EXHIBIT A(3)
DISTRIBUTION AGREEMENT
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DISTRIBUTION AGREEMENT (the "Agreement") made as of September 29,
1997, effective December 1, 1997, by and among PDR Services Corporation, a
Delaware corporation (the "Sponsor"); DIAMONDS Trust, Series 1, a unit
investment trust to be organized under the laws of the State of New York (the
"Trust") by State Street Bank and Trust Company as Trustee of such Trust; and
ALPS Mutual Funds Services, Inc., a Colorado corporation (the "Distributor").
WITNESSETH
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WHEREAS, the Trust is governed by a trust agreement (the "Trust
Agreement") between the Sponsor and State Street Bank and Trust Company, as
trustee (the "Trustee") pursuant to which there will be created units of
fractional undivided interest in the Trust referred to as DIAMONDS units
("DIAMONDS") and representing proportionate interests in the portfolio of
securities and assets held by the Trust;
WHEREAS, the Sponsor and the Trust have filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-6
(Registration No. 333-31247) including as part thereof a prospectus (the
"Prospectus"), under the Securities Act of 1933 (the "1933 Act"), and a
registration statement on Form N-8B-2 (Registration No. 811 -9170) under the
Investment Company Act of 1940 (the "1940 Act"), the forms of which have
heretofore been delivered to the Distributor; and
WHEREAS, the Trust will create and redeem DIAMONDS only in aggregations
constituting a Creation Unit as such term is used in the Registration Statement
(as defined herein in accordance with the terms and conditions set forth
therein; and the Distributor is a registered broker-dealer under the Securities
Exchange Act of 1934, as amended (the "1934 Act"); and
WHEREAS, the Trust and the Sponsor desire to retain the Distributor to
act as distributor with respect to the creation and distribution of DIAMONDS in
Creation Unit aggregations as set forth in the Trust's Registration Statement,
hold itself available to receive and process orders for DIAMONDS in the manner
set forth in the Trust's then-current prospectus and to enter into arrangements
with dealers; and
WHEREAS, the Distributor desires to render these services to the
Trust;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Sponsor, the Trust and the Distributor hereby agree as
follows:
SECTION 1
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DISTRIBUTION AND BENEFICIAL OWNERS
1. 1 Appointment. The Trust and the Sponsor hereby appoint the
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Distributor as the exclusive distributor for DIAMONDS in Creation Unit
aggregations on the terms and for the periods set forth in this Agreement, and
the Distributor hereby accepts such appointment and agrees to act in such
capacity hereunder.
1.2 Definitions.
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(a) The term "Registration Statement" shall mean the registration
statement most recently filed from time to time by the Trust with the Securities
and Exchange Commission (the "Commission") and effective under the 1933 Act, as
amended, and the 1940 Act, as amended, as such registration statement is amended
by any amendments thereto at the time in effect.
(b) The term "Prospectus" shall mean the prospectus included as part
of the Trust's Registration Statement, as such prospectus may be amended or
supplemented from time to time.
(c) The term "Depository" shall mean The Depository Trust Company, New
York, New York.
(d) All capitalized terms used but not defined in this Agreement shall
have the meanings ascribed to such terms in the Registration Statement.
1.3 Distributor's Duties. The Distributor shall have the following
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duties:
(a) The Distributor agrees, as agent for the Trust, that all orders to
create DIAMONDS in Creation Unit size aggregations must be placed with the
Distributor and it is the responsibility of the Distributor to transmit such
orders to the Trustee, as described in the Registration Statement and in
accordance with the provisions thereof.
(b) The right granted to the Distributor to receive all orders to
create DIAMONDS in Creation Unit size aggregations and to transmit such orders
to the Trustee shall be exclusive, and no other principal underwriter or
distributor shall be granted such right; provided, however, that nothing herein
shall affect or limit the right and ability of the Trustee to accept Portfolio
Deposits and related Cash Components (each as defined in the Prospectus) through
or outside of the DIAMONDS Clearing Process, and as provided in and in
accordance with the then-current Prospectus. The exclusive right to place
creation orders for DIAMONDS granted to the Distributor may be waived by the
Distributor by notice to the Trust and the Sponsor in writing, either
unconditionally or subject to such conditions and limitations as may be set
forth in such notice to the Trust and the Sponsor. The Trust and the Sponsor
hereby
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acknowledge that the Distributor may render principal underwriting,
distribution and other services to other parties, including other unit
investment trusts.
(c) At the request of the Trust and the Sponsor, the Distributor shall
enter into Participant Agreements between and among Participating Parties, the
Distributor and the Trustee, in accordance with the provisions of the
Registration Statement and current Prospectus and in the form attached hereto as
Exhibit A.
(d) Except as otherwise noted in the Registration Statement and
current Prospectus, the offering price for all Creation Units sold to investors
by the Distributor will be the net asset value per Creation Unit calculated in
the manner described in the Registration Statement and current Prospectus.
(e) In performing its duties hereunder, the Distributor shall act in
conformity with the Trust Agreement, Registration Statement and the then-current
Prospectus relating to DIAMONDS and the Trust and with the instructions and
directions of the Sponsor and Trustee of the Trust, and will comply with and
conform in all material respects to the requirements of the 1933 Act, the 1934
Act and the 1940 Act and all other applicable federal and state laws,
regulations and rulings, and the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD").
(f) The Distributor shall not be obligated to accept any certain
number of orders for Creation Unit size aggregations of DIAMONDS, and nothing
herein contained shall prevent the Distributor from entering into like
distribution arrangements with other investment companies.
(g) The Distributor shall clear and file all advertising, sales,
marketing and promotional materials of the Trust provided to the Distributor, or
in the preparation of which it has participated, with the NASD as required by
the 1933 Act and the 1940 Act, and the rules promulgated thereunder, and by the
rules of the NASD. The Distributor is not authorized to give any information or
to make any representations other than those contained in the Registration
Statement or current Prospectus, as amended from time to time, or contained in
reports to Beneficial Owners or other materials that may be prepared by the
Trustee or Sponsor on behalf of the Trust for the Distributor.
(h) The Distributor shall consult with the Sponsor and the Trust with
respect to the production and printing of prospectuses to be used in connection
with creations by new creators of Creation Unit aggregations of DIAMONDS.
(i) In performing its duties hereunder the Distributor shall be
entitled to rely on and shall not be responsible in any way for information
provided to it by the Trustee, the Sponsor or the Trust and their respective
service providers and shall not be liable or responsible for the errors and
omissions of such service providers, provided that the foregoing shall not be
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construed to protect the Distributor against any liability to the Trustee, the
Sponsor, the Trust or the Trust's Beneficial Owners to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
1.4 The Trust's and Sponsor's Duties. The Trust and Sponsor shall have
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the following duties:
(a) The Trust and Sponsor agree to create Creation Unit size
aggregations of DIAMONDS, subject to paragraph (e) of this Section 1.4, and to
request the Depository to record ) on its books the ownership of such DIAMONDS
in accordance with the book-entry system procedures described in the Prospectus
in such amounts as the Distributor has requested in writing or other means of
data transmission, as promptly as practicable after receipt by the Trustee on
behalf of the Trust of the requisite Portfolio Deposit and Cash Component
(together with any fees) for such creations and acceptance by the Trustee or by
the Distributor on behalf of the Trust of a creation order for such DIAMONDS,
upon the terms described in the Registration Statement.
(b) The Trust and Sponsor shall furnish to the Distributor copies of
all information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Creation
Units. The Trust and the Sponsor shall make available to the Distributor such
number of copies of the current Prospectus as the Distributor may reasonably
request. The Trust and the Sponsor authorize the Distributor to use the
Prospectus, but the Trust and the Sponsor shall not be responsible in any way
for any information, statements or representations given or made by the
Distributor or its representatives or agents other than such information,
statements or representations as are contained in the Prospectus or financial
reports filed on behalf of the Trust or in any sales literature or
advertisements specifically approved by the Trust and the Sponsor in writing.
(c) The Sponsor agrees that it will take all necessary action to
register an indefinite number of DIAMONDS under the 1933 Act, as amended. The
Sponsor shall take, from time to time, such steps, including payment of the
related filing fees, as may be necessary to register DIAMONDS under the 1933 Act
and the 1940 Act to the end that all Creation Unit size aggregations of DIAMONDS
will be properly registered under the 1933 Act and the 1940 Act. The Trust and
the Sponsor agree to file from time to time such amendments, supplements,
reports and other documents as may be necessary in order that there may be in a
Registration Statement or Prospectus no (i) untrue statement of a material fact
or (ii) omission to state a material fact necessary in order to make the
statements therein, in the case of the Prospectus, in light of the circumstances
in which made, not misleading. The Distributor shall furnish such information
and other material relating to its affairs and activities as may be required by
the Trust and the Sponsor for inclusion in the Registration Statement or
Prospectus.
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(d) The Trust and the Sponsor shall keep the Distributor informed of
the states and other foreign and domestic jurisdictions in which the Trust has
effected notice filings of shares of DIAMONDS for sale under the securities laws
thereof The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Trust and the
Sponsor in connection with such filings.
(e) In accordance with the provisions of the then-current prospectus,
the Trust may reject any creation order for Creation Unit aggregations of
DIAMONDS or stop all receipts of creation orders for DIAMONDS at any time or
from time to time upon reasonable notice to the Distributor.
1.5 Representations.
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(a) The Distributor represents and warrants to the Trust and the
Sponsor that (i) it is duly organized as a Colorado corporation and is and at
all times will remain duly authorized and licensed to carry out its services as
contemplated herein; (ii) the execution, delivery and performance of this
Agreement are within its power and have been duly authorized by all necessary
action; and (iii) its entering into this Agreement or providing the services
contemplated hereby does not conflict with or constitute a default or require a
consent under or breach of any provision of any agreement or document to which
the Distributor is a party or by which it is bound (except for any consent in
writing which shall have been obtained by the date hereof).
(b) The Sponsor represents and warrants to the Distributor that (i)
the Registration Statement and the Prospectus have been prepared in conformity
in all material respects with the 1933 Act, the 1940 Act and the rules and
regulations of the Commission (the "Rules and Regulations"); (ii) contain all
statements required to be stated therein in accordance with the 1933 Act, the
1940 Act and the Rules and Regulations; and (iii) all statements of fact
contained therein are true and correct in all material respects at the time
indicated or the effective date, as the case may be, and neither the
Registration Statement nor the Prospectus shall include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the case of the Prospectus in light
of the circumstances in which made, not misleading. The Trust and the Sponsor
shall from time to time file such amendment or amendments to the Registration
Statement and the Prospectus as, in the light of future developments, shall, in
the opinion of the Trust's counsel, be necessary in order to have the
Registration Statement and the Prospectus at all times contain all material
facts required to be stated therein or necessary to make the statements therein,
in the case of the Prospectus in light of the circumstances in which made, not
misleading to a purchaser of shares. The Trust shall not file any amendment to
the Registration Statement or the Prospectus without giving the Distributor
reasonable notice thereof in advance, provided that nothing in this Agreement
shall in any way limit the Trust's right to file at any time such amendments to
the Registration Statement or the Prospectus as the Trust may deem advisable.
Notwithstanding the foregoing, the Trust and the Sponsor shall not be deemed to
make any representation or warranty as to any information or
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statement provided by the Distributor for inclusion in the Registration
Statement or the Prospectus.
(c) Notification Provisions. The Trust and the Sponsor shall notify
the Distributor promptly of:
1. any request by the Commission for amendments to the Trust's
Registration Statement or Prospectus or for additional
information;
2. any stop order suspending the effectiveness of the Trust's
Registration Statement or the initiation of any proceeding for
that purpose;
3. all significant actions of the Commission having a material
impact with respect to any amendment to the Trust's Registration
Statement or Prospectus.
SECTION 2
FEES AND EXPENSES
2.1 Compensation of the Distributor . The Sponsor shall pay to the
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Distributor, for its services described in this Agreement, an annual
distribution fee of $25,000 such fee to be paid monthly in advance on the first
day of each calendar month with the first payment to be delivered upon the
effectiveness of this Agreement in a prorated amount.
2.2 Expenses.
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(a) Each party hereto will bear its own expenses in connection with
this Agreement unless otherwise agreed by the parties hereto in writing. In
addition, the expenses of the Trust shall be borne by the Trust as described
under the caption "Expenses of the Trust" in the Prospectus.
(b) The Distributor shall bear the following costs and expenses
relating to the distribution of DIAMONDS: (i) the costs (other than those
payable pursuant to the Trust's agreement with the Depository) of processing and
maintaining records of creations of Creation Units; (ii) all costs of
maintaining the records required of a broker/dealer registered under the 1934
Act; (iii) the expenses of maintaining its registration or qualification as a
dealer or broker under federal or state laws; (iv) the expenses incurred by the
Distributor in connection with normal (non-expedited) NASD filing fees; and (v)
all other expenses incurred in connection with the distribution services as
contemplated herein, except as otherwise specifically provided in this
Agreement.
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SECTION 3
INDEMNIFICATION
3.1 Indemnification of Distributor . The Sponsor agrees to indemnify,
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defend and hold the Distributor, its officers and directors and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act (any
of the Distributor, its officers and directors or such control persons, for
purposes of this Section 3.1, an "Indemnitee"), free and harmless from and
against any and all claims, demands, liabilities, and expenses (including costs
reasonably incurred in connection with investigating or defending such claims,
demands or liabilities and any counsel fees reasonably incurred in connection
therewith) which the Indernnitee may incur, under the 1933 Act or under common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in the Trust's Registration
Statement, or the omission or alleged omission to state in such document a
material fact required to be stated therein or necessary to make the statements
therein not misleading or, with respect to the Prospectus or any amendment or
supplement thereto, any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state in such document a
material fact required to be stated therein or necessary to make the statements
therein in the light of the circumstances under which they were made, not
misleading; provided, however, that nothing in this Section 3.1 shall protect
the Indemnitee against any liability to the Trust or its Beneficial Owners that
the Indemnitee would otherwise be subject to (i) by reason of willful
malfeasance, bad faith, or gross negligence in the performance of its duties,
(ii) by reason of the Indemnitee's reckless disregard of its obligations and
duties under this Agreement, or (iii) where such liability arises out of or is
based upon any untrue statement or omission or alleged untrue statement or
omission in the Trust's Registration Statement or Prospectus that was made in
reliance upon and in conformity with written information furnished by the
Distributor to the Trust and the Sponsor; and provided, further, that the Trust
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will not be liable in any such case to the Indemnitee with respect to any untrue
statement or omission or alleged untrue statement or omission made in the
Registration Statement or the Prospectus that is subsequently corrected in such
document (or an amendment thereof or supplement thereto), if a copy of the
Prospectus (or such amendment thereof or supplement thereto) was not sent or
given to the person asserting any such claim, demand, liability or expense at or
before the written confirmation of the sale to such person in any case where
such delivery is required by the 1933 Act and the Trust had notified the
Distributor of the amendment or supplement prior to the sending of the written
confirmation of sale. The Sponsor's obligation to indemnify the Indemnitee is
expressly conditioned upon the Indernnitee's notification of the Sponsor of the
commencement of any action against the Indemnitee, which notification shall be
given by letter or by facsimile transmission addressed to the Sponsor at its
principal offices in New York, New York, and sent to the Sponsor by the person
against whom such action is brought within ten days after the summons or other
first legal process shall have been served. The Indemnitee's failure to so
notify the Sponsor shall not relieve the Sponsor of any liability which it may
have to the Indemnitee by reason of any such alleged untrue statement or
omission or alleged untrue statement or omission independent of this
indemnification. The Sponsor will be entitled to assume the defense of any suit
brought to
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enforce any such claim, demand or liability and to retain legal counsel of good
standing chosen by the Sponsor and approved by the Indemnitee (such approval not
to be unreasonably withheld). If the Sponsor elects to assume the defense of any
such suit and retain counsel approved by the Indemnitee, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them. In the event the Sponsor does not elect to
assume the defense of any such suit and retain counsel of good standing approved
by the Indernnitee or the indemnitee does not approve of the counsel chosen by
the Sponsor (such approval not to be unreasonably withheld), the Sponsor shall
bear the fees and expenses of any counsel retained by it. The indemnification
agreement contained in this Section 3.1 shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of the
Indemnitee and shall survive the sale of any Creation Units of shares made
pursuant to purchase orders obtained by the Indemnitee. This indemnification
will inure exclusively to the benefit of the Indemnitee and its successors,
assigns and estate. The Trust and the Sponsor shall promptly notify the
Indemnitee of the commencement of any litigation or proceeding against the Trust
or the Sponsor in connection with the issue and sale of any Creation Units of
shares.
3.2 Indemnification of the Sponsor. The Distributor agrees to
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indemnify, defend, and hold the Sponsor, its several officers and directors and
any person who controls the Sponsor within the meaning of Section 15 of the 1933
Act (for purposes of this Section 3.2, the Sponsor, its officers and directors,
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if any, and its controlling persons are collectively referred to as the "Sponsor
Affiliates"), free and harmless from and against any and all claims, demands,
liabilities, and expenses (including costs reasonably incurred in investigating
or defending such claims, demands or liabilities and any counsel fees reasonably
incurred in connection therewith) which the Sponsor Affiliates may incur under
the 1933 Act or under common law or otherwise, but only to the extent that such
liability or expense shall arise out of or be based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in
information furnished by the Distributor to the Sponsor for use in the
Registration Statement or Prospectus in effect from time to time under the 1933
Act, or (ii) any omission or alleged omission, on the part of the Distributor,
to state a material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to make such
information not misleading, it being understood that the Sponsor will rely upon
the information provided by the Distributor for use in the preparation of the
Registration Statement and the Prospectus, or (iii) any alleged act or omission
on the Distributor's part as the Trust's agent that has not been expressly
authorized by the Sponsor in writing. The Distributor's obligation to indemnify
the Sponsor Affiliates is expressly conditioned upon the Distributor being
notified of the commencement of any action brought against the Sponsor
Affiliates, which notification shall be given by letter or facsimile
transmission addressed to the Distributor at its principal offices in Denver,
Colorado, and sent to the Distributor by the person against whom such action is
brought within ten days after the summons or other first legal process shall
have been served. The Sponsor Affiliates' failure to notify the Distributor of
the commencement of any such action shall not relieve the Distributor from any
liability which it may have to the Sponsor Affiliates by reason of any such
untrue statement or omission or alleged untrue statement or omission on the part
of the Distributor independent of this indemnification. The Distributor shall
have a right to control the
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defense of such action, with counsel of its own choosing, satisfactory to the
Sponsor Affiliates, if such action is based solely upon such untrue statement or
omission or alleged untrue statement or omission on its part, and in any other
event the Distributor and the Sponsor Affiliates shall each have the right to
participate in the defense or preparation of the defense of such action at their
own expense.
SECTION 4
DURATION, TERMINATION, AND AMENDMENT
4.1 Duration. This Agreement shall become effective on December 1,
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1997 and continue, unless terminated as provided in Section 4.2 or until the
termination of the Trust.
4.2 Termination . Subject to Section 4.5(b), this Agreement may be
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terminated at any time, without penalty, upon 60 days' prior written notice to
the other party by the Trust and the Sponsor, or by the Distributor.
4.3 Assignment . This Agreement shall automatically terminate in the
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event of its "assignment." As used in this Agreement, the term "assignment"
shall have the meaning such term has in the 1940 Act.
4.4 Amendment. Subject to Section 4.5(c), this Agreement may be
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amended by mutual consent, provided that no provision of this Agreement may be
changed, waived, discharged or terminated except by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
SECTION 5
NOTICE
5.1 Notification of Parties . Any notice or other communication
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required or permitted to be given pursuant to this Agreement shall be deemed
duly given if addressed and delivered, or mailed by registered mail, postage
prepaid, to (1) ALPS Mutual Funds Services, Inc., at 000 00xx Xxxxxx, Xxxxx
0000, Xxxxxx, XX 00000, Attention: Xxxxx X. Xxxxx, General Counsel and (2) PDR
Services Corporation, 00 Xxxxxxx Xxxxx, Xxx Xxxx, XX 00000, Attention: Xxxxxx
Xxxxxxxxxx, President.
SECTION 6
MISCELLANEOUS
6.1 Choice of Law. This Agreement shall be governed by and construed
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in accordance with the laws of the State of New York.
6.2 Captions. The caption in this Agreement are included for
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convenience only and in no way define or limit any of the provisions hereof or
otherwise affect their construction.
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6.3 Severability. If any provisions of this Agreement shall be held or
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made invalid, in whole or in part, then the other provisions of this Agreement
shall remain in force. Invalid provisions shall, in accordance with this
Agreement's intent and purpose, be amended, to the extent legally possible, by
valid provisions in order to effectuate the intended results of the invalid
provisions.
6.4 Insurance. The Distributor will maintain at its expense an errors
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and omissions insurance policy which covers services by the Distributor
hereunder.
6.5 Force Majeure. In the event a party is hereto unable to perform
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its obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party shall not be
liable to any other party for any damages resulting from such failure to perform
or otherwise from such causes.
6.6 Counterparts. This Agreement may be executed in counterparts, each
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of which shall be an original and all of which shall constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first written above.
DIAMONDS TRUST, Series 1
By:________________________
Name: Xxxxxxxx Xxxxxxx
Title: Senior Vice President
State Street Bank and Trust
Company on behalf of the Trust
to be created as Trustee of
such Trust
PDR SERVICES CORPORATION
By:__________________________
Name: Xxxxxx Xxxxxxxxxx
Title: President
ALPS MUTUAL FUNDS SERVICES, INC.
By: _________________________
Name: Xxxxxx Xxxxx
Title: Senior Vice President
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