DISTRIBUTION AGREEMENT
Agreement dated as of this 1st day of August, 1994, by and between
FPA CAPITAL FUND, INC., a Maryland corporation (hereinafter called the
"Fund"), and FPA FUND DISTRIBUTORS, INC., a California corporation
(hereinafter called the "Distributor").
WITNESSETH:
WHEREAS, the Fund is registered under the Investment Company Act
of 1940, as amended (the "Investment Company Act") as an open-end investment
company and it is a part of the business of the Fund, and affirmatively in
the interest of the Fund, to offer its shares for sale, either continuously,
or from time to time, by means of such arrangements as are determined by its
Board of Directors to be appropriate; and
WHEREAS, the Distributor proposes to engage in the business of
promoting the distribution of shares of investment companies through
securities broker-dealers, and has the ability to create appropriate and
effective sales literature, advertising,and other sales promotional aids; and
WHEREAS, the Fund and the Distributor wish to enter into an
Agreement with each other to promote the growth of the Fund and facilitate
the distribution of its shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the Fund and the Distributor agree as follows:
1. DISTRIBUTOR IS EXCLUSIVE AGENT OF FUND. The Fund hereby
appoints the Distributor as the agent of the Fund exclusively authorized to
act as the principal underwriter and distributor of the shares of Common
Stock of the Fund (sometimes herein referred to as "shares") during the term of
this Agreement. The Distributor agrees to accept such appointment, and to act
as the agent of the Fund in accordance with the terms of this Agreement, as
the principal underwriter and exclusive distributor of the shares of the Fund.
2. TERM OF AGREEMENT. This Agreement shall continue in effect to
September 3, 1995. It may be continued in effect thereafter by mutual
consent, provided that such continuance shall be specifically approved at
least annually by (i) the Board of Directors of the Fund, or by a vote of the
majority (as defined in the Investment Company Act) of the outstanding voting
securities of the Fund, and (ii) by majority of the Directors who are not
parties to this Agreement or interested persons (as defined in the Investment
Company Act) of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
3. DUTIES OF THE FUND.
(a) The Fund agrees that it will use its best efforts to
keep authorized and registered under the Securities Act of 1933, but
unissued, sufficient shares to meet the reasonable
requirements of the Distributor. The Fund further agrees to use its best
efforts to prepare, file and keep effective registration statements,
prospectuses, and qualifications covering sufficient shares of the Fund to
meet the Distributor's reasonable requirements in all jurisdictions approved
by the Fund and the Distributor in which shares of the Fund may lawfully be
sold.
(b) The Fund will not arbitrarily or without reasonable cause
refuse to accept or confirm orders for the purchase of its shares obtained by
the Distributor as agent of the Fund and submitted by the Distributor to the
Fund (or to another agent of the Fund designated by the Fund to receive
and/or act upon such orders). In all proper cases, the Fund (or its agent) will
confirm orders upon their receipt either through the Distributor as agent for
the Fund or through another agent of the Fund authorized to deliver proper
confirmations. The Fund (or its agent) will make appropriate book entries
and/or will deliver certificates for such shares to the Distributor or to the
designated record owner upon receipt by the Fund (or by its agent) of
payment therefore in cash (or cash equivalent) together with receipt of
proper registry or transfer instructions. The Distributor agrees to cause
such payment and such instructions to be delivered promptly to the Fund (or
to the agent or agents of the Fund designated by it in writing as authorized
to receive such payment and/or such instructions).
(c) The Fund will not during the term of this Agreement
offer any of its shares for sale directly or through any person (as defined
in Sections 2(a)(28) and 2(a)(8) of the Investment Company Act) other than
the Distributor, excepting shares sold or issued at net asset value without
sales charge in accordance with applicable provisions of the Investment
Company Act. Provided, however, that in the event the Distributor should be
unable to continue to distribute shares of the Fund for reasons that do not
apply to the sale of shares of the Fund by any other person, the Fund may at
its option make arrangements for the offer and sale of its shares within the
jurisdiction or jurisdictions in which distribution and sale thereof by the
Distributor has been prevented, except that if the Distributor shall have
removed all material obstacles to resuming the offer and sale within said
jurisdictions within 90 days from its first restraint or inability, then the
right of the Fund to distribute through instrumentalities other than the
Distributor shall be extinguished, subject only to the provisions of paragraph
2 hereof. The Fund further agrees that the Distributor may act as principal
underwriter and distributor for the shares of other investment companies
registered under the Investment Company Act.
(d) The compensation and expenses of the transfer agent
acting for the Fund and acting as plan agent under the Fund's Investor
Service Plans shall be borne by the Fund.
4. DUTIES OF THE DISTRIBUTOR.
(a) The Distributor shall exercise its best efforts lawfully
and properly to promote the sale of shares of the Fund by broker-dealers that
are members in good standing of the National Association of Securities
Dealers, Inc. ("NASD").
(b) The Distributor is, and shall do all things necessary to
continue to be, a broker-dealer in securities registered with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, a member
in good standing of the NASD, and a licensed broker-dealer in the
jurisdictions in which its activities require it to be so licensed.
-2-
(c) The Distributor shall enter into Selling Group
Agreements with broker-dealer members of the NASD selected by the
Distributor, authorizing such broker-dealers to offer and sell shares of the
Fund to the public upon the terms and conditions set forth therein, which
shall not be inconsistent with the provisions of this Agreement. The
Distributor shall continue each such Selling Group Agreement in effect, or
terminate it, upon its sole discretion. Such Selling Group Agreements shall
provide that the selected dealer shall act as principal and not as an agent
of the Fund.
(d) Upon the Distributor's receipt from broker-dealers that
entered into Selling Group Agreements with it of unconditional orders for the
purchase of shares of the Fund, the Distributor will transmit such orders to
the Fund (or to another agent of the Fund authorized by it in writing to
receive such orders). In so doing, the Distributor will act solely as the
agent of the Fund.
(e) The Distributor agrees that it will not directly or
indirectly withhold orders for the purchase of shares of the Fund or purchase
shares of the Fund in anticipation of orders, and further agrees that in all
its Selling Group Agreements with broker-dealers the Distributor will require
a similar contractual undertaking of the broker-dealer. The Distributor
agrees to pay the Fund, on a monthly basis, the amount of any net dilution
resulting from the cancellation or reversal of a confirmed purchase or
repurchase order for shares of the Fund resulting from the failure of a
Selling Group member to settle the trade. All gains and losses realized each
month from such "fails" shall be netted, and any net gain for a month shall be
carried forward to offset any net losses for any subsequent month in the same
fiscal year of the Fund.
(f) The Distributor will print and distribute copies of the
Fund's prospectuses as from time to time in effect under the Securities Act
of 1933, as amended, and will prepare, print and distribute all advertising and
sales literature relating to the Fund. The Distributor will not publicly
distribute supplemental literature or advertising except such as shall be
lawful under state and federal securities laws and regulations. The
Distributor agrees to file with the Securities and Exchange Commission and/or
the NASD, and with such other regulatory authorities as may be required,
copies of any advertisements, pamphlet, circular, form letter, or other sales
literature relating to the Fund or its shares, addressed to or intended for
distribution to prospective investors, within the time required by such
regulatory authorities. The Distributor will furnish to the Fund at its
principal office a copy of all such material prior to its use, and will not
use any such material to which the Fund reasonably and promptly objects.
(g) The Distributor shall maintain or retain a dealer
service organization suitable to the promotion of the sale of shares of the
Fund by the broker-dealers that have entered into Selling Group Agreements
with the Distributor.
(h) Except with respect to sales and repurchases of shares
of the Fund, the Distributor shall act as principal in all matters relating to
promotion of the growth of the Fund and shall enter into all of its
engagements, agreements, and contracts as principal on its own account.
(i) The Distributor shall act in the performance of its
duties hereunder in a manner that effects compliance with the current
prospectus of the Fund from time to time in effect
-3-
under the Securities Act of 1933, the Articles of Incorporation and the
By-Laws of the Fund, and with applicable laws and regulations of the United
States and of the individual states within which the Distributor or the Fund
may do business, or in which shares of the Fund are offered for sale, and
will conduct its affairs with relation to the Fund, broker-dealers, and
investors in accordance with the Rules of Fair Practice of the NASD.
5. PUBLIC OFFERING PRICE OF FUND'S SHARES TO BE MAINTAINED.
Except as provided in paragraph 3(c) of this Agreement, the shares of the Fund
shall be offered and sold only at the public offering price thereof described
in the current prospectus of the Fund and shall be composed of the sum of
(i) the current net asset value per share furnished to the Distributor by the
Fund at least once on each day on which the New York Stock Exchange is open
for trading, (ii) the Distributor's commission as set forth in the current
prospectus of the Fund, and (iii) the broker-dealer's xxxx-up described in the
Selling Group Agreement referred to in paragraph 4(c) hereof.
6. DISTRIBUTOR'S COMMISSIONS. As compensation for its services
hereunder, the Distributor shall be paid, if at all, only such commissions on
sales of shares of the Fund (except shares sold or issued at net asset value
in accordance with Section 3(c) hereof) as is described in the current
prospectus of the Fund and subject to any reductions or quantity discounts
described in such current prospectus.
7. INDEMNIFICATION.
(a) The Fund shall indemnify and hold harmless the
Distributor and each person, if any, who controls the Distributor against any
loss, liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith),
arising by reason of any person acquiring any shares, which may be based upon
the Securities Act, or on any other statute or at common law, on the ground
that the registration statement or related prospectus, as from time to time
amended and supplemented, or an annual or interim report to shareholders of
the Fund, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made
in reliance upon, and in conformity with, information furnished to the Fund
in connection therewith by or on behalf of the Distributor; provided,
however, that in no case (i) is the indemnity of the Fund in favor of the
Distributor and any such controlling persons to be deemed to protect such
Distributor or any such controlling persons thereof against any liability to
the Fund or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of their duties or by
reason of the reckless disregard of their obligations and duties under this
Agreement; nor (ii) is the Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity
-4-
agreement contained in this paragraph. The Fund will 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 such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel
chosen by it and satisfactory to the Distributor or such controlling person
or persons, defendant or defendants in the suit. In the event the Fund elects
to assume the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or defendants in
the suit, shall bear the fees and expenses of any additional counsel retained
by them, but, in case the Fund does not elect to assume the defense of any
suit, it will reimburse the Distributor or such controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Fund shall 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 the shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its directors and officers and each person, if any, who
controls the Fund against any loss, liability, claim, damage or expense
described in the foregoing indemnity contained in Section 7(a) hereof, but
only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by or on behalf
of the Distributor for use in connection with the Registration Statement or
related prospectus and statement of additional information, as from time to
time amended, or the annual or interim reports to shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund
and each person so indemnified shall have the rights and duties given to the
Distributor by the provisions of Section 7(a) hereof.
8. OTHER PROVISIONS.
(a) The Distributor may, but is not obligated to, act as agent
for the Fund without commission on repurchases of shares of the Fund.
(b) The Agreement shall not be construed as authorizing any
dealer or other person to act as agent either of the Fund or of the
Distributor.
(c) The books and records of the Distributor, insofar as they
relate to sales of shares of the Fund 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 the Distributor.
(d) This Agreement may be terminated at any time without
payment of any penalty by the Board of Directors of the Fund or by the vote
of a majority of the outstanding voting securities of the Fund on 60 days'
written notice to the Distributor, or by the Distributor on like notice to the
Fund. In the absence of the issuance of an Order by the Securities and
Exchange Commission providing an exemption from the provisions of Section
15(b) of the Investment Company Act, this Agreement shall automatically
terminate in the event of its assignment (as defined in the Investment Company
Act) by the Distributor.
-5-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers duly authorized and their corporate seal to be
affixed as of the day and year first above written.
FPA CAPITAL FUND, INC.
(Seal)
By /s/ Xxxxxx X. Xxxxxxxxx
---------------------------
Xxxxxx X. Xxxxxxxxx,
President
FPA FUND DISTRIBUTORS, INC.
(Seal)
By /s/ Xxxxxxxx X. XxXxxx
---------------------------
Xxxxxxxx X. XxXxxx,
President
-6-
