Contract
7 DEOHRI &RQWHQWV
8 1 , 7
$(7
’( 6 6 7
6 ( & 8 5$
,1 7’
, ( (6
; & + $ 1 * ( & 2
: D V K L Q J W R Q ’ &
) 2 5 0 .
& 8 5 5 ( 5 1 (77 3 2 5
3 8 5 6
782
$ 1 6 7 ( & 7 , 2 1 2 5
2 )7 + ( 6 ( & 8 5 , $ 7 &,
1 R Y H P E H U
7( 2 6 )
( ; & + $ 1 * (
’ D W H R I 5 H S R U W
’ D W H
HR S I
R UH ▇▇ ▇▇ GO L H V W H Y H
6 < 1 & + 5)
2, 1
<$ 1 & , $
( [ DFWQDP HRI UHJ LVWUDQWDVVSHFLILHG LQ LWVFKDUWHU
’ HODZ DUH
6WDWHRURWKHUMXULVGLFWLRQ RI LQFRUSRUDWLRQ
&RP P LVVLRQ
) LOH1 XP EHU
, 5 6 ( P SOR\ HU
, GHQWLILFDWLRQ 1 R
/ RQJ 5 LGJ H5 RDG 6WDP IRUG &RQQHFWLFXW
$ GGUHVVRI SULQFLSDOH[ HFXWLYHRIILFHV = LS &RGH
5 HJ LVWUDQW¶VWHOHSKRQHQXP EHU LQFOXGLQJ DUHDFRGH
1 $
) RUP HUQDP HRUIRUP HUDGGUHVV LI FKDQJ HG VLQFHODVWUHSRUW
&KHFNWKHDSSURSULDWHER[ EHORZ LI WKH) RUP . ILOLQJ LVLQWHQGHGWR VLP XOWDQHRXVO\ VDWLVI\ WKHILOLQJ REOLJ DWLRQRI WKHUHJ LVWUDQWXQGHUDQ\ RI WKHIROORZ LQJ SURYLVLRQV
: ULWWHQFRP P XQLFDWLRQVSXUVXDQWWR 5 XOH XQGHUWKH6HFXULWLHV$ FW &) 5 6ROLFLWLQJ P DWHULDOSXUVXDQWWR 5 XOH D XQGHUWKH( [ FKDQJ H$ FW &) 5 D
3UHFRP P HQFHP HQWFRP P XQLFDWLRQVSXUVXDQWWR 5 XOH G E XQGHUWKH( [ FKDQJ H$ FW &) 5 G E
3UHFRP P HQFHP HQWFRP P XQLFDWLRQVSXUVXDQWWR 5 XOH H F XQGHUWKH( [ FKDQJ H$ FW &) 5 H F
( ; 3 / $ 1 $ 7 2 5 < 1 2 7 (
7 KHLQIRUP DWLRQFRQWDLQHGLQWKLVUHSRUWWKH‡) RUP , QIRUP DWLRQ· FRQVLVWVRI LQIRUP DWLRQWKDWZ RXOGEHLQFOXGHGLQD5 HJ LVWUDWLRQ6WDWHP HQWRQ) RUP DQGVXEVWDQWLDOO\ FRUUHVSRQGVZ LWK DQGXSGDWHVDQGRWKHUZ LVHP RGLILHV WKHLQIRUP DWLRQSUHYLRXVO\ SURYLGHGE\ 6\ QFKURQ\ ) LQDQFLDOLQLWV$ P HQGP HQW1 R WR WKH5 HJ LVWUDWLRQ6WDWHP HQWRQ
) RUP 6 1 R ILOHGRQ$ XJ XVW 7 KH) RUP , QIRUP DWLRQLVEHLQJ YROXQWDULO\ SURYLGHGE\ 6\ QFKURQ\ ) LQDQFLDOLQFRQQHFWLRQZ LWKWKHILOLQJ WRGD\ RI LWV 5 HJ LVWUDWLRQ6WDWHP HQWRQ) RUP 6 WKH‡5 HJ LVWUDWLRQ6WDWHP HQW· UHODWLQJ WR WKHUHJ LVWUDWLRQRI GHEWVHFXULWLHV WR EHRIIHUHGIURP WLP HWR WLP H LQDQDJ J UHJ DWHDP RXQWRI XS
WR , WHP | ELOOLRQ 7 KH) RUP , QIRUP DWLRQLVLQFRUSRUDWHGE\ UHIHUHQFHLQWR WKH5 HJ LVWUDWLRQ6WDWHP HQW 2 WKHU( YHQWV | |
) 2 5 0 , 1 ) 2 5 0 $ 7 , 2 1 | ||
, 7 ( 0 | %8 6, 1 ( 66 | 3 ▇▇ ▇ |
, 7 ( 0 | $ 5 , 6. ) $ &72 5 6 | |
, 7 ( 0 | ) , 1 $ 1 &, $ / , 1 ) 2 5 0 $ 7 , 2 1 | |
, 7 ( 0 | 35 2 3( 5 7 , ( 6 | |
, 7 ( 0 | 6( &8 5 , 7 < 2 : 1 ( 5 6+ , 3 2 ) &( 5 7$ , 1 %( 1 ( ) ,&, $ / 2 : 1 ( 5 6 $ 1 ’ 0 $ 1 $ * ( 0 ( 1 7 | |
, 7 ( 0 | ’ , 5 ( &72 5 6 $ 1 ’ ( ; ( &8 7 , 9 ( 2 ) ) ,&( 5 6 | |
, 7 ( 0 | ( ; ( &8 7 , 9 ( &2 0 3( 1 6$ 7 , 2 1 | |
, 7 ( 0 | &( 5 7$ , 1 5 ( / $ 7 , 2 1 6+ , 36 $ 1 ’ 5 ( / $ 7 ( ’ 7 5 $ 1 6$ &7 , 2 1 6 $ 1 ’ ’ , 5 ( &72 5 , 1 ’ ( 3( 1 ’ ( 1 &( | |
, 7 ( 0 | / ( * $ / 35 2 &( ( ’ , 1 * 6 | |
, 7 ( 0 | 0 $ 5 . ( 7 35 ,&( 2 ) $ 1 ’ ’ , 9 ,’ ( 1 ’ 6 2 1 7 + ( 5 ( * , 67 5 $ 1 7 ¶6 &2 0 0 2 1 ( 4 8 , 7 < $ 1 ’ 5 ( / $ 7 ( ’ 672 &. + 2 / ’ ( 5 0 $ 7 7 ( 5 6 | |
, 7 ( 0 | 5 ( &( 1 7 6$ / ( 6 2 ) 8 1 5 ( * , 67 ( 5 ( ’ 6( &8 5 , 7 , ( 6 | |
, 7 ( 0 | ’ ( 6&5 , 37 , 2 1 2 ) 5 ( * , 67 5 $ 1 7 ¶6 6( &8 5 , 7 ,( 6 72 %( 5 ( * , 67 ( 5 ( ’ | |
, 7 ( 0 | , 1 ’ ( 0 1 ,) ,&$ 7 , 2 1 2 ) ’ , 5 ( &72 5 6 $ 1 ’ 2 ) ) ,&( 5 6 | |
, 7 ( 0 | ) , 1 $ 1 &, $ / 67$ 7 ( 0 ( 1 7 6 $ 1 ’ 68 33/ ( 0 ( 1 7$ 5 < ’ $ 7$ | |
, 7 ( 0 | &+ $ 1 * ( 6 , 1 $ 1 ’ ’ , 6$ * 5 ( ( 0 ( 1 7 6 : , 7 + $ &&2 8 1 7$ 1 7 6 2 1 $ &&2 8 1 7 , 1 * $ 1 ’ ) , 1 $ 1 &, $ / ’ , 6&/ 2 68 5 ( | |
, 7 ( 0 | ) , 1 $ 1 &, $ / 67$ 7 ( 0 ( 1 7 6 $ 1 ’ ( ; + , %, 7 6 |
&HUWDLQ ’ HILQHG7 HUP V
( [ FHSWDVWKHFRQWH[ WP D\ RWKHUZ LVHUHTXLUHLQWKLVUHSRUWUHIHUHQFHVWR
‡Z H· ‡XV· ‡RXU· DQGWKH‡&RP SDQ\ · DUHWR 6< 1 &+ 5 2 1 < ) , 1 $ 1 &, $ / DQGLWVVXEVLGLDULHV Z KLFKWRJ HWKHUUHSUHVHQWWKHEXVLQHVVHVWKDWKLVWRULFDOO\ KDYH FRQGXFWHG* ( ¶V1 RUWK$ P HULFDQUHWDLOILQDQFHEXVLQHVV
‡6\ QFKURQ\ · DUHWR 6< 1 &+ 5 2 1 < ) , 1 $ 1 &, $ / RQO\
‡* ( · DUHWR * HQHUDO( OHFWULF &RP SDQ\ DQGLWVVXEVLGLDULHV
‡* ( &&· DUHWR * HQHUDO( OHFWULF &DSLWDO&RUSRUDWLRQ DVXEVLGLDU\ RI * ( DQGLWVVXEVLGLDULHV
‡* ( &) , · DUHWR * ( &RQVXP HU) LQDQFH , QF DVXEVLGLDU\ RI * ( && WKDWRZ QV RI WKHFRP P RQVWRFNRI 6\ QFKURQ\ DQGLWVVXEVLGLDULHV WKH‡%DQN· DUHWR 6\ QFKURQ\ %DQN DVXEVLGLDU\ RI 6\ QFKURQ\ SUHYLRXVO\ NQRZ QDV* ( &DSLWDO5 HWDLO%DQN
WKH‡%DQN7HUP / RDQ) DFLOLW\ · DUHWR WKHWHUP ORDQDJ UHHP HQWGDWHGDVRI -XO\ DP RQJ 6\ QFKURQ\ DVERUURZ HU -30 RUJ DQ&KDVH%DQN 1 $ DV DGP LQLVWUDWLYHDJ HQWDQGWKHOHQGHUVIURP WLP HWR WLP HSDUW\ WKHUHWR DVDP HQGHG
WKH‡* ( && 7HUP / RDQ) DFLOLW\ · DUHWR WKHWHUP ORDQDJ UHHP HQWGDWHGDVRI -XO\ DP RQJ 6\ QFKURQ\ DVERUURZ HU * ( && DVDGP LQLVWUDWLYHDJ HQWDQG WKHRWKHU/ HQGHUVSDUW\ WKHUHWR DVDP HQGHG
WKH‡( [ LVWLQJ 1 RWHV· DUHWR RXU 6HQLRU1 RWHVGXH RXU 6HQLRU1 RWHVGXH RXU 6HQLRU1 RWHVGXH DQGRXU 6HQLRU 1 RWHVGXH LQWKHDJ J UHJ DWH DQG
‡) ,&2 · VFRUHDUHWR DFUHGLWVFRUHGHYHORSHGE\ ) DLU, VDDF &R Z KLFKLVZ LGHO\ XVHGDVDP HDQVRI HYDOXDWLQJ WKHOLNHOLKRRGWKDWFUHGLWXVHUVZ LOOSD\ WKHLU REOLJ DWLRQV
) RUDGHVFULSWLRQRI FHUWDLQRWKHUWHUP VZ HXVH LQFOXGLQJ ‡DFWLYHDFFRXQW· ‡RSHQDFFRXQW· DQG‡SXUFKDVHYROXP H· VHHWKHQRWHVWR ‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 6HOHFWHG+ LVWRULFDODQG3UR ) RUP D) LQDQFLDO, QIRUP DWLRQ† 2 WKHU) LQDQFLDODQG6WDWLVWLFDO’ DWD· 7 KHUHLVQR VWDQGDUGLQGXVWU\ GHILQLWLRQIRUP DQ\ RI WKHVHWHUP V DQGRWKHU FRP SDQLHVP D\ GHILQHWKHP GLIIHUHQWO\ WKDQZ HGR
: HSURYLGHDUDQJ HRI FUHGLWSURGXFWVWKURXJ KSURJ UDP VZ HKDYHHVWDEOLVKHGZ LWKDGLYHUVHJ URXS RI QDWLRQDODQGUHJ LRQDOUHWDLOHUV ORFDOP HUFKDQWV P DQXIDFWXUHUV EX\ LQJ J URXSV LQGXVWU\ DVVRFLDWLRQVDQGKHDOWKFDUHVHUYLFHSURYLGHUV Z KLFK LQRXUEXVLQHVVDQGLQWKLVUHSRUWZ HUHIHUWR DVRXU‡SDUWQHUV· 7 KHWHUP VRI WKHSURJ UDP VDOO UHTXLUHFRRSHUDWLYHHIIRUWVEHWZ HHQXVDQGRXUSDUWQHUVRI YDU\ LQJ QDWXUHVDQGGHJ UHHVWR HVWDEOLVKDQGRSHUDWHWKHSURJ UDP V 2 XUXVHRI WKHWHUP ‡SDUWQHUV· WR UHIHUWR WKHVH HQWLWLHVLVQRWLQWHQGHGWR DQGGRHVQRWGHVFULEHRXUOHJ DOUHODWLRQVKLS Z LWKWKHP LP SO\ WKDWDOHJ DOSDUWQHUVKLS RURWKHUUHODWLRQVKLS H[ LVWVEHWZ HHQWKHSDUWLHVRUFUHDWHDQ\ OHJ DOSDUWQHUVKLS RURWKHUUHODWLRQVKLS 7 KH‡DYHUDJ HOHQJ WKRI RXUUHODWLRQVKLS· Z LWKUHVSHFWWR DVSHFLILHGJ URXS RI SDUWQHUVRUSURJ UDP VLVP HDVXUHGRQDZ HLJ KWHGDYHUDJ H
EDVLVE\ SODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU IRUWKRVHSDUWQHUVRUIRUDOOSDUWQHUVSDUWLFLSDWLQJ LQDSURJ UDP EDVHGRQWKHGDWHHDFKSDUWQHUUHODWLRQVKLS RU SURJ UDP DVDSSOLFDEOH VWDUWHG , QIRUP DWLRQZ LWKUHVSHFWWR SDUWQHU‡ORFDWLRQV· LQWKLVUHSRUWLVJ LYHQDW6HSWHP EHU
, QFRQQHFWLRQZ LWKWKHH[ SHFWHGH[ SLUDWLRQRI WZ RSDUWQHUSURJ UDP VLQRXU5 HWDLO&DUGSODWIRUP Z HFODVVLILHGORDQUHFHLYDEOHVLQWZ R UHODWHGSRUWIROLRV Z KLFKZ H VXEVHTXHQWO\ VROGLQWKHIRXUWKTXDUWHURI DVORDQUHFHLYDEOHVKHOGIRUVDOHLQRXU&RQVROLGDWHGDQG&RQGHQVHG6WDWHP HQWRI ) LQDQFLDO3RVLWLRQDW6HSWHP EHU
8 QOHVVRWKHUZ LVHLQGLFDWHG UHIHUHQFHVWR ‡ORDQUHFHLYDEOHV· GR QRWLQFOXGHORDQUHFHLYDEOHVKHOGIRUVDOH
‡6\ QFKURQ\ · DQGLWVORJ RVDQGRWKHUWUDGHP DUNVUHIHUUHGWR LQWKLVUHSRUWLQFOXGLQJ 2 SWLP L] HUSOXV 2 SWLP L] HUSOXV3HUNV &DUH&UHGLW 4 XLFNVFUHHQ DQG
H4 XLFNVFUHHQ EHORQJ WR XV 6ROHO\ IRUFRQYHQLHQFH Z HUHIHUWR RXUWUDGHP DUNVLQWKLVUHSRUWZ LWKRXWWKH DQG V\ P EROV EXWVXFKUHIHUHQFHVDUHQRWLQWHQGHGWR LQGLFDWH WKDWZ HZ LOOQRWDVVHUWWR WKHIXOOHVWH[ WHQWXQGHUDSSOLFDEOHODZ RXUULJ KWVWR RXUWUDGHP DUNV 2 WKHUVHUYLFHP DUNV WUDGHP DUNVDQGWUDGHQDP HVUHIHUUHGWR LQWKLVUHSRUWDUHWKH SURSHUW\ RI WKHLUUHVSHFWLYHRZ QHUV
, QGXVWU\ DQG 0 DUNHW’ DWD
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
RI ‡7 KH1 LOVRQ5 HSRUW· DVXEVFULSWLRQ EDVHGLQGXVWU\ QHZ VOHWWHU GDWHG$ SULO EDVHGRQ GDWD DQGUHIHUHQFHVWR ‡7 KH1 LOVRQ5 HSRUW’ HFHP EHU · DUHWR LVVXHQXP EHU RI 7 KH1 LOVRQ5 HSRUWGDWHG’ HFHP EHU
1 RQ * $ $ 3 0 HDVXUHV
7R DVVHVVDQGLQWHUQDOO\ UHSRUWWKHUHYHQXHSHUIRUP DQFHRI RXUWKUHHVDOHVSODWIRUP V Z HXVHDP HDVXUHZ HUHIHUWR DV‡SODWIRUP UHYHQXH· 3ODWIRUP UHYHQXHLVWKHVXP R WKUHHOLQHLWHP VLQRXU&RQVROLGDWHGDQG&RP ELQHG6WDWHP HQWVRI ( DUQLQJ VSUHSDUHGLQDFFRUGDQFHZ LWK8 6 J HQHUDOO\ DFFHSWHGDFFRXQWLQJ SULQFLSOHV ‡* $ $ 3· ‡LQWHUHVWDQG IHHVRQORDQV· SOXV‡RWKHULQFRP H· OHVV‡UHWDLOHUVKDUHDUUDQJ HP HQWV· 3ODWIRUP UHYHQXHLWVHOI LVQRWDP HDVXUHSUHVHQWHGLQDFFRUGDQFHZ LWK* $ $ 3 ) RUDUHFRQFLOLDWLRQRI SODWIRUP UHYHQXHWR LQWHUHVWDQGIHHVRQORDQV VHH‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV† 5 HVXOWVRI 2 SHUDWLRQV† ) RUWKH1 LQH0 RQWKV( QGHG6HSWHP EHU DQG † 3ODWIRUP $ QDO\ VLV· DQG‡† 5 HVXOWVRI 2 SHUDWLRQV† ) RUWKH<HDUV( QGHG’ HFHP EHU
DQG † 3ODWIRUP $ QDO\ VLV· : HGHGXFWUHWDLOHUVKDUHDUUDQJ HP HQWVEXWGR QRWGHGXFWRWKHUOLQHLWHP H[ SHQVHV VXFKDVLQWHUHVWH[ SHQVH SURYLVLRQIRUORDQORVVH DQGRWKHUH[ SHQVH EHFDXVHWKRVHLWHP VDUHP DQDJ HGIRUWKHEXVLQHVVDVDZ ▇▇▇▇ : HEHOLHYHWKDWSODWIRUP UHYHQXHLVDXVHIXOP HDVXUHWR LQYHVWRUVEHFDXVHLWUHSUHVHQWV
P DQDJ HP HQW¶VYLHZ RI WKHQHWUHYHQXHFRQWULEXWLRQRI HDFKRI RXUSODWIRUP V 7 KLVP HDVXUHVKRXOGQRWEHFRQVLGHUHGDVXEVWLWXWHIRULQWHUHVWDQGIHHVRQORDQVRURWKHUP HDVXUH RI SHUIRUP DQFHZ HKDYHUHSRUWHGLQDFFRUGDQFHZ LWK* $ $ 3
: HDOVR SUHVHQWFHUWDLQFDSLWDOUDWLRVIRUWKH&RP SDQ\ $ VDQHZ VDYLQJ VDQGORDQKROGLQJ FRP SDQ\ WKH&RP SDQ\ KLVWRULFDOO\ KDVQRWEHHQUHTXLUHGE\ UHJ XODWRUVWR GLVFORVHFDSLWDOUDWLRV DQGWKHUHIRUHWKHVHFDSLWDOUDWLRVDUHQRQ * $ $ 3 P HDVXUHV : HEHOLHYHWKHVHFDSLWDOUDWLRVDUHXVHIXOP HDVXUHVWR LQYHVWRUVEHFDXVHWKH\ DUHZ LGHO\ XVHG E\ DQDO\ VWVDQGUHJ XODWRUVWR DVVHVVWKHFDSLWDOSRVLWLRQRI ILQDQFLDOVHUYLFHVFRP SDQLHV DOWKRXJ KRXU%DVHO, 7 LHU FRP P RQUDWLR LVQRWD%DVHO, GHILQHGUHJ XODWRU\ FDSLWDO UDWLR DQGRXU%DVHO, DQG%DVHO, , , 7 LHU FRP P RQUDWLRVP D\ QRWEHFRP SDUDEOHWR VLP LODUO\ WLWOHGP HDVXUHVUHSRUWHGE\ RWKHUFRP SDQLHV 2 XU%DVHO, 7 LHU FRP P RQUDWLR LV WKHUDWLR RI 7 LHU FRP P RQHTXLW\ DVFDOFXODWHGLQWKHUHFRQFLOLDWLRQUHIHUUHGWR EHORZ WR WRWDOULVN Z HLJ KWHGDVVHWVDVFDOFXODWHGLQDFFRUGDQFHZ LWKWKH8 6 %DVHO, FDSLWDO UXOHV 2 XU%DVHO, , , 7 LHU FRP P RQUDWLR LVWKHUDWLR RI FRP P RQHTXLW\ 7 LHU FDSLWDOWR WRWDOULVN Z HLJ KWHGDVVHWV HDFKDVFDOFXODWHGLQDFFRUGDQFHZ LWKWKH8 6 %DVHO, , , FDSLWDOUXOHV RQDIXOO\ SKDVHG LQEDVLV 2 XU%DVHO, , , 7 LHU FRP P RQUDWLR LVDSUHOLP LQDU\ HVWLP DWHUHIOHFWLQJ P DQDJ HP HQW¶VLQWHUSUHWDWLRQRI WKHILQDO%DVHO, , , FDSLWDOUXOHV DGRSWHGLQ-XO\ E\ WKH%RDUGRI * RYHUQRUVRI WKH) HGHUDO5 HVHUYH6\ VWHP WKH‡) HGHUDO5 HVHUYH%RDUG· Z KLFKKDYHQRWEHHQIXOO\ LP SOHP HQWHG DQGRXUHVWLP DWHDQG LQWHUSUHWDWLRQVDUHVXEMHFWWR DP RQJ RWKHUWKLQJ V RQJ RLQJ UHJ XODWRU\ UHYLHZ DQGLP SOHP HQWDWLRQJ XLGDQFH ) RUDUHFRQFLOLDWLRQRI WKHFRP SRQHQWVRI WKHVHFDSLWDOUDWLRVWR WKHLUQHDUHVWFRP SDUDEOH* $ $ 3 FRP SRQHQWVHH‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV† &DSLWDO·
&DXWLRQDU\ 1 RWH5 HJ DUGLQJ ) RUZ DUG / RRNLQJ 6WDWHP HQWV
7 KLVUHSRUWFRQWDLQVFHUWDLQIRUZ DUG ORRNLQJ VWDWHP HQWVZ LWKLQWKHP HDQLQJ RI WKH3ULYDWH6HFXULWLHV/ LWLJ DWLRQ5 HIRUP $ FWRI ) RUZ DUG ORRNLQJ VWDWHP HQWVP D\ E LGHQWLILHGE\ Z RUGVVXFKDV‡H[ SHFWV· ‡LQWHQGV· ‡DQWLFLSDWHV· ‡SODQV· ‡EHOLHYHV· ‡VHHNV· ‡WDUJ HWV· ‡HVWLP DWHV· ‡Z LOO· RUZ RUGVRI VLP LODUP HDQLQJ ( [ DP SOHVRI IRUZ DUG ORRNLQJ VWDWHP HQWVLQFOXGH EXWDUHQRWOLP LWHGWR VWDWHP HQWVUHJ DUGLQJ WKHRXWORRNIRURXUIXWXUHEXVLQHVVDQGILQDQFLDOSHUIRUP DQFH VXFKDVWKRVHFRQWDLQHGLQ‡, WHP
) LQDQFLDO, QIRUP DWLRQ† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV– %XVLQHVV7 UHQGVDQG&RQGLWLRQV· ) RUZ DUG ORRNLQJ VWDWHP HQWVDUHEDVHGRQP DQDJ HP HQW¶VFXUUHQWH[ SHFWDWLRQVDQGDVVXP SWLRQV DQGDUHVXEMHFWWR LQKHUHQWXQFHUWDLQWLHV ULVNVDQGFKDQJ HVLQFLUFXP VWDQFHVWKDWDUHGLIILFXOWWR SUHGLFW$ VDUHVXOWDFWXDOUHVXOWVFRXOGGLIIHUP DWHULDOO\ IURP WKRVHLQGLFDWHGLQWKHVHIRUZ DUG ORRNLQJ VWDWHP HQWV ) DFWRUVWKDWFRXOGFDXVHDFWXDOUHVXOWVWR GLIIHUP DWHULDOO\ LQFOXGHJ OREDOSROLWLFDOHFRQRP LF EXVLQHVV FRP SHWLWLYH P DUNHWUHJ XODWRU\ DQGRWKHUIDFWRUVDQGULVNV VXFKDV
WKHLP SDFWRI P DFURHFRQRP LF FRQGLWLRQVDQGZ KHWKHULQGXVWU\ WUHQGVZ HKDYHLGHQWLILHGGHYHORS DVDQWLFLSDWHG
UHWDLQLQJ H[ LVWLQJ SDUWQHUVDQGDWWUDFWLQJ QHZ SDUWQHUV FRQFHQWUDWLRQRI RXUSODWIRUP UHYHQXHLQDVP DOOQXP EHURI 5 HWDLO&DUGSDUWQHUV SURP RWLRQDQGVXSSRUWR RXUSURGXFWVE\ RXUSDUWQHUV DQGILQDQFLDOSHUIRUP DQFHRI RXUSDUWQHUV
RXUQHHGIRUDGGLWLRQDOILQDQFLQJ KLJ KHUERUURZ LQJ FRVWVDQGDGYHUVHILQDQFLDOP DUNHWFRQGLWLRQVLP SDFWLQJ RXUIXQGLQJ DQGOLTXLGLW\ DQGDQ\ UHGXFWLRQLQRXU FUHGLWUDWLQJ V
RXUDELOLW\ WR VHFXULWL] HRXUORDQV RFFXUUHQFHRI DQHDUO\ DP RUWL] DWLRQRI RXUVHFXULWL] DWLRQIDFLOLWLHV ORVVRI WKHULJ KWWR VHUYLFHRUVXEVHUYLFHRXUVHFXULWL] HG ORDQV DQGORZ HUSD\ P HQWUDWHVRQRXUVHFXULWL] HGORDQV
RXUUHOLDQFHRQGLYLGHQGV GLVWULEXWLRQVDQGRWKHUSD\ P HQWVIURP WKH%DQN RXUDELOLW\ WR J URZ RXUGHSRVLWVLQWKHIXWXUH
FKDQJ HVLQP DUNHWLQWHUHVWUDWHVDQGWKHLP SDFWRI DQ\ P DUJ LQFRP SUHVVLRQ
HIIHFWLYHQHVVRI RXUULVNP DQDJ HP HQWSURFHVVHVDQGSURFHGXUHV UHOLDQFHRQP RGHOVZ KLFKP D\ EHLQDFFXUDWHRUP LVLQWHUSUHWHG RXUDELOLW\ WR P DQDJ HRXUFUHGLW ULVN WKHVXIILFLHQF\ RI RXUDOORZ DQFHIRUORDQORVVHVDQGWKHDFFXUDF\ RI WKHDVVXP SWLRQVRUHVWLP DWHVXVHGLQSUHSDULQJ RXUILQDQFLDOVWDWHP HQWV
RXUDELOLW\ WR RIIVHWLQFUHDVHVLQRXUFRVWVLQUHWDLOHUVKDUHDUUDQJ HP HQWV FRP SHWLWLRQLQWKHFRQVXP HUILQDQFHLQGXVWU\
RXUFRQFHQWUDWLRQLQWKH8 6 FRQVXP HUFUHGLWP DUNHW
RXUDELOLW\ WR VXFFHVVIXOO\ GHYHORS DQGFRP P HUFLDOL] HQHZ RUHQKDQFHGSURGXFWVDQGVHUYLFHV RXUDELOLW\ WR UHDOL] HWKHYDOXHRI VWUDWHJ LF LQYHVWP HQWV
UHGXFWLRQVLQLQWHUFKDQJ HIHHV IUDXGXOHQWDFWLYLW\
F\ EHUDWWDFNVRURWKHUVHFXULW\ EUHDFKHV
IDLOXUHRI WKLUGSDUWLHVWR SURYLGHYDULRXVVHUYLFHVWKDWDUHLP SRUWDQWWR RXURSHUDWLRQV GLVUXSWLRQVLQWKHRSHUDWLRQVRI RXUFRP SXWHUV\ VWHP VDQGGDWDFHQWHUV
LQWHUQDWLRQDOULVNVDQGFRP SOLDQFHDQGUHJ XODWRU\ ULVNVDQGFRVWVDVVRFLDWHGZ LWKLQWHUQDWLRQDORSHUDWLRQV FDWDVWURSKLF HYHQWV
DOOHJ HGLQIULQJ HP HQWRI LQWHOOHFWXDOSURSHUW\ ULJ KWVRI RWKHUVDQGRXUDELOLW\ WR SURWHFWRXULQWHOOHFWXDOSURSHUW\ OLWLJ DWLRQDQGUHJ XODWRU\ DFWLRQV
GDP DJ HWR RXUUHSXWDWLRQ
RXUDELOLW\ WR DWWUDFWUHWDLQDQGP RWLYDWHNH\ RIILFHUVDQGHP SOR\ HHV
WD[ OHJ LVODWLRQLQLWLDWLYHVRUFKDOOHQJ HVWR RXUWD[ SRVLWLRQVDQGVWDWHVDOHVWD[ UXOHVDQGUHJ XODWLRQV
VLJ QLILFDQWDQGH[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQ H[ DP LQDWLRQDQGHQIRUFHP HQWRI RXUEXVLQHVVE\ J RYHUQP HQWDODXWKRULWLHV WKHLP SDFWRI WKH’ RGG ) UDQN: DOO 6WUHHW5 HIRUP DQG&RQVXP HU3URWHFWLRQ$ FWWKH‡’ RGG ) UDQN$ FW· DQGUHJ XODWLRQE\ WKH&RQVXP HU) LQDQFLDO3URWHFWLRQ%XUHDX WKH‡&) 3%· RQRXUEXVLQHVV
FKDQJ HVWR RXUP HWKRGVRI RIIHULQJ RXU&DUH&UHGLWSURGXFWV LP SDFWRI FDSLWDODGHTXDF\ UXOHV
UHVWULFWLRQVWKDWOLP LWWKH%DQN¶VDELOLW\ WR SD\ GLYLGHQGV
UHJ XODWLRQVUHODWLQJ WR SULYDF\ LQIRUP DWLRQVHFXULW\ DQGGDWDSURWHFWLRQDVZ HOODVDQWLP RQH\ ODXQGHULQJ DQGDQWLWHUURULVP ILQDQFLQJ ODZ V XVHRI WKLUG SDUW\ YHQGRUVDQGRQJ RLQJ WKLUG SDUW\ EXVLQHVVUHODWLRQVKLSV
HIIHFWRI * ( && EHLQJ VXEMHFWWR UHJ XODWLRQE\ WKH) HGHUDO5 HVHUYH%RDUGERWKDVDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ DQGDVDV\ VWHP LFDOO\ LP SRUWDQWILQDQFLDO LQVWLWXWLRQ
* ( QRWFRP SOHWLQJ WKH6HSDUDWLRQ DVGHILQHGXQGHU‡, WHP %XVLQHVV† * ( 2 Z QHUVKLS DQG2 XU6HSDUDWLRQIURP * ( · DVSODQQHGRUDWDOO* ( ¶VLQDELOLW\ WR REWDLQWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ DVGHILQHGXQGHU‡, WHP %XVLQHVV† * ( 2 Z QHUVKLS DQG2 XU6HSDUDWLRQIURP * ( · DQG* ( FRQWLQXLQJ WR KDYHVLJ QLILFDQW FRQWURORYHUXV
FRP SOHWLRQE\ WKH) HGHUDO5 HVHUYH%RDUGRI DUHYLHZ Z LWKVDWLVIDFWRU\ UHVXOWV RI RXUSUHSDUHGQHVVWR RSHUDWHRQDVWDQGDORQHEDVLV LQGHSHQGHQWO\ RI * ( DQG
) HGHUDO5 HVHUYH%RDUGDSSURYDOUHTXLUHGIRUXVWR FRQWLQXHWR EHDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ LQFOXGLQJ WKHWLP LQJ RI WKHDSSURYDODQGWKHLP SRVLWLRQRI DQ\ VLJ QLILFDQWDGGLWLRQDOFDSLWDORUOLTXLGLW\ UHTXLUHP HQWV
RXUQHHGWR HVWDEOLVKDQGVLJ QLILFDQWO\ H[ SDQGP DQ\ DVSHFWVRI RXURSHUDWLRQVDQGLQIUDVWUXFWXUH
GHOD\ VLQUHFHLYLQJ RUIDLOXUHWR UHFHLYH) HGHUDO5 HVHUYH%RDUGDJ UHHP HQWUHTXLUHGIRUXVWR EHWUHDWHGDVDILQDQFLDOKROGLQJ FRP SDQ\ DIWHUWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ
ORVVRI DVVRFLDWLRQZ LWK* ( ¶VVWURQJ EUDQGDQGUHSXWDWLRQ
OLP LWHGULJ KWWR XVHWKH* ( EUDQGQDP HDQGORJ R DQGQHHGWR HVWDEOLVKDQHZ EUDQG
WHUP VRI RXUDUUDQJ HP HQWVZ LWK* ( P D\ EHP RUHIDYRUDEOHWKDQZ HZ LOOEHDEOHWR REWDLQIURP XQDIILOLDWHGWKLUGSDUWLHV
* ( KDVVLJ QLILFDQWFRQWURORYHUXV
REOLJ DWLRQVDVVRFLDWHGZ LWKEHLQJ DSXEOLF FRP SDQ\
RXULQFUHP HQWDOFRVWRI RSHUDWLQJ DVDVWDQGDORQHSXEOLF FRP SDQ\ FRXOGEHVXEVWDQWLDOO\ P RUHWKDQDQWLFLSDWHG
* ( FRXOGHQJ DJ HLQEXVLQHVVHVWKDWFRP SHWHZ LWKXV DQGFRQIOLFWVRI LQWHUHVWP D\ DULVHEHWZ HHQXVDQG* ( DQG
IDLOXUHFDXVHGE\ XVRI * ( ¶VGLVWULEXWLRQRI RXUFRP P RQVWRFNWR LWVVWRFNKROGHUVLQH[ FKDQJ HIRULWVFRP P RQVWRFNWR TXDOLI\ IRUWD[ IUHHWUHDWP HQWZ KLFKP D\ UHVXOWLQVLJ QLILFDQWWD[ OLDELOLWLHVWR * ( IRUZ KLFKZ HP D\ EHUHTXLUHGWR LQGHP QLI\ * (
6HH‡, WHP $ 5 LVN) DFWRUV· IRUDIXUWKHUGHVFULSWLRQRI WKHVHDQGRWKHUIDFWRUV ) RUWKHUHDVRQVGHVFULEHGDERYH Z HFDXWLRQ\ RXDJ DLQVWUHO\ LQJ RQDQ\ IRUZ DUG ORRNLQJ VWDWHP HQWV Z KLFKVKRXOGDOVR EHUHDGLQFRQMXQFWLRQZ LWKWKHRWKHUFDXWLRQDU\ VWDWHP HQWVWKDWDUHLQFOXGHGHOVHZ KHUHLQWKLVUHSRUWDQGLQRXUSXEOLF ILOLQJ V XQGHUWKHKHDGLQJ
‡5 LVN) DFWRUV· LQWKH5 HJ LVWUDWLRQ6WDWHP HQWRQ) RUP 6 DVDP HQGHGDQGILOHGRQ-XO\ ) LOH1 R WKH‡5 HJ LVWUDWLRQ6WDWHP HQW· <RXVKRXOGQRW FRQVLGHUDQ\ OLVWRI VXFKIDFWRUVWR EHDQH[ KDXVWLYHVWDWHP HQWRI DOORI WKHULVNV XQFHUWDLQWLHV RUSRWHQWLDOO\ LQDFFXUDWHDVVXP SWLRQVWKDWFRXOGFDXVHRXUFXUUHQWH[ SHFWDWLRQVR EHOLHIVWR FKDQJ H ) XUWKHU DQ\ IRUZ DUG ORRNLQJ VWDWHP HQWVSHDNVRQO\ DVRI WKHGDWHRQZ KLFKLWLVP DGH DQGZ HXQGHUWDNHQR REOLJ DWLRQWR XSGDWHRUUHYLVHDQ\ IRUZ DUG ORRNLQJ VWDWHP HQWWR UHIOHFWHYHQWVRUFLUFXP VWDQFHVDIWHUWKHGDWHRQZ KLFKWKHVWDWHP HQWLVP DGHRUWR UHIOHFWWKHRFFXUUHQFHRI XQDQWLFLSDWHGHYHQWV H[ FHSWDVRWKHUZ LVHP D\ EHUHTXLUHGE\ WKHIHGHUDOVHFXULWLHVODZ V
, 7 ( 0 %8 6, 1 ( 66
2 XU&RP SDQ\
: HDUHRQHRI WKHSUHP LHUFRQVXP HUILQDQFLDOVHUYLFHVFRP SDQLHVLQWKH8 QLWHG6WDWHV 2 XUURRWVLQFRQVXP HUILQDQFHWUDFHEDFNWR DQGWRGD\ Z HDUHWKHODUJ HVW SURYLGHURI SULYDWHODEHOFUHGLWFDUGVLQWKH8 QLWHG6WDWHVEDVHGRQSXUFKDVHYROXP HDQGUHFHLYDEOHV : HSURYLGHDUDQJ HRI FUHGLWSURGXFWVWKURXJ KSURJ UDP VZ HKDYH HVWDEOLVKHGZ LWKDGLYHUVHJ URXS RI QDWLRQDODQGUHJ LRQDOUHWDLOHUV ORFDOP HUFKDQWV P DQXIDFWXUHUV EX\ LQJ J URXSV LQGXVWU\ DVVRFLDWLRQVDQGKHDOWKFDUHVHUYLFHSURYLGHUV Z KLF Z HUHIHUWR DVRXU‡SDUWQHUV· 7 KURXJ KRXUSDUWQHUV¶ ORFDWLRQVDFURVVWKH8 QLWHG6WDWHVDQG&DQDGD DQGWKHLUZ HEVLWHVDQGP RELOHDSSOLFDWLRQV Z HRIIHUWKHLUFXVWRP HU DYDULHW\ RI FUHGLWSURGXFWVWR ILQDQFHWKHSXUFKDVHRI J RRGVDQGVHUYLFHV ’ XULQJ DQGWKHILUVWQLQHP RQWKVRI Z HILQDQFHG ELOOLRQDQG ELOOLRQRI SXUFKDVHYROXP H UHVSHFWLYHO\ DQGDW6HSWHP EHU Z HKDG ELOOLRQRI ORDQUHFHLYDEOHVDQG P LOOLRQDFWLYHDFFRXQWV 2 XUDFWLYHDFFRXQWVUHSUHVHQWD
J HRJ UDSKLFDOO\ GLYHUVHJ URXS RI ERWKFRQVXP HUVDQGEXVLQHVVHV Z LWKDQDYHUDJ H) ,&2 VFRUHRI IRUFRQVXP HUDFWLYHDFFRXQWVDW6HSWHP EHU 2 XUEXVLQHVVKDV EHHQSURILWDEOHDQGUHVLOLHQWLQFOXGLQJ WKURXJ KWKHUHFHQW8 6 ILQDQFLDOFULVLVDQGHQVXLQJ \ HDUV ) RUWKH\ HDUHQGHG’ HFHP EHU Z HKDGQHWHDUQLQJ VRI ELOOLRQ UHSUHVHQWLQJ DUHWXUQRQDVVHWVRI DQGIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU Z HKDGQHWHDUQLQJ VRI ELOOLRQ UHSUHVHQWLQJ DUHWXUQRQDVVHWVRI
2 XUEXVLQHVVEHQHILWVIURP ORQJ VWDQGLQJ DQGFROODERUDWLYHUHODWLRQVKLSVZ LWKRXUSDUWQHUV LQFOXGLQJ VRP HRI WKHQDWLRQ¶VOHDGLQJ UHWDLOHUVDQGP DQXIDFWXUHUVZ LWKZ HOO NQRZ QFRQVXP HUEUDQGV VXFKDV/ RZ H¶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▇▇ ▇▇▇ WKHSXUFKDVHYROXP HLQRXU5 HWDLO&DUGSODWIRUP IURP RXURQOLQHDQGP RELOHFKDQQHOV LQFUHDVHGE\ ELOOLRQ RU IURP ELOOLRQLQ WR ELOOLRQLQ
: HRIIHURXUFUHGLWSURGXFWVSULP DULO\ WKURXJ KRXUZ KROO\ RZ QHGVXEVLGLDU\ WKH%DQN 7 KURXJ KWKH%DQN Z HRIIHU GLUHFWO\ WR UHWDLODQGFRP P HUFLDOFXVWRP HUV DUDQJ RI GHSRVLWSURGXFWVLQVXUHGE\ WKH) HGHUDO’ HSRVLW, QVXUDQFH&RUSRUDWLRQ ‡) ’ ,&· LQFOXGLQJ FHUWLILFDWHVRI GHSRVLWLQGLYLGXDOUHWLUHP HQWDFFRXQWV ‡, 5 $ V· P RQH\ P DUNHW DFFRXQWVDQGVDYLQJ VDFFRXQWV XQGHURXU2 SWLP L] HU3OXV EUDQG : HDOVR WDNHGHSRVLWVDWWKH%DQNWKURXJ KWKLUG SDUW\ VHFXULWLHVEURNHUDJ HILUP VWKDWRIIHURXU) ’ ,& LQVXUHG GHSRVLWSURGXFWVWR WKHLUFXVWRP HUV : HDUHH[ SDQGLQJ RXURQOLQHGLUHFWEDQNLQJ RSHUDWLRQVWR LQFUHDVHRXUGHSRVLWEDVHDVDVRXUFHRI VWDEOHDQGGLYHUVLILHGORZ FRVWIXQGLQJ IRURXUFUHGLWDFWLYLWLHV : HKDG ELOOLRQLQGHSRVLWVDW6HSWHP EHU
5 HWDLO&DUGLVDOHDGLQJ SURYLGHURI SULYDWHODEHOFUHGLWFDUGV DQGDOVR SURYLGHV’ XDO&DUGVDQGVP DOODQGP HGLXP VL] HGEXVLQHVVFUHGLWSURGXFWV 3D\ P HQW6ROXWLRQVLV OHDGLQJ SURYLGHURI SURP RWLRQDOILQDQFLQJ IRUP DMRUFRQVXP HUSXUFKDVHV RIIHULQJ SULP DULO\ SULYDWHODEHOFUHGLWFDUGVDQGLQVWDOOP HQWORDQV &DUH&UHGLWLVDOHDGLQJ SURYLGHURI SURP RWLRQDOILQDQFLQJ WR FRQVXP HUVIRUHOHFWLYHKHDOWKFDUHSURFHGXUHVRUVHUYLFHV VXFKDVGHQWDOYHWHULQDU\ FRVP HWLF YLVLRQDQGDXGLRORJ \
2 XU9 DOXH3 URSRVLWLRQ
: HRIIHUVWURQJ YDOXHSURSRVLWLRQVWR ERWKRXUSDUWQHUVDQGRXUFXVWRP HUV
2 XU9 DOXH3 URSRVLWLRQ
9DOXHWR 2 XU3 DUWQHUV
2 XUFRQVXP HUILQDQFHSURJ UDP VGHOLYHUWKHIROORZ LQJ EHQHILWVWR RXUSDUWQHUV
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¶VGHFLVLRQWR P DNHSXUFKDVHVRI ‡ELJ WLFNHW· LWHP VDQGDGULYHURI UHWDLOHU VHOHFWLRQ , Q&DUH&UHGLWWKHDYDLODELOLW\ RI FUHGLWFDQDOVR KDYHDVXEVWDQWLDOLQIOXHQFHRYHUFRQVXP HUVSHQGLQJ Z LWKDVLJ QLILFDQWQXP EHURI FRQVXP HUVLQGLFDWLQ LQRXUUHVHDUFKWKDWWKH\ Z RXOGSRVWSRQHRUIRUHJ R DOORUDSRUWLRQRI WKHLUGHVLUHGKHDOWKFDUHSURFHGXUHVRUVHUYLFHVLI FUHGLWZ DVQRWDYDLODEOHWKURXJ KWKHLU KHDOWKFDUHSURYLGHUV
6WUHQJ WKHQHGFXVWRP HUOR\ DOW\ 2 XUSURJ UDP VEHQHILWRXUSDUWQHUVWKURXJ KVWUHQJ WKHQHGFXVWRP HUOR\ DOW\ 2 XU5 HWDLO&DUGFXVWRP HUVKDYHKDGWKHLUFDUGVDQ DYHUDJ HRI \ HDUVDW6HSWHP EHU : HEHOLHYHFXVWRP HUOR\ DOW\ GULYHVUHSHDWEXVLQHVVDQGDGGLWLRQDOVDOHV , QWKH\ HDUHQGHG’ HFHP EHU RXU
P LOOLRQDFWLYH5 HWDLO&DUGDFFRXQWVP DGHDQDYHUDJ HRI P RUHWKDQ SXUFKDVHVSHUDFFRXQW2 XU&DUH&UHGLWFXVWRP HUVFDQXVHWKHLUFDUGDWDQ\ SURYLGHU Z LWKLQRXUSURYLGHUQHWZ RUN Z KLFKZ HEHOLHYHLVDQLP SRUWDQWVRXUFHRI QHZ EXVLQHVVWR RXUSURYLGHUV DQG RI &DUH&UHGLWWUDQVDFWLRQVLQ Z HUHIURP H[ LVWLQJ FXVWRP HUVUHXVLQJ WKHLUFDUGDWRQHRUP RUHSURYLGHUV
( QKDQFHGP DUNHWLQJ : HKDYHGHYHORSHGVLJ QLILFDQWP DUNHWLQJ H[ SHUWLVHWKDWZ HVKDUHZ LWKRXUSDUWQHUV LQFOXGLQJ WKURXJ KGHGLFDWHGRQ VLWHWHDP V DQDWLRQDO ILHOGVDOHVIRUFHDQGH[ SHUWVZ KR UHVLGHLQRXUP DUNHWLQJ FHQWHUVRI H[ FHOOHQFH : HEHOLHYHWKLVH[ SHUWLVHLVRI VXEVWDQWLDOYDOXHWR RXUSDUWQHUVLQLQFUHDVLQJ VDOHV DQGSURILWDELOLW\ 2 XURP QLFKDQQHOFDSDELOLWLHVDOORZ XVWR P DUNHWRXUFUHGLWSURGXFWVZ KHUHYHURXUSDUWQHUVRIIHUWKHLUSURGXFWV 2 XUFXVWRP HUUHODWLRQVKLS
P DQDJ HP HQW‡&5 0 · DQGGDWDDQDO\ WLFVFDSDELOLWLHVDOORZ XVWR WUDFNFXVWRP HUUHVSRQVLYHQHVVWR GLIIHUHQWP DUNHWLQJ VWUDWHJ LHV Z KLFKKHOSVXVWDUJ HWP DUNHWLQJ P HVVDJ HVDQGSURP RWLRQDORIIHUVWR RXUSDUWQHUV¶FXVWRP HUV , Q3D\ P HQW6ROXWLRQV RXUGHGLFDWHGLQGXVWU\ IRFXVHGVDOHVDQGP DUNHWLQJ WHDP VEULQJ VXEVWDQWLDO UHWDLOHUP DUNHWLQJ H[ SHUWLVHWR RXUVP DOOHUUHWDLOHUDQGP HUFKDQWSDUWQHUV 7 KHVHSDUWQHUVEHQHILWIURP RXUUHVHDUFKRQKRZ WR LQFUHDVHVWRUHWUDIILF Z LWKYDULRXV SURP RWLRQDORIIHULQJ V : HDOVR SURYLGHWKHP Z LWKZ HEVLWHDQGHFRP P HUFHFDSDELOLWLHVWKDWP DQ\ FRXOGQRWDIIRUGWR GHYHORS RQWKHLURZ Q
$ GGLWLRQDOHFRQRP LF EHQHILWV 2 XUSURJ UDP VSURYLGHHFRQRP LF EHQHILWVWR RXUSDUWQHUVLQDGGLWLRQWR LQFUHDVLQJ VDOHV 2 XU5 HWDLO&DUGSDUWQHUVW\ SLFDOO\ EHQHILW IURP UHWDLOHUVKDUHDUUDQJ HP HQWVWKDWSURYLGHIRUSD\ P HQWVWR WKHP RQFHWKHHFRQRP LF SHUIRUP DQFHRI WKHSURJ UDP H[ FHHGVDFRQWUDFWXDOO\ GHILQHGWKUHVKROG
7 KHVHVKDUHGHFRQRP LFVHQKDQFHRXUSDUWQHUV¶HQJ DJ HP HQWZ LWKXVDQGSURYLGHDQLQFHQWLYHIRUSDUWQHUVWR VXSSRUWRXUSURJ UDP V , QDGGLWLRQ IRUP RVWRI RXU SDUWQHUV RXUFUHGLWSURJ UDP VUHGXFHFRVWVE\ ▇▇▇▇ LQDWLQJ WKHLQWHUFKDQJ HIHHVIRULQ VWRUHSXUFKDVHVWKDWZ RXOGRWKHUZ LVHEHSDLGZ KHQJ HQHUDOSXUSRVHFUHGLW FDUGVRUGHELWFDUGVDUHXVHG 2 XUSURJ UDP VDOVR DOORZ RXUSDUWQHUVWR DYRLGWKHULVNVDQGDGP LQLVWUDWLYHFRVWVDVVRFLDWHGZ LWKFDUU\ LQJ DQDFFRXQWVUHFHLYDEOH EDODQFHIRUWKHLUFXVWRP HUV DQGWKLVLVSDUWLFXODUO\ DWWUDFWLYHWR P DQ\ RI RXU&DUH&UHGLWSDUWQHUV
9DOXHWR 2 XU&XVWRP HUV
2 XUFRQVXP HUILQDQFHSURJ UDP VGHOLYHUWKHIROORZ LQJ EHQHILWVWR RXUFXVWRP HUV
, QVWDQWDFFHVVWR FUHGLW: HRIIHUTXDOLILHGFXVWRP HUVLQVWDQWDFFHVVWR FUHGLWDWWKHSRLQWRI VDOHDQGDFURVVP XOWLSOHFKDQQHOV $ QQXDODSSOLFDWLRQVIRURXUFUHGLW SURGXFWVLQFUHDVHGE\ IURP P LOOLRQDSSOLFDWLRQVLQ WR P LOOLRQLQ , QDGGLWLRQ RXUDSSOLFDWLRQVIURP RQOLQHDQGP RELOHFKDQQHOV LQFUHDVHGE\ IURP P LOOLRQLQ WR P LOOLRQLQ 2 XU5 HWDLO&DUGSURJ UDP VSURYLGHILQDQFLQJ IRUIUHTXHQWSXUFKDVHVZ LWKDWWUDFWLYHSURJ UDP EHQHILWV LQFOXGLQJ LQWKHFDVHRI RXU’ XDO&DUG WKHFRQYHQLHQFHRI DJ HQHUDOSXUSRVHFUHGLWFDUG 3D\ P HQW6ROXWLRQVDQG&DUH&UHGLWRIIHUSURP RWLRQDOILQDQFLQJ WKDWHQDEOHVTXDOLILHGFXVWRP HUVWR P DNHP DMRUSXUFKDVHV LQFOXGLQJ LQWKHFDVHRI &DUH&UHGLWHOHFWLYHKHDOWKFDUHSURFHGXUHVRUVHUYLFHVWKDWW\ SLFDOO\ DUHQRW FRYHUHGE\ LQVXUDQFH
$ WWUDFWLYHGLVFRXQWV SURP RWLRQDOWHUP VDQGOR\ DOW\ UHZDUGV : HEHOLHYHRXUSURJ UDP VSURYLGHVXEVWDQWLDOYDOXHWR RXUFXVWRP HUVWKURXJ KDWWUDFWLYHGLVFRXQWV SURP RWLRQDOWHUP VDQGOR\ DOW\ UHZ DUGV 5 HWDLO&DUGFXVWRP HUVW\ SLFDOO\ EHQHILWIURP ILUVWSXUFKDVHGLVFRXQWV ▇▇ ▇▇▇ RUHRII WKHSXUFKDVHSULFHZ KHQD QHZ DFFRXQWLVRSHQHG DQGGLVFRXQWVRUOR\ DOW\ UHZ DUGVZ KHQWKHLUFDUGLVXVHGWR P DNHVXEVHTXHQWSXUFKDVHVIURP RXUSDUWQHUV 2 XU5 ▇▇▇▇▇&▇▇▇▇▇▇▇▇▇ HUV
W\ SLFDOO\ HDUQUHZ DUGVEDVHGRQWKHDP RXQWRI WKHLUSXUFKDVHVIURP RXUSDUWQHUVDWDUDWHZ KLFKLVJ HQHUDOO\ KLJ KHUWKDQWKHUHZ DUGUDWHRQJ HQHUDOSXUSRVHFDVK EDFNFUHGLWFDUGV 2 XU3D\ P HQW6ROXWLRQVDQG&DUH&UHGLWFXVWRP HUVW\ SLFDOO\ EHQHILWIURP SURP RWLRQDOILQDQFLQJ VXFKDVLQWHUHVWIUHHSHULRGVRQSXUFKDVHV
7 KHVHW\ SHVRI SURP RWLRQVW\ SLFDOO\ DUHQRWDYDLODEOHWR FRQVXP HUVZ KHQWKH\ XVHDJ HQHUDOSXUSRVHFUHGLWFDUGRXWVLGHRI LQWURGXFWRU\ RIIHUSHULRGV
$ ELOLW\ WR REWDLQ VHSDUDWHILQDQFLQJ IRUP DMRUSXUFKDVHV : HEHOLHYHP DQ\ FRQVXP HUVSUHIHUWR REWDLQVHSDUDWHILQDQFLQJ IRUP DMRUSXUFKDVHVRUFDWHJ RU\
H[ SHQGLWXUHVUDWKHUWKDQDFFHVVLQJ DYDLODEOHERUURZ LQJ FDSDFLW\ XQGHUWKHLUJ HQHUDOSXUSRVHFUHGLWFDUGVRUXVLQJ FDVK : HEHOLHYHRXUFXVWRP HUVDOVR YDOXHWKH DELOLW\ WR FRP SDUWP HQWDOL] H EXGJ HWDQGWUDFNWKHLUVSHQGLQJ DQGERUURZ LQJ WKURXJ KVHSDUDWHILQDQFLQJ IRUDP DMRUSXUFKDVH
2 XU, QGXVWU\
: HEHOLHYHRXUEXVLQHVVLVZ HOOSRVLWLRQHGWR EHQHILWIURP WKHIROORZ LQJ IDYRUDEOHLQGXVWU\ WUHQGV
, P SURYHP HQWVLQ FRQVXP HUVSHQGLQJ DQGFUHGLWXWLOL]DWLRQ &RQVXP HUVSHQGLQJ KDVLQFUHDVHGDV8 6 HFRQRP LF FRQGLWLRQVDQGFRQVXP HUFRQILGHQFHFRQWLQXH WR UHFRYHUIURP WKHUHFHQWILQDQFLDOFULVLV 7 KH8 6 FRQVXP HUSD\ P HQWVLQGXVWU\ Z KLFKFRQVLVWVRI FUHGLWGHELWFDVK FKHFNDQGHOHFWURQLF SD\ P HQWV LVSURMHFWH WR J URZ E\ IURP WR IURP WULOOLRQLQ WR WULOOLRQLQ DFFRUGLQJ WR7 KH1 LOVRQ5 HSRUW’ HFHP EHU $ FFRUGLQJ WR WKDW UHSRUWFUHGLWFDUGSD\ P HQWVDUHH[ SHFWHGWR DFFRXQWIRUWKHP DMRULW\ RI WKHJ URZ WKRI WKH8 6 FRQVXP HUSD\ P HQWVLQGXVWU\ &UHGLWFDUGSD\ P HQWVDFFRXQWHGIRU
WULOOLRQRU RI 8 6 FRQVXP HUSD\ P HQWVYROXP HLQ DQGDUHH[ SHFWHGWR J URZ WR WULOOLRQRU RI 8 6 FRQVXP HUSD\ P HQWVYROXP HLQ &UHGLWFDUGVSHQGLQJ LVJ URZ LQJ DVDSHUFHQWDJ HRI WRWDOFRQVXP HUVSHQGLQJ GULYHQLQSDUWE\ WKHJ URZ WKRI RQOLQHDQGP RELOHSXUFKDVHV
, P SURYHP HQWVLQ 8 6 KRXVHKROGILQDQFHV 8 6 KRXVHKROGILQDQFHVKDYHUHFRYHUHGVXEVWDQWLDOO\ VLQFHWKHILQDQFLDOFULVLV $ FFRUGLQJ WR WKH) HGHUDO5 HVHUYH
%RDUG WKHDYHUDJ H8 6 KRXVHKROG¶VGHEWVHUYLFHUDWLR LVEHWWHUWKDQSUHFULVLVOHYHOV KDYLQJ LP SURYHGWR IRUWKHWKUHHP RQWKVHQGHG-XQH IURP IRUWKHWKUHHP RQWKVHQGHG6HSWHP EHU $ FFRUGLQJ WR WKH) HGHUDO5 HVHUYH%RDUG DJ J UHJ DWH8 6 KRXVHKROGQHWZ RUWKDOVR KDVLQFUHDVHG IURP WULOOLRQDW’ HFHP EHU WR WULOOLRQDW-XQH
* URZWK RI GLUHFWEDQNLQJ DQGGHSRVLWEDODQFHV $ FFRUGLQJ WR DQG $ P HULFDQ%DQNHUV$ VVRFLDWLRQVXUYH\ V WKHSHUFHQWDJ HRI FXVWRP HUVZ KR SUHIHUWR GR WKHLUEDQNLQJ YLDGLUHFWFKDQQHOV LQWHUQHWP DLOSKRQHDQGP RELOH LQFUHDVHGIURP WR EHWZ HHQ DQG Z KLOHWKRVHZ KR SUHIHUEUDQFK EDQNLQJ GHFOLQHGIURP WR RYHUWKHVDP HSHULRG 7 KLVSUHIHUHQFHIRUGLUHFWEDQNLQJ KDVEHHQHYLGHQFHGE\ UREXVWJ URZ WKLQGLUHFWGHSRVLWV 8 6 GLUHFW GHSRVLWVLQFUHDVHGE\ IURP ELOOLRQDW’ HFHP EHU WR ELOOLRQDW’ HFHP EHU DFFRUGLQJ WR GDWDIRU VXUYH\ HGEDQNVIURP 61 /
) LQDQFLDODILQDQFLDOLQVWLWXWLRQVGDWDDQGDQDO\ VLVSURYLGHU
&RP SHWLWLYH6WUHQJ WKV
2 XUEXVLQHVVKDVDQXP EHURI FRP SHWLWLYHVWUHQJ WKV LQFOXGLQJ WKHIROORZ LQJ
/ DUJ H GLYHUVLILHGDQGZHOOHVWDEOLVKHGFRQVXP HUILQDQFHIUDQFKLVH 2 XUEXVLQHVVLVODUJ HDQGGLYHUVLILHGZ LWK P LOOLRQDFWLYHDFFRXQWVDW6HSWHP EHU DQGDSDUWQHUQHWZ RUNZ LWK ORFDWLRQVDFURVVWKH8 QLWHG6WDWHVDQGLQ&DQDGDDVRI 6HSWHP EHU $ W6HSWHP EHU Z HKDG ELOOLRQLQWRWDOORDQUHFHLYDEOHV DQGZ HDUHWKHODUJ HVWSURYLGHURI SULYDWHODEHOFUHGLWFDUGVLQWKH8 QLWHG6WDWHVEDVHGRQSXUFKDVHYROXP HDQGUHFHLYDEOHV
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
3 DUWQHUFHQWULF P RGHOZLWK ORQJ VWDQGLQJ DQGVWDEOHUHODWLRQVKLSV 2 XUEXVLQHVVLVEDVHGRQDSDUWQHUFHQWULF EXVLQHVVWR EXVLQHVVP RGHO2 XUDELOLW\ WR HVWDEOLVKDQGP DLQWDLQGHHS FROODERUDWLYHUHODWLRQVKLSVZ LWKRXUSDUWQHUVLVDFRUHVNLOOWKDWZ HKDYHGHYHORSHGWKURXJ KGHFDGHVRI H[ SHULHQFH DQGZ HKDYHP RU WKDQ GHGLFDWHGHP SOR\ HHV P RVWRI Z KRP DUHFR ORFDWHGZ LWKRXUSDUWQHUV WR KHOS GULYHWKHJ URZ WKRI RXUSDUWQHUV¶VDOHVDQGRXUVKDUHRI WKHLUVDOHV $ W 6HSWHP EHU WKHDYHUDJ HOHQJ WKRI RXUUHODWLRQVKLS IRURXU ODUJ HVWSURJ UDP VDFURVVDOOSODWIRUP V Z KLFKDFFRXQWHGLQDJ J UHJ DWHIRU RI RXU SODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU LV \ HDUV ) URP WKHVHVDP H SURJ UDP V RI RXUSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG
’ HFHP EHU Z DVJ HQHUDWHGXQGHUSURJ UDP VZ LWKFXUUHQWFRQWUDFWXDOWHUP VWKDWFRQWLQXHWKURXJ KDWOHDVW-DQXDU\ $ GLYHUVHDQGJ URZ LQJ J URXS RI P RUHWKDQ SDUWQHUVDFFRXQWHGIRUWKHUHP DLQLQJ RI RXUSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU
’ HHSO\ LQWHJ UDWHGWHFKQRORJ \ DFURVVP XOWLSOHFKDQQHOV 2 XUSURSULHWDU\ WHFKQRORJ \ LVGHHSO\ LQWHJ UDWHGZ LWKRXUSDUWQHUV¶V\ VWHP VDQGSURFHVVHV Z KLFKHQDEOH XVWR SURYLGHFXVWRP L] HGFUHGLWSURGXFWVWR WKHLUFXVWRP HUVDWWKHSRLQWRI VDOHDFURVVP XOWLSOHFKDQQHOV 2 XUWHFKQRORJ LHVHQDEOHFXVWRP HUVWR DSSO\ IRUFUHGLWD WKHSRLQWRI VDOHLQVWRUH RQOLQHRURQDP RELOHGHYLFHDQG LI DSSURYHG SXUFKDVHLQVWDQWO\ 2 XURQOLQHDQGP RELOHWHFKQRORJ LHVDUHFDSDEOHRI EHLQJ VHDP OHVVO\ LQWHJ UDWHGLQWR RXUSDUWQHUV¶V\ VWHP VWR HQDEOHRXUFXVWRP HUVWR FKHFNWKHLUDYDLODEOHFUHGLWOLQH P DQDJ HWKHLUDFFRXQWDFFHVVRXUH&KDWRQOLQHFXVWRP HUVHUYLFH DQGSDUWLFLSDWHLQWKHUHOHYDQWSDUWQHUV¶OR\ DOW\ UHZ DUGVSURJ UDP VRQOLQHDQGXVLQJ P RELOHGHYLFHV , QDGGLWLRQ LQ&DUH&UHGLWZ HKDYHGHYHORSHGZ KDWZ HEHOLHY LVRQHRI WKHODUJ HVWKHDOWKFDUHSURYLGHUORFDWRUVRI LWVNLQG KHOSLQJ WR FRQQHFWFXVWRP HUVWR RXU KHDOWKFDUHSURYLGHUORFDWLRQV 7 KLVRQOLQHORFDWRU UHFHLYHGDQDYHUDJ HRI KLWVSHUP RQWKLQ KHOSLQJ WR GULYHLQFUHP HQWDOEXVLQHVVIRURXUSURYLGHUSDUWQHUV : HEHOLHYHWKDWRXUFRQWLQXHGLQYHVWP HQ LQWHFKQRORJ \ DQGP RELOHRIIHULQJ VZ LOOKHOS XVGHHSHQRXUUHODWLRQVKLSVZ LWKRXUH[ LVWLQJ SDUWQHUV DVZ HOODVSURYLGHDFRP SHWLWLYHDGYDQWDJ HZ KHQVHHNLQJ WR Z LQQHZ EXVLQHVV
6WURQJ RSHUDWLQJ SHUIRUP DQFH 2 YHUWKHWKUHH\ HDUVHQGHG’ HFHP EHU Z HKDYHJ URZ QRXUSXUFKDVHYROXP HDQGORDQUHFHLYDEOHVDW DQG FRP SRXQGDQQXDOJ URZ WKUDWHV UHVSHFWLYHO\ ) RUWKH\ HDUVHQGHG’ HFHP EHU DQG RXUQHWHDUQLQJ VZ HUH ELOOLRQ ELOOLRQDQG
ELOOLRQ UHVSHFWLYHO\ DQGRXUUHWXUQRQDVVHWVZ DV DQG UHVSHFWLYHO\ ) RUWKHQLQHP RQWKVHQGHG6HSWHP EHU RXUQHWHDUQLQJ VZ HUH ELOOLRQ DQGRXUUHWXUQRQDVVHWVZ DV : HZ HUHSURILWDEOHWKURXJ KRXWWKHUHFHQW8 6 ILQDQFLDOFULVLV : HEHOLHYHRXUDELOLW\ WR P DLQWDLQSURILWDELOLW\ WKURXJ K YDULRXVHFRQRP LF F\ FOHVLVDWWULEXWDEOHWR RXUULJ RURXVXQGHUZ ULWLQJ SURFHVV VWURQJ SULFLQJ GLVFLSOLQH ORZ FRVWWR DFTXLUHQHZ DFFRXQWV RSHUDWLRQDOH[ SHUWLVHDQ UHWDLOHUVKDUHDUUDQJ HP HQWVZ LWKRXUODUJ HVWSDUWQHUV
6WURQJ EDODQFHVKHHWDQGFDSLWDOEDVH : HKDYHDVWURQJ FDSLWDOEDVHDQGDGLYHUVLILHGDQGVWDEOHIXQGLQJ SURILOHZ LWKDFFHVVWR P XOWLSOHVRXUFHVRI IXQGLQJ LQFOXGLQJ DJ URZ LQJ GHSRVLWSODWIRUP DWWKH%DQN VHFXULWL] HGILQDQFLQJ VXQGHUZ HOOHVWDEOLVKHGSURJ UDP V EDQNIDFLOLWLHVDQGWKHSXEOLF XQVHFXUHGGHEWP DUNHWV
$ W6HSWHP EHU Z HKDGDQHVWLP DWHGIXOO\ SKDVHG LQ%DVHO, , , 7 LHU FRP P RQUDWLR RI DQGRXUEXVLQHVVZ DVIXQGHGZ LWK ELOOLRQRI GHSRVLWV DWWKH%DQN ELOOLRQRI VHFXULWL] HGILQDQFLQJ V ELOOLRQRI WUDQVLWLRQDOIXQGLQJ IURP WKH* ( && 7HUP / RDQ) DFLOLW\ ELOOLRQIURP WKH%DQN7HUP / RD
) DFLOLW\ DQG ELOOLRQIURP WKH( [ LVWLQJ 1 RWHV $ W6HSWHP EHU Z HKDG ELOOLRQRI FDVKDQGVKRUWWHUP OLTXLGLQYHVWP HQWV RU RI WRWDO DVVHWV : HDOVR KDG DWWKHVDP HGDWHDQGRQWKHVDP HEDVLV P RUHWKDQ ELOOLRQRI XQHQFXP EHUHGDVVHWVLQWKH%DQNDYDLODEOHWR EHXVHGWR J HQHUDWH DGGLWLRQDOOLTXLGLW\ WKURXJ KVHFXUHGERUURZ LQJ VRUDVVHWVDOHV , QDGGLWLRQ DW6HSWHP EHU Z HKDGDQDJ J UHJ DWHRI DSSUR[ LP DWHO\ ELOOLRQRI XQGUDZ Q FRP P LWWHGFDSDFLW\ XQGHURXUVHFXULWL] DWLRQSURJ UDP V
( [ SHULHQFHGDQGHIIHFWLYHULVNP DQDJ HP HQW: HKDYHDQH[ SHULHQFHGULVNP DQDJ HP HQWWHDP DQGDQHQWHUSULVHULVNP DQDJ HP HQWLQIUDVWUXFWXUHWKDWZ HEHOLHYH HQDEOHXVWR HIIHFWLYHO\ P DQDJ HRXUULVN 2 XUHQWHUSULVHULVNP DQDJ HP HQWIXQFWLRQLVGHVLJ QHGWR LGHQWLI\ P HDVXUH P RQLWRUDQGFRQWUROULVN LQFOXGLQJ FUHGLW P DUNHWOLTXLGLW\ VWUDWHJ LF DQGRSHUDWLRQDOULVNV 2 XUIRFXVRQWKHFUHGLWSURFHVVLVHYLGHQFHGE\ WKHVXFFHVVRI RXUEXVLQHVVWKURXJ KP XOWLSOHHFRQRP LF F\ FOHV
: HFRQWUROWKHFUHGLWFULWHULDIRUDOORI RXUSURJ UDP VDQGLVVXHFUHGLWRQO\ WR FRQVXP HUVZ KR TXDOLI\ XQGHUWKRVHFUHGLWFULWHULD 2 XUV\ VWHP VDUHLQWHJ UDWHGZ LWK RXUSDUWQHUV¶V\ VWHP V DQGWKHUHIRUHZ HFDQXVHRXUSURSULHWDU\ FUHGLWDSSURYDOSURFHVVHVWR P DNHFUHGLWGHFLVLRQVLQVWDQWO\ DWWKHSRLQWRI VDOHDQGDFURVVDOO DSSOLFDWLRQFKDQQHOVLQDFFRUGDQFHZ LWKRXUXQGHUZ ULWLQJ J XLGHOLQHVDQGULVNDSSHWLWH 2 XUULVNP DQDJ HP HQWVWUDWHJ LHVDUHFXVWRP L] HGE\ LQGXVWU\ DQGSDUWQHU DQGZ HEHOLHYHRXUSURSULHWDU\ GHFLVLRQLQJ V\ VWHP VDQGFXVWRP L] HGFUHGLWVFRUHVSURYLGHVLJ QLILFDQWLQFUHP HQWDOSUHGLFWLYHFDSDELOLWLHVRYHUVWDQGDUGFUHGLW EXUHDX EDVHGVFRUHVDORQH , QDGGLWLRQ Z HKDYHDQH[ WHQVLYHFRP SOLDQFHSURJ UDP DQGZ HKDYHLQYHVWHG DQGZ LOOFRQWLQXHWR LQYHVWLQHQKDQFLQJ RXUUHJ XODWRU\ FRP SOLDQFHFDSDELOLWLHV
+ LJ KTXDOLW\ DQGGLYHUVHDVVHWEDVH 7 KHTXDOLW\ RI RXUORDQUHFHLYDEOHVSRUWIROLR LVKLJ K 2 XUFRQVXP HUDFWLYHDFFRXQWVKDGDQDYHUDJ H) ,&2 VFRUHRI DQG RXUWRWDOORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH KDGDZ HLJ KWHGDYHUDJ HFRQVXP HU) ,&2 VFRUHRI LQHDFKFDVHDW6HSWHP EHU , Q DGGLWLRQ RI RXUSRUWIROLR¶VORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DUHIURP FRQVXP HUVZ LWKD) ,&2 VFRUHRI J UHDWHUWKDQ DW 6HSWHP EHU 2 XURYHU GD\ GHOLQTXHQF\ UDWHDW6HSWHP EHU LVEHORZ SUHILQDQFLDOFULVLVOHYHOV : HKDYHDVHDVRQHGFXVWRP HUEDVHZ LWK
RI RXUORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW6HSWHP EHU DVVRFLDWHGZ LWKDFFRXQWVWKDWKDYHEHHQRSHQIRUP RUHWKDQILYH
\ HDUV 2 XUSRUWIROLR LVDOVR GLYHUVLILHGE\ J HRJ UDSK\ Z LWKUHFHLYDEOHVEDODQFHVEURDGO\ UHIOHFWLQJ WKH8 6 SRSXODWLRQGLVWULEXWLRQ
( [ SHULHQFHGP DQDJ HP HQWWHDP DQGEXVLQHVVEXLOWRQ * ( FXOWXUH 2 XUVHQLRUP DQDJ HP HQWWHDP LQFOXGLQJ NH\ P HP EHUVZ KR KHOSHGXVVXFFHVVIXOO\ QDYLJ DWH WKHILQDQFLDOFULVLV DUHFRQWLQXLQJ WR OHDGRXU&RP SDQ\ IROORZ LQJ WKHLQLWLDOSXEOLF RIIHULQJ RI RXUFRP P RQVWRFN WKH‡, 32 · : HKDYHRSHUDWHGDVDODUJ HO\ VWDQGDORQHEXVLQHVVZ LWKLQ* ( && Z LWKRXURZ QVDOHV P DUNHWLQJ ULVNP DQDJ HP HQWRSHUDWLRQV FROOHFWLRQV FXVWRP HUVHUYLFHDQGFRP SOLDQFHIXQFWLRQV 2 XU EXVLQHVVKDVEHHQEXLOWRQ* ( ¶VFXOWXUHDQGKHULWDJ H Z LWKDVWURQJ HP SKDVLVRQRXUSDUWQHUVDQGFXVWRP HUV DULJ RURXVXVHRI P HWULFVDQGDQDO\ WLFV DGLVFLSOLQHG DSSURDFKWR ULVNP DQDJ HP HQWDQGFRP SOLDQFHDQGDIRFXVRQFRQWLQXRXVLP SURYHP HQWDQGVWURQJ H[ HFXWLRQ
2 XU%XVLQHVVDQG * URZ WK 6WUDWHJ \
: HLQWHQGWR J URZ RXUEXVLQHVVDQGLQFUHDVHRXUSURILWDELOLW\ E\ EXLOGLQJ RQRXUILQDQFLDODQGRSHUDWLQJ VWUHQJ WKVDQGFDSLWDOL] LQJ RQSURMHFWHGIDYRUDEOHLQGXVWU\ WUHQG DVZ HOODVE\ SXUVXLQJ DQXP EHURI LP SRUWDQWJ URZ WKVWUDWHJ LHVIRURXUEXVLQHVV LQFOXGLQJ WKHIROORZ LQJ
, QFUHDVHFXVWRP HUSHQHWUDWLRQ DWRXUH[ LVWLQJ SDUWQHUV : HEHOLHYHWKHUHLVDVLJ QLILFDQWRSSRUWXQLW\ WR J URZ RXUEXVLQHVVE\ LQFUHDVLQJ WKHXVDJ HRI RXUFDUGVLQHDFK RI RXUVDOHVSODWIRUP V , Q5 HWDLO&DUG EDVHGRQVDOHVGDWDSURYLGHGE\ RXUSDUWQHUV Z HKDYHLQFUHDVHGSHQHWUDWLRQRI RXUSDUWQHUV¶DJ J UHJ DWHVDOHVLQHDFKRI WKHODVWWKUHH\ HDU
) RUWKH\ HDUHQGHG’ HFHP EHU SHQHWUDWLRQRI RXU5 HWDLO&DUGSDUWQHUV¶VDOHVUDQJ HGIURP WR DQGWKHDJ J UHJ DWHVDOHVRI DOO5 HWDLO&DUGSDUWQHUVZ HUH
ELOOLRQ Z KLFKZ HEHOLHYHUHSUHVHQWVDVLJ QLILFDQWRSSRUWXQLW\ IRUSRWHQWLDOJ URZ WK : HEHOLHYHWKHUHLVDOVR DVLJ QLILFDQWP DUNHWRSSRUWXQLW\ IRUXVWR LQFUHDVHRXUSHQHWUDWLRQLQ 3D\ P HQW6ROXWLRQVDQG&DUH&UHGLW
$ WWUDFWQHZ SDUWQHUV : HVHHNWR DWWUDFWQHZ SDUWQHUVE\ ERWKODXQFKLQJ QHZ SURJ UDP VDQGDFTXLULQJ H[ LVWLQJ SURJ UDP VIURP RXUFRP SHWLWRUV , Q5 HWDLO&DUG Z KLFKLV W\ SLFDOO\ FKDUDFWHUL] HGE\ ORQJ HUWHUP H[ FOXVLYHUHODWLRQVKLSV Z HDGGHGIRXUQHZ 5 HWDLO&DUGSDUWQHUVIURP -DQXDU\ WKURXJ K6HSWHP EHU Z KLFKDFFRXQWHGIR
ELOOLRQRI UHFHLYDEOHVDW6HSWHP EHU , Q3D\ P HQW6ROXWLRQV Z KHUHDVLJ QLILFDQWQXP EHURI RXUSDUWQHUVLQFOXGHLQGHSHQGHQWGHDOHUVDQGP HUFKDQWVWKDWHQWHULQWR VHSDUDWHDUUDQJ HP HQWVZ LWKXV Z HLQFUHDVHGRXUWRWDOSDUWQHUVIURP DW’ HFHP EHU WR RYHU DW6HSWHP EHU Z LWKQHZ SDUWQHUVDFFRXQWLQJ IRU ELOOLRQLQUHFHLYDEOHVDW6HSWHP EHU , Q&DUH&UHGLWZ KHUHZ HDWWUDFWQHZ KHDOWKFDUHSURYLGHUSDUWQHUVODUJ HO\ E\ OHYHUDJ LQJ RXUHQGRUVHP HQWVIURP SURIHVVLRQDO DVVRFLDWLRQVDQGKHDOWKFDUHFRQVXOWDQWV Z HLQFUHDVHGWKHQXP EHURI SDUWQHUORFDWLRQVIURP DW’ HFHP EHU WR DW6HSWHP EHU : HEHOLHYHWKHUH LVDVLJ QLILFDQWRSSRUWXQLW\ WR DWWUDFWQHZ SDUWQHUVLQHDFKRI RXUSODWIRUP V LQFOXGLQJ E\ DGGLQJ DGGLWLRQDOP HUFKDQWV GHDOHUVDQGKHDOWKFDUHSURYLGHUVXQGHUH[ LVWLQJ SURJ UDP
2 XUVWUDWHJ LHVWR ERWKLQFUHDVHSHQHWUDWLRQDP RQJ RXUFXUUHQWSDUWQHUVDQGDWWUDFWQHZ SDUWQHUVLQFOXGHWKHIROORZ LQJ HOHP HQWV
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
LP P HGLDWHDFFHVVWR FUHGLWDQGWR GHOLYHUWDUJ HWHGUHZ DUGVDQGSURP RWLRQVWR RXUFXVWRP HUVYLDWKHLUP RELOHGHYLFHVIRULP P HGLDWHXVH : HDOVR H[ SHFWWR OHYHUDJ HHP HUJ LQJ P RELOHSD\ P HQWV\ VWHP WHFKQRORJ LHV ) RUH[ ▇▇ ▇▇▇ WKURXJ KRXUSDUWLFLSDWLRQLQWKH$ SSOH3D\ SURJ UDP Z HFDQSODFH’ XDO&DUGVLQ$ SSOH3D\ IRURXUSDUWLFLSDWLQJ SDUWQHUVZ KR GHVLUHWR KDYHWKHLUFDUGVLQWKLVZ DOOHWSURJ UDP DQGZ HKDYHLQYHVWHGLQ/ RRS3D\ DP RELOHSD\ P HQWVSODWIRUP FRP SDQ\
&DSLWDOL]HRQ RXUDGYDQFHGGDWD DQDO\ WLFVDQGFXVWRP HUUHODWLRQVKLS P DQDJ HP HQWFDSDELOLWLHV : HEHOLHYHWKDWRXURQJ RLQJ HIIRUWVWR H[ SDQGRXUGDWDDQG DQDO\ WLFVFDSDELOLWLHVKHOS GLIIHUHQWLDWHXVIURP RXUFRP SHWLWRUV : HKDYHDFFHVVWR DYDVWDP RXQWRI GDWD VXFKDVRXUFXVWRP HUV¶SXUFKDVHSDWWHUQVDQGSD\ P HQW KLVWRULHV IURP RXU P LOOLRQRSHQDFFRXQWVDW6HSWHP EHU DQGWKHKXQGUHGVRI P LOOLRQVRI WUDQVDFWLRQVRXUFXVWRP HUVP DNHHDFK\ HDU&RQVLVWHQW
Z LWKDSSOLFDEOHSULYDF\ UXOHVDQGUHJ XODWLRQV Z HDUHGHYHORSLQJ QHZ WRROVWR DVVHVVWKLVGDWDWR GHYHORS DQGGHOLYHUYDOXDEOHLQVLJ KWVDQGDFWLRQDEOHDQDO\ VLVWKD FDQEHXVHGWR LP SURYHWKHHIIHFWLYHQHVVRI P DUNHWLQJ VWUDWHJ LHVOHDGLQJ WR LQFUHP HQWDOJ URZ WKIRUERWKRXUSDUWQHUVDQGRXUEXVLQHVV 2 XUUHFHQWO\ HQKDQFHG
&5 0 SODWIRUP Z LOOXWLOL] HWKHVHLQVLJ KWVDQGDQDO\ VLVWR GULYHP RUHUHOHYDQWDQGWLP HO\ RIIHUVWR RXUFXVWRP HUVYLDWKHLUSUHIHUUHGFKDQQHOVRI FRP P XQLFDWLRQ : EHOLHYHWKHFRP ELQDWLRQRI RXUDQDO\ WLFVH[ SHUWLVHDQGH[ WHQVLYHGDWDDFFHVVZ LOOGULYHJ UHDWHUSDUWQHUHQJ DJ HP HQWDQGLQFUHDVHGVDOHV VWUHQJ WKHQFXVWRP HU
OR\ DOW\ DQGSURYLGHXVDFRP SHWLWLYHDGYDQWDJ H
/ DXQFK RXULQWHJ UDWHGP XOWLWHQGHUOR\ DOW\ SURJ UDP V : HDUHOHYHUDJ LQJ RXUH[ WHQVLYHGDWDDQDO\ WLFV OR\ DOW\ H[ SHULHQFHDQGEURDGUHWDLOSUHVHQFHWR ODXQFK P XOWLWHQGHUOR\ DOW\ SURJ UDP VWKDWHQDEOHFXVWRP HUVWR HDUQUHZ DUGVIURP DSDUWQHU UHJ DUGOHVVRI KRZ WKH\ SD\ IRUWKHLUSXUFKDVHV HJ FDVK SULYDWHODEHORU J HQHUDOSXUSRVHFUHGLWFDUGV %\ H[ SDQGLQJ RXUOR\ DOW\ SURJ UDP FDSDELOLWLHVEH\ RQGSULYDWHODEHOFUHGLWFDUGVZ HFDQSURYLGHGHHSHULQVLJ KWVWR RXUSDUWQHUV DERXWWKHLUFXVWRP HUV LQFOXGLQJ VSHQGLQJ SDWWHUQVDQGVKRSSLQJ EHKDYLRUV 0 XOWLWHQGHUOR\ DOW\ SURJ UDP VZ LOODOVR SURYLGHXVZ LWKDFFHVVWR QRQ FDUGKROGHUV J LYLQJ XVWKHRSSRUWXQLW\ WR J URZ RXUFXVWRP HUEDVHE\ P DUNHWLQJ RXUFUHGLWSURGXFWVWR WKHP DQGGHOLYHULQJ DP RUHFRP SHOOLQJ YDOXHSURSRVLWLRQ
, QFUHDVHIRFXVRQ VP DOODQGP LG VL]HGEXVLQHVVHV : HFXUUHQWO\ RIIHUSULYDWHODEHOFUHGLWFDUGVDQG’ XDO&DUGVIRUVP DOOWR P LG VL] HGFRP P HUFLDOFXVWRP HUVWKD DUHVLP LODUWR RXUFRQVXP HURIIHULQJ V : HDUHLQFUHDVLQJ RXUIRFXVRQP DUNHWLQJ RXUFRP P HUFLDOSD\ LQ IXOODFFRXQWVUHFHLYDEOHSURGXFWWR DZ LGHUDQJ HRI EXVLQHVVFXVWRP HUVDQGDUHUROOLQJ RXWDQLP SURYHGFXVWRP HUH[ SHULHQFHIRUWKLVSURGXFWZ LWKHQKDQFHGIXQFWLRQDOLW\ 2 XUORDQUHFHLYDEOHVIURP EXVLQHVV
FXVWRP HUVZ HUH ELOOLRQDW6HSWHP EHU DQGZ HEHOLHYHRXUVWUDWHJ LF IRFXVRQEXVLQHVVFXVWRP HUVZ LOOHQDEOHXVWR FRQWLQXHWR DWWUDFWQHZ EXVLQHVV FXVWRP HUVDQGLQFUHDVHWKHGLYHUVLW\ RI RXUORDQUHFHLYDEOHV
( [ SDQGRXUGLUHFWEDQNLQJ DFWLYLWLHV , Q-DQXDU\ Z HDFTXLUHGWKHGHSRVLWEXVLQHVVRI 0 HW/ LIH Z KLFKLVDGLUHFWEDQNLQJ SODWIRUP WKDWDWWKHWLP HRI WKH DFTXLVLWLRQKDG ELOOLRQLQ8 6 GLUHFWGHSRVLWVDQG ELOOLRQLQEURNHUHGGHSRVLWV 2 XU8 6 GLUHFWGHSRVLWVJ UHZ IURP ELOOLRQDW’ HFHP EHU WR
ELOOLRQDW6HSWHP EHU LQFOXGLQJ WKH0 HW/ LIHDFTXLVLWLRQ 7 KHDFTXLVLWLRQRI WKLVEDQNLQJ SODWIRUP LVDNH\ SDUWRI RXUVWUDWHJ \ WR LQFUHDVHRXU GHSRVLWEDVHDVDVRXUFHRI VWDEOHDQGGLYHUVLILHGORZ FRVWIXQGLQJ 7 KHSODWIRUP LVKLJ KO\ VFDODEOH DOORZ LQJ XVWR H[ SDQGZ LWKRXWWKHRYHUKHDGH[ SHQVHVRI D WUDGLWLRQDO‡EULFNDQGP RUWDU·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
) RUP DWLRQ DQG 5 HJ XODWLRQ RI 6\ QFKURQ\
6\ QFKURQ\ LVDKROGLQJ FRP SDQ\ IRUWKHOHJ DOHQWLWLHVWKDWKLVWRULFDOO\ FRQGXFWHG* ( ¶V1 RUWK$ P HULFDQUHWDLOILQDQFHEXVLQHVV 6\ QFKURQ\ SUHYLRXVO\ QDP HG* ( &DSLWD
5 HWDLO) LQDQFH&RUSRUDWLRQ Z DVLQFRUSRUDWHGLQ’ HODZ DUHRQ6HSWHP EHU EXWSULRUWR$ SULO FRQGXFWHGQR EXVLQHVV ’ XULQJ WKHSHULRGIURP $ ▇▇▇▇ ▇▇
6HSWHP EHU DVSDUWRI DUHJ XODWRU\ UHVWUXFWXULQJ VXEVWDQWLDOO\ DOORI WKHDVVHWVDQGRSHUDWLRQVRI * ( ¶V1 RUWK$ P HULFDQUHWDLOILQDQFHEXVLQHVV LQFOXGLQJ WKH%DQN Z HU WUDQVIHUUHGWR 6\ QFKURQ\ 7 KHUHP DLQLQJ DVVHWVDQGRSHUDWLRQVRI WKDWEXVLQHVVVXEVHTXHQWO\ Z HUHWUDQVIHUUHGWR 6\ QFKURQ\
$ VDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ 6\ QFKURQ\ LVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH) HGHUDO5 HVHUYH%RDUG , QDGGLWLRQ DVDODUJ H SURYLGHURI FRQVXP HUILQDQFLDOVHUYLFHV 6\ QFKURQ\ LVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH&) 3%
7 KH%DQNLVDIHGHUDOO\ FKDUWHUHGVDYLQJ VDVVRFLDWLRQDQGWKHUHIRUHLVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH2 IILFHRI WKH&RP SWUROOHURI WKH&XUUHQF\ RI WKH8 6 7 UHDVXU\ WKH‡2 &&· Z KLFKLVLWVSULP DU\ UHJ XODWRU DQGE\ WKH&) 3% , QDGGLWLRQ WKH%DQN DVDQLQVXUHGGHSRVLWRU\ LQVWLWXWLRQ LVVXSHUYLVHGE\ WK
) ’ ,&
) RUDGLVFXVVLRQRI WKHUHJ XODWLRQRI RXU&RP SDQ\ DQGWKH%DQN VHH‡† 5 HJ XODWLRQ· ) RULQIRUP DWLRQUHJ DUGLQJ FHUWDLQUHJ XODWRU\ P DWWHUV LQFOXGLQJ FRQVHQWRUGHUVRU DVVXUDQFHVRI GLVFRQWLQXDQFHVWKDWZ HKDYHHQWHUHGLQWR Z LWKWKH&) 3% WKH’ HSDUWP HQWRI -XVWLFH WKH‡’ 2 -· DQGWKH$ WWRUQH\ * HQHUDOIRUWKH6WDWHRI 1 HZ <RUNUHODWLQJ WR RXU&DUH&UHGLWSODWIRUP RXUGHEWFDQFHOODWLRQSURGXFWDQGVDOHVSUDFWLFHVDQGFHUWDLQFROOHFWLRQRIIHUV VHH‡† 5 HJ XODWLRQ† &RQVXP HU) LQDQFLDO6HUYLFHV5 HJ XODWLRQ· DQG
‡, WHP $ 5 LVN) DFWRUV† 5 LVNV5 HODWLQJ WR 5 HJ XODWLRQ† &KDQJ HVWR RXUP HWKRGVRI RIIHULQJ RXU&DUH&UHGLWSURGXFWVFRXOGP DWHULDOO\ LP SDFWRSHUDWLQJ UHVXOWV·
2 XU, QLWLDO3 XEOLF 2 IIHULQJ
2 Q$ XJ XVW Z HFORVHGWKH, 32 RI P LOOLRQVKDUHVRI RXUFRP P RQVWRFNDWDSULFHWR WKHSXEOLF RI SHUVKDUHDQGRQ6HSWHP EHU Z HLVVXHGDQ DGGLWLRQDO P LOOLRQVKDUHVRI RXUFRP P RQVWRFNSXUVXDQWWR DQRSWLRQJ UDQWHGWR WKHXQGHUZ ULWHUVLQWKH, 32 : HUHFHLYHGQHWSURFHHGVIURP WKH, 32 LQFOXGLQJ WKH XQGHUZ ULWHUV¶RSWLRQ RI DSSUR[ LP DWHO\ ELOOLRQ
* ( 2 Z QHUVKLS DQG 2 XU6HSDUDWLRQ IURP * (
* ( FXUUHQWO\ RZ QV RI WKHFRP P RQVWRFNRI * ( && * ( && FXUUHQWO\ RZ QV RI WKHFRP P RQVWRFNRI * ( &) , DQG* ( &) , FXUUHQWO\ RZ QV RI WKH FRP P RQVWRFNRI 6\ QFKURQ\
6WHSVWR 2 XU6HSDUDWLRQIURP * ( 2 Q1 RYHP EHU * ( DQQRXQFHGWKDWLWSODQQHGDVWDJ HGH[ LWIURP RXUEXVLQHVV FRQVLVWHQWZ LWKLWVVWUDWHJ \ RI UHGXFLQJ
* ( &&¶VSHUFHQWDJ HRI * ( ¶VWRWDOHDUQLQJ VDQGLQFUHDVLQJ * ( &&¶VIRFXVRQLWVFRP P HUFLDOOHQGLQJ DQGOHDVLQJ EXVLQHVVHV * ( ¶VH[ LWIURP RXUEXVLQHVVLVH[ SHFWHGWR FRQVLVWR WKUHHGLVWLQFWEXWLQWHUUHODWHGVWHSVGHVFULEHGEHORZ
7KH, 3 2 7 KH, 32 Z DVWKHILUVWVWHS LQ* ( ¶VH[ LWIURP RXUEXVLQHVV $ VDUHVXOWRI WKH, 32 * ( UHGXFHGLWVEHQHILFLDORZ QHUVKLS LQXVIURP WR DQG RXUWRWDOHTXLW\ LQFUHDVHGWKURXJ KUHFHLSWRI WKH, 32 QHWSURFHHGV
6HSDUDWLRQ 7 KHVHFRQGVWHS RI * ( ¶VH[ LWIURP RXUEXVLQHVVZ LOOLQYROYH* ( ¶VGLVSRVLWLRQRI DOORI LWVUHP DLQLQJ VKDUHVRI RXUVWRFNWKURXJ KD6SOLWRII GHILQHG EHORZ RURQHRUP RUHRWKHUWUDQVDFWLRQVIROORZ LQJ WKH, 32 Z KLFKGLVSRVLWLRQLVUHIHUUHGWR DVWKH‡6HSDUDWLRQ·
) RUP RI 6HSDUDWLRQ7UDQVDFWLRQ * ( KDVLQGLFDWHGWKDWLWH[ SHFWVWR HIIHFWDVSOLWRII WUDQVDFWLRQE\ P DNLQJ DWD[ IUHHGLVWULEXWLRQRI DOORI LWVUHP DLQLQJ VKDUHVRI RXUVWRFNWR HOHFWLQJ * ( VWRFNKROGHUVLQH[ FKDQJ HIRUVKDUHVRI * ( ¶VFRP P RQVWRFN WKH‡6SOLWRII· * ( P D\ DOVR GHFLGHWR H[ LWRXUEXVLQHVV E\ VHOOLQJ RURWKHUZ LVHGLVWULEXWLQJ RUGLVSRVLQJ RI DOORUDSRUWLRQRI LWVVKDUHVRI RXUVWRFNLQDGLIIHUHQWW\ SHRI WUDQVDFWLRQ : HGR QRWH[ SHFWWKDWWKH IRUP LQZ KLFKWKH6HSDUDWLRQRFFXUV D6SOLWRII RUVRP HRWKHUIRUP RI GLVWULEXWLRQRUGLVSRVLWLRQ Z LOOKDYHP DWHULDOO\ GLIIHUHQWLP SOLFDWLRQVIRURXU SURILWDELOLW\
&RQGLWLRQVWR 6HSDUDWLRQ 7 KH6HSDUDWLRQZ RXOGEHVXEMHFWWR YDULRXVFRQGLWLRQV LQFOXGLQJ UHFHLSWRI DQ\ QHFHVVDU\ EDQNUHJ XODWRU\ DQGRWKHUDSSURYDO DVGLVFXVVHGEHORZ WKHH[ LVWHQFHRI VDWLVIDFWRU\ P DUNHWFRQGLWLRQV DQG LQWKHFDVHRI WKH6SOLWRII DSULYDWHOHWWHUUXOLQJ IURP WKH, QWHUQDO5 HYHQXH 6HUYLFH ‡, 5 6· DVWR FHUWDLQLVVXHVUHODWLQJ WR DQGDQRSLQLRQIURP WD[ FRXQVHOFRQILUP LQJ WKHWD[ IUHHWUHDWP HQWRI WKHWUDQVDFWLRQWR * ( DQGLWV VWRFNKROGHUV
* ( 6/ + & ’ HUHJ LVWUDWLRQ 7 KHILQDOVWHS LQ* ( ¶VH[ LWIURP RXUEXVLQHVVZ LOOEHFRP SOHWHZ KHQWKH) HGHUDO5 HVHUYH%RDUGGHWHUP LQHVWKDW* ( QR ORQJ HUFRQWUROV XVIRUUHJ XODWRU\ SXUSRVHVDQGUHOHDVHV* ( IURP VDYLQJ VDQGORDQKROGLQJ FRP SDQ\ UHJ LVWUDWLRQ WKH‡* ( 6/ + & ’ HUHJ LVWUDWLRQ·
%DQN5 HJ XODWRU\ $ SSURYDOV5 HTXLUHGIRU6HSDUDWLRQDQGWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ , QDGGLWLRQWR * ( ¶VDSSOLFDWLRQIRUWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HZ LOOEH UHTXLUHGWR ILOHDQDSSOLFDWLRQZ LWK DQGUHFHLYHDSSURYDOIURP WKH) HGHUDO5 HVHUYH%RDUGWR FRQWLQXHWR EHDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ DQGWR UHWDLQRZ QHUVKLS RI WKH
%DQNIROORZ LQJ WKH6HSDUDWLRQDQGWKH* ( 6/ + & ’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
ELOOLRQRI FDVKDQGVKRUWWHUP OLTXLGLQYHVWP HQWV RU RI WRWDODVVHWV , QDGGLWLRQ Z HFXUUHQWO\ KDYHDQDJ J UHJ DWHRI DSSUR[ LP DWHO\ ELOOLRQRI XQGUDZ QFRP P LWWHGFDSDFLW\ XQGHURXUVHFXULWL] DWLRQSURJ UDP V
( VWDEOLVKDQGH[ SDQGVWDQGDORQHRSHUDWLRQVDQGLQIUDVWUXFWXUH : HDUHFXUUHQWO\ HVWDEOLVKLQJ RUVLJ QLILFDQWO\ H[ SDQGLQJ DQGH[ SHFWWR FRQWLQXHWR HVWDEOLVKRU H[ SDQG RXUVWDQGDORQHFRUSRUDWHJ RYHUQDQFH ULVNP DQDJ HP HQWFDSLWDOSODQQLQJ WUHDVXU\ LQIRUP DWLRQWHFKQRORJ \ FRP SOLDQFH UHJ XODWRU\ LQWHUQDODXGLWDQG RWKHUFRQWURORSHUDWLRQVDQGLQIUDVWUXFWXUH $ OWKRXJ KZ HZ LOOFRQWLQXHWR UHFHLYHFHUWDLQVHUYLFHVIURP * ( RQDWUDQVLWLRQDOEDVLV Z HH[ SHFWWR UHGXFHRXUUHOLDQF RQWKHVHVHUYLFHVLQFRQQHFWLRQZ LWKRXUDSSOLFDWLRQWR WKH) HGHUDO5 HVHUYH%RDUGDQGWKH6HSDUDWLRQ UHSODFLQJ VXFKVHUYLFHVZ LWKWKRVHSURYLGHGE\ XQDIILOLDWHG WKLUGSDUWLHVRUZ LWKRXURZ QFDSDELOLWLHV : HP D\ EHUHTXLUHGWR RSHUDWHZ LWKRXWUHFHLYLQJ DQ\ RI WKHVHVHUYLFHVIURP * ( SULRUWR WKH6HSDUDWLRQ
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
’ LYHUVLI\ IXQGLQJ VRXUFHV , QDGGLWLRQWR UHGXFLQJ WKHDP RXQWRI RXWVWDQGLQJ UHODWHGSDUW\ GHEWRZ HGWR * ( && Z HLQWHQGWR IXUWKHUGLYHUVLI\ RXUIXQGLQJ VRXUFH E\ J URZ LQJ WKHDP RXQWRI RXUGLUHFWGHSRVLWV E\ UHGXFLQJ WKHSURSRUWLRQRI IXQGLQJ SURYLGHGE\ EURNHUHGGHSRVLWV DQGE\ DFFHVVLQJ WKHXQVHFXUHGGHEWP DUNHWV
7 KH) HGHUDO5 HVHUYH%RDUGP D\ UHTXLUHXVWR WDNHDGGLWLRQDODFWLRQVEH\ RQGWKHVLJ QLILFDQWLQIUDVWUXFWXUHH[ SDQVLRQDQGRWKHUVWHSVZ HDUHDOUHDG\ SODQQLQJ DQG LP SOHP HQWLQJ DQGEH\ RQGZ KDWZ HDUHQRZ DQWLFLSDWLQJ
$ QWLFLSDWHG7LP HIUDP HIRU6HSDUDWLRQDQG* ( 6/ + & ’ HUHJ LVWUDWLRQ * ( KDVLQGLFDWHGWKDWLWFXUUHQWO\ LVWDUJ HWLQJ WR FRP SOHWHWKH6HSDUDWLRQLQODWH : HP D\ QRW EHSUHSDUHG RUDEOHWR VDWLVI\ WKH) HGHUDO5 HVHUYH%RDUGWKDWZ HDUHSUHSDUHG WR RSHUDWHRQDVWDQGDORQHEDVLV LQGHSHQGHQWO\ RI * ( E\ WKDWWLP H 0 RUHJ HQHUDOO\ WKH FRQGLWLRQVWR DQ\ WUDQVDFWLRQLQYROYHGLQWKH6HSDUDWLRQP D\ QRWEHVDWLVILHGLQODWH RUWKHUHDIWHU RU* ( P D\ GHFLGHIRUDQ\ UHDVRQQRWWR FRQVXP P DWHWKH6HSDUDWLRQLQ ODWH RUWKHUHDIWHU) XUWKHU * ( ¶VZ LOOLQJ QHVVWR SURFHHGZ LWKWKH6HSDUDWLRQP D\ HIIHFWLYHO\ EHFRQGLWLRQHGRQLWVREWDLQLQJ WKHQHFHVVDU\ GHWHUP LQDWLRQE\ WKH) HGHUDO
5 HVHUYH%RDUGWKDWWKH* ( 6/ + & ’ HUHJ LVWUDWLRQZ LOORFFXUXSRQ6HSDUDWLRQ DOWKRXJ KWKH6HSDUDWLRQDQGWKH* ( 6/ + & ’ HUHJ LVWUDWLRQQHHGQRWFRLQFLGH ) RUWKLVUHDVRQ DQ\ GHOD\ VLQREWDLQLQJ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQP D\ GHOD\ WKHFRQVXP P DWLRQRI WKH6HSDUDWLRQ
$ QWLFLSDWHG&RVWV$ VVRFLDWHGZLWK6HSDUDWLRQDQG* ( 6/ + & ’ HUHJ LVWUDWLRQ : HFXUUHQWO\ H[ SHFWWR LQFXUVLJ QLILFDQWDGGLWLRQDOH[ SHQVHVWR RSHUDWHDVDIXOO\ LQGHSHQGHQWSXEOLF FRP SDQ\ ) RUDGLVFXVVLRQRI WKHVHH[ SHQVHV VHH‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG 5 HVXOWVRI 2 SHUDWLRQV† %XVLQHVV7 UHQGVDQG&RQGLWLRQV· ‡† 6HSDUDWLRQIURP * ( DQG5 HODWHG) LQDQFLDO$ UUDQJ HP HQWV· DQG‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 6HOHFWHG
+ LVWRULFDODQG3UR ) RUP D) LQDQFLDO, QIRUP DWLRQ† 8 QDXGLWHG3UR ) RUP D) LQDQFLDO, QIRUP DWLRQ·
) RUDGLVFXVVLRQRI FHUWDLQULVNVDVVRFLDWHGZ LWK6HSDUDWLRQDQGWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ LQFOXGLQJ ULVNVUHODWHGWR DQWLFLSDWHGWLP LQJ DQGFRVWV VHH‡, WHP $ 5 LVN
) DFWRUV† 5 LVNV5 HODWLQJ WR 2 XU6HSDUDWLRQIURP * ( ·
3 D\ P HQWRI ’ LYLGHQGVWR * ( ’ XULQJ WKH\ HDUVHQGHG’ HFHP EHU | DQG Z HP DGHQHWWUDQVIHUVWR RXUSDUHQWRI | P LOOLRQ | P LOOLRQDQG | |
P LOOLRQ UHVSHFWLYHO\ ’ XULQJ WKHWKUHHP RQWKVHQGHG0 DUFK | DQG-XQH | Z HP DGHQHWWUDQVIHUVWR RXUSDUHQWRI | P LOOLRQDQG | P LOOLRQ |
UHVSHFWLYHO\ : HGLGQRWP DNHDQ\ QHWWUDQVIHUWR RXUSDUHQWVXEVHTXHQWWR -XQH DQGSULRUWR WKHFORVLQJ RI WKH, 32 ) ROORZ LQJ WKH, 32 * ( Z LOOUHFHLYHGLYLGHQGVRQO\ LQLWVFDSDFLW\ DVDVWRFNKROGHURQWKHVDP HEDVLVDVVWRFNKROGHUVJ HQHUDOO\
2 XU6DOHV3 ODWIRUP V
: HRIIHURXUFUHGLWSURGXFWVWKURXJ KWKUHHVDOHVSODWIRUP V 5 HWDLO&DUG 3D\ P HQW6ROXWLRQVDQG&DUH&UHGLW6HWIRUWKEHORZ LVDVXP P DU\ RI FHUWDLQLQIRUP DWLRQUHODWLQJ WR RXU5 HWDLO&DUG 3D\ P HQW6ROXWLRQVDQG&DUH&UHGLWSODWIRUP V
LQP LOOLRQV 5 ▇▇▇▇▇&▇▇▇ 3 D\ P HQW6ROXWLRQV &DUH&UHGLW
3DUWQHUORFDWLRQV DW6HSWHP EHU
$ YHUDJ HDFWLYHDFFRXQWVIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU
/ RDQUHFHLYDEOHV DW6HSWHP EHU
5 HWDLO&DUG
5 HWDLO&DUGLVDOHDGLQJ SURYLGHURI SULYDWHODEHOFUHGLWFDUGV DQGDOVR SURYLGHV’ XDO&DUGVDQGVP DOODQGP HGLXP VL] HGEXVLQHVVFUHGLWSURGXFWV 5 HWDLO&DUGDFFRXQWHG IRU ELOOLRQ RU RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU DQG ELOOLRQ RU RI RXUWRWDOSODWIRUP UHYHQXHIRUWKHQLQHP RQWKV HQGHG6HSWHP EHU 6XEVWDQWLDOO\ DOORI WKHFUHGLWH[ WHQGHGLQWKLVSODWIRUP LVRQVWDQGDUG LH QRQ SURP RWLRQDO WHUP V
5 HWDLO&DUG¶VSODWIRUP UHYHQXHFRQVLVWVRI LQWHUHVWDQGIHHVRQRXUORDQUHFHLYDEOHV SOXVRWKHULQFRP H OHVVUHWDLOHUVKDUHDUUDQJ HP HQWV 2 WKHULQFRP HSULP DULO\ FRQVLVWV RI LQWHUFKDQJ HIHHVHDUQHGRQ’ XDO&DUGWUDQVDFWLRQV Z KHQWKHFDUGLVXVHGRXWVLGHRI RXUSDUWQHUV¶VDOHVFKDQQHOV DQGIHHVSDLGWR XVE\ FXVWRP HUVZ KR SXUFKDVHRXUGHEW FDQFHOODWLRQSURGXFWV OHVVOR\ DOW\ SURJ UDP SD\ P HQWV
5 HWDLO&DUG3 DUWQHUV
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
$ P D] RQ 2 QOLQHUHWDLOHU
$ P HULFDQ( DJ OH 6SHFLDOW\ UHWDLOHU† DSSDUHO
%HON ’ HSDUWP HQWVWRUH
%URRNV%URWKHUV 6SHFLDOW\ UHWDLOHU† DSSDUHO
&KHYURQ &KHYURQ8 6$ DQG&KHYURQ&DQDGD 2 LODQGJ DVUHWDLOHU
&DWHJ RU\
/ HQJ WK RI
UHODWLRQVKLS
’ LFN¶V6SRUWLQJ * RRGV 6SHFLDOW\ UHWDLOHU† VSRUWLQJ J RRGV
’ LOODUG¶V ’ HSDUWP HQWVWRUH
( EDWHV 2 QOLQHUHWDLOHU
* DS LQFOXGLQJ 2 OG1 DY\ DQG%DQDQD5 HSXEOLF 6SHFLDOW\ UHWDLOHU† DSSDUHO
-&3HQQH\ ’ HSDUWP HQWVWRUH
/ RUG 7D\ ORU ’ HSDUWP HQWVWRUH
/ RZ H¶V 0 DVVP HUFKDQGLVHU† KRP HLP SURYHP HQW
0 HLMHU 0 DVVP HUFKDQGLVHU
0 HQ¶V: HDUKRXVH 6SHFLDOW\ UHWDLOHU† DSSDUHO
0 RGHOO¶V 6SHFLDOW\ UHWDLOHU† VSRUWLQJ J RRGV
3D\ 3DO LQFOXGLQJ H%D\ 2 QOLQHUHWDLOHU
3KLOOLSV 2 LODQGJ DVUHWDLOHU
4 9 & 0 XOWLFKDQQHOHOHFWURQLF UHWDLOHU
6DP ¶V&OXE 0 DVVP HUFKDQGLVHU
6KRS+ 4 0 XOWLFKDQQHOHOHFWURQLF UHWDLOHU
6WHLQ0 DUW ’ HSDUWP HQWVWRUH
7 -; LQFOXGLQJ 7 - 0 D[ [ 0 DUVKDOOVDQG+ RP H* RRGV 6SHFLDOW\ UHWDLOHU† DSSDUHODQGKRP HJ RRGV
7R\ V‡5 · 8 V LQFOXGLQJ %DELHV‡5 · 8 V 6SHFLDOW\ UHWDLOHU† WR\ V
: DOP DUW 0 DVVP HUFKDQGLVHU
, Q\ HDUV DW6HSWHP EHU 6HHWH[ WIROORZ LQJ WKHWDEOHEHORZ XQGHU‡† 7HUP · IRULQIRUP DWLRQZ LWKUHVSHFWWR WKHIXWXUHVWDWXVRI RXUUHODWLRQVKLS Z LWKWKUHHRI WKHVHSDUWQHUV
2 XUSURJ UDP DJ UHHP HQWVZ LWKWKHVHSDUWQHUVKDYHH[ SLUHGRURWKHUZ LVHZ LOOQRWEHH[ WHQGHGEH\ RQGWKHLUFRQWUDFWXDOH[ SLUDWLRQGDWHVLQ RU LQWKHFDVHRI %URRNV
%URWKHUV
2 XUWHQODUJ HVW5 HWDLO&DUGSURJ UDP VDFFRXQWHGLQDJ J UHJ DWHIRU RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU 2 XUSURJ UDP VZ LWK
-&3HQQH\ DQG: DOP DUWHDFKDFFRXQWHGIRUP RUHWKDQ RI RXUWRWDOSODWIRUP UHYHQXHDQG-&3HQQH\ / RZ H¶VDQG: DOP DUWHDFKDFFRXQWHGIRUP RUHWKDQ RI RXUWRWDO SODWIRUP LQWHUHVWDQGIHHVDQGRWKHULQFRP H LQHDFKFDVHIRUWKH\ HDUHQGHG’ HFHP EHU : HDOVR KDYHSURJ UDP VZ LWK6DP ¶V&OXE DVXEVLGLDU\ RI : DOP DUWSXUVXDQWWR VHSDUDWHSURJ UDP DJ UHHP HQWV ) RUSXUSRVHVRI WKHLQIRUP DWLRQSURYLGHGLQWKLVSDUDJ UDSKZ LWKUHVSHFWWR: DOP DUWWKHSODWIRUP UHYHQXHDQGLQWHUHVWDQGIHHVDQGRWKHULQFRP H IURP WKH6DP ¶V&OXE SURJ UDP KDVQRWEHHQLQFOXGHG
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
7HUP 5 HWDLO&DUGSURJ UDP DJ UHHP HQWVW\ SLFDOO\ KDYHFRQWUDFWWHUP VUDQJ LQJ IURP DSSUR[ LP DWHO\ ILYHWR WHQ\ HDUV 0 RVWSURJ UDP DJ UHHP HQWVKDYHUHQHZ DOFODXVHVWKDW SURYLGHIRUDXWRP DWLF UHQHZ DOIRURQHRUP RUH\ HDUVXQWLOWHUP LQDWHGE\ XVRURXUSDUWQHU: HW\ SLFDOO\ VHHNWR UHQHZ WKHSURJ UDP DJ UHHP HQWVZ HOOLQDGYDQFHRI WKHLU
WHUP LQDWLRQGDWHV 6LQFH-DQXDU\ Z HKDYHH[ WHQGHGWKHGXUDWLRQRI RI RXU 5 HWDLO&DUGSURJ UDP DJ UHHP HQWVZ LWKDQHZ H[ SLUDWLRQGDWHLQ RUEH\ RQG 7 KHVH H[ WHQGHGSURJ UDP DJ UHHP HQWVUHSUHVHQWHG LQWKHDJ J UHJ DWH RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU DQG RI RXUWRWDOORDQUHFHLYDEOH LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW6HSWHP EHU 6HWIRUWKEHORZ LVFHUWDLQLQIRUP DWLRQUHJ DUGLQJ WKHVFKHGXOHGH[ SLUDWLRQGDWHVRI RXUSDUWQHUSURJ UDP V LQFOXGLQJ WKHQXP EHURI SURJ UDP VVFKHGXOHGWR H[ SLUHGXULQJ HDFKLQGLFDWHGSHULRGDQGWKHSODWIRUP UHYHQXHDQGORDQUHFHLYDEOHVDWWULEXWDEOHWR WKRVHSURJ UDP VDWWKHGDWHV DQGIRUWKHSHULRGVLQGLFDWHG
LQP LOOLRQV
6FKHGXOHG 3 URJ UDP ( [ SLUDWLRQ DW6HSWHP EHU
DQG EH\ RQG
3DUWQHUSURJ UDP V
3ODWIRUP UHYHQXH IRUWKH\ HDUHQGHG’ HFHP EHU
/ RDQUHFHLYDEOHV DW6HSWHP EHU
3URJ UDP DJ UHHP HQWVZ LWKRQHRI RXUSDUWQHUV FRYHULQJ P RVWRI WKHILQDQFLQJ Z HSURYLGHWR WKDWSDUWQHU¶VFXVWRP HUV Z HUHUHFHQWO\ H[ WHQGHGIURP WR EH\ RQG
3URJ UDP DJ UHHP HQWVFRYHULQJ WKHUHP DLQLQJ ILQDQFLQJ SURYLGHGWR WKHSDUWQHU¶VFXVWRP HUV P RVWRI Z KLFKZ HEHOLHYHZ LOOEHH[ WHQGHG UHSUHVHQW P LOOLRQRI SODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU DQG P LOOLRQRI ORDQUHFHLYDEOHVDW6HSWHP EHU DQGDUHLQFOXGHGDVSDUWRI WKH LQIRUP DWLRQ
( [ FOXGHVILYHSURJ UDP DJ UHHP HQWVLQHIIHFWDW6HSWHP EHU WKDWKDYHH[ SLUHGRURWKHUZ LVHZ LOOQRWEHH[ WHQGHGEH\ RQGWKHLUFXUUHQWFRQWUDFWXDOH[ SLUDWLRQGDWHV LQ RU
$ WRWDORI RI RXU 5 HWDLO&DUGSURJ UDP DJ UHHP HQWV LQFOXGLQJ WKH SURJ UDP DJ UHHP HQWVZ HKDYHH[ WHQGHGVLQFH-DQXDU\ QRZ KDYHDQH[ SLUDWLRQGDWHLQ RUEH\ RQG 7 KHVH SURJ UDP DJ UHHP HQWVUHSUHVHQWHG LQWKHDJ J UHJ DWH RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU DQG RI RXUWRWD
ORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW6HSWHP EHU
7 KHSURJ UDP DJ UHHP HQWVIRUILYHRI RXU FXUUHQW5 HWDLO&DUGSDUWQHUVLQHIIHFWDW6HSWHP EHU KDYHH[ SLUHGRURWKHUZ LVHZ LOOQRWEHH[ WHQGHGEH\ RQGWKHLU FRQWUDFWXDOH[ SLUDWLRQGDWHVLQ RU LQRQHFDVH 7 KHVHILYHSURJ UDP DJ UHHP HQWVUHSUHVHQWHG LQWKHDJ J UHJ DWH RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG ’ HFHP EHU DQG RI RXUWRWDOORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW6HSWHP EHU , QDGGLWLRQ Z HUHFHQWO\ H[ WHQGHGRXUSURJ UDP
DJ UHHP HQWZ LWK3D\ 3DODQRWKHURI RXU FXUUHQW5 HWDLO&DUGSDUWQHUV XQWLO2 FWREHU 7 KHH[ WHQVLRQHOLP LQDWHGFHUWDLQH[ FOXVLYLW\ SURYLVLRQVWKDWSUHYLRXVO\ H[ LVWHGLQWK SURJ UDP DJ UHHP HQWZ KLFKZ HH[ SHFWZ LOOUHVXOWLQORZ HUSODWIRUP UHYHQXHDQGORDQUHFHLYDEOHVIURP RXU3D\ 3DOSURJ UDP GXULQJ WKHH[ WHQGHGWHUP RI WKHDJ UHHP HQWDQGGR QR H[ SHFWLWWR H[ WHQGEH\ RQGWKDWGDWH 7 KH3D\ 3DOSURJ UDP DJ UHHP HQWUHSUHVHQWHG RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU DQG RI RXU WRWDOORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW6HSWHP EHU
( [ FOXVLYLW\ 7 KHSURJ UDP DJ UHHP HQWVW\ SLFDOO\ DUHH[ FOXVLYHIRUWKHSURGXFWVZ HRIIHUDQGOLP LWRXUSDUWQHUV¶DELOLW\ WR RULJ LQDWHRUSURP RWHRWKHUSULYDWHODEHORUFR EUDQGHGFUHGLWFDUGVGXULQJ WKHWHUP RI WKHDJ UHHP HQW
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
2 WKHUHFRQRP LF WHUP V , QDGGLWLRQWR WKHUHWDLOHUVKDUHDUUDQJ HP HQWV WKHSURJ UDP DJ UHHP HQWVW\ SLFDOO\ SURYLGHWKDWWKHSDUWLHVZ LOOGHYHORS DP DUNHWLQJ SODQWR VXSSRU WKHSURJ UDP LWVHWVWKHWHUP VE\ Z KLFKDMRLQWP DUNHWLQJ EXGJ HWLVIXQGHG WKHEDVLF WHUP VRI WKHUHZ DUGVSURJ UDP OLQNHGWR WKHXVHRI RXUSURGXFWVXFKDVRSSRUWXQLWLHVWR UHFHLYHGRXEOHUHZ DUGVSRLQWIRUSXUFKDVHVP DGHRQD5 HWDLO&DUGSURGXFW DQGWKHDOORFDWLRQRI FRVWVUHODWHGWR WKHUHZ DUGVSURJ UDP
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▇▇ ▇▇▇▇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
$ FTXLULQJ 1 HZ 5 HWDLO&DUG3 DUWQHUV
: HVHHNWR SDUWQHUZ LWKP HGLXP WR ODUJ H ILQDQFLDOO\ VWURQJ UHWDLOHUVZ KR KDYHDQDWLRQDORUUHJ LRQDOIRRWSULQWDQGDGHVLUHWR J URZ WKHLUEXVLQHVVWKURXJ KHIIHFWLYH FRQVXP HUILQDQFLQJ SURJ UDP V 2 XUEXVLQHVVGHYHORSP HQWWHDP SURDFWLYHO\ WDUJ HWVDQGHQJ DJ HVZ LWKSRWHQWLDOSDUWQHUVWKDWHLWKHUGR QRWKDYHDFDUGSURJ UDP RUP D\ EH UHFHSWLYHWR DQRSSRUWXQLW\ IRUXVWR DFTXLUHWKHLUH[ LVWLQJ SURJ UDP 7 KHWHDP UHVSRQGVWR FRP SHWLWLYHUHTXHVWVIRUSURSRVDOV ‡5 ) 3V· DQGLQIRUP DOLQTXLULHVLQLWLDWHGE\ UHWDLOHUV ) URP -DQXDU\ WKURXJ K6HSWHP EHU Z HDGGHGIRXUQHZ 5 HWDLO&DUGSDUWQHUV Z KLFKDFFRXQWHGIRU ELOOLRQRI ORDQUHFHLYDEOHVDW6HSWHP EHU
$ FTXLULQJ DQG0 DUNHWLQJ WR 5 ▇▇▇▇▇&▇▇▇&▇▇▇▇▇ HUV
: HZ RUNGLUHFWO\ Z LWKRXUSDUWQHUV† XVLQJ WKHLUGLVWULEXWLRQQHWZ RUN FRP P XQLFDWLRQFKDQQHOVDQGFXVWRP HULQWHUDFWLRQV† WR P DUNHWRXUSURGXFWVWR WKHLUFXVWRP HUV DQGSRWHQWLDOFXVWRP HUV : HEHOLHYHRXUSUHVHQFHDWRXUSDUWQHUV¶SRLQWVRI VDOHDQGRXUDELOLW\ WR P DNHFUHGLWGHFLVLRQVLQVWDQWO\ IRUDFXVWRP HUWKDWLVDOUHDG\ SUHGLVSRVHGWR P DNHDSXUFKDVHHQDEOHVXVWR DFTXLUHQHZ FXVWRP HUDFFRXQWVDWVLJ QLILFDQWO\ ORZ HUFRVWVWKDQJ HQHUDOSXUSRVHFDUGLVVXHUV Z KR W\ SLFDOO\ P DUNHWGLUHFWO\ WR FRQVXP HUVWKURXJ P DVVP DLOLQJ V
7R DFTXLUHQHZ FXVWRP HUV Z HFROODERUDWHZ LWKRXUSDUWQHUVDQGOHYHUDJ HRXUP DUNHWLQJ H[ SHUWLVHWR FUHDWHP DUNHWLQJ SURJ UDP VWKDWSURP RWHRXUSURGXFWVIRU
FUHGLWZ RUWK\ FXVWRP HUV ) UHTXHQWO\ RXUSDUWQHUVP DUNHWWKHDYDLODELOLW\ RI FUHGLWDVSDUWRI DQGZ LWKOLWWOHLQFUHP HQWDOFRVWWR WKHDGYHUWLVLQJ IRUWKHLUJ RRGVDQGVHUYLFHV 2 X P DUNHWLQJ SURJ UDP VLQFOXGHP DUNHWLQJ RIIHUV HJ RII WKHFXVWRP HU¶VILUVWSXUFKDVH DQGFRQVXP HUFRP P XQLFDWLRQVWKDWDUHGHOLYHUHGWKURXJ KDYDULHW\ RI FKDQQHOV LQFOXGLQJ LQ VWRUHVLJ QDJ H RQOLQHDGYHUWLVLQJ UHWDLOHUZ HEVLWHSODFHP HQWDVVRFLDWHFRP P XQLFDWLRQ HP DLOVDQGWH[ WP HVVDJ HV GLUHFWP DLOFDP SDLJ QV DGYHUWLVLQJ FLUFXODUV DQG RXWVLGHP DUNHWLQJ YLDWHOHYLVLRQ UDGLR DQGSULQW: HDOVR HP SOR\ RXUSURSULHWDU\ 4 XLFNVFUHHQDQGH4 XLFNVFUHHQDFTXLVLWLRQP HWKRGVWR P DNHWDUJ HWHGSUHDSSURYHGFUHGLW RIIHUVDWWKHSRLQWRI VDOHERWKLQ VWRUHDQGRQOLQH 2 XU4 XLFNVFUHHQDQGH4 XLFNVFUHHQWHFKQRORJ \ DOORZ VXVWR UXQFXVWRP HULQIRUP DWLRQZ HKDYHREWDLQHGIURP RXUSDUWQHUV WKURXJ KRXUULVNP RGHOVLQDGYDQFHVR WKDWZ KHQWKHVHFXVWRP HUVVHHNWR P DNHSD\ P HQWIRUJ RRGVDQGVHUYLFHVDWRXUSDUWQHUVLQ VWRUHRURQOLQHSRLQWRI VDOHZ HFDQP DNHD FUHGLWRIIHULQVWDQWO\ LI DSSURSULDWH %DVHGRQRXUH[ SHULHQFH GXHWR WKHSHUVRQDOL] HGDQGLP P HGLDWHQDWXUHRI WKHRIIHU 4 XLFNVFUHHQDQGH4 XLFNVFUHHQVLJ QLILFDQWO\ RXWSHUIRUP WUDGLWLRQDOGLUHFWWR FRQVXP HUSUHDSSURYHGFKDQQHOVVXFKDVGLUHFWP DLORUHP DLOLQUHVSRQVHUDWHDQGGROODUVSHQGLQJ
$ IWHUDFXVWRP HUREWDLQVRQHRI RXU5 HWDLO&DUGSURGXFWV RXUP DUNHWLQJ SURJ UDP VHQFRXUDJ HFDUGXWLOL] DWLRQE\ FRQWLQXLQJ WR FRP P XQLFDWHRXUSURGXFWV¶YDOXH SURSRVLWLRQV VXFKDV GHSHQGLQJ RQWKHSURJ UDP SURP RWLRQDOILQDQFLQJ RIIHUV FDUGKROGHUHYHQWV SURGXFWGLVFRXQWV GROODURII FHUWLILFDWHV DFFRXQWKROGHUVDOHV UHZ DUGSRLQWV DQGRIIHUV QHZ SURGXFWDQQRXQFHP HQWVDQGSUHYLHZ V DQGIUHHRUUHGXFHGFRVWJ LIWZ UDSSLQJ DOWHUDWLRQRUGHOLYHU\ VHUYLFHV WKURXJ KRXUSDUWQHUV¶GLVWULEXWLRQFKDQQHOV
7 KURXJ KRXU&5 0 DQGGDWDDQDO\ WLFVWHDP V Z HWUDFNFDUGKROGHUUHVSRQVLYHQHVVWR RXUP DUNHWLQJ SURJ UDP VDQGXVHWKLVUHVHDUFKWR WDUJ HWP DUNHWLQJ P HVVDJ HVDQG SURP RWLRQDORIIHUVWR FDUGKROGHUVEDVHGRQWKHLULQGLYLGXDOFKDUDFWHULVWLFV VXFKDVOHQJ WKRI UHODWLRQVKLS DQGVSHQGLQJ SDWWHUQ ) RUH[ ▇▇ ▇▇▇ LI DFDUGKROGHUUHVSRQGVSRVLWLYHO\
WR DFRXSRQVHQWE\ WH[ WP HVVDJ H Z HZ LOOWDLORUIXWXUHP DUNHWLQJ P HVVDJ HVVR WKDWWKH\ DUHGHOLYHUHGE\ WH[ WP HVVDJ H 2 XUDELOLW\ WR WDUJ HWP DUNHWLQJ P HVVDJ HVDQGSURP RWLRQV LVHQKDQFHGIRU’ XDO&DUGSURJ UDP VEHFDXVHZ HUHFHLYH FROOHFWDQGDQDO\ ] HGDWDRQLQ VWRUHDQGDOORWKHUVSHQGLQJ
: HDOVR P DQDJ HUHWDLOOR\ DOW\ SURJ UDP V 7 KHVHSURJ UDP VW\ SLFDOO\ SURYLGHFDUGKROGHUVZ LWKUHZ DUGVLQWKHIRUP RI P HUFKDQGLVHGLVFRXQWVWKDWDUHHDUQHGE\ DFKLHYLQJ SUHVHWVSHQGLQJ OHYHORQWKHLUSULYDWHODEHORU’ XDO&DUG 7 KHP HUFKDQGLVHGLVFRXQWVFDQEHP DLOHGWR WKHFDUGKROGHU DFFHVVHGRQOLQH RUP D\ EHLP P HGLDWHO\ UHGHHP DEOHDW WKHSDUWQHU¶VVWRUH 2 WKHUSURJ UDP VSURYLGHFDVKEDFNRUUHZ DUGSRLQWV Z KLFKDUHUHGHHP DEOHIRUDYDULHW\ RI SURGXFWVRUDZ DUGV 7 KHVHOR\ DOW\ SURJ UDP VDUHGHVLJ QHGWR
J HQHUDWHLQFUHP HQWDOSXUFKDVHYROXP HSHUFXVWRP HU Z KLOHUHLQIRUFLQJ WKHYDOXHRI WKHFDUGWR WKHFXVWRP HUDQGVWUHQJ WKHQLQJ FXVWRP HUOR\ DOW\ , QWKHIXWXUH Z HLQWHQGWR RIIH OR\ DOW\ SURJ UDP VWR FXVWRP HUVWKDWXWLOL] HQRQ FUHGLWSD\ P HQWW\ SHVVXFKDVFDVK GHELWRUFKHFN 7 KHVHP XOWLWHQGHUOR\ DOW\ SURJ UDP VZ LOODOORZ RXUSDUWQHUVWR P DUNHWWR DQ H[ SDQGHGFXVWRP HUEDVH DQGDOORZ XVDFFHVVWR DGGLWLRQDOSURVSHFWLYHFDUGKROGHUV
, QDGGLWLRQWR RXUHIIRUWVWR DFTXLUHDQGSURP RWHFRQVXP HUFDUGKROGHUV Z HDUHLQFUHDVLQJ RXUIRFXVRQVP DOOWR P LG VL] HGFRP P HUFLDOFXVWRP HUV : HRIIHUWKHVH FXVWRP HUVSULYDWHODEHOFUHGLWFDUGVDQG’ XDO&DUGVWKDWFDQEHXVHGDWRXU5 HWDLO&DUGSDUWQHUVDQGDUHVLP LODUWR RXUFRQVXP HURIIHULQJ V : HDUHDOVR LQFUHDVLQJ RXUIRFXVRQ P DUNHWLQJ RXUFRP P HUFLDOSD\ LQ IXOODFFRXQWVUHFHLYDEOHSURGXFWWKDWVXSSRUWVDZ LGHUDQJ HRI EXVLQHVVFXVWRP HUV
3 D\ P HQW6ROXWLRQV
3D\ P HQW6ROXWLRQVLVDOHDGLQJ SURYLGHURI SURP RWLRQDOILQDQFLQJ IRUP DMRUFRQVXP HUSXUFKDVHV RIIHULQJ SULYDWHODEHOFUHGLWFDUGVDQGLQVWDOOP HQWORDQV 3D\ P HQW
6ROXWLRQVDFFRXQWHGIRU ELOOLRQ RU RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU DQG P LOOLRQ RU RI RXUWRWDOSODWIRUP UHYHQXH IRUWKHQLQHP RQWKVHQGHG6HSWHP EHU 6XEVWDQWLDOO\ DOORI WKHFUHGLWH[ WHQGHGLQ3D\ P HQW6ROXWLRQVLVSURP RWLRQDOILQDQFLQJ
3D\ P HQW6ROXWLRQV¶SODWIRUP UHYHQXHSULP DULO\ FRQVLVWVRI LQWHUHVWDQGIHHVRQRXUORDQUHFHLYDEOHV LQFOXGLQJ ‡P HUFKDQWGLVFRXQWV· Z KLFKDUHIHHVSDLGWR XVE\ RXU SDUWQHUVLQDOP RVWDOOFDVHVWR FRP SHQVDWHXVIRUDOORUSDUWRI WKHIRUHJ RQHLQWHUHVWUHYHQXHDVVRFLDWHGZ LWKSURP RWLRQDOILQDQFLQJ : HRIIHUWKUHHW\ SHVRI SURP RWLRQDO ILQDQFLQJ GHIHUUHGLQWHUHVWLQWHUHVWDFFUXHVGXULQJ DSURP RWLRQDOSHULRGDQGEHFRP HVSD\ DEOHLI WKHIXOOSXUFKDVHDP RXQWLVQRWSDLGRII GXULQJ WKHSURP RWLRQDOSHULRG QR LQWHUHVWQR LQWHUHVWRQDSURP RWLRQDOSXUFKDVH DQGUHGXFHGLQWHUHVWLQWHUHVWLVDVVHVVHGP RQWKO\ DWDSURP RWLRQDOLQWHUHVWUDWHGXULQJ WKHSURP RWLRQDOSHULRG $ VDUHVXOW GXULQJ WKHSURP RWLRQDOSHULRGZ HGR QRWJ HQHUDWHLQWHUHVWUHYHQXHRUJ HQHUDWHLWDWDORZ HUUDWH DOWKRXJ KZ HFRQWLQXHWR J HQHUDWHIHHLQFRP HUHODWLQJ WR ODWHIHHVRQUHTXLUHG P LQLP XP SD\ P HQWV
3 D\ P HQW6ROXWLRQV3 DUWQHUV
, Q3D\ P HQW6ROXWLRQV Z HFUHDWHFXVWRP L] HGFUHGLWSURJ UDP VIRUQDWLRQDODQGUHJ LRQDOUHWDLOHUV P DQXIDFWXUHUV EX\ LQJ J URXSV LQGXVWU\ DVVRFLDWLRQVDQGRXURZ Q LQGLYLGXDOO\ EUDQGHGLQGXVWU\ SURJ UDP V Z KLFKDUHDYDLODEOHWR SDUWLFLSDWLQJ P HUFKDQWV GHDOHUVDQGUHWDLORXWOHWVWR SURYLGHILQDQFLQJ RIIHUVWR WKHLUFXVWRP HUV 2 XUSURJ UDP V LQFOXGH
SURJ UDP VZ LWKQDWLRQDODQGUHJ LRQDOUHWDLOHUVDQGWKHLUUHODWHGUHWDLORXWOHWV
SURJ UDP VZ LWKP DQXIDFWXUHUVDQGWKHP HUFKDQWVDQGGHDOHUV LQFOXGLQJ IUDQFKLVHHV WKDWVHOOWKHP DQXIDFWXUHUV¶SURGXFWV SURJ UDP VZ LWKEX\ LQJ J URXSVRULQGXVWU\ DVVRFLDWLRQVDQGWKHLUSDUWLFLSDWLQJ P HP EHUP HUFKDQWVDQGGHDOHUV DQG
LQGLYLGXDOO\ EUDQGHGLQGXVWU\ SURJ UDP VWKDWZ HFUHDWHDQGWKHQHWZ RUNVRI LQGLYLGXDOXQUHODWHGP HUFKDQWVDQGGHDOHUVZ KR SDUWLFLSDWHLQWKHVHSURJ UDP V
$ W6HSWHP EHU Z HKDG SDUWLFLSDWLQJ SDUWQHUV 7 KHVHSDUWQHUVFROOHFWLYHO\ KDYH UHWDLOORFDWLRQV ’ XULQJ RI WKHVHUHWDLOORFDWLRQV HLWKHUSURFHVVHGDFUHGLWDSSOLFDWLRQRUP DGHD3D\ P HQW6ROXWLRQVFUHGLWVDOH
6HWIRUWKEHORZ LVFHUWDLQLQIRUP DWLRQUHJ DUGLQJ RXUWHQODUJ HVW3D\ P HQW6ROXWLRQVSURJ UDP VE\ SODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU
&DWHJ RU\
$ VKOH\ + RP H6WRUHV ) XUQLWXUHUHWDLOHUDQGP DQXIDFWXUHU
’ LVFRXQW7 LUH 7 LUHUHWDLOHU
+ DYHUW\ ¶V) XUQLWXUH ) XUQLWXUHUHWDLOHU
KKJ UHJ J ( OHFWURQLFVDQGDSSOLDQFHVUHWDLOHU
1 RUWK$ P HULFDQ+ RP H) XUQLVKLQJ V$ VVRFLDWLRQ ) XUQLWXUHLQGXVWU\ DVVRFLDWLRQ
3 & 5 LFKDUG 6RQ ( OHFWURQLFVDQGDSSOLDQFHVUHWDLOHU
5 RRP V7R* R ) XUQLWXUHUHWDLOHU
6HOHFW&RP IRUW %HGGLQJ UHWDLOHU
6OHHS\ ¶V %HGGLQJ UHWDLOHU
<DP DKD0 RWRU&RUS 8 6$ 3RZ HUVSRUWVP DQXIDFWXUHU
, Q\ HDUV DW6HSWHP EHU
7 KHDYHUDJ HOHQJ WKRI RXUUHODWLRQVKLS IRURXU ODUJ HVW3D\ P HQW6ROXWLRQVSURJ UDP VLV \ HDUV
/ HQJ WK RI
5 HODWLRQVKLS
3D\ P HQW6ROXWLRQV¶SODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU LVGLYHUVLILHGDFURVVVHYHQUHWDLOP DUNHWV KRP HIXUQLVKLQJ VIORRULQJ
HOHFWURQLFVDSSOLDQFHV KRP HVSHFLDOW\ RWKHUUHWDLO SRZ HU P RWRUF\ FOHV $ 7 9 VDQGODZ QDQGJ DUGHQ DXWRP RWLYH DQGMHZ HOU\ DQGRWKH OX[ XU\ LWHP V 3D\ P HQW6ROXWLRQVLVDOVR GLYHUVLILHGE\ SURJ UDP Z LWKQR RQH3D\ P HQW6ROXWLRQVSURJ UDP DFFRXQWLQJ IRUP RUHWKDQ RI RXUWRWDOSODWIRUP UHYHQXH IRUWKH\ HDUHQGHG’ HFHP EHU
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
: HFRQWUROFUHGLWFULWHULDDQGLVVXHFUHGLWFDUGVRUSURYLGHLQVWDOOP HQWORDQVWR FXVWRP HUVZ KR TXDOLI\ XQGHUWKRVHFUHGLWFULWHULD : HRZ QWKHXQGHUO\ LQJ DFFRXQWVDQGD ORDQUHFHLYDEOHVJ HQHUDWHGXQGHUWKHSURJ UDP IURP WKHWLP HRI RULJ LQDWLRQ 2 XU3D\ P HQW6ROXWLRQVSURJ UDP DJ UHHP HQWVVHWIRUWKWKHSURJ UDP ¶VHFRQRP LF WHUP V LQFOXGLQJ WKH P HUFKDQWGLVFRXQWDSSOLFDEOHWR HDFKSURP RWLRQDOILQDQFHRIIHULQJ : HW\ SLFDOO\ GR QRWSD\ IHHVWR RXU3D\ P HQW6ROXWLRQVSDUWQHUVSXUVXDQWWR DQ\ UHWDLOHUVKDUHDUUDQJ HP HQWV EXWLQVRP HFDVHVZ HSD\ DVLJ Q XS IHHWR DSDUWQHURUSURYLGHYROXP HEDVHGUHEDWHVRQWKHP HUFKDQWGLVFRXQWSDLGE\ WKHSDUWQHU, QDGGLWLRQWR WKHFUHGLWSURJ UDP V Z HDOVR SURFHVVJ HQHUDOSXUSRVHFDUGWUDQVDFWLRQVIRUVRP HP HUFKDQWVDQGGHDOHUVXQGHUSURJ UDP VZ LWKP DQXIDFWXUHUVDVWKHLUDFTXLULQJ EDQNZ LWKLQP RVWRI WKHFUHGLWFDUGQHWZ RUN DVVRFLDWLRQV IRUZ KLFKZ HUHFHLYHDQLQWHUFKDQJ HIHH
%X\ LQJ * URXSVDQG, QGXVWU\ $ VVRFLDWLRQV ) RUWKH3D\ P HQW6ROXWLRQVSURJ UDP VZ HKDYHHVWDEOLVKHGZ LWKEX\ LQJ J URXSVDQGLQGXVWU\ DVVRFLDWLRQV VXFKDVWKH1 RUWK
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
, QGLYLGXDOO\ EUDQGHG3 URJ UDP V 2 XULQGLYLGXDOO\ EUDQGHG3D\ P HQW6ROXWLRQVSURJ UDP VDUHIRFXVHGRQVSHFLILF LQGXVWULHV Z KHUHZ HFUHDWHHLWKHUFRP SDQ\ EUDQGHGRU FRP SDQ\ DQGSDUWQHUEUDQGHGSULYDWHODEHOFUHGLWFDUGVWKDWDUHXVDEOHDFURVVDOOSDUWLFLSDWLQJ ORFDWLRQVZ LWKLQWKHLQGXVWU\ VSHFLILF QHWZ RUN ) RUH[ ▇▇ ▇▇▇ RXU&DU&DUH2 1 ( SURJ UDP FRP SULVHGRI P HUFKDQWVVHOOLQJ DXWRP RWLYHSDUWV UHSDLUVHUYLFHVDQGWLUHV FRYHUV ORFDWLRQVDFURVVWKH8 QLWHG6WDWHV DQGFDUGVLVVXHGP D\ EHGXDOEUDQGHG
Z LWK&DU&DUH2 1 ( DQGSDUWQHUVVXFKDV0 LGDV 0 LFKHOLQ7 LUHVRU3HS %R\ V 8 QGHUWKHWHUP VRI WKHVHSURJ UDP V Z HHVWDEOLVKP HUFKDQWGLVFRXQWVDSSOLFDEOHWR HDFKILQDQFLQJ RIIHU DQG LQVRP HFDVHV WKHIHHVZ HFKDUJ HSDUWQHUVIRUWKHLUP HP EHUVKLS LQWKHQHWZ RUN
’ HDOHU$ J UHHP HQWV ) RUWKH3D\ P HQW6ROXWLRQVSURJ UDP VZ HKDYHHVWDEOLVKHGZ LWKP DQXIDFWXUHUV EX\ LQJ J URXSV LQGXVWU\ DVVRFLDWLRQVDQGLQGLYLGXDOO\ EUDQGHG
SURJ UDP VGHVFULEHGDERYH Z HHQWHULQWR LQGLYLGXDODJ UHHP HQWVZ LWKWKHP HUFKDQWVDQGGHDOHUVWKDWRIIHURXUFUHGLWSURGXFWVXQGHUWKHVHSURJ UDP V 7 KHVHDJ UHHP HQWVJ HQHUDOO\ DUHQRWH[ FOXVLYHDQGVRP HSDUWLHVZ KR RIIHURXUILQDQFLQJ SURGXFWVDOVR RIIHUILQDQFLQJ IURP RXUFRP SHWLWRUV 2 XUDJ UHHP HQWVJ HQHUDOO\ FRQWLQXHXQWLOWHUP LQDWHGE\ HLWKHU SDUW\ Z LWKWHUP LQDWLRQW\ SLFDOO\ DYDLODEOHWR HLWKHUSDUW\ DWZ LOORQ GD\ V¶Z ULWWHQQRWLFH 2 XUGHDOHUDJ UHHP HQWVVHWIRUWKWKHHFRQRP LF WHUP VDVVRFLDWHGZ LWKWKHSURJ UDP LQFOXGLQJ WKHIHHVFKDUJ HGWR GHDOHUVWR RIIHUSURP RWLRQDOILQDQFLQJ DQGLQVRP HFDVHVDOORZ XVWR SHULRGLFDOO\ FKDQJ HWKHIHHVZ HFKDUJ H
$ FTXLULQJ 1 HZ 3 D\ P HQW6ROXWLRQV3 DUWQHUV
$ WWUDFWLQJ QHZ SDUWQHUVLVDNH\ HOHP HQWWR WKHFRQWLQXHGJ URZ WKRI RXU3D\ P HQW6ROXWLRQVSODWIRUP , Q3D\ P HQW6ROXWLRQV Z HVHHNWR SDUWQHUZ LWK DQGSURDFWLYHO\ WDUJ HWVHOOHUVRI ‡ELJ WLFNHW· SURGXFWVRUVHUYLFHV J HQHUDOO\ SULFHGIURP WR WR FRQVXP HUVZ KHUHRXUILQDQFLQJ SURGXFWVSURYLGHVWURQJ LQFUHP HQWDOYDOXHWR VHOOHUVDQGWKHLUFXVWRP HUV 2 XUEXVLQHVVGHYHORSP HQWWHDP DOVR UHVSRQGVWR 5 ) 3VLQLWLDWHGE\ UHWDLOHUV P DQXIDFWXUHUV LQGXVWU\ J URXSVDQGRWKHURUJ DQL] DWLRQV DQGZ RUNV
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’ HFHP EHU WKURXJ K6HSWHP EHU Z HLQFUHDVHGRXUWRWDOSDUWQHUVIURP WR Z LWKQHZ SDUWQHUVDFFRXQWLQJ IRU ELOOLRQLQUHFHLYDEOHVDW6HSWHP EHU
$ FTXLULQJ DQG0 DUNHWLQJ WR 3 D\ P HQW6ROXWLRQV&XVWRP HUV
2 XU3D\ P HQW6ROXWLRQVSURGXFWVDUHJ HQHUDOO\ GHHSO\ HP EHGGHGLQRXUSDUWQHUV¶SURGXFWRIIHULQJ VDQGRXUILQDQFLQJ RIIHUVDUHWKHUHIRUHDNH\ FRP SRQHQWRI RXU SDUWQHUV¶P DUNHWLQJ DQGJ URZ WKVWUDWHJ LHV 2 XUEUHDGWKDQGVFDOHHQDEOHXVWR EULQJ VXEVWDQWLDOUHWDLOHUP DUNHWLQJ H[ SHUWLVHWR RXUVP DOOHUUHWDLOHUDQGP HUFKDQWSDUWQHUV 6LP LOD WR 5 HWDLO&DUG Z HKHOS RXUSDUWQHUVDFTXLUHQHZ FXVWRP HUVE\ OHYHUDJ LQJ RXUVLJ QLILFDQWP DUNHWLQJ H[ SHUWLVHWR KHOS WKHP GHYHORS P DUNHWLQJ SURJ UDP VWKDWSURP RWHRXU SURGXFWVIRUFXVWRP HUVWKURXJ KDYDULHW\ RI FKDQQHOV LQFOXGLQJ LQ VWRUHVLJ QDJ H RQOLQHDGYHUWLVLQJ UHWDLOHUZ HEVLWHSODFHP HQWHP DLOVDQGWH[ WP HVVDJ HV GLUHFWP DLO
FDP SDLJ QV DGYHUWLVLQJ FLUFXODUVDQGSULQWP HGLDRXWVLGHP DUNHWLQJ YLDWHOHYLVLRQ UDGLR DQGSULQW, Q3D\ P HQW6ROXWLRQV Z HDOVR XVHRXU&5 0 DQGGDWDDQDO\ WLFVFDSDELOLWLHVD GHVFULEHGDERYHIRU5 HWDLO&DUG
&DUH&UHGLW
&DUH&UHGLWLVDOHDGLQJ SURYLGHURI SURP RWLRQDOILQDQFLQJ WR FRQVXP HUVIRUHOHFWLYHKHDOWKFDUHSURFHGXUHVRUVHUYLFHV VXFKDVGHQWDOYHWHULQDU\ FRVP HWLF YLVLRQDQG DXGLRORJ \ &DUH&UHGLWDFFRXQWHGIRU ELOOLRQ RU RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU DQG P LOOLRQ RU RI RXUWRWDO SODWIRUP UHYHQXHIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU 6XEVWDQWLDOO\ DOORI WKHFUHGLWH[ WHQGHGLQ&DUH&UHGLWLVSURP RWLRQDOILQDQFLQJ
: HRIIHUFXVWRP HUVD&DUH&UHGLWEUDQGHGSULYDWHODEHOFUHGLWFDUGWKDWP D\ EHXVHGDFURVVRXUQHWZ RUNRI &DUH&UHGLWSURYLGHUV : HJ HQHUDWHUHYHQXHLQ&DUH&UHGLW SULP DULO\ IURP LQWHUHVWDQGIHHVRQRXUFUHGLWSURGXFWVDQGIURP P HUFKDQWGLVFRXQWVSURYLGHGE\ SDUWQHUVWR FRP SHQVDWHXVIRUDOORUSDUWRI WKHFRVWRI WKLVSURP RWLRQDO ILQDQFLQJ : HDOVR SURFHVVJ HQHUDOSXUSRVHFDUGWUDQVDFWLRQVIRUVRP HSURYLGHUVDVWKHLUDFTXLULQJ EDQNZ LWKLQP RVWRI WKHFUHGLWFDUGQHWZ RUNDVVRFLDWLRQV IRUZ KLFKZ H REWDLQDQLQWHUFKDQJ HIHH
&DUH&UHGLW3 DUWQHUV
7 KHYDVWP DMRULW\ RI RXUSDUWQHUVDUHLQGLYLGXDODQGVP DOOJ URXSVRI LQGHSHQGHQWKHDOWKFDUHSURYLGHUV 7 KHUHP DLQGHUDUHQDWLRQDODQGUHJ LRQDOKHDOWKFDUHSURYLGHUVDQG P DQXIDFWXUHUVVXFKDV/ &$ 9 LVLRQ + HDUWODQG’ HQWDO6WDUNH\ / DERUDWRULHVDQGWKH9 HWHULQDU\ &HQWHUVRI $ P HULFD 9 &$ $ QWHFK $ W6HSWHP EHU Z HKDG&DUH&UHGLW DJ UHHP HQWVZ LWK KHDOWKFDUHSURYLGHUV 7 KHVHSDUWQHUVFROOHFWLYHO\ KDYH ORFDWLRQV ’ XULQJ RI WKHVHORFDWLRQVHLWKHUSURFHVVHGD&DUH&UHGLW DSSOLFDWLRQRUP DGHDVDOHRQD&DUH&UHGLWFUHGLWFDUG 1 R RQH&DUH&UHGLWSDUWQHUDFFRXQWHGIRUP RUHWKDQ RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU
&DUH&UHGLW¶VSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU LVGLYHUVLILHGDFURVVILYHP DMRUVSHFLDOWLHV GHQWDO YHWHULQDU\ FRVP HWLF DQG GHUP DWRORJ \ YLVLRQ DXGLRORJ \ DQGRWKHUP DUNHWV
: HHQWHULQWR SURYLGHUDJ UHHP HQWVZ LWKLQGLYLGXDOKHDOWKFDUHSURYLGHUVZ KR EHFRP HSDUWRI RXU&DUH&UHGLWQHWZ RUN 7 KHVHSURYLGHUDJ UHHP HQWVDUHVLP LODUWR WKHGHDOH DJ UHHP HQWVWKDWJ RYHUQRXUUHODWLRQVKLSVZ LWKWKHP HUFKDQWVDQGGHDOHUVRIIHULQJ RXU3D\ P HQW6ROXWLRQVSURGXFWVLQWKDWWKHDJ UHHP HQWVDUHQRWH[ FOXVLYHDQGW\ SLFDOO\ P D\ EH WHUP LQDWHGDWZ LOORQ GD\ V¶QRWLFH 7 KHUHW\ SLFDOO\ DUHQR UHWDLOHUVKDUHDUUDQJ HP HQWVZ LWKSDUWQHUVLQ&DUH&UHGLW
$ FTXLULQJ 1 HZ &DUH&UHGLW3 DUWQHUV
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’ HQWDO$ VVRFLDWLRQDQGWKH$ P HULFDQ$ QLP DO+ RVSLWDO$ VVRFLDWLRQ P DQXIDFWXUHUVDQGEX\ LQJ J URXSV Z KLFKHQGRUVHDQGSURP RWHRXU FUHGLWSURGXFWVWR WKHLUP HP EHUV 2 I WKHVHUHODWLRQVKLSV Z HUHSDLGHQGRUVHP HQWVOLQNHGWR P HP EHUHQUROOP HQWLQ DQGYROXP HXQGHU WKHUHOHYDQWSURJ UDP : HEHOLHYHRXU DELOLW\ WR DWWUDFWQHZ SDUWQHUVLVDLGHGE\ RXUFXVWRP HUVDWLVIDFWLRQUDWH Z KLFKRXUUHVHDUFKLQ VKRZ VLV : HDOVR DSSURDFKLQGLYLGXDOKHDOWKFDUHVHUYLFHSURYLGHUV WKURXJ KGLUHFWP DLODQGDGYHUWLVLQJ DQGDWWUDGHVKRZ V : HKDYHLQFUHDVHGWKHQXP EHURI RXU&DUH&UHGLWSDUWQHUORFDWLRQVIURP DW’ HFHP EHU WR DW 6HSWHP EHU
$ FTXLULQJ DQG0 DUNHWLQJ WR &DUH&UHGLW&XVWRP HUV
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¶VRIILFH RURQ OLQHYLDWKHZ HE RUP RELOHGHYLFH
: HDOVR P DUNHWRXUSURGXFWVWR SRWHQWLDODQGH[ LVWLQJ FXVWRP HUVGLUHFWO\ WKURXJ KRXUZ HE EDVHGSDUWQHUORFDWRU Z KLFKDOORZ VFXVWRP HUVWR VHDUFKIRUKHDOWKFDUHVHUYLFH SURYLGHUVWKDWDFFHSWWKH&DUH&UHGLWFUHGLWFDUGE\ GHVLUHGJ HRJ UDSK\ DQGSURYLGHUW\ SH $ FFRUGLQJ WR RXUUHFRUGV RXU&DUH&UHGLWSDUWQHUORFDWRUDYHUDJ HG KLWVSHU
P RQWKGXULQJ WKH\ HDUHQGHG’ HFHP EHU : HEHOLHYHRXUSDUWQHUVUHFRJ QL] HWKHORFDWRUDVDQLP SRUWDQWVRXUFHRI QHZ FXVWRP HUDFTXLVLWLRQ 2 XUH[ WHQVLYHP DUNHWLQJ DFWLYLWLHVWDUJ HWHGWR H[ LVWLQJ FXVWRP HUVKDYH\ LHOGHGKLJ KOHYHOVRI &DUH&UHGLWFDUGUHXVHDFURVVWKHQHWZ RUN Z LWK RI WKHWUDQVDFWLRQVDFURVVRXU&DUH&UHGLWQHWZ RUN GXULQJ WKH\ HDUHQGHG’ HFHP EHU UHVXOWLQJ IURP UHSHDWXVHDWRQHRUP RUHSURYLGHUV
2 XU&UHGLW3 URGXFWV
: HRIIHUWKUHHSULQFLSDOW\ SHVRI FUHGLWSURGXFWV FUHGLWFDUGV FRP P HUFLDOFUHGLWSURGXFWVDQGFRQVXP HULQVWDOOP HQWORDQV : HDOVR RIIHUDGHEWFDQFHOODWLRQSURGXFW
7 KHIROORZ LQJ WDEOHVHWVIRUWKHDFKFUHGLWSURGXFWE\ W\ SHDQGLQGLFDWHVWKHSHUFHQWDJ HRI RXUWRWDOORDQUHFHLYDEOHVWKDWDUHXQGHUVWDQGDUGWHUP VRQO\ RUSXUVXDQWWR D SURP RWLRQDOILQDQFLQJ RIIHUDW6HSWHP EHU
&UHGLW3 URGXFW
6WDQGDUG7 HUP V
2 QO\ 3 URP RWLRQDO2 IIHU 7 RWDO
&UHGLWFDUGV
&RP P HUFLDOFUHGLWSURGXFWV †
&RQVXP HULQVWDOOP HQWORDQV †
7 RWDO
&UHGLW&DUGV
2 XUFUHGLWFDUGSURGXFWVDUHORDQVZ HH[ WHQGWKURXJ KRSHQ HQGHGUHYROYLQJ FUHGLWFDUGDFFRXQWV : HRIIHUWZ RSULQFLSDOW\ SHVRI FUHGLWFDUGV SULYDWHODEHOFUHGLWFDUGV DQG’ XDO&DUGV
3 ULYDWH/ DEHO&UHGLW&DUGV
3ULYDWHODEHOFUHGLWFDUGVDUHSDUWQHUEUDQGHGFUHGLWFDUGV HJ / RZ H¶VRU$ P D] RQ RUSURJ UDP EUDQGHGFUHGLWFDUGV HJ &DU&DUH2 1 ( RU&DUH&UHGLWWKDWDUHXVHG SULP DULO\ IRUWKHSXUFKDVHRI J RRGVDQGVHUYLFHVIURP WKHSDUWQHURUZ LWKLQWKHSURJ UDP QHWZ RUN , QDGGLWLRQ LQVRP HFDVHV FDUGKROGHUVP D\ EHSHUP LWWHGWR DFFHVVWKHLUFUHGL FDUGDFFRXQWVIRUFDVKDGYDQFHV
&UHGLWXQGHUDSULYDWHODEHOFUHGLWFDUGW\ SLFDOO\ LVH[ WHQGHGRQHLWKHUVWDQGDUGWHUP VRQO\ Z KLFKP HDQVDFFRXQWVDUHDVVHVVHGSHULRGLF LQWHUHVWFKDUJ HVXVLQJ DQDJ UHHG QRQ SURP RWLRQDOIL[ HGDQGRUYDULDEOHLQWHUHVWUDWH RUSXUVXDQWWR DSURP RWLRQDOILQDQFLQJ RIIHU LQYROYLQJ GHIHUUHGLQWHUHVWQR LQWHUHVWRUUHGXFHGLQWHUHVWGXULQJ DVHW
SURP RWLRQDOSHULRG 3URP RWLRQDOSHULRGVW\ SLFDOO\ UDQJ HEHWZ HHQVL[ DQG P RQWKV EXWZ HP D\ DJ UHHWR ORQJ HUWHUP VZ LWKWKHSDUWQHU, QDOP RVWDOOFDVHVZ HUHFHLYHD
P HUFKDQWGLVFRXQWIURP RXUSDUWQHUVWR FRP SHQVDWHXVIRUDOORUSDUWRI WKHFRVWRI SURYLGLQJ WKHSURP RWLRQDOILQDQFLQJ IHDWXUH 7 KHWHUP VRI WKHVHSURP RWLRQVYDU\ E\ SDUWQHU EXWJ HQHUDOO\ WKHORQJ HUWKHGHIHUUHGLQWHUHVWUHGXFHGLQWHUHVWRULQWHUHVWIUHHSHULRG WKHJ UHDWHUWKHSDUWQHU¶VP HUFKDQWGLVFRXQW6RP HRIIHUVSHUP LWFXVWRP HUVWR SD\ IRUD SXUFKDVHLQHTXDOP RQWKO\ SD\ P HQWVZ LWKQR LQWHUHVWRUDWDUHGXFHGLQWHUHVWUDWH UDWKHUWKDQGHIHUULQJ RUGHOD\ LQJ LQWHUHVWFKDUJ HV
, Q5 HWDLO&DUG FUHGLWXQGHURXUSULYDWHODEHOFUHGLWFDUGVW\ SLFDOO\ LVH[ WHQGHGRQVWDQGDUGWHUP VRQO\ DQGLQ3D\ P HQW6ROXWLRQVDQG&DUH&UHGLWFUHGLWXQGHURXUSULYDW ODEHOFUHGLWFDUGVW\ SLFDOO\ LVH[ WHQGHGSXUVXDQWWR DSURP RWLRQDOILQDQFLQJ RIIHU, Q&DUH&UHGLWVWDQGDUGUDWHILQDQFLQJ J HQHUDOO\ DSSOLHVWR FKDUJ HVXQGHU
: HW\ SLFDOO\ GR QRWFKDUJ HLQWHUFKDQJ HRURWKHUIHHVWR RXUSDUWQHUVZ KHQDFXVWRP HUXVHVDSULYDWHODEHOFUHGLWFDUGWR SXUFKDVHRXUSDUWQHUV¶J RRGVDQGVHUYLFHVWKURXJ RXUSD\ P HQWV\ VWHP
0 RVWRI RXUSULYDWHODEHOFUHGLWFDUGEXVLQHVVLVLQWKH8 QLWHG6WDWHV ) RUVRP HRI RXUSDUWQHUVZ KR KDYHORFDWLRQVLQ&DQDGD Z HDOVR VXSSRUWWKHLVVXDQFHDQG DFFHSWDQFHRI SULYDWHODEHOFUHGLWFDUGVDWWKHLUORFDWLRQVLQ&DQDGDDQGIURP FXVWRP HUVLQ&DQDGD
’ XDO&DUGV
2 XUSURSULHWDU\ ’ XDO&DUGVDUH9 LVD 0 DVWHU&DUG $ P HULFDQ( [ SUHVVRU’ LVFRYHUJ HQHUDOSXUSRVHFUHGLWFDUGVWKDWDUHFR EUDQGHGZ LWKRXUSDUWQHU¶VRZ QEUDQGDQGP D\ EHXVHGWR P DNHSXUFKDVHVRI J RRGVRUVHUYLFHVIURP RXUSDUWQHU IXQFWLRQLQJ DVDSULYDWHODEHOFUHGLWFDUG RUSXUFKDVHVIURP RWKHUVZ KHUHYHUFDUGVIURP WKRVHFDUGQHWZ RUNV DUHDFFHSWHG IXQFWLRQLQJ DVDJ HQHUDOSXUSRVHFUHGLWFDUG RUFDVKDGYDQFHWUDQVDFWLRQV
: HKDYHEHHQJ UDQWHGWZ R 8 6 SDWHQWVUHODWLQJ WR WKHSURFHVVE\ Z KLFKRXU’ XDO&DUGVIXQFWLRQDVDSULYDWHODEHOFUHGLWFDUGZ KHQXVHGWR P DNHSXUFKDVHVIURP RXU SDUWQHUVDQGIXQFWLRQDVDJ HQHUDOSXUSRVHFUHGLWFDUGZ KHQXVHGRQWKHV\ VWHP VRI RWKHUFUHGLWFDUGDVVRFLDWLRQV
&UHGLWH[ WHQGHGXQGHURXU’ XDO&DUGVW\ SLFDOO\ LVH[ WHQGHGRQVWDQGDUGWHUP VRQO\ &XUUHQWO\ RQO\ 5 HWDLO&DUGRIIHUV’ XDO&DUGV $ W6HSWHP EHU Z HRIIHUHG
’ XDO&DUGVWKURXJ K RI RXU FRQWLQXLQJ 5 HWDLO&DUGSURJ UDP V : HH[ SHFWWR FRQWLQXHWR LQFUHDVHWKHQXP EHURI SDUWQHUSURJ UDP VWKDWRIIHU’ XDO&DUGVDQGVHHNWR LQFUHDV WKHSRUWLRQRI RXUORDQUHFHLYDEOHVDWWULEXWDEOHWR ’ XDO&DUGV
&KDUJ HVXVLQJ D’ XDO&DUGJ HQHUDWHLQWHUFKDQJ HLQFRP HIRUXVLQFRQQHFWLRQZ LWKSXUFKDVHVP DGHE\ FDUGKROGHUVRWKHUWKDQLQVWRUHRURQOLQHIURP WKHSDUWQHU
: HFXUUHQWO\ GR QRWLVVXH’ XDO&DUGVLQ&DQDGD
/ R\ DOW\ 3 URJ UDP V
: HRSHUDWHDQXP EHURI OR\ DOW\ SURJ UDP VLQRXU5 HWDLO&DUGSODWIRUP WKDWDUHGHVLJ QHGWR J HQHUDWHLQFUHP HQWDOSXUFKDVHYROXP HSHUFXVWRP HU Z KLOHUHLQIRUFLQJ WKH YDOXHRI WKHFDUGDQGVWUHQJ WKHQLQJ FDUGKROGHUOR\ DOW\ 7 KHVHSURJ UDP VW\ SLFDOO\ SURYLGHFDUGKROGHUVZ LWKUHZ DUGVLQWKHIRUP RI P HUFKDQGLVHGLVFRXQWVWKDWDUHHDUQHGE\ DFKLHYLQJ DSUHVHWVSHQGLQJ OHYHORQWKHLUSULYDWHODEHOFUHGLWFDUGRU’ XDO&DUG 2 WKHUSURJ UDP VSURYLGHFDVKEDFNRUUHZ DUGSRLQWV Z KLFKDUHUHGHHP DEOHIRUDYDULHW\ RI SURGXFWVRUDZ DUGV
7HUP VDQG&RQGLWLRQV
$ VDJ HQHUDOP DWWHU WKHILQDQFLDOWHUP VDQGFRQGLWLRQVJ RYHUQLQJ RXUFUHGLWFDUGSURGXFWVYDU\ E\ SURJ UDP DQGSURGXFWW\ SHDQGFKDQJ HRYHUWLP H DOWKRXJ KZ HVHHNWR VWDQGDUGL] HWKHQRQ ILQDQFLDOSURYLVLRQVFRQVLVWHQWO\ DFURVVDOOSURGXFWV 7 KHWHUP VDQGFRQGLWLRQVRI RXUFUHGLWFDUGSURGXFWVDUHJ RYHUQHGE\ DFDUGKROGHUDJ UHHP HQWDQG DSSOLFDEOHODZ VDQGUHJ XODWLRQV
: HDVVLJ QHDFKFDUGDFFRXQWDFUHGLWOLP LWZ KHQWKHDFFRXQWLVLQLWLDOO\ RSHQHG 7 KHUHDIWHU Z HP D\ LQFUHDVHRUGHFUHDVHLQGLYLGXDOFUHGLWOLP LWVIURP WLP HWR WLP H DWRX GLVFUHWLRQ EDVHGSULP DULO\ RQRXUHYDOXDWLRQRI WKHFXVWRP HU¶VFUHGLWZ RUWKLQHVVDQGDELOLW\ WR SD\ 7R WKHH[ WHQWUHTXLUHGE\ ODZ RUUHJ XODWLRQ Z HVHQGDP RQWKO\ ELOOLQJ
VWDWHP HQWWR HDFKFXVWRP HUZ KR KDVDQRXWVWDQGLQJ GHELWRUFUHGLWEDODQFH
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
7\ SLFDOO\ HDFKFXVWRP HUZ LWKDQRXWVWDQGLQJ GHELWEDODQFHRQKLVRUKHUFUHGLWFDUGDFFRXQWP XVWP DNHDP LQLP XP SD\ P HQWHDFKP RQWK $ FXVWRP HUP D\ SD\ WKHWRWDO DP RXQWGXHDWDQ\ WLP HZ LWKRXWSHQDOW\ : HDOVR P D\ HQWHULQWR DUUDQJ HP HQWVZ LWKGHOLQTXHQWFXVWRP HUVWR H[ WHQGRURWKHUZ LVHFKDQJ HSD\ P HQWVFKHGXOHV DQGWR Z DLYH LQWHUHVWFKDUJ HVDQGRUIHHV
&RP P HUFLDO&UHGLW3 URGXFWV
: HRIIHUSULYDWHODEHOFDUGVDQGFR EUDQGHGFDUGVIRUFRP P HUFLDOFXVWRP HUVWKDWDUHVLP LODUWR RXUFRQVXP HURIIHULQJ V : HDOVR RIIHUDFRP P HUFLDOSD\ LQ IXOODFFRXQWV UHFHLYDEOHSURGXFWWR DZ LGHUDQJ HRI EXVLQHVVFXVWRP HUV DQGDUHUROOLQJ RXWDQLP SURYHGFXVWRP HUH[ SHULHQFHIRUWKLVSURGXFWZ LWKHQKDQFHGIXQFWLRQDOLW\ : HRIIHU
FRP P HUFLDOFUHGLWSURGXFWVSULP DULO\ WKURXJ KRXU5 HWDLO&DUGSODWIRUP WR WKHFRP P HUFLDOFXVWRP HUVRI RXU5 HWDLO&DUGSDUWQHUV
, QVWDOOP HQW/ RDQV
, Q3D\ P HQW6ROXWLRQV Z HRULJ LQDWHLQVWDOOP HQWORDQVWR FRQVXP HUV DQGDOLP LWHGQXP EHURI FRP P HUFLDOFXVWRP HUV LQWKH8 QLWHG6WDWHV SULP DULO\ LQWKHSRZ HU VHJ P HQW, QVWDOOP HQWORDQVDUHFORVHG HQGFUHGLWDFFRXQWVZ KHUHWKHFXVWRP HUSD\ VGRZ QWKHRXWVWDQGLQJ EDODQFHLQLQVWDOOP HQWV 7 KHWHUP VRI RXULQVWDOOP HQWORDQVDUH J RYHUQHGE\ FXVWRP HUDJ UHHP HQWVDQGDSSOLFDEOHODZ VDQGUHJ XODWLRQV
, QVWDOOP HQWORDQVDUHDVVHVVHGSHULRGLF LQWHUHVWFKDUJ HVXVLQJ IL[ HGLQWHUHVWUDWHV , QDGGLWLRQWR SHULRGLF LQWHUHVWFKDUJ HV Z HP D\ LP SRVHRWKHUFKDUJ HVDQGIHHVRQORDQ DFFRXQWV LQFOXGLQJ ODWHIHHVZ KHUHDFXVWRP HUKDVQRWP DGHWKHUHTXLUHGSD\ P HQWE\ WKHUHTXLUHGGXHGDWHDQGUHWXUQHGSD\ P HQWIHHV
’ HEW&DQFHOODWLRQ 3 URGXFWV
: HRIIHUDGHEWFDQFHOODWLRQSURGXFWWR RXUFUHGLWFDUGFXVWRP HUV &XVWRP HUVZ KR FKRRVHWR SXUFKDVHWKLVSURGXFWDUHFKDUJ HGDP RQWKO\ IHHEDVHGRQWKHLUHQGLQJ EDODQFHRQHDFKELOOLQJ VWDWHP HQW, QUHWXUQ WKH%DQNZ LOOFDQFHODOORUDSRUWLRQRI DFXVWRP HU¶VFUHGLWFDUGEDODQFHLQWKHHYHQWRI FHUWDLQTXDOLI\ LQJ OLIHHYHQWV , Q2 FWREHU
Z HFHDVHGWHOHVDOHVRI GHEWFDQFHOODWLRQSURWHFWLRQSURGXFWVDQGRQO\ RIIHUDGHEWFDQFHOODWLRQSURGXFWRQOLQHDQG RQDOLP LWHGEDVLV E\ GLUHFWP DLO
’ LUHFW%DQNLQJ
7 KURXJ KWKH%DQN Z HRIIHURXUFXVWRP HUVDUDQJ HRI ) ’ ,& LQVXUHGGHSRVLWSURGXFWVGLUHFWO\ WKURXJ KRXU2 SWLP L] HUSOXV SODWIRUP 7 KH%DQNDOVR WDNHVGHSRVLWVWKURXJ WKLUG SDUW\ VHFXULWLHVEURNHUDJ HILUP VWKDWRIIHURXU) ’ ,& LQVXUHGGHSRVLWSURGXFWVWR WKHLUFXVWRP HUV $ W6HSWHP EHU Z HKDG ELOOLRQLQGHSRVLWV ELOOLRQRI Z KLFKZ HUHGLUHFWGHSRVLWV Z KLFKLQFOXGHVGHSRVLWVIURP EDQNVDQGILQDQFLDOLQVWLWXWLRQV DQG ELOOLRQRI Z KLFKZ HUHEURNHUHGGHSRVLWV ’ LUHFWGHSRVLWVZ HUHUHFHLYHG IURP FXVWRP HUVWKDWKDGDWRWDORI DFFRXQWV RI RXUGLUHFWGHSRVLWV E\ YROXP H DQG RI WKHVHDFFRXQWV E\ QXP EHU Z HUHIURP FRP P HUFLDOFXVWRP HUV DQGDOOWKHRWKHUVZ HUHIURP UHWDLOFXVWRP HUV 7 KH%DQNKDGDQ UHWHQWLRQUDWHRQFHUWLILFDWHVRI GHSRVLWEDODQFHVXS IRUUHQHZ DOIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU
) ’ ,& LQVXUDQFHLVSURYLGHGIRURXUGHSRVLWSURGXFWVXS WR DSSOLFDEOHOLP LWV
, Q-DQXDU\ Z HDFTXLUHGWKHGHSRVLWEXVLQHVVRI 0 HW/ LIH Z KLFKLVDGLUHFWEDQNLQJ SODWIRUP WKDWDWWKHWLP HKDG ELOOLRQLQGHSRVLWV ELOOLRQLQGLUHFW GHSRVLWV 7 KHDFTXLVLWLRQRI WKLVGLUHFWWR FRQVXP HUUHWDLOEDQNLQJ SODWIRUP LVDNH\ SDUWRI RXUVWUDWHJ \ WR LQFUHDVHRXUGHSRVLWEDVHDVDVRXUFHRI VWDEOHDQGGLYHUVLILHGORZ FRVWIXQGLQJ J RLQJ IRUZ DUG 2 XURQOLQHSODWIRUP LVKLJ KO\ VFDODEOHDOORZ LQJ XVWR H[ SDQGZ LWKRXWKDYLQJ WR UHO\ RQDWUDGLWLRQDO‡EULFNDQGP RUWDU· EUDQFKQHWZ RUN : HH[ SHF J URZ WKLQRXUGLUHFWEDQNLQJ SODWIRUP WR FRP HSULP DULO\ IURP UHWDLOGHSRVLWV
: HDUHJ URZ LQJ RXUGLUHFWEDQNLQJ RSHUDWLRQVDQGEHOLHYHZ HDUHZ HOOSRVLWLRQHGWR EHQHILWIURP WKHFRQVXP HUGULYHQ VKLIWIURP EUDQFKEDQNLQJ WR GLUHFWEDQNLQJ
$ FFRUGLQJ WR DQG $ P HULFDQ%DQNHUV$ VVRFLDWLRQVXUYH\ V WKHSHUFHQWDJ HRI FXVWRP HUVZ KR SUHIHUWR GR WKHLUEDQNLQJ YLDGLUHFWFKDQQHOV LQWHUQHWP DLOSKRQHDQG P RELOH LQFUHDVHGIURP WR EHWZ HHQ DQG Z KLOHWKRVHZ KR SUHIHUEUDQFKEDQNLQJ GHFOLQHGIURP WR RYHUWKHVDP HSHULRG
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’ HFHP EHU DWWULEXWDEOHWR WKLVSURGXFW, QWKHILUVWTXDUWHURI Z HVROGVXEVWDQWLDOO\ DOORI WKHVH GHSRVLWVDQGQR ORQJ HURIIHUWKLVSURGXFWEHFDXVHWKHSURJ UDP WKURXJ KZ KLFKZ HRIIHUHGWKHSURGXFWGLGQRWSURYLGHVDWLVIDFWRU\ UHWXUQV
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
) LGHOLW\ 1 DWLRQDO, QIRUP DWLRQ6HUYLFHV , QF ‡) , 6· SURYLGHVRXUSODWIRUP IRURQOLQHUHWDLOGHSRVLWVLQFOXGLQJ DFXVWRP HUIDFLQJ VHUYLFLQJ SODWIRUP WKDWFXVWRP HUVFDQ DFFHVVYLDRXUP DUNHWLQJ VLWH ) , 6 DOVR SURYLGHVVXSSOHP HQWDOEDFNRIILFH , 7 SURGXFWLRQDQG, 7 GHYHORSP HQWVXSSRUWIRURXUGLUHFWEDQNLQJ RSHUDWLRQV
: HVHHNWR GLIIHUHQWLDWHRXUGHSRVLWSURGXFWRIIHULQJ VIURP RXUFRP SHWLWRUVRQWKHEDVLVRI EUDQG UHSXWDWLRQ FRQYHQLHQFH FXVWRP HUVHUYLFHDQGYDOXH : HKDYH ODXQFKHGDVXEEUDQGIRURXUGHSRVLWSURGXFWVFDOOHG2 SWLP L] HUSOXV Z KLFKHP SKDVL] HVUHOLDELOLW\ WUXVWVHFXULW\ FRQYHQLHQFHDQGDWWUDFWLYHUDWHV 2 SWLP L] HUSOXV3HUNV RIIHUV UHZ DUGVWR FXVWRP HUVEDVHGRQWKHLUWHQXUHRUEDODQFHDP RXQWV LQFOXGLQJ UHGXFHGIHHV WUDYHORIIHUVDQGFRQFLHUJ HWHOHSKRQHVXSSRUW
&UHGLW5 LVN 0 DQDJ HP HQW
&UHGLWULVNP DQDJ HP HQWLVDFULWLFDOFRP SRQHQWRI RXUP DQDJ HP HQWDQGJ URZ WKVWUDWHJ \ &UHGLWULVNUHIHUVWR WKHULVNRI ORVVDULVLQJ IURP FXVWRP HUGHIDXOWZ KHQ FXVWRP HUVDUHXQDEOHRUXQZ LOOLQJ WR P HHWWKHLUILQDQFLDOREOLJ DWLRQVWR XV 2 XUFUHGLWULVNDULVLQJ IURP FRQVXP HUFUHGLWSURGXFWVLVJ HQHUDOO\ KLJ KO\ GLYHUVLILHGDFURVV
P LOOLRQRSHQDFFRXQWVDW6HSWHP EHU Z LWKRXWVLJ QLILFDQWLQGLYLGXDOH[ SRVXUHV : HP DQDJ HFUHGLWULVNSULP DULO\ DFFRUGLQJ WR FXVWRP HUVHJ P HQWVDQGSURGXFW
W\ SHV
&XVWRP HU$ FFRXQW$ FTXLVLWLRQ
: HKDYHGHYHORSHGSURJ UDP VWR SURP RWHFUHGLWZ LWKHDFKRI RXUSDUWQHUVDQGKDYHGHYHORSHGYDU\ LQJ FUHGLWGHFLVLRQJ XLGHOLQHVIRUWKHGLIIHUHQWSDUWQHUV : HRULJ LQDWH FUHGLWDFFRXQWVWKURXJ KVHYHUDOGLIIHUHQWFKDQQHOV LQFOXGLQJ LQ VWRUH P DLOLQWHUQHWP RELOH WHOHSKRQHDQGSUHDSSURYHGVROLFLWDWLRQV , QDGGLWLRQ Z HKDYHDQGP D\ LQWKH IXWXUHDFTXLUHDFFRXQWVWKDWZ HUHRULJ LQDWHGE\ WKLUGSDUWLHVLQFRQQHFWLRQZ LWKHVWDEOLVKLQJ SURJ UDP VZ LWKQHZ SDUWQHUV
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
P DQDJ HP HQWWHDP GHWHUP LQHVLQDGYDQFHWKHTXDOLI\ LQJ FUHGLWVFRUHVDQGLQLWLDOFUHGLWOLQHDVVLJ QP HQWVIRUHDFKSRUWIROLR DQGSURGXFWW\ SH : HSHULRGLFDOO\ DQDO\ ] H
SHUIRUP DQFHWUHQGVRI DFFRXQWVRULJ LQDWHGDWGLIIHUHQWVFRUHOHYHOVDVFRP SDUHGWR SURMHFWHGSHUIRUP DQFH DQGDGMXVWWKHP LQLP XP VFRUHRUWKHRSHQLQJ FUHGLWOLP LWWR P DQDJ H ULVN ’ LIIHUHQWVFRULQJ P RGHOVP D\ EHXVHGGHSHQGLQJ XSRQEXUHDXW\ SHDQGDFFRXQWVRXUFH
: HDOVR DSSO\ DGGLWLRQDODSSOLFDWLRQVFUHHQVEDVHGRQYDULRXVLQSXWV LQFOXGLQJ FUHGLWEXUHDXLQIRUP DWLRQ WR KHOS LGHQWLI\ SRWHQWLDOIUDXGDQGSULRUEDQNUXSWFLHVEHIRUH TXDOLI\ LQJ WKHDSSOLFDWLRQIRUDSSURYDO: HFRP SDUHDSSOLFDQWV¶QDP HVDJ DLQVWWKH6SHFLDOO\ ’ HVLJ QDWHG1 DWLRQDOVOLVWP DLQWDLQHGE\ WKH2 IILFHRI ) RUHLJ Q$ VVHWV&RQWURORI WK 8 6 ’ HSDUWP HQWRI WKH7 UHDVXU\ ‡2 ) $ &· DVZ HOODVVFUHHQVWKDWDFFRXQWIRUDGKHUHQFHWR 8 6$ 3$ 7 5 , 2 7 $ FWRI WKH‡3DWULRW$ FW· DQG&UHGLW&DUG$ FFRXQWDELOLW\
5 HVSRQVLELOLW\ DQG’ LVFORVXUH$ FWRI WKH‡&$ 5 ’ $ FW· UHTXLUHP HQWV LQFOXGLQJ DELOLW\ WR SD\ UHTXLUHP HQWV
: HRFFDVLRQDOO\ XVHSUHDSSURYHGDFFRXQWVROLFLWDWLRQVIRUFHUWDLQSURJ UDP V 3RWHQWLDODSSOLFDQWVDUHSUHVFUHHQHGXVLQJ LQIRUP DWLRQSURYLGHGE\ RXUSDUWQHURUREWDLQH IURP RXWVLGHOLVWV DQGTXDOLILHGLQGLYLGXDOVUHFHLYHDSUHDSSURYHGFUHGLWRIIHUE\ P DLORUHP DLO
$ FTXLUHG3 RUWIROLR ( YDOXDWLRQ
2 XUULVNP DQDJ HP HQWWHDP HYDOXDWHVHDFKSRUWIROLR Z HDFTXLUHLQFRQQHFWLRQZ LWKHVWDEOLVKLQJ SURJ UDP VZ LWKQHZ SDUWQHUVWR HQVXUHWKHSRUWIROLR VDWLVILHVRXUFUHGLW ULVNJ XLGHOLQHV $ VSDUWRI WKLVUHYLHZ Z HUHFHLYHGDWDRQWKHWKLUG SDUW\ DFFRXQWVDQGORDQV Z KLFKDOORZ VXVWR DVVHVVWKHSRUWIROLR RQWKHEDVLVRI FHUWDLQFRUHFKDUDFWHULVWLFV VXFKDVKLVWRULFDOSHUIRUP DQFHRI WKHDVVHWVDQGGLVWULEXWLRQVRI FUHGLWDQGORVVLQIRUP DWLRQ , QDGGLWLRQ Z HEHQFKP DUNSRWHQWLDOSRUWIROLR DFTXLVLWLRQVDJ DLQVWRXUH[ LVWLQJ
SURJ UDP VWR DVVHVVUHODWLYHFXUUHQWDQGSURMHFWHGULVNV ) LQDOO\ RXUULVNP DQDJ HP HQWWHDP P XVWDSSURYHWKHDFTXLVLWLRQ WDNLQJ LQWR DFFRXQWWKHUHVXOWVRI RXUULVNDVVHVVP HQW SURFHVV 2 QFHDVVHWVDUHP LJ UDWHGWR RXUV\ VWHP V RXUDFFRXQWP DQDJ HP HQWSURWRFROVZ LOODSSO\ LP P HGLDWHO\ DVGHVFULEHGEHORZ XQGHU‡† &XVWRP HU$ FFRXQW0 DQDJ HP HQW·
‡† &UHGLW$ XWKRUL] DWLRQVRI , QGLYLGXDO7 UDQVDFWLRQV· DQG‡† &ROOHFWLRQV·
&XVWRP HU$ FFRXQW0 DQDJ HP HQW
: HUHJ XODUO\ DVVHVVWKHFUHGLWULVNH[ SRVXUHRI RXUFXVWRP HUDFFRXQWV 7 KLVRQJ RLQJ DVVHVVP HQWLQFOXGHVLQIRUP DWLRQUHODWLQJ WR WKHFXVWRP HU¶VSHUIRUP DQFHZ LWKUHVSHF WR LWVDFFRXQWZ LWKXV DVZ HOODVLQIRUP DWLRQIURP FUHGLWEXUHDXVUHODWLQJ WR WKHFXVWRP HU¶VEURDGHUFUHGLWSHUIRUP DQFH 7RP RQLWRUDQGFRQWUROWKHTXDOLW\ RI RXUORDQSRUWIROLR LQFOXGLQJ WKHSRUWLRQRI WKHSRUWIROLR RULJ LQDWHGE\ WKLUGSDUWLHV Z HXVHEHKDYLRUDOVFRULQJ P RGHOVWKDWZ HKDYHGHYHORSHGWR VFRUHHDFKDFWLYHDFFRXQWRQLWVP RQWKO\ F\ FOH GDWH 3URSULHWDU\ ULVNP RGHOV WRJ HWKHUZ LWKWKH) ,&2 VFRUHVREWDLQHGRQHDFKDFWLYHDFFRXQWQR OHVVWKDQTXDUWHUO\ DUHDQLQWHJ UDOSDUWRI RXUFUHGLWGHFLVLRQ P DNLQJ SURFHVV
’ HSHQGLQJ RQWKHGXUDWLRQRI WKHFXVWRP HU¶VDFFRXQWULVNSURILOHDQGRWKHUSHUIRUP DQFHP HWULFV WKHDFFRXQWP D\ EHVXEMHFWWR DUDQJ HRI DFFRXQWDFWLRQV LQFOXGLQJ OLP LWVRQ WUDQVDFWLRQDXWKRUL] DWLRQDQGLQFUHDVHVRUGHFUHDVHVLQSXUFKDVHDQGFDVKFUHGLWOLP LWV
&UHGLW$ XWKRUL]DWLRQVRI , QGLYLGXDO7UDQVDFWLRQV
2 QFHDQDFFRXQWKDVEHHQRSHQHG Z KHQDFUHGLWFDUGLVXVHGWR P DNHDSXUFKDVHLQ VWRUHDWRQHRI RXUSDUWQHUV¶ORFDWLRQVRURQ OLQH SRLQWRI VDOHWHUP LQDOVRURQ OLQH VLWHVKDYHDQRQ OLQHFRQQHFWLRQZ LWKRXUFUHGLWDXWKRUL] DWLRQV\ VWHP Z KLFKDOORZ VIRUUHDOWLP HXSGDWLQJ RI DFFRXQWV ( DFKSRWHQWLDOVDOHVWUDQVDFWLRQLVSDVVHGWKURXJ KD WUDQVDFWLRQDXWKRUL] DWLRQV\ VWHP Z KLFKWDNHVLQWR DFFRXQWDYDULHW\ RI EHKDYLRUDQGULVNIDFWRUVWR GHWHUP LQHZ KHWKHUWKHWUDQVDFWLRQVKRXOGEHDSSURYHGRUGHFOLQHG DQG
Z KHWKHUDFUHGLWOLP LWDGMXVWP HQWLVZ DUUDQWHG
) UDXG, QYHVWLJ DWLRQ
: HSURYLGHIROORZ XS DQGUHVHDUFKZ LWKUHVSHFWWR GLIIHUHQWW\ SHVRI IUDXGVXFKDVIUDXGULQJ V QHZ DFFRXQWIUDXGDQGWUDQVDFWLRQDOIUDXG : HKDYHGHYHORSHGD SURSULHWDU\ IUDXGP RGHOWR LGHQWLI\ QHZ DFFRXQWIUDXGDQGGHSOR\ HGWRROVWKDWKHOS LGHQWLI\ WUDQVDFWLRQSXUFKDVHEHKDYLRURXWVLGHDFXVWRP HU¶VHVWDEOLVKHGSDWWHUQ 2 XU SURSULHWDU\ P RGHOLVDOVR FRP SOHP HQWHGE\ H[ WHUQDOO\ VRXUFHGP RGHOVDQGWRROVXVHGDFURVVWKHLQGXVWU\ WR EHWWHULGHQWLI\ IUDXGDQGSURWHFWRXUFXVWRP HUV : HDOVR DUH FRQWLQXRXVO\ LP SOHP HQWLQJ QHZ DQGLP SURYHGWHFKQRORJ LHVWR GHWHFWDQGSUHYHQWIUDXG 5 HFHQWO\ Z HEHJ DQLP SOHP HQWLQJ HP EHGGHGVHFXULW\ FKLS WHFKQRORJ \ VXFKDVWKHVR FDOOHG‡( 0 9 FKLSV· Z LWKVRP HRI RXUSDUWQHUV
&ROOHFWLRQV
$ OOP RQWKO\ ELOOLQJ VWDWHP HQWVRI DFFRXQWVZ LWKSDVWGXHDP RXQWVLQFOXGHDUHTXHVWIRUSD\ P HQWRI WKHVHDP RXQWV &ROOHFWLRQVSHUVRQQHOJ HQHUDOO\ LQLWLDWHFRQWDFWZ LWK FXVWRP HUVZ LWKLQ GD\ VDIWHUDQ\ SRUWLRQRI WKHLUEDODQFHEHFRP HVSDVWGXH 7 KHQDWXUHDQGWKHWLP LQJ RI WKHLQLWLDOFRQWDFWW\ SLFDOO\ DSHUVRQDOFDOOHP DLOWH[ WP HVVDJ HRU OHWWHU DUHGHWHUP LQHGE\ DUHYLHZ RI WKHFXVWRP HU¶VSULRUDFFRXQWDFWLYLW\ DQGSD\ P HQWKDELWV
: HUHHYDOXDWHRXUFROOHFWLRQHIIRUWVDQGFRQVLGHUWKHLP SOHP HQWDWLRQRI RWKHUWHFKQLTXHV LQFOXGLQJ LQWHUQDOFROOHFWLRQDFWLYLWLHVDQGXVHRI H[ WHUQDOYHQGRUV DVD FXVWRP HUEHFRP HVLQFUHDVLQJ O\ GHOLQTXHQW: ▇▇▇▇ LWRXUH[ SRVXUHWR GHOLQTXHQFLHVWKURXJ KFRQWUROVZ LWKLQWKHWUDQVDFWLRQDXWKRUL] DWLRQSURFHVVHV WKHLP SRVLWLRQRI FUHGLW OLP LWVDQGFULWHULDEDVHGDFFRXQWVXVSHQVLRQDQGUHYRFDWLRQSURFHVVHV , QFHUWDLQVLWXDWLRQV Z HP D\ HQWHULQWR DUUDQJ HP HQWVWR H[ WHQGRURWKHUZ LVHFKDQJ HSD\ P HQWVFKHGXOHV GHFUHDVHLQWHUHVWUDWHVDQGRUZ DLYHIHHVWR DLGFXVWRP HUVH[ SHULHQFLQJ ILQDQFLDOGLIILFXOWLHVLQWKHLUHIIRUWVWR EHFRP HFXUUHQWRQWKHLUREOLJ DWLRQVWR XV
&XVWRP HU6HUYLFH
&XVWRP HUVHUYLFHLVDQLP SRUWDQWIHDWXUHRI RXUUHODWLRQVKLS Z LWKRXUSDUWQHUV 2 XUFXVWRP HUVFDQFRQWDFWXVYLDSKRQH P DLOHP DLOH6HUYLFHDQGH&KDW’ XULQJ WKH\ HD HQGHG’ HFHP EHU Z HKDQGOHGDSSUR[ LP DWHO\ P LOOLRQFDOOV
: HDVVLJ QDGHGLFDWHGWROOIUHHFXVWRP HUVHUYLFHSKRQHQXP EHUWR HDFKRI RXU5 HWDLO&DUGSURJ UDP V 2 XU3D\ P HQW6ROXWLRQVFXVWRP HUVDFFHVVFXVWRP HUVHUYLFHWKURXJ K RQHJ HQHUDOSXUSRVHWROOIUHHFXVWRP HUVHUYLFHSKRQHQXP EHU H[ FHSWIRUDIHZ ODUJ H3D\ P HQW6ROXWLRQVSURJ UDP V Z KLFKKDYHGHGLFDWHGWROOIUHHQXP EHUV 2 XU&DUH&UHGLW SODWIRUP KDVLWVRZ Q GHGLFDWHGWROOIUHHFXVWRP HUVHUYLFHSKRQHQXP EHU: HDOVR KDYHGHGLFDWHGWROOIUHHFXVWRP HUVHUYLFHSKRQHQXP EHUVIRURXUGHSRVLWEXVLQHVV
: HVHUYLFHDOOSURJ UDP VWKURXJ KRXUQLQHGRP HVWLF DQGWZ R RII VKRUHFDOOFHQWHUV : HDOVR SURYLGHSKRQHEDVHGFXVWRP HUVHUYLFHWKURXJ KDWKLUGSDUW\ YHQGRU2 XURII VKRUHIDFLOLWLHVDUHORFDWHGLQ+ \ GHUDEDG , QGLDDQG0 DQLOD 3KLOLSSLQHV : HEOHQGGRP HVWLF DQGRII VKRUHORFDWLRQVDQGVHHNRSWLP DOFRVWDVDQLP SRUWDQWSDUWRI RXUVHUYLFLQJ VWUDWHJ \ &XVWRP HUVHUYLFHIRUFDUGVLVVXHGWR FXVWRP HUVLQ&DQDGDLVVXSSRUWHGWKURXJ KDJ HQWVEDVHGLQWKH8 QLWHG6WDWHV
* LYHQWKHQDWXUHRI RXUEXVLQHVVDQGWKHKLJ KYROXP HRI FDOOV Z HP DLQWDLQVHYHUDOFHQWHUVRI H[ FHOOHQFHWR HQVXUHWKHTXDOLW\ RI RXUFXVWRP HUVHUYLFHDFURVVDOORI RXU VLWHV 7 KHVHFHQWHUVRI H[ FHOOHQFHFRQVLVWRI TXDOLW\ DVVXUDQFH FXVWRP HUH[ SHULHQFH WUDLQLQJ Z RUNIRUFHDQGFDSDFLW\ SODQQLQJ VXUYHLOODQFHDQGSURFHVVFRQWUROWDFWLFDO RSHUDWLRQVFHQWHU EXVLQHVVVROXWLRQVDQGWHFKQRORJ \ VXSSRUW
3 URGXFWLRQ 6HUYLFHV
2 XUSURGXFWLRQVHUYLFHVRUJ DQL] DWLRQRYHUVHHVDQXP EHURI VHUYLFHV LQFOXGLQJ
SD\ P HQWSURFHVVLQJ P RUHWKDQ P LOOLRQSDSHUDQGHOHFWURQLF SD\ P HQWVLQ HP ERVVLQJ DQGP DLOLQJ FUHGLWFDUGV DSSUR[ LP DWHO\ P LOOLRQFDUGVLQ
SULQWLQJ DQGP DLOLQJ DQGH6HUYLFHGHOLYHU\ RI FUHGLWFDUGVWDWHP HQWV P RUHWKDQ P LOOLRQSDSHUDQGHOHFWURQLF VWDWHP HQWVLQ DQG RWKHUOHWWHUVP DLOHGRUVHQWHOHFWURQLFDOO\ P RUHWKDQ P LOOLRQLQ
$ OO8 QLWHG6WDWHVFXVWRP HUSD\ P HQWVUHFHLYHGE\ P DLODUHSURFHVVHGDWRQHRI WZ RFHQWHUVORFDWHGLQ$ WODQWD * HRUJ LDDQG/ RQJ Z RRG ) ORULGD ERWKRI Z KLFKDUH RSHUDWHGE\ WKH%DQN 8 QLWHG6WDWHVFUHGLWFDUGVWDWHP HQWSULQWLQJ DQGP DLOLQJ FDUGHP ERVVLQJ DQGP DLOLQJ DQGOHWWHUSURGXFWLRQDQGP DLOLQJ IRUFXVWRP HUVLVSURYLGHGWKURXJ RXWVRXUFHGVHUYLFHVZ LWK) LUVW’ DWD&RUSRUDWLRQ ‡) LUVW’ DWD· : KLOHWKHVHVHUYLFHVDUHRXWVRXUFHG Z HP RQLWRUDQGP DLQWDLQRYHUVLJ KWRI WKHVHRWKHUVHUYLFHV ) LUVW’ DWDDOVR SURGXFHVRXUVWDWHP HQWVDQGRWKHUP DLOLQJ VIRUGHSRVLWFXVWRP HUV
&DUGSURGXFWLRQHP ERVVLQJ DQGP DLOLQJ DQGVWDWHP HQWSULQWLQJ DQGP DLOLQJ VHUYLFHVUHODWHGWR FDUGVLVVXHGWR FXVWRP HUVLQ&DQDGDDUHRXWVRXUFHGWR &DQDGLDQVXSSOLHU
7 HFKQRORJ \
: HOHYHUDJ HLQIRUP DWLRQWHFKQRORJ \ DQGGHOLYHUSURGXFWVDQGVHUYLFHVWKDWP HHWWKHQHHGVRI RXUSDUWQHUVDQGHQDEOHXVWR RSHUDWHRXUEXVLQHVVHIILFLHQWO\ 7 KH
LQWHJ UDWLRQRI RXUWHFKQRORJ \ Z LWKRXUSDUWQHUVLVDWWKHFRUHRI RXUYDOXHSURSRVLWLRQ HQDEOLQJ DP RQJ RWKHUWKLQJ V FXVWRP HUVWR ‡DSSO\ DQGEX\ · DWWKHSRLQWRI VDOH DQGP DQ RI RXUSDUWQHUVWR VHWWOHWUDQVDFWLRQVGLUHFWO\ Z LWKXVZ LWKRXWDQLQWHUFKDQJ HIHH $ NH\ SDUWRI RXUVWUDWHJ LF IRFXVLVWKHFRQWLQXHGGHYHORSP HQWRI LQQRYDWLYH HIILFLHQWIOH[ LEOH WHFKQRORJ \ DQGRSHUDWLRQDOSODWIRUP VWR VXSSRUWP DUNHWLQJ ULVNP DQDJ HP HQWDFFRXQWDFTXLVLWLRQDQGDFFRXQWP DQDJ HP HQWFXVWRP HUVHUYLFH DQGQHZ SURGXFWGHYHORSP HQW
: HEHOLHYHWKDWWKHFRQWLQXHGLQYHVWP HQWLQDQGGHYHORSP HQWRI WKHVHSODWIRUP VLVDQLP SRUWDQWSDUWRI RXUHIIRUWVWR LQFUHDVHRXUFRP SHWLWLYHFDSDELOLWLHV UHGXFHFRVWV LP SURYHTXDOLW\ DQGSURYLGHIDVWHU P RUHIOH[ LEOHWHFKQRORJ \ VHUYLFHV &RQVHTXHQWO\ Z HFRQWLQXRXVO\ UHYLHZ FDSDELOLWLHVDQGGHYHORS RUDFTXLUHV\ VWHP V SURFHVVHVDQG FRP SHWHQFLHVWR P HHWRXUEXVLQHVVQHHGV
$ VSDUWRI RXUFRQWLQXRXVHIIRUWVWR HQKDQFHRXUWHFKQRORJ LHV Z HP D\ HLWKHUGHYHORS WKHVHFDSDELOLWLHVLQWHUQDOO\ RUUHO\ RQWKLUG SDUW\ SURYLGHUV : HUHO\ RQWKLUG SDUW\ SURYLGHUVWR KHOS XVGHOLYHUV\ VWHP VDQGRSHUDWLRQDOLQIUDVWUXFWXUHEDVHGRQVWUDWHJ LHVDQG LQVRP HFDVHV DUFKLWHFWXUH GHVLJ QHGE\ XV 7 KHVHUHODWLRQVKLSVLQFOXGH ) LUVW’ DWD IRURXUFUHGLWFDUGWUDQVDFWLRQSURFHVVLQJ DQGSURGXFWLRQ DQG) , 6 IRUUHWDLOEDQNLQJ
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
&RP SHWLWLRQ
2 XULQGXVWU\ LVKLJ KO\ FRP SHWLWLYHDQGLVEHFRP LQJ P RUHFRP SHWLWLYH : HFRP SHWHIRUUHODWLRQVKLSVZ LWKSDUWQHUVLQFRQQHFWLRQZ LWKUHWDLQLQJ H[ LVWLQJ RUHVWDEOLVKLQJ QHZ FRQVXP HUFUHGLWSURJ UDP V 2 XUSULP DU\ FRP SHWLWRUVIRUSDUWQHUVLQFOXGHP DMRUILQDQFLDOLQVWLWXWLRQVVXFKDV$ OOLDQFH’ DWD $ P HULFDQ( [ SUHVV &DSLWDO2 QH &KDVH &LWLEDQN 7 ’ %DQNDQG: HOOV) DUJ R DQGWR DOHVVHUH[ WHQWSRWHQWLDOSDUWQHUV¶RZ QLQ KRXVHILQDQFLQJ FDSDELOLWLHV : HFRP SHWHIRUSDUWQHUVRQWKHEDVLVRI DQXP EHURI IDFWRUV LQFOXGLQJ SURJ UDP ILQDQFLDODQGRWKHUWHUP V XQGHUZ ULWLQJ VWDQGDUGV P DUNHWLQJ H[ SHUWLVH VHUYLFHOHYHOV SURGXFWDQGVHUYLFHRIIHULQJ V LQFOXGLQJ LQFHQWLYHDQGOR\ DOW\
SURJ UDP V WHFKQRORJ LFDOFDSDELOLWLHVDQGLQWHJ UDWLRQ EUDQGDQGUHSXWDWLRQ , QDGGLWLRQ VRP HRI RXUFRP SHWLWRUVIRUSDUWQHUVKDYHDEXVLQHVVP RGHOWKDWDOORZ VIRUWKHLU SDUWQHUVWR P DQDJ HXQGHUZ ULWLQJ HJ QHZ DFFRXQWDSSURYDO FXVWRP HUVHUYLFHDQGFROOHFWLRQV DQGRWKHUFRUHEDQNLQJ UHVSRQVLELOLWLHVWKDWZ HUHWDLQ
: HDOVR FRP SHWHIRUFXVWRP HUXVDJ HRI RXUSURGXFWV &RQVXP HUFUHGLWSURYLGHG DQGFUHGLWFDUGSD\ P HQWVP DGH XVLQJ RXUFDUGVFRQVWLWXWHRQO\ DVP DOOSHUFHQWDJ HRI RYHUDOOFRQVXP HUFUHGLWSURYLGHGDQGFUHGLWFDUGSD\ P HQWVLQWKH8 QLWHG6WDWHV &RQVXP HUVKDYHQXP HURXVILQDQFLQJ DQGSD\ P HQWRSWLRQVDYDLODEOHWR WKHP $ VDIRUP RI
SD\ P HQWRXUSURGXFWVFRP SHWHZ LWKFDVK FKHFNV GHELWFDUGV 9 LVDDQG0 DVWHU&DUGFUHGLWFDUGV DVZ HOODV$ P HULFDQ( [ SUHVV ’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
FRP SHWLWRUVRI RXUFXVWRP HUV¶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
0 RUHRYHU VRP HRI RXUFRP SHWLWRUV LQFOXGLQJ QHZ DQGHP HUJ LQJ FRP SHWLWRUVLQWKHGLJ LWDODQGP RELOHSD\ P HQWVVSDFH DUHQRWVXEMHFWWR WKHVDP HUHJ XODWRU\ UHTXLUHP HQWVRU OHJ LVODWLYHVFUXWLQ\ WR Z KLFKZ HDUHVXEMHFWZ KLFKDOVR FRXOGSODFHXVDWDFRP SHWLWLYHGLVDGYDQWDJ H
, QRXUUHWDLOGHSRVLWVEXVLQHVV Z HKDYHDFTXLVLWLRQDQGVHUYLFLQJ FDSDELOLWLHVVLP LODUWR RWKHUGLUHFWEDQNLQJ FRP SHWLWRUV : HFRP SHWHIRUGHSRVLWVZ LWKWUDGLWLRQDOEDQN DQGLQVHHNLQJ WR J URZ RXUGLUHFWEDQNLQJ EXVLQHVVZ HFRP SHWHZ LWKRWKHUEDQNVWKDWKDYHGLUHFWEDQNLQJ P RGHOVVLP LODUWR RXUV VXFKDV$ OO\ ) LQDQFLDO$ P HULFDQ( [ SUHVV &DSLWDO2 QH , 1 * ’ LVFRYHU 1 DWLRQZ LGH 6DOOLH0 DHDQG8 6$ $ &RP SHWLWLRQDP RQJ GLUHFWEDQNVLVLQWHQVHEHFDXVHRQOLQHEDQNLQJ SURYLGHVFXVWRP HUVWKHDELOLW\ WR TXLFNO\ DQGHDVLO\ GHSRVLWDQGZ LWKGUDZ IXQGVDQGRSHQDQGFORVHDFFRXQWVLQIDYRURI SURGXFWVDQGVHUYLFHVRIIHUHGE\ FRP SHWLWRUV
, QWHOOHFWXDO3 URSHUW\
: HXVHDYDULHW\ RI P HWKRGV VXFKDVWUDGHP DUNV SDWHQWV FRS\ ULJ KWVDQGWUDGHVHFUHWV WR SURWHFWRXULQWHOOHFWXDOSURSHUW\ : HDOVR SODFHDSSURSULDWHUHVWULFWLRQVRQRXU SURSULHWDU\ LQIRUP DWLRQWR FRQWURODFFHVVDQGSUHYHQWXQDXWKRUL] HGGLVFORVXUHV 2 XUEUDQGVDUHLP SRUWDQWDVVHWV DQGZ HWDNHVWHSVWR SURWHFWWKHYDOXHRI WKHVHDVVHWVDQGRXU UHSXWDWLRQ ) ROORZ LQJ WKH, 32 Z HODXQFKHGRXUQHZ EUDQG ‡6\ QFKURQ\ · DQGH[ SHFWWR VSHQGVLJ QLILFDQWDP RXQWVRYHUWKHQH[ WIHZ \ HDUVSURP RWLQJ RXUQHZ EUDQG
: HKDYHWZ RSDWHQWVIRUSURSULHWDU\ P HWKRGVUHODWHGWR RXU’ XDO&DUGV 7 KHSDWHQWVZ HUHLVVXHGLQ DQG DQGH[ SLUHLQ DQG UHVSHFWLYHO\
: HUHFHQWO\ ILOHGWUDGHP DUNDSSOLFDWLRQVWR SURWHFWRXUQHZ QDP HLQWKH8 QLWHG6WDWHVDQGFHUWDLQRWKHUFRXQWULHV DQGWKHDSSOLFDWLRQVDUHSHQGLQJ
( P SOR\ HHV
$ W’ HFHP EHU Z HKDG IXOOWLP HHP SOR\ HHVLQFOXGLQJ HP SOR\ HHVLQJ OREDOVHUYLFHV Z KLFKLVUHVSRQVLEOHIRUFXVWRP HUVHUYLFHDQGRWKHU
DGP LQLVWUDWLYHIXQFWLRQV HP SOR\ HHVLQRSHUDWLRQV HP SOR\ HHVLQFROOHFWLRQV HP SOR\ HHVLQULVNP DQDJ HP HQWLQFOXGLQJ IUDXG HP SOR\ HHVLQFOLHQW GHYHORSP HQW HP SOR\ HHVLQP DUNHWLQJ HP SOR\ HHVLQLQIRUP DWLRQWHFKQRORJ \ DQG RWKHUHP SOR\ HHVLQRWKHUIXQFWLRQV $ W’ HFHP EHU RXUZ RUNIRUFH FRQVLVWHGRI IXOOWLP HHP SOR\ ▇▇▇▇▇▇▇▇▇ QLWHG6WDWHV LQ, QGLDDQG LQWKH3KLOLSSLQHV 1 RQHRI RXUHP SOR\ HHVLVUHSUHVHQWHGE\ DODERUXQLRQRULVFRYHUHGE\ DFROOHFWLYHEDUJ DLQLQJ DJ UHHP HQW: HKDYHQRWH[ SHULHQFHGDQ\ P DWHULDOHP SOR\ P HQWUHODWHGZ RUNVWRSSDJ HVDQGFRQVLGHUUHODWLRQVZ LWKRXUHP SOR\ HHVWR EHJ RRG : HDOVR KDYHUHODWLRQVKLSVZ LWKWKLUG SDUW\ FDOOFHQWHUSURYLGHUVLQWKH8 QLWHG6WDWHVDQGRWKHUFRXQWULHVWKDWSURYLGHGXVZ LWKDGGLWLRQDOFRQWUDFWRUVIRUFXVWRP HUVHUYLFH FROOHFWLRQV DQGRWKHUIXQFWLRQV
) DFLOLWLHV
7 KHWDEOHEHORZ VHWVRXWVHOHFWHGLQIRUP DWLRQRQRXUSULQFLSDOIDFLOLWLHV
/ RFDWLRQ 2 Z QHG/ HDVHG
&RUSRUDWH+ HDGTXDUWHUV
6WDP IRUG &7 / HDVHG
%DQN + HDGTXDUWHUV
’ UDSHU 8 7 / HDVHG
3 D\ P HQW3 URFHVVLQJ &HQWHUV
$ WODQWD * $ / HDVHG
/ RQJ Z RRG ) / / HDVHG
&XVWRP HU6HUYLFH&HQWHUV
&DQWRQ 2 + / HDVHG
&KDUORWWH 1 & / HDVHG
) ULVFR 7 ; / HDVHG
+ \ GHUDEDG , QGLD / HDVHG
. HWWHULQJ 2 + / HDVHG
0 DQLOD 3KLOLSSLQHV / HDVHG
0 DQLOD 3KLOLSSLQHV $ ODEDQJ / HDVHG
0 HUULDP . 6 2 Z QHG
3KRHQL[ $ = / HDVHG
5 DSLG&LW\ 6’ / HDVHG
6DQ-XDQ 35 / HDVHG
2 WKHU6XSSRUW&HQWHUV
$ OSKDUHWWD * $ / HDVHG
%HOOHYXH : $ / HDVHG
%HQWRQYLOOH $ 5 / HDVHG
&KLFDJ R , / / HDVHG
&RVWD0 HVD &$ / HDVHG
6DQ) UDQFLVFR &$ / HDVHG
6DQ-RVH &$ / HDVHG
6W3DXO0 1 / HDVHG
9 DQ%XUHQ 0 , / HDVHG
: DOQXW&UHHN &$ / HDVHG
%DQN 5 HWDLO%UDQFK / RFDWLRQ
%ULGJ HZ DWHU 1 - / HDVHG
, QFRQQHFWLRQZ LWKWKH, 32 FHUWDLQRI WKHVHOHDVHGSURSHUWLHVZ HUHDVVLJ QHGWR XVE\ * ( && , QVRP HFDVHV* ( && FRQWLQXHVWR KDYHOLDELOLW\ IRUREOLJ DWLRQVXQGHUWKH OHDVHV DQGZ HKDYHDJ UHHGWR LQGHP QLI\ * ( && IRUDQ\ FRVWVRUH[ SHQVHVUHODWHGWR WKRVHREOLJ DWLRQV
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¶VFXUUHQWOHDVHDJ UHHP HQWH[ SLUHV6HSWHP EHU DQGFRQWDLQVWZ R UHP DLQLQJ ILYH\ HDUUHQHZ DORSWLRQV
: HP DLQWDLQVP DOORIILFHVDWDIHZ RI RXU8 QLWHG6WDWHVSDUWQHUORFDWLRQVSXUVXDQWWR VHUYLFLQJ OHDVHRUOLFHQVHDJ UHHP HQWV : HDOVR KDYHVHYHUDOORFDWLRQV LQDGGLWLRQ WKRVHVHWIRUWKDERYH Z KHUHZ HXVHVSDFHOHDVHGRURZ QHGE\ * ( RU* ( && DQGZ HLQWHQGWR HLWKHUH[ LWRUUHORFDWHWKHVHRSHUDWLRQVWR RWKHUVSDFHWR EHOHDVHGGLUHFWO\ E\ XV
: HEHOLHYHRXUVSDFHLVDGHTXDWHIRURXUFXUUHQWQHHGVDQGWKDWVXLWDEOHDGGLWLRQDORUVXEVWLWXWHVSDFHZ LOOEHDYDLODEOHWR DFFRP P RGDWHWKHIRUHVHHDEOHH[ SDQVLRQRI RX RSHUDWLRQV
5 LVN 0 DQDJ HP HQW
6WURQJ ULVNP DQDJ HP HQWLVDWWKHFRUHRI RXUEXVLQHVVVWUDWHJ \ DQGZ HKDYHGHYHORSHGSURFHVVHVWR P DQDJ HWKHP DMRUFDWHJ RULHVRI ULVNZ HHQFRXQWHU QDP HO\ FUHGLW
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
$ VGHVFULEHGLQJ UHDWHUGHWDLOEHORZ XQGHU‡† 5 LVN0 DQDJ HP HQW5 ROHVDQG5 HVSRQVLELOLWLHV· Z HP DQDJ HRXUHQWHUSULVHULVNXVLQJ DQLQWHJ UDWHGIUDP HZ RUNWKDWLQFOXGH ERDUG OHYHORYHUVLJ KWDGP LQLVWUDWLRQE\ DJ URXS RI FURVVIXQFWLRQDOP DQDJ HP HQWFRP P LWWHHV DQGGD\ WR GD\ LP SOHP HQWDWLRQE\ DGHGLFDWHGULVNP DQDJ HP HQWWHDP OHGE\ WKH &KLHI 5 LVN2 IILFHU ‡&5 2 · 7 KH5 LVN&RP P LWWHHRI RXUERDUGRI GLUHFWRUVKDVUHVSRQVLELOLW\ IRUWKHRYHUVLJ KWRI RXUULVNP DQDJ HP HQWSURJ UDP DQGWKUHHRWKHUERDUG
FRP P LWWHHVKDYHRWKHURYHUVLJ KWUROHVZ LWKUHVSHFWWR ULVNP DQDJ HP HQW6HYHUDOP DQDJ HP HQWFRP P LWWHHVDQGVXEFRP P LWWHHVKDYHLP SRUWDQWUROHVDQGUHVSRQVLELOLWLHVLQ DGP LQLVWHULQJ RXUULVNP DQDJ HP HQWSURJ UDP LQFOXGLQJ WKH( QWHUSULVH5 LVN0 DQDJ HP HQW&RP P LWWHH WKH‡( 5 0 &· WKH$ VVHWDQG/ LDELOLW\ 0 DQDJ HP HQW&RP P LWWHH WKH
‡$ / &2 · DQGWKH, QYHVWP HQW&RP P LWWHH 7 KLVFRP P LWWHHIRFXVHGJ RYHUQDQFHVWUXFWXUHSURYLGHVDIRUXP WKURXJ KZ KLFKULVNH[ SHUWLVHLVDSSOLHGFURVVIXQFWLRQDOO\ ▇▇ ▇▇▇▇ DMR GHFLVLRQV LQFOXGLQJ GHYHORSP HQWRI SURFHVVHV SROLFLHVDQGFRQWUROVXVHGE\ WKH&5 2 DQGULVNP DQDJ HP HQWWHDP WR H[ HFXWHRXUULVNP DQDJ HP HQWSKLORVRSK\
2 XUHQWHUSULVHULVNP DQDJ HP HQWSKLORVRSK\ LVWR HQVXUHWKDWDOOUHOHYDQWULVNVLQRXUEXVLQHVVDFWLYLWLHVDUHDSSURSULDWHO\ LGHQWLILHG P HDVXUHG P RQLWRUHGDQGFRQWUROOHG
2 XUDSSURDFKLQH[ HFXWLQJ WKLVSKLORVRSK\ IRFXVHVRQOHYHUDJ LQJ RXUVWURQJ FUHGLWULVNFXOWXUHWR GULYHHQWHUSULVHULVNP DQDJ HP HQWXVLQJ DVWURQJ J RYHUQDQFHIUDP HZ RUN D FRP SUHKHQVLYHHQWHUSULVHULVNDVVHVVP HQWSURJ UDP DQGDQHIIHFWLYHULVNDSSHWLWHIUDP HZ RUN
5 LVN&DWHJ RULHV
2 XUULVNP DQDJ HP HQWLVRUJ DQL] HGDURXQGILYHP DMRUULVNFDWHJ RULHV FUHGLWULVN P DUNHWULVN OLTXLGLW\ ULVN RSHUDWLRQDOULVNDQGVWUDWHJ LF ULVN : HHYDOXDWHWKHSRWHQWLDO LP SDFWRI DULVNHYHQWRQXV LQFOXGLQJ WKH%DQNDQGRWKHUVXEVLGLDULHV E\ DVVHVVLQJ WKHSDUWQHUDQGFXVWRP HU ILQDQFLDOUHSXWDWLRQDODQGOHJ DODQGUHJ XODWRU\ LP SDFWV
&UHGLW5 LVN
&UHGLWULVNLVWKHULVNRI ORVVWKDWDULVHVZ KHQDQREOLJ RUIDLOVWR P HHWWKHWHUP VRI DQREOLJ DWLRQ &UHGLWULVNLQFOXGHVH[ SRVXUHWR FRQVXP HUFUHGLWULVNIURP FXVWRP HU ORDQVDVZ HOODVLQVWLWXWLRQDOFUHGLWULVN SULQFLSDOO\ IURP RXUSDUWQHUV &RQVXP HUFUHGLWULVNLVRQHRI WKHP RVWVLJ QLILFDQWULVNVZ HIDFH 6HH‡† &UHGLW5 LVN0 DQDJ HP HQW· IRUD GHVFULSWLRQRI RXUFXVWRP HUFUHGLWULVNP DQDJ HP HQWSURFHGXUHV
0 DUNHW5 LVN
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
/ LTXLGLW\ 5 LVN
/ LTXLGLW\ ULVNLVWKHULVNWKDWDQLQVWLWXWLRQ¶VILQDQFLDOFRQGLWLRQRURYHUDOOVDIHW\ DQGVRXQGQHVVDUHDGYHUVHO\ DIIHFWHGE\ DUHDORUSHUFHLYHGLQDELOLW\ WR P HHWFRQWUDFWXD REOLJ DWLRQVDQGVXSSRUWSODQQHGJ URZ WK 2 XUSULP DU\ OLTXLGLW\ REMHFWLYHLVWR P DLQWDLQDOLTXLGLW\ SURILOHWKDWZ LOOHQDEOHXV HYHQLQWLP HVRI VWUHVVRUP DUNHWGLVUXSWLRQ WR IXQ RXUH[ LVWLQJ DVVHWVDQGP HHWDOORI RXUOLDELOLWLHVLQDWLP HO\ P DQQHUDQGDWDQDFFHSWDEOHFRVW3ROLF\ DQGULVNDSSHWLWHOLP LWVUHTXLUHXVDQGWKH%DQN DQGRWKHUHQWLWLHVZ LWKLQ RXUEXVLQHVV DVDSSOLFDEOH WR HQVXUHWKDWVXIILFLHQWOLTXLGDVVHWVDUHDYDLODEOHWR VXUYLYHOLTXLGLW\ VWUHVVHVRYHUDVSHFLILHGWLP HSHULRG 2 XUULVNDSSHWLWHSROLFLHVDOVR FDOOIRU IXQGLQJ GLYHUVLILFDWLRQ P RQLWRULQJ HDUO\ Z DUQLQJ LQGLFDWRUVLQWKHFDSLWDOP DUNHWV DQGOLP LWVRQWKHDP RXQWVRI FHUWLILFDWHVRI GHSRVLWP DWXULWLHVLQDQ\ RQHP RQWK 2 XU$ / &2 UHYLHZ VOLTXLGLW\ H[ SRVXUHVFRQWLQXRXVO\ LQWKHFRQWH[ WRI DSSURYHGSROLF\ DQGULVNDSSHWLWHOLP LWVDQGUHSRUWVUHVXOWVTXDUWHUO\ WR WKH( 5 0 & DQGRXUERDUGRI GLUHFWRUV
2 SHUDWLRQDO5 LVN
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
6WUDWHJ LF 5 LVN
6WUDWHJ LF ULVNFRQVLVWVRI WKHFXUUHQWRUSURVSHFWLYHULVNWR HDUQLQJ VDQGFDSLWDODULVLQJ IURP FKDQJ HVLQWKHEXVLQHVVHQYLURQP HQWDQGIURP DGYHUVHEXVLQHVVGHFLVLRQV LP SURSHULP SOHP HQWDWLRQRI GHFLVLRQVRUODFNRI UHVSRQVLYHQHVVWR FKDQJ HVLQWKHEXVLQHVVHQYLURQP HQW2 XURSHUDWLRQDOULVNWHDP Z LOOFRQGXFWDIRUP DOVWUDWHJ LF ULVN DVVHVVP HQWDWOHDVWDQQXDOO\ DQGHVWDEOLVKULVNP LWLJ DWLRQSODQVIRUWRS VWUDWHJ LF ULVNV 7 KH%DQN¶V1 HZ 3URGXFW, QQRYDWLRQ&RXQFLODVVHVVHVWKHVWUDWHJ LF YLDELOLW\ DQG FRQVLVWHQF\ RI HDFKQHZ %DQNSURGXFWRUVHUYLFH 1 HZ LQLWLDWLYHVUHTXLUHWKHDSSURYDORI WKH( 5 0 & DQGRXUERDUGRI GLUHFWRUV LQWKHFDVHRI SURMHFWVGHHP HGP RUHULVN\ RU FULWLFDOWR WKHP LVVLRQRI WKHEXVLQHVV
5 LVN0 DQDJ HP HQW5 ROHVDQG5 HVSRQVLELOLWLHV
5 HVSRQVLELOLW\ IRUULVNP DQDJ HP HQWIORZ VWR LQGLYLGXDOVDQGHQWLWLHVWKURXJ KRXWRXU&RP SDQ\ LQFOXGLQJ RXUERDUGRI GLUHFWRUV YDULRXVERDUGDQGP DQDJ HP HQW FRP P LWWHHVDQGVHQLRUP DQDJ HP HQW: HEHOLHYHRXUFUHGLWULVNFXOWXUHKDVIDFLOLWDWHG DQGZ LOOFRQWLQXHWR IDFLOLWDWH WKHHYROXWLRQRI DQHIIHFWLYHULVNSUHVHQFHDFURVVWKH &RP SDQ\ 6HWIRUWKEHORZ LVDGHVFULSWLRQRI WKHUROHVDQGUHVSRQVLELOLWLHVUHODWHGWR WKHNH\ HOHP HQWVRI RXUULVNP DQDJ HP HQWIUDP HZ RUN
%RDUGRI ’ LUHFWRUV
2 XUERDUGRI GLUHFWRUV DP RQJ RWKHUWKLQJ V KDVDSSURYHGWKHHQWHUSULVHZ LGHULVNDSSHWLWHVWDWHP HQWDQGIUDP HZ RUNIRUWKH&RP SDQ\ DVZ HOODVFHUWDLQRWKHUULVN
P DQDJ HP HQWSROLFLHVDQGRYHUVHHVWKH&RP SDQ\ ¶VVWUDWHJ LF SODQDQGHQWHUSULVHZ LGHULVNP DQDJ HP HQWSURJ UDP 2 XUERDUGRI GLUHFWRUVP D\ DVVLJ QFHUWDLQULVNP DQDJ HP HQW DFWLYLWLHVWR DSSOLFDEOHFRP P LWWHHVDQGP DQDJ HP HQW
%RDUG&RP P LWWHHV
2 XUERDUGRI GLUHFWRUVKDVHVWDEOLVKHGIRXUFRP P LWWHHVWKDWDVVLVWWKHERDUGLQLWVRYHUVLJ KWRI RXUULVNP DQDJ HP HQW7 KHVHFRP P LWWHHVDQGWKHLUULVN UHODWHGUROHVDUH GHVFULEHGEHORZ
$ XGLW&RP P LWWHH , QFRRUGLQDWLRQZ LWKWKH5 LVN&RP P LWWHHVRI WKH&RP SDQ\ DQGWKH%DQN WKH$ XGLW&RP P LWWHH¶VUROH DP RQJ RWKHUWKLQJ V LVWR UHYLHZ L WKH
&RP SDQ\ ¶VP DMRUILQDQFLDOULVNH[ SRVXUHVDQGWKHVWHSVP DQDJ HP HQWKDVWDNHQWR P RQLWRUDQGFRQWUROWKHVHULVNV LL WKH&RP SDQ\ ¶VULVNDVVHVVP HQWDQGULVNP DQDJ HP HQW SUDFWLFHVDQGWKHJ XLGHOLQHV SROLFLHVDQGSURFHVVHVIRUULVNDVVHVVP HQWDQGULVNP DQDJ HP HQW LLL WKHRUJ DQL] DWLRQ SHUIRUP DQFHDQGDXGLWILQGLQJ VRI RXULQWHUQDODXGLW IXQFWLRQ LY RXUGLVFORVXUHDQGLQWHUQDOFRQWUROV DQG Y WKH&RP SDQ\ ¶VULVNJ XLGHOLQHVDQGSROLFLHVUHODWLQJ WR ILQDQFLDOVWDWHP HQWV ILQDQFLDOV\ VWHP V ILQDQFLDOUHSRUWLQJ SURFHVVHV FRP SOLDQFHDQGDXGLWLQJ DQGDOORZ DQFHIRUORDQORVVHV
1 RP LQDWLQJ DQG&RUSRUDWH* RYHUQDQFH&RP P LWWHH 7 KH1 RP LQDWLQJ DQG&RUSRUDWH* RYHUQDQFH&RP P LWWHH¶VUROH DP RQJ RWKHUWKLQJ V LVWR L UHYLHZ DQGDSSURYH FHUWDLQWUDQVDFWLRQVZ LWKUHODWHGSHUVRQV LL UHYLHZ DQGUHVROYHDQ\ FRQIOLFWRI LQWHUHVWLQYROYLQJ GLUHFWRUVRUH[ HFXWLYHRIILFHUV LLL RYHUVHHWKHULVNV LI DQ\ UHODWHGWR FRUSRUDWHJ RYHUQDQFHVWUXFWXUHDQGSUDFWLFHV DQG LY LGHQWLI\ DQGGLVFXVVZ LWKP DQDJ HP HQWWKHULVNV LI DQ\ UHODWHGWR VRFLDOUHVSRQVLELOLW\ DFWLRQVDQGSXEOLF SROLF\ LQLWLDWLYHV
0 DQDJ HP HQW’ HYHORSP HQWDQG&RP SHQVDWLRQ&RP P LWWHH 7 KH0 DQDJ HP HQW’ HYHORSP HQWDQG&RP SHQVDWLRQ&RP P LWWHH¶VUROH DP RQJ RWKHUWKLQJ V LVWR L UHYLHZ RX LQFHQWLYHFRP SHQVDWLRQDUUDQJ HP HQWVZ LWKDYLHZ WR DSSURSULDWHO\ EDODQFLQJ ULVNDQGILQDQFLDOUHVXOWVLQDP DQQHUWKDWGRHVQRWHQFRXUDJ HHP SOR\ HHVWR H[ SRVHXVRUDQ\ RI RXUVXEVLGLDULHVWR LP SUXGHQWULVNV DQGDUHFRQVLVWHQWZ LWKVDIHW\ DQGVRXQGQHVV DQG LL UHYLHZ Z LWKLQSXWIURP RXU&5 2 DQGWKH%DQN¶V&5 2 WKHUHODWLRQVKLS EHWZ HHQULVN P DQDJ HP HQWSROLFLHVDQGSUDFWLFHV FRUSRUDWHVWUDWHJ LHVDQGVHQLRUH[ HFXWLYHFRP SHQVDWLRQ
5 LVN&RP P LWWHH 7 KH5 LVN&RP P LWWHH¶VUROH DP RQJ RWKHUWKLQJ V LVWR L DVVLVWRXUERDUGRI GLUHFWRUVLQLWVRYHUVLJ KWRI WKH&RP SDQ\ ¶VHQWHUSULVHZ LGHULVN
P DQDJ HP HQWIUDP HZ RUN LQFOXGLQJ DVLWUHODWHVWR FUHGLWLQYHVWP HQWP DUNHWOLTXLGLW\ RSHUDWLRQDOFRP SOLDQFHDQGVWUDWHJ LF ULVNV LL UHYLHZ DQG DWOHDVWDQQXDOO\ DSSURYHWKH &RP SDQ\ ¶VULVNJ RYHUQDQFHIUDP HZ RUNDQGULVNDVVHVVP HQWDQGULVNP DQDJ HP HQWSUDFWLFHV J XLGHOLQHVDQGSROLFLHV LQFOXGLQJ VLJ QLILFDQWSROLFLHVWKDWP DQDJ HP HQWXVHVWR
P DQDJ HFUHGLWDQGLQYHVWP HQWP DUNHWOLTXLGLW\ RSHUDWLRQDOFRP SOLDQFHDQGVWUDWHJ LF ULVNV LLL UHYLHZ DQG DWOHDVWDQQXDOO\ UHFRP P HQGWR RXUERDUGRI GLUHFWRUVIRU DSSURYDOWKH&RP SDQ\ ¶VHQWHUSULVHZ LGHULVNDSSHWLWH LQFOXGLQJ WKH&RP SDQ\ ¶VOLTXLGLW\ ULVNWROHUDQFH DQGUHYLHZ DQGDSSURYHWKH&RP SDQ\ ¶VVWUDWHJ \ UHODWLQJ WR P DQDJ LQJ NH\ ULVNVDQGRWKHUSROLFLHVRQWKHHVWDEOLVKP HQWRI ULVNOLP LWVDVZ HOODVWKHJ XLGHOLQHV SROLFLHVDQGSURFHVVHVIRUP RQLWRULQJ DQGP LWLJ DWLQJ VXFKULVNV LY P HHWVHSDUDWHO\ RQ DUHJ XODUEDVLVZ LWKRXU&5 2 DQG LQFRRUGLQDWLRQZ LWKWKH%DQN¶V5 LVN&RP P LWWHH DVDSSURSULDWH WKH%DQN¶V&5 2 Y UHFHLYHSHULRGLF UHSRUWVIURP P DQDJ HP HQWRQP HWULFV XVHGWR P HDVXUH P RQLWRUDQGP DQDJ HNQRZ QDQGHP HUJ LQJ ULVNV LQFOXGLQJ P DQDJ HP HQW¶VYLHZ RQDFFHSWDEOHDQGDSSURSULDWHOHYHOVRI H[ SRVXUH YL UHFHLYHUHSRUWVIURP RX LQWHUQDODXGLWULVNP DQDJ HP HQWDQGLQGHSHQGHQWOLTXLGLW\ UHYLHZ IXQFWLRQVRQWKHUHVXOWVRI ULVNP DQDJ HP HQWUHYLHZ VDQGDVVHVVP HQWV YLL UHYLHZ DQGDSSURYH DWOHDVW DQQXDOO\ WKH&RP SDQ\ ¶VHQWHUSULVHZ LGHFDSLWDODQGOLTXLGLW\ IUDP HZ RUN LQFOXGLQJ LWVFRQWLQJ HQF\ IXQGLQJ SODQ DQG LQFRRUGLQDWLRQZ LWKWKH%DQN¶V5 LVN&RP P LWWHH
UHYLHZ DWOHDVWTXDUWHUO\ WKH%DQN¶VDOORZ DQFHIRUORDQORVVHV OLTXLGLW\ SROLF\ DQGULVNDSSHWLWH UHJ XODWRU\ FDSLWDOSROLF\ DQGUDWLRVDQGLQWHUQDOFDSLWDODGHTXDF\ DVVHVVP HQW SURFHVVHVDQG DWOHDVWDQQXDOO\ WKH%DQN¶VDQQXDOFDSLWDOSODQDQGUHFRYHU\ DQGUHVROXWLRQSODQ YLLL UHYLHZ DWOHDVWVHP LDQQXDOO\ LQIRUP DWLRQIURP VHQLRUP DQDJ HP HQW UHJ DUGLQJ Z KHWKHUWKH&RP SDQ\ LVRSHUDWLQJ Z LWKLQLWVHVWDEOLVKHGULVNDSSHWLWH L[ UHYLHZ WKHVWDWXVRI ILQDQFLDOVHUYLFHVUHJ XODWRU\ H[ DP LQDWLRQV [ UHYLHZ WKH LQGHSHQGHQFH DXWKRULW\ DQGHIIHFWLYHQHVVRI WKH&RP SDQ\ ¶VULVNP DQDJ HP HQWIXQFWLRQDQGLQGHSHQGHQWOLTXLGLW\ UHYLHZ IXQFWLRQ [ L DSSURYHWKHDSSRLQWP HQWRI HYDOXDWH DQG Z KHQDSSURSULDWH UHSODFH WKH&5 2 DQG [ LL UHYLHZ GLVFORVXUHUHJ DUGLQJ ULVNFRQWDLQHGLQWKH&RP SDQ\ ¶VDQQXDODQGTXDUWHUO\ UHSRUWV
0 DQDJ HP HQW&RP P LWWHHV
: HKDYHHVWDEOLVKHGWZ RP DQDJ HP HQWFRP P LWWHHVZ LWKLP SRUWDQWUROHVDQGUHVSRQVLELOLWLHVLQRXUULVNP DQDJ HP HQWIXQFWLRQ WKH( 5 0 & RI Z KLFK$ / &2 LVD VXEFRP P LWWHH DQGWKH, QYHVWP HQW&RP P LWWHH 7 KHVHFRP P LWWHHVDQGWKHLUULVN UHODWHGUROHVDUHGHVFULEHGEHORZ
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
$ / &2 $ VXEFRP P LWWHHRI WKH( 5 0 & WKH$ / &2 LVFRP SULVHGRI RXUVHQLRUH[ HFXWLYHVDQGFKDLUHGE\ WKH7 UHDVXUHU, WLGHQWLILHV P HDVXUHV P RQLWRUV P DQDJ HVDQG FRQWUROVP DUNHWOLTXLGLW\ DQGFUHGLWLQYHVWP HQWVDQGEDQNUHODWLRQVKLSV ULVNVWR WKH&RP SDQ\ ¶VEDODQFHVKHHW$ / &2 DFWLYLWLHVLQFOXGHUHYLHZ LQJ DQGP RQLWRULQJ FDVK
P DQDJ HP HQWLQYHVWP HQWV OLTXLGLW\ IXQGLQJ DQGIRUHLJ QH[ FKDQJ HULVNDFWLYLWLHVDQGRYHUVHHLQJ WKHVDIH VRXQGDQGHIILFLHQWRSHUDWLRQRI WKH&RP SDQ\ LQFRP SOLDQFHZ LWK DSSOLFDEOHSROLFLHV ODZ VDQGUHJ XODWLRQV
, QYHVWP HQW&RP P LWWHH $ P DQDJ HP HQWFRP P LWWHHXQGHUWKHRYHUVLJ KWRI WKHERDUGRI GLUHFWRUVDQGLWV5 LVN&RP P LWWHH WKH, QYHVWP HQW&RP P LWWHHLVFRP SULVHGRI RXU VHQLRUH[ HFXWLYHVDQGFKDLUHGE\ WKH&5 2 7 KH, QYHVWP HQW&RP P LWWHHKDVUHVSRQVLELOLW\ IRUUHYLHZ LQJ DQGDSSURYLQJ FULWLFDOLQYHVWP HQWDFWLYLWLHVRI WKH&RP SDQ\ VXFKDV HTXLW\ LQYHVWP HQWV DFTXLVLWLRQV GLVSRVLWLRQV MRLQWYHQWXUHV SRUWIROLR GHDOVDQGLQYHVWP HQWLVVXHVUHJ DUGLQJ WKH&RP SDQ\ , WLVDOVR UHVSRQVLEOHIRURYHUVHHLQJ WKH&RP SDQ\ ¶V DSSURDFKWR P DQDJ LQJ LWVLQYHVWP HQWV 7 KH&RP P LWWHHP D\ P DNHGHFLVLRQVRQO\ Z LWKLQWKHDXWKRULW\ WKDWLVJ UDQWHGWR LWE\ WKHERDUGRI GLUHFWRUVDQGP XVWHVFDODWHDQ\
LQYHVWP HQWSURSRVDOVRXWVLGHRI LWVDXWKRULW\ WR WKHERDUGRI GLUHFWRUVIRUILQDOGHFLVLRQ
&KLHI ( [ HFXWLYH2 IILFHU&KLHI 5 LVN2 IILFHUDQG2 WKHU6HQLRU2 IILFHUV
2 XU&KLHI ( [ HFXWLYH2 IILFHUKDVXOWLP DWHUHVSRQVLELOLW\ IRUHQVXULQJ WKHP DQDJ HP HQWRI WKH&RP SDQ\ ¶VULVNLQDFFRUGDQFHZ LWKWKH&RP SDQ\ ¶VDSSURYHGULVNDSSHWLWH VWDWHP HQW7 KH&KLHI ( [ HFXWLYH2 IILFHUDOVR SURYLGHVOHDGHUVKLS LQFRP P XQLFDWLQJ WKHULVNDSSHWLWHWR LQWHUQDODQGH[ WHUQDOVWDNHKROGHUVVR DVWR KHOS HP EHGDSSURSULDWHULVN WDNLQJ LQWR WKHRYHUDOOULVNFXOWXUH
7 KH&5 2 P DQDJ HVRXUULVNP DQDJ HP HQWWHDP DQG DVFKDLUSHUVRQRI WKH( 5 0 & LVUHVSRQVLEOHIRUHVWDEOLVKLQJ DQGLP SOHP HQWLQJ VWDQGDUGVIRUWKHLGHQWLILFDWLRQ
P DQDJ HP HQWDQGP HDVXUHP HQWRI ULVNRQDQHQWHUSULVHZ LGHEDVLV DVZ HOODVIRUP RQLWRULQJ DQGUHSRUWLQJ VXFKULVNV , QFROODERUDWLRQZ LWKRXU&KLHI ( [ HFXWLYH2 IILFHUDQGWKH &KLHI ) LQDQFLDO2 IILFHU WKH&5 2 KDVUHVSRQVLELOLW\ IRUGHYHORSLQJ DQDSSURSULDWHULVNDSSHWLWHZ LWKFRUUHVSRQGLQJ OLP LWVWKDWDOLJ QVZ LWKVXSHUYLVRU\ H[ SHFWDWLRQVDQGWKLVULVN DSSHWLWHVWDWHP HQWKDVEHHQDSSURYHGE\ RXUERDUGRI GLUHFWRUV 7 KH&5 2 UHJ XODUO\ UHSRUWVWR RXUERDUGRI GLUHFWRUVDQGWKH5 LVN&RP P LWWHHRQULVNP DQDJ HP HQWP DWWHUV
2 XUVHQLRUH[ HFXWLYHRIILFHUVDUHUHVSRQVLEOHIRUHQVXULQJ WKDWWKHLUUHVSHFWLYHIXQFWLRQVRSHUDWHZ LWKLQHVWDEOLVKHGULVNOLP LWV LQDFFRUGDQFHZ LWKWKH&RP SDQ\ ¶V HQWHUSULVHULVNP DQDJ HP HQWSROLF\ $ VP HP EHUVRI WKH( 5 0 & WKH\ DUHDOVR UHVSRQVLEOHIRULGHQWLI\ LQJ ULVNV FRQVLGHULQJ ULVNZ KHQGHYHORSLQJ VWUDWHJ LF SODQV EXGJ HWVDQG QHZ SURGXFWVDQGLP SOHP HQWLQJ DSSURSULDWHULVNFRQWUROVZ KHQSXUVXLQJ EXVLQHVVVWUDWHJ LHVDQGREMHFWLYHV , QDGGLWLRQ VHQLRUH[ HFXWLYHRIILFHUVDUHUHVSRQVLEOHIRUGHSOR\ LQJ VXIILFLHQWILQDQFLDOUHVRXUFHVDQGTXDOLILHGSHUVRQQHOWR P DQDJ HWKHULVNVLQKHUHQWLQWKH&RP SDQ\ ¶VEXVLQHVVDFWLYLWLHV
5 LVN0 DQDJ HP HQW7HDP
2 XUULVNP DQDJ HP HQWWHDP LVOHGE\ WKH&5 2 DQGSURYLGHRYHUVLJ KWRI RXUULVNSURILOHDQGWKHULVNSURILOHVRI RXUVXEVLGLDULHV 7 KLVSURYLGHVD‡VHFRQGOLQHRI GHIHQVH· WR WKHIXQFWLRQDORUJ DQL] DWLRQV¶SULP DU\ UROHLQFUHDWLQJ DQDSSURSULDWHFRQWUROHQYLURQP HQWIRUHDFKIXQFWLRQDOSURFHVV
&RP SOLDQFH7HDP
2 XUFRP SOLDQFHWHDP LVUHVSRQVLEOHIRUHVWDEOLVKLQJ DQGP DLQWDLQLQJ DFRP SOLDQFHSURJ UDP WKDWLQFOXGHVFRP SOLDQFHULVNLGHQWLILFDWLRQ DVVHVVP HQWSROLF\ GHYHORSP HQWDQGP RQLWRULQJ WHVWLQJ WUDLQLQJ DQGUHSRUWLQJ DFWLYLWLHV
, QWHUQDO$ XGLW7HDP
7 KHLQWHUQDODXGLWWHDP LVUHVSRQVLEOHIRUSHUIRUP LQJ SHULRGLF LQGHSHQGHQWUHYLHZ VDQGWHVWLQJ RI FRP SOLDQFHZ LWK&RP SDQ\ ¶VDQGWKH%DQN¶VULVNP DQDJ HP HQWSROLFLH DQGVWDQGDUGV DVZ HOODVZ LWKUHJ XODWRU\ J XLGDQFHDQGLQGXVWU\ EHVWSUDFWLFHV 7 KHLQWHUQDODXGLWWHDP DOVR DVVHVVHVWKHGHVLJ QDQGRSHUDWLQJ HIIHFWLYHQHVVRI WKHVHSROLFLHVDQG VWDQGDUGVDQGYDOLGDWHVULVNP DQDJ HP HQWFRQWUROV
( QWHUSULVH5 LVN$ VVHVVP HQW3 URJ UDP
( QWHUSULVHULVNDVVHVVP HQWVSOD\ DQLP SRUWDQWUROHLQGLUHFWLQJ RXUULVNP DQDJ HP HQWDFWLYLWLHVWR SULRULWL] HDQGIRFXVRQDSSURSULDWHULVNV : HZ LOOFRQGXFWDVVHVVP HQWV OHDVWDQQXDOO\ IRUHDFKULVNFDWHJ RU\ DQGXSGDWHWKRVHDVVHVVP HQWVSHULRGLFDOO\ 7 KHULVNOHDGHUIRUHDFKULVNFDWHJ RU\ Z LOOGLUHFWWKHDVVHVVP HQWSURFHVV UHYLHZ LQJ QRWRQO\ WKH FXUUHQWW\ SHDQGOHYHORI ULVNV EXWDOVR FRP SOLDQFHZ LWKUHJ XODWRU\ J XLGDQFHDQGLQGXVWU\ EHVWSUDFWLFHVDVZ HOODVSROLF\ DQGSURFHGXUDOFRP SOLDQFH 3URJ UHVVDJ DLQVWDQ\ DFWLRQSODQVWKDWKDYHEHHQSXWLQWR SODFHWR P DQDJ HNH\ ULVNVZ LOOEHWUDFNHGDQGUHSRUWHGWR WKH( 5 0 &
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
5 LVN$ SSHWLWH) UDP HZRUN
3ULRUWR WKH, 32 Z HRSHUDWHGLQDFFRUGDQFHZ LWKDULVNDSSHWLWHVWDWHP HQWVHWWLQJ IRUWKRXUREMHFWLYHV SODQVDQGOLP LWV DQGH[ SUHVVLQJ RXUSUHIHUHQFHVZ LWKUHVSHFWWR ULVN WDNLQJ DFWLYLWLHVLQWKHFRQWH[ WRI RXURYHUDOOEXVLQHVVJ RDOV $ VXEVWDQWLDOO\ VLP LODUULVNDSSHWLWHVWDWHP HQWZ DVDSSURYHGLQFRQQHFWLRQZ LWKWKH, 32 E\ WKH( 5 0 & WKH 5 LVN&RP P LWWHHDQGRXUERDUGRI GLUHFWRUV Z LWKGHOHJ DWHGDXWKRULW\ WR WKH&5 2 IRULP SOHP HQWDWLRQWKURXJ KRXWWKH&RP SDQ\ 7 KHULVNDSSHWLWHVWDWHP HQWVHUYHVDVDWRROWR
SUHFOXGHDFWLYLWLHVWKDWDUHLQFRQVLVWHQWZ LWKRXUEXVLQHVVDQGULVNVWUDWHJ \ 7 KHULVNDSSHWLWHVWDWHP HQWZ LOOEHUHYLHZ HGDQGDSSURYHGDWOHDVWDQQXDOO\ DVSDUWRI RXUEXVLQHVV SODQQLQJ SURFHVVDQGZ LOOEHP RGLILHG DVQHFHVVDU\ WR LQFOXGHXSGDWHGULVNWROHUDQFHVE\ ULVNFDWHJ RU\ HQDEOLQJ XVWR P HHWSUHVFULEHGJ RDOVZ KLOHFRQWLQXLQJ WR RSHUDWHZ LWKL RXUHVWDEOLVKHGULVNERXQGDULHV
+ LVWRU\
2 XUURRWVLQFRQVXP HUILQDQFHWUDFHEDFNWR Z KHQ* ( EHJ DQSURYLGLQJ ILQDQFLQJ IRUFRQVXP HUVWR KHOS P HHWGHP DQGIRU* ( DSSOLDQFHV 7 KHSUHGHFHVVRURI WKH
%DQN * ( &DSLWDO&RQVXP HU&DUG&R Z DVHVWDEOLVKHGLQ XQGHUDSUHYLRXVQDP H 0 RQRJ UDP %DQN 8 6$ DOLP LWHGSXUSRVHFUHGLWFDUGEDQN DQGZ DVFRQYHUWHGWR D IHGHUDOO\ FKDUWHUHGVDYLQJ VDVVRFLDWLRQLQ 2 Q) HEUXDU\ 0 RQRJ UDP &UHGLW&DUG%DQNRI * HRUJ LD DVXEVLGLDU\ RI * ( &DSLWDO&RQVXP ▇▇&▇▇▇&▇ P HUJ HGLQWR
* ( &DSLWDO&RQVXP HU&DUG&R DQGWKHVXUYLYLQJ HQWLW\ FKDQJ HGLWVQDP HWR * ( 0 RQH\ %DQN * ( 0 RQH\ %DQNFKDQJ HGLWVQDP HWR * ( &DSLWDO5 HWDLO%DQNRQ2 FWREHU 2 Q-XQH * ( &DSLWDO5 HWDLO%DQNFKDQJ HGLWVQDP HWR 6\ QFKURQ\ %DQN
6\ QFKURQ\ LVDKROGLQJ FRP SDQ\ IRUWKHOHJ DOHQWLWLHVWKDWKLVWRULFDOO\ FRQGXFWHG* ( ¶V1 RUWK$ P HULFDQUHWDLOILQDQFHEXVLQHVV 6\ QFKURQ\ Z DVLQFRUSRUDWHGLQ’ HODZ DUH RQ6HSWHP EHU EXWSULRUWR$ SULO FRQGXFWHGQR EXVLQHVV ’ XULQJ WKHSHULRGIURP $ ▇▇▇▇ ▇▇ 6HSWHP EHU DVSDUWRI DUHJ XODWRU\ UHVWUXFWXULQJ VXEVWDQWLDOO\ DOORI WKHDVVHWVDQGRSHUDWLRQVRI * ( ¶V1 RUWK$ P HULFDQUHWDLOILQDQFHEXVLQHVV LQFOXGLQJ WKH%DQN Z HUHWUDQVIHUUHGWR 6\ QFKURQ\ 7 KHUHP DLQLQJ DVVHWVDQG RSHUDWLRQVRI WKDWEXVLQHVVVXEVHTXHQWO\ Z HUHWUDQVIHUUHGWR 6\ QFKURQ\
5 HJ XODWLRQ
* HQHUDO
2 XUEXVLQHVV LQFOXGLQJ RXUUHODWLRQVKLSVZ LWKRXUFXVWRP HUV LVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQXQGHU8 6 IHGHUDOVWDWHDQGIRUHLJ QODZ V DQGUHJ XODWLRQV 7 KHVHODZ VDQGUHJ XODWLRQVFRYHUDOODVSHFWVRI RXUEXVLQHVV LQFOXGLQJ OHQGLQJ SUDFWLFHV WUHDWP HQWRI RXUFXVWRP HUV VDIHJ XDUGLQJ GHSRVLWV FXVWRP HUSULYDF\ DQGLQIRUP DWLRQVHFXULW\ FDSLWDOVWUXFWXUH OLTXLGLW\ GLYLGHQGVDQGRWKHUFDSLWDOGLVWULEXWLRQV WUDQVDFWLRQVZ LWKDIILOLDWHV DQGFRQGXFWDQGTXDOLILFDWLRQVRI SHUVRQQHO
$ VDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ 6\ QFKURQ\ LVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH) HGHUDO5 HVHUYH%RDUG 3ULRUWR -XO\
VDYLQJ VDQGORDQKROGLQJ FRP SDQLHV VXFKDVWKH%DQN¶VSDUHQWEHIRUH6\ QFKURQ\ Z HUHVXEMHFWWR UHJ XODWLRQE\ WKH2 7 6 $ VDODUJ HSURYLGHURI FRQVXP HUILQDQFLDOVHUYLFHV Z DUHDOVR VXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH&) 3% 8 QWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HZ LOOEHFRQWUROOHGE\ * ( && Z KLFKLVDOVR DVDYLQJ V DQGORDQKROGLQJ FRP SDQ\ DQGLVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH) HGHUDO5 HVHUYH%RDUG
7 KH%DQNLVDIHGHUDOO\ FKDUWHUHGVDYLQJ VDVVRFLDWLRQ $ VVXFK WKH%DQNLVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH2 && Z KLFKLVLWV SULP DU\ UHJ XODWRU DQGE\ WKH&) 3% , QDGGLWLRQ WKH%DQN DVDQLQVXUHGGHSRVLWRU\ LQVWLWXWLRQ LVVXSHUYLVHGE\ WKH) ’ ,&
7 KH’ RGG ) UDQN: DOO6WUHHW5 HIRUP DQG &RQVXP HU3 URWHFWLRQ$ FW
7 KH’ RGG ) UDQN$ FWZ KLFKZ DVHQDFWHGLQ-XO\ VLJ QLILFDQWO\ UHVWUXFWXUHGWKHILQDQFLDOUHJ XODWRU\ UHJ LP HLQWKH8 QLWHG6WDWHV $ VGLVFXVVHGIXUWKHUWKURXJ KRXWWK VHFWLRQ FHUWDLQDVSHFWVRI WKH’ RGG ) UDQN$ FWDUHVXEMHFWWR IXUWKHUUXOHP DNLQJ WKDWZ LOOWDNHHIIHFWRYHUVHYHUDO\ HDUV P DNLQJ LWGLIILFXOWWR DQWLFLSDWHWKHRYHUDOOILQDQFLDO
LP SDFWRQXVRUDFURVVWKHLQGXVWU\ 6HHDOVR ‡, WHP $ 5 LVN) DFWRUV† 5 LVNV5 HODWLQJ WR 5 HJ XODWLRQ† 7 KH’ RGG ) UDQN$ FWKDVKDG DQGP D\ FRQWLQXHWR KDYH DVLJ QLILFDQW LP SDFWRQRXUEXVLQHVV ILQDQFLDOFRQGLWLRQDQGUHVXOWVRI RSHUDWLRQV·
6DYLQJ VDQG / RDQ + ROGLQJ &RP SDQ\ 5 HJ XODWLRQ
2 YHUYLHZ
$ VDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ Z HDUHUHTXLUHGWR UHJ LVWHUDQGILOHSHULRGLF UHSRUWVZ LWK DQGDUHVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQ E\ WKH) HGHUDO5 HVHUYH%RDUG 7 KH) HGHUDO5 HVHUYH%RDUGKDVDGRSWHGJ XLGHOLQHVHVWDEOLVKLQJ VDIHW\ DQGVRXQGQHVVVWDQGDUGVRQVXFKP DWWHUVDVOLTXLGLW\ ULVNP DQDJ HP HQW VHFXULWL] DWLRQV RSHUDWLRQDOULVNP DQDJ HP HQWLQWHUQDOFRQWUROVDQGDXGLWV\ VWHP V EXVLQHVVFRQWLQXLW\ DQGFRP SHQVDWLRQDQGRWKHUHP SOR\ HHEHQHILWV : HDUHUHJ XODUO\
UHYLHZ HGDQGH[ DP LQHGE\ WKH) HGHUDO5 HVHUYH%RDUG Z KLFKUHVXOWVLQVXSHUYLVRU\ FRP P HQWVDQGGLUHFWLRQVUHODWLQJ WR P DQ\ DVSHFWVRI RXUEXVLQHVVWKDWUHTXLUHRXUUHVSRQVH DQGDWWHQWLRQ 2 XUSDUHQW* ( && DVDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ LVDOVR UHJ XODUO\ UHYLHZ HGDQGH[ DP LQHGE\ WKH) HGHUDO5 HVHUYH%RDUG Z KLFKUHVXOWVLQVXSHUYLVRU\ FRP P HQWVDQGGLUHFWLRQVUHODWLQJ WR P DQ\ DVSHFWVRI * ( &&¶VEXVLQHVVJ HQHUDOO\ DQGRXUEXVLQHVVVSHFLILFDOO\ WKDWUHTXLUHUHVSRQVHDQGDWWHQWLRQ
7 KH) HGHUDO5 HVHUYH%RDUGKDVEURDGHQIRUFHP HQWDXWKRULW\ RYHUXVDQGRXUVXEVLGLDULHV RWKHUWKDQWKH%DQNDQGLWVVXEVLGLDULHV 8 QGHUWKH’ RGG ) UDQN$ FWZ HDUHUHTXLUHG WR VHUYHDVDVRXUFHRI ILQDQFLDOVWUHQJ WKIRUDQ\ LQVXUHGGHSRVLWRU\ LQVWLWXWLRQWKDWZ HFRQWUROVXFKDVWKH%DQN , QDGGLWLRQ XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HZ LOOEH FRQWUROOHGE\ * ( && Z KLFKKDVLWVRZ QUHJ XODWRU\ REOLJ DWLRQVDVDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ DQGDVDQRQEDQN6, ) , DVGHILQHGEHORZ : HP D\ EHDIIHFWHGE\ WKRVH REOLJ DWLRQVRI * ( && 6HH‡, WHP $ 5 LVN) DFWRUV† 5 LVNV5 HODWLQJ WR 5 HJ XODWLRQ† $ VORQJ DVZ HDUHFRQWUROOHGE\ * ( && IRUEDQNUHJ XODWRU\ SXUSRVHV UHJ XODWLRQDQG VXSHUYLVLRQRI * ( && FRXOGDGYHUVHO\ DIIHFWXV·
&DSLWDO
$ VDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ 6\ QFKURQ\ KLVWRULFDOO\ KDVQRWEHHQUHTXLUHGWR P DLQWDLQDQ\ VSHFLILF DP RXQWRI P LQLP XP FDSLWDO%HJ LQQLQJ DVHDUO\ DV KRZ HYHU Z HH[ SHFWWKDW6\ QFKURQ\ Z LOOEHVXEMHFWWR FDSLWDOUHTXLUHP HQWVVLP LODUWR WKRVHDSSOLFDEOHWR WKH%DQN , QDGGLWLRQ XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HZ LOOEH FRQWUROOHGE\ * ( && Z KLFKLWVHOI LVH[ SHFWHGWR EHVXEMHFWWR FDSLWDOUHTXLUHP HQWVVLP LODUWR WKRVHZ KLFKDSSO\ WR WKH%DQN 7 KHVHFDSLWDOUHTXLUHP HQWVKDYHUHFHQWO\ EHHQ VXEVWDQWLDOO\ UHYLVHG LQFOXGLQJ DVDUHVXOWRI %DVHO, , , DQGWKHUHTXLUHP HQWVRI WKH’ RGG ) UDQN$ FW$ OWKRXJ KZ HFDQQRWSUHGLFWWKHHIIHFWVRI WKHQHZ O\ DGRSWHGUXOHV
LP SOHP HQWLQJ %DVHO, , , DQGWKH’ RGG ) UDQN$ FW6\ QFKURQ\ DQG* ( && H[ SHFWWR EHVXEMHFWWR LQFUHDVLQJ O\ VWULQJ HQWFDSLWDODGHTXDF\ VWDQGDUGVLQWKHIXWXUH 6HH‡, WHP $
5 LVN) DFWRUV† 5 LVNV5 HODWLQJ WR 5 HJ XODWLRQ† $ VORQJ DVZ HDUHFRQWUROOHGE\ * ( && IRUEDQNUHJ XODWRU\ SXUSRVHV UHJ XODWLRQDQGVXSHUYLVLRQRI * ( && FRXOGDGYHUVHO\ DIIHF
XV·
7 KHIROORZ LQJ DUHWKHP LQLP XP FDSLWDOUDWLRVWR Z KLFKZ HDQG* ( && H[ SHFWWR EHVXEMHFWVWDUWLQJ DVHDUO\ DV
XQGHUWKH%DVHO, , , VWDQGDUGL] HGDSSURDFK D7 LHU FRP P RQHTXLW\ WR ULVN Z HLJ KWHGDVVHWVUDWLR RI WKHP LQLP XP RI SOXVDIXOO\ SKDVHG LQP DQGDWRU\ FRQVHUYDWLRQEXIIHURI D7 LHU FDSLWDOWR ULVN Z HLJ KWHGDVVHWVUDWLR RI WKHP LQLP XP RI SOXVDIXOO\ SKDVHG LQP DQGDWRU\ FRQVHUYDWLRQEXIIHURI
DQGDWRWDOFDSLWDOWR ULVN Z HLJ KWHGDVVHWVUDWLR RI DP LQLP XP RI SOXVDIXOO\ SKDVHG LQP DQGDWRU\ FRQVHUYDWLRQEXIIHURI
VWUHVVWHVWHGP LQLP XP FDSLWDOUDWLRVGHVFULEHGDERYHRI 7 LHU FRP P RQFDSLWDOWR ULVN Z HLJ KWHGDVVHWV 7 LHU FDSLWDOWR ULVN Z HLJ KWHGDVVHWVDQG WRWD FDSLWDOWR ULVN Z HLJ KWHGDVVHWV
DOHYHUDJ HUDWLR RI 7 LHU FDSLWDOWR WRWDOH[ SRVXUHVRI DQG
LQWKHFDVHRI * ( && ▇▇▇▇▇▇▇▇▇▇▇▇▇▇ LQLP XP VXSSOHP HQWDOOHYHUDJ HUDWLR RI
) RUDGLVFXVVLRQRI RXUFDSLWDOUDWLRV VHH‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV† &DSLWDO·
: KHQZ HDQG* ( && EHFRP HVXEMHFWWR FDSLWDOUHTXLUHP HQWV Z HDQG* ( && Z LOODOVR EHUHTXLUHGWR FRQGXFWVWUHVVWHVWVRQDQDQQXDOEDVLV 8 QGHUWKH) HGHUDO5 HVHUYH
%RDUG¶VVWUHVVWHVWUHJ XODWLRQV Z HDQG* ( && Z LOOHDFKEHUHTXLUHGWR XWLOL] HVWUHVVWHVWLQJ P HWKRGRORJ LHVSURYLGLQJ IRUUHVXOWVXQGHUDWOHDVWWKUHHGLIIHUHQWVHWVRI FRQGLWLRQV LQFOXGLQJ EDVHOLQH DGYHUVHDQGVHYHUHO\ DGYHUVHFRQGLWLRQV , QDGGLWLRQ DVSDUWRI P HHWLQJ RXUP LQLP XP FDSLWDOUHTXLUHP HQWV Z HDQG* ( && P D\ EHUHTXLUHGWR FRP SO\ Z LWK WKH) HGHUDO5 HVHUYH%RDUG¶V&RP SUHKHQVLYH&DSLWDO$ QDO\ VLVDQG5 HYLHZ ‡&&$ 5 · SURFHVV RUVRP HP RGLILHGYHUVLRQRI WKH&&$ 5 SURFHVV Z KLFKZ RXOGP HDVXUHRXU
P LQLP XP FDSLWDOUHTXLUHP HQWOHYHOVXQGHUYDULRXVVWUHVVVFHQDULRV , QFRQQHFWLRQZ LWKVXFKDSURFHVV Z HDQG* ( && P D\ EHUHTXLUHGWR GHYHORS IRUWKH) HGHUDO5 HVHUYH
%RDUG¶VUHYLHZ DQGDSSURYDODFDSLWDOSODQWKDWZ LOOLQFOXGHKRZ Z HDQG* ( && Z LOOP HHWRXUP LQLP XP FDSLWDOUHTXLUHP HQWVXQGHUVSHFLILHGVWUHVVVFHQDULRV
’ LYLGHQGVDQG6WRFN5 HSXUFKDVHV
: HDUHOLP LWHGLQRXUDELOLW\ WR SD\ GLYLGHQGVRUUHSXUFKDVHRXUVWRFNE\ WKH) HGHUDO5 HVHUYH%RDUG LQFOXGLQJ RQWKHEDVLVWKDWGRLQJ VR Z RXOGEHDQXQVDIHRUXQVRXQG EDQNLQJ SUDFWLFH , I Z HLQWHQGWR GHFODUHRUSD\ DGLYLGHQG Z HJ HQHUDOO\ Z LOOEHUHTXLUHGWR LQIRUP DQGFRQVXOWZ LWKWKH) HGHUDO5 HVHUYH%RDUGLQDGYDQFHWR HQVXUHWKDWVXFK GLYLGHQGGRHVQRWUDLVHVXSHUYLVRU\ FRQFHUQV , WLVWKHSROLF\ RI WKH) HGHUDO5 HVHUYH%RDUGWKDWDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ OLNHXVVKRXOGJ HQHUDOO\ SD\ GLYLGHQGVRQ FRP P RQVWRFNRQO\ RXWRI HDUQLQJ V DQGRQO\ LI SURVSHFWLYHHDUQLQJ VUHWHQWLRQLVFRQVLVWHQWZ LWKWKHFRP SDQ\ ¶VFDSLWDOQHHGVDQGRYHUDOOFXUUHQWDQGSURVSHFWLYHILQDQFLDO FRQGLWLRQ
$ FFRUGLQJ WR J XLGDQFHIURP WKH) HGHUDO5 HVHUYH%RDUG RXUGLYLGHQGSROLFLHVZ LOOEHDVVHVVHGDJ DLQVWDP RQJ RWKHUWKLQJ V RXUDELOLW\ WR DFKLHYHDSSOLFDEOH%DVHO, , , FDSLWDOUDWLR UHTXLUHP HQWV , I Z HGR QRWDFKLHYHDSSOLFDEOH%DVHO, , , FDSLWDOUDWLR UHTXLUHP HQWVZ KHQWKH\ DUHIXOO\ SKDVHG LQ Z HP D\ QRWEHDEOHWR SD\ GLYLGHQGV $ OWKRXJ KZ FXUUHQWO\ H[ SHFWWR P HHWWKHDSSOLFDEOHILQDO%DVHO, , , FDSLWDOUDWLR UHTXLUHP HQWV LQFOXVLYHRI DQ\ DSSOLFDEOHFDSLWDOFRQVHUYDWLRQEXIIHU Z KHQWKH\ DUHIXOO\ SKDVHGLQE\ WKH
) HGHUDO5 HVHUYH%RDUG Z HFDQQRWEHVXUHWKDWZ HZ LOOP HHWWKRVHUHTXLUHP HQWVRUHYHQLI Z HGR LI Z HZ LOOEHDEOHWR SD\ GLYLGHQGV
: HDOVR Z LOOEHUHTXLUHGWR LQIRUP DQGFRQVXOWZ LWKWKH) HGHUDO5 HVHUYH%RDUGLQDGYDQFHRI UHGHHP LQJ RUUHSXUFKDVLQJ RXUVWRFNLI WKHUHVXOWZ LOOEHDQHWUHGXFWLRQLQ RXUHTXLW\ FRP SDUHGWR RXUHTXLW\ DVRI WKHEHJ LQQLQJ RI WKHTXDUWHULQZ KLFKWKHUHGHP SWLRQRUUHSXUFKDVHRFFXUV , QHYDOXDWLQJ WKHDSSURSULDWHQHVVRI DSURSRVHGUHGHP SWLRQ RUUHSXUFKDVHRI VWRFN WKH) HGHUDO5 HVHUYH%RDUGZ LOOFRQVLGHU DP RQJ RWKHUWKLQJ V WKHSRWHQWLDOORVVWKDWZ HP D\ VXIIHUIURP WKHSURVSHFWLYHQHHGWR LQFUHDVHUHVHUYHVDQG
Z ULWHGRZ QDVVHWVDVDUHVXOWRI FRQWLQXHGDVVHWGHWHULRUDWLRQ DQGRXUDELOLW\ WR UDLVHDGGLWLRQDOFRP P RQHTXLW\ DQGRWKHUFDSLWDOWR UHSODFHWKHVWRFNWKDWZ LOOEHUHGHHP HGRU UHSXUFKDVHG 7 KH) HGHUDO5 HVHUYH%RDUGDOVR Z LOOFRQVLGHUWKHSRWHQWLDOQHJ DWLYHHIIHFWVRQRXUFDSLWDOVWUXFWXUHRI UHSODFLQJ FRP P RQVWRFNZ LWKDQ\ ORZ HUWLHUIRUP RI
UHJ XODWRU\ FDSLWDOLVVXHG 0 RUHRYHU WKHDSSURYDOSURFHVVIRUDQ\ FDSLWDOSODQZ HDUHUHTXLUHGWR VXEP LWFRXOGUHVXOWLQUHVWULFWLRQVRQRXUDELOLW\ WR SD\ GLYLGHQGVRUP DNHRWKH FDSLWDOGLVWULEXWLRQV
8 QWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HZ LOOEHFRQWUROOHGE\ * ( && Z KLFKDVDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ LVVXEMHFWWR DOORI WKHVDP HUHJ XODWRU\ UHTXLUHP HQWV UHJ DUGLQJ GLYLGHQGVDQGVWRFNUHSXUFKDVHVDQGUHGHP SWLRQVWR Z KLFKZ HDUHVXEMHFW$ FFRUGLQJ O\ XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ RXUDELOLW\ WR SD\ GLYLGHQGVDQG UHSXUFKDVHRXUVKDUHVP D\ EHDIIHFWHGE\ * ( &&¶VDELOLW\ WR P HHWWKHVDP HUHTXLUHP HQWVWR Z KLFKZ HDUHVXEMHFW, QDGGLWLRQ WKH) LQDQFLDO6WDELOLW\ 2 YHUVLJ KW&RXQFLOKDV GHVLJ QDWHG* ( && DVDQRQEDQNV\ VWHP LFDOO\ LP SRUWDQWILQDQFLDOLQVWLWXWLRQ D‡QRQEDQN6, ) , · XQGHUWKH’ RGG ) UDQN$ FW$ VDQRQEDQN6, ) , * ( && P D\ EHUHTXLUHGWR SURYLGHDFDSLWDOSODQIRU) HGHUDO5 HVHUYH%RDUGDSSURYDOWKDWLQFOXGHVSURSRVHGFDSLWDOGLVWULEXWLRQV LQFOXGLQJ GLYLGHQGVDQGVWRFNUHGHP SWLRQVRUUHSXUFKDVHV QRWRQO\ E\
* ( && ▇▇▇▇▇▇▇ E\ HQWLWLHVFRQWUROOHGE\ * ( && VXFKDVXV $ VORQJ DVZ HDUHFRQWUROOHGE\ * ( && IRUEDQNUHJ XODWRU\ SXUSRVHV DQ\ VXFKFDSLWDOSODQUHTXLUHP HQWLP SRVHGRQ
* ( && E\ WKH) HGHUDO5 HVHUYH%RDUGFRXOGDIIHFWRXUDELOLW\ WR SD\ GLYLGHQGVDQGUHSXUFKDVHRXUVKDUHVRUUHGHHP WKHQRWHVSULRUWR P DWXULW\
$ FWLYLWLHV
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¶J UDQGIDWKHUHGVWDWXVXSRQ
EHFRP LQJ DVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ RQ$ SULO
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’ HUHJ LVWUDWLRQ QR VWRFNKROGHURU
J URXS RWKHUWKDQ* ( RULWVDIILOLDWHVDQGFHUWDLQRWKHUH[ HP SWSHUVRQV VKDOOKDYHWKHULJ KWWR YRWHP RUHWKDQ RI RXUFDSLWDOVWRFNHQWLWOHGWR YRWHJ HQHUDOO\ LQWKHHOHFWLR RI GLUHFWRUV
: HDUHQRWDZ DUHRI DQ\ VWRFNKROGHURUJ URXS RWKHUWKDQ* ( RULWVDIILOLDWHV WKDWKDVDFTXLUHG RURWKHUZ LVHRZ QVRUFRQWUROVP RUHWKDQ RI RXUFDSLWDOVWRFN LQFOXGLQJ WKURXJ KWKH, 32 $ VVXP LQJ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQRFFXUV DQGSRVVLEO\ DWWKH6HSDUDWLRQLI LWRFFXUVSULRUWR WKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HH[ SHFWZ HZ LOOWKHQQR ORQJ HUTXDOLI\ WR EHDJ UDQGIDWKHUHGXQLWDU\ VDYLQJ VDQGORDQKROGLQJ FRP SDQ\ 6HH‡, WHP $ 5 LVN) DFWRUV† 5 LVNV5 HODWLQJ WR 2 XU6HSDUDWLRQIURP * ( † : HQHHG) HGHUDO
5 HVHUYH%RDUGDSSURYDOWR FRQWLQXHWR EHDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ IROORZ LQJ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQ : HP D\ QRWUHFHLYHWKLVDSSURYDOLQDWLP HO\ P DQQHUR DWDOODQGDGGLWLRQDODSSURYDOFRQGLWLRQVEH\ RQGZ KDWZ HDUHDQWLFLSDWLQJ P D\ EHLP SRVHGWKDWSUHYHQWRUGHOD\ WKH6HSDUDWLRQRUWKH* ( 6/ + & ’ HUHJ LVWUDWLRQRUUHTXLUHXVWR LQFXUVLJ QLILFDQWDGGLWLRQDOH[ SHQVH·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
( YHQDVDJ UDQGIDWKHUHGXQLWDU\ VDYLQJ VDQGORDQKROGLQJ FRP SDQ\ DQG XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ DVDVXEVLGLDU\ RI * ( && Z KLFKLVDOVR DVDYLQJ VDQGORDQ KROGLQJ FRP SDQ\ Z HDQGWKH%DQNDUHVXEMHFWWR EDQNLQJ ODZ VDQGUHJ XODWLRQVWKDWOLP LWLQFHUWDLQUHVSHFWVWKHW\ SHVRI DFTXLVLWLRQVDQGLQYHVWP HQWVWKDWZ HFDQP DNH ) RU H[ ▇▇ ▇▇▇ FHUWDLQDFTXLVLWLRQVRI DQGLQYHVWP HQWVLQGHSRVLWRU\ LQVWLWXWLRQVRUWKHLUKROGLQJ FRP SDQLHVWKDWZ HXQGHUWDNHDUHVXEMHFWWR WKHSULRUUHYLHZ DQGDSSURYDORI RXU EDQNLQJ UHJ XODWRUV LQFOXGLQJ WKH) HGHUDO5 HVHUYH%RDUG WKH2 && DQGWKH) ’ ,& 2 XUEDQNLQJ UHJ XODWRUVKDYHEURDGGLVFUHWLRQRQZ KHWKHUWR DSSURYHVXFKDFTXLVLWLRQVDQG LQYHVWP HQWV , QGHFLGLQJ Z KHWKHUWR DSSURYHDSURSRVHGDFTXLVLWLRQRULQYHVWP HQWIHGHUDOEDQNUHJ XODWRUVP D\ FRQVLGHU DP RQJ RWKHUIDFWRUV L WKHHIIHFWRI WKHDFTXLVLWLRQR LQYHVWP HQWRQFRP SHWLWLRQ LL RXU DQG XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ * ( &&¶V ILQDQFLDOFRQGLWLRQDQGIXWXUHSURVSHFWV LQFOXGLQJ FXUUHQWDQGSURMHFWHGFDSLWDOUDWLRVDQ OHYHOV LLL WKHFRP SHWHQFH H[ SHULHQFHDQGLQWHJ ULW\ RI RXU DQG XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ * ( &&¶V P DQDJ HP HQWDQGLWV DQGWKHLU UHFRUGRI FRP SOLDQFHZ LWKODZ V DQGUHJ XODWLRQV LY WKHFRQYHQLHQFHDQGQHHGVRI WKHFRP P XQLWLHVWR EHVHUYHG LQFOXGLQJ RXU DQG XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ * ( &&¶V UHFRUGRI FRP SOLDQFHXQGHU WKH&RP P XQLW\ 5 HLQYHVWP HQW$ FWWKH‡&5 $ · Y RXU DQG XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ * ( &&¶V HIIHFWLYHQHVVLQFRP EDWLQJ P RQH\ ODXQGHULQJ DQG YL DQ\ ULVNVWKD WKHSURSRVHGDFTXLVLWLRQSRVHVWR WKH8 6 EDQNLQJ RUILQDQFLDOV\ VWHP , QDGGLWLRQ DVORQJ DVZ HDUHDVXEVLGLDU\ RI * ( && Z KLFKLVDQRQEDQN6, ) , DVZ HOODVDVDYLQJ VDQG ORDQKROGLQJ FRP SDQ\ Z HRU* ( && P D\ EHUHTXLUHGWR SURYLGHQRWLFHWR WKH) HGHUDO5 HVHUYH%RDUGLQDGYDQFHRI RXUDFTXLULQJ YRWLQJ VKDUHVRI DFRP SDQ\ RWKHUWKDQDQ
) ’ ,& LQVXUHGGHSRVLWRU\ LQVWLWXWLRQ WKDWLVHQJ DJ HGLQDFWLYLWLHVWKDWDUHILQDQFLDOLQQDWXUHDQGWKDWKDVWRWDOFRQVROLGDWHGDVVHWVRI ELOOLRQRUP RUH
&HUWDLQDFTXLVLWLRQVRI RXUYRWLQJ VWRFNP D\ EHVXEMHFWWR UHJ XODWRU\ DSSURYDORUQRWLFHXQGHUIHGHUDOODZ , QYHVWRUVDUHUHVSRQVLEOHIRUHQVXULQJ WKDWWKH\ GR QRWGLUHFW RULQGLUHFWO\ DFTXLUHVKDUHVRI RXUVWRFNLQH[ FHVVRI WKHDP RXQWWKDWFDQEHDFTXLUHGZ LWKRXWUHJ XODWRU\ DSSURYDOXQGHUWKH&KDQJ HLQ%DQN&RQWURO$ FWDQGWKH6DYLQJ VDQG
/ RDQ+ ROGLQJ &RP SDQ\ $ FWZ KLFKSURKLELWDQ\ SHUVRQRUFRP SDQ\ IURP DFTXLULQJ FRQWURORI XVZ LWKRXWLQP RVWFDVHV WKHSULRUZ ULWWHQDSSURYDORI WKH) HGHUDO5 HVHUYH
%RDUG
6DYLQJ V$ VVRFLDWLRQ 5 HJ XODWLRQ
2 YHUYLHZ
7 KH%DQNLVUHTXLUHGWR ILOHSHULRGLF UHSRUWVZ LWKWKH2 && DQGLVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH2 && DQGWKH) ’ ,& 7 KH2 && KDV DGRSWHGJ XLGHOLQHVHVWDEOLVKLQJ VDIHW\ DQGVRXQGQHVVVWDQGDUGVRQVXFKP DWWHUVDVORDQXQGHUZ ULWLQJ DQGGRFXP HQWDWLRQ DVVHWTXDOLW\ HDUQLQJ V LQWHUQDOFRQWUROVDQGDXGLW
V\ VWHP V LQWHUHVWUDWHULVNH[ SRVXUHDQGFRP SHQVDWLRQDQGRWKHUHP SOR\ HHEHQHILWV 7 KH%DQNLVSHULRGLFDOO\ UHYLHZ HGDQGH[ DP LQHGE\ WKH2 && DQGWKH) ’ ,& Z KLFKUHVXOWV LQVXSHUYLVRU\ FRP P HQWVDQGGLUHFWLRQVUHODWLQJ WR P DQ\ DVSHFWVRI WKH%DQN¶VEXVLQHVVWKDWUHTXLUHWKH%DQN¶VUHVSRQVHDQGDWWHQWLRQ , QDGGLWLRQ WKH2 && DQGWKH) ’ ,& KDY EURDGHQIRUFHP HQWDXWKRULW\ RYHUWKH%DQN
&DSLWDO
7 KH%DQNLVUHTXLUHGE\ 2 && UHJ XODWLRQVWR P DLQWDLQVSHFLILHGOHYHOVRI UHJ XODWRU\ FDSLWDO7 KH2 && P D\ LP SRVHFDSLWDOUHTXLUHP HQWVRQLQGLYLGXDOLQVWLWXWLRQVLQ H[ FHVVRI WKHVHUHTXLUHP HQWVRQDFDVHE\ FDVHEDVLV
, QVWLWXWLRQVWKDWDUHQRWZ HOOFDSLWDOL] HGDUHVXEMHFWWR FHUWDLQUHVWULFWLRQVRQEURNHUHGGHSRVLWVDQGLQWHUHVWUDWHVRQGHSRVLWV 7 KH2 && LVDXWKRUL] HGDQG XQGHUFHUWDLQ
FLUFXP VWDQFHV UHTXLUHGWR WDNHFHUWDLQDFWLRQVDJ DLQVWDQLQVWLWXWLRQWKDWIDLOVWR P HHWWKHP LQLP XP UDWLRVIRUDQDGHTXDWHO\ FDSLWDOL] HGLQVWLWXWLRQ $ W6HSWHP EHU WKH
%DQNP HWRUH[ FHHGHGDOODSSOLFDEOHUHTXLUHP HQWVWR EHGHHP HGZ HOOFDSLWDOL] HGXQGHU2 && UHJ XODWLRQV
7 KHFDSLWDOUHTXLUHP HQWVWR Z KLFKWKH%DQNLVVXEMHFWKDYHUHFHQWO\ EHHQVXEVWDQWLDOO\ UHYLVHG LQFOXGLQJ DVDUHVXOWRI %DVHO, , , DQGWKHUHTXLUHP HQWVRI WKH’ RGG ) UDQN
$ FW7 KHIROORZ LQJ DUHWKHP LQLP XP FDSLWDOUDWLRVWR Z KLFKWKH%DQNH[ SHFWVWR EHVXEMHFWVWDUWLQJ DVHDUO\ DV
XQGHUWKH%DVHO, , , VWDQGDUGL] HGDSSURDFK D7 LHU FRP P RQHTXLW\ WR ULVN Z HLJ KWHGDVVHWVUDWLR RI WKHP LQLP XP RI SOXVDIXOO\ SKDVHG LQP DQGDWRU\ FRQVHUYDWLRQEXIIHURI D7 LHU FDSLWDOWR ULVN Z HLJ KWHGDVVHWVUDWLR RI WKHP LQLP XP RI SOXVDIXOO\ SKDVHG LQP DQGDWRU\ FRQVHUYDWLRQEXIIHURI
DQGDWRWDOFDSLWDOWR ULVN Z HLJ KWHGDVVHWVUDWLR RI DP LQLP XP RI SOXVDIXOO\ SKDVHG LQP DQGDWRU\ FRQVHUYDWLRQEXIIHURI DQG DOHYHUDJ HUDWLR RI 7 LHU FDSLWDOWR WRWDOH[ SRVXUHVRI
) RUDGLVFXVVLRQRI WKH%DQN¶VFDSLWDOUDWLRV VHH‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV† &DSLWDO·
7 KH%DQNLVDOVR UHTXLUHGWR FRQGXFWVWUHVVWHVWVRQDQDQQXDOEDVLV 8 QGHUWKH2 &&¶VVWUHVVWHVWUHJ XODWLRQV WKH%DQNLVUHTXLUHGWR XWLOL] HVWUHVVWHVWLQJ P HWKRGRORJ LHV SURYLGLQJ IRUUHVXOWVXQGHUDWOHDVWWKUHHGLIIHUHQWVHWVRI FRQGLWLRQV LQFOXGLQJ EDVHOLQH DGYHUVHDQGVHYHUHO\ DGYHUVHFRQGLWLRQV
$ VDQLQVXUHGGHSRVLWRU\ LQVWLWXWLRQ WKH%DQNLVDOVR VXEMHFWWR WKH) HGHUDO’ HSRVLW, QVXUDQFH$ FWWKH‡) ’ , $ · Z KLFKUHTXLUHV DP RQJ RWKHUWKLQJ V WKHIHGHUDOEDQNLQJ DJ HQFLHVWR WDNH‡SURP SWFRUUHFWLYHDFWLRQ· LQUHVSHFWRI GHSRVLWRU\ LQVWLWXWLRQVWKDWGR QRWP HHWP LQLP XP FDSLWDOUHTXLUHP HQWV 7 KH) ’ , $ VHWVIRUWKWKHIROORZ LQJ ILYHFDSLWDO WLHUV ‡Z HOOFDSLWDOL] HG· ‡DGHTXDWHO\ FDSLWDOL] HG· ‡XQGHUFDSLWDOL] HG· ‡VLJ QLILFDQWO\ XQGHUFDSLWDOL] HG· DQG‡FULWLFDOO\ XQGHUFDSLWDOL] HG· $ GHSRVLWRU\ LQVWLWXWLRQ¶VFDSLWDOWLHU Z LOOGHSHQGXSRQKRZ LWVFDSLWDOOHYHOVFRP SDUHZ LWKYDULRXVUHOHYDQWFDSLWDOP HDVXUHVDQGFHUWDLQRWKHUIDFWRUVWKDWDUHHVWDEOLVKHGE\ UHJ XODWLRQ $ W6HSWHP EHU WKH
%DQNP HWRUH[ FHHGHGDOODSSOLFDEOHUHTXLUHP HQWVWR EHGHHP HGZ HOOFDSLWDOL] HGIRUSXUSRVHVRI WKH) ’ , $ $ VGHVFULEHGDERYH UHFHQWO\ LVVXHGUXOHVRI WKHIHGHUDOEDQNLQJ DJ HQFLHVUHJ DUGLQJ WKHLP SOHP HQWDWLRQRI %DVHO, , , DQGWKH’ RGG ) UDQN$ FWZ LOODOWHUWKHFDSLWDODGHTXDF\ IUDP HZ RUNDSSOLFDEOHWR WKH%DQNZ KHQWKH\ DUHIXOO\ SKDVHGLQ EHJ LQQLQJ LQ , QDGGLWLRQ WKH%DQNLVVXEMHFWWR HQKDQFHGFDSLWDODQGOLTXLGLW\ UHTXLUHP HQWVXQGHUWKHRSHUDWLQJ DJ UHHP HQWZ LWKWKH2 && GHVFULEHGEHORZ XQGHU‡†
$ FWLYLWLHV·
’ LYLGHQGVDQG6WRFN5 HSXUFKDVHV
2 && UHJ XODWLRQVOLP LWWKHDELOLW\ RI VDYLQJ VDVVRFLDWLRQVWR P DNHGLVWULEXWLRQVRI FDSLWDOLQFOXGLQJ SD\ P HQWRI GLYLGHQGV VWRFNUHGHP SWLRQVDQGUHSXUFKDVHV FDVK RXW P HUJ HUVDQGRWKHUWUDQVDFWLRQVFKDUJ HGWR WKHFDSLWDODFFRXQW7 KH%DQNP XVWREWDLQWKH2 &&¶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▇ ▇ WKH%DQNLV RUDVDUHVXOWRI VXFK GLVWULEXWLRQZ RXOGEH XQGHUFDSLWDOL] HG VLJ QLILFDQWO\ XQGHUFDSLWDOL] HGRUFULWLFDOO\ XQGHUFDSLWDOL] HG LL WKHUHJ XODWRUVKDYHVDIHW\ DQGVRXQGQHVVFRQFHUQVRU LLL WKH GLVWULEXWLRQYLRODWHVDSURKLELWLRQLQDVWDWXWH UHJ XODWLRQ DJ UHHP HQWEHWZ HHQXVDQGWKH2 && RUDFRQGLWLRQLP SRVHGRQXVLQDQDSSOLFDWLRQRUQRWLFHDSSURYHGE\ WKH2 &&
$ GGLWLRQDOUHVWULFWLRQVRQGLYLGHQGVDSSO\ LI WKH%DQNIDLOVWKH4 7 / WHVWGHVFULEHGEHORZ XQGHU‡† $ FWLYLWLHV·
7 KH) ’ , $ DOVR SURKLELWVDQ\ GHSRVLWRU\ LQVWLWXWLRQIURP P DNLQJ DQ\ FDSLWDOGLVWULEXWLRQV LQFOXGLQJ SD\ P HQWRI DGLYLGHQG RUSD\ LQJ DQ\ P DQDJ HP HQWIHHWR LWVSDUHQW KROGLQJ FRP SDQ\ LI WKHGHSRVLWRU\ LQVWLWXWLRQZ RXOGWKHUHDIWHUEH‡XQGHUFDSLWDOL] HG· , I DGHSRVLWRU\ LQVWLWXWLRQLVOHVVWKDQDGHTXDWHO\ FDSLWDOL] HG LWP XVWSUHSDUHDQGVXEP LWD FDSLWDOUHVWRUDWLRQSODQWR LWVSULP DU\ IHGHUDOUHJ XODWRUIRUDSSURYDO) RUDFDSLWDOUHVWRUDWLRQSODQWR EHDFFHSWDEOH DP RQJ RWKHUWKLQJ V WKHGHSRVLWRU\ LQVWLWXWLRQ¶VSDUHQW KROGLQJ FRP SDQ\ P XVWJ XDUDQWHHWKDWWKHLQVWLWXWLRQZ LOOFRP SO\ Z LWKWKHFDSLWDOUHVWRUDWLRQSODQ , I DGHSRVLWRU\ LQVWLWXWLRQIDLOVWR VXEP LWDQDFFHSWDEOHFDSLWDOUHVWRUDWLRQ SODQ LWLVWUHDWHGDVLI LWLV‡VLJ QLILFDQWO\ XQGHUFDSLWDOL] HG· $ ‡VLJ QLILFDQWO\ XQGHUFDSLWDOL] HG· GHSRVLWRU\ LQVWLWXWLRQP D\ EHVXEMHFWWR DQXP EHURI UHTXLUHP HQWVDQG UHVWULFWLRQV LQFOXGLQJ RUGHUVWR VHOOVXIILFLHQWYRWLQJ VWRFNWR EHFRP H‡DGHTXDWHO\ FDSLWDOL] HG· HOHFWDQHZ ERDUGRI GLUHFWRUV UHGXFHWRWDODVVHWVRUFHDVHWDNLQJ GHSRVLWVIURP FRUUHVSRQGHQWEDQNV $ ‡FULWLFDOO\ XQGHUFDSLWDOL] HG· LQVWLWXWLRQP D\ EHVXEMHFWWR WKHDSSRLQWP HQWRI DFRQVHUYDWRURUUHFHLYHUZ KLFKFRXOGVHOORUOLTXLGDWHWKHLQVWLWXWLRQ
$ FWLYLWLHV
8 QGHUWKH+ RP H2 Z QHUV¶/ RDQ$ FW‡+ 2 / $ · WKH2 && UHTXLUHVWKH%DQNWR FRP SO\ Z LWKWKHTXDOLILHGWKULIWOHQGHU RU‡4 7 / · WHVW8 QGHUWKH4 7 / WHVWWKH%DQNLV UHTXLUHGWR P DLQWDLQDWOHDVW RI LWV‡SRUWIROLR DVVHWV· WRWDODVVHWVOHVV L VSHFLILHGOLTXLGDVVHWVXS WR RI WRWDODVVHWV LL LQWDQJ LEOHV LQFOXGLQJ J RRGZ LOODQG LLL WKHYDOXHRI SURSHUW\ XVHGWR FRQGXFWEXVLQHVV LQFHUWDLQ‡TXDOLILHGWKULIWLQYHVWP HQWV· SULP DULO\ UHVLGHQWLDOP RUWJ DJ HVDQGUHODWHGLQYHVWP HQWV LQFOXGLQJ FHUWDLQ
P RUWJ DJ HEDFNHGVHFXULWLHV FUHGLWFDUGORDQV VWXGHQWORDQVDQGVP DOOEXVLQHVVORDQV LQDWOHDVWQLQHP RQWKVRI WKHP RVWUHFHQW P RQWKSHULRG 7 KH%DQNFXUUHQWO\ P HHWVWKD WHVW$ VDYLQJ VDVVRFLDWLRQWKDWIDLOVWR P HHWWKH4 7 / WHVWLVVXEMHFWWR FHUWDLQRSHUDWLQJ UHVWULFWLRQVDQGP D\ EHUHTXLUHGWR FRQYHUWWR DQDWLRQDOEDQNFKDUWHU$ OVR LI WKH%DQN IDLOVWR P HHWWKH4 7 / WHVW6\ QFKURQ\ DVZ HOODV* ( * ( && DQG* ( &) , Z RXOGQR ORQJ HUTXDOLI\ WR EHJ UDQGIDWKHUHGXQLWDU\ VDYLQJ VDQGORDQKROGLQJ FRP SDQLHV
6DYLQJ VDVVRFLDWLRQV LQFOXGLQJ WKH%DQN DUHVXEMHFWDVZ HOOWR OLP LWDWLRQVRQWKHLUOHQGLQJ DQGLQYHVWP HQWV 7 KHVHOLP LWDWLRQVLQFOXGHSHUFHQWDJ HRI DVVHWOLP LWDWLRQVRQ YDULRXVW\ SHVRI ORDQVWKH%DQNP D\ P DNH , QDGGLWLRQ WKHUHDUHVLP LODUOLP LWDWLRQVRQWKHW\ SHVDQGDP RXQWVRI LQYHVWP HQWVWKH%DQNP D\ P DNH
, QVXUHGGHSRVLWRU\ LQVWLWXWLRQV LQFOXGLQJ WKH%DQN DUHVXEMHFWWR UHVWULFWLRQVXQGHU6HFWLRQV $ DQG % RI WKH) HGHUDO5 HVHUYH$ FWDVLP SOHP HQWHGE\ ) HGHUDO
5 HVHUYH%RDUG5 HJ XODWLRQ: Z KLFKJ RYHUQWUDQVDFWLRQVEHWZ HHQDQLQVXUHGGHSRVLWRU\ LQVWLWXWLRQDQGDQ\ DIILOLDWH LQFOXGLQJ DQHQWLW\ WKDWLVWKHLQVWLWXWLRQ¶VGLUHFWRULQGLUHF KROGLQJ FRP SDQ\ DQGDQRQEDQNVXEVLGLDU\ RI VXFKDKROGLQJ FRP SDQ\ 5 HVWULFWLRQVLQ6HFWLRQV $ DQG % RI WKH) HGHUDO5 HVHUYH$ FWDSSO\ WR ‡FRYHUHGWUDQVDFWLRQV· VXFK DVH[ WHQVLRQVRI FUHGLWLVVXDQFHVRI J XDUDQWHHVRUDVVHWSXUFKDVHV , QJ HQHUDOWKHVHUHVWULFWLRQVUHTXLUHWKDWDQ\ H[ WHQVLRQVRI FUHGLWP DGHE\ WKHLQVXUHGGHSRVLWRU\ LQVWLWXWLRQ WR DQDIILOLDWHP XVWEHIXOO\ VHFXUHGZ LWKTXDOLI\ LQJ FROODWHUDODQGWKDWWKHDJ J UHJ DWHDP RXQWRI FRYHUHGWUDQVDFWLRQVLVOLP LWHG DVWR DQ\ RQHDIILOLDWHRI WKH%DQN WR RI WK
%DQN¶VFDSLWDOVWRFNDQGVXUSOXV DQG DVWR DOORI WKH%DQN¶VDIILOLDWHVLQWKHDJ J UHJ DWH WR RI WKH%DQN¶VFDSLWDOVWRFNDQGVXUSOXV , QDGGLWLRQ WUDQVDFWLRQVEHWZ HHQWKH
%DQNDQGLWVDIILOLDWHVP XVWEHRQWHUP VDQGFRQGLWLRQVWKDWDUH RULQJ RRGIDLWKZ RXOGEH RIIHUHGE\ WKH%DQNWR QRQ DIILOLDWHGFRP SDQLHV LH DWDUP ¶VOHQJ WK
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¶VFRP SOLDQFHZ LWK&5 $ DV‡2 XWVWDQGLQJ · ‡6DWLVIDFWRU\ · ‡1 HHGVWR , P SURYH· RU‡6XEVWDQWLDO
1 RQFRP SOLDQFH· 7 KH&5 $ UHTXLUHVWKHDJ HQF\ WR WDNHLQWR DFFRXQWWKHUHFRUGRI DQLQVWLWXWLRQLQP HHWLQJ WKHFUHGLWQHHGVRI WKHHQWLUHFRP P XQLWLHVVHUYHG LQFOXGLQJ ORZ DQ P RGHUDWH LQFRP HQHLJ KERUKRRGV LQGHWHUP LQLQJ VXFKUDWLQJ ) DLOXUHRI DQLQVWLWXWLRQWR UHFHLYHDWOHDVWD‡6DWLVIDFWRU\ · UDWLQJ FRXOGLQKLELWWKHLQVWLWXWLRQRULWVKROGLQJ
FRP SDQ\ IURP XQGHUWDNLQJ FHUWDLQDFWLYLWLHV LQFOXGLQJ DFTXLVLWLRQV 7 KH%DQNUHFHLYHGD&5 $ UDWLQJ RI ‡2 XWVWDQGLQJ · DVRI LWVP RVWUHFHQW&5 $ H[ DP LQDWLRQ
7 KH) ’ , $ SURKLELWVLQVXUHGEDQNVIURP DFFHSWLQJ EURNHUHGGHSRVLWVRURIIHULQJ LQWHUHVWUDWHVRQDQ\ GHSRVLWVVLJ QLILFDQWO\ KLJ KHUWKDQWKHSUHYDLOLQJ UDWHLQWKHEDQN¶V QRUP DOP DUNHWDUHDRUQDWLRQDOO\ GHSHQGLQJ XSRQZ KHUHWKHGHSRVLWVDUHVROLFLWHG XQOHVVLWLV‡Z HOOFDSLWDOL] HG· RULWLV‡DGHTXDWHO\ FDSLWDOL] HG· DQGUHFHLYHVDZ DLYHUIURP WKH) ’ ,& $ EDQNWKDWLV‡DGHTXDWHO\ FDSLWDOL] HG· DQGWKDWDFFHSWVEURNHUHGGHSRVLWVXQGHUDZ DLYHUIURP WKH) ’ ,& P D\ QRWSD\ DQLQWHUHVWUDWHRQDQ\ GHSRVLWLQH[ FHVVRI EDVLVSRLQWVRYHUFHUWDLQSUHYDLOLQJ P DUNHWUDWHV 7 KHUHDUHQR VXFKUHVWULFWLRQVXQGHUWKH) ’ , $ RQDEDQNWKDWLV‡Z HOOFDSLWDOL] HG· ) XUWKHU ‡XQGHUFDSLWDOL] HG· LQVWLWXWLRQVDUH VXEMHFWWR J URZ WKOLP LWDWLRQV $ W6HSWHP EHU WKH%DQNP HWRUH[ FHHGHGDOODSSOLFDEOHUHTXLUHP HQWVWR EHGHHP HGZ HOOFDSLWDOL] HGIRUSXUSRVHVRI WKH) ’ , $ $ Q LQDELOLW\ WR DFFHSWEURNHUHGGHSRVLWVLQWKHIXWXUHFRXOGP DWHULDOO\ DGYHUVHO\ LP SDFWRXUIXQGLQJ FRVWVDQGOLTXLGLW\
, QFRQQHFWLRQZ LWKWKH2 &&¶V’ HFHP EHU DSSURYDORI WKH%DQN¶VDVVXP SWLRQRI FHUWDLQGHSRVLWVDQGUHODWHGOLDELOLWLHVRI 0 HW/ LIHDQGDFTXLVLWLRQRI FHUWDLQ DVVHWVRI 0 HW/ LIH WKH%DQNHQWHUHGLQWR DQ2 SHUDWLQJ $ J UHHP HQWZ LWKWKH2 && WKH‡2 SHUDWLQJ $ J UHHP HQW· DQGDOVR LQWR D&DSLWDO$ VVXUDQFHDQG/ LTXLGLW\ 0 DLQWHQDQFH
$ J UHHP HQWZ LWK* ( && * ( &) , DQG6\ QFKURQ\ WKH‡&$ / 0 $ · RQ-DQXDU\ 7 KHP DWHULDOWHUP VRI WKH2 SHUDWLQJ $ J UHHP HQWDQGWKH&$ / 0 $ DUHVXP P DUL] HGEHORZ DQGWKH2 SHUDWLQJ $ J UHHP HQWDQGWKH&$ / 0 $ KDYHEHHQILOHGDVH[ KLELWVWR WKLVUHSRUW
7 KH2 SHUDWLQJ $ J UHHP HQWUHTXLUHV DP RQJ RWKHUWKLQJ V WKDWWKH%DQN L P DLQWDLQDWRWDOULVN EDVHGFDSLWDOUDWLR RI DWOHDVW D7 LHU ULVN EDVHGFDSLWDOUDWLR RI DW OHDVW DQGDOHYHUDJ HUDWLR RI DWOHDVW LL P DLQWDLQOLTXLGDVVHWVDWOHDVWHTXDOWR WKHJ UHDWHURI P LOOLRQRU GD\ V¶FRYHUDJ HRI WKH%DQN¶VRSHUDWLQJ H[ SHQVHV
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
7 KH2 SHUDWLQJ $ J UHHP HQWSURYLGHVWKDWLI WKH2 && GHWHUP LQHVWKHUHLVDQH[ LVWLQJ RULP P LQHQWP DWHULDOEUHDFKRI WKH%DQN¶VREOLJ DWLRQWR P DLQWDLQWKHUHTXLUHG
DP RXQWVRI FDSLWDORUOLTXLGLW\ RU* ( && * ( &) , DQG6\ QFKURQ\ DUHOLNHO\ WR EHXQDEOHWR IXOILOOWKHLUREOLJ DWLRQVXQGHUWKH&$ / 0 $ GXHWR DP DWHULDODGYHUVHFKDQJ HLQWKH ILQDQFLDOFRQGLWLRQRI * ( && * ( &) , RU6\ QFKURQ\ RULQFHUWDLQRWKHUFLUFXP VWDQFHV WKH%DQNP XVWVXEP LWWR WKH2 && DSODQIRUWKHVDOH P HUJ HURUGLVVROXWLRQRI WKH%DQN DQGP XVWLP SOHP HQWVXFKSODQXSRQREWDLQLQJ WKH2 &&¶VQRQ REMHFWLRQDQGZ ULWWHQGLUHFWLRQWR EHJ LQLP SOHP HQWDWLRQ VXEMHFWWR DULJ KWRQWKH%DQN¶VSDUWWR FXUHWKHEDVLVIR VXFKGLUHFWLRQZ LWKLQ GD\ VRI LWVLVVXDQFH 7 KH2 SHUDWLQJ $ J UHHP HQWDOVR SURYLGHVWKDWWKH2 && P D\ UHTXLUHWKH%DQNWR LP P HGLDWHO\ FHDVHH[ WHQGLQJ QHZ RUDGGLWLRQDO FUHGLWXQGHUFHUWDLQFLUFXP VWDQFHV LQFOXGLQJ LI WKH2 && GHWHUP LQHVWKHUHLVDQH[ LVWLQJ RULP P LQHQWP DWHULDOEUHDFKRI WKH%DQN¶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
6\ QFKURQ\ 7 KH2 SHUDWLQJ $ J UHHP HQWZ LOOUHP DLQLQHIIHFWXQWLOLWLVWHUP LQDWHGLQZ ULWLQJ E\ WKH2 && WKH%DQNFHDVHVWR EHDIHGHUDOVDYLQJ VDVVRFLDWLRQRUWKHFRQVXP P DWLR RI DP HUJ HU FRQVROLGDWLRQRURWKHUEXVLQHVVFRP ELQDWLRQLQZ KLFKWKH%DQNLVQRWWKHUHVXOWLQJ HQWLW\
7 KH&$ / 0 $ UHTXLUHV DP RQJ RWKHUWKLQJ V WKDW* ( && * ( &) , DQG6\ QFKURQ\ VKDOO L P DNHFDSLWDOLQIXVLRQVDVUHTXHVWHGE\ WKH%DQNWR HQVXUHWKDWWKH%DQNUHP DLQ LQFRP SOLDQFHZ LWKWKHFDSLWDOUHTXLUHP HQWVRI WKH2 SHUDWLQJ $ J UHHP HQW LL SURYLGHVXFKILQDQFLDOVXSSRUWDVUHTXHVWHGE\ WKH%DQNWR HQVXUHWKDWWKH%DQNUHP DLQVLQ
FRP SOLDQFHZ LWKWKHOLTXLGLW\ UHTXLUHP HQWVRI WKH2 SHUDWLQJ $ J UHHP HQWDQG LLL SURYLGHFHUWDLQLQIRUP DWLRQWR WKH%DQNDQGWKH2 && UHOHYDQWWR WKHLUILQDQFLDOFRQGLWLRQDQG DELOLW\ WR IXOILOOWKHLUREOLJ DWLRQVXQGHUWKH&$ / 0 $ : HFXUUHQWO\ H[ SHFWWKDWWKH&$ / 0 $ ¶VREOLJ DWLRQVZ LOOWHUP LQDWHDVWR * ( && DQG* ( &) , RQFH* ( QR ORQJ HUFRQWUROVWKH
%DQNDVGHILQHGLQWKH&$ / 0 $ RUDVRWKHUZ LVHGHWHUP LQHGE\ WKH2 && : HH[ SHFWWKDW6\ QFKURQ\ Z LOOFRQWLQXHWR EHVXEMHFWWR WKH&$ / 0 $ ¶VREOLJ DWLRQVDIWHUWKH%DQNDQG Z HDUHQR ORQJ HUFRQWUROOHGE\ * (
’ HSRVLW, QVXUDQFH
7 KH) ’ , $ UHTXLUHVWKH%DQNWR SD\ GHSRVLWLQVXUDQFHDVVHVVP HQWV ’ HSRVLWLQVXUDQFHDVVHVVP HQWVDUHDIIHFWHGE\ WKHP LQLP XP UHVHUYHUDWLR Z LWKUHVSHFWWR WKHIHGHUDO ’ HSRVLW, QVXUDQFH) XQG WKH‡’ , ) · 7 KH’ RGG ) UDQN$ FWLQFUHDVHGWKHP LQLP XP UHVHUYHUDWLR Z LWKUHVSHFWWR WKH’ , ) WR DQGUHP RYHGWKHVWDWXWRU\ FDS RQWKHUHVHUYH UDWLR 7 KH) ’ ,& VXEVHTXHQWO\ VHWDUHVHUYHUDWLR RI DQGP D\ LQFUHDVHWKDWUDWLR LQWKHIXWXUH 8 QGHUWKH) ’ ,&¶VFXUUHQWGHSRVLWLQVXUDQFHDVVHVVP HQWP HWKRGRORJ \ WKH%DQN LVUHTXLUHGWR SD\ GHSRVLWLQVXUDQFHDVVHVVP HQWVEDVHGRQLWVDYHUDJ HFRQVROLGDWHGWRWDODVVHWV OHVVDYHUDJ HWDQJ LEOHHTXLW\ DQGYDULRXVRWKHUUHJ XODWRU\ IDFWRUVLQFOXGHGLQDQ
) ’ ,& DVVHVVP HQWVFRUHFDUG
7 KH) ’ , $ FUHDWHVDGHSRVLWRUSUHIHUHQFHUHJ LP HIRUWKHUHVROXWLRQRI DOOLQVXUHGGHSRVLWRU\ LQVWLWXWLRQV LQFOXGLQJ WKH%DQN , I DQ\ VXFKLQVWLWXWLRQLVSODFHGLQWR UHFHLYHUVKLS WKH) ’ ,& Z LOOSD\ RXWRI WKHUHP DLQLQJ QHWDVVHWVRI WKHIDLOHGLQVWLWXWLRQDQGRQO\ WR WKHH[ WHQWRI VXFKDVVHWV ILUVWVHFXUHGFUHGLWRUV WR WKHH[ WHQWRI WKHLU VHFXULW\ VHFRQGWKHDGP LQLVWUDWLYHH[ SHQVHVRI WKHUHFHLYHUVKLS WKLUGDOOGHSRVLWVOLDELOLWLHV ERWKLQVXUHGDQGXQLQVXUHG IRXUWKDQ\ RWKHUJ HQHUDORUVHQLRUOLDELOLWLHV ILIWKDQ\ REOLJ DWLRQVVXERUGLQDWHGWR GHSRVLWRUVRUJ HQHUDOFUHGLWRUV DQGILQDOO\ DQ\ UHP DLQLQJ QHWDVVHWVWR VKDUHKROGHUVLQWKDWFDSDFLW\
7 KH%DQNP D\ EHKHOGOLDEOHE\ WKH) ’ ,& IRUDQ\ ORVVLQFXUUHG RUUHDVRQDEO\ H[ SHFWHGWR EHLQFXUUHGE\ WKH’ , ) GXHWR WKHGHIDXOWRI DQRWKHUFRP P RQO\ FRQWUROOHG
) ’ ,& LQVXUHGLQVWLWXWLRQRUIRUDQ\ DVVLVWDQFHSURYLGHGE\ WKH) ’ ,& WR DQRWKHUFRP P RQO\ FRQWUROOHG) ’ ,& LQVXUHGLQVWLWXWLRQWKDWLVLQGDQJ HURI GHIDXOW$ VORQJ DVZ HDUH GLUHFWO\ RULQGLUHFWO\ FRQWUROOHGE\ * ( WKH%DQNZ LOOEHFRP P RQO\ FRQWUROOHGZ LWKDQRWKHU) ’ ,& LQVXUHGLQVWLWXWLRQ * ( &DSLWDO%DQN DQLQGXVWULDOEDQNFKDUWHUHGXQGHUWKH ODZ VRI 8 WDK
&RQVXP HU) LQDQFLDO6HUYLFHV5 HJ XODWLRQ
7 KHUHODWLRQVKLS EHWZ HHQXVDQGRXU8 6 FXVWRP HUVLVUHJ XODWHGH[ WHQVLYHO\ XQGHUIHGHUDODQGVWDWHFRQVXP HUSURWHFWLRQODZ V ) HGHUDOODZ VLQFOXGHWKH7 UXWKLQ/ HQGLQ
$ FWWKH( TXDO&UHGLW2 SSRUWXQLW\ $ FW+ 2 / $ WKH) DLU&UHGLW5 HSRUWLQJ $ FWWKH‡) &5 $ · WKH* UDP P / HDFK %OLOH\ $ FWWKH‡* / %$ · WKH&$ 5 ’ $ FWDQGWKH’ RGG ) UDQN
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
9 LRODWLRQVRI DSSOLFDEOHFRQVXP HUSURWHFWLRQODZ VFDQUHVXOWLQVLJ QLILFDQWSRWHQWLDOOLDELOLW\ IURP OLWLJ DWLRQEURXJ KWE\ FXVWRP HUV LQFOXGLQJ DFWXDOGDP DJ HV UHVWLWXWLRQ DQGDWWRUQH\ V¶IHHV ) HGHUDOEDQNLQJ UHJ XODWRUV DVZ HOODVVWDWHDWWRUQH\ VJ HQHUDODQGRWKHUVWDWHDQGORFDOFRQVXP HUSURWHFWLRQDJ HQFLHV DOVR P D\ VHHNWR HQIRUFHFRQVXP HU SURWHFWLRQUHTXLUHP HQWVDQGREWDLQWKHVHDQGRWKHUUHP HGLHV LQFOXGLQJ FLYLOP RQH\ SHQDOWLHVDQGILQHV
7 KH&$ 5 ’ $ FWZ DVHQDFWHGLQ DQGP RVWRI WKHUHTXLUHP HQWVEHFDP HHIIHFWLYHLQ 7 KH&$ 5 ’ $ FWP DGHQXP HURXVDP HQGP HQWVWR WKH7 UXWKLQ/ HQGLQJ $ FW UHTXLULQJ XVWR P DNHVLJ QLILFDQWFKDQJ HVWR P DQ\ RI RXUEXVLQHVVSUDFWLFHV LQFOXGLQJ P DUNHWLQJ XQGHUZ ULWLQJ SULFLQJ DQGELOOLQJ 7 KH&$ 5 ’ $ FW¶VUHVWULFWLRQVRQRXUDELOLW\ WR LQFUHDVHLQWHUHVWUDWHVRQH[ LVWLQJ EDODQFHVWR UHVSRQGWR P DUNHWFRQGLWLRQVDQGFUHGLWULVNXOWLP DWHO\ OLP LWVRXUDELOLW\ WR H[ WHQGFUHGLWWR QHZ FXVWRP HUVDQGSURYLGH DGGLWLRQDOFUHGLWWR FXUUHQWFXVWRP HUV 2 WKHU&$ 5 ’ $ FWUHVWULFWLRQV VXFKDVOLP LWDWLRQVRQODWHIHHV KDYHUHVXOWHGDQGZ LOOFRQWLQXHWR UHVXOWLQUHGXFHGLQWHUHVWLQFRP HDQG ORDQIHHLQFRP H
7 KH) &5 $ UHJ XODWHVWKH%DQN¶VDQGRXUXVHRI FUHGLWUHSRUWVDQGWKHUHSRUWLQJ RI LQIRUP DWLRQWR FUHGLWUHSRUWLQJ DJ HQFLHV DQGDOVR SURYLGHVDVWDQGDUGIRUOHQGHUVWR VKDUHLQIRUP DWLRQZ LWKDIILOLDWHVDQGFHUWDLQWKLUGSDUWLHVDQGWR SURYLGHILUP RIIHUVRI FUHGLWWR FRQVXP HUV 7 KH) &5 $ DOVR SODFHVIXUWKHUUHVWULFWLRQVRQWKHXVHRI LQIRUP DWLRQ VKDUHGEHWZ HHQDIILOLDWHVIRUP DUNHWLQJ SXUSRVHV UHTXLUHVWKHSURYLVLRQRI GLVFORVXUHVWR FRQVXP HUVZ KHQULVN EDVHGSULFLQJ LVXVHGLQDFUHGLWGHFLVLRQ DQGUHTXLUHV
VDIHJ XDUGVWR KHOS SURWHFWFRQVXP HUVIURP LGHQWLW\ WKHIW
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▇▇ ▇▇▇ WKH%DQNP D\ RIIHU P RUHIDYRUDEOHWHUP VLI DFXVWRP HUREWDLQVWZ R RUP RUHWUDGLWLRQDOEDQNSURGXFWV
7 KH’ XUELQ$ P HQGP HQWLQWKH’ RGG ) UDQN$ FWUHTXLUHVWKH) HGHUDO5 HVHUYH%RDUGWR SURP XOJ DWHFHUWDLQUXOHVUHODWHGWR GHELWWUDQVDFWLRQLQWHUFKDQJ HIHHV 2 Q-XQH WKH) HGHUDO5 HVHUYH%RDUGDGRSWHGDILQDOUXOHZ LWKUHVSHFWWR WKH’ XUELQ$ P HQGP HQWHIIHFWLYHRQ2 FWREHU Z KLFK DP RQJ RWKHUWKLQJ V HVWDEOLVKHGDUHJ XODWRU\
FDS IRUP DQ\ W\ SHVRI GHELWLQWHUFKDQJ HWUDQVDFWLRQVWKDWLVQR P RUHWKDQ FHQWVSOXVILYHEDVLVSRLQWVRI WKHYDOXHRI WKHWUDQVDFWLRQ 7 KH) HGHUDO5 HVHUYH%RDUG¶VUXOHDOVR DOORZ VDGHELWFDUGLVVXHUWR UHFRYHU SHUWUDQVDFWLRQIRUIUDXGSUHYHQWLRQSXUSRVHVLI WKHLVVXHUFRP SOLHVZ LWKFHUWDLQIUDXG UHODWHGUHTXLUHP HQWV , QDGGLWLRQ WKHUXOH SURKLELWVWKHLP SRVLWLRQRI UHVWULFWLRQVRQDP HUFKDQW¶VDELOLW\ WR GLUHFWWKHURXWLQJ RI HOHFWURQLF GHELWWUDQVDFWLRQVRYHUDQHWZ RUNIRUZ KLFKWKHLVVXHUKDVHQDEOHGSURFHVVLQJ 7 KHVHUXOHVZ HUHFKDOOHQJ HGE\ UHWDLOHUVFODLP LQJ WKDWWKHLQWHUFKDQJ HIHHDQGQHWZ RUNQRQ H[ FOXVLYLW\ SURYLVLRQVRI WKHUXOHDUHDUELWUDU\ FDSULFLRXV DQDEXVHRI GLVFUHWLRQ DQGRWKHUZ LVHQRWLQDFFRUGDQFHZ LWKWKHODZ 7 KH) HGHUDO5 HVHUYH%RDUG¶VUHJ XODWLRQZ DVXSKHOGE\ WKH8 6 &RXUWRI $ SSHDOVIRUWKH’ & &LUFXLWRQ0 DUFK 7 KH FRXUWRI DSSHDOVIRXQGWKDWWKH) HGHUDO5 HVHUYH%RDUG¶VILQDOUXOHZ DVEDVHGRQDUHDVRQDEOHLQWHUSUHWDWLRQRI WKH’ RGG ) UDQN$ FW7 KHFRXUWRI DSSHDOVUHP DQGHGWKHFDVHWR
WKHORZ HUFRXUWIRUIXUWKHUSURFHHGLQJ VFRQVLVWHQWZ LWKLWVRSLQLRQ DQGWKRVHORZ HUFRXUWSURFHHGLQJ VDUHFXUUHQWO\ RQJ RLQJ 7 KHUHWDLOHUVKDYHVRXJ KWUHYLHZ RI WKHGHFLVLRQRI WKHFRXUWRI DSSHDOVLQWKH8 6 6XSUHP H&RXUW
7 KH’ RGG ) UDQN$ FWHVWDEOLVKHGWKH&) 3% Z KLFKUHJ XODWHVFRQVXP HUILQDQFLDOSURGXFWVDQGVHUYLFHVDQGFHUWDLQILQDQFLDOVHUYLFHVSURYLGHUV 7 KH&) 3% LVDXWKRUL] HG WR SUHYHQW‡XQIDLU GHFHSWLYHRUDEXVLYHDFWVRUSUDFWLFHV· DQGHQVXUHFRQVLVWHQWHQIRUFHP HQWRI ODZ VVR WKDWDOOFRQVXP HUVKDYHDFFHVVWR P DUNHWVIRUFRQVXP HUILQDQFLDO SURGXFWVDQGVHUYLFHVWKDWDUHIDLU WUDQVSDUHQWDQGFRP SHWLWLYH 7 KH&) 3% KDVUXOHP DNLQJ DQGLQWHUSUHWLYHDXWKRULW\ XQGHUWKH’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¶V
VWUDWHJ LHVDQGSULRULWLHVZ LOOKDYHDQLP SDFWRQRXUEXVLQHVVHVDQGRXUUHVXOWVRI RSHUDWLRQVJ RLQJ IRUZ DUG $ OWKRXJ KZ HKDYHEHHQVXEMHFWWR YDULRXVP DWWHUVZ LWKWKH&) 3% DV GHVFULEHGEHORZ QHLWKHUWKH&RP SDQ\ QRUWKH%DQNKDVKDGLWVILUVWFRP SUHKHQVLYHH[ DP LQDWLRQE\ WKH&) 3% DQGZ HFDQQRWSUHGLFWZ KHQVXFKH[ DP LQDWLRQZ LOORFFXURUZ K WKHUHVXOWVZ LOOEH 6HH‡, WHP $ 5 LVN) DFWRUV† 5 LVNV5 HODWLQJ WR 5 HJ XODWLRQ† 7 KH&RQVXP HU) LQDQFLDO3URWHFWLRQ%XUHDXLVDQHZ DJ HQF\ DQGWKHUHFRQWLQXHVWR EH XQFHUWDLQW\ DVWR KRZ WKHDJ HQF\ ¶VDFWLRQVZ LOOLP SDFWRXUEXVLQHVV WKHDJ HQF\ ¶VDFWLRQVKDYHKDGDQGP D\ FRQWLQXHWR KDYHDQDGYHUVHLP SDFWRQRXUEXVLQHVV·
, Q-XO\ WKH&) 3% LVVXHGDQLQGXVWU\ EXOOHWLQUHJ DUGLQJ P DUNHWLQJ SUDFWLFHVZ LWKUHVSHFWWR FUHGLWFDUGDGG RQSURGXFWV LQFOXGLQJ GHEWFDQFHOODWLRQSURGXFWV 7 KH
%DQNKDVP DGHDQXP EHURI FKDQJ HV LQFOXGLQJ FKDQJ HVLQUHVSRQVHWR WKH&) 3% EXOOHWLQ Z LWKUHVSHFWWR LWVP DUNHWLQJ DQGVDOHRI GHEWFDQFHOODWLRQSURGXFWVWR FUHGLWFDUG FXVWRP HUV LQFOXGLQJ FHDVLQJ DOOWHOHVDOHVRI VXFKSURGXFWV DQGWKH%DQNKDVDOVR HQKDQFHGWKHGLVFORVXUHVDVVRFLDWHGZ LWKLWVZ HEVLWHVDOHVRI VXFKSURGXFWV 6HH‡, WHP $ 5 LVN) DFWRUV† 5 LVNV5 HODWLQJ WR 2 XU%XVLQHVV† / LWLJ DWLRQ UHJ XODWRU\ DFWLRQVDQGFRP SOLDQFHLVVXHVFRXOGVXEMHFWXVWR VLJ QLILFDQWILQHV SHQDOWLHV MXGJ P HQWV UHP HGLDWLRQ FRVWVDQGRUUHTXLUHP HQWVUHVXOWLQJ LQLQFUHDVHGH[ SHQVHV·
, Q2 FWREHU WKH&) 3% SXEOLVKHGLWVILUVWELHQQLDOUHSRUWUHYLHZ LQJ WKHLP SDFWRI WKH&$ 5 ’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▇▇ ▇▇▇ LWRUEDQSUHGLVSXWHDUELWUDWLRQFODXVHV
2 Q’ HFHP EHU Z HHQWHUHGLQWR DFRQVHQWRUGHUZ LWKWKH&) 3% UHODWLQJ WR RXU&DUH&UHGLWSODWIRUP WKH‡ &) 3%&RQVHQW2 UGHU·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‡$ VVXUDQFH· : HEHOLHYH WKH%DQNLVLQVXEVWDQWLDOFRP SOLDQFHZ LWKWKHP DWHULDOEXVLQHVVSUDFWLFHFKDQJ HVUHTXLUHGE\ WKH &) 3%&RQVHQW2 UGHUDQGWKH$ VVXUDQFH VXEMHFWWR RQJ RLQJ UHSRUWLQJ REOLJ DWLRQVDQGZ LOOFRP SOHWHWKHDGGLWLRQDOSURYLGHUWUDLQLQJ E\ WKHIRXUWKTXDUWHURI , QDGGLWLRQWR WKHFRVWVRI UHP HGLDWLRQ Z KLFKZ HUHQRWP DWHULDOIRUWKH$ VVXUDQFH DQGZ LOOEHXS WR P LOOLRQIRUWKH &) 3%&RQVHQW2 UGHU WKH&RP SDQ\ Z LOOLQFXURQHWLP HFRVWVRI DSSUR[ LP DWHO\ P LOOLRQWR LP SOHP HQWWKHVHFKDQJ HV DQG
HVWLP DWHVRQJ RLQJ DQQXDOFRVWVRI DSSUR[ LP DWHO\ P LOOLRQ $ OWKRXJ KZ HFRQWLQXHWR DFWLYHO\ P RQLWRUDQGDVVHVVWKHLP SDFWRQRXU&DUH&UHGLWSURJ UDP RI WKHFKDQJ HV UHTXLUHGE\ WKH &) 3%&RQVHQW2 UGHUDQGWKH$ VVXUDQFH VRP HRI Z KLFKKDYHRQO\ UHFHQWO\ EHHQLP SOHP HQWHG LQFOXGLQJ WKHLP SDFWRQSURJ UDP XVDJ HDVSURYLGHUV EHFRP HDFFOLP DWHGWR WKHUHTXLUHGFKDQJ HV Z HGR QRWEHOLHYHWKDWWKH &) 3%&RQVHQW2 UGHURUWKH$ VVXUDQFHZ LOOKDYHDP DWHULDOLP SDFWRQRXUUHVXOWVRI RSHUDWLRQV J RLQJ IRUZ DUG 6HH‡, WHP $ 5 LVN) DFWRUV† 5 LVNV5 HODWLRQWR 5 HJ XODWLRQ† &KDQJ HVWR RXUP HWKRGVRI RIIHULQJ RXU&DUH&UHGLWSURGXFWVFRXOGP DWHULDOO\ LP SDFWRSHUDWLQJ UHVXOWV·
2 Q-XQH Z HHQWHUHGLQWR DFRQVHQWRUGHUZ LWKWKH&) 3% WKH‡ &) 3%&RQVHQW2 UGHU· WKDWUHTXLUHVXVWR UHIXQG P LOOLRQWR FDUGKROGHUVZ KR HQUROOHG LQDGHEWFDQFHOODWLRQSURGXFWRYHUWKHWHOHSKRQHIURP -DQXDU\ WR 2 FWREHU P LOOLRQRI Z KLFKZ DVUHIXQGHGSULRUWR WKH &) 3%&RQVHQW2 UGHU SD\ FLYLO
P RQH\ SHQDOWLHVRI P LOOLRQ DQGLP SOHP HQWDFRP SOLDQFHSODQUHODWHGWR WKHVDOHRI ‡DGG RQ· SURGXFWVWR WKHH[ WHQWWKH%DQNUHVWDUWVWHOHVDOHVRI VXFKSURGXFWV Z KLFKZ H GLVFRQWLQXHGLQ2 FWREHU
, QDGGLWLRQWR UHVROYLQJ WKH&) 3%¶VFRQFHUQVUHJ DUGLQJ RXUGHEWFDQFHOODWLRQVDOHVSUDFWLFHV WKH &) 3%&RQVHQW2 UGHUUHVROYHGDQXQUHODWHGLVVXHWKDWDURVHIURP WKH%DQN¶VVHOI LGHQWLILHGRP LVVLRQRI FHUWDLQ6SDQLVK VSHDNLQJ FXVWRP HUVDQGFXVWRP HUVUHVLGLQJ LQ3XHUWR 5 LFR IURP WZ R RIIHUVWKDWZ HUHP DGHWR FHUWDLQGHOLQTXHQW
FXVWRP HUV : HGLVFRYHUHGWKLVLVVXHWKURXJ KDQDXGLWRI RXUFROOHFWLRQRSHUDWLRQVLQ UHSRUWHGLWWR WKH&) 3% DQGLQLWLDWHGDYROXQWDU\ UHP HGLDWLRQSURJ UDP Z KLFKUHVXOWH LQSD\ P HQWV EDODQFHFUHGLWVDQGEDODQFHZ DLYHUVRI P LOOLRQ 7 KH&) 3% FRQGXFWHGDUHYLHZ RI WKHFROOHFWLRQRIIHURP LVVLRQVDQGDOVR UHIHUUHGWKHP DWWHUWR WKH’ 2 -
Z KLFKFRP P HQFHGDQLQYHVWLJ DWLRQLQ0 DUFK $ WWKHVDP HWLP HZ HHQWHUHGLQWR WKH &) 3%&RQVHQW2 UGHU Z HHQWHUHGLQWR DFRQVHQWRUGHUZ LWKWKH’ 2 - WKH‡
’ 2 - &RQVHQW2 UGHU· DQGWRJ HWKHUZ LWKWKH &) 3%&RQVHQW2 UGHU WKH‡ &RQVHQW2 UGHUV· WR VHWWOHDFRP SODLQWILOHGE\ WKH’ 2 - RQ-XQH LQWKH8 QLWHG6WDWH ’ LVWULFW&RXUWIRUWKH’ LVWULFWRI 8 WDKDOOHJ LQJ FODLP VXQGHUWKH( TXDO&UHGLW2 SSRUWXQLW\ $ FWUHODWHGWR RXUFROOHFWLRQVRIIHURP LVVLRQV 7 KH ’ 2 - &RQVHQW2 UGHULVVXEMHF WR FRXUWDSSURYDOZ KLFKZ DVUHFHLYHGRQ-XQH 7 KH ’ 2 - &RQVHQW2 UGHULVVLP LODUWR WKH &) 3%&RQVHQW2 UGHUDQGGRHVQRWLP SRVHDQ\ DGGLWLRQDO UHTXLUHP HQWVRQXV 7 KH &RQVHQW2 UGHUVUHTXLUHXVWR FRP SOHWHRXUUHP HGLDWLRQSURJ UDP E\ SURYLGLQJ DGGLWLRQDOSD\ P HQWV EDODQFHFUHGLWVDQGEDODQFHZ DLYHUVRI
P LOOLRQDQGWR XSGDWHRXUFUHGLWEXUHDXUHSRUWLQJ UHODWLQJ WR WKHDIIHFWHGDFFRXQWV 2 I WKHDSSUR[ LP DWHO\ P LOOLRQLQWRWDOFRQVXP HUUHP HGLDWLRQ LQFOXGLQJ WKH P LOOLR FRP SOHWHGSULRUWR WKH &RQVHQW2 UGHUVDQGWKH P LOOLRQWKDWUHP DLQVWR EHFRP SOHWHG P LOOLRQFRQVLVWVRI EDODQFHFUHGLWVDQGZ DLYHUVWR SUHYLRXVO\ FKDUJ HG RII DFFRXQWV , QDGGLWLRQWR WKHFRQVXP HUUHP HGLDWLRQ WKH &RQVHQW2 UGHUVUHTXLUHXVWR LP SOHP HQWDIDLUOHQGLQJ FRP SOLDQFHSODQ LQFOXGLQJ IDLUOHQGLQJ UHYLHZ V DXGLWVDQG WUDLQLQJ Z KLFKZ LOOLQSDUWEHVDWLVILHGE\ RXUH[ LVWLQJ FRP SOLDQFHSURFHVVHV $ OWKRXJ KZ HGR QRWEHOLHYHWKDWWKH &RQVHQW2 UGHUVWKHP VHOYHVZ LOOKDYHDP DWHULDO DGYHUVHHIIHFWRQUHVXOWVRI RSHUDWLRQVJ RLQJ IRUZ DUG Z HFDQQRWEHVXUHZ KHWKHUWKHVHWWOHP HQWZ LOOKDYHDQDGYHUVHLP SDFWRQRXUUHSXWDWLRQRUZ KHWKHUDQ\ VLP LODUDFWLRQV Z LOOEHEURXJ KWE\ VWDWHDWWRUQH\ J HQHUDOVRURWKHUV DOORI Z KLFKFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQXV
* ( &&¶V5 HJ XODWRU\ 6WDWXV
* ( && LVDUHJ XODWHGVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ DQGWKHUHIRUHLVVXEMHFWWR DOORI WKHUHJ XODWRU\ REOLJ DWLRQVWR Z KLFKZ HDUHVXEMHFW8 QWLOWKH* ( 6/ + &
’ HUHJ LVWUDWLRQ * ( &&¶VUHJ XODWRU\ REOLJ DWLRQVDVDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ P D\ IRUUHDVRQVUHODWHGRUXQUHODWHGWR XV P DWHULDOO\ DQGDGYHUVHO\ DIIHFWXV LQFOXGLQJ UHVWULFWLQJ RXUDELOLW\ WR LQLWLDWH SD\ GLYLGHQGVRUUHSXUFKDVHVWRFNRUFRQWLQXHYDULRXVEXVLQHVVDFWLYLWLHVRUSUDFWLFHV
$ VDQRQEDQN6, ) , * ( && LVVXEMHFWWR HQKDQFHGSUXGHQWLDOVWDQGDUGVXQGHUWKH’ RGG ) UDQN$ FWDQGUHJ XODWLRQE\ WKH) HGHUDO5 HVHUYH%RDUG 1 RQEDQN6, ) , V VXFKDV
* ( && FXUUHQWO\ DUHVXEMHFWWR VRP H EXWQRWDOORI WKHHQKDQFHGSUXGHQWLDOVWDQGDUGVXQGHUWKH’ RGG ) UDQN$ FWVXFKDVUHVROXWLRQSODQQLQJ 7 KH) HGHUDO5 HVHUYH%RDUGKDV LVVXHGUHJ XODWLRQVLP SOHP HQWLQJ FHUWDLQRI WKHHQKDQFHGSUXGHQWLDOVWDQGDUGVRI WKH’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
) HGHUDO5 HVHUYH%RDUGLQWKHIXWXUHZ LOOQRWKDYHWKHHIIHFWRI GLUHFWO\ RULQGLUHFWO\ LP SRVLQJ REOLJ DWLRQVRUUHVWULFWLRQVRQXVVR ORQJ DVZ HDUHFRQWUROOHGE\ * ( && IRUEDQN UHJ XODWRU\ SXUSRVHV 6HH‡, WHP $ 5 LVN) DFWRUV† 5 LVNV5 HODWLQJ WR 5 HJ XODWLRQ† $ VORQJ DVZ HDUHFRQWUROOHGE\ * ( && IRUEDQNUHJ XODWRU\ SXUSRVHV UHJ XODWLRQDQG VXSHUYLVLRQRI * ( && FRXOGDGYHUVHO\ DIIHFWXV·
3 ULYDF\
: H DORQJ Z LWKWKH%DQN DUHVXEMHFWWR YDULRXVSULYDF\ LQIRUP DWLRQVHFXULW\ DQGGDWDSURWHFWLRQODZ V LQFOXGLQJ UHTXLUHP HQWVFRQFHUQLQJ VHFXULW\ EUHDFKQRWLILFDWLRQ
) RUH[ ▇▇ ▇▇▇ LQWKH8 QLWHG6WDWHV FHUWDLQRI RXUEXVLQHVVHVDUHVXEMHFWWR WKH* / %$ DQGLP SOHP HQWLQJ UHJ XODWLRQVDQGJ XLGDQFH $ P RQJ RWKHUWKLQJ V WKH* / %$ L LP SRVHV FHUWDLQOLP LWDWLRQVRQWKHDELOLW\ RI ILQDQFLDOLQVWLWXWLRQVWR VKDUHFRQVXP HUV¶QRQSXEOLF SHUVRQDOLQIRUP DWLRQZ LWKQRQDIILOLDWHGWKLUGSDUWLHV LL UHTXLUHVWKDWILQDQFLDO LQVWLWXWLRQVSURYLGHFHUWDLQGLVFORVXUHVWR FRQVXP HUVDERXWWKHLULQIRUP DWLRQFROOHFWLRQ VKDULQJ DQGVHFXULW\ SUDFWLFHVDQGDIIRUGVFXVWRP HUVWKHULJ KWWR ‡RSWRXW· RI WKH LQVWLWXWLRQ¶VGLVFORVXUHRI WKHLUSHUVRQDOILQDQFLDOLQIRUP DWLRQWR QRQDIILOLDWHGWKLUGSDUWLHV Z LWKFHUWDLQH[ FHSWLRQV DQG LLL UHTXLUHVILQDQFLDOLQVWLWXWLRQVWR GHYHORS
LP SOHP HQWDQGP DLQWDLQDZ ULWWHQFRP SUHKHQVLYHLQIRUP DWLRQVHFXULW\ SURJ UDP FRQWDLQLQJ VDIHJ XDUGVWKDWDUHDSSURSULDWHWR WKHILQDQFLDOLQVWLWXWLRQ¶VVL] HDQGFRP SOH[ LW\ WKH QDWXUHDQGVFRSHRI WKHILQDQFLDOLQVWLWXWLRQ¶VDFWLYLWLHV DQGWKHVHQVLWLYLW\ RI FXVWRP HULQIRUP DWLRQSURFHVVHGE\ WKHILQDQFLDOLQVWLWXWLRQDVZ HOODVSODQVIRUUHVSRQGLQJ WR GDWD VHFXULW\ EUHDFKHV ) HGHUDODQGVWDWHODZ VDOVR UHTXLUHXVWR UHVSRQGDSSURSULDWHO\ WR GDWDVHFXULW\ EUHDFKHV : H DORQJ Z LWKWKH%DQNKDYHDSURJ UDP WR FRP SO\ Z LWKDSSOLFDEOH SULYDF\ LQIRUP DWLRQVHFXULW\ DQGGDWDSURWHFWLRQUHTXLUHP HQWVLP SRVHGE\ IHGHUDOVWDWH DQGIRUHLJ QODZ V LQFOXGLQJ WKH* / %$ 6HHDOVR ‡, WHP $ 5 LVN) DFWRUV† 5 LVNV
5 HODWLQJ WR 5 HJ XODWLRQ† 5 HJ XODWLRQVUHODWLQJ WR SULYDF\ LQIRUP DWLRQVHFXULW\ DQGGDWDSURWHFWLRQFRXOGLQFUHDVHRXUFRVWV DIIHFWRUOLP LWKRZ Z HFROOHFWDQGXVHSHUVRQDO LQIRUP DWLRQDQGDGYHUVHO\ DIIHFWRXUEXVLQHVVRSSRUWXQLWLHV·
* ( 7 UDQVIHURI 8 QUHODWHG %DQN
$ VSDUWRI WKH6HSDUDWLRQ DVVXP LQJ LWLVDFFRP SOLVKHGE\ WKH6SOLWRII * ( LQWHQGVWR WUDQVIHURZ QHUVKLS RI * ( &DSLWDO%DQN DEDQNWKDWLVDQGZ LOOEHVHSDUDWHIURP DQGXQUHODWHGWR 6\ QFKURQ\ DQGWKH%DQN IURP RQHRI LWVVXEVLGLDULHVWR DQRWKHU* ( KDVLQGLFDWHGWR XVWKDWLWGRHVQRWEHOLHYHWKDWWKLVWUDQVIHUUHTXLUHVDQDSSOLFDWLRQWR RU DQDSSURYDORUQRQ REMHFWLRQE\ DQ\ EDQNUHJ XODWRU\ DXWKRULWLHV + RZ HYHU LI WKRVHDXWKRULWLHVGLVDJ UHHDQGZ HUHWR UHTXLUHDQDSSOLFDWLRQRURWKHURSSRUWXQLW\ IRUDSSURYDORU QRQ REMHFWLRQ Z HFDQQRWSUHGLFWZ KDWDFWLRQWKHDXWKRULWLHVP LJ KWWDNHRQVXFKDQDSSOLFDWLRQRUQRWLFH RUZ KDWFRQGLWLRQVRUUHVWULFWLRQV LI DQ\ WKHUHJ XODWRUVP LJ KWLP SRVH LQFRQQHFWLRQZ LWKDQ\ VXFKDFWLRQ $ Q\ VXFKDFWLRQ RUDQ\ FRQGLWLRQVRUUHVWULFWLRQVLQFRQQHFWLRQZ LWKVXFKDFWLRQ FRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ* ( ¶VDELOLW\ WR UHWDLQWKDWEDQNDQGFRXOGDIIHFW* ( ¶VZ LOOLQJ QHVVWR SURFHHGZ LWKWKH6HSDUDWLRQDVFXUUHQWO\ SODQQHG
0 RQH\ / DXQGHULQJ DQG7 HUURULVW) LQDQFLQJ 3 UHYHQWLRQ 3 URJ UDP
: HP DLQWDLQDQHQWHUSULVHZ LGHSURJ UDP GHVLJ QHGWR HQDEOHXVWR FRP SO\ Z LWKDOODSSOLFDEOHDQWLP RQH\ ODXQGHULQJ DQGDQWLWHUURULVP ILQDQFLQJ ODZ VDQGUHJ XODWLRQV LQFOXGLQJ WKH%DQN6HFUHF\ $ FWDQGWKH8 6 3DWULRW$ FW7 KLVSURJ UDP LQFOXGHVSROLFLHV SURFHGXUHV SURFHVVHVDQGRWKHULQWHUQDOFRQWUROVGHVLJ QHGWR LGHQWLI\ P RQLWRU
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‡, WHP $ 5 LVN) DFWRUV† 5 LVNV5 HODWLQJ WR 5 HJ XODWLRQ† $ QWLP RQH\ ODXQGHULQJ DQGDQWL WHUURULVP ILQDQFLQJ ODZ VFRXOGKDYHVLJ QLILFDQWDGYHUVHFRQVHTXHQFHVIRUXV·
6DQFWLRQV3 URJ UDP V
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
( QYLURQP HQWDODQG + HDOWK DQG 6DIHW\ 0 DWWHUV
: HDUHVXEMHFWWR YDULRXVHQYLURQP HQWDOKHDOWKDQGVDIHW\ ODZ VDQGUHJ XODWLRQV
, 7 ( 0 $ 5 , 6. ) $ &7 2 5 6
<RXVKRXOGFDUHIXOO\ FRQVLGHUWKHIROORZLQJ ULVNVEHIRUHLQYHVWLQJ LQWKHQRWHV 7KHVHULVNVFRXOGP DWHULDOO\ DIIHFWRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVRUILQDQFLDO FRQGLWLRQDQGFDXVHWKHWUDGLQJ SULFHRI WKHQRWHVWR GHFOLQH <RXFRXOGORVHSDUWRUDOORI \ RXULQYHVWP HQW
5 LVNV5 HODWLQJ WR 2 XU%XVLQHVVHV
0 DFURHFRQRP LF FRQGLWLRQVFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXUEXVLQHVV UHVXOWVRI RSHUDWLRQV ILQDQFLDOFRQGLWLRQ DQGWKHSULFHRI WKHQRWHV
. H\ P DFURHFRQRP LF FRQGLWLRQVKLVWRULFDOO\ KDYHDIIHFWHGRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQDQGDUHOLNHO\ WR DIIHFWWKHP LQWKHIXWXUH &RQVXP H FRQILGHQFH XQHP SOR\ P HQWDQGKRXVLQJ LQGLFDWRUVDUHDP RQJ WKHIDFWRUVWKDWRIWHQLP SDFWFRQVXP HUVSHQGLQJ EHKDYLRU3RRUHFRQRP LF FRQGLWLRQVUHGXFHWKHXVDJ HRI RXU FUHGLWFDUGVDQGRWKHUILQDQFLQJ SURGXFWVDQGWKHDYHUDJ HSXUFKDVHDP RXQWRI WUDQVDFWLRQVRQRXUFUHGLWFDUGVDQGWKURXJ KRXURWKHUSURGXFWV Z KLFK LQHDFKFDVH UHGXFHVRXU LQWHUHVWDQGIHHLQFRP H : HUHO\ SULP DULO\ RQLQWHUHVWDQGIHHLQFRP HWR J HQHUDWHRXUQHWHDUQLQJ V 2 XULQWHUHVWDQGIHHLQFRP HZ DV ELOOLRQDQG ELOOLRQIRUWKH\ HDUV HQGHG’ HFHP EHU DQG UHVSHFWLYHO\ DQG ELOOLRQDQG ELOOLRQIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU DQG UHVSHFWLYHO\ 3RRUHFRQRP LF FRQGLWLRQVDOVR DGYHUVHO\ DIIHFWWKHDELOLW\ DQGZ LOOLQJ QHVVRI FXVWRP HUVWR SD\ DP RXQWVRZ HGWR XV LQFUHDVLQJ GHOLQTXHQFLHV EDQNUXSWFLHV FKDUJ HRIIVDQGDOORZ DQFHVIRUORD ORVVHV DQGGHFUHDVLQJ UHFRYHULHV ) RUH[ ▇▇ ▇▇▇ RXURYHU GD\ GHOLQTXHQF\ UDWHDVDSHUFHQWDJ HRI SHULRG HQGORDQUHFHLYDEOHVZ DV DW’ HFHP EHU GXULQJ WKH ILQDQFLDOFULVLV FRP SDUHGWR DW6HSWHP EHU DQGRXUIXOO\ HDUQHWFKDUJ HRII UDWHZ DV IRUWKH\ HDUHQGHG’ HFHP EHU FRP SDUHGWR IRUWKH
\ HDUHQGHG’ HFHP EHU : HEHOLHYHWKHGHOLQTXHQF\ UDWHLQRXUSRUWIROLR LVDWKLVWRULFDOO\ ORZ OHYHOVDQGFKDUJ HRII UDWHVLQRXUSRUWIROLR DUHEDFNWR SUHUHFHVVLRQ OHYHOV DQGWKH\ ERWKP D\ LQFUHDVHDQGDUHOLNHO\ WR LQFUHDVHP DWHULDOO\ LI HFRQRP LF FRQGLWLRQVGHWHULRUDWH
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
0 DFURHFRQRP LF FRQGLWLRQVP D\ DOVR FDXVHQHWHDUQLQJ VWR IOXFWXDWHDQGGLYHUJ HIURP H[ SHFWDWLRQVRI VHFXULWLHVDQDO\ VWVDQGLQYHVWRUV Z KR P D\ KDYHGLIIHULQJ DVVXP SWLRQVUHJ DUGLQJ WKHLP SDFWRI WKHVHFRQGLWLRQVRQRXUEXVLQHVV DQGWKLVP D\ DGYHUVHO\ LP SDFWWKHWUDGLQJ SULFHRI WKHQRWHV
2 XUUHVXOWVRI RSHUDWLRQVDQGJ URZWK GHSHQGRQ RXUDELOLW\ WR UHWDLQ H[ LVWLQJ SDUWQHUVDQGDWWUDFWQHZ SDUWQHUV
6XEVWDQWLDOO\ DOORI RXUUHYHQXHLVJ HQHUDWHGIURP WKHFUHGLWSURGXFWVZ HSURYLGHWR FXVWRP HUVRI RXUSDUWQHUVSXUVXDQWWR SURJ UDP DJ UHHP HQWVZ HHQWHULQWR Z LWKRXU SDUWQHUV $ VDUHVXOWRXUUHVXOWVRI RSHUDWLRQVDQGJ URZ WKGHSHQGRQRXUDELOLW\ WR UHWDLQH[ LVWLQJ SDUWQHUVDQGDWWUDFWQHZ SDUWQHUV + LVWRULFDOO\ WKHUHKDVEHHQWXUQRYHULQRXU SDUWQHUV DQGZ HH[ SHFWWKLVZ LOOFRQWLQXHLQWKHIXWXUH ) RUH[ ▇▇ ▇▇▇ ILYHRI RXU ODUJ HVWSURJ UDP DJ UHHP HQWVP HDVXUHGE\ SODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU
KDYHH[ SLUHGRURWKHUZ LVHZ LOOQRWEHH[ WHQGHGEH\ RQGWKHLUFRQWUDFWXDOH[ SLUDWLRQGDWHVLQ RU 7 KHVHILYHSURJ UDP DJ UHHP HQWVUHSUHVHQWHG LQWKHDJ J UHJ DWH RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU DQG RI RXUWRWDOORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW6HSWHP EHU
, QDGGLWLRQ Z HUHFHQWO\ H[ WHQGHGRXUSURJ UDP DJ UHHP HQWZ LWK3D\ 3DORQHRI RXUWHQODUJ HVWSDUWQHUV XQWLO2 FWREHU DQGGR QRWH[ SHFWLWWR H[ WHQGEH\ RQGWKDWGDWH 7 KHH[ WHQVLRQHOLP LQDWHGFHUWDLQH[ FOXVLYLW\ SURYLVLRQVWKDWSUHYLRXVO\ H[ LVWHGLQWKHSURJ UDP DJ UHHP HQWDQGZ HH[ SHFWWKLVZ LOOUHVXOWLQORZ HUSODWIRUP UHYHQXHDQGORDQ UHFHLYDEOHVIURP RXU3D\ 3DOSURJ UDP GXULQJ WKHH[ WHQGHGWHUP RI WKHDJ UHHP HQW7 KH3D\ 3DOSURJ UDP DJ UHHP HQWUHSUHVHQWHG RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDU HQGHG’ HFHP EHU DQG RI RXUWRWDOORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW6HSWHP EHU
3URJ UDP DJ UHHP HQWVZ LWKRXU5 HWDLO&DUGSDUWQHUVDQGQDWLRQDODQGUHJ LRQDOUHWDLOHUDQGP DQXIDFWXUHU3D\ P HQW6ROXWLRQVSDUWQHUVW\ SLFDOO\ DUHIRUP XOWL\ HDUWHUP V
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
, QDGGLWLRQ SURJ UDP VZ LWKP DQXIDFWXUHUV EX\ LQJ J URXSVDQGLQGXVWU\ DVVRFLDWLRQVJ HQHUDOO\ DUHP DGHDYDLODEOHWR 3D\ P HQW6ROXWLRQVSDUWQHUVVXFKDVLQGLYLGXDOUHWDLORXWOHWV GHDOHUVDQGP HUFKDQWVXQGHUGHDOHUDJ UHHP HQWV Z KLFKW\ SLFDOO\ P D\ EHWHUP LQDWHGDWZ LOOE\ WKHSDUWQHURQVKRUWQRWLFHWR XV HJ GD\ V
7 KHUHLVVLJ QLILFDQWFRP SHWLWLRQIRURXUH[ LVWLQJ SDUWQHUV DQGRXUIDLOXUHWR UHWDLQRXUH[ LVWLQJ ODUJ HUSDUWQHUUHODWLRQVKLSVXSRQWKHH[ SLUDWLRQRURXUHDUOLHUORVVRI D UHODWLRQVKLS XSRQWKHH[ HUFLVHRI DSDUWQHU¶VHDUO\ WHUP LQDWLRQULJ KWV RUWKHH[ SLUDWLRQRUWHUP LQDWLRQRI DVXEVWDQWLDOQXP EHURI VP DOOHUSDUWQHUUHODWLRQVKLSV FRXOGKDYHD
P DWHULDODGYHUVHHIIHFWRQRXUUHVXOWVRI RSHUDWLRQV LQFOXGLQJ J URZ WKUDWHV DQGILQDQFLDOFRQGLWLRQWR WKHH[ WHQWZ HGR QRWDFTXLUHQHZ SDUWQHUVRI VLP LODUVL] HDQGSURILWDELOLW\ RURWKHUZ LVHJ URZ RXUEXVLQHVV 7 KHFRP SHWLWLRQIRUQHZ SDUWQHUVLVDOVR VLJ QLILFDQWDQGRXUIDLOXUHWR DWWUDFWQHZ SDUWQHUVFRXOGDGYHUVHO\ DIIHFWRXUDELOLW\ WR J URZ
$ VLJ QLILFDQWSHUFHQWDJ HRI RXUSODWIRUP UHYHQXHFRP HVIURP UHODWLRQVKLSVZLWK DVP DOOQXP EHURI 5 HWDLO&DUGSDUWQHUV DQGWKHORVVRI DQ\ RI WKHVH5 HWDLO&DUGSDUWQHUV FRXOGDGYHUVHO\ DIIHFWRXUEXVLQHVVDQGUHVXOWVRI RSHUDWLRQV
2 XUWHQODUJ HVWSDUWQHUUHODWLRQVKLSVDUHZ LWK5 HWDLO&DUGSDUWQHUVDQGDFFRXQWHGIRUDQDJ J UHJ DWHRI RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG
’ HFHP EHU 2 XUILYHODUJ HVWSURJ UDP V * DS -&3HQQH\ / RZ H¶V 6DP ¶V&OXE DQG: DOP DUWDFFRXQWHGLQDJ J UHJ DWHIRU RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDU HQGHG’ HFHP EHU 6DP ¶V&OXE LVDVXEVLGLDU\ RI : DOP DUWWKDWLVDVHSDUDWHFRQWUDFWLQJ HQWLW\ Z LWKLWVRZ QSURJ UDP DJ UHHP HQWZ LWKXV 2 XUSURJ UDP VZ LWK-&3HQQH\ DQG: DOP DUWHDFKDFFRXQWHGIRUP RUHWKDQ RI RXUWRWDOSODWIRUP UHYHQXHRYHUWKHVDP HSHULRG : HH[ SHFWWR KDYHVLJ QLILFDQWFRQFHQWUDWLRQLQRXUODUJ HVWUHODWLRQVKLSVIRU WKHIRUHVHHDEOHIXWXUH $ OWKRXJ KZ HKDYHP XOWL\ HDUSURJ UDP DJ UHHP HQWVZ LWKHDFKRI RXUWHQODUJ HVWSDUWQHUV WKHLUFXUUHQWDJ UHHP HQWVH[ SLUHDWYDULRXVWLP HV DQGWKH
DJ UHHP HQWZ LWKRQHRI WKHVHSDUWQHUV Z KLFKUHSUHVHQWHG ELOOLRQ RU RI RXUWRWDOORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW6HSWHP EHU KD H[ SLUHGDQGLVRQHRI WKHILYHSDUWQHUVGLVFXVVHGLQWKHSUHFHGLQJ 5 LVN) DFWRU Z KRVHSURJ UDP DJ UHHP HQWVZ LOOQRWEHH[ WHQGHGEH\ RQGWKHLUFRQWUDFWXDOH[ SLUDWLRQGDWHVLQ
RU , QDGGLWLRQ Z HUHFHQWO\ H[ WHQGHGRXUSURJ UDP DJ UHHP HQWZ LWK3D\ 3DORQHRI RXUWHQODUJ HVWSDUWQHUV XQWLO2 FWREHU DQGGR QRWH[ SHFWLWWR H[ WHQGEH\ RQGWKDW GDWH
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
2 XUUHVXOWVGHSHQG WR DVLJ QLILFDQWH[ WHQWRQ WKHDFWLYHDQGHIIHFWLYHSURP RWLRQ DQGVXSSRUWRI RXUSURGXFWVE\ RXUSDUWQHUV
2 XUSDUWQHUVJ HQHUDOO\ DFFHSWP RVWP DMRUFUHGLWFDUGVDQGYDULRXVRWKHUIRUP VRI SD\ P HQWDQGWKHUHIRUHRXUVXFFHVVGHSHQGVRQWKHLUDFWLYHDQGHIIHFWLYHSURP RWLRQRI RXUSURGXFWVWR WKHLUFXVWRP HUV : HGHSHQGRQRXUSDUWQHUVWR LQWHJ UDWHWKHXVHRI RXUFUHGLWSURGXFWVLQWR WKHLUVWRUHFXOWXUHE\ WUDLQLQJ WKHLUVDOHVDVVRFLDWHVDERXWRXU SURGXFWV KDYLQJ WKHLUVDOHVDVVRFLDWHVHQFRXUDJ HWKHLUFXVWRP HUVWR DSSO\ IRU DQGXVH RXUSURGXFWVDQGRWKHUZ LVHHIIHFWLYHO\ P DUNHWLQJ RXUSURGXFWV , QDGGLWLRQ DOWKRXJ KRX 5 HWDLO&DUGSURJ UDP VDQGRXU3D\ P HQW6ROXWLRQVSURJ UDP VZ LWKQDWLRQDODQGUHJ LRQDOUHWDLOHUSDUWQHUVW\ SLFDOO\ DUHH[ FOXVLYHZ LWKUHVSHFWWR WKHFUHGLWSURGXFWVZ HRIIHUDWWKD SDUWQHU VRP H3D\ P HQW6ROXWLRQVSURJ UDP VDQGP RVW&DUH&UHGLWSURYLGHUUHODWLRQVKLSVDUHQRWH[ FOXVLYHWR XV DQGWKHUHIRUHDSDUWQHUP D\ FKRRVHWR SURP RWHDFRP SHWLWRU¶V ILQDQFLQJ RYHURXUV GHSHQGLQJ XSRQFRVWDYDLODELOLW\ RUDWWUDFWLYHQHVVWR FRQVXP HUVRURWKHUIDFWRUV 7\ SLFDOO\ Z HGR QRWKDYH RUXWLOL] H DQ\ UHFRXUVHDJ DLQVWWKHVHQRQ
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
2 XUUHVXOWVDUHLP SDFWHG WR DVLJ QLILFDQWH[ WHQWE\ WKHILQDQFLDOSHUIRUP DQFHRI RXUSDUWQHUV
2 XUDELOLW\ WR J HQHUDWHQHZ ORDQVDQGWKHLQWHUHVWDQGIHHVDQGRWKHULQFRP HDVVRFLDWHGZ LWKWKHP LVGHSHQGHQWXSRQVDOHVRI P HUFKDQGLVHDQGVHUYLFHVE\ RXUSDUWQHUV
7 KHUHWDLODQGKHDOWKFDUHLQGXVWULHVLQZ KLFKRXUSDUWQHUVRSHUDWHDUHLQWHQVHO\ FRP SHWLWLYH 2 XUSDUWQHUVFRP SHWHZ LWKUHWDLOHUVDQGGHSDUWP HQWVWRUHVLQWKHLURZ QJ HRJ UDSKLF DUHDV DVZ HOODVFDWDORJ DQGLQWHUQHWVDOHVEXVLQHVVHV 2 XUSDUWQHUVLQWKHKHDOWKFDUHLQGXVWU\ FRP SHWHZ LWKRWKHUKHDOWKFDUHSURYLGHUV 2 XUSDUWQHUV¶VDOHVP D\ GHFUHDVHRUP D\ QRWLQFUHDVHDVZ HDQWLFLSDWHIRUYDULRXVUHDVRQV VRP HRI Z KLFKDUHLQWKHSDUWQHUV¶FRQWURODQGVRP HRI Z KLFKDUHQRW) RUH[ ▇▇ ▇▇▇ SDUWQHUVDOHVP D\ EHDGYHUVHO\ DIIHFWHGE\ P DFURHFRQRP LF FRQGLWLRQVKDYLQJ DQDWLRQDOUHJ LRQDORUP RUHORFDOHIIHFWRQFRQVXP HUVSHQGLQJ EXVLQHVVFRQGLWLRQVDIIHFWLQJ DSDUWLFXODUSDUWQHURULQGXVWU\ RUFDWDVWURSKHV DIIHFWLQJ EURDGRUP RUHGLVFUHWHJ HRJ UDSKLF DUHDV , I RXUSDUWQHUV¶VDOHVGHFOLQHIRUDQ\ UHDVRQ LWJ HQHUDOO\ UHVXOWVLQORZ HUFUHGLWVDOHV DQGWKHUHIRUHORZ HUORDQYROXP HDQG DVVRFLDWHGLQWHUHVWDQGIHHVDQGRWKHULQFRP HIRUXVIURP WKHLUFXVWRP HUV , QDGGLWLRQ LI DSDUWQHUFORVHVVRP HRUDOORI LWVVWRUHVRUEHFRP HVVXEMHFWWR DYROXQWDU\ RU LQYROXQWDU\ EDQNUXSWF\ SURFHHGLQJ RULI WKHUHLVDSHUFHSWLRQWKDWLWP D\ EHFRP HVXEMHFWWR DEDQNUXSWF\ SURFHHGLQJ LWVFXVWRP HUVZ KR KDYHXVHGRXUILQDQFLQJ SURGXFWVP D\ KDYHOHVVLQFHQWLYHWR SD\ WKHLURXWVWDQGLQJ EDODQFHVWR XV Z KLFKFRXOGUHVXOWLQKLJ KHUFKDUJ HRII UDWHVWKDQDQWLFLSDWHGDQGRXUFRVWVIRUVHUYLFLQJ LWVFXVWRP HUV¶DFFRXQWVP D\ LQFUHDVH 7 KLVULVNLVSDUWLFXODUO\ DFXWHZ LWKUHVSHFWWR RXUODUJ HVWSDUWQHUVWKDWDFFRXQWIRUDVLJ QLILFDQWDP RXQWRI RXUSODWIRUP UHYHQXH 6HH‡† $ VLJ QLILFDQWSHUFHQWDJ HRI RX SODWIRUP UHYHQXHFRP HVIURP UHODWLRQVKLSVZ LWKDVP DOOQXP EHURI 5 HWDLO&DUGSDUWQHUV DQGWKHORVVRI DQ\ RI WKHVH5 HWDLO&DUGSDUWQHUVFRXOGDGYHUVHO\ DIIHFWRXUEXVLQHVV DQGUHVXOWVRI RSHUDWLRQV· 0 RUHRYHU LI WKHILQDQFLDOFRQGLWLRQRI DSDUWQHUGHWHULRUDWHVVLJ QLILFDQWO\ RUDSDUWQHUEHFRP HVVXEMHFWWR DEDQNUXSWF\ SURFHHGLQJ Z HP D\ QRWEH DEOHWR UHFRYHUIRUFXVWRP HUUHWXUQV FXVWRP HUSD\ P HQWVP DGHLQSDUWQHUVWRUHVRURWKHUDP RXQWVGXHWR XVIURP WKHSDUWQHU$ GHFUHDVHLQVDOHVE\ RXUSDUWQHUVIRUDQ\ UHDVRQ RUDEDQNUXSWF\ SURFHHGLQJ LQYROYLQJ DQ\ RI WKHP FRXOGKDYHDP DWHULDODGYHUVHLP SDFWRQRXUEXVLQHVVDQGUHVXOWVRI RSHUDWLRQV
: HZLOOQHHGDGGLWLRQDOILQDQFLQJ DQGRXUERUURZLQJ FRVWVDUHKLJ KHUIROORZLQJ WKH, 3 2 DGYHUVHILQDQFLDOP DUNHWFRQGLWLRQVRURXULQDELOLW\ WR HIIHFWLYHO\ P DQDJ HRXU IXQGLQJ DQGOLTXLGLW\ ULVNFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXUIXQGLQJ OLTXLGLW\ DQGDELOLW\ WR P HHWRXUREOLJ DWLRQV LQFOXGLQJ RQ WKHQRWHV
: HQHHGWR HIIHFWLYHO\ P DQDJ HRXUIXQGLQJ DQGOLTXLGLW\ LQRUGHUWR P HHWRXUFDVKUHTXLUHP HQWVVXFKDVGD\ WR GD\ RSHUDWLQJ H[ SHQVHV H[ WHQVLRQVRI FUHGLWWR RXU FXVWRP HUV SD\ P HQWVRI SULQFLSDODQGLQWHUHVWRQRXUERUURZ LQJ V LQFOXGLQJ WKHQRWHV DQGSD\ P HQWVRQRXURWKHUREOLJ DWLRQV + LVWRULFDOO\ RXUSULP DU\ VRXUFHVRI IXQGLQJ DQG OLTXLGLW\ KDYHEHHQ DQGIROORZ LQJ WKH, 32 FRQWLQXHWR EH FROOHFWLRQVIURP RXUFXVWRP HUV GHSRVLWV IXQGVIURP VHFXULWL] HGILQDQFLQJ VDQGSURFHHGVIURP XQVHFXUHG
ERUURZ LQJ V 3ULRUWR WKH, 32 RXUXQVHFXUHGERUURZ LQJ VFDP HIURP * ( && DQGZ HEHOLHYHRXUDIILOLDWLRQZ LWK* ( P DGHLWHDVLHUDQGOHVVH[ SHQVLYHIRUXVWR REWDLQVRP HRI RX IXQGLQJ IURP WKLUGSDUWLHV , QWKHIXWXUH Z HGR QRWH[ SHFWWR UHFHLYHIXQGLQJ IURP * ( && RWKHUWKDQWUDQVLWLRQDOILQDQFLQJ Z HUHFHLYHIURP * ( && XQGHUWKH* ( && 7HUP / RD
) DFLOLW\ DQGH[ SHFWRXUERUURZ LQJ FRVWVIURP WKLUGSDUWLHVZ LOOEHKLJ KHUWKDQRXUKLVWRULFDOFRVWVIURP * ( && , QDGGLWLRQ DVDUHVXOWRI WKH, 32 LWP D\ EHP RUHGLIILFXOWIRUX WR VHFXULWL] HRXUORDQVEHFDXVHRXUFUHGLWUDWLQJ IURP WKHUDWLQJ DJ HQFLHVDUHORZ HUWKDQ* ( &&¶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
, I Z HGR QRWKDYHVXIILFLHQWOLTXLGLW\ Z HP D\ QRWEHDEOHWR P HHWRXUREOLJ DWLRQV SDUWLFXODUO\ GXULQJ DOLTXLGLW\ VWUHVVHYHQW, I Z HP DLQWDLQRUDUHUHTXLUHGWR P DLQWDLQ WRR P XFKOLTXLGLW\ LWFRXOGEHFRVWO\ DQGUHGXFHRXUILQDQFLDOIOH[ LELOLW\
: HZ LOOQHHGDGGLWLRQDOILQDQFLQJ LQWKHIXWXUHWR UHILQDQFHDQ\ H[ LVWLQJ GHEWLQFOXGLQJ WKHH[ SHFWHGSUHSD\ P HQWRI SDUWRUVXEVWDQWLDOO\ DOORI WKHRXWVWDQGLQJ GHEW XQGHUWKH* ( && 7HUP / RDQ) DFLOLW\ LQFRQQHFWLRQZ LWKRXUDSSOLFDWLRQWR WKH) HGHUDO5 HVHUYH%RDUGDQGWKH6HSDUDWLRQ DQGILQDQFHJ URZ WKRI RXUEXVLQHVV 7 KHDYDLODELOLW\ RI DGGLWLRQDOILQDQFLQJ Z LOOGHSHQGRQDYDULHW\ RI IDFWRUVVXFKDVILQDQFLDOP DUNHWFRQGLWLRQVJ HQHUDOO\ LQFOXGLQJ WKHDYDLODELOLW\ RI FUHGLWWR WKHILQDQFLDOVHUYLFHVLQGXVWU\ FRQVXP HUV¶Z LOOLQJ QHVVWR SODFHP RQH\ RQGHSRVLWLQWKH%DQN RXUSHUIRUP DQFHDQGFUHGLWUDWLQJ VDQGWKHSHUIRUP DQFHRI RXUVHFXULWL] HGSRUWIROLRV ’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
, QDGGLWLRQ DW6HSWHP EHU Z HKDGDQDJ J UHJ DWHRI DSSUR[ LP DWHO\ ELOOLRQRI XQGUDZ QFRP P LWWHGFDSDFLW\ IURP SULYDWHOHQGHUVXQGHUWZ R RI RXUH[ LVWLQJ VHFXULWL] DWLRQSURJ UDP V 2 XUDELOLW\ ▇▇ ▇▇▇▇ RQVXFKFRP P LWP HQWVLVVXEMHFWWR WKHVDWLVIDFWLRQRI FHUWDLQFRQGLWLRQV LQFOXGLQJ WKHDSSOLFDEOHVHFXULWL] DWLRQWUXVWKDYLQJ VXIILFLHQWFROODWHUDOWR VXSSRUWWKHDVVHWEDFNHGVHFXULWLHVLVVXDQFHDQGWKHDEVHQFHRI DQHDUO\ DP RUWL] DWLRQHYHQW0 RUHRYHU WKHUHDUHUHJ XODWRU\ UHIRUP VWKDWKDYHUHFHQWO\ EHHQSURSRVHGRUDGRSWHGLQWKH8 QLWHG6WDWHVDQGLQWHUQDWLRQDOO\ WKDWDUHLQWHQGHGWR DGGUHVVFHUWDLQLVVXHVWKDWDIIHFWHGEDQNVLQWKHUHFHQWILQDQFLDOFULVLV 7 KHVHUHIRUP V
J HQHUDOO\ UHIHUUHGWR DV‡%DVHO, , , ·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
: KLOHILQDQFLDOP DUNHWFRQGLWLRQVKDYHVWDELOL] HGDQG LQP DQ\ FDVHV LP SURYHGVLQFHWKHILQDQFLDOFULVLV WKHUHFDQEHQR DVVXUDQFHWKDWVLJ QLILFDQWGLVUXSWLRQV XQFHUWDLQWLHVDQGYRODWLOLW\ Z LOOQRWRFFXULQWKHIXWXUH , I Z HDUHXQDEOHWR FRQWLQXHWR ILQDQFHRXUEXVLQHVV DFFHVVFDSLWDOP DUNHWVDQGDWWUDFWGHSRVLWVRQIDYRUDEOHWHUP VDQGL DWLP HO\ P DQQHU RULI Z HH[ SHULHQFHDQLQFUHDVHLQRXUERUURZ LQJ FRVWVRURWKHUZ LVHIDLOWR P DQDJ HRXUOLTXLGLW\ HIIHFWLYHO\ RXUUHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ
P D\ EHP DWHULDOO\ DGYHUVHO\ DIIHFWHG
$ UHGXFWLRQ LQ RXUFUHGLWUDWLQJ VFRXOGP DWHULDOO\ LQFUHDVHWKHFRVWRI RXUIXQGLQJ IURP DQGUHVWULFWRXUDFFHVVWR WKHFDSLWDOP DUNHWV
2 XUVHQLRUXQVHFXUHGGHEWFXUUHQWO\ LVUDWHG%%% VWDEOHRXWORRN E\ ) LWFK5 DWLQJ V , QF ‡) LWFK· DQG%%% VWDEOHRXWORRN E\ 6WDQGDUG 3RRU¶V ‡6 3· $ OWKRXJ K Z HKDYHQRWUHTXHVWHGWKDW0 RRG\ ¶V, QYHVWRU6HUYLFHV , QF ‡0 RRG\ ¶V· SURYLGHDUDWLQJ IRURXUVHQLRUXQVHFXUHGGHEWZ HEHOLHYHWKDWLI 0 RRG\ ¶VZ HUHWR LVVXHDUDWLQJ RQRX XQVHFXUHGGHEWLWVUDWLQJ Z RXOGEHORZ HUWKDQWKHFRP SDUDEOHUDWLQJ VLVVXHGE\ ) LWFKDQG6 3 7 KHUDWLQJ VIRURXUXQVHFXUHGGHEWDUHEDVHGRQDQXP EHURI IDFWRUV LQFOXGLQJ RXUILQDQFLDOVWUHQJ WK DVZ HOODVIDFWRUVWKDWP D\ QRWEHZ LWKLQRXUFRQWUROVXFKDVP DFURHFRQRP LF FRQGLWLRQVDQGWKHUDWLQJ DJ HQFLHV¶SHUFHSWLRQRI WKHLQGXVWULHVLQZ KLFKZ RSHUDWHDQGWKHSURGXFWVZ HRIIHU$ VDUHVXOWRI WKH, 32 RXUXQVHFXUHGGHEWFUHGLWUDWLQJ IURP WKHUDWLQJ DJ HQFLHVLVORZ HUWKDQ* ( &&¶VFXUUHQWXQVHFXUHGGHEWFUHGLWUDWLQJ
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
: HH[ SHFWWKH* ( && UHVLJ QDWLRQDQGDVVLJ QP HQWZ LOORFFXURQWKHHDUOLHURI L WKHGDWHDOODVVHWEDFNHGVHFXULWLHVRXWVWDQGLQJ DWWKHHIIHFWLYHWLP HRI WKHDP HQGP HQWKDYH EHHQUHGHHP HGRUSDLGLQIXOO Z KLFKLVH[ SHFWHGWR RFFXUQR ODWHUWKDQ DQG LL Z KHQWKHKROGHUVRI VXFKVHFXULWLHVKDYHFRQVHQWHGWR DQDVVLJ QP HQWRI VXFKVHUYLFLQJ REOLJ DWLRQVWR XV WKH‡( [ SHFWHG* ( && 6HUYLFHU$ VVLJ QP HQW’ DWH· 7 KHUHFDQEHQR DVVXUDQFHWKDWZ HZ LOOEHDEOHWR P DLQWDLQRXUXQVHFXUHGGHEWRUDVVHWEDFNHGVHFXULWLHV FUHGLWUDWLQJ VRUWKDWDQ\ RI RXUFUHGLWUDWLQJ VZ LOOQRWEHORZ HUHGRUZ LWKGUDZ QLQWKHIXWXUH LQFOXGLQJ DV* ( GHFUHDVHVLWVRZ QHUVKLS LQXVRUZ KHQ* ( && LVQR ORQJ HUWKH VHUYLFHU: HDOVR FDQQRWEHVXUHWKDW* ( &&¶VFUHGLWUDWLQJ VZ LOOQRWEHORZ HUHGRUZ KDWLP SDFWDQ\ VXFKDFWLRQZ RXOGKDYHRQRXUFUHGLWUDWLQJ VDVZ HOODVWKRVHRI RXUDVVHW EDFNHGVHFXULWLHV $ GRZ QJ UDGHLQRXUXQVHFXUHGGHEWRUDVVHWEDFNHGVHFXULWLHVFUHGLWUDWLQJ V RULQYHVWRUFRQFHUQVWKDWDGRZ QJ UDGHP D\ RFFXU FRXOGP DWHULDOO\ LQFUHDVHWKH FRVWRI RXUIXQGLQJ IURP DQGUHVWULFWRXUDFFHVVWR WKHFDSLWDOP DUNHWV
, I WKHUDWLQJ VRQRXUDVVHWEDFNHGVHFXULWLHVDUHUHGXFHG SXWRQQHJ DWLYHZ DWFKRUZ LWKGUDZ QDVDUHVXOWRI WKH, 32 WKH6HSDUDWLRQ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQRU RWKHUZ LVH LWP D\ KDYHDQDGYHUVHHIIHFWRQWKHOLTXLGLW\ RUWKHP DUNHWSULFHRI RXUDVVHWEDFNHGVHFXULWLHVDQGRQWKHFRVWRI RURXUDELOLW\ WR FRQWLQXHXVLQJ VHFXULWL] HG ILQDQFLQJ VWR WKHH[ WHQWDQWLFLSDWHG
2 XULQDELOLW\ WR VHFXULWL]HRXUORDQVZRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXUEXVLQHVV OLTXLGLW\ FRVWRI IXQGVDQGILQDQFLDOFRQGLWLRQ
: HXVHWKHVHFXULWL] DWLRQRI ORDQV Z KLFKLQYROYHVWKHWUDQVIHURI ORDQVWR DWUXVWDQGWKHLVVXDQFHE\ WKHWUXVWRI DVVHWEDFNHGVHFXULWLHVWR WKLUG SDUW\ LQYHVWRUV DVD VLJ QLILFDQWVRXUFHRI IXQGLQJ 2 XUDYHUDJ HOHYHORI VHFXULWL] HGILQDQFLQJ VIURP WKLUGSDUWLHVZ DV ELOOLRQDQG ELOOLRQIRUWKH\ HDUVHQGHG’ HFHP EHU DQG UHVSHFWLYHO\ ) RUDGLVFXVVLRQRI RXUVHFXULWL] DWLRQDFWLYLWLHV VHH‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG
5 HVXOWVRI 2 SHUDWLRQV† ) XQGLQJ / LTXLGLW\ DQG&DSLWDO5 HVRXUFHV† ) XQGLQJ 6RXUFHV† 6HFXULWL] HG) LQDQFLQJ V· ‡† ’ HVFULSWLRQRI &HUWDLQ, QGHEWHGQHVV† 6HFXULWL] HG
) LQDQFLQJ V· DQG1 RWH 9 DULDEOH, QWHUHVW( QWLWLHVWR RXUFRP ELQHGILQDQFLDOVWDWHP HQWV
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
%DQN Z KLFKP D\ QRWEHDYDLODEOHRUP D\ EHDYDLODEOHRQO\ DWKLJ KHUFRVW$ SURORQJ HGLQDELOLW\ WR VHFXULWL] HRXUORDQVRQIDYRUDEOHWHUP V RUDWDOORUWR UHILQDQFHRXUDVVHW EDFNHGVHFXULWLHVZ RXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV OLTXLGLW\ FRVWRI IXQGVDQGILQDQFLDOFRQGLWLRQ
7 KHRFFXUUHQFHRI DQ HDUO\ DP RUWL]DWLRQ RI RXUVHFXULWL]DWLRQ IDFLOLWLHVZRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXUOLTXLGLW\ DQGFRVWRI IXQGV
2 XUOLTXLGLW\ Z RXOGEHP DWHULDOO\ DGYHUVHO\ DIIHFWHGE\ WKHRFFXUUHQFHRI HYHQWVUHVXOWLQJ LQWKHHDUO\ DP RUWL] DWLRQRI RXUH[ LVWLQJ VHFXULWL] HGILQDQFLQJ V ) ▇▇▇ GHVFULSWLRQRI WKHVHHDUO\ DP RUWL] DWLRQHYHQWV VHH‡, WHP ) LQDQFLDO, QIRUP DWLRQ† ’ HVFULSWLRQRI &HUWDLQ, QGHEWHGQHVV† 6HFXULWL] HG) LQDQFLQJ V· ’ XULQJ DQHDUO\ DP RUWL] DWLR SHULRG SULQFLSDOFROOHFWLRQVIURP WKHORDQVLQRXUDVVHWEDFNHGVHFXULWL] DWLRQWUXVWVZ RXOGEHDSSOLHGWR UHSD\ SULQFLSDORI WKHDVVHWEDFNHGVHFXULWLHVUDWKHUWKDQEHLQJ DYDLODEO RQDUHYROYLQJ EDVLVWR IXQGSXUFKDVHVRI QHZ O\ RULJ LQDWHGORDQV 7 KLVZ RXOGQHJ DWLYHO\ LP SDFWRXUOLTXLGLW\ LQFOXGLQJ RXUDELOLW\ WR RULJ LQDWHQHZ ORDQVXQGHUH[ LVWLQJ DFFRXQWV DQGUHTXLUHXVWR UHO\ RQDOWHUQDWLYHIXQGLQJ VRXUFHV Z KLFKP LJ KWLQFUHDVHRXUIXQGLQJ FRVWVRUP LJ KWQRWEHDYDLODEOHZ KHQQHHGHG
2 XUORVVRI WKHULJ KWWR VHUYLFHRUVXEVHUYLFHRXUVHFXULWL]HGORDQVZRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXUOLTXLGLW\ DQGFRVWRI IXQGV
* ( && FXUUHQWO\ DFWVDVVHUYLFHUZ LWKUHVSHFWWR RXUSXEOLFO\ UHJ LVWHUHGVHFXULWL] DWLRQWUXVWDQGLWVUHODWHGVHULHVRI DVVHWEDFNHGVHFXULWLHV DQGWKH%DQNDFWVDVVHUYLFHU Z LWKUHVSHFWWR RXURWKHUWZ R VHFXULWL] DWLRQWUXVWV , I * ( && RUWKH%DQN DVDSSOLFDEOH GHIDXOWVLQLWVVHUYLFLQJ REOLJ DWLRQV DQHDUO\ DP RUWL] DWLRQHYHQWFRXOGRFFXUZ LWKUHVSHF WR WKHUHOHYDQWDVVHWEDFNHGVHFXULWLHVDQGRU* ( && RUWKH%DQN DVDSSOLFDEOH FRXOGEHUHSODFHGDVVHUYLFHU6HUYLFHUGHIDXOWVLQFOXGH IRUH[ ▇▇ ▇▇▇ WKHIDLOXUHRI WKHVHUYLFHU WR P DNHDQ\ SD\ P HQWWUDQVIHURUGHSRVLWLQDFFRUGDQFHZ LWKWKHVHFXULWL] DWLRQGRFXP HQWV DEUHDFKRI UHSUHVHQWDWLRQV Z DUUDQWLHVRUDJ UHHP HQWVP DGHE\ WKHVHUYLFHUXQGHUWKH VHFXULWL] DWLRQGRFXP HQWV WKHGHOHJ DWLRQRI WKHVHUYLFHU¶VGXWLHVFRQWUDU\ WR WKHVHFXULWL] DWLRQGRFXP HQWVDQGWKHRFFXUUHQFHRI FHUWDLQLQVROYHQF\ HYHQWVZ LWKUHVSHFWWR WKH VHUYLFHU6XFKDQDP RUWL] DWLRQHYHQWZ RXOGKDYHWKHDGYHUVHFRQVHTXHQFHVGLVFXVVHGLQWKHLP P HGLDWHO\ SUHFHGLQJ ULVNIDFWRU
: HH[ SHFW* ( && Z LOOUHVLJ QDQGDVVLJ QLWVVHUYLFLQJ REOLJ DWLRQVIRURXUSXEOLFO\ UHJ LVWHUHGVHFXULWL] DWLRQWUXVWWR XVRQRUVKRUWO\ DIWHUWKH( [ SHFWHG* ( && 6HUYLFHU
$ VVLJ QP HQW’ DWHDQGXQWLOWKDWWLP H RXUDELOLW\ WR VHUYLFHWKHSXEOLF VHFXULWL] DWLRQWUXVW¶VDVVHWVSXUVXDQWWR WKHVXE VHUYLFLQJ DUUDQJ HP HQWZ LWK* ( && Z LOOEHGHSHQGHQWRQ
* ( && QRWEHLQJ WHUP LQDWHGDVVHUYLFHUIRUDVHUYLFHUGHIDXOWRUUHVLJ QLQJ LQDFFRUGDQFHZ LWKWKHUHTXLUHP HQWVVSHFLILHGLQWKHWUXVW¶VSURJ UDP GRFXP HQWV DVZ HOODVXVQRW EHLQJ WHUP LQDWHGIRUDGHIDXOWXQGHURXUVXE VHUYLFLQJ DUUDQJ HP HQWZ LWK* ( && , I * ( && GHIDXOWVRUUHVLJ QV RULI Z HGHIDXOWXQGHURXUVXE VHUYLFLQJ DUUDQJ HP HQW DWKLUG SDUW\ FRXOGEHDSSRLQWHGVHUYLFHUZ LWKUHVSHFWWR RXUSXEOLFO\ UHJ LVWHUHGVHFXULWL] DWLRQWUXVWSDUWLFXODUO\ LI QHLWKHUZ HQRUWKH%DQNKDYHWKHUHTXLUHGUDWLQJ VWR VHUYHDV VXFFHVVRUVHUYLFHU6LP LODUO\ LI Z HGHIDXOWLQRXUVHUYLFLQJ REOLJ DWLRQVZ LWKUHVSHFWWR HLWKHURI RXURWKHUWZ R VHFXULWL] DWLRQWUXVWV DWKLUGSDUW\ FRXOGEHDSSRLQWHGDVVHUYLFHUR WKHUHODWHGWUXVW, I DWKLUG SDUW\ VHUYLFHULVDSSRLQWHG WKHUHLVQR DVVXUDQFHWKDWWKHWKLUG SDUW\ Z LOOHQJ DJ HXVDVVXE VHUYLFHU LQZ KLFKHYHQWZ HZ RXOGQR ORQJ HUEHDEOHWR FRQWUROWKHP DQQHULQZ KLFKWKHUHODWHGWUXVW¶VDVVHWVDUHVHUYLFHG DQGWKHIDLOXUHRI DWKLUGSDUW\ WR DSSURSULDWHO\ VHUYLFHVXFKDVVHWVFRXOGOHDGWR DQHDUO\ DP RUWL] DWLRQHYHQWL WKHDIIHFWHGVHFXULWL] DWLRQWUXVWZ KLFKZ RXOGKDYHWKHDGYHUVHFRQVHTXHQFHVGLVFXVVHGLQWKHLP P HGLDWHO\ SUHFHGLQJ ULVNIDFWRU
/ RZHUSD\ P HQWUDWHVRQ RXUVHFXULWL]HGORDQVFRXOGP DWHULDOO\ DGYHUVHO\ DIIHFWRXUOLTXLGLW\ DQGILQDQFLDOFRQGLWLRQ
&HUWDLQFROOHFWLRQVIURP RXUVHFXULWL] HGORDQVFRP HEDFNWR XVWKURXJ KRXUVXEVLGLDULHV DQGZ HXVHWKHVHFROOHFWLRQVWR IXQGRXUSXUFKDVHRI QHZ O\ RULJ LQDWHGORDQVWR FROODWHUDOL] HRXUVHFXULWL] HGILQDQFLQJ V , I SD\ P HQWUDWHVRQRXUVHFXULWL] HGORDQVDUHORZ HUWKDQWKH\ KDYHKLVWRULFDOO\ EHHQ IHZ HUFROOHFWLRQVZ LOOEHUHP LWWHGWR XVRQDQ
RQJ RLQJ EDVLV ) XUWKHU FHUWDLQVHULHVRI RXUDVVHWEDFNHGVHFXULWLHVLQFOXGHDUHTXLUHP HQWWKDWZ HDFFXP XODWHSULQFLSDOFROOHFWLRQVLQDUHVWULFWHGDFFRXQWIRUDVSHFLILHGQXP EH RI P RQWKVSULRUWR WKHDSSOLFDEOHVHFXULW\ ¶VP DWXULW\ GDWH : HDUHUHTXLUHGXQGHUWKHSURJ UDP GRFXP HQWVWR OHQJ WKHQWKLVDFFXP XODWLRQSHULRGWR WKHH[ WHQWZ HH[ SHFWWKH
SD\ P HQWUDWHVWR EHORZ HQRXJ KWKDWWKHFXUUHQWOHQJ WKRI WKHDFFXP XODWLRQSHULRGLVLQDGHTXDWHWR IXOO\ IXQGWKHUHVWULFWHGDFFRXQWE\ WKHDSSOLFDEOHVHFXULW\ ¶VP DWXULW\ GDWH
/ RZ HUSD\ P HQWUDWHV DQGLQSDUWLFXODU SD\ P HQWUDWHVWKDWDUHORZ HQRXJ KWKDWZ HDUHUHTXLUHGWR OHQJ WKHQRXUDFFXP XODWLRQSHULRGV FRXOGP DWHULDOO\ DGYHUVHO\ DIIHFWRXU OLTXLGLW\ DQGILQDQFLDOFRQGLWLRQ
2 XULQDELOLW\ WR J URZ RXUGHSRVLWVLQ WKHIXWXUHFRXOGP DWHULDOO\ DGYHUVHO\ DIIHFWRXUOLTXLGLW\ DQGDELOLW\ WR J URZ RXUEXVLQHVV
: HREWDLQGHSRVLWVGLUHFWO\ IURP UHWDLODQGFRP P HUFLDOFXVWRP HUVRUWKURXJ KEURNHUDJ HILUP VWKDWRIIHURXUGHSRVLWSURGXFWVWR WKHLUFXVWRP HUV $ W6HSWHP EHU Z HKDG ELOOLRQLQGLUHFWGHSRVLWV Z KLFKLQFOXGHVGHSRVLWVIURP EDQNVDQGILQDQFLDOLQVWLWXWLRQV DQG ELOOLRQLQGHSRVLWVRULJ LQDWHGWKURXJ KEURNHUDJ HILUP V
LQFOXGLQJ QHWZ RUNGHSRVLWVZ HHSVSURFXUHGWKURXJ KDSURJ UDP DUUDQJ HUZ KR FKDQQHOVEURNHUDJ HDFFRXQWGHSRVLWVWR XV $ NH\ SDUWRI RXUOLTXLGLW\ SODQDQGIXQGLQJ VWUDWHJ \ LVWR VLJ QLILFDQWO\ H[ SDQGRXUGLUHFWGHSRVLWV $ OWKRXJ KZ HH[ SHFWWR UHGXFHWKHSURSRUWLRQRI RXUIXQGLQJ SURYLGHGE\ EURNHUHGGHSRVLWVLQFRQQHFWLRQZ LWKRXUDSSOLFDWLRQWR WKH) HGHUDO5 HVHUYH%RDUG Z HDOVR LQWHQGWR FRQWLQXHWR UHO\ RQEURNHUHGGHSRVLWVDVDVRXUFHRI IXQGLQJ
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¶VEUDQGDQGUHSXWDWLRQDVDUHVXOWRI WKH, 32 RUWKH6HSDUDWLRQ
7 KHGHP DQGIRUWKHGHSRVLWSURGXFWVZ HRIIHUP D\ DOVR EHUHGXFHGGXHWR DYDULHW\ RI IDFWRUV VXFKDVGHP RJ UDSKLF SDWWHUQV FKDQJ HVLQFXVWRP HUSUHIHUHQFHV UHGXFWLRQ LQFRQVXP HUV¶GLVSRVDEOHLQFRP H UHJ XODWRU\ DFWLRQVWKDWGHFUHDVHFXVWRP HUDFFHVVWR SDUWLFXODUSURGXFWVRUWKHDYDLODELOLW\ RI FRP SHWLQJ SURGXFWV &RP SHWLWLRQIURP RWKHU ILQDQFLDOVHUYLFHVILUP VDQGRWKHUVWKDWXVHGHSRVLWIXQGLQJ SURGXFWVP D\ DIIHFWGHSRVLWUHQHZ DOUDWHV FRVWVRUDYDLODELOLW\ &KDQJ HVZ HP DNHWR WKHUDWHVRIIHUHGRQRXUGHSRVL SURGXFWVP D\ DIIHFWRXUSURILWDELOLW\ DQGOLTXLGLW\
7 KH) ’ , $ SURKLELWVDQLQVXUHGEDQNIURP DFFHSWLQJ EURNHUHGGHSRVLWVRURIIHULQJ LQWHUHVWUDWHVRQDQ\ GHSRVLWVVLJ QLILFDQWO\ KLJ KHUWKDQWKHSUHYDLOLQJ UDWHLQWKHEDQN¶V QRUP DOP DUNHWDUHDRUQDWLRQDOO\ GHSHQGLQJ XSRQZ KHUHWKHGHSRVLWVDUHVROLFLWHG XQOHVVLWLV‡Z HOOFDSLWDOL] HG· RULWLV‡DGHTXDWHO\ FDSLWDOL] HG· DQGUHFHLYHVDZ DLYHUIURP WKH) ’ ,& $ EDQNWKDWLV‡DGHTXDWHO\ FDSLWDOL] HG· DQGDFFHSWVEURNHUHGGHSRVLWVXQGHUDZ DLYHUIURP WKH) ’ ,& P D\ QRWSD\ DQLQWHUHVWUDWHRQDQ\ GHSRVLWLQH[ FHVVRI EDVL SRLQWVRYHUFHUWDLQSUHYDLOLQJ P DUNHWUDWHV 7 KHUHDUHQR VXFKUHVWULFWLRQVXQGHUWKH) ’ , $ RQDEDQNWKDWLV‡Z HOOFDSLWDOL] HG· DQGDW6HSWHP EHU WKH%DQNP HWRU
H[ FHHGHGDOODSSOLFDEOHUHTXLUHP HQWVWR EHGHHP HG‡Z HOOFDSLWDOL] HG· IRUSXUSRVHVRI WKH) ’ , $ + RZ HYHU WKHUHFDQEHQR DVVXUDQFHWKDWWKH%DQNZ LOOFRQWLQXHWR P HHWWKRVH UHTXLUHP HQWV / LP LWDWLRQVRQWKH%DQN¶VDELOLW\ WR DFFHSWEURNHUHGGHSRVLWVIRUDQ\ UHDVRQ LQFOXGLQJ UHJ XODWRU\ OLP LWDWLRQVRQWKHDP RXQWRI EURNHUHGGHSRVLWVLQWRWDORUDVD SHUFHQWDJ HRI WRWDODVVHWV LQWKHIXWXUHFRXOGP DWHULDOO\ DGYHUVHO\ LP SDFWRXUIXQGLQJ FRVWVDQGOLTXLGLW\ $ Q\ OLP LWDWLRQRQWKHLQWHUHVWUDWHVWKH%DQNFDQSD\ RQGHSRVLWVFRXO FRP SHWLWLYHO\ GLVDGYDQWDJ HXVLQDWWUDFWLQJ DQGUHWDLQLQJ GHSRVLWVDQGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV
&KDQJ HVLQ P DUNHWLQWHUHVWUDWHVFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXUQHWHDUQLQJ V IXQGLQJ DQGOLTXLGLW\
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‡/ , %2 5 · RUWKHIHGHUDOIXQGVUDWH 7 KHSULP HUDWHDQG/ , %2 5 RUWKHIHGHUDO IXQGVUDWHFRXOGUHVHWDWGLIIHUHQWWLP HVRUFRXOGGLYHUJ H OHDGLQJ WR P LVP DWFKHVLQWKHLQWHUHVWUDWHVRQRXUIORDWLQJ UDWHDVVHWVDQGIORDWLQJ UDWHOLDELOLWLHV 7R WKHH[ WHQWZ HDUH XQDEOHWR HIIHFWLYHO\ P DWFKWKHLQWHUHVWUDWHVRQRXUDVVHWVDQGOLDELOLWLHV LQFOXGLQJ LQWKHIXWXUH SRWHQWLDOO\ WKURXJ KWKHXVHRI GHULYDWLYHV RXUQHWHDUQLQJ VFRXOGEH
P DWHULDOO\ DGYHUVHO\ DIIHFWHG
&RP SHWLWLYHDQGUHJ XODWRU\ IDFWRUVP D\ OLP LWRXUDELOLW\ WR UDLVHLQWHUHVWUDWHV IL[ HGRUIORDWLQJ RQRXUORDQV , QDGGLWLRQ VRP HRI RXUSURJ UDP DJ UHHP HQWVOLP LWWKHUDWH RI LQWHUHVWZ HFDQFKDUJ HWR FXVWRP HUVXQGHUWKRVHDJ UHHP HQWV , I LQWHUHVWUDWHVZ HUHWR ULVHP DWHULDOO\ RYHUDVXVWDLQHGSHULRGRI WLP H DQGZ HDUHXQDEOHWR VXIILFLHQWO\ UDLVHRX LQWHUHVWUDWHVLQDWLP HO\ P DQQHU RUDWDOORXUQHWLQWHUHVWP DUJ LQFRXOGEHDGYHUVHO\ LP SDFWHG Z KLFKFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUQHWHDUQLQJ V
, QWHUHVWUDWHVP D\ DOVR DGYHUVHO\ LP SDFWRXUFXVWRP HUV¶VSHQGLQJ OHYHOVDQGDELOLW\ DQGZ LOOLQJ QHVVWR SD\ DP RXQWVRZ HGWR XV 2 XUIORDWLQJ UDWHFUHGLWSURGXFWVEHDU LQWHUHVWUDWHVWKDWIOXFWXDWHZ LWKWKHSULP HUDWH + LJ KHULQWHUHVWUDWHVRIWHQOHDGWR KLJ KHUSD\ P HQWREOLJ DWLRQVE\ FXVWRP HUVWR XVDQGRWKHUOHQGHUVXQGHUP RUWJ ▇▇ ▇ FUHGLWFDUG DQGRWKHUFRQVXP HUORDQV Z KLFKP D\ UHGXFHRXUFXVWRP HUV¶DELOLW\ WR UHP DLQFXUUHQWRQWKHLUREOLJ DWLRQVWR XVDQGWKHUHIRUHOHDGWR LQFUHDVHGGHOLQTXHQFLHV EDQNUXSWFLHV FKDUJ HRIIVDQGDOORZ DQFHVIRUORDQORVVHV DQGGHFUHDVLQJ UHFRYHULHV DOORI Z KLFKFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUQHWHDUQLQJ V
&KDQJ HVLQLQWHUHVWUDWHVDQGFRP SHWLWRUUHVSRQVHVWR WKHVHFKDQJ HVP D\ DOVR LP SDFWFXVWRP HUGHFLVLRQVWR P DLQWDLQGHSRVLWVZ LWKXV DQGUHGXFWLRQVLQGHSRVLWVFRXOG P DWHULDOO\ DGYHUVHO\ DIIHFWRXUIXQGLQJ FRVWVDQGOLTXLGLW\
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‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV† 4 XDQWLWDWLYHDQG 4 XDOLWDWLYH’ LVFORVXUHV$ ERXW0 DUNHW5 LVN·
2 XUULVNP DQDJ HP HQWSURFHVVHVDQGSURFHGXUHVP D\ QRWEHHIIHFWLYHLQ P LWLJ DWLQJ RXUULVNV
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‡, WHP %XVLQHVV† &UHGLW5 LVN0 DQDJ HP HQW· DQG
‡† 5 LVN0 DQDJ HP HQW· IRUDGGLWLRQDOLQIRUP DWLRQRQWKHW\ SHVRI ULVNVDIIHFWLQJ RXUEXVLQHVV
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
: HUHO\ H[ WHQVLYHO\ RQ P RGHOVLQ P DQDJ LQJ P DQ\ DVSHFWVRI RXUEXVLQHVV DQGLI WKH\ DUHQRWDFFXUDWHRUDUHP LVLQWHUSUHWHG LWFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXU EXVLQHVVDQGUHVXOWVRI RSHUDWLRQV
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
2 XUEXVLQHVVGHSHQGVRQ RXUDELOLW\ WR VXFFHVVIXOO\ P DQDJ HRXUFUHGLWULVN DQGIDLOLQJ WR GR VR P D\ UHVXOWLQ KLJ KFKDUJ HRII UDWHV
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
2 XUDELOLW\ WR P DQDJ HFUHGLWULVNDQGDYRLGKLJ KFKDUJ HRII UDWHVDOVR P D\ EHDGYHUVHO\ DIIHFWHGE\ HFRQRP LF FRQGLWLRQVWKDWP D\ EHGLIILFXOWWR SUHGLFWVXFKDVWKH UHFHQWILQDQFLDOFULVLV $ OWKRXJ KGHOLQTXHQFLHVDQGFKDUJ HRIIVFRQWLQXHGWR GHFOLQHWKURXJ K WKH\ ERWKP D\ LQFUHDVHLQWKHIXWXUHDQGDUHOLNHO\ WR LQFUHDVHP DWHULDOO\ LI HFRQRP LF FRQGLWLRQVGHWHULRUDWH : HUHP DLQVXEMHFWWR FRQGLWLRQVLQWKHFRQVXP HUFUHGLWHQYLURQP HQW7 KHUHFDQEHQR DVVXUDQFHWKDWRXUFUHGLWXQGHUZ ULWLQJ DQGULVN
P DQDJ HP HQWVWUDWHJ LHVZ LOOHQDEOHXVWR DYRLGKLJ KFKDUJ HRII OHYHOVRUGHOLQTXHQFLHV RUWKDWRXUDOORZ DQFHIRUORDQORVVHVZ LOOEHVXIILFLHQWWR FRYHUDFWXDOORVVHV
$ FXVWRP HU¶VDELOLW\ WR UHSD\ XVFDQEHQHJ DWLYHO\ LP SDFWHGE\ LQFUHDVHVLQWKHLUSD\ P HQWREOLJ DWLRQVWR RWKHUOHQGHUVXQGHUP RUWJ ▇▇ ▇ FUHGLWFDUGDQGRWKHUORDQV LQFOXGLQJ VWXGHQWORDQV 7 KHVHFKDQJ HVFDQUHVXOWIURP LQFUHDVHVLQEDVHOHQGLQJ UDWHVRUVWUXFWXUHGLQFUHDVHVLQSD\ P HQWREOLJ DWLRQV DQGFRXOGUHGXFHWKHDELOLW\ RI RXU FXVWRP HUVWR P HHWWKHLUSD\ P HQWREOLJ DWLRQVWR RWKHUOHQGHUVDQGWR XV , QDGGLWLRQ DFXVWRP HU¶VDELOLW\ WR UHSD\ XVFDQEHQHJ DWLYHO\ LP SDFWHGE\ WKHUHVWULFWHGDYDLODELOLW\ RI FUHGLWWR FRQVXP HUVJ HQHUDOO\ LQFOXGLQJ UHGXFHGDQGFORVHGOLQHVRI FUHGLW&XVWRP HUVZ LWKLQVXIILFLHQWFDVKIORZ WR IXQGGDLO\ OLYLQJ H[ SHQVHVDQGODFNRI DFFHVVWR RWKHU VRXUFHVRI FUHGLWP D\ EHP RUHOLNHO\ WR LQFUHDVHWKHLUFDUGXVDJ HDQGXOWLP DWHO\ GHIDXOWRQWKHLUSD\ P HQWREOLJ DWLRQVWR XV UHVXOWLQJ LQKLJ KHUFUHGLWORVVHVLQRXUSRUWIROLR 2 XU FROOHFWLRQRSHUDWLRQVP D\ QRWFRP SHWHHIIHFWLYHO\ WR VHFXUHP RUHRI FXVWRP HUV¶GLP LQLVKHGFDVKIORZ WKDQRXUFRP SHWLWRUV , QDGGLWLRQ Z HP D\ QRWLGHQWLI\ FXVWRP HUVZ KR DU OLNHO\ WR GHIDXOWRQWKHLUSD\ P HQWREOLJ DWLRQVWR XVDQGUHGXFHRXUH[ SRVXUHE\ FORVLQJ FUHGLWOLQHVDQGUHVWULFWLQJ DXWKRUL] DWLRQVTXLFNO\ HQRXJ K Z KLFKFRXOGKDYHDP DWHULDO DGYHUVHHIIHFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ $ W6HSWHP EHU RI RXUSRUWIROLR¶VORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOG IRUVDOH Z HUHIURP FRQVXP HUVZ LWKD) ,&2 VFRUHRI RUOHVV Z KLFKW\ SLFDOO\ KDYHKLJ KHUGHOLQTXHQF\ DQGFUHGLWVORVVHVWKDQFRQVXP HUVZ LWKKLJ KHU) ,&2 VFRUHV
2 XUDELOLW\ WR P DQDJ HFUHGLWULVNDOVR P D\ EHDGYHUVHO\ DIIHFWHGE\ OHJ DORUUHJ XODWRU\ FKDQJ HV VXFKDVEDQNUXSWF\ ODZ VDQGP LQLP XP SD\ P HQWUHJ XODWLRQV DQG FROOHFWLRQUHJ XODWLRQV FRP SHWLWRUV¶DFWLRQVDQGFRQVXP HUEHKDYLRU DVZ HOODVLQDGHTXDWHFROOHFWLRQVVWDIILQJ WHFKQLTXHV P RGHOVDQGSHUIRUP DQFHRI YHQGRUVVXFKDVFROOHFWLR DJ HQFLHV
2 XUDOORZDQFHIRUORDQ ORVVHVP D\ SURYHWR EHLQVXIILFLHQWWR FRYHUORVVHVRQ RXUORDQV
: HP DLQWDLQDQDOORZ DQFHIRUORDQORVVHV DUHVHUYHHVWDEOLVKHGWKURXJ KDSURYLVLRQIRUORVVHVFKDUJ HGWR H[ SHQVH WKDWZ HEHOLHYHLVDSSURSULDWHWR SURYLGHIRULQFXUUHG ORVVHVLQRXUORDQSRUWIROLR , QDGGLWLRQ IRUSRUWIROLRVZ HP D\ DFTXLUHZ KHQZ HHQWHULQWR QHZ SDUWQHUSURJ UDP DJ UHHP HQWV DQ\ GHWHULRUDWLRQLQWKHSHUIRUP DQFHRI WKH SXUFKDVHGSRUWIROLRVDIWHUDFTXLVLWLRQUHVXOWVLQLQFUHP HQWDOORVVUHVHUYHV * URZ WKLQRXUORDQSRUWIROLR J HQHUDOO\ Z RXOGOHDGWR DQLQFUHDVHLQWKHDOORZ DQFHIRUORDQORVVHV
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
’ XULQJ DQG Z HHQKDQFHGRXUDOORZ DQFHIRUORDQORVVHVP HWKRGRORJ \ 7 KLVHQKDQFHP HQWUHVXOWHGLQDP RUHJ UDQXODUSRUWIROLR VHJ P HQWDWLRQDQDO\ VLV E\ ORVVW\ SH LQFOXGHGDTXDOLWDWLYHDVVHVVP HQWRI WKHDGHTXDF\ RI WKHSRUWIROLR¶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
, I DVVXP SWLRQVRUHVWLP DWHVZHXVHLQ SUHSDULQJ RXUILQDQFLDOVWDWHP HQWVDUHLQFRUUHFWRUDUHUHTXLUHGWR FKDQJ H RXUUHSRUWHGUHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLR P D\ EHDGYHUVHO\ DIIHFWHG
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
, QDGGLWLRQ WKH) LQDQFLDO$ FFRXQWLQJ 6WDQGDUGV%RDUG ‡) $ 6%·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‡, WHP
) LQDQFLDO, QIRUP DWLRQ† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV† &ULWLFDO$ FFRXQWLQJ ( VWLP DWHV· DQG1 RWH %DVLVRI 3UHVHQWDWLRQDQG6XP P DU\ RI 6LJ QLILFDQW$ FFRXQWLQJ 3ROLFLHVWR RXUFRP ELQHGILQDQFLDOVWDWHP HQWV
: HP D\ QRWEHDEOHWR RIIVHWLQFUHDVHVLQ RXUFRVWVZLWK GHFUHDVHGSD\ P HQWVXQGHURXUUHWDLOHUVKDUHDUUDQJ HP HQWV ZKLFK FRXOGUHGXFHRXUSURILWDELOLW\
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
WKHDJ UHHGFRQWUDFWXDOO\ GHILQHGWKUHVKROG + RZ HYHU EHFDXVHWKHWKUHVKROGDQGWKHHFRQRP LF SHUIRUP DQFHRI DSURJ UDP WKDWDUHXVHGWR FDOFXODWHSD\ P HQWVWR RXUSDUWQHUVP D\ EHEDVHGRQ DP RQJ RWKHUWKLQJ V DJ UHHGXSRQP HDVXUHVRI SURJ UDP H[ SHQVHVUDWKHUWKDQRXUDFWXDOH[ SHQVHV Z HP D\ QRWEHDEOHWR SDVVRQLQFUHDVHVLQRXUDFWXDOH[ SHQVHV VXFKDVIXQGLQJ FRVWVRURSHUDWLQJ H[ SHQVHV LQWKHIRUP RI UHGXFHGSD\ P HQWVXQGHURXUUHWDLOHUVKDUHDUUDQJ HP HQWV DQGRXUHFRQRP LF UHWXUQRQDSURJ UDP FRXOGEHDGYHUVHO\ DIIHFWHG
&RP SHWLWLRQ LQ WKHFRQVXP HUILQDQFHLQGXVWU\ LVLQWHQVH
7 KHVXFFHVVRI RXUEXVLQHVVGHSHQGVRQRXUDELOLW\ WR UHWDLQH[ LVWLQJ SDUWQHUVDQGDWWUDFWQHZ SDUWQHUV 7 KHFRP SHWLWLRQIRUSDUWQHUVLVLQWHQVHDQGEHFRP LQJ P RUH FRP SHWLWLYH 2 XUSULP DU\ FRP SHWLWRUVIRUSDUWQHUVLQFOXGHP DMRUILQDQFLDOLQVWLWXWLRQV VXFKDV$ OOLDQFH’ DWD $ P HULFDQ( [ SUHVV &DSLWDO2 QH &KDVH &LWLEDQN 7 ’ %DQNDQG
: HOOV) DUJ R DQGWR DOHVVHUH[ WHQWSRWHQWLDOSDUWQHUV¶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
2 XUVXFFHVVDOVR GHSHQGVRQRXUDELOLW\ WR DWWUDFWDQGUHWDLQFXVWRP HUVDQGJ HQHUDWHXVDJ HRI RXUSURGXFWVE\ WKHP 7 KHFRQVXP HUFUHGLWDQGSD\ P HQWVLQGXVWU\ LVKLJ KO\ FRP SHWLWLYHDQGZ HIDFHDQLQFUHDVLQJ O\ G\ QDP LF LQGXVWU\ DVHP HUJ LQJ WHFKQRORJ LHVHQWHUWKHP DUNHWSODFH $ VDIRUP RI SD\ P HQWRXUSURGXFWVFRP SHWHZ LWKFDVK FKHFNV GHELWFDUGV J HQHUDOSXUSRVHFUHGLWFDUGV LQFOXGLQJ 9 LVDDQG0 DVWHU&DUG $ P HULFDQ( [ SUHVVDQG’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¶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
UHJ XODWRU\ UHTXLUHP HQWVRUOHJ LVODWLYHVFUXWLQ\ WR Z KLFKZ HDUHVXEMHFWZ KLFKDOVR FRXOGSODFHXVDWDFRP SHWLWLYHGLVDGYDQWDJ H &XVWRP HUDWWULWLRQIURP DQ\ RUDOORI RXUFUHGL SURGXFWVRUDQ\ ORZ HULQJ RI WKHSULFLQJ RI RXUSURGXFWVE\ UHGXFLQJ LQWHUHVWUDWHVRUIHHVLQRUGHUWR UHWDLQFXVWRP HUVFRXOGUHGXFHRXUUHYHQXHVDQGWKHUHIRUHRXUHDUQLQJ V
, QRXUUHWDLOGHSRVLWVEXVLQHVV Z HKDYHDFTXLVLWLRQDQGVHUYLFLQJ FDSDELOLWLHVVLP LODUWR RWKHUGLUHFWEDQNLQJ FRP SHWLWRUV : HFRP SHWHIRUGHSRVLWVZ LWKWUDGLWLRQDOEDQN DQG LQVHHNLQJ WR J URZ RXUGLUHFWEDQNLQJ EXVLQHVV Z HFRP SHWHZ LWKRWKHUEDQNVWKDWKDYHGLUHFWEDQNLQJ P RGHOVVLP LODUWR RXUV VXFKDV$ OO\ ) LQDQFLDO$ P HULFDQ( [ SUHVV &DSLWDO2 QH , 1 * ’ LVFRYHU 1 DWLRQZ LGH 6DOOLH0 DHDQG8 6$ $ &RP SHWLWLRQDP RQJ GLUHFWEDQNVLVLQWHQVHEHFDXVHRQOLQHEDQNLQJ SURYLGHVFXVWRP HUVWKHDELOLW\ WR UDSLGO\ GHSRVLWDQGZ LWKGUDZ IXQGVDQGRSHQDQGFORVHDFFRXQWVLQIDYRURI SURGXFWVDQGVHUYLFHVRIIHUHGE\ FRP SHWLWRUV
, I Z HDUHXQDEOHWR FRP SHWHHIIHFWLYHO\ IRUSDUWQHUV FXVWRP HUXVDJ HRUGHSRVLWV RXUEXVLQHVVDQGUHVXOWVRI RSHUDWLRQVFRXOGEHP DWHULDOO\ DGYHUVHO\ DIIHFWHG
2 XUEXVLQHVVLVKHDYLO\ FRQFHQWUDWHGLQ 8 6 FRQVXP HUFUHGLWDQGWKHUHIRUHRXUUHVXOWVDUHP RUHVXVFHSWLEOHWR IOXFWXDWLRQVLQ WKDWP DUNHWWKDQ DP RUHGLYHUVLILHG FRP SDQ\
2 XUEXVLQHVVLVKHDYLO\ FRQFHQWUDWHGLQ8 6 FRQVXP HUFUHGLW$ VDUHVXOWZ HDUHP RUHVXVFHSWLEOHWR IOXFWXDWLRQVDQGULVNVSDUWLFXODUWR 8 6 FRQVXP HUFUHGLWWKDQD
P RUHGLYHUVLILHGFRP SDQ\ ) RUH[ ▇▇ ▇▇▇ RXUEXVLQHVVLVSDUWLFXODUO\ VHQVLWLYHWR P DFURHFRQRP LF FRQGLWLRQVWKDWDIIHFWWKH8 6 HFRQRP \ DQGFRQVXP HUVSHQGLQJ DQGFRQVXP H FUHGLW: HDUHDOVR P RUHVXVFHSWLEOHWR WKHULVNVRI LQFUHDVHGUHJ XODWLRQVDQGOHJ DODQGRWKHUUHJ XODWRU\ DFWLRQVWKDWDUHWDUJ HWHGDWFRQVXP HUFUHGLWRUWKHVSHFLILF FRQVXP HU FUHGLWSURGXFWVWKDWZ HRIIHU LQFOXGLQJ SURP RWLRQDOILQDQFLQJ ’ XHWR RXU&DUH&UHGLWSODWIRUP Z HDUHDOVR P RUHVXVFHSWLEOHWR LQFUHDVHGUHJ XODWLRQVDQGOHJ DODQGRWKHU
UHJ XODWRU\ DFWLRQVWDUJ HWHGDWHOHFWLYHKHDOWKFDUHUHODWHGSURFHGXUHVRUVHUYLFHV LQFRQWUDVWWR RWKHULQGXVWULHV 2 XUEXVLQHVVFRQFHQWUDWLRQFRXOGKDYHDQDGYHUVHHIIHFWRQRXU UHVXOWVRI RSHUDWLRQV
: HP D\ EHXQDEOHWR VXFFHVVIXOO\ GHYHORS DQGFRP P HUFLDOL]HQHZ RUHQKDQFHGSURGXFWVDQGVHUYLFHV
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
, QDQ\ HYHQWZ HP D\ QRWUHDOL] HWKHEHQHILWRI QHZ WHFKQRORJ LHV SURGXFWV VHUYLFHVRUHQKDQFHP HQWVIRUP DQ\ \ HDUVRUFRP SHWLWRUVP D\ LQWURGXFHP RUHFRP SHOOLQJ SURGXFWV VHUYLFHVRUHQKDQFHP HQWV 2 XUIDLOXUHWR VXFFHVVIXOO\ GHYHORS DQGFRP P HUFLDOL] HQHZ RUHQKDQFHGSURGXFWV VHUYLFHVRUHQKDQFHP HQWVFRXOGKDYHDP DWHULDODGYHUVH HIIHFWRQRXUEXVLQHVVDQGUHVXOWVRI RSHUDWLRQV
: HP D\ QRWUHDOL]HWKHYDOXHRI VWUDWHJ LF LQYHVWP HQWVWKDWZHSXUVXHDQGVXFK LQYHVWP HQWVFRXOGGLYHUWUHVRXUFHVRULQWURGXFHXQIRUHVHHQ ULVNVWR RXUEXVLQHVV
: HP D\ H[ HFXWHVWUDWHJ LF DFTXLVLWLRQVRUSDUWQHUVKLSVRUP DNHRWKHUVWUDWHJ LF LQYHVWP HQWVLQEXVLQHVVHV SURGXFWV WHFKQRORJ LHVRUSODWIRUP VWR HQKDQFHRUJ URZ RXU EXVLQHVV 7 KHVHVWUDWHJ LF LQYHVWP HQWVP D\ LQWURGXFHQHZ FRVWVRUOLDELOLWLHVZ KLFKFRXOGLP SDFWRXUDELOLW\ WR J URZ RUP DLQWDLQDFFHSWDEOHSHUIRUP DQFH
: HP D\ EHXQDEOHWR LQWHJ UDWHV\ VWHP V SHUVRQQHORUWHFKQRORJ LHVIURP RXUVWUDWHJ LF LQYHVWP HQWV 7 KHVHVWUDWHJ LF LQYHVWP HQWVP D\ DOVR SUHVHQWXQIRUHVHHQOHJ DO
UHJ XODWRU\ RURWKHUFKDOOHQJ HVWKDWZ HP D\ QRWEHDEOHWR P DQDJ HHIIHFWLYHO\ 7 KHSODQQLQJ DQGLQWHJ UDWLRQRI DQDFTXLVLWLRQ SDUWQHUVKLS RULQYHVWP HQWP D\ VKLIWHP SOR\ HHWLP DQGRWKHUUHVRXUFHVZ KLFKFRXOGLP SDLURXUDELOLW\ WR IRFXVRQRXUFRUHEXVLQHVV
6WUDWHJ LF LQYHVWP HQWVP D\ QRWSHUIRUP DVH[ SHFWHGGXHWR ODFNRI DFFHSWDQFHE\ SDUWQHUV FXVWRP HUVRUHP SOR\ HHV KLJ KHUWKDQIRUHFDVWHGFRVWV OHQJ WK\ WUDQVLWLRQ SHULRGV V\ QHUJ LHVRUVDYLQJ VQRWEHLQJ UHDOL] HGDQGDYDULHW\ RI RWKHUIDFWRUV 7 KLVP D\ UHVXOWLQDGHOD\ RUXQUHDOL] HGEHQHILWRULQVRP HFDVHV LQFUHDVHGFRVWVRURWKHU XQIRUHVHHQULVNVWR RXUEXVLQHVV
5 HGXFWLRQVLQ LQWHUFKDQJ HIHHVP D\ UHGXFHWKHFRP SHWLWLYHDGYDQWDJ HVRXUSULYDWHODEHOFUHGLWFDUGSURGXFWVFXUUHQWO\ KDYHE\ YLUWXHRI QRWFKDUJ LQJ LQWHUFKDQJ HIHHVDQG ZRXOGUHGXFHRXULQFRP HIURP WKRVHIHHV
, QWHUFKDQJ HLVDIHHP HUFKDQWVSD\ WR WKHLQWHUFKDQJ HQHWZ RUNLQH[ FKDQJ HIRUWKHXVHRI WKHQHWZ RUN¶VLQIUDVWUXFWXUHDQGSD\ P HQWIDFLOLWDWLRQ DQGZ KLFKDUHSDLGWR FUHGLWFDUGLVVXHUVWR FRP SHQVDWHWKHP IRUWKHULVNWKH\ EHDULQOHQGLQJ P RQH\ WR FXVWRP HUV : HHDUQLQWHUFKDQJ HIHHVRQ’ XDO&DUGWUDQVDFWLRQVEXWZ HGR QRWFKDUJ HRUHDUQ LQWHUFKDQJ HIHHVIURP RXUSDUWQHUVRUFXVWRP HUVRQRXUSULYDWHODEHOFUHGLWFDUGSURGXFWV
0 HUFKDQWV WU\ LQJ WR GHFUHDVHWKHLURSHUDWLQJ H[ SHQVHV KDYHVRXJ KWWR DQGKDYHKDGVRP HVXFFHVVDWORZ HULQJ LQWHUFKDQJ HUDWHV 6HYHUDOUHFHQWHYHQWVDQGDFWLRQV LQGLFDWHDFRQWLQXLQJ LQFUHDVHLQIRFXVRQLQWHUFKDQJ HE\ ERWKUHJ XODWRUVDQGP HUFKDQWV %H\ RQGSXUVXLQJ OLWLJ DWLRQ OHJ LVODWLRQDQGUHJ XODWLRQ P HUFKDQWVDUHDOVR SXUVXLQJ DOWHUQDWHSD\ P HQWSODWIRUP VDVDP HDQVWR ORZ HUSD\ P HQWSURFHVVLQJ FRVWV 7R WKHH[ WHQWLQWHUFKDQJ HIHHVDUHUHGXFHG RQHRI RXUFXUUHQWFRP SHWLWLYHDGYDQWDJ HVZ LWKRXU SDUWQHUV† WKDWZ HW\ SLFDOO\ GR QRWFKDUJ HLQWHUFKDQJ HIHHVZ KHQRXUSULYDWHODEHOFUHGLWFDUGSURGXFWVDUHXVHGWR SXUFKDVHRXUSDUWQHUV¶J RRGVDQGVHUYLFHV† P D\ EHUHGXFHG 0 RUHRYHU WR WKHH[ WHQWLQWHUFKDQJ HIHHVDUHUHGXFHG RXULQFRP HIURP WKRVHIHHVZ LOOEHORZ HU: HUHFHLYHGDSSUR[ LP DWHO\ P LOOLRQRI LQWHUFKDQJ HIHHVIRUWKH\ HDUHQGHG ’ HFHP EHU DQG P LOOLRQRI LQWHUFKDQJ HIHHVIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU $ VDUHVXOWDUHGXFWLRQLQLQWHUFKDQJ HIHHVFRXOGKDYHDP DWHULDO DGYHUVHHIIHFWRQRXUEXVLQHVVDQGUHVXOWVRI RSHUDWLRQV , QDGGLWLRQ IRURXU’ XDO&DUGV Z HDUHVXEMHFWWR WKHRSHUDWLQJ UHJ XODWLRQVDQGSURFHGXUHVVHWIRUWKE\ WKHLQWHUFKDQJ H QHWZ RUN DQGRXUIDLOXUHWR FRP SO\ Z LWKWKHVHRSHUDWLQJ UHJ XODWLRQV Z KLFKP D\ FKDQJ HIURP WLP HWR WLP H FRXOGVXEMHFWXVWR YDULRXVSHQDOWLHVRUIHHV RUWKHWHUP LQDWLRQRI RX OLFHQVHWR XVHWKHLQWHUFKDQJ HQHWZ RUN DOORI Z KLFKFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVVDQGUHVXOWVRI RSHUDWLRQV
) UDXGXOHQWDFWLYLW\ DVVRFLDWHGZLWK RXUSURGXFWVDQGVHUYLFHVFRXOGQHJ DWLYHO\ LP SDFWRXURSHUDWLQJ UHVXOWV EUDQGDQGUHSXWDWLRQ DQGFDXVHWKHXVHRI RXUSURGXFWVDQG VHUYLFHVWR GHFUHDVHDQGRXUIUDXGORVVHVWR LQFUHDVH
: HDUHVXEMHFWWR WKHULVNRI IUDXGXOHQWDFWLYLW\ DVVRFLDWHGZ LWKSDUWQHUV FXVWRP HUVDQGWKLUGSDUWLHVKDQGOLQJ FXVWRP HULQIRUP DWLRQ 2 XUIUDXG UHODWHGORVVHVKDYH LQFUHDVHGVLJ QLILFDQWO\ IURP P LOOLRQWR P LOOLRQWR P LOOLRQIRUWKH\ HDUVHQGHG’ HFHP EHU DQG UHVSHFWLYHO\ ) RUWKHQLQHP RQWKVHQGHG 6HSWHP EHU DQG IUDXGUHODWHGORVVHVZ HUH P LOOLRQDQG P LOOLRQ UHVSHFWLYHO\ 2 XUIUDXG UHODWHGORVVHVDUHGXHSULP DULO\ WR RXU’ XDO&DUGSURGXFWZ KLFK KDVJ URZ QLQUHFHQW\ HDUVDQG OLNHWKHRYHUDOOP DUNHWIRUJ HQHUDOSXUSRVHFUHGLWFDUGV KDVH[ SHULHQFHGVLJ QLILFDQWFRXQWHUIHLWDQGP DLOSKRQHIUDXG LQFOXGLQJ DVDUHVXOWRI
Z HOOSXEOLFL] HGVHFXULW\ EUHDFKHVDWUHWDLOHUVXQUHODWHGWR XV 2 XUSULYDWHODEHOFUHGLWFDUGSURGXFWLVDOVR VXVFHSWLEOHWR DSSOLFDWLRQIUDXG EHFDXVHDP RQJ RWKHUWKLQJ V Z H SURYLGHLP P HGLDWHDFFHVVWR WKHFUHGLWOLQHDWWKHWLP HRI DSSURYDO, QDGGLWLRQ VDOHVRQWKHLQWHUQHWDQGWKURXJ KP RELOHFKDQQHOVDUHEHFRP LQJ DODUJ HUSDUWRI RXUEXVLQHVVDQ IUDXGXOHQWDFWLYLW\ LVKLJ KHUDVDSHUFHQWDJ HRI VDOHVLQWKRVHFKDQQHOVWKDQLQVWRUHV ’ XDO&DUGVDQGSULYDWHODEHOFUHGLWFDUGVDUHVXVFHSWLEOHWR GLIIHUHQWW\ SHVRI IUDXG DQG GHSHQGLQJ RQRXUSURGXFWFKDQQHOP L[ LQFOXGLQJ DVDUHVXOWRI WKHLQWURGXFWLRQ LI DQ\ RI D6\ QFKURQ\ EUDQGHGJ HQHUDOSXUSRVHFUHGLWFDUG Z HP D\ FRQWLQXHWR H[ SHULHQFH YDULDWLRQVLQ RUOHYHOVRI IUDXG UHODWHGH[ SHQVHWKDWDUHGLIIHUHQWIURP RUKLJ KHUWKDQWKDWH[ SHULHQFHGE\ VRP HRI RXUFRP SHWLWRUVRUWKHLQGXVWU\ J HQHUDOO\
7 KHULVNRI IUDXGFRQWLQXHVWR LQFUHDVHIRUWKHILQDQFLDOVHUYLFHVLQGXVWU\ LQJ HQHUDODQGFUHGLWFDUGIUDXG LGHQWLW\ WKHIWDQGUHODWHGFULP HVDUHOLNHO\ WR FRQWLQXHWR EH SUHYDOHQWDQGSHUSHWUDWRUVDUHJ URZ LQJ P RUHVRSKLVWLFDWHG 2 XUUHVRXUFHV WHFKQRORJ LHVDQGIUDXGSUHYHQWLRQWRROVP D\ EHLQVXIILFLHQWWR DFFXUDWHO\ GHWHFWDQGSUHYHQWIUDXG
) RUH[ ▇▇ ▇▇▇ FUHGLWFDUGVZ LWK( 0 9 FKLS WHFKQRORJ \ VXFKDV‡( 0 9 · FKLSV SURYLGHDGGLWLRQDOVHFXULW\ DJ DLQVWIUDXGXOHQWDFWLYLW\ DQGKDYHEHHQZ LGHO\ DGRSWHGLQ( XURSH DQG$ VLDEXWKDYHQRWEHHQZ LGHO\ DFFHSWHGE\ P HUFKDQWVLQWKH8 QLWHG6WDWHV $ VDUHVXOWDOWKRXJ KZ HDUHLQWKHSURFHVVRI UROOLQJ RXWWKLVWHFKQRORJ \ Z LWKVHYHUDORI RXU SDUWQHUV RXUFUHGLWFDUGVFRQWLQXHWR XVHWKHWUDGLWLRQDOP DJ QHWLF VWULSHVIRUFDUGSURFHVVLQJ DQGWKHUHIRUHGR QRWEHQHILWIURP WKHHP EHGGHGVHFXULW\ FKLS IHDWXUH DQGRXU DGRSWLRQRI WKLVWHFKQRORJ \ Z RXOGVWLOOUHTXLUHZ LGHUDFFHSWDQFHE\ P HUFKDQWVWR UHGXFHRXUULVN 7 KHOHYHORI RXUIUDXGFKDUJ HRIIVDQGUHVXOWVRI RSHUDWLRQVFRXOGEH
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
&\ EHUDWWDFNVRURWKHUVHFXULW\ EUHDFKHVFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXUEXVLQHVV
, QWKHQRUP DOFRXUVHRI EXVLQHVV Z HFROOHFWSURFHVVDQGUHWDLQVHQVLWLYHDQGFRQILGHQWLDOLQIRUP DWLRQUHJ DUGLQJ RXUSDUWQHUVDQGRXUFXVWRP HUV : HDOVR KDYH
DUUDQJ HP HQWVLQSODFHZ LWKRXUSDUWQHUVDQGRWKHUWKLUGSDUWLHVWKURXJ KZ KLFKZ HVKDUHDQGUHFHLYHLQIRUP DWLRQDERXWWKHLUFXVWRP HUVZ KR DUHRUP D\ EHFRP HRXUFXVWRP HUV
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
, QIRUP DWLRQVHFXULW\ ULVNVIRUODUJ HILQDQFLDOLQVWLWXWLRQVOLNHXVKDYHLQFUHDVHGUHFHQWO\ LQSDUWEHFDXVHRI QHZ WHFKQRORJ LHV WKHXVHRI WKHLQWHUQHWDQG
WHOHFRP P XQLFDWLRQVWHFKQRORJ LHV LQFOXGLQJ P RELOHGHYLFHV WR FRQGXFWILQDQFLDODQGRWKHUEXVLQHVVWUDQVDFWLRQVDQGWKHLQFUHDVHGVRSKLVWLFDWLRQDQGDFWLYLWLHVRI RUJ DQL] ▇▇ ▇▇▇▇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
P HFKDQLVP VGHVLJ QHGWR FRQWDLQDQGP LWLJ DWHVHFXULW\ LQFLGHQWV EXWHDUO\ GHWHFWLRQP D\ EHWKZ DUWHGE\ VRSKLVWLFDWHGDWWDFNVDQGP DOZ DUHGHVLJ QHGWR DYRLGGHWHFWLRQ
: HDOVR IDFHULVNVUHODWHGWR F\ EHUDWWDFNVDQGRWKHUVHFXULW\ EUHDFKHVLQFRQQHFWLRQZ LWKFUHGLWFDUGWUDQVDFWLRQVWKDWW\ SLFDOO\ LQYROYHWKHWUDQVP LVVLRQRI VHQVLWLYH LQIRUP DWLRQUHJ DUGLQJ RXUFXVWRP HUVWKURXJ KYDULRXVWKLUG SDUWLHV LQFOXGLQJ RXUSDUWQHUV UHWDLOHUVWKDWDUHQRWRXUSDUWQHUVZ KHUHRXU’ XDO&DUGVDUHXVHG P HUFKDQWDFTXLULQJ EDQNV SD\ P HQWSURFHVVRUV FDUGQHWZ RUNV HJ 9 LVDDQG0 DVWHU&DUG DQGRXUSURFHVVRUV HJ ) LUVW’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
E\ FRQVXP HUVJ HQHUDOO\ DERXWWKHVHFXULW\ RI XVLQJ FUHGLWFDUGV Z KLFKKDYHFDXVHGVRP HFRQVXP HUV LQFOXGLQJ RXUFXVWRP HUV WR XVHRXUFUHGLWFDUGVOHVVLQIDYRURI DOWHUQDWLY P HWKRGVRI SD\ P HQWDQGKDVOHGWR LQFUHDVHGUHJ XODWRU\ IRFXVRQ DQGSRWHQWLDOO\ QHZ UHJ XODWLRQVUHODWLQJ WR WKHVHP DWWHUV ) XUWKHUF\ EHUDWWDFNVRURWKHUEUHDFKHVLQWKH IXWXUH Z KHWKHUDIIHFWLQJ XVRURWKHUV FRXOGLQWHQVLI\ FRQVXP HUFRQFHUQDQGUHJ XODWRU\ IRFXVDQGUHVXOWLQUHGXFHGXVHRI RXUFDUGVDQGLQFUHDVHGFRVWV DOORI Z KLFKFRXOGKDY DP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV
7 KHIDLOXUHRI WKLUGSDUWLHVWR SURYLGHYDULRXVVHUYLFHVWKDWDUHLP SRUWDQWWR RXURSHUDWLRQVFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXUEXVLQHVV
6RP HVHUYLFHVLP SRUWDQWWR RXUEXVLQHVVDUHRXWVRXUFHGWR WKLUG SDUW\ YHQGRUV ) RUH[ ▇▇ ▇▇▇ RXUFUHGLWFDUGWUDQVDFWLRQSURFHVVLQJ SURGXFWLRQDQGUHODWHGVHUYLFHV LQFOXGLQJ WKHSULQWLQJ DQGP DLOLQJ RI FXVWRP HUVWDWHP HQWV DUHKDQGOHGE\ ) LUVW’ DWD DQGWKHWHFKQRORJ \ SODWIRUP IRURXURQOLQHUHWDLOGHSRVLWVLVP DQDJ HGE\ ) , 6 ) LUVW’ DWD DQG) , 6 DQG LQVRP HFDVHVRWKHUWKLUG SDUW\ YHQGRUV DUHWKHVROHVRXUFHRURQHRI DOLP LWHGQXP EHURI VRXUFHVRI WKHVHUYLFHVWKH\ SURYLGHIRUXV , WZ RXOGEHGLIILFXOWDQG GLVUXSWLYHIRUXVWR UHSODFHVRP HRI RXUWKLUG SDUW\ YHQGRUV SDUWLFXODUO\ ) LUVW’ DWDDQG) , 6 LQDWLP HO\ P DQQHULI WKH\ Z HUHXQZ LOOLQJ RUXQDEOHWR SURYLGHXVZ LWKWKHVH VHUYLFHVLQWKHIXWXUH DVDUHVXOWRI WKHLUILQDQFLDORUEXVLQHVVFRQGLWLRQVRURWKHUZ LVH DQGRXUEXVLQHVVDQGRSHUDWLRQVOLNHO\ Z RXOGEHP DWHULDOO\ DGYHUVHO\ DIIHFWHG ) LUVW’ D KDVSXEOLFO\ GLVFORVHGWKDWLWLVKLJ KO\ OHYHUDJ HGDQGWKDWLWKDVLQFXUUHGQHWORVVHVRI P LOOLRQ P LOOLRQDQG P LOOLRQIRUWKH\ HDUVHQGHG’ HFHP EHU
DQG UHVSHFWLYHO\ 2 XUSULQFLSDODJ UHHP HQWVZ LWK) LUVW’ DWDH[ SLUHXQGHUWKHLUH[ LVWLQJ WHUP V DVVXP LQJ Z HH[ HUFLVHRXUXQLODWHUDOH[ WHQVLRQULJ KWVEXWWKH
DJ UHHP HQWVDUHQRWRWKHUZ LVHUHQHZ HGRUH[ WHQGHGE\ P XWXDODJ UHHP HQWRI WKHSDUWLHV DWYDULRXVWLP HVEHWZ HHQ DQG 2 XUSULQFLSDODJ UHHP HQWZ LWK) , 6 H[ SLUHV XQGHULWVH[ LVWLQJ WHUP V DVVXP LQJ Z HH[ HUFLVHRXUXQLODWHUDOH[ WHQVLRQULJ KWVEXWWKHDJ UHHP HQWVDUHQRWRWKHUZ LVHUHQHZ HGRUH[ WHQGHGE\ P XWXDODJ UHHP HQWRI WKHSDUWLHV LQ
, QDGGLWLRQ LI DWKLUG SDUW\ SURYLGHUIDLOVWR SURYLGHWKHVHUYLFHVZ HUHTXLUH IDLOVWR P HHWFRQWUDFWXDOUHTXLUHP HQWV VXFKDVFRP SOLDQFHZ LWKDSSOLFDEOHODZ VDQG UHJ XODWLRQV RUVXIIHUVDF\ EHUDWWDFNRURWKHUVHFXULW\ EUHDFK RXUEXVLQHVVFRXOGVXIIHUHFRQRP LF DQGUHSXWDWLRQDOKDUP WKDWFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXU EXVLQHVVDQGUHVXOWVRI RSHUDWLRQV
’ LVUXSWLRQVLQ WKHRSHUDWLRQ RI RXUFRP SXWHUV\ VWHP VDQGGDWDFHQWHUVFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXUEXVLQHVV
2 XUDELOLW\ WR GHOLYHUSURGXFWVDQGVHUYLFHVWR RXUSDUWQHUVDQGRXUFXVWRP HUV VHUYLFHRXUORDQVDQGRWKHUZ LVHRSHUDWHRXUEXVLQHVVDQGFRP SO\ Z LWKDSSOLFDEOHODZ V GHSHQGVRQWKHHIILFLHQWDQGXQLQWHUUXSWHGRSHUDWLRQRI RXUFRP SXWHUV\ VWHP VDQGGDWDFHQWHUV DVZ HOODVWKRVHRI RXUSDUWQHUVDQGWKLUG SDUW\ VHUYLFHSURYLGHUV 7 KHVH
FRP SXWHUV\ VWHP VDQGGDWDFHQWHUVP D\ HQFRXQWHUVHUYLFHLQWHUUXSWLRQVDWDQ\ WLP HGXHWR V\ VWHP RUVRIWZ DUHIDLOXUH QDWXUDOGLVDVWHURURWKHUUHDVRQV , QDGGLWLRQ WKH
LP SOHP HQWDWLRQRI WHFKQRORJ \ FKDQJ HVDQGXSJ UDGHVWR P DLQWDLQFXUUHQWDQGLQWHJ UDWHQHZ V\ VWHP VP D\ DOVR FDXVHVHUYLFHLQWHUUXSWLRQV WUDQVDFWLRQSURFHVVLQJ HUURUVDQG V\ VWHP FRQYHUVLRQGHOD\ VDQGP D\ FDXVHRXUIDLOXUHWR FRP SO\ Z LWKDSSOLFDEOHODZ V DOORI Z KLFKFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV
, QFRQQHFWLRQZ LWKWKH6HSDUDWLRQ Z HP XVWP LJ UDWH DQGLQVRP HFDVHV HVWDEOLVKZ LWKWKLUGSDUWLHV NH\ SDUWVRI RXUWHFKQRORJ \ LQIUDVWUXFWXUH LQFOXGLQJ RXUGDWDFHQWHU
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
: HH[ SHFWWKDWQHZ WHFKQRORJ LHVDQGEXVLQHVVSURFHVVHVDSSOLFDEOHWR WKHFRQVXP HUFUHGLWLQGXVWU\ Z LOOFRQWLQXHWR HP HUJ H DQGWKHVHQHZ WHFKQRORJ LHVDQGEXVLQHVV SURFHVVHVP D\ EHEHWWHUWKDQWKRVHZ HFXUUHQWO\ XVH 7 KHSDFHRI WHFKQRORJ \ FKDQJ HLVKLJ KDQGRXULQGXVWU\ LVLQWHQVHO\ FRP SHWLWLYH DQGZ HFDQQRWDVVXUH\ RXWKDWZ HZ LOOEH DEOHWR VXVWDLQRXULQYHVWP HQWLQQHZ WHFKQRORJ \ DVFULWLFDOV\ VWHP VDQGDSSOLFDWLRQVEHFRP HREVROHWHDQGEHWWHURQHVEHFRP HDYDLODEOH $ IDLOXUHWR P DLQWDLQFXUUHQW WHFKQRORJ \ DQGEXVLQHVVSURFHVVHVFRXOGFDXVHGLVUXSWLRQVLQRXURSHUDWLRQVRUFDXVHRXUSURGXFWVDQGVHUYLFHVWR EHOHVVFRP SHWLWLYH DOORI Z KLFKFRXOGKDYHDP DWHULDO DGYHUVHHIIHFWRQRXUEXVLQHVV ILQDQFLDOFRQGLWLRQDQGUHVXOWVRI RSHUDWLRQV
: HKDYHLQWHUQDWLRQDORSHUDWLRQVWKDWVXEMHFWXVWR YDULRXVLQWHUQDWLRQDOULVNVDVZHOODVLQFUHDVHGFRP SOLDQFHDQGUHJ XODWRU\ ULVNVDQGFRVWV
: HKDYHLQWHUQDWLRQDORSHUDWLRQV SULP DULO\ LQ, QGLD WKH3KLOLSSLQHVDQG&DQDGD DQGVRP HRI RXUWKLUGSDUW\ VHUYLFHSURYLGHUVSURYLGHVHUYLFHVWR XVIURP RWKHU FRXQWULHV DOORI Z KLFKVXEMHFWXVWR DQXP EHURI LQWHUQDWLRQDOULVNV LQFOXGLQJ DP RQJ RWKHUWKLQJ V VRYHUHLJ QYRODWLOLW\ DQGVRFLR SROLWLFDOLQVWDELOLW\ 8 6 UHJ XODWLRQVDOVR
J RYHUQYDULRXVDVSHFWVRI WKHLQWHUQDWLRQDODFWLYLWLHVRI GRP HVWLF FRUSRUDWLRQVDQGLQFUHDVHRXUFRP SOLDQFHDQGUHJ XODWRU\ ULVNVDQGFRVWV $ Q\ IDLOXUHRQRXUSDUWRUWKHSDUWRI RXUVHUYLFHSURYLGHUVWR FRP SO\ Z LWKDSSOLFDEOH8 6 UHJ XODWLRQV DVZ HOODVWKHUHJ XODWLRQVLQWKHFRXQWULHVDQGP DUNHWVLQZ KLFKZ HRUWKH\ RSHUDWH FRXOGUHVXOWLQILQHV SHQDOWLHV LQMXQFWLRQVRURWKHUVLP LODUUHVWULFWLRQV DQ\ RI Z KLFKFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ
: HIDFHULVNVIURP FDWDVWURSKLF HYHQWV
: HDUHVXEMHFWWR FDWDVWURSKHVVXFKDVQDWXUDOGLVDVWHUV VHYHUHZ HDWKHUFRQGLWLRQV KHDOWKSDQGHP LFVDQGWHUURULVWDWWDFNV DQ\ RI Z KLFKFRXOGKDYHDQHJ DWLYHHIIHFWRQ RXUEXVLQHVVDQGWHFKQRORJ \ LQIUDVWUXFWXUH LQFOXGLQJ RXUFRP SXWHUQHWZ RUNV\ VWHP VDQGGDWDFHQWHUV RXUSDUWQHUVDQGWKHLUEXVLQHVVDQGRXUFXVWRP HUV &DWDVWURSKLF HYHQWV FRXOGSUHYHQWRUP DNHLWP RUHGLIILFXOWIRURXUFXVWRP HUVWR WUDYHOWR RXUSDUWQHUV¶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
P DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ
, I ZHDUHDOOHJ HGWR KDYHLQIULQJ HGXSRQ WKHLQWHOOHFWXDOSURSHUW\ ULJ KWVRZQHGE\ RWKHUVRUDUHQRWDEOHWR SURWHFWRXULQWHOOHFWXDOSURSHUW\ RXUEXVLQHVVDQGUHVXOWVRI RSHUDWLRQVFRXOGEHDGYHUVHO\ DIIHFWHG
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
DOOHJ DWLRQVRI LQWHOOHFWXDOSURSHUW\ LQIULQJ HP HQWDJ DLQVWXVDUHZ LWKRXWP HULWGHIHQGLQJ DJ DLQVWVXFKFODLP VLVWLP HFRQVXP LQJ DQGH[ SHQVLYHDQGFRXOGUHVXOWLQWKHGLYHUVLRQ RI WLP HDQGDWWHQWLRQRI RXUP DQDJ HP HQWDQGHP SOR\ HHV , QDGGLWLRQ DOWKRXJ KLQVRP HFDVHVDWKLUGSDUW\ P D\ KDYHDJ UHHGWR LQGHP QLI\ XVIRUVXFKFRVWV VXFKLQGHP QLI\ LQJ SDUW\ P D\ UHIXVHRUEHXQDEOHWR XSKROGLWVFRQWUDFWXDOREOLJ DWLRQV
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
: HKDYHODXQFKHGRXUQHZ EUDQG ‡6\ QFKURQ\ ·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
/ LWLJ DWLRQ UHJ XODWRU\ DFWLRQVDQGFRP SOLDQFHLVVXHVFRXOGVXEMHFWXVWR VLJ QLILFDQWILQHV SHQDOWLHV MXGJ P HQWV UHP HGLDWLRQ FRVWVDQGRUUHTXLUHP HQWVUHVXOWLQJ LQ LQFUHDVHGH[ SHQVHV
2 XUEXVLQHVVLVVXEMHFWWR LQFUHDVHGULVNVRI OLWLJ DWLRQDQGUHJ XODWRU\ DFWLRQVDVDUHVXOWRI DQXP EHURI IDFWRUVDQGIURP YDULRXVVRXUFHV LQFOXGLQJ WKHKLJ KO\ UHJ XODWHG QDWXUHRI WKHILQDQFLDOVHUYLFHVLQGXVWU\ WKHIRFXVRI VWDWHDQGIHGHUDOSURVHFXWRUVRQEDQNVDQGWKHILQDQFLDOVHUYLFHVLQGXVWU\ DQGWKHVWUXFWXUHRI WKHFUHGLWFDUGLQGXVWU\
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▇▇▇▇ LQDWHSUHGLVSXWHDUELWUDWLRQFODXVHV
: HDUHDOVR LQYROYHG IURP WLP HWR WLP H LQUHYLHZ V LQYHVWLJ DWLRQVDQGSURFHHGLQJ V ERWKIRUP DODQGLQIRUP DO E\ J RYHUQP HQWDODJ HQFLHVUHJ DUGLQJ RXUEXVLQHVV FROOHFWLYHO\ ‡UHJ XODWRU\ P DWWHUV·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
: HFRQWHVWOLDELOLW\ DQGRUWKHDP RXQWRI GDP DJ HVDVDSSURSULDWHLQHDFKSHQGLQJ P DWWHU7 KHRXWFRP HRI SHQGLQJ DQGIXWXUHP DWWHUVFRXOGEHP DWHULDOWR RXUUHVXOWVRI RSHUDWLRQV ILQDQFLDOFRQGLWLRQDQGFDVKIORZ VGHSHQGLQJ RQ DP RQJ RWKHUIDFWRUV WKHOHYHORI RXUHDUQLQJ VIRUWKDWSHULRG DQGFRXOGDGYHUVHO\ DIIHFWRXUEXVLQHVVDQG UHSXWDWLRQ ) RUDGLVFXVVLRQRI FHUWDLQOHJ DOSURFHHGLQJ V VHH‡, WHP %XVLQHVV† 5 HJ XODWLRQ† &RQVXP HU) LQDQFLDO6HUYLFHV5 HJ XODWLRQ· 1 RWH / HJ DO3URFHHGLQJ VDQG
5 HJ XODWRU\ 0 DWWHUVWR RXUFRP ELQHGILQDQFLDOVWDWHP HQWV 1 RWH / HJ DO3URFHHGLQJ VDQG5 HJ XODWRU\ 0 DWWHUVWR RXUFRQGHQVHGFRQVROLGDWHGDQGFRP ELQHGILQDQFLDOVWDWHP HQ DQG‡, WHP / HJ DO3URFHHGLQJ V·
, QDGGLWLRQWR OLWLJ DWLRQDQGUHJ XODWRU\ P DWWHUV IURP WLP HWR WLP H WKURXJ KRXURSHUDWLRQDODQGFRP SOLDQFHFRQWUROV Z HLGHQWLI\ FRP SOLDQFHLVVXHVWKDWUHTXLUHXVWR P DNHRSHUDWLRQDOFKDQJ HVDQG GHSHQGLQJ RQWKHQDWXUHRI WKHLVVXH UHVXOWLQILQDQFLDOUHP HGLDWLRQWR LP SDFWHGFDUGKROGHUV 7 KHVHVHOI LGHQWLILHGLVVXHVDQGYROXQWDU\
UHP HGLDWLRQSD\ P HQWVFRXOGEHVLJ QLILFDQWGHSHQGLQJ RQWKHLVVXHDQGWKHQXP EHURI FDUGKROGHUVLP SDFWHG 7 KH\ DOVR FRXOGJ HQHUDWHOLWLJ DWLRQRUUHJ XODWRU\ LQYHVWLJ DWLRQVWKD VXEMHFWXVWR DGGLWLRQDODGYHUVHHIIHFWVRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ
’ DP DJ HWR RXUUHSXWDWLRQ FRXOGQHJ DWLYHO\ LP SDFWRXUEXVLQHVV
5 HFHQWO\ ILQDQFLDOVHUYLFHVFRP SDQLHVKDYHEHHQH[ SHULHQFLQJ LQFUHDVHGUHSXWDWLRQDOULVNDVFRQVXP HUVWDNHLVVXHZ LWKFHUWDLQRI WKHLUSUDFWLFHVRUMXGJ P HQWV
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
1 HJ DWLYHSXEOLFLW\ UHJ DUGLQJ XV RURWKHUVHQJ DJ HGLQDVLP LODUEXVLQHVVRUDFWLYLWLHV Z KHWKHURUQRWDFFXUDWH P D\ GDP DJ HRXUUHSXWDWLRQ Z KLFKFRXOGKDYHDP DWHULDODGYHUV HIIHFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ
2 XUEXVLQHVVFRXOGEHDGYHUVHO\ DIIHFWHGLI ZHDUHXQDEOHWR DWWUDFWUHWDLQ DQGP RWLYDWHNH\ RIILFHUVDQGHP SOR\ HHV
2 XUVXFFHVVGHSHQGV LQODUJ HSDUWRQRXUDELOLW\ WR UHWDLQ UHFUXLWDQGP RWLYDWHNH\ RIILFHUVDQGHP SOR\ HHV 2 XUVHQLRUP DQDJ HP HQWWHDP KDVVLJ QLILFDQWLQGXVWU\ H[ SHULHQFHDQGZ RXOGEHGLIILFXOWWR UHSODFH &RP SHWLWLRQIRUVHQLRUH[ HFXWLYHVLQWKHILQDQFLDOVHUYLFHVDQGSD\ P HQWLQGXVWU\ LVLQWHQVH $ OWKRXJ KZ HGR QRWFXUUHQWO\
DQWLFLSDWHDQ\ VLJ QLILFDQWFKDQJ HVWR WKHP DQDJ HP HQWWHDP IROORZ LQJ WKHFRP SOHWLRQRI WKH, 32 RUWKH6HSDUDWLRQ Z HP D\ QRWEHDEOHWR DWWUDFWDQGUHWDLQTXDOLILHGSHUVRQQHO WR UHSODFHRUVXFFHHGP HP EHUVRI RXUVHQLRUP DQDJ HP HQWWHDP RURWKHUNH\ SHUVRQQHOIROORZ LQJ WKHFRP SOHWLRQRI WKH, 32 RUWKH6HSDUDWLRQ Z KHQZ HDUHQR ORQJ HUSDUWRI
* ( RUDWDQ\ RWKHUWLP H * XLGDQFHLVVXHGE\ WKHIHGHUDOEDQNLQJ UHJ XODWRUV DVZ HOODVSURSRVHGUXOHVLP SOHP HQWLQJ WKHH[ HFXWLYHFRP SHQVDWLRQSURYLVLRQVRI WKH’ RGG ) UDQN
$ FWP D\ OLP LWWKHW\ SHDQGVWUXFWXUHRI FRP SHQVDWLRQDUUDQJ HP HQWVWKDWZ HP D\ HQWHULQWR Z LWKRXUP RVWVHQLRUH[ HFXWLYHV , QDGGLWLRQ SURSRVHGUXOHVXQGHUWKH’ RGG ) UDQN
$ FWZ RXOGSURKLELWWKHSD\ P HQWRI ‡H[ FHVVLYH· FRP SHQVDWLRQWR RXUH[ HFXWLYHV &RP SHQVDWLRQSDLGWR RIILFHUVRI WKH%DQNZ RXOGEHVXEMHFWWR FRP SDUDEOHOLP LWDWLRQV 7 KHVH UHVWULFWLRQVFRXOGQHJ DWLYHO\ LP SDFWRXUDELOLW\ WR FRP SHWHZ LWKRWKHUFRP SDQLHVLQUHFUXLWLQJ UHWDLQLQJ DQGP RWLYDWLQJ NH\ SHUVRQQHO) DLOXUHWR UHWDLQWDOHQWHGVHQLRU OHDGHUVKLS FRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ
7D[ OHJ LVODWLRQ LQLWLDWLYHVRUFKDOOHQJ HVWR RXUWD[ SRVLWLRQVFRXOGDGYHUVHO\ DIIHFWRXUUHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ
: HRSHUDWHLQP XOWLSOHMXULVGLFWLRQVDQGZ HDUHVXEMHFWWR WD[ ODZ VDQGUHJ XODWLRQVRI WKH8 6 IHGHUDOVWDWHDQGORFDOJ RYHUQP HQWV DQGRI YDULRXVIRUHLJ QMXULVGLFWLRQV
) URP WLP HWR WLP H OHJ LVODWLYHLQLWLDWLYHVP D\ EHSURSRVHG VXFKDVSURSRVDOVIRUIXQGDP HQWDOWD[ UHIRUP LQWKH8 QLWHG6WDWHVDQGORZ HULQJ WKHFRUSRUDWHWD[ UDWH Z KLFKP D\ LP SDFWRXUHIIHFWLYHWD[ UDWHDQGFRXOGDGYHUVHO\ DIIHFWRXUGHIHUUHGWD[ DVVHWV WD[ SRVLWLRQVDQGRURXUWD[ OLDELOLWLHV , QDGGLWLRQ 8 6 IHGHUDOVWDWHDQGORFDODVZ HOODV
IRUHLJ Q WD[ ODZ VDQGUHJ XODWLRQVDUHH[ WUHP HO\ FRP SOH[ DQGVXEMHFWWR YDU\ LQJ LQWHUSUHWDWLRQV 7 KHUHFDQEHQR DVVXUDQFHWKDWRXUKLVWRULFDOWD[ SRVLWLRQVZ LOOQRWEHFKDOOHQJ H E\ UHOHYDQWWD[ DXWKRULWLHVRUWKDWZ HZ RXOGEHVXFFHVVIXOLQGHIHQGLQJ RXUSRVLWLRQLQFRQQHFWLRQZ LWKDQ\ VXFKFKDOOHQJ H
6WDWHVDOHVWD[ UXOHVDQGUHJ XODWLRQV DQGWKHLUDSSOLFDWLRQ DQGLQWHUSUHWDWLRQ E\ WKHUHVSHFWLYHVWDWHV FRXOGFKDQJ HDQGDGYHUVHO\ DIIHFWRXUUHVXOWVRI RSHUDWLRQV
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¶LQWHUSUHWDWLRQRI WKHVDOHVWD[ ODZ VDQGUHJ XODWLRQV LQYROYLQJ WKHUHFRYHU\ RI WD[ RQEDGGHEWVFRXOGP DWHULDOO\ DGYHUVHO\ LP SDFWRXUUHVXOWVRI RSHUDWLRQV
5 LVNV5 HODWLQJ WR 5 HJ XODWLRQ
2 XUEXVLQHVVLVVXEMHFWWR H[ WHQVLYHJ RYHUQP HQWUHJ XODWLRQ VXSHUYLVLRQ H[ DP LQDWLRQ DQGHQIRUFHP HQWZKLFK FRXOGDGYHUVHO\ DIIHFWRXUEXVLQHVV UHVXOWVRI RSHUDWLRQV DQGILQDQFLDOFRQGLWLRQ
2 XUEXVLQHVV LQFOXGLQJ RXUUHODWLRQVKLSVZ LWKRXUFXVWRP HUV LVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQXQGHU8 6 IHGHUDOVWDWHDQGIRUHLJ QODZ V DQGUHJ XODWLRQV 7 KHVHODZ VDQGUHJ XODWLRQVFRYHUDOODVSHFWVRI RXUEXVLQHVV LQFOXGLQJ OHQGLQJ SUDFWLFHV WUHDWP HQWRI RXUFXVWRP HUV VDIHJ XDUGLQJ GHSRVLWV FXVWRP HUSULYDF\ DQGLQIRUP DWLRQVHFXULW\ FDSLWDOVWUXFWXUH OLTXLGLW\ GLYLGHQGVDQGRWKHUFDSLWDOGLVWULEXWLRQV WUDQVDFWLRQVZ LWKDIILOLDWHVDQGFRQGXFWDQGTXDOLILFDWLRQVRI SHUVRQQHO$ VD XQLWDU\ VDYLQJ VDQGORDQKROGLQJ FRP SDQ\ 6\ QFKURQ\ LVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH) HGHUDO5 HVHUYH%RDUG $ VDODUJ HSURYLGHURI FRQVXP HUILQDQFLDOVHUYLFHV Z HDUHDOVR VXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH&) 3% 8 QWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HZ LOOEHFRQWUROOHGE
* ( && Z KLFKLVDOVR VXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH) HGHUDO5 HVHUYH%RDUG 7 KH%DQNLVDIHGHUDOO\ FKDUWHUHGVDYLQJ VDVVRFLDWLRQ $ VVXF WKH%DQNLVVXEMHFWWR H[ WHQVLYHUHJ XODWLRQ VXSHUYLVLRQDQGH[ DP LQDWLRQE\ WKH2 && Z KLFKLVLWVSULP DU\ UHJ XODWRU DQGE\ WKH&) 3% , QDGGLWLRQ WKH%DQN DVDQLQVXUHG GHSRVLWRU\ LQVWLWXWLRQ LVVXSHUYLVHGE\ WKH) ’ ,& : H * ( && DQGWKH%DQNDUHUHJ XODUO\ UHYLHZ HGDQGH[ DP LQHGE\ RXUUHVSHFWLYHUHJ XODWRUV Z KLFKUHVXOWVLQVXSHUYLVRU\
FRP P HQWVDQGGLUHFWLRQVUHODWLQJ WR P DQ\ DVSHFWVRI RXUEXVLQHVVWKDWUHTXLUHUHVSRQVHDQGDWWHQWLRQ 6HH‡, WHP %XVLQHVV† 5 HJ XODWLRQ· IRUP RUHLQIRUP DWLRQDERXWWKH UHJ XODWLRQVDSSOLFDEOHWR XV
%DQNLQJ ODZ VDQGUHJ XODWLRQVDUHSULP DULO\ LQWHQGHGWR SURWHFWIHGHUDOO\ LQVXUHGGHSRVLWV WKH’ , ) DQGWKHEDQNLQJ V\ VWHP DVDZ ▇▇▇▇ DQGQRWLQWHQGHGWR SURWHFWRXU VWRFNKROGHUV QRWHKROGHUVRUFUHGLWRUV , I Z HRUWKH%DQN RUXQWLOWKH* ( 6/ + & ’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
UHJ LP HV Z KLFKP D\ KDYHWKHHIIHFWRI SURYLGLQJ WKHP Z LWKDFRP SHWLWLYHDGYDQWDJ HRYHUXV
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▇▇ ▇▇▇ WKH&) 3% KDVEURDGDXWKRULW\ RYHUWKHEXVLQHVVHVLQZ KLFKZ HHQJ ▇▇ ▇ 6HH‡† 7 KH&RQVXP HU) LQDQFLDO 3URWHFWLRQ%XUHDXLVDQHZ DJ HQF\ DQGWKHUHFRQWLQXHVWR EHXQFHUWDLQW\ DVWR KRZ WKHDJ HQF\ ¶VDFWLRQVZ LOOLP SDFWRXUEXVLQHVV WKHDJ HQF\ ¶VDFWLRQVKDYHKDGDQGP D\ FRQWLQXHWR KDYHDQDGYHUVHLP SDFWRQRXUEXVLQHVV·
: HDUHDOVR VXEMHFWWR SRWHQWLDOHQIRUFHP HQWDQGRWKHUDFWLRQVWKDWP D\ EHEURXJ KWE\ VWDWHDWWRUQH\ VJ HQHUDORURWKHUVWDWHHQIRUFHP HQWDXWKRULWLHVDQGRWKHU
J RYHUQP HQWDODJ HQFLHV $ Q\ VXFKDFWLRQVFRXOGVXEMHFWXVWR FLYLOP RQH\ SHQDOWLHVDQGILQHV FXVWRP HUUHP HGLDWLRQVDQGLQFUHDVHGFRP SOLDQFHFRVWV DVZ HOODVGDP DJ HRXU UHSXWDWLRQDQGEUDQGDQGOLP LWRUSURKLELWRXUDELOLW\ WR RIIHUFHUWDLQSURGXFWVDQGVHUYLFHVRUHQJ DJ HLQFHUWDLQEXVLQHVVSUDFWLFHV ) RUDGLVFXVVLRQRI ULVNVUHODWHGWR DFWLRQVRU SURFHHGLQJ VEURXJ KWE\ UHJ XODWRU\ DJ HQFLHV VHH‡† 5 LVNV5 HODWLQJ WR 2 XU%XVLQHVV† / LWLJ DWLRQ UHJ XODWRU\ DFWLRQVDQGFRP SOLDQFHLVVXHVFRXOGVXEMHFWXVWR VLJ QLILFDQWILQHV SHQDOWLHV MXGJ P HQWV UHP HGLDWLRQFRVWVDQGRUUHTXLUHP HQWVUHVXOWLQJ LQLQFUHDVHGH[ SHQVHV·
7 KH’ RGG ) UDQN$ FWKDVKDG DQGP D\ FRQWLQXHWR KDYH DVLJ QLILFDQWLP SDFWRQ RXUEXVLQHVV ILQDQFLDOFRQGLWLRQ DQGUHVXOWVRI RSHUDWLRQV
7 KH’ RGG ) UDQN$ FWZ DVHQDFWHGRQ-XO\ : KLOHFHUWDLQSURYLVLRQVLQWKH$ FWZ HUHHIIHFWLYHLP P HGLDWHO\ P DQ\ RI WKHSURYLVLRQVUHTXLUHLP SOHP HQWLQJ UHJ XODWLRQVWR EHHIIHFWLYH 7 KH’ RGG ) UDQN$ FWDQGUHJ XODWLRQVSURP XOJ DWHGWKHUHXQGHUKDYHKDG DQGP D\ FRQWLQXHWR KDYH DVLJ QLILFDQWDGYHUVHLP SDFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ ) RUH[ ▇▇ ▇▇▇ WKH’ RGG ) UDQN$ FWDQGUHODWHGUHJ XODWLRQVUHVWULFWFHUWDLQEXVLQHVVSUDFWLFHV LP SRVHP RUHVWULQJ HQWFDSLWDO
OLTXLGLW\ DQGOHYHUDJ HUDWLR UHTXLUHP HQWV DVZ HOODVDGGLWLRQDOFRVWV RQXV LQFOXGLQJ LQFUHDVHGFRP SOLDQFHFRVWVDQGLQFUHDVHGFRVWVRI IXQGLQJ UDLVHGWKURXJ KWKHLVVXDQFHRI DVVHWEDFNHGVHFXULWLHV OLP LWWKHIHHVZ HFDQFKDUJ HIRUVHUYLFHVDQGLP SDFWWKHYDOXHRI RXUDVVHWV , QDGGLWLRQ WKH’ RGG ) UDQN$ FWUHTXLUHVXVWR VHUYHDVDVRXUFHRI ILQDQFLDOVWUHQJ WKIRUDQ\ LQVXUHGGHSRVLWRU\ LQVWLWXWLRQZ HFRQWUROVXFKDVWKH%DQN 6XFKVXSSRUWP D\ EHUHTXLUHGE\ WKH) HGHUDO5 HVHUYH%RDUGDWWLP HVZ KHQZ HP LJ KW RWKHUZ LVHGHWHUP LQHQRWWR SURYLGHLWRUZ KHQGRLQJ VR LVQRWRWKHUZ LVHLQWKHLQWHUHVWRI 6\ QFKURQ\ RULWVVWRFNKROGHUV QRWHKROGHUVRUFUHGLWRUV : HGHVFULEHFHUWDLQSURYLVLRQ RI WKH’ RGG ) UDQN$ FWDQGRWKHUOHJ LVODWLYHDQGUHJ XODWRU\ GHYHORSP HQWVLQ‡, WHP %XVLQHVV† 5 HJ XODWLRQ· ) HGHUDODJ HQFLHVFRQWLQXHWR SURP XOJ DWHUHJ XODWLRQVWR LP SOHP HQ WKH’ RGG ) UDQN$ FWDQGWKHVHUHJ XODWLRQVP D\ FRQWLQXHWR KDYHDVLJ QLILFDQWDGYHUVHLP SDFWRQRXUEXVLQHVV ILQDQFLDOFRQGLWLRQDQGUHVXOWVRI RSHUDWLRQV
0 DQ\ SURYLVLRQVRI WKH’ RGG ) UDQN$ FWUHTXLUHWKHDGRSWLRQRI DGGLWLRQDOUXOHVWR LP SOHP HQW, QDGGLWLRQ WKH’ RGG ) UDQN$ FWP DQGDWHVP XOWLSOHVWXGLHV Z KLFKFRXOG UHVXOWLQDGGLWLRQDOOHJ LVODWLYHRUUHJ XODWRU\ DFWLRQ $ VDUHVXOWWKHXOWLP DWHLP SDFWRI WKH’ RGG ) UDQN$ FWDQGLWVLP SOHP HQWLQJ UHJ XODWLRQVUHP DLQVXQFOHDUDQGFRXOGKDYHD P DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ
7 KH&RQVXP HU) LQDQFLDO3 URWHFWLRQ %XUHDX LVDQHZ DJ HQF\ DQGWKHUHFRQWLQXHVWR EHXQFHUWDLQW\ DVWR KRZ WKHDJ HQF\ ¶VDFWLRQVZLOOLP SDFWRXUEXVLQHVV WKHDJ HQF\ ¶V DFWLRQVKDYHKDGDQGP D\ FRQWLQXHWR KDYHDQ DGYHUVHLP SDFWRQ RXUEXVLQHVV
7 KH&) 3% Z KLFKFRP P HQFHGRSHUDWLRQVLQ-XO\ KDVEURDGDXWKRULW\ RYHUWKHEXVLQHVVHVLQZ KLFKZ HHQJ ▇▇ ▇ 7 KLVLQFOXGHVDXWKRULW\ WR Z ULWHUHJ XODWLRQVXQGHU IHGHUDOFRQVXP HUILQDQFLDOSURWHFWLRQODZ VDQGWR HQIRUFHWKRVHODZ VDJ DLQVWDQGH[ DP LQHODUJ HILQDQFLDOLQVWLWXWLRQV VXFKDVXVDQGWKH%DQN IRUFRP SOLDQFH 7 KH&) 3% LV DXWKRUL] HGWR SUHYHQW‡XQIDLU GHFHSWLYHRUDEXVLYHDFWVRUSUDFWLFHV·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
FRP P XQLWLHV , QDGGLWLRQ WKH&) 3% P DLQWDLQVDQRQOLQHFRP SODLQWV\ VWHP WKDWDOORZ VFRQVXP HUVWR ORJ FRP SODLQWVZ LWKUHVSHFWWR YDULRXVFRQVXP HUILQDQFHSURGXFWV LQFOXGLQJ WKHSURGXFWVZ HRIIHU7 KLVV\ VWHP FRXOGLQIRUP IXWXUH&) 3% GHFLVLRQVZ LWKUHVSHFWWR LWVUHJ XODWRU\ HQIRUFHP HQWRUH[ DP LQDWLRQIRFXV
7 KHUHFRQWLQXHVWR EHXQFHUWDLQW\ DVWR KRZ WKH&) 3%¶VVWUDWHJ LHVDQGSULRULWLHV LQFOXGLQJ LQERWKLWVH[ DP LQDWLRQDQGHQIRUFHP HQWSURFHVVHV Z LOOLP SDFWRXUEXVLQHVVH DQGRXUUHVXOWVRI RSHUDWLRQVJ RLQJ IRUZ DUG $ FWLRQVE\ WKH&) 3% FRXOGUHVXOWLQUHTXLUHP HQWVWR DOWHURUFHDVHRIIHULQJ DIIHFWHGSURGXFWVDQGVHUYLFHV P DNLQJ WKHP OHVV DWWUDFWLYHDQGUHVWULFWLQJ RXUDELOLW\ WR RIIHUWKHP ) RUH[ ▇▇ ▇▇▇ LQ-XO\ WKH&) 3% LVVXHGDQLQGXVWU\ EXOOHWLQUHJ DUGLQJ P DUNHWLQJ SUDFWLFHVZ LWKUHVSHFWWR FUHGLWFDUGDGG RQSURGXFWV LQFOXGLQJ GHEWFDQFHOODWLRQSURGXFWV 6HH‡, WHP %XVLQHVV† 5 HJ XODWLRQ† &RQVXP HU) LQDQFLDO6HUYLFHV5 HJ XODWLRQ· 7 KH%DQNKDVP DGHDQXP EHURI FKDQJ HV LQFOXGLQJ FKDQJ HVLQUHVSRQVHWR WKH&) 3% EXOOHWLQ Z LWKUHVSHFWWR LWVP DUNHWLQJ DQGVDOHRI GHEWFDQFHOODWLRQSURGXFWVWR FUHGLWFDUGFXVWRP HUV LQFOXGLQJ FHDVLQJ DOOWHOHVDOHV RI VXFKSURGXFWV DQGWKH%DQNKDVDOVR HQKDQFHGWKHGLVFORVXUHVDVVRFLDWHGZ LWKLWVZ HEVLWHVDOHVRI VXFKSURGXFWV , QDGGLWLRQ LQ2 FWREHU WKH&) 3% SXEOLVKHGLWVILUVW ELHQQLDOUHSRUWUHYLHZ LQJ WKHLP SDFWRI WKH&$ 5 ’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▇▇ ▇▇▇ LWRUEDQSUHGLVSXWHDUELWUDWLRQFODXVHV
$ OWKRXJ KZ HKDYHFRP P LWWHGVLJ QLILFDQWUHVRXUFHVWR HQKDQFLQJ RXUFRP SOLDQFHSURJ UDP V FKDQJ HVE\ WKH&) 3% LQUHJ XODWRU\ H[ SHFWDWLRQV LQWHUSUHWDWLRQVRUSUDFWLFHV RULQWHUSUHWDWLRQVWKDWDUHGLIIHUHQWRUVWULFWHUWKDQRXUVRUWKRVHDGRSWHGLQWKHSDVWE\ RWKHUUHJ XODWRUVFRXOGLQFUHDVHWKHULVNRI DGGLWLRQDOHQIRUFHP HQWDFWLRQV ILQHVDQG SHQDOWLHV $ FWLRQVE\ WKH&) 3% FRXOGUHVXOWLQUHTXLUHP HQWV VXFKDVXQGHUWKH &) 3%&RQVHQW2 ▇▇▇▇ ▇▇ DOWHURXUSURGXFWVDQGVHUYLFHVWKDWP D\ P DNHWKHP OHVVDWWUDFWLY WR FRQVXP HUVRUOHVVSURILWDEOHWR XV 6HH‡† &KDQJ HVWR RXUP HWKRGVRI RIIHULQJ RXU&DUH&UHGLWSURGXFWVFRXOGP DWHULDOO\ LP SDFWRSHUDWLQJ UHVXOWV· , QDGGLWLRQ RQ-XQH
Z HHQWHUHGLQWR DFRQVHQWRUGHUZ LWKWKH&) 3% UHODWHGWR RXUGHEWFDQFHOODWLRQSURGXFWDQGVDOHVSUDFWLFHVDQGDQXQUHODWHGLVVXHWKDWDURVHIURP WKH%DQN¶VVHOI LGHQWLILHGRP LVVLRQRI FHUWDLQ6SDQLVK VSHDNLQJ FXVWRP HUVDQGFXVWRP HUVUHVLGLQJ LQ3XHUWR 5 LFR IURP WZ R RIIHUVWKDWZ HUHP DGHWR FHUWDLQGHOLQTXHQWFXVWRP HUV 2 Q-XQH
Z HDOVR HQWHUHGLQWR DFRQVHQWRUGHUZ LWKWKH’ 2 - WR UHVROYHLWVFRRUGLQDWHGLQYHVWLJ DWLRQLQWR LVVXHVUHODWHGWR VXFKRIIHUV ) RUWKH\ HDUHQGHG’ HFHP EHU Z H ▇▇▇▇ P LOOLRQLQFUHDVHLQRXUH[ SHQVHVUHODWHGWR OLWLJ DWLRQDQGUHJ XODWRU\ P DWWHUV SULP DULO\ DQLQFUHDVHWR RXUUHVHUYHVUHODWHGWR WKHYDULRXVP DWWHUVVHWWOHGZ LWKWKH &) 3% DQGRQHVHWWOHGZ LWKWKH’ 2 - 6HH‡, WHP %XVLQHVV† 5 HJ XODWLRQ† &RQVXP HU) LQDQFLDO6HUYLFHV5 HJ XODWLRQ·
) XWXUHDFWLRQVE\ WKH&) 3% RURWKHUUHJ XODWRUV DJ DLQVWXVRURXUFRP SHWLWRUVWKDWGLVFRXUDJ HWKHXVHRI SURGXFWVZ HRIIHURUVXJ J HVWWR FRQVXP HUVWKHGHVLUDELOLW\ RI RWKHUSURGXFWVRUVHUYLFHVFRXOGUHVXOWLQUHSXWDWLRQDOKDUP DQGDORVVRI FXVWRP HUV , I WKH&) 3% FKDQJ HVUHJ XODWLRQVZ KLFKZ HUHDGRSWHGLQWKHSDVWE\ RWKHUUHJ XODWRUVDQG WUDQVIHUUHGWR WKH&) 3% E\ WKH’ RGG ) UDQN$ FWRUP RGLILHVWKURXJ KVXSHUYLVLRQRUHQIRUFHP HQWSDVWUHODWHGUHJ XODWRU\ J XLGDQFHRULQWHUSUHWVH[ LVWLQJ UHJ XODWLRQVLQDGLIIHUHQ RUVWULFWHUP DQQHUWKDQWKH\ KDYHEHHQLQWHUSUHWHGLQWKHSDVWE\ XV WKHLQGXVWU\ RURWKHUUHJ XODWRUV RXUFRP SOLDQFHFRVWVDQGOLWLJ DWLRQH[ SRVXUHFRXOGLQFUHDVHP DWHULDOO\ , I IXWXUHUHJ XODWRU\ RUOHJ LVODWLYHUHVWULFWLRQVRUSURKLELWLRQVDUHLP SRVHGWKDWDIIHFWRXUDELOLW\ WR RIIHUSURP RWLRQDOILQDQFLQJ IRUFHUWDLQRI RXUSURGXFWVRUUHTXLUHXVWR P DNH
VLJ QLILFDQWFKDQJ HVWR RXUEXVLQHVVSUDFWLFHV DQGZ HDUHXQDEOHWR GHYHORS FRP SOLDQWDOWHUQDWLYHVZ LWKDFFHSWDEOHUHWXUQV WKHVHUHVWULFWLRQVRUSURKLELWLRQVFRXOGKDYHD P DWHULDODGYHUVHLP SDFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ
7 KH’ RGG ) UDQN$ FWDXWKRUL] HVVWDWHRIILFLDOVWR HQIRUFHUHJ XODWLRQVLVVXHGE\ WKH&) 3% DQGWR HQIRUFHWKH$ FW¶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
&KDQJ HVWR RXUP HWKRGVRI RIIHULQJ RXU&DUH&UHGLWSURGXFWVFRXOGP DWHULDOO\ LP SDFWRSHUDWLQJ UHVXOWV
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
$ VVXUDQFHDQGZ LOOEHXS WR P LOOLRQIRUWKH &) 3%&RQVHQW2 UGHU Z HZ LOOLQFXURQHWLP HFRVWVRI DSSUR[ LP DWHO\ P LOOLRQWR LP SOHP HQWWKHVHFKDQJ HV DQG
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
LP SRVHGE\ WKH &) 3%&RQVHQW2 UGHURUWKH$ VVXUDQFHZ LOODGYHUVHO\ DIIHFWSURYLGHUV¶RUFXVWRP HUV¶XVHRI RXUSURJ UDP VRURXUEXVLQHVV 0 RUHRYHU Z HP D\ HOHFWRUEH UHTXLUHGWR P DNHFKDQJ HVZ LWKUHVSHFWWR WKHVHDQGRWKHUGHIHUUHGLQWHUHVWSURGXFWVLQWKHIXWXUH DQGWKRVHFKDQJ HVP D\ DGYHUVHO\ DIIHFWFXVWRP HUV¶XVHRI RXUFUHGLWFDUGVRU RXUEXVLQHVV , QDGGLWLRQ RXUUHVROXWLRQVZ LWKWKH&) 3% DQGWKH1 HZ <RUN$ WWRUQH\ * HQHUDOGR QRWSUHFOXGHRWKHUUHJ XODWRUVRUVWDWHDWWRUQH\ VJ HQHUDOIURP VHHNLQJ DGGLWLRQD P RQHWDU\ RULQMXQFWLYHUHOLHI Z LWKUHVSHFWWR &DUH&UHGLWDQGDQ\ VXFKUHOLHI FRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVRUILQDQFLDOFRQGLWLRQ
) DLOXUHE\ 6\ QFKURQ\ WKH%DQNDQG XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ * ( && WR P HHWDSSOLFDEOHFDSLWDODGHTXDF\ UXOHVFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ XV
6\ QFKURQ\ DQGWKH%DQNP XVWP HHWUXOHVIRUFDSLWDODGHTXDF\ DVGLVFXVVHGLQ‡, WHP %XVLQHVV† 5 HJ XODWLRQ· $ VDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ 6\ QFKURQ\ KLVWRULFDOO\ KDVQRWEHHQUHTXLUHGWR P DLQWDLQP LQLP XP FDSLWDO%HJ LQQLQJ DVHDUO\ DV KRZ HYHU Z HH[ SHFWWKDW6\ QFKURQ\ Z LOOEHVXEMHFWWR FDSLWDOUHTXLUHP HQWVVLP LODU WR WKRVHWKDWDSSO\ WR WKH%DQN , QDGGLWLRQ DVGLVFXVVHGEHORZ XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HZ LOOEHFRQWUROOHGE\ * ( && Z KLFKLWVHOI LVH[ SHFWHGWR EHVXEMHFWWR FDSLWDOUHTXLUHP HQWVVLP LODUWR WKRVHWKDWDSSO\ WR WKH%DQN 6HH‡† $ VORQJ DVZ HDUHFRQWUROOHGE\ * ( && IRUEDQNUHJ XODWRU\ SXUSRVHV UHJ XODWLRQDQGVXSHUYLVLRQRI * ( && FRXOGDGYHUVHO\ DIIHFWXV· 7 KHVHFDSLWDOUHTXLUHP HQWVKDYHUHFHQWO\ EHHQVXEVWDQWLDOO\ UHYLVHG LQFOXGLQJ DVDUHVXOWRI %DVHO, , , DQGWKHUHTXLUHP HQWVRI WKH’ RGG ) UDQN$ FW
$ OWKRXJ KZ HFDQQRWSUHGLFWWKHHIIHFWVRI WKHVHQHZ O\ DGRSWHGUXOHVLP SOHP HQWLQJ %DVHO, , , DQGWKH’ RGG ) UDQN$ FW6\ QFKURQ\ WKH%DQNDQG* ( && H[ SHFWWR EHVXEMHFWWR LQFUHDVLQJ O\ VWULQJ HQWFDSLWDODGHTXDF\ VWDQGDUGVLQWKHIXWXUH
, QFRQQHFWLRQZ LWKDSSOLFDEOHFDSLWDODGHTXDF\ VWDQGDUGV 6\ QFKURQ\ WKH%DQNDQG* ( && DOVR Z LOOEHUHTXLUHGWR FRQGXFWVWUHVVWHVWVRQDQDQQXDOEDVLV 8 QGHUWKH
) HGHUDO5 HVHUYH%RDUG¶VDQGWKH2 &&¶VVWUHVVWHVWUHJ XODWLRQV 6\ QFKURQ\ WKH%DQNDQG* ( && Z LOOHDFKEHUHTXLUHGWR XVHVWUHVVWHVWLQJ P HWKRGRORJ LHVSURYLGLQJ IRUUHVXOWV XQGHUDWOHDVWWKUHHGLIIHUHQWVHWVRI FRQGLWLRQV LQFOXGLQJ EDVHOLQH DGYHUVHDQGVHYHUHO\ DGYHUVHFRQGLWLRQV , QDGGLWLRQ DVSDUWRI P HHWLQJ RXUP LQLP XP FDSLWDOUHTXLUHP HQWV Z HDQG* ( && P D\ EHUHTXLUHGWR FRP SO\ Z LWKWKH) HGHUDO5 HVHUYH%RDUG¶V&&$ 5 SURFHVVRUVRP HP RGLILHGYHUVLRQRI WKH&&$ 5 SURFHVV Z KLFKZ RXOGP HDVXUHRXU
P LQLP XP FDSLWDOUHTXLUHP HQWOHYHOVXQGHUYDULRXVVWUHVVVFHQDULRV , QFRQQHFWLRQZ LWKWKLVSURFHVV Z HDQG* ( && P D\ EHUHTXLUHGWR GHYHORS IRUWKH) HGHUDO5 HVHUYH%RDUG¶V UHYLHZ DQGDSSURYDODFDSLWDOSODQWKDWZ LOOLQFOXGHKRZ Z HDQG* ( && Z LOOHDFKP HHWRXUP LQLP XP FDSLWDOUHTXLUHP HQWVXQGHUVSHFLILHGVWUHVVVFHQDULRV
, I 6\ QFKURQ\ WKH%DQNRU XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ * ( && IDLOVWR P HHWFXUUHQWRUIXWXUHP LQLP XP FDSLWDOOHYHUDJ HRURWKHUILQDQFLDOUHTXLUHP HQWV LWV RSHUDWLRQV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQFRXOGEHP DWHULDOO\ DGYHUVHO\ DIIHFWHG $ P RQJ RWKHUWKLQJ V IDLOXUHE\ 6\ QFKURQ\ WKH%DQNRU XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ * ( && WR P DLQWDLQLWVVWDWXVDV‡Z HOOFDSLWDOL] HG· RURWKHUZ LVHP HHWFXUUHQWRUIXWXUHP LQLP XP FDSLWDOOHYHUDJ HRURWKHUILQDQFLDOUHTXLUHP HQWV FRXOG FRP SURP LVHRXUFRP SHWLWLYHSRVLWLRQDQGUHVXOWLQUHVWULFWLRQVLP SRVHGE\ WKH) HGHUDO5 HVHUYH%RDUGRUWKH2 && LQFOXGLQJ SRWHQWLDOO\ RQWKH%DQN¶VDELOLW\ WR HQJ DJ HLQ
FHUWDLQDFWLYLWLHV 7 KHVHFRXOGLQFOXGHUHVWULFWLRQVRQWKH%DQN¶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
: HP D\ SD\ GLYLGHQGVRUUHSXUFKDVHRXUFRP P RQ VWRFN ZKLFK P D\ UHGXFHWKHDP RXQWRI IXQGVDYDLODEOHWR VDWLVI\ RXULQGHEWHGQHVV WKH%DQNLVVXEMHFWWR UHVWULFWLRQV WKDWOLP LWLWVDELOLW\ WR SD\ GLYLGHQGVWR XV ZKLFK FRXOGOLP LWRXUDELOLW\ WR P DNHSD\ P HQWVRQ RXULQGHEWHGQHVV
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
: HUHO\ VLJ QLILFDQWO\ RQGLYLGHQGVDQGRWKHUGLVWULEXWLRQVDQGSD\ P HQWVIURP WKH%DQNIRUOLTXLGLW\ LQFOXGLQJ WR SD\ RXUREOLJ DWLRQVXQGHURXULQGHEWHGQHVVDQGRWKHU LQGHEWHGQHVVDVWKH\ EHFRP HGXH DQGIHGHUDOODZ OLP LWVWKHDP RXQWRI GLYLGHQGVDQGRWKHUGLVWULEXWLRQVDQGSD\ P HQWVWKDWWKH%DQNP D\ SD\ WR XV ) RUH[ ▇▇ ▇▇▇ 2 &&
UHJ XODWLRQVOLP LWWKHDELOLW\ RI VDYLQJ VDVVRFLDWLRQVWR P DNHGLVWULEXWLRQVRI FDSLWDOLQFOXGLQJ SD\ P HQWRI GLYLGHQGV VWRFNUHGHP SWLRQVDQGUHSXUFKDVHV FDVK RXWP HUJ HUVDQG RWKHUWUDQVDFWLRQVFKDUJ HGWR WKHFDSLWDODFFRXQW7 KH%DQNP XVWREWDLQWKH2 &&¶VDSSURYDOSULRUWR P DNLQJ DFDSLWDOGLVWULEXWLRQLQFHUWDLQFLUFXP VWDQFHV LQFOXGLQJ LI WKH
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¶VDELOLW\ WR SD\ GLYLGHQGVLQYROYHVEURDGGLVFUHWLRQRQWKHSDUWRI RXUUHJ XODWRUV 7 KH%DQNP XVWDOVR P HHWFHUWDLQFRQGLWLRQVWR GHFODUHRUSD\ D GLYLGHQGXQGHUWKH%DQN¶V2 SHUDWLQJ $ J UHHP HQWZ LWKWKH2 && HQWHUHGLQWR LQFRQQHFWLRQZ LWKLWVDFTXLVLWLRQRI WKHGHSRVLWEXVLQHVVRI 0 HW/ LIH / LP LWDWLRQVRQWKH%DQN¶V
SD\ P HQWVRI GLYLGHQGVDQGRWKHUGLVWULEXWLRQVDQGSD\ P HQWVWKDWZ HUHFHLYHIURP WKH%DQNFRXOGUHGXFHRXUOLTXLGLW\ DQGOLP LWRXUDELOLW\ WR SD\ RXUREOLJ DWLRQVXQGHURXU LQGHEWHGQHVV 6HH‡, WHP %XVLQHVV† 5 HJ XODWLRQ† 6DYLQJ V$ VVRFLDWLRQ5 HJ XODWLRQ† ’ LYLGHQGVDQG6WRFN5 HSXUFKDVHV· DQG‡† $ FWLYLWLHV·
5 HJ XODWLRQVUHODWLQJ WR SULYDF\ LQIRUP DWLRQ VHFXULW\ DQGGDWDSURWHFWLRQ FRXOGLQFUHDVHRXUFRVWV DIIHFWRUOLP LWKRZ ZHFROOHFWDQGXVHSHUVRQDOLQIRUP DWLRQ DQG DGYHUVHO\ DIIHFWRXUEXVLQHVVRSSRUWXQLWLHV
: HDUHVXEMHFWWR YDULRXVSULYDF\ LQIRUP DWLRQVHFXULW\ DQGGDWDSURWHFWLRQODZ V LQFOXGLQJ UHTXLUHP HQWVFRQFHUQLQJ VHFXULW\ EUHDFKQRWLILFDWLRQ DQGZ HFRXOGEH
QHJ DWLYHO\ LP SDFWHGE\ WKHP ) RUH[ ▇▇ ▇▇▇ LQWKH8 QLWHG6WDWHV FHUWDLQRI RXUEXVLQHVVHVDUHVXEMHFWWR WKH* / %$ DQGLP SOHP HQWLQJ UHJ XODWLRQVDQGJ XLGDQFH $ P RQJ RWKHU WKLQJ V WKH* / %$ L LP SRVHVFHUWDLQOLP LWDWLRQVRQWKHDELOLW\ RI ILQDQFLDOLQVWLWXWLRQVWR VKDUHFRQVXP HUV¶QRQSXEOLF SHUVRQDOLQIRUP DWLRQZ LWKQRQDIILOLDWHGWKLUGSDUWLHV
LL UHTXLUHVWKDWILQDQFLDOLQVWLWXWLRQVSURYLGHFHUWDLQGLVFORVXUHVWR FRQVXP HUVDERXWWKHLULQIRUP DWLRQFROOHFWLRQ VKDULQJ DQGVHFXULW\ SUDFWLFHVDQGDIIRUGVFXVWRP HUVWKHULJ K WR ‡RSWRXW· RI WKHLQVWLWXWLRQ¶VGLVFORVXUHRI WKHLUSHUVRQDOILQDQFLDOLQIRUP DWLRQWR QRQDIILOLDWHGWKLUGSDUWLHV Z LWKFHUWDLQH[ FHSWLRQV DQG LLL UHTXLUHVILQDQFLDOLQVWLWXWLRQVWR GHYHORS LP SOHP HQWDQGP DLQWDLQDZ ULWWHQFRP SUHKHQVLYHLQIRUP DWLRQVHFXULW\ SURJ UDP FRQWDLQLQJ VDIHJ XDUGVWKDWDUHDSSURSULDWHWR WKHILQDQFLDOLQVWLWXWLRQ¶VVL] HDQG
FRP SOH[ LW\ WKHQDWXUHDQGVFRSHRI WKHILQDQFLDOLQVWLWXWLRQ¶VDFWLYLWLHV DQGWKHVHQVLWLYLW\ RI FXVWRP HULQIRUP DWLRQSURFHVVHGE\ WKHILQDQFLDOLQVWLWXWLRQDVZ HOODVSODQVIRU UHVSRQGLQJ WR GDWDVHFXULW\ EUHDFKHV
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
&RP SOLDQFHZ LWKFXUUHQWRUIXWXUHSULYDF\ GDWDSURWHFWLRQDQGLQIRUP DWLRQVHFXULW\ ODZ V LQFOXGLQJ WKRVHUHJ DUGLQJ VHFXULW\ EUHDFKQRWLILFDWLRQ DIIHFWLQJ FXVWRP HU DQGRUHP SOR\ HHGDWDWR Z KLFKZ HDUHVXEMHFWFRXOGUHVXOWLQKLJ KHUFRP SOLDQFHDQGWHFKQRORJ \ FRVWVDQGFRXOGUHVWULFWRXUDELOLW\ WR SURYLGHFHUWDLQSURGXFWVDQGVHUYLFHV VXFKDVSURGXFWVRUVHUYLFHVWKDWLQYROYHXVVKDULQJ LQIRUP DWLRQZ LWKWKLUGSDUWLHVRUVWRULQJ VHQVLWLYHFUHGLWFDUGLQIRUP DWLRQ Z KLFKFRXOGP DWHULDOO\ DQGDGYHUVHO\ DIIHFWRX SURILWDELOLW\ 2 XUIDLOXUHWR FRP SO\ Z LWKSULYDF\ GDWDSURWHFWLRQDQGLQIRUP DWLRQVHFXULW\ ODZ VFRXOGUHVXOWLQSRWHQWLDOO\ VLJ QLILFDQWUHJ XODWRU\ LQYHVWLJ DWLRQVDQGJ RYHUQP HQW DFWLRQV OLWLJ DWLRQ ILQHVRUVDQFWLRQV FRQVXP HURUSDUWQHUDFWLRQVDQGGDP DJ HWR RXUUHSXWDWLRQDQGRXUEUDQG DOORI Z KLFKFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHV DQGUHVXOWVRI RSHUDWLRQV
2 XUXVHRI WKLUG SDUW\ YHQGRUVDQGRXURWKHURQJ RLQJ WKLUG SDUW\ EXVLQHVVUHODWLRQVKLSVDUHVXEMHFWWR LQFUHDVLQJ UHJ XODWRU\ UHTXLUHP HQWVDQGDWWHQWLRQ
: HUHJ XODUO\ XVHWKLUG SDUW\ YHQGRUVDQGVXEFRQWUDFWRUVDVSDUWRI RXUEXVLQHVV : HDOVR KDYHVXEVWDQWLDORQJ RLQJ EXVLQHVVUHODWLRQVKLSVZ LWKRXUSDUWQHUVDQGRWKHU WKLUG SDUWLHV 7 KHVHW\ SHVRI WKLUG SDUW\ UHODWLRQVKLSVDUHVXEMHFWWR LQFUHDVLQJ O\ GHP DQGLQJ UHJ XODWRU\ UHTXLUHP HQWVDQGDWWHQWLRQE\ RXUIHGHUDOEDQNUHJ XODWRUV WKH) HGHUDO
5 HVHUYH%RDUG WKH2 && DQGWKH) ’ ,& DQGRXUFRQVXP HUUHJ XODWRU WKH&) 3% 5 HJ XODWRU\ J XLGDQFHUHTXLUHVXVWR HQKDQFHRXUGXHGLOLJ HQFH RQJ RLQJ P RQLWRULQJ DQGFRQWUR RYHURXUWKLUG SDUW\ YHQGRUVDQGVXEFRQWUDFWRUVDQGRWKHURQJ RLQJ WKLUG SDUW\ EXVLQHVVUHODWLRQVKLSV LQFOXGLQJ Z LWKRXUSDUWQHUV , QFHUWDLQFDVHVZ HP D\ EHUHTXLUHGWR
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
$ QWLP RQH\ ODXQGHULQJ DQGDQWLWHUURULVP ILQDQFLQJ ODZVFRXOGKDYHVLJ QLILFDQWDGYHUVHFRQVHTXHQFHVIRUXV
: HP DLQWDLQDQHQWHUSULVHZ LGHSURJ UDP GHVLJ QHGWR HQDEOHXVWR FRP SO\ Z LWKDOODSSOLFDEOHDQWLP RQH\ ODXQGHULQJ DQGDQWLWHUURULVP ILQDQFLQJ ODZ VDQGUHJ XODWLRQV LQFOXGLQJ WKH%DQN6HFUHF\ $ FWDQGWKH3DWULRW$ FW7 KLVSURJ UDP LQFOXGHVSROLFLHV SURFHGXUHV SURFHVVHVDQGRWKHULQWHUQDOFRQWUROVGHVLJ QHGWR LGHQWLI\ P RQLWRU P DQDJ HDQG P LWLJ DWHWKHULVNRI P RQH\ ODXQGHULQJ RUWHUURULVWILQDQFLQJ SRVHGE\ RXUSURGXFWV VHUYLFHV FXVWRP HUVDQGJ HRJ UDSKLF ORFDOH 7 KHVHFRQWUROVLQFOXGHSURFHGXUHVDQGSURFHVVHV WR GHWHFWDQGUHSRUWVXVSLFLRXVWUDQVDFWLRQV SHUIRUP FXVWRP HUGXHGLOLJ HQFH UHVSRQGWR UHTXHVWVIURP ODZ HQIRUFHP HQWDQGP HHWDOOUHFRUGNHHSLQJ DQGUHSRUWLQJ UHTXLUHP HQW UHODWHGWR SDUWLFXODUWUDQVDFWLRQVLQYROYLQJ FXUUHQF\ RUP RQHWDU\ LQVWUXP HQWV : HFDQQRWEHVXUHRXUSURJ UDP VDQGFRQWUROVZ LOOEHHIIHFWLYHWR HQVXUHRXUFRP SOLDQFHZ LWKDOO DSSOLFDEOHDQWLP RQH\ ODXQGHULQJ DQGDQWLWHUURULVP ILQDQFLQJ ODZ VDQGUHJ XODWLRQV DQGRXUIDLOXUHWR FRP SO\ FRXOGVXEMHFWXVWR VLJ QLILFDQWVDQFWLRQV ILQHV SHQDOWLHVDQG UHSXWDWLRQDOKDUP DOORI Z KLFKFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ
$ VORQJ DVZHDUHFRQWUROOHGE\ * ( && IRUEDQNUHJ XODWRU\ SXUSRVHV UHJ XODWLRQ DQGVXSHUYLVLRQ RI * ( && FRXOGDGYHUVHO\ DIIHFWXV
* ( && LVDUHJ XODWHGVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ DQGWKHUHIRUHLVVXEMHFWWR DOORI WKHUHJ XODWLRQDQGVXSHUYLVLRQWR Z KLFKZ HDUHVXEMHFW8 QWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ UHJ XODWLRQDQGVXSHUYLVLRQRI * ( && DVDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ P D\ IRUUHDVRQVUHODWHGRUXQUHODWHGWR XV P DWHULDOO\ DQGDGYHUVHO\ DIIHFWXV
LQFOXGLQJ UHVWULFWLQJ RXUDELOLW\ WR SD\ GLYLGHQGVRUUHSXUFKDVHRXUVWRFN LQLWLDWHRUFRQWLQXHYDULRXVEXVLQHVVDFWLYLWLHVRUSUDFWLFHV J URZ RXUDVVHWVRUFRP SOHWHWKH6HSDUDWLRQ
$ VDQRQEDQN6, ) , * ( && RXULQGLUHFWSDUHQWFRP SDQ\ LVVXEMHFWWR HQKDQFHGSUXGHQWLDOVWDQGDUGVDQGUHJ XODWLRQE\ WKH) HGHUDO5 HVHUYH%RDUG 1 RQEDQN6, ) , V VXFK DV* ( && FXUUHQWO\ DUHVXEMHFWWR VRP H EXWQRWDOORI WKHHQKDQFHGSUXGHQWLDOVWDQGDUGVXQGHUWKH’ RGG ) UDQN$ FWVXFKDVUHVROXWLRQSODQQLQJ 7 KH) HGHUDO5 HVHUYH%RDUG KDVLVVXHGUHJ XODWLRQVLP SOHP HQWLQJ FHUWDLQRI WKHHQKDQFHGSUXGHQWLDOVWDQGDUGVRI WKH’ RGG ) UDQN$ FWIRUODUJ HEDQNKROGLQJ FRP SDQLHVDQGIRUHLJ QEDQNLQJ RUJ DQL] DWLRQV EXWQRWIRUQRQEDQN6, ) , V , QFRQQHFWLRQZ LWKWKHVHUHJ XODWLRQV WKH) HGHUDO5 HVHUYH%RDUGKDVLQGLFDWHGWKDWLWZ LOODSSO\ HQKDQFHGSUXGHQWLDOVWDQGDUGVWR DQLQGLYLGXDO QRQEDQN6, ) , VXFKDV* ( && E\ UXOHRURUGHU7 KHVHVWDQGDUGVDUHH[ SHFWHGWR LQFOXGHUHJ XODWRU\ FDSLWDOFDSLWDOSODQQLQJ VWUHVVWHVWLQJ OLTXLGLW\ DQGJ RYHUQDQFH
UHTXLUHP HQWV DVZ HOODVFRP SOLDQFHZ LWKFRXQWHUSDUW\ FUHGLWH[ SRVXUHOLP LWV DP RQJ RWKHUV $ OWKRXJ KWKHHQKDQFHGSUXGHQWLDOVWDQGDUGVFXUUHQWO\ DSSOLFDEOHWR * ( && LQLWV FDSDFLW\ DVDQRQEDQN6, ) , GR QRWKDYHWKHHIIHFWRI LP SRVLQJ GLUHFWUHJ XODWRU\ REOLJ DWLRQVRUUHVWULFWLRQVRQXV Z HFDQQRWEHFHUWDLQWKDWVWDQGDUGVLP SRVHGE\ UXOHRURUGHUR
* ( && DVDQRQEDQN6, ) , E\ WKH) HGHUDO5 HVHUYH%RDUGLQWKHIXWXUHZ LOOQRWKDYHWKHHIIHFWRI GLUHFWO\ RULQGLUHFWO\ LP SRVLQJ REOLJ DWLRQVRUUHVWULFWLRQVRQXVVR ORQJ DVZ HDU FRQWUROOHGE\ * ( && IRUEDQNUHJ XODWRU\ SXUSRVHVDQGWKRVHFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQGILQDQFLDOFRQGLWLRQ ) RUH[ ▇▇ ▇▇▇ FDSLWDOSODQDQGVWUHVVWHVWLQJ UHTXLUHP HQWVWR Z KLFK* ( && P D\ EHP DGHVXEMHFWDVDQRQEDQN6, ) , FRXOGDIIHFWDP RQJ RWKHUWKLQJ V RXUDELOLW\ WR SD\ GLYLGHQGVRUUHSXUFKDV RXUVWRFN RXUDELOLW\ WR UHGHHP RXULQGHEWHGQHVVRU* ( &&¶VDELOLW\ WR FRP SOHWHWKH6HSDUDWLRQ
5 LVNV5 HODWLQJ WR 2 XU6HSDUDWLRQ IURP * (
* ( P D\ QRWFRP SOHWHWKH6HSDUDWLRQ DVSODQQHGRUDWDOO
2 Q1 RYHP EHU * ( DQQRXQFHGWKDWLWSODQQHGDVWDJ HGH[ LWIURP RXUEXVLQHVV FRQVLVWHQWZ LWKLWVVWUDWHJ \ RI UHGXFLQJ * ( &&¶VSHUFHQWDJ HRI * ( ¶VWRWDOHDUQLQJ DQGLQFUHDVLQJ * ( &&¶VIRFXVRQLWVFRP P HUFLDOOHQGLQJ DQGOHDVLQJ EXVLQHVVHV 7 KH, 32 Z DVWKHILUVWVWHS LQWKDWH[ LW$ VDUHVXOWRI WKH, 32 * ( FXUUHQWO\ EHQHILFLDOO\ RZ QV
RI RXURXWVWDQGLQJ FRP P RQVWRFN
* ( KDVLQGLFDWHGWKDWLWFXUUHQWO\ LVWDUJ HWLQJ WR FRP SOHWHLWVH[ LWIURP RXUEXVLQHVVLQODWH WKURXJ KWKH6HSDUDWLRQ 7 KH6HSDUDWLRQZ RXOGEHVXEMHFWWR YDULRXV FRQGLWLRQV LQFOXGLQJ UHFHLSWRI DQ\ QHFHVVDU\ EDQNUHJ XODWRU\ DQGRWKHUDSSURYDOV WKHH[ LVWHQFHRI VDWLVIDFWRU\ P DUNHWFRQGLWLRQV DQG LQWKHFDVHRI DWD[ IUHHWUDQVDFWLRQ D SULYDWHOHWWHUUXOLQJ IURP WKH, 5 6 DVWR FHUWDLQLVVXHVUHODWLQJ WR DQGDQRSLQLRQRI FRXQVHOFRQILUP LQJ WKHWD[ IUHHWUHDWP HQWRI WKHWUDQVDFWLRQWR * ( DQGLWVVWRFNKROGHUV , Q DGGLWLRQ VLQFH* ( ¶VH[ LWIURP RXUEXVLQHVVZ LOOQRWEHFRP SOHWHGXQWLO* ( KDVREWDLQHGWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ * ( ¶VZ LOOLQJ QHVVWR SURFHHGZ LWKWKH6HSDUDWLRQP D\ EH FRQGLWLRQHGRQLWVREWDLQLQJ WKHQHFHVVDU\ GHWHUP LQDWLRQE\ WKH) HGHUDO5 HVHUYH%RDUGWKDWWKH* ( 6/ + & ’ HUHJ LVWUDWLRQLVHIIHFWLYH LH WKDWIROORZ LQJ WKH6HSDUDWLRQ * ( DORQJ Z LWK* ( && DQG* ( &) , QR ORQJ HUFRQWUROVXVDQGWKHUHIRUH* ( * ( && DQG* ( &) , DUHUHOHDVHGIURP VDYLQJ VDQGORDQKROGLQJ FRP SDQ\ UHJ LVWUDWLRQ
7 KHFRQGLWLRQVUHODWHGWR WKH6HSDUDWLRQDQGWKH* ( 6/ + & ’ HUHJ LVWUDWLRQP D\ QRWEHVDWLVILHGLQODWH RUWKHUHDIWHU RU* ( P D\ GHFLGHIRUDQ\ RWKHUUHDVRQQRWWR FRQVXP P DWHWKH6HSDUDWLRQLQODWH RUWKHUHDIWHU$ OVR VDWLVI\ LQJ WKHFRQGLWLRQVUHODWHGWR WKH6HSDUDWLRQDQGWKH* ( 6/ + & ’ HUHJ XODWLRQP D\ UHTXLUHDFWLRQVWKDW* ( KDV QRWDQWLFLSDWHG $ Q\ GHOD\ E\ * ( LQFRP SOHWLQJ RUXQFHUWDLQW\ DERXWLWVDELOLW\ RULQWHQWWR FRP SOHWH WKH6HSDUDWLRQDQGWKH* ( 6/ + & ’ HUHJ LVWUDWLRQRQWKHSODQQHGWLP HWDEOH DQGWKHFRQWHP SODWHGWHUP V LQFOXGLQJ DWWKHFRQWHP SODWHGFDSLWDODQGOLTXLGLW\ OHYHOV RUDWDOOFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV
, I * ( LVXQDEOHWR REWDLQ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQ LWZLOOFRQWLQXHWR KDYHVLJ QLILFDQWFRQWURORYHUXV
, I WKH* ( 6/ + & ’ HUHJ LVWUDWLRQLVQRWREWDLQHG DQGXQWLOLWLVREWDLQHG * ( Z LOOFRQWLQXHWR KDYHVLJ QLILFDQWFRQWURORYHUXV * ( ¶VGHJ UHHRI FRQWUROZ LOOGHSHQGRQ
DP RQJ RWKHUWKLQJ V LWVOHYHORI RZ QHUVKLS RI RXUFRP P RQVWRFN WKHQXP EHURI SHUVRQVLWLVHQWLWOHGWR GHVLJ QDWHIRUQRP LQDWLRQIRUHOHFWLRQWR RXUERDUGRI GLUHFWRUVXQGHUWKH P DVWHUDJ UHHP HQWWKDWZ HHQWHUHGLQWR Z LWK* ( && DQG IRUOLP LWHGSXUSRVHVRQO\ * ( SULRUWR WKHFRP SOHWLRQRI WKH, 32 WKH‡0 DVWHU$ J UHHP HQW· DQGWKHUHTXLUHP HQWXQGHU WKH0 DVWHU$ J UHHP HQWWKDWZ HREWDLQ* ( &&¶VSULRUZ ULWWHQDSSURYDOEHIRUHXQGHUWDNLQJ RUSHUP LWWLQJ RUDXWKRUL] LQJ WKH%DQNRUDQ\ RI RXURWKHUVXEVLGLDULHVWR XQGHUWDNH YDULRXVVLJ QLILFDQWFRUSRUDWHDFWLRQV 7 KLVP D\ P HDQWKDW* ( WKURXJ K* ( && P D\ QRWDOZ D\ VH[ HUFLVHFRQWURORI XVLQDZ D\ WKDWEHQHILWVRXUSXEOLF VWRFNKROGHUVRU QRWHKROGHUV &RQIOLFWVRI LQWHUHVWP D\ DULVHEHWZ HHQXVDQG* ( DQG* ( && WKDWFRXOGEHUHVROYHGLQDP DQQHUXQIDYRUDEOHWR XV : HZ LOODOVR FRQWLQXHWR EHVXEMHFWWR WKH
UHJ XODWLRQDQGVXSHUYLVLRQDSSOLFDEOHWR * ( * ( && DQGFRP SDQLHVXQGHUWKHLUFRQWURODQGVXFKUHJ XODWLRQDQGVXSHUYLVLRQP D\ IRUUHDVRQVUHODWHGRUXQUHODWHGWR XV DGYHUVHO\ DIIHFWXVXQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQLVREWDLQHG $ OORI WKHIRUHJ RLQJ FRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQXV 6HH‡† * ( KDVVLJ QLILFDQWFRQWURORYHUXVDQ P D\ QRWDOZ D\ VH[ HUFLVHLWVFRQWUROLQDZ D\ WKDWEHQHILWVRXUSXEOLF VWRFNKROGHUVRUQRWHKROGHUV· DQG‡† 5 LVNV5 HODWLQJ WR 5 HJ XODWLRQ† $ VORQJ DVZ HDUHFRQWUROOHGE\ * ( & IRUEDQNUHJ XODWRU\ SXUSRVHV UHJ XODWLRQDQGVXSHUYLVLRQRI * ( && FRXOGDGYHUVHO\ DIIHFWXV·
: HQHHG) HGHUDO5 HVHUYH%RDUGDSSURYDOWR FRQWLQXHWR EHDVDYLQJ VDQGORDQ KROGLQJ FRP SDQ\ IROORZLQJ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQ : HP D\ QRWUHFHLYHWKLVDSSURYDO LQ DWLP HO\ P DQQHURUDWDOODQGDGGLWLRQDODSSURYDOFRQGLWLRQVEH\ RQGZKDWZHDUHDQWLFLSDWLQJ P D\ EHLP SRVHGWKDWSUHYHQWRUGHOD\ WKH6HSDUDWLRQ RUWKH* ( 6/ + &
’ HUHJ LVWUDWLRQ RUUHTXLUHXVWR LQFXUVLJ QLILFDQWDGGLWLRQDOH[ SHQVH
7 KH6DYLQJ VDQG/ RDQ+ ROGLQJ &RP SDQ\ $ FWJ HQHUDOO\ UHTXLUHV) HGHUDO5 HVHUYH%RDUGDSSURYDOEHIRUHDFRP SDQ\ DFTXLUHVDVDYLQJ VDVVRFLDWLRQDQGEHFRP HVD VDYLQJ VDQGORDQKROGLQJ FRP SDQ\ : HZ HUHH[ HP SWIURP WKLVUHTXLUHP HQWZ KHQZ HLQLWLDOO\ DFTXLUHGWKH%DQNDQGEHFDP HDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ EHFDXVHZ H Z HUHDVXEVLGLDU\ RI * ( * ( && DQG* ( &) , H[ LVWLQJ VDYLQJ VDQGORDQKROGLQJ FRP SDQLHV : HGR QRWH[ SHFWWKLVH[ HP SWLRQWR FRQWLQXHWR DSSO\ WR XVIROORZ LQJ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQ $ VDUHVXOWZ HZ LOOEHUHTXLUHGWR ILOHDQDSSOLFDWLRQZ LWK DQGUHFHLYHDSSURYDOIURP WKH) HGHUDO5 HVHUYH%RDUGWR FRQWLQXHWR EHDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ DQGWR UHWDLQRZ QHUVKLS RI WKH%DQNIROORZ LQJ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQ 6HH‡, WHP %XVLQHVV† 5 HJ XODWLRQ† 6DYLQJ VDQG/ RDQ+ ROGLQJ &RP SDQ\ 5 HJ XODWLRQ·
: HH[ SHFWWKDWWKH) HGHUDO5 HVHUYH%RDUGZ LOOQRWDFWRQRXUDSSOLFDWLRQWR FRQWLQXHWR EHDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ DQGWR UHWDLQRZ QHUVKLS RI WKH%DQN IROORZ LQJ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQXQWLODP RQJ RWKHUWKLQJ V LWKDVFRP SOHWHGDQLQ GHSWKUHYLHZ RI RXUSUHSDUHGQHVVWR RSHUDWHRQDVWDQGDORQHEDVLV LQGHSHQGHQWO\ RI
* ( DQGLVVDWLVILHGZ LWKWKHUHVXOWV : HFDQQRWSUHGLFWZ KHQWKLVUHYLHZ Z LOOEHJ LQEXWH[ SHFWLWZ LOOQRWEHJ LQXQWLODIWHUZ HILOHRXUDSSOLFDWLRQ , QFRQQHFWLRQZ LWKWKH) HGHUD 5 HVHUYH%RDUG¶VUHYLHZ DQGSULRUWR RXUILOLQJ DQDSSOLFDWLRQZ LWKWKH) HGHUDO5 HVHUYH%RDUGWR FRQWLQXHWR EHDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ DQGWR UHWDLQRZ QHUVKLS RI WKH%DQNIROORZ LQJ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HZ LOOFRQWLQXHWR HVWDEOLVKDQGH[ SDQGRXURSHUDWLRQVDQGLQIUDVWUXFWXUHDQGWDNHRWKHUVWHSVWR DOORZ XVWR RSHUDWHDVDIXO VWDQGDORQHSXEOLF FRP SDQ\ LQGHSHQGHQWO\ RI * ( 6HH‡, WHP %XVLQHVV† * ( 2 Z QHUVKLS DQG2 XU6HSDUDWLRQIURP * ( ·
2 QFHWKH) HGHUDO5 HVHUYH%RDUGEHJ LQVLWVUHYLHZ RI RXUSUHSDUHGQHVVWR RSHUDWHRQDVWDQGDORQHEDVLV Z HFDQQRWSUHGLFWKRZ ORQJ VXFKUHYLHZ Z LOOWDNH : HH[ SHFW KRZ HYHU WKDWWKHUHYLHZ Z LOOUHTXLUHDFRQVLGHUDEOHSHULRGRI WLP H , QDGGLWLRQ WR REWDLQDSSURYDORI RXUDSSOLFDWLRQWR FRQWLQXHWR EHDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ DQG UHWDLQRZ QHUVKLS RI WKH%DQNIROORZ LQJ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HP D\ KDYHWR WDNHDGGLWLRQDODFWLRQVEH\ RQGWKHVLJ QLILFDQWRSHUDWLRQVDQGLQIUDVWUXFWXUHH[ SDQVLRQDQ RWKHUVWHSVZ HDUHDOUHDG\ SODQQLQJ ) RUH[ ▇▇ ▇▇▇ Z HP D\ KDYHWR LQFUHDVHRXUFDSLWDODQGOLTXLGLW\ OHYHOVEH\ RQGZ KDWZ HDUHDQWLFLSDWLQJ UHVWULFWRXUSD\ P HQWRI GLYLGHQGV RUQRWP DNHDQ\ SD\ P HQWRI GLYLGHQGV IRUDORQJ HUSHULRGWKDQZ KDWZ HDQWLFLSDWH P DNHIXUWKHUFKDQJ HVWR DP RQJ RWKHUWKLQJ V RXUFRUSRUDWHJ RYHUQDQFH ULVNP DQDJ HP HQW FDSLWDOSODQQLQJ WUHDVXU\ LQIRUP DWLRQWHFKQRORJ \ FRP SOLDQFH UHJ XODWRU\ LQWHUQDODXGLWDQGRWKHUFRQWURORSHUDWLRQVDQGLQIUDVWUXFWXUH VWRS UHFHLYLQJ DQ\ WUDQVLWLRQDOVHUYLFH IURP * ( UHSD\ DOOUHODWHGSDUW\ GHEWRZ HGWR * ( && RUIXUWKHUGLYHUVLI\ RXUIXQGLQJ VRXUFHV VXFKDVE\ UHGXFLQJ WKHDP RXQWRI RXUEURNHUHGGHSRVLWVRULQFUHDVLQJ WKH
DP RXQWRI RXUXQVHFXUHGGHEWEH\ RQGZ KDWZ HDUHDQWLFLSDWLQJ 7 KRVHDFWLRQVP D\ LQYROYHVLJ QLILFDQWDGGLWLRQDOH[ SHQVHVIRUXVDQGUHTXLUHVLJ QLILFDQWWLP HWR LP SOHP HQW EH\ RQGZ KDWZ HQRZ DQWLFLSDWH
( YHQDIWHUWDNLQJ DQ\ VXFKDFWLRQV WKHUHLVQR DVVXUDQFHWKDWRXUDSSOLFDWLRQWR FRQWLQXHWR EHDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ IROORZ LQJ WKH* ( 6/ + &
’ HUHJ LVWUDWLRQZ LOOEHDSSURYHG 7 KH) HGHUDO5 HVHUYH%RDUGZ LOOFRQVLGHUDUDQJ HRI IDFWRUVDQGKDVVLJ QLILFDQWGLVFUHWLRQLQUHYLHZ LQJ RXUDSSOLFDWLRQ DQGLWVDFWLRQRQRXU DSSOLFDWLRQP D\ EHDIIHFWHGE\ FLUFXP VWDQFHVZ HGR QRWNQRZ RUFDQQRWSUHGLFWDWWKLVWLP H LQFOXGLQJ IDFWRUVLGHQWLILHGLQWKH) HGHUDO5 HVHUYH%RDUG¶VLQ GHSWKUHYLHZ RI XV FKDQJ HVLQRXUFXUUHQWFRQGLWLRQRUFKDQJ HVLQJ HQHUDOHFRQRP LF DQGP DUNHWFRQGLWLRQVUHOHYDQWWR RXURSHUDWLRQV 7 KH) HGHUDO5 HVHUYH%RDUGZ LOODOVR VHHNWKHYLHZ VRI WKH 2 && DQG) ’ ,& DVUHJ XODWRUVRI WKH%DQN DQGWKHLUYLHZ VP D\ KDYHDVLJ QLILFDQWHIIHFWRQWKH) HGHUDO5 HVHUYH%RDUG¶VDFWLRQRQWKHDSSOLFDWLRQ , I WKHDSSOLFDWLRQLVQRW DSSURYHG * ( Z LOOQRWEHDEOHWR REWDLQWKH* ( 6/ + & ’ HUHJ LVWUDWLRQDVFXUUHQWO\ SODQQHG * ( P D\ EHXQZ LOOLQJ WR SURFHHGZ LWKWKH6HSDUDWLRQXQOHVVRUXQWLOLWLVDEOHWR REWDLQWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ
( YHQLI RXUDSSOLFDWLRQLVDSSURYHG Z HFDQQRWEHFHUWDLQZ KHQVXFKDSSURYDOZ LOOEHJ UDQWHG RUZ KDWFRQGLWLRQVRUUHVWULFWLRQV LI DQ\ Z LOOEHLP SRVHGIRUVXFK DSSURYDO7 KH) HGHUDO5 HVHUYH%RDUG¶VDSSURYDOFRXOGLQFOXGHFRQGLWLRQVRUUHVWULFWLRQVWKDWDUHP RUHRQHURXVWKDQWKRVHJ HQHUDOO\ DSSOLFDEOHWR VDYLQJ VDQGORDQKROGLQJ
FRP SDQLHVDQGWKDWUHTXLUHDGGLWLRQDODFWLRQVRULP SRVHDGGLWLRQDOOLP LWDWLRQVEH\ RQGWKRVHZ HP D\ DOUHDG\ KDYHWDNHQRUDVVXP HGLQRUGHUWR REWDLQDSSURYDODQGDFKLHYHWKH 6HSDUDWLRQDVGHVFULEHGDERYH $ Q\ VXFKFRQGLWLRQVRUUHVWULFWLRQV LQFOXGLQJ UHVWULFWLRQVRQRXUDELOLW\ WR SD\ GLYLGHQGVRUUHSXUFKDVHRXUVWRFNDIWHUWKH6HSDUDWLRQ RU DGGLWLRQDOUHTXLUHGDFWLRQVFRXOGEHVLJ QLILFDQWLQYROYHVLJ QLILFDQWDGGLWLRQDOH[ SHQVHIRUXVDQGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV UHVXOWVRI RSHUDWLRQVDQG ILQDQFLDOFRQGLWLRQ * ( ¶VDELOLW\ RUZ LOOLQJ QHVVWR SURFHHGZ LWKWKH6HSDUDWLRQDVFXUUHQWO\ SODQQHGFRXOGEHDIIHFWHGE\ WKHQDWXUHDQGHIIHFWRI DQ\ VXFKFRQGLWLRQV UHVWULFWLRQ RUDGGLWLRQDOUHTXLUHGDFWLRQV
3 ULRUWR WKH6HSDUDWLRQ DQGWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ ZHQHHGWR HVWDEOLVK DQGVLJ QLILFDQWO\ H[ SDQGP DQ\ DVSHFWVRI RXURSHUDWLRQVDQGLQIUDVWUXFWXUH DQGRXUIDLOXU WR GR VR LQ DWLP HO\ P DQQHU ZLWKLQ DQWLFLSDWHGFRVWVDQGZLWKRXWGLVUXSWLQJ RXURQJ RLQJ EXVLQHVV FRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQ RXUEXVLQHVVDQGUHVXOWVRI RSHUDWLRQVDQGFRXOGGHOD\ RUSUHYHQWWKH6HSDUDWLRQ DQGWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ
$ OWKRXJ KKLVWRULFDOO\ Z HKDYHRSHUDWHGDVDODUJ HO\ VWDQGDORQHEXVLQHVVZ LWKLQ* ( && Z LWKRXURZ QVDOHV P DUNHWLQJ ULVNP DQDJ HP HQWRSHUDWLRQV FROOHFWLRQV
FXVWRP HUVHUYLFHDQGFRP SOLDQFHIXQFWLRQV Z HQHHGWR HVWDEOLVKDQGVLJ QLILFDQWO\ H[ SDQGP DQ\ DVSHFWVRI RXURSHUDWLRQVDQGLQIUDVWUXFWXUHSULRUWR WKH6HSDUDWLRQWR HQDEOHX WR RSHUDWHDVDVWDQGDORQHSXEOLF FRP SDQ\ DIWHURXUWUDQVLWLRQDOVHUYLFHVZ LWK* ( WHUP LQDWH IRUP RVWVHUYLFHV Z LWKLQ P RQWKVDIWHU$ XJ XVW WKH, 32 FRP SOHWLRQGDWH DQGWR HQDEOH* ( WR REWDLQWKH* ( 6/ + & ’ HUHJ LVWUDWLRQLQFRQQHFWLRQZ LWKWKH6HSDUDWLRQRUWKHUHDIWHU7 KHRSHUDWLRQVDQGLQIUDVWUXFWXUHWR EHHVWDEOLVKHGRUH[ SDQGHGUHODWH WR DP RQJ RWKHUDUHDV FRUSRUDWHJ RYHUQDQFH ULVNP DQDJ HP HQWFDSLWDOSODQQLQJ WUHDVXU\ LQIRUP DWLRQWHFKQRORJ \ FRP SOLDQFH UHJ XODWRU\ LQWHUQDODXGLWDQGRWKHUFRQWURO RSHUDWLRQVDQGLQIUDVWUXFWXUH
( VWDEOLVKLQJ DQGH[ SDQGLQJ RXURSHUDWLRQVDQGLQIUDVWUXFWXUHZ LOOLQYROYHVXEVWDQWLDOFRVWV WKHKLULQJ DQGLQWHJ UDWLRQRI DODUJ HQXP EHURI QHZ HP SOR\ HHV LQFOXGLQJ D QXP EHUDWVHQLRUOHYHOV DQGLQWHJ UDWLRQRI WKHQHZ DQGH[ SDQGHGRSHUDWLRQVDQGLQIUDVWUXFWXUHZ LWKRXUH[ LVWLQJ RSHUDWLRQVDQGLQIUDVWUXFWXUH DQGLQVRP HFDVHV WKH RSHUDWLRQVDQGLQIUDVWUXFWXUHRI RXUSDUWQHUVDQGRWKHUWKLUGSDUWLHV , WZ LOODOVR UHTXLUHVLJ QLILFDQWWLP HDQGDWWHQWLRQIURP RXUVHQLRUP DQDJ HP HQWDQGRWKHUVWKURXJ KRXWWKH &RP SDQ\ LQDGGLWLRQWR WKHLUGD\ WR GD\ UHVSRQVLELOLWLHVUXQQLQJ WKHEXVLQHVV : HH[ SHFWWKDWRXURSHUDWLRQVDQGLQIUDVWUXFWXUHZ LOOQHHGWR EHP RUHH[ WHQVLYHDQGUREXVWLQ
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’ HUHJ LVWUDWLRQXQWLODP RQJ RWKHUWKLQJ V LWKDVFRP SOHWHGDQLQ GHSWKUHYLHZ RI RXU
SUHSDUHGQHVVWR RSHUDWHRQDVWDQGDORQHEDVLV Z KLFKZ HH[ SHFWWR LQYROYHDUHYLHZ RI RXURSHUDWLRQVDQGLQIUDVWUXFWXUH $ VDUHVXOWGHOD\ VLQHVWDEOLVKLQJ DQGH[ SDQGLQJ RXU RSHUDWLRQVDQGLQIUDVWUXFWXUHP D\ GHOD\ WKHUHYLHZ RI RXUSUHSDUHGQHVVE\ WKH) HGHUDO5 HVHUYH%RDUG Z KLFKFRXOGGHOD\ WKH6HSDUDWLRQDQGWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ
0 RUHRYHU WKH) HGHUDO5 HVHUYH%RDUGP D\ UHTXLUHVXEVWDQWLDODGGLWLRQVRUFKDQJ HVWR RXURSHUDWLRQVDQGLQIUDVWUXFWXUH LQFOXGLQJ WKHRSHUDWLRQVDQGLQIUDVWUXFWXUHZ HDQWLFLSD DGGLQJ DOORI Z KLFKFRXOGVLJ QLILFDQWO\ LQFUHDVHRXUFRVWVDQGIXUWKHUGHOD\ WKH6HSDUDWLRQDQGWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ 6HH‡† * ( P D\ QRWFRP SOHWHWKH6HSDUDWLRQDV SODQQHGRUDWDOO·
( YHQ LI WKH* ( 6/ + & ’ HUHJ LVWUDWLRQ LVREWDLQHG ZHDOVR ZLOOQHHG) HGHUDO5 HVHUYH%RDUGDJ UHHP HQWWKDWZHP HHWWKHFULWHULDIRUDVDYLQJ VDQGORDQ KROGLQJ FRP SDQ\ WR EHWUHDWHGDVDILQDQFLDOKROGLQJ FRP SDQ\ DQGZHFDQQRWEHFHUWDLQ WKH) HGHUDO5 HVHUYH%RDUGZLOOSURYLGHVXFK DJ UHHP HQWRUZKDWDGGLWLRQDOFRQGLWLRQVRUUHVWULFWLRQVL P D\ LP SRVHLI LWGRHVVR
: HFXUUHQWO\ DUHDJ UDQGIDWKHUHGXQLWDU\ VDYLQJ VDQGORDQKROGLQJ FRP SDQ\ EXWGR QRWH[ SHFWWR FRQWLQXHWR TXDOLI\ DVVXFKDJ UDQGIDWKHUHGXQLWDU\ VDYLQJ VDQGORDQ KROGLQJ FRP SDQ\ IROORZ LQJ WKH* ( 6/ + & ’ HUHJ LVWUDWLRQ $ VDUHVXOWLQFRQQHFWLRQZ LWKRXUDSSOLFDWLRQWR FRQWLQXHWR EHDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ Z HZ LOOQHHGWR VXEP LWWR WKH) HGHUDO5 HVHUYH%RDUGDUHTXHVWWR EHFRP HDILQDQFLDOKROGLQJ FRP SDQ\ LQRUGHUWR HQJ DJ HLQDFWLYLWLHVWKDWDUHSHUP LVVLEOHRQO\ IRUVDYLQJ VDQGORDQKROGLQJ
FRP SDQLHVWKDWDUHWUHDWHGDVILQDQFLDOKROGLQJ FRP SDQLHV LQFOXGLQJ WR FRQWLQXHWR REWDLQILQDQFLQJ WKURXJ KRXUVHFXULWL] DWLRQSURJ UDP V
: HEHOLHYHWKDWZ HZ LOOP HHWWKHFULWHULDIRUDVDYLQJ VDQGORDQKROGLQJ FRP SDQ\ WR EHWUHDWHGDVDILQDQFLDOKROGLQJ FRP SDQ\ + RZ HYHU Z HFDQQRWDVVXUH\ RXWKDWWKH
) HGHUDO5 HVHUYH%RDUGZ LOODJ UHH RUWKDWWKH) HGHUDO5 HVHUYH%RDUGZ LOOQRWLQRUGHUIRUXVWR EHWUHDWHGDVDILQDQFLDOKROGLQJ FRP SDQ\ LP SRVHDGGLWLRQDOFRQGLWLRQVRU UHVWULFWLRQV Z KLFKP D\ EHVLP LODUWR RUGLIIHUHQWIURP WKRVHRWKHUZ LVHLP SRVHGLQFRQQHFWLRQZ LWKWKH6HSDUDWLRQ * ( ¶VDELOLW\ RUZ LOOLQJ QHVVWR SURFHHGZ LWKWKH6HSDUDWLRQDV FXUUHQWO\ SODQQHGFRXOGEHDIIHFWHGE\ WKHQDWXUHRI DQ\ VXFKFRQGLWLRQVRUUHVWULFWLRQVUHTXLUHGE\ WKH) HGHUDO5 HVHUYH%RDUGLQRUGHUIRUXVWR EHWUHDWHGDVDILQDQFLDOKROGLQJ FRP SDQ\
7 KH, 3 2 DQG6HSDUDWLRQ FRXOGDGYHUVHO\ DIIHFWRXUEXVLQHVVDQGSURILWDELOLW\ GXHWR * ( ¶VVWURQJ EUDQGDQGUHSXWDWLRQ
$ VDVXEVLGLDU\ RI * ( Z HKLVWRULFDOO\ KDYHP DUNHWHGP DQ\ RI RXUSURGXFWVXVLQJ WKH‡* ( · EUDQGQDP HDQGORJ R DQGZ HEHOLHYHWKHDVVRFLDWLRQZ LWK* ( KDVSURYLGHG P DQ\ EHQHILWV LQFOXGLQJ
DZ RUOG FODVVEUDQGDVVRFLDWHGZ LWKWUXVWLQWHJ ULW\ DQGORQJ HYLW\ SHUFHSWLRQRI KLJ K TXDOLW\ SURGXFWVDQGVHUYLFHV
VWURQJ FDSLWDOEDVHDQGILQDQFLDOVWUHQJ WK
SUHIHUUHGVWDWXVDP RQJ RXUSDUWQHUV FXVWRP HUVDQGHP SOR\ HHV DQG HVWDEOLVKHGUHODWLRQVKLSVZ LWKEDQNDQGRWKHUUHJ XODWRUV
7 KH, 32 DQGWKH6HSDUDWLRQFRXOGDGYHUVHO\ DIIHFWRXUDELOLW\ WR DWWUDFWDQGUHWDLQSDUWQHUV : HP D\ EHUHTXLUHGWR SURYLGHP RUHIDYRUDEOHSULFLQJ DQGRWKHUWHUP VWR RX SDUWQHUVDQGWDNHRWKHUDFWLRQWR P DLQWDLQRXUUHODWLRQVKLS Z LWKH[ LVWLQJ DQGDWWUDFWQHZ SDUWQHUV DOORI Z KLFKFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV ILQDQFLDO FRQGLWLRQDQGUHVXOWVRI RSHUDWLRQV
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
: HFDQQRWSUHGLFWWKHHIIHFWWKDWWKH, 32 DQGWKH6HSDUDWLRQZ LOOKDYHRQRXUSDUWQHUV FXVWRP HUV GHSRVLWRUVRUHP SOR\ HHV 7 KHULVNVUHODWLQJ WR WKH, 32 DQGWKH 6HSDUDWLRQFRXOGP DWHULDOL] HDWYDULRXVWLP HV LQFOXGLQJ
QRZ WKDW* ( ¶VEHQHILFLDORZ QHUVKLS LQRXUFRP P RQVWRFNKDVGHFUHDVHGWR
Z KHQ* ( UHGXFHVLWVRZ QHUVKLS LQRXUFRP P RQVWRFNWR DOHYHOEHORZ DQG
Z KHQZ HFHDVHXVLQJ WKH* ( QDP HDQGORJ R LQRXUVDOHVDQGP DUNHWLQJ P DWHULDOV SDUWLFXODUO\ Z KHQZ HGHOLYHUQRWLFHVWR SDUWQHUV FXVWRP HUVDQGGHSRVLWRUVWKDW RXUQDP HDQGWKHQDP HRI WKH%DQNDQGVRP HRI RXURWKHUVXEVLGLDULHVZ LOOFKDQJ H
: HZLOOKDYHWKHULJ KWWR XVHWKH* ( EUDQGQDP HDQGORJ RIRURQO\ DOLP LWHGSHULRGRI WLP HDQGLI ZHIDLOWR HVWDEOLVK DQHZ LQGHSHQGHQWO\ UHFRJ QL]HGEUDQGQDP H ZH FRXOGEHDGYHUVHO\ DIIHFWHG
, Q0 DUFK Z HFKDQJ HGRXUFRUSRUDWHQDP HWR ‡6< 1 &+ 5 2 1 < ) , 1 $ 1 &, $ / · DQGLQ-XQH WKH%DQNFKDQJ HGLWVFRUSRUDWHQDP HWR ‡6\ QFKURQ\ %DQN·
DOWKRXJ KZ H WKH%DQNDQGRXURWKHUVXEVLGLDULHVP D\ FRQWLQXHWR XVHWKH* ( EUDQGQDP HDQGORJ R LQP DUNHWLQJ RXUSURGXFWVDQGVHUYLFHVIRUDOLP LWHGSHULRGRI WLP H 3XUVXDQ WR DWUDQVLWLRQDOWUDGHP DUNOLFHQVHDJ UHHP HQW* ( J UDQWHGXVWKHULJ KWWR XVHFHUWDLQ‡* ( · ‡* ( &DSLWDO· ‡* ( &DSLWDO5 HWDLO%DQN· ‡* ( 0 RQH\ · DQG‡* ( &$ ) · P DUNVDQG UHODWHG* ( &$ ) ORJ RVDQGWKH* ( P RQRJ UDP LQFRQQHFWLRQZ LWKRXUSURGXFWVDQGVHUYLFHVXQWLOVXFKWLP HDV* ( FHDVHVWR EHQHILFLDOO\ RZ QP RUHWKDQ RI RXURXWVWDQGLQJ FRP P RQVWRFN VXEMHFWWR FHUWDLQH[ FHSWLRQV HJ Z HJ HQHUDOO\ Z LOOKDYHDULJ KWWR XVHWKRVHP DUNVDQGUHODWHGORJ RVDQGWKHP RQRJ UDP RQRXUFUHGLWFDUGVIRUDSHULRGRI WKUHHDQGDKDOI \ HDUVDIWHUWKHFRP SOHWLRQRI WKH, 32 ’ HYHORSP HQWRI DQHZ EUDQGLVDQH[ SHQVLYH XQFHUWDLQDQGORQJ WHUP SURFHVV : KHQRXUULJ KWWR XVHWKH* ( EUDQG
QDP HDQGORJ R H[ SLUHV Z HP D\ QRWEHDEOHWR P DLQWDLQRUHQMR\ FRP SDUDEOHQDP HUHFRJ QLWLRQRUVWDWXVXQGHURXUQHZ EUDQG , I Z HDUHXQDEOHWR VXFFHVVIXOO\ P DQDJ HWKH WUDQVLWLRQRI RXUEXVLQHVVWR RXUQHZ EUDQGLQDWLP HO\ P DQQHU RXUUHSXWDWLRQDP RQJ DQGUHODWLRQVKLS Z LWK RXUSDUWQHUV FXVWRP HUV GHSRVLWRUVDQGHP SOR\ HHVFRXOGEH DGYHUVHO\ DIIHFWHG
7 KHWHUP VRI RXUDUUDQJ HP HQWVZLWK * ( P D\ EHP RUHIDYRUDEOHWKDQ ZHZLOOEHDEOHWR REWDLQ IURP DQ XQDIILOLDWHGWKLUGSDUW\ : HP D\ EHXQDEOHWR UHSODFHWKHVHUYLFHV
* ( && SURYLGHVXVLQ DWLP HO\ P DQQHURURQ FRP SDUDEOHWHUP V
: HDQG* ( && KDYHHQWHUHGLQWR D7 UDQVLWLRQDO6HUYLFHV$ J UHHP HQWDVGHILQHGXQGHU‡, WHP &HUWDLQ5 HODWLRQVKLSVDQG5 HODWHG7 UDQVDFWLRQV DQG’ LUHFWRU
, QGHSHQGHQFH† 5 HODWLRQVKLS Z LWK* ( DQG* ( &&† 7 UDQVLWLRQDO6HUYLFHV$ J UHHP HQW· DQGRWKHUDJ UHHP HQWV 3XUVXDQWWR WKH7 UDQVLWLRQDO6HUYLFHV$ J UHHP HQW* ( && DQGLWV DIILOLDWHVDJ UHHGWR SURYLGHXVZ LWKWUDQVLWLRQDOVHUYLFHVDIWHUWKH, 32 LQFOXGLQJ WUHDVXU\ SD\ UROOWD[ DQGRWKHUILQDQFLDOVHUYLFHV KXP DQUHVRXUFHVDQGHP SOR\ HHEHQHILWV VHUYLFHV LQIRUP DWLRQV\ VWHP VDQGQHWZ RUNDFFHVV DSSOLFDWLRQDQGVXSSRUWUHODWHGVHUYLFHV DQGSURFXUHP HQWDQGVRXUFLQJ VXSSRUW
: HQHJ RWLDWHGWKHVHDUUDQJ HP HQWVZ LWK* ( && LQWKHFRQWH[ WRI DSDUHQWVXEVLGLDU\ UHODWLRQVKLS $ OWKRXJ K* ( && LVFRQWUDFWXDOO\ REOLJ DWHGWR SURYLGHXVZ LWKVHUYLFHV GXULQJ WKHWHUP RI WKH7 UDQVLWLRQDO6HUYLFHV$ J UHHP HQWZ HFDQQRWDVVXUH\ RXWKDWWKHVHVHUYLFHVZ LOOEHVXVWDLQHGDWWKHVDP HOHYHODIWHUWKHH[ SLUDWLRQRI WKDWDJ UHHP HQWRU WKDWZ HZ LOOEHDEOHWR UHSODFHWKHVHVHUYLFHVLQDWLP HO\ P DQQHURURQFRP SDUDEOHWHUP V : KHQ* ( && FHDVHVWR SURYLGHVHUYLFHVSXUVXDQWWR WKRVHDUUDQJ HP HQWV RXUFRVWVRI SURFXULQJ WKRVHVHUYLFHVIURP WKLUGSDUWLHVP D\ LQFUHDVH 2 WKHUDJ UHHP HQWVZ LWK* ( DQG* ( && DOVR J RYHUQWKHUHODWLRQVKLS EHWZ HHQXVDQG* ( DIWHUWKH, 32 DQGSURYLGHIRU WKHDOORFDWLRQRI HP SOR\ HHEHQHILWV WD[ DQGRWKHUOLDELOLWLHVDQGREOLJ DWLRQVDWWULEXWDEOHRUUHODWHGWR SHULRGVRUHYHQWVSULRUWR WKH, 32 7 KH\ DOVR FRQWDLQWHUP VDQGSURYLVLRQV WKDWP D\ EHP RUHIDYRUDEOHWKDQWHUP VDQGSURYLVLRQVZ HP LJ KWKDYHREWDLQHGLQDUP ¶VOHQJ WKQHJ RWLDWLRQVZ LWKXQDIILOLDWHGWKLUGSDUWLHV 6HH‡, WHP &HUWDLQ5 HODWLRQVKLSV DQG5 HODWHG7 UDQVDFWLRQV DQG’ LUHFWRU, QGHSHQGHQFH† 5 HODWLRQVKLS Z LWK* ( DQG* ( && ·
* ( KDVVLJ QLILFDQWFRQWURORYHUXVDQGP D\ QRWDOZD\ VH[ HUFLVHLWVFRQWUROLQ DZD\ WKDWEHQHILWVRXUSXEOLF VWRFNKROGHUVRUQRWHKROGHUV
$ VDUHVXOWRI WKH, 32 * ( FXUUHQWO\ EHQHILFLDOO\ RZ QV RI RXURXWVWDQGLQJ FRP P RQVWRFNDQGKDVLQGLFDWHGWKDWLWLQWHQGVWR GLYHVWLWVUHP DLQLQJ LQWHUHVWLQXV
+ RZ HYHU VR ORQJ DV* ( FRQWLQXHVWR EHQHILFLDOO\ RZ QP RUHWKDQ RI RXURXWVWDQGLQJ YRWLQJ VWRFN * ( J HQHUDOO\ Z LOOEHDEOHWR GHWHUP LQHWKHRXWFRP HRI FRUSRUDWHDFWLRQ UHTXLULQJ VWRFNKROGHUDSSURYDO* ( Z LOOKDYHWKHYRWLQJ SRZ HUWR HOHFWWKHERDUGRI GLUHFWRUVDQG* ( Z LOOKDYHVLJ QLILFDQWLQIOXHQFHRYHU DQGLQVRP HFDVHV WKHULJ KWWR DSSURYHFHUWDLQFRP SHQVDWLRQSDLGWR RXUH[ HFXWLYHRIILFHUV
7 KH0 DVWHU$ J UHHP HQWJ LYHV* ( && FHUWDLQVLJ QLILFDQWULJ KWVXQWLOVXFKWLP H LI DQ\ DVWKH* ( 6/ + & ’ HUHJ LVWUDWLRQRFFXUV 6RP HRI * ( &&¶VULJ KWVXQGHUWKH0 DVWHU
$ J UHHP HQWZ LOOQRWWHUP LQDWHXQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQRFFXUV DQGWKHUHIRUHLWLVSRVVLEOHWKDW* ( Z LOOH[ HUFLVHVRP HRUDOORI VXFKULJ KWVDWDWLP HZ KHQLWGRHVQRW RZ QDQ\ RI RXUFRP P RQVWRFN 8 QGHUWKH0 DVWHU$ J UHHP HQW* ( && KDVWKHULJ KWWR GHVLJ QDWHILYHSHUVRQVIRUQRP LQDWLRQIRUHOHFWLRQWR RXUQLQHP HP EHUERDUGRI GLUHFWRUVV ORQJ DV* ( EHQHILFLDOO\ RZ QVP RUHWKDQ RI RXURXWVWDQGLQJ FRP P RQVWRFNDQGWR GHVLJ QDWHDOHVVHUQXP EHUDV* ( ¶VSHUFHQWDJ HRZ QHUVKLS GHFUHDVHVXQWLOWKH* ( 6/ + &
’ HUHJ LVWUDWLRQ , QDGGLWLRQ VXEMHFWWR FHUWDLQH[ FHSWLRQVDQGRZ QHUVKLS WKUHVKROGV XQWLOWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ Z HZ LOOEHUHTXLUHGWR REWDLQ* ( &&¶VSULRUZ ULWWHQ DSSURYDOEHIRUHXQGHUWDNLQJ RUSHUP LWWLQJ RUDXWKRUL] LQJ WKH%DQNRUDQ\ RI RXURWKHUVXEVLGLDULHVWR XQGHUWDNH YDULRXVVLJ QLILFDQWFRUSRUDWHDFWLRQV 7 KHVHLQFOXGH VXEMHFWW FHUWDLQDJ UHHGH[ FHSWLRQV
FRQVROLGDWLQJ RUP HUJ LQJ Z LWKRULQWR DQ\ SHUVRQRU VXEMHFWWR FHUWDLQH[ FHSWLRQV SHUP LWWLQJ DQ\ VXEVLGLDU\ WR P HUJ HZ LWKRULQWR DQ\ SHUVRQ
DFTXLULQJ FRQWURORI DEDQNRUVDYLQJ VDVVRFLDWLRQRUP DNLQJ DQ\ RWKHUDFTXLVLWLRQRI DVVHWVRUHTXLW\ IRUDSULFH LQFOXGLQJ DVVXP HGGHEWLQH[ FHVVRI
P LOOLRQ RWKHUWKDQDFTXLVLWLRQVRI UHFHLYDEOHVSRUWIROLRVLQWKHRUGLQDU\ FRXUVHRI EXVLQHVVWKDWGR QRWH[ FHHG ELOOLRQ SURYLGHG WKDWRQFH* ( ¶VEHQHILFLDO RZ QHUVKLS RI RXUFRP P RQVWRFNGHFUHDVHVEHORZ WKHJ HQHUDOWKUHVKROGZ LOOEHLQFUHDVHGWR ELOOLRQDQGWKHWKUHVKROGIRUDFTXLVLWLRQVRI UHFHLYDEOHV SRUWIROLRVLQWKHRUGLQDU\ FRXUVHRI EXVLQHVVZ LOOEHLQFUHDVHGWR ELOOLRQ
GLVSRVLQJ RI DVVHWVRUVHFXULWLHVLQDVLQJ OHWUDQVDFWLRQRUDVHULHVRI UHODWHGWUDQVDFWLRQVIRUDSULFH LQFOXGLQJ DVVXP HGGHEWLQH[ FHVVRI P LOOLRQ RWKHUWKD GLVSRVLWLRQVDP RQJ XVDQGRXUDIILOLDWHV LVVXDQFHVRI DVVHWEDFNHGVHFXULWL] DWLRQGHEWWR P DLQWDLQWKHDJ J UHJ DWHOHYHORI ERUURZ LQJ FDSDFLW\ Z HKDGDWWKHWLP HRI WKH, 32 DQGGLVSRVLWLRQVRI UHFHLYDEOHVLQWKHRUGLQDU\ FRXUVHRI EXVLQHVVWKDWGR QRWH[ FHHG ELOOLRQ SURYLGHG WKDWRQFH* ( ¶VEHQHILFLDORZ QHUVKLS RI RXU FRP P RQVWRFNGHFUHDVHVEHORZ WKHJ HQHUDOWKUHVKROGZ LOOEHLQFUHDVHGWR ELOOLRQDQGWKHWKUHVKROGIRUGLVSRVLWLRQRI UHFHLYDEOHVSRUWIROLRVLQWKH RUGLQDU\ FRXUVHRI EXVLQHVVZ LOOEHLQFUHDVHGWR ELOOLRQ
LQFXUULQJ RUJ XDUDQWHHLQJ GHEWWKDWZ RXOGUHDVRQDEO\ EHH[ SHFWHGWR UHVXOWLQDGRZ QJ UDGHRI RXUSXEOLFO\ LVVXHGGHEWEHORZ VSHFLILHGUDWLQJ VDWWKHWLP HRI WKH
, 32
GLVVROYLQJ OLTXLGDWLQJ RUZ LQGLQJ XS RXU&RP SDQ\
DOWHULQJ DP HQGLQJ WHUP LQDWLQJ RUUHSHDOLQJ RUDGRSWLQJ DQ\ SURYLVLRQLQFRQVLVWHQWZ LWK WKHSURYLVLRQVRI RXUFHUWLILFDWHRI LQFRUSRUDWLRQRURXUE\ ODZ V DGRSWLQJ RULP SOHP HQWLQJ DQ\ VWRFNKROGHUULJ KWVSODQRUVLP LODUWDNHRYHUGHIHQVHP HDVXUH
GHFODULQJ RUSD\ LQJ DQ\ GLYLGHQGRURWKHUGLVWULEXWLRQLQUHVSHFWRI RXUFRP P RQVWRFN UHSXUFKDVLQJ RXUFRP P RQVWRFN VXEMHFWWR FHUWDLQH[ FHSWLRQV
HQWHULQJ LQWR DQHZ SULQFLSDOOLQHRI EXVLQHVVRUHQWHULQJ LQWR EXVLQHVVRXWVLGHRI WKH8 QLWHG6WDWHVDQG&DQDGD RU HVWDEOLVKLQJ DQH[ HFXWLYHFRP P LWWHHRI RXUERDUGRI GLUHFWRUV
* ( ¶VLQWHUHVWVP D\ GLIIHUIURP \ RXULQWHUHVWVDQGWKHLQWHUHVWVRI RXUVWRFNKROGHUV DQGWKHUHIRUHDFWLRQV* ( WDNHVZ LWKUHVSHFWWR XV DVDFRQWUROOLQJ RUVLJ QLILFDQWVWRFNKROGHU RUXQGHUWKH0 DVWHU$ J UHHP HQWP D\ QRWEHIDYRUDEOHWR \ RXRURXUVWRFNKROGHUV
$ VORQJ DV* ( RZQVDP DMRULW\ RI RXUFRP P RQ VWRFN ZHZLOOUHO\ RQ FHUWDLQ RI WKHH[ HP SWLRQVIURP WKHFRUSRUDWHJ RYHUQDQFHUHTXLUHP HQWVRI WKH1 <6( DYDLODEOHIRU
‡FRQWUROOHGFRP SDQLHV·
: HDUHD‡FRQWUROOHGFRP SDQ\ · Z LWKLQWKHP HDQLQJ RI WKHFRUSRUDWHJ RYHUQDQFHOLVWLQJ VWDQGDUGVRI WKH1 HZ <RUN6WRFN( [ FKDQJ H ‡1 < 6( · EHFDXVH* ( FRQWLQXHVWR RZ QP RUHWKDQ RI RXURXWVWDQGLQJ FRP P RQVWRFN $ ‡FRQWUROOHGFRP SDQ\ · P D\ HOHFWQRWWR FRP SO\ Z LWKFHUWDLQFRUSRUDWHJ RYHUQDQFHUHTXLUHP HQWVRI WKH1 < 6( &RQVLVWHQWZ LWKWKLV WKH0 DVWHU$ J UHHP HQWSURYLGHVWKDWVR ORQJ DVZ HDUHD‡FRQWUROOHGFRP SDQ\ · Z HZ LOOHOHFWQRWWR FRP SO\ Z LWKWKHUHTXLUHP HQWVWR KDYHDP DMRULW\ RI LQGHSHQGHQWGLUHFWRUVRUWR KDYHWKH1 RP LQDWLQJ DQG&RUSRUDWH* RYHUQDQFHDQG0 DQDJ HP HQW’ HYHORSP HQWDQG&RP SHQVDWLRQ&RP P LWWHHVRI RXUERDUGRI GLUHFWRUVFRQVLVW HQWLUHO\ RI LQGHSHQGHQWGLUHFWRUV 6L[ RI RXUQLQHGLUHFWRUV LQFOXGLQJ RQHP HP EHURI WKHERDUGRI GLUHFWRUV¶1 RP LQDWLQJ DQG&RUSRUDWH* RYHUQDQFH&RP P LWWHHDQGRQHP HP E RI WKHERDUGRI GLUHFWRUV¶0 DQDJ HP HQW’ HYHORSP HQWDQG&RP SHQVDWLRQ&RP P LWWHH GR QRWTXDOLI\ DV‡LQGHSHQGHQWGLUHFWRUV· XQGHUWKHDSSOLFDEOHOLVWLQJ VWDQGDUGVRI WKH
1 < 6( $ VDUHVXOW\ RXZ LOOQRWEHQHILWIURP FHUWDLQRI WKHSURWHFWLRQVDIIRUGHGWR VWRFNKROGHUVRI FRP SDQLHVWKDWDUHVXEMHFWWR DOORI WKHFRUSRUDWHJ RYHUQDQFHUHTXLUHP HQWVRI WKH1 < 6(
2 XUKLVWRULFDOFRP ELQHGDQGSUR IRUP DILQDQFLDOLQIRUP DWLRQ GR QRWUHIOHFWWKHUHVXOWVZHZRXOGKDYHDFKLHYHGDVDVWDQGDORQHFRP SDQ\ DQGP D\ QRWEHDUHOLDEOH LQGLFDWRURI RXUIXWXUHUHVXOWV
7 KHKLVWRULFDOFRP ELQHGDQGSUR IRUP DILQDQFLDOLQIRUP DWLRQLQFOXGHGLQWKLVUHSRUWGRHVQRWUHIOHFWWKHILQDQFLDOFRQGLWLRQ UHVXOWVRI RSHUDWLRQVRUFDVKIORZ VZ HZ RXOG KDYHDFKLHYHGDVDVWDQGDORQHFRP SDQ\ GXULQJ WKHSHULRGVSUHVHQWHGDQGP D\ QRWEHDUHOLDEOHLQGLFDWRURI RXUIXWXUHUHVXOWV 7 KHSUR IRUP DILQDQFLDOLQIRUP DWLRQGHSHQGVRQ YDULRXVDVVXP SWLRQVWKDWP D\ EHLQFRUUHFW) RUH[ ▇▇ ▇▇▇ WKHSUR IRUP DILQDQFLDOLQIRUP DWLRQGRHVQRWJ LYHHIIHFWWR RUP DNHDQ\ DGMXVWP HQWIRUYDULRXVIDFWRUVLQFOXGLQJ DQWLFLSDWHGLQFUHDVHVLQRXURSHUDWLQJ H[ SHQVHDVDUHVXOWRI WKH, 32 DQGLQFUHDVHVLQSD\ P HQWVXQGHUUHFHQWO\ H[ WHQGHGSURJ UDP DJ UHHP HQWV
, QDGGLWLRQ WKHKLVWRULFDOFRP ELQHGDQGSUR IRUP DILQDQFLDOLQIRUP DWLRQGRHVQRWUHIOHFWWKHLP SDFWRI DQ\ FRQGLWLRQVRUUHVWULFWLRQVWKDWP D\ EHLP SRVHGE\ WKH) HGHUDO 5 HVHUYH%RDUGLQFRQQHFWLRQZ LWKWKH* ( 6/ + & ’ HUHJ LVWUDWLRQDQGWKH6HSDUDWLRQ LQFOXGLQJ UHTXLULQJ KLJ KHUFDSLWDORUOLTXLGLW\ OHYHOVRUUHVWULFWLQJ RXUEXVLQHVVDFWLYLWLHVRU J URZ WK $ FFRUGLQJ O\ RXUKLVWRULFDOFRP ELQHGDQGSUR IRUP DILQDQFLDOLQIRUP DWLRQVKRXOGQRWEHUHOLHGXSRQDVUHSUHVHQWDWLYHRULQGLFDWLYHRI Z KDWRXUILQDQFLDOFRQGLWLRQRU UHVXOWVRI RSHUDWLRQVZ RXOGKDYHEHHQKDGWKH7 UDQVDFWLRQV DVGHILQHGLQ‡, WHP ) LQDQFLDO, QIRUP DWLRQ· RFFXUUHGRQWKHGDWHVLQGLFDWHG 7 KLVLQIRUP DWLRQDOVR VKRXOGQRWEH UHOLHGXSRQDVUHSUHVHQWDWLYHRULQGLFDWLYHRI RXUIXWXUHILQDQFLDOFRQGLWLRQ UHVXOWVRI RSHUDWLRQVRUFDVKIORZ V ) RUDGGLWLRQDOLQIRUP DWLRQUHODWLQJ WR RXUKLVWRULFDOFRP ELQHG DQGSUR IRUP DILQDQFLDOLQIRUP DWLRQ VHH‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 6HOHFWHG+ LVWRULFDODQG3UR ) RUP D) LQDQFLDO, QIRUP DWLRQ·
7 KHREOLJ DWLRQVDVVRFLDWHGZLWK EHLQJ DSXEOLF FRP SDQ\ ZLOOUHTXLUHVLJ QLILFDQWUHVRXUFHVDQGP DQDJ HP HQWDWWHQWLRQ
$ VDUHVXOWRI WKH, 32 Z HEHFDP HVXEMHFWWR WKHUHSRUWLQJ UHTXLUHP HQWVRI WKH6HFXULWLHV( [ FKDQJ H$ FWRI DVDP HQGHG WKH‡( [ FKDQJ H$ FW· DQGWKH6DUEDQHV 2 [ OH\ $ FWRI WKH‡6DUEDQHV2 [ OH\ $ FW· DQG6( & UXOHVXQGHUWKDWDFW7 KH( [ FKDQJ H$ FWUHTXLUHVWKDWZ HILOHDQQXDOTXDUWHUO\ DQGFXUUHQWUHSRUWVZ LWKUHVSHFWWR RXU
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¶VDWWHQWLRQIURP RSHUDWLQJ RXUEXVLQHVVDQG
LP SOHP HQWLQJ RXUVWUDWHJ \ : HKDYHP DGH DQGZ LOOFRQWLQXHWR P DNH FKDQJ HVWR RXULQWHUQDOFRQWUROVDQGSURFHGXUHVIRUILQDQFLDOUHSRUWLQJ DQGDFFRXQWLQJ V\ VWHP VWR P HHW RXUUHSRUWLQJ REOLJ DWLRQV + RZ HYHU WKHP HDVXUHVZ HWDNHP D\ QRWEHVXIILFLHQWWR VDWLVI\ RXUREOLJ DWLRQVDVDSXEOLF FRP SDQ\ , QDGGLWLRQ Z HFDQQRWSUHGLFWRUHVWLP DWHWKH DP RXQWRI DGGLWLRQDOFRVWVZ HP D\ LQFXULQRUGHUWR FRP SO\ Z LWKWKHVHUHTXLUHP HQWV
7 KH6DUEDQHV2 [ OH\ $ FWDQG6( & UXOHVUHTXLUHDQQXDOP DQDJ HP HQWDVVHVVP HQWVRI WKHHIIHFWLYHQHVVRI RXULQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJ VWDUWLQJ Z LWKWKH VHFRQGDQQXDOUHSRUWWKDWZ HILOHZ LWKWKH6( & DQG LQWKHDQQXDOUHSRUWIRUWKHQH[ WVXFFHHGLQJ \ HDU DUHSRUWE\ RXULQGHSHQGHQWDXGLWRUVDGGUHVVLQJ VXFKDVVHVVP HQWV ) DLOXU WR DFKLHYHDQGP DLQWDLQDQHIIHFWLYHLQWHUQDOFRQWUROHQYLURQP HQWFRXOGKDYHDP DWHULDODGYHUVHHIIHFWRQRXUEXVLQHVVDQGWKHWUDGLQJ SULFHVRI RXUVHFXULWLHV
* ( FRXOGHQJ DJ HLQ EXVLQHVVDQGRWKHUDFWLYLWLHVWKDWFRP SHWHZLWK XV
* ( KDVDJ UHHGWKDWVXEMHFWWR FHUWDLQH[ FHSWLRQV IRUWZ R\ HDUVDIWHUWKH* ( 6/ + & ’ HUHJ LVWUDWLRQ LWZ LOOQRWHQJ DJ HLQWKHEXVLQHVVRI SURYLGLQJ FUHGLWWR FRQVXP HUV WKURXJ K L SULYDWHODEHOFUHGLWFDUGVRUGXDOFDUGVLQFRQMXQFWLRQZ LWKSURJ UDP VZ LWKUHWDLOHUV P HUFKDQWVRUKHDOWKFDUHSURYLGHUVSULP DULO\ IRUWKHSXUFKDVHRI J RRGVDQG VHUYLFHVIURP WKHDSSOLFDEOHUHWDLOHU P HUFKDQWRUKHDOWKFDUHSURYLGHURU LL J HQHUDOSXUSRVHFUHGLWFDUGV LQHDFKFDVH LQWKH8 QLWHG6WDWHVDQG&DQDGD 6HH‡, WHP &HUWDLQ 5 HODWLRQVKLSVDQG5 HODWHG7 UDQVDFWLRQV DQG’ LUHFWRU, QGHSHQGHQFH† 5 HODWLRQVKLS Z LWK* ( DQG* ( &&† 0 DVWHU$ J UHHP HQW† 1 RQFRP SHWLWLRQDJ UHHP HQW· 2 XUFHUWLILFDWHRI LQFRUSRUDWLRQSURYLGHVWKDWRWKHUWKDQWKDWQRQ FRP SHWHDJ UHHP HQWDQGDQ\ RWKHUFRQWUDFWXDOSURYLVLRQVWR WKHFRQWUDU\ * ( Z LOOKDYHQR REOLJ DWLRQWR UHIUDLQIURP
HQJ DJ LQJ LQWKHVDP HRUVLP LODUEXVLQHVVDFWLYLWLHVRUOLQHVRI EXVLQHVVDVXV RU GRLQJ EXVLQHVVZ LWKDQ\ RI RXUSDUWQHUV FXVWRP HUVRUYHQGRUV
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
&RQIOLFWVRI LQWHUHVWP D\ DULVHEHWZHHQ XVDQG* ( WKDWFRXOGEHUHVROYHGLQ DP DQQHUXQIDYRUDEOHWR XV
4 XHVWLRQVUHODWLQJ WR FRQIOLFWVRI LQWHUHVWP D\ DULVHEHWZ HHQXVDQG* ( LQDQXP EHURI DUHDVUHODWLQJ WR RXUSDVWDQGRQJ RLQJ UHODWLRQVKLSV ) LYHRI RXUGLUHFWRUVDUH RIILFHUVRI * ( DQGRU* ( && 7 KHVHGLUHFWRUVDQGP DQ\ RI RXUVHQLRUH[ HFXWLYHRIILFHUVDOVR RZ Q* ( VWRFNDQGRSWLRQVWR SXUFKDVH* ( VWRFN DQGDOORI WKHP SDUWLFLSDWHLQ* ( SHQVLRQSODQV 2 Z QHUVKLS LQWHUHVWVRI RXUGLUHFWRUVRURIILFHUVLQ* ( VWRFN RUVHUYLFHDVERWKDGLUHFWRURI RXU&RP SDQ\ DQGDGLUHFWRU RIILFHUDQGRUHP SOR\ HHRI * ( DQGRU
* ( && FRXOGJ LYHULVHWR SRWHQWLDOFRQIOLFWVRI LQWHUHVWZ KHQDGLUHFWRURURIILFHULVIDFHGZ LWKDGHFLVLRQWKDWFRXOGKDYHGLIIHUHQWLP SOLFDWLRQVIRUWKHWZ RFRP SDQLHV 7 KHVH SRWHQWLDOFRQIOLFWVFRXOGDULVH IRUH[ ▇▇ ▇▇▇ RYHUP DWWHUVVXFKDVWKHGHVLUDELOLW\ RI FKDQJ HVLQRXUEXVLQHVVDQGRSHUDWLRQV IXQGLQJ DQGFDSLWDOP DWWHUV UHJ XODWRU\ P DWWHUV
P DWWHUVDULVLQJ Z LWKUHVSHFWWR WKH0 DVWHU$ J UHHP HQWDQGRWKHUDJ UHHP HQWVZ LWK* ( HP SOR\ HHUHWHQWLRQRUUHFUXLWLQJ RURXUGLYLGHQGSROLF\
7 KHFRUSRUDWHRSSRUWXQLW\ SROLF\ VHWIRUWKLQRXUFHUWLILFDWHRI LQFRUSRUDWLRQDGGUHVVHVFHUWDLQSRWHQWLDOFRQIOLFWVRI LQWHUHVWEHWZ HHQRXU&RP SDQ\ RQWKHRQHKDQG DQG
* ( DQGLWVRIILFHUVZ KR DUHGLUHFWRUVRI RXU&RP SDQ\ RQWKHRWKHUKDQG $ OWKRXJ KWKHVHSURYLVLRQVDUHGHVLJ QHGWR UHVROYHFHUWDLQFRQIOLFWVEHWZ HHQXVDQG* ( IDLUO\ Z H FDQQRWDVVXUH\ RXWKDWDQ\ FRQIOLFWVZ LOOEHVR UHVROYHG
, I * ( GLVWULEXWHVRXUVWRFNWR LWVVWRFNKROGHUVLQ H[ FKDQJ HIRULWVFRP P RQ VWRFNLQ DWUDQVDFWLRQ WKDWLVLQWHQGHGWR EHWD[ IUHHWR * ( ZHFRXOGKDYHDP DWHULDO
LQGHP QLILFDWLRQ REOLJ DWLRQ WR * ( XQGHUWKH7 66$ LI ZHFDXVHWKHGLVWULEXWLRQ RUFHUWDLQ UHODWHGSUHOLP LQDU\ LQWHUQDOWUDQVDFWLRQVWR IDLOWR TXDOLI\ IRUWD[ IUHHWUHDWP HQWR LQ WKHFDVHRI FHUWDLQ VLJ QLILFDQWWUDQVIHUVRI RXUVWRFNIROORZLQJ VXFK GLVWULEXWLRQ
* ( KDVLQGLFDWHGWKDWLWFXUUHQWO\ LQWHQGVWR FRP SOHWHLWVH[ LWIURP LWVLQYHVWP HQWLQXVE\ P DNLQJ DGLVWULEXWLRQRI DOORI LWVUHP DLQLQJ VKDUHVRI RXUVWRFNWR LWV VWRFNKROGHUVLQH[ FKDQJ HIRU* ( ¶VFRP P RQVWRFNLQDWUDQVDFWLRQWKDWZ RXOGEHGHVLJ QHGWR TXDOLI\ IRUWD[ IUHHWUHDWP HQWWR * ( DQGLWVVWRFNKROGHUVXQGHU6HFWLRQ RI WKH
, QWHUQDO5 HYHQXH&RGH WKH‡&RGH· &RP SOHWLRQE\ * ( RI DQ\ VXFKGLVWULEXWLRQLVFRQGLWLRQHGRQ DP RQJ RWKHUWKLQJ V DSULYDWHOHWWHUUXOLQJ IURP WKH, 5 6 UHJ DUGLQJ FHUWDLQ LVVXHVUHODWLQJ WR DQGDQRSLQLRQIURP WD[ FRXQVHOFRQILUP LQJ WKHWD[ IUHHWUHDWP HQWXQGHU6HFWLRQ RI WKH&RGHRI WKHGLVWULEXWLRQDQGWKHWD[ IUHHWUHDWP HQWRI DVHULHVRI SUHOLP LQDU\ WUDQVDFWLRQVWKDWZ RXOGEHUHTXLUHGSULRUWR LP SOHP HQWLQJ WKHGLVWULEXWLRQ 7 KH, 5 6 UXOLQJ DQGWKHRSLQLRQRI WD[ FRXQVHOZ LOOUHO\ RQFHUWDLQIDFWV DVVXP SWLRQV UHSUHVHQWDWLRQVDQGXQGHUWDNLQJ VIURP * ( DQGXVUHJ DUGLQJ WKHSDVWDQGIXWXUHFRQGXFWRI * ( ¶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
SUHOLP LQDU\ WUDQVDFWLRQV LVGHWHUP LQHGWR EHWD[ DEOH * ( FRXOGLQFXUVLJ QLILFDQWWD[ OLDELOLWLHV DQGXQGHUWKHWD[ VKDULQJ DQGVHSDUDWLRQDJ UHHP HQWWKH‡7 66$ · Z HHQWHUHG LQWR Z LWK* ( DWWKHFRP SOHWLRQRI WKH, 32 Z HP D\ EHUHTXLUHGWR LQGHP QLI\ * ( IRUDQ\ VXFKOLDELOLWLHVLI WKHOLDELOLW\ LVFDXVHGE\ DQ\ DFWLRQRULQDFWLRQXQGHUWDNHQE\ XV IROORZ LQJ WKHFRP SOHWLRQRI WKH, 32 RUDVDUHVXOWRI DQ\ GLUHFWRULQGLUHFWWUDQVIHUVRI RXUVWRFNIROORZ LQJ WKHGLVWULEXWLRQ
, QRUGHUWR SUHVHUYHWKHWD[ IUHHVWDWXVRI WKHGLVWULEXWLRQDQGWKHSUHOLP LQDU\ WUDQVDFWLRQVWR * ( WKH7 66$ LQFOXGHVDSURYLVLRQJ HQHUDOO\ SURKLELWLQJ XVIURP WDNLQJ DFWLRQDIWHUWKHFRP SOHWLRQRI WKH, 32 WKDWZ RXOGFDXVHWKHGLVWULEXWLRQ RUWKHSUHOLP LQDU\ WUDQVDFWLRQV WR EHFRP HWD[ DEOH $ VDUHVXOWDQGJ LYHQRXULQGHP QLW\ REOLJ DWLRQWR
* ( XQGHUWKH7 66$ IRUWD[ OLDELOLWLHVLQFXUUHGE\ * ( DVDUHVXOWRI DEUHDFKRI WKHVHSURYLVLRQVE\ XVRUDVDUHVXOWRI DQ\ GLUHFWRULQGLUHFWWUDQVIHUVRI RXUVWRFNIROORZ LQJ WKH GLVWULEXWLRQ Z HP D\ EHUHTXLUHGWR IRUJ RFHUWDLQVLJ QLILFDQWWUDQVDFWLRQVWKDWZ RXOGRWKHUZ LVHKDYHEHHQDGYDQWDJ HRXVWR XVIRUDSHULRGRI WLP HIROORZ LQJ WKHGLVWULEXWLRQ VXF DVFHUWDLQGLVSRVLWLRQVRI RXUDVVHWVRULVVXDQFHVRI RXUVWRFN ) RUDGLVFXVVLRQRI WKH7 66$ VHH‡, WHP &HUWDLQ5 HODWLRQVKLSVDQG5 HODWHG7 UDQVDFWLRQV DQG’ LUHFWRU
, QGHSHQGHQFH† 5 HODWLRQVKLS Z LWK* ( DQG* ( &&† 7D[ 6KDULQJ DQG6HSDUDWLRQ$ J UHHP HQW·
, 7 ( 0 ) , 1 $ 1 &, $ / , 1 ) 2 5 0 $ 7 , 2 1
6HOHFWHG + LVWRULFDODQG 3 UR ) RUP D) LQDQFLDO, QIRUP DWLRQ
7 KHIROORZ LQJ WDEOHVVHWIRUWKVHOHFWHGKLVWRULFDOFRQVROLGDWHG FRP ELQHGDQGXQDXGLWHGSUR IRUP DILQDQFLDOLQIRUP DWLRQ 7 KHVHOHFWHGKLVWRULFDOFRQVROLGDWHGDQG
FRP ELQHGILQDQFLDOLQIRUP DWLRQDWDQGIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU DQG LVXQDXGLWHGDQGKDVEHHQGHULYHGIURP RXUXQDXGLWHGKLVWRULFDOFRQVROLGDWHG DQGFRP ELQHGILQDQFLDOVWDWHP HQWVLQFOXGHGHOVHZ KHUHLQWKLVUHSRUW7 KHVHOHFWHGKLVWRULFDOFRP ELQHGILQDQFLDOLQIRUP DWLRQDW’ HFHP EHU DQG DQGIRUWKH\ HDUV HQGHG’ HFHP EHU DQG KDVEHHQGHULYHGIURP RXUKLVWRULFDOFRP ELQHGILQDQFLDOVWDWHP HQWV Z KLFKKDYHEHHQDXGLWHGE\ . 30 * / / 3 DQGDUHLQFOXGHG
HOVHZ KHUHLQWKLVUHSRUW7 KHVHOHFWHGKLVWRULFDOFRP ELQHGILQDQFLDOLQIRUP DWLRQDW’ HFHP EHU DQG DQGIRUWKH\ HDUVHQGHG’ HFHP EHU DQG LV XQDXGLWHGDQGKDVEHHQGHULYHGIURP RXUKLVWRULFDOFRP ELQHGILQDQFLDOLQIRUP DWLRQQRWLQFOXGHGLQWKLVUHSRUW7 KHVHOHFWHGXQDXGLWHGSUR IRUP DILQDQFLDOLQIRUP DWLRQIRUWKH QLQHP RQWKVHQGHG6HSWHP EHU DQGIRUWKH\ HDUHQGHG’ HFHP EHU LVXQDXGLWHGDQGKDVEHHQGHULYHGIURP RXUXQDXGLWHGSUR IRUP DILQDQFLDOVWDWHP HQWV <RX VKRXOGUHDGWKLVLQIRUP DWLRQLQFRQMXQFWLRQZ LWKWKHLQIRUP DWLRQXQGHU‡† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV· DQGRXU KLVWRULFDOFRQGHQVHGFRQVROLGDWHGDQGRUFRP ELQHGILQDQFLDOVWDWHP HQWVDQGWKHUHODWHGQRWHVWKHUHWR Z KLFKDUHLQFOXGHGHOVHZ KHUHLQWKLVUHSRUW
6\ QFKURQ\ LVDKROGLQJ FRP SDQ\ IRUWKHOHJ DOHQWLWLHVWKDWKLVWRULFDOO\ FRQGXFWHG* ( ¶V1 RUWK$ P HULFDQUHWDLOILQDQFHEXVLQHVV 6\ QFKURQ\ Z DVLQFRUSRUDWHGLQ’ HODZ DUH RQ6HSWHP EHU EXWSULRUWR$ SULO FRQGXFWHGQR EXVLQHVV ’ XULQJ WKHSHULRGIURP $ ▇▇▇▇ ▇▇ 6HSWHP EHU DVSDUWRI DUHJ XODWRU\ UHVWUXFWXULQJ VXEVWDQWLDOO\ DOORI WKHDVVHWVDQGRSHUDWLRQVRI * ( ¶V1 RUWK$ P HULFDQUHWDLOILQDQFHEXVLQHVV LQFOXGLQJ WKH%DQN Z HUHWUDQVIHUUHGWR 6\ QFKURQ\ 7 KHUHP DLQLQJ DVVHWVDQG RSHUDWLRQVRI WKDWEXVLQHVVVXEVHTXHQWO\ Z HUHWUDQVIHUUHGWR 6\ QFKURQ\
) RUDOOSHULRGVSULRUWR -XQH WKH&RP SDQ\ ¶VILQDQFLDOVWDWHP HQWVZ HUHSUHSDUHGRQDFRP ELQHGEDVLV $ OOUHP DLQLQJ DVVHWVRI RXUEXVLQHVVZ HUHWUDQVIHUUHG IURP * ( && DQGLWVVXEVLGLDULHVWR 6\ QFKURQ\ E\ WKHHQGRI WKHVHFRQGTXDUWHURI $ VDUHVXOWWKH&RP SDQ\ ¶VILQDQFLDOVWDWHP HQWVKDYHEHHQSUHSDUHGRQDFRQVROLGDWHG EDVLVEHJ LQQLQJ -XQH 8 QGHUWKLVEDVLVRI SUHVHQWDWLRQ RXUILQDQFLDOVWDWHP HQWVFRQVROLGDWHDOORI RXUVXEVLGLDULHV LH HQWLWLHVLQZ KLFKZ HKDYHDFRQWUROOLQJ ILQDQFLD LQWHUHVWP RVWRIWHQEHFDXVHZ HKROGDP DMRULW\ YRWLQJ LQWHUHVW$ OOSHULRGVVXEVHTXHQWWR -XQH DUHDOVR SUHVHQWHGLQWKLVUHSRUWRQDFRQVROLGDWHGEDVLV
: HKDYHSUHSDUHGRXUKLVWRULFDOFRP ELQHGILQDQFLDOVWDWHP HQWVDVLI 6\ QFKURQ\ KDGFRQGXFWHG* ( ¶V1 RUWK$ P HULFDQUHWDLOILQDQFHEXVLQHVVWKURXJ KRXWDOOUHOHYDQW SHULRGV 2 XUKLVWRULFDOFRP ELQHGILQDQFLDOLQIRUP DWLRQDQGVWDWHP HQWVLQFOXGHWKHDVVHWV OLDELOLWLHVDQGRSHUDWLRQVRI * ( ¶V1 RUWK$ P HULFDQUHWDLOILQDQFHEXVLQHVV
7 KHXQDXGLWHGSUR IRUP DLQIRUP DWLRQVHWIRUWKEHORZ UHIOHFWVRXUKLVWRULFDOFRQVROLGDWHGDQGFRP ELQHGILQDQFLDOLQIRUP DWLRQ DVDGMXVWHGWR J LYHHIIHFWWR WKHIROORZ LQJ WUDQVDFWLRQV WKH‡7 UDQVDFWLRQV· DVLI HDFKKDGRFFXUUHGDW-DQXDU\
LVVXDQFHRI P LOOLRQVKDUHVRI RXUFRP P RQVWRFNLQWKH, 32 DWDQLQLWLDOSXEOLF RIIHULQJ SULFHRI SHUVKDUHDQGRIIHULQJ H[ SHQVHVSD\ DEOHE\ XV
UHSD\ P HQWRI DOORXWVWDQGLQJ UHODWHGSDUW\ GHEWLQWKHDP RXQWRI ELOOLRQRZ HGWR * ( && DQGLWVDIILOLDWHVDWWKHFORVLQJ RI WKH, 32 ‡2 XWVWDQGLQJ 5 HODWHG 3DUW\ ’ HEW·
HQWHULQJ LQWR RI DQGFRVWVDVVRFLDWHGZ LWK WKH%DQN7HUP / RDQ) DFLOLW\ DQGWKH* ( && 7HUP / RDQ) DFLOLW\ DQGWKHSDUWLDOUHSD\ P HQWRI HDFKIDFLOLW\ Z LWKD SRUWLRQRI WKHQHWSURFHHGVIURP WKHSXEOLF RIIHULQJ RI ELOOLRQDJ J UHJ DWHSULQFLSDODP RXQWRI WKH( [ LVWLQJ 1 RWHV
FRP SOHWLRQRI DQGRIIHULQJ H[ SHQVHVSD\ DEOHE\ XVLQFRQQHFWLRQZ LWK WKH( [ LVWLQJ 1 RWHVRIIHULQJ
LQYHVWP HQWLQOLTXLGDVVHWVWR IXUWKHULQFUHDVHWKHVL] HRI RXUOLTXLGLW\ SRUWIROLR FRQVLVWHQWZ LWKRXUOLTXLGLW\ DQGIXQGLQJ SROLFLHV DQG
LVVXDQFHRI DIRXQGHUV¶J UDQWRI UHVWULFWHGVWRFNXQLWV ‡5 68 V· DQGVWRFNRSWLRQVWR FHUWDLQHP SOR\ HHVXQGHUWKH6\ QFKURQ\ / RQJ 7HUP , QFHQWLYH3ODQ
7 KHXQDXGLWHGSUR IRUP DILQDQFLDOLQIRUP DWLRQLVIRULOOXVWUDWLYHDQGLQIRUP DWLRQDOSXUSRVHVRQO\ DQGLVQRWLQWHQGHGWR UHSUHVHQWZ KDWRXUILQDQFLDOFRQGLWLRQRUUHVXOWV RI RSHUDWLRQVZ RXOGKDYHEHHQKDGWKH7 UDQVDFWLRQVRFFXUUHGRQWKHGDWHVLQGLFDWHG 7 KHXQDXGLWHGSUR IRUP DLQIRUP DWLRQDOVR VKRXOGQRWEHFRQVLGHUHGUHSUHVHQWDWLYHRI RXU IXWXUHILQDQFLDOFRQGLWLRQRUUHVXOWVRI RSHUDWLRQV
7 KHXQDXGLWHGSUR IRUP DLQIRUP DWLRQEHORZ LVEDVHGXSRQDYDLODEOHLQIRUP DWLRQDQGDVVXP SWLRQVWKDWZ HEHOLHYHDUHUHDVRQDEOH WKDWUHIOHFWWKHH[ SHFWHGLP SDFWVRI HYHQWVWKDWDUHGLUHFWO\ DWWULEXWDEOHWR WKH7 UDQVDFWLRQV WKDWDUHIDFWXDOO\ VXSSRUWDEOHDQG LQFRQQHFWLRQZ LWKHDUQLQJ VLQIRUP DWLRQ WKDWDUHH[ SHFWHGWR KDYHDFRQWLQXLQJ LP SDFWRQXV
, QFRQQHFWLRQZ LWKWKH, 32 Z HHQWHUHGLQWR DQXP EHURI DUUDQJ HP HQWVZ LWK* ( J RYHUQLQJ WKH6HSDUDWLRQDQGDYDULHW\ RI WUDQVLWLRQP DWWHUV ( [ FHSWDVGHVFULEHGLQWKH QRWHVDERYH Z HKDYHQRWUHIOHFWHGDQ\ DGMXVWP HQWVIRUWKHHVWLP DWHGHIIHFWVRI WKHVHDUUDQJ HP HQWV Z KLFKDUHGHVFULEHGXQGHU‡† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI
) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV† 6HSDUDWLRQIURP * ( DQG5 HODWHG) LQDQFLDO$ UUDQJ HP HQWV·
, QDGGLWLRQWR WKHSUR IRUP DDGMXVWP HQWVWR RXUKLVWRULFDOFRQVROLGDWHGDQGFRP ELQHGILQDQFLDOVWDWHP HQWV YDULRXVRWKHUIDFWRUVZ LOOKDYHDQHIIHFWRQRXUILQDQFLDO FRQGLWLRQDQGUHVXOWVRI RSHUDWLRQV LQFOXGLQJ WKRVHGLVFXVVHGXQGHU‡, WHP $ 5 LVN) DFWRUV· DQG‡† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXO RI 2 SHUDWLRQV·
) RULQIRUP DWLRQZ LWKUHVSHFWWR FHUWDLQLWHP VWKDWDUHQRWUHIOHFWHGLQWKHSUR IRUP DILQDQFLDOLQIRUP DWLRQ VHHQRWHV E DQG J WR WKHXQDXGLWHGSUR IRUP DILQDQFLDO LQIRUP DWLRQEHORZ
&RQGHQVHG&RQVROLGDWHG DQG&RP ELQHG 6WDWHP HQWVRI ( DUQLQJ V, QIRUP DWLRQ
3 UR) RUP D + LVWRULFDO 3 UR) RUP D + LVWRULFDO
LQP LOOLRQV H[ FHSWSHUVKDUHGDWD
1 LQH0 RQWKV ( QGHG
6HSWHP EHU
1 LQH0 RQWKV ( QGHG
6HSWHP EHU
<HDU( QGHG
’ HFHP EHU <HDUV( QGHG’ HFHP EHU
, QWHUHVWLQFRP H
, QWHUHVWH[ SHQVH
1 HWLQWHUHVWLQFRP H
5 HWDLOHUVKDUHDUUDQJ HP HQWV
1 HWLQWHUHVWLQFRP H DIWHUUHWDLOHUVKDUHDUUDQJ HP HQWV
3URYLVLRQIRUORDQORVVHV
1 HWLQWHUHVWLQFRP H DIWHUUHWDLOHUVKDUHDUUDQJ HP HQWVDQG SURYLVLRQ IRUORDQ ORVVHV
2 WKHULQFRP H
2 WKHUH[ SHQVH
( DUQLQJ VEHIRUHSURYLVLRQ IRULQFRP HWD[ HV
3URYLVLRQIRULQFRP HWD[ HV
1 HWHDUQLQJ V
: HLJ KWHGDYHUDJ HVKDUHVRXWVWDQGLQJ LQP LOOLRQV
3 UR) RUP D + LVWRULFDO 3 UR) RUP D + LVWRULFDO
1 LQH0 RQWKV ( QGHG
6HSWHP EHU
1 LQH0 RQWKV ( QGHG
6HSWHP EHU
<HDU( QGHG
’ HFHP EHU <HDUV( QGHG’ HFHP EHU
LQP LOOLRQV H[ FHSWSHUVKDUHGDWD | ||||||
%DVLF | 1 $ | 1 $ | 1 $ | 1 $ | 1 $ | |
’ LOXWHG | 1 $ | 1 $ | 1 $ | 1 $ | 1 $ | |
( DUQLQJ VSHUVKDUH | ||||||
%DVLF | 1 $ | 1 $ | 1 $ | 1 $ | 1 $ | |
’ LOXWHG | 1 $ | 1 $ | 1 $ | 1 $ | 1 $ | |
&RQGHQVHG&RQVROLGDWHG DQG&RP ELQHG 6WDWHP HQWVRI ) LQDQFLDO3 RVLWLRQ, QIRUP DWLRQ
LQP LOOLRQV
+ LVWRULFDO + LVWRULFDO
$ W
6HSWHP EHU $ W’ HFHP EHU
$ VVHWV | |||||||||||
&DVKDQGHTXLYDOHQWV | |||||||||||
, QYHVWP HQWVHFXULWLHV | |||||||||||
/ RDQUHFHLYDEOHV | |||||||||||
$ OORZ DQFHIRUORDQORVVHV | |||||||||||
/ RDQUHFHLYDEOHVKHOGIRUVDOH | † | † | † † † | ||||||||
* RRGZ LOO | |||||||||||
, QWDQJ LEOHDVVHWV QHW | |||||||||||
2 WKHUDVVHWV | |||||||||||
$ VVHWVRI GLVFRQWLQXHGRSHUDWLRQV | † | † | † | † | |||||||
7 RWDODVVHWV | |||||||||||
/ LDELOLWLHVDQG ( TXLW\ | |||||||||||
7RWDOGHSRVLWV | |||||||||||
7RWDOERUURZ LQJ V | |||||||||||
$ FFUXHGH[ SHQVHVDQGRWKHUOLDELOLWLHV | |||||||||||
/ LDELOLWLHVRI GLVFRQWLQXHGRSHUDWLRQV | † | † | † | † | |||||||
7 RWDOOLDELOLWLHV | |||||||||||
7 RWDOHTXLW\ |
| ||||||||||
7 RWDOOLDELOLWLHVDQG HTXLW\ | |||||||||||
, Q Z HFRP SOHWHGWKHVDOHRI DGLVFRQWLQXHGEXVLQHVVRSHUDWLRQ 6HH1 RWH $ FTXLVLWLRQDQG’ LVSRVLWLRQVWR RXUFRP ELQHGILQDQFLDOVWDWHP HQWV 7 KHVHOHFWHG HDUQLQJ VLQIRUP DWLRQSUHVHQWHGDERYHLVRI FRQWLQXLQJ RSHUDWLRQV
2 Q-DQXDU\ Z HDGRSWHG) $ 6%$ FFRXQWLQJ 6WDQGDUGV&RGLILFDWLRQ ‡$ 6&· 7RSLF &RQVROLGDWLRQ DQGEHJ DQFRQVROLGDWLQJ RXUVHFXULWL] DWLRQHQWLWLHV , Q
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
2 WKHU) LQDQFLDODQG 6WDWLVWLFDO’ DWD
3 UR) RUP D + LVWRULFDO 3 UR) RUP D + LVWRULFDO
$ WDQG IRUWKH
LQP LOOLRQV H[ FHSWSHUDFFRXQWGDWD
1 LQH0 RQWKV ( QGHG
6HSWHP EHU
$ WDQG IRUWKH
1 LQH0 RQWKV( QGHG
6HSWHP EHU
$ WDQG IRUWKH
<HDU( QGHG
’ HFHP EHU
$ WDQG IRUWKH<HDUV
( QGHG’ HFHP EHU
) LQDQFLDO3 RVLWLRQ ’ DWD $ YHUDJ H
/ RDQUHFHLYDEOHV LQFOXGLQJ KHOGIRUVDOH
7RWDODVVHWV
’ HSRVLWV
%RUURZ LQJ V
7RWDOHTXLW\
6HOHFWHG 3 HUIRUP DQFH0 HWULFV
3XUFKDVHYROXP H
5 HWDLO&DUG
3D\ P HQW6ROXWLRQV
&DUH&UHGLW
$ YHUDJ HDFWLYHDFFRXQWV LQWKRXVDQGV
1 HWLQWHUHVWP DUJ LQ
1 HWFKDUJ HRIIV
1 HWFKDUJ HRIIVDVD RI DYHUDJ HORDQUHFHLYDEOHV LQFOXGLQJ KHOGIRUVDOH
$ OORZ DQFHFRYHUDJ HUDWLR
5 HWXUQRQDVVHWV
5 HWXUQRQHTXLW\
( TXLW\ WR DVVHWV
2 WKHUH[ SHQVHDVD RI DYHUDJ HORDQUHFHLYDEOHV LQFOXGLQJ KHOGIRUVDOH
( IILFLHQF\ UDWLR
( IIHFWLYHLQFRP HWD[ UDWH
6HOHFWHG 3 HULRG ( QG ’ DWD
7RWDOORDQUHFHLYDEOHV
$ OORZ DQFHIRUORDQORVVHV
GD\ VSDVWGXHDVD RI SHULRG HQGORDQUHFHLYDEOHV
GD\ VSDVWGXHDVD RI SHULRG HQGORDQUHFHLYDEOHV
7RWDODFWLYHDFFRXQWV LQWKRXVDQGV
&DSLWDO5 DWLRV
7 LHU FRP P RQUDWLR
7 LHU ULVN EDVHGFDSLWDOUDWLR
7RWDOULVN EDVHGFDSLWDOUDWLR
7 LHU OHYHUDJ HUDWLR
+ LVWRULFDO
) RUWKH
LQP LOOLRQV
1 LQH0 RQWKV( QGHG
6HSWHP EHU
) RUWKH
<HDUV( QGHG’ HFHP EHU
3 ODWIRUP 5 HYHQXH
7RWDO
, QWHUHVWDQGIHHVRQORDQV
2 WKHULQFRP H
5 HWDLOHUVKDUHDUUDQJ HP HQWV
3ODWIRUP UHYHQXH
5 HWDLO&DUG
, QWHUHVWDQGIHHVRQORDQV
2 WKHULQFRP H
5 HWDLOHUVKDUHDUUDQJ HP HQWV
3ODWIRUP UHYHQXH
3D\ P HQW6ROXWLRQV
, QWHUHVWDQGIHHVRQORDQV
2 WKHULQFRP H
5 HWDLOHUVKDUHDUUDQJ HP HQWV
3ODWIRUP UHYHQXH
&DUH&UHGLW
, QWHUHVWDQGIHHVRQORDQV
2 WKHULQFRP H
5 HWDLOHUVKDUHDUUDQJ HP HQWV
3ODWIRUP UHYHQXH
7 KHXQDXGLWHGSUR IRUP DILQDQFLDOLQIRUP DWLRQIRU) LQDQFLDO3RVLWLRQ’ DWD $ YHUDJ H DQG6HOHFWHG3HUIRUP DQFH0 HWULFVJ LYHHIIHFWWR WKH7 UDQVDFWLRQVDVLI WKH\ KDG RFFXUUHGDW-DQXDU\ IRUDP RXQWVFDOFXODWHGXVLQJ DYHUDJ HILQDQFLDOSRVLWLRQGDWD
3XUFKDVHYROXP H RUQHWFUHGLWVDOHV UHSUHVHQWVWKHDJ J UHJ DWHDP RXQWRI FKDUJ HVLQFXUUHGRQFUHGLWFDUGVRURWKHUFUHGLWSURGXFWDFFRXQWVOHVVUHWXUQVGXULQJ WKHSHULRG
3XUFKDVHYROXP HLQFOXGHVDFWLYLW\ UHODWHGWR RXUSRUWIROLR FODVVLILHGDVKHOGIRUVDOH
$ FWLYHDFFRXQWVUHSUHVHQWFUHGLWFDUGRULQVWDOOP HQWORDQDFFRXQWVRQZ KLFKWKHUHKDVEHHQDSXUFKDVH SD\ P HQWRURXWVWDQGLQJ EDODQFHLQWKHFXUUHQWP RQWK 2 SHQ DFFRXQWVUHSUHVHQWFUHGLWFDUGRULQVWDOOP HQWORDQDFFRXQWVWKDWDUHQRWFORVHG EORFNHGRUP RUHWKDQ GD\ VGHOLQTXHQW
1 HWLQWHUHVWP DUJ LQUHSUHVHQWVQHWLQWHUHVWLQFRP HGLYLGHGE\ DYHUDJ HLQWHUHVWHDUQLQJ DVVHWV
$ OORZ DQFHFRYHUDJ HUDWLR UHSUHVHQWVDOORZ DQFHIRUORDQORVVHVGLYLGHGE\ WRWDOHQG RI SHULRGORDQUHFHLYDEOHV 5 HWXUQRQDVVHWVUHSUHVHQWVQHWHDUQLQJ VDVDSHUFHQWDJ HRI DYHUDJ HWRWDODVVHWV
5 HWXUQRQHTXLW\ UHSUHVHQWVQHWHDUQLQJ VDVDSHUFHQWDJ HRI DYHUDJ HWRWDOHTXLW\
( TXLW\ WR DVVHWVUHSUHVHQWVDYHUDJ HHTXLW\ DVDSHUFHQWDJ HRI DYHUDJ HWRWDODVVHWV
( IILFLHQF\ UDWLR UHSUHVHQWV L RWKHUH[ SHQVH GLYLGHGE\ LL QHWLQWHUHVWLQFRP H DIWHUUHWDLOHUVKDUHDUUDQJ HP HQWV SOXVRWKHULQFRP H
5 HSUHVHQW%DVHO, FDSLWDOUDWLRVFDOFXODWHGIRUWKH&RP SDQ\ DW6HSWHP EHU $ W6HSWHP EHU WKH&RP SDQ\ KDGDQHVWLP DWHGIXOO\ SKDVHG LQ%DVHO, , , 7 LH FRP P RQUDWLR RI 7 KH&RP SDQ\ ¶VFDSLWDOUDWLRVDUHQRQ * $ $ 3 P HDVXUHV 6HH‡† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVR
2 SHUDWLRQV† &DSLWDO·
7 LHU OHYHUDJ HUDWLR UHSUHVHQWVWRWDOWLHU FDSLWDODVDSHUFHQWDJ HRI WRWDOOHYHUDJ HGDVVHWV
3ODWIRUP UHYHQXHLVDQRQ * $ $ 3 P HDVXUH 7 KHWDEOHVHWVIRUWKHDFKFRP SRQHQWRI RXUSODWIRUP UHYHQXHIRUWKHSHULRGVSUHVHQWHG 6HH‡† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQ
$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV† 5 HVXOWVRI 2 SHUDWLRQV† ) RUWKH1 LQH0 RQWKV( QGHG6HSWHP EHU DQG † 3ODWIRUP $ QDO\ VLV· DQG‡† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV† 5 HVXOWVRI 2 SHUDWLRQV† ) RUWKH<HDUV( QGHG’ HFHP EHU
DQG † 3ODWIRUP $ QDO\ VLV·
8 QDXGLWHG 3 UR ) RUP D) LQDQFLDO, QIRUP DWLRQ
&RQGHQVHG&RQVROLGDWHG DQG&RP ELQHG 6WDWHP HQWVRI ( DUQLQJ V, QIRUP DWLRQ
1 LQHP RQWKVHQGHG 6HSWHP EHU
LQP LOOLRQV H[ FHSWSHUVKDUHGDWD + LVWRULFDO
3 UR ) RUP D
$ GMXVWP HQWV 1 RWHV
3 UR
) RUP D
, QWHUHVWDQGIHHVRQORDQV | † | |||
, QWHUHVWRQLQYHVWP HQWVHFXULWLHVD | † | |||
7 RWDOLQWHUHVWLQFRP H | † | |||
, QWHUHVWRQGHSRVLWV | † | |||
, QWHUHVWRQERUURZ LQJ VRI FRQVROLGDWHGVHFXULWL] DWLRQHQWLWLHV | † | |||
, QWHUHVWRQWKLUG SDUW\ GHEW | E | |||
, QWHUHVWRQUHODWHGSDUW\ GHEW | E F | |||
7 RWDOLQWHUHVWH[ SHQVH | ||||
1 HWLQWHUHVWLQFRP H | ||||
5 HWDLOHUVKDUHDUUDQJ HP HQWV | † | |||
1 HWLQWHUHVWLQFRP H DIWHUUHWDLOHUVKDUHDUUDQJ HP HQWV | ||||
3URYLVLRQIRUORDQORVVHV | † | |||
1 HWLQWHUHVWLQFRP H DIWHUUHWDLOHUVKDUHDUUDQJ HP HQWVDQG SURYLVLRQ IRUORDQ ORVVHV | ||||
2 WKHULQFRP H | † | |||
2 WKHUH[ SHQVH | G | |||
( DUQLQJ V ORVV EHIRUHSURYLVLRQ IRULQFRP HWD[ HV | ||||
3URYLVLRQIRULQFRP HWD[ HV | H | |||
1 HWHDUQLQJ V | ||||
: HLJ KWHGDYHUDJ HVKDUHVRXWVWDQGLQJ LQP LOOLRQV | ||||
%DVLF | I | |||
’ LOXWHG | I | |||
( DUQLQJ VSHUVKDUH | ||||
%DVLF | I | |||
’ LOXWHG | I |
<HDUHQGHG’ HFHP EHU
LQP LOOLRQV H[ FHSWSHUVKDUHGDWD + LVWRULFDO
3 UR ) RUP D
$ GMXVWP HQWV 1 RWHV
3 UR
) RUP D
, QWHUHVWDQGIHHVRQORDQV | † | |||||
, QWHUHVWRQLQYHVWP HQWVHFXULWLHVD | † | |||||
7 RWDOLQWHUHVWLQFRP H | † | |||||
, QWHUHVWRQGHSRVLWV | † | |||||
, QWHUHVWRQERUURZ LQJ VRI FRQVROLGDWHGVHFXULWL] DWLRQHQWLWLHV | † | |||||
, QWHUHVWRQWKLUG SDUW\ GHEW | † | E | ||||
, QWHUHVWRQUHODWHGSDUW\ GHEW | E F | |||||
7 RWDOLQWHUHVWH[ SHQVH | ||||||
1 HWLQWHUHVWLQFRP H | ||||||
5 HWDLOHUVKDUHDUUDQJ HP HQWV | † | |||||
1 HWLQWHUHVWLQFRP H DIWHUUHWDLOHUVKDUHDUUDQJ HP HQWV | ||||||
3URYLVLRQIRUORDQORVVHV | † | |||||
1 HWLQWHUHVWLQFRP H DIWHUUHWDLOHUVKDUHDUUDQJ HP HQWVDQG SURYLVLRQ IRUORDQ ORVVHV | ||||||
2 WKHULQFRP H | † | |||||
2 WKHUH[ SHQVH | G | |||||
( DUQLQJ V ORVV EHIRUHSURYLVLRQ IRULQFRP HWD[ HV | ||||||
3URYLVLRQIRULQFRP HWD[ HV | H | |||||
1 HWHDUQLQJ V | ||||||
: HLJ KWHGDYHUDJ HVKDUHVRXWVWDQGLQJ LQP LOOLRQV | ||||||
%DVLF | I | |||||
’ LOXWHG | I | |||||
( DUQLQJ VSHUVKDUH | ||||||
%DVLF | I | |||||
’ LOXWHG | I | |||||
1 RWHVWR XQDXGLWHG SUR IRUP DILQDQFLDOLQIRUP DWLRQ
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’ HFHP EHU DQG P LOOLRQIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU IRUWKHSHULRGSULRUWR WKHFORVLQJ RI WKH, 32 DVVXP LQJ DQLQWHUHVWUDWHRI SHUDQQXP 7 KLVLQFUHP HQWDO LQWHUHVWLQFRP HLVQRWUHIOHFWHGLQWKHXQDXGLWHGSUR IRUP DILQDQFLDOLQIRUP DWLRQ $ QLQFUHDVH GHFUHDVH LQWKHLQWHUHVWUDWHRI Z RXOGLQFUHDVH GHFUHDVH WKLV HVWLP DWHE\ P LOOLRQIRUWKH\ HDUHQGHG’ HFHP EHU
E 5 HIOHFWVDQDGMXVWP HQWWR UHFRUG ELOOLRQRI QHZ ERUURZ LQJ VLQFRQQHFWLRQZ LWKWKH, 32 DGGLWLRQDOERUURZ LQJ FRP P LWP HQWVDQGUHODWHGLQWHUHVWH[ SHQVHDWD Z HLJ KWHGDYHUDJ HLQWHUHVWUDWHRI SHUDQQXP DVIROORZ V
, QFRQQHFWLRQZ LWKWKH, 32 Z HHQWHUHGLQWR WKH ELOOLRQ* ( && 7HUP / RDQ) DFLOLW\ Z LWK* ( && ELOOLRQRI Z KLFKZ DVSUHSDLGZ LWKDSRUWLRQRI WKHQHW SURFHHGVIURP WKH( [ LVWLQJ 1 RWHVRIIHULQJ
, QFRQQHFWLRQZ LWKWKH, 32 Z HHQWHUHGLQWR WKH ELOOLRQ%DQN7HUP / RDQ) DFLOLW\ Z LWKWKLUG SDUW\ OHQGHUV ELOOLRQRI Z KLFKZ DVSUHSDLGZ LWKDSRUWLRQR WKHQHWSURFHHGVIURP WKH( [ LVWLQJ 1 RWHVRIIHULQJ
: HLVVXHG ELOOLRQRI ( [ LVWLQJ 1 RWHVLQWKH( [ LVWLQJ 1 RWHVRIIHULQJ
: HFXUUHQWO\ KDYHDQDJ J UHJ DWHRI DSSUR[ LP DWHO\ ELOOLRQRI XQGUDZ QFRP P LWWHGFDSDFLW\ IURP SULYDWHOHQGHUVXQGHUWZ R RI RXUH[ LVWLQJ VHFXULWL] DWLRQ SURJ UDP V WKHFRP P LWP HQWIHHVIRUZ KLFKDUHLQFOXGHGLQWKHDGMXVWP HQWWR LQWHUHVWH[ SHQVH
2 Q2 FWREHU Z HVXEVHTXHQWO\ SUHSDLGDQDGGLWLRQDO P LOOLRQRI WKH* ( && 7HUP / RDQ) DFLOLW\ Z LWKWKHSURFHHGVRI DGGLWLRQDOERUURZ LQJ VLQWKHVDP DP RXQWXQGHUWKH%DQN7HUP / RDQ) DFLOLW\ WKHHIIHFWRI Z KLFKLVQRWUHIOHFWHGLQWKHXQDXGLWHGSUR IRUP DILQDQFLDOLQIRUP DWLRQ
7 KHXQDXGLWHGSUR IRUP DILQDQFLDOLQIRUP DWLRQDOVR LQFOXGHVDQDGMXVWP HQWWR UHFRUG P LOOLRQRI GHIHUUHGILQDQFLQJ FRVWVUHODWHGWR WKH%DQN7HUP / RDQ
) DFLOLW\ DQGWKH( [ LVWLQJ 1 RWHVRIIHULQJ 7 KHSURFHHGVRI WKHQHZ ERUURZ LQJ VZ HUHXVHGWR UHSD\ DOO2 XWVWDQGLQJ 5 HODWHG3DUW\ ’ HEWWR LQFUHDVHRXUFDSLWDOWR LQYHVWLQOLTXLGDVVHWVWR LQFUHDVHWKHVL] HRI RXUOLTXLGLW\ SRUWIROLR WR SD\ IHHVDQGH[ SHQVHVUHODWHGWR WKH7 UDQVDFWLRQV DQGWR EHXVHGIRUVXFKDGGLWLRQDOXVHVD Z HP D\ GHWHUP LQHLQWKHIXWXUH
$ QLQFUHDVH GHFUHDVH LQWKHZ HLJ KWHGDYHUDJ HLQWHUHVWUDWHRI SHUDQQXP Z RXOGLQFUHDVH GHFUHDVH SUR IRUP DLQWHUHVWH[ SHQVHUHODWHGWR RXUQHZ ERUURZ LQJ VE\ P LOOLRQIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU DQG P LOOLRQIRUWKH\ HDUHQGHG’ HFHP EHU
F 5 HIOHFWVWKHUHSD\ P HQWRI ELOOLRQRI 2 XWVWDQGLQJ 5 HODWHG3DUW\ ’ HEW7 KHZ HLJ KWHGDYHUDJ HLQWHUHVWUDWHRQWKHUHODWHGSDUW\ GHEWIRUWKHQLQHP RQWKVHQGHG 6HSWHP EHU IRUWKHSHULRGSULRUWR WKHFORVLQJ RI WKH, 32 DQGWKH\ HDUHQGHG’ HFHP EHU Z DV DQG SHUDQQXP UHVSHFWLYHO\
G 5 HSUHVHQWVDQHVWLP DWHGDQQXDOLQFUHP HQWDOFRP SHQVDWLRQH[ SHQVHRI P LOOLRQUHODWHGWR WKHLVVXDQFHRI DIRXQGHUV¶J UDQWRI 5 68 VDQGVWRFNRSWLRQVWR DEURDGJ URX RI VHYHUDOKXQGUHGHP SOR\ HHVLQFRQQHFWLRQZ LWKWKH, 32 Z LWKDQHVWLP DWHGWRWDOJ UDQWGDWHIDLUYDOXHRI P LOOLRQ 7 KHJ UDQWZ LOOEHDP RUWL] HGRYHUWKHIRXU\ HDU FOLII YHVWLQJ SHULRG
H 5 HIOHFWVDQDGMXVWP HQWWR UHFRUGWKHWD[ LP SDFWRI RWKHUSUR IRUP DHDUQLQJ VDGMXVWP HQWVDWDWD[ UDWHRI
I %DVLF DQGGLOXWHGHDUQLQJ VSHUVKDUHDQGWKHZ HLJ KWHGDYHUDJ HVKDUHVRXWVWDQGLQJ IRUWKHSUR IRUP DHDUQLQJ VSHUVKDUHFDOFXODWLRQLQFOXGHGLQRXUXQDXGLWHGSUR IRUP D &RQVROLGDWHGDQG&RP ELQHG6WDWHP HQWVRI ( DUQLQJ VDUHFDOFXODWHGDVIROORZ V
1 LQH0 RQWKV( QGHG
6HSWHP EHU
<HDU( QGHG
’ HFHP EHU
LQP LOOLRQVH[ FHSWSHUVKDUHGDWD %DVLF ’ LOXWHG %DVLF ’ LOXWHG
3UR IRUP DQHWHDUQLQJ V &RP P RQVWRFN
5 HVWULFWHGVWRFNXQLWV † † †
6WRFNRSWLRQV † † † †
3URIRUP DVKDUHVRXWVWDQGLQJ 3UR IRUP DHDUQLQJ VSHUVKDUH
J : HKDYHQRWUHIOHFWHGDQ\ DGMXVWP HQWVLQRXUXQDXGLWHGSUR IRUP DILQDQFLDOLQIRUP DWLRQIRUWKHIROORZ LQJ
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‡† 0 DQDJ HP HQW¶V’ LVFXVVLR DQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV† %XVLQHVV7 UHQGVDQG&RQGLWLRQV† , QFUHDVHVLQRWKHUH[ SHQVHWR RSHUDWHDVDIXOO\ LQGHSHQGHQW FRP SDQ\ · DQG‡† 6HSDUDWLRQIURP * ( DQG5 HODWHG) LQDQFLDO$ UUDQJ HP HQWV·
: HH[ SHFWLQFUHDVHGSD\ P HQWVWR SDUWQHUVXQGHURXUUHFHQWO\ H[ WHQGHGUHWDLOHUVKDUHDUUDQJ HP HQWVDQGLQFUHDVHGRWKHUH[ SHQVH SULP DULO\ P DUNHWLQJ DQGRWKHU H[ SHQVHVGHGLFDWHGWR SURP RWLQJ WKHH[ WHQGHGSURJ UDP V 6HH‡† 0 DQDJ HP HQW¶V’ LVFXVVLRQDQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQDQG5 HVXOWVRI 2 SHUDWLRQV†
%XVLQHVV7 UHQGVDQG&RQGLWLRQV† , QFUHDVHVLQUHWDLOHUVKDUHDUUDQJ HP HQWSD\ P HQWVDQGRWKHUH[ SHQVHXQGHUH[ WHQGHGSURJ UDP DJ UHHP HQWV·
: HZ LOOWUDQVLWLRQWR RXUEHQHILWSODQVXQGHUWKHHP SOR\ HHP DWWHUVDJ UHHP HQWZ HHQWHUHGLQWR Z LWK* ( SULRUWR WKHFRP SOHWLRQRI WKH, 32 ( IIHFWLYHDVRI WKHGDWH WKDW* ( FHDVHVWR RZ QDWOHDVW RI RXURXWVWDQGLQJ FRP P RQVWRFN RXUDSSOLFDEOH8 6 HP SOR\ HHVZ LOOFHDVHWR SDUWLFLSDWHLQWKH* ( SODQVDQGZ LOOSDUWLFLSDW LQHP SOR\ HHEHQHILWSODQVHVWDEOLVKHGDQGP DLQWDLQHGE\ XV ) RUDWOHDVWWKHRQH\ HDUSHULRGIROORZ LQJ WKHGDWHWKDW* ( FHDVHVWR RZ QDWOHDVW RI RXU RXWVWDQGLQJ FRP P RQVWRFN Z HZ LOOP DLQWDLQSODQVWKDWZ LOOSURYLGHRXUHP SOR\ HHVZ LWKEHQHILWVWKDWDUHFRP SDUDEOHLQWKHDJ J UHJ DWHWR WKHYDOXHRI WKRVH EHQHILWVSURYLGHGE\ WKH* ( SODQV 6HH‡, WHP &HUWDLQ5 HODWLRQVKLSVDQG5 HODWHG7 UDQVDFWLRQV DQG’ LUHFWRU, QGHSHQGHQFH† 5 HODWLRQVKLS Z LWK* ( DQG* ( &&† ( P SOR\ HH0 DWWHUV$ J UHHP HQW· IRUIXUWKHUGHVFULSWLRQRI WKHVHP DWWHUV
&HUWDLQRI RXUHP SOR\ HHVKDYHKLVWRULFDOO\ EHHQJ UDQWHG* ( VWRFNRSWLRQVDQG* ( 5 68 VXQGHU* ( ¶V / RQJ 7HUP , QFHQWLYH3ODQ DQGDVRI WKHGDWH* ( FHDVHVWR RZ QDWOHDVW RI RXURXWVWDQGLQJ FRP P RQVWRFN DOOXQYHVWHG* ( VWRFNRSWLRQVWKDWDUHKHOGE\ RXUHP SOR\ HHVDWWKDWWLP HZ LOOYHVW: HKDYHQRW UHIOHFWHGDQ\ DGMXVWP HQWIRUWKHH[ SHQVHUHODWHGWR WKHDFFHOHUDWHGYHVWLQJ RI WKHVHDZ DUGVDVWKHGDWHRI YHVWLQJ KDVQRWEHHQGHWHUP LQHGDQGWKLVH[ SHQVHZ RXOG EHQRQ UHFXUULQJ
0 DQDJ HP HQW¶V’ LVFXVVLRQ DQG$ QDO\ VLVRI ) LQDQFLDO&RQGLWLRQ DQG 5 HVXOWVRI 2 SHUDWLRQV
7 KHIROORZ LQJ GLVFXVVLRQDQGDQDO\ VLVRI RXUILQDQFLDOFRQGLWLRQDQGUHVXOWVRI RSHUDWLRQVVKRXOGEHUHDGLQFRQMXQFWLRQZ LWKRXUFRQVROLGDWHGDQGFRP ELQHGILQDQFLDO VWDWHP HQWVDQGUHODWHGQRWHVLQFOXGHGHOVHZ KHUHLQWKLVUHSRUW7 KHGLVFXVVLRQEHORZ FRQWDLQVIRUZ DUG ORRNLQJ VWDWHP HQWVWKDWDUHEDVHGXSRQFXUUHQWH[ SHFWDWLRQVDQGDUH VXEMHFWWR XQFHUWDLQW\ DQGFKDQJ HVLQFLUFXP VWDQFHV $ FWXDOUHVXOWVP D\ GLIIHUP DWHULDOO\ IURP WKHVHH[ SHFWDWLRQV 6HH‡&DXWLRQDU\ 1 RWH5 HJ DUGLQJ ) RUZ DUG / RRNLQJ
6WDWHP HQWV·
, QWURGXFWLRQ
%XVLQHVV2 YHUYLHZ
: HDUHRQHRI WKHSUHP LHUFRQVXP HUILQDQFLDOVHUYLFHVFRP SDQLHVLQWKH8 QLWHG6WDWHV : HSURYLGHDUDQJ HRI FUHGLWSURGXFWVWKURXJ KSURJ UDP VZ HKDYHHVWDEOLVKHGZ LW DGLYHUVHJ URXS RI QDWLRQDODQGUHJ LRQDOUHWDLOHUV ORFDOP HUFKDQWV P DQXIDFWXUHUV EX\ LQJ J URXSV LQGXVWU\ DVVRFLDWLRQVDQGKHDOWKFDUHVHUYLFHSURYLGHUV Z KLFKZ HUHIHUWR DV RXU‡SDUWQHUV· ’ XULQJ Z HILQDQFHG ELOOLRQRI SXUFKDVHYROXP H DQGDW’ HFHP EHU Z HKDG ELOOLRQRI ORDQUHFHLYDEOHVDQG P LOOLRQDFWLYH DFFRXQWV ) RUWKHQLQHP RQWKVHQGHG6HSWHP EHU Z HILQDQFHG ELOOLRQRI SXUFKDVHYROXP H DQGDW6HSWHP EHU Z HKDG ELOOLRQRI ORDQUHFHLYDEOHV DQG P LOOLRQDFWLYHDFFRXQWV ) RUWKH\ HDUHQGHG’ HFHP EHU Z HKDGQHWHDUQLQJ VRI ELOOLRQ UHSUHVHQWLQJ DUHWXUQRQDVVHWVRI DQGIRUWKHQLQHP RQWKV HQGHG6HSWHP EHU Z HKDGQHWHDUQLQJ VRI ELOOLRQ UHSUHVHQWLQJ DUHWXUQRQDVVHWVRI 6HH‡, WHP ) LQDQFLDO, QIRUP DWLRQ† 6HOHFWHG+ LVWRULFDODQG3UR ) RUP
) LQDQFLDO, QIRUP DWLRQ· IRUUHWXUQRQDVVHWV UHWXUQRQHTXLW\ DQGHTXLW\ WR DVVHWVUDWLRV
: HRIIHURXUFUHGLWSURGXFWVSULP DULO\ WKURXJ KRXUZ KROO\ RZ QHGVXEVLGLDU\ WKH%DQN 7 KURXJ KWKH%DQN Z HRIIHUDUDQJ HRI GLUHFWDQGEURNHUHGGHSRVLWSURGXFWV LQVXUHGE\ WKH) ’ ,& : HDUHH[ SDQGLQJ RXUGLUHFWEDQNLQJ RSHUDWLRQVWR LQFUHDVHRXUGHSRVLWEDVHDVDVRXUFHRI VWDEOHDQGGLYHUVLILHGORZ FRVWIXQGLQJ IRURXUFUHGLWDFWLYLWLHV
: HKDG ELOOLRQLQGHSRVLWVDW6HSWHP EHU
2 XU6DOHV3 ODWIRUP V
: HFRQGXFWRXURSHUDWLRQVWKURXJ KDVLQJ OHEXVLQHVVVHJ P HQWDQGRIIHURXUSURGXFWVWKURXJ KWKUHHVDOHVSODWIRUP V 5 HWDLO&DUG 3D\ P HQW6ROXWLRQVDQG&DUH&UHGLW 7 KRVHSODWIRUP VDUHRUJ DQL] HGE\ WKHW\ SHVRI SURGXFWVZ HRIIHUDQGWKHSDUWQHUVZ HZ RUNZ LWK DQGDUHP HDVXUHGRQSODWIRUP UHYHQXHV ORDQUHFHLYDEOHV QHZ DFFRXQWVDQG RWKHUVDOHVP HWULFV 6HH‡, WHP %XVLQHVV– 2 XU6DOHV3ODWIRUP V·
2 XU&UHGLW3 URGXFWV
7 KURXJ KRXUSODWIRUP V Z HRIIHUWKUHHSULQFLSDOW\ SHVRI FUHGLWSURGXFWV FUHGLWFDUGV FRP P HUFLDOFUHGLWSURGXFWVDQGFRQVXP HULQVWDOOP HQWORDQV 6HH‡, WHP %XVLQHV
† 2 XU&UHGLW3URGXFWV·
%XVLQHVV7 UHQGVDQG &RQGLWLRQV
: HEHOLHYHRXUEXVLQHVVDQGUHVXOWVRI RSHUDWLRQVZ LOOEHLP SDFWHGLQWKHIXWXUHE\ YDULRXVWUHQGVDQGFRQGLWLRQV LQFOXGLQJ WKHIROORZ LQJ
* URZWK LQ ORDQ UHFHLYDEOHVDQGLQWHUHVWLQFRP H : HEHOLHYHFRQWLQXLQJ LP SURYHP HQWLQWKH8 6 HFRQRP \ DQGHP SOR\ P HQWUDWHVZ LOOFRQWULEXWHWR DQLQFUHDVHL FRQVXP HUFUHGLWVSHQGLQJ , QDGGLWLRQ Z HH[ SHFWWKHXVHRI FUHGLWFDUGVWR FRQWLQXHWR LQFUHDVHYHUVXVRWKHUIRUP VRI SD\ P HQWVXFKDVFDVKDQGFKHFNV : H DQWLFLSDWHWKDWWKHVHWUHQGV FRP ELQHGZ LWKRXUP DUNHWLQJ DQGSDUWQHUHQJ DJ HP HQWVWUDWHJ LHV Z LOOFRQWULEXWHWR J URZ WKLQRXUORDQUHFHLYDEOHV , QWKHQHDUWR
P HGLXP WHUP Z HH[ SHFWRXUWRWDOLQWHUHVWLQFRP HWR FRQWLQXHWR J URZ GULYHQE\ WKHH[ SHFWHGJ URZ WKLQDYHUDJ HORDQUHFHLYDEOHV 2 XUKLVWRULFDOJ URZ WKUDWHVLQ ORDQUHFHLYDEOHVDQGLQWHUHVWLQFRP HKDYHEHQHILWWHGIURP QHZ SDUWQHUDFTXLVLWLRQV LQFOXGLQJ WKHVLJ QLILFDQWSRUWIROLR DFTXLVLWLRQVGHVFULEHGLQ‡† ’ HVFULSWLRQR
. H\ &RP ELQHG6WDWHP HQWVRI ( DUQLQJ V/ LQH, WHP V† , QWHUHVW, QFRP H· DQGWKHUHIRUH LI Z HGR QRWFRQWLQXHWR DFTXLUHQHZ SDUWQHUV UHSODFHWKH5 HWDLO&DUG SURJ UDP VWKDWDUHQRWEHLQJ H[ WHQGHGRURWKHUZ LVHJ URZ RXUEXVLQHVV RXUJ URZ WKUDWHVLQORDQUHFHLYDEOHVDQGLQWHUHVWLQFRP HLQWKHIXWXUHZ LOOEHORZ HUWKDQLQ
UHFHQWSHULRGV , QDGGLWLRQ Z HGR QRWH[ SHFWWR P DNHDQ\ VLJ QLILFDQWFKDQJ HVWR FXVWRP HUSULFLQJ RUP HUFKDQWGLVFRXQWSULFLQJ LQWKHQHDUWHUP DQGWKHUHIRUHZ H H[ SHFW\ LHOGVJ HQHUDWHGIURP LQWHUHVWDQGIHHVRQLQWHUHVWHDUQLQJ DVVHWVZ LOOUHP DLQUHODWLYHO\ VWDEOH
&KDQJ LQJ IXQGLQJ P L[ DQGLQFUHDVHGIXQGLQJ FRVWV 2 XUSULP DU\ IXQGLQJ VRXUFHVKLVWRULFDOO\ KDYHLQFOXGHGFDVKIURP RSHUDWLRQV GHSRVLWV GLUHFWDQGEURNHUH GHSRVLWV VHFXULWL] HGILQDQFLQJ VDQGUHODWHGSDUW\ GHEWSURYLGHGE\ * ( && DQGLWVDIILOLDWHV , QFRQQHFWLRQZ LWKWKH, 32 Z HKDYHDGGHGWKLUG SDUW\ FUHGLWIDFLOLWLH DQGWUDQVLWLRQDOIXQGLQJ IURP * ( && DVIXQGLQJ VRXUFHV DVZ HOODVSXEOLF XQVHFXUHGGHEWILQDQFLQJ 2 YHUWLP H Z HH[ SHFWWR UDLVHDGGLWLRQDOXQVHFXUHGGHEW ILQDQFLQJ DQGVLJ QLILFDQWO\ LQFUHDVHRXUOHYHORI GLUHFWGHSRVLWVWR UHSD\ LQDGYDQFHRI WKH6HSDUDWLRQ DOORUDVXEVWDQWLDOSRUWLRQRI WKHWUDQVLWLRQDOIXQGLQJ SURYLGHGE\ * ( && LQFUHDVHOLTXLGLW\ OHYHOVDQGVXSSRUWJ URZ WKLQRXUEXVLQHVV : HH[ SHFWWKHIROORZ LQJ IDFWRUVWR LP SDFWRXUIXQGLQJ FRVWV
FRQWLQXHGJ URZ WKLQRXUGLUHFWGHSRVLWVDVDVRXUFHRI VWDEOHDQGORZ FRVWIXQGLQJ
WKHVLJ QLILFDQWLQFUHDVHLQWKHDP RXQWRI GHEWRXWVWDQGLQJ WR IXQGDQLQFUHDVHLQWKHVL] HRI RXUOLTXLGLW\ SRUWIROLR
WKHFKDQJ LQJ P L[ LQRXUIXQGLQJ VRXUFHV DVKLVWRULFDOUHODWHGSDUW\ GHEWZ DVUHSODFHGE\ KLJ KHUFRVWIXQGLQJ SURYLGHGE\ WKLUG SDUW\ FUHGLWIDFLOLWLHV XQVHFXUHGGHEWILQDQFLQJ DQGWUDQVLWLRQDOIXQGLQJ IURP * ( && DQG
DULVLQJ LQWHUHVWUDWHHQYLURQP HQW
$ VDUHVXOWRI WKHVHIDFWRUV RXUIXQGLQJ FRVWVLQWKHDJ J UHJ DWHKDYHLQFUHDVHGIROORZ LQJ WKH, 32 $ W6HSWHP EHU RXUERUURZ LQJ VLQFUHDVHGE\ DSSUR[ LP DWHO\ ELOOLRQFRP SDUHGWR -XQH SULRUWR WKH, 32 3UR IRUP DIRUWKH7 UDQVDFWLRQV IRUWKH\ HDUHQGHG’ HFHP EHU RXULQWHUHVWH[ SHQVHZ RXOGKDYHLQFUHDVHGE\ P LOOLRQ DQGRXUFRVWRI IXQGVZ RXOGKDYHLQFUHDVHGIURP WR SHUDQQXP DQGIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU RXULQWHUHVWH[ SHQVHZ RXOGKDYH
LQFUHDVHGE\ P LOOLRQ DQGRXUFRVWRI IXQGVZ RXOGKDYHLQFUHDVHGIURP WR SHUDQQXP 6HH‡† 6HOHFWHG+ LVWRULFDODQG3UR ) RUP D) LQDQFLDO, QIRUP DWLRQ† 8 QDXGLWHG3UR ) RUP D) LQDQFLDO, QIRUP DWLRQ·
( [ WHQGHGGXUDWLRQ RI SURJ UDP DJ UHHP HQWV 6LQFH-DQXDU\ Z HKDYHH[ WHQGHGWKHGXUDWLRQRI RI RXU ODUJ HVWSURJ UDP DJ UHHP HQWVZ LWKDQHZ
H[ SLUDWLRQGDWHLQ RUEH\ RQG 7 KHVHH[ WHQGHGSURJ UDP DJ UHHP HQWVUHSUHVHQWHG LQWKHDJ J UHJ DWH RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG
’ HFHP EHU DQG RI RXUWRWDOORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW6HSWHP EHU $ VDUHVXOWZ HH[ SHFWWR FRQWLQXHWR EHQHILWIURP WKHVHSURJ UDP VRQDORQJ WHUP EDVLVDVLQGLFDWHGE\ WKHIROORZ LQJ H[ SLUDWLRQVFKHGXOH Z KLFKLQGLFDWHVIRUHDFKSHULRGWKHQXP EHURI SURJ UDP V VFKHGXOHGWR H[ SLUHDQGWKHSODWIRUP UHYHQXHDQGORDQUHFHLYDEOHVWKDWWKHVHSURJ UDP VDFFRXQWHGIRUDWWKHGDWHVDQGIRUWKHSHULRGVLQGLFDWHG
LQP LOOLRQV
6FKHGXOHG 3 URJ UDP ( [ SLUDWLRQ
DQG EH\ RQG
ODUJ HVWSURJ UDP V
3ODWIRUP UHYHQXH IRUWKH\ HDUHQGHG’ HFHP EHU
/ RDQUHFHLYDEOHV DW6HSWHP EHU
%DVHGRQSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU ( [ FOXGHVILYHSURJ UDP DJ UHHP HQWVWKDWKDYHH[ SLUHGRURWKHUZ LVHZ LOOQRWEHH[ WHQGHGEH\ RQGWKHLU FXUUHQWFRQWUDFWXDOH[ SLUDWLRQGDWHVLQ RU
$ WRWDORI RI RXU ODUJ HVWSURJ UDP DJ UHHP HQWV LQFOXGLQJ WKH SURJ UDP DJ UHHP HQWVZ HKDYHH[ WHQGHGVLQFH-DQXDU\ QRZ KDYHDQH[ SLUDWLRQGDWHLQ R EH\ RQG 7 KHVH SURJ UDP DJ UHHP HQWVUHSUHVHQWHGLQWKHDJ J UHJ DWH RI RXUWRWDOSODWIRUP UHYHQXHIRUWKH\ HDUHQGHG’ HFHP EHU DQG RI RXUWRWDOORDQ UHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW6HSWHP EHU ) LYHRI RXU ODUJ HVWSURJ UDP DJ UHHP HQWVKDYHH[ SLUHGRURWKHUZ LVHZ LOOQRWEHH[ WHQGHGEH\ RQG WKHLUFRQWUDFWXDOH[ SLUDWLRQGDWHVLQ RU LQRQHFDVH 7 KHVHILYHSURJ UDP DJ UHHP HQWVUHSUHVHQWHG LQWKHDJ J UHJ DWH RI RXUWRWDOSODWIRUP UHYHQXHDQG RI RXUUHWDLOHUVKDUHDUUDQJ HP HQWV LQHDFKFDVHIRUWKH\ HDUHQGHG’ HFHP EHU DQG RI RXUWRWDOORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHVKHOGIRUVDOH DW 6HSWHP EHU , QDGGLWLRQ Z HUHFHQWO\ H[ WHQGHGRXUSURJ UDP DJ UHHP HQWZ LWK3D\ 3DODQRWKHURI RXU ODUJ HVWSURJ UDP V XQWLO2 FWREHU DQGGR QRWH[ SHFWLWWR
H[ WHQGEH\ RQGWKDWGDWH 7 KHH[ WHQVLRQHOLP LQDWHGFHUWDLQH[ FOXVLYLW\ SURYLVLRQVWKDWSUHYLRXVO\ H[ LVWHGLQWKHSURJ UDP DJ UHHP HQWZ KLFKZ HH[ SHFWZ LOOUHVXOWLQORZ HUSODWIRUP UHYHQXHDQGORDQUHFHLYDEOHVIURP RXU3D\ 3DOSURJ UDP GXULQJ WKHH[ WHQGHGWHUP RI WKHDJ UHHP HQW7 KH3D\ 3DOSURJ UDP DJ UHHP HQWUHSUHVHQWHG RI RXUWRWDOSODWIRUP UHYHQXHDQG RI RXUUHWDLOHUVKDUHDUUDQJ HP HQWV LQHDFKFDVHIRUWKH\ HDUHQGHG’ HFHP EHU DQG RI RXUWRWDOORDQUHFHLYDEOHV LQFOXGLQJ ORDQUHFHLYDEOHV KHOGIRUVDOH DW6HSWHP EHU
, QFUHDVHVLQ UHWDLOHUVKDUHDUUDQJ HP HQWSD\ P HQWVDQGRWKHUH[ SHQVHXQGHUH[ WHQGHGSURJ UDP DJ UHHP HQWV : HEHOLHYHWKDWDVDUHVXOWRI ERWKWKHRYHUDOO
J URZ WKRI RXUSURJ UDP VJ HQHUDOO\ DVZ HOODVDP HQGP HQWVZ HKDYHP DGHWR WKHWHUP VRI FHUWDLQSURJ UDP DJ UHHP HQWVWKDWZ HH[ WHQGHGGXULQJ DQGWR GDWHLQ WKHSD\ P HQWVZ HP DNHWR RXUSDUWQHUVXQGHUWKHVHH[ WHQGHGUHWDLOHUVKDUHDUUDQJ HP HQWV LQWKHDJ J UHJ DWHDUHOLNHO\ WR LQFUHDVHERWKLQDEVROXWHWHUP VDQGD
DSHUFHQWDJ HRI RXUQHWHDUQLQJ V 7 KHVHLQFUHDVHVZ LOOEHRIIVHWLQSDUWE\ GHFUHDVHVLQUHWDLOHUVKDUHDUUDQJ HP HQWSD\ P HQWVP DGHWR WKRVHSDUWQHUVZ KRVH
SURJ UDP VDUHQRWEHLQJ H[ WHQGHG 2 YHUDOOZ HH[ SHFWRXUSD\ P HQWVWR RXUSDUWQHUVXQGHURXUUHWDLOHUVKDUHDUUDQJ HP HQWVWR J URZ J HQHUDOO\ LQOLQHZ LWKWKHJ URZ W RI RXU5 HWDLO&DUGORDQUHFHLYDEOHV
, QDGGLWLRQ XQGHUWKHWHUP VRI FHUWDLQSURJ UDP DJ UHHP HQWVZ HKDYHUHFHQWO\ H[ WHQGHG Z HKDYHDJ UHHGWR GHGLFDWHLQFUHDVHGP DUNHWLQJ H[ SHQVHDQGRWKHU LQYHVWP HQWVWR SURP RWHWKHVHSURJ UDP V : HHVWLP DWHWKDWWKHLQFUHDVHVLQP DUNHWLQJ H[ SHQVHDQGRWKHULQYHVWP HQWVZ LOOUHVXOWLQDQLQFUHDVHLQRWKHUH[ SHQVHRI DSSUR[ LP DWHO\ P LOOLRQSHU\ HDU EDVHGRQWKHDQWLFLSDWHGSHUIRUP DQFHRI WKHVHSURJ UDP V
: HDOVR H[ SHFWWR EHQHILWIURP WKHVHLQFUHDVHGSD\ P HQWVDQGRWKHUH[ SHQVH DVWKH\ Z LOOFUHDWHDGGLWLRQDOLQFHQWLYHVIRURXUSDUWQHUVWR VXSSRUWWKHLUSURJ UDP V DQG LQWKHFDVHRI LQFUHDVHGP DUNHWLQJ H[ SHQVHDQGRWKHULQYHVWP HQWV GLUHFWO\ SURP RWHWKHVHSURJ UDP V DOORI Z KLFKZ HH[ SHFWZ LOOKDYHDSRVLWLYHLP SDFWRQ SXUFKDVHYROXP HDQGUHVXOWLQKLJ KHUORDQUHFHLYDEOHVDQGLQFUHDVHGLQWHUHVWDQGIHHVRQORDQV : HDOVR H[ SHFWWR EHQHILWIURP WKHH[ WHQGHGGXUDWLRQRI RXU
DP HQGHGSURJ UDP DJ UHHP HQWV
6WDEOHDVVHWTXDOLW\ DQGHQKDQFHP HQWVWR DOORZDQFHIRUORDQ ORVVP HWKRGRORJ \ 2 XUFUHGLWSHUIRUP DQFHFRQWLQXHGWR LP SURYHWKURXJ K DQGWKURXJ KWKHILU WKUHHTXDUWHUVRI 2 XUQHWFKDUJ HRII UDWHVGHFUHDVHGIURP IRUWKH\ HDUHQGHG’ HFHP EHU WR IRUWKH\ HDUHQGHG’ HFHP EHU DQ RXURYHU GD\ GHOLQTXHQF\ UDWHGHFUHDVHGIURP DW’ HFHP EHU WR DW’ HFHP EHU Z KLFKDUHWKHORZ HVW\ HDUHQGOHYHOVZ HKDYH
H[ SHULHQFHGVLQFH 2 XUQHWFKDUJ HRII UDWHIRUWKHQLQHP RQWKVHQGHG6HSWHP EHU Z DV DQGRXURYHU GD\ GHOLQTXHQF\ UDWHDW6HSWHP EHU Z DV , QWKHQHDUWHUP Z HH[ SHFWWKH8 6 HP SOR\ P HQWUDWHWR FRQWLQXHWR VWDELOL] H DQGZ HGR QRWDQWLFLSDWHP DNLQJ VLJ QLILFDQWFKDQJ HVWR RXU
XQGHUZ ULWLQJ VWDQGDUGV $ FFRUGLQJ O\ Z HH[ SHFWRXUFKDUJ HRII UDWHVWR UHP DLQUHODWLYHO\ VWDEOHLQWKHQHDUWHUP
’ XULQJ DQG Z HHQKDQFHGRXUP HWKRGRORJ \ IRUGHWHUP LQLQJ RXUDOORZ DQFHIRUORDQORVVHV DQGDVDUHVXOWZ HUHFRJ QL] HGLQFUHP HQWDOSURYLVLRQVRI
P LOOLRQDQG P LOOLRQLQ DQG UHVSHFWLYHO\ : HFRQWLQXHWR UHYLHZ DQGHYDOXDWHRXUP HWKRGRORJ \ DQGP RGHOV DQGZ HZ LOOLP SOHP HQWIXUWKHU HQKDQFHP HQWVRUFKDQJ HVWR WKHP DVQHHGHG
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
7 KHLQFUHDVHLQRWKHUH[ SHQVHGHVFULEHGDERYHGRHVQRWLQFOXGHWKHYDULDEOHFRP SRQHQWRI RXURWKHUH[ SHQVH Z KLFKZ HH[ SHFWWR LQFUHDVHLQDEVROXWHWHUP VLQ OLQHZ LWKWKHJ URZ WKRI RXUEXVLQHVVXQUHODWHGWR WKH6HSDUDWLRQ 7 KHVHLQFUHDVHVLQRWKHUH[ SHQVHDOVR GR QRWLQFOXGHWKHLQFUHDVHGP DUNHWLQJ H[ SHQVHVDQGRWKHU LQYHVWP HQWVXQGHURXUH[ WHQGHGSURJ UDP DJ UHHP HQWV DVGHVFULEHGDERYHXQGHU‡† , QFUHDVHVLQUHWDLOHUVKDUHDUUDQJ HP HQWSD\ P HQWVDQGRWKHUH[ SHQVHXQGHU
H[ WHQGHGSURJ UDP DJ UHHP HQWV·
, P SDFWRI UHJ XODWRU\ GHYHORSP HQWV ) RUWKH\ HDUHQGHG’ HFHP EHU RXURWKHUH[ SHQVHLQFOXGHGD P LOOLRQLQFUHDVHLQRXUH[ SHQVHVUHODWHGWR
OLWLJ DWLRQDQGUHJ XODWRU\ P DWWHUV SULP DULO\ DQLQFUHDVHWR RXUUHVHUYHVUHODWHGWR WKHP DWWHUVVHWWOHGZ LWKWKH&) 3% DQGWKH’ 2 - LQODWH DQG 6HH‡, WHP
%XVLQHVV† 5 HJ XODWLRQ† &RQVXP HU) LQDQFLDO6HUYLFHV5 HJ XODWLRQ·
, QFUHDVHGFDSLWDODQGOLTXLGLW\ OHYHOV : HH[ SHFWWR P DLQWDLQVXIILFLHQWFDSLWDODQGOLTXLGLW\ UHVRXUFHVWR VXSSRUWRXUGDLO\ RSHUDWLRQV RXUEXVLQHVVJ URZ WK RXU FUHGLWUDWLQJ VDVZ HOODVUHJ XODWRU\ DQGFRP SOLDQFHUHTXLUHP HQWVLQDFRVWHIIHFWLYHDQGSUXGHQWP DQQHUWKURXJ KH[ SHFWHGDQGXQH[ SHFWHGP DUNHWHQYLURQP HQWV
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
SULP DULO\ DVDUHVXOWRI DQWLFLSDWHGLQFUHDVHVLQRXUGHSRVLWV
6HDVRQDOLW\
, QRXU5 HWDLO&DUGDQG3D\ P HQW6ROXWLRQVSODWIRUP V Z HH[ SHULHQFHIOXFWXDWLRQVLQWUDQVDFWLRQYROXP HVDQGWKHOHYHORI ORDQUHFHLYDEOHVDVDUHVXOWRI KLJ KHUVHDVRQDO FRQVXP HUVSHQGLQJ DQGSD\ P HQWSDWWHUQVWKDWW\ SLFDOO\ UHVXOWLQDQLQFUHDVHRI ORDQUHFHLYDEOHVIURP $ XJ XVWWKURXJ KDSHDNLQODWH’ HFHP EHU Z LWKUHGXFWLRQVLQORDQ UHFHLYDEOHVRFFXUULQJ RYHUWKHILUVWDQGVHFRQGTXDUWHUVRI WKHIROORZ LQJ \ HDUDVFXVWRP HUVSD\ WKHLUEDODQFHVGRZ Q
7 KHVHDVRQDOLP SDFWWR WUDQVDFWLRQYROXP HVDQGWKHORDQUHFHLYDEOHVEDODQFHW\ SLFDOO\ UHVXOWVLQIOXFWXDWLRQVLQRXUUHVXOWVRI RSHUDWLRQV GHOLQTXHQF\ P HWULFVDQGWKH DOORZ DQFHIRUORDQORVVHVDVDSHUFHQWDJ HRI WRWDOORDQUHFHLYDEOHVEHWZ HHQTXDUWHUO\ SHULRGV 7 KHVHIOXFWXDWLRQVDUHJ HQHUDOO\ P RVWHYLGHQWEHWZ HHQWKHIRXUWKTXDUWHUDQGWKH ILUVWTXDUWHURI WKHIROORZ LQJ \ HDU
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
6HSDUDWLRQ IURP * ( DQG 5 HODWHG ) LQDQFLDO$ UUDQJ HP HQWV
6HUYLFHV3 URYLGHGE\ * (
) ROORZ LQJ WKH, 32 * ( RZ QV RI RXUFRP P RQVWRFNDQGFRQWLQXHVWR SURYLGHDYDULHW\ RI VHUYLFHVWR XV Z KLFKDUHJ RYHUQHGE\ WKH7 UDQVLWLRQDO6HUYLFHV
$ J UHHP HQWDQGYDULRXVRWKHUDJ UHHP HQWVZ LWK* ( DQG* ( && WKDWZ HHQWHUHGLQWR LQFRQQHFWLRQZ LWKWKH, 32 7 KHVHUYLFHVSURYLGHGLQFOXGH DP RQJ RWKHUWKLQJ V HP SOR\ HH EHQHILWVDQGEHQHILWDGP LQLVWUDWLRQ LQIRUP DWLRQWHFKQRORJ \ WHOHFRP P XQLFDWLRQVHUYLFHVDQGOHDVHVIRUYHKLFOHV HTXLSP HQWDQGIDFLOLWLHV 8 QGHUWKH7 UDQVLWLRQDO6HUYLFHV
$ J UHHP HQWDOORI WKHFRVWVELOOHGWR XVE\ * ( VXEVHTXHQWWR WKH, 32 DUHDW* ( ¶VFRVWLQDFFRUGDQFHZ LWKKLVWRULF ELOOLQJ P HWKRGRORJ LHV : HH[ SHFWWKHP DMRULW\ RI WKHVHUYLFHV SURYLGHGE\ * ( Z LOOEHUHSODFHGZ LWKLQWZ R\ HDUVIURP $ XJ XVW WKHFORVLQJ GDWHRI WKH, 32
) RUSHULRGVSULRUWR WKH, 32 Z HZ HUHDQLQGLUHFWZ KROO\ RZ QHGVXEVLGLDU\ RI * ( DQG* ( && DQGLQDGGLWLRQWR WKHVHUYLFHVGLVFXVVHGDERYH Z HDOVR UHFHLYHGD FRUSRUDWHRYHUKHDGDOORFDWLRQDQGDVVHVVP HQWIURP * ( DQG* ( && IRUFRUSRUDWHDFWLYLWLHVWKDWHLWKHUGLUHFWO\ RULQGLUHFWO\ EHQHILWHGRXUEXVLQHVV
) XQGLQJ 3 URYLGHGE\ * ( &&
) ROORZ LQJ WKH, 32 WKHSULP DU\ IXQGLQJ SURYLGHGWR XVE\ * ( && LVWKH* ( && 7HUP / RDQ) DFLOLW\ XQGHUZ KLFK P LOOLRQZ DVRXWVWDQGLQJ IROORZ LQJ WKH SUHSD\ P HQWVP DGHRQ$ XJ XVW DQG2 FWREHU 3ULRUWR WKH, 32 * ( && Z DVDNH\ VRXUFHRI IXQGLQJ IRURXUEXVLQHVV
6HH1 RWH 5 HODWHG3DUW\ 7 UDQVDFWLRQVDQG3DUHQW¶V1 HW, QYHVWP HQWWR RXUFRP ELQHGILQDQFLDOVWDWHP HQWVDQG1 RWH 5 HODWHG3DUW\ 7 UDQVDFWLRQVWR RXUFRQGHQVHG FRQVROLGDWHGDQGFRP ELQHGILQDQFLDOVWDWHP HQWVIRUDGGLWLRQDOLQIRUP DWLRQRQRXUWUDQVDFWLRQVZ LWK* ( DQG* ( && DQGVHH‡† ) XQGLQJ / LTXLGLW\ DQG&DSLWDO5 HVRXUFHV†
) XQGLQJ 6RXUFHV† 5 HODWHG3DUW\ ’ HEW· IRUDGGLWLRQDOLQIRUP DWLRQRQWKHIXQGLQJ SURYLGHGE\ * ( && WR XVDQGWKHUHODWHGLQWHUHVWH[ SHQVH
6LQJ OH2 SHUDWLQJ 6HJ P HQW
: HFRQGXFWRXUEXVLQHVVWKURXJ KDVLQJ OHRSHUDWLQJ VHJ P HQW6HH1 RWH %DVLVRI 3 UHVHQWDWLRQDQG6XP P DU\ RI 6LJ QLILFDQW$ FFRXQWLQJ 3 ROLFLHV† 6HJ P HQW5 HSRUWLQJ WR RXUFRP ELQHGILQDQFLDOVWDWHP HQWV 3URILWDELOLW\ DQGH[ SHQVHV LQFOXGLQJ IXQGLQJ FRVWV ORDQORVVHVDQGRSHUDWLQJ H[ SHQVHV DUHP DQDJ HGIRUWKHEXVLQHVVDVDZ ▇▇▇▇ : HRIIHU RXUSURGXFWVWKURXJ KWKUHHVDOHVSODWIRUP V 5 HWDLO&DUG 3D\ P HQW6ROXWLRQVDQG&DUH&UHGLW Z KLFKP DQDJ HP HQWP HDVXUHVEDVHGRQWKHLUSODWIRUP UHYHQXHVDQGRWKHUUHYHQXH UHODWHGVDOHVP HWULFV LQFOXGLQJ SXUFKDVHYROXP H ORDQUHFHLYDEOHVDQGQHZ DFFRXQWV 6HH‡† 5 HVXOWVRI 2 SHUDWLRQV† ) RUWKH1 LQH0 RQWKV( QGHG6HSWHP EHU DQG
† 3ODWIRUP $ QDO\ VLV· DQG‡† 5 HVXOWVRI 2 SHUDWLRQV† ) RUWKH<HDUV( QGHG’ HFHP EHU DQG † 3ODWIRUP $ QDO\ VLV·
’ HVFULSWLRQ RI . H\ &RP ELQHG 6WDWHP HQWVRI ( DUQLQJ V/ LQH, WHP V
%HORZ LVDVXP P DU\ GHVFULSWLRQRI WKHNH\ OLQHLWHP VLQFOXGHGLQRXU&RP ELQHG6WDWHP HQWVRI ( DUQLQJ V
, QWHUHVW, QFRP H
, QWHUHVWLQFRP HLVFRP SULVHGRI LQWHUHVWDQGIHHVRQORDQV Z KLFKLQFOXGHVP HUFKDQWGLVFRXQWVSURYLGHGE\ SDUWQHUVLQDOP RVWDOOFDVHVWR FRP SHQVDWHXVIRUDOORUSDUWRI WKHSURP RWLRQDOILQDQFLQJ SURYLGHGWR WKHLUFXVWRP HUV DQGLQWHUHVWRQFDVKDQGHTXLYDOHQWVDQGLQYHVWP HQWVHFXULWLHV : HLQFOXGHLQLQWHUHVWDQGIHHVRQORDQVDQ\ SDVWGXH LQWHUHVWDQGIHHVGHHP HGWR EHFROOHFWLEOH ’ LUHFWORDQRULJ LQDWLRQFRVWVRQFUHGLWFDUGORDQVDUHGHIHUUHGDQGDP RUWL] HGRQDVWUDLJ KWOLQHEDVLVRYHUDRQH\ HDUSHULRGDQG UHFRUGHGLQLQWHUHVWDQGIHHVRQORDQV ) RUQRQ FUHGLWFDUGUHFHLYDEOHV GLUHFWORDQRULJ LQDWLRQFRVWVDUHGHIHUUHGDQGDP RUWL] HGRYHUWKHOLIHRI WKHORDQDQGUHFRUGHGLQLQWHUHVW DQGIHHVRQORDQV
: HDQDO\ ] HLQWHUHVWLQFRP HDVDIXQFWLRQRI WZ RSULQFLSDOFRP SRQHQWV DYHUDJ HLQWHUHVWHDUQLQJ DVVHWVDQG\ LHOGRQDYHUDJ HLQWHUHVWHDUQLQJ DVVHWV . H\ GULYHUVRI DYHUDJ HLQWHUHVWHDUQLQJ DVVHWVLQFOXGH
SXUFKDVHYROXP HV Z KLFKDUHLQIOXHQFHGE\ DQXP EHURI IDFWRUVLQFOXGLQJ P DFURHFRQRP LF FRQGLWLRQVDQGFRQVXP HUFRQILGHQFHJ HQHUDOO\ RXUSDUWQHUV¶VDOHVDQG RXUDELOLW\ WR LQFUHDVHRXUVKDUHRI WKRVHVDOHV
SD\ P HQWUDWHV UHIOHFWLQJ WKHH[ WHQWWR Z KLFKFXVWRP HUVP DLQWDLQDFUHGLWEDODQFH FKDUJ HRIIV UHIOHFWLQJ WKHUHFHLYDEOHVWKDWDUHGHHP HGQRWWR EHFROOHFWLEOH WKHVL] HRI RXUOLTXLGLW\ SRUWIROLR DQG
SRUWIROLR DFTXLVLWLRQVZ KHQZ HHQWHULQWR QHZ SDUWQHUUHODWLRQVKLSV
6LQFH-DQXDU\ RXUVLJ QLILFDQWSRUWIROLR DFTXLVLWLRQV Z KLFKLQWKHDJ J UHJ DWHDFFRXQWHGIRU ELOOLRQRI ORDQUHFHLYDEOHVDWWKHWLP HRI DFTXLVLWLRQDQG ELOOLRQRI ORDQUHFHLYDEOHVDW6HSWHP EHU Z HUHDVIROORZ V
3KLOOLSV –DFTXLUHGRQ-XQH
7R\ V‡5 · 8 V–DFTXLUHGRQ-XQH
7 -; LQFOXGLQJ 7 - 0 D[ [ 0 DUVKDOOVDQG+ RP H* RRGV–DFTXLUHGRQ-XQH DQG
$ VKOH\ + RP H6WRUHV–DFTXLUHGRQ-DQXDU\
. H\ GULYHUVRI \ LHOGRQDYHUDJ HLQWHUHVWHDUQLQJ DVVHWVLQFOXGH
SULFLQJ FRQWUDFWXDOUDWHVRI LQWHUHVWODWHIHHVDQGP HUFKDQWGLVFRXQWUDWHV
FKDQJ HVWR RXUP L[ RI ORDQV HJ WKHQXP EHURI ORDQVEHDULQJ SURP RWLRQDOUDWHVDVFRP SDUHGWR VWDQGDUGUDWHV IUHTXHQF\ RI ODWHIHHVLQFXUUHGZ KHQDFFRXQWKROGHUVIDLOWR P DNHWKHLUP LQLP XP SD\ P HQWE\ WKHUHTXLUHGGXHGDWH FUHGLWSHUIRUP DQFHDQGDFFUXDOVWDWXVRI RXUORDQV DQG
\ LHOGHDUQHGRQRXUOLTXLGLW\ SRUWIROLR
, QWHUHVW( [ SHQVH
, QWHUHVWH[ SHQVHLVLQFXUUHGRQRXULQWHUHVWEHDULQJ OLDELOLWLHV Z KLFKFRQVLVWHGRI LQWHUHVWEHDULQJ GHSRVLWDFFRXQWV ERUURZ LQJ VRI FRQVROLGDWHGVHFXULWL] DWLRQHQWLWLHV UHODWHGSDUW\ GHEWSURYLGHGE\ * ( && WKH%DQN7HUP / RDQ) DFLOLW\ DQGSXEOLF XQVHFXUHGGHEW
. H\ GULYHUVRI LQWHUHVWH[ SHQVHLQFOXGH
WKHDP RXQWVRXWVWDQGLQJ RI RXUERUURZ LQJ V GHSRVLWVDQGRWKHUIXQGLQJ VRXUFHV WKHLQWHUHVWUDWHHQYLURQP HQWDQGLWVHIIHFWRQLQWHUHVWUDWHVSDLGRQRXUIXQGLQJ VRXUFHV DQG
WKHFKDQJ LQJ P L[ LQRXUIXQGLQJ VRXUFHVDP RQJ GHSRVLWV * ( && ILQDQFLQJ DQGWKLUG SDUW\ VHFXULWL] DWLRQDQGXQVHFXUHGERUURZ LQJ V
1 HW, QWHUHVW, QFRP H
1 HWLQWHUHVWLQFRP HUHSUHVHQWVWKHGLIIHUHQFHEHWZ HHQLQWHUHVWLQFRP HDQGLQWHUHVWH[ SHQVH : HH[ SHFWQHWLQWHUHVWLQFRP HDVDSHUFHQWDJ HRI LQWHUHVWHDUQLQJ DVVHWVWR E LQIOXHQFHGE\ FKDQJ HVLQWKHLQWHUHVWUDWHHQYLURQP HQWFKDQJ HVLQRXUP L[ RI SURGXFWV WKHOHYHORI ORDQVEHDULQJ SURP RWLRQDOUDWHVDVFRP SDUHGWR RXUVWDQGDUGUDWHV FUHGLW SHUIRUP DQFHRI RXUORDQVDQGFKDQJ HVLQWKHDP RXQWDQGFRP SRVLWLRQRI RXULQWHUHVWEHDULQJ OLDELOLWLHV
5 HWDLOHU6KDUH$ UUDQJ HP HQWV
0 RVWRI RXU5 HWDLO&DUGSURJ UDP DJ UHHP HQWVDQGFHUWDLQRWKHUSURJ UDP DJ UHHP HQWVFRQWDLQUHWDLOHUVKDUHDUUDQJ HP HQWVWKDWSURYLGHIRUSD\ P HQWVWR RXUSDUWQHULI WKH HFRQRP LF SHUIRUP DQFHRI WKHSURJ UDP H[ FHHGVDFRQWUDFWXDOO\ GHILQHGWKUHVKROG 7 KHVHDUUDQJ HP HQWVDUHGHVLJ QHGWR DOLJ QRXULQWHUHVWVDQGSURYLGHDQDGGLWLRQDOLQFHQWLYHWR RXUSDUWQHUVWR SURP RWHRXUFUHGLWSURGXFWV $ OWKRXJ KWKHVKDUHDUUDQJ HP HQWVYDU\ E\ SDUWQHU WKHVHDUUDQJ HP HQWVDUHJ HQHUDOO\ VWUXFWXUHGWR P HDVXUHWKHHFRQRP LF
SHUIRUP DQFHRI WKHSURJ UDP EDVHGW\ SLFDOO\ RQDJ UHHGXSRQSURJ UDP UHYHQXHV LQFOXGLQJ LQWHUHVWLQFRP HDQGFHUWDLQRWKHULQFRP H OHVVDJ UHHGXSRQSURJ UDP H[ SHQVHV LQFOXGLQJ LQWHUHVWH[ SHQVH SURYLVLRQIRUORDQORVVHV UHWDLOHUSD\ P HQWVDQGRSHUDWLQJ H[ SHQVHV DQGVKDUHSRUWLRQVRI WKLVDP RXQWDERYHDQHJ RWLDWHGWKUHVKROG 7 KHWKUHVKROG DQGHFRQRP LF SHUIRUP DQFHRI DSURJ UDP WKDWDUHXVHGWR FDOFXODWHSD\ P HQWVWR RXUSDUWQHUVP D\ EHEDVHGRQ DP RQJ RWKHUWKLQJ V DJ UHHGXSRQP HDVXUHVRI SURJ UDP H[ SHQVHV UDWKHUWKDQRXUDFWXDOH[ SHQVHV DQGWKHUHIRUHLQFUHDVHVLQRXUDFWXDOH[ SHQVHV VXFKDVIXQGLQJ FRVWVRURSHUDWLQJ H[ SHQVHV P D\ QRWQHFHVVDULO\ UHVXOWLQUHGXFHGSD\ P HQWV XQGHURXUUHWDLOHUVKDUHDUUDQJ HP HQWV 7 KHVHDUUDQJ HP HQWVDUHW\ SLFDOO\ GHVLJ QHGWR SHUP LWXVWR DFKLHYHDQHFRQRP LF UHWXUQEHIRUHZ HDUHUHTXLUHGWR P DNHSD\ P HQWVWR RXU SDUWQHUVEDVHGRQWKHDJ UHHGFRQWUDFWXDOO\ GHILQHGWKUHVKROG 2 XUSD\ P HQWVWR SDUWQHUVSXUVXDQWWR WKHVHUHWDLOHUVKDUHDUUDQJ HP HQWVKDYHLQFUHDVHGLQUHFHQW\ HDUV ERWKLQ DEVROXWHWHUP VDQGDVDSURSRUWLRQRI LQWHUHVWLQFRP H SDUWLDOO\ DVDUHVXOWRI WKHJ URZ WKRI RXUUHFHLYDEOHVUHODWHGWR SURJ UDP VZ LWKUHWDLOHUVKDUHDUUDQJ HP HQWVDQG
LP SURYHP HQWVLQWKHFUHGLWSHUIRUP DQFHRI WKHVHUHFHLYDEOHV , QDGGLWLRQ Z HKDYHP DGHFKDQJ HVWR WKHWHUP VRI FHUWDLQSURJ UDP DJ UHHP HQWVWKDWKDYHEHHQUHQHJ RWLDWHGLQWK SDVWIHZ \ HDUVWKDWKDYHFRQWULEXWHGWR WKHLQFUHDVHLQSD\ P HQWVWR SDUWQHUVSXUVXDQWWR UHWDLOHUVKDUHDUUDQJ HP HQWV
: HEHOLHYHWKDWRXUUHWDLOHUVKDUHDUUDQJ HP HQWVKDYHEHHQHIIHFWLYHLQKHOSLQJ XVWR J URZ RXUEXVLQHVVE\ DOLJ QLQJ RXUSDUWQHUV¶LQWHUHVWVZ LWKRXUV : HDOVR EHOLHYHWKDW FKDQJ HVWR WKHWHUP VRI FHUWDLQSURJ UDP DJ UHHP HQWVWKDWKDYHFRQWULEXWHGWR WKHLQFUHDVHLQRXUUHWDLOHUVKDUHDUUDQJ HP HQWSD\ P HQWVZ LOOKHOS XVWR J URZ RXUEXVLQHVVE\ SURYLGLQJ DQDGGLWLRQDOLQFHQWLYHWR WKHUHOHYDQWSDUWQHUVWR SURP RWHRXUFUHGLWSURGXFWVJ RLQJ IRUZ DUG 3D\ P HQWVWR SDUWQHUVSXUVXDQWWR WKHVHUHWDLOHUVKDUHDUUDQJ HP HQWV
Z RXOGJ HQHUDOO\ GHFUHDVH DQGP LWLJ DWHWKHLP SDFWRQRXUSURILWDELOLW\ LQWKHHYHQWRI GHFOLQHVLQWKHSHUIRUP DQFHRI WKHSURJ UDP VRUWKHRFFXUUHQFHRI RWKHUXQIDYRUDEOH GHYHORSP HQWVWKDWLP SDFWWKHFDOFXODWLRQRI SD\ P HQWVWR RXUSDUWQHUVSXUVXDQWWR RXUUHWDLOHUVKDUHDUUDQJ HP HQWV
3 URYLVLRQ IRU/ RDQ / RVVHV
3URYLVLRQIRUORDQORVVHVLVWKHH[ SHQVHUHODWHGWR P DLQWDLQLQJ WKHDOORZ DQFHIRUORDQORVVHVDWDQDSSURSULDWHOHYHOWR DEVRUE WKHHVWLP DWHGSUREDEOHORVVHVLQKHUHQWLQWK ORDQSRUWIROLR DWHDFKSHULRGHQGGDWH 3URYLVLRQIRUORDQORVVHVLQHDFKSHULRGLVDIXQFWLRQRI QHWFKDUJ HRIIV J URVVFKDUJ HRIIVQHWRI UHFRYHULHV DQGWKHUHTXLUHGOHYHORI WKH DOORZ DQFHIRUORDQORVVHV ’ XULQJ Z HEHJ DQDSURFHVVWR HQKDQFHRXUDOORZ DQFHIRUORDQORVVHVP HWKRGRORJ \ E\ UHYLVLQJ RXUHVWLP DWHVWR GHWHUP LQHWKHLQFXUUHGORVV SHULRGIRUHDFKW\ SHRI ORVV LH DJ HG IUDXG GHFHDVHG VHWWOHP HQWRWKHUQRQ DJ HGDQGEDQNUXSWF\ E\ SDUWQHU7 KLVHQKDQFHP HQWUHVXOWHGLQDP RUHJ UDQXODUSRUWIROLR
VHJ P HQWDWLRQDQDO\ VLV E\ ORVVW\ SH LQFOXGHGDTXDOLWDWLYHDVVHVVP HQWRI WKHDGHTXDF\ RI WKHSRUWIROLR¶VDOORZ DQFHIRUORDQORVVHV Z KLFKFRP SDUHGWKHDOORZ DQFHIRUORVVHVWR SURMHFWHGQHWFKDUJ HRIIVRYHUWKHQH[ W P RQWKV LQDP DQQHUFRQVLVWHQWZ LWKUHJ XODWRU\ J XLGDQFH DQGZ DVGHVLJ QHGWR SURYLGHDEHWWHUHVWLP DWHRI WKHGDWHRI DSUREDEOHORVV HYHQWDQGOHQJ WKRI WLP HUHTXLUHGIRUDSUREDEOHORVVHYHQWWR UHVXOWLQDFKDUJ HRII : HFRQWLQXHWR UHYLHZ DQGHYDOXDWHRXUP HWKRGRORJ \ P RGHOVDQGWKHXQGHUO\ LQJ
DVVXP SWLRQV HVWLP DWHVDQGDVVHVVP HQWVZ HXVH DQGZ HZ LOOLP SOHP HQWIXUWKHUHQKDQFHP HQWVRUFKDQJ HVWR WKHP DVQHHGHG
2 WKHU, QFRP H
2 WKHULQFRP HFRQVLVWVRI WKHIROORZ LQJ FRP SRQHQWV
, QWHUFKDQJ HUHYHQXH : HHDUQLQWHUFKDQJ HIHHVRQ’ XDO&DUGWUDQVDFWLRQVRXWVLGHRI RXUSDUWQHUV¶ORFDWLRQV EDVHGRQDIODWIHHSOXVDSHUFHQWRI WKHSXUFKDVHDP RXQW: DOVR SURFHVVJ HQHUDOSXUSRVHFDUGWUDQVDFWLRQVIRUVRP H3D\ P HQW6ROXWLRQVDQG&DUH&UHGLWSDUWQHUVDVWKHLUDFTXLULQJ EDQN IRUZ KLFKZ HREWDLQDQLQWHUFKDQJ HIHH * URZ WKLQ LQWHUFKDQJ HUHYHQXHKDVEHHQ DQGLVH[ SHFWHGWR FRQWLQXHWR EH GULYHQSULP DULO\ E\ J URZ WKLQRXU’ XDO&DUGSURGXFW
’ HEWFDQFHOODWLRQIHHV ’ HEWFDQFHOODWLRQIHHVUHODWHWR SD\ P HQWSURWHFWLRQSURGXFWVSXUFKDVHGE\ RXUFUHGLWFDUGFXVWRP HUV &XVWRP HUVZ KR FKRRVHWR SXUFKDVHWKHVH SURGXFWVDUHFKDUJ HGDP RQWKO\ IHHEDVHGRQWKHLUDFFRXQWEDODQFH , QUHWXUQ Z HZ LOOFDQFHODOORUDSRUWLRQRI DFXVWRP HU¶VFUHGLWFDUGEDODQFHLQWKHHYHQWRI FHUWDLQTXDOLI\ LQ OLIHHYHQWV , Q2 FWREHU Z HFHDVHGGHEWFDQFHOODWLRQSURGXFWVDOHVYLDSKRQHFDOOVWR RXUFXVWRP HUVHUYLFHGHSDUWP HQWDQGEHJ DQWR RQO\ RIIHUWKHSURGXFWRQOLQHDQG RQD OLP LWHGEDVLV E\ GLUHFWP DLOZ KLFKKDVOHGWR DGHFUHDVHLQQHZ HQUROOP HQWVIRUWKLVSURGXFWDQGLVH[ SHFWHGWR UHVXOWLQDORZ HUOHYHORI LQFRP HJ HQHUDWHGE\ WKLVSURGXFWLQWK IXWXUHDVWKHEDODQFHVRI H[ LVWLQJ DFFRXQWVHQUROOHGLQWKLVSURJ UDP GHFUHDVHRYHUWLP H
/ R\ DOW\ SURJ UDP V : HRSHUDWHDQXP EHURI OR\ DOW\ SURJ UDP VLQRXU5 HWDLO&DUGSODWIRUP WKDWDUHGHVLJ QHGWR J HQHUDWHLQFUHP HQWDOSXUFKDVHYROXP HSHUFXVWRP HU Z KLOH UHLQIRUFLQJ WKHYDOXHRI WKHFDUGDQGVWUHQJ WKHQLQJ FDUGKROGHUOR\ DOW\ 7 KHVHSURJ UDP VW\ SLFDOO\ SURYLGHFDUGKROGHUVZ LWKUHZ DUGVLQWKHIRUP RI P HUFKDQGLVHGLVFRXQWVWKDWDU HDUQHGE\ DFKLHYLQJ DSUHVHWVSHQGLQJ OHYHORQWKHLUSULYDWHODEHORU’ XDO&DUG 2 WKHUSURJ UDP VSURYLGHFDVKEDFNRUUHZ DUGSRLQWV Z KLFKDUHUHGHHP DEOHIRUDYDULHW\ RI SURGXFWVRUDZ DUGV * URZ WKLQOR\ DOW\ SURJ UDP SD\ P HQWVKDVEHHQ DQGLVH[ SHFWHGWR FRQWLQXHWR EH GULYHQE\ J URZ WKLQSXUFKDVHYROXP HUHODWHGWR H[ LVWLQJ OR\ DOW\ SURJ UDP DQGWKHUROORXWRI QHZ OR\ DOW\ SURJ UDP V