DISTRIBUTION AGREEMENT
(Class C Shares)
AGREEMENT (the "Agreement"), dated as of February __, 1996, between
AMERICAN GROWTH FUND, INC., a Maryland corporation, (the "Fund") and
AMERICAN GROWTH FUND SPONSORS, INC., a Colorado corporation, (the
"Distributor").
RECITALS
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a diversified, open-end management
investment company;
WHEREAS, the Fund intends to offer its Class C shares to the public on
a continuous basis;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and is in the
business of selling shares of the Fund and other registered investment
companies to the public, either directly or through other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into this
Agreement with respect to the continuous offering of the Fund's Class C
shares from and after the date hereof in order to promote the growth of the
Fund and facilitate the distribution of its Class C shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the 1940 Act (the "Plan") authorizing payments by the
Fund to the Distributor with respect to the distribution of Class C shares
of the Fund and the provision of services in respect of Class C shareholder
accounts.
NOW, THEREFORE, the parties agree as follows:
1. The Distributor shall be the distributor for the Class C shares of the
capital stock of the Fund as may from time to time be effectively
registered under the Securities Act of 1933, as amended (hereinafter
referred to as the "Act").
2. The Fund agrees to sell and deliver from time to time, upon the terms
hereinafter described, such number of its fully paid and nonassessable
Class C shares of capital stock as the Distributor shall order, but only to
the extent that the Distributor shall have received purchase orders
therefor. All orders from the Distributor hereunder shall be subject to
confirmation by the Fund.
3. The Distributor may sell and distribute any shares so purchased by it
through dealers or otherwise in such manner not inconsistent with the
provisions hereof as it may determine from time to time, and it agrees to
use its best efforts to effect such sale and distribution. The Distributor
shall not make any short sales of Fund shares. The Distributor shall in
addition, in so far as they concern
1
it, comply with all applicable laws, rules and regulations including,
without limiting the generality of the foregoing, all rules or regulations
made or adopted pursuant to Section 22 of the 1940 Act by the Securities
and Exchange Commission or any securities association registered under
the 1934 Act.
4. Subject to the provisions of paragraph 5 hereof, all shares offered
for sale and sold by the Distributor shall be offered for sale and sold by
it at a price per share equal to the offering price per share (hereinafter
called the offering price) rounded to the nearest one cent and equal to (a)
the net asset value per share (determined as authorized from time to time
under the direction of the Board of Directors of the Fund in conformity
with the 1940 Act) plus (b) a sales charge or premium, if any, based upon
the schedule of such charges (including all exceptions therefrom) and
related terms and conditions as may be set forth from time to time in the
then current Prospectus or Statement of Additional Information of the Fund
pertaining to its Class C shares. The Fund shall determine and promptly
thereupon furnish to the Distributor a statement of the Fund's net asset
value and offering price as often and at such times as its Board of
Directors shall by resolution determine provided, however, that subject to
the provisions hereinafter contained in this paragraph 4, the Fund shall
determine and furnish such offering price at least once on each business
day on which the New York Stock Exchange is open for trading. Each such
offering price shall become effective at such time, and shall remain in
effect during such period, as may be stated in the statement thereof
furnished to the Distributor as above provided. Every statement of the
offering price furnished to the Distributor as above provided shall show
the basis of its computation. The Fund shall also accept and confirm at
the offering price in effect before a price change such orders as are
entered by the Distributor to fill orders placed with it prior to such time
of price change, but only if such orders are received by the Fund within a
time deemed by the Fund to be reasonable after the time of receipt thereof
by the Distributor and if such orders are time-stamped or bear other
evidence to show that they were filed for transmission at the point of
origin prior to the time of such price change. Anything to the contrary
herein notwithstanding, however, whenever in its judgment such action is
warranted by market, economic or political conditions or by abnormal
circumstances of any kind, Fund officers may suspend the sale of Fund
shares, without incurring any liability under any of the provisions of this
Agreement, and decline to accept or confirm any orders for or make any
sales of any shares of stock to the Distributor under this Agreement until
such time as the Fund shall deem it advisable to accept and confirm such
orders and to make such sales, and during any such period, the Fund shall
be under no obligation to confirm or accept any such orders or make any
such sales at any price.
5. At or prior to the time of delivery by the Fund to the Distributor for
its accounts of any shares of the Fund's capital stock, the Distributor
will pay or cause to be paid to the Fund or its order an amount equal to
the offering price of such shares at which the Distributor's order has been
confirmed by the Fund, less the applicable sales charge or premium, if any,
which charge or premium shall constitute the Distributor's concession for
selling and distributing such shares and may be deducted by it from the
offering price in making payment to the Fund hereunder. The Distributor
may in its discretion allow concessions or other accounting to dealers out
of such concession to it.
6. The Distributor shall receive and may retain any contingent deferred
sales charges which are imposed with respect to repurchases and redemptions
of Class C shares as set forth from time to time
3
in the Fund's Prospectus and Statement of Additional Information current
upon the date of sale of any such shares. Payment of such amounts is not
contingent upon the adoption or continuation of the Plan.
7. (a) The Fund shall pay to the Distributor as compensation for
services under the Plan and under this Agreement, (i) a fee at the annual
rate of up to 0.75% of average daily net assets attributable to Class C
shares of the Fund to compensate the Distributor and broker-dealers and
financial institutions ("Securities Firms") for certain distribution-
related activities (a "distribution fee"), and (ii) a fee at the annual
rate of up to 0.25% of such average daily net assets to compensate the
Distributor and Securities Firms for shareholder servicing related to
distribution of such shares (a "service fee"). Amounts payable under the
Plan shall be accrued daily and payable monthly or at such other intervals
as the Board of Directors shall determine. No fee shall be payable
hereunder if it would cause the Fund to fail to comply with the
requirements of Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc.
(b) So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and
account servicing fees to be paid by the Distributor to Securities Firms
and at the request of the Fund will provide such information as may
reasonably be requested concerning the activities of the Distributor
hereunder and the costs incurred in performing such services.
(c) The distribution fee under paragraph (a) shall be used to
compensate the Distributor and/or Securities Firms having agreements with
the Distributor for providing distribution assistance to customers and to
pay for the preparation, printing and distribution of prospectuses,
statements of additional information and periodic financial reports to
persons other than current shareholders of the Fund, as well as to pay for
the preparation and distribution of sales literature and pay for other
promotional and distribution activities.
(d) The service fee payable under paragraph (a) above shall be used
to compensate the Distributor and/or Securities Firms for providing
personal services such as shareholder liaison services (responding to
customer inquiries and providing information on their investment) to Fund
shareholders and/or maintaining shareholder accounts.
(e) Payments to Securities Firms hereunder may take the form of sales
commissions or trailer commissions.
8. Delivery of certificates for shares of the Fund's capital stock, when
and if requested (subject to any determination by the Fund not to issue
certificates for shares), shall be made as soon as practicable after
confirmation by it or the Distributor's order therefor and against payment
therefor by the Distributor in Denver funds. The certificates for such
shares shall be registered in such names and amounts as the Distributor may
specify to the Fund in writing.
9. The Fund agrees to pay all costs and expenses in connection with
future registrations of its
3
capital stock under the Act, and all expenses in connection with maintaining
facilities for the issue and transfer of its shares, and for supplying
information, prices and other data to be furnished by it hereunder.
The Fund agrees to execute any and all documents and to furnish any
and all information which may be reasonable necessary, in the discretion of
its Board of Directors, in connection with the qualification of its shares
for sale in such states as the Distributor may designate to it. The
Distributor will pay all expenses connected with its own qualification as a
dealer or broker under State or federal laws.
10. The Fund shall furnish the Distributor from time to time, for use in
connection with the sale of its shares, such information with respect to
the Fund and its shares as the Distributor may reasonably request, all of
which, if so requested, shall be signed by one or more of its duly
authorized officers, warranting that the statements contained in any such
information, when so signed by its officers, shall be true and correct.
The Fund shall also furnish the Distributor with annual audits of its books
and accounts made by independent public accountants, who may also be the
independent public accountants regularly retained by it, with semi-annual
earnings statements prepared by its accountants, with balance sheets at
least on a semi-annual basis, and from time to time with such additional
information regarding its financial condition as the Distributor may
reasonably request.
11. As used in this agreement, the term "registration statement" shall
mean and include the registration statement with respect to shares of Fund
capital stock which became effective under the Act on April 28, 1959, and
also any other registration statement filed by it under the Act which shall
become effective, in each case including any amendment thereto filed after
the effective date thereof which amendment shall become effective. The Fund
represents that its registration statement under the Act, its Prospectus
and Statement of Additional Information, have been or will be, as the case
may be, prepared substantially in conformity with the requirements of said
Act and the rules and regulations of the Securities and Exchange Commission
thereunder. The Fund further represents and warrants that its registration
statement, Prospectus and Statement of Additional Information contain or
will contain all statements required to be stated therein in accordance
with the Act and the rules and regulations of said Commission, and that all
statements of fact contained or to be contained therein are or will be true
and correct, that none of its registration statement when it shall become
effective, or its Prospectus or its Statement of Additional Information
used, 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 its shares. The Fund
may but shall not be obligated to propose from time to time such amendments
to its registration statement, or amendments or supplements to its
Prospectus and Statement of Additional Information, as, in the light of
future developments, may, in the opinion of its counsel, be necessary in
order to have such documents 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 its shares, but, if it shall not propose
such amendment or amendments within fifteen days after receipt by it of a
written request from the Distributor to do so, the Distributor may, at its
option, terminate this agreement immediately. The Fund shall not file any
amendment to its registration statement, or amendment or supplement to its
4
Prospectus or Statement of Additional Information, without giving the
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Fund's right
to file at any time such amendments to its registration statement, and/or
amendments or supplements to its Prospectus and Statement of Additional
Information, of whatever character, as it may deem advisable, such right
being in all respects absolute and unconditional. The Fund represents and
warrants to the Distributor that any such amendments or supplements
hereafter filed by it will, when it becomes effective, contain all
statements required to be stated therein in accordance with the Act and the
rules and regulations of said Commission, that all statements of fact
contained therein will, when the same shall become effective, be true and
correct and 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 its shares.
12. The Fund agrees to prepare and furnish the Distributor from time to
time copies of its Prospectus and Statement of Additional Information in
the forms as then most recently filed with the Securities and Exchange
Commission, and authorizes the Distributor and dealers to use such
Prospectus and Statement of Additional Information, in the forms furnished,
from time to time, in connection with the sale of its shares. The Fund
agrees to indemnify, defend and hold the Distributor, its several officers
and directors, and any person who controls it within the meaning of Section
15 of the 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) which the Distributor, its officers or directors,
or any such controlling person may incur, under the Act, or under common
law or otherwise, arising out of or based upon any alleged untrue statement
of a material fact contained in its registration statement or prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to make the statements
in either thereof not misleading; provided, however, that Fund's agreement
to indemnify the Distributor, its officers or directors, and any such
controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any statements or representations
made by the Distributor or by its representatives or agents other than such
statements and representations as are contained in Fund's Prospectus or
Statement of Additional Information and in such financial and other
statements as are furnished the Distributor pursuant to paragraphs 10 and
11; and further provided, that in no event shall anything herein contained
be so construed as to protect the Distributor against any liability to the
Fund or its security holders 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 and duties under this agreement. The agreement to
indemnify the Distributor, its officers and directors, and any such
controlling person as aforesaid is expressly conditioned upon the Fund
being notified of any action brought against the Distributor, its officers
or directors, or any such controlling person, such notification to be given
by letter or by telegram addressed to the Fund at its principal office in
Denver, Colorado, and sent by the person against whom such action is
brought, within ten days after the summons or other first legal process
shall have been served. The failure so to notify the Fund of any such
action shall not relieve it from any liability which it may have to the
person against whom such action is brought by reason of any such alleged
untrue statement or
5
omission otherwise than on account of the indemnity agreement contained
in this paragraph 12. The Fund will be entitled to assume the
defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of
good standing chosen by it and approved by the Distributor. In the event
the Fund does elect to assume the defense of any such suit and retain
counsel of good standing approved by the Distributor, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case it does not elect to assume
the defense of any such suit, or in case the Distributor does not approve
the counsel chosen by it, the Fund will reimburse the Distributor, its
officers and directors, or the controlling person or persons named as
defendant or defendants in such suit, for the fees and expenses of any
counsel retained by it or them. The Fund's indemnification agreement
contained in this paragraph 12 and its representations and warranties in
this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Distributor,
its officers and directors, or any controlling person, and shall survive
the delivery of any shares of its capital stock hereunder. This agreement
of indemnity will inure exclusively to the Distributor's benefit, and its
successors, and to the benefit of its officers and directors, and their
respective estates, and to the benefit of any controlling persons and their
successors. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issue and sale of any of its
capital stock.
13. The Distributor agrees to indemnify, defend and hold the Fund, its
several officers and directors, and any person who controls it within the
meaning of Section 15 of the 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) which it, its officers or
directors, or any such controlling person may incur under the Act or under
common law or otherwise; but only to the extent that such liability or
expense incurred by the Fund, its officers or directors, or such
controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained
in information furnished in writing by the Distributor to the Fund for use
in its registration statement, Prospectus or Statement of Additional
Information or shall arise out of or be based upon any alleged omission to
state a material fact in connection with such information required to be
stated therein or necessary to make such information not misleading. The
Distributor's agreement to indemnify the Fund, its officers and directors,
and any such controlling person as aforesaid is expressly conditioned upon
the Distributor being notified of any action brought against the Fund, its
officers or directors, or any such controlling person, such notification to
be given by letter or telegram addressed to the Distributor at its
principal office in Denver, Colorado, and sent by the person against whom
such action is brought, within ten days after the summons or other first
legal process shall have been served. The Distributor shall have a right
to control the defense of such action, with counsel of its own choosing,
satisfactory to the Fund, if such action is based solely upon such alleged
misstatement or omission on Distributor's part and in any other event, the
Distributor or such controlling person shall each have the right to
participate in the defense or preparation of the defense of any such
action. The failure so to notify the Distributor of any such action shall
not relieve it from any liability which it may have to the Fund, its
officers or directors, or to such controlling person by
6
reason by any such untrue statement or omission on its part otherwise
than on account of its indemnity agreement contained in this paragraph 13.
14. No shares of the Fund's capital stock shall be bought or sold by
either the Distributor or the Fund under any of the provision of this
Agreement and no orders for the purchase or sale of such stock hereunder
shall be confirmed or accepted by the Fund if and so long as the
effectiveness of its registration statement, or any necessary amendments
thereto, covering such stock, shall be suspended under any of the
provisions of the Act; provided, however, that nothing in this paragraph 14
contained shall in any way restrict or limit or have any application to or
bearing upon the Fund's obligation to repurchase shares of its capital
stock from any stockholder in accordance with the provisions of its
charter.
15. The Fund agrees to advise the Distributor immediately:
(a) of any request by the Securities and Exchange Commission for
amendments to the Fund's registration statement, Prospectus or
Statement of Additional Information or for additional information,
(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of its
registration statement or the initiation of any proceedings for that
purpose,
(c) of the happening of any event which makes untrue any statement
made in its registration statement or prospectus or which requires the
making of a change in either thereof in order to make the statements
therein not misleading, and
(d) of all action of the Securities and Exchange Commission with
respect to any amendments to its registration statement which may from
time to time be filed with the Securities and Exchange Commission
under the Act.
16. The Distributor is authorized, as agent, to accept offers for resale
to the Fund and to repurchase shares of its capital stock upon such terms
and conditions as the Fund's Board of Directors by resolution shall
determine. At least once on each business day on which the New York Stock
Exchange is open for trading, the Fund shall determine and promptly
thereupon furnish to the Distributor a statement of the price at which such
repurchases may be made during the period or periods specified in such
statement and, upon request, it shall advise the Distributor of the price
at which such repurchase may be made at other times. In so far as they
concern the Fund it agrees to comply with all applicable laws, rules and
regulations, including without limiting the generality of the foregoing,
all rules or regulations made or adopted pursuant to Section 22 of the 1940
Act by the Securities and Exchange Commission or any securities association
registered under the 1934 Act.
17. (a) Subject to the provisions of paragraph 11 hereof, this Agreement
shall continue in effect for a period more than two years from the
date hereof only so long as such continuance is
7
specifically approved at least annually (x) by the Fund's Board of Directors
or by a vote of a majority of its outstanding voting securities (as
defined in the 0000 Xxx) and (y) by the Directors who are not interested
persons of the Fund and who have no direct or indirect financial interest
in the operation of the Plan or in this or any other agreement relating to
the Plan (the "12b-1 Directors"), cast in person at a meeting called for the
purpose of voting on such approval.
(b) This Agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the 12b-1 Directors, or by vote of a
majority of the outstanding voting securities (as defined in the 0000 Xxx)
of Class C shares of the Fund, on not more than 60 days' written notice to
the other party to the Agreement.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
AMERICAN GROWTH FUND, INC.
By________________________
President
AMERICAN GROWTH FUND SPONSORS, INC.
By_______________________
President
8
