Exhibit 3(a)
PRINCIPAL UNDERWRITING AGREEMENT
--------------------------------
THIS AGREEMENT is effective on the 24th day of July, 2000 among LINCOLN
LIFE & ANNUITY COMPANY OF NEW YORK ("LNY"), a life insurance company organized
under the laws of the State of New York on behalf of itself and LINCOLN LIFE &
ANNUITY VARIABLE ANNUITY ACCOUNT H OF LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
("Separate Account"), a separate account established by LNY pursuant to the New
York Insurance Law and AMERICAN FUNDS DISTRIBUTORS, INC. ("AFD"), a corporation
organized under the laws of the State of California.
WITNESSETH:
WHEREAS, LNY proposes to issue to the public certain variable annuity
contracts ("Contracts") and has, by resolution of its Board of Directors on July
24, 1996, and by directive of its President on July 24, 1996, authorized the
creation of a segregated investment account in connection therewith; and
WHEREAS, LNY has established the Separate Account for the purpose of
issuing the Contracts and has registered the Separate Account with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940; and
WHEREAS, the Contracts to be issued by LNY are registered with the
Commission for offer and sale to the public, and otherwise are in compliance
with all applicable laws; and
WHEREAS, AFD is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities Dealers,
Inc., and proposes to form a selling group for the distribution of said
Contracts; and
WHEREAS, LNY desires to obtain the services of AFD as principal underwriter
of the Contracts issued by LNY through the Separate Account;
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions set forth herein, and for other good and valuable
consideration, LNY, the Separate Account and AFD hereby agree as follows:
Duties of AFD
1. AFD will form a selling group consisting of broker-dealers appointed by
LNY to distribute the Contracts which are issued by LNY through the Separate
Account and are registered with the Commission for offer and sale to the public.
1
2. AFD will enter into and maintain a dealer agreement with each broker-
dealer joining such selling group ("member"); an executed copy of each will be
provided to LNY. Any such dealer agreement expressly will be made subject to
this Agreement. Any such dealer agreement will provide: (i) that each member
will distribute the Contracts only in those jurisdictions in which the Contracts
are registered or qualified for sale and only through duly licensed registered
representatives of members who are fully licensed with LNY to sell the Contracts
in the applicable jurisdiction(s); (ii) that all applications and initial and
subsequent payments under the Contracts collected by the member will be remitted
promptly by the member to LNY at such address as it may from time to time
designate; and (iii) that each member will comply with all applicable federal
and state laws, rules and regulations.
3. AFD will use reasonable efforts to provide information and marketing
assistance to the members, including preparing and providing members with
advertising materials and sales literature, and providing members with current
Prospectuses of the Contracts and of American Variable Insurance Series (the
"Series"). AFD will use reasonable efforts to ensure that members deliver only
the currently effective Prospectuses of the Contracts and the Series. AFD and
LNY will cooperate in the development of advertising and sales literature, as
requested. AFD will deliver to members, and use reasonable efforts to ensure
that members use, only sales literature and advertising material which conforms
to the requirements of federal and state laws and regulations and which has been
authorized by LNY and AFD. AFD will be responsible for filing sales literature
and advertising material, where necessary, with appropriate securities
regulatory authorities, including the National Association of Securities
Dealers, Inc. AFD will not distribute any Prospectus, sales literature,
advertising material or any other printed matter or material relating to the
contracts or the Series if, to its knowledge, any of the foregoing misstates the
duties, obligations or liabilities of LNY or AFD.
4. AFD shall not be responsible for (i) taking or transmitting
applications for the Contracts; (ii) examining or inspecting risks or approving,
issuing or delivering Contracts; (iii) receiving, collecting or transmitting
premium payments; (iv) assisting in the completion of applications for
contracts; (v) paying sales commissions to licensed broker-dealers and insurance
agents; and (vi) otherwise offering and selling Contracts directly to the
public.
5. AFD will bear all its expenses of providing services under this
Agreement, including the cost of preparing, printing and mailing advertising and
sales literature, and the cost of printing and mailing Series and Contract
Prospectuses which are used for sales purposes, except that AFD shall not bear
the expenses of registering and qualifying shares for Contracts for sale under
federal and state laws and expenses of preparing, printing and mailing
Prospectuses, proxies and shareholder reports to the extent authorized by law.
It is understood that LNY will not be required to bear the cost of preparing,
printing and mailing Series Prospectuses.
6. AFD will furnish to LNY such information with respect to the Series in
such form and signed by such of its officers as LNY may reasonably request, and
will warrant that the statements therein contained when so signed will be true
and correct. AFD will advise LNY immediately of: (a) any request by the
Commission (i) for amendment of the registration statement relating to the
Contracts or the Series or (ii) for additional information; (b) the issuance
2
by the commission of any stop order suspending the effectiveness of the
registration statement of the Contracts or the Series or the initiation of any
proceedings for that purpose; (c) the institution of any proceeding,
investigation or hearing involving the offer or sale of the Contracts or the
Series of which it becomes aware; or (d) the happening of any material event, if
known, which makes untrue any statement made in the registration statement of
the Contracts or the Series or which requires the making of a change therein in
order to make any statement made therein not misleading.
7. AFD will use reasonable efforts to have the Series register for sale
under the Securities Act of 1933 and, as required, under state securities laws,
from time to time as necessary, such additional shares of the Series as may
reasonably be necessary for use as the funding vehicle for the Contracts.
Duties of LNY
-------------
8. LNY or its agent will receive and process applications and premium
payments in accordance with the terms of the Contracts and the current
Prospectuses. All applications for Contracts are subject to acceptance or
rejection by LNY in its sole discretion. LNY will inform AFD of any such
rejection and the reason therefor.
9. LNY will be responsible for filing the Contracts, applications, forms,
sales literature and advertising material, where necessary, with appropriate
insurance regulatory authorities.
10. LNY will furnish to AFD such information with respect to the Separate
Account and the Contracts in such form and signed by such of its officers as AFD
may reasonably request, and will warrant that the statements therein contained
when so signed will be true and correct. LNY will advise AFD immediately of: (a)
any request by the Commission (i) for amendment of the registration statement
relating to the Contracts or the Series or (ii) for additional information; (b)
the issuance by the Commission of any stop order suspending the effectiveness of
the registration statement of the Contracts or the Series or the initiation of
any proceedings for that purpose; (c) the institution of any proceeding,
investigation, hearing or other action involving the offer or sale of the
Contracts or the Series of which it becomes aware; (d) the happening of any
material event, if known, which makes untrue any statement made in the
registration statement of the Contracts or the Series or which requires the
making of a change therein in order to make any statement made therein not
misleading.
11. LNY will use reasonable efforts to register for sale, from time to
time as necessary, additional dollar amounts of the Contracts under the
Securities Act of 1933, and, should it ever be required, under state securities
laws and to file for approval under state insurance laws when necessary and will
maintain the Investment Company Act of 1940 registration of the Separate
Account.
3
12. LNY will pay to members of the selling group such commissions as are
from time to time approved by LNY and set forth in dealer agreements. Such
dealer agreements shall provide for the return of sales commissions by the
members to LNY if the Contracts are tendered for redemption to LNY in accordance
with the "free look" provision in the Contract.
13. LNY will bear its expenses of providing services under this Agreement,
including the cost of preparing (including typesetting costs), printing and
mailing Prospectuses of the Contracts to Contract owners, expenses and fees of
registering or qualifying the Contracts and the Separate Account under federal
or state laws, and any direct expenses incurred by its employees in assisting
AFD in performing its duties hereunder. LNY will pay to AFD such remuneration
for its services and for the services of its salaried employees, and such
reimbursement for its charges and expenses, as may be contained in such schedule
of remuneration as may be adopted and appended to this Agreement from time to
time. (See Schedule A - Commissions to Members and Remuneration to AFD.) Said
Schedule A may be amended from time to time by the mutual written consent of the
undersigned parties; except that AFD may alter the ratio of commissions paid to
dealers and remuneration paid to AFD as set forth in paragraph 26 of this
Agreement. LNY will be responsible for paying all state appointing fees and
associated renewal fees incurred to enable members to sell the Contracts, except
with respect to paying appointment fees for "non-producers." In the event LNY
determines to stop paying the appointment fees for a non-producer, AFD shall be
given the opportunity to pay such fees.
14. Compensation shall be paid in accordance with Schedule A which is
attached to, and hereby incorporated into, this Agreement; provided, however,
that LNY shall not be obligated to pay servicing fees or trail commissions to
members in the event that LNY has not received, or is no longer eligible to
receive, payments under the plan of distribution adopted by the Class 2 Shares
of the Funds of the American Variable Insurance Series pursuant to rule 12b-1
under the Investment Company Act of 1940.
Warranties
----------
15. LNY represents and warrants to AFD that: (i) a registration statement
under the Securities Act of 1933 (File No. 333-38007 for American Legacy III and
File No. 333-38270 for American Legacy III C-Share) and under the Investment
Company Act of 1940 (File No. 811-08441) on Form N-4 with respect to the
Contracts and Separate Accounts has been filed with the Commission in the form
previously delivered to AFD, and copies of any and all amendments thereto will
be forwarded to AFD at the time that they are filed with the Commission; (ii)
the registration statement and any further amendments or supplements thereto
will, when they become effective, conform in all material respects to the
requirements of the Securities Act of 1933 and the Investment Company Act of
1940, and the rules and regulations of the Commission thereunder, and will not
contain any untrue statement of a material fact or omit to state a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statement or omission made in
reliance upon and in conformity with information furnished in writing to LNY by
AFD expressly for use therein; (iii) LNY is validly existing as a
4
stock life insurance company under the laws of the State of New York, with power
(corporate or other) to own its properties and conduct its business as described
in the Prospectus, and has been duly qualified for the transaction of business
under the laws of each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification; (iv) the
Contracts to be issued through the Separate Account have been duly and validly
authorized and, when issued and delivered against payment therefor as provided
in the Prospectuses and in the Contracts, will be duly and validly issued and
will conform to the description of such Contracts contained in the Prospectuses
relating thereto; (v) LNY will not pay commissions to persons who, to the best
of LNY's knowledge, are not appropriately licensed in a manner as to comply with
the state insurance laws; (vi) the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, any statute, any indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which LNY is a party or by which LNY is bound,
LNY's Charter as a stock life insurance company or By-Laws, or any order, rule
or regulation of any court or governmental agency or body having jurisdiction
over LNY or any of its properties; and no consent, approval, authorization or
order of any court or governmental agency or body which has not been obtained by
the effective date of this Agreement is required for the consummation by LNY of
the transactions contemplated by this Agreement; (vii) there are no material
legal or governmental proceedings pending to which LNY or the Separate Account
is a party or of which any property of LNY or the Separate Account is the
subject, other than as set forth in the Prospectus relating to the Contracts,
and other than litigation incident to the kind of business conducted by LNY
which, if determined adversely to LNY, would not individually or in the
aggregate have a material adverse effect on the financial position, surplus or
operations of LNY; and (viii) any information furnished in writing by LNY to AFD
for use in the registration statement of the Series will not result in the
registration statement's failing to conform in all respects to the requirements
of the Securities Act of 1933 and the rules and regulations thereunder or
containing any untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
16. AFD represents and warrants to LNY that: (i) a registration statement
under the Securities Act of 1933 (File No. 2-86838), and under the Investment
Company Act of 1940 (File No. 811-3857) with respect to American Variable
Insurance Series has been filed with the Commission in the form previously
delivered to LNY, and copies of any and all amendments thereto will be forwarded
to LNY at the time that they are filed with the Commission; (ii) the Series'
registration statement and any further amendments or supplements thereto will,
when they become effective, conform in all material respects to the requirements
of the Securities Act of 1933 and the Investment Company Act of 1940, and the
rules and regulations of the Commission thereunder, and will not contain 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;
provided, however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with information
furnished in writing to AFD by LNY expressly for use therein; (iii) the
performance of its duties under this Agreement by AFD will not result in a
breach or violation of any of the terms or provisions or constitute a default
under any statute, any indenture, mortgage, deed of trust, note agreement or
5
other agreement or instrument to which AFD is a party or by which AFD is bound,
the Certificate of Incorporation or By-Laws of AFD, or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
AFD or its property; and (iv) any information furnished in writing by AFD to LNY
for use in the registration statement for the Contracts will not result in the
registration statement's failing to conform in all respects to the requirements
of the Securities Act of 1933 and the rules and regulations thereunder or
containing any untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (v) it is a broker-dealer duly registered with the
Commission pursuant to the Securities Exchange Act of 1934 and a member in good
standing of the National Association of Securities Dealers, Inc. and is in
compliance with the securities laws in those states in which it conducts
business as a broker-dealer; (vi) it will use reasonable efforts to ensure that
no offering, sale or other disposition of the Contracts will be made until it
has been notified by LNY that the subject registration statements have been
declared effective and the Contracts have been released for sale by LNY, and
that such offering, sale or other disposition shall be limited to those
jurisdictions that have approved or otherwise permit the offer and sale of the
Contracts by LNY; and (vii) it will comply with the requirements of state
broker-dealer regulations and the Securities Exchange Act of 1934 as each
applies to AFD and shall conduct its affairs in accordance with the Conduct
Rules of the National Association of Securities Dealers, Inc.
Miscellaneous
-------------
17. AFD makes no representation or warranty regarding the number of
Contracts to be sold by licensed broker-dealers and insurance agents or the
amount to be paid thereunder. AFD does, however, represent that it will actively
engage in its duties under this Agreement on a continuous basis while the
Agreement is in effect and there is an effective registration of the Contracts
and of the Series, or its successor, with the Commission.
18. AFD may act as principal underwriter, sponsor, distributor or dealer
for issuers other than LNY or its affiliates in connection with mutual funds or
insurance products.
LNY may issue through any broker-dealer any insurance contract; however,
LNY will not enter into any agreement with any other organization for the
purpose of distributing the Contracts.
It is understood that shares of American Variable Insurance Series may be
sold to fund insurance contracts of issuers other than LNY or its affiliates or
to other shareholders in accordance with Internal Revenue Code Section 817(h)
and the regulations thereunder.
19. Nothing in this Agreement shall obligate LNY to appoint any member or
registered representative of a member its agent for purposes of the distribution
of the Contracts. Nothing in this Agreement shall be construed as requiring AFD
to effect sales of the Contracts directly to the public or to act as an
insurance agent or insurance broker on behalf of LNY for purposes of state
insurance laws.
6
20. AFD agrees to indemnify LNY (or any control person, shareholder,
director, officer or employee of LNY) for any liability incurred (including
costs relating to defense of any action) arising out of any AFD act or omission
relating to (i) rendering services under this Agreement or (ii) the purchase,
retention or surrender of a Contract by any person or entity; provided, however
that indemnification will not be provided hereunder for any such liability that
results from the willful misfeasance, bad faith or gross negligence of LNY or
from the reckless disregard by LNY of the duties and obligations arising under
this Agreement.
21. LNY agrees to indemnify AFD (or any control person, shareholder,
director, officer or employee of AFD) for any liability incurred (including
costs relating to defense of any action) arising out of any LNY act or omission
relating to (i) rendering services under this Agreement or (ii) the purchase,
retention or surrender of a Contract by any person or entity; provided, however,
that indemnification will not be provided hereunder for any such liability that
results from the willful misfeasance, bad faith or gross negligence of AFD or
from the reckless disregard by AFD of the duties and obligations arising under
this Agreement.
22. This Agreement will terminate automatically upon its assignment, as
that term is defined in the Investment Company Act of 1940. The parties
understand that there is no intention to create a joint venture in the subject
matter of this Agreement. Accordingly, the right to terminate this Agreement and
to engage in any activity not inconsistent with this Agreement is absolute. This
Agreement will terminate, without the payment of any penalty by either party:
(a) at the option of LNY upon six months' advance written notice to AFD; or (b)
at the option of AFD upon six months' advance written notice to LNY; or (c) at
the option of LNY upon institution of formal proceedings against AFD by the
National Association of Securities Dealers, Inc. or by the Commission; or (d) at
the option of AFD upon the institution of formal proceedings against LNY by the
Department of Insurance of a State; or (e) as otherwise provided in the
Investment Company Act of 1940.
23. Each notice required by this Agreement shall be given in writing and
delivered by certified mail-return receipt requested to the following addresses:
LNY:
Xxxx X. Xxxxxxx
Second Vice President
Lincoln Life & Annuity Company of New York
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxx Xxxx 00000
AFD:
Xxxx X. Post, Jr.
Vice President
American Funds Distributors, Inc.
000 Xxxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
7
Either party may change its address for notice by written notice to the other
party.
24. This Agreement shall be subject to the laws of the State of New York
and construed so as to interpret the Contracts as insurance products written
within the business operation of LNY.
25. This Agreement covers and includes all agreements, oral and written
(expressed or implied) between LNY and AFD with regard to the marketing and
distribution of the Contracts, and supersedes any and all Agreements between the
parties with respect to the subject matter of this Agreement; except that this
Agreement shall not affect the operation of any previous agreements entered into
between LNY and AFD unrelated to the subject matter of this Agreement.
26. This Agreement, along with any Schedules attached hereto and
incorporated herein by reference, may be amended from time to time by the mutual
agreement and consent of the undersigned parties, provided such amendment be in
writing and duly executed; except that with respect to any Schedule A, AFD in
its sole discretion, may alter upon written notice to LNY the ratio of member
commissions paid to remuneration paid to AFD. AFD agrees to reimburse LNY any
remuneration previously received to the extent necessary to pay additional
commissions to members due to a retroactive change of this ratio.
27. LNY shall make available to AFD for distribution through an AFD-
formed selling group, at AFD's option, any variable contract type or variable
contract feature issued by LNY through broker-dealers on the same terms and
conditions. LNY shall make available to AFD any proposed variable contract type
to be issued through broker-dealers prior to introduction. AFD shall use its
best efforts to provide wholesaler support for the Contract and any successor
contracts as long as this Agreement, as amended, or similar agreement is in
effect that is at least comparable to the level of support provided by AFD for
non-Lincoln contracts.
8
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be duly executed and attested as follows:
Lincoln Life & Annuity Company of New York on
behalf of itself and Lincoln Life & Annuity Variable
Annuity Account H of Lincoln Life & Annuity
Company of New York
Attest:
/s/ By:
-------------------- ---------------------------
American Funds Distributors, Inc.
Attest:
/s/
--------------------- ---------------------------------
9
SCHEDULE A-I
------------
COMMISSIONS TO MEMBERS AND REMUNERATION TO AFD
----------------------------------------------
1. All Sales of American Legacy III Contracts ("Contracts")
------------------------------------------------------
a) LNY will make direct payment of commissions to members and remuneration
to AFD with respect to all sales of the Contracts according to the
schedule set forth below. Where state law prohibits direct payment to
AFD, payment will be made in accordance with the applicable state law.
LNY will pay AFD 0.65% on all purchase payments made to Contracts and
will pay AFD an additional 0.25% on all purchase payments made to
Contracts for which the member does not qualify for the 0.25% sales
volume allowance described below.
LNY will pay commissions and continuing compensation to members as
specified below based on the compensation option chosen by the member
for a particular Contract.
Contracts with owners under age 81 at the time the purchase payment is
made.
Option Commission as Percentage of Annual Service Annual Service
Schedule Purchase Payment Fee Years 2-7 Fee Years 8+
-------- --------------------------- -------------- --------------
Standard 4.75% 0.25% 0.40%
1 6.00% None 0.25%
2 5.10% 0.25% 0.25%
3 0.75%* 0.25% 0.25%
* LNY will also pay a 0.75% annual continuing commission on Schedule (3).
10
Additional deposits made at or after age 81 and before age 86 to Contracts
issued before age 81.
Option Commission as Percentage of Annual Service Annual Service
Schedule Purchase Payment Fee Years 2-7 Fee Years 8+
-------- --------------------------- -------------- --------------
Standard 2.25% 0.25% 0.40%
1 3.00% None 0.25%
2 2.25% 0.25% 0.25%
3 0.65%* 0.25% 0.25%
* LNY will also pay a 0.65% annual continuing commission on Schedule (3).
Newly-established Contracts with owner issue age at or after age 81 and before
age 86.
Option Commission as Percentage of Annual Service Annual Service
Schedule Purchase Payment Fee Years 2-7 Fee Years 8+
-------- --------------------------- -------------- --------------
Standard 2.25% 0.25% 0.25%
1 3.00% None 0.25%
2 2.25% 0.25% 0.25%
3 0.65%* 0.25% 0.25%
* LNY will also pay a 0.65% annual continuing commission on Schedule (3).
11
Additional deposits made at or after age 86 to Contracts issued before age 86
Option Commission as Percentage of Annual Service Annual Service
Schedule Purchase Payment Fee Years 2-7 Fee Years 8+
-------- --------------------------- -------------- --------------
Standard 1.60% 0.25% 0.25%
1 2.00% None 0.25%
2 1.60% 0.25% 0.25%
3 None* 0.25% 0.25%
* LNY will pay a 0.65% annual continuing commission on additional purchase
payments after age 86 under Schedule (3).
Newly established Contracts with owner issue age at or after age 86
Option Commission as Percentage of Annual Service Annual Service
Schedule Purchase Payment Fee Years 2-7 Fee Years 8+
-------- --------------------------- -------------- --------------
Standard 1.60% 0.25% 0.25%
1 2.00% None 0.25%
2 1.60% 0.25% 0.25%
3 0.50%* 0.25% 0.25%
* LNY will also pay a 0.55% annual continuing commission on Schedule (3).
The service fee and continuing commission will be paid at the end of each
calendar quarter on the quarter ending account value less purchase payments made
in the previous 84 months for schedule (1) and 15 months for schedules (2) and
(3). Service fee payments are subject to the continuation of the plan of
distribution adopted by American Variable Insurance Series, which serves as the
investment vehicle for American Legacy III, and such service fee payments may be
varied or discontinued at any time. Service fees and continuing commissions will
continue to be paid on a particular contract until the contract is surrendered
or annuity benefits begin to be paid under an annuity option.
12
b) LNY will pay an additional .25% sales volume allowance to members
maintaining a sales volume of at least $7,500,000 in the American
Legacy III and American Legacy III C-Share variable annuities in each
calendar year. The allowance will be paid on all purchase payments
received during the calendar year. Payments will be made to members
each calendar quarter after the $7,500,000 sales level is attained.
Members must attain the $7,500,000 sales volume each calendar year to
qualify for additional allowance payments.
c) For members reaching certain sales levels set by AFD and LNY from time
to time, LNY will pay an additional 0.10% continuing commission on the
value of all Contract purchase payments beginning in the second
Contract year. This compensation will be paid at the end of each
calendar quarter and will be calculated as follows: At the end of each
calendar quarter, LNY will calculate and pay, for all eligible
Contracts which have been in force for 15 months or more as of the last
day of the quarter, an amount equal to 0.025% of the quarter ending
account value less any deposits made in the previous 15 months. These
continuing commissions are not paid on Contracts that have been
annuitized.
2. Annuitization
-------------
Upon annuitization of a Contract to which no surrender charges apply:
(1) a continuing commission of 0.80% annually will be paid to members on
statutory reserves for that portion of the Contract which has been
annuitized on a variable basis and which remains annuitized on a
variable basis (i.e. excluding any statutory reserves associated with
post-annuitization transfers from a variable payout status to a fixed
payout status). This amount will be based on the calendar end reserve
amount and paid to members each calendar quarter; and/or
(2) a one time commission of 3.00% will be paid to members on Contract
value which has been annuitized on a fixed basis.
Upon annuitization of a Contract to which no surrender charges apply, LNY will
pay AFD a commission of 0.90% on Contract value which has been annuitized on a
fixed and/or variable basis.
13
SCHEDULE A-II
-------------
COMMISSIONS TO MEMBERS AND REMUNERATION TO AFD
----------------------------------------------
2. All Sales of American Legacy III C-Share Contracts ("Contracts")
----------------------------------------------------------------
a) LNY will make direct payment of commissions to members and remuneration
to AFD with respect to all sales of the Contracts according to the
schedule set forth below. Where state law prohibits direct payment to
AFD, payment will be made in accordance with the applicable state law.
LNY will pay AFD 0.65% on all purchase payments made to Contracts and
will pay AFD an additional 0.25% on all purchase payments made to
Contracts for which the member does not qualify for the 0.25% sales
volume allowance described below.
LNY will pay a commission of 1.75% to members on purchase payments made
to Contracts with owners under age 81 at the time the purchase payment
is made. LNY will pay a commission of 0.75% to members on purchase
payments made to Contracts with owners age 81 or older at the time the
purchase payment is made.
Withdrawals of up to 10% of the account value or 10% of the deposits
made to Contracts, whichever is greater, can be made each Contract year
without resulting in a commission charge back. If withdrawals exceed
this amount, the commissions on the excess amount will be charged back
to dealers as follows: (a) 100% of the commissions paid on any deposits
made within the last 12 months will be charged back first; then (b) 50%
of the commissions paid on any deposits made thirteen to twenty-four
months prior to the withdrawal will be charged back.
In the event of a surrender or annuitization of a purchase payment
within the first 12 months after it is received, dealers agree to
reimburse LNY for the entire amount of the commission paid on such
purchase payment. In the event of a surrender or annuitization of a
purchase payment in the thirteenth month through the twenty-fourth
month after it is received, dealers agree to reimburse LNY for one-half
of the commission paid on such purchase payment. Purchase payments will
be taken out on a first in, first out basis.
b) LNY will pay an annual 0.75% continuing commission and a 0.25% annual
service fee (1.00% in total) to members on the value of all Contract
purchase payments beginning in the second Contract year. This
compensation will be paid at the end of each calendar quarter and will
be calculated as follows: At the end of each calendar quarter, LNY will
calculate and pay, for all Contracts which have been in force for 15
months or more as of the last day of the quarter, an amount equal to
0.25% of the quarter ending account value less any deposits made in the
previous 15 months. These continuing commissions are not paid on
Contracts that have been annuitized.
14
c) LNY will pay an additional annual 0.25% fee to members maintaining a
sales volume of at least $7,500,000 in the American Legacy III and
American Legacy III C-Share variable annuities in each calendar year.
The allowance will be paid on all purchase payments received during the
calendar year. Payments will be made to members every quarter after the
$7,500,000 sales level is attained. Members must attain the $7,500,000
sales volume each calendar year to qualify for the additional allowance
payments.
d) For members reaching certain sales levels set by AFD and LNY from time
to time, LNY will pay an additional 0.10% continuing commission on the
value of all Contract purchase payments beginning in the second
Contract year. This compensation will be paid at the end of each
calendar quarter and will be calculated as follows: At the end of each
calendar quarter, LNY will calculate and pay, for all eligible
Contracts which have been in force for 15 months or more as of the last
day of the quarter, an amount equal to 0.025% of the quarter ending
account value less any deposits made in the previous 15 months. These
continuing commissions are not paid on Contracts that have been
annuitized.
2. Annuitization
-------------
Upon annuitization of a Contract to which no surrender charges apply:
(1) a continuing commission of 1.00% annually will be paid to members on
statutory reserves for that portion of the Contract which has been
annuitized on a variable basis and which remains annuitized on a
variable basis (i.e. excluding any statutory reserves associated with
post-annuitization transfers from a variable payout status to a fixed
payout status). This amount will be based on the calendar end reserve
amount and paid to members each calendar quarter; and/or
(2) a one time commission of 3.00% will be paid to members on Contract
value at the time they are annuitized on a fixed basis.
Upon annuitization of a Contract to which no surrender charges apply, AFD will
receive a commission of 0.90% on Contract value which has been annuitized on a
fixed and/or variable basis.
15
