REFLOW FUND, LLC
PARTICIPATING FUND AGREEMENT
AGREEMENT dated as of _______________________ between The Japan Smaller
Companies Fund (the "Fund"), and ReFlow Fund LLC, a Delaware limited liability
company ("ReFlow"), in consideration of the mutual agreements herein contained
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
I. DEFINITIONS
--------------
The following terms shall have the following meanings in this Agreement:
"1940 Act" means the Investment Company Act of 1940, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Auction" means the daily auction conducted by ReFlow.
"Auction Program" means the redemption offsetting auction program
referred to in this Agreement.
"Auction Program Fee" means the fee paid by a Winning Fund to ReFlow as a
result of the Auction.
"Business Day" means each day that the New York Stock Exchange is open
for business.
"Cash Bid" means a bid for the purchase of a specific dollar amount of
Shares.
"Cash Reserve" means the amount designated by ReFlow for any given
Auction as available for Participating Funds' error corrections.
"Fee Bid" means the fee which the Fund agrees to pay to ReFlow if the
Fund is a Winning Fund in any given Auction, calculated as a percentage
of the net asset value of the Shares purchased by ReFlow.
"Final Auction Amount" means the Initial Auction Amount plus the cash
received by ReFlow from Automatic Redemptions and Voluntary Redemptions.
"Fund" means the Fund, or any series or class thereof identified in
Appendix A of this Agreement.
"Initial Auction Amount" means the amount of cash made available by
ReFlow for a particular Auction to purchase Shares from Participating
Funds.
"Market Close" means the close of business on the New York Stock Exchange
(generally 4:00 p.m. Eastern Time).
"Minimum Fee Bid" means the minimum fee which ReFlow may, from time to
time, establish with respect to an Auction.
"NAV" means the net asset value per Share of the Fund.
"Order Flow" means the current daily subscriptions for Shares from buyers
other than ReFlow less redemptions from shareholders other than ReFlow.
"Order Flow Report" means a report containing the following information:
i) the Fund's Order Flow for the prior Business Day; ii) the number of
the Fund's outstanding voting securities; iii) the Fund's NAV; and iv)
such additional information as ReFlow may specify.
"Participating Fund" means each registered open-end management investment
company or series thereof that has entered into a Participating Fund
Agreement with ReFlow.
"ReFlow" means ReFlow, LLC
"Shares" means shares of common stock or other units of beneficial
ownership issued by the Fund or any series or class thereof.
"Standing Bid" means a bid to purchase a set percentage of the Fund's net
redemptions.
"Winning Fund" means a Participating Fund that in a given Auction has
submitted a winning fee bid.
II. AUCTION PROGRAM
-------------------
1. FUND REPORTING. The Fund shall submit an Order Flow Report to
ReFlow, no later than the morning deadline (currently 9:30
a.m. but subject to change) each Business Day. ReFlow may, in
its sole discretion, extend this deadline. past the morning
deadline (but to a time which is no later than 10:30 a.m.),
provided that ReFlow provides notice of the changed deadline
on its website prior to Market Close. The Fund shall submit
its Order Flow Report on ReFlow's website, or if such website
is not available, through such other methods as ReFlow may
specify.
2. AUCTION AMOUNT. On each Business Day that ReFlow conducts
an Auction, ReFlow shall establish an Initial Auction Amount,
equal to the amount of cash it will make available that day to
purchase shares of Participating Funds. The Initial Auction
Amount, plus any cash received from Automatic Redemptions and
Voluntary Redemptions shall equal the Final Auction Amount.
2
3. AUCTION BIDS. Prior to Market Close on each Business Day
that ReFlow conducts an Auction, ReFlow may establish a
Minimum Fee Bid, below which no Fee Bid will be accepted. Any
Minimum Fee Bid will be posted on ReFlow's website. If the
Fund desires to participate in a particular Auction, the Fund
shall submit a bid to ReFlow, consisting of: 1) the amount of
liquidity the Fund desires, either in the form of a Cash Bid
or Standing Bid; and 2) the Fund's Fee Bid. The Fund's
submission may be placed, and may be modified or cancelled by
the Fund at any time up until the Market Close. A Cash Bid
shall be effective for only one Auction. A Standing Bid shall
remain in continuous effect from day to day unless modified or
cancelled by the Fund.
4. FEE BID CALCULATIONS. If the Fund places a Standing Bid,
the Auction Program shall calculate the dollar amount of the
Fund's bid based on its net redemptions reported. If the Fund
places a Cash Bid but thereafter reports net redemptions of
less than that amount, the Fund's bid shall be the amount of
its net redemptions.
5. AUTOMATIC REDEMPTIONS. If the Fund reports net inflows in
its Order Flow Report and ReFlow holds Shares of the Fund,
ReFlow shall automatically redeem an amount of Shares equal to
the lesser of: 1) the net number of shares sold as reported in
the Order Flow Report; or 2) the number of shares owned by
ReFlow. ReFlow may, in its sole discretion, adopt additional
automatic redemption policies, pursuant to which ReFlow shall
redeem shares, regardless of whether a Participating Fund
remains in a state of net redemptions. Any such policy shall
be disclosed on ReFlow's website. Any policy shall apply
uniformly to all Participating Funds, and any change to a
policy shall apply prospectively. The Fund shall effect all
automatic redemption orders at the NAV of the Fund calculated
at Market Close on the prior Business Day. Any cash to be
received by ReFlow from automatic redemptions will be added to
the Final Auction Amount. ReFlow reserves the right to cancel
automatic redemptions at any time prior to Market Close on any
Business Day, provided that it provides notice of the
cancellation on its website or through alternative means
specified.
6. AUCTION CALCULATIONS. After all Participating Funds have
submitted their Order Flow Reports, ReFlow shall conduct the
Auction. The Winning Fee Rate shall be the lowest fee rate bid
at which the entire Final Auction Amount can be invested. If
the Fund's Fee Bid is equal to or greater than the Winning Fee
Rate, the Fund shall be a Winning Fund. If the Fund is a
Winning Fund, ReFlow shall purchase an amount of Shares equal
to the dollar amount of the Fund's bid if there is sufficient
cash available from the Final Auction Amount after purchasing
shares of other Winning Funds who submitted higher Fee Bids
than the Fund. If there is insufficient cash in the Final
Auction Amount to purchase an amount of Shares equal to the
Fund's bid, ReFlow shall purchase an amount of Shares up to
the amount of cash remaining in the Final Auction Amount,
provided, however, that if the Fund submits the same Fee Bid
as another Winning Fund(s), ReFlow shall purchase shares from
the Fund and such other Winning Fund(s) on a pro rata basis.
3
7. AUTOMATIC PURCHASES. If the Fund is a Winning Fund, the
Auction Program shall automatically issue a purchase order to
the Fund, which the Fund shall effect at its NAV determined at
the prior Business Day's Market Close. ReFlow shall have no
discretion in purchasing Shares as determined by the automated
Auction process.
8. AUCTION RESULTS. The results of each Auction shall be
provided to each Participating Fund through the means
specified in the
9. ERROR CORRECTIONS. On each Business Day that an Auction is
held, ReFlow shall establish a Cash Reserve currently equal to
at least one half of one percent of the Final Auction Amount
but subject to change. If the Fund has reported an error in
its Order Flow Report, it must be reported to ReFlow
immediately after the Fund discovers the error. If the error
is discovered prior to the Auction, the Fund shall amend its
Order Flow Report to reflect the corrected information. If the
error is discovered after the Auction has been held, the Fund
shall submit the corrected information as soon as possible
thereafter. If the Fund was a Winning Fund in the Auction, and
experienced more net redemptions than previously reported,
ReFlow shall issue another purchase order to the Fund for
Shares in the amount of the error, at the Winning Fee Rate
determined in the Auction, up to the amount of the Cash
Reserve. If the Fund was a Winning Fund in the Auction, and
experienced less net redemptions than previously reported,
ReFlow shall issue a redemption order to the Fund for the
amount of the error. If ReFlow owned shares of the Fund, and
the Fund experienced more net sales than previously reported,
ReFlow shall issue an additional redemption order to the Fund
equal to the lesser of 1) the amount of the error, or 2) the
amount of Shares held by ReFlow. Any amounts received from
such redemptions will be added to the Cash Reserve.
10. LATE REPORTS. The Fund shall submit its Order Flow Report
to ReFlow no later than the morning deadlines, currently 9:30
a.m. Eastern time each Business Day but subject to change (or
later as provided in Section II.1.) If the Fund does not
submit its Order Flow Report by such time, the Auction shall
commence and the Fund's Auction Bid shall not be included in
calculating the Auction results. If the Fund's Order Flow
Report is submitted after the Auction, ReFlow shall take the
following actions. If the Fund reports net redemptions, and
the Fund's Fee Bid was equal to or greater than the Winning
Fee Bid, ReFlow shall issue a purchase order to the Fund for
Shares in the amount of net redemptions reported, at the
Winning Fee Rate determined in the Auction, up to the amount
of the Cash Reserve. If ReFlow owned shares of the Fund, and
the Fund reports net sales, ReFlow shall issue a redemption
order to the Fund equal to the lesser of 1) the amount of the
sales, or 2) the amount of Shares held by ReFlow. Any cash to
be received from such redemptions will be added to the Cash
Reserve.
4
11. TRANSACTIONS EFFECTED PURSUANT TO ERROR CORRECTIONS AND
LATE REPORTS. ReFlow shall purchase shares of Participating
Funds based on error corrections and late reports on a first
come, first served basis, until the Cash Reserve runs out, up
until Market Close that day. Purchase and redemption orders
from ReFlow resulting from error corrections and late reports
shall occur automatically, and the Fund shall effect such
transactions at the NAV of the Fund determined at the prior
Business Day's Market Close.
12. FEE PAYMENT. If the Fund is a Winning Fund in an Auction,
the Fund shall pay to ReFlow the Auction Program Fee, which
shall equal to the Fund's Fee Bid multiplied by the aggregate
dollar amount of Shares purchased in the Auction.
13. AUCTION CANCELLATION. ReFlow reserves the right to not
hold an Auction on any Business Day, or to cancel an Auction
at any time prior to Market Close. After Market Close, ReFlow
shall not cancel an Auction unless extraordinary conditions of
force majeure make it impossible for ReFlow to conduct the
Auction. ReFlow shall provide notice of any cancellation to
all Participating Funds on the ReFlow website, or if such
website is not available, through such other methods as ReFlow
may specify.
14. VOLUNTARY REDEMPTIONS. At any time that ReFlow holds
Shares, the Fund may request that ReFlow voluntarily submit a
redemption request to the Fund for some or all of such Shares.
Any such request must be received by ReFlow prior to Market
Close. ReFlow shall determine in its sole discretion whether
it wishes to honor the request and submit a redemption request
to the Fund.
15. LIMITS ON PURCHASES OF FUND SHARES. ReFlow shall not
purchase more than 3% of the outstanding voting Shares of the
Fund. In the event that an Auction would cause ReFlow to
acquire more than 3% of the Fund's Shares, ReFlow shall only
purchase an amount up to 3% of the Fund's shares.
16. NON-ACCEPTANCE OF BIDS. Notwithstanding any other
provision of this Agreement, ReFlow shall not be required to
accept any Auction Bid (and may rescind any such Auction Bid
after acceptance) that is made by the Fund in violation of any
provision of this Agreement, provided that ReFlow has given
the Fund notice of such violation.
5
III. REPRESENTATION AND WARRANTIES
----------------------------------
1. Each party represents and warrants that:
a. It is duly organized and is validly existing and in
good standing under the laws of the jurisdiction of its
organization, with full power and authority to own and
operate its property, conduct the business in which it is
now engaged and to execute and deliver and perform its
obligations under this Agreement and in compliance with
all applicable law.
b. The execution, delivery and performance by it of this
Agreement and other instruments and agreements
contemplated hereby or thereby have been duly authorized
by all requisite corporate action and have been duly
executed and delivered and constitute legal, valid and
binding obligations, enforceable against it in accordance
with their respective terms, except as such enforceability
may be limited by applicable bankruptcy laws and any
similar laws affecting the rights and remedies of
creditors generally and by general principles of equity.
c. Neither the execution and delivery of this Agreement,
or any instrument or agreement referred to herein, or
contemplated hereby, nor the consummation of any of the
transactions herein contemplated, nor compliance with the
terms, conditions and provisions hereof or thereof by it
(i) will conflict with, or result in a breach or violation
of, or constitute a default under, its certificate or
articles of incorporation, declaration of trust, by-laws
or similar organizational or charter documents, (ii) will
conflict with, or result in a breach or violation of, or
constitute a default under any contractual obligation or
any agreement or document to which it is a party, or (iii)
will violate any applicable law.
2. The Fund represents and warrants that:
a. it is an open-end management investment company
registered under the 1940 Act;
b. the Fund does not impose any sales charges, transaction
fees or redemption fees, or such charges or fees will be
waived for ReFlow;
c. the board of directors/trustees of the Fund has
determined that the Fund's participation in the Auction
Program is in the best interest of the Fund and its
shareholders; the board of directors/trustees has
authorized the Fund to participate in the Auction Program
so long as the Fund uses any money obtained through the
Auction Program solely to satisfy redemption requests; and
the Fund has provided ReFlow a copy of the board's
resolution(s) to this effect;
6
d. the Fund agrees to comply with all operating procedures
and requirements relating to the operational functioning
of the Auction Program, which ReFlow, in its sole
discretion, shall from time to time establish and which
shall be a part of this Agreement.\
3. ReFlow represents and warrants that:
a. It is a private investment company excluded from the
definition of "investment company" under Section 3(c)(7)
of the 1940 Act, with one or more series or classes of
shares or interests not required to be registered under
the 1933 Act;
b. It shall provide the Fund with notice of all operating
procedures and requirements relating to the operational
functioning of the Auction Program.
c. It shall not purchase Shares outside of the Auction
Program.
IV. MISCELLANEOUS
-----------------
1. MODIFICATIONS IN WRITING. No amendment, modification,
supplement, termination or waiver of this Agreement (other
than changes in Auction Program operating procedures) shall
be effective unless the same shall be in writing and signed
by the parties to this Agreement. Notice of changes to
Auction Program operating procedures may be given by any
means provided in paragraph IV.2 and shall be effective upon
giving such notice. Any waiver of any provision of this
Agreement, and any consent to any departure by any party to
this Agreement from the terms of any provision of this
Agreement shall be effective only in the specific instance
and for the specific purpose for which given.
2. NOTICES, ETC.
a. Except as otherwise expressly provided for in this
Agreement, all notices, demands, instructions and other
communications required or permitted to be given to any
party hereto shall be in writing and shall be personally
delivered or sent by first-class, registered, certified or
express mail, postage prepaid or by telecopier or other
electronic delivery system, or by prepaid courier service.
Unless otherwise specified in a notice sent or delivered
in accordance with the foregoing provisions of this
paragraph IV.2, notices, demands, instructions and other
communications in writing shall be given to or made upon
the respective parties hereto at their respective
addresses (or to their respective telecopies, numbers or
e-mail addresses) indicated below:
7
If to Fund:
Prospect Asset Management
0000 Xxxxxxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
If to ReFlow:
ReFlow Management Co., LLC
000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX
00000
b. Unless otherwise provided pursuant to any Auction
Program operating procedure, all notices, demands,
consents, requests and other communications to be sent or
delivered hereunder shall be deemed to be given or become
effective for all purposes of this Agreement as follows:
(i) when delivered in person, when given; (ii) when sent
by mail, when received by the Person to whom it is given,
unless it is mailed by registered, certified or express
mail, in which case it shall be deemed given or effective
on the earlier of the date of receipt or refusal; and
(iii) when sent by telegram, telecopy or other form of
rapid transmission shall be deemed to be given or
effective when receipt of such transmission is
acknowledged, electronically or otherwise.
3. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts.
4. INDEMNIFICATION. The Fund shall indemnify and hold
harmless ReFlow and each officer, employee and agent of
ReFlow from and against any and all claims, demands, actions,
losses, damages, liabilities, or costs (excluding attorneys'
fees), charges, and expenses of any nature ("Losses") arising
out of (i) any material breach by the Fund of any
representation, warranty, covenant, or agreement contained in
this Agreement and (ii) any action taken or omitted to be
taken by ReFlow pursuant to this Agreement, except to the
extent such Losses result from ReFlow's breach of this
Agreement, bad faith, willful misconduct, or gross
negligence, except as may otherwise be required by applicable
U.S. law.
ReFlow shall indemnify and hold harmless the Fund and each
officer, employee and agent of the Fund from and against any
and all Losses arising out of (i) any material breach by
ReFlow of any representation, warranty, or covenant contained
in this Agreement and (ii) any action taken or omitted to be
taken by the Fund pursuant to this Agreement except to the
extent such Losses result from the Fund's breach of this
Agreement, bad faith, willful misconduct, or gross
negligence, except as may otherwise be required by applicable
U.S. law.
5. BINDING EFFECT; ASSIGNMENT. This Agreement and the various
representations and covenants set forth herein shall be
binding upon the parties hereto and their respective
successors and assigns, and inure to the benefit of the
parties hereto and their respective investors, successors and
assigns. Nothing contained in this Agreement shall confer
upon any person other than the parties and their respective
permitted successors, assigns and nominees, any rights,
remedies, obligations or liabilities under or by reason of
this Agreement.
6. GOVERNING LAW. This Agreement shall be deemed to be a
contract made under the laws of the State of California and
for all purposes shall be governed by and construed in
accordance with the laws of said state without regard to its
conflicts of laws provisions.
7. ARBITRATION. The parties agree that any dispute or
controversy arising out of or relating to this Agreement, or
the interpretation or enforcement hereof, except as set forth
herein, shall be settled by arbitration by a panel of three
arbitrators in accordance with the rules, then in effect, of
the American Arbitration Association; provided, however, that
the arbitrators shall be experienced in the matters under
dispute, and the power of the arbitrators shall be limited to
interpreting and enforcing this Agreement as written.
Judgment upon any award made by the arbitrators will be final
and binding and may be entered in any court of competent
jurisdiction.
8. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the
validity or enforceability of such provision in any other
jurisdiction.
9. CONFIDENTIALITY. Unless otherwise required by applicable
law, ReFlow agrees to maintain the confidentiality of all
Order Flow or other information regarding the Fund and all
other information disclosed to it by the Fund and identified
as non-public information ("Confidential Information"),
PROVIDED that Confidential Information may be disclosed (i) to
permitted assignees, (ii) to third parties to the extent such
disclosure is consented to in writing by all parties to this
Agreement, (iii) to the officers, partners, directors and
employees, legal counsel and internal and external auditors of
ReFlow, (iv) in connection with any litigation or the
protection or enforcement of a party's rights, and (v) in
response to a lawful requirement of any regulatory authority
exercising supervisory jurisdiction over the disclosing party
or its affiliates.
8
10. TERMINATION. This Agreement may be terminated, without
penalty, by either party upon thirty (30) days written notice
to the other; provided, however that Paragraph IV. 9 shall
survive any such termination and all provisions of this
Agreement shall survive such termination, with respect to any
Shares purchased prior to such termination, until such Shares
are redeemed.
11. FORCE MAJEURE. Neither ReFlow nor its affiliates shall be
liable to the Fund for any damage, claim or other loss
whatsoever caused by circumstances or events beyond its
reasonable control.
12. EXPENSES. The Fund shall pay ReFlow for any expenses
incurred by ReFlow on behalf of the Fund, including, but not
limited to, expenses for wiring of funds.
13. ACKNOWLEDGEMENT OF LIMITATION OF LIABILITY. A copy of the
Agreement and Declaration of Trust of the Trust is on file
with the Secretary of the Commonwealth of Massachusetts, and
notice is hereby given by the Trust and agreed to by Reflow
that this instrument is executed on behalf of the Trustees of
the Trust as Trustees, and is not binding upon any of the
Trustees, officers, or shareholders of the Trust individually
but binding only upon the assets and property of the Trust.
Further, no portfolio of the Trust shall be liable for the
obligations of any other portfolio of the Trust.
13. HEADINGS. The headings in this Agreement are solely for
ease of reference and shall not be used in determining the
meaning hereof.
14. ENTIRE AGREEMENT. This Agreement contains the entire
understanding among the parties with respect to the subject
matter hereof and supersedes all prior agreements, and this
Agreement may only be amended by a written instrument
executed by the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first above
written.
THE ADVISORS' INNER CIRCLE FUND
ON BEHALF OF THE FUNDS INDICATED ON APPENDIX A
By:
--------------------------------
Name:
------------------------------
Title:
-------------------------------
REFLOW
By:
--------------------------------
Name:
------------------------------
Title:
-------------------------------
9
APPENDIX A
The Japan Smaller Companies Fund
