DISTRIBUTION AGREEMENT
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This Agreement made as of this 5th day of October, 2000 by and between THE
SHEPHERD STREET FUNDS (the "Fund"), a Maryland corporation, SALEM INVESTMENT
COUNSELORS, INC., a North Carolina corporation ("Salem") having its principal
place of business at 480 Shepherd Street, Winston-Salem, North Carolina 27103
and ULTIMUS FUND DISTRIBUTORS, LLC, an Ohio limited liability company
("Distributor").
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, Distributor is a broker-dealer registered with the Securities and
Exchange Commission and a member of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, Salem is an investment advisory firm registered as such with the
Securities and Exchange Commission; and
WHEREAS, the Fund and Salem previously have entered into an "Operating
Services Agreement" dated as of September 30, 1998, authorizing and directing
Salem to provide certain operational and administrative services to the Fund,
and which further authorizes Salem to enter into this Distribution Agreement
(hereafter "Agreement") on behalf of the Fund; and
WHEREAS, Salem and Distributor are desirous of entering into an agreement
providing for the distribution by Distributor of shares of beneficial interest
(the "Shares") of each series of shares of the Fund (the "Series"); and
WHEREAS, Distributor is willing to perform such services on the terms and
conditions set forth in this Agreement; and
WHEREAS, the Fund consents to the appointment of Distributor to perform the
services set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and agreements of the
parties contained herein, the parties agree as follows:
1. Appointment.
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Salem hereby appoints Distributor as the Fund's exclusive agent for the
distribution of the Shares, and Distributor hereby accepts such appointment
under the terms of this Agreement. While this Agreement is in force, the
Fund shall not sell any Shares except on the terms set forth in this
Agreement. Notwithstanding any other provision hereof, the Fund may
terminate, suspend or withdraw the offering of Shares whenever, in its sole
discretion, it deems such action to be desirable.
2. Sale and Repurchase of Shares.
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(a) Distributor will have the right, as agent for the Fund, to enter into
dealer agreements with responsible investment dealers, and to sell
Shares to such investment dealers against orders therefor at the
public offering price (as defined in subparagraph 2(d) hereof) stated
in the Fund's effective Registration Statement on Form N-1A under the
Act and the Securities Act of 1933, as amended, including the then
current prospectus and statement of additional information (the
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"Registration Statement"). Upon receipt of an order to purchase Shares
from a dealer with whom Distributor has a dealer agreement,
Distributor will promptly cause such order to be filled by the Fund.
(b) Distributor will also have the right, as agent for the Fund, to sell
such Shares to the public against orders therefor at the public
offering price.
(c) Distributor will also have the right to take, as agent for the Fund,
all actions which, in Distributor's reasonable judgment, are necessary
to carry into effect the distribution of the Shares.
(d) The public offering price for the Shares of each Series shall be the
respective net asset value of the Shares of that Series then in
effect, plus any applicable sales charge, determined in the manner set
forth in the Registration Statement or as permitted by the Act and the
rules and regulations of the Securities and Exchange Commission
promulgated thereunder. In no event shall any applicable sales charge
exceed the maximum sales charge permitted by the Rules of the NASD.
(e) The net asset value of the Shares of each Series shall be determined
in the manner provided in the Registration Statement, and when
determined shall be applicable to transactions as provided for in the
Registration Statement. The net asset value of the Shares of each
Series shall be calculated by the Fund or by another entity on behalf
of the Fund. Distributor shall have no duty to inquire into or
liability for the accuracy of the net asset value per Share as
calculated.
(f) On every sale, the Fund shall receive the applicable net asset value
of the Shares promptly, but in no event later than the third business
day following the date on which Distributor shall have received an
order for the purchase of the Shares.
(g) Upon receipt of purchase instructions, Distributor will transmit such
instructions to the Fund or its transfer agent for registration of the
Shares purchased.
(h) Nothing in this Agreement shall prevent Distributor or any affiliated
person (as defined in the Act) of Distributor from acting as
distributor for any other person, firm or corporation (including other
investment companies) or in any way limit or restrict Distributor or
any such affiliated person from buying, selling or trading any
securities for its or their own account or for the accounts of others
from whom it or they may be acting; provided, however, that
Distributor expressly represents that it will undertake no activities
which, in its reasonable judgment, will adversely affect the
performance of its obligations to the Fund under this Agreement.
(i) Distributor, as agent of and for the account of the Fund, may
repurchase the Shares at such prices and upon such terms and
conditions as shall be specified in the Registration Statement.
3. Sale of Shares by the Fund.
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The Fund reserves the right to issue any Shares at any time directly to the
holders of Shares ("Shareholders"), to sell Shares to its Shareholders or
to other persons at not less than net asset value and to issue Shares in
exchange for substantially all the assets of any corporation or trust or
for the shares of any corporation or trust.
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4. Basis of Sale of Shares.
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Distributor does not agree to sell any specific number of Shares.
Distributor, as agent for the Fund, undertakes to sell Shares on a best
efforts basis only against orders therefor.
5. Rules of NASD, etc.
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(a) Distributor will conform to the Rules of the NASD and the securities
laws of any jurisdiction in which it sells, directly or indirectly,
any Shares.
(b) Distributor will require each dealer with whom Distributor has a
dealer agreement to conform to the applicable provisions hereof and
the Registration Statement with respect to the public offering price
of the Shares, and neither Distributor nor any such dealers shall
withhold the placing of purchase orders so as to make a profit
thereby.
(c) Distributor agrees to furnish to the Fund sufficient copies of any
agreements, plans or other materials it intends to use in connection
with any sales of Shares in reasonably adequate time for the Fund to
file and clear them with the proper authorities before they are put in
use, and not to use them until so filed and cleared.
(d) Distributor, at its own expense, will qualify as dealer or broker, or
otherwise, under all applicable state or federal laws required in
order that Shares may be sold in such States as may be mutually agreed
upon by the parties.
(e) Distributor shall not make, or permit any representative, broker or
dealer to make, in connection with any sale or solicitation of a sale
of the Shares, any representations concerning the Shares except those
contained in the then current prospectus and statement of additional
information covering the Shares and in printed information approved by
the Fund as information supplemental to such prospectus and statement
of additional information. Copies of the then effective prospectus and
statement of additional information and any such printed supplemental
information will be supplied by the Fund to Distributor in reasonable
quantities upon request.
6. Records to be supplied by Fund.
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The Fund shall furnish to Distributor copies of all information, financial
statements and other papers which Distributor may reasonably request for
use in connection with the distribution of the Shares, and this shall
include, but shall not be limited to, one certified copy, upon request by
Distributor, of all financial statements prepared for the Fund by
independent public accountants.
7. Fees and Expenses.
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For performing its services under this Agreement, Distributor will receive
a fee from Salem in accordance with agreements between them as permitted by
applicable laws, including the Act and rules and regulations promulgated
thereunder. The fee is $6,000 per annum, and shall be paid on a monthly
basis. Salem shall promptly reimburse Distributor for any expenses that are
to be paid by the Fund in accordance with the following paragraph.
In the performance of its obligations under this Agreement, Distributor
will pay only the costs incurred in qualifying as a broker or dealer under
state and federal laws and in establishing and maintaining its
relationships with the dealers selling the Shares. All other costs in
connection with the offering of the Shares will be paid by the Fund or
Salem in accordance with agreements between
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them as permitted by applicable laws, including the Act and rules and
regulations promulgated thereunder. These costs include, but are not
limited to, licensing fees, filing fees (including NASD), travel and such
other expenses as may be incurred by Distributor on behalf of the Fund.
8. Indemnification of Fund.
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Distributor agrees to indemnify and hold harmless the Fund and each person
who has been, is, or may hereafter be a Director, officer, employee,
shareholder or control person of the Fund against any loss, damage or
expense (including the reasonable costs of investigation) and reasonable
attorneys' fees reasonably incurred by any of them in connection with any
claim or in connection with any action, suit or proceeding to which any of
them may be a party, which arises out of or is alleged to arise out of or
is based upon any untrue statement or alleged untrue statement of a
material fact, or the omission or alleged omission to state a material fact
necessary to make the statements not misleading, on the part of Distributor
or any agent or employee of Distributor or any other person for whose acts
Distributor is responsible, unless such statement or omission was made in
reliance upon written information furnished by the Fund. Distributor
likewise agrees to indemnify and hold harmless the Fund and each such
person in connection with any claim or in connection with any action, suit
or proceeding which arises out of or is alleged to arise out of
Distributor's failure to exercise reasonable care and diligence with
respect to its services, if any, rendered in connection with investment,
reinvestment, automatic withdrawal and other plans for Shares. The
Distributor will advance attorneys' fees or other expenses incurred by any
such person in defending a proceeding, upon the undertaking by or on behalf
of such person to repay the advance if it is ultimately determined that
such person is not entitled to indemnification. The term "expenses" for
purposes of this and the next paragraph includes amounts paid in
satisfaction of judgments or in settlements which are made with
Distributor's consent. The foregoing rights of indemnification shall be in
addition to any other rights to which the Fund or each such person may be
entitled as a matter of law.
9. Indemnification of Distributor.
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The Fund and Salem each agree to indemnify and hold harmless Distributor
and each person who has been, is, or may hereafter be a director, officer,
employee, shareholder or control person of Distributor against any loss,
damage or expense (including the reasonable costs of investigation)
reasonably incurred by any of them in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or negligence, including clerical errors and mechanical failures,
on the part of any of such persons in the performance of Distributor's
duties or from the reckless disregard by any of such persons of
Distributor's obligations and duties under this Agreement, for all of which
exceptions Distributor shall be liable to the Fund. Salem will advance
attorneys' fees or other expenses incurred by any such person in defending
a proceeding, upon the undertaking and procurement of bond sufficient to
Salem by or on behalf of such person to repay the advance if it is
ultimately determined that such person is not entitled to indemnification.
In order that the indemnification provisions contained in this Paragraph 9
shall apply, it is understood that if in any case the Fund or Salem may be
asked to indemnify Distributor or any other person or hold Distributor or
any other person harmless, the Fund or Salem, as applicable, shall be fully
and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that Distributor will use all
reasonable care to identify and notify the Fund or Salem, as applicable,
promptly concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification against the
Fund or Salem, as applicable,. The Fund or Salem, as applicable, shall have
the option to defend Distributor and any such person against any claim
which may be the subject of this indemnification, and in the event that the
Fund or Salem, as applicable, so elects it will so notify Distributor, and
thereupon the Fund or Salem, as applicable,
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shall take over complete defense of the claim, and neither Distributor nor
any such person shall in such situation initiate further legal or other
expenses for which it shall seek indemnification under this Paragraph 9.
Distributor shall in no case confess any claim or make any compromise in
any case in which the Fund or Salem, as applicable, will be asked to
indemnify Distributor or any such person except with the Fund's written
consent.
Notwithstanding any other provision of this Agreement, Distributor shall be
entitled to receive and act upon advice of counsel (who may be counsel for
the Fund or its own counsel) and shall be without liability for any action
reasonably taken or thing reasonably done pursuant to such advice, provided
that such action is not in violation of applicable federal or state laws or
regulations.
10. Representations of the Parties.
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(a) The Fund certifies to Distributor that: (1) as of the date of the
execution of this Agreement, each Series that is in existence as of
such date has authorized an indefinite number of shares, and (2) this
Agreement has been duly authorized by the Fund and, when executed and
delivered by the Fund, will constitute a legal, valid and binding
obligation of the Fund, enforceable against the Fund 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) Salem certifies to Distributor that: (1) Salem is authorized under its
Operating Services Agreement with the Fund to enter into this
Agreement; (2) this Agreement has been duly authorized by Salem and,
when executed and delivered by Salem, will constitute a legal, valid
and binding obligation of Salem, enforceable against Salem 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.
(c) Ultimus represents and warrants that: (1) the various procedures and
systems which Ultimus has implemented with regard to safeguarding from
loss or damage attributable to fire, theft, or any other cause the
records and other data of the Fund and Distributor's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes
therein from time to time as are required for the secure performance
of its obligations hereunder, and (2) this Agreement has been duly
authorized by Distributor and, when executed and delivered by
Distributor, will constitute a legal, valid and binding obligation of
Distributor, enforceable against Distributor 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.
11. Termination and Amendment of this Agreement.
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This Agreement shall automatically terminate, without the payment of any
penalty, in the event of its assignment. This Agreement may be amended only
if such amendment is approved (i) by Distributor, (ii) either by action of
the Board of Directors of the Fund or at a meeting of the Shareholders of
the Fund by the affirmative vote of a majority of the outstanding Shares,
and (iii) by a majority of the Directors of the Fund who are not interested
persons of the Fund or of Distributor by vote cast in person at a meeting
called for the purpose of voting on such approval.
Either the Fund, Salem or Distributor may at any time terminate this
Agreement on sixty (60) days' written notice delivered or mailed by
registered mail, postage prepaid, to the other party.
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12. Effective Period of this Agreement.
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This Agreement shall take effect upon its execution and shall remain in
full force and effect for a period of two (2) years from the date of its
execution (unless terminated automatically as set forth in Section 11), and
from year to year thereafter, subject to annual approval (i) by
Distributor, (ii) by the Board of Directors of the Fund or a vote of a
majority of the outstanding Shares, and (iii) by a majority of the
Directors of the Fund who are not interested persons of the Fund or of
Distributor by vote cast in person at a meeting called for the purpose of
voting on such approval.
13. New Series.
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The terms and provisions of this Agreement shall become automatically
applicable to any additional Series of the Fund established during the
initial or renewal term of this Agreement.
14. Successor Investment Company.
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Unless this Agreement has been terminated in accordance with Paragraph 11,
the terms and provisions of this Agreement shall become automatically
applicable to any investment company which is a successor to the Fund as a
result of reorganization, recapitalization or change of domicile.
15. Severability.
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In the event any provision of this Agreement is determined to be void or
unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
16. Questions of Interpretation.
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(a) This Agreement shall be governed by the laws of the State of Ohio.
(b) Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or
provision of the Act and to interpretation thereof, if any, by the
United States courts or in the absence of any controlling decision of
any such court, by rules, regulations or orders of the Securities and
Exchange Commission issued pursuant to said Act. In addition, where
the effect of a requirement of the Act, reflected in any provision of
this Agreement is revised by rule, regulation or order of the
Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
17. Notices.
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Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other parties, with a copy to the
Fund's counsel, at such address as such other party may designate for the
receipt of such notice. Such notice will be effective upon receipt. Until
further notice to the other party, it is agreed that the address of the
Fund and Salem for this purpose shall be 480 Shepherd Street,
Winston-Salem, North Carolina 27103 and that the address of Distributor for
this purpose shall be 135 Merchant Street, Suite 230, Cincinnati, Ohio
45246.
18. Execution
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This Agreement may be executed by one or more counterparts, each of which
shall be deemed an original, but all of which together will constitute one
in the same instrument.
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IN WITNESS WHEREOF, the Fund, Salem and Distributor have each caused this
Agreement to be signed in duplicate on their behalf, all as of the day and year
first above written.
ATTEST: THE SHEPHERD STREET FUNDS
/s/ Jeffrey C. Howard By: /s/ David B. Rea
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Name:
Its: President
ATTEST: ULTIMUS FUND DISTRIBUTORS, LLC
/s/ Sue A. Pilcher By: /s/ Robert G. Dorsey
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Name: Robert G. Dorsey
Its: President
ATTEST: SALEM INVESTMENT COUNSELORS, INC.
/s/ Jeffrey C. Howard By: /s/ David B. Rea
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Name:
Title: President
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