Exhibit 3
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made this __________________ day of _________________________, 1997
by and between State Farm Life Insurance Company, an Illinois corporation
("State Farm"), on its behalf and on behalf of each separate account identified
in Schedule 1 hereto, and State Farm VP Management Corp.("Distributor"), a
Delaware corporation.
WITNESSETH
----------
WHEREAS, Distributor is a broker-dealer that engages in the distribution of
variable insurance products and may engage in the distribution of other
investment products;
WHEREAS, State Farm desires to issue certain variable insurance products
described more fully below to the public through Distributor acting as principal
underwriter and distributor; and
WHEREAS, State Farm and Distributor acknowledge that Distributor may
distribute variable insurance products and other investment products for other
companies.
NOW, THEREFORE, in consideration of their mutual promises, State Farm and
Distributor hereby agree as follows:
1. Definitions
-----------
a. Contracts -- The class or classes of variable insurance products set
---------
forth on Schedule 2 to this Agreement as in effect at the time this
Agreement is executed, and such other classes of variable insurance
products that may be added to Schedule 2 from time to time in
accordance with Section 10.b of this Agreement, and including any
riders to such contracts and any other contracts offered in connection
therewith. For this purpose and under this Agreement generally, a
"class of Contracts" shall mean those Contracts issued by State Farm
on the same policy form or forms and covered by the same Registration
Statement.
b. Registration Statement -- At any time that this Agreement is in
----------------------
effect, each currently effective registration statement filed with the
SEC under the 1933 Act on a prescribed form, or currently effective
post-effective amendment thereto, as the case may be, relating to a
class of Contracts, including financial statements included in, and
all exhibits to, such registration statement or post-effective
amendment. For purposes of Section 8 of this Agreement, the term
"Registration Statement" means any document which is or at any time
was a Registration Statement within the meaning of this Section 1.b.
c. Prospectus -- The prospectus included within a Registration Statement,
----------
except that, if the most recently filed version of the prospectus
(including any supplements thereto) filed pursuant to Rule 497 under
the 1933 Act subsequent to the date on which a Registration Statement
became effective differs from the prospectus included within such
Registration Statement at the time it became effective, the term
"Prospectus" shall refer to the most recently filed prospectus filed
under Rule 497 under the 1933 Act, from and after the date on which it
shall have been filed. For purposes of Section 8 of this Agreement,
the term "any Prospectus" means any document which is or at any time
was a Prospectus within the meaning of this Section 1.c.
d. Fund -- An investment company in which the Separate Account invests.
----
e. Variable Account -- A separate account supporting a class or classes
----------------
of Contracts and specified on Schedule 1 as in effect at the time this
Agreement is executed, or as it may be amended from time to time in
accordance with Section 10.b of this Agreement.
f. 1933 Act -- The Securities Act of 1933, as amended.
--------
g. 1934 Act -- The Securities Exchange Act of 1934, as amended.
--------
h. 1940 Act -- The Investment Company Act of 1940, as amended.
--------
i. SEC -- The Securities and Exchange Commission.
---
j. NASD -- The National Association of Securities Dealers, Inc.
----
k. Representative -- An individual who is an associated person of
--------------
Distributor, as that term is defined in the 1934 Act.
l. Application -- An application for a Contract.
-----------
m. Premium -- A payment made under a Contract by an applicant or
-------
purchaser to purchase benefits under the Contract.
2. Authorization and Appointment
-----------------------------
a. Scope of Authority. State Farm hereby authorizes Distributor on an
-------------------
exclusive basis, and Distributor accepts such authority, subject to
the registration requirements of the 1933 Act and the 1940 Act and
the provisions of the 1934 Act and conditions herein, to be the
distributor and principal underwriter for the sale of the Contracts to
the public in each state and other jurisdiction in which the
-2-
Contracts may lawfully be sold during the term of this Agreement. The
Contracts shall be offered for sale and distribution at Premium rates
set from time to time by State Farm. Distributor shall use its best
efforts to market the Contracts actively subject to compliance with
applicable law, including the rules of the NASD. However, Distributor
shall not be obligated to sell any specific number or amount of
Contracts. Also, the parties acknowledge and agree that Distributor
may distribute variable insurance products and other investment
products for other companies. Completed applications for Contracts
shall be transmitted directly to State Farm for acceptance or
rejection in accordance with the underwriting rules established by
State Farm.
b. Limits on Authority. Distributor shall act as an independent
--------------------
contractor and nothing herein contained shall constitute Distributor
or its agents, officers or employees as agents, officers or employees
of State Farm solely by virtue of their activities in connection with
the sale of the Contracts hereunder. Distributor and its
Representatives shall not have authority, on behalf of State Farm: to
make, alter or discharge any Contract or other insurance policy or
annuity entered into pursuant to a Contract; to waive any Contract
forfeiture provision; to extend the time of paying any Premium; or to
receive any monies or Premiums (except for the sole purpose of
forwarding monies or Premiums to State Farm). Distributor shall not
expend, nor contract for the expenditure of, the funds of State Farm.
Distributor shall not possess or exercise any authority on behalf of
State Farm other than that expressly conferred on Distributor by this
Agreement.
3. Solicitation Activities
-----------------------
a. Representatives. No Representative shall solicit the sale of a
----------------
Contract unless at the time of such solicitation such individual is
duly registered with the NASD and duly licensed with all applicable
state insurance and securities regulatory authorities, and is duly
appointed as an insurance agent of State Farm.
b. Solicitation Activities. All solicitation and sales activities
------------------------
engaged in by Distributor and its Representatives with respect to the
Contracts shall be in compliance with all applicable federal and state
securities laws and regulations, as well as all applicable insurance
laws and regulations, and compliance manuals provided by State Farm.
In particular, without limiting the generality of the foregoing:
(1) Distributor shall train, supervise and be solely responsible for
the conduct of Representatives in their solicitation of
applications and Premiums and distribution of the Contracts
under, and shall supervise their compliance with, applicable
rules and regulations of any securities regulatory agencies that
have jurisdiction over variable insurance product activities.
-3-
(2) Neither Distributor nor any Representative shall offer, attempt
to offer, or solicit Applications for, the Contracts or deliver
the Contracts, in any state or other jurisdiction unless State
Farm has notified Distributor that such Contracts may lawfully be
sold or offered for sale in such state, and has not subsequently
revised such notice.
(3) Neither Distributor nor any Representative shall give any
information or make any representation in regard to a class of
Contracts in connection with the offer or sale of such class of
Contracts that is not in accordance with the Prospectus for such
class of Contracts, or in the then-currently effective prospectus
or statement of additional information for a Fund, or in current
advertising materials for such class of Contracts authorized by
State Farm.
(4) All Premiums paid by check or money order that are collected by
Distributor or any of its Representatives shall be remitted
promptly, and in any event within two business days after receipt
in full, together with any Applications, forms and any other
required documentation, to State Farm. Checks or money orders in
payment of Premiums shall be drawn to the order of "State Farm
Life Insurance Company." If any Premium is held at any time by
Distributor, Distributor shall hold such Premium in a fiduciary
capacity and such Premium shall be remitted promptly, and in any
event within two business days, to State Farm. Distributor
acknowledges that all such Premiums, whether by check, money
order or wire, shall be the property of State Farm. Distributor
acknowledges that State Farm shall have the unconditional right
to reject, in whole or in part, any Application or Premium.
c. Suitability. State Farm and Distributor wish to ensure that the
------------
Contracts sold by Distributor will be issued to purchasers for whom
the Contracts are suitable. Distributor shall require that the
Representatives have reasonable grounds to believe that a
recommendation to an applicant to purchase a Contract is suitable for
that applicant. Distributor shall review all applications for
suitability in accordance with Rule 2310 of the NASD Conduct Rules and
interpretations and guidance relating thereto. State Farm will review
all applications under the suitability standards set forth in variable
life insurance regulations adopted by states where the Contracts are
sold, and standards adopted by State Farm or as set forth in
compliance and operational manuals. While not limited to the
following, a determination of suitability shall be based on
information furnished to a Representative after reasonable inquiry of
the applicant concerning his or her financial status, retirement
needs, reasons for purchasing a Contract, investment sophistication
and experience, other securities holdings, investment objectives
(including risk tolerance), investment time horizon and tax status.
-4-
d. Representations and Warranties of Distributor. Distributor represents
----------------------------------------------
and warrants to State Farm that Distributor is and during the term of
this Agreement shall remain registered as a broker-dealer under the
1934 Act, admitted as a member with the NASD, and duly registered
under applicable state securities laws, and that Distributor is and
shall remain during the term of this Agreement in compliance with
Section 9(a) of the 0000 Xxx.
4. Marketing Materials
-------------------
a. Preparation and Filing. State Farm and Distributor shall together
-----------------------
design and develop all promotional, sales and advertising material
relating to the Contracts and any other marketing-related documents
for use in the sale of the Contracts, subject to review and approval
by Distributor of such material and documents in accordance with
Section 2210 of the NASD Conduct Rules. Distributor shall be
responsible for filing such material with the NASD and any state
securities regulatory authorities requiring such filings. State Farm
shall be responsible for filing all promotional, sales or advertising
material, as required, with any state insurance regulatory
authorities. State Farm shall be responsible for preparing the
Contract forms and filing them with applicable state insurance
regulatory authorities, and for preparing the Prospectuses and
Registration Statements and filing them with the SEC and state
regulatory authorities, to the extent required. The parties shall
notify each other expeditiously of any comments provided by the SEC,
NASD or any securities or insurance regulatory authority on such
material, and will cooperate expeditiously in resolving and
implementing any comments, as applicable.
b. Use in Solicitation Activities. State Farm shall be responsible for
-------------------------------
furnishing Distributor with such Applications, Prospectuses and other
materials for use by Distributor and Representatives in their
solicitation activities with respect to the Contracts. State Farm
shall notify Distributor of those states or jurisdictions which
require delivery of a statement of additional information with a
Prospectus to a prospective purchaser. Distributor or its
Representatives shall not use any promotional, sales or advertising
materials that have not been approved by State Farm.
5. Compensation and Expenses
-------------------------
a. State Farm shall pay compensation for sales of the Contracts in
accordance with the schedules to the Registered Representatives
Agreements attached hereto, as revised from time to time by
Distributor.
b. State Farm shall pay all expenses, except for commissions to
Representatives, in connection with the variable products including,
but not limited to, the preparation
-5-
and filing of the Contracts, Registration Statements, and promotional
materials. State Farm will pay commissions to the Representatives as
paying agent on behalf of Distributor and will maintain the books and
records reflecting such payments in accordance with the requirements
of the 1934 Act on behalf of Distributor.
6. Compliance
----------
a. Maintaining Registration and Approvals. State Farm shall be
---------------------------------------
responsible for maintaining the registration of the Contracts with the
SEC and any state securities regulatory authority with which such
registration is required, and for gaining and maintaining approval of
the Contract forms where required under the insurance laws and
regulations of each state or other jurisdiction in which the Contracts
are to be offered.
b. Confirmations and 1934 Act Compliance. State Farm, as agent for
--------------------------------------
Distributor, shall confirm to each applicant for and purchaser of a
Contract in accordance with Rule 10b-10 under the 1934 Act acceptance
of Premiums and such other transactions as are required by Rule 10b-10
or administrative interpretations thereunder. State Farm shall
maintain and preserve books and records with respect to such
confirmations in conformity with the requirements of Rules 17a-3 and
17a-4 under the 1934 Act to the extent such requirements apply. The
books, accounts and records of State Farm, the Variable Account and
Distributor as to all transactions hereunder shall be maintained so as
to disclose clearly and accurately the nature and details of the
transactions. State Farm shall maintain, as agent for Distributor,
such books and records of Distributor pertaining to the offer and sale
of the Contracts and required by the 1934 Act as may be mutually
agreed upon by State Farm and Distributor, including but not limited
to maintaining a record of Representatives and of the payment of
commissions and other payments or service fees to Representatives. In
addition, State Farm, as agent for Distributor, shall maintain and
preserve such additional accounts, books and other records as are
required of State Farm and Distributor by the 1934 Act. State Farm
shall maintain all such books and records and hold such books and
records on behalf of and as agent for Distributor whose property they
are and shall remain, and acknowledges that such books and records are
at all times subject to inspection by the SEC in accordance with
Section 17(a) of the 1934 Act, NASD, and all other regulatory bodies
having jurisdiction.
c. Reports. Distributor shall cause State Farm to be furnished with such
--------
reports as State Farm may reasonably request for the purpose of
meeting its reporting and record keeping requirements under the 1933
Act, the 1934 Act and the 1940 Act and regulations thereunder as well
as the insurance laws of the State of Illinois and any other
applicable states or jurisdictions.
-6-
d. Issuance and Administration of Contracts. State Farm shall be
-----------------------------------------
responsible for issuing the Contracts and administering the Contracts
and the Variable Account, provided, however, that Distributor shall
have full responsibility for the securities activities of all persons
employed by State Farm, engaged directly or indirectly in the Contract
operations, and for the training, supervision and control of such
persons to the extent of such activities.
7. Investigations and Proceedings
------------------------------
a. Cooperation. Distributor and State Farm shall cooperate fully in any
------------
securities or insurance regulatory investigation or proceeding or
judicial proceeding arising in connection with the offering, sale or
distribution of the Contracts distributed under this Agreement.
Without limiting the foregoing, State Farm and Distributor shall
notify each other promptly of any customer complaint or notice of any
regulatory investigation or proceeding or judicial proceeding received
by either party with respect to the Contracts.
b. Customer Complaints. Distributor agrees that it will comply with the
--------------------
reporting requirements imposed by Section 3070 of the NASD Rules of
Conduct with regard to the sales of the Contracts. Without limiting
the foregoing, Distributor agrees to notify the NASD if Distributor or
persons associated with the Distributor are the subject of any written
customer complaint involving allegations of theft, forgery or
misappropriation of funds or securities, or is the subject of any
claim for damages by a customer, broker, or dealer which is settled
for an amount exceeding $15,000.
8. Indemnification
---------------
a. By State Farm. State Farm shall indemnify and hold harmless
--------------
Distributor and any officer, director, or employee of Distributor
against any and all losses, claims, damages or liabilities, joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted),
to which Distributor and/or any such person may become subject, under
any statute or regulation, any NASD rule or interpretation, at common
law or otherwise, insofar as such losses, claims, damages or
liabilities:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, contained in
any Registration Statement or in any Prospectus; provided that
State Farm shall not be liable in any such case to
-7-
the extent that such loss, claim, damage or liability arises out
of, or is based upon, an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon
information furnished in writing to State Farm by Distributor
specifically for use in the preparation of any such Registration
Statement or any amendment thereof or supplement thereto;
(2) result from any breach by State Farm of any provision of this
Agreement.
This indemnification agreement shall be in addition to any liability
that State Farm may otherwise have; provided, however, that no person
shall be entitled to indemnification pursuant to this provision if
such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty
by the person seeking indemnification.
b. By Distributor. Distributor shall indemnify and hold harmless State
---------------
Farm and any officer, director, or employee of State Farm against any
and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of,
any action, suit or proceeding or any claim asserted), to which State
Farm and/or any such person may become subject under any statute or
regulation, any NASD rule or interpretation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact required to be stated therein
or necessary in order to make the statements therein not
misleading, in light of the circumstances in which they were
made, contained in any Registration Statement or in any
Prospectus; in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon
information furnished in writing by Distributor to State Farm
specifically for use in the preparation of any such Registration
Statement or any amendment thereof or supplement thereto;
(2) result from any breach by Distributor of any provision of this
Agreement;
(3) result from Distributor's own misconduct or negligence.
This indemnification shall be in addition to any liability that
Distributor may otherwise have; provided, however, that no person
shall be entitled to indemnification pursuant to this provision if
such loss, claim, damage or liability
-8-
is due to the willful misfeasance, bad faith, gross negligence or
reckless disregard of duty by the person seeking indemnification.
c. General. Promptly after receipt by a party entitled to
--------
indemnification ("indemnified person") under this Section 8 of notice
of the commencement of any action as to which a claim will be made
against any person obligated to provide indemnification under this
Section 8 ("indemnifying party"), such indemnified person shall notify
the indemnifying party in writing of the commencement thereof as soon
as practicable thereafter, but failure to so notify the indemnifying
party shall not relieve the indemnifying party from any liability
which it may have to the indemnified person otherwise than on account
of this Section 8. The indemnifying party will be entitled to
participate in the defense of the indemnified person but such
participation will not relieve such indemnifying party of the
obligation to reimburse the indemnified person for reasonable legal
and other expenses incurred by such indemnified person in defending
himself or itself.
The indemnification provisions contained in this Section 8 shall
remain operative in full force and effect, regardless of any
termination of this Agreement. A successor by law of Distributor or
State Farm, as the case may be, shall be entitled to the benefits of
the indemnification provisions contained in this Section 8.
9. Termination. This Agreement shall terminate automatically if it is
------------
assigned by the Distributor without the prior written consent of the other
party. This Agreement may be terminated at any time for any reason by
either party upon 60 days' written notice to the other party, without
payment of any penalty. (The term "assigned" shall not include any
transaction exempted from Section 15(b)(2) of the 1940 Act.) This
Agreement may be terminated at the option of either party to this Agreement
upon the other party's material breach of any provision of this Agreement
or of any representation or warranty made in this Agreement, unless such
breach has been cured within 10 days after receipt of notice of breach from
the non-breaching party. Upon termination of this Agreement, all
authorizations, rights and obligations shall cease except the following:
(1) the obligation to settle accounts hereunder, including commissions on
Premiums subsequently received for Contracts in effect at the time of
termination or issued pursuant to Applications received by State Farm prior
to termination; (2) the provisions contained in Section 8 regarding
indemnification; and, (3) the provisions contained in Section 3(b)(4)
regarding the remittance of premiums. In the event of any termination for
any reason, all books and records and sales or marketing materials held by
Distributor shall promptly be returned to State Farm free from any claim or
retention of rights by Distributor.
-9-
10. Miscellaneous
-------------
a. Binding Effect. This Agreement shall be binding on and shall inure to
---------------
the benefit of the respective successors and assigns of the parties
hereto provided that neither party shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of
the other party.
b. Schedules. The parties to this Agreement may amend Schedules 1 and 2
----------
to this Agreement from time to time to reflect additions of any class
of Contracts and Variable Accounts. The provisions of this Agreement
shall be equally applicable to each such class of Contracts and each
Variable Account that may be added to the Schedule, unless the context
otherwise requires. State Farm and Distributor may modify Schedule 3
as mutually agreed in writing from time to time. Any other change in
the terms or provisions of this Agreement shall be by written
agreement between State Farm and Distributor.
c. Rights, Remedies, etc, are Cumulative. The rights, remedies and
--------------------------------------
obligations contained in this Agreement are cumulative and are in
addition to any and all rights, remedies and obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws. Failure of either party to insist upon strict
compliance with any of the conditions of this Agreement shall not be
construed as a waiver of any of the conditions, but the same shall
remain in full force and effect. No waiver of any of the provisions
of this Agreement shall be deemed, or shall constitute, a waiver of
any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
d. Notices. All notices hereunder are to be made in writing and shall be
--------
given:
if to State Farm, to:
if to Distributor, to:
or such other address as such party may hereafter specify in writing.
Each such notice to a party shall be either hand delivered or
transmitted by registered or
-10-
certified United States mail with return receipt requested, or by
overnight mail by a nationally recognized courier, and shall be
effective upon delivery.
e. Interpretation; Jurisdiction. This Agreement constitutes the whole
-----------------------------
agreement between the parties hereto with respect to the subject
matter hereof, and supersedes all prior oral or written
understandings, agreements or negotiations between the parties with
respect to such subject matter. No prior writings by or between the
parties with respect to the subject matter hereof shall be used by
either party in connection with the interpretation of any provision of
this Agreement.
f. Severability. This is a severable Agreement. In the event that any
-------------
provision of this Agreement would require a party to take action
prohibited by applicable federal or state law or prohibit a party from
taking action required by applicable federal or state law, then it is
the intention of the parties hereto that such provision shall be
enforced to the extent permitted under the law, and, in any event,
that all other provisions of this Agreement shall remain valid and
duly enforceable as if the provision at issue had never been a part
hereof.
g. Section and Other Headings. The headings in this Agreement are
---------------------------
included for convenience of reference only and in no way define or
delineate any of the provisions hereof or otherwise affect their
construction or effect.
h. Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which taken together shall constitute one and
the same instrument.
i. Regulation. This Agreement shall be subject to the provisions of the
-----------
1933 Act, 1934 Act and 1940 Act and the regulations thereunder and the
rules and regulations of the NASD, from time to time in effect,
including such exemptions from the 1940 Act as the SEC may grant, and
the terms hereof shall be interpreted and construed in accordance
therewith.
-11-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by such authorized officers on the date specified above.
STATE FARM LIFE INSURANCE COMPANY
By: ______________________________
Name: ____________________________
Title: ___________________________
STATE FARM VP MANAGEMENT CORP.
By: ______________________________
Name: ____________________________
Title: ___________________________
-12-
