Principal Brochure dated 25 June 2013 Equity Linked Deposit Wing Lung Bank Limited (incorporated in Hong Kong with limited liability, and a licensed bank regulated by the Hong Kong Monetary Authority and registered with the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance) ( Bank ) as Issuer and Product Arranger This is not a time deposit. This is not a principal-protected investment. You may sustain a total loss in your investment. Equity Linked Deposit is an unlisted structured investment product embedded with derivatives. The Securities and Futures Commission ( SFC ) has authorised our Equity Linked Deposits ( ELDs ) under section 104A(1) of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) ( SFO ) and the issue of this Principal Brochure and the Term Sheet based on the standard format set out in Appendix 2 to this Principal Brochure as part of the offering documents for our ELDs under section 105(1) of the SFO. The SFC takes no responsibility for our ELDs or the contents of such documents, makes no representation as to their accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of such documents. The SFC s authorisation does not imply its endorsement or recommendation of our ELDs referred to in the offering documents, nor does it imply that the SFC guarantees the commercial merits of our ELDs or their performance. The SFC s authorisation does not mean that our ELDs are suitable for all investors nor is it an endorsement of their suitability for any particular investor or class of investors. Interested persons should consider obtaining independent professional advice before investing in our ELDs. We, us, and our in this Principal Brochure refer to the Bank, which is the Issuer and Product Arranger of our ELDs.
IMPORTANT NOTICE You are warned that the market value of our ELDs may fluctuate and you may sustain a total loss of your investment. You should therefore ensure that you understand the nature of our ELDs and carefully study the risk warnings set out in this Principal Brochure and other documents constituting the Offering Documents (defined below) for our ELDs and, where necessary, seek independent professional advice, before you decide whether to invest in our ELDs. This Principal Brochure (and any addendum as specified in the relevant Term Sheet), the relevant Term Sheet and the Financial Disclosure Document (and any addendum as specified in the relevant Term Sheet) for our ELDs (together, the Offering Documents ) include particulars given in compliance with the Code on Unlisted Structured Investment Products ( Code ) issued by the SFC for the purpose of giving information with regard to the Bank (as the Issuer and the Product Arranger) and our ELDs. We (as the Issuer and the Product Arranger) accept full responsibility for the contents of, and the completeness and accuracy of the information contained in the Offering Documents and confirm, having made all reasonable enquiries, that to the best of our knowledge and belief there is no untrue or misleading statement, or other facts the omission of which would make any statement herein untrue or misleading. We (as the Issuer and the Product Arranger) also confirm that we meet the eligibility requirements under the Code and our ELDs comply with the Code. Our ELDs constitute general unsecured and unsubordinated contractual obligations of Wing Lung Bank Limited and of no other person. If you invest in our ELDs, you are relying upon the creditworthiness of Wing Lung Bank Limited and have no rights under the terms of our ELDs against the issuer of the Reference Stock. Post-sale cooling-off period pursuant to Part IV of the Code DOES NOT APPLY to any of our ELDs because the Bank will only offer ELDs with an Investment Period of not more than one year. If English is not your preferred language, you may request copies of this Principal Brochure written in Chinese from our relationship managers. 2
CONTENTS 1. KEY FACTS STATEMENT... 4 2. RISK WARNINGS... 12 3. GLOSSARY... 20 4. KEY FEATURES... 24 5. INFORMATION ABOUT US... 38 APPENDIX 1 PRODUCT TERMS AND CONDITIONS OF ELD... 39 APPENDIX 2 FORM OF TERM SHEET FOR ELD... 52 APPENDIX 3 FORM OF CONFIRMATION... 62 APPENDIX 4 SCENARIO ANALYSIS... 66 3
1. KEY FACTS STATEMENT This is an unlisted structured investment product embedded with derivatives. This statement provides you with the key information about our ELDs. This statement is part of the Offering Documents. You should not invest in our ELDs based on this statement alone. Capitalised terms used in this statement not otherwise defined herein shall have the meanings given to them in the Glossary on pages 20 to 23. What are the key risks? Investment involves risks. You should read and understand the remaining sections of this Principal Brochure (in particular, the section headed Risk Warnings ) and the other Offering Documents before deciding whether to invest. Not a time deposit. Our ELDs are structured investment products embedded with derivatives. Our ELDs are not equivalent to nor should they be treated as substitutes for time deposits. No collateral. Our ELDs are not supported by any collateral. Insolvency and default risk. If you invest in our ELDs, you rely on the creditworthiness of Wing Lung Bank Limited and of no other person. Our ELDs are not guaranteed by our parent and ultimate holding company (China Merchants Bank Co., Ltd.) or by any other entity. If we become insolvent or default on our obligations under our ELDs, you (i) can only claim as our unsecured creditor regardless of the performance of the Reference Stock and (ii) have no rights under the terms of our ELDs to claim against the issuer of the Reference Stock. In the worst case scenario, you could lose all of your Investment Amount. Not a protected deposit. Our ELDs are not protected deposits and are not protected under the Deposit Protection Scheme in Hong Kong. Full downside risk (non-principal-protected). Our ELDs are not principal-protected investments. If the Fixing Date Closing Price is below the Conversion Price, your settlement at maturity will be a pre-determined number of Reference Stock instead of a cash payment. The market value of the Reference Stock you receive may be substantially below the Investment Amount. You can lose the entire Investment Amount if the market price of the Reference Stock falls to zero. Capped maximum potential gain. The amount of maximum potential gain under our ELDs is capped and limited to the pre-determined Coupon Amount. Not the same as an investment in the Reference Stock. Investing in our ELDs is not the same as investing in the Reference Stock. You have no right to the Reference Stock unless and until a fixed number of Reference Stock is determined on the Fixing Date to be deliverable to you. Movements in the price of the Reference Stock may not lead to any corresponding change in the market value of our ELDs. 4
Limited liquidity. Our ELDs are designed to be held to their maturity. Under the market making arrangements (such market making arrangements only apply to our ELDs that have an Investment Period of more than 6 months), you may only early terminate our ELDs in limited circumstances. Upon such early termination, you may receive an amount which is substantially less than your original Investment Amount. Our ELDs are not transferable. Not covered by Investor Compensation Fund. Our ELDs are not exchange-traded products and are not covered by the Investor Compensation Fund in Hong Kong. Exposure to market price movement of the Reference Stock after the Fixing Date. Your settlement at maturity will be determined on the Fixing Date but settlement will only occur on the Maturity Date. If we are to deliver any Reference Stock, you will be exposed to any market price movement of the Reference Stock between the Fixing Date and the Maturity Date (being the second Clearing System Business Day after the Fixing Date), and to the market risk of holding the Reference Stock after the Maturity Date if you choose not to sell the Reference Stock on the Maturity Date. Risk of early termination by us. We may terminate our ELDs if a Merger Event, a Tender Offer or an Additional Disruption Event (see page 29 for further details) occurs. If our ELDs are early terminated by us following such event, the amount payable by us (if any) on such termination will be determined by us (acting in good faith and in a commercially reasonable manner) and may be substantially less than your original Investment Amount. You will be exposed to the risks associated with our ELDs starting from the time you place an order. Once you place an order with us, you will be committed to purchase the ELD. Accordingly, you will be exposed to the risks associated with our ELDs starting from the time when you place an order. Conflicts of interest. Potential and actual conflicts of interest may arise from the different roles played by us and our subsidiaries and affiliates in connection with our ELDs, the Reference Stock and the issuer of the Reference Stock. Our economic interests in each role may be adverse to your interests in our ELDs. You may not know the exact value of some terms of our ELDs at the time when you commit to invest in our ELDs. The exact value of certain terms may not be known at the time that you place your order and become committed to invest in our ELDs. These terms will be included in the Confirmation that we will send to you within two Business Days after the Transaction Date. Please see page 13 for further details. What are the key features of our ELDs? Product Type: ELDs are unlisted structured investment products which have an embedded put option over the Reference Stock. By investing in an ELD: (i) you are selling a put option over the Reference Stock to us under which you will be obliged to buy the Reference Stock from us at the pre-determined price called the Conversion Price (which is a price set as a specified percentage of the Spot Price, whereas the Spot Price can be either (1) the official Exchange closing price of the Reference Stock on the Transaction Date, or (2) a specific price of the Reference Stock as agreed between you and us on the Transaction Date) which will be delivered to you on the Maturity Date if certain conditions are met on the Fixing Date; and 5
(ii) you will receive an option premium in return which forms part of the Coupon Amount either payable in cash, or included in the calculation amount of the Reference Stock deliverable on the Maturity Date. See Settlement at Maturity at page 7 for an explanation of how it is determined whether you will receive cash or Reference Stock on the Maturity Date. Investment Period: The period which starts from the Transaction Date (see definition on page 23) and ends on the Fixing Date (see definition on page 21) (both days inclusive). You will be committed to invest in an ELD on the Transaction Date. We will not offer any ELD with an Investment Period of more than one year. Please see page 9 for more details. Tenor: The period from and including the Debit Date to but excluding the Maturity Date. You may request a tailor-made Tenor to suit your investment strategy. Reference Stock: Our ELDs are linked to shares of a company quoted in Hong Kong dollars ( HKD ) or units of a fund (i.e. an exchange traded fund ( ETF ) or a real estate investment trust ( REIT )) quoted in HKD and (in either case) listed on the Main Board of the Stock Exchange of Hong Kong Limited (the Exchange ). Not all listed stocks can be selected as a Reference Stock. You should check with our relationship managers for details of the available Reference Stocks. Deposit Currency: HKD. Minimum Investment Amount: HKD100,000. 6
Settlement At Maturity: The settlement under our ELDs at maturity depends on the Fixing Date Closing Price of the Reference Stock as follows: Fixing Date Maturity Date (being the date that is (i) two Trading Days (in the case where we are to pay any amount in cash); or (ii) two Clearing System Business Days (in the case where we are to deliver a fixed number of Reference Stock) after the Fixing Date) If the Fixing Date Closing Price of the Reference Stock is AT OR ABOVE the Conversion Price Cash settlement You will receive on the Maturity Date an amount in cash equal to the Maturity Amount, being the sum of the Investment Amount and Coupon Amount (less any Cash Settlement Expenses, currently, there is no such charges or expenses). The Coupon Amount will be calculated as follows: Tenor Investment Amount X Annualised Coupon Rate X 365 In this scenario, you will make a gain which is capped at the predetermined Coupon Amount. If the Fixing Date Closing Price of the Reference Stock is BELOW the Conversion Price Physical settlement You will receive on the Maturity Date a fixed number of Reference Stock* (subject to payment of any Physical Settlement Expenses) calculated as follows: Maturity Amount (i.e. Investment Amount + Coupon Amount) Conversion Price *If the fixed number of Reference Stock calculated in accordance with the above formula consists of any Fractional Stock, we will settle such Fractional Stock on the Maturity Date by paying its cash equivalence in HKD at the Fixing Date Closing Price, i.e. the Residual Cash. In this scenario, you will suffer a loss if the market value of the Reference Stock delivered is less than or substantially less than the Investment Amount. In the worst case, the Reference Stock delivered may be worthless and you may lose all of your Investment Amount. A maturity advice setting out the settlement (being the cash amount or the number of Reference Stock payable by us) on the Maturity Date will be sent to you within 2 Business Days after the Fixing Date. 7
Scenario Analysis The following diagram illustrates the maximum potential gain/loss of our ELDs. Please note that the diagram (i) does not take into account any Cash Settlement Expenses or Physical Settlement Expenses payable by you on the Maturity Date and (ii) assumes that you sell a fixed number of Reference Stock deliverable to you on the Maturity Date at the Fixing Date Closing Price. Investment return at maturity HKD break-even price Maximum potential gain is capped at the Coupon Amount 0 LOSS GAIN Fixing Date Closing Price of the Reference Stock Maximum potential loss is capped at the Investment Amount Conversion Price As shown in the above diagram, if the Fixing Date Closing Price of the Reference Stock is below the Conversion Price, you will receive on the Maturity Date a fixed number of Reference Stock which may be worthless if the market value of the Reference Stock drops to zero. In the worst case scenario, you could lose all of your investment. Please refer to Appendix 4 Scenario Analysis at page 66 of this Principal Brochure for illustrative examples of how our ELDs work. How can you apply for our ELDs? If you want to apply for our ELDs, you can contact our relationship managers in Hong Kong at our branches that have Investment Services Zones to enquire about our ELDs and the application procedure. Please also refer to the section How can you apply for an ELD? on page 24 for more details. When you submit your order, a cash amount equal to the Investment Amount will be frozen in your HKD Settlement Account. After you submit your order, you cannot withdraw or cancel your order. If the exact Investment Amount is not known at the time you submit your order (e.g., if it is set by reference to a Spot Price that is the official Exchange closing price of the Reference Stock on the Transaction Date), then a cash amount equal to our estimate of the Investment Amount will be frozen as soon as you place your order and this will be adjusted to equal the exact Investment Amount when the exact Investment Amount is known. If we reject your order on the date your order is placed, we will inform you promptly and the frozen amount will be released. If we accept your order, the frozen amount equal to the Investment Amount will be deducted from your HKD Settlement Account on the Debit Date. 8
No post-sale cooling-off period The post-sale cooling-off period pursuant to Part IV of the Code DOES NOT APPLY to any of our ELDs because the Bank will only offer ELDs with an Investment Period of not more than one year. Adjustment to the terms and conditions of our ELDs and/or early termination of our ELDs Upon the occurrence of certain corporate events and/or disruption events, we may adjust some of the terms and conditions (including the Conversion Price) of our ELDs to account for that event so as to preserve the economic equivalence of our ELDs. We may also adjust some of the key dates (including the Fixing Date) upon the occurrence of certain disruption events. Any adjustments will be made by us in our sole and absolute discretion (acting in good faith and in a commercially reasonable manner). Please refer to page 28 of this Principal Brochure for further details. Additionally, upon the occurrence of certain corporate events and/or disruption events, we may terminate our ELDs early and arrange for the payment to you of an Early Termination Amount, which may be substantially less than your original Investment Amount. Any early termination and determination of an Early Termination Amount will be made by us in our sole and absolute discretion (acting in good faith and in a commercially reasonable manner). Please refer to page 29 of this Principal Brochure for further details. What are the fees and charges? You will be required to pay the following fees or service charges to the Bank when you invest in our ELDs. Cash Settlement Expenses which, if applicable, will be deducted from any cash amount you may receive. Currently, no cash settlement expenses are payable. Physical Settlement Expenses are payable only if you receive Reference Stock on the Maturity Date. These expenses include the buyer s stamp duty (currently at a rate of 0.1% of the transaction amount of the Reference Stock delivered at the Conversion Price) and any other charges for provision of securities services as notified by us from time to time. Currently, there are no other such charges. We will notify you as soon as practicable in advance if in the future other Cash Settlement Expenses or Physical Settlement Expenses apply to our ELDs. You should note that any Cash Settlement Expenses or Physical Settlement Expenses will reduce your potential gain or increase your potential loss under your investment in our ELDs. The Bank does not charge a subscription fee on its ELDs. Our fees and profits are subsumed in the pricing of the ELDs themselves. Is there any market making arrangement for your ELD before maturity? ELD with an Investment Period of 6 months or less In respect of an ELD with an Investment Period of 6 months or less, we will not provide any market making arrangements and you cannot early terminate the ELD. 9
ELD with an Investment Period of more than 6 months In respect of an ELD with an Investment Period of more than 6 months, we will provide a limited market making arrangement on a bi-weekly basis on Mondays commencing on the first Monday (that is a Trading Day) after the Debit Date up to two Trading Days before the Fixing Date. You should follow the procedures described on page 33 if you wish to obtain an indicative bid price or an actual bid price for your ELD under our limited market making arrangement. Any indicative bid price is subject to any intra-day market changes and may not be equal to the actual bid price at which we are willing to early terminate your ELD. The actual bid price may be less than the Investment Amount and you may suffer a loss if you choose to early terminate your ELD. The minimum amount at which you may request an early termination of an ELD under our market making arrangement is the Investment Amount of your ELD. Accordingly, you can only early terminate your ELD in whole (but not in part) under our market making arrangement. Please refer to page 33 of this Principal Brochure for further details. The Term Sheet for an ELD will specify if any market making arrangement is applicable to such ELD and the details of such market making arrangement. Additional Information A. Offering Documents The following Offering Documents contain detailed information about us and our ELDs. You should read and understand all of these documents before deciding whether to invest in our ELDs: (i) (ii) this Principal Brochure for our ELDs dated 25 June 2013 and any addendum as specified in the relevant Term Sheet; the Financial Disclosure Document and any addendum as specified in the relevant Term Sheet, which will include our most recently published audited annual report and unaudited interim financial disclosure statements (if any); and (iii) the relevant Term Sheet. Before accepting an order for an ELD, we are obliged to distribute to you ALL of the Offering Documents in English or Chinese as you may prefer. B. Legal Documents The legally binding terms and conditions of your ELD are set forth in the Product Terms and Conditions of ELD (see Appendix 1 of this Principal Brochure at page 39), as applied, disapplied, amended, varied, replaced, supplemented and/or modified by the Confirmation for your ELD. We will send a Confirmation to you within 2 Business Days after the Transaction Date for your ELD. C. Our ongoing disclosure obligations We (as the Issuer and the Product Arranger) will keep the SFC and all investors in our ELDs informed of the following as soon as is reasonably practicable if (a) the Bank (as Issuer) ceases to meet any eligibility requirements under the Code; (b) the Bank (as Product Arranger) ceases to 10
meet any eligibility requirements under the Code; and (c) to the extent permitted by any applicable law, there are changes in our financial condition or other circumstances which could reasonably be expected to have a material adverse effect on our ability (as Issuer) to fulfil our commitment in connection with our ELDs. Please contact our relationship managers for details. Important If you are in doubt, you should seek independent professional advice. The SFC takes no responsibility for the contents of this statement and makes no representation as to its accuracy or completeness. 11
2. RISK WARNINGS You should read and understand the nature of all the risks before deciding whether to invest in our ELDs. ELDs are unlisted structured investment products and are NOT protected deposits Our ELDs are unlisted structured investment products embedded with derivatives. Our ELDs are not equivalent to nor should they be treated as substitutes for conventional time deposits. Our ELDs are not protected deposits and are not protected under the Deposit Protection Scheme in Hong Kong. Full downside risk (NOT principal-protected) Our ELDs are not principal-protected investments and you may sustain a total loss in your investment. If the Fixing Date Closing Price is below the Conversion Price, your settlement at maturity will be a pre-determined number of Reference Stock instead of a cash payment. The market value of the Reference Stock you receive may be substantially below the Investment Amount. You can lose the entire Investment Amount if the market price of the Reference Stock falls to zero. Capped maximum potential gain The amount of maximum potential gain under our ELDs is capped and limited to the pre-determined Coupon Amount. Our ELDs are designed to be held to their maturity. The limited market making arrangements are only available for our ELDs with an Investment Period of more than 6 months Our ELDs are designed to be held to their maturity. You cannot transfer your ELD. For ELDs with an Investment Period of 6 months or less, we will not provide any market making arrangements and you cannot terminate the ELD. In respect of an ELD with an Investment Period of more than 6 months, we will provide a limited market making arrangement. You should follow the procedures described on page 33 if you wish to obtain an indicative bid price or an actual bid price for your ELD under our limited market making arrangement. Any indicative bid price is subject to any intra-day market changes and may not be equal to the actual bid price at which we are willing to early terminate your ELD. The actual bid price may be less than the Investment Amount and you may suffer a loss if you choose to early terminate your ELD. Not protected under the Investor Compensation Fund Our ELDs are not exchange-traded products and are not protected by the Investor Compensation Fund established under the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) if we default under our ELDs. 12
You may not know the exact value of some terms of our ELDs at the time when you commit to invest in our ELDs The exact value of certain terms may not be known at the time that you place your order and become committed to invest in our ELDs. For example, if you agree with the Bank that the Spot Price will be the official Exchange closing price of the Reference Stock on the Transaction Date, the exact value of the Spot Price, Investment Amount, Conversion Price and Maturity Amount will not be known at the time that you place your order. These terms will be included in the Confirmation that we will send to you within 2 Business Days after the Transaction Date. No collateral and no guarantee Our ELDs are not secured on any of our assets or supported by any collateral. Our ELDs are not guaranteed by our parent and ultimate holding company (China Merchants Bank Co., Ltd.) or by any other entity. Market risk Investment involves risk. Changes in the market price of the Reference Stock may not lead to any corresponding change in the market value of our ELDs. The market value of our ELDs will fluctuate depending on a wide range of factors such as market interest rate movements, our financial condition, the market s view of our credit quality, and the price performance and price volatility of the Reference Stock. Not the same as an investment in the Reference Stock Investing in our ELDs is not the same as investing in the Reference Stock. You have no right to the Reference Stock unless and until a fixed number of Reference Stock is determined on the Fixing Date to be deliverable to you. Where the Reference Stock is determined on the Fixing Date to be deliverable to you, you are entitled to all those rights attaching to the Reference Stock as from the Fixing Date. However, during the period from the Fixing Date to and until the Reference Stock is delivered to you on the Maturity Date ( Intervening Period ), we are not under any obligation (i) to deliver to you any letter, certificate, notice, circular, dividend, distribution or any other document or payment whatsoever; or (ii) to exercise any or all rights (including voting rights) attaching to such Reference Stock. We are not liable to you in respect of any loss or damage which you may suffer as a result, whether directly or indirectly, of you not being registered as the legal owner of such Reference Stock during the Intervening Period. Please see page 30 for further details. Exposure to market price movements of the Reference Stock in the case of physical delivery of Reference Stock If the Fixing Date Closing Price is below the Conversion Price, you will receive a fixed number of Reference Stock on the Maturity Date (being the second Clearing System Business Day after the Fixing Date). Therefore, you will be exposed to any market price movement of the Reference Stock between the Fixing Date and the Maturity Date, and to the market risk of holding the Reference Stock if you choose not to sell the Reference Stock on the Maturity Date. 13
You are exposed to the risks associated with our ELDs from the time you place an order even though we do not debit your account until the Debit Date When you submit your order, a cash amount equal to the Investment Amount (or our estimate of the Investment Amount) will be frozen in your HKD Settlement Account. After you submit your order, you will be committed to purchase the ELD and cannot withdraw or cancel your order. You are exposed to the risks associated with our ELDs starting from the time when you place an order. There is usually a two Business Day time gap between the Transaction Date and the Debit Date. At your request (which must be made at or before the time you submit your order, and subject to our acceptance to your request when we accept your order), the Debit Date may be changed to the same day as the Transaction Date or the time gap may be extended up to 14 Business Days after the Transaction Date. Given the same Tenor, the longer the time gap between the Transaction Date and the Debit Date, the longer the period of time you will be exposed to the risks associated with our ELDs. Given the same Tenor, the annualised yield of your potential return on an ELD calculated from the Transaction Date may be lower than the annualised yield calculated from the Debit Date. Conflicts of Interest Potential or actual conflicts of interest may arise from the different roles played by us and our subsidiaries and affiliates in connection with our ELDs, the Reference Stock and the issuer of the Reference Stock. For example, we, our subsidiaries or our affiliates may trade the Reference Stock or be involved in transactions related to the Reference Stock for our own account or for the account of others. Our economic interests in each role may be adverse to your interests in our ELDs. Although our economic interests in each role may be adverse to your interests in the ELD, we maintain regulatorily required information barriers between our different business areas as well as policies and procedures designed to minimise and manage such conflicts of interest to comply with applicable laws and regulations, and to ensure those transactions or dealings will be transacted at arm s length. Insolvency and default risk If you invest in our ELDs, you rely on the creditworthiness of Wing Lung Bank Limited (and of no other person). Receipt of any payout on our ELDs (whether cash or Reference Stock) is subject to credit and insolvency risks of the Bank. There is no assurance of protection against a default by us in respect of our payment or delivery obligations under our ELDs. We are a financial institution which has many financial products and contracts outstanding at any given time. Our ELDs represent our general unsecured and unsubordinated contractual obligations. If the Bank becomes insolvent, goes into liquidation, undergoes any debt restructuring, or defaults on its obligations, you will rank as an unsecured creditor and you have no right under the terms of our ELDs to claim against the issuer of the Reference Stock. You may lose the entire Investment Amount irrespective of the performance of the Reference Stock. In the worst case scenario, you may get nothing back and the maximum loss could be 100% of your Investment Amount. 14
Taxation risk You will be responsible for any tax applicable to returns on your ELD, in any jurisdiction by their government or regulatory authorities. See pages 36 to 37 for a general description of Hong Kong taxes and U.S. taxes applicable to our ELDs. The Bank will not reimburse you for any such taxes or other charges. Adjustment of terms if a Potential Adjustment Event, a Merger Event or Tender Offer occurs Potential Adjustment Event If we in our sole and absolute discretion (acting in good faith and in a commercially reasonable manner) determine that a Potential Adjustment Event (including but not limited to a rights issue, bonus share, consolidation or subdivision of the Reference Stock) has occurred during the period from the Transaction Date to the Fixing Date (both days inclusive), we may in our sole and absolute discretion (acting in good faith and in a commercially reasonable manner) make adjustments to the terms of our ELDs. Our adjustment to the terms may include, but is not limited to, the Conversion Price, to account for the diluting or concentrative effect so as to maintain the economic equivalence of the ELD. Merger Event or Tender Offer If we in our sole and absolute discretion (acting in good faith and in a commercially reasonable manner) determine that a Merger Event (such as the merger of an issuer of Reference Stock with another entity or a takeover offer or tender offer to purchase 100 per cent. of the outstanding Reference Stock that results in a transfer of all such Reference Stock to the offeror) or a Tender Offer (such as a takeover offer, tender offer or exchange offer for the Reference Stock that results in the purchase of more than 10 per cent. and less than 100 per cent. of the outstanding voting shares of the issuer of a Reference Stock) has occurred during the period from the Transaction Date to the Fixing Date (both days inclusive), we may in our sole and absolute discretion (acting in good faith and in a commercially reasonable manner) make adjustments to the terms of our ELDs. Our adjustment to the terms may include, but is not limited to, the Conversion Price and to treat the shares or units of the surviving entity after the Merger Event or Tender Offer as the Reference Stock so as to maintain the economic equivalence of the ELD, but it will not include substitution of the Reference Stock. All adjustments or determinations made by us (which adjustments and determinations shall be made in good faith and in a commercially reasonable manner) are final, conclusive and binding on you and us, except in the case of manifest error. We will notify you and the SFC as soon as practicable of the occurrence of any such event, any adjustment made and the effective date of such adjustment. Early termination by the Bank if a Merger Event, a Tender Offer or an Additional Disruption Event occurs Merger Event or Tender Offer If we in our sole and absolute discretion (acting in good faith and in a commercially reasonable manner) determine that a Merger Event (such as the merger of an issuer of Reference Stock with another entity or a takeover offer or tender offer to purchase 100 per cent. of the outstanding Reference Stock that results in a transfer of all such Reference Stock to the offeror) or Tender Offer (such as a takeover offer, tender offer or exchange offer for the Reference Stock that results in the purchase of more than 10 per cent. and less than 100 per cent. of the outstanding voting shares of 15
the issuer of a Reference Stock) has occurred during the period from the Transaction Date to the Fixing Date (both days inclusive), where we (acting in good faith and in commercially reasonable manner) determine that adjustment to the terms is unable to preserve the economic equivalence of an affected ELD, we will early terminate the affected ELD and arrange for payment of the Early Termination Amount (if any) within one Business Day after our determination. Additional Disruption Event If we in our sole and absolute discretion (acting in good faith and in a commercially reasonable manner) determine that an Additional Disruption Event (such as delisting or hedging disruption) has occurred during the period from the Transaction Date to the Fixing Date (both days inclusive), we will early terminate the affected ELD and arrange for payment of the Early Termination Amount (if any) to you within one Business Day after our determination. Early Termination Amount The Early Termination Amount is determined by us, in our sole and absolute discretion (acting in good faith and in a commercially reasonable manner), as representing the fair market value of an ELD at the time we determine that the ELD will terminate early, by reference to, without limitation, the market interest rate movements, the current and expected market price and price volatility of the Reference Stock, the remaining Tenor, the market value of the embedded put option, our creditworthiness and our transaction costs (including the unwind cost of hedging). Such amount may be substantially less than your original Investment Amount. You may suffer a substantial loss if the ELD is terminated early under these circumstances. All determinations made by us (which determinations shall be made in good faith and in a commercially reasonable manner) are final, conclusive and binding on you and us, except in the case of manifest error. We will notify you and the SFC as soon as practicable upon the occurrence of any such event, any termination made, the effective date of such termination and any Early Termination Amount. Impact of Market Disruption Event If a Market Disruption Event (such as material suspension of or limitation on trading of the Reference Stock or any other event that materially disrupts or impairs the ability of market participants to effect transactions in or obtain market values for a Reference Stock) occurs on the scheduled Fixing Date, then the Fixing Date shall be postponed to the first following Trading Day on which there is no Market Disruption Event unless a Market Disruption Event occurs on each of the eight Trading Days immediately following the original Fixing Date. In that case, that eighth Trading Day shall be deemed to be the Fixing Date, notwithstanding the Market Disruption Event, and we will determine (acting in good faith and in a commercially reasonable manner) the fair market price of the Reference Stock on that eighth Trading Day by reference to, without limitation, the last reported price of the Reference Stock, the market interest rate movements and the prevailing market conditions. Such fair market price shall be deemed to be the Fixing Date Closing Price of the Reference Stock as of the Fixing Date. Our determination may have unforeseen adverse impact on your potential gain or loss on the ELD. Delay in determining the Fixing Date Closing Price may cause consequential delay in settlement. We will not be liable for any interest in respect of, or any loss or damage that you may suffer as a result of, any such delay. 16
Impact of Settlement Disruption Event In the case where we are required to deliver Reference Stock to you on the Maturity Date, if as a result of the clearing system being closed due to unforeseeable reasons or any other event beyond our control which we, in our sole and absolute discretion (acting in good faith and in a commercially reasonable manner), determine render it not possible for us to deliver the Reference Stock to your designated securities account on the original Maturity Date ( Settlement Disruption Event ), then the Maturity Date shall be postponed to the first following Clearing System Business Day on which there is no Settlement Disruption Event. If a Settlement Disruption Event persists on each of the eight Clearing System Business Days following the original Maturity Date, then we will pay a cash amount equal to the fair market value of the Reference Stock deliverable as of that eighth Clearing System Business Day by reference to, without limitation, the last reported price of the Reference Stock, the market interest rate movements and the prevailing market conditions. Such cash amount may be substantially less than your original Investment Amount. You may suffer a substantial loss under these circumstances. We will not be liable for any interest in respect of the amount due or any loss or damage that you may suffer as a result of the existence of a Settlement Disruption Event. Risk relating to our hedging activities We, our subsidiaries and/or our respective affiliates may enter into hedging transactions in the market with our respective hedging counterparties to enable us to fulfil our obligations under our ELDs. These transactions typically involve contracts for the purchase and/or sale of the Reference Stock and the establishment of long and/or short positions in the Reference Stock which may be constantly adjusted. It is possible that these activities could adversely affect the market price of the Reference Stock on the Fixing Date and push the Fixing Date Closing Price of the Reference Stock on the Fixing Date down to a level below the Conversion Price, resulting in the physical delivery of the fixed number of Reference Stock with a value less than or substantially less than your Investment Amount. If this occurs, you may lose all, or a substantial part, of your investment. If any of our hedging counterparties default under the hedging transactions, we will bear all the risk involved in the relevant transactions, unless such default constitutes a Hedging Disruption as contemplated in Clause 8 of the Product Terms and Conditions of ELD. In addition, whether we will accept an order for an ELD on the date you submit the order may be affected by our ability to enter into hedging transactions on such date. You may receive odd lots of the Reference Stock If we are to deliver the fixed number of Reference Stock to you on the Maturity Date, you may receive odd lots of the Reference Stock. You may not be able to sell odd lots of the Reference Stock, and even if you manage to sell such odd lots of the Reference Stock, they may be sold at a lower price per Reference Stock than the Reference Stock in board lot or multiple of board lots. Risk factors specific to an ELD linked to an ETF The investment objective of most ETFs is to track the performance of the equity(ies) or assets underlying the ETFs or, as the case may be, a specified index. However, increases in the price of the ETFs or the equities or assets underlying the ETFs or the level of the related index (as the case may be) may not lead to an increase in the market value of an ELD of the same magnitude or even any increase at all. 17
The ETF is managed by its manager and the investment objectives and investment restrictions of the ETF may change from time to time. We have no control over the decisions made by the manager regarding the ETF and have no rights against the manager for its decisions. Such decisions may have an adverse impact on the financial return of an ELD. An ETF is exposed to the political, economic, currency and other risks related to the underlying asset pool or index that the ETF is designed to track. There may also be disparity between the performance of the ETF and the performance of the underlying asset pool or index that the ETF is designed to track as a result of, for example, failure of the tracking strategy, currency differences, fees and expenses. In addition, where the index or market that the ETF tracks is subject to restricted access, the efficiency in the unit creation or redemption to keep the price of the ETF in line with its net asset value may be disrupted, causing the ETF to trade at a premium or discount to its net asset value. Such risks may have a negative impact on the performance of the ETF and our ELDs. Where a Reference Stock is units of an ETF which adopts a synthetic replication investment strategy by investing in financial derivative instruments, you should note that: (i) by investing in financial derivative instruments, the ETF is exposed to the credit, potential contagion and concentration risks of the counterparties who issued the financial derivative instruments. As such counterparties are predominantly international financial institutions, the failure of one such counterparty may have a negative effect on other counterparties of the ETF. Even if the ETF has collateral to reduce the counterparty risk, there may still be a risk that the market value of the collateral has fallen substantially when the ETF seeks to realise such collateral; and (ii) the ETF may be exposed to a higher liquidity risk if such financial derivative instruments do not have an active secondary market. You should read the offering document of the ETF for further information about the risks applicable to the ETF. Risk factor specific to an ELD linked to a REIT If our ELD is linked to a fund which is a REIT, you should note that the investment objective of REITs is to invest in a real estate portfolio. Each REIT is exposed to risks relating to investments in real estate, including but not limited to (a) adverse changes in political or economic conditions; (b) changes in interest rates and the availability of debt or equity financing, which may result in an inability by the REIT to maintain or improve the real estate portfolio and finance future acquisitions; (c) changes in environmental, zoning and other governmental rules; (d) changes in market rents; (e) any required repair and maintenance of the portfolio properties; (f) breach of any property laws or regulations; (g) the relative illiquidity of real estate investment; (h) real estate taxes; (i) any hidden interests in the portfolio properties; (j) any increase in insurance premiums and (k) any uninsurable losses. 18
There may also be disparity between the market price of the units of a REIT and the net asset value per unit. This is because the market price of the units of a REIT also depends on many factors, including but not limited to (a) the market value and perceived prospects of the real estate portfolio; (b) changes in economic or market conditions; (c) changes in market valuations of similar companies; (d) changes in interest rates; (e) the perceived attractiveness of the units of the REIT against those of other equity securities; (f) the future size and liquidity of the market for the units and the REIT market generally; (g) any future changes to the regulatory system, including the tax system and (h) the ability of the REIT to implement its investment and growth strategies and to retain its key personnel. Such risks may have a negative impact on the performance of the Reference Stock and therefore the potential gain of our ELDs. In addition, increase in the market price of units of the REIT or its real estate portfolio may not lead to an increase in the market value of our ELDs of the same magnitude or even any increase at all. You should read the offering document of the fund for further information about the risks applicable to the fund. 19
3. GLOSSARY Annualised Coupon Rate An annualised rate that the Bank uses to calculate the Coupon Amount. The Bank determines this rate for your ELD based on the market conditions prevailing at the time of your investment, the Reference Stock you choose, and the Conversion Price for your ELD. The Annualised Coupon Rate is expressed as an annualised rate assuming that the ELD can be rolled over under the same terms for a 365-day period, and will be calculated to two decimal places, with 0.005 being rounded upwards. The Annualised Coupon Rate does not reflect the actual return on your ELD, and you therefore should not rely on the Annualised Coupon Rate as an indication of the expected return on your ELD. The Annualised Coupon Rate will be set out in the Confirmation and the Term Sheet. Bank Wing Lung Bank Limited. Business Day A day on which commercial banks are open for business in Hong Kong, excluding Saturdays and Sundays. Cash Settlement Expenses If a cash amount is payable to you, you will have to pay for the cash settlement expenses that may be applicable. These are all charges or expenses, including any taxes and duties that are incurred in respect of payment of any cash amount on our ELDs. As at the date of this Principal Brochure there are no such charges or expenses. If any Cash Settlement Expenses are payable in future, we will inform you in advance. Clearing System Business Day A date on which both (i) The Central Clearing and Settlement System or any successors thereto is scheduled to open for the acceptance and execution of settlement instructions and (ii) commercial banks are open for business in Hong Kong. Confirmation A document in the form of Appendix 3 to this Principal Brochure that contains specified terms for an ELD. We will send the Confirmation for your ELD to you within 2 Business Days after the Transaction Date for your ELD. The Confirmation is not an Offering Document but together with the Product Terms and Conditions (set out at Appendix 1 on page 39 of this Principal Brochure) will constitute the full legally binding terms and conditions of your ELD. Conversion Price This is the benchmark we use to compare with the Fixing Date Closing Price for determination of settlement at maturity. In the case of physical delivery, the Conversion Price represents the price at which you are obliged to buy a fixed number of Reference Stock from us which will be delivered to you on the Maturity Date. The Conversion Price will be set as a specified percentage to the Spot Price as specified in the Term Sheet and Confirmation for your ELD and is calculated to 4 decimal places, 0.00005 being rounded upwards. The Conversion Price is subject to adjustment as described on page 28. Coupon Amount This is the amount of maximum potential gain under our ELDs. The Bank will determine the Coupon Amount (calculated to two decimal places, with 0.005 rounded up) for your ELD using the following formula: Investment Amount x Annualised Coupon Rate x Tenor 365 days The Coupon Amount will be set out in the Confirmation and, if the Investment Amount is known at the time when you place your order (see the definition of Investment Amount below), the Term Sheet. 20
Debit Date The date on which the Bank will debit the Investment Amount from your HKD Settlement Account. Unless you request (and the Bank accepts) another date, this will be the second Business Day after the Transaction Date. You may request a Debit Date that is any date from and including the Transaction Date up to 14 Business Days after the Transaction Date. The Debit Date will be set forth in the Term Sheet and Confirmation for your ELD. Exchange The Stock Exchange of Hong Kong Limited. Fixing Date The Fixing Date is the date for which the Bank records the Fixing Date Closing Price for the purpose of determining whether on the Maturity Date you will receive (i) a cash payment of the Maturity Amount, or (ii) Reference Stock. The Fixing Date will be set forth in the Term Sheet and Confirmation for your ELD. The Fixing Date is subject to postponement, as described on page 27. Fixing Date Closing Price The official Exchange closing price of the Reference Stock on the Fixing Date, unless such date is a Disrupted Day in which case the Fixing Date Closing Price shall be determined as described on page 27. Fractional Stock A fraction of the Reference Stock. See page 25 for a description of any Fractional Stock that may be deliverable under our ELDs. HKD Hong Kong Dollars. Intervening Period In the case where the Bank is required to deliver Reference Stock, the period from the Fixing Date to and until such time as the Reference Stock is delivered. The Intervening Period is defined in more detail in Clause 5.2 of the Product Terms and Conditions on page 41. Investment Amount The amount that you invest in an ELD. The minimum Investment Amount is HKD100,000. If the Spot Price is the specific price of the Reference Stock as agreed between you and us at the time you place your order on the Transaction Date, the Investment Amount will be specified in the Term Sheet. If the Spot Price is the official Exchange closing price of the Reference Stock on the Transaction Date, the Term Sheet will include our estimate of the Investment Amount and the actual Investment Amount (calculated to two decimal places, with 0.005 rounded up) will be specified in the Confirmation for your ELD. When you submit your order for an ELD, a cash amount equal to the Investment Amount will be frozen in your HKD Settlement Account. If the exact Investment Amount is not known at the time you submit your order, then a cash amount equal to our estimate of the Investment Amount will be frozen as soon as you place your order and this will be adjusted to equal the exact Investment Amount when the exact Investment Amount is known at the close of trading on the Transaction Date. If we reject your order, we will inform you promptly and the frozen amount will be released. If we accept your order, the frozen amount equal to the Investment Amount will be deducted from your HKD Settlement Account on the Debit Date. Investment Period The number of calendar days in a period which starts from the Transaction Date and ends on the Fixing Date (both days inclusive). We will not offer any ELD with an Investment Period of more than one year. The longer the Investment Period, the longer the period you will be subject to the risks of investing in an ELD. The Investment Period will be set forth in the Term Sheet and the Confirmation. 21