5(&200(1'(' )25 )8//7(;7 38%/,&$7,21  +HQU\)RUG+HDOWK6\VWHPY6KDODOD 1R  3XUVXDQW WR 6L[WK &LUFXLW 5XOH 

(/(&7521,& &,7$7,21  )(' $SS  3 WK &LU

EOHQGHGDPRXQW&RQJUHVVPXVWKDYHNQRZQLWZDVDOWHULQJ )LOH 1DPH D S

WKHWUDGLWLRQDOUXOHRIDJJUHJDWLRQZKHQLWFUHDWHGH[FHSWLRQV IRUVRPHVHUYLFHVEXWQRWIRURWKHUV:KHWKHUFDWHJRUL]HGDV SXQLVKPHQWRUQRWWKHIDFWUHPDLQVWKDW&RQJUHVVDPHQGHG 81,7('67$7(6&28572)$33($/6 WKH0HGLFDUHVWDWXWHLQDQDWWHPSWWRVWRSKRVSLWDOVIURPXVLQJ )257+(6,;7+&,5&8,7 0HGLFDUH IXQGV WR VXEVLGL]H QRQ0HGLFDUH SDWLHQWV  7KH BBBBBBBBBBBBBBBBB 6HFUHWDU\jV UHJXODWLRQV PDQGDWLQJ GLVDJJUHJDWLRQ XQTXHVWLRQDEO\IXUWKHUWKDWLQWHQWDQGZKLOHSHUKDSVQRWWKH NLQGHVWFKRLFHRISROLF\WKH\FHUWDLQO\FRQVWLWXWHDUHDVRQDEOH LQWHUSUHWDWLRQRIWKHVWDWXWH +(15< )25' +($/7+ ; 6<67(0  ,9 3ODLQWLII$SSHOODQW   1R  %HFDXVH WKH VWDWXWRU\ ODQJXDJH LV VXIILFLHQWO\ FOHDU DQG  EHFDXVHWKH6HFUHWDU\jVUHJXODWLRQVDUHQHLWKHUDUELWUDU\QRU Y !  FDSULFLRXVZH$)),50WKHGLVWULFWFRXUWjVGHFLVLRQ  '211$ ( 6+$/$/$  6HFUHWDU\'HSDUWPHQWRI  +HDOWKDQG+XPDQ6HUYLFHV  'HIHQGDQW$SSHOOHH    1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW$QQ$UERU 1RV   n*HRUJH&6WHHK 'LVWULFWsXGJH $UJXHG 2FWREHU 'HFLGHGDQG)LOHG 1RYHPEHU %HIRUH 0$57,1&KLHIsXGJH 1255,6&LUFXLWsXGJH )25(67(5'LVWULFWsXGJH

7KH +RQRUDEOH .DUO 6 )RUHVWHU 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH (DVWHUQ 'LVWULFW RI .HQWXFN\ VLWWLQJ E\ GHVLJQDWLRQ

  +HQU\)RUG+HDOWK6\VWHPY6KDODOD 1R  1R  +HQU\)RUG+HDOWK6\VWHPY6KDODOD 

BBBBBBBBBBBBBBBBB QRWEHXVHGWRVXEVLGL]HQRQ0HGLFDUHEHQHILFLDULHV7DNLQJ WKH VWDWXWH DV D ZKROH ZH FDQQRW VD\ WKDW WKH 6HFUHWDU\jV &2816(/ GHFLVLRQWRDJJUHJDWHVHUYLFHVIRUFRLQVXUDQFHSD\PHQWVDQG GLVDJJUHJDWH VHUYLFHV IRU KRVSLWDO UHLPEXUVHPHQW LV DQ $5*8(' &KULVWRSKHU/&URVVZKLWH'8$1(0255,6 DUELWUDU\ DQG FDSULFLRXV DSSOLFDWLRQ RI WKH YDULRXV +(&.6&+(5:DVKLQJWRQ'&IRU$SSHOODQW$QQH FRQJUHVVLRQDO PDQGDWHV FRQWDLQHG ZLWKLQ WKH 0HGLFDUH 0XUSK\81,7('67$7(6'(3$570(172)s867,&( VWDWXWHSDUWLFXODUO\ZKHQHDFKDSSURDFKIXUWKHUV&RQJUHVVjV &,9,/',9,6,21$33(//$7(67$)):DVKLQJWRQ'& VWDWHGLQWHQWWRDYRLGSD\LQJQRQFRYHUHGLQGLYLGXDOVjKHDOWK IRU $SSHOOHH  21 %5,()   &KULVWRSKHU / &URVVZKLWH FDUHFRVWV sHIIUH\ 3 %ORRP '8$1( 0255,6  +(&.6&+(5 :DVKLQJWRQ'&IRU$SSHOODQW$QQH0XUSK\$QWKRQ\s )XUWKHUPRUH ZH VHH QR LQFRQVLVWHQF\ LQ WKH 6HFUHWDU\jV 6WHLQPH\HU 81,7(' 67$7(6 '(3$570(17 2) DSSOLFDWLRQ RI WKH FDUU\IRUZDUG UXOH  )LUVW WKH 6HFUHWDU\ s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s5&KLHIsXGJH7KLVFDVHFRQFHUQV DUELWUDU\ DQG FDSULFLRXV PDQQHU ZKHQ VKH FKDQJHV KHU WKH DPRXQW RI UHLPEXUVHPHQW WKDW WKH 0HGLFDUH SURJUDP DSSURDFKWRUHLPEXUVHPHQWEHFDXVH&RQJUHVVKDVDPHQGHG VKRXOGSD\+HQU\)RUG+HDOWK6\VWHPVIRURXWSDWLHQWKRVSLWDO WKHUHLPEXUVHPHQWVWDWXWH VHUYLFHVIXUQLVKHGWR0HGLFDUHSDWLHQWVLQ+HQU\)RUGjVILVFDO \HDUVHQGLQJ   DQG +HQU\)RUGFRQWHQGVWKDW )LQDOO\+HQU\)RUGFODLPVWKDWWKH6HFUHWDU\jVUHJXODWLRQV WKH 6HFUHWDU\jV UHJXODWLRQV PDQGDWLQJ GLVDJJUHJDWLRQ RI UHTXLULQJ GLVDJJUHJDWLRQ IRU UHLPEXUVHPHQW FDOFXODWLRQV FHUWDLQ VHUYLFHV IURP DOO RWKHU RXWSDWLHQW VHUYLFHV ZKHQ DPRXQWWRDQDWWHPSWWRSXQLVKKRVSLWDOVZLWKDKLJKUDWLRRI FDOFXODWLQJ UHLPEXUVHPHQW DPRXQWV YLRODWH WKH 0HGLFDUH FRVWVWRFKDUJHVIRUDSDUWLFXODUFDWHJRU\RIVHUYLFHV,Q+HQU\ VWDWXWHDQGFRQJUHVVLRQDOLQWHQW7KHGLVWULFWFRXUWJUDQWHG )RUGjVYLHZ&RQJUHVVRQO\LQWHQGHGWROLPLWUHLPEXUVHPHQW VXPPDU\ MXGJPHQW WR WKH 6HFUHWDU\  )RU WKH IROORZLQJ E\ WKH QHZO\ FUHDWHG EOHQG DPRXQW OLPLWDWLRQ  8QGHU WKH UHDVRQVZH$)),50 6HFUHWDU\jVUHJXODWLRQVKRZHYHUDKRVSLWDOPD\UHFHLYHOHVV UHLPEXUVHPHQWXQGHUGLVDJJUHJDWLRQHYHQLIWKHEOHQGDPRXQW , LVQRWWKHOLPLWLQJIDFWRUGLVDJJUHJDWLRQDORQH DIIHFWVWKH &RQJUHVVHVWDEOLVKHGWKH0HGLFDUHSURJUDPLQ DV7LWOH UHVXOW+HQU\)RUGjVDUJXPHQWIDLOVWRWDNHLQWRDFFRXQWWKDW ;9,,,RIWKH6RFLDO6HFXULW\$FWLQRUGHUWRSURYLGHKRVSLWDO &RQJUHVV WRRN WZR GLVWLQFW VWHSV ZKHQ DOWHULQJ WKH DQGPHGLFDOFRYHUDJHWRPRVWSHUVRQVRYHUVL[W\ILYH\HDUVRI WUDGLWLRQDOO\ DJJUHJDWHG UHLPEXUVHPHQW VFKHPH  )LUVW LW DJHDQGWRFHUWDLQGLVDEOHGSHUVRQV6HH86&† F H[SOLFLWO\WRRNDPEXODWRU\VXUJLFDOUDGLRORJ\DQGGLDJQRVWLF 8QGHUWKH$FWDQHOLJLEOH0HGLFDUHEHQHILFLDU\LVHQWLWOHGWR VHUYLFHV RXW RI WKH JHQHUDO OHVVHU RI FRVWV RU FKDUJHV KDYHSD\PHQWPDGHE\WKH0HGLFDUHSURJUDPRQKLVRUKHU FDOFXODWLRQ6HFRQGLWGLUHFWHGWKDWDFRPSDULVRQEHPDGH EHKDOI IRU FRYHUHG VHUYLFHV IXUQLVKHG E\ VHUYLFH SURYLGHUV EHWZHHQWKHOHVVHURIFRVWVRUFKDUJHVIRUHDFKVHUYLFHDQGWKH  +HQU\)RUG+HDOWK6\VWHPY6KDODOD 1R  1R  +HQU\)RUG+HDOWK6\VWHPY6KDODOD 

UHIXVHGWRFRQVLGHURWKHUDOWHUQDWLYHVSDUWLFXODUO\ZKHUHDV SDUWLFLSDWLQJ LQ WKH 0HGLFDUH SURJUDP  6HH  86& KHUH KHU XOWLPDWH GHFLVLRQ IROORZHG &RQJUHVVjV FOHDUO\ ††  G  O  7KH 0HGLFDUH SURJUDP FRQVLVWV RI WZR H[SUHVVHGLQWHQW SDUWV  3DUW $ FRYHUV LQSDWLHQW KRVSLWDO VHUYLFHV DQG FHUWDLQ RWKHU LQVWLWXWLRQDO VHUYLFHV DQG 3DUW % FRYHUV RXWSDWLHQW +HQU\)RUGDOVRDUJXHVWKDWWKH6HFUHWDU\jVGLVDJJUHJDWLRQ KRVSLWDOVHUYLFHVDQGKHDOWKFDUHSUDFWLWLRQHUVHUYLFHV6HH UHJXODWLRQV DUH DUELWUDU\ DQG FDSULFLRXV EHFDXVH VKH LV 86& ††  F  M UHVSHFWLYHO\  7KH 6HFUHWDU\ KDV LQFRQVLVWHQWLQKHUSUDFWLFHRIDJJUHJDWLRQDQGGLVDJJUHJDWLRQ GHOHJDWHG DGPLQLVWUDWLRQ RI WKH 0HGLFDUH SURJUDP WR WKH +HQU\ )RUG SRLQWV WR WZR LQVWDQFHV ZKHUH WKH 6HFUHWDU\ +HDOWK &DUH )LQDQFLQJ $GPLQLVWUDWLRQ ZKLFK LQ WXUQ KDV DJJUHJDWHV WKH VDPH ILJXUHV WKDW VKH GLVDJJUHJDWHV ZKHQ FRQWUDFWHG ZLWK SULYDWH LQVXUDQFH FRPSDQLHV FDOOHG mILVFDO FDOFXODWLQJUHLPEXUVHPHQWV7KHILUVWDUHDLVFRLQVXUDQFH WKH LQWHUPHGLDULHVlWRKDQGOHFODLPVSURFHVVLQJDQGWRGHWHUPLQH VDPH VWDWXWRU\ VHFWLRQ WKDW VHWV RXW WKH OHVVHU RI FRVWV RU SURSHU SD\PHQWV WR SDUWLFLSDWLQJ SURYLGHUV IRU VHUYLFHV FKDUJHV UXOH SURYLGHV WKDW FRLQVXUDQFH SD\PHQWV PDGH E\ UHQGHUHGWR0HGLFDUHEHQHILFLDULHV6HH86&† K SDWLHQWVPXVWEHGHGXFWHGIURP0HGLFDUHUHLPEXUVHPHQWV 6HH86&† O D  % :KLOHERWKWKLVFRLQVXUDQFH $ GHGXFWLRQDQGWKHOHVVHURIFRVWVRUFKDUJHVFDOFXODWLRQDUH VXEMHFW WR WKH VDPH H[FOXVLRQDU\ ODQJXDJH WKH 6HFUHWDU\ ,Q &RQJUHVVHVWDEOLVKHGWKHOHVVHURIFRVWVRUFKDUJHV DJJUHJDWHV DPEXODWRU\ VXUJLFDO UDGLRORJ\ DQG GLDJQRVWLF UXOHLQRUGHUWRHQVXUHWKDWWKH0HGLFDUHSURJUDPZRXOGQRW VHUYLFHV ZLWK DOO RWKHU RXWSDWLHQW VHUYLFHV IRU FRLQVXUDQFH SD\PRUHIRUVHUYLFHVWKDQWKHSURYLGHUFKDUJHGWRWKHJHQHUDO SD\PHQWSXUSRVHVDQGGLVDJJUHJDWHVWKHPZKHQDSSO\LQJWKH SXEOLF6HH6RFLDO6HFXULW\$PHQGPHQWVRI †3XE OHVVHURIFRVWVRUFKDUJHVUXOH,QWKHVHFRQGDUHDWKHmFDUU\ /  FRGLILHGDVDPHQGHGDW86&†† I E  IRUZDUGlUXOHZKLFKZDVDEDQGRQHGE\WKH6HFUHWDU\LQ   O D  +5(312    UHSULQWHGLQ  DOORZHGKRVSLWDOVWRFDUU\IRUZDUGWKHLUXQUHLPEXUVHGFRVWVWR 86&&$1       7KLV UXOH OLPLWHG 0HGLFDUH WKHQH[WILVFDO\HDUDQGWKH6HFUHWDU\OLPLWHGFDUU\IRUZDUG UHLPEXUVHPHQWIRUDOOVHUYLFHVLQSDWLHQWDQGRXWSDWLHQWWRWKH UHLPEXUVHPHQWWRWKHDJJUHJDWHVXPRIDOORXWSDWLHQWVHUYLFHV OHVVHURIWKHKRVSLWDOjVUHDVRQDEOHFRVWVRIVXFKVHUYLFHVRUWKH LQFOXGLQJDPEXODWRU\VXUJHU\UDGLRORJ\DQGGLDJQRVWLFV KRVSLWDOjVFXVWRPDU\FKDUJHVIRUWKHVHUYLFHV6HH86& ††  I E   O D    7KH 6HFUHWDU\ SURPXOJDWHG $OWKRXJKLQFRQVLVWHQWDSSOLFDWLRQRIDUHJXODWLRQLVRIWHQD UHJXODWLRQV VWDWLQJ WKDW WKH OHVVHU RI FRVWV RU FKDUJHV UXOH KDOOPDUNRIDUELWUDU\RUFDSULFLRXVDJHQF\DFWLRQZHGRQRW ZRXOGEHDSSOLHGWRWKHDPRXQWREWDLQHGIURPDJJUHJDWLQJ ILQGWKDWLQWKLVFRQWH[WWKH6HFUHWDU\jVYDU\LQJDSSURDFKHV ERWK 3DUW $ LQSDWLHQW  DQG 3DUW % RXWSDWLHQW  VHUYLFHVj ZDUUDQW VXFK D GHWHUPLQDWLRQ  ,Q WKH FDVH RI FRLQVXUDQFH UHDVRQDEOH FRVWV DQG FXVWRPDU\ FKDUJHV  6HH  &)5 SD\PHQWVWKH6HFUHWDU\GHIHQGVKHUGHFLVLRQWRDJJUHJDWHRQ †  F      ,Q   &RQJUHVV GLUHFWHG WKH WKHJURXQGVWKDWWKHVWDWXWHUHTXLUHVKHUWRFDOFXODWH0HGLFDUH 6HFUHWDU\WRLVVXHUHJXODWLRQVHOLPLQDWLQJWKHDJJUHJDWLRQRI UHLPEXUVHPHQWVRWKDW0HGLFDUHGRHVQRWVXEVLGL]HKRVSLWDO 3DUW$DQG3DUW%ILJXUHVZKHQDSSO\LQJWKHOHVVHURIFRVWVRU FDUHIRUQRQEHQHILFLDULHV6HH86&† [ Y  $ FKDUJHVUXOHDQGUHTXLULQJWKHDPRXQWWREHFDOFXODWHGDQG SURYLGLQJWKDWUHLPEXUVHPHQWVKRXOGEHFDOFXODWHGVRWKDW UHSRUWHG VHSDUDWHO\ IRU HDFK W\SH RI VHUYLFH  6HH 'HILFLW FRVWV ZLWK UHVSHFW WR QRQFRYHUHG LQGLYLGXDOV ZLOO QRW EH 5HGXFWLRQ$FWRI † D     ERUQHE\0HGLFDUH $OWKRXJKWKH6HFUHWDU\jVDSSURDFKWRWKH VWDWXWHjVODQJXDJHDUJXDEO\GLIIHUVGHSHQGLQJRQZKHWKHUVKH ,Q &RQJUHVVPRGLILHGWKHOHVVHURIFRVWVRUFKDUJHV LVUHLPEXUVLQJKRVSLWDOVRUGHGXFWLQJFRLQVXUDQFHSD\PHQWV SD\PHQW IRUPXOD IRU IDFLOLW\ VHUYLFHV UHODWHG WR RXWSDWLHQW HDFKDSSURDFKUHIOHFWV&RQJUHVVjVLQWHQWWKDW0HGLFDUHIXQGV  +HQU\)RUG+HDOWK6\VWHPY6KDODOD 1R  1R  +HQU\)RUG+HDOWK6\VWHPY6KDODOD

DPEXODWRU\VXUJLFDOFHQWHUSURFHGXUHV6HH2PQLEXV%XGJHW +HQU\)RUGFRQWHQGVWKDWWKHGLVDJJUHJDWLRQPHWKRGFUHDWHV 5HFRQFLOLDWLRQ$FWRI 3XE/1R  †  D  LQFHQWLYHV IRU KRVSLWDOV WR UDLVH WKHLU FKDUJHV LQ RUGHU WR  6WDW   FRGLILHG DV DPHQGHG DW  86& HQVXUHWKHKRVSLWDOjVFRVWVZLOOEHUHLPEXUVHGZKLFKFDXVHV † O L  $ 7KHQHZSD\PHQWIRUPXODUHTXLUHGXVHRI D SURSRUWLRQDO LQFUHDVH LQ WKH FRLQVXUDQFH DPRXQW DmEOHQGlDPRXQWEDVHGRQFDOFXODWLRQVWKDWWDNHLQWRDFFRXQW EHQHILFLDULHVPXVWSD\7KHIDFWWKDWWKH6HFUHWDU\jVGHFLVLRQ WKHW\SLFDOKRVSLWDOUDWHIRUVXFKVHUYLFHVDQGDOVRWKHFKHDSHU PD\KDYHDQLPSDFWRQ0HGLFDUHEHQHILFLDULHVKRZHYHULV UDWHV FKDUJHG E\ QRQKRVSLWDOV LQ RUGHU WR EHJLQ HDVLQJ QRWHQRXJKWRVKRZWKDWVKHIDLOHGWRFRQVLGHUWKDWLPSDFW KRVSLWDOVWRZDUGDPHWKRGRIUHLPEXUVHPHQWEDVHGRQDVHW 7KH6HFUHWDU\VWDWHGWKDW&RQJUHVVLQFUHDWLQJWKHPRGLILHG IHHUDWKHUWKDQRQWKHKRVSLWDOjVFRVWIRUDPEXODWRU\VXUJHU\ UHLPEXUVHPHQWVFKHPHVZDVFRQFHUQHGWKDWLIWKHFRVWVRI 6HH+5& 5 !1  DW   UHSULQWHGLQ 0HGLFDUHZHUHQRWFRQWUROOHGWKHSURJUDPZRXOGQRWVXUYLYH   86&&$1    8QGHU WKH PRGLILHG SD\PHQW 7KH 6HFUHWDU\ QRWHV WKDW XQGHU WKH SULRU PHWKRG RI IRUPXODDPEXODWRU\VXUJLFDOVHUYLFHVZHUHWREHUHLPEXUVHG DJJUHJDWLRQ0HGLFDUHRIWHQHQGHGXSVXEVLGL]LQJKHDOWKFDUH IRUWKHOHVVHURIFRVWVRUFKDUJHVRUWKHEOHQGDPRXQW6HHLG FRVWVIRUWKHKRVSLWDOj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jVUHJXODWLRQVDUH DPRXQWDQGUHLPEXUVHPHQWIRUDOORWKHURXWSDWLHQWVHUYLFHV DUELWUDU\ DQG FDSULFLRXV EHFDXVH VKH GLG QRW FRQVLGHU DW WKH OHVVHU RI FRVWV RU FKDUJHV  6HH  86& DJJUHJDWLRQDVDQRSWLRQ7KH6HFUHWDU\UHVSRQGHGDQGZH †† F  LL  H  DJUHH WKDW VKH ZDV QRW IUHH WR FRQVLGHU RWKHU DOWHUQDWLYHV EHFDXVH WKH VWDWXWH H[SUHVVO\ GLUHFWHG WKDW VHSDUDWH ,Q &RQJUHVVDJDLQPRGLILHGWKHSD\PHQWIRUPXODWKLV UHLPEXUVHPHQW FDOFXODWLRQV EH SHUIRUPHG ZLWK UHVSHFW WR WLPHZLWKUHVSHFWWRUDGLRORJ\DQGRWKHUGLDJQRVWLFVHUYLFHV DPEXODWRU\VXUJLFDOUDGLRORJ\DQGGLDJQRVWLFVHUYLFHV(YHQ UHTXLULQJ WKDW UHLPEXUVHPHQW IRU WKHVH VHUYLFHV DOVR EH LI WKH 6HFUHWDU\ GLG KDYH WKH DXWKRULW\ WR GHFLGH WKH OLPLWHG E\ EOHQG DPRXQWV  6HH 2PQLEXV %XGJHW DJJUHJDWLRQGLVDJJUHJDWLRQTXHVWLRQWKHPHUHIDFWWKDWVKH 5HFRQFLOLDWLRQ$FWRI †3XE/1R XOWLPDWHO\GHFLGHGQRWWRDJJUHJDWHDOOFRVWVDQGDOOFKDUJHV 6WDW  FRGLILHG DV DPHQGHG DW  86& GRHV QRW DQVZHU ZKHWKHU VKH FRQVLGHUHG RWKHU RSWLRQV  ,Q †† O D  (  O Q  7KHUHDIWHUUHLPEXUVHPHQW VXSSRUW RI LWV DUJXPHQW +HQU\ )RUG SUHVHQWV FRPPHQWV IRU ERWK UDGLRORJ\ DQG GLDJQRVWLF VHUYLFHV ZRXOG OLNH UHFHLYHGE\WKH6HFUHWDU\VKRZLQJWKDWKRVSLWDOVZRXOGORVH DPEXODWRU\ VXUJLFDO VHUYLFHV EH IRU WKH OHVVHU RI FRVWV RU PRQH\ XQGHU WKH GLVDJJUHJDWLRQ PHWKRG DV SURRI WKDW VKH FKDUJHVRUWKHEOHQGDPRXQW6HHLG$JDLQWKH6HFUHWDU\ IDLOHG WR FRQVLGHU DOWHUQDWLYHV  7KLV LJQRUHV &RQJUHVVjV LQWHUSUHWHG WKH IRUPXOD PRGLILFDWLRQ DV UHTXLULQJ WKH PRGLILFDWLRQRIWKHUHLPEXUVHPHQWVFKHPHZLWKWKHLQWHQWRI WLJKWHQLQJ0HGLFDUHjVSXUVHVWULQJVQHFHVVDULO\LPSDFWLQJWKH SURYLGHUKRVSLWDOV7KDWWKH6HFUHWDU\FKRVHDQDOWHUQDWLYH  $PEXODWRU\ VXUJLFDO FHQWHU SURFHGXUHV DUH WKRVH VXUJLFDO SURFHGXUHV ZKLFKIRUFHGVRPHKRVSLWDOVWRVKRXOGHUKHDY\ORVVHVGRHV WKDW DUH IUHTXHQWO\ SHUIRUPHG LQ D IUHHVWDQGLQJ VXUJHU\ FHQWHU RQ DQ QRWZLWKRXWPRUHVKRZWKDWVKHDUELWUDULO\DQGFDSULFLRXVO\ RXWSDWLHQW EDVLV LH ZLWKRXW DQ LQSDWLHQW KRVSLWDO VWD\   +HQU\)RUG+HDOWK6\VWHPY6KDODOD 1R  1R  +HQU\)RUG+HDOWK6\VWHPY6KDODOD 

ZHILQGWKHPRUHORJLFDOUHDGLQJWREHWKDWZKHQWKHVHFWLRQV GLVDJJUHJDWLRQRIFRVWVDQGFKDUJHVIRURXWSDWLHQWUDGLRORJ\ JRYHUQLQJWKHVHSDUDWHFDOFXODWLRQVRIDPEXODWRU\VXUJLFDO DQGRWKHUGLDJQRVWLFVHUYLFHVIURPDOORWKHUFRVWVDQGFKDUJHV UDGLRORJ\DQGGLDJQRVWLFVHUYLFHVUHIHUWR† O D  % LW IRURXWSDWLHQWVHUYLFHVZKHQDSSO\LQJWKHOHVVHURIFRVWVRU LV PHUHO\ WR ERUURZ WKH JHQHUDO UXOHjV PHWKRGRORJ\ RI FKDUJHVUXOH6HH)HG5HJ 0DU   FRPSDULQJFRVWVWRFKDUJHV 7KXVIRUVHUYLFHVSURYLGHGRQRUDIWHU2FWREHU  WKH 6HFUHWDU\UHLPEXUVHGIRXUFDWHJRULHVRIRXWSDWLHQWKRVSLWDO :H WKHUHIRUH KROG WKDW WKH SODLQ ODQJXDJH RI WKH VWDWXWH VHUYLFHV ZLWK WKH IROORZLQJ VHSDUDWH FDOFXODWLRQV    IRU PDQGDWHVWKHVHSDUDWLRQRIDPEXODWRU\VXUJLFDOUDGLRORJ\DQG DPEXODWRU\VXUJLFDOVHUYLFHVWKHOHVVHURIFRVWVRUFKDUJHVRU GLDJQRVWLF VHUYLFHV IURP DOO RWKHU RXWSDWLHQW VHUYLFHV DQG WKH EOHQG DPRXQW    IRU UDGLRORJ\ WKH OHVVHU RI FRVWV RU FRPSHOVWKH6HFUHWDU\jVUHJXODWLRQVUHTXLULQJGLVDJJUHJDWLRQ FKDUJHVRUWKHEOHQGDPRXQW  IRUGLDJQRVWLFVHUYLFHVWKH RIWKHQDPHGVHUYLFHVZKHQFDOFXODWLQJUHLPEXUVHPHQW OHVVHURIFRVWVRUFKDUJHVRUWKHEOHQGDPRXQW  IRUDOORWKHU DJJUHJDWHGRXWSDWLHQWVHUYLFHVWKHOHVVHURIFRVWVRUFKDUJHV ,,, % (YHQ LI ZH IRXQG WKH ODQJXDJH RI WKH 0HGLFDUH VWDWXWH DPELJXRXVDVWRZKHWKHURUQRWGLVDJJUHJDWLRQLVUHTXLUHG +HQU\)RUGLVDQRQSURILWFRUSRUDWLRQZKLFKRSHUDWHV+HQU\ ZH ZRXOG VWLOO XSKROG WKH 6HFUHWDU\jV UHJXODWLRQV DV WKH\ )RUG+RVSLWDODODUJHWHUWLDU\FDUHKRVSLWDOHGXFDWLRQDQG ZHUHQHLWKHUDUELWUDU\QRUFDSULFLRXVXQGHUWKH$GPLQLVWUDWLYH UHVHDUFK FRPSOH[ ORFDWHG LQ 'HWURLW 0LFKLJDQ DQG 3URFHGXUH $FW  6HH  86& †   7KH $GPLQLVWUDWLYH SDUWLFLSDWHVDVDSURYLGHURIVHUYLFHVLQWKH0HGLFDUHSURJUDP 3URFHGXUH $FW DSSOLHV WR WKH 0HGLFDUH VWDWXWH DQG LWV $VZLWKDOORWKHUSURYLGHUVWKH6HFUHWDU\SD\V+HQU\)RUG UHJXODWLRQV6HH86&† RR I ,Q0RWRU9HKLFOH WKURXJK mLQWHUPHGLDULHVl IRU FRYHUHG VHUYLFHV SURYLGHG WR 0IUV$VVjQY6WDWH)DUP0XW$XWR,QV&R86 0HGLFDUHEHQHILFLDULHV,Q   DQG GXHWRWKH   WKH6XSUHPH&RXUWVWDWHGWKDWDQDJHQF\UXOHZRXOG 6HFUHWDU\jV UHJXODWLRQV PDQGDWLQJ WKH GLVDJUHJJDWLRQ RI EH DUELWUDU\ DQG FDSULFLRXV ZLWKLQ WKH PHDQLQJ RI WKH DPEXODWRU\VXUJLFDOUDGLRORJ\DQGGLDJQRVWLFVHUYLFHVIURP $GPLQLVWUDWLYH 3URFHGXUH $FW mLI WKH DJHQF\ KDV UHOLHG RQ DOORWKHURXWSDWLHQWVHUYLFHVWKHLQWHUPHGLDU\SDLG+HQU\)RUG IDFWRUV ZKLFK &RQJUHVV KDV QRW LQWHQGHG LW WR FRQVLGHU IDUOHVVWKDQWKHKRVSLWDOjVFRVWVIRURXWSDWLHQWVHUYLFHV,Q HQWLUHO\IDLOHGWRFRQVLGHUDQLPSRUWDQWDVSHFWRIWKHSUREOHP   +HQU\)RUGORVWRQRXWSDWLHQWVHUYLFHV LQ RIIHUHGDQH[SODQDWLRQIRULWVGHFLVLRQWKDWUXQVFRXQWHUWRWKH     LQ    HYLGHQFHEHIRUHWKHDJHQF\RULVVRLPSODXVLEOHWKDWLWFRXOG QRW EH DVFULEHG WR D GLIIHUHQFH LQ YLHZ RU WKH SURGXFW RI $IWHUH[KDXVWLQJLWVDGPLQLVWUDWLYHUHPHGLHV+HQU\)RUG DJHQF\H[SHUWLVHl,GDW8QGHU6WDWH)DUPWKHDUELWUDU\ ILOHGWKLVDFWLRQLQGLVWULFWFRXUWFKDOOHQJLQJWKHYDOLGLW\RIWKH DQG FDSULFLRXV VWDQGDUG LV mQDUURZ DQG D FRXUW LV QRW WR UHJXODWLRQVDQGVHHNLQJDQRUGHUWRWKH6HFUHWDU\WRFRPSXWH VXEVWLWXWHLWVMXGJPHQWIRUWKDWRIWKHDJHQF\l,G FLWDWLRQ DQGSD\DGGLWLRQDOUHLPEXUVHPHQWV7KHGLVWULFWFRXUWJUDQWHG RPLWWHG  WKH 6HFUHWDU\jV PRWLRQ IRU VXPPDU\ MXGJPHQW DQG +HQU\ )RUGDSSHDOHG +HQU\)RUGILUVWDUJXHVWKDWWKH6HFUHWDU\jVUHJXODWLRQVDUH DUELWUDU\ DQG FDSULFLRXV EHFDXVH VKH IDLOHG WR FRQVLGHU DQ ,, LPSRUWDQW DVSHFW RI WKH SUREOHP QDPHO\ GLVDJJUHJDWLRQjV LPSDFW RQ EHQHILFLDULHV  7KH 0HGLFDUH VWDWXWH UHTXLUHV :HUHYLHZGHQRYRDQLVVXHRIVWDWXWRU\LQWHUSUHWDWLRQ6HH EHQHILFLDULHV WR SD\ D FRLQVXUDQFH DPRXQW HTXDO WR WZHQW\ %DUWOLN Y 86 'HSW RI /DERU  )G   WK &LU SHUFHQWRIFXVWRPDU\FKDUJHV6HH86&† O D  E    :HUHDGVWDWXWHVDQGUHJXODWLRQVZLWKDQH\HWRWKHLU  +HQU\)RUG+HDOWK6\VWHPY6KDODOD 1R  1R  +HQU\)RUG+HDOWK6\VWHPY6KDODOD 

VWUDLJKWIRUZDUGDQGFRPPRQVHQVHPHDQLQJV6HH%DUWOLN $V ZLWK UDGLRORJ\ DQG GLDJQRVWLF VHUYLFHV D VHSDUDWH )GDWm:KHQZHFDQGLVFHUQDQXQDPELJXRXVDQG SURYLVLRQ RI WKH 0HGLFDUH VWDWXWH UHTXLUHV DSSOLFDWLRQ RI D SODLQPHDQLQJIURPWKHODQJXDJHRIDVWDWXWHRXUWDVNLVDWDQ PRGLILHG UHLPEXUVHPHQW IRUPXOD IRU DPEXODWRU\ VXUJLFDO HQGl,GDW VHUYLFHV6HH86&† O D  8QOLNHWKHRWKHUWZR H[FOXGHGVHUYLFHDUHDVKRZHYHUDPEXODWRU\VXUJLFDOVHUYLFHV 7KH6HFUHWDU\DUJXHVWKDWKHUUHJXODWLRQVPHUHO\UHIOHFWWKH SHUIRUPHG LQ D KRVSLWDO DUH QRW FOHDUO\ H[FHSWHG IURP WKH SODLQ ODQJXDJH LQ WKH 0HGLFDUH VWDWXWH UHTXLULQJ KHU WR JHQHUDO OHVVHU RI FRVWV RU FKDUJHV UXOH  6HH  86& GLVDJJUHJDWHDPEXODWRU\VXUJLFDOUDGLRORJ\DQGGLDJQRVWLF † O D  % 1RQHWKHOHVVZHDJUHHZLWKWKH6HFUHWDU\ VHUYLFHVZKHQFDOFXODWLQJUHLPEXUVHPHQWV)RUVXSSRUWVKH WKDWWKHSODLQVWDWXWRU\ODQJXDJHUHTXLUHVWKHGLVDJJUHJDWLRQ SRLQWVWR†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† O D  % 5DGLRORJ\DQGGLDJQRVWLFVHUYLFHVDUHGHDOW LQFRQVLVWHQWUHVXOWV%HFDXVHZHILQGWKDW&RQJUHVVLQWHQGHG ZLWK LQ D VHSDUDWH VXEVHFWLRQ UHTXLULQJ DSSOLFDWLRQ RI WKH WR GLVDJJUHJDWH UDGLRORJ\ DQG GLDJQRVWLFV IURP DOO RWKHU OHVVHURIFRVWVRUFKDUJHVRUWKHEOHQGDPRXQW6HH86& RXWSDWLHQW VXUJHU\ DQG EHFDXVH &RQJUHVV XVHG LGHQWLFDO ††  O D  (    O Q   7KH VDPH PRGLILHG ODQJXDJHZKHQVWDWLQJWKHDSSURSULDWHFDOFXODWLRQPHWKRGIRU UHLPEXUVHPHQW PHWKRG DSSOLHV WR DPEXODWRU\ VXUJLFDO DPEXODWRU\VXUJLFDOVHUYLFHVZHILQGWKHSODLQODQJXDJHRI VHUYLFHVDVGLUHFWHGLQDGLIIHUHQWVXEVHFWLRQ6HH86& WKH VWDWXWH GLFWDWHG WKH 6HFUHWDU\jV UHJXODWLRQV UHTXLULQJ †† O D    O L   GLVDJJUHJDWLRQIRUDPEXODWRU\VXUJLFDOVHUYLFHVDVZHOO +HQU\)RUGDUJXHVWKDWDWEHVWWKHDPHQGHGODQJXDJHRI :HQRWHWKDWWKHVWDWXWHFRQWDLQVDQLQWHUQDOLQFRQVLVWHQF\ WKH VWDWXWH LV DPELJXRXV  :H DJUHH ZLWK WKH 6HFUHWDU\ 7KH VXEVHFWLRQV GHVFULELQJ WKH EOHQG DPRXQW IRUPXOD LQ KRZHYHUWKDWDWOHDVWDVWRUDGLRORJ\DQGGLDJQRVWLFVHUYLFHV VWDWLQJWKDWRQHHOHPHQWRIWKHFDOFXODWLRQGHSHQGVXSRQWKH WKHVWDWXWHLVFOHDU8QGHUWKHVWDWXWHjVODQJXDJHWKHJHQHUDO OHVVHURIFRVWVRUFKDUJHVVSHFLILFDOO\UHTXLUHDGHWHUPLQDWLRQ OHVVHURIFRVWVRUFKDUJHVUXOHDSSOLHVWRRXWSDWLHQWVHUYLFHV XQGHU† O D  % 6HH86&† O Q  $ L  mH[FHSWlUDGLRORJ\DQGGLDJQRVWLFVHUYLFHV6HH86& 6HFWLRQ O D  % LWVHOIH[SOLFLWO\H[FOXGHVUDGLRORJ\DQG † O D  %  UHIHUULQJWRVXESDUDJUDSK ( ZKLFKFRYHUV GLDJQRVWLFVHUYLFHVIURPDSSOLFDWLRQRILWVOHVVHURIFRVWVRU UDGLRORJ\DQGGLDJQRVWLFVHUYLFHV ,QWKH6HFUHWDU\jVUHDGLQJ FKDUJHV UXOH DQG LPSOLFLWO\ H[FOXGHV DPEXODWRU\ VXUJLFDO DQGLQRXUV&RQJUHVVjVXVHRIWKHZRUGmH[FHSWlLVDQH[SOLFLW VHUYLFHVE\DGGUHVVLQJWKHPLQDGLIIHUHQWVXEVHFWLRQ6HH H[FOXVLRQ RI UDGLRORJ\ DQG GLDJQRVWLFV IURP WKH DJJUHJDWH 86&†† O D  %  O D  :HGRQRWEHOLHYH FDOFXODWLRQIRURWKHURXWSDWLHQWVHUYLFHVXQGHUWKHOHVVHURI KRZHYHU WKDW VXFK DQ LQFRQVLVWHQF\ QHFHVVDULO\ FUHDWHV DQ FRVWVRUFKDUJHVUXOH7DNHQLQFRPELQDWLRQZLWKWKHVHSDUDWH DPELJXLW\ LQ WKH RWKHUZLVH FOHDU VWDWXWRU\ PDQGDWH  :H VXEVHFWLRQDUWLFXODWLQJDGLVWLQFWUHLPEXUVHPHQWIRUPXODWKLV GLVDJUHHZLWK+HQU\)RUGjVDUJXPHQWVWKDWLWLVQHFHVVDU\WR ODQJXDJH SODLQO\ UHTXLUHG WKH 6HFUHWDU\ WR GLVDJJUHJDWH UHDGWKHFURVVUHIHUHQFHVWR† O D  % DVPDQGDWLQJWKDW UDGLRORJ\ DQG GLDJQRVWLF VHUYLFHV IURP DOO RWKHU RXWSDWLHQW DPRXQWVIRUWKHGLVDJJUHJDWHGVHUYLFHVEHLQFOXGHGEDFNLQWR VHUYLFHVZKHQFDOFXODWLQJUHLPEXUVHPHQW WKH DJJUHJDWHG VHUYLFHV ZKHQ FDOFXODWLQJ WKH DJJUHJDWHG DPRXQWV ZKLFK ZRXOG LQGHHG FUHDWH WKH LQWHOOHFWXDOO\ LPSRVVLEOHUHVXOWRILQFOXGLQJH[FOXGHGLQIRUPDWLRQ,QVWHDG