5(&200(1'(' )25 )8//7(;7 38%/,&$7,21  &RUQLVWHWDOY%s7$XWR6DOHVHWDO 1R 3XUVXDQW WR 6L[WK &LUFXLW 5XOH 

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

6L[WKDQGILQDOO\ZHQRWHWKDWJLYHQWKHUHYLYDORIVRPHRI )LOH 1DPH DS

&RUQLVWjV VXEVWDQWLYH FODLPV KHU 0RWLRQ IRU &ODVV &HUWLILFDWLRQLVOLNHO\QRORQJHUPRRWDQGWKDWWKHUHIRUHWKH GLVWULFWFRXUWVKRXOGGHFLGHWKHFODVVFHUWLILFDWLRQLVVXH 81,7('67$7(6&28572)$33($/6 )257+(6,;7+&,5&8,7 BBBBBBBBBBBBBBBBB

.(//(1$ &251,67DQG ; '$9,' s21(6  3ODLQWLIIV$SSHOODQWV   1R  Y !   %s7 $872 6$/(6 ,1&  %s7 ),1$1&( ,1& s$0(6  +$'/(< %,// 5 +$7&+(5  7+20$6 7(3(   'HIHQGDQWV$SSHOOHHV  1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH(DVWHUQ'LVWULFWRI.HQWXFN\DW&RYLQJWRQ 1R n:LOOLDP2%HUWHOVPDQ'LVWULFWsXGJH $UJXHG 6HSWHPEHU  'HFLGHGDQG)LOHG 1RYHPEHU %HIRUH 5<$1DQG%2**6&LUFXLWsXGJHV DQG :,//,$06'LVWULFWsXGJH

7KH +RQRUDEOH *OHQ 0 :LOOLDPV 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH :HVWHUQ 'LVWULFW RI 9LUJLQLD VLWWLQJ E\ GHVLJQDWLRQ

  &RUQLVWHWDOY%s7$XWR6DOHVHWDO 1R 1R &RUQLVWHWDOY%s7$XWR6DOHVHWDO 

BBBBBBBBBBBBBBBBB '7KH/LDELOLW\RI%s7)LQDQFH &2816(/ &RUQLVWDOVRDUJXHVWKDW%s7)LQDQFHDFRGHIHQGDQWRXJKW WR EH KHOG OLDEOH  :H VKDUH WKH $SSHOOHHVj SX]]OHPHQW $5*8('   &DQGDFH s 6PLWK $51=(1 3$55< UHJDUGLQJZK\&RUQLVWGHGLFDWHGVSDFHWRDUJXLQJWKLVLVVXH :(17= &RYLQJWRQ .HQWXFN\ IRU $SSHOODQWV  sRQ ' *LYHQ RXU SDUWLDO UHYHUVDO RI WKH GLVWULFW FRXUWjV VXPPDU\ %ULWWLQJKDP',16025( 6+2+/&LQFLQQDWL2KLRIRU MXGJPHQWRQWKHPHULWVRIWKLVFODLPZHUHPDQGWRWKHGLVWULFW $SSHOOHHV  21 %5,()   &DQGDFH s 6PLWK $51=(1 FRXUWWRGHWHUPLQHWKLVTXHVWLRQLQWKHILUVWLQVWDQFH 3$55<  :(17= &RYLQJWRQ .HQWXFN\ 6WHSKHQ 5 )HOVRQ )(/621  )(/621 &LQFLQQDWL 2KLR IRU (7KH5HLQVWDWHPHQWRI&RUQLVWjV6WDWH/DZ&ODLPV $SSHOODQWV  sRQ ' %ULWWLQJKDP )UDQN & :RRGVLGH ,,, ',16025( 6+2+/&LQFLQQDWL2KLR$'HQQLV0LOOHU 7KHGLVWULFWFRXUWGLVPLVVHG&RUQLVWjVVWDWHODZFODLPVIRU 'HQQLV :RRG 9DQ +RXWHQ '52'(5  0,//(5 &2 ODFN RI VXEMHFW PDWWHU MXULVGLFWLRQ RQFH LW KDG GLVPLVVHG /3$ &LQFLQQDWL 2KLR *DU\ s 6HUJHQW 2j+$5$ &RUQLVWjVIHGHUDOFODLPV*LYHQRXUUHLQVWDWHPHQWRIVRPHRI 58%(5* 7$</25 6/2$1  6(5*(17 &RYLQJWRQ &RUQLVWjVIHGHUDOFODLPVXQGHU7,/$ZHUHYHUVHWKHGLVPLVVDO .HQWXFN\IRU$SSHOOHHV RIWKHVWDWHODZFODLPVIRUODFNRIMXULVGLFWLRQDQGUHPDQGWR WKHGLVWULFWFRXUWIRULWVGHWHUPLQDWLRQRIZKHWKHUWKHH[HUFLVH BBBBBBBBBBBBBBBBB RI VXSSOHPHQWDO MXULVGLFWLRQ RYHU WKH VWDWH ODZ FODLPV SXUVXDQWWR86&†LVDSSURSULDWH 23,1,21 BBBBBBBBBBBBBBBBB ,,, %2**6&LUFXLWsXGJH.HOOHQD&RUQLVWDQG'DYLGsRQHV :H 5(9(56( LQ SDUW DQG $)),50 LQ SDUW WKH GLVWULFW m&RUQLVWl DSSHDOWKHMXGJPHQWRIWKHGLVWULFWFRXUWJUDQWLQJ FRXUWjV VXPPDU\ MXGJPHQW IRU WKH GHIHQGDQWV  )LUVW ZH %s7 $XWR 6DOHV ,QF m%s7l  VXPPDU\ MXGJPHQW RQ DOO UHYHUVH WKH GLVWULFW FRXUWjV VXPPDU\ MXGJPHQW WKDW &RUQLVW FODLPV  &RUQLVWjV IHGHUDO FODLPV DULVH XQGHU WKH 7UXWK LQ IDLOHGWRGHPRQVWUDWHDJHQXLQHLVVXHRIPDWHULDOIDFWWKDW%s7 /HQGLQJ$FW86&†HWVHT&RUQLVWDOOHJHVWKDW FKDUJHG KLJKHU EDVH DXWRPRELOH SULFHV WR FUHGLW FXVWRPHUV %s7 FKDUJHG SULFHV DQG IHHV WR FUHGLW FXVWRPHUV WKDW ZHUH EHFDXVHRIWKHH[WHQVLRQRIFUHGLW2QWKLVSRLQWZHUHPDQG ORZHURUQRQH[LVWHQWIRUFDVKFXVWRPHUVZLWKRXWGLVFORVLQJ WR WKH GLVWULFW FRXUW IRU IXUWKHU SURFHHGLQJV 6HH 3DUW ,,$ WKH LWHPV DV mILQDQFH FKDUJHVl  $GGLWLRQDOO\ &RUQLVW 6HFRQG ZH DIILUP WKH GLVWULFW FRXUWjV JUDQW RI VXPPDU\ FRQWHQGVWKDW%s7IDLOHGSURSHUO\WRGLVFORVHZKHWKHUVRPHRI MXGJPHQWRQDOO&RUQLVWjVIHGHUDOFODLPVUHJDUGLQJWKHVHUYLFH WKHIHHVZHUHSDLGWRWKLUGSDUWLHV)RUWKHUHDVRQVVHWIRUWK DJUHHPHQWIHH6HH3DUWV,,%7KLUGZHDIILUPWKHGLVWULFW EHORZZHDIILUPLQSDUWDQGUHYHUVHLQSDUWWKHGLVWULFWFRXUWjV FRXUWjVJUDQWRIVXPPDU\MXGJPHQWRQ&RUQLVWjVFODLPVEDVHG VXPPDU\MXGJPHQW RQ %s7jV GRFXPHQW IHH 6HH 3DUW ,,&  )RXUWK ZH GR QRW GHFLGHWKHXQULSHTXHVWLRQRIZKHWKHU%s7)LQDQFHLVDSURSHU , GHIHQGDQW DQG UHPDQG WR WKH GLVWULFW FRXUW WR GHWHUPLQH ZKHWKHU &RUQLVWjV FODLPV DJDLQVW %s7 )LQDQFH VKRXOG EH ,Q &RUQLVWSXUFKDVHGD 'RGJHDXWRPRELOHIURP GLVPLVVHG  6HH 3DUW ,,'  )LIWK ZH UHPDQG WR WKH GLVWULFW %s77KHSXUFKDVHZDVH[HFXWHGXQGHUDUHWDLOLQVWDOOPHQW FRXUWWRGHWHUPLQHZKHWKHULQOLJKWRI&RUQLVWjVUHLQYLJRUDWHG FRQWUDFW DQG %s7 DVVLJQHG LWV LQWHUHVW LQ WKH FRQWUDFW WR 7,/$FODLPVWKHGLVWULFWFRXUWVKRXOGH[HUFLVHVXSSOHPHQWDO DQRWKHUGHIHQGDQW%s7)LQDQFH,QF MXULVGLFWLRQ RYHU &RUQLVWjV VWDWH ODZ FODLPV 6HH 3DUW ,,(  &RUQLVWHWDOY%s7$XWR6DOHVHWDO 1R 1R &RUQLVWHWDOY%s7$XWR6DOHVHWDO 

6HFRQG&RUQLVWDUJXHVWKDWWKHGRFXPHQWIHHZDVFKDUJHG &RUQLVWILOHGKHUFRPSODLQWLQWKLVDFWLRQRQ0D\  RQO\WRFUHGLWFXVWRPHUVDQGWKHUHIRUHZDVDQXQGLVFORVHG DOOHJLQJWKDW%s7KDGIDLOHGWRPDNHGLVFORVXUHVUHTXLUHGE\ ILQDQFH FKDUJH LQ YLRODWLRQ RI 7,/$  $OWKRXJK &RUQLVW WKH7UXWKLQ/HQGLQJ$FWLQFRQQHFWLRQZLWKWKHSXUFKDVHRI DSSHDUVWRKDYHDUJXHGWKLVSRLQWEHIRUHVXPPDU\MXGJPHQW KHUDXWRPRELOHIURP%s7&RUQLVWOLVWHGDVGHIHQGDQWV%s7 WKHGLVWULFWFRXUWQHYHUUHVROYHGWKLVIDFWXDOLVVXH,QVWHDGWKH %s7 )LQDQFH DQG VHYHUDO RZQHUV RI WKH WZR FRUSRUDWLRQV GLVWULFWFRXUWKHOGWKDWWKHGRFXPHQWIHHUHSUHVHQWHGmFRVWVRI $PRQJ&RUQLVWjV7UXWKLQ/HQGLQJ$FWDOOHJDWLRQVZHUHWKDW GRLQJ EXVLQHVVl WKDW %s7 ZDV HQWLWOHG WR mSDVV RQ WR %s7FKDUJHGLQFUHDVHGEDVHSULFHVIRUFDUVWRFUHGLWFXVWRPHUV FRQVXPHUVl ZLWKRXWGLVFORVLQJVXFKLQFUHDVHGSULFHVDVILQDQFHFKDUJHV IDLOHG WR GLVFORVH WKH GLVWULEXWLRQ RI GRFXPHQW IHHV DQG 7KH GLVWULFW FRXUWjV KROGLQJ KHUH GRHV QRW FRPSOHWHO\ VHUYLFHDJUHHPHQWIHHVWRWKLUGSDUWLHVDQGDVVHVVHGWKRVHIHHV UHVROYH WKLV PDWWHU  :KLOH EXVLQHVVHV PD\ FHUWDLQO\ SDVV RQO\RQFUHGLWFXVWRPHUVZLWKRXWGLVFORVLQJWKHPDVILQDQFH DORQJWKHFRVWVRIGRLQJEXVLQHVV7,/$GHPDQGVWKDWWKHFRVW FKDUJHV QRW EH LPSRVHG RQ FXVWRPHUV EHFDXVH RI WKH H[WHQVLRQ RI FUHGLWZLWKRXWEHLQJGLVFORVHGDVDILQDQFHFKDUJH,QWKLV &RUQLVWVXHGLQGLYLGXDOO\DQGDVUHSUHVHQWDWLYHRIDFODVVRI VHQVHWKHFRVWRISURFHVVLQJVDOHVGRFXPHQWVLVMXVWDVPXFK LQGLYLGXDOVZKRKDGERXJKWDXWRPRELOHVRQFUHGLWIURP%s7 DFRVWRIGRLQJEXVLQHVVDVWKHFRVWRIWKHDXWRPRELOHVVROG /DWHU&RUQLVWILOHGD0RWLRQIRU&ODVV&HUWLILFDWLRQ 7RVD\RQO\WKDWWKHGRFXPHQWIHHUHSUHVHQWVDmFRVWRIGRLQJ EXVLQHVVl SDVVHG RQ WR WKH FXVWRPHU GRHV QRW UHVROYH $IWHUUHODWLYHO\FRQWHQWLRXVGLVFRYHU\SURFHHGLQJV%s7DQG &RUQLVWjVOHJDOFODLPXQGHU7,/$ LWVFRGHIHQGDQWVILOHGPRWLRQVIRUVXPPDU\MXGJPHQW,Q UHVSRQVH&RUQLVWSUHVHQWHGGDWDRQQLQHWHHQFDVKWUDQVDFWLRQV :KLOH WKH GLVWULFW FRXUWjV UHDVRQLQJ PD\ KDYH EHHQ IRUFRPSDULVRQWRKXQGUHGVRIFUHGLWWUDQVDFWLRQVZKLOHDOVR LQDSSOLFDEOHLWVUHVXOWZDVFRUUHFW$EULHISHUXVDORIWKHFDVK QRWLQJWKDW%s7KDGQRWSURGXFHGGRFXPHQWDWLRQRQRYHU VDOH ILOH MDFNHWV SURYLGHG E\ &RUQLVW LQGLFDWHV WKDW FDVK FDVK WUDQVDFWLRQV WKDW &RUQLVW KDG LGHQWLILHG  &RUQLVW FXVWRPHUVZHUHUHJXODUO\FKDUJHGWKHGRFXPHQWIHH7KHVH FRPSLOHGWKLVGDWDLQWRDFKDUWWKDWFRPSDUHGDPRQJRWKHU DVVHVVPHQWVRIWKHGRFXPHQWIHHRQFDVKFXVWRPHUVZHKROG WKLQJV WKH mPDUNXSl RU WKH SUHPLXP RYHU LWV FRVW RI HVWDEOLVKQRJHQXLQHLVVXHRIPDWHULDOIDFWWKDWWKHIHHZDV DFTXLVLWLRQDWZKLFK%s7VROGDXWRPRELOHVRQHDFKRIWKH DVVHVVHG EHFDXVH RI WKH H[WHQVLRQ RI FUHGLW  $ZDUGLQJ WUDQVDFWLRQV  7KH PDUNXS DSSHDUHG IURP WKH FKDUW WR EH VXPPDU\MXGJPHQWIRUWKHGHIHQGDQWVRQWKHJURXQGWKDWWKH FRQVLVWHQWO\DQGVLJQLILFDQWO\KLJKHUIRUFDUVVROGRQFUHGLW GRFXPHQW IHH ZDV QRW DQ XQGLVFORVHG ILQDQFH FKDUJH ZDV DSSURSULDWH:HWKHUHIRUHDIILUPWKHGLVWULFWFRXUWjVVXPPDU\ 7KH GLVWULFW FRXUW JUDQWHG VXPPDU\ MXGJPHQW IRU WKH MXGJPHQWIRUWKHGHIHQGDQWVRQDOO&RUQLVWjVFODLPVUHJDUGLQJ GHIHQGDQWVRQDOORI&RUQLVWjV7UXWKLQ/HQGLQJ$FWFODLPV %s7jVGRFXPHQWIHH 7KHFRXUWKHOGWKDWLQRUGHUWRVDWLVI\WKHOHJDOHOHPHQWVRI WKH 7UXWK LQ /HQGLQJ $FW &RUQLVW PXVW GHPRQVWUDWH D mV\VWHPDWLFl GLVSDULW\ LQ SULFLQJ EHWZHHQ FUHGLW DQG FDVK FXVWRPHUV  $W EHVW DFFRUGLQJ WR WKH FRXUW &RUQLVWjV UHVSRQVLYHHYLGHQFHVKRZHGmVSRUDGLFUDWKHUWKDQV\VWHPDWLFl  SULFHLQFUHDVHVIRUFUHGLWFXVWRPHUV7KHFRXUWVLPLODUO\KHOG 7KH URRWV RI WKLV KROGLQJ DSSHDU LQ WKH )HGHUDO 5HVHUYH %RDUGjV WKDW&RUQLVWKDGQRWFUHDWHGDQ\JHQXLQHLVVXHRIPDWHULDOIDFW $00 2IILFLDO 6WDII &RPPHQWDU\ WR 5HJXODWLRQ = LQWHUSUHWLQJ 7,/$ &)5 †  6XSS , DW  7KH &RPPHQWDU\ VXJJHVWV WKDW mFKDUJHV  WKDW%s7YLRODWHGDQ\RIWKH7UXWKLQ/HQGLQJ$FWjVGLVFORVXUH DEVRUEHG E\ WKH FUHGLWRU DV WKH FRVWV RI GRLQJ EXVLQHVVl DUH QRW ILQDQFH FKDUJHV  &RUQLVWHWDOY%s7$XWR6DOHVHWDO 1R 1R &RUQLVWHWDOY%s7$XWR6DOHVHWDO 

UHTXLUHPHQWVE\LWVDOORFDWLRQRIWKHVHUYLFHDJUHHPHQWDQG † D  6HH3DUW,,$$FFRUGLQJWR&RUQLVWmWKLV  GRFXPHQWIHHV FKDUJHDSSHDUVLQFUHGLWVDOHVRQO\l+RZHYHU&RUQLVWSRLQWV WR QR HYLGHQFH WKDW FDVK SXUFKDVHUV DUH QRW FKDUJHG WKH +DYLQJGLVPLVVHGDOORI&RUQLVWjVIHGHUDOFODLPVXQGHUWKH VHUYLFHDJUHHPHQWIHH0RUHRYHUDWOHDVWILIW\VHYHQRIWKH 7UXWKLQ/HQGLQJ$FWWKHFRXUWGLVPLVVHGWKHUHPDLQLQJVWDWH FUHGLWFXVWRPHUVLQ&RUQLVWjVVWXG\GLGQRWSD\WKHIHH:H FODLPV IRU ODFN RI VXEMHFW PDWWHU MXULVGLFWLRQ GHFOLQLQJ WR DJUHHZLWK%s7WKDWWKHVHUYLFHDJUHHPHQWDSSHDUVWREHPRUH H[HUFLVHFRQWLQXLQJVXSSOHPHQWDOMXULVGLFWLRQRYHUWKHFODLPV RIDQRSWLRQZKLFKFUHGLWRUFDVKFXVWRPHUVFDQHLWKHUVHOHFW $GGLWLRQDOO\WKHFRXUWKHOGWKDW&RUQLVWjVPRWLRQIRUFODVV RUGHFOLQH8QOLNHWKHGLVSDUDWHSHUFHQWDJHPDUNXSZKLFK FHUWLILFDWLRQZDVPRRWDOOKHUVXEVWDQWLYHFODLPVKDYLQJEHHQ HYHU\FXVWRPHUZRXOGZDQWWREHORZHUWKHHYLGHQFHVLPSO\ GLVPLVVHG GRHVQRWVKRZWKDWWKHGLVWULEXWLRQRIWKHVHUYLFHFRQWUDFWIHH ZDV GHSHQGDQW RQ FDVKFUHGLW VWDWXV DV PXFK DV GHVLUH IRU ,, PDLQWHQDQFH LQVXUDQFH  :H WKHUHIRUH DIILUP WKH GLVWULFW FRXUWjVJUDQWRIVXPPDU\MXGJPHQWIRUWKHGHIHQGDQWVZLWK :H DUH DVNHG LQ WKLV FDVH WR UHYLHZ D GLVWULFW FRXUWjV UHJDUG&RUQLVWjVFODLPVDULVLQJRXWRIWKHVHUYLFHDJUHHPHQW VXPPDU\MXGJPHQW7KLVFRXUWUHYLHZVJUDQWVRIVXPPDU\ IHH MXGJPHQW GH QRYR XQGHU WKH VDPH VWDQGDUG DV WKH GLVWULFW FRXUW6HH2ZHQV&RUQLQJY1DWLRQDO8QLRQ)LUH,QV &%s7jV'RFXPHQW)HH )G     WK &LU    6XPPDU\ MXGJPHQW LV DSSURSULDWH ZKHQ mWKH SOHDGLQJV GHSRVLWLRQV DQVZHUV WR &RUQLVWPDNHVWZRVLPLODUDUJXPHQWVZLWKUHJDUGWR%s7jV LQWHUURJDWRULHV DQG DGPLVVLRQV RQ ILOH WRJHWKHU ZLWK WKH GRFXPHQW IHH  )LUVW DFFRUGLQJ WR &RUQLVW %s7 DIILGDYLWVLIDQ\VKRZWKDWWKHUHLVQRJHQXLQHLVVXHDVWRDQ\ PLVUHSUHVHQWHGWKDWWKHGRFXPHQWIHHFKDUJHGZDVEHLQJSDLG PDWHULDO IDFW DQG WKDW WKH PRYLQJ SDUW\ LV HQWLWOHG WR D WR mLQVXUDQFH FRPSDQLHVl ZKHQ LQ IDFW %s7 UHWDLQHG WKH MXGJPHQW DV D PDWWHU RI ODZl )HG 5 &LY 3  F   ,Q HQWLUH GRFXPHQW IHH  7KLV FODLP DV D IDFWXDO PDWWHU LV UHYLHZLQJDVXPPDU\MXGJPHQWWKLVFRXUWUHYLHZVWKHIDFWXDO FRPSOHWHO\ZLWKRXWPHULW2QWKHUHWDLOLQVWDOOPHQWFRQWUDFW HYLGHQFHDQGGUDZVDOOUHDVRQDEOHLQIHUHQFHVLQIDYRURIWKH WKHUHLVDOLQHIRUDPRXQWVm3DLGWR,QVXUDQFH&RPSDQLHVl QRQPRYLQJSDUW\6HH%)*RRGULFK&RY8QLWHG6WDWHV 7KH OLQH WR WKH VLGH RI WKDW HQWU\ LV EODQN SUHVXPDEO\ )LOWHU &RUS  )G     WK &LU   7R LQGLFDWLQJWKDWQRDPRXQWZDVSDLGWRLQVXUDQFHFRPSDQLHV SUHYDLO WKH QRQPRYDQW PXVW VKRZ VXIILFLHQW HYLGHQFH WR ,PPHGLDWHO\EHORZWKDWOLQHWKHUHLVDQHQWU\UHDGLQJm3DLG FUHDWHDJHQXLQHLVVXHRIPDWHULDOIDFW$PHUHmVFLQWLOODRI WR'RF)HHl7KHHQWU\LQGLFDWHVWKHDPRXQWRI$JDLQ HYLGHQFHlZLOOQRWVXIILFHIRUWKHQRQPRYDQWWRRYHUWXUQWKH EHORZLVDQHQWU\UHDGLQJm3DLGWR3XEOLF2IILFLDOl VXPPDU\MXGJPHQWEXWLQVWHDGWKHQRQPRYDQWPXVWVKRZ HYLGHQFH mRQ ZKLFK WKH MXU\ FRXOG UHDVRQDEO\ ILQG IRU WKH 7KLV FRXUW LV SX]]OHG ZK\ &RUQLVW WKLQNV WKRVH HQWULHV QRQPRYDQWl$QGHUVRQY/LEHUW\/REE\,QF86 LQGLFDWH WKDW WKH GRFXPHQW IHH ZDV SDLG WR LQVXUDQFH     FRPSDQLHV$QDWXUDOUHDGLQJRIWKHHQWULHVLQGLFDWHVWKDWQR PRQH\ZDVSDLGWRLQVXUDQFHFRPSDQLHV$VVHUWLQJWKDWWKH 7KH7UXWKLQ/HQGLQJ$FW m7,/$l 86&†HW GRFXPHQW IHH ZDV SDLG WR LQVXUDQFH FRPSDQLHV LV MXVW DV VHTRQZKLFKWKHFODLPVLQWKLVFDVHDUHEDVHGZDVGHVLJQHG DEVXUGDVFODLPLQJWKDWWKHIHHSDLGWRSXEOLFRIILFLDOVZDV WRLQFUHDVHWKHLQIRUPDWLRQDYDLODEOHWRFRQVXPHUVLQFUHGLW SDLGWRLQVXUDQFHFRPSDQLHV:HVXVWDLQWKHGLVWULFWFRXUWjV WUDQVDFWLRQV  7,/$ VHHNV WR IRVWHU WKH mLQIRUPHG XVH RI DZDUG RI VXPPDU\ MXGJPHQW RQ WKLV SRLQW DV QR FUHGLWlE\UHYHDOLQJWKHIXOOSULFHRIFUHGLWWRWKHFRQVXPHU PLVUHSUHVHQWDWLRQRFFXUUHG 0RXUQLQJY)DPLO\3XEOLFDWLRQV6HUYLFH,QF86  &RUQLVWHWDOY%s7$XWR6DOHVHWDO 1R 1R &RUQLVWHWDOY%s7$XWR6DOHVHWDO 

WKHFRQVXPHU+HUHWKHGLVWULFWFRXUWKHOGDQGWKHSDUWLHVGR     7KURXJK UHTXLULQJ UHODWLYHO\ XQLIRUP QRW GLVSXWH WKDW %s7 UHWDLQHG WKH FRQWLQXLQJ REOLJDWLRQ WR GLVFORVXUHVE\VHOOHUV7,/$HQGHDYRUVWRHQDEOHFRQVXPHUV PDNHUHSDLUVRQWKHDXWRPRELOHXQGHUWKH6HUYLFH$JUHHPHQW WR HYDOXDWH FUHGLW RIIHUV VHSDUDWHO\ IURP WKH SXUFKDVH RI $FFRUGLQJO\%s7jVSD\PHQWWR)LUVW([WHQGHGGLGQRWFUHDWH PHUFKDQGLVHDQGWKHUHE\WRFUHDWHDQDFWLYHPDUNHWSURYLGLQJ DFRQWUDFWXDOUHODWLRQVKLSEHWZHHQ&RUQLVWDQG)LUVW([WHQGHG PRUH HIILFLHQW FUHGLW SULFHV  $OWKRXJK WKH GLVFORVXUHV DQGWKHUHIRUHZDVQRWPDGHRQ&RUQLVWjVEHKDOI7KHSD\PHQW XQGRXEWHGO\ LQFUHDVH WUDQVDFWLRQ FRVWV 7,/$ UHSUHVHQWV DSSHDUV WR EH OLWWOH PRUH WKDQ %s7 PDQDJLQJ WKH &RQJUHVVjVGHWHUPLQDWLRQWKDWWKRVHFRVWVDUHRXWZHLJKHGE\ DGPLQLVWUDWLYH EXUGHQV LPSRVHG E\ LWV VHUYLFH DJUHHPHQW WKHEHQHILWVRIWKHLQIRUPDWLRQSURGXFHG%HFDXVH&RUQLVW ZKLOHUHWDLQLQJWKHXOWLPDWHUHVSRQVLELOLW\WRSHUIRUPXQGHU SXUFKDVHGKHUFDUWKURXJKDUHWDLOLQVWDOOPHQWFRQWUDFW%s7 WKHDJUHHPHQW$OWKRXJKWKHUHODWLYHO\VPDOOSD\PHQWWR)LUVW ZDVREOLJDWHGWRPDNHWKHGLVFORVXUHVUHTXLUHGE\7,/$ ([WHQGHGPD\LQGLFDWHWKDWVHUYLFHDJUHHPHQWVFRXOGKDYH EHHQPRUHFKHDSO\REWDLQHGE\&RUQLVWIURPYHQGRUVRWKHU &RUQLVWjVDUJXPHQWVDJDLQVWWKHGLVWULFWFRXUWjVVXPPDU\ WKDQ%s77,/$GRHVQRWSURWHFWWKHSRRUEDUJDLQHURUWKHLOO MXGJPHQW RQ KHU 7,/$ FODLPV FRQFHUQ WKUHH FDWHJRULHV RI LQIRUPHGsXVWDV7,/$GRHVQRWUHTXLUHDFUHGLWRUWRGLVFORVH %s7jVFRQGXFW7KHILUVWPDWWHULQGLVSXWHLV%s7jVSULFLQJRI WKHFRVWRIJRRGVVROGLWDOVRGRHVQRWUHTXLUH%s7WRGLVFORVH LWVDXWRPRELOHV&RUQLVWDUJXHVWKDWWKHHYLGHQFHFUHDWHGD WKH FRVW RI SURYLGLQJ &RUQLVW ZLWK FRQWLQXLQJ DXWRPRELOH JHQXLQH LVVXH RI PDWHULDO IDFW ZLWK UHJDUG WR ZKHWKHU %s7 VHUYLFH LPSRVHGKLJKHUDXWRPRELOHSULFHVRQFUHGLWFXVWRPHUVmDVDQ LQFLGHQW WR WKH H[WHQVLRQ RI FUHGLWl WULJJHULQJ %s7jV &RUQLVW LQVLVWV WKDW RWKHU FRXUWV KDYH IRXQG WKDW 7,/$ GLVFORVXUH UHVSRQVLELOLWLHV XQGHU 7,/$  6HFRQG &RUQLVW GLVFORVXUH GXWLHV DUH WULJJHUHG E\ WKHVH H[WHQGHG VHUYLFH FRQWHQGV WKDW VXPPDU\ MXGJPHQW ZDV LQDSSURSULDWH RQ DJUHHPHQWIHHVSDLGWRWKLUGSDUWLHV+RZHYHUWKHFDVHVFLWHG VHYHUDOIHDWXUHVRI%s7jVmVHUYLFHDJUHHPHQWIHHl$FFRUGLQJ GRQRWDGGUHVVWKHTXHVWLRQRIZKDWLWPHDQVIRUDSD\PHQWWR WR&RUQLVW%s7ZDVUHTXLUHGWRGLVFORVHWKHSDUWLDODOORFDWLRQ EHPDGHmRQWKHFRQVXPHUjVEHKDOIl6HHsRQHVY%LOO+HDUG RI WKH VHUYLFH DJUHHPHQW IHH WR D WKLUG SDUW\ YHQGRU &KHYUROHW ,QF  )G   WK &LU  $GGLWLRQDOO\&RUQLVWDVVHUWVWKDWWKHVHUYLFHDJUHHPHQWIHH ILQGLQJ D 7,/$ YLRODWLRQ ZKHUH GHDOHU FODLPHG WKDW IXOO ZDVLPSRVHGGLVSDUDWHO\RQFUHGLWFXVWRPHUVDQGZDVUHDOO\ DPRXQWRIVHUYLFHFRQWUDFWZDVSDLGWR*HQHUDO0RWRUVZKLOH DQXQGLVFORVHGILQDQFHFKDUJHLQYLRODWLRQRI7,/$7KLUG UHWDLQLQJ VLJQLILFDQW SRUWLRQ  *UHHQ Y /HYLV 0RWRUV ,QF &RUQLVW DUJXHV WKDW WKH FRXUW LQFRUUHFWO\ HYDOXDWHG %s7jV   )G    WK &LU   KROGLQJ 7,/$ YLRODWHG GRFXPHQWIHH&RUQLVWLQVLVWVWKDW%s7LQGLFDWHGWKDWLWKDG ZKHUH GHDOHU FODLPHG WR KDYH SDLG IXOO DPRXQW WR 6WDWH RI SDLGWKHGRFXPHQWIHHWRWKLUGSDUWLHVZKHQLQUHDOLW\LWKDG /RXLVLDQDEXWUHWDLQHGSRUWLRQ 7KHVHFDVHVPHUHO\VWDQG UHWDLQHG WKH IHH IRU LWVHOI  $JDLQ &RUQLVW DVVHUWV WKDW WKH IRUWKHXQFRQWURYHUVLDOSURSRVLWLRQWKDWDGHDOHUFDQQRWFODLP GRFXPHQWIHHZDVLPSRVHGRQO\RQFUHGLWFXVWRPHUVPDNLQJ WKDWDIHHZDVSDLGWRWKLUGSDUW\ZKHQSDUWRILWDFWXDOO\ZDV LW WRR DQ XQGLVFORVHG ILQDQFH FKDUJH  :H GLVFXVV WKHVH QRW%s7QHYHUFODLPHGWKDWLWZDVSD\LQJWKHVHUYLFHFRQWUDFW FDWHJRULHVRIDUJXPHQWVVHSDUDWHO\EHORZ WRDWKLUGSDUW\WKXVWKHIDFWWKDWLWUHWDLQHGVRPHRIWKHIHHLV LUUHOHYDQW$GGLWLRQDOO\%s7ZDVQRWREOLJDWHGWRGLVFORVH $%s7jV3ULFLQJ6WUXFWXUH WKDWLWSDLGVRPHRIWKHIHHWRDWKLUGSDUW\EHFDXVHLWZDVQRW SDLGmRQWKHFRQVXPHUjVEHKDOIl &RUQLVWDUJXHVWKDW%s7YLRODWHGWKH7UXWKLQ/HQGLQJ$FW E\FKDUJLQJKLJKHUEDVHSULFHVIRUDXWRPRELOHVVROGWRFUHGLW 6HFRQG &RUQLVW FRQWHQGV WKDW WKH VHUYLFH DJUHHPHQW IHH FXVWRPHUV WKDQ IRU WKRVH VROG WR FDVK FXVWRPHUV ZLWKRXW ZDVDQXQGLVFORVHGILQDQFHFKDUJHLQYLRODWLRQRI86& GLVFORVLQJ WKH KLJKHU SULFHV DV ILQDQFH FKDUJHV  7KH $FW  &RUQLVWHWDOY%s7$XWR6DOHVHWDO 1R 1R &RUQLVWHWDOY%s7$XWR6DOHVHWDO 

SURYLGHV LQ UHOHYDQW SDUW  m)RU HDFK FRQVXPHU FUHGLW IHH ZRXOG EH SDLG WR )LUVW ([WHQGHG  )LUVW ([WHQGHG ZDV WUDQVDFWLRQRWKHUWKDQDQRSHQHQGFUHGLWSODQWKHFUHGLWRU QHYHUmLGHQLI>LHG@lE\QDPH,QGHHG%s7ZRXOGEHIDUIURP VKDOOGLVFORVH>W@KHµILQDQFHFKDUJHjQRWLWHPL]HGXVLQJ DQ\YLRODWLRQLILWKDGNHSWWKHHQWLUHIHHIRULWVHOI WKDW WHUPl  86& †  D    7KH WHUP mILQDQFH FKDUJHl LV GHILQHG HDUOLHU  m>7@KH DPRXQW RI WKH ILQDQFH (YHQWKHRPLVVLRQRIDQ\UHIHUHQFHWR%s7jVSD\PHQWWR FKDUJH LQ FRQQHFWLRQ ZLWK DQ\ FRQVXPHU FUHGLW WUDQVDFWLRQ )LUVW([WHQGHGLVQRWDYLRODWLRQRI7,/$7,/$GRHVQRW VKDOOEHGHWHUPLQHGDVWKHVXPRIDOOFKDUJHVSD\DEOHGLUHFWO\ UHTXLUHWKDWHYHU\SD\PHQWPDGHWRDWKLUGSDUW\LQFRQQHFWLRQ RULQGLUHFWO\E\WKHSHUVRQWRZKRPWKHFUHGLWLVH[WHQGHG ZLWKDWUDQVDFWLRQEHGLVFORVHGWRWKHFXVWRPHUEXWRQO\WKRVH DQG LPSRVHG GLUHFWO\ RU LQGLUHFWO\ E\ WKH FUHGLWRU DV DQ SD\PHQWVWRWKLUGSDUWLHVWKDWDUHPDGHmRQWKHFRQVXPHUjV LQFLGHQWWRWKHH[WHQVLRQRIFUHGLW7KHILQDQFHFKDUJHGRHV EHKDOIl86&† D  % LLL %s7LIUHTXLUHGWR QRWLQFOXGHFKDUJHVRIDW\SHSD\DEOHLQDFRPSDUDEOHFDVK GLVFORVHHYHU\SD\PHQWWRDWKLUGSDUW\ZRXOGQHHGWRH[SRVH WUDQVDFWLRQl86&† D  HPSKDVLVDGGHG 7KHVH IRUH[DPSOHWKHDPRXQWVSDLGWRWKHRULJLQDORZQHUWRDFTXLUH SURYLVLRQVUHTXLUHVHOOHUVWRGLVFORVHDVmILQDQFHFKDUJHVlIHHV WKHXVHGFDUSDUWVGLVWULEXWRUVWRUHFRQGLWLRQWKHDXWRPRELOH SD\DEOHE\FUHGLWFXVWRPHUVEXWQRWE\FDVKFXVWRPHUVLQ RU HYHQ WKH ODQGORUG IRU VWRULQJ WKH FDU  7,/$ GRHV QRW FRPSDUDEOH WUDQVDFWLRQV  $OWKRXJK WKHUH DUH FHUWDLQO\ UHTXLUHDVHOOHUWRGLVFORVHDOOLWVFRVWVWRDSXUFKDVHU H[FHSWLRQVWRWKLVUXOHQRQHLVUHOHYDQWKHUH )HGHUDOFRXUWVKRZHYHUKDYHQRWEHHQSUHVVHGWRFODULI\ 7KLVVWDWXWRU\ODQJXDJHEULQJVXVFORVHWRWKHFDVHDWKDQG ZKDWW\SHVRISD\PHQWVDUHWKRVHPDGHmRQWKHFRQVXPHUjV $Q LQFUHDVH LQ WKH EDVH SULFH RI DQ DXWRPRELOH WKDW LV QRW EHKDOIl7KHGLVWLQFWLRQFRXOGEHWHPSRUDO :HPLJKWUHTXLUH FKDUJHG WR D FDVK FXVWRPHU EXW LV FKDUJHG WR D FUHGLW VHOOHUVWRGLVFORVHSD\PHQWVWRWKLUGSDUWLHVWREHPDGHDIWHU FXVWRPHU VROHO\ EHFDXVH KH LV D FUHGLW FXVWRPHU WULJJHUV WKHWUDQVDFWLRQ,QWKDWFDVHWKHVHOOHUZRXOGQRWEHUHTXLUHG 7,/$jVGLVFORVXUHUHTXLUHPHQWV7KHSUREOHPRISURRILVWKDW WRGLVFORVHDOORILWVFRVWVDWOHDVW%XWZHFDQILQGQRWH[WXDO WKHUH FRXOG EH PDQ\ RWKHU UHDVRQV WR ZKLFK 7,/$ LV EDVLVLQ7,/$IRUGUDZLQJVXFKDWHPSRUDOOLQH LQGLIIHUHQW IRU D FRPSDUDWLYHO\ KLJKHU EDVH SULFH  2QH FXVWRPHUFRXOGEHDEHWWHUEDUJDLQHUWKDQDQRWKHU7,/$LV 7KHEHWWHUDSSURDFKOLHVLQGLVVHFWLQJZKDWLWPHDQVIRUD QRW DQ DIILUPDWLYH DFWLRQ VWDWXWH IRU WKRVH XQVNLOOHG LQ SD\PHQWWREHPDGHmRQWKHFRQVXPHUjVEHKDOIl$SD\PHQW QHJRWLDWLRQ  &RQVXPHU GHPDQG PD\ DSSHDU KLJKHU WR WKH LVPDGHWRDWKLUGSDUW\mRQWKHFRQVXPHUjVEHKDOIl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jV FRVWV VKRXOG EH DEOH WR EDUJDLQ

GHPRQVWUDWHDmFDXVDOFRQQHFWLRQlEHWZHHQWKHKLJKHUSULFH WKH VHOOHU GRZQ WR PDUJLQDO FRVW $ FDVK FXVWRPHU XQFHUWDLQ RI WKH

DQGWKHH[WHQVLRQRIFUHGLW VHOOHUjV FRVWV PLJKW DFFHSW D KLJKHU SULFH WKLQNLQJ LQFRUUHFWO\ WKDW KH KDG EDUJDLQHG WR WKH VHOOHUjV PDUJLQDO FRVWV :H QRWH WKDW 7,/$ GRHV QRW HYHQ

7KLVGLOHPPDRISURRILVQRWXQNQRZQWRWKHODZ,QRXU UHDOO\ UHTXLUH WKH VHOOHU WR GLVFORVH LWV FRVW RI H[WHQGLQJ FUHGLW EXW RQO\ WKH SULFH RI H[WHQGLQJ WKDW FUHGLW  WKDW LV WKH PDUJLQDO GLIIHUHQFH IURP HPSOR\PHQWGLVFULPLQDWLRQMXULVSUXGHQFHZHKDYHGLVFXVVHG D FDVK WUDQVDFWLRQ DW OHQJWK ZKDW W\SH DQG DPRXQW RI HYLGHQFH ZLOO SHUPLW D 5HTXLULQJ VHOOHUV WR GLVFORVH DOO SD\PHQWV WR WKLUG SDUWLHV ZRXOG HVVHQWLDOO\ UHTXLUH WKH VHOOHU WR GLVFORVH DOO KLV FRVWV  &RUQLVWHWDOY%s7$XWR6DOHVHWDO 1R 1R &RUQLVWHWDOY%s7$XWR6DOHVHWDO 

RQ WKH ORZ VLGH RI WKH PHDQ DQG ZHUH VWDWLVWLFDOO\ ILQGLQJWKDWDQDGYHUVHHPSOR\PHQWDFWLRQZDVWDNHQEHFDXVH LQVLJQLILFDQW%XWWKHFRQVLVWHQWDQGVL]HDEOHJDSEHWZHHQWKH RIUDFHRUJHQGHU:KDWZRXOGFHUWDLQO\VXIILFHIRU7,/$LV FDVKDQGFUHGLWPDUNXSVPDNHVUDQGRPQHVVVXIILFLHQWO\OHVV GLUHFW HYLGHQFH  VWDWHPHQWV WKDW WKH SULFH ZDV LQFUHDVHG OLNHO\DQH[SODQDWLRQWKDWWKHUHLVDJHQXLQHLVVXHRIPDWHULDO EHFDXVHWKHSXUFKDVHZDVPDGHRQFUHGLW$SODLQWLIIFDQ IDFW DV WR ZKHWKHU WKH HQKDQFHG PDUNXSV IRU FUHGLW DOVR HVWDEOLVK WKH UHDVRQ IRU WKH SULFH LQFUHDVH WKURXJK WUDQVDFWLRQVZHUHEHFDXVHRIWKHH[WHQVLRQRIFUHGLW FLUFXPVWDQWLDOHYLGHQFH7KHTXHVWLRQWKDWZHQRZIDFHLV ZKDWW\SHRIFLUFXPVWDQWLDOHYLGHQFHLVVXIILFLHQWWRHVWDEOLVK :HWKHUHIRUHUHYHUVHWKHGLVWULFWFRXUWjVVXPPDU\MXGJPHQW DJHQXLQHLVVXHRIPDWHULDOIDFWWKDWDVHOOHUFKDUJHVLQFUHDVHG ZLWKUHJDUGWR&RUQLVWjVFODLPWKDW%s7ZDVLQFUHDVLQJWKH SULFHV WR FUHGLW FXVWRPHUV EHFDXVH WKH\ DUH QRW FDVK EDVH SULFH RI DXWRPRELOHV IRU FUHGLW FXVWRPHUV ZLWKRXW FXVWRPHUV GLVFORVLQJVXFKLQFUHDVHVDVILQDQFHFKDUJHV 7KH8QLWHG6WDWHV&RXUWRI$SSHDOVIRUWKH6HYHQWK&LUFXLW %%s7jV6HUYLFH$JUHHPHQW)HH KDVVXJJHVWHGWKDWSULFHLQFUHDVHVVKRXOGRQO\EHFRQVLGHUHG mILQDQFH FKDUJHVl LI WKH\ DUH mV\VWHPDWLFDOO\l FKDUJHG WR &RUQLVW ZDV FKDUJHG   IRU D VHUYLFH DJUHHPHQW IHH FUHGLWEXWQRWWRFDVKFXVWRPHUV*LEVRQ)GDW ZKLFKLVVRPHWKLQJOLNHDQH[WHQGHGVHUYLFHZDUUDQW\RQWKH 7KH6HYHQWK&LUFXLWWKHSDUWLHVLQWKLVFDVHDQGWKHGLVWULFW DXWRPRELOH SXUFKDVHG  7KH UHWDLO LQVWDOOPHQW FRQWUDFW GLG FRXUWGLVFXVVWKLVmV\VWHPDWLFlTXDOLW\DVLILWZHUHDOHJDO LWHPL]H WKH IHH  m6HUYLFH &RQWUDFW 3DLG WR   l  &RUQLVW HOHPHQWRID7,/$FDXVHRIDFWLRQ:HFDQQRWILQGWKHZRUG DUJXHV WKDW %s7jV KDQGOLQJ RI WKH VHUYLFH DJUHHPHQW IHH mV\VWHPDWLFl DQ\ZKHUH LQ WKH VWDWXWH  ,QVWHDG DQ\ YLRODWHG7,/$LQWZRZD\V FRQVLGHUDWLRQRImV\VWHPDWLFlGLVSDULW\LVDQHYLGHQWLDU\WRRO RQHZD\EXWQRWWKHH[FOXVLYHZD\LQZKLFKFLUFXPVWDQWLDO )LUVW&RUQLVWFODLPVWKDWWKHFRQWUDFWIDLOHGWRGLVFORVHWKH HYLGHQFH FDQ WHQG WR HVWDEOLVK WKDW D VXP LV FKDUJHG D SDUW\ WR ZKRP WKH IHH ZDV XOWLPDWHO\ SDLG LQ YLRODWLRQ RI FXVWRPHUEHFDXVHKHSDLGZLWKFUHGLW 7,/$  %s7 SDLG  RI WKH IHH WR )LUVW ([WHQGHG 6HUYLFH &RUSRUDWLRQ  %s7 UHWDLQHG WKH UHPDLQGHU  )LUVW :KHQWKHHYLGHQFHGHPRQVWUDWHVDFRQVLVWHQWGLIIHUHQFHLQ ([WHQGHGDJUHHGWRSURFHVVFODLPVDQGWRDUUDQJHIRUVHUYLFH WKH EDVH SULFH IRU FDVK DQG FUHGLW FXVWRPHUV OHJLWLPDWH WREHSHUIRUPHGSXUVXDQWWR%s7jVVHUYLFHDJUHHPHQWVZLWKLWV UHDVRQV IRU WKH LQGLYLGXDO SULFH GLIIHUHQFHV DSSURDFK WKH FXVWRPHUV%s7DJUHHGWRUHLPEXUVH)LUVW([WHQGHGIRUDQ\ YDQLVKLQJSRLQW:KLOHDQ\SDUWLFXODUFDVKFXVWRPHUPD\EH VHUYLFHWKDW)LUVW([WHQGHGDUUDQJHGWREHSHUIRUPHGXQGHU IRU H[DPSOH D EHWWHU EDUJDLQHU WKDQ D SDUWLFXODU FUHGLW %s7jVZDUUDQWLHV FXVWRPHUZHZRXOGEHKDUGSUHVVHGWRVD\WKDWDOORUQHDUO\ DOOFDVKFXVWRPHUVDUHEHWWHUEDUJDLQHUVWKDQFUHGLWFXVWRPHUV 7,/$LVQRWVLOHQWRQZKHWKHUVHOOHUVPXVWGLVFORVHSRUWLRQV 6LPLODUO\ ZKLOH PDUNHW FRQGLWLRQV PD\ LGLRV\QFUDWLFDOO\ RIWKHSULFHSDLGWRWKLUGSDUWLHV7,/$UHTXLUHVWKDWDFUHGLWRU LQFUHDVHWKHSULFHIRUDQ\SDUWLFXODUFXVWRPHUZHFDQQRWWKLQN GLVFORVHmHDFKDPRXQWWKDWLVRUZLOOEHSDLGWRWKLUGSHUVRQV RI DQ\ UHDVRQ ZK\ WKLV HFRQRPLF IDFW ZRXOG E\ WKH FUHGLWRU RQ WKH FRQVXPHUjV EHKDOI WRJHWKHU ZLWK DQ GLVSURSRUWLRQDWHO\EHIDOOWKHFUHGLWFXVWRPHU:HDYRLGWKH LGHQWLILFDWLRQRIRUUHIHUHQFHWRWKHWKLUGSHUVRQl86& ORJLFDO IDOODF\ RI HTXDWLQJ FRUUHODWLRQ ZLWK FDXVDWLRQ E\ † D  % LLL $OWKRXJK&RUQLVWFRPSODLQVDERXW%s7 UHWDLQLQJ  RI WKH VHUYLFH FRQWUDFW IHH DV LI LW ZHUH SUHVXPHGWKDWWKHHQWLUHIHHZDVEHLQJWUDQVPLWWHGWRDWKLUG  SDUW\KHURQO\SRWHQWLDOO\DFWLRQDEOHFRPSODLQWLVZLWK%s7 2I FRXUVH WKH VWDWHPHQW ZRXOG DOPRVW LQYDULDEO\ QHHG WR EH PDGH WR VRPHRQH RWKHU WKDQ WKH FXVWRPHU EHFDXVH WKHQ LW ZRXOG DPRXQW WR D IDLOLQJH[SOLFLWO\WRGLVFORVHWKDWRIWKHVHUYLFHFRQWUDFW GLVFORVXUH ZKLFK LV DOO WKDW 7,/$ UHTXLUHV  &RUQLVWHWDOY%s7$XWR6DOHVHWDO 1R 1R &RUQLVWHWDOY%s7$XWR6DOHVHWDO

PDNLQJRXUVWDWLVWLFDOSUHPLVHH[SOLFLW7KHHYLGHQWLDU\WRRO FRQWUROIRUWKHFDUVROG DKLJKHUSULFHGFDUZLOOOLNHO\KDYHD RIVHHNLQJDV\VWHPDWLFTXDOLW\LQWKHSULFHGLVSDULW\UHVWVRQ KLJKHUDFTXLVLWLRQSULFH$OWKRXJKPDUNHWFRQGLWLRQVPD\ WKHVHQVLEOHSUHPLVHWKDWOHJLWLPDWHUHDVRQVIRUYDU\LQJWKH SHUPLW%s7WRJDUQHUODUJHUPDUNXSVRQVRPHFDUVUDWKHUWKDQ EDVHSULFHGRQRWFRQVLVWHQWO\FRUUHODWHZLWKFDVKFUHGLWVWDWXV RWKHUV QR HYLGHQFH KDV EHHQ SUHVHQWHG WKXV IDU WKDW WKLV PDUNHWSKHQRPHQRQZRXOGDIIHFWFDVKDQGFUHGLWFXVWRPHUV 7KHUHDUHRIFRXUVHRWKHUZD\VWRVKRZWKDWSULFHVZHUH GLVSDUDWHO\ LQFUHDVHG EHFDXVH RI WKH H[WHQVLRQ RI FUHGLW  $EVHQW GLVFORVXUHLQFUHDVLQJSULFHVEHFDXVHRIWKHH[WHQVLRQRIFUHGLW %s7j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mV\VWHPDWLFl :H UHFRJQL]H WKDW WKH PDUNXS GLVSDULW\ FRXOG EH GLVSDULW\UHTXLUHPHQWLVQRWDQHOHPHQWRID7,/$FDXVHRI VXVFHSWLEOHWRVHYHUDOH[SODQDWLRQV%s7PLJKWHVWDEOLVKD DFWLRQIRUXQGLVFORVHGILQDQFHFKDUJHVEXWDPDQQHULQZKLFK OHJLWLPDWHUHDVRQIRUWKHFRQVLGHUDEO\ORZHUPDUNXSVLQHDFK FLUFXPVWDQWLDOHYLGHQFHFDQEHXVHGWRSURYHWKDWDVHOOHULV FDVK WUDQVDFWLRQ  1R VXFK H[SODQDWLRQV KDYH EHHQ RIIHUHG EXU\LQJWKHFRVWRIFUHGLWLQWKHSULFHRIJRRGVVROG WKXVIDULQWKLVFDVHDQGPRVWVXFKH[SODQDWLRQVZRXOGFUHDWH JHQXLQH LVVXHV RI PDWHULDO IDFW LQFDSDEOH RI UHVROXWLRQ RQ :HWXUQQRZWRWKHFLUFXPVWDQWLDOHYLGHQFHLQWKLVFDVH VXPPDU\MXGJPHQW &RUQLVWLQUHVSRQVHWRWKHGHIHQGDQWVjPRWLRQIRUVXPPDU\ MXGJPHQWSUHSDUHGDVWXG\FRPSDULQJ%s7jVFDVKDQGFUHGLW 7KH GLVWULFW FRXUW LQ JUDQWLQJ VXPPDU\ MXGJPHQW WR WKH WUDQVDFWLRQV,QWKDWVWXG\&RUQLVWDFFXPXODWHGGDWDIURPWKH GHIHQGDQWVRQWKLVLVVXHZDVFRQFHUQHGWKDWWKHFDVKVDOHV mILOHMDFNHWVlSUHSDUHGIRUHDFKFDUVROG$PRQJRWKHULWHPV FRQVWLWXWH RQO\ D VPDOO SHUFHQWDJH RI WKH WRWDO VDOHV LQ WKHILOHMDFNHWVFRQWDLQHG%s7jVFRVWRIDFTXLULQJDFDUWKH &RUQLVWjV VWXG\ RU LQGHHG RI DOO %s7jV VDOHV  &RUQLVW XOWLPDWHSULFHDWZKLFKWKHFDUZDVVROGDQGZKHWKHUWKHFDU SUHVHQWHGWKHGLVWULFWFRXUWZLWKRQO\QLQHWHHQFDVKVDOHVRYHU ZDVSXUFKDVHGXVLQJFDVKRUFUHGLW WZR\HDUVFRPSDUHGWRKXQGUHGVRIFUHGLWVDOHV,WPLJKW ZHOOEHWKHFDVHWKDWWKHQLQHWHHQFDVKVDOHVDUHVWDWLVWLFDOO\ 7KHNH\PHDVXUHRIFRPSDULVRQLQ&RUQLVWjVVWXG\ZDVWKH LQVLJQLILFDQWEXWZHXQDEOHWRKROGWKDWWKHUHLVQRJHQXLQH mPDUNXSlRQWKHDXWRPRELOHVVROG7KHmPDUNXSl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

$00 0RXUQLQJ Y )DPLO\ 3XEOLFDWLRQV 6HUYLFH ,QF  86     Q    :H QRWH KRZHYHU WKDW FRXUWV ZRXOG OLNHO\ ZDQW WR :H GR QRW PHDQ WR VD\ WKDW &RUQLVW ZLWKKHOG GDWD IURP VRPH FDVK

FRQWURO IRU FRPSDUDWLYH HIILFLHQFLHV WKDW PD\ DOVR DOORZ WKH FDVK VHOOHU WR VDOHV IURP KHU VWXG\ &RUQLVW LGHQWLILHG IURP VXPPDU\ GRFXPHQWV 

GHOLYHU WKH SURGXFW DW D ORZHU SULFH %s7 FDVK VDOHV +RZHYHU DIWHU UHSHDWHG PRWLRQV WR FRPSHO %s7 RQO\ SURGXFHG WKH ILOH MDFNHWV RQ QLQHWHHQ FDVK VDOHV