CONSULTING AGREEMENT
AGREEMENT made as of this ____day of ____________, 1997 between Xxxxxxxx
Asset Management LLC ("Xxxxxxxx"), a limited liability corporation, and First
Data Distributors, Inc. ("FDDI"), a Massachusetts corporation.
WHEREAS, Xxxxxxxx serves as investment adviser to certain investment
portfolios or series of one or more open-end management investment companies
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as listed on Schedule A, as such Schedule shall automatically be amended
from time to time (each a "Fund" and collectively the "Funds");
WHEREAS, certain employees of Xxxxxxxx will be registered with the
National Association of Securities Dealers, Inc. ("NASD") as representatives of
FDDI) such persons shall hereinafter be referred to as "Registered
Representatives");
WHEREAS, such Registered Representatives will be wholesaling the Funds'
Shares and will also be actively selling investment advisory services of
Xxxxxxxx, a registered investment adviser to clients;
WHEREAS, Xxxxxxxx and FDDI desire to enter into this Agreement pursuant to
which Xxxxxxxx will perform certain services for FDDI with regard to monitoring
the performance of Registered Representatives and FDDI will perform certain
services for Xxxxxxxx with respect to Shares of each Fund; and
WHEREAS, Xxxxxxxx has agreed to enter into this Agreement as consideration
for FDDI entering into the Distribution Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties agree as follows:
1. SERVICES PROVIDED BY FDDI. FDDI will assist Xxxxxxxx in providing
services with respect to each Fund as may reasonably be requested by Xxxxxxxx
from time to time. At the direction of Xxxxxxxx, specific assignments may
include any of the following:
(a) Legal review and principal sign-off of all Fund marketing
materials and other sales related materials to ensure compliance with the
advertising rules of the relevant regulatory authorities and file such
materials, and obtain such approvals for their use as may be required by
the Securities and Exchange Commission ("SEC"), the NASD or state
securities administrators. FDDI will forward all NASD comments on
marketing materials to Xxxxxxxx;
(b) The forwarding of sales related complaints concerning the
Fund to Xxxxxxxx;
(c) Coordination of registration of the Fund with the National
Securities Clearing Corporation ("NSCC") and filing of required Fund/SERV
reports with NSCC;
(d) The provision of advice and counsel to the Funds with respect
to regulatory matters, including monitoring regulatory and legislative
developments that may affect the Funds and assisting the Funds in routine
regulatory examinations or investigations;
(e) Assistance in the Funds' operations and provision of general
consulting services on a day to day, as needed, basis;
(f) Assistance in the preparation of quarterly board materials with
regard to sales and other distribution related data reasonably requested
by the board;
(g) Preparation of materials for the board supporting the annual
renewal of the Distribution Agreement;
(h) In connection with the foregoing activities, maintenance of an
office facility (which may be in the offices of Xxxxxxxx or a corporate
affiliate); and
(i) In connection with the foregoing activities, the furnishing of
clerical services and internal executive and administrative services,
stationery and office supplies.
FDDI will keep and maintain all books and records relating to its services
in accordance with Rule 3la-1 under the 1940 Act.
2. SERVICES PROVIDED BY XXXXXXXX. In furtherance of the responsibilities
under this Agreement, Xxxxxxxx will:
(a) monitor the performance of the Registered Representatives with
respect to compliance with the NASD's Rules of Conduct, and in particular
the NASD's interpretation of the applicability of Section 3040 of the
NASD's Rules of Conduct to certain activities of persons registered as
representatives with an NASD member and an investment adviser with the
SEC, and who conduct their advisory activities away from the NASD
employer/member as described in the NASD's SPECIAL NOTICE TO MEMBERS
94-44;
(b) cause the registration of the Shares under the Securities Act
of 1933 (the "1933 Act") and the qualification for the Shares for sale in
those states that the Funds may designate;
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(c) monitor or cause the Funds' transfer agent to monitor sales of
Shares with respect to compliance with applicable state securities and
Blue Sky laws;
(d) provide consulting services with regard to such advertising,
marketing and promotional activities as Xxxxxxxx believes reasonable,
including but not limited to (i) development of information, analyses and
reports; (ii) preparing, printing and distributing sales literature
brochures, letters, training materials and dealer guides and all similar
materials and advertisements as defined below; (iii) develop and implement
audio and video advertising programs; and (iv) arrange for the printing
and distribution of prospectuses and reports of the Funds to prospective
shareholders; provided that it is understood that FDDI shall have no
responsibility for strategic planning or development with respect to such
matter. For purposes of this Agreement, "sales literature" and
"advertisements" mean brochures, letters, electronic media, training
materials and dealers' guides materials for oral presentations and all
other similar materials, whether transmitted directly to potential
shareholders or published in print or audio visual media, but does not
include generic materials that do not mention the Funds or the Shares;
(e) submit all consulting related sales literature and
advertisements prepared pursuant to Section l(d) above to FDDI for
legal/compliance review in advance of use, and incorporate such changes as
FDDI may reasonably request therein. FDDI will file such materials and
obtain such approvals for their use as may be required by the SEC, NASD or
state securities commissioners;
(f) identify persons employed by Xxxxxxxx that will become
Registered Representatives and assist FDDI in ascertaining that such
persons meet all requirements established for being a Registered
Representative by the SEC, NASD and relevant state securities commissions;
(g) report sales-related complaints to FDDI and consult with FDDI
concerning the manner in which such complaints will be addressed;
(h) to the extent applicable, cause the Funds' transfer agent to
give necessary information for the presentation of quarterly reports in a
form reasonably satisfactory to FDDI regarding any Rule 12b-1 fees,
front-end sales loads, back-end sales loads and other data regarding sales
and sales loads as required by the 1940 Act or as requested by the board
of trustees of the applicable investment companies listed on Schedule A;
(i) to the extent applicable, cause the Funds' transfer agent to
provide FDDI with all necessary historical information so that FDDI can
calculate the maximum sales charges payable by the Funds pursuant to the
Rules of Conduct of the NASD and the actual sales charges paid by the
Funds; cause the Funds' transfer agent to provide FDDI with all of the
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necessary information so that FDDI can calculate the maximum sales charges
payable by the Funds pursuant to the Rules of Conduct of the NASD and the
actual sales charges paid by the Funds; and cause the Funds' transfer
agent to provide such information in a form satisfactory to FDDI no less
often than monthly for every Fund and on a daily basis for any Fund for
which FDDI determines that the remaining limit is approaching zero;
(j) support or cause the Funds' transfer agent to support the
servicing of the shareholders; in connection therewith the Funds' transfer
agent or Xxxxxxxx will provide one or more persons during normal business
hours to respond to telephone questions concerning the Funds;
(k) provide FDDI with copies of, or access to, any documents that
FDDI may reasonably request and notify FDDI as soon as possible of any
matter materially affecting FDDI's performance of services under this
Agreement;
(l) (i) identify persons to enter into agreements with FDDI for the
solicitation of Fund Shares, such as securities dealers, financial
institutions and other industry professionals such as investment advisers
and estate planning firms (collectively referred to herein as "Selling
Broker Dealers"); (ii) assist FDDI in ascertaining that such persons meet
any requirements established for Selling Broker Dealers by law, the Funds
or FDDI; (iii) request that FDDI enter into selling agreements with each
such Selling Broker Dealer ("Selling Agreements") using a request form
(the "Selling Agent Request Form") substantially similar to the attached
Exhibit B signed by a duly authorized officer or employee of Xxxxxxxx (who
shall be a person listed on Exhibit B until such time as Xxxxxxxx amends
or supplements such list) and Xxxxxxxx will assist in the performance of
the necessary due diligence to determine the qualification of the
prospective Selling Broker Dealer pursuant to clause (ii) above; (iv)
submit such Selling Agent Request Form and all related due diligence
materials that Xxxxxxxx may have to FDDI; (v) assist FDDI in coordinating
the execution of Selling Agreements between FDDI and the Selling Broker
Dealers; and (vi) use its best efforts to insure that no sales are
executed or processed prior to obtaining an executed Selling Agreement
from the Selling Broker Dealer making the sale;
(m) provide administrative support (e.g. telemarketing and
fulfillment services) with regard to, and use its best efforts to monitor
the performance of, the Selling Broker Dealers in their solicitation and
execution of sales of the Shares and all activities related thereto,
including compliance with applicable law, the Selling Agreements and the
multi-class procedures;
(n) use reasonable efforts to monitor the Selling Broker Dealers
and the Registered Representatives in their resolution of as of trades
with respect to Shares of the Funds in order to mitigate the risk of loss
to FDDI and the Funds from such trades;
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(o) report to FDDI, to the extent that Xxxxxxxx is aware, any and
all actions or inactions by any Selling Broker Dealer or Registered
Representative that (i) fail to comply with the terms of any Selling
Agreements; (ii) violate any applicable laws of any governmental
authorities, including the NASD's Rules of Conduct, or (iii) violate any
other agreements or procedures with which such Selling Broker Dealer is
required to comply; and
(p) (i) submit the form of confirmation statement to be used for the
sale of the Shares to FDDI for its approval and provide or cause to be
provided to customers of the Selling Broker Dealers ("Customers") and to
Selling Broker Dealers such confirmations of all transactions in the
Shares as may be required by the 1934 Act and the Selling Agreements; and
(ii) use reasonable efforts to monitor the Fund's transfer agent in its
preparation and mailing of such confirmations regarding the sales of the
Shares and report to FDDI any deficiencies of which Xxxxxxxx is aware in
the transfer agent's performance of such activities.
3. DELIVERY OF DOCUMENTS. In order to assist FDDI in the performance of
its duties, Xxxxxxxx has caused each Fund to furnish FDDI with, or provide FDDI
with access to, each of the following:
(a) Each Fund's most recent Post-Effective Amendment to its
Registration Statement on Form N-lA (the "Registration Statement") under
the Securities Act of 1933, as amended, and under the 1940 Act as filed
with the SEC relating to each Fund's Shares;
(b) Each Fund's most recent Prospectus(es);
(c) Each Fund's most recent Statement(s) of Additional
Information;
(d) Each Fund's most recent annual and semi-annual financial
statements;
(e) Each Fund's most recent filings pursuant to Rule 24f-2/24e-2
under the 1940 Act;
(f) Each Fund's most recent SEC examination letter to the extent
that such information contained in the SEC letter (i) materially affects
FDDI's performance under this Agreement, or (ii) the issues identified in
the letter may result in FDDI incurring any loss, claim, damage or
liability or action in respect thereof; and
(g) The Trust's charter documents and by-laws.
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Xxxxxxxx will furnish FDDI from time to time with copies of, or access to,
all amendments of or supplements to the foregoing. Furthermore, Xxxxxxxx will
provide FDDI with copies of, or access to, any other documents that FDDI may
reasonably request and will notify FDDI as soon as possible of any matter
materially affecting FDDI's performance of its services under this Agreement.
4. COMPENSATION; REIMBURSEMENT OF EXPENSES. Xxxxxxxx shall pay FDDI for
the services provided under this Agreement an annual fee of $10,000 per Fund
payable in equal monthly installments on the first business day of each month.
Compensation under this Agreement shall be calculated and accrued daily and the
amounts of the daily accruals shall be paid monthly in arrears. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees set forth above. In addition, Xxxxxxxx agrees to
reimburse FDDI for FDDI's reasonable out-of-pocket expenses in providing
services hereunder, as mutually agreed to in writing by the parties from time to
time.
5. EFFECTIVE DATE. This Agreement shall become effective with respect to a
Fund as of the date first written above (or, if a particular Fund is not in
existence on that date, on the date FDDI becomes the distributor of the Shares
of such Fund; Schedule A to this Agreement shall be deemed amended to include
such Fund from and after such date).
6. TERM.
(a) This Agreement shall continue for an initial two year period
and shall continue thereafter for successive one year terms unless
terminated pursuant to the provision of sub-section (b) of this Section 6.
(b) This Agreement shall automatically terminate as it relates to
any Fund upon the termination of the Distribution Agreement between such
Fund and FDDI or this Agreement may be terminated with respect to any Fund
at any time without payment of any penalty, upon 60 days' written notice,
by vote of a majority of the Board of Trustees of a Fund. In any event,
the provisions of Section 8 shall survive termination of this Agreement
and continue in full force and effect. Compensation due FDDI and unpaid by
Xxxxxxxx upon such termination shall be immediately due and payable upon
and notwithstanding such termination.
7. STANDARD OF CARE; INDEMNIFICATION AND LIMITATION ON CONSEQUENTIAL
DAMAGES.
(a) Xxxxxxxx will indemnify and hold FDDI harmless from and against
any losses, claims, damages or liabilities, or actions in respect thereof, to
which FDDI may become subject, including amounts paid in settlement with the
prior written consent of Xxxxxxxx, insofar as such losses, claims, damages or
liabilities, or actions with respect thereof, arise out of or result from:
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(i) the failure of Xxxxxxxx to comply with the terms of this
Agreement;
(ii) the failure of any Registered Representative to comply with
the NASD's Rules of Conduct and in particular the NASD's SPECIAL
NOTICE TO MEMBERS 94-44;
(iii) any use of sales materials or advertisements or any oral or
written misrepresentations or any unlawful sales practices
concerning the Shares by a Registered Representative if such
misrepresentations or unlawful sales practices were the direct
result of Xxxxxxxx'x bad faith, willful misfeasance, negligence or
reckless disregard of their duties and obligations under this
Agreement;
(iv) the failure of any Selling Broker Dealer (as referenced in
Exhibit C) to have entered into a Selling Agreement with FDDI prior
to the execution of any sale of Shares of any Fund; and
(v) the failure of any Selling Broker Dealer to comply with the
terms of any Selling Agreement to which it is a party if such
failure to comply was the direct result of Xxxxxxxx'x bad faith,
willful misfeasance, negligence or reckless disregard of its duties
and obligations under this Agreement.
(b) FDDI will indemnify and hold harmless Xxxxxxxx from and against any
losses, claims, damages or liabilities, or actions in respect thereof, to which
Xxxxxxxx may become subject, including amounts paid in settlement with the prior
written consent of FDDI, insofar as such losses, claims, damages or liabilities,
or actions in respect thereof, arise out of or result from:
(i) the failure of FDDI to comply with the terms of this
Agreement;
(ii) the failure of FDDI to comply with the NASD' s Rules of
Conduct;
(iii) any use of sales materials or advertisements or any oral or
written misrepresentations or any unlawful sales practices
concerning the Shares by a Registered Representative if such
misrepresentations or unlawful sales practices were the direct
result of FDDI's bad faith, willful misfeasance, negligence or
reckless disregard of their duties and obligations under this
Agreement; and
(iv) the failure of any Selling Broker Dealer to comply with the
terms of any Selling Agreement to which it is a party if such
failure to comply was the direct result of FDDI's bad faith, willful
misfeasance, negligence or reckless disregard of its duties and
obligations under this Agreement.
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(c) Xxxxxxxx will reimburse FDDI for reasonable legal or other expenses
reasonably incurred by FDDI in connection with investigating or defending
against any such loss, claims, damage, liability or action. Xxxxxxxx shall not
be liable to FDDI for any action taken or omitted by FDDI in bad faith, with
willful misfeasance or negligence or from reckless disregard by FDDI of its
obligations and duties. The indemnities in this Section shall, upon the same
terms and conditions, extend to and inure to the benefit of each of the
directors and officers of FDDI and any person controlling FDDI within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act.
(d) FDDI will reimburse Xxxxxxxx for reasonable legal or other expenses
reasonably incurred by Xxxxxxxx in connection with investigating or defending
against any such loss, claims, damage, liability or action. FDDI shall not be
liable to Xxxxxxxx for any action taken or omitted by Xxxxxxxx in bad faith,
with willful misfeasance or negligence or from reckless disregard by Xxxxxxxx of
its obligations and duties. The indemnities in this Section shall, upon the same
terms and conditions, extend to and inure to the benefit of each of the
directors and officers of Xxxxxxxx and any person controlling Xxxxxxxx within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act.
(e) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO
EVENT SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR LOST PROFITS OR
CONSEQUENTIAL DAMAGES.
8. RECORD RETENTION AND CONFIDENTIALITY. FDDI shall keep and maintain on
behalf of the Funds all books and records which the Funds and FDDI are, or may
be, required to keep and maintain in connection with the services to be provided
hereunder pursuant to any applicable statutes, rules and regulations, including
without limitation Rules 31a-1 and 31a-2 under the 1940 Act. FDDI further agrees
that all such books and records shall be the property of the Funds and to make
such books and records available for inspection by or upon the request of the
Funds, by Xxxxxxxx, or by the SEC at reasonable times and otherwise to keep
confidential all books and records and other information relative to the Funds
and its shareholders; except when requested to divulge such information by duly
constituted authorities or court process.
9. RIGHTS OF OWNERSHIP. All computer programs and procedures developed to
perform the services to be provided by FDDI under this Agreement are the
property of FDDI. All records and other data except such computer programs and
procedures are the exclusive property of the Funds and all such other records
and data will be furnished to Xxxxxxxx and/or the funds in appropriate form as
soon as practicable after termination of this Agreement for any reason.
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10. RETURN OF RECORDS. FDDI may at its option at any time, and shall
promptly upon the demand of Xxxxxxxx and/or the Funds, turn over to Xxxxxxxx
and/or the Funds and cease to retain FDDI's files, records and documents created
and maintained by FDDI pursuant to this Agreement which are no longer needed by
FDDI in the performance of its services or for its legal protection. If not so
turned over to Xxxxxxxx and/or the Funds, such documents and records will be
retained by FDDI for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to Xxxxxxxx
and/or the applicable Fund unless the applicable Fund authorizes in writing the
destruction of such records and documents.
11. REPRESENTATIONS OF XXXXXXXX. Xxxxxxxx represents and warrants that
this Agreement has been duly authorized by Xxxxxxxx and, when executed and
delivered by Xxxxxxxx, will constitute a legal, valid and binding obligation of
Xxxxxxxx, enforceable against Xxxxxxxx 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.
12. REPRESENTATIONS OF FDDI. (a) FDDI represents and warrants that this
Agreement has been duly authorized by FDDI and, when executed and delivered by
FDDI, will constitute a legal, valid and binding obligation of FDDI, enforceable
against FDDI 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.
(b) FDDI further represents and warrants that it is a member of the
NASD and agrees to abide by all of the rules and regulations of the NASD. FDDI
agrees to comply with all applicable federal and state laws, rules and
regulations. FDDI agrees to notify Xxxxxxxx immediately in the event of its
expulsion or suspension by the NASD. Expulsion of FDDI by the NASD will
automatically terminate this Agreement immediately without notice. Suspension of
FDDI by the NASD will terminate this Agreement effective immediately upon
written notice of termination to FDDI from Xxxxxxxx.
13. NOTICES. Any notice provided hereunder shall be sufficiently given
when sent by registered or certified mail to the following:
To Xxxxxxxx:
Xxxxxxxx Asset Management, LLC
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention:
To FDDI:
First Data Distributors, Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxxxx 00000
Attention: President
with a copy to FDDI's Chief Legal Officer
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14. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
15. ASSIGNMENT. This Agreement and the rights and duties hereunder shall
not be assignable by either of the parties hereto except by the specific written
consent of the other party.
16. GOVERNING LAW. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
XXXXXXXX ASSET MANAGEMENT, LLC
By:____________________________________
Name:__________________________________
Title:_________________________________
FIRST DATA DISTRIBUTORS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
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SCHEDULE A
NAME OF FUNDS
-------------
THE POTOMAC FUNDS
-----------------
Potomac Japan/Long Fund
Potomac Japan/Short Fund
Potomac U.S. Plus Fund
Potomac U.S./Short Fund
Potomac OTC Plus Fund
Potomac OTC/Short Fund
Potomac U.S. Government Money Market Fund
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EXHIBIT B
SELLING AGREEMENT REQUEST FORM
To: _________________________________
From: _________________________________
Telephone #:___________________________ Fax #:________________________
PROPOSED SELLING AGENT NAME AND ADDRESS:
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
TYPE OF AGREEMENT (CHECK ONE):
______ Bank Agreement
______ Bank Affiliated Broker-Dealer Agreement
______ Broker-Dealer Agreement
______ Registered Investment Adviser Agreement
_____________________________________________
Authorized Xxxxxxxx Representative
(Attached hereto as Attachment 1 is a list of Authorized Xxxxxxxx
Representatives)
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ATTACHMENT 1
AUTHORIZED XXXXXXXX REPRESENTATIVES
The following individuals are authorized to request the issuance of sales
agreements to clients and/or potential clients of the Potomac Funds:
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EXHIBIT C
Selling Agents That Have Entered Into Selling
Agreements With First Data Distributors, Inc.
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