DISTRIBUTION AGREEMENT
THIS AGREEMENT made as of ___________________, 1998, between the POTOMAC
FUNDS ("Trust"), a Massachusetts business trust, XXXXXXXX ASSET MANAGEMENT, LLC
("Xxxxxxxx"), a New York limited liability corporation, and XXXXXXXX CAPITAL
MARKETS, INC. ("Distributor"), a corporation organized and existing under the
laws of the State of New York.
WHEREAS the Trust is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end management investment company, and has
registered its shares of beneficial interest ("Shares") for sale to the public
under the Securities Act of 1933, as amended ("1933 Act"), and has qualified it
shares for sale to the public under various state securities laws; and
WHEREAS the Trust offers for public sale distinct series of Shares, each
corresponding to a distinct portfolio as listed on Schedule A to this Agreement
("Series"); and
WHEREAS Xxxxxxxx is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and serves as investment adviser to
the Trust; and
WHEREAS the Trust and Xxxxxxxx desire to retain the Distributor as
principal underwriter in connection with the offering and sale of the Shares of
each Series listed on Schedule A (as amended from time to time) to this
Agreement; and
WHEREAS this Agreement has been approved by a vote of the Trust's Board of
Trustees and its disinterested Trustees in conformity with Section 15(c) under
the 1940 Act; and
WHEREAS the Distributor is willing to act as principal underwriter for the
Trust on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints the Distributor as its exclusive
agent to be the principal underwriter to promote the Trust, solicit orders for
the purchase of the Shares and accept orders for the purchase and redemption of
Shares on behalf of the Trust, subject to the terms and for the period set forth
in this Agreement. The Distributor hereby accepts such appointment and agrees to
act hereunder.
2. SERVICES AND DUTIES OF THE DISTRIBUTOR.
(a) The Distributor agrees to sell the Shares on a best efforts
basis from time to time during the term of this Agreement as agent for the Trust
and upon the terms described in the Registration Statement. As used in this
Agreement, the term "Registration Statement" shall mean the currently effective
registration statement of the Trust, and any supplements thereto, under the 1933
Act and the 0000 Xxx.
(b) Upon the date of this Agreement, the Distributor will hold
itself available to receive purchase orders satisfactory to the Distributor for
Shares and will accept such orders on behalf of the Trust. Purchase orders shall
be deemed effective at the time and in the manner set forth in the Registration
Statement.
(c) The Distributor shall print and distribute to prospective
investors Prospectuses, and shall print and distribute, upon request, to
prospective investors Statements of Additional Information ("SAIs"), and may
print and distribute such other sales literature, reports, forms and
advertisements in connection with the sale of the Shares as comply with the
applicable provisions of federal and state law. In connection with such sales
and offers of sales, the Trust authorizes the Distributor to provide only such
information and make only such statements or representations as are contained in
the Series' then-current Prospectus, SAI, or in such financial or other
statements furnished in writing to the Distributor by the Trust or as may
properly be included in sales literature or advertisements in accordance with
the provisions of the 1933 Act, the 1940 Act and applicable rules of
self-regulatory organizations. Neither the Trust nor any Series shall be
responsible in any way for any other information, statements or representations
given or made by the Distributor or its representatives or agents other than
those described in the preceding sentence. Except as specifically provided in
this Agreement, the Trust shall bear none of the expenses of the Distributor in
connection with its promotion, offer and sale of Shares.
(d) The offering price of the Shares shall be the net asset value
per Share as next determined by the Trust as set forth in the most-current
Prospectus. The Trust shall make available to the Distributor a statement of
each computation of net asset value and the details of entering into such
computation.
(e) The Distributor may at its sole discretion repurchase Shares
offered for sale by the shareholders. Repurchase of Shares by the Distributor
shall be at the price determined in accordance with, and in the manner set forth
in, the most-current Prospectus. At the end of each business day, the
Distributor shall notify, by any appropriate means, the Trust and its transfer
agent of the orders for repurchase of Shares received by the Distributor since
the last such report, the amount to be paid for such Shares, and the identity of
the shareholders offering Shares for repurchase. The Trust reserves the right to
suspend such repurchase right upon written notice to the Distributor. The
Distributor further agrees to act as agent for the Trust to receive and transmit
promptly to the Trust's transfer agent shareholder requests for redemption of
Shares.
(f) The Distributor shall not be obligated to sell any certain
number of Shares.
(g) The Distributor shall have the right to use any lists of
shareholders of the Trust or any Series or any other lists of investors that it
obtains in connection with its provision of services under this Agreement;
provided, however, that the Distributor shall not sell or knowingly provide such
lists of shareholders to any unaffiliated person of the Trust without the
consent of the Trust's Board of Trustees.
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3. DUTIES OF THE TRUST.
(a) The Trust shall keep the Distributor fully informed of its
affairs and shall make available to the Distributor copies of all information,
financial statements, and other papers that the Distributor may reasonably
request for use in connection with the distribution of Shares, including,
without limitation, certified copies of any financial statements prepared for
the Trust by its independent public accountant and such reasonable number of
copies of the most current Prospectus, SAI, and annual and interim reports as
the Distributor may request, and the Trust shall fully cooperate in the efforts
of the Distributor to promote, sell and arrange for the sale of the Shares and
in the performance of the Distributor's duties under this Agreement.
(b) The Trust shall maintain a currently effective Registration
Statement on Form N-1A with respect to such Series, maintain qualification with
states and file with the Securities and Exchange Commission (the "SEC") such
reports and other documents as may be required under the 1933 Act and the 1940
Act or by the rules and regulations of the SEC thereunder. Each Series shall
bear all expenses related to preparing and typesetting such Prospectuses, SAI
and other materials required by law and such other expenses, including printing
and mailing expenses, related to such Series' communication with persons who are
shareholders of that Series.
(c) Each Series represents and warrants that the Registration
Statement, post-effective amendments, Prospectus and SAI (excluding statements
relating to the Distributor and the services it provides that are based upon
written information furnished by the Distributor expressly for inclusion
therein) of such Series shall not contain any untrue statement of material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and that all statements or
information furnished to the Distributor, pursuant to Section 3(a) hereof, shall
be true and correct in all material respects.
4. OTHER BROKER-DEALERS. The Distributor in its discretion may enter into
agreements to sell Shares of each Series to such registered and qualified retail
dealers, as it may select. In making agreements with such dealers, the
Distributor shall act only as principal and not as agent for the Trust. The form
of any such dealer agreement shall be mutually agreed upon and approved by the
Trust and the Distributor.
5. WITHDRAWAL OF OFFERING. The Trust reserves the right at any time to
withdraw all offerings of any or all Series by written notice to the Distributor
at its principal office.
6. SERVICES NOT EXCLUSIVE. The services furnished by the Distributor
hereunder are not to be deemed exclusive and the Distributor shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of the Distributor, who also may be a
director, officer or employee of the Trust, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
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7. EXPENSES OF THE TRUST. The Trust shall bear all costs and expenses of
registering the Shares with the SEC and state and other regulatory bodies, and
shall assume expenses related to communications with shareholders of the Trust,
including (i) fees and disbursements of its counsel and independent public
accountant; (ii) the preparation, filing, and printing of Registration
Statements and/or Prospectuses or SAIs; (iii) the preparation and mailing of
annual and interim reports, Prospectuses, SAIs, and proxy materials to
shareholders; and (iv) the qualifications of Shares for sale under the
securities laws of such jurisdictions as shall be selected by the Trust pursuant
to Paragraph 3(b) hereof, and the costs and expenses payable to each such
jurisdiction for continuing qualification therein.
8. EXPENSES OF THE DISTRIBUTOR. Distributor shall bear all costs and
expenses of (i) preparing, printing and distributing any materials not prepared
by the Trust and other materials used by the Distributor in connection with the
sale of Shares under this Agreement, including the additional cost of printing
copies of Prospectuses, SAIs, and annual and interim shareholder reports other
than copies thereof required for distribution to existing shareholders or for
filing with any Federal or state securities authorities; (ii) any expenses of
advertising incurred by the Distributor in connection with such offering; (iii)
the expenses of registration or qualification of the Distributor as a broker or
dealer under federal or state laws and the expenses of continuing such
registration or qualification; and (iv) all compensation paid to the
Distributor's employees and others for selling Shares, and all expenses of the
Distributor, its employees, and others who engage in or support the sale of
Shares as may be incurred in connection with their sales efforts.
9. COMPENSATION. As compensation for the services performed and the
expenses assumed by the Distributor under this Agreement including, but not
limited to, any commissions paid for sales of Shares, Xxxxxxxx shall pay the
Distributor, as promptly as possible after the last day of each month, a fee as
set forth in Schedule B to this Agreement.
10. INDEMNIFICATION.
(a) The Trust agrees to indemnify, defend, and hold the Distributor,
its officers and directors, and any person who controls the Distributor within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands, or liabilities and any counsel
fees incurred in connection therewith) that the Distributor, its officers,
directors, or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement, Prospectus
or SAI or arising out of or based upon any alleged omission to state a material
fact required to be stated in the either thereof or necessary to make the
statements therein not misleading, except insofar as such claims, demands,
liabilities, or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished in writing by the Distributor
to the Trust for use in the Registration Statement; provided, that in no event
shall anything contained herein be so construed as to protect the Distributor
against any liability to the Trust or its shareholders to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations under this Agreement.
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(b) The Trust shall not be liable to the Distributor under this
Agreement with respect to any claim made against the Distributor or any person
indemnified unless the Distributor or other such person shall have notified the
Trust in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon the Distributor or such other person (or after the
Distributor or the person shall have received notice of service on any
designated agent). However, failure to notify the Trust of any claim shall not
relieve the Trust from any liability that it may have to the Distributor or any
person against whom such action is brought otherwise than on account of this
Agreement.
(c) The Trust shall be entitled to participate at its own expense in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this Agreement. If the Trust elects to assume the
defense of any such claim, the defense shall be conducted by counsel chosen by
the Trust and satisfactory to indemnified defendants in the suit whose approval
shall not be unreasonably withheld. In the event that the Trust elects to assume
the defense of any suit and retain counsel, the indemnified defendants shall
bear the fees and expenses of any additional counsel retained by them. If the
Trust does not elect to assume the defense of a suit, it will reimburse the
indemnified defendants for the reasonable fees and expenses of any counsel
retained by the indemnified defendants. The Trust agrees to promptly notify the
Distributor of the commencement of any litigation or proceedings against it or
any of its officers or directors in connection with the issuance or sale of any
of its Shares.
(d) The Distributor agrees to indemnify, defend, and hold the Trust,
its officers and directors, and any person who controls the Trust within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending against such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) that the Trust, its directors or
officers, or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, resulting from the Distributor's willful misfeasance,
bad faith or negligence in the performance of its obligations and duties under
this Agreement, or arising out of or based upon any alleged untrue statement of
a material fact contained in information furnished in writing by the Distributor
to the Trust for use in the Registration Statement, Prospectus or SAI arising
out of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in either thereof or necessary to
make such information not misleading, or arising out of any agreement between
the Distributor and any retail dealer, or arising out of any supplemental sales
literature or advertising used by the Distributor in connection with its duties
under this Agreement.
(e) The Distributor shall be entitled to participate, at its
own expense, in the defense or, if it so elects, to assume the defense of any
suit brought to enforce the claim, but if the Distributor elects to assume the
defense, the defense shall be conducted by counsel chosen by the Distributor and
satisfactory to the indemnified defendants whose approval shall not be
unreasonably withheld. In the event that the Distributor elects to assume the
defense of any suit and retain counsel, the defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will reimburse
the indemnified defendants in the suit for the reasonable fees and expenses of
any counsel retained by them.
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11. SERVICES PROVIDED TO THE TRUST BY EMPLOYEES OF THE DISTRIBUTOR. Any
person, even though also an officer, director, employee, or agent of the
Distributor who may be or become an officer, director, employee, or agent of the
Trust, shall be deemed, when rendering services to the Trust or acting in any
business of the Trust, to be rendering such services to or acting for solely the
Trust and not as an officer, director, employee, or agent or one under the
control or direction of the Distributor even though paid by the Distributor.
12. DURATION AND TERMINATION.
(a) This Agreement shall become effective with respect to each
Series on the date first written above or such later date as indicated in
Schedule A and, unless sooner terminated as provided herein, will continue in
effect for two years from the above written date. Thereafter, if not terminated
this Agreement shall continue in effect with respect to each Series for
successive annual periods, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Trust's Trustees
who are neither interested persons (as defined in the 0000 Xxx) of the Trust
("Independent Trustees") or the Distributor, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by the Board or by vote of
a majority of the outstanding voting securities of the Trust.
(b) Notwithstanding the foregoing, this Agreement may be terminated
with respect to any Series or in its entirety at any time, without the payment
of any penalty, by vote of the Board, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
Trust on sixty days' written notice to the Distributor or by the Distributor at
any time, without the payment of any penalty, on sixty days' written notice to
the Trust. This Agreement will automatically terminate in the event of its
assignment.
13. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge, or termination is sought. This Agreement may be amended as to any
Series with the approval of the Trustees or of a majority of the outstanding
voting securities of such Series; provided, that in either case, such amendment
also shall be approved by a majority of the Disinterested Trustees.
14. LIMITATION OF LIABILITY. Trustees and shareholders of each Series
shall not be personally liable for obligations of that Series in connection with
any matter arising from or in connection with this Agreement.
15. NOTICE. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
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16. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule, or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person," and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
17. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of New York and the 1940 Act. To the extent that the
applicable laws of the State of New York conflict with the applicable provisions
of the 1940 Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first above
written.
ATTEST: POTOMAC FUNDS
___________________________ By: ________________________________
ATTEST: XXXXXXXX ASSET MANAGEMENT, LLC
___________________________ By: ________________________________
ATTEST: XXXXXXXX CAPITAL MARKETS, INC.
___________________________ By: ________________________________
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SCHEDULE A
to the
DISTRIBUTION AGREEMENT
among
the POTOMAC FUNDS,
XXXXXXXX ASSET MANAGEMENT, LLC and
XXXXXXXX CAPITAL MARKETS, INC.
Pursuant to section 1 of the Distribution Agreement among the Potomac
Funds ("Trust"), Xxxxxxxx Asset Management, LLC ("Adviser") and Xxxxxxxx Capital
Markets, Inc. ("Distributor"), the Trust hereby appoints the Distributor as its
exclusive agent to be the principal underwriter of Trust
with respect to its following series:
Potomac U.S. Plus Fund
Potomac U.S. Short Fund
Potomac OTC Plus Fund
Potomac OTC/Short Fund
Potomac U.S. Government Money Market Fund
Dated _________________, 1998
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SCHEDULE B
to the
DISTRIBUTION AGREEMENT
among
the POTOMAC FUNDS,
XXXXXXXX ASSET MANAGEMENT, LLC and
XXXXXXXX CAPITAL MARKETS, INC.
As compensation pursuant to section 9 of the Distribution Agreement among
the Potomac Funds (the "Trust"), Xxxxxxxx Asset Management, LLC ("Adviser") and
Xxxxxxxx Capital Markets, Inc. ("Distributor"), the Adviser shall pay to the
Distributor an annual fee of $15,000 for the first series of the Trust and
$2,000 for each series thereafter or 1% of the average daily net assets of each
Series, computed daily and paid monthly, whichever is greater.
Dated: __________________, 1998
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