FORM OF
TANAKA FUNDS, INC.
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ___ day of _________, 1998, by and between
TANAKA Funds, Inc., a Maryland Corporation, with its principal office and place
of business at Two Xxxxxxxx Xxxxxx, Xxxxxxxx, Xxxxx 00000 (the "Corporation"),
and Forum Financial Services, Inc., a Delaware corporation with its principal
office and place of business at Xxx Xxxxxxxx Xxxxxx, Xxxxxxxx, Xxxxx 00000
("Forum").
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company, may issue its shares of beneficial interest, no par value (the
"Shares"), in separate series and classes and continuously offers for sale its
Shares to the public; and
WHEREAS, Forum is registered under the Securities Exchange Act of 1934,
as amended ("1934 Act"), as a broker-dealer and is engaged in the business of
selling shares of registered investment companies either directly to purchasers
or through other securities dealers;
WHEREAS, the Corporation intends to offer shares in the series as
listed in Appendix A hereto (each such series, together with all other series
subsequently established by the Corporation and made subject to this Agreement
in accordance with Section 6, being herein referred to as a "Fund," and
collectively as the "Funds") and the Corporation intends initially to offer
shares of various classes of each Fund as listed in Appendix A hereto (each such
class together with all other classes subsequently established by the
Corporation in a Fund being herein referred to as a "Class," and collectively as
the "Classes");
WHEREAS, the Corporation desires that Forum offer the Shares of each
Fund and Class thereof to the public and Forum is willing to provide those
services on the terms and conditions set forth in this Agreement in order to
promote the growth of the Funds and facilitate the distribution of the Shares;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and Forum hereby agree as follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Corporation has delivered to Forum copies of its Articles of
Incorporation and Bylaws (collectively, as amended from time to time, "Organic
Documents"), the Corporation's Registration Statement and all amendments thereto
filed with the U.S. Securities and Exchange Commission ("SEC") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the 1940 Act (the
"Registration Statement") and the current Prospectus and Statement of Additional
Information of each Fund (collectively, as currently in effect and as amended or
supplemented, the "Prospectus") and shall promptly furnish Forum with all
amendments of or supplements to the foregoing.
(b) The Corporation hereby appoints Forum as the principal underwriter
and distributor of the Funds to sell the Shares of the Funds to the public and
hereby agrees during the term of this Agreement to sell Shares of the Funds to
Forum upon the terms and conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
Forum shall be the exclusive representative of the Corporation to act
as principal underwriter and distributor of the Funds except that the rights
given under this Agreement to Forum shall not apply to Shares issued in
connection with the merger, consolidation or reorganization of any other
investment company with a Fund; a Fund's acquisition by purchase or otherwise of
all or substantially all of the assets or stock of any other investment company;
or the reinvestment in Shares by a Fund's shareholders of dividends or other
distributions or any other offering by the Corporation of securities to its
shareholders.
SECTION 3. PURCHASE OF SHARES FROM THE CORPORATION; OFFERING OF SHARES
(a) Forum shall have the right to buy from the Corporation the Shares
needed to fill unconditional orders for unsold Shares of the Funds as shall then
be effectively registered under the Securities Act placed with Forum by
investors or securities dealers or depository institutions or other financial
intermediaries acting as agent for their customers or on their own behalf.
Alternatively, Forum may act as the Corporation's agent, to offer, and to
solicit offers to subscribe to, unsold Shares of the Funds as shall then be
effectively registered under the Securities Act. Forum will promptly forward all
orders and subscriptions to the Corporation. The price which Forum shall pay for
Shares purchased from the Corporation and the price that Forum shall offer
Shares shall be the net asset value, determined as set forth in Section 3(c)
hereof, used in determining the public offering price on which the orders are
based. Shares purchased by Forum are to be resold by Forum to investors at the
public offering price, as set forth in Section 3(b) hereof, or to securities
dealers, depository institutions or other financial intermediaries acting as
agent for their customers that have entered into agreements with Forum pursuant
to Section 9 hereof or acting on their own behalf. The Corporation reserves the
right to sell Shares of the Funds directly to investors through subscriptions
received by the Corporation, but no such direct sales shall affect the sales
charges due to Forum hereunder.
(b) The public offering price of the Shares of a Fund, i.e., the price
per Share at which Forum or selected dealers or selected agents (each as defined
in Section 9 hereof) may sell Shares to the public or to those persons eligible
to invest in Shares as described in the applicable Prospectus, shall be the
public offering price determined in accordance with the then currently effective
Prospectus of the Fund or Class thereof under the Securities Act, relating to
such Shares, but not to exceed the net asset value at which Forum, when acting
as principal, is to purchase such Shares, plus, in the case of Shares for which
an initial sales charge is assessed, an
- 2 -
initial charge equal to a specified percentage or percentages of the public
offering price of the Shares as set forth in the current Prospectus relating to
the Shares. In the case of Shares for which an initial sales charge may be
assessed, Shares may be sold to certain classes of persons at reduced sales
charges or without any sales charge as from time to time set forth in the
current Prospectus relating to the Shares. The Corporation will advise Forum of
the net asset value per Share at each time as the net asset value per Share
shall have been determined by the Corporation.
(c) The net asset value per Shares of each Fund or Class thereof shall
be determined by the Corporation, or an agent of the Corporation, as of the
close of the New York Stock Exchange or such other time as set forth in the
applicable Prospectus on each Fund business day in accordance with the method
set forth in the Prospectus and guidelines established by the Corporation's
Board of Directors (the "Board").
(d) The Corporation reserves the right to suspend the offering of
Shares of a Fund or of any class thereof at any time in the absolute discretion
of the Board, and upon notice of such suspension Forum shall cease to offer
Shares of the Funds or Classes thereof specified in the notice.
(e) The Corporation, or any agent of the Corporation designated in
writing to Forum by the Corporation, shall be promptly advised by Forum of all
purchase orders for Shares received by Forum and all subscriptions for Shares
obtained by Forum as agent shall be directed to the Corporation for acceptance
and shall not be binding until accepted by the Corporation. Any order or
subscription may be rejected by the Corporation; provided, however, that the
Corporation will not arbitrarily or without reasonable cause refuse to accept or
confirm orders or subscriptions for the purchase of Shares. The Corporation (or
its agent) will confirm orders and subscriptions upon their receipt, will make
appropriate book entries and, upon receipt by the Corporation (or its agent) of
payment thereof, will issue such Shares in certificated or uncertificated form
pursuant to the instructions of Forum. Forum agrees to cause such payment and
such instructions to be delivered promptly to the Corporation (or its agent).
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES BY THE CORPORATION
(a) Any of the outstanding Shares of a Fund or Class thereof may be
tendered for redemption at any time, and the Corporation agrees to redeem or
repurchase the Shares so tendered in accordance with its obligations as set
forth in the Corporation's Organic Documents and the Prospectus relating to the
Shares. The price to be paid to redeem or repurchase the Shares of a Fund shall
be equal to the net asset value calculated in accordance with the provisions of
Section 3(b) hereof less, in the case of Shares for which a deferred sales
charge is assessed, a deferred sales charge equal to a specified percentage or
percentages of the net asset value of those Shares as from time to time set
forth in the Prospectus relating to those Shares (or, in the case of Exchange
Shares, relating to Exchange Shares and the original B Shares) or their cost
(or, in the case of Exchange Shares, the cost of the B Shares of a Fund that
were first purchased by the shareholder and then exchanged, either directly or
indirectly through a series of exchanges, for the Exchange Shares (the "Original
B Shares")), whichever is less. Shares of a Fund or Class thereof
- 3 -
for which a deferred sales charge may be assessed and that have been outstanding
for a specified period of time may be redeemed without payment of a deferred
sales charge as from time to time set forth in the Prospectus relating to those
Shares (or, in the case of Exchange Shares, relating to the Original B Shares).
(b) The Corporation (or its agent) shall pay (i) the total amount of
the redemption price consisting of the redemption price less any applicable
deferred sales charge to the redeeming shareholder or its agent and (ii) except
as may be otherwise required by the Rules of Fair Practice (the "Rules") of the
National Association of Securities Dealers Regulation, Inc. (the "NASD") and any
interpretations thereof, any applicable deferred sales charges to Forum in
accordance with Forum's instructions on or before the fifth business day
subsequent to the Corporation or its agent having received the notice of
redemption in proper form. Notwithstanding the termination of this Agreement,
Forum shall be entitled to receive its Allocable Portion (as defined in and
determined in accordance with Appendix B hereto) ("Allocable Portion") of all
contingent deferred sales charges ("CDSCs") paid or payable with respect to the
Shares in accordance with this Section 4(b).
(c) Redemption of Shares or payment therefor may be suspended at times
when the New York Stock Exchange is closed for any reason other than its
customary weekend or holiday closings, when trading thereon is restricted, when
an emergency exists as a result of which disposal by the Corporation of
securities owned by a Fund is not reasonably practicable or it is not reasonably
practicable for the Corporation fairly to determine the value of a Fund's net
assets, or during any other period when the SEC so permits.
SECTION 5. COMPENSATION
(a) In consideration of Forum's services in connection with the
distribution of Shares of each Fund and Class thereof, Forum shall receive (i)
any applicable sales charge assessed upon investors in connection with the
purchase of Shares, (ii) from the Corporation, any applicable CDSC assessed upon
investors in connection with the redemption of Shares, (iii) from the
Corporation, Forum's Allocable Portion of the distribution service fees in
respect of the Shares (the "Distribution Fee") and (iv) from the Corporation,
the maintenance fee in respect of the Shares (the "Maintenance Fee"). The
Distribution Fee shall be accrued daily by each applicable Fund or Class thereof
and shall be paid monthly as promptly as possible after the last day of each
calendar month but in any event prior to the tenth (10th) day of the following
calendar month, at the rate set forth in the Corporation's distribution plan as
amended from time to time (the "Plan") together with interest as determined in
accordance with the Plan.
Forum will be deemed to have fully earned its Allocable Portion of the
Distribution Fee payable in respect of Shares of each Fund or Class thereof upon
the sale of the Commission Shares (as defined in Appendix B hereto)("Commission
Shares") of the Fund or Class htereof taken into account in determining Forum's
Allocable Portion of the Distribution Fee.
(b) The Corporation shall cause its transfer agent (the "Transfer
Agent") to withhold, from redemption proceeds payable to holders of Shares of
the Funds, all CDSCs properly payable
- 4 -
by the shareholders in accordance with the terms of the applicable Prospectus
and shall cause the Transfer Agent to pay such amounts over as promptly as
possible after the settlement date for each redemption of Shares.
(c) Forum may direct the Corporation to pay any or all of the
Distribution Fee or CDSCs payable to Forum in respect of any Shares of any Fund
directly to persons providing funds to Forum to cover or otherwise enable the
incurring of expenses associated with distribution services, and the Corporation
agrees to accept and to comply with any reasonable direction of Forum. Forum
shall, at its own expense, provide the Corporation with any necessary
calculations of Forum's Allocable Portion of any Distribution Fee or CDSCs, and
the Corporation shall be entitled to rely conclusively on Forum's calculations,
without prejudice to any claim it may have concerning the accuracy of the
calculations.
(d) Notwithstanding anything to the contrary contained in this
Agreement or in any relevant Plan, (i) the amount of asset-based sales charges
and CDSCs paid to Forum by any Fund or any Class thereof and (ii) the aggregate
amount of asset-based sales charges and CDSCs paid to Forum by any Fund or any
Class thereof shall not exceed the amount permitted by the Rules.
(e) The Maintenance Fee shall be accrued daily by each applicable Fund
or Class thereof and shall be paid monthly as promptly as possible after the
last day of each calendar month but in any event prior to the tenth (10th) day
of the following calendar month, at the rate set forth in the Plan.
SECTION 6. ASSIGNMENT OF COMPENSATION
(a) Forum may, from time to time, assign, transfer or pledge
("Transfer") to one or more designees (each an "Assignee"), its rights to all or
a designated portion of (i) Forum's Allocable Portion of the Distribution Fee
(but not Forum's duties and obligations pursuant hereto or pursuant to the
Plan), (ii) Forum's Allocable Portion of CDSCs and (iii) the Maintenance Fee,
each free and clear of any offsets or claims the Corporation may have against
Forum. Each such Assignee's interest in a designated portion of Forum's
Allocable Portion of the Distribution Fees and Forum's Allocable Portion of
CDSCs is hereinafter referred to as an "Assignee's 12b-1 Portion" and an
"Assignee's CDSC Portion," respectively. A Transfer pursuant to this Section
6(a) shall not reduce or extinguish any claim of the Corporation against Forum.
(b) Forum shall promptly notify the Corporation in writing of each
Transfer pursuant to Section 6(a) hereof by providing the Corporation with the
name and address of each Assignee.
(c) In connection with a Transfer Forum may direct the Corporation to
pay any or all of Forum's Allocable Portion of the Distribution Fees and Forum's
Allocable Portion of CDSCs from time to time to a depository or collection agent
designated by Forum or an Assignee. The depository or collection agent may be
given the duty of dividing Forum's Allocable Portion of the Distribution Fees
and Forum's Allocable Portion of CDSCs into (i) the Assignee's 12b-1 Portion and
the balance Forum's portion (the balance, when distributed to Forum by the
depository or collection agent, is hereinafter referred to as "Forum's 12b-1
Share") and (ii) and the Assignee's
- 5 -
CDSC Portion and the balance Forum's Portion (the balance, when distributed to
Forum by the depository or collection agent, is hereinafter referred to as
"Forum's Earned CDSC Portion"), respectively. In which case only Forum's 12b-1
Share and Forum's Earned CDSC Portion may be subject to offsets or claims the
Corporation may have against Forum.
(d) The Corporation shall not amend the Plan to reduce the amount
payable under Section 5(a) hereof to Forum or any Assignee with respect to the B
Shares for any B Shares which have been issued prior to the date of such
amendment.
SECTION 7. DUTIES AND REPRESENTATIONS OF THE CORPORATION
(a) The Corporation shall furnish to Forum copies of all information,
financial statements, annual and interim and other papers which Forum may
reasonably request for use in connection with the distribution of Shares of the
Funds, including, upon request by Forum, one certified copy of all financial
statements prepared for the Funds by independent accountants. The Corporation
shall make available to Forum such number of copies of the Funds' Prospectuses
as Forum shall reasonably request.
(b) The Corporation shall take, from time to time, subject to the
approval of the Board and any required approval of its shareholders, all action
necessary to fix the number of authorized shares of the Funds (if such number is
not limited) and to register the Shares under the Securities Act, to the end
that there will be available for sale the number of Shares as Forum reasonably
may be expected to sell.
(c) The Corporation and Forum will cooperate with each other in taking
any action as may be necessary to qualify Shares for sale under the securities
laws of the states and other jurisdictions as the Corporation may designate;
provided that Forum shall not be required to register as a broker-dealer or file
a consent to service of process in any state or jurisdiction. Any qualification
may be withheld, terminated or withdrawn by the Corporation at any time in its
discretion. Forum shall furnish such information and other material relating to
its affairs and activities as may be required by the Corporation in connection
with such qualification. The Corporation will pay all fees and expenses of
registering Shares under the Securities Act and of qualification and the
maintenance of qualification of Shares and its qualification under applicable
state securities laws. Forum shall pay all expenses relating to Forum's
broker-dealer qualification.
(d) The Corporation represents and warrants to Forum that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
(ii) It is empowered under applicable laws and by its Organic Documents
to enter into this Agreement and perform its duties under this
Agreement.
(iii) All requisite corporate proceedings have been taken to authorize
it to enter into this Agreement and perform its duties under this
Agreement.
- 6 -
(iv) It is an open-end management investment company registered under
the 1940 Act.
(v) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of the Corporation, enforceable
against the Corporation in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and
secured parties.
(vi) The Registration statement will be effective and will remain
effective with respect to all Shares of the Funds and Classes of the
Corporation being offered for sale.
(vii) The Registration Statement and Prospectuses included therein have
been or will be, as the case may be, carefully prepared in conformity
with the requirements of the Securities Act and the rules and
regulations thereunder.
(viii) The Registration Statement and Prospectuses contain or will
contain all statements required to be stated therein in accordance with
the Securities Act and the rules and regulations thereunder, and that
all statements of fact contained or to be contained therein are or will
be true and correct at the time indicated or on the effective date as
the case may be; that neither the Registration Statement nor any
Prospectus, when they shall become effective or be authorized for use,
will include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of Shares.
(ix) The Corporation will from time to time file such amendment or
amendments to the Registration Statement and Prospectuses as, in the
light of future developments, shall, in the opinion of its counsel, be
necessary in order to have the Registration Statement and Prospectuses
at all times contain all material facts required to be stated therein
or necessary to make any statements therein not misleading to a
purchaser of Shares, but, if the Corporation shall not file such
amendment or amendments within fifteen days following receipt of a
written request from Forum to do so, Forum may, at its option,
terminate this agreement immediately.
(x) The Corporation shall not file any amendment to the Registration
Statement or Prospectuses without giving Forum reasonable notice
thereof in advance; provided, however, that nothing contained in this
agreement shall in any way limit the Corporation's right to file at any
time such amendments to the Registration Statement or Prospectuses, of
whatever character, as the Corporation may deem advisable, such right
being in all respects absolute and unconditional.
(xi) Any amendment to the Registration Statement or Prospectuses
hereafter filed will, when they becomes effective, contain all
statements required to be stated therein in accordance with the Act and
the rules and regulations of the SEC, that all statements of fact
contained therein will, when the same shall become effective, be true
and correct and
- 7 -
that no such amendment, when it becomes effective, will include an
untrue statement of a material fact or will omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of the Shares.
SECTION 8. DUTIES AND REPRESENTATIONS OF FORUM
(a) Forum shall use its best efforts to sell Shares of the Funds upon
the terms and conditions contained herein and in the then current Prospectus.
Forum shall devote reasonable time and effort to effect sales of Shares of the
Funds, but shall not be obligated to sell any specific number of Shares. The
services of Forum to the Corporation hereunder are not to be deemed exclusive
and nothing herein contained shall prevent Forum from entering into like
arrangements with other investment companies so long as the performance of its
obligations hereunder is not impaired thereby.
(b) In selling Shares of the Funds, Forum shall use its best efforts in
all material respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. None of Forum, any selected
dealer, any selected agent, or any other person is authorized by the Corporation
to give any information or to make any representations other than as is
contained in a Fund's Prospectus and SAI, as from time to time in effect, or any
sales literature specifically approved in writing by the Corporation.
(c) Forum shall adopt and follow procedures, as approved by the
officers of the Corporation, for the confirmation of sales to investors and
selected dealers or selected agents, the collection of amounts payable by
investors and selected dealers or selected agents on such sales, and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the NASD as may from time to time exist.
(d) Forum represents and warrants to the Corporation that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
(ii) It is duly qualified to carry on its business in the State of
Maine.
(iii) It is empowered under applicable laws and by its Article of
Incorporation and By-Laws to enter into this Agreement and perform its
duties under this Agreement.
(iv) All requisite corporate proceedings have been taken to authorize
it to enter into this Agreement and perform its duties under this
Agreement.
(v) It has access to the necessary facilities, equipment, and personnel
to perform its duties and obligations under this Agreement.
(vi) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of Forum, enforceable against Forum
in accordance with its terms,
- 8 -
subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of
creditors and secured parties.
(vii) It is registered as a broker-dealer under the 1934 Act.
SECTION 9. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
Forum shall have the right to enter into selected dealer agreements
with securities dealers of its choice ("selected dealers") and selected agent
agreements with depository institutions and other financial intermediaries of
its choice ("selected agents") for the sale of Shares of the Funds and to fix
therein the portion of the sales charge that may be allocated to the selected
dealers or selected agents; provided, that the Corporation shall approve the
forms of agreements with selected dealers or selected agents and shall review
the compensation set forth therein. Shares of each Fund or Class thereof shall
be resold by selected dealers or selected agents only at the public offering
price(s) set forth in the Prospectus relating to the Shares. Within the United
States, Forum shall offer and sell Shares of the Funds only to such selected
dealers as are members in good standing of the NASD.
SECTION 10. PAYMENT OF EXPENSES
(a) The Corporation shall bear all costs and expenses of the Funds,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of its Registration Statement and Prospectuses and
the preparing and mailing of annual and interim reports and proxy materials to
shareholders (including but not limited to the expense of setting in type any
registration statements, prospectuses, annual or interim reports or proxy
materials).
(b) The Corporation shall bear the cost and expenses of the
qualification of Shares of the Funds and Classes thereof for sale, and, if
necessary or advisable in connection therewith, of qualifying the Corporation
(but not Forum) as an issuer or as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the Corporation and
Forum pursuant to Section 7(c) hereof and the costs and expenses payable to each
state or jurisdiction for continuing qualification therein until the Corporation
decides to discontinue qualification pursuant to Section 7(c) hereof.
SECTION 11. INDEMNIFICATION OF FORUM
The Corporation agrees to indemnify, defend and hold Forum, its
employees, agents, directors, officers and managers and any person who controls
Forum within the meaning of section 15 of the Securities Act or section 20 of
the 1934 Act ("Forum Indemnitees") free and harmless from and against any and
all claims, demands, actions, suits, judgments, liabilities, losses, damages,
costs, charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities) which any Forum Indemnitee may incur,
under the Securities Act, or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Corporation's Registration Statement or the Prospectuses in effect from time to
time under
- 9 -
the Securities Act or arising out of or based upon any alleged omission to state
a material fact required to be stated in any one thereof or necessary to make
the statements in any one thereof not misleading; provided, however, that in no
event shall anything herein contained be so construed as to protect Forum
against any liability to the Corporation or its security holders to which Forum
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of Forum's reckless
disregard of its obligations and duties under this Agreement. The Corporation's
agreement to indemnify each Forum Indemnitee is expressly conditioned upon the
Corporation's being notified of the commencement of any action brought against
any Forum Indemnitee, such notification to be given by letter or by telegram
addressed to the Corporation at its principal office, and sent to the
Corporation by the person against whom such action is brought within twenty days
after the summons or other first legal process shall have been served. The
Corporation will be entitled to assume the defense of any suit brought to
enforce any such claim and to retain counsel of good standing chosen by the
Corporation and approved by Forum. In the event the Corporation elects to assume
the defense of any such suit and retain counsel of good standing approved by
Forum, the defendants in the suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Corporation does not
elect to assume the defense of the suit or in case Forum does not approve of
counsel chosen by the Corporation, the Corporation will reimburse the Forum
Indemnitee named defendant or defendants in the suit for the fees and expenses
of any counsel retained by the Forum Indemnitee. This Section shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Forum Indemnitee and shall survive the sale of any of a
Fund's Shares made pursuant to subscriptions obtained by Forum. This Section
will inure exclusively to the benefit of each person that is or may be a Forum
Indemnitee at any time and to the benefit of their respective successors and
assigns. The Corporation agrees promptly to notify Forum of the commencement of
any litigation or proceeding against the Corporation in connection with the
issue and sale of any of the Shares. The failure to notify the Corporation of
the commencement of any such action shall not relieve the Corporation from any
liability which it may have to the Forum Indemnitees by reason of any alleged
untrue statement or omission otherwise than on account of this Section.
SECTION 12. INDEMNIFICATION OF THE CORPORATION
Forum agrees to indemnify, defend and hold the Corporation, its
officers and directors, and any person who controls the Corporation within the
meaning of Section 15 of the Securities Act or section 20 of the 1934 Act
(Corporation Indemnitees"), free and harmless from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities) which any Corporation Indemnitee may
incur, under the Securities Act, or under common law or otherwise, but only to
the extent that such liability or expense incurred by a Corporation Indemnitee
resulting from such claims or demands shall arise out of or be based upon (i)
any alleged untrue statement of a material fact contained in information
furnished in writing by Forum to the Corporation for use in its Registration
Statement insofar as it relates to a Fund or the Prospectuses relating to a Fund
in effect from time to time under the Securities Act, (ii) any alleged omission
to state a material fact in connection with such information required to be
stated in the Registration
- 10 -
Statement or a Prospectus or necessary to make the information not misleading or
(iii) willful misfeasance, bad faith or gross negligence in the performance by
Forum of its duties, or by reason of Forum's reckless disregard of its
obligations and duties under this Agreement. Forum's agreement to indemnify each
Corporation Indemnitee is expressly conditioned upon Forum being notified of the
commencement of any action brought against any Corporation Indemnitee, such
notification to be given by letter or telegram addressed to Forum at its
principal office, and sent to Forum by the person against whom the action is
brought, within twenty days after the summons or other first legal process shall
have been served. Forum will be entitled to assume the defense of the action,
with counsel in good standing of its own choosing approved by the Corporation,
if the action is based solely upon alleged misstatement, omission or action
described in clauses (i), (ii) or (iii) above and in any other event Forum and
the Corporation Indemnitees shall each have the right to participate in the
defense or preparation of the defense of any such action. In the event Forum
elects to assume the defense of any such suit and retain counsel of good
standing approved by the Corporation, the defendants in the suit shall bear the
fees and expenses of any additional counsel retained by any of them; but in case
Forum does not elect to assume the defense of the suit or in case the
Corporation does not approve of counsel chosen by Forum, Forum will reimburse
the Corporation Indemnitee named defendant or defendants in the suit for the
fees and expenses of any counsel retained by the Corporation Indemnitee. This
Section shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Corporation Indemnitee and shall
survive the sale of any of the Shares made pursuant to orders or subscriptions
obtained by Forum. This Section will inure exclusively to the benefit of each
person that is or may be a Corporation Indemnitee at any time and to the benefit
of their respective successors and assigns. Forum agrees promptly to notify the
Corporation of the commencement of any litigation or proceeding against Forum in
connection with the issue and sale of any of the Shares. The failure to notify
Forum of the commencement of any action shall not relieve Forum from any
liability which it may have to the Corporation Indemnitees by reason of any
untrue statement or omission on the part of or action by Forum otherwise than on
account of this Section.
SECTION 13. NOTIFICATION BY THE CORPORATION
The Corporation agrees to advise Forum immediately: (i) of any request
by the SEC for amendments to the Corporation's Registration Statement insofar as
it relates to the Funds, a Fund's Prospectus or for additional information, (ii)
in the event of the issuance by the SEC of any stop order suspending the
effectiveness of the Corporation's Registration Statement insofar as it relates
to the Funds, a Fund's Prospectus or the initiation of any proceeding for that
purpose, (iii) of the happening of any material event which makes untrue any
statement made in the Corporation's Registration Statement insofar as it relates
to the Funds or any Fund's Prospectus or which requires the making of a change
in either thereof in order to make the statements therein not misleading, and
(iv) of all actions of the SEC with respect to any amendments to the
Corporation's Registration Statement insofar as it relates to the Funds or a
Fund's Prospectus which may from time to time be filed with the SEC under the
Securities Act.
- 11 -
SECTION 14. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each Fund on
the date on which the Corporation's Registration Statement relating to the
Shares of the Fund becomes effective. Upon effectiveness of this Agreement, it
shall supersede all previous agreements between the parties hereto covering the
subject matter hereof insofar as such Agreement may have been deemed to relate
to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund for
a period of one year from its effectiveness and shall continue in effect for
successive one-year periods; provided, that continuance is specifically approved
at least annually (i) by the Board or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by a vote of a majority of Directors of
the Corporation (I) who are not parties to this Agreement or interested persons
of any such party (other than as Directors of the Corporation) and (II) with
respect to each class of a Fund for which there is an effective plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act, who do not have
any direct or indirect financial interest in any such plan applicable to the
class or in any agreements related to the plan, cast in person at a meeting
called for the purpose of voting on such approval; provided further, however,
that if the continuation of this Agreement is not approved as to a Fund, Forum
may continue to render to the Fund the services described herein in the manner
and to the extent permitted by the Act and the rules and regulations thereunder.
(c) This Agreement may be terminated at any time with respect to a
Fund, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund or, with respect to
each class of a Fund for which there is an effective plan of distribution
adopted pursuant to Rule 12b-1 under the 1940 Act, a majority of Directors of
the Corporation who do not have any direct or indirect financial interest in any
such plan or in any agreements related to the plan, on 60 days' written notice
to Forum or (ii) by Forum on 60 days' written notice to the Corporation.
(d) This Agreement shall also automatically terminate in the event of
its assignment; provided, that a Transfer shall not cause a termination of this
Agreement or be deemed to be an assignment.
(e) If this Agreement is terminated for any reason other than a
Complete Termination (as defined in Section 10 of the Plan), the obligations of
the Corporation and Forum pursuant to Sections 5(a)-(d) and Section 6 of this
Agreement will continue and survive any such termination. A termination of the
Plan (including a Complete Termination as defined in Section 10 of the Plan)
with respect to the Shares of any or all Funds or Classes thereof shall not
affect the obligations of the Corporation with respect to payments of Forum's
Allocable Portion of CDSC or of the obligations of Forum in respect of CDSC's
pursuant to Sections 5 and 6 of this Agreement.
SECTION 15. NOTICES
Any notice required or permitted to be given hereunder by either party
to the other shall be deemed sufficiently given if personally delivered or sent
by telegram or registered, certified or overnight mail, postage prepaid,
addressed by the party giving such notice to the other party at
- 12 -
the last address furnished by the other party to the party giving such notice,
and unless and until changed pursuant to the foregoing provisions hereof each
such notice shall be addressed to the Corporation or Forum, as the case may be.
SECTION 16. ACTIVITIES OF FORUM
Except to the extent necessary to perform Forum's obligations
hereunder, nothing herein shall be deemed to limit or restrict Forum's right, or
the right of any of Forum's officers, directors or employees who may also be a
trustee, officer or employee of the Corporation, or affiliated persons of the
Corporation to engage in any other business or to devote time and attention to
the management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
trust, firm, individual or association.
SECTION 17. LIMITATION OF SHAREHOLDER AND DIRECTOR LIABILITY
The Directors of the Corporation and the shareholders of each Fund
shall not be liable for any obligations of the Corporation or of the Funds under
this Agreement, and Forum agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Corporation
or the Fund to which Forum's rights or claims relate in settlement of such
rights or claims, and not to the Directors of the Corporation or the
shareholders of the Funds.
SECTION 18. MISCELLANEOUS
(a) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(b) Except for Appendix A to add new Funds and Classes in accordance
with Section 6, no provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties hereto.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of New York.
(d) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced
- 13 -
as if the Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
(g) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(h) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund of the Corporation are
separate and distinct from the assets and liabilities of each other Fund and
that no Fund shall be liable or shall be charged for any debt, obligation or
liability of any other Fund, whether arising under this Agreement or otherwise.
(i) No affiliated person, employee, agent, director, officer or manager
of Forum shall be liable at law or in equity for Forum's obligations under this
Agreement.
(j) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof.
(k) The terms "vote of a majority of the outstanding voting
securities," "interested person," "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
TANAKA FUNDS, INC.
By:
-------------------------
[Officer name]
[Title]
FORUM FINANCIAL SERVICES, INC.
By:
-------------------------
Xxxx X. Xxxxxx
President
- 14 -
TANAKA FUNDS, INC.
DISTRIBUTION AGREEMENT
Appendix A
Fund and Classes
as of __________, 1998
Fund
TANAKA Growth Fund
Classes
R Share
B Share
A Share
- A1 -
TANAKA FUNDS, INC.
DISTRIBUTION AGREEMENT
Appendix B
Forum's "Allocable Portion" of the CDSCs and Distribution Fees in
respect of a Fund or Class thereof shall be 100 percent until such time as Forum
shall cease to serve as exclusive distributor of the Shares of that Fund and
thereafter shall be recomputed first on the date of any termination of Forum's
services as exclusive distributor of Shares of any Fund and thereafter on the
first business day of each month (or, in Forum's discretion, the first business
day of each week or every business day or every day) (each a "Computation Date")
in accordance with this Appendix B based upon the number representing the Shares
of the Fund outstanding on each Computation Date allocated to Forum.
For Purposes of this Appendix B the following terms shall have the
following meanings:
"Commission Share" shall mean, in respect of any Fund or Class thereof,
each Share of the Fund or Class thereof that is issued under circumstances that
would normally give rise to an obligation of the holder of the Share to pay a
CDSC upon redemption of the Share, including, without limitation, any Share of
issued in connection with a Permitted Free Exchange. A Share shall not cease to
be a Commission Share prior to the redemption (including a redemption in
connection with a Permitted Free Exchange) or conversion of the Share even
though the obligation to pay the CDSC shall have expired or conditions for
waivers thereof shall exist.
"Date of Original Issuance" means in respect of any Commission Share,
the date with reference to which the amount of the CDSC payable on redemption
thereof is computed.
"Free Share" shall mean, in respect of any Fund or Class thereof, each
Share of the Fund or Class thereof other than a Commission Share.
"Other Distributor" shall mean in respect of the Shares of any Fund,
each entity appointed from time to time as the exclusive distributor for the
Shares of the Fund after Forum ceases to serve in that capacity.
"Permitted Free Exchange" with respect to any Shares of any Fund or
Class thereof, shall mean an exchange of the Share for a Share of another Fund
that, pursuant to the terms of the Prospectus for the Shares, relieves or defers
the CDSCs in respect of the Share.
"Transfer Agent" shall mean, in respect of any Fund, the entity serving
as the transfer agent and who maintains accounts for each record holder of
Shares of the Fund.
Section A. Attribution of Shares
Each Share of each Class which are outstanding from time to time shall
be attributed to either Forum or an Other Distributor in accordance with the
following:
- B1 -
Commission Shares.
------------------
(a) Commission Shares of each Class attributed to Forum or an Other
Distributor are those Commission Shares that were sold while Forum or
the Other Distributor was the exclusive Distributor for the Shares,
determined in accordance with the records of the Transfer Agent.
(b) The Commission Shares of each Class attributed to Forum or a Other
Distributor shall be the Date of Original Issuance of which occurs
during the period in which Forum or such Other Distributor was the
exclusive distributor for such Fund in respect of such class of Shares
of such Fund.
(c) A Commission Share of a Fund issued in consideration of the
investment of proceeds of the redemption of a Commission Share of
another Fund (the "First Fund") in connection with a Permitted Free
Exchange shall have a Date of Original Issuance identical to the Date
of Original Issuance of the Commission Share of the First Fund which
was redeemed.
(d) A Commission Share of a Fund that is redeemed other than in
connection with a Permitted Free Exchange or that is automatically
converted to a class A share is no longer a Commission Share attributed
to Forum or an Other Distributor.
Free Shares
-----------
(a) Free Shares outstanding on the date of termination of Forum's
services hereunder will be attributed to Forum or the Other Distributor
in the same proportion that Commission Shares were attributed to Forum
and the Other Distributor on that date.
(b) After the date of termination of Forum's services hereunder, Free
Shares that are issued in connection with the reinvestment of dividends
or other distributions or in connection with the reinvestment of
proceeds of redemption of Free Shares of another Fund are attributed to
Forum and the Other Distributor based upon the percentage of total Free
Shares of the Fund which were outstanding as of the previous
Computation Date which were attributed to each of Forum and the Other
Distributor on that Computation Date.
(c) Free Shares that are redeemed or automatically converted into class
A shares during any period after the date of termination of Forum's
services hereunder are deemed to be redeemed out of the Free Shares of
the Fund attributed to Forum and the Other Distributor based upon the
percentages of total Free Shares of the Fund which as of the previous
Computation Date which were attributed to Forum and the Other
Distributor on that Computation Date.
- B2 -
Section B. Allocation of Distribution Fees
The portion of the Distribution Fees accruing in respect of Shares of a
Fund or Class thereof during a particular calendar month that are allocated to
Forum is determined by multiplying the total of the Distribution Fees accruing
during the month by the following:
[(BAS)(BNAV) + (EAS)(ENAV)]
---------------------------
[(BTS)(BNAV) + (ETS)(ENAV)]
where:
BAS = Total Number of Shares of the Fund or Class thereof outstanding
("Total Shares") as of the beginning of the month and attributed to
Forum.
EAS = Total Shares as of the end of the month attributed to Forum.
BTS = Total Shares as of the beginning of the month.
ETS = Total Shares as of the end of the month.
BNAV = Per Share Net Asset Value of Shares of the Fund or Class thereof
("NAV/Share") at the beginning of the month.
ENAV = NAV/Share at the end of the month.
Section C. Allocation of CDSCs
CDSCs will be allocated to either Forum or an Other Distributor based
upon whether the Commission Share giving rise to such CDSC was attributed to
Forum or the Other Distributor in accordance with Section A above.
Section D. Allocation Procedures For Shares Held Through an Account
Maintained in the Name of an Intermediary
In the case of Shares of a Fund held through an account maintained in
the name of a broker-dealer or other intermediary, the allocation procedures
contained in this Appendix B shall be amplified as Forum and the Corporation
shall agree to ensure the appropriate attribution of, and allocation of
Distribution Fees attributable to those Shares.
- B3 -
