WHOLESALING AGREEMENT
AGREEMENT dated as of November 5, 1996 by and between ALLMERICA FINANCIAL
LIFE INSURANCE AND ANNUITY COMPANY, a Delaware insurance company (the
"Company"), ALLMERICA INVESTMENTS, INC., a Massachusetts corporation (the
"Underwriter"), Xxxxxx Distributors, Inc., a Delaware corporation ("KDI"),
ZKI Agency, Inc., a Delaware corporation ("ZKIA" and , together with KDI,
collectively, the "Wholesaler"), and the insurance agency affiliates of the
Wholesaler listed on Schedule 1 to this Agreement (hereinafter referred to as
the "Wholesaler Agency Affiliates").
WITNESSETH:
WHEREAS, the Company has registered or proposes to register with the
Securities and Exchange Commission interests in certain variable annuity
contracts and variable life insurance contracts under the Securities Act of
1933 and proposes to issue and sell such contracts through the Underwriter
acting as the principal underwriter for such contracts; and
WHEREAS, the Company, the Underwriter and the Wholesaler desire to establish
an arrangement whereby the Wholesaler will act as the wholesaler for such
variable annuity contracts and variable life insurance contracts and, as
such, will recruit business firms to distribute such contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Underwriter and the Wholesaler hereby agree as follows:
1. DEFINITIONS
a. ACCOUNT -- Each and any separate account established by the Company
and listed on Schedule 2 to this Agreement, as amended from time to
time. The phrase "Account supporting the Contracts" or "Account
supporting a class of Contracts" shall mean the separate account
identified in such Contracts as the separate account to which the
Purchase Payments made under such Contracts are allocated and as to
which income, gains and losses, whether or not realized, from assets
allocated to such separate account, are, in accordance with such
Contracts, credited to or charged against such separate account without
regard to other income, gains, or losses of the Company or any other
separate account established by the Company.
b. CONTRACTS -- The variable annuity contracts and variable life
insurance contracts described more specifically on Schedule 3 to this
Agreement, as amended from time to time. The term "Contracts" shall
include various Account sub-account investment options, investment
options in the Company's general account and Guarantee Period Accounts,
if available, any riders to such contracts and any other contracts
offered in connection therewith or any contracts for which such
Contracts may be exchanged or converted. The phrase "a class of
Contracts" shall mean those variable annuity contracts or variable life
insurance contracts, as the case may be, issued on the same policy form
or forms and covered by the same Registration Statement, as shown on
Schedule 3 to this Agreement.
c. REGISTRATION STATEMENT -- At any time while this Agreement is in
effect, the currently effective registration statement filed with the
SEC under the 1933 Act, or currently effective post-effective amendment
thereto, 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 Sections 5.a. and 11 of
this Agreement, however, the term "Registration Statement" means any
document that is or at any time was a Registration Statement within the
meaning of this Section 1.c.).
2
d. PROSPECTUS -- The prospectus and any statement of additional
information included within a Registration Statement, except that, if
the prospectus and statement of additional information most recently
filed with the SEC pursuant to Rule 497 under the 1933 Act after the
date on which the Registration Statement became effective differs from
the prospectus and statement of additional information included within
the Registration Statement at the time it became effective, the term
"Prospectus" shall refer to the most recently filed prospectus and
statement of additional information filed under Rule 497 under the 1933
Act from and after the date on which they each shall have been filed.
(For purposes of Sections 5.a. and 11 of this Agreement, however, the
term "any Prospectus" means any document that is or at any time was a
Prospectus within the meaning of this Section x.x.).
e. FUND --Xxxxxx Investors Fund.
f. FUND REGISTRATION STATEMENT -- At any time while this Agreement is
in effect, the currently effective registration statement filed with the
SEC under the 1933 Act, or currently effective post-effective amendment
thereto, for shares of the Fund. (For purposes of Section 11 of this
Agreement, however, the term "Fund Registration Statement" means any
document that is or at any time was a Fund Registration Statement within
the meaning of this Section l.f.).
g. FUND PROSPECTUS -- At any time while this Agreement is in effect,
the prospectus and statement of additional information for the Fund most
recently filed with the SEC pursuant to Rule 497 under the 1933 Act.
(For purposes of Section 11 of this Agreement, however, the term "Fund
Prospectus" means any document that is or at any time was a Fund
Prospectus within the meaning of this Section l.g.).
h. 1933 ACT -- The Securities Act of 1933, as amended.
i. 1934 ACT -- The Securities Exchange Act of 1934, as amended.
3
j. 1940 ACT -- The Investment Company Act of 1940, as amended.
k. SEC -- The Securities and Exchange Commission.
l. NASD -- The National Association of Securities Dealers, Inc.
m. REGULATIONS -- The rules and regulations promulgated by the SEC
under the 1933 Act, the 1934 Act and the 1940 Act as in effect at
the time this Agreement is executed or thereafter promulgated, and
as they may be amended from time to time.
n. TERRITORY -- The fifty states of the United States, the District of
Columbia, and all other territories of the United States.
o. STATE -- Any state or commonwealth of the United States, the
District of Columbia or any other territory of the United States.
Provided, however, that the term "State" shall not include the states of
New York and Hawaii.
p. BROKER-DEALER -- An entity registered as a broker-dealer and
licensed as a life insurance agent or affiliated with an entity so
licensed, and recruited by the Wholesaler and subsequently authorized by
the Company and the Underwriter to distribute the Contracts pursuant to
a sales agreement with the Company and the Underwriter entered into in
accordance with Section 3 of this Agreement.
q. ASSOCIATED PERSON -- This term as used in this Agreement shall have
the meaning assigned to it in the 1934 Act.
4
r. REPRESENTATIVE -- An Associated Person of the Wholesaler or a
Broker-Dealer registered with the NASD as a registered representative or
principal of the Wholesaler or Broker-Dealer, as the case may be.
s. PURCHASE PAYMENT -- A payment made under a Contract by an applicant
or purchaser to purchase benefits under the Contract.
t. PROCEDURES -- The administrative procedures prepared and distributed
by the Company, as such may be amended or supplemented from time to
time, relating to the solicitation, sale and delivery of the Contracts.
Provided, however, that Broker-Dealers shall only be responsible for
compliance with those Procedures which have been furnished to them in
writing.
u. PARTICIPATION AGREEMENT -- The agreement dated as of November 5,
1996, among the Company, KDI, Zurich Xxxxxx Investments and the Fund
relating to the investment of assets of the separate accounts of the
Company in the Fund.
2. APPOINTMENT AND WHOLESALING RIGHTS
a. The Company hereby authorizes the Wholesaler to represent the
Company in the wholesaling activities contemplated by this Agreement.
Where required by relevant state insurance law, the Company hereby
appoints the Wholesaler as an agent under such state insurance laws to
represent the Company in the wholesaling activities contemplated by this
Agreement. In those states in which the Wholesaler is not licensed as an
insurance agent and the relevant state insurance law requires that the
Wholesaler be licensed as an insurance agent, the Company hereby
appoints the appropriate entity or individual ("Wholesaler Agency
Affiliate") affiliated with the Wholesaler (as set forth on Schedule 1
to this Agreement, as such Schedule may be amended from time to time by
the Wholesaler to reflect changes in the licensing status, if any, as
required by relevant state insurance law of the Wholesaler or Wholesaler
Agency
5
Affiliates) as its agent under the insurance laws to engage in such
wholesaling activities. The Underwriter hereby authorizes the
Wholesaler under applicable securities laws to engage in the activities
contemplated in this Agreement relating to the wholesaling of the
Contracts for which the Underwriter acts or may act as principal
underwriter.
In jurisdictions where neither the Wholesaler nor any Wholesaler Agency
Affiliate is licensed as contemplated by the first paragraph of this
Section 2.a., when requested in writing by the Wholesaler, the Company
will perform such wholesaling activities related to the Contracts
contemplated by this Agreement as are mutually agreed upon by the
Company and the Wholesaler. Any such wholesaling activities will be
performed by the Company as agent and for the benefit of the Wholesaler,
until such time as the Wholesaler notifies the Company and the
Underwriter that the Wholesaler or its Wholesaler Agency Affiliate is so
licensed. The Company shall be compensated by the Wholesaler for its
performance of such wholesaling activities on such basis as is mutually
agreed upon by the Company and the Wholesaler.
b. The Wholesaler (both on its own behalf and on behalf of Wholesaler
Agency Affiliates) undertakes to use its best efforts to recruit
Broker-Dealers in accordance with Section 3 of this Agreement,
consistent with market conditions and in compliance with its
responsibilities under the federal securities laws and NASD rules and
regulations. The obligations of the Wholesaler and Wholesaler Agency
Affiliates hereunder are further subject to the accuracy of the
representations and warranties of the Company and the Underwriter
contained in this Agreement and to the performance by the Company of its
obligations hereunder.
c. The appointment and authorization of the Wholesaler and Wholesaler
Agency Affiliates to engage in wholesaling activities pursuant to this
Agreement is exclusive as to the Contracts listed on Schedule 3, as
amended from time to time in accordance with Section 2.e. of this
Agreement. Neither the Company nor the Underwriter shall authorize any
other person (as principal underwriter or otherwise) to engage in
6
wholesaling or distribution activities with respect to the Contracts or
to recruit business firms to engage in wholesaling or distribution
activities with respect to the Contracts (other than business firms
recommended by the Wholesaler pursuant to Section 3 of this Agreement)
without the Wholesaler's prior written consent, nor shall the Company or
the Underwriter, without the Wholesaler's prior written consent,
separately engage in wholesaling or distribution activities relating to
the Contracts.
The Company shall design the Contracts, and any amendments or riders
thereto, subject to approval by the Wholesaler. Throughout the term of
this Agreement, the Contracts shall be issued and offered for sale by
the Company and the variable portion thereof shall be supported by the
Accounts. The Company alone shall be responsible for filing the initial
Registration Statements and any amendments thereto with the SEC in
accordance with the 1933 Act, 1934 Act, 1940 Act and the Regulations to
register interests in each class of Contracts. The Company will not
make any amendment or rider to the Contracts or a class of Contracts, or
file a Registration Statement, or make an amendment to a Registration
Statement or supplement to a Prospectus, without the Wholesaler having
been given the opportunity to review any such filing, amendment, rider
or supplement. However, such opportunity to review shall not make the
Wholesaler responsible for the content of any such filing, amendment,
rider or supplement; the Company alone shall be responsible for such
content.
The Company shall register its Accounts with the SEC. All amounts
available under the Contracts shall be invested only in the Fund
(through the Account(s) supporting the Contracts) and/or allocated to
the Company's general account, or to one or more of the Guarantee Period
Accounts referred to in the Prospectus, provided that such amounts may
also be invested in an investment company or investment vehicle other
than the Fund if: (1) such other investment company is advised by the
Fund's investment adviser; (2) the Fund and/or Wholesaler, in their sole
discretion, consents to the use of such other investment company or
investment vehicle; (3) there is a substitution of the Fund made in
accordance with Section 10.1(e) of the Participation Agreement; or (4)
the Participation Agreement is terminated pursuant to Article X of the
Participation Agreement. The Company will not take action to operate
any Account or
7
any subaccount(s) of an Account, as a management investment company
under the 1940 Act without the Fund's and Wholesaler's prior written
consent.
All assets in the Guarantee Period Accounts referred to in the
Prospectus shall be managed by Zurich Investment Management, Inc.
("ZIM") pursuant to the Investment Management Agreement being executed
contemporaneously herewith by the Company and ZIM for so long as such
Investment Management Agreement is in effect.
d. The Company shall obtain appropriate authorizations, to the extent
necessary, whether by registration, qualification, approval or
otherwise, for the issuance and sale of the Contracts (including all
investment options) in each State in the Territory (provided, however,
that it shall be within the Company's discretion whether to obtain such
authorization in Guam). The Company shall also use its best efforts to
obtain any additional state regulatory approvals necessary for the sale
and issuance of the Contracts including, without limitation, approvals
required under California Insurance Bulletin 95-2. From time to time,
the Company shall notify the Wholesaler in writing of all States in the
Territory in which the Contracts can then lawfully be offered. To the
extent that the Company is not authorized to issue the Contracts in any
State in the Territory, the Company shall employ all reasonable efforts
to obtain such authorization in such State (provided, however, that it
shall be within the Company's discretion whether to obtain such
authorization in Guam).
e. The Wholesaler may unilaterally amend Schedule 1 from time to time
pursuant to Section 2.a. of this Agreement. The parties to this
Agreement may amend Schedules 2 and 3 to this Agreement from time to
time by mutual agreement to reflect changes in or relating to the
Contracts and the Accounts and to add new classes of variable annuity
contracts and variable life insurance contracts to be issued by the
Company or for which the Wholesaler will act as wholesaler. Schedule 2
to this Agreement will be automatically amended by the Company from time
to time to reflect the addition and deletion of
8
subaccounts and Fund portfolios. The provisions of this Agreement shall
be equally applicable to each such class of Contracts, unless the
context otherwise requires. Schedule 4 to this Agreement may be amended
only by mutual agreement of the parties to this Agreement pursuant to
Section 9 of this Agreement.
3. RECRUITMENT OF BROKER-DEALERS AND RELATED RESPONSIBILITIES
a. The Company and the Underwriter hereby authorize the Wholesaler and
any Wholesaler Agency Affiliates to contact and recommend business firms
to act as Broker-Dealers for the sale of the Contracts. The Company
shall have the right to reject any such recommendation, but shall not do
so arbitrarily or unreasonably, and any such rejection shall be in
writing and state the reasons therefor.
b. The Company and the Underwriter shall have the responsibility for:
(i) executing appropriate sales agreements with the business firms
recommended by the Wholesaler or Wholesaler Agency Affiliates and (ii)
appointing such business firms, and/or Associated Persons of such firms,
as insurance agents of the Company in those States where such business
firms and/or Associated Persons possess insurance agent licenses. None
of the Wholesaler, the Wholesaler Agency Affiliates, the Company or the
Underwriter shall have responsibility for, or bear the cost of, any
registration or licensing of Broker-Dealers or any of their Associated
Persons with the SEC, NASD or any state insurance, governmental or
regulatory agency. The costs of appointment shall be borne as provided
in Section 9.c. hereof. The Company shall maintain the appointment
records of all agents appointed by the Company to distribute the
Contracts or, if required by relevant state law, to engage in the
wholesaling activities contemplated by this Agreement. The Company
shall provide KDI with a complete listing of all agents appointed by the
Company to distribute the Contracts and shall provide KDI with an
updated listing at least monthly.
9
c. Any sales agreement entered into by the Company and/or the
Underwriter with a Broker-Dealer shall provide that:
(i) The Broker-Dealer (or an affiliated person duly registered as a
broker-dealer with the SEC) shall train, supervise, and be solely
responsible for the conduct of all of its Associated Persons in the
proper method of solicitation, sale and delivery of the Contracts
for the purpose of complying on a continuous basis with the NASD
Rules of Fair Practice and with federal and state securities and
insurance law requirements applicable in connection with the
offering and sale of the Contracts;
(ii) Purchase Payments for the Contracts shall be made payable to
the Company and shall be delivered together with all applications
and related information in accordance with the Procedures;
(iii) The Broker-Dealer and/or its duly licensed insurance agency
affiliates shall be solely responsible for all compensation paid to
its Representatives and all related tax reporting that may be
required under applicable law;
(iv) The Broker-Dealer and its Representatives shall not use,
develop or distribute any promotional, sales or advertising material
that has not been approved in writing by the Company, the
Underwriter and the Wholesaler and filed with the appropriate
governmental or regulatory agencies; and
(v) The Broker-Dealer shall not have authority, on behalf of the
Company, the Underwriter, the Wholesaler or the Wholesaler Agency
Affiliates, to make, alter or discharge any Contract or other
contract entered into pursuant to a Contract; to waive any Contract
forfeiture provision; to extend the time of paying any Purchase
Payment; to receive any monies or Purchase Payments (except for the
sole purpose of forwarding monies or Purchase Payments to the
Company); or to expend, or contract
10
for the expenditure of, funds of the Company, the Underwriter, the
Wholesaler or the Wholesaler Agency Affiliates.
d. The Wholesaler and Wholesaler Agency Affiliates shall provide such
assistance to the Company in the appointment procedure applicable to
Broker-Dealers and their Representatives as may be reasonably requested
by the Company.
e. The Wholesaler shall train, supervise, and be solely responsible for
the conduct of all of its Associated Persons (including Wholesaler
Agency Affiliates, but not Broker-Dealers or their Representatives
unaffiliated with the Wholesaler or the Wholesaler Agency Affiliates),
for the purpose of complying on a continuous basis with the NASD Rules
of Fair Practice and with federal and state securities and insurance
laws applicable to the wholesaling activities contemplated in this
Agreement. The Wholesaler and the Wholesaler Agency Affiliates shall be
responsible for the maintenance of licenses, certifications or permits
that they determine to be necessary for themselves and/or their
Associated Persons pursuant to any federal or state securities law or
state insurance law.
f. None of the Wholesaler, the Wholesaler Agency Affiliates, the
Company or the Underwriter will have any supervisory responsibility (as
such supervision is contemplated by the 1934 Act or the NASD's Rules of
Fair Practice) with respect to Broker-Dealers or their Representatives.
Under no circumstances will the Wholesaler or the Wholesaler Agency
Affiliates be responsible for Broker-Dealers' or their Representatives'
failure to comply with applicable law or the Procedures.
g. The Wholesaler shall not have authority on behalf of the Company to
make, alter or discharge any Contract or other contract entered into
pursuant to a Contract; to waive any Contract forfeiture provision; to
extend the time of paying any Purchase Payment; or to receive any monies
or Purchase Payments. The Wholesaler shall not expend, nor contract for
the expenditure of, funds of the Company; nor shall the
11
Wholesaler possess or exercise any authority on behalf of the Company
other than that expressly conferred on the Wholesaler by this Agreement.
h. The Wholesaler and the Wholesaler Agency Affiliates shall act as
independent contractors in the performance of their duties and
obligations under this Agreement and nothing contained in this Agreement
shall constitute the Wholesaler or any Wholesaler Agency Affiliate or
their respective Associated Persons as employees of the Company or the
Underwriter in connection with the wholesaling activities contemplated
by this Agreement or otherwise.
i. It is the intention of the parties hereto that the wholesaling
activities contemplated by this Agreement shall not involve the
solicitation of any insurance business from the public, or any act or
activity which would require registration as a life insurance or
variable annuity agent dealing with the public, including without
limitation, activities or conduct involving the solicitation,
negotiation, procurement, collection or transmittal of any premium or
other consideration on any insurance policy or annuity contract, or any
other act involving the consummation or delivery of any insurance policy
or annuity contract to a policy holder or the general public.
4. MARKETING AND SALES
a. Except as otherwise agreed to by the Company and the Wholesaler, the
Wholesaler shall be responsible for the design and cost of all
promotional, sales and advertising material relating to the Contracts,
which include the marketing brochure, application, broker-dealer guide
book, asset allocator worksheet and Prospectus covers.
12
Prior to use with any member of the public, the Wholesaler shall provide
to the Company copies of all promotional, sales and advertising material
developed by the Wholesaler for the Company's review and written
approval. Upon receipt of such material from the Wholesaler, the
Company shall be given a reasonable amount of time to complete its
review. The Company will respond on a prompt and timely basis in
approving any such material. Failure to respond shall not relieve the
Wholesaler of the obligation to obtain the prior written approval of the
Company.
In the event that the Company shall design any promotional, sales or
advertising material relating to the Contracts, the Company shall
provide to the Wholesaler copies of such material for the Wholesaler's
review and written approval. Upon receipt of such material from the
Company, the Wholesaler shall be given a reasonable amount of time to
complete its review. The Wholesaler will respond on a prompt and timely
basis in approving any such material. Failure to respond shall not
relieve the Company of the obligation to obtain the prior written
approval of the Wholesaler.
The Underwriter shall be responsible for filing, as required, all
promotional, sales or advertising material, whether developed by the
Company, the Underwriter or the Wholesaler, with the NASD and any
federal and state securities, governmental or regulatory agencies. The
Company shall be responsible for filing, as required, such material,
whether developed by the Company, the Underwriter or the Wholesaler,
with any state insurance, governmental or regulatory agencies. Neither
the Wholesaler nor the Wholesaler Agency Affiliates shall have any
responsibility for any of the filings referred to in this paragraph.
If any such promotional, sales or advertising material names the Fund or
the Fund's investment adviser, the Company shall furnish such material
to the Fund or the Fund's distributor (if other than the Wholesaler)
prior to its use. Such material shall not be used unless written
approval has been obtained from the Fund or the Fund's distributor.
Failure of the Fund or the Fund's distributor to respond shall not
relieve the
13
Company or the Underwriter of the obligation to obtain the
prior written approval of the Fund or the Fund's distributor.
b. The Wholesaler acknowledges that the Company shall have the right to
reject, in whole or in part, any application for a Contract, provided
(i) that there must be a reasonable basis (as determined by the Company)
for any such rejection, which basis shall be specified in writing by the
Company upon request by the Wholesaler and (ii) that the projected
profitability or lack of profitability of a Contract shall not be a
basis for rejection. In the event an application is rejected, any
Purchase Payment submitted will be returned by or on behalf of the
Company to the applicant. The Company will notify the Wholesaler and
the Broker-Dealer who submitted the Purchase Payment of such action. In
the event that a purchaser exercises his/her free look right under
his/her Contract, any amount to be refunded as provided in such Contract
will be so refunded to the purchaser by or on behalf of the Company.
The Company will notify the Wholesaler and the Broker-Dealer who
solicited the sale of the Contract of such action.
c. The Company and the Wholesaler shall equally share the costs (other
than those borne by the Fund pursuant to the Participation Agreement)
for printing any preliminary and all definitive Prospectuses for the
Contracts and Fund Prospectuses and any supplements thereto.
d. The Wholesaler will pay the following expenses (other than those
borne by the fund pursuant to the Participating Agreement ) related to
its wholesaling activities contemplated by this Agreement:
(i) the compensation, if any, of its Associated Persons;
(ii) expenses associated with the initial licensing, if any, and
training of its Associated Persons involved in the wholesaling
activities;
14
(iii) the development, printing and mailing of any promotional,
sales or advertising material for use in connection with the
distribution of the Contracts;
(iv) the printing, mailing, and all other activities associated with
proxy solicitations;
(v) expenses associated with telecommunications with the Company at
the sites of the Wholesaler or its Associated Persons, including
site installations and purchases, leases or rentals of modems,
terminals and other hardware, and lease line telephone charges; and
(vi) any other expenses incurred by the Wholesaler or its Associated
Persons for the purpose of carrying out the obligations of the
Wholesaler hereunder.
Except for such expenses and the expenses described in Section 4.c.
of this Agreement, the Wholesaler shall not be responsible for any
expenses relating to the Contracts or distribution of the Contracts
or the processing of Contracts or applications, including without
limitation any expenses incurred in connection with the return of
Purchase Payments solicited by Broker-Dealers for applications
rejected or not timely received by the Company.
e. The Company will pay all expenses in connection with:
(i) the preparation and filing with appropriate governmental or
regulatory agencies of the Registration Statements and each
preliminary Prospectus and definitive Prospectus;
(ii) the preparation and issuance of the Contracts;
15
(iii) any authorization, registration, qualification or approval of
the Contracts required under the securities, blue-sky laws or
insurance laws of the States in the Territory;
(iv) registration fees for the Contracts payable to the SEC, the
NASD or any other governmental or regulatory agency;
(v) the mailing of Prospectuses for the Contracts and Fund
Prospectuses, any supplements thereto, as required by federal
securities laws, and periodic reports relating to the Fund or the
Accounts to Contract owners;
(vi) the preparation of administrative forms utilized in connection
with the distribution of the Contracts;
(vii) the preparation of Contract owner lists for the purposes of
proxy solicitations; and
(viii) compensation as provided in Section 9 hereof.
f. The Company alone shall be responsible for and bear the cost of
administration of the Contracts following their issuance, including
all Contract owner service and communication activities, but the
Wholesaler shall be responsible for answering inquiries from
Broker-Dealers or Representatives regarding the investment performance
of the Contracts, as permitted by applicable law. The Company agrees
that its service standards for the Contracts shall be always equal to or
better than its current service standards for the other variable annuity
and variable life insurance contracts that it is actively marketing on
the effective date of this Agreement.
16
g. The Company, as agent for the Underwriter, will confirm to each
applicant for and owner of a Contract in accordance with Rule l0b-10
under the 1934 Act its acceptance of Purchase Payments and such other
transactions as are required by Rule l0b-10 or administrative
interpretations thereunder and in accordance with Release 8389 under the
1934 Act.
h. At the end of 15 months from the later of the date (a) on which the
Company and its affiliate, First Allmerica Financial Life Insurance
Company ("FAFLIC") notify the Underwriter and the Wholesaler that they
have received approval of (i) "Xxxxxx Gateway Elite" variable annuity
contracts and (ii) "Xxxxxx Gateway Custom" variable annuity contracts
(collectively, the "Contracts") from at least thirty (30) states or
(b) on which the Company and FAFLIC version of the Contracts may be
legally distributed under the Federal Securities Laws, reimbursement (if
any) from the Wholesaler for development and administrative costs of the
Contracts shall be computed and paid based on the following schedule:
AGGREGATE SALES REIMBURSEMENT
$150,000,000 and over $ 0
$140,000,001 - $150,000,000 $ 70,000
$130,000,001 - $140,000,000 $140,000
$120,000,001 - $130,000,000 $210,000
$110,000,001 - $120,000,000 $280,000
$100,000,001 - $110,000,000 $350,000
$ 90,000,001 - $100,000,000 $420,000
$ 80,000,001 - $ 90,000,000 $490,000
$ 70,000,001 - $ 80,000,000 $560,000
$ 60,000,001 - $ 70,000,000 $630,000
$ 0 - $ 60,000,000 $700,000
17
Aggregate Sales shall be determined in accordance with Section 21.a. Any
amount payable pursuant to this Section 4.h. shall be paid within thirty
(30) days after confirmation by the Wholesaler and the Company of the
amount owed.
For purposes of calculating the above reimbursement, Aggregate Sales
shall include all sales of the Contracts from the inception of public
distribution to the end of the applicable fifteen-month computation
period.
5. REPRESENTATIONS AND WARRANTIES
a. The Company and the Underwriter each represent and warrant to the
Wholesaler and each Wholesaler Agency Affiliate, on the effective date
of each Registration Statement for the Contracts (or class of Contracts)
and at each time that a Contract is sold and, with respect to Clauses
(vi), (vii), (x), and (xi) below, also on the date of this Agreement, as
follows:
(i) The Registration Statement has been declared effective by the
SEC or has become effective in accordance with the Regulations.
(ii) The Registration Statements and the Prospectuses each comply in
all material respects with the provisions of the 1933 Act and the
1940 Act and the Regulations, and neither the Registration
Statements nor the Prospectuses contain an untrue statement of a
material fact or omits 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;
provided, however, that none of the representations and warranties
in this Clause (ii) shall apply to statements in or omissions from
the Registration Statements or Prospectuses made in reliance upon
and in conformity with information furnished to the Company in
writing by the Wholesaler expressly for use in the Registration
Statements.
18
(iii) Neither the Company nor the Underwriter has received any
notice from the SEC with respect to the Registration Statement or
the Account supporting the Contracts described in the Registration
Statements pursuant to Section 8(e) of the 1940 Act and no stop
order under the 1933 Act has been issued and no proceeding therefor
has been instituted or threatened by the SEC.
(iv) The accountants who certified the financial statements included
in the Registration Statements and Prospectuses are independent
public accountants as required by the 1933 Act and the Regulations
and such independent public accountants shall have certified that
the financial statements included in the Registration Statements
present fairly the respective financial positions of the Company and
the Account supporting the Contracts described in the Registration
Statements as of the dates indicated; and such financial statements
have been prepared in conformity with generally accepted accounting
principles in the United States applied on a consistent basis.
(v) Subsequent to the respective dates as of which information is
given in the Registration Statement or the Prospectus, there has not
been any material adverse change in the condition, financial or
otherwise, of the Company, the Underwriter or the Account supporting
the Contracts described in the Registration Statements that would
cause such information to be materially misleading.
(vi) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of
Delaware with full power and authority to own, lease and operate its
properties and conduct its business in the manner described in the
Prospectus; is duly qualified to transact the business of a life
insurance company; and is in good standing, in each State in the
Territory in which the Contracts are or will be offered.
(vii) The Underwriter has been duly organized and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Massachusetts with full power and authority to own,
lease and
19
operate its properties and conduct its business in the manner described
in the Prospectuses; is duly registered as a broker-dealer with the
SEC and with the securities commission of every State in the
Territory with which such registration is required; and is a member
in good standing with the NASD.
(viii) Each Account supporting the Contracts described in the
Registration Statements has been duly authorized and established and
is validly existing as a separate account under the insurance code
of the State of Delaware, and is duly registered with the SEC as a
unit investment trust under the 1940 Act.
(ix) The form of the Contracts has been approved to the extent
required by the Insurance Commissioner of the State of Delaware and
by the governmental agency responsible for regulating insurance
companies in each other State in the Territory in which the
contracts are to be offered.
(x) The execution and delivery of this Agreement and the
consummation of the transactions contemplated in this Agreement have
been duly authorized by all necessary corporate action by the
Company and the Underwriter and when so executed and delivered this
Agreement will be the valid and binding obligation of the Company
and the Underwriter, enforceable in accordance with its terms.
(xi) The consummation of the transactions contemplated by this
Agreement, and the fulfillment of the terms of this Agreement, will
not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of
time) a default under, the charter or bylaws of the Company or the
Underwriter, or any indenture, agreement, mortgage, deed of trust,
or other instrument to which the Company or the Underwriter is a
party or by which either is bound, or violate any law, or, to the
best of the Company's or the Underwriter's knowledge, any order,
rule or regulation applicable to the Company or the Underwriter of
any court or of any federal or state regulatory body, administrative
20
agency or any other governmental instrumentality having jurisdiction
over the Company or the Underwriter or any of their respective
properties.
(xii) No consent, approval, authorization or order of any court or
governmental authority or agency is required for the issuance or
sale of the Contracts or for the consummation of the transactions
contemplated by this Agreement, that has not been obtained.
(xiii) The Company has filed with the SEC all statements and other
documents required for registration under the provisions of the 1940
Act and the Regulations thereunder of the Account supporting the
Contracts described in the Registration Statement, and such
registration has been effected; there are no agreements or documents
required by the 1933 Act, the 1940 Act, or the Regulations to be
filed with the SEC as exhibits to the Registration Statement, that
have not been so filed; and the Company has obtained all exemptive
or other orders of the SEC necessary to make the public offering and
consummate the sale of the Contracts pursuant to this Agreement and
to permit the operation of the Accounts supporting the Contracts
described in the Registration Statements, as contemplated in the
Prospectuses.
(xiv) The Contracts have been duly authorized by the Company and
conform to the descriptions thereof in the Registration Statements
and the Prospectuses and, when issued as contemplated by the
Registration Statements, will constitute legal, validly issued and
binding obligations of the Company in accordance with their terms.
b. KDI and ZKIA represent and warrant to the Company on the date hereof as
follows:
(i) KDI and ZKIA have taken all action including, without
limitation, those necessary under their respective certificates of
incorporation, by-laws and applicable state corporate law, necessary to
21
authorize the execution, delivery and performance of this
Agreement, and have taken or will take all requisite action to
enable them to perform all transactions contemplated hereunder in
accordance with the terms hereof; and
(ii) KDI is and during the term of this Agreement shall remain duly
registered as a broker-dealer under the 1934 Act, a member in good
standing with the NASD, and duly registered as a broker-dealer under
applicable state securities laws.
6. ADDITIONAL RESPONSIBILITIES OF THE COMPANY
a. The Company shall use its best efforts:
(i) to maintain the registration of the Contracts with the SEC and
any state securities commissions of any State in the Territory where
the securities or blue-sky laws of such State require registration
of the Contracts, including without limitation using its best
efforts to prevent a stop order from being issued or if a stop order
has been issued to cause such stop order to be withdrawn;
(ii) to gain approval or other authorization of the Contract forms
where required under the insurance laws and regulations of each
State in the Territory (provided, however, that it shall be within
the Company's discretion whether to obtain such approval or
authorization in Guam); and
(iii) to keep such registration, approval and authorization in
effect thereafter so long as the Contracts are outstanding.
b. During the term of this Agreement the Company shall take all action
required to cause each class of Contracts to comply, and to continue to
comply, as annuity contracts or life insurance contracts, as the
22
case may be, and to cause the Registration Statements and the Prospectus
for each class of Contracts to comply, and to continue to comply, with
all applicable federal laws and regulations and all applicable laws and
regulations of each State in the Territory.
c. The Company, during the term of this Agreement, shall notify the
Wholesaler immediately:
(i) when each Registration Statement has become effective or any
post-effective amendment with respect to the Registration Statement
thereafter becomes effective;
(ii) of any request by the SEC for any amendment to a Registration
Statement or supplement to a Prospectus or for additional information;
(iii) of any event that makes any material statement made in a
Registration Statement or a Prospectus untrue in any material respect or
results in a material omission in a Registration Statement or a
Prospectus;
(iv) of the issuance by the SEC of any stop order with respect to a
Registration Statement or any amendment thereto, or the initiation of
any proceedings for that purpose, or for any other purpose relating to
the registration and/or offering of the Contracts (or a class of
Contracts);
(v) in which States in the Territory registration of the Contracts (or a
class of Contracts) is required under the securities or blue-sky laws,
and when such registrations have become effective.
d. The Company shall furnish to the Wholesaler without charge promptly
after filing five (5) copies of each Registration Statement as
originally filed and any pre-effective or post-effective amendment
thereto, including financial statements and all exhibits, including
exhibits incorporated therein by reference.
23
e. The Company shall timely file all reports, statements and amendments
required to be filed by or for each Account or class of Contracts under
the 1933 Act and/or the 1940 Act or the Regulations.
f. The Company shall deliver to the Wholesaler, as soon as practicable
after it becomes available, the Annual Statements for the Company and
for each Account in the form filed with their respective state of
domicile, and any quarterly reports upon the Wholesaler's request.
g. The Company and the Underwriter will provide the Wholesaler access
to such records, officers and employees of the Company, the Underwriter
and each Account at reasonable times as is necessary to enable the
Wholesaler to fulfill its obligations under the federal securities laws
and NASD rules. The Wholesaler will provide the Company and the
Underwriter access to such of its records, officers and employees at
reasonable times as is necessary to enable the Company and the
Underwriter to fulfill their obligations under the federal securities
laws and NASD rules.
h. The Company shall provide the Wholesaler at least monthly with a
sales report or reports and an assets under management report in such
form as shall be acceptable to both the Company and the Wholesaler. Any
such sales report shall include, among other items, a break-down of
sales by Representative, Broker-Dealer, product type and Contract state
of issue.
7. CONFIDENTIALITY
a. The Company and the Underwriter acknowledge that the names and
addresses of all customers and prospective customers (for purposes of
this Section 7.a., the terms "customers" and "prospective customers"
shall not mean Broker-Dealers) of the Wholesaler, of its parent company
and of any affiliated person of the Wholesaler, the Wholesaler Agency
Affiliates and the names and addresses of all customers and prospective
customers of any Broker-Dealer that may come to the attention of the
Company, the Underwriter or any person affiliated with the Company or
the Underwriter solely as a result of their relationship with the
Wholesaler, its parent company or any affiliated person of the
Wholesaler, the Wholesaler Agency Affiliates or any Broker-Dealer and
not from any independent source, are confidential and shall not be used
by the Company, the
24
Underwriter or any person affiliated with the Company or the Underwriter
for any purpose whatsoever except as may be necessary in connection with
the administration of the Contracts sold by the Broker-Dealers,
including responses to specific requests made to the Company for service
by Contract owners, efforts to prevent the replacement of such Contracts
or communications with customers concerning option rights available
under the terms of the Contracts. The restrictions set forth in the
previous sentence do not apply if and to the extent a Broker-Dealer
knowingly discloses the names and addresses of its customers or
prospective customers to the Company or the Underwriter outside the
operation of this Agreement. In no event shall the names and addresses
of such customers and prospective customers, whether disclosed to the
Company or the Underwriter by the Wholesaler or by any Broker-Dealer, be
furnished by the Company, the Underwriter or any of their affiliated
persons to any other person. The intent of this paragraph is that
neither the Company nor the Underwriter, nor persons affiliated with the
Company or the Underwriter, shall utilize, or permit to be utilized, for
any purpose other than for the sale and administration of the Contracts
or for the sale and administration of other financial products
distributed or managed by the Wholesaler and/or its affiliates, their
knowledge of the Wholesaler, of its parent company or of any affiliated
person of the Wholesaler, the Wholesaler Agency Affiliates or the
identity of all customers and prospective customers, derived solely as a
result of the relationship created through the funding and sale of the
Contracts. This paragraph shall remain operative and in full force and
effect regardless of the termination of this Agreement, and shall
survive any such termination.
In addition to the foregoing, the Company and the Underwriter agree that
neither during the term of this Agreement nor after its termination
shall the names and addresses of Broker-Dealers and their
Representatives recruited by the Wholesaler to solicit the Contracts be
furnished by the Company, the
25
Underwriter or any of their affiliated persons to any other person, or
be utilized by the Company, the Underwriter or their affiliated persons
for any purpose except as the Company deems necessary or appropriate for
the sale and administration of the Contracts subject to this Agreement.
8. RECORDS
The Company, the Underwriter, the Wholesaler and the Wholesaler Agency
Affiliates shall each maintain such accounts, books and other documents
as are required to be maintained by each of them by applicable laws and
regulations and shall preserve such accounts, books and other documents
for the periods prescribed by such laws and regulations. The accounts,
books and records of the Company, the Underwriter, the Account, the
Wholesaler and the Wholesaler Agency Affiliates as to all transactions
hereunder shall be maintained so as to clearly and accurately disclose
the nature and details of the transactions, including such accounting
information as is necessary to support the reasonableness of the amounts
paid by the Company hereunder. Each party shall have the right to
inspect and audit such accounts, books and records of the other party
during normal business hours upon reasonable written notice to the other
party. Each party shall keep confidential all information obtained
pursuant to such an inspection or audit, and shall disclose such
information to third parties only upon receipt of written authorization
from the other party, except as required by law.
9. BROKER-DEALER COMPENSATION AND WHOLESALER PROMOTIONAL ALLOWANCES
a. The Company shall compensate Broker-Dealers and/or their duly
licensed insurance affiliates for sales of the Contracts by their
Representatives pursuant to Schedule 4 to this Agreement, as such
Schedule may be amended from time to time upon mutual agreement of the
parties to this Agreement. As of the effective date of this Agreement,
Schedule 4 governs only compensation and Promotional Allowances related
to sales of Xxxxxx Gateway Elite and Custom annuity Contracts. When
additional Contracts are developed
26
and offered for sale, Schedule 4 will be appropriately amended to
reflect the compensation and Promotional Allowances payable as a result
of sales of such additional Contracts. Such compensation shall be based
in part on Purchase Payments received and accepted by the Company for
all Contracts issued on applications obtained by the Broker-Dealers or
any of their respective Representatives. Additional "trail"
compensation shall be paid, as described in Schedule 4. The Company
will pay compensation due Broker-Dealers and/or their insurance
affiliates in accordance with the procedures set forth in Schedule 4.
The compensation provided for in this Section 9 shall be payable to the
Broker-Dealer and/or its duly licensed insurance affiliate in accordance
with the sales agreement between the Underwriter and the Broker-Dealer
for so long as the Contracts are outstanding, regardless of whether
this Agreement is still in effect. If trail commissions are no longer
payable to a Broker-Dealer because the sales agreement between the
Company and the Broker-Dealer is no longer in effect, one-half of the
trail commissions that would have been payable to the Broker-Dealer had
the sales agreement remained in effect shall be paid instead to ZKIA for
so long as the Contracts on which the trail commissions are payable
remain in effect, regardless of whether this Agreement is still in
effect. In addition to the compensation payable to the Broker-Dealers
and their insurance affiliates, the Company shall pay the Wholesaler a
Promotional Allowance as a reimbursement for its expenses incurred
relating to its wholesaling activities contemplated by this Agreement.
Promotional Allowances shall be payable to the Wholesaler in such amount
and in accordance with the procedures as set forth in Schedule 4, as
such Schedule may be amended from time to time upon mutual agreement of
the parties to this Agreement. Promotional Allowances shall be payable
to the Wholesaler for so long as the Contracts are outstanding,
regardless of whether this Agreement and the Participation Agreement are
still in effect. Nothing herein or in any sales agreement shall be
construed to create any obligation on the part of the Wholesaler to
compensate any Broker-Dealer for sales of the Contracts.
If any State in the Territory by insurance rule, regulation or statute,
prohibits payment of Promotional Allowances to the Wholesaler, the
Wholesaler shall designate in writing a business entity or natural
person,
27
including Wholesaler Agency Affiliates, meeting the requirements of such
State to receive any amounts that may otherwise be payable to the
Wholesaler hereunder. The Wholesaler may change such designation from
time to time upon written notice to the Company. Any payments made by
the Company to any person or entity so designated by the Wholesaler
shall discharge the Company's liability to the Wholesaler hereunder.
If a purchaser rescinds a Contract or exercises a right to surrender a
contract for return of all Purchase Payments, the Wholesaler will pay to
the Company on demand the amount of any Promotional Allowances it
received on the Purchase Payments returned. Promotional Allowance
chargebacks will be calculated by the Company on the same basis, as
described in Schedule 4 hereto, as was utilized in calculating the
Contract Promotional Allowances received.
b. INDEBTEDNESS. Nothing in this Agreement shall be construed as
giving the Wholesaler the right to incur any indebtedness on behalf of
the Company.
c. APPOINTMENT FEES. The Company will pay the initial and renewal fees
for agent appointments by the Company of duly licensed Wholesaler Agency
Affiliates and Broker-Dealers and their respective Associated Persons;
provided, however, (a) that if total Aggregate Annual Sales of the
Contracts, as described in Section 21.a., do not exceed $60 million
during any calendar year beginning after December 31, 1997, the
Wholesaler will reimburse the Company for the total amount of initial or
renewal fees paid by the Company during such calendar year(s), and (b)
that the Company reserves the right to refuse to pay renewal fees for
Representatives not meeting such minimal sales as may be agreed upon
from time to time. For purposes of (b) above, the minimal sales target
for Representatives shall be $25,000 per calendar year, unless the
parties hereto mutually agree on a different sales target for a calendar
year.
28
Notwithstanding Clause (a) above, in calculating the amount of agent fee
reimbursements, if an agent solicited products of the Company in
addition to the Contracts described in this Agreement, the reimbursement
otherwise required under Clause (a) will be pro-rated, as described
below:
The otherwise reimbursable amount shall be multiplied by a fraction,
the numerator of which is the number of Xxxxxx products covered by
this Agreement on the date of determination (two as of the effective
date of this Agreement) and the denominator of which is the
aggregate number of products of the Company and its insurance
affiliates being solicited by the agent on the date of determination.
d. REPORTING. The Wholesaler shall be responsible for all tax
reporting information, if any, that the Wholesaler is required to
provide under applicable tax law to its Associated Persons with respect
to the Contracts. Nothing contained in this Agreement or any sales
agreement with a Broker-Dealer is to be construed to require the
Wholesaler to provide any tax reporting information directly or
indirectly to any Broker-Dealer or its Representatives.
e. SURVIVAL. Except for Section 9.c.(a), this Section 9 shall remain
operative and in full force and effect regardless of the termination of
this Agreement, and shall survive any such termination.
10. INVESTIGATION AND PROCEEDINGS
a. The Company, the Underwriter and the Wholesaler will cooperate
fully in any securities, insurance, governmental or regulatory
investigation or proceeding or judicial proceeding arising out of or
in connection with the offering, sale or distribution of the Contracts
for which the Wholesaler acts as wholesaler pursuant to this Agreement.
Without limiting the foregoing, the Company, the Underwriter and
29
the Wholesaler agree to notify one another promptly of any customer
complaint or notice of any governmental, judicial or regulatory
investigation or proceeding described in this Section 10.
b. In the case of a substantive customer complaint, the Company, the
Underwriter, the Wholesaler and the Wholesaler Agency Affiliates will
cooperate in investigating such complaint and any response by the
Company or Underwriter, as one party, or the Wholesaler or Wholesaler
Agency Affiliates, as another party, to such complaint will be sent to
the other party for approval not less than five business days prior to
its being sent to the customer or to any governmental or regulatory
agency, except that if a more prompt response is required, the proposed
response shall be communicated by telephone, telegraph or facsimile.
Neither such party will release any such response without the other
party's prior written approval, unless otherwise required by applicable
law. Failure of any party to object to a proposed response within four
business days shall be deemed to constitute approval of a proposed
response by the non-objecting party.
11. INDEMNIFICATION
a. The Company and the Underwriter, jointly and severally, shall
indemnify and hold harmless the Wholesaler and the Wholesaler Agency
Affiliates and each person who controls or is associated with the
Wholesaler or the Wholesaler Agency Affiliates 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 the Wholesaler, the
Wholesaler Agency Affiliates and/or such person may become subject,
under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
30
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement, Prospectus, blue sky application or other document
executed by the Company specifically for the purpose of qualifying
any or all of the Contracts for sale under the securities laws of
any State, promotional, sales or advertising material for the
Contracts prepared by the Company, 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 untrue statement or
omission or such alleged untrue statement or alleged omission was
made in reliance upon and in conformity with information furnished
in writing to the Company or the Underwriter by the Wholesaler
specifically for use in the preparation of any such Registration
Statement, Prospectus or blue-sky application or other document,
material or Contract (or any such amendment or supplement thereto);
or
(ii) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Fund
Registration Statement, Fund Prospectus, blue sky application or
other document executed by the Fund specifically for the purpose of
qualifying any or all of the shares of the Fund for sale under the
securities laws of any State, or in any promotional, sales or
advertising material or written information relating to the shares
of the Fund authorized by the Fund (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, 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 and in conformity with
information furnished in writing to the Wholesaler or the Fund by
the Company specifically for use
31
in the preparation of any such Fund Registration Statement, Fund
Prospectus, blue-sky application or other document (or any such
amendment or supplement thereto); or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement or omission or alleged omission of a
material fact by or on behalf of the Company or the Underwriter
(other than statements or representations contained in the Fund
Registration Statement, Fund Prospectus or promotional, sales or
advertising material of the Fund that were not supplied by the
Company, the Underwriter or persons under their control) or
wrongful conduct of the Company or the Underwriter or persons under
their control with respect to the sale or distribution of the
Contracts; or
(iv) result because of the terms of any Contract or because of any
material breach by the Company or the Underwriter of any terms of
this Agreement or of any Contract or that proximately result from
any activities of the Company's or Underwriter's officers,
directors, employees or agents or their failure to take action in
connection with the sale of a Contract, to the extent of the
Company's or the Underwriter's obligations under this Agreement or
otherwise, or the processing or administration of the Contracts.
This indemnification obligation will be in addition to any
liability that the Company or Underwriter may otherwise have;
provided, however, that no person shall be entitled to
indemnification pursuant to this Section 11.a. 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. The Wholesaler shall indemnify and hold harmless the Company and
the Underwriter and each person who controls or is associated with the
Company or the Underwriter 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
32
expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which the Company, the Underwriter and/or any such person
may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise
out of or are based upon:
(i) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement, Prospectus or
blue-sky application or other document executed by the Company
specifically for the purpose of qualifying any or all of the
Contracts for sale under the securities laws of any State (or any
amendment or supplement to the foregoing), or omission or alleged
omission to state therein 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,
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 and in conformity with
information furnished in writing to the Company or the Underwriter
by the Wholesaler specifically for use in the preparation of any
such Registration Statement, Prospectus, such blue-sky application
or other document (or any such amendment or supplement thereto),
the parties hereby confirming that the only such information is the
information which appears in the Prospectus under the sub-caption
"Xxxxxx Investors Fund" and in the Statement of Additional
Information filed with the Prospectus under the caption
"Performance Information;" or
(ii) any use of promotional, sales or advertising material for the
Contracts not approved in writing by the Company or any verbal or
written misrepresentations or any unlawful sales practices
concerning the Contracts by the Wholesaler or the Wholesaler Agency
Affiliates under federal securities laws or NASD regulations (but
not including state insurance laws, compliance with which is a
responsibility of the Company or the Underwriter under this
Agreement or otherwise); or
33
(iii) claims by agents, representatives or employees of the
Wholesaler for compensation or other remuneration of any type other
than claims by any Broker-Dealer relating to compensation described
or referred to in Schedule 4 hereto; or
(iv) any material breach by the Wholesaler or the Wholesaler Agency
Affiliates of any provision of this Agreement.
This indemnification obligation will be in addition to any
liability that the Wholesaler may otherwise have; provided,
however, that no person shall be entitled to indemnification
pursuant to this Section 11.b. 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.
c. If the indemnification provided for in this Section is unavailable
to an indemnified party under paragraphs (a) or (b) hereof in respect
to any losses, claims, damages or liabilities referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the
relative fault of the Company and the Underwriter, on the one hand, and
the Wholesaler, on the other, as well as any other relevant equitable
considerations. The relative fault of the Company and the Underwriter,
on the one hand, and the Wholesaler, on the other, with respect to
untrue or alleged untrue statements of material fact or omissions or
alleged omissions of material facts shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company or by the Underwriter, on the one
hand, and by the Wholesaler, on the other, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages
34
and liabilities referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company, the Underwriter and the Wholesaler agree that it would not
be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
in the immediately preceding paragraph.
If the Company and the Underwriter, as one party, and the Wholesaler,
as the other party, cannot agree on the appropriate amount of any
contribution payable pursuant to this Section, the matter shall be
settled by arbitration pursuant to Section 16 hereof. The costs of any
such arbitration shall be divided equally between the Company and the
Underwriter, as one party, and the Wholesaler, as the other party.
d. After receipt by a party entitled to indemnification ("indemnified
party") under this Section 11 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 Section 11 ("indemnifying party"), such indemnified party will
notify the indemnifying party in writing of the commencement thereof as
soon as practicable thereafter, provided that the omission to so notify
the indemnifying party will not relieve it from any liability under
this Section 11, except to the extent that the omission results in a
failure of actual notice to the indemnifying party and such
indemnifying party is damaged 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
35
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 indemnified party shall indemnify the
indemnified party from and against any loss or liability by reason of
such settlement or judgment.
e. The indemnification provisions contained in this Section 11 shall
remain operative in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company or by or on behalf of
any controlling person thereof, (ii) delivery of any Contracts and
Purchase Payments therefor, or (iii) any termination of this Agreement.
A successor by law of the Wholesaler or the Company, as the case may
be, shall be entitled to the benefits of the indemnification provisions
contained in this Section 11.
12. TERMINATION
a. This Agreement may be terminated at the option of any party upon
twelve months advance written notice to the other parties, such
termination to be effective no earlier than six years following the
date on which the first Contract is issued to the public.
Notwithstanding the foregoing, this Agreement shall terminate
automatically on the termination date of the Participation Agreement
among the Fund, Zurich Xxxxxx Investments Inc., KDI and the Company
entered into contemporaneously herewith.
b. This Agreement may not be assigned without the express written
consent of the other parties hereto. This Agreement may be terminated
at the option of the Company and the Underwriter, as one party, or the
Wholesaler and the Wholesaler Agency Affiliates, as one party, upon the
other party's material breach of
36
any provision of this Agreement, if any such breach is not cured within
ninety days after notice thereof to the breaching party and all other
parties.
c. Upon termination of this Agreement all authorizations, rights and
obligations shall cease except: (i) the obligation to continue to pay
compensation to Broker-Dealers and compensation and Promotional
Allowances to the Wholesaler, as set forth in Section 9.a. and Schedule
4; (ii) the provisions contained in Sections 7, 9 and 11 of this
Agreement; and (iii) the indemnification provisions set forth in
Section 11 of this Agreement, or as otherwise specifically noted in
this Agreement.
13. 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 to this Agreement
are entitled to under state and federal laws. Failure of the
Wholesaler or the Wholesaler Agency Affiliates, as one party, or the
Company or the Underwriter, as another party, to insist upon strict
compliance by the other party 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.
14. NOTICES
All notices hereunder are to be made in writing and shall be given:
37
if to the Company to:
Xxxx X. Xxxxx, Vice President
Allmerica Financial Life Insurance and Annuity Company
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
if to the Underwriter to:
Xxxxxxx Xxxxxx, President
Allmerica Investments, Inc.
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
if to the Wholesaler or Wholesaler Agency Affiliates, to any such party at:
[Name of Party]
000 Xxxxx Xxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: President
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 certified United States mail with return
receipt requested, and shall be effective upon delivery.
15. INTERPRETATION, JURISDICTION, ETC.
This Agreement constitutes the whole agreement between the parties to
this Agreement relating to the wholesaling activities contemplated in
this Agreement, and supersedes all prior oral or written negotiations
between the parties to this Agreement with respect to the subject
matter of this Agreement. The parties acknowledge that the Company,
the Wholesaler and the Fund have entered into the Participation
38
Agreement in contemplation of entering into this Agreement. This
Agreement shall be construed and the provisions of this Agreement
interpreted under and in accordance with the internal laws of the
Commonwealth of Massachusetts without giving effect to principles of
conflict of laws.
16. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement,
or the breach of this Agreement, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
17. HEADINGS
The headings in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
of this Agreement or otherwise affect their construction or effect.
18. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one and the same instrument.
19. SEVERABILITY
This is a severable agreement and in the event that any part or parts
of this Agreement shall be held to be unenforceable to its or their
full extent, then it is the intention of the parties to this Agreement
that such part or parts shall be enforced to the extent permitted under
the law, and, in any event, that all other parts
39
of this Agreement shall remain valid and duly enforceable as if the
unenforceable part or parts had never been a part of this Agreement.
20. REGULATION
This Agreement shall be subject to the provisions of the 1933 Act, 1934
Act and 1940 Act and the Regulations 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 of this Agreement
shall be interpreted and construed in accordance therewith.
21. MISCELLANEOUS
a. For the purposes of Section 4.h., "Aggregate Sales" shall refer to
the aggregate sales of the Contracts pursuant both to this Agreement
and to the Wholesaling Agreement with First Allmerica Financial Life
Insurance Company ("FAFLIC") related to contracts offered for sale in
the States of New York and Hawaii being executed contemporaneously
herewith (the "FAFLIC Agreement"). Based on such Aggregate Sales,
Wholesaler shall be responsible for only a single reimbursement amount,
and such reimbursement shall be divided between the Company and FAFLIC
as they may mutually agree. For the purposes of Section 9.c.(a),
"Aggregate Annual Sales" shall refer to the total annual sales through
the Wholesaler pursuant both to this Agreement and to the FAFLIC
Agreement, and "total amount of initial or renewal fees" shall refer to
the aggregate amount of such fees incurred by the Company and FAFLIC.
b. The Company and the Underwriter acknowledge that the names "Gateway
Elite," "Gateway Custom," "Xxxxxx Gateway Elite" and "Xxxxxx Gateway
Custom," and any and all variations thereof, are the exclusive property
of the Wholesaler and their respective affiliates, and that any use of
any such names or any variation thereof during or after the term of
this Agreement are and will be subject to the express
40
prior written consent of KDI and/or ZKIA thereto. Notwithstanding the
foregoing, KDI and ZKIA hereby specifically permit the Company to use
the above names as the Company deems necessary or appropriate in its
administration of the Contracts subject to this Agreement. The Company
and the Wholesaler agree that in the event of any breach of this
Section 21.b, as a remedy therefor and in addition to all other
remedies, the Wholesaler shall be entitled to specific performance and
injunctive or other equitable relief without proof of actual damages,
and that the Company and the Underwriter will not oppose or impede the
granting of such relief.
41
IN WITNESS WHEREOF, each party hereto represents that the officer signing
this Agreement on the party's behalf is duly authorized to execute this
Agreement; and each party has caused this Agreement to be duly executed by
such authorized officer on the date specified below.
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
Date: 11/6/96 By: /s/ Xxxxxxx X. Xxxxxx
----------------- ----------------------------
Name: Xxxxxxx X. Xxxxxx
----------------------------
Title: President
----------------------------
ALLMERICA INVESTMENTS, INC.
Date: 11/6/96 By: /s/ Xxxxxxx X. Xxxxxx
----------------- ----------------------------
Name: Xxxxxxx X. Xxxxxx
----------------------------
Title: Director
----------------------------
XXXXXX DISTRIBUTORS, INC.
(on its own behalf and on behalf of
the Wholesaler Agency Affiliates)
Date: 11/5/96 By: /s/ Xxxxx X. Xxxxxxxxxx
----------------- ----------------------------
Name: Xxxxx X. Xxxxxxxxxx
----------------------------
Title: President
----------------------------
ZKI AGENCY, INC.
Date: 11/5/96 By: /s/ Xxxxx X. Xxxxxxxxxx
----------------- ----------------------------
Name: Xxxxx X. Xxxxxxxxxx
----------------------------
Title: President
----------------------------
42
43
SCHEDULE 1
Wholesaler Agency Affiliates
Effective November 5, 1996
NAME OF STATE(S) IN
WHOLESALER AGENCY AFFILIATE WHICH LICENSED
None
Schedule 2
Separate Accounts
Available under the Contracts
Effective November 5, 1996
SEPARATE ACCOUNT SUBACCOUNTS ARE INVESTED
IN THE FOLLOWING XXXXXX INVESTORS FUND
NAME OF SEPARATE ACCOUNT PORTFOLIOS
Separate Accounts KG (Xxxxxx XX
Gateway Elite) and KGC (Xxxxxx Gov Sec
Gateway Custom) of Allmerica Inv Grade
Financial Life Insurance and Annuity High Yield
Company Horizon 5
Horizon 10+
Horizon 20+
Total Return
Growth
Value
Value and Growth
Small Cap Value
Small Cap Growth
International
Schedule 3
Contracts Subject to Wholesaling Agreement
Effective November 5, 1996
SEC
Marketing Policy Registration
Name Form No. No.
------------- -------------- ---------------
Xxxxxx Gateway Elite A3025-96 333-9965
Xxxxxx Gateway Custom A3026-96 333-10283
SCHEDULE 4
Broker-Dealer Compensation and
Wholesaler Promotional Allowance Schedule
The Broker-Dealer Compensation payable by the Company with respect to the
sale and distribution of the Contracts, based on initial and subsequent
Purchase Payments received and accepted by the Company, shall be computed
under one of the options shown below:
For non-401(k) contracts:
Option A: 6.00% and no trail
Option B: 5.00% and .25% lifetime trail
Option C: 4.00% and .50% lifetime trail
Option D: 2.00% and 1.00% lifetime trail
For 401(k) contracts:
Option A: 5% and no trail
Option B: 4.00% and .25% lifetime trail
Option C: 3.00% and .50% lifetime trail
Option D: 1.00% and 1.00% lifetime trail
These amounts shall be payable to Broker-Dealers as sales commissions. Such
amounts will be paid according to the then current practice of the Company,
but no less frequently than twice each calendar month. One quarter of the
trail rate is paid on the non-loaned contract value at the end of each
calendar quarter after the first contract year. Alternative sales commission
options involving a combination of both up-front amounts and asset based
trails may be made available by mutual agreement.
Promotional Allowances shall be payable to the Wholesaler as reimbursement
for its expenses incurred with respect to the distribution of the Contracts
("Support Services"); provided, however, that the Company shall pay such
amounts from Promotional Allowances to Broker-Dealers who provide Support
Services, as the Wholesaler may from time to time direct.
Promotional Allowances shall be determined as follows:
- .15% on an annual basis of the average daily assets in the Elite
separate accounts (excluding the GPA accounts); plus
- .15% on an annual basis of the average monthly account balance in the
GPA and fixed accounts for both the Elite and Custom Contracts; plus
- .25% of initial and subsequent Purchase Payments received and accepted
by the Company on any Contract for which commission Option B was chosen;
plus
- 1.00% of initial and subsequent Purchase Payments received and
accepted by the Company for 401(k) Contracts.
Promotional allowances will be reduced by the following amounts:
- .50% of initial and subsequent Purchase Payments for Contracts issued
in Maine and South Dakota and any other states which levy an upfront
premium tax; plus
- $35 each contract anniversary and on surrender for Contracts issued to
fund 401(k) plans with Contract values of $50,000 or less; plus
- $5 each contract anniversary and on surrender for non-401(k) contracts
with contact values of $50,000 or less issued in North Dakota or any
other state that caps the contract charge at $30.
The net Promotional Allowance will be paid to the Wholesaler according to the
then current practice of the Company, but no less frequently than monthly.
