EXHIBIT 1(a)
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DISTRIBUTION AGREEMENT
Distribution Agreement ("Agreement") made this _____ day of
________________, 2004, by and between Integrity Certificate Company, a Maryland
corporation (the "Company"), and Capital Financial Services, Inc., a Wisconsin
corporation ("Distributor") (collectively, the "Parties").
WHEREAS, the Company is organized and intends to operate as a face-amount
certificate company and is so registered under the Investment Company Act of
1940, as amended, (the "Act"), and has registered or will register the
face-amount certificates it issues under the Securities Act of 1933 ("1933
Act"), to the extent required thereby, on Form S-1 ("Registration Statement");
and
WHEREAS, the Board of Directors of the Company ("Board") has established
and authorized the issuance of those types of face-amount certificates listed on
Schedule A hereto (each, a "Certificate" and collectively, the "Certificates"),
as the same may be amended from time to time by mutual written agreement of the
Parties ("Schedule A"); and
WHEREAS, Distributor desires to act as a principal underwriter and a
distributor of the Certificates; and
WHEREAS, Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934 ("1934 Act") and a member of the National Association of
Securities Dealers, Inc. ("NASD"); and
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the Parties agree as follows:
1. APPOINTMENT AND OBLIGATION OF UNDERWRITER.
The Company hereby appoints Distributor as a principal underwriter and a
distributor for the sale of the Certificates and Distributor hereby accepts such
appointment. Distributor shall be obligated to perform the services for the
Company as described in this Agreement. By accepting this appointment,
Distributor represents and warrants that it is a business corporation duly
organized, validly existing, and in good standing under the laws of the State of
North Dakota and has full corporate power, authority and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement. Distributor further represents and warrants that it is and at all
times will be qualified to serve as a principal underwriter for an investment
company registered under the Act, and that none of its directors, officers or
employees are or will be subject to disqualification under the Act if
Distributor serves as principal underwriter of the Company.
2. SALE OF CERTIFICATES.
2.1 Availability of Certificates. The Company agrees to issue such
Certificates as Distributor may sell in accordance with the terms and conditions
set forth herein and the disclosure in the Company's Registration Statement.
2.2 Best Efforts. Distributor agrees to use its best efforts to promote the
sale of Certificates, but is not obligated to sell any specific number of
Certificates.
2.3 Rejection or Suspension of Sales; Corporate Actions. Notwithstanding
anything herein to the contrary:
(a) Distributor may temporarily suspend its efforts to effectuate sales
of Certificates at any time when in its opinion no sales should be made
because of market or other economic considerations or abnormal
circumstances of any kind; and
(b) the Company may, at any time, reject for any reason any order to
purchase any Certificate. In addition, the Board may suspend or terminate
the offering of any Certificate, if such action is required by law,
judicial order, or by regulatory authorities having jurisdiction, or if the
Board, in its sole discretion, acting in good faith and in light of its
fiduciary duties under applicable law, determines that such action is in
the best interests of the Company's shareholders. Further, the Company
reserves the right at all times to take any corporate actions, including,
but not limited to, the dissolution, merger, and sale of its assets, solely
upon the authorization of its Board.
2.4 Purchase Payments. Distributor shall accept purchase payments for
Certificates as described in the Company's then effective prospectus relating to
the Certificates as it may be amended or supplemented from time to time
("Prospectus," unless the context otherwise requires).
2.5 Manner of Offering. Distributor shall offer the Certificates for sale
in the manner described in the Company's Prospectus, and only in those
jurisdictions where Distributor is legally able to offer or sell such
Certificates.
2.6 Compensation. As compensation for services rendered hereunder,
Distributor shall be entitled to payment of compensation on the sale of
Certificates in accordance with Schedule A.
2.7 Order and Payment Processing. Distributor shall immediately transmit to
the Company any order to purchase Certificates. Such order shall consist of a
completed application to purchase a Certificate, accompanied by a check made
payable to the Company, or any other form of payment deemed acceptable by the
Company. The Company, in its sole discretion, reserves the right to reject, for
any reason, any application for the purchase of a Certificate.
2.8 Purchases for Own Account. Distributor shall not purchase Certificates
for its own account for purposes of resale to the public. Distributor, to the
extent disclosed in the Prospectus, may purchase such Certificates for its own
investment account upon its written assurance to the Company that the purchase
is for investment purposes only and that such Certificates will not be resold.
2.9 Selling Group Agreements. Distributor may, from time to time, effect
offers and sales of the Certificates through unaffiliated broker-dealers that
are registered under the 1934 Act, that are members of the NASD, and that have
entered into an appropriate selling group agreement with Distributor, each of
which shall be approved by the Company prior to its implementation. Distributor
may allow these broker-dealers such commissions or discounts as are authorized
and approved by the Company.
2.10 Non-Exclusivity. Notwithstanding anything herein to the contrary, the
Company may appoint other entities in addition to Distributor to serve as a
principal underwriter and/or a distributor of the Company's Certificates.
3. WITHDRAWAL, SURRENDER, AND EXCHANGE REQUESTS.
Distributor shall immediately forward any withdrawal or surrender request,
or a request to exchange one type of Certificate for another, that it receives
to the Company. All such requests shall be provided in a manner deemed
acceptable by the Company. Payments of withdrawal and surrender proceeds will be
made by the Company directly to the Certificate holder.
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4. ALLOCATION OF EXPENSES.
Except as set forth herein, each Party shall bear all expenses of
fulfilling its duties and obligations under this Agreement. However, the Company
may bear some of Distributor's initial costs in selling the Certificates, as the
Parties may mutually agree from time to time.
5. MARKETING MATERIALS.
5.1 Preparation, Printing, and Distribution. Distributor, at its sole cost,
shall be responsible for preparing, printing, and distributing, or causing the
same to be done, all marketing materials to be used in connection with its offer
and sale of Certificates, including but not limited to, all such materials used
in connection with Distributor's efforts to effect offers and sales of
Certificates directly or through unaffiliated broker-dealers. As used herein,
"marketing materials" shall include any "advertisement" or "sales literature,"
as those terms are defined in Section 2210(a) of the NASD's Conduct Rules, as
amended from time to time, and shall include any so-called "dealer only"
materials, as well as any Prospectuses, periodic reports to shareholders
("Reports"), and other materials sent to persons other than the then current
Certificate holders (except that the Company shall bear the cost of preparing,
printing, and distributing any Prospectuses, Reports, and other materials
specified in paragraph 6.3, below). All marketing materials created by
Distributor in connection with the sale of the Certificates shall be the sole
property of the Company, and the Company is entitled to use such marketing
materials at any time in its sole discretion without consent of Distributor.
5.2 Company Approval. Distributor shall submit definitive copies of all
marketing materials to the Company for its approval, which shall not be
unreasonably withheld, at least ten (10) business days prior to their first use.
The Company shall be deemed to have granted its approval of such marketing
materials unless it objects within such ten (10) business day period.
5.3 Regulatory Approvals. Distributor shall, to the extent required, file
in a timely manner all marketing materials with the NASD, the Securities and
Exchange Commission ("SEC"), or any other regulatory body, as appropriate, and
shall obtain any necessary approval of these regulatory bodies of any marketing
materials.
6. NON-MARKETING MATERIALS.
6.1 Shareholder Correspondence. Distributor, at its sole cost, shall be
responsible for preparing, printing, and distributing, or causing the same to be
done, all correspondence with Certificate holders in its capacity as a principal
underwriter or a distributor, except for correspondence prepared, printed, and
distributed by Distributor at the Company's request. Distributor shall, from
time to time, make such correspondence available to the Company for review upon
request.
6.2 Confirmations. Distributor, at its sole cost, shall be responsible for
preparing, printing, and distributing in a timely manner, or causing the same to
be done, confirmations of Certificate holder transactions required to be
delivered pursuant to applicable law.
6.3 Prospectuses, Reports, Etc. The Company, at its sole cost, shall be
responsible for preparing, printing, and distributing, or causing the same to be
done, all Prospectuses, Reports, proxy materials, and other documents required
by applicable law to be provided to Certificate holders of each Portfolio, and
for filing such materials with the NASD, SEC or any other regulatory body, as
appropriate, and shall obtain any necessary approval of these regulatory bodies
of these materials.
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7. CONDUCT OF BUSINESS.
7.1 General. Distributor shall be subject to the direction and control of
the Company in the sale of the Certificates. In selling Certificates,
Distributor shall comply in all respects with the requirements of all federal
and state laws and regulations and the regulations of the NASD, relating to the
sale of the Certificates. Neither Distributor nor any other person is authorized
by the Company to give any information or to make any representations, other
than those contained in the Company's Registration Statement or Prospectus, and
any marketing materials authorized by responsible officers of the Company.
7.2 Independent Contractor. Distributor shall undertake and discharge its
obligations hereunder as an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Company in any way and shall not be deemed to be an employee of the Company.
Distributor shall be responsible for its own conduct and the employment, control
and conduct of its agents and employees, and for injury to such agents or
employees or to others through its agents or employees. Distributor shall assume
full responsibility for its agents and employees under applicable statutes and
agrees to pay all employer taxes thereunder.
7.3 Non-Exclusive Services. Distributor's services pursuant to this
Agreement shall not be deemed to be exclusive, and Distributor may render
similar services and act as an underwriter, distributor or dealer for other
face-amount certificate companies in the offering of their face-amount
certificates, consistent with its best efforts obligations set forth herein.
7.4 Records. Distributor shall maintain and preserve such records as are
necessary or appropriate to record its transactions with the Company, as
required by applicable law. Distributor shall promptly return to the Company all
records relating to the Company, free from any claim or retention of rights by
Distributor and without charge by Distributor except for its direct expense.
Distributor shall also maintain and preserve records listing each unaffiliated
broker-dealer or any individuals contacted by Distributor with respect to the
Certificates, including all lists of potential contacts purchased from others in
this regard. All such records and lists shall be deemed property of the Company,
and made available for inspection and copying upon request.
7.5 Notice. Distributor shall promptly provide notice to the Company of any
inquiry or investigation with respect to Distributor's activities initiated or
conducted by the NASD, Securities and Exchange Commission, or any other federal
or state regulatory entity.
8. INDEMNIFICATION.
8.1 General. Distributor shall indemnify and hold harmless the Company and
each of its Directors and officers (or former Directors and officers) and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, "Indemnitees") against any loss, liability, claim,
damage, or expense (including the reasonable cost of investigating and defending
against the same and any counsel fees reasonably incurred in connection
therewith) incurred by any Indemnitee under the 1933 Act or under common law or
otherwise, which arise out of or are based upon:
(a) any untrue or alleged untrue statement of a material fact contained
in information furnished to the Company by Distributor for use in the
Company's Registration Statement, Prospectus, Reports or other documents
sent to its Certificate holders;
(b) any omission or alleged omission to state a material fact in
connection with information furnished to the Company by Distributor for use
in the Company's Registration Statement, Prospectus, Reports or other
documents sent to its Certificate holders, which fact
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is required to be stated in any of such documents or necessary to make such
information not misleading;
(c) any misrepresentation or omission or alleged misrepresentation or
omission to state a material fact on the part of Distributor or any agent
or employee of Distributor or any other person for whose acts Distributor
is responsible, unless such misrepresentation or omission or alleged
misrepresentation or omission was made in reliance on written information
furnished by the Company; or
(d) the willful misconduct or failure to exercise reasonable care and
diligence on the part of Distributor or any agent or employee of
Distributor or any other person for whose acts Distributor is responsible
with respect to services rendered under this Agreement.
This indemnity provision, however, shall not operate to protect any officer
or Director of the Company from any liability to the Company or any Certificate
holder by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
8.2 Limitations; Notice of Claim; Assumption of Defense. In case any action
shall be brought against any Indemnitee, Distributor shall not be liable under
its indemnity agreement contained in paragraph 8.1. above, with respect to any
claim made against any Indemnitee, unless the Indemnitee shall have notified
Distributor 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 Indemnitee (or after the Indemnitee shall have received notice
of such service on any designated agent), but failure to notify Distributor of
any such claim shall not relieve it from liability to the Indemnitees against
whom such action is brought otherwise than on account of paragraph 8.1, above.
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 any
such liability, but if Distributor elects to assume the defense, such defense
shall be conducted by counsel chosen by it and satisfactory to the Indemnitees
that are defendants in the suit. In the event Distributor elects to assume the
defense of any such suit and retain such counsel, the Indemnitees that are
defendants in the suit shall bear the fees and expenses of any additional
counsel retained by them, but, in case Distributor does not elect to assume the
defense of any such suit, Distributor will reimburse the Indemnitees that are
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them. Distributor shall promptly notify the Company of the
commencement of any litigation or proceedings in connection with the issuance or
sales of the Certificates.
9. TERM AND TERMINATION.
9.1 Term. This Agreement shall become effective upon the date first written
above and shall remain in force for one year from such date, and shall continue
annually thereafter but only so long as such continuance is specifically
approved by a majority of the Board who are not parties to this Agreement, or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
9.2 Termination. This Agreement may be terminated at any time without the
payment of any penalty, by the Company or by Distributor, on sixty days' written
notice to the other party.
10. DEFINITIONS.
As used herein the terms "investment company," "face-amount certificate
company," "principal underwriter," "interested person," and "affiliated person"
shall have the meanings set forth in the 1933 Act or the Act, and the rules and
regulations thereunder. Nothing herein contained shall require the
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Company to take any action contrary to any provision of its Articles of
Incorporation, By-Laws, or any applicable statute or regulation.
11. NOTICES.
Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed postage prepaid, to the other party at such address as the
other party may designate for the receipt of notices. Until further notice to
the other party, it is agreed that the address of the Company shall be 0 Xxxxx
Xxxx Xxxxxx, Xxxxx, Xxxxx Xxxxxx 00000, and the address for Distributor shall be
0 Xxxxx Xxxx Xxxxxx, Xxxxx, Xxxxx Xxxxxx 00000.
12. SEVERABILITY.
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.
13. CONFIDENTIALITY.
Distributor shall not disclose or use any records or information obtained
pursuant to this Agreement, pursuant to its relationship with the Company, or in
the course of discharging its obligations hereunder, in any manner whatsoever
except as expressly authorized by this Agreement or in a writing by the Company,
or as expressly required by applicable federal or state regulatory authorities.
14. APPLICABLE LAW.
This Agreement shall be governed by the laws of the State of Maryland,
notwithstanding any conflict of laws provisions thereof, and shall be construed
to promote the operation of the Company as a face-amount certificate company.
15. PARTIES TO COOPERATE.
The Company and Distributor agree to fully cooperate with each other in
assuring compliance under this Agreement with all federal and state laws and
regulations.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as of the date first written above.
Integrity Certificate Company
By:
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Xxxxxx Xxxxxxx, President
Attest:
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Capital Financial Services, Inc.
By:
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Attest:
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SCHEDULE A
This Schedule A is an integral part of the Agreement to which it is
attached. Capitalized terms used herein have the same meaning as given to them
in the Agreement, except as otherwise noted. This Schedule A sets out the names
of the types of Certificates covered by the Agreement and the compensation of
Distributor for the services rendered with respect thereto.
NAMES OF CERTIFICATES
> Harvest Certificates
> Foundation Certificates
> Producer Certificates
> Prime Certificates
> Resource Certificates
COMPENSATION
For its services rendered pursuant to the Agreement, Distributor shall be
entitled to receive, as full compensation therefor, the following sales
commissions (subject to any scheduled variations or elimination of commission as
set forth in the Company's Prospectus).
COMMISSION SCHEDULE
All commissions due upon the sale of any Certificate are calculated as a
percentage of the initial purchase payment for such Certificate, EXCEPT that
with respect to the sale of the Harvest Certificate, the commission payable
shall be calculated as a percentage of the total purchase payments scheduled to
be paid during the first year of any such Harvest Certificate. Commissions rates
are as follows:
A. For direct sales by Distributor
* applicable to Certificates with guarantee periods
of one (1) to five (5) years...........................____ %
* applicable to Certificates with guarantee periods
of ten (10) years.......................................____ %
B. For sales by Distributor through Selling Group Agreements
* applicable to Certificates with guarantee periods
of one (1) to five (5) years............................0.25 %
* applicable to Certificates with guarantee periods
of ten (10) years.......................................0.25 %
A commission becomes payable only upon acceptance, by the Company, of the
application to purchase a Certificate, and after payment for such Certificate is
made. The Company will make payment of all commissions then payable on the 15th
and last day of each calendar month.
In the event an Harvest Certificate is surrendered prior to the end of the first
Certificate year, Distributor shall immediately return to the Company any
commission paid with respect to scheduled purchase payments that the Certificate
holder failed to pay.
If any Certificate is tendered to the Company for surrender within seven (7)
business days after the Company's acceptance of the original purchase order for
such Certificate, Distributor shall immediately return to the Company the full
sales commission paid to Distributor on the original sale. The Company shall
notify Distributor, or cause Distributor to be notified, of such surrender
within 10 days of the day on which the Company receives notice of such
surrender.
