PARTICIPATION AGREEMENT
Among
THE PALLADIAN TRUST
WESTERN CAPITAL FINANCIAL GROUP, INC.
and
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT, made and entered into as of this 24th day of October, 1996 by
and among Allmerica Financial Life Insurance and Annuity Company
(hereinafter, the "Company"), a Delaware insurance company, on its own behalf
and on behalf of each segregated asset account of the Company set forth on
Schedule A hereto as may be amended from time to time ( hereinafter referred
to as the "Accounts"), The Palladian Trust, a business trust organized under
the laws of Massachusetts (hereinafter referred to as the "Fund"), and
Western Capital Financial Group, Inc., the underwriter of the Fund
(hereinafter the "Distributor"), a California corporation.
WHEREAS, the Fund is engaged in business as an open-end management investment
company and wishes to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively referred to as "Variable Insurance Contracts" and the owners of
such products being referred to as "Contract Owners") to be offered by insurance
companies which have entered into participation agreements with the Fund
("Participating Insurance Companies"); and
WHEREAS, the shares of the Fund (the "Fund shares") consist of separate classes
or series of shares, each designated a "Portfolio" and each series of shares
("Portfolio shares") representing an interest in a particular managed portfolio
of securities and other assets; and
WHEREAS, the Fund has filed a registration statement (referred to herein as the
"Fund Registration Statement" and the prospectus contained therein, referred to
herein as the "Fund Prospectus") with the Securities and Exchange Commission
(the "SEC") on Form N-lA to register itself as an open-end management investment
company (File No. 811-08278) under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the Fund shares (File No. 33- 73882) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, each Account is a validly existing separate account duly authorized
and established by resolution of the Board of Directors of the Company on the
date set forth on Schedule 2, and sets aside and invests assets attributable to
the Contracts, and 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 the Account; and
WHEREAS, the Company has filed or will file registration statements with the SEC
to register under the 1933 Act certain variable annuity contracts and variable
life contracts described in Schedule 1 to this Agreement, as may be amended from
time-to-time (the "Contracts"), each such registration statement for a class or
classes of contracts listed on Schedule 1 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 such
contracts; and,
WHEREAS, the Fund has obtained or has filed an application to obtain an order
from the Securities
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and Exchange Commission ("SEC") granting Participating Insurance Companies
and variable annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9)a),13(a),15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules
6e(b)(15) and 6e(T)(b)(15) thereunder, if any to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
and
WHEREAS, Palladian Advisors, Inc. (the "Investment Manager") is registered as an
investment adviser under the Investment Advisers Act of 1940 and any applicable
state securities laws and serves as overall manager to the Fund; 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 a Distribution Agreement
(the "Fund Distribution Agreement") dated October 12, 1995 pursuant to which
the Distributor will distribute Fund shares, and to the extent permitted by
applicable insurance laws and regulations, the Company intends to purchase
Portfolio shares on behalf of the Accounts to fund the Contracts and the
Distributor is authorized to sell such 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 I. TRANSACTIONS IN FUND SHARES
1.1. The Fund agrees to sell to the Company those shares of the Fund which the
Company orders on behalf of the Accounts, executing such orders on a daily basis
in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make the shares of its Portfolios available for
purchase by the Company on behalf of the Accounts 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 reasonable efforts to calculate such net asset
value on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Board") may
suspend or terminate the offering of Fund shares of any Portfolio, if such
action is required by law or by regulatory authorities having jurisdiction or
if, in the sole discretion of the 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 of any
Portfolio.
1.3. The Fund agrees to redeem, upon request, any full or fractional shares of
the Fund held by the Accounts or the Company, executing such requests at net
asset value on a daily basis in accordance with Section 1.4 of this Agreement
and applicable provisions of the 1940 Act. Notwithstanding the foregoing, the
Fund may delay redemption of Fund shares to the extent permitted by the 1940
Act, or any rules, regulations or orders thereunder.
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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 the Account (but not from the general accounts of the Company),
and receipt on any Business Day by the Company as such limited agent of the Fund
by the time prescribed in the current Contracts Prospectus (which as of the date
of execution of this Agreement is expected to be 4 p.m.). shall constitute
receipt by the Fund on that same Business Day, provided that the Fund receives
notice of such redemption or purchase request by 11:00 a.m. Eastern Time 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 or
as otherwise provided in the Fund's then currently effective Fund Prospectus.
(b) The Company shall pay for shares of each Portfolio on the same day
that it places an order with the Fund to purchase those Portfolio shares.
Payment for Portfolio shares will be made by the Account or the Company in
Federal funds transmitted to the Fund by wire to be received by 11:00 a.m. on
the day the Fund is notified of the purchase order for Portfolio shares (unless
sufficient proceeds are available from redemption of shares of other
Portfolios). If Federal funds are not received on time, such funds will be
invested, and Portfolio shares purchased thereby will be issued, as soon as
practicable.
(c) Payment for Portfolio shares redeemed by the Accounts or the Company
will be made in Federal funds transmitted to the Company by wire on the day the
Fund is notified of the redemption order of Fund shares (unless redemption
proceeds are applied to the purchase of shares of other Portfolios), 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. The Fund shall bear no responsibility whatsoever for the
disbursement or crediting of redemption proceeds.
1.5. Issuance and transfer of Fund shares will be by book entry only. Stock
certificates will not be issued to the Company or the Accounts. Purchase and
redemption orders for Fund shares will be recorded in an appropriate ledger for
the Account or the appropriate SubAccount of the 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 Fund
shares. The Company hereby elects to receive all such dividends and
distributions as are payable on any Portfolio shares in the form of additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends in cash. The Fund shall notify the
Company of the number of Portfolio 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
for each Portfolio available to the Company by 7 p.m. Eastern Time each Business
Day, and in any event, as soon as reasonably practicable after the net asset
value per share for such series is calculated, and shall calculate such net
asset value in accordance with the then currently effective Fund Prospectus.
Neither the Fund, 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. While this Agreement is in effect, the Company agrees that all amounts
available for investment
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under the Contracts shall be invested only in the Fund and/or allocated to
the Company's general account, provided that such amounts may also be
invested in an investment other than the Fund if:
(a) such other investment company is advised by the Fund's Investment
Manager;
(b) the Fund and/or the Distributor, in their sole discretion, consents to
the use of such other investment company;
(c) this Agreement is terminated pursuant to Article X of this Agreement.
The Company also agrees that it will not take any action to operate the Accounts
as management investment companies under the 1940 Act without the Fund's and
Distributor's prior written consent.
1.9. The Fund and the Distributor agree that Fund shares will be sold only to
Participating Insurance Companies, their separate accounts, and to certain
qualified pension plans, as may be permitted by Section 817 of the Internal
Revenue Code of 1986, as amended. The Fund and the Distributor will not sell
Fund shares to any insurance company, separate account, or qualified pension
plan unless an agreement containing provisions substantially the same as Article
VII of this Agreement, as it may be amended from time to time, is in effect to
govern such sales. No Fund shares of any Portfolio 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 (i) that the Contracts be offered and sold in compliance in all
material respects with all applicable Federal and state laws and (ii) that at
the time it is issued each Contract is a suitable purchase for the applicant
therefor under applicable state insurance laws.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly authorized each of its Accounts as a separate account under the
insurance law of its state of domicile, and has registered or, prior to the
issuance of any Contracts, will register the Accounts as unit investment trusts
in accordance with the provisions of the 1940 Act to serve as separate accounts
for the Contracts, and that such registration will be maintained for as long as
any Contracts are outstanding.
2.2. The Fund represents and warrants that Fund 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 a business trust
duly organized and in good standing under the laws of
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Massachusetts.
2.3. The Fund represents that each series currently qualifies and will make
every effort to continue to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
to maintain such qualification (under Subchapter M or any successor or similar
provision), and that the Fund 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.
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2.4. The Fund represents that each series currently complies with and will make
every effort to continue to comply with Section 817(h) (or any successor or
similar provision) of the Code, and all regulations issued thereunder, and that
the Fund 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.
2.5. 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 Massachusetts, to the extent required to perform this Agreement. 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
states.
2.7. The Distributor represents and warrants that the Distributor is duly
registered as a broker-dealer under the 1934 Act, is a member in good standing
with the NASD, and is 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 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.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS;
SALES MATERIAL AND OTHER INFORMATION
3.1 At least annually, the Fund or its designee shall provide the Company, free
of charge, with "camera ready" copy of the new prospectus as set in type, or,
at the request of the Company, as a diskette in the form sent to a financial
printer, and other assistance as is reasonably necessary in order for the
parties hereto once each year (or more frequently if the prospectus for the Fund
is supplemented or amended) to have the prospectus for the Contracts and the
prospectus for the shares printed together in one document. The Fund or its
designee shall bear the cost of printing and mailing the Fund's prospectus
portion of such document for distribution to Contract owners of existing
Contracts, and the Company shall bear the expenses of printing and mailing the
portion of such document relating to the Accounts; provided, however, that the
Company shall bear all printing expenses of such combined document where used
for distribution to prospective purchasers.
3.2 The Fund's prospectus shall state that the current Statement of Additional
Information ("SAI") for the Fund is available from the Distributor (or, in the
Fund's discretion, from the Fund),and the Distributor (or the Fund) at its
expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any Contract owner who requests
such SAI.
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3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners. The Fund or its designee shall bear the cost
of printing, duplicating, and mailing of these documents to current Contract
owners, and the Company shall bear the cost for such documents used for purposes
other than distribution to current Contract owners.
3.4. The Company shall furnish each piece of sales literature or other
promotional material in which the Fund or the Investment Manager or the
Distributor is named to the Fund and the Distributor prior to its use. No such
material shall be used, except with the prior written permission of the Fund and
the Distributor. The Fund and the Distributor agree to respond to any request
for approval on a prompt and timely basis. Failure to respond shall not 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 and the Distributor agree to respond to any request for
permission on a prompt and timely basis. Failure to respond shall not relieve
the Company of the obligation to obtain the prior written permission of the Fund
or the Distributor.
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, the Accounts
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 the 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. Failure to
respond shall not relieve the Fund or the Distributor of the obligation to
obtain the prior written permission of the Company.
3.7. Each party will provide to the other party copies of draft versions of any
registration statements, prospectuses, statements of additional information,
reports, proxy statements, 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.
3.8. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use, in
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a newspaper, magazine or other periodical, radio, television, telephone or
tape recording, videotape display, 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, 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 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, the Company shall:
(a) solicit voting instructions from Contract Owners;
(b) vote Fund shares of each Portfolio attributable to Contract Owners in
accordance with instructions or proxies timely received from such Contract
Owners;
(c) vote Fund shares of each Portfolio attributable to Contract Owners for
which no instructions have been received in the same proportion as Fund shares
of such Portfolio for which instructions have been timely received; and
(d) vote Fund shares of each Portfolio held by the Company on its own behalf or
on behalf of the Account that are not attributable to Contract Owners in the
same proportion as Fund shares of such Portfolio for which instructions have
been timely received.
The Company shall be responsible for assuring that voting privileges for the
Account are calculated in a manner consistent with the provisions set forth
above. The Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
4.2 Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
4.3 The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular the Fund will either provide for annual
meetings or comply with Section 16(c) of the 1940 Act (although the Fund is not
one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
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ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Distributor shall pay no fee or other compensation to the
Company under this Agreement, except that if the Fund or any Portfolio adopts
and implements a plan pursuant to Rule 12b-l under the 1940 Act to finance
distribution expenses, then the Distributor may make payments to the Company in
amounts agreed to by the Company and the Distributor in writing. The Fund
currently does not intend to make any payments to finance distribution expenses
pursuant to Rule 12b-l under the 1940 Act or in contravention of such rule,
although it may make payments pursuant to Rule 12b-l in the future. Nothing
herein shall prevent the parties from otherwise agreeing to perform, and
arranging for appropriate compensation for, other services relating to the Fund
and/or the Accounts.
5.2. 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 Sections 1.4 and 3.1 of this Agreement (or Article VII,
as it may be amended), the Company shall not bear any of the expenses for the
cost of registration and qualification of the Fund shares under Federal and any
state securities law, preparation and filing of the Fund Prospectus and Fund
Registration Statement, Fund proxy materials and reports, setting the Fund
Prospectus in type, setting in type and printing and distributing the Fund proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any Federal or state securities law, all taxes on the
issuance or transfer of Fund shares, and any expenses permitted to be paid or
assumed by the Fund pursuant to a plan, if any, under Rule 12b-l under the 1940
Act.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Sub-chapter M and Section 817(h) of the
Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statement under the
1933 Act and the 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 shares are sold the continuous offering of Fund shares as described in the
then currently effective Fund Prospectus. The Fund shall register and qualify
Fund 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 probable
that such Contract would be a "modified endowment contract," as that term is
defined in Section 7702A of the Code, will identify such Contract as a modified
endowment contract (or policy).
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6.5. To the extent that it decides to finance distribution expenses pursuant to
Rule 12b-l, the Fund undertakes to have a Board of Trustees, a majority of whom
are not interested persons of the Fund, formulate and approve any plan under
Rule 12b-l to finance distribution expenses.
ARTICLE VII. POTENTIAL CONFLICTS
The following provisions apply effective upon (a) the issuance of the Shared
Funding Exemptive Order, and (b) investment in the Fund by a separate account of
a Participating Insurance Company supporting variable life insurance contracts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing conflicts of which it is
aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E. annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by the
Company to disregard contract owner voting instructions and that decision
represents a minority position or would prelude a majority vote, the Company may
be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
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provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented, and until the end of
that six month period the Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until
the end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the company for the purchase (and redemption) of shares of
the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if fan offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determination by a majority of the disinterested
members of the Board.
7.7 If and to the extent the Shared Funding Order contains terms and conditions
different from Sections, 3.4, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with the Shared Funding
Exemptive Order, and Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4 and 7.5 of the
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in the Shared Funding
Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2
and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Shared Funding
Exemptive Order) on terms and conditions materially different from those
contained in the Shared Funding Exemptive Order, then (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5,
3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only
to the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
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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 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 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 furnished 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 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 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 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 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; or
(d) arise out of any material breach by the Company to provide the
services and furnish the materials required under the terms of this
Agreement, including but not limited to any failure to transmit a request
for redemption or purchase of Fund shares on a timely basis in accordance
with the procedures set forth in Article I.
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 wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
13
14
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 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 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 shares; or
((b) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact by the Distributor or the Fund (other than
statements or representations contained in the Fund Registration Statement,
Fund Prospectus or sales literature 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 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 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 of 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 material breach by the Distributor or the
Fund to provide the services and furnish the materials required under the
terms of this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification requirements
specified in Article VI 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 wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by
15
the party seeking indemnification.
16
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 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, provided that the omission to so notify the
indemnifying party will not relieve it from any liability under this Article
VIII, 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 VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
8.4 Limitation of Liability
Notwithstanding anything to the contrary above, Company and its respective
officers, directors, employees and agents shall not be responsible for, and the
Fund and the Distributor shall indemnify and hold harmless the Company from and
against any and all losses, damages, charges, costs, reasonable attorney's fees,
payments, expenses and liabilities arising out of or attributable to the
reasonable reliance on information, records or documents furnished by or on
behalf of the Distributor or the Fund. Without limiting the generality of the
foregoing, the Company shall not be liable for any error, delay, or failures to
provide services under this Agreement attributable, in whole or in part, to the
error, delay, or failure of the Distributor, the Fund or their agents in making
the daily net asset value per share of the Portfolios available to the Company.
17
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 Massachusetts, 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 six months advance written notice to
the other parties, such termination to be effective no earlier than one year
following the date on which the first Contract is issued to the public; or
(b) at the option of the Company if shares of any or all Portfolios are
not reasonably 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, said termination to be effective ten days after
receipt of notice unless the Fund makes available a sufficient number of Fund
shares to meet the requirements of the Contracts within said ten-day period; 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 the Account, the
administration of the Contracts or the purchase of Fund 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 meet and perform the
Company's obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal proceedings
against the Fund by the NASD, the SEC, or any state securities or insurance
commission or any other regulatory body; or
(e) upon requisite vote of the Contract Owners having an interest in the
affected Portfolio and the written approval of the Distributor (unless otherwise
required by applicable law), to substitute the shares of another investment
company for the corresponding Portfolio shares of the Fund in accordance with
the terms of the Contracts; or
(f) 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; or
(g) by either the Company or the Fund upon a determination by a majority
of the Board, or a
18
majority of disinterested Board members, that an irreconcilable material
conflict exists among the interests of (i) all Product owners or (ii) the
interests of the Participating Insurance Companies investing in the Fund; or
(h) at the option of the Company if any series of the Fund or 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 counsel satisfactory to the Fund that the series
or Fund may fail to so qualify and the Fund does not take reasonable steps to
ensure qualification; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(j) 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
(k) 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
(l) at the option of the Company, if (1) the Company shall determine, in
its sole judgment exercised in good faith, that the Fund or the Distributor
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 (2) the Company shall have notified the Fund in writing of such determination
and the basis therefore, and (3) after sixty (60) dates after notice the Company
again makes the same determination;
(m) upon the assignment of this Agreement (including, without limitation,
any transfer of the Contracts or the Account to another insurance company
pursuant to an assumption reinsurance agreement) unless the non-assigning party
consents thereto or unless this Agreement is assigned to an affiliate of the
Distributor; or
(n) at the option of Company, as one party, or the Fund and the
Distributor, as one party, upon the other party's material breach of any
provision of this Agreement.
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:
(a) In the event that any termination is based upon the provisions of
Article VII or the provisions
19
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; and
(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 be given at
least sixty (60) days before the date of any proposed vote to replace the Fund's
shares.
10.3. Except as necessary to implement Contract Owner initiated transactions,
or as required by state insurance laws or regulations, the Company shall not
redeem Fund shares attributable to the Contracts (as opposed to Fund shares
attributable to the Company's assets held in an Account).
10.4. Effect of Termination
(a) Notwithstanding any termination of this Agreement pursuant to Section
10.1 of this Agreement, the Fund and the Distributor may, at the option of the
Fund, continue to make available additional Fund shares for so long after the
termination of this Agreement as the Fund 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 Fund or Distributor so elects to make additional Fund 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 shares
available after such termination. If Fund 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 10.4, 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 10.4 shall not apply to any
termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
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 Separate Accounts investing in the Fund. The
provisions of this Agreement shall be equally applicable to each such
20
class of contracts or policies, unless the context otherwise requires.
21
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Fund:
The Palladian Trust
Attn: President
0000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, XX 00000
If to the Distributor:
Western Capital Financial Group, Inc.
Attn: President
0000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, XX 00000
If to the Company:
Xxxxxxx X. Xxxxxx
President
Allmerica Financial Life Insurance and Annuity Company
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
ARTICLE XIII. MISCELLANEOUS
13.1 All persons dealing with the Fund must look solely to the property of
such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither
the Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of
the Fund.
13.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written
consent of the affected party until such time as such information may come
into the public domain.
13.3 The captions in this Agreement are included for convenience of
reference only and in no way
22
define or delineate any of the provisions hereof or otherwise affect their
construction or effect.
23
13.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5 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.
13.6 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. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the Delaware Insurance Commissioner
with any information or reports in connection with services provided under
this Agreement which such Commissioner may request in order to ascertain
whether the variable annuity operations of the Company are being conducted
in a manner consistent with variable annuity laws and regulations and any
other applicable law or regulations.
13.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
13.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
13.9 A copy of the Fund's Declaration of Trust is on file with the Secretary
of the Commonwealth of Massachusetts. The Declaration of Trust has been
executed on behalf of the Fund by certain Trustees in their capacity as
Trustees of the Trust and not individually. All persons dealing with the
Fund must look solely to the property of the Fund for the enforcement of any
claims against the Fund as neither the Board, officers, agents, or
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.
24
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Title: President
----------------------------------
Date: 10/16/96
-----------------------------------
FUND: THE PALLADIAN TRUST
By: /s/ M. Xxxxxxx Xxxxxxxx
-------------------------------------
Title: President
----------------------------------
Date: 10/24/96
-----------------------------------
DISTRIBUTOR: WESTERN CAPITAL FINANCIAL GROUP, INC.
By: /s/ M. Xxxxxxx Xxxxxxxx
-------------------------------------
Title: President
----------------------------------
Date: 10/24/96
-----------------------------------
25
SCHEDULE A
Name of Separate Account
(Date Authorized
By Board of Directors) Contracts Designated Portfolios
---------------------- --------- ---------------------
Fulcrum Separate Account Policy Form 3025-96/8025-96 Value Portfolio
(June 13, 1996) Growth Portfolio
International Growth
Portfolio
Global Strategic Income
Portfolio
Global
Interactive/Telecomm
Portfolio
Fulcrum Variable Life Value Portfolio
Separate Account Growth Portfolio
(June 13, 1996) International Growth
Portfolio
Global Strategic Income
Portfolio
Global
Interactive/Telecomm
Portfolio
26
27
