Document:

exv10w4

 Exhibit 10.4

SECOND AMENDED AND RESTATED SUBORDINATION AND 

INTERCREDITOR AGREEMENT

     This Amended and Restated Subordination and Intercreditor Agreement (this “Agreement”)
is dated as of April 23, 2009 among PNC BANK, NATIONAL ASSOCIATION (the “Bank”),
SUBORDINATED LENDER (as defined below), and ENVIRONMENTAL TECTONICS CORPORATION, a Pennsylvania
corporation (“Company”).

BACKGROUND

     As an inducement for Bank to continue and agree to increase a credit facility in favor of
Company, Subordinated Lender has agreed to enter into this Agreement to provide for the
subordination of (i) the Subordinated Indebtedness (as defined below) and (ii) the Liens (as
defined below) in the assets of Company granted to Subordinated Lender to the prior payment of
Senior Indebtedness (as defined below) and to any Liens granted to Bank. This Agreement restates
and replaces (but does not constitute a novation of) the existing Amended and Restated
Subordination and Intercreditor Agreement among Bank, Subordinated Lender and Company dated as of
July 31, 2007.

AGREEMENTS

     NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto agree as follows:

     1. Definitions.

     1.1 General Terms. For purposes of this Agreement, the following terms shall have the
following meanings:

     “Bank” shall have the meaning set forth in the introductory paragraph of this
Agreement and any successor, assign or other provider of the Senior Indebtedness.

     “Collateral” shall mean all of the property and interests in property, tangible or
intangible, real or personal, now owned or hereafter acquired by Company or the Guarantor in or
upon which Bank and/or Subordinated Lender at any time has a Lien, and including, without
limitation, all proceeds and products of such property and interests in property and any guaranty
by the Guarantor.

     “Company” shall mean Company and its successors and assigns.

     “Creditor Agreements” shall mean, collectively, the Senior Lending Agreements and the
Subordinated Lending Agreements.

     “Creditors” shall mean, collectively, Bank and Subordinated Lender and their
respective successors and assigns.

 

 

     “Default” shall mean any event which with the passage of time, provision of notice or
both would constitute an Event of Default.

     “Distribution” shall mean any payment in cash or any other property (other than
securities of the Company into which the Subordinated Indebtedness is convertible pursuant to the
terms of the Subordinated Note), or security for any such Distribution.

     “Event of Default” shall have the meaning given to the term “Event of Default” in any
of the Senior Lending Agreements.

     “Guarantor” shall mean H.F. Lenfest, an individual.

     “Insolvency Event” shall have the meaning set forth in Section 2.2(c) hereof.

     “Lien” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance (including, but not limited to, easements,
rights of way and the like), lien (statutory or other), security agreement or transfer intended as
security including, without limitation, any conditional sale or other title retention agreement,
the interest of a lessor under a capital lease or any financing lease having substantially the same
economic effect as any of the foregoing.

     “Loan Agreement” shall mean the amended and restated Letter Agreement, dated July 31,
2007, between Company and Bank, as the same may be amended, supplemented, modified or restated from
time to time.

     “Loan Documents” shall have the meaning given to the term “Loan Documents” in the Loan
Agreement.

     “Note Purchase Agreement” shall mean the Convertible Note and Warrant Purchase
Agreement dated as of February 18, 2003 between Company and Subordinated Lender, as the same may be
amended, supplemented, modified or restated from time to time.

     “Person” shall mean an individual, a partnership, a corporation (including a business
trust), a joint stock company, a trust, an unincorporated association, a joint venture, a limited
liability company, a limited liability partnership or other entity, or a government or any agency,
instrumentality or political subdivision thereof.

     “Secured Lender Remedies” shall mean any action which results in the sale,
foreclosure, realization upon, or a liquidation of any of the Collateral including, without
limitation, the exercise or any of the rights or remedies of a “secured party” under Article 9 of
the Uniform Commercial Code, such as, without limitation, the notification of account debtors.

     “Senior Indebtedness” shall mean all obligations of any kind owed by Company or the
Guarantor to Bank from time to time under or pursuant to any of the Senior Lending Agreements
including, without limitation, all principal, interest accruing thereon, charges, expenses, fees
and other sums (including all interest, charges, expenses, fees and other sums accruing after
commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of Company) chargeable to Company or Guarantor by Bank, and reimbursement,

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indemnity or other obligations due and payable to Bank. Senior Indebtedness shall continue to
constitute Senior Indebtedness, notwithstanding the fact that such Senior Indebtedness or any claim
for such Senior Indebtedness is subordinated, avoided or disallowed under the federal Bankruptcy
Code or other applicable law. Senior Indebtedness shall also include any indebtedness of Company
incurred in connection with a refinancing of the Senior Indebtedness under the Senior Lending
Agreements if the terms and conditions of the agreements, documents and instruments related to such
refinancing, taken as a whole, are not materially more onerous to Subordinated Lender than those
set forth in the Senior Lending Agreements, as in effect on the date hereof. The principal portion
of the Senior Indebtedness and the principal amount subject to this Agreement shall in no event
exceed $20,000,000.

     “Senior Lending Agreements” shall mean collectively the Loan Agreement and the Loan
Documents together with any other agreements, documents and instruments at any time evidencing,
securing or related to the Senior Indebtedness, each as from time to time in effect.

     “Subordinated Credit Facility Agreement” shall mean the Secured Credit Facility and
Warrant Purchase Agreement dated as of April ___, 2009 between Company and Subordinated Lender, as
the same has and may be amended, supplemented, modified or restated from time to time.

     “Subordinated Indebtedness” shall mean all principal, interest and other amounts
payable or chargeable in connection with the Subordinated Note.

     “Subordinated Lender” shall mean H.F. Lenfest and any other Person(s) at any time or
in any manner acquiring any right or interest in any of the Subordinated Indebtedness.

     “Subordinated Lending Agreements” shall mean, collectively, the Note Purchase
Agreement, the Subordinated Credit Facility Agreement, the Subordinated Note and all promissory
notes, guaranties, agreements, documents and instruments now or at any time hereafter executed
and/or delivered by Company, Guarantor or any other person to, with or in favor of Subordinated
Lender in connection therewith or related thereto (other than the warrants issued simultaneously
with any Subordinated Note and the documents and agreements executed in connection therewith or
related thereto), as all of the foregoing now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

     “Subordinated Note” shall mean individually and collectively (i) the convertible
promissory note issued by Company to Subordinated Lender in the original principal amount of
$10,000,000 dated February 18, 2003 pursuant to the Note Purchase Agreement, (ii) the secured
promissory note issued by Company to Subordinated Lender in the original principal amount of
$2,000,000 dated February 20, 2009, (iii) the senior secured subordinated note issued by Company to
Subordinated Lender in the original principal amount of $1,000,000 dated April ___, 2009, and (iv)
the additional senior secured subordinated promissory notes issued from time to time by Company to
Subordinated Lender pursuant to the Subordinated Credit Facility Agreement in an original aggregate
principal amount not to exceed $4,500,000, together, in each case, with any extensions thereof, or
modifications or amendments thereto or replacements and substitutions therefor.

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     1.2 Other Terms. Capitalized terms not otherwise defined herein shall have the
meanings given to them in the Loan Agreement.

     1.3 Certain Matters of Construction. The terms “herein”, “hereof and “hereunder” and
other words of similar import refer to this Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. Wherever
appropriate in the context, terms used herein in the singular also include the plural and
vice versa. All references to statutes and related regulations shall include any
amendments of the same and any successor statutes and regulations. Except as expressly set forth
herein, all references to any instruments or agreements, including, without limitation, references
to any of the Creditor Agreements shall include any and all modifications or amendments thereto and
any and all extensions or renewals thereof.

     2. Covenants. Company and Subordinated Lender hereby covenant that until the Senior
Indebtedness shall have been paid in full and satisfied in cash and the Loan Agreement shall have
been terminated, all in accordance with the terms of the Loan Agreement, each will comply with such
of the following provisions as are applicable to it:

     2.1 Transfers. Subordinated Lender covenants to cause any transferee from it of any
Subordinated Indebtedness, prior to acquiring such interest, to execute and deliver a counterpart
of this Agreement to Bank.

     2.2 Subordination Provisions. To induce Bank to enter into the Loan Agreement,
notwithstanding any other provision of the Subordinated Indebtedness to the contrary but subject to
subsection 2.2(a), any Distribution with respect to the Subordinated Indebtedness is and shall be
expressly junior and subordinated in right of payment to all amounts due and owing upon all Senior
Indebtedness outstanding from time to time until such time as the Senior Indebtedness has been paid
in full in cash and the Loan Agreement has been terminated.

     (a) Payments. Company shall not make a Distribution on the Subordinated Indebtedness
until such time as the Senior Indebtedness shall have been paid in full in cash and the Loan
Agreement shall have been terminated; provided, however, so long as no Default or
Event of Default shall have occurred and be continuing under the Senior Lending Agreements, Company
may pay, and Subordinated Lender may receive, regularly scheduled payments of interest on, and
principal at the stated (but not any accelerated) maturity of, the Subordinated Indebtedness as set
forth on the date hereof in the Note Purchase Agreement, the Subordinated Credit Facility Agreement
and the Subordinated Note as the case may be.

     Following the occurrence of an Event of Default under the Senior Lending Agreements and
receipt by Subordinated Lender of written notice of such Event of Default from Bank (such notice,
the “Default Notice”), Company shall not make a Distribution on the Subordinated
Indebtedness and Subordinated Lender shall not be entitled to receive any such Distribution in
respect of the Subordinated Indebtedness; provided, however, that notwithstanding
the foregoing restriction, Company may pay, and Subordinated Lender shall be entitled to receive,
any then due and payable (on a non-accelerated basis) interest payment with respect to the
Subordinated Indebtedness on the earlier to occur of (x) the date on which all such Events of
Default specified in the Default Notice shall have been cured or waived, or (y) in the case of an
Event of Default

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other than with respect to the payment when due of any Senior Indebtedness, the expiration of
a period of 180 days from delivery of the Default Notice. Nothing herein shall limit the accrual
of deferred interest or default interest in accordance with the terms of the Subordinated Lending
Agreements.

     (b) Limitation on Acceleration. During any period described in Section 2.2 (a) hereof
in which a Distribution is not permitted to be made on Subordinated Indebtedness, Subordinated
Lender shall not be entitled to accelerate the maturity of the Subordinated Indebtedness, exercise
any Secured Lender Remedies or commence any other action or proceeding to recover any amounts due
or to become due with respect to Subordinated Indebtedness, provided, however, the
foregoing limitation on acceleration or exercise of any remedies shall not be applicable following
(x) the occurrence of an Insolvency Event or (y) following the maturity or acceleration of the
Senior Indebtedness.

     (c) Prior Payment of Senior Indebtedness in Bankruptcy, etc. In the event of any
insolvency or bankruptcy proceedings relative to Company or Company’s property, or any
receivership, liquidation, reorganization or other similar proceedings in connection therewith, or,
in the event of any proceedings for voluntary liquidation, dissolution or other winding up of
Company or distribution or marshalling of Company’s assets or any composition with creditors of
Company, whether or not involving insolvency or bankruptcy, or if Company shall cease its
operations, call a meeting of its creditors or no longer do business as a going concern (each
individually or collectively, an “Insolvency Event”), then all Senior Indebtedness shall be paid in
full and satisfied in cash and the Loan Agreement terminated before any Distribution shall be made
on account of any Subordinated Indebtedness. Any such Distribution resulting from an Insolvency
Event which would, but for the provisions hereof, be payable or deliverable in respect of the
Subordinated Indebtedness, shall be paid or delivered directly to Bank until amounts owing upon
Senior Indebtedness shall have been paid in full in cash and the Loan Agreement terminated provided
that any such Distribution to Bank to which Subordinated Lender would be entitled except for the
provisions of this Agreement shall, as between Company and Subordinated Lender, not be deemed to be
a Distribution by Company to or on account of the Subordinated Indebtedness.

     (d) Acceleration. In the event of all Senior Indebtedness becoming due and payable,
whether by acceleration, maturity or otherwise, no Distribution shall thereafter be made on account
of the Subordinated Indebtedness until all Senior Indebtedness shall be paid in full in cash and
the Loan Agreement shall have been terminated.

     (e) Power of Attorney. Subordinated Lender shall have the right to participate in any
bankruptcy or insolvency proceedings, subject to the terms and conditions of this Section 2.2(e).
To enable Bank to assert and enforce its rights hereunder upon the happening of any Insolvency
Event and until all amounts owing upon Senior Indebtedness shall have been paid in full in cash and
the Loan Agreement terminated, Bank or any person whom it may designate is hereby irrevocably
appointed attorney in fact for Subordinated Lender with full power to act in the place and stead of
Subordinated Lender solely for such purpose, including the right to make, present, file and vote
such proofs of claim against Company on account of all or any part of the Subordinated Indebtedness
as Bank may deem advisable and to receive and collect any and all distributions or other payments
in respect of the Subordinated Indebtedness made thereon and to

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apply the same on account of the Senior Indebtedness. In the event that Bank or its designee
fails to file a proof of claim with respect to the Subordinated Indebtedness in any bankruptcy
proceeding relative to Company prior to the date which is ten (10) days prior to any claims bar
date in such proceeding, Subordinated Lender may file such proofs of claim with respect to the
Subordinated Indebtedness. Subordinated Lender will execute and deliver to Bank such instruments
as may be required by Bank to enforce any and all Subordinated Indebtedness, to effectuate the
aforesaid power of attorney and to effect collection of any and all distributions or other payments
in respect of the Subordinated Indebtedness which may be made at any time after the occurrence of
an Insolvency Event, on account thereof, and Subordinated Lender hereby irrevocably appoints Bank
as the lawful attorney and agent of Subordinated Lender to execute financing statements on behalf
of Subordinated Lender and hereby further authorizes Bank to file such financing statements in any
appropriate public office.

     (f) Knowledge; Delivery of Default Notice. Subordinated Lender shall not at any time
be charged with knowledge of any Event of Default under the Senior Lending Agreements (except to
the extent Subordinated Lender is the Guarantor and such Event of Default arises from a default by
the Guarantor under any of the Loan Documents, in which event Subordinated Lender shall be charged
with knowledge thereof) or on such account be prohibited from receiving or retaining any payment of
monies or from taking any action regarding acceleration or the exercise of remedies, unless and
until Subordinated Lender shall have received the Default Notice; provided,
however, any “default” or “event of default” under the Subordinated Note and/or
Subordinated Lending Agreements shall automatically constitute an Event of Default under the Senior
Lending Agreements so that payments received by Subordinated Lender following any such occurrence
shall not be retained irrespective of the lack of receipt by Subordinated Lender of a Default
Notice, unless the Event of Default is waived by such holder of Subordinated Indebtedness
or satisfied or cured by Company.

     Each Default Notice shall be deemed to be properly given by Bank or other holder of Senior
Indebtedness to Subordinated Lender if such Default Notice is delivered in accordance with Section
4.10 hereof.

     (g) Payments Held in Trust. Should any Distribution or the proceeds thereof, in
respect of the Subordinated Indebtedness, be collected or received by Subordinated Lender or any
Affiliate (as such term is defined in Rule 405 of Regulation C adopted by the Securities and
Exchange Commission pursuant to the Securities Act of 1933) of Subordinated Lender at a time when
Subordinated Lender is not permitted to receive any such Distribution or proceeds thereof pursuant
to the terms hereof, then Subordinated Lender will forthwith deliver, or cause to be delivered, the
same to Bank in precisely the form held by Subordinated Lender (except for any necessary
endorsement) and until so delivered, the same shall be held in trust by Subordinated Lender, or any
such Affiliate, as the property of Bank and shall not be commingled with other property of
Subordinated Lender or any such Affiliate.

     (h) Subrogation. Subject to the prior payment in full in cash of the Senior
Indebtedness and the termination of the Loan Agreement, to the extent that Bank has received any
Distribution on the Senior Indebtedness which, but for this Agreement, would have been applied to
the Subordinated Indebtedness, the rights of Subordinated Lender shall be subrogated to the then or
thereafter rights of Bank including, without limitation, the right to receive any

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Distribution made on the Senior Indebtedness (as if the Senior Indebtedness had not been paid
in full or the Loan Agreement terminated) until the principal of, interest on and other charges due
under the Subordinated Indebtedness shall be paid in full; and, for the purposes of such
subrogation, no Distribution to Bank to which the Subordinated Lender would be entitled except for
the provisions of this Agreement shall, as between Company, its creditors (other than Bank) and
Subordinated Lender, be deemed to be a Distribution by Company to or on account of Senior
Indebtedness, it being understood that the provisions hereof are and are intended solely for the
purpose of defining the relative rights of the Subordinated Lender on the one hand, and Bank on the
other hand.

     (i) Scope of Subordination. The provisions of this Agreement are solely to define the
relative rights of Subordinated Lender and Bank. Nothing in this Agreement shall impair, as
between Company and Subordinated Lender the unconditional and absolute obligation of Company to
punctually pay the principal, interest and any other amounts and obligations owing under the
Subordinated Note and Subordinated Lending Agreements in accordance with the terms thereof, subject
to the rights of Bank under this Agreement.

     (j) Relationship. The parties acknowledge that certain rights and remedies are
provided to Subordinated Lender in the Subordinated Lending Agreements (the “Subordinated
Rights”) and certain rights and remedies are provided to Bank in the Senior Lending Agreements
(the “Bank Rights”). Those rights may include, among other things: (i) the right, after an
Event of Default, to direct account debtors to make payments directly to such Creditor; (ii) the
requirement to deliver original instruments and other possessory collateral into the possession of
a Creditor; (iii) the requirement to assemble and make available collateral to a Creditor; and (iv)
the requirement to execute and deliver such further documents and instruments as a Creditor may
deem necessary to obtain, preserve and enforce the benefits of its Creditor Agreements. In
addition, the Company has certain obligations to Subordinated Lender in the Subordinated Lending
Agreements (the “Company Subordinated Lender Obligations”) and the Company has certain
obligations to the Bank in the Senior Lending Agreements (the “Company Bank Obligations”).
The parties agree that, (a) in the event of a conflict between the Subordinated Lender Rights and
the Bank Rights, the Bank Rights shall be superior to the Subordinated Lender Rights, and (b) that
in the event of a conflict between the Company Subordinated Lender Obligations and the Company Bank
Obligations, the Company Bank Obligations will be superior to the Company Subordinated Lender
Obligations. The Company shall in good faith determine the correct Creditor to make deliveries to,
comply with instructions from and otherwise satisfy the obligations owing to, based on the
provisions of this Section 2.2(j); provided, however, if it is determined that the obligations were
satisfied with respect to the wrong Creditor, the Creditors shall make such adjustments as between
themselves as to satisfy the purposes of this Agreement. To the extent that it is impossible or
impracticable for the Company to satisfy conflicting obligations with respect to the Subordinated
Rights and the Bank Rights, or with respect to the Company Subordinated Lender Obligations and the
Company Bank Obligations, it shall not be in default under the Creditor Agreements if it satisfies
the relevant obligations with respect to only one Creditor otherwise in accordance with this
Section 2.2(j).

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     3. Security.

     3.1 Acknowledgment of Lien. Each Creditor hereby agrees and acknowledges that the
other Creditor has been or may be granted a Lien or otherwise has or may have rights in or upon all
or a portion of the Collateral.

     3.2 Priority. Notwithstanding the order or time of attachment, or the order, time or
manner of perfection, or the order or time of filing or recordation of any document or instrument,
or other method of perfecting a Lien in favor of each Creditor in any Collateral and
notwithstanding any conflicting terms or conditions which may be contained in any of the Creditor
Agreements, the Liens upon and rights in the Collateral of Bank have and shall have priority over
the Liens upon and rights in the Collateral of Subordinated Lender and such Liens and rights of
Subordinated Lender are and shall be, in all respects, subject and subordinate to the Liens and
rights of Bank therein to the full extent of the Senior Indebtedness outstanding from time to time.
Subordinated Lender shall not take any action to foreclose or realize upon any Collateral until
such time as the Senior Indebtedness shall have been paid in full in cash and the Loan Agreement
irrevocably terminated; provided however, Subordinated Lender may join in any
foreclosure proceeding of the Collateral commenced by the Bank to the extent the joinder in such
legal proceeding is necessary to prevent the waiver or lapse of Subordinated Lender’s rights with
respect to such Collateral, but subject at all times to the Bank’s rights hereunder to determine
the disposition of such Collateral in accordance with the terms hereof.

     3.3 No Alteration of Priority. The lien priorities provided in Section 3.2 hereof
shall not be altered or otherwise affected by any amendment, modification, supplement, extension,
renewal, restatement or refinancing of any Senior Indebtedness or the Subordinated Indebtedness,
nor by any action or inaction which a Creditor may take or fail to take in respect of the
Collateral.

     3.4 Perfection. Each Creditor shall be solely responsible for perfecting and
maintaining the perfection of its Lien in and to each item constituting the Collateral in which
such Creditor has been granted a Lien or any rights. The foregoing provisions of this Agreement
are intended solely to govern the respective lien priorities as between Creditors and shall not
impose on Bank any obligations in respect of the disposition of proceeds of foreclosure on any
Collateral which would conflict with prior perfected claims therein in favor of any other Person.
Subordinated Lender agrees that it will not contest the validity, perfection, priority or
enforceability of the Liens of Bank in the Collateral and that as between Bank and such
Subordinated Lender, the terms of this Agreement shall govern even if part or all of the Senior
Indebtedness or the Liens of Bank securing payment and performance thereof are avoided, disallowed,
set aside or otherwise invalidated in any judicial proceeding or otherwise.

     3.5 Management of Collateral. Until all amounts owing upon Senior Indebtedness shall
have been paid in full in cash and the Loan Agreement terminated, Bank shall have the exclusive
right to manage, perform and enforce the terms of the Senior Lending Agreements with respect to the
Collateral and to exercise and enforce all privileges and rights thereunder according to its
discretion and exercise of its business judgment, including, without limitation, the exclusive
right to enforce or settle insurance claims, take or retake control or possession of the Collateral
and to hold, prepare for sale, process, sell, lease, dispose of, or liquidate the

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Collateral, subject to the requirement that the net proceeds of such sale or other disposition
are applied to the Senior Indebtedness and/or the Subordinated Indebtedness as required under
Section 3.6. In connection therewith, Subordinated Lender waives any and all rights to affect the
method or challenge the appropriateness of any action by Bank.

     3.6 Sale of Collateral. Notwithstanding anything to the contrary contained in any of
the Creditor Agreements until all amounts owing upon Senior Indebtedness shall have been paid in
full in cash and the Loan Agreement terminated, only Bank shall have the right to restrict or
permit, or approve or disapprove, the sale, transfer or other disposition of Collateral in which
Bank has a Lien or any rights. Subordinated Lender will, promptly upon the request of Bank,
release or otherwise terminate its Liens on the Collateral upon which it has a Lien, to the extent
such Collateral is sold or otherwise disposed of either by Bank, its agents, or Company with the
consent of Bank, and the net proceeds of such sale or other disposition are applied to the Senior
Indebtedness and/or the Subordinated Indebtedness, and Subordinated Lender will promptly deliver
such release documents as Bank may require in connection therewith. Bank shall have the sole
discretion as to whether to apply the net proceeds of such sales or other dispositions to the
Senior Indebtedness and/or the Subordinated Indebtedness.

     In the event that Bank conducts a foreclosure proceeding with respect to any Collateral,
Subordinated Lender may bid to purchase such Collateral, but such ability to bid shall not impose
any additional obligations on Bank or limit the discretion of Bank with respect to the disposition
of the Collateral.

     3.7 Secured Lender Remedies. Subject to Section 2.2(b) hereof, in no event shall
Subordinated Lender exercise any Secured Lender Remedies until such time as the Senior Indebtedness
shall have been paid in full in cash and the Senior Lending Agreements terminated; nor shall
Subordinated Lender join in the filing of any petition in bankruptcy, solicit any other person to,
or act to cause the commencement of, any case involving Company under any state or federal
bankruptcy or insolvency laws or seek the appointment of a receiver for the affairs or property of
Company until such time as the Senior Indebtedness shall have been paid in full in cash and the
Senior Lending Agreements shall have been irrevocably terminated; provided however, Subordinated
Lender may join in any foreclosure proceeding of the Collateral commenced by Bank to the extent the
joinder in such legal proceeding is necessary to prevent the waiver or lapse of Subordinated
Lender’s rights with respect to such Collateral, but subject at all times to Bank’s rights
hereunder to determine the disposition of such Collateral in accordance with the terms hereof. In
the event Subordinated Lender shall receive any payment or distribution of any kind representing
proceeds of any Collateral before the Senior Indebtedness shall have been paid in full in cash and
the Senior Lending Agreements terminated, such sums shall be held in trust by Subordinated Lender
for the benefit and on account of Bank and such amounts shall be paid to Bank for application to
the then unpaid obligations under the Senior Lending Agreements.

     3.8 Section 9-611 Notice and Waiver of Marshaling. Subordinated Lender and Bank
acknowledge that this Agreement shall constitute notice of their respective interests in the
Collateral as provided by Section 9-611 of the Pennsylvania Uniform Commercial Code and each hereby
waives any right to compel any marshaling of any of the Collateral.

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     3.9 Perfection of Certificates. The Bank shall hold that portion of the Collateral,
if any, on which it has a Lien and as to which perfection of the security interest in the
Collateral requires possession (the “Possessed Collateral”) on behalf of Subordinated
Lender (and subject to the senior lien of Bank) solely for the purpose of perfecting and keeping
perfected the security interest granted to Subordinated Lender. In connection therewith, Bank
shall take such actions as are reasonably requested by Subordinated Lender to perfect and maintain
the priority of the Liens of Subordinated Lender in the Possessed Collateral, provided such
requests do not impair the prior Liens of Bank in the Possessed Collateral or violate the
requirements of the Senior Lending Agreements. The duties and responsibilities of Bank to the
holders of the Subordinated Indebtedness with respect to the Possessed Collateral shall be limited
solely to those set forth in this Section 3.9. In no event shall Bank be liable for its actions
with respect to the Possessed Collateral except for gross negligence or willful misconduct. Upon
payment in full in cash of the Senior Indebtedness and termination of the Loan Agreement, Bank
shall deliver possession of the Possessed Collateral to Subordinated Lender or as otherwise ordered
by a court and shall take all actions reasonably necessary and at the expense of Subordinated
Lender to transfer the Possessed Collateral to Subordinated Lender.

     4. Miscellaneous.

     4.1 Provisions of Subordinated Note. From and after the date hereof, Company and the
Subordinated Lender shall cause each Subordinated Note to contain a provision to the following
effect:

“This Note is subject to the Second Amended and Restated
Subordination and Intercreditor Agreement, dated as of April 23,
2009, among the Maker, the Payee and PNC Bank, National Association,
under which this Note and the Maker’s obligations hereunder are
subordinated in the manner set forth therein to the prior payment of
certain obligations to the holders of Senior Indebtedness as defined
therein.”

Proof of compliance with the foregoing shall be promptly given to Bank.

     4.2 Additional Agreements. In the event that the Senior Indebtedness is refinanced in
full, Subordinated Lender agrees, subject to the last two sentences of the definition of Senior
Indebtedness, at the request of such refinancing party to enter into a subordination and
intercreditor agreement on terms substantially similar to this Agreement.

     4.3 Survival of Rights. The right of Bank to enforce the provisions of this Agreement
shall not be prejudiced or impaired by any act or omitted act of Company or Bank including
forbearance, waiver, consent, compromise, amendment, extension, renewal, or taking or release of
security in respect of any Senior Indebtedness or noncompliance by Company with such provisions,
regardless of the actual or imputed knowledge of Bank.

     4.4 Bankruptcy Financing Issues. This Agreement shall continue in full force and
effect after the filing of any petition (“Petition”) by or against Company under the United
States Bankruptcy Code (the “Code”) and all converted or succeeding cases in respect
thereof. All

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references herein to Company shall be deemed to apply to Company as debtor-in-possession and
to a trustee for Company. If Company shall become subject to a proceeding under the Code, and if
Bank shall desire to permit the use of cash collateral or to provide post-Petition financing from
Bank to Company under the Code, Subordinated Lender agrees as follows: (1) adequate notice to
Subordinated Lender shall be deemed to have been provided for such consent or post-Petition
financing if Subordinated Lender receives notice thereof three (3) Business Days (or such shorter
notice as is given to Bank) prior to the earlier of (a) any hearing on a request to approve such
post-Petition financing or (b) the date of entry of an order approving same and (2) no objection
will be raised by Subordinated Lender to any such use of cash collateral or such post-Petition
financing from Bank.

     4.5 Insurance Proceeds. Proceeds of the Collateral include insurance proceeds, and
therefore, notwithstanding the terms set forth in the Senior Lending Agreements or Subordinated
Lender Agreements, the priorities set forth in Section 3.2 govern the ultimate disposition of
casualty insurance proceeds. Bank, as the holder of a senior security interest on the Collateral
on which it has a Lien, shall have the sole and exclusive right, as against Subordinated Lender, to
adjust settlement of insurance claims in the event of any covered loss, theft or destruction of
such Collateral. All proceeds of such insurance shall inure to Bank, to the extent of Bank’s
claims for Senior Indebtedness, and Subordinated Lender shall cooperate (if necessary) in a
reasonable manner in effecting the payment of insurance proceeds to Bank. In the event Bank, in
its sole discretion or pursuant to agreement with Company, permits Company to utilize the proceeds
of insurance to replace Collateral, the consent of Bank thereto shall be deemed to include the
consent of Subordinated Lender.

     4.6 Receipt of Agreements. Company hereby acknowledges that it has delivered to Bank
a correct and complete copy of the Subordinated Lending Agreements as in effect on the date hereof.
Subordinated Lender, solely for the purposes of this Agreement, hereby acknowledges receipt of a
correct and complete copy of each of the Senior Lending Agreements as in effect on the date hereof.

     4.7 No Amendment of Subordinated Lending Agreements. So long as the Loan Agreement
remains in effect, neither Company nor any holder of Subordinated Indebtedness shall, without the
prior written consent of Bank, (i) enter into any amendment to or modification of any Subordinated
Lending Agreements which relates to or affects the principal amount, interest rate, or payment
terms of Company thereunder (other than any extension of maturity or postponement of payment or
accrual and payment of deferred interest on the Subordinated Note), or (ii) enter into any
amendment to or modification of any Subordinated Lending Agreements which causes any other material
covenant or agreement of Company thereunder to be more restrictive than the terms of the Senior
Lending Agreements.

     4.8 Amendments to Senior Lending Agreements. Nothing contained in this Agreement, or
in any other agreement or instrument binding upon any of the parties hereto, shall in any manner
limit or restrict the ability of Bank from increasing or changing the terms of the loans under the
Senior Lending Agreements, or to otherwise waive, amend or modify the terms and conditions of the
Senior Lending Agreements, in such manner as Bank and Company shall mutually determine.
Subordinated Lender hereby consents to any and all such waivers, amendments, modifications and
compromises, and any other renewals, extensions, indulgences,

11

 

releases of collateral or other accommodations granted by Bank to Company from time to time,
and agrees that none of such actions shall in any manner affect or impair the subordination
established by this Agreement in respect of the Subordinated Indebtedness.

     4.9 Notice of Default and Certain Events. Bank and Subordinated Lender shall
undertake in good faith to notify the other of the occurrence of any of the following as
applicable:

     (a) the obtaining of actual knowledge of the occurrence of any default under the Subordinated
Note;

     (b) the acceleration of any Senior Indebtedness by Bank or of any Subordinated Indebtedness by
Subordinated Lender;

     (c) the granting by Bank of any waiver of any Event of Default under the Loan Agreement or the
granting by Subordinated Lender of any waiver of any “default” or “event of default” under the
Subordinated Lending Agreements;

     (d) the payment in full by Company (whether as a result of refinancing or otherwise) of all
Senior Indebtedness; or

     (e) the sale or liquidation of, or realization upon, the Collateral other than collection of
Receivables in the ordinary course of business.

     The failure of any party to give such notice shall not affect the subordination of the
Subordinated Indebtedness or the relative Lien priorities as provided in this Agreement.

     4.10 Notices. Any notice or other communication required or permitted pursuant to
this Agreement shall be deemed given (a) when personally delivered to any officer of the party to
whom it is addressed, (b) on the earlier of actual receipt thereof or three (3) days following
posting thereof by certified or registered mail, postage prepaid, (c) upon actual receipt thereof
when sent by a recognized overnight delivery service or (d) upon actual receipt thereof when sent
by telecopier to the number set forth below with electronic confirmation of receipt, in each case
addressed to each party at its address or telecopier number set forth below or at such other
address or telecopier number as has been furnished in writing by a party to the other by like
notice:

	 	 	 
	If to Agent:

	 	PNC Bank, National Association

1000 Westlakes Drive, Suite 200

Berwyn, Pennsylvania 19312

Attention: John DiNapoli 

Telephone: (610) 725-5760

Facsimile:   (610) 725-5799

12

 

	 	 	 
	 
	 	 
	with a copy to:

	 	Ballard Spahr Andrews & Ingersoll, LLP

1735 Market Street, 51st Floor 

Philadelphia, PA 19103

Attention: Carl H. Fridy, Esquire

Telephone: (215) 864-8726

Facsimile:  (215) 864-8999
	 
	 	 
	If to Subordinated Lender:

	 	H.F. Lenfest

300 Barr Harbor Drive 

Suite 460

West Conshohocken, PA 19428

Telephone: (610) 940-0910

Facsimile:  (610) 940-0602
	 
	 	 
	with a copy to:

	 	Royer & Associates LLC 

681 Moore Road, Suite 321

King of Prussia, PA 19406

Attention: John E. Royer, Jr., Esquire 

Telephone: (610) 354-8887

Facsimile:  (610) 354-8896
	 
	 	 
	If to Company:

	 	Environmental Tectonics Corporation

125 James Way

Southampton, PA 18966

Attention: Duane Deaner

Telephone: (215) 355-9100

Facsimile:  (215) 357-4000
	 
	 	 
	with a copy to:

	 	Klehr, Harrison, Harvey, Branzburg & Ellers LLP

260 S. Broad Street 

Philadelphia, PA 19102

Attention: William Matthews, Esquire 

Telephone: (215) 569-4281

Facsimile:  (215) 568-6603

     4.11 Books and Records. Subordinated Lender shall furnish Bank, upon request from
time to time, a statement of the account between Subordinated Lender and Company.

     4.12 Binding Effect; Other. This Agreement shall be a continuing agreement, shall be
binding upon and shall inure to the benefit of the parties hereto from time to time and their
respective successors and assigns, shall be irrevocable and shall remain in full force and effect
until the Senior Indebtedness shall have been paid in full in cash and the Loan Agreement shall
have been terminated, but shall continue to be effective, or be reinstated, as the case may be, if
at any time payment, or any part thereof, of any amount paid by or on behalf of Company with regard
to the Senior Indebtedness is rescinded or must otherwise be restored or returned upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of Company, or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or trustee, custodian, or

13

 

similar officer, for Company or any substantial part of its property, or otherwise, all as
though such payments had not been made. No action which Bank or Company may take or refrain from
taking with respect to the Senior Indebtedness, including any amendments thereto, shall affect the
provisions of this Agreement or the obligations of Subordinated Lender hereunder. Any waiver or
amendment hereunder must be evidenced by a signed writing of the party to be bound thereby, and
shall only be effective in the specific instance. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania. The headings in this
Agreement are for convenience of reference only, and shall not alter or otherwise affect the
meaning hereof.

     5. Representations and Warranties.

     (a) Subordinated Lender represents and warrants to Bank that Subordinated Lender is the holder
of the Subordinated Indebtedness and Liens which secure or will secure the Subordinated
Indebtedness. Subordinated Lender agrees that it shall not assign or transfer any of the
Subordinated Indebtedness or Liens without (i) prior notice being given to Bank and (ii) such
assignment or transfer being made expressly subject to the terms of this Agreement. Subordinated
Lender agrees upon Bank’s request to execute and file an amendment to any financing statement or
mortgage, trust deed or other encumbrance now on file which covers Collateral to the effect that
the same is subject to the terms of this Agreement, and agrees to so mark any extension of such
financing statements, or any financing statement or mortgage, trust deed or other encumbrance filed
by Subordinated Lender on Collateral in the future. Subordinated Lender further warrants to Bank
that it has full right, power and authority to enter into this Agreement and, to the extent
Subordinated Lender is an agent or trustee for other parties, that this Agreement shall fully bind
all such other parties.

     (b) Bank represents and warrants to Subordinated Lender that Bank is the holder of the Senior
Indebtedness and Liens which secure or will secure the Senior Indebtedness. Bank agrees that it
shall not assign or transfer any of the Senior Indebtedness or Liens without (i) prior notice being
given to Subordinated Lender and (ii) such assignment or transfer being made expressly subject to
the terms and provisions of this Agreement. Bank further warrants to Subordinated Lender that it
has full right, power and authority to enter into this Agreement and, to the extent Bank is an
agent or trustee for other parties, that this Agreement shall fully bind all such other parties.

     6. Proceedings. ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST SUBORDINATED LENDER,
COMPANY OR BANK WITH RESPECT TO THIS AGREEMENT OR ANY RELATED AGREEMENT MAY BE BROUGHT IN ANY COURT
OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF PENNSYLVANIA, UNITED STATES OF AMERICA, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT EACH PARTY THERETO ACCEPTS FOR THEMSELVES AND IN
CONNECTION WITH THEIR PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY PARTY HERETO TO BRING PROCEEDINGS

14

 

AGAINST ANY OTHER PARTY IN ANY COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY
ANY PARTY HERETO AGAINST ANY OTHER PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN
ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, SHALL
BE BROUGHT ONLY IN A COURT LOCATED IN THE COUNTY OF PHILADELPHIA, COMMONWEALTH OF PENNSYLVANIA;
PROVIDED THAT NOTWITHSTANDING THE FOREGOING, IF IN ANY JUDICIAL PROCEEDING BY OR AGAINST ANY PARTY
HERETO THAT IS BROUGHT IN ANY OTHER COURT SUCH COURT DETERMINES THAT ANY PARTY HERETO IS AN
INDISPENSABLE PARTY, ANY SUCH PARTY SHALL BE ENTITLED TO JOIN OR INCLUDE ANY OTHER PARTY HERETO IN
SUCH PROCEEDINGS IN SUCH OTHER COURT. EACH PARTY HERETO WAIVES ANY OBJECTION TO JURISDICTION AND
VENUE OF ANY ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS.

     7. Waiver Of Jury Trial. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY CREDITOR OR COMPANY WITH RESPECT
TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENTS OR AGREEMENT EXECUTED OR DELIVERED BY THEM IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY
HERETO HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT JURY, AND THAT ANY OF THEM MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THEIR CONSENT TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.

     8. Company Acknowledgement. Company agrees that (i) nothing contained in this
Agreement shall be deemed to amend, modify, supercede or otherwise alter the terms of the
respective agreements between Company and each Creditor and (ii) this Agreement is solely for the
benefit of the Creditors and shall not give Company, its successors or assigns or any other person
any rights vis-à-vis any Creditor.

     9. Counterparts; Facsimile. This Agreement may be executed by the parties hereto in
one or more counterparts, each of which shall be deemed an original and all of which when taken
together shall constitute one and the same agreement. Any signature delivered by a party by
facsimile transmission shall be deemed to be an original signature hereto.

[SIGNATURE PAGES FOLLOW]

15

 

(SIGNATURE PAGE TO SECOND AMENDED AND RESTATED SUBORDINATION

AND

INTERCREDITOR AGREEMENT)

     IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of

the date first written above).

	 	 	 	 	 
	 	PNC BANK, NATIONAL ASSOCIATION

 	 
	 	By:  	/s/
John D. Napoli	 
	 	 	Name:  	John D. Napoli	 
	 	 	Title:  	Senior Vice President	 
	 	 	 
	 	  	/s/
H. F. Lenfest	 
	 	 	H.F. Lenfest 	 
	 	 	 	 
	 
	 	ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	/s/ Duawe D. Deawes	 
	 	 	Name:  	Duawe D. Deawes	 
	 	 	Title:  	CFO	 

 

 

	 	 	 	 	 

ACKNOWLEDGMENT AND AGREEMENT

     Each of the undersigned hereby acknowledges the provisions of the foregoing Second Amended and
Restated Subordination Agreement (the “Agreement”) and confirms and agrees that its obligations
under the Subordinated Lending Agreements, including any guaranty in favor of Subordinated Lender
(as defined in the Agreement), are subject to the terms and conditions set forth in the Agreement,
as amended from time to time.

	 	 	 	 	 
	 	ENTERTAINMENT TECHNOLOGY CORPORATION

 	 
	 	By  	/s/
Duane D. Deanes	 
	 	 	Name:  	Duane D. Deanes	 
	 	 	Title:  	CFO	 
	 
	 	ETC DELAWARE, INC.

 	 
	 	By  	/s/
Duane D. Deanes;	 
	 	 	Name:  	Duane D. Deanes	 
	 	 	Title:  	CFO	 

17Exhibit 4.1

DEPOSITARY TRUST AGREEMENT

ETF Securities USA LLC

as Sponsor

and

THE BANK OF NEW YORK MELLON,

as Trustee

 

Depositary Trust Agreement

ETFS Palladium Trust

 

Dated as of [                    ], 2009

 

TABLE OF CONTENTS

 

	
                         
 	
                         
 	
                        Page
 
	
                         
 	
                         
 	
                        
 
	
                        Article I. DEFINITIONS AND RULES OF CONSTRUCTION
 	
                         
 	
                        1
 
	
                        Section 1.1 Definitions.
 	
                         
 	
                        1
 
	
                        Section 1.2 Rules of Construction.
 	
                         
 	
                        5
 
	
                        Article II. CREATION AND DECLARATION OF TRUSTS; FORM OF CERTIFICATES; DEPOSIT OF PALLADIUM; DELIVERY, REGISTRATION OF TRANSFER AND SURRENDER OF SHARES
 	
                         
 	
                        6
 
	
                        Section 2.1 Creation and Declaration of Trust; Business of the Trust.
 	
                         
 	
                        6
 
	
                        Section 2.2 Form of Certificates; Book-Entry System; Transferability of Shares.
 	
                         
 	
                        6
 
	
                        Section 2.3 Deposit of Palladium.
 	
                         
 	
                        8
 
	
                        Section 2.4 Delivery of Shares.
 	
                         
 	
                        9
 
	
                        Section 2.5 Registration and Registration of Transfer of Shares; Combination and Split-up of Certificates.
 	
                         
 	
                        9
 
	
                        Section 2.6 Surrender of Shares and Withdrawal of Trust Property.
 	
                         
 	
                        9
 
	
                        Section 2.7 Limitations on Delivery, Registration of Transfer and Surrender of Shares.
 	
                         
 	
                        11
 
	
                        Section 2.8 Lost Certificates, Etc.
 	
                         
 	
                        11
 
	
                        Section 2.9 Cancellation and Destruction of Surrendered Certificates.
 	
                         
 	
                        11
 
	
                        Section 2.10 Splits and Reverse Splits of Shares.
 	
                         
 	
                        11
 
	
                        Article III. CERTAIN OBLIGATIONS OF REGISTERED OWNERS OF SHARES
 	
                         
 	
                        12
 
	
                        Section 3.1 Liability of Registered Owner for Taxes and Other Governmental Charges.
 	
                         
 	
                        12
 
	
                        Section 3.2 Warranties on Deposit of Palladium.
 	
                         
 	
                        12
 
	
                        Article IV. ADMINISTRATION OF THE TRUST 
 	
                         
 	
                        12
 
	
                        Section 4.1 Evaluation of Palladium.
 	
                         
 	
                        12
 
	
                        Section 4.2 Responsibility of the Trustee for Evaluations.
 	
                         
 	
                        13
 

 

 

i

 

	
                        Section 4.3 Trust Evaluation.
 	
                         
 	
                        13
 
	
                        Section 4.4 Cash Distributions.
 	
                         
 	
                        14
 
	
                        Section 4.5 Other Distributions.
 	
                         
 	
                        14
 
	
                        Section 4.6 Fixing of Record Date.
 	
                         
 	
                        14
 
	
                        Section 4.7 Payment of Expenses; Palladium Sales.
 	
                         
 	
                        14
 
	
                        Section 4.8 Statements and Reports.
 	
                         
 	
                        15
 
	
                        Section 4.9 Further Provisions for Palladium Sales.
 	
                         
 	
                        16
 
	
                        Section 4.10 Counsel.
 	
                         
 	
                        16
 
	
                        Section 4.11 Grantor Trust.
 	
                         
 	
                        16
 
	
                        Article V. THE TRUSTEE AND THE SPONSOR
 	
                         
 	
                        17
 
	
                        Section 5.1 Maintenance of Office and Transfer Books by the Trustee.
 	
                         
 	
                        17
 
	
                        Section 5.2 Prevention or Delay in Performance by the Sponsor or the Trustee.
 	
                         
 	
                        17
 
	
                        Section 5.3 Obligations of the Sponsor and the Trustee.
 	
                         
 	
                        17
 
	
                        Section 5.4 Resignation or Removal of the Trustee; Appointment of Successor Trustee.
 	
                         
 	
                        21
 
	
                        Section 5.5 The Custodian.
 	
                         
 	
                        22
 
	
                        Section 5.6 Indemnification.
 	
                         
 	
                        23
 
	
                        Section 5.7 Charges of Trustee.
 	
                         
 	
                        24
 
	
                        Section 5.8 Charges of Sponsor.
 	
                         
 	
                        25
 
	
                        Section 5.9 Retention of Trust Documents.
 	
                         
 	
                        25
 
	
                        Section 5.10 Federal Securities Law Filings.
 	
                         
 	
                        25
 
	
                        Section 5.11 Prospectus Delivery.
 	
                         
 	
                        26
 
	
                        Section 5.12 Discretionary Actions by Trustee; Consultation.
 	
                         
 	
                        26
 
	
                        Section 5.13 Dissolution of the Sponsor Not to Terminate Trust.
 	
                         
 	
                        27
 
	
                        Article VI. AMENDMENT AND TERMINATION
 	
                         
 	
                        27
 

 

 

ii

 

	
                        Section 6.1 Amendment.
 	
                         
 	
                        27
 
	
                        Section 6.2 Termination.
 	
                         
 	
                        27
 
	
                        Article VII. MISCELLANEOUS
 	
                         
 	
                        29
 
	
                        Section 7.1 Counterparts.
 	
                         
 	
                        29
 
	
                        Section 7.2 Third-Party Beneficiaries.
 	
                         
 	
                        29
 
	
                        Section 7.3 Severability.
 	
                         
 	
                        29
 
	
                        Section 7.4 Certain Matters Relating to Beneficial Owners.
 	
                         
 	
                        30
 
	
                        Section 7.5 Notices.
 	
                         
 	
                        30
 
	
                        Section 7.6 Agent for Service; Submission to Jurisdiction.
 	
                         
 	
                        31
 
	
                        Section 7.7 Governing Law.
 	
                         
 	
                        32
 

 

 

iii

 

DEPOSITARY TRUST AGREEMENT

THIS DEPOSITARY TRUST AGREEMENT dated as of [               ], 2009, between ETF SECURITIES USA LLC, a Delaware limited liability company, as sponsor, and THE BANK OF NEW YORK MELLON, a New York banking corporation, as trustee. 

W I T N E S S E T H:

WHEREAS the Sponsor desires to establish a trust, to be known as the “ETFS Palladium Trust”, pursuant to the laws of the State of New York; and   

WHEREAS the Sponsor desires to establish the terms on which Palladium (as herein defined) may be deposited in the trust and provide for the creation of ETFS Palladium Trust Shares in Baskets (as herein defined) representing fractional undivided interests in the net assets of the trust and the execution and delivery of Certificates (as herein defined) evidencing the ETFS Palladium Trust Shares; and 

WHEREAS the Sponsor desires to provide for other terms and conditions upon which the trust shall be established and administered, as hereinafter provided; 

NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the Sponsor and the Trustee hereby agree as follows: 

ARTICLE I.

DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.1 Definitions. 

Except as otherwise specified in this Depositary Trust Agreement or as the context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Depositary Trust Agreement. 

“Agreement” means this Depositary Trust Agreement, as amended or supplemented in accordance with its terms. 

“Authorized Participant” means a Person that, at the time of submitting a Purchase Order or a Redemption Order (i) is a registered broker-dealer, (ii) is a DTC Participant or an Indirect Participant and (iii) has in effect a valid Authorized Participant Agreement. 

“Authorized Participant Agreement” means an agreement among the Trustee, the Sponsor and an Authorized Participant that authorizes the Authorized Participant to submit Purchase Orders and Redemption Orders under this Agreement. 

“Basket” means 50,000 Shares, except that the Trustee, in consultation with the Sponsor, may from time to time increase or decrease the number of Shares comprising a Basket.

 

 

1

 

 

“Basket Palladium Amount” is the amount of Palladium that must be deposited for issuance of one Basket or that is deliverable upon Surrender of one Basket. The Basket Palladium Amount will be determined as provided in Section 2.3(b). 

“Benchmark Price” means, as of any day, (i) such day’s London’s PM Fix; or (ii) other publicly available price as the Sponsor may determine fairly represents the commercial value of Palladium held by the Trust. 

“Beneficial Owner” means any Person owning a beneficial interest in any Shares. 

“Business Day” means any day other than (i) a Saturday or Sunday or (ii) a day on which the Exchange is not open for regular trading. 

“Certificate” means a certificate that is executed and delivered by the Trustee under this Agreement evidencing Shares. 

“CFTC” means the Commodity Futures Trading Commission or any successor governmental agency in the United States. 

“Commission” means the Securities and Exchange Commission of the United States or any successor governmental agency in the United States. 

“Corporate Trust Office” means the office of the Trustee at which its depositary receipt business is administered which, at the date of this Agreement, is located at 101 Barclay Street, New York, New York 10286. 

“Custodian” means the Initial Custodian and any substitute or additional Custodian appointed by the Trustee at the direction of or as approved by the Sponsor as provided in Section 5.5. 

“Custody Agreements” shall mean the Trust Unallocated Account Agreement and the Trust Allocated Account Agreement and any custody agreement entered into pursuant to Section 5.5 with a substitute or additional Custodian.

“Delivery” means (a) when used with respect to Palladium, obtaining an acknowledgement from the Custodian of a credit of Palladium on an Unallocated Basis to the account of the Person entitled to that delivery and (b) when used with respect to Shares, one or more book-entry transfers of those Shares to an account or accounts at the Depository designated by the Person entitled to such delivery for further credit as specified by that Person. 

“Depositor” means any Authorized Participant that deposits Palladium into the Trust, either for its own account or on behalf of another Person that is the owner or beneficial owner of that Palladium. 

“Depository” means DTC and such other successor depository of Shares as may be selected by the Sponsor and the Trustee as provided herein.

 

 

2

 

 

“DTC” means The Depository Trust Company, its nominees and their respective successors. 

“DTC Participant” means a Person that, pursuant to DTC’s governing documents, is entitled to deposit securities with DTC in its capacity as a “participant”. 

“Exchange” means the exchange or other securities market on which the Shares are principally traded, as specified from time to time by the Sponsor. 

“Exchange Act” has the meaning ascribed to such term in Section 4.8(b) hereof. 

“Indirect Participant” means a Person that, by clearing securities through, or maintaining a custodial relationship with, a DTC participant, has access to the DTC clearing system. 

“Initial Custodian” means HSBC Bank USA National Association, London Branch, as Custodian under the Custody Agreements,

“Internal Control Over Financial Reporting” has the meaning ascribed to such term in Rules 13a-15(f) and 15(d)-15(f) adopted by the Commission under the Exchange Act. 

“London PM Fix” means the afternoon session of the twice daily fix of the price of an ounce of Palladium which starts at 3:00 PM London, England time and is performed in London by the five members of the London Palladium fix.

“London/Zurich Good Delivery” or “Good Delivery”— means Palladium in plate or ingot form with a minimum fineness and purity of 99.95% weighing between 32.151 and 192.904 troy ounces. One troy ounce equals 31.103 grams meeting the London/Zurich Good Delivery Standards.

“LPPM”—means The London Platinum and Palladium Market. 

“Net Asset Value” means the net value of the Trust determined under Section 4.3. 

“Net Asset Value per Share” means the value of a Share determined under Section 4.3. 

“Order Cutoff Time” means, with respect to any Business Day, (i) 4:00 p.m. (New York time) on such Business Day or (ii) another time agreed to by the Sponsor and the Trustee and of which Registered Owners and all existing Authorized Participants have been notified by the Trustee. 

“Order Date” means, with respect to a Purchase Order, the date specified in Section 2.3(a) and, with respect to a Redemption Order, the date specified in Section 2.6(a). 

“Ounce” means one troy ounce equals 31.103 grams meeting the London/Zurich Good Delivery Standards.

 

 

3

 

 

“Person” means any natural person or any limited liability company, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. 

“Palladium” means (a) palladium that meets the requirements of “good delivery” under the rules of the LPPM  and (b) credit to an account on an Unallocated Basis representing the right to receive palladium that meets the requirements of part (a) of this definition. 

“Procedures” means the procedures for Purchase Orders and Redemption Orders attached to the Authorized Participant Agreement, as modified by the Trustee from time to time.

“Purchase Order” is defined in Section 2.3. 

“Qualified Bank” means a bank, trust company, corporation or national banking association organized and doing business under the laws of the United States or any State of the United States that is authorized under those laws to exercise corporate trust powers and that (i) is a DTC Participant or a participant in such other Depository as is then acting with respect to the Shares; (ii) unless counsel to the Sponsor, the appointment of which is acceptable to the Trustee, determines that the following requirement is not necessary for the exception under Section 408(m) of the Internal Revenue Code of 1986, as amended (the “Code”), to apply, is a banking institution as defined in Section 408(n) of the Code and (iii) had, as of the date of its most recent annual financial statements, an aggregate capital, surplus and undivided profits of at least $150,000,000.

“Redemption Order” is defined in Section 2.6. 

“Registered Owner” means the Person in whose name Shares are registered on the books of the Trustee maintained for that purpose. 

“Registrar” means any bank or trust company that is appointed to register Shares and transfers of Shares as herein provided. 

“Shares” means ETFS Palladium Trust Shares created under this Agreement, each representing a fractional undivided ownership interest in the net assets of the Trust, which interest shall equal a fraction, the numerator of which is 1 and the denominator of which is the total number of Shares outstanding. 

“Sponsor” means ETF Securities USA LLC, a Delaware limited liability company, or its successor. 

“Surrender” means, when used with respect to Shares, one or more book-entry transfers of Shares to the Depository account of the Trustee. 

“Trust” means the ETFS Palladium Trust, the trust entity created by this Agreement. 

“Trust Allocated Account Agreement” shall mean the Allocated Account Agreement of even date herewith between the Custodian and the Trustee the form of which is attached as Exhibit B. 

 

 

4

 

 

“Trust Allocated Account” shall mean the account maintained for the Trust by the Initial Custodian pursuant to the Trust Allocated Account Agreement, or another account maintained for the Trust by a successor Custodian on an allocated basis, as the case may be.

“Trust Unallocated Account Agreement” shall mean the Unallocated Account Agreement of even date herewith between the Custodian and the Trustee the form of which is attached as Exhibit C.

“Trust Unallocated Account” shall mean the account maintained for the Trust by the Initial Custodian pursuant to the Trust Unallocated Account Agreement, or another account maintained for the Trust by a successor Custodian on an Unallocated Basis, as the case may be.

“Trustee” means The Bank of New York Mellon, a New York banking corporation, in its capacity as trustee under this Agreement, or any successor as trustee under this Agreement. 

“Trust Property” means the Palladium that the Custodian credits to the Trust Allocated Account and the Trust Unallocated Account in accordance with the Custody Agreements, all other property held by the Custodian for the account of the Trust and any cash or other property that is received by the Trustee in respect thereof or which is otherwise being held  by or for it under this Agreement. 

“Unallocated Basis” means that the Person in whose name Palladium is so held is entitled to receive delivery of Palladium standing to the credit of that Person’s account, but that Person has no ownership interest in any particular Palladium that the custodian maintaining that account owns or holds. 

Section 1.2 Rules of Construction. 

Unless the context otherwise requires: 

(i) a term has the meaning assigned to it; 

(ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect in the United States; 

(iii) “or” is not exclusive;  

(iv) the words “herein”, “hereof”, “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; 

(v) “including” means including without limitation; 

(vi) words in the singular include the plural and words in the plural include the singular; and

 

 

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(vii) a term defined in any part of speech shall have the corresponding meaning when capitalized and used herein in another part of speech. 

ARTICLE II.

CREATION AND DECLARATION OF TRUSTS; 

FORM OF CERTIFICATES; DEPOSIT OF PALLADIUM; 

DELIVERY, REGISTRATION OF TRANSFER AND SURRENDER OF SHARES

Section 2.1 Creation and Declaration of Trust; Business of the Trust. 

(a) The Trustee acknowledges that it has received confirmation from the Custodian that the Custodian has received an initial deposit of Palladium from the initial purchaser of the first Basket of Shares and has credited such deposit to the Trust Allocated Account and Trust Unallocated Account.  The Trustee declares that the initial deposit and all other Trust Property shall be owned by the Trust and the Trustee as trustee thereof for the benefit of the Registered Owners for the purposes of, and subject to and limited by the terms and conditions set forth in, this Agreement. The trust created by this Agreement shall be known as the “ETFS Palladium Trust”. 

(b) The Trust shall not engage in any business or activities other than those authorized by this Agreement or incidental and necessary to carry out the duties and responsibilities set forth in this Agreement. Other than issuance of the Shares, the Trust shall not issue or sell any certificates or other obligations or, except as provided in this Agreement, otherwise incur, assume or guarantee any indebtedness for money borrowed. 

Section 2.2 Form of Certificates; Book-Entry System; Transferability of Shares. 

(a) The Certificates evidencing Shares shall be substantially in the form set forth in Exhibit A annexed to this Agreement, with appropriate insertions, modifications and omissions, as hereinafter provided. No Shares shall be entitled to any benefits under this Agreement or be valid or obligatory for any purpose unless a Certificate evidencing those Shares has been executed by the Trustee by the manual or facsimile signature of a duly authorized signatory of the Trustee and, if a Registrar (other than the Trustee) for the Shares shall have been appointed, countersigned by the manual signature of a duly authorized officer of the Registrar. The Trustee shall maintain books on which the registered ownership of each Share and transfers, if any, of such registered ownership shall be recorded. Certificates evidencing Shares bearing the manual or facsimile signature of a duly
authorized signatory of the Trustee and the manual signature of a duly authorized officer of the Registrar, if applicable, who was, at the time such Certificates were executed, a proper signatory of the Trustee or Registrar, if applicable, shall bind the Trustee, notwithstanding that such signatory has ceased to hold such office prior to the delivery of such Certificates. 

(b) The Certificates may be endorsed with or have incorporated in the text thereof such legends or recitals or modifications not inconsistent with the provisions of this Agreement as may be required by the Trustee or required to comply with any applicable law or regulations thereunder or with the rules and regulations of any securities exchange upon which 

 

 

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Shares may be listed or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which the Shares evidenced by a particular Certificate are subject. 

(c) The Sponsor and the Trustee will apply to DTC for acceptance of the Shares in its book-entry settlement system. Shares deposited with DTC shall be evidenced by one or more global Certificates which shall be registered in the name of Cede & Co., as nominee for DTC, and shall bear the following legend: 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE AGENT AUTHORIZED BY THE ISSUER FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 

(d) So long as the Shares are eligible for book-entry settlement with DTC and such settlement is available, unless otherwise required by law, notwithstanding the provisions of Sections 2.2(a) and (b), all Shares shall be evidenced by one or more global Certificates the Registered Owner of which is DTC or a nominee of DTC and (i) no Beneficial Owner of Shares will be entitled to receive a separate Certificate evidencing those Shares, (ii) the interest of a Beneficial Owner in Shares represented by a global Certificate will be shown only on, and transfer of that interest will be effected only through, records maintained by DTC or a DTC Participant or Indirect Participant through which the Beneficial Owner holds that interest and (iii) the rights of a Beneficial Owner with respect to Shares represented by a global Certificate will be exercised only to the extent allowed by, and in
compliance with, the arrangements in effect between such Beneficial Owner and DTC or the DTC Participant or Indirect Participant through which that Beneficial Owner holds an interest in Shares. So long as DTC or another authorized Depository selected by the Sponsor or the Trustee is the Registered Owner, the Trustee and the Sponsor may treat DTC or such other Depository as the absolute owner of the Shares for all purposes whatsoever, including without limitation, the payment of distributions, and the giving of notices of redemption, tender and other matters with respect to the Shares. 

(e) If, at any time when Shares are evidenced by a global Certificate, DTC ceases to make its book-entry settlement system available for such Shares, the Trustee shall execute and deliver separate Certificates evidencing Shares to a successor authorized Depository identified by the Sponsor and available to act, or, if no successor Depository is identified and able to act, the Trustee shall terminate the Trust in accordance with Section 6.2. 

(f) Title to a Certificate evidencing Shares (and to the Shares evidenced thereby), when properly endorsed or accompanied by proper instruments of transfer, shall be 

 

 

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transferable by delivery with the same effect as in the case of a negotiable instrument under the laws of New York; provided, however, that the Trustee, notwithstanding any notice to the contrary, may treat the Registered Owner of Shares as the absolute owner thereof for the purpose of determining the person entitled to any distribution or to any notice provided for in this Agreement and for all other purposes. 

Section 2.3 Deposit of Palladium. 

(a) After the initial deposit of Palladium in the Trust, the issuance and Delivery of Shares will take place only in integral numbers of Baskets and in compliance with the provisions of this Agreement, as supplemented by the Procedures, to the extent those Procedures are consistent with this Agreement. Authorized Participants wishing to acquire from the Trustee one or more Baskets must place an order with the Trustee (a “Purchase Order”) no later than 3:59:59 p.m. (New York time) on any Business Day. Purchase Orders received by the Trustee prior to the Order Cutoff Time on a Business Day on which the Benchmark Price is announced will have that Business Day as the Order Date. Purchase Orders received by the Trustee on or after the Order Cutoff Time on a Business Day, or on a Business Day on which the Benchmark Price is not announced, will have as their Order Date the
next Business Day on which the Benchmark Price is announced. As consideration for each Basket acquired, Authorized Participants must deposit with the Custodian, at the location designated by the Custodian, the Basket Palladium Amount determined by the Trustee on the Order Date of the corresponding Purchase Order. Palladium must be Delivered to the Custodian by credit to the Trust Unallocated Account only. 

(b) The Trustee shall determine the Basket Palladium Amount for each Business Day. The initial “Basket Palladium Amount” is 5,000 Ounces of Palladium. After the initial deposit, the “Basket Palladium Amount” for each Business Day shall be an amount of Palladium equal to the result obtained by subtracting the number of Ounces of Palladium constituting the unpaid expense accrual from the total Ounces of Palladium in the Trust and then dividing by the number of Baskets outstanding. Fractions of an Ounce of Palladium included in the Basket Palladium Amount smaller than .001 Ounce shall be disregarded. The Sponsor intends to publish, or may designate other persons to publish, for each Business Day, the Basket Palladium Amount. 

(c) If the Trust Property includes money or any property other than Palladium, no deposits of Palladium will be accepted until after a record date for distribution of that money or property, or proceeds of that property, has passed. 

(d) All deposited Palladium shall be owned by the Trust and held for the Trust by the Custodian. Pursuant to the Unallocated Account Agreement, Custodian agrees to use reasonable efforts to minimize the amount of Palladium held for the Trust on an Unallocated Basis at all times and the Custodian must allocate ownership of Palladium plates or ingots to the Trust such that no more than 192 Ounces of Palladium are held on an Unallocated Basis for the Trust at the end of each business day of the Custodian. Cash and any assets of the Trust other than Palladium shall be held by the Trustee at such place and in such manner as the Trustee shall determine. 

 

 

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Section 2.4 Delivery of Shares. 

Upon receipt by the Trustee of a Purchase Order and the other documents required as above specified, if any, and a confirmation from the Custodian that the Basket Palladium Amount has been Delivered to the Custodian for each Basket of Shares requested in such Purchase Order and the Custodian is holding that Palladium for the account of the Trust, the Trustee, subject to the terms and conditions of this Agreement and the Procedures, shall Deliver to the Depositor the number of Baskets of Shares issuable in respect of such deposit as requested in the corresponding Purchase Order, but only upon payment to the Trustee of the fees and expenses of the Trustee as provided in Section 5.7 and of all taxes and governmental charges and fees payable in connection with such deposit, the transfer of the Palladium and the issuance and Delivery of the Shares. 

Section 2.5 Registration and Registration of Transfer of Shares; Combination and Split-up of Certificates. 

(a) The Trustee shall keep or cause to be kept a register of Registered Owners of Shares and shall provide for the registration of Shares and the registration of transfers of Shares. 

(b) The Trustee, subject to the terms and conditions of this Agreement, shall register transfers of ownership of Shares on its transfer books from time to time, upon any Surrender of a Certificate evidencing such Shares, by the Registered Owner in person or by a duly authorized attorney, properly endorsed or accompanied by proper instruments of transfer, and duly stamped as may be required by the laws of the State of New York and of the United States of America. Thereupon the Trustee shall execute a new Certificate or Certificates evidencing such Shares, and deliver the same to or upon the order of the Person entitled thereto. 

(c) The Trustee, subject to the terms and conditions of this Agreement, shall, upon Surrender of a Certificate or Certificates evidencing Shares for the purposes of effecting a split-up or combination of that certificate or certificates, execute and deliver one or more new Certificates evidencing those Shares. 

(d) The Trustee may, with the written approval of the Sponsor (which approval shall not be unreasonably withheld), appoint one or more co-transfer agents for the purpose of effecting registration of transfers of Shares and combinations and split-ups of Certificates at designated transfer offices on behalf of the Trustee. In carrying out its functions, a co-transfer agent may require evidence of authority and compliance with applicable laws and other requirements by Registered Owners or Persons entitled to Shares and will be entitled to protection and indemnity to the same extent as the Trustee. 

(e) The previous paragraphs of this Section notwithstanding, so long as the Shares are eligible for deposit with a Depository, the sole Registered Owners shall be such Depository or its nominee and transfer of Shares shall be effected solely by the Depository in accordance with its customary practices in effect from time to time.

 

 

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Section 2.6 Surrender of Shares and Withdrawal of Trust Property. 

(a) Upon Surrender of any integral number of Baskets for the purpose of withdrawal of the amount of Trust Property represented thereby, and upon payment of the fee of the Trustee in connection with the Surrender of Shares as provided in Section 5.7 and payment of all taxes and charges payable in connection with such Surrender and withdrawal of Trust Property, and subject to the terms and conditions of this Agreement, the Procedures and the practices of the Depository, an Authorized Participant acting on authority of the Registered Owner of those Shares will be entitled to Delivery, in accordance with the provisions of this Agreement, as supplemented by any procedures attached to an applicable Authorized Participant Agreement, to the extent those procedures are consistent with this Agreement, of the amount of Trust Property at the time represented by such Baskets, including the
Basket Palladium Amounts corresponding to such Baskets on the applicable Order Date (determined as provided below). Authorized Participants wishing to redeem one or more Baskets must place an order with the Trustee (a “Redemption Order”) no later than 3:59:59 p.m. (New York time) on any Business Day. Redemption Orders received by the Trustee prior to the Order Cutoff Time on a Business Day on which the Benchmark Price is announced will have that Business Day as the Order Date. Redemption Orders received by the Trustee on or after the Order Cutoff Time on any Business Day, or on a Business Day on which the Benchmark Price is not announced, will have as their Order Date the next Business Day on which the Benchmark Price is announced. Palladium will be Delivered by the Custodian only by credit to an account of the Authorized Participant maintained by the Custodian or other LPPM-member custodian identified by the Authorized Participant to the Custodian and the Trustee on an
Unallocated Basis. The Authorized Participant shall bear all risk of any loss from the time the Palladium is paid from the Trust Unallocated Account to the Authorized Participant and neither the Trustee nor the Trust shall have any liability for any such loss. 

(b) The Trustee may require that a Certificate evidencing Shares Surrendered for the purpose of withdrawal is properly endorsed in blank or accompanied by proper instruments of transfer in blank. Upon a Surrender of an integral number of Baskets of Shares and satisfaction of all the conditions for withdrawal of Trust Property, the Trustee shall instruct the Custodian to Deliver, as provided in the preceding paragraph, to or to the order of the Surrendering Authorized Participant the amount of Palladium represented by the Surrendered Baskets of Shares and the Trustee shall pay or deliver to or to the order of the Surrendering Authorized Participant the amount of any other Trust Property represented by the Surrendered Baskets of Shares. Any Delivery of Palladium other than by credit to an account of the Authorized Participant maintained by the Custodian on an Unallocated Basis
will be at the expense and risk of the Authorized Participant. The Trustee is not required to effect any physical movement of Palladium from one custody location to another to meet any request by a Surrendering Authorized Participant as to where Palladium will be Delivered. 

(c) The Sponsor and the Trustee may, but shall have no obligation to, amend this Agreement to provide for redemption of any quantity of Shares for quantities of Palladium that may be smaller or larger than a Basket Palladium Amount by Beneficial Owners who are not Authorized Participants.

(d) The Sponsor and the Trustee may, but shall have no obligation to, amend this Agreement to provide for the sale of Palladium to pay cash proceeds upon the redemption of Shares. 

 

 

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Section 2.7 Limitations on Delivery, Registration of Transfer and Surrender of Shares. 

(a) As a condition precedent to the Delivery, registration of transfer, split-up, combination or Surrender of any Shares or withdrawal of any Trust Property, the Trustee or Registrar may require payment from the Depositor or the Authorized Participant Surrendering the Shares of a sum sufficient to reimburse it for any tax or other governmental charges and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to any securities being withdrawn) and payment of any applicable fees as herein provided, may require the production of proof satisfactory to it as to the identity and genuineness of any signature and may also require compliance with any regulations the Trustee may establish consistent with the provisions of this Agreement, including, without limitation, this Section 2.7. 

(b) The Delivery of Shares against deposits of Palladium and the registration of transfer of Shares may be suspended generally, or refused with respect to particular requested Deliveries, during any period when the transfer books of the Trustee are closed or if any such action is deemed necessary or advisable by the Trustee or the Sponsor for any reason at any time or from time to time. Except as otherwise provided elsewhere in this Agreement, the Surrender of Shares for purposes of withdrawing Trust Property may be suspended only (i) during any period in which regular trading on the Exchange is suspended or restricted or the Exchange is closed (other than scheduled holiday or weekend closings), or (ii) during an emergency as a result of which Delivery, disposal or evaluation of Palladium is not reasonably practicable. 

Section 2.8 Lost Certificates, Etc. 

The Trustee shall execute and deliver a new Certificate of like tenor in exchange and substitution for a mutilated Certificate upon cancellation thereof, or in lieu of and in substitution for a destroyed, lost or stolen Certificate if the Registered Owner thereof has (a) filed with the Trustee (i) a request for such execution and delivery before the Trustee has notice that the Shares evidenced by the Certificate have been acquired by a protected purchaser and (ii) a sufficient indemnity bond, and (b) satisfied any other reasonable requirements imposed by the Trustee. 

Section 2.9 Cancellation and Destruction of Surrendered Certificates. 

All Certificates Surrendered to the Trustee shall be canceled by the Trustee. The Trustee is authorized to destroy certificates so canceled. 

Section 2.10 Splits and Reverse Splits of Shares. 

If requested in writing by the Sponsor, the Trustee shall effect a split or reverse split of the Shares as of a record date set by the Trustee in accordance with procedures determined by the Trustee and the Depository. 

If so directed by the Sponsor, the Trustee shall not distribute any fraction of a Share in connection with a split or reverse split of the Shares. The Trustee may sell the aggregated fractions of Shares that would otherwise be distributed in a split or reverse split of the Shares or the amount of Trust Property that would be represented by those Shares and distribute the net proceeds of those Shares or that Trust Property to the Record Owners entitled to them. 

 

 

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The amount of Trust Property represented by each Share and the Basket Palladium Amount shall be adjusted as appropriate as of the open of business on the Business Day following the record date for a split or reverse split of the Shares. 

ARTICLE III.

CERTAIN OBLIGATIONS OF REGISTERED OWNERS OF SHARES

Section 3.1 Liability of Registered Owner for Taxes and Other Governmental Charges. 

If any tax or other governmental charge shall become payable by the Trustee with respect to any transfer or redemption of Shares, such tax or other governmental charge shall be payable by the Registered Owner of such Shares to the Trustee. The Trustee shall refuse to effect any registration of transfer of such Shares or any withdrawal of Trust Property represented by such Shares until such payment is made, and may withhold any distributions, or may sell for the account of the Registered Owner thereof Trust Property or Shares, and may apply such distributions or the proceeds of any such sale in payment of such tax or other governmental charge, and the Registered Owner of such Shares shall remain liable for any deficiency. The Trustee shall distribute any net proceeds of a sale made under the preceding sentence that remain, after payment of the tax or other governmental charge, to
the Registered Owners entitled thereto as in the case of a distribution in cash. 

Section 3.2 Warranties on Deposit of Palladium. 

Every Person depositing Palladium under this Agreement shall be deemed thereby to represent and warrant that the Palladium meets the requirements to be Palladium and contains the required number of Ounces, that the person making such deposit is duly authorized to do so and that at the time of delivery, the Palladium is free and clear of any lien, pledge, encumbrance, right, charge or claim (other than the rights created by this Agreement). All representations and warranties deemed made under this Section 3.2 shall survive the deposit of Palladium, Delivery or Surrender of Shares or termination of this Agreement. 

ARTICLE IV.

ADMINISTRATION OF THE TRUST

Section 4.1 Evaluation of Palladium. 

As promptly as practicable after 4:00 p.m. (New York time), on each Business Day, the Trustee shall determine the value of the Palladium held or receivable by the Trust on the basis of the Benchmark Price for that day. If no Benchmark Price is announced on a Business Day, the Trustee shall determine the value of the Palladium held or receivable by the Trust for that day on the basis of the most recently announced Benchmark Price prior to the evaluation time. However, if the Sponsor determines that the price specified in the two preceding sentences is inappropriate as a basis for evaluation, it shall identify an alternative basis for evaluation to be employed by the Trustee. Palladium deliverable under a Purchase Order shall be included in the evaluation beginning on the Order Date. Palladium deliverable under a Redemption Order shall not be

 

 

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included in the evaluation on and after the Order Date. Neither the Trustee nor the Sponsor shall be liable to any Person for the determination that the most recently announced Benchmark Price is not appropriate as a basis for evaluation of the Palladium held or receivable by the Trust or for any determination as to the alternative basis for evaluation, provided that such determination is made in good faith. 

If the Sponsor determines that Benchmark Price will have the meaning set forth in part (ii) of the definition of that term, the Trustee shall give notice to the Registered Owners, and the Trustee shall not apply the new definition of Benchmark Price until 60 days after the date of that notice. 

Section 4.2 Responsibility of the Trustee for Evaluations. 

The Sponsor, Depositors, Registered Owners and Beneficial Owners may rely on any evaluation or determination of any amount made by the Trustee, and the Sponsor shall have no responsibility for the accuracy thereof. The determinations made by the Trustee under this Agreement shall be made in good faith upon the basis of, and the Trustee shall not be liable for any errors contained in, information reasonably available to it. The Trustee shall be under no liability to the Sponsor, or to Depositors, Registered Owners or Beneficial Owners, for errors in judgment; provided, however, that this provision shall not protect the Trustee against any liability to which it would otherwise be subject by reason of negligence or bad faith in the performance of its duties. 

Section 4.3 Trust Evaluation. 

As promptly as practicable after completion of the evaluation required under Section 4.1 on each Business Day, the Trustee shall subtract all accrued fees (other than the fees accruing for such Business Day computed by reference to the value of the Trust or its assets), expenses and other liabilities of the Trust from the total value of the deposited Palladium determined by the Trustee pursuant to Section 4.1 and all other assets of the Trust. The resulting figure is the “Adjusted Net Asset Value” of the Trust. All fees accruing for any Business Day computed by reference to the value of the Trust or its assets shall be calculated on the Adjusted Net Asset Value calculated for such Business Day. The Trustee shall subtract from the Adjusted Net Asset Value the amount of accrued fees so computed and the resulting figure is the “Net Asset Value” of the Trust. The
Trustee shall also divide the Net Asset Value of the Trust by the number of Shares outstanding as of the close of business on the date of the evaluation then being made, which figure is the “Net Asset Value per Share.” All fees, expenses and other liabilities of the Trust that are or will be incurred or accrued through the close of business on a Business Day shall be included in the calculations required by this Section 4.3 for that Business Day. Shares deliverable under a Purchase Order shall be considered to be outstanding for purposes of this Section 4.3 beginning on the Order Date. Shares deliverable under a Redemption Order shall not be considered to be outstanding for purposes of this Section 4.3 on and after the Order Date. 

Adjusted Net Asset Value, Net Asset Value and Net Asset Value per Share shall be computed in accordance with generally accepted accounting principles in the United States.  Any estimate of the expenses and liabilities of the Trust for purposes of the computations required by this Section made by the Trustee in good faith shall be conclusive upon all Persons.

 

 

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Section 4.4 Cash Distributions. 

Whenever the Trustee distributes any cash, the Trustee shall distribute the amount available for the distribution to the Registered Owners entitled thereto, in proportion to the number of Shares held by them respectively; provided, however, that in the event that the Trustee shall be required to withhold and does withhold from such cash an amount on account of taxes, the amount distributed to the Registered Owners shall be reduced accordingly. The Trustee shall distribute only such amount, however, as can be distributed without attributing to any Registered Owner a fraction of one cent. Any such fractional amounts shall be rounded to the nearest whole cent and so distributed to Registered Owners entitled thereto. 

Section 4.5 Other Distributions. 

Whenever the Trustee receives any property in respect of Trust Property other than cash proceeds of a sale of Trust Property (including any claim that accrues in favor of the Trust on account of any loss of deposited Palladium or other Trust Property), the Trustee shall cause the securities or other property received by it to be distributed to the Registered Owners entitled thereto, in proportion to the number of Shares held by them respectively, after deduction or upon payment of the expenses of the Trustee, in any manner that the Trustee may deem lawful, equitable and feasible for accomplishing such distribution; provided, however, that if in the opinion of the Trustee such distribution cannot be made proportionately among the Registered Owners entitled thereto, or if for any other reason (including, but not limited to, any requirement that the Trustee withhold an amount on
account of taxes or other governmental charges or that securities must be registered under the Securities Act of 1933 in order to be distributed to Registered Owners) the Trustee deems such distribution not to be lawful and feasible, the Trustee shall adopt such method as it deems lawful, equitable and feasible for the purpose of effecting such distribution, after deduction or upon payment of the expenses of the Trustee, including, but not limited to, the public or private sale of the securities or property thus received pursuant to the Sponsor’s instructions, or any part thereof, and the net proceeds of any such sale shall be distributed by the Trustee to the Registered Owners entitled thereto as in the case of a distribution received in cash. The Trustee shall not be liable for any loss or depreciation resulting from any sale or other disposition of property made by the Trustee pursuant to the Sponsor’s instruction or otherwise made by the Trustee in good faith.

Section 4.6 Fixing of Record Date. 

Whenever any distribution will be made, or whenever the Trustee receives notice of any solicitation of proxies or consents from Registered Owners, or whenever for any reason there is split, reverse split or other change in the outstanding Shares, or whenever the Trustee shall find it necessary or convenient in respect of any matter, the Trustee, in consultation with the Sponsor, shall fix a record date for the determination of the Registered Owners who shall be (i) entitled to receive such distribution or the net proceeds of the sale thereof, (ii) entitled to give such proxies or consents in respect of any such solicitation or (iii) entitled to act in respect of any other matter for which the record date was set. 

 

 

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Section 4.7 Payment of Expenses; Palladium Sales. 

(a) The following charges are or may be accrued and paid by the Trust: 

(i) the service fee payable to the Sponsor as set forth in Section 5.8; 

(ii) expenses of the Trust not assumed by the Sponsor pursuant to Section 5.3(g); 

(iii) taxes and other governmental charges; 

(iv) expenses and costs of any extraordinary services performed by the Trustee or the Sponsor on behalf of the Trust or action taken by the Trustee or the Sponsor to protect the Trust or the interests of Registered Owners;  

(v) indemnification of the Trustee as provided in Section 5.6(a); and

(vi) indemnification of the Sponsor as provided in Section 5.6(b). 

(b) Subject to paragraph (d) of this Section, the Trustee will endeavor to sell the smallest amounts of Palladium needed to pay expenses in order to minimize the Trust’s holdings of assets other than Palladium.

The Trustee shall, when directed by the Sponsor, and, in the absence of such direction, may, in its discretion, sell Palladium in such quantity and at such times, as may be necessary to permit payment of expenses under this Agreement. The Trustee is authorized to sell Palladium at such times and in the smallest amounts required to permit payment of expenses as they come due, it being the intention to avoid or minimize the Trust’s holdings of assets other than Palladium. Neither the Trustee nor the Sponsor shall have any liability for loss or depreciation resulting from sales of Palladium so made. The Trustee shall not be liable or responsible in any way for depreciation or loss incurred by reason of any sale made pursuant to the Sponsor’s direction or otherwise in accordance with this Section. 

(c) If at any time and from time to time, the Trustee and Sponsor determine that the amount of cash included in the Trust Property exceeds the anticipated expenses of the Trust during the following month, the Trustee shall distribute the excess to the Registered Owners under Section 4.4.

(d) Payment of the fees of the Sponsor provided in Section 5.8(a) hereof shall be made by delivery to an account maintained by the Custodian for the Sponsor on an Unallocated Basis, monthly on the first Business Day of the month in respect of fees payable in respect of the prior month, of that number of Ounces of Palladium which shall equal the daily accrual of the Sponsor’s fee for such prior month calculated at the Benchmark Price for the day of accrual. 

Section 4.8 Statements and Reports. 

(a) After the end of each fiscal year and within the time period required by applicable laws, rules and regulations, at the Sponsor’s expense, the Trustee shall send to the Registered Owners at the end of such fiscal year, an annual report of the Trust containing

 

 

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financial statements that will be prepared by the Trustee and audited by independent accountants designated by the Sponsor and such other information as may be required by such laws, rules and regulations or otherwise, or which the Sponsor determines shall be included. The Trustee may distribute the annual report by any means acceptable to the Registered Owners. 

(b) The Trustee shall provide the Sponsor with such certifications, supporting documents and other evidence regarding the Internal Control Over Financial Reporting established and maintained by the Trust, and used by the Trustee in connection with its preparation of the financial statements of the Trust, as may be reasonably necessary in order to enable the Sponsor to prepare and file or furnish to the Commission any certifications regarding such matters which may be required to be included with the Trust’s periodic reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 

Section 4.9 Further Provisions for Palladium Sales. 

In addition to selling Palladium in accordance with Section 4.7, the Trustee shall sell Palladium whenever any one or more of the following conditions exists: 

(a) the Sponsor has notified the Trustee that such sale is required by applicable law or regulation; or 

(b) this Agreement has been terminated and the Trust Property is to be liquidated in accordance with Section 6.2. 

When selling Palladium, the Trustee shall endeavor to place orders with dealers (which may include the Custodian) as directed by the Sponsor, or in the absence of such direction, with dealers through which the Trustee may reasonably expect to obtain a favorable price and good execution of orders. The Custodian may be the purchaser at the Benchmark Price.

The Trustee and the Sponsor shall not be liable or responsible in any way for depreciation or loss incurred by reason of any sale made pursuant to this Section 4.9. 

Section 4.10 Counsel. 

The Sponsor may from time to time employ counsel to act on behalf of the Trust and perform any legal services in connection with the Palladium and the Trust, including any legal matters relating to the possible disposition or acquisition of any Palladium. The fees and expenses of such counsel shall be paid by the Sponsor. 

Section 4.11 Grantor Trust. 

Nothing in this Agreement, any agreement with a Custodian, or otherwise, shall be construed to give the Trustee the power to vary the investment of the Beneficial Registered Owners within the meaning of Section 301.7701-4(c) under the Internal Revenue Code of 1986, as amended (the “Code”) or any similar or successor provision of the regulations under the Code, nor shall the Sponsor give the Trustee any direction that would vary the investment of the Beneficial Owners. However, the Trustee shall not be liable to any Person for any failure of the Trust to qualify as a grantor trust under the Code or any comparable provision of the laws of any

 

 

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State or other jurisdiction where that treatment is sought, except that this sentence shall not limit the Trustee’s responsibility for the administration of the Trust in accordance with this Agreement. 

ARTICLE V.

THE TRUSTEE AND THE SPONSOR

Section 5.1 Maintenance of Office and Transfer Books by the Trustee. 

(a) Until termination of this Agreement in accordance with its terms, the Trustee shall maintain facilities for the execution and Delivery, registration, registration of transfers and Surrender of Shares in accordance with the provisions of this Agreement. 

(b) The Trustee shall keep books for the registration of Shares and registration of transfers of Shares which at all reasonable times shall be open for inspection by the Registered Owners. 

(c) The Trustee may, and at the reasonable written request of the Sponsor shall, close the transfer books at any time or from time to time if such action is deemed necessary or advisable in the reasonable judgment of the Trustee or the Sponsor. 

(d) If any Shares are listed on one or more stock exchanges in the United States, the Trustee shall act as Registrar or, with the written approval of the Sponsor (which approval shall not be unreasonably withheld), appoint a registrar or one or more co-registrars for registry of such Shares in accordance with any requirements of such exchange or exchanges. 

Section 5.2 Prevention or Delay in Performance by the Sponsor or the Trustee. 

Neither the Sponsor nor the Trustee nor any of their respective directors, employees, agents or affiliates shall incur any liability to any Registered Owner, Beneficial Owner or Depositor if, by reason of any provision of any present or future law or regulation of the United States or any other country, or of any governmental or regulatory authority or stock exchange, or by reason of any act of God or war or terrorism or other circumstances beyond its control, the Sponsor or the Trustee is prevented or forbidden from, or would be subject to any civil or criminal penalty on account of, or is delayed in, doing or performing any act or thing which by the terms of this Agreement it is provided shall be done or performed and accordingly the Sponsor or the Trustee does not do that thing or does that thing at a later time than would otherwise be required. The Sponsor and the Trustee
will not incur any liability to any Registered Owner or Beneficial Owner or Depositor by reason of any non-performance or delay in the performance of any act or thing which by the terms of this Agreement it is provided may be done or performed, or by reason of any exercise of, or failure to exercise, any discretion provided for in this Agreement. 

Section 5.3 Obligations of the Sponsor and the Trustee. 

(a) Neither the Sponsor nor the Trustee assumes any obligation nor shall either of them be subject to any liability under this Agreement to any Registered Owner or Beneficial Owner or Depositor (including, without limitation, liability with respect to the worth

 

 

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of the Trust Property), except that each of them agrees to perform its obligations specifically set forth in this Agreement without gross negligence, willful misconduct or bad faith. 

(b) Neither the Sponsor nor the Trustee shall be under any obligation to prosecute any action, suit or other proceeding in respect of any Trust Property or in respect of the Shares on behalf of a Registered Owner, Beneficial Owner, Depositor or other Person. 

(c) Neither the Sponsor nor the Trustee shall be liable for any action or non-action by it in reliance upon the advice of or information from legal counsel, accountants, any Depositor, any Registered Owner or any other person believed by it in good faith to be competent to give such advice or information. 

(d) The Trustee shall not be liable for any acts or omissions made by a successor Trustee whether in connection with a previous act or omission of the Trustee or in connection with any matter arising wholly after the resignation of the Trustee, provided that in connection with the issue out of which such potential liability arises the Trustee performed its obligations without gross negligence, willful misconduct or bad faith while it acted as Trustee. 

(e) The Trustee and the Sponsor shall have no obligation to comply with any direction or instruction from any Registered Owner or Beneficial Owner or Depositor regarding Shares except to the extent specifically provided in this Agreement. 

(f) The Trustee shall be a fiduciary under this Agreement; provided, however, that the fiduciary duties and responsibilities and liabilities of the Trustee shall be limited by, and shall be only those specifically set forth in, this Agreement. Without limiting the foregoing, all duties, rights, privileges and liabilities of the Trustee set forth in this Agreement are subject to the following:

(i) The Trustee shall not be under any obligation to appear in, prosecute or defend any action that in its opinion may involve it in expense or liability, unless it shall be furnished with reasonable security and indemnity against such expense or liability. Subject to the foregoing, the Trustee shall, in its discretion, undertake such action as it may deem necessary at any and all times to protect the Trust and the rights and interest of all Beneficial Owners pursuant to the terms of this Agreement.

(ii) Trust Assets of the Trust, exclusive of Palladium or cash, shall be held by the Trustee either directly or through the Federal Reserve/ Treasury Book Entry System for United States and federal agency securities (the “Book Entry System”), DTC, or through any other clearing agency or similar system (a “Clearing Agency”), if available. The Trustee shall have no responsibility and shall not be liable for ascertaining or acting upon any calls, conversions, exchange offers, tenders, interest rates changes, or similar matters relating to securities held at the Depository or with any Clearing Agency unless the Trustee shall have received actual and timely written notice of the same, nor shall the Trustee have any responsibility or liability for the actions or omissions to act of the Book Entry System, the Depository or any Clearing Agency. All moneys held by
the Trustee hereunder shall be held by it, without interest thereon or investment thereof, as a deposit for the account of the Trust. Such monies held hereunder shall be deemed segregated by maintaining such monies in an account or

 

 

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accounts for the exclusive benefit of the Trust. The Trustee may also employ custodians for Trust assets other than Palladium, agents, attorneys, accountants, auditors and other professionals and shall not be answerable for the default or misconduct of any such custodians, agents, attorneys, accountants, auditors and other professionals if such custodians, agents, attorneys, accountants, auditors or other professionals shall have been selected with reasonable care.

(iii) If at any time the Trustee is served with any judicial or administrative order, judgment, decree, writ or other form of judicial or administrative process that in any way affects the Trust or its property (including but not limited to orders of attachment or garnishment or other forms of levies or injunctions or stays relating to the transfer of any assets of the Trust), the Trustee is authorized to comply therewith in any manner that it or legal counsel of its own choosing deems appropriate; however, the Trustee to the extent practicable will inform the Sponsor of such order, judgment, decree, writ or other form of judicial or administrative process that in any way affects the Trust and consult in good faith with the Sponsor as to the course of action by the Trustee. If the Trustee complies with any such judicial or administrative order, judgment, decree, writ or other
form of judicial or administrative process, the Trustee shall not be liable to any of the parties hereto or to any other person or entity even though such order, judgment, decree, writ or process may be subsequently modified or vacated or otherwise determined to have been without legal force or effect.

(iv) In no event shall the Trustee be liable for acting in accordance with or conclusively relying upon any instruction, notice, demand, certificate or document from the Sponsor, or any entity acting on behalf of the Sponsor,  which the Trustee believes is given pursuant to or is authorized by this Agreement; for any indirect, consequential, punitive or special damages, regardless of the form of action and whether or not any such damages were foreseeable or contemplated; or for an amount in excess of the value of the assets of the Trust. The Trustee may consult with legal counsel of its own choosing as to any matter relating to this Agreement and the Trustee shall not incur any liability in acting in good faith in accordance with any advice from such counsel. The expense of such counsel shall be paid as provided in Section 5.7(b) and (c), as applicable.

(v) The Trustee shall be entitled to rely conclusively upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it under this Agreement without being required to determine the authenticity or the correctness of any fact stated therein or the propriety or validity or the service thereof. The Trustee may act in conclusive reliance upon any instrument or signature reasonably believed by it to be genuine and may assume that any person purporting to give receipt or advice or to make any statement or execute any document in connection with the provisions of this Agreement or any Authorized Participant Agreement has been duly authorized to do so, provided, however that where a list of authorized officials of a person and their signatures are on file with the Trustee, the Trustee shall compare such manual signatures to the signature on any such
documents. Such requirement shall not apply to “personal identification numbers” or “PINS” or other forms of electronic security devices which function as a proxy for a manual signature.

(vi) The Trustee shall not be responsible for or in respect of the recitals herein, the validity or sufficiency of this Agreement or of the Custody Agreements or any other custody or other agreement entered into at the direction or with the approval of the Sponsor, or

 

 

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for the due execution hereof by the Sponsor or of the Custody Agreements by the Initial Custodian.

(vii) The Trustee shall not be responsible in any respect for the form, execution, validity, value, collectibility or genuineness of documents, instruments or securities deposited with or delivered to or held by it under this Agreement, or for any description therein, or for the identity, authority or rights of persons executing or delivering or purporting to execute or deliver any such document, instrument or security. 

(viii) At any time the Trustee may request an instruction in writing in English from the Sponsor or a Participant with respect to any action which the Sponsor or a Participant is authorized to direct the Trustee hereunder, and may, at its own option, include in such request the course of action it proposes to take and the date on which it proposes to act, regarding any matter arising in connection with its duties and obligations under this Agreement. The Trustee shall not be liable for acting in accordance with such a proposal on or after the date specified therein, provided that the specified date shall be at least three (3) Business Days after the Sponsor or Participant receives the Trustee’s request for instructions and its proposed course of action, and provided further that, prior to so acting, the Trustee has not received the written instructions requested.

(ix) When the Trustee acts on any information, instructions, communications (including communications with respect to the delivery of securities or the wire transfer of funds) sent by telex, facsimile, email or other form of electronic or data transmission, the Trustee, absent gross negligence, shall not be responsible or liable in the event such communication is not an authorized or authentic communication of the party sending it or is not in the form the party sent or intended to send (whether due to fraud, distortion or otherwise), provided that this paragraph shall not limit the Trustee’s obligation to obtain such confirmations as may be specified in this Agreement or any Participant Agreement. The Trustee shall be indemnified as provided in Section 5.6 hereof against any loss, liability, claim or expense (including legal fees and expenses) it may incur in acting in
accordance with any such communication.

(x) The Trustee may construe any provision of this Agreement that it believes to be ambiguous or inconsistent with any other provisions hereof, and any reasonable construction of any such provision hereof by the Trustee in good faith shall be binding upon the parties hereto, each Participant and all Beneficial Owners. In the event of any ambiguity or inconsistency or any other uncertainty in any notice, instruction or other communication received by the Trustee under this Agreement, the Trustee shall notify the Sponsor and the giver thereof, and may, in its sole discretion, refrain from taking any action other than to retain possession of the property of the Trust, unless the Trustee receives such further written instructions, from the Sponsor or otherwise, that eliminate such ambiguity, inconsistency or uncertainty.

(xi) The Trustee shall have no responsibility for the contents of any writing of the arbitrators or any third party that may be used as a means to resolve disputes among third parties with respect to their interest in the Trust, Trust Property or Shares and may conclusively rely without any liability upon the contents thereof.

 

 

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(xii) In no event shall the Trustee be personally liable for any taxes or other governmental charges imposed upon or in respect of the Palladium or its custody, moneys or other assets from time to time held hereunder, or on the income therefrom or the sale or proceeds of sale thereof, or upon it as Trustee hereunder or upon or in respect of the Trust or the Shares, which it may be required to pay under any present or future law of the United States of America or of any other taxing authority having jurisdiction in the premises. For all such taxes and charges and for any expenses, including counsel’s fees, which the Trustee may sustain or incur with respect to such taxes or charges, the Trustee shall be reimbursed and indemnified out of the assets of the Trust and the payment of such amounts shall be secured by a lien on the Trust. This paragraph shall survive
notwithstanding any termination of this Agreement and the Trust or the resignation or removal of the Trustee.

(xiii) The Trustee shall not be answerable for the default of the Initial Custodian or any Custodian employed at the direction of the Sponsor or selected by the Trustee with reasonable care. The Trustee may also employ custodians for Trust assets other than Palladium, agents, attorneys, accountants, auditors and other professionals and shall not be answerable for the default or misconduct of any such custodians, agents, attorneys, accountants, auditors and other professionals if such custodians, agents, attorneys, accountants, auditors or other professionals shall have been selected with reasonable care. The fees and expenses charged by such agents, attorneys, accountants, auditors or other professionals, exclusive of fees for services to be performed by the Trustee, shall be paid as provided in Section 5.7(b) and 5.7(c), as applicable. Fees paid for custody of assets other
than Palladium shall be an expense of the Trustee.

(xiv) The Trustee in its individual or any other capacity may own or hold Shares, or be an underwriter or dealer in respect of Shares, and may deal in any manner with the same with the same rights and powers as if it were not the Trustee hereunder.

(g) The Sponsor shall be responsible for all organizational expenses of the Trust, and for the following administrative and marketing expenses of the Trust: fees for the Trustee’s ordinary services and reimbursement of its out-of-pocket expenses as provided in Section 5.7(b), the Custodian’s fee and expenses reimbursable to a Custodian pursuant to a Custody Agreement (including, for avoidance of doubt, any fees paid to the Initial Custodian under the Trust Allocated Account Agreement and Trust Unallocated Account Agreement), listing fees of the Exchange, registration fees charged by the Commission, printing and mailing costs, audit fees and expenses and legal fees and expenses not in excess of $100,000 per year. 

Section 5.4 Resignation or Removal of the Trustee; Appointment of Successor Trustee. 

(a) The Trustee may at any time resign as Trustee hereunder by written notice of its election so to do, delivered to the Sponsor, and such resignation shall take effect upon the appointment of a successor Trustee and its acceptance of such appointment as hereinafter provided. 

(b) The Sponsor may remove the Trustee in its discretion by written notice delivered to the Trustee in the manner provided in Section 7.5 at least 90 days prior to the fifth 

 

 

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anniversary of the date of this Agreement or, thereafter, by written notice delivered to the Trustee at least 90 days prior to the last day of any subsequent three-year period. 

(c) If at any time the Trustee 

(i) ceases to be a Qualified Bank, 

(ii) is in material breach of its obligations under this Agreement and fails to cure such breach within 30 days after receipt of written notice from the Sponsor or Registered Owners acting on behalf of at least 25% of the outstanding Shares specifying such default and requiring the Trustee to cure such default, or 

(iii) fails to consent to the implementation of an amendment to the Trust’s initial Internal Control Over Financial Reporting deemed necessary by the Sponsor and, after consultations with the Sponsor, the Sponsor and the Trustee fail to resolve their differences regarding such proposed amendment, the Sponsor, acting on behalf of the Registered Owners, may remove the Trustee by written notice delivered to the Trustee in the manner provided in Section 7.5, and such removal shall take effect upon the appointment of a successor Trustee and its acceptance of such appointment as hereinafter provided. 

(d) If the Trustee acting hereunder resigns or is removed, the Sponsor, acting on behalf of the Registered Owners, shall use its reasonable efforts to appoint a successor Trustee, which shall be a Qualified Bank. Every successor Trustee shall execute and deliver to its predecessor and to the Sponsor, acting on behalf of the Registered Owners, an instrument in writing accepting its appointment hereunder, and thereupon such successor Trustee, without any further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor; but such predecessor, nevertheless, upon payment of all sums due it and on the written request of the Sponsor, acting on behalf of the Registered Owners, shall execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder, shall duly assign, transfer and
deliver all right, title and interest in the Trust Property to such successor, and shall deliver to such successor a list of the Registered Owners of all outstanding Shares. The Sponsor or any such successor Trustee shall promptly mail notice of the appointment of such successor Trustee to the Registered Owners. 

(e) Any corporation into which the Trustee may be merged, consolidated or converted in a transaction in which the Trustee is not the surviving corporation shall be the successor of the Trustee without the execution or filing of any document or any further act. During the 90-day period following the effectiveness of a merger, consolidation or conversion described in the preceding sentence, the Sponsor may, by written notice to the Trustee, remove the Trustee and designate a successor Trustee in compliance with the provisions of subsection (c) above. 

Section 5.5 The Custodian. 

(a) The Trustee is hereby directed to enter into the Trust Allocated Account Agreement and the Trust Unallocated Account Agreement with the Initial Custodian. The Initial Custodian will be subject to the directions of the Trustee as provided in such Custody 

 

 

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Agreements, and will be responsible solely to it and to Beneficial Owners to the extent UK law requires. If upon the resignation of any Custodian there would be no Custodian acting hereunder, the Trustee shall, promptly after receiving such notice of such resignation, appoint a substitute custodian or custodians selected by the Sponsor pursuant to custody agreements approved by the Sponsor (provided, however that the rights and duties of the Trustee hereunder shall not be materially altered without its consent), each of which shall thereafter be a Custodian hereunder. When directed by the Sponsor or if the Trustee in its discretion determines that it is in the best interest of the Registered Owners to do so and with the written approval of the Sponsor (which approval shall not be unreasonably withheld or delayed), the Trustee shall appoint a substitute or additional custodian or custodians,
which shall thereafter be one of the Custodians hereunder. After the date of this Agreement, the Trustee shall not enter into or amend any Custody Agreement with a Custodian without the written approval of the Sponsor (which approval shall not be unreasonably withheld or delayed). When instructed by the Sponsor, the Trustee shall demand that a Custodian deliver such of the Palladium held by it as is requested of it to any other Custodian or such substitute or additional custodian or custodians directed by the Sponsor. Each such substitute or additional custodian shall forthwith upon its appointment, enter into a Custody Agreement in form and substance satisfactory to the Sponsor and the Trustee. 

(b) The Trustee shall have no obligation to monitor the activities of any Custodian other than to receive and review such reports of the Palladium held for the Trust by such Custodian and of transactions in Palladium held for the account of the Trust made by such Custodian pursuant to the Custody Agreements. The accounts and operations of each Custodian shall be audited or examined by accountants or other inspectors selected by the Sponsor at such times as directed by the Sponsor as permitted by the Custody Agreements. In no event shall the Trustee be liable for (i) any loss or damage resulting from the actions or omissions of any Custodian or loss or damage to the Palladium while in the possession of, or in transit to or from, any Custodian, (ii) the amount, validity or adequacy of insurance maintained by any Custodian, (iii) any defect in Palladium held by a Custodian, (iv)
any failure of Palladium to conform to the requirements of “good delivery” under the rules of LPPM, or (v) any failure of Palladium to conform to a description thereof provided by the Custodian to the Trustee.

(c) Upon the appointment of any successor Trustee hereunder, each Custodian then acting hereunder shall forthwith become, without any further act or writing, the agent hereunder of such successor Trustee and the appointment of such successor Trustee shall in no way impair the authority of each Custodian hereunder; but the successor Trustee so appointed shall, nevertheless, on the written request of any Custodian, execute and deliver to such Custodian all such instruments as may be proper to give to such Custodian full and complete power and authority as agent hereunder of such successor Trustee. 

Section 5.6 Indemnification. 

(a) The Trustee, its directors, employees and agents (the “Trustee Indemnified Persons”) shall be indemnified from the Trust and held harmless against any loss, liability or expense (including, but not limited to, the reasonable fees and expenses of counsel) arising out of or in connection with the performance of its obligations under this Agreement or by reason of the Trustee’s acceptance of the Trust incurred without (1) gross negligence, bad faith, willful misconduct or willful malfeasance on the part of such Trustee Indemnified Party in connection

 

 

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with the performance of its obligations under this Agreement or any actions taken in accordance with the provisions of this Agreement or (2) reckless disregard on the part of such Trustee Indemnified Party of its obligations and duties under this Agreement. Such indemnity shall include payment from the Trust of the costs and expenses incurred by such Trustee Indemnified Party in defending itself against any claim or liability in its capacity as Trustee. Any amounts payable to a Trustee Indemnified Party under this Section 5.6(a) may be payable in advance or shall be secured by a lien on the Trust. 

(b) The Sponsor and its members, managers, directors, officers, employees, affiliates (as such term is defined under the Securities Act of 1933, as amended) and subsidiaries (each a “Sponsor Indemnified Party”) shall be indemnified from the Trust and held harmless against any loss, liability or expense incurred without (1) gross negligence, bad faith, willful misconduct or willful malfeasance on the part of such Sponsor Indemnified Party arising out of or in connection with the performance of its obligations under this Agreement or any actions taken in accordance with the provisions of this Agreement or (2) reckless disregard on the part of such Sponsor Indemnified Party of its obligations and duties under this Agreement. Such indemnity shall include payment from the Trust of the costs and expenses incurred by such Sponsor Indemnified Party in defending itself against
any claim or liability in its capacity as Sponsor. Any amounts payable to a Sponsor Indemnified Party under this Section 5.6(b) may be payable in advance or shall be secured by a lien on the Trust. The Sponsor may, in its discretion, undertake any action which it may deem necessary or desirable in respect of this Agreement and the rights and duties of the parties hereto and the interests of the Registered Owners and, in such event, the legal expenses and costs of any such actions shall be expenses and costs of the Trust and the Sponsor shall be entitled to be reimbursed therefor by the Trust. 

(c) The indemnities provided by this section  shall survive notwithstanding any termination of this Agreement and the Trust or the resignation or removal of the Trustee or the Sponsor, respectively.

Section 5.7 Charges of Trustee. 

(a) Each Depositor, and each person surrendering Shares for the purpose of withdrawing Trust Property, shall pay to the Trustee a fee of $500 per transaction for the Delivery of Shares pursuant to Section 2.4 and the Surrender of Baskets of Shares pursuant to Section 2.6 or 6.2 (or such other fee as the Trustee, with the prior written consent of the Sponsor, may from time to time announce). 

(b) The Trustee is entitled to receive from the Sponsor fees for its ordinary services and reimbursement for its out-of-pocket expenses in accordance with written agreements between the Sponsor and the Trustee.  Should the Sponsor fail to pay the same, the Trustee shall be authorized to charge the same to the Trust to the extent of amounts which could be charged to the Trust under Section 5.8(a) hereof in respect of the Sponsor’s fee (and the Trustee may charge the same to the Trust to such extent without regard to whether, because of the Sponsor’s default, fee waiver or other reason, the Sponsor may not then be entitled to payment pursuant to Section 5.8(a)), and any amount paid to the Sponsor pursuant to Section 5.8(a) shall be net of amounts so withheld. The Trustee’s right of reimbursement shall be secured by a lien on amounts chargeable to the Trust under
Section 5.8(a), without giving effect 

 

 

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to any fee waiver then in effect, prior to the interest of the Sponsor, the Beneficial Owners and any other Person.

(c) The Trustee is entitled to charge the Trust for all expenses and disbursements incurred by it hereunder exclusive of amounts specified in the preceding Section 5.7(b), including the fees and disbursements of its legal counsel, except that the Trustee is not entitled to charge the Trust for (i) expenses and disbursements incurred by it prior to the commencement of trading of Shares on the Exchange and (ii) fees of agents for performing services the Trustee is required to perform under this Agreement. 

(d) Any pecuniary cost of the Trustee resulting from actions taken to protect the Trust and the rights and interest of the Registered Owners pursuant to the terms of this Agreement, including, without limitation, the Trustee’s appearance in, prosecution of or defense of any action that it considers necessary or desirable to protect the Trust or the interests of the Beneficial Owners, shall be deductible from, and constitute a lien against, the assets of the Trust. 

Section 5.8 Charges of Sponsor. 

(a) The Sponsor is entitled to receive from the Trust, chargeable as an expense of the Trust, a fee for services that will accrue daily and be paid monthly in arrears in the manner provided in Section 4.7(d) at an annualized rate of [0.45] % of Adjusted Net Asset Value. The Sponsor may, at its sole discretion and from time to time, waive all or a portion of its fee payable under this Section 5.8(a) for such periods of time as shall be specified in the Sponsor’s written notice of such fee waiver to the Trustee. The Sponsor is under no obligation to waiver its fees hereunder, and any such waiver shall create no obligation to waive fees during any period not covered by the applicable waiver. Any fee waiver by the Sponsor shall not operate to reduce Sponsor’s obligations hereunder, including, but not limited to, the Sponsor’s obligations under Section 5.3(g).

(b) The Sponsor is entitled to receive reimbursement from the Trust for all expenses and disbursements incurred by it under the last sentence of Section 5.6(b) or that are of the type described in Sections 4.7(a)(ii), (iii),  (iv), and (vi) of this Agreement, except that the Sponsor is not entitled to charge the Trust for (i) expenses and disbursements incurred by it prior to the commencement of trading of Shares on the Exchange and (ii) fees of agents for performing services the Sponsor is required to perform under this Agreement. 

Section 5.9 Retention of Trust Documents. 

The Trustee is authorized to destroy those documents, records, bills and other data compiled during the term of this Agreement at the times permitted by the laws or regulations governing the Trustee, unless the Sponsor reasonably requests the Trustee in writing to retain those items for a longer period. 

Section 5.10 Federal Securities Law Filings. 

(a) The Sponsor shall (i) prepare and file a registration statement with the Commission and take such action as is necessary from time to time to qualify the Shares for 

 

 

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offering and sale under the federal securities laws of the United States, including the preparation and filing of amendments and supplements to such registration statement, (ii) promptly notify the Trustee of any amendment or supplement to the registration statement or prospectus, of any order preventing or suspending the use of any prospectus, of any request for the amending or supplementing of the registration statement or prospectus or if any event or circumstance occurs which is known to the Sponsor as a result of which the registration statement or prospectus, as then amended or supplemented, would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iii) provide the Trustee from time to time with copies, including copies in electronic form,
of the prospectus, as amended and supplemented, in such quantities as the Trustee may reasonably request and (iv) prepare and file any periodic reports or updates that may be required under the Securities Exchange Act of 1934, as amended. The Trustee shall furnish to the Sponsor any information from the records of the Trust that the Sponsor reasonably requests in writing that is needed to prepare any filing or submission that the Sponsor or the Trust is required to make under the federal securities laws of the United States, and the Sponsor is entitled to rely on such information so furnished by the Trustee. 

(b) The Sponsor shall have all necessary and exclusive power and authority to (i) from time to time adopt, implement or amend such disclosure controls and procedures as are necessary or desirable, in the Sponsor’s reasonable judgment, to ensure compliance with the disclosure and ongoing reporting obligations under any applicable securities laws; (ii) appoint and remove the auditors of the Trust; and (iii) seek from the relevant securities or other regulatory authorities such relief, clarification or other action as the Sponsor shall deem necessary or desirable regarding the disclosure or financial reporting obligations of the Trust. 

(c) The policies and procedures comprising the Trust’s initial Internal Control Over Financial Reporting have been adopted as of the date of this Agreement and copies thereof have been delivered to the appropriate officers of the Sponsor and the Trustee. Amendments to such initial Internal Control Over Financial Reporting may be proposed from time to time by the Sponsor, but such amendments may not be adopted in connection with the preparation of the Trust’s financial statements without the Trustee’s consent (which consent will not be unreasonably withheld or delayed). 

Section 5.11 Prospectus Delivery. 

The Trustee shall, if required by the federal securities laws of the United States, in any manner permitted by such laws, deliver at the time of issuance of Shares, a copy of the relevant prospectus, as most recently furnished to the Trustee by the Sponsor, to each Depositor. 

Section 5.12 Discretionary Actions by Trustee; Consultation. 

(a) The Trustee may, in its discretion, undertake any action that it considers necessary or desirable to protect the Trust or the interests of the Registered Owners. The expenses incurred by the Trustee in connection with taking any action under the preceding sentence (including the fees and disbursements of legal counsel) shall be expenses of the Trust, and the Trustee shall be entitled to be reimbursed for those expenses by the Trust. 

 

 

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(b) The Trustee shall notify and consult with the Sponsor before undertaking any action under subsection (a) above or if the Trustee becomes aware of any development or event that affects the administration of the Trust but is not contemplated or provided for in this Agreement. 

(c) The Sponsor shall notify and consult with the Trustee before undertaking any action under the last sentence of Section 5.6(b) or if the Sponsor becomes aware of any development or event that affects the administration of the Trust but is not contemplated or provided for in this Agreement. 

Section 5.13 Dissolution of the Sponsor Not to Terminate Trust.

The dissolution of the Sponsor, or its ceasing to exist as a legal entity from, or for, any cause, shall not operate to terminate this Agreement insofar as the duties and obligations of the Trustee are concerned unless the Trust is terminated pursuant to Section 6.2.

ARTICLE VI.

AMENDMENT AND TERMINATION

Section 6.1 Amendment. 

Subject to Section 4.11 hereof, the Trustee and the Sponsor may amend any provisions of this Agreement without the consent of any Registered Owner. Any amendment that imposes or increases any fees or charges (other than taxes and other governmental charges, registration fees or other such expenses), or that otherwise prejudices any substantial existing right of the Registered Owners will not become effective as to outstanding Shares until 30 days after notice of such amendment is given to the Registered Owners. Amendments pursuant to Sections 2.6(c) or (d) shall not require notice pursuant to the preceding sentence. Every Registered Owner and Beneficial Owner, at the time any amendment so becomes effective, shall be deemed, by continuing to hold any Shares or an interest therein, to consent and agree to such amendment and to be bound by this Agreement as amended thereby. In no
event shall any amendment impair the right of the Registered Owner of Shares to Surrender Baskets of Shares and receive therefor the amount of Trust Property represented thereby, except in order to comply with mandatory provisions of applicable law. 

Section 6.2 Termination. 

(a) The Trustee shall set a date on which this Agreement will terminate and mail notice of that termination to the Registered Owners at least 30 days prior to the date set for termination if any of the following occurs: 

(i) The Trustee is notified that the Shares are delisted from a national securities exchange and are not approved for listing on another national securities exchange within five business days of their delisting; 

 

 

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(ii) Registered Owners acting in respect of at least 75% of the outstanding Shares notify the Trustee that they elect to terminate the Trust; 

(iii) 60 days have elapsed since the Trustee notified the Sponsor of the Trustee’s election to resign and a successor trustee has not been appointed and accepted its appointment as provided in Section 5.4; 

(iv) the Commission determines that the Trust is an investment company under the Investment Company Act of 1940, as amended, and the Trustee has actual knowledge of such Commission determination; 

(v) the aggregate market capitalization of the Trust, based on the closing price for the Shares, was less than $350 million (as adjusted for inflation by reference to the National Consumer Price Index as described in the Trust Agreement) at any time after the first anniversary after the Trust’s formation and the Trustee receives, within six months after the last of those trading days, notice from the Sponsor of its decision to terminate the Trust; 

(vi) the CFTC determines that the Trust is a commodity pool under the Commodity Exchange Act of 1936, as amended, and the Trustee has actual knowledge of that determination; 

(vii) the Trust fails to qualify for treatment, or ceases to be treated, for United States federal income tax purposes, as a grantor trust, and the Trustee receives notice from the Sponsor that the Sponsor determines that, because of that tax treatment or change in tax treatment, termination of the Trust is advisable;

(viii) 60 days have elapsed since DTC ceases to act as depository with respect to the Shares and the Sponsor has not identified another Depository which is willing to act in such capacity; or

(ix) as provided in paragraph (c) of this Section 6.2.

(b) On and after the date of termination of this Agreement, the Registered Owner of Shares will, upon (i) Surrender of those Shares, (ii) payment of the fee of the Trustee for the Surrender of Shares provided in Section 5.7, and (iii) payment of any applicable taxes or other governmental charges, be entitled to Delivery, to him or upon his order, of the amount of Trust Property represented by those Shares. The Trustee shall not accept any deposits of Palladium after the date of termination of this Agreement. If any Shares remain outstanding after the date of termination of this Agreement, the Trustee thereafter shall discontinue the registration of transfers of Shares, shall not make any distributions to Registered Owners, and shall not give any further notices or perform any further acts under this Agreement, except that the Trustee shall continue to collect distributions
pertaining to Trust Property and hold the same uninvested and without liability for interest, pay the Trust’s expenses and sell Palladium as necessary to meet those expenses and shall continue to deliver Trust Property, together with any distributions received with respect thereto and the net proceeds of the sale of any other property, in exchange for Shares Surrendered to the Trustee (after deducting or upon payment of, in each case, the fee of the Trustee set forth in 5.7 for the Surrender of Shares, any expenses for the account of the 

 

 

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Registered Owner of such Shares in accordance with the terms and conditions of this Agreement, and any applicable taxes or other governmental charges). At any time after the expiration of 90 days following the date of termination of this Agreement, the Trustee may sell the Trust Property then held under this Agreement and may thereafter hold the net proceeds of any such sale, together with any other cash then held by it under this Agreement, without liability for interest, for the pro rata benefit of the Registered Owners of Shares that have not theretofore been Surrendered. After making such sale, the Trustee shall be discharged from all obligations under this Agreement, except to account for such net proceeds and other cash (after deducting, in each case, any fees, expenses, taxes or other governmental charges payable by the Trust, the fee of the Trustee for the Surrender of Shares and any
expenses for the account of the Registered Owner of such Shares in accordance with the terms and conditions of this Agreement, and any applicable taxes or other governmental charges). Upon the termination of this Agreement, the Sponsor shall be discharged from all obligations under this Agreement except for its obligations to the Trustee under Sections 5.6, 5.7 and 5.8 shall survive termination of this Agreement. 

(c) If the Sponsor shall be adjudged bankrupt or insolvent, or a receiver of the Sponsor or of its property shall be appointed, or a trustee or liquidator or any public officer shall take charge or control of the Sponsor or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then in any such case the Sponsor shall be deemed conclusively to have resigned with such resignation being effective immediately upon the occurrence of any of the specified events, and the Trustee may terminate and liquidate the Trust and distribute its remaining assets pursuant to this Section 6.2. The Trustee shall have no obligation to appoint a successor Sponsor or to assume the duties of the Sponsor and shall have no liability to any person because the Trust is or is not terminated pursuant to this paragraph. 

ARTICLE VII.

MISCELLANEOUS 

Section 7.1 Counterparts. 

This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of such counterparts shall constitute one and the same instrument. Copies of this Agreement shall be filed with the Trustee and shall be open to inspection by any Registered Owner during the Trustee’s business hours. 

Section 7.2 Third-Party Beneficiaries. 

This Agreement is for the exclusive benefit of the parties hereto and the Beneficial Owners, and shall not be deemed to give any legal or equitable right, remedy or claim whatsoever to any other person. 

Section 7.3 Severability. 

In case any one or more of the provisions contained in this Agreement should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability 

 

 

29

 

 

of the remaining provisions of this Agreement shall in no way be affected, prejudiced or disturbed thereby. 

Section 7.4 Certain Matters Relating to Beneficial Owners. 

(a) By the purchase and acceptance or other lawful delivery and acceptance of  Shares, each Beneficial Owner thereof shall be deemed to be a beneficiary of the Trust created by this Agreement and vested with beneficial undivided interest in the Trust to the extent of the  Shares owned beneficially by such Beneficial Owner, subject to the terms and conditions of this Agreement. Upon issuance as provided herein, Shares shall be fully paid and non-assessable.

(b) Subject to and in accordance with Section 2.6, Shares may at any time prior to the date specified by the Trustee in connection with the termination of the Trust be tendered to the Trustee for redemption.

(c) The death or incapacity of any Beneficial Owner shall not operate to terminate this Agreement or the Trust, nor entitle such Beneficial Owner’s legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. Each Beneficial Owner expressly waives any right such Beneficial Owner may have under any rule of law, or the provisions of any statute, or otherwise, to require the Trustee at any time to account, in any manner other than as expressly provided in the Agreement, in respect of the Trust Property from time to time received, held and applied by the Trustee hereunder.

(d) No Beneficial Owner shall have any right to vote or in any manner otherwise to control the operation and management of the Trust, or the obligations of the parties hereto. Nothing set forth in this Agreement shall be construed so as to constitute the Beneficial Owners from time to time as partners or members of an association; nor shall any Beneficial Owner ever be liable to any third person by reason of any action taken by the parties to this Agreement, or for any other cause whatsoever. 

(e) The rights of Beneficial Owners must be exercised by DTC Participants or Participants of any successor Depository acting on their behalf in accordance with its rules and procedures

Section 7.5 Notices. 

(a) All notices given under this Agreement must be in writing. 

(b) Any and all notices to be given to the Trustee or the Sponsor shall be deemed to have been duly given (i) when it is actually delivered by a messenger or recognized courier service, (ii) five days after it is mailed by registered or certified mail, postage paid or (iii) when receipt of a facsimile transmission is acknowledged via a return receipt or receipt confirmation as requested by the original transmission, in each case to or at the address set forth below: 

 

 

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To the Trustee: 

THE BANK OF NEW YORK MELLON

101 Barclay Street, 22-W 

New York, New York 10286 

Attention: ADR Administration 

Facsimile: (212) 571-3050 

or any other place to which the Trustee may have transferred its Corporate Trust Office with notice to the Sponsor. 

To the Sponsor: 

ETF Securities USA LLC

555 California Street, Suite 2900

San Francisco, California 94104

Telephone: (415) 404-6332

Attention: Fred Jheon

with a copy to:

Katten Muchin Rosenman LLP

575 Madison Avenue

New York, New York 10022

Attention: Peter J. Shea, Esq.

or any other place to which the Sponsor may have transferred its principal office with notice to the Trustee. 

(c) Any and all notices to be given to a Registered Owner shall be deemed to have been duly given  (i) when actually delivered by messenger or a recognized courier service, (ii) when mailed, postage prepaid or (iii) when sent by facsimile transmission confirmed by letter, in each case at or to the address of such Registered Owner as it appears on the transfer books of the Trustee, or, if such Registered Owner shall have filed with the Trustee a written request that any notice or communication intended for such Registered Owner be delivered to some other address, at the address designated in such request.  Notices to Beneficial Owners shall be delivered to Authorized Participants and DTC Participants designated by DTC or any successor Depository.

Section 7.6 Agent for Service; Submission to Jurisdiction. 

The Sponsor hereby (i) irrevocably designates and appoints Katten Muchin Rosenman LLP, located at 575 Madison Avenue, New York, New York 10022, in the State of New York, as the Sponsor’s authorized agent upon which process may be served in any suit or proceeding arising out of or relating to the Shares, the Trust Property or this Agreement, (ii) consents and submits to the jurisdiction of any state or federal court in The City of New York, State of New York, in which any such suit or proceeding may be instituted, and (iii) agrees that service of 

 

 

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process upon said authorized agent shall be deemed in every respect effective service of process upon the Sponsor in any such suit or proceeding. The Sponsor agrees to deliver, upon the execution and delivery of this Agreement, a written acceptance by such agent of its appointment as such agent. The Sponsor further agrees to take any and all action, including the filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment in full force and effect for so long as any Shares remain outstanding or this Agreement remains in force. In the event the Sponsor fails to continue such designation and appointment in full force and effect, the Sponsor hereby waives personal service of process upon it and consents that any such service of process may be made by certified or registered mail, return receipt requested, directed to the Sponsor at its
address last specified for notices hereunder, and service so made shall be deemed completed five (5) days after the same shall have been so mailed. 

Each party hereto, each Authorized Participant by its delivery of an Authorized Participant Agreement and each Beneficial Owner by the acceptance of a Share, irrevocably consents to the jurisdiction of the courts of the State of New York and of any Federal Court located in the Borough of Manhattan in such State in connection with any action, suit or other proceeding arising out of or relating to this Agreement or any action taken or omitted hereunder, and waives any claim of forum non conveniens and any objections as to laying of venue. Each party further waives personal service of any summons, complaint or other process and agrees that service thereof may be made by certified or registered mail directed to such person at such person’s address for purposes of notices hereunder.

Section 7.7 Governing Law. 

This Agreement shall be interpreted under, and all rights and duties under this Agreement shall be governed by, the internal substantive laws (but not the choice of law rules) of the State of New York. 

IN WITNESS WHEREOF, ETF Securities USA LLC and THE BANK OF NEW YORK MELLON have duly executed this Depositary Trust Agreement as of the day and year first set forth above. 

 

 

	
                         
 	
                         
 	
                         
 	
                        ETF SECURITIES USA LLC
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        

                        By: 
 	
                          
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                        

 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Name:
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Title:
 

 

	
                         
 	
                         
 	
                         
 	
                         
 	
                        By: 
 	
                          
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                        

 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Name:
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Title:
 

 

	
                         
 	
                         
 	
                         
 	
                        THE BANK OF NEW YORK MELLON,
 as Trustee
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        

                        By: 
 	
                          
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                        

 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Name:
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Title:
 

 

 

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EXHIBIT A

[Form of Certificate]

THE SHARES EVIDENCED HEREBY REPRESENT RIGHTS WITH RESPECT TO UNDERLYING TRUST PROPERTY (AS DEFINED IN THE DEPOSITARY TRUST AGREEMENT REFERRED TO HEREIN) HELD BY THE TRUST AND DO NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST IN, AND ARE NOT GUARANTEED BY THE SPONSOR OR THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE SHARES NOR THE UNDERLYING TRUST PROPERTY ARE INSURED UNDER ANY AGREEMENT THAT DIRECTLY BENEFITS THE TRUST OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR ANY OTHER PERSON. 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE AGENT AUTHORIZED BY THE ISSUER FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 

 

 

A-1

 

 

ETFS PALLADIUM TRUST SHARES

ISSUED BY

ETFS PALLADIUM TRUST

REPRESENTING

FRACTIONAL INTERESTS IN DEPOSITED PALLADIUM AND ANY OTHER TRUST PROPERTY

THE BANK OF NEW YORK MELLON, as Trustee

 

	
                        No. 
 	
                        * Shares
 

CUSIP:

THE BANK OF NEW YORK MELLON, as Trustee (hereinafter called the Trustee), hereby certifies that CEDE & CO., as nominee of the Depository Trust Company, or registered assigns, is the owner of * Shares issued by ETFS Palladium Trust, each representing a fractional undivided interest in the net assets of the Trust, as provided in the Agreement referred to below. At the time of delivery of the Agreement, each 50,000 Shares represented an interest in 5,000 Ounces of Palladium that are deposited under the Agreement and held by the Custodian referred to in the Agreement. The amount of Palladium in which each 50,000 Shares represents an interest will decline over time as provided in the Agreement. The Trustee’s Corporate Trust Office is located at a different address than its principal executive office. Its Corporate Trust Office is located at 101 Barclay Street, New York, New
York 10286, and its principal executive office is located at One Wall Street, New York, New York 10286. 

This Certificate is issued upon the terms and conditions set forth in the Depositary Trust Agreement dated as of [     ], 2009  (the “Agreement”) among ETF Securities USA LLC (herein called the Sponsor), the Trustee, all Registered Owners and Beneficial Owners from time to time of Shares issued thereunder and all Depositors. By becoming a Registered Owner or Beneficial Owner, or by depositing Palladium, a Person is bound by all the terms and conditions of the Agreement. The Agreement sets forth the rights of Depositors and Registered Owners and the rights and duties of the Trustee and the Sponsor. Copies of the Agreement are on file at the Trustee’s Corporate Trust Office in New York City. 

______________
* That number of Shares held at The Depository Trust Company at any given point in time. 

 

 

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The Agreement is hereby incorporated by reference into and made a part of this Certificate as if set forth in full in this place. Capitalized terms not defined herein shall have the meanings set forth in the Agreement. 

This Certificate shall not be entitled to any benefits under the Agreement or be valid or obligatory for any purpose unless it is executed by the Trustee by the manual or facsimile signature of a duly authorized signatory of the Trustee and, if a Registrar (other than the Trustee) for the Shares shall have been appointed, countersigned by the manual signature of a duly authorized officer of the Registrar. 

 

 

	
      Dated:
 	
                         
 	
                         
 	
    THE BANK OF NEW YORK MELLON,
 as Trustee

	
                         
 	
                        
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 	
      By:
 	
                          

	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                        
 

 

THE TRUSTEE’S CORPORATE TRUST OFFICE ADDRESS IS

101 BARCLAY STREET, NEW YORK, NEW YORK 10286

 

 

A-3

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