKHUH DOVR ZHLJKW LV RI
SULPHLPSRUWDQFH
7KHDGYDQWDJHVRIFORVHWHPSHUDWXUHDSSURDFKHVWUXHFRXQWHUFXUUHQWIORZDQGDXQLTXH
DELOLW\WRH[FKDQJHKHDWZLWKPXOWLSOHVWUHDPVPDNH3)+(VYLDEOHDOWHUQDWLYHVWRWUDGLWLRQDO
67+(V
$WORZWHPSHUDWXUHVDOXPLQXPLVWKHLGHDOPDWHULDORIFRQVWUXFWLRQWKDQNVWRLWVHDV\
PDFKLQDELOLW\OLJKWZHLJKWDQGKLJKWKHUPDOFRQGXFWLYLW\)RUWHPSHUDWXUHVZKLFKDUHWRR
KLJKIRUDOXPLQXPPDQXIDFWXUHUVKDYHGHYHORSHG3)+(VLQVWDLQOHVVVWHHOVWLWDQLXPDQGD
IXOOUDQJHRIFRSSHUDOOR\V
$OWKRXJK 3)+(V DUH JHQHUDOO\ HPSOR\HG IRU SUHVVXUHV OHVV WKDQ  SVL  EDU
GHVLJQVKDYHEHHQGHYHORSHGIRUKLJKHUSUHVVXUHV
3)+(VDUHVXVFHSWLEOH WRIRXOLQJ:D[HVDVSKDOWHQHV DQG K\GUDWHV FDQDOO IUHH]H RXW
DQGWKHVPDOOSDVVDJHVRI3)+(VDUHHVSHFLDOO\YXOQHUDEOH7KHPHWDOZDOOWHPSHUDWXUHPXVW
EH NHSW DERYH WKH ZD[ RU DVSKDOW SRLQW RU WKH K\GUDWH IRUPDWLRQ WHPSHUDWXUH XQGHU DOO
 
FRQGLWLRQVRIRSHUDWLRQ
3)+(VDUHIUDJLOHHVSHFLDOO\WKRVHRIDOXPLQXPDOOR\FRQVWUXFWLRQ3LSHZRUNORDGVRQ
3)+(QR]]OHVPXVWWKHUHIRUHEHDYRLGHG3)+(VDUHQRWDVWRXJKDV67+(VEXWZLOOJLYH
UHOLDEOHVHUYLFHLIQRWDEXVHG

3ULQWHGFLUFXLWKHDWH[FKDQJHUV
3ULQWHGFLUFXLWKHDWH[FKDQJHUV3&+(V)LJDUHVXSHUFRPSDFWH[FKDQJHUVZLWK
KLJK KHDWH[FKDQJHVXUIDFH GHQVLWLHVDQGKLJK KHDWWUDQVIHUFRHIILFLHQWV7KH\DUH PDGH
IURP IODW PHWDO SODWHV ZKLFK KDYH IOXLG IORZ SDVVDJHV FKHPLFDOO\ PLOOHG LQWR WKHP D
WHFKQLTXH VLPLODU WR WKDW XVHG LQ WKH PDQXIDFWXUH RI HOHFWURQLF SULQWHG FLUFXLW ERDUGV
KHQFHWKHQDPH7KHSODWHVDUHWKHQGLIIXVLRQERQGHGWRJHWKHULQWREORFNVWRIRUPDKHDW
H[FKDQJHUFRUHWRZKLFKDUHWKHQDWWDFKHGQR]]OHVDQGKHDGHUV2QHPDQXIDFWXUHUFODLPV
WKDW WKH IORZ SDVVDJHV LQ D 3&+( DUH W\SLFDOO\ ±LQ ±PP GHHS
ZKLFK UHVXOWV LQ D YROXPHWULF KHDW WUDQVIHU DUHD RI DV KLJK DV  IWIW  PP
7KLV PDQXIDFWXUHUDOVRFODLPVWKDW3&+(VFDQEHHPSOR\HG IRUOLTXLGOLTXLGHYHQ YLV


)LJ3ODWHILQKHDWH[FKDQJHU>@

 
  
 D3ODWHVEHIRUHERQGLQJ E)LQLVKHGH[FKDQJHU
)LJ3ULQWHGFLUFXLWKHDWH[FKDQJHU&RXUWHV\RI+HDWULF

FRXV OLTXLGV JDVOLTXLG JDVJDV FRQ

GHQVLQJDQGYDSRUL]LQJGXWLHV
+\EULGKHDWH[FKDQJHUV
7KH ODWHVW KHDW H[FKDQJHU LQQRYDWLRQ LV WKH
K\EULG KHDW H[FKDQJHU ++( )LJ 
WKDW VXFFHVVIXOO\ FRPELQHV WKH KLJK
SHUIRUPDQFH RI WKH 3+( ZLWK WKH KLJK
SUHVVXUH DQG WHPSHUDWXUH FDSDELOLWLHV RI WKH
67+( +HUH D SUHVVHG SODWH RI D VSHFLDO
FRQILJXUDWLRQ LV PDWHG WR D VLPLODU VKHHW WR
IRUP DQ HOHPHQW 6HYHUDO HOHPHQWV DUH WKHQ )LJ  +\EULG KHDW H[FKDQJHU HOHPHQW
&RXUWHV\+\GURFDUERQ$VLD>@
VWDFNHG DQG IXOO\ ZHOGHG RQ DOWHUQDWLQJ
HGJHV WR IRUP WKH FRUH RI WKH K\EULG 7KH
HGJHV RIWKH FRUHDUHWKHQDWWDFKHGWR KHDGHUVDQGWKH H[FKDQJHULVVKURXGHG ZLWKWZR
SUHVVXUHIUDPHVWRIRUPWKHILQLVKHGK\EULGH[FKDQJHU
7KHPDWHULDOVRIFRQVWUXFWLRQYDU\IURPVWDLQOHVVVWHHOWKURXJK+DVWHOOR\,QFROR\DQG
HYHQWLWDQLXP+\EULGVH[KLELWDYHU\KLJKYROXPHWULFGHQVLW\RIKHDWWUDQVIHUXSWRIW
SHUIWPSHUPDQGDUHEHVWVXLWHGIRUYDSRUL]LQJDQGFRQGHQVLQJGXWLHV

(YDOXDWLRQRIKHDWWUDQVIHUHQKDQFHPHQWWHFKQLTXHV
7KHHYDOXDWLRQRIKHDWWUDQVIHUHQKDQFHPHQWWHFKQLTXHVLVUDUHO\VWUDLJKWIRUZDUGDVQX
PHURXVIDFWRUVDUHLQYROYHG7KHIROORZLQJIDFWRUVVKRXOGEHFRQVLGHUHGIRUDPHDQLQJIXO
HYDOXDWLRQ
 +HDWWUDQVIHUFRHIILFLHQW
 3UHVVXUHGURS
 &DSLWDOFRVWRIWKHH[FKDQJHULQFOXGLQJWKHFRVWRIWKHDXJPHQWDWLRQGHYLFH
 6SDFHUHTXLUHPHQW
 2SHUDWLQJ FRVW RI WKH H[FKDQJHU²IOXLG SXPSLQJ PDLQWHQDQFH DQG GRZQWLPH
0DLQWHQDQFHFRVWVLQFOXGHWKHFRVWRIRSHQLQJWKHKHDWH[FKDQJHUIRULQVSHFWLRQ
DQGFOHDQLQJ7KHGRZQWLPHFRVWLVWKHFRVWRIORVWSURGXFWLRQ

 
5HIHUHQFHV
>@ *RXJK 0- DQG 5RJHUV -9  ³5HGXFHG )RXOLQJ E\ (QKDQFHG +HDW 7UDQVIHU 8VLQJ
:LUH0DWUL[5DGLDO0L[LQJ(OHPHQWV´WK1DWO+HDW7UDQVIHU&RQI$,&K(6\PS6HULHV
3LWWVEXUJK$XJ6HULHV1RSS²
>@ %XWWHUZRUWK'³1HZ7ZLVWVLQ+HDW([FKDQJHUV´7KH&KHPLFDO(QJLQHHU6HSW
SS²
>@ 6WHKOLN 3 HW DO  ³&RPSDULVRQ RI &RUUHFWLRQ )DFWRUV IRU 6KHOODQG7XEH +HDW
([FKDQJHUVZLWK6HJPHQWDORU+HOLFDO%DIIOHV´+HDW7UDQVIHU(QJLQHHULQJSS²

)XUWKHUUHDGLQJ
 0DVFRQH &)  ³&3, 6WULYHV WR ,PSURYH +HDW 7UDQVIHU LQ 7XEHV´ HGLWRULDO VXUYH\
&KHPLFDO(QJLQHHULQJ)HESS²
 %HUJOHV$(³(QKDQFHPHQWRI+HDW7UDQVIHU´'HSWRI0HFKDQLFDO(QJLQHHULQJDQG
(QJLQHHULQJ 5HVHDUFK ,QVWLWXWH ,RZD 6WDWH 8QLYHUVLW\ 3DSHU 1R .6 WK ,QWO +HDW
7UDQVIHU&RQI$XJ7RURQWR&DQDGD
 0DUQHU :- DQG %HUJOHV $(  ³$XJPHQWDWLRQ RI 7XEHVLGH /DPLQDU )ORZ +HDW
7UDQVIHU E\ 0HDQV RI 7ZLVWHG7DSH ,QVHUWV 6WDWLF 0L[HU ,QVHUWV DQG ,QWHUQDOO\)LQQHG
7XEHV´3DSHU1R)&DWK,QWO+HDW7UDQVIHU&RQI$XJ7RURQWR&DQDGD
 +HZLWW *)  +HDW ([FKDQJHU 'HVLJQ +DQGERRN 9ROXPH  6HFWLRQV  DQG 
%HJHOO+RXVH,QF1HZ<RUN
 .DNDF 6 HW DO  +HDW ([FKDQJHUV 7KHUPDO+\GUDXOLF )XQGDPHQWDOV DQG 'HVLJQ
+HPLVSKHUH3XEOLVKLQJ&RUS1HZ<RUN


 

$
DLUFRPSUHVVRULQWHUFRROHU
%
EDIIOHFXW²

YHU\VPDOODQGYHU\ODUJH
EDIIOHFXWRULHQWDWLRQRI
KRUL]RQWDOFXW
YHUWLFDOFXW
EDIIOHFXWUHFRPPHQGHG
 VWHDG\VWDWHILOPERLOLQJ
EDIIOHVSDFLQJ²²
²²²
²
²
PD[LPXPEDIIOHVSDFLQJ
PLQLPXPEDIIOHVSDFLQJ
RSWLPXPEDIIOHVSDFLQJ
YDULDEOHEDIIOHVSDFLQJ
EDIIOHV
GHUHVRQDWLQJ
GRXEOHVHJPHQWDO²
,1'(;
LQFLSLHQWERLOLQJ
PD[LPXPKHDWIOX[

QDWXUDOFRQYHFWLRQ²
QXFOHDWHERLOLQJ
²
SRROERLOLQJ²

SRROERLOLQJFXUYH
SRURXVVXUIDFH
URXJKVXUIDFH
VLQWHUHGVXUIDFH
VXEFRROHGOLTXLGKHDWLQJ²
XQVWHDG\VWDWHILOPERLOLQJ
ZLGHERLOLQJPL[WXUH
²
EURDGREMHFWLYHVRIWKHUPDOGHVLJQ
&
FKDQQHO²

FKDQQHOFRYHU
FRFXUUHQWIORZVHHIORZFRFXUUHQW

FRQGHQVDWLRQ
KHOLFDO
URGEDIIOHV LQVLGHKRUL]RQWDOWXEHV
VLQJOHVHJPHQWDO² LQVLGHYHUWLFDOWXEHV
² RIPL[HGYDSRUV
EDIIOHVKHOOOHDNDJHVHHDOVROHDNDJHDQG RXWVLGHKRUL]RQWDOWXEHV
E\SDVVVWUHDPV RXWVLGHYHUWLFDOWXEHV
ERLOLQJ GURSZLVH
ERLOLQJUDQJH ILOPZLVH
 JUDYLW\FRQWUROOHG
FRQYHFWLYHERLOLQJ LVRWKHUPDO
FULWLFDOSUHVVXUH² VKHDUFRQWUROOHG
 FRQGHQVHU
FULWLFDOWHPSHUDWXUH HMHFWRUFRQGHQVHU
ILOPERLOLQJ UHIOX[FRQGHQVHU
 VXUIDFHFRQGHQVHU
IORZERLOLQJ FRQGHQVHUV²
 
  FKXUQIORZ
 PLVWIORZ
FRQGHQVLQJ VOXJIORZ
RQWKHVKHOOVLGH IORZYHORFLW\
RQWKHWXEHVLGH IORZLQGXFHGYLEUDWLRQ
FRQGHQVLQJUDQJH DFRXVWLFYLEUDWLRQ²
FRQLFDOKHDG 
FRQYHUVLRQRISUHVVXUHGURSWRKHDWWUDQVIHU GDPSLQJ
 IOXLGHODVWLFZKLUOLQJ
 
FRUURVLRQDOORZDQFH PRGHVRIWXEHIDLOXUH
FRUURVLYHQHVV QDWXUDOIUHTXHQF\RIWXEHV
FRUUXJDWHGWXEHV 
FRXQWHUFXUUHQWIORZVHHIORZ WXEHYLEUDWLRQ
FRXQWHUFXUUHQW WXUEXOHQWEXIIHWLQJ²
FULWLFDOSUHVVXUH² 
 XQVXSSRUWHGVSDQ²
FULWLFDOWHPSHUDWXUH 
YRUWH[VKHGGLQJ²
'

GDPEDIIOH IRXOLQJ
GHDGVSDFHV DGYHUVHHIIHFWVRIIRXOLQJ
GHVXSHUKHDWLQJ² ELRIRXOLQJ
 FDWHJRULHVRIIRXOLQJ
GU\ZDOOGHVXSHUKHDWLQJ FOHDQOLQHVVIDFWRU
ZHWZDOOGHVXSHUKHDWLQJ FRUURVLRQIRXOLQJ
GXPP\WXEHV GHDGVSDFHV
GHVLJQJXLGHOLQHVWRPLQLPL]HIRXOLQJ
( 
IRXOLQJUHVLVWDQFH
HQKDQFHGKHDWWUDQVIHU²
EHQHILWVRI ²
HTXDORXWOHWWHPSHUDWXUH 
H[SDQVLRQMRLQW KLJKHUWXEHSLWFK
RQOLQHFOHDQLQJ
) SDUDPHWHUVZKLFKDIIHFWIRXOLQJ
SDUWLFXODWHIRXOLQJ
IHHGHIIOXHQWH[FKDQJHU
VHOHFWLRQRIIRXOLQJUHVLVWDQFH
ILOPERLOLQJ±VHHERLOLQJILOP
VSDUHWXEHEXQGOH
ILQQHGWXEHV
VSDUHXQLW
IORRGLQJ
7(0$IRXOLQJUHVLVWDQFH
IORZ
IRXOLQJOD\HUWKLFNQHVV
FRFXUUHQW² 
FRXQWHUFXUUHQW²
 +
ODPLQDU
KHDG
ORQJLWXGLQDO²
IURQWKHDG
WXUEXOHQW
UHDUKHDG
ZLQGRZ
KHDWH[FKDQJHUV
IORZUDWH
IL[HGWXEHVKHHW
KLJKIORZUDWH

ORZIORZUDWH
IORDWLQJKHDG
IORZUHJLPH
8WXEH
DQQXODUIORZ
KHDWIOX[²
FKRNHIORZ
²²

 
 
KHDWUHOHDVHSURILOHV
KHDWWUDQVIHUDXJPHQWDWLRQ
KHDWWUDQVIHUFRHIILFLHQW
FRQGHQVLQJ

RYHUDOO
²

VKHOOVLGH²


WXEHVLGH


KHDWWUDQVIHUHIILFLHQF\
KHOLFDOEDIIOHH[FKDQJHUV
KHOL[FKDQJHUV
K\EULGKHDWH[FKDQJHUV
K\GURJHQ
1
QDWXUDOFRQYHFWLRQ²
QRQFRQGHQVDEOHV²
QR]]OHV


2
RQOLQHFOHDQLQJ
RYHUGHVLJQ²
RQSHUIRUPDQFH²
RQVXUIDFH²
3
SDVVSDUWLWLRQSODWHV
SK\VLFDOSURSHUWLHV
²
SODWHKHDWH[FKDQJHUV
SODWHILQKHDWH[FKDQJHUVEUD]HGDOXPLQLXP
KHDWH[FKDQJHUV
,
3UDQGWOQXPEHU
LPSLQJHPHQWSODWH SUHVVXUHGURS
DOORZDEOHSHUPLWWHG
/ 
ODQHV 
SDVVSDUWLWLRQODQH VKHOOVLGH
 ²²²
OHDNDJHDQGE\SDVVVWUHDPV ²
EDIIOHKROHWXEH 
EDIIOHVKHOO² WXEHVLGH²
SDVVSDUWLWLRQ ²
/07'² XWLOL]DWLRQRI
ORQJLWXGLQDOEDIIOH SULQWHGFLUFXLWKHDWH[FKDQJHUV
ORRSVHDO 
ORZILQWXEHV² 5

UHERLOHUV
0 H[LWSLSLQJ
PHDQWHPSHUDWXUHGLIIHUHQFH IRUFHGIORZ
)WIDFWRU KRUL]RQWDOWKHUPRV\SKRQ²
07' LQWHUQDO
²² NHWWOH²
 
 VHOHFWLRQRIUHERLOHUV
PXOWLSOHVKHOOV VWDUWXSRIUHERLOHUV
LQSDUDOOHO VWDWLFKHDG
LQVHULHV² YHUWLFDOWKHUPRV\SKRQ
 ²
LQVHULHVSDUDOOHO 
PXOWLSOHVKHOOV² UHGXFHGSUHVVXUH
 UHIOX[FRQGHQVHUV
5H\QROG¶VQXPEHU

 
52'EDIIOHKHDWH[FKDQJHUV WXEHLQVHUWV
WZLVWHGWDSHLQVHUWV
6 ZLUHILQ
VHDOURGV WXEHOD\RXW
VHDOLQJVWULSV WXEHOD\RXWDQJOH
VKHDU WXEHOD\RXWSDWWHUQ
YDSRUVKHDU² WXEHOHQJWK²
VKHOO ²
FURVVIORZVKHOO² 
GLYLGHGIORZVKHOO² WXEHSLWFK
² 
GRXEOHVSOLWIORZVKHOO WXEHV
VLQJOHSDVVVKHOO EDUH²
 FRUUXJDWHG
VSOLWIORZVKHOO GXPP\
7(0$( ILQQHG
7(0$) IOXWHG
7(0$* KLJKIOX[
7(0$+ ODUJHGLDPHWHUWXEHV
7(0$- ORZILQ²
7(0$. WXEHVLGHYHORFLW\
7(0$; 
WZRVKHOOVLQVHULHV WZLVWHG
²² XQVXSSRUWHGVSDQ²
 
VOLGLQJVWULSV 8WXEHV
VSDUHWXEHV 
VSHFLILFKHDW²² WXEHVKHHW
 
VSLUDOKHDWH[FKDQJHUV WXUEXOHQFH
VWHSZLVHFDOFXODWLRQV ²
VWUHDPDQDO\VLV² WZLVWHGWXEHKHDWH[FKDQJHUV
²² 
VXEFRROHGERLOLQJ 8
VXEFRROLQJ²
8EHQGV
7
9
7(0$²²²
² YDSRUGHQVLW\

²²
 YHORFLW\
WHPSHUDWXUHFURVV ORZ
 VKHOOVLGH²
 
WHPSHUDWXUHSURILOHGLVWRUWLRQ WXEHVLGH
² 
WKHUPDOFRQGXFWLYLW\ YLVFRVLW\²
 ²
WXEHGLDPHWHU ²



 
ISBN 1-56700-205-6