DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of this ___ day of _____,
2000, by and between The Arbitrage Funds, a Delaware business trust ("Trust"),
and Quasar Distributors, LLC, a Delaware limited liability company
("Distributor").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company, and
is authorized to issue shares of beneficial interests ("Shares") in separate
series with each such series representing interests in a separate portfolio of
securities and other assets;
WHEREAS, the Trust desires to retain the Distributor as principal
underwriter in connection with the offering and sale of the Shares of each
series listed on Schedule A (as amended from time to time) (the "Funds") to this
Agreement;
WHEREAS, the Distributor is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member of
the National Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, this Agreement has been approved by a vote of the Trust's
board of trustees or directors ("Board") and its disinterested
trustees/directors in conformity with Section 15(c) of the 1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter for
the Trust on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
do hereby agree as follows:
1. APPOINTMENT OF THE DISTRIBUTOR.
The Trust hereby appoints the Distributor as its agent for the sale and
distribution of Shares of the Funds, subject to the terms and for the period set
forth in this Agreement. The Distributor hereby accepts such appointment and
agrees to act hereunder.
2. SERVICES AND DUTIES OF THE DISTRIBUTOR.
(a) The Distributor agrees to sell Shares of the Funds as agent for the
Trust during the term of this Agreement, upon the terms and at the current
offering price (plus sales charge, if any) described in the Prospectus. As used
in this Agreement, the term "Prospectus" shall mean the current prospectus,
including the statement of additional information, as amended or supplemented,
relating to the Funds and included in the currently effective registration
statement or post-effective amendment thereto (the "Registration Statement") of
the Trust under the Securities Act of 1933 (the "1933 Act") and the 0000 Xxx.
(b) During the continuous public offering of Shares of the Funds, the
Distributor will hold itself available to receive orders, satisfactory to the
Distributor, for the purchase of Shares of the Funds and will accept such orders
on behalf of the Trust. Such purchase orders shall be deemed effective at the
time and in the manner set forth in the Prospectus.
(c) The Distributor, with the operational assistance of the Trust's
transfer agent, shall make Shares available through the National Securities
Clearing Corporation's Fund/SERV System.
(d) In connection with all matters relating to this Agreement, the
Distributor agrees to act in conformity with the Trust's Declaration of Trust
and By-Laws and with the instructions of the Board and to comply with the
requirements of the 1933 Act, the 1934 Act, the 1940 Act, the regulations of the
NASD and all other applicable federal or state laws and regulations. The
Distributor acknowledges and agrees that it is not authorized to provide any
information or make any representations other than as contained in the
Prospectus and any sales literature specifically approved by the Trust and the
Distributor.
(e) The Distributor agrees to cooperate with the Trust in the
development of all proposed advertisements and sales literature relating to the
Funds. The Distributor agrees to review all proposed advertisements and sales
literature for compliance with applicable laws and regulations, and shall file
with appropriate regulators those advertisements and sales literature it
believes are in compliance with such laws and regulations. The Distributor
agrees to furnish to the Trust any comments provided by regulators with respect
to such materials and to use its best efforts to obtain the approval of the
regulators to such materials.
(f) The Distributor at its sole discretion may repurchase Shares
offered for sale by shareholders of the Funds. Repurchase of Shares by the
Distributor shall be at the price determined in accordance with, and in the
manner set forth in, the current Prospectus. At the end of each business day,
the Distributor shall notify, by any appropriate means, the Trust and its
transfer agent of the orders for repurchase of Shares received by the
Distributor since the last report, the amount to be paid for such Shares, and
the identity of the shareholders offering Shares for repurchase. The Trust
reserves the right to suspend such repurchase right upon written notice to the
Distributor. The Distributor further agrees to act as agent for the Trust to
receive and transmit promptly to the Trust's transfer agent shareholder requests
for redemption of Shares.
(g) The Distributor may, in its discretion, acting only as principal on
its own behalf, enter into agreements with such qualified broker-dealers as it
may select, in order that such broker-dealers also may sell Shares of the Funds.
The Distributor may pay a portion of any applicable sales charge, or allow a
discount, to a selling broker-dealer, as described in the Prospectus or, if not
described, as agreed upon with the broker-dealer. The Distributor shall include
in the forms of agreement with selling broker-dealers a provision for the
forfeiture by them of their sales charge or discount with respect to Shares sold
by them and redeemed, repurchased or tendered for redemption within seven
business days after the date of confirmation of such purchases.
(h) The Distributor shall devote its best efforts to effect sales of
Shares of the Funds but shall not be obligated to sell any certain number of
Shares.
(i) The Distributor shall prepare reports for the Board regarding its
activities under this Agreement as from time to time shall be reasonably
requested by the Board.
(j) The services furnished by the Distributor hereunder are not to be
deemed exclusive and the Distributor shall be free to furnish similar services
to others so long as its services under this Agreement are not impaired thereby.
The Trust recognizes that from time to time officers and employees of the
Distributor may serve as directors, trustees, officers and employees of other
entities (including investment companies), that such other entities may include
the name of the Distributor as part of their name and that the Distributor or
its affiliates may enter into distribution, administration, fund accounting,
transfer agent or other agreements with such other entities.
3. DUTIES AND REPRESENTATIONS OF THE TRUST.
(a) The Trust represents that it is registered as an open-end
management investment company under the 1940 Act and agrees that it will act in
material conformity with its Declaration of Trust, By-Laws, its Registration
Statement as may be amended from time to time and resolutions and other
instructions of its Board. The Trust agrees to comply in all material respects
with the 1933 Act, the 1940 Act, and all other applicable federal and state laws
and regulations.
(b) The Trust shall take or cause to be taken all necessary action to
register Shares of the Funds under the 1933 Act and to maintain an effective
Registration Statement for such Shares in order to permit the sale of Shares as
herein contemplated. The Trust authorizes the Distributor to use the Prospectus,
in the form furnished to the Distributor from time to time, in connection with
the sale of Shares.
(c) The Trust shall have the right to suspend the sale of Shares of any
Fund at any time in response to conditions in the securities markets or
otherwise, and to suspend the redemption of Shares of any Fund at any time
permitted by the 1940 Act or the rules of the Securities and Exchange Commission
("SEC"). The Trust shall advise the Distributor promptly of any such
determination.
(d) The Trust agrees to advise the Distributor promptly in writing:
(i) of any correspondence or other communication by the SEC or
its staff relating to the Funds, including requests by the SEC for
amendments to the Registration Statement or Prospectus;
(ii) in the event of the issuance by the SEC of any stop-order
suspending the effectiveness of the Registration Statement then in
effect or the initiation of any proceeding for that purpose;
(iii) of the happening of any event which makes untrue any
statement of a material fact made in the Prospectus or which requires
the making of a change in such Prospectus in order to make the
statements therein not misleading; and
(iv) of all actions taken by the SEC with respect to any
amendments to any Registration Statement or Prospectus which may from
time to time be filed with the SEC.
(e) The Trust shall file such reports and other documents as may be
required under applicable federal and state laws and regulations. The Trust
shall notify the Distributor in writing of the states in which the Shares may be
sold and shall notify the Distributor in writing of any changes to such
information.
(f) The Trust agrees to file from time to time such amendments to its
Registration Statement and Prospectus as may be necessary in order that its
Registration Statement and Prospectus will not contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(g) The Trust shall fully cooperate in the efforts of the Distributor
to sell and arrange for the sale of Shares and shall make available to the
Distributor a statement of each computation of net asset value. In addition, the
Trust shall keep the Distributor fully informed of its affairs and shall provide
to the Distributor from time to time copies of all information, financial
statements, and other papers that the Distributor may reasonably request for use
in connection with the distribution of Shares, including, without limitation,
certified copies of any financial statements prepared for the Trust by its
independent public accountants and such reasonable number of copies of the most
current Prospectus, statement of additional information and annual and interim
reports to shareholders as the Distributor may request.
4. COMPENSATION.
(a) For the services provided by the Distributor pursuant to this
Agreement, the Trust shall pay to the Distributor fees as set forth on Schedule
B to this Agreement.
(b) In addition to the compensation payable pursuant to Section 5(a)
and those items set forth in Section 4(a) above, the Trust agrees to reimburse
the Distributor or pay directly, as is appropriate, reasonable out-of-pocket
expenses incurred by the Distributor in connection with activities primarily
intended to result in the sale of Shares, including, without limitation,
typesetting, printing and distribution of Prospectuses and shareholder reports;
production, printing, distribution and placement of advertising and sales
literature and materials; engagement of designers, free-xxxxx writers and public
relations firms; long-distance telephone lines, services and charges; postage;
overnight delivery charges; regulatory filing fees; record retention; and
travel, lodging and meals.
(c) In addition to the amounts paid and/or reimbursed to the
Distributor in accordance with Section 5(a) and (b), the Trust may pay to the
Distributor, on account of activities of the Distributor primarily intended to
result in the sale of Shares, such amounts as may be authorized pursuant to a
distribution plan adopted by the Trust as relates to a Fund under Rule 12b-1
under the 1940 Act. Any such payments may be made only in accordance with the
terms and provisions of any such distribution plan of the Trust and are
contingent upon the continued effectiveness of any such distribution plan.
5. EXPENSES.
(a) The Trust shall bear all costs and expenses in connection with
registration of the Shares with the SEC and related compliance with state
securities laws, as well as all costs and expenses in connection with the
offering of the Shares and communications with shareholders of its Funds,
including but not limited to (i) fees and disbursements of its counsel and
independent public accountants; (ii) costs and expenses of the preparation,
filing, printing and mailing of Registration Statements and Prospectuses and
amendments thereto, as well as related advertising and sales literature, (iii)
costs and expenses of the preparation, printing and mailing of annual and
interim reports, proxy materials and other communications to shareholders of the
Funds; and (iv) fees required in connection with the offer and sale of Shares in
such jurisdictions as shall be selected by the Trust pursuant to Section 3(e)
hereof.
(b) The Distributor shall bear the expenses of registration or
qualification of the Distributor as a dealer or broker under federal or state
laws and the expenses of continuing such registration or qualification. The
Distributor does not assume responsibility for any expenses not expressly
assumed hereunder.
6. INDEMNIFICATION.
(a) The Trust shall indemnify, defend and hold the Distributor, and
each of its present or former members, officers, employees, representatives and
any person who controls or previously controlled the Distributor within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all losses, claims, demands, liabilities, damages and expenses (including
the costs of investigating or defending any alleged losses, claims, demands,
liabilities, damages or expenses and any reasonable counsel fee incurred in
connection therewith) which the Distributor, each of its present and former
members, officers, employees or representatives or any such controlling person,
may incur under the 1933 Act, the 1934 Act, any other statute (including Blue
Sky laws) or any rule or regulation thereunder, or under common law or
otherwise, arising out of or based upon any untrue statement, or alleged untrue
statement of a material fact contained in the Registration Statement or any
Prospectus, as from time to time amended or supplemented, or in any annual or
interim report to shareholders, or in any advertisement or sales literature that
is not the product of the process described in Section 2(e) above, or arising
out of or based upon any omission, or alleged omission, to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Trust's obligation to
indemnify the Distributor and any of the foregoing indemnitees shall not be
deemed to cover any losses, claims, demands, liabilities, damages or expenses
arising out of any untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, Prospectus, annual or
interim report, or any such advertisement or sales literature in reliance upon
and in conformity with information relating to the Distributor and furnished to
the Trust or its counsel by the Distributor for the purpose of, and used in, the
preparation thereof; and provided further that the Trust's agreement to
indemnify the Distributor and any of the foregoing indemnitees shall not be
deemed to cover any liability to the Trust or its shareholders to which the
Distributor would otherwise be subject by reason of its 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
Trust's agreement to indemnify the Distributor, and any of the foregoing
indemnitees, as the case may be, with respect to any action, is expressly
conditioned upon the Trust being notified of such action brought against the
Distributor, or any of the foregoing indemnitees, within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon the Distributor, or such person, such
notification to be given by letter or by telegram addressed to the Trust's
President, but the failure so to notify the Trust of any such action shall not
relieve the Trust from any liability which the Trust may have to the person
against whom such action is brought by reason of any such untrue, or alleged
untrue, statement or omission, or alleged omission, otherwise than on account of
the Trust's indemnity agreement contained in this Section 6(a).
(b) The Trust 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 loss, claim, demand, liability, damage or expense, but if the
Trust elects to assume the defense, such defense shall be conducted by counsel
chosen by the Trust and approved by the Distributor, which approval shall not be
unreasonably withheld. In the event the Trust elects to assume the defense of
any such suit and retain such counsel, the indemnified defendant or defendants
in such suit shall bear the fees and expenses of any additional counsel retained
by them. If the Trust does not elect to assume the defense of any such suit, or
in case the Distributor does not, in the exercise of reasonable judgment,
approve of counsel chosen by the Trust, the Trust will reimburse the indemnified
person or persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by Distributor and them. The Trust's
indemnification agreement contained in Sections 6(a) and 6(b) and the Trust's
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, and each of its present or former directors, officers,
employees, representatives or any controlling person, and shall survive the
delivery of any Shares and the termination of this Agreement. This agreement of
indemnity will inure exclusively to the Distributor's benefit, to the benefit of
each of its present or former members, officers, employees or representatives or
to the benefit of any controlling persons and their successors. The Trust agrees
promptly to notify the Distributor of the commencement of any litigation or
proceedings against the Trust or any of its officers or directors in connection
with the issue and sale of any of the Shares.
(c) The Trust shall not indemnify any person pursuant to this Section 6
unless (i) the court or other body before which the proceeding was brought has
rendered a final decision on the merits that such indemnified person was not
liable by reason of his willful misfeasance, bad faith or gross negligence in
the performance of his duties, or his reckless disregard of obligations and
duties, under this Agreement or, (ii) in the absence of such a decision, a
reasonable determination (based upon a review of the facts) that such
indemnified person was not liable by reason of such conduct has been made by the
vote of a majority of a quorum of trustees of the Trust who are neither
"interested persons" of the Trust nor parties to the proceedings, or by an
independent legal counsel in a written opinion.
(d) The Trust shall advance attorney's fees and other expenses incurred
by any person in defending any claim, demand, action or suit which is the
subject of a claim for indemnification pursuant to this Section 6, so long as:
(i) such person shall undertake to repay all such advances unless it is
ultimately determined that he is entitled to indemnification hereunder; and (ii)
such person shall provide security for such undertaking, or the Trust shall be
insured against losses arising by reason of any lawful advances, or a majority
of a quorum of the disinterested, non-party trustees of the Trust (or an
independent legal counsel in a written opinion) shall determine, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that such person ultimately will be found
entitled to indemnification hereunder.
(e) Distributor shall indemnify, defend and hold the Trust, and each of
its present or former trustees, officers, employees, representatives, and any
person who controls or previously controlled the Trust within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
losses, claims, demands, liabilities, damages and expenses (including the costs
of investigation or defending any alleged losses, claims, demands, liabilities,
damages or expenses, and any reasonable counsel fee incurred in connection
therewith) which the Trust, and each of its present or former trustees,
officers, employees, representatives, or any such controlling person, may incur
under the 1933 Act, the 1934 Act, any other statute (including Blue Sky laws) or
any rule or regulation thereunder, or under common law or otherwise, arising out
of or based upon any untrue, or alleged untrue, statement of a material fact
contained in the Trust's Registration Statement or any Prospectus, as from time
to time amended or supplemented, or in any annual or interim report to
shareholders or in any advertisement or sales literature that is not the product
of the process described in Section 2(e) above, or arising out of or based upon
the omission, or alleged omission, to state therein a material fact required to
be stated therein or necessary to make the statement not misleading, but only if
such statement or omission was made in reliance upon, and in conformity with,
information relating to the Distributor and furnished to the Trust or its
counsel by the Distributor for the purpose of, and used in, the preparation
thereof. The Distributor's agreement to indemnify the Trust and any of the
foregoing indemnitees shall not be deemed to cover any liability to the
Distributor to which the Trust would otherwise be subject by reason of its
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 Distributor's agreement to indemnify the Trust, and
any of the foregoing indemnitees, is expressly conditioned upon the
Distributor's being notified of any action brought against the Trust, and any of
the foregoing indemnitees, such notification to be given by letter or telegram
addressed to the Distributor's President, 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 Trust or such person, but the failure so
to notify the Distributor of any such action shall not relieve the Distributor
from any liability which the Distributor may have to the person against whom
such action is brought by reason of any such untrue, or alleged untrue,
statement or omission, otherwise than on account of the Distributor's indemnity
agreement contained in this Section 6(e).
(f) The 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 loss, claim, demand, liability, damage or expense, but if the
Distributor elects to assume the defense, such defense shall be conducted by
counsel chosen by the Distributor and approved by the Trust, which approval
shall not be unreasonably withheld. In the event the Distributor elects to
assume the defense of any such suit and retain such counsel, the indemnified
defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by them. If the Distributor does not elect to assume
the defense of any such suit, or in case the Trust does not, in the exercise of
reasonable judgment, approve of counsel chosen by the Distributor, the
Distributor will reimburse the indemnified person or persons named as defendant
or defendants in such suit, for the fees and expenses of any counsel retained by
the Trust and them. The Distributor's indemnification agreement contained in
Sections 6(e) and (f) and the Distributor's 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 Trust, and each of its present or
former directors, officers, employees, representatives or any controlling
person, and shall survive the delivery of any Shares and the termination of this
Agreement. This Agreement of indemnity will inure exclusively to the Trust's
benefit, to the benefit of each of its present or former directors, officers,
employees or representative or to the benefit of any controlling persons and
their successors. The Distributor agrees promptly to notify the Trust of the
commencement of any litigation or proceedings against the Distributor or any of
its officers or directors in connection with the issue and sale of any of the
Shares.
7. OBLIGATIONS OF TRUST.
This Agreement is executed by and on behalf of the Trust and the
obligations of the Trust hereunder are not binding upon any of the trustees,
officers or shareholders of the Trust individually but are binding only upon the
Trust and with respect to the Funds to which such obligations pertain.
8. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original agreement but all of which counterparts
shall together constitute but one and the same instrument.
9. GOVERNING LAW.
This Agreement shall be construed in accordance with the laws of the
State of Wisconsin, without regard to conflicts of law principles. To the extent
that the applicable laws of the State of Wisconsin, or any of the provisions
herein, conflict with the applicable provisions of the 1940 Act, the latter
shall control, and nothing herein shall be construed in a manner inconsistent
with the 1940 Act or any rule or order of the SEC thereunder.
10. DURATION AND TERMINATION.
(a) This Agreement shall become effective with respect to each Fund
listed on Schedule A hereof as of the date hereof and, with respect to each Fund
not in existence on that date, on the date an amendment to Schedule A to this
Agreement relating to that Fund is executed. Unless sooner terminated as
provided herein, this Agreement shall continue in effect for one year from the
date hereof. Thereafter, if not terminated, this Agreement shall continue
automatically in effect as to each Fund for successive one-year periods,
provided such continuance is specifically approved at least annually by (i) the
Trust's Board or (ii) the vote of a "majority of the outstanding voting
securities" of a Fund, and provided that in either event the continuance is also
approved by a majority of the Trust's Board who are not "interested persons" of
any party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval.
(b) Notwithstanding the foregoing, this Agreement may be terminated,
without the payment of any penalty, with respect to a particular Fund (i)
through a failure to renew this Agreement at the end of a term, (ii) upon mutual
consent of the parties, or (iii) upon no less than 60 days' written notice, by
either the Trust through a vote of a majority of the members of the Board who
are not "interested persons" of the Trust and have no direct or indirect
financial interest in the operation of this Agreement or by vote of a "majority
of the outstanding voting securities" of a Fund, or by the Distributor. The
terms of this Agreement shall not be waived, altered, modified, amended or
supplemented in any manner whatsoever except by a written instrument signed by
the Distributor and the Trust. This Agreement will automatically terminate in
the event of its assignment.
11. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. Any provision of this Agreement
which may be determined by competent authority to be prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person," and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
12. NOTICE.
Any notice required or permitted to be given by either party to the
other shall be in writing and shall be deemed to have been given when delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested or sent by facsimile transmission to the other party's
principal office. Notice to Quasar Distributors, LLC shall be sent to:
Quasar Distributors, Inc.
Attn: Xxxxxx Xxxxx
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
and notice to the Trust shall be sent to:
Xxxx X. Xxxxxx
Water Island Capital, LLC
000 Xxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first above
written.
THE ARBITRAGE FUNDS QUASAR DISTRIBUTORS, LLC
By: __________________________ By: ______________________________
Title: _______________________ Title: ____________________________
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BY AND BETWEEN
THE ARBITRAGE FUNDS
AND
QUASAR DISTRIBUTORS, LLC
THE ARBITRAGE FUND
SCHEDULE B
TO THE
DISTRIBUTION AGREEMENT
BY AND BETWEEN
THE ARBITRAGE FUNDS
AND
QUASAR DISTRIBUTORS, LLC
FEES
BASIC DISTRIBUTION SERVICES
o Fee at the annual rate of .01 of 1% (one basis point) of the Fund's average
daily net assets, payable monthly in arrears
o Minimum annual fee: first portfolio -- $15,000; each additional
portfolio -- $3,000
ADVERTISING COMPLIANCE REVIEW/NASD FILINGS
o $150 for the first 10 pages; $20 per page thereafter
LICENSING OF INVESTMENT ADVISOR'S STAFF (IF DESIRED)
o $900 per year per Series 7 representative
o All associated NASD and State fees for Registered Representatives, including
license and renewal fees.
