No IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT THOMAS R. DREILING, A SHAREHOLDEROF INFOSPACE, INC., PLAINTIFF-APPELLAN'_,

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1 Dane No N THE UNTED STATES COURT OF APPEALS FOR THE NNTH CRCUT THOMAS R. DRELNG, A SHAREHOLDEROF NFOSPACE, NC., H. Butswnkas R. Hackney Wegmann Marce Amanda R. Zegler M. MacDonald PLANTFF-APPELLAN'_, v. AMERCA ONLNE, NC., DEFENDANT-APPELLEE, AND NFOSPACE, NOMNAL NC., DEFENDANT. On Appeal from the Unted States Dstrct Court for the Western Dstrct of Washngton The Honorable James L. Robart, U.S. Dstrct Judge BREF WLLAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washngton, D.C Telephone: (202) Facsmle: (202) (Seattle, No. C JLR) OF DEFENDANT-APPELLEE MOLLYC.DWVER, CLERK u.s.cou_tofa_'p_ls Mchael D. Hunsnger (WSBA No. 7662) THE HUNSNGER LAW FRM 100 S. Kng Street Sute 400 Seattle, Washngton Telephone: (206) Facsmle: (206) Attorneys for Appellee Amerca Onlne, nc.

2 No N THE UNTED STATES COURT OF APPEALS FOR THE NNTH Cmcurr THOMAS R. DRELNG, A SHAREHOLDER OF NFOSPACE, NC., PLANTFF-APPE AN'L, v. AMERCA ONLNE, NC., DEFENDANT-APPELLEE, AND NFOSPACE, NC., NOMNAL DEFENDAN:. On Appeal from the Unted States Dstrct Court for the Western Dstrct of Washngton The Honorable James L. Robart, U.S. Dstrct Judge (Seattle, No. C JLR) BREF OF DEFENDANT-APPELLEE Dane H. Butswnkas R. Hackney Wegmann Maree R. Zegler Amanda M. MacDonald WLLAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washngton, D.C Telephone: (202) Facsmle: (202) Mchael D. Hunsnger (WSBA No. 7662) THE HUNSNGER LAW FRM 100 S. Kng Street Sute 400 Seattle, Washngton Telephone: (206) Facsmle: (206) Attorneys for Appellee Amerca Onlne, nc.

3 '' CORPORATE DSCLOSURE STATEMENT Pursuant to Federal Rule of Appellate Procedure 26.1, Appellee AOL LLC, formerly known as Amerca Onlne, nc. ("AOL"), states the followng: AOL LLC, a Delaware lmted lablty company, s a wholly-owned subsdary of AOL Holdngs LLC, a Delaware lmted lablty company. AOL Holdngs LLC s owned by Tme Warner nc. (2.5%), Google nc. (5%) and TW AOL Holdngs nc. (92.5%). TW AOL Holdngs nc., a Vrgna corporaton, s wholly-owned by Tme Warner nc. Tme Warner nc. s a publcly traded Delaware corporaton, and no shareholder owns 10% or more of Tme Warner nc.'s stock. Tme Warner nc. s afflated wth Tme Warner Cable nc.

4 . TABLE OF (_0N_ENTS CORPORATE DSCLOSURE STATEMENT... TABLE OF AUTHORTES... v NTRODUCTON... 1 STATEMENT OF JURSDCTON... 2 STATEMENT OF THE SSUES STATEMENT OF FACTS... 3 A. The Whte Pages Agreement Between AOL and nfospace... 3 B. AOL's Acqustons and Sngle Sale of nfospace Stock... 8 C. Naveen Jan's Ownershp and Sales oflnfospace Stock D. The Absence of Coordnaton Between AOL and Mr. Jan E. Plantff's Complant F. Plantff's Theores The Wan'ants Amendment nternal AOL E-Mals G_ The Dstrct Court's Summary Judgment Decson SUMMARY OF ARGUMENT STANDARD OF REVEW ARGUMENT THE DSTRCT COURT CORRECTLY APPLED SECTON 16Co) AND TS MPLEMENTNG REGULATONS A. The Standard for Lablty Under Secton 16Co)

5 f. B The Defnton of a "Gr6tp '_for Pt_oses of Secton 16Co) c. The Dstrct Court's Opnon THE DSTRCT COURT CORRECTLY HELD THAT AN ALLEGED AGREEMENT TO MANPULATE ACCOUNTNG DOES NOT ESTABLSH A SECTON 16Co) GROUP THE DSTRCT COURT CORRECTLY HELD THAT THERE WAS NO EVDENCE SUPPORTNG THE EXSTENCE OF A SECTON 16(b) GROUP A. The Dstrct Court Properly Granted Summary Judgment on Plantff's "Acqure" Theory The Complant Does Not Allege Any "Acqure" Theory Alleged Accountng Manpulaton s nsuffcent To State a Secton 16(b) Clam There Was No Agreement Between AOL and Mr. Jan To Acqure nfospace Stock There Was No Secton 16(b) Group for Multple Addtonal Reasons B The Dstrct Court Properly Granted Summary Judgment on Plantff's "Hold" and "Sell" Theores Alleged Accountng Manpulaton s nsuffcent To State a Secton 16(b) Clam There Was No Evdence of the Exstence of a Group Durng the Relevant Tme Frame There Was No Coordnaton Between AOL and Mr. Jan Concernng Transactons n nfospace Stock C* Plantff s Not Enttled to an Adverse nference on Hs "Group" Clam _

6 1 U, l D. Mr. Jan's Alleged Desre To Proft from Accountng mpropretes s rrelevant... _.,.;...,.: CONCLUSON STATEMENT OF RELATED CASES CERTFCATE OF COMPLANCE PURSUANT TO CRCUT RULE CERTFCATE OF SERVCE... 62, -v-

7 TABLE OF AUTHORTES FEDERAL CASES Anderson v. Lberty Lobby, nc., 477 U.S. 242 (1986)... 22, 23, 37, 38 Bershad v. McDonough, 428 F.2d 693 (Tth Cr. 1970) Block v. Cty of L.A., 253 F.3d 410 (9th Cr. 2001) Central Bank, N.A.v. Frst nterstate Bank, N.A., 511 U.S. 164 (1994) Ctzens Frst Bancorp, nc. v. Harreld, 559 F. Supp. 867 (W.D. Ky. 1982) Crag v. M&O Agences, nc., 496 F.3d 1047 (9th Cr. 2007) Cutter & Buck, nc. v. Geness ns. Co., 306 F. Supp. 2d 988 (W.D. Wash. 2004), aft'd, 144 F. App'x 600 (9th Cr. 2005)... 54, 55, 56 Doe ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258 (9th Cr. 2000)... 54, 55, 56 Enlow v. Salem-Kezer Yellow Cab Co., 389 F.3d 802 (9th Cr. 2004) GAF Corp. v. Mlsten, 453 F.2d 709 (2d Cr. 1971) Gen. Arcraft Corp. v. Lampert, 556 F.2d 90 (lst Cr. 1977) GoUust v. Mendell, 501 U.S. 115 (1991)... 1, 24 Gwozdznsky ex rel. Revco D.S., nc. v. Zell]Chlmark Fund, L.P., 156 F.3d 305 (2d Cr. 1998)... 24, 25 Heublen, nc. v. Gen. Cnema Corp., 722 F.2d 29 (2d Cr. 1983) Hubbard v. 7-Eleven, nc., 433 F. Supp. 2d 1134 (S.D. Cal. 2006) n re Wnstar Commc'ns, nc., 348 B.R. 234 (Bankr. D. Del. 2005) n re WorldCom, nc., 377 B.R. 77 (S.D.N.Y. 2007) nt'l Banknote Co. v. Muller, 713 F. Supp. 612 (S.D.N.Y. 1989) Jewelcor, nc. v. Pearlman, 397 F. Supp. 221 (S.D.N.Y. 1975)... 36, 58 -V-

8 Kontos v. Kontos, 968 F. Supp. 400 (S.D. nd. 1997) Lews v. Vames, 505 F.2d 785 (2d (_r. 9"14) LButt v. Unted States, 107 F.3d 110 (2d Cr. 1997) Ltzler v. CC avs., L.D.C., 411 F. Supp. 2d 411 (S.D.N.Y. 2006)... 53, 54 Mller v. Plgrm's Prde Corp., 2008 WL (W.D. Va. Jan. 16, 2008) Morales v. Freund, 163 F.3d 763 (2d Cr. 1999) Morales v. New Valley Corp., 999 F. Supp. 470 (S.D.N.Y. 1998), aff'd sub no_.q.m m. Morales v. Freund, 163 F.3d 763 (2d Cr. 1999)... 27, 28, 35, 36, 53 Morales v. Quntal Entm't nc., 249 F.3d 115 (2d Cr. 2001)... passm Moreland v. Las Vegas Metro. Polce Dep't, 159 F.3d 365 (9th Cr. 1998) Nelson v. Pma Cmt. Co11., 83 F.3d 1075 (gth Cr. 1996) Portno v. Memorex Corp., 667 F.2d 1281 (9th Cr. 1982)... 1, 24, 31 Radobenko v. Automated Equp. Corp., 520 F.2d 540 (gth Cr. 1975) Relance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418 (1972)... 47, 58 Rosenberg v. XM Ventures, 274 F.3d 137 (3d Cr. 2001)... 43, 44 Roth v. Jennngs, 489 F.3d 499 (2d Cr. 2007)... 35, 45, 46, 48 Standard Metals Corp. v. Tomln, 503 F. Supp. 586 (S.D.N.Y. 1980) Stonerdge nv. Partners, LLC v. Scentfc-Atlanta, nc., 128 S. Ct. 761 (2008)... 32, 33 Strauss ex rel. Servco, nc. v. Amercan Holdngs, 902 F. Supp. 475 (S.D.N.Y. 1995) Summers v. A. Techert & Son, nc., 127 F.3d 1150 (9th Cr. 1997) T.W. Elee. Serv., nc. v. Pac. Elee. Contractors Ass'n, 809 F.2d 626 (9th Cr. 1987) Tones v. Cty of Madera, 524 F.3d 1053 (9th Cr. 2008) _v_

9 Warner Communcatons, nc. v. Murdoch, 581 F. Supp (D. Del. 1984)...,:... 36, 37, 40, 58 Wellman v. Dcknson, 682 F.2d 355 (2d Cr. 1982) FEDERAL STATUTES AND REGULATONS 15 U.S.C U.S.C. 78m(d)(3)... 27, U.S.C. 78p(a)(1) U.S.C. 78p(b)... 1, 13, 23, 24, 46, C. F. R b , C.F.R d-5(b)(1)... 26, 55, C.F.R a-l(a)(1)... _ C.F.R a , 42 OTHER MATERALS Peter J. Romeo & Alan L. Dye, Secton 16 Treatse and Reportng Gude (3d Ed. 2008)... 9, 31, 40, 43, 44, 48 -vl

10 NTRODUCTON The dstrct court granted summary judgment for defendant AOL on a Complant that sought an unprecedented applcaton of Secton 16(b) of the Securtes Exchange Act, 15 U.S.C. 78p(b). Secton 16(b) s a strct lablty statute ntended to establsh brght-lne rules governng short-swng securtes transactons by specfed corporate nsders. t was desgned to have "lteral, 1 l, mechancal applcaton," Gollust v. Mendell, 501 U.S. 115, 122 (1991), and ts reach s to be narrowly construed so that corporate nsders can avod nadvertently enterng nto prohbted short-swng trades. d.; Portnoy v. Memorex Corp., 667 E2d 1281, 1284 (9th Cr. 1982). t s undsputed that AOL, standng alone, was not subj ect to Secton 16(b), as t was nether an offcer or drector of nfospace nor the owner of more than ten percent of nfospace's outstandng shares. Yet plantff sought to subject AOL to strct lablty under Secton 16(b) under a theory that AOL was the benefcal owner of the shares of nfospace's CEO, Naveen Jan, because t allegedly asssted hm n accountng mpropretes. The dstrct court properly rejected plantff's novel nterpretaton of Secton 16(b). No court has mposed Secton 16(b) lablty under the theory advanced by plantff. Plantff's theory s at odds wth the language and purpose of Secton 16(b) and wth the cases addressng the queston of what consttutes a "group" governed by Secton 16(b)--all of whch contemplate collectve acton -1-

11 regardng the ssuer's stock tself, not an alleged agreement that mght have some mpact on share prce. Further, plantff's theory would end-ran Supreme Court precedent barrng prvate actons for adng and abettng securtes fraud. AOL and Mr. Jan dd not act as benefcal owners of one another's nfospace stock. The undsputed record rcflects that AOL dd not coordnate ts tradng n nfospace stock wth Mr. Jan, dd not consult wth Mr. Jan regardng transactons n nfospacc stock, and dd not exercse nvestment or votng control, l over Mr. Jan's nfospace stock. The dstrct court's grant of summary judgment on plantff's Secton 16(b) clam was proper and should be affrmed. STATEMENT OF JURSDCTON AOL agrees wth plantff's statement of jursdcton. STATEMENT OF THE SSUES 1. Was the grant of summary judgment for AOL proper where (a) as a matter of law nfospace could not be a member of a Secton 16(b) group, and (b) plantff's clam that AOL entered nto a "group" wth nfospace's CEO was based on () AOL's recept of stock warrants pursuant to a busness agreement between AOL and nfospace and () AOL's alleged assstance n accountng mpropretes by nfospace's CEO? 2. Was the grant of summary judgment for AOL proper because an alleged agreement to acqure ssuer stock entered nto before the stock was -2-

12 regstered under the Exchange Act cannot establsh a "group" subject to Secton 16(b) absent evdence of"group" actvty n the post-regstraton perod? 3. May a person or entty that does not own any ssuer stock jon a Secton 16(b)"group"? 4. May a person or entty be lable under Secton 16(b) based on membershp n a "group" absent evdence that the person or entty was a member of the purported group both at the tme of purchase and sale of the ssuer's stock? l 5. Was the grant of summary judgment for AOL proper where there was no evdence that AOL and nfospace's CEO (a) consulted wth one another concernng transactons n nfospace stock, (b) shared n the proceeds of ther sales of nfospace stock, or (c) took any other jont acton wth respect to each other's nfospace stock? 6. Dd the dstrct court correctly hold that the nvocaton of the Ffth Amendment by certan of AOL's former employees dd not enttle plantff to an adverse nference regardng the formaton of a "group" under Secton 16(b) where there was no ndependent corroboraton of group formaton? STATEMENT OF FACTS A. The Whte Pages Agreement Between AOL and nfospace., nfospace s "an ntemet-based company," ER2, that provdes an onlne telephone drectory and other onlne resources, d =n late 1997 or early

13 1998, nfospace contacted AOL, then "the largest on-lne servce provder n the world, wth membershp of approxmately 12 mllon households," ER3, to explore a potental busness relatonshp. ER337. nfospace sought a relatonshp wth AOL to "drve more traffc to nfospace." ER338. n August 1998, AOL and nfospace entered nto an nteractve Whte Pages Marketng Agreement ("Whte Pages Agreement" or "Agreement"). ER Under the Agreement, the partes agreed to "promote and dstrbute an nteractve ste" on AOL called the AOL Whte Pages. ER274. The term of the Agreement was three years, ER28 7.1, wth a one-year extenson opton, d. AOL was represented n the negotaton of the Agreement by Jon Zetler, an n-house AOL attorney, c.., ER184, ER383, and several busness development and accountng employees, ncludng Alex Terman, c..., ER324, ER555, Erc Brandon, e.., ER217, ER242, Steve Grccnbcrg, e_g=, ER324, ER328, Erc Keller,._g=,ER242, ER383, and Davd Colbum, _ ER181. AOL consulted wth ts outsde audtor, Ernst & Young, conccmng accountng ssues that arose durng the negotatons. E._., ER217, ER375. nfospace was represented n the negotatons by CEO Naveen Jan and General Counsel Ellen Alben. _ ER2.40, ER326, ER383, SER2747 nfospacc also consulted outsde counsel wth respect to negotaton of the "SER" refers to AOL's Supplemental Excerpts of Record.

14 1 Agreement. SER537; SER nfospace's outsde audtor, Delotte & Touche, partcpated n negotatons wth AO., and was consulted regardng accountng matters. E..,ER217, ER328. "[T]he prmary purpose of the Whte Pages Agreement was to jontly operate the AOL Whte Pages." ER18. t s evdent from the face of the Agreement that ts-focus was the promoton, dstrbuton, marketng, and content of the Whte Pages ste. ER As part of the Agreement, nfospaee also granted AOL condtonal warrants to purchase nfospaee stock. ER Warrants would vest n a gven quarter f the AOL Whte Pages acheved at least 25 l mllon searches n that quarter. ER The Agreement provded that, "[]n the event that AOL [dd] not reach the Target n a gven quarter, such Warrants... shall not vest and shall be forfeted by AOL." d_.. The dstrct court observed that, "[w]hle Mr. Drelng... asserts that the 'prmary purpose' of the Whte Pages Agreement was to 'allow AOL to acqure nfospaee securtes,' he does nothng to lnk ths allegaton wth any factual support." ER18. The Agreement also provded that nfospace would make quarterly cash payments to AOL f certan condtons were satsfed, ER Contrary to plantff's asserton, Br.18, the quarterly cash payments (totalng $4 mllon n year 1, $3 mllon n year 2, $2 mllon n year 3, and $1 mllon n year 4) were not "guaranteed payments." d. Rather, nfospace owed the payments n a -5-

15 gven quarter only f the AOL Whte Pages acheved at least 25 mllon searches n that quarter. ER The Agreement provded that f the AOL Whte Pages dd not acheve the quarterly target, "AOL shall refund to nfospace the entre amount of the quarterly payment for such quarter (pad n advance by nfospacc to AOL) and such quarterly payment for such Quarter shall be forfeted." d = The Agreement contaned a penalty provson requrng AOL to pay nfospace faol faled to acheve the requste number of searches on the AOL Whte Pages over the lfe of the Agreement. Paragraph 7.9 requred AOL to make a cash payment of $2 mllon to nfospace f the Whte Pages ste faled to acheve a total of 400 mllon searches. ER faol termnated the Agreement prematurely, the Agreement also requred AOL to pay nfospacc an addtonal $500,000 and to forfet certan cash payments, on top of the $2 mllon penalty the Agreement requred AOL to pay f t dd not acheve the 400 mllon search target. ER There was no guarantee that AOL would receve suffcent quarterly cash payments from nfospacc to offset the amount of the penalty. For example, f the AOL Whte Pages acheved 24 mllon searches each quarter for four years, AOL would receve no quarterly cash payments (or any warrants) and would owe the $2 mllon penalty. -6-

16 The partes added the penalty provson to the Agreement durng contract negotatons because t affected the accountng treatment for the condtonal warrants granted to AOL. ER Under the applcable accountng rules, lnfospace could expense the warrants at the then-current value of nfospaee's stock (rather than the value at the tme of exercse) f t receved a 'performance commtment" from AOL. Se._..ge ER224. "A performance commtment s a cofnmtment under whch performance by [AOL] to earn the equty nstruments s probable because of suffcently large dsncentves for nonperformance." ER224 n.3. Delotte & Touche proposed revsng the Agreement to requre AOL to pay a $2 mllon penalty n the event of nonperformance. ER328. Delotte's Natonal Offce concluded that a $2 mllon penalty was suffcent because t represented more than ten percent of the value of the contract. ER574; ER Delotte also proposed modfyng nfospace's cash payments to AOL to make them contngent on the performance of the AOL Whte Pages, rather than guaranteed. ER328. The changes proposed by Delotte are reflected n the terms of the fnal Agreement. ER ; ER Plantff ctes Delotte partner Larry Hle's testmony for the proposton that Delotte was not nformed of the "front-loadng of payments," Br.21. But Mr. Hle testfed merely to a lack of recollecton and that he dd not beleve he receved the partcular e-mal cted by plantff. The documentary record demonstrates that Delotte was aware of the fnal payment schedule n the Agreement. Delotte -7-

17 l l l l l l l l n addton to the Whte Pages Agreement, AOL and nfospace entered nto a Common Stock Purchase Warrant Agreement (the "Warrant Agreement"). ER The Warrant Agreement provded that the frst of the quarterly vestng dates for the warrants was February l, 1999 and the last was November 1, ER AOL and nfospace also entered nto other busness agreements, ncludng a Classfeds Agreement, an agreement between AOL and nfospace Canada, and an agreement for Netscape/CompuServe. SER B. AOL's Acqustons and Sngle Sale of nfospace Stock. Plantff's asserton that AOL and Mr. Jan "jontly h[e]ld nfospace securtes," Br.2, s erroneous. AOL dd not jontly own any nfospace securtes' wth Naveen Jan. AOL's frst tranche of nfospace warrants vested on February l, SER144. Followng the ntal February 1, 1999 vestng date, subsequent tranches of nfospace wan'ants vested n May, August, and November AOL dd not engage n any transactons n nfospace stock n n 2000, AOL exercsed several tranches of warrants and made a sngle sale of nfospace stock---on March 15, SER The March 2000 receved a copy of the fnal Agreement, whch specfed the schedule of cash payments from nfospace to AOL. SER , SER Delotte also was coped on draft letters to the SEC that specfcally addressed the payment schedule. SER500-01, SER506-07, SER513, SER518-21, SER

18 l l sale was AOUs only sale of nfospace stock durng the entre alleged "group" perod. SER187. Contrary to plantff's asserton that AOL "dspose[d] of shares worth $200 mllon" n the frst half of 2000, Br.10; Br.51, AOL's sngle sale was for approxmately $48 mllon. ER110. AOL also entered nto four cashless collars 3 wth respect to nfospace stock durng the alleged "group" perod---on February 11, February 23, and May 10, SER n each transacton, AOL sold a call opton to Goldman Sachs and smultaneously purchased a put opton for an dentcal number of shares from Goldman. d. Because Goldman held the call and put optons, only Goldman--and not AOL--would have benefted from an ncrease n the market prce of nfospace stock above the predetermned call prce or suffered from a 3 A cashless collar s "a negotated transacton nvolvng two European-style optons exercsable only on ther expraton date[.] n a 'collar' transacton, a [person or entty] sells a call opton.., and smultaneously buys a put opton for an dentcal number of securtes. The call opton has an exercse prce above the prevalng market prce and the put opton has an exercse prce below the prevalng market prce[;] both have the same [exercse] date." Peter J. Romeo & Alan L. Dye, Secton 16 Treatse and Reportng Gude ], 1016 (3d exl. 2008). The purpose of a collar "s to partally hedge the value of the stock by allowng the nvestor to obtan downsde protecton aganst losses greater than the strke prce of the put n exchange for gvng away upsde gans beyond the level of the strke prce of the wrtten call." SER Under the collars, AOL would not receve any beneft from an ncrease n the market prce of nfospace stock above the call prce; any ncrease above the call prce would accrue only to the party holdng the call. f the market value ncreased, but only to a pont just below the exercse prce of the call, both optons would expre wthout exercse. f the market value of nfospaee stock fell below the put prce, AOL would beneft. See generally SER

19 decrease n the market prce below the predetermned put prce. 4 Thus, AOL entered nto the collars to protect tself from uncertanty n the prce of nfospace stock. SER241 40, SER C. Naveen Jan's Ownershp and Sales oflnfospace Stock. nfospace was a prvate company at the tme AOL and nfospace entered nto the Agreement n August nfospace fled a regstraton statement wth the SEC n December SER Pror to December 1998, Mr. Jan was not the "benefcal owner, drectly or ndrectly, of more than ten percent of any class of equty securtes.., regstered pursuant to secton 12 of the [Exchange] Act." 17 C.F.R a-2 (2007). Followng ]nfospace's ntal publc offerng, Mr. Jan owned approxmately 50% of nfospace's outstandng shares. ER543. Mr. Jal3 engaged n sgnfcant sales of nfospace stock n a year n whch AOL dd not engage n any transactons n nfospaee stock. He sold 1.2 mllon shares n Aprl 1999 and 1.8 mllon shares n May SER At the expraton of the fast collar, both the put and the call expred unexercsed. For each of the remanng three collars, nfospace's stock prce was below the put prce on the expraton date. As a result, Goldman settled each of these three collars wth a cash payment to AOL and AOL retaned ownershp of ts nfospace stock. SER

20 , l n 2000, Mr. Jan sold nfospace stock on January 31, May 1, June 1, June 9, June 12 and June 13. SER AOL dd not sell nfospace stock n any of those months. Mr. Jan also sold nfospace stock on varous dates n 2003, ER153, a year n whch AOL dd not engage n any transactons n nfospaee stock. Mr. Jan never entered nto a cashless collar wth respect to rffospace stock. D. The Absence of Coordnaton Between AOL and Mr. Jan. There s no evdence of coordnaton between AOL and Mr. Jal3 wth respect to the acquston, holdng or sale of nfospace stock. AOL never bought or sold nfospace stock n conjuncton wth Mr. Jan. Se ee SER187. The record s undsputed that two executves n AOL's nvestments group---lennert Leader and Ronald Peele--were responsble for AOL's decsons regardng transactons n nfospace stock. SER ; SER They based ther decsons "on market and fnancal consderatons," not on any alleged agreement to act n concert wth Mr. Jan. SER190 5; SER Nether Mr. Leader nor Mr. Peele s aware of any agreement between AOL and Mr. Jan to act together for the purpose of acqurng, holdng, votng, or dsposng of nfospace stock. SER297 10; SER193 14; SER Mr. Peele approved and supervsed AOUs exercse of warrants for nfospace stock n SER He receved no nput from Mr. Jan or -11-

21 anyone else at nfospace. d..._.mr. Peele also approved and supervsed AOUs sngle sale oflnfospace stock on March 15, SER As wth the wan'ants, he had no nput from Mr. Jan or anyone else at nfospaee. d. :. Mr. Peele recommended that AOL enter nto the four cashless collar transactons wth Goldman Sachs. He made hs recommendaton wthout nput from Mr. Jan or anyone else at nfospace. SER Atter consultng wth Mr. Peele and members of AOL's accountng and fnance groups, Mr. Leader "authorzed and approved AOUs entry nto each of the four cashless collars." SER Mr. Leader receved no nput from Mr. Jan or anyone else at nfospace. SER t s undsputed that Mr. Peele recommended the cashless collars not because of any agreement wth Mr. Jan, but because he wanted to protect AOL from the volatlty oflnfospace's stock. SER Under the collars, AOL would not beneft from dramatc ncreases n market prce nor suffer f'om dramatc decreases n market prce; those benefts and losses would accrue nstead to Goldman Sachs. SER There would have been no reason foraol to have entered nto the cashless collars had AOL beleved that nfospace's stock prce was nflated as a result of accountng manpulaton; nstead, AOL smply could have sold ts nfospaee stock

22 There s no evdence that Messrs. Leader or Peele ever conferred wth Mr. Jan regardng AOUs transactons n nfospace stock. Se ee SER Nor s there any evdence that Mr. Jan ever conferred wth AOL concernng Mr. Jan's nfospace stock transactons. Se ge SER E. Plantff's Complant. The Complant asserted a sngle clam aganst AOL under Secton 16(b) of the Securtes Exchange Act of 1934, 15 U.S.C. 78p(b). SER The Complant alleged that AOL was a statutory nsder subject to Secton 16(b) because, "[o]n or about August 24, 1998, AOL and Naveen Jan formed an allance n order to manpulate the market prce of nfospace shares." SER Plantff alleged that the prncpal AOL employees who entered nto the purported allance wth Mr. Jan on AOUs behalf were Messrs. Keller and Colburn. d_..= The Complant alleged that AOL and Mr. Jan sought "(1) to secretly nfluence the corporate affars of nfospace by creatng artfcal revenues and earnngs; (2) to hold ther shares durng the creaton of artfcal revenues and earnngs; and (3) to then sell ther shares to unsuspectng nvestors at prces artfcally nflated as a result of ther concerted efforts." ER12. The Complant made no allegaton that AOL and Mr. Jan acted together to enable AOL to acqure nfospace shares. SER

23 E Plantff's Theores. The evdence cted by plhntffn the dstrct court focused on AOUs alleged nvolvement n accountng mpropretes by Mr. Jan. Plantffmade no attempt to show that AOL and Mr. Jan exercsed nvestment control over one another's nfospaee shares, consulted wth one another concernng transactons n nfospaee stock, shared n the proceeds of ther sales of nfospace stock, or took any other acton that could lead to a reasonable nference that AOL acted as the benefcal owner of Mr. Jan's nfospace stock (or vce versa). Nor dd plantff present any evdence to refute AOUs proof that AOL never coordnated wth Mr. Jan wth respect to transactons n nfospace stock. 1. The Warrants. Vrtually all of the alleged conduct upon whch plantff reles took place n 1998, n connecton wth the negotaton of the Whte Pages Agreement and the accountng for nfospaee's warrants. Plantff (and hs expert) contend that the $2 mllon penalty that AOL was requred to pay under the Agreement was an loadng of cash payments by nfospace," d.. Accordng to plantff, the "llusory" penalty rendered mproper nfospaee's accountng for the warrants granted to AOL. Br "lluson," Br.9, because AOL would "recoup penalty payments through the front- l -14-

24 Plantff's theory rests on the erroneous assumpton that nfospace effectvely would pay the $2 mllon penalty through guaranteed front-loaded cash payments to AOL. _ Br.20; Br.22. The undsputed record demonstrates, however, that the quarterly cash payments were not guaranteed, see suora pp Rather, they were contngent on the performance of the AOL Whte Pages n a gven quarter. d..._.as a result, there was no guarantee that nfospace would "effectvely pre-pay or front any penalty that AOL would be requred to pay," Br.17. The August 12, 1998 e-mal upon whch plantffplaces prncpal relance, ER181, was wrtten at a tme when the draft Agreement provded for annual $2.5 mllon cash payments from nfospace to AOL that were not contngent on AOUs performance. Se ee ER (draft Agreement dated July 29, 1998, provdng for guaranteed payments of $2.5 mllon per year). After Delotte rased the need for a penalty provson, Delotte proposed changes to the Agreement that elmnated the guaranteed cash payments. ER328. The revsed Agreement provded that nfospace would owe quarterly cash payments to AOL only f the AOL Whte Pages acheved the requste number of searches n that _tuarter. ER694; ER282. Thus, AOL was requred to earn each quarterly payment. The revsed Agreement also added language n paragraph statng that the cash payments were "subject to vestng as provded n Secton

25 l below," e._g=,er694, ER282, as well as a new provson, paragraph 6.1.3, that set forth the condtons under whch AOL would earn the quarterly payments, d..._. The revsed Agreement deleted the word "guaranteed" from the paragraphs referencng the cash payments, s d. Plantff's contenton that "the accelerated cash payments elmnated or substantally mtgated the purported $2 mllon penalty," Br. 19, gnores the fact that the cash payments n the fnal Agreement were not guaranteed. 6 Because of ths fundamental change, the fnal Agreement dd not "le[ave] AOL n vrtually the same poston as the penalty-free orgnal deal." Br.19. To the contrary, the Agreement changed from one n whch AOL was guaranteed to receve $10 mllon n cash from nfospace over four years, rrespectve of the number of searches acheved on the AOL Whte Pages, to one n whch AOL faced the rsk of recevng no cash payments, whle owng a $2 mllon cash penalty at the end of the s The partes overlooked one reference to the word "guaranteed" n paragraph 7.4 of the fnal Agreement. t s clear, however, that ths was a typographcal error, as the word "guaranteed" was removed from the payment provsons of the Agreement, e.g= ER694, and paragraph 6.1 was rewrtten to change the payments from guaranteed to contngent on the performance of the AOL Whte Pages, d. 6 Plantff's expert makes the dentcal error, repeatedly assertng that the cash payments n the fnal Agreement were guaranteed. E...,ER 890, 891. Both of the examples offered by plantff's expert, ER891, erroneously assume that AOL was guaranteed to receve the quarterly cash payments. -16-

26 l Agreement f the requred number of searches was not acheved--a potental $12 mllon dfference. n sum, the premse of plantff's contenton that "Jan and AOL colluded to mproperly create the lluson of a substantal penalty where, n fact, none exsted," Br.20, s smply ncorrect. Because the penalty was real, the accountng for the nfospace warrants was not even arguably mproper. 2. Amendment 1. The prncpal post-1998 event cted by plantff n support of a purported agreement between AOL and Mr. Jan s Amendment 1 to the Whte Pages Agreement, whch was sgned by AOL and nfospace n early Amendment 1 addressed the partes' revenue share oblgatons under the Agreement. ER219. The Agreement contemplated that both AOL and nfospace would share certan revenue wth one another. ER , 6.3. t s undsputed, however, that from the sgnng of the Agreement through ts termnaton, nether AOL nor nfospace ever reported, requested or attempted to collect revenue share from the other. SER310-12; SER323-24; SER329-32; SER Because ths practce had not been memoralzed n wrtng, nfospace contnued to accrue on ts books the revenue share expense that otherwse would be owed to AOL. SER329-32; SER

27 n early 2000, Delotte & Touche rased an ssue concernng the revenue share expense accrual that nfospace ha d accumulated over the term of Agreement. SER313; SER325; SER353. Delotte nformed nfospace that t had two optons: (1) pay the revenue share accrual; or (2) get confrmaton n wrtng from AOL that t waved the revenue share oblgaton. SER34-15; SER nfospace then requested a wrtten amendment from AOL wavng revenue share oblgatons. SER Although plantff seeks to portray Amendment 1 as an agreement between AOL and Mr. Jan, t was an agreement between AOL and nfospace. Numerous nfospace employees partcpated n Amendment 1, ncludng Tammy Halstead (VP & Chef Accountng Offcer), Garth MaeLeod (Drector of Fnance), Steve Strbley (Drector, Busness Development), Ellen Alben (General Counsel), Kurt Langkow (Assstant General Counsel), Mark Elder (Sr. Accountant), Patty Delaney (Corporate Controller), and Ashok Narasmhan (Presdent, Merchant Servces). SER329-32; SER Kurt Langkow, nfospaee's Assstant General Counsel, drafted Amendment 1, SER358, whch formally waved the partes' revenue share oblgatons "untl after the end of the thrd quarter 2000." SER328. Thus, Amendment 1 smply documented AOL's and lnfospace's exstng practce of not collectng revenue share from one another. Dong so releved AOL of any clam that t owed revenue share payments to nfospace, -18-

28 releved AOL of havng to track and report revenue owed to nfospace, and memoralzed the practce that had governed the partes' relatonshp from the ncepton of the Agreement. SER nternal AOL E-Mals. Fnally, plantffponts to nternal AOL communcatons from Sprng 2001, and asserts that AOL sought to drve up nfospace's stock prce. Br The nternal AOL e-mals dscuss matters concernng nfospace, not Mr. Jan, and none proposes any concerted actvty between AOL and Mr. Jan. See, e.g., SER ndeed, none was sent to anyone at nfospace, let alone to Mr. Jan. G. The Dstrct Court's Summary Judgment Decson. The dstrct court granted AOL's moton for summary judgment on January 3, 2008, dsmssng wth prejudce plantff's Secton 16(b) clam. ER1. n a twenty-one page opnon, the court carefully analyzed the applcable law, revewng the language and purpose of both Secton 16Co) and Secton 13(d) of the Exchange Act and the cases construng those provsons. ER13-15; ER The court also carefully consdered the evdence. t concluded after a thorough analyss that plantff"offer[ed] no probatve evdence suggestng that there was ever an agreement between AOL and Mr. Jan, n hs personal capacty, to act together to acqure, hold, vote or dspose of nfospace stock." ER

29 For purposes of AOUs summary judgment moton, the dstrct court accepted plantff's clam that there v_a_ evde_c_ that AOL asssted Mr. Jan n accountng manpulaton desgned to nflate nfospace's earnngs. ER16. But the court was "unable to fnd any evdence n the record to suggest that AOL executves, n ther offcal capacty, conspred wth Mr. Jan, n hs personal capacty, to acqure, hold, vote or dspose of stock n furtherance of ther common objectve to artfcally nflate nfospace stock." ER18. Wth respect to Amendment 1, the court observed that t "appears to further the frst common objectve as alleged by Mr. Drelng--to artfcally nflate the prce of nfospace stock--wthout addressng the crux of a Secton 16Co) agreement to acqure, hold, vote or dspose of stock." ER The court consdered each of the cases cted by plantff n support of hs novel theory of Secton 16 lablty. t concluded that none supported plantff's legal theory. ER The court also consdered plantff's request for an adverse nference based.on the Ffth Amendment prvlege nvocatons of two former AOL employees. ER t determned that, because there was no ndependent evdence to support plantff's clam that AOL had formed a Secton 16(b) group wth Mr. Jan, "the court s not free to assume that the AOL executves' slence s suffcent to create a genune ssue of materal fact." ER17. "Absent some evdence upon whch a jury could conclude that AOL and Mr. Jan had an

30 agreement to 'acqure, hold, vote or dspose of' nfospace stock," ER16, the court concluded that t "must grant AOL's abt0r 'Or gummary judgment," d. SUMMARY OF ARGUMENT Ths case s about a busness relatonshp between two corporatons-- AOL and nfospace. n the course of that relatonshp, AOL necessarly acted through ts employees and agents, as dd nfospace. But those nteractons dd not make AOL the benefcal owner of the stock owned by nfospace's CEO. Nor dd t subject AOL to strct lablty under Secton 16Co) of the Securtes Exchange Act for ts transactons n nfospaee stock. Plantff contends that the alleged agreement between Mr. Jan and AOL to nflate nfospace's stock prce "s the type of arrangement that s at the heart of Rule 13d-5(b)(1)." Br.27. But plantff cannot cte a sngle case to support hs theory. No court has found a group for purposes of ether Secton 16(b) or Secton 13(d) of the Exchange Act based only on the allegaton that a person or entty asssted a corporate nsder wth accountng mpropretes. As the dstrct court correctly concluded, the cases cted by plantff "as those that most closely resemble ths ease," ER19; ER44-45 (whch plantff does not even bother to cte n hs appeal bref), "do not support Mr. Drelng's theory of lablty." ER19. Plantff presented no evdence that AOL and Mr. Jan acted together for the purpose of acqurng, holdng, votng or dsposng of nfospace stock

31 Courts assessng whether a "group" exsts under Sectons 16(b) or 13(d) look to facts that are completely absent here, Su_ll a cot_rdnated stock purchases or sales by group members, "lock up" or rght of frst refusal agreements that allow partes to retan control over shares, agreements to share n the profts of stock sales, or attempts.by group members to vote ther shares together to effect changes n corporate control. n those crcumstances, group members act together wth respect to the securtes themselves, such that they can be deemed benefcal owners of one another's securtes. Plantff adduced no such evdence here. The dstrct court correctly concluded that plantff's evdence of alleged accountng fraud, n the absence of any evdence that AOL and Mr. Jan acted as benefcal owners of each other's nfospace stock, dd not create any genune ssue of materal fact n support of a Secton 16(b) clam. The court's opnon should be affrmed on that ground and numerous others. STANDARD OF REVEW Ths Court revews a dstrct court's grant of summary judgment de novo. Torres v. Cty of Madera, 524 F.3d 1053, 1055 (9th Cr. 2008). The Court may affrm on any bass supported by the record. Enlow v. Salem-Kezer Yellow Cab Co., 389 F.3d 802, 811 (9th Cr. 2004); Crag v. M&O Agences, nc., 496 E3d 1047, 1053 (9th Cr. 2007). The Court should affrm the grant of summary judgment for AOL unless plantff presented suffcent evdence for a reasonable

32 fact-fnder to reach a verdct n hs favor. Anderson v. Lberty Lobby, nc., 477 U.S. 242, 248 (1986). ssues of fact db hot p:edude summary judgment unless "they are materal to the substantve clam at ssue; that s, [f] they mght affect the outcome of the sut under the governng law." Moreland v. Las Vegas Metro. Polce Dep't, 159 F.3d 365, 369 (9th Cr. 1998) (quotaton marks omtted). Summary judgment s warranted absent "sgnfcant probatve evdence tendng to support the complant." Summers v. A. Techert & Son, nc., 127 F.3d 1150, 1152 (9th Cr. 1997) (quotaton marks omtted). "[M]ere allegaton and speculaton do not create a factual dspute for purposes of summary judgment." Nelson v. Pma Cmty. Coll., 83 F.3d 1075, (9th Cr. 1996). ARGUMENT * THE DSTRCT COURT CORRECTLY APPLED SECTON 16(b) AND TS MPLEMENTNG REGULATONS. Plantff contends that the dstrct court "mproperly took ths case from the jury by graftng addtonal nonexstent requrements" for group membershp onto Secton 16(b). Br.27, That contenton s erroneous. The dstrct court appled the proper legal standard and correctly determned that plantffpresented no evdence n support of a cognzable Secton 16(b) clam. A. The Standard for Lablty Under Secton 16(b). Secton 16Co) provdes that "any proft realzed by [a corporate nsder] from any purchase and sale, or any sale and purchase, of any equty

33 securty of such ssuer.., wthn any perod of less than sx months.., shall nure to and be recoverable by the ssuer, rrespectve of any ntenton on the part of such benefcal owner, drector, or offcer n enterng nto such transacton." 15 U.S.C. 78p(b). Secton 16(b) "mposes strct lablty on nsders who engage n shortswng trades wthout regard to an nsder's ntent." ER13 (collectng cases). Because Secton 16(b) mposes lablty wthout regard to fault, ts reach must be narrowly construed. See, e.g., GoUust v. Mendell, 501 U.S. 115 (1991); Portnoy v. Memorex Corp., 667 F.2d 1281, 1284 (9th Cr. 1982). Secton 16(b) "was not ntended to remedy all wrongs" and "s smply not an antdote to all the lls that may plague the securtes market." Heublen, nc. v. Gen. Cnema Corp., 722 F.2d 29, 31 (2d Cr. 1983); accord Gollust, 501 U.S. at 122. Secton 16(b) s ntended to provde a "flat rule settng objectve standards," Portnoy_, 667 F.2d at 1284, susceptble to "lteral, mechancal applcaton," Gollust., 501 U.S. at 122 (quotaton marks omtted). t was desgned to provde clear advance notce to those subject to ts reach so that they may avod prohbted transactons. See Bershad v. McDonough, 428 F.2d 693, 696 (7th Cr. 1970). "[E]ven f a transacton s found to present the opportunty for speculatve abuse, there can be no lablty under Secton 16(b) unless the statutory

34 requrements are also met." Gwozdznslo/ex rel. Revco D.S., nc. v. Zell/Chlmark Fund, L.P., 156 F.3d 305, _() (2d Cr. 1998). Any attempt "to use a flexble approach to the eases arsng under [Secton 16(b)] and, n effect, to brng wthn the scope of the statute, persons whose actons do not ft squarely and lterally wthn ts terms, would actually contravene the congressonal purpose and mply ambgutes n the statute whch do not exst." Lews v. Varnes, 505 F.2d 785, 789 (2d Cr. 1974). B. The Defnton of a "Group" for Purposes of Secton 16(b). Secton 16(b) apples only to those who meet the defnton of a corporate nsder: a "person who s drectly or ndrectly the benefcal owner of more than 10 percent of any class of any equty securty.., whch s regstered pursuant to secton 78/of ths ttle, or who s a drector or an offcer of the ssuer of such securty." 15 U.S.C. 78p(a)(1) (2000 & Supp. V 2005). t s undsputed that AOL never owned more than 10 percent of any class of nfospace stock. ER15. Thus, AOL, standng alone, was not subject to Secton 16(b). t also s undsputed that Mr. Jan was subject to Secton 16(b) after nfospace's stock was regstered n December The only way that AOL arguably could be subject to Secton 16(b) s faol and Mr. Jan acted together wth respect to nfospaee stock such that AOL could be deemed a benefcal owner of Mr. Jan "sstock, thereby renderng AOL a

35 l l l l l greater than ten percent owner of nfospace securtes. The defnton of "benefcal owner" for purposes of S_cfon 16(b) derves from Secton 13(d) of the Exchange Act and ts mplementng regulatons. 7 The relevant test s whether AOL and Mr. Jan "agree[d] to act together for the purpose of acqurng, holdng, votng or dsposng of" nfospace securtes, such that "the group formed thereby [s] deemed to have acqured benefcal ownershp,.., as of the date of such agreement, of all equty securtes of that ssuer benefcally owned by any such persons." 17 C.F.R d-5(b)(1). Secton 13(d) was enacted as part of the Wllams Act, "[]n response to hostle corporate takeovers n the 1960s." Morales v. Quntel Entm't nc., 249 E3d 115, 122 (2d Cr. 2001). "ts purpose was to alert the marketplace to every large, rapd aggregaton or accumulaton of securtes, regardless of technque employed, whch mght represent a potental shft n corporate control." d_._:. at (quotaton marks omtted). Secton 13(d) "encompasses not only the solated shareholder who accumulates shares of a corporaton's common stock, but also a group of shareholders who undertake [ths] same actvty as part of a collectve effort." d..._:. at For purposes of Secton 16(b), "the term 'benefcal owner' shall mean any person who s deemed a benefcal owner pursuant to Secton 13(d) of the [Exchange] Act and the rules thereunder." 17 C.F.R a-l(a)(1) (2007)

36 The legslatve hstory of Secton 13(d) reflects that the "group" provson of the statute, 15 U.S.C. 78m(d)(3) (2000), _ was desgned to "prevent a group of persons who seek to pool ther votng or other nterests n the securtes of an ssuer from evadng the provsons of the statute because no one ndvdual owns more than [fve] percent of a class of securtes at the tme they agreed to act n concert." Ountel at 123 (emphass added) (quotng S. Rep. No , at 8 (1967); H.R. Rep. No , at 2818 (1968)). "Ths provson s desgned to obtan full dsclosure of the dentty of any person or group obtanng the benefts of ownershp of securtes by reason of any contract, understandng, relatonshp, agreement or other arrangement." d. (emphass added). Courts applyng the defnton of"group" for purposes of Sectons 16(b) and 13(d) focus on whether alleged group members have acted together to pool ether ther ownershp of securtes or the benefts of ownershp (such as votng). Thus, courts have found groups, or evdence supportng the possble exstence of a group, where alleged group members: Entered nto agreements that "drectly governed the holdng and dsposng of" the ssuer's stock, Ountel, 249 F.3d at 127; see also Morales v. New Valley Corp., 999 F. Supp. 470, 475 (S.D.N.Y. 1998) (one group member provded another a rght of frst refusal on ssuer g Secton 13(d)(3) provdes that "[w]hen two or more persons act as a... group for the purpose of acqurng, holdng, or dsposng of securtes of any ssuer, such.., group shall be deemed a 'person' for purposes of ths subsecton." 15 U.S.C. 78re(d)(3)

37 L stock and a fght to share n stock's apprecaton), aff'd sub nom., Morales v. Freund, 163 F,3d 763 (2d Cr. 1999); Coordnated ther tradng n an ssuer's stock, e.z., Gen. Arcraft Corp. v. Larnpert, 556 F.2d 90, 95 (lst Cr. 1977) (group members acqured stock smultaneously n dentcal transactons and fled a sngle Schedule 13(d) sgned by all group members); lnt'l Banknote Co. v. Muller, 713 F. Supp. 612, 619 (S.D.N.Y. 1989) (group members made separate large block purchases of dentcal quanttes of ssuer stock from same brokerage fnn); Agreed to share profts n an ssuer's stock, _ New Valley, 999 F. Supp. at 475; Fled forms dentfyng themselves as a Secton 13(d) group, Oumtel, 249 F.3d at 120; l l Promoted or ressted a corporate takeover of the ssuer, e._g:, Wellman v. Dcknson, 682 F.2d 355,363 (2d Cr. 1982) (group members agreed to act n concert to dspose of shares and thereby effectuate thrd-party acquston of ssuer); GAF Corp. v. Mlsten, 453 F.2d 709, 717 (2d Cr. 1971) (group members agreed to pool ther holdngs to effect corporate takeover of ssuer); or Attempted to nfluence an ssuer's corporate leadershp, e._g=,morales v. Freund, 163 F.3d 763, 767 (2d Cr. 1999) (group members agreed to vote shares n unform fashon to remove ssuer's drectors); Ctzens Frst Bancorp, nc. v. Harreld, 559 F. Supp. 867, 872 (W.D. Ky. 1982) (group members agreed to vote shares to change leadershp of ssuer). n every case n whch a court found probatve evdence of a group, the persons or enttes nvolved acted as a sngle benefcal owner of shares based on ther conduct wth respect to those shares. That crtcal element s completely mssng n ths ease, as the dstrct court correctly concluded

38 C. The Dstrct Court's Opnon. The dstrct court repeatedly stated hnd appled the proper standard for determnng the exstence of a group under Sectons 16(b) and 13(d). t made clear that "the key nqury s whether t can be nferred that AOL and Mr. Jan agreed to act together to further a common objectve regardng a commtment to acqure, hold, vote, or dspose of equty securtes." ER14. The court further observed, ctng Oumtel, 249 F.3d at , that "[t]he agreement to act together may be nformal and may be nferred from crcumstantal evdence." ER14. Just as _)untel held that t was not necessary for group members to act together to "seek[] corporate control or to nfluence corporate control," 249 F.3d at 124 (quotaton marks omtted), the dstrct court dd not mpose any addtonal requrement that members of a group have a common purpose to acqure or nfluence control of a corporaton. Nor dd the court "graft," Br.36, any other unnecessary requrements onto Sectons 16(b) and 13(d). The court properly focused on the central queston of whether AOL and Mr. Jan agreed "to act together to acqure, hold, vote or dspose of nfospace stock." ER21; see also ER20 ("the partes must have agreed, nformally or otherwse, to acqure, hold, vote or dspose of ther stock."); ER16 ("Absent some evdence upon whch a jury could conclude that AOL and Mr. Jan had an agreement to 'acqure, hold, vote or

39 dspose of' nfospace stock, the court must grant AOUs moton for summary judgment.")? H. THE DSTRCT COURT CORRECTLY HELD THAT AN ALLEGED AGREEMENT TO MANPULATE ACCOUNTNG DOES NOT,t ESTABLSH A SECTON 6(b) GROUP. 1 Plantff makes no contenton that AOL and Mr. Jan shared n the proceeds of ther respectve transactons n nfospace stock, exercsed votng or nvestment control over each other's nfospace stock, or acted as a sngle benefcal owner of nfospace shares based on ther conduct wth respect to those shares. nstead, plantff's clam that AOL was a member of a Secton 13(d) "group" s predcated on the contenton that AOL helped Mr. Jan to nflate nfospace's share prce through mproper accountng that allowed each to beneft ndependently from an ncrease n the value of nfospace stock. 9 Plantffmslcadngly quotes a snppet from the dstrct court's opnon and clams that the court held that "no Secton 13(d) group could exst unless the group members were attemptng to 'captalze n some way.., by agreeng to pool ther shares.'" Br.28 n That statement was merely an observaton regardng the case law, not an mposton of an addtonal requrement: "The cases fndng Secton 16(lo) lablty, based on a group formaton under Secton 13(d), nvolve fact patterns where the defendants attempted to captalze n some way, ether by takng control of the company, preventng ts sale, or otherwse nfluencng stock prce, by agreeng to pool ther shares and votng, dsposng or holdng thcm to effectuate ther common purpose." ER14. Plantff also quotes the dstrct court out of context, Br , n an effort to create the appearance that t mposed unnecessary requrements on plantff's clam

40 l 1, But "[t]he purpose of Secton 13(d) was not to provde another means of ltgatng securtes fraud." ER15. Rather, t Was desgned to "provde nvestors wth full dsclosure by the persons who have a substantal nvestment n the stock; otherwse the nvestor cannot adequately dscern ownershp and the potental mpact that a group wth a large ownershp nterest could have on the stock." d. (ctng Oumtel, 249 F.3d at ). Plantff's "group" theory fnds no support n the law. There s no case fndng a group for purposes of Secton 16(b) or 13(d) based on facts even remotely smlar to those alleged by plantff. That s not surprsng, because Secton 13(d) requres jont actvty wth respect to stock ownershp tself, not stock prce? The dstrct court properly was "not persuaded that two partes actng together to manpulate stock prce by utlzng questonable accountng methods and other smlar actvtes, gves rse to a Secton 13(d) group. By the plan language of the secton, the partes must have agreed, nformally or otherwse, to acqure, hold, vote or dspose of ther stock." ER20. Plantff's theory would subvert the purpose of Secton 16(b), transformng t from a "flat rule," Portnox, 667 F.2d at 1284, to an amorphous 10 Se ee Romeo & Dye, _ 2.03[d][] at 171 ("Not every agreement relatng to an ssuer's securtes necessarly reflects a common objectve... By the same token, not every agreement among securty holders has as ts objectve the acquston, dsposton, holdng, or votng of ssuer securtes.") (footnote omtted)

41 statute of undefned scope. Although plantff focuses here on a purported llct agreement, hs theory would apply equally f'hhe alleged agreement were entrely above-board. Non-nsders wth small holdngs of an ssuer's securtes--who are not covered by the plan language of Secton 16(b)---retroactvely could be deemed covered f they engaged n busness transactons wth the ssuer and communcated wth an offcer or other nsder wth substantal stock holdngs. Plantff's theory-- that such transactons permt an nference that the partes agreed to "act together for the purpose of" acqurng, holdng or sellng the ssuer's stock--would create grave uncertanty about the persons covered by Secton 16(b) and subject an array of non-nsders to ts strct lablty provsons. Such an applcaton would be entrely at odds wth Secton 16(b)'s objectve of establshng a brght lne rule that provdes clear notce to those subject to ts strctures. _ Further, plantff's expansve nterpretaton of Secton 16(b) s an attempted end-run around the bar on prvate securtes actons aganst thrd partes for allegedly adng and abettng securtes fraud. See Stonerdge nv. Partners, LLC v. Scentfc-Atlanta, nc., 128 S. Ct. 761 (2008) (no prvate rght of acton l mposng Secton 16(b) lablty under these crcumstances also would dscourage busness partners from acceptng stock as a form of payment fxom precsely those companes that most need to use t--new start-up companes whose stock s most lkely to be concentrated n the hands of one or a few offcers. f these companes cannot use ther stock as currency, ther ablty to prosper, or even survve, may be mperled

42 under Secton 10(b) aganst thrd partes for provdng assstance to securtes ssuer n connecton wth alleged fraudulent scheme); Central Bank, N.A.v. Frst l l l. l l nterstate Bank, N.A., 511 U.S. 164 (1994) (no prvate rght of acton under Secton 10(b) for adng and abettng securtes fraud). nterpretng Secton 16(b) as plantff seeks would create an excepton to that bar n cases where the alleged ader and abettor (1) was a shareholder and (2) allegedly aded and abetted an nsder wth substantal stock holdngs. t makes no sense that Congress would have ntended that adng and abettng lablty exst only under those crcumstances. The more sensble understandng s that Congress dd not ntend to create a prvate cause of acton for adng and abettng fraud under any crcumstances--whether under Secton 10(b), Secton 16Co), or otherwse. Stated dfferently, Secton 16(b) apples to agreements to act together wth a statutory nsder to acqure, hold, vote or dspose of stock, not to alleged agreements to manpulate accountng by persons who mght beneft ndvdually from an nflated stock prce. The dstrct court correctly concluded that the cases cted by plantff "do not support Mr. Drelng's theory of lablty." ER19. ndeed, plantffhas

43 abandoned hs relance on the three cases he cted to the dstrct court as most analogous to ths case. ER The cases that plantff does cte n hs bref demonstrate that hs allegatons do not support hs Secton 16(b) clam. For example, plantff reles on Morales v. Ountd Entertanment, nc., 249 F.3d 115 (2d Cr. 2001) (Br.35-37). But there, three ndvduals who collectvely owned 100% of a closely-held corporatonenteredntoan agreement under whch they allrecevedsharesn anothercorporaton(quntel).followng thattransacton, thethreendvduals fleda Schedule 13D wth the SEC nwhch theydentfedthemselvesas a group wth respec to Quntelstock.d_.. at 120. One alsofledaddtonalforms wth the SEC nwhch he dentfed hmselfas a member era Secton13(d)group. d_._= The courtconcluded that,because,nterala,()thethreendvdualswere the only shareholdersntheclosely-heldcorporaton;(2)theyagreed nwrtngto certan lock-upprovsonswth respecttotherountelstock;(3)they "posed a possble threa to corporatecontrol,"d_...:, 127;(4)they depostedtherquntelholdngsn dentcal trusts wth the same trusteeon the same day; (5) ther holdngs were all redeemed on thesame day; and (6)theyjontlyfleda sngleschedule 13(d), summary judgment forone of thedefendantswas unwarranted. Here, none ofthe J2 n the event plantff attempts to rely on these cases n hs reply bref, they are napposte for the reasons dentfed by the dstrct court. ER

44 factors s present that created a genune ssue of materal fact n Oumtel, and the undsputed facts demonstrate the absence of the type of evdence necessary to create a trable ssue of fact concernng an alleged AOL/Jan "group." Plantff also places heavy relance on Roth v. Jennngs, 489 F.3d 499 (2d Cr. 2007) (Br.17, 18, 19, 26). There, the court reversed the dsmssal of a Secton 16(b) clam that alleged that a prvately-owned company and the former Charman and CEO of a publc corporaton acted as a group n attemptng to effect a change n control of the corporaton. The prvately-held company acqured almost 15% of the corporaton's stock and announced ts ntenton to seek a change n control. d =at The former Charman and CEO purchased 8% of the corporaton's stock wth a $10 mllon unsecured loan from the prvately-held company at a below-market rate. d. at The complant alleged that the loan was made as part of an agreement between the prvate company and former Charman and CEO to effect a change n corporate control. d =at 511. Under those crcumstances--none of whch s present here---the court found the complant suffcent to state a Secton 16(b) clam. Plantff ctes Morales v. New Valley Corp., 999 F. Supp. 470 (S.D.N.Y. 1998), for the proposton that members of a group need not "march n lockstep." Br.31. But n New Valley, the court found a group where the shareholders n queston entered nto a wrtten agreement that requred them "to

45 . l ether hold the stock themselves, or offer t to defendants." 999 F. Supp. at 475. Under the agreement, "[t]he shares would be retaned by the group f defendants so desred." d_.._:. Moreover, the agreement requred the shareholders to "share profts from the apprecaton of the B Preferred" stock. d. Thus, t was clear n New Valley that the defendants entered nto an agreement for the purpose of holdng and dsposng of stock. None of the crcumstances that supported a fndng of a group n New Valley s present n ths case. Plantff also reles on Strauss ex rel. Serveo, nc. v. Amercan Holdngs, 902 F. Supp. 475 (S.D.N.Y. 1995) (Br.31). But there, the court dened a moton to dsmss a complant that alleged that two enttes controlled by a sngle ndvdual acted as a group wth respect to shares of a thrd company. The complant "permt[ted] the nference that the same ndvdual was responsble for the tradng actvtes" of the two enttes. d_._._. at 480. Here, the undsputed evdence s to the contrary: Mr. Jan and AOL made ther decsons wth respect to transactons n nfospace stock entrely ndependently of one another. Se. ge suora pp n Jewelcor, nc. v. Pearlman, 397 F. Supp. 221 (S.D.N.Y. 1975) (Br.31), the court found suffcent evdence to support a Secton 13(d) clam where several ndvduals and enttes formulated a plan to prevent a change n corporate control. d :. at Here, there s no such evdence. n Warner

46 Communcatons, nc. v. Murdoeh, 581 F. Supp (D. Del. 1984) (Br.31), the court dened a moton to dsmss where the plantff alleged that several drectors and a thrd party entered nto a Secton 13(d) agreement, whch expressly governed the acquston and dsposton of the ssuer's stock, for the sole purpose of entrenchng the drectors n offce. d :. at There s no such evdence here. Put smply, plantff's accusatons, and the cases on whch he reles, do not support a Secton 16(b) clam. Absent evdence that AOL and Mr. Jan acted as benefcal owners of one another's nfospace stock, plantff's Secton 16(b) clam fals as a matter of law.. TlE DSTRCT COURT CORRECTLY HELD THAT THERE WAS NO EVDENCE SUPPORTNG T-E EXSTENCE OF A SECTON 16(b) GROUE For purposes of AOL's summary judgment moton, the dstrct court ndulged plantff's clam that AOL asssted Mr. Jan n mproper accountng desgned to nflate nfospace's stock prce. ER16. But the court properly granted 1 summary judgment because the evdence adduced by plantff dd not create any genune ssue of fact to support hs clam of an AOL/Jan "group." d. "[T]he mere exstence of some alleged factual dspute between the partes wll not defeat an otherwse properly supported moton for summary judgment; the requrement s that there be no genune ssue of materal fact." Anderson v. Lberty Lobby, nc., 477 U.S. 242, (1986) (emphass n

47 orgnal). "Only dsputes [about] facts that mght affect the outcome of the sut under the governng law wll properly preclude the entry of summary judgment. Factual dsputes that are rrelevant or unnecessary wll not be counted." d =. at 248. Here, the evdence proffered by plantff related to Mr. Jan's alleged nvolvement, wth AOL's assstance, n purported accountng mpropretes. But t dd nothng to establsh any benefcal ownershp by AOL of Mr. Jan's nfospace stock (or vce versa). The dstrct court properly concluded that plantff faled to present any evdence that AOL and Mr. Jan "agree[d] to act together for the t purpose of acqurng, holdng, votng or dsposng of" nfospace securtes. ER21. A. The Dstrct Court Properly Granted Summary Judgment on Plantff's "Acqure" Theory. The dstrct court properly determned that there was no genune ssue for tral wth respect to plantff's contenton that AOL and Mr. Jan acted together n 1998 to enable AOL to acqure shares of nfospace stock. 1. The Complant Does Not Allege Any "Acqure" Theory. As an ntal matter, AOL was enttled to summary judgment on the "acqure" theory because t s not alleged n the Complant. The Complant made no allegaton that AOL entered nto a group wth Mr. Jan for the purpose of allowng AOL to acqure nfospace stock. Rather, t alleged that AOL and Mr. Jan sought "(1) to secretly nfluence the corporate affars of nfospace by creatng artfcal revenues and earnngs; (2) to hold ther -38-

48 shares durng the creaton of artfcal revenues and earnngs; and (3) to then sell ther shares to unsuspectng nvestors at prces artfcally nflated as a result of ther concerted efforts." ER12. Plantff also made no menton of any "acqure" theory n three sets of nterrogatory responses. SER146-60; SER ; SER The frst tme plantffpresented a theory that AOL and Mr. Jan formed a group to allow AOL to acqure nfospace securtes was n plantff's opposton to AOUs summary judgment moton. SER But "[a] party cannot create a genune ssue of materal fact to survve summary judgment by contradctng hs ea'ler verson of the facts." Block v. Cty of L.A., 253 F.3d 410, 419 n.2 (9th Cr. 2001) (ctng Radobenko v. Automated Equp. Corp., 520 F.2d 540, 544 (9th Cr. 1975)); see Hubbard v. 7-Eleven, nc., 433 F. Supp. 2d 1134, 1144 (S.D. Cal. 2006) (refusng to consder allegatons made for frst tme n opposton to summary judgment that contradcted dscovery responses). The Court should affrm the grant of summary judgment on plantff's new "acqure" theory because t was not part of hs Secton 16 clam. 2. Alleged Accountng Manpulaton s nsuffcent To State a *Secton 16(b) Clam. Even f the Court were to reach the "acqure" theory, t should afflrm the dstrct court because plantff's theory does not state a cognzable clam under Secton 16. Plantff's "acqure" theory s premsed on hs contenton that AOL

49 l asssted Mr. Jan wth accountng mpropretes. That allegaton s nsuffcent to rase a genune ssue for tral on a Secton 6(b) clam. Se ee suora Sectons There Was No Agreement Between AOL and Mr. Jan To Acqure nfospaee Stock. Plantff's "acqure" theory also fals as a matter of law because AOL acqured the fght to earn warrants n nfospace stock pursuant to agreements wth nfospace, not wth Mr. Jan. The Whte Pages Agreement and Warrant Agreement between AOL and nfospace establshed the terms under whch AOL could earn warrants from nfospace. As a matter of law, an agreement between AOL and nfospace cannot establsh a "group" under Secton 13(d). See Murdoch, 581 F. Supp. at 1500 ("t strans the constructon of 13(d) to argue that an ssuer can be part ofa 13(d)(3) group formed for the purpose of holdng or acqurng ts own stock."); Romeo & Dye, suora, 2.03[c][] at 1162 ("[A]n ssuer cannot be a member of a Secton 13(d) group relatng to ts own stock."). Plantff's theory that Mr. Jan entered nto a Secton 13(d) group wth AOL by takng actons that caused nfospace to enter nto the Whte Pages Agreement wth AOL s bereft of legal support. There s no case holdng that an ndvdual becomes a member of a Secton 13(d) group merely by facltatng a busness agreement between the ssuer and another company that ncludes a warrant grant. Under plantff's theory, any tme an ssuer enters nto an agreement wth another company whereby the company s pad n whole or n part n the

50 l l l ssuer's stock, and the ssuer conducts negotatons through an offcer who owns ten percent or more of the company's stock, a "group" s created, subjectng the second company to strct lablty under Secton 16Co). Plantff's unprecedented theory would stretch Sectons 16Co) and 13(d) beyond recognton. Secton 13(d) requres that group members act together wth respect to the acquston of stock, such that each s properly consdered the benefcal owner of the other's shares. Plantff's asserton that Mr. Jan's enlstment of AOL to assst hm n engagng n accountng mpropretes was a "but-for cause" of AOL's entry nto the Whte Pages Agreement wth nfospace, pursuant to whch AOL could earn warrants from nfospace, smply does not equate to the formaton of a Secton 13(d) group. 4. There Was No Secton 16(b) Group for Multple Addtonal Reasons. Even f the Whte Pages Agreement were an agreement between AOL and Mr. Jan (whch t was not), plantff's "acqure" theory fals as a matter of law for multple addtonal reasons, any one of whch s fatal to plantff's clam. Frs_.. t, plantff's theory s based on alleged conduct that took place n the summer of 1998, durng the negotaton of the Whte Pages Agreement. That conduct earmot establsh the formaton of a group subject to Secton 16(b) because nfospace dd not regster ts stock under Secton 12 of the Exchange Act untl December Se ee SER

51 l l The dstrct court correctly concluded that "Secton 16Co) apples only to persons who are the benefcal owners ofmo'e than ten percent of any class of equtes regstered pursuant to secton 12 of the Act." ER18 (emphass n orgnal), ta Plantff's attempt to argue otherwse (Br.39-40) smply gnores SEC regulatons that make clear that Secton 16 s lmted to benefcal owners of more than ten percent of a class of equty securtes regstered pursuant to Secton 12 of the Exchange Act: Any person who s the benefcal owner, drectly or ndrectly, of more than ten percent of any class of equty securtes ("ten percent benefcal owner") regstered pursuant to secton 12 of the Act (15 U.S.C. 78/)... shall be subject to the provsons of secton 16 of the Act. 17 C.F.R a-2 (emphass added). Smlarly, 17 C.F.R b-6 (2007) provdes that [a] class of securtes wth respect to whch a regstraton statement has been fled pursuant to secton 12 of the act shall be deemed to be regstered for the purposes of sectons 13, 14, 15(d) and 16 of the act and the rules and regulatons thereunder only when such statement has become effectve as provded n secton 12, and securtes 13 Contrary to plantff's contenton, the dstrct court dd not "mproperly restrct[] evdence of group coordnaton to events that occurred after nfospace regstered ts shares." Br.28. ndeed, the court expressly consdered plantff's allegatons concernng AOL's purported nvolvement n accountng manpulaton n ER17-18; see also ER 4-9. The court observed, correctly, that Secton 16(b) apples only to certan owners of regstered securtes and that any agreement entered nto before nfospace regstered ts stock could not form a "group" subject to Secton 16(b)

52 l l d. = (emphass of sad class shall not be subject to sectons 13, 14 and 16 of the act untl such statement has become effectve as provded n secton 12. added). "Unless a class of equty securty s regstered under Secton 12 of the 1934 Act, ownershp of more than ten percent of the class cannot subject the owner to Secton 16." Romeo & Dye, _ 2.03[4] at 116 (footnote omtted). Thus, under the plan language of the SEC regulatons, Secton 16(b) dd not apply to Mr. Jan'snfoSpace securtes untlnfospace'sdecember became effectve.accordngly,aol ntoa Secton16(b)group wth Mr. JannAugust 1998._4 becauseaol 1998 regstraton statement couldnot,as a matterof law,have entered Second,AOL couldnot have enteredntoany "group" n 1998 dd not own any nfospace stockprortofebruary A person or enttycannot enterntoa "group" wth respecttothe stockof an ssuerunder Secton16 unlessthatperson or enttyowns stocknthessuerprorto enterng ntothe group. nrosenberg v.xm Ventures,274 F.3d 137 (3d Cr.2001),a case plantff gnores,thethrd Crcutaddressedtheprecsequestonof "whether benefcalownershp of a subjcctssuer'sequtysecurtes sa necessaryelement 14 Plantff's hypothetcal (Br. 40) assumes that persons engage n coordnated stock purchases followng the regstraton of shares. Here, there s no evdence of coordnated stock purchases by AOL and Mr. Jan followng the regstraton of nfospace stock

53 l l of group membershp wthn the meanng of secton 13(d)(3) of the Securtes and Exchange Act of 1934." d..._= at 140. The court answered n the affrmatve, d =, holdng that "membershp n a secton 13(d) group s contngent upon each member of the group holdng benefcal ownershp of the securtes of the ssuer n queston." d.. at 147. The court affrmed the dsmssal of a Secton 16Co) clam "precsely because [the defendant] dd not have benefcal ownershp of any [of the ssuer's] shares pror to the formaton of the secton 13(d) group." d. ; see also Romeo & Dye, suora, 2.03[c][v] at ("[A] person who does not benefcally own any ssuer securtes cannot be a member of a Secton 13(d) group, even f the person agrees to act together wth members of a Secton 13(d) group n furtherance of the acquston, dsposton, holdng, or votng of ssuer securtes."). 15 Here, t s undsputed that AOL dd not own any shares of nfospace stock pror to February 1, Accordngly, plantff's clam that AOL entered nto a "group" n August 1998 fals as a matter of law. Thrd, there s no case fndng a group under ether Secton 16(b) or 13(d) based solely on events that occurred before the ssuer's securtes were _5 Plantff ctes no case n support of hs ad hoc nterpretaton of the Exchange Act, Br ,

54 l l regstered and before an alleged group member owned any securtes n the ssuer. '6 Because, as a matter of law, no group could have exsted pror to February 1, 1999, plantff must adduce evdence of alleged group actvty durng the operatve post- February 1, 1999 tmeframe. Plantffproffered no evdence that Mr. Jan acted together wth AOL to acqure nfospace shares durng the post-february 1, 1999 perod. There s no evdence that Mr. Jan acted together wth AOL ether wth respect to AOL's recept of warrants under the Whte Pages Agreement or wth respect to AOL's exercse of those warrants. AOL's recept of warrants under the Agreement was contngent on the AOL Whte Pages achevng 25 mllon searches n a partcular quarter. ER Thus, whether or not AOL receved warrants depended on the actons of AOL users. Plantff ctes no case holdng that two partes act together to acqure stock under Secton 16(b) or 13(d) where one party's ablty to acqure stock s contngent on events beyond the partes' control. _6 n _ the securtes were regstered and the court reled n part on events that took place after the alleged group members acqured securtes n the ssuer n denyng a moton to dsmss. 489 F.3d at 512. n Oumtel, the securtes were regstered and the court reled on events that took place after the alleged group members owned stock n the ssuer. 249 F.3d at 127. The ssues presented here-- whether a Secton 16 group may be formed pror to regstraton of the securtes of the ssuer and whether an ndvdual or entty must be an owner of the ssuer's stock before t may become a member of a Secton 16(b) group--were not rased n ether Roth or Ountel

55 l Nor s there any evdence that Mr. Jan and AOL acted together wth respect to AOUs exercse of nfospace wan'ants. The undsputed record demonstrates that AOL employee Ron Peele approved and supervsed AOUs exercse of warrants for nfospace stock n 2000, wth no nput from Mr. Jan. SER Fourth, the AOL stock transactons for whch plantff seeks dsgorgement took place between November 1999 and May Plantffmust show that AOL was a more than 10% owner of nfospace stock by vrtue of ts purported "group" membershp "both at the tme of the purchase and sale, or the sale and purchase of the securty." 15 U.S.C. 78p(b) (2000). Plantff's contenton that AOL was a member of a "group" wth Mr. Jan durng the November 1999 to May 2000 tme frame based on alleged conduct n August some 15 to 20 months earler--s mertless. Roth, 489 E3d 499 (Br.42-43), does not support plantff's clam that AOUs alleged conduct n August 1998 can show the purported exstence of an AOL/Jan "group" months later. n Roth, the short-swng sales at ssue took place wthn a few months of the events on whch the court reled n denyng a moton to dsmss. 489 E3d at Nor does Ountel (Br.44) support plantff. There, the court expressly looked to, and reled on, events surroundng the shortswng trades at ssue to determne whether the defendant could be deemed a

56 member of a group at the tme of the transactons. 249 E 3d at Plantff's clam that alleged events n md-1998 can demonstrate the exstence of a "group" 15 to 20 months later s ncorrect. Plantff also reles on Roth to argue that he must demonstrate only the exstence of an AOL-Jan group at one moment n tme n order to subject AOL to dsgorgement under Secton 16Co) for sales that occurred years later. Br n effect, plantff contends that, once a party s deemed an "nsder" by vrtue of hs membershp n a group, he wll contnue to be an nsder nto perpetuty (as long as each member contnues to own shares), even f the group members termnate ther agreement. That argument s contrary to both the express language of the statute and Supreme Court precedent. To be subject to Secton 16C0), the ssuer must demonstrate that the defendant was an "nsder" at the tme of both the purchase and the sale that t clams ran afoul of the statute. See 15 U.S.C. 78pCo) ("Ths subsecton shall not be construed to cover any transacton where such benefcal owner was not such both at the tme of the purchase and sale, or the sale and purchase, of the securty."); Relance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418, 423 (1972) ("Among the objectve standards contaned n 16Co) s the requrement that a 10% owner be such both at the tme of the purchase and sale.., of the securty nvolved." (alteraton n orgnal) (nternal quotatons omtted)). To the extent that

57 Roth could be nterpreted as contradctng ths clear precedent, t s ncorrect. See, Romeo & Dye, _ ][g] at 183 ("a former group member who s not otherwse an nsder s not requred to report under Secton 16(a) any transactons that occur after termnaton of the group, and should not be lable for short-swng profts based on any trade that occurs atter the group ceases to exst"); _, 249 F.3d at 126 (the "plan language of 16(b)" confrms that a member of a Secton 13(d) group s not lable under Secton 16Co) unless the alleged group exsted at the tme of both the purchase and the sale). Even f a member of a group remaned a member forever, however, that prncple has no applcaton here, because plantff alleges that the purported group was formed n August a tme when, as a matter of law, no Secton 16(b) group could have exsted. Plantff cannot use Roth to bootstrap the contnued exstence of a purported group that, as a matter of law, never was formed n the frst place. Ffth, plantff's "acqure" theory fals as a matter of law because t rests on a demonstrably false premse: that nfospace mproperly accounted for the warrants granted to AOL because the penalty provson n the Whte Pages Agreement was "llusory." Br As dscussed suvra pp , the undsputed facts conclusvely refute that clam. Because plantff's clam rests on alleged facts

58 that smply are wrong, there s no genune ssue of fact wth respect to plantff's "acqure" clam. B. The Dstrct Court Properly Granted Summary Judgment on Plantff's "Hold" and "Sell" Theores. The dstrct court also properly granted summary judgment for AOL on plantff's theory that AOL acted together wth Mr. Jan to hold and sell nfospace stock. 1. Alleged Accountng Manpulaton s nsuffcent To State a Secton 16(b) Clam. Plantff clams that AOL and Mr. Jan acted together to hold and sell nfospace stock because AOL allegedly asssted Mr. Jan to manpulate nfospaee's accountng n an attempt to ncrease the prce oflnfospace stock. That contenton fals as a matter of law to state a Secton 16(b) clam for the reasons set forth n Sectons -U, suora. 2. There Was No Evdence of the Exstence of a Group Durng the Relevant Tme Frame. The only event plantff can pont to durng the operatve February 1999 to May 2000 '7 tme frame as purported evdence of a "group" to hold or sell nfospace stock s AOUs agreement to enter nto Amendment 1 n early The fnal alleged short-swng transacton took place n May Br.45; SER

59 Br _8 For numerous reasons, Amendment 1 cannot, as a matter of law, establsh an AOL/Jan "group." Amendment 1 was, by ts terms, an agreement between "the Partes" to the Whte Pages Agreement--AOL and nfospacv----to modfy ther oblgatons under that Agreement. SER328. t was not an agreement between AOL and Mr. Jan. For that reason alone, Amendment 1 cannot establsh an AOL/Jan "group." Se..._e suvra p. 40. Plantff fals to cte a sngle ease n whch a busness agreement between two corporatons was held to consttute a Secton 16Co) group between one corporaton and the CEO of the other. Whle plantff may argue that Mr. Jan dd not dsclose the date of Amendment 1 to nfospace's audtors, Br.24, or that Amendment 1 was not economcally benefcal to AOL, Br.24-25, such arguments do not change the fact that Amendment s AOL's agreement wth nfospace, not Mr. Jan. "Dsputes over rrelevant or unnecessary facts wll not preclude a grant of summary judgment." T.W. Elee. Sere., nc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cr. 1987). Secon. dd, Amendment 1 had nothng to do wth "holdng" or "dsposng of" nfospaee stock. By ts terms, Amendment 1 elmnated certan of the partes' oblgatons under the Whte Pages Agreement to share revenue wth one another. s Plantff ctes a few nternal AOL communcatons from Sprng 2001, Br.22-23, nearly a year after the relevant tmeframe. These e-mals were never sent to Mr. Jan and they dscuss nfospace, not Mr. Jan. ER796; ER794; ER

60 SER328. t bears no resemblance to the type of_tock-related agreements that courts have found relevant n judgng "group" formaton. Thrd, t s undsputed that numerous nfospace employees partcpated n Amendment 1. See suora p. 18; SER329-32; SER ndeed, Kurt Langkow, nfospace's Assstant General Counsel, drafted Amendment 1. SER358. Plantffeompletely gnores these facts, and for good reason--they devastate hs clam that Amendment 1 represented a secret agreement reached as part of a conspracy between AOL and Mr. Jan. 3. There Was No Coordnaton Between AOL and Mr. Jan Concernng Transactons n nfospace Stock. The record also contans unrebutted evdence that dscredts plantff's clam that AOL and Mr. Jan "acted together for the purpose of holdng or dsposng of equty securtes of" nfospace. Not only s there no evdence of any coordnaton between AOL and Mr. Jan wth regard to ther transactons n nfospace stock, but also the undsputed record demonstrates that AOL's tradng decsons, ncludng ts four cashless collars, were made ndependently of Mr. Jan. Plantff attempts to characterze AOL's and Mr. Jan's stock transactons as two "clusters," Br.25, of coordnated actvty. But, as the dstrct court noted (and plantff gnores), Mr. Jan sold a substantal number of hs shares of nfospace stock n vrtually the same number that he sold n and -51 -

61 B agan sold shares n 2003, both years n whch AOL engaged n no transactons n nfospace stock. ER10; SER187. Further, plantff glosses over the fact that AOL sold lffospace stock only once---on March 15, 2000, more than a month before or arer any of Mr. Jan's sales. d_..=plantff's characterzaton of AOL's entry nto cashless collars as "sales" of ts nfospace holdngs, Br.26; Br.51, gnores the realty of the transactons. The collars were not sales, but rather hedgng nstruments under whch AOL contracted away ts opportunty to proft from a substantal ncrease n the prce of nfospace stock n exchange for assurance that t would avod a substantal decrease. SER233. Contrary to plantff's asserton, Br.10, AOL dd not "dspose of shares" by enterng nto the collars. The undsputed record reflects that AOL entered nto the collars not because of any agreement wth Mr. Jan, but because t wanted to protect tself from the volatlty of nfospacc's stock. SER191 10; SER AOUs entry nto cashless collars that lmted AOL's ablty to proft from ncreases n nfospace's share prce s fundamentally at odds wth plantff's theory that AOL sought to proft from artfcally nflatng nfospace's stock prce. SER talsodemonstratesa dvergencebetween AOUs and Mr. Jan's nvestmentstrateges, as Mr. Jannever enteredntoa cashlesscollar

62 Plantff offers no counter to the declaratons of Messrs. Peele and Leader who were responsble for all of AOL's decsons regardng ts nfospace stock--whch conclusvely establsh the absence of concerted actvty between AOL and Mr. Jan n AOL's tradng decsons. SER Because plantff cannot refute these facts, he resorts to one of hs tred tactcs: dscussng what he does not have to prove. Plantff argues that he does not have to show that AOL and Jan "march[ed] n lockstep" n order to prove the exstence of a group. Br.31. But the eases upon whch plantff reles stand for a dfferent proposton: f plantffhad compellng evdence that an AOL/Jan group exsted, then a lack of evdence of coordnated stock actvty would not preclude hs clam._9 Plantff s not so stuated here. He offers no evdence of the exstence of an AOL/Jan group. Under these crcumstances, AOL's and Mr. Jan's uncoordnated tradng actvty confrms that there was no group. See, e.g., Ltzler v. CC nvs., L.D.C., 411 F. Supp. 2d 411,415 (S.D.N.Y. 2006) (no group exsted 19 See New Valley, 999 F. Supp. at 475 (agreement wth explct provsons concernng holdng and dsposng of stock "compel[led] the concluson that [the partes] became a group under 13(d)"; that partes "mght not always make dentcal nvestment decsons cannot mask the fact that the Agreement consttuted an explct agreement 'for the purpose of... holdng [and] dsposng of'" stock) (alteratons n orgnal) (quotng 15 U.S.C. 78m(d)(3))); _ 249 F.3d at 127 (where group members agreed to contract governng holdng and dsposng of stock, and evdence showed coordnaton of transactons, that certan trades were not coordnated "alone wll not defeat a clam where the trades are relatvely small n proporton to the party's holdngs and do not planly frustrate the purported purposes of the agreement")

63 where alleged group members "made ther [tradng] decsons separately, based on ther own, separate nvestment consderatons"; "Each of the three nvestors made ther own decsons when and how to convert ther preferred shares to common stock, and sell those shares, at dfferent market prces, at dfferent tmes, and under dfferent condtons.'9; Standard Metals Corp. v. Tomln, 503 F. Supp. 586, 603 (S.D.N.Y. 1980) ("dfferent, and at tmes nconsstent, tradng patterns of [defendants] cast serous doubt upon any contenton" that a Secton 13(d) group was formed). C. Plantff s Not Enttled to an Adverse nference on Hs "Group" Clam. Plantff's contenton that he was enttled to an adverse nference based on Ffth Amendment nvocatons by two former AOL employees, Ere Keller and Davd Colbum, Br.56-58, s erroneous. An adverse nference may be drawn on the bass of a nonparty's Ffth Amendment nvocaton only f certan threshold requrements are satsfed. Frst, an adverse nference may be drawn only where there s ndependent corroboratve evdence of the specfc fact to be proven va the nference. See Doe ex rel. Rud - Glanzer v. Glanzer, 232 F.3d 1258, 1264 (9th Cr. 2000); Cutter & Buck, nc. v. Geness ns. Co., 306 F. Supp. 2d 988, 1005 C_/.D. Wash. 2004), aft'd, 144 F. App'x 600 (9th Cr. 2005); Kontos v. Kontos, 968 F. Supp. 400, 409 (S.D. nd. 1997). Second, the party seekng the adverse nference must demonstrate a

64 relatonshp of loyalty between the nonparty and the party aganst whom the nference s to be mputed. See LButt v. Unted States, 107 F.3d 110, 123 (2d Cr. 1997); Mller v. Plgrm's Prde Corp., 2008 WL , at *9 0V.D. Va. Jan. 16, 2008); n re WorldCom, nc., 377 B.R. 77, 110 (S.D.N.Y. 2007). "[T]he overarchng concern s fundamentally whether the adverse nference s trustworthy under all of the crcumstances and wll advance the search for the truth." LBu_, 107 F.3d at 123. Here, plantff s not enttled to an adverse nference because there s no ndependent corroboraton of the facts he seeks to prove va the nference. "n a cvl proceedng, the court may draw a[] negatve nference from a party's nvocaton of hs Ffth Amendment prvlege n refusng to answer a queston, so long as there s ndependent evdence of the fact to be nferred." Cutter & Buck, 306 F. Supp. 2d at 1005 (emphass added); accord Doe ex rel. Rudy-Glanzer, 232 F.3d at 1266 n.2 (nferences permtted "f the specfc questons pertanng to such nferences are asked, are met wth a Ffth Amendment prvlege response, and are corroborated by other evdence [of] the specfc fact beng questoned."). Plantff ctes to ndependent evdence purportedly supportng hs clam that AOL asssted Mr. Jan n accountng mpropretes. But he offers no ndependent evdence that AOL and Mr. Jan entered nto an agreement "to act together for the purpose of acqurng, holdng, votng, or dsposng of equty securtes of an ssuer."

65 C.ER d-5(b)(1). Absent any such evdence, plantff was not enttled to an adverse nference concernng the alleged exstence of an AOL/Jan "group," and the dstrct court's decson denyng such an nference was correct. The cases cted by plantff, n whch there was ndependent corroboraton of the specfc fact to be nferred, offer no support for plantff's contenton that the dstrct court erred n denyng plantff an adverse nference on hs "group" clam. n Cutter & Buck, the defendant nvoked the FRh Amendment n response to questons about hs ntent to deceve. The court appled an adverse nference because a document provded ndependent evdence of hs "ntent to deceve." 306 F. Supp. 2d at n n re Wnstar Commc'ns, nc., 348 B.R. 234, 282 (Bankr. D. Del. 2005), ndependent documentary evdence corroborated the matters n queston. n Doe ex rel. Rudy-Glanzer, ths Court dscussed a hypothetcal scenaro n whch a defendant asserted the Ffth Amendment n response to the queston whether he had pcked up a gun, observng that evdence of the defendant's fngerprnts on the gun would permt an adverse nference. 232 F.3d at 1266 n.2. The Court cautoned, however, that t would be mproper to auow addtonal adverse nferences to be drawn, such as "that the defendant fred the gun, or that he dsposed of the gun at the crme scene." d =That s precsely what plantff seeks to do here: to draw addtonal nferences regardng the exstence of a purported AOL/Jan "group"--a matter not supported by

66 ndependent corroboraton--based on corroboraton concernng alleged accountng mpropretes, a separate ssue. Plantff also s barred from recevng an adverse nference because he made no attempt to demonstrate that a relatonshp of loyalty exsted between ether Mr. Keller or Mr. Colbum and AOL. Ths s not a case where an employer s hdng behnd the Ffth Amendment assertons of ts former employees. To the contrary, the undsputed record reflects that Mr. Colbum and Mr. Keller asserted ther Ffth Amendment rghts solely for ther own personal reasons and contrary to AOL's repeated requests that they provde testmony n ths lawsut. SER AOL presented both wtnesses wth a narrow set of 22 questons whch addressed plantff's group theory, and offered to lmt ts nqury to those specfc questons. Mr. Colbum and Mr. Keller nevertheless refused to provde substantve answers. d... AOL repeatedly urged that they reconsder, but both wtnesses remaned ntransgent. d.. The wtnesses have exhbted no loyalty to AOL. Absent any showng of loyalty, whch plantff made no attempt to make, no adverse nference may be drawn. D. Mr. Jan's Alleged Desre To Proft from Accountng mpropretes s rrelevant. Fnally, plantff contends that there s an ssue as to whether Mr. Jan "ntended to personally beneft from" hs alleged nvolvement n accountng mpropretes. Br.53. But that does not gve rse to any genune ssue of materal - 57-

67 fact. The pertnent queston for Secton 16(b) lablty s not whether Mr. Jan ntended to beneft personally from hls purpor[_ accountng scheme, but nstead whether he entered nto an agreement wth AOL to act together to acqure, hold, vote or dspose of nfospace shares, such that he may be deemed a benefcal owner ofaol's nfospace shares (and vce versa). See Relance Elec., 404 U.S. at 425 n.4 ("n no case s lablty predcated upon consderatons of ntent, lack of motve, or mproper conduct that are rrelevant n 16(b) suts.") (quotaton marl_s omtted); d. at 425 (crtczng approach to Secton 16(b) that would result n "a judcal search for the wll-o'-the-wsp of an nvestor's 'ntent' n each ltgated case"). 2 For all of the reasons enumerated n Sectons -H(C), suora, there s no genune ssue of fact that Mr. Jan dd not act as a benefcal owner of AOL's nfospace shares, and the dstrct court therefore properly granted summary judgment for AOL. 20 Plantff's relance on Warner and Jewelcor, Br.53-54, s msplaced. Both cases nvolved evdence of the exstence of a Secton 13(d) group that s completely absent here. See supra pp

68 CONCLUSON For the foregong reasons, the judgment of the dstrct court should be affrmed. Respectfully submtted, WLLAMS & CONNOLLY LLP Marce R. Zegler Amanda M. MacDonald 725 Twelfth Street, N.W. Washngton, D.C Telephone: Facsmle: Mchael D. Hunsnger (WSBANo. 7662) THE HUNSNGER LAW FRM 100 South Kng Street, Sute 400 Seattle, WA Telephone: Facsmle: Dated: July 11, 2008 Attorneys for AOL - 59-

69 '; STATEMENT OF RELATED CASES AOL s not aware of any cases related to ffls matter pendng n ths Court. WLLAMS & CONNOLLY LLP R. Hackney We_ann Marce R. Zegler Amanda M. MacDonald 725 Twelfth Street, N.W. Washngton, D.C Telephone: Facsmle: Mchael D. Hunsnger (WSBA No. 7662) THE HUNSNGER LAW FRM 100 South Kng Street, Sute 400 Seattle, WA Telephone: Facsmle: Dated: July 11, 2008 Attorneys for AOL

70 CERTFCATE OF COMPLANCE PURSUANT TO CRCUT RULE 32-1 certfy that pursuant to Fed. R. App. P. 32(a)(7)(C) and Nnth Crcut Rule 32-1, the attached answerng bref s: [] Proportonately spaced, has a typeface of 14 ponts or more and contans 13,959 words. or s [] Monospaced, has 10.5 or fewer characters per nch and contans words or lnes of text. or s [] n conformance wth the type specfcatons set forth at Fed. R. App. P. 32(a)(5) and does not exceed pages. WLLAMS & CONNOLLY LLP Marce Amanda R. Zegler M. MacDonald 725 Twelfth Street, N.W. Washngton, D.C Telephone: Facsmle: Mchael D. Hunsnger (WSBA No. 7662) THE HUNSNGER LAW FRM 100 South Kng Street, Sute 400 Seattle, WA Telephone: Facsmle: Dated: July 11, 2008 Attorneys for AOL -61 -

71 CERTFCATE OF SERVCE m. hereby certfy that am a member of the bar of ths Court, and that on July 11, 2008, caused true and correct copes of the BREF OF DEFENDANT- APPELLEE and assocated SUPPLEMENTALEXCERPTS OF RECORD to be served pursuant to FRAP 25(b), by sendng copes of the same to the followng counsel:, Stephen J. Sdann [x] By Federal Express Rchard E. Spoonemore [x] By Emal Corefonly) Jonathan P. Meer Srann Youtz Meer & Spoonemore SSrann@sylaw.com 719 Second Avenue RSpoonemore@sylaw.com Sute 1100 JMeer@,sylaw.com Seattle, WA Telephone: (206) Fax: (206) Davd M. Smmonds th Drve N.E. Redmond, WA Telephone: (425) Fax: (425) Douglas W. Greene Wlson Sonsn Goodrch & Rosat, PC 701 Ffth Avenue, Sute 5100 Seattle, Washngton Telephone: (206) Fax: (206) [x] By Federal Express [ ] By Emal (bref only) [x] By Federal Express [x] ByEmal (bref only) DGreene@wsgr. corn

72 n addton, on July 11, 2008, caused the orgnal and ft_een copes of the BREF OF DEFENDANT-APPELLEE and fve copes of the accompanyng, SUPPLEMENTALEXCERPTS Overnght) ths day to the Clerk OF RECOR_ of the to Court be f6_0carded addressed by as Federal follows: Express (Prorty Offce of the Clerk, U.S. Court of Appeals, Nnth Crcut 95 Seventh'Street San Francsco, Calforna

73

74 ADDENDUM L ExCept for the followng, all other statutes, regulatons or rules that are relevant to the ssues dscussed n the BREF OF DEFENDANT-APPELLEE are contaned n the Addendum to APPELLA_Cr THOMAS DgEmNO'S OPE_'_O BREF. Pa_e Descrpton A-1 SEC Rule 12b-6, 17 C.F.R b-6 A-2 Secton 12 of the Securtes Exchange Act of 1934, 15 U.S.C. 78t

75 Page 17 C.F.R b-6 SEC Rule 12b-6, 17 C.F.R b-6 Code of Federal Regulatons Currentness Ttle 17. Commodty and Securtes Exchanges Chapter. Securtes and Exchange Commsson Part 240. General Rules and Regulatons, Securtes Exchange Act of 1934 (Refs & Annos) Subpart A. Rules and Regulatons Under the Securtes Exchange Act of 1934 Regulaton 12B: Regstraton and Reportng (Refs & Annos) General -, b-6 When securtes are deemed to be regstered. l A class of securtes wth respect to whch a regstraton statement has been fled pursuant to secton 12 of the act shall be deemed to be regstered for the purposes of sectons 13, 14, 15(d) and 16 of the act and the rules and regulatons thereunder only when such statement has become effectve as provded n secton 12, and securtes of sad class shall not be subject to sectons 13, 14 and 16 of the act untl such statement has become effectve as provded n secton 12. (Authorty: Secs. 3, 14, 16, 48 Stat. 882, 895, 896, sec. 3(d), 78 Stat. 568; 15 U.S.C. 78c, 78 n, 78o, 78 D [30 FR 482, Jan. 14, 1965] SOURCE: Sectons b-1 to b-36 appear at 13 FR 9321, Dec. 31, 1948, unless otherwse noted. 17 C. F. R b-6, 17 CFR b-6 Current through June 19, 2008; 73 FR END Copr Thomson OF DOCUMENT Reuters/West 2008 Thomson Reuters/West. No Clam to Org. US Gov. Works. A-1

76 Page2 15 U.S.C. 781 Secton 12 of the Securtes Exchange Act of 1934, 15 U.S.C. 781 Unted States Code Annotated Currentness Ttle 15. Commerce and Trade Chapter 2B. Securtes Exchanges (Refs & Annos) -, 78/. Regstraton requrements for securtes (a) General requrement of regstraton tshallbe unlawful for any member, broker,or dealerto effectany transactonn any securty(otherthan an exempted securty)on a natonalsecurtesexchange unless a regstratons effectveas to such securtyfor such exchange n accordance wth the provsonsof ths chapter and the rules and regulatons thereunder.the provsonsof thssubsectonshallnot applynrespectof a securty futuresproducttradedon a natonalsecurtes exchange. Co) Procedure for regstraton; nformaton A securty may be regstered on a natonal securtes exchange by the ssuer flng an applcaton wth the exchange (and flng wth the Commsson such duplcate orgnals thereof as the Commsson may requre), whch applcaton shall contan- (1) Such nformaton, n such detal, as to the ssuer and any person drectly or ndrectly controllng or controlled by, or under drect or ndrect common control wth, the ssuer, and any guarantor of the securty as to prncpal or nterest or both, as the Commsson may by rules and regulatons requre, as necessary or approprate n the publc nterest or for the protecton of nvestors, n respect of the followng: (A) the organzaton, fnancal structure, and nature of the busness; (B) the terms, poston, rghts, and prvleges of the dfferent classes of securtes outstandng; (C) the terms on whch ther securtes are to be, and durng the precedng three 2008 Thomson Reuters/West. No Clam to Org. US Gov. Works. A-2

77 Page :3 15 U.S.C. 781 years have been, offered to the publc or otherwse; (D) the drectors, offcers, and underwrters, and each securty holder of record holdng more than 10 per eentum of any class of any equty securty of the ssuer (other than an exempted securty), ther remuneraton and ther nterests n the securtes of, and ther materal contracts wth, the ssuer and any person drectly or ndrectly controllng or controlled by, or under drect or ndrect common control wth, the ssuer; OE) remuneraton to others than drectors and offcers exceedng $20,000 per annum; (F) bonus and proft-sharng arrangements; (G) management and servce contracts; (H) optons exstng or to be created n respect of ther securtes; () materal contracts, not made n the ordnary course of busness, whch are to be executed n whole or n part at or after the flng of the applcaton or whch were made not more than two years before such flng, and every materal patent or contract for a materal patent rght shall be deemed a materal contract; (J) balance sheets for not more than the three precedng fscal years, certfed f requred by the rules and regulatons of the Commsson by a regstered publc accountng frm; (lq) proft and loss statements for not more than the three precedng fscal years, certfed f requred by the rules and regulatons of the Commsson by a regstered publc accountng frm; and 0L) any further fnancal statements whch the Commsson may deem necessary or approprate for the protecton of nvestors. (2) Such copes of artcles of ncorporaton, bylaws, trust ndentures, or C 2008 Thomson Reuters/West. No Clam to Org. US Gov. Works. A-3

78 l 15 U.S.C. 781 Page 4 t a correspondng documents by whatever name known, underwrtng arrangements, and other smlar documents of, and votng trust agreements wth respect to, the ssuer and any person drectly or ndrectly controllng or controlled by, or under drect or ndrect common control wth, the ssuer as the Commsson may requre as necessary or approprate for the proper protecton of nvestors and to nsure far dealng n the securty. (3) Such copes of materal contracts, referred to n paragraph (1)() above, as the Commsson may requre as necessary or approprate for the proper protecton of nvestors and to nsure far dealng n the securty. (c) Addtonal or alternatve nformaton f n the judgment of the Commsson any nformaton requred under subsecton (b) of ths secton s napplcable to any specfed class or classes of ssuers, the Commsson shall requre n leu thereof the submsson of such other nformaton of comparable character as t may deem applcable to such class of ssuers. (d) Effectve date of regstraton; wthdrawal of regstraton f the exchange authortes certfy to the Commsson that the securty has been approved by the exchange for lstng and regstraton, the regstraton shall become effectve thrty days after the recept of such certfcaton by the Commsson or wthn such shorter perod of tme as the Commsson may determne. A securty regstered wth a natonal securtes exchange may be wthdrawn or strcken from lstng and regstraton n accordance wth the rules of the exchange and, upon such terms as the Commsson may deem necessary to mpose for the protecton of nvestors, upon applcaton by the ssuer or the exchange to the Commsson; whereupon the ssuer shall be releved from further complance wth the provsons of ths secton and secton 78m of ths ttle and any rules or regulatons under such sectons as to the securtes so wthdrawn or strcken. An unssued securty may be regstered 'only n accordance wth such rules and regulatons as the Commsson may prescrbe as necessary or approprate n the publc nterest or for the protecton of nvestors. " 2008 Thomson Reuters/West. No Clam to Org. US Gov. Works. A-4

79 l 15 U.S.C. 78l Page 5 (e) Exempton from provsons of seefonfor perod endng notlaterthanjuly 1, 1935 Notwthstandng the foregong provsons of ths secton, the Commsson may by such rules and regulatons as t deems necessary or approprate n the publc nterest or for the protecton of nvestors, permt securtes lsted on any exchange at the tme the regstraton of such exchange as a natonal securtes exchange becomes effectve, to be regstered for a perod endng not later than July 1, 1935, wthout complyng wth the provsons of ths secton. (f) Unlsted tradng prvleges for securty orgnally lsted on another natonal exchange (1)(A) Notwthstandng the precedng subsectons of ths secton, any natonal securtes exchange, n accordance wth the requrements of ths subsecton and the rules hereunder, may extend unlsted tradng prvleges to-- () any securty that s lsted and regstered on a natonal securtes exchange, subject to subparagraph 03); and () any securty that s otherwse regstered pursuant to ths secton, or that would be requred to be so regstered except for the exempton from regstraton provded n subparagraph 03) or (G) of subsecton (g)(2) of ths secton, subject to subparagraph (E) of ths paragraph. 03) A natonal securtes exchange may not extend unlsted tradng prvleges to a securty descrbed n subparagraph (A)() durng such nterval, f any, after the commencement of an ntal publc offerng of such securty, as s or may be requred pursuant to subparagraph (C). (C) Not later than 180 days after October 22, 1994, the Commsson shall prescrbe, by rule or regulaton, the duraton of the nterval referred to n subparagraph (B), f any, as the Commsson determnes to be necessary or approprate for the mantenance of far and orderly markets, the protecton of nvestors and the publc nterest, or otherwse n furtherance of the purposes of ths 2008 Thomson Reuters/West. No Clam to Org. US Gov. Works. A-5

80 Page 6 15 U.S.C. 781 chapter. Untl the earler of the effectve date of such rule or regulaton or 240 days after October 22, 1994, such nterval shall begn at the openng of tradng on the day on whch such securty commences tradng on the natonal securtes exchange wth whch such securty s regstered and end at the concluson of the next day of tradng. 0D) The Commsson may prescrbe, by rule or regulaton such addtonal procedures or requrements for extendng unlsted tradng prvleges to any securty as the Commsson deems necessary or approprate for the mantenance of far and orderly markets, the protecton of nvestors and the publc nterest, or otherwse n furtherance of the purposes of ths chapter. 1, (E) No extenson of unlsted tradng prvleges to securtes descrbed n subparagraph (A)() may occur except pursuant to a rule, regulaton, or order of the Commsson approvng such extenson or extensons. n promulgatng such rule or regulaton or n ssung such order, the Commsson-- () shall fred that such extenson or extensons of unlsted tradng prvleges s consstent wth the mantenance of far and orderly markets, the protecton of nvestors and the publc nterest, and otherwse n furtherance of the purposes of ths chapter; () shall take account of the publc tradng actvty n such securtes, the character of such tradng, the mpact of such extenson on the exstng markets for such securtes, and the desrablty of removng mpedments to and the progress that has been made toward the development of a natonal market system; and () shall not permt a natonal securtes exchange to extend unlsted tradng prvleges to such securtes f any rule of such natonal securtes exchange would unreasonably mpar the ablty of a dealer to solct or effect transactons n such s,ecurtes for ts own account, or would unreasonably restrct competton among dealers n such securtes or between such dealers actng n the capacty of market makers who are specalsts and such dealers who are not specalsts Thomson Reuters/West. No Clam to Org. US Gov. Works. A-6

81 Page 7 l, l l 15 U.S.C. 781 (F) An exchange may contnueto extendunlstedtradngprvlegesn accordance wth thsparagraphonly fthe exchange and the subjectsecurtycontnueto satsfy the requrements for elgblty under ths paragraph, ncludngany rules and regulatonsssued by the Commsson pursuant to thsparagraph, except that unlstedtradngprvlegesmay contnuewth regardto securteswhch had been admtted on such exchange prorto July, 1964, notwthstandngthe falureto satsfysuch rcqurcrnents.f unlsted tradng prvlegesn a securty are dscontnuedpursuantto thssubparagraph,the exchange shallceasetradngnthat securty, unless the exchange and the subject securty thereafter satsfy the requrements of ths paragraph and the rules ssued hereunder. (G) For purposes of ths paragraph-- () a securty s the subject of an ntal publc offerng f-- () the offerng of the subject securty s regstered under the Securtes Act of 1933 [15 U.S.C.A. 77a et seq.]; and () the ssuer of the securty, mmedately pror to flng the regstraton statement wth respect to the offerng, was not subject to the reportng requrements of secton 78m or 78o(d) of ths ttle; and () an ntal publc offerng of such securty commences at the openng of tradng on the day on whch such securty commences tradng on the natonal securtes exchange wth whch such securty s regstered. (2)(A) At any tme wthn 60 days of commencement of tradng on an exchange of a securty pursuant to unlsted tradng prvleges, the Commsson may summarly suspend such unlsted tradng prvleges on the exchange. Such suspenson shall not be revewable under secton 78y of ths ttle and shall not be deemed to be a fnal agency acton for purposes of secton 704 of Ttle 5. Upon such suspenson-- () the exchange shall cease tradng n the securty by the close of busness on the date of such suspenson, or at such tme as the Commsson may prescrbe by rule or order for the mantenance of far and orderly markets, the protecton 2008 Thomson Reuters/West. No Clam to Org. US Gov. Works. A-7

82 Page 8. ) 5 U.S.C. 78/ nvestors and the publc nterest, or otherwse n furtherance of the purposes of ths chapter; and 0) f the exchange seeks to extend unlsted tradng prvleges to the securty, the exchange shall fle an applcaton to renstate ts ablty to do so wth the Commsson pursuant to such procedures as the Commsson may prescrbe by rule or order for the mantenance of far and orderly markets, the protecton of nvestors and the publc nterest, or otherwse n furtherance of the purposes of ths chapter. (13) A suspenson under subparagraph (A) shall reman n effect untl the Commsson, by order, grants approval of an applcaton to renstate, as descrbed n subparagraph (A)(). (C) A suspenson under subparagraph (A) shall not affect the valdty or force of an extenson of unlsted tradng prvleges n effect pror to such suspenson. (D) The Commsson shall not approve an applcaton by a natonal securtes exchange to renstate ts ablty to extend unlsted Wadng prvleges to a securty unless the Commsson fnds, after notce and opportunty for hearng, that the extenson of unlsted tradng prvleges pursuant to such appleaton s consstent wth the mantenance of far and orderly markets, the protecton Of nvestors and the publc nterest, and otherwse n furtherance of the purposes of ths chapter. f the applcaton s made to renstate unlsted tradng prvleges to a securty descrbed n paragraph (1)(A)(), the Commsson-- () shall take account of the publc tradng actvty n such securty, the character of such tradng, the mpact of such extenson on the exstng markets for such a securty, and the desrablty of removng mpedments to and the progress that has been made toward the development of a natonal market system; and () shall:anot grant any such applcaton f any rule of the natonal securtes exehange_ makng applcaton under ths subsecton would unreasonably mpar the ablty of a dealer to solct or effect transactons n such securty for ts own account, or would unreasonably restrct competton among dealers n such 2008 Thomson Reuters/West. No Clam to Org. US Gov. Works. A-8

83 Page 9 15 U.S.C. 781 securty or between such dealers actng n the capacty of marketmakers who are specalsts and such dealers who are not specalsts. (3) Notwthstandng paragraph (2), the Commsson shall by roles and regulatons suspend unlsted tradng prvleges n whole or n part for any or all classes of securtes for a perod not exceedng twelve months, f t deems such suspenson necessary or approprate n the publc nterest or for the protecton of nvestors or to prevent evason of the purposes of ths chapter. (4) On the applcaton of the ssuer of any securty for whch unlsted tradng prvleges on any exchange have been contnued or extended pursuant to ths subsecton, or of any broker or dealer who makes or creates a market for such securty, or of any other person havng a bona fde nterest n the queston of termnaton or suspenson of such unlsted tradng prvleges, or on ts own moton, the Commsson shall by order termnate, or suspend for a perod not exceedng twelve months, such unlsted tradng prvleges for such securty f the Commsson fnds, after approprate notce and opportunty for hearng, that such termnaton or suspenson s necessary or approprate n the publc nterest or for the protecton of nvestors. (5) n any proceedng under ths subsecton n whch approprate notce and opportunty for hearng are requred, notce of not less than ten days to the applcant n such proceedng, to the ssuer of the securty nvolved, to the exchange whch s seekng to contnue or extend or has contnued or extended unlsted tradng prvleges for such securty, and to the exchange, f any, on whch such securty s lsted and regstered, shall be deemed adequate notce, and any broker or dealer who makes or creates a market for such securty, and any other person havng a bona fde nterest n such proceedng, shall upon applcaton be enttled to be heard. (6) Any securty for whch unlsted tradng prvleges are contnued or extended pursuant t6 ths subsecton shall be deemed to be regstered on a natonal securtes exchange vcthn the meanng of ths chapter. The powers and dutes of the ] Commlsslo, n under ths chapter shall be applcable to the rules of an exchange n respect of _my such securty. The Commsson may, by such rules and regulatons 2008 Thomson Reuters/West. No Clam to Org. US Gov. Works. A-9

84 15 U.S.C. 781 Page 10 as t deems necessary or approprate n the publc nterest or for the protecton of nvestors, ether uncondtonally or upon specfed terms and condtons, or for stated perods, exempt such securtes from the operaton of any provson of secton 78m, 78n_ or 78v of ths ttle. (g) Regstraton of securtes by ssuer; exemptons (1) Every ssuer whch s engaged n nterstate commerce, or n a busness affectng nterstate commerce, or whose securtes are traded by use of the mals or any means or nstrumentalty of nterstate commerce shall-- (A) wthn one hundred and twenty days after the last day of ts frst fscal year ended after July 1, 1964, on whch the ssuer has total assets exceedng $1,000,000 and a class of equty securty (other than an exempted securty) held of record by seven hundred and ffty or more persons; and (B) wthn one hundred and twenty days after the last day of ts frst fscal year ended after two years f'om July 1, 1964, on whch the ssuer has total assets exceedng $1,000,000 and a class of equty securty (other than an exempted securty) held of record by fve hundred or more but less than seven hundred and ffty persons, regster such securty by flng wth the Commsson a regstraton statement (and such copes thereof as the Commsson may requre) wth respect to such securty contanng such nformaton and documents as the Commsson may specfy comparable to that whch s requred n an applcaton to regster a securty pursuant to subsecton (b) of ths secton. Each such regstraton statement shall become effectve sxty days after flng wth the Commsson or wthn such shorter perod as the Commsson may drect. Untl such regstraton statement becomes effectve t shall not be deemed fled for the purposes of secton 78r of ths ttle. Any ssuer may regster any class of equty securty not requred to be regstered by flng a regstraton statement pursuant to the provsons of ths paragraph. The Commsson s authorzed to extend the date upon whch any ssuer or class of ssuers s requred to regster a securty pursuant to the provsons of ths paragraph Thomson Reuters/West. No Clam to Org. US Gov. Works. A-O

85 l Page 11 l 15 U.S.C. 781 (2) The provsons of ths subsecton shall not apply n respect of-- (A) any securty lsted and regstered on a natonal securtes exchange. (B) any securty ssued by an nvestment company regstered pursuant to secton 80a-8 of ths ttle. ((2) any securty, other than permanent stock, guaranty stock, permanent reserve stock,or any smlarcertfcate evdencngnonwthdrawablecaptal,ssuedby a savngs and loan assocaton,buldngand loan assocaton,cooperatvebank, homestead assocaton,or smlarnsttuton, whch ssupervsedand examned by Stateor Federalauthortyhavng supervsonover any such nsttuton. 0O) any securty of an ssuer organzed and operated exclusvely for relgous, educatonal, benevolent, fraternal, chartable, or reformatory purposes and not for pecunary proft, and no part of the net earnngs of whch nures to the beneft of any prvate shareholder or' ndvdual; or any securty of a fund that s excluded from the defnton of an nvestment company under secton 80a-3(c)(10)(B) of ths ttle. (E) any securty of an ssuer whch s a "cooperatve assocaton" as defned n the Agrcultural Marketng Act, approved June 15, 1929, as arnended, [_. U.S.C.A et seq.], or a federaton of such cooperatve assocatons, f such federaton possesses no greater powers or purposes than cooperatve assocatons so defned. (F) any securty ssued by a mutual or cooperatve organzaton whch supples a commodty or servce prmarly for the beneft of ts members and operates not for pecunary proft, but only f the securty s part of a class ssuable only to persons who purchase commodtes or servces from the ssuer, the securty s transferable only to a successor n nterest or occupancy of premses servced or to be served by the ssuer, and no dvdends are payable to the holder of the securty Thomson Reuters/West. No Clam to Org. US Gov. Works. A-11

86 l l 15 U.S.C. 781 (G) any securty ssued by an nsurance company f all of the followng condtons are met: Page 12 () Such nsurance company s requred to and does fle an annual statement wth the Commssoner of nsurance (or other offcer or agency performng a smlar functon) of ts domclary State, and such annual statement conforms to that prescrbed by the Natonal Assocaton of nsurance Commssoners or n the determnaton of such State commssoner, offcer or agency substantally conforms to that so prescrbed. () Such nsurance company s subject to regulaton by ts domclary State of proxes, consents, or authorzatons n respect of securtes ssued by such company and such regulaton conforms to that prescrbed by the Natonal Assocaton of nsurance Commssoners. () After July 1, 1966, the purchase and sales of securtes ssued by such nsurance company by benefcal owners, drectors, or offcers of such company are subject to regulaton (ncludng reportng) by ts domclary State substantally n the manner provded n secton 78p of ths ttle. 01) any nterest or partcpaton n any collectve trust funds mantaned by a bank or n a separate account mantaned by an nsurance company whch nterest or partcpaton s ssued n connecton wth () a stock-bonus, penson, or proftsharng plan whch meets the requrements for qualfcaton under secton 401 of Ttle 26, () an annuty plan whch meets the requrements for deducton of the employer's contrbuton under secton 404(a)(2) of Ttle 26, or () a church plan, company, or account that s excluded from the defnton of an nvestment company under secton 80a-3(c)(14) of ths ttle. (3) The Commsson may by rules or regulatons or, on ts own moton, after notce and opportunty for hearng, by order, exempt from ths subsecton any securty of a foregn ssuer, ncludng any certfcate of depost for such a securty, f the Commsson fnds that such exempton s n the publc nterest and s consstent wth the ' protectmn ' " of " nvestors Thomson Reuters/West. No Clam to Org. US Gov. Works. A-12

87 . l 15 U.S.C. 781 Page 13 (4) Regstraton of any class of securty pursuant to ths subsecton shall be termnated nnety days, or such shorter perod as the Commsson may determne, after the ssuer fles a certfcaton wth the Commsson that the number of holders of record of such class of securty s reduced to less than three hundred persons. The Commsson shall after notce and opportunty for hearng deny termnaton of regstraton f t fnds that the certfcaton s untrue. Termnaton of regstraton shall be deferred pendng fnal determnaton on the queston of denal. (5) For the purposes of ths subsecton the term "class" shall nclude all securtes of an ssuer whch are of substantally smlar character and the holders of whch enjoy substantally smlar rghts and prvleges. The Commsson may for the purpose of ths subsecton defne by rules and regulatons the terms "total assets" and "held of record" as t deems necessary or approprate n the publc nterest or for the protecton of nvestors n order to prevent crcumventon of the provsons of ths subsecton. For purposes of ths subsecton, a securty futures product shall not be consdered a class of equty securty of the ssuer of the securtes underlyng the securty futures product. (h) Exempton by rules and regulatons from certan provsons of secton The Commsson may by rules and regulatons, or upon applcaton of an nterested person, by order, after notce and opportunty for hearng, exempt n whole or n part any ssuer or class of ssuers from the provsons of subsecton (g) of ths secton or from secton 78m, _ or 78old) of ths ttle or may exempt from secton 78p of ths ttle any oteer, drector, or benefcal owner of securtes of any ssuer, any securty of whch s requred to be regstered pursuant to subsecton (g) hereof, upon such terms and condtons and for such perod as t deems necessary or approprate, f the Commsson fnds, by reason of We number of publc nvestors, amount of tradng nterest n the securtes, the nature and extent of the actvtes of the ssuer, ncome or assets of the ssuer, or otherwse, that such acton s not nconsstent wth the publc nterest or the protecton of nvestors. The Commsson may, for the purposes of any of the above-mentoned sectons or subsectons of ths chapter, classfy ssuers and prescrbe requrements approprate for each such class Thomson Reuters/West No Clam to Org. US Gov. Works. A-13

88 15 U.S.C. 781 ()Securtesssuedby banks Page 14 n respectof any securtes ssuedby banks and savngsassocatonsthedepostsof whch are nsured n accordance wth the Federal Depost nsurance Act [12 U.S.C.A et seq.], the powers, functons, and dutes vested n the Commsson to admnster and enforce ths secton and sectons 78-1, 78m, 78n(a_, 78n(e), 78n(d), 78n(f), and 78D of ths ttle, and sectons 7241, 7242, 7243, _). 7262, and 7265 of ths ttle, (1) wth respect to natonal banks are vested n the Comptroller of the Currency, (2) wth respect to all other member banks of the Federal Reserve System are vested n the Board of Governors of the Federal Reserve System, (3) wth respect to all other nsured banks are vested n the Federal Depost nsurance Corporaton, and (4) wth respect to savngs assocatons the accounts of whch are nsured by the Federal Depost nsurance Corporaton are vested n the Offce of ThrR Supervson. The Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Depost nsurance.corporaton, and the Offce of Thrft Supervson shall have the power to make such rules and regulatons as may be necessary for the executon of the functons vested n them as provded n ths subsecton. n carryng out ther responsbltes under ths subsecton, the agences named n the frst sentence of ths subsecton shall ssue substantally smlar regulatons to regulatons and rules ssued by the Commsson under ths secton and sectons 78-1, 78m, 78n(a), 78n(c). 78n(d), 78n(f), and 78_ of ths ttle, and sectons 7241, 7242, 7243, 7244, 7261(b), 7262, and 7265 of ths rfle, unless they fred that mplementaton of substantally smlar regulatons wth respect to nsured banks and nsured nsttutons are not necessary or approprate n the publc nterest or for protecton of nvestors, and publsh such fndngs, and the detaled reasons therefor, n the Federal Regster. Such regulatons of the above-named agences, or the reasons for falure to publsh such substantally smlar regulatons to those of the Commsson, shall be publshed n the Federal Regster wthn 120 days of October 28, 1974, and, thereafter, wthn 60 days of any changes made by the Commsson n ts relevant regulatons and rules. (j) Denal, suspenson, or revocaton of regstraton; notce and hearng The Comrasson s authorzed, by order, as t deems necessary or approprate for 2008 Thomson Reuters/West. No Clam to Org. US Gov. Works. A-14