FocusShares Trust 210 Summit Avenue Suite C-11 Montvale, New Jersey 07645 AUTHORIZED PARTICIPANT AGREEMENT
This Authorized Participant Agreement (the “Agreement”) is entered into by and between Foreside
Fund Services, LLC (the “Distributor”) and
(the “Participant”) and is subject to
acceptance by JPMorgan Chase Bank, N.A. as index receipt agent for FocusShares Trust (the “Index
Receipt Agent”).
The Index Receipt Agent serves as the Index Receipt Agent for FocusShares Trust (the “Trust”) and
all of its designated series (each a “Fund” and collectively, the “Funds”), and is an Index Receipt
Agent as that term is defined in the rules of the National Securities Clearing Corporation
(“NSCC”). The Distributor provides services as principal underwriter of the Funds acting on an
agency basis in connection with the sale and distribution of the class of shares issued by the
Funds known as “ETF Shares.”
The process by which an investor purchases and redeems ETF Shares from a Fund is described in
detail in the Trust’s ETF Shares Prospectus and the Statement of Additional Information
incorporated therein (the “Prospectus”) that comprise part of the Trust’s registration statement,
as amended, on Form N-1A (No. ) and the Authorized Participant Procedures Handbook
(“AP Handbook”)(hereinafter collectively, “ETF Documents”). The discussion of the purchase and
redemption process in this Agreement is modified as necessary
by reference to the more complete discussions in the ETF Documents. References to the ETF Documents
are to the then current Prospectus and AP Handbook as each may be supplemented or amended from time
to time. Capitalized terms not otherwise defined herein are used herein as defined in the ETF
Documents. In the event of a conflict between the Prospectus and AP Handbook, the Prospectus shall
control. Each party to this Agreement agrees to comply with the provisions of the ETF Documents to
the extent applicable to it.
The ETF Shares of a Fund may be purchased or redeemed directly from the Fund only in aggregations
of a specified number, known as a “Creation Unit.” The number of ETF Shares presently constituting
a Creation Unit of each Fund is set forth in Annex I. Creation Units of ETF Shares may be purchased
only by or through an entity that is a participant in The Depository Trust Company (“DTC”) or a
broker-dealer or other participant in the Continuous Net Settlement (the “CNS”) System of NSCC and
that has entered into an Authorized Participant Agreement with the Distributor. The Participant
agrees to be bound by the terms of such instructions issued by the Index Receipt Agent and reported
to the NSCC as though such instructions were issued by the Participant directly.
To purchase a Creation Unit, an authorized DTC participant or CNS participant, whether acting for
its own account or on behalf of another party, generally must deliver to the Fund a designated
basket of equity securities (the “Deposit Securities”) and an amount of cash computed as described
in the Prospectus (the “Balancing Amount”), plus a purchase transaction fee as described in the ETF
Documents (the “Transaction Fee”). The Deposit Securities and the Balancing Amount together
constitute the “Portfolio Deposit.” The Balancing Amount and the Transaction Fee are referred to
collectively as the “Cash Component.” The amount of such purchase transaction fee shall be
determined by the Trust or investment adviser to the Trust in its sole discretion and may be
changed from time to time.
This Agreement is intended to set forth the procedures by which the Participant may purchase and/or
redeem Creation Units of ETF Shares (i) through the CNS clearing processes of NSCC as such
processes have been enhanced to effect purchases and redemptions of Creation Units, such processes
being referred to herein as the “Clearing Process,” or (ii) outside the Clearing Process. The
procedures for processing an order to purchase ETF Shares (a “Purchase Order”) and an order to
redeem ETF Shares (a “Redemption Order”) are described in the Fund’s ETF Documents and in Annex II
to this Agreement. All Purchase and Redemption Orders must be made pursuant to the procedures set
forth in Annex II.
The Participant may not cancel a Purchase Order or a Redemption Order after it is placed.
The parties hereto, in consideration of the premises and of the mutual agreements contained herein,
agree as follows:
1. STATUS OF PARTICIPANT
(a) The Participant hereby represents, covenants, and warrants that it is and will continue to be a
participant in DTC (“DTC Participant”) so long as this Agreement is in full force and effect and
that, with respect to Purchase Orders or Redemption Orders of Creation Units of ETF Shares of any
Fund placed through the Clearing Process, it is and will continue to be a member of NSCC and a
participant in the CNS System of NSCC so long as this Agreement is in full force and effect. The
Participant may place Purchase Orders or Redemption Orders for Creation Units either through the
Clearing Process or outside the Clearing Process, subject to the procedures for purchase and
redemption referred to in paragraph 2 and Annex II of this Agreement. If a Participant loses its
status as a DTC Participant or NSCC member, or its eligibility to participate in the CNS System,
this Agreement will automatically terminate and Participant shall promptly notify the Distributor
in writing of the change in status or eligibility.
(b) The Participant hereby represents and warrants that it is registered as a broker-dealer under
the Securities Exchange Act of 1934, as amended, is qualified to act as a broker or dealer in the
states or other jurisdictions where it transacts business, and is a member in good standing of the
National Association of Securities Dealers, Inc. (the “NASD”). The Participant agrees that it will
maintain such registrations, qualifications, and membership in good standing and in full force and
effect throughout the term of this Agreement. The Participant agrees to comply with all applicable
federal laws, the laws of the states or other jurisdictions concerned, and the rules and
regulations promulgated thereunder, and with the Constitution, By-Laws and Conduct Rules of the
NASD, and that it will not offer or sell ETF Shares of any Fund in any state or jurisdiction where
such shares may not lawfully be offered and/or sold.
(c) If the Participant is offering and selling ETF Shares of any Fund in jurisdictions outside the
several states, territories and possessions of the United States and is not otherwise required to
be registered or qualified as a broker or dealer, or to be a member of the NASD, as set forth
above, the Participant nevertheless agrees to observe the applicable laws of the jurisdiction in
which such offer and/or sale is made, to comply with the full disclosure requirements of the
Securities Act of 1933 as amended (the “1933 Act”) and the regulations promulgated thereunder, and
to conduct its business in accordance with the spirit of the NASD Conduct Rules.
(d) The Participant understands and acknowledges that the proposed method by which Creation Units
of ETF Shares will be created and traded may raise certain issues under applicable securities laws.
For example, because new Creation Units of ETF Shares may be issued and sold by the Fund on an
ongoing basis, at any point a “distribution,” as such term is used in the 1933 Act, may occur. The
Participant understands and acknowledges that some activities on its part, depending on the
circumstances, may result in its being deemed a participant in the distribution in a manner that
could render it a statutory underwriter and subject it to the prospectus delivery and liability
provisions of the 1933 Act. (A ▇▇▇▇▇▇ discussion of these risks appears in the Prospectus.) Whether
a person is an underwriter depends upon all of the facts and circumstances pertaining to that
person’s activities, and you should consult legal counsel if you are uncertain of your status.
Neither the Distributor nor the Index Receipt Agent will indemnify the Participant for any
violations of the federal securities laws committed by the Participant.
2. EXECUTION OF PURCHASE AND REDEMPTION ORDERS
(a) All Purchase Orders and Redemption Orders shall be made in accordance with the terms of the ETF
Documents and the procedures described in Annex II to this Agreement. Each party hereto agrees to
comply with the provisions of such documents to the extent applicable to it. It is contemplated
that the phone lines used by the ETF Shares’ telephone representatives, which include
representatives of the Distributor, Index Receipt Agent or the Trust and any affiliates thereof,
will be recorded, and the Participant hereby consents to the recording of all calls with these
representatives. The Funds reserve the right to issue additional or other procedures relating to
the manner of purchasing or redeeming Creation Units, and the Participant agrees to comply with
such procedures as may be issued from time to time, including but not limited to the
ETF Shares cash collateral settlement procedures that are referenced in Annex II to this Agreement.
The Participant acknowledges and agrees on behalf of itself and any party for which it is acting
that acceptance of a Purchase Order or Redemption Order shall be irrevocable, and that the Funds
(or the Distributor on behalf of the Funds) reserve the right to reject any Purchase Order until
the trade is properly released as described in Annex II. The Participant agrees that the
Distributor has and reserves the right, in its sole discretion without notice, to reject a Purchase
Order or Redemption Order or suspend sales of ETF Shares, at anytime.
(b) With respect to any Redemption Order, the Participant acknowledges and agrees on behalf of
itself and any party for which it is acting to return to a Fund any dividend, distribution, or
other corporate action paid to it or to the party for which it is acting in respect of any Deposit
Security that is transferred to the Participant or any party for which it is acting that, based on
the valuation of such Deposit Security at the time of transfer, should have been paid to the Fund.
With respect to any Redemption Order, the Participant also acknowledges and agrees on behalf of
itself and any party for which it is acting that a Fund is entitled to reduce the amount of money
or other proceeds due to the Participant or any party for which it is acting by an amount equal to
any dividend, distribution, or other corporate action to be paid to it or to the party for which it
is acting in respect of any Deposit Security that is transferred to the Participant or any party
for which it is acting that, based on the valuation of such Deposit Security at the time of
transfer, should be paid to the Fund. With respect to any Purchase Order, each Fund acknowledges
and agrees to return to the Participant or any party for which it is acting any dividend,
distribution, or other corporate action paid to the Fund in respect of any Deposit Security that is
transferred to the Fund that, based on the valuation of such Deposit Security at the time of
transfer, should have been paid to the Participant or any party for which it is acting.
(c) When making a Redemption Order, the Participant understands and agrees that in the event Shares
are not transferred to the Fund, such Redemption Order may be rejected by the Fund and the
Participant will be solely responsible for all costs and losses and fees incurred by the Fund, the
Index Receipt Agent or the Distributor related to such rejected Redemption Order.
3. AUTHORIZATION OF INDEX RECEIPT AGENT
With respect to Purchase Orders or Redemption Orders processed through the Clearing Process, the
Participant hereby authorizes the Index Receipt Agent to transmit to the NSCC on behalf of the
Participant such instructions, including
amounts of the Deposit Securities and Cash Components as are necessary, consistent with the
instructions issued by the Participant to the ETF Shares telephone representative. The Participant
agrees to be bound by the terms of such instructions issued by the Index Receipt Agent and reported
to NSCC as though such instructions were issued by the Participant directly to NSCC.
4. MARKETING MATERIALS AND REPRESENTATIONS.
The Participant represents, warrants, and agrees that it will not make any representations
concerning ETF Shares other than those contained in the Funds’ then current Prospectus or in any
promotional materials or sales literature furnished to the Participant by the Distributor. The
Participant agrees not to furnish or cause to be furnished to any person or display or publish any
information or materials relating to ETF Shares (including, without limitation, promotional
materials and sales literature, advertisements, press releases, announcements, statements, posters,
signs, or other similar materials), except such information and materials as may be furnished to
the Participant by the Distributor and such other information and materials as may be approved in
writing by the Distributor. The Participant understands that the Fund will not be advertised or
marketed as an open-end investment company, i.e., as a mutual fund, and that any advertising
materials will prominently disclose that the ETF Shares are not individually redeemable. In
addition, the Participant understands that any advertising material that addresses redemption of
ETF Shares will disclose that ETF Shares may be tendered for redemption to the issuing Fund in
Creation Unit aggregations only. Notwithstanding the foregoing, the Participant may without the
written approval of the Distributor prepare and circulate in the regular course of its business
research reports that include information, opinions, or recommendations relating to ETF Shares (i)
for public dissemination, provided that such research reports compare the relative merits and
benefits of ETF Shares with other products and are not used for purposes of marketing ETF Shares
and (ii) for internal use by the Participant.
5. TITLE TO SECURITIES; RESTRICTED SHARES
The Participant represents on behalf of itself and any party for which it acts that upon delivery
of a portfolio of Deposit Securities to the Custodian the Fund will acquire good and unencumbered
title to such securities, free and clear of all liens, restrictions, charges, and encumbrances, and
not subject to any adverse claims, including without limitation any restrictions upon the sale or
transfer of such securities imposed by (i) any agreement or arrangement entered into by the
Participant or any party for which it is acting in connection with a Purchase Order; or (ii) any
provision of the 1933 Act, and any regulations thereunder (except that portfolio securities of
issuers other than U.S. issuers shall not be required to have been registered under the 1933 Act if
exempt from such registration), or of the applicable laws or regulations of any other applicable
jurisdiction. In particular, the Participant represents on behalf of itself and any party for which
it acts that no such securities are “restricted securities” as such term is used in Rule
144(a)(3)(i) under the 1933 Act.
6. CASH COMPONENT
The Participant hereby agrees that in connection with a Purchase Order, whether for itself or any
party for which it acts, it will make available to the issuing Fund in same day funds for each
purchase of ETF Shares an amount of cash sufficient to pay the Cash Component. Payment of the Cash
Component shall be made through DTC to an account maintained by the Custodian at JPMorgan Chase
Bank, New York City, and shall be provided in same day or immediately available funds on or before
the settlement date (“Contractual Settlement Date”). The Participant hereby agrees to ensure that
the Cash Component will be received by the issuing Fund on or before the Contractual Settlement
Date, and in the event payment of such Cash Component has not been made by such Contractual
Settlement Date, the Participant agrees on behalf of itself or any party for which it acts in
connection with a Purchase Order to pay the amount of the Cash Component, plus interest, computed
at such reasonable rate as may be specified by the Fund from time to time. The Participant shall be
liable to the Custodian and/or the Fund for any amounts advanced by the Custodian in its sole
discretion to the Participant for payment of the amounts due and owing for the Cash Component.
Computation of the Cash Component shall exclude any taxes, duties or other fees and expenses
payable upon the transfer of beneficial ownership of the Deposit Securities, which shall be the
sole responsibility of the Participant and not the Trust.
7. ROLE OF PARTICIPANT
(a) The Participant acknowledges and agrees that for all purposes of this Agreement, the
Participant will be deemed to be an independent contractor, and will have no authority to act as
agent for the Funds or the Distributor in any matter or in any respect. The Participant agrees to
make itself and its employees available, upon request, during normal business hours to consult with
the Funds or the Distributor or their designees concerning the performance of the Participant’s
responsibilities under this Agreement.
(b) The Participant agrees as a DTC Participant and in connection with any purchase or redemption
transactions in which it acts on behalf of a third party, that it shall extend to such party all of
the rights, and shall be bound by all of the obligations, of a DTC Participant in addition to any
obligations that it undertakes hereunder or in accordance with the Prospectus.
(c) The Participant agrees to maintain all books and records of all sales of ETF Shares made by or
through it pursuant to its obligations under the federal Securities laws and to furnish copies of
such records to the Fund or the Distributor upon the request of the Fund or the Distributor.
(d) The Participant represents that from time to time it may be a beneficial owner of ETF Shares.
To the extent that it is a beneficial owner of ETF Shares, the Participant agrees to irrevocably
appoint Distributor as its attorney and proxy with full authorization and power to vote (or abstain
from voting) its beneficially owned shares. The Distributor intends to vote (or abstain from
voting) the Participant’s beneficially owned shares in the same proportion as the votes (or
abstentions) of all other shareholders of the Fund on any matter submitted to the vote of
shareholders of the Fund or Trust. The Distributor, as attorney and proxy for Participant under
this Paragraph, (i) is hereby given full power of substitution and revocation; (ii) may act through
such agents, nominees, or attorneys as it may appoint from time to time; (iii) may provide voting
instructions to such agents, nominees, or substitute attorneys. Distributor may terminate this
irrevocable proxy within sixty (60) days written notice to the Participant.
(e) The Participant understands that under the terms of NYSE Arca Equities Rule 5.2(j)(3)
Investment Company Units Listing Standards, NYSE Arca, Inc. requires that members, including Equity
Permit Holders and Market Makers, provide to all purchasers of ETF Shares a written description of
the terms and characteristics of such securities, in a form prepared by the open-end management
investment company issuing such securities, not later than the time a confirmation of the first
transaction in such series is delivered to such purchaser. In addition, members shall include a
written description with any sales material relating to ETF Shares that is provided to customers or
the public. Any other written
materials provided by a member to customers or the public making specific reference to a Fund of
the Trust as an investment vehicle must include a statement in substantially the following form: “A
circular describing the terms and characteristics of [ETF Shares] has been prepared by ▇▇▇▇▇▇▇
Exchange Traded Trust NYSE Arca Tech 100 ETF and is available from your broker or NYSE Arca, Inc.
It is recommended that you obtain and review such circular before purchasing ETF Shares. In
addition, upon request you may obtain from your broker a prospectus for ETF Shares.” Such other
written materials provided by a member to customers or the public shall include all other necessary
and appropriate disclosures. A Participant who is a NYSE Arca, Inc. member who is carrying an
omnibus account for a non-member broker-dealer is required, if appropriate, to inform such
non-member that the execution of an order to purchase ETF Shares for such omnibus account will be
deemed to constitute agreement by the non-member to make such written description available to its
customers on the same terms as are directly applicable to members under this Rule.
(f) The Participant affirms that it maintains procedures that are reasonably designed to safeguard
non-public personal consumer/customer financial information to the extent required by applicable
law, rule and regulation.
(g) The Participant further represents that its anti-money laundering program is maintained
consistent with all applicable federal laws, rules and regulations, including the USA Patriot Act
and rules promulgated by the SEC.
8. AUTHORIZED PERSONS OF THE PARTICIPANT
(a) Concurrently with the execution of this Agreement and from time to time thereafter as may be
requested by the Funds, the Participant shall deliver to the Funds, with copies to the Index
Receipt Agent, a certificate in a form approved by the Funds (see Annex III hereto), duly certified
as appropriate by the Participant’s Secretary or other duly authorized official, setting forth the
names and signatures of all persons authorized to give instructions relating to any activity
contemplated hereby or any other notice, request, or instruction on behalf of the Participant (each
an “Authorized Person”). Such certificate may be accepted and relied upon by the Distributor and
the Funds as conclusive evidence of the facts set forth therein and shall be considered to be in
full force and effect until delivery to the Funds of a superseding certificate. Upon the
termination or revocation of authority of such Authorized Person by the Participant, the
Participant shall give immediate written notice of such fact to the Funds with copy to the Index
Receipt Agent and such notice shall be effective upon receipt by the Funds.
(b) The Funds shall issue to the Participant a unique personal identification number (“PIN Number”)
by which the Participant shall be identified and instructions issued by the Participant hereunder
shall be authenticated. The PIN Number shall be kept confidential and provided to Authorized
Persons only. If the Participant’s PIN Number is changed, the new PIN Number will become effective
on a date mutually agreed upon by the Participant and the Distributor. If for some reason, the
Participant’s PIN number is compromised, the Participant shall contact the fund immediately in
order for a new one to be issued. (SEI generates PIN#).
(c) The Distributor shall assume that all instructions issued to it using the Participant’s PIN
Number have been properly placed, unless the Distributor has actual knowledge to the contrary or
the Participant has revoked its PIN Number. The Distributor shall not verify that an Order is being
placed by or on behalf of the Participant. The Participant agrees that the Distributor, the Index
Receipt Agent and the Trust shall not be liable, absent fraud or willful misconduct, for losses
incurred by the Participant as a result of unauthorized use of the Participant’s PIN Number, unless
the Participant previously submitted written notice to revoke its PIN Number.
9. REDEMPTIONS
(a) The Participant understands and agrees that Redemption Orders may be submitted only on days
that the Trust is open for business, as requires by Section 22(e) of the Investment Company Act of
1940.
(b) The Participant represents and warrants that it will not attempt to place a Redemption Order
for the purpose of redeeming any Creation Unit of ETF Shares of any Fund unless it first ascertains
that it or its customer, as the case may be, owns outright or has full legal authority and legal
and beneficial right to tender for redemption the requisite number of the Fund’s ETF Shares and to
the entire proceeds of the redemption, and that such ETF Shares have not been loaned or pledged to
another party and are not the subject of a repurchase agreement, securities lending agreement, or
any other agreement that would preclude the delivery of such ETF Shares to the Fund.
(c) The Participant understands that ETF Shares of any Fund may be redeemed only when one or more
Creation Units of ETF Shares of a Beneficial Owner are held in the account of a single Participant.
(d) Notwithstanding anything to the contrary in this Agreement or the Prospectus, the Participant
understands and agrees that residents of Australia and New Zealand, and potentially other
countries, are entitled to receive only cash upon redemption of a Creation Unit of ETF Shares.
Accordingly, the Participant may be required to confirm that any request it submits for an in-kind
redemption has not been submitted on behalf of a Beneficial Owner who is a resident of a country
requiring that all redemptions be made in cash.
10. COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 351
(a) The Participant represents and warrants that, based upon the number of outstanding ETF Shares
of any particular Fund, it does not, and will not in the future, hold for the account of any single
Beneficial Owner, or group of related Beneficial Owners, 80 percent or more of the currently
outstanding ETF Shares of such Fund, so as to cause the Fund to have a basis in the portfolio
securities deposited with the Fund different from the market value of such portfolio securities on
the date of such deposit, pursuant to section 351 of the Internal Revenue Code of 1986, as amended.
(b) The Participant agrees that the confirmation relating to any order for one or more Creation
Units of ETF Shares of a Fund shall state as follows: “Purchaser represents and warrants that,
after giving effect to the purchase of ETF Shares to which this confirmation relates, it will not
hold 80% or more of the outstanding ETF Shares of the issuing Fund and will not treat such purchase
as eligible for tax-free treatment under Section 351 of the Internal Revenue Code of 1986, as
amended. If purchaser is a dealer, it agrees to deliver similar written confirmations to any person
purchasing from it any of the ETF Shares to which this confirmation relates.”
(c) A Fund and its Index Receipt Agent and Distributor shall have the right to require, as a
condition to the acceptance of a deposit of Deposit Securities, information from the Participant
regarding ownership of the Fund’s ETF Shares by such Participant and its customers, and to rely
thereon to the extent necessary to make a determination regarding ownership of 80 percent or more
of the Fund’s currently outstanding ETF Shares by a Beneficial Owner.
11. OBLIGATIONS OF PARTICIPANT
(a) The Participant agrees to maintain records of all sales of Shares made by or through it and to
furnish copies of such records to the Trust or the Distributor upon their reasonable request.
(b) The Participant affirms that it has procedures in place reasonably designed to protect the
privacy of non-public personal consumer/customer financial information to the extent required by
applicable law, rule and regulation.
(c) The Participant further represents that its anti-money laundering program (“AML Program”), at a
minimum, (i) designates a compliance officer to administer and oversee the AML Program, (ii)
provides ongoing employee training, (iii) includes an independent audit function to test the
effectiveness of the AML Program, (iv) establishes internal policies, procedures, and controls that
are tailored to its particular business, (v) includes a customer identification program consistent
with the rules under section 326 of the USA Patriot Act, (vi) provides for the filing of all
necessary anti-money laundering reports including, but not limited to, currency transaction reports
and suspicious activity reports, (vii) provides for screening all new and existing customers
against reports and suspicious activity reports, (vii) provides for screening all new and existing
customers against the Office of Foreign Asset Control list and any other government list that is or
becomes required under the USA Patriot Act, and (viii) allows for appropriate regulators to examine
its anti-money laundering books and records. The Distributor shall verify the identity of each
Authorized Participant and maintain identification verification and transactional records in
accordance with the requirements of applicable laws and regulations aimed at the prevention and
detection of money laundering and/or terrorism activities.
(d) The Participant represents and warrants that, during the term of this Agreement, it will not be
an affiliated person of a fund, a promoter or a principal underwriter of a fund or an affiliated
person of such persons, except under 2(a)(3)(A) or 2(a)(3)(C) of the Investment Company Act of
1940, as amended (the “1940 Act”) due to ownership of Shares.
(e) The Participant agrees that it will meet Distributor’s written creditworthiness standards at
all times at which it performs activities pursuant to this Agreement and will inform the
Distributor immediately should Participant not meet such standards. Participant agrees that it will
be subject to various tests
performed by Distributor to determine if the Participant is in compliance with the Distributor’s
written creditworthiness standards and agrees to comply with all requests for information in order
to permit the Distributor to perform such tests.
12. INDEMNIFICATION
Note: This paragraph shall survive the termination of this Agreement.
(a) The Participant hereby agrees to indemnify and hold harmless the Distributor, the Funds, the
Index Receipt Agent, their respective subsidiaries, affiliates, directors, officers, employees, and
agents, and each person, if any, who controls such persons within the meaning of Section 15 of the
1933 Act (each an “Indemnified Party”), from and against any loss, liability, cost, or expense
(including attorneys’ fees) incurred by such Indemnified Party as a result of (i) any breach by the
Participant of any provision of this Agreement; (ii) any failure on the part of the Participant to
perform any of its obligations set forth in the Agreement; (iii) any failure by the Participant to
comply with applicable laws, including rules and regulations of self-regulatory organizations; (iv)
actions of such Indemnified Party in reliance upon any instructions issued in accordance with Annex
II or III (as each may be amended from time to time) reasonably believed by the Distributor and/or
the Index Receipt Agent to be genuine and to have been given by the Participant; or (v) the
Participant’s failure to complete a Purchase Order or Redemption Order that has been accepted. The
Participant understands and agrees that the Funds as third party beneficiaries to this Agreement
are entitled to proceed directly against the Participant in the event that the Participant fails to
honor any of its obligations under this Agreement that benefit the Fund. The Distributor shall not
be liable to the Participant for any damages arising out of mistakes or errors in data provided to
the Distributor, or out of interruptions or delays of communications with the Indemnified Parties
who are service providers to the Fund, nor is the Distributor liable for any action,
representation, or solicitation made by the wholesalers of the Fund.
(b) The Distributor hereby agrees to indemnify and hold harmless the Participant and the Index
Receipt Agent, their respective subsidiaries, affiliates, directors, officers, employees, and
agents, and each person, if any, who controls such persons within the meaning of Section 15 of the
1933 Act (each an “Indemnified Party”), from and against any loss, liability, cost, or expense
(including attorneys’ fees) incurred by such Indemnified Party as a result of (i) any breach by the
Distributor of any provision of this Agreement; (ii) any failure on the part of the Distributor to
perform any of its obligations set forth in this
Agreement; (iii) any failure by the Distributor to comply with applicable laws, including rules and
regulations of self-regulatory organizations; or (iv) actions of such Indemnified Party in reliance
upon any representations made in accordance with Annex II and III (as each may be amended from time
to time) reasonably believed by the Participant to be genuine and to have been given by the
Distributor. The Participant shall not be liable to the Distributor for any damages arising out of
mistakes or errors in data provided to the Participant, or out of interruptions or delays of
communications with the Indemnified Parties who are service providers to the Fund, nor is the
Participant liable for any action, representation, or solicitation made by the wholesalers of the
Fund.
(c) Neither the Funds, the Distributor, or the Index Receipt Agent, or any person who controls such
persons within the meaning of Section 15 of the 1933 Act, shall be liable to the Participant for
any damages arising from any differences in performance between the Deposit Securities in a
Portfolio Deposit and the Fund’s benchmark index.
13. INFORMATION ABOUT DEPOSIT SECURITIES
The Distributor will make available on each day that the Trust is open for business, through the
facilities of the NSCC, the names and amounts of Deposit Securities to be included in the current
Portfolio Deposit for each Fund.
14. RECEIPT OF PROSPECTUS BY PARTICIPANT
The Participant acknowledges receipt of the Prospectus and represents that it has reviewed that
document (including the Statement of Additional Information incorporated therein) and understands
the terms thereof.
15. CONSENT TO ELECTRONIC DELIVERY OF PROSPECTUS
As set forth in the Fund Prospectus, the Distributor may deliver electronically a single
prospectus, annual or semi-annual report or other shareholder information (each, a “Shareholder
Document”) to persons who have effectively consented to such electronic delivery. The Distributor
will deliver Shareholder Documents electronically by sending consenting persons an e-mail message
informing them that the applicable Shareholder Document has been posted and is available on the
Fund’s website (▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇▇) and providing a hypertext link to the document. The electronic
versions of the Shareholder Documents will be in PDF
format and can be downloaded and printed using Adobe Acrobat.
By signing this Agreement, the Participant hereby consents to the foregoing electronic delivery of
all Shareholder Documents to the e-mail address set forth on the signature page attached to this
Agreement. The Participant further understands and agrees that unless such consent is revoked, the
Participant can only obtain access to the Shareholder Documents from the Distributor
electronically. The Participant can revoke the consent to electronic delivery of Shareholder
Documents at anytime by providing written notice to the Distributor. The Participant agrees to
maintain the e-mail address set forth on the signature page to this Agreement and further agrees to
promptly notify the Distributor if its e-mail address changes. The Participant understands that it
must have continuous Internet access to access all Shareholder Documents.
16. CONSENT TO RECORDING OF CONVERSATIONS
By signing this Agreement, the Participant acknowledges that certain telephone conversations
between the Distributor and the Participant in connection with the placing of orders may be
recorded, and the Participant hereby grants its consent to such recordings.
17. NOTICES
Except as otherwise specifically provided in this Agreement, all notices required or permitted to
be given pursuant to this Agreement shall be given in writing and delivered by personal delivery;
by Federal Express; by registered or certified United States first class mail, return receipt
requested; or by telex, telegram, facsimile, or similar means of same day delivery (with a
confirming copy by mail). Unless otherwise notified in writing, all notices to the Fund shall be at
the address or telephone, facsimile, or telex numbers indicated below the signature of the
Distributor. All notices to the Participant, the Distributor, and the Index Receipt Agent shall be
directed to the address or telephone, facsimile or telex numbers indicated below the signature line
of such party.
18. EFFECTIVENESS, TERMINATION, AND AMENDMENT OF AGREEMENT
(a) This Agreement shall become effective five Business Days after execution and delivery to the
Distributor upon notice by the Distributor to the
Authorized Participant. A “Business Day” shall mean each day the Trust is open for business.
(b) This Agreement may be terminated at any time by any party upon sixty days’ prior written notice
to the other parties, and may be terminated earlier by the Fund or the Distributor at any time in
the event of a breach by the Participant of any provision of this Agreement or the procedures
described or incorporated herein. This Agreement will be binding on each parties’ successors and
assigns, but the parties agree that neither party can assign its rights and obligations under this
Agreement without the prior written consent of the other party.
(c) This Agreement may be amended by the Distributor from time to time without the consent of the
Participant or Index Receipt Agent by the following procedure. The Distributor will deliver a copy
of the amendment to the Participant and the Index Receipt Agent in accordance with paragraph 14
above. If neither the Participant or the Index Receipt Agent objects in writing to the amendment
within five days after its receipt, the amendment will become part of this Agreement in accordance
with its terms.
19. TRUST AS THIRD PARTY BENEFICIARY
The Participant and the Distributor understand and agree that the Trust as a third party
beneficiary to this Agreement is entitled and intends to proceed directly against the Participant
in the event that the Participant fails to honor any of its obligations pursuant to this Agreement
that benefit the Trust.
20. INCORPORATION BY REFERENCE
The Participant acknowledges receipt of the Prospectus and AP Handbook, represents that it has
reviewed such documents and understands the terms thereof, and further acknowledges that the
procedures contained therein pertaining to the creation and redemption of Shares are incorporated
herein by reference.
21. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the laws of the State of New
York.
22. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which shall be an original and all
of which shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the
day and year written below.
DATED:
Foreside Fund Services, LLC
By:
| Name: | ||||||
| Title: | ||||||
| Address: Two ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ | ||||||
| ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ | ||||||
| Telephone: | ||||||
| Facsimile: | ||||||
| Telex: | ||||||
[Name of Participant]
By:
| Name: | ||||||
| Title: | ||||||
| Address: | ||||||
| Telephone: | ||||||
| Facsimile: | ||||||
| Telex: | ||||||
ACCEPTED BY:
JPMORGAN CHASE BANK, as Index Receipt Agent
By:
| Name: | ||||||
| Title: | ||||||
| Address: Chase ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ | ||||||
| ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ | ||||||
| Telephone: | ||||||
| Facsimile: | ||||||
| Telex: | ||||||
ANNEX I
CREATION UNIT SIZE FOR ETF SHARES
Shares Per Creation Unit
| FocusShares ISE HomeBuilders Index Fund | ||
ETF
|
50,000 shares | |
| FocusShares ISE SINdex Index Fund | ||
ETF
|
50,000 shares | |
| FocusShares ISE-CCM Homeland Security Index Fund | ||
ETF
|
50,000 shares | |
| FocusShares ISE-Revere Wal-Mart Supplier Index Fund | ||
ETF
|
50,000 shares | |
ANNEX II
PROCEDURES FOR PROCESSING PURCHASE ORDERS AND
REDEMPTION ORDERS
REDEMPTION ORDERS
The procedures set forth below are based upon and subject to each Fund’s then current Prospectus
and Statement of Additional Information (the “Fund Documents”) and all applicable Exemptive Orders
issued by the Securities & Exchange Commission (collectively with the Fund Documents, the
“Regulatory Documents”). In the event that the term of any procedure described below conflicts with
the term of any Regulatory Document or any applicable law or regulation, the term of such
Regulatory Document, law or regulation supersede such procedure.
Purchase Orders for Creation Units Generally.
All purchase orders must be placed for one or more Creation Units. All orders to purchase Creation
Units, whether through the CNS System of the NSCC (the “Clearing Process”) or outside the Clearing
Process, must be received by Foreside Fund Services, LLC or its authorized agent (the
“Distributor”) prior to the market close of business Eastern Time, or 3:00 p.m. Eastern Time in the
case of nonconforming orders (or, with respect to nonconforming orders, one hour before the market
closes on days on which the market closes prior to 4:00 p.m.), in each case on the date such order
is placed in order for the creation of Creation Units to be effected based on the NAV of shares of
the ETF as next determined on such date after receipt of the order in proper form. All rejected
Orders must be re-submitted on the next business day. The date on which an order to purchase
Creation Units (or an order to redeem Creation Units as discussed below) is placed is referred to
as the “Transmittal Date.”
Purchase Orders must be transmitted by an Authorized Participant by telephone or other transmission
method acceptable to the Distributor pursuant to procedures set forth in the AP Handbook, a copy of
which is provided to each Authorized Participant (see also “Purchasing Through the Clearing
Process” and “Purchasing Outside the Clearing Process” below). Severe economic or market disruption
or changes, or telephone or other communications failure may impede the ability to reach the
Distributor or an Authorized Participant.
Those placing orders to purchase Creation Units through the Clearing Process should afford
sufficient time to permit proper submission of the order to the
Distributor prior to 4:00 p.m. Eastern Time on the Transmittal Date. Orders of Creation Units
effected outside the Clearing Process are likely to require transmittal by the DTC participant
earlier on the Transmittal Date than orders effected using the Clearing Process. Those persons
placing orders outside the Clearing Process should do so in a timely manner so as to ensure the
delivery of both the Deposit Securities, through DTC, and the Balancing Amount, through the Federal
Reserve Bank wire system to the Custodian, by 11:00 a.m. and 2:00 p.m. Eastern Time, respectively,
on the next Business Day immediately following the Transmittal Date.
AS THE ORDER ENTRY PROCESS CAN TAKE SEVERAL MINUTES OR LONGER, DEPENDING UPON CALL VOLUME AND THE
TYPE OF ORDER INVOLVED, PARTICIPANTS ARE URGED TO PLACE PURCHASE ORDERS AS EARLY IN THE DAY AS
POSSIBLE, AS ORDERS INITIATED NEAR THE APPLICABLE CLOSING TIME MAY NOT BE PROCESSED IN TIME TO
RECEIVE A BATCH NUMBER AND BE RECEIVED PRIOR TO THE CLOSING TIME.
Purchases Through the Clearing Process.
Each Authorized Participant authorizes the Distributor to transmit through the transfer agent to
NSCC, on behalf of the Authorized Participant, such trade instructions as are necessary to effect
the Authorized Participant’s purchase order. Pursuant to such trade instructions to NSCC, the
Authorized Participant agrees to deliver the requisite Deposit Securities and the Balancing Amount
to the ETF, together with such additional information as may be required by the Distributor. An
order to purchase Creation Units through the Clearing Process is deemed received by the Distributor
on the Transmittal Date if (i) such order is received by the Distributor prior to 4:00 p.m. Eastern
Time on such Transmittal Date (or prior to the time the market closes on days on which the market
closes prior to 4:00 p.m.); and (ii) all other procedures set forth in this Participant Agreement
are properly followed. The delivery of Creation Units so purchased will occur not later than the
third (3rd) Business Day following the day on which the purchase order is deemed
received by the Distributor. In the event that an Authorized Participant purchases or redeems
Creation Units of the ETF on the same Transmittal Date, the
ETF reserves the right to settle these transactions on a net basis.
Purchases Outside the Clearing Process.
An Authorized Participant who wishes to place an order to purchase Creation Units outside the
Clearing Process must state that it is not using the Clearing Process and that the purchase of
Creation Units will instead be effected through a transfer of securities and cash directly through
DTC and the ETF’s Custodian. The Portfolio Deposit transfer must be ordered by the DTC participant
on the Transmittal Date in a timely fashion so as to ensure the delivery of the requisite number of
Deposit Securities through DTC to the account of the ETF by no later than 11:00 a.m. Eastern Time
of the next Business Day immediately following the Transmittal Date. In the event that an
Authorized Participant purchases or redeems Creation Units of the ETF on the same Transmittal Date,
the ETF reserves the right to settle these transactions on a net basis.
All questions as to the number of Deposit Securities to be delivered, and the validity, form and
eligibility (including time of receipt) for the deposit of any tendered securities, will be
determined by the ETF, whose determination shall be final and binding. The amount of cash equal to
the Balancing Amount must be transferred directly to the ETF’s Custodian through the Federal
Reserve Bank wire transfer system in a timely manner so as to be received by the ETF’s Custodian no
later than 2:00 p.m. Eastern Time on the next Business Day immediately following such Transmittal
Date. An order to purchase Creation Units outside the Clearing Process is deemed received by the
Distributor on the Transmittal Date if (i) such order is received by the Distributor prior to 3:00
p.m. Eastern Time on such Transmittal Date (or one hour prior to the market close on days on which
the market closes prior to 4:00p.m.); and (ii) all other procedures set forth in this Participant
Agreement are properly followed. However, if the ETF’s Custodian does not receive both the required
Deposit Securities and the Balancing Amount by 11:00 a.m. and 2:00 p.m., respectively, on the next
Business Day immediately following the Transmittal Date, such order will be deemed not in proper
form and canceled. Upon written notice to the Distributor, such canceled order may be resubmitted
the following Business Day using a Portfolio Deposit as newly constituted to reflect the next
calculated NAV of the ETF. The delivery of Creation Units so purchased will occur not later than
the third (3rd) Business Day following the day on which the purchase order is deemed
received by the Distributor.
Creation Units may be created in advance of receipt by the ETF of all or a portion of the
applicable Deposit Securities as described below. In these circumstances,
the initial deposit will have a value greater than the NAV of the shares on the date the order is
placed in proper form since, in addition to available Deposit Securities, cash must be deposited in
an amount equal to the sum of (i) the Balancing Amount; plus (ii) 115% of the market value of the
undelivered Deposit Securities (the “Additional Cash Deposit”). The order shall be deemed to be
received on the Business Day on which the order is placed provided that the order is placed in
proper form prior to 3:00 p.m. Eastern Time on such date and federal funds in the appropriate
amount are deposited with the ETF’s Custodian by 11:00 a.m. Eastern Time the following Business
Day. If the order is not placed in proper form by 3:00 p.m. or federal funds in the appropriate
amount are not received by 11:00 a.m. the next Business Day, then the order may be deemed to be
rejected and the Authorized Participant shall be liable to the ETF for losses, if any, resulting
therefrom. An additional amount of cash shall be required to be deposited with the ETF pending
delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash
Deposit with the ETF in an amount at least equal to 115% of the daily ▇▇▇▇-to-market value of the
missing Deposit Securities. To the extent that missing Deposit Securities are not received by 11:00
a.m. Eastern Time on the third (3rd) Business Day following the day on which the
purchase order is deemed received by the Distributor or in the event a ▇▇▇▇-to-market payment is
not made within one Business Day following notification by the Distributor that such a payment is
required, the ETF may use the cash on deposit to purchase the missing Deposit Securities.
Authorized Participants will be liable to the ETF for the costs incurred by the ETF in connection
with any such purchases. These costs will be deemed to include the amount by which the actual
purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the
day the purchase order was deemed received by the Distributor plus the brokerage and related
transaction costs associated with such purchases. The ETF will return any unused portion of the
Additional Cash Deposit once all of the missing Deposit Securities have been properly received by
the Distributor or purchased by the ETF and deposited into the ETF. In addition, a transaction fee
of $1,000 will be charged in all cases, as well as an additional fee of $3,000. The delivery of
Creation Units so purchased will occur no later than the third (3rd) Business Day
following the day on which the purchase order is deemed received by the Distributor.
Rejection of Purchase Orders.
The Trust, on behalf of the ETF, reserves the absolute right to reject a purchase order transmitted
to it by the Distributor if (i) the order is not in proper form; (ii)
the investor(s), upon
obtaining the shares ordered, would own 80% or more of the
currently outstanding shares of the ETF; (iii) the Deposit Securities delivered are not as
disseminated through the facilities of NSCC for that date by the Distributor, as described above;
(iv) acceptance of the Deposit Securities would have certain adverse tax consequences to the ETF;
(v) acceptance of the Portfolio Deposit would, in the opinion of counsel, be unlawful; (vi)
acceptance of the Portfolio Deposit would otherwise, in the discretion of the Trust or the Advisor,
have an adverse effect on the ETF or the rights of Beneficial Owners; or (vii) in the event that
circumstances outside the control of the Trust, the ETF, the Advisor, the Distributor and the
transfer agent make it impractical to process creation orders. Examples of such circumstances
include acts of God; public service or utility problems such as fires, floods, extreme weather
conditions and power outages resulting in telephone, telecopy and computer failures; market
conditions or activities causing trading halts; systems failures involving computer or other
information systems affecting the Trust, the ETF, the Advisor, the Distributor, DTC, NSCC, the
transfer agent or any other participant in the purchase process, and similar extraordinary events.
The ETF has the right to require information to determine beneficial share ownership for purposes
of (ii) above should it so choose or to rely on a certification from a broker-dealer who is a
member of the NASD as to the cost basis of Deposit Securities. The Distributor shall notify a
prospective purchaser of a Creation Unit and/or the Authorized Participant acting on the
purchaser’s behalf, of its rejection of the purchaser’s order. The Trust, the ETF, the transfer
agent, the Custodian and the Distributor are under no duty, however, to give notification of any
defects or irregularities in the delivery of a Portfolio Deposit, nor shall any of them incur any
liability for the failure to give any such notification.
Transaction Fees on Purchases of Creation Units.
A fixed transaction fee of $1,000 is applicable to each purchase, regardless of the number of
Creation Units purchased. An additional transaction charge of $3,000 will be imposed for purchases
effected outside the Clearing Process, which would include purchases of Creation Units for cash and
in-kind purchases where the investor is allowed to substitute cash in lieu of depositing a portion
of the Deposit Securities. Accordingly, the maximum transaction fee charge may be $4,000.
Purchasers of shares in Creation Units are responsible for the costs of transferring the securities
constituting the Deposit Securities to the account of the ETF. The transaction fees are charged to
cover the estimated costs associated with the issuance of Creation Units.
Redemption of Creation Units Generally.
Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a
redemption request in proper form by the ETF through the Distributor and only on a Business Day.
The ETF will not redeem shares in amounts less than Creation Unit-size aggregations. Beneficial
Owners must accumulate enough shares in the secondary market to constitute a Creation Unit in order
to have such shares redeemed by the ETF.
Redemption Orders must be transmitted by an Authorized Participant by telephone or other
transmission method acceptable to the Distributor pursuant to procedures set forth in the AP
Handbook, (see also “Redemption Through the Clearing Process” and “Redemption Outside the Clearing
Process” below). Severe economic or market disruption or changes, or telephone or other
communications failure may impede the ability to reach the Distributor or an Authorized
Participant.
The Advisor through NSCC makes available prior to the opening of trading on the NYSE Arca
Marketplace (currently 4:00 a.m. Eastern Time) on each Business Day, the identity of the basket of
securities (the “Fund Securities”) that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form (as defined below) on that day. Fund
Securities received on redemption may not be identical to Deposit Securities that are applicable to
purchases of Creation Units.
AS THE ORDER ENTRY PROCESS CAN TAKE SEVERAL MINUTES OR LONGER, DEPENDING UPON CALL VOLUME AND THE
TYPE OF ORDER INVOLVED, PARTICIPANTS ARE URGED TO PLACE REDEMPTION ORDERS AS EARLY IN THE DAY AS
POSSIBLE, AS ORDERS INITIATED NEAR THE APPLICABLE CLOSING TIME MAY NOT BE PROCESSED IN TIME TO
RECEIVE A BATCH NUMBER AND BE RECEIVED PRIOR TO THE CLOSING TIME.
Unless cash redemptions are available or specified for the ETF, the redemption proceeds for a
Creation Unit generally consists of Fund Securities — as announced by the Advisor on the Business
Day of the request for redemption received in proper form — plus cash in an amount equal to the
difference between the NAV of the shares being redeemed, as next determined after a receipt of the
request in proper form, and the value of the Fund Securities (the “Cash Redemption
Amount”), less a
redemption transaction fee as listed below. In the event that the
Fund Securities have a value greater than the NAV of the shares, a compensating cash payment equal
to the differential is required to be made by or through an Authorized Participant by the redeeming
shareholder.
As permitted by federal securities laws, the right of redemption may be suspended or the date of
payment postponed with respect to the ETF (i) for any period during which The NYSE is closed (other
than the customary weekend and holiday closings); (ii) for any period during which trading on NYSE
is suspended or restricted; (iii) for any period during which an emergency exists as a result of
which disposal of the shares or determination of the ETF’s NAV is not reasonably practicable; or
(iv) in such other circumstances as is permitted by the SEC.
Redemption Through the Clearing Process.
An order to redeem Creation Units using the Clearing Process is deemed received on the Transmittal
Date if (i) such order is received in proper form by the Distributor prior to 4:00 p.m. Eastern
Time on such Transmittal Date (or prior to the market close on days on which the market closes
prior to 4:00 p.m.); and (ii) all other procedures set forth in this Participant Agreement are
properly followed, such order will be effected based on the NAV of the ETF as next determined. An
order to redeem Creation Units using the Clearing Process made in proper form but received by the
ETF after 4:00 p.m. Eastern Time (or after the market closes if the market closes prior to 4:00
p.m.) will be deemed received on the next Business Day immediately following the Transmittal Date
and will be effected at the NAV next determined on such Business Day. The requisite Fund Securities
and the Cash Redemption Amount will be transferred by the third (3rd) Business Day
following the date on which such request for redemption is deemed received, which in no event shall
be more than seven (7) days after such request for redemption. In the event that an Authorized
Participant purchases or redeems Creation Units of the ETF on the same Transmittal Date, the ETF
reserves the right to sETFle these transactions on a net basis.
Redemptions Outside the Clearing Process.
An Authorized Participant who wishes to place an order for redemption of
Creation Units to be effected outside the Clearing Process must state that it is not using the
Clearing Process and that redemption of Creation Units will instead be effected through a transfer
of shares directly through DTC. An order to redeem Creation Units outside the Clearing Process is
deemed received by the ETF on the Transmittal Date if (i) such order is received in proper form by
the Distributor prior to 3:00 p.m. Eastern Time on such Transmittal Date (or one hour prior to the
market close if the market closes before 4:00 p.m.); (ii) such order is accompanied or followed by
the requisite number of shares of the ETF and the Cash Redemption Amount specified in such order,
which delivery must be made through DTC to the ETF’s Custodian no later than 11:00 a.m., for the
shares, and 2:00 p.m., for the Cash Redemption Amount Eastern Time on the next Business Day
following such Transmittal Date (the “DTC Cut-Off Time”); and (iii) all other procedures set forth
in this Participant Agreement are properly followed. The requisite Fund Securities and the Cash
Redemption Amount will be transferred by the third (3rd) Business Day following the date
on which such request for redemption is deemed received, which in no event shall be more than seven
(7) days after such request for redemption. In the event that an Authorized Participant purchases
or redeems Creation Units of the ETF on the same Transmittal Date, the ETF reserves the right to
sETFle these transactions on a net basis.
In the event the Authorized Participant has submitted a redemption request in proper form but is
unable to transfer all or part of the Creation Units to be redeemed by the Distributor, on behalf
of the ETF, at or prior to the time required above on the date such redemption request is
submitted, the Distributor will nonetheless accept the redemption request in reliance on the
undertaking by the Authorized Participant to deliver the missing ETF shares as soon as possible,
which undertaking shall be secured by the Authorized Participant’s delivery and maintenance of
collateral consisting of cash having a value (▇▇▇▇-to-market daily) at least equal to 115% of the
value of the missing ETF shares. The current procedures for collateralization of missing shares
require, among other things, that any cash collateral shall be in the form of U.S. dollars in
immediately available funds and shall be held by the ETF and ▇▇▇▇-to-market daily, and that the
fees of the ETF and any sub-custodians in respect of the delivery, maintenance and redelivery of
the cash collateral shall be payable by the Authorized Participant. The Authorized Participant
agrees that the ETF may purchase the missing ETF shares or acquire the Deposit Securities and the
Balancing Amount underlying such share at any time and will subject the Authorized Participant to
liability for any shortfall between the cost to the ETF of purchasing such shares, Deposit
Securities or Balancing Amount and the value of the collateral.
The calculation of the value of the Fund Securities and the Cash Redemption Amount to be delivered
upon redemption will be made by the Custodian according to the procedures set forth in the ETF’s
prospectus computed on the Business Day on which a redemption order is deemed received by the
Distributor. Therefore, if a conforming redemption order in proper form is submitted to the
Distributor by a DTC participant prior to 4:00 p.m. Eastern Time, or 3:00 p.m. Eastern Time in the
case of nonconforming orders, on the Transmittal Date, and the requisite number of shares of the
ETF are delivered to the ETF’s Custodian prior to the DTC Cut-Off Time, then the value of the Fund
Securities and the Cash Redemption Amount to be delivered will be determined by the Custodian on
such Transmittal Date. If, however, a conforming redemption order is submitted to the Distributor
by an Authorized Participant prior to 4:00 p.m. Eastern Time on the Transmittal Date (or prior to
the time the market closes if the market closes prior to 4:00 p.m.) but either (i) the requisite
number of shares of the ETF and the Cash Redemption Amount are not delivered by the DTC Cut-Off
Time as described above on the next Business Day following the Transmittal Date; or (ii) the
redemption order is not submitted in proper form, then the redemption order will not be deemed
received as of the Transmittal Date. In such case, the value of the Fund Securities and the Cash
Redemption Amount to be delivered will be computed on the Business Day that such order is deemed
received by the Distributor (i.e., the Business Day on which the shares of the ETF are delivered
through DTC to the Custodian by the DTC Cut-Off Time on such Business Day pursuant to a properly
submitted redemption order).
If it is not possible to effect deliveries of the Fund Securities, the ETF may in its discretion
exercise its option to redeem such shares in cash, and the redeeming Beneficial Owner will be
required to receive its redemption proceeds in cash. In such a case, the investor will receive a
cash payment equal to the NAV of its shares based on the NAV of shares of the ETF next determined
after the redemption request is received in proper form (minus a redemption transaction fee and
additional charge for requested cash redemptions specified above, to offset the ETF’s brokerage and
other transaction costs associated with the disposition of Fund Securities).
Redemption of shares for Fund Securities will be subject to compliance with applicable federal and
state securities laws and the ETF (whether or not it otherwise permits cash redemptions) reserves
the right to redeem Creation Units for cash to the extent that the ETF could not lawfully deliver
specific Fund Securities upon redemptions or could not do so without first registering the Fund
Securities under such laws. An Authorized Participant or a Beneficial Owner for
which it is acting subject to a legal restriction with respect to a particular stock included in
the Fund Securities is applicable to the redemption of a Creation Unit may be paid an equivalent
amount of cash.
Transaction Fees on Redemption of Creation Units.
A fixed transaction fee of $1,000 is applicable to each redemption, regardless of the number of
Creation Units redeemed. An additional charge of $3,000 will be imposed for redemptions effected
outside the Clearing Process, which would include cash redemptions. Accordingly, the maximum
transaction fee charge may be $4,000. Investors will also bear the costs of transferring the Fund
Securities from the ETF to their account or on their order. Investors who use the services of a
broker or other such intermediary may be charged a fee for such services. The transaction fees are
charged to cover the estimated costs associated with the redemption of Creation Units.
ANNEX III
FORM OF CERTIFIED AUTHORIZED PERSONS OF PARTICIPANT
The following are the names, titles and signatures of all persons (each an “Authorized Person”)
authorized to give instructions relating to any activity
contemplated by this Authorized
Participant Agreement, or any other notices,
request or instruction on behalf of Participant pursuant to this Authorized Participant Agreement.
For each Authorized Person:
Name:
Title:
Signature:
E-Mail Address:
Telephone:
Facsimile:
Name:
Title:
Signature:
E-Mail Address:
Telephone:
Facsimile:
The undersigned [name], [title], [company] does hereby certify that the persons listed above have
been duly elected to the offices set forth beneath their names, that they presently hold such
offices, that they have been duly authorized to act as Authorized Persons pursuant to the
Authorized Participant Agreement by and
among Foreside Fund Services, LLC and [Participant] dated
[date] and that their
signatures set forth above are their own true and genuine signatures.
By: |
||||
Date: |
||||
Name: |
Title: [Participant’s] Secretary or Other Duly Authorized Officer