September 15^th, 2022

 

CoinShares Digital Securities Limited

 

CoinShares Digital Securities Limited (the “Issuer”) announces developments relevant to its CoinShares Physical Ethereum securities.

 

The Issuer has been closely following the developments in the Ethereum protocol, with respect to both the proposed move (the “Merge”) to a Proof of Stake consensus network (the “ETHPoS”) as well as the proposed fork (the “Fork”) of the existing Proof of Work consensus network (the “ETHPoW”).  As a result of the Fork, the Issuer understands that a new Digital Currency (“ETHW”) will be created and distributed pro rata to all holders of the existing Ether Digital Currency (ETH). 

The Fork will constitute a Fork Event for the purposes of the Conditions and the Issuer continues to monitor developments around the Fork.

Furthermore, the Issuer notes that the markets for both ETHW and ETH may experience significant price volatility during the Merge and that the new protocol for ETHW may experience risks associated with the stability of the technology underpinning the protocol as well as risks to the adoption of ETHW among exchanges and custodians.  As a result, and pursuant to Clause 31.2.3 of the Trust Instrument and Condition 24.2(c), the Issuer has decided to make certain further amendments to the Conditions to allow the Issuer additional flexibility to react to the consequences of the Fork as they become clearer with a view to best dealing with the consequences of the Fork in the context of the Programme.

Accordingly the Issuer and the Trustee have entered into a Third Supplemental Trust Instrument (the “Third Supplemental Trust Instrument”) dated September 15^th, 2022 whereby the amendments to the Conditions set out in the appendix to this announcement were made with effect from September 15^th, 2022.

Terms used in this announcement and not otherwise defined bear the same meanings as where used in the base prospects of the Issuer dated April 20^th, 2022.

 

Appendix

Under the Third Supplemental Trust Instrument the Conditions were amended with effect from September 15^th, 2022 as follows:

The first paragraph of the Conditions was amended by substituting “a trust instrument dated 21 December 2020 between the Issuer and The Law Debenture Trust Corporation p.l.c. as trustee for the holders of Digital Securities, as amended and supplemented by a first supplemental trust instrument dated 21 December 2021, a second supplemental trust instrument dated 1 June 2022 and a third supplemental trust instrument dated 15 September 2022, and are governed by Jersey law” for “a trust instrument dated 21 December 2020 between the Issuer and The Law Debenture Trust Corporation p.l.c. as trustee for the holders of Digital Securities, and are governed by Jersey law”;

the following definition was added after the definition of “Acceptable Delivery” in Condition 1.1:

““Additional Asset” has the meaning given in Condition 15.4(a);”;

the following definitions were added after the definition of “Application” in Condition 1.1:

““Asset Acquisition” has the meaning given in Condition 15.4A;

“Asset Disposal” has the meaning given in Condition 15.4A;

“Asset Disposal Commencement Date” has the meaning given in Condition 15.4A;”;

the following definitions were added after the definition of “Business Day” in Condition 1.1:

““Cash Distribution” has the meaning given in Condition 15.4B;

“Cash Distribution Commencement Date” has the meaning given in Condition 15.4B;”;

Condition 15.4 was amended by:

1. substituting “will include any one or more of” for “will include and one or more of”;
2. inserting the words “some or all of” after “rights of the Digital Securities of the Original Class so that” in paragraph (a);
3. inserting the following new paragraph (aa) after paragraph (a):

“(aa) (either at the time of the Fork Event or, having adjusted the rights of the Digital Securities of the Original Class as referred to in paragraph (a), at any time thereafter) to sell some or all of the Additional Asset and apply the net proceeds of sale in acquiring additional Digital Currency of the type represented by Digital Securities of the Original Class and to adjust the Coin Entitlement of the Digital Securities of the Original Class accordingly in accordance with Condition 15.4A;”;

4. deleting “or” at the end of paragraph (b) and substituting “;” for “.” at the end of paragraph (c);
5. inserting the words “some or all of” after “to distribute” in paragraph (c);
6. inserting the following new paragraphs (d) and (e) after paragraph (c):

“(d) (either at the time of the Fork Event or, having adjusted the rights of the Digital Securities of the Original Class as referred to in paragraph (a), at any time thereafter) to sell some or all of the Additional Asset and distribute the net proceeds of sale to the Security Holders in respect of the Original Class pro rata to their holdings of Digital Securities of the Original Class; or

(e) if the Determination Agent acting in good faith determines that the Additional Asset has no economic value or negligible economic value and that taking any of the foregoing actions in the preceding paragraphs is not commercially reasonable, to surrender, discard or dispose of some or all of the Additional Asset for its own benefit and make no adjustment to the rights of the Digital Securities of the Original Class or, if an adjustment has previously been made as referred to in paragraph (a), to make a further adjustment so that the type of Digital Currency represented by the Additional Asset shall cease to constitute an Underlying Type in respect of the Digital Securities of the Original Class.”; and

7. inserting the following new paragraph after sub-paragraphs (a) to (e):

“In exercising any of its discretions pursuant to this Condition the Issuer shall act in good faith having regard to the interests of present and future Security Holders of the Original Class, the continuing functioning of the Programme in relation to the Digital Securities of the Original Class and such other matters as it may in its absolute discretion consider relevant, provided that in the case of conflict, the Issuer shall give additional consideration to the interests of present and future Security Holders of the Original Class and the continuing functioning of the Programme in relation to the Digital Securities of the Original Class.”; and

the following new Conditions 15.4A and 15.4B were added after Condition 15.4 (as amended):

“15.4A Fork Events – Supplementary Provisions – Asset Disposal and Asset Acquisition

Where in relation to a Fork Event the Issuer determines to sell the Additional Asset (an “Asset Disposal”) and apply the net proceeds of sale in acquiring additional Digital Currency of the type represented by Digital Securities of the Original Class as provided for in Condition 15.4(aa), the following provisions shall apply:

(a) The Issuer shall, as soon as reasonably practicable after making such determination, notify holders of Digital Securities of the Original Class through a RIS of its intention to sell the Additional Asset and apply the net proceeds of sale in acquiring additional Digital Currency of the type represented by Digital Securities of the Original Class.

(b) The Issuer shall, as soon as reasonably practicable prior to the commencement of the Asset Disposal, notify holders of Digital Securities of the Original Class through a RIS of the date (the “Asset Disposal Commencement Date”) on which the Asset Disposal is expected to commence and the date by which it is expected to conclude;

(c) The Issuer shall then instruct the Determination Agent to use reasonable endeavours from the Asset Disposal Commencement Date to carry out such trading activities as are necessary to sell the Additional Asset and to apply the net proceeds of sale after expenses (including the fees and expenses of the Determination Agent) in acquiring (an “Asset Acquisition”) additional Digital Currency of the type represented by Digital Securities of the Original Class;

(d) An Asset Disposal and Asset Acquisition may be effected on a single day or on up to five consecutive Business Days.  The Determination Agent shall calculate the Coin Entitlement in respect of each type of Digital Currency applicable to the Digital Securities of the Original Class for each such effective date or dates. If, for whatever reason, the Determination Agent is unable (in good faith) to calculate the Coin Entitlement for each such effective date or dates, such as in circumstances where the trading activities referenced in paragraph (c) above have not completed or settled in full, then the calculation of the Coin Entitlement may be postponed until it is able to be calculated by the Determination Agent.

(e) Following each determination by the Determination Agent of the Coin Entitlement for each such effective date or dates, the Issuer shall notify holders of Digital Securities of the Original Class through a RIS thereof.

(f) An Asset Disposal and Asset Acquisition shall not create, issue, redeem or cancel any Digital Securities and no payment shall be made to a Security Holder in respect of any Asset Disposal or Asset Acquisition.

15.4B Fork Events – Supplementary Provisions – Cash Distribution

Where in relation to a Fork Event the Issuer determines to sell the Additional Asset and distribute the net proceeds of sale to the Security Holders in respect of the Original Class as provided for in Condition 15.4(d), the following provisions shall apply:

(a) The Issuer shall, as soon as reasonably practicable after making such determination, notify holders of Digital Securities of the Original Class through a RIS of its intention to sell the Additional Asset and distribute the net proceeds of sale (“Cash Distribution”) to the Security Holders in respect of the Original Class.

(b) The Issuer shall, as soon as reasonably practicable prior to the commencement of the Cash Distribution, notify holders of Digital Securities of the Original Class through a RIS of the date (the “Cash Distribution Commencement Date”) on which the Cash Distribution is expected to commence, the date by which it is expected to conclude, the record date for the distribution of the net proceeds of sale and how (and with effect from what date(s)) the Coin Entitlement of the Digital Securities of the Original Class will be adjusted in consequence of the Cash Distribution.

(c) The Issuer shall then instruct the Determination Agent to use reasonable endeavours from the Cash Distribution Commencement Date to carry out such trading activities as are necessary to sell the Additional Asset.

(d) Following completion of such trading activities as are referred to in paragraph (c), the Issuer shall procure the distribution of such net proceeds of sale to the Security Holders in respect of the Original Class on the Register on the record date referred to in paragraph (b) pro rata to their holdings of Digital Securities of the Original Class on the Register on such record date in accordance with Condition 26, provided that in respect of any Security Holder to whom in aggregate less than US$5.00 would be payable, the Issuer may retain the amount otherwise payable for its own benefit.”.

 

 

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