UNDERWRITING AGREEMENT
This Agreement, dated as of January 1, 1999, is made by and between The
▇▇▇▇▇▇▇▇ Funds, Inc. a Maryland corporation (the "Fund") operating as an open-
end management investment company registered under the Investment Company Act of
1940, as amended (the "Act"), ▇▇▇▇▇▇▇▇ Management Company (the "Company"), a
registered investment advisor duly organized and existing as a corporation under
the laws of the Commonwealth of Pennsylvania, and First Data Distributors, Inc.
("FDDI"), a corporation duly organized and existing under the laws of the
Commonwealth of Massachusetts (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Fund is authorized to issue separate series of shares
representing interests in separate investment portfolios (the "Series"), which
Series are identified on Schedule "C" attached hereto, and which Schedule "C"
may be amended from time to time by mutual agreement among the Parties; and
WHEREAS, the Company has been appointed investment advisor to the Fund; and
WHEREAS, FDDI is a broker-dealer registered with the U.S. Securities and
Exchange Commission (the "SEC") and a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Parties are desirous of entering into an agreement providing
for the distribution by FDDI of the shares of the Fund (the "Shares").
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and in exchange of good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the Parties hereto,
intending to be legally bound, do hereby agree as follows:
1. Appointment
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The Fund hereby appoints FDDI as its principal agent for the distribution
of the Shares, and FDDI hereby accepts such appointment under the terms of
this Agreement. The Fund agrees that it will not sell any Shares to any
person except to fill orders for the Shares received through FDDI,
provided, however, that the foregoing exclusive right shall not apply to:
(a) Shares issued or sold in connection with the merger or consolidation of
any other investment company with the Fund or the acquisition by purchase
of otherwise of all or substantially all of the assets of any investment
company or substantially all of the outstanding shares of any such company
by the Fund; (b) Shares which may be offered by the Fund to its
stockholders for reinvestment of cash distributed from capital gains or
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net investment income of the Fund; or (c) Shares which may be issued to
shareholders of other funds who exercise any exchange privilege set forth
in the Fund's Prospectus. Notwithstanding any other provision hereof, the
Fund may terminate, suspend, or withdraw the offering of the Shares
whenever, in their sole discretion, they deem such action to be desirable.
2. Sale and Repurchase of Shares
-----------------------------
(a) FDDI is hereby granted the right, as agent for the Fund, to sell
Shares to the public against orders received at the public offering
price as defined in the Fund's Prospectus and Statement of Additional
Information.
(b) FDDI will also have the right to take, as agent for the Fund, all
actions which, in FDDI's judgment, and subject to the Fund's
reasonable approval, are necessary to carry into effect the
distribution of the Shares.
(c) FDDI will act as agent for the Fund in connection with the repurchase
of Shares by the Fund upon the terms set forth in the Fund's
Prospectus and Statement of Additional Information.
(d) The net asset value of the Shares shall be determined in the manner
provided in the then current Prospectus and Statement of Additional
Information relating to the Shares, and when determined shall be
applicable to all transactions as provided in the Prospectus. The net
asset value of the Shares shall be calculated by the Fund or by
another entity on behalf of the Fund. FDDI shall have no duty to
inquire into, or liability for, the accuracy of the net asset value
per Share as calculated.
(e) On every sale, FDDI shall promptly pay to the Fund the applicable net
asset value of the Shares.
(f) Upon receipt of purchase instructions, FDDI will transmit such
instructions to the Fund or its transfer agent for registration of the
Shares purchased.
(g) Nothing in this Agreement shall prevent FDDI or any affiliated person
(as defined in the Act) of FDDI from acting as underwriter for any
other person, firm or corporation (including other investment
companies), or in any way limit or restrict FDDI or such affiliated
person from buying, selling or trading any securities for its or their
own account or for the account of others for whom it or they may be
acting, provided, however, that FDDI expressly agrees that it will not
for its own account purchase any Shares of the Fund except for
investment purposes, and that it will not for its own account dispose
of any such Shares except by redemption of such Shares with the Fund,
and that it will not undertake in any activities
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which, in its judgment, will adversely affect the performance of its
obligations to the Fund under this Agreement.
3. Rules of Sale of Shares
-----------------------
FDDI does not agree to sell any specific number of Shares and serves only
in the capacity of Statutory Underwriter. The Fund reserves the right to
terminate, suspend or withdraw the sale of its Shares for any reason deemed
adequate by it, and the Fund reserves the right to refuse at any time or
times to sell any of its Shares to any person for any reason deemed
adequate by it.
4. Rules of NASD, etc.
-------------------
(a) FDDI will conform to the Conduct Rules of the NASD and the securities
laws of any jurisdiction in which it directly or indirectly sells any
Shares.
(b) FDDI will require each dealer with whom FDDI has a selling agreement
to conform to the applicable provisions of the Prospectus, with
respect to the public offering price of the Shares, and FDDI shall not
withhold the placing of purchase orders so as to make a profit
thereby.
(c) The Fund and the Company agree to furnish FDDI sufficient copies of
any and all: agreements, plans, communications with the public or
other materials which the Fund or the Company intend to use in
connection with any sales of Shares, in adequate time for FDDI to file
and clear such materials with the proper authorities before they are
put in use. FDDI and the Fund or the Company may agree that any such
material does not need to be filed subsequent to distribution. In
addition, the Fund and the Company agree not to use any such materials
until so filed and cleared for use, if required, by appropriate
authorities as well as by FDDI.
(d) FDDI, at its own expense, will qualify as a dealer or broker, or
otherwise, under all applicable state or federal laws required in
order that the Shares may be sold in such states as may be mutually
agreed upon by the Parties.
(e) FDDI shall remain registered with the SEC and a member of the NASD for
the term of this Agreement.
(f) FDDI shall not, in connection with any sale or solicitation of a sale
of the Shares, make or authorize any representative, service
organization, broker or dealer to make any representations concerning
the Shares, except those contained in the Prospectus offering the
Shares and in communications with the public or sales materials
approved by FDDI as information supplemental to such Prospectus.
Copies of the Prospectus will be
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supplied by the Fund or the Company to FDDI in reasonable quantities
upon request.
(g) FDDI shall only be authorized to make representations in respect of
the Fund consistent with the then current Prospectus, Statement of
Additional Information, and other written information provided by the
Fund or its agents to be used explicitly with respect to the sale of
Shares.
5. Records to be Supplied by the Fund
----------------------------------
The Fund shall furnish to FDDI copies of all information, financial
statements and other papers which FDDI may reasonably request for use in
connection with the underwriting of the Shares including, but not limited
to, one certified copy of all financial statements prepared for the Fund by
its independent public accountants.
6. Expenses
--------
(a) The Fund will bear the following expenses:
(i) preparation, setting in type, and printing of sufficient copies
of the Prospectus and Statement of Additional Information for
distribution to shareholders, and the cost of distribution of
same to the shareholders;
(ii) preparation, printing and distribution of reports and other
communications to shareholders;
(iii) registration of the Shares under the federal securities laws;
(iv) qualification of the Shares for sale in the jurisdictions as
directed by the Fund;
(v) maintaining facilities for the issue and transfer of the
Shares;
(vi) supplying information, prices and other data to be furnished by
the Fund under this Agreement; and
(vii) any original issue taxes or transfer taxes applicable to the
sale or delivery of the Shares or certificates therefor.
(b) The Company will pay all other expenses incident to the sale and
distribution of the Shares sold hereunder.
(c) FDDI agrees to pay all of its own expenses in performing its
obligations hereunder.
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7. Term and Compensation
---------------------
(a) The term of this Agreement shall commence on the date on hereinabove
first written (the "Effective Date").
(b) This Agreement shall remain in effect for one (1) year from the
Effective Date. This Agreement shall continue thereafter for periods
not exceeding one (1) year, if approved at least annually (i) by a
vote of a majority of the outstanding voting securities of each
Series, or (ii) by a vote of a majority of the Board Members of the
Fund who are not parties to this Agreement (other than as Board
Members of the Fund) or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
(c) Fees payable to FDDI shall be paid by the Company as set forth in
Schedule "B" attached and shall be fixed for the one (1) year period
commencing on the Effective Date of this Agreement. Thereafter, the
fee schedule will be subject to annual review and adjustment.
(d) This Agreement (i) may be terminated as to any Series at any time
without the payment of any penalty, either by a vote of the Directors
of the Fund or by a vote of a majority of the outstanding voting
securities of each Series with respect to such Series, on sixty (60)
days' written notice to FDDI; and (ii) may be terminated by FDDI on
sixty (60) days' written notice to the Fund with respect to any
Series.
(e) This Agreement shall automatically terminate in the event of its
assignment, as defined in the Act.
8. Indemnification of FDDI by the Company and the Fund
---------------------------------------------------
FDDI is responsible for its own conduct and the employment, control, and
conduct of its agents and employees and for injury to such agents or
employees or to others caused by it, its agents or employees.
Notwithstanding the above, the Company will indemnify and hold FDDI
harmless for the actions of the Company's employees registered with the
NASD as registered representatives of FDDI, and the Company hereby
undertakes to maintain compliance with all NASD and SEC rules and
regulations concerning any activities of such employees. FDDI shall have
the right, in its sole discretion, to refuse to register any individual as
its representative.
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9. Liability of FDDI
-----------------
(a) FDDI, its directors, officers, employees, shareholders and agents
shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the performance of
this Agreement, except a loss resulting from a breach of FDDI's
obligations pursuant to Section 4 of this Agreement (including breach
of the Rules of NASD), a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of FDDI in the
performance of its obligations and duties or by reason of its reckless
disregard of its obligations and duties under this Agreement. FDDI
agrees to indemnify and hold harmless the Fund and each person who has
been, is, or may hereafter be a Director, officer, or employee of the
Fund against expenses, including reasonable counsel fees, reasonably
incurred by any of them in connection with any claim or in connection
with any action, suit, or proceeding to which any of them may be a
party, which arises out of or is alleged to arise out of any
misrepresentation or omission to state a material fact, on the part of
FDDI or any agent of employee of FDDI or any of the persons for whose
acts FDDI is responsible or is alleged to be responsible unless such
misrepresentation or omission was made in reliance upon written
information furnished to FDDI by the Fund. FDDI also agrees to
indemnify and hold harmless the Fund and each such person in
connection with any claim or in connection with any action, suit, or
proceeding which arises out of or is alleged to arise out of FDDI's
failure to exercise reasonable care and diligence with respect to its
services rendered in connection with the purchase and sale of Shares.
With respect to the foregoing, the Fund shall have the right to
participate in the defense of any action, suit or proceeding and to
retain its own counsel, and the reasonable fees and expenses of such
counsel shall be borne by FDDI, which shall pay such fees, costs and
expenses at least quarterly. The foregoing rights of indemnification
shall be in addition to any other rights to which the Fund or any such
person shall be entitled to as a matter of law.
(b) The Fund agrees to indemnify and hold harmless FDDI against any and
all liability, loss, damages, costs of expenses (including reasonable
counsel fees) which FDDI may incur or be required to pay hereafter, in
connection with any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or legislative body, in
which FDDI may be involved as a party or otherwise or with which FDDI
may be threatened, by reason of the offer or sale of the Fund's Shares
by persons other than FDDI or its representatives, prior to the
execution of this Agreement. If a claim is made against FDDI as to
which FDDI may seek indemnity under the Section, FDDI shall notify the
Fund promptly after any written assertion of such claim threatening to
institute an action or proceeding
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with respect thereto and shall notify the Fund promptly of any action
commenced against FDDI within 10 days time after FDDI shall have been
served with a summons or other legal process, giving information as to
the nature and basis of the claim. Failure to notify the Fund shall
not, however, relieve the Fund from any liability which it may have on
account of the indemnity under this Section 9(b) if the Fund has not
been prejudiced in any material respect by such failure. The Fund
shall have the sole right to control the settlement of any such
action, suit or proceeding subject to FDDI approval, which shall not
be unreasonably withheld. FDDI shall have the right to participate in
the defense of an action or proceeding and to retain its own counsel,
and the reasonable fees and expenses of such counsel shall be borne by
the Fund (which shall pay such fees, costs and expenses at least
quarterly) if:
(i) FDDI has received an opinion of counsel stating that the
use of counsel chosen by the Fund to represent FDDI would
present such counsel with a conflict of interest;
(ii) the defendants in, or targets of, any such action or
proceeding include both FDDI and the Fund, and legal
counsel to FDDI shall have reasonably concluded that there
are legal defenses available to it which are different
from or additional to those available to the Fund or which
may be adverse to or inconsistent with defenses available
to the Fund (in which case the Fund shall not have the
right to direct the defense of such action on behalf of
FDDI); or
(iii) the Fund shall authorize FDDI to employ separate counsel
at the expense of the Fund.
(c) Any person, even though also a director, officer, employee,
shareholder or agent of FDDI who may be or become an officer,
director, trustee, employee or agent of the Fund, shall be deemed,
when rendering services to the Fund or acting on any business of the
Fund (other than services or business in connection with FDDI's duties
hereunder), to be rendering such services to or acting solely for the
Fund and not as a director, officer, employee, shareholder or agent,
or one under the control or direction of FDDI even though receiving a
salary from FDDI.
(d) The Fund agrees to indemnify and hold harmless FDDI, and each person
who controls FDDI within the meaning of Section 15 of the Securities
Act of 1933, as amended (the "Securities Act"), or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
against any and all losses, claims, damages and liabilities, joint or
several (including any reasonable investigative, legal and other
expenses incurred in connection
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therewith) to which they, or any of them, may become subject under the
Act, the Securities Act, the Exchange Act or other federal or state
law or regulations, at common law or otherwise insofar as such losses,
claims, damages or liabilities (or actions, suits or proceedings in
respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in a
Prospectus, Statement of Additional Information, supplement thereto,
sales literature (or other written information) prepared by the Fund
and furnished by the Fund to FDDI for FDDI's use hereunder,
disseminated by the Fund or which arise out of or are based upon any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
Such indemnity, and any indemnity provided by Section 9(b) above,
shall not, however, inure to the benefit of FDDI (or any person
controlling FDDI) on account of any losses, claims, damages or
liabilities (or actions, suits or proceedings in respect thereof)
arising from the sale of the Shares of the Fund to any person by FDDI
(i) if such untrue statement or omission or alleged untrue statement
or omission was made in the Prospectus, Statement of Additional
Information, or supplement, sales or other literature, in reliance
upon and in conformity with information furnished in writing to the
Fund by FDDI specifically for use therein or (ii) if such losses,
claims, damages or liabilities arise out of or are based upon an
untrue statement or omission or alleged untrue statement or omission
found in any Prospectus, Statement of Additional Information,
supplement, sales or other literature, subsequently corrected, but
negligently distributed by FDDI and a copy of the corrected Prospectus
was not delivered to such person at or before the confirmation of the
sale to such person.
(e) FDDI shall not be responsible for any damages, consequential or
otherwise, which the Company or the Fund may experience, due to the
disruption of the distribution of Shares caused by any action or
inaction of any registered representative or affiliate of FDDI or of
FDDI itself.
(f) Notwithstanding anything in this Agreement to the contrary, in no
event shall any party to this Agreement, its affiliates or any of its
or their directors, trustees, officers, employees, agents or
subcontractors be liable for lost profits, exemplary, punitive,
special, incidental, indirect or consequential damages.
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10. Amendments
----------
No provision of this Agreement may be amended or modified in any manner
whatsoever, except by a written agreement properly authorized and executed
by the Parties.
11. Section Headings
----------------
Section and paragraph headings are for convenience only and shall not be
construed as part of this Agreement.
12. Reports
-------
FDDI shall prepare reports for the Board of the Fund, on a quarterly basis,
showing such information as, from time to time, shall be reasonably
requested by the Board.
13. Severability
------------
If any part, term or provision of this Agreement is held by any court to be
illegal, in conflict with any law or otherwise invalid, the remaining
portion or portions shall be considered severable and not affected, and the
rights and obligations of the Parties shall be construed and enforced as if
the Agreement did not contain the particular part, term or provision held
to be illegal or invalid provided that the basic agreement is not thereby
substantially impaired.
14. Governing Law
-------------
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts and the exclusive venue of any action arising under this
Agreement shall be the City of Boston, Commonwealth of Massachusetts.
15. Authority to Execute
--------------------
The Parties represent and warrant to each other that the execution and
delivery of this Agreement by the undersigned officer of each Party has
been duly and validly authorized; and, when duly executed, this Agreement
will constitute a valid and legally binding and enforceable obligation of
each Party.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be signed
by their duly authorized officer, of the day and year first above written.
FIRST DATA DISTRIBUTORS, INC.
_____________________________
By:
Title:
THE ▇▇▇▇▇▇▇▇ FUNDS, INC.
_____________________________
By:
Title:
▇▇▇▇▇▇▇▇ MANAGEMENT COMPANY
_____________________________
By:
Title:
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SCHEDULE A
UNDERWRITER SERVICES
1. Underwriter services include:
-----------------------------
A) Literature review, recommendations and submission to the NASD
B) Initial NASD Licensing and Transfers of Registered Representatives
. U-4 Form and Fingerprinting Submission to NASD
. Supplying Series 6 and 63 written study material
. Registration for Exam Preparation classes
. Renewals and Termination of Representatives
C) Written supervisory procedures and manuals for Registered
Representatives
D) Ongoing compliance updates for Representatives regarding sales
practices, written correspondence and other communications with the public.
E) NASD Continuing Education Requirement
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SCHEDULE B
FEE SCHEDULE
This Fee Schedule is fixed for a period of one (1) year from the Effective Date
as that term is defined in the Agreement.
1. Statutory Underwriter Services
------------------------------
A) The Fund agrees to pay FDDI $3,000 per series per annum for the
services performed under this Agreement.
B) The Company agrees to pay FDDI $2.00 per kit for inquiry/fulfillment
with a $1,500 per month minimum for all funds managed by the Company.
C) FDDI agrees register certain employees of the Company as its
representatives as follows, such fee to be paid by the Company:
Up to 10 States $2,000 per Representative per Year
All 50 States $4,000 per Representative per Year
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SCHEDULE C
IDENTIFICATION OF SERIES
Below are listed the Series and Classes of Shares to which services under this
Agreement are to be performed as of the Effective Date of this Agreement:
▇▇▇▇▇▇▇▇ Small-Cap Yield Fund
▇▇▇▇▇▇▇▇ Special Value Fund
This Schedule "C" may be amended from time to time by agreement of the Parties.
Dated: January 1, 1999
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