PARTICIPATION AGREEMENT
AMONG
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
BARON CAPITAL FUNDS TRUST
AND
BARON CAPITAL, INC.
THIS AGREEMENT, made and entered into this 28' day of August, 1998
by and among Baron Capital Funds Trust (and all series thereof) a business trust
organized under the laws of the State of Delaware (the "Fund'), and THE LINCOLN
NATIONAL LIFE INSURANCE CO., an Indiana insurance corporation (the "Company"),
on its own behalf and on behalf of each separate account of the Company named in
Schedule I to this Agreement as in effect at the time this Agreement is executed
and such other separate accounts that may be added to Schedule 1 from time to
time in accordance with the provisions of Article XI of this Agreement (each
such account referred to as the "Account"), and Baron Capital, Inc. (the
"Distributor").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and has a class of stock (the "Fund Insurance Shares") that
has been established for the purpose of serving as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to as "Variable Insurance Products,"
the owners of such products being referred to as "Product owners") to be offered
by insurance companies which have entered into participation agreements with the
Fund ("Participating Insurance Companies"); and
WHEREAS, the Fund filed with the Securities and Exchange
Commission (the "SEC") and the SEC has declared effective a registration
statement (referred to herein as the "Fund Registration Statement" and the
prospectus contained therein, or filed pursuant to Rule 497 under the 1933 Act,
referred to herein as the "Fund Prospectus") on Form N-1A to register itself as
an open-end management investment company (File No. 33-40839) under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Fund
Insurance Shares (File No. 811-85 05) under the Securities Act of 1933, as
amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the
SEC to register under the 1933 Act (unless exempt therefrom) certain variable
annuity contracts described in Schedule 2 to this Agreement as in effect at the
time this Agreement is executed and such other variable annuity contracts and
variable life insurance policies which may be added to Schedule 2 from time to
time in accordance with Article XI of this Agreement (such policies and
contracts shall be referred to herein collectively as the "Contracts," each such
registration statement for a class or classes of contracts listed on Schedule 2
being referred to as the "Contracts Registration Statement" and the prospectus
for each such class or classes being referred to herein as the "Contracts
Prospectus," and the owners of the such contracts, as distinguished from all
Product Owners, being referred to as "Contract Owners"); and
WHEREAS, each Account, a validly existing separate account, duly
authorized by resolution of the Board of Directors of the Company on the date
set forth on Schedule 1, sets aside and invests assets attributable to the
Contracts; and
WHEREAS, the Company has registered or will have registered each
Account with the SEC as a unit investment trust under the 1940 Act before any
Contracts are issued by that Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the
SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
is a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"); and
WHEREAS, the Distributor and the Fund have entered into an
agreement (the "Fund Distribution Agreement") pursuant to which the Distributor
will distribute the Fund Insurance Shares; and
WHEREAS, BAMCO, Inc. (the "Investment Manager") is registered as
an investment adviser under the 1940 Act and any applicable state securities
laws and serves as an investment manager to the Fund pursuant to an agreement;
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Fund Insurance Shares on behalf of
each Account to fund its Contracts and the Distributor is authorized to sell
such Fund Insurance Shares to unit investment trusts such as the Accounts at net
asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Distributor agree as follows:
ARTICLE 1. SALE OF FUND SHARES
1.1. The Distributor agrees to sell to the Company those Fund
Insurance Shares, which the Company orders on behalf of each Account, executing
such orders on a daily basis in accordance with Section 1.4 of this Agreement.
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1.2. The Fund agrees to make Fund Insurance Shares available for purchase
by the Company on behalf of each Account at the then applicable net asset value
per share on Business Days as defined in Section 1.4 of this Agreement, and the
Fund shall use its best efforts to calculate and deliver such net asset value by
6:00 p.m., E.S.T., on each such Business Day. Notwithstanding any other
provision in this Agreement to the contrary, the Board of Directors of the Fund
(the "Fund Board") may suspend or terminate the offering of shares, if such
action is required by law or by regulatory authorities having jurisdiction or
if, in the sole discretion of the Fund Board acting in good faith and in light
of its fiduciary duties under Federal and any applicable state laws, suspension
or termination is necessary and in the best interests of the shareholders (it
being understood that "shareholders" for this purpose shall mean Product
owners).
1.3. The Fund agrees to redeem, at the Company's request, any full' or
fractional Fund Insurance Shares held by each Account or the Company, executing
such requests at the net asset value on a daily basis (Company will expect same
day redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of Fund
Insurance Shares of any series to the extent permitted by the 1940 Act, any
rules, regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4. (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from each Account (but not from
the general account of the Company), and receipt on any Business
Day by the Company as such limited agent of the Fund prior to the
time prescribed in the current Fund Prospectus (which as of the
date of execution of this Agreement is 4 p.m., E.S.T.) shall
constitute receipt by the Fund on that same Business Day, provided
that the Fund, or its designee, receives notice of such redemption
or purchase request by 11:00 a.m., E.S.T. on the next following
Business Day. For purposes of this Agreement, "Business Day" shall
mean any day on which the New York Stock exchange is open for
trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund Insurance
Shares for an Account. Payment for Fund Insurance Shares will be
made by each Account or the Company in Federal Funds transmitted
to the Fund by wire to be received by 11:00 a.m., E.S.T. on the
day the Fund is properly notified of the purchase order for
shares. The Fund will confirm receipt of each trade and these
confirmations will be received by the Company via Fax or Email by
1:00 p.m. E.S.T. If Federal Funds are not received on time, such
funds will be invested, and shares purchased thereby will be
issued, as soon as practicable.
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(c) Payment for shares redeemed by each Account or the Company
will be made in Federal Funds transmitted to the Company by wire
on the same day the Fund is notified of the redemption order of
shares, except that the Fund reserves the right to delay payment
of redemption proceeds, but in no event may such payment be
delayed longer than the period permitted under Section 22(e) of
the 1940 Act. Neither the Fund nor the Distributor shall bear any
responsibility whatsoever for the proper disbursement or crediting
of redemption proceeds if securities must be redeemed; the Company
alone shall be responsible for such action.
1.5. Issuance and transfer of Fund Insurance Shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund Insurance Shares will be recorded in an
appropriate ledger for each Account or the appropriate subaccount of each
Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of each Account, hereby elects
to receive all such dividends and distributions as are payable on any Fund
Insurance Shares in the form of additional shares. The Company reserves the
right, on its behalf and on behalf of each Account, to revoke this election and
to receive all such dividends in cash. The Fund shall notify the Company of the
number of Fund Insurance Shares so issued as payment of such dividends and
distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 6 p.m., E.S.T. each Business Day, and in any
event, as soon as reasonably practicable after the net asset value per share is
calculated, and shall calculate such net asset value in accordance with the then
currently effective Fund Prospectus. Neither the Fund, any Series, the
Distributor, nor the Investment Manager nor any of their affiliates shall be
liable for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by the Company to
the Fund, the Distributor or the Investment Manager.
1.8.
(a) The Company may withdraw each Account's investment in
the Fund only: (i) as necessary to facilitate Contract owner
requests; (ii) upon a determination by a majority of the Fund
Board, or a majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests of (x)
any Product Owners or (y) the interests of the Participating
Insurance Companies investing in the Fund; (iii) upon requisite
vote of the Contractowners having an interest in the affected Fund
to substitute the shares of another investment company for shares
in accordance with the terms of the Contracts; (iv) as required by
state and/or federal laws or regulations or judicial or other
legal precedent of general application; or (v) at the Company's
sole discretion, pursuant to an order of the SEC under Section
26(b) of the 1940 Act.
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(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
Insurance Shares may be sold to other insurance companies (subject
to Section 1.9 hereof) and the cash value of the Contracts may be
invested in other investment companies.
(c) The Company shall not, without prior notice to the
Distributor (unless otherwise required by applicable law), take
any action to operate each Account as a management investment
company under the 0000 Xxx.
1.9. The Fund and the Distributor agree that Fund Insurance Shares will
be sold only to Participating Insurance Companies and their separate accounts.
The Fund and the Distributor will not sell Fund Insurance Shares to any
insurance company or separate account unless an agreement complying with Article
VII of this Agreement is in effect to govern such sales. No Fund Insurance
Shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or, prior to the issuance of any Contracts, will register each Account (unless
exempt therefrom) as a. unit investment trust in accordance with the provisions
of the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under them
are outstanding.
2.2. The Fund represents and warrants that Fund Insurance Shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for so long as the Fund Insurance
Shares are sold. The Fund further represents and warrants that it is a business
trust duly organized and in good standing under the laws of the State of
Delaware.
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2.3. The Fund represents and warrants that it currently qualifies
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). The Fund further represents and warrants
that it will make every effort to continue to qualify and to maintain such
qualification (under Subchapter M or any successor or similar provision), and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Fund represents and warrants that it will comply with
Section 817(h) of the Code, and all regulations issued thereunder. In the event
of a breach of this Section 3.6 by the Fund, it will a) immediately notify the
Company of the breach and b) to adequately diversify each series so as to
achieve compliance with the grace period offered by Regulation 1.817-5.
2.5. The Company represents that the Contracts are currently and
at the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code. The
Company shall make every effort to maintain such treatment and shall notify the
Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees
and expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of California, to the extent required to
perform this Agreement; and with any state-mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Distributor represents and warrants that it is duly
registered as a broker-dealer under the 1934 Act, a member in good standing of
the NASD, and duly registered as a broker dealer under applicable state
securities laws; its operations are in compliance with applicable law, and it
will distribute the Fund Insurance Shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager,
represents and warrants that the Investment Manager is registered as an
investment adviser under the Investment Advisers Act of 1940 and is in
compliance with applicable federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule l7g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
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ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Distributor shall provide the Company with as many
copies of the current Fund Prospectus as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund at its expense shall provide
to the Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for the cost of printing and distributing Fund
prospectuses.
3.2. The Fund Prospectus shall state that the Statement of
Additional Information for the Fund is available from the Distributor (or, in
the Fund's discretion, the Fund Prospectus shall state that such Statement is
available from the Fund), and the Distributor (or the Fund) shall provide such
Statement free of charge to the Company and to any outstanding or prospective
Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and
other communications to shareholders (except proxy
material), in each case in a form suitable for printing, as
determined by the Company. The Fund shall be responsible
for the costs of printing and distributing these materials
to Contract owners.
(b) The Fund at its expense shall be responsible for
preparing, printing and distributing its proxy material.
The Company will provide the appropriate Contractowner
names and addresses to the Fund for this purpose.
3.4. The Company shall furnish each piece of sales literature or
other promotional material in which the Fund or the Investment Manager is named
to the Fund or the Distributor prior to its use. No such material shall be used,
except with the prior written permission of the Fund or the Distributor. The
Fund and the Distributor agree to respond to any request for approval on a
prompt and timely basis. Failure of the Fund to respond within 10 days of the
request by the Company shall relieve the Company of the obligation to obtain the
prior written permission of the Fund or the Distributor.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund or by the Distributor, except with the prior written permission of the
Fund or the Distributor. The Fund agrees to respond to any request for
permission on a prompt and timely basis. If neither the Fund nor the Distributor
responds within 10 days of a request by the Company, then the Company shall be
relieved of the obligation to obtain the prior written permission of the Fund.
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3.6. The Fund and the Distributor shall not give any information
or make any representations on behalf of the Company or concerning the Company,
each Account or the Contracts other than the information or representations
contained in the Contracts Registration Statement or Contracts Prospectus, as
such Registration Statement and Prospectus may be amended or supplemented from
time to time, or in published reports of each Account which are in the public
domain or approved in writing by the Company for distribution to Contract
owners, or in sales literature or other promotional material approved in writing
by the Company, except with the prior written permission of the Company. The
Company agrees to respond to any request for permission on a prompt and timely
basis. If the Company fails to respond within 10 days of a request by the Fund
or the Distributor, then the Fund and the Distributor are relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete
copy of all Fund Registration Statements, Fund Prospectuses, Statements of
Additional Information, annual and semi-annual reports and other reports, proxy
statements, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments or supplements to
any of the above, that relate to the Fund or Fund Insurance Shares, within 20
days after the filing of such document with the SEC or other regulatory
authorities.
3.8. The Company will provide to the Fund at least one complete
copy of all Contracts Registration Statements, Contracts Prospectuses,
Statements of Additional Information, Annual and Semi-annual Reports, sales
literature and other promotional materials, and all amendments or supplements to
any of the above, that relate to the Contracts, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, and statements of
additional information, reports, proxy statements, and solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments or supplements to
any of the above, to the extent that the other party reasonably needs such
information for purposes of preparing a report or other filing to be filed with
or submitted to a regulatory agency. If a party requests any such information
before it has been filed, the other party will provide the requested information
if then available and in the version then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, computer net site, signs or billboards, motion pictures or
other public media), sales literature (i.e. any written communication
distributed or made generally available to customers or the public, in print or
electronically, including brochures, circulars, research reports, market
letters, form letters, seminar texts, or reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications
8
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, Statements of Additional Information,
shareholder reports and proxy materials, and any other material constituting
sales literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE. IV. Voting
4.1 Subject to applicable law and the order referred to in Article
VII, the Fund shall: solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the order referred to in Article
VII, the Company shall:
(a) vote Fund Insurance Shares attributable to Contract
owners in accordance with instructions or proxies received
in timely fashion from such Contract owners;
(b) vote Fund Insurance Shares attributable to Contract
owners for which no instructions have been received in the
same proportion as Fund Insurance Shares of such series for
which instructions have been received in timely fashion;
and
(c) vote Fund Insurance Shares held by the Company on its
own behalf or on behalf of each Account that are not
attributable to Contract owners in the same proportion as
Fund Insurance Shares of such series for which instructions
have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement (including
expenses expressly assumed by the Fund pursuant to this Agreement) shall be paid
by the Fund to the extent permitted by law. Except as may otherwise be provided
in Section 1.4 and Article VII of this Agreement, the Company shall not bear any
of the expenses for the cost of registration and qualification of the Fund
Insurance Shares under Federal and any state securities law, preparation and
filing of the Fund Prospectus and Fund Registration Statement, the preparation
of all statements and notices required by any Federal or state securities law,
all taxes on the issuance or transfer of Fund Insurance Shares, and any expenses
permitted to be paid or assumed by the Fund pursuant to a plan, if any, under
Rule l2b-1 under the 1940 Act.
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The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company may print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts and for underlying funds other
than those of the Fund, then the Fund shall pay only its proportionate share of
the total cost to distribute the booklet to existing Contract owners.)
The Company is responsible for the cost of printing and
distributing Fund prospectuses and SAIs for new sales; and Account Prospectuses
and SAIs for existing Contractowners. The Company shall have the final decision
on choice of printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements
under the 1933 Act and each Account's Registration Statement under the 1940 Act
from time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under
the 1933 Act and the 1940 Act from time to time as required in order to effect
for so long as Fund Insurance Shares are sold the continuous offering of Fund
Insurance Shares as described in the then currently effective Fund Prospectus.
The Fund shall register and qualify Fund Insurance Shares for sale to the extent
required by applicable securities laws of the various states.
6.4. The Company shall be responsible for assuring that any
prospectus offering a Contract that is a life insurance contract where it is
reasonably possible that such Contract would be deemed a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will describe
the circumstances under which a Contract could be treated as a modified
endowment contract (or policy).
6.5. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-I to finance distribution expenses.
6.6. (a) The Company shall amend Schedule 3 when appropriate in
order to inform the Fund of any applicable state-mandated
investment restrictions with which the Fund must comply.
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(b) Should the Fund or the Distributor become aware of any
restrictions which may be appropriate for inclusion in Schedule 3,
the Company shall be informed immediately of the substance of
those restrictions.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Company has reviewed a copy of the order (the "Mixed and
Shared Funding Order") dated June 16, 1998 of the Securities and Exchange
Commission under Section 6c of the Act and, in particular, has reviewed the
conditions to the relief set forth in the related Notice. As set forth therein,
the Company agrees to report to the Board of Directors of the Fund (the "Board")
any potential or existing conflicts between the interests of Product Owners of
all separate accounts investing in the Fund, and to assist the Board in carrying
out its responsibilities under the conditions of the Mixed and Shared Funding
Order by providing all information reasonably necessary for the Board to
consider any issues raised, including information as to a decision to disregard
voting instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested
Board Members, determines that a material irreconcilable conflict exists, the
Board shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear
before it and present its case, determines that the Company is
responsible for said conflict, and if the Company agrees with that
determination, the Company shall, at its sole cost and expense,
take whatever steps are necessary to remedy the irreconcilable
material conflict. These steps could include: (a) withdrawing the
assets allocable to some or all of the affected Accounts from the
Fund and reinvesting such assets in a different investment
vehicle, or submitting the question of whether such segregation
should be implemented to a vote of all affected Contractowners
and, as appropriate, segregating the assets of any particular
group (i.e., variable annuity Contractowners, variable life
insurance policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option
of making such a change; and (b) establishing a new registered
mutual fund or management separate account, or taking such other
action as is necessary to remedy or eliminate the irreconcilable
material conflict.
(b) If the Company disagrees with the Board's
determination, the Company shall file a written protest with the
Board, reserving its right to dispute the determination as between
just the Company and the Fund. After reserving that right the
Company, although disagreeing with the Board that it (the Company)
was responsible for the conflict, shall take the necessary steps,
under protest, to remedy the conflict, substantially in accordance
with paragraph (a) just above, for the protection of
Contractowners.
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(c) As between the Company and the Fund, if within 45 days
after the Board's determination the Company elects to press the
dispute, it shall so notify the Board in writing. The parties
shall then attempt to resolve the matter amicably through
negotiation by individuals from each party who are authorized to
settle the matter.
If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes, by a sole
arbitrator; provided, however, that if one party has requested the
other party to seek an amicable resolution and the other party has
failed to participate, the requesting party may initiate
arbitration before expiration of the 60-day period set out just
above.
If within 45 days of the commencement of the process to
select an arbitrator the parties cannot agree upon the arbitrator,
then he or she will be selected from the CPR Panels of Neutrals.
The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. Sec. 1-16. The place of arbitration shall be Fort
Xxxxx, Indiana. The Arbitrator is not empowered to award damages
in excess of compensatory damages.
(d) If the Board shall determine that the Fund or another
insurer was responsible for the conflict, then the Board shall
notify the Company immediately of that determination. The Fund
shall assure the Company that it (the Fund) or that other insurer,
as applicable, shall, at its sole cost and expense, take whatever
steps are necessary to eliminate the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) each Account's investment in
the Fund, if the Fund so elects.
7.4. Subject to the terms of Section 7.2 above, the Company shall carry
out the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict with a view only to the
interests of Contractowners.
7.5. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict, but in no event will the Fund
be required to establish a new funding medium for any variable contract, nor
will the Company be required to establish a new funding medium for any
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Contract if in either case an offer to do so has been declined by a vote of a
majority of affected Contractowners.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Fund, the Distributor and each person who
controls or is associated with the Fund (other than another Participating
Insurance Company) or the Distributor within the meaning of such terms under the
federal securities laws and any officer, trustee, director, employee or agent of
the foregoing, 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 they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein 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;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged
omission was made in reliance upon and in conformity with
information famished in writing to the Company by the Fund or the
Distributor (or a person authorized in writing to do so on behalf
of the Fund or the Distributor) for use in the Contracts
Registration Statement, Contracts Prospectus or in the Contracts
or sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
Insurance Shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature
or other promotional material of the Fund not supplied by the
Company or persons under its control) or wrongful conduct of the
Company or persons under its control with respect to the sale or
distribution of the Contracts or Fund Insurance Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein 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, if such statement or
omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Company;
or
13
(d) arise as a result of any failure by the Company to
provide the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund Insurance Shares on a
timely basis in accordance with the procedures set forth in
Article 1; or
(f) arise as a result of the Company's providing the Fund
with inaccurate information, which causes the Fund to calculate
its Net Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE DISTRIBUTOR. THE Distributor agrees to
indemnify and hold harmless the Company and each person who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws and any officer, director, employee or agent of the foregoing,
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 they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Fund Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the
omission or the alleged omission to state therein 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; provided that this obligation to indemnify shall not
apply if such statement or omission or alleged statement or
alleged omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Fund or the
Distributor for use in the Fund
14
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature for the Fund or otherwise
for use in connection with the sale of the Contracts or Fund
Insurance Shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the
Distributor or the Fund (other than statements or representations
contained in the Fund Registration Statement, Fund Prospectus or
sales literature or other promotional material of the Fund not
supplied by the Distributor or the Fund or persons under their
control) or wrongful conduct of the Distributor or persons under
its control with respect to the sale or distribution of the
Contracts or Fund Insurance Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contracts
Registration Statement, Contracts Prospectus or sales literature
or other promotional material for the Contracts (or any amendment
or supplement thereto), or the omission or alleged omission to
state therein 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, if such statement or
omission was made in reliance upon information furnished in
writing by the Distributor or the Fund to the Company (or a person
authorized in writing to do so on behalf of the Fund or the
Distributor); or
(d) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including, but not by way of limitation, a failure,
whether unintentional or in good faith or otherwise: (i) to comply
with the diversification requirements specified in Article VI of
this Agreement; and (ii) to provide the Company with accurate
information sufficient for it to calculate its accumulation and/or
annuity unit values in timely fashion as required by law and by
the Contracts Prospectuses); or
(e) arise out of any material breach by the Distributor or
the Fund of this Agreement.
This indemnification will be in addition to any liability which the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3 INDEMNIFICATION PROCEDURES. AFTER receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter,
15
provided that the omission to so notify the indemnifying party will not relieve
it from any liability under this Article VIH, except to the extent that the
omission results in a failure of actual notice to the indemnifying party and
such indemnifying party is damaged solely as a result of the failure to give
such notice. The indemnifying party, upon the request of the indemnified party
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to the
benefits of the indemnification contained in this Article VIH. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
16
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by the
Company. Prompt notice of the election to terminate for such cause shall
be furnished by the Company. Termination shall be effective ten days
after the giving of notice by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of each Account, the administration of the
Contracts or the purchase of Fund Insurance Shares, or an expected or
anticipated ruling, judgment or outcome which would, in the Fund's
reasonable judgment, materially impair the Company's ability to perform
the Company's obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the Distributor, the Investment Manager or
any Sub Investment Manager, by the NASD, the SEC, or any state securities
or insurance commission or any other regulatory body regarding the duties
of the Fund or the Distributor under this Agreement, or an expected or
anticipated ruling, judgment or outcome which would, in the Company's
reasonable judgment, materially impair the Fund's or the Distributor's
ability to perform Fund's or Distributor's obligations and duties
hereunder; or
(e) at the option of the Company upon institution of formal
proceedings against the Investment Manager or Sub-investment Manager by
the NASD, the SEC, or any state securities or insurance commission or any
other regulatory body which would, in the good faith opinion of the
Company, result in material harm to the Accounts, the Company, or
Contractowners.
(f) upon requisite vote of the Contract owners having an interest
in the affected Series (unless otherwise required by applicable law) and
written approval of the Company, to substitute the shares of another
investment company for the corresponding shares of the Fund in accordance
with the terms of the Contracts; or
(g) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable Federal
and/or state law; o
17
(h) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of disinterested Fund
Board members, that an irreconcilable material conflict exists among the
interests of (i) any Product owners or (ii) the interests of the
Participating Insurance Companies investing in the Fund; or
(i) at the option of the Company if the Fund ceases to qualify as
a Regulated Investment Company under Subchapter M of the Code, or under
any successor or similar provision, or if the Company reasonably
believes, based on an opinion of its counsel, that the Fund may fail to
so qualify; or
(j) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code and
any regulations thereunder; or
(k) at the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable, under the
Code, or if the Fund reasonably believes that the Contracts may fail to
so qualify; or
(1) at the option of either the Fund or the Distributor if the
Fund or the Distributor, respectively, shall determine, in their sole
judgment exercised in good faith, that either (1) the Company shall have
suffered a material adverse change in its business or financial
condition; or (2) the Company shall have been the subject of material
adverse publicity which is likely to have a material adverse impact upon
the business and operations of either the Fund or the Distributor; or
(m) at the option of the Company, if the Company shall determine,
in its sole judgment exercised in good faith, that either: (1) the Fund
and the Distributor, or either of them, shall have suffered a material
adverse change in their respective businesses or financial condition; or
(2) the Fund or the Distributor, or both of them, shall have been the
subject of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company; or
(n) upon the assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Accounts to another
insurance company pursuant to an assumption reinsurance agreement) unless
the nonassigning party consents thereto or unless this Agreement is
assigned to an affiliate of the Distributor.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1,
no termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to all other parties to
this Agreement of its intent to terminate which notice shall set forth the basis
for such termination. Furthermore:
18
(a) In the event that any termination is based upon the provisions
of Article VII or the provisions of Section 10.1 (a) of this Agreement,
such prior written notice shall be given in advance of the effective date
of termination as required by such provisions; and
(b) in the event that any termination is based upon the provisions
of Section 10.1 (c) or 10.1 (d) of this Agreement, such prior written
notice shall be given at least ninety (90) days before the effective date
of termination, or sooner if required by law or regulation.
(c) in the event that any termination is based upon the provisions
of Section 10.1 (e) of this Agreement, such prior written notice shall
all be given at least sixty (60) days before the date of any proposed
vote to replace the Fund's shares
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund and the Distributor will, at
the option of the Company, continue to make available additional Fund
Insurance Shares for so long after the termination of this Agreement as
the Company desires, pursuant to the terms and conditions of this
Agreement as provided in paragraph (b) below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation,
if the Company so elects to make additional Fund Insurance Shares
available, the owners of the Existing Contracts or the Company, whichever
shall have legal authority to do so, shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or invest in
the Fund upon the making of additional purchase payments under the
Existing Contracts.
(b) In the event of a termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund and the Distributor shall
promptly notify the Company whether the Distributor and the Fund will
continue to make Fund Insurance Shares available after such termination.
If Fund Insurance Shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.1 (a) and thereafter either the Fund or the
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such notice
to be for a period that is reasonable under the circumstances but, if
given by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII or any conditions or
undertakings incorporated by reference in Article VII, and the effect of
such Article VII termination shall be governed by the provisions set
forth or incorporated by reference therein.
19
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts
and to add new classes of variable annuity contracts and variable life insurance
policies to be issued by the Company through an Account investing in the Fund.
The provisions of this Agreement shall be equally applicable to each such class
of contracts or policies, unless the context otherwise requires.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party(ies) at the address of such party(ies) set
forth below or at such other address as such party(ies) may from time to time
specify in writing to the other party.
If to the Fund:
Baron Capital Funds Trust
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx, 00000
Attn: Xxxxx X. Xxxxxx
cc: Xxxxx X. Xxxxxxxxx, Esq.
If to the Company:
The Lincoln National Life Insurance Co.
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxx Xxxxx, Xxxxxxx 00000
Attn: Xxxxx X. Xxxxxxxxx
If to the Distributor:
Baron Capital, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx, 00000
Attn: Xxxxx X. Xxxxxx
cc: Xxxxx X. Xxxxxxxxx, Esq.
20
ARTICLE XIII. MISCELLANEOUS
13.1. The captions 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.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
21
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
Baron Capital Funds Trust
Date: Signature:
Name:
Title:
LINCOLN NATIONAL LIFE INSURANCE CO. Date:
Signature:
Name:
Title:
Baron Capital, Inc.
Date: Signature:
Name:
Title:
22
SCHEDULE 1
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of August 28, 1998
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN NATIONAL VARIABLE ANNUITY-ACCOUNT L
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT
23
SCHEDULE 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of August 28, 1998
MULTI-FUND-REGISTERED TRADEMARK- VARIABLE ANNUITY (INDIVIDUAL AND GROUP
ANNUITIES)
eANNUITY (INDIVIDUAL ANNUITY)
LINCOLN LIFE GROUP VARIABLE ANNUITY - GVA (GROUP VARIABLE ANNUITY)
24
SCHEDULE 3
State-mandated Investment Restrictions
Applicable to the Fund
As of August 28, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. Borrowing limits for any variable contract separate account portfolio
are (1) 10% of net asset value when borrowing for any general purpose; and (2)
25% of net asset value when borrowing as a temporary measure to facilitate
redemptions. Net asset value of a portfolio is the market value of all
investments or assets owned less outstanding liabilities of the portfolio at the
time that any new or additional borrowing is undertaken.
FOREIGN INVESTMENTS - DIVERSIFICATION.
1. A portfolio will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four when foreign
investments comprise less than 80% of the portfolio's net asset value; to three
when legs than 60% of that value; to two when less than 40%; and to one when
less than 20%.
2. Except as set forth in items 3 and 4 below, a Portfolio will have no more
than 20% of its net asset value invested in securities of issuers located in any
one country.
3. A Portfolio may have an additional 15% of its net asset value invested in
securities of issuers located in any one of the following countries: Australia,
Canada, France, Japan, the United Kingdom or Germany.
4. A Portfolio's investments in United States issuers are not subject to the
foreign country diversification guidelines.
25
