GALAXY DIGITAL HOLDINGS LTD. GALAXY DIGITAL HOLDINGS LTD.
ANNUAL INFORMATION FORM
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021
March 31, 2022
TABLE OF CONTENTS
Page
CAUTION REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS ............................ 1
CORPORATE STRUCTURE .................................................................................................................................... 6
Intercorporate Relationships ..................................................................................................................................... 7
GENERAL DEVELOPMENT OF THE BUSINESS ............................................................................................... 9
Three Year History ................................................................................................................................................... 9
DESCRIPTION OF THE BUSINESS ..................................................................................................................... 12
Our Company ......................................................................................................................................................... 12
Our Products and Services ...................................................................................................................................... 12
The Cryptoeconomy ............................................................................................................................................... 14
Emergence of Decentralized Finance ..................................................................................................................... 18
Our Business Model ............................................................................................................................................... 21
Our Opportunity ...................................................................................................................................................... 22
Our Growth Strategy ............................................................................................................................................... 23
Competition ............................................................................................................................................................ 31
Sustainability .......................................................................................................................................................... 31
Culture and Employees ........................................................................................................................................... 32
Intangible Properties ............................................................................................................................................... 33
UNDERSTANDING THE COMPANY'S FINANCIAL INFORMATION AND THE ITEMS THAT
IMPACT SUCH INFORMATION .......................................................................................................................... 33
Separate Financial Disclosure ................................................................................................................................. 33
Significance of Investments and Digital Assets ...................................................................................................... 33
DIVIDEND POLICY ................................................................................................................................................ 34
CAPITAL STRUCTURE .......................................................................................................................................... 34
Overview ................................................................................................................................................................ 34
Ordinary Shares ...................................................................................................................................................... 35
Stock Options ......................................................................................................................................................... 37
Share Units ............................................................................................................................................................. 37
Deferred Share Units .............................................................................................................................................. 37
Warrants .................................................................................................................................................................. 37
GDH LP B Units ..................................................................................................................................................... 38
GDH A Units .......................................................................................................................................................... 39
Debt - Exchangeable Notes ..................................................................................................................................... 40
MARKET FOR SECURITIES ................................................................................................................................. 41
PRIOR SALES ........................................................................................................................................................... 41
Ordinary Shares of GDH Ltd .................................................................................................................................. 42
Exchangeable Notes of GDH LP ............................................................................................................................ 42
Stock Options under the LTI Plan .......................................................................................................................... 42
Share Units under the LTI Plan .............................................................................................................................. 42
DSUs under the LTI Plan ........................................................................................................................................ 42
ESCROW SECURITIES .......................................................................................................................................... 42
EXECUTIVE OFFICERS AND DIRECTORS ...................................................................................................... 43
Identifying Information and Holdings .................................................................................................................... 43
Share Ownership by Directors and Executive Officers .......................................................................................... 47
CORPORATE CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES AND SANCTIONS ................. 47
CONFLICTS OF INTEREST .................................................................................................................................. 48
LEGAL PROCEEDINGS AND REGULATORY ACTIONS ............................................................................... 49
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS .................................... 49
AUDITOR, TRANSFER AGENT AND REGISTRAR .......................................................................................... 49
MATERIAL CONTRACTS ..................................................................................................................................... 49
INTEREST OF EXPERTS ....................................................................................................................................... 50
AUDIT COMMITTEE .............................................................................................................................................. 50
Audit Committee Charter ........................................................................................................................................ 50
Composition of the Audit Committee ..................................................................................................................... 50
Relevant Education and Experience ....................................................................................................................... 50
Reliance on Certain Exemptions ............................................................................................................................. 51
Audit Committee Oversight .................................................................................................................................... 51
Pre-Approval Policies and Procedures .................................................................................................................... 51
External Auditor Service Fees by Category ............................................................................................................ 51
MARKET CONTROLS AND REGULATION ...................................................................................................... 52
United States ........................................................................................................................................................... 52
Canada .................................................................................................................................................................... 55
Other Jurisdictions .................................................................................................................................................. 56
RISK FACTORS ....................................................................................................................................................... 59
Risks Related to the Company and the Ordinary Shares ........................................................................................ 59
Risks Related to Our Operations ............................................................................................................................. 67
Risks Related to Our Business Lines ...................................................................................................................... 82
Risks Related to Cryptocurrencies and Digital Assets ............................................................................................ 90
Risks Related to Regulation, Information Systems and Privacy Matters .............................................................. 102
Risks Related to Financial Reporting and Accounting ......................................................................................... 120
Risks Related to Taxation ..................................................................................................................................... 122
ADDITIONAL INFORMATION ........................................................................................................................... 124
APPENDIX "A" AUDIT COMMITTEE CHARTER ............................................................................................. 1
ii
TERMS OF REFERENCE
In this annual information form, a reference to the "Company", "Galaxy", "we", "us", "our" and similar words refer to Galaxy Digital Holdings Ltd., its subsidiaries and affiliates, or any one of them, as the context requires.
All references to trade names and trademarks of other companies, which trade names and trademarks are the property of their respective owners.
C$ means a dollar of lawful money of Canada. US$ or $ means a dollar of lawful money of the United States.
CURRENCY AND EXCHANGE RATE INFORMATION
The following table sets forth for each period indicated: (i) the exchange rates in effect at the end of the period; (ii) the high and low exchange rates during such period; and (iii) the average exchange rates for such period, for the U.S. dollar, expressed in Canadian dollars, as quoted by the Bank of Canada.
Year Ended December 31
2021 | 2020 | 2019 | |
CAD$ | CAD$ | CAD$ | |
Closing | 1.2678 | 1.2732 | 1.2988 |
High | 1.2942 | 1.4496 | 1.3600 |
Low | 1.2040 | 1.2718 | 1.2988 |
Average | 1.2535 | 1.3415 | 1.3269 |
On March 30, 2022, the daily exchange rate as quoted by the Bank of Canada was US$1.00 = CAD $1.247.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain statements and other information contained in this annual information form ("AIF") constitute forward-looking information under Canadian Securities Laws (collectively "forward-looking statements"). These forward-looking statements relate to future events or future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "future", "continue" or similar expressions or the negatives thereof.
By their very nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this AIF should not be unduly relied upon. These statements speak only as of the date of this AIF.
The forward-looking statements in this document are based on what the Company currently believes are reasonable assumptions, including the material assumptions set out in the management discussion and analysis ("MD&A") and press releases of the Company (such documents are available under the Company's SEDAR profile atwww.sedar.com). Other material factors or assumptions that were applied in formulating the forward-looking statements contained herein include or relate to the following: the business and economic conditions affecting the Company's operations in their current state, including, general levels of economic activity, regulations, taxes and interest rates; Galaxy Digital Holdings LP's ("GDH LP") ability to profitably manage its digital assets, comprised of cryptocurrencies and blockchain-based assets, inventory as required; historical prices of digital assets; the emerging cryptocurrency and blockchain markets and sectors; the absence of adverse regulation or law; anticipated timing and completion of acquisitions and other transactions; and that there will be no material changes in the legislative, regulatory or operating framework for GDH LP's existing and anticipated business.
Inherent in forward-looking statements are risks, uncertainties and other factors beyond the Company's ability to predict or control. Some of the risks that could cause outcomes and results to differ materially from those expressed in the forward-looking statements include:
• Galaxy is a common equity holder in GDH LP. Galaxy's business is conducted through GDH LP and its subsidiaries. All risks of GDH LP are risks of Galaxy.
• The market price and trading volume of Galaxy's Ordinary Shares (as defined below) may be volatile.
• A determination that a digital asset is a "security" for purposes of the U.S. federal securities laws could adversely affect the value of that digital asset and potentially digital assets generally, and could therefore adversely impact our business, financial condition and results of operations as well as the market price of the Ordinary Shares.
• A determination that a digital asset is a "security" for purposes of the U.S. federal securities laws could have adverse regulatory consequences for us, and could therefore adversely impact our business, financial condition and results of operations as well as the market price of the Ordinary Shares.
• Our process for analyzing whether or not a particular digital asset is a security for purposes of the U.S. federal securities laws may not yield results that are consistent with subsequent determinations by the U.S. Securities and Exchange Commission (the "SEC") or U.S. federal courts, or with similar determinations made by our competitors.
• Changes in law could cause the Ordinary Shares to be de-listed from the Toronto Stock Exchange (the "TSX") or Galaxy to undergo costly restructuring, liquidation or sale.
• We may need or want to raise additional capital, but there are many reasons why we might be unable to do so.
• Holders of Ordinary Shares may be subject to downward pressure on the share price from exchanges of B Units (as defined below) or from additional issuances of Ordinary Shares.
• Galaxy will be required to pay former partners of GDH LP for certain tax benefits that Galaxy may claim, and the amounts that Galaxy may pay could be material.
• If we are deemed to be an investment company under the Investment Company Act of 1940 (the "Investment Company Act"), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
• Holders of Ordinary Shares will generally not benefit from protections of investment company statutes in various jurisdictions, and may suffer from the restrictions that such statutes place on the liquidity of Ordinary Shares and on Galaxy's fundraising, businesses or other activities.
• Holders of Ordinary Shares may be prevented from exercising voting power commensurate with their economic interests in Galaxy.
• Agreements governing the Warrants (as defined below) to purchase Ordinary Shares purport to waive holders' right to a jury trial, which may discourage claims or limit holders' ability to bring a claim in a manner that they find favorable.
• Galaxy and GDH LP are required to indemnify directors and certain officers or other agents against a wide range of potential liabilities. These indemnification obligations could be material.
• The holding of, or trading in, Ordinary Shares may be, or become, illegal in certain countries or other jurisdictions.
• Ordinary Shares are generally not permitted to be acquired by U.S. Benefit Plan Investors, which could reduce Ordinary Shares' liquidity. Conversely, if U.S. Benefit Plan Investors were to acquire sufficient numbers of Ordinary Shares notwithstanding and in contravention of this limitation, Galaxy could be materially and adversely affected.
• We have limited operating history. Our business lines are nascent, unproven and subject to material legal, regulatory, operational, reputational, tax and other risks in every jurisdiction and are not assured to be profitable.
• Our operating results have and will significantly fluctuate due to a variety of factors, including the highly volatile nature of cryptocurrency.
• Our operating results are dependent on the prices of digital assets and volume of transactions that we conduct. If such price or volume declines, our business, operating results, and financial condition would be adversely affected.
• We are highly dependent on our key personnel, including the Founder (as defined below), which exposes stockholders to material and unpredictable "key man" risk.
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Galaxy Digital Holdings Ltd. published this content on 31 March 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 March 2022 12:04:06 UTC.
