DISTRIBUTION AGREEMENT
This Distribution Agreement, dated this 5 day of October, 1998, between
INVESTORS RESEARCH FUND, INC., a Delaware corporation (hereinafter called the
"Fund"), and ND Capital, Inc., a North Dakota corporation (hereinafter called
the "Distributor"), is made with reference to the following facts:
The Fund is an investment company registered under the Investment Company
Act of 1940.
The Distributor is a registered broker-dealer.
The parties hereto agree as follows:
1. The Distributor shall be the exclusive agent of the Fund to offer for
sale Shares of the Fund, commencing on the effective date of this Agreement,
as hereinafter set forth, and continuing so long thereafter as this Agreement
shall be in effect. Distributor shall have the sole responsibility for
the offering for sale of Shares through dealers, but such sales shall be
consummated directly between the Fund and the Dealer's customers in the manner
requested of the Fund by the Dealer through the Distributor. The Distributor
will not purchase Shares from the Fund for resale and will not repurchase
Shares. The Distributor will take requests for redemption and repurchases from
Dealers and submit such requests to the Fund for execution. The Fund shall not
offer Shares for sale for its own account or for the account of others, or
authorize others than Distributor to offer or sell Shares for the Fund's
account so long as this Agreement shall remain in effect except as follows:
(a) The Fund may at any time issue Shares as a stock dividend or as a
stock split or as a dividend payable in cash or stock at the option of the
shareholder.
(b) The Fund may at any time issue or grant to holders of its outstanding
Shares rights to purchase Shares at no less than the net asset value of
outstanding Shares, and may issue Sharesupon exercise of such rights, provided,
however, that all such rights are granted equally to all shareholders of the
same class.
1
(c) The Fund may at any time issue Shares to any other corporation,
association, trust, partnership or individual, or its, their, or his securities
holders in connection with a plan of merger, consolidation, or reorganization
to which the Fund is a party or in connection with the acquisition of all or
substantially all the property and assets of such other corporation,
association, trust, partnership or individual.
(d) The Fund may at any time sell its Shares at net asset value and
without sales commission to its directors, officers or partners of the Fund,
its Investment Adviser and Distributor or the bona fide, full-time employees or
sales representatives of any of the foregoing who have acted as such for not
less than ninety (90) days or to any trust, pension, profit-sharing or other
benefit plan for such persons, upon written assurance that the Shares are being
purchased for investment purposes and will not be resold except through
redemption or repurchase by or on behalf of the Fund.
2. Distributor shall devote its best efforts to effect the sale of Shares of
the Fund and to such other activities as are contemplated by this Agreement.
It shall use its best efforts to effect such sales in those States in which the
Shares may be eligible or qualified for sale. This obligation shall be
continuous during the existence of this Agreement.
3. The Fund shall retain the right to direct the execution of orders for its
portfolio transactions with such brokers and eligible dealers as the Fund in
its sole and exclusive discretion shall from time to time determine.
Distributor agrees to mail to each of the Fund's directors within ten (10) days
after the end of each calendar quarter a written report tabulating the
following for such quarter: the total sales of the Shares of the Fund; the ten
(10) brokers or eligible dealers who sold the greatest number of such shares
for said quarter, giving both the number of shares and the dollar volume
thereof for each such broker or eligible dealer; and such other pertinent
information as may be agreed upon from time to time between the Fund and
Distributor.
2
4. The Fund agrees that it will make available for offering and sale through
Distributor its unissued Shares registered with the Securities and Exchange
Commission at the public offering price per Share based on asset value as
determined in the manner set forth in the then current Prospectus. If required,
the Fund will make available proper certificates for Shares ordered by the
Distributor for delivery against payment. The Fund may, however, withhold
Shares from sale temporarily or permanently, at any time if, in the opinion of
counsel for the Fund, such offering or sale would be contrary to law, or its
Board of Directors determine that such offering or sale is inadvisable in the
interests of the Fund. The Fund will give prompt notice to Distributor of any
determination to withhold its Shares from sale, and will indemnify Distributor
against any loss suffered by Distribution as the result of a good-faith
acceptance by Distributor of an order for sale of Shares of the Fund in
accordance with Paragraph 8 hereof, and prior to receipt by Distributor of such
notice.
5. The Shares offered and sold through Distributor for the Fund's account
under this Agreement shall be offered and sold only at the then current public
offering price, provided that Distributor may employ the services of subagents,
or may offer Shares for sale for the Fund's account to other dealers, and may
allow such other dealers such commissions and may extend such concessions or
discounts as are set forth in the then current Registration Statement and
Prospectus filed with the Securities and Exchange Commission. No commission
shall be allowed and no discounts or concessions shall be extended by
Distributor, however, unless Distributor shall obtain a written agreement from
each Dealer, running to Distributor and the Fund to the effect that Dealer is a
member of the National Association of Securities Dealers, and will comply with
the provisions of Rule 2830 of the Conduct Rules of that Association, and will
not offer for sale or sell Shares of the Fund at less than the public offering
price set forth in the then current Registration Statement and Prospectus.
3
6. The public offering price of Shares shall at all times be the public
offering price based on net asset value in the manner set forth in the then
current Registration Statement and the Prospectus included therein filed by the
Fund with the Securities and Exchange Commission to register the Shares so
offered. Until further notice from Fund to Distributor, the public offering
price will be determined by the Board of Directors of the Fund, at the time and
in the manner set forth in the Prospectus.
7. Distributor shall not, without the consent of the Fund, offer for sale
any Shares of the Fund other than Shares made available by the Fund under this
Agreement.
8. All orders for the purchase of Shares offered by Distributor for the
account of the Fund shall be accepted at the time received by Distributor, and
at the offering price unless rejected by Distributor or by the Fund.
Distributor may not receive such orders subject to acceptance or otherwise
delay their execution. The Fund shall be promptly advised of all such orders
received, and, if required, shall make available proper certificates for the
Shares ordered for delivery against payment of the purchase price. When
required, certificates shall be delivered by the Fund only against receipt of
the purchase price, subject to deduction for the commissions of Distributor and
Dealer as provided in Paragraph 9 of this Agreement. The provisions of
Paragraph 8 shall not operate to impair the right of the Fund to withhold
Shares from sale under the provisions of Paragraph 4 of this Agreement, and
Distributor or the Fund may reject any order, provided that the Fund will
indemnify Distributor against any loss suffered by Distributor as the result of
any order accepted in good faith by Distributor which is rejected by the Fund,
unless Distributor shall have received, prior to acceptance of such order,
notice from the Fund that such order will be rejected, or that the Fund has
determined to withhold Shares from sale.
4
9. As compensation for its services as selling agent under this Agreement,
Distributor and the Dealer shall receive a commission in an amount equal to
3.75% of the public offering price referred to in Paragraph 6 of this Agreement
in single transactions involving less than $25,000.00, reduced in single
transactions involving more than $25,000.00, as follows:
Distributor's Share Dealer's Share
Sales Commission of Sales Commission of Sales Commission
Amount of As Percentage of As Percentage of As Percentage Of
Purchase Offering Price Offering Price Offering Price
-------- -------------- -------------- --------------
Less than $25,000 3.75% 0.56% 3.19%
$25,000to <$50,000 3.00% 0.45% 2.55%
$50,000 to <$100,000 2.50% 0.38% 2.12%
$100,000 to <$250,000 2.00% 0.30% 1.70%
$250,000 to <$500,000 1.50% 0.23% 1.27%
$500,000 to <$1,000,000 1.00% 0.15% 0.85%
$1,000,000 or more 0.00% 0.00% 0.00%
A single transaction for the purpose of the Agreement shall be as defined
in the then current Registration Statement and Prospectus filed with the
Securities Exchange Commission.
10. The Fund agrees to use its best efforts to achieve eligibility and
maintain the eligibility of an appropriate number of its Shares for sale under
the laws regulating the sale of securities in such States as shall be mutually
agreed upon by the Distributor and the Fund. Any such qualification may be
terminated or withdrawn by the Fund at any time in its discretion.
11. The Fund agrees to furnish Distributor a proper form of Prospectus for
use in offering the Shares under this Agreement, with such revisions thereof
and additions thereto as may be necessary from time to time during the period
of this Agreement in order that such form of Prospectus may be suitable and
lawful for use in connection with an offering of Shares in interstate commerce,
and in States in which Shares are qualified for offering.
12. Insofar as they are used in connection with the sale and distribution of
the Shares, Distributor shall pay all costs and expenses incurred in the
preparation, printing and distribution of material required or used in the
5
sale, promotion, underwriting and distribution of the Shares, including but
not limited to all costs of printing and distribution only of prospectuses,
reports to shareholders and other similar material used in connection with
sales. Distributor shall also pay all other expenses in connection with the
offering for sale of Shares to be made by it under this Agreement, including
the fees and expenses of its counsel and expenses of obtaining proper licenses
and authorizations to act as a dealer or salesman of securities in the State of
California and other States in which it may elect to make such offerings as a
dealer or salesman. The cost of carrying plan accounts for the Fund's share-
holders will be borne by the Fund. Distributor agrees to pay for all costs and
expenses incurred in the preparation, printing, distribution and where
necessary, filing with appropriate Federal and State agencies, of all sales and
advertising material and all printed forms and data required or actually used
in connection with the sale and distribution of the Shares, whether contracts,
order blanks, confirmation forms or otherwise, but Distributor will not be
responsible for expenses or costs in connection with the %qualification or
registrtion of the Shares. Distributor will not be liable or responsible for
the preparation and distribution of proxy statements.
13. Distributor agrees to submit to appropriate Federal and State agencies,
including the National Association of Securities Dealers; all sales materials
and forms prior to their use which are to be used in the sale, promotion,
underwriting and distribution of Shares, in compliance with such rules as such
agencies, including the National Association of Securities Dealers, shall
promulgate, and shall be solely responsible for any such material prepared by
Distributor which may be found not to be in compliance. Distributor will
inform the Fund what material is being used, and will send copies of all such
material to the Fund for its files.
14. The Fund agrees that all registration statements from time to time filed
by it with the Securities and Exchange Commission will, to the best of its
ability, contain all statements which are required to be stated therein, that
all Prospectuses will contain all statements required to be contained therein,
6
and will conform with the requirements of the Securities Act of 1933 as
amended, and the Investment Company Act of 1940 as amended, and the rules and
regulations thereunder; that no part of any registration statement or of any
application for qualification of said Shares under State securities laws will
include, at the time when it or they become effective, any untrue statement of
a material fact, or omit to state a material fact required to be stated there-
under, or necessary to make the statements therein not misleading, and that no
Prospectus will include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading. Distributor agrees that it will not in offering Shares for sale
use any Prospectus or advertising or sales material not approved in writing by
the Fund, or make any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading. The agreements and
warranties of the Fund contained in this Paragraph 14 are made for the benefit
of and shall extend in favor of each Dealer to whom sales are made through the
Distributor, but only upon the condition that the Dealer will not, in the
offering of Shares for sale, use any Prospectus or advertising or sales
material not approved in writing by the Fund and/or make any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they are made,
not misleading.
15. The Fund will immediately advise Distributor, confirming such advice in
writing, in the event of the issuance by the Securities and Exchange Commission
of any stop order suspending the effectiveness of any registration statement or
prospectus, or the initiation of any proceedings for that purpose. The Fund
further agrees that if during the term of this Agreement the Securities and
Exchange Commission issues any such stop order it will make every reasonable
effort to obtain a lifting of such order at the earliest possible moment.
7
16. This Agreement shall continue in effect until midnight, March 31, 1999,
and from year to year thereafter, but only so long as such continuance is
specifically approved at least annually in accordance with the provisions of
Section 15 of the Investment Company Act of 1940, as amended. Notwithstanding
the foregoing, this Agreement may be sooner terminated without payment of
penalty as follows:
(a) Upon either party giving to the other party at least sixty (60) days'
written notice of an intent to terminate, except as presented in paragraphs 18
and 19 of this Agreement;
(b) Upon the giving of at least five (5) days' written notice by either
party to the other party, fixing an earlier termination date, upon the
happening of any of the following events:
(i) The issuance by the Securities and Exchange Commission of a stop
order suspending the effectiveness of any Registration Statement covering the
Shares to be offered for the account of the Fund.
(ii) The institution of court proceedings by the Securities and
Exchange Commission or any other authority empowered to regulate the sale of
securities to prevent the offering or sale of Shares to be offered by
Distributor for the account of the Fund under this Agreement.
(iii) The institution by the National Association of Securities Dealers
or disciplinary proceedings against Distributor of proceedings to suspend or
cancel the membership of Distributor in that organization.
17. The books and records of Distributor insofar as they relate to sales of
the Fund's Shares shall be open to inspection during business hours by the
officers and authorized representatives of the Fund, and the books and records
of the Fund relating to the determination of the offering price of Shares shall
be open to inspection during business hours by the officers and authorized
representatives of Distributor.
8
18. This Agreement shall not be assignable by either party hereto, and in the
event of assignment shall automatically be terminated forthwith. Transfer of
voting control of Distributor shall constitute an assignment for purposes of
this Paragraph 18.
19. In the event that any provision of this Agreement is now or in the future
in violation of the Investment Act of 1940, as now or amended and in effect, or
any present or future rule or regulation at any time placed in effect there-
under by the Securities and Exchange Commission or a registered securities
association or other authority empowered to make rules or regulations under
said Act, and such violation or prospective violation is brought to the
attention of the parties hereto and is not thereafter immediately eliminated
by amendment of the Agreement, this Agreement may be terminated forthwith by
either party by written notice to the other.
20. The Fund agrees to indemnify and hold harmless the Distributor, and each
of the persons, if any, who control the Distributor (within the meaning of
Section 15 of the Securities Act of 1933), any officer or director of the
Distributor, against liability, joint or several, to any person acquiring any
of the Shares which may be based upon Section 11 or 12 of said Act, or any
other statute, or the common law, or otherwise, by reason of the Fund's failure
to comply with its agreements under Paragraph 14 hereof, or by reason of the
furnishing by the Fund for inclusion in any Registration Statement, Prospectus,
or Amendment thereof, or any application for eligibility of securities under
any State law of any information containing a misstatement of a material fact
or which omits to state a material fact necessary in order to make the
information furnished not misleading. Such indemnity shall include expenses
(including counsel fees and the cost of any investigation and preparation for
any litigation) whether or not resulting in any liability, provided, however,
(a) that in no case shall the Fund be liable unless the party claiming
indemnity under the provisions of this Paragraph 20 shall have notified the
Fund in writing thereof within ten (10) days after summons or other legal
process has been served on the party against whom claim is made or such party's
9
duly designated agent for service of process; and (b) that liability of the
Fund shall not extend to any misstatement or omission in such Registration
Statement, Prospectus, or Securities Application which is the result of or
based upon information supplied to the Fund by the Distributor.
The Fund may at its option assume the defense of any suit brought to
enforce any such liability, but such defense shall be conducted by counsel of
good standing chosen by the Fund and satisfactory to the Distributor. If the
Fund elects to assume the defense of any such suit and retains counsel
satisfactory to the Distributor, the Distributor shall bear the fees and
expenses of any additional counsel retained by it; but in case the Fund does
not elect to assume the defense of any such suit, or if counsel retained by
the Fund is not satisfactory to the Distributor, the Fund will reimburse the
Distributor or the person or persons named as defendant in any such suit, for
the fees and expenses of any counsel retained by them.
The indemnification agreement contained in this Paragraph 20, and the
representations and warranties of the Fund in this Agreement shall remain
operative and in full force and effect for the period of the applicable
statute of limitations, regardless of any investigation made by or on behalf
of the Distributor or any person in control of the Distributor, and shall
survive the delivery of any Shares hereunder. The Fund agrees promptly to
notify the Distributor of the commencement of any litigation or proceedings
against it, or any of its officers and directors in connection with the issue
or sale of any of the Shares covered by an applicable Registration Statement.
21. The Distributor agrees to indemnify and hold harmless the Fund, and each
of the persons, if any, who control the Fund (within the meaning of Section 15
of the Securities Act of 1933), and any officer or director of the Fund,
against liability, joint or several, to any person acquiring any of the Shares
which may be based upon Section 11 or 12 of said Act, or any other statute, or
the common law, or otherwise, by reason of Distributor's failure to comply with
its agreements under Paragraph 14 hereof, or by reason of the furnishing by
Distributor for inclusion in any Registration Statement, Prospectus, or
10
Amendment thereof or any application for qualification of securities under any
State law of any information containing a misstatement of a material fact or
which omits to state a material fact necessary in order to make the information
furnished not misleading. Such indemnity shall include expenses (including
counsel fees and the costs of any investigation and preparation for any litiga-
tion) whether or not resulting in any liability, provided, however, (a) that in
no case shall Distributor be liable unless the party claiming indemnity under
the provisions of this Paragraph 21 shall have notified Distributor in writing
thereof within ten (10) days after summons or other legal process shall have
been served on the party against whom claim is made or such party's duly
designated agent for service of process; and (b) that liability of the
Distributor shall not extend to any misstatement or omission in such
Registration Statement, Prospectus or Securities Application which is the
result of or based upon information supplied by the Fund.
Distributor may at its option assume the defense of any suit brought to
enforce any such liability but such defense shall be conducted by counsel of
good standing chosen by Distributor and satisfactory to the Fund. If
Distributor elects to assume the defense of any such suit and retains counsel
satisfactory to the Fund, the Fund shall bear the fees and expenses of any
additional counsel retained by it, but in case the Distributor does not elect
to assume the defense of any such suit, or if counsel retained by the
Distributor is not satisfactory to the Fund, Distributor will reimburse the
Fund or the person or persons named as defendant in any such suit, for the fees
and expenses of any counsel retained by them.
The indemnification agreement contained in this Paragraph 21, and the
representations and warranties of Distributor in this Agreement, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the Fund or by any person in control of the Fund, and shall
survive the delivery of any Shares hereunder. Distributor agrees to promptly
notify the Fund of commencement of any litigation or proceedings against it,
11
or any of its officers and directors, in connection with the issue or sale of
any of the Shares covered by any applicable Registration Statement.
22. The Fund agrees to disclose this Agreement to the Securities and Exchange
Commission upon its execution, and approval by the Board of Directors of the
Fund.
23. Notwithstanding anything to the contrary herein contained, no provision
of this Agreement protects or purports to protect Distributor against any
liability to the Fund or its security holders to which Distributor would
otherwise be subject by reason of willful misfeasance, bad faith, or negligence
in the performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.
24. Any and all notices required hereunder by or from either party shall be
in writing and shall be served by registered mail, postage prepaid. Notices to
the Fund shall be sent to 0000 Xxxxx Xxxxxx, Xxxxx 000, Xxxxx Xxxxxxx,
Xxxxxxxxxx 00000, and to the Distributor at 0 Xxxxx Xxxx, Xxxxx, Xxxxx Xxxxxx
00000. Either party may change the foregoing addresses by the service on the
other party of a written notice specifying the new address or addresses to
which notices are to be sent.
25. This Agreement shall be executed in two counterparts, each of which
shall be an original.
12
The parties hereto have caused this Agreement to be executed in their
corporate names by their duly authorized officer, and their corporate seals to
be affixed as of the day and year hereinbefore set forth.
INVESTORS RESEARCH FUND, INC. ND CAPITAL, INC.
By: /Xxxx X. Xxxxxxxxx/ By: /Xxxxxx X. Xxxxxxx/
Title: /President/ Title: /President/
13
